bbdprudencial_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 August, 2017
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____

 .


 
 

 

 


 
 

 

 

 

 


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Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Financial Position of the Prudential Conglomerate on June 30 – In thousands of Reais

 

Assets

2017

Current

562,964,568

Cash and due from banks (Note 4)

13,267,198

Interbank investments (Notes 3d and 5)

176,167,466

Securities purchased under agreements to resell

171,012,283

Interbank investments

5,168,014

Allowance for losses

(12,831)

Securities and derivative financial instruments (Notes 3e, 3f and 6)

84,119,799

Own portfolio

32,393,862

Subject to repurchase agreements

27,049,772

Derivative financial instruments (Notes 3f and 6d II)

14,933,662

Given in guarantee to the Brazilian Central Bank

83,599

Given in guarantee

8,959,878

Securities under resale agreements with free movement

699,026

Interbank accounts

68,909,482

Unsettled payments and receipts

1,351,244

Reserve requirement (Note 7):

 

- Reserve requirement - Brazilian Central Bank

67,472,257

- SFH - housing finance system

23,406

Correspondent banks

62,575

Interdepartmental accounts

110,732

Internal transfer of funds

110,732

Loans (Notes 3g and 8)

137,070,625

Loans:

 

- Public sector

1,075,740

- Private sector

156,717,195

Loans transferred under an assignment with recourse

984,481

Allowance for loan losses (Notes 3g, 8f, 8g and 8h)

(21,706,791)

Leasing (Notes 3g and 8)

(55,821)

Leasing operations and sublease receivables

 

- Private sector

1,065,272

Unearned income from leasing

(1,023,583)

Allowance for leasing losses (Notes 3g, 8f, 8g and 8h)

(97,510)

Other receivables

80,683,242

Receivables on sureties and guarantees honored (Note 8a-3)

416,316

Foreign exchange portfolio (Note 9a)

17,402,106

Receivables

8,626,784

Securities trading

1,029,205

Specific receivables

18,947

Sundry (Note 9b)

55,068,046

Allowance for other loan losses (Notes 3g, 8f, 8g and 8h)

(1,878,162)

Other assets (Note 10)

2,691,845

Other assets

2,825,909

Provision for losses

(1,308,260)

Prepaid expenses (Notes 3i and 10b)

1,174,196

Long-term receivables

355,128,897

Interbank investments (Note 3d and 5)

1,128,277

Interbank investments

1,128,277

Securities and derivative financial instruments (Notes 3e, 3f and 6)

137,953,090

Own portfolio

99,330,844

Subject to repurchase agreements

27,455,297

Derivative financial instruments (Notes 3f and 6d II)

90,818

Privatization rights

46,517

Securities under resale agreements with free movement

8,091,153

 

Bradesco     3


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Financial Position of the Prudential Conglomerate on June 30 – In thousands of Reais

 

Assets

2017

Interbank accounts

802,502

Reserve requirement (Note 7):

 

- SFH - housing finance system

802,502

Loans (Notes 3g and 8)

158,974,066

Loans:

 

- Public sector

2,000,000

- Private sector

163,361,536

Loans transferred under an assignment with recourse

7,292,471

Allowance for loan losses (Notes 3g, 8f, 8g and 8h)

(13,679,941)

Leasing (Notes 3g and 8)

(65,579)

Leasing receivables:

 

- Private sector

1,181,855

Unearned income from leasing

(1,181,538)

Allowance for leasing losses (Notes 3g, 8f, 8g and 8h)

(65,896)

Other receivables

55,497,458

Securities trading

374,153

Sundry (Note 9b)

55,231,709

Allowance for other loan losses (Notes 3g, 8f, 8g and 8h)

(108,404)

Other assets (Note 10)

839,083

Prepaid expenses (Notes 3i and 10b)

839,083

Permanent assets

68,392,931

Investments (Notes 3j and 11)

46,106,004

Earnings of Affiliates and Subsidiaries

 

- In Brazil

45,772,613

- Overseas

288,457

Other investments

176,206

Allowance for losses

(131,272)

Premises and equipment (Notes 3k and 12)

4,388,986

Premises

697,236

Other premises and equipment

8,680,387

Accumulated depreciation

(4,988,637)

Leased premises and equipment (Note 12)

4,084,545

Leased Assets

7,065,726

Accumulated depreciation

(2,981,181)

Intangible assets (Notes 3m and 13)

13,813,396

Intangible Assets

24,000,817

Accumulated amortization

(10,187,421)

Total

986,486,396

 

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

                                             

                                             

 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Financial Position of the Prudential Conglomerate on June 30In thousands of Reais

 

Liabilities

2017

Current

600,022,596

Deposits (Notes 3o and 14a)

157,832,902

Demand deposits

30,886,127

Savings deposits

95,736,763

Interbank deposits

481,914

Time deposits (Note 14a)

30,728,098

Securities sold under agreements to repurchase (Notes 3o and 14b)

242,686,056

Own portfolio

87,107,624

Third-party portfolio

144,238,406

Unrestricted portfolio

11,340,026

Funds from issuance of securities (Note 14c)

72,477,559

Mortgage and real estate notes, letters of credit and others

71,479,699

Securities issued overseas

671,060

Structured Operations Certificates

326,800

Interbank accounts

1,526,011

Unsettled payments and receipts

76,305

Correspondent banks

1,449,706

Interdepartmental accounts

4,800,663

Third-party funds in transit

4,800,663

Borrowing (Note 15a)

21,508,622

Borrowing overseas

21,508,622

On-lending in Brazil - official institutions (Note 15b)

11,224,756

National treasury

64,143

BNDES

4,597,299

FINAME

6,561,724

Other institutions

1,590

Derivative financial instruments (Notes 3f and 6d II)

13,864,795

Derivative financial instruments

13,864,795

Other liabilities

74,101,232

Payment of taxes and other contributions

3,243,238

Foreign exchange portfolio (Note 9a)

7,105,535

Social and statutory

2,444,258

Tax and social security (Note 18a)

1,792,375

Securities trading

2,049,142

Financial and development funds

1,297

Subordinated debts (Note 17)

14,250,427

Sundry (Note 18b)

43,214,960

Long-term liabilities

279,232,005

Deposits (Notes 3o and 14a)

103,853,673

Interbank deposits

48,459

Time deposits (Note 14a)

103,805,214

Securities sold under agreements to repurchase (Notes 3o and 14b)

13,784,487

Own portfolio

13,784,487

Funds from issuance of securities (Note 14c)

71,156,684

Mortgage and real estate notes, letters of credit and others

68,749,426

Securities issued overseas

2,334,319

Structured Operations Certificates

72,939

Borrowing (Note 15a)

1,920,137

Borrowing overseas

1,920,137

On-lending in Brazil - official institutions (Note 15b)

21,888,871

BNDES

9,825,810

FINAME

12,063,061

Derivative financial instruments (Notes 3f and 6d II)

160,578

Derivative financial instruments

160,578

 

Bradesco     5


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Financial Position of the Prudential Conglomerate on June 30 - In thousands of Reais

 

Liabilities

2017

Other liabilities

66,467,575

Tax and social security (Note 18a)

2,734,255

Subordinated debts (Note 17)

16,818,082

Eligible Debt Capital Instruments (Note 17)

22,622,595

Sundry (Note 18b)

24,292,643

Deferred income

406,567

Deferred income

406,567

Non-controlling interests in subsidiaries (Note 19)

17,715

Shareholders' equity (Note 20)

106,807,513

Capital:

 

- Domiciled in Brazil

58,361,528

- Domiciled overseas

738,472

Capital reserves

11,441

Profit reserves

47,620,614

Asset valuation adjustments

515,972

Treasury shares (Note 20d)

(440,514)

Total

986,486,396

 

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

 

6 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Income of the Prudential Conglomerate on June 30 – In thousands of Reais

 

 

2017

Revenue from financial intermediation

65,964,517

Loans (Note 8j)

37,650,145

Leasing (Note 8j)

995,021

Operations with securities (Note 6h)

22,631,430

Income from derivative financial instruments (Note 6h)

813,640

Foreign exchange operations (Note 9a)

1,197,531

Reserve requirement (Note 7b)

2,683,447

Sale or transfer of financial assets

(6,697)

 

 

Expenses from financial intermediation

50,748,568

Retail and professional market funding (Note 14d)

32,270,669

Borrowing and on-lending (Note 15c)

2,837,408

Leasing (Note 8j)

850,335

Allowance for loan losses (Notes 3g, 8g and 8h)

14,790,156

 

 

Gross income from financial intermediation

15,215,949

 

 

Other operating income (expenses)

(6,771,352)

Fee and commission income (Note 21)

11,653,990

Other fee and commission income

7,935,901

Income from banking fees

3,718,089

Payroll and related benefits (Note 22)

(8,729,274)

Other administrative expenses (Note 23)

(10,568,598)

Tax expenses (Note 24)

(2,320,263)

Equity in the earnings (losses) of Affiliates and Subsidiaries (Note 11)

4,174,776

Other operating income (Note 25)

6,179,795

Other operating expenses (Note 26)

(7,161,778)

Operating income

8,444,597

Non-operating income (loss) (Note 27)

(291,239)

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

8,153,358

Income tax and social contribution (Notes 31a and 31b)

(169,824)

Non-controlling interests in subsidiaries

(1,364)

Net income

7,982,170

 

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

Bradesco     7


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Changes in Shareholders’ Equity – In thousands of Reais

 

Events

Capital

Capital reserves

Profit reserves

Asset valuation adjustments

Treasury shares

Retained earnings

Total

Paid in Capital

Share premium

Legal

Statutory

Bradesco

Subsidiaries

Balance on January 1st, 2017

51,100,000

11,441

6,807,128

43,641,474

(403,160)

(273,956)

(440,514)

-

100,442,413

Capital increase with reserves

8,000,000

-

-

(8,000,000)

-

-

-

-

-

Asset valuation adjustments

-

-

-

-

766,716

426,372

-

-

1,193,088

Net income

-

-

-

-

-

-

-

7,982,170

7,982,170

Allocations:

 

 

 

 

 

 

 

 

 

- Reserves

-

-

399,109

4,772,903

-

-

-

(5,172,012)

-

- Interest on Shareholders’ Equity Paid and/or provisioned

-

-

-

-

-

-

-

(2,810,158)

(2,810,158)

Balance on June 30, 2017

59,100,000

11,441

7,206,237

40,414,377

363,556

152,416

(440,514)

-

106,807,513

 

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

 

8 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Added Value of the Prudential Conglomerate on June 30 – In thousands of Reais

 

Description

2017

%

1 – Revenue

61,561,445

302.1

1.1) Financial intermediation

65,964,517

323.7

1.2) Fees and commissions

11,653,990

57.2

1.3) Allowance for loan losses

(14,790,156)

(72.6)

1.4) Others (Includes private social investments (Note 32c))

(1,266,906)

(6.2)

2 – Financial intermediation expenses

(35,958,412)

(176.5)

3 – Inputs acquired from third-parties

(6,861,761)

(33.7)

Outsourced services

(2,081,568)

(10.2)

Data processing

(1,036,592)

(5.1)

Communication

(779,067)

(3.8)

Asset maintenance

(554,354)

(2.7)

Financial system services

(506,509)

(2.5)

Security and surveillance

(416,863)

(2.0)

Transport

(375,843)

(1.8)

Material, water, electricity and gas

(324,511)

(1.6)

Advertising and marketing

(288,524)

(1.4)

Travel

(84,944)

(0.4)

Others (Includes private social investments (Note 32c))

(412,986)

(2.0)

4 – Gross value added (1-2-3)

18,741,272

92.0

5 – Depreciation and amortization

(2,538,858)

(12.5)

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

16,202,414

79.5

7 – Value added received through transfer

4,174,776

20.5

Equity in the earnings (losses) of unconsolidated and jointly controlled companies

4,174,776

20.5

8 – Value added to distribute (6+7)

20,377,190

100.0

9 – Value added distributed

20,377,190

100.0

9.1) Personnel

7,687,326

37.7

Salaries

4,031,983

19.8

Benefits

2,007,521

9.9

Government Severance Indemnity Fund for Employees (FGTS)

447,396

2.2

Other

1,200,426

5.9

9.2) Tax, fees and contributions

3,532,035

17.3

Federal

3,124,725

15.3

State

5,139

-

Municipal

402,171

2.0

9.3) Remuneration for providers of capital

1,174,295

5.8

Rental

825,306

4.1

Asset leasing

348,989

1.7

9.4) Value distributed to shareholders

7,983,534

39.2

Interest on Shareholders’ Equity Dividends paid and/or provisioned

2,810,158

13.8

Retained earnings

5,172,012

25.4

Non-controlling interests in retained earnings

1,364

-

 

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

Bradesco     9


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Cash Flow of the Prudential Conglomerate on June 30 – In thousands of Reais

 

 

2017

Cash flow from operating activities:

 

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

8,153,358

Adjustments to net income before income tax and social contribution

16,132,280

Effect of Changes in Exchange Rates in Cash and Cash equivalents

(349,403)

Allowance for loan losses

14,790,156

Depreciation and amortization

2,538,858

Impairment losses of financial assets

833,283

Expenses with civil, labor and tax provisions

1,142,230

Equity in the earnings (losses) of Affiliates and Subsidiaries

(4,174,776)

(Gain)/loss on sale of fixed assets

16,440

(Gain)/loss on sale of foreclosed assets

246,582

Foreign exchange variation of assets and liabilities overseas/Other

1,088,910

Net income before taxes after adjustments

24,285,638

(Increase)/Decrease in interbank investments

1,865,412

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

(2,947,966)

(Increase)/Decrease in interbank and interdepartmental accounts

(2,142,507)

(Increase)/Decrease in loan and leasing

(1,291,145)

(Increase)/Decrease in other receivables and other assets

(2,499,477)

(Increase)/Decrease in reserve requirement - Central Bank

(9,435,726)

Increase/(Decrease) in deposits

26,214,926

Increase/(Decrease) in securities sold under agreements to repurchase

(1,269,903)

Increase/(Decrease) in funds from issuance of securities

(18,579,343)

Increase/(Decrease) in borrowings and on-lending

(1,657,775)

Increase/(Decrease) in other liabilities

(2,493,073)

Increase/(Decrease) in deferred income

(45,519)

Income tax and social contribution paid

(2,791,383)

Net cash provided by/(used in) operating activities

7,212,159

Cash flow from investing activities:

 

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

510,345

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

57,511,609

Proceeds from sale of foreclosed assets

333,127

Sale of premises and equipment

758,789

Purchases of available-for-sale securities

(59,011,665)

Investment acquisitions

(2,001,400)

Purchase of premises and equipment

(790,870)

Intangible asset acquisitions

(760,957)

Dividends and interest on shareholders’ equity received

209,421

Net cash provided by/(used in) investing activities

(3,241,601)

Cash flow from financing activities:

 

Increase/(decrease) in subordinated debts

1,062,239

Interest on Shareholders’ Equity Paid

(4,720,677)

Non-controlling interest

(313)

Net cash provided by/(used in) financing activities

(3,658,751)

Net increase/(decrease) in cash and cash equivalents

311,807

Cash and cash equivalents - at the beginning of the period

181,119,377

Effect of Changes in Exchange Rates in Cash and Cash equivalents

349,403

Cash and cash equivalents - at the end of the period

181,780,587

Net increase/(decrease) in cash and cash equivalents

311,807

 

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

 

10 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

Notes to Financial Statements of the Prudential Conglomerate are as follows:

 

Page

1)

OPERATIONS

12

2)

PRESENTATION OF THE FINANCIAL STATEMENTS  

12

3)

SIGNIFICANT ACCOUNTING PRACTICES 

14

4)

CASH AND CASH EQUIVALENTS

19

5) 

INTERBANK INVESTMENTS

20

6) 

SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS 

21

7)

INTERBANK ACCOUNTS – RESERVE REQUIREMENT 

30

8) 

LOANS 

 31

9)  

OTHER RECEIVABLES 

 41

10) 

OTHER ASSETS 

 42

11)

INVESTMENTS 

44

12)

PREMISES AND EQUIPMENT AND LEASED ASSETS 

45

13)

INTANGIBLE ASSETS 

45

14) 

DEPOSITS, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND FUNDS FROM ISSUANCE OF SECURITIES 

46

15) 

BORROWING AND ON-LENDING  

 48

16) 

PROVISIONS, CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS – TAX AND SOCIAL SECURITY 

49

17)

SUBORDINATED DEBT 

53

18)

OTHER LIABILITIES 

54

19) 

NON-CONTROLLING INTERESTS IN SUBSIDIARIES 

55

20)

SHAREHOLDERS’ EQUITY (PARENT COMPANY)

55

21) 

FEE AND COMMISSION INCOME 

56

22)

PAYROLL AND RELATED BENEFITS 

57

23) 

OTHER ADMINISTRATIVE EXPENSES 

57

24) 

TAX EXPENSES 

57

25) 

OTHER OPERATING INCOME 

58

26) 

OTHER OPERATING EXPENSES 

58

27) 

NON-OPERATING INCOME (LOSS)

58

28) 

RELATED-PARTY TRANSACTIONS 

59

29) 

FINANCIAL INSTRUMENTS 

61

30)

EMPLOYEE BENEFITS 

63

31)  

INCOME TAX AND SOCIAL CONTRIBUTION 

64

32)

OTHER INFORMATION 

66

 

                                                                                                                               

Bradesco     11


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

1)      OPERATIONS

 

Banco Bradesco S.A. (Bradesco) is a private-sector publicly traded company and universal bank that, through its commercial, foreign exchange, consumer financing and housing loan portfolios, carries out all the types of banking activities for which it has authorization. The Bank is involved in a number of other activities, either directly or indirectly, through its subsidiaries, specifically leasing, investment banking, brokerage, consortium management, credit cards, real estate projects, insurance, pension plans and capitalization bonds. All these activities are undertaken by the various companies in the Bradesco Organization (Organization), working together in an integrated manner in the market.

 

2)      PRESENTATION OF THE FINANCIAL STATEMENTS

 

The Financial Statements of the Prudential Conglomerate were prepared to comply with the requirements of Resolution No. 4,280/13 of the National Monetary Council (CMN) and additional rules of the Brazilian Central Bank (Bacen). Thus, specific requirements were applied when consolidating the financial statements of Bradesco, its foreign branches, subsidiaries and investment funds, as requested by Resolution No. 4,280/13. These  requirements are not necessarily the same as those established by corporate law.

                                                                                                                                   

For the preparation of these consolidated financial statements, equity interests, balances of balance sheet accounts, revenues, expenses and unrealized gains were eliminated and net income and shareholders’ equity attributable to the non-controlling shareholders were accounted for in a separate line. Investments in companies in which shareholding control is shared with other shareholders are accounted for using the equity method. Goodwill on acquisitions of investments in subsidiaries / affiliates and jointly controlled companies is presented in investments and intangible assets (Note 13a).

 

Bradesco opted for the provision in Article 5 of CMN Resolution No. 4,517/16, which affirms that, as for January 1, 2017, equity holdings in jointly controlled companies must be accounted for using the equity method of accounting and no longer using the proportional consolidation method. In addition, paragraph 2 of Article 5 of said Resolution does not require comparable information for companies that changed their accounting policies as a consequence of these dispositions. Then, consolidated financial statements of the prudential conglomerate are not comparable with previous periods.

