bbdbook3q14_6k.htm - Generated by SEC Publisher for SEC Filing


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of November, 2014
Commission File Number 1-15250
 

 
BANCO BRADESCO S.A. 
(Exact name of registrant as specified in its charter)
 
BANK BRADESCO
(Translation of Registrant's name into English)
 
Cidade de Deus, s/n, Vila Yara
06029-900 - Osasco - SP
Federative Republic of Brazil
(Address of principal executive office)
 
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.  Form 20-F ___X___ Form 40-F _______

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

Yes _______ No ___X____

 .


 
 

Table of Contents     

 

Table of Contents

 

1 - Press Release

3

Highlights

4

Main Information

6

Ratings

8

Book Net Income vs. Adjusted Net Income

8

Summarized Analysis of Adjusted Income

9

Economic Scenario

23

Main Economic Indicators

24

Guidance

25

Book Income vs. Managerial Income vs. Adjusted Income Statement

26

2 - Economic and Financial Analysis

31

Statement of Financial Position

32

Adjusted Income Statement

33

NII - Interest and Non-Interest Earning Portions

33

– NII – Interest Earning Portion

34

• Credit Margin – Interest Earning Operations

36

• Funding Margin – Interest Earning Operations

51

• Securities/Other Margin - Interest Earning Operations

56

• Insurance Margin - Interest Earning Operations

56

– NII - Non-Interest Earning Portion

57

Insurance, Pension Plans and Capitalization Bonds

58

– Bradesco Vida e Previdência

65

– Bradesco Saúde and Mediservice

67

– Bradesco Capitalização

68

– Bradesco Auto/RE and Atlântica Companhia de Seguros

70

Fee and Commission Income

72

Personnel and Administrative Expenses

78

– Operating Coverage Ratio

81

Tax Expenses

81

Equity in the Earnings (Losses) of Unconsolidated Companies

81

Operating Income

82

Non-Operating Income

82

3 - Return to Shareholders

83

Corporate Governance

84

Investor Relations – IR

84

Sustainability

84

Bradesco Shares

86

Market Capitalization

89

Main Indicators

90

Dividends/Interest on Shareholders’ Equity

91

Weight on Main Stock Indexes

91

4 - Additional Information

93

Market Share of Products and Services

94

Reserve Requirements

95

Investments in Infrastructure, Information Technology and Telecommunications

96

Risk Management

97

Capital Management

98

Capital Adequacy Ratio

99

5 - Independent Auditors’ Report

101

Independent Limited Assurance Report about Supplementary Accounting Information Included within the Economic and Financial Analysis Report

102

6 - Financial Statements, Independent Auditors’ Report on the Consolidated Interim Financial Statements and Fiscal Council’s Report

105

 

Bradesco    1  

 


 
 

        

 

Forward-Looking Statements

 

This Economic and Financial Analysis Report contains forward-looking statements related to our business. Such statements are based on management’s current expectations, estimates and projections concerning future events and financial trends that may affect our business. Words such as “believe”, “anticipate”, “plan”, “expect”, “intend”, “goal”, “estimate”, “forecast”, “predict”, “project”, “guidelines”, “should” and other similar expressions are used to indicate predicting statements. However, forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties that may be beyond our control. In addition, some forward-looking statements are based on assumptions which, depending on future events, may prove not to be accurate. Therefore, actual results may differ significantly from the plans, goals, expectations, projections and intentions expressed or implied in such statements.

The factors that may impact the actual results include, among others, changes in regional, national and international trade and economic policies; inflation; an increased number of defaults by borrowers in loan operations, with a consequent increase in the allowance for losses from loan operations; loss of ability to receive deposits; loss of customers or revenues; our ability to sustain and improve performance; changes in interest rates which may, among other things, adversely affect our margins; competition in the banking industry, financial services, credit card services, insurance, asset management and other related industries; government regulation and fiscal affairs; disputes or adverse legal proceedings or regulations; and credit and other risks involved in lending and investment activities.

As a result, one should not rely excessively on these forward-looking statements. The statements are valid only for the date on which they were drafted. Except as required by applicable law, we do not assume any obligation to update these statements as a result of new information, future developments or any other matters which may arise.

 

 

 

 

Some numbers included in this report have been subjected to rounding adjustments.

As a result, some amounts indicated as total amounts in some charts may not be the arithmetic sum

of the preceding numbers.

 

  2  Report on Economic and Financial Analysis – September 2014

 

 


 
 


 
 

       Press Release

 

Highlights

The main figures obtained by Bradesco in the first three quarters of 2014 are presented below:

1.   The Adjusted Net Income(1) in the first three quarters of 2014 stood at R$ 11.227 billion (a 24.7% increase compared to the R$ 9.003 billion Adjusted Net Income recorded in the same period of 2013), corresponding to earnings per share of R$ 3.44, and Return of 20.4% on the Average Adjusted Shareholder’s Equity(2).

2.   As for the source, the Adjusted Net Income is composed of R$ 8.057 billion from financial activities, representing 71.8% of the total, and of R$ 3.170 billion from insurance, pension plan and capitalization bond operations, which together account for 28.2%.

3.   On September 30, 2014, Bradesco market value stood at R$ 146.504 billion(3), showing a growth of 7.6% over September 30, 2013.

4.   Total Assets, in September 2014, stood at R$ 987.364 billion, an increase of 8.8% over September 2013 balance. The return on Average Total Assets was 1.6%.

5.   In September 2014, the Expanded Loan Portfolio(4) reached R$ 444.195 billion, up 7.7% over September 2013. Operations with individuals totaled R$ 138.028 billion (increase of 8.6% over September 2013), while corporate segment operations totaled R$ 306.167 billion (up 7.2% over September 2013).

6.   Assets under Management stood at R$ 1.385 trillion, a 10.3% increase from September 2013.
 

7.   The Shareholders’ Equity totaled R$ 79.242 billion in September 2014, 18.2% more than in September 2013. The Basel Capital Adequacy Ratio stood at 16.3% in September 2014, 12.6% of which was classified as Common Equity/Tier I.

8.   A total of R$ 3.760 billion were paid and recorded in provision to shareholders, as Interest on Equity and Dividends for the first three quarters of 2014, R$ 1.575 billion of which as paid monthly and interim dividends, and R$ 2.185 billion recorded in provision.

9.   The Interest Earning Portion of the Net Interest Income stood at R$ 35.043 billion, up 10.5% compared to the first three quarters of 2013.

10. The Delinquency Ratio over 90 days remained stable in the last twelve months, and stood at 3.6% on September 30, 2014.

11. The Operating Efficiency Ratio (ER)(5) in September 2014 was 39.9%, the best level ever recorded (42.1% in September 2013), while in the “risk-adjusted” concept it stood at 48.7% (52.5% in September 2013). It is worth mentioning that, in the third quarter of 2014, we recorded the best quarterly ER (38.5%) in the past 5 years.

12. Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income totaled R$ 38.346 billion in the first three quarters of 2014, up 8.8% over the same period in 2013. Technical Reserves stood at R$ 145.969 billion, an increase of 9.3% compared to September 2013 balance.

13. Investments in infrastructure, information technology and telecommunications amounted to R$ 3.471 billion in the first three quarters of 2014.
 

14.Taxes and contributions, including social security, paid or recorded in provision, summed R$ 18.438 billion, R$ 7.244 billion of which referred to taxes withheld and collected from third parties, and R$ 11.194 billion calculated based on activities developed by Bradesco Organization, equivalent to 99.7% of the Adjusted Net Income(1).
 

15. Bradesco has a large Customer Service network in Brazil, with highlight to the 4,659 Branches and 3,497 Service Points – PAs. Customers can also count with 1,159 Electronic Service Points - PAEs, 49,020 Bradesco Expresso points, 31,107 Bradesco Dia & Noite (Day&Night) ATMs, and 16,946 Banco24Horas Network ATMs.

(1) According to the non-recurring events described on page 8 of this Report on Economic and Financial Analysis; (2) Excludes mark-to-market effect of Securities Available for Sale recorded under Shareholders’ Equity; (3) Number of shares (excluding treasury shares) multiplied by the closing price for common and preferred shares on the last trading day of the period; (4) Includes sureties and guarantees, letters of credit, advances of credit card receivables, co-obligations in loan assignments (receivables-backed investment funds and mortgage-backed receivables), co-obligations in rural loan assignments and operations bearing credit risk – commercial portfolio, which includes debentures and promissory notes; and (5) In the last 12 months. 

 

  4  Report on Economic and Financial Analysis – September 2014


 
 

Press Release                       

Highlights

16.Payroll, plus charges and benefits, totaled R$ 8.670 billion. Social benefits provided to all 98,849 employees of Bradesco Organization and their dependents amounted to R$ 2.140 billion, while investments in education, training and development programs totaled R$ 93.760 million.

17. In July 2014, Bradesco’s internal audit process was awarded the Certificate of Quality by the Institute of Internal Auditors (IIA), institution present in more than 130 countries, qualified to rate and grant Certification of Quality to Internal Audits.

18. In September 2014, for the ninth consecutive year, Bradesco was chosen to join the Dow Jones Sustainability Index (DJSI), in the “Dow Jones Sustainability World Index” and “Dow Jones Sustainability Emerging Markets” portfolios, a short list of the New York Stock Exchange that comprises the top companies for corporate sustainability practices.

19.  Major Awards and Acknowledgments in the period:

·       It was considered the most valuable Bank brand in Latin America and came 5th in the overall ranking among all the segments (BrandAnalytics/Millward Brown consultancy);

·       Bradesco was granted the title in the category “Banks”, and Bradesco Seguros in the category “Insurances”, in the “Anuário Época Negócios 360º”, ranking that listed the top 250 companies in the country (Época Negócios Magazine, in partnership with Dom Cabral Foundation);

·       It was granted the “Technology Awards 2014”, in the category “Social Media”, with the case “F. Banking Bradesco - Investimentos e Crédito” via Facebook; and

·       For the 15th time, it appeared in the annual list of the “130 Melhores Empresas para Trabalhar no Brasil” [130 Top Companies to Work in Brazil] (Época Magazine, with rating by the Great Place to Work Institute).

The Bradesco Organization fully complies 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 guided 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 geared towards valuing professionals, improving the workplace, client relations, managing suppliers and adopting environmental management practices. We also highlight the Organization’s role in Brazilian society as one of its leading social investors, supporting education, environment, culture and athletic programs.
We point out Bradesco Foundation, which has been developing an extensive social and educational work for 57 years, with 40 schools in Brazil. Its 2014 budget is foreseen at R$ 523.434 million, of which R$ 71.095 million are intended to expand classrooms for High School restructuring and R$ 452.339 million that will allow it to provide free quality education: a) 105,672 students in its Schools, in the following levels: Basic Education (from Kindergarten to High School and Vocational Training), Youth and Adult Education and in Preliminary and Continuing Training focused on creating jobs and income; b) 370,000 students who will complete at least one of the distance-learning courses (EaD) available on the e-learning portal; and c) 21,527 beneficiaries in partnership projects and initiatives, such as the Digital Inclusion Centers (CIDs), the Educa+Ação Program, and in technology courses (Educar e Aprender). In addition to free formal and quality education, the approximately 45 thousand students enrolled in Basic Education are also provided with uniforms, school supplies, food and medical and dental assistance.

Bradesco    5      


 
 

       Press Release

 

Main Information

 

 

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

Variation %

 

3Q14 x 2Q14

3Q14 x 3Q13

Income Statement for the Period - R$ million

 

 

 

 

 

 

 

 

 

 

Book Net Income

3,875

3,778

3,443

3,079

3,064

2,949

2,919

2,893

2.6

26.5

Adjusted Net Income

3,950

3,804

3,473

3,199

3,082

2,978

2,943

2,918

3.8

28.2

Total Net Interest Income

12,281

12,066

10,962

11,264

10,729

10,587

10,706

11,109

1.8

14.5

Gross Credit Margin

8,249

7,967

7,711

7,850

7,793

7,634

7,414

7,527

3.5

5.9

Net Credit Margin

4,901

4,826

4,850

4,889

4,912

4,540

4,305

4,317

1.6

(0.2)

Provision for Loan Losses (ALL) Expenses

(3,348)

(3,141)

(2,861)

(2,961)

(2,881)

(3,094)

(3,109)

(3,210)

6.6

16.2

Fee and Commission Income

5,639

5,328

5,283

5,227

4,977

4,983

4,599

4,675

5.8

13.3

Administrative and Personnel Expenses

(7,192)

(7,023)

(6,765)

(7,313)

(6,977)

(6,769)

(6,514)

(6,897)

2.4

3.1

Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income

12,904

13,992

11,450

14,492

11,069

13,238

10,953

13,216

(7.8)

16.6

Statement of Financial Position - R$ million

 

 

 

 

 

 

 

 

 

 

Total Assets

987,364

931,132

922,229

908,139

907,694

896,697

894,467

879,092

6.0

8.8

Securities

343,445

333,200

321,970

313,327

313,679

309,027

300,600

315,487

3.1

9.5

Loan Operations (1)

444,195

435,231

432,297

427,273

412,559

402,517

391,682

385,529

2.1

7.7

- Individuals

138,028

135,068

132,652

130,750

127,068

123,260

119,013

117,319

2.2

8.6

- Corporate

306,167

300,163

299,645

296,523

285,490

279,257

272,668

268,210

2.0

7.2

Allowance for Loan Losses (ALL) (2)

(22,623)

(21,791)

(21,407)

(21,687)

(21,476)

(21,455)

(21,359)

(21,299)

3.8

5.3

Total Deposits

211,882

213,270

218,709

218,063

216,778

208,485

205,870

211,858

(0.7)

(2.3)

Technical Reserves

145,969

142,731

137,751

136,229

133,554

131,819

127,367

124,217

2.3

9.3

Shareholders' Equity

79,242

76,800

73,326

70,940

67,033

66,028

69,442

70,047

3.2

18.2

Assets under Management

1,385,135

1,304,690

1,277,670

1,260,056

1,256,220

1,233,546

1,243,170

1,225,228

6.2

10.3

Performance Indicators (%) on Adjusted Net Income (unless otherwise stated)

 

 

 

 

 

 

 

 

Adjusted Net Income per Share - R$ (3) (4)

3.44

3.23

3.03

2.91

2.84

2.79

2.77

2.74

6.5

21.1

Book Value per Common and Preferred Share - R$ (4)

18.89

18.31

17.48

16.90

15.97

15.72

16.54

16.68

3.2

18.3

Annualized Return on Average Equity (5) (6)

20.4

20.7

20.5

18.0

18.4

18.8

19.5

19.2

(0.3) p.p.

2.0 p.p.

Annualized Return on Average Assets (6)

1.6

1.6

1.5

1.4

1.3

1.3

1.3

1.4

-

0.3 p.p.

Average Rate - Annualized (Adjusted Net Interest Income / Total Average Assets - Purchase and Sale Commitments - Permanent Assets)

7.6

7.8

7.2

7.3

7.1

7.2

7.3

7.6

(0.2) p.p.

0.5 p.p.

Fixed Assets Ratio - Total Consolidated

13.0

13.2

15.0

15.2

17.5

17.3

16.5

16.9

(0.2) p.p.

(4.5) p.p.

Combined Ratio - Insurance (7)

86.5

86.3

86.4

86.1

86.9

85.5

86.0

86.6

0.2 p.p.

(0.4) p.p.

Efficiency Ratio (ER) (3)

39.9

40.9

41.9

42.1

42.1

41.8

41.5

41.5

(1.0) p.p.

(2.2) p.p.

Coverage Ratio (Fee and Commission Income/Administrative and Personnel Expenses) (3)

75.9

74.1

73.6

71.8

70.8

69.6

67.7

66.5

1.8 p.p.

5.1 p.p.

Market Capitalization - R$ million (8)

146,504

134,861

135,938

128,085

136,131

124,716

145,584

131,908

8.6

7.6

Loan Portfolio Quality % (9)

 

 

 

 

 

 

 

 

 

 

ALL / Loan Portfolio (2)

6.7

6.6

6.5

6.7

6.9

7.0

7.2

7.3

0.1 p.p.

(0.2) p.p.

Non-performing Loans (> 60 days (10) / Loan Portfolio)

4.4

4.4

4.2

4.2

4.4

4.6

4.9

5.0

-

-

Delinquency Ratio (> 90 days (10) / Loan Portfolio)

3.6

3.5

3.4

3.5

3.6

3.7

4.0

4.1

0.1 p.p.

-

Coverage Ratio (> 90 days (10)) (2)

187.2

186.9

193.8

192.3

190.3

188.6

179.4

178.2

0.3 p.p.

(3.1) p.p.

Coverage Ratio (> 60 days (10)) (2)

154.2

149.9

153.7

158.9

156.8

153.5

146.0

147.3

4.3 p.p.

(2.6) p.p.

Operating Limits %

 

 

 

 

 

 

 

 

 

 

Capital Adequacy Ratio - Total (11)

16.3

15.8

15.7

16.6

16.4

15.4

15.6

16.1

0.5 p.p.

(0.1) p.p.

Capital Nivel I

12.6

12.1

11.9

12.3

12.7

11.6

11.0

11.0

0.5 p.p.

(0.1) p.p.

- Common Equity

12.6

12.1

11.9

12.3

-

-

-

-

0.5 p.p.

-

Capital Nível II

3.7

3.7

3.8

4.3

3.7

3.8

4.6

5.1

-

-

  6  Report on Economic and Financial Analysis – September 2014


 
 

Press Release                       

 

Main Information

 

Sept14

Jun14

Mar14

Dec13

Sept13

Jun13

Mar13

Dec12

Variation %

 

Sept14 x Jun14

Sept14 x Sept13

Structural Information - Units

 

 

 

 

 

 

 

 

 

 

Service Points

74,028

73,208

73,320

72,736

71,724

70,829

69,528

68,917

1.1

3.2

- Branches

4,659

4,680

4,678

4,674

4,697

4,692

4,687

4,686

(0.4)

(0.8)

- PAs (12)

3,497

3,497

3,484

3,586

3,760

3,795

3,786

3,781

-

(7.0)

- PAEs (12)

1,159

1,175

1,186

1,180

1,421

1,454

1,457

1,456

(1.4)

(18.4)

- External Bradesco ATMs (13) (14)

1,398

1,684

2,701

3,003

3,298

3,498

3,712

3,809

(17.0)

(57.6)

- Banco24Horas Network ATMs (13)

12,213

12,023

11,873

11,583

11,229

11,154

10,966

10,818

1.6

8.8

- Bradesco Expresso (Correspondent Banks)

49,020

48,186

47,430

46,851

45,614

44,819

43,598

43,053

1.7

7.5

- Bradesco Promotora de Vendas

2,068

1,949

1,955

1,846

1,692

1,404

1,309

1,301

6.1

22.2

- Branches / Subsidiaries Abroad

14

14

13

13

13

13

13

13

-

7.7

ATMs

48,053

47,612

48,295

48,203

47,969

47,972

48,025

47,834

0.9

0.2

- Bradesco Network

31,107

31,509

32,909

33,464

33,933

34,322

34,719

34,859

(1.3)

(8.3)

- Banco24Horas Network

16,946

16,103

15,386

14,739

14,036

13,650

13,306

12,975

5.2

20.7

Employees

98,849

99,027

99,545

100,489

101,410

101,951

102,793

103,385

(0.2)

(2.5)

Outsourced Employees and Interns

12,896

12,790

12,671

12,614

12,699

12,647

13,070

12,939

0.8

1.6

Customers - in millions

 

 

 

 

 

 

 

 

 

 

Active Checking Account Holders (15) (16)

26.6

26.5

26.6

26.4

26.4

26.2

25.8

25.7

0.4

0.8

Savings Accounts (17)

52.9

51.8

49.0

50.9

48.3

47.7

46.6

48.6

2.1

9.5

Insurance Group

46.3

45.5

45.3

45.7

45.3

44.2

42.9

43.1

1.8

2.2

- Policyholders

40.5

39.6

39.4

39.8

39.5

38.4

37.1

37.3

2.3

2.5

- Pension Plan Participants

2.4

2.4

2.4

2.4

2.4

2.4

2.3

2.3

-

-

- Capitalization Bond Customers

3.4

3.5

3.5

3.5

3.4

3.4

3.5

3.5

(2.9)

-

Bradesco Financiamentos (15)

3.1

3.2

3.2

3.3

3.4

3.5

3.6

3.7

(3.1)

(8.8)

(1) Expanded Loan Portfolio: includes sureties and guarantees, letters of credit, advances of credit card receivables, co-obligations in loan assignments (receivables-backed investment funds and mortgage-backed receivables), co-obligations in rural loan assignments and operations bearing credit risk – commercial portfolio, covering debentures and promissory notes;

(2) Includes provision for guarantees provided, encompassing sureties, guarantees, letters of credit, and standby letter of credit, which comprises the concept of “excess” ALL;

(3) In the last 12 months;

(4) For comparison purposes, shares were adjusted in accordance with bonuses and stock splits;

(5) Excluding mark-to-market effect of Securities Available for Sale recorded under Shareholders’ Equity;

(6) Year-to-Date Adjusted Net Income;

(7) Excludes additional reserves;

(8) Number of shares (excluding treasury shares) multiplied by the closing price for common and preferred shares on the period’s last trading day;

(9) As defined by the Brazilian Central Bank (Bacen);

(10) Delinquent Credits;

(11) Since October 2013, the Capital Adequacy Ratio calculation follows regulatory guidelines set forth in CMN Resolutions No. 4.192/13 and 4.193/13 Capital Adequacy Ratio (Basel III);

(12) PA (Service Branch): a result of the consolidation of PAB (Banking Service Branch), PAA (Advanced Service Branch) and Exchange Branches, according to CMN Resolution No. 4.072/12; and PAEs – ATMs located on a company’s premises;

(13) Including overlapping ATMs within the Bank’s own network and the Banco24Horas Network;

(14) Such reduction relates to the sharing of external network ATM terminals by the Banco24Horas ATM network;

(15) Number of individual customers (Corporate Tax IDs (CNPJs) and Individual Taxpayer IDs (CPFs));

(16) Refers to first and second checking account holders; and

(17) Number of accounts.

Bradesco    7      


 

 

 

       Press Release

 

Ratings

Main Ratings

 

Fitch Ratings

International Scale

Domestic Scale

Feasibility

Support

Domestic Currency

Foreign Currency

Domestic

a -

2

Long Term

Short Term

Long Term

Short Term

Long Term

Short Term

A -

F1

BBB +

F2

AAA (bra)

F1 + (bra)

*

 

 

 

 

 

 

 

Moody´s Investors Service

Financial Strength / Individual Credit Risk Profile

International Scale

Domestic Scale

C - / baa1

Foreign Currency Senior Debt

Domestic Currency Deposit

Foreign Currency Deposit

Domestic Currency

Long Term

Long Term

Short Term

Long Term

Short Term

Long Term

Short Term

Baa1

Baa1

P - 2

Baa2

P-2

Aaa.br

BR - 1

 

*

               

Standard & Poor's

Austin Rating

International Scale - Issuer's Credit Rating

Domestic Scale

Corporate Governance

Domestic Scale

Foreign Currency

Domestic Currency

Issuer's Credit Rating

Long Term

Short Term

Long Term

Short Term

Long Term

Short Term

Long Term

Short Term

brAA+

brAAA

brA -1

BBB -

A - 3

BBB -

A - 3

brAAA

brA - 1 + (1)

(1)   In September 2014, the rating agency Standard & Poor’s raised the nationwide short-term rating of Bradesco to the highest level in its scale (brA-1+). This action reflects the update performed by the agency of its rating criterion nationwide.

 

Book Net Income vs. Adjusted Net Income

The main non-recurring events that affected Book Net Income in the periods below are presented in the following comparative chart:

 

 

 

 

R$ million

 

9M14

9M13

3Q14

2Q14

Book Net Income

11,096

8,932

3,875

3,778

 

 

 

 

 

Non-Recurring Events

131

71

75

26

- Reversal of provision for tax contingencies (1)

(1,378)

-

(1,378)

-

- Impairment of assets (2)

598

-

598

-

- Provision for labor contingencies (3)

488

-

488

-

- Provision for tax contingencies (4)

212

-

212

-

- Other (5)

294

118

201

43

- Tax Effects

(83)

(47)

(46)

(17)

 

 

 

 

   

Adjusted Net Income

11,227

9,003

3,950

3,804

  0

   

 

 

ROAE % (6)

20.2

18.3

21.5

21.7

  0

 

 

 

 

(ADJUSTED) ROAE % (6)

20.4

18.4

22.0

21.9

(1)   The first three quarters of 2014 and the third quarter of 2014 include the reversal of provision for tax risks related to the Cofins case, which ended favorable to the Organization;

(2)   It refers, in 9M14 and 3Q14, to the impairment of Securities - Shares, classified as Available for Sale, resulting from the acknowledgment of impairment in shares of Banco Espírito Santo S.A. (BES);

(3)   The first three quarters of 2014 and the third quarter of 2014 include the improvement of the calculation method;

(4)   The first three quarters of 2014 and the third quarter of 2014 include a provision for tax risks relating to the PIS-EC 17/97 case;

(5)   It basically refers, in 9M14 and 3Q14, to constitution of civil provisions; and

(6)   Annualized.

 

 

  8  Report on Economic and Financial Analysis – September 2014


 
 

Press Release                       

 

Summarized Analysis of Adjusted Income

To provide for better understanding, comparison and analysis of Bradesco results, we use the Adjusted Income Statement for analysis and comments contained in this Report on Economic and Financial Analysis, obtained from adjustments made to the Book Income Statement, detailed at the end of this Press Release, which includes adjustments to non-recurring events shown on the previous page. Note that the Adjusted Income Statement serves as the basis for the analysis and comments made in Chapters 1 and 2 of this report.

 

 

 

 

 

 

 

 

R$ million

 

Adjusted Income Statement

 

9M14

9M13

Variation

3Q14

2Q14

Variation

 

9M14 x 9M13

3Q14 x 2Q14

 

Amount

%

Amount

%

Net Interest Income

35,309

32,022

3,287

10.3

12,281

12,066

215

1.8

- Interest Earning Portion

35,043

31,700

3,343

10.5

12,238

11,854

384

3.2

- Non-interest Earning Portion

266

322

(56)

(17.4)

43

212

(169)

(79.7)

ALL

(9,350)

(9,084)

(266)

2.9

(3,348)

(3,141)

(207)

6.6

Gross Income from Financial Intermediation

25,959

22,938

3,021

13.2

8,933

8,925

8

0.1

Income from Insurance, Pension Plans and Capitalization Bonds (1)

3,684

3,283

401

12.2

1,170

1,270

(100)

(7.9)

Fee and Commission Income

16,250

14,559

1,691

11.6

5,639

5,328

311

5.8

Personnel Expenses

(10,291)

(9,596)

(695)

7.2

(3,564)

(3,448)

(116)

3.4

Other Administrative Expenses

(10,689)

(10,664)

(25)

0.2

(3,628)

(3,575)

(53)

1.5

Tax Expenses

(3,416)

(3,127)

(289)

9.2

(1,182)

(1,120)

(62)

5.5

Companies

130

17

113

664.7

43

35

8

22.9

Other Operating Income/ (Expenses)

(4,035)

(3,511)

(524)

14.9

(1,311)

(1,333)

22

(1.7)

Operating Result

17,592

13,899

3,693

26.6

6,100

6,082

18

0.3

Non-Operating Result

(115)

(89)

(26)

29.2

(45)

(34)

(11)

32.4

Income Tax / Social Contribution

(6,161)

(4,729)

(1,432)

30.3

(2,075)

(2,215)

140

(6.3)

Non-controlling Interest

(89)

(78)

(11)

14.1

(30)

(29)

(1)

3.4

Adjusted Net Income

11,227

9,003

2,224

24.7

3,950

3,804

146

3.8

(1)   Income from Insurance, Pension Plans and Capitalization Bonds = Insurance, Pension Plan and Capitalization Bond Retained Premiums – Changes in Technical Reserves for Insurance, Pension Plans and Capitalization Bonds – Retained Claims – Capitalization Bond Draws and Redemption – Insurance, Pension Plan and Capitalization Bond Sales Expenses.

Bradesco    9      


 
 

       Press Release

 

Summarized Analysis of Adjusted Income

Adjusted Net Income and Profitability

The return on the Average Adjusted Shareholder’s Equity (ROAE) reached 20.4% in September 2014. Such performance stems from the growth of the adjusted net income, which increased by 3.8% in the quarterly comparison, and 24.7% comparing the first three quarters of 2014 with the same period of the previous year. The main events that affected adjusted net income are detailed below.

Adjusted net income came to R$ 3,950 million in the third quarter of 2014, up R$ 146 million compared to the previous quarter, mainly due to (i) higher income from provision of services, resulting from an increased business volume and extended service channels; (ii) higher net interest income, a result of increased income with “interests” earning portion; and partially affected by: (iii) growth of expense with allowance for loan losses; and (iv) increased personal expenses, which mainly results from collective agreement.

Year-over-year, adjusted net income for the first three quarters of 2014 increased by R$ 2,224 million, basically reflecting: (i) higher net interest income; (ii) greater fee and commission income; (iii) better operating income of Insurances, Pension Plan and Capitalization Bond; and affected, in part, by: (iv) higher personnel expenses.

Shareholders’ Equity stood at R$ 79,242 million in September 2014, up 18.2% over September 2013. The Capital Adequacy Ratio recorded 16.3%, 12.6% of which was classified as Common Equity/Tier I.

Total Assets stood at R$ 987,364 million in September 2014, an increase of 8.8% over September 2013, driven by the increased business volume. Return on Average Assets (ROAA) reached 1.6%.

  10  Report on Economic and Financial Analysis – September 2014


 
 

Press Release                       

 

Summarized Analysis of Adjusted Income

Efficiency Ratio (ER)

The ER improved in all calculation criteria presented. Highlight to the ER in the last 12 months(1), reaching 39.9% in the third quarter of 2014, the lowest level ever recorded, with improvement of 1.0 p.p. compared with the previous quarter, and 2.2 p.p. over the same period of 2013, and the quarterly ER that stood at 38.5%. The events that have most contributed to this improvement in the ER were: (i) the income growth, with highlight to (a) provision of services and (b) net interest income - influenced by the increase in the average business volume; and (ii) the behavior of operating expenses, affected by the rigid costs control, even considering the organic growth in the period and the impact of 2013 and 2014 collective agreements, in addition to the benefits of new systems that came into operation in due to the IT upgrading process.

The “risk-adjusted” ER, which reflects the risk’s impact associated to loan operations(2), totaled 48.7%, an improvement of 1.3 p.p. and 3.8 p.p. compared to the previous quarter and the same period in 2013, respectively. Such improvement was mostly influenced by the stabilization of the levels of allowances for loan loss expenses in the last 12 months, resulting from the sustained loan portfolio quality, in addition to the aforementioned reasons.

(1)   ER = (Personnel Expenses – Employee Profit Sharing + Administrative Expenses)/(Net Interest Income + Fee and Commission Income + Income from Insurance + Equity in the Earnings (Losses) of Unconsolidated Companies + Other Operating Income – Other Operating Expenses). If we considered the ratio between (i) total administrative costs (Personnel Expenses + Administrative Expenses + Other Operating Expenses + Tax Expenses not related to income generation + Insurance Sales Expenses) and (ii) net income generation of related taxes (not considering Insurance Claims and Sales Expenses), our ER accumulated in the last 12 months in the third quarter of 2014 would be 43.7%; and

(2)   Including ALL expenses, adjusted for discounts granted, loan recovery and sale of foreclosed assets, among others.

 

Bradesco    11      


 
 

       Press Release

 

Summarized Analysis of Adjusted Income

Net Interest Income

In the quarter-over-quarter comparison, the R$ 215 million growth was mainly due to: (i) higher results obtained with the “interest” margin totaling R$ 384 million, particularly with “Loan” and “Securities/Other”; and offset (ii) by the reduction of the “non-interest” margin totaling R$ 169 million, due to lower gains from the market arbitrage.

Year-over-year, the net interest income for the first three quarters of 2014 rose by R$ 3,287 million, mainly due to: (i) a R$ 3,343 million increase in interest earning operations, due to an increase in business volume, particularly in the Loan and Funding business lines, and in the latter case, cost-reduction management.

  12  Report on Economic and Financial Analysis – September 2014


 
 

Press Release                       

 

Summarized Analysis of Adjusted Income

NII - Interest Earning Portion – Annualized Average Rates

 

 

 

 

 

 

 

R$ million

 

9M14

9M13

 

Interest

Average
Balance

Average Rate

Interest

Average
Balance

Average Rate

Loans

23,926

338,308

9.5%

22,841

307,983

10.0%

Funding

4,610

371,005

1.7%

3,332

333,559

1.3%

Insurance

3,050

140,896

2.9%

2,651

129,721

2.7%

Securities/Other

3,457

336,617

1.4%

2,876

307,431

1.2%

0

  

 

 

 

 

 

Net Interest Income

35,043

-

7.2%

31,700

-

6.9%

  0

              

 

3Q14

2Q14

 

Interest

Average
Balance

Average Rate

Interest

Average
Balance

Average Rate

Loans

8,249

340,395

10.1%

7,967

339,341

10.1%

Funding

1,625

373,221

1.8%

1,570

365,285

1.8%

Insurance

1,005

144,792

2.8%

1,081

141,206

3.2%

Securities/Other

1,359

339,591

1.6%

1,236

324,770

1.6%

0

 

 

 

 

 

 

Net Interest Income

12,238

-

7.5%

11,854

-

7.7%

 

 

The annualized interest financial margin rate stood at 7.5% in the third quarter of 2014, down 0.2 p.p. on the previous quarter, mainly due to the results obtained from Insurance interest margins.

 

 

Bradesco    13      


 
 

       Press Release

 

Summarized Analysis of Adjusted Income

Expanded Loan Portfolio(1)

In September 2014, Bradesco expanded loan portfolio totaled R$ 444.2 billion. The increase of 2.1% in the quarter was a result mostly: (i) of the portfolio of Corporations, which represented a growth of 2.6%; and (ii) of Individuals, whose growth stood at 2.2%.

In the last twelve months, the portfolio increased by 7.7%: (i) 10.1% in Corporations; (ii) 8.6% in Individuals; and (iii) 2.7% in SMEs

In the Corporate segment, the products that posted the strongest growth in the last 12 months were: (i) real estate financing; and (ii) foreign transactions. For Individuals, the highlights were: (i) real estate financing; and (ii) payroll-deductible loan. In the two segments, the higher increase is related to products with lower risk.

(1)   In addition to Bacen loan portfolio, it includes sureties, guarantees, letters of credit, advances of credit card receivables, debentures, promissory notes, co-obligation in receivables-backed investment funds, mortgage-backed receivables, and farm loans.

For more information, see Chapter 2 of this Report.

 

Allowance for Loan Losses (ALL) (1)

In the third quarter of 2014, allowance for loan losses (ALL) stood at R$ 3,348 million, representing a variation of 6.6% over the previous quarter, basically affected by: (i) the increase of 2.2% in the volume of credit operations - Bacen concept; and (ii) the continued deterioration of the risk level of individual cases, occurred in operations with corporate clients, beginning in the 2nd quarter of 2014.

In the comparison between the first three quarters of 2014 and the same period of the previous year, this expense increased by 2.9%, despite the 7.8% increase in loan operations – as defined by Bacen, resulting from the stable delinquency level in the last 12 months. It is important to note that these results reflect the consistency of policy and proceedings for loan granting, of the quality of obtained guarantees, as well as of an enhanced credit recovery process.

(1)   Includes provision for guarantees provided, encompassing sureties, guarantees, letters of credit, and standby letter of credit, which comprises the concept of “excess” ALL.

For more information, see Chapter 2 of this Report.

 

  14  Report on Economic and Financial Analysis – September 2014


 
 

Press Release                       

 

Summarized Analysis of Adjusted Income

Delinquency Ratio(1)

 

The total delinquency ratio, which comprehends transactions due over 90 days, was stable in the year-over-year comparison . In the quarter-over-quarter comparison, there was a slight increase, mostly due to the slowing of the credit portfolio growth, as well as some specific cases occurring in operations with corporate clients, not representing a change in tendency in the direction of the ratio, which can be demonstrated below in the short-term delinquency chart of 15 to 90 days, indicating stability at this level.

Compared to the last quarter, short-term delinquency, including transactions overdue between 15 and 90 days, decreased for Individuals, and remained stable for Corporations.

 

(1)   As defined by the Brazilian Central Bank (Bacen).

Bradesco    15      


 
 

       Press Release

 

Summarized Analysis of Adjusted Income

Coverage Ratios

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 (ALL) required by Bacen, Bradesco has excess ALL to support potential 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 September 2014, these ratios stood at comfortable levels, reaching 154.2% and 187.2%, respectively.

(1)   Includes provision for guarantees provided, encompassing sureties, guarantees, letters of credit, and standby letter of credit, which comprises the concept of “excess” ALL.

 

  16  Report on Economic and Financial Analysis – September 2014


 
 

Press Release                       

 

Summarized Analysis of Adjusted Income

Income from Insurance, Pension Plans and Capitalization Bonds

Net income for the third quarter of 2014 totaled R$ 1.058 billion, up 20.5% compared to the same period in the previous year (R$ 878 million in the third quarter of 2013), and compared to the second quarter of 2014, which totaled R$ 1.072 billion, the Net Income reduced by 1.3%, and an annualized return on the Adjusted Shareholder’s Equity of 25.4%.

Year to Date Net income for September 2014 stood at R$ 3.170 billion, up 15.7% compared to the same period in the previous year (R$ 2.739 billion), for a return on Adjusted Average Equity of 23.9%.

 

(1)   Excluding additional provisions.

 

 

R$ million (unless otherwise stated)

 

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

Variation %

 

3Q14 x 2Q14

3Q14 x 3Q13

Net Income

1,058

1,072

1,040

1,001

878

931

930

964

(1.3)

20.5

Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income

12,904

13,992

11,450

14,492

11,069

13,238

10,953

13,216

(7.8)

16.6

Technical Reserves

145,969

142,731

137,751

136,229

133,554

131,819

127,367

124,217

2.3

9.3

Financial Assets

158,207

154,261

147,725

146,064

143,423

141,984

141,535

141,540

2.6

10.3

Claims Ratio (%)

72.7

70.2

70.1

71.1

72.7

71.1

69.6

70.5

2.5 p.p.

-

Combined Ratio (%)

86.5

86.3

86.4

86.1

86.9

85.5

86.0

86.6

0.2 p.p.

(0.4) p.p.

Policyholders / Participants and Customers (in thousands)

46,303

45,468

45,260

45,675

45,292

44,215

42,941

43,065

1.8

2.2

Employees (unit)

7,135

7,152

7,265

7,383

7,462

7,493

7,510

7,554

(0.2)

(4.4)

Market Share of Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income (%) (1)

23.4

23.5

23.4

24.2

23.8

24.0

22.4

24.8

(0.1) p.p.

(0.4) p.p.

(1)   In 3Q14, it considers the latest data made available by Susep (Aug/14).

Note: For purposes of comparison between the indexes for the aforementioned periods, the effects of non-recurring events have not been considered.

 

Bradesco    17      


 

 

 

       Press Release

 

Summarized Analysis of Adjusted Income

In a comparison between the third quarter of 2014 and the same period of the previous year, there was an increase of 16.6% in written premiums, pension plan contribution and capitalization bond income. As for the second quarter of 2014, it reduced by 7.8%, due to the exceptional growth of 46.2% in the previous quarter of “Life and Pension Plan” products.

Cumulatively, production increased by 9.8%, without considering the DPVAT agreement, over the same period of the previous year, influenced by “Auto RE”, “Health” and “Capitalization” products, which grew 30.9%, 21.0% and 17.0%, respectively.

The net income in the third quarter of 2014 was 20.5% higher than the result in the same period of the previous year, basically due to: (i) the 16.6% increase in revenue; (ii) improved financial and equity income; (iii) improved administrative efficiency ratio; and (iv) sustained claims ratio.

The net income until September 2014 increased 15.7% in comparison with the net income calculated for the same period of the previous year, due to: (i) increased revenue; (ii) improved financial and equity income; and (iii) claims and sales ratios kept at the same levels calculated until September 2013.

The net income of the third quarter of 2014 was 1.3% lower than the figure calculated in the previous quarter, basically due to: (i) the reduction in revenue of 7.8%; (ii) increase of 2.5 p.p. in claims ratio; (iii) the decrease in the financial result; counterbalanced, in part: (iv) by the improvement of 0.7 p.p. in sales; and (v) by the increase in operating incomes and equity result.

Minimum Capital Required - Grupo Bradesco Seguros

According to Resolution CNSP No. 302/13, corporations should have adjusted shareholder’s equity (ASE) equal to or higher than the minimum capital required (MCR). MCR is equivalent to the largest value between the base capital and risk capital. Until the National Council of Private Insurance (CNSP) regulates the market-risk additional capital, the Company is calculating the venture capital based on underwriting, credit and operating risks. For companies regulated by the ANS, Normative Resolution No. 209/09 establishes that corporations should have adjusted shareholder’s equity (ASE) equal to or higher than the Solvency Margin.

The capital adjustment and management process is continuously monitored, and aims to ensure that Grupo Bradesco Seguros keeps a solid capital base to support the development of activities and cope with the risks in any market situation, meeting regulatory requirements and/or Corporate Governance aspects. Companies must permanently maintain a capital compatible with the risks for their activities and transactions, according to the characteristics and peculiarities of each company belonging to Grupo Bradesco Seguros, represented by adequate capital levels. Grupo Bradesco Seguros permanently observes the limits required by the respective regulatory entities. The Minimum Capital Required on September 30, 2014 was R$ 7.082 billion (Aug/14).

  18  Report on Economic and Financial Analysis – September 2014

 

 


 
 

Press Release                       

 

Summarized Analysis of Adjusted Income

Fee and Commission Income 

 

In the third quarter of 2014, provision of services income amounted to R$ 5,639 million, with growth of R$ 311 million or 5.8% over the previous quarter, mainly resulting from increased business volume. The revenues that have most contributed to this result were those coming from: (i) funds management; (ii) credit operations; (iii) card income; and (iv) checking account income.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the increase of R$ 1,691 million, or 11.6%, was mostly due to our increased customer base, combined with a higher volume of operations resulting from ongoing investments in customer service channels and technology. It is worth highlighting that the incomes that have most contributed to this result derived from: (i) the good performance of the cards segment, result of (a) increased revenue; (b) increased credit and debit cards base; and (c) the greater volume of transactions made; (ii) the growth of checking account incomes, due to increased business and in the account-holder customers base, which presented a net growth of 177,000 active account-holder customers in the period; (iii) higher incomes from credit operations, resulting from increased volume of contracted operations and sureties and guarantees operations in the period; and increased incomes from: (iv) consortium management; (v) underwriting/financial advising; and (vi) collection.

 

Bradesco    19     


 
 

       Press Release

 

Summarized Analysis of Adjusted Income

Personnel Expenses 

 

In the third quarter of 2014, the increase of R$ 116 million or 3.4% over the previous quarter is basically composed of the variation in the “structural” portion, due to increased wage levels and labor obligations updates, in accordance with collective agreement.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the R$ 695 million or 7.2% increase was mainly due to:

·         by the growth of R$ 509 million of the “structural” portion, related to higher expenses with payroll, social charges and benefits, affected by increased wage levels, in accordance with 2013 and 2014 collective agreements (readjustments of 8.0% and 8.5%, respectively); and

·         by the “non-structural” portion, totaling R$ 186 million, which resulted mainly from higher expenses with: (i) profit and results sharing of managers and employees; and (ii) termination and charges costs.

Note: Structural Expenses = Salaries + Social Charges + Benefits + Pension Plans.

Non-Structural Expenses = Employee and Management Profit Sharing + Training + Labor Provision + Costs with Termination of Employment Contracts.

 

  20  Report on Economic and Financial Analysis – September 2014


 
 

Press Release                       

 

Summarized Analysis of Adjusted Income

Administrative Expenses

In the comparison between the first three quarters of 2014 and the same period of the previous year, total administrative expenses remained stable, with variation of 0.2%, while inflation, IPCA and IGP-M ratios showed variations of 6.75% and 3.54%, respectively. Such behavior reflects the constant control over costs, despite (i) the expansion in business volumes and (ii) the organic growth recorded in the period, with the opening of 2,304 Service Points, with highlight to Bradesco Expresso, for totaling 74,028 Service Points on September 30, 2014.

In the third quarter of 2014, the 1.5% increase in administrative expenses compared to the previous quarter resulted mostly from higher business and service volumes in the quarter, which ultimately generated higher expenses with: (i) depreciation and amortization; (ii) outsourced services; (iii) data processing; (iv) marketing and advertising; and offset by smaller expenses with: (v) maintenance and preservation of assets.

 

 

Other Operating Income and Expenses

In the third quarter of 2014, other operating expenses, net of other operating income, totaled R$ 1,311 million, reduction of R$ 22 million over the previous quarter. In the comparison between the first three quarters of 2014 and the same period of the previous year, the R$ 524 million increase basically reflects: (i) higher expenses with operating provisions, mainly contingent liabilities; and (ii) higher expenses with the “Credit Card” product sales.

 

 

Bradesco    21     


 
 

       Press Release

 

Summarized Analysis of Adjusted Income

Income Tax and Social Contribution

Expenses with income tax and social contribution, in the quarter-over-quarter comparison, reduced by 6.3%, or R$ 140 million, which is a result, in part, of a greater use of the tax benefit on interest on owner’s equity. In the year-over-year comparison, the annual increase of 30.3%, or R$ 1,432 million, is related to the higher taxable result.

 

 

Unrealized Gains

In the third quarter of 2014, unrealized gains totaled R$ 18,998 million, a R$ 2,675 million decrease over the previous quarter. Such variation basically derived from the devaluation of our investments, especially Cielo shares, which had its market value reduced by 12.1% in the quarter.

 

  22  Report on Economic and Financial Analysis – September 2014


 
 

Press Release                       

 

Economic Scenario

The third quarter was characterized by the resumption of international financial volatility. Geopolitical concerns and epidemic issues were added to the resurgence of uncertainties regarding the pace of recovery of the world’s economy. Downward re-evaluations for economic growth, even if relatively limited, have been performed for many of the major economies. Europe remains as the center of attention, despite recent efforts by European Central Bank, which expanded monetary and credit stimulus.  

However, so far the more adverse global scenario has not been enough to interrupt the recovery of U.S. growth. As a consequence of this performance differential in comparison with the rest of the world, the demand of American government bonds has increased in the last months, which has also been favored by an “escape towards quality” process. This greater appetite of investors for treasuries contributes to explain the reduced level of long-term interest rates, which tend, however, to raise in the next quarters.

There is also the prospective trend of additional appreciation of the dollar and deceleration of the Chinese growth, which generate relevant challenges to the management of the economic policy of emerging nations. On the other hand, this very same global scenario also creates some valuable opportunities for countries that adopt effective economic and institutional differentiation measures.

Under this context, it becomes increasingly imperative that Brazil strengthens its commitment to sustainable economic policies. Efforts in this direction represent a requirement for the maintenance of the macroeconomic foreseeability and income gains, in addition to raising the confidence level of economic agents. 

 

Indicators for Domestic economic activities have been modest, further highlighting the relevance of structural initiatives aimed at promoting future growth. The constant search for excellence in education is Brazil’s front line in its battle to become more competitive and to expedite its efforts to upgrade infrastructure. It is always important to remind that, in the long term, the main source of economic growth is productivity, which becomes an even more relevant topic within a global context characterized by high levels of efficiency.

Productive investments tend to play an increasingly relevant role in the composition of growth over the next few years, which should be favored by the increased share of the capital market in funding of infrastructure projects. At the same time, despite the shift in consumer market expansion levels in some segments, the potential of domestic demand for goods and services has yet to be depleted, and there is still much room for growth. Income gains, employment formalization, diversification of consumption habits and social mobility are still key influential factors.

Bradesco maintains a positive outlook towards Brazil, with favorable perspectives for its operating segments. Credit volume is growing at sustainable and risk-compatible rates, whereas delinquency rates are stabilized at historically low and controlled levels. The scenario is still very promising for the Brazilian banking and insurance sectors.

 

 

Bradesco    23     


 
 

       Press Release

 

Main Economic Indicators

 

Main Indicators (%)

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

9M14

9M13

Interbank Deposit Certificate (CDI)

2.72

2.51

2.40

2.31

2.12

1.79

1.61

1.70

7.83

5.62

Ibovespa

1.78

5.46

(2.12)

(1.59)

10.29

(15.78)

(7.55)

3.00

5.06

(14.13)

USD – Commercial Rate

11.28

(2.67)

(3.40)

5.05

0.65

10.02

(1.45)

0.64

4.63

9.13

General Price Index - Market (IGP-M)

(0.68)

(0.10)

2.55

1.75

1.92

0.90

0.85

0.68

1.75

3.70

Extended Consumer Price Index (IPCA) – Brazilian Institute of Geography and Statistics (IBGE)

0.83

1.54

2.18

2.04

0.62

1.18

1.94

1.99

4.61

3.78

Federal Government Long-Term Interest Rate (TJLP)

1.24

1.24

1.24

1.24

1.24

1.24

1.24

1.36

3.75

3.75

Reference Interest Rate (TR)

0.25

0.15

0.19

0.16

0.03

-

-

-

0.60

0.03

Savings Account (Old Rule) (1)

1.75

1.66

1.70

1.67

1.54

1.51

1.51

1.51

5.21

4.62

Savings Account (New Rule) (1)

1.75

1.66

1.70

1.67

1.47

1.30

1.25

1.26

5.20

4.07

Business Days (number)

66

61

61

64

66

63

60

62

188

189

Indicators (Closing Rate)

Sept14

Jun14

Mar14

Dec13

Sept13

Jun13

Mar13

Dec12

Sept14

Sept13

USD – Commercial Selling Rate - (R$)

2.4510

2.2025

2.2630

2.3426

2.2300

2.2156

2.0138

2.0435

2.4510

2.2300

Euro - (R$)

3.0954

3.0150

3.1175

3.2265

3.0181

2.8827

2.5853

2.6954

3.0954

3.0181

Country Risk (points)

239

208

228

224

236

237

189

142

239

236

Basic Selic Rate Copom (% p.a.)

11.00

11.00

10.75

10.00

9.00

8.00

7.25

7.25

11.00

9.00

BM&F Fixed Rate (% p.a.)

11.77

10.91

11.38

10.57

10.07

9.39

7.92

7.14

11.77

10.07

(1)  Regarding the new savings account yield rule, it was defined that: (i) existing deposits up to May 3, 2012 will continue to yield at TR + interest of 6.17% p.a.; and (ii) for deposits made as of May 4, 2012, the new rules are: (a) if the Selic rate is higher than 8.5% p.a., a yield of TR + 6.17% p.m. interest will be maintained; and (b) if the Selic rate is equal or lower than 8.5% p.a., the yield will be 70% of Selic rate + TR.

 

Projections for 2016

 

%

2014

2015

2016

USD - Commercial Rate (year-end) - R$

2.45

2.55

2.65

Extended Consumer Price Index (IPCA)

6.30

6.00

5.50

General Price Index - Market (IGP-M)

3.20

5.40

5.00

Selic (year-end)

11.00

11.00

10.00

Gross Domestic Product (GDP)

0.50

1.50

3.00

 

  24  Report on Economic and Financial Analysis – September 2014


 
 

Press Release                       

 

Guidance

 

Bradesco’s Outlook for 2014

 

This guidance contains forward-looking statements that are subject to risks and uncertainties, as they are based on Management’s expectations and assumptions and information available to the market as of the date hereof.

 

Loan Portfolio (1) (2)

7 to 11 %

Individuals (3)

8 to 12 %

Companies (4)

6 to 10 %

NII - Interest Earning Portion (5)

9 to 12 %

Fee and Commission Income (6)

11 to 14 %

Operating Expenses (7)

3 to 6 %

Insurance Premiums

9 to 12 %

(1)   Expanded Loan Portfolio;

(2)   Changed from 10% - 14% to 7% - 11%;

(3)   Changed from 11% - 15% to 8% - 12%;

(4)   Changed from 9% - 13% to 6% - 10%;

(5)   Changed from 6% - 10% to 9% - 12%;

(6)   Changed from 9% - 13% to 11% - 14%; and

(7)   Administrative and Personnel Expenses;

 

 

Bradesco    25     


 
 

       Press Release

 

Book Income vs. Managerial Income vs. Adjusted Income Statement 

Analytical Breakdown of Book Income vs. Managerial Income vs. Adjusted Income Statement                                          

Third quarter of 2014

 

 

 

 

 

R$ million

 

3Q14

 

Book Income Statement

Managerial Reclassifications (1)

Income Statement prior to Non-recurring Events

Non-Recurring Events

Adjusted Income Statement

 

Net Interest Income

9,889

1,794

11,683

598

12,281

ALL

(3,775)

427

(3,348)

-

(3,348)

Gross Income from Financial Intermediation

6,114

2,221

8,335

598

8,933

Income from Insurance, Pension Plans and Capitalization Bonds

1,170

-

1,170

-

1,170

Fee and Commission Income

5,587

52

5,639

-

5,639

Personnel Expenses

(4,052)

-

(4,052)

488

(3,564)

Other Administrative Expenses

(3,664)

35

(3,628)

-

(3,628)

Tax Expenses

(910)

(286)

(1,195)

13

(1,182)

Companies

43

-

43

-

43

Other Operating Income/Expenses

(545)

187

(358)

(953)

(1,311)

Operating Result

3,743

2,209

5,954

146

6,100

Non-Operating Result

(94)

51

(45)

-

(45)

Income Tax / Social Contribution and Non-controlling Interest

226

(2,260)

(2,034)

(71)

(2,105)

Net Income

3,875

-

3,875

75

3,950

(1)   Includes managerial reclassifications in items from the income statement, which allow a better analysis of business items, particularly hedge adjustment, which represents the partial result of derivatives used for hedge investments abroad, which in terms of Net income, simply cancels the tax effect (IR/CS and PIS/COFINS) of this hedge strategy, in the amount of R$ 2,536 million.

 

  26  Report on Economic and Financial Analysis – September 2014


 

 

 

Press Release                       

 

Book Income vs. Managerial Income vs. Adjusted Income Statement

 

Analytical Breakdown of Book Income vs. Managerial Income vs. Adjusted Income Statement                                          

Second Quarter of 2014

 

 

 

 

 

R$ million

 

2Q14

 

Book Income Statement

Managerial Reclassifications (1)

Income Statement prior to Non-recurring Events

Non-Recurring Events

Adjusted Income Statement

 

Net Interest Income

14,274

(2,208)

12,066

-

12,066

ALL

(3,645)

504

(3,141)

-

(3,141)

Gross Income from Financial Intermediation

10,629

(1,704)

8,925

-

8,925

Income from Insurance, Pension Plans and Capitalization Bonds

1,270

-

1,270

-

1,270

Fee and Commission Income

5,226

102

5,328

-

5,328

Personnel Expenses

(3,448)

-

(3,448)

-

(3,448)

Other Administrative Expenses

(3,607)

32

(3,575)

-

(3,575)

Tax Expenses

(1,169)

49

(1,120)

-

(1,120)

Companies

35

-

35

-

35

Other Operating Income/Expenses

(2,298)

921

(1,376)

43

(1,333)

Operating Result

6,639

(600)

6,039

43

6,082

Non-Operating Result

(134)

100

(34)

-

(34)

Income Tax / Social Contribution and Non-controlling Interest

(2,727)

500

(2,227)

(17)

(2,244)

Net Income

3,778

-

3,778

26

3,804

(1)   Includes managerial reclassifications in items from the income statement, which allow a better analysis of business items, particularly hedge adjustment, which represents the partial result of derivatives used for hedge investments abroad, which in terms of Net income, simply cancels the tax effect (IR/CS and PIS/COFINS) of this hedge strategy, in the amount of R$ 561 million.

