6-K 1 bbdbook2q18_6k.htm FORM 6-K bbdbook2q18_6k.htm - Generated by SEC Publisher for SEC Filing
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of August, 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____

 


1 - Press Release  3 
Main Information  4 
Recurring Net Income vs. Book Net Income  5 
Summarized Analysis of Recurring Income  5 
Main Economic Indicators  9 
Guidance  9 
2 - Economic and Financial Analysis  11 
Interest - Earning and Non-Interest Earning Portions  12 
NII - Interest Earning Portion  13 
Main Indicators of Loan Portfolio  14 
Loan Portfolio  16 
Expanded Loan Portfolio  17 
Main Funding Sources  21 
Insurance, Pension and Capitalization  22 
Fee and Commission Income  27 
Operating Expenses  28 
Additional Information  29 
Selected Information – History  30 
Statement of Income – Managerial vs. Recurring  31 
Balance Sheet – Consolidated  33 
3 - Additional Information  35 
Return to Shareholders  36 
Additional Information  37 
Risk Management  39 
Capital Management  40 
Minimum Capital Required – Grupo Bradesco Seguros  40 
Basel Ratio  41 
Corporate Governance  42 
Compliance and Integrity Program  42 
Investor Relations area – IR  42 
Sustainability and Social Actions  43 
4 - Independent Auditors’ Report  45 
Independent Reasonable Assurance Report on the Supplementary Accounting information   
  46 
included within the Economic and Financial Analysis Report   
5 - Complete Financial Statements  49 

 

 

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

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

Percentage variations not presented in the framework of this report, are related, in their majority, to the low value balances compared with the other periods presented.

 

 
 

 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 

 

 
 

 

Interest-Earning and Non-Interest Earning Portions

 

Average Net Interest Income Rate

R$ million  2Q18  1Q18  2Q17  1H18  1H17    Variation   
            2Q18 x  2Q18 x  1H18 x 
Net Interest Income            1Q18  2Q17  1H17 
NII - Interest-earning portion - due to volume            242  (76)  (577) 
NII - Interest-earning portion - due to spread            (756)  (723)  (629) 
- NII - Interest Earning Portion  14,979  15,493  15,778  30,472  31,678  (514)  (799)  (1,206) 
- NII - Non-Interest Earning Portion  105  193  114  298  250  (88)  (9)  48 
Net Interest Income  15,084  15,686  15,892  30,770  31,928  (602)  (808)  (1,158) 
Average Net Interest Income Rate (1) 6.2%  6.6%  7.0%  6.4%  7.0%          
 
(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   
  2Q18  12,127  428,486  11.4%  988  252,485  2.2%  1,864  346,714  2.1%  14,979  6.4% 
  1Q18  11,690  415,962  11.6%  1,526  249,299  2.4%  2,277  367,642  2.1%  15,493  6.6% 
  2Q17  12,517  425,463  12.0%  1,193  232,075  2.6%  2,068  398,788  1.7%  15,778  7.2% 
  1H18  23,817  422,224  11.4%  2,514  250,892  2.2%  4,141  357,178  2.1%  30,472  6.4% 
  1H17  25,298  428,936  12.0%  2,674  229,716  2.6%  3,706  403,719  1.7%  31,678  7.2% 
 
(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/others. 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 quarter is linked, mainly, to the largest average volume of business, highlighting the origination of credit, whose daily average grew by 15% compared to the 1Q18 and by 31% in relation to the 2Q17. The reduction of the average spreads in other periods reflects the lower interest rate and the change of the mix of loan portfolios, which is directed to products with a lower rate and risk, such as, for example, credit for real estate financing, payroll-deductible loans and CDC vehicles.

o

Insurance - the performance of the periods was impacted by volatility in the stock market and a lower interest rate in relation to the 2Q17, as well as the behavior of the market indices, mainly the IGP-M, which has grown both in comparison with the previous quarter as compared to the 2Q17.

o

ALM / Other – reflect, in their majority, the operations of the treasury in managing assets/liabilities (ALM), mainly impacted by the behavior of the pre-fixed rate.

 
R$ million               
  2Q18  1Q18  2Q17  1H18  1H17     Variation  
NII - Earning Portion            2Q18 x  2Q18 x 1H18 x
Breakdown            1Q18  2Q17 1H17
Credit Intermediation  12,127  11,690  12,517  23,817  25,298  437  (390)  (1,481) 
Insurance  988  1,526  1,193  2,514  2,674  (538)  (205)  (160) 
ALM/Other  1,864  2,277  2,068  4,141  3,706  (413)  (204)  435 
NII - Interest-Earning Portion  14,979  15,493  15,778  30,472  31,678  (514)  (799)  (1,206) 

 

                 
                    NII - Interest-Earning 
R$ million  Credit Intermediation    Insurance      ALM/Other      Portion   
  2Q18 x  2Q18 x  1H18 x  2Q18 x  2Q18 x  1H18 x  2Q18 x  2Q18 x  1H18 x  2Q18 x  2Q18 x  1H18 x 
Volume x Spread  1Q18  2Q17  1H17  1Q18  2Q17  1H17  1Q18  2Q17  1H17  1Q18  2Q17  1H17 
NII - Interest-earning portion - due to volume  352  89  (396)  20  105  246  (130)  (270)  (427)  242  (76)  (577) 
NII - Interest-earning portion - due to spread  85  (479)  (1,085)  (558)  (310)  (406)  (283)  66  862  (756)  (723)  (629) 
Variation NII - Interest-Earning Portion  437  (390)  (1,481)  (538)  (205)  (160)  (413)  (204)  435  (514)  (799)  (1,206) 

Earning Portion of Credit Intermediation vs. ALL (Expanded)

 

The increase in the average volume of business in this quarter, contributed to the growth of the credit intermediation margin, in addition, the improvement of the quality of the portfolio that has reduced the cost of delinquency (Expanded ALL) boosted the growth of the net margin in the periods.

 

 


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

Flow of Maturities (1)

The loan portfolio by flow of maturities of operations has, as one of its features, 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 are not only exposed to lower risk but also provide favorable conditions to gain customer loyalty.

 

(1) Only normal course operations.

Delinquency Ratio

Over 90 days

The delinquency ratio showed improvement for the fifth consecutive quarter, reflecting the better quality of the new captures and adjustments in the credit granting and credit recovery processes. Special highlight to the strong improvement in the segments of micro, small and medium-sized enterprises and individuals, that were benefitted also by the change of mix in the portfolio, which occurred during the periods. It is emphasized that the overdue balance of individuals and micro, small and medium-sized enterprises, in 12 months, have reduced 26% and 18%, respectively. In this quarter, we had a reduction of delinquency in large corporates, after three quarters of highs. Since the peak of total delinquency in March 2017, our index reduced by
1.7 p.p..

15-90 days

In the quarter and in the last 12 months, short-term delinquency presented improvement following the trend of reduction observed in the series. It is highlighted the improvement showed for micro, small and medium-sized enterprises. The increase in the segment of large corporates relates to specific cases.

In the 2Q18, loans were granted (without retention of risks and benefits, already written off as loss, in the amount of R$3.5 billion), which does not alter the delinquency ratios in the period. The value of the sale of these portfolios did not significantly impact the result.  

 


 
 

Effective Coverage Ratio

Accompanying the constant improvement of the delinquency ratio and the sequential reduction in the origination of credits in arrears (NPL Creation), the net losses of recoveries estimated for June 2018 point to 3.1%, resulting in a effective coverage ratio of 300%.

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 NPL Creation also follows the downward trend, reaching the lowest level of the last eleven quarters, underlining that in comparison with the previous quarter and with the 2Q17, the reduction occurred in all the segments.

We have demonstrated below the opening of the NPL Creation per business segment.

 
 

Coverage Ratio

The adjacent graph presents the behavior of the ratios covering the allowance for loan losses in relation to default credits exceeding 60 and 90 days. In June 2018, ratios showed very comfortable levels, reaching the highest historical level. 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/commitments with credit risk.
 

Bacen Portfolio vs. Expanded Portfolio

The loan portfolio (Bacen), which registers a positive increase in the quarter and in the last 12 months, was driven in this quarter, mainly, by the operations with companies. The operations with individuals, in the periods, showed a positive evolution in most of the products.

We emphasize that the average daily origination remains in progress, 15% higher compared to the previous quarter (Individuals +2% and Companies +24%) and 31% higher than the daily average of the 2Q17 (Individuals +24% and Companies +36%).

In the expanded portfolio, we highlight the growth of operations with debentures and promissory notes, which in large part are designed for large corporates.
        Variation % 
  June18  Mar18  June17     
        Quarter  12 months 
Individuals  181,751  176,879  170,876  2.8  6.4 
Companies  209,054  194,520  204,777  7.5  2.1 
Loan Portfolio - Bacen  390,805  371,399  375,653  5.2  4.0 
Sureties and Guarantees  71,765  72,676  73,744  (1.3)  (2.7) 
Operations bearing Credit Risk - Commercial Portfolio (1)  47,776  38,336  41,132  24.6  16.2 
Other (2)  5,289  4,234  3,037  24.9  74.2 
Expanded Loan Portfolio  515,635  486,645  493,566  6.0  4.5 
(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        Variation % 
  June18  Mar18  June17     
        Quarter  12 months 
Individuals  182,817  177,814  172,045  2.8  6.3 

Consumer Financing 

 120,856  117,428  111,406  2.9  8.5 
Payroll-deductible Loans  46,593  45,281  41,191  2.9  13.1 
Credit Card  33,606  32,982  33,525  1.9  0.2 
CDC / Vehicle Leasing  22,167  21,584  19,470  2.7  13.9 
Personal Loans  18,490  17,581  17,220  5.2  7.4 

Real Estate Financing 

 35,618  34,396  32,926  3.6  8.2 

Other Products 

 26,343  25,990  27,713  1.4  (4.9) 
Rural Loans  8,323  8,032  8,356  3.6  (0.4) 
BNDES/Finame Onlendings  6,214  6,376  6,633  (2.5)  (6.3) 
Other  11,806  11,582  12,724  1.9  (7.2) 
Companies  332,818  308,831  321,521  7.8  3.5 
Working Capital  39,830  39,894  41,843  (0.2)  (4.8) 
Operations Abroad  35,982  28,436  32,590  26.5  10.4 
Export Financing  35,302  30,979  28,569  14.0  23.6 
Real Estate Financing  25,425  25,886  28,454  (1.8)  (10.6) 
BNDES/Finame Onlendings  19,858  21,945  26,479  (9.5)  (25.0) 
Overdraft Account  6,787  6,894  7,195  (1.6)  (5.7) 
CDC / Leasing  7,868  7,371  7,010  6.7  12.2 
Rural Loans  7,300  6,248  6,719  16.8  8.6 
Sureties and Guarantees  71,002  72,060  72,950  (1.5)  (2.7) 
Operations bearing Credit Risk - Commercial Portfolio  47,776  38,336  41,132  24.6  16.2 
Other  35,688  30,782  28,578  15.9  24.9 
Expanded Loan Portfolio  515,635  486,645  493,566  6.0  4.5 
Domestic Currency  472,294  451,469  452,066  4.6  4.5 
Foreign Currency  43,341  35,176  41,500  23.2  4.4 

 

Distribution by Business Sector

Besides the growth of operations of the Corporate and Middle Market segments in the quarter, we again show a positive performance in the mass market segments, such as Retail and Prime, which together have grown 9.5% in 12 months and 3.4% in the quarter, representing 35.0% of the total expanded portfolio.

R$ million               Variation % 
  June18  %  Mar18  %  June17  %     
Business Segments              Quarter  12 months 
Retail  133,413  25.9  129,248  26.6  121,665  24.7  3.2  9.7 
Prime  46,926  9.1  45,180  9.3  42,997  8.7  3.9  9.1 
Corporate  238,253  46.2  217,294  44.7  230,005  46.6  9.6  3.6 
Middle Market  46,622  9.0  44,771  9.2  46,827  9.5  4.1  (0.4) 
Other / Non-Checking Account Holders (1)  50,421  9.8  50,152  10.2  52,071  10.5  0.5  (3.2) 
Total  515,635  100.0  486,645  100.0  493,566  100.0  6.0  4.5 
 
(1) It consists, mostly, of non-account holders, originating from the credit cards, payroll-deductible loans and financing of vehicles activities.

 

 

 

Expanded Loan Portfolio Concentration – By Economic Sector

R$ million  June18  %  Mar18  %  June17  % 
Economic Sector             
Public Sector  12,494  2.4  11,577  2.4  12,337  2.5 
Oil, derivatives and aggregate activities  10,023  1.9  9,632  2.0  9,689  2.0 
Production and distribution of electricity  1,228  0.2  1,194  0.2  2,049  0.4 
Other sectors  1,243  0.2  751  0.2  599  0.1 
Private Sector  503,141  97.6  475,068  97.6  481,229  97.5 

Companies 

 320,324  62.1  297,254  61.1  309,184  62.6 
Real estate and construction activities  34,963  6.8  35,240  7.2  36,728  7.4 
Retail  32,949  6.4  29,853  6.1  32,531  6.6 
Transportation and concession  24,289  4.7  24,250  5.0  25,357  5.1 
Services  28,196  5.5  26,430  5.4  23,230  4.7 
Wholesale  14,229  2.8  13,920  2.9  14,185  2.9 
Automotive  15,199  2.9  12,691  2.6  16,279  3.3 
Food products  14,119  2.7  10,727  2.2  12,602  2.6 
Other sectors  156,380  30.3  144,143  29.6  148,272  30.0 

Individuals 

 182,817  35.5  177,814  36.5  172,045  34.9 
Total  515,635  100.0  486,645  100.0  493,566  100.0 

 

Changes in the Expanded Loan Portfolio – By Rating

In addition, as a consequence of the reinforcement of the credit granting policies, and risk management, 94.1% of new borrowers were classified ratings from AA to C, collaborating with the improvement of quality of the loan portfolio.

