bbdbook3q18_6k.htm - Generated by SEC Publisher for SEC Filing
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of November, 2018
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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Net Interest Income Breakdown and Analysis

 

Average Net Interest Income Rate

R$ million  3Q18 2Q18 3Q17 9M18 9M17   Variation  
            3Q18 x 3Q18 x 9M18 x
Net Interest Income            2Q18 3Q17 9M17
NII - Interest-earning portion - due to volume            687  909  346 
NII - Interest-earning portion - due to spread            (83)  (762)  (1,405) 
- NII - Interest Earning Portion  15,583  14,979  15,436  46,055  47,114  604  147  (1,059) 
- NII - Non-Interest Earning Portion  166  105  (75)  464  175  61  241  289 
Net Interest Income  15,749  15,084  15,361  46,519  47,289  665  388  (770) 
Average Net Interest Income Rate (1) 6.3%  6.2%  6.6%  6.3%  6.8%       
 
(1) Average rate in the quarter/ cumulative in the period = (Net Interest Income / Total Average Assets - Repos - Permanent Assets).

 

Interest Earning Portion – Average Rates (12 months)

 

R$ million Credit Intermediation (1) Insurance ALM / Other (1) (2) Total
  NII -      NII -      NII -      NII -   
  Interest   Average    Average Interest  Average    Average Interest Average  Average Interest     Average 
  Earning  Balance  Rate  Earning Balance   Rate  Earning  Balance  Rate  Earning  Rate 
  Portion      Portion      Portion      Portion    
3Q18 12,323  450,133  11.3%  1,193  253,772  2.1%  2,067  359,633  2.3%  15,583  6.3% 
2Q18 12,127  428,486  11.4%  988  252,485  2.2%  1,864  346,714  2.1%  14,979  6.4% 
3Q17 12,119  417,374  11.9%  1,503  237,277  2.5%  1,814  391,133  1.8%  15,436  6.9% 
9M18 36,140  431,527  11.3%  3,707  251,852  2.1%  6,208  357,996  2.3%  46,055  6.3% 
9M17 37,417  425,082  11.9%  4,177  232,237  2.5%  5,520  399,524  1.8%  47,114  6.9% 
(1) As of 1Q18, we considered the margin of the financial assets of fixed income, with characteristics of credit (mostly debentures) in the margin of credit intermediation, formerly classified
as ALM/other. For the purposes of comparability, the previous periods have been reclassified; and
(2) It reflects, mainly, the operations of the treasury in asset and liability management (ALM).

 

 

 

 

Interest Earning Portion – Volume Variation vs. Spread

o   Credit Intermediation – the evolution in the quarterly comparison and relating to 3Q17 is fueled by the largest average business volume, mainly in the operations to Individuals. The reductions presented in average spreads reflect the change of the loan portfolio’s mix, which has shown an evolution in products with a lower rate and risk and competitive market dynamics.

o   Insurance – the performance in the periods is primarily due to the movement of the price indexes (IGP-M and IPCA), besides, in the 3Q18, we had positive effects by the behavior of the interest rates.

o   ALM / Other – it reflects the greater efficiency in the operations of the treasury in the management of proprietary positions of assets/liabilities (ALM).

R$ million               
  3Q18  2Q18  3Q17  9M18  9M17     Variation  
NII - Earning Portion            3Q18 x  3Q18 x  9M18 x 
Breakdown             2Q18  3Q17  9M17 
Credit Intermediation  12,323  12,127  12,119  36,140  37,417  196  204  (1,277) 
Insurance  1,193  988  1,503  3,707  4,177  205  (310)  (470) 
ALM/Other  2,067  1,864  1,814  6,208  5,520  203  253  688 
NII - Interest-Earning Portion  15,583  14,979  15,436  46,055  47,114  604  147  (1,059) 

 

                           NII - Interest-Earning 
R$ million  Credit Intermediation    Insurance      ALM/Other      Portion   
  3Q18 x 3Q18 x 9M18 x 3Q18 x 3Q18 x 9M18 x 3Q18 x 3Q18 x 9M18 x 3Q18 x 3Q18 x 9M18 x
Volume x Spread  2Q18 3Q17 9M17 2Q18 3Q17 9M17 2Q18 3Q17 9M17 2Q18 3Q17 9M17
NII - Interest-earning portion - due to volume  613  951  567  5  104  353  69  (146)  (574)  687  909  346 
NII - Interest-earning portion - due to spread  (417)  (747)  (1,844)  200  (414)  (823)  134  399  1,262  (83)  (762)  (1,405) 
Variation NII - Interest-Earning Portion  196  204  (1,277)  205  (310)  (47 0)  203  253  688  604  147  (1,059) 

Earning Portion of Credit Intermediation vs. ALL (Expanded)
 

The increase in the average business volume fueled the growth of the gross credit intermediation margin, as well as the quality improvement of the portfolio reflected in the reduction of the cost of delinquency (Expanded ALL), is contributing with the growth of the net margin.

 
 

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

Flow of Maturities (1)

As one of its features, the loan portfolio by flow of maturities of operations has a longer profile, mainly due to the presence of real estate financing and payroll-deductible loans. It must be noted that, due to their guarantees and characteristics, these operations not only present a lower risk, but also provide favorable conditions to gain customer loyalty.

 

(1) Only normal course operations.

 

DelinquencyRatio

Over 90 days

For the sixth consecutive quarter, delinquency declined, reflecting the better quality of the new captures and adjustments in the credit granting and recovery processes. All portfolios showed an improvement in the index since early 2018, mainly for micro, small and medium-sized enterprises, whose balance in arrears declined 11% in the quarter and 28% within 12 months, and the individuals indicator, which decreased by 13% in the balance in arrears within 12 months, a reflex of the strategy of change of mix in the portfolio, which occurred during the periods. Since the peak of total delinquency in March 2017, the index presents a decrease of 2.0 p.p.

 

15-90 days

In the quarter and in the last 12 months, short-term delinquency showed an improvement following the trend of reduction observed in the series. It is highlighted the constant improvement for micro, small and medium-sized enterprises portfolio showed since early 2018.

 

 

Effective Coverage Ratio

Accompanying the constant improvement of the delinquency ratio and the low levels in the origination of overdue loans (NPL Creation), the net losses of recoveries estimated for September 2018 point to 2.6%, the lowest rate over the last eight years, resulting in a effective coverage ratio of 342%.


NPL Creation – 90 days vs. Write-offs

As a reflection of the strengthening of the policy and of the processes of granting credit and credit recovery, the total NPL Creation in relation to the portfolio remained stable in the quarter, and showed an improvement in all portfolios compared with 3Q17. It is highlighted the micro, small and medium-sized enterprises’ portfolio, whose origination of credits in arrears decreased 25% in the quarter, registering the lowest level since the calculation of this indicator began.

Below, we have demonstrated the opening of the NPL Creation per portfolio.

 

 

 
 

Coverage Ratio

Following the constant improvement of the indicators of delinquency, coverage ratios showed another quarter with improvement, reaching very satisfying levels. Along with the allowance for loan losses required by Bacen, we have an excess provision of R$6.9 billion to cover possible adverse scenarios, as well as other operations and commitments related to credit risk.

Bacen Portfolio vs. Expanded Portfolio

The loan portfolio (Bacen) of September 2018, which registered a positive increase in the quarter and in the last 12 months, was boosted both by operations with Companies and operations with Individuals, with emphasis on personal loans and payroll-deductible loans, real estate financing and vehicle.

We emphasize the average daily origination of the operations with Individuals, which grew 8% compared to the previous quarter, and was 30% higher than the daily average of the 3Q17. For Companies, growth in comparison to 3Q17 was 41%, and an 8% decrease in comparison to the previous quarter, mainly due to the lower product origination from directed resources.

In the expanded portfolio, we highlight the growth in 12 months of operations with debentures, in which the majority are designed for large corporates.

  Sept18  June18  Sept17  Variation % 
           Quarter  12 months 
Individuals  185,249  181,751  171,008  1.9  8.3 
Companies  213,755  209,054  197,891  2.2  8.0 
Loan Portfolio - Bacen  399,004  390,805  368,899  2.1  8.2 
Sureties and Guarantees  71,462  71,765  72,511  (0.4)  (1.4) 
Operations bearing Credit Risk - Commercial Portfolio (1)  47,479  47,776  42,875  (0.6)  10.7 
Other (2)  5,486  5,289  2,579  3.7  112.7 
Expanded Loan Portfolio  523,431  515,635  486,864  1.5  7.5 
    Without exchange variation  1.2  5.6 
(1) It includes debentures operations and promissory notes; and
(2) It considers letters of credit, advances of credit card receivables and co-obligation in the assignment (CRI and rural credit).
 
 

Expanded Loan Portfolio Breakdown by Customer Profile, Product and Currency

R$ million        
  Sept18  June18  Sept17   Variation %
            Quarter  12 months 
Individuals  186,159  182,817  172,207  1.8  8.1 
Consumer Financing  123,612  120,856  112,391  2.3  10.0 
Payroll-deductible Loans  48,572  46,593  42,551  4.2  14.2 
Credit Card  33,150  33,606  32,867  (1.4)  0.9 
CDC / Vehicle Leasing  22,643  22,167  19,851  2.1  14.1 
Personal Loans  19,247  18,490  17,122  4.1  12.4 
Real Estate Financing  37,051  35,618  33,305  4.0  11.2 
Other Products  25,496  26,343  26,511  (3.2)  (3.8) 
Rural Loans  7,845  8,323  7,881  (5.7)  (0.5) 
BNDES/Finame Onlendings  6,122  6,214  6,426  (1.5)  (4.7) 
Other  11,529  11,806  12,204  (2.3)  (5.5) 
Companies  337,272  332,818  314,657  1.3  7.2 
Working Capital  40,022  39,830  39,739  0.5  0.7 
Operations Abroad  38,470  35,982  30,534  6.9  26.0 
Export Financing  37,027  35,302  29,376  4.9  26.0 
Real Estate Financing  24,515  25,425  27,712  (3.6)  (11.5) 
BNDES/Finame Onlendings  19,130  19,858  24,956  (3.7)  (23.3) 
Overdraft Account  6,670  6,787  6,829  (1.7)  (2.3) 
CDC / Leasing  8,649  7,868  6,933  9.9  24.8 
Rural Loans  6,558  7,300  5,756  (10.2)  13.9 
Sureties and Guarantees  70,839  71,002  71,669  (0.2)  (1.2) 
Operations bearing Credit Risk - Commercial Portfolio  47,479  47,776  42,875  (0.6)  10.7 
Other  37,913  35,688  28,278  6.2  34.1 
Expanded Loan Portfolio  523,431  515,635  486,864  1.5  7.5 
Domestic Currency  477,831  472,294  447,477  1.2  6.8 
Foreign Currency  45,600  43,341  39,387  5.2  15.8 
 
 

 


 
 

Expanded Loan Portfolio Concentration – By Economic Sector

 
R$ million  Sept18  %  June18  %  Sept17  % 
Economic Sector             
Public Sector  12,575  2.4  12,494  2.4  14,179  2.9 
Oil, derivatives and aggregate activities  10,339  2.0  10,023  1.9  11,129  2.3 
Production and distribution of electricity  1,017  0.2  1,228  0.2  1,885  0.4 
Other sectors  1,219  0.2  1,243  0.2  1,165  0.2 
Private Sector  510,856  97.6  503,141  97.6  472,685  97.1 
Companies  324,697  62.0  320,324  62.1  300,478  61.7 
Real estate and construction activities  32,978  6.3  34,963  6.8  35,312  7.3 
Retail  33,761  6.4  32,949  6.4  31,964  6.6 
Transportation and concession  25,138  4.8  24,289  4.7  24,710  5.1 
Services  29,840  5.7  28,196  5.5  22,073  4.5 
Wholesale  14,851  2.8  14,229  2.8  16,123  3.3 
Automotive  16,074  3.1  15,199  2.9  15,603  3.2 
Food products  14,141  2.7  14,119  2.7  11,625  2.4 
Other sectors  157,914  30.2  156,380  30.3  143,068  29.4 
Individuals  186,159  35.6  182,817  35.5  172,207  35.4 
Total  523,431  100.0  515,635  100.0  486,864  100.0 

 

Changes in the Expanded Loan Portfolio – by Rating

Also as a consequence of the reinforcement of credit granting policies and risk management, 95.0% of new borrowers were classified ratings from AA to C, collaborating with the loan portfolio’s quality improvement.

      New customers between     
Changes in Expanded Loan Portfolio by  Total Credit on October de 2017 e  Remaining customers from 
Rating between September 2017 and  September 2018 September de 2018  September 2017 
2018           
  R$ million   % R$ million  %  R$ million  % 
Rating             
AA - C  467,224  89.3  26,127  95.0  441,098  88.9 
D  11,261  2.2  213  0.8  11,048  2.2 
E - H  44,945  8.5  1,160  4.2  43,785  8.9 
Total  523,431  100.0  27,500  100.0  495,931  100.0 

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

The range represented by credits classified between AA - C presented an increase in the periods, remaining at satisfying levels.

    Sept18      June18      Sept17   
Customer Profile    By Rating      By Rating      By Rating   
  AA-C  D  E-H  AA-C  D  E-H  AA-C  D  E-H 
Large Corporates  89.0  2.0  9.0  88.4  2.4  9.3  89.5  2.7  7.8 
Micro, Small and Medium-Sized Enterprises  87.1  3.0  10.0  85.8  3.7  10.5  83.5  4.1  12.3 
Individuals  90.8  1.9  7.3  90.4  2.0  7.6  89.0  2.2  8.8 
Total  89.3  2.2  8.5  88.7  2.5  8.9  88.2  2.8  9.0 

 
 

Portfolio by Debtors

 

Bacen Portfolio Indicators

With the aim of facilitating the monitoring of the quantitative and qualitative performance of our loan portfolio, a comparative summary of the main figures and indicators is presented below:

        Variation% 
        (unless otherwise) 
R$ million (except %)  Sept18  June18  Sept17  Quarter  12 months 
Total Provision  35,237  35,240  36,557  -  (3.6) 
- Specific  14,799  15,432  17,346  (4.1)  (14.7) 
- Generic  13,528  12,905  12,300  4.8  10.0 
- Excess  6,910  6,903  6,911  0.1  - 
Specific Provision / Total Provision (%)  42.0  43.8  47.4  (1.8) p.p.  (5.4) p.p. 
Total Provision / Loans (%)  8.8  9.0  9.9  (0.2) p.p.  (1.1) p.p. 
AA - C Rated Loans / Loans (%)  89.1  88.5  87.4  0.6 p.p.  1.7 p.p. 
D-rated Operations under Risk Management / Loans (%)  2.6  2.9  3.3  (0.3) p.p.  (0.7) p.p. 
E-H rated Loans / Loans(%)  9.0  9.1  9.2  (0.1) p.p.  (0.2) p.p. 
D-rated loans  9,829  11,175  12,300  (12.0)  (20.1) 
Provision for D-rated loans  1,514  1,675  1,935  (9.6)  (21.8) 
Provision / D-rated loans (%)  15.4  15.0  15.7  0.4 p.p.  (0.3) p.p. 
D-H rated Non-Performing Loans  20,458  22,113  24,188  (7.5)  (15.4) 
Total Provision / D-to-H-rated Non-performing Loans (%)  172.2  159.4  151.1  12.8 p.p.  21.1 p.p. 
E-H Rated Loans  33,728  33,828  34,092  (0.3)  (1.1) 
Provision for E-H rated loans  30,902  30,836  32,057  0.2  (3.6) 
Provision / E-H rated loans (%)  91.6  91.2  94.0  0.4 p.p.  (2.4) p.p. 
E-H rated Non-Performing Loans  17,927  18,464  20,719  (2.9)  (13.5) 
Total Provision / E-to-H-rated Non-performing Loans (%)  196.6  190.9  176.4  5.7 p.p.  20.2 p.p. 

 

 

 

Funds Raised and Managed

R$ million         Variation %
  Sept18  June18  Sept17  Quarter   12 months 
Demand Deposits  34,327  31,882  30,324  7.7  13.2 
Savings Deposits  106,375  103,077  98,224  3.2  8.3 
Time Deposits + Debentures  193,124  179,613  172,809  7.5  11.8 
Borrow ing and Onlending  57,307  53,160  54,423  7.8  5.3 
Funds from Issuance of Securities  148,927  153,303  135,839  (2.9)  9.6 
Subordinated Debts  19,295  19,171  27,234  0.6  (29.2) 
Eligible Debt Capital Instruments  30,717  23,585  23,300  30.2  31.8 
Subtotal  590,072  563,791  542,153  4.7  8.8 
Securities Sold Under Agreements to Repurchase (1)  270,148  246,495  290,672  9.6  (7.1) 
Interbank Deposits  815  1,847  1,608  (55.9)  (49.3) 
Working Capital (Ow n/Managed)  89,335  86,410  82,130  3.4  8.8 
Foreign Exchange Portfolio  8,923  16,150  10,823  (44.7)  (17.6) 
Payment of Taxes and Other Contributions  3,893  3,483  4,353  11.8  (10.6) 
Technical Provisions for Insurance, Pension Plans and Capitalization Bonds  254,653  252,072  239,287  1.0  6.4 
Funds raised  1,217,839  1,170,248  1,171,026  4.1  4.0 
Investment Funds and Managed Portfolios  871,231  843,865  820,682  3.2  6.2 
Total Assets under Management  2,089,070  2,014,113  1,991,708  3.7  4.9 
(1) Does not consider debentures.

 

Loans vs. Funding

In order to analyze loan operations in relation to funding, the following should be deducted from the total client funding the amount committed to reserve requirements at Bacen, the amount of funds available within the customer service network and the addition of funds from domestic and foreign lines of credit that finance the demand for loans. We show low dependency on interbank deposits and foreign lines of credit, given its capacity to obtain funding from clients effectively.

This is a result of significant capillarity, the broad diversity of products offered, and the market’s confidence in the Bradesco brand and the important presence in the client’s sector.

Note that the percentage of funds used provides a comfortable margin. Essentially, it proves that we are capable of meeting demands for loaning funds through our own funding.

       
R$ million  Sept18  June18  Sept17   Variation %
           Quarter  12 months 
Funding vs. Investments           
Demand Deposits + Sundry Floating  38,220  35,365  34,677  8.1  10.2 
Savings Deposits  106,375  103,077  98,224  3.2  8.3 
Time Deposits + Debentures  193,124  179,613  172,809  7.5  11.8 
Funds from Financial Bills  145,628  149,901  132,965  (2.9)  9.5 
Customer Funds (1) 483,347  467,956  438,675  3.3  10.2 
(-) Reserve Requirements  (80,224)  (71,400)  (69,175)  12.4  16.0 
(-) Available Funds (Brazil)  (11,582)  (10,495)  (14,070)  10.4  (17.7) 
Customer Funds Net of Reserve Requirements  391,541  386,061  355,430  1.4  10.2 
Borrow ing and Onlending  57,307  53,160  54,423  7.8  5.3 
Other (Securities Abroad + Subordinated Debt + Other Borrow ers - Cards)  74,126  69,241  77,011  7.1  (3.7) 
Total Funding (A)  522,974  508,462  486,864  2.9  7.4 
Expanded Loan Portfolio (Excluding Sureties and Guarantees) (B)  451,969  443,870  414,353  1.8  9.1 
B / A  86.4%  87.3%  85.1%  (0.9) p.p.  1.3 p.p. 
(1) It considers: Demand Deposits, Miscellaneous Floating, Saving Deposits, Time Deposits, Debentures (with collateral of repo operations) and Credit Notes (considers Mortgage Bonds, Letters of Credit for Agribusiness, Financial Bills and Structured Operations Certificate).
 

 
 

Below is an analysis of Grupo Bradesco Seguro’s Balance Sheet and Consolidated Statement of Income.

Consolidated Balance Sheet

        Variation %
R$ million  Sept18  June18  Sept17  Sept18 x   Sept18 x
        June18   Sept17
Assets           
Current and Long-Term Assets  290,985  289,821  276,985  0.4  5.1 
Securities  279,870  278,828  266,232  0.4  5.1 

Life and Pension Plans 

 237,531  236,281  227,009  0.5  4.6 

Other Lines 

 42,338  42,547  39,223  (0.5)  7.9 
Insurance Premiums Receivable  3,788  3,676  3,698  3.0  2.4 
Other Loans  7,327  7,317  7,055  0.1  3.9 
Permanent Assets  6,882  6,561  5,557  4.9  23.8 
Total  297,868  296,383  282,542  0.5  5.4 
            
Liabilities           
Current and Long-Term Liabilities  265,547  262,485  249,945  1.2  6.2 
Tax, Civil and Labor Contingencies  2,426  2,349  2,027  3.3  19.7 
Payables on Insurance, Pension Plan and Capitalization Bond Operations  607  592  705  2.6  (13.9) 
Other liabilities  7,861  7,473  7,926  5.2  (0.8) 
Insurance Technical Provisions  15,877  15,791  14,761  0.5  7.6 
Life and Pension Plan Technical Provisions  230,754  228,408  217,106  1.0  6.3 
Capitalization Bond Technical Provisions  8,022  7,873  7,420  1.9  8.1 
Non-controlling Interest  661  649  696  1.8  (5.0) 
Shareholder's Equity (1) 31,659  33,249  31,901  (4.8)  (0.8) 
Total  297,868  296,383  282,542  0.5  5.4 

(1) The reduction of the shareholder’s equity of September /18 in comparison to June/18, is due to the payment of dividends in the amount of R$3.0 billion. In September 2018, the shareholders’ equity of Bradesco Seguros S.A., which controls the operational companies (insurance, pension and capitalization), is of R$17,515 million.

Consolidated Statement of Income

               Variation %
R$ million  3Q18  2Q18  3Q17  9M18  9M17  3Q18 x 3Q18 x 9M18 x
            2Q18 3Q17 9M17
Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income  17,588  18,223  18,637  53,381  55,097  (3.5)  (5.6)  (3.1) 
Variation from Technical Provisions for Insurance, Pension Plans and Capitalization Bonds (1) (6,870)  (7,148)  (8,264)  (21,728)  (23,987)  (3.9)  (16.9)  (9.4) 
Premiums Earned from Insurance, Pension Plan Contribution and Capitalization  10,718  11,075  10,373  31,653  31,110  (3.2)  3.3  1.7 
Bond Income                 
Retained Claims  (6,564)  (6,628)  (6,559)  (19,445)  (19,410)  (1.0)  0.1  0.2 
Capitalization Bond Draws and Redemptions  (1,357)  (1,472)  (1,429)  (4,094)  (4,138)  (7.8)  (5.0)  (1.1) 
Selling Expenses  (798)  (770)  (874)  (2,395)  (2,643)  3.6  (8.7)  (9.4) 
Income from Insurance, Pension Plans and Capitalization Bonds  1,999  2,205  1,511  5,719  4,919  (9.3)  32.3  16.3 
General and Administrative Expenses  (814)  (752)  (811)  (2,256)  (2,237)  8.2  0.4  0.8 
Tax Expenses  (228)  (204)  (198)  (637)  (660)  11.8  15.2  (3.5) 
Other Operating Income / Expenses  192  431  375  1,033  540  (55.5)  (48.8)  91.3 
Operating Income  1,149  1,680  877  3,859  2,562  (31.6)  31.0  50.6 
Financial Results  1,232  1,016  1,501  3,860  4,011  21.3  (17.9)  (3.8) 
Equity Results  181  157  168  495  573  15.3  7.7  (13.6) 
Income before Taxes and Profit Sharing  2,562  2,853  2,546  8,214  7,146  (10.2)  0.6  14.9 
Taxes and Contributions  (1,046)  (1,207)  (979)  (3,403)  (2,820)  (13.3)  6.8  20.7 
Profit Sharing  (27)  (24)  (27)  (77)  (77)  12.5  -  - 
Non-controlling interests in subsidiaries  (27)  (40)  (57)  (127)  (122)  (32.5)  (52.6)  4.1 
Net Income  1,462  1,582  1,483  4,607  4,127  (7.6)  (1.4)  11.6 
(1) It includes reinsurance premiums.
Note: For comparison purposes, the effects of non-recurring events are not considered.

 

 
 

 
 

 

 
 

The decrease of the 3Q18 net income relating to previous quarter is due to the general drop in the turnover of the pension market, of the seasonality of the pension plan sales when compared with the previous quarter, as well as the effects of reversal of technical provisions occurred in the 2Q18, in the gross amount of R$324 million (R$178 million in gain of taxes) in compliance with the standard that provisions on the Liability Adequacy Test - LAT, which recurrently occurs in June and December. These effects were partially offset by the decrease in claims, which is showing a gradual improvement throughout this year, and by the rationalization of the expenditure which positively affects the administrative efficiency ratio.

In relation to 3Q17, the decrease of the net income is related to the lower market billing and to the decrease in financial results, which reflected the behavior of the economic indicators in the period. These effects were also partially offset by the improvement of the claim ratio.

Evaluation of Participants and Life and Personal Accident Policyholders

The net income increase of the 3Q18 compared to the previous quarter and to the 3Q17 mainly reflects the higher income, improvement of claims, whose performance was benefitted by the strategic actions that improved the level of retention of clients through renegotiations, the offer of new products and new ways of renegotiating the contracts, commercialization and administrative efficiency ratios, and the increase in financial results.

Number of Bradesco Saúde and Mediservice Policyholders

 
 
 

Capitalization Bonds

 

In relation to the previous quarter, the results were influenced by the income and financial income decrease. The maintenance of administrative efficiency ratio is highlighted.

The performance of net income in 3Q18 in comparison to the 3Q17 is due to the improvement of the operating incomes and the maintenance of administrative efficiency ratio, partly impacted by the decrease in financial income.

Auto and Property & Casualty

The performance of net income in comparison to 3Q17 mainly demonstrates the improvement of the claim, efficiency and commercialization ratios. In the quarterly comparison, results were partly impacted by the income and financial income decrease.

 
 

Below is the composition of fee and commission income in the respective periods:

              Variation %     
                   As % of 
R$ million  3Q18  2Q18  3Q17  9M18  9M17  3Q18 x  3Q18 x  9M18 x  9M18 
             2Q18  3Q17  9M17   
Card Income  2,865  2,788  2,789  8,416  8,076  2.8  2.7  4.2  35.0 
Checking Account  1,814  1,765  1,679  5,327  4,931  2.8  8.0  8.0  22.2 
Asset Management  1,008  1,007  977  3,009  2,787  0.1  3.2  8.0  12.5 
Loans Operations  728  801  718  2,253  2,223  (9.1)  1.4  1.3  9.4 
Collections and Payments  602  618  601  1,832  1,763  (2.6)  0.2  3.9  7.6 
Consortium Management  435  412  390  1,230  1,137  5.6  11.5  8.2  5.1 
Custody and Brokerage Services  233  256  228  723  652  (9.0)  2.2  10.9  3.0 
Underw riting / Financial Advisory Services  179  256  222  588  556  (30.1)  (19.4)  5.8  2.4 
Other  208  216  218  644  623  (3.7)  (4.6)  3.4  2.7 
Total  8,072  8,119  7,822  24,022  22,748  (0.6)  3.2  5.6  100.0 
Business Days  64  63  64  188  188  1  -  -  - 

 

Highlights

The income increase within 12 months reflects the good performance in practically all the lines. The decrease observed between the current and the previous quarter, reflects the lower activity in the capital market, impacting our incomes of underwriting/ financial advisory services, the lower volumes negotiated on the market that influenced the performance of the brokerage revenues and the lower incomes of loan operations, given the strong performance in 2Q18 of this revenue. We highlight that the good performance of revenue derives from the largest volume of operations, driven by a greater supply of products and services, widely available in digital and traditional channels and the higher number of business days. The results also show signs of constant improvements in the management of the products and services portfolio, as well as with benefits of the process of segmentation of clients and the gains of synergies obtained with the acquisition of HSBC Brasil.

Below are some highlights that influence the results from fee and commission income in the periods:

o    Card Income – good performance in the periods reflects the increase in the number of transactions and the larger volume transacted.

o    Checking Account – performance has been reflecting on the improvement in the management of the portfolio of services provided, highlighting the continuous process of improvement and expansion of the variety of products offered to clients according to their segmentation.

o    Asset Management – the evolution in the comparison to 3Q17 reflects the distribution strategy focused in the improvement of the mix of products according to the recommended portfolio, aligned with the needs and the shareholder’s profile.

o    Consortium Management – among the various actions that aimed to optimize the results, we highlight the review of the portfolio for a more customized offer, with differentiated terms and rates for each business segment and the improvement of the digital features, which are reflected in the increase of this line, highlighting that Bradesco Consórcios continues leading in the segments in which it operates (real estate, auto and trucks/machinery and equipment).

o    Custody and Brokerage Services – the variation of the quarterly comparison was impacted by the decrease of the brokerage revenues, due to the lower volumes traded at B3. In comparison to 3Q17, the performance benefitted mainly due to higher revenues with custody, reflecting the increase in volume of custodied assets.

o    Underwriting / Financial Advisory Services – decrease in the quarter and in 12 months as a result of lower activity of the capital market, mainly in structured operations and of variable/fixed income.

 

 

 

Personnel and Administrative Expenses

               Variation %   As % of
R$ million  3Q18 2Q18 3Q17 9M18 9M17 3Q18 x  3Q18 x 9M18 x 9M18
             2Q18  3Q17 9M17  
Personnel Expenses                   
Structural  4,064  3,905  4,022  11,848  12,038  4.1  1.0  (1.6)  39.9 
Payroll/Social Charges  2,935  2,831  2,831  8,523  8,585  3.7  3.7  (0.7)  28.7 
Benefits  1,129  1,074  1,191  3,325  3,453  5.1  (5.2)  (3.7)  11.2 
Non-Structural  942  1,022  811  2,914  2,584  (7.8)  16.2  12.8  9.8 
Management and Employee Profit Sharing  552  511  373  1,529  1,364  8.0  48.0  12.1  5.2 
Provision for Labor Claims  265  397  336  1,069  714  (33.2)  (21.1)  49.7  3.6 
Training  51  41  51  113  127  24.4  -  (11.0)  0.4 
Termination Costs  74  73  51  203  379  1.4  45.1  (46.4)  0.7 
Total  5,006  4,927  4,833  14,762  14,622  1.6  3.6  1.0  49.8 
Administrative Expenses                    
Outsourced Services  1,198  1,165  1,193  3,472  3,503  2.8  0.4  (0.9)  11.7 
Depreciation and Amortization  729  722  693  2,164  2,061  1.0  5.2  5.0  7.3 
Data Processing  661  657  627  1,922  1,834  0.6  5.4  4.8  6.5 
Communication  428  432  473  1,296  1,402  (0.9)  (9.5)  (7.6)  4.4 
Asset Maintenance  336  296  278  888  665  13.5  20.9  33.5  3.0 
Rent  299  307  315  896  921  (2.6)  (5.1)  (2.7)  3.0 
Advertising and Marketing  299  299  295  902  909  -  1.4  (0.8)  3.0 
Financial System Services  243  223  254  706  769  9.0  (4.3)  (8.2)  2.4 
Security and Surveillance  187  190  205  572  624  (1.6)  (8.8)  (8.3)  1.9 
Transportation  186  189  201  564  590  (1.6)  (7.5)  (4.4)  1.9 
Utilities (Water, Electricity and Gas)  99  101  90  306  306  (2.0)  10.0  -  1.0 
Travel  64  75  57  193  178  (14.7)  12.3  8.4  0.7 
Materials  54  64  67  177  213  (15.6)  (19.4)  (16.9)  0.6 
Other  310  273  282  838  807  13.6  9.9  3.8  2.8 
Total  5,093  4,993  5,030  14,896  14,782  2.0  1.3  0.8  50.2 
Total Operating Expenses  10,099  9,920  9,863  29,658  29,404  1.8  2.4  0.9  100.0 
Customer Service Points  75,804  74,814  73,209  75,804  73,209  1.3  3.5  3.5  - 

Personnel Expenses – In the “structural portion" the increase, both in the quarterly comparison and in the annual comparison (3Q18 x 3Q17), is related to the effects of the collective bargaining of 2018/2019, whose readjustment for this year was of 5%. We highlight the reduction noted in the period accumulated (9M18 x 9M17), which reflects, particularly the effects of PDVE, occurred in August 2017. In relation to the "non-structural" part, we can observe, in the quarter and relating to 3Q17, lower expenses with the provision for labor claims, reflecting the lower volume of lawsuits. The increase we attained in the expenses with the Profit Sharing of employees reflects the increase of net income in the period.

In the quarter, the increase in the number of employees comprises the expansion of our digital areas and corporate security, due to the increasing demand for innovation and interaction with clients, in addition to the increased sales force in the branch network.

Administrative Expenses – The increase of expenses in the periods comes from higher volume of business and services and higher expenses with advertising and marketing. In relation to the 3Q17, the expenses showed a good performance, mainly if we consider inflation in the period, highlighting the adjustments made in several lines, such as transportation, security and surveillance, communication, materials and financial system services, showing the gains in synergy resulting from the acquisition of HSBC Brasil and the strategy of optimization of the points of service.

 

 

 

Operating Coverage Ratio (1)

 

For the fifth quarter in a row the coverage ratio presented an improvement, capturing the PDVE benefits, the revenue gained from the synergy of the acquisition of HSBC Brasil and the strategy of optimization of the points of service. We also highlight the performance of revenue from fee and commission income, which have been registering the positive results of the process of segmentation of clients and the efficiency obtained in the management and offer of products and services.

 Other Operating Expenses, Net of Income

In the quarterly comparison (3Q18 x 2Q18), the performance of this line reflects the lower expenses with marketing of cards and in the 3Q17 comparison, the growth is justified by the reversal of the provision of social security contribution in the amount of R$348 million, carried out in 3Q17. Excluding this effect, this line would present a decrease of 3.4% in the annual comparision (3Q18 x 3Q17).

In the accrued period (9M18 x 9M17), the 14.8% growth includes, in addition to the reversal mentioned above, reversals of provisions of PIS (Social Integration Program) in the amount of R$191 million and of IRPJ/CSLL (Corporate Income Tax/Social Contribution on Net Income) on losses of credits, in the amount of R$181 million, both made in 1Q17. Disregarding these effects, this line would present an increase of 1.4% in this period.

Basel Ratio

The improvement of capital tier I ratio is related to the good internal generation capital (net income), that continues with relevant contribution to the indicator, and by effects of Resolution No. 4,680/18.

The improvement of capital tier II reflects the subordinate debts authorized by the Central Bank, in September 2018, for the amount of approximately R$7 billion. Regarding the issue of subordinated perpetual debts that were submitted for approval by the Central Bank, in the total amount of R$1.7 billion, performed in September and October 2018, the Tier I capital ratio would be 12.5%.