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 securities and non-financial assets; and the determination of the useful life of specific assets. Actual results may differ from those based on estimates and assumptions.

Bradesco’s financial statements of the Prudential Conglomerate were approved by the Board of Executive Officers on august 28,
2017.

Below are the significant directly and indirectly owned companies and investment funds included in the financial statements of the Prudential Conglomerate:

 

 

On June 30

Activity

Equity interest

2017

Financial Institutions

 

 

Ágora Corretora de Títulos e Valores Mobiliários S.A.

Brokerage

100.00%

Banco Alvorada S.A.

Banking

99.99%

Banco Boavista Interatlântico S.A.

Banking

100.00%

Banco Bradescard S.A.

Cards

100.00%

Banco Bradesco Argentina S.A.

Banking

99.99%

Banco Bradesco BBI S.A.

Investment bank

99.81%

Banco Bradesco BERJ S.A.

Banking

100.00%

Banco Bradesco Cartões S.A.

Cards

100.00%

Banco Bradesco Europa S.A.

Banking

100.00%

 

12                 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

On June 30

Activity

Equity interest

2017

Banco Bradesco Financiamentos S.A.

Banking

100.00%

Banco Bradesco S.A. New York Branch

Banking

100.00%

Banco Bradesco S.A. Grand Cayman Branch (1)

Banking

100.00%

Banco Losango S.A.

Banking

100.00%

Bradesco Kirton Corretora de Títulos e Valores Mobiliários S.A.

Brokerage

99.97%

Bradesco Leasing S.A. Arrendamento Mercantil

Leasing

100.00%

Bradesco S.A. Corretora de Títulos e Valores Mobiliários

Brokerage

100.00%

Bradesco Securities Hong Kong

Brokerage

100.00%

Bradesco Securities, Inc.

Brokerage

100.00%

Bradesco Securities, UK.

Brokerage

100.00%

Bradescard México, Sociedad de Responsabilidad Limitada

Cards

100.00%

BRAM - Bradesco Asset Management S.A. DTVM

Asset management

100.00%

BEC - Distribuidora de Títulos e Valores Mobiliários Ltda.

Asset management

100.00%

BEM - Distribuidora de Títulos e Valores Mobiliários Ltda.

Asset management

100.00%

BMC Asset Management - DTVM Ltda.

Asset management

100.00%

Everest Leasing S.A. Arrendamento Mercantil

Leasing

100.00%

Kirton Bank Brasil S.A.

Banking

100.00%

Nova Marília Administração de Bens Móveis e Imóveis Ltda. (2)

Asset management

100.00%

Serel Participações em Imóveis S.A. (2)

Asset management

100.00%

Tibre Distribuidora de Títulos e Valores Mobiliários Ltda.

Asset management

100.00%

Consortium Management

 

 

Bradesco Administradora de Consórcios Ltda.

Consortium management

100.00%

Payment Institutions

 

 

Alvorada Administradora de Cartões Ltda.

Services

100.00%

Bankpar Consultoria e Serviços Ltda. (2)

Services

100.00%

Cidade Capital Markets Limited

Banking

100.00%

Tempo Serviços Ltda.

Services

100.00%

Securitization Companies

 

 

Alvorada Cia. Securitizadora de Créditos Financeiros

Credit acquisition

100.00%

Alvorada Serviços e Negócios Ltda.

Credit acquisition

100.00%

BCN - Consultoria, Adm. Bens, Serv. e Publicidade Ltda.

Credit acquisition

100.00%

Cia. Securitizadora de Créditos Financeiros Rubi

Credit acquisition

100.00%

Promosec Cia. Securitizadora de Créditos

Credit acquisition

100.00%

Investment Funds (3)

 

 

Alpha FI Mult. Cred. Priv. Inv. no Exterior

Investment Fund

100.00%

Bradesco F.I.C.F.I. R.F. DI Galáxia

Investment Fund

100.00%

Bradesco FI Mult. Cred. Priv. Inv. Exterior Andromeda

Investment Fund

100.00%

Bradesco FI Mult. Cred. Priv. Inv. Exterior Pioneiro

Investment Fund

100.00%

Bradesco FI Referenciado DI Performance

Investment Fund

100.00%

Bradesco FI Referenciado DI União

Investment Fund

99.66%

FI Mult. Inv. no Exterior Tellus

Investment Fund

100.00%

FIP Mult. Plus

Investment Fund

100.00%

FI RF DI GJ

Investment Fund

100.00%

FII - FI RF Cred. Privado

Investment Fund

100.00%

 

(1) The special purpose entity International Diversified Payment Rights Company is being consolidated. The company is part of a structure set up for the securitization of the future flow of payment orders received overseas;
(2) In accordance with CMN Resolution No. 4,280/13, it is now consolidated; and

(3) The investment funds in which Bradesco assumes or substantially retains the risks and benefits were consolidated.

 

 

Bradesco     13


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

3)   SIGNIFICANT ACCOUNTING PRACTICES

 

a)   Functional and presentation currencies

 

Financial statements of Prudential Conglomerate 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 statement of income in the lines “Derivative Financial Instruments” and “Borrowing and On-lending”.

 

b)   Income and expense recognition

 

Income and expenses are recognized on an accrual basis in order to determine the net income for the period to which they relate, regardless of when the funds are received or paid.

 

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

 

Floating rate and foreign-currency-indexed contracts are adjusted for interest and foreign exchange rates applicable at the reporting date.

 

c)   Cash and cash equivalents

 

Cash and cash equivalents include: funds available in currency, investments in gold, securities sold under agreements to repurchase and interest-earning deposits in other banks, maturing in 90 days or less, from the time of the acquisition, which 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 presented in Note 4.

 

d)   Interbank investments

 

Unrestricted repurchase and reverse repurchase agreements are stated at their fair value. All other interbank 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 5.

 

e)   Securities – Classification

 

· 

Trading securities – securities acquired for the purpose of being actively and frequently traded. They are recognized at cost, plus income earned and adjusted to fair value with changes recognized in the Statement of Income for the period;

 

· 

Available-for-sale securities – securities that are not specifically intended for trading purposes or to be held to maturity. They are recognized at cost, plus income earned, which is recognized in profit or loss in the period and adjusted to fair value with changes recognized in shareholders’ equity, net of tax, which will be transferred to the Statement of Income only when effectively realized; and

 

·  

Held-to-maturity securities – securities for which there is positive intent and financial capacity to hold to maturity. They are recognized at cost, plus income earned recognized in the Statement of Income 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.

 

14                 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

Classification, breakdown and segmentation of securities are presented in Note 6 (a to c).

 

f)    Derivative financial instruments (assets and liabilities)

 

Derivative instruments are classified based on the objective for which the underlying instrument was acquired at the date of purchase, taking into consideration its use for possible hedging purposes.

 

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. The gains or losses are recognized in the statement of income or shareholders’ equity.

 

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 when they meet the criteria for hedge accounting and are classified according to their nature:

 

·Market risk hedge: the gains and losses, realized or not, of the financial instruments classified in this category as well as the financial assets and liabilities, that are the object of the hedge, are recognized in the Statement of Income; and

 

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

 

A breakdown of amounts included as derivative financial instruments, in the statement of financial position and off-balance-sheet accounts, is disclosed in Note 6 (d to g).

 

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. 2,682/99, which requires risk ratings to have nine levels, from “AA” (minimum risk) to “H” (maximum risk); and (ii) Management’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 days-past-due is also considered in the rating of customer risk as per CMN Resolution No. 2,682/99, 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 permitted by CMN Resolution No. 2,682/99.

 

Interest and inflation adjustments on past-due transactions are only recognized in the Statement of Income up to the 60th day that they are past due.

 

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 operations are maintained at least at the same rating in which they were classified.

Bradesco     15


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Renegotiations already written-off against the allowance and that were recognized 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 loan may be reclassified to a lower risk category.

 

The estimated allowance for loan losses is calculated to sufficiently cover probable losses, according to CMN and Bacen standards and instructions, together with Management’s assessment of the credit risk.

 

Type, values, terms, levels of risk, concentration, economic sector of client’s 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 8.

 

Leasing

 

The portfolio of leasing operations consists of contracts firmed with the support of Decree No. 140/84, of the Ministry of Finance, which contains clauses of: (a) non-cancellation; (b) purchase option; and (c) post-fixed or fixed restatement and are accounted for in accordance with the standards established by Bacen, as follows:

 

I-      Leases receivable

 

Reflect the balance of installments receivable, restated according to the indexes and criteria established by contractual agreement.

 

II-    Unearned income from leasing and Guaranteed Residual Value (GRV)

 

Recorded at the contractual amount, conversely to adjusted accounts of unearned revenues from leasing and Residual value to balance, both submitted through negotiated conditions. The GRV received in advance is recorded in Other Liabilities – Creditors by Anticipation of the Residual Value until the date of contractual termination. The adjustment at present value of the lease payments and the GRV receivable from the financial leasing operations is recognized as excessive/insufficient depreciation on leased assets, in order to reconcile the accounting practices. In operations whose delays are equal to or greater than 60 days, the appropriation to the result occurs upon receipt of contractual installments, in accordance with CMN Resolution No. 2,682/99.

 

III-  Leased fixed assets

 

It is recorded at acquisition cost, minus the accrued depreciations. The depreciation is calculated using the linear method, with the benefit of a 30% reduction in the normal life cycle of the asset, provisioned in the current legislation. The main annual rates of depreciation used, as base for this reduction, are the following: vehicles and the like, 20%; furniture and utensils, 10%; machinery and equipment, 10%; and other assets, 10% and 20%.

 

IV-  Losses on leases

 

The losses recorded in the sale of leased assets are deferred and amortized over the remaining normal life cycle of assets, and are shown along with the Leased Fixed Assets (Note 8k).

 

V-    Excessive (insufficient) depreciation

 

The accounting records of leasing operations are maintained as legal requirements, specific for this type of operation. The procedures adopted and summarized in items "II" to "IV" above differ from the accounting practices provisioned in Brazilian corporate law, especially concerning the regime of competence in the record of revenues and expenses related to lease contracts. As a result, in accordance with Bacen Circular No. 1,429/89, the present value of outstanding leasing installments was calculated, using the internal rate of return of each contract, recording a leasing revenue or expenditure, conversely to the entries of excessive or insufficient depreciation, respectively, recorded in Permanent Assets, with the objective of adapting the leasing operations to the regime of competence (Note 8k).

16                June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

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

 

Deferred tax assets, calculated on income tax losses, social contribution losses and temporary differences, are recognized in “Other Receivables - Sundry” and the deferred tax liabilities on tax differences in leasing depreciation (applicable only for income tax), fair value adjustments on securities, inflation adjustment of judicial deposits, among others, are recognized in “Other Liabilities - Tax and Social Security”, in which for the differences in leasing depreciation only the income tax rate is applied.

 

Deferred tax assets on temporary differences are realized when the difference between the accounting treatment and the income tax treatment reverses. Deferred tax assets on income tax and social contribution losses are realizable when taxable income is generated, up to the 30% limit of the taxable profit for the period. Deferred tax assets are recognized based on current expectations of realization 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. For financial companies, for companies considered as such and for the insurance industry, the social contribution on the profit was calculated until August 2015, considering the rate of 15%. For the period between September 2015 and December 2018, the rate was changed to 20%, according to Law No. 13,169/15 and the rate will be 15% again as from January 2019. For the other companies, the social contribution is calculated considering the rate of 9%.

 

Due to the amendment of the rate, Organization recognized, in September 2015, an incremental amount to the deferred tax of social contribution, considering the annual expectations of realization and their respective rates in force in each period, according to the technical study produced.

 

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

 

The breakdown of income tax and social contribution, showing the calculations, the origin and expected use of deferred tax assets, as well as unrecognized deferred tax assets, is presented in Note 31.

 

i)    Prepaid expenses

 

Prepaid expenses consist of funds already disbursed for future benefits or services, which are recognized in the profit or loss on an accrual basis.

 

Incurred costs relating to assets that will generate revenue in subsequent periods are recognized in the Statement of Income according to the terms and the amount of expected benefits and directly recognized in the Statement of Income when the corresponding assets or rights are no longer part of the institution’s assets or when future benefits are no longer expected.

 

In the case of the remuneration paid for the origination of credit operations or leasing to the banking correspondents related to credit operations originated during 2015 and 2016, Bradesco opted to recognize part of the total value of compensation, pursuant to the provisions of Bacen Circular No. 3,738/14. As of 2017, the remuneration mentioned is fully recognized as an expense.

 

Prepaid expenses are shown in detail in Note 10b.

 

j)    Investments

 

Investments in unconsolidated and jointly controlled companies, where Bradesco has significant influence over the investee or holds at least 20% of the voting rights, are accounted for using the equity method.

 

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

Bradesco     17


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Subsidiaries are consolidated – the composition of the main companies are disclosed in Note 2. The composition of unconsolidated and jointly controlled companies, as well as other investments, are disclosed in Note 11.

 

k)   Premises and equipment

 

Relates to the tangible assets used by the Bank in its activities, including those resulting from transactions that transfer risks, benefits and control of the assets to the Bank.

 

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; installations, furniture, equipment for use, security systems and communications – 10% per annum; transport systems – 20% per annum; and data processing systems – 20% to 40% per annum, and adjusted for impairment, when applicable.

 

The breakdown of asset costs and their corresponding depreciation, as well as the unrecognized surplus value for real estate and the fixed asset ratios, are disclosed in Note 12.

 

l)    Intangible assets

 

Relates to the right over intangible assets used by the Bank in its activities.

 

Intangible assets comprise:

 

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

 

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

 

Intangible assets and the movement in these balances by class are presented in Note 13.

 

m) Impairment

 

Financial and non-financial assets are tested for impairment.

 

Objective evidence of impairment may comprise the non-payment or payment delay by the debtor, possible bankruptcy process or the significant or extended decline in an asset value.

 

An impairment loss of a financial or non-financial asset is recognized in the profit or loss for the period if the carrying amount of an asset or cash-generating unit exceeds its recoverable value. Impairment losses are presented in Notes 6c(6) and 6g.

 

n)   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, calculated on a daily pro-rata basis.

 

A breakdown of the contracts recognized in deposits and securities sold under agreements to repurchase, as well as terms and amounts recognized in the statement of financial position and statement of income, is presented in Note 14.

 

 

 

18                 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

o)   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. 3,823/09 and CVM Resolution No. 594/09:

 

·

Contingent Assets: these are not recognized in the financial statements, except to the extent that there are real guarantees or favorable judicial decisions, to which no further appeals are applicable, and it is considered virtually certain that cash inflows will flow to Bradesco. Contingent assets with a chance of probable success are disclosed in the notes to the financial statements; 
 

· Provisions: these are recognized taking into consideration the opinion of legal counsel, the nature of the lawsuits, similarity with previous lawsuits, complexity and positioning of the courts, whenever an entity has a present obligation (legal or constructive) as a result of a past even, it is probable that an outflow of resources will be required to settle the obligation and when the amount 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 do not meet the criteria for recognition because they are considered as possible losses should only be disclosed in the notes when relevant. Obligations deemed remote are not recognized as a provision nor disclosed; and
 
· Legal Obligations – Provision for Tax Risks: results from judicial proceedings, which contest the applicability of tax laws on the grounds of legality or constitutionality, which, regardless of the assessment of the probability of success, are fully provided for in the financial statements.

 

Details on lawsuits, as well as segregation and changes in amounts recognized, by type, are presented in Note 16.

 

p)   Other assets and liabilities

 

Assets are stated at their realizable amounts, including, when applicable, related income and inflation 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 inflation and exchange variations (on a daily prorated basis).

 

q)   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 32.

 

4)     CASH AND CASH EQUIVALENTS

 

 

On June 30 - R$ thousand

2017

Cash and due from banks in domestic currency

9,437,231

Cash and due from banks in foreign currency

3,829,774

Investments in gold

193

Total cash and due from banks

13,267,198

Interbank investments (1)

168,513,389

Total cash and cash equivalents

181,780,587

 

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

Bradesco     19


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

5)      INTERBANK INVESTMENTS

 

a)    Breakdown and maturity

 

 

On June 30 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

2017

days

days

days

days

Securities purchased under agreements to resell:

 

 

 

 

 

Own portfolio position

24,377,707

-

-

-

24,377,707

● Financial treasury bills

6,956,328

-

-

-

6,956,328

● National treasury notes

11,662,272

-

-

-

11,662,272

● National treasury bills

5,716,014

-

-

-

5,716,014

● Other

43,093

-

-

-

43,093

Funded position

143,424,397

931,775

-

-

144,356,172

● National treasury notes

56,017,547

881,724

-

-

56,899,271

● Financial treasury bills

58,174,544

-

-

-

58,174,544

● National treasury bills

29,232,306

50,051

-

-

29,282,357

Short position

1,400,541

877,863

-

-

2,278,404

● National treasury bills

1,400,541

877,863

-

-

2,278,404

Subtotal

169,202,645

1,809,638

-

-

171,012,283

Interest-earning deposits in other banks:

 

 

 

 

 

● Interest-earning deposits in other banks:

2,495,317

1,725,520

947,177

1,128,277

6,296,291

● Provision for losses

(155)

(4,316)

(8,360)

-

(12,831)

Subtotal

2,495,162

1,721,204

938,817

1,128,277

6,283,460

Total in 2017

171,697,807

3,530,842

938,817

1,128,277

177,295,743

%

96.9

2.0

0.5

0.6

100.0

 

b)   Income from interbank investments

 

Classified in the statement of income as income from operations with securities.