Changes in Expanded Loan  Total Credit on  New customers between  Remaining customers 
Portfolio by Rating between  June 2018 July 2017 and June 2018  from June 2017 
June 2017 and 2018             
  R$ million  %  R$ million  %  R$ million  % 
Rating             
AA - C  457,124  88.7  25,388  94.1  431,736  88.3 
D  12,733  2.5  223  0.8  12,510  2.6 
E - H  45,778  8.9  1,379  5.1  44,399  9.1 
Total  515,635  100.0  26,990  100.0  488,645  100.0 

 

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

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

    June18      Mar18      June17   
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  88.4  2.4  9.3  87.9  2.4  9.7  89.8  2.8  7.4 
Micro, Small and Medium-Sized Enterprises  85.8  3.7  10.5  84.8  3.8  11.4  83.4  4.2  12.5 
Individuals  90.4  2.0  7.6  89.9  2.1  8.0  88.3  2.2  9.4 
Total  88.7  2.5  8.9  88.0  2.6  9.4  88.1  2.9  9.0 

 

 

 

 

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 %)  June18  Mar18  June17  Quarter 12 months 
Total Provision  35,240  35,763  37,536  (1.5)  (6.1) 
- Specific  15,432  16,499  18,767  (6.5)  (17.8) 
- Generic  12,905  12,365  11,855  4.4  8.9 
- Excess  6,903  6,899  6,914  0.1  (0.2) 
Specific Provision / Total Provision (%)  43.8  46.1  50.0  (2.3) p.p.  (6.2) p.p. 
Total Provision / Loans (%)  9.0  9.6  10.0  (0.6) p.p.  (1.0) p.p. 
AA - C Rated Loans / Loans (%)  88.5  87.6  87.4  0.9 p.p.  1.1 p.p. 
D-rated Operations under Risk Management / Loans (%)  2.9  3.0  3.3  (0.1) p.p.  (0.4) p.p. 
E-H rated Loans / Loans(%)  9.1  9.4  9.3  (0.3) p.p.  (0.2) p.p. 
D-rated loans  11,175  11,137  12,331  0.3  (9.4) 
Provision for D-rated loans  1,675  1,710  1,894  (2.0)  (11.6) 
Provision / D-rated loans (%)  15.0  15.4  15.4  (0.4) p.p.  (0.4) p.p. 
D-H rated Non-Performing Loans  22,113  23,205  25,894  (4.7)  (14.6) 
Total Provision / D-to-H-rated Non-performing Loans (%)  159.4  154.1  145.0  5.3 p.p.  14.4 p.p. 
E-H Rated Loans  33,828  34,901  35,104  (3.1)  (3.6) 
Provision for E-H rated loans  30,836  31,478  32,957  (2.0)  (6.4) 
Provision / E-H rated loans (%)  91.2  90.2  93.9  1.0 p.p.  (2.7) p.p. 
E-H rated Non-Performing Loans  18,464  20,191  22,374  (8.6)  (17.5) 
Total Provision / E-to-H-rated Non-performing Loans (%)  190.9  177.1  167.8  13.7 p.p.  23.1 p.p. 

 

 


Funds Raised and Managed

        Variation % 
R$ million        Quarter 12
months
  June18 Mar18  June17 
Demand Deposits  31,882  33,177  30,601  (3.9)  4.2 
Savings Deposits  103,077  101,777  95,737  1.3  7.7 
Time Deposits + Debentures  179,613  156,981  178,848  14.4  0.4 
Borrow ing and Onlending  53,160  50,052  56,547  6.2  (6.0) 
Funds from Approvals and Issuance of Securities  153,303  142,590  131,510  7.5  16.6 
Subordinated Debts  19,171  22,993  31,053  (16.6)  (38.3) 
Eligible Debt Capital Instruments  23,585  23,155  22,623  1.9  4.3 
Subtotal  563,791  530,725  546,919  6.2  3.1 
Securities Sold Under Agreements to Repurchase (1)  246,495  273,738  270,430  (10.0)  (8.9) 
Interbank Deposits  1,847  1,648  530  12.1  248.5 
Working Capital (Ow n/Managed)  86,410  86,026  79,193  0.4  9.1 
Foreign Exchange Portfolio  16,150  15,256  7,106  5.9  127.3 
Payment of Taxes and Other Contributions  3,483  3,341  3,362  4.3  3.6 
Technical Provisions for Insurance, Pension Plans and Capitalization Bonds  252,072  251,231  233,640  0.3  7.9 
Funds raised  1,170,248  1,161,965  1,141,180  0.7  2.5 
Investment Funds and Managed Portfolios  843,865  841,983  776,647  0.2  8.7 
Total Assets under Management  2,014,113  2,003,948  1,917,827  0.5  5.0 
(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 available funds within the customer service network, along with 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 use of funds provides a comfortable margin. It proves that we are capable of meeting demands for loaning funds through its own funding.

 
        Variation % 
R$ million  June18  Mar18  June17     
        Quarter  12 months 
Funding vs. Investments           
Demand Deposits + Sundry Floating  35,365  36,518  33,970  (3.2)  4.1 
Savings Deposits  103,077  101,777  95,737  1.3  7.7 
Time Deposits + Debentures  179,613  156,981  178,848  14.4  0.4 
Funds from Financial Bills  149,901  139,720  128,529  7.3  16.6 
Customer Funds (1)  467,956  434,996  437,084  7.6  7.1 
(-) Reserve Requirements  (71,400)  (70,814)  (67,472)  0.8  5.8 
(-) Available Funds (Real)  (10,495)  (14,297)  (9,680)  (26.6)  8.4 
Customer Funds Net of Reserve Requirements  386,061  349,885  359,932  10.3  7.3 
Borrow ing and Onlending  53,160  50,052  56,547  6.2  (6.0) 
Other (Securities Abroad + Subordinated Debt + Other Borrow ers - Cards)  69,241  73,940  79,705  (6.4)  (13.1) 
Total Funding (A)  508,462  473,877  496,184  7.3  2.5 
Expanded Loan Portfolio (Excluding Sureties and Guarantees) (B)  443,870  413,969  419,822  7.2  5.7 
B / A  87.3%  87.4%  84.6%  (0.1) p.p.  2.7 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  June18  Mar18  June17  June18 x  June18 x 
        Mar18  June17 
Assets           
Current and Long-Term Assets  289,821  289,487  267,902  0.1  8.2 
Securities  278,828  278,982  256,028  (0.1)  8.9 
Life and Pension Plans  236,281  236,081  218,917  0.1  7.9 
Other Lines  42,547  42,901  37,111  (0.8)  14.6 
Insurance Premiums Receivable  3,676  3,431  3,768  7.1  (2.4) 
Other Loans  7,317  7,073  8,106  3.4  (9.7) 
Permanent Assets  6,561  6,158  5,154  6.6  27.3 
Total  296,383  295,645  273,056  0.2  8.5 
Liabilities           
Current and Long-Term Liabilities  262,485  261,142  243,088  0.5  8.0 
Tax, Civil and Labor Contingencies  2,349  2,298  2,325  2.2  1.0 
Payables on Insurance, Pension Plan and Capitalization Bond Operations  592  610  622  (3.0)  (4.9) 
Other liabilities  7,473  7,003  6,501  6.7  14.9 
Insurance Technical Provisions  15,791  15,260  15,471  3.5  2.1 
Life and Pension Plan Technical Provisions  228,408  228,269  210,812  0.1  8.3 
Capitalization Bond Technical Provisions  7,873  7,702  7,357  2.2  7.0 
Non-controlling Interest  649  625  588  3.8  10.4 
Shareholder's Equity (1)  33,249  33,878  29,380  (1.9)  13.2 
Total  296,383  295,645  273,056  0.2  8.5 
(1) In June 2018, the shareholders’ equity of Bradesco Seguros S.A., which controls the operational companies (insurance, pension and capitalization), is of R$16,433 million.

 

Consolidated Statement of Income

            Variation %
R$ million  2Q18  1Q18  2Q17  1H18  1H17  2Q18 x 2Q18 x 1H18 x
            1Q18 2Q17 1H17
Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income  18,223  17,570  18,512  35,793  36,460  3.7  (1.6)  (1.8) 
Variation from Technical Provisions for Insurance, Pension Plans and Capitalization Bonds (1) (7,148)  (7,710)  (7,937)  (14,858)  (15,723)  (7.3)  (9.9)  (5.5) 
Premiums Earned from Insurance, Pension Plan Contribution and Capitalization  11,075  9,860  10,575  20,935  20,737  12.3  4.7  1.0 
Bond Income                 
Retained Claims  (6,628)  (6,253)  (6,535)  (12,881)  (12,851)  6.0  1.4  0.2 
Capitalization Bond Draw s and Redemptions  (1,472)  (1,265)  (1,409)  (2,737)  (2,709)  16.4  4.5  1.0 
Selling Expenses  (770)  (827)  (850)  (1,597)  (1,769)  (6.9)  (9.4)  (9.7) 
Results of Operations from Insurance, Pension Plans and Capitalization Bonds  2,205  1,515  1,781  3,720  3,408  45.5  23.8  9.2 
General and Administrative Expenses  (752)  (690)  (724)  (1,442)  (1,426)  9.0  3.9  1.1 
Tax Expenses  (204)  (205)  (215)  (409)  (462)  (0.5)  (5.1)  (11.5) 
Other Operating Income / Expenses  431  410  96  841  168  5.1  -  - 
Operating Income  1,680  1,030  938  2,710  1,688  63.1  79.1  60.5 
Financial Results  1,016  1,612  1,011  2,628  2,510  (37.0)  0.5  4.7 
Equity Results  157  157  211  314  402  -  (25.6)  (21.9) 
Income before Taxes and Profit Sharing  2,853  2,799  2,160  5,652  4,600  1.9  32.1  22.9 
Taxes and Contributions  (1,207)  (1,150)  (835)  (2,357)  (1,841)  5.0  44.6  28.0 
Profit Sharing  (24)  (26)  (27)  (50)  (50)  (7.7)  (11.1)  - 
Non-controlling interests in subsidiaries  (40)  (60)  (28)  (100)  (65)  (33.3)  42.9  53.8 
Net Income  1,582  1,563  1,270  3,145  2,644  1.2  24.6  18.9 
 
(1) It includes reinsurance premiums.
Note: For comparison purposes, the effects of non-recurring events are not considered.

 

 

 

Income Distribution of Grupo

Bradesco Seguros and Pension Plan

Written Premiums, Pension Plan Contributions and Capitalization Bond Income

 

As compared with the previous quarter, the 2Q18 revenue showed an increase of 3.7%, driven by the “Capitalization”, “Auto/P&C” and "Health” products, which presented an increase of 17.1%, 16.9% and 2.8%, respectively.

In comparison to the 2Q17, the turnover was impacted by the lower performance of “Auto/P&C” and “Life and Pension” segments, which decreased by 7.9%, and 6.8%, being partially offset by the growth of “Capitalization” segments, with a growth of 6.8% and “Health”, which grew 6.4%.

 
 

 

 

 

Life and pension plans

The net income for the 2Q18 was 12.3% higher than the results for the previous quarter, due to lower claims and commercialization ratios, maintenance of the administrative efficiency ratio and improvement in the billing, offset by the financial results decrease which was impacted by the behavior of the economic-financial indexes in the period.

In relation to the 2Q17, the net income increased by 12.5%, due to the increase of 18.1% in operating income, maintenance of the administrative efficiency ratio and improvement in the financial  results.

(1) Life/VGBL/PGBL/Traditional

Evaluation of Participants and Life and Personal Accident Policyholders

Health

The net income increase of the 2Q18 compared to the previous quarter and to the 2Q17, mainly reflects the higher billing, the improvement of claims, commercialization and administrative efficiency ratios, as well as the increase in the financial and equity results.

Number of Bradesco Saúde and Mediservice Policyholders

 

 


 

Capitalization Bonds

Net income increase in the quarterly and last 12 months comparison, is due to the improvement of the operating incomes and the maintenance administrative efficiency ratio.

Auto and Property & Casualty

The growth of income reflects the improvement of the claims, efficiency and commercialization ratios, mainly in Auto.

 

 

 


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

             Variation % As
R$ million  2Q18  1Q18  2Q17  1H18  1H17  2Q18 x 2Q18 x 1H18 x %of
            1Q18 2Q17  1H17 1H18
Card Income  2,788  2,763  2,650  5,551  5,287  0.9  5.2  5.0  34.8 
Checking Account  1,765  1,748  1,651  3,513  3,252  1.0  6.9  8.0  22.0 
Asset Management  1,007  994  898  2,001  1,810  1.3  12.1  10.6  12.5 
Loan Operations  801  724  774  1,525  1,505  10.6  3.5  1.3  9.6 
Collections and Payments  618  612  576  1,230  1,162  1.0  7.3  5.9  7.7 
Consortium Management  412  383  378  795  747  7.6  9.0  6.4  5.0 
Custody and Brokerage Services  256  234  213  490  424  9.4  20.2  15.6  3.1 
Underw riting / Financial Advisory Services  256  153  154  409  334  67.3  66.2  22.5  2.6 
Other  216  220  202  436  405  (1.8)  6.9  7.7  2.7 
Total  8,119  7,831  7,496  15,950  14,926  3.7  8.3  6.9  100.0 
Business Days  63  61  61  124  124  2  2  -  - 

 

Highlights

The above table shows the good performance of our fee and commission income, which showed a positive performance in practically all the lines. Analyzing the current quarter compared to the 1Q18 and the 2Q17, we emphasize that the revenue growth 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 of fee and commission income in the periods:

o       Cards – reflection of the increase in the number of transactions and the larger volume transacted.

o       Checking Account – it reflects the improvement in the management of the portfolio of services provided, highlighting the continuous improvement process, which aims to improve and expand the variety of products offered to clients according to their segmentation.

o       Asset Management – good performance resulting from the increase in the volume of the funds and portfolios managed, highlighting the fixed income and multimarket funds.

o       Loan Operations – higher commission income over guarantees provided (guarantees and sureties) and increased credit origination.

o        Cash Management – a reflection of the greater volume of processed documents.

o        Consortium Management – good performance due to the increase in the sales made, receipt from bids and average price, ensuring the leadership of Bradesco Consórcios in the segments in which it operates (real estate, auto and trucks/machinery and equipment).

o    Custody and Brokerage Services – resulting from the higher volumes of securities traded at B3.

 

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

 

 


 

Personnel and Administrative Expenses

              Variation % As % 
R$ million  2Q18  1Q18  2Q17  1H18  1H17  2Q18 x   2Q18 x  1H18 x  of 1H18  
             1Q18  2Q17  1H17   
Personnel Expenses                   
Structural  3,905  3,879  4,070  7,784  8,016  0.7  (4.1)  (2.9)  39.8 
Payroll/Social Charges  2,831  2,757  2,934  5,588  5,754  2.7  (3.5)  (2.9)  28.6 
Benefits  1,074  1,122  1,136  2,196  2,262  (4.3)  (5.5)  (2.9)  11.2 
Non-Structural  1,022  950  897  1,972  1,773  7.6  13.9  11.2  10.1 
Management and Employee Profit Sharing  511  466  485  977  991  9.7  5.4  (1.4)  5.0 
Provision for Labor Claims  397  407  211  804  378  (2.5)  88.2  -  4.1 
Training  41  21  45  62  76  95.2  (8.9)  (18.4)  0.3 
Termination Costs  73  56  156  129  328  30.4  (53.2)  (60.7)  0.7 
Total  4,927  4,829  4,967  9,756  9,789  2.0  (0.8)  (0.3)  49.9 
Administrative Expenses                   
Outsourced Services  1,165  1,109  1,147  2,274  2,310  5.0  1.6  (1.6)  11.6 
Depreciation and Amortization  722  713  687  1,435  1,368  1.3  5.1  4.9  7.3 
Data Processing  657  604  612  1,261  1,207  8.8  7.4  4.5  6.4 
Communication  432  436  445  868  929  (0.9)  (2.9)  (6.6)  4.4 
Asset Maintenance  307  290  312  597  606  5.9  (1.6)  (1.5)  3.1 
Rent  299  304  308  603  614  (1.6)  (2.9)  (1.8)  3.1 
Advertising and Marketing  296  256  217  552  387  15.6  36.4  42.6  2.8 
Financial System Services  223  240  257  463  515  (7.1)  (13.2)  (10.1)  2.4 
Security and Surveillance  190  195  208  385  419  (2.6)  (8.7)  (8.1)  2.0 
Transportation  189  189  200  378  389  -  (5.5)  (2.8)  1.9 
Utilities (Water, Electricity and Gas)  101  106  102  207  216  (4.7)  (1.0)  (4.2)  1.1 
Travel  75  54  70  129  121  38.9  7.1  6.6  0.7 
Materials  64  59  69  123  146  8.5  (7.2)  (15.8)  0.6 
Other  273  255  264  528  525  7.1  3.4  0.6  2.7 
Total  4,993  4,810  4,898  9,803  9,752  3.8  1.9  0.5  50.1 
Total Operating Expenses  9,920  9,639  9,865  19,559  19,541  2.9  0.6  0.1  100.0 
Customer Service Points  74,814  74,126  72,750  74,814  72,750  0.9  2.8  2.8  - 

 

Personnel expenses – The increase in the quarter is related to the growth of the "non-structural" part, due to the higher costs with profit sharing of the employees (PLR) and training. In relation to the "structural" part, the increase in the quarter is due to a lower concentration of holidays in the 2Q18. When compared with the 2Q17, the reduction observed in the "structural" part is related, largely, to the effects of the Special Voluntary Severance Program Scheme - PDVE, which started in August 2017, and to the gains of synergies obtained with the acquisition of HSBC Brasil. In the "non-structural" part, the variation of expenses with the provision for labor claims is mainly related to the higher volume of lawsuits.