 

Bradesco    27     


 
 

       Press Release

 

Book Income vs. Managerial Income vs. Adjusted Income Statement

 

Analytical Breakdown of Book Income vs. Managerial Income vs. Adjusted Income Statement                                          

First three quarters of 2014

 

 

 

 

 

R$ million

 

9M14

 

Book Income Statement

Managerial Reclassifications (1)

Income Statement prior to Non-recurring Events

Non-Recurring Events

Adjusted Income Statement

 

Net Interest Income

36,933

(2,222)

34,711

598

35,309

ALL

(10,671)

1,321

(9,350)

-

(9,350)

Gross Income from Financial Intermediation

26,262

(901)

25,361

598

25,959

Income from Insurance, Pension Plans and Capitalization Bonds

3,685

-

3,684

-

3,684

Fee and Commission Income

16,003

247

16,250

-

16,250

Personnel Expenses

(10,779)

-

(10,779)

488

(10,291)

Other Administrative Expenses

(10,786)

96

(10,689)

-

(10,689)

Tax Expenses

(3,220)

(210)

(3,429)

13

(3,416)

Companies

130

-

130

-

130

Other Operating Income/Expenses

(4,896)

1,720

(3,175)

(860)

(4,035)

Operating Result

16,399

952

17,353

239

17,592

Non-Operating Result

(338)

224

(115)

-

(115)

Income Tax / Social Contribution and Non-controlling Interest

(4,965)

(1,176)

(6,142)

(108)

(6,250)

Net Income

11,096

-

11,096

131

11,227

(1)   Includes managerial reclassifications in items from the income statement, which allow a better analysis of business items, particularly hedge adjustment, which represents the partial result of derivatives used for hedge investments abroad, which in terms of Net income, simply cancels the tax effect (IR/CS and PIS/COFINS) of this hedge strategy, in the amount of R$ 1,352 million.

 

 

  28  Report on Economic and Financial Analysis – September 2014


 

 

 

Press Release                       

 

Book Income vs. Managerial Income vs. Adjusted Income Statement

 

Analytical Breakdown of Book Income vs. Managerial Income vs. Adjusted Income Statement                                          

First three quarters of 2013

 

 

 

 

 

R$ million

 

9M13

 

Book Income Statement

Managerial Reclassifications (1)

Income Statement prior to Non-recurring Events

Non-Recurring Events

Adjusted Income Statement

 

Net Interest Income

33,666

(1,644)

32,022

-

32,022

ALL

(10,343)

1,260

(9,084)

-

(9,084)

Gross Income from Financial Intermediation

23,322

(385)

22,938

-

22,938

Income from Insurance, Pension Plans and Capitalization Bonds

3,283

-

3,283

-

3,283

Fee and Commission Income

14,303

257

14,559

-

14,559

Personnel Expenses

(9,596)

-

(9,596)

-

(9,596)

Other Administrative Expenses

(10,499)

(164)

(10,664)

-

(10,664)

Tax Expenses

(2,933)

(193)

(3,127)

-

(3,127)

Companies

17

-

17

-

17

Other Operating Income/Expenses

(5,489)

1,863

(3,629)

118

(3,511)

Operating Result

12,410

1,374

13,781

118

13,899

Non-Operating Result

(86)

(3)

(89)

-

(89)

Income Tax / Social Contribution and Non-controlling Interest

(3,393)

(1,368)

(4,760)

(47)

(4,807)

Net Income

8,932

-

8,932

71

9,003

(1)   Includes managerial reclassifications in items from the income statement, which allow a better analysis of business items, particularly hedge adjustment, which represents the partial result of derivatives used for hedge investments abroad, which in terms of Net income, simply cancels the tax effect (IR/CS and PIS/COFINS) of this hedge strategy, in the amount of R$ 1,535 million.

 

Bradesco    29     


 

 

 

       Press Release

(This page intentionally left blank)         

 

 

 

 

 

      

  30  Report on Economic and Financial Analysis – September 2014


 

 



 
 

       Economic and Financial Analysis

 

Consolidated Statement of Financial Position and Adjusted Income Statement

Statement of Financial Position

 

 

 

 

 

 

 

 

 

R$ million

 

Sept14

Jun14

Mar14

Dec13

Sept13

Jun13

Mar13

Dec12

Assets

 

 

 

 

 

 

 

 

Current and Long-Term Assets

972,315

915,986

906,760

892,495

892,363

881,121

879,192

864,279

Cash and Cash Equivalents

11,316

11,535

12,110

12,196

16,427

16,180

11,347

12,077

Interbank Investments

181,335

137,654

127,014

135,456

144,967

147,485

171,333

151,813

Securities and Derivative Financial Instruments

343,445

333,200

321,970

313,327

313,679

309,027

300,600

315,487

Interbank and Interdepartmental Accounts

48,540

56,115

61,740

56,995

52,121

52,150

52,769

49,762

Loan and Leasing Operations

309,264

302,276

301,914

296,629

286,899

281,982

276,022

267,940

Allowance for Loan Losses (ALL) (1)

(22,255)

(21,458)

(21,051)

(21,349)

(21,476)

(21,455)

(21,359)

(21,299)

Other Receivables and Assets

100,670

96,664

103,063

99,241

99,746

95,752

88,480

88,499

Permanent Assets

15,049

15,146

15,469

15,644

15,331

15,576

15,275

14,813

Investments

1,931

1,887

1,871

1,830

1,910

1,920

1,867

1,865

Premises and Leased Assets

4,591

4,579

4,597

4,668

4,392

4,464

4,550

4,678

Intangible Assets

8,527

8,680

9,001

9,146

9,029

9,192

8,858

8,270

Total

987,364

931,132

922,229

908,139

907,694

896,697

894,467

879,092

*

           

 

 

Reserve Requirements

 

 

 

 

 

 

 

 

Current and Long-Term Liabilities

907,366

853,622

847,794

835,917

839,393

829,426

823,788

807,799

Deposits

211,882

213,270

218,709

218,063

216,778

208,485

205,870

211,858

Federal Funds Purchased and Securities Sold under
Agreements to Repurchase

297,814

255,611

250,716

256,279

258,580

266,825

281,045

255,591

Funds from Issuance of Securities

75,283

69,877

64,511

57,654

55,427

53,821

47,832

51,359

Interbank and Interdepartmental Accounts

4,540

5,673

5,343

6,864

4,806

3,793

3,815

5,667

Borrowing and Onlending

56,561

54,142

56,724

56,095

51,307

49,121

46,209

44,187

Derivative Financial Instruments

5,076

4,727

3,894

1,808

3,238

3,141

2,590

4,001

Reserves for Insurance, Pension Plans and Capitalization Bonds

145,969

142,732

137,751

136,229

133,554

131,819

127,367

124,217

Other Reserve Requirements

110,241

107,590

110,146

102,925

115,703

112,421

109,060

110,919

Deferred Income

266

224

560

677

676

661

632

658

Non-controlling Interest in Subsidiaries

490

486

549

605

592

582

605

588

Shareholders' Equity

79,242

76,800

73,326

70,940

67,033

66,028

69,442

70,047

Total

987,364

931,132

922,229

908,139

907,694

896,697

894,467

879,092

(1) Including the allowance for guarantees provided, in September 2014, the allowance for loan losses totaled R$ 22,623 million.
 

  32  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

Consolidated Statement of Financial Position and Adjusted Income Statement

Adjusted Income Statement

 

 

 

 

 

 

 

 

 

R$ million

 

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

Net Interest Income

12,281

12,066

10,962

11,264

10,729

10,587

10,706

11,109

- Interest Earning Portion

12,238

11,854

10,951

10,986

10,622

10,569

10,509

10,678

- Non-interest Earning Portion

43

212

11

278

107

18

197

431

ALL

(3,348)

(3,141)

(2,861)

(2,961)

(2,881)

(3,094)

(3,109)

(3,210)

Gross Income from Financial Intermediation

8,933

8,925

8,101

8,303

7,848

7,493

7,597

7,899

Income from Insurance, Pension Plans and Capitalization Bonds (1)

1,170

1,270

1,244

1,188

1,100

1,028

1,155

955

Fee and Commission Income

5,639

5,328

5,283

5,227

4,977

4,983

4,599

4,675

Personnel Expenses

(3,564)

(3,448)

(3,279)

(3,465)

(3,346)

(3,191)

(3,059)

(3,142)

Other Administrative Expenses

(3,628)

(3,575)

(3,486)

(3,848)

(3,631)

(3,578)

(3,455)

(3,755)

Tax Expenses

(1,182)

(1,120)

(1,114)

(1,254)

(987)

(1,017)

(1,123)

(1,098)

Equity in the Earnings (Losses) of Unconsolidated Companies

43

35

52

26

2

12

3

45

Other Operating Income/ (Expenses)

(1,311)

(1,333)

(1,391)

(1,232)

(1,194)

(1,147)

(1,170)

(1,130)

Operating Result

6,100

6,082

5,410

4,945

4,769

4,583

4,547

4,449

Non-Operating Result

(45)

(34)

(36)

(31)

(27)

(24)

(38)

(29)

Income Tax and Social Contribution

(2,075)

(2,215)

(1,871)

(1,696)

(1,638)

(1,553)

(1,538)

(1,488)

Non-controlling Interest

(30)

(29)

(30)

(19)

(22)

(28)

(28)

(14)

Adjusted Net Income

3,950

3,804

3,473

3,199

3,082

2,978

2,943

2,918

(1) Income from Insurance, Pension Plans and Capitalization Bonds = Insurance, Pension Plan and Capitalization Bond Retained Premiums – Variation in Technical Reserves for Insurance, Pension Plans and Capitalization Bonds – Retained Claims – Capitalization Bond Draws and Redemption – Insurance, Pension Plan and Capitalization Bond Sales Expenses.

NII - Interest and Non-Interest Earning Portions

 

Net Interest Income Breakdown

 

Bradesco    33      


 

 

 

       Economic and Financial Analysis

 

NII - Interest and Non-Interest Earning Portions

Net Interest Margin

 

 

R$ million

 

Net Interest Income

 

9M14

9M13

3Q14

2Q14

Variation

 

12 Months

Quarter

Interest - due to volume

 

 

 

 

3,152

144

Interest - due to spread

 

 

 

 

191

240

- NII - Interest Earning Portion

35,043

31,700

12,238

11,854

3,343

384

- NII - Non-Interest Earning Portion

266

322

43

212

(56)

(169)

Net Interest Income

35,309

32,022

12,281

12,066

3,287

215

Average NIM (1)

7.2%

7.0%

7.6%

7.8%

 

 

 (1) Average Net Interest Income Rate = (Net Interest Income/Average Assets – Repos – Permanent Assets) Annualized

In the comparison between the third quarter of 2014 and the previous quarter, the R$ 215 million increase was mainly due to the greater: (i) interest earning portion, totaling R$ 384 million, particularly in the Loan and Security/Other business lines, and offset in part by: (ii) lower non-interest earning portion, totaling R$ 169 million, basically due to lower gains from the market arbitrage.

In the comparison between the first three quarters of 2014 and the same period of the previous year, net interest income rose by R$ 3,287 million, mainly due to: (i) higher interest earning portion of the net interest income, totaling R$ 3,343 million, due to an increased business volume, particularly in the “Loan” and “Funding” business lines, and in the latter case, cost-reduction management.

NII - Interest Earning Portion

Interest Earning Portion Breakdown

 

R$ million

 

Interest Earning Portion Breakdown

 

9M14

9M13

3Q14

2Q14

Variation

 

12 Months

Quarter

Loans

23,926

22,841

8,249

7,967

1,085

282

Funding

4,610

3,332

1,625

1,570

1,278

55

Insurance

3,050

2,651

1,005

1,081

399

(76)

Securities/Other

3,457

2,876

1,359

1,236

581

123

Interest Earning Portion

35,043

31,700

12,238

11,854

3,343

384

 

The interest earning portion stood at R$ 12,238 million in the third quarter of 2014, against R$ 11,854 million recorded in the previous quarter, accounting for an increase of R$ 384 million. The business lines that most contributed to this result were: (i) Loan and (ii) Securities/Other, broken down under items Loan Financial Margin – Interest and Securities/Other Financial Margin – Interest.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the interest earning portion was up R$ 3,343 million. All business lines contributed to this increase, particularly “Funding” and “Loans”.

  34  Report on Economic and Financial Analysis – September 2014


 

 

 

Economic and Financial Analysis                              

NII - Interest Earning Portion

NII - Interest Earning Portion – Rates

 

The annualized interest financial margin rate stood at 7.5% in the third quarter of 2014, down 0.2 p.p. on the previous quarter, mainly due to the results obtained from Insurance interest margins.

NII - Interest Earning Portion – Annualized Average Rates

 

 

 

 

 

 

 

R$ million

 

9M14

9M13

 

Interest

Average
Balance

Average Rate

Interest

Average
Balance

Average Rate

Loans

23,926

338,308

9.5%

22,841

307,983

10.0%

Funding

4,610

371,005

1.7%

3,332

333,559

1.3%

Insurance

3,050

140,896

2.9%

2,651

129,721

2.7%

Securities/Other

3,457

336,617

1.4%

2,876

307,431

1.2%

 

           

Interest Earning Portion

35,043

-

7.2%

31,700

-

6.9%

*

           

 

 

3Q14

 

 

2Q14

 

 

Interest

Average
Balance

Average Rate

Interest

Average
Balance

Average Rate

Loans

8,249

340,395

10.1%

7,967

339,341

10.1%

Funding

1,625

373,221

1.8%

1,570

365,285

1.8%

Insurance

1,005

144,792

2.8%

1,081

141,206

3.2%

Securities/Other

1,359

339,591

1.6%

1,236

324,770

1.6%

 

           

Interest Earning Portion

12,238

-

7.5%

11,854

-

7.7%

 

Bradesco    35      


 
 

       Economic and Financial Analysis

 

Credit Margin - Interest Earning Operations

Credit Margin - Interest Earning Operations - Breakdown

 

R$ million

 

Credit Margin - Interest Earning Operations

 

9M14

9M13

3Q14

2Q14

Variation

 

12 Months

Quarter

Interest - due to volume

 

 

 

 

2,145

26

Interest - due to spread

 

 

 

 

(1,060)

256

Interest Earning Portion

23,926

22,841

8,249

7,967

1,085

282

Income

43,270

40,424

15,481

14,127

2,846

1,354

Expenses

(19,344)

(17,583)

(7,232)

(6,160)

(1,761)

(1,072)

 

In the third quarter of 2014, financial margin with loan operations reached R$ 8,249 million, up R$ 282 million over the second quarter of 2014. The variation is the result of: (i) a R$ 256 million increase in the average spread; and (ii) a R$ 26 million increase in average business volume.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the net interest income was up R$ 1,085 million. The variation is the result of: (i) a R$ 2,145 million increase in the volume of operations; and partially offset by: (ii) a decrease in the average spread, amounting to R$ 1,060 million, affected mostly by the change in loan portfolio mix.

 

  36  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

 

Credit Margin - Interest Earning Operations

Net Credit Margin

The graph above presents a summary of loan activity. The Gross Margin line refers to interest income from loans, net of opportunity cost (a specific rate by type of operation and term).

The ALL curve shows delinquency costs, which are represented by Allowance for Loan Losses (ALL) expenses, plus discounts granted in transactions net of loan recoveries, arising from the sale of foreclosed assets, among others. The increased expenses in the 3rd quarter of 2014 was basically affected by: (i) the increase of 2.2% in the volume of credit operations - Bacen concept; and (ii) the continued deterioration of the risk level of individual cases, occurred in operations with corporate clients, beginning in the 2nd quarter of 2014.

The net margin curve, which refers to loan interest income net of ALL, was up 1.6% in the third quarter of 2014, compared to the previous quarter. In the comparison between the first three quarters of 2014 and the same period of the previous year, the net margin was up 6.0%, mainly due to: (i) increased business volume; and (ii) maintained delinquency costs.

 

 

 

Bradesco    37      


 
 

       Economic and Financial Analysis

 

Credit Margin - Interest Earning Operations

Expanded Loan Portfolio(1)

 

In December 2013, the expanded loan portfolio stood at R$ 444.2 billion, up 2.1% in the quarter and 7.7% over the last 12 months.

In the quarter, the growth of 2.6% of Corporations and 2.2% of Individuals stand out.

In the last twelve months, the growth of 10.1% of Corporations and 8.6% of Individuals is worth of attention.

(1) In addition to Bacen loan portfolio, it includes sureties, guarantees, letters of credit, advances of credit card receivables, debentures, promissory notes, co-obligation in receivables-backed investment funds, mortgage-backed receivables, and farm loans.

 

Expanded Loan Portfolio Breakdown by Product and Type of Customer (Individual and Corporate)

A breakdown of expanded loan portfolio products for Individuals is presented below:

Individuals

R$ million

Variation %

Sept14

Jun14

Sept13

Quarter

12M

Payroll-deductible Loan

29,225

28,727

25,919

1.7

12.8

CDC / Vehicle Leasing

25,043

25,248

28,232

(0.8)

(11.3)

Credit Card

24,273

23,793

21,866

2.0

11.0

Personal Loans

16,753

16,694

16,556

0.4

1.2

Real Estate Financing

16,730

15,564

12,576

7.5

33.0

Rural Loans

9,876

9,350

7,832

5.6

26.1

BNDES/Finame Onlending

7,224

6,955

6,534

3.9

10.6

Overdraft Facilities

3,956

3,982

3,604

(0.7)

9.8

Sureties and Guarantees

381

372

191

2.5

99.5

Other

4,568

4,382

3,757

4.2

21.6

Total

138,028

135,068

127,068

2.2

8.6

 

Individual segment operations grew by 2.2% in the quarter and 8.6% over the last 12 months. The lines that contributed most to such increase were: (i) real estate financing; and (ii) payroll-deductible loan.

 

  38  Report on Economic and Financial Analysis – September 2014


 

 

 

Economic and Financial Analysis                              

 

Credit Margin - Interest Earning Operations

A breakdown of expanded loan portfolio products for Corporations is presented below:

Corporate

R$ million

Variation %

Sept14

Jun14

Sept13

Quarter

12M

Working Capital

42,802

42,869

44,255

(0.2)

(3.3)

BNDES/Finame Onlending

33,872

33,198

32,483

2.0

4.3

Operations Abroad

33,474

29,249

27,530

14.4

21.6

Real Estate Financing

22,527

21,739

15,069

3.6

49.5

Export Financing

15,469

16,118

15,620

(4.0)

(1.0)

CDC / Leasing

12,686

12,787

13,042

(0.8)

(2.7)

Credit Card

12,468

12,649

13,516

(1.4)

(7.8)

Overdraft Account

10,704

11,054

10,651

(3.2)

0.5

Rural Loans

7,048

7,376

4,964

(4.4)

42.0

Sureties and Guarantees

69,899

69,504

65,157

0.6

7.3

Operations bearing Loan Risk - Commercial Portfolio (1)

34,553

33,356

32,917

3.6

5.0

Other

10,665

10,264

10,287

3.9

3.7

Total

306,167

300,163

285,490

2.0

7.2

(1) Including debenture and promissory note operations.

 

Corporate segment operations grew by 2.0% in the quarter and 7.2% in the last 12 months. In the quarter and in the last 12 months, the lines that showed significant growth were: (i) real estate financing; and (ii) foreign transactions.

Expanded Loan Portfolio – Consumer Financing(1)

The graph below shows lines related to Individual Consumer Financing, which reached R$ 95.3 billion in September 2014, representing a growth of 0.9% in the quarter and 2.9% in the last 12 months.

The following types of credit posted the strongest numbers for September 2014: (i) personal loans, including payroll-deductible loans, totaling R$ 46.0 billion; and (ii) Vehicle CDC/leasing, totaling R$ 25.0 billion. Together, these operations totaled R$ 71.0 billion, accounting for 74.5% of the Consumer Financing balance.

(1) Including vehicle CDC/leasing, personal loans, revolving credit card and cash and installment purchases at merchants operations.

Bradesco    39      


 

 

z' 

       Economic and Financial Analysis

 

Credit Margin - Interest Earning Operations

Breakdown of Vehicle Portfolio

 

R$ million

Variation %

Sept14

Jun14

Sept13

Quarter

12M

CDC Portfolio

33,117

33,063

35,192

0.2

(5.9)

Individuals

24,674

24,805

27,378

(0.5)

(9.9)

Corporate

8,443

8,258

7,814

2.2

8.0

Leasing Portfolio

1,842

2,071

3,051

(11.1)

(39.6)

Individuals

368

443

854

(16.9)

(56.9)

Corporate

1,474

1,628

2,197

(9.5)

(32.9)

Finame Portfolio

11,173

11,136

11,396

0.3

(2.0)

Individuals

659

701

832

(6.0)

(20.8)

Corporate

10,514

10,435

10,564

0.8

(0.5)

Total

46,132

46,270

49,639

(0.3)

(7.1)

Individuals

25,701

25,949

29,064

(1.0)

(11.6)

Corporate

20,431

20,321

20,575

0.5

(0.7)

 

Vehicle financing operations (individual and corporate segment) totaled R$ 46.1 billion in September 2014, with decrease in quarter-over-quarter and year-over-year comparisons. Of the total vehicle portfolio, 71.8% corresponds to CDC, 24.2% to Finame, and 4.0% to Leasing. Individuals represented 55.7% of the portfolio, while corporate customers accounted for the remaining 44.3%.

The presented variations reflect the market behavior and the portfolio’s new position, which started to operate mainly with newer vehicles, seeking better financing conditions and lower risk.

Expanded Loan Portfolio Concentration – By Sector

The expanded loan portfolio by economic activity sector increased the “Individual segment” share, both in the quarter and the last 12 months.

 

Activity Sector

 

 

 

 

 

R$ million

Sept14

%

Jun14

%

Sept13

%

Public Sector

7,797

1.8

7,359

1.7

1,204

0.3

Private Sector

436,398

98.2

427,872

98.3

411,355

99.7

0

           

Corporate

298,370

67.2

292,804

67.3

284,287

68.9

Industry

89,607

20.2

89,141

20.5

79,460

19.3

Commerce

55,223

12.4

54,304

12.5

59,837

14.5

Financial Intermediaries

9,017

2.0

9,042

2.1

8,631

2.1

Services

140,763

31.7

136,461

31.4

133,253

32.3

Agriculture, Cattle Raising, Fishing,
Forestry and Forest Exploration

3,760

0.8

3,856

0.9

3,106

0.8

Individuals

138,028

31.0

135,068

31.0

127,068

30.8

Total

444,195

100.0

435,231

100.0

412,559

100.0

 

  40  Report on Economic and Financial Analysis – September 2014


 

 

 

Economic and Financial Analysis                              

 

Credit Margin – Interest Earning Operations

Changes in the Expanded Loan Portfolio

Of the R$ 31.6 billion growth in the expanded loan portfolio over the last 12 months, new borrowers accounted for 98.4%, representing 7.0% of the portfolio in September 2014.

(1) Including new loans contracted in the last 12 months by customers since September 2013.

 

Bradesco    41      


 
 

       Economic and Financial Analysis

 

Credit Margin – Interest Earning Operations

Changes in the Expanded Loan Portfolio – By Rating

The chart below shows that the vast majority of new borrowers and customers that remained in the loan portfolio since September 2013 received ratings between AA and C, demonstrating the adequacy and consistency of the loan assignment and monitoring policy and processes, as well as the quality of guarantees.

Changes in the Extended Loan Portfolio by Rating between September 2013 and 2014

Rating

Total Loan as at
September 2014

New Customers from
October 2013 and
September 2014

Remaining Debtors as at September 2013

R$ million

%

R$ million

%

R$ million

%

AA - C

417,606

94.0

29,225

93.9

388,381

94.0

D

6,109

1.4

292

0.9

5,817

1.4

E - H

20,480

4.6

1,608

5.2

18,872

4.6

Total

444,195

100.0

31,125

100.0

413,070

100.0

 

Expanded Loan Portfolio – By Customer Profile

The chart below presents the evolution in the expanded loan portfolio by customer profile:

Customer Profile

R$ million

Variation %

Sept14

Jun14

Sept13

Quarter

12M

Corporations

192,810

187,983

175,095

2.6

10.1

SMEs

113,357

112,180

110,396

1.0

2.7

Individuals

138,028

135,068

127,068

2.2

8.6

Total Loan Operations

444,195

435,231

412,559

2.1

7.7

 

Expanded Loan Portfolio – By Customer Profile and Rating (%)

Loans rated as AA to C remained stable in the quarter and improved over the last 12 months.

Customer Profile

By Rating

 

Sept14

 

 

Jun14

 

 

Sept13

 

AA-C

D

E-H

AA-C

D

E-H

AA-C

D

E-H

Corporations

98.2

0.5

1.3

98.4

0.4

1.2

96.9

2.6

0.5

SMEs

90.3

2.7

7.0

90.3

2.9

6.8

90.6

3.4

6.0

Individuals

91.2

1.5

7.3

91.0

1.7

7.3

90.3

1.9

7.8

Total

94.0

1.4

4.6

94.0

1.5

4.5

93.2

2.6

4.2

 

  42  Report on Economic and Financial Analysis – September 2014


 

 

 

Economic and Financial Analysis                              

 

Credit Margin - Interest Earning Operations

Expanded Loan Portfolio - By Business Segment

Regarding the growth of the expanded loan portfolio by “Business Segment”, we highlight the growth of “Prime”, “Corporate”, and “Retail” segments, in the quarter and the last 12 months.

Business Segments

R$ million

Variation %

Sept14

%

Jun14

%

Sept13

%

Quarter

12M

Retail

124,715

28.1

121,878

28.0

115,451

28.0

2.3

8.0

Corporate

194,102

43.7

189,727

43.6

178,209

43.2

2.3

8.9

Middle Market

48,603

11.0

48,199

11.1

46,289

11.2

0.8

5.0

Prime

21,176

4.8

20,222

4.6

18,091

4.4

4.7

17.1

Other / Non-account Holders (1)

55,599

12.5

55,206

12.7

54,518

13.2

0.7

2.0

Total

444,195

100.0

435,231

100.0

412,559

100.0

2.1

7.7

(1) Mostly, non-account holders using vehicle financing, credit cards and payroll-deductible loans.

 

Expanded Loan Portfolio – By Currency

 

The balance of foreign currency-indexed and/or denominated loan and onlending operations (excluding ACCs - Advances on Foreign Exchange Contracts) totaled US$ 15.8 billion in September 2014 (US$ 15.5 billion in June 2014 and US$ 14.9 billion in September 2013), with growth of 1.9% in the quarter and 6.0% in the last 12 months, in U.S. Dollars. In Brazilian Reais, such operations totaled R$ 38.8 billion in September 2014 (R$ 34.0 billion in June 2014 and R$ 33.2 billion in September 2013), up 14.1% in the quarter and 16.9% over the last 12 months.

In September 2014, total loan operations in Reais stood at R$ 405.4 billion (R$ 401.2 billion in June 2014 and R$ 379.4 billion in September 2013), up 1.0% in the quarter and 6.9% in the last 12 months.

Bradesco    43      


 

 

 

       Economic and Financial Analysis

 

Credit Margin – Interest Earning Operations

Expanded Loan Portfolio – by Debtor

The concentration level among the largest debtors was slightly higher when compared to the previous quarter and the last twelve months. The quality of the 100 largest debtors’ portfolio showed an improvement in the period analyzed, based on AA-A rating. 

Loan Portfolio(1) – By Type

The sum of operations with credit risk reached R$ 469.8 billion, an increase of 1.8% in the quarter and 8.1% in the last 12 months.

 

R$ million

Variation %

 

Sept14

Jun14

Sept13

Quarter

12M

Loans and Discounted Securities

159,876

156,010

151,823

2.5

5.3

Financing

120,926

117,955

110,176

2.5

9.8

Rural and Agribusiness Financing

23,854

23,341

18,823

2.2

26.7

Leasing Operations

4,608

4,969

6,077

(7.3)

(24.2)

Advances on Exchange Contracts

5,814

6,414

6,239

(9.4)

(6.8)

Other Loans

20,826

19,978

18,517

4.2

12.5

Subtotal Loan Operations (2)

335,904

328,668

311,655

2.2

7.8

Sureties and Guarantees Granted (Memorandum Accounts)

70,280

69,875

65,348

0.6

7.5

Operations bearing Credit Risk - Commercial Portfolio (3)

34,553

33,356

32,917

3.6

5.0

Letters of Credit (Memorandum Accounts)

507

402

751

26.1

(32.5)

Advances from Credit Card Receivables

1,457

1,386

871

5.1

67.3

Co-obligation in Loan Assignment FIDC/CRI (Memorandum Accounts)

1,383

1,432

897

(3.4)

54.2

Co-obligation in Rural Loan Assignment (Memorandum Accounts)

112

111

120

0.6

(6.9)

Subtotal of Operations bearing Credit Risk - Expanded Portfolio

444,195

435,231

412,559

2.1

7.7

Other Operations Bearing Credit Risk (4)

25,639

26,344

21,962

(2.7)

16.7

Total Operations bearing Credit Risk

469,834

461,575

434,521

1.8

8.1

(1) In addition to the Expanded Portfolio, it includes other operations bearing credit risk;

(2) As defined by Bacen;

(3) Including debenture and promissory note operations; and

(4) It includes CDI operations, Rural DI, international treasury, swap, non-deliverable forward transaction and investments in FIDC and Certificates of Real Estate Receivables (CRI).

 

  44  Report on Economic and Financial Analysis – September 2014


 

 

 

Economic and Financial Analysis                              

 

Credit Margin – Interest Earning Operations

The charts below refer to the Loan Portfolio, as defined by Bacen.

Loan Portfolio(1) – By Flow of Maturities(2)

The loan portfolio by flow of maturities of operations showed a longer profile in September 2014, compared to the same period of the previous year, mainly due to the representativeness of real estate financing and payroll-deductible loans operations. It should be noted that, due to their guarantees and characteristics, these operations are not only exposed to lower risk, but they also provide favorable conditions to gain customer loyalty.

     

(1) As defined by Bacen; and

(2) Only performing loans.

 

 

Bradesco    45      


 
 

       Economic and Financial Analysis

 

Credit Margin – Interest Earning Operations

Loan Portfolio(1) – Delinquency

The total delinquency ratio, which comprehends transactions due over 90 days, was stable in the year-over-year comparison . In the quarter-over-quarter comparison, there was a slight increase, mostly due to the slowing of the credit portfolio growth, as well as some specific cases occurring in operations with corporate clients, not representing a change in tendency in the direction of the ratio, which can be demonstrated below in the short-term delinquency chart of 15 to 90 days, indicating stability at this level.

 

 

Compared to the last quarter, short-term delinquency, including transactions overdue between 15 and 90 days, decreased for Individuals, and remained stable for Corporations.

 

(1) As defined by Bacen.

  46  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

Credit Margin - Interest Earning Operations

Allowance for Loan Losses (ALL) vs. Delinquency vs. Losses(1)

The development of the loan portfolio, as well as respective risks, are monitored internally by applying the expanded portfolio concept.

In addition to the allowance for loan losses, required by Bacen Resolution Nº 2682/99, there is excess ALL to support eventual stress scenarios, as well as other operations/commitments bearing credit risks.

The ALL totaled R$ 22.6 billion in September 2014, representing 6.7% of the total loan portfolio, comprising: (i) generic provision (customer and/or operation rating); (ii) specific provision (non-performing loans); and (iii) excess provision (internal criteria, including provision for guarantees provided).

Provisioning levels are deemed appropriate and sufficient to support possible changes in scenarios, such as higher delinquency levels and/or changes in the loan portfolio profile.

(1) As defined by Bacen; and

(2) Includes provision for guarantees provided, encompassing sureties, guarantees, letters of credit and standby letters of credit, which comprises the concept of “excess” ALL.

 

 

Bradesco    47      


 
 

       Economic and Financial Analysis

 

Credit Margin - Interest Earning Operations

It is worth mentioning the assertiveness of the provisioning criteria adopted, which is proven by: (i) analyzing historical data on recorded allowances for loan losses; and (ii) effective losses in the subsequent twelve-month period. When analyzed in terms of net loss of recovery, for an existing provision of 6.9% of the portfolio(1) in September 2013, the net loss in the subsequent twelve months was 3.0%, that is, the existing provision exceeded over 133% the loss occurred in the subsequent twelve months.

In September 2013, for an existing provision of 6.9% of the portfolio(1), the gross loss in the subsequent twelve-month period was 4.2%, meaning that the existing provision exceeded over 64% the loss in the subsequent twelve months, as illustrated in the graph below.

(1) As defined by Bacen; and

(2) Includes provision for guarantees provided, encompassing sureties, guarantees, letters of credit and standby letters of credit, which comprises the concept of “excess” ALL.

 

  48  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

 

Credit Margin - Interest Earning Operations

Allowance for Loan Losses(1)

The Non Performing Loans ratio (operations due over 60 days) remained stable in the year-over-year and quarter-over-quarter comparison. Coverage ratios were stabilized at comfortable levels.

 

(1) As defined by Bacen;

(2) Includes provision for guarantees provided, encompassing sureties, guarantees, letters of credit and standby letters of credit, which comprises the concept of “excess” ALL; and

(3) Loan operations overdue for over 60 days and that do not generate revenue appropriation on accrual accounting.

 

 

 

Bradesco    49      


 
 

       Economic and Financial Analysis

 

Credit Margin - Interest Earning Operations

Loan Portfolio – Portfolio Indicators

With a view to facilitating the monitoring of the quantitative and qualitative performance of Bradesco’s loan portfolio, a comparative summary of the main figures and indicators is presented below:

 

 

 

R$ million (except %)

Sept14

Jun14

Sept13

Total Loan Operations (1)

335,904

328,668

311,655

- Individuals

136,946

133,959

126,116

- Corporate

198,958

194,709

185,539

Total Provision (2)

22,623

21,791

21,476

- Specific

11,590

11,097

10,790

- Generic

7,025

6,685

6,678

- Excess (2)

4,008

4,009

4,009

Specific Provision / Total Provision (2) (%)

51.2

50.9

50.2

Total Provision (2) / Loan Operations (%)

6.7

6.6

6.9

AA - C Rated Loan Operations / Loan Operations (%)

92.3

92.2

91.3

D Rated Operations under Risk Management / Loan Operations (%)

1.7

1.9

3.1

E - H Rated Loan Operations / Loan Operations (%)

6.0

5.9

5.6

D Rated Loan Operations

5,734

6,224

9,590

Provision for D-rated Operations

1,591

1,717

2,467

D Rated Provision / Loan Operations (%)

27.8

27.6

25.7

D - H Rated Non-Performing Loans

16,601

16,551

15,664

Total Provision (2) / D-to-H-rated Non-performing Loans (%)

136.3

131.7

137.1

E - H Rated Loan Operations

20,267

19,388

17,369

Provision for E-to-H-rated Loan Operations

17,044

16,190

15,215

E - H Rated Provision / Loan Operations (%)

84.1

83.5

87.6

E - H Rated Non-Performing Loans

13,960

13,560

12,856

Total Provision (2) / E-to-H-rated Non-performing Loans (%)

162.1

160.7

167.0

Non-performing Loans (3)

14,669

14,538

13,693

Non-performing Loans (3) / Loan Operations (%)

4.4

4.4

4.4

Coverage Ratio - Total Provision (2) / Non Performing Loans (3) (%)

154.2

149.9

156.8

Loan Operations Overdue for over 90 days

12,082

11,658

11,283

Loan Operations Overdue for over 90 days / Loan Operations (%)

3.6

3.5

3.6

Coverage Ratio - Total Provision (2) / Operations Overdue for over 90 days (%)

187.2

186.9

190.3

(1) As defined by Bacen;

(2) Includes provision for guarantees provided, encompassing sureties, guarantees, letters of credit and standby letters of credit, which comprises the concept of “excess” ALL; and

(3) Loan operations overdue for over 60 days and that do not generate revenue appropriation on accrual accounting.

 

  50  Report on Economic and Financial Analysis – September 2014


 

 

 

Economic and Financial Analysis                              

 

Funding Margin – Interest Earning Operations

Funding Margin Breakdown - Interest Earning Operations

 

R$ million

 

Funding Margim - Interest Earning Operations

 

9M14

9M13

3Q14

2Q14

Variation

 

12 Months

Quarter

Interest - due to volume

 

 

 

 

465

34

Interest - due to spread

 

 

 

 

813

21

Interest Earning Portion

4,610

3,332

1,625

1,570

1,278

55

 

Quarter-over-quarter, the funding margin of interest earning operations increased 3.5%, or R$ 55 million, in the third quarter of 2014. The variation occurred mainly due to: (i) a greater volume of operations, which amounted to R$ 34 million; and (ii) a R$ 21 million increase in the average spread. 

In the comparison between the first three quarters of 2014 and the same period of the previous year, the Funding Margin - Interest Earning Operations was up 38.4% or R$ 1,278 million. The variation occurred mainly due to: (i) the R$ 813 million increase in average spread as a result of an improved cost structure, with greater focus on funding obtained from Retail customers, associated with the increased Selic rate; and (ii) the greater volume of operations, amounting to R$ 465 million.

 

 

Bradesco    51      


 
 

       Economic and Financial Analysis

 

Funding Margin – Interest Earning Operations

Loans vs. Funding

 

To analyze Loan Operations in relation to Funding, the following should be deducted from total customer funding: (i) the amount committed to reserve requirements at Bacen, (ii) the amount of available funds held at customer service network, as well as (iii) funds from domestic and foreign lines of credit that finance the demand for loans.

Bradesco depends little on interbank deposits and foreign lines of credit, given its capacity to effectively obtain funding from customers.

This is a result of: (i) the outstanding location of its Service Points; (ii) the broad diversity of products offered; and (iii) the market’s confidence in the Bradesco brand.

Note that the use of funds provides a comfortable margin, which proves that Bradesco is capable of meeting demand for loaning funds through its own funding.

 

Funding vs. Investments

R$ million

Variation %

Sept14

Jun14

Sept13

Quarter

12M

Demand Deposits + Sundry Floating

37,227

39,913

43,008

(6.7)

(13.4)

Savings Deposits

87,293

84,319

76,488

3.5

14.1

Time Deposits + Debentures (1)

157,576

158,532

157,356

(0.6)

0.1

Funds from Financial Bills (2)

66,754

61,809

43,952

8.0

51.9

Customer Funds

348,850

344,573

320,803

1.2

8.7

(-) Reserve Requirements

(46,713)

(53,502)

(49,473)

(12.7)

(5.6)

(-) Available Funds

(7,596)

(7,651)

(12,708)

(0.7)

(40.2)

Customer Funds Net of Reserve Requirements

294,541

283,420

258,622

3.9

13.9

Onlending

41,489

40,414

39,317

2.7

5.5

Securities Abroad

8,529

8,068

11,475

5.7

(25.7)

Borrowing

15,072

13,727

11,990

9.8

25.7

Other (Subordinated Debt + Other Borrowers - Cards)

52,515

50,751

50,723

3.5

3.5

Total Funding (A)

412,146

396,380

372,127

4.0

10.8

Expanded Loan Portfolio (Excluding Sureties and Guarantees) (B)

373,915

365,356

347,210

2.3

7.7

B/A (%)

90.7

92.2

93.3

(1.5) p.p.

(2.6) p.p.

(1)  Debentures mainly used to back repos; and

(2) Including: Collateral Mortgage Notes, Mortgage Bonds, Letters of Credit for Agribusiness, Financial Bills and Structured Operations Certificates.

 

  52  Report on Economic and Financial Analysis – September 2014


 

 

 

Economic and Financial Analysis                              

 

Funding Margin – Interest Earning Operations

Main Funding Sources

The following table presents changes in main funding sources:

 

R$ million

Variation %

 

Sept14

Jun14

Sept13

Quarter

12M

Demand Deposits

33,300

36,176

39,456

(8.0)

(15.6)

Savings Deposits

87,293

84,319

76,488

3.5

14.1

Time Deposits

90,615

92,254

99,993

(1.8)

(9.4)

Debentures (1)

66,961

66,278

57,363

1.0

16.7

Borrowing and Onlending

56,561

54,142

51,307

4.5

10.2

Funds from Issuance of Securities (2)

75,283

69,877

55,427

7.7

35.8

Subordinated Debts

36,464

35,384

36,135

3.1

0.9

Total

446,477

438,430

416,169

1.8

7.3

(1) Considering mostly debentures used to back repos; and

(2) Including: Financial Bills, on September 30, 2014, amounting to R$ 49,671 million (June 30, 2014 - R$ 48,111 and September 30, 2013 - R$ 34,242 million).

Demand deposits

 

The R$ 2,876 million reduction in the third quarter of 2014 over the previous quarter, and the R$ 6,156 million reduction over the same period of the previous year were mostly due to new business opportunities offered to customers, basically because of interest rate fluctuations in the period.

Savings Deposits

 

Savings deposits increased 3.5% in the quarter-over-quarter comparison, and 14.1% compared to the same period in the previous year, mainly as a result of: (i) greater funding volume; (ii) the yield of savings account reserve; and (iii) increase in voluntary deposits by customers.

Bradesco is always increasing its savings accounts base, posting net growth of 4.6 million new savings accounts over the last 12 months.

Bradesco    53      


 

 

 

       Economic and Financial Analysis

 

Funding Margin – Interest Earning Operations

Time Deposits

In the third quarter of 2014, time deposits balance totaled R$ 90,615 million, with a reduction of 1.8% over the second quarter of 2014, and reduction of 9.4% over the same period of the previous year.

This performance was due mostly to new investment alternatives available to customers.

Debentures

On September 30, 2014, Bradesco’s debentures balance reached R$ 66,961 million, an increase of 1.0% in the quarter-over-quarter comparison, and of 16.7% in the last 12 months.

These variations are mainly due to the placement and maturity of the securities, which are also used to back repos that are, in turn, impacted by the levels of economic activity.

 

 

Borrowing and Onlending

The increase of R$ 2,419 million in the quarter-over-quarter comparison was mainly a result of: (i) the increase of R$ 1,368 million in foreign-currency-denominated and/or indexed borrowing and onlending bonds, a result, essentially, of the positive exchange rate fluctuation of 11.3% in the period; and (ii) the increase of R$ 1,051 million in the volume of fundings raised by borrowings and onlending in the country, especially through BNDES operations.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the balance of borrowings and onlending presented a growth of R$ 5,254 million, basically due to: (i) the increase of R$ 3,147 million in foreign-currency-denominated and/or indexed borrowing and onlending bonds, whose balance went from R$ 12,142 million in September 2013 to R$ 15,289 million in September 2014, mainly as a result of: (a) the positive exchange rate fluctuation of 9.9% in the period; and (b) the increase in the volume of funds raised; and (ii) the increase of R$ 2,107 million in the volume of funds raised through borrowings and onlending in the country, especially through Finame operations.

 

  54  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

 

Funding Margin – Interest Earning Operations

Funds from the Issuance of Securities

Funds from issuance of securities totaled R$ 75,283 million, up 7.7% or R$ 5,406 million over the previous quarter, mainly due to: (i) the increase in Real Estate Credit Bill, in the value of R$ 2,582 million; (ii) the increase in Financial Bills inventory, in the amount of R$ 1,560 million; and (iii) the increase in the volume of Letters of Credit for Agribusiness, in the amount of R$ 820 million.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the increase in net interest income of R$ 19,856 million was mainly driven by: (i) increased inventory of Financial Bills, whose balance went from R$ 34,242 million in September 2013 to R$ 49,671 million in September 2014, mainly due to new issuances in the period; (ii) increased volume of Mortgage Bonds, in the amount of R$ 6,778 million; and partially counterbalanced by: (iii) the reduction of R$ 2,946 million in the volume of securities issued abroad.

 

Subordinated Debt

Subordinated Debt totaled R$ 36,464 billion in September 2014 (R$ 8,472 million abroad and R$ 27,992 million in Brazil), showing a growth of 3.1% in the quarter-over-quarter comparison, and of 0.9% in the comparison with the same period of the previous year, basically driven by the adjustment of dollar-indexed instruments abroad, and partially counterbalanced by debts due in previous periods.

 


 

 

Bradesco    55      


 
 

       Economic and Financial Analysis

 

Securities/Other Margin – Interest Earning Operations

Securities/Other Margin Breakdown – Interest Earning Operations

 

R$ million

 

Securities/Other Margin - Interest Earning Operations

 

9M14

9M13

3Q14

2Q14

Variation

 

12 Months

Quarter

Interest - due to volume

 

 

 

 

300

60

Interest - due to spread

 

 

 

 

281

63

Interest Earning Portion

3,457

2,876

1,359

1,236

581

123

Income

29,343

22,495

12,804

8,820

6,848

3,984

Expenses

(25,886)

(19,619)

(11,445)

(7,584)

(6,267)

(3,861)

 

Securities/Other Margin – Interest Earning Operations rose R$ 123 million between the third quarter of 2014 and the previous quarter. The variation occurred mainly due to: (i) the R$ 63 million increase in average spread; and (ii) the greater volume of operations, which amounted to R$ 60 million.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the Securities/Other Margin - Interest Earning Operations was down R$ 581 million. This result was primarily due to: (i) a greater volume of operations, which affected the result in R$ 300 million; and (ii) increased average spread, totaling R$ 281 million.

Insurance Margin - Interest Earning Operations

Insurance Margin Breakdown - Interest Earning Operations

 

R$ million

 

Insurance Margin - Interest Earning Operations

 

9M14

9M13

3Q14

2Q14

Variation

 

12 Months

Quarter

Interest - due to volume

 

 

 

 

242

25

Interest - due to spread

 

 

 

 

157

(101)

Interest Earning Portion

3,050

2,651

1,005

1,081

399

(76)

Income

10,535

6,085

3,480

3,607

4,450

(127)

Expenses

(7,485)

(3,434)

(2,475)

(2,526)

(4,051)

51

 

Comparing the third quarter of 2014 with the previous quarter, interest financial margin from insurance operations decreased R$ 76 million, or 7.0%, basically impacted by: (i) the R$ 101 million decrease in average spread; and offset, in part by: (ii) the greater volume of operations, which amounted to R$ 25 million.

Comparing the first three quarters of 2014 and the same period of the previous year, Insurance Margin – Interest Earning Operations increased 15.1%, or R$ 399 million, mostly due to: (i) a greater volume of operations, which amounted to R$ 242 million; and (ii) a R$ 157 million increase in the average spread.

  56  Report on Economic and Financial Analysis – September 2014


 

 

 

Economic and Financial Analysis                              

 

NII - Non-Interest Earning Portion

NII - Non-Interest Earning Portion – Breakdown

 

R$ million

 

NII - Non-Interest Earning Portion

 

9M14

9M13

3Q14

2Q14

Variation

 

12 Months

Quarter

Funding

(231)

(221)

(76)

(77)

(10)

1

Insurance

21

32

52

49

(11)

3

Securities/Other

476

511

67

240

(35)

(173)

Total

266

322

43

212

(56)

(169)

 

The non-interest earning portion in the third quarter of 2014 was R$ 43 million, versus R$ 212 million in the previous quarter, which amounted to a R$ 169 million reduction primarily due to an increase in Securities/Other margin obtained in the previous quarter. In the comparison between the first three quarters of 2014 and the same period of the previous year, the non-interest earning portion was down R$ 56 million. The variations in non-interest financial margin were basically a result of:

·       “Insurance” – represented by gains/losses from variable-income securities; the variations in the periods are associated with market conditions, which enable greater/lower gain opportunity; and

·       "Securities/Other" - decreased R$ 173 million and R$ 35 million quarter-over-quarter, and in a comparison between the first three quarters of 2014 with the same period of the previous year, respectively, were due to lower gains from market arbitrage.

 

Bradesco    57      


 
 

       Economic and Financial Analysis

Insurance, Pension Plans and Capitalization Bonds

Below is the analysis of the Statement of Financial Position and Income Statement of Grupo Bradesco Seguros e Previdência:

Consolidated Statement of Financial Position

 

R$ million

 

Sept14

Jun14

Sept13

Assets

 

 

 

Current and Long-Term Assets

169,512

165,203

154,464

Securities

158,207

154,261

143,423

Insurance Premiums Receivable

3,118

2,969

2,623

Other Loans

8,187

7,973

8,418

Permanent Assets

4,589

4,434

4,040

Total

174,101

169,637

158,504

Reserve Requirements

 

 

 

Current and Long-Term Liabilities

153,993

150,230

141,531

Tax, Civil and Labor Contingencies

2,438

2,354

2,920

Payables on Insurance, Pension Plan and Capitalization Bond Operations

475

446

374

Other Reserve Requirements

5,111

4,699

4,683

Insurance Technical Reserves

12,609

12,272

11,978

Life and Pension Plan Technical Reserves

126,858

124,192

115,814

Capitalization Bond Technical Reserves

6,502

6,267

5,762

Non-controlling Interest

601

594

647

Shareholders' Equity

19,507

18,813

16,326

Total

174,101

169,637

158,504

 

Consolidated Income Statement

 

 

 

 

 

R$ million

 

9M14

9M13

3Q14

2Q14

Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income

38,346

35,260

12,904

13,992

Premiums Earned from Insurance, Pension Plan Contribution and Capitalization Bond

22,449

19,612

7,980

7,378

Financial Result from the Operation

3,127

2,510

1,019

1,098

Sundry Operating Income

707

699

324

188

Retained Claims

(13,053)

(11,375)

(4,778)

(4,193)

Capitalization Bond Draws and Redemptions

(3,555)

(2,992)

(1,295)

(1,173)

Selling Expenses

(2,152)

(1,879)

(735)

(737)

General and Administrative Expenses

(1,706)

(1,571)

(615)

(553)

Tax Expenses

(463)

(424)

(145)

(158)

Other Operating Income/Expenses

(591)

(320)

(182)

(236)

Operating Result

4,763

4,260

1,573

1,614

Equity Result

500

329

176

160

Non-Operating Result

(25)

(34)

(4)

(9)

Income before Taxes and Profit Sharing

5,238

4,555

1,745

1,765

Income Tax and Contributions

(1,907)

(1,681)

(634)

(641)

Profit Sharing

(65)

(51)

(20)

(21)

Non-controlling Interest

(96)

(84)

(33)

(31)

Net Income

3,170

2,739

1,058

1,072

Note: For comparison purposes, the non-recurring events’ effects are not considered.

 

  58  Report on Economic and Financial Analysis – September 2014


 

 

 

Economic and Financial Analysis                              

 

Insurance, Pension Plans and Capitalization Bonds

Income Distribution of Grupo Bradesco Seguros e Previdência

 

 

 

 

 

 

 

 

R$ million

 

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

Life and Pension Plans

588

698

639

582

552

564

542

570

Health

168

184

192

175

139

155

167

167

Capitalization Bonds

74

119

110

101

105

97

131

103

Basic Lines and Other

228

71

99

143

82

115

90

124

Total

1,058

1,072

1,040

1,001

878

931

930

964

 

Performance Ratios

 

%

 

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

Claims Ratio (1)

72.7

70.2

70.1

71.1

72.7

71.1

69.6

70.5

Expense Ratio (2)

10.5

11.2

10.4

10.9

10.4

10.9

11.0

11.6

Administrative Expenses Ratio (3)

4.6

4.0

4.7

4.3

4.9

4.1

4.3

4.2

Combined Ratio (4) (5)

86.5

86.3

86.4

86.1

86.9

85.5

86.0

86.6

(1) Retained Claims/Earned Premiums;

(2) Sales Expenses/Earned Premiums;

(3) Administrative Expenses/Net Written Premiums;

(4) (Retained Claims + Sales Expenses + Other Operating Income and Expenses)/Earned Premiums + (Administrative Expenses + Taxes)/Net Written Premiums; and

(5) Excluding additional reserves.

Note: For comparison purposes, the non-recurring events’ effects are not considered.

Written Premiums, Pension Plan Contributions and Capitalization Bond Income

 

In a comparison between the third quarter of 2014 and the same period of the previous year, there was an increase of 16.6% in written premiums, pension plan contribution and capitalization bond income. As for the second quarter of 2014, there was a reduction of 7.8%, due to the exceptional growth of 46.2% in the previous quarter of “Life and Pension Plan” products.

Cumulatively until September 2014, production increased by 9.8%, without considering the DPVAT agreement, over the same period of the previous year, influenced by “Auto RE”, “Health” and “Capitalization” products, which grew 30.9%, 21.0%, and 17.0%, respectively.

 

Bradesco    59      


 

 

 

       Economic and Financial Analysis

 

Insurance, Pension Plans and Capitalization Bonds

Written Premiums, Pension Plan Contributions and Capitalization Bond Income


 

(*) In January 2014, Bradesco Vida e Previdência requested the shutdown of DPVAT insurance consortia. The DPVAT agreement share went from 18.4% to 5.4%, decrease of 13 p.p. over September 2013.

 

  60  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

 

Insurance, Pension Plans and Capitalization Bonds

Retained Claims by Insurance Line

 


 

 

Bradesco   61      


 
 

       Economic and Financial Analysis

 

Insurance, Pension Plans and Capitalization Bonds

Insurance Sales Ratio by Segment


 

 


 

 

 

  62  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

 

Insurance, Pension Plans and Capitalization Bonds

Efficiency Ratio

General and Administrative Expenses / Revenue

The improvement in the administrative efficiency ratio between the third quarter of 2014 and the same period of the previous year, is a result of: (i) the benefits generated by cost-cutting measures; and (ii) the 16.6% growth in revenue in the period. In turn, the reduction of 0.6 p.p. in the efficiency ratio in the third quarter of 2014 over the previous quarter is basically a result of the decrease of 7.8% in revenue.

 

 

 

 

Bradesco    63      


 
 

       Economic and Financial Analysis

 

Insurance, Pension Plans and Capitalization Bonds

Technical Reserves

 

 

 

 

  64  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

 

Bradesco Vida e Previdência

 

R$ million (unless otherwise stated)

 

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

Net Income

588

698

639

582

552

564

542

570

Premium and Contribution Income (1)

5,645

7,301

4,994

8,505

4,971

7,535

5,698

8,053

- Income from Pension Plans and VGBL

4,383

6,117

3,898

7,317

3,838

6,475

4,677

6,976

- Income from Life/Personal Accidents Insurance Premiums

1,262

1,184

1,096

1,188

1,133

1,060

1,021

1,077

Technical Reserves

126,858

124,192

119,942

119,228

115,814

114,383

110,527

108,371

Investment Portfolio

132,535

129,193

126,001

124,655

121,211

119,842

118,380

117,418

Claims Ratio

36.6

31.5

29.9

37.3

43.3

37.3

35.1

37.4

Expense Ratio

18.5

20.7

21.8

21.2

21.8

18.8

23.4

23.3

Combined Ratio

63.4

57.8

58.6

67.3

72.6

61.0

70.0

68.1

Participants / Policyholders (in thousands)

27,625

27,789

27,451

28,256

28,044

27,030

25,722

25,837

Premium and Contribution Income Market Share (%) (2)

25.8

26.6

26.1

30.2

29.1

28.8

24.6

29.6

Life/AP Market Share - Insurance Premiums (%) (2)

17.5

17.2

17.6

17.0

16.9

16.3

16.4

18.0

(1)Life/VGBL/PGBL/Traditional; and

(2) In 3T14, it considers the latest data made available by Susep (Aug/14).

Note: For comparison purposes, the non-recurring events’ effects are not considered.

 

Because of the solid structure, innovative product policy and market trust earned, Bradesco Vida e Previdência accounted for 25.8% of the pension plan and VGBL income. (source: Susep - data from August 2014).

The net income for the third quarter of 2014 15.8% lower compared to the previous quarter, influenced by the following factors: (i) a 5.1% increase in the “Life” product claims ratio; (ii) reduction in financial result; and partially counterbalanced by: (iii) improved sales ratio.

The net income for the first three quarters of 2014 increased 16.1% over the same period of the previous year, basically due to improvement: (i) of 5.9 p.p. in claims ratio; (ii) in sales ration; (iii) in financial result; and (iv) in general and administrative expenses.

 

Bradesco    65      


 
 

       Economic and Financial Analysis

 

Bradesco Vida e Previdência

In September 2014, technical reserves for Bradesco Vida e Previdência stood at R$ 126.9 billion, made up of R$ 120.4 billion from “Pension Plans and VGBL” and R$ 6.5 billion from “Life, Personal Accidents and Other Lines”, meaning a growth of 9.5% over September 2013.

The Pension Plan and VGBL Investment Portfolio accounted for 31.0% of market funds in August 2014 (source: Fenaprevi).

 

 

Growth of Participants and Life and Personal Accident Policyholders

 

In September 2014, the number of Bradesco Vida e Previdência customers surpassed 2.4 million pension plan and VGBL participants, and 25.2 million life and personal accident policyholders.


This impressive growth was fueled by the strength of the Bradesco brand and the improvement of selling and management policies.