 

 

Accrued on June 30 - R$ thousand

2017

Income from investments in purchase and sale commitments:

 

• Own portfolio position

265,245

• Funded position

9,476,507

• Short position

358,857

Subtotal

10,100,609

Income from interest-earning deposits in other banks

239,555

Total (Note 6g)

10,340,164

 

20                 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

6)     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

 

 

On June 30 - R$ thousand

2017

%

Trading securities

54,131,681

24.4

- Government securities

29,887,721

13.5

- Corporate securities

9,219,480

4.2

- Derivative financial instruments (1) (5)

15,024,480

6.7

Available-for-sale securities

155,678,967

70.1

- Government securities

96,630,216

43.5

- Corporate securities

59,048,751

26.6

Held-to-maturity securities (2)

12,262,241

5.5

- Government securities

29,038

-

- Corporate securities

12,233,203

5.5

Total

222,072,889

100.0

 

 

 

- Government securities

126,546,975

57.0

- Corporate securities

95,525,914

43.0

Total

222,072,889

100.0

 

 

Bradesco     21


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

b)      Consolidated classification by category, maturity and operating segment

 

I)    Trading securities

 

Securities

On June 30 - R$ thousand

2017

1 to 30

31 to 180

181 to 360

More than 360

Fair/book value (3) (4)

Amortized cost

Fair Value Adjustment

days

days

days

days

Financial treasury bills

-

318,749

1,674,359

12,827,095

14,820,203

14,821,284

(1,081)

National treasury notes

799

-

117,969

6,634,952

6,753,720

6,606,927

146,793

Financial bills

655,172

1,291,260

184,354

567,248

2,698,034

2,689,430

8,604

Debentures

21,453

179,920

359

1,639,770

1,841,502

2,083,722

(242,220)

National treasury bills

89,428

21,788

101,514

7,762,693

7,975,423

7,956,875

18,548

Derivative financial instruments (1) (5)

14,707,535

138,868

87,259

90,818

15,024,480

21,473,803

(6,449,323)

Other

2,666,534

434,058

219,376

1,698,351

5,018,319

5,071,347

(53,028)

Total

18,140,921

2,384,643

2,385,190

31,220,927

54,131,681

60,703,388

(6,571,707)

Derivative financial instruments (liabilities) (5)

(13,264,721)

(433,922)

(166,152)

(160,578)

(14,025,373)

(10,699,632)

(3,325,741)

 

22                 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

II)   Available-for-sale securities

 

Securities (6)

On June 30 - R$ thousand

2017

 

 

 

 

Fair/book value (3) (4)

Amortized cost

Fair Value Adjustment

1 to 30

31 to 180

181 to 360

More than 360

days

days

days

days

National treasury bills

1,018,605

427,492

18,789,162

61,642,123

81,877,382

80,434,870

1,442,512

Debentures

406,283

650,283

1,106,830

35,967,016

38,130,412

38,920,085

(789,673)

National treasury notes

-

-

-

10,306,348

10,306,348

9,933,627

372,721

Foreign corporate securities

181,871

51,163

625,264

10,264,465

11,122,763

11,332,816

(210,053)

Shares

6,648,800

-

-

-

6,648,800

7,382,305

(733,505)

Certificates of real estate receivables

29,180

-

-

1,038,923

1,068,103

1,107,459

(39,356)

Brazilian foreign debt notes

11,897

-

1,501

572,586

585,984

567,229

18,755

Financial treasury bills

-

12,150

111,127

2,138,579

2,261,856

2,261,345

511

Other

1,433,278

1,247,177

767,550

229,314

3,677,319

3,653,009

24,310

Subtotal

9,729,914

2,388,265

21,401,434

122,159,354

155,678,967

155,592,745

86,222

Hedge - cash flow (Note 6f)

-

-

-

-

-

-

21,282

Securities reclassified to “Held-to-maturity securities”

-

-

-

-

-

-

(307,494)

Total

9,729,914

2,388,265

21,401,434

122,159,354

155,678,967

155,592,745

(199,990)

III) Held-to-maturity securities

 

Securities (2)

On June 30 - R$ thousand

2017

1 to 30

31 to 180

181 to 360

More than 360

Amortized cost (3)

Fair value (4)

Gain (loss) not accounted for

days

days

days

days

Certificates of real estate receivables

-

5,601

5,021

12,222,581

12,233,203

11,726,479

(506,724)

Other

-

-

-

29,038

29,038

29,216

178

Total

-

5,601

5,021

12,251,619

12,262,241

11,755,695

(506,546)

 

Bradesco     23


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

c)      Breakdown of the portfolios by financial statement classification

 

Securities

On June 30 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

2017 (3) (4)

days

days

days

days

Own portfolio

13,097,756

4,546,178

5,618,190

108,462,582

131,724,706

Fixed income securities

5,642,114

4,546,178

5,618,190

108,462,582

124,269,064

● National treasury notes

799

-

112,139

10,938,968

11,051,906

● Financial treasury bills

-

262,894

1,205,170

11,743,154

13,211,218

● National treasury bills

1,108,034

430,424

1,960,167

25,676,765

29,175,390

● Debentures

427,736

830,202

1,107,189

37,606,786

39,971,913

● Financial bills

655,172

1,291,260

184,354

567,248

2,698,034

● Certificates of real estate receivables

29,180

5,601

5,021

13,295,260

13,335,062

● Foreign corporate securities

938,482

131,182

135,711

6,731,473

7,936,848

● Brazilian foreign debt securities

12,113

-

3,275

592,938

608,326

● Bank deposit certificates

67,883

347,362

9

-

415,254

● Other

2,402,715

1,247,253

905,155

1,309,990

5,865,113

Equity securities

7,455,642

-

-

-

7,455,642

● Shares of listed companies

7,455,642

-

-

-

7,455,642

Restricted securities

65,544

93,463

18,086,196

48,288,321

66,533,524

Subject to repurchase agreements

55,878

11,387

14,823,245

39,614,559

54,505,069

● National treasury bills

-

4,781

14,172,772

35,066,915

49,244,468

● Foreign corporate securities

55,878

6,606

569,541

4,064,446

4,696,471

● National treasury notes

-

-

327

303,469

303,796

● Financial treasury bills

-

-

80,605

176,154

256,759

● Other

-

-

-

3,575

3,575

Brazilian Central Bank

-

14,075

69,524

-

83,599

● National treasury bills

-

14,075

69,524

-

83,599

Privatization rights

-

-

-

46,517

46,517

Guarantees provided

9,666

68,001

3,193,427

8,627,245

11,898,339

● National treasury notes

-

-

5,504

3,972,561

3,978,065

● National treasury bills

-

-

2,688,213

1,877,721

4,565,934

● Financial treasury bills

-

68,001

499,710

2,776,963

3,344,674

● Other

9,666

-

-

-

9,666

 

24                 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Securities

On June 30 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

2017 (3) (4)

days

days

days

days

Derivative financial instruments (1) (5)

14,707,535

138,868

87,259

90,818

15,024,480

Securities subject to unrestricted repurchase agreements

-

-

-

8,790,179

8,790,179

● National treasury bills

-

-

-

6,783,414

6,783,414

● National treasury notes

-

-

-

1,734,684

1,734,684

● Financial treasury bills

-

-

-

272,081

272,081

Total

27,870,835

4,778,509

23,791,645

165,631,900

222,072,889

%

12.6

2.1

10.7

74.6

100.0

 

(1) Consistent with the criteria in Bacen Circular Letter No. 3,068/01 and due to the characteristics of the securities, we are classifying the derivative financial instruments, except those considered as cash flow hedges in the category Trading Securities;
(2) In compliance with Article 8 of Bacen Circular Letter No. 3,068/01, Bradesco declares that it has the financial capacity and intention to maintain held-to-maturity securities until their maturity dates;
(3) The number of days to maturity was based on the contractual maturity of the instruments, regardless of their accounting classification;
(4) 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;
(5) Includes hedge for protection of assets and liabilities, denominated in or indexed to foreign currency, primarily, arising from foreign investments, eliminating the effects of exchange variation of these assets and liabilities. For a better analysis of these items, consider the net exposure (Note 6d II); and
(6) Includes, there were Impairment losses of financial assets in the amount of R$833,283 thousand, related to securities classified in the category "Available-for-Sale Securities".

Bradesco     25


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

d)      Derivative financial instruments

 

Bradesco carries out transactions involving derivative financial instruments, which are recognized 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 range 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 Securities, Commodities and Futures Exchange (B3), 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 on an exchange or using methodologies similar to those outlined for swaps. The fair values of credit 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 swaps and futures and are registered at B3.

 

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.

                                                      

 

26                June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

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

 

 

On June 30 - R$ thousand

2017

Reference value

Net amount

Futures contracts

 

 

Purchase commitments:

146,458,963

-

- Interbank market

93,823,273

47,752,744

- Foreign currency

52,586,084

-

- Other

49,606

-

Sale commitments:

107,620,159

-

- Interbank market (1)

46,070,529

-

- Foreign currency (2)

61,471,487

8,885,403

- Other

78,143

28,537

 

 

 

Option contracts

 

 

Purchase commitments:

23,223,824

-

- Interbank market

11,885,179

10,554,362

- Foreign currency

11,222,031

1,583,692

- Other

116,614

-

Sale commitments:

19,674,655

-

- Interbank market

1,330,817

-

- Foreign currency

9,638,339

-

- Other

8,705,499

8,588,885

 

 

 

Forward contracts

 

 

Purchase commitments:

12,297,961

-

- Foreign currency

11,784,574

-

- Other

513,387

13,868

Sale commitments:

16,254,153

-

- Foreign currency

15,754,634

3,970,060

- Other

499,519

-

 

 

 

Swap contracts

 

 

Assets (long position):

73,627,402

-

- Interbank market

7,936,976

5,611,958

- Fixed rate

51,922,671

21,065,185

- Foreign currency

12,440,983

-

- IGPM

437,700

-

- Other

889,072

-

Liabilities (short position):

49,899,424

-

- Interbank market

2,325,018

-

- Fixed rate

30,857,486

-

- Foreign currency (2)

13,846,145

1,405,162

- IGPM

710,000

272,300

- Other

2,160,775

1,271,703

 

Derivatives include operations maturing in D+1.

(1) Includes, cash flow hedges to protect CDI-related funding totaling R$4,603,132 thousand (Note 6f); and
(2) Includes specific hedges to protect assets and liabilities, arising from foreign investments, totaling R$48,677,787 thousand.

                               

 

Bradesco     27


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

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

 

 

On June 30 - R$ thousand

2017

Original amortized cost

Mark-to-market adjustment

Fair value

Adjustment receivable - swaps (1)

19,749,295

(6,396,785)

13,352,510

Adjustment receivable - future

975

-

975

Receivable forward purchases

654,841

-

654,841

Receivable forward sales

626,747

-

626,747

Premiums on exercisable options

441,945

(52,538)

389,407

Total assets (A)

21,473,803

(6,449,323)

15,024,480

Adjustment payables - swaps

(8,528,256)

(3,348,041)

(11,876,297)

Adjustment payables - future

(1,880)

-

(1,880)

Payable forward purchases

(1,001,656)

-

(1,001,656)

Payable forward sales/other

(677,528)

-

(677,528)

Premiums on written options

(490,312)

22,300

(468,012)

Total liabilities (B)

(10,699,632)

(3,325,741)

(14,025,373)

       

Net Effect (A-B)

10,774,171

(9,775,064)

999,107

 

(1)  Includes receivable adjustments relating to hedge of assets and liabilities, designated and/or indexed in foreign currency, primarily, arising from foreign investments, eliminating the effects of exchange variation of these assets and liabilities.

 

III)    Futures, options, forward and swap contracts – (Reference Value)

 

 

On June 30 - R$ thousand

1 to 90

91 to 180

181 to 360

More than 360

2017

days

days

days

days

Futures contracts (1)

73,051,315

6,998,150

127,858,711

46,170,946

254,079,122

Option contracts

21,605,846

9,777,747

7,820,177

3,694,709

42,898,479

Forward contracts

16,738,216

5,522,309

4,178,617

2,112,972

28,552,114

Swap contracts (1)

5,200,967

12,779,541

7,637,459

97,908,859

123,526,826

Total in 2017

116,596,344

35,077,747

147,494,964

149,887,486

449,056,541

 

(1)  Includes contracts relating to hedges for the protection of assets and liabilities, designated and/or indexed in foreign currency, primarily, arising from foreign investments, eliminating the effects of exchange variation of these assets and liabilities.

 

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

 

 

On June 30 - R$ thousand

2017

Government securities

 

National treasury notes

4,614,789

National treasury bills

2,994,173

Total

7,608,962

 

 

28                 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

V)  Revenues and expenses, net

 

 

Accrued on June 30 - R$ thousand

2017

Swap contracts (1)

276,690

Forward contracts

(295,828)

Option contracts

(160,013)

Futures contracts (1)

992,791

Total (Note 6g)

813,640

 

(1) Includes the gain (loss) and the respective adjustment to the market capitalization of the hedge for protection of the assets and liabilities, designated and/or indexed in foreign currency, primarily, arising from foreign investments.

 

VI) Reference values of derivative financial instruments, by trading location and counterparts

 

 

On June 30 - R$ thousand

2017

B3 (stock exchange)

231,500,270

B3 (over-the-counter)

166,198,389

Overseas (stock exchange) (1)

44,100,246

Overseas (over-the-counter) (1)

7,257,636

Total

449,056,541

 

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

 

e)      Credit Default Swaps (CDS)

 

On June 30, 2017, Bradesco had credit default swaps (CDS) with the following characteristics: the risk received in credit swaps whose underlying assets are “debt securities issued by companies" in the amount of R$220,210 thousand and “bonds of the Brazilian public debt” in the amount of R$363,902 thousand and the risk transferred in credit swaps whose underlying assets are “derivatives of the Brazilian public debt” in the amount of R$(16,541) thousand, achieving a total net credit risk value of R$567,571 thousand, with an effect on the calculation of required shareholders’ equity of R$23,122 thousand. The contracts related to credit derivatives transactions described above are due in 2022. The mark-to-market of the protection rates that remunerates the counterparty that received the risk totaled R$(616) thousand. There were no credit events, as defined in the agreements, during the period.

 

f)       Cash flow hedge

 

On June 30, 2017, Bradesco used cash flow hedges to protect the cash flow from receipts of interest on investments in securities, related to the risk of a variable interest rate of the DI, using DI Futures contracts in B3, amounting to R$16,383,339 thousand, having as object of hedge the securities backed in DI, to the sum of R$18,046,986 thousand, maturing in 2018, making the cash flow fixed in advance. The adjustment to fair value of these operations recognized in the shareholders’ equity was R$204,456 thousand, net of tax effects was R$122,674 thousand. On June 30, 2017, Bradesco constituted hedge accounting, with the aim of protecting its cash flows from payment of interest rates on funds, regarding the floating interest rate of DI, being traded DI Future contracts on B3 totaling R$4,603,132 thousand, having as object of hedge captures linked to DI, totaling R$4,594,907 thousand and maturities between 2018 and 2020, converting to fixed cash flows. The adjustment to fair value of these operations recognized in the shareholders’ equity was R$(28,839) thousand, net of tax effects was R$(17,303) thousand. The effectiveness of the hedge portfolio was assessed in accordance with Bacen Circular Letter No. 3,082/02.

 

Bradesco     29


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

g)      Income from securities, insurance and derivative financial instruments

 

 

Accrued on June 30 - R$ thousand

2017

Fixed income securities (1)

11,562,160

Interbank investments (Note 5b)

10,340,164

Equity securities

729,106

Subtotal

22,631,430

Income from derivative financial instruments (Note 6d V)

813,640

Total

23,445,070

 

(1)  Includes the losses through impairment of financial assets (primarily debentures) in the amount of R$833,283 thousand.

 

7)      INTERBANK ACCOUNTS – RESERVE REQUIREMENT

 

a)       Reserve requirement

 

 

On June 30 - R$ thousand

Remuneration

2017

Compulsory deposit – demand deposits

not remunerated

4,820,146

Compulsory deposit – savings deposits

savings index

19,270,779

Compulsory deposit – time deposits

Selic rate

38,155,072

Additional compulsory deposit – savings deposits

Selic rate

5,226,260

Reserve requirement – SFH

TR + interest rate

825,908

Total

 

68,298,165

 

b)       Revenue from reserve requirement

 

 

Accrued on June 30 - R$ thousand

2017

Reserve requirement – Bacen (Compulsory deposit)

2,654,557

Reserve requirement – SFH

28,890

Total

2,683,447

 

30                June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Consolidated Financial Statements

 

8)      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

 

 

On June 30 - R$ thousand

Performing loans

1 to 30

31 to 60

61 to 90

91 to 180

181 to 360

More than 360

Total in 2017 (A)

% (5)

days

days

days

days

days

days

Discounted trade receivables and loans (1)

18,357,443

11,966,859

9,202,609

19,142,073

25,566,463

67,205,519

151,440,966

36.0

Financing

4,164,908

3,221,427

3,455,867

12,418,686

17,325,073

87,021,571

127,607,532

30.4

Agricultural and agribusiness loans

2,389,711

1,406,708

972,500

3,773,231

3,977,710

9,130,009

21,649,869

5.2

Subtotal

24,912,062

16,594,994

13,630,976

35,333,990

46,869,246

163,357,099

300,698,367

71.6

Leasing

120,222

109,226

105,470

279,925

457,111

1,083,851

2,155,805

0.5

Advances on foreign exchange contracts (2)

1,357,514

1,662,347

1,693,846

2,764,299

2,218,085

-

9,696,091

2.3

Subtotal

26,389,798

18,366,567

15,430,292

38,378,214

49,544,442

164,440,950

312,550,263

74.4

Other receivables (3)

11,407,693

6,712,548

2,624,346

4,863,575

4,109,381

1,077,331

30,794,874

7.3

Total loans

37,797,491

25,079,115

18,054,638

43,241,789

53,653,823

165,518,281

343,345,137

81.7

Sureties and guarantees (4)

4,554,023

1,639,721

1,545,815

6,406,379

13,138,864

46,459,066

73,743,868

17.6

Loan assignment - real estate receivables certificate

39,325

39,323

39,321

113,167

168,891

567,825

967,852

0.2

Acquisition of credit card receivables

729,278

400,819

212,049

227,290

69,574

-

1,639,010

0.4

Loans available for import (4)

60,264

92,711

99,772

37,071

9,309

-

299,127

0.1

Confirmed exports loans (4)

121

377

1,071

496

40,000

-

42,065

-

Co-obligation from assignment of rural loan (4)

-

-

-

-

-

88,696

88,696

-

Total in 2017

43,180,502

27,252,066

19,952,666

50,026,192

67,080,461

212,633,868

420,125,755

100.0

 

 

Bradesco     31


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Consolidated Financial Statements

 

 

On June 30 - 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

Total in 2017 (B)

% (5)

Discounted trade receivables and loans (1)

1,568,384

1,327,854

1,154,614

3,126,071

4,643,301

11,820,224

83.0

Financing

320,099

291,772

157,958

320,290

270,204

1,360,323

9.6

Agricultural and agribusiness loans

21,210

27,260

35,185

50,282

118,559

252,496

1.8

Subtotal

1,909,693

1,646,886

1,347,757

3,496,643

5,032,064

13,433,043

94.4

Leasing

9,073

8,500

6,973

15,260

10,210

50,016

0.4

Advances on foreign exchange contracts (2)

24,531

4,129

218,991

18,370

2,298

268,319

1.9

Subtotal

1,943,297

1,659,515

1,573,721

3,530,273

5,044,572

13,751,378

96.7

Other receivables (3)

6,219

198,818

136,215

34,725

96,985

472,962

3.3

Total in 2017

1,949,516

1,858,333

1,709,936

3,564,998

5,141,557

14,224,340

100.0

 

 

On June 30 - R$ thousand

Non-performing loans

Installments not yet due

1 to 30

31 to 60

61 to 90

91 to 180 days

181 to 360

More than 360

Total in 2017 (C)

% (5)

days

days

days

days

days

days

Discounted trade receivables and loans (1)

727,234

648,555

603,915

1,457,216

2,436,953

5,949,919

11,823,792

67.6

Financing

240,262

209,759

196,959

542,101

875,099

3,163,351

5,227,531

29.9

Agricultural and agribusiness loans

1,431

2,999

3,781

16,679

40,162

183,638

248,690

1.4

Subtotal

968,927

861,313

804,655

2,015,996

3,352,214

9,296,908

17,300,013

98.9

Leasing

8,839

9,107

7,782

22,856

35,730

74,360

158,674

0.9

Subtotal

977,766

870,420

812,437

2,038,852

3,387,944

9,371,268

17,458,687

99.8

Other receivables (3)

3,909

3,166

2,913

7,262

9,917

14,935

42,102

0.2

Total in 2017

981,675

873,586

815,350

2,046,114

3,397,861

9,386,203

17,500,789

100.0

 

32                June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Consolidated Financial Statements

 

 

On June 30 - R$ thousand

Total

Total in 2017 (A+B+C)

% (5)

Discounted trade receivables and loans (1)

175,084,982

38.8

Financing

134,195,386

29.7

Agricultural and agribusiness loans

22,151,055

4.9

Subtotal

331,431,423

73.4

Leasing

2,364,495

0.5

Advances on foreign exchange contracts (2) (Note 9a)

9,964,410

2.2

Subtotal

343,760,328

76.1

Other receivables (3)

31,309,938

6.9

Total loans

375,070,266

83.0

Sureties and guarantees (4)

73,743,868

16.3

Loan assignment - real estate receivables certificate

967,852

0.2

Acquisition of credit card receivables

1,639,010

0.4

Loans available for import (4)

299,127

0.1

Confirmed exports loans (4)

42,065

-

Co-obligation from assignment of rural loan (4)

88,696

-

Total in 2017

451,850,884

100.0

 

(1) Including credit card loans and advances on credit card receivables of R$16,466,738 thousand;
(2) Advances on foreign exchange contracts are classified as a deduction from “Other Liabilities”;
(3) The 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) totaling R$24,404,890 thousand;
(4) Recognized in off-balance sheet accounts; and
(5) Percentage of each type in relation to the total loan portfolio, including sureties and guarantee, loan assignment and acquisition of receivables.