 

 
 

R$ million  3Q18  2Q18  1Q18  4Q17  3Q17  2Q17  1Q17  4Q16 
Income Statement for the Period                 
  Recurring Net Income (1)  5,471  5,161  5,102  4,862  4,810  4,704  4,648  4,385 
  Total Net Interest Income  15,749  15,084  15,686  15,813  15,361  15,892  16,036  16,440 
  Gross Credit Intermediation Margin  12,323  12,127  11,690  12,129  12,119  12,517  12,781  13,586 
  Net Credit Intermediation Margin  8,811  8,690  7,798  6,724  7,540  7,139  7,499  7,290 
  Expanded ALL  (3,512)  (3,437)  (3,892)  (5,405)  (4,579)  (5,378)  (5,282)  (6,296) 
  Fee and Commission Income  8,072  8,119  7,831  8,062  7,822  7,496  7,430  7,545 
  Administrative and Personnel Expenses  (10,099)  (9,920)  (9,639)  (10,218)  (9,863)  (9,865)  (9,676)  (10,482) 
  Insurance Written Premiums, Pension Plan Contributions and  17,588  18,223  17,570  21,192  18,637  18,512  17,948  21,247 
  Capitalization Bond Income                 
Statement of Financial Position                 
  Total Assets (2)  1,356,748  1,306,209  1,303,842  1,298,328  1,311,672  1,291,184  1,294,139  1,293,559 
  Securities  634,066  598,128  585,837  584,650  572,099  540,106  549,700  549,873 
  Expanded Loans Portfolio  523,431  515,635  486,645  492,931  486,864  493,566  502,714  514,990 
  - Individuals  186,159  182,817  177,814  175,469  172,207  172,045  171,820  172,045 
  - Companies  337,272  332,818  308,831  317,462  314,657  321,521  330,894  342,945 
  Allow ance for Loan Losses (ALL)  (35,237)  (35,240)  (35,763)  (36,527)  (36,557)  (37,536)  (39,181)  (40,714) 
  Total Deposits  319,375  299,604  271,391  265,278  259,577  260,120  235,432  234,214 
  Technical Provisions  254,653  252,072  251,231  246,653  239,287  233,640  229,433  223,342 
  Shareholders' Equity  115,670  113,039  113,776  110,457  110,301  106,807  104,558  100,442 
  Assets under Management  2,089,070  2,014,113  2,003,948  1,987,487  1,991,708  1,917,827  1,943,687  1,904,912 
Performance Indicators (%)                 
  Recurring Net Income per Share - R$ (3) (4)  3.08  2.98  2.91  2.84  2.77  2.72  2.64  2.56 
  Book Value per Common and Preferred Share - R$ (4)  17.28  16.89  17.00  16.50  16.48  15.96  15.62  15.01 
  Annualized Return on Average Equity (5) (6)  18.7  18.5  18.6  18.1  18.1  18.2  18.3  17.6 
  Annualized Return on Average Assets (6)  1.6  1.6  1.6  1.5  1.5  1.4  1.4  1.5 
  12-month Net Interest Margin - NIM = Adjusted Net Interest  6.3  6.4  6.6  6.7  6.9  7.2  7.4  7.6 
  Income /Average Assets – Repos – Permanent Assets                 
  Fixed Asset Ratio (7)  38.0  44.9  43.1  43.4  38.9  39.6  42.3  44.8 
  Combined Ratio - Insurance (8)  84.1  84.8  85.3  86.1  86.2  86.6  85.2  85.9 
  Efficiency Ratio (ER) (3) (11)  40.8  41.0  40.9  40.8  40.7  40.6  40.0  38.9 
  Coverage Ratio (Fee and Commission Income/Administrative and                 
  Personnel Expenses) (3)  80.5  80.3  78.8  77.8  75.9  74.3  75.3  76.2 
  Market Capitalization - R$ million (9)  182,110  171,604  237,219  200,521  208,250  169,618  178,208  160,813 
Loan Portfolio Quality (Bacen) - %                 
  ALL / Loan Portfolio  8.8  9.0  9.6  9.9  9.9  10.0  10.3  10.4 
  Non-performing Loans (> 60 days (10) / Loan Portfolio)  4.4  4.8  5.4  5.6  5.7  6.0  6.7  6.5 
  Delinquency Ratio (> 90 days (10) / Loan Portfolio)  3.6  3.9  4.4  4.7  4.8  4.9  5.6  5.5 
  Coverage Ratio (> 90 days (10))  243.4  230.0  219.3  211.4  207.7  202.5  182.1  188.4 
  Coverage Ratio (> 60 days (10))  200.9  189.4  179.7  175.0  174.6  167.0  154.0  158.8 
Operating Limits %                 
  Basel Ratio - Total (7)  16.8  14.9  15.9  17.1  17.7  16.7  15.3  15.4 
  Tier I Capital  12.2  11.4  12.4  13.1  13.4  12.5  12.0  12.0 
  - Common Equity  11.4  10.6  11.6  12.3  12.5  11.6  11.2  11.2 
  - Additional Capital  0.8  0.8  0.8  0.8  0.9  0.9  0.8  0.8 
  Tier II Capital  4.5  3.5  3.5  4.0  4.3  4.2  3.3  3.4 
 
(1)  According to the non-recurring events described on page 5 of this Economic and Financial Analysis Report;
(2)  For more information, please check note 4 – Balance Sheet and Managerial Statement of Income, in “Complete Financial Statements” of this report;
(3)  In the last 12 months;
(4)  For comparison purposes, shares were adjusted in accordance with bonuses and stock splits of the period;
(5)  Excluding mark-to-market effect of Available-for-Sale Securities recorded under Shareholders’ Equity;
(6)  Year-to-Date RecurringNet Income;
(7)  Index calculation has followed regulatory guidelines set forth in Resolutions No. 4,192/13 (Prudential Conglomerate) and No. 4,193/13 (Basel III);
(8)  Excludes additional reserves;
(9)  Number of shares (excluding treasury shares) multiplied by the closing price for common and preferred shares on the period’s last trading day;
(10)

Overdue loans; and

(11)

ER = (Personnel Expenses – Employee Profit Sharing + Administrative Expenses)/ (Net Interest Income + Fee and Commission Income + Income from Insurance + Equity in the Earnings (Losses) of Unconsolidated Companies + Other Operating Income – Other Operating Expenses)

 

 
 

 Analytical Breakdown of Statement of Income – Managerial(1) vs. Recurring(3)

3Q18 x 2Q18
 
  Third Quarter of 2018 Second Quarter of 2018
R$ million Managerial Income
Statement (1)
Reclassifications (2)		 Non-Recurring
Events		 Recurring
Income
Statement (3)		 Managerial Income
Statement (1)		 Reclassifications (2) Non-Recurring
Events

Recurring
Income
Statement (3)

Net Interest Income  16,390  (641)  -  15,749  9,569  5,515  -  15,084 
Expanded ALL  (4,857)  1,345  -  (3,512)  (4,369)  932  -  (3,437) 
Gross Income from Financial Intermediation  11,533  704  -  12,237  5,200  6,447  -  11,647 
Income from Insurance, Pension Plans and                 
Capitalization Bonds  1,999  -  -  1,999  2,205  -  -  2,205 
Fee and Commission Income  8,050  22  -  8,072  8,071  48  -  8,119 
Personnel Expenses  (5,006)  -  -  (5,006)  (4,927)  -  -  (4,927) 
Other Administrative Expenses  (5,093)  -  -  (5,093)  (4,993)  -  -  (4,993) 
Tax Expenses  (1,965)  192  69  (1,704)  (1,046)  (785)  -  (1,831) 
Equity in the earnings (losses) of unconsolidated  41  -  -  41  48  -  -  48 
and jointly controlled subsidiaries                 
Other Operating Income / Expenses  (3,104)  542  443  (2,119)  (3,126)  351  651  (2,124) 
Operating Income  6,455  1,460  512  8,427  1,432  6,061  651  8,144 
Non-Operating Income  (332)  306  9  (17)  (121)  104  -  (17) 
Income Tax / Social Contribution and  (1,114)  (1,766)  (59)  (2,939)  3,217  (6,165)  (18)  (2,966) 
Non-controlling Interest                 
Net Income  5,009  -  462  5,471  4,528  -  633  5,161 
 
(1) For more information, please check note 4 – Balance Sheet and Managerial Statement of Income, in the “Complete Financial Statements” chapter of this report;
(2) It includes reclassifications in items from the statement of income which do not affect the Net Income, but allow a better analysis of business items, hedge adjustment, which represents the partial result of derivatives used for hedge investments abroad, 
which in terms of Net Income, simply cancels the tax effect (IR/CS and PIS/COFINS) of this hedge strategy, in the amount of R$1,584 million in 3Q18 and R$6,971 million in 2Q18; and
(3) It refers to Managerial Statement of Income(1) with the reclassifications between lines, which do not affect the Net Income, and without non-recurring events of the period.

 
 

 Analytical Breakdown of Statement of Income – Managerial(1) vs. Recurring(3)

 

9M18 x 9M17                 
 
  First Nine Months of 2018 First Nine Months of 2017
R$ million Managerial
Income
Statement (1) 		 Reclassifications (2) Non-Recurring
Events 		 Recurring
Income
Statement (3) 		 Managerial
Income
Statement (1) 		 Reclassifications (2) Non-Recurring
Events 		 Recurring
Income
Statement (3) 
Net Interest Income  43,242  3,277  -  46,519  52,813  (5,524)  -  47,289 
Expanded ALL  (13,825)  2,984  -  (10,841)  (19,797)  4,558  -  (15,239) 
Gross Income from Financial Intermediation  29,417  6,261  -  35,678  33,016  (966)  -  32,050 
Income from Insurance, Pension Plans and Capitalization                 
Bonds  5,719  -  -  5,719  4,919  -  -  4,919 
Fee and Commission Income  23,956  66  -  24,022  22,782  (34)  -  22,748 
Personnel Expenses  (14,762)  -  -  (14,762)  (16,929)  -  2,307  (14,622) 
Other Administrative Expenses  (14,896)  -  -  (14,896)  (14,796)  (10)  24  (14,782) 
Tax Expenses  (4,682)  (743)  69  (5,356)  (4,968)  (286)  68  (5,186) 
Equity in the earnings (losses) of unconsolidated and  116  -  -  116  162  -  -  162 
jointly controlled subsidiaries                 
Other Operating Income / Expenses  (9,019)  988  1,751  (6,280)  (6,721)  (623)  1,873  (5,470) 
Operating Income  15,849  6,572  1,820  24,241  17,465  (1,919)  4,272  19,819 
Non-Operating Income  (667)  615  9  (43)  (236)  396  (271)  (111) 
Income Tax / Social Contribution and  (1,178)  (7,187)  (99)  (8,464)  (6,363)  1,523  (705)  (5,546) 
Non-controlling Interest                 
Net Income  14,004  -  1,730  15,734  10,866  -  3,296  14,162 
 
(1) For more information, please check note 4 – Balance Sheet and Managerial Statement of Income, in the “Complete Financial Statements” chapter of this report;
(2) It includes reclassifications in items from the statement of income which do not affect the Net Income, but allow a better analysis of business items, particularly hedge adjustment, which represents the partial result of derivatives used for hedge investments 
abroad, which in terms of Net Income, simply cancels the tax effect (IR/CS and PIS/COFINS) of this hedge strategy, in the amount of R$8,761 million in 9M18 and R$1,188 million in 9M17; and
(3) It refers to Managerial Statement of Income(1) with the reclassifications between lines, which do not affect the Net Income, and without non-recurring events of the period.
 

 

         Variation %
R$ million  Sept18  June18  Sept17  Sept18 x Sept18 x
           June18 Sept17
Assets           
Current and Long-Term Assets  1,328,701  1,277,879  1,281,834  4.0  3.7 
Funds available  15,586  15,425  16,927  1.0  (7.9) 
Interbank Investments  112,073  108,615  178,410  3.2  (37.2) 
Securities and Derivative Financial Instruments  634,066  598,128  572,099  6.0  10.8 
Interbank and Interdepartmental Accounts  81,681  72,886  70,152  12.1  16.4 
Loan and Leasing Operations  346,932  340,717  327,426  1.8  6.0 
Allow ance for Loan Losses (ALL)  (35,237)  (35,240)  (36,557)  -  (3.6) 
Other Receivables and Assets  173,600  177,348  153,377  (2.1)  13.2 
Permanent Assets  28,047  28,330  29,838  (1.0)  (6.0) 
Investments  2,192  2,122  2,144  3.3  2.2 
Premises and Equipment and Leased Assets  7,655  7,788  7,453  (1.7)  2.7 
Intangible Assets  18,200  18,420  20,241  (1.2)  (10.1) 
Total  1,356,748  1,306,209  1,311,672  3.9  3.4 
Liabilities            
Current and Long-Term Liabilities  1,238,980  1,191,081  1,199,303  4.0  3.3 
Deposits  319,375  299,604  259,577  6.6  23.0 
Securities sold under agreements to repurchase  285,414  263,310  334,060  8.4  (14.6) 
Funds from Issuance of Securities  148,927  153,303  135,839  (2.9)  9.6 
Interbank and Interdepartmental Accounts  23,761  23,194  25,927  2.4  (8.4) 
Borrow ings and Onlendings  57,307  53,160  54,423  7.8  5.3 
Derivative Financial Instruments  15,519  15,815  14,558  (1.9)  6.6 
Technical provisions for insurance, pension plans and capitalization bonds  254,653  252,072  239,287  1.0  6.4 
Other liabilities  134,024  130,623  135,632  2.6  (1.2) 
Deferred Income  386  388  401  (0.5)  (3.7) 
Non-controlling Interest in Subsidiaries  1,712  1,701  1,667  0.6  2.7 
Shareholders' Equity  115,670  113,039  110,301  2.3  4.9 
Total  1,356,748  1,306,209  1,311,672  3.9  3.4 
 
(1) For more information, please check note 4 – Balance Sheet and Managerial Statement of Income, in the “Complete Financial Statements” chapter of this report.

 

 
 

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Service Channels

   

 

 

 

 

 

 

Variation %

   

Sept18

 

June18

 

Sept17

Sept18 x

Sept18 x

   

 

 

 

 

 

 

June18

 

Sept17

Structural Information - Units  

 

 

 

 

 

 

 

 

 

Customer Service Points

  

75,804

 

74,814

 

73,209

 

1.3

 

3.5

- Branches

  

4,652

 

4,700

 

4,845

 

(1.0)

 

(4.0)

- PAs

  

3,873

 

3,903

 

3,908

 

(0.8)

 

(0.9)

- PAEs

  

916

 

929

 

980

 

(1.4)

 

(6.5)

- Offsite ATM Netw ork - Bradesco

  

54

 

54

 

64

 

-

 

(15.6)

- Banco24Horas Netw ork

  

12,143

 

11,694

 

10,840

 

3.8

 

12.0

- Bradesco Expresso (Correspondent Banks)

  

39,100

 

38,717

 

39,062

 

1.0

 

0.1

- Bradesco Financiamentos

  

14,993

 

14,741

 

13,435

 

1.7

 

11.6

- Losango

  

60

 

63

 

63

 

(4.8)

 

(4.8)

- Branches / Subsidiaries Abroad / Representation office

  

13

 

13

 

12

 

-

 

8.3

ATMs

  

57,898

 

57,697

 

56,860

 

0.3

 

1.8

- Onsite Netw ork - Bradesco

  

35,389

 

35,531

 

35,854

 

(0.4)

 

(1.3)

- Banco24Horas Netw ork

  

22,509

 

22,166

 

21,006

 

1.5

 

7.2

Employees

  

98,159

 

97,683

 

100,688

 

0.5

 

(2.5)

Outsourced Employees and Interns

  

14,990

 

15,016

 

15,376

 

(0.2)

 

(2.5)

Customers - In millions  

 

 

 

 

 

 

 

 

 

Total Customers (1)

  

71.2

 

71.2

 

69.4

 

-

 

2.6

Account Holders (2)

  

28.1

 

28.1

 

27.7

 

-

 

1.4

Savings Accounts

  

59.7

 

57.9

 

59.2

 

3.1

 

0.8

Insurance Group

  

52.4

 

52.2

 

51.5

 

0.4

 

1.7

- Policyholders

  

46.7

 

46.3

 

45.7

 

0.9

 

2.2

- Pension Plan Participants

  

2.9

 

3.1

 

2.8

 

(6.5)

 

3.6

- Capitalization Bond Customers

  

2.8

 

2.8

 

3.0

 

-

 

(6.7)

Bradesco Financiamentos

  

1.3

 

1.3

 

1.3

 

-

 

-

(1) Excludes overlap of clients; and

(2) From the 1Q18 we started considering the salary account. For the effect of comparability the previous periods, presented in this report, have been reclassified.

 

 

Market Share of the Branches

 

 

Sept18

 

Market

 

Sept17

 

Market

Region

 

Bradesco

 

Market

 

Share

 

Bradesco

 

Market

 

Share

North

 

263

 

1,099

 

23.9%

 

271

 

1,104

 

24.5%

Northeast

 

851

 

3,379

 

25.2%

 

851

 

3,426

 

24.8%

Midw est

 

379

 

1,702

 

22.3%

 

414

 

1,731

 

23.9%

Southeast

 

2,416

 

10,673

 

22.6%

 

2,519

 

10,879

 

23.2%

South

 

743

 

3,829

 

19.4%

 

790

 

3,879

 

20.4%

Total

 

4,652

 

20,682

 

22.5%

 

4,845

 

21,019

 

23.1%

 

 
 

 
 

 

 

 

Officially launched to the market on October 30, 2017, Next was established to complement the ecosystem of solutions of the Bradesco Organization. The strategy does not envisage any migratory movement of Bradesco clients, but the conquest of this new and promising market of hyperconnected people.

It was developed as a platform 100% digital, which offers people paths for the achievement of goals, financial management, convenience on a day to day basis, intelligent solutions and the freedom to make decisions when and how they want, as well as being a major hub for connection with other digital platforms that add value and are part of the people's daily lives.

Its language, branding, design and its entire platform were specifically designed to provide customers with an innovative solution, focused on paths and totally integrated with their purposes.

Next has a sophisticated Analytics platform, with predictive algorithms. They are able to map all the

behavior of clients, anticipating actions and suggesting the best solutions for cash management.

It has several financial and non-financial solutions that are designed and constructed from various studies carried out by teams of anthropologists, designers, business and technology.

At the end of the third quarter, Next had 281 thousand Active Accounts, of which 75% were not Bradesco Accounts, i.e., we are addressing a new market. The churn, since the launch has less than 1.5%. By the end of 2018, we expect to achieve the mark of up to 500 thousand accounts, emphasizing that we have around 107 thousand proposals for opening in progress.

In 3Q18, the clients executed 11.1 million transactions, a volume 48% higher than the one performed in the previous quarter.

 

 
 

 

 
 

We control corporate risk management in an integrated and independent manner, preserving and valuing the Board's decisions, developing and implementing methodologies, models and measurement and control tools. We also provide training to employees at every level of the Organization, from business areas to the Board of Directors.

Our risk management structure has policies, standards and procedures, ensuring that our Organization maintains control that is compatible with the nature of its operations and the complexity of its products and services, activities, processes, and systems, as well as the extent of its exposure to risk. It also comprises committees, commissions and departments that support the Board of Executive Officer and the Board of Directors in decision making. The most notable amongst these are the Integrated Risk Management and Capital Allocation Committee (COGIRAC), whose role is to assure the fulfillment of the Organization’s risk management processes and policies, and the Risk Committee, whose main purpose is to assess the structure of the Organization’s risk management and occasionally propose improvements. Both advise the Board of Directors on the performance of its duties in management and the control of risks and capital.

Detailed information regarding risk management process, regulatory capital as well as our risk exposures, can be found in the Risk Management Report – Pillar 3, available on the Investor Relations website at bradescori.com.br.

 
 
 

We have a department responsible for capital management centralization, named Capital Management, subordinated to the Department of Planning, Budget and Control, which acts jointly with the Integrated Risk Control Department, associated companies, business areas and supporting areas.

Additionally, this Governance comprises Executive Committees and Non-Statutory Committees who assist the Board of Directors and Board of Executive Officers in the decision-making process.

The Capital Management structure, through adequate capital sufficiency planning, aims to provide conditions for capital monitoring and control, contributing to the achievement of goals set in the strategic objectives that we have defined.

With the implementation of the Capital Management structure, an internal assessment system was established for capital adequacy (ICAAP), containing the capital plan, which is used to assess its sufficiency, considering the base and stress scenarios in a prospective vision to identify actions of capital and liquidity to be adopted for the respective scenarios.

The process of developing this plan considers threats and opportunities, market share and development goals, requirement projections based on risks, as well as capital held by our Organization. These projections are established for a minimal period of three years and are constantly monitored and controlled by the Capital Management area.

Bradesco has a recovery plan that contains actions of capital and liquidity in compliance with Resolution No. 4,502/16.

Information on capital adequacy and sufficiency and the instruments mentioned represent fundamental tools in the management and support of the decision-making process.

Additional information on the capital management structure is available in the Risk Management Report – Pillar 3, and in the Integrated Report and Recovery Plan (4,502/16), available on the Investor Relations website at bradescori.com.br.

 

 
 

 

 

According to CNSP Resolution No. 321/15, amended by Resolution No. 360/17, corporations should have an adjusted shareholders’ equity (ASE) equal to or higher than the minimum capital required (MCR). MCR is equivalent to the base capital or the risk capital, whichever is higher. According to CNSP Resolution No. 343/16, the ASE is valued economically, and should be calculated based on shareholders’ equity or net assets, considering the accounting adjustments and adjustments associated with changes in economic values. For companies regulated by the ANS, Normative Resolution No. 373/15 establishes that corporations should have adjusted shareholders’ equity (ASE) equal to or higher than the Solvency Margin.

The capital adjustment and management process is continuously monitored and aims to ensure that Grupo Bradesco Seguros keeps a solid capital base to support the development of activities and cope with the risks in any market situation, in compliance with regulatory requirements and/or Corporate Governance principles.

Companies must permanently maintain capital compatible with the risks for their activities and operations, according to the characteristics of each company belonging to Grupo Bradesco Seguros, represented by adequate capital levels. Grupo Bradesco Seguros permanently observes the limits required by the respective regulatory entities. The Minimum Capital Required in August 2018 was R$11.4 billion.

 

 

 

The table below shows the historical composition of the Reference Equity, of the Risk Weighted Assets and of the Basel Ratio.

 

(1) It includes the positive effects of Resolution No. 4,680/18, reducing the impact of tax credits arising from tax losses;

(2) It includes subordinated debt authorized by Central Bank, in September 2018, in the amount of approximately R$7 billion; and

(3) Reduction related to the change in the schedule for applying deductions on the prudential adjustments that is now 100% in 2018 (80% in 2017).

 
 

 

 

 
 

Our Management comprises the Board of Directors, which is composed of eight directors and its Board of Executive Officers, both with their own set of bylaws. According to statutory provision, there is no fulfillment of the posts of Chairman of the Board of Directors and Chief Executive Officer.

Eight committees advise the Board of Directors, which are statutory: (i) Audit; and (ii) Remuneration; and non-statutory: (iii) Ethical Conduct; (iv) Risks; (v) Internal Controls and Compliance; (vi) Integrated Risk Management and Capital Allocation – COGIRAC; (vii) Sustainability and Diversity; and (viii) Succession and Nomination. Various executive committees assist the activities of the Board of Executive Officers, all regulated by their own set of bylaws.

The Fiscal Council, a permanent supervisory body, comprises five effective members. The preferred shareholders and non-controlling shareholders, holders of common shares are responsible for choosing two effective members and their respective alternates. Besides the Fiscal Council and the Audit Committee, Bradesco is submitted to Internal Audit certified by the IIA (Institute of Internal Auditors of Brazil) which reports to the Board of Directors.

In 2001, we adhered voluntarily to Tier 1 of Corporate Governance of B3 and, in 2011, to the Self-Regulation Code and Best Practices for Publicly-Held Companies – ABRASCA. Further information is available on Bradesco’s Investor Relations website (bradescori.com.br – Corporate Governance Section).

 
 

Senior Management and all employees are committed to compliance with the laws and regulations applicable to their activities, as well as business conduct by observing high standards of conduct and ethics. To ensure the practise of these commitments there are policies, standards, processes and systems for the monitoring of conduct, channels and mechanisms for handling complaints, in addition to a specific department (DCCE – Department of Compliance, Conduct and Ethics) for responses throughout the program. These components are supported by Committees linked to the Board of Directors, such as Ethical Conduct, Integrated Risk Management and Capital Allocation, Internal Controls and Compliance and supported by training and capacity building actions developed by Unibrad – Bradesco University for all professionals, focused on the themes of Conduct, Controls and Compliance.

In meeting the best practices of corporate governance, we adopt our own program of integrity which is composed of a set of policies, standards and procedures aimed at the prevention, monitoring, detection and response in relation to harmful acts foreseen in Law No. 12,846/13 and the main international laws, especially in countries where we have units, operations and/or businesses.

 
 

Our commitment to transparency, democratization of information, punctuality and the pursuit of the best practices are essential factors and are constantly reinforced by Bradesco’s Investor Relations area.

In the third quarter of 2018 we promoted 62 events with national and international investors, through conferences, meetings, conference calls and institutional presentations, assisting 350 investors. We also held two teleconferences addressing the results.

In the period, Bradesco APIMEC Meetings were held, in the cities of Rio de Janeiro and São Paulo, comprising an audience of over 1,330 participants, in person and by following live on the internet, in English and Portuguese and with a Brazilian sign-language interpreter. During the events, the main figures, strategies and perspectives of Bradesco were presented.

 

 
 

 

 

We seek to include sustainability in our business with the aim of increasing our capacity to thrive in the long term in a competitive and dynamic business environment. The perception that we are moving towards a transition to a new economy, more aligned with the developmental challenges that we face, leads us to incorporate social and environmental aspects in the management of risks and opportunities, in order to ensure positive results and the generation of shared value.

Our commitment to sustainability is also reinforced in the establishment of dialogs with various stakeholders, through adherence to incorporate initiatives and voluntary commitments, such as: UNEP FI (United Nations Environment Programme Finance Initiative), Global Compact Initiatives, Goals of Sustainable Development (ODS), Equator Principles, Principles for Responsible Investment (PRI), Businesses for the Climate (EPC), CEBDS (Brazilian Business Center for Sustainable Development), Taskforce on Climate-related Financial Disclosures (TCFD), among others.

The main decisions and monitoring of the sustainability strategy are conducted by the Sustainability and Diversity Committee, coordinated by the Chairman of the Board of Directors and with the participation of the Chief Executive Officer, as well as members of the Board of Directors and of the Board of Executive Officers.

The performance of the Organization’s sustainability activities is reflected in the external assessments of the main indexes and ratings of market sustainability. In 2018, we maintained our presence in the Corporate Sustainability Index (ISE) and the Carbon Efficient Index (ICO2), both of B3, and achieved the best position among Brazilian banks in the Dow Jones Sustainability Index (DJSI), of the New York Stock Exchange.

Principles for Banking
Responsibility, of UNEP FI

Bradesco is the only financial institution in Brazil to participate in the group of banks that is developing the Principles for Banking Responsibility with UNEP FI. The purpose of the initiative is to create guidelines that strengthen the support from banks in order to achieve the Goals of Sustainable Development and of the Paris Agreement on climate change. The final version of the Principles will be published in 2019.

 

Fundação Bradesco

 

With a broad social and educational program in place for 61 years, Fundação Bradesco operates 40 schools across Brazil. In 2018, an estimated budget of R$664.717 million benefits approximately 97,385 students in their Schools, in Basic Education (from Kindergarten to Secondary Education and Vocational and Technical Education at Secondary Level), Education for Young People and Adults and in the Initial and Continuing Training focused on employment and income generation. In addition to a guaranteed free and quality education, the students enrolled in the Basic Education system, numbering over 42 thousand, also receive uniforms, school supplies, meals, medical and dental assistance. With regard to the distance learning system (EaD), it is estimated that more than 630 thousand students will benefit through the e-learning portal "Escola Virtual" (Virtual School). These students will conclude at least one of the various courses offered in the program and another 11,987 students will benefit from projects and initiatives carried out in partnership with the Educa+Ação Program, and from Technology courses.

 

 
 

 

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

To

Shareholders and Board of Directors of Banco Bradesco S.A.

Osasco – SP

 

 

We were engaged by Banco Bradesco S.A. ("Bradesco") to report on the consolidated supplementary accounting information of Banco Bradesco S.A. as of September 30, 2018 and for the period then ended, in the form of a limited assurance conclusion if, based on our engagement performed, described in this report, nothing has come to our attention that causes us to believe that the consolidated  supplementary accounting information included within the Economic and Financial Analysis Report are not presented, in all material respects, based on the information referred to in the “Criteria for preparing the consolidated supplementary accounting information” paragraph.

 

Responsibilities of the Management of Bradesco

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

 

Independent Auditor´s Responsibility

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

The procedures selected were based on our understanding of the consolidated supplementary accounting information included within the Economic and Financial Analysis Report, as well as other circumstances of our work and our consideration of other areas that may contain material misstatements, regardless of whether they are caused by fraud or error. However, such procedures do not include investigation or detection of fraud or error.  

 
 

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

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

 

Criteria for Preparing the Consolidated Supplementary Accounting Information

The consolidated supplementary accounting information disclosed within the Economic and Financial Analysis Report as of September 30, 2018 and for the period then ended, has been prepared by the Management of Bradesco based on the information contained in the September 30, 2018 intermediate consolidated financial statements and the accounting information adjusted to the criteria described in Note 4 of such intermediate consolidated financial statements, in order to facilitate additional analysis, without, however, being part of the intermediate consolidated financial statements disclosed on this date.

 

 

Conclusion

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

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

 

Osasco, October 30, 2018

 

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


Management Report

 

 

Dear Shareholders,

 

We hereby present the Consolidated Financial Statements of Banco Bradesco S.A. related to the period ended on September 30th, 2018, in accordance with the accounting practices used in Brazil and applicable to institutions authorized to operate by the Central Bank of Brazil.

 

1.         Economic Commentary

 

The GDP's desirable acceleration requires adjustments that reduce fiscal uncertainties and increase productivity. The economy's current and moderate rhythm of recovery, in turn, has reduced the inflationary pressures originating from foreign exchange depreciation, allowing the monetary policy to continue expanding. In the case of a commitment with the economic reforms next year, the Country should accelerate its growth, especially through consumption and investment, favoring the creation of jobs. It is important to highlight that the international context continues showing great volatility, especially in developing countries. Brazil has foundations that differentiate it from other developing nations, and its commitment to structural measures has become essential to mitigating the effects that this volatility has on the prices of its assets.

 

2.         Highlights

 

Among the events that determine the Organization's quarter, we highlight:

 

·         For the thirteenth time, Bradesco was selected to integrate the Dow Jones Sustainability Indices - DJSI, of the New York Stock Exchange. In 2018, the Bank composes the Global and Emerging Markets portfolios, and holds the best position among Brazilian banks; and

 

·         In October 2, 2018, Bradesco formalized a strategic partnership with RCB Investimentos S.A., one of the main credit management and recovery companies in Brazil, upon the acquisition of 65% of its shares. With the business, which strengthens our prominent position in the financial system - we are the largest in terms of credit recovery volume -, we have further increased the processes' efficiency and active participation in the market of the acquisition of credits for recovery.

  

3.         Period-specific Results

 

In the period from January 1st to September 30th, 2018, Bradesco’s Net Income reached R$ 14.004 billion, equivalent to R$ 2.09 per share, and with a profitability of 16.6% over the average Shareholders’ Equity. The annualized return on Average Total Assets was 1.5%.

 

In terms of Interest on Own Capital, in gross values, we directed R$ 2.270 billion to the shareholders, paid on a monthly and intermediaries basis, and R$ 3.091 billion provisioned, totalling in R$ 5.361 billion in the period.

 

Throughout the nine months of the year, the taxes and contributions that include pensions, paid or provisioned, reached R$ 21.370 billion, of which R$ 9.607 billion is related to taxes withheld and collected from third parties, and R$ 11.763 billion calculated based on the activities developed by the Bradesco Organization, corresponding to 84.0% of the Net Income.

 

4.         Capital and Reserves

 

In September 2018, the paid-up Share Capital totalled R$ 67.100 billion. Added to the Equity Reserves of R$ 48.570 billion, it resulted in a Shareholders’ Equity of R$ 115.670 billion, showing a growth of 4.9% compared to the same period in the previous year, corresponding to the equity value of R$ 17.28 per share. Calculated on the basis of its shares listing, the Market Value of Bradesco reached R$ 182.110 billion on September 30th, 2018, equivalent to 1.6 times the Shareholders’ Equity.

 

The Managed Shareholders’ Equity, representing 9.1% of the Total Assets, totalling in R$ 1.282 trillion, registered an increase of 5.4% compared to the same period last year.  Thus, the Basel ratio reached 16.8%, which is therefore higher than the minimum of 11.0% regulated by Resolution No. 4,193/13 of the National Monetary Council, according to the Basel Committee. At the end of the quarter, the immobilization index, compared to the Reference Equity, reached 38.0% in the Prudential Consolidation, within the maximum limit of 50.0%, established by the Central Bank of Brazil - Bacen.

 

As provided for by Article 8 of the Circular Letter No. 3,068/01 of the Central Bank of Brazil, we declare that it has the financial capacity and the intention of holding to maturity the securities classified under “held to maturity securities”.

 

 

 

 

 

 

50  Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Management Report

 

 

5.         Funding and Managing Resources

 

The resources funded and managed by the Bradesco Organization on September 30th, 2018 amounted to R$ 2.005 trillion, 5.6% higher than that of the same period in the previous year, distributed as:

 

R$ 536.800   billion in Demand Deposits, Time Deposits, Interbank Deposits, Savings Accounts and Securities Sold under Agreements for Repurchase, an increase of 6.1%;

 

R$ 871.231   billion in assets under management, comprising Investment Funds, Managed Portfolios and Third-Party Fund Quotas, an increase of 6.2%;

 

R$ 307.242   billion in the Exchange Portfolio, Borrowings and Onlendings in Brazil, Working Capital, Tax Payments and Collection and Related Charges, Funds From Issuance of Securities in Brazil, and Subordinated Debt in Brazil, a 2.8% increase.

 

R$ 254.653   billion in Technical Provisions for Insurance, Pension Plans and Capitalization Bonds, an increase of 6.4%; and

 

R$ 47,494      billion in Foreign Funding, through public and private issues, Subordinated Debt Overseas, Securitization of Future Financial Flows and Borrowings and On-lendings Overseas, equivalent to US$11,862 billion.

 

6.         Loan Operations

 

The balance of credit operations in the expanded concept totaled R$ 523.431 billion at the end of the period, an increase of 7.5% included in this amount:

 

R$ 123.612   billion in Consumption Finance, which includes R$ 33.150 billion of credit receivables from Credit Cards, R$ 48.572 billion in Consigned Loans, R$ 22.643 billion of vehicle CDC/ Leasing and R$ 19.247 billion of Personal Loans;

 

R$ 71.462      billion of Sureties and Guarantees;

 

R$ 18.541      billion regarding operations of transfer of internal and external resources, originating mainly from the BNDES - Banco Nacional de Desenvolvimento Econômico e Social (National Bank for Social and Economic Development), standing out as one of the main distributing agents of loans;

  

R$ 21.127      billion in business in the Rural Area;

 

R$ 13.991      billion in Advance Payments on Exchange Contracts, for a Portfolio in the amount of US$ 9.970 billion of Financing for Export; and

 

US$ 2.050     billion of operations in Import Finance in Foreign Currencies.

 

The Portfolio balance for the Real Estate Credit activities was R$ 61.566 billion, whereby R$ 37.051 billion was intended for the Individuals and R$ 24.515 billion for the Legal Entities, totaling 186,182 units financed.

 

The consolidated provision balance for credit losses amounted to R$ 35.148 billion, equivalent to 8.8% of the total volume of credit operations, with R$ 6.891 billion of surplus provision in relation to the minimum required by the Central Bank of Brazil.

 

7.         Bradesco BBI

 

Bradesco BBI, an Investment Bank of the Organization, advises clients in primary and secondary issuing of shares, merger transactions, purchase and sale of assets, structuring and distributing debt instruments, such as debentures, promissory notes, CRIs, CRAs, real estate funds, FIDCs and bonds, among others, besides structured corporate finance operations and the financing of projects under the modality of Project Finance. In the period from January to September 2018, transactions conducted had a volume greater than R$ 176.045 billion.

 

8.         Grupo Bradesco Seguros (Insurance Group)

 

With relevant participation in the Organization's results, Grupo Bradesco Seguros reiterates its prominent position in Insurance, Capitalization and Open Pension Plan registering on September 30, 2018, a Net Income of R$ 4.607 billion and  Shareholders’ Equity of  R$ 31.659 billion. The net insurance premiums issued, pension contributions and income from capitalization reached a total of R$ 53.381 billion.

 

9.         Bradesco Service Network

 

Our Service Network has a modern structure, which is present in all regions of Brazil and in some locations abroad. At the end of the quarter, there were 75,804 service points, distributed as follows:

 

 

 

Bradesco  51

 

 
 

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Management Report

 

 

8,525        Branches and PAs (Service Branches) in Brazil (Branches:  Bradesco – 4,646, Banco Bradesco Cartões – 1, Banco Bradesco Financiamentos – 2, Banco Bradesco BBI - 1, Banco Bradesco BERJ –1 and Banco Alvorada – 1; and PAs: 3,873);

 

3                branches abroad of Bradesco, one in New York and one in Grand Cayman, and one subsidiary Banco Bradesco Europa in London;

 

10              Overseas Subsidiaries and Representation Office (Banco Bradesco Argentina S.A.U., in Buenos Aires; Banco Bradesco Europa S.A., in Luxembourg; Bradesco North America LLC and Bradesco Securities, Inc., in New York; Bradesco Securities UK Limited, in London; Bradesco Securities Hong Kong Limited and Bradesco Trade Services Limited in Hong Kong; Cidade Capital Markets Ltd. in Grand Cayman; Bradescard Mexico, Sociedad de Responsabilidad Limitada in Jalisco; and Representative Office, in Miami);

 

14,993      Service branches of Bradesco Financiamentos, with 859 posts for payroll loans and 14,134 posts for Vehicle Financing;

 

39,100      Bradesco Expresso service branches;

 

916            In-company electronic service branches;

 

60              Losango service branches;

 

54              External Terminals in the Bradesco Network; and

 

12,143      ATMs in the Banco24Horas Network, with 27 terminals shared by the Networks.