Administrative Expenses – the increase of administrative expenses in the quarter and in the last 12 months reflects the higher volume of business and services in the periods and higher expenses with advertising and marketing. In relation to the 2Q17, it is possible to observe the adjustments made in several lines, such as financial system services, transportation, security and surveillance, communication, rent and materials, 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)

 

The coverage ratio presented an improvement for the fourth consecutive quarter, 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 higher revenue from fee and commission income, which have been capturing 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

Other operating expenses, net income presented a growth of 4.3% in the quarter and 18.5% when compared to 2Q17, due to higher expenses in the segment of credit cards and constitution of operating provisions.

Basel Ratio

The reduction of capital tier I index is related to the mark-to-market of the securities available for sale, increase of prudential adjustments, mainly, from the tax credits originating from tax losses, and increase of the assets weighted by risk. The good internal generation capital (net income), continues with high contribution to the indicator.

 


 

R$ million  2Q18  1Q18  4Q17  3Q17  2Q17  1Q17  4Q16  3Q16 
Income Statement for the Period                 
Recurring Net Income (1)  5,161  5,102  4,862  4,810  4,704  4,648  4,385  4,462 
Total Net Interest Income  15,084  15,686  15,813  15,361  15,892  16,036  16,440  16,931 
Gross Credit Intermediation Margin  12,127  11,690  12,129  12,119  12,517  12,781  13,586  13,802 
Net Credit Intermediation Margin  8,690  7,798  6,724  7,540  7,139  7,499  7,290  8,060 
Expanded ALL  (3,437)  (3,892)  (5,405)  (4,579)  (5,378)  (5,282)  (6,296)  (5,742) 
Fee and Commission Income  8,119  7,831  8,062  7,822  7,496  7,430  7,545  7,450 
Administrative and Personnel Expenses  (9,920)  (9,639)  (10,218)  (9,863)  (9,865)  (9,676)  (10,482)  (10,267) 
Insurance Written Premiums, Pension Plan Contributions and  18,223  17,570  21,192  18,637  18,512  17,948  21,247  17,733 
Capitalization Bond Income                 
Statement of Financial Position                 
Total Assets (2)  1,306,209  1,303,842  1,298,328  1,311,672  1,291,184  1,294,139  1,293,559  1,270,139 
Securities  598,128  585,837  584,650  572,099  540,106  549,700  549,873  509,184 
Expanded Loans Portfolio  515,635  486,645  492,931  486,864  493,566  502,714  514,990  521,771 
- Individuals  182,817  177,814  175,469  172,207  172,045  171,820  172,045  171,067 
- Companies  332,818  308,831  317,462  314,657  321,521  330,894  342,945  350,704 
Allow ance for Loan Losses (ALL)  (35,240)  (35,763)  (36,527)  (36,557)  (37,536)  (39,181)  (40,714)  (40,416) 
Total Deposits  299,604  271,391  265,278  259,577  260,120  235,432  234,214  239,937 
Technical Provisions  252,072  251,231  246,653  239,287  233,640  229,433  223,342  213,608 
Shareholders' Equity  113,039  113,776  110,457  110,301  106,807  104,558  100,442  98,550 
Assets under Management  2,014,113  2,003,948  1,987,487  1,991,708  1,917,827  1,943,687  1,904,912  1,865,755 
Performance Indicators (%)                 
Recurring Net Income per Share - R$ (3) (4) 2.98  2.91  2.84  2.77  2.72  2.64  2.56  2.58 
Book Value per Common and Preferred Share - R$ (4)  16.89  17.00  16.50  16.48  15.96  15.62  15.01  14.72 
Annualized Return on Average Equity (5) (6)  18.5  18.6  18.1  18.1  18.2  18.3  17.6  17.6 
Annualized Return on Average Assets (6)  1.6  1.6  1.5  1.5  1.4  1.4  1.5  1.5 
12-month Net Interest Margin - NIM = Adjusted Net Interest  6.4  6.6  6.7  6.9  7.2  7.4  7.6  7.6 
Income /Average Assets – Repos – Permanent Assets                 
Fixed Asset Ratio (7)  44.9  43.1  43.4  38.9  39.6  42.3  44.8  44.4 
Combined Ratio - Insurance (8)  84.8  85.3  86.1  86.2  86.6  85.2  85.9  90.0 
Efficiency Ratio (ER) (3) (11) 41.0  40.9  40.8  40.7  40.6  40.0  38.9  38.2 
Coverage Ratio (Fee and Commission Income/Administrative and                 
Personnel Expenses) (3)  80.3  78.8  77.8  75.9  74.3  75.3  76.2  78.0 
Market Capitalization - R$ million (9)  171,604  237,219  200,521  208,250  169,618  178,208  160,813  160,472 
Loan Portfolio Quality (Bacen) - %                 
ALL / Loan Portfolio  9.0  9.6  9.9  9.9  10.0  10.3  10.4  10.1 
Non-performing Loans (> 60 days (10) / Loan Portfolio)  4.8  5.4  5.6  5.7  6.0  6.7  6.5  6.4 
Delinquency Ratio (> 90 days (10) / Loan Portfolio)  3.9  4.4  4.7  4.8  4.9  5.6  5.5  5.4 
Coverage Ratio (> 90 days (10))  230.0  219.3  211.4  207.7  202.5  182.1  188.4  189.1 
Coverage Ratio (> 60 days (10))  189.4  179.7  175.0  174.6  167.0  154.0  158.8  158.3 
Operating Limits %                 
Basel Ratio - Total (7)  14.9  15.9  17.1  17.7  16.7  15.3  15.4  15.3 
Tier I Capital  11.4  12.4  13.1  13.4  12.5  12.0  12.0  11.9 
- Common Equity  10.6  11.6  12.3  12.5  11.6  11.2  11.2  11.1 
- Additional Capital  0.8  0.8  0.8  0.9  0.9  0.8  0.8  0.8 
Tier II Capital  3.5  3.5  4.0  4.3  4.2  3.3  3.4  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 Recurring Net 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)

2Q18 x 1Q18                 
  Second Quarter of 2018 Fisrt quarter of 2018
R$ million  Managerial Income Reclassifications (2) Non-Recurring  DRE  Managerial Income Reclassifications (2) Non-Recurring  DRE 
  Statement (1) Events      Statement (1) Events    
Net Interest Income  9,569  5,515  -  15,084  17,283  (1,597)  -  15,686 
Expanded ALL  (4,369)  932  -  (3,437)  (4,599)  707  -  (3,892) 
Gross Income from Financial Intermediation  5,200  6,447  -  11,647  12,684  (890)  -  11,794 
Income from Insurance, Pension Plans and Capitalization Bonds  2,205  -  -  2,205  1,515  -  -  1,515 
Fee and Commission Income  8,071  48  -  8,119  7,835  (4)  -  7,831 
Personnel Expenses  (4,927)  -  -  (4,927)  (4,829)  -  -  (4,829) 
Other Administrative Expenses  (4,993)  -  -  (4,993)  (4,810)  -  -  (4,810) 
Tax Expenses  (1,046)  (785)  -  (1,831)  (1,671)  (150)  -  (1,821) 
Equity in the earnings (losses) of unconsolidated and jointly                 
controlled subsidiaries  48  -  -  48  27  -  -  27 
Other Operating Income / Expenses  (3,126)  351  651  (2,124)  (2,789)  95  657  (2,037) 
Operating Income  1,432  6,061  651  8,144  7,962  (949)  657  7,670 
Non-Operating Income  (121)  104  -  (17)  (214)  205  -  (9) 
Income Tax / Social Contribution and                 
Non-controlling Interest  3,217  (6,165)  (18)  (2,966)  (3,281)  744  (22)  (2,559) 
Net Income  4,528  -  633  5,161  4,467  -  635  5,102 

 

(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$6,971 million in 2Q18 and R$206 million in 1Q18; 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)

1H18 x 1H17                 
 
  Fisrt Semester of 2018 Fisrt Semester of 2017
R$ million  Managerial Income Reclassifications (2) Non-Recurring     DRE  Managerial Income Reclassifications (2) Non-Recurring    DRE 
  Statement (1)  Events      Statement (1)  Events     
Net Interest Income  26,852  3,918  -  30,770  34,216  (2,288)  -  31,928 
Expanded ALL  (8,968)  1,639  -  (7,329)  (14,842)  4,182  -  (10,660) 
Gross Income from Financial Intermediation  17,884  5,557  -  23,441  19,374  1,894  -  21,268 
Income from Insurance, Pension Plans and Capitalization Bonds  3,720  -  -  3,720  3,408  -  -  3,408 
Fee and Commission Income  15,906  44  -  15,950  14,944  (18)  -  14,926 
Personnel Expenses  (9,756)  -  -  (9,756)  (9,789)  -  -  (9,789) 
Other Administrative Expenses  (9,803)  -  -  (9,803)  (9,746)  (6)  -  (9,752) 
Tax Expenses  (2,717)  (935)  -  (3,652)  (3,156)  (334)  -  (3,490) 
Equity in the earnings (losses) of unconsolidated and jointly  75  -  -  75  120  -  -  120 
controlled subsidiaries                 
Other Operating Income / Expenses  (5,915)  446  1,308  (4,161)  (3,667)  (1,171)  1,213  (3,625) 
Operating Income  9,394  5,112  1,308  15,814  11,488  365  1,213  13,066 
Non-Operating Income  (335)  309  -  (26)  (293)  207  -  (86) 
Income Tax / Social Contribution and  (64)  (5,421)  (40)  (5,525)  (3,213)  (572)  157  (3,628) 
Non-controlling Interest                   
Net Income  8,995  -  1,268  10,263  7,982  -  1,370  9,352 


(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$7,177 million in 1H18 and R$634 million in 1H17; 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  June18  Mar18  June17  June18 x  June18 x 
        Mar18  June17 
Assets           
Current and Long-Term Assets  1,277,879  1,274,394  1,261,999  0.3  1.3 
Funds available  15,425  18,098  13,525  (14.8)  14.0 
Interbank Investments  108,615  140,584  177,460  (22.7)  (38.8) 
Securities and Derivative Financial Instruments  598,128  585,837  540,106  2.1  10.7 
Interbank and Interdepartmental Accounts  72,886  72,287  69,747  0.8  4.5 
Loan and Leasing Operations  340,717  325,764  334,246  4.6  1.9 
Allow ance for Loan Losses (ALL)  (35,240)  (35,763)  (37,536)  (1.5)  (6.1) 
Other Receivables and Assets  177,348  167,587  164,451  5.8  7.8 
Permanent Assets  28,330  29,448  29,185  (3.8)  (2.9) 
Investments  2,122  2,134  1,779  (0.6)  19.3 
Premises and Equipment and Leased Assets  7,788  7,994  7,573  (2.6)  2.8 
Intangible Assets  18,420  19,320  19,833  (4.7)  (7.1) 
Total  1,306,209  1,303,842  1,291,184  0.2  1.2 
Liabilities           
Current and Long-Term Liabilities  1,191,081  1,187,998  1,182,377  0.3  0.7 
Deposits  299,604  271,391  260,120  10.4  15.2 
Securities sold under agreements to repurchase  263,310  295,930  316,026  (11.0)  (16.7) 
Funds from Issuance of Securities  153,303  142,590  131,510  7.5  16.6 
Interbank and Interdepartmental Accounts  23,194  26,593  22,439  (12.8)  3.4 
Borrow ings and Onlendings  53,160  50,052  56,547  6.2  (6.0) 
Derivative Financial Instruments  15,815  17,064  12,792  (7.3)  23.6 
Technical provisions for insurance, pension plans and capitalization bonds  252,072  251,231  233,640  0.3  7.9 
Other liabilities  130,623  133,147  149,303  (1.9)  (12.5) 
Deferred Income  388  370  429  4.9  (9.6) 
Non-controlling Interest in Subsidiaries  1,701  1,698  1,571  0.2  8.3 
Shareholders' Equity  113,039  113,776  106,807  (0.6)  5.8 
Total  1,306,209  1,303,842  1,291,184  0.2  1.2 
 
(1) For more information, please check note 4 – Balance Sheet and Managerial Statement of Income, in the “Complete Financial Statements” chapter of this report.   