 

 

Bradesco     33


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Consolidated Financial Statements

 

b) By type and levels of risk

 

 

On June 30 - R$ thousand

Levels of risk

AA

A

B

C

D

E

F

G

H

Total in 2017

% (1)

Discounted trade receivables and loans

22,664,824

75,885,386

12,946,966

27,524,492

8,093,444

5,488,154

3,129,247

2,693,176

16,659,293

175,084,982

46.7

Financing

78,266,352

21,847,814

18,066,160

8,370,940

2,924,310

1,270,677

527,000

464,146

2,457,987

134,195,386

35.8

Agricultural and agribusiness loans

6,379,302

3,748,223

9,001,774

1,823,069

690,642

217,061

37,036

21,757

232,191

22,151,055

5.9

Subtotal

107,310,478

101,481,423

40,014,900

37,718,501

11,708,396

6,975,892

3,693,283

3,179,079

19,349,471

331,431,423

88.4

Leasing

326,459

458,145

1,263,058

81,695

61,383

33,921

9,771

25,633

104,430

2,364,495

0.6

Advances on foreign exchange contracts (2)

3,446,765

1,768,648

1,891,833

2,289,177

218,438

259,914

18,678

1,522

69,435

9,964,410

2.7

Subtotal

111,083,702

103,708,216

43,169,791

40,089,373

11,988,217

7,269,727

3,721,732

3,206,234

19,523,336

343,760,328

91.7

Other receivables

4,040,693

19,599,418

2,596,348

3,507,881

327,179

90,581

92,274

48,563

1,007,001

31,309,938

8.3

Total in 2017

115,124,395

123,307,634

45,766,139

43,597,254

12,315,396

7,360,308

3,814,006

3,254,797

20,530,337

375,070,266

100.0

%

30.7

32.9

12.2

11.6

3.3

2.0

1.0

0.9

5.5

100.0

 

 

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

(2) Note 9a.

 

34                 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Consolidated Financial Statements

 

c)     Maturity ranges and levels of risk

 

 

On June 30 - R$ thousand

Levels of risk

Non-performing loans

AA

A

B

C

D

E

F

G

H

Total in 2017

% (1)

Installments not yet due

-

-

1,099,964

3,037,103

2,430,722

1,756,920

1,417,256

1,539,861

6,218,963

17,500,789

100.0

1 to 30

-

-

144,897

180,799

111,994

75,545

66,036

65,895

336,509

981,675

5.6

31 to 60

-

-

111,366

157,990

99,015

65,586

66,519

57,352

315,758

873,586

5.0

61 to 90

-

-

92,743

142,223

98,631

63,020

59,141

54,973

304,619

815,350

4.7

91 to 180

-

-

161,775

339,445

261,782

200,289

164,514

147,260

771,049

2,046,114

11.7

181 to 360

-

-

218,786

525,835

427,820

428,978

366,773

240,073

1,189,596

3,397,861

19.4

More than 360

-

-

370,397

1,690,811

1,431,480

923,502

694,273

974,308

3,301,432

9,386,203

53.6

Past-due installments (2)

-

-

677,179

1,016,774

1,175,537

1,123,879

1,163,259

1,062,315

8,005,397

14,224,340

100.0

1 to 14

-

-

262,098

124,916

103,443

101,676

26,299

62,697

210,582

891,711

6.3

15 to 30

-

-

407,836

227,152

102,330

59,363

40,738

30,996

189,390

1,057,805

7.4

31 to 60

-

-

7,245

646,949

277,523

120,112

142,835

71,665

592,004

1,858,333

13.1

61 to 90

-

-

-

12,999

665,973

319,990

150,196

83,049

477,729

1,709,936

12.0

91 to 180

-

-

-

4,758

26,268

507,059

778,259

785,646

1,463,008

3,564,998

25.1

181 to 360

-

-

-

-

-

15,679

24,932

28,262

4,976,587

5,045,460

35.4

More than 360

-

-

-

-

-

-

-

-

96,097

96,097

0.7

Subtotal

-

-

1,777,143

4,053,877

3,606,259

2,880,799

2,580,515

2,602,176

14,224,360

31,725,129

 

Specific provision

-

-

17,772

121,616

360,626

864,240

1,290,257

1,821,524

14,224,360

18,700,395

 

 

(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 permitted by Resolution No. 2,682/99.

 

 

Bradesco     35


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Consolidated Financial Statements

 

 

On June 30 - R$ thousand

Levels of risk

Performing loans

AA

A

B

C

D

E

F

G

H

Total in 2017

% (1)

Installments not yet due

115,124,395

123,307,634

43,988,996

39,543,377

8,709,137

4,479,509

1,233,491

652,621

6,305,977

343,345,137

100.0

1 to 30

7,100,205

17,997,117

4,211,340

6,271,224

704,507

574,226

114,410

66,125

758,337

37,797,491

11.0

31 to 60

5,284,283

10,971,879

3,360,738

4,340,875

420,496

180,288

60,192

37,020

423,344

25,079,115

7.3

61 to 90

4,999,149

7,255,106

1,887,510

3,159,161

293,567

78,275

36,440

27,470

317,960

18,054,638

5.3

91 to 180

13,487,792

16,755,828

5,331,163

5,663,121

648,570

535,146

93,935

168,018

558,216

43,241,789

12.6

181 to 360

15,823,655

21,040,368

6,262,839

6,932,955

1,433,233

759,405

285,778

108,947

1,006,643

53,653,823

15.6

More than 360

68,429,311

49,287,336

22,935,406

13,176,041

5,208,764

2,352,169

642,736

245,041

3,241,477

165,518,281

48.2

Generic provision

-

616,532

439,890

1,186,301

870,914

1,343,853

616,746

456,835

6,305,977

11,837,048

 

Total in 2017 (2)

115,124,395

123,307,634

45,766,139

43,597,254

12,315,396

7,360,308

3,814,006

3,254,797

20,530,337

375,070,266

 

Existing provision

-

695,855

502,747

1,483,406

1,892,416

5,452,993

3,762,098

3,131,564

20,530,337

37,451,416

 

Minimum required provision

-

616,532

457,662

1,307,917

1,231,540

2,208,093

1,907,003

2,278,359

20,530,337

30,537,443

 

Excess provision (3)

-

79,323

45,085

175,489

660,876

3,244,900

1,855,095

853,205

-

6,913,973

 

 

(1) Percentage of maturities by type of installment;
(2) The total includes performing loans of R$343.345.137 thousand and non-performing loans of R$31.725.129 thousand; and

(3) The allocation of the excess provision gives preference to the operations that are in the highest risk ratings, limited to 100% of the risk value.

 

36                June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

d)    Concentration of loans

 

 

On June 30 - R$ thousand

2017

% (1)

Largest borrower

8,081,522

2.2

10 largest borrowers

30,854,198

8.2

20 largest borrowers

47,158,666

12.6

50 largest borrowers

69,048,720

18.4

100 largest borrowers

86,436,740

23.0

 

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

 

e)     By economic sector

 

 

On June 30 - R$ thousand

2017

%

Public sector

8,081,522

2.2

Oil, derivatives and aggregate activities

8,081,522

100.0

Private sector

366,988,744

97.8

Companies

196,663,815

52.4

Real estate and construction activities

29,665,326

15.1

Retail

21,528,041

10.9

Services

17,825,244

9.1

Transportation and concession

14,735,277

7.5

Automotive

12,865,841

6.5

Food products

10,469,874

5.3

Wholesale

9,726,602

4.9

Production and distribution of electricity

7,865,649

4.0

Iron and steel industry

7,566,006

3.8

Sugar and alcohol

7,004,304

3.6

Holding

5,835,271

3.0

Capital goods

4,493,802

2.3

Pulp and paper

3,881,806

2.0

Chemical

3,683,140

1.9

Cooperative

3,911,770

2.0

Financial

3,396,929

1.7

Leisure and tourism

2,812,210

1.4

Textiles

2,374,860

1.2

Agriculture

2,498,668

1.3

Oil, derivatives and aggregate activities

2,348,986

1.2

Other industries

22,174,209

11.3

Individuals

170,324,929

45.4

Total

375,070,266

100.0

 

Bradesco     37         


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

f)   Breakdown of loans and allowance for loan losses

 

Level of risk

On June 30 - R$ thousand

Portfolio balance

Non-performing loans

Performing loans

Total

% (1)

% 2017 YTD (2)

Installments past due

Installments not yet due

Total - non-performing loans

AA

-

-

-

115,124,395

115,124,395

30.6

30.6

A

-

-

-

123,307,634

123,307,634

32.9

63.5

B

677,179

1,099,964

1,777,143

43,988,996

45,766,139

12.2

75.7

C

1,016,774

3,037,103

4,053,877

39,543,377

43,597,254

11.6

87.3

Subtotal

1,693,953

4,137,067

5,831,020

321,964,402

327,795,422

87.3

 

D

1,175,537

2,430,722

3,606,259

8,709,137

12,315,396

3.3

90.6

E

1,123,879

1,756,920

2,880,799

4,479,509

7,360,308

2.0

92.6

F

1,163,259

1,417,256

2,580,515

1,233,491

3,814,006

1.0

93.6

G

1,062,315

1,539,861

2,602,176

652,621

3,254,797

0.9

94.5

H

8,005,397

6,218,963

14,224,360

6,305,977

20,530,337

5.5

100.0

Subtotal

12,530,387

13,363,722

25,894,109

21,380,735

47,274,844

12.7

 

Total in 2017

14,224,340

17,500,789

31,725,129

343,345,137

375,070,266

100.0

 

%

3.8

4.7

8.5

91.5

100.0

 

 

 

(1) Percentage of level of risk in relation to the total portfolio; and
(2) Cumulative percentage of level of risk on total portfolio.

 

 

38                 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Level of risk

On June 30 - R$ thousand

Provision

% Minimum provisioning required

Minimum required

Excess

Existing

% 2017 YTD (1)

Specific

Generic

Total

Installments past due

Installments not yet due

Total specific

AA

-

-

-

-

-

-

-

-

-

A

0.5

-

-

-

616,532

616,532

79,323

695,855

0.5

B

1.0

6,772

11,000

17,772

439,890

457,662

45,085

502,747

1.1

C

3.0

30,503

91,113

121,616

1,186,301

1,307,917

175,489

1,483,406

3.4

Subtotal

 

37,275

102,113

139,388

2,242,723

2,382,111

299,897

2,682,008

0.8

D

10.0

117,554

243,072

360,626

870,914

1,231,540

660,876

1,892,416

15.4

E

30.0

337,164

527,076

864,240

1,343,853

2,208,093

3,244,900

5,452,993

74.1

F

50.0

581,629

708,628

1,290,257

616,746

1,907,003

1,855,095

3,762,098

98.6

G

70.0

743,621

1,077,903

1,821,524

456,835

2,278,359

853,205

3,131,564

96.2

H

100.0

8,005,397

6,218,963

14,224,360

6,305,977

20,530,337

-

20,530,337

100.0

Subtotal

 

9,785,365

8,775,642

18,561,007

9,594,325

28,155,332

6,614,076

34,769,408

73.5

Total in 2017

 

9,822,640

8,877,755

18,700,395

11,837,048

30,537,443

6,913,973

37,451,416

10.0

%

 

26.2

23.7

49.9

31.6

81.5

18.5

100.0

-

 

(1) Percentage of existing provision in relation to total portfolio, by level of risk.

 

 

Bradesco     39         


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

g)    Changes in allowance for loan losses

 

 

R$ thousand

2017

- Specific provision (1)

22,468,102

- Generic provision (2)

10,754,621

- Excess provision (3)

7,490,351

- Loans

4,429,361

- Guarantees provided

3,060,990

Opening balance on January 1st

40,713,074

Accounting for allowance for loan losses (4)

14,790,156

Accounting for/reversal of provisions for guarantees provided (5)

(3,060,990)

Net write-offs/other

(14,990,824)

Closing balance on June 30

37,451,416

- Specific provision (1)

18,700,395

- Generic provision (2)

11,837,048

- Excess provision (3)

6,913,973

- Loans

6,913,973

- Guarantees provided

-

 

(1) For contracts with installments past due for more than 14 days;
(2) Recognized based on the customer/transaction classification and therefore not included in the preceding item;
(3) The excess provision is recognized based on Management’s experience and the expectation in relation to the loan portfolio, to determine the total provision deemed sufficient to cover specific and general credit risk, when considered together with the provision calculated based on levels of risk and the corresponding minimum percentage in the provision established by Resolution No. 2,682/99. The excess provision per customer was classified according to the level of risk (Note 8f);
(4) Includes, the formation of allowance for loan losses, in the amount of R$2,456,367 thousand, as a result of the adequacy of the provision for guarantees provided, already mentioned in the previous item; and

(5) The opening balance, as of January 1, 2017, included the constitution of provision for guarantees provided, encompassing sureties, guarantees, credit letters, and standby letter of credit, which comprises the concept of “excess” provision that totaled R$3,060,990 thousand. In accordance with Resolution No. 4,512/16, in January 2017, part of this balance (R$604,623 thousand) was allocated to a specific account under "Other Liabilities - Sundry" (Note 18b), and the remaining balance (R$2,456,367 thousand) was allocated to “Excess Provision”.

 

h)      Allowance for Loan Losses expense net of amounts recovered

 

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

 

 

Accrued on June 30 - R$ thousand

2017

Amount recognized (1)

12,333,789

Amount recovered (2) (3)

(3,611,047)

Allowance for Loan Losses expense net of amounts recovered

8,722,742

 

(1) Refers, to the formation of allowance for loan losses, in the amount of R$14,790,156 thousand, excluding the portion related to the adequacy of the provision for guarantees provided, in the amount of R$2,456,367 thousand (Note 8g);

(2) Classified in income from loans (Note 8j); and
(3) In the period, credit was granted for operations already written-off for losses, without the retention of risks and benefits, in the amount of R$3,324,546 thousand, with effect on income in the amount of R$35,393 thousand.

 

i)       Changes in the renegotiated portfolio

 

 

R$ thousand

2017

Opening balance on January 1st

17,501,423

Amount renegotiated

8,967,012

Amount received

(5,246,690)

Write-offs

(3,025,781)

Closing balance on June 30

18,195,964

Allowance for loan losses

13,710,615

Percentage on renegotiated portfolio

75.3%

 
 

40                 June 2017


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

j)      Income from loans and leasing

 

 

Accrued on June 30 - R$ thousand

2017

Discounted trade receivables and loans

24,660,019

Financing

8,541,308

Agricultural and agribusiness loans

837,771

Subtotal

34,039,098

Recovery of credits charged-off as losses

3,611,047

Subtotal

37,650,145

Leasing, net of expenses

144,686

Total

37,794,831

 

k)     Conciliation of the composition of the portfolio of financial leasing, at present value, with the accounting balances (Notes 3g and 8b):

 

 

Accrued on June 30 - R$ thousand

2017

Financial Leases Receivables

2,247,127

Unearned income from leasing

(2,205,121)

Financial leased assets, plus lease losses (net)

6,739,863

Accrued depreciation on asset finance leasing:

(2,655,318)

- Accumulated depreciation

(3,967,732)

Difference in depreciation

1,312,414

Prepaid guaranteed residual value (Note 18b)

(1,762,056)

Total present value

2,364,495

 

9)      OTHER RECEIVABLES

 

a)      Foreign exchange portfolio

 

Balances

 

 

On June 30 - R$ thousand

 

2017

Assets – other receivables

 

Exchange purchases pending settlement

13,857,981

Foreign exchange and forward documents in foreign currencies

17,894

Exchange sale receivables

3,568,514

(-) Advances in domestic currency received

(202,110)

Income receivable on advances granted

159,827

Total

17,402,106

Liabilities – other liabilities

 

Exchange sales pending settlement

3,591,982

Exchange purchase payables

13,475,321

(-) Advances on foreign exchange contracts

(9,964,410)

Other

2,642

Total

7,105,535

Net foreign exchange portfolio

10,296,571

Off-balance-sheet accounts:

 

-  Loans available for import

299,127

-  Confirmed exports loans

42,065

 

Bradesco     41         


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Foreign exchange results

 

Adjusted foreign exchange results for presentation purposes

 

 

Accrued on June 30 - R$ thousand

2017

Foreign exchange income

1,197,531

Adjustments:

 

- Income on foreign currency financing (1)

87,591

- Income on export financing (1)

1,141,892

- Income on foreign investments (2)

22,838

- Expenses of liabilities with foreign bankers (3) (Note 16c)

(670,637)

- Funding expenses (4)

(898,476)

- Other (5)

(13,719)

Total adjustments

(330,511)

Adjusted foreign exchange income

867,020

 

(1) Recognized in “Income from loans”;
(2) Recognized in “Income from operations with securities”;
(3) Related to funds for financing of advances on foreign exchange contracts and import financing, recognized in “Borrowing and on-lending expenses”;
(4) Refers to funding expenses of investments in foreign exchange; and
(5) Primarily includes the exchange rate variations of resources invested in foreign currency.

 

b)   Sundry

 

 

On June 30 - R$ thousand

2017

Deferred tax assets (Note 31c)

50,600,905

Credit card operations

26,043,900

Debtors for escrow deposits

15,314,414

Trade and credit receivables (1)

6,908,796

Prepaid taxes

5,977,989

Other debtors

3,811,583

Payments to be reimbursed

725,772

Receivables from sale of assets

145,409

Other

770,987

Total

110,299,755

 

(1) Primarily includes receivables from the acquisition of financial assets from loans and advances on receivables.