 

 

  66  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

 

Bradesco Saúde and Mediservice

 

R$ million (unless otherwise stated)

 

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

Net Income

168

184

192

175

139

155

167

167

Net Written Premiums

3,851

3,509

3,372

3,274

3,154

2,926

2,787

2,727

Technical Reserves

6,226

6,149

5,794

5,726

6,585

6,503

6,308

5,582

Claims Ratio

87.6

86.1

86.9

88.5

89.8

87.3

84.7

85.3

Expense Ratio

4.8

4.6

4.1

5.4

5.4

5.4

5.2

5.1

Combined Ratio

98.1

97.7

96.9

99.5

99.6

98.9

96.2

98.5

Policyholders (in thousands)

4,475

4,360

4,273

4,173

4,117

4,082

3,985

3,964

Written Premiums Market Share (%) (1)

45.8

45.2

45.4

46.0

45.6

48.8

48.2

45.3

(1) In the third quarter of 2014, it considers the latest data made available by ANS (Aug/14).

Note: For comparison purposes, the non-recurring events’ effects are not considered.

 

Revenue increased by 9.8% compared to the previous quarter. The net income of the third quarter of 2014 reduced by 8.7% over the second quarter of 2014, basically due to: (i) growth of 1.5 p.p. of claims ratio; and (ii) decrease in financial and equity result.

Net income for the first three quarters of 2014 was up 18.0% compared to the same period in the previous year, mainly due to: (i) a 21.0% increase in revenue; (ii) a 0.9 p.p. increase in sales; (iii) a 0.5 p.p. reduction in the claims ratio; (iv) improved financial and equity result; and (v) improvement in the administrative efficiency ratio.

In September 2014, Bradesco Saúde and Mediservice maintained strong market position in the corporate segment (source: ANS).

Approximately 98 thousand companies in Brazil have Bradesco Saúde insurance and Mediservice plans.

Of the 100 largest companies in Brazil in terms of revenue, 53 are Bradesco Saúde and Mediservice customers (source: Exame magazine’s Melhores e Maiores ranking, June 2014).

Bradesco    67      


 
 

       Economic and Financial Analysis

 

Bradesco Saúde and Mediservice

Number of Bradesco Saúde and Mediservice Policyholders

Both companies have a combined total of over 4.4 million customers. The great participation of corporate insurance in the overall portfolio (96.0% in September 2014) shows its high level of specialization and customization in collective plans service.

We highlight the Small and Mid-Sized Group Insurance (SPG) portfolio, which covered 867 thousand lives in September 2014, up 20.8% compared to the same period in 2013.

 

 

Bradesco Capitalização

 

R$ million (unless otherwise stated)

 

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

Net Income

74

119

110

101

105

97

131

103

Capitalization Bond Income

1,416

1,290

1,205

1,296

1,234

1,126

983

1,089

Technical Reserves

6,502

6,267

6,081

5,900

5,762

5,738

5,623

5,449

Customers (in thousands)

3,436

3,456

3,485

3,475

3,428

3,439

3,462

3,459

Premium Income Market Share (%) (1)

24.1

23.6

24.3

22.1

21.8

20.9

22.1

23.1

(1) In the third quarter of 2014, it considers the latest data made available by Susep (Aug/14).

 

In the third quarter of 2014, revenue increased by 9.8% compared to the previous quarter. Net income in the third quarter of 2014 reduced by 37.8% over the previous quarter, basically due to: (i) the decreased financial result; and (ii) the reduced equity result.

The net income until September 2014 reduced by 9.0% compared to the result of the same period of the previous year, basically due to: (i) decrease in operating result, because of the provision for drawing; and (ii) decrease in financial result.

 

 

  68  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

 

Bradesco Capitalização

Bradesco Capitalização ended the third quarter of 2014 in 1st place among the capitalization bond companies, due to its policy of transparency and of adjusting its products based on potential consumer demand and consistent with the market changes.

Concerned with providing products that better fit the most varied profiles and budgets of our customers, Bradesco Capitalização has a product portfolio ranging by payment method (lump or monthly), contribution term, periodicity and value of premiums that meet requirements and expectations of customers.

Combining a pioneer spirit with business strategic view, Bradesco Capitalização has launched onto the market products concerned with socio-environmental causes, in which part of the revenue goes to projects with this purpose. In addition to offering to customers the possibility of creating a financial reserve, Capitalization Bonds with socio-environmental profile seek to raise our customer’s awareness about the importance of this theme and allow them to participate in a noble cause that benefits society.

Bradesco Capitalização currently has partnerships with the following institutions: (i) SOS Mata Atlântica Foundation (which contributes to the preservation of biological and cultural diversity of the Atlantic Forest, stimulating social and environmental citizenship); (ii) Amazonas Sustentável Foundation (which contributes to the sustainable development, environmental preservation and improvement to the quality of life of communities that benefit from preservation centers in the state of Amazonas); (iii) the Brazilian Cancer Control Institute (which contributes to the prevention, early diagnosis and treatment of breast cancer in Brazil); and (iv) Tamar Project (created to preserve sea turtles).

The portfolio is composed of 23.1 million active bonds. Of this total, 35.4% are represented by “Traditional Bonds”, sold at the Branches Network and at Bradesco Dia&Noite service channels. The other 64.6% of the portfolio is represented by “Incentive” bonds (assignment of drawing rights), such as partnerships with Bradesco Vida e Previdência and Bradesco Auto/RE. Given that the purpose of this type of capitalization bond is to add value to the product of a partner company or even to encourage timely payment by its customers, the bonds have reduced maturity and grace terms and lower sale price.

 

Bradesco    69      

 

 


 

 
 

       Economic and Financial Analysis

Bradesco Auto/RE and Atlântica Companhia de Seguros

 

 

R$ million (unless otherwise stated)

 

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

Net Income

37

38

86

71

25

43

28

10

Net Written Premiums

1,655

1,551

1,399

1,108

1,276

1,204

1,039

1,014

Technical Reserves

5,952

5,689

5,314

4,998

5,003

4,817

4,643

4,577

Claims Ratio

62.8

62.5

58.0

59.1

59.5

58.6

58.5

63.7

Expense Ratio

21.0

21.8

20.9

19.6

18.9

18.0

17.7

17.8

Combined Ratio

105.4

107.6

103.6

104.5

101.6

100.8

105.6

109.6

Policyholders (in thousands)

4,536

3,690

3,882

3,613

3,631

3,652

3,798

3,871

Premium Income Market Share (%) (1)

10.7

10.6

10.3

8.8

9.1

9.1

8.8

10.0

 (1) In the third quarter of 2014, it considers the latest data made available by Susep (Aug/14).

Note: We are considering Atlântica Companhia de Seguros as of the first quarter of 2014.

 

In the third quarter of 2014, revenue increased by 6.7% compared to the previous quarter. The net income for the quarter remained virtually stable compared to the result for the previous quarter, as a result of: (i) an increase of 0.3 p.p. in claims ratio; (ii) reduction in the financial result; and counterbalanced, in part; (iii) by the improvement in sales ratio.

The net income until September of 2014 showed a growth of 67.7% compared to the same period in the previous year, mainly due to: (i) a 30.9% increase in revenue; (ii) increase in financial and equity result; (iii) increase in the administrative efficiency ratio; partially counterbalanced by: (iv) improvement of 2.3 p.p. in claims ration; and (v) increase of 3.0 p.p. in sales.

In the Property Insurance segment, the focus on large brokers and Corporate and Middle Market customers was maintained. This results in renewal of the main accounts, whether as the leading company or through participation in co-insurance. In Aviation and Maritime Hull insurance, the increased exchange with Corporate and Middle Market segments has been drawn on extensively, taking full advantage of the stronger sales of new aircraft and those of the maritime segment.

 

The transportation segment is still the primary focus, with essential investments made to leverage new business.

Despite strong competition in the “Auto/RCF” line, the insurer increased its fleet to approximately 1.7 million vehicles, guaranteed by the maintenance of competitiveness, mainly due to the establishment of a refined and segmented quoting process. Another important fact relates to improvements to current products and the creation of products for a specific target market. Among them, it is worth noting the launch of the First Vehicular Protection of Bradesco Seguro (Bradesco Seguro Primeira Proteção Veicular), exclusive to Bradesco’s account holders, which helps, through the Day and Night Support services, new vehicles and vehicles of up to 15 years of use.

In order to provide its customers with a better service, Bradesco Auto/RE currently counts with 28 Bradesco Auto Centers (BAC), which offer policyholders the greatest variety of services in a single place. Including: auto claims services, rental car reservations, installation of anti-theft equipment, preventative maintenance checks, glass repairs or replacement and environmental vehicle inspections.

 

 

  70  Report on Economic and Financial Analysis – September 2014


 

Economic and Financial Analysis                              

 

Bradesco Auto/RE

Number of Policyholders at Auto/RE

 

Mass insurance targets individuals, self-employed professionals and SMEs. The launch of new products combined with the continuous improvement to methods and systems has contributed to maintenance of customer base, which comprises around 3.9 million customers in the last 12 months.

It is worth pointing out that we continue with a strong strategy for the ‘residential insurance” segment, totaling more than 1.6 million insured homes. We recently launched the Monthly Home Insurance; a product with monthly billing via checking account debit.

 

 

Bradesco    71      


 
 

       Economic and Financial Analysis

Fee and Commission Income

A breakdown of the variation in Fee and Commission Income for the respective periods is presented below:

Fee and Commission Income

 

 

 

 

 

R$ million

9M14

9M13

3Q14

2Q14

Variation

12 Months

Quarter

Card Income

5,924

5,207

2,023

1,965

717

58

Checking Account

2,941

2,655

1,025

972

286

53

Loan Operations

1,887

1,644

688

625

243

63

Fund Management

1,792

1,735

653

578

57

75

Collection

1,168

1,091

400

388

77

12

Consortium Management

640

526

228

214

114

14

Underwriting / Financial Advisory Services

516

415

135

160

101

(25)

Custody and Brokerage Services

384

387

138

121

(3)

17

Payments

286

254

89

100

32

(11)

Other

712

644

260

205

68

55

Total

16,250

14,559

5,639

5,328

1,691

311

 

Explanations of the main items that influenced the variation in Fee and Commission Income between periods can be found below.

 

  72  Report on Economic and Financial Analysis – September 2014

 


 
 

Economic and Financial Analysis                              

Fee and Commission Income

Card Income

 

In the third quarter of 2014, card services income increased, totaling R$ 2,023 million, a growth of R$ 58 million over the previous quarter, basically due to: (i) increased volume of transactions in the period; and (ii) increased revenue.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the growth of 13.8%, or R$ 717 million are mainly due to: (i) an increase in income from purchases and services, resulting from the 11.0% increase in revenue, which reached R$ 96.0 billion in the first three quarters of 2014; (ii) increase in the credit and debit card base; and (iii) the greater volume of transactions in the period.

        

Bradesco    73      


 
 

       Economic and Financial Analysis

Fee and Commission Income

Checking Account

 


Checking account service income increased 5.5% in the third quarter of 2014, compared to the previous quarter, basically due to: (i) the expansion of customer service portfolio; and (ii) an increase in business volume.

In the comparison between the first three quarters of 2014 and the same period of the previous year, such revenues grew R$ 286 million, or 10.8%, mainly due to: (i) the expansion of the checking account customer base, whose net increase represented 177,000 active checking account holders (158,000 individual customers and 19,000 corporate customers); (ii) the expansion of the customer service portfolio; and (iii) an increase in business volume

 

 

Loan Operations

 

In the third quarter of 2014, revenues from loan operations totaled R$ 688 million, with a growth of 10.1% over the previous quarter, mainly due to the increased volume of operations contracted in the quarter.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the 14.8% increase was mainly driven by: (i) increased volume of operations contracted in the period; and (ii) higher income from collaterals, which increased 11.8%, derived mostly from a 7.5% growth in the volume of “Sureties and Guarantees” operations.

 


 

 

  74  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

Fee and Commission Income

Fund Management

 

In the third quarter of 2014, income from fund management totaled R$ 653 million, accounting for a growth of R$ 75 million compared to the previous quarter, basically due to the 5.3% increase in the volume of funds and portfolios raised and managed.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the increase of R$ 57 million was basically due to the increase in the volume of funds raised and managed, which grew 11.1% in the period.

Highlight to investments in fixed income funds, with growth of 14.2% in the period.

 

Shareholders' Equity

R$ million

Variation %

Sept14

Jun14

Sept13

Quarter

12M

Investment Funds

449,440

423,668

397,156

6.1

13.2

Managed Portfolios

31,164

30,964

31,639

0.6

(1.5)

Third-Party Fund Quotas

6,337

7,614

9,475

(16.8)

(33.1)

Total

486,941

462,246

438,270

5.3

11.1

x

x

x

x

x

x

Distribution

R$ million

Variation %

Sept14

Jun14

Sept13

Quarter

12M

Investment Funds – Fixed Income

421,227

395,546

368,766

6.5

14.2

Investment Funds – Equities

28,213

28,122

28,390

0.3

(0.6)

Investment Funds – Third-Party Funds

4,419

5,496

7,199

(19.6)

(38.6)

Total - Investment Funds

453,859

429,164

404,355

5.8

12.2

x

 

 

 

 

 

Managed Portfolios - Fixed Income

22,606

21,870

22,970

3.4

(1.6)

Managed Portfolios – Equities

8,558

9,094

8,669

(5.9)

(1.3)

Managed Portfolios - Third-Party Funds

1,918

2,118

2,276

(9.4)

(15.7)

Total - Managed Funds

33,082

33,082

33,915

-

(2.5)

x

 

 

 

 

 

Total Fixed Income

443,833

417,416

391,736

6.3

13.3

Total Equities

36,771

37,216

37,059

(1.2)

(0.8)

Total Third-Party Funds

6,337

7,614

9,475

(16.8)

(33.1)

Overall Total

486,941

462,246

438,270

5.3

11.1

Bradesco    75      


 
 

       Economic and Financial Analysis

Fee and Commission Income

Cash Management Solutions (Payments and Collection)

 

In the third quarter of 2014, billing and collection income remained stable compared to the previous quarter.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the 8.1% – or R$ 109 million – increase was mainly due to the greater volume of processed documents, which increased from 1,577 million in the first three quarters of 2013 to 1,632 million in the first three quarters of 2014, a growth of 3.5% in the period.


 

Consortium Management

 

In the third quarter of 2014, the income from consortium management had an increase of 6.5% compared to the previous quarter, as a result of the sales made in that period. On September 30, 2014, Bradesco had 1,020 thousand active quotas (1,010 thousand active quotas on June 30, 2014), ensuring a leading position in all the
segments it operates (real estate, auto and trucks/tractors/machinery and equipment).

In the comparison between the first three quarters of 2014 and the same period of the previous year, the 21.7% increase in income from consortium management was mainly driven by: (i) a higher volume of received bids; (ii) the increase in the average ticket; and (iii) the increase in sales of new quotas, ranging from 876 thousand active quotas on September 30, 2013, to 1,020 thousand active quotas on September 30, 2014, an increase of 144 thousand net quotas.

 

 

  76  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

Fee and Commission Income

Custody and Brokerage Services

 

In the third quarter of 2014, total earnings with custody and brokerage services increased R$ 17 million or 14.0% over the previous quarter. This behavior is mainly attributed to higher volumes traded on BM&FBovespa, and to the growth of R$ 43 billion in assets held in custody, which affected custody and brokerage revenues.

In the comparison between the first three quarters of 2014 and the same period in the previous year, custody and brokerage revenues remained virtually stable.

It is worth stressing that we surpassed R$ 1 trillion in assets held in custody.

 

 

 

Underwriting / Financial Advisory Services

 

The R$ 25 million reduction in the quarter-over-quarter comparison resulted primarily from the performance in the capital market during the second quarter of 2014. It is important to note that variations recorded in this income derive from the volatile behavior of the capital market.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the increase of R$ 101 million is mainly related to the higher business volume in the period.

 

 

 

Bradesco   77      


 
 

       Economic and Financial Analysis

Personnel and Administrative Expenses

 

Personnel and Administrative Expenses

 

 

 

 

 

R$ million

9M14

9M13

3Q14

2Q14

Variation

12 Months

Quarter

Personnel Expenses

 

 

 

 

 

 

Structural

8.254

7.745

2.881

2.727

509

154

Payroll/Social Charges

6.126

5.773

2.146

2.026

353

120

Benefits

2.128

1.972

735

701

156

34

Non-Structural

2.037

1.851

683

721

186

(38)

Management and Employee Profit Sharing

1.150

1.022

401

390

128

11

Provision for Labor Claims

580

583

177

220

(3)

(43)

Training

94

72

40

36

22

4

Termination Costs

213

174

65

74

39

(9)

Total

10.291

9.596

3.564

3.448

695

116

x

 

 

 

 

 

 

Administrative Expenses

 

 

 

 

 

 

Outsourced Services

2.833

2.920

974

956

(87)

18

Depreciation and Amortization

1.404

1.230

486

466

174

20

Communication

1.136

1.195

382

378

(59)

4

Data Processing

972

945

340

326

27

14

Rental

656

616

225

216

40

9

Transportation

595

619

193

200

(24)

(7)

Financial System Services

580

555

196

188

25

8

Advertising and Marketing

533

493

184

170

40

14

Asset Maintenance

500

484

169

180

16

(11)

Security and Surveillance

417

363

140

139

54

1

Materials

253

227

85

91

26

(6)

Water, Electricity and Gas

173

170

54

57

3

(3)

Trips

102

99

37

34

3

3

Other

535

748

163

175

(213)

(12)

Total

10.689

10.664

3.628

3.575

25

53

x

 

 

 

 

 

 

Total Personnel and Administrative Expenses

20.980

20.260

7.192

7.023

720

169

x

 

 

 

 

0

-

Employees

98.849

101.410

98.849

99.027

(2.561)

(178)

Service Points

74.028

71.724

74.028

73.208

2.304

820


In the third quarter of 2014, total Personnel and Administrative Expenses amounted to R$ 7,192 million, with growth of 2.4% in comparison with the previous quarter. In the first three quarters of 2014, Personnel and Administrative Expenses totaled R$ 20,980 million, with an increase of 3.6% compared to the same period of the previous year.

Personnel Expenses

In the third quarter of 2014, personnel expenses totaled R$ 3,564 million, with variation of 3.4% or R$ 116 million compared to the previous quarter.

In the "structural" portion, the increase of R$ 154 million in expenses was mainly due to increased wage levels and labor obligations updates, in accordance with collective agreement, whose impact was R$ 144 million, of which R$ 51 million refer to the increase in the recurring monthly sheet from September 2014.

In the “non-structural portion”, the reduction of R$ 38 million was basically due to: (i) the smaller expense with provisions for labor proceedings, in the amount of R$ 43 million; and counterbalanced, in part, by (ii) greater expenses with profit and results sharing of managers and employees (PLR), in the amount of R$ 11 million.

  78  Report on Economic and Financial Analysis – September 2014


 

 

 

Economic and Financial Analysis                              

Personnel and Administrative Expenses

Personnel Expenses

 

In the comparison between the first three quarters of 2014 and the same period of the previous year, the increase of R$ 695 million or 7.2% was mainly due to: (i) the “structural” portion, totaling R$ 509 million, related to the increase in expenses with payroll, social charges and benefits, impacted by higher salaries (2013 and 2014 collective agreement); and (ii) the increase of R$ 186 million in the “non-structural” portion, resulting mainly from greater expenses with: (a) employees and managers profit sharing (PLR), totaling R$ 128 million; and (b) termination and charge costs, totaling R$ 39 million.


 

Bradesco    79      


 
 

       Economic and Financial Analysis

Personnel and Administrative Expenses

 

 

Administrative Expenses

 

Administrative expenses amounted to R$ 3,628 million in the third quarter of 2014, with a growth of R$ 53 million, or 1.5%, compared to the previous quarter, mainly due to greater expenses with: (i) depreciation and amortization, in the amount of R$ 20 million; (ii) outsourced services, in the amount of R$ 18 million; (iii) data processing, in the amount of R$ 14 million; (iv) marketing and advertising, in the amount of R$ 14 million; and offset by lower expenses with: (v) maintenance and preservation of assets, in the amount of R$ 11 million.

 

In the comparison between the first three quarters of 2014 and the same period of the previous year, total administrative expenses remained stable, with variation of 0.2%, while inflation, IPCA and IGPM-M ratios showed variations of 6.75% and 3.54%, respectively. Such behavior reflects the constant control over costs, despite (i) the expansion in business volumes and (ii) the organic growth recorded in the period, with the opening of 2,304 Service Points, with highlight to Bradesco Expresso, for totaling 74,028 Service Points on September 30, 2014.

 

 

 

  80  Report on Economic and Financial Analysis – September 2014


 
 

Economic and Financial Analysis                              

 

Operating Coverage Ratio (1)

 

In the quarter, the coverage ratio over the last 12 months maintained its improvement with a 1.8 p.p. growth, mainly due to an increase in fee and commission income, combined with ongoing cost control efforts, including the initiatives of our Efficiency Committee and measures applied to increase the offer of products and services to the entire client base.

It should be pointed out that 75.9% is the best rate over the last six years.

(1) Fee and Commission Income/Administrative and Personnel Expenses (in the last 12 months).


 

Tax Expenses

 

The increase of R$ 62 million in tax expenses compared to the previous quarter, and the increase of R$ 289 million, or 9.2%, in the year-over-year comparison was basically due to the increase in expenses with PIS/Cofins/ISS, derived from the increase in taxable income.

 

Equity in the Earnings (Losses) of Unconsolidated Companies

 

In the third quarter of 2014, the equity in the earnings (losses) of unconsolidated companies was R$ 43 million, a growth of R$ 8 million, or 22.9%, compared to the previous quarter, mainly due to greater results with the unconsolidated company “IRB – Brasil Resseguros”.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the increase of R$ 113 million was mainly attributed to better results with the unconsolidated company “IRB – Brasil Resseguros”.

Bradesco    81      


 
 

       Economic and Financial Analysis

Operating Income

 

Operating income stood at R$ 6,100 million in the third quarter of 2014, an increase of R$ 18 million over the previous quarter. This performance was mostly driven by: (i) improved results in provision of services income, in the amount of R$ 311 million; (ii) greater results with net interest income, totaling R$ 215 million; counterbalanced, in part, by; (iii) increased expenses with allowances for loan losses, in the amount of R$ 207 million, and (v) the increase in personnel and administrative expenses, in the amount of R$ 169 million; (v) the lower operating income from Insurance, Pension Plan and Capitalization Bond, in the amount of R$ 100 million; and (vi) greater tax expenses in the amount of R$ 62 million.

In the comparison between the first three quarters of 2014 and the same period of the previous year, the increase of R$ 3,693 million, or 26.6%, was mainly due to: (i) higher net interest income, totaling R$ 3,287 million; (ii) increase in provision of services income, totaling R$ 1,691 million;

(iii) increase in the operating income from Insurance, Pension Plans and Capitalization Bonds, in the amount of R$ 401 million; partially counterbalanced by: (vi) greater personnel and administrative expenses, totaling R$ 720 million; (v) the increase in other operating expenses (net of other income), in the value of R$ 524 million; (vi) increased tax expenses, amounting to R$ 289 million; and (vii) greater expenses with allowances for loan losses , totaling R$ 266 million.

 

Non-Operating Income

 

In the third quarter of 2014, non-operating income posted a loss of R$ 45 million, an increase of R$ 11 million, compared to the previous quarter, and an increase of R$ 26 million, in a comparison between the first three quarters of 2014 and the same period of the previous year. The variations presented reflect the greatest non-operating expenses (such as losses on sale of foreclosed assets/other) in the period.

 

 

 

  82  Report on Economic and Financial Analysis – September 2014


 

 

 


 
 

         Return to Shareholders

 

Corporate Governance

Bradesco’s management is made up of the Board of Directors and the Statutory Board of Executive Officers. The former is composed of nine members who are eligible for reelection, and includes eight external members, including the Chairman (Mr. Lázaro de Mello Brandão) and one internal member (The Chief Executive Officer, Mr. Luiz Carlos Trabuco Cappi). The Board members are elected by the Annual Shareholders’ Meeting, which elect the members of the Board of Executive Officers.

Assisting it in performing its duties, Bradesco’s Corporate Governance structure includes six (6) Committees subordinated to the Board of Directors, two (2) of which are Statutory Committees (Audit and Compensation) and four (4) Non-Statutory Committees (Ethical Conduct, Internal Controls and Compliance, Integrated Risk Management and Capital Allocation and Sustainability), in addition to multiple Executive Committees subordinated to the Board of Executive Officers.

Bradesco guarantees its shareholders, as a minimum dividend, 30% of adjusted net income, as well as 100% tag-along rights for common shares and 80% for preferred shares. Preferred shares are also entitled to dividends 10% greater than those paid to common shares.  

Bradesco was rated brAA+ (Excellent Corporate Governance Practices) by Austin Rating. Bradesco voluntarily adhered to Level 1 Corporate Governance of BM&FBovespa in 2001, as well as to the Code of Self-Regulation and Best Practices for Publicly Held Companies, issued by the Brazilian Association of Publicly Held Companies (Abrasca), in 2011.

All subjects proposed for the General Meetings were duly approved on March 10, 2014.

On March 12, 2014, the CEO, Mr. Luiz Carlos Trabuco Cappi, was elected Vice-Chairman of Bradesco’s Board of Directors.

Further information is available at the Bradesco’s Investor Relations website (www.bradescori.com.br – Corporate Governance Section).


 

Investor Relations (IR)

In the third quarter, the Investor Relations area participated in events in 8 events in Brazil and 4 abroad, in Abu Dhabi, Doha, the United Arab Emirates and London. The schedule of events in Brazil counted with 3 Apimec meetings in the cities of Rio de Janeiro, Porto Alegre and São Paulo, with an audience of 1,264 people and more than 2,000 Internet users.

In addition, the Investors Relations area frequently provides services to shareholders, investors and analysts by phone, e-mail, and at its headquarters.

 

 

Sustainability   

Bradesco remains in the portfolio of the Dow Jones Sustainability World Index 2013/2014

For the ninth consecutive year, Bradesco was selected to join the Dow Jones Sustainability Index - DJSI of the New York Stock Exchange, in portfolios Dow Jones Sustainability World Index and Dow Jones Sustainability Emerging Markets. The index is composed of shares of listed companies that adopt the best practices in corporate sustainability, assessed through their performance in attributes such as: corporate governance, risk management, management of

climate changes, human capital development and management of suppliers. Since 1999, the Dow Jones Sustainability World Index is recognized by the capital market as the first global index that assigns differentiated value to companies that demonstrate consistently their actions and strategies for maintaining the ability to create value for stakeholders in the long term.

 

 

  84  Report on Economic and Financial Analysis – September 2014


 
 

Return to Shareholders       

Sustainability

National Monetary Council Resolution No 4327/14

Published by the Central Bank in April 2014, Resolution No 4327/14 is a relevant fact to the national and international financial system, as it regulates the need for adopting a social and environmental responsibility policy compatible with the nature of business of financial institutions authorized to operate by said regulator. The normative is the result of the evolution of the discussions of the sector on the topic and demonstrates that the issue goes beyond isolated environmental aspects to permeate business in full.

In anticipation to the Resolution, along the first half of 2013, the areas of Sustainability and Corporate Planning of Bradesco have teamed up in a robust process for structuring a sustainability strategic planning for the next 5 years. The process counts with the participation of the Executive Board and all dependencies of the Bradesco Organization, having as main objective to establish a clear relationship of sustainability with business, thus managing risks and opportunities appropriately. In a parallel way, the Bradesco Organization is working in both the review of the current Policy of Sustainability, as in the preparation of an Action Plan toward enhancing existing practices and meeting the new requirements of the market. The deadline to comply with the Resolution is February 28, 2015.

 

 

Bradesco was present at the Ethos Conference

Bradesco once again participated as a sponsor and organizer of the Ethos Conference, ratifying its commitment to corporate sustainability. Such participation sought to support discussions about innovative solutions and management models, benefiting sectors of the economy, society and other publics.

The Next moments brought to the event high-level discussions about "Digital technologies and new sources of value", "Business and innovative tools", and "Responsible innovation and business vision".

 

Bradesco    85     


 
 

         Return to Shareholders

Bradesco Shares

Number of Shares – Common and Preferred Shares (1) 

 

 

In thousands

 

Sept14

Jun14

Sept13

Common Shares

2,100,738

2,100,738

2,100,738

Preferred Shares

2,094,652

2,094,652

2,096,007

Subtotal – Outstanding Shares

4,195,391

4,195,391

4,196,745

Treasury Shares

11,883

11,883

10,529

Total

4,207,274

4,207,274

4,207,274

(1) Excluding bonuses and stock splits during the periods.

 

On September 30, 2014, Bradesco’s Capital Stock stood at R$ 38.1 billion, composed of 4,207,274 thousand shares, made up of 2,103,637 thousand common shares and 2,103,637 thousand preferred shares. The largest shareholder is the holding company Cidade de Deus Cia. Comercial de Participações, which directly holds 48.7% of voting capital and 24.4% of total capital.

Cidade de Deus Cia. Comercial de Participações is controlled by the Aguiar Family, Fundação Bradesco and another holding company, Nova Cidade de Deus Participações S.A., which is in turn controlled by Fundação Bradesco and BBD Participações S.A., whose shareholders are the majority of Bradesco’s Board of Directors, Statutory Board of Executive Officers and management-level employees.

 

 

Number of Shareholders – Domiciled in Brazil and Abroad

 

 

Sept14

%

Ownership of Capital (%)

Sept13

%

Ownership of Capital (%)

Individuals

320,511

89.6

21.8

327,903

89.8

22.4

Companies

35,915

10.1

45.4

36,224

9.9

44.8

Subtotal Domiciled in Brazil

356,426

99.7

67.2

364,127

99.7

67.2

Domiciled Abroad

1,189

0.3

32.8

1,054

0.3

32.8

Total

357,615

100.0

100.0

365,181

100.0

100.0

 

Regarding Bradesco’s shareholders, residing either in Brazil or abroad, there were 356,426 domiciled in Brazil on September 30 2014, accounting for 99.7% of all the shareholders, representing 67.2% of shares. The number of shareholders residing abroad was 1,189, accounting for 0.3% of the total number of shareholders, representing 32.8% of shares.

 

  86  Report on Economic and Financial Analysis – September 2014


 
 

Return to Shareholders       

 

Bradesco Shares

Average Daily Trading Volume of Shares

 

Bradesco shares are traded on BM&FBovespa (São Paulo) and the New York Stock Exchange (NYSE). Since November 21, 2001, Bradesco trades its ADRs backed by preferred shares on NYSE. As of March 13, 2012, it has also traded ADRs backed by common shares.

In the first three quarters of 2014, the average volume traded in a daily basis reached R$ 565 million, being the highest value presented in the series below. Compared to the previous year, the average volume daily traded rose up 6.4%, due to the higher trading volume of our ADRs backed by preferred shares on the NYSE.

 

 

Bradesco    87     


 
 

         Return to Shareholders

Bradesco Shares

Appreciation of Preferred Shares - BBDC4

The graph shows the change in Bradesco’s preferred shares, taking into account the reinvestment of dividends, compared to the Ibovespa and the Interbank Deposit Rate (CDI). If by late December 2001 R$ 100 were invested, Bradesco’s shares would be worth approximately R$ 1,129 by September 2014, which is a substantially higher appreciation compared to that presented by Ibovespa and CDI within the same period.

 

Share and ADR Performance (1)

 

In R$ (unless otherwise stated)

3Q14

2Q14

Variation %

9M14

9M13

Variation %

Adjusted Net Income per Share

0.94

0.91

3.3

2.68

2.14

25.2

Dividends/Interest on Shareholders' Equity – Common Share (after Income Tax)

0.26

0.26

-

0.75

0.61

23.0

Dividends/Interest on Shareholders' Equity – Preferred Share (after Income Tax)

0.29

0.28

3.6

0.83

0.67

23.9

 

 

In R$ (unless otherwise stated)

Sept14

Jun14

Variation %

Sept14

Sept13

Variation %

Book Value per Common and Preferred Share

18.89

18.31

3.2

18.89

15.97

18.3

Last Trading Day Price – Common Shares

35.00

32.24

8.6

35.00

34.49

1.5

Last Trading Day Price – Preferred Shares

34.84

32.05

8.7

34.84

30.38

14.7

Last Trading Day Price – ADR ON (US$)

14.32

14.67

(2.4)

14.32

15.75

(9.1)

Last Trading Day Price – ADR PN (US$)

14.25

14.52

(1.9)

14.25

13.88

2.7

Market Capitalization (R$ million) (2)

146,504

134,861

8.6

146,504

136,131

7.6


(1) Adjusted for corporate events in the periods; and
(2) Number of shares (excluding treasury shares) vs. closing price for common and preferred shares on the last trading day of the period.

  88  Report on Economic and Financial Analysis – September 2014


 
 

Return to Shareholders       

 

Bradesco Shares

Recommendation of Market Analysts – Target Price

 

Market analysts issue periodical recommendations on Bradesco preferred shares (BBDC4). In October 2014, we analyzed 10 reports prepared by these analysts. Their recommendations and a general consensus on the target price for December 2014 can be found below:


 

Recommendations %

Target Price in R$ for Dec14

Buy

60.0

Average

41.8

Keep

40.0

Standard Deviation

4.1

Sell

-

Higher

48.1

Under Analysis

-

Lower

36.5

 

For more information on target price and recommendation by each market analyst that monitors the performance of Bradesco shares, go to our Shareholder Relationship website at: www.bradescori.com.br > Information to Shareholders > Analysts’ Consensus.

 

Market Capitalization

 

On September 30, 2014, Bradesco’s market value, including closing quotes of Common and Preferred shares, was R$ 146.5 billion, a growth of 7.6% over September 30, 2013.


Bradesco    89     

 

 
 

         Return to Shareholders

 

 

Main Indicators


 

 

Price/Earnings Ratio (1): indicates a possible number of years within which the investor would recover the capital invested, based on the closing prices of common and preferred shares.

 

(1)   Twelve-month adjusted net income.

 

 

 

 

 

 

Price/Book Ratio: indicates the multiple by which Bradesco’s market capitalization exceeds its book value.

 

 

 

Dividend Yield (1) (2): the ratio between share price and dividends and/or interest on shareholders’ equity paid to shareholders in the last 12 months, which indicates the return on investment represented by the allocation of net income.

 

(1)    Source: Economatica; and

(2)    Calculated by the share with highest liquidity.

 

 

  90  Report on Economic and Financial Analysis – September 2014


 
 

Return to Shareholders       

 

 

Dividends/Interest on Shareholders’ Equity

In the first three quarters of 2014, R$ 3,760 million were assigned to shareholders as interest on shareholders’ equity (JCP) and dividends. Over the past 12 months, the total JCP and Dividends assigned to shareholders accounted for 34.9% of the net income for the fiscal year and, considering the income tax deduction and JCP assignments, it was equivalent to 31.5% of the net income.

 

(1) In the last 12 months.

Weight on Main Stock Indexes

 

Bradesco’s shares comprise Brazil’s main stock indexes, including the IBrX-50 and IBrX-100 (indexes that measure the total return of a theoretical portfolio comprising 50 and 100 of the most traded shares on BM&FBovespa, respectively), IFNC (Financial Index that comprises banks, insurance and financial companies), ISE (Corporate Sustainability Index), IGC (Special Corporate Governance Stock Index), the ITAG (Special Tag-Along Stock Index), the ICO2 (indicator composed of shares of companies that participate in the IBrX-50 index and that accepted to take part in this initiative by adopting transparent greenhouse gas emission practices), and the Mid-Large Cap Index – MLCX (which measures the return of a portfolio composed of the highest cap companies listed).

Abroad, Bradesco shares are listed on NYSE’s Dow Jones Sustainability World Index and the FTSE Latibex Brazil Index of the Madrid Stock Exchange.

 

Sept14

In % (1)

Ibovespa

9.1

IBrX-50

9.7

IBrX-100

8.6

IFNC

19.9

ISE

4.8

IGC

6.5

ITAG

11.9

ICO2

14.7

MLCX

9.2

(1) Represents Bradesco’s weight on the portfolio of main Brazilian stock market indexes.

Bradesco    91     

 

 
 

         Return to Shareholders

 

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  92  Report on Economic and Financial Analysis – September 2014

 


 

 


 
 

          Additional Information

 

Market Share of Products and Services

 

Market shares held by the Organization in the Banking and Insurance industries and in the Customer Service Network are presented below.

 

Sept14

Jun14

Sept13

Jun13

Banks – Source : Brazilian Central Bank (Bacen)

 

 

 

 

Demand Deposits

N/A

14.9

17.1

16.0

Savings Deposits

N/A

13.4

13.4

13.4

Time Deposits

N/A

10.2

11.2

11.0

Loan Operations

10.5 (1) (2)

10.5 (1)

10.9

11.0

Loan Operations - Private Institutions

22.3 (1) (2)

22.3 (1)

22.1

22.1

Loan Operations - Vehicles Individuals (CDC + Leasing)

13.3 (1) (2)

13.2 (1)

13.9

14.2

Payroll-Deductible Loans

12.3 (1) (2)

12.1 (1)

12.0

11.6

Number of Branches

20.6

20.6

21.0

21.1

Banks – Source : Social Security National Institute (INSS)/Dataprev

 

 

 

 

Benefit Payment to Retirees and Pensioners

26.3

26.1

25.4

25.1

Banks – Source : Anbima

 

 

 

 

Managed Investment Funds and Portfolios

19.0

18.5

18.3

18.0

Insurance, Pension Plans and Capitalization Bonds – Source: Insurance Superintendence (Susep) and National Agency for Supplementary Healthcare (ANS)

Insurance, Pension Plan and Capitalization Bond Premiums

23.4 (2)

23.5

23.8

24.0

Insurance Premiums (including Long-Term Life Insurance - VGBL)

22.8 (2)

23.0

23.6

23.9

Life Insurance and Personal Accident Premiums

17.5 (2)

17.2

17.1

16.3

Auto/Basic Lines Insurance Premiums

10.7 (2)

10.6

9.1

9.1

Auto/Optional Third-Party Liability (RCF) Insurance Premiums

13.6 (2)

13.6

10.6

11.0

Health Insurance Premiums

45.8 (2)

45.2

45.6

48.8

Income from Pension Plan Contributions (excluding VGBL)

31.8 (2)

32.2

31.2

30.9

Capitalization Bond Income

24.1 (2)

23.6

21.8

20.9

Technical Reserves for Insurance, Pension Plans and Capitalization Bonds

27.5 (2)

27.9

29.1

29.5

Insurance and Pension Plans – Source: National Federation of Life and Pension Plans (Fenaprevi)

 

 

 

 

Income from VGBL Premiums

24.8 (2)

25.7

28.8

28.5

Income from Unrestricted Benefits Generating Plans (PGBL) Contributions

24.1 (2)

24.8

25.7

25.7

Pension Plan Investment Portfolios (including VGBL)

31.0 (2)

31.3

32.3

32.6

Leasing – Source: Brazilian Association of Leasing Companies (ABEL)

 

 

 

 

Lending Operations

19.6 (2)

19.9

19.7

19.7

Consortia – Source: Bacen

 

 

 

 

Real Estate

27.1 (2)

27.6

30.5

30.3

Auto

27.4 (2)

28.8

27.8

26.7

Trucks, Tractors and Agricultural Implements

18.0 (2)

18.2

18.8

18.9

International Area – Source: Bacen

 

 

 

 

Export Market

18.1

18.4

18.1

17.4

Import Market

13.6

14.3

15.8

15.4

(1) SFN data is preliminary; and
(2)   Base Date: Aug/14.
N/A – Not Available.

  94  Report on Economic and Financial Analysis – September 2014


 
 

Additional Information         

Additional Information         

Market Share of Products and Services

Branch Network

Region

Sept14

Market Share

Sept13

Market Share

Bradesco

Market

Bradesco

Market

North

276

1,112

24.8%

280

1,092

25.6%

Northeast

843

3,606

23.4%

850

3,537

24.0%

Midwest

344

1,804

19.1%

346

1,752

19.7%

Southeast

2,423

11,843

20.5%

2,433

11,684

20.8%

South

773

4,304

18.0%

788

4,294

18.4%

Total

4,659

22,669

20.6%

4,697

22,359

21.0%

 

 

Reserve Requirements

%

Sept14

Jun14

Mar14

Dec13

Sept13

Jun13

Mar13

Dec12

Demand Deposits

 

 

 

 

 

 

 

 

Rate (2)

45

45

44

44

44

44

44

44

Additional (3)

-

-

-

-

-

-

-

-

Reserve Requirements (1)

34

34

34

34

34

34

34

34

Reserve Requirements (Microfinance)

2

2

2

2

2

2

2

2

Free

19

19

20

20

20

20

20

20

Savings Deposits

 

 

 

 

 

 

 

 

Rate (4)

20

20

20

20

20

20

20

20

Additional (3)

10

10

10

10

10

10

10

10

Reserve Requirements

65

65

65

65

65

65

65

65

Free

5

5

5

5

5

5

5

5

Time Deposits

 

 

 

 

 

 

 

 

Rate (3) (5)

20

20

20

20

20

20

20

20

Additional (3)

11

11

11

11

11

11

11

11

Free

69

69

69

69

69

69

69

69

(1) At Bradesco, reserve requirements are applied to Rural Loans;
(2) Collected in cash and not remunerated;
(3) Collected in cash with the Special Clearance and Custody System (Selic) rate;
(4) Collected in cash with the Reference Interest Rate (TR) + interest of 6.17% p.a. for deposits made until 05/03/12, and TR + 70% of the Selic rate for deposits made as of 05/04/12, when the Selic rate is equal to or lower than 8.5% p.a.; and
(5) As of the calculation period from 03/29/2010 to 04/01/2010, with compliance on 04/09/2010, reserve requirements are now exclusively in cash, and may be paid with credits acquired as provided for by legislation in force.

Note: On 7/24/2014, the Central Bank issued Circular Letter No. 3712/14, allowing the use of certain credit transactions in the reduction of Reserve Requirements.

Bradesco    95     


 
 

          Additional Information

 

Additional Information

Investments in Infrastructure, Information Technology and Telecommunication

 

With constant investment in technology, Bradesco has been increasingly consolidating its efficiency and focus on reduction of expenses in recent months, showing, through innovation, the ease of communication with its customers regarding contracting of products and services, in addition to the enhancement of internal-use routines, increasing the practicality and usability for its employees.

In July 2014, an important tool for checking and performing interbank transfers (TED, DOC and TEC) was made available at the Branch and Department Network. It is Bradesco Available Electronic Transfer Application, already operating in all Branches, which makes these operations more dynamic, as it allows customers to check several items on their account.

On Facebook, people with hearing disabilities are able to use an exclusive channel to interact with Bradesco and other users of the social network. The application is called Bradesco Libras, whereby videos are translated by an interpreter, allowing users to receive information regarding product, services, campaigns, safety tips, and more.

In this very same month, Bradesco was chosen, for the third consecutive year, the "Best Brazilian Bank" by Euromoney magazine. It is the Euromoney Awards for Excellence, the most important international award of the financial sector. Promoted by this prestigious and traditional English publication, it is considered a reference in the sector. The choice of the winners is based on an evaluation of the performance achieved, considering aspects such as profitability, carrying out of tasks, leadership, growth, innovations introduced in the market, and efficiency. The publication highlighted Bradesco’s leadership and focus, as well as its operational efficiency, a result of continuous investments in technology, strong control over expenses and gains with organic growth.

Bradesco was also featured in the ranking of The Banker magazine, due to the product F. Banking - Bradesco Investimentos e Crédito via Facebook, aiming to be where the customers are. Bradesco’s system was adapted to the new channel, but still has the same appearance as other channels, like the Internet Banking and mobile phone. The convenience for users is that they do not have to leave Facebook to conduct their banking transactions.

In a continuous search for innovation, other products were launched: application for Windows Phone; increased limit for transfer to customers that use Token and M-Token on Bradesco Celular, barcode scanner technology, b. wallet (service that allows customers to pay bills with Bradesco credit and debit cards - Visa flag - via smartphone), among others.

In August, Bradesco launched the InovaBra, a program that aims to discover innovations that can be used in the development of financial products and services towards the creation of new solutions for Bradesco. The program is aimed at companies in early stages of operation, called startups, located in Brazil, and lasts ten months: four for selection process, and six months for interaction process with Bradesco. At the end of the program, those that successfully complete the formation of their solutions may have their products used by Bradesco.

In September 2014, Bradesco innovated with check deposit via smartphone, pioneering service in Brazil that eliminates the need for physical document deposit. The service was started in 2012 on Digital Branches – Retail and Prime, and now is implemented at Bradesco Prime Paulista (SP) and Dona Primitiva Vianco (Osasco) Branches. To make a deposit via smartphone, the customer needs to download Bradesco application and, through it, capture the check with the mobile phone camera. Then, the customer will send the document by using the transactional environment of the app. The period for compensation is the same as for the physical deposit, and the operation can be checked on the account statement immediately.

There have been important advances in the Systems Architecture. At the end of type approvals and implementations in this quarter, development stood at 90.7%. Large implementation have been completed as Mortgage and Credit Recovery- Business Plan, in addition to significant advances in the pilot and expansion such as Collection, Payroll-Deductible Loans and Automatic Debit.  Highlight also to the approvals that, from December 2014, will enable the trading of Assets, such as Leasing, Farm Loan and Transfers of Funds, and the certification of the Contas Project.

 

 

  96 Report on Economic and Financial Analysis – September 2014


 
 

Additional Information         

 

Investments in Infrastructure, Information Technology and Telecommunications

To improve the availability and integrity of processed data, Bradesco has completed the revitalization of its contingency Datacenter infrastructure at Núcleo Alphaville, and has also upgraded their central computers (Mainframes), purchasing the latest models available on the market. Now, it also has the technology of solid disks for data storage systems, allowing for a better performance in the processing of the services offered. It has completed the migration of Amex International processing platform to Bradesco’s local platform, which aimed at the operating efficiency and the possibility of increasing the network of affiliated establishments.

As a prerequisite for its continuous expansion, Bradesco has invested R$ 3,471 million in Infrastructure, Information Technology and Telecommunications in the first three quarters of 2014. The total amount invested over recent years, including infrastructure (facilities, restorations, improvements, furniture and fixtures), can be found below:

 

 

R$ million

 

9M14

2013

2012

2011

2010

Infrastructure

557

501

718

1,087

716

Information Technology and Telecommunications

2,914

4,341

3,690

3,241

3,204

Total

3,471

4,842

4,408

4,328

3,920

 

 

Risk Management

Risk management activity is highly strategic due to the increasing complexity of services and products and the globalization of the Organization’s business. The dynamic aspect of markets forces Bradesco to engage in continuous improvement of this activity in pursuit of best practices. That has allowed Bradesco to use its internal market risk models, which were already in force, to calculate regulatory capital, since January 2013.

 

The Organization controls risk management in an integrated and independent manner, preserving and valuing the Board's decisions, developing and implementing methodologies, models, and measurement and control tools. It also provides training to employees from all Organization levels, from business areas to the Board of Directors.

The management process allows the risks to be proactively identified, measured, mitigated, monitored and reported, which is necessary in view of the Organization’s complex financial products and activity profile.

Detailed information on the risk management process, Capital, as well as the Organization’s risk exposure, can be found in the Risk Management Report, available on the Investor Relations website: www.bradescori.com.br.

 

 

 

 

Bradesco    97     


 
 

          Additional Information

 

Capital Management

The Capital Management structure aims to providing conditions for capital monitoring and control, contributing to the achievement of goals set in the strategic objectives defined by the Organization, through an adequate capital sufficiency planning. This structure is comprised of Executive Committees and one Non-Statutory Committee, which assist the Board of Directors and Board of Executive Officers in the decision-making process.

In addition to the Committee structure, the Organization has a department responsible for the capital management centralization, named Capital Management and Internal Capital Adequacy Assessment Process (ICAAP), subordinated to the Department of Planning, Budget and Control, which acts jointly with the Integrated Risk Control Department, associated companies, business areas and the Organization’s supporting areas.

The capital plan is devised on an annual basis and approved by the Board of Executive Officers and Board of Directors. It is also aligned with the strategic plan and encompasses a prospective outlook of at least three years. The process of developing this plan considers threats and opportunities, market share and development goals, capital requirement projections based on risks, as well as capital held by the Organization. Such projections are constantly monitored and controlled by the capital management area.

With the implementation of the capital management structure, an internal process has been established to assess capital adequacy (ICAAP), which provides conditions to assess capital sufficiency in accordance with the base and stress scenarios. Capital adequacy and sufficiency information represent essential tools to manage and support the decision-making process.

Additional information on the capital management structure is available in the Risk Management Report – Pillar 3, and in the 2013 Annual Report, on the Investor Relations website: www.bradescori.com.br.

 

 

 

  98  Report on Economic and Financial Analysis – September 2014


 

 
 

Additional Information         

 

Capital Adequacy Ratio

The implementation of the new capital structure in Brazil began in October 2013. Through the CMN Resolution No. 4192/13, Bacen provided a new methodology to assess Capital, replacing CMN Resolution No. 3444/07.

Considering that such methodology entails the introduction of new adjustments, we have adapted the historical series, stated in periods, for the transition from Basel II to Basel III.

It is important to note that indexes published by September 2013 were kept, but cannot be compared due to the current resolution’s criteria.

In September 2014, the Capital amounted to R$ 95,825 million, against risk-weighted assets totaling R$ 588,752 million. The Basel Capital Adequacy Ratio had an increased compared to the previous quarter of 0.5 p.p., from 15.8% in June 2014 to 16.3% in September 2014, impacted, basically by: (i) the increase in Shareholders' Equity, due to the increase in the result for the quarter; and (ii) the reduction in the asset weighting of credit risk caused by the effect of Bacen Circular Letter Nº 3711/14 and Nº 3714/14.


 

               

R$ million

Calculation Basis

Basel III (1) Financial Consolidated

Basel II
Economic-Financial Consolidated

Sept14

Jun14

Mar14

Dec13

Sept13

Jun13

Mar13

Dec12

Capital

95,825

94,090

92,235

95,804

93,064

92,629

96,721

96,933

Tier I

74,127

71,892

69,934

70,808

71,830

69,868

67,980

66,066

Common Equity

74,127

71,892

69,934

70,808

71,830

69,868

67,980

66,066

Shareholders' Equity

79,242

76,800

73,326

70,940

67,033

66,028

69,442

70,047

Prudential Adjustments provided for in CMN Resolution 4192/13 (2)

(5,115)

(4,908)

(3,392)

(132)

-

-

-

-

Adjustments Provided for in CMN Resolution 3444/07

-

-

-

-

4,797

3,840

(1,462)

(3,981)

Tier II

21,698

22,198

22,301

24,996

21,234

22,761

28,741

30,867

Mark-to-Market Adjustments

-

-

-

-

(4,508)

(3,593)

1,732

4,229

Subordinated Debt (3)

21,698

22,198

22,301

24,996

25,741

26,354

27,009

26,638

Risk-Weighted Assets (RWA)

588,752

596,457

585,991

576,777

566,797

603,541

621,030

600,520

Credit Risk

534,165

548,600

534,885

526,108

482,336

479,217

494,015

503,136

Operating Risk

30,980

29,853

29,853

23,335

33,100

30,494

30,494

31,197

Market Risk

23,607

18,004

21,253

27,334

51,361

93,831

96,522

66,188

Total Ratio (4)

16.3%

15.8%

15.7%

16.6%

16.4%

15.4%

15.6%

16.1%

Tier I Capital

12.6%

12.1%

11.9%

12.3%

12.7%

11.6%

11.0%

11.0%

Common Equity

12.6%

12.1%

11.9%

12.3%

-

-

-

-

Capital Nível II

3.7%

3.7%

3.8%

4.3%

3.7%

3.8%

4.6%

5.1%

(1) Since October 2013, capital is calculated as per CMN Resolution No. 4192/13, which establishes that calculation is based on the “Financial Consolidated” by December 2014 and “Prudential Consolidated” as of January 2015;

(2) The prudential adjustments are progressive deductions that are already being applied on the main capital and will follow the implementation schedule, as provided by CMN Resolution No. 4192/13. The impact of these adjustments in the Main Capital deduction was 0% in 2013, and will be 20% in 2014, 40% in 2015, 60% in 2016, 80% in 2017 and 100% in 2018;

(3) In addition, it is worth stressing that, from the total amount of subordinated debt, R$ 21,698 million will be used to compose the Tier II of the Capital Adequacy Ratio, calculated as per CMN Resolution No. 4192/13 (including amendments thereof), effective as of October 2013; and

(4) Since October 2013, the Capital Adequacy Ratio calculation follows regulatory guidelines set forth in CMN Resolutions No. 4192/13 and 4193/13.

Bradesco    99     


 
 

          Additional Information

 

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  100  Report on Economic and Financial Analysis – September 2014


 



 

Independent Auditors’ Report

 

Limited Assurance Report about Supplementary Accounting Information included within the Economic and Financial Analysis Report

 

To                                                                                                                                                            

The Directors of

Banco Bradesco S.A.

Osasco – SP

 

 

Introduction

We were engaged by Banco Bradesco S.A. ("Bradesco") to report on the supplementary accounting information of Banco Bradesco S.A. as at September 30, 2014 and for the quarter and nine-month period ended as at September 30, 2014, in the form of a limited assurance conclusion if, based on our engagement performed, nothing has come to our attention that causes us to believe that the supplementary accounting information included within the Economic and Financial Analysis Report are not presented, in all material respects, based on the information referred to in the “Criteria for preparing the supplementary accounting information” paragraph.

 

 

Responsibilities of the Management of Bradesco

 

Management of Bradesco is responsible for preparing and adequately presenting the supplementary accounting information included within the Economic and Financial Analysis Report based on the criteria for the preparation of the supplementary accounting information described below, and for other information contained within this report, as well as the design, implementation and maintenance of internal controls that management determined as necessary to allow for such information that is free from material misstatement, whether due to fraud or error.

 

Independent Auditor´s Responsibility

 

Our responsibility is to review the supplementary accounting information included within the Economic and Financial Analysis Report prepared by Bradesco and to report thereon in the form of a limited assurance conclusion based on the evidence obtained. We conducted our engagement in accordance with the NBC TO 3000 - Assurance Engagement Other than Audit and Review (ISAE 3000). That standard requires that we comply with ethical requirements, including independence requirements, and plan and perform our procedures to obtain a meaningful level of limited assurance about whether we did not became aware of any fact that could lead us to believe that the supplementary accounting information included within the Economic and Financial Analysis Report are not presented, in all material respects, to the information referred to in the “Criteria for preparing the supplementary accounting information” paragraph.

 

The procedures selected were based on our understanding of the supplementary accounting information included within the Economic and Financial Analysis Report, as well as other circumstances of our work and our consideration of other areas that may contain material misstatements.

 

Limited assurance is less than absolute assurance and reasonable assurance. Procedures to gather information to a limited assurance engagement are more limited than to a reasonable assurance engagement and, therefore, we obtain less assurance than a reasonable assurance engagement; consequentely, we do not express neither an audit opinion nor a reasonable assurance over the supplementary accounting information included within the Economic and Financial Analysis Report.

 

Our conclusion does not contemplate aspects related to any prospective information contained within the Economic and Financial Analysis Report, nor offers any guarantee if the assumptions used by Management to provide a reasonable basis for the projections presented. Therefore, our report does not offer any type of assurance on the scope of future information (such as goals, expectations and ambitions) and descriptive information that is subject to subjective assessment.

 

 

 

 

  102  Report on Economic and Financial Analysis – September 2014

 


 

Independent Auditors’ Report

 

Limited Assurance Report about Supplementary Accounting Information included within the Economic and Financial Analysis Report

 

Criteria for preparing the supplementary accounting information

 

The supplementary accounting information disclosed within the Economic and Financial Analysis Report, as at September 30, 2014 and for the quarter and nine-month period ended September 30, 2014 has been prepared by the Management of Bradesco, based on the information contained in the September 30, 2014 consolidated financial statements and the accounting criteria described within the Economic and Financial Analysis Report, in order to facilitate additional analysis, without, however, being part of the consolidated financial statements disclosed on this date.

 

Conclusion

 

Our conclusion has been formed on the basis of, and is limited to the matters outlined in this report.