 

We have 35,389 coexisting ATMs, strategically distributed nationwide, of which 2,067 are recycling machines of banknotes, which guarantee immediate deposits into the account, including on weekends, aside from the 22,509 ATMs of the Banco24Horas Network.

We are also present in the Digital Channels, such as Internet Banking, Bradesco Celular, Fone Fácil (Easy Phone) and Social Networks, seeking convenience, practicality and security for clients and users, which offer various products and services, at any place and time.

 

Traditionally, we are a Bank that assists all kinds of publics, and we are aware of their’s needs. Thus, we currently have six major Digital Platforms, which assist clients from the “Exclusive” and “Prime” segments invited by the Bank, or those who have requested migration to the units because their relationship profiles are primarily digital. We also have the Bradesco Private Bank Digital Branch.

 

For Investor clients, we offer services of financial advice and equity management, with services via the Equity Management Platform, composed of highly qualified professionals with the best qualifications in the Brazilian market. The service, provided nationally, is offered by telephone or chat, whereby operations can be made, and investment, pension and broker advice is offered.

 

9.1       Next

 

Continuing with the idea of offering differentials and convenience to people, we observed the needs of the hyperconnected public and, with this in mind, in 2017, we launched  the Next, 100% stand-alone digital bank platform. The aim: the best usage experience, the relationship with the client, which is made conducted interactively based on their behavior, and transforming money management into smart pathways toward one’s goals, giving users the freedom to carry out account transactions spontaneously and integrated to their purposes.

 

10.       Corporate Governance

 

Corporate governance practices have been present in Banco Bradesco S.A.'s management since 1943, the year of its establishment. Since 1946, its shares have been traded on the Brazilian Stock Exchange, having started its operations in the US capital market in 1997, initially negotiating Tier I ADRs backed by preferred shares and, in 2001 and 2012, Tier II ADRs backed, respectively, by preferred and common shares. Since 2001, it has also negotiated DRs (Depositary Receipts) on the European market.

 

 

52  Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Management Report

 

 

The Bank's management is composed of the Board of Directors and the Statutory Board of Executive Officers, whereby the Board of Directors is composed of eight members, six of which are external and two are internal, elected by the Annual Shareholders’ Meeting, with re-election allowed. The Board of Directors is advised by eight committees: a) statutory: (i) Audit; and (ii) Remuneration; and (b) non-statutory: (iii) Ethical Conduct; (iv) Risks; (v) Internal Controls and Compliance; (vi) Integrated Risk Management and Capital Allocation – COGIRAC; (vii) Sustainability and Diversity; and (viii) Succession and Nomination. Several executive committees assist the Board of Executive Officers' activities, all of which are normatized by their own regulations. In the role of Supervisory Body, we have the Fiscal Council, which has been operating continuously since 2015, and is currently composed of five effective members. Besides the Fiscal Council and the Audit Committee, Bradesco has an Internal Audit, reporting to the Board of Directors.

 

Among the practices adopted, we highlight the listing of the Bank at Tier I of Corporate Governance of the B3 – Brazil, Bolsa, Balcão, since 2001, and since 2011, adhering to the Code of Self-regulation and Best Practices of Open Capital Companies of ABRASCA. In 1944, the Bank’s Rules of Procedure were established, from which the Bradesco Organization Code of Conduct originated in 2003. Further information about practices adopted is available on bradescori.com.br – Corporate Governance Section.

 

In accordance with Instruction No. 381/03, of the Brazilian Securities and Exchange Commission - CVM, the Bradesco Organization did not contract nor did it have services provided by KPMG Auditores Independentes in the period from January to September 2018, that were not related to the external audit at a level greater than 5% of the total fees related to external audit services. Other services provided by the external auditors were primarily procedures agreed beforehand, or assurance for review of financial information, of draws and revision. The Bank’s policy is in line with the principles of preserving the auditors’ independence, which is based on generally accepted international criteria, i.e. the auditor should not audit their own work, perform managerial duties for their clients or promote their customers’ interests.

 

11.       Compliance and Integrity Program

 

The Senior Management and its employees are committed to comply with the laws and regulations applicable to activities, as well as the business conduct, by observing high standards of conduct and ethics. To ensure compliance to these commitments, there are policies, standards, processes and systems that monitor conduct, channels and mechanisms for handling complaints, in addition to a specific area responsible for the entire program. These components are supported by Committees linked to the Board of Directors, such as Ethical Conduct, and supported by training and capacity-building actions developed by UniBrad – Universidade Corporativa Bradesco (Bradesco Corporate University) for all professionals.

 

In meeting the best practices of corporate governance, the entire Organization adopts its own integrity program, which is composed by a set of policies, standards and procedures aimed at the prevention, monitoring, detection and response in relation to harmful acts foreseen in Law No. 12,846/13 and in the main international laws, especially where we have units, operations and/or businesses.

 

12.       Innovation and Technology

 

In the world of finance, we have a pioneering history regarding technology and innovation. Focusing on the users' experience, we seek to enhance our already consolidated resources, always aware of the changes in the market, conducting research and tests with the most advanced technologies in order to be an increasingly practical, efficient and secure Bank.

 

The client is at the center of all we do, and is what drives us. We have adapted the way we do business and have incorporated faster methodologies to understand our clients, and ensure they receive a better, more individualized experience. The transformation is performed with technologies, innovation and people, in which the people are essential, because they aggregate and develop competences, ideas and skills.

 

Highlights that are part of the innovative process:

 

·         BIA – Bradesco Inteligência Artificial (Artificial Intelligence): using Watson, IBM's cognitive computing platform as a basis, we were pioneers in developing the BIA, which engages with the user in natural speech, answering questions about products and services. Available for clients and employees, it makes customer service more agile, practical and autonomous; 

 

·         Digital Payments: Apple Pay, Samsung Pay, Google Pay and QR Code, the last one being an unprecedented solution among banks and, therefore, we now have the most complete payment solution via cellphone on the market;

 

·         Biometrics: identification via the palm of the hand and one’s voice, offering more convenience and security; and

 

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Management Report

 

 

·         inovaBra: innovation platform that fosters internal and external entrepreneurship, through connections and partnerships of the Organization with the ecosystem of innovations based on collaboration between the bank and businesses, startups, investors and mentors, both in Brazil and in the world, to address the businesses’ challenges and sustainability.

 

13. Human Capital

 

The people who work here are one of the important pillars that support the Organization. The Human Capital Management model is invariably guided by the egalitarian appreciation of people, without giving margin to any kind of discrimination. We adopted a strategy aimed at the development of programs and solutions for the technical and behavioral training and development of our employees, through UniBrad – Universidade Corporativa Bradesco (Bradesco Corporate University), in order to keep them in constant harmony with the market, which is increasingly more competitive and demanding, and to stimulate and encourage innovative thinking. Thus, in the period from January to September 2018, 2,015 courses were offered, with 638,816 participants. The welfare benefits reached 235,597 people, ensuring good wellbeing, the improvement of quality of life and the safety of employees and their dependents.

 

14. Sustainability in the Bradesco Organization

 

Thinking of sustainability has always been natural, present in the form of doing business, and also in the commitment that we have with the development of Brazil. We seek continuous growth, respecting the audiences, the communities and the environment with which we interact. Therefore, we have not only evolved, but we want people around us to have quality of life, thus, we have various actions contributing to reduce social inequality, expanding rights, preserving nature, promoting financial and social inclusion and enabling full access to citizenship.

Among others, we highlight the work conducted by the Fundação Bradesco, our main social activity that has invested in education and health care for more than six decades, creating a positive influence in the localities in which it operates through quality education for children, youth and adults. Its activities are based on the principle that education is part of the source of equal opportunities, personal and collective achievement, as well as contributing to the construction of a transformative, productive, and dignified society.

 

The Fundação Bradesco supports 40 of their own schools installed mainly in regions of high socio-economic deprivation, across every Brazilian state and Federal District. To maintain the extensive structure, its budget for 2018 is predicted to be R$ 664.717 million, whereby R$ 575.071 million is destined to cover Expenses of the Activities and R$ 89.646 million towards investments in Infrastructure and Educational Technology, which allows the institution to offer free education to:

 

a) 97,385 students enrolled in its schools at the following levels: Basic Education (Kindergarten to High School) and Vocational Training (High School level); Youth and Adult Education; and Preliminary and Continuing Vocational Training, focused on creating jobs and income;

 

b) 630 thousand students who will complete at least one of the distance-learning courses on offer (EaD), through its e-learning portal “Escola Virtu@l”;

 

c)  11,987 people who will benefit through partnership projects, such as Programa Educa+Ação, and Technology courses; and

 

d) Food, medical-dental assistance, school materials and uniform are provided free-of-charge to the more than 42 thousand students in Basic Education.

 

The new housing architecture project for the Escola Fazenda Canuanã, in Formoso do Araguaia - TO, maintained for 45 years by Fundação Bradesco, currently with 860 students, received the award for Building Of The Year for the Best Building in Educational Architecture in the world by the Portal ArchDaily. It also received other important awards, like the APCA 2017, from Associação Paulista de Críticos de Artes; Building of the Year 2018, by the Portal ArchDaily Brazil; and RIBA Awards, by the Royal Institute of British Architects; among others.

 

We know the importance that sport has in people’s lives, mainly regarding the creation of values. For this reason, with more than 30 years of existence, we have the Bradesco Sports and Education Program that supports the development of children and teenagers through the teaching of women's volleyball and basketball. It has, in the Municipality of Osasco - SP, Training and Specialist Centers, and its activities are held in their own Sports Development Center, in all Fundação Bradesco’s schools, in Municipal Sports Centers, in state and private schools and in a leisure club. Annually, two thousand girls take part, starting from eight years old, reaffirming the Organization’s social commitment and displaying how it values talent, citizenship, as well as education, sport and health.

 

54  Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Management Report

 

 

 

Continuing our social activities, in August 2018 we initiated the project UniBrad Semear, an action implanted with 23 employees of the Bank that participate in Bradesco’s Volunteer program. In order to strengthen the relationship with the local community, enabling its human development in social competences through Financial Education and Emotional Intelligence, the volunteers were trained to teach local residents, young people in secondary education, teachers and managers of Escola Estadual Sólon Borges dos Reis, in the district of Rio Pequeno - SP, dynamically. The structure of the lessons includes themes like the life project, behaviour, conscious consuming, economic cycle, planning, personal and family budget, the importance of saving money, making a loan, interest rates, entrepreneurship, résumé and the employment market. By the end of the project, in December, around 2,200 people will have participated in the workshops and in the courses.

 

15.  Recognitions

 

In the third quarter, Bradesco Organization receives significant recognitions, of which we highlight the following:

 

·         Bradesco is highlighted in the 2018 edition of the Biggest and Best Yearbook, of the Exame magazine, in the ranking that lists the 1,000 largest companies in the Country. The Organization is the first of the 200 Largest Groups and is part of the list of the 50 Largest Banks by Equity and of the Largest Banks by Profit. It is also first in Mergers and Acquisitions. The Insurance Group had three prominent positions highlighted in the 10 Largest Insurance Companies in the Country;

 

·         Bradesco receives Awards in the guide As Melhores da Dinheiro 2018, of the IstoÉ Dinheiro magazine, winning as the best company in Corporate Governance; best Bank with its people management policy; and led the ranking of banks by revenue in the 1,000 largest of Dinheiro. Bradesco Vida e Previdência won as the best company in the sector;

  

·         In the 6th edition of  Efma – Accenture/Distribution & Marketing Innovation Award, Bradesco won in three categories: 1st place in Global Innovator; 1st place in Digital Marketing & Communication; and 3rd place in Workforce Experience;

 

·         In Global Finance’s 25th Annual Best Bank Awards, published by Global Finance magazine, Bradesco was elected the Best Brazilian Bank, the Best Investment Bank of Brazil and the Best Bank of Mergers and Acquisitions in Latin America;

 

 

·         Bradesco was recognized as the Company of the Year in corporate citizenship, according to a study conducted by Grupo Gestão RH;

 

 

·         By Associação Brasileira das Empresas e Profissionais da Engenharia da Comunicação e Infraestrutura/TI – Aberimest (Brazilian Association of Companies and Professionals of Communication and Infrastructure/IT Engineering), Bradesco received the award Banco Conectado (Connected Bank);

 

 

·         Banco Bradesco and Bradesco Seguros have been included once again in the list of Best Companies to Work For in Brazil and, also in the ranking for Barueri e Região, according to a survey conducted by Época magazine, assessed by the consultancy firm Great Place to Work. Losango, present on the list, also conquered the title as best company in the State of Rio de Janeiro;

 

 

·         In 2018, Next was elected as being the Best Digital Bank in Brazil, in the Consumer category of the 19th Annual Digital World Awards, of the American magazine Global Finance. It was also highlighted in the 18th Latin American Conference CLAB 2018, organized by Federação Latino-Americana de Bancos – Felaban (Latin American Bank Federation) and by the Latin American Commission on Banking Automation. On the occasion, Bradesco, with the Next case, conquered the first place in the sixth edition of the Premio a La Innovación Financiera;

 

 

 

Bradesco  55

 

 
 

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


Management Report

 

 

 

·         Bradesco received trophies during the 17th Learning & Performance Brazil 2018 Award ceremony, promoted by MicroPower. The highlights: Recognition of Bradesco’s protagonism in the 20 years of the Training and Employability of People with Visual Impairment program; BIA – Bradesco Inteligência Artificial (AI) classified as a National Reference and Next as National Feature, both in the focus Business Digital Transformation; and UniBrad – Culture of Digital Innovation as National Reference in the focus Learning & Performance Ecosystem;

 

 

·         BBI was elected for the third consecutive time, as the Most Innovative Bank in Latin America by The Banker magazine;

 

 

·         Bram – Bradesco Asset Management was elected for the second consecutive year, as the best manager of variable income in 2017, by the Investidor Institucional magazine. In addition, for the third consecutive time, it was considered as the manager with most funds, 39, classified as excellent, second in the ranking The Best Funds for Institutions, published in the August edition of the same magazine;

 

·         In the Top Asset 2018 ranking, of the Investidor Institucional magazine, Bram conquered first place in the categories: Largest Open Pension Managing Entity; Largest Insurance Co. Management Entity; Largest Capitalization Managing Entity; and Largest Corporate Management Entity. It also achieved the leadership among the Private Management Entity; and

 

·         BSP Empreendimentos Imobiliários, a company of Grupo Bradesco Seguros, received the award Master Imobiliário, by FIABCI/Brazil and SECOVI/SP, in the category for “Commercial Enterprise” for the headquarters of inovaBra habitat, for its sustainable and constructive characteristics.

  

16.  Acknowledgments

 

The results achieved emphasize the commitment and well-designed strategy of the Bradesco Organization to overcome expectations and increase efficiency, always aware of quality and security. 

 

We are grateful for our shareholders and clients for their support and trust and for our employees and other associates for their dedicated and efficient work.

 

Cidade de Deus, October 30th, 2018

 

Board of Directors and

Board of Executive Officers

 

 

56  Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Consolidated Statement of Financial Position on September 30 – In thousands of Reais

 

Assets

2018

2017

Current

820,960,065

802,260,657

Cash and due from banks (Note 5)

15,294,120

16,706,203

Interbank investments (Notes 3d and 6)

110,714,095

177,510,639

Securities purchased under agreements to resell

101,788,673

171,533,177

Interbank investments

8,932,810

5,985,238

Allowance for losses

(7,388)

(7,776)

Securities and derivative financial instruments (Notes 3e, 3f, 7 and 34a)

373,625,738

311,329,816

Own portfolio

317,456,285

255,322,002

Securities sold under repurchase agreements – Repledge only

23,671,080

22,471,384

Derivative financial instruments (Notes 3f, 7d II and 34a)

10,476,632

15,987,356

Given in guarantee to the Brazilian Central Bank

- 

1,767

Given in guarantee

20,361,881

16,912,075

Securities sold under repurchase agreements – unrestricted

1,659,860

635,232

Interbank accounts

80,298,508

69,239,028

Reserve requirement (Note 8):

 

 

- Reserve requirement - Brazilian Central Bank

80,224,846

69,174,946

- SFH - housing finance system

19,043

19,393

Correspondent banks

54,619

44,689

Interdepartmental accounts

131,855

99,839

Internal transfer of funds

131,855

99,839

Loans (Notes 3g, 9 and 34a)

139,486,363

136,123,684

Loans:

 

 

- Public sector

257,223

1,035,226

- Private sector

157,749,937

154,792,770

Loans transferred under an assignment with recourse

893,682

1,002,390

Allowance for loan losses (Notes 3g, 9f, 9g and 9h)

(19,414,479)

(20,706,702)

Leases (Notes 2, 3g, 9 and 34a)

877,855

1,060,673

Leases receivables:

 

 

- Private sector

1,683,272

2,087,906

Unearned income from leases

(765,310)

(950,145)

Allowance for losses on leases (Notes 3g, 9f, 9g and 9h)

(40,107)

(77,088)

Other receivables

97,300,432

86,796,121

Receivables on sureties and guarantees honored (Note 9a-3)

138,722

370,056

Foreign exchange portfolio (Note 10a)

23,890,500

20,524,948

Receivables

1,280,776

1,387,922

Securities trading

3,220,708

1,715,426

Specific receivables

34,421

22,208

Insurance and reinsurance receivables and reinsurance assets – technical provisions

3,963,227

3,949,683

Sundry (Note 10b)

66,458,135

60,823,560

Allowance for losses on other receivables (Notes 3g, 9f, 9g and 9h)

(1,686,057)

(1,997,682)

Other assets (Note 11)

3,231,099

3,394,654

Other assets

2,989,609

2,990,174

Allowance for losses

(1,583,525)

(1,364,791)

Prepaid expenses (Notes 3i and 11b)

1,825,015

1,769,271

Long-term receivables

432,261,568

384,158,293

Interbank investments (Notes 3d and 6)

1,452,572

1,051,540

Interbank investments

1,452,572

1,051,540

Securities and derivative financial instruments (Notes 3e, 3f, 7 and 34a)

189,508,704

168,941,764

Own portfolio

92,686,995

118,342,447

Securities sold under repurchase agreements – Repledge only

91,852,129

40,430,362

Derivative financial instruments (Notes 3f, 7d II and 34a)

3,047,300

84,872

Privatization rights

40,470

45,357

Given in guarantee

897,753

3,946,296

Securities sold under repurchase agreements – unrestricted

984,057

6,092,430

 

Bradesco  57

 

 
 

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

 

Consolidated Statement of Financial Position on September 30 – In thousands of Reais

 

Assets

2018

2017

Interbank accounts

1,250,225

812,644

Reserve requirement (Note 8):

 

 

- SFH - housing finance system

1,250,225

812,644

Loans (Notes 3g, 9 and 34a)

171,616,905

154,272,118

Loans:

 

 

- Public sector

4,000,000

3,000,000

- Private sector

174,412,742

157,505,894

Loans transferred under an assignment with recourse

7,098,672

7,380,736

Allowance for loan losses (Notes 3g, 9f, 9g and 9h)

(13,894,509)

(13,614,512)

Leases (Notes 2, 3g, 9 and 34a)

1,036,103

1,061,729

Leases receivables:

 

 

- Private sector

2,122,519

2,284,299

Unearned income from leases

(1,045,060)

(1,156,004)

Allowance for losses on leases (Notes 3g, 9f, 9g and 9h)

(41,356)

(66,566)

Other receivables

66,679,779

57,116,220

Receivables

26,052

20,078

Securities trading

515,767

264,287

Sundry (Note 10b)

66,209,120

56,845,733

Allowance for losses on other receivables (Notes 3g, 9f, 9g and 9h)

(71,160)

(13,878)

Other assets (Note 11)

717,280

902,278

Prepaid expenses (Notes 3i and 11b)

717,280

902,278

Permanent assets

28,806,529

30,271,974

Investments (Notes 3j, 12 and 34a)

8,134,016

7,881,172

Equity investment in unconsolidated and jointly controlled companies:

 

 

- In Brazil

7,984,995

7,732,493

Other investments

392,425

403,432

Allowance for losses

(243,404)

(254,753)

Premises and equipment (Notes 3k and 13)

7,442,905

7,249,429

Premises

3,122,649

2,637,110

Other premises and equipment

13,464,939

12,496,073

Accumulated depreciation

(9,144,683)

(7,883,754)

Intangible assets (Notes 3l and 14)

13,229,608

15,141,373

Intangible Assets

29,897,451

28,569,032

Accumulated amortization

(16,667,843)

(13,427,659)

Total

1,282,028,162

1,216,690,924

 

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

 

 

58 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Consolidated Statement of Financial Position on September 30 – In thousands of Reais

 

Liabilities

2018

2017

Current

828,395,354

815,850,555

Deposits (Notes 3n and 15a)

192,662,011

156,970,034

Demand deposits

33,487,987

30,326,471

Savings deposits

106,375,341

98,223,969

Interbank deposits

573,781

1,512,304

Time deposits (Notes 15a and 34a)

52,224,902

26,907,290

Securities sold under agreements to repurchase (Notes 3n and 15b)

217,005,163

235,266,470

Own portfolio

128,204,786

96,612,457

Third-party portfolio

81,529,704

128,585,158

Unrestricted portfolio

7,270,673

10,068,855

Funds from issuance of securities (Notes 15c and 34a)

69,637,032

80,620,867

Mortgage and real estate notes, letters of credit and others

68,303,529

79,708,600

Securities issued overseas

899,922

750,345

Structured Operations Certificates

433,581

161,922

Interbank accounts

18,347,054

18,357,581

Unsettled payments and receipts

17,071,912

17,018,635

Correspondent banks

1,275,142

1,338,946

Interdepartmental accounts

5,141,118

4,702,464

Third-party funds in transit

5,141,118

4,702,464

Borrowing (Notes 16a and 34a)

29,547,672

19,334,536

Borrowing in Brazil - other institutions

- 

1,721

Borrowing overseas

29,547,672

19,332,815

On-lending in Brazil - official institutions (Notes 16b and 34a)

7,936,626

11,320,313

National treasury

128,528

151,335

BNDES

2,474,335

4,958,515

FINAME

5,332,249

6,208,924

Other institutions

1,514

1,539

Derivative financial instruments (Notes 3f, 7d II and 34a)

14,964,206

14,562,508

Derivative financial instruments

14,964,206

14,562,508

Technical provisions for insurance, pension plans and capitalization bonds (Notes 3o and 20)

222,669,906

210,711,549

Other liabilities

50,484,566

64,004,233

Payment of taxes and other contributions

3,892,779

4,352,653

Foreign exchange portfolio (Note 10a)

8,923,158

10,822,723

Social and statutory

3,396,827

2,993,244

Tax and social security (Note 19a)

4,703,711

4,244,830

Securities trading

4,800,133

2,791,085

Financial and development funds

1,352

1,312

Subordinated debts (Notes 18 and 34a)

768,196

11,106,166

Sundry (Note 19b)

23,998,410

27,692,220

Long-term liabilities

336,964,663

289,584,301

Deposits (Notes 3n and 15a)

126,179,983

102,621,080

Interbank deposits

30,505

48,402

Time deposits (Notes 15a and 34a)

126,149,478

102,572,678

Securities sold under agreements to repurchase (Notes 3n and 15b)

952,782

11,316,218

Own portfolio

952,782

11,316,218

Funds from issuance of securities (Notes 15c and 34a)

79,289,564

54,211,866

Mortgage and real estate notes, letters of credit and others

76,748,808

51,938,151

Securities issued overseas

2,399,189

2,123,662

Structured Operations Certificates

141,567

150,053

Borrowing (Notes 16a and 34a)

660,965

1,270,690

Borrowing in Brazil - other institutions

- 

1,846

Borrowing overseas

660,965

1,268,844

On-lending in Brazil - official institutions (Notes 16b and 34a)

17,360,622

20,145,050

BNDES

8,151,172

8,689,343

FINAME

9,209,450

11,455,707

Derivative financial instruments (Notes 3f, 7d II and 34a)

758,814

133,954

Derivative financial instruments

758,814

133,954

 

Bradesco  59

 

 
 

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

 

Consolidated Statement of Financial Position on September 30 – In thousands of Reais

 

Liabilities

2018

2017

Technical provisions for insurance, pension plans and capitalization bonds (Notes 3o and 20)

31,983,383

28,575,580

Other liabilities

79,778,550

71,309,863

Tax and social security (Note 19a)

3,678,120

5,656,313

Subordinated debts (Notes 18 and 34a)

18,526,722

16,127,876

Eligible Debt Capital Instruments (Notes 18 and 34a)

30,717,063

23,299,800

Sundry (Note 19b)

26,856,645

26,225,874

Deferred income

385,721

400,844

Deferred income

385,721

400,844

Non-controlling interests in subsidiaries (Note 21)

612,845

554,622

Shareholders' equity (Note 22)

115,669,579

110,300,602

Capital:

 

 

- Domiciled in Brazil

66,677,721

58,361,535

- Domiciled overseas

422,279

738,465

Capital reserves

11,441

11,441

Profit reserves

50,545,642

48,718,218

Asset valuation adjustments

(1,546,990)

2,911,457

Treasury shares (Notes 22d and 34a)

(440,514)

(440,514)

Attributable to equity holders of the Parent Company

116,282,424

110,855,224

Total

1,282,028,162

1,216,690,924

 

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

                                                                                                                                                                                                

                                                                                                                                                                                                

                                                                                                          

60  Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Consolidated Income Statement on September 30 - In thousand of Reais

 

 

2018

2017

Revenue from financial intermediation

91,704,353

116,105,988

Loans (Note 9j)

52,351,797

55,444,943

Leases (Note 9j)

170,646

190,410

Operations with securities (Note 7g)

23,872,551

32,819,380

Financial income from insurance, pension plans and capitalization bonds (Note 7g)

14,232,210

23,403,856

Derivative financial instruments (Note 7g)

(3,276,300)

(962,133)

Foreign exchange contracts (Note 10a)

1,537,248

1,540,460

Reserve requirement (Note 8b)

2,854,024

3,933,177

Sale or transfer of financial assets

(37,823)

(264,105)

 

 

 

Expenses from financial intermediation

61,082,621

82,052,523

Retail and professional market funding (Note 15e)

29,650,878

45,209,276

Adjustment for inflation and interest on technical provisions for insurance, pension plans and capitalization bonds (Note 15e)

9,414,963

14,832,886

Borrowing and on-lending (Note 16c)

8,256,104

2,292,936

Allowance for loan losses (Notes 3g, 9g and 9h)

13,760,676

19,717,425

 

 

 

Gross income from financial intermediation

30,621,732

34,053,465

 

 

 

Other operating income (expenses)

(15,335,275)

(17,353,812)

Fee and commission income (Note 23)

18,560,972

17,772,000

Other fee and commission income

12,552,191

12,122,382

Income from banking fees

6,008,781

5,649,618

Retained premium from insurance, pension plans and capitalization bonds (Notes 3o and 20c)

53,322,439

54,938,905

Net written premiums earned

53,380,642

55,096,586

Reinsurance premiums paid

(58,203)

(157,681)

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

(21,669,358)

(23,829,638)

Retained claims (Note 3o)

(19,445,207)

(19,410,316)

Capitalization bond prize draws and redemptions (Note 3o)

(4,093,785)

(4,137,869)

Selling expenses from insurance, pension plans and capitalization bonds (Note 3o)

(2,395,082)

(2,641,995)

Payroll and related benefits (Note 24)

(14,144,007)

(16,371,329)

Other administrative expenses (Note 25)

(14,210,765)

(14,199,004)

Tax expenses (Note 26)

(4,234,142)

(4,585,062)

Share of profit (loss) of unconsolidated and jointly controlled companies (Note 12b)

1,155,002

1,134,809

Other operating income (Note 27)

5,224,746

8,835,268

Other operating expenses (Note 28)

(13,406,088)

(14,859,581)

Operating income

15,286,457

16,699,653

Non-operating income (loss) (Note 29)

(654,606)

(232,075)

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

14,631,851

16,467,578

Income tax and social contribution (Notes 33a and 33b)

(499,483)

(5,407,493)

Current income tax

(3,773,101)

(5,777,092)

Current Social Contribution

(2,086,044)

(3,615,293)

Deferred Tax

5,359,662

3,984,892

Non-controlling interests in subsidiaries

(128,183)

(193,928)

Net income

14,004,185

10,866,157

                                                                                                                                                                                                

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

Bradesco  61

 

 
 

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

 

Statements of Changes in Shareholders’ Equity - In thousand of Reais

 

Events

Capital

Capital reserves

Profit reserves

Asset valuation adjustments

Treasury shares

Retained earnings

Total

Share premium

Legal

Statutory

Balance on December 31, 2016

51,100,000

11,441

6,807,128

43,641,474

(677,116)

(440,514)

- 

100,442,413

Capital increase with reserves

8,000,000

- 

- 

(8,000,000)

- 

- 

- 

- 

Asset valuation adjustments

- 

- 

- 

- 

3,588,573

- 

- 

3,588,573

Net income

- 

- 

- 

- 

- 

- 

10,866,157

10,866,157

Allocations:

 

 

  

 

 

  

 

  

   -  Reserves

- 

- 

543,308

5,726,308

- 

- 

(6,269,616)

- 

-  Interest on Shareholders’ Equity Paid

- 

- 

- 

- 

- 

- 

(4,596,541)

(4,596,541)

Balance on September 30, 2017

59,100,000

11,441

7,350,436

41,367,782

2,911,457

(440,514)

- 

110,300,602

 

 

              

Balance on December 31, 2017

59,100,000

11,441

7,540,016

42,361,997

1,884,536

(440,514)

- 

110,457,476

Capital increase with reserves

8,000,000

- 

- 

(8,000,000)

- 

- 

- 

- 

Asset valuation adjustments

- 

- 

- 

- 

(3,431,526)

- 

- 

(3,431,526)

Net income

- 

- 

- 

- 

- 

- 

14,004,185

14,004,185

Allocations:

 

 

 

 

 

 

 

 

   -  Reserves

- 

- 

700,209

7,943,420

- 

- 

(8,643,629)

- 

-  Interest on Shareholders’ Equity Paid and/or provisioned

- 

- 

- 

- 

- 

- 

(5,360,556)

(5,360,556)

Balance on September 30, 2018

67,100,000

11,441

8,240,225

42,305,417

(1,546,990)

(440,514)

- 

115,669,579

 

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

 

62 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Consolidated Statement of Added Value Accumulated on September 30 - In thousand of Reais

 

Description

2018

%

2017

%

1 – Revenue

95,870,906

283.1

115,370,648

301.4

1.1) Financial intermediation

91,704,353

270.8

116,105,988

303.3

1.2) Fees and commissions

18,560,972

54.8

17,772,000

46.4

1.3) Allowance for loan losses

(13,760,676)

(40.6)

(19,717,425)

(51.5)

1.4) Other

(633,743)

(1.9)

1,210,085

3.2

2 – Financial intermediation expenses

(47,321,945)

(139.7)

(62,335,098)

(162.8)

3 – Inputs acquired from third-parties

(11,279,870)

(33.3)

(11,360,713)

(29.7)

Outsourced services

(3,543,247)

(10.5)

(3,559,756)

(9.3)

Data processing

(1,757,678)

(5.2)

(1,666,696)

(4.4)

Communication

(1,158,688)

(3.4)

(1,265,258)

(3.3)

Asset maintenance

(829,383)

(2.4)

(842,379)

(2.2)

Financial system services

(718,541)

(2.1)

(778,578)

(2.0)

Advertising and marketing

(751,863)

(2.2)

(575,861)

(1.5)

Security and surveillance

(570,021)

(1.7)

(621,273)

(1.6)

Transport

(554,961)

(1.6)

(579,986)

(1.5)

Material, water, electricity and gas

(463,024)

(1.4)

(498,018)

(1.3)

Travel

(203,162)

(0.6)

(172,304)

(0.5)

Other

(729,302)

(2.2)

(800,604)

(2.1)

4 – Gross value added (1-2-3)

37,269,091

110.1

41,674,837

108.9

5 – Depreciation and amortization

(4,560,738)

(13.5)

(4,525,212)

(11.8)

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

32,708,353

96.6

37,149,625

97.0

7 – Value added received through transfer

1,155,002

3.4

1,134,809

3.0

Share of profit (loss) of unconsolidated and jointly controlled companies

1,155,002

3.4

1,134,809

3.0

8 – Value added to distribute (6+7)

33,863,355

100.0

38,284,434

100.0

9 – Value added distributed

33,863,355

100.0

38,284,434

100.0

9.1) Personnel

12,501,964

36.9

14,682,552

38.4

Salaries

6,349,753

18.8

7,314,472

19.1

Benefits

3,253,854

9.6

4,314,402

11.3

Government Severance Indemnity Fund for Employees (FGTS)

559,735

1.7

953,588

2.5

Other

2,338,622

6.9

2,100,090

5.5

9.2) Tax, fees and contributions

6,375,668

18.8

11,681,332

30.5

Federal

5,386,477

15.9

11,026,169

28.8

State

7,466

- 

9,161

- 

Municipal

981,725

2.9

646,002

1.7

9.3) Remuneration for providers of capital

853,355

2.5

860,465

2.2

Rental

850,624

2.5

855,703

2.2

Asset leases

2,731

- 

4,762

- 

9.4) Value distributed to shareholders

14,132,368

41.7

11,060,085

28.9

Interest on Shareholders’ Equity Dividends paid and/or provisioned

5,360,556

15.8

4,596,541

12.0

Retained earnings

8,643,629

25.5

6,269,616

16.4

Non-controlling interests in retained earnings

128,183

0.4

193,928

0.5

                                                                                                                                                                                      

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

Bradesco  63

 

 
 

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

 

Consolidated cash flow Statement for the three months ended September 30 - In thousand of Reais

 

 

2018

2017

Cash flow from operating activities:

 

 

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

14,631,851

16,467,578

Adjustments to net income before income tax and social contribution

41,176,229

56,697,399

Effect of Changes in Exchange Rates in Cash and Cash equivalents

(769,838)

(291,794)

Allowance for loan losses

13,760,676

19,717,425

Depreciation and amortization

4,560,738

4,525,212

Impairment losses of assets

737,123

1,766,590

Expenses/ reversal with civil, labor and tax provisions

3,037,921

1,744,317

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

9,414,963

14,832,886

Share of profit (loss) of unconsolidated and jointly controlled companies

(1,155,002)

(1,134,809)

(Gain)/loss on sale of investments

- 

(271,198)

(Gain)/loss on sale of fixed assets

86,028

39,492

(Gain)/loss on sale of foreclosed assets

391,160

413,189

Foreign exchange variation of assets and liabilities overseas/Other

11,112,460

15,356,089

Net income before taxes after adjustments

55,808,080

73,164,977

(Increase)/Decrease in interbank investments

(2,662,518)

574,745

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

(5,141,130)

(10,977,450)

(Increase)/Decrease in interbank and interdepartmental accounts

(3,163,184)

(1,082,360)

(Increase)/Decrease in loans and leases

(38,157,676)

(437,424)

(Increase)/Decrease in insurance and reinsurance receivables and reinsurance assets

(46,398)

1,195,970

(Increase)/Decrease in other receivables and other assets

(15,219,510)

(4,895,059)

(Increase)/Decrease in reserve requirement - Central Bank

(13,510,620)

(11,138,415)

Increase/(Decrease) in deposits

53,634,632

25,355,436

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

(15,509,599)

4,603,757

Increase/(Decrease) in borrowings and on-lending

6,214,878

(6,125,413)

Increase/(Decrease) in technical provisions for insurance, pension plans and capitalization bonds

(1,414,239)

1,112,086

Increase/(Decrease) in other liabilities

957,699

1,436,788

Increase/(Decrease) in deferred income

(24,012)

(76,341)

Income tax and social contribution paid

(5,858,840)

(7,090,138)

Net cash provided by/(used in) operating activities

15,907,563

65,621,159

Cash flow from investing activities:

 

 

Maturity of and interest on held-to-maturity securities

4,124,298

6,884,612

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

103,447,183

76,705,048

Proceeds from sale of foreclosed assets

549,316

567,954

Sale of investments

- 

441,558

Sale of premises and equipment

380,798

354,328

Acquisition of Subsidiaries, Net of Cash and Cash Equivalents acquired

(171,558)

- 

Purchases of available-for-sale securities

(128,634,899)

(105,668,053)

Purchases of held-to-maturity securities

(34,192,285)

(109,609)

Investment acquisitions

(38,846)

(504,672)

Purchase of premises and equipment

(1,221,180)

(891,494)

Intangible asset acquisitions

(1,317,163)

(2,362,116)

Dividends and interest on shareholders’ equity received

1,069,719

818,291

Net cash provided by/(used in) investing activities

(56,004,617)

(23,764,153)

Cash flow from financing activities:

 

 

Funds from securities issued

70,569,589

46,214,741

Settlement and Interest payments of Funds from issuance of securities

(64,335,253)

(72,651,684)

Issuance of subordinated debts

6,804,906

6,593,610

Settlement and Interest payments of subordinated debts

(12,044,108)

(12,417,718)

Interest on Shareholders’ Equity Paid

(6,166,259)

(6,110,256)

Non-controlling interest

(78,739)

(88,115)

Net cash provided by/(used in) financing activities

(5,249,864)

(38,459,422)

Net increase/(decrease) in cash and cash equivalents

(45,346,918)

3,397,584

Cash and cash equivalents - at the beginning of the period

156,054,442

181,230,427

Effect of Changes in Exchange Rates in Cash and Cash equivalents

769,838

291,794

Cash and cash equivalents - at the end of the period

111,477,362

184,919,805

Net increase/(decrease) in cash and cash equivalents

(45,346,918)

3,397,584

 

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

 

64 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

The accompanying Notes are an integral part of these Consolidated Financial Statements are distributed as follow:

    Page 
1)  OPERATIONS  66 
2)  PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS  66 
3)  SIGNIFICANT ACCOUNTING PRACTICES  68 
4)  MANAGERIAL STATEMENTS OF FINANCIAL POSITION AND STATEMENT OF INCOME BY OPERATING SEGMENT  78 
5)  CASH AND CASH EQUIVALENTS  81 
6)  INTERBANK INVESTMENTS  82 
7)  SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS  83 
8)  INTERBANK ACCOUNTS RESERVE REQUIREMENT  94 
9)  LOANS  95 
10) OTHER RECEIVABLES  105 
11) OTHER ASSETS  106 
12) INVESTMENTS  107 
13) PREMISES AND EQUIPMENT  108 
14) INTANGIBLE ASSETS  108 
15) DEPOSITS, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND FUNDS FROM ISSUANCE OF SECURITIES  110 
16) BORROWING AND ON-LENDING  112 
17) PROVISIONS, CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS TAX AND SOCIAL SECURITY  113 
18) SUBORDINATED DEBT  117 
19) OTHER LIABILITIES  118 
20) INSURANCE, PENSION PLANS AND CAPITALIZATION BONDS  119 
21) NON-CONTROLLING INTERESTS IN SUBSIDIARIES  121 
22) SHAREHOLDERS EQUITY (PARENT COMPANY)  121 
23) FEE AND COMMISSION INCOME  123 
24) PAYROLL AND RELATED BENEFITS  123 
25) OTHER ADMINISTRATIVE EXPENSES  123 
26) TAX EXPENSES  124 
27) OTHER OPERATING INCOME  124 
28) OTHER OPERATING EXPENSES  124 
29) NON-OPERATING INCOME (LOSS)  124 
30) RELATED-PARTY TRANSACTIONS  125 
31) RISK AND CAPITAL MANAGEMENT  127 
32) EMPLOYEE BENEFITS  134 
33) INCOME TAX AND SOCIAL CONTRIBUTION  135 
34) OTHER INFORMATION  138 

 

 

 

Bradesco  65

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

1)      OPERATIONS

 

Banco Bradesco S.A. (Bradesco) is a private-sector publicly traded company and universal bank that, 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 leases, 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 CONSOLIDATED FINANCIAL STATEMENTS

 

Bradesco’s consolidated financial statements include the financial statements for Bradesco, its foreign branches and subsidiaries, in Brazil and overseas and SPEs (Special Purpose Entities) and investment funds of which the Organization's companies are the main beneficiaries or holders of the principal obligations, as established by Technical Pronouncement CPC 36 (R3), “Consolidation”. These financial  statements were prepared in conformity with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Brazilian Central Bank (Bacen), and are in conformity with accounting guidelines included in Laws No. 4,595/64 (Brazilian Financial System Law) and No. 6,404/76 (Brazilian Corporate Law), including amendments introduced by Laws No. 11,638/07 and No. 11,941/09, as they relate to the accounting for operations, complemented by the rules and instructions of the National Monetary Council (CMN), Bacen, Brazilian Securities and Exchange Commission (CVM), and where applicable, National Private Insurance Council (CNSP), Insurance Superintendence (Susep) and National Supplementary Healthcare Agency (ANS). The financial statements of the lease companies included in the consolidated financial statements were prepared using the finance lease method, under which the carrying amount of leased premises and equipment less the residual value paid in advance are reclassified.