 

10)    OTHER ASSETS

 

a)     Foreclosed assets/other

 

 

On June 30 - R$ thousand

Cost

Provision for losses

Cost net of provision

2017

Real estate

1,564,374

(289,446)

1,274,928

Goods subject to special conditions

624,637

(624,637)

-

Vehicles and similar

581,249

(364,123)

217,126

Inventories/warehouse

21,324

-

21,324

Machinery and equipment

12,982

(11,662)

1,320

Other

21,343

(18,392)

2,951

Total in 2017

2,825,909

(1,308,260)

1,517,649

 

 

42                 June 2017


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

b)    Prepaid expenses

 

 

On June 30 - R$ thousand

2017

Commission on the placement of loans and financing (1)

477,827

Advertising and marketing expenses (2)

57,349

Other (3)

1,478,103

Total

2,013,279

 

(1) Commissions paid to storeowners, car dealers and correspondent banks – payroll-deductible loans;
(2) Prepaid expenses of future advertising and marketing campaigns on media; and
(3) It includes, principally, (i) anticipation of commissions concerning the operational agreement to offer credit cards and other products and (ii) card issue costs.

 

Bradesco     43         

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

11)    INVESTMENTS

 

The income/expense from the equity method accounting of investments was recognized in the statement of income, under "Equity in the Earnings (Losses) of Affiliates and Subsidiaries", and correspond, in the first semester of 2017 to R$4,174,776 thousand and the investments under the entry "Earnings of Affiliates and Subsidiaries", correspond to R$46,061,070 thousand.

 

Companies (1)

Accrued on June 30 - R$ thousand

Capital

Shareholders’ equity adjusted

Number of shares/quotas held (in thousands)

Equity interest in capital

Adjusted income

Book value

Equity accounting adjustments (2)

Ordinary

(ON)

Preferential
(PN)

Quotas

On June 30, 2017

1st semester of 2017

Bradseg Participações S.A.

11,950,000

27,983,104

8

-

-

97.13%

2,426,236

27,181,029

2,356,693

Quixaba Empreendimentos e Participações Ltda.

8,650,772

9,817,131

-

-

865,077,202

100.00%

495,757

9,817,131

495,757

Kirton Seguros S.A.

554,865

1,143,811

17,153

9,598

-

98.08%

125,038

1,121,889

122,637

Tibre Holdings Ltda.

310,000

584,415

-

-

310,000

100.00%

23,862

584,415

23,862

Bradescard Elo Participações S.A.

790,000

1,289,531

4,167,605

-

-

100.00%

112,073

1,289,531

112,073

Embaúba Holdings Ltda.

326,000

463,292

-

-

285,905

87.70%

110,088

406,311

96,548

BF Promotora de Vendas Ltda.

1,426,220

1,248,626

-

-

1,426,220

100.00%

2,793

1,248,626

2,793

Haitong Banco de Investimento do Brasil S.A.

420,000

584,075

12,734

12,734

-

20.00%

(52,720)

116,815

(10,544)

Credival - Participações Administração e Assessoria Ltda.

1,021,027

1,088,737

-

-

2,011,709

100.00%

41,470

1,088,737

41,470

Bankpar Brasil Ltda.

290,000

566,586

-

-

290,000

100.00%

35,912

566,586

35,912

Other (3)

 

 

 

 

 

 

 

2,640,000

198,125

Foreign exchange gain/loss of branches abroad

 

 

 

 

 

 

 

-

699,450

Earnings of Affiliates and Subsidiaries

 

 

 

 

 

 

 

46,061,070

4,174,776

 

(1)  Data related to June 30, 2017;

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

(3)  Basically, earnings of affiliates and subsidiaries overseas and investments in the following companies: Ganant Corretora de Seguros Ltda., Miramar Holdings S.A., Neon Holdings S.A., Imagra Imobiliária e Agrícola Ltda. e Kirton Participações e Investimentos Ltda.

 

44                 June 2017


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

12)    PREMISES AND EQUIPMENT AND LEASED ASSETS

 

 

On June 30 - R$ thousand

Annual rate

Cost

Depreciation

Cost net of depreciation

2017

Property and equipment:

 

 

 

 

- Buildings

4%

316,642

(46,803)

269,839

- Land

-

380,594

-

380,594

Facilities, furniture and premises and equipment

10%

4,493,289

(2,279,011)

2,214,278

Security and communication systems

10%

294,905

(175,475)

119,430

Data processing systems

20 to 40%

3,806,865

(2,443,910)

1,362,955

Transportation systems

20%

85,328

(43,438)

41,890

Subtotal

 

9,377,623

(4,988,637)

4,388,986

Leased premises and equipment

 

7,065,726

(2,981,181)

4,084,545

Total in 2017

 

16,443,349

(7,969,818)

8,473,531

 

The fixed assets to shareholders’ equity ratio is 39.6% when considering only the companies and payment institutions within the economic group (the “Prudential Conglomerate”), where the maximum limit is 50.0%.

 

13)    INTANGIBLE ASSETS

 

a)   Intangible assets

 

Acquired intangible assets consist of:

 

 

On June 30 - R$ thousand

Rate of Amortization (1)

Cost

Amortization

Cost net of amortization

2017

Acquisition of financial services rights

Contract

4,009,832

(2,250,344)

1,759,488

Software (2)

20%

8,088,555

(5,406,389)

2,682,166

Goodwill (3)

Up to 20%

11,902,430

(2,530,688)

9,371,742

Total in 2017

 

24,000,817

(10,187,421)

13,813,396

 

(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; and
(3) On June 30, 2017, primarily composed of goodwill on the acquisition of equity interest in Bradescard - R$625,478 thousand, Bradescard Mexico - R$17,510 thousand, Bradesco BBI S.A. - R$120,899 thousand; and Kirton Bank - R$7,762,386 thousand.

 

b)   Changes in intangible assets by type

 

 

On June 30 - R$ thousand

Balance on January 1st, 2017

Additions / (reductions)

Amortization for the period

Balance on June 30, 2017

Acquisition of financial services rights

1,893,406

355,994

(489,912)

1,759,488

Software

2,750,949

404,226

(473,009)

2,682,166

Goodwill – Future profitability (1)

5,430,608

26,936

(470,778)

4,986,766

Goodwill – Based on intangible assets and other reasons (1)

3,481,962

-

(466,774)

3,015,188

Goodwill – Difference in fair value of assets/liabilities (1)

1,599,927

-

(230,139)

1,369,788

Total in 2017

15,156,852

787,156

(2,130,612)

13,813,396

 

(1)  Include, basically, the effects of the final report on purchase price allocation (“PPA”) from the acquisition of HSBC Brasil.

 

 

 

Bradesco     45         

 

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

14)    DEPOSITS, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND FUNDS FROM ISSUANCE OF SECURITIES

 

a)   Deposits

 

 

On June 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2017

● Demand deposits (1)

30,886,127

-

-

-

30,886,127

● Savings deposits (1)

95,736,763

-

-

-

95,736,763

● Interbank deposits

281,779

183,512

16,623

48,459

530,373

● Time deposits (2)

8,286,637

12,995,258

9,446,203

103,805,214

134,533,312

Total in 2017

135,191,306

13,178,770

9,462,826

103,853,673

261,686,575

%

51.7

5.0

3.6

39.7

100.0

 

(1) Classified as 1 to 30 days, not considering average historical turnover; and
(2) Considers the actual maturities of the investments.

 

b)   Securities sold under agreements to repurchase

 

 

On June 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2017

Own portfolio

56,338,784

18,683,379

12,085,461

13,784,487

100,892,111

● Government securities

48,803,121

123,550

28,562

-

48,955,233

● Debentures of own issuance

2,484,510

18,323,133

11,650,585

13,254,438

45,712,666

● Foreign

5,051,153

236,696

406,314

530,049

6,224,212

Third-party portfolio (1)

144,238,406

-

-

-

144,238,406

Unrestricted portfolio (1)

9,974,173

1,365,853

-

-

11,340,026

Total in 2017

210,551,363

20,049,232

12,085,461

13,784,487

256,470,543

%

82.1

7.8

4.7

5.4

100.0

 

(1)  Represented by government securities.

 

46                 June 2017


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

c)   Funds from issuance of securities

 

 

On June 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2017

Securities – Brazil:

 

 

 

 

 

- Financial bills

3,902,052

23,513,983

18,757,145

60,832,606

107,005,786

- Letters of credit for real estate

1,756,375

6,684,858

10,822,564

6,621,509

25,885,306

- Letters of credit for agribusiness

1,822,343

3,493,555

726,824

1,295,311

7,338,033

Subtotal

7,480,770

33,692,396

30,306,533

68,749,426

140,229,125

Securities – Overseas:

 

 

 

 

 

- Securitization of future flow of money orders received from overseas

9,383

239,254

392,258

2,077,897

2,718,792

- MTN Program Issues (1)

1,714

-

28,451

256,422

286,587

Subtotal

11,097

239,254

420,709

2,334,319

3,005,379

Structured Operations Certificates

46,975

200,451

79,374

72,939

399,739

Total in 2017

7,538,842

34,132,101

30,806,616

71,156,684

143,634,243

%

5.2

23.8

21.4

49.6

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-term.

 

 

 

Bradesco     47         


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

d)   Cost for market funding and inflation

 

 

Accrued on June 30 - R$ thousand

2017

Savings deposits

3,053,831

Time deposits

4,442,221

Securities sold under agreements to repurchase

13,261,217

Funds from issuance of securities

8,352,376

Subordinated debts (Note 17)

2,877,207

Other funding expenses

283,817

Total

32,270,669

 

15)    BORROWING AND ON-LENDING

 

a)  Borrowing

 

 

On June 30 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

2017

days

days

days

days

Overseas

4,598,372

11,453,977

5,456,273

1,920,137

23,428,759

Total in 2017

4,598,372

11,453,977

5,456,273

1,920,137

23,428,759

%

19.6

48.9

23.3

8.2

100.0

 

b)  On-lending

 

 

On June 30 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

2017

days

days

days

days

In Brazil

1,324,226

4,490,188

5,410,342

21,888,871

33,113,627

- FINAME

637,986

2,952,936

2,970,802

12,063,061

18,624,785

- BNDES

685,968

1,537,252

2,374,079

9,825,810

14,423,109

- National Treasury

-

-

64,143

-

64,143

- Other institutions

272

-

1,318

-

1,590

Total in 2017

1,324,226

4,490,188

5,410,342

21,888,871

33,113,627

%

4.0

13.6

16.3

66.1

100.0

 

c)     Borrowing and on-lending expenses

 

 

Accrued on June 30 - R$ thousand

2017

Borrowing:

 

- In Brazil

354,516

- Overseas

861,778

Subtotal borrowing

1,216,294

On-lending in Brazil:

 

- BNDES

594,927

- FINAME

352,380

- National Treasury

3,146

- Other institutions

24

On-lending overseas:

 

- Payables to foreign bankers (Note 9a)

670,637

Subtotal on-lending

1,621,114

Total

2,837,408

 

48                 June 2017


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

16)    PROVISIONS, CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS – 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, but the amounts are not material, such as: a) Social Integration Program (PIS), Bradesco has made a claim to offset PIS against Gross Operating Income, paid under Decree-Laws No. 2,445/88 and No. 2,449/88, 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

 

The Organization is a party to a number of labor, civil and tax lawsuits, arising from the normal course of business.

 

Management recognized provisions where, based on their opinion and that of their legal counsel, the nature of the lawsuit, similarity to previous lawsuits, complexity and the courts standing, the loss is deemed probable.

 

Management considers that the provision is sufficient to cover the future losses generated by the respective lawsuits.

 

Provisions related to legal obligations are maintained until the conclusion of 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, most significantly for unpaid “overtime”, pursuant 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 and for which there has been no official court decision, the provision is recognized based on the average calculated value of payments made for labor complaints settled in the past 12 months; and for 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.

 

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, 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 have a significant impact on the Organization’s financial position.

 

 

Bradesco     49         

 


 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

There are a significant number of legal claims pleading alleged differences in adjustment for inflation on savings account balances 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 recognized in provisions, taking into consideration the claims where Bradesco 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 at the cognizance stage, until the Court issues a final decision on the right under litigation.

 

III -   Legal obligations – provision for tax risks

 

The Organization is disputing the legality and constitutionality of certain taxes and contributions in court, for which provisions have been recognized in full, although there is a good chance of a favorable outcome, based on the opinion of Management and their legal counsel. The processing of these legal obligations and the provisions for cases for which the risk of loss 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$2,393,577 thousand: a request for authorization to calculate and pay PIS and COFINS based on effective billing, as set forth in Article 2 of Supplementary Law No. 70/91, removing from the calculation base the unconstitutional inclusion of other revenues other than those billed;
 
- IRPJ/CSLL on losses of credits – R$1,818,351 thousand: 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 during collections, regardless of compliance with the terms and conditions provided for in Articles 9 to 14 of Law No. 9,430/96 that only apply to temporary losses;
 
- Pension Contributions – R$1,334,221  thousand: official notifications related to the pension contributions on financial contributions in private pension plans, considered by the authorities to be compensatory sums subject to the incidence of pension contributions and to an isolated fine for not withholding IRRF on the financial contributions;
 
- INSS – Contribution to SAT – R$389,895 thousand: in an ordinary lawsuit filed by the Brazilian Federation of Banks – Febraban, since April 2007, on behalf of its members, is questioned the classification of banks at the highest level of risk, with respect to Work Accident Risk – RAT, which eventually raised the rate of the respective contribution from 1% to 3%, in accordance with Decree No. 6,042/07; and
 
- PIS – R$152,322 thousand: the Bradesco Organization is requesting authorization to offset overpaid amounts in 1994 and 1995 as PIS contribution, already compensated, provisioned upon granting of the preliminary injunction, corresponding to the surplus paid over that calculated on the tax base established in the Constitution, i.e., gross operating income, as defined in the income tax legislation set out in Article 44 of Law No. 4,506/64, which excludes interest income.

 

In general, the provisions relating to lawsuits are classified as non-current, due to the unpredictability of the duration of the proceedings in the Brazilian justice system. For this reason, the estimate has not been disclosed with relation to the specific year in which these lawsuits will be finalized.

 

50                 June 2017

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

IV  Provisions by nature

 

 

On June 30 - R$ thousand

2017

Labor claims

5,110,756

Civil claims

4,261,771

Provision for tax risks

6,669,058

Total (Note 18b)

16,041,585

 

V   Changes in provisions

 

 

R$ thousand

2017

Labor

Civil

Tax (1) (2)

Balance on January 1st, 2017

4,764,013

4,106,200

6,816,301

Adjustment for inflation

308,547

241,012

241,066

Provisions, net of (reversals and write-offs)

405,762

332,392

(386,549)

Payments

(367,566)

(417,833)

(1,760)

Balance on June 30, 2017

5,110,756

4,261,771

6,669,058

 

(1) Mainly include legal obligations; and
(2) Includes, in the first semester of 2017, reversals of provisions relating to: (i) PIS proceeding, related to the offset of amounts unduly paid in the amount of R$191,492 thousand; and (ii) IRPJ/CSLL on loan losses, in the amount of R$181,266 thousand.

 

c)   Contingent liabilities classified as possible losses

 

The 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 to have a possible risk of loss are not recognized as a liability in the financial statements. The main proceedings in this category are the following: a) 2006 to 2013 income tax and social contribution, relating to goodwill amortization being disallowed on the acquisition of investments, for the amount of R$4,788,245 thousand; b) Fines and disallowances of Cofins loan compensations, released after a favorable decision in a judicial proceeding, where the unconstitutionality of the expansion of the intended calculation base was discussed for revenues other than those from billing (Law No. 9,718/98), in the amount of R$2,495,215 thousand; c) Leasing companies’ Tax on Services of any Nature (ISSQN), total lawsuits correspond to R$2,263,348 thousand which relates to the municipal tax demands from municipalities other than those in which the company is located and where, under law, tax is collected; d) IRPJ and CSLL deficiency note relating to disallowance of exclusions of revenues from the mark-to-market of securities from 2007 to 2012, differences in depreciation expenses, insufficient depreciation expenses, expenses with depreciation of leased assets, operating expenses and income and disallowance of tax loss compensation, in the amount of R$1,650,518 thousand; e) Notifications and disallowances of compensations of PIS and Cofins related to the unconstitutional extension of the basis of calculation intended for other income other than the billing (Law No 9,718/98), from acquired companies, amounting to R$1,358,577 thousand; and f) IRPJ and CSLL deficiency notice relating to the disallowance of loan loss deductions, for the amount of R$711,345 thousand.

 

d)  Other matters

 

                 I.   On May 31, 2016, Bradesco became aware of the indictment of three members of its Board of Executive Officers by the Brazilian Federal Police under the so-called “Operation Zelotes.” On July 28, 2016, the Public Prosecutor's Office filed charges against the three members of the Board of Executive Officers and a former member of its Board of Directors, that was received by the Judge of the 10th Federal Court of the Federal District Judiciary Section. The Management conducted a thorough internal evaluation of the records and documents related to the indictment and found no evidence of any illegality committed by its representatives. The executives of Bradesco have already submitted their respective defenses in the criminal proceedings, pointing out the facts and evidence demonstrating their innocence.

 

Bradesco     51         

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

In parallel to his defense, the Chairman of the Board of Executive Officers of Bradesco, Mr. Luiz Carlos Trabuco Cappi, presented a petition for habeas corpus to the Regional Federal Court (Tribunal Federal Regional) – 1st Region. After processing the motion for habeas corpus, the 4th Panel of the aforementioned Court, in a session held on June 13, 2017, by unanimous decision, excluded him from criminal proceedings, due to lack of just cause.

 

Bradesco is cooperating with the relevant authorities and regulatory bodies, furnishing the requested information in Brazil and abroad. Moreover, Bradesco was summoned by the General´s Office of the Ministry of Finance on the filing of an Administrative Proceeding ("PAR"). This process, which is in the pre-trial phase, may entail the possibility of application of a fine and/or mention on public lists, which may eventually lead to restrictions on business with public agencies.

 

On account of the news published in the media, on the indictment in the "Operation Zealots", a class action was filed in the District Court of New York, on June 3, 2016. On September 1, 2016, Bradesco spontaneously attended the proceedings of the Class Action and agreed with the plaintiff a term for the submission of the revocation of the suit until December 23, 2016. On October 21, 2016, the Plaintiff Leader presented the addendum of the Initial Petition, appointing as defendants Bradesco and three members of its Board of Executive Officers. According to the demand, investors who purchased preferred American Depository Shares (“ADS”) of Bradesco between April 30, 2012 and July 27, 2016 would have suffered losses provoked by Bradesco due to a supposed violation regarding the American law of capital markets, according to communication to the Market on May 31, June 8 and July 28, 2016. On December 23, 2016, Bradesco filed a motion to dismiss, which – following a reply from the Lead Plaintiff and a rejoinder from Bradesco – is awaiting a decision. Considering that the demand is in a preliminary stage, it is not possible at present to make a risk rating, and there is not yet evidence to support an assessment of the value of the respective risk.

 

            II.       The wholly-owned subsidiaries of Bradesco, BEM - Distribuidora de Títulos e Valores Mobiliários Ltda. and BRAM - Bradesco Asset Management S.A. Distribuidora de Títulos e Valores Mobiliários, as well as two of its Managers, were mentioned in the scope of the so-called "Greenfield operation" of the Federal Police, because they were responsible for the administration and management of the Fund in Equity - FIP (Equity Investment Fund), respectively. Besides providing the documents, the Federal Court has ruled, in the course of this Operation, the blocking of these companies’ values. As a result of this, a Commitment was signed, approved by the 10th Federal Court of the Federal District, to release the values through the provision of guarantees of up to R$104 million, without the recognition of any civil or criminal liability on the part of companies or administrators of the Organization. In the scope of this commitment, managers and officers of the Organization committed to provide any clarifications to the authorities responsible for conducting this investigation, regardless of a formal subpoena. Additionally, the internal evaluations indicate that there has been no illegality in conducting these activities according to communication to the Market on September 20, 2016. So far, there is no indication that the investigations could result in the accountability of these companies.