 

Based on the procedures performed we did not became aware of any fact that lead us to believe that the supplementary accounting information included within the Economic and Financial Analysis Report are not presented, in all relevant respects, in accordance with the information referred to in the “Criteria for preparing the supplementary accounting information” paragraph.

 

 

 

Osasco, October 29, 2014

 

 

Blue logo

 

Original report in Portuguese signed by

 

KPMG Auditores Independentes

CRC 2SP028567/O-1 F SP

 

Cláudio Rogélio Sertório

Accountant CRC 1SP212059/O-0

 

 

 

 

 

Bradesco    103         

 


 

Independent Auditors’ Report

 

 

 

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  104  Report on Economic and Financial Analysis – September 2014

 


 

 

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Management Report

 

Dear Shareholders,

 

We hereby present the consolidated financial statements of Banco Bradesco S.A., for the period ended September 30, 2014, prepared in accordance with the accounting practices adopted in Brazil and applicable to institutions authorized to operate by the Brazilian Central Bank.

 

The signs of sustainable growth resumed in the United States have intensified expectations of regulating the local monetary policy. This process tends to cause changes to the global funding standard, which can lead to increased financial volatility in emerging countries. Brazil is more prepared to face the challenges posed by this scenario and can increase its resilience capacity based on its increased commitment to consistent macroeconomic policies that strengthen the confidence of economic agents and ensure continuity of social advances observed in recent years.

 

The most notable events that took place in the Organization during the quarter are:

·       the Quality Certificate issued to Bradesco on July 7th by IIA - Institute of Internal Auditors,an entity present in more than 130 countries, empowered to assess and grant the Quality Certificates to Internal Audits. It acknowledges that Bradesco’s Internal Audit structure is prepared to act independently in all its dimensions, observing best practices regarding Risk Assessment and the effectiveness of Internal Controls;

 

·       inauguration on August 4th of the first branch in Vila Kennedy,located in the western region of the city of Rio de Janeiro, providing access to financial inclusion to approximately 130 thousand local residents;

 

·       on September 12th, for the ninth consecutive year, Bradesco was selected to join the Dow Jones Sustainability Index - DJSIfrom the New York Stock Exchange, in portfolios Dow Jones Sustainability World Index and Dow Jones Sustainability Emerging Markets. DJSI is comprised of shares from a select list of companies that present best sustainable development practices; and

 

·       on September 15th Bradesco received the RA1000 Reclame AQUICertificate,becoming the first bank awarded the maximum seal of quality for handling complaints from the website Reclame AQUI, RA1000.

 

From January 1 through September 30, 2014, Bradesco’s Net Income was R$ 11.096 billion, corresponding to R$ 2.64 per share and profitability of 20.2% over the average Shareholders’ Equity(*). The annual return on Average Assets was 1.6%.

 

During this period, R$ 3.760 billion were destined to shareholders as Interest on Equity and Dividends, of which R$ 1.575 million were paid in monthly and interim installments and R$ 2.185 billion were provisioned.

In the first nine months of the year, taxes and contributions, including social security contributions, paid or provisioned, came to R$ 18.438 billion, of which R$ 7.244 billion related to taxes withheld and collected from third parties, and R$ 11.194 billion related to activities developed by the Bradesco Organization, equivalent to 100.9% of Net Income.

 

At the end of the quarter, the Paid-in Capital came to R$ 38.100 billion. Together with Equity Reserves of R$ 41.142 billion, Shareholders’ Equity came to R$ 79.242 billion, 18.2% up on the same period in 2013, and equivalent to a book value of R$ 18.89 per share.

 

Based on its stock price, Bradesco’s Market Capitalization came to R$ 146.504 billion on September 30, 2014, equivalent to 1.8 times the Shareholders’ Equity.

 

The Administered Shareholders' Equity is equivalent to 8.1% of the Consolidated Assets, which totaled R$ 987.364 billion, an 8.8% growth compared to September 2013. Thus, the Capital Adequacy Ratio reached 16.3%, substantially higher than the 11% minimum established by National Monetary Council Resolution no 2099/94, in conformity with the Basel Committee. At the end of the quarter, the fixed asset ratio in relation to the Consolidated Reference Assets was 46.8% in the consolidated financial result, and 13.0% in the consolidated economic and financial result, well within the 50% limit.

 

In compliance with Article 8 of Brazilian Central Bank Circular Letter no 3068/01, Bradesco declares that it has the financial capacity and the intention of holding to maturity those securities classified under “held-to-maturity securities”.

 

On September 30, 2014, total funding raised and managed by the Bradesco Organization totaled R$ 1.385 trillion, 10.3% more than in the same period in the previous year, broken down as follows:

 

R$ 509.695  billion in demand deposits, time deposits, interbank deposits, savings accounts and federal funds purchased and securities sold under agreements to repurchase, a 7.2% expansion;

 

R$ 486.941  billion in assets under management, comprising investment funds, managed portfolios and third-party fund quotas, an 11.1% increase;

 

R$ 210.239  billion in the exchange portfolio, borrowings and onlendings in Brazil, working capital, tax payments and collection and related charges, funds from issuance of securities in Brazil, and subordinated debt in Brazil, a 19.5% expansion;

R$ 145.969  billion in technical reserves for insurance, pension plans and capitalization bonds, up by 9.3%; and

 

 

 

 

106             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Management Report

 

 

R$ 32.291     billion in foreign funding, through public and private issues, subordinated debt abroad, securitization of future financial flows and borrowings and onlendings abroad, equivalent to US$ 13.174 billion.

 

At the end of the period, the balance of the consolidated credit operations at the concept expanded, totaled R$ 444.195 billion, an increase of 7.7% compared to September 2013, including: 

 

R$ 5.814      billion in advances on exchange contracts, giving a total export financing portfolio of US$ 12.107 billion;

 

US$ 3.650    billion in import financing denominated in foreign currency;

 

R$ 4.608      billion in leasing operations;

 

R$ 23.854    billion in rural lending;

 

R$ 95.294    billion in consumer financing, including R$ 15.771 billion in credit card receivables;

 

R$ 70.280    billion in sureties and guarantees; and

 

R$ 34.693    billion in operations involving the onlending of foreign and domestic funds, originating mainly from the Brazilian Development Bank (BNDES), as one of its main onlending agents. 

 

From January to September, the Bradesco Organization allocated a total of R$ 11.080 billion in Real Estate Loan resources for the construction and acquisition of 48,634 homes.

 

Bradesco BBI, the Bradesco Organization’s investment bank, advises customers on share issues, merger and acquisition transactions and the structuring and distribution of debt instruments, which includes debentures, promissory notes, CRIs, mortgage-backed investment funds, receivables-backed investment funds (FIDCs) and bonds in Brazil and abroad, in addition to structured financing operations for companies and project finance. From January to September 2014, the volume of Bradesco BBI’s transactions reached R$ 155.205 billion.

 

On September 30, 2014, Grupo Bradesco Seguros, one of the leaders in the Insurance, Capitalization Bond and Pension Plan segments, posted Net Income of R$ 3.170 billion and Shareholders’ Equity of R$ 19.507 billion. Net written insurance premiums, pension contributions and capitalization bond income came to R$ 38.346 billion, 8.8% up on the same period in the previous year.

 

At the end of the period, the Organization’s Network Service, present in all regions of the country and several locations abroad, consisted of 59,747 terminals, and it also had 31,107 ATMs from the Bradesco Dia & Noite Automated Service Network, of which 30,625 were also operative during weekends and holidays, in addition to 16,946 ATMs from the Banco24Horas Network, available to customers for cash withdrawals, balance verification, bank statements, loan request, payments and transfers between accounts. In the payroll-deductible loan segment, the network had 2,068 Bradesco Promotora correspondent bank branches, and in the vehicle segment, it had 12,401 Bradesco Financiamentos points of sale.

 

8,156      Branches and PAs (Service Branches) in Brazil (Branches: Bradesco 4,651, Banco Bradesco Financiamentos 2, Banco Bradesco BBI 1, Banco Bradesco BERJ 1, Banco Bradesco Cartões 3, and Banco Alvorada 1; and PAs: 3,497);

 

3            Overseas Branches, one in New York and two in Grand Cayman;

 

11           Overseas Subsidiaries (Banco Bradesco Argentina S.A. in Buenos Aires; Banco Bradesco Europa S.A. in Luxembourg; Bradesco North America LLC, Bradesco Securities, Inc., and BRAM US LLC in New York; Bradesco Securities UK Limited in London, Bradesco Securities Hong Kong Limited and Bradesco Trade Services Limited in Hong Kong; Bradesco Services Co. Ltd., in Tokyo; Cidade Capital Markets Ltd. in Grand Cayman; and Bradescard Mexico, Sociedad de Responsabilidad Limitada in Mexico);

 

49,020    Bradesco Expresso service points;

 

1,159      PAEs – in-company electronic service branches; and

 

1,398      External terminals in the Bradesco Dia & Noite network and 12,213 ATMs in the Banco24Horas network, with 721 terminals shared by both networks.

 

According to the Securities and Exchange Commission Instruction no 381/03, from January to September 2014 the Bradesco Organization did not hire or have services provided by KPMG Auditores Independentes not related to external audit, at no more than 5% of the total fees related to external audit services. Other services provided by the external auditors included diagnosing the system and compiling IT information and training. The Bank’s policy is in line with the principles of preserving the auditors’ independence, which are based on generally accepted international criteria, i.e. the auditors should not audit their own work, perform managerial duties for their clients or promote their customers’ interests. Please note that any services not related to the external audit are submitted to the Audit Committee for prior authorization.

 

 

In the Human Resources department, each year the Organization has emphasized the progress of training programs implemented by UNIBRAD - Bradesco Corporate University, which are focused on staff training and development, seeking their qualification to ensure that Bradesco’s Clients receive excellent customer care. A total of 2,620 courses were offered from January to September 2014, serving 831,838 individuals. At the end of the quarter, the benefits aimed at improving their safety, well-being and overall quality of life, as well as that of their dependents, covered 204,420 individuals. 

 

 

Bradesco     107     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Management Report

 

Fundação Bradesco, the social arm of the Organization, has 40 schools implemented in socially and economically underprivileged regions in all Brazilian states and the Federal District, and it develops a broad social and educational program. The budget for this year is forecast at R$ 523.434 million, R$ 71.095 million of which is intended to restructuring high school education through classroom expansion works, and R$ 452.339 will enable offering free quality education to: a) 105,672 students enrolled in its schools in the following levels: basic education (kindergarten to high school) and vocational training - high school, youth and adult education; and preliminary and continuing vocational training, which focuses on creating jobs and income; b) 370 thousand students who will complete at least one of the distance-learning courses (EaD) available on the e-learning portal; and c) 21,527 beneficiaries in partnership projects and initiatives, including the Digital Inclusion Centers (CIDs), the Educa+Ação program and technology courses (Educar and Aprender). The approximately 45 thousand students enrolled in the basic education system also receive uniforms, school supplies, meals, and medical and dental assistance free of charge.

 

The Bradesco Sports and Education Program offers training and leisure sports through its Training Centers and Experts, combining actions related to education, health and well-being. The activities are developed in the city of Osasco, SP in its Sports Development Center, in Fundação Bradesco schools, in private schools, and municipal sports centers, teaching women's volleyball and basketball. Currently, about 2,000 children and young adults from 8 to 20 years old are benefited, reinforcing its commitment to defend a country that is increasingly values talent, effort and the exercise of citizenship.

 

Bradesco received several important acknowledgments during the period, including:

 

·       Labeled the most valuable bank in Latin America and the 5th among all segments, according to a survey conducted by international consulting company BrandAnalytics and Millward Brown;

 

·       Placed among the 150 Best Companies to Work For in Brazil from Guia Você S/A Exame for the 15th consecutive time, receiving the best score compared to other banks;

·       Ranks among The Best in People Management, in a study published in the special magazine Valor Carreira, from the newspaper Valor Econômico, supported by Aon, an international consulting company;

·       Included on the list of 130 Best Companies to Work for in Brazil for the 15th time according to a survey conducted by Época magazine, reviewed by the Great Place to Work Institute;

 

·      The Anuário Época Negócios 360o, a ranking that listed the top 250 companies in Brazil, granted Bradesco the title in the Banking category, and granted Bradesco Seguros the title in the Insurance category, according to a survey conducted by Época Negócios magazine, in partnership with the Dom Cabral Foundation;

 

·      The 2014 Technology Award by The Banker magazine under the Social Media category, with the case F.Banking Bradesco – Investments and Credit on Facebook;

 

·      The Ombudsman Brazil Award - Bradesco and Grupo Bradesco Seguros’ Ombudsmen were selected among the top ten in Brazil for the third consecutive year. Acknowledgment granted based on a survey conducted by the Brazilian Association of Ombudsmen - ABO, from the Brazilian Association of Company-Client Relations - Abrarec, Procon SP, and the Data Processing Company of the State of São Paulo - Prodesp, with support from Consumidor Moderno magazine; and

 

·       Grupo Bradesco Seguros ranked first place in As Melhores da Dinheiro, 2014 edition, from the IstoÉ Dinheiro magazine, especially in the Insurance and Health categories.

 

The results achieved reflect the size of the strategy developed by the Bradesco Organization, always based on ideals that include quality and efficiency. We would like to thank our shareholders and customers for their trust and support, as well as our employees and other personnel for their dedicated efforts.

 

Cidade de Deus, October 29, 2014

 

Board of Directors

Board of Executive Officers

(*)  Excluding mark-to-market effect of Securities Available for Sale recorded under Shareholders’ Equity.

 

 

 

108             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Consolidated Statement of Financial Position – In thousands of Reais

 

Assets

2014

2013

September

June

September

Current assets

664,064,302

600,639,035

618,954,672

Cash and due from banks (Note 6)

11,315,727

11,534,602

16,427,082

Interbank investments (Notes 3d and 7)

180,754,970

136,983,854

144,036,291

Investments in federal funds sold and securities borrowed under agreements to resell

172,478,113

125,321,856

137,096,987

Interbank investments

8,309,559

11,675,372

6,971,607

Allowance for losses

(32,702)

(13,374)

(32,303)

Securities and derivative financial instruments (Notes 3e, 3f, 8 and 32b)

221,372,749

199,469,993

212,018,338

Own portfolio

196,970,917

176,316,096

191,265,444

Subject to repurchase agreements

16,697,492

16,222,348

16,755,937

Derivative financial instruments (Notes 3f, 8e II and 32b)

4,112,977

4,733,427

2,549,820

Underlying guarantees provided

3,591,363

1,944,322

1,447,137

Securities subject to unrestricted repurchase agreements

-

253,800

-

Interbank accounts

47,673,247

55,195,430

50,930,902

Unsettled payments and receipts

897,884

1,557,986

1,335,700

Reserve requirement (Note 9):

 

 

 

- Reserve requirement - Brazilian Central Bank

46,712,816

53,501,826

49,472,675

- National treasury - rural loans

-

-

578

- SFH

5,551

4,249

4,092

Correspondent banks

56,996

131,369

117,857

Interdepartmental accounts

257,849

320,342

614,459

Internal transfer of funds

257,849

320,342

614,459

Loans (Notes 3g, 10 and 32b)

134,076,293

132,038,064

126,525,046

Loans:

 

 

 

- Public sector

79,078

31,779

100,163

- Private sector

148,282,452

145,639,263

139,582,729

Allowance for loan losses (Notes 3g, 10f, 10g and 10h)

(14,285,237)

(13,632,978)

(13,157,846)

Leasing (Notes 2, 3g, 10 and 32b)

2,159,103

2,281,099

2,913,101

Leasing receivables:

 

 

 

- Private sector

4,278,182

4,615,232

5,819,479

Unearned income from leasing

(1,955,260)

(2,103,807)

(2,594,056)

Allowance for leasing losses (Notes 3g, 10f, 10g and 10h)

(163,819)

(230,326)

(312,322)

Other receivables

63,248,433

59,524,158

62,491,742

Receivables on sureties and guarantees honored (Note 10a-3)

36,057

30,304

20,605

Foreign exchange portfolio (Note 11a)

11,564,574

11,476,110

16,763,694

Receivables

677,736

603,653

771,582

Securities trading

1,113,535

830,940

1,326,546

Specific receivables

3,650

3,292

2,737

Insurance and reinsurance receivables and reinsurance assets – technical reserves

4,259,330

4,070,116

3,534,583

Sundry (Note 11b)

46,445,835

43,292,639

40,957,046

Allowance for loan losses (Notes 3g, 10f, 10g and 10h)

(852,284)

(782,896)

(885,051)

Other assets (Note 12)

3,205,931

3,291,493

2,997,711

Other assets

1,737,929

1,660,960

1,438,684

Provision for losses

(653,322)

(647,622)

(540,394)

 

The accompanying Notes are an integral part of these Financial Statements.

Bradesco     109     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Consolidated Statement of Financial Position – In thousands of Reais

 

Assets

2014

2013

September

June

September

Prepaid expenses (Notes 3i and 12b)

2,121,324

2,278,155

2,099,421

Long-term receivables

308,249,694

315,346,984

273,408,836

Interbank investments (Notes 3d and 7)

579,795

669,821

930,315

Interbank investments

579,795

669,821

930,315

Securities and derivative financial instruments (Notes 3e, 3f, 8 and 32b)

122,072,195

133,730,405

101,660,955

Own portfolio

71,012,203

75,546,787

41,864,953

Subject to repurchase agreements

47,439,782

50,286,078

53,982,800

Derivative financial instruments (Notes 3f, 8e II and 32b)

1,337,436

1,000,075

758,543

Subject to the Brazilian Central Bank

20,104

19,008

-

Privatization currencies

59,893

62,237

66,741

Underlying guarantees provided

1,879,163

5,990,548

4,370,674

Securities subject to unrestricted repurchase agreements

323,614

825,672

617,244

Interbank accounts

608,461

599,801

575,787

Reserve requirement (Note 9):

 

 

 

- SFH

608,461

599,801

575,787

Loans (Notes 3g, 10 and 32b)

149,451,323

145,031,278

134,228,511

Loans:

 

 

 

- Public sector

2,141,863

1,919,401

71,233

- Private sector

149,840,848

145,510,575

141,067,976

Loans Related to Assignment

4,311,728

4,205,713

-

Allowance for loan losses (Notes 3g, 10f, 10g and 10h)

(6,843,116)

(6,604,411)

(6,910,698)

Leasing (Notes 2, 3g, 10 and 32b)

2,188,198

2,301,181

2,652,319

Leasing receivables:

 

 

 

- Private sector

4,631,331

4,985,585

5,824,715

Unearned income from leasing

(2,345,931)

(2,528,065)

(2,972,858)

Allowance for leasing losses (Notes 3g, 10f, 10g and 10h)

(97,202)

(156,339)

(199,538)

Other receivables

31,657,475

31,400,852

31,648,241

Receivables

7,588

7,459

63,831

Securities trading

411,429

126,860

277,994

Sundry (Note 11b)

31,251,837

31,317,233

31,317,322

Allowance for loan losses (Notes 3g, 10f, 10g and 10h)

(13,379)

(50,700)

(10,906)

Other assets (Note 12)

1,692,247

1,613,646

1,712,708

Prepaid expenses (Notes 3i and 12b)

1,692,247

1,613,646

1,712,708

Permanent assets

15,050,416

15,145,755

15,330,618

Investments (Notes 3j, 13 and 32b)

1,931,275

1,886,747

1,909,648

Equity in the earnings (losses) of unconsolidated companies - In Brazil

1,514,850

1,471,009

1,430,183

Other investments

690,153

689,466

753,355

Allowance for losses

(273,728)

(273,728)

(273,890)

Premises and equipment (Notes 3k and 14)

4,591,285

4,578,907

4,392,074

Premises

1,472,902

1,463,321

1,358,294

Other assets

10,338,796

10,352,291

10,038,106

Accumulated depreciation

(7,220,413)

(7,236,705)

(7,004,326)

Intangible assets (Notes 3l and 15)

8,527,856

8,680,101

9,028,896

Intangible assets

16,203,331

16,416,704

17,142,670

Accumulated amortization

(7,675,475)

(7,736,603)

(8,113,774)

Total

987,364,412

931,131,774

907,694,126

The accompanying Notes are an integral part of these Financial Statements.


110             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Consolidated Statement of Financial Position – In thousands of Reais

 

Liabilities

2014

2013

September

June

September

Current liabilities

699,866,046

645,826,729

616,862,601

Deposits (Notes 3n and 16a)

164,460,431

164,831,687

159,535,717

Demand deposits

33,299,639

36,176,242

39,455,794

Savings Deposits

87,293,425

84,318,918

76,487,681

Interbank deposits

505,401

329,746

630,881

Time deposits (Notes 16a and 32b)

43,361,966

44,006,781

42,961,361

Federal funds purchased and securities sold under agreements to repurchase (Notes 3n and 16b)

274,929,619

232,207,444

240,169,812

Own portfolio

106,890,629

108,296,248

108,060,765

Third-party portfolio

167,151,431

122,146,097

123,414,339

Unrestricted portfolio

887,559

1,765,099

8,694,708

Funds from issuance of securities (Notes 16c and 32b)

42,244,712

36,898,189

23,427,331

Mortgage and real estate notes, letters of credit and others

38,891,494

33,703,331

19,297,444

Securities issued abroad

3,177,342

3,043,455

4,129,887

Structured Operations Certificates

175,876

151,403

-

Interbank accounts

1,159,475

1,910,430

1,690,733

Correspondent banks

1,159,475

1,910,430

1,690,733

Interdepartmental accounts

3,381,363

3,762,883

3,114,624

Third-party funds in transit

3,381,363

3,762,883

3,114,624

Borrowing (Notes 17a and 32b)

13,148,052

12,870,253

11,394,227

Borrowing in Brazil - other institutions

6,485

5,686

4,481

Borrowing abroad

13,141,567

12,864,567

11,389,746

Onlending in Brazil - official institutions (Notes 17b and 32b)

12,707,996

11,860,115

11,949,437

National treasury

128,451

1,109

36,673

BNDES

3,870,102

3,261,698

3,833,412

CEF

13,849

16,388

21,193

FINAME

8,694,333

8,579,662

8,058,159

Other institutions

1,261

1,258

-

Onlending abroad (Notes 17b and 32b)

237,093

212,745

163,889

Onlending abroad

237,093

212,745

163,889

Derivative financial instruments (Notes 3f, 8e II and 32b)

4,155,241

3,985,513

2,383,241

Derivative financial instruments

4,155,241

3,985,513

2,383,241

Technical reserves for insurance, pension plans and capitalization bonds (Notes 3o and 21)

122,133,351

119,068,718

107,688,061

Other liabilities

61,308,713

58,218,752

55,345,529

Payment of taxes and other contributions

3,926,928

3,736,961

3,551,787

Foreign exchange portfolio (Note 11a)

5,611,062

5,551,655

10,322,654

Social and statutory

2,437,492

2,187,638

1,806,690

Tax and social security (Note 20a)

5,477,382

5,635,570

6,020,478

Securities trading

2,306,418

1,918,240

1,913,416

Financial and development funds

2,554

1,236

4,125

Subordinated debts (Notes 19 and 32b)

4,442,691

2,649,372

1,884,933

Sundry (Note 20b)

37,104,186

36,538,080

29,841,446

Long-term liabilities

207,500,878

207,795,160

222,530,298

Deposits (Notes 3n and 16a)

47,420,936

48,438,846

57,241,678

Interbank deposits

168,184

191,281

210,254

 

The accompanying Notes are an integral part of these Financial Statements.

Bradesco     111     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Consolidated Statement of Financial Position – In thousands of Reais

 

Liabilities

2014

2013

September

June

September

Time deposits (Notes 16a and 32b)

47,252,752

48,247,565

57,031,424

Federal funds purchased and securities sold under agreements to repurchase (Notes 3n and 16b)

22,884,544

23,403,544

18,410,121

Own portfolio

22,884,544

23,403,544

18,410,121

Funds from issuance of securities (Notes 16c and 32b)

33,038,146

32,978,552

31,999,325

Mortgage and real estate notes, letters of credit and others

27,610,499

27,895,149

24,654,400

Securities issued abroad

5,351,820

5,024,645

7,344,925

Structured Operations Certificates

75,827

58,758

-

Borrowing (Notes 17a and 32b)

1,924,310

857,437

595,639

Borrowing in Brazil - other institutions

13,524

14,179

7,717

Borrowing abroad

1,910,786

843,258

587,922

Onlending in Brazil - official institutions (Notes 17b and 32b)

28,543,706

28,340,766

27,203,641

BNDES

8,257,790

8,124,315

8,206,431

CEF

10,911

13,515

23,320

FINAME

20,274,673

20,202,564

18,972,244

Other institutions

332

372

1,646

Derivative financial instruments (Notes 3f, 8e II and 32b)

921,044

741,052

854,494

Derivative financial instruments

921,044

741,052

854,494

Technical reserves for insurance, pension plans and capitalization bonds (Notes 3o and 21)

23,835,692

23,663,671

25,865,604

Other liabilities

48,932,500

49,371,292

60,359,796

Tax and social security (Note 20a)

9,871,099

10,808,229

19,906,794

Subordinated debts (Notes 19 and 32b)

32,021,706

32,734,624

34,250,390

Sundry (Note 20b)

7,039,695

5,828,439

6,202,612

Deferred income

265,732

223,400

676,195

Deferred income

265,732

223,400

676,195

Non-controlling interests in subsidiaries (Note 22)

489,640

486,207

591,640

Shareholders' equity (Note 23)

79,242,116

76,800,278

67,033,392

Capital:

 

 

 

- Domiciled in Brazil

37,622,388

37,622,310

37,622,511

- Domiciled abroad

477,612

477,690

477,489

Capital reserves

11,441

11,441

11,441

Profit reserves

41,487,446

38,976,929

32,006,076

Asset valuation adjustments

(58,756)

9,923

(2,821,876)

Treasury shares (Notes 23d and 32b)

(298,015)

(298,015)

(262,249)

Attributable to equity holders of the Parent Company

79,731,756

77,286,485

67,625,032

Total

987,364,412

931,131,774

907,694,126

 

The accompanying Notes are an integral part of these Financial Statements.                             

                                                                                                                                                               


112             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Consolidated Income Statement – In thousands of Reais

 

 

 

2014

2013

3rd quarter

2nd quarter

September

September

Revenue from financial intermediation

28,447,992

27,806,362

81,853,795

69,481,015

Loans (Note 10j)

15,092,076

14,316,694

43,075,742

38,769,344

Leasing (Note 10j)

158,771

165,636

500,999

600,359

Operations with securities (Note 8h)

8,608,578

8,018,709

23,858,659

21,364,504

Financial income from insurance, pension plans and capitalization bonds (Note 8h)

3,443,157

3,564,421

10,271,026

6,371,102

Derivative financial instruments (Note 8h)

(493,433)

540,076

180,193

(1,670,889)

Foreign exchange operations (Note 11a)

563,816

73,647

629,937

1,702,441

Reserve requirement (Note 9b)

1,094,011

1,139,673

3,315,759

2,197,566

Sale or transfer of financial assets

(18,984)

(12,494)

21,480

146,588

 

 

 

 

 

Financial intermediation expenses

22,334,412

17,176,987

55,591,602

46,158,612

Federal funds purchased and securities sold under agreements to repurchase (Note 16e)

13,117,836

11,179,473

34,762,555

28,079,777

Adjustment for inflation and interest on technical reserves for insurance, pension plans and capitalization bonds (Note 16e)

2,437,088

2,492,083

7,510,153

3,832,783

Borrowing and onlending (Note 17c)

3,004,488

(139,128)

2,648,036

3,902,691

Allowance for loan losses (Notes 3g, 10g and 10h)

3,775,000

3,644,559

10,670,858

10,343,361

 

 

 

 

 

Gross income from financial intermediation

6,113,580

10,629,375

26,262,193

23,322,403

 

 

 

 

 

Other operating income (expenses)

(2,370,852)

(3,991,364)

(9,863,644)

(10,912,003)

Fee and commission income (Note 24)

5,586,695

5,225,624

16,002,747

14,303,087

Other fee and commission income

4,328,967

3,934,689

12,405,714

11,304,576

Income from banking fees

1,257,728

1,290,935

3,597,033

2,998,511

Insurance, pension plan and capitalization bond retained premiums (Notes 3o and 21d)

12,799,606

13,883,351

38,065,015

35,096,136

Net premiums written

12,904,010

13,992,488

38,345,993

35,260,284

Reinsurance premiums

(104,404)

(109,137)

(280,978)

(164,148)

Variation in technical reserves for insurance, pension plans and capitalization bonds (Note 3o)

(4,818,500)

(6,504,866)

(15,470,548)

(15,564,188)

Retained claims (Note 3o)

(4,778,474)

(4,206,128)

(13,200,633)

(11,380,655)

Capitalization bond draws and redemptions (Note 3o)

(1,295,096)

(1,172,860)

(3,554,689)

(2,991,662)

Insurance, pension plan and capitalization bond selling expenses
(Note 3o)

(737,347)

(728,741)

(2,153,953)

(1,875,144)

Payroll and related benefits (Note 25)

(4,052,293)

(3,447,840)

(10,779,280)

(9,596,066)

Other administrative expenses (Note 26)

(3,663,861)

(3,606,827)

(10,786,025)

(10,498,702)

Tax expenses (Note 27)

(910,176)

(1,168,898)

(3,220,349)

(2,932,536)

Equity in the earnings (losses) of unconsolidated companies (Note 13b)

43,852

34,864

130,479

17,227

Other operating income (Note 28)

2,550,817

707,261

4,069,363

2,595,556

Other operating expenses (Note 29)

(3,096,075)

(3,006,304)

(8,965,771)

(8,085,056)

Operating income

3,742,728

6,638,011

16,398,549

12,410,400

Non-operating income (loss) (Note 30)

(94,073)

(134,594)

(338,112)

(85,879)

Income before income tax and social contribution and non-controlling interests

3,648,655

6,503,417

16,060,437

12,324,521

Income tax and social contribution (Notes 34a and 34b)

255,781

(2,696,382)

(4,875,989)

(3,313,908)

Non-controlling interests in subsidiaries

(29,830)

(29,281)

(88,912)

(78,785)

Net income

3,874,606

3,777,754

11,095,536

8,931,828

                                                                                                                                                                                           

The accompanying Notes are an integral part of these Financial Statements.

Bradesco     113     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Statement of Changes in Shareholders' Equity – In Thousands of Reais

 

Events

Paid-in

Capital

Capital reserves

Profit reserves

Asset valuation adjustments

Treasury shares

Retained earnings (accumulated losses)

Total

Share premium

Legal

Statutory

Bradesco

Subsidiaries

Balance on December 31, 2012

30,100,000

11,441

3,838,474

30,380,303

886,689

5,027,853

(197,301)

-

70,047,459

Capital increase through reserves

8,000,000

-

-

(8,000,000)

-

-

-

-

-

Acquisition of treasury shares

-

-

-

-

-

-

(64,948)

-

(64,948)

Asset valuation adjustments

-

-

-

-

(3,214,352)

(5,522,066)

-

-

(8,736,418)

Net income

-

-

-

-

-

-

-

8,931,828

8,931,828

Allocations:

-   Reserves

-

-

446,591

5,340,708

-

-

-

(5,787,299)

-

 

-   Interest on shareholders’ equity paid and/or provisioned

-

-

-

-

-

-

-

(3,144,529)

(3,144,529)

Balance on September 30, 2013

38,100,000

11,441

4,285,065

27,721,011

(2,327,663)

(494,213)

(262,249)

-

67,033,392

 

 

 

 

 

 

 

 

 

 

Balance on March 31, 2014

38,100,000

11,441

4,611,184

31,771,688

(870,793)

491

(298,015)

-

73,325,996

Asset valuation adjustments

-

-

-

-

592,839

287,386

-

-

880,225

Net income

-

-

-

-

-

-

-

3,777,754

3,777,754

Allocations:

-   Reserves

-

-

188,888

2,405,169

-

-

-

(2,594,057)

-

 

-   Interest on shareholders’ equity paid and/or provisioned

-

-

-

-

-

-

-

(354,697)

(354,697)

 

-   Interim Dividends Paid

-

-

-

-

-

-

-

(829,000)

(829,000)

Balance on June 30, 2014

38,100,000

11,441

4,800,072

34,176,857

(277,954)

287,877

(298,015)

-

76,800,278

Asset valuation adjustments

-

-

-

-

110,259

(178,938)

-

-

(68,679)

Net income

-

-

-

-

-

-

-

3,874,606

3,874,606

Allocations:

-   Reserves

-

-

193,730

2,316,787

-

-

-

(2,510,517)

-

 

-   Interest on shareholders’ equity paid and/or provisioned

-

-

-

-

-

-

-

(1,364,089)

(1,364,089)

Balance on September 30, 2014

38,100,000

11,441

4,993,802

36,493,644

(167,695)

108,939

(298,015)

-

79,242,116

 

 

 

 

 

 

 

 

 

 

Balance on December 31, 2013

38,100,000

11,441

4,439,025

29,712,872

(865,373)

(189,070)

(269,093)

-

70,939,802

Acquisition of treasury shares

-

-

-

-

-

-

(28,922)

-

(28,922)

Asset valuation adjustments

-

-

-

-

697,678

298,009

-

-

995,687

Net income

-

-

-

-

-

-

-

11,095,536

11,095,536

Allocations:

-   Reserves

-

-

554,777

6,780,772

-

-

-

(7,335,549)

-

 

-   Interest on shareholders’ equity paid and/or provisioned

-

-

-

-

-

-

-

(2,930,987)

(2,930,987)

 

-   Interim Dividends Paid

-

-

-

-

-

-

-

(829,000)

(829,000)

Balance on September 30, 2014

38,100,000

11,441

4,993,802

36,493,644

(167,695)

108,939

(298,015)

-

79,242,116

 

The accompanying Notes are an integral part of these Financial Statements.

114             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Statement of Value Added– In thousands of Reais

 

Description

2014

2013

3rd quarter

%

2nd quarter

%

September

%

September

%

1 - Revenue

31,047,350

351.2

28,473,451

251.1

86,387,973

281.2

72,004,361

282.6

1.1) Financial intermediation

28,447,992

321.8

27,806,362

245.2

81,853,795

266.4

69,481,015

272.7

1.2) Fees and commissions

5,586,695

63.2

5,225,624

46.1

16,002,747

52.1

14,303,087

56.1

1.3) Allowance for loan losses

(3,775,000)

(42.7)

(3,644,559)

(32.1)

(10,670,858)

(34.7)

(10,343,361)

(40.6)

1.4) Other (1)

787,663

8.9

(913,976)

(8.1)

(797,711)

(2.6)

(1,436,380)

(5.6)

2 - Financial intermediation expenses

(18,559,412)

(210.0)

(13,532,428)

(119.3)

(44,920,744)

(146.2)

(35,815,251)

(140.6)

3 - Inputs acquired from third-parties

(2,948,038)

(33.3)

(2,924,347)

(25.8)

(8,722,051)

(28.4)

(8,586,369)

(33.7)

Material, water, electricity and gas

(139,464)

(1.6)

(147,345)

(1.3)

(425,446)

(1.4)

(397,068)

(1.6)

Outsourced services

(973,880)

(11.0)

(955,863)

(8.4)

(2,833,158)

(9.2)

(2,602,040)

(10.2)

Communication

(382,306)

(4.3)

(378,197)

(3.3)

(1,136,008)

(3.7)

(1,194,817)

(4.7)

Financial system services

(195,785)

(2.2)

(187,589)

(1.7)

(580,422)

(1.9)

(554,641)

(2.2)

Advertising and marketing

(184,088)

(2.1)

(170,499)

(1.5)

(532,836)

(1.7)

(492,831)

(1.9)

Transport

(192,911)

(2.2)

(199,590)

(1.8)

(595,386)

(1.9)

(619,071)

(2.4)

Data processing

(340,355)

(3.9)

(326,301)

(2.9)

(1,002,350)

(3.3)

(945,163)

(3.7)

Asset maintenance

(168,808)

(1.9)

(179,873)

(1.6)

(500,188)

(1.6)

(483,878)

(1.9)

Security and surveillance

(140,171)

(1.6)

(138,787)

(1.2)

(417,265)

(1.4)

(363,359)

(1.4)

Travel

(37,116)

(0.4)

(34,368)

(0.3)

(101,736)

(0.3)

(99,122)

(0.4)

Other

(193,154)

(2.1)

(205,935)

(1.8)

(597,256)

(2.0)

(834,379)

(3.3)

4 – Gross value added (1-2-3)

9,539,900

107.9

12,016,676

106.0

32,745,178

106.6

27,602,741

108.3

5 - Depreciation and amortization

(744,703)

(8.4)

(711,939)

(6.3)

(2,148,745)

(7.0)

(2,140,815)

(8.4)

6 - Net value added produced by the entity (4-5)

8,795,197

99.5

11,304,737

99.7

30,596,433

99.6

25,461,926

99.9

7 - Value added received through transfer

43,852

0,5

34,864

0.3

130,479

0.4

17,227

0.1

Equity in the earnings (losses) of unconsolidated companies

43,852

0,5

34,864

0.3

130,479

0.4

17,227

0.1

8 - Value added to distribute (6+7)

8,839,049

100,0

11,339,601

100,0

30,726,912

100,0

25,479,153

100,0

9 – Value added distributed

8,839,049

100,0

11,339,601

100,0

30,726,912

100,0

25,479,153

100,0

9.1) Personnel

3,577,673

40.6

2,997,589

26.4

9,425,562

30.8

8,337,859

32.9

Salaries

1,653,681

18,7

1,563,127

13.8

4,733,066

15.4

4,465,123

17.5

Benefits

738,942

8.4

704,205

6.2

2,140,383

7.0

1,990,737

7.8

Government Severance Indemnity Fund for Employees (FGTS)

151,740

1.7

147,462

1.3

442,808

1.4

428,485

1.7

Other

1,033,310

11.8

582,795

5.1

2,109,305

7.0

1,453,514

5.9

9.2) Tax, fees and contributions

1,129,015

12.8

4,315,531

38.1

9,450,056

30,7

7,504,651

29.4

Federal

958,728

10,9

4,146,415

36.6

8,923,893

29.0

7,035,307

27.6

State

8,957

0.1

8,783

0.1

20,956

0.1

7,829

-

Municipal

161,330

1.8

160,333

1.4

505,207

1.6

461,515

1.8

9.3) Value distributed to providers of capital

227,925

2.5

219,446

1.9

666,846

2.1

626,030

2.4

Rental

225,237

2.5

215,859

1.9

654,999

2.1

617,933

2.4

Asset leasing

2,688

-

3,587

-

11,847

-

8,097

-

9.4) Value distributed to shareholders

3,904,436

44.1

3,807,035

33.6

11,184,448

36.4

9,010,613

35.3

Interest on shareholders’ equity/dividends

1,364,089

15.4

1,183,697

10.4

3,759,987

12.2

3,144,529

12.3

Retained earnings

2,510,517

28.4

2,594,057

22.9

7,335,549

23.9

5,787,299

22.7

Non-controlling interests in retained earnings

29,830

0.3

29,281

0.3

88,912

0.3

78,785

0.3

 

(1)  The 3rd quarter of 2014 and the September 30, 2014 YTD basically includes the reversal of tax provision related to the Cofins case, which ended favorable to the Organization in the amount of R$ 1,378,103 thousand.

 

The accompanying Notes are an integral part of these Financial Statements.


Bradesco     115     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Consolidated Cash Flow Statement - In Thousands of Reais

 

 

2014

2013

 

3rd quarter

2nd quarter

September

September

Cash flow from operating activities:

 

 

 

 

Net Income before income tax and social contribution

3,648,655

6,503,417

16,060,437

12,324,521

Adjustments to net income before income tax and social contribution

6,846,388

7,907,424

22,360,039

19,370,131

Allowance for loan losses

3,775,000

3,644,559

10,670,858

10,343,361

Depreciation and amortization

744,703

711,939

2,148,745

2,140,815

Impairment write-offs

598,087

-

598,087

-

Expenses with civil, labor and tax provisions

241,990

727,276

1,769,075

3,005,756

Expenses with adjustment for inflation and interest on technical reserves for insurance, pension plans and capitalization bonds

2,437,088

2,492,083

7,510,153

3,832,783

Equity in the earnings (losses) of unconsolidated companies

(43,852)

(34,864)

(130,479)

(17,227)

(Gain)/loss on sale of investments

8

1,858

1,862

(196,771)

(Gain)/loss on sale of fixed assets

7,507

(10,765)

(131)

16,994

(Gain)/loss on sale of foreclosed assets

86,209

83,247

232,355

191,853

Other

(1,000,352)

292,091

(440,486)

52,567

Adjusted net income before taxes

10,495,043

14,410,841

38,420,476

31,694,652

(Increase)/decrease in interbank investments

3,979,444

(1,059,515)

18,533,561

80,543,482

(Increase)/decrease in trading securities and derivative financial instruments

(9,783,705)

(8,295,443)

(18,147,458)

12,857,048

(Increase)/decrease in interbank and interdepartmental accounts

(345,469)

536,913

(2,535,084)

(1,700,737)

(Increase) in loan and leasing

(9,960,537)

(3,589,399)

(22,344,097)

(29,061,250)

(Increase) in insurance and reinsurance receivables and reinsurance assets – technical reserves

(189,214)

(292,683)

(761,128)

(823,638)

Increase in technical reserves for insurance, pension plans and capitalization bonds

799,566

2,489,501

2,229,779

5,503,462

Increase/(decrease) in deferred income

39,259

(336,699)

(414,074)

18,548

(Increase)/decrease in other receivables and other assets

(2,443,464)

7,562,437

1,500,568

(5,713,047)

(Increase)/decrease in reserve requirement - Brazilian Central Bank

6,789,010

5,417,334

8,668,173

(1,520,258)

Increase/(decrease) in deposits

(1,389,166)

(5,438,962)

(6,181,678)

4,919,871

Increase in federal funds purchased and securities sold under agreements to repurchase

42,203,175

4,894,958

41,535,367

2,988,781

Increase in funds from issuance of securities

5,406,117

5,366,132

17,628,865

4,067,349

Increase/(decrease) in borrowings and onlending

2,419,841

(2,582,701)

466,305

7,120,676

Increase/(decrease) in other liabilities

1,466,594

(6,584,618)

2,629,151

(1,015,337)

Income tax and social contribution paid

(1,439,756)

(1,258,209)

(5,537,549)

(5,251,391)

Net cash provided by/(used in) operating activities

48,046,738

11,239,887

75,691,177

104,628,211

Cash flow from investing activities:

 

 

 

 

(Increase)/decrease in held-to-maturity securities

(744,150)

(324,087)

(1,630,103)

125,426

Sale of/maturity of and interests on available-for-sale securities

15,784,813

12,404,826

38,822,184

45,950,770

Proceeds from sale of foreclosed assets

185,945

141,620

459,392

375,394

Sale of investments

-

1,583

3,860

237,647

Sale of premises and equipment

138,379

139,076

453,716

356,457

Purchases of available-for-sale securities

(14,878,507)

(12,954,809)

(44,403,235)

(67,252,760)

Foreclosed asset acquisitions

(382,356)

(352,534)

(1,044,540)

(989,142)

Investment acquisitions

(589)

(5,044)

(7,073)

(85,271)

Purchase of premises and equipment

(375,778)

(306,030)

(945,789)

(828,167)

Intangible asset acquisitions

(323,211)

(211,723)

(703,712)

(2,022,311)

Dividends and interest on shareholders' equity received

14,036

28,833

162,751

275,194

Net cash provided by/(used in) investing activities

(581,418)

(1,438,289)

(8,832,549)

(23,856,763)

Cash flow from financing activities:

 

 

 

 

Increase/(decrease) in subordinated debts

1,080,401

(455,916)

579,394

1,283,609

Dividends and interest on shareholders’ equity paid

(1,077,664)

(248,665)

(3,672,986)

(3,867,385)

Non-controlling interest

(26,397)

(92,343)

(204,707)

(75,339)

Acquisition of own shares

-

-

(28,922)

(64,948)

Net cash provided by/(used in) financing activities

(23,660)

(796,924)

(3,327,221)

(2,724,063)

Net increase in cash and cash equivalents

47,441,660

9,004,674

63,531,407

78,047,385

Cash and cash equivalents - at the beginning of the period

133,914,669

124,909,995

117,824,922

47,555,069

Cash and cash equivalents - at the end of the period

181,356,329

133,914,669

181,356,329

125,602,454

Net increase in cash and cash equivalents

47,441,660

9,004,674

63,531,407

78,047,385

 

The accompanying Notes are an integral part of these Financial Statements.


116             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Financial Statements Index

 

Notes to Bradesco’s Financial Statements are as follows:

Page

 

1)  OPERATIONS  118 
2)  PRESENTATION OF THE FINANCIAL STATEMENTS  118 
3)  SIGNIFICANT ACCOUNTING PRACTICES  120 
4)  INFORMATION FOR COMPARISON PURPOSES  129 
5)  STATEMENT OF FINANCIAL POSITION AND INCOME STATEMENT DEMONSTRATED BY OPERATING SEGMENT  130 
6)  CASH AND CASH EQUIVALENTS  131 
7)  INTERBANK INVESTMENTS  132 
8)  SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS  133 
9)  INTERBANK ACCOUNTS - RESERVE REQUIREMENT  146 
10) LOANS  147 
11) OTHER RECEIVABLES  159 
12) OTHER ASSETS  161 
13) INVESTMENTS  161 
14) PREMISES AND EQUIPMENT  163 
15) INTANGIBLE ASSETS  164 
16) DEPOSITS, FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND FUNDS FROM ISSUANCE OF SECURITIES  165 
17) BORROWING AND ONLENDING  169 
18) PROVISIONS, CONTINGENT ASSETS AND LIABILITIES AND LEGAL LIABILITIES - TAX AND SOCIAL SECURITY  170 
19) SUBORDINATED DEBT  174 
20) OTHER LIABILITIES  177 
21) INSURANCE, PENSION PLANS AND CAPITALIZATION BONDS  178 
22) NON-CONTROLLING INTERESTS IN SUBSIDIARIES  181 
23) SHAREHOLDERS’ EQUITY (PARENT COMPANY)  181 
24) FEE AND COMMISSION INCOME  183 
25) PAYROLL AND RELATED BENEFITS  184 
26) OTHER ADMINISTRATIVE EXPENSES  184 
27) TAX EXPENSES  184 
28) OTHER OPERATING INCOME  185 
29) OTHER OPERATING EXPENSES  185 
30) NON-OPERATING INCOME (LOSS)  185 
31) RELATED-PARTY TRANSACTIONS (DIRECT AND INDIRECT)  186 
32) FINANCIAL INSTRUMENTS  188 
33) EMPLOYEE BENEFITS  199 
34) INCOME TAX AND SOCIAL CONTRIBUTION  200 
35) OTHER INFORMATION  202 

 

 

 

 

                                                   

                                                   


Bradesco     117     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

1)   OPERATIONS

Banco Bradesco S.A. (Bradesco) is a private-sector publicly traded company and universal bank that carries out all types of banking activities that it is authorized to do so through its commercial, foreign exchange, consumer financing and housing loan portfolios. The Bank has a number of other activities, either directly or indirectly, through its subsidiaries, particularly in leasing, investment banking, brokerage, consortium management, credit cards, real estate projects, insurance, pension plans and capitalization bonds. Operations are conducted within the context of the companies within the Bradesco Organization, working together in the market.

2)   PRESENTATION OF THE FINANCIAL STATEMENTS

Bradesco’s consolidated financial statements include the financial statements for Banco Bradesco, its foreign branches, subsidiaries and jointly-controlled entities, in Brazil and abroad, including SPEs (Special Purpose Entities). They were prepared based on accounting practices issued by Laws no  4595/64 (Brazilian Financial System Law) and no 6404/76 (Brazilian Corporate Law), along with amendments introduced by Laws no 11638/07 and no 11941/09 relating to the accounting of operations, associated with rules and instructions of the National Monetary Council (CMN) and the Brazilian Central Bank (Bacen), Brazilian Securities and Exchange Commission (CVM), where applicable, National Private Insurance Council (CNSP), Insurance Superintendence (Susep) and National Supplementary Healthcare Agency (ANS). The financial statements of leasing companies included in the consolidated information were prepared using finance leases, whereby leased fixed assets are classified as operating leases less the residual value paid in advance.

 

In the preparation of these consolidated financial statements, intercompany transactions, including investments, assets and liabilities, revenue, expenses and unrealized profit were eliminated and net income and shareholders’ equity attributable to the non-controlling interests were accounted for on a separate line. For jointly-controlled investments with other shareholders, assets, liabilities and income and loss were proportionally consolidated in the consolidated financial statements according to the interest on shareholders’ equity of each investee. Goodwill on the acquisition of investments in subsidiary/unconsolidated companies or jointly-controlled entities is included in investments and intangible assets (Note 15a). The foreign exchange variation from foreign branches or investments is presented in the income statement accounts together with changes in the value of the derivative financial instrument, borrowing or onlending operation to eliminate the effect of these investment hedge instruments.

 

The financial statements include estimates and assumptions, such as: the calculation of estimated loan losses; fair value estimates of certain financial instruments; civil, tax and labor provisions; impairment losses of securities classified as available-for-sale and held-to-maturity and non-financial assets; the calculation of technical reserves for insurance, pension plans and capitalization bonds; and the determination of the useful life of specific assets. Actual results may differ from those based on estimates and assumptions.

 

Bradesco’s consolidated financial statements were approved by the Board of Directors on October 29, 2014.

 

 

 

118             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Below are the primary direct and indirectly owned companies included in the consolidation:

 

  

Activity

Equity interest

2014

2013

September 30

June

30

September 30

Financial Area - Brazil

 

 

   

Alvorada Cartões, Crédito, Financiamento e Investimento S.A. (1)

Banking

-

-

100.00%

Banco Alvorada S.A.

Banking

99.99%

99.99%

99.99%

Banco Bradesco Financiamentos S.A.

Banking

100.00%

100.00%

100.00%

Banco Bankpar S.A. (2)

Banking

-

-

100.00%

Banco Bradesco BBI S.A.

Investment bank

98.35%

98.35%

98.35%

Banco Boavista Interatlântico S.A.

Banking

100.00%

100.00%

100.00%

Banco CBSS S.A. (3)

Banking

100.00%

100.00%

100.00%

Banco Bradesco Cartões S.A.

Cards

100.00%

100.00%

100.00%

Bradesco Administradora de Consórcios Ltda.

Consortium management

100.00%

100.00%

100.00%

Banco Bradesco BERJ S.A.

Banking

100.00%

100.00%

100.00%

Bradesco Leasing S.A. Arrendamento Mercantil

Leasing

100.00%

100.00%

100.00%

Bradesco S.A. Corretora de Títulos e Valores Mobiliários

Brokerage

100.00%

100.00%

100.00%

BRAM - Bradesco Asset Management S.A. DTVM

Asset management

100.00%

100.00%

100.00%

Ágora Corretora de Títulos e Valores Mobiliários S.A.

Brokerage

100.00%

100.00%

100.00%

Banco Bradescard S.A.

Cards

100.00%

100.00%

100.00%

Cielo S.A. (4)

Services

28.65%

28.65%

28.65%

Cia. Brasileira de Soluções e Serviços - Alelo (4)

Services

50.01%

50.01%

50.01%

Tempo Serviços Ltda.

Services

100.00%

100.00%

100.00%

Financial Area - Abroad

 

 

   

Banco Bradesco Argentina S.A.

Banking

99.99%

99.99%

99.99%

Banco Bradesco Europa S.A.

Banking

100.00%

100.00%

100.00%

Banco Bradesco S.A. Grand Cayman Branch (5)

Banking

100.00%

100.00%

100.00%

Banco Bradesco New York Branch

Banking

100.00%

100.00%

100.00%

Bradesco Securities, Inc.

Brokerage

100.00%

100.00%

100.00%

Bradesco Securities, UK.

Brokerage

100.00%

100.00%

100.00%

Insurance, Pension Plan and Capitalization Bond Area

 

 

   

Bradesco Argentina de Seguros S.A.

Insurance

99.92%

99.92%

99.92%

Bradesco Auto/RE Companhia de Seguros

Insurance

100.00%

100.00%

100.00%

Bradesco Capitalização S.A.

Capitalization bonds

100.00%

100.00%

100.00%

Bradesco Saúde S.A.

Insurance/health

100.00%

100.00%

100.00%

Odontoprev S.A. (6)

Dental care

50.01%

50.01%

43.50%

Bradesco Seguros S.A.

Insurance

100.00%

100.00%

100.00%

Bradesco Vida e Previdência S.A.

Pension plan/insurance

100.00%

100.00%

100.00%

Atlântica Companhia de Seguros

Insurance

100.00%

100.00%

100.00%

Other Activities

 

 

   

Andorra Holdings S.A.

Holding

100.00%

100.00%

100.00%

Bradseg Participações S.A.

Holding

100.00%

100.00%

100.00%

Bradescor Corretora de Seguros Ltda.

Insurance brokerage

100.00%

100.00%

100.00%

Bradesplan Participações Ltda.

Holding

100.00%

100.00%

100.00%

BSP Empreendimentos Imobiliários S.A.

Real estate

100.00%

100.00%

100.00%

Cia. Securitizadora de Créditos Financeiros Rubi

Credit acquisition

100.00%

100.00%

100.00%

Columbus Holdings S.A.

Holding

100.00%

100.00%

100.00%

Nova Paiol Participações Ltda.

Holding

100.00%

100.00%

100.00%

Scopus Tecnologia Ltda.

Information technology

100.00%

100.00%

100.00%

União Participações Ltda.

Holding

100.00%

100.00%

100.00%

 

(1)  Company merged into Banco Bradesco BERJ S.A. in April 2014;

(2)  Company merged into Banco Bradesco Cartões S.A. in June 2014;

(3)  New corporate name of Bankpar Arrendamento Mercantil S.A.;

(4) Company proportionally consolidated, pursuant to CMN Resolution no 2723/00 and CVM Rule no 247/96;

(5) The special purpose entity International Diversified Payment Rights Company is being consolidated. The company takes part in the securitization operation of future flow of payment orders received from overseas (Note 16d); and

(6) Increase in equity interest through share acquisition in January 2014;

 

 

Bradesco     119     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

3)   SIGNIFICANT ACCOUNTING PRACTICES

a)   Functional and Presentation Currencies

 

Consolidated financial statements are presented in Brazilian reais, which is also Bradesco’s functional currency. Foreign branches and subsidiaries are mainly a continuation of activities in Brazil, and, therefore, assets, liabilities and profit or loss are translated into Brazilian reais using the appropriate currency exchange rate to comply with accounting practices adopted in Brazil. Foreign currency translation gains and losses arising are recognized in the period’s income statement under items “Derivative Financial Instruments” and “Borrowing and Onlending”.

 

b)   Income and Expense Recognition

 

Income and expenses are recognized on an accrual basis together to determine the net income for the period to which they relate, regardless of receipt or payment of funds.

 

Fixed rate transactions are recorded at their redemption value with the income or expense relating to future periods being recorded as a deduction from the corresponding asset or liability. Finance income and costs are prorated daily and calculated based on the exponential method, except when they relate to discounted notes or to foreign transactions which are calculated using the straight-line method.

 

Floating rate or foreign-currency-indexed transactions are adjusted for inflation at the end of the reporting period.

 

Insurance and coinsurance premiums, net of premiums assigned to coinsurance and corresponding commissions, are recorded upon the issue of the related policies/certificates/endorsements and invoices, or upon the beginning of the effectiveness of risk in cases in which the risk begins before the issue, and recognized on a straight-line basis during the policies’ effective period through accrual and reversal of the unearned premium reserve of deferred acquisition costs. Revenues from premiums and the corresponding deferred acquisition costs, relating to existing risk but with no policy issued, are recorded in the income statement at the beginning of the risk coverage, based on estimated figures.

 

Recognition of health insurance premiums commences concurrent with the effectiveness of the corresponding insurance policy, and is recognized in proportion to the portion of the term elapsed.

 

Income and expenses arising from DPVAT insurance operations are recorded based on information provided by Seguradora Líder dos Consórcios do Seguro DPVAT S.A.

 

Accepted coinsurance and retrocession operations are recorded based on the information received from other companies and IRB - Brasil Resseguros S.A. (IRB), respectively. Deferral of reinsurance premiums granted is consistent to the corresponding reinsurance premium and/or reinsurance contract.