 

Management states that it has disclosed all relevant information in the consolidated financial statements of Bradesco and that the accounting practices have been applied in a consistent manner in all years presented.

 

For the preparation of these consolidated financial statements, the intercompany transactions, balances of equity accounts, revenue, expenses and unrealized profits were eliminated and net income and shareholders’ equity attributable to the non-controlling interests were accounted for in a separate line. Goodwill on the acquisition of investments in associates, subsidiaries or jointly controlled companies is presented in the investments and intangible assets lines (Note 14a). The foreign exchange variation from foreign branches and investments is presented in the statement of income accounts used for changes in the value of the derivative financial instrument and borrowing and on-lending operations in order to offset these results with the hedges of these investments.

 

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; the calculation of technical provisions for insurance, pension plans and capitalization bonds; and the determination of the useful life of specific assets. Actual results may differ from those based on estimates and assumptions.

 

Bradesco’s consolidated financial statements were approved by the Board of Directors on October 30, 2018.

 

 

66 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

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

 

 

On September 30

Activity

Equity interest

2018

2017

Financial Sector – Brazil

 

 

 

Ágora Corretora de Títulos e Valores Mobiliários S.A.

Brokerage

100.00%

100.00%

Banco Alvorada S.A.

Banking

99.99%

99.99%

Banco Boavista Interatlântico S.A.(1)

Banking

-

100.00%

Banco Bradescard S.A.

Cards

100.00%

100.00%

Banco Bradesco BBI S.A.(1)

Investment bank

99.96%

99.81%

Banco Bradesco BERJ S.A.

Banking

100.00%

100.00%

Banco Bradesco Cartões S.A.

Cards

100.00%

100.00%

Banco Bradesco Financiamentos S.A.

Banking

100.00%

100.00%

Banco Losango S.A.

Banking

100.00%

100.00%

Bradesco Administradora de Consórcios Ltda.

Consortium management

100.00%

100.00%

Bradesco Leasing S.A. Arrendamento Mercantil

Leases

100.00%

100.00%

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

Brokerage

99.97%

99.97%

Bradesco S.A. Corretora de Títulos e Valores Mobiliários

Brokerage

100.00%

100.00%

BRAM - Bradesco Asset Management S.A. DTVM

Asset management

100.00%

100.00%

Kirton Bank Brasil S.A.

Banking

100.00%

100.00%

Tempo Serviços Ltda.

Services

100.00%

100.00%

Financial Sector – Overseas

 

 

 

Banco Bradesco Argentina S.A.U (2)

Banking

100.00%

99.99%

Banco Bradesco Europa S.A.

Banking

100.00%

100.00%

Banco Bradesco S.A. Grand Cayman Branch (3)

Banking

100.00%

100.00%

Banco Bradesco S.A. New York Branch

Banking

100.00%

100.00%

Bradesco Securities, Inc.

Brokerage

100.00%

100.00%

Bradesco Securities, UK.

Brokerage

100.00%

100.00%

Insurance, Pension Plan and Capitalization Bond Sector

 

 

 

Atlântica Companhia de Seguros

Insurance

100.00%

100.00%

Bradesco Argentina de Seguros S.A. (4)

Insurance

99.98%

99.98%

Bradesco Auto/RE Companhia de Seguros

Insurance

100.00%

100.00%

Bradesco Capitalização S.A.

Capitalization bonds

100.00%

100.00%

Bradesco Saúde S.A.

Insurance/health

100.00%

100.00%

Bradesco Seguros S.A. (5)

Insurance

99.96%

100.00%

Bradesco Vida e Previdência S.A.

Pension plan/Insurance

100.00%

100.00%

Kirton Capitalização S.A. (6)

Capitalization bonds

-

100.00%

Kirton Seguros S.A. (6)

Insurance

-

98.54%

Kirton Vida e Previdência S.A. (6)

Pension plan/Insurance

-

100.00%

Odontoprev S.A. (4)

Dental care

50.01%

50.01%

Other Activities

 

 

 

Andorra Holdings S.A.

Holding

100.00%

100.00%

Bradseg Participações S.A.

Holding

100.00%

100.00%

Bradescor Corretora de Seguros Ltda.

Insurance Brokerage

100.00%

100.00%

Bradesplan Participações Ltda.

Holding

100.00%

100.00%

BSP Empreendimentos Imobiliários S.A.

Real estate

100.00%

100.00%

Cia. Securitizadora de Créditos Financeiros Rubi

Credit acquisition

100.00%

100.00%

Columbus Holdings S.A.

Holding

100.00%

100.00%

Nova Paiol Participações Ltda.

Holding

100.00%

100.00%

União Participações Ltda.

Holding

100.00%

100.00%

Investment Funds (7)

 

 

 

Bradesco F.I.R.F. Master II Previdência

Investment Fund

100.00%

100.00%

Bradesco F.I. Referenciado DI Performance

Investment Fund

100.00%

100.00%

Bradesco F.I.C.F.I. R.F. VGBL F10

Investment Fund

100.00%

100.00%

Bradesco F.I.R.F. Master IV Previdência

Investment Fund

100.00%

100.00%

 

Bradesco  67

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

On September 30

Activity

Equity interest

2018

2017

Bradesco F.I.R.F. Master Previdência

Investment Fund

100.00%

100.00%

Bradesco Private F.I.C.F.I. RF PGBL/VGBL Ativo

Investment Fund

100.00%

100.00%

Bradesco FI Referenciado DI União

Investment Fund

99.56%

98.92%

Bradesco Private F.I.C.F.I. R.F. PGBL/VGBL Ativo - F 08 C

Investment Fund

100.00%

100.00%

Bradesco F.I.C.R.F. VGBL FIX

Investment Fund

100.00%

100.00%

Bradesco F.I.C.F.I. Renda Fixa V-A

Investment Fund

100.00%

100.00%

 

(1) In November, 2017, Banco Boavista Interatlântico S.A. was merged into Banco Bradesco BBI S.A. increasing the interest by means of subscription of shares and in May, 2018, there were acquisition of shares held by minority shareholders by Banco Bradesco S.A;

(2) Change in the percentage of participation, by assignment of quotas and change of corporate name to unilateral company;

(3) 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;
(4) Based on financial information from the previous month;
(5) Reduction in participation due to the merger of Kirton Seguros S.A through the exchange of minority shares;

(6) Companies incorporated in June, 2018, by their respective counterparts (Bradesco Seguros S.A., Bradesco Capitalização S.A. and Bradesco Vida e Previdência S.A.); and

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

 

 

3)      SIGNIFICANT ACCOUNTING PRACTICES

 

a)   Functional and presentation currencies

 

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

 

Insurance and coinsurance premiums, net of premiums paid for coinsurance and related commissions, are recognized upon the issue of the related policies/certificates/endorsements and invoices, or upon the beginning of the exposure to risk in cases in which the risk begins before the policy issuance, and is recognized on a straight-line basis over the policies’ effective period through the upfront recognition and subsequent reversal through the statement of income of the unearned premium reserve and the deferred acquisition costs. Revenues from premiums and the corresponding deferred acquisition costs, relating to existing risk for which no policy has been issued, are recognized in the statement of income at the beginning of the risk exposure, based on estimated figures.

 

The health insurance premiums are recognized in the premiums (results) account or provision for unearned premiums/considerations (PPCNG), according to the period of coverage of contracts in force on the reporting date.

 

68 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

Income and expenses arising from Mandatory Insurance For Personal Injury Caused by Motor Vehicles (DPVAT) insurance operations are recognized based on information provided by Seguradora Líder dos Consórcios do Seguro DPVAT S.A.

 

Accepted coinsurance and retrocession operations are recognized based on the information received from other insurers and IRB - Brasil Resseguros S.A. (IRB), respectively.

 

Reinsurance operations are recognized based on the premium and claims information provided, which is subject to the analysis of the re-insurers. The deductions of reinsurance premiums granted are consistent with the recognition of the corresponding insurance premium and/or terms of the reinsurance contract.

 

The acquisition costs related to the insurance commission are deferred and appropriated to the income in proportion to the recognition of the premium earned.

 

Contributions and agency fees are deferred and recognized in the statement of income on a straight-line basis over a period of 24 months for health insurance operations, and 12 months for other operations.

 

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

 

The management fee income is appropriated to the income on an accrual basis, according to contractually established rates.

 

Revenue from capitalization bonds is recognized in the month in which they are issued, according to the types of collection, which may be in monthly payments or in a single payment. Each security has a nominal value, which is indexed to the Reference Rate (TR) and interest rates defined in the plan. Technical provisions are recognized when the respective revenues are recognized.

 

The revenues arising from unclaimed and expired capitalization bonds (securities and non-redeemed draws) are recognized after the prescription period, that is, until November 2003, up to 20 years and five years after this date as established by law. The expenses related to commercialization of capitalization bonds are classified as “Acquisition Costs” and are recognized in the statement of income as incurred.

 

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 5.

                     

d)   Interbank investments

 

Securities purchased under agreements to resell 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 6.

 

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;

 

Bradesco  69

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

·       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.

 

Classification, breakdown and segmentation of securities are presented in Note 7.

 

f)    Derivative financial instruments (assets and liabilities)

 

Derivative financial instruments are designed to meet the Company´s own needs to manage Bradesco´s global exposure, as well to meet customer requests, in order to manage its positions.

 

The transactions are recorded at their fair value considering the mark-to-market methodologies adopted by Bradesco, and their adjustment can be recorded in the statement of income or equity, depending on the classification as accounting hedge (and the category of accounting hedge) or as an economic hedge.

 

Derivative financial instruments used to mitigate the risks of exposures in currencies, indexes, prices, rates or indexes are considered as hedge instruments, whose objectives are: (i) to ensure exposures remain with risk limits; (ii) change, modify or reverse positions due to market changes and operational strategies; and (iii) reduce or mitigate exposures of transactions in inactive markets, under stress or low liquidity conditions.

 

Instruments designated for hedge accounting purposes are classified according to their nature in:

 

·       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; and

 

·       Hedge of net investment in foreign operations - the financial instruments classified in this category are intended to hedge the exchange variation of investments abroad, whose functional currency is different from the national currency, and are accounted for in accordance with the accounting procedures applicable to the hedge category of cash flow, that is, with the effective portion recognized in shareholders' equity, net of tax effects, and the non-effective portion recognized in income for the period.

 

For derivatives classified in the hedge accounting category, there is a follow-up of: (i) strategy effectiveness, through prospective and retrospective effectiveness tests, and (ii) mark-to-market of hedge instruments.

 

A breakdown of amounts included as derivative financial instruments, in the statement of financial position and off-balance-sheet accounts, is disclosed in Note 7.

 

70 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

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

 

Loans and leases, 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) considering, among other things, the delay levels (as described in table below);  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 contract, debtors and guarantors.

 

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

 

Renegotiations of loans that had already been 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 loan 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.

 

The classification of the generally loans to the same economic client or group is defined as the one that presents the highest risk. In exceptional cases, different ratings for a particular loan are accepted according to the nature, value, purpose of the loan and characteristics of the guarantees.

 

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 9.

 

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 lease asset 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”.

 

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.

Bradesco  71

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

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, the 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 33.

 

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 leases 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 Letter No. 3,738/14. As of 2017, the remuneration mentioned is fully recognized as an expense.

 

Prepaid expenses are shown in detail in Note 11b.

 

j)    Investments

 

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

 

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

 

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 12.

 

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

 

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

 

Notes to the Consolidated Financial Statements

 

communications – 10% per annum; transport systems – 10% to 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, is disclosed in Note 13.

 

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 14.

 

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 Note 7.

 

n)   Deposits and funds obtained in the open market

 

These are recognized at the value of the liabilities and include, when applicable, related interest accrued at the end of the reporting period, calculated on a daily pro-rata basis.

 

The composition of the securities recorded in deposits and funds obtained in the open market, as well as their maturities and amounts recorded in equity and income accounts, are presented in Note 15.

 

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

 

·       Damage, health and group insurance lines, except life insurance with survival coverage (VGBL):

 

- The unearned premium reserve (PPNG) is calculated on a daily pro-rata basis, using premiums net of coinsurance, including amounts ceded through reinsurance, and is comprised of the portion corresponding to the remaining period of coverage less initial contracting costs (for contracts written prior to 2017), except for health and personal insurance. The portion of these reserves corresponding to the estimate for risks in effect but not yet contracted is designated ‘PPNG-RVNE’;

 

- The unearned premium/payments reserve (PPCNG) is calculated on a daily pro-rata basis based on the portion of health insurance premiums corresponding to the remaining period of coverage, of the currently effective contracts;

 

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

 

Notes to the Consolidated Financial Statements

 

-        The mathematical reserve for unvested benefits (PMBaC) whose calculation methodology considers, the difference between the current value of future benefits and the current value of future contributions, on obligations already assumed by Bradesco;

 

-        For health insurance, the Matematical Reserve for Benefits to be Granted (PMBaC) uses a discount rate of 4% per year (4.5% in 2017). It considers the payment of premiums until the death of the insured and, from this moment, the costs related to the coverage of dependents who remain in the plan for five further years without payment of premiums;

  

-        For health insurance, the mathematical reserve of benefits granted (PMBC) is constituted by the obligations arising from the contractual clauses of remittance of installments, regarding the coverage of health assistance and by the premiums paid by insured participating in the Bradesco Saúde Insurance Plan - "GBS Plan" considering a discount rate of 4% (4.5% in 2017) per annum;

 

-        The reserve for events incurred but not reported (PEONA) is calculated from the final estimate of claims already incurred and still not reported, based on the run-off triangles, monthly that consider the historical development of claims advised in the last 12 months for health insurance and last 18 months for dental care to establish a future projection per period of occurrence;

 

-        For Car insurance, the reserve for ‘incurred but not reported’ (IBNR) claims is calculated based on incurred but not paid’ (IBNP) claims less the balance of the reserve for ‘unsettled’ claims (PSL) on the calculation date. For the other Damage insurance, the IBNR estimate is based on the run off triangles. A final estimate of IBNP is calculated using semi-annual run-off triangles. The run-off triangles consider the historical development of claims paid in the previous 10 semesters and in last 11 quarters to extended warranty segments to determine a future projection per occurrence period, and considers the estimated claims ‘incurred but not sufficient’ reported (IBNER), reflecting the changing expectation of the amount provisioned along the regulatory process;

 

-        For life insurance, the provision of ‘incurred but not reported claims (IBNR) is calculated based on semi-annual run-off triangles, which consider the historical development of claims paid and outstanding in the prior 10 semesters, to establish a future projection per period of occurrence; A residual cause study is performed to forecast the claims reported after 10 semesters that the event occurred;

 

-        The reserve for unsettled claims (PSL), for health insurance, considers all claim notifications received up to the end of the reporting period, and includes all claims in litigation and related costs, updated monetarily;

 

-        The provision for outstanding claims (PSL) for personal insurance considers the expected amounts to be settled from all claims notices received up to the reporting date. The provision covers administrative and judicial claims indexed to inflation and with interest in the event of judicial claims;

 

-        For non-life insurance, the reserve for unsettled claims (PSL) is determined based on the indemnity payment estimates, considering all administrative and judicial claims existing at the reporting date, restated monetarily and with interest in case of judicial claims, net of the expected payments to be received;

 

-        The technical surplus reserve (PET) corresponds to the difference between the expected value and the observed value for events occurred in the period for insurance of policyholders with a clause of participation in the technical surplus;

                                             

-        The reserve for related expenses (PDR) for insurance of persons is recognized to cover expenses related to estimated claims and benefits for products structured in self-funding and partially regimes, the reserve covers claims incurred. For plans structured under a capitalization regime, the reserve is made to cover the expected expenses related to incurred claims and also claims expected to be incurred in the future;

 

74 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

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

 

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

 

-        The complementary reserve for coverage (PCC) for damage insurance shall be recorded when there is an insufficiency in the technical provisions, as calculated in the Liability Adequacy Test (LAT), pursuant to the determinations specified in the regulations in force. As of the base date, there is no need to record complementary reserve for coverage;

 

-        The complementary reserve for coverage (PCC) for life insurance, refers to the amount necessary to complement technical provisions, as calculated in the LAT. The LAT, which is prepared using statistical and actuarial methods based on realistic assumptions, taking into account the biometric table BR-EMS of both genders, adjusted as per longevity development criteria in compliance with the last versions disclosed (improvement), and forward interest rate curves (ETTJ) free from risk as authorized by SUSEP. The improvement rate is calculated from automatic updates of the biometric table, considering the expected increase in future life expectancy;

 

-        The other technical provisions for damage insurance correspond to the provision for administrative expenses (PDA) arising from Personal Injury Caused by Motor Vehicles (DPVAT) insurance operations; and

 

-        Other technical provisions are recognized for the individual health portfolio to address the differences between the expected present value of future premiums and the expected present value of indemnities and related expenses, using an annual discount rate of 4% (4.5% in 2017) per annum.

 

·       Pension plans and life insurance with survival coverage (VGBL):

 

-    The unearned premium reserve (PPNG) is calculated on a daily prorated basis using net contributions, and is comprised of the portion corresponding to the remaining period of coverage and includes an estimate for risks covered but not yet issued (RVNE);

 

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

 

-        The mathematical reserve for unvested benefits (PMBaC) related to pension plans and life insurance with survival coverage, as well as the defined contribution plans, shows the value of participant contributions, net of costs and other contractual charges, plus income from investment in specially constituted investment funds (FIEs);

 

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

 

-        The mathematical reserve for vested benefits (PMBC), calculated using the technical basis of the pension plan, is recognized for participants already receiving benefits and corresponds to the present value of future obligations related to the payment of those on-going benefits;

 

-    The complementary reserve for coverage (PCC) refers to the amount necessary to complement technical provisions, as calculated in the LAT. The LAT, which is prepared semi-annually using statistical and actuarial methods based on realistic assumptions, taking into account the biometric table BR-EMS of both genders, improvement and forward interest rate curves (ETTJ) free from risk as authorized by SUSEP. The improvement rate is calculated from automatic updates of the biometric table, considering the expected increase in future life expectancy;

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

 

Notes to the Consolidated Financial Statements

 

 

-        The reserve for related expenses (PDR) is recognized to cover expenses related to estimated claims and benefits, for products structured in self-funding and partially regimes. For plans structured under a capitalization regime, the reserve is made to cover the expected expenses related to incurred claims and also claims expected to be incurred in the future. The projections are performed through the liability adequacy test (TAP);

 

-        The reserve for financial surplus (PEF) corresponds to the financial income exceeding the minimum assured profitability, transferred to contracts with a financial surplus participation clause;

 

-        The provision for claims incurred but not reported (IBNR) is calculated based on semi-annual run-off triangles, which consider the historical development of claims paid and outstanding in the last 16 semesters for the creation of a new future projection by period of occurrence. As to acquired portfolios, a history of 10 semesters is used;

 

-    The reserve for unsettled claims (PSL) considers the expected values to be settled from all loss notices received up to the end of the reporting period. The provision covers administrative and judicial claims and is monetarily adjusted and with interest in the case of judicial claims; and

 

-    The financial charges credited to technical provisions, and the recording and/or reversal of the financial surplus, are classified as financial expenses, and are presented under “Financial income from insurance, pension plans and capitalization bonds”.

 

·       Capitalization bonds:

 

-        The mathematical reserve for capitalization bond (PMC) is recognized for each active or suspended capitalization bond over the term set forth in the general conditions of the plan, and is calculated using the capitalization percentage, applicable to each of the payments made, plus the monthly accrual calculated using the inflation index and the interest rate established in the plan until the bond is redeemed or canceled;

 

-        The reserve for redemption (PR) comprises the values of matured and early-terminated capitalization bonds and is calculated by updating the balance of bonds whose terms have expired or canceled using the inflation index until the holder receives the redemption payment;

 

-        The reserves for draws to be made (PSR) is constituted to cover the prizes to be paid in future sweepstakes. The calculation methodology consists of the projection of the expected present value of the expenses of future draws and compared to the projection of the expected present value of the installments referring to the future receives of the capitalization bonds;

 

-        Reserve for draws payable (PSP) consists of the value of unpaid prize draw amounts, adjusted for inflation for the period between the date of the drawing and its effective settlement; and

 

-        Reserve for administrative expense (PDA) is recognized to cover the cost for maintaining capitalization bonds. For the calculation, the present value of the expected future administrative expenses is projected and compared to present value of the projected loading fees on future installments of the bonds.

 

Technical provisions shown by account, product and segment, as well as amounts and details of plan assets covering these technical provisions, are shown in Note 20.

 

76 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

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

 

Provisions, contingent assets and liabilities, and legal obligations, as defined below, are recognized, measured and disclosed in accordance with the criteria set out in CPC 25, approved by CMN Resolution No. 3,823/09 and CVM Resolution No. 594/09 and according to Circular Letter No. 3,429/10, which are:

 

·       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 the Organization 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 in which Bradesco is contesting 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 17.

 

q)   Funding expenses

 

Expenses related to funding transactions involving the issuance of securities reduce the corresponding liability and are recognized in the profit or loss over the term of the transaction, according to Notes 15c and 18.

 

r)    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 are stated at known or measurable amounts, including related charges and inflation and exchange variations (on a daily prorated basis).

 

s)   Subsequent events

 

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

 

They comprise the following:

 

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

 

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

 

Subsequent events, if any, are described in Note 34.

Bradesco  77

 

 

 

 

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

 

Notes to the Consolidated Financial Statements

 

4)      MANAGERIAL STATEMENTS OF FINANCIAL POSITION AND STATEMENT OF INCOME BY OPERATING SEGMENT

 

a)      Reconciliation of the Statement of Financial Position and Statement of Income – Accounting vs. Managerial

 

Management uses a variety of information, including those from financial statements, prepared in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank, prepared by consolidation criteria that differ in part from the criteria of CPC 36, as described in Note 2.

 

The main differences of consolidation criteria are shown below, through the Reconciliation of the Statements of financial position and the Statements of Income – Accounting vs. Managerial:

 

 

On September 30 - R$ thousand

2018

2017

Accounting Statement of Financial Position

Proportionately consolidated (1)

Adjustments of
Consolidation (2)

Managerial Statement of Financial Position

Accounting Statement of Financial Position

Proportionately consolidated (1)

Adjustments of
Consolidation (2)

Managerial Statement of Financial Position

Assets

 

 

 

 

 

 

 

  

Current and long-term assets

1,253,221,633

9,186,073

66,293,926

1,328,701,632

1,186,418,950

8,855,329

86,559,733

1,281,834,012

Cash and due from banks

15,294,120

291,917

- 

15,586,037

16,706,203

220,358

- 

16,926,561

Interbank investments

112,166,667

(73,053)

(20,174)

112,073,440

178,562,179

245,754

(398,397)

178,409,536

Securities and derivative financial instruments

563,134,442

4,476,832

66,455,134

634,066,408

480,271,580

5,008,881

86,818,835

572,099,296

Interbank and interdepartmental accounts

81,680,588

- 

- 

81,680,588

70,151,511

- 

- 

70,151,511

Loans and leases

346,407,677

523,771

- 

346,931,448

326,983,072

443,708

- 

327,426,780

Allowance for Loan Losses (ALL)

(35,147,668)

(89,358)

- 

(35,237,026)

(36,476,428)

(80,284)

- 

(36,556,712)

Other receivables and assets

169,685,807

4,055,964

(141,034)

173,600,737

150,220,833

3,016,912

139,295

153,377,040

Permanent Assets

28,806,529

(759,864)

- 

28,046,665

30,271,974

(434,153)

- 

29,837,821

Investments

8,134,016

(5,941,863)

- 

2,192,153

7,881,172

(5,737,318)

- 

2,143,854

Premises and equipment

7,442,905

212,310

- 

7,655,215

7,249,429

203,586

- 

7,453,015

Intangible assets

13,229,608

4,969,689

- 

18,199,297

15,141,373

5,099,579

- 

20,240,952

Total

1,282,028,162

8,426,209

66,293,926

1,356,748,297

1,216,690,924

8,421,176

86,559,733

1,311,671,833

 

 

78 Economic and Financial Analysis Report – September 2018

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

On September 30 - R$ thousand

2018

2017

Accounting Statement of Financial Position

Proportionately consolidated (1)

Adjustments of
Consolidation (2)

Managerial Statement of Financial Position

Accounting Statement of Financial Position

Proportionately consolidated (1)

Adjustments of
Consolidation (2)

Managerial Statement of Financial Position

Liabilities

 

 

 

 

- 

 

 

  

Current and long-term liabilities

1,165,360,017

7,326,729

66,293,926

1,238,980,672

1,105,434,856

7,309,027

86,559,733

1,199,303,616

Deposits

318,841,994

(314,735)

847,323

319,374,582

259,591,114

(14,406)

- 

259,576,708

Securities sold under agreements to repurchase

217,957,945

(826)

67,456,602

285,413,721

246,582,688

- 

87,477,417

334,060,105

Funds from Issuance of Securities

148,926,596

- 

- 

148,926,596

134,832,733

- 

1,005,976

135,838,709

Interbank and interdepartmental accounts

23,488,172

272,623

- 

23,760,795

23,060,045

2,866,732

- 

25,926,777

Borrowing and on-lending

55,505,885

1,920,578

(119,060)

57,307,403

52,070,589

2,352,673

- 

54,423,262

Derivative financial instruments

15,723,020

- 

(204,453)

15,518,567

14,696,462

2,049

(140,304)

14,558,207

Technical provisions for insurance, pension plans and capitalization bonds

254,653,289

- 

- 

254,653,289

239,287,129

- 

- 

239,287,129

Other liabilities

130,263,116

5,449,089

(1,686,486)

134,025,719

135,314,096

2,101,979

(1,783,356)

135,632,719

Deferred income

385,721

- 

- 

385,721

400,844

- 

- 

400,844

Non-controlling interests in subsidiaries

612,845

1,099,480

- 

1,712,325

554,622

1,112,149

- 

1,666,771

Shareholders’ equity

115,669,579

- 

- 

115,669,579

110,300,602

- 

- 

110,300,602

Total

1,282,028,162

8,426,209

66,293,926

1,356,748,297

1,216,690,924

8,421,176

86,559,733

1,311,671,833

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Accounting Statement of Income

Proportionately consolidated (1)

Adjustments of
Consolidation (2)

Managerial Statement of Income

Accounting Statement of Income

Proportionately consolidated (1)

Adjustments of
Consolidation (2)

Managerial Statement of Income

Revenue from financial intermediation

91,704,353

874,934

965,329

93,544,616

116,105,988

936,616

2,538,982

119,581,586

Expenses from financial intermediation

(47,321,945)

(89,141)

(2,892,017)

(50,303,103)

(62,335,098)

(45,801)

(4,388,088)

(66,768,987)

Financial margin

44,382,408

785,793

(1,926,688)

43,241,513

53,770,890

890,815

(1,849,106)

52,812,599

Allowance for loan losses

(13,760,676)

(64,087)

- 

(13,824,763)

(19,717,425)

(79,303)

- 

(19,796,728)

Gross income from financial intermediation

30,621,732

721,706

(1,926,688)

29,416,750

34,053,465

811,512

(1,849,106)

33,015,871

Income from insurance, pension plans and capitalization bonds

5,719,007

- 

- 

5,719,007

4,919,087

- 

- 

4,919,087

Fee and commission income

18,560,972

3,395,041

1,999,604

23,955,617

17,772,000

3,312,809

1,697,731

22,782,540

Personnel expenses

(14,144,007)

(618,143)

- 

(14,762,150)

(16,371,329)

(557,942)

- 

(16,929,271)

Other administrative expenses

(14,210,765)

(674,262)

(11,466)

(14,896,493)

(14,199,004)

(1,039,060)

441,940

(14,796,124)

Tax expenses

(4,234,142)

(446,796)

- 

(4,680,938)

(4,585,062)

(383,013)

- 

(4,968,075)

Share of profit (loss) of unconsolidated and jointly controlled companies

1,155,002

(1,039,357)

- 

115,645

1,134,809

(972,371)

- 

162,438

Other operating income / expenses

(8,181,342)

(776,303)

(61,450)

(9,019,095)

(6,024,313)

(406,197)

(290,565)

(6,721,075)

Operating income

15,286,457

561,886

- 

15,848,343

16,699,653

765,738

- 

17,465,391

Non-operating income

(654,606)

(13,486)

- 

(668,092)

(232,075)

(5,131)

- 

(237,206)

IT/SC (Income Tax/Soc. Contrib.) and non-controlling interests

(627,666)

(548,400)

- 

(1,176,066)

(5,601,421)

(760,607)

- 

(6,362,028)

Net income

14,004,185

- 

- 

14,004,185

10,866,157

- 

- 

10,866,157

 (1) Refers to the effects of the consolidation adjustments arising from the undertakings consolidated proportionally (Grupo Cielo, Grupo Alelo, Crediare, etc.) for managerial purposes; and
 (2) Refers primarily to the effects of the consolidation adjustments arising from the "non-consolidation" of the exclusive funds.

 

 

Bradesco  79

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

b)      Statement of financial position and statements of income by segment – Managerial

 

In accordance with CPC 22, the managerial information, hereinafter, was prepared based on reports available to the Management to evaluate the performance and make decisions regarding the allocation of resources for investments and other purposes.