 

52                 June 2017

 

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

17)    SUBORDINATED DEBT

 

 

On June 30 - R$ thousand

Original term in years

Nominal amount

2017

In Brazil:

 

 

 

Subordinated CDB:

 

 

 

2019

10

20,000

59,165

Financial bills:

 

 

 

2017

6

2,763,476

4,137,605

2018

6

8,262,799

10,020,338

2019

6

21,858

34,794

2017

7

20,100

48,988

2018

7

141,050

303,367

2019

7

3,172,835

3,430,347

2020

7

1,700

2,704

2022

7

4,305,011

5,357,935

2023

7

1,359,452

1,620,946

2024

7

67,450

70,671

2018

8

50,000

113,780

2019

8

12,735

26,632

2020

8

28,556

52,066

2021

8

1,236

1,962

2023

8

1,706,846

2,151,832

2024

8

136,695

152,059

2025

8

6,193,653

6,346,344

2021

9

7,000

12,558

2024

9

4,924

6,217

2025

9

400,944

443,762

2021

10

19,200

38,747

2022

10

54,143

95,355

2023

10

688,064

1,041,595

2025

10

284,137

366,674

2026

10

361,196

417,858

2027

10

254,743

259,033

2026

11

3,400

3,998

2027

11

47,046

51,577

Perpetual

-

5,000,000

5,373,689

Subtotal in Brazil

 

 

42,042,598

Overseas:

 

 

 

2019

10

1,333,575

2,523,950

2021

11

2,766,650

5,424,522

2022

11

1,886,720

3,700,034

Subtotal overseas

 

 

11,648,506

Total (1) (2)

 

 

53,691,104

 

(1) It includes the amount of R$22,622,595 thousand, referring to subordinated debts recognized in “Eligible Debt Capital Instruments”; and
(2) The information on results are presented on (Note 14d).

 

 

 

Bradesco     53          

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

18)    OTHER LIABILITIES

 

a)   Tax and social security

 

 

On June 30 - R$ thousand

2017

Provision for deferred income tax (Note 31f)

2,586,978

Taxes and contributions on profit payable

978,950

Taxes and contributions payable

960,702

Total

4,526,630

 

b)   Sundry

 

 

On June 30 - R$ thousand

2017

Credit card operations

23,048,505

Civil, tax and labor provisions (Note 16b IV) (1)

16,041,585

Loan assignment obligations

8,276,329

Provision for payments

5,473,418

Sundry creditors

5,220,464

Obligations by quotas of investment funds

3,440,779

Creditors - prepayment of residual value

1,762,056

Liabilities for acquisition of assets and rights

553,052

Other (2)

3,691,415

Total

67,507,603

 

(1) According to Bacen Circular Letter No. 3,782/16, “Provisions for tax risks” were reclassified from “Other liabilities - Tax and social security” to “Other liabilities - Sundry"; and
(2) Includes a specific provision for financial guarantees provided, pursuant to Resolution No. 4,512/16 (Note 8g).

 

c)   Financial guarantees

 

Financial guarantees provided are contracts requiring the Organization to make specific payments to the holder of the financial guarantee for a loss it will incur when a specific debtor fails to make the payment under the terms of the debt instrument. The provision for financial guarantees provided is formed based on the best estimate of the non-recoverable amount of the guarantee, if such disbursement is likely. The provisioning parameters are established based on the internal credit risk management models. In case of retail operations, these models use historical information, while in wholesale operations, in addition to historical information, we adopted simulation processes to capture unobserved events. Any increase in liabilities related to financial guarantees is recognized in the statement of income under “Other operating income/expenses”.

 

The amounts guaranteed as of June 30, 2017 were as follows: (i) R$681,788 thousand, referring to guarantees related to international trade of goods, with a provision of R$1,620 thousand; (ii) R$2,050,546 thousand, referring to guarantees related to bidding, auctions, service rendering or execution of works, with a provision of R$7,645 thousand; (iii) R$561,489 thousand, referring to guarantees related to the supply of goods, with a provision of R$45,808 thousand; (iv) R$30,716,184 thousand, referring to sureties or guarantees in judicial and administrative proceedings of tax nature, with a provision of R$156,113 thousand; and (v) R$39,733,861 thousand, referring to other bank guarantees, with a provision of R$382,611 thousand (Note 18b).

 

54                 June 2017

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

19)    NON-CONTROLLING INTERESTS IN SUBSIDIARIES

 

 

On June 30 - R$ thousand

2017

Banco Bradesco BBI S.A.

17,490

Other

225

Total

17,715

 

20)    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.

 

 

On June 30

2017 (1)

Common

3,054,481,112

Preferred

3,054,480,793

Subtotal

6,108,961,905

Treasury (common shares)

(5,032,549)

Treasury (preferred shares)

(18,855,746)

Total outstanding shares

6,085,073,610

 

(1) Includes effect of bonus of shares of 10%.

 

b)   Transactions of capital stock involving quantities of shares

 

 

Common

Preferred

Total

Number of outstanding shares on January 1st, 2017

2,772,225,966

2,759,659,133

5,531,885,099

Increase of capital stock with issuing of shares – bonus of 10% (1)

277,680,101

277,680,072

555,360,173

Increase of shares in treasury – bonus of 10%

(457,504)

(1,714,158)

(2,171,662)

Number of outstanding shares as at June 30, 2017

3,049,448,563

3,035,625,047

6,085,073,610

 

(1) It benefited the shareholders registered in the records of Bradesco on April 28, 2017.

 

In the Extraordinary General Meeting of March 10, 2017, the approval was proposed by the Board of Directors to increase the capital stock by R$8,000,000 thousand, increasing it from R$51,100,000 thousand to R$59,100,000 thousand, with a bonus in shares, through the capitalization of part of the balance of the account “Profit Reserves - Statutory Reserve”, in compliance with the provisions in Article 169 of Law No. 6,404/76, by issuing 555,360,173 new nominative-book entry shares, with no nominal value, whereby 277,680,101 are common and 277,680,072 are preferred shares, attributed free-of-charge to the shareholders as bonus, to the ratio of 1 new share for every 10 shares of the same type that they own on the base date.

 

c)   Interest on Shareholders’ Equity

 

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 (IRRF), in the calculation for mandatory dividends for the year under the Company’s Bylaws.

 

The Board of Directors’ Meeting held on June 30, 2017, approved the Board of Executive Officers’ proposal to pay to the shareholders intermediary interest on shareholder’s equity for the first  semester of 2017, to the value of R$1,102,000 thousand, of which R$0.172493781 are per common share and R$0.189743160 per preferred share, whose payment was made on July 17, 2017.

 

 

 

Bradesco     55         


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Interest on shareholders’ equity for the first semester of 2017 is calculated as follows:

                                                                                            

 

R$ thousand

% (1)

Net income for the period

7,982,170

 

(-) Legal reserve

399,109

 

Adjusted calculation basis

7,583,061

 

Monthly, intermediaries and supplementary interest on shareholders’ equity (gross), paid and/or provisioned

2,810,158

 

Withholding income tax on interest on shareholders' equity

(421,523)

 

Interest on shareholders' equity (net) accumulated in 2017

2,388,635

31.50

 

(1) Percentage of interest on shareholders’ equity after adjustments.

 

Interest on shareholders’ equity were paid or recognized in provisions, as follows:

 

Description

R$ thousand

Per share (gross)

Gross amount paid/ recognized in provision

Withholding Income Tax (IRRF) (15%)

Net amount paid/recognized in provision

Common

Preferred

Monthly interest on shareholders’ equity paid

0.103499

0.113849

621,136

93,170

527,966

Intermediary interest paid on shareholders’ equity (1)

0.172494

0.189743

1,102,000

165,300

936,700

Supplementary interest on shareholders’ equity provisioned

0.170149

0.187164

1,087,022

163,053

923,969

Total accrued on June 30, 2017

0.446142

0.490756

2,810,158

421,523

2,388,635

 

(1) Paid on July 17, 2017.

 

d)   Treasury shares

 

A total of 5,032,549 common shares and 18,855,746 preferred shares, with the share bonus effect of 10%, had been acquired, totaling R$440,514 thousand until June 30, 2017, and remain in treasury. The minimum, average and maximum cost per common share is R$19.34962, R$24.55863 and R$27.14350, and per preferred share is R$19.37456, R$26.98306 and R$33.12855, respectively. The fair value was R$27.60 per common share and R$28.15 per preferred share on June 30, 2017.

 

21)    FEE AND COMMISSION INCOME

 

 

Accrued on June 30 - R$ thousand

2017

Credit card income

3,268,885

Checking account

3,249,275

Loans

1,505,321

Collections

952,933

Consortium management

747,669

Asset management

767,132

Custody and brokerage services

412,911

Underwriting/ Financial Advisory Services

333,597

Payments

208,659

Other

207,608

Total

11,653,990

 

56                 June 2017

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

22)    PAYROLL AND RELATED BENEFITS

 

 

Accrued on June 30 - R$ thousand

2017

Salaries

4,031,983

Benefits

2,007,521

Social security charges

1,489,344

Employee profit sharing

706,747

Provision for labor claims

426,175

Training

67,504

Total

8,729,274

 

23)    OTHER ADMINISTRATIVE EXPENSES

 

 

Accrued on June 30 - R$ thousand

2017

Outsourced services

2,081,568

Depreciation and amortization

2,532,542

Data processing

1,036,592

Communication

779,067

Rental

825,306

Asset maintenance

554,354

Financial system services

506,509

Security and surveillance

416,863

Transport

375,843

Advertising and marketing

288,524

Water, electricity and gas

201,658

Supplies

122,853

Travel

84,944

Other

761,975

Total

10,568,598

 

24)    TAX EXPENSES

 

 

Accrued on June 30 - R$ thousand

2017

Contribution for Social Security Financing (COFINS)

1,552,318

Social Integration Program (PIS) contribution

256,904

Tax on Services (ISSQN)

325,001

Municipal Real Estate Tax (IPTU) expenses

75,271

Other

110,769

Total

2,320,263

 

 

 

Bradesco     57         


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

25)    OTHER OPERATING INCOME

 

 

Accrued on June 30 - R$ thousand

2017

Other interest income

811,375

Reversal of other operating provisions (1)

4,474,785

Revenues from recovery of charges and expenses

170,662

Other

722,973

Total

6,179,795

 

(1)  Include, basically, reversals of: (i) generic provision for guarantees provided, encompassing sureties, guarantees, credit letters, and standby letter of credit, pursuant to Resolution No. 4,512/16 (Note 8h); (ii) provision for tax risks regarding the PIS process, to offset overpaid amounts; and (iii) provision for tax risks related to IRPJ/CSLL on credit losses (Note 16b V)..

 

26)    OTHER OPERATING EXPENSES

 

 

Accrued on June 30 - R$ thousand

2017

Other finance costs

1,705,877

Sundry losses

840,620

Discount granted

675,539

Commissions on loans and financing

495,988

Intangible assets amortization

6,316

Other (1)

3,437,438

Total

7,161,778

 

(1)  Includes, basically, a specific provision for guarantees provided, encompassing sureties, guarantees and credit letters, pursuant to Resolution No. 4,512/16 (Note 8h).

 

27)    NON-OPERATING INCOME (LOSS)

 

 

Accrued on June 30 - R$ thousand

2017

Gain/loss on sale and write-off of assets and investments

(263,022)

Recording/reversal of non-operating provisions (1)

(80,094)

Other

51,877

Total

(291,239)

 

(1)  Represented mainly by an allowance for losses on non-use assets (BNDU).

 

 

 

58                 June 2017


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

28)    RELATED-PARTY TRANSACTIONS

 

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:

 

 

On June 30 - R$ thousand

Controllers (1)

Affiliates and Jointly controlled companies (2)

Key management personnel (3)

Total

Assets

 

 

 

 

Interbank investments

-

644,567

-

644,567

Receivable from affiliates companies

-

2,361,758

-

2,361,758

Other assets

-

6,215

-

6,215

Liabilities

 

 

 

 

Demand deposits/Savings accounts

23

287,564

16,383

303,970

Time deposits

1,345,381

1,344,488

79,084

2,768,953

Securities sold under agreements to repurchase

753,868

214,798

11,953

980,619

Funds from issuance of securities

6,153,422

12,335,991

820,496

19,309,909

Derivative financial instruments

24,554

-

-

24,554

Interest on own capital and dividends payable

752,326

-

-

752,326

Other liabilities

-

91,861

-

91,861

 

 

Accrued on June 30 - R$ thousand

Controllers (1)

Affiliates and Jointly controlled companies (2)

Key management personnel (3)

Total

Income from financial intermediation

-

30,950

-

30,950

Financial intermediation expenses

(471,449)

(737,399)

(49,558)

(1,258,406)

Income from services provided

-

199,023

-

199,023

Expenses in operations with derivatives

(23,906)

-

-

(23,906)

Administrative Expenses

(1,281)

(255,442)

-

(256,723)

Other expenses net of other operating revenues

-

(183,564)

-

(183,564)

 

(1) Cidade de Deus Cia. Cial. de Participações, Fundação Bradesco, NCF Participações S.A., Titanium Holdings S.A., BBD Participações S.A. and Nova Cidade de Deus Participações S.A.;
(2) Companies listed in Note 11; and
(3) Members of the Board of Directors and the Board of Executive Officers
.

 

 

Bradesco     59         


 

 

 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

b)   Remuneration of key management personnel

 

Each year, the Annual Shareholders’ Meeting approves:

 

· The annual total 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 Organization.

 

For 2017, the maximum amount of R$466,400 thousand was set for Management compensation and R$486,400 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 Bradesco, which vest in three equal, annual and successive installments, the first of which is in the year following the payment date. This procedure complies with Resolution No. 3,921/10, which sets forth a management compensation policy for financial institutions.

 

Short-term Management benefits

 

 

Accrued on June 30 - R$ thousand

2017

Salaries

220,074

Total

220,074

 

Post-employment benefits

 

 

Accrued on June 30 - R$ thousand

2017

Defined contribution supplementary pension plans

224,201

Total

224,201

 

Bradesco does not offer its Key Management Personnel long-term benefits related to severance pay or share-based compensation, pursuant to CPC 10 – Share-Based Payment, approved by Resolution No. 3,989/11.

 

Shareholding

 

Together, members of the Board of Directors and Board of Executive Officers had the following shareholding in Bradesco:

 

 

On June 30

2017

● Common shares

0.69%

● Preferred shares

1.13%

● Total shares (1)

0.91%


(1) On June 30, 2017, direct and indirect shareholding of the members of Bradesco’s Board of Directors and Board of Executive Officers amounted to 3.12% of common shares, 1.17% of preferred shares and 2.15% of all shares.

 

 

 

60                 June 2017


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

29)    FINANCIAL INSTRUMENTS

 

Below is the statement of financial position by currency

 

 

On June 30 - R$ thousand

2017

Balance

Local

Foreign (1) (2)

Assets

 

 

 

Current and long-term assets

918,093,465

849,846,587

68,246,878

Cash and due from banks

13,267,198

9,437,424

3,829,774

Interbank investments

177,295,743

176,046,120

1,249,623

Securities and derivative financial instruments

222,072,889

206,916,578

15,156,311

Interbank and interdepartmental accounts

69,822,716

69,822,716

-

Loans and leasing

295,923,291

262,821,095

33,102,196

Other receivables and assets

139,711,628

124,802,654

14,908,974

Permanent assets

68,392,931

68,355,075

37,856

Investments

46,106,004

46,106,004

-

Premises and equipment and leased assets

8,473,531

8,449,482

24,049

Intangible assets

13,813,396

13,799,589

13,807

Total

986,486,396

918,201,662

68,284,734

 

 

 

 

Liabilities

 

 

 

Current and long-term liabilities

879,254,601

814,261,651

64,992,950

Deposits

261,686,575

250,858,796

10,827,779

Securities sold under agreements to repurchase

256,470,543

250,246,331

6,224,212

Funds from issuance of securities

143,634,243

138,997,273

4,636,970

Interbank and interdepartmental accounts

6,326,674

2,933,608

3,393,066

Borrowing and on-lending

56,542,386

32,752,137

23,790,249

Derivative financial instruments

14,025,373

13,771,718

253,655

Other liabilities:

 

 

 

- Subordinated debts

53,691,104

42,042,598

11,648,506

- Others

86,877,703

82,659,190

4,218,513

Deferred income

406,567

406,567

-

Non-controlling interests in subsidiaries

17,715

17,715

-

Shareholders’ equity

106,807,513

106,807,513

-

Total

986,486,396

921,493,446

64,992,950

 

 

 

 

Net position of assets and liabilities

 

 

3,291,784

Net position of derivatives (2)

 

 

(48,596,015)

Other net off-balance-sheet accounts (3)

 

 

149,875

Net exchange position (liability)

 

 

(45,154,356)

 

(1) Amounts originally recognized 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 recognized in off-balance-sheet accounts.

 

 

 

Bradesco     61         

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

The statement of financial position by maturity is as follows                                          

 

 

On June 30 - 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

433,563,635

94,462,247

65,404,515

324,663,068

-

918,093,465

Cash and due from banks

13,267,198

-

-

-

-

13,267,198

Interbank investments (1)

172,629,634

2,599,068

938,818

1,128,223

-

177,295,743

Securities and derivative financial instruments (1) (2)

105,208,273

2,457,296

6,920,005

107,487,315

-

222,072,889

Interbank and interdepartmental accounts

69,020,214

-

-

802,502

-

69,822,716

Loans and leasing

26,983,098

64,345,260

45,686,446

158,908,487

-

295,923,291

Other receivables and assets

46,455,218

25,060,623

11,859,246

56,336,541

-

139,711,628

Permanent assets

4,297,753

1,663,362

1,787,167

14,158,051

46,486,598

68,392,931

Investments

-

-

-

-

46,106,004

46,106,004

Premises and equipment

4,025,224

309,037

370,845

3,387,831

380,594

8,473,531

Intangible assets

272,529

1,354,325

1,416,322

10,770,220

-

13,813,396

Total on June 30, 2017

437,861,388

96,125,609

67,191,682

338,821,119

46,486,598

986,486,396

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current and long-term liabilities

435,846,643

88,658,153

75,517,800

279,232,005

-

879,254,601

Deposits (3)

135,191,306

13,178,770

9,462,826

103,853,673

-

261,686,575

Securities sold under agreements to repurchase (1)

210,551,363

20,049,232

12,085,461

13,784,487

-

256,470,543

Funds from issuance of securities

7,538,842

34,132,101

30,806,616

71,156,684

-

143,634,243

Interbank and interdepartmental accounts

6,326,674

-

-

-

-

6,326,674

Borrowing and on-lending

5,922,598

15,944,165

10,866,615

23,809,008

-

56,542,386

Derivative financial instruments

13,264,721

433,922

166,152

160,578

-

14,025,373

Other liabilities:

 

 

 

 

 

 

- Subordinated debts

427,571

4,012,252

9,810,604

39,440,677

-

53,691,104

- Others

56,623,568

907,711

2,319,526

27,026,898

-

86,877,703

Deferred income

406,567

-

-

-

-

406,567

Non-controlling interests in subsidiaries

-

-

-

-

17,715

17,715

Shareholders’ equity

-

-

-

-

106,807,513

106,807,513

Total on June 30, 2017

436,253,210

88,658,153

75,517,800

279,232,005

106,825,228

986,486,396

 

 

 

 

 

 

 

Net assets accumulated on June 30, 2017

1,608,178

9,075,634

749,516

60,338,630

 

 

 

(1) Repurchase agreements are classified according to the maturity of the transactions;
(2) Investments in investment funds are classified as 1 to 30 days; and
(3)
Demand and savings deposits are classified as 1 to 30 days, without considering average historical turnover.