 

Reinsurance operations are recorded based on their financial records subject to analysis. Deferral of reinsurance premiums granted is consistent to the corresponding reinsurance premium and/or reinsurance contract.

 

Acquisition costs are deferred and appropriated to the income statement in proportion to the granted premium.

 

Insurance fundraising and broking operations are linearly deferred and appropriated to the income statement for 24 months for health insurance operations, and for 12 months for other operations.

 

Pension plan contributions and life insurance premiums covering survival are recognized in the income statement as they are received.

 

Income from capitalization bonds is recorded in the month it is received.

 

120             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Income from expired capitalization plans is recorded after the statute of limitation, under Article 206 of the Brazilian Civil Code. The expenses for placement of capitalization bonds, classified as “Acquisition Costs”, are recognized when they are incurred. Technical reserves are recorded when the respective revenues are registered in books.

 

c)   Cash and cash equivalents

 

Cash and cash equivalents include: funds available in currency, investments in gold, investments in federal funds purchases and securities sold under agreements to repurchase and interest-earning deposits in other banks, maturing in 90 days or less, and are exposed to insignificant risk of change in fair value. These funds are used by Bradesco to manage its short-term commitments.

 

Cash and cash equivalents detailed balances are reflected in Note 6.

 

d)   Interbank investments

 

Unrestricted purchase and sale commitments are stated at their fair value. Other investments are stated at cost, plus income earned up to the end of the reporting period, net of any devaluation allowance, if applicable.

 

The breakdown, terms and proceeds relating to interbank investments are presented in Note 7.

 

e)   Securities - Classification

 

·       Trading securities - securities acquired for the purpose of being actively and frequently traded. They are recorded at cost, plus income earned and adjusted to Fair value recognized in profit or loss for the period;

 

·       Available-for-sale securities - securities that are not specifically intended for trading purposes or to be held to maturity. They are recorded at cost, plus income earned, which is recorded in profit or loss in the period and adjusted to Fair value within shareholders' equity, net of tax, which will be recognized in profit or loss only when effectively disposed; and

 

·       Held-to-maturity securities - securities for which there is positive intent and financial capacity to hold in the portfolio to maturity. They are recorded at cost, plus earnings recognized in profit or loss for the period.

 

Securities classified as trading and available-for-sale, as well as derivative financial instruments, are recognized in the consolidated statement of financial position at their fair value. Fair value is generally based on quoted market prices or quotations for assets or liabilities with similar characteristics. If market prices are not available, fair values are based on traders’ quotations, pricing models, discounted cash flows or similar techniques to determine the fair value and may require judgment or significant estimates by Management.

 

Classification, breakdown and segmentation of securities are presented in Note 8 (a to d).

 

f)    Derivative financial instruments (assets and liabilities)

 

Classified according to intended use by Management, on the date that the operation was contracted and considering if it was intended for hedging purposes or not.

Bradesco     121     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Operations involving derivative financial instruments are designed to meet the Bank’s own needs in order to manage overall exposure, as well as to meet customer requests to manage their positions. Gains and losses are recorded in income or expenses accounts of the respective financial instruments.

 

Derivative financial instruments used to mitigate risk deriving from exposure to variations in the Fair value of financial assets and liabilities are designated as hedges and are classified according to their nature:

 

Market risk hedge: financial instruments classified in this category as well as the hedge-related financial assets and liabilities, gains and losses, realized or not, are recorded in the income statement; and

 

Cash flow hedge: effective portion of valuation or devaluation of financial instruments classified in this category is recorded, net of taxes, in a specific account under shareholders’ equity. The ineffective portion of the respective hedge is directly recognized in profit or loss.

 

A breakdown of amounts included in derivative financial instruments, in the balance sheet and off-balance-sheet accounts, is disclosed in Note 8 (e to h).

 

g)   Loans and leasing, advances on foreign exchange contracts, other receivables with credit characteristics and allowance for loan losses

 

Loans and leasing, advances on foreign exchange contracts and other receivables with credit characteristics are classified by risk level, based on: (i) the parameters established by CMN Resolution no 2682/99, which requires risk ratings to have nine levels, where “AA” is (minimum risk) and “H” (maximum risk); and (ii) the Administration’s assessment of the risk level. This assessment, which is carried out regularly, considers current economic conditions and past experience with loan losses, as well as specific and general risks relating to operations, debtors and guarantors. Moreover, the period of late payment defined in CMN Resolution no 2682/99 is also considered to rate customer risk as follows:

 

Past-due period (1)

Customer rating

·  from 15 to 30 days

B

·  from 31 to 60 days

C

·  from 61 to 90 days

D

·  from 91 to 120 days

E

·  from 121 to 150 days

F

·  from 151 to 180 days

G

·  more than 180 days

H

 

(1)  For transactions with terms of more than 36 months, past-due periods are doubled, as allowed under CMN Resolution no 2682/99.

 

Interest and inflation adjustments on past-due transactions are only recognized up to the 59th day that they are past due. As from the 60th day, they are recognized in deferred income.

 

H-rated past-due transactions remain at this level for six months, after which they are written-off against the existing allowance and controlled in off-balance-sheet accounts for at least five years.

 

Renegotiated transactions are maintained at least at the same level as previously classified. Renegotiations already written-off against the allowance and that were recorded in off-balance-sheet accounts, are rated as level “H” and any possible gains derived from their renegotiation are recognized only when they are effectively received. When there is a significant repayment on the operation or when new material facts justify a change in the level of risk, the operation may be reclassified to a lower risk category.

 

122             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

The estimated allowance for loan losses is calculated to sufficiently cover probable losses, considering CMN and Bacen standards and instructions, together with Management assessment to determine credit risk.

 

Type, values, terms, levels of risk, concentration, economic sector of the activity, renegotiation and income from loans, as well as the breakdown of expenses and statement of financial position accounts for the allowance for loan losses are presented in Note 10.

 

h)   Income tax and social contribution (assets and liabilities)

 

Income tax and social contribution credits, calculated on income tax losses, social contribution losses and temporary additions are recorded in “Other Receivables - Sundry” and the provisions for deferred tax liabilities on tax differences in leasing depreciation and mark-to-market adjustments on securities are recorded in “Other Liabilities - Tax and Social Security”. The income tax rate only applies to tax differences in leasing depreciation.

 

Tax credits on temporary additions are used and/or reversed against the corresponding provision. Tax credits on income tax and social contribution losses are used when taxable income is generated, under the 30% limit of the taxable profit for the period. Such tax credits are recorded based on current expectations on when the deduction can be used, considering technical studies and analyses carried out by Management.

 

The provision for income tax is calculated at 15% of taxable income plus a 10% surcharge. Social contribution on net income is calculated at 15% for financial institutions and insurance companies and at 9% for other companies.

 

Provisions were recorded for other income tax and social contribution in accordance with specific applicable legislation.

 

Pursuant to Law no 11941/09, changes in the criteria to recognize for revenue, costs and expenses included in the net income for the period, enacted by Law no 11638/07 and by Articles no 37 and no 38 of Law no 11941/09, shall not affect taxable income, and, for tax purposes, accounting methods and criteria in force on December 31, 2007 are considered. For accounting purposes, the tax effects of adopting the aforementioned laws are recorded in the corresponding deferred tax assets and liabilities.

 

The breakdown of income tax and social contribution, showing the calculations, the origin and expected use of tax credits, as well as unrecorded tax credits, are presented in Note 34.

 

i)    Prepaid expenses

 

Prepaid expenses are represented by use of funds for future benefits or services, which are recognized in the profit or loss on an accrual basis.

 

Incurred costs relating to corresponding assets that will generate revenue in subsequent periods are recorded in profit or loss according to the terms and the amount of expected benefits and directly written-off in profit or loss when the corresponding assets or rights are no longer part of the institution’s assets or when future benefits are no longer expected.

 

Prepaid expenses are shown in details in Note 12b.

 

Bradesco     123     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

j)    Investments

 

Investments in unconsolidated companies, with significant influence over the investee or with at least 20% of the voting rights, are accounted for by the equity method.

 

Tax incentives and other investments are stated at cost, less allowance for losses/impairment, where applicable.

 

Subsidiaries and jointly-controlled entities are consolidated - The composition of the main companies can be found in Note 2. The composition of unconsolidated companies, as well as other investments, can be found in Note 13.

 

k)   Premises and equipment

 

Relates to the tangible assets used by the Bank in its activities or used for that purpose, including those transactions which transfer risks, benefits and controls of the assets to the entity.

 

Premises and equipment are stated at acquisition cost, net of accumulated depreciation, calculated by the straight-line method based on the assets’ estimated economic useful life, using the following rates: real estate - 4% per annum; furniture and utensils and machinery and equipment - 10% per annum; transport systems - 20% per annum; and data-processing systems - 20% to 50% per annum, and adjusted through impairment, when applicable.

 

The breakdown of asset costs and their corresponding depreciation, as well as the unrecorded surplus value for real estate and fixed asset ratios, is presented in Note 14.

 

l)    Intangible assets

 

Relates to the right over intangible assets used by the Bank in its activities or used for that purpose.

 

Intangible assets comprise:

 

·       Future profitability/acquired client portfolio and acquisition of right to provide banking services: they are recorded and amortized, as applicable, over the period in which the asset will directly and indirectly contribute to future cash flows and adjusted through impairment, where applicable; and

 

·       Software: stated at cost less amortization calculated on a straight-line basis over the estimated useful life (20% to 50% p.a.), from the date it is available for use and adjusted through impairment, where applicable. Internal software development costs are recognized as an intangible asset when it is possible to show the intention and ability to complete and use such development, as well as to reliably measure costs directly attributable to the intangible asset. These costs are amortized during its estimated useful life, considering the expected future economic benefits.

 

Goodwill and other intangible assets, including their changes by class, are broken down in Note 15.

 

m) Impairment

 

Financial and non-financial assets are tested for impairment.

 

Impairment evidence may comprise the non-payment or payment delay by the debtor, possible bankruptcy process or even significant or extended decline in asset value.

 

An impairment write-off of a financial or non-financial asset is recognized in the profit or loss for the period if the book value of an asset or cash-generating unit exceeds its recoverable value.

 

Impairment write-offs are presented in Note 8d(10).

 

n)   Deposits and federal funds purchased and securities sold under agreements to repurchase

 

These are recognized at the value of the liabilities and include, when applicable, related charges up to the end of the reporting period, on a daily prorated basis.

124             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

A breakdown of securities recorded in deposits and federal funds purchased and securities sold under agreements to repurchase, as well as terms and amounts recognized in the statement of financial position and income statement, is presented in Note 16.

 

o)   Technical reserves relating to insurance, pension plans and capitalization bonds

 

·       Damage, health and group insurance lines, except life insurance covering survival:

 

-        The unearned premium reserve (PPNG) is calculated on a daily prorated basis, using premiums net of coinsurance assignment, but including reinsurance transfer operations, is comprised of the portion corresponding to the periods of risk not arising from insurance policies less initial contracting costs, except for health and personal insurance. The portion of these reserves corresponding to the estimate for risks in effect but not issued is recorded in PPNG-RVNE;

 

-        The unearned premium or contribution reserve (PPCNG) is calculated on a daily prorated basis considering health insurance premiums and recorded by the portion corresponding to the insurance contract risk periods to be elapsed, whose effectiveness has already started;

 

-        The mathematical reserve for unvested benefits (PMBaC) is calculated by the difference between the current value of future benefits and the current value of future contributions, corresponding to assumed obligations;

 

-        The mathematical reserve for unvested benefits (PMBAC) relating to the individual health care plan portfolio covers the holder’s dependents for five years upon death, and it is calculated based on the time holders are expected to remain in the plan up to the end of this five-year period, in addition to a 4.9% annual discount rate; after this, it is calculated based on costs on the five-year-period plan, excluding payment of premiums;

 

-        The reserve for vested benefits (PMBC) relating to the individual health care plan portfolio comprises obligations under the terms of the contract relating to coverage of the health care plan, based on the present value of estimated future expenses with health care provided to dependents whose holders are already deceased, as provided for in ANS Normative Resolution no 75/04, and an annual discount rate of 4.9%;

 

-        For health insurance, the reserve for claims incurred but not reported (IBNR) is calculated on an actuarial basis to quantify the number of claims that have occurred but have not been reported by policyholders/beneficiaries. The methodology is based on the historical behavior observed in the last 12 months, given the projection of future payments for claims related to events that took place prior to the calculation base date. The IBNR reserve is calculated by deducting the total reserves for unsettled claims (PSL) from the projected value;

 

-        For non-life insurance, the reserve for incurred but not reported (IBNR) claims is calculated based on incurred but not paid (IBNP) claims less the balance of the reserve for unsettled claims (PSL) on the calculation date. A final estimate of IBNP claims based on biannual run-off triangles is prepared to calculate IBNP claims. The run-off triangles consider the historical development of claims paid in the last 14 semesters to determine a future projection per occurrence period, and considers the estimated claims incurred and not enough reported (IBNER), reflecting the expectation of changing the amount provisioned throughout the regulatory process;

 

-        For other life insurance, the reserve for incurred but not reported (IBNR) claims is calculated based on incurred but not paid (IBNP) claims deducted from the balance of the reserve for unsettled claims (PSL) on the calculation date. A final estimate of IBNP claims based on biannual run-off triangles is prepared to calculate IBNP claims. The run-off triangles consider the historical development of claims paid in the last 14 semesters to determine a future projection per occurrence period;

 

-        The reserve for unsettled claims (PSL) considers all loss notices received up to the end of the reporting period. The reserve is adjusted for inflation and includes all claims under litigation and loss of suits costs;

Bradesco     125     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

 

-        For non-life insurance, the reserve for unsettled claims (PSL) is determined based on the indemnity payment estimates, considering all administrative and judicial claims existing at the reporting date, net of the corresponding portion of the expectation of receiving saved and indemnified items, including loss of suits costs;

 

-        The reserve for related expenses (PDR) is recorded to cover estimated claims and benefits expenses, for products structured in pay-as-you-go and funded financial schemes. The reserve for plans structured in the funded financial scheme is made to cover the expected expenses related to incurred claims and claims that might be incurred in the future;

 

-        For damage insurance, the reserve for related expenses is calculated on a monthly basis to cover the expenses related to indemnity payment, and it covers the expenses allocated individually to each claim, as well as claims expenses that have not been itemized, that is, those grouped throughout the portfolio;

 

-        The reserve for redemptions and other amounts to be settled (PVR) comprises figures related to redemptions to settle, premium refund and portability requested not yet transferred to the recipient;

 

-    The complementary reserve for coverage (PCC) refers to the amount necessary to complement technical reserves, as calculated through the Liability Adequacy Test (LAT), which is prepared using statistical and actuarial methods based on realistic considerations, taking into account the biometric table BR-EMS of both genders, improvement of G Scale and forward interest rate structures (ETTJ) free from risk and established by Susep. The improvement rate is calculated from automatic updates of the biometric table, considering the expected increase in future life expectancy; and

 

-        Other reserves are recorded for the individual health portfolio to address the differences between the expected present value of future indemnities and related expenses and the expected present value of future premiums, given an annual discount rate of 4.9%.

 

·       Pension plans and life insurance covering survival:

 

-    The unrealized risk premiums (PPNG) is calculated on a daily prorated basis, using premiums net of coinsurance assignment, but including reinsurance transfer operations, is comprised of the portion corresponding to periods of risks not arising from insurance policies and includes an estimate for risks in effect but not issued (RVNE);

 

-        The mathematical reserve for unvested benefits (PMBaC) is recorded for participants who have not yet received any benefit. In defined benefit pension plans, the reserve represents the difference between the current value of future benefits and the current value of future contributions, corresponding to obligations in the form of retirement, disability, pension and annuity plans. The reserve is calculated using methodologies and assumptions set forth in the actuarial technical notes;

 

-        The mathematical reserve for unvested benefits related to life insurance and unrestricted benefit pension plans (VGBL and PGBL), apart from the defined contribution plans, shows the value of participant contributions, net of costs and other contractual charges, plus income from investment in especially constituted investment funds (FIE);

 

-        The reserve for redemptions and other amounts to be settled (PVR) comprises figures related to redemptions to settle, premium refund and portability requested not yet transferred to the recipient;

 

-        The mathematical reserve for vested benefits (PMBC) is recognized for participants already benefiting and corresponds to the present value of future obligations related to the payment of ongoing benefits;

 

126             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

-    The complementary reserve for coverage (PCC) refers to the amount necessary to complement technical reserves, as calculated through the Liability Adequacy Test (LAT), which is prepared biannually using statistical and actuarial methods based on realistic considerations, taking into account the biometric table BR-EMS of both genders, improvement of G Scale and forward interest rate structures (ETTJ) free from risk and defined by Susep. The improvement rate is calculated from automatic updates of the biometric table, considering the expected increase in future life expectancy;

 

-        The reserve for related expenses (PDR) is recorded to cover estimated claims and benefits expenses, for products structured in pay-as-you-go and funded financial schemes. The reserve for plans structured in the funded financial scheme is made to cover the expected expenses related to incurred claims and claims that might be incurred in the future;

                                 

-        The reserve for financial surplus (PEF) corresponds to the portion of income from investment of reserves that exceeds minimum returns from pension plans that have a financial surplus in the participation clause;

 

-        The reserve for technical surplus (PET) corresponds to the difference between the expected and the actual amounts for events in the period for pension plans that have a technical surplus in the participation clause;

 

-        The reserve for incurred and not reported (IBNR) events is constituted according to events incurred but not reported based on run-off triangles, which consider the loss history in the last 20 quarters to set forth a future projection by incurrence period;

 

-        The reserve for unsettled claims (PSL) considers all loss notices received up to the end of the reporting period. The reserve is adjusted for inflation and includes all claims under litigation and loss of suit costs; and

 

-        Other technical reserves (OTP) comprise the amounts required by Susep Circular Letter no 462/13.

 

·       Capitalization bonds:

 

-        The mathematical reserve for capitalization bond (PMC) is recorded for each active or suspended capitalization bond during the estimated term set forth in the general conditions of the plan, and is calculated using the percentage of capitalization shares, applicable on payments made, and capitalized on a monthly basis by the interest rate indexer established in the plan until the bond is redeemed or canceled;

 

-        The reserve for redemption (PR) comprises the values of matured and anticipated bonds, recorded by updating the balance of bonds whose terms have expired or canceled, updated by the plan indexer until the holder receives the redemption payment;

 

-        Reserve for draws to be held (PSR) is recorded to cover premiums for future draws, and the balance represents the present value of the draws that have already been funded but have not been held. The calculation methodology consists in the accumulation of contributions deriving from percentages of drawing quotas applicable on payments, as established in the plan, and from write-offs deriving from the amount equivalent to the risk taken. The percentages of drawing quotas are defined in advance in the actuarial technical note, and are not modified throughout the term of the bond;

 

-        Reserve for draws payable (PSP) consists in the values of unpaid bonds awarded in drawings, adjusted for inflation for the period between the date of the drawing and its effective settlement; and

 

-        Reserve for administrative expense (PDA) is recorded to cover the cost of maintaining the single payment (P.U.) capitalization bonds.

 

Bradesco     127     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Technical reserves are shown by account, product and segment, as well as amounts and details of plan assets covering these technical reserves, and are shown in Note 21.

 

p)   Provisions, contingent assets and liabilities and legal obligations - tax and social security

 

Provisions, contingent assets and liabilities, and legal obligations, as defined below, are recognized, measured and disclosed in accordance with the criteria set out in CPC 25, approved by CMN Resolution no 3823/09 and CVM Resolution no 594/09:

 

·       Contingent assets: these are not recognized in the financial statements, except when there are real guarantees or favorable judicial decisions, to which no further appeals are applicable, classifying the gain as practically certain by confirming the expectation of receipt or compensation against another liability. Contingent assets with a chance of probable success are disclosed in the notes to the financial statements;

 

·       Provisions: these are recorded taking into consideration the opinion of legal counsel, the nature of the lawsuits, similarity with previous lawsuits, complexity and positioning of the courts, whenever the loss is deemed probable which would cause a probable outflow of funds to settle the obligation and when amounts can be reliably measured;

 

·       Contingent liabilities: according to CPC 25, the term “contingent” is used for liabilities that are not recognized because their existence will only be confirmed by the occurrence of one or more uncertain future events beyond Management’s control. Contingent liabilities considered as possible losses should only be disclosed in the notes when relevant. Obligations deemed remote are not recorded as a provision nor disclosed; and

 

·       Legal obligations - provision for tax risks: results from judicial proceedings, being contested on the grounds of legality or constitutionality, which, regardless of the assessment of the probability of success, are fully recognized in the financial statements.

 

Details on lawsuits, as well as segregation and changes in amounts recorded, by type, are presented in Note 18.

 

128             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

q)   Funding expenses

 

Expenses related to funding transactions involving the issuance of securities are recognized in the profit or loss over the term of the transaction and reduces the corresponding liability. They are presented in Notes 16c and 19.

 

r)    Other assets and liabilities

 

Assets are stated at their realizable amounts, including, when applicable, related income and monetary and exchange variations (on a daily prorated basis), less provision for losses, when deemed appropriate. Liabilities include known or measurable amounts, including related charges and monetary and exchange variations (on a daily prorated basis).

 

s)   Subsequent events

 

These refer to events occurring between the reporting date and the date the financial statements are authorized to be issued.

 

They comprise the following:

 

·       Events resulting in adjustments: events relating to conditions already existing at the end of the reporting period; and

 

·       Events not resulting in adjustments: events relating to conditions not existing at the end of the reporting period.

 

Subsequent events, if any, are described in Note 35.

 

4)   INFORMATION FOR COMPARISON PURPOSES

 

Reclassifications

 

There were no reclassifications or other relevant information for previous periods that affect the comparability of the consolidated financial statements for the period ended September 30, 2014.

Bradesco     129     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

5)      STATEMENT OF FINANCIAL POSITION AND INCOME STATEMENT DEMONSTRATED BY OPERATING SEGMENT

 

a)      Statement of financial position

 

 

R$ thousand

Financial (1) (2)

Insurance Group (2) (3)

Other Activities (2)

Eliminations

(4)

Total Consolidated

Brazil

Abroad

Brazil

Abroad

Assets

 

 

 

 

 

 

 

Current and long-term assets

753,655,158

101,361,924

169,829,060

2,608

2,165,983

(54,700,737)

972,313,996

Funds available

9,075,784

3,363,065

280,021

1,237

85,151

(1,489,531)

11,315,727

Interbank investments

181,030,842

303,923

-

-

-

-

181,334,765

Securities and derivative financial instruments

171,690,069

14,198,241

157,924,359

1,293

1,392,856

(1,761,874)

343,444,944

Interbank and interdepartmental accounts

48,539,557

-

-

-

-

-

48,539,557

Loan and leasing

254,597,322

82,523,668

-

-

-

(49,246,073)

287,874,917

Other receivables and assets

88,721,584

973,027

11,624,680

78

687,976

(2,203,259)

99,804,086

Permanent assets

66,534,197

37,453

3,824,303

160

692,759

(56,038,456)

15,050,416

Investments

56,599,058

-

1,330,766

146

39,761

(56,038,456)

1,931,275

Premises and equipment

3,498,165

13,806

1,040,352

14

38,948

-

4,591,285

Intangible assets

6,436,974

23,647

1,453,185

-

614,050

-

8,527,856

Total on September 30, 2014

820,189,355

101,399,377

173,653,363

2,768

2,858,742

(110,739,193)

987,364,412

Total on June 30, 2014

770,876,358

92,835,264

169,197,311

2,465

2,882,608

(104,662,232)

931,131,774

Total on September 30, 2013

749,805,148

87,560,741

157,500,866

3,627

2,334,459

(89,510,715)

907,694,126

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current and long-term liabilities

739,810,495

67,211,047

154,028,881

1,066

1,016,172

(54,700,737)

907,366,924

Deposits

183,806,208

29,679,757

-

-

-

(1,604,598)

211,881,367

Federal funds purchased and securities sold under agreements to repurchase

293,672,138

4,763,076

-

-

-

(621,051)

297,814,163

Funds from issuance of securities

68,154,997

8,529,162

-

-

-

(1,401,301)

75,282,858

Interbank and interdepartmental accounts

4,540,838

-

-

-

-

-

4,540,838

Borrowing and onlending

93,241,386

12,339,786

-

-

-

(49,020,015)

56,561,157

Derivative financial instruments

2,015,121

3,061,164

-

-

-

-

5,076,285

Technical reserves from insurance, pension plans and capitalization bonds

-

-

145,968,245

798

-

-

145,969,043

Other liabilities:

 

 

 

 

 

 

 

- Subordinated debts

27,992,492

8,471,905

-

-

-

-

36,464,397

- Other

66,387,315

366,197

8,060,636

268

1,016,172

(2,053,772)

73,776,816

Deferred income

265,732

-

-

-

-

-

265,732

Non-controlling interests in subsidiaries

871,012

34,188,330

19,624,482

1,702

1,842,570

(56,038,456)

489,640

Shareholders’ equity

79,242,116

-

-

-

-

-

79,242,116

Total on September 30, 2014

820,189,355

101,399,377

173,653,363

2,768

2,858,742

(110,739,193)

987,364,412

Total on June 30, 2014

770,876,358

92,835,264

169,197,311

2,465

2,882,608

(104,662,232)

931,131,774

Total on September 30, 2013

749,805,148

87,560,741

157,500,866

3,627

2,334,459

(89,510,715)

907,694,126

 

130             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

b)      Income statement

 

 

 

R$ thousand

Financial (1) (2)

Insurance Group

(2) (3)

Other

Activities (2)

Eliminations

(4)

Total Consolidated

Brazil

Abroad

Brazil

Abroad

Revenues from financial intermediation

71,273,701

822,303

10,269,724

-

113,821

(625,754)

81,853,795

Expenses from financial intermediation

47,525,660

1,181,582

7,510,153

-

-

(625,793)

55,591,602

Gross income from financial intermediation

23,748,041

(359,279)

2,759,571

-

113,821

39

26,262,193

Other operating income/expenses

(12,308,690)

(84,085)

2,449,014

(17)

80,173

(39)

(9,863,644)

Operating income

11,439,351

(443,364)

5,208,585

(17)

193,994

-

16,398,549

Non-operating income

(324,079)

5,352

(24,535)

-

5,150

-

(338,112)

Income before taxes and non-controlling interest

11,115,272

(438,012)

5,184,050

(17)

199,144

-

16,060,437

Income tax and social contribution

(2,851,384)

(23,101)

(1,933,586)

(15)

(67,903)

-

(4,875,989)

Non-controlling interests in subsidiaries

(8,684)

-

(80,100)

-

(128)

-

(88,912)

Net income accumulated on September 30, 2014

8,255,204

(461,113)

3,170,364

(32)

131,113

-

11,095,536

Net income accumulated on September 30, 2013

4,361,927

1,741,414

2,740,313

(1,427)

89,601

-

8,931,828

Net income for the 3rd quarter of 2014

3,710,263

(924,374)

1,058,522

-

30,195

-

3,874,606

Net income for the 2nd quarter of 2014

2,395,381

270,375

1,071,491

57

40,450

-

3,777,754

 

(1)  The financial segment is comprised of financial institutions, holding companies—which are mainly responsible for managing financial resources, and credit card, consortium and asset management companies;

(2)  The asset, liability, income and expense balances among companies from the same segment are eliminated;

(3)  The Insurance Group segment comprises insurance, pension plan and capitalization bond companies; and

(4)  Refer to amounts eliminated among companies from different segments, as well as among operations carried out in Brazil and abroad.

 

6)      CASH AND CASH EQUIVALENTS

 

 

R$ thousand

2014

2013

September 30

June 30

September 30

Cash and due from banks in domestic currency

7,596,289

7,650,892

12,707,782

Cash and due from banks in foreign currency

3,719,338

3,883,611

3,719,201

Investments in gold

100

99

99

Total cash and due from banks

11,315,727

11,534,602

16,427,082

Interbank investments (1)

170,040,602

122,380,067

109,175,372

Total cash and cash equivalents

181,356,329

133,914,669

125,602,454

 

(1)  Refer to operations which mature 90 days or less from the date they were effectively invested and with insignificant risk of change in fair value.

Bradesco     131     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

7)      INTERBANK INVESTMENTS

a)   Breakdown and maturity

 

 

R$ thousand

2014

2013

 

1 to 30

days

31 to 180

days

181 to 360

days

More than

360 days

September

30

June

30

September 30

Investments in federal funds sold and securities borrowed under agreements to resell:

 

 

 

 

 

 

 

Own portfolio position

2,122,343

-

-

-

2,122,343

3,166,999

5,116,331

● Financial treasury bills

110,640

-

-

-

110,640

-

-

● National treasury notes

329,766

-

-

-

329,766

186,931

1,768,691

● National treasury bills

1,668,244

-

-

-

1,668,244

2,967,853

3,322,044

● Other

13,693

-

-

-

13,693

12,215

25,596

Funded position

168,432,417

1,353,863

-

-

169,786,280

121,498,082

123,815,974

● Financial treasury bills

18,073,749

-

-

-

18,073,749

76,294

58,097

● National treasury notes

76,752,923

974,797

-

-

77,727,720

77,469,339

49,469,579

● National treasury bills

73,605,745

379,066

-

-

73,984,811

43,952,449

74,288,298

Short position

252,576

316,914

-

-

569,490

656,775

8,164,682

● National treasury bills

252,576

316,914

-

-

569,490

656,775

8,164,682

Subtotal

170,807,336

1,670,777

-

-

172,478,113

125,321,856

137,096,987

Interest-earning deposits in other banks:

 

 

 

 

 

 

 

● Interest-earning deposits in other banks

1,545,096

4,200,029

2,564,434

579,795

8,889,354

12,345,193

7,901,922

● Provision for losses

(818)

(1,117)

(30,767)

-

(32,702)

(13,374)

(32,303)

Subtotal

1,544,278

4,198,912

2,533,667

579,795

8,856,652

12,331,819

7,869,619

Total on September 30, 2014

172,351,614

5,869,689

2,533,667

579,795

181,334,765

 

 

%

95.1

3.2

1.4

0.3

100.0

 

 

Total on June 30, 2014

125,002,093

7,337,098

4,644,663

669,821

 

137,653,675

 

%

90.8

5.3

3.4

0.5

 

100.0

 

Total on September 30, 2013

122,082,896

17,058,058

4,895,337

930,315

 

 

144,966,606

%

84.2

11.8

3.4

0.6

 

 

100.0

 

b)   Income from interbank investments

 

Classified in the income statement as income on securities transactions.

 

  

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on

September 30

Accumulated on

September 30

Income from investments in purchase and sale commitments:

 

 

 

 

Own portfolio position

66,127

70,204

215,698

456,486

Funded position

4,047,317

2,917,311

9,680,172

6,476,098

Short position

167,893

27,508

316,113

5,169,337

Subtotal

4,281,337

3,015,023

10,211,983

12,101,921

Income from interest-earning deposits in other banks

142,654

198,976

470,298

344,347

Total (Note 8h)

4,423,991

3,213,999

10,682,281

12,446,268

 

 

 

132             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

8)      SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS

Information on securities and derivative financial instruments is as follows:

a)   Summary of the consolidated classification of securities by operating segment and issuer

 

R$ thousand

2014

2013

Financial

Insurance/
Capitalization bonds

Pension plans

Other Activities

September 30

%

June 30

%

September 30

%

Trading securities (5)

45,016,907

3,506,996

47,855,780

586,329

96,966,012

39.0

106,902,268

41.4

117,207,768

49.3

- Government securities

22,138,560

611,445

4,884

436,377

23,191,266

9.3

30,440,070

11.8

23,000,965

9.7

- Corporate securities

17,427,934

2,895,551

133,912

149,952

20,607,349

8.3

20,405,366

7.9

42,535,269

17.9

- Derivative financial instruments (1) (9)

5,450,413

-

-

-

5,450,413

2.2

5,733,502

2.2

3,308,363

1.4

- PGBL/VGBL restricted bonds

-

-

47,716,984

-

47,716,984

19,2

50,323,330

19.5

48,363,171

20.3

Available-for-sale securities (4) (5)

108,828,441

8,479,469

9,513,377

101,768

126,923,055

51.1

127,763,375

49.4

116,698,755

49.1

- Government securities

57,251,397

6,934,588

7,992,452

3,194

72,181,631

29.1

74,978,017

29.0

93,967,702

39.5

- Corporate securities

51,577,044

1,544,881

1,520,925

98,574

54,741,424

22.0

52,785,358

20.4

22,731,053

9.6

Held-to-maturity securities (4)

34,775

4,111,813

20,316,991

-

24,463,579

9.9

23,793,549

9.2

3,857,668

1.6

- Government securities

34,775

4,111,813

20,316,991

-

24,463,579

9.9

23,793,549

9.2

3,857,668

1.6

Subtotal

153,880,123

16,098,278

77,686,148

688,097

248,352,646

100.0

258,459,192

100.0

237,764,191

100.0

Purchase and sale commitments (2)

30,903,069

9,302,295

54,750,622

136,312

95,092,298

 

74,741,206

 

75,915,102

 

Overall total

184,783,192

25,400,573

132,436,770

824,409

343,444,944

 

333,200,398

 

313,679,293

 

- Government securities

79,424,732

11,657,846

28,314,327

439,571

119,836,476

48.3

129,211,636

50.0

120,826,335

50,9

- Corporate securities

74,455,391

4,440,432

1,654,837

248,526

80,799,186

32.5

78,924,226

30.5

68,574,685

28.8

- PGBL/VGBL restricted bonds

-

-

47,716,984

-

47,716,984

19,2

50,323,330

19.5

48,363,171

20.3

Subtotal

153,880,123

16,098,278

77,686,148

688,097

248,352,646

100.0

258,459,192

100.0

237,764,191

100.0

Purchase and sale commitments (2)

30,903,069

9,302,295

54,750,622

136,312

95,092,298

 

74,741,206

 

75,915,102

 

Overall total

184,783,192

25,400,573

132,436,770

824,409

343,444,944

 

333,200,398

 

313,679,293

 

 

Bradesco     133     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

b)   Breakdown of the consolidated portfolio by issuer

Securities (3)

R$ thousand

2014

2013

September 30

June 30

September 30

1 to 30

days

31 to 180

days

181 to 360 days

More than

360 days

Fair/book value

(6) (7) (8)

Original amortized cost

Mark-to-market

Fair/book value

(6) (7) (8)

Mark-to-market

Fair/book value

(6) (7) (8)

Mark-to-market

Government securities

3,469,705

2,139,058

4,758,167

109,469,546

119,836,476

119,909,660

(73,184)

129,211,636

26,173

120,826,335

(3,679,142)

Financial treasury bills

403,795

1,155,978

1,565,028

3,778,075

6,902,876

6,903,318

(442)

9,649,129

1,200

7,057,077

9,189

National treasury bills

3,035,802

837,797

497,074

19,054,897

23,425,570

24,174,333

(748,763)

25,183,584

(705,762)

23,337,049

(943,956)

National treasury notes

11,773

116,779

2,696,065

86,247,149

89,071,766

88,411,200

660,566

93,968,125

692,740

89,875,405

(2,779,003)

Brazilian foreign debt notes

3,948

7,577

-

329,532

341,057

349,223

(8,166)

313,746

14,717

161,871

8,286

Privatization currencies

-

-

-

59,893

59,893

49,540

10,353

62,237

10,662

66,741

11,486

Other

14,387

20,927

-

-

35,314

22,046

13,268

34,815

12,616

328,192

14,856

Private securities

17,983,820

6,148,823

3,938,614

52,727,929

80,799,186

80,410,285

388,901

78,924,226

377,218

68,574,685

(925,802)

Bank deposit certificates

499,298

239,257

12,098

81,729

832,382

832,382

-

871,107

-

1,142,279

-

Shares

5,133,517

-

-

-

5,133,517

5,202,939

(69,422)

5,942,454

(49,133)

4,168,851

(822,093)

Debentures

47,145

3,293,076

1,352,891

29,406,138

34,099,250

34,234,191

(134,941)

33,436,787

(135,650)

32,891,366

(102,688)

Promissory notes

516,943

409,614

-

-

926,557

932,472

(5,915)

983,973

(8,451)

901,859

(2,633)

Foreign corporate securities

133,846

424,145

-

8,933,609

9,491,600

9,691,224

(199,624)

8,582,870

119,861

8,707,922

(311,588)

Derivative financial instruments (1) (9)

3,551,269

434,728

126,980

1,337,436

5,450,413

4,493,173

957,240

5,733,502

636,883

3,308,363

260,361

Other

8,101,802

1,348,003

2,446,645

12,969,017

24,865,467

25,023,904

(158,437)

23,373,533

(186,292)

17,454,045

52,839

PGBL/VGBL restricted bonds

11,598,512

5,440,209

5,301,025

25,377,238

47,716,984

47,716,984

-

50,323,330

-

48,363,171

-

Subtotal

33,052,037

13,728,090

13,997,806

187,574,713

248,352,646

248,036,929

315,717

258,459,192

403,391

237,764,191

(4,604,944)

Purchase and sale commitments (2)

95,092,298

-

-

-

95,092,298

95,092,298

-

74,741,206

-

75,915,102

-

Hedge - cash flow (Note 8g)

-

-

-

-

-

-

173,026

-

(20,725)

-

(48,089)

Securities reclassified to “Held-to-maturity securities” (4)

-

-

-

-

-

-

371,398

-

407,385

-

-

Overall total

128,144,335

13,728,090

13,997,806

187,574,713

343,444,944

343,129,227

860,141

333,200,398

790,051

313,679,293

(4,653,033)

                                                                                                                                                                                                                                                

 

134             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

c)     Consolidated classification by category, maturity and operating segment

 

I)    Trading securities

 

Securities (3)

R$ thousand

2014

2013

September 30

June 30

September 30

1 to 30

days

31 to 180

days

181 to 360 days

More than

360 days

Fair/book value

(6) (7) (8)

Original amortized cost

Mark-to-market

Fair/book value

(6) (7) (8)

Mark-to-market

Fair/book value

(6) (7) (8)

Mark-to-market

- Financial (5)

12,964,186

4,913,225

5,229,168

21,910,328

45,016,907

44,066,271

950,636

52,144,622

762,148

63,392,756

25,354

National treasury bills

3,032,884

186,623

23,360

720,495

3,963,362

3,976,111

(12,749)

4,735,926

(720)

4,383,038

(8,832)

Financial treasury bills

276,518

816,485

1,343,459

3,002,679

5,439,141

5,439,421

(280)

8,110,150

1,029

4,802,918

9,027

Bank deposit certificates

331,663

236,663

1,653

25,384

595,363

595,363

-

618,827

-

834,280

-

Derivative financial instruments (1) (9)

3,551,269

434,728

126,980

1,337,436

5,450,413

4,493,173

957,240

5,733,502

636,883

3,308,363

260,361

Debentures

39,975

2,080,482

96,487

3,527,474

5,744,418

5,809,535

(65,117)

6,471,963

(59,382)

28,602,810

(113,656)

Promissory notes

-

77,063

-

-

77,063

77,451

(388)

153,812

(376)

901,859

(2,633)

National treasury notes

-

108,227

1,333,774

11,198,334

12,640,335

12,490,525

149,810

16,341,431

210,590

11,581,411

(103,953)

Other

5,731,877

972,954

2,303,455

2,098,526

11,106,812

11,184,692

(77,880)

9,979,011

(25,876)

8,978,077

(14,960)

- Insurance companies and capitalization bonds

1,630,337

508,669

237,711

1,130,279

3,506,996

3,504,350

2,646

3,573,524

3,987

3,989,538

7,521

Financial treasury bills

-

133,124

101,024

363,223

597,371

597,371

-

690,181

-

1,398,486

-

National treasury bills

1,019

10,481

-

-

11,500

11,500

-

16,171

-

15,083

-

Bank deposit certificates

93,735

-

-

11,499

105,234

105,234

-

127,275

-

127,510

-

National treasury notes

-

-

-

2,574

2,574

2,574

-

424

-

15,844

-

Debentures

-

-

-

127,953

127,953

127,953

-

131,937

-

127,881

-

Other

1,535,583

365,064

136,687

625,030

2,662,364

2,659,718

2,646

2,607,536

3,987

2,304,734

7,521

- Pension plans

11,655,217

5,440,209

5,305,910

25,454,444

47,855,780

47,855,780

-

50,469,114

-

49,103,288

-

PGBL/VGBL restricted bonds

11,598,512

5,440,209

5,301,025

25,377,238

47,716,984

47,716,984

-

50,323,330

-

48,363,171

-

Other

56,705

-

4,885

77,206

138,796

138,796

-

145,784

-

740,117

-

- Other activities

158,633

99,383

80,380

247,933

586,329

586,329

-

715,008

-

722,186

-

Financial treasury bills

115,765

36,136

77,544

175,391

404,836

404,836

-

418,464

-

378,345

-

Bank deposit certificates

4,816

-

-

-

4,816

4,816

-

5,710

-

39,282

-

Bradesco     135     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

 

Securities (3)

R$ thousand

2014

2013

September 30

June 30

September 30

1 to 30

days

31 to 180

days

181 to 360 days

More than

360 days

Fair/book value

(6) (7) (8)

Original amortized cost

Mark-to-market

Fair/book value

(6) (7) (8)

Mark-to-market

Fair/book value

(6) (7) (8)

Mark-to-market

National treasury bills

1,899

17,869

-

-

19,768

19,768

-

33,365

-

102,347

-

Debentures

4,314

-

-

29,917

34,231

34,231

-

40,831

-

46,197

-

Other

31,839

45,378

2,836

42,625

122,678

122,678

-

216,638

-

156,015

-

Subtotal

26,408,373

10,961,486

10,853,169

48,742,984

96,966,012

96,012,730

953,282

106,902,268

766,135

117,207,768

32,875

Purchase and sale commitments (2)

94,735,470

-

-

-

94,735,470

94,735,470

-

74,506,700

-

75,645,418

-

Financial/other

31,039,381

-

-

-

31,039,381

31,039,381

-

18,328,633

-

29,720,505

-

Insurance companies and capitalization bonds

9,095,456

-

-

-

9,095,456

9,095,456

-

7,219,747

-

3,673,639

-

Pension plans

54,600,633

-

-

-

54,600,633

54,600,633

-

48,958,320

-

42,251,274

-

- PGBL/VGBL

52,809,358

-

-

-

52,809,358

52,809,358

-

47,786,715

-

40,375,123

-

- Funds

1,791,275

-

-

-

1,791,275

1,791,275

-

1,171,605

-

1,876,151

-

Overall total

121,143,843

10,961,486

10,853,169

48,742,984

191,701,482

190,748,200

953,282

181,408,968

766,135

192,853,186

32,875

Derivative financial instruments (liabilities) (9)

(3,579,229)

(342,490)

(233,522)

(921,044)

(5,076,285)

(4,741,634)

(334,651)

(4,726,565)

(284,085)

(3,237,735)

(566,548)

 

136             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

II)   Available-for-sale securities

 

Securities (3) (10)

R$ thousand

2014

2013

September 30

June 30

September 30

1 to 30

days

31 to 180

days

181 to 360 days

More than

360 days

Fair/book value

(6) (7) (8)

Original amortized cost

Mark-to-market

Fair/book value

(6) (7) (8)

Mark-to-market

Fair/book value

(6) (7) (8)

Mark-to-market

- Financial (5)

3,657,079

2,755,685

2,539,862

99,875,815

108,828,441

109,478,901

(650,460)

107,908,861

(433,588)

76,691,110

(4,177,252)

National treasury bills

-

622,824

473,714

18,334,402

19,430,940

20,166,954

(736,014)

20,398,123

(705,042)

18,836,581

(935,122)

Brazilian foreign debt notes

2,751

-

-

228,926

231,677

238,514

(6,837)

276,989

14,717

121,261

8,285

Foreign corporate securities

131,280

413,031

-

8,669,207

9,213,518

9,409,563

(196,045)

8,515,352

120,001

8,697,831

(311,592)

National treasury notes

-

8,552

795,631

36,321,520

37,125,703

36,701,510

424,193

37,563,911

429,059

37,762,992

(2,832,685)

Financial treasury bills

11,512

170,233

-

207,250

388,995

389,156

(161)

351,399

154

407,221

90

Bank deposit certificates

42,930

2,594

10,445

44,846

100,815

100,815

-

94,198

-

135,490

-

Debentures

-

1,201,675

1,256,404

25,559,229

28,017,308

28,120,236

(102,928)

26,588,998

(108,337)

3,886,367

(19,023)

Shares

1,874,354

-

-

-

1,874,354

1,789,466

84,888

2,330,851

(54,969)

793,329

(187,859)

Other

1,594,252

336,776

3,668

10,510,435

12,445,131

12,562,687

(117,556)

11,789,040

(129,171)

6,050,038

100,654

- Insurance companies and capitalization bonds (4)

1,488,491

-

315,940

6,675,038

8,479,469

9,037,288

(557,819)

9,816,621

(577,193)

14,262,623

(1,566,855)

National treasury notes

-

-

315,940

6,605,462

6,921,402

7,459,806

(538,404)

8,056,741

(543,478)

12,683,853

(1,416,805)

Shares

1,480,628

-

-

-

1,480,628

1,515,088

(34,460)

1,660,645

(29,294)

1,459,079

(151,208)

Debentures

-

-

-

51,078

51,078

30,904

20,174

71,712

19,022

100,896

17,473

Other

7,863

-

-

18,498

26,361

31,490

(5,129)

27,523

(23,443)

18,795

(16,315)

- Pension plans (4)

1,411,018

10,919

38,114

8,053,326

9,513,377

8,947,232

566,145

9,984,073

643,537

25,734,403

1,101,404

Shares

1,395,690

-

-

-

1,395,690

1,467,646

(71,956)

1,622,865

37,582

1,521,974

(482,139)

National treasury notes

-

-

-

7,941,176

7,941,176

7,316,209

624,967

8,183,492

596,570

24,014,245

1,574,438

Debentures

-

10,919

-

98,988

109,907

96,978

12,929

109,913

13,047

127,215

12,517

Other

15,328

-

38,114

13,162

66,604

66,399

205

67,803

(3,662)

70,969

(3,412)

- Other activities

87,076

-

-

14,692

101,768

97,199

4,569

53,820

4,500

10,619

4,884

Bank deposit certificates

26,154

-

-

-

26,154

26,154

-

25,098

-

5,717

-

Other

60,922

-

-

14,692

75,614

71,045

4,569

28,722

4,500

4,902

4,884

Subtotal

6,643,664

2,766,604

2,893,916

114,618,871

126,923,055

127,560,620

(637,565)

127,763,375

(362,744)

116,698,755

(4,637,819)

 

Bradesco     137     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

                                          

 

Securities (3) (10)

R$ thousand

2014

2013

September 30

June 30

September 30

1 to 30

days

31 to 180

days

181 to 360 days

More than

360 days

Fair/book value

(6) (7) (8)

Original amortized cost

Mark-to-market

Fair/book value

(6) (7) (8)

Mark-to-market

Fair/book value

(6) (7) (8)

Mark-to-market

Purchase and sale commitments (2)

114,347

-

-

-

114,347

114,347

-

66,145

-

269,684

-

Insurance companies and capitalization bonds

63,537

-

-

-

63,537

63,537

-

28,516

-

74,157

-

Pension plans

50,810

-

-

-

50,810

50,810

-

37,629

-

195,527

-

Subtotal

6,758,011

2,766,604

2,893,916

114,618,871

127,037,402

127,674,967

(637,565)

127,829,520

(362,744)

116,968,439

(4,637,819)

Hedge - cash flow (Note 8g)

-

-

-

-

-

-

173,026

-

(20,725)

-

(48,089)

Securities reclassified to “Held-to-maturity securities“ (4)

-

-

-

-

-

-

371,398

-

407,385

-

-

Overall total

6,758,011

2,766,604

2,893,916

114,618,871

127,037,402

127,674,967

(93,141)

127,829,520

23,916

116,968,439

(4,685,908)

 

III)  Held-to-maturity securities

 

Securities (3)

R$ thousand

2014

2013

September 30

June 30

September 30

1 to 30

days

31 to 180

days

181 to 360

days

More than

360 days

Original amortized cost (6) (7)

Original amortized cost (6) (7)

Original amortized cost (6) (7)

Financial

-

-

-

34,775

34,775

36,757

40,610

Brazilian foreign debt notes

-

-

-

34,775

34,775

36,757

40,610

Insurance companies and capitalization bonds

-

-

-

4,111,813

4,111,813

4,166,630

-

National treasury notes

-

-

-

4,111,813

4,111,813

4,166,630

-

Pension plans

-

-

250,721

20,066,270

20,316,991

19,590,162

3,817,058

National treasury notes

-

-

250,721

20,066,270

20,316,991

19,590,162

3,817,058

Subtotal

-

-

250,721

24,212,858

24,463,579

23,793,549

-

Purchase and sale commitments (2)

242,481

-

-

-

242,481

168,361

-

Insurance companies and capitalization bonds

143,302

-

-

-

143,302

77,842

-

Pension plans

99,179

-

-

-

99,179

90,519

-

Overall total (4)

242,481

-

250,721

24,212,858

24,706,060

23,961,910

3,857,668

 

138             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

d)   Breakdown of the portfolios by financial statement classification

 

Securities

R$ thousand

2014

2013

1 to 30

days

31 to 180

days

181 to 360

days

More than

360 days

Total on September 30

(3) (6) (7) (8)

Total on
June 30

(3) (6) (7) (8)

Total on September 30

(3) (6) (7) (8)

Own portfolio

121,745,089

12,034,264

10,636,536

123,567,231

267,983,120

251,862,883

233,130,397

Fixed income securities

116,611,572

12,034,264

10,636,536

123,567,231

262,849,603

245,920,429

228,961,546

● Financial treasury bills

402,313

650,679

951,406

2,510,312

4,514,710

4,394,817

4,780,993

● National treasury notes

11,773

353

566,853

38,964,018

39,542,997

46,283,364

40,540,404

● Brazilian foreign debt securities

3,948

7,577

-

329,532

341,057

313,746

148,132

● Bank deposit certificates

499,298

239,257

12,098

81,729

832,382

871,107

1,142,279

● National treasury bills

274,415

200,424

5,618

10,108,422

10,588,879

5,512,290

376,914

● Foreign corporate securities

58,410

424,145

-

3,832,323

4,314,878

5,679,926

6,492,774

● Debentures

46,112

3,293,076

1,352,891

29,394,640

34,086,719

33,415,353

32,891,366

● Purchase and sale commitments (2)

95,092,298

-

-

-

95,092,298

74,741,206

75,915,102

● PGBL/VGBL restricted bonds

11,598,512

5,440,209

5,301,025

25,377,238

47,716,984

50,323,330

48,363,171

● Other

8,624,493

1,778,544

2,446,645

12,969,017

25,818,699

24,385,290

18,310,411

Equity securities

5,133,517

-

-

-

5,133,517

5,942,454

4,168,851

● Shares of listed companies (technical reserve)

1,697,068

-

-

-

1,697,068

1,925,663

1,720,257

● Shares of listed companies (other)

3,436,449

-

-

-

3,436,449

4,016,791

2,448,594

Restricted securities

2,847,977

1,259,098

3,234,290

62,346,432

69,687,797

74,524,541

76,623,289

Repurchase agreements

2,837,856

580,362

2,609,626

58,109,430

64,137,274

66,508,426

70,738,737

● National treasury bills

2,761,387

460,787

479,167

7,240,899

10,942,240

14,188,579

18,884,897

● Brazilian foreign debt securities

-

-

-

-

-

-

13,739

● Financial treasury bills

-

3,149

1,247

420,528

424,924

2,625,736

518,907

● National treasury notes

-

116,426

2,129,212

45,335,219

47,580,857

46,769,733

48,732,347

● Foreign corporate securities

75,436

-

-

5,101,286

5,176,722

2,902,944

2,215,148

● Promissory notes

-

-

-

-

-

-

373,699

● Debentures

1,033

-

-

11,498

12,531

21,434

-

Brazilian Central Bank

-

-

-

20,104

20,104

19,008

-

● National treasury bills

-

-

-

20,104

20,104

19,008

-

Privatization currencies

-

-

-

59,893

59,893

62,237

66,741

Bradesco     139     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

 

Securities

R$ thousand

2014

2013

1 to 30

days

31 to 180

days

181 to 360

days

More than

360 days

Total on September 30

(3) (6) (7) (8)

Total on
June 30

(3) (6) (7) (8)

Total on September 30

(3) (6) (7) (8)

Guarantees provided

10,121

678,736

624,664

4,157,005

5,470,526

7,934,870

5,817,811

● National treasury bills

-

176,586

12,289

1,361,858

1,550,733

5,145,635

3,457,994

● Financial treasury bills

1,482

502,150

612,375

847,235

1,963,242

2,628,576

1,757,177

● National treasury notes

-

-

-

1,947,912

1,947,912

-

602,640

Other

8,639

-

-

-

8,639

160,659

-

Derivative financial instruments (1) (9)

3,551,269

434,728

126,980

1,337,436

5,450,413

5,733,502

3,308,363

Securities subject to unrestricted repurchase agreements

-

-

-

323,614

323,614

1,079,472

617,244

● National treasury bills

-

-

-

323,614

323,614

318,072

617,244

● National treasury notes

-

-

-

-

-

761,400

-

Overall total

128,144,335

13,728,090

13,997,806

187,574,713

343,444,944

333,200,398

313,679,293

%

37.3

4.0

4.1

54.6

100.0

100.0

100.0

(1)     Consistent with the criterion adopted by Bacen Circular Letter no 3068/01 and due to the characteristics of the securities, we are considering the derivative financial instruments, except those considered as cash flow hedges under the category Trading Securities;

(2)     These refer to investment fund resources and managed portfolios applied on purchase and sale commitments with Bradesco, whose owners are consolidated subsidiaries, included in the consolidated financial statements;

(3)     The investment fund quotas were distributed according to the instruments composing their portfolios and maintaining the fund category classification;

(4)    In compliance with Article 8 of Bacen Circular Letter no 3068/01, Bradesco declares that it has financial capacity and intention to maintain held-to-maturity securities up to their maturity dates. This financial capacity is proven in Note 32a, which presents the maturity of asset and liability operations. In December 2013, the mark-to-market of securities reclassified from the "Available-for-Sale Securities" category to the " Held-to-Maturity Securities" category is maintained under Shareholders' Equity, and is being recognized in income statement for the remaining term of the securities, pursuant to Bacen Circular Letter no 3068/01;

(5)     In June 2014, the amount of R$ 4,571,838 thousand was reclassified from “Held-for-trading securities” to “Available-for-sale securities”;

(6)     The number of days to maturity was based on the maturity of the instruments, regardless of their accounting classification;

(7)     This column reflects book value after mark-to-market accounting in accordance with item (8), whose fair value is higher than the original amortized cost for the amount of R$ 2,336,828 thousand (R$ 2,190,319 thousand on June 30, and R$ 1,753,311 thousand on September 30, 2013);

(8)     The fair value of securities is determined based on the market price available at the end of the reporting period. If no market price quotation is available at the end of the reporting period, amounts are estimated based on the prices quoted by dealers, pricing models, quotation models or price quotations for instruments with similar characteristics; for investment funds, the original amortized cost reflects the fair value of the respective quotas. For investment funds, the original amortized cost reflects the fair value of the respective quotas;

(9)     For a better analysis of these items, consider their net effect (Note 8e II); and

(10)   The September 30, 2014 YTD shows impairment write-offs totaling R$ 598,087 thousand related to the heading "Equity securities" for securities classified as "Available-for-sale securities", referring to the shares of Banco Espírito Santo (BES), due to the corporate restructuring held on August 3, 2014, and the September 30, 2013 YTD shows no impairment write-offs for securities classified as "Available-for-sale securities”.

 

 

 

140             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

e)   Derivative financial instruments

Bradesco carries out transactions involving derivative financial instruments, which are recorded in the statement of financial position or in off-balance-sheet accounts, to meet its own needs in managing its global exposure, as well as to meet its customer’s requests, in order to manage their exposure. These operations involve a series of derivatives, including interest rate swaps, currency swaps, futures and options. Bradesco’s risk management policy is based on the utilization of derivative financial instruments mainly to mitigate the risks from operations carried out by the Bank and its subsidiaries.