 

 

(This page has been left blank intentionally)

 
 

 
 

 


  

Service Channels

        Variation %
  June18  Mar18  June17   June18 x  June18 x 
        Mar18  June17 
Structural Information - Units           
Customer Service Points  74,814  74,126  72,750  0.9  2.8 
- Branches  4,700  4,708  5,068  (0.2)  (7.3) 
- PAs  3,903  3,908  3,921  (0.1)  (0.5) 
- PAEs  929  936  994  (0.7)  (6.5) 
- Offsite ATM Netw ork - Bradesco  54  58  68  (6.9)  (20.6) 
- Banco24Horas Netw ork  11,694  11,160  10,807  4.8  8.2 
- Bradesco Expresso (Correspondent Banks)  38,717  38,856  38,596  (0.4)  0.3 
- Bradesco Financiamentos  14,741  14,424  13,220  2.2  11.5 
- Losango  63  63  63  -  - 
- Branches / Subsidiaries Abroad / Representation office  13  13  13  -  - 
ATMs  57,697  57,168  57,023  0.9  1.2 
- Onsite Netw ork - Bradesco  35,531  35,662  36,148  (0.4)  (1.7) 
- Banco24Horas Netw ork  22,166  21,506  20,875  3.1  6.2 
Employees  97,683  97,593  105,143  0.1  (7.1) 
Outsourced Employees and Interns  15,016  14,888  15,569  0.9  (3.6) 
Customers - In millions           
Total Customers (1)  71.2  70.9  69.1  0.4  3.0 
Account Holders (2)  28.0  27.9  27.9  0.4  0.4 
Savings Accounts  57.9  57.6  58.7  0.5  (1.4) 
Insurance Group  52.2  53.0  50.8  (1.5)  2.8 
- Policyholders  46.3  47.3  45.1  (2.1)  2.7 
- Pension Plan Participants  3.1  2.8  2.7  10.7  14.8 
- Capitalization Bond Customers  2.8  2.9  3.0  (3.4)  (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

  June18  Market  June17  Market 
Region  Bradesco  Market  Share  Bradesco  Market  Share 
North  263  1,096  24.0%  281  1,115  25.2% 
Northeast  857  3,384  25.3%  858  3,440  24.9% 
Midw est  381  1,700  22.4%  436  1,755  24.8% 
Southeast  2,443  10,700  22.8%  2,641  11,028  23.9% 
South  756  3,843  19.7%  852  3,953  21.6% 
Total  4,700  20,723  22.7%  5,068  21,291  23.8% 

 

 

 

Market Share in relation to the Market - %

  June18  Mar18  June17 
Bacen       
Bank       
Demand Deposits  N/A  11.4  11.0 
Savings Deposits  N/A  13.7  14.0 
Time Deposits  N/A  11.0  11.4 
Loans  11.2 (1)  11.1  11.1 
Loans - Private Institutions  24.0 (1)  23.9  25.2 
Loans - Vehicles Individuals (CDC + Leasing)  14.0 (1)  13.9  13.5 
Payroll-Deductible Loans  14.4 (1)  14.3  13.7 
Consortia       
Real Estate  28.5 (2)  28.7  29.5 
Auto  32.0 (2)  31.8  31.6 
Trucks, Tractors and Agricultural Implements  16.2 (2)  16.1  16.3 
Internacional Area       
Export Market  25.9  25.6  21.3 
Import Market  24.1  23.0  20.5 
Insurance Superintendence (Susep), National Agency for       
Supplementary Healthcare (ANS) and National Federation of Life and       
Pension Plans (Fenaprevi)       
Insurance Premiums, Pension Plan Contributions and Capitalization Bond Income  25.3 (1)  25.2  25.9 
Insurance Premiums (including Long-Term Life Insurance - VGBL)  24.7 (1)  24.6  25.1 
Life/Personal Accident Insurance Premiums  19.6 (1)  19.4  20.8 
Auto/P&C Insurance Premiums  8.1 (1)  7.6  9.3 
Auto/Optional Third-Party Liability Insurance Premiums  10.9 (1)  10.1  12.3 
Health Insurance Premiums  48.0 (1)  48.6  48.4 
Income from Pension Plan Contributions (excluding VGBL)  31.3 (1)  31.9  35.2 
Capitalization Bond Income  29.4 (1)  28.2  30.8 
Technical provisions for insurance, pension plans and capitalization bonds  26.5 (1)  26.6  27.3 
Income from VGBL Premiums  26.1 (1)  26.1  26.1 
Income from Unrestricted Benefits Pension Plans (PGBL) Contributions  26.9 (1)  27.8  31.4 
Pension Plan Investment Portfolios (including VGBL)  27.8 (1)  27.9  28.8 
Anbima       
Investment Funds and Managed Portfolios  20.5  20.9  21.5 
Social Security National Institute (INSS)/Dataprev       
Benefit Payment to Retirees and Pensioners  31.2  31.1  30.4 
Brazilian Association of Leasing Companies (ABEL)       
Lending Operations  18.7 (2)  18.7  18.3 

  

(1) Reference Date: May/18;

(2) Reference Date: Apr/18; and
N/A – Not available.

 

 

Ratings

Fitch Ratings
International Scale National Scale 
Viability  Support    Domestic Currency      Foreign Currency  Domestic 
    Long-term  Short-term      Long-term  Short-term  Long-term  Short-term 
bb  4  BB   B      BB B  AAA(bra)  F1+(bra) 
Moody´s Investors Service
Global Scale National Scale 
Domestic Currency  Foreign Currency    Deposits - Domestic Foreign Currency  Domestic Currency 
Counterparty  Counterparty    Currency Deposit
Long-term  Short-term  Long-term  Short-term   Long-term Short-term  Long-term Short-term Long-term  Short-term 
Ba1  NP  Ba1  NP    Ba2 NP Ba3  NP  Aa1.br  BR-1 
S&P Global Austin Rating
Global Scale - Issuer Credit Rating   National Scale National Scale
Foreign Currency Domestic Currency   Issuer Credit Rating
Long-term Short-term Long-term Short-term   Long-term (1) Short-term Long-term  Short-term 
BB- B BB- B   brAAA brA-1+ brAAA brA-1
(1) In July 2018, there was an implementation in the ratings on a national scale, resulting in a rating upgrade on a national long-term scale from “brAA-” to “brAAA”.

 


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 compatible with the nature of its operations and the complexity of its products, 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 Officers and the Board of Directors in decision making. The most notable amongst these are the Integrated Risk Management and Capital Allocation Committee and the Risk Committee, whose purpose is to 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 capital 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, capital 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.

For more severe situations of stress that can impact the financial system or the feasibility of the institution, a recovery plan was developed in compliance with Resolution No. 4,502/16 containing actions of capital and liquidity.

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 May 2018 was R$11.0 billion.

 


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

  Basel III
  Prudential Conglomerate
R$ million  June18 Mar18 Dec17 Sept17 June17 Mar17 Dec16 Sept16
Calculation Basis                 
Regulatory Capital  97,785  100,170  104,673  106,682  103,050  92,920  101,127  100,056 
Tier I  74,794  78,206  80,085  80,889  77,322  73,123  78,763  77,655 
Common Equity  69,589  73,101  75,080  75,363  71,949  67,915  73,747  72,655 
Shareholders' Equity  113,039  113,776  110,457  110,301  106,807  104,558  100,442  98,550 
Non-controlling/Other  108  186  69  84  39  34  61  17 
Phase-in arrangements provided for Resolution No 4,192/13  (43,558)  (40,861)  (35,446)  (35,022)  (34,898)  (36,677)  (26,756)  (25,912) 
Additional Capital  5,205  5,105  5,005  5,526  5,374  5,207  5,016  5,000 
Tier II  22,991  21,964  24,588  25,793  25,728  19,797  22,364  22,401 
Subordinated debt (before Resolution No 4,192/13)  6,397  5,651  7,641  8,354  8,730  9,650  12,560  13,693 
Subordinated Debt (according to Resolution No. 4,192/13)  16,594  16,313  16,947  17,438  16,998  10,147  9,804  8,708 
Risk-Weighted Assets (RWA)  657,922  631,159  611,442  604,581  618,611  607,464  656,189  657,148 
Credit Risk  588,341  567,007  554,929  547,411  550,859  546,210  589,977  588,914 
Operational Risk  53,510  53,510  47,605  47,605  47,222  48,157  50,444  50,444 
Market Risk  16,071  10,642  8,908  9,564  20,530  13,097  15,768  17,791 
Total Ratio 14.9%  15.9%(1)  17.1%  17.7%  16.7%  15.3%  15.4%  15.3% 
Tier I Capital  11.4%  12.4%  13.1%  13.4%  12.5%  12.0%  12.0%  11.9% 
Common Equity  10.6%  11.6%  12.3%  12.5%  11.6%  11.2%  11.2%  11.1% 
Additional Capital  0.8%  0.8%  0.8%  0.9%  0.9%  0.8%  0.8%  0.8% 
Tier II Capital  3.5%  3.5%  4.0%  4.3%  4.2%  3.3%  3.4%  3.4% 
Subordinated debt (before Resolution No 4,192/13)  1.0%  0.9%  1.2%  1.4%  1.4%  1.6%  1.9%  2.1% 
Subordinated Debt (according to Resolution No. 4,192/13)  2.5%  2.6%  2.8%  2.9%  2.7%  1.7%  1.5%  1.3% 
 
(1) 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, with no fulfillment of the posts of Chairman of the Board of Directors and Chief Executive Officer, according to statutory provision.

Eight committees advise the Board of Directors: 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. 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 and an equal number of alternate 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 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 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 area 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 its 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 or operations and/or business.


 

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 second quarter of 2018 we promoted 58 events with national and international investors, through conferences, meetings, conference calls and institutional presentations, assisting 354 investors. We also held two teleconferences of results to institutional investors.

Another highlight of the quarter was the seventh Bradesco Open Day held in Cidade de Deus – Osasco, counting on the participation of our CEO Mr. Octavio de Lazari Junior and other Executives. The event involved the participation of more than 600 domestic and foreign investors, who attended the meeting in person and over the internet. During this event the strategic themes of the main business areas of our Organization were discussed and the participants had the opportunity to ask questions to the Executives.


 

We seekto 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 corporate initiatives and voluntary commitments, such as: Global Compact Initiatives, Goals of Sustainable Development, Equator Principles, Carbon Disclosure Project – CDP (Climate Initiative), Principles for Responsible Investment (PRI), Businesses for the Climate (EPC), CEBDS (Brazilian Business Center for Sustainable Development), among others.

The main decisions and monitoring of the strategy of sustainability are conducted by the Sustainability 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 Sustainability, such as the Dow Jones Sustainability Index (DJSI) – “World and Emerging Markets”, of the New York Stock Exchange, the Corporate Sustainability Index (ISE), and the Carbon Efficient Index (ICO2), both of B3.

Bradesco Integrates the Vigeo Eires Sustainability Index  


For the second time, we were selected to compose the portfolio of the Vigeo Eires Sustainability Index – Emerging Market Performers Ranking. Vigeo is the leading agency in Europe in the ASG analysis and the index is composed of 100 companies, selected among 813 listed in developing countries, which offer the best performances in social, environmental and governance criteria.

 

Our participation in the index emphasizes the performance of the sustainability practices of our Organization.

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 being guaranteed to be free, 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+AçãoProgram, and from Technology courses.

 

 

(This page has been left blank intentionally)

 
 

 

 

 
 

 

To

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

Osasco – SP

 

 

We were engaged by Banco Bradesco S.A. ("Bradesco") to report on the supplementary accounting information of Banco Bradesco S.A. for the semester ended as at June 30, 2018 in the form of reasonable assurance conclusion that based on our work, described within this report, the supplementary accounting information included within the Economic and Financial Analysis Report is presented, in all material respects, based on the information referred to in the “Criteria for preparing the supplementary accounting information” paragraph. 

 

Responsibilities of the Management of Bradesco

Management of Bradesco is responsible for preparing and adequately presenting the supplementary accounting information included within the Economic and Financial Analysis Report based on the criteria for the preparation of the supplementary accounting information described below, and for other information contained within this report, as well as the design, implementation and maintenance of internal controls that management determines are 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 examine the supplementary accounting information included within the Economic and Financial Analysis Report prepared by Bradesco and to report thereon in the form of a reasonable 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 reasonable assurance about whether the supplementary accounting information included within the Economic and Financial Analysis Report is presented, in all material respects, to the information referred to in the “Criteria for preparing the supplementary accounting information” paragraph. 

The procedures selected were based on our judgment, including the assessment of risks of material misstatement in the supplementary accounting information of Banco Bradesco S.A. whether due to fraud or error, however, this does not include the search and identification of fraud or error. 

 
 
 

 

 

In making those risk assessments, we have considered internal controls relevant to the preparation and presentation of supplementary accounting information in order to design assurance procedures that are appropriate in the circumstances, but not for the purposes of expressing a conclusion as to the effectiveness of Bradesco’s internal control over the preparation and presentation of the supplementary accounting information. Our engagement also includes the assessment of the appropriateness of the reasonableness of the supplementary accounting information within the Economic and Financial Analysis Report in the circumstances of the engagement, evaluating the appropriateness of the procedures used in the preparation of the supplementary accounting information and the reasonableness of estimates made by Bradesco and evaluating the overall presentation of the supplementary accounting information. The reasonable assurance level is less than an audit.

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 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 Supplementary Accounting Information

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

 

Conclusion

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

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. In our opinion, the supplementary accounting information included within the Economic and Financial Analysis Information Report is presented, in all material respects, in accordance with the information referred to in the “Criteria for preparing the supplementary accounting information” paragraph.

 

Osasco, July 25, 2018

 

Blue logo

KPMG Auditores Independentes

CRC 2SP028567/O-1 F SP

Original report in Portuguese signed by

Rodrigo de Mattos Lia

Accountant CRC 1SP252418/O-3

 
 
 

 

(This page has been left blank intentionally).

 

 
 

 
 
 

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

Management Report

 

Dear Shareholders,

 

We hereby present the Consolidated Financial Statements of Banco Bradesco S.A. related to the first half of 2018, prepared in accordance with the accounting practices used in Brazil and applicable to institutions authorized to operate by the Central Bank of Brazil.

Throughout our history, we have combined tradition and innovation, building an institution that promotes banking inclusion and that is present in all regions of Brazil, with a portfolio of diversified products and services, aimed at all bands of the public. The Bank's performance strategy is based on:

 

·         Scale and diversification: broad and diversified customer base with appropriate offers, maximizing the satisfaction of clients and indicators of efficiency;

 

·         Service Channels: one of the largest and most complete customer service networks in the market, offering high quality products and services to all audiences, i.e. to individuals and legal entities;

 

·         People: as an essential point of our culture and development of the internal career, continuous investments are made in the training and improvement of our employees;

 

·         Entrepreneurial culture: sustained by organic growth, strict controls, conducting business with transparency, ethics and adequate remuneration to our shareholders;

 

·         Digital: investments in technology and innovation to meet and exceed the expectations of clients and other target audiences we serve;

 

·         Risk Management: a robust process of governance and control of risks; and

 

·         Sustainability of business: generation of value to society with appropriate practices in conducting business.

 

1.         Economic Commentary

 

The global economic scenario proved more challenging throughout the first half of the year for emerging countries. The prospect of raising interest rates in the central economies has been exacerbated by actions of trade and geopolitical protectionism, making the global environment more volatile and with less appetite for risk. In this context, the challenges of the Brazilian economy, notably the public accounts and modest growth, transmit this external environment to the prices of domestic assets, affecting the currency and impacting the country risk. Prospectively, the continuity of the fiscal agendas and gains in productivity is fundamental and, once implemented, will contribute to boost the confidence of agents, with positive impacts on consumption, investments and credit.

2.         Income for the Period

 

In the first half, Bradesco’s Net Income reached R$8.995 billion, equivalent to R$1.34 per share and profitability of 16.2% 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 destined R$1.9 billion to the shareholders, paid on a monthly basis and intermediaries, and R$1.7 billion provisioned, totalling R$3.6 billion in the period. The intermediate Interest on Shareholders’ Equity paid on July 16, 2018, represents approximately 10 times the value of monthly Interest paid.

The taxes and contributions including pensions, paid or provisioned, reached R$14.041 billion, of which R$6.707 billion is related to taxes withheld and collected from third parties and R$7.334 billion calculated based on the activities developed by the Bradesco Organization, corresponding to 81.5% of the Net Income.

 

3.         Capital and Reserves

 

On June 30, 2018, the paid-up Share Capital totalled R$67.100 billion. Added to the Equity Reserves of R$45.939 billion, it resulted in a Shareholders’ Equity of R$113.039 billion, presenting a growth of 5.8% on the same period of the previous year, corresponding to the equity value of R$16.89 per share. Calculated on the basis of its shares listing, the Market Value of Bradesco reached R$171.604 billion, equivalent to 1.5 times the Accounting Shareholders’ Equity.

The Managed Shareholders’ Equity is equivalent to 9.2% of the Consolidated Assets, totaling R$1.239 trillion, an increase of 4.2% compared to the same period in 2017. Therefore, the Basel ratio reached 14.9%, 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 half, the immobilization index, compared to the Reference Equity, reached 44.9% in the Prudential Consolidation, within the maximum limit of 50.0%, established by the Central Bank of Brazil.