 

 

On September 30 - R$ thousand

Financial (1) (2)

Insurance Group (2) (3)

Other Activities (2)

Eliminations (4)

Managerial Accounting Statement of Financial Position

Brazil

Overseas

Brazil

Overseas

Assets

 

  

 

  

 

 

  

Current and long-term assets

978,801,744

125,282,957

291,018,692

24,802

5,093,289

(71,519,852)

1,328,701,632

Cash and due from banks

12,701,727

2,848,047

277,922

8,025

183,840

(433,524)

15,586,037

Interbank investments

109,446,251

2,627,189

- 

- 

- 

- 

112,073,440

Securities and derivative financial instruments

337,349,170

18,299,121

279,226,410

1,746

4,080,703

(4,890,742)

634,066,408

Interbank and interdepartmental accounts

81,680,588

- 

- 

- 

- 

- 

81,680,588

Loans and leases

307,428,546

102,224,616

- 

- 

- 

(62,721,714)

346,931,448

Allowance for Loan Losses (ALL)

(33,231,883)

(2,005,143)

- 

- 

- 

- 

(35,237,026)

Other receivables and assets

163,427,345

1,289,127

11,514,360

15,031

828,746

(3,473,872)

173,600,737

Permanent assets

117,880,432

34,924

6,956,950

2,449

865,599

(97,693,689)

28,046,665

Investments

97,193,125

- 

2,639,205

- 

53,512

(97,693,689)

2,192,153

Premises and equipment

5,173,006

21,459

2,418,890

422

41,438

- 

7,655,215

Intangible assets

15,514,301

13,465

1,898,855

2,027

770,649

- 

18,199,297

Total in 2018

1,096,682,176

125,317,881

297,975,642

27,251

5,958,888

(169,213,541)

1,356,748,297

Total in 2017

1,066,982,869

97,714,295

282,863,877

20,390

4,704,800

(140,614,398)

1,311,671,833

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current and long-term liabilities

979,037,712

64,549,038

265,694,637

15,007

1,204,130

(71,519,852)

1,238,980,672

Deposits

304,245,208

15,722,429

- 

- 

- 

(593,055)

319,374,582

Securities sold under agreements to repurchase

274,840,452

10,573,269

- 

- 

- 

- 

285,413,721

Funds from issuance of securities

150,371,150

3,299,111

- 

- 

- 

(4,743,665)

148,926,596

Interbank and interdepartmental accounts

23,760,795

- 

- 

- 

- 

- 

23,760,795

Borrowing and on-lending

100,532,815

19,496,302

- 

- 

- 

(62,721,714)

57,307,403

Derivative financial instruments

14,915,754

602,813

- 

- 

- 

- 

15,518,567

Technical provisions for insurance, pension plans and capitalization bonds

- 

- 

254,643,179

10,110

- 

- 

254,653,289

Other liabilities

110,371,538

14,855,114

11,051,458

4,897

1,204,130

(3,461,418)

134,025,719

Deferred income

363,575

- 

22,146

- 

- 

- 

385,721

Non-controlling interests in subsidiaries

1,611,310

60,768,843

32,258,859

12,244

4,754,758

(97,693,689)

1,712,325

Shareholders’ equity

115,669,579

- 

- 

- 

- 

- 

115,669,579

Total in 2018

1,096,682,176

125,317,881

297,975,642

27,251

5,958,888

(169,213,541)

1,356,748,297

Total in 2017

1,066,982,869

97,714,295

282,863,877

20,390

4,704,800

(140,614,398)

1,311,671,833

 

80 Economic and Financial Analysis Report – September 2018

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

 

In the nine month period ended September 30  - R$ thousand

Financial (1) (2)

Insurance Group (2) (3)

Other Activities (2)

Eliminations (4)

Managerial Statement of Income

Brazil

Overseas

Brazil

Overseas

Revenue from financial intermediation

77,789,756

3,545,690

13,239,714

4,156

192,303

(1,227,003)

93,544,616

Expenses from financial intermediation

(40,620,363)

(1,494,780)

(9,414,963)

- 

- 

1,227,003

(50,303,103)

Financial margin

37,169,393

2,050,910

3,824,751

4,156

192,303

- 

43,241,513

Allowance for loan losses

(13,229,175)

(595,588)

- 

- 

- 

- 

(13,824,763)

Gross income from financial intermediation

23,940,218

1,455,322

3,824,751

4,156

192,303

- 

29,416,750

Income from insurance, pension plans and capitalization bonds

- 

- 

5,680,383

6,731

- 

31,893

5,719,007

Fee and commission income

21,924,656

307,383

1,642,214

- 

264,444

(183,080)

23,955,617

Personnel expenses

(13,250,814)

(154,755)

(1,174,213)

(3,965)

(178,403)

- 

(14,762,150)

Other administrative expenses

(13,875,027)

(194,964)

(1,164,258)

(3,094)

(147,659)

488,509

(14,896,493)

Tax expenses

(3,911,673)

(19,417)

(694,147)

(87)

(55,614)

- 

(4,680,938)

Share of profit (loss) of unconsolidated and jointly controlled companies

3,019

- 

123,886

- 

(11,260)

- 

115,645

Other operating income / expenses

(8,645,471)

(69,943)

(103,127)

(987)

137,739

(337,306)

(9,019,095)

Operating income

6,184,908

1,323,626

8,135,489

2,754

201,550

16

15,848,343

Non-operating income

(670,961)

11,122

(10,650)

2

2,411

(16)

(668,092)

IT/SC (Income Tax/Soc. Contrib.) and non-controlling interests

2,725,349

(332,525)

(3,519,761)

(378)

(48,751)

- 

(1,176,066)

Net Income in 2018

8,239,296

1,002,223

4,605,078

2,378

155,210

- 

14,004,185

Net Income in 2017

5,678,644

981,752

4,032,862

944

171,955

- 

10,866,157

 

(1) The financial segment is comprised of financial institutions, holding companies which are mainly responsible for managing financial resources, and credit card, consortium and asset management companies;
(2) The asset, liability, income and expense balances among companies from the same segment are eliminated;
(3) The Insurance Group segment comprises insurance, pension plan and capitalization bond companies; and
(4) Refers to amounts eliminated among companies from different segments, as well as among operations carried out in Brazil and overseas.

 

 

5)      CASH AND CASH EQUIVALENTS

 

 

On September 30 - R$ thousand

2018

2017

Cash and due from banks in domestic currency

11,290,206

13,851,569

Cash and due from banks in foreign currency

4,003,707

2,854,440

Investments in gold

207

194

Total cash and due from banks

15,294,120

16,706,203

Interbank investments (1)

96,183,242

168,213,602

Total cash and cash equivalents

111,477,362

184,919,805

 

(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  81

 

 

 

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

 

Notes to the Consolidated Financial Statements

 

6)      INTERBANK INVESTMENTS

 

a)   Breakdown and maturity

 

 

On September 30 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

2018

2017

days

days

days

days

Securities purchased under agreements to resell:

 

  

 

  

 

  

Own portfolio position

15,214,804

1,086,704

71,020

- 

16,372,528

40,323,994

● National treasury notes

13,821,038

862,973

71,020

- 

14,755,031

19,700,912

● Financial treasury bills

957,515

- 

- 

- 

957,515

- 

● National treasury bills

255,369

223,731

- 

- 

479,100

20,551,654

● Debentures

- 

- 

- 

- 

- 

31,893

● Other

180,882

- 

- 

- 

180,882

39,535

Funded position

19,973,629

60,848,785

9,649

- 

80,832,063

128,136,007

● National treasury notes

15,442,885

60,232,604

9,649

- 

75,685,138

28,286,547

● Financial treasury bills

3,727,991

- 

- 

- 

3,727,991

6,690,379

● National treasury bills

802,753

616,181

- 

- 

1,418,934

93,159,081

Unrestricted position

770,948

3,556,277

256,857

- 

4,584,082

3,073,176

● National treasury bills

770,948

3,556,277

256,857

- 

4,584,082

3,073,176

Subtotal

35,959,381

65,491,766

337,526

- 

101,788,673

171,533,177

Interest-earning deposits in other banks:

 

  

 

  

 

  

● Interest-earning deposits in other banks:

3,715,588

3,651,998

1,565,224

1,452,572

10,385,382

7,036,778

● Provision for losses

(2,407)

(738)

(4,243)

- 

(7,388)

(7,776)

Subtotal

3,713,181

3,651,260

1,560,981

1,452,572

10,377,994

7,029,002

Total in 2018

39,672,562

69,143,026

1,898,507

1,452,572

112,166,667

  

%

35.4

61.6

1.7

1.3

100.0

 

Total in 2017

171,685,884

4,197,634

1,627,121

1,051,540

 

178,562,179

%

96.1

2.4

0.9

0.6

 

100.0

 

b)   Income from interbank investments

 

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

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Income from investments in purchase and sale commitments:

 

  

• Own portfolio position

992,665

764,024

• Funded position

4,537,320

13,233,221

• Unrestricted position

1,601,872

484,460

Subtotal

7,131,857

14,481,705

Income from interest-earning deposits in other banks

487,736

356,854

Total (Note 7g)

7,619,593

14,838,559

 

 

82 Economic and Financial Analysis Report – September 2018

 
 

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

 

Notes to the Consolidated Financial Statements

 

7)      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 September 30 - R$ thousand

Financial

Insurance Group

Other Activities

2018

%

2017

%

Insurance and Capitalization bonds

Pension plans

Trading securities

46,028,178

14,367,454

189,440,558

24,117

249,860,307

44.4

231,524,865

48.2

- Government securities

25,349,349

11,103,177

175,535,128

8,377

211,996,031

37.6

187,895,746

39.2

- Corporate securities

7,379,817

3,228,256

13,716,531

15,740

24,340,344

4.4

27,556,891

5.7

- Derivative financial instruments (1) (5)

13,299,012

36,021

188,899

- 

13,523,932

2.4

16,072,228

3.3

Available-for-sale securities (2)

183,539,690

22,066,328

16,789,292

21,421

222,416,731

39.5

210,152,435

43.8

- Government securities

115,903,146

20,123,780

15,573,246

15,985

151,616,157

26.9

148,179,589

30.9

- Corporate securities

67,636,544

1,942,548

1,216,046

5,436

70,800,574

12.6

61,972,846

12.9

Held-to-maturity securities (2)

62,638,469

5,273,291

22,945,644

- 

90,857,404

16.1

38,594,280

8.0

- Government securities

51,140,347

5,273,291

22,945,644

- 

79,359,282

14.1

26,310,804

5.5

- Corporate securities

11,498,122

- 

- 

- 

11,498,122

2.0

12,283,476

2.5

Total

292,206,337

41,707,073

229,175,494

45,538

563,134,442

100.0

480,271,580

100.0

 

 

 

 

 

 

 

 

 

- Government securities

192,392,842

36,500,248

214,054,018

24,362

442,971,470

78.6

362,386,139

75.6

- Corporate securities

99,813,495

5,206,825

15,121,476

21,176

120,162,972

21.4

117,885,441

24.4

Total

292,206,337

41,707,073

229,175,494

45,538

563,134,442

100.0

480,271,580

100.0

 

 

Bradesco  83

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

b)   Consolidated classification by category, maturity and operating segment

 

I)    Trading securities

 

Securities

On September 30 - R$ thousand

2018

2017

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

Fair/book value (3) (4)

Amortized cost

Fair Value Adjustment

Fair/book value (3) (4)

Fair Value Adjustment

- Financial

12,291,616

1,356,324

2,819,422

29,560,816

46,028,178

48,997,600

(2,969,422)

46,008,192

(4,978,964)

Financial treasury bills

- 

256,853

- 

15,253,203

15,510,056

15,509,126

930

11,229,605

818

National treasury notes

- 

40,782

914,435

6,905,228

7,860,445

7,786,441

74,004

7,729,152

241,569

Financial bills

- 

207,334

365,129

207,597

780,060

779,637

423

993,895

7,918

Debentures

48,973

82,226

3,852

917,241

1,052,292

1,167,309

(115,017)

2,221,140

(207,938)

National treasury bills

173,331

54,134

145,466

708,325

1,081,256

1,080,094

1,162

853,965

3,492

Brazilian foreign debt securities

- 

- 

- 

425,058

425,058

429,512

(4,454)

11,175

(2)

Derivative financial instruments (1) (5)

9,208,881

395,621

647,210

3,047,300

13,299,012

16,182,058

(2,883,046)

16,008,467

(4,983,017)

Other

2,860,431

319,374

743,330

2,096,864

6,019,999

6,063,423

(43,424)

6,960,793

(41,804)

- Insurance companies and capitalization bonds

3,087,242

28,557

755,908

10,495,747

14,367,454

14,367,454

- 

16,222,439

(3,635)

Financial treasury bills

- 

19,084

- 

9,210,691

9,229,775

9,229,775

- 

11,452,085

- 

Financial bills

- 

8,666

36,488

65,846

111,000

111,000

- 

363,907

- 

Other

3,087,242

807

719,420

1,219,210

5,026,679

5,026,679

- 

4,406,447

(3,635)

- Pension plans

2,955,186

1,626,484

1,229,553

183,629,335

189,440,558

189,440,558

- 

169,123,911

- 

Financial treasury bills

- 

883,795

- 

72,018,447

72,902,242

72,902,242

- 

50,807,416

- 

National treasury notes

- 

45,085

693,822

27,429,314

28,168,221

28,168,221

- 

58,423,094

- 

National treasury bills

36,463

6,257

100,972

74,320,973

74,464,665

74,464,665

- 

45,438,325

- 

Financial bills

599,011

193,640

267,436

6,418,138

7,478,225

7,478,225

- 

7,361,603

- 

Debentures

60,301

394,852

55,169

3,162,613

3,672,935

3,672,935

- 

3,622,369

- 

Other

2,259,411

102,855

112,154

279,850

2,754,270

2,754,270

- 

3,471,104

- 

- Other activities

15,740

2,043

- 

6,334

24,117

24,118

(1)

170,323

(3)

Financial treasury bills

- 

2,043

- 

6,334

8,377

8,378

(1)

21,052

(3)

Other

15,740

- 

- 

- 

15,740

15,740

- 

149,271

- 

Total

18,349,784

3,013,408

4,804,883

223,692,232

249,860,307

252,829,730

(2,969,423)

231,524,865

(4,982,602)

Derivative financial instruments (liabilities) (5)

(13,880,921)

(698,901)

(384,384)

(758,814)

(15,723,020)

(13,415,185)

(2,307,835)

(14,696,462)

(4,181,890)

 

 

84 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

II)   Available-for-sale securities

 

Securities (2) (6)

On September 30 - R$ thousand

2018

2017

1 to 30

31 to 180

181 to 360

More than 360

Fair/book value (3) (4)

Amortized cost

Fair Value Adjustment

Fair/book value (3) (4)

Fair Value Adjustment

days

days

days

days

- Financial

15,526,387

36,195,572

47,219,990

84,597,741

183,539,690

185,688,011

(2,148,321)

178,216,001

2,190,406

National treasury bills

3,077,468

28,820,293

41,123,572

26,387,841

99,409,174

99,032,696

376,478

106,392,622

2,672,960

Debentures

663,951

541,534

2,199,508

38,385,649

41,790,642

43,427,194

(1,636,552)

37,575,759

(639,159)

National treasury notes

- 

- 

2,240,986

7,127,930

9,368,916

9,229,108

139,808

8,499,234

606,308

Foreign corporate securities

627,919

33,115

1,636,071

8,101,689

10,398,794

10,612,851

(214,057)

10,571,586

195,121

Shares

7,265,489

- 

- 

- 

7,265,489

8,107,020

(841,531)

7,505,492

(671,975)

Foreign government bonds

1,723,553

1,438,454

- 

- 

3,162,007

3,147,841

14,166

2,221,344

(5,575)

Promissory Notes

- 

4,498,578

- 

- 

4,498,578

4,479,092

19,486

845,223

(5,281)

Certificates of real estate receivables

- 

6,804

- 

801,603

808,407

790,805

17,602

1,088,044

(30,073)

Other

2,168,007

856,794

19,853

3,793,029

6,837,683

6,861,404

(23,721)

3,516,697

68,080

- Insurance companies and capitalization bonds

1,890,735

171,036

33,404

19,971,153

22,066,328

22,426,954

(360,626)

17,078,285

832,083

National treasury notes

- 

- 

- 

13,203,674

13,203,674

13,769,668

(565,994)

11,324,029

341,710

Shares

1,550,793

- 

- 

- 

1,550,793

1,221,402

329,391

1,534,941

386,266

National treasury bills

- 

156,595

33,404

6,551,371

6,741,370

6,867,923

(126,553)

3,740,271

90,448

Other

339,942

14,441

- 

216,108

570,491

567,961

2,530

479,044

13,659

- Pension plans

1,127,460

16,260

- 

15,645,572

16,789,292

16,249,126

540,166

14,817,006

2,001,193

National treasury notes

- 

- 

- 

14,486,529

14,486,529

14,060,648

425,881

12,204,442

1,733,945

Shares

1,127,460

- 

- 

- 

1,127,460

1,000,559

126,901

1,847,886

259,232

Debentures

- 

- 

- 

88,586

88,586

80,967

7,619

95,712

7,941

Other

- 

16,260

- 

1,070,457

1,086,717

1,106,952

(20,235)

668,966

75

- Other activities

5,436

- 

- 

15,985

21,421

15,997

5,424

41,143

5,948

Other

5,436

- 

- 

15,985

21,421

15,997

5,424

41,143

5,948

Subtotal

18,550,018

36,382,868

47,253,394

120,230,451

222,416,731

224,380,088

(1,963,357)

210,152,435

5,029,630

Accounting Hedge (Note 7f)

- 

- 

- 

- 

- 

- 

(408,640)

- 

(117,740)

Securities reclassified to “Held-to-maturity securities”

- 

- 

- 

- 

- 

- 

(671,356)

- 

(344,072)

Total

18,550,018

36,382,868

47,253,394

120,230,451

222,416,731

224,380,088

(3,043,353)

210,152,435

4,567,818

 

Bradesco  85

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

III) Held-to-maturity securities

 

Securities (2) (6)

On September 30 - R$ thousand

2018

2017

1 to 30

31 to 180

181 to 360

More than 360

Amortized cost (3)

Fair value (4)

Gain (loss) not accounted for

Amortized cost (3)

Gain (loss) not accounted for

days

days

days

days

- Financial

- 

1,358

32,695

62,604,416

62,638,469

61,856,414

(782,055)

12,300,393

(344,828)

National treasury bills

- 

- 

- 

50,339,565

50,339,565

50,274,744

(64,821)

- 

- 

Certificates of real estate receivables

- 

- 

31,513

11,466,609

11,498,122

10,787,068

(711,054)

12,283,476

(345,210)

National treasury notes

- 

1,358

1,182

795,323

797,863

791,683

(6,180)

7,452

- 

Other

- 

- 

- 

2,919

2,919

2,919

- 

9,465

382

- Insurance companies and capitalization bonds

- 

- 

- 

5,273,291

5,273,291

5,411,014

137,723

5,060,850

918,624

National treasury notes

- 

- 

- 

5,273,291

5,273,291

5,411,014

137,723

5,060,850

918,624

- Pension plans

- 

- 

- 

22,945,644

22,945,644

24,521,065

1,575,421

21,233,037

3,545,822

National treasury notes

- 

- 

- 

22,945,644

22,945,644

24,521,065

1,575,421

21,233,037

3,545,822

Total

- 

1,358

32,695

90,823,351

90,857,404

91,788,493

931,089

38,594,280

4,119,618

 

86 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

c)   Breakdown of the portfolios by financial statement classification

 

Securities

On September 30 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

Total in 2018

(3) (4)

Total in 2017

(3) (4)

days

days

days

days

Own portfolio

26,733,638

17,941,334

15,466,708

350,001,600

410,143,280

373,664,449

Fixed income securities

13,110,112

17,941,334

15,466,708

350,001,600

396,519,754

359,730,899

● National treasury notes

25,123

74,087

3,032,299

76,533,402

79,664,911

111,294,714

● Financial treasury bills

1,722

1,481,177

- 

92,840,498

94,323,397

71,640,256

● National treasury bills

3,310,026

8,723,261

8,982,578

114,320,021

135,335,886

92,243,397

● Debentures

776,445

887,102

1,832,497

39,341,225

42,837,269

43,257,969

● Financial bills

599,011

409,641

669,053

6,794,627

8,472,332

8,713,150

● Certificates of real estate receivables

- 

6,804

31,513

12,482,575

12,520,892

13,561,841

● Foreign government bonds

1,732,280

1,438,454

3,861

459,943

3,634,538

2,552,218

● Foreign corporate securities

1,311,059

30,337

757,856

4,499,278

6,598,530

6,784,697

● Brazilian foreign debt securities

- 

- 

- 

1,521,952

1,521,952

717,903

● Promissory Notes

- 

4,499,998

33,652

209,189

4,742,839

3,174,645

● Bank deposit certificates

191,708

343,005

83,106

11,537

629,356

492,085

● Other

5,162,738

47,468

40,293

987,353

6,237,852

5,298,024

Equity securities

13,623,526

- 

- 

- 

13,623,526

13,933,550

● Shares of listed companies

1,130,153

- 

- 

- 

1,130,153

1,851,629

● Shares of other companies

12,493,373

- 

- 

- 

12,493,373

12,081,921

Restricted securities

732,363

20,797,454

34,580,419

80,713,077

136,823,313

83,807,241

Subject to repurchase agreements

627,788

20,256,665

30,450,592

64,188,164

115,523,209

62,901,746

● National treasury bills

- 

19,976,400

27,505,801

44,044,290

91,526,491

53,757,059

● Foreign corporate securities

627,788

33,115

1,597,245

4,780,840

7,038,988

6,148,043

● National treasury notes

- 

- 

921,515

8,644,368

9,565,883

1,400,654

● Brazilian foreign debt securities

- 

- 

- 

524,793

524,793

336,046

● Debentures

- 

132,317

426,031

3,036,699

3,595,047

- 

● Financial treasury bills

- 

114,833

- 

3,157,174

3,272,007

1,259,944

Given in guarantee to the Brazilian Central Bank

- 

- 

- 

- 

- 

1,767

● National treasury bills

- 

- 

- 

- 

- 

1,767

Privatization rights

- 

- 

- 

40,470

40,470

45,357

Given in guarantee

104,575

540,789

4,129,827

16,484,443

21,259,634

20,858,371

● National treasury notes

- 

13,137

- 

13,676,555

13,689,692

11,939,623

● National treasury bills

- 

74,450

4,129,827

325,226

4,529,503

5,140,596

● Financial treasury bills

1,804

453,202

- 

2,230,716

2,685,722

3,315,390

 

Bradesco  87

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

Securities

On September 30 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

Total in 2018

(3) (4)

Total in 2017

(3) (4)

days

days

days

days

● Other

102,771

- 

- 

251,946

354,717

462,762

Derivative financial instruments (1) (5)

9,433,801

395,621

647,210

3,047,300

13,523,932

16,072,228

Securities sold under repurchase agreements - unrestricted

- 

263,225

1,396,635

984,057

2,643,917

6,727,662

● National treasury bills

- 

263,167

1,396,635

893,037

2,552,839

6,551,873

● National treasury notes

- 

- 

- 

91,020

91,020

175,789

● Financial treasury bills

- 

58

- 

- 

58

- 

Total

36,899,802

39,397,634

52,090,972

434,746,034

563,134,442

480,271,580

%

6.6

7.0

9.2

77.2

100.0

100.0

 

(1) Consistent with the criteria in Bacen Circular Letter No. 3,068/01 and due to the characteristics of the instruments, we are classifying the derivative financial instruments, except those considered as accounting 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. At the time of preparation of the consolidated financial statements as of June 30, 2018, Management decided to reclassify Securities available for Sale to Held to Maturity, in the amount of R$ 17,022,922 thousand, without any result, as the result (loss) in the gross amount of R$ (297,343) thousand, was retained in shareholders’ equity and will be recognized in income over the remaining period of the securities, according to article 5 of said Circular. This reclassification was based on the alignment of the risk management strategy. In the third quarter of 2018 and 2017 there were no sales or reclassifications of securities classified in this category;
(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 7d II); and

(6) In the nine months ended September 30, 2018, there were impairment losses on financial assets (mostly debentures), net of reversals, related to securities classified as “Available-for-Sale” and “Held-to-Maturity” in the amount of R$ 737,123 thousand (R$ 1,766,590 thousand in 2017).

 

           

 

88 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

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 prices received 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 primarily consist of 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 primarily out at the stock exchanges in Chicago and New York, as well as the over-the-counter (OTC) markets.

 

Bradesco  89

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

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

 

 

On September 30 - R$ thousand

2018

2017

Nominal value

Net amount value

Nominal value

Net amount value

Futures contracts

 

 

 

  

Purchase commitments:

216,106,636

 

136,897,679

 

- Interbank market

149,425,673

19,295,271

92,455,596

- 

- Foreign currency

66,287,947

- 

44,407,820

- 

- Other

393,016

26,404

34,263

- 

Sale commitments:

206,771,228

 

176,811,694

 

- Interbank market (1)

130,130,402

- 

112,311,374

19,855,778

- Foreign currency (2)

76,274,214

9,986,267

63,423,547

19,015,727

- Other

366,612

- 

1,076,773

1,042,510

 

 

 

 

 

Option contracts

 

 

 

  

Purchase commitments:

126,030,616

 

24,714,610

 

- Interbank market

106,499,255

- 

17,715,758

- 

- Foreign currency

18,431,801

3,530,921

6,380,549

- 

- Other

1,099,560

213,322

618,303

75,844

Sale commitments:

165,585,203

 

35,526,936

 

- Interbank market

149,798,085

43,298,830

19,021,101

1,305,343

- Foreign currency

14,900,880

- 

15,963,376

9,582,827

- Other

886,238

- 

542,459

- 

 

 

 

 

 

Forward contracts

 

 

 

  

Purchase commitments:

15,142,617

 

10,514,802

 

- Foreign currency

13,667,994

- 

10,229,820

- 

- Other

1,474,623

940,596

284,982

- 

Sale commitments:

19,464,994

 

14,750,596

 

- Foreign currency (2)

18,930,967

5,262,973

13,928,597

3,698,777

- Other

534,027

- 

821,999

537,017

 

 

 

 

 

Swap contracts

 

 

 

  

Assets (long position):

74,957,199

 

68,484,415

 

- Interbank market

5,830,727

3,189,953

10,032,621

6,613,940

- Fixed rate

50,497,772

24,891,174

48,831,223

21,265,607

- Foreign currency

17,031,658

- 

7,977,308

1,460,705

- IGPM

749,766

- 

692,450

- 

- Other

847,276

- 

950,813

- 

Liabilities (unrestricted position):

57,315,091

 

41,245,199

 

- Interbank market

2,640,774

- 

3,418,681

- 

- Fixed rate

25,606,598

- 

27,565,616

- 

- Foreign currency

25,962,453

8,930,795

6,516,603

- 

- IGPM

766,000

16,234

808,000

115,550

- Other

2,339,266

1,491,990

2,936,299

1,985,486

 

Derivatives include operations maturing in D+1.

(1) Includes: (i) accounting hedges to protect CDI-related funding totaling R$ 4,825,810 thousand (R$ 6,646,749 in 2017); and (ii) accounting hedges to protect interbank investments, in the amount of R$ 9,631,686 thousand (R$ 16,799,041 thousand in 2017) (note 7f); and

(2) Includes specific hedges to protect assets and liabilities, arising from foreign investments. Investments abroad totaling the amount of R$ 60,932,586 thousand (R$ 46,971,885 thousand in 2017).

 

90 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

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

 

 

On September 30 - R$ thousand

2018

2017

Original amortized cost

Mark-to-market adjustment

Fair value

Original amortized cost

Mark-to-market adjustment

Fair value

Adjustment receivable - swaps

12,704,209

(3,219,854)

9,484,355

19,267,953

(4,953,981)

14,313,972

Adjustment receivable - future

204,030

- 

204,030

13,206

- 

13,206

Receivable forward purchases

1,747,227

- 

1,747,227

102,070

- 

102,070

Receivable forward sales (1)

345,783

- 

345,783

1,134,056

- 

1,134,056

Premiums on exercisable options

1,405,729

336,808

1,742,537

537,960

(29,036)

508,924

Total assets (A)

16,406,978

(2,883,046)

13,523,932

21,055,245

(4,983,017)

16,072,228

Adjustment payables - swaps

(10,032,949)

(2,012,522)

(12,045,471)

(8,931,435)

(4,209,766)

(13,141,201)

Adjustment payables - future

(17,975)

- 

(17,975)

(115,563)

- 

(115,563)

Payable forward purchases

(919,062)

- 

(919,062)

(593,386)

- 

(593,386)

Payable forward sales

(863,683)

- 

(863,683)

(473,011)

- 

(473,011)

Premiums on written options

(1,581,516)

(295,313)

(1,876,829)

(401,177)

27,876

(373,301)

Total liabilities (B)

(13,415,185)

(2,307,835)

(15,723,020)

(10,514,572)

(4,181,890)

(14,696,462)

       

 

   

Net Effect (A-B)

2,991,793

(5,190,881)

(2,199,088)

10,540,673

(9,164,907)

1,375,766

 

(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 – (Nominal Value)

 

 

On September 30 - R$ thousand

1 to 90

91 to 180

181 to 360

More than 360

2018

2017

days

days

days

days

Futures contracts (1)

84,565,317

117,076,271

28,485,327

192,750,949

422,877,864

313,709,373

Option contracts

230,969,721

8,219,168

37,998,725

14,428,205

291,615,819

60,241,546

Forward contracts (1)

19,906,085

4,872,580

7,597,973

2,230,973

34,607,611

25,265,398

Swap contracts

9,586,279

8,506,769

37,256,045

76,923,197

132,272,290

109,729,614

Total in 2018

345,027,402

138,674,788

111,338,070

286,333,324

881,373,584

 

Total in 2017

122,615,749

97,002,590

44,462,335

244,865,257

 

508,945,931

 

(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.

Bradesco  91

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

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

 

 

On September 30 - R$ thousand

2018

2017

Government securities

 

  

National treasury bills

2,529,569

3,515,144

National treasury notes

5,241,496

4,432,180

Total

7,771,065

7,947,324

 

V)  Revenues and expenses, net

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Swap contracts

(2,335,832)

704,774

Forward contracts (1)

(70,459)

(586,370)

Option contracts

(117,891)

(19,752)

Futures contracts (1)

(5,879,120)

(518,168)

Foreign exchange variation of assets and liabilities overseas

5,127,002

(542,617)

Total (Note 7g)

(3,276,300)

(962,133)

 

(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 counterparty

 

 

On September 30 - R$ thousand

2018

2017

B3 (stock exchange)

654,235,052

324,806,799

B3 (over-the-counter)

176,879,550

144,380,596

Overseas (stock exchange) (1)

42,070,998

35,398,720

Overseas (over-the-counter) (1)

8,187,984

4,359,816

Total

881,373,584

508,945,931

 

(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 September 30, 2018, 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$ 781,521 thousand (R$ 326,510 thousand in 2017) and “bonds of the Brazilian public debt” in the amount of R$ 881,155 thousand (R$ 586,080 thousand in 2017); and the risk transferred in credit swaps whose underlying assets are Brazilian public debt”, was R$ (380,371) thousand (R$ (47,520) thousand in 2017), and “foreign public debt derivatives” was R$ (40,039) thousand (R$ (205,920) thousand in 2017), amounting to a total net credit risk value of R$ 1,242,266 thousand (R$ 659,150 thousand in 2017), with an effect on the calculation of required shareholders’ equity of R$ 83,765 thousand (R$ 22,958 thousand in 2017). The contracts related to credit derivatives transactions described above are due in 2025. The mark-to-market of the protection rates that remunerates the counterparty that received the risk totaled R$ (25,258) thousand (R$ (3,275) thousand in 2017). There were no credit events, as defined in the agreements, during the period.

 

92 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

f)    Hedge Accounting

 

On September 30, 2018, Bradesco maintained hedge, in accordance with Bacen's Circular No. 3,082/02, composed by:

 

I)  Cash Flow Hedge - the financial instruments classified in this category, aims to reduce exposure to future changes in interest rates, which impact the outcome of the organization. The effective portion of the valuations or devaluations of these instruments is recognized in a separate account of shareholders' equity, net of tax effects and is only transferred to income in two situations: (i) in case of ineffectiveness of the hedge; or (ii) the realization of the hedge object. The ineffective portion of the respective hedge is recognized directly in the income statement.

 

Strategy

On September 30 - R$ thousand

Hedge instrument nominal value

Hedge object accounting value

Fair Value Accumulated Adjustments in shareholders' equity (gross of tax effects)

Fair Value Accumulated Adjustments in shareholders' equity (net of tax effects)

Hedge of interest receipts from investments in securities (1)

9,631,686

9,099,199

10,510

6,306

Hedge of interest payments on funding (2)

4,825,810

4,716,211

(34,970)

(20,982)

Total in 2018

14,457,496

13,815,410

(24,460)

(14,676)

*

 

 

 

 

Hedge of interest receipts from investments in securities (1)

16,799,041

16,011,629

89,714

53,828

Hedge of interest payments on funding (2)

6,646,749

6,548,823

(108,980)

(65,388)

Total in 2017

23,445,790

22,560,452

(19,266)

(11,560)

 

(1) Referring to the DI interest rate risk, using DI Futures contracts in B3, with the maturity in 2019, making the cash flow prefixed; and
(2) Referring to the DI interest rate risk, using DI Futures contracts in B3, with maturity dates in 2020, making the cash flow prefixed.

The effectiveness of the hedge portfolio is in accordance with Bacen's Circular No. 3,082/02.

 

For the next 12 months, the gains related to the cash flow hedge, which we expect to recognize in the income statement, amount to R$ (21,291) thousand.

 

The gains/(losses) related to the cash flow hedge recorded in the income statements in the nine months period ended on September 30, 2018 were R$ 15,102 thousand.

 

II) Hedge of investments abroad - the financial instruments classified in this category, have the objective of reducing the exposure to foreign exchange variation of investments abroad, whose functional currency is different from the national currency, which impacts the result of the organization. The effective portion of the valuations or devaluations of these instruments is recognized in a separate account of shareholders' equity, net of tax effects and is only transferred to income in two situations: (i) hedge ineffectiveness; or (ii) in the disposal or partial sale of the foreign operation. The ineffective portion of the respective hedge is recognized directly in the income statement.

 

Strategy

On September 30 - R$ thousand

Hedge instrument nominal value

Hedge object accounting value

Fair Value Accumulated Adjustments in shareholders' equity (gross of tax effects)

Fair Value Accumulated Adjustments in shareholders' equity (net of tax effects)

Hedge of exchange variation on future cash flows (1)

1,569,491

820,433

(384,180)

(230,508)

Total in 2018

1,569,491

820,433

(384,180)

(230,508)

*

 

 

 

  

Hedge of exchange variation on future cash flows (1)

1,129,082

649,573

(98,474)

(59,084)

Total in 2017

1,129,082

649,573

(98,474)

(59,084)

 (1) Whose functional currency is different from the real, using Forward contracts, with the object of hedging the foreign investment referenced to MXN (Mexican Peso).

The effectiveness of the hedge portfolio is in accordance with Bacen's Circular No. 3,082/02.

 

Bradesco  93

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

For the next 12 months, the gains/(losses) related to the hedge of investments abroad, which we expect to recognize in the result, amount to R$ 560 thousand.

 

Gains/(losses) related to the hedge of investments abroad recorded in income accounts in the nine months period ended on September 30, 2018 were  R$ (10,585) thousand.

 

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

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Fixed income securities (1)

16,141,870

16,974,908

Interbank investments (Note 6b)

7,619,593

14,838,559

Equity securities

111,088

1,005,913

Subtotal

23,872,551

32,819,380

Income from insurance, pension plans and capitalization bonds (2)

14,232,210

23,403,856

Income from derivative financial instruments (Note 7d V)

(3,276,300)

(962,133)

Total

34,828,461

55,261,103

 

(1) In the nine months period ended on september 30, 2018, there were losses due to impairment of financial assets (mostly debentures), net of reversals, in the amount of R$ 735,655 thousand (R$ 1,766,590 thousand in 2017); and

(2) In the nine months period ended on september 30, 2018, there were losses due to impairment of shares in the amount of R$ 1,468 thousand.

 

 

8)      INTERBANK ACCOUNTS – RESERVE REQUIREMENT

 

a)   Reserve requirement

 

 

On September 30 - R$ thousand

Remuneration

2018

2017

Compulsory deposit – demand deposits

not remunerated

7,085,025

6,248,408

Compulsory deposit – savings deposits

savings index

21,152,410

23,957,257

Compulsory deposit – time deposits

Selic rate

51,987,411

38,923,056

Requirement  rural loans funds

not remunerated

- 

46,225

Reserve requirement – SFH

TR + interest rate

1,269,268

832,037

Total

 

81,494,114

70,006,983

 

For more information on compulsory deposits see Note 34.