 

62                 June 2017


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Below is the Basel Ratio:

 

Calculation basis - Basel Ratio

On June 30 - R$ thousand

Prudential Conglomerate

2017

Tier I capital

77,322,435

Common equity

71,948,746

Shareholders’ equity

106,807,513

Non-controlling / Other

39,089

Prudential adjustments (1)

(34,897,856)

Additional capital

5,373,689

Tier II capital

25,727,605

Subordinated debts (Resolution No. 4,192/13)

16,998,232

Subordinated debts (previous to CMN Resolution No. 4,192/13)

8,729,373

Reference Equity (a)

103,050,040

 

 

- Credit risk

550,858,207

- Market risk

20,530,346

- Operational risk

47,222,493

Risk-weighted assets – RWA (b)

618,611,046

 

 

Basel ratio (a/b)

16.7%

Tier I capital

12.5%

- Principal capital

11.6%

- Additional capital

0.9%

Tier II capital

4.2%

 

(1) As from January 2017, the factor applied to prudential adjustments went from 60% to 80%, according to the timeline for application of deductions of prudential adjustments, defined in Article 11 of Resolution No. 4,192/13.

 

a)      Capital Management

 

The Basel Index is part of the set of indicators that are monitored and evaluated in the process of Capital Management, and is intended to measure the sufficiency of capital in relation to the exposure to risks. The table above shows the composition of the Reference Equity and of the Risk Weighted Assets, according to the standards of Bacen. During the period, Bradesco has fulfilled all the minimum regulatory requirements.

 

30)    EMPLOYEE BENEFITS

 

Bradesco and its subsidiaries sponsor a private defined contribution pension for employees and directors, 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). The Plan is managed by Bradesco Vida e Previdência S.A. and BRAM – Bradesco Asset Management S.A. DTVM is responsible for the financial management of the FIEs funds.

 

The Supplementary Pension Plan counts on contributions from employees and administrators of Bradesco and its subsidiaries equivalent to at least 4% of the salary by employees and, 5% of the salary, plus the percentage allocated to covers of risk benefits (invalidity and death) by the company. Actuarial obligations of the defined contribution plan are fully covered by the plan assets of the corresponding FIE. In addition to the plan, in 2001, participants who chose to migrate from the defined benefit plan are guaranteed a proportional deferred benefit, corresponding to their accumulated rights in that plan. For the active participants, retirees and pensioners of the defined benefit plan, now closed to new members, in extinction, the present value of the actuarial obligations of the plan is completely secured by collateral assets.

 

 

Bradesco     63         

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

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).

 

Bradesco’s sponsors both defined benefit and defined contribution retirement plans, through Caixa de Assistência e Aposentadoria dos Funcionários do Banco do Estado do Maranhão (Capof), to employees originating from Banco BEM S.A.

 

Bradesco sponsors a defined benefit plan through Caixa de Previdência Privada Bec – Cabec for employees of Banco do Estado do Ceará S.A.

 

With the acquisition of HSBC Bank Brasil S.A. (current Kirton Bank Brasil S.A.), the open pension plan, which was offered to employees of that institution, in the modality of defined contribution, has been discontinued. From October 2016, the employees transferred can adhere to the Pension Plan offered to the employees of Bradesco.

 

Kirton Bank Brasil S.A., Kirton Capitalização S.A., Kirton Corretora de Seguros S.A., Kirton Corretora de Títulos e Valores Mobiliários S.A. and Kirton Seguros S.A. sponsor a defined benefit plan called APABA to employees originating from Banco Bamerindus do Brasil S.A., and Kirton Administração de Serviços para Fundos de Pensão Ltda. sponsors to its employees the Kirton Prev Benefits Plan (Plano de Benefícios Kirton Prev)), both managed by MultiBRA – Pension Fund.

 

Banco Losango S.A., Kirton Bank Brasil S.A. and Credival – Participações, Administração e Assessoria Ltda. sponsor three pension plans for its employees, which are: Losango I Benefits Plan – Basic Part, Losango I – Supplementary Part and PREVMAIS Losango Plan, all managed by MultiBRA – Settlor – Multiple Fund.

 

Bradesco also took on the obligations of Kirton Bank Brasil S.A. with regard to Life Insurance, Health Insurance Plans, and Retirement Compensation for employees coming from Banco Bamerindus do Brasil S.A.

 

Bradesco, in its offices abroad, provides pension plans for its employees and administrators, in accordance with the standards established by the local authorities, which allows the accrual of financial resources during the professional career of the participant.

 

Expenses related to contributions made during the first semester of 2017 totaled R$417.004 thousand.

 

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$2.075.025 thousand in the first semester of 2017.

     

31)    INCOME TAX AND SOCIAL CONTRIBUTION

 

a)  Calculation of income tax and social contribution charges

 

 

Accrued on June 30 - R$ thousand

2017

Income before income tax and social contribution

8,153,358

Total burden of income tax and social contribution at the current rates (1)

(3,669,011)

Effect on the tax calculation:

 

Earnings of affiliates and subsidiaries

1,878,649

Net non-deductible expenses of nontaxable income

214,987

Interest on shareholders’ equity (paid and payable)

1,264,571

Other amounts (2)

140,980

Income tax and social contribution for the period

(169,824)

 

(1) Current rates: (i) 25% for income tax; (ii) 15% for the social contribution to financial and companies, and 20%, from September 2015 to December 2018, in accordance with Law No. 13,169/15; and (iii) of 9% for the other companies (Note 3h); and

(2) Primarily, includes: (i) the exchange rate variation of assets and liabilities, derived from investments abroad; (ii) the equalization of the effective rate of social contribution in relation to the rate (45%) shown; and (iii) the deduction incentives.

 

64                 June 2017


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

b)  Breakdown of income tax and social contribution in the statement of income

 

 

Accrued on June 30 - R$ thousand

2017

Current taxes:

 

Income tax and social contribution payable

(3,165,374)

Deferred taxes:

 

Amount recorded/realized in the period on temporary differences

4,053,497

Use of opening balances of:

 

Social contribution loss

(496,275)

Income tax loss

(599,093)

Constitution in the period on:

 

Social contribution loss

27,892

Income tax loss

9,529

Total deferred tax assets

2,995,550

Income tax and social contribution for the period

(169,824)

 

c)  Deferred income tax and social contribution

 

 

R$ thousand

Balance on January 1st, 2017

Amount recorded

Amount realized

Balance on 30.6.2017

Allowance for loan losses

25,279,237

7,115,425

2,672,797

29,721,865

Civil provisions

1,829,057

268,876

326,610

1,771,323

Tax provisions

2,604,158

115,305

194,561

2,524,902

Labor provisions

1,985,377

362,114

362,780

1,984,711

Provision for devaluation of securities and investments

163,198

69,520

69,396

163,322

Provision for devaluation of foreclosed assets

535,785

140,323

100,573

575,535

Adjustment to fair value of trading securities

4,863,195

971,284

1,206,693

4,627,786

Amortization of goodwill

411,701

25,707

34,496

402,912

Provision for interest on own capital (1)

-

489,170

-

489,170

Other

4,086,417

1,498,069

2,034,390

3,550,096

Total deductible taxes on temporary differences

41,758,125

11,055,793

7,002,296

45,811,622

Income tax and social contribution losses in Brazil and overseas

5,477,576

37,421

1,095,368

4,419,629

Subtotal (2)

47,235,701

11,093,214

8,097,664

50,231,251

Adjustment to fair value of available-for-sale securities (2)

873,412

106,950

610,708

369,654

Total deferred tax assets (Note 9b)

48,109,113

11,200,164

8,708,372

50,600,905

Deferred tax liabilities (Note 32f)

2,190,432

706,102

309,556

2,586,978

Deferred tax assets, net of deferred tax liabilities

45,918,681

10,494,062

8,398,816

48,013,927

 

(1) Tax credit on interest on shareholders’ equity is calculated up to the tax limit allowed; and
(2) Deferred tax assets from financial companies and similar companies, and insurance companies were calculated considering the increase in the social contribution rate, determined by Law No. 11,727/08 and Law No. 13,169/15 (Note 3h). With regard to the temporary effects produced by the adoption of Law No. 13,169/15, which raised the rate of the social contribution to 20%, the respective tax credits, are calculated based on the expected implementation.

 

 

Bradesco     65         

 


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

d)  Expected realization of deferred tax assets on temporary differences, tax loss and negative basis of social contribution

 

 

R$ thousand

Temporary differences

Income tax and social contribution losses

Total

Income tax

Social contribution

Income tax

Social contribution

2017

3,941,724

2,489,804

48,195

30,224

6,509,947

2018

6,979,128

5,067,471

178,787

334,540

12,559,926

2019

7,121,036

4,781,252

497,894

249,668

12,649,850

2020

5,907,187

3,447,382

93,322

221,852

9,669,743

2021

1,770,100

1,205,600

1,147,524

768,524

4,891,748

After 2021

1,795,547

1,305,391

288,213

560,886

3,950,037

Total

27,514,722

18,296,900

2,253,935

2,165,694

50,231,251

 

The projected realization of deferred tax assets is an estimate and it is not directly related to the expected accounting income.

 

On June 30, 2017, the present value of deferred tax assets, calculated based on the average funding interest rate, net of tax effects, amounts to R$47,404,193 thousand, of which R$43,358,257 thousand relates to temporary differences, R$4,045,936 thousand to tax losses and negative basis of social contribution.

 

e)   Unrecognized deferred tax assets

 

On June 30, 2017, deferred tax assets of R$11,607 thousand were not recognized, and will only be registered when they meet the regulatory requirements and/or present prospects of realization according to technical studies and analyses prepared by the Management and in accordance with Bacen regulations.

 

f)   Deferred tax liabilities

 

 

On June 30 - R$ thousand

2017

Fair value adjustment to securities and derivative financial instruments

257,039

Difference in depreciation

328,103

Judicial deposit and others

2,001,836

Total

2,586,978

 

The deferred tax liabilities of companies in the financial were established considering the increased social contribution rate, established by Law No. 11,727/08 and Law No. 13,169/15 (Note 3h).

 

32)    OTHER INFORMATION

 

a)   The Organization manages investment funds and portfolios with net assets which, on June 30, 2017, amounted to R$776,647,165 thousand.

 

b)   Social and environmental risk (supplementary information)

 

The social and environmental risk is represented by potential damages that an economic activity can cause to society and to the environment. The social and environmental risks associated with financial institutions are mostly indirect and stem from business relationships, including those with the supply chain and with customers, through financing and investment activities.

 

The social and environmental risk management process has a robust governance structure, comprised of committees, policies, standards and procedures, allowing the risk to be properly identified, measured, mitigated, monitored and reported. This process complies with Resolution No. 4,327/14 of the Central Bank and observes the principles of relevance and proportionality, which is necessary in view of the complexity of the financial products and the profile of Organization’s activities.

 

66                 June 2017


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

The Organization seeks to constantly incorporate and improve the criteria for managing the social and environmental risk arising from business relations with customers, through loan and financing operations, guarantees, suppliers and investments, which comprise the scope of analysis reflected in the Organization Social and Environmental Risk Standard (available at www.bradescosustentabilidade.com.br/site/).

 

The Organization has made several commitments related to environmental and social aspects, such as the Carbon Disclosure Project (CDP), the Principles for Responsible Investment (PRI), the Business Charter for Human Rights and Promotion of Decent Work (Ethos), the United Nations Environment Program (UNEP-FI), the Global Compact, among others.

 

Moreover, the Organization has been a signatory of the Equator Principles since 2004, and among the requirements evaluated are as follows: the working conditions, impacts to the community and the environment of projects financed by the Organization, pursuant to the Brazilian legislation and the standards and guidelines of the International Finance Corporation (IFC), besides the World Bank Group's Health, Safety and Environment Guidelines. During the credit granting process, transactions under Equator Principles undergo a social and environmental risk analysis.

 

The following table presents the loan operation that is in accordance with the Equator Principles contracted in the first semester of 2017:

 

 

Number of operation by category (Equator Principles)

A

(High risk)

B

(Medium risk)

C

(Low risk)

Sector

 

 

 

Electricity

-

1

-

Region

 

 

 

Northeast

-

1

-

 

 

R$ thousand

Total project value

570,900

Bradesco's participation (loan)

285,450

 

c)     Private Social Investment

 

During the first half of 2017, the Private Social Investments made by Bradesco and other companies in the Prudential Conglomerate amounted to R$ 44,797 thousand.

 

d)   Consortium funds

 

 

On June 30 - R$ thousand

2017

Credits available to consortium members

5,796,239

Off-balance-sheet

 

Monthly estimate of funds receivable from consortium members

607,210

Contributions payable by the group

30,245,004

Consortium members - assets to be included

26,388,770

 

 

In units

2017

Number of groups managed

3,610

Number of active consortium members

1,384,333

Number of assets to be included

629,062

 

e)     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. Until the year 2015, the accounting pronouncements approved by CMN and adopted by Bradesco were as follows:

 

·       Resolution No. 3,566/08 – Impairment of Assets (CPC 01);

 

 

Bradesco     67         


 
 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

·       Resolution No. 3,604/08 – Statement of Cash Flows (CPC 03);

·       Resolution No. 3,750/09 – Related Party Disclosures (CPC 05);

·       Resolution No. 3,823/09 – Provisions, Contingent Liabilities and Contingent Assets (CPC 25);

·       Resolution No. 3,973/11 – Subsequent Event (CPC 24);

·       Resolution No. 3,989/11 – Share-based Payment (CPC 10);

·       Resolution No. 4,007/11 – Accounting Policies, Changes in Estimates and Error Correction (CPC 23);

·       Resolution No. 4,144/12 – Conceptual Framework for Preparing and Presenting Financial Statements; and

·       Resolution No. 4,424/15 – Employee Benefits (CPC 33).

 

Presently, it is not possible to estimate when the CMN will approve the other CPC pronouncements or if they will be applied prospectively or retrospectively.

 

f)      In the first semester of 2017, seeking to reduce the costs of Financial Institutions regarding compulsory deposit requirements, Bacen simplified its rules, as follows:

 

Description

Standard before amendment

Amended standard

Funds from savings deposits (Rural)

The payment was 15.5% on the balance of rural savings (poupança rural).

Starting July 10, 2017, payment increased to 21% on the rural savings balance.

For the additional reserve requirements, the payment was 5.5% on the rural savings balance.

Starting July 10, 2017, these reserve requirements were terminated.

Demand deposits

Up to May 5, 2017, the compulsory deposit collection began on the Wednesday of the week following the end of the calculation period and ended on the Tuesday of the second subsequent week (period of 10 business days).

As of May 8, 2017, the compulsory deposit collection period began on Monday of the second week following the end of the calculation period, and ended on the Friday of the following week (period of 10 business days).

Time deposits

 

Up to May 5, 2017, compulsory collection begins on the Friday of the week following the end of the calculation period, or on the next business day, if Friday is not a business day, and ends on the following Thursday.

As of May 8, 2017, the compulsory deposit collection period will begin on Monday of the second week following the end of the calculation period, and will end on the Friday of the following week.

Up to May 5, 2017, the additional rate for compulsory deposit collection on time deposits is 11%.

The normal rate for compulsory deposit collection on time deposits is 25%.

As of May 8, 2017, the rate for compulsory deposit collection on time deposits was unified to 36%, i.e., there is no additional rate.

Up to May 5, 2017, the percentages deducted from the calculation basis are as follows:

- R$3 billion for financial institutions with RE lower than R$2 billion;

- R$2 billion for financial institutions with RE between R$2 billion and R$5 billion, and

- R$1 billion for financial institutions with RE between R$5 billion and R$7 billion.

As of May 8, 2017, the percentages deducted from the calculation basis were as follows:

- R$3 billion for financial institutions with RE lower than R$3 billion;

- R$2 billion for financial institutions with RE between R$3 billion and R$10 billion; and

- R$1 billion for financial institutions with RE between R$10 billion and R$15 billion.

Deduction for Time Deposits

Up to February 2, 2017, compliance was assured with deduction of financial bills; acquisitions of assignments, vehicles and motorcycles.

The “time base value”* was established as a reduction as of February 3, 2017, as follows:

I - 100% of the “time base value” up to the period beginning on 12.29.2017;

II - 50% of the “time base value” in the period from January 2, 2018 to December 28, 2018; and

III - 30% "of the “time base value” in the period from December 31, 2018 to December 27, 2019.

Deductions are no longer allowed for new purchases as of February 3, 2017.

* the “time base value” corresponds to the amount of deduction considered for compliance on January 20, 2017.

Deduction for demand deposits

Up to February 21, 2017, the compliance was assured with deduction of financing granted according to Law 12,096/09 (Export Credit Notes - NCE).

The “demand base value”* was established as a reduction as of February 22, 2017, as follows:

I - 100% of the “demand base value” up to the period beginning on December 29, 2017;

II - 50% of the “demand base value” in the period from January 2, 2018 to December 28, 2018;

III - 30% of the “demand base value” in the period from December 31, 2018 to December 27, 2019; and

IV - 0% as of December 30, 2019.

* “demand base value” corresponds to the amount of deduction considered for compliance on January 25, 2017.

 

68                 June 2017


 

 

 

 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

g)     Bradesco Seguros S.A. ("Bradesco Seguros") indirect investment of Bradesco and Swiss Re Corporate Solutions Ltd. ("Swiss Re Corso") completed a transaction disclosed in October 2016 upon execution of a shareholder agreement dated July 2017 whereby: (i) Swiss Re Corporate Solutions Brasil Seguros S/A ("Swiss Re Corporate Solutions Brasil") will assume part of insurance operations of P&C (Property and Casualty) such as Aeronautical, Marine, Civil Liability segments and of transport of Bradesco Seguros ("Large Risks Insurance"), to have exclusive access to Bradesco clients to exploit the marketing of Large Risks Insurance; and (ii) Bradesco Seguros will hold an equity interest of 40% in Swiss Re Corporate Solutions Brasil and the other 60% interest will remain with its controlling shareholder Swiss Re Corso.

 

The transaction was approved by Susep, the Administrative Council for Economic Defense (Cade) and the Central Bank.

 

h)      In May 2017, Bradesco – as an indirect holder of equity interest in IRB, announced to shareholders that had authorized IRB to submit: (i) application for registration as a publicly-held company and for authorization of initial public offering of IRB, pursuant to CVM Instructions 400/03 and 480/09; and (ii) application for registration of secondary public distribution of common shares issued by IRB, pursuant to CVM Instruction 400/03.