 

Securities classified under “Held to Maturity Securities”

 

Bradesco, as provided for by Article 8 of the Circular Letter No. 3,068/01 of the Central Bank of Brazil, declares 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 – June 2018

 
 

 

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

 
Management Report

 

4.         Funding and Management of Resources

At the end of the period, the resources funded and managed by the Bradesco Organization amounted to R$1.949 trillion, 6.3% higher than the previous year,  distributed as:

 

R$501.806     billion in Demand Deposits, Time Deposits, Interbank Deposits, Savings Accounts and Securities Sold under Agreements for Repurchase;

 

R$843.865     billion in assets under management, comprising Investment Funds, Managed Portfolios and Third-Party Fund Quotas, a 8.7% increase;

 

R$309.248     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 6.8% increase.

 

R$252.071     billion in Technical Provisions for Insurance, Pension Plans and Capitalization Bonds, up by 7.9%; and

 

R$42.308       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$10.973 billion.

 

5.         Loan Operations

 

Considering the expanded concept,  the balance of consolidated credit operations totaled R$515.635 billion in the end of the period, an increase of 4.5% as compared to June 2017, included in this amount:

 

R$120.856     billion in Consumption Finance, which includes R$33.606 billion of credit receivables from Credit Cards, R$46.593 billion in Consigned Loans, R$22.167 billion of vehicle CDC/ Leasing and R$18.490 billion of Personal Loans;

 

R$71.765       billion of Sureties and Guarantees;

 

R$19.277       billion regarding opeations 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$22.414       billion in business in the Rural Area;

 

R$13.127       billion in Advance Payments on Exchange Contracts, for a Portfolio in the amount of US$10.203 billion of Financing for Export; and

 

US$1.901      billion of operations in Import Finance in Foreign Currencies.

 

For the activities of Real Estate Credit, the balance of the Portfolio was R$61.043 billion, whereby R$35.618 billion was intended for Individuals and R$25.425 billion for Legal Entities, and a total of 179,930 units financed.

 

The consolidated balance of provision for credit losses amounted to R$35.153 billion, equivalent to 9.0% of the total volume of credit operations, with R$6.887 billion of surplus provision in relation to the minimum required by the Central Bank of Brazil.

6.         Bradesco Service Network

The modern structure of the Service Network of the Bradesco Organization, present in all regions of Brazil and in some strategic locations abroad, at the end of the half, there were 74,814 points of service, distributed as follows:

8,603        Branches and PAs (Service Branches) in Brazil (Branches:  Bradesco – 4,694, Banco Bradesco Cartões – 1, Banco Bradesco Financiamentos – 2, Banco Bradesco BBI - 1, Banco Bradesco BERJ –1 and Banco Alvorada – 1; and PAs: 3,903);

 

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

 

10              Overseas Subsidiaries and Representation Office (Banco Bradesco Argentina S.A., 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, and Bradescard Mexico, Sociedad de Responsabilidad Limitada in Jalisco; and  Representative Office, in Miami);

 

14,741     Service branches of Bradesco Financiamentos, with 929 posts for payroll loans and 13,812 dealer/reseller posts for Vehicle Financing;

 

38,717      Bradesco Expresso service brances;

 

Bradesco  51

 
 

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

Management Report

 

929            In-company electronic service branches;

 

63              Losango service branches;

 

54              External Terminals in the Bradesco Network; and

 

11,694      ATMs in the Banco24Horas Network, with 27 terminals shared by the Networks.

We had simultaneously 35,531 ATMs, strategically distributed nationwide, of which 2 thousand are recycling machines of banknotes, which guarantee immediate deposit in the account, including on weekends, aside from the 22,166 ATMs of the Banco24Horas Network.

We are 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.

Always aware of the needs of the different audiences, we currently have four major Digital Platforms, which serve 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.

Next

Thinking of the hyperconnected public, we launched in 2017, the Next, 100% stand-alone digital platform. With the Next, aiming at the best experience of use, the relationship with the client is made based on their behavior, interactively, and transforms money management into smart pathways toward one’s goals, ensuring users the freedom to carry out account transactions spontaneously and integrated to their purposes.

7.            Banco Bradesco BBI

 

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 thehalf, Bradesco BBI conducted transactions with a volume of more than R$110.820 billion.

8.         Grupo Bradesco Seguros (Insurance Group)

 

The Grupo Bradesco Seguros, which presents relevant participation in the results of the Organization, reiterates its prominent position in the market in the areas of Insurance, Capitalization and Open Supplementary Pension Plans, Grupo Bradesco Seguros by recording, on June 30, 2018, Net Income of R$3.145 billion and Shareholders’ Equity of R$33.249 billion. The net insurance premiums issued, pension contributions and income from capitalization reached a total of R$35.793 billion, in the first half of 2018.

9.         Corporate Governance

Corporate governance practices have been present in the management of Banco Bradesco S.A. since 1943, the year of its establishment. From 1946, its shares have been traded on the Brazilian Stock Exchange, having started its operations in the US capital market in 1997, negotiating initially 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 also negotiates DRs (Depositary Receipts) on the European market.

We highlight, among the practices adopted, the listing of the Bank at Tier I of Corporate Governance of the B3 – Brasil, Bolsa, Balcão, since 2001, and from 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.

The Management of the Bank is formed by the Board of Directors and by the Statutory Board of Executive Officers, whereby the Board of Directors is composed of eight members, of which six 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 activities of the Board of Executive Officers, all being 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 and their respective alternates.

In accordance with Instruction No. 381/03, of the Brazilian Securities and Exchange Commission, the Bradesco Organization did not contract nor have services provided by KPMG Auditores Independentes in the half 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 pre-agreed procedures or assurance for review of financial information, of draws and system revision and diagnosis. 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 auditors should not audit their own work, perform managerial duties for their clients or promote their customers’ interests.

 

52 Economic and Financial Analysis Report – June 2018

 

 

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

 
Management Report

 

9.1       Policies of Transparency and Disclosure of Information

For Bradesco, transparency, timeliness, democratization of information and the search for best practices are essential factors for conducting business.

We held, in the first half, 92 events with national and international investors, through conferences, meetings, conference calls and institutional presentations, advising 714 investors. We also held four teleconferences about the results with institutional investors.

On the site banco.bradesco/ri we provide information related to the Organization, such as the profile, history, shareholding structure, Reports on Economic and Financial Analysis, Integrated Report, acquisitions, APIMEC meetings, in addition to other information on the financial market.

10.  Integrated Risk Control

10.1 Risk Management

We consider risk management a strategic activity mainly due to the complexity and variety of banking products and services in all segments of the market, and also by the globalization of the business of the Organization.

Given its wide operation, the Organization is exposed to various types of risks inherent to the financial activity. Among the main ones are the following: Credit, Counterparty Credit, Market, Operational, Subscription, Liquidity, Concentration, Socio-environmental, Strategy, Legal or of Compliance, Reputation, Model and Contagion.

We have a specific structure for evaluation, measurement, control and monitoring of relevant risks and emerging risks, making it possible to anticipate the development and implementation of actions to minimize any adverse impacts to their positions.

The corporate control of risks is performed by means of consistent processes, in an integrated manner and independently by a solid governance structure reporting to the Risk Committee, Integrated Risk Management and Capital Allocation Committee and to the Board of Directors, preserving and valuing the environment of collegiate decisions, seeking to proactively identify the risks to be mitigated or avoided.

10.2      Internal Controls

The effectiveness of the Internal Controls of the Organization is sustained by qualified professionals, well-defined and implemented processes, and technology compatible with the business needs.

The Methodology of Internal Controls is aligned with the document issued by the Committee of Sponsoring Organizations of the Treadway Commission – COSO, 2013 version, called Internal Control – Integrated Framework, with the guidelines established by the Information Systems Audit and Control Association (ISACA) through the Control Objectives for Information and Related Technology (COBIT 5), and with the procedures described by the Public Company Accounting Oversight Board (PCAOB) for the analysis of the Entity Level Controls (ELC).

The existence, implementation and effectiveness of the controls that ensure acceptable levels of risk in the processes of the Organization are certified by the area of Internal Controls, and the results are reported to the Audit, Internal Controls and Compliance Committees, as well as to the Board of Directors, with the purpose of providing security for the proper running of the business and to reach the objectives established in accordance with the external laws and regulations, policies, internal standards and procedures, in addition to codes of conduct and of self-regulation applicable.

10.3      Compliance and Integrity Program

The Senior Management and all the employees are committed to compliance with the laws and regulations applicable to activities, as well as the conduct of business by observing high standards of conduct and ethics. To ensure 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 area for responses throughout the program. These components are supported by Committees linked to the Board of Directors, such as, Ethical Conduct, for example, and supported by training and capacity building actions developed by Unibrad – Bradesco University for all the professionals.

In meeting the best practices of corporate governance, the Bradesco Organization adopts its own program of integrity, which is composed by a set of policies, standards and procedures aimed at for 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 or operations and/or business.

 

Bradesco  53

 
 

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

Management Report

 

Prevention against Illicit Acts

Business and relationships are conducted with ethics, integrity and transparency, concepts that permeate the organizational culture, whose values and principles are ratified in the Codes of Conduct and supported by the Senior Management.

Prevention and combat against illicit acts are exercised continuously. These risks are mitigated through policies, standards, procedures, training programs for professionals and controls that seek to promptly detect any operations and situations with indications of links to illegal activities, aimed at the adoption of appropriate measures and actions. This system of mechanisms is subject to constant evaluation and improvement in accordance with current and applicable laws and regulations, as well as with the best market practices, in Brazil and in countries where the Organization has business units.

In this regard, we emphasize training activities on ethical conduct and money laundering prevention, financing of terrorism, corruption and bribery, in addition to the development and review of procedures and strengthening of controls related to public agents and politically exposed persons.

 

Independent Validation of Models of Management and Measurement of Risks and Capital

We use internal models, developed from statistical, economic, financial, and mathematical theories, and the knowledge of experts, whose purpose is to support and facilitate the structuring of subjects, to standardize and speed up decisions, and to manage risks and capital.

In order to detect, mitigate and control risks inherent in our internal models, which are associated with potential adverse consequences arising from decisions based on incorrect or obsolete parameters, inadequate calibration of models, failures in the development stage, or inappropriate use, there is the process of independent validation that stringently evaluates these aspects, challenging the methodology, the assumptions adopted, the data used, the use of the models, as well as the robustness of the environment in which they are implemented, reporting their results to managers, internal audit, and Integrated Risk Management and Capital Allocation Committee – COGIRAC.

Information Security

The security of information and cybernetics are treated at the highest strategic level by the Management Bodies and other hierarchical levels. We have a set of controls that include procedures, processes and organizational structures, as well as rules and IT solutions aimed to protect the confidentiality, availability and integrity of information.

11.       Innovation and Technology

We have a history of pioneering technology and innovation in the financial universe and, as the focus is on the users' experience, we seek to accelerate our resources already consolidated, aware of the changes in the market, conducting research and tests with the most advanced technologies to deliver an increasingly practical, efficient and secure Bank. Some examples of actions that we highlight are:

·         inovaBra: innovation platform formed by eight complementary programs which foster internal and external entrepreneurship, through connections and partnerships in the Organization with the innovation ecosystem based on collaboration between banks and businesses, startups, investors and mentors, in Brazil and in the world, to address the challenges and sustainability of business;

·         habitat: a prominent arm of inovaBra, habitat is a Brazilian center of innovation that contributes to the facilitation and acceleration of the process of innovation in the Bank, as well as the strengthening of partnerships with large corporate clients, through a structured work of collaboration for innovation in business with the application of frontier technologies from startups. In only five months of operation, we achieved an occupancy of 90%, i.e., almost 1,400 active job positions, 160 startups and 50 companies. In this period, more than 25,000 people visited the space and more than 360 events were held;

·         Voice Biometrics: at Bradesco, your voice is your password, which gives even more convenience and usability to access the account through Fone Fácil (Easy Phone); and

·         BIA – Bradesco Inteligência Artificial (Artificial Intelligence): using IBM's cognitive computing platform, Watson, as a basis, we were pioneers in developing the BIA, which relates to the user in natural language, answering questions about products and services. Available for employees and clients, it makes the customer service more agile, practical and autonomous.  In this half, we have had more than 33 million recorded interactions through BIA.

12. Human Capital

The model of Human Capital Management of the Organization is invariably guided by the egalitarian appreciation of people, without any kind of discrimination. We adopted a strategy directed 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, increasingly more  competitive and demanding.

In the half, 1,445 courses were given, with 375,940 participations. The welfare benefits reached 235,628 people, ensuring good wellbeing, the improvement of the quality of life and the safety of employees and their dependents.


54 Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Management Report

 

13. Sustainability in the Bradesco Organization

For 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 and sustainable growth, respecting the audiences, the communities and the environment with which we interact.

Our Business guidelines and strategies are oriented in such a way as to promote the incorporation of the best practices of corporate sustainability, taking into account each region’s characteristics and potential, contributing to the concept of shared value. We highlight the participation and commitment we assumed voluntarily, with initiatives such as Global Compact, Equator Principles, CDP, Principles for Responsible Investment (PRI), GHG Protocol Program and Empresas pelo Clima (EPC - Business for the Climate Platform) and, more recently, the Goals of Sustainable Development (ODS).

Reaffirming the commlitment with the theme, we integrated a group of 27 banks, from 5 continents, into a UN initiative to develop principles of responsibility in global banking activities, strengthening the role of the sector to finance a more sustainable future and support the society to achieve the ODS, which we have already joined, and the Paris Climate Agreement of the United Nations (UN). Coordinated by the Financial Initiative of the United Nations Environment Programme, it aims to establish a set of principles for the banking environment with similar function to the PRI, for asset managers, and the Principles for Sustainability in Insurance (PSI), of which we are already signatories, for insurers.

The extensive work in business management is recognized and, once more, we are present in the DJSI (Dow Jones Sustainability Indices) of New York Stock Exchange and in other important Sustainability indices such as the ISE (Corporate Sustainability Index) and the ICO2 (Carbon Efficient Index), both part of B3 – Brasil, Bolsa, Balcão.

For more information about Bradesco’s initiatives, visit bradescosustentabilidade.com.brand banco.bradesco/ri.

Fundação Bradesco

The Fundação Bradesco, the main social action of the Organization, has invested for more than six decades in education and health care, with a positive influence on improving the quality of life of the communities in which it operates, through quality education for children, young people 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.

With 40 own schools installed mainly in regions of high socio-economic deprivation, it is present in all the Brazilian states and Federal District. To maintain the extensive structure, its budget  for the year 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 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 42,000 students in Basic Education.   

 

Bradesco  55

 
 

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

Management Report

 

Bradesco Sports and Education Program (Programa Bradesco Esportes e Educação)

Bradesco Sports and Education Program 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, from eight years old, reaffirming the Organization’s social commitment and displaying how it values talent, citizenship, as well as education, sport and health.