 

 

b)   Revenue from reserve requirement

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Reserve requirement – Bacen (Compulsory deposit)

2,817,065

3,893,085

Reserve requirement – SFH

36,959

40,092

Total

2,854,024

3,933,177

 

94 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

9)      LOANS

 

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

     

a)   By type and maturity

 

 

On September 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 2018 (A)

% (4)

Total in 2017 (A)

% (4)

days

days

days

days

days

days

Discounted trade receivables and loans (1)

18,829,391

13,037,669

11,500,927

19,497,707

26,145,129

78,225,462

167,236,285

37.2

148,449,170

36.1

Financing

4,432,189

3,875,320

4,911,830

11,778,697

15,440,048

91,163,616

131,601,700

29.3

126,529,762

30.6

Agricultural and agribusiness loans

2,190,139

1,181,034

1,195,382

2,366,086

5,539,562

8,054,812

20,527,015

4.6

20,010,555

4.8

Subtotal

25,451,719

18,094,023

17,608,139

33,642,490

47,124,739

177,443,890

319,365,000

71.1

294,989,487

71.5

Leases

96,885

84,073

84,382

230,437

370,809

1,036,806

1,903,392

0.4

2,127,730

0.5

Advances on foreign exchange contracts (2)

2,046,827

1,585,261

1,441,884

4,467,668

4,242,749

65,079

13,849,468

3.1

9,914,078

2.4

Subtotal

27,595,431

19,763,357

19,134,405

38,340,595

51,738,297

178,545,775

335,117,860

74.6

307,031,295

74.4

Other receivables (3)

18,257,432

6,295,142

3,432,931

6,002,391

2,884,653

569,505

37,442,054

8.3

30,753,666

7.4

Total loans

45,852,863

26,058,499

22,567,336

44,342,986

54,622,950

179,115,280

372,559,914

82.9

337,784,961

81.8

Acquisition of credit card receivables

1,471,804

720,145

462,929

972,276

493,638

- 

4,120,792

0.9

1,190,302

0.3

Subtotal

47,324,667

26,778,644

23,030,265

45,315,262

55,116,588

179,115,280

376,680,706

83.8

338,975,263

82.1

Sureties and guarantees

2,575,249

511,711

916,911

6,519,988

11,803,904

49,133,776

71,461,539

15.9

72,511,278

17.6

Loan assignment - real estate receivables certificate

31,643

31,642

31,641

91,063

135,902

456,913

778,804

0.2

935,452

0.2

Guarantee given on rural loans assigned

- 

- 

- 

- 

- 

76,813

76,813

- 

87,964

- 

Letters of credit for imports

140,427

126,842

44,917

92,223

32,444

- 

436,853

0.1

287,327

0.1

Confirmed exports loans

1,424

146

- 

20,000

45,696

- 

67,266

- 

77,928

- 

Total - Off-balance-sheet accounts

2,748,743

670,341

993,469

6,723,274

12,017,946

49,667,502

72,821,275

16.2

73,899,949

17.9

Total in 2018

50,073,410

27,448,985

24,023,734

52,038,536

67,134,534

228,782,782

449,501,981

100.0

 

 

Total in 2017

41,854,855

28,040,188

23,281,820

46,282,065

66,518,204

206,898,080

 

 

412,875,212

100.0

 

Bradesco  95

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

On September 30 - R$ thousand

Non-performing loans

Past-due installments

1 to 30

31 to 60

61 to 90

91 to 180

181 to 540

Total in 2018 (B)

% (4)

Total in 2017 (B)

% (4)

days

days

days

days

days

Discounted trade receivables and loans (1)

1,022,234

1,328,453

866,283

2,508,259

3,384,339

9,109,568

83.3

11,376,560

84.3

Financing

264,118

225,531

132,871

284,562

246,018

1,153,100

10.5

1,111,841

8.2

Agricultural and agribusiness loans

26,947

44,149

110,690

43,054

49,793

274,633

2.5

365,979

2.7

Subtotal

1,313,299

1,598,133

1,109,844

2,835,875

3,680,150

10,537,301

96.3

12,854,380

95.2

Leases

3,762

3,348

2,481

3,339

3,009

15,939

0.1

31,314

0.2

Advances on foreign exchange contracts (2)

16,276

6,321

85,918

21,202

11,520

141,237

1.3

109,527

0.8

Subtotal

1,333,337

1,607,802

1,198,243

2,860,416

3,694,679

10,694,477

97.7

12,995,221

96.2

Other receivables (3)

31,478

56,721

24,466

74,298

62,183

249,146

2.3

514,855

3.8

Total in 2018

1,364,815

1,664,523

1,222,709

2,934,714

3,756,862

10,943,623

100.0

 

 

Total in 2017

2,644,476

1,520,484

1,195,907

3,457,234

4,691,975

 

 

13,510,076

100.0

 

 

On September 30 - R$ thousand

Non-performing loans

Installments not yet due

1 to 30

31 to 60

61 to 90

91 to 180

181 to 360

More than 360

Total in 2018 (C)

% (4)

Total in 2017 (C)

% (4)

days

days

days

days

days

days

Discounted trade receivables and loans (1)

600,310

502,034

443,801

1,111,493

1,672,720

4,235,252

8,565,610

58.1

11,505,593

67.6

Financing

218,869

185,279

184,791

527,146

810,531

3,692,589

5,619,205

38.1

5,115,025

30.0

Agricultural and agribusiness loans

58,336

16,189

18,285

26,708

65,939

139,683

325,140

2.2

252,531

1.5

Subtotal

877,515

703,502

646,877

1,665,347

2,549,190

8,067,524

14,509,955

98.4

16,873,149

99.1

Leases

3,612

3,429

3,433

9,921

15,042

40,653

76,090

0.5

107,012

0.6

Subtotal

881,127

706,931

650,310

1,675,268

2,564,232

8,108,177

14,586,045

98.9

16,980,161

99.7

Other receivables (3)

5,987

5,038

5,047

13,019

19,633

109,557

158,281

1.1

46,664

0.3

Total in 2018

887,114

711,969

655,357

1,688,287

2,583,865

8,217,734

14,744,326

100.0

 

 

Total in 2017

990,539

808,630

837,827

1,918,308

3,365,019

9,106,502

 

 

17,026,825

100.0

 

96 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

 

On September 30 - R$ thousand

Total

Total in 2018 (A+B+C)

% (4)

Total in 2017 (A+B+C)

% (4)

Discounted trade receivables and loans (1)

184,911,463

38.9

171,331,323

38.5

Financing

138,374,005

29.1

132,756,628

29.9

Agricultural and agribusiness loans

21,126,788

4.5

20,629,065

4.7

Subtotal

344,412,256

72.5

324,717,016

73.1

Leases

1,995,421

0.4

2,266,056

0.5

Advances on foreign exchange contracts (2) (Note 10a)

13,990,705

2.9

10,023,605

2.3

Subtotal

360,398,382

75.8

337,006,677

75.9

Other receivables (3)

37,849,481

8.0

31,315,185

7.1

Total loans

398,247,863

83.8

368,321,862

83.0

Acquisition of credit card receivables

4,120,792

0.9

1,190,302

0.3

Subtotal

402,368,655

84.7

369,512,164

83.3

Sureties and guarantees

71,461,539

15.0

72,511,278

16.4

Loan assignment - real estate receivables certificate

778,804

0.2

935,452

0.2

Guarantee given on rural loans assigned

76,813

- 

87,964

- 

Letters of credit for imports

436,853

0.1

287,327

0.1

Confirmed exports loans

67,266

- 

77,928

- 

Total - Off-balance-sheet accounts

72,821,275

15.3

73,899,949

16.7

Total in 2018

475,189,930

100.0

 

 

Total in 2017

 

 

443,412,113

100.0

 

(1) Including credit card loans of R$ 13,444,351 thousand (R$ 15,805,281 thousand in 2017);
(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$ 26,457,483 thousand (R$ 24,133,529 thousand in 2017); and
(4) Percentage of each type in relation to the total loan portfolio, including sureties and guarantee, loan assignment and acquisition of receivables, co-obligations in the transfer of rural credit, credits opened for importation and confirmed export credits.

Bradesco  97

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

b) By type and levels of risk

 

 

On September 30 - R$ thousand

Levels of risk

AA

A

B

C

D

E

F

G

H

Total in 2018

% (1)

Total in 2017

% (1)

Discounted trade receivables and loans

24,697,247

83,476,932

15,561,917

28,417,795

7,359,664

5,612,569

3,362,071

2,470,662

13,952,606

184,911,463

46.4

171,331,323

46.6

Financing

81,615,774

24,290,560

14,319,785

10,164,210

1,701,972

1,969,193

616,108

731,112

2,965,291

138,374,005

34.8

132,756,628

36.0

Agricultural and agribusiness loans

5,518,185

4,992,720

7,174,204

2,715,523

438,964

91,581

31,991

23,746

139,874

21,126,788

5.3

20,629,065

5.6

Subtotal

111,831,206

112,760,212

37,055,906

41,297,528

9,500,600

7,673,343

4,010,170

3,225,520

17,057,771

344,412,256

86.5

324,717,016

88.2

Leases

307,412

325,605

1,197,486

32,764

66,509

4,232

7,283

2,529

51,601

1,995,421

0.5

2,266,056

0.6

Advances on foreign exchange contracts (2)

5,380,073

2,849,635

3,225,159

1,940,809

28,785

319,080

6,164

83,291

157,709

13,990,705

3.5

10,023,605

2.7

Subtotal

117,518,691

115,935,452

41,478,551

43,271,101

9,595,894

7,996,655

4,023,617

3,311,340

17,267,081

360,398,382

90.5

337,006,677

91.5

Other receivables

9,027,913

19,876,987

3,696,352

4,170,970

222,973

125,450

48,091

58,477

622,268

37,849,481

9.5

31,315,185

8.5

Total in 2018

126,546,604

135,812,439

45,174,903

47,442,071

9,818,867

8,122,105

4,071,708

3,369,817

17,889,349

398,247,863

100.0

 

 

%

31.8

34.1

11.3

11.9

2.5

2.0

1.0

0.9

4.5

100.0

 

 

 

Total in 2017

115,572,463

122,146,660

42,371,217

41,992,118

12,289,611

6,976,988

4,259,371

2,979,813

19,733,621

  

 

368,321,862

100.0

%

31.3

33.2

11.5

11.4

3.3

1.9

1.2

0.8

5.4

 

 

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 10a.

 

98 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

c)   Maturity ranges and levels of risk

 

 

On September 30 - R$ thousand

Levels of risk

Non-performing loans

AA

A

B

C

D

E

F

G

H

Total in 2018

% (1)

Total in 2017

% (1)

Installments not yet due

- 

- 

1,143,989

2,894,369

1,687,548

1,534,063

1,241,626

1,201,300

5,041,431

14,744,326

100.0

17,026,825

100.0

1 to 30

- 

- 

139,711

187,873

102,330

69,439

60,445

52,141

275,175

887,114

6.0

990,539

5.8

31 to 60

- 

- 

107,895

148,242

74,954

56,518

50,548

48,777

225,035

711,969

4.8

808,630

4.7

61 to 90

- 

- 

89,353

124,322

72,331

57,606

50,925

41,512

219,308

655,357

4.5

837,827

4.9

91 to 180

- 

- 

158,893

321,942

197,283

150,884

140,261

108,075

610,949

1,688,287

11.5

1,918,308

11.3

181 to 360

- 

- 

219,882

463,726

315,197

237,251

231,404

179,239

937,166

2,583,865

17.5

3,365,019

19.8

More than 360

- 

- 

428,255

1,648,264

925,453

962,365

708,043

771,556

2,773,798

8,217,734

55.7

9,106,502

53.5

Past-due installments (2)

- 

- 

405,919

858,184

835,415

771,056

1,090,398

1,191,753

5,790,898

10,943,623

100.0

13,510,076

100.0

1 to 14

- 

- 

11,271

89,150

41,172

23,023

23,955

59,417

138,101

386,089

3.5

1,329,609

9.8

15 to 30

- 

- 

386,715

210,193

83,364

39,873

33,462

26,024

199,095

978,726

9.0

1,314,867

9.7

31 to 60

- 

- 

7,933

540,929

178,541

87,518

67,719

297,844

484,039

1,664,523

15.2

1,520,484

11.3

61 to 90

- 

- 

- 

12,664

510,119

119,002

83,097

198,558

299,269

1,222,709

11.2

1,195,907

8.9

91 to 180

- 

- 

- 

5,248

22,219

486,673

853,704

574,868

992,002

2,934,714

26.8

3,457,234

25.6

181 to 360

- 

- 

- 

- 

- 

14,967

28,461

35,042

3,634,612

3,713,082

33.9

4,580,932

33.9

More than 360

- 

- 

- 

- 

- 

- 

- 

- 

43,780

43,780

0.4

111,043

0.8

Subtotal

- 

- 

1,549,908

3,752,553

2,522,963

2,305,119

2,332,024

2,393,053

10,832,329

25,687,949

 

30,536,901

 

Specific provision

- 

- 

15,499

112,576

252,297

691,536

1,166,012

1,675,137

10,832,329

14,745,386

 

17,285,384

 

 

(1) Percentage of maturities by 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  99

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

On September 30 - R$ thousand

Levels of risk

Performing loans

AA

A

B

C

D

E

F

G

H

Total in 2018

% (1)

Total in 2017

% (1)

Installments not yet due

126,546,604

135,812,439

43,624,995

43,689,518

7,295,904

5,816,986

1,739,684

976,764

7,057,020

372,559,914

100.0

337,784,961

100.0

1 to 30

11,266,242

20,879,547

4,640,194

6,527,777

811,534

647,025

98,076

350,087

632,381

45,852,863

12.3

37,384,389

11.1

31 to 60

7,056,955

9,739,881

2,982,098

3,734,154

313,456

1,891,541

39,422

33,100

267,892

26,058,499

7.0

26,670,914

7.9

61 to 90

6,444,890

9,230,049

2,750,681

3,397,884

311,221

120,651

39,575

42,081

230,304

22,567,336

6.1

20,581,518

6.1

91 to 180

13,477,886

15,755,548

6,313,026

6,985,533

560,369

614,223

96,581

80,106

459,714

44,342,986

11.9

37,227,278

11.0

181 to 360

16,111,863

21,515,020

7,051,031

7,412,614

660,233

442,295

201,824

151,771

1,076,299

54,622,950

14.6

55,033,468

16.3

More than 360

72,188,768

58,692,394

19,887,965

15,631,556

4,639,091

2,101,251

1,264,206

319,619

4,390,430

179,115,280

48.1

160,887,394

47.6

Generic provision

- 

679,062

436,250

1,310,686

729,590

1,745,095

869,842

683,735

7,057,020

13,511,280

 

12,280,057

 

Total in 2018

126,546,604

135,812,439

45,174,903

47,442,071

9,818,867

8,122,105

4,071,708

3,369,817

17,889,349

398,247,863

 

 

 

Existing provision

- 

770,957

490,886

1,557,111

1,512,630

5,649,952

3,932,524

3,344,259

17,889,349

35,147,668

 

 

 

Minimum required provision

- 

679,062

451,749

1,423,262

981,887

2,436,631

2,035,854

2,358,872

17,889,349

28,256,666

 

 

  

Excess provision

- 

91,895

39,137

133,849

530,743

3,213,321

1,896,670

985,387

- 

6,891,002

 

 

 

Total in 2017

115,572,463

122,146,660

42,371,217

41,992,118

12,289,611

6,976,988

4,259,371

2,979,813

19,733,621

 

 

368,321,862

 

Existing provision

- 

690,807

461,059

1,409,973

1,934,079

5,079,104

4,202,252

2,965,533

19,733,621

 

 

36,476,428

 

Minimum required provision

- 

610,733

423,712

1,259,763

1,228,961

2,093,096

2,129,686

2,085,869

19,733,621

  

 

29,565,441

  

Excess provision

- 

80,074

37,347

150,210

705,118

2,986,008

2,072,566

879,664

- 

 

 

6,910,987

 

                                                                                                                                                                                                                                               

(1) Percentage of maturities by installment.

 

100 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

d)   Concentration of loans

 

 

On September 30 - R$ thousand

2018

% (1)

2017

% (1)

Largest borrower

9,196,229

2.3

9,164,562

2.5

10 largest borrowers

34,298,716

8.6

30,602,695

8.3

20 largest borrowers

52,807,293

13.3

47,214,770

12.8

50 largest borrowers

75,348,376

18.9

68,640,954

18.6

100 largest borrowers

94,019,157

23.6

84,954,505

23.0

 

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

 

e)   By economic sector

 

 

On September 30 - R$ thousand

2018

%

2017

%

Public sector

9,441,875

2.4

9,427,498

2.6

Oil, derivatives and aggregate activities

9,196,229

2.3

9,164,562

2.5

Production and distribution of electricity

1,833

- 

1,746

- 

Other industries

243,813

0.1

261,190

0.1

Private sector

388,805,988

97.6

358,894,364

97.4

Companies

204,313,485

51.3

188,427,151

51.2

Real estate and construction activities

26,809,258

6.7

28,556,374

7.8

Retail

28,208,957

7.1

21,511,818

5.8

Services

20,643,878

5.2

16,872,220

4.6

Transportation and concession

16,287,971

4.1

14,116,957

3.8

Automotive

12,378,885

3.1

12,439,148

3.4

Food products

12,550,072

3.2

9,645,832

2.6

Wholesale

10,697,308

2.7

9,475,078

2.6

Production and distribution of electricity

5,447,116

1.4

7,452,568

2.0

Iron and steel industry

7,657,259

1.9

7,537,461

2.0

Sugar and alcohol

7,166,203

1.8

6,652,816

1.8

Holding

3,634,109

0.9

5,800,975

1.6

Capital goods

3,753,620

0.9

4,411,336

1.2

Pulp and paper

2,842,350

0.7

3,246,656

0.9

Chemical

3,822,682

1.0

3,437,386

0.9

Cooperative

3,811,541

1.0

3,219,751

0.9

Financial

2,223,084

0.6

2,854,201

0.8

Leisure and tourism

2,975,407

0.7

2,733,439

0.7

Textiles

2,064,854

0.5

2,278,577

0.6

Agriculture

2,061,190

0.5

2,482,516

0.7

Oil, derivatives and aggregate activities

2,216,051

0.6

2,354,651

0.6

Other industries

27,061,690

6.8

21,347,391

5.8

Individuals

184,492,503

46.3

170,467,213

46.3

Total

398,247,863

100.0

368,321,862

100.0

 

 

 

Bradesco  101

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

f)    Breakdown of loans and allowance for loan losses

 

Level of risk

On September 30 - R$ thousand

Portfolio balance

Non-performing loans

Performing loans

Total

% (1)

% 2018 (2)

% 2017 (2)

Installments past due

Installments not yet due

Total - non-performing loans

AA

- 

- 

- 

126,546,604

126,546,604

31.8

31.8

31.3

A

- 

- 

- 

135,812,439

135,812,439

34.1

65.9

64.5

B

405,919

1,143,989

1,549,908

43,624,995

45,174,903

11.3

77.2

76.0

C

858,184

2,894,369

3,752,553

43,689,518

47,442,071

11.9

89.1

87.4

Subtotal

1,264,103

4,038,358

5,302,461

349,673,556

354,976,017

89.1

 

 

D

835,415

1,687,548

2,522,963

7,295,904

9,818,867

2.5

91.6

90.7

E

771,056

1,534,063

2,305,119

5,816,986

8,122,105

2.0

93.6

92.6

F

1,090,398

1,241,626

2,332,024

1,739,684

4,071,708

1.0

94.6

93.8

G

1,191,753

1,201,300

2,393,053

976,764

3,369,817

0.9

95.5

94.6

H

5,790,898

5,041,431

10,832,329

7,057,020

17,889,349

4.5

100.0

100.0

Subtotal

9,679,520

10,705,968

20,385,488

22,886,358

43,271,846

10.9

 

 

Total in 2018

10,943,623

14,744,326

25,687,949

372,559,914

398,247,863

100.0

 

 

%

2.8

3.7

6.5

93.5

100.0

 

 

 

Total in 2017

13,510,076

17,026,825

30,536,901

337,784,961

368,321,862

 

 

 

%

3.7

4.6

8.3

91.7

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.

 

102 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

Level of risk

On September 30 - R$ thousand

Provision

% Minimum provisioning required

Minimum required

Excess

Existing

% 2018 (1)

% 2017 (1)

Specific

Generic

Total

Installments past due

Installments not yet due

Total specific

AA

-

- 

- 

- 

- 

- 

- 

- 

- 

- 

A

0.5

- 

- 

- 

679,062

679,062

91,895

770,957

0.6

0.6

B

1.0

4,059

11,440

15,499

436,250

451,749

39,137

490,886

1.1

1.1

C

3.0

25,745

86,831

112,576

1,310,686

1,423,262

133,849

1,557,111

3.3

3.4

Subtotal

 

29,804

98,271

128,075

2,425,998

2,554,073

264,881

2,818,954

0.8

0.8

D

10.0

83,542

168,755

252,297

729,590

981,887

530,743

1,512,630

15.4

15.7

E

30.0

231,317

460,219

691,536

1,745,095

2,436,631

3,213,321

5,649,952

69.6

72.8

F

50.0

545,199

620,813

1,166,012

869,842

2,035,854

1,896,670

3,932,524

96.6

98.7

G

70.0

834,227

840,910

1,675,137

683,735

2,358,872

985,387

3,344,259

99.2

99.5

H

100.0

5,790,898

5,041,431

10,832,329

7,057,020

17,889,349

- 

17,889,349

100.0

100.0

Subtotal

 

7,485,183

7,132,128

14,617,311

11,085,282

25,702,593

6,626,121

32,328,714

74.7

73.3

Total in 2018

 

7,514,987

7,230,399

14,745,386

13,511,280

28,256,666

6,891,002

35,147,668

8.8

 

%

 

21.4

20.6

42.0

38.4

80.4

19.6

100.0

 

 

Total in 2017

 

8,794,714

8,490,670

17,285,384

12,280,057

29,565,441

6,910,987

36,476,428

 

9.9

%

 

24.1

23.3

47.4

33.7

81.1

18.9

100.0

 

 

 

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

Bradesco  103

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

g)   Changes in allowance for loan losses

 

 

R$ thousand

2018

2017

- Specific provision (1)

16,828,454

22,386,423

- Generic provision (2)

12,699,936

10,737,580

- Excess provision (3) (4)

6,895,477

7,490,351

- Loans

6,895,477

4,429,361

- Guarantees provided (4)

- 

3,060,990

Opening balance on December 31

36,423,867

40,614,354

Accounting for allowance for loan losses (Note 9h-1) (5)

13,760,676

19,717,425

Accounting for/reversal of provisions for guarantees provided (4)

- 

(3,060,990)

Net write-offs/other

(15,036,875)

(20,794,361)

Closing balance on September 30

35,147,668

36,476,428

- Specific provision (1)

14,745,386

17,285,384

- Generic provision (2)

13,511,280

12,280,057

- Excess provision (3)

6,891,002

6,910,987

 

(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 9f);
(4) Up to December 31, 2016, 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 19b), and the remaining balance (R$ 2,456,367 thousand) was allocated to “Excess Provision - Loans”; and
(5) Includes, in the nine months period ended on September 30, 2017, 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.

 

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.

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Amount recognized (1)

13,760,676

17,261,058

Amount recovered (2) (3)

(5,608,535)

(5,446,171)

Allowance for Loan Losses expense net of amounts recovered

8,152,141

11,814,887

 

(1) In the nine months period ended on September 30, 2017, it refers to the formation of allowance for loan losses, in the amount of R$ 19,717,425 thousand, excluding the portion related to the adequacy of the provision for guarantees provided, in the amount of R$ 2,456,367 thousand (Note 9g);

(2) Classified in income from loans (Note 9j); and
(3) In the nine months period ended on September 30, 2018, credit was granted for operations already written-off for losses, without the retention of risks and benefits, in the amount of R$ 8,849,035 thousand (R$ 7,866,440 thousand in 2017), whose sale value was R$ 155,490 thousand (R$ 88,226 thousand in 2017).

 

i)    Changes in the renegotiated portfolio

 

 

On September 30 - R$ thousand

2018

2017

Opening balance on December 31

17,183,869

17,501,423

Amount renegotiated

11,685,534

12,891,134

Amount received

(7,013,141)

(7,623,306)

Write-offs

(4,384,551)

(4,698,873)

Closing balance on September 30

17,471,711

18,070,378

Allowance for loan losses

13,633,053

13,737,277

Percentage on renegotiated portfolio

78.0%

76.0%

 

104 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

j)    Income from loans and leases

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Discounted trade receivables and loans

33,600,293

36,164,924

Financing

11,600,400

12,577,410

Agricultural and agribusiness loans

1,542,569

1,256,438

Subtotal

46,743,262

49,998,772

Recovery of credits charged-off as losses

5,608,535

5,446,171

Subtotal

52,351,797

55,444,943

Leases, net of expenses

170,646

190,410

Total

52,522,443

55,635,353

 

10)    OTHER RECEIVABLES

 

a)   Foreign exchange portfolio

 

Balances

 

 

On September 30 - R$ thousand

2018

2017

Assets – other receivables

 

  

Exchange purchases pending settlement

21,360,166

15,839,537

Foreign exchange and forward documents in foreign currencies

1,797

4,083

Exchange sale receivables

2,792,615

4,954,077

(-) Advances in domestic currency received

(502,394)

(436,567)

Income receivable on advances granted

238,316

163,818

Total

23,890,500

20,524,948

Liabilities – other liabilities

 

 

Exchange sales pending settlement

6,095,958

4,936,100

Exchange purchase payables

16,814,938

15,906,193

(-) Advances on foreign exchange contracts

(13,990,705)

(10,023,605)

Other

2,967

4,035

Total

8,923,158

10,822,723

Net foreign exchange portfolio

14,967,342

9,702,225

Off-balance-sheet accounts:

 

  

-  Loans available for import

436,853

287,327

-  Confirmed exports loans

67,266

77,928

 

Foreign exchange results

 

Adjusted foreign exchange results for presentation purposes

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Foreign exchange income

1,537,248

1,540,460

Adjustments:

 

 

- Income on foreign currency financing (1)

176,227

111,549

- Income on export financing (1)

1,240,697

1,633,950

- Expenses of liabilities with foreign bankers (2) (Note 16c)

(1,273,562)

(748,753)

- Funding expenses (3)

(1,252,870)

(1,272,192)

- Other (4)

635,859

44,540

Total adjustments

(473,649)

(230,906)

Adjusted foreign exchange income

1,063,599

1,309,554

 

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

 

 

 

Bradesco  105

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

b)   Sundry

 

 

On September 30 - R$ thousand

2018

2017

Deferred tax assets (Note 33c)

58,952,439

54,082,393

Credit card operations

26,457,483

25,323,832

Debtors for escrow deposits

18,814,673

17,535,828

Trade and credit receivables

11,187,160

6,760,564

Prepaid taxes

11,976,866

7,093,860

Other debtors

3,430,023

4,855,776

Payments to be reimbursed

899,024

808,890

Receivables from sale of assets

203,505

158,530

Other

746,082

1,049,620

Total

132,667,255

117,669,293

 

11)    OTHER ASSETS

 

a)   Foreclosed assets/other

 

 

On September 30 - R$ thousand

Cost

Provision for losses

Cost net of provision

2018

2017

Real estate

1,587,774

(437,810)

1,149,964

1,313,333

Vehicles and similar

558,319

(321,250)

237,069

282,036

Goods subject to special conditions

796,171

(796,171)

- 

- 

Inventories/warehouse

17,552

- 

17,552

25,915

Machinery and equipment

6,862

(6,595)

267

1,238

Other

22,931

(21,699)

1,232

2,861

Total in 2018

2,989,609

(1,583,525)

1,406,084

 

Total in 2017

2,990,174

(1,364,791)

 

1,625,383

 

b)   Prepaid expenses

 

 

On September 30 - R$ thousand

2018

2017

Deferred insurance acquisition costs (1)

990,553

1,194,697

Commission on the placement of loans and financing (2)

499,106

413,809

Advertising and marketing expenses (3)

108,375

55,418

Other (4)

944,261

1,007,625

Total

2,542,295

2,671,549

 

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

 

 

106 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

12)    INVESTMENTS

 

a)   Composition of investments in the consolidated financial statements

 

Associates and Jointly Controlled Companies

On September 30 - R$ thousand

2018

2017

- Cielo S.A.

4,157,100

4,120,631

- Elo Participações S.A.

1,258,772

1,080,789

- Fleury S.A.

686,014

677,980

- IRB-Brasil Resseguros S.A.

540,881

509,802

- Swiss Re Corporate Solutions Brasil

451,896

483,360

- Aquarius Participações S.A.

353,706

345,085

- Haitong Banco de Investimento do Brasil S.A.

103,944

114,275

- Others

432,682

400,571

Total investment in Associates and Jointly Controlled Companies – in Brazil and Overseas

7,984,995

7,732,493

- Tax incentives

234,717

234,717

- Other investments

157,708

168,715

Provision for:

 

 

- Tax incentives

(208,106)

(207,933)

- Other investments

(35,298)

(46,820)

Total investments

8,134,016

7,881,172

 

The income/expense from the equity method accounting of investments was recognized in the statement of income, under “Share of profit (loss) of unconsolidated and jointly controlled companies”, and are demonstrated below:

 

Companies

In the nine month period ended September 30  - R$ thousand

Capital

Shareholders’ equity adjusted

Number of shares/quotas held (in thousands)

Equity interest consolidated on capital stock

Adjusted income

Equity accounting adjustments (1)

Ordinary (ON)

Preferential (PN)

2018

2017

- Elo Participações S.A. (2)

1,052,000

2,517,041

372

- 

50.01%

428,192

214,139

159,221

- Aquarius Participações S.A.

518,592

721,849

254,110

- 

49.00%

183,831

90,077

81,454

- Haitong Banco de Investimento do Brasil S.A.

420,000

519,720

12,734

12,734

20.00%

(1,495)

(299)

(14,207)

- Others (3)

 

 

 

 

 

 

851,085

908,341

Share of profit (loss) of unconsolidated and jointly controlled companies

 

 

 

 

 

 

1,155,002

1,134,809

 

(1) 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;
(2) Investment in jointly controlled companies; and
(3) Includes, primarily, the adjustments resulting from the assessment by the equity method in public companies (Cielo S.A., Fleury S.A. and IRB-Brasil Resseguros S.A.).

 

Bradesco  107

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

13)    PREMISES AND EQUIPMENT

 

 

On September 30 - R$ thousand

Annual rate

Cost

Depreciation

Cost net of depreciation

2018

2017

Property and equipment:

 

 

 

 

 

- Buildings

4%

2,303,926

(675,373)

1,628,553

1,168,113

- Land

-

818,723

- 

818,723

853,191

Facilities, furniture and premises and equipment

10%

5,325,193

(3,027,060)

2,298,133

2,390,237

Security and communication systems

10%

371,643

(230,610)

141,033

137,476

Data processing systems

20 to 40%

7,615,998

(5,154,045)

2,461,953

2,458,335

Transportation systems

10 to 20%

89,758

(57,595)

32,163

41,410

Fixed Assets in course

-

62,347

- 

62,347

200,667

Total in 2018

 

16,587,588

(9,144,683)

7,442,905

 

Total in 2017

 

15,133,183

(7,883,754)

 

7,249,429

 

The fixed assets to shareholders’ equity ratio is 38.0% when considering only the companies and payment institutions within the economic group (the “Prudential Conglomerate”), where the maximum limit is 50.0%.

 

14)    INTANGIBLE ASSETS

 

a)   Goodwill

 

The goodwill recognized from investment acquisitions totaled R$ 7,667,007 thousand, net of accumulated amortization, as applicable, of which: (i) R$ 1,828,114 thousand recognized in ‘Permanent Assets – Investments’ arose from the acquisition of shares of associates and jointly controlled companies (Cielo/Fleury/Swiss Re); and (ii) R$ 5,838,893 thousand arose from the acquisition of shares of subsidiaries, relating to the future profitability/client portfolio/fair value, which is amortized in up to twenty years, net of accrued amortizations, if applicable, recognized in Fixed Assets – Intangible Assets.

                                                                                                                               

In the nine months period ended on September 30, 2018, goodwill was amortized totaling R$ 1,665,962 thousand (R$ 1,800,954 thousand in 2017) (Note 28).

 

b)   Intangible assets

 

Acquired intangible assets consist of:

 

 

On September 30 - R$ thousand

Rate of Amortization (1)

Cost

Amortization

Cost net of amortization

2018

2017

Acquisition of financial services rights

Contract

6,004,847

(2,260,435)

3,744,412

3,288,883

Software (2)

20%

12,283,517

(8,673,205)

3,610,312

3,776,967

Goodwill (3)

 Up to 20%

11,545,113

(5,706,220)

5,838,893

8,044,541

Other

 Contract

63,974

(27,983)

35,991

30,982

Total in 2018

 

29,897,451

(16,667,843)

13,229,608

 

Total in 2017

 

28,569,032

(13,427,659)

 

15,141,373

 

(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 September 30, 2018, primarily composed of goodwill on the acquisition of equity interest in Bradescard - R$ 562,085 thousand, Odontoprev - R$ 53,596 thousand, Odonto System – R$ 167,764 thousand, value subject to change due to price adjustment, Bradescard Mexico - R$ 15,827 thousand, Europ Assistance - R$ 1,057 thousand, Bradesco BBI S.A. - R$ 104,714 thousand and Kirton Bank - R$ 4,926,157 thousand.

 

108 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

c)   Changes in intangible assets by type

 

 

On September 30 - R$ thousand

Opening balance

Additions / (reductions)

Amortization for the period

Closing balance

Acquisition of financial services rights

4,051,898

509,750

(817,236)

3,744,412

Software

3,790,418

821,188

(1,001,294)

3,610,312

Goodwill – Future profitability

3,761,412

117,301

(698,648)

3,180,065

Goodwill – Based on intangible assets and other reasons

2,548,412

54,654

(639,640)

1,963,426

Goodwill – Difference in fair value of assets/liabilities

1,048,717

(25,641)

(327,674)

695,402

Other

32,993

7,332

(4,334)

35,991

Total in 2018

15,233,850

1,484,584

(3,488,826)

13,229,608

Total in 2017

16,338,785

2,362,116

(3,559,528)

15,141,373

 

 

Bradesco  109

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

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

 

a)   Deposits

 

 

On September 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

● Demand deposits (1)

33,487,987

- 

- 

- 

33,487,987

30,326,471

● Savings deposits (1)

106,375,341

- 

- 

- 

106,375,341

98,223,969

● Interbank deposits

247,493

309,407

16,881

30,505

604,286

1,560,706

● Time deposits (2)

8,893,212

13,816,912

29,514,778

126,149,478

178,374,380

129,479,968

Total in 2018

149,004,033

14,126,319

29,531,659

126,179,983

318,841,994

 

%

46.7

4.4

9.3

39.6

100.0

 

Total in 2017

135,719,176

11,646,756

9,604,102

102,621,080

 

259,591,114

%

52.3

4.5

3.7

39.5

 

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 September 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

Own portfolio

117,576,303

7,195,903

3,432,580

952,782

129,157,568

107,928,675

● Government securities

103,079,034

184,833

53,612

- 

103,317,479

55,549,848

● Debentures of own issuance

5,046,312

6,971,444

3,212,083

36,981

15,266,820

43,441,446

● Foreign

9,450,957

39,626

166,885

915,801

10,573,269

8,937,381

Third-party portfolio (1)

81,529,704

- 

- 

- 

81,529,704

128,585,158

Unrestricted portfolio (1)

3,394,204

3,619,426

257,043

- 

7,270,673

10,068,855

Total in 2018

202,500,211

10,815,329

3,689,623

952,782

217,957,945

 

%

92.9

5.0

1.7

0.4

100.0

 

Total in 2017

203,479,888

26,022,283

5,764,299

11,316,218

 

246,582,688

%

82.5

10.6

2.3

4.6

 

100.0

 

(1)  Represented by government securities.