Securities classified as trading and available-for-sale, as well as derivative financial instruments, are recognized in the consolidated statement of financial position at their fair value. Fair value is generally based on quoted market prices or quotations for assets or liabilities with similar characteristics. Should market prices not be available, fair values are based on dealer quotations, pricing models, discounted cash flows or similar techniques for which the determination of fair value may require judgment or significant estimates by Management.

Quoted market prices are used to determine the fair value of derivative financial instruments. The fair value of swaps is determined by using discounted cash flow modeling techniques that use yield curves, reflecting adequate risk factors. The information to build yield curves is mainly obtained from the Securities, Commodities and Futures Exchange (BM&FBOVESPA) and the domestic and international secondary market. These yield curves are used to determine the fair value of currency swaps, interest rate and other risk factor swaps. The fair value of forward and futures contracts is also determined based on market price quotations for derivatives traded at the stock exchange or using methodologies similar to those outlined for swaps. The fair values of loan derivative instruments are determined based on market price quotation or from specialized entities. The fair value of options is determined based on mathematical models, such as Black & Scholes, using yield curves, implied volatilities and the fair value of corresponding assets. Current market prices are used to calculate volatility.

Derivative financial instruments in Brazil mainly refer to swap and futures operations and are registered at the OTC Clearing House (Cetip) and BM&FBOVESPA.

Operations involving forward contracts of interest rates, indexes and currencies are contracted by Management to hedge Bradesco’s overall exposures and to meet customer needs.

Foreign derivative financial instruments refer to swap, forward, options, credit and futures operations and are mainly carried out at the stock exchanges in Chicago and New York, as well as the over-the-counter (OTC) markets.

 

 

Bradesco     141     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

I)    Amount of derivative financial instruments recorded in balance sheet and off-balance-sheet accounts

 

 

R$ thousand

2014

2013

September 30

June 30

September 30

Overall amount

Net amount

Overall amount

Net amount

Overall amount

Net amount

Futures contracts

 

 

   

 

 

Purchase commitments:

86,475,277

 

47,729,644

 

145,560,495

 

- Interbank market

56,943,311

-

34,923,191

-

136,868,520

-

- Foreign currency

26,942,049

4,879,976

12,460,660

-

8,615,349

-

- Other

2,589,917

2,256,841

345,793

-

76,626

-

Sale commitments:

124,711,299

 

172,489,277

 

287,122,209

 

- Interbank market (1)

102,316,150

45,372,839

144,175,395

109,252,204

251,479,293

114,610,773

- Foreign currency (2)

22,062,073

-

27,925,679

15,465,019

35,526,825

26,911,476

- Other

333,076

-

388,203

42,410

116,091

39,465

 

 

 

   

 

 

Option contracts

 

 

   

 

 

Purchase commitments:

27,495,157

 

183,084,853

 

186,569,850

 

- Interbank market

23,256,803

-

174,189,300

-

184,029,021

-

- Foreign currency

3,369,626

-

8,438,490

-

1,985,187

-

- Other

868,728

320,415

457,063

308,760

555,642

220,557

Sale commitments:

29,830,352

 

192,330,117

 

201,396,028

 

- Interbank market

24,979,780

1,722,977

182,179,923

7,990,623

198,260,255

14,231,234

- Foreign currency

4,302,259

932,633

10,001,891

1,563,401

2,800,688

815,501

- Other

548,313

-

148,303

-

335,085

-

 

 

 

   

 

 

Forward contracts

 

 

   

 

 

Purchase commitments:

29,239,084

 

8,182,654

 

15,107,686

 

- Foreign currency

29,078,269

15,931,379

7,196,046

-

14,388,071

6,085,234

- Other

160,815

-

986,608

404,419

719,615

-

Sale commitments:

13,588,199

 

8,213,166

 

9,307,402

 

- Foreign currency

13,146,890

-

7,630,977

434,931

8,302,837

-

- Other

441,309

280,494

582,189

-

1,004,565

284,950

 

 

 

   

 

 

Swap contracts

 

 

   

 

 

Assets (long position):

54,846,993

 

54,450,528

 

62,720,276

 

- Interbank market

11,153,625

-

11,052,842

-

10,774,736

667,087

- Fixed rate

6,025,915

2,657,903

6,364,785

3,196,915

4,548,907

1,380,945

- Foreign currency

29,929,330

1,084,533

31,596,018

777,860

24,814,187

-

- IGP-M

1,608,077

-

1,529,877

-

1,308,023

-

- Other

6,130,046

-

3,907,006

-

21,274,423

-

Liabilities (short position):

54,017,994

 

53,598,476

 

62,623,437

 

- Interbank market

13,085,130

1,931,505

13,267,339

2,214,497

10,107,649

-

- Fixed rate

3,368,012

-

3,167,870

-

3,167,962

-

- Foreign currency

28,844,797

-

30,818,158

-

25,227,009

412,822

- IGP-M

2,237,113

629,036

2,217,591

687,714

2,369,528

1,061,505

- Other

6,482,942

352,896

4,127,518

220,512

21,751,289

476,866

 

Derivatives include operations maturing in D+1.

 

(1)  Includes cash flow hedges to protect CDI-related funding, for the amount of R$ 20,827,421 thousand (R$ 20,440,070 thousand on June 30, 2014 and R$ 21,603,443 thousand on September 30, 2013) (Note 8g); and

(2)  Includes specific hedges to protect foreign investments totaling R$ 34,319,069 thousand (R$ 31,850,766 thousand on June 30, 2014 and R$ 26,289,036 thousand on September 30, 2013).

 

To obtain greater payment assurance for operations with financial institutions and customers, Bradesco established compensation and settlement agreements for liabilities within the National Financial System, in accordance with CMN Resolution no 3263/05.

142             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

II)   Breakdown of derivative financial instruments (assets and liabilities) shown at original amortized cost and fair value

 

 

R$ thousand

2014

2013

September 30

June 30

September 30

Original amortized cost

Mark-to-market adjustment

Fair value

Original amortized cost

Mark-to-market adjustment

Fair value

Original amortized cost

Mark-to-market adjustment

Fair value

Adjustment receivables - swaps

3,391,772

952,130

4,343,902

3,138,947

682,032

3,820,979

1,222,623

253,531

1,476,154

Receivable forward purchases

732,260

-

732,260

1,098,271

-

1,098,271

854,312

-

854,312

Receivable forward sales

102,096

-

102,096

705,931

-

705,931

817,905

-

817,905

Premiums on exercisable options

267,045

5,110

272,155

153,470

(45,149)

108,321

153,162

6,830

159,992

Total assets (A)

4,493,173

957,240

5,450,413

5,096,619

636,883

5,733,502

3,048,002

260,361

3,308,363

Adjustment payables - swaps

(3,157,482)

(357,421)

(3,514,903)

(2,616,028)

(352,899)

(2,968,927)

(830,172)

(549,067)

(1,379,239)

Payable forward purchases

(120,007)

-

(120,007)

(1,114,982)

-

(1,114,982)

(686,504)

-

(686,504)

Payable forward sales

(1,272,770)

-

(1,272,770)

(459,202)

-

(459,202)

(933,726)

-

(933,726)

Premiums on written options

(191,375)

22,770

(168,605)

(252,268)

68,814

(183,454)

(220,785)

(17,481)

(238,266)

Total liabilities (B)

(4,741,634)

(334,651)

(5,076,285)

(4,442,480)

(284,085)

(4,726,565)

(2,671,187)

(566,548)

(3,237,735)

 

 

 

 

     

 

 

 

Net Effect (A-B)

(248,461)

622,589

374,128

654,139

352,798

1,006,937

376,815

(306,187)

70,628

 

III) Futures, options, forward and swap contracts - (Notional)

 

 

R$ thousand

2014

2013

1 to 90

days

91 to 180

days

181 to 360

days

More than

360 days

Total on September 30

Total on
June 30

Total on September 30

Futures contracts

63,114,914

61,440,913

38,217,998

48,412,751

211,186,576

220,218,921

432,682,704

Option contracts

16,126,252

34,546,013

5,890,110

763,134

57,325,509

375,414,970

387,965,878

Forward contracts

36,176,405

3,070,759

1,743,857

1,836,262

42,827,283

16,395,820

24,415,088

Swap contracts

10,906,628

15,615,584

4,219,796

19,761,083

50,503,091

50,629,549

61,244,122

Total on September 30, 2014

126,324,199

114,673,269

50,071,761

70,773,230

361,842,459

 

 

Total on June 30, 2014

296,792,795

119,203,762

197,241,868

49,420,835

 

662,659,260

 

Total on September 30, 2013

102,871,771

575,117,239

108,281,728

120,037,054

 

 

906,307,792

 

 

Bradesco     143     

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

IV) Types of margin offered for guarantee for derivative financial instruments, mainly futures contracts

 

 

 R$ thousand

2014

2013

September 30

June 30

September 30

Government securities

 

   

National treasury notes

2,155,504

123,655

572,424

Financial treasury bills

5,281

5,126

5,999

National treasury bills

-

3,707,271

2,316,774

Total

2,160,785

3,836,052

2,895,197

 

V)  Revenues and expenses, net

 

 

R$ thousand

2014

2013

3rd quarter

2nd quarter

Accumulated on

September 30

Accumulated on

September 30

Swap contracts

269,400

(78,685)

(217,744)

(286,376)

Forward contracts

(678,645)

(18,414)

(850,970)

819,776

Option contracts

100,245

(17,653)

93,215

(240,322)

Futures contracts

(972,893)

892,459

826,895

(2,204,447)

Foreign exchange variation of investments abroad

788,460

(237,631)

328,797

240,480

Total (Note 8h)

(493,433)

540,076

180,193

(1,670,889)

 

VI) Total value of derivative financial instruments, by trading location and counterparties

 

 

 R$ thousand

2014

2013

September 30

June 30

September 30

Cetip (over-the-counter)

48,003,382

52,290,779

63,502,069

BM&FBOVESPA (stock exchange)

253,739,816

577,001,960

806,538,208

Abroad (over-the-counter) (1)

47,494,671

17,276,135

23,954,215

Abroad (stock exchange) (1)

12,604,590

16,090,386

12,313,300

Total

361,842,459

662,659,260

906,307,792

 

(1)  Comprised of operations carried out on the Chicago and New York Stock Exchanges and over-the-counter markets.

 

As of September 30, 2014, a total of 93.6% of counterparties are corporate entities and 6.4% are financial institutions.

f)      Credit Default Swaps (CDS)

 

In general, these represent bilateral agreements in which one of the parties purchases protection against the credit risk of a certain financial instrument (the risk is transferred). The selling counterparty receives remuneration that is usually paid linearly over the term of the agreement.

 

In the case of a default, the purchasing counterparty will receive a payment to offset the loss incurred on the financial instrument. In this case, the selling counterparty usually receives the underlying asset of the agreement in exchange for the payment.

 

 

144             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

On September 30, 2014 Bradesco had credit default swaps (CDS) with the following characteristics: (i) the amount of risk transferred from Credit swaps whose underlying assets are "securities - under the Brazilian public debt" is R$ (49,020) thousand; and (ii) the risk received from credit swaps whose underlying assets are "derivative with companies" is R$ 12,255 thousand, amounting to a total net credit risk value of R$ (36,765) thousand, whose effect on the required shareholders' equity calculation is R$ 1,348 thousand.

 

Bradesco carries out operations involving credit derivatives to better manage its risk exposure and its assets. The contracts related to credit derivatives transactions described above are due in 2019. The mark-to-market protection rates that remunerates the counterparty that receives the risk totaled R$ (1,106) thousand. There were no credit events during the period, related to generating facts set forth in the agreements.

 

g)    Cash flow hedge

 

Bradesco uses cash flow hedges to protect its cash flows from payment of interest rates on funds, related to floating interest rate risk of Interbank Deposit Rate (DI Cetip), thus registering fixed cash flows.

Bradesco has traded DI Future contracts at BM&FBOVESPA since 2009, using them as cash flow hedges for funding linked to DI. The following table presents the DI Future position, where:

 

R$ thousand

2014

2013

September 30

June 30

September 30

DI Future with maturity between 2015 and 2017

20,827,421

20,440,070

21,603,443

Funding indexed to CDI

20,852,335

20,290,694

21,540,722

Mark-to-market adjustment recorded in shareholders’ equity (1)

173,026

(20,725)

(48,089)

Ineffective fair value recorded in profit or loss

-

-

-

 

(1)  The adjustment in shareholders’ equity is R$ 103,816 thousand, net of taxes (R$ (12,435) thousand on June 30, 2014 and R$ (28,853) thousand on September 30, 2013).

 

The effectiveness of the hedge portfolio was assessed in accordance with Bacen Circular Letter no 3082/02.       

h)    Income from securities, insurance, pension plans and capitalization bonds and derivative financial instruments

 

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Fixed income securities

4,759,113

4,803,214

13,749,572

8,896,271

Interbank investments (Note 7b)

4,423,991

3,213,999

10,682,281

12,446,268

Equity securities (1)

(574,526)

1,496

(573,194)

21,965

Subtotal

8,608,578

8,018,709

23,858,659

21,364,504

Income from insurance, pension plans and capitalization bonds

3,443,157

3,564,421

10,271,026

6,371,102

Income from derivative financial instruments (Note 8e V)

(493,433)

540,076

180,193

(1,670,889)

Total

11,558,302

12,123,206

34,309,878

26,064,717

 

(1)  The 3rd quarter of 2014 and the September 30, 2014 YTD include the impairment write-offs referring to the shares of Banco Espírito Santo (BES), due to the corporate restructuring held on August 3, 2014, totaling R$ 598,087 thousand.

 

 

Bradesco     145     

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

9)      INTERBANK ACCOUNTS - RESERVE REQUIREMENT

a)   Reserve requirement

 

R$ thousand

Remuneration

2014

2013

September 30

June 30

September 30

Reserve requirement – demand deposits

not remunerated

6,174,583

5,054,725

7,309,622

Reserve requirement – savings deposits

savings index

17,359,784

16,742,086

15,264,221

Reserve requirement – time deposits

Selic rate

6,101,466

12,472,422

9,173,472

Additional reserve requirement

Selic rate

17,076,983

19,232,593

17,725,360

·  Savings deposits

 

8,679,892

8,371,043

7,625,238

·  Time deposits

 

8,397,091

10,861,550

10,100,122

Reserve requirement – SFH

TR + interest rate

614,012

604,050

579,879

Funds from rural loan

not remunerated

-

-

578

Total (1)

 

47,326,828

54,105,876

50,053,132

 

(1)  For further information regarding new rules on reserve requirement, see Note 35c.

 

b)   Revenue from reserve requirement

 

R$ thousand

2014

2013

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Reserve requirement – Bacen

1,085,338

1,131,731

3,290,894

2,177,535

Reserve requirement – SFH

8,673

7,942

24,865

20,031

Total

1,094,011

1,139,673

3,315,759

2,197,566

 

 

 

146             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

10)  LOANS

Information relating to loans, including advances on foreign exchange contracts, leasing and other receivables with credit characteristics is shown below:

a)   By type and maturity

 

R$ thousand

Performing loans

1 to 30

days

31 to 60

days

61 to 90

days

91 to 180

days

181 to 360 days

More than

360 days

2014

2013

Total on September 30

 

(A)

%

(6)

Total on June 30

 

(A)

%

(6)

Total on September 30

 

(A)

%

(6)

Discounted trade receivables and loans (1)

19,096,554

14,413,853

10,989,241

18,107,432

21,480,431

59,198,379

143,285,890

37.0

139,408,075

36.8

137,015,513

38.3

Financing

3,545,707

3,646,017

3,295,309

8,852,907

15,532,952

81,142,571

116,015,463

30.0

112,855,561

29.7

104,952,821

29.4

Agricultural and agribusiness loans

2,228,576

1,224,650

925,844

2,403,629

7,070,264

9,648,931

23,501,894

6.1

23,077,317

6.1

18,575,189

5.2

Subtotal

24,870,837

19,284,520

15,210,394

29,363,968

44,083,647

149,989,881

282,803,247

73.1

275,340,953

72.6

260,543,523

72.9

Leasing

227,622

201,873

204,917

558,321

901,754

2,172,155

4,266,642

1.1

4,565,992

1.2

5,511,023

1.5

Advances on foreign exchange contracts (2)

828,282

1,049,333

553,996

1,713,522

1,649,284

3,479

5,797,896

1.5

6,405,816

1.7

6,226,447

1.7

Subtotal

25,926,741

20,535,726

15,969,307

31,635,811

46,634,685

152,165,515

292,867,785

75.7

286,312,761

75.5

272,280,993

76.1

Other receivables (3)

6,933,310

4,528,897

1,702,270

3,231,930

2,762,270

1,533,956

20,692,633

5.3

19,884,780

5.2

18,419,552

5.1

Total loans

32,860,051

25,064,623

17,671,577

34,867,741

49,396,955

153,699,471

313,560,418

81.0

306,197,541

80.7

290,700,545

81.2

Sureties and guarantees (4)

2,960,981

1,140,236

1,057,977

3,470,981

7,661,196

53,988,712

70,280,083

18.1

69,875,477

18.4

65,348,398

18.2

Loan assignment (5)

-

-

-

-

-

-

-

-

-

-

63,402

-

Loan assignment - real estate receivables certificate

56,199

56,196

56,193

161,725

241,359

811,468

1,383,140

0.4

1,432,065

0.4

833,131

0.2

Co-obligation in rural loan assignment (4)

-

-

-

-

-

111,708

111,708

-

111,358

-

119,569

-

Loans available for import (4)

55,272

112,168

57,043

192,242

10,717

28,336

455,778

0.1

380,262

0.1

690,513

0.2

Confirmed exports loans (4)

26,866

1,185

21,140

1,383

635

-

51,209

-

22,135

-

60,616

-

Acquisition of credit card receivables

388,343

173,193

123,370

321,006

363,481

87,885

1,457,278

0.4

1,385,558

0.4

870,706

0.2

Grand total on September 30, 2014

36,347,712

26,547,601

18,987,300

39,015,078

57,674,343

208,727,580

387,299,614

100.0

 

 

 

 

Overall total on June 30, 2014

35,790,712

25,313,961

17,830,701

43,749,386

51,372,974

205,346,662

 

 

379,404,396

100.0

 

 

Grand total on September 30, 2013

35,298,575

24,580,442

17,763,368

39,154,900

51,575,692

190,313,903

 

 

 

 

358,686,880

100.0

 

 

Bradesco     147     

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

 

R$ thousand

Non-performing loans

Past-due installments

1 to 30

days

31 to 60

days

61 to 90

days

91 to 180

days

181 to 540

days

2014

2013

Total on September 30

 

(B)

%

(6)

Total on
June 30

 

(B)

%

(6)

Total on September 30

 

(B)

%

(6)

Discounted trade receivables and loans (1)

1,222,641

1,081,830

933,341

2,103,968

2,802,085

8,143,865

87.6

7,960,760

88.1

7,041,266

85.1

Financing

241,521

157,840

88,056

153,407

156,183

797,007

8.6

798,211

8.8

898,213

10.8

Agricultural and agribusiness loans

15,657

26,642

47,825

22,189

20,164

132,477

1.4

86,061

1.0

105,635

1.3

Subtotal

1,479,819

1,266,312

1,069,222

2,279,564

2,978,432

9,073,349

97.6

8,845,032

97.9

8,045,114

97.2

Leasing

18,117

14,876

10,336

19,812

15,435

78,576

0.8

92,439

1.0

134,083

1.6

Advances on foreign exchange contracts (2)

1,851

5,106

41

8,660

-

15,658

0.2

8,566

0.1

12,314

0.1

Subtotal

1,499,787

1,286,294

1,079,599

2,308,036

2,993,867

9,167,583

98.6

8,946,037

99.0

8,191,511

98.9

Other receivables (3)

7,072

2,986

2,136

41,188

73,071

126,453

1.4

85,827

1.0

94,478

1.1

Grand total on September 30, 2014

1,506,859

1,289,280

1,081,735

2,349,224

3,066,938

9,294,036

100.0

 

 

 

 

Overall total on June 30, 2014

1,537,367

1,365,629

1,128,785

2,397,663

2,602,420

 

 

9,031,864

100.0

 

 

Grand total on September 30, 2013

1,298,681

1,162,401

1,003,750

1,989,062

2,832,095

 

 

 

 

8,285,989

100.0

 

 

148             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

 

 

R$ thousand

Non-performing loans

Outstanding installments

1 to 30

days

31 to 60

days

61 to 90

days

91 to 180

days

181 to 360 days

More than

360 days

2014

2013

Total on September 30

 

(C)

%

(6)

Total on June 30

 

(C)

%

(6)

Total on September 30

 

(C)

%

(6)

Discounted trade receivables and loans (1)

629,760

566,405

485,609

1,132,228

1,693,020

3,938,989

8,446,011

64.7

8,641,365

64.3

7,766,335

61.4

Financing

201,282

183,360

184,439

520,235

837,467

2,186,773

4,113,556

31.5

4,301,600

32.0

4,324,613

34.1

Agricultural and agribusiness loans

623

1,812

1,576

4,440

32,559

178,796

219,806

1.7

177,781

1.3

142,516

1.1

Subtotal

831,665

751,577

671,624

1,656,903

2,563,046

6,304,558

12,779,373

97.9

13,120,746

97.6

12,233,464

96.6

Leasing

16,852

15,515

15,023

40,150

62,319

113,245

263,104

2.0

310,514

2.3

432,174

3.4

Subtotal

848,517

767,092

686,647

1,697,053

2,625,365

6,417,803

13,042,477

99.9

13,431,260

99.9

12,665,638

100.0

Other receivables (3)

444

405

404

1,093

1,476

3,050

6,872

0.1

7,280

0.1

2,793

-

Grand total on September 30, 2014

848,961

767,497

687,051

1,698,146

2,626,841

6,420,853

13,049,349

100.0

 

 

 

 

Overall total on June 30, 2014

898,095

764,554

696,014

1,748,073

2,694,449

6,637,355

 

 

13,438,540

100.0

 

 

Grand total on September 30, 2013

834,508

686,573

660,545

1,625,534

2,526,236

6,335,035

 

 

 

 

12,668,431

100.0

 

 

Bradesco     149     

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

 

R$ thousand

Overall total

 

2014

2013

 

Total on September 30
(A+B+C)

%

(6)

Total on June 30
(A+B+C)

%

(6)

Total on September 30
(A+B+C)

%

(6)

Discounted trade receivables and loans (1)

159,875,766

39.1

156,010,200

38.8

151,823,114

40.1

Financing

120,926,026

29.5

117,955,372

29.4

110,175,647

29.0

Agricultural and agribusiness loans

23,854,177

5.8

23,341,159

5.8

18,823,340

5.0

Subtotal

304,655,969

74.4

297,306,731

74.0

280,822,101

74.1

Leasing

4,608,322

1.1

4,968,945

1.2

6,077,280

1.6

Advances on foreign exchange contracts (2) (Note 11a)

5,813,554

1.4

6,414,382

1.6

6,238,761

1.6

Subtotal

315,077,845

76.9

308,690,058

76.8

293,138,142

77.3

Other receivables (3)

20,825,958

5.1

19,977,887

5.0

18,516,823

4.9

Total loans

335,903,803

82.0

328,667,945

81.8

311,654,965

82.2

Sureties and guarantees (4)

70,280,083

17.2

69,875,477

17.4

65,348,398

17.2

Loan assignment (5)

-

-

-

-

63,402

-

Loan assignment - real estate receivables certificate

1,383,140

0.3

1,432,065

0.4

833,131

0.2

Co-obligation in rural loan assignment (4)

111,708

-

111,358

-

119,569

-

Loans available for import (4)

455,778

0.1

380,262

0.1

690,513

0.2

Confirmed exports loans (4)

51,209

-

22,135

-

60,616

-

Acquisition of credit card receivables

1,457,278

0.4

1,385,558

0.3

870,706

0.2

Grand total on September 30, 2014

409,642,999

100.0

 

 

 

 

Overall total on June 30, 2014

 

 

401,874,800

100.0

 

 

Grand total on September 30, 2013

 

 

 

 

379,641,300

100.0

 

(1)  Including credit card loans and advances on credit card receivables for the amount of R$ 17,788,217 thousand (R$ 18,384,878 thousand on June 30, 2014 and R$ 18,909,033 thousand on September 30, 2013);

(2)  Advances on foreign exchange contracts are classified as a deduction from “Other Liabilities”;

(3)  Item “Other Receivables” comprises receivables on sureties and guarantees honored, receivables on sale of assets, securities and credits receivable, income receivable from foreign exchange contracts and export contracts and credit card receivables (cash and installment purchases at merchants) for the amount of R$ 17,495,420 thousand (R$ 16,671,843 thousand on June 30, 2014 and R$ 15,602,420 thousand on September 30, 2013);

(4)  Recorded in off-balance sheet accounts;

(5)  Amount of loan assignment up to September 30, 2013, net of installments repaid; and

(6)  Percentage of each type on total loan portfolio, including sureties and guarantee, loan assignment and acquisition of receivables.

 

150             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

b)   By type and levels of risk

 

R$ thousand

Levels of risk

AA

A

B

C

D

E

F

G

H

2014

2013

Total on

September 30

%

(1)

Total on

June

30

%

(1)

Total on

September 30

%

(1)

Discounted trade receivables and loans

27,169,918

76,380,290

10,697,697

24,563,189

4,455,003

3,625,711

1,847,167

1,658,602

9,478,189

159,875,766

47.7

156,010,200

47.5

151,823,114

48.7

Financing

27,726,906

43,629,573

39,379,284

7,113,830

692,427

460,213

301,386

239,599

1,382,808

120,926,026

36.0

117,955,372

35.9

110,175,647

35.4

Agricultural and agribusiness loans

3,319,165

3,189,563

9,464,609

7,191,985

278,857

220,291

76,283

22,150

91,274

23,854,177

7.1

23,341,159

7.1

18,823,340

6.0

Subtotal

58,215,989

123,199,426

59,541,590

38,869,004

5,426,287

4,306,215

2,224,836

1,920,351

10,952,271

304,655,969

90.8

297,306,731

90.5

280,822,101

90.1

Leasing

103,541

582,696

3,488,741

61,052

104,953

39,850

51,277

21,707

154,505

4,608,322

1.4

4,968,945

1.5

6,077,280

2.0

Advances on foreign exchange contracts (2)

2,474,462

1,896,028

638,520

676,631

85,136

27,495

5,119

-

10,163

5,813,554

1.6

6,414,382

1.9

6,238,761

2.0

Subtotal

60,793,992

125,678,150

63,668,851

39,606,687

5,616,376

4,373,560

2,281,232

1,942,058

11,116,939

315,077,845

93.8

308,690,058

93.9

293,138,142

94.1

Other receivables

1,127,557

15,324,757

1,239,993

2,463,017

117,299

47,703

32,919

26,292

446,421

20,825,958

6.2

19,977,887

6.1

18,516,823

5.9

Grand total on September 30, 2014

61,921,549

141,002,907

64,908,844

42,069,704

5,733,675

4,421,263

2,314,151

1,968,350

11,563,360

335,903,803

100.0

 

 

 

 

%

18.5

42.0

19.3

12.5

1.7

1.3

0.7

0.6

3.4

100.0

 

 

 

 

 

Overall total on June 30, 2014

59,181,804

138,226,493

61,127,268

44,519,952

6,224,475

4,108,435

2,837,282

1,905,758

10,536,478

 

 

328,667,945

100.0

 

 

%

18.0

42.1

18.6

13.5

1.9

1.2

0.9

0.6

3.2

 

 

100.0

 

 

 

Grand total on September 30, 2013

50,612,033

132,728,103

53,432,438

47,923,657

9,590,006

2,693,221

2,225,208

1,659,147

10,791,152

 

 

 

 

311,654,965

100.0

%

16.2

42.6

17.1

15.4

3.1

0.9

0.7

0.5

3.5

 

 

 

 

100.0

 

 

(1)  Percentage of each type on total loan portfolio, excluding sureties and guarantees, loan assignments, acquisition of receivables and co-obligation in rural loan assignments; and

(2)  See Note 11a.

 

Bradesco     151     

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

c)   Maturity ranges and levels of risk

 

R$ thousand

Levels of risk

Non-performing loans

 

AA

A

B

C

D

E

F

G

H

2014

2013

 

Total on September 30

%

(1)

Total on June
30

%

(1)

Total on September 30

%

(1)

Outstanding installments

-

-

1,558,577

2,830,776

1,798,768

1,316,000

891,442

796,558

3,857,228

13,049,349

100.0

13,438,540

100.0

12,668,431

100.0

1 to 30

-

-

146,367

211,519

101,673

64,808

49,918

48,955

225,721

848,961

6.5

898,095

6.7

834,508

6.6

31 to 60

-

-

156,237

179,252

84,543

59,599

44,664

42,808

200,394

767,497

5.9

764,554

5.7

686,573

5.4

61 to 90

-

-

109,673

161,970

82,926

55,695

43,251

41,402

192,134

687,051

5.3

696,014

5.2

660,545

5.2

91 to 180

-

-

216,775

365,652

215,799

148,309

115,516

111,876

524,219

1,698,146

13.0

1,748,073

13.0

1,625,534

12.8

181 to 360

-

-

313,382

563,554

349,627

235,635

184,866

169,652

810,125

2,626,841

20.1

2,694,449

20.1

2,526,236

19.9

More than 360

-

-

616,143

1,348,829

964,200

751,954

453,227

381,865

1,904,635

6,420,853

49.2

6,637,355

49.3

6,335,035

50.1

Past-due installments (2)

-

-

435,565

917,107

842,710

767,789

745,566

835,327

4,749,972

9,294,036

100.0

9,031,864

100.0

8,285,989

100.0

1 to 14

-

-

23,352

79,747

89,092

33,038

20,967

119,320

135,558

501,074

5.4

498,842

5.5

364,753

4.4

15 to 30

-

-

402,417

238,441

95,985

57,091

31,998

26,506

153,347

1,005,785

10.8

1,038,525

11.5

933,928

11.3

31 to 60

-

-

9,796

572,863

213,194

111,461

98,832

51,821

231,313

1,289,280

13.9

1,365,629

15.1

1,162,401

14.0

61 to 90

-

-

-

19,874

423,951

146,784

117,701

89,393

284,032

1,081,735

11.6

1,128,785

12.5

1,003,750

12.1

91 to 180

-

-

-

6,182

20,488

411,029

462,246

529,606

919,673

2,349,224

25.3

2,397,663

26.5

1,989,062

24.0

181 to 360

-

-

-

-

-

8,386

13,822

18,681

2,936,630

2,977,519

32.0

2,539,922

28.2

2,734,548

33.0

More than 360

-

-

-

-

-

-

-

-

89,419

89,419

1.0

62,498

0.7

97,547

1.2

Subtotal

-

-

1,994,142

3,747,883

2,641,478

2,083,789

1,637,008

1,631,885

8,607,200

22,343,385

 

22,470,404

 

20,954,420

 

Specific provision

-

-

19,942

112,436

264,148

625,137

818,504

1,142,320

8,607,200

11,589,687

 

11,096,873

 

10,789,704

 

 

(1)  Percentage of maturities by type of installment; and

(2)  For transactions with terms of more than 36 months, past-due periods are doubled, as allowed under CMN Resolution no 2682/99.

 

152             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

 

R$ thousand

Levels of risk

Performing loans

AA

A

B

C

D

E

F

G

H

2014

2013

Total on September 30

%

(1)

Total on
June 30

%

(1)

Total on September 30

%

(1)

Outstanding installments

61,921,549

141,002,907

62,914,702

38,321,821

3,092,197

2,337,474

677,143

336,465

2,956,160

313,560,418

100.0

306,197,541

100.0

290,700,545

100.0

1 to 30

4,486,056

17,723,453

3,441,760

5,951,388

376,396

253,316

70,799

52,942

503,941

32,860,051

10.5

33,033,760

10.8

32,780,217

11.3

31 to 60

3,947,925

13,368,662

2,825,076

4,029,667

239,905

167,545

145,913

40,889

299,041

25,064,623

8.0

24,220,768

7.9

23,349,804

8.0

61 to 90

2,889,189

8,277,916

2,280,422

3,033,932

126,097

870,251

24,983

20,370

148,417

17,671,577

5.6

16,522,544

5.4

16,259,526

5.6

91 to 180

7,274,975

16,395,086

4,988,758

5,262,250

338,555

162,244

81,649

39,631

324,593

34,867,741

11.1

39,006,970

12.7

34,682,887

11.9

181 to 360

8,578,917

23,612,082

8,674,257

7,362,249

496,960

132,424

75,929

53,821

410,316

49,396,955

15.8

44,313,759

14.5

44,359,939

15.3

More than 360

34,744,487

61,625,708

40,704,429

12,682,335

1,514,284

751,694

277,870

128,812

1,269,852

153,699,471

49.0

149,099,740

48.7

139,268,172

47.9

Generic provision

-

705,014

629,147

1,149,654

309,220

701,242

338,571

235,526

2,956,160

7,024,534

 

6,685,258

 

6,678,086

 

Grand total on September 30, 2014 (2)

61,921,549

141,002,907

64,908,844

42,069,704

5,733,675

4,421,263

2,314,151

1,968,350

11,563,360

335,903,803

 

 

 

 

 

Existing provision

-

784,664

739,733

2,392,543

1,605,168

1,989,578

1,603,445

1,944,041

11,563,360

22,622,532

 

 

 

 

 

Minimum required provision

-

705,014

649,089

1,262,090

573,368

1,326,379

1,157,075

1,377,846

11,563,360

18,614,221

 

 

 

 

 

Excess provision (3)

-

79,650

90,644

1,130,453

1,031,800

663,199

446,370

566,195

-

4,008,311

 

 

 

 

 

Overall total on June 30, 2014 (2)

59,181,804

138,226,493

61,127,268

44,519,952

6,224,475

4,108,435

2,837,282

1,905,758

10,536,478

 

 

328,667,945

 

 

 

Existing provision

-

769,542

696,052

2,364,138

1,734,159

1,833,718

1,964,371

1,892,926

10,536,478

 

 

21,791,384

 

 

 

Minimum required provision

-

691,132

611,272

1,335,599

622,448

1,232,530

1,418,642

1,334,030

10,536,478

 

 

17,782,131

 

 

 

Excess provision (3)

-

78,410

84,780

1,028,539

1,111,711

601,188

545,729

558,896

-

 

 

4,009,253

 

 

 

Grand total on September 30, 2013 (2)

50,612,033

132,728,103

53,432,438

47,923,657

9,590,006

2,693,221

2,225,208

1,659,147

10,791,152

 

 

 

 

311,654,965

 

Existing provision

-

664,850

540,413

2,588,618

2,467,044

1,301,647

1,489,567

1,633,070

10,791,152

 

 

 

 

21,476,361

 

Minimum required provision

-

663,633

534,324

1,437,709

959,001

807,966

1,112,604

1,161,401

10,791,152

 

 

 

 

17,467,790

 

Excess provision

-

1,217

6,089

1,150,909

1,508,043

493,681

376,963

471,669

-

 

 

 

 

4,008,571

 

 

(1)    Percentage of maturities by type of installment;

(2)    The overall total includes performing loans for the amount of R$ 313,560,418 thousand (R$ 306,197,541 thousand on June 30, 2014 and R$ 290,700,545 thousand on September 30, 2013) and non-performing loans of R$ 22,343,385 thousand (R$ 22,470,404 thousand on June 30, 2014 and R$ 20,954,420 thousand on September 30, 2013); and

(3)    On September 30, 2014, it includes provision for guarantees provided, comprising sureties, letters of credit and standby letter of credit, which was detached from the excess provision, totaling R$ 367,495 thousand (R$ 333,734 thousand on June 30, 2014) (Note 20b).

 

Bradesco     153     

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

d)   Concentration of loans

 

R$ thousand

2014

2013

September 30

% (1)

June 30

% (1)

September 30

% (1)

Largest borrower

6,507,899

1.9

6,126,977

1.9

2,161,358

0.7

10 largest borrowers

23,079,668

6.9

21,889,272

6.7

16,194,668

5.2

20 largest borrowers

33,329,222

9.9

31,242,836

9.5

25,130,780

8.1

50 largest borrowers

47,074,862

14.0

45,222,858

13.8

38,604,572

12.4

100 largest borrowers

59,473,648

17.7

57,191,992

17.4

50,453,815

16.2

 

(1)  Percentage on total portfolio (as defined by Bacen).

 

e)   By economic sector

 

 

R$ thousand

2014

2013

September 30

%

June 30

%

September 30

%

Public sector

6,532,669

1.9

6,156,893

1.9

171,396

0.1

Federal government

6,507,899

1.9

6,126,977

1.9

84,901

-

Petrochemical

6,507,899

1.9

6,126,977

1.9

84,901

-

State government

24,770

-

29,916

-

86,495

0.1

Production and distribution of electricity

24,770

-

29,916

-

86,495

0.1

Private sector

329,371,134

98.1

322,511,052

98.1

311,483,569

99.9

Manufacturing

55,198,366

16.4

54,767,911

16.6

56,986,349

18.2

Food products and beverages

13,454,972

4.0

13,868,061

4.2

13,342,113

4.3

Steel, metallurgy and mechanics

9,923,948

3.0

10,054,449

3.1

9,826,911

3.2

Light and heavy vehicles

4,805,455

1.4

4,407,580

1.3

4,975,842

1.6

Chemical

4,167,542

1.2

3,661,973

1.1

4,263,343

1.4

Pulp and paper

3,927,123

1.2

4,024,469

1.2

4,137,346

1.3

Textiles and apparel

3,196,658

1,0

3,130,392

0.9

3,415,720

1.1

Rubber and plastic articles

2,632,399

0.8

2,700,983

0.8

2,851,713

0.9

Furniture and wood products

2,164,086

0.6

2,213,129

0.7

2,083,119

0.7

Non-metallic materials

2,062,333

0.6

2,006,362

0.6

2,228,093

0.7

Automotive parts and accessories

2,024,612

0.6

1,967,945

0,6

2,002,826

0.6

Oil refining and production of alcohol

1,880,897

0.6

1,657,942

0.5

1,654,473

0.5

Extraction of metallic and non-metallic ores

1,192,009

0.3

1,170,875

0.4

1,575,305

0.5

Electric and electronic products

1,170,395

0.3

1,200,951

0.4

1,632,083

0.5

Leather articles

745,669

0.2

755,180

0.2

778,114

0.2

Publishing, printing and reproduction

558,084

0.2

541,519

0.2

585,242

0.2

Other industries

1,292,184

0.4

1,406,101

0.4

1,634,106

0.5

Commerce

41,924,436

12.5

41,698,763

12.8

42,179,317

13.5

Merchandise in specialty stores

8,164,431

2.4

8,202,678

2.5

8,880,168

2.8

Food products, beverages and tobacco

5,258,839

1.6

4,627,035

1.4

4,656,494

1.5

Non-specialized retailer

4,868,638

1.4

4,997,814

1.5

4,411,220

1.4

Waste and scrap

3,589,833

1.1

3,592,098

1.1

3,414,218

1.1

Automobile

3,570,877

1.1

3,568,137

1.1

3,665,461

1.2

Motor vehicle repairs, parts and accessories

3,108,441

0.9

3,083,494

0.9

3,218,251

1.0

Clothing and footwear

2,897,603

0.9

2,942,289

0.9

3,284,646

1.1

Agricultural products

2,228,705

0.6

2,186,741

0.7

2,017,120

0.6

Grooming and household articles

2,182,439

0.6

2,179,997

0.7

2,339,178

0.8

Fuel

1,932,338

0.6

1,921,946

0.6

1,944,427

0.6

Wholesale of goods in general

1,247,184

0.4

1,151,577

0.4

963,331

0.3

Trading intermediary

861,314

0.3

904,057

0.3

899,944

0.3

Other commerce

2,013,794

0.6

2,340,900

0.7

2,484,859

0.8

Financial intermediaries

4,068,361

1.2

3,742,382

1.1

2,983,774

1.0

Services

87,748,836

26.2

84,762,710

25.7

80,111,486

25.7

Civil construction

23,785,230

7.1

23,492,691

7.1

22,632,226

7.3

Transportation and storage

17,706,831

5.3

17,486,148

5.3

17,524,105

5.6

Real estate activities, rentals and corporate services

12,293,481

3.7

12,063,574

3.7

11,139,712

3.6

Holding companies, legal, accounting and business advisory services

5,987,641

1.8

5,701,013

1.7

4,805,033

1.5

Clubs, leisure, cultural and sport activities

4,449,487

1.3

4,037,140

1.2

2,106,225

0.7

Production and distribution of electric power, gas and water

3,901,047

1.2

3,838,605

1.2

4,641,812

1.5

Hotels and catering

2,832,888

0.8

2,799,137

0.9

2,719,408

0.9

Social services, education, health, defense and social security

2,756,121

0.8

2,790,481

0.8

2,541,838

0.8

Telecommunications

747,989

0.2

427,936

0.1

487,682

0.1

Other services

13,288,121

4.0

12,125,985

3.7

11,513,445

3.7

Agriculture, cattle raising, fishing, forestry and timber industry

3,485,486

1.0

3,580,238

1.1

3,106,359

1.0

Individuals

136,945,649

40.8

133,959,048

40.8

126,116,284

40.5

Total

335,903,803

100.0

328,667,945

100.0

311,654,965

100.0

 

154             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

f)    Breakdown of loans and allowance for loan losses

Level of risk

R$ thousand

Portfolio balance

Non-performing loans

Performing

loans

Total

%

(1)

2014

2013

Past due

Outstanding

Total - non-performing loans

% Accumulated on September 30 (2)

% Accumulated on June 30 (2)

% Accumulated on September 30 (2)

AA

-

-

-

61,921,549

61,921,549

18.5

18.5

18.0

16.2

A

-

-

-

141,002,907

141,002,907

42.0

60.5

60.1

58.8

B

435,565

1,558,577

1,994,142

62,914,702

64,908,844

19.3

79.8

78.7

75.9

C

917,107

2,830,776

3,747,883

38,321,821

42,069,704

12.5

92.3

92.2

91.3

Subtotal

1,352,672

4,389,353

5,742,025

304,160,979

309,903,004

92.3

 

 

 

D

842,710

1,798,768

2,641,478

3,092,197

5,733,675

1.7

94.0

94.1

94.4

E

767,789

1,316,000

2,083,789

2,337,474

4,421,263

1.3

95.3

95.3

95.3

F

745,566

891,442

1,637,008

677,143

2,314,151

0.7

96.0

96.2

96.0

G

835,327

796,558

1,631,885

336,465

1,968,350

0,6

96.6

96.8

96.5

H

4,749,972

3,857,228

8,607,200

2,956,160

11,563,360

3.4

100.0

100.0

100.0

Subtotal

7,941,364

8,659,996

16,601,360

9,399,439

26,000,799

7.7

 

 

 

Grand total on September 30, 2014

9,294,036

13,049,349

22,343,385

313,560,418

335,903,803

100.0

 

 

 

%

2.8

3.9

6.7

93.3

100.0

 

 

 

 

Overall total on June 30, 2014

9,031,864

13,438,540

22,470,404

306,197,541

328,667,945

 

 

 

 

%

2.7

4.1

6.8

93.2

100.0

 

 

 

 

Grand total on September 30, 2013

8,285,989

12,668,431

20,954,420

290,700,545

311,654,965

 

 

 

 

%

2.6

4.1

6.7

93.3

100.0

 

 

 

 

 

(1)  Percentage of level of risk on total portfolio; and

(2)  Cumulative percentage of level of risk on total portfolio.

 

 

Bradesco     155     

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Level of risk

R$ thousand

Provision

% Minimum

provisioning

required

Minimum required

 

Excess (2)

Existing

2014

2013

Specific

Generic

Total

% Accumulated

on September 30 (1)

% Accumulated on June

30 (1)

% Accumulated

on September 30 (1)

Past due

Outstanding

Total specific

AA

-

-

-

-

-

-

-

-

-

-

-

A

0.5

-

-

-

705,014

705,014

79,650

784,664

0.6

0.6

0.5

B

1,0

4,356

15,586

19,942

629,147

649,089

90,644

739,733

1.1

1.1

1.0

C

3.0

27,513

84,923

112,436

1,149,654

1,262,090

1,130,453

2,392,543

5.7

5.3

5.4

Subtotal

 

31,869

100,509

132,378

2,483,815

2,616,193

1,300,747

3,916,940

1.3

1.3

1.3

D

10.0

84,271

179,877

264,148

309,220

573,368

1,031,800

1,605,168

28.0

27.9

25.7

E

30.0

230,337

394,800

625,137

701,242

1,326,379

663,199

1,989,578

45.0

44.6

48.3

F

50.0

372,783

445,721

818,504

338,571

1,157,075

446,370

1,603,445

69.3

69.2

66.9

G

70.0

584,729

557,591

1,142,320

235,526

1,377,846

566,195

1,944,041

98.8

99.3

98.4

H

100.0

4,749,972

3,857,228

8,607,200

2,956,160

11,563,360

-

11,563,360

100.0

100.0

100.0

Subtotal

 

6,022,092

5,435,217

11,457,309

4,540,719

15,998,028

2,707,564

18,705,592

71.9

70.1

65.6

Grand total on September 30, 2014

 

6,053,961

5,535,726

11,589,687

7,024,534

18,614,221

4,008,311

22,622,532

6.7

 

 

%

 

26.8

24.5

51.3

31.0

82.3

17.7

100.0

 

 

 

Overall total on June 30, 2014

 

5,540,764

5,556,109

11,096,873

6,685,258

17,782,131

4,009,253

21,791,384

 

6.6

 

%

 

25.4

25.5

50.9

30.7

81.6

18.4

100.0

 

 

 

Grand total on September 30, 2013

 

5,411,731

5,377,973

10,789,704

6,678,086

17,467,790

4,008,571

21,476,361

 

 

6.9

%

 

25.2

25.0

50.2

31.1

81.3

18.7

100.0

 

 

 

 

(1)  Percentage of existing provision on total portfolio, by level of risk; and

(2)  On September 30, 2014, it includes provision for guarantees provided, comprising sureties, letters of credit and standby letter of credit, which was detached from the excess provision, totaling R$ 367,495 thousand (R$ 333,734 thousand on June 30, 2014) (Note 20b).

 

 

156             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

g)   Changes in allowance for loan losses

 

 

R$ thousand

 

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Opening balance

21,791,384

21,406,910

21,687,029

21,298,588

- Specific provision (1)

11,096,873

10,778,385

10,851,170

11,181,925

- Generic provision (2)

6,685,258

6,621,018

6,800,157

6,106,477

- Excess provision (3)

4,009,253

4,007,507

4,035,702

4,010,186

Additions (Note 10h-1)

3,808,760

3,622,814

10,700,728

10,343,361

Write-offs

(2,977,612)

(3,238,340)

(9,765,225)

(10,165,588)

Closing balance

22,622,532

21,791,384

22,622,532

21,476,361

- Specific provision (1)

11,589,687

11,096,873

11,589,687

10,789,704

- Generic provision (2)

7,024,534

6,685,258

7,024,534

6,678,086

- Excess provision (3) (4)

4,008,311

4,009,253

4,008,311

4,008,571

 

(1)  For transactions with past-due installments for more than 14 days;

(2)  Recorded based on the customer/transaction classification and therefore not included in the preceding item;

(3)  The additional provision is recorded based on Management's experience and the expectation of the loan portfolio, to determine the total provision deemed sufficient to cover specific and general credit risk, together with the provision calculated based on levels of risk and the corresponding minimum percentage in the provision established by CMN Resolution nº 2682/99. The excess provision per customer was classified according to the corresponding level of risk (Note 10f); and

(4)  On September 30, 2014, it includes provision for guarantees provided, comprising sureties, letters of credit and standby letter of credit, which was detached from the excess provision, totaling R$ 367,495 thousand (R$ 333,734 thousand on June 30, 2014) (Note 20b).

 

h)   ALL expense net of amounts recovered

 

Expenses with the allowance for loan losses, net of credit write offs recovered, are as follows.

 

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Amount recorded (1)

3,808,760

3,622,814

10,700,728

10,343,361

Amount recovered (2)

(1,024,376)

(990,862)

(2,881,616)

(2,712,077)

ALL expense net of amounts recovered

2,784,384

2,631,952

7,819,112

7,631,284

 

(1)  The September 30, 2014 YTD and the 3rd quarter of 2014, include constitution of provision for collateral, comprising sureties, guarantees, letters of credit and standby letter of credit, which comprises the “excess” ALL concept, totaling R$ 29,870 thousand and R$ 33,760 thousand, respectively, and on the 2nd quarter of 2014, reversal of provision totaling R$ (21,745) thousand; and

(2)  Classified in income from loans (Note 10j).

 

i)    Changes in the renegotiated portfolio

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Opening balance

10,235,324

10,106,414

10,191,901

9,643,915

Amount renegotiated

2,803,288

2,704,945

7,758,143

7,404,389

Amount received

(1,595,272)

(1,558,562)

(4,426,546)

(4,179,643)

Write-offs

(903,663)

(1,017,473)

(2,983,821)

(2,787,702)

Closing balance

10,539,677

10,235,324

10,539,677

10,080,959

Allowance for loan losses

6,696,368

6,535,598

6,696,368

6,516,664

Percentage on renegotiated portfolio

63.5%

63.9%

63.5%

64.6%

 

 

Bradesco     157     

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

j)    Income from loans and leasing

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Discounted trade receivables and loans

10,307,009

9,853,700

29,516,731

25,797,216

Financing

3,488,091

3,213,511

9,844,223

9,501,559

Agricultural and agribusiness loans

272,600

258,621

833,172

758,492

Subtotal

14,067,700

13,325,832

40,194,126

36,057,267

Recovery of credits charged-off as losses

1,024,376

990,862

2,881,616

2,712,077

Subtotal

15,092,076

14,316,694

43,075,742

38,769,344

Leasing, net of expenses

158,771

165,636

500,999

600,359

Total

15,250,847

14,482,330

43,576,741

39,369,703

 

11)    OTHER RECEIVABLES

 

a)   Foreign exchange portfolio

 

Balances

 

 

R$ thousand

2014

2013

September 30

June 30

September 30

Assets - other receivables

 

   

Exchange purchases pending settlement

8,810,585

8,524,138

10,857,359

Foreign exchange and term documents in foreign currencies

-

5,750

5,154

Exchange sale receivables

3,058,962

3,221,577

6,271,626

(-) Advances in domestic currency received

(367,038)

(333,852)

(448,318)

Income receivable on advances granted

62,065

58,497

77,873

Total

11,564,574

11,476,110

16,763,694

Liabilities - other liabilities

 

 

 

Exchange sales pending settlement

3,063,448

3,200,750

5,981,054

Exchange purchase payables

8,357,656

8,759,386

10,574,786

(-) Advances on foreign exchange contracts

(5,813,554)

(6,414,382)

(6,238,761)

Other

3,512

5,901

5,575

Total

5,611,062

5,551,655

10,322,654

Net foreign exchange portfolio

5,953,512

5,924,455

6,441,040

Off-balance-sheet accounts:

 

 

 

-  Loans available for import

455,778

380,262

690,513

-  Confirmed exports loans

51,209

22,135

60,616

 

 

158             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Foreign exchange results

 

Adjusted foreign exchange results for presentation purposes

 

 

 R$ thousand

 

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Foreign exchange results

563,816

73,647

629,937

1,702,441

Adjustments:

 

 

 

 

- Income on foreign currency financing (1)

68,464

16,162

101,351

108,840

- Income on export financing (1)

307,582

216,616

748,909

574,339

- Income on foreign investments (2)

15,310

32

15,418

24,524

- Expenses of liabilities with foreign bankers (3) (Note 17c)

(515,410)

9,043

(487,794)

(785,090)

- Funding expenses (4)

(177,403)

(131,949)

(476,339)

(283,450)

- Other

(45,756)

41,089

105,604

(747,407)

Total adjustments

(347,213)

150,993

7,149

(1,108,244)

Adjusted foreign exchange results

216,603

224,640

637,086

594,197

 

(1)  Recognized in “Income from loans”;

(2)  Recognized in “Income from security transactions”;

(3)  Related to funds for financing of advances on foreign exchange contracts and import financing, recognized in “Borrowing and onlending expenses”; and

(4)  Refer to funding expenses of investments in foreign exchange.

 

b)   Sundry

 

 

R$ thousand

2014

2013

 

September 30

June 30

September 30

Tax credits (Note 34c)

31,318,166

29,935,350

30,568,606

Credit card operations

18,952,698

18,057,401

16,473,126

Debtors for escrow deposits

11,083,884

11,072,129

11,730,726

Prepaid taxes

5,550,096

4,397,298

4,049,623

Other debtors

5,286,592

5,312,303

4,190,533

Trade and credit receivables (1)

4,232,970

4,335,445

4,224,361

Payments to be reimbursed

683,835

837,117

517,703

Receivables from sale of assets

78,754

81,556

78,109

Other

510,677

581,273

441,581

Total

77,697,672

74,609,872

72,274,368

 

(1)    Basically include receivables from the acquisition of financial assets from loans without substantial transfer of risks and benefits.

 

 

 

 

Bradesco     159     

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

12)    OTHER ASSETS

 

a)     Foreclosed assets/other

 

R$ thousand

Cost

Provision

for losses

Cost net of provision

2014

2013

September 30

June 30

September 30

Real estate

801,723

(119,357)

682,366

602,931

495,692

Vehicles and similar

610,288

(297,201)

313,087

326,005

299,315

Goods subject to special conditions

206,173

(206,173)

-

-

-

Inventories/warehouse

79,767

-

79,767

69,411

90,773

Machinery and equipment

18,691

(11,896)

6,795

12,374

10,868

Other

21,287

(18,695)

2,592

2,617

1,642

Total on September 30, 2014

1,737,929

(653,322)

1,084,607

 

 

Total on June 30, 2014

1,660,960

(647,622)

 

1,013,338

 

Total on September 30, 2013

1,438,684

(540,394)

 

 

898,290

 

b)    Prepaid expenses

 

R$ thousand

2014

2013

September 30

June 30

September 30

Deferred insurance acquisition costs (1)

1,897,239

1,810,912

1,513,195

Commission on the placement of loans and financing (2)

1,499,814

1,629,889

1,770,820

Advertising and marketing expenses (3)

43,756

65,637

67,637

Other (4)

372,762

385,363

460,477

Total

3,813,571

3,891,801

3,812,129

 

(1)  Commissions paid to brokers and representatives on sale of insurance, pension plans and capitalization bond products;

(2)  Commissions paid to storeowners, car dealers and correspondent banks - payroll-deductible loans;

(3)  Prepaid expenses of future advertising and marketing campaigns on media; and

(4)  Mainly related to card issue costs.

 

13)    INVESTMENTS

a)     Composition of investments in the consolidated financial statements

 

Affiliates

R$ thousand

2014

2013

September 30

June 30

September 30

- IRB-Brasil Resseguros S.A.

579,916

542,293

525,750

- Integritas Participações S.A.

498,137

496,370

506,353

- BES Investimento do Brasil S.A.

136,831

135,860

131,872

- Other

299,966

296,486

266,208

Total investment in affiliates - in Brazil

1,514,850

1,471,009

1,430,183

- Tax incentives

239,418

239,418

239,533

- Other investments

450,735

450,048

513,822

Provision for:

 

 

 

- Tax incentives

(211,930)

(211,930)

(212,045)

- Other investments

(61,798)

(61,798)

(61,845)

Overall total investments

1,931,275

1,886,747

1,909,648

 

160             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

b)   The adjustments from the equity method accounting of investments were recorded in the income statement, under “Equity in the Earnings (Losses) of Unconsolidated Companies”, and correspond to R$ 130,479 thousand in the period ending on September 30, 2014 (R$ 17,227 thousand on September 30, 2013) and R$ 43,852 thousand in the 3rd quarter of 2014 (R$ 34,864 thousand in the 2nd quarter of 2014).