 

14.  Recognitions

 

Rankings – in the period, we highlight the following recognitions regarding the Bradesco Organization:

 

·         Achievement of the award Most Admired Brands by HRs 2018, promoted by the Grupo Gestão RH. Still on HR, we were honored by the Faculdade Zumbi dos Palmares for our policy of diversity, being recognized for the work conducted by the Bank in favor of social inclusion and respect for tolerance and equal opportunities;

 

·         In the 4th annual Valor Inovação Brasil 2018 (Value Innovation Brazil), of the Jornal Valor Econômico (Newspaper) and consulting firm Strategy& of PwC, the Bank won first place in the Innovative Bank category and appeared among the 10 most innovative companies in Brazil;

 

·         In San Francisco, at the RSA Conference Awards 2018, we received the awards, Most Innovative Archer Project, with the Next case and Most Advanced SOC Strategy, with the PTS case – Program for the Transformation of Security;

 

·         In the XVIII efinance Award 2018, promoted by Executivos Financeiros Magazine (Financial Executives), Bradesco was first place in the categories: Bank of the Year, Voice Banking, Bank on Whatsapp, Digital Governance, Innovation, IOT, Digital Marketing, Security and Usability; and Bradesco Seguros: Management of IT infrastructure;

 

·         In the annual of Estadão Finanças Mais, under the consultancy of Austin Rating, Bradesco remained as first in the category of Retail Banks and Grupo Bradesco Seguros in the categories of Life, Pension and Capitalization (bonds); and

·         Bradesco Seguros led the ranking of the Most Digital Insurers in Brazil, according to a study conducted by consultancy firm DOM Strategy Partners, which evaluated the level of digital maturity of the main companies in the insurance market in the country.

 

Ratings – The risk ratings assigned to Bradesco continue corresponding to the highest levels of assessment granted to Brazilian banks by national and international rating agencies, which are:

·         Moody’s Investors Service: (i) long-term counterparty rating in foreign currency and local currency, global scale, "Ba1"; (ii) short-term counterparty rating in foreign currency and local currency, global scale, "NP"; (iii) long-term rating of foreign currency deposit, global scale, "Ba3"; (iv) long-term deposit rating in local currency, global scale, "Ba2"; (v) short-term deposit rating in foreign currency and local currency, global scale, "NP"; (vi) long-term rating in local currency, national scale, "Aa1.br"; and (vii) short-term rating in local currency, national scale, “BR-1”;

 

·         S&P Global: (i) long-term credit rating of issuer in foreign currency and local currency, global scale, "BB-"; (ii) short-term credit rating of issuer of foreign currency and in local currency, global scale, "B"; (iii) long-term credit rating of issuer, national scale, "brAAA"; and (iv) short-term credit rating of issuer, national scale, “brA-1+”;

 

·         Fitch Ratings: (i) feasibility rating “bb”; rating of support 4; (ii) long-term IDRs in foreign currency and in local currency, global scale, “BB”; (iii) short-term IDRs in foreign currency and in local currency, global scale, “B”; (iv) long-term rating, national scale, "AAA(bra)"; and (v) short-term rating, national scale, "F1+(bra)"; and

 

·         Austin Rating: (i) long-term rating, national scale, "brAAA"; and (ii) short-term rating, national scale, “brA-1”.

 

15.  Acknowledgments     

 

The results achieved in the half reflect the correctness, consistency and harmony of the strategy adopted for the year. We continue with our commitment to overcome expectations with efficiency, quality and security to always offer the best. For the successes obtained, we are grateful for the support and trust of our shareholders and clients and the dedicated and efficient work of our employees and other associates.

Cidade de Deus, July 25, 2018

 

Board of Directors and

Board of Executive Officers

 

56 Economic and Financial Analysis Report – June 2018

 
 

 

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

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

 

Assets

2018

2017

Current

823,239,981

771,218,646

Cash and due from banks (Note 5)

15,305,794

13,377,562

Interbank investments (Notes 3d and 6)

107,479,639

176,454,819

Securities purchased under agreements to resell

98,998,811

171,299,636

Interbank investments

8,491,330

5,168,014

Allowance for losses

(10,502)

(12,831)

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

385,931,610

289,702,919

Own portfolio

307,968,677

230,045,938

Securities sold under repurchase agreements – Repledge only

39,260,472

27,049,772

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

15,258,127

14,959,492

Given in guarantee to the Brazilian Central Bank

- 

83,599

Given in guarantee

20,546,792

16,865,092

Securities sold under repurchase agreements – unrestricted

2,897,542

699,026

Interbank accounts

71,467,115

68,833,178

Unsettled payments and receipts

- 

1,274,939

Reserve requirement (Note 8):

 

 

- Reserve requirement - Brazilian Central Bank

71,400,234

67,472,257

- SFH - housing finance system

21,349

23,406

Correspondent banks

45,532

62,576

Interdepartmental accounts

198,429

110,732

Internal transfer of funds

198,429

110,732

Loans (Notes 3g, 9 and 34a)

137,731,294

137,070,625

Loans:

 

 

- Public sector

260,243

1,075,740

- Private sector

156,222,282

156,717,195

Loans transferred under an assignment with recourse

875,064

984,481

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

(19,626,295)

(21,706,791)

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

894,812

1,108,774

Leases receivables:

 

 

- Private sector

1,724,421

2,229,867

Unearned income from leases

(786,066)

(1,023,583)

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

(43,543)

(97,510)

Other receivables

100,926,145

80,960,786

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

125,492

416,316

Foreign exchange portfolio (Note 10a)

30,942,619

17,402,106

Receivables

1,875,413

1,892,578

Securities trading

1,956,784

1,047,191

Specific receivables

30,975

18,947

Insurance and reinsurance receivables and reinsurance assets – technical provisions

3,929,138

4,764,523

Sundry (Note 10b)

63,903,369

57,297,310

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

(1,837,645)

(1,878,185)

Other assets (Note 11)

3,305,143

3,599,251

Other assets

2,957,154

2,970,686

Allowance for losses

(1,437,078)

(1,320,248)

Prepaid expenses (Notes 3i and 11b)

1,785,067

1,948,813

Long-term receivables

387,034,375

388,479,457

Interbank investments (Notes 3d and 6)

1,194,364

1,128,277

Interbank investments

1,194,364

1,128,277

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

148,383,332

165,637,468

Own portfolio

74,128,523

127,165,693

Securities sold under repurchase agreements – Repledge only

71,713,614

27,405,783

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

939,573

90,818

Privatization rights

41,707

46,517

Given in guarantee

1,333,668

2,938,461

Securities sold under repurchase agreements – unrestricted

226,247

7,990,196

Interbank accounts

1,220,557

802,502

Reserve requirement (Note 8):

 

 

- SFH - housing finance system

1,220,557

802,502

 
 

Bradesco  57

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Consolidated Statement of Financial Position on June 30 – In thousands of Reais

 

Assets

2018

2017

Loans (Notes 3g, 9 and 34a)

167,328,209

158,974,066

Loans:

 

 

- Public sector

4,000,000

2,000,000

- Private sector

169,829,484

163,361,536

Loans transferred under an assignment with recourse

7,012,044

7,292,471

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

(13,513,319)

(13,679,941)

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

1,039,033

1,092,315

Leases receivables:

 

 

- Private sector

2,145,773

2,339,749

Unearned income from leases

(1,060,450)

(1,181,538)

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

(46,290)

(65,896)

Other receivables

67,023,831

59,843,112

Receivables

27,012

20,497

Securities trading

486,320

374,153

Sundry (Note 10b)

66,596,052

59,472,636

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

(85,553)

(24,174)

Other assets (Note 11)

845,049

1,001,717

Prepaid expenses (Notes 3i and 11b)

845,049

1,001,717

Permanent assets

29,144,410

29,426,029

Investments (Notes 3j, 12 and 34a)

8,145,364

7,417,684

Equity investment in unconsolidated and jointly controlled companies:

 

 

- In Brazil

7,996,139

7,269,003

Other investments

403,960

403,434

Allowance for losses

(254,735)

(254,753)

Premises and equipment (Notes 3k and 13)

7,592,568

7,358,869

Premises

3,123,966

2,631,400

Other premises and equipment

13,275,980

12,377,833

Accumulated depreciation

(8,807,378)

(7,650,364)

Intangible assets (Notes 3l and 14)

13,406,478

14,649,476

Intangible Assets

29,270,759

27,008,380

Accumulated amortization

(15,864,281)

(12,358,904)

Total

1,239,418,766

1,189,124,132

 

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


58 Economic and Financial Analysis Report – June 2018

 
 

 

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

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

 

Liabilities

2018

2017

Current

801,067,391

786,553,459

Deposits (Notes 3n and 15a)

174,784,381

157,253,138

Demand deposits

31,216,803

30,607,724

Savings deposits

103,076,706

95,736,763

Interbank deposits

1,618,190

481,809

Time deposits (Notes 15a and 34a)

38,872,682

30,426,842

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

200,326,978

222,759,897

Own portfolio

124,202,648

87,115,542

Third-party portfolio

69,197,812

124,405,286

Unrestricted portfolio

6,926,518

11,239,069

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

77,915,080

72,477,559

Mortgage and real estate notes, letters of credit and others

76,409,003

71,479,699

Securities issued overseas

1,110,239

671,060

Structured Operations Certificates

395,838

326,800

Interbank accounts

17,990,193

17,638,013

Unsettled payments and receipts

16,876,074

16,188,307

Correspondent banks

1,114,119

1,449,706

Interdepartmental accounts

4,896,199

4,800,663

Third-party funds in transit

4,896,199

4,800,663

Borrowing (Notes 16a and 34a)

24,677,799

21,511,282

Borrowing in Brazil - other institutions

- 

2,660

Borrowing overseas

24,677,799

21,508,622

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

7,889,232

11,224,756

National treasury

38,238

64,143

BNDES

2,580,429

4,597,299

FINAME

5,269,053

6,561,724

Other institutions

1,512

1,590

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

15,960,591

14,094,065

Derivative financial instruments

15,960,591

14,094,065

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

220,954,612

205,107,722

Other liabilities

55,672,326

59,686,364

Payment of taxes and other contributions

3,482,571

3,362,148

Foreign exchange portfolio (Note 10a)

16,151,154

7,105,535

Social and statutory

3,158,096

2,493,959

Tax and social security (Note 19a)

3,312,948

3,147,445

Securities trading

3,262,567

2,084,834

Financial and development funds

1,403

1,297

Subordinated debts (Notes 18 and 34a)

1,097,614

14,234,960

Sundry (Note 19b)

25,205,973

27,256,186

Long-term liabilities

324,323,348

294,861,578

Deposits (Notes 3n and 15a)

124,359,875

102,945,474

Interbank deposits

27,711

48,459

Time deposits (Notes 15a and 34a)

124,332,164

102,897,015

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

2,334,442

13,784,487

Own portfolio

2,334,442

13,784,487

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

75,387,630

56,528,974

Mortgage and real estate notes, letters of credit and others

72,958,698

54,146,258

Securities issued overseas

2,292,368

2,309,777

Structured Operations Certificates

136,564

72,939

Borrowing (Notes 16a and 34a)

655,832

1,922,072

Borrowing in Brazil - other institutions

- 

1,935

Borrowing overseas

655,832

1,920,137

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

18,144,786

21,888,871

BNDES

8,256,453

9,825,810

FINAME

9,888,333

12,063,061

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

642,992

161,586


Bradesco  59

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Consolidated Statement of Financial Position on June 30 – In thousands of Reais

 

Liabilities

2018

2017

Derivative financial instruments

642,992

161,586

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

31,116,526

28,532,744

Other liabilities

71,681,265

69,097,370

Tax and social security (Note 19a)

3,397,578

3,815,641

Subordinated debts (Notes 18 and 34a)

18,073,621

16,818,082

Eligible Debt Capital Instruments (Notes 18 and 34a)

23,585,220

22,622,595

Sundry (Note 19b)

26,624,846

25,841,052

Deferred income

388,058

428,713

Deferred income

388,058

428,713

Non-controlling interests in subsidiaries (Note 21)

601,246

472,869

Shareholders' equity (Note 22)

113,038,723

106,807,513

Capital:

 

 

- Domiciled in Brazil

66,677,976

58,361,528

- Domiciled overseas

422,024

738,472

Capital reserves

11,441

11,441

Profit reserves

47,331,445

47,620,614

Asset valuation adjustments

(963,649)

515,972

Treasury shares (Notes 22d and 34a)

(440,514)

(440,514)

Attributable to equity holders of the Parent Company

113,639,969

107,280,382

Total

1,239,418,766

1,189,124,132

 

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

 

60 Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Consolidated Income Statement on June 30 - In thousand of Reais

 

 

2018

2017

Revenue from financial intermediation

58,445,205

77,791,497

Loans (Note 9j)

33,948,112

37,653,150

Leases (Note 9j)

109,970

144,686

Operations with securities (Note 7g)

16,010,866

22,343,842

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

9,339,830

14,493,952

Derivative financial instruments (Note 7g)

(3,294,138)

(718,414)

Foreign exchange contracts (Note 10a)

548,796

1,197,531

Reserve requirement (Note 8b)

1,831,401

2,683,447

Sale or transfer of financial assets

(49,632)

(6,697)

 

 

 

Expenses from financial intermediation

39,695,017

57,642,006

Retail and professional market funding (Note 15e)

19,462,238

30,609,521

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

5,702,616

9,610,905

Borrowing and on-lending (Note 16c)

5,601,385

2,631,053

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

8,928,778

14,790,527

 

 

 

Gross income from financial intermediation

18,750,188

20,149,491

 

 

 

Other operating income (expenses)

(9,730,728)

(9,209,203)

Fee and commission income (Note 23)

12,364,841

11,656,282

Other fee and commission income

8,301,816

7,938,193

Income from banking fees

4,063,025

3,718,089

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

35,755,719

36,320,481

Net written premiums earned

35,792,820

36,460,220

Reinsurance premiums paid

(37,101)

(139,739)

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

(14,820,833)

(15,583,382)

Retained claims (Note 3o)

(12,881,357)

(12,851,662)

Capitalization bond prize draws and redemptions (Note 3o)

(2,736,897)

(2,708,872)

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

(1,596,590)

(1,769,853)

Payroll and related benefits (Note 24)

(9,341,018)

(9,420,409)

Other administrative expenses (Note 25)

(9,386,114)

(9,339,827)

Tax expenses (Note 26)

(2,418,528)

(2,916,684)

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

775,789

694,456

Other operating income (Note 27)

3,476,941

6,345,249

Other operating expenses (Note 28)

(8,922,681)

(9,634,982)

Operating income

9,019,460

10,940,288

Non-operating income (loss) (Note 29)

(328,546)

(292,461)

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

8,690,914

10,647,827

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

404,761

(2,602,519)

Current income tax

(2,286,041)

(3,552,958)

Current Social Contribution

(1,189,116)

(2,123,311)

Deferred Tax

3,879,918

3,073,750

Non-controlling interests in subsidiaries

(101,167)

(63,138)

Net income

8,994,508

7,982,170

                                                                                                                                                                                                

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

Bradesco  61

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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

- 

- 

- 

- 

1,193,088

- 

- 

1,193,088

Net income

- 

- 

- 

- 

- 

- 

7,982,170

7,982,170

Allocations:

 

 

  

 

 

  

 

  

   -  Reserves

- 

- 

399,109

4,772,903

- 

- 

(5,172,012)

- 

-  Interest on Shareholders’ Equity Paid

- 

- 

- 

- 

- 

- 

(2,810,158)

(2,810,158)

Balance on June 30, 2017

59,100,000

11,441

7,206,237

40,414,377

515,972

(440,514)

- 

106,807,513

 

 

              

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

- 

- 

- 

- 

(2,848,185)

- 

- 

(2,848,185)

Net income

- 

- 

- 

- 

- 

- 

8,994,508

8,994,508

Allocations:

 

 

 

 

 

 

 

 

   -  Reserves

- 

- 

449,725

4,979,707

- 

- 

(5,429,432)