 

110 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

c)   Funds from issuance of securities

 

 

On September 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

Securities – Brazil:

 

  

 

  

 

  

- Financial bills

5,678,292

16,748,364

16,063,242

67,578,307

106,068,205

95,630,909

- Letters of credit for real estate

917,577

4,698,547

14,081,739

6,759,840

26,457,703

28,543,823

- Letters of credit for agribusiness

932,568

4,789,060

4,394,140

2,410,661

12,526,429

7,472,019

Subtotal

7,528,437

26,235,971

34,539,121

76,748,808

145,052,337

131,646,751

Securities – Overseas:

 

 

 

 

 

 

- Securitization of future flow of money orders received from overseas

18,157

478,676

387,997

1,161,044

2,045,874

2,501,811

- MTN Program Issues (1)

15,092

- 

- 

1,256,059

1,271,151

393,491

- Issuance costs

- 

- 

- 

(17,914)

(17,914)

(21,295)

Subtotal

33,249

478,676

387,997

2,399,189

3,299,111

2,874,007

Structured Operations Certificates

6,808

119,198

307,575

141,567

575,148

311,975

Total in 2018

7,568,494

26,833,845

35,234,693

79,289,564

148,926,596

 

%

5.1

18.0

23.7

53.2

100.0

 

Total in 2017

3,543,112

35,905,707

41,172,048

54,211,866

 

134,832,733

%

2.6

26.6

30.5

40.3

 

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  111

 

 
 

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

 

Notes to the Consolidated Financial Statements

                   

d)    Movement of funds from issuance of securities

 

 

R$ thousand

 

2018

2017

Opening balance on December 31

135,011,308

150,807,358

Issuance

70,569,589

46,214,741

Interest

7,040,533

10,501,035

Settlement and interest payments

(64,335,253)

(72,651,684)

Exchange variation

640,419

(38,717)

Closing balance on September 30

148,926,596

134,832,733

 

e)   Cost for market funding and inflation and interest adjustments of technical provisions for insurance, pension plans and capitalization bonds

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Savings deposits

3,456,484

4,473,860

Time deposits

4,280,291

6,188,198

Securities sold under agreements to repurchase

11,631,560

19,549,633

Funds from issuance of securities

7,040,533

10,501,035

Subordinated debts (Note 18)

2,623,306

4,067,088

Other funding expenses

618,704

429,462

Subtotal

29,650,878

45,209,276

Cost for inflation and interest adjustment of technical provisions of insurance, pension plans and capitalization bonds

9,414,963

14,832,886

Total

39,065,841

60,042,162

 

16)    BORROWING AND ON-LENDING

 

a)   Borrowing

 

 

On September 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

In Brazil - Other Institutions

 -

-

-

-

- 

3,567

Overseas

4,096,046

11,646,529

13,805,097

660,965

30,208,637

20,601,659

Total in 2018

4,096,046

11,646,529

13,805,097

660,965

30,208,637

 

%

13.6

38.6

45.6

2.2

100.0

 

Total in 2017

3,295,769

9,933,426

6,105,341

1,270,690

 

20,605,226

%

16.0

48.2

29.6

6.2

 

100.0

 

b)   On-lending

 

 

On September 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

In Brazil

1,036,559

3,378,088

3,521,979

17,360,622

25,297,248

31,465,363

- FINAME

618,466

2,269,607

2,444,176

9,209,450

14,541,699

17,664,631

- BNDES

417,898

1,108,481

947,956

8,151,172

10,625,507

13,647,858

- National Treasury

- 

- 

128,528

- 

128,528

151,335

- Other institutions

195

- 

1,319

- 

1,514

1,539

Total in 2018

1,036,559

3,378,088

3,521,979

17,360,622

25,297,248

 

%

4.1

13.4

13.9

68.6

100.0

 

Total in 2017

1,002,116

3,997,175

6,321,022

20,145,050

 

31,465,363

%

3.2

12.7

20.1

64.0

 

100.0

 

 

112 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

c)     Borrowing and on-lending expenses

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Borrowing:

 

 

- In Brazil

70,558

446,115

- Overseas

10,759,653

(1,057,973)

- Exchange variation from assets and liabilities overseas

(5,074,885)

771,222

Subtotal borrowing

5,755,326

159,364

On-lending in Brazil:

 

 

- BNDES

640,665

860,236

- FINAME

583,695

519,436

- National Treasury

2,852

5,111

- Other institutions

4

36

On-lending overseas:

 

 

- Payables to foreign bankers (Note 10a)

1,273,562

748,753

Subtotal on-lending

2,500,778

2,133,572

Total

8,256,104

2,292,936

 

17)    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, 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.

Bradesco  113

 

 
 

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

 

Notes to the Consolidated Financial Statements

                   

Overtime is monitored by using electronic time cards and paid regularly during the employment contract and, accordingly, the claims filed by former employees do not represent significant amounts.

 

II -     Civil claims

 

These are claims for pain and suffering and property damages, mainly relating to protests, returned checks, the inclusion of information about debtors in the credit restriction registry and the replacement of inflation adjustments excluded as a result of government economic plans. These lawsuits are individually controlled using a computer-based system and provisioned whenever the loss is deemed as probable, considering the opinion of Management and their legal counsel, the nature of the lawsuits, 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.

 

In relation to the legal claims that are pleading alleged differences in the adjustment of inflation on savings account balances and 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, Bradesco, despite complying with the law and regulation in force at the time, has provisioned certain proceedings, taking into consideration the claims in which they were mentioned and the perspective of loss, considered after the analysis of each demand, based on the Superior Court of Justice (STJ)'s current decision.

 

In December 2017, with the mediation of the Attorney’s General Office (AGU), the entities representing the bank and the savings accounts, entered into an agreement related to litigation of economic plans, with the purpose of closing these claims, in which conditions and schedule were established for savings accounts holders to accede to the agreement. This agreement was approved by the Federal Supreme Court (STF) on March 1, 2018, the period of adhesion for interested parties is for 02 (two) years from this date. As this is a voluntary agreement, Bradesco is unable to predict how many savings account holders will choose to accept the settlement offer. It is important to note that Bradesco understands that the provisioning was made to cover the eligible proceedings to the related agreement. The proceedings that are not in the context of the agreement are evaluated individually based on the procedural stage they are in.

 

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 provisions for cases for which the risk of loss is deemed as probable and legal obligations 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$ 2,564,800 thousand (R$ 2,460,959 thousand in 2017): 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;

 

114 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

-        IRPJ/CSLL on losses of credits – R$ 1,646,913 thousand (R$ 1,817,340 thousand in 2017): 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$ 1,548,837 thousand (R$ 1,451,758 thousand in 2017): 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 Autonomous Brokers – R$ 675,433 thousand (R$ 636,204 thousand in 2017): The Bradesco Organization is questioning the charging of social security contribution on remunerations paid to third-party service providers, established by Supplementary Law No. 84/96 and subsequent regulations/amendments, at 20.0% with an additional 2.5%, on the grounds that services are not provided to insurance companies but to policyholders, thus being outside the scope of such a contribution as provided for in item I, Article 22 of Law No. 8,212/91, as new wording in Law No. 9,876/99; and

 

-        INSS – Contribution to SAT – R$ 413,525 thousand (R$ 396,187 thousand in 2017): 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.

 

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.

 

 

IV -   Provisions by nature

 

 

On September 30 - R$ thousand

2018

2017

Labor claims

6,023,797

5,425,861

Civil claims

5,537,685

5,171,045

Provision for tax risks

7,923,734

7,738,083

Total (Note 19b)

19,485,216

18,334,989

 

 

V -    Changes in provisions

 

 

R$ thousand

2018

Labor

Civil

Tax (1)

Balance on December 31,  2017

5,554,796

5,346,563

7,589,368

Adjustment for inflation

504,100

380,000

208,882

Provisions, net of (reversals and write-offs)

1,052,766

752,505

139,668

Payments

(1,087,865)

(941,383)

(14,184)

Balance on September 30, 2018

6,023,797

5,537,685

7,923,734

 (1) Mainly include legal obligations.

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.

Bradesco  115

 

 
 

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

 

Notes to the Consolidated 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$ 6,840,761 thousand (R$ 6,063,812 thousand in 2017); 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$ 5,030,229 thousand (R$ 4,852,685 thousand in 2017); c) Leasing companies’ Tax on Services of any Nature (ISSQN), total lawsuits correspond to R$ 2,516,752 thousand (R$ 2,482,349 thousand in 2017) 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 2004 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$ 2,247,076 thousand (R$ 1,443,814 thousand in 2017); e) IRPJ and CSLL tax assessments for the years 2012 and 2013, due to the disallowance of operating expenses (CDI), related to resources that were capitalized between the companies of the Organization, whose assessed amount is R$ 1,670,067 thousand; f) 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$ 1,434,363 thousand (R$ 1,385,724 thousand in 2017); g) IRPJ and CSLL deficiency notice relating to the disallowance of loan loss deductions, for the amount of R$ 582,240 thousand (R$ 692,209 thousand in 2017); and h) IRPJ and CSLL deficiency note, amounting to R$ 503,770 thousand (R$512,086 thousand in 2017) relating to profit of subsidiaries based overseas, for the calendar years of 2008 and 2009.

 

d)   Other matters

 

On May 31st , 2016, a criminal proceeding was opened against three members of Bradesco’s Board of Executive Officers, carried out by the Brazilian Federal Police under the so-called “Operation Zelotes”, which investigates the alleged improper performance of members of CARF - Administrative Council of Tax Appeals. On July 28th, 2016, the Public Prosecutor's Office filed charges against three members of the Board of Executive Officers, and a former member of its Board of Directors, which was received by the Federal District Judiciary Section’s 10th Federal Court Judge. Currently, only two of the members of Bradesco's Board of Directors remain in the process. They presented their responses in the criminal case, pointing out the facts and evidence demonstrating their innocence.

 

The Company's Management conducted a careful internal evaluation of records and documents related to the matter and found no evidence of any illegal conduct practiced by its representatives. Bradesco provided all of the information to the competent regulatory bodies, both in Brazil and abroad.

 

The investigation phase of the process was already completed, and is currently waiting for the decision of the first degree court.

 

On account of the news of Operation Zealots, a Class Action was filed against Bradesco and three members of its Board of Executive Officers before the District Court of New York, on June 3rd, 2016, based on Section 10 (b) and 20 (a) of the Securities Exchange Act of 1934. The demand is based on the allegation that investors who purchased preferred American Depositary Shares (“ADS”) of Bradesco between April 30th, 2012 and July 27th, 2016 suffered losses caused by alleged violation regarding the American laws of capital markets. On September 29th, 2017, the Court limited the proposed class to investors who purchased ADS Bradesco between August 8th, 2014 and July 27th, 2016, as well as excluding one of the executives. The Class Action is currently, in the phase of pre-trial Discovery and class certification. On September 14th, 2018, the plaintiff presented a formal request to include another class representative that has already been objected by Bradesco, which is currently being analyzed by the judge.

 

Considering the stage that the demand is at, it is not possible to gauge the exposure and there are insufficient elements to carry out a risk assessment.

 

Bradesco was also summoned by the Corregedoria Geral do Ministério da Fazenda for the opening of an Administrative Accountability Process ("PAR"). This process may imply the application of a fine and/or be mentioned in public lists that may eventually bring restrictions on a business with public entities.

 

116 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

18)    SUBORDINATED DEBT

 

a)     Composition by maturity

 

 

On September 30 - R$ thousand

Original term in years

Nominal amount

2018

2017

In Brazil:

 

  

 

  

Subordinated CDB:

 

 

 

 

2019

10

20,000

68,174

60,531

Financial bills:

 

 

 

 

2017 (1)

6

- 

- 

767,331

2018 (2)

6

154,362

283,104

10,126,549

2019

6

21,858

38,571

35,399

2017 (1)

7

- 

- 

50,562

2018 (2)

7

350

788

307,714

2019

7

3,172,835

3,533,283

3,510,287

2020

7

1,700

2,990

2,744

2022

7

4,305,011

5,912,845

5,500,025

2023

7

1,359,452

1,796,685

1,663,007

2024

7

67,450

78,943

72,226

2025 (3)

7

5,425,906

5,486,674

- 

2018 (2)

8

- 

- 

115,516

2019

8

12,735

30,865

27,359

2020

8

28,556

58,213

53,173

2021

8

1,236

2,158

1,988

2023

8

1,706,846

2,414,483

2,212,508

2024

8

136,695

169,322

155,793

2025

8

6,193,653

6,324,352

6,508,395

2026 (3)

8

870,300

879,648

- 

2021

9

7,000

13,828

12,873

2024

9

4,924

7,230

6,414

2025

9

400,944

481,835

448,046

2027 (3)

9

144,900

146,582

- 

2021

10

19,200

43,992

39,416

2022

10

54,143

106,460

97,145

2023

10

688,064

1,125,748

1,047,686

2025

10

284,137

436,700

378,815

2026

10

361,196

470,185

428,495

2027

10

258,743

291,100

268,610

2028 (3)

10

248,300

252,071

- 

2026

11

3,400

4,479

4,124

2027

11

47,046

57,265

52,870

2028

11

74,764

82,684

74,369

Perpetual (3)

 

5,115,500

5,423,979

5,526,103

Subtotal in Brazil

 

 

36,025,236

39,556,073

Overseas:

 

 

 

 

2019

10

1,333,575

3,105,400

2,376,891

2021

11

2,766,650

6,476,474

5,120,608

2022

11

1,886,720

4,416,063

3,494,113

Issuance costs on funding

 

 

(11,192)

(13,843)

Subtotal overseas

 

  

13,986,745

10,977,769

Total (4) (5)

 

 

50,011,981

50,533,842

 

(1) Subordinated debt transactions that matured in 2017;
(2) Transactions of subordinated debt due in 2018;

(3) Issues of financial letters, referring to subordinate debts were recognized under the heading “Eligible Debt Capital Instruments”;
(4) It includes the amount of R$ 30,717,063 thousand (R$ 23,299,800 thousand in 2017), referring to subordinated debts recognized in “Eligible Debt Capital Instruments”; and
(5) The information on results are presented on Note 15e, cost for market funding and inflation and interest adjustments of technical provisions for insurance, pension plans and capitalization bonds.

Bradesco  117

 

 

 

 

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

 

Notes to the Consolidated Financial Statements

 

b)    Movement of subordinated debts

 

 

R$ thousand

2018

2017

Opening balance on December 31

50,179,401

52,611,063

Issuance

6,804,906

6,593,610

Interest

2,623,306

4,067,088

Settlement and interest payments

(12,044,108)

(12,417,718)

Exchange variation

2,448,476

(320,201)

Closing balance on September 30

50,011,981

50,533,842

 

 

19)    OTHER LIABILITIES

                                                                                                          

a)   Tax and social security

 

 

On September 30 - R$ thousand

2018

2017

Provision for deferred income tax (Note 33f)

3,927,049

5,367,062

Taxes and contributions on profit payable

2,768,943

3,103,184

Taxes and contributions payable

1,685,839

1,430,897

Total

8,381,831

9,901,143

 

b)   Sundry

 

 

On September 30 - R$ thousand

2018

2017

Credit card operations

3,742,825

6,583,878

Civil, tax and labor provisions (Note 17b)

19,485,216

18,334,989

Loan assignment obligations

7,991,735

8,381,608

Provision for payments

8,062,194

9,007,351

Sundry creditors

3,536,288

4,690,367

Liabilities for acquisition of assets and rights

1,192,637

1,302,807

Obligations by quotas of investment funds

1,522,170

1,456,773

Other (1)

5,321,990

4,160,321

Total

50,855,055

53,918,094

 

(1) On September 30, 2018, it includes a specific provision for financial guarantees provided, pursuant to Resolution No. 4,512/16 (Note 9g).

 

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”.

 

 

On September 30 - R$ thousand

2018

2017

Guaranteed Values

Provisions

Guaranteed Values

Provisions

Surety and guarantees in judicial and administrative proceedings of a fiscal nature

36,916,332

(284,424)

31,495,177

(227,796)

Bank sureties

33,439,091

(462,309)

37,747,430

(350,627)

Others

1,106,116

(42,562)

3,268,671

(52,342)

Total

71,461,539

(789,295)

72,511,278

(630,765)

 

 

118 Economic and Financial Analysis Report – September 2018

 
 

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

 

Notes to the Consolidated Financial Statements

                   

20)    INSURANCE, PENSION PLANS AND CAPITALIZATION BONDS

 

a)   Technical provisions by account

 

 

On September 30 - R$ thousand

Insurance (1)

Life and pension plans (2)

Capitalization bonds

Total

2018

2017

2018

2017

2018

2017

2018

2017

Current and long-term liabilities

 

 

 

 

 

 

 

 

Mathematical reserve for unvested benefits

1,208,702

1,041,058

213,551,905

200,897,365

- 

- 

214,760,607

201,938,423

Mathematical reserve for vested benefits

337,674

260,186

8,478,114

9,126,126

- 

- 

8,815,788

9,386,312

Mathematical reserve for capitalization bonds

- 

- 

- 

- 

6,982,605

6,387,998

6,982,605

6,387,998

Reserve for claims incurred but not reported (IBNR)

3,391,688

3,115,001

944,688

1,274,505

- 

- 

4,336,376

4,389,506

Unearned premium reserve

4,300,723

4,238,866

642,546

546,311

- 

- 

4,943,269

4,785,177

Complementary reserve for coverage

- 

- 

523,189

492,475

- 

- 

523,189

492,475

Reserve for unsettled claims

4,451,684

4,104,270

1,361,832

1,605,657

- 

- 

5,813,516

5,709,927

Reserve for financial surplus

- 

- 

560,931

524,213

- 

- 

560,931

524,213

Reserve for draws and redemptions

- 

- 

- 

- 

944,395

911,279

944,395

911,279

Other reserves (4)

2,186,745

2,002,100

4,691,051

2,639,162

94,817

120,557

6,972,613

4,761,819

Total technical provisions

15,877,216

14,761,481

230,754,256

217,105,814

8,021,817

7,419,834

254,653,289

239,287,129

 

 

 

 

Bradesco  119

 
 

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

 

Notes to the Consolidated Financial Statements

 

b)   Guarantees for technical provisions

 

 

On September 30 - R$ thousand

Insurance

Life and pension plans

Capitalization bonds

Total

2018

2017

2018

2017

2018

2017

2018

2017

Total technical provisions

15,877,216

14,761,481

230,754,256

217,105,814

8,021,817

7,419,834

254,653,289

239,287,129

(-) Commercialization surcharge – extended warranty

(72,182)

(167,078)

- 

- 

- 

- 

(72,182)

(167,078)

(-) Portion corresponding to contracted reinsurance

(104,464)

(150,214)

(13,143)

(37,230)

- 

- 

(117,607)

(187,444)

(-) Receivables

(1,078,560)

(1,027,824)

- 

- 

- 

- 

(1,078,560)

(1,027,824)

(-) Unearned premium reserve – Health and dental insurance (3)

(1,350,194)

(1,258,241)

- 

- 

- 

- 

(1,350,194)

(1,258,241)

(-) Reserves from DPVAT agreements

(596,216)

(511,130)

- 

- 

- 

- 

(596,216)

(511,130)

To be insured

12,675,600

11,646,994

230,741,113

217,068,584

8,021,817

7,419,834

251,438,530

236,135,412

 

 

 

 

 

 

 

 

 

Investment fund quotas (VGBL and PGBL)

- 

- 

194,918,439

183,973,081

- 

- 

194,918,439

183,973,081

Investment fund quotas (excluding VGBL and PGBL)

5,274,866

5,687,236

21,536,925

22,980,726

1,084,893

1,917,897

27,896,684

30,585,859

Government securities

9,646,752

8,065,074

19,894,012

17,285,978

7,485,712

6,435,747

37,026,476

31,786,799

Shares

2,693

3,743

1,127,460

1,847,886

- 

- 

1,130,153

1,851,629

Private securities

26,341

99,264

151,670

164,118

37,759

39,682

215,770

303,064

Total technical provision guarantees

14,950,652

13,855,318

237,628,506

226,251,789

8,608,364

8,393,326

261,187,522

248,500,433

 

(1) “Other reserves” - Insurance primarily refers to technical provisions of the “individual health plans” portfolio;
(2) “Other reserves” - Life and Pension Plan mainly includes the “Reserve for redemption and other amounts to be settled”, “Reserve for related expenses” and “Other reserves”; and
(3) Deduction set forth in Article 4 of ANS Normative Resolution No. 392/15; and

(4) In Other technical provisions, Life and Pension Plan, includes the transfer of R$ 2,007,136 thousand of the mathematical provisions of benefits to be granted and benefits granted, with the authorization of SUSEP.

 

120 Economic and Financial Analysis Report – September 2018

 
 

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

 

Notes to the Consolidated Financial Statements

 

c)   Insurance, pension plan contribution and capitalization bond retained premiums

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Written premiums

28,862,473

27,835,851

Pension plan contributions (including VGBL)

20,396,648

22,988,162

Capitalization bond income

4,637,970

4,591,022

Granted coinsurance premiums

(35,435)

(40,087)

Refunded premiums

(481,014)

(278,362)

Net written premiums earned

53,380,642

55,096,586

Reinsurance premiums paid

(58,203)

(157,681)

Insurance, pension plan and capitalization bond retained premiums

53,322,439

54,938,905

 

21)    NON-CONTROLLING INTERESTS IN SUBSIDIARIES

 

 

On September 30 - R$ thousand

2018

2017

Banco Bradesco BBI S.A.

5,145

17,844

Other (1)

607,700

536,778

Total

612,845

554,622

 

(1)  Primarily relates to the non-controlling interest in the subsidiary “Odontoprev”.

 

22)    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 September 30

2018 (1)

2017

Common

3,359,929,223

3,054,481,112

Preferred

3,359,928,872

3,054,480,793

Subtotal

6,719,858,095

6,108,961,905

Treasury (common shares)

(5,535,803)

(5,032,549)

Treasury (preferred shares)

(20,741,320)

(18,855,746)

Total outstanding shares

6,693,580,972

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 as at December 31, 2017

3,049,448,563

3,035,625,047

6,085,073,610

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

305,448,111

305,448,079

610,896,190

Increase of shares in treasury – bonus of 10%

(503,254)

(1,885,574)

(2,388,828)

Number of outstanding shares as at September 30, 2018

3,354,393,420

3,339,187,552

6,693,580,972

 

(1) It benefited the shareholders registered in the records of Bradesco on March 29, 2018.

 

In the Extraordinary General Meeting of March 12, 2018, the approval was proposed by the Board of Directors to increase the capital stock by R$ 8,000,000 thousand, increasing it from R$ 59,100,000 thousand to R$ 67,100,000 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 610,896,190 new nominative-book entry shares, with no nominal value, whereby 305,448,111 are common and 305,448,079 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, and was approved by the Bacen on March 16, 2018.

 

 

Bradesco  121

 
 

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

 

Notes to the Consolidated Financial Statements

 

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 29, 2018, approved the Board of Executive Officers’ proposal to pay to the shareholders interim interest on shareholder’s equity for the first  semester of 2018, of R$ 1,212,000 thousand, of which R$ 0.172465322 are per common share and R$ 0.189711854 per preferred share, whose payment was made on July 16, 2018.

 

Interest on shareholders’ equity for the nine months ended on September 30, 2018 is calculated as follows:

 

 

R$ thousand

% (1)

Net income for the period

14,004,185

  

(-) Legal reserve

700,209

 

Adjusted calculation basis

13,303,976

 

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

5,360,556

 

Withholding income tax on interest on shareholders' equity

(804,083)

 

Interest on shareholders' equity (net) accrued on September 30, 2018

4,556,473

34.25

Interest on shareholders' equity (net) accrued on September 30, 2017

3,907,060

37.85

 

(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

0.155248

0.170773

951,740

142,761

808,979

Intermediary interest on shareholders’ equity paid

0.172494

0.189743

1,102,000

165,300

936,700

Supplementary interest paid on shareholders´ equity

0.398019

0.437821

2,542,801

381,420

2,161,381

Total accrued on September 30, 2017

0.725761

0.798337

4,596,541

689,481

3,907,060

 

 

  

 

 

  

Monthly interest on shareholders’ equity paid

0.155248

0.170773

1,057,932

158,690

899,242

Intermediary interest paid on shareholders’ equity (1)

0.172465

0.189712

1,212,000

181,800

1,030,200

Supplementary interest on shareholders’ equity provisioned

0.439790

0.483769

3,090,624

463,593

2,627,031

Total accrued on September 30, 2018

0.767503

0.844254

5,360,556

804,083

4,556,473

 (1) Paid on June 16, 2018.

 

d)   Treasury shares

 

Bradesco acquired a total of 5,535,803 common shares and 20,741,320 preferred shares for a total amount of R$ 440,514 thousand in the nine months ended on September 30, 2018 which all 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$ 25.75 per common share and R$ 28.67 per preferred share on September 30, 2018.

 

 

122 Economic and Financial Analysis Report – September 2018

 
 

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

 

Notes to the Consolidated Financial Statements

 

23)    FEE AND COMMISSION INCOME

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Credit card income

5,143,113

5,036,284

Checking account

5,323,283

4,927,022

Loans

2,253,594

2,223,473

Collections

1,494,398

1,453,463

Consortium management

1,229,388

1,137,854

Asset management

1,117,062

1,105,667

Underwriting/ Financial Advisory Services

588,158

555,895

Custody and brokerage services

611,900

554,719

Payments

337,342

308,675

Other

462,734

468,948

Total

18,560,972

17,772,000

 

24)    PAYROLL AND RELATED BENEFITS

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Salaries

6,349,753

7,314,472

Benefits

3,253,854

4,314,402

Social security charges

2,201,778

2,642,365

Employee profit sharing

1,178,034

1,202,309

Provision for labor claims

1,052,766

775,112

Training

107,822

122,669

Total (1)

14,144,007

16,371,329

(1) In 2017, includes the effects of the Special Voluntary Termination Plan.

 

25)    OTHER ADMINISTRATIVE EXPENSES

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Outsourced services

3,543,247

3,559,756

Depreciation and amortization

2,077,540

1,977,826

Data processing

1,757,678

1,666,696

Communication

1,158,688

1,265,258

Asset maintenance

829,383

842,379

Rental

850,624

855,703

Financial system services

718,541

778,578

Advertising and marketing

751,863

575,861

Security and surveillance

570,021

621,273

Transport

554,961

579,986

Water, electricity and gas

302,429

302,031

Supplies

160,595

195,987

Travel

203,162

172,304

Other

732,033

805,366

Total

14,210,765

14,199,004

 

 

Bradesco  123

 
 

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

 

Notes to the Consolidated Financial Statements

 

26)    TAX EXPENSES

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Contribution for Social Security Financing (COFINS)

2,587,114

3,119,728

Social Integration Program (PIS) contribution

428,973

571,303

Tax on Services (ISSQN)

826,967

517,987

Municipal Real Estate Tax (IPTU) expenses

112,023

88,823

Other

279,065

287,221

Total

4,234,142

4,585,062

 

27)    OTHER OPERATING INCOME

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Other interest income

1,622,367

1,514,174

Reversal of other operating provisions (1)

1,576,507

4,715,514

Revenues from recovery of charges and expenses

210,102

217,454

Gains on sale of goods

15,905

6,760

Other

1,799,865

2,381,366

Total

5,224,746

8,835,268

 

(1) In the nine months period ended on September 30, 2017, it includes: (i) reversal of generic provision for guarantees provided, encompassing sureties, guarantees, credit letters, and standby letter of credit, pursuant to Resolution No. 4,512/16; and (ii) reversals of: (a) provision for tax risks regarding the PIS process, to offset overpaid amounts; and (b) provision for tax risks related to IRPJ/CSLL on credit losses.

 

28)    OTHER OPERATING EXPENSES

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Other finance costs

3,176,120

3,859,734

Sundry losses

1,392,243

1,312,424

Discount granted

1,228,489

1,094,582

Commissions on loans and financing

452,095

814,420

Intangible assets amortization - payroll

817,236

746,432

Goodwill amortization (Note 14a)

1,665,962

1,800,954

Other (1)

4,673,943

5,231,035

Total

13,406,088

14,859,581

 

(1) In the nine months period ended on September 30, 2017, it includes a specific provision for guarantees provided, encompassing sureties, guarantees and credit letters, pursuant to Resolution No. 4,512/16.

 

29)    NON-OPERATING INCOME (LOSS)

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

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

(477,188)

(181,483)

Recording/reversal of non-operating provisions (1)

(223,631)

(135,610)

Other

46,213

85,018

Total

(654,606)

(232,075)

 

(1) Includes primarily allowance for non-use assets (BNDU).

 

 

124 Economic and Financial Analysis Report – September 2018

 
 

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

 

Notes to the Consolidated Financial Statements

 

30)    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 September 30 - R$ thousand

Controllers (1)

Associates and Jointly controlled companies (2)

Key Management Personnel (3)

Total

2018

2017

2018

2017

2018

2017

2018

2017

Assets

 

 

 

 

 

 

 

 

Interbank investments

- 

- 

467,748

732,740

- 

- 

467,748

732,740

Securities and derivative financial instruments

20,842

- 

8,366

- 

- 

- 

29,208

- 

Loans, other receivables and assets

7

- 

149,935

6,556

46,787

- 

196,729

6,556

Liabilities

 

 

 

 

 

 

 

 

Demand deposits/Savings accounts

24

30

14,454

8,564

17,516

16,642

31,994

25,236

Time deposits

1,008,968

1,440,088

1,589,930

117,943

140,183

82,600

2,739,081

1,640,631

Securities sold under agreements to repurchase

1,518,056

770,823

28,044

144,941

5,151

11,311

1,551,251

927,075

Funds from issuance of securities and subordinated debts

9,421,212

6,326,227

- 

- 

788,833

841,208

10,210,045

7,167,435

Derivative financial instruments

1,489

29,957

- 

- 

- 

- 

1,489

29,957

Interest on own capital and dividends payable

996,232

868,490

- 

- 

- 

- 

996,232

868,490

Other liabilities

- 

- 

10,359,058

4,567

- 

- 

10,359,058

4,567

 

 

 

In the nine month period ended September 30  - R$ thousand

Controllers (1)

Associates and Jointly controlled companies (2)

Key Management Personnel (3)

Total

2018

2017

2018

2017

2018

2017

2018

2017

Income from financial intermediation

18,527

(9,276)

27,433

46,454

- 

- 

45,960

37,178

Financial intermediation expenses

(588,742)

(710,605)

(30,682)

(24,990)

(42,346)

(69,151)

(661,770)

(804,746)

Income from services provided

80

- 

229,576

273,316

- 

- 

229,656

273,316

Other expenses net of other operating revenues

(37,506)

(1,921)

(1,985,069)

(168,801)

(62,385)

- 

(2,084,960)

(170,722)

 

(1) Cidade de Deus Cia. Coml. de Participações, Fundação Bradesco, NCF Participações S.A., BBD Participações S.A. and Nova Cidade de Deus Participações S.A.;
(2) Companies listed in Note 12; and
(3) Members of the Board of Directors and the Board of Executive Officers.

 

 

Bradesco  125

 
 

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

 

Notes to the Consolidated Financial Statements

 

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 Bradesco Organization.

 

For 2018, the maximum amount of R$ 529,930 thousand was set for Management compensation and R$ 534,780 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 class b shares issued by BBD Participações S.A. and / or preferred shares issued by Banco Bradesco S.A., 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 CMN Resolution No. 3,921/10, which sets forth a management compensation policy for financial institutions.      

 

Short and medium term remuneration to Managers

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Salaries

344,858

332,078

Total

344,858

332,078

 

Post-employment benefits

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Defined contribution supplementary pension plans

383,412

344,395

Total

383,412

344,395

 

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 CMN 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 September 30

2018

2017

● Common shares

0.55%

0.68%

● Preferred shares

1.08%

1.13%

● Total shares (1)

0.82%

0.91%

 

(1) On September 30, 2018, direct and indirect shareholding of the members of Bradesco’s Board of Directors and Board of Executive Officers amounted to 2.62% of common shares, 1.12% of preferred shares and 1.87% of all shares (3.07% of common shares, 1.17% of preferred shares and 2.12% of all shares in 2017).

 

 

126 Economic and Financial Analysis Report – September 2018

 
 

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

 

Notes to the Consolidated Financial Statements

 

31)    RISK AND CAPITAL MANAGEMENT

 

a)     Risk Management

 

Bradesco carries out a corporate risk control in an integrated and independent manner, preserving and giving value to a collective decision-making environment, developing and implementing methodologies, models and tools for measurement and control. Within Bradesco the dissemination of knowledge amongst employees at all hierarchical levels is stimulated, from the business areas to the Board of Directors.

 

Risk and capital management structures have established policies, standards and procedures, ensuring that the Bradesco Organization maintains a control process consistent with the nature of its operations, complexity of its products and services, activities, processes, systems and the extent of its exposure to risks. These structures are also composed by a number of committees, commissions and departments that provide support to the Senior Management and the Board of Directors in decision-making. The most notable amongst these are the Integrated Risk Management and Capital Allocation Committee (COGIRAC) whose role is to ensure compliance with the Organization's risk management processes and policies, and the Risk Committee, whose main objective is to assess the Organization's risk management framework and eventually propose improvements. Both advise the Board of Directors in the performance of its duties in the management and control of risks and capital.

 

Detailed information on risk management process, reference equity and also Bradesco's risk exposures may be found in Investors Relations website at bradescori.com.br – Market Information.

 

b)    Capital Management

 

The Basel Ratio 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 below 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.

 

Below is the Basel Ratio:

 

Calculation basis - Basel Ratio

On September 30 - R$ thousand

Prudential Conglomerate

2018

2017

Tier I capital

80,344,301

80,889,205

Common equity

75,036,083

75,363,103

Shareholders’ equity

115,669,579

110,300,602

Non-controlling interest / Other

108,400

84,155

Prudential adjustments (1)

(40,741,896)

(35,021,654)

Additional capital

5,308,218

5,526,102

Tier II capital

29,796,896

25,792,690

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

23,211,965

17,438,377

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

6,584,931

8,354,313

Reference Equity (a)

110,141,197

106,681,895

 

 

 

- Credit risk

590,790,718

547,411,237

- Market risk

12,359,843

9,564,259

- Operational risk

53,150,786

47,605,162

Risk-weighted assets – RWA (b)

656,301,347

604,580,658

 

 

 

Basel ratio (a/b)

16.8%

17.7%

Tier I capital

12.2%

13.4%

- Principal capital

11.4%

12.5%

- Additional capital

0.8%

0.9%

Tier II capital

4.5%

4.3%

 

(1) As from January 2018, the factor applied to prudential adjustments went from 80% to 100%, according to the timeline for application of deductions of prudential adjustments, defined in Article 11 of Resolution No. 4,192/13. Includes the positive effects of Resolution No. 4,680/18, reducing the impact of deferred tax assets arising from tax losses.

 

 

Bradesco  127

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

c) Indicator of Global Systemic Importance (IAISG)

 

According to Bacen Circular Letter No 3,751/15, Bradesco calculated the indicators for the evaluation of global systemic importance (IAISG), disclosed in Investor Relations website (bradescori.com.br - Market Information - Risk Management – Global Systemic Importance Index – Annex I and II).

 

d) VaR Internal Model – Trading Portfolio

 

The Trading Portfolio is composed of all the operations made with financial instruments, including derivatives, retained for negotiation or destined to hedge other instruments of the portfolio itself, and that are not subject to the limitation of their negotiability. The operations detained for negotiation are those destined for resale, to obtain benefits based on the variation of effective or expected prices, or for arbitrage.

 

Below is the 1-day VaR:

 

Risk factors

On September 30 - R$ thousand

2018

2017

Fixed rates

10,589

19,013

IGPM/IPCA

1,868

2,142

Exchange coupon

120

131

Foreign currency

499

1,640

Equities

896

270

Sovereign/Eurobonds and Treasuries

2,567

2,388

Other

185

2

Correlation/diversification effect

(3,168)

(2,324)

VaR (Value at Risk)

13,556

23,262

Amounts net of tax.

 

e)    Sensitivity analysis

 

The Trading Portfolio is also monitored through daily sensitivity analyses that measure the effect of market movements of market and price curves on our positions. Furthermore, a sensitivity analysis of the Organization’s financial exposures (Trading and Banking Portfolio) is performed on a quarterly basis, in compliance with CVM Rule No. 475/08.

 

Sensitivity analyses were carried out based on scenarios prepared at the respective dates, always considering market data at the time and scenarios that would adversely affect our positions, according to the examples below:

 

Scenario 1: Based on market information (B3, Anbima, etc.), stresses were applied for 1 basis point on the interest rate and 1.0% variation on prices. For example: for a Real/US dollar exchange rate of R$ 3.99 a scenario of R$ 4.03 was used, while for a 1-year fixed interest rate of 7.93%, a 7.94% scenario was applied;

 

Scenario 2: 25.0% stresses were determined based on market information. For example: for a Real/US dollar exchange rate of R$ 3.99 a scenario of R$ 4.99 was used, while for a 1-year fixed interest rate of 7.93%, a 9.91% scenario was applied. The scenarios for other risk factors also accounted for 25.0% stresses in the respective curves or prices; and

 

Scenario 3: 50.0% stresses were determined based on market information. For example: for a Real/US dollar exchange rate of R$ 3.99 a scenario of R$ 5.99 was used, while for a 1-year fixed interest rate of 7.93%, a 11.89% scenario was applied. The scenarios for other risk factors also account for 50.0% stresses in the respective curves or prices.

 

The results presented reveal the impacts for each scenario in a static position of the portfolio. The dynamism of the market and portfolios means that these positions change continuously and do not necessarily reflect the position demonstrated here. In addition, the Organization has a continuous market risk management process, which is always searching for ways to mitigate the associated risks, according to the strategy determined by Top Management. Therefore, where there are indicators of deterioration in certain positions, proactive measures are taken to minimize any potential negative impact and maximize the risk/return ratio for the Organization.   