 

Companies

R$ thousand

Capital

stock

Shareholders’ equity

adjusted

Number of shares/

quotas held

(in thousands)

Equity interest

consolidated on capital stock

Adjusted result

Equity accounting adjustments (1)

2014

2013

Common

Preferred

3rd quarter

2nd quarter

Accumulated on

September 30

Accumulated on

September 30

IRB-Brasil Resseguros S.A. (2)

1,453,080

2,827,479

212

-

20.51%

531,321

38,004

27,232

108,974

(2,553)

BES Investimento do Brasil S.A. - Banco de Investimento

420,000

684,155

12,734

12,734

20.00%

40,265

884

3,010

8,053

4,849

Integritas Participações S.A. (2)

545,638

761,156

22,581

-

25.17%

17,795

1,767

2,905

4,479

4,872

Other (2)

 

 

 

 

 

 

3,197

1,717

8,973

10,059

Equity in the earnings (losses) of unconsolidated companies

 

 

 

 

 

 

43,852

34,864

130,479

17,227

 

(1)  The adjustment considers income calculated periodically by the companies and includes equity variations by the investees not coming from profit or loss, as well as alignment of accounting practice adjustments, where applicable; and

(2)  Based on financial information from the previous month.

 

 

 

Bradesco     161     

 


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

14)  PREMISES AND EQUIPMENT

 

 

R$ thousand

Annual rate of depreciation

Cost

Depreciation

Cost net of depreciation

2014

2013

September 30

June 30

September 30

Property and equipment:

 

 

 

 

 

 

- Buildings

4%

1,066,792

(504,075)

562,717

598,535

569,664

- Land

-

406,110

-

406,110

405,713

405,736

Facilities, furniture and equipment in use

10%

4,386,608

(2,367,323)

2,019,285

1,974,057

2,008,495

Security and communication systems

10%

439,407

(181,271)

258,136

222,576

137,004

Data processing systems

20 to 50%

5,426,782

(4,130,138)

1,296,644

1,353,985

1,246,203

Transportation systems

20%

85,999

(37,606)

48,393

24,041

24,972

Total on September 30, 2014

 

11,811,698

(7,220,413)

4,591,285

 

 

Total on June 30, 2014

 

11,815,612

(7,236,705)

 

4,578,907

 

Total on September 30, 2013

 

11,396,400

(7,004,326)

 

 

4,392,074

 

The Bradesco Organization’s premises and equipment shows an unrecorded surplus of R$ 5,297,410 thousand (R$ 5,294,745 thousand on June 30, 2014 and R$ 5,381,586 thousand on September 30, 2013). This is due to an increase in their market price, based on valuations by independent experts in 2014, 2013 and 2012.

 

The total consolidated fixed assets to net worth ratio is 13.0% (13.2% on June 30, 2014 and 17.5% on September 30, 2013), and the consolidated finance fixed assets to net worth ratio is 46.8% (46.7% on June 30, 2014 and 45.1% on September 30, 2013), whereas the maximum limit is 50%.

 

The difference between the total consolidated and consolidated finance fixed assets to net worth ratios is due to non-financial subsidiaries which have high liquidity and low fixed assets to net worth ratio, with the consequent increase in the consolidated finance fixed assets to net worth ratio. Whenever necessary, we may reallocate funds to the financial companies through the payment of dividends/interest on shareholders’ equity to financial companies or a corporate restructuring between the financial and non-financial companies, thus improving the ratio.

 

 

162             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

15)  INTANGIBLE ASSETS

 

a)   Goodwill

 

The goodwill recorded in investment acquisitions totaled R$ 2,421,363 thousand, net of accumulated amortization, when applicable, of which: (i) R$ 613,086 thousand represents the difference between the purchase price and the fair value of the net assets acquired, which is recorded in Permanent Assets - Investments (BM&FBOVESPA and Integritas/Fleury shares), amortized when disposed; and (ii) R$ 1,808,277 thousand, net of accumulated amortization, for future performance/customer portfolio, which is amortized over 20 years, where applicable.

 

In the period ending on September 30, 2014, goodwill was amortized in the amount of R$ 126,577 thousand (R$ 181,747 thousand on September 30, 2013) and R$ 44,989 thousand in the 3rd quarter of 2014 (R$ 40,582 thousand on the 2nd quarter of 2014) (Note 29).

b)   Intangible assets

 

Acquired intangible assets consist of:

 

 

R$ thousand

Rate of

Amortization

(1)

Cost

Amortization

Cost net of amortization

2014

2013

September 30

June 30

September 30

Acquisition of banking services rights

Contract (4)

4,240,285

(2,151,434)

2,088,851

2,258,063

2,786,657

Software (2)

20% to 50%

8,671,128

(4,543,475)

4,127,653

4,029,219

3,669,922

Future profitability/customer portfolio (3)

Up to 20%

2,531,268

(722,991)

1,808,277

1,923,535

2,029,675

Other (5)

Contract

760,650

(257,575)

503,075

469,284

542,642

Total on September 30, 2014

 

16,203,331

(7,675,475)

8,527,856

 

 

Total on June 30, 2014

 

16,416,704

(7,736,603)

 

8,680,101

 

Total on September 30, 2013

 

17,142,670

(8,113,774)

 

 

9,028,896

 

(1)  Intangible assets are amortized over an estimated period of economic benefit and recognized in “other administrative expenses” and “other operating expenses”, where applicable;

(2)  Software acquired and/or developed by specialized companies;

(3)  Mainly composed of goodwill on the acquisition of equity interest in Banco Bradescard (currently Banco Ibi) - R$ 782,959 thousand, Odontoprev - R$ 222,635 thousand, Bradescard Mexico (currently Ibi México) - R$ 21,214 thousand, Europ Assistance Serviços de Assistência Personalizados - R$ 13,735 thousand and Cielo/Investees - R$ 568,678 thousand;

(4)  Based on the pay-back of each agreement; and

(5)  Mainly refers to the 2016 Olympic Games sponsorship program.

 

Bradesco     163    


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

c)   Changes in intangible assets by type

 

 

 

 

R$ thousand

Acquisition of

banking service rights

Software

Future profitability/ customer portfolio

Other

Total

Balance on December 31, 2013

2,589,021

4,015,462

2,005,474

535,982

9,145,939

Additions (reductions)

124,870

794,818

(70,620)

68,148

917,216

Amortization for the period

(625,040)

(682,627)

(126,577)

(101,055)

(1,535,299)

Balance on September 30, 2014

2,088,851

4,127,653

1,808,277

503,075

8,527,856

 

16)  DEPOSITS, FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND FUNDS FROM ISSUANCE OF SECURITIES

 

a)   Deposits

 

 

R$ thousand

2014

2013

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

September 30

June 30

September 30

● Demand deposits (1)

33,299,639

-

-

-

33,299,639

36,176,242

39,455,794

● Savings deposits (1)

87,293,425

-

-

-

87,293,425

84,318,918

76,487,681

● Interbank deposits

217,019

237,486

50,896

168,184

673,585

521,027

841,135

● Time deposits (2)

15,706,443

20,106,244

7,549,279

47,252,752

90,614,718

92,254,346

99,992,785

Grand total on September 30, 2014

136,516,526

20,343,730

7,600,175

47,420,936

211,881,367

 

 

%

64.4

9.6

3.6

22.4

100.0

 

 

Overall total on June 30, 2014

135,601,762

20,196,629

9,033,296

48,438,846

 

213,270,533

 

%

63,6

9.5

4.2

22.7

 

100.0

 

Grand total on September 30, 2013

133,025,999

14,675,691

11,834,027

57,241,678

 

 

216,777,395

%

61.4

6.8

5.4

26.4

 

 

100.0

 

(1)  Classified as “1 to 30 days”, not considering average historical turnover; and

(2)  Considers the actual maturities of investments.

164             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

b)   Federal funds purchased and securities sold under agreements to repurchase

 

R$ thousand

2014

2013

1 to 30
days

31 to 180
days

181 to 360
days

More than 360 days

September 30

June 30

September 30

Own portfolio

63,556,902

31,752,215

11,581,512

22,884,544

129,775,173

131,699,792

126,470,886

● Government securities

57,784,215

189,751

76,251

1,121

58,051,338

62,748,182

66,902,665

● Debentures of own issuance

1,665,827

31,562,464

11,505,261

22,227,207

66,960,759

66,278,450

57,362,793

● Foreign

4,106,860

-

-

656,216

4,763,076

2,673,160

2,205,428

Third-party portfolio (1)

167,151,431

-

-

-

167,151,431

122,146,097

123,414,339

Unrestricted portfolio (1)

250,003

311,907

325,649

-

887,559

1,765,099

8,694,708

Grand total on September 30, 2014 (2)

230,958,336

32,064,122

11,907,161

22,884,544

297,814,163

 

 

%

77.5

10.8

4.0

7.7

100.0

 

 

Overall total on June 30, 2014 (2)

188,569,763

32,914,874

10,722,807

23,403,544

 

255,610,988

 

%

73.8

12.9

4.2

9.1

 

100.0

 

Grand total on September 30, 2013 (2)

194,057,404

35,437,193

10,675,215

18,410,121

 

 

258,579,933

%

75.1

13.7

4.1

7.1

 

 

100.0

 

(1) Represented by government securities; and

(2) Includes R$ 95,092,298 thousand (R$ 74,741,206 thousand on June 30, 2014 and R$ 75,915,102 thousand on September 30, 2013) of investment funds in purchase and sale commitments with Bradesco, whose quota holders are subsidiaries included in the consolidated financial statements (Notes 8a, b, c and d).

 

Bradesco     165    


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

c)   Funds from issuance of securities

 

R$ thousand

2014

2013

1 to 30

days

31 to 180

days

181 to 360 days

More than

360 days

September 30

June
30

September 30

Securities -Brazil:

 

 

 

 

 

 

 

- Mortgage bonds

76,976

145,669

283,349

-

505,994

564,918

632,861

- Letters of credit for real estate

642,995

2,881,721

7,518,127

604,699

11,647,542

9,065,777

4,869,895

- Letters of credit for agribusiness

221,661

1,258,898

760,752

2,435,587

4,676,898

3,857,256

4,206,702

- Financial bills

355,096

9,343,582

15,402,668

24,570,213

49,671,559

48,110,529

34,242,386

Subtotal

1,296,728

13,629,870

23,964,896

27,610,499

66,501,993

61,598,480

43,951,844

Securities - abroad:

 

 

 

 

 

 

 

- MTN Program Issues (1)

58,152

2,216,169

132,354

3,656,736

6,063,411

5,659,646

8,366,877

- Securitization of future flow of money orders received from abroad (Note 16d)

5,421

399,255

365,991

1,708,972

2,479,639

2,422,173

3,125,683

- Issuance costs

-

-

-

(13,888)

(13,888)

(13,719)

(17,748)

Subtotal

63,573

2,615,424

498,345

5,351,820

8,529,162

8,068,100

11,474,812

Structured operations certificates

34,530

103,713

37,633

75,827

251,703

210,161

 

Grand total on September 30, 2014

1,394,831

16,349,007

24,500,874

33,038,146

75,282,858

 

 

%

1.9

21.7

32.5

43.9

100.0

 

 

Overall total on June 30, 2014

1,098,528

7,646,273

28,153,388

32,978,552

 

69,876,741

 

%

1.6

10.9

40.3

47.2

 

100.0

 

Grand total on September 30, 2013

3,845,267

10,736,739

8,845,325

31,999,325

 

 

55,426,656

%

6.9

19.4

16.0

57.7

 

 

100.0

 

(1)  Issuance of securities on the international market to invest in foreign exchange transactions, pre-export financing, import financing and working capital financing, predominately in the medium and long terms.

 

166             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

d)   Since 2003, Bradesco has used certain agreements to optimize its funding and liquidity management activities by using SPEs - Special Purpose Entities. An SPE, also known as a Diversified Payment Rights Company outside Brazil, is financed with long-term debt and settled through future cash flows from underlying assets which basically include flows from current payment orders and future remittances made by individuals and companies located abroad to beneficiaries in Brazil for which the Bank acts as a paying agent.

Long-term securities issued by the SPE and sold to investors are settled with proceeds from the payment order flows. Bradesco is obliged to redeem these securities in specific cases of delinquency or if the SPE discontinues operations.

Funds from the sale of current and future payment order flows, received by the SPE, must be maintained in a specific bank account until a minimum amount has been reached. 

Below are the main features of the notes issued by SPEs:

 

R$ thousand

Date of issue

Amount of the operation

Maturity

Total

2014

2013

September 30

June 30

September 30

Securitization of future flow

of payment orders received from abroad

6.11.2007

481,550

5.20.2014

-

-

69,935

6.11.2007

481,550

5.20.2014

-

-

69,530

12.20.2007

354.260

11.20.2014

-

22,015

89,076

12.17.2009

133,673

11.20.2014

-

13,685

55,554

3.6.2008

836,000

5.22.2017

611,927

604,891

779,478

12.19.2008

1,168,500

2.20.2019

1,040,019

989,573

1,113,328

12.17.2009

133,673

2.20.2017

86,430

86,303

113,728

12.17.2009

89,115

2.20.2020

91,245

85,900

98,931

8.20.2010

307,948

8.21.2017

235,182

230,557

291,826

9.29.2010

170,530

8.21.2017

134,414

131,771

166,787

11.16.2011

88,860

11.20.2018

102,386

97,526

109,938

11.16.2011

133,290

11.22.2021

178,036

159,952

167,572

Total

 

 

 

2,479,639

2,422,173

3,125,683

 

e)   Cost for market funding and inflation and interest adjustments of technical reserves for insurance, pension plans and capitalization bonds

 

R$ thousand

 

2014

2013

 

3rd quarter

2nd quarter

Accumulated on

September 30

Accumulated on

September 30

Savings deposits

1,413,506

1,292,757

3,987,318

2,895,029

Time deposits

2,429,720

2,392,490

7,228,784

5,934,787

Federal funds purchased and securities sold under agreements to repurchase

7,056,151

5,734,457

18,062,525

15,907,968

Funds from issuance of securities

2,101,298

1,643,208

5,140,275

3,048,408

Other funding expenses

117,161

116,561

343,653

293,585

Subtotal

13,117,836

11,179,473

34,762,555

28,079,777

Cost for inflation and interest adjustment of technical reserves of insurance, pension plans and capitalization bonds

2,437,088

2,492,083

7,510,153

3,832,783

Total

15,554,924

13,671,556

42,272,708

31,912,560

 

Bradesco     167    


 

 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

17)    BORROWING AND ONLENDING

a)   Borrowing

 

R$ thousand

2014

2013

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

September 30

June 30

September 30

In Brazil - other institutions

6,485

-

-

13,524

20,009

19,865

12,198

Abroad

2,092,283

6,940,385

4,108,899

1,910,786

15,052,353

13,707,825

11,977,668

Grand total on September 30, 2014

2,098,768

6,940,385

4,108,899

1,924,310

15,072,362

 

 

%

13.9

46.0

27.3

12.8

100.0

 

 

Overall total on June 30, 2014

2,641,471

6,350,640

3,878,142

857,437

 

13,727,690

 

%

19.2

46.3

28.3

6.2

 

100.0

 

Grand total on September 30, 2013

1,704,624

5,313,129

4,376,474

595,639

 

 

11,989,866

%

14.2

44.3

36.5

5.0

 

 

100.0

 

b)   Onlending

 

R$ thousand

2014

2013

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

September 30

June 30

September 30

In Brazil

1,174,320

4,978,787

6,554,889

28,543,706

41,251,702

40,200,881

39,153,078

- National Treasury

-

-

128,451

-

128,451

1,109

36,673

- BNDES

374,942

1,346,273

2,148,887

8,257,790

12,127,892

11,386,013

12,039,843

- CEF

1,987

6,401

5,461

10,911

24,760

29,903

44,513

- FINAME

797,391

3,626,113

4,270,829

20,274,673

28,969,006

28,782,226

27,030,403

- Other institutions

-

-

1,261

332

1,593

1,630

1,646

Abroad

4,830

211,150

21,113

-

237,093

212,745

163,889

Grand total on September 30, 2014

1,179,150

5,189,937

6,576,002

28,543,706

41,488,795

 

 

%

2.8

12.5

15.9

68.8

100.0

 

 

Overall total on June 30, 2014

1,149,689

5,024,671

5,898,500

28,340,766

 

40,413,626

 

%

2.9

12.4

14.6

70.1

 

100.0

 

Grand total on September 30, 2013

1,133,687

5,485,072

5,494,567

27,203,641

 

 

39,316,967

%

2.9

14.0

14.0

69.1

 

 

100.0

 

168             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

c)   Borrowing and onlending expenses

 

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on

September 30

Accumulated on

September 30

Borrowing:

 

 

 

 

- In Brazil

2,901

2,277

5,291

26,999

- Abroad

37,596

28,292

97,828

92,923

Subtotal borrowing

40,497

30,569

103,119

119,922

Onlending in Brazil:

 

 

 

 

- National Treasury

2,078

9

2,327

737

- BNDES

176,948

167,292

522,814

512,900

- CEF

405

491

1,527

2,534

- Finame

188,421

157,858

521,128

662,092

- Other institutions

9

3

25

301

Onlending abroad:

 

 

 

 

- Payables to foreign bankers (Note 11a)

515,410

(9,043)

487,794

785,090

- Other expenses with foreign onlending

4,682,343

(998,872)

2,353,955

3,631,737

- Exchange variation from investments abroad

(2,601,623)

512,565

(1,344,653)

(1,812,622)

Subtotal onlending

2,963,991

(169,697)

2,544,917

3,782,769

Total

3,004,488

(139,128)

2,648,036

3,902,691

 

18)  PROVISIONS, CONTINGENT ASSETS AND LIABILITIES AND LEGAL LIABILITIES - TAX AND SOCIAL SECURITY

 

a)   Contingent assets

Contingent assets are not recognized in the financial statements. However, there are ongoing proceedings where the chance of success is considered probable, such as: a) Social Integration Program (PIS), claiming to offset PIS against Gross Operating Income, paid under Decree-Laws no 2445/88 and no 2449/88, regarding the payment that exceeded the amount due under Supplementary Law no 07/70 (PIS Repique); and b) other taxes, the legality and/or constitutionality of which is being challenged, where the decision may lead to reimbursement of amounts paid.

 

b)   Provisions classified as probable losses and legal obligations - tax and social security

Bradesco Organization is a party to a number of labor, civil and tax lawsuits, arising from the normal course of business.

 

Management recorded provisions based on their opinion and of their legal counsel, the nature of the lawsuit, similarity to previous lawsuits, complexity and the courts standing, where the loss is deemed probable.

 

Management considers that the provision is sufficient to cover losses generated by the respective lawsuits.

 

Liability related to litigation is held until the conclusion to the lawsuit, represented by judicial decisions, with no further appeals or due to the statute of limitation.

               I -   Labor claims

These are claims brought by former employees and outsourced employees seeking indemnifications, especially for unpaid overtime, according to Article 224 of the Consolidation of Labor Laws (CLT). In proceedings in which a judicial deposit is used to guarantee the execution of the judgment, the labor provision is made considering the estimated loss of these deposits. For proceedings with similar characteristics, the provision is recorded based on the average calculated value of payments made for labor complaints settled in the past 12 months; and proceedings originating from acquired banks, with unique characteristics, the calculation and assessment of the required balance is conducted periodically, based on the updated recent loss history.

Bradesco     169     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Overtime is monitored by using electronic time cards and paid regularly during the employment contract and, accordingly, the claims filed by former employees do not represent significant amounts.

 

              II -   Civil claims

These are claims for pain and suffering and property damages, mainly relating to protests, returned checks, the inclusion of information about debtors in the credit restriction registry and the replacement of inflation adjustments excluded as a result of government economic plans. These lawsuits are individually controlled using a computer-based system and provisioned whenever the loss is deemed as probable, considering the opinion of Management and their legal counsel, the nature of the lawsuits, and similarity with previous lawsuits, complexity and positioning of the courts.

 

Most of these lawsuits are brought to the Special Civil Court (JEC), in which the claims are limited to 40 times the minimum wage and do not cause significant impact on Bradesco Organization’s financial position.

 

It is worth mentioning the significant number of legal claims pleading alleged differences in adjustment for inflation on savings account balances is due to the implementation of economic plans that were part of the federal government’s economic policy to reduce inflation in the ‘80s and ‘90s.

 

Although Bradesco complied with the law and regulation in force at the time, these lawsuits have been recorded in provisions, taking into consideration the claims where the Bank is the defendant and the perspective of loss, which is considered after the analysis of each demand, based on the current decision of the Superior Court of Justice (STJ).

 

Note that, regarding disputes relating to economic plans, the Federal Supreme Court (STF) suspended the prosecution of all lawsuits on cognizance stage, until the Court issues a final decision on the right under litigation.

 

             III -   Legal obligations - provision for tax risks

The Bradesco Organization is disputing the legality and constitutionality of certain taxes and contributions in court, for which provisions have been recorded in full, although there is good chance of a favorable outcome, based on the opinion of Management and their legal counsel. The processing of these legal obligations whose risk is deemed as probable is regularly monitored in the legal court. During or after the conclusion of each case, a favorable outcome may arise for the Organization, resulting in the reversal of the related provisions.

 

The main cases are:

-          PIS and COFINS – R$ 1,649,507 thousand (R$ 2,522,979 thousand on June 30, 2014 and R$ 10,292,466 thousand on September 30, 2013): a request for authorization to calculate and pay PIS and Cofins based on effective income, as set forth in Article 2 of Supplementary Law no 70/91, removing the unconstitutional increase in the calculation for other revenues other than income;

-        INSS Autonomous Brokers – R$ 1,471,067 thousand (R$ 1,414,168 thousand on June 30, 2014 and R$ 1,267,188 thousand on September 30, 2013): we are requesting the impact of social security contribution on remunerations paid to third-party service providers, established by Supplementary Law no 84/96 and subsequent regulations/amendments, at the 20.0% rate and additionally 2.5%, on the grounds that services are not provided to insurance companies but to policyholders, thus being outside the incidence of the contribution provided for in item I, Article 22 of Law no 8212/91, as new wording in Law no 9876/99;

-        IRPJ/Credit Losses - R$ 1,881,757 thousand (R$ 1,912,596 thousand on June 30, 2014 and R$ 1,735,719 thousand on September 30, 2013): we are requesting to deduct from income tax and social contributions payable (IRPJ and CSLL, respectively) amounts of actual and definite loan losses related to unconditional discounts granted upon receipt of claims incurred, regardless if they comply with the terms and conditions provided for in Articles 9 to 14 of Law no 9430/96 that only apply to temporary losses;

170             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

- PIS – EC 17/97 - R$ 318,357 thousand (R$ 102,647 thousand on June 30, 2014 and R$ 98,086 thousand on September 30, 2013): for the periods from July 1997 to February 1998, request to calculate and pay Pis contributions as established by LC 07/70 (Pis Repique) and not as established by EC 17/97 (Pis on Gross Operating Income); and  

-        PIS - R$ 317,246 thousand (R$ 314,672 thousand on June 30, 2014 and R$ 307,783 thousand on September 30, 2013): we are requesting the authorization to offset overpaid amounts in 1994 and 1995 as PIS contribution, corresponding to the surplus on the calculation established in the Constitution, i.e., gross operating income, as defined in the income tax legislation - set out in Article 44 of Law no 4506/64, excluding interest income.

            IV -   Provisions by nature

 

R$ thousand

2014

2013

September 30

June 30

September 30

Labor claims

2,859,976

2,471,829

2,507,604

Civil claims

3,999,740

3,822,249

3,856,399

Subtotal (1)

6,859,716

6,294,078

6,364,003

Provision for tax risks (2)

7,371,100

8,345,491

16,784,877

Total

14,230,816

14,639,569

23,148,880

 

(1)  Note 20b; and

(2)  Classified under “Other liabilities - tax and social security” (Note 20a).

 

              V -   Changes in provisions

 

R$ thousand

2014

Labor (1)

Civil

Fiscal (2) (3)

Balance on December 31, 2013

2,537,405

3,823,499

7,728,691

Adjustment for inflation

227,716

273,262

382,800

Provisions, net of reversals and write-offs

1,043,315

474,046

(632,064)

Payments

(948,460)

(571,067)

(108,327)

Balance on September 30, 2014

2,859,976

3,999,740

7,371,100

 

(1)  The 3rd quarter of 2014 includes the constitution of labor provisions concerning the improvement of the calculation methodology, originating from acquired banks, with unique characteristics, based on the updated recent loss history, totaling R$ 488,300 thousand;

(2)  The 3rd quarter of 2014 includes (i) the reversal of tax provision related to the Cofins case, which ended favorable to the Organization in the amount of R$ 1,378,103 thousand, and (ii) the establishment of tax provisions on the PIS case - CE 17/97, in the amount of R$ 212,888 thousand; and

(3)  Mainly include legal liabilities.

 

Bradesco     171     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

 

c)   Contingent liabilities classified as possible losses

The Bradesco Organization maintains a system to monitor all administrative and judicial proceedings in which the institution is plaintiff or defendant and, based on the opinion of legal counsel, classifies the lawsuits according to the expectation of loss. Case law trends are periodically analyzed and, if necessary, the related risk is reclassified. In this respect, contingent lawsuits deemed with the risk of a possible loss are not recorded as a liability in the financial statements. The main proceedings in this category are the following: a) leasing companies’ Tax on Services of any Nature (ISSQN), total lawsuits correspond to R$ 1,794,587 thousand (R$ 1,753,024 thousand on June 30, 2014 and R$ 1,167,543 thousand on September 30, 2013) which relates to the municipal tax demands other than those where the company is not located and where, under law, tax is collected; b) 2006-2010 income tax and social contribution, relating to goodwill amortization being disallowed on the acquisition of investments, for the amount of R$ 3,831,988 thousand (R$ 3,456,648 thousand on June 30, 2014 and R$ 844,849 thousand on September 30, 2013); c) IRPJ and CSLL deficiency notice relating to disallowance of loan loss expenses, for the amount of R$ 550,255 thousand (R$ 553,964 thousand on June 30, 2014, and R$ 490,422 thousand on September 30, 2013); d) IRPJ and CSLL deficiency note relating to disallowance of exclusions of revenues from mark-to-market securities from 2007 to 2010, difference in depreciation and operating expenses and income, amounting to R$ 473,869 thousand (R$ 469,140 thousand on June 30, 2014 and R$ 231,612 thousand on September 30, 2013); and e) IRPJ, CSLL, PIS and COFINS deficiency note, amounting to R$ 344,286 thousand (R$ 340,529 thousand on June 30, 2014 and R$ 337,348 thousand on September 30, 2013), on alleged tax-exempt gain, when Bovespa shares were merged into Nova Bolsa (BM&FBovespa), in 2008.

 

 

 

172             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

19)  SUBORDINATED DEBT

 

 

R$ thousand

 

2014

2013

Maturity

Original term in years

Amount of the

operation

Currency

Remuneration

September 30

June 30

September 30

In Brazil:

     

 

 

 

 

Subordinated CDB:

     

 

 

 

 

2014

6

1,000,000

R$

112.0% of CDI rate

1,844,433

1,789,726

1,652,333

   

 

 

IPCA + (6.92% p.a. - 8.55% p.a.)

 

 

 

 2015

6

1,274,696

R$

108.0% to 112.0% of CDI rate

2,581,348

2,511,913

2,237,989

2016

6

500

R$

IPCA + 7.1292% p.a.

919

896

803

2019

10

20,000

R$

IPCA + 7.76% p.a.

39,526

38,501

34,372

Financial notes:

 

 

   

 

 

 

   

 

 

IGP-M + 6.3874% p.a.

 

 

 

 

 

 

 

IPCA + (6.7017% p.a. - 6.8784% p.a.)

 

 

 

 

 

 

 

Fixed rate of 13.0949% p.a.

 

 

 

 2016

6

102,018

R$

108.0% to 110.0% of CDI rate

160,837

156,857

142,232

 

 

 

 

100.0% of CDI rate + (1.2685%p.a. - 1.3656% p.a.)

 

 

 

 

 

 

 

IGP-M + (5.7745% p.a. – 6.9588% p.a.)

 

 

 

 

 

 

 

IPCA + (5.6030% p.a. - 7.5482% p.a.)

 

 

 

 

 

 

 

Fixed rate (11.7493% p.a. – 13.8609% p.a.)

 

 

 

 2017

6

8,630,999

R$

104.0% to 112.5% of CDI rate

9,662,731

9,686,759

9,294,582

 

 

 

 

100.0% of CDI rate + (0.7855%p.a. - 1.3061% p.a.)

 

 

 

 

 

 

 

IGP-M + (4.0147% p.a. – 6.2626% p.a.)

 

 

 

 

 

 

 

IPCA + (3.6712% p.a. - 6.2822% p.a.)

 

 

 

 

 

 

 

Fixed rate (9.3991% p.a. – 12.1754% p.a.)

 

 

 

 2018

6

8,262,799

R$

105.0% to 112.2% of CDI rate

8,999,864

8,878,067

8,701,345

 

 

 

 

IGP-M + (3.6320% p.a. – 4.0735% p.a.)

 

 

 

 

 

 

 

IPCA + (3.2983% p.a. - 4.4268% p.a.)

 

 

 

 

 

 

 

Fixed rate (9.3207% p.a. – 10.3107% p.a.)

 

 

 

 2019

6

21,858

R$

109.3% to 109.5% of CDI rate

25,446

24,946

22,970

 

 

 

 

IPCA + 7.4163% p.a.

 

 

 

 2017

7

40,100

R$

Fixed rate of 13.1763% p.a.

69,987

68,025

61,399

 

 

 

 

IGP-M + 6.6945% p.a.

 

 

 

2018

7

141,050

R$

IPCA + (5.9081% p.a. - 7.3743% p.a.)

209,223

206,345

185,692

 

 

 

 

100.0% of CDI rate + (1.0079% p.a. – 1.0412% p.a.)

 

 

 

 

 

 

 

IGP-M rate + 4.1768 p.a.

 

 

 

 

 

 

 

IPCA + (4.0262% p.a. - 6.1757% p.a.)

 

 

 

 

 

 

 

Fixed rate (10.1304% p.a. – 11.7550% p.a.)

 

 

 

2019

7

3,172,835

R$

110.5% to 112.2% of CDI rate

3,364,164

3,273,413

3,298,428

2020

7

1,700

R$

IPCA + 4.2620% p.a.

1,980

1,944

1,780

2018

8

50,000

R$

IGP-M + 7.0670% p.a.

79,417

78,622

71,507

 

 

 

 

IGP-M + 5.8351% p.a.

 

 

 

 

 

 

 

IPCA + (5.8950% p.a. - 6.3643% p.a.)

 

 

 

2019

8

12,735

R$

Fixed rate of 13.3381% p.a.

18,715

18,202

16,509

 

 

 

 

IGP-M + 5.5341% p.a.

 

 

 

 

 

 

 

IPCA + (3.9941% p.a. - 6.1386% p.a.)

 

 

 

 

 

 

 

Fixed rate (11.1291% p.a. – 11.8661% p.a.)

 

 

 

2020

8

28,556

R$

110.0% to 110.7% of CDI rate

36,614

35,722

32,673

2021

8

1,236

R$

IPCA + (3.7004% p.a. - 4.3419% p.a.)

1,447

1,423

1,305

2021

9

7,000

R$

111.0% of CDI rate

8,633

8,380

7,742

 

 

 

 

IGP-M + (6.0358% p.a. - 6.6244% p.a.)

 

 

 

 

 

 

 

IPCA + (5.8789% p.a. - 7.1246% p.a.)

 

 

 

 

 

 

 

Fixed rate of 12.7513% p.a.

 

 

 

2021

10

19,200

R$

109.0% of CDI rate

27,098

26,576

24,017

 

 

 

 

IGP-M + (3.9270% p.a. – 4.2994% p.a.)

 

 

 

 

 

 

 

IPCA + (4.1920% p.a. - 6.0358% p.a.)

 

 

 

 

 

 

 

Fixed rate (10.3489% p.a. – 12.4377% p.a.)

 

 

 

2022

10

54,143

R$

110.0% to 111.3% of CDI rate

68,373

66,903

61,180

 

 

 

 

IGP-M + (3.5855% p.a. – 3.9984% p.a.)

 

 

 

 

 

 

 

IPCA + (3.9292% p.a. - 4.9620% p.a.)

 

 

 

2023

10

688,064

R$

Fixed rate (10.6804% p.a. – 10.8971% p.a.)

788,248

781,193

719,936

CDB pegged to loans:

 

 

 

 

 

 

 

2014 to 2016

2 to 3

2,772

R$

100.0% of CDI rate

3,489

3,882

4,970

Subtotal in Brazil

 

 

 

 

27,992,492

27,658,295

26,573,764

Bradesco     173     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

 

 

R$ thousand

 

2014

2013

Maturity

Original term in years

Amount of the

operation

Currency

Remuneration

September 30

June 30

September 30

Abroad:

 

 

 

 

 

 

 

2013 (1)

10

-

US$

Rate of 8.75% p.a.

-

-

1,157,491

2014 (2)

10

-

Euro

Rate of 8.00% p.a.

-

-

703,626

2019

10

1,333,575

US$

Rate of 6.75% p.a.

1,838,939

1,680,060

1,672,814

2021

11

2,766,650

US$

Rate of 5.90% p.a.

3,961,673

3,611,697

3,603,285

2022

11

1,886,720

US$

Rate of 5.75% p.a.

2,702,858

2,463,428

2,458,259

Issuance costs on funding

 

 

 

 

(31,565)

(29,484)

(33,916)

Subtotal abroad

 

 

 

 

8,471,905

7,725,701

9,561,559

Overall total

 

 

 

 

36,464,397

35,383,996

36,135,323

(1)  Subordinated debt transactions that matured in October 2013; and

(2)  Subordinated debt transactions that matured in April 2014.

 

174             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

20)  OTHER LIABILITIES

a)   Tax and social security

 

 

R$ thousand

2014

2013

September 30

June 30

September 30

Provision for tax risk (Note 18b IV)

7,371,100

8,345,491

16,784,877

Provision for deferred income tax (Note 34f)

3,240,207

3,549,785

4,130,802

Taxes and contributions on profit payable

3,706,387

3,581,915

3,959,519

Taxes and contributions payable

1,030,787

966,608

1,052,074

Total

15,348,481

16,443,799

25,927,272

 

b)   Sundry

 

 

R$ thousand

2014

2013

September 30

June 30

September 30

Credit card operations

16,050,168

15,367,177

14,588,493

Sundry creditors

7,515,246

8,262,057

6,425,706

Civil and labor provisions (Note 18b IV)

6,859,716

6,294,078

6,364,003

Provision for payments

6,123,946

5,500,683

5,500,774

Loan assignment obligations

4,320,900

4,116,965

-

Liabilities for acquisition of assets and rights

971,602

1,052,583

1,295,255

Other (1)

2,302,303

1,772,976

1,869,827

Total

44,143,881

42,366,519

36,044,058

 

(1)  On September 30, 2014, it includes provision for guarantees provided, comprising sureties, letters of credit and standby letter of credit, which was detached from the excess provision, totaling R$ 367,495 thousand (R$ 333,734 thousand on June 30, 2014) (Note 10g).

 

 

 

 

 

 

Bradesco     175     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

21)  INSURANCE, PENSION PLANS AND CAPITALIZATION BONDS

 

a)   Technical reserves by account

 

 

R$ thousand

Insurance (1)

Life and pension plans (2) (3) (4)

Capitalization bonds

Total

 

2014

2013

2014

2013

2014

2013

2014

2013

 

September 30

June 30

September 30

September 30

June 30

September 30

September 30

June 30

September 30

September 30

June 30

September 30

Current and long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Mathematical reserve for unvested benefits

788,329

777,834

943,187

113,064,451

110,514,341

99,799,217

-

-

-

113,852,780

111,292,175

100,742,404

Mathematical reserve for vested benefits

171,336

170,728

191,662

6,804,196

6,817,724

6,293,796

-

-

-

6,975,532

6,988,452

6,485,458

Mathematical reserve for capitalization bonds

-

-

-

-

-

-

5,747,032

5,519,643

5,056,765

5,747,032

5,519,643

5,056,765

Reserve for claims incurred but not reported (IBNR)

1,534,700

1,647,910

1,356,631

1,131,405

1,082,645

1,228,389

-

-

-

2,666,105

2,730,555

2,585,020

Unearned premium reserve

4,134,330

3,795,702

3,199,369

292,181

286,068

213,560

-

-

-

4,426,511

4,081,770

3,412,929

Complementary reserve for coverage (4)

-

-

-

1,366,643

1,233,857

5,109,315

-

-

-

1,366,643

1,233,857

5,109,315

Reserve for unsettled claims

4,081,312

3,982,669

3,652,180

1,018,470

996,324

1,196,088

-

-

-

5,099,782

4,978,993

4,848,268

Reserve for financial surplus

-

-

-

414,861

411,768

388,393

-

-

-

414,861

411,768

388,393

Reserve for draws and redemptions

-

-

-

-

-

-

660,552

657,274

623,838

660,552

657,274

623,838

Other reserves (4)

1,898,713

1,897,513

2,634,609

2,766,160

2,850,501

1,585,052

94,372

89,888

81,614

4,759,245

4,837,902

4,301,275

Total reserves

12,608,720

12,272,356

11,977,638

126,858,367

124,193,228

115,813,810

6,501,956

6,266,805

5,762,217

145,969,043

142,732,389

133,553,665

                                                                                                                                                                                                                                                  

 

 

 

 

 

176             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

b)   Technical reserves by product

 

 

R$ thousand

Insurance

Life and pension plans (4)

Capitalization bonds

Total

2014

2013

2014

2013

2014

2013

2014

2013

September 30

June 30

September 30

September
30

June 30

September 30

September 30

June 30

September 30

September
30

June 30

September 30

Health

6,380,339

6,301,129

6,740,112

-

-

-

-

-

-

6,380,339

6,301,129

6,740,112

Auto/RCF

3,335,792

3,199,193

2,791,724

-

-

-

-

-

-

3,335,792

3,199,193

2,791,724

DPVAT/Retrocession (5)

261,732

267,604

220,298

3,934

3,909

583,342

-

-

-

265,666

271,513

803,640

Life

14,887

15,085

14,643

6,476,261

6,254,123

5,284,022

-

-

-

6,491,148

6,269,208

5,298,665

Basic lines

2,615,970

2,489,345

2,210,861

-

-

-

-

-

-

2,615,970

2,489,345

2,210,861

Unrestricted Benefits Generating Plan - PGBL to be granted

-

-

-

20,398,594

19,792,805

18,661,867

-

-

-

20,398,594

19,792,805

18,661,867

Long-Term Life Insurance - VGBL - to be granted

-

-

-

80,127,747

78,317,241

70,076,427

-

-

-

80,127,747

78,317,241

70,076,427

Pension plans (4)

-

-

-

19,851,831

19,825,150

21,208,152

-

-

-

19,851,831

19,825,150

21,208,152

Capitalization bonds

-

-

-

-

-

-

6,501,956

6,266,805

5,762,217

6,501,956

6,266,805

5,762,217

Total technical reserves

12,608,720

12,272,356

11,977,638

126,858,367

124,193,228

115,813,810

6,501,956

6,266,805

5,762,217

145,969,043

142,732,389

133,553,665

Bradesco     177     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

c)   Guarantees for technical reserves

 

 

R$ thousand

Insurance

Life and pension plans (4)

Capitalization bonds

Total

2014

2013

2014

2013

2014

2013

2014

2013

September 30

June 30

September 30

September 30

June 30

September 30

September 30

June 30

September 30

September 30

June 30

September 30

Total technical reserves

12,608,720

12,272,356

11,977,638

126,858,367

124,193,228

115,813,810

6,501,956

6,266,805

5,762,217

145,969,043

142,732,389

133,553,665

(-) Loading on insurance sales – extended guarantee

(263,639)

(259,127)

(138,436)

-

-

-

-

-

-

(263,639)

(259,127)

(138,436)

(-) Portion corresponding to contracted reinsurance

(908,629)

(900,478)

(827,723)

(14,532)

(3,897)

(7,074)

-

-

-

(923,161)

(904,375)

(834,797)

(-) Deposits retained at IRB and court deposits

(2,318)

(2,318)

(8,179)

-

(51,461)

(53,676)

-

-

-

(2,318)

(53,779)

(61,855)

(-) Receivables

(1,011,577)

(1,003,348)

(808,675)

-

-

-

-

-

-

(1,011,577)

(1,003,348)

(808,675)

(-) Unearned premium reserve – Health Insurance (6)

(905,676)

(852,356)

(753,652)

-

-

-

-

-

-

(905,676)

(852,356)

(753,652)

(-) Reserves from DPVAT agreements (5)

(255,477)

(261,316)

(213,929)

-

-

(579,156)

-

-

-

(255,477)

(261,316)

(793,085)

To be insured

9,261,404

8,993,413

9,227,044

126,843,835

124,137,870

115,173,904

6,501,956

6,266,805

5,762,217

142,607,195

139,398,088

130,163,165

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment fund quotas (VGBL and PGBL)

-

-

-

100,526,341

98,110,046

88,738,294

-

-

-

100,526,341

98,110,046

88,738,294

Investment fund quotas (excluding VGBL and PGBL)

6,121,178

5,453,230

3,233,527

16,084,846

16,433,173

15,609,846

4,144,227

3,929,823

3,394,508

26,350,251

25,816,226

22,237,881

Government securities

4,117,080

4,895,002

6,527,460

10,024,497

9,228,843

9,448,779

2,004,487

2,015,514

2,027,321

16,146,064

16,139,359

18,003,560

Private securities

105,872

108,568

104,310

174,185

182,544

202,429

41,885

63,589

94,504

321,942

354,701

401,243

Shares

4,487

4,597

5,859

1,364,333

1,529,005

1,443,174

328,248

392,060

271,223

1,697,068

1,925,662

1,720,256

Total technical reserve guarantees

10,348,617

10,461,397

9,871,156

128,174,202

125,483,611

115,442,522

6,518,847

6,400,986

5,787,556

145,041,666

142,345,994

131,101,234

 

(1)    "Other reserves" - Insurance basically refers to technical reserves of the "personal health" portfolio;

(2)    Includes personal insurance and pension plans;

(3)    "Other reserves" - Life and Pension Plan mainly includes the "Reserve for redemption and other amounts to be settled", "Reserve for related expenses" and "Other reserves";

(4)    Up to November 2013, as authorized by Susep, an interest rate based on Bank’s own study was used to discount the actuarial liability flow and, consequently, the item "Complementary Reserve for Coverage” reflected the result of this rate;

(5)    In January 2014, the shutdown of DPVAT insurance consortiums was requested; and

(6)    Deduction set forth in Article 4 of ANS Legislative Resolution no 314/12.

178             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

d)   Insurance, pension plan contribution and capitalization bond retained premiums

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Written premiums

7,201,071

6,678,270

20,315,448

17,219,071

Pension plan contributions (including VGBL)

4,383,620

6,116,223

14,398,334

14,989,983

Capitalization bond income

1,415,612

1,289,952

3,910,479

3,343,319

Granted coinsurance premiums

(25,726)

(45,104)

(111,558)

(118,263)

Refunded premiums

(70,567)

(46,853)

(166,710)

(173,826)

Net written premiums

12,904,010

13,992,488

38,345,993

35,260,284

Reinsurance premiums

(104,404)

(109,137)

(280,978)

(164,148)

Insurance, pension plan and capitalization bond retained premiums

12,799,606

13,883,351

38,065,015

35,096,136

 

22)  NON-CONTROLLING INTERESTS IN SUBSIDIARIES

 

 

R$ thousand

2014

2013

September 30

June 30

September 30

Banco Bradesco BBI S.A.

104,134

101,846

132,282

Other (1)

385,506

384,361

459,358

Total

489,640

486,207

591,640

 

(1)  Mainly related to the non-controlling interest in Odontoprev S.A.

 

23)  SHAREHOLDERS’ EQUITY (PARENT COMPANY)

 

a)   Capital stock in number of shares

 

Fully subscribed and paid-in capital stock comprises non-par, registered, book-entry shares.

 

 

2014

2013

September 30

June 30

September 30

Common shares

2,103,637,129

2,103,637,129

2,103,637,129

Preferred shares

2,103,636,910

2,103,636,910

2,103,636,910

Subtotal

4,207,274,039

4,207,274,039

4,207,274,039

Treasury (common shares)

(2,898,610)

(2,898,610)

(2,898,610)

Treasury (preferred shares)

(8,984,870)

(8,984,870)

(7,630,270)

Total outstanding shares

4,195,390,559

4,195,390,559

4,196,745,159

 

b)    Changes in capital stock in number of shares

 

 

Common shares

Preferred shares

Total

Number of outstanding shares as at December 31, 2013

2,100,738,519

2,095,770,640

4,196,509,159

Shares acquired and not canceled

-

(1,118,600)

(1,118,600)

Number of outstanding shares as at September 30, 2014

2,100,738,519

2,094,652,040

4,195,390,559

 

Bradesco     179     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

c)    Interest on shareholders’ equity/dividends

 

Preferred shares have no voting rights, but are entitled to all other rights and advantages given to common shares and, in compliance with Bradesco’s Bylaws, have priority for repayment of capital and an additional ten percent (10%) interest on shareholders’ equity and/or dividends, in accordance with the provisions of Paragraph 1, item II, of Article 17 of Law no 6404/76, amended by Law no 10303/01.

 

According to Bradesco’s Bylaws, shareholders are entitled to interest on shareholders’ equity and/or dividends amounting to at least 30% of the net income for the year, adjusted in accordance with Brazilian Corporate Law.

 

Interest on shareholders’ equity is calculated based on the shareholders’ equity limited to the variation in the Federal Government Long-Term Interest Rates (TJLP), subject to available profits before deductions, or transfer to retained earnings or profit reserves for the amounts equivalent or greater than twice its value.

 

Bradesco’s capital remuneration policy aims to distribute interest on shareholders’ equity at the maximum amount calculated under current legislation, and this is included, net of Withholding Income Tax, in the calculation for mandatory dividends for the year under the Company’s Bylaws.

 

The Board of Directors’ Meeting held on December 23, 2013 approved the Board of Executive Officers’ proposal to pay shareholders supplementary interest on shareholders’ equity for 2013, for the amount of R$ 1,421,300 thousand, at R$ 0.322576529 (net of 15% withholding income tax - R$ 0.274190050) per common share and R$ 0.354834182 (net of 15% withholding income tax - R$ 0.301609055) per preferred share, which was paid on March 7, 2014.

 

The Board of Directors’ Meeting held on February 10, 2014 approved the Board of Executive Officers’ proposal to pay shareholders supplementary interest on shareholders’ equity for 2013, for the amount of R$ 853,858 thousand, at R$ 0.193826693 per common share and R$ 0.213209362 per preferred share, which was paid on March 7, 2014.

 

The Board of Directors’ Meeting held on June 24, 2014 approved the Board of Executive Officers’ proposal to pay shareholders’ supplementary interest on shareholders’ equity and dividends for the first semester of 2014, in the amount of R$ 829,000 thousand, at R$ 0.188201395 per common share and R$ 0.207021535 per preferred share, which was paid on July 18, 2014.

 

Interest on shareholders’ equity and dividends for the first three quarters ending on September 30, 2014 is calculated as follows:

 

 

R$ thousand

% (1)

Net Income for the Period

11,095,536

 

(-) Legal reserve

(554,777)

 

Adjusted calculation basis

10,540,759

 

Monthly and supplementary interest on shareholders’ equity (gross), paid and/or provisioned

2,930,987

 

Withholding income tax on interest on shareholders’ equity

(439,648)

 

Interim Dividends Paid

829,000

 

Interest on shareholders’ equity (net)/dividends accumulated in September 2014

3,320,339

31.50

Interest on shareholders’ equity (net) accumulated on September 30, 2013

2,672,850

31.50

 

(1)  Percentage of interest on shareholders’ equity/dividends after adjustments.

 

 

180             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Interest on shareholders’ equity was paid or recorded in provisions, as follows:

 

Description

R$ thousand

Per share (gross)

Gross amount paid/
recorded
in provision

Withholding Income Tax (IRRF)

(15%)

Net amount paid / recorded in provision

net provisioned

Common shares

Preferred shares

Monthly interest on shareholders’ equity paid

0.169361

0.186298

724,003

108,600

615,403

Intermediate interest on shareholders’ equity paid

0.188254

0.207078

830,000

124,500

705,500

Supplementary interest on shareholders’ equity paid

0.360962

0.397058

1,590,526

238,579

1,351,947

Total accumulated on September 30, 2013

0.718577

0.790434

3,144,529

471,679

2,672,850

Monthly interest on shareholders’ equity paid

0.169362

0.186298

746,042

111,906

634,136

Supplementary interest on shareholders’ equity provisioned

0.496031

0.545634

2,184,945

327,742

1,857,203

Interim Dividends Paid

0.188201

0.207022

829,000

-

829,000

Total accumulated on September 30, 2014

0.853594

0.938954

3,759,987

439,648

3,320,339

 

d)    Treasury shares

 

The Board of Directors’ Meeting held on June 25, 2013 resolved to renew the term for the share buyback based on the previous conditions, which remained in force until June 26, 2014. The Board of Directors’ Meeting held on June 24, 2014 resolved to renew the term for the share buyback, based on the previous conditions. It is valid until June 26, 2015.

 

A total of 2,898,610 common shares and 8,984,870 preferred shares had been acquired, totaling R$ 298,015 thousand up to September 30, 2014, and remain in treasury. The minimum, medium and maximum cost per common share is R$ 23.62221, R$ 25.41203 and R$ 27.14350, and per preferred share is R$ 25.23185, R$ 27.16272 and R$ 33.12855, respectively. The fair value was R$ 35.00 per common share and R$ 34.84 per preferred share on September 30, 2014.

 

24)    FEE AND COMMISSION INCOME

 

 

R$ thousand

2014

2013

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Credit card income

1,990,712

1,848,593

5,672,986

5,003,079

Checking account

1,025,028

971,880

2,940,903

2,655,273

Loans

688,275

625,433

1,887,076

1,646,461

Asset management

653,008

577,654

1,792,474

1,734,859

Collections

399,857

387,833

1,167,651

1,091,035

Consortium management

227,792

213,682

640,399

526,200

Underwriting / Financial Advisory Services

134,345

160,255

515,542

415,211

Custody and brokerage services

138,314

120,776

383,879

386,901

Payments

89,272

99,932

285,637

253,246

Other

240,092

219,586

716,200

590,822

Total

5,586,695

5,225,624

16,002,747

14,303,087

 

 

Bradesco     181     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

25)    PAYROLL AND RELATED BENEFITS

 

 

R$ thousand

2014

2013

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Salaries

1,653,681

1,563,127

4,733,066

4,465,123

Benefits

738,942

704,205

2,140,383

1,990,737

Social security charges

626,360

597,713

1,796,526

1,686,692

Employee profit sharing

327,596

326,376

947,231

797,443

Provision for labor claims (1)

665,535

220,288

1,068,314

583,812

Training

40,179

36,131

93,760

72,259

Total

4,052,293

3,447,840

10,779,280

9,596,066

 

(1)  The 3rd quarter of 2014 and on September 30, 2014 include the constitution of labor provisions concerning the improvement of the calculation methodology, originating from acquired banks, with unique characteristics, based on the updated recent loss history, totaling R$ 488,300 thousand.

 

26)    OTHER ADMINISTRATIVE EXPENSES

 

 

R$ thousand

2014

2013

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Outsourced services

973,880

955,863

2,833,158

2,602,040

Depreciation and amortization

487,898

463,034

1,397,128

1,286,303

Communication

382,306

378,197

1,136,008

1,194,817

Data processing

340,355

326,301

1,002,350

945,163

Rental

225,237

215,859

654,999

617,933

Transport

192,911

199,590

595,386

619,071

Financial system services

195,785

187,589

580,422

554,641

Advertising and marketing

184,088

170,499

532,836

492,831

Asset maintenance

168,808

179,873

500,188

483,878

Security and surveillance

140,171

138,787

417,265

363,359

Supplies

85,227

90,555

252,942

226,705

Water, electricity and gas

54,237

56,790

172,504

170,363

Travel

37,116

34,368

101,736

99,122

Other

195,842

209,522

609,103

842,476

Total

3,663,861

3,606,827

10,786,025

10,498,702

 

27)    TAX EXPENSES

 

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Contribution for Social Security Financing (Cofins)

582,852

799,601

2,148,454

1,987,213

Social Integration Program (PIS) contribution

97,705

146,793

390,484

349,482

Tax on Services (ISSQN)

141,480

140,331

424,354

392,166

Municipal Real Estate Tax (IPTU) expenses

11,020

10,687

52,598

43,339

Other

77,119

71,486

204,459

160,336

Total

910,176

1,168,898

3,220,349

2,932,536

 

182             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

28)    OTHER OPERATING INCOME

 

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Other interest income

532,215

429,528

1,390,411

1,161,230

Reversal of other operating provisions (1)

1,627,705

69,769

1,811,635

532,064

Gains on sale of goods

1,669

499

8,412

68,122

Revenues from recovery of charges and expenses

51,669

20,075

98,715

70,620

Other

337,559

187,390

760,190

763,520

Total

2,550,817

707,261

4,069,363

2,595,556

 

(1)  The 3rd quarter of 2014 and on September 30, 2014 YTD include the reversal of tax provision related to the Cofins case, which ended favorable to the Organization.

 

29)    OTHER OPERATING EXPENSES

 

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Other finance costs

1,127,692

1,217,380

3,519,837

3,302,783

Sundry losses

488,350

411,458

1,282,881

1,231,250

Commissions on loans and financing

318,525

333,979

984,182

1,006,858

Discount granted

388,146

306,624

984,367

801,409

Intangible assets amortization

211,816

208,323

625,040

672,765

Goodwill amortization (Note 15a)

44,989

40,582

126,577

181,747

Other (1)

516,557

487,958

1,442,887

888,244

Total

3,096,075

3,006,304

8,965,771

8,085,056

 

(1)  The 3rd quarter of 2014 and on September 30, 2014 YTD include the constitution of tax provision related to the PIS case – EC 17/97.

 

30)    NON-OPERATING INCOME (LOSS)

 

 

R$ thousand

2014

2013

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Gain/loss on sale and write-off of assets and investments (1)

(93,724)

(74,340)

(234,086)

(12,076)

Recording/reversal of non-operating provisions

(27,958)

(65,332)

(152,600)

(134,637)

Other

27,609

5,078

48,574

60,834

Total

(94,073)

(134,594)

(338,112)

(85,879)

 

(1)  The September 30, 2013 YTD includes results originating from the sale of BM&FBovespa shares.

 

 

Bradesco     183     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

31)    RELATED-PARTY TRANSACTIONS (DIRECT AND INDIRECT)

 

a)      Related party transactions (direct and indirect) are carried out under conditions and at rates consistent with those entered into with third parties, when applicable, and effective on the dates of the operations. The transactions are as follows:

 

R$ thousand

2014

2013

2014

2013

September 30

June 30

September 30

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Assets

(liabilities)

Assets

(liabilities)

Assets

(liabilities)

Revenues (expenses)

Revenues (expenses)

Revenues (expenses)

Revenues (expenses)

Interest on shareholders’ equity and dividends:

(696,563)

(608,102)

(512,815)

-

-

-

-

Cidade de Deus Companhia Comercial de Participações

(513,017)

(447,866)

(377,687)

-

-

-

-

Fundação Bradesco

(183,546)

(160,236)

(135,128)

-

-

-

-

Demand deposits/Savings accounts:

(19,035)

(21,501)

(19,945)

(207)

(214)

(620)

(422)

BBD Participações S.A.

(2)

(3)

(2)

-

-

-

-

Nova Cidade de Deus Participações S.A.

(9)

(7)

(9)

-

-

-

-

Cidade de Deus Companhia Comercial de Participações

(11)

(10)

(8)

-

-

-

-

Key Management Personnel

(19,013)

(21,481)

(19,926)

(207)

(214)

(620)

(422)

Time deposits:

(119,773)

(138,028)

(132,026)

(1,920)

(2,069)

(6,511)

(4,988)

Cidade de Deus Companhia Comercial de Participações

(50,824)

(61,708)

(39,848)

(15)

(17)

(52)

(33)

Key Management Personnel

(68,949)

(76,320)

(92,178)

(1,905)

(2,052)

(6,459)

(4,955)

Federal funds purchased and securities sold under agreements to repurchase:

(451,122)

(480,561)

(772,097)

(13,939)

(15,287)

(49,591)

(30,585)

Cidade de Deus Companhia Comercial de Participações

(282,611)

(202,753)

(566,993)

(7,852)

(7,104)

(27,124)

(17,378)

BBD Participações S.A.