 

In July 2017, Bradesco announced that the documents were filed in compliance with the requirements formulated by CVM in the context of the Secondary Public Offering of IRB’s common shares.

 

i)      In June 2017, Bradesco signed final documents with Banco do Brasil S.A., Banco Santander (Brasil) S.A., Caixa Econômica Federal and Itaú Unibanco S.A., in order to create a holding company of credit intelligence ("GIC"), which will develop a database with the goal of adding, reconciling and handling database and credit-related information, of individuals and legal entities, which expressly authorize their inclusion in the database, as required by the applicable standards. Control of the company will be shared, with each party holding 20% of its capital. The required contribution of capital occurred in July 2017.

j)     In July 2017, Bradesco launched a Special Voluntary Retirement Plan, which may be used by the Organization’s employees who fulfill the requirements established in the regulations of the respective plan.

 

 

 

 

Marcos Aparecido Galende

Accountant - CRC 1SP201309/O-6

 

 

Bradesco     69         


 

 

   

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Independent Auditors´ Report on the Consolidaded Financial Statements of Prudential Conglomerate

 

To

The Board of Directors and Shareholders of

Banco Bradesco S.A.

Osasco SP

 

Opinion

 

We have audited the consolidated financial statements of the Prudential Conglomerate of Banco Bradesco S.A. (“Bradesco”), which comprises the consolidated statement of financial position as of June 30, 2017 and the respective consolidated statements of income, changes in shareholders’ equity and cash flows for the six-month period then ended, and notes, comprising significant accounting policies and other explanatory information. These special purpose financial statements have been prepared by Bradesco´s management as required by Resolution No.4,280, dated October 31, 2013, of the National Monetary Council (CMN) and supplementary regulations of the Central Bank of Brazil (BACEN), described in the note 2 to the financial statements.

 

In our opinion, the accompanying consolidated financial statements of the Prudential Conglomerate present fairly, in all material respects, the consolidated financial position of the Prudential Conglomerate of Bradesco as of June 30, 2017, the consolidated performance of its operations and its consolidated cash flows statement, for the six-month period then ended, in accordance with the Resolution No. 4,280/13 of CMN, and supplementary regulations of BACEN, which main criteria and accounting practices are described in note 2 to the financial statements.

 

Basis for opinion

           

We conducted our audit in accordance with Brazilian and International Standards on Auditing (ISAs). Our responsibilities under those standards, are further described in the The Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of Bradesco and its subsidiaries, in accordance with the ethical requirements established in the Accountant´s Professional Ethics Code and the professional standards issued by the Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Emphasis

 

We draw attention to note 2 to the consolidated financial statements that disclose that the consolidated financial statements of the Prudential Conglomerate of Bradesco were prepared by Bradesco´s management to meet the requirements of Resolution No. 4,280/13 of CMN, and supplementary regulations of BACEN. Consequently, our report on these consolidated financial statements has been prepared solely for meeting these specific requirements and thus may not be appropriate for other purposes. Our opinion is not modified in relation to this topic.

 

As informed in note 2, article 5 of Resolution No. 4,517 / 16 of the National Monetary Council stipulates that, as of January 1, 2017, equity investments in jointly controlled companies must be accounted for using the equity method and no longer through proportional consolidation, as previously required. Additionally, the paragraph 2 of article 5, of the aforementioned resolution, waived the presentation of comparative information for institutions that had a change in accounting policy as a consequence of this theme. Accordingly, the consolidated financial statements of the Prudential Conglomerate as of June 30, 2017 are not presented in a comparative basis, with the six-month period ended June 30, 2016.

 

70                 June 2017

 

 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

Key Audit Matters

Key audit matters are those that, in our professional judgment, were of most significance in our audit of the six-month period ended on June 30, 2017. These matters were addressed in the context of our audit of the consolidated financial statements of the Prudential Conglomerate as a whole, and in forming our opinion thereon, and, we do not express a separate opinion on these matters.

 

·       Allowance for doubtful accounts

 

As disclosed in Notes 3g and 8, for purposes of measuring the allowance for doubtful accounts, which total amount shown in the consolidated financial statements of Prudential Conglomerate is R$ 37,451,416 thousand, Bradesco classifies its loans (which comprise loans, leasing, advances on foreign exchange contracts, other receivables with credit characteristics), into nine risk levels, taking into account inputs and assumptions such as late payments, economic and financial position, indebtedness level, sector of the economy, guarantee characteristics, and the other factors and assumptions described in CMN Resolution No. 2.682/1999, with rating “AA” being the minimum risk level, and “H” the maximum risk level. Bradesco initially applies the loss percentages established in such Resolution for each risk level for purposes of calculating the allowance and further increases the allowance, when necessary, based on additional internal evaluations (excess provision). The classification of loans into risk levels as well as the loss percentages related to each risk level requires Bradesco to make assumptions and judgments, based on its internal risk classification methodologies, and the allowance for doubtful accounts represent Bradesco’s best estimate of the portfolio losses. Due to the relevance of loans and the uncertainties related to the estimate of the allowance for doubtful accounts, we considered this as a significant matter in our audit.

 

How our audit addressed this matter

 

We evaluated the design, implementation and operating effectiveness of the internal controls related to the processes of approval, recording and accrual of loans as well as the internal risk rating methodologies that support the classification of transactions, the main assumptions used for calculation and the arithmetic accuracy of the allowance for doubtful accounts. We also evaluated, on a sampling basis, whether Bradesco met the minimum requirements established by the CMN Resolution No. 2.682/1999, related to the determination of the allowance for doubtful accounts. We also analyzed whether the disclosures made in the consolidated financial statements of Prudential Conglomerate, described in Notes 3g and 9 are in accordance with the applicable accounting practices.

 

Based on the evidence obtained from the procedures described above, we consider the level of provisioning and disclosures to be adequate in the context of the consolidated financial statements of Prudential Conglomerate taken as a whole.

 

·       Market value of financial instruments

 

As disclosed in the Notes 3e, 3f and 6, derivative financial instruments amount to R$ 15,024,480 thousand (assets) and R$ (14,025,373) thousand (liabilities), available-for-sale securities amount to R$ 155,678,967 thousand and trading securities amount to R$ 39,107,201 thousand. These instruments, measured at market value, are relevant to the consolidated financial statements of Prudential Conglomerate of Bradesco. For the financial instruments that are actively traded and those which market prices and parameters are available, there is a higher objectivity level in the determination of market values. However, when the market prices or parameters are not observable, the determination of the market values is subject to a higher uncertainty level, to the extent Bradesco makes significant judgments to estimate such amounts. In addition, financial assets classified in the "Available for Sale" category are subject to Bradesco's judgmental assessment of impairment loss evidence indicators. Therefore, we considered the market value measurement of these financial instruments as a significant matter in our audit.

 

How our audit addressed this matter

 

As part of our procedures, we evaluated the design, implementation, and operating effectiveness of the internal controls implemented by Bradesco to mitigate the risk of material misstatement in the consolidated financial statements of Prudential Conglomerate arising from uncertainties in the market value measurement of financial instruments. For a sample of financial instruments for which market value measurement parameters are not observable, with the technical support of our professionals with knowledge of financial instruments, we evaluated the models developed by Bradesco for determining market values and the reasonableness of data, the parameters and information included in the pricing models used, and we recalculated the amount of operations. Our procedures also included the evaluation of the disclosures made by Bradesco in the consolidated financial statements of Prudential Conglomerate in Notes 3e, 3f and 6.

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Based on the evidence obtained from the procedures described above, we consider the market value measurement of financial instruments and disclosures to be adequate in the context of the consolidated financial statements of Prudential Conglomerate taken as a whole.

 

·       Provisions and contingent liabilities - tax, civil and labor

 

As described in Notes 3o and 16, Bradesco is defendant in lawsuits of tax, civil and labor nature, related to the normal course of its activities, which total provision recognized in the consolidated financial statements of Prudential Conglomerate amounts to R$ 6,669,058 thousand, R$ 4,261,771 thousand, and R$ 5,110,756 thousand, respectively. Some laws and regulations in Brazil have high complexity levels, and, therefore, the measurement, recognition and disclosure of Provisions and Contingent Liabilities, related to lawsuits, and/or, in certain cases, adherence to laws and regulations, require Bradesco’s professional judgment. Due to the relevance, complexity and judgment involved in the evaluation, measurement, definition of recognition and disclosures related to Provisions and Contingent Liabilities, we considered this as a significant matter in our audit.

 

How our audit addressed this matter

 

Our audit procedures included the evaluation of the design, implementation and operating effectiveness of the internal controls related to the identification, evaluation, measurement and disclosure of Provisions and Contingent Liabilities, as well as those related to the compliance with laws and regulations. Additionally, on a test basis, we evaluated the sufficiency of the recognized provisions and disclosed contingency amounts, by evaluating the criteria and assumptions adopted in the measurement methodology, also considering the assessment of the internal and external legal advisors of Bradesco, as well as historical data and information. This work included the involvement of our legal experts in the evaluation of the likelihood of unfavorable outcome and of the documentation and information related to the main tax, civil and labor matters involving Bradesco. We also evaluated whether the disclosures made in the consolidated financial statements of Prudential Conglomerate are in accordance with the applicable accounting practices and provide information on the nature, exposure and amounts of provisions or disclosures related to the main tax, civil and labor matters in which Bradesco is involved.

 

Based on the evidence obtained from the procedures described above, we consider the level of provisioning and disclosures to be adequate in the context of the consolidated financial statements of the Prudential Conglomerate taken as a whole.

 

·       Impairment of assets

 

The consolidated financial statements of Prudential Conglomerate include deferred tax assets in the amount of R$ 50,600,905 thousand (Note 31c) and goodwill in the amount of R$ 9,371,742 thousand (Note 13a). The realization of these assets depends on future profitability based on business plans and budgets prepared by Bradesco and which are supported by several economic and business assumptions, among others. Since they require the exercise of judgment, such estimates are prepared and reviewed internally according to Bradesco’s governance framework. As described in Notes 3h, 3l and 3m, considering the frequent changes that occur in the economic or regulatory environment of the markets where it operates, Bradesco continuously evaluate the assumptions and estimates of taxable profit, profitability of the cash generating units (CGU) to which goodwill and intangible assets are allocated, growth rates, discount rates, and cash flow projections. In view of the relevance of the future profitability estimates made and the impact that changes in the assumptions of such estimates would have on the consolidated financial statements of Prudential Conglomerate, we considered this area relevant to our audit.

 

How our audit addressed this matter

 

On a sampling basis, we tested the design, implementation and operating effectiveness of the relevant internal controls related to Bradesco´s assessment of indicators that the related assets may have suffered devaluation. Additionally, we evaluated, with the technical support of our corporate finance specialists, the reasonableness and consistency of the data and assumptions used for preparing this assessment. We also made the analysis of the reasonableness of the mathematical calculations included in the technical study to support the tax credits. Our procedures also included the evaluation of the disclosures made by Bradesco in the consolidated financial statements of the Prudential Conglomerate.

 

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Based on the evidence obtained from the procedures described above, we considered the assessment of indicators of devaluation adequate in the context of the consolidated financial statements of the Prudential Conglomerate taken as a whole.

 

·       Technical Provisions Insurance and Pension Plans recorded as investments measured under the equity method

 

As mentioned in Notes 3j and 11, Bradesco invests in insurance controlling subsidiaries. These subsidiaries have liabilities related to insurance and pension plans contracts denominated Technical Provisions, in the amount of R$ 226,283,070 thousand, which may significantly affect the net income presented in consolidated financial statements of the Prudential Conglomerate. In view of the uncertainties and subjectivity inherent in insurance and pension plans contracts, the liability adequacy test and the process of determination and measurement of technical reserves involve a high judgment level. Bradesco´s subsidiaries continuously evaluate methodologies and assumptions, which include, among others, expectations of loss ratio, mortality, longevity, persistency, and interest rates. In view of the involved relevance and uncertainty, and the impact that any change in assumptions would have the amount of Technical Provisions and, consequently, on the net income of the consolidated financial statements of the Prudential Conglomerate, we considered this matter relevant to our audit.

 

How our audit addressed this matter

 

Our procedures included planning and communication of the audit scope to the controlling subsidiaries, discussion of the risks of significant misstatements to instruct the auditors of these subsidiaries. We met with these auditors, reviewed and evaluated their work, which considered, among others, the matters described above that could significantly affect the net income of the consolidated financial statements of the Prudential Conglomerate. We also evaluated the audit evidence obtained and the documentation of the specialists involved by the auditor of the subsidiaries, as well as the procedures performed and conclusions obtained, specifically the determination of materiality, the effect of unadjusted audit differences and the procedures performed to address the risks. We also evaluated the adequacy of the disclosures made by Bradesco on the consolidated financial statements of the Prudential Conglomerate.

 

Based on evidence obtained from the procedures described above, we consider the level of provisioning in the subsidiaries and disclosures to be adequate in the context of the consolidated financial statements of the Prudential Conglomerate taken as a whole.

 

·       Application controls and information technology general controls

 

Bradesco has a technology structure for conducting its businesses, as well as continuous investment plans aimed at the improvement and maintenance of access management and changes in the relevant system and applications, development of new programs, and automated controls and/or controls with automated components in relevant processes. In order to maintain its operations, Bradesco provides its employees with access to systems and applications, taking into account the duties performed by them and within its organizational structure. The controls to authorize, monitor, restrict, and/or revoke the respective accesses to this environment are important to ensure that the accesses and information updates are appropriately performed and by the appropriate professionals, to mitigate the potential risk of fraud or error arising from inappropriate access or change in a system or information, and to guarantee the integrity of the financial information and accounting records. In view of the high investment level and heavy dependence of Bradesco on its technology systems, the high daily volume of processed transactions, as well as the importance of access controls and the management of changes in its systems and applications, we considered that this area is relevant to our audit.

 

How our audit addressed this matter

 

The design, implementation, and operating effectiveness of access controls, such as authorization of new users, timely revocation of terminated users, and periodic monitoring of active users were tested, on a sample basis, during our audit with the assistance of our information technology specialists, whenever we plan to rely on specific information extracted from a certain system considered relevant for the purpose of preparing the financial statements. In areas where our judgment is highly dependent on information technology, our tests included assessing password policies, security settings, and control over developments and changes in systems and applications. In addition, when we identify key internal controls for the financial reporting process and other relevant fully automated processes or with some component dependent on systems and applications, we tested, with the assistance of our information technology specialists, the design, implementation and operating effectiveness of these controls.

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The evidence from the control tests described above allowed us to consider information from certain systems to plan the nature, time and extension of our substantive tests in the context of the consolidated financial statements of Prudential Conglomerate taken as a whole.

 

Other matters

 

Bradesco prepared a set of general purpose financial statements for the six-month period ended June 30, 2017, in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil, on which we issued an audit report without modifications dated July 26, 2017.

 

Statements of value added

 

The consolidated statement of value added (DVA) for the six-month period ended June 30, 2017, prepared under the responsibility of the Bradesco’s management, and presented herein as supplementary information in relation to the special purpose required by Resolution No.4,280, dated October 31, 2013, of the National Monetary Council (CMN) and supplementary regulations of the Central Bank of Brazil (BACEN), has been subject to audit procedures jointly performed with the audit of the consolidated financial statements of the Prudential Conglomerate of Bradesco.  In order to form our opinion, we assessed whether those statements are reconciled with the consolidated financial statements of the Prudential Conglomerate and accounting records, as applicable, and whether their format and contents are in accordance with criteria determined in the Technical Pronouncement 09 (CPC 09) - Statement of Value Added issued by the Committee for Accounting Pronouncements (CPC). In our opinion, the statement of value added has been fairly prepared, in all material respects, in accordance with the criteria determined by the aforementioned Technical Pronouncement, and is consistent with the overall consolidated financial statements of the Prudential Conglomerate taken as whole.

 

Responsibilities of management and those in charge with governance for the consolidated financial statements of the Prudential Conglomerate

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements of the Prudential Conglomerate in accordance with Resolution no 4,280/13 of CMN, and supplementary regulations of BACEN, which main criteria and accounting practices are described in note no 2 to the financial statements, and the internal controls as management determines is necessary to enable the preparation of consolidated financial statements of the Prudential Conglomerate that are free from material misstatement whether due to fraud or error.

 

In preparing the consolidated financial statements of the Prudential Conglomerate, management is responsible for assessing Bradesco’s ability to continue as going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate Bradesco and its subsidiaries or to cease operations, or there has no realistic alternative but to do so.

 

Those charged with governance are those responsible for overseeing Bradesco´s financial reporting process.

 

Auditor’s responsibilities for the audit of the consolidated financial statements of the Prudential Conglomerate

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements of the Prudential Conglomerate, prepared by the management in accordance with Resolution no 4,280/13 of CMN, and supplementary regulations of BACEN, as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor´s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements of Prudential Conglomerate. 

 

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Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

As part of an audit in accordance with the Brazilian and International Standards on Auditing, taking into account NBC TA 800 (Special Conditions - Auditing of Financial Statements according to Special Purpose Accounting Structures), we exercise professional judgment, and maintain professional skepticism throughout the audit. We also:

 

     Identify and assess the risks of material misstatement of the consolidated financial statements, independently whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting material misstatement resulting from fraud is higher than for the one resulting from error, as fraud may involve collusion, forgery, intentional omission or misrepresentations, or the override of internal controls.

 

     Obtain an understanding of internal control relevant to the audit to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Bradesco and its subsidiaries internal control.

 

     Evaluate the appropriateness of the accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

     Conclude on the appropriateness of management’s use of the going concern basis of accounting, and, based on the audit evidence obtained, whether material uncertainty exists related to events or conditions that may cast significant doubt on Bradesco’s and its subsidiaries ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements, or if such disclosures are inadequate to modify our opinion. Our conclusions are based on the audit evidences obtained up to the date of our auditor’s report. However, future events or conditions may cause Bradesco and its subsidiaries to cease to continue as a going concern.

 

     Evaluate the overall presentation, structure and content of the consolidated financial statements of Prudential Conglomerate, including the disclosures and whether the consolidated financial statements of Prudential Conglomerate represent the underlying transactions and events in a manner that achieves fair presentation.

 

     Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements of Prudential Conglomerate. We are responsible for the direction, supervision and performance of group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provided those charged with governance with a statement that we have complied with the relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear our independence, and where applicable, related safeguards.

 

From the matters communicated with those charged with governance, we determined those matters that were of most significance in the audit of the consolidated financial statements of Prudential Conglomerate of the current for the six-month period then ended, and are therefore the key audit matters. We describe these matters in our auditor’s report, unless law or regulation precludes public disclosure about the matters, or when, in extremely rare circumstances, we determine a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefit of such communication.

 

Osasco, August 28, 2017

 

 

 

KPMG Auditores Independentes CRC 2SP028567/O-1 F SP

Original report in Portuguese signed by

Rodrigo de Mattos Lia Accountant CRC 1SP252418/O-3

 

 

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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: August 23, 2017
 
BANCO BRADESCO S.A.
By:
 
/S/ Alexandre da Silva Glüher

    Alexandre da Silva Glüher 
Executive Vice President 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.