 

128 Economic and Financial Analysis Report – September 2018

 

 

 

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

 

Notes to the Consolidated Financial Statements

 

I - Sensitivity Analysis – Trading Portfolio

 

 

On September 30 - R$ thousand

Trading Portfolio (1)

2018

2017

Scenarios

Scenarios

1

2

3

1

2

3

Interest rate in Reais

Exposure subject to variations in fixed interest rates and interest rate coupons

(1,120)

(182,230)

(361,382)

(642)

(121,925)

(235,775)

Price indexes

Exposure subject to variations in price index coupon rates

(101)

(11,333)

(22,037)

(98)

(10,757)

(20,163)

Exchange coupon

Exposure subject to variations in foreign currency coupon rates

(7)

(741)

(1,463)

(2)

(196)

(390)

Foreign currency

Exposure subject to exchange rate variations

(205)

(5,121)

(10,243)

(972)

(24,298)

(48,597)

Equities

Exposure subject to variation in stock prices

(133)

(3,333)

(6,666)

(197)

(4,995)

(9,789)

Sovereign/Eurobonds and Treasuries

Exposure subject to variations in the interest rate of securities traded on the international market

(144)

(15,199)

(29,965)

(28)

(6,862)

(13,718)

Other

Exposure not classified in other definitions

- 

(478)

(955)

- 

(5)

(10)

Total excluding correlation of risk factors

(1,710)

(218,435)

(432,711)

(1,939)

(169,038)

(328,442)

Total including correlation of risk factors

(1,105)

(191,623)

(379,610)

(810)

(116,785)

(224,315)

 

(1) Amounts net of tax.

 

 

Bradesco  129

 

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

Presented below are the impacts of the financial exposures also considering the Banking Portfolio (composed of operations not classified in the Trading Portfolio, originating from other business of the Organization and their respective hedges).

 

II - Sensitivity Analysis – Trading and Banking Portfolios

 

 

On September 30 - R$ thousand

Trading and Banking Portfolios (1)

2018

2017

Scenarios

Scenarios

1

2

3

1

2

3

Interest rate in Reais

Exposure subject to variations in fixed interest rates and interest rate coupons

(16,689)

(3,544,889)

(6,792,837)

(12,874)

(2,506,281)

(4,878,866)

Price indexes

Exposure subject to variations in price index coupon rates

(8,070)

(1,018,764)

(1,778,250)

(5,321)

(609,156)

(1,116,389)

Exchange coupon

Exposure subject to variations in foreign currency coupon rates

(1,317)

(144,831)

(276,144)

(449)

(32,711)

(64,500)

Foreign currency

Exposure subject to exchange rate variations

(2,108)

(39,166)

(78,332)

(2,444)

(60,971)

(121,942)

Equities

Exposure subject to variation in stock prices

(14,836)

(370,899)

(741,798)

(11,243)

(280,701)

(562,928)

Sovereign/Eurobonds and Treasuries

Exposure subject to variations in the interest rate of securities traded on the international market

(1,350)

(104,038)

(201,540)

(3,003)

(139,636)

(254,750)

Other

Exposure not classified in other definitions

(133)

(3,336)

(6,673)

(11)

(275)

(551)

Total excluding correlation of risk factors

(44,503)

(5,225,923)

(9,875,574)

(35,345)

(3,629,731)

(6,999,926)

Total including correlation of risk factors

(33,063)

(4,249,597)

(8,123,493)

(25,172)

(3,221,546)

(6,226,627)

 

(1) Amounts net of tax effects.

 

 

130 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

f)     Social and environmental risk

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.

 

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.

 

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 sets forth details of the loans made within the Equator Principles contracted in the last 12 months (from October 2017 to September 2018):

 

 

Number of operation by category (Equator Principles)

A

(High risk)

B

(Medium risk)

C

(Low risk)

Sector

 

 

 

Electricity

-

-

-

Infrastructure

-

1

-

Region

 

 

 

Northeast

-

-

-

Southeast

-

1

-

 

 

R$ thousand

Total project value

570,900

Bradesco's participation (loan)

285,450

 

In the nine months ended September 30, 2018, there was no hiring Advisory Service and Financing Project Finance and Corporate Loan to projects classified under the criteria of the Equator Principles III.

 

 

 

 

Bradesco  131

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

g)    Below is the statement of financial position by currency and maturity

 

I – The statement of financial position by currency

 

 

On September 30 - R$ thousand

2018

2017

Balance

Local

Foreign (1) (2)

Foreign (1) (2)

Assets

 

  

 

 

Current and long-term assets

1,253,221,633

1,161,365,716

91,855,917

71,763,252

Cash and due from banks

15,294,120

11,290,413

4,003,707

2,854,440

Interbank investments

112,166,667

109,371,018

2,795,649

1,955,578

Securities and derivative financial instruments

563,134,442

539,503,875

23,630,567

19,227,116

Interbank and interdepartmental accounts

81,680,588

81,680,588

- 

- 

Loans and leases

313,017,226

274,254,066

38,763,160

30,900,486

Other receivables and assets

167,928,590

145,265,756

22,662,834

16,825,632

Permanent assets

28,806,529

28,769,156

37,373

35,730

Investments

8,134,016

8,134,016

- 

- 

Premises and equipment and leased assets

7,442,905

7,421,024

21,881

22,049

Intangible assets

13,229,608

13,214,116

15,492

13,681

Total

1,282,028,162

1,190,134,872

91,893,290

71,798,982

 

 

 

 

 

Liabilities

 

  

 

 

Current and long-term liabilities

1,165,360,017

1,080,223,381

85,136,636

65,266,205

Deposits

318,841,994

303,923,453

14,918,541

12,549,225

Securities sold under agreements to repurchase

217,957,945

207,384,676

10,573,269

8,937,381

Funds from issuance of securities

148,926,596

145,627,485

3,299,111

2,874,006

Interbank and interdepartmental accounts

23,488,172

20,066,909

3,421,263

3,144,671

Borrowing and on-lending

55,505,885

25,067,542

30,438,343

20,939,458

Derivative financial instruments

15,723,020

13,907,102

1,815,918

181,655

Technical provision for insurance, pension plans and capitalization bonds

254,653,289

254,643,179

10,110

5,002

Other liabilities:

 

 

 

 

- Subordinated debts

50,011,981

36,025,236

13,986,745

10,977,769

- Others

80,251,135

73,577,799

6,673,336

5,657,038

Deferred income

385,721

385,721

- 

- 

Non-controlling interests in subsidiaries

612,845

612,845

- 

- 

Shareholders’ equity

115,669,579

115,669,579

- 

- 

Total

1,282,028,162

1,196,891,526

85,136,636

65,266,205

 

 

  

 

 

Net position of assets and liabilities

 

 

6,756,654

6,532,777

Net position of derivatives (2)

 

  

(64,102,846)

(49,400,975)

Other net off-balance-sheet accounts (3)

 

 

(1,278,713)

32,031

Net exchange position (liability)

 

 

(58,624,905)

(42,836,167)

 

(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.

 

 

 

132 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

II - The statement of financial position by maturity

 

 

On September 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

678,314,012

124,985,562

108,612,121

341,309,938

- 

1,253,221,633

Cash and due from banks

15,294,120

- 

- 

- 

-

15,294,120

Interbank investments (1)

100,530,996

8,294,241

1,888,858

1,452,572

 -

112,166,667

Securities and derivative financial instruments (1) (2)

389,788,950

23,348,689

51,439,729

98,557,074

 -

563,134,442

Interbank and interdepartmental accounts

80,365,092

65,271

- 

1,250,225

 -

81,680,588

Loans and leases

26,471,683

68,011,216

45,881,319

172,653,008

 -

313,017,226

Other receivables and assets

65,863,171

25,266,145

9,402,215

67,397,059

 -

167,928,590

Permanent assets

434,737

2,146,471

2,556,470

14,390,105

9,278,746

28,806,529

Investments

-

-

-

-

8,134,016

8,134,016

Premises and equipment

98,617

493,087

591,705

5,440,773

818,723

7,442,905

Intangible assets

336,120

1,653,384

1,964,765

8,949,332

326,007

13,229,608

Total on September 30, 2018

678,748,749

127,132,033

111,168,591

355,700,043

9,278,746

1,282,028,162

Total on September 30, 2017

683,827,082

90,212,812

72,168,485

361,748,182

8,734,363

1,216,690,924

             

Liabilities

 

 

 

 

 

 

Current and long-term liabilities

661,898,464

74,228,752

92,268,138

331,540,684

5,423,979

1,165,360,017

Deposits (3)

149,004,033

14,126,319

29,531,659

126,179,983

-

318,841,994

Securities sold under agreements to repurchase (1)

202,500,211

10,815,329

3,689,623

952,782

 -

217,957,945

Funds from issuance of securities

7,568,494

26,833,845

35,234,693

79,289,564

 -

148,926,596

Interbank and interdepartmental accounts

23,488,172

- 

- 

- 

 -

23,488,172

Borrowing and on-lending

5,132,605

15,024,617

17,327,076

18,021,587

 -

55,505,885

Derivative financial instruments

13,880,921

698,901

384,384

758,814

 -

15,723,020

Technical provisions for insurance, pension plans and capitalization bonds (3)

217,281,246

3,797,692

1,590,968

31,983,383

 -

254,653,289

Other liabilities:

 

  

 

  

 -

  

- Subordinated debts

237,046

123,455

407,695

43,819,806

5,423,979

50,011,981

- Others

42,805,736

2,808,594

4,102,040

30,534,765

 -

80,251,135

Deferred income

385,721

- 

- 

- 

 -

385,721

Non-controlling interests in subsidiaries

 -

-

-

-

612,845

612,845

Shareholders’ equity

 -

-

-

-

115,669,579

115,669,579

Total on September 30, 2018

662,284,185

74,228,752

92,268,138

331,540,684

121,706,403

1,282,028,162

Total on September 30, 2017

634,789,380

100,724,928

80,737,091

289,584,301

110,855,224

1,216,690,924

             

Net assets accumulated on September 30, 2018

16,464,564

69,367,845

88,268,298

112,427,657

 

 

Net assets accumulated on September 30, 2017

49,037,702

38,525,586

29,956,980

102,120,861

 

 

 

(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 and technical provisions for insurance, pension plans and capitalization bonds comprising “VGBL” and “PGBL” products are classified as 1 to 30 days, without considering average historical turnover.

Bradesco  133

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

32)    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, the present value of the actuarial obligations of the plan is fully covered by guarantee assets.

 

Banco Alvorada S.A. (successor from the spin-off of Banco Baneb S.A.) maintains variable contribution and defined benefit retirement plans, through Fundação Baneb de Seguridade Social – Bases related to the former employees of Baneb.

 

Bradesco sponsors both variable 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.

 

Kirton Bank Brasil S.A., Kirton Capitalização S.A., Kirton Corretora de Seguros S.A., Bradesco Kirton Corretora de Títulos e Valores Mobiliários S.A. and Kirton Seguros S.A. sponsor a defined benefit plan called APABA for employees originating from Banco Bamerindus do Brasil S.A., and Kirton Administração de Serviços para Fundos de Pensão Ltda. sponsors for its employees a defined contribution plan, known as 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, in the defined benefit mode, Losango I – Supplementary Part and PREVMAIS Losango Plan, the last two in the form of contribution variable, 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 nine month period ended September 30, 2018 totaled R$ 713,137 thousand (R$ 724,620 thousand in 2017).

 

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$ 3,361,677 thousand during the nine month period ended September 30, 2018 (R$ 4,437,071 thousand in 2017).

 

 

 

 

134 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

 

33)    INCOME TAX AND SOCIAL CONTRIBUTION

 

a)  Calculation of income tax and social contribution charges

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Income before income tax and social contribution

14,631,851

16,467,578

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

(6,584,333)

(7,410,410)

Effect on the tax calculation:

 

 

Equity investment in unconsolidated and jointly controlled companies

519,751

510,664

Net non-deductible expenses of nontaxable income

230,516

135,545

Interest on shareholders’ equity (paid and payable)

2,412,250

2,068,443

Other amounts (2)

2,922,333

(711,735)

Income tax and social contribution for the period

(499,483)

(5,407,493)

 

(1) Current rates: (i) 25% for income tax; (ii) 20% for the social contribution to financial and companies treated as such, including the insurance segment, and 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 in relation to the rate 45% shown; and (iii) the deduction incentives.

 

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

 

 

In the nine month period ended September 30  - R$ thousand

2018

2017

Current taxes:

 

 

Income tax and social contribution payable

(5,859,145)

(9,392,385)

Deferred taxes:

 

 

Amount recorded/realized in the period on temporary differences

1,671,105

5,616,747

Use of opening balances of:

 

 

Social contribution loss

(262,377)

(768,301)

Income tax loss

(286,345)

(931,709)

Constitution in the period on:

 

 

Social contribution loss

1,587,857

44,514

Income tax loss

2,649,422

23,641

Total deferred tax assets

5,359,662

3,984,892

Income tax and social contribution for the period

(499,483)

(5,407,493)

 

 

Bradesco  135

 

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

c)   Deferred income tax and social contribution

 

 

R$ thousand

Balance on 12/31/2017

Amount recorded

Realized / Decrease

Balance on 09/30/2018

Allowance for loan losses

29,789,386

6,059,849

(4,226,173)

31,623,062

Civil provisions

2,191,002

486,296

(478,574)

2,198,724

Tax provisions

2,874,482

158,749

(95,283)

2,937,948

Labor provisions

2,160,997

615,942

(360,275)

2,416,664

Provision for devaluation of securities and investments

239,482

32,067

(28,477)

243,072

Provision for devaluation of foreclosed assets

607,613

243,889

(206,012)

645,490

Adjustment to fair value of trading securities

3,704,394

2,597,538

(3,691,279)

2,610,653

Amortization of goodwill

346,069

26,828

(14,243)

358,654

Provision for interest on shareholder's equity (1)

- 

1,319,190

-

1,319,190

Other

4,921,716

1,680,904

(2,449,831)

4,152,789

Total deductible taxes on temporary differences

46,835,141

13,221,252

(11,550,147)

48,506,246

Income tax and social contribution losses in Brazil and overseas

5,003,872

4,237,279

(548,722)

8,692,429

Subtotal (2)

51,839,013

17,458,531

(12,098,869)

57,198,675

Adjustment to fair value of available-for-sale securities

557,807

1,396,706

(200,749)

1,753,764

Total deferred tax assets (Note 10b)

52,396,820

18,855,237

(12,299,618)

58,952,439

Deferred tax liabilities (Note 33f)

4,562,687

1,268,494

(1,904,132)

3,927,049

Deferred tax assets, net of deferred tax liabilities

47,834,133

17,586,743

(10,395,486)

55,025,390

- Percentage of net deferred tax assets on capital (Note 31)

45.7%

 

 

50.0%

- Percentage of net deferred tax assets over total assets

3.9%

 

 

4.3%

 

(1) The tax credit on interest on shareholder’s equity is accounted for up to the permitted tax limit; 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 deferred tax assets, are calculated based on the expected implementation.

 

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

2018

3,033,484

2,139,526

90,238

65,131

5,328,379

2019

7,779,269

4,705,479

310,724

125,131

12,920,603

2020

6,927,865

4,114,982

496,286

196,080

11,735,213

2021

5,487,686

3,267,826

892,952

447,884

10,096,348

2022

3,901,226

2,233,652

620,682

349,598

7,105,158

After 2022

3,112,268

1,802,983

2,570,203

2,527,520

10,012,974

Total

30,241,798

18,264,448

4,981,085

3,711,344

57,198,675

 

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

 

On September 30, 2018, the present value of deferred tax assets, calculated based on the average funding rate, net of tax effects, amounts to R$ 53,600,177 thousand (R$ 51,057,314 thousand in 2017), of which: R$ 45,888,054 thousand (R$ 47,389,123 thousand in 2017) of temporary differences; and R$ 7,712,123 thousand (R$ 3,668,191 thousand in 2017) to tax losses and negative basis of social contribution.

 

136 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

e)   Unrecognized deferred tax assets

 

On September 30, 2018, deferred tax assets of R$ 13,829 thousand (R$ 18,431 thousand in 2017) 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 September 30 - R$ thousand

2018

2017

Fair value adjustment to securities and derivative financial instruments

605,134

2,406,263

Difference in depreciation

233,835

304,362

Judicial deposit and others

3,088,080

2,656,437

Total

3,927,049

5,367,062

 

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

 

Bradesco  137

 

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

34)    OTHER INFORMATION

 

a)   Fair value

 

The book value, net of loss provisions of the principal financial instruments is shown below:

 

Portfolio

On September 30 - R$ thousand

Unrealized gain/(loss) without tax effects

Book value

Fair value

In income statement

In shareholders’ equity

2018

2018

2017

2018

2017

Securities and derivative financial instruments (Notes 3e, 3f and 7)

563,134,442

564,065,531

(2,112,264)

8,687,436

931,089

4,119,618

- Adjustment of available-for-sale securities (Note 7bII)

 

 

(3,043,353)

4,567,818

 

 

- Adjustment of held-to-maturity securities (Note 7c item 4)

 

 

931,089

4,119,618

931,089

4,119,618

Loan and leases (Notes 2, 3g and 9) (1)

398,247,863

398,891,965

644,102

(204,785)

644,102

(204,785)

Investments (Notes 3j and 12) (2)

8,134,016

24,067,473

15,933,457

23,134,293

15,933,457

23,134,293

Treasury shares (Note 22d)

440,514

737,201

- 

- 

296,687

388,467

Time deposits (Notes 3n and 15a)

178,374,380

178,051,142

323,238

249,699

323,238

249,699

Funds from issuance of securities (Note 15c)

148,926,596

148,170,998

755,598

58,401

755,598

58,401

Borrowing and on-lending (Notes 16a and 16b)

55,505,885

55,438,689

67,196

206,902

67,196

206,902

Subordinated debts (Note 18)

50,011,981

50,530,196

(518,215)

(925,668)

(518,215)

(925,668)

Unrealized gains excluding tax

 

 

15,093,112

31,206,278

18,433,152

27,026,927

 

(1) Includes advances on foreign exchange contracts, leases and other receivables with lending characteristics; and
(2) Primarily includes the surplus of interest in subsidiaries, associates and jointly controlled companies (Cielo, Odontoprev, IRB and Fleury).

 

Determination of the fair value of financial instruments:

 

·       Securities and derivative financial instruments, investments, subordinated debts and treasury shares are based on the market price at the reporting date. If no quoted market price is available, amounts are estimated based on the dealer quotations, pricing models, quotation models or quotations for instruments with similar characteristics;

 

·       Fixed rate loans were determined by discounting estimated cash flows, using interest rates applied by the Organization for new contracts with similar features. These rates are consistent with the market at the reporting date; and

 

·       Time deposits, funds from issuance of securities, borrowing and on-lending were calculated by discounting the difference between the cash flows under the contract terms and our prevailing market rates for the same product at the reporting date.

 

138 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

b)    The Organization manages investment funds and portfolios with net assets which, on September 30, 2018, amounted to R$ 871,231,374 thousand (R$ 820,681,736 thousand in 2017).

 

c)   Consortium funds

 

 

On September 30 - R$ thousand

2018

2017

Monthly estimate of funds receivable from consortium members

647,462

623,352

Contributions payable by the group

30,807,912

30,773,334

Consortium members - assets to be included

26,710,924

26,897,680

Credits available to consortium members

6,262,964

5,714,537

b)         

 

 

On September 30 - In units

2018

2017

Number of groups managed

3,496

3,484

Number of active consortium members

1,463,489

1,395,120

Number of assets to be included

613,633

640,904

 

d)    As part of the convergence process with international accounting standards, the Brazilian Accounting Pronouncements Committee (CPC) has issued several accounting pronouncements, as well as their interpretations and guidelines, which are applicable to financial institutions only after approval by CMN. Until September 30, 2018, the accounting pronouncements approved by CMN and adopted by Bradesco in prior periods were as follows:

 

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

·       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 - R1);

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

·       Resolution No. 4,144/12 – Basic Conceptual Pronouncement (R1); and

·       Resolution No. 4,424/15 – Employee Benefits (CPC 33 – R1).

 

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.

 

CMN Resolution No. 3,786/09 and Circular Letters No. 3,472/09 and No. 3,516/10 establish that financial institutions and other entities authorized by Bacen to operate, which are publicly-held companies or which are required to establish an Audit Committee shall, since December 31, 2010, annually prepare and publish in up to 90 days after the reference date of December 31 their consolidated financial statements, prepared under the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). As required by Resolution, on March 8, 2018, Bradesco published its consolidated financial statements for December 31, 2017 and 2016 on its website, in accordance with IFRS.

 

 

 

Bradesco  139

 

 
 

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

 

Notes to the Consolidated Financial Statements

 

e)     There was a change in compulsory collection rules in March 2018 through Circular No. 3,890, according to the table below:

 

Description

Previous Standard

Current Standard

 

Savings deposits

 

The compulsory savings reserve was 24.5% on the calculation basis defined in regulation.

As from May 7, 2018, the compulsory deposit on savings deposits was reduced to 20% on the calculation basis defined in regulation.

Savings deposits (Rural)

The reserve requirements on rural savings was 21% on the basis of calculation defined in regulation.

 

As from May 7, 2018, the compulsory deposit on rural savings was reduced to 20% on the calculation basis defined in regulation.

 

Demand deposits

 

The daily verification of compliance with the requirement to pay cash deposits was made in accordance with the sum of the daily closing balance of the Bank Reserves account, the arithmetic mean of the financial institution's deposits recorded under "1.1.1.10.00-6 Cash "of Cosif at the close of each business day of the respective calculation period up to the limit of 40% (forty percent) of the chargeable charge to the institution and of the balance of operations valid for deduction of the compulsory payment on demand, verified in the respective calculation period, considering their respective regulatory limits.

As from May 7, 2018, the daily verification of the compliance with the requirement of the compulsory deposit for demand deposits started to be made according to the sum of the daily closing balance of the Bank Reserves account and time base value, valid for deduction of reserve requirement on demand resources.

The deductibility value of the base calculation of the reserve requirement on demand resources corresponding to the arithmetic average of the RSVs (Value Subject to Gathering) calculated in the calculation period, was R$ 70,000,000.00.

From May 7, 2018, the deductible value of the compulsory deposit on demand resources corresponding to the arithmetic average of the RSVs (Value Subject to Gathering)  calculated in the calculation period passed to R$ 200,000,000.00.

The compulsory reserve on demand was 40%, based on the calculation basis defined in regulations.

As of May 7, 2018, the compulsory deposit on cash resources passed to 25%, based on the calculation defined in regulations.

 

f)      On July 20, 2018, Odontoprev, a controlled company of Bradesco Saúde S.A., informed the Market the about the proposed acquisition of 100% of the share capital of Odonto System Planos Odontológicos Ltda., a company with head offices in Fortaleza /Ceará, for the amount of R$ 201,637 thousand, in addition to this amount, the acquisition foresees a variable price for the future, related the consideration includes contingent payments dependent on the achievement of the future targets of growth of the EBITDA for Odonto System on 2018 and 2019. This transaction was approved, with no restrictions, by the Agência Nacional de Saúde Suplementar – ANS (National Supplementary Health Agency), Brazilian Central Bank – BACEN and Administrative Council for Economic Defense –CADE. The transaction was approved by the shareholders of the company, in General Meeting realized in August 6, 2018.

 

g)    On October 2, 2018, Bradesco entered into a strategic partnership with RCB Investimentos S.A., one of the leading companies in the credit management and recovery market in Brazil, after acquiring 65% of its shares. Bradesco expects to add more efficiency to its credit recovery process, as well as actively participate in the credit acquisition market for recovery. The operation is subject to approval by the competent authorities.

 

h)    On September 28, 2018, Bradesco and Grupo Fidelity terminated their joint venture in Fidelity Processadora S.A., a company that provides credit card processing services, in which Bradesco indirectly holds 49% of the share capital. Once the operation is concluded, Bradesco will remain as the single shareholder of the Processing Company, whose shareholders’ equity will be constituted exclusively of assets and liabilities related to services provided to the Bradesco Organization. The parties, Bradesco and Grupo Fidelity, will maintain their shareholding in Fidelity Serviços S.A., a company providing call center, collection, fraud prevention, support and other related services. The operation aims to reduce the costs of processing, increasing the efficiency of the credit card business and not causing any impact on the activities and clients of Bradesco, as well as not involving financial values. The conclusion of the termination is subject to the competent regulatory authorities’ approval.

 

140 Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Management Bodies

 

Reference date: October 30, 2018
Board of Directors

 

Chairman

Luiz Carlos Trabuco Cappi

 

Vice-Chairman

Carlos Alberto Rodrigues Guilherme

 

Members

Denise Aguiar Alvarez

João Aguiar Alvarez

Milton Matsumoto

Alexandre da Silva Glüher

Josué Augusto Pancini

Maurício Machado de Minas

 

Board

 

Executive Officers

Chief Executive Officer

Octavio de Lazari Junior

 

Executive Vice-Presidents

Josué Augusto Pancini

Maurício Machado de Minas

Marcelo de Araújo Noronha

André Rodrigues Cano

Cassiano Ricardo Scarpelli

Eurico Ramos Fabri

 

Managing Directors

Denise Pauli Pavarina

Moacir Nachbar Junior

Renato Ejnisman

Walkiria Schirrmeister Marchetti

 

Deputy Directors

Aurélio Guido Pagani

Guilherme Muller Leal

Luiz Carlos Brandão Cavalcanti Junior

Rogério Pedro Câmara

João Carlos Gomes da Silva

Bruno D´Avila Melo Boetger

Glaucimar Peticov

José Ramos Rocha Neto

 

Department Directors

Amilton Nieto

André Bernardino da Cruz Filho

André Ferreira Gomes

Antonio Carlos Melhado

Antonio Daissuke Tokuriki

Antonio Gualberto Diniz

Antonio José da Barbara

Carlos Wagner Firetti

Clayton Camacho

Edilson Wiggers

Edson Marcelo Moreto

Fernando Antônio Tenório

Frederico William Wolf

João Albino Winkelmann

José Sérgio Bordin

Layette Lamartine Azevedo Júnior

Leandro José Diniz

Lucio Rideki Takahama

Marcelo Frontini

Marcelo Santos Dall’Occo

Marcio Henrique Araujo Parizotto

Marcos Aparecido Galende

Marlos Francisco de Souza Araujo

Mauricio Gomes Maciel

Paulo Aparecido dos Santos

Paulo Manuel Taveira de Oliveira Ferreira

Roberto de Jesus Paris

Waldemar Ruggiero Júnior

 

Directors

Albert Adell Roso

Alexandre Cesar Pinheiro Quercia

Antranik Haroutiounian

Carlos Alberto Alástico

Carlos Henrique Villela Pedras

Carlos Leibowicz

Edilson Dias dos Reis

Edmir José Domingues

Fernando Freiberger

Fernando Honorato Barbosa

Gilvandro Matos Silva

Jefferson Ricardo Romon

José Augusto Ramalho Miranda

José Gomes Fernandes

Julio Cardoso Paixão

Klayton Tomaz dos Santos

Manoel Guedes de Araujo Neto 

Marcos Antônio Martins

Nairo José Martinelli Vidal Júnior

Nilton Pereira dos Santos Junior*

Oswaldo Tadeu Fernandes

Paulo Eduardo Waack

Roberto França

Roberto Medeiros Paula

Romero Gomes de Albuquerque

Victor Rosa Marinho de Queiroz

 

Regional Officers

Ademir Aparecido Correa Junior

Alberto do Nascimento Lemos

Almir Rocha

Altair Luiz Guarda

Altair Naumann

Amadeu Emilio Suter Neto

Antonio Piovesan

César Cabús Berenguer Silvany

Delvair Fidêncio de Lima

Francisco Assis da Silveira Junior

Francisco Henrique França Fernandes

Geraldo Dias Pacheco

João Alexandre Silva

João Pedro da Silva Villela

Joel Queiroz de Lima

José Flávio Ferreira Clemente

José Roberto Guzela

Luís Francisco da Silva Júnior

Nelson Veiga Neto

Osmar Sanches Biscuola

Paulo Roberto Andrade de Aguiar

 

Committees Subordinated to the Board of Directors

 

Statutory Committees

 

Audit Committee

Milton Matsumoto - Coordinator

Paulo Roberto Simões da Cunha – Financial Expert

Wilson Antonio Salmeron Gutierrez

Paulo Ricardo Satyro Bianchini*

 

Compensation Committee

Luiz Carlos Trabuco Cappi - Coordinator

Carlos Alberto Rodrigues Guilherme

Milton Matsumoto

Valdirene Soares Secato (non-Manager)

 

Non-Statutory Committees

 

Compliance and Internal Control Committee

Carlos Alberto Rodrigues Guilherme - Coordinator

Milton Matsumoto

Alexandre da Silva Glüher

Josué Augusto Pancini

Maurício Machado de Minas

Marcelo de Araújo Noronha

André Rodrigues Cano

Moacir Nachbar Junior

Clayton Camacho

Edilson Wiggers

Frederico William Wolf

Marlos Francisco de Souza Araujo

 

Ethical Conduct Committee

Carlos Alberto Rodrigues Guilherme - Coordinator

Milton Matsumoto                     

Alexandre da Silva Glüher

Josué Augusto Pancini

Maurício Machado de Minas

Octavio de Lazari Junior

Marcelo de Araújo Noronha

André Rodrigues Cano               

Clayton Camacho

Edilson Wiggers

Frederico William Wolf

Glaucimar Peticov

Nairo José Martinelli Vidal Júnior

Integrated Risk Management Committee and Capital Allocation

André Rodrigues Cano - Coordinator

Alexandre da Silva Glüher          

Josué Augusto Pancini              

Maurício Machado de Minas       

Marcelo de Araújo Noronha        

Moacir Nachbar Junior               

Cassiano Ricardo Scarpelli         

Eurico Ramos Fabri   

Marlos Francisco de Souza Araujo

Vinicius José de Almeida Albernaz

 

Risk Committee

José Alcides Munhoz - Coordinator

Carlos Alberto Rodrigues Guilherme

André Rodrigues Cano

 

Succession Planning and Nomination Committee

Luiz Carlos Trabuco Cappi - Coordinator

Carlos Alberto Rodrigues Guilherme

Milton Matsumoto

Octavio de Lazari Junior

André Rodrigues Cano

Glaucimar Peticov

 

Sustainability and Diversity Committee

Luiz Carlos Trabuco Cappi - Coordinator

Carlos Alberto Rodrigues Guilherme            

Milton Matsumoto

Alexandre da Silva Glüher

Josué Augusto Pancini

Maurício Machado de Minas

Octavio de Lazari Junior

Marcelo de Araújo Noronha

André Rodrigues Cano

Denise Pauli Pavarina

Moacir Nachbar Junior

Eurico Ramos Fabri

Glaucimar Peticov

Marcos Aparecido Galende

 

Committee to the Chief Executive Officer

 

Executive Disclosure Committee

Denise Pauli Pavarina - Coordinator

Josué Augusto Pancini

Maurício Machado de Minas

Octavio de Lazari Junior

Marcelo de Araújo Noronha

André Rodrigues Cano

Moacir Nachbar Junior

Antonio José da Barbara

Carlos Wagner Firetti

Marcelo Santos Dall’Occo

Marcos Aparecido Galende

Oswaldo Tadeu Fernandes

Haydewaldo Roberto Chamberlain da Costa

 

Fiscal Consil

 

Sitting Members

Ariovaldo Pereira - Coordinator

Domingos Aparecido Maia

José Maria Soares Nunes

João Carlos de Oliveira

Walter Luis Bernardes Albertoni

 

Deputy Members

Jorge Tadeu Pinto de Figueiredo

Nilson Pinhal

Renaud Roberto Teixeira

Reginaldo Ferreira Alexandre

 

Ombudsman Department

Nairo José Martinelli Vidal Júnior - Ombudsman  

 

 

General Accounting Department

Oswaldo Tadeu Fernandes

Accountant– CRC 1SP271968/O-5

 

 

* Process in the process of homologation by the Central Bank

 

 

 

Bradesco  141

 

 
 

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

 

Independent Auditors’ Report on the Consolidated Financial Statements

 

To

Shareholders and Board of Directors of

Banco Bradesco S.A.

Osasco - SP

 

Introduction

We have reviewed the interim consolidated financial information of Banco Bradesco S.A. ("Bradesco" or "Bank"), which comprise the consolidated balance sheet as of September 30, 2018 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the nine-month period then ended, including the explanatory notes.

 

Management of Bradesco is responsible for the preparation and fair presentation of this interim consolidated financial information in accordance with accounting practices adopted in Brazil, applicable to financial institutions authorized to operate by the Central Bank of Brazil. Our responsibility is to express a conclusion on this interim consolidated financial information based on our review.

Scope of review

We conducted our review in accordance with Brazilian and International Standards on Review of Interim Financial Information (NBC TR 2410 - Revisão de Informações Intermediárias Executada pelo Auditor da Entidade and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. The scope of a review is substantially less than an audit conducted in accordance with auditing standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Therefore, we do not express an audit opinion.

Conclusion

Based on our review, we are not aware of any facts that would lead us to believe that the consolidated interim financial information mentioned above were not prepared, in all material aspects, in accordance with accounting practices adopted in Brazil applicable to financial institutions authorized to operate by the Central Bank of Brazil.

Other matters

Statement of Added Value

The consolidated interim accounting information related to the Statement of Added Value for the nine-month period ended September 30, 2018 prepared under the responsibility of Bradesco's management, whose presentation is not required by the accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil, were subject to review procedures performed in conjunction with the review of Bradesco's interim consolidated financial information. For our conclusion, we assess whether this statement is reconciled with the interim accounting information and with the accounting records, as applicable, and whether its form and content comply with the criteria set forth in Technical Pronouncement CPC 09 - Statement of Added Value. Based on our review, we are not aware of any fact that would lead us to believe that the Statement of Added Value was not prepared, in all material respects, in a manner consistent with the interim consolidated accounting information taken as a whole.

 

Osasco, October 30, 2018

 

KPMG Auditores Independentes

CRC 2SP028567/O-1 F SP

 

Original report in Portuguese signed by

Rodrigo de Mattos Lia

Accountant CRC 1SP252418/O-3

142  Economic and Financial Analysis Report – September 2018

 

 
 

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

 

Fiscal Council Report

 

The members of the Fiscal Council, in the exercise of their legal and statutory attributes, have examined the Management Report and the Financial Statements of Banco Bradesco S.A. for the first semester of 2018, and based on: (i) the Independent Auditors’ Report on that date; (ii) the technical feasibility study for use of deferred tax assets, prepared by Bradesco's Management, in compliance with provisions established by Instruction No. 371/02, of Brazilian Securities and Exchange Commission - CVM; the Resolutions No. 3,059/02 and No. 3.355/06, both of National Monetary Council; and the Circular Letter No. 3,171/02, of the Brazilian Central Bank, and in view of the report of KPMG Auditores Independentes, presented without qualification, are of the opinion that the stated documents examined in light of the accounting practices adopted in Brazil, applicable to the institutions authorized to operate by the Brazilian Central Bank, appropriately reflect the assets and liabilities and financial status of the Company.

 

 

Cidade de Deus, Osasco, SP, October 30, 2018.

 

 

 

Ariovaldo Pereira

 

Domingos Aparecido Maia

 

José Maria Soares Nunes

 

João Carlos de Oliveira

 

Walter Luis Bernardes Albertoni

 

Bradesco  143

 

 

 
 

For further information, please contact:

 

 

Board of Executive Officers

 

 

 

Denise Pauli Pavarina

Director Executive Manager and Investor Relations Officer

 

Phone.: (11) 3684-4011

Fax.: (11) 3684-4630

diretoria.executiva@bradesco.com.br

 

Market Relations Department

 

Carlos Wagner Firetti

Phone.: (11) 2194-0922

 

 

Cidade de Deus, s/nº - Prédio Vermelho - 3º andar

 

Osasco – SP

 

Brazil

 

 

www.bradescori.com.br

 

 

 

 
 
 
SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 8, 2018
 
BANCO BRADESCO S.A.
By:
  
/S/Denise Pauli Pavarina
    Denise Pauli Pavarina
Executive Managing Officer and
Investor Relations Officer.
 
 
FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.