(54,125)

(150,066)

(8,606)

(3,078)

(5,108)

(12,486)

(1,280)

Key Management Personnel

(114,386)

(127,742)

(196,498)

(3,009)

(3,075)

(9,981)

(11,927)

Funds from issuance of securities:

(631,864)

(617,809)

(542,950)

(15,196)

(14,402)

(43,286)

(24,172)

Key Management Personnel

(631,864)

(617,809)

(542,950)

(15,196)

(14,402)

(43,286)

(24,172)

Rental of branches:

-

-

-

(371)

(372)

(1,114)

(1,056)

Fundação Bradesco

-

-

-

(371)

(372)

(1,114)

(1,056)

Subordinated debts:

-

-

(737)

-

(9)

(27)

(39)

Fundação Bradesco

-

-

(737)

-

(9)

(27)

(39)

184             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

b)   Compensation for key Management personnel

                                                                                                     

Each year, the Annual Shareholders’ Meeting approves:

 

·       The annual overall amount of management compensation, set forth at the Board of Directors Meetings, to be paid to board members and members of the Board of Executive Officers, as determined by the Company’s Bylaws; and

 

·       The amount allocated to finance Management pension plans, within the Employee and Management pension plan of the Bradesco Organization.

 

For 2014, the maximum amount of R$ 354,700 thousand was set for Management compensation and R$ 351,900 thousand to finance defined contribution pension plans.

 

The current policy on Management compensation sets forth that 50% of net variable compensation, if any, must be allocated to the acquisition of preferred shares of Banco Bradesco S.A., which must be traded in three equal, annual and successive installments, the first of which maturing in the year following the payment date. This procedure complies with CMN Resolution no 3921/10, which sets forth a management compensation policy for financial institutions.

 

Short-term Management benefits

 

 

R$ thousand

2014

2013

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Salaries

82,285

80,876

244,436

244,940

INSS contributions

18,392

18,158

54,800

55,023

Total

100,677

99,034

299,236

299,963

 

Post-employment benefits

 

 

R$ thousand

2014

2013

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Defined contribution supplementary pension plans

79,327

80,092

240,685

242,513

Total

79,327

80,092

240,685

242,513

 

Bradesco does not offer long-term benefits related to severance pay or share-based compensation, pursuant to CPC 10 – Share-Based Payment, approved by CMN Resolution no 3989/11, to its key Management personnel.

 

Other information

 

I)    Under current law, financial institutions are not allowed to grant loans or advances to:

 

a)   Officers and members of the advisory, administrative, fiscal or similar councils, as well as to their respective spouses and family members up to the second degree;

 

b)   Individuals or corporations that own more than 10% of their capital; and

 

c)   Corporations of which the financial institution itself, any officers or administrators of the institution, as well as their spouses and respective family members up to the second degree own more than 10%.

 

Therefore, no loans or advances are granted by financial institutions to any subsidiary, members of the Board of Directors or Board of Executive Officers and their relatives.

Bradesco     185     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

II)   Shareholding

 

Together, members of the Board of Directors and Board of Executive Officers had the following shareholding in Bradesco:

 

 

2014

2013

September 30

June 30

September 30

● Common shares

0.72%

0.72%

0.73%

● Preferred shares

1.04%

1.03%

0.99%

● Total shares (1)

0.88%

0.88%

0.86%

 

(1)  On September 30, 2014, direct and indirect shareholding of the members of Bradesco’s Board of Directors and Board of Executive Officers amounted to 3.03% of common shares, 1.08% of preferred shares and 2.05% of all shares.

 

32)    FINANCIAL INSTRUMENTS

 

a)      Fair value

Risk management is highly strategic due to the increasing complexity of services and products and the globalization of the Organization’s business. The dynamic markets lead Bradesco to an ongoing improvement of this activity in the pursuit of best practices. For that reason, Bradesco was authorized by Bacen to use its internal market risk models, which were already in force, to calculate regulatory capital as of January 2013.

 

The Organization controls risk management in an integrated and independent manner, preserving and valuing the Board's decisions, developing and implementing methodologies, models, and measurement and control tools. It also provides training to employees from all Organization levels, from the business areas to the Board of Directors.

 

The management process allows the risks to be proactively identified, measured, mitigated, monitored and reported, which is necessary in view of the Organization’s complex financial products and activity profile.

 

Credit risk management

 

Credit risk refers to the possibility of losses associated to the non-compliance by the borrower or counterparty for their respective financial obligations under agreed terms, as well as to the reduction of the value of a loan agreement resulting from a deterioration of the borrower’s risk rating, reduced earnings or remuneration, the advantages in renegotiation, recovery costs and other values related to the counterparty’s non-compliance with its financial obligations.

 

Credit risk management in the Organization is a continuous and evolving process of mapping, development, assessment and diagnosis through the use of models, instruments and procedures that require a high degree of discipline and control during the analysis of operations to preserve the integrity and autonomy of the processes.

 

The Organization controls its exposure to credit risk, which mainly results from loans, securities and derivative financial instruments. Credit risk also stems from financial obligations related to credit commitments or financial guarantees.

 

In order not to compromise the quality of the portfolio, it includes all aspects related to the lending process, concentration, guarantee requirement, terms, among others.

 

The Organization continuously maps all activities that can generate exposure to credit risk, with their respective ratings related to probability and magnitude, as well as the identification of their managers, measurement and mitigation plans.

 

186             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Market risk management

 

Market risk is represented by the possibility of financial losses due to fluctuating prices and interest rates of the Organization’s financial instruments as its asset and liability portfolios may have mismatched maturities, currencies and indexes.

 

Market risk is carefully identified, measured, mitigated, controlled and reported. The Organization’s exposure to market risk profile is in line with the guidelines established by the governance process, with limits monitored independently on a timely basis.

 

All transactions exposing the Organization to market risk are mapped, measured and classified by probability and importance, and the whole process is approved by the corporate governance structure.

 

The process of market risk management is performed corporately. This process involves several areas, with specific assignments, ensuring an efficient structure, with the measurement and control of market risk being performed centrally and independently. The management process, approved by the Board of Directors, is reviewed at least annually by the Committees and by the Board of Directors.

 

In line with the Corporate Governance practices, aiming to preserve and strengthen the management of market and liquidity risks in the Organization, and to meet the provisions of CMN Resolution no 3464/07, the Board of Directors approved the Market and Liquidity Risk Management Policy, whose review is performed at least annually by the competent Committees and by the Board of Directors, providing the main guidelines for acceptance, control and management of market and liquidity risks. In addition to this policy, the Organization has specific rules to regulate the market and liquidity risk management process.

 

 

Bradesco     187     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Below is the statement of financial position by currency

 

R$ thousand

2014

2013

September 30

June 30

September 30

Balance

Local

Foreign

(1) (2)

Foreign

(1) (2)

Assets

 

 

 

 

 

Current and long-term assets

972,313,996

909,452,486

62,861,510

58,956,970

58,690,204

Funds available

11,315,727

7,596,389

3,719,338

3,883,611

3,719,201

Interbank investments

181,334,765

180,958,710

376,055

2,219,280

2,066,561

Securities and derivative financial instruments

343,444,944

328,689,852

14,755,092

13,774,266

12,404,654

Interbank and interdepartmental accounts

48,539,557

48,539,557

-

-

-

Loan and leasing

287,874,917

253,645,624

34,229,293

30,166,366

28,965,380

Other receivables and assets

99,804,086

90,022,354

9,781,732

8,913,447

11,534,408

Permanent assets

15,050,416

15,010,175

40,241

35,745

39,985

Investments

1,931,275

1,928,501

2,774

316

344

Premises and equipment and leased assets

4,591,285

4,577,465

13,820

11,954

14,629

Intangible assets

8,527,856

8,504,209

23,647

23,475

25,012

Total

987,364,412

924,462,661

62,901,751

58,992,715

58,730,189

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Current and long-term liabilities

907,366,924

832,827,936

74,538,988

67,196,253

71,254,165

Deposits

211,881,367

183,567,876

28,313,491

26,497,160

26,561,970

Federal funds purchased and securities sold under agreements to repurchase

297,814,163

293,051,087

4,763,076

2,673,159

2,205,428

Funds from issuance of securities

75,282,858

66,753,696

8,529,162

8,068,100

11,474,811

Interbank and interdepartmental accounts

4,540,838

2,324,161

2,216,677

2,281,997

1,833,799

Borrowing and onlending

56,561,157

40,970,499

15,590,658

14,107,339

12,391,925

Derivative financial instruments

5,076,285

1,852,305

3,223,980

2,112,848

356,159

Technical reserve for insurance, pension plans and capitalization bonds

145,969,043

145,968,245

798

743

1,103

Other liabilities:

 

 

 

 

 

- Subordinated debts

36,464,397

27,992,492

8,471,905

7,725,701

9,561,559

- Other

73,776,816

70,347,575

3,429,241

3,729,206

6,867,411

Deferred income

265,732

265,732

-

-

-

Non-controlling interests in subsidiaries

489,640

489,640

-

-

-

Shareholders’ equity

79,242,116

79,242,116

-

-

-

Total

987,364,412

912,825,424

74,538,988

67,196,253

71,254,165

 

 

 

 

 

 

Net position of assets and liabilities

 

 

(11,637,237)

(8,203,538)

(12,523,976)

Net position of derivatives (2)

 

 

(14,907,527)

(15,330,561)

(6,797,966)

Other net off-balance-sheet accounts (3)

 

 

(1,019,834)

(442,498)

91,879

Net exchange position (liability)

 

 

(27,564,598)

(23,976,597)

(19,230,063)

 

(1)  Amounts originally recorded and/or indexed mainly in USD;

(2)  Excluding operations maturing in D+1, to be settled at the rate on the last day of the month; and

(3)  Other commitments recorded in off-balance-sheet accounts.

 

188             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

VaR Internal Model - Trading Portfolio

 

Below is the 1-day VaR:

 

Risk factors

R$ thousand

2014

2013

September 30

June 30

September 30

Fixed rates

28,488

5,879

36,461

IGP-M/IPCA

25,317

22,615

9,033

Exchange coupon

4,897

4,790

9,412

Foreign currency

1,866

2,743

6,701

Equities

8

5,751

756

Sovereign/Eurobonds and Treasuries

3,341

5,134

6,396

Other

1,504

881

1,412

Correlation/diversification effect

(12,345)

(22,819)

(28,365)

VaR (Value at Risk)

53,076

24,974

41,806

Amounts net of tax.

 

Sensitivity analysis

 

The Trading Portfolio is also monitored daily by sensitivity analyses that measure the effect of movements of market and price curves on our positions. Furthermore, a sensitivity analysis of the Organization’s financial exposures (Trading and Banking Portfolio) is performed on a quarterly basis, in compliance with CVM Rule no 475/08.

 

Note that the impact of the financial exposure on the Banking Portfolio (notably interest rates and price indexes) do not necessarily represent a potential accounting loss for the Organization because a portion of loans held in the Banking Portfolio are financed by demand and/or savings deposits, which are “natural hedges” for future variations in interest rates, moreover, interest rate variations do not represent a material impact on the Institution’s result, as Loans are held to maturity. Also, due to our strong presence in the insurance and pension plan market, most of the assets are adjusted for price indexes, linked to the corresponding technical reserves.

Bradesco     189     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Sensitivity Analysis - Trading and Banking Portfolios

 

  

R$ thousand

 

Trading and Banking portfolios (1)

 

2014

2013

 

September 30

June 30

September 30

 

Scenarios

Scenarios

Scenarios

 

1

2

3

1

2

3

1

2

3

Interest rate in Reais

Exposure subject to variations in fixed interest rates and interest rate coupons

(6,383)

(1,843,646)

(3,560,810)

(3,698)

(1,009,481)

(1,943,751)

(7,525)

(1,919,121)

(3,643,803)

Price indexes

Exposure subject to variations in price index coupon rates

(10,742)

(1,488,367)

(2,778,693)

(13,245)

(1,777,223)

(3,299,495)

(16,969)

(2,150,739)

(3,979,143)

Exchange coupon

Exposure subject to variations in foreign currency coupon rates

(508)

(51,455)

(96,819)

(395)

(37,343)

(69,713)

(616)

(73,880)

(136,883)

Foreign currency

Exposure subject to exchange variations

(2,551)

(37,923)

(70,130)

(1,712)

(167,240)

(408,169)

(4,166)

(72,975)

(120,780)

Equities

Exposure subject to variation in stock prices

(16,414)

(410,359)

(820,718)

(21,012)

(525,295)

(1,050,590)

(18,422)

(453,263)

(905,578)

Sovereign/Eurobonds and Treasuries

Exposure subject to variations in the interest rate of securities traded on the international market

(535)

(28,158)

(54,696)

(661)

(38,806)

(74,792)

(1,413)

(87,560)

(169,680)

Other

Exposure not classified in previous definitions

(1,286)

(32,162)

(64,324)

(381)

(9,544)

(19,087)

(158)

(3,980)

(7,960)

Total excluding correlation of risk factors

(38,419)

(3,892,070)

(7,446,190)

(41,104)

(3,564,932)

(6,865,597)

(49,269)

(4,761,518)

(8,963,827)

Total including correlation of risk factors

(28,873)

(3,549,489)

(6,795,077)

(29,342)

(2,660,398)

(4,944,728)

(35,152)

(3,996,258)

(7,477,156)

                     

 

(1)  Amounts net of tax.

190             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

The sensitivity analysis of the Trading Portfolio, which represents exposures that may have a material impact on the Organization’s results, is presented below. Note that results show the impact for each scenario on a static portfolio position. The market dynamism results in continuous changes in these positions and does not necessarily reflect the current position. Moreover, as previously mentioned, the Organization has an ongoing process of market risk management, which constantly looks for market dynamism to mitigate related risks according to the strategy determined by Senior Management. Therefore, in cases of deterioration indicators in a certain position, proactive measures are taken to minimize any potential negative impact, aimed at maximizing the risk/return ratio for the Organization.

Sensitivity Analysis - Trading Portfolio

 

  

R$ thousand

 

Trading portfolio (1)

 

2014

2013

 

September 30

June 30

September 30

 

Scenarios

Scenarios

Scenarios

 

1

2

3

1

2

3

1

2

3

Interest rate in Reais

Exposure subject to variations in fixed interest rates and interest rate coupons

(951)

(283,265)

(549,986)

(314)

(82,919)

(163,197)

(1,169)

(301,752)

(580,956)

Price indexes

Exposure subject to variations in price index coupon rates

(976)

(126,606)

(246,050)

(1,030)

(130,639)

(258,641)

(358)

(46,051)

(89,573)

Exchange coupon

Exposure subject to variations in foreign currency coupon rates

(495)

(51,874)

(97,405)

(353)

(39,698)

(73,662)

(587)

(72,050)

(133,240)

Foreign currency

Exposure subject to exchange variations

(995)

(25,172)

(50,386)

(1,574)

(52,945)

(107,641)

(953)

(27,996)

(56,832)

Equities

Exposure subject to variation in stock prices

(2)

(49)

(97)

(1,991)

(49,773)

(99,545)

(1,060)

(23,502)

(46,752)

Sovereign/Eurobonds and Treasuries

Exposure subject to variations in the interest rate of securities traded on the international market

(368)

(25,898)

(49,878)

(489)

(34,633)

(66,675)

(668)

(44,918)

(86,497)

Other

Exposure not classified in previous definitions

(1,052)

(26,293)

(52,586)

(345)

(8,630)

(17,260)

(191)

(4,815)

(9,630)

Total excluding correlation of risk factors

(4,839)

(539,157)

(1,046,388)

(6,096)

(399,237)

(786,621)

(4,986)

(521,084)

(1,003,480)

Total including correlation of risk factors

(2,030)

(397,300)

(769,569)

(2,912)

(184,289)

(363,027)

(1,666)

(331,675)

(634,185)

 

(1)  Amounts net of tax.

Bradesco     191     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Sensitivity analyses were carried out based on scenarios prepared for the respective dates, always considering market data at the time and scenarios that would adversely affect our positions, according to the examples below:

 

Scenario 1:  Based on market information (BM&FBOVESPA, Anbima, etc.), stresses were applied for 1 basis point on the interest rate and 1% variation on prices. For example: for a Real/US dollar exchange rate of R$ 2.45 a scenario of R$ 2.48 was used, while for a fixed interest rate of 1 year of 11.83% a 11.84% scenario was applied;

 

Scenario 2:  25% stresses were determined based on market information. For example: for a Real/US dollar exchange rate of R$ 2.45 a scenario of R$ 3.07 was used, while for a fixed interest rate of 1 year of 11.83% a 14.78% scenario was applied; The scenarios for other risk factors also accounted for 25% stresses in the respective curves or prices; and

 

Scenario 3:  50% stresses were determined based on market information. For example: for a Real/US dollar quote of R$ 2.45 a scenario of R$ 3.68 was used, while for a fixed interest rate of 1 year of 11.83% a 17.74% scenario was applied; The scenarios for other risk factors also account for 50% stresses in the respective curves or prices. 

 

Liquidity Risk

 

Liquidity Risk is represented by the possibility of the institution not being able to efficiently meet its obligations, without affecting its daily operations and incurring significant losses, as well as the possibility of the institution not being able to trade a position at market price due to its high amount when compared to the usually traded volume or due to some market discontinuation.

 

It is crucial to know and monitor this risk, especially so that the Organization can settle the operations in a timely and reliable way.

 

The process of liquidity risk management is performed corporately. It involves several areas with specific assignments, ensuring an efficient structure. Liquidity risk is measured and control centrally and independently, contemplating the daily monitoring of the composition of available resources, compliance with the minimum liquidity level, and the contingency plan for stress situations.

 

One of the objectives of the Organization’s Policy on Market and Liquidity Risk Management, approved by the Board of Directors, is to lay down the rules, criteria and procedures that guarantee the establishment of the Minimum Liquidity Reserve (RML) for the Organization, as well as the strategy and action plans for liquidity crisis situations.

 

As part of the criteria and procedures approved, the Organization also establishes a minimum liquidity reserve to be recorded daily and the types of assets eligible for making up the resources available. Moreover, instruments for managing liquidity in a normal scenario and in a crisis scenario and the strategies to be implemented in each case are established.

 

 

 

 

192             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

The statement of financial position by maturity is as follows

 

 

 

 

 R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

Maturity not stated

Total

Assets

 

 

 

 

 

 

Current and long-term assets

576,832,996

89,074,519

55,594,845

250,811,636

-

972,313,996

Funds available

11,315,727

-

-

-

-

11,315,727

Interbank investments (2)

173,705,478

4,823,673

2,225,819

579,795

-

181,334,765

Securities and derivative financial instruments (1) (2)

275,929,250

2,447,264

434,293

64,634,137

-

343,444,944

Interbank and interdepartmental accounts

47,931,096

-

-

608,461

-

48,539,557

Loan and leasing

27,120,627

64,202,798

44,911,971

151,639,521

-

287,874,917

Other receivables and assets

40,830,818

17,600,784

8,022,762

33,349,722

-

99,804,086

Permanent assets

238,405

1,182,130

1,411,759

9,472,724

2,745,398

15,050,416

Investments

-

-

-

-

1,931,275

1,931,275

Premises and equipment

59,480

297,398

356,877

3,471,420

406,110

4,591,285

Intangible assets

178,925

884,732

1,054,882

6,001,304

408,013

8,527,856

Total on September 30, 2014

577,071,401

90,256,649

57,006,604

260,284,360

2,745,398

987,364,412

Total on June 30, 2014

503,305,050

91,421,144

58,598,953

274,858,655

2,947,972

931,131,774

Total on September 30, 2013

529,678,634

88,953,227

55,141,993

230,943,553

2,976,719

907,694,126

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current and long-term liabilities

548,919,320

90,222,680

60,724,046

207,500,878

-

907,366,924

Deposits (3)

136,516,526

20,343,730

7,600,175

47,420,936

-

211,881,367

Federal funds purchased and securities sold under agreements to repurchase (2)

230,958,336

32,064,122

11,907,161

22,884,544

-

297,814,163

Funds from issuance of securities

1,394,831

16,349,007

24,500,874

33,038,146

-

75,282,858

Interbank and interdepartmental accounts

4,540,838

-

-

-

-

4,540,838

Borrowing and onlending

3,277,918

12,130,322

10,684,901

30,468,016

-

56,561,157

Derivative financial instruments

3,579,229

342,490

233,522

921,044

-

5,076,285

Technical reserves for insurance, pension plans and capitalization bonds (3)

116,239,902

4,145,630

1,747,819

23,835,692

-

145,969,043

Other liabilities:

 

 

 

 

 

 

- Subordinated debts

30,412

1,866,909

2,545,370

32,021,706

-

36,464,397

- Other

52,381,328

2,980,470

1,504,224

16,910,794

-

73,776,816

Deferred income

265,732

-

-

-

-

265,732

Non-controlling interests in subsidiaries

-

-

-

-

489,640

489,640

Shareholders’ equity

-

-

-

-

79,242,116

79,242,116

Total on September 30, 2014

549,185,052

90,222,680

60,724,046

207,500,878

79,731,756

987,364,412

Total on June 30, 2014

502,105,087

80,448,391

63,496,651

207,795,160

77,286,485

931,131,774

Total on September 30, 2013

489,571,369

78,491,572

49,475,855

222,530,298

67,625,032

907,694,126

 

 

 

 

 

 

 

Net assets on September 30, 2014 YTD

27,886,349

27,920,318

24,202,876

76,986,358

-

-

Net assets accumulated on June 30, 2014

1,199,963

12,172,716

7,275,018

74,338,513

-

-

Net assets on September 30, 2013 YTD

40,107,265

50,568,920

56,235,058

64,648,313

-

-

 

(1)   Investments in investment funds are classified as 1 to 30 days;

(2)   Repurchase agreements are classified according to the maturity of the transactions; and

(3)   Demand and savings deposits and technical reserves for insurance, pension plans and capitalization bonds comprising “VGBL” and “PGBL” products are classified as 1 to 30 days, without considering average historical turnover.            

Bradesco     193     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Operational Risk

Operational risk is represented by the possibility of losses resulting from failure, deficiency or inadequacy of internal processes, people and systems, or from external events. This definition includes legal risk associated with the activities undertaken by the Organization.

 

The process of operational risk management is performed corporately. This process involves several areas, with specific assignments, ensuring an efficient structure, with the measurement and control of operational risk being performed centrally and independently.

 

Among the plans to mitigate operational risk, we highlight that the most important is business continuity management, which consists of formal plans to be adopted during moments of crisis to guarantee the recovery and continuation of business as well as preventing loss.

 

Internal Controls

 

The existence, effectiveness and implementation of controls that ensure acceptable risk levels in the Organization's processes are certified, and the results are reported to the Audit Committee and to the Compliance and Internal Controls Committee, as well as to the Board of Directors, aiming to provide assurance regarding the proper conduct of business and the achievement of the established goals, in accordance with applicable external laws and regulations, policies, internal rules and procedures, codes of conduct and self-regulation.

 

The effectiveness of the Organization’s internal controls is supported by trained professionals, well-defined and implemented processes, and technology compatible with the business needs.

 

The Compliance and Internal Controls Policy and the Internal Control System Standards are aligned with the main control frameworks, such as COSO - Committee of Sponsoring Organizations of the Treadway Commission and COBIT - Control Objectives for Information and Related Technology, which cover aspects related to Business and Information Technology, respectively.

 

 

194             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

Below is the Capital Adequacy Ratio:

 

Calculation basis - Capital Adequacy Ratio

R$ thousand

Capital Adequacy Ratio (Basel III)

Capital Adequacy Ratio (Basel II)

2014

2013

September 30

June 30

September 30

Financial (1)

Financial

Economic-financial

Tier I capital

74,127,110

71,892,297

71,631,969

71,962,106

Common equity

74,127,110

71,892,297

71,631,969

71,962,106

Shareholders’ equity

79,242,116

76,800,278

67,033,392

67,033,392

Non-controlling interests

-

-

195,712

591,640

Prudential adjustments - CMN Resolution no 4192/13 (2)

(5,115,006)

(4,907,981)

-

-

Reduction of deferred assets - CMN Resolution no 3444/07 (2)

-

-

(104,846)

(170,637)

Decrease in gains/losses of market value adjustments in available for sale and derivatives - CMN Resolution no 3444/07 (2)

-

-

4,507,711

4,507,711

Tier II capital

21,698,075

22,197,834

21,233,626

21,233,626

Total gains/losses of adjustments to fair value in available for sale and derivatives - CMN Resolution no 3444/07 (2)

-

-

(4,507,711)

(4,507,711)

Subordinated debt (3)

21,698,075

22,197,834

25,741,337

25,741,337

Deduction of instruments for funding - CMN Resolution no 3444/07 (2)

-

-

(131,872)

(131,872)

Capital (a)

95,825,185

94,090,131

92,733,723

93,063,860

 

 

 

 

 

- Credit risk

534,165,459

548,599,472

490,011,582

482,335,891

- Market risk

23,607,303

18,004,347

51,360,818

51,360,818

- Operational risk

30,979,716

29,852,953

23,334,836

33,100,327

Risk-weighted assets – RWA (b) (4)

588,752,478

596,456,772

564,707,236

566,797,036

 

 

 

 

 

Capital adequacy ratio (a/b)

16.3%

15.8%

16.4%

16.4%

Tier I capital

12.6%

12.1%

12.7%

12.7%

- Principal capital

12.6%

12.1%

12.7%

12.7%

Tier II capital

3.7%

3.7%

3.7%

3.7%

 

(1)  As of October 2013, capital is calculated as per CMN Resolution no 4192/13, which establishes that calculation is based on the “Financial Consolidated”;

(2)  Criteria used as of October 2013, pursuant to CMN Resolution no 4192/13;

(3)  Until September 2013, the amounts were calculated pursuant to CMN Resolution no 3444/07 and, as of October 2013, the amounts are calculated pursuant to CMN Resolution no 4192/13; and

(4)  For comparison purposes, we adjusted the “Allocation of minimum required capital” from prior periods, given that we now report the portions relating to “Risk weighted asset – RWA”.

 

 

Bradesco     195     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

b)      Fair value

The book value, net of loss provisions on the main financial instruments is shown below:

Portfolio

R$ thousand

Unrealized gain/(loss) without tax effects

Book value

Fair value

In income statement

In shareholders’ equity

2014

2014

2013

2014

2013

September 30

September 30

June
30

September 30

September 30

June
30

September 30

Securities and derivative financial instruments (Notes 3e, 3f and 8)

343,444,944

345,781,765

2,243,680

2,214,235

(2,932,597)

2,336,821

2,190,319

1,753,311

- Adjustment of available-for-sale securities (Note 8cII)

 

 

(93,141)

23,916

(4,685,908)

-

-

-

- Adjustment of held-to-maturity securities (Note 8d item 7)

 

 

2,336,821

2,190,319

1,753,311

2,336,821

2,190,319

1,753,311

Loan and leasing (Notes 2, 3g and 10) (1)

335,903,803

334,551,950

(1,351,853)

(1,228,957)

(564,752)

(1,351,853)

(1,228,957)

(564,752)

Investments (Notes 3j and 13) (2)

1,931,275

20,088,720

18,157,445

21,011,417

14,063,256

18,157,445

21,011,417

14,063,256

Treasury shares (Note 23d)

298,015

414,484

-

-

-

116,469

83,401

69,532

Time deposits (Notes 3n and 16a)

90,614,718

90,236,288

378,430

354,764

336,978

378,430

354,764

336,978

Funds from issuance of securities (Note 16c)

75,282,858

75,503,689

(220,831)

(276,478)

(158,789)

(220,831)

(276,478)

(158,789)

Borrowing and onlending (Notes 17a and 17b)

56,561,157

56,605,778

(44,621)

(107,656)

(171,028)

(44,621)

(107,656)

(171,028)

Subordinated debts (Note 19)

36,464,397

36,628,509

(164,112)

(294,431)

(537,882)

(164,112)

(294,431)

(537,882)

Unrealized gains excluding tax

 

 

18,998,138

21,672,894

10,035,186

19,207,748

21,732,379

14,790,626

 

(1)  Includes advances on foreign exchange contracts, leases and other receivables with lending characteristics; and

(2)  Primarily includes the surplus of interest in subsidiaries and affiliates (Cielo, Odontoprev and Fleury) and other investments (BM&FBOVESPA).

 

Determination of the fair value of financial instruments:

·       Securities and derivative financial instruments, investments, subordinated debts and treasury shares are based on the market price at the reporting date. If no quoted market price is available, estimate amounts are based on the dealer quotations, pricing models, quotation models or quotations for instruments with similar characteristics;

·       Fixed rate loans were determined by discounting estimated cash flows, using interest rates applied by the Bradesco Organization for new contracts with similar features. These rates are consistent with the market at the reporting date; and

·       Time deposits, funds from issuance of securities, borrowing and on lending were calculated by discounting the difference between the cash flows under the contract terms and our prevailing market rates for the same product at the reporting date.

 

196             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

c)      Capital Management

The Capital Management structure aims at providing conditions to monitor and control capital, contributing to the achievement of the goals established based on the Organization’s strategic objectives. The following are considered: business environment, prospective and consistent vision with capital adequacy planning. This structure is composed of the Statutory, Non-Statutory and Executive Committees that assist the Board of Directors and the Board of Executive Officers in decision making.

 

The process of assessing Capital adequacy is carried out so as to ensure that the Organization has a solid Reference Equity base to support the development of activities and cope with risks, whether in normal or in extreme market conditions, as well as meeting managerial and regulatory requirements in capital management.

 

33)    EMPLOYEE BENEFITS

 

Bradesco and its subsidiaries sponsor an unrestricted benefit pension plan (PGBL) for employees and directors. PGBL is a private defined contribution pension plan that allows financial resources to be accumulated by participants throughout their careers by means of employee and employer contributions and invested in an Exclusive Investment Fund (FIE).

 

PGBL is managed by Bradesco Vida e Previdência S.A. and BRAM - Bradesco Asset Management S.A. The Securities Dealer Company (DTVM) is responsible for the financial management of FIE funds.

 

Contributions made by employees and directors of Bradesco and its subsidiaries are for the equivalent of at least 4% of their salary, except for participants who chose to migrate from the defined benefit plan to a defined contribution plan (PGBL) in 2001, whose contributions to the PGBL were maintained at the levels that prevailed for the defined benefit plan when they migrated, always respecting the 4% minimum.

 

Actuarial obligations of the defined contribution plan (PGBL) are fully covered by the plan assets of the corresponding FIE.

 

In addition to the aforementioned plan (PGBL), participants who chose to migrate from the defined benefit plan are guaranteed a proportional deferred benefit, corresponding to their accumulated rights in the plan. For participants of the defined benefit plan, whether they migrated to the PGBL plan or not, for retirees and pensioners, the present value of the actuarial plan obligation is fully covered by the plan assets.

 

Banco Alvorada S.A. (successor from the spin-off of Banco Baneb S.A.) maintains defined contribution and defined benefit retirement plans, through Fundação Baneb de Seguridade Social - Bases (related to the former employees of Baneb).

 

Banco Bradesco BBI S.A. (formally Banco BEM S.A.) sponsors both defined benefit and defined contribution retirement plans, through Caixa de Assistência e Aposentadoria dos Funcionários do Banco do Estado do Maranhão (Capof).

 

Banco Bradesco BERJ S.A has incorporated Alvorada Cartões, Crédito, Financiamento e Investimento S.A. (Alvorada CCFI) (merging company of Banco BEC S.A.), which sponsors a defined benefit plan through Caixa de Previdência Privada do Banco do Estado do Ceará (Cabec).

 

The assets of pension plans are invested in compliance with the applicable legislation (government securities and private securities, listed company shares and real estate properties).

 

In accordance with CPC 33 (R1) – Employee Benefit, as approved by CVM Resolution no 600/09, Bradesco and its subsidiaries, as sponsors of these plans, taking into consideration the economic and actuarial study, calculated their actuarial commitments using a real interest rate and recognizing their obligations in the financial statements.

 

 

Bradesco     197     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

The assets of pension plans are invested in compliance with the applicable legislation (government securities and private securities, listed company shares and real estate properties).

 

Expenses with contributions made in the first three quarters ending on September 30, 2014 totaled R$ 463,322 thousand (R$ 458,229 thousand on September 30, 2013) and R$ 152,692 thousand in the 3rd quarter of 2014 (R$ 152,160 thousand in the 2nd quarter of 2014).

 

In addition to this benefit, Bradesco and its subsidiaries offer other benefits to their employees and administrators, including: health insurance, dental care, life and personal accident insurance, and professional training. These expenses, including the aforementioned contributions, totaled R$ 2,234,143 thousand in the first three quarters ending on September 30, 2014 (R$ 2,062,996 thousand on September 30, 2013) and R$ 779,121 thousand in the 3rd quarter of 2014 (R$ 740,336 thousand 2nd quarter of 2014).

 

34)    INCOME TAX AND SOCIAL CONTRIBUTION

 

a)  Calculation of income tax and social contribution charges

 

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Income before income tax and social contribution

3,648,655

6,503,417

16,060,437

12,324,521

Total income tax and social contribution at rates of 25% and 15%, respectively (1)

(1,459,462)

(2,601,367)

(6,424,175)

(4,929,808)

Effect on the tax calculation:

 

 

 

 

Equity in the earnings (losses) of unconsolidated companies

17,541

13,946

52,192

6,891

Net non-deductible expenses of nontaxable income

(19,278)

(33,626)

(86,987)

(327,981)

Interest on shareholders’ equity (paid and payable)

452,145

271,502

1,078,904

961,524

Other amounts (2)

1,264,835

(346,837)

504,077

975,466

Income tax and social contribution for the period

255,781

(2,696,382)

(4,875,989)

(3,313,908)

                                                                                                                                                                                                   

(1)  The social contribution rate for companies of the financial and insurance sectors was increased to 15%, according to Law no 11727/08, remaining at 9% for other companies (Note 3h); and

(2)  Primarily includes the exchange variation on investments made abroad and bringing the effective social contribution rate to the (40%) rate.

 

b)   Breakdown of income tax and social contribution in the income statement

 

 

R$ thousand

2014

2013

 

3rd quarter

2nd quarter

Accumulated on September 30

Accumulated on September 30

Current taxes:

 

 

 

 

Income tax and social contribution payable

(1,197,963)

(3,875,494)

(7,339,033)

(7,444,398)

Deferred taxes:

 

 

 

 

Amount recorded/realized in the period on temporary additions

1,110,236

1,833,583

3,089,597

4,571,851

Use of opening balances of:

 

 

 

 

Social contribution loss

25,947

(246,306)

(360,221)

(269,823)

Income tax loss

34,588

(426,315)

(631,525)

(232,156)

Recording in the period on:

 

 

 

 

Social contribution loss

108,706

5,864

133,457

18,315

Income tax loss

174,267

12,286

231,736

42,303

Total deferred taxes

1,453,744

1,179,112

2,463,044

4,130,490

Income tax and social contribution for the period

255,781

(2,696,382)

(4,875,989)

(3,313,908)

 

198             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

c)   Deferred income tax and social contribution

 

 

R$ thousand

 

Balance on

12.31.2013

Amount recorded

Amount
realized

Balance on

9.30.2014

Balance on

6.30.2014

Balance on 9.30.2013

Allowance for loan losses

15,348,782

4,856,627

2,299,059

17,906,350

16,914,259

14,686,820

Civil provisions

1,517,934

457,309

382,568

1,592,675

1,530,183

1,549,622

Tax provisions

2,299,080

405,939

614,259

2,090,760

2,488,141

5,639,850

Labor provisions

999,063

489,501

341,647

1,146,917

973,909

988,961

Provision for devaluation of securities and investments

533,645

27,571

108,438

452,778

457,074

423,958

Provision for devaluation of foreclosed assets

221,934

133,429

95,794

259,569

256,075

212,870

Adjustment to fair value of trading securities

183,169

3,922

182,696

4,395

6,224

12,810

Amortization of goodwill

777,244

13,199

503,703

286,740

294,781

321,303

Provision for interest on shareholders’ equity (1)

-

780,487

-

780,487

427,803

339,924

Other

2,096,941

1,293,148

843,371

2,546,718

2,608,704

2,651,284

Total deductible taxes on temporary differences

23,977,792

8,461,132

5,371,535

27,067,389

25,957,153

26,827,402

Income tax and social contribution losses in Brazil and abroad

4,045,282

365,193

991,746

3,418,729

3,075,221

1,255,726

Subtotal (2)

28,023,074

8,826,325

6,363,281

30,486,118

29,032,374

28,083,128

Adjustment to fair value of available-for-sale securities (2)

1,241,130

369,932

892,797

718,265

762,779

2,344,636

Social contribution - Provisional Measure no 2158-35/01

140,197

-

26,414

113,783

140,197

140,842

Total deferred tax assets (Note 11b)

29,404,401

9,196,257

7,282,492

31,318,166

29,935,350

30,568,606

Deferred tax liabilities (Note 34f)

3,187,945

1,052,110

999,848

3,240,207

3,549,785

4,130,802

Deferred tax assets, net of deferred tax liabilities

26,216,456

8,144,147

6,282,644

28,077,959

26,385,565

26,437,804

- Percentage of net deferred tax assets on capital (Note 32a)

27.4%

 

 

29.3%

28.0%

28.4%

- Percentage of net deferred tax assets over total assets

2.9%

 

 

2.8%

2.8%

2.9%

 

(1)  Deferred taxes on interest on shareholders’ equity is recorded up to the authorized tax limit; and

(2)  Deferred tax assets from companies in the financial and insurance sectors were established considering the increase in the social contribution rate, determined by Law no 11727/08 (Note 3h).

 

                                                                                                                                                                                                                                                        

 

 

Bradesco     199     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

d)   Expected realization of deferred tax assets on temporary differences, tax loss and negative basis of social contribution and deferred social contribution - Provisional Measure no 2158-35

 

R$ thousand

Temporary differences

Income tax and social contribution losses

Social contribution - Provisional Measure
n
o
 2158-35

Total

Income tax

Social contribution

Income tax

Social contribution

2014

4,307,037

2,553,069

38,243

24,216

7,164

6,929,729

2015

7,107,120

4,268,363

155,029

202,765

522

11,733,799

2016

3,620,892

2,064,836

731,904

472,166

106,097

6,995,895

2017

717,815

416,390

790,869

555,713

-

2,480,787

2018

1,242,322

634,963

91,047

356,683

-

2,325,015

2019 (9 months)

86,132

48,450

70

24

-

134,676

Total

17,081,318

9,986,071

1,807,162

1,611,567

113,783

30,599,901

 

The projected realization of deferred tax assets is an estimate and it is not directly related to the expected accounting income.

The present value of deferred tax assets, calculated based on the average rate of tax effects net inflow, amounts to R$ 29,306,102 thousand (R$ 27,790,271 thousand on June 30, 2014 and R$ 26,842,448 thousand on September 30, 2013), of which R$ 26,039,308 thousand (R$ 24,829,951 thousand on June 30, 2014 and R$ 25,520,181 thousand on September 30, 2013) refers to temporary differences, R$ 3,159,509 thousand (R$ 2,827,939 thousand on June 30, 2014 and R$ 1,183,887 thousand on September 30, 2013) to tax losses and negative basis of social contribution and R$ 107,285 thousand (R$ 132,381 thousand on June 30, 2014 and R$ 138,380 thousand on September 30, 2013) of deferred social contribution, Provisional Measure no 2158-35.

 

e)   Unrecognized deferred tax assets

On September 30, 2014, deferred tax assets of R$ 1,927 thousand (R$ 1,927 thousand on June 30, 2014 and R$ 464,284 thousand on September 30, 2013) were not recorded, but they will be when they meet the regulatory demands and/or present prospects of realization according to studies and analyses prepared by the Management and in accordance with Bacen regulations.

 

f)    Deferred tax liabilities

 

 

 

R$ thousand

2014

2013

September 30

June 30

September 30

Mark-to-market adjustment to securities and derivative financial instruments

826,877

950,054

500,351

Difference in depreciation

880,682

1,007,958

1,539,207

Judicial deposit and others

1,532,648

1,591,773

2,091,244

Total

3,240,207

3,549,785

4,130,802

 

The deferred tax liabilities of companies in the financial and insurance sector were established considering the increased social contribution rate, established by Law no 11727/08 (Note 3h).

 

35)    OTHER INFORMATION

 

a)   The Bradesco Organization manages investment funds and portfolios with net assets of R$ 486,941,677 thousand on September 30, 2014 (R$ 462,245,913 thousand on June 30, 2014 and R$ 438,268,979 thousand on September 30, 2013).

 

 

200             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

b)    Consortium funds

 

 

R$ thousand

2014

2013

September 30

June 30

September 30

Monthly estimate of funds receivable from consortium members

411,457

402,392

343,387

Contributions payable by the group

20,067,816

19,709,344

16,836,122

Consortium members - assets to be included

18,007,206

17,719,131

15,059,398

Credits available to consortium members

4,054,089

4,069,890

3,624,438

 

 

In units

2014

2013

September 30

June 30

September 30

Number of groups managed

3,390

3,419

3,163

Number of active consortium members

1,021,090

1,010,214

876,126

Number of assets to be included

483,962

488,050

432,418

 

c)     The changes made in the procedures implemented on the Reserve requirement on time deposits are as follows:

 

Reserve requirements

Prior

Current

Time deposits

Remuneration

Maximum remuneration of 100% of the Reserve Requirements.

Maximum remuneration of 40% of the Reserve Requirements.

Financial Bills

The purchase of financial bills was accepted for payment deduction.

Reserve requirement deductions will only be accepted from financial bills purchased until 07.25.2014, whose balance will remain as limit.

Deductions

Allowed a limit of 50% of the reserve requirements, and the values ​​of the underlying assets corresponding to credit acquisitions, CDC (vehicles and motorcycles) and financial bills could be deducted.

Changed the limit to 60% of the reserve requirements for these deductions.

Auto Financing

Discontinued the deductions related to financing and leasing of cars and light commercial vehicles contracted as of 9/14/2012.

Return of the deduction of vehicle financing granted as of 08.25.2014, but the criterion was changed to 5 times the positive bias compared with the 1st semester average.

Financial Institutions Eligible for the Acquisition

Restricted to 58 financial groups eligible for credit acquisition.

13 financial groups (with PR higher than R$ 3.5 billion) are ineligible for acquisition of financial bills and loan assignment.

Working Capital Transactions

Deduction for credit transactions derived from working capital was not allowed.

Deduction for the new working capital transactions is allowed as of 10.27.2014, and the criterion will be 5 times the positive bias compared with the 1st semester average.

 

d)    As part of the convergence process with international accounting standards, the Brazilian Accounting Pronouncements Committee (CPC) issued several accounting pronouncements, as well as their interpretations and guidelines, which are applicable to financial institutions only after approval by CMN.

 

The accounting standards which have been approved by CMN include the following:

 

·       Resolution no 3566/08 – Impairment of Assets (CPC 01);

 

·       Resolution no 3604/08 – Statement of Cash Flows (CPC 03);

 

·       Resolution no 3750/09 – Related Party Disclosures (CPC 05);

 

·       Resolution no 3823/09 – Provisions, Contingent Liabilities and Contingent Assets (CPC 25);

 

·       Resolution no 3973/11 – Subsequent Event (CPC 24);

 

·       Resolution no 3989/11 – Share-based Payment (CPC 10);

 

 

Bradesco     201     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Notes to the Consolidated Financial Statements

 

·       Resolution no 4007/11 - Accounting Policies, Changes in Accounting Estimates and Errors (CPC 23); and

 

·       Resolution no 4144/12 – Conceptual Framework for Preparing and Presenting Financial Statements.

 

Presently, it is not possible to estimate when the CMN will approve the other CPC pronouncements or if they will be used prospectively or retrospectively.

 

CMN Resolution no 3786/09 and Bacen Circular Letters no 3472/09and no 3516/10 establish that financial institutions and other entities authorized by Bacen to operate, which are publicly-held companies or which are required to establish an Audit Committee shall, since December 31, 2010, annually prepare and publish in up to 90 days from the reference date December 31 their consolidated financial statements, prepared under the International Financial Reporting Standards (IFRS), in compliance with international standards issued by the International Accounting Standards Board (IASB).

 

As required by CMN Resolution, on March 31, 2014, Bradesco published its consolidated financial statements for December 31, 2013 and 2012 on its website, in accordance with IFRS standards. The net income and equity of the financial statements disclosed in IFRS have not been substantially different from those presented in the financial statements, in accordance with the accounting practices adopted in Brazil and applicable to institutions authorized to operate by the Brazilian Central Bank (Bacen). As there were no substantial differences between the two sets of financial statements (GAAPs) in the financial year ended on December 31, 2013, the Management believes that the net profit and net equity, during the quarter ended on September 30, 2014, are not materially different in the two GAAPs, regarding their nature or values.

 

e)     On May 14, 2014, Law no 12973/14 was published, which converted Provisional Measure no 627/13. This Law amends the Federal Tax Legislation regarding Corporate Income Tax - IRPJ, the Social Contribution on Net Profits - CSLL, the Contribution to PIS/PASEP and the Contribution to the Social Security Financing - COFINS. We highlight the main issues that Law no 12973/14 provides:

 

·       revocation of the Transition Tax System (RTT), controlling the adjustments arising from new accounting methods and criteria for the compliance of the Brazilian accounting rules to the international standards;

 

·       taxation of companies domiciled in Brazil, for acquisition of equity resulting from profit sharing recorded abroad by subsidiaries and unconsolidated companies; and

 

·       special installment payment of PIS/PASEP and COFINS Contributions.

 

This Law has not been fully regulated. However, in our assessment, there will be significant future impact on our Consolidated Financial Statements.

 

f)     On October 7, 2014, Provisional Measure no 656/14 was published, which among other things, changes the deductibility limits on receivable losses due to unpaid contracts as of 10.8.2014 (Article 9 of Law no 9430/96), and up to that date, the limits remain the same for inventory.

 

g)    There were no other subsequent events that need to be adjusted or disclosed for the consolidated financial statements as of September 30, 2014.

 

202             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Management Bodies

 

Reference Date: October 9, 2014

   
     

Board of Directors

Department Directors (continued)

Ethical Conduct Committee

    

José Ramos Rocha Neto

Milton Matsumoto - Coordinator

Chairman

Layette Lamartine Azevedo Júnior

Carlos Alberto Rodrigues Guilherme

Lázaro de Mello Brandão

Lúcio Rideki Takahama

Domingos Figueiredo de Abreu

 

Luiz Carlos Brandão Cavalcanti Junior

Marco Antonio Rossi

Vice-Chairman

Marcelo Frontini

Alexandre da Silva Glüher

Luiz Carlos Trabuco Cappi

Marcelo Santos Dall’Occo

Josué Augusto Pancini

  

Marcos Aparecido Galende

André Rodrigues Cano

Members

Marcos Daré

Octavio de Lazari Junior

Antônio Bornia

Marlene Morán Millan

Clayton Camacho

Mário da Silveira Teixeira Júnior

Marlos Francisco de Souza Araujo

Frederico William Wolf

João Aguiar Alvarez

Octavio Manoel Rodrigues de Barros

Glaucimar Peticov

Denise Aguiar Alvarez

Paulo Aparecido dos Santos

José Luiz Rodrigues Bueno

Carlos Alberto Rodrigues Guilherme

Paulo Faustino da Costa

Rogério Pedro Câmara

Milton Matsumoto

Rogério Pedro Câmara

Nairo José Martinelli Vidal Júnior

José Alcides Munhoz

Waldemar Ruggiero Júnior

     

 

Walkiria Schirrmeister Marquetti

 

 

 

 

Board of Executive Officers

Directors

Integrated Risk Management and Capital Allocation Committee

Executive Officers

Antonio Chinellato Neto

Alexandre da Silva Glüher - Coordinator

Chief Executive Officer

Antonio Daissuke Tokuriki

Domingos Figueiredo de Abreu

Luiz Carlos Trabuco Cappi

Cláudio Borges Cassemiro

Aurélio Conrado Boni

    

Edson Marcelo Moreto

Sérgio Alexandre Figueiredo Clemente

Executive Vice-Presidents

João Sabino

Marco Antonio Rossi

Domingos Figueiredo de Abreu

Marcio Henrique Araujo Parizotto

Josué Augusto Pancini

Aurélio Conrado Boni

Paulo Manuel Taveira de Oliveira Ferreira

Maurício Machado de Minas

Sérgio Alexandre Figueiredo Clemente

Roberto de Jesus Paris

Alfredo Antônio Lima de Menezes

Marco Antonio Rossi

 

Luiz Carlos Angelotti

Alexandre da Silva Glüher

 

Gedson Oliveira Santos

Josué Augusto Pancini

Regional Officers

Marlos Francisco de Souza Araujo

Maurício Machado de Minas

Alex Silva Braga

 

 

Almir Rocha

 

Managing Directors

André Ferreira Gomes

Sustainability Committee

Alfredo Antônio Lima de Menezes

Antonio Gualberto Diniz

Luiz Carlos Angelotti - Coordinator

André Rodrigues Cano

Antonio Piovesan

Carlos Alberto Rodrigues Guilherme

Luiz Carlos Angelotti

Carlos Alberto Alástico

Milton Matsumoto

Marcelo de Araújo Noronha

Delvair Fidêncio de Lima

Domingos Figueiredo de Abreu

Nilton Pelegrino Nogueira

Francisco Aquilino Pontes Gadelha

Aurélio Conrado Boni

André Marcelo da Silva Prado

Francisco Assis da Silveira Junior

Sérgio Alexandre Figueiredo Clemente

Luiz Fernando Peres

Geraldo Dias Pacheco

Marco Antonio Rossi

 

João Alexandre Silva

Alexandre da Silva Glüher

Deputy Directors

Leandro José Diniz

Josué Augusto Pancini

Altair Antônio de Souza

Luis Carlos Furquim Vermieiro

Maurício Machado de Minas

Denise Pauli Pavarina

Mauricio Gomes Maciel

Moacir Nachbar Junior

Moacir Nachbar Junior

Osmar Sanches Biscuola

Paulo Faustino da Costa

Octavio de Lazari Junior

Wilson Reginaldo Martins

 

   

   

   

Department Directors

Compensation Committee

Executive Disclosure Committee

Alexandre Rappaport

Lázaro de Mello Brandão - Coordinator

Luiz Carlos Angelotti - Coordinator

Amilton Nieto

Luiz Carlos Trabuco Cappi

Domingos Figueiredo de Abreu

André Bernardino da Cruz Filho

Antônio Bornia

Marco Antonio Rossi

Antonio Carlos Melhado

Mário da Silveira Teixeira Júnior

Alexandre da Silva Glüher

Antonio José da Barbara

Carlos Alberto Rodrigues Guilherme

Moacir Nachbar Junior

Arnaldo Nissental

Milton Matsumoto

Antonio José da Barbara

Aurélio Guido Pagani

Sérgio Nonato Rodrigues (non-Management member)

Marcelo Santos Dall’Occo

Bruno D’Avila Melo Boetger

 

Marcos Aparecido Galende

Cassiano Ricardo Scarpelli

 

Paulo Faustino da Costa

Clayton Camacho

Audit Committee

Haydewaldo R. Chamberlain da Costa

Diaulas Morize Vieira Marcondes Junior

Carlos Alberto Rodrigues Guilherme - Coordinator

 

Edilson Wiggers

Romulo Nagib Lasmar

 

Eurico Ramos Fabri

Osvaldo Watanabe

Fiscal Council

Fernando Antônio Tenório

Paulo Roberto Simões da Cunha

Sitting Members

Fernando Roncolato Pinho

   

João Carlos de Oliveira - Coordinator

Frederico William Wolf

   

Nelson Lopes de Oliveira

Gedson Oliveira Santos

Compliance and Internal Control Committee

José Maria Soares Nunes

Glaucimar Peticov

Mário da Silveira Teixeira Júnior - Coordinator

Domingos Aparecido Maia

Guilherme Muller Leal

Carlos Alberto Rodrigues Guilherme

Luiz Carlos de Freitas

*Hiroshi Obuchi

Milton Matsumoto

 

João Albino Winkelmann

Domingos Figueiredo de Abreu

 

João Carlos Gomes da Silva

Marco Antonio Rossi

Deputy Members

Joel Antonio Scalabrini

Alexandre da Silva Glüher

Renaud Roberto Teixeira

Johan Albino Ribeiro

Frederico William Wolf

Jorge Tadeu Pinto de Figueiredo

Jorge Pohlmann Nasser

Gedson Oliveira Santos

Nilson Pinhal

José Luis Elias

Johan Albino Ribeiro

João Batistela Biazon

José Luiz Rodrigues Bueno

Rogério Pedro Câmara

Oswaldo de Moura Silveira

  

 

 

* Pending approval by the Brazilian Central Bank

   

     

General Accounting Department

 

Marcos Aparecido Galende

Ombudsman Department

Accountant - CRC 1SP201309/O-6

Nairo José Martinelli Vidal Júnior - Ombudsman

 

 

 

Bradesco     203     


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

 

Report on the Review of the Interim Consolidated Financial Information

 

To the Board of Directors and Shareholders of

Banco Bradesco S.A.

Osasco - SP

 

 

Introduction

We have reviewed the consolidated statement of financial position of Banco Bradesco S.A. (“Bradesco”) as at September 30, 2014 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the quarter and nine-month period then ended, as well as the summary of significant accounting policies and other explanatory notes (“the interim consolidated financial statements”).

 

Management is responsible for the preparation and fair presentation of this interim consolidated financial information in accordance with accounting practices adopted in Brazil, applicable to financial institutions authorized to operate by the Central Bank of Brazil. Our responsibility is to express a conclusion on this interim consolidated financial information based on our review.

 

Scope of review

We conducted our review in accordance with Brazilian and International Standards on Review of Interim Financial Information (NBC TR 2410 - Revisão de Informações Intermediárias Executada pelo Auditor da Entidade and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Therefore, we do not express an audit opinion.

 

Conclusion

Based on our review, we are not aware of any facts that would lead us to believe that the interim consolidated financial information mentioned above were not prepared, in all material aspects, in accordance with accounting practices adopted in Brazil applicable to financial institutions authorized to operate by the Central Bank of Brazil.

 

Other meters

Interim consolidated statements of value added

We also reviewed the interim consolidated statements of value added (DVA) for the quarter and nine-month period ended as at September 30, 2014, which were prepared under Bradesco’s Management responsibility and which presentation is required under the rules issued by the Securities and Exchange Commission of Brazil (CVM). These statements were subject to the same review procedures described above and based on our review, we are not aware of any facts that would lead us to believe they were not prepared, in all material respects, in relation to the interim consolidated financial information taken as a whole.

 

 

 

Osasco, October 29, 2014

 

Blue logo 

 

Original report in Portuguese signed by KPMG Auditores Independentes

CRC 2SP028567/O-1 F SP

 

Cláudio Rogélio Sertório

Accountant CRC 1SP212059/O-0

 

204             Report on Economic and Financial Analysis – September 2014


 

Financial Statements, Independent Auditors’ Report and Fiscal Council’s Report

                                

Fiscal Council’s Report

 

 

 

The undersigned members of the Fiscal Council of Banco Bradesco S.A., in the exercise of their legal and statutory duties, having examined the Management Report and the Individual and Consolidated Financial Statements related to the third quarter of 2014, and the technical feasibility study of taxable income generation, brought at present value, which has the purpose of recording the Deferred Tax Assets pursuant to the Securities and Exchange Commission (CVM) Instruction no 371/02, National Monetary Council Resolution no 3059/02, and Bacen Circular Letter no 3171/02, and in view of the unqualified report prepared by KPMG Auditores Independentes, are of the opinion that the aforementioned documents, based on the accounting practices adopted in Brazil, applicable to entities that the Brazilian Central Bank authorizes to operate, fairly reflect the Company’s equity and financial position.

 

 

 

 

 

 

 

 

Cidade de Deus, Osasco, São Paulo, October 29, 2014

 

 

 

 

 

 

 

João Carlos de Oliveira

 

Nelson Lopes de Oliveira

 

José Maria Soares Nunes

 

Domingos Aparecido Maia

 

Luiz Carlos de Freitas

 

 

 

Bradesco     205     


 

 
SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 7, 2014
 
BANCO BRADESCO S.A.
By:
 
/S/ Luiz Carlos Angelotti

    Luiz Carlos Angelotti 
Executive Managing Officer and
Investor Relations Officer
 
 
FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.