- 

-  Interest on Shareholders’ Equity Paid and/or provisioned

-

 -

-

-

-

-

(3,565,076)

(3,565,076)

Balance on June 30, 2018

67,100,000

11,441

7,989,741

39,341,704

(963,649)

(440,514)

- 

113,038,723

 

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

 

62 Economic and Financial Analysis Report – June 2018

 
 

 

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

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

 

Description

2018

%

2017

%

1 – Revenue

61,621,054

293.1

76,162,694

323.2

1.1) Financial intermediation

58,445,205

278.0

77,791,497

330.1

1.2) Fees and commissions

12,364,841

58.8

11,656,282

49.5

1.3) Allowance for loan losses

(8,928,778)

(42.5)

(14,790,527)

(62.8)

1.4) Other

(260,214)

(1.2)

1,505,442

6.4

2 – Financial intermediation expenses

(30,766,239)

(146.4)

(42,851,479)

(181.8)

3 – Inputs acquired from third-parties

(7,438,909)

(35.4)

(7,446,496)

(31.6)

Outsourced services

(2,323,747)

(11.1)

(2,349,701)

(10.0)

Data processing

(1,141,149)

(5.4)

(1,090,705)

(4.6)

Communication

(779,921)

(3.7)

(834,196)

(3.5)

Asset maintenance

(554,886)

(2.6)

(556,527)

(2.4)

Financial system services

(470,345)

(2.2)

(521,407)

(2.2)

Advertising and marketing

(474,422)

(2.3)

(328,345)

(1.4)

Security and surveillance

(383,676)

(1.8)

(416,863)

(1.8)

Transport

(372,026)

(1.8)

(382,322)

(1.6)

Material, water, electricity and gas

(316,809)

(1.5)

(348,849)

(1.5)

Travel

(136,248)

(0.6)

(117,569)

(0.5)

Other

(485,680)

(2.3)

(500,012)

(2.1)

4 – Gross value added (1-2-3)

23,415,906

111.4

25,864,719

109.8

5 – Depreciation and amortization

(3,171,022)

(15.1)

(2,993,608)

(12.7)

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

20,244,884

96.3

22,871,111

97.1

7 – Value added received through transfer

775,789

3.7

694,456

2.9

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

775,789

3.7

694,456

2.9

8 – Value added to distribute (6+7)

21,020,673

100.0

23,565,567

100.0

9 – Value added distributed

21,020,673

100.0

23,565,567

100.0

9.1) Personnel

8,270,774

39.3

8,301,209

35.2

Salaries

4,158,316

19.8

4,409,845

18.7

Benefits

2,140,232

10.2

2,208,583

9.4

Government Severance Indemnity Fund for Employees (FGTS)

366,215

1.7

478,899

2.0

Other

1,606,011

7.6

1,203,882

5.1

9.2) Tax, fees and contributions

3,084,011

14.7

6,638,403

28.2

Federal

2,487,429

11.8

6,191,404

26.3

State

3,190

- 

5,205

- 

Municipal

593,392

2.8

441,794

1.9

9.3) Remuneration for providers of capital

570,213

2.7

580,647

2.5

Rental

568,074

2.7

577,313

2.4

Asset leases

2,139

- 

3,334

- 

9.4) Value distributed to shareholders

9,095,675

43.3

8,045,308

34.1

Interest on Shareholders’ Equity Dividends paid and/or provisioned

3,565,076

17.0

2,810,158

11.9

Retained earnings

5,429,432

25.8

5,172,012

21.9

Non-controlling interests in retained earnings

101,167

0.5

63,138

0.3

                                                                                                                                                                                      

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

Bradesco  63

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Consolidated cash flow Statement for the three months ended June 30 - In thousand of Reais

 

 

2018

2017

Cash flow from operating activities:

 

 

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

8,690,914

10,647,827

Adjustments to net income before income tax and social contribution

28,163,491

39,852,102

Effect of Changes in Exchange Rates in Cash and Cash equivalents

(421,701)

(348,871)

Allowance for loan losses

8,928,778

14,790,527

Depreciation and amortization

3,171,022

2,993,608

Impairment losses of assets

407,060

833,283

Expenses/ reversal with civil, labor and tax provisions

2,110,328

1,267,115

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

5,702,616

9,610,905

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

(775,789)

(694,456)

(Gain)/loss on sale of investments

- 

118

(Gain)/loss on sale of fixed assets

24,879

18,826

(Gain)/loss on sale of foreclosed assets

280,936

245,777

Foreign exchange variation of assets and liabilities overseas/Other

8,735,362

11,135,270

Net income before taxes after adjustments

36,854,405

50,499,929

(Increase)/Decrease in interbank investments

(3,894,253)

1,853,615

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

5,371,247

(7,150,510)

(Increase)/Decrease in interbank and interdepartmental accounts

(3,795,089)

(2,142,508)

(Increase)/Decrease in loans and leases

(26,988,455)

(891,750)

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

(12,311)

381,130

(Increase)/Decrease in other receivables and other assets

(18,180,898)

(503,878)

(Increase)/Decrease in reserve requirement - Central Bank

(4,686,008)

(9,435,726)

Increase/(Decrease) in deposits

33,936,894

25,962,934

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

(30,806,124)

(5,434,547)

Increase/(Decrease) in borrowings and on-lending

2,076,642

(1,649,021)

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

(284,043)

687,404

Increase/(Decrease) in other liabilities

6,964,233

(5,850,684)

Increase/(Decrease) in deferred income

(21,675)

(48,472)

Income tax and social contribution paid

(4,595,879)

(4,949,466)

Net cash provided by/(used in) operating activities

(8,061,314)

41,328,450

Cash flow from investing activities:

 

 

Maturity of and interest on held-to-maturity securities

2,703,263

2,379,481

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

58,503,957

67,432,235

Proceeds from sale of foreclosed assets

320,543

334,137

Sale of investments

-

236

Sale of premises and equipment

284,999

295,001

Purchases of available-for-sale securities

(99,692,375)

(74,252,539)

Purchases of held-to-maturity securities

(100,275)

(95,786)

Investment acquisitions

(1,086)

(1,510)

Purchase of premises and equipment

(862,352)

(596,234)

Intangible asset acquisitions

(626,160)

(660,710)

Dividends and interest on shareholders’ equity received

543,195

335,625

Net cash provided by/(used in) investing activities

(38,926,291)

(4,830,064)

Cash flow from financing activities:

 

 

Funds from securities issued

51,327,057

24,748,158

Settlement and Interest payments of Funds from issuance of securities

(38,107,061)

(54,189,925)

Issuance of subordinated debts

- 

6,515,846

Settlement and Interest payments of subordinated debts

(11,087,550)

(8,501,057)

Interest on Shareholders’ Equity Paid

(4,793,024)

(4,720,677)

Non-controlling interest

(63,323)

(39,078)

Net cash provided by/(used in) financing activities

(2,723,901)

(36,186,733)

Net increase/(decrease) in cash and cash equivalents

(49,711,506)

311,653

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

421,701

348,871

Cash and cash equivalents - at the end of the period

106,764,637

181,890,951

Net increase/(decrease) in cash and cash equivalents

(49,711,506)

311,653

 

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

 

64 Economic and Financial Analysis Report – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 

106 

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, Audit Committee Report Summary 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 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 July 25, 2018.

 

66  Economic and Financial Analysis Report – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 June 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

99.99%

99.99%

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

-

99.97%

Kirton Seguros S.A. (6)

Insurance

-

98.08%

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%

Kirton Participações e Investimentos Ltda. (7)

Holding

-

100.00%

Nova Paiol Participações Ltda.

Holding

100.00%

100.00%

União Participações Ltda.

Holding

100.00%

100.00%

Investment Funds (8)

 

 

 

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

Investment Fund

100.00%

100.00%

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

Investment Fund

100.00%

100.00%

 

Bradesco  67

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

 

On June 30

Activity

Equity interest

2018

2017

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

Investment Fund

100.00%

100.00%

Bradesco F.I. Referenciado DI Performance

Investment Fund

100.00%

100.00%

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

Investment Fund

100.00%

100.00%

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

Investment Fund

100.00%

100.00%

Bradesco FI Referenciado DI União

Investment Fund

99.89%

99.66%

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%

Bradesco F.I.C.F.I.R.F. VGBL F15

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.);

(7) Company merged into Kirton Seguros S.A., in July 2017; and

(8) 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 – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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, Audit Committee Report Summary 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 – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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


Bradesco  71

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

of the taxable profit for the period. Deferred tax assets are recognized based on current expectations of realization considering technical studies and analyses carried out by Management.

 

The provision for income tax is calculated at 15% of taxable income plus a 10% surcharge. For financial companies, for companies considered as such and for the insurance industry, the social contribution on the profit was calculated until August 2015, considering the rate of 15%. For the period between September 2015 and December 2018, the rate was changed to 20%, according to Law No. 13,169/15 and the rate will be 15% again as from January 2019. For the other companies, the social contribution is calculated considering the rate of 9%.

 

Due to the amendment of the rate, 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

72 Economic and Financial Analysis Report – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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;

 

Bradesco  73

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 mathematical reserve of benefits granted (PMBC-GBS) 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 and monetary restatement;

 

-        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;

 

-        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;

 

74 Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

-        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) 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;

 

Bradesco  75

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 adjusted for inflation; 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;

 

-        Reserve for ‘draws to be held’ (PSR) is recognized to cover premiums for future prize draws, and the balance represents the present value of the draws that have already been funded but have not yet been held. The calculation methodology consists of the accumulation of the prize draw percentage applicable to each payment, as established in the plan, less the amounts related to prize draws that have already occurred. The percentages of payments designated for the prize draws is defined in advance in the actuarial technical note, and is not modified during the term of the bond;

 

-        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.

 

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.

 

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

76 Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

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, Audit Committee Report Summary 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 June 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

1,210,274,356

9,105,475

58,499,213

1,277,879,044

1,159,698,103

22,736,396

79,563,151

1,261,997,650

Cash and due from banks

15,305,794

208,481

(89,017)

15,425,258

13,377,562

147,217

- 

13,524,779

Interbank investments

108,674,003

(49,533)

(9,804)

108,614,666

177,583,096

486,640

(609,644)

177,460,092

Securities and derivative financial instruments

534,314,942

5,124,465

58,688,496

598,127,903

455,340,387

4,568,655

80,196,935

540,105,977

Interbank and interdepartmental accounts

72,886,101

- 

- 

72,886,101

69,746,412

- 

- 

69,746,412

Loans and leases

340,222,795

494,297

- 

340,717,092

333,795,918

449,941

- 

334,245,859

Allowance for Loan Losses (ALL)

(35,152,645)

(86,981)

- 

(35,239,626)

(37,452,497)

(83,296)

- 

(37,535,793)

Other receivables and assets

174,023,366

3,414,746

(90,462)

177,347,650

147,307,225

17,167,239

(24,140)

164,450,324

Permanent Assets

29,144,410

(814,682)

- 

28,329,728

29,426,029

(240,049)

- 

29,185,980

Investments

8,145,364

(6,023,055)

- 

2,122,309

7,417,684

(5,638,434)

- 

1,779,250

Premises and equipment

7,592,568

195,099

- 

7,787,667

7,358,869

214,178

- 

7,573,047

Intangible assets

13,406,478

5,013,274

- 

18,419,752

14,649,476

5,184,207

- 

19,833,683

Total

1,239,418,766

8,290,793

58,499,213

1,306,208,772

1,189,124,132

22,496,347

79,563,151

1,291,183,630

 

78 Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

 

On June 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

1,125,390,739

7,191,416

58,499,213

1,191,081,368

1,081,415,037

21,398,319

79,563,151

1,182,376,507

Deposits

299,144,256

(208,173)

668,175

299,604,258

260,198,612

(78,743)

- 

260,119,869

Securities sold under agreements to repurchase

202,661,420

(785)

60,648,939

263,309,574

236,544,384

- 

79,481,530

316,025,914

Funds from Issuance of Securities

153,302,710

- 

- 

153,302,710

129,006,533

- 

2,503,037

131,509,570

Interbank and interdepartmental accounts

22,886,392

307,532

- 

23,193,924

22,438,676

- 

- 

22,438,676

Borrowing and on-lending

51,367,649

1,983,675

(190,994)

53,160,330

56,546,981

- 

- 

56,546,981

Derivative financial instruments

16,603,583

- 

(788,770)

15,814,813

14,255,651

- 

(1,464,005)

12,791,646

Technical provisions for insurance, pension plans and capitalization bonds

252,071,138

- 

- 

252,071,138

233,640,466

- 

- 

233,640,466

Other liabilities

127,353,591

5,109,167

(1,838,137)

130,624,621

128,783,734

21,477,062

(957,411)

149,303,385

Deferred income

388,058

- 

- 

388,058

428,713

- 

- 

428,713

Non-controlling interests in subsidiaries

601,246

1,099,377

- 

1,700,623

472,869

1,098,028

- 

1,570,897

Shareholders’ equity

113,038,723

- 

- 

113,038,723

106,807,513

- 

- 

106,807,513

Total

1,239,418,766

8,290,793

58,499,213

1,306,208,772

1,189,124,132

22,496,347

79,563,151

1,291,183,630

 

 

In the six month period ended June 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

58,445,205

600,016

445,882

59,491,103

77,791,497

610,066

3,172,248

81,573,811

Expenses from financial intermediation

(30,766,239)

(59,811)

(1,813,190)

(32,639,240)

(42,851,479)

- 

(4,506,295)

(47,357,774)

Financial margin

27,678,966

540,205

(1,367,308)

26,851,863

34,940,018

610,066

(1,334,047)

34,216,037

Allowance for loan losses

(8,928,778)

(39,414)

- 

(8,968,192)

(14,790,527)

(51,371)

- 

(14,841,898)

Gross income from financial intermediation

18,750,188

500,791

(1,367,308)

17,883,671

20,149,491

558,695

(1,334,047)

19,374,139

Income from insurance, pension plans and capitalization bonds

3,720,042

- 

- 

3,720,042

3,406,712

- 

- 

3,406,712

Fee and commission income

12,364,841

2,257,002

1,283,879

15,905,722

11,656,282

2,167,792

1,120,873

14,944,947

Personnel expenses

(9,341,018)

(415,112)

- 

(9,756,130)

(9,420,409)

(369,077)

- 

(9,789,486)

Other administrative expenses

(9,386,114)

(457,238)

39,162

(9,804,190)

(9,339,827)

(685,282)

279,395

(9,745,714)

Tax expenses

(2,418,528)

(298,582)

- 

(2,717,110)

(2,916,684)

(239,113)

- 

(3,155,797)

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

775,789

(700,563)

- 

75,226

694,456

(574,876)

- 

119,580

Other operating income / expenses

(5,445,740)

(512,386)

44,267

(5,913,859)

(3,289,733)

(310,124)

(66,221)

(3,666,078)

Operating income

9,019,460

373,912

- 

9,393,372

10,940,288

548,015

- 

11,488,303

Non-operating income

(328,546)

(7,559)

- 

(336,105)

(292,461)

(916)

- 

(293,377)

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

303,594

(366,353)

- 

(62,759)

(2,665,657)

(547,099)

- 

(3,212,756)

Net income

8,994,508

- 

- 

8,994,508

7,982,170

- 

- 

7,982,170

 

 (1) Refers to the effects of the consolidation adjustments arising from the undertakings consolidated proportionally (Grupo Cielo, Grupo Alelo, Crediare, etc.); 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, Audit Committee Report Summary 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 June 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

930,783,988

121,910,645

289,815,866

18,176

5,020,529

(69,670,160)

1,277,879,044

Cash and due from banks

11,459,471

3,954,027

259,756

6,721

170,613

(425,330)

15,425,258

Interbank investments

106,145,155

2,469,511

- 

- 

- 

- 

108,614,666

Securities and derivative financial instruments

303,173,547

17,464,160

278,225,331

1,876

4,033,419

(4,770,430)

598,127,903

Interbank and interdepartmental accounts

72,886,101

- 

- 

- 

- 

- 

72,886,101

Loans and leases

303,723,924

98,380,157

- 

- 

- 

(61,386,989)

340,717,092

Allowance for Loan Losses (ALL)

(33,133,203)

(2,106,423)

- 

- 

- 

- 

(35,239,626)

Other receivables and assets

166,528,993

1,749,213

11,330,779

9,579

816,497

(3,087,411)

177,347,650

Permanent assets

117,449,500

35,938

6,367,663

2,386

849,695

(96,375,454)

28,329,728

Investments

96,137,059

- 

2,303,463

- 

57,241

(96,375,454)

2,122,309

Premises and equipment

5,364,407

22,991

2,370,880

426

28,963

- 

7,787,667

Intangible assets

15,948,034

12,947

1,693,320

1,960

763,491

- 

18,419,752

Total in 2018

1,048,233,488

121,946,583

296,183,529

20,562

5,870,224

(166,045,614)

1,306,208,772

Total in 2017

1,052,051,608

101,471,852

280,464,893

16,712

4,723,773

(147,545,208)

1,291,183,630

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current and long-term liabilities

933,224,812

64,143,787

262,203,898

10,018

1,169,013

(69,670,160)

1,191,081,368

Deposits

280,947,305

19,238,309

- 

- 

- 

(581,356)

299,604,258

Securities sold under agreements to repurchase

253,260,169

10,049,405

- 

- 

- 

- 

263,309,574

Funds from issuance of securities

154,526,437

3,402,606

- 

- 

- 

(4,626,333)

153,302,710

Interbank and interdepartmental accounts

23,193,924

- 

- 

- 

- 

- 

23,193,924

Borrowing and on-lending

98,667,918

15,879,401

- 

- 

- 

(61,386,989)

53,160,330

Derivative financial instruments

15,254,735

560,078

- 

- 

- 

- 

15,814,813

Technical provisions for insurance, pension plans and capitalization bonds

- 

- 

252,064,674

6,464

- 

- 

252,071,138

Other liabilities

107,374,324

15,013,988

10,139,224

3,554

1,169,013

(3,075,482)

130,624,621

Deferred income

365,912

- 

22,146

- 

- 

- 

388,058

Non-controlling interests in subsidiaries

1,604,041

57,802,796

33,957,485

10,544

4,701,211

(96,375,454)

1,700,623

Shareholders’ equity

113,038,723

- 

- 

- 

- 

- 

113,038,723

Total in 2018

1,048,233,488

121,946,583

296,183,529

20,562

5,870,224

(166,045,614)

1,306,208,772

Total in 2017

1,052,051,608

101,471,852

280,464,893

16,712

4,723,773

(147,545,208)

1,291,183,630

 

80 Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

 

In the six month period ended June 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

49,716,675

2,173,195

8,264,626

1,078

127,021

(791,492)

59,491,103

Expenses from financial intermediation

(26,818,563)

(909,553)

(5,702,616)

- 

- 

791,492

(32,639,240)

Financial margin

22,898,112

1,263,642

2,562,010

1,078

127,021

- 

26,851,863

Allowance for loan losses

(8,333,141)

(635,051)

- 

- 

- 

- 

(8,968,192)

Gross income from financial intermediation

14,564,971

628,591

2,562,010

1,078

127,021

- 

17,883,671

Income from insurance, pension plans and capitalization bonds

- 

- 

3,695,047

3,475

- 

21,520

3,720,042

Fee and commission income

14,562,813

194,605

1,086,475

- 

180,943

(119,114)

15,905,722

Personnel expenses

(8,785,730)

(106,396)

(745,722)

(2,383)

(115,899)

- 

(9,756,130)

Other administrative expenses

(9,158,242)

(120,748)

(740,955)

(2,047)

(97,884)

315,686

(9,804,190)

Tax expenses

(2,216,701)

(13,277)

(451,281)

(65)

(35,786)

- 

(2,717,110)

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

4,621

- 

73,651

- 

(3,046)

- 

75,226

Other operating income / expenses

(5,896,057)

(13,871)

125,553

(560)

89,158

(218,082)

(5,913,859)

Operating income

3,075,675

568,904

5,604,778

(502)

144,507

10

9,393,372

Non-operating income

(329,787)

8,010

(15,307)

- 

989

(10)

(336,105)

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

2,717,065

(308,168)

(2,443,745)

275

(28,186)

- 

(62,759)

Net Income in 2018

5,462,953

268,746

3,145,726

(227)

117,310

- 

8,994,508

Net Income in 2017

4,556,819

644,254

2,644,444

(727)

137,380

- 

7,982,170

 

(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 June 30 - R$ thousand

2018

2017

Cash and due from banks in domestic currency

10,287,223

9,533,548

Cash and due from banks in foreign currency

5,018,355

3,843,821

Investments in gold

216

193

Total cash and due from banks

15,305,794

13,377,562

Interbank investments (1)

91,458,843

168,513,389

Total cash and cash equivalents

106,764,637

181,890,951

 

(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, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

6)      INTERBANK INVESTMENTS

 

a)   Breakdown and maturity

 

 

On June 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

22,818,158

2,944,842

- 

- 

25,763,000

44,498,179

● National treasury notes

21,598,132

- 

- 

- 

21,598,132

22,184,260

● Financial treasury bills

144,859

- 

- 

- 

144,859

16,267,460

● National treasury bills

933,778

2,944,842

- 

- 

3,878,620

5,716,233

● Debentures

- 

- 

- 

- 

- 

287,133

● Other

141,389

- 

- 

- 

141,389

43,093

Funded position

38,749,590

29,138,181

1,451,663

- 

69,339,434

124,523,053

● National treasury notes

38,148,882

28,349,086

1,129,944

- 

67,627,912

46,377,283

● Financial treasury bills

600,708

- 

- 

- 

600,708

48,863,413

● National treasury bills

- 

789,095

321,719

- 

1,110,814

29,282,357

Unrestricted position

820,683

2,400,782

674,912

- 

3,896,377

2,278,404

● National treasury bills

820,683

2,400,782

674,912

- 

3,896,377

2,278,404

Subtotal

62,388,431

34,483,805

2,126,575

- 

98,998,811

171,299,636

Interest-earning deposits in other banks:

 

  

 

  

 

  

● Interest-earning deposits in other banks:

4,504,786

2,703,375

1,283,169

1,194,364

9,685,694

6,296,291

● Provision for losses

(2,046)

(1,047)

(7,409)

- 

(10,502)

(12,831)

Subtotal

4,502,740

2,702,328

1,275,760

1,194,364

9,675,192

6,283,460

Total in 2018

66,891,171

37,186,133

3,402,335

1,194,364

108,674,003

  

%

61.6

34.2

3.1

1.1

100.0

 

Total in 2017

171,985,160

3,530,842

938,817

1,128,277

 

177,583,096

%

96.9

2.0

0.5

0.6

 

100.0

 

b)   Income from interbank investments

 

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

 

 

Accrued on June 30 - R$ thousand

2018

2017

Income from investments in purchase and sale commitments:

 

  

• Own portfolio position

578,507

265,245

• Funded position

3,328,068

9,476,507

• Unrestricted position

1,099,201

358,857

Subtotal

5,005,776

10,100,609

Income from interest-earning deposits in other banks

257,707

239,555

Total (Note 7g)

5,263,483

10,340,164

 

82  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
otes 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 June 30 - R$ thousand

Financial

Insurance Group

Other Activities

2018

%

2017

%

Insurance and Capitalization bonds

Pension plans

Trading securities

45,636,244

14,651,240

179,854,599

76,160

240,218,243

45.0

227,664,245

49.9

- Government securities

24,305,807

11,311,319

163,970,000

17,068

199,604,194

37.4

185,308,666

40.6

- Corporate securities

7,384,324

3,319,384

13,653,549

59,092

24,416,349

4.6

27,305,269

6.0

- Derivative financial instruments (1) (5)

13,946,113

20,537

2,231,050

- 

16,197,700

3.0

15,050,310

3.3

Available-for-sale securities (2)

199,625,490

21,922,093

16,289,041

21,181

237,857,805

44.5

185,410,003

40.8

- Government securities

133,480,573

20,145,077

15,169,282

15,876

168,810,808

31.6

122,960,230

27.0

- Corporate securities

66,144,917

1,777,016

1,119,759

5,305

69,046,997

12.9

62,449,773

13.8

Held-to-maturity securities (2)

28,472,656

5,296,593

22,469,645

- 

56,238,894

10.5

42,266,139

9.3

- Government securities

17,034,546

5,296,593

22,469,645

- 

44,800,784

8.4

30,032,936

6.6

- Corporate securities

11,438,110

- 

- 

- 

11,438,110

2.1

12,233,203

2.7

Total

273,734,390

41,869,926

218,613,285

97,341

534,314,942

100.0

455,340,387

100.0

 

 

 

 

 

 

 

 

 

- Government securities

174,820,926

36,752,989

201,608,927

32,944

413,215,786

77.3

338,301,832

74.2

- Corporate securities

98,913,464

5,116,937

17,004,358

64,397

121,099,156

22.7

117,038,555

25.8

Total

273,734,390

41,869,926

218,613,285

97,341

534,314,942

100.0

455,340,387

100.0

 

Bradesco  83

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 June 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

14,790,667

2,130,717

2,378,433

26,336,427

45,636,244

49,118,649

(3,482,405)

54,487,377

(6,571,909)

Financial treasury bills

- 

531,559

243,191

14,008,116

14,782,866

14,782,561

305

14,837,680

(1,080)

National treasury notes

- 

169,040

531,193

7,071,879

7,772,112

7,820,116

(48,004)

6,820,658

146,794

Financial bills

- 

147,633

256,701

411,683

816,017

815,293

724

2,697,830

8,400

Debentures

46,929

85,305

- 

1,270,583

1,402,817

1,459,994

(57,177)

1,841,502

(242,220)

National treasury bills

26,083

226,755

181,279

663,956

1,098,073

1,096,352

1,721

7,984,868

18,547

Given in guarantee to the Brazilian foreign debt notes

8,042

- 

- 

163,880

171,922

183,141

(11,219)

7,937

(26)

Derivative financial instruments (1) (5)

12,015,349

489,127

502,063

939,573

13,946,112

17,267,221

(3,321,109)

15,025,530

(6,449,322)

Other

2,694,264

481,298

664,006

1,806,757

5,646,325

5,693,971

(47,646)

5,271,372

(53,002)

- Insurance companies and capitalization bonds

3,149,703

322,613

326,978

10,851,946

14,651,240

14,651,240

- 

15,067,370

2,521

Financial treasury bills

11,011

291,604

18,860

9,559,036

9,880,511

9,880,511

- 

10,015,295

- 

Financial bills

- 

- 

14,628

68,897

83,525

83,525

- 

327,241

- 

Other

3,138,692

31,009

293,490

1,224,013

4,687,204

4,687,204

- 

4,724,834

2,521

- Pension plans

7,004,693

3,316,560

1,279,586

168,253,760

179,854,599

179,854,599

- 

158,088,916

- 

Financial treasury bills

20,957

1,850,122

542,828

55,819,953

58,233,860

58,233,860

- 

46,370,627

- 

National treasury notes

- 

256,600

174,911

22,709,679

23,141,190

23,141,190

- 

57,172,845

- 

National treasury bills

375

35,891

6,245

82,552,437

82,594,948

82,594,948

- 

40,152,337

- 

Financial bills

- 

589,938

272,640

3,828,446

4,691,024

4,691,024

- 

8,480,728

- 

Debentures

15,136

334,556

179,002

3,129,939

3,658,633

3,658,633

- 

3,354,446

- 

Other

6,968,225

249,453

103,960

213,306

7,534,944

7,534,944

- 

2,557,933

- 

- Other activities

59,093

1,446

3,745

11,876

76,160

76,162

(2)

20,582

(7)

Financial treasury bills

- 

1,446

3,745

11,876

17,067

17,069

(2)

20,582

(7)

Other

59,093

- 

- 

- 

59,093

59,093

- 

- 

- 

Total

25,004,156

5,771,336

3,988,742

205,454,009

240,218,243

243,700,650

(3,482,407)

227,664,245

(6,569,395)

Derivative financial instruments (liabilities) (5)

(14,949,538)

(597,299)

(413,754)

(642,992)

(16,603,583)

(13,305,253)

(3,298,330)

(14,255,651)

(3,322,974)

 

84  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

II)   Available-for-sale securities

 

Securities (2) (6)

On June 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

11,026,090

10,206,799

79,676,805

98,715,796

199,625,490

200,826,891

(1,201,401)

155,735,903

102,613

National treasury bills

1,185,208

3,029,215

65,963,779

46,233,583

116,411,785

115,696,270

715,515

81,766,979

1,442,512

Debentures

725,580

697,920

5,029,645

33,976,456

40,429,601

41,209,310

(779,709)

38,130,413

(789,671)

National treasury notes

- 

733,282

2,550,339

6,086,083

9,369,704

9,185,811

183,893

10,407,305

372,721

Foreign corporate securities

137,455

623,494

1,159,970

8,060,853

9,981,772

10,180,355

(198,583)

11,122,763

(210,053)

Shares

7,069,641

- 

- 

- 

7,069,641

8,199,743

(1,130,102)

6,648,914

(733,410)

Foreign government bonds

191,914

3,415,259

- 

- 

3,607,173

3,612,276

(5,103)

1,551,478

(9,616)

Promissory Notes

- 

1,697,278

4,105,549

- 

5,802,827

5,763,239

39,588

820,285

(1,121)

Certificates of real estate receivables

- 

- 

10,812

781,777

792,589

771,908

20,681

1,121,469

(33,963)

Other

1,716,292

10,351

856,711

3,577,044

6,160,398

6,207,979

(47,581)

4,166,297

65,214

- Insurance companies and capitalization bonds

1,826,532

17,759

201,046

19,876,756

21,922,093

22,242,688

(320,595)

16,486,342

59,038

National treasury notes

- 

- 

- 

13,551,911

13,551,911

14,033,223

(481,312)

11,391,897

(235,547)

Shares

1,391,356

- 

- 

- 

1,391,356

1,153,570

237,786

1,331,730

227,447

National treasury bills

103,093

- 

186,831

6,036,888

6,326,812

6,414,110

(87,298)

3,352,382

62,830

Other

332,083

17,759

14,215

287,957

652,014

641,785

10,229

410,333

4,308

- Pension plans

1,028,109

19,763

16,006

15,225,163

16,289,041

15,691,033

598,008

13,142,438

999,152

National treasury notes

- 

9,839

- 

14,094,932

14,104,771

13,563,903

540,868

11,420,736

961,129

Shares

1,028,109

- 

- 

- 

1,028,109

964,497

63,612

1,555,269

33,615

Debentures

- 

- 

- 

91,650

91,650

83,034

8,616

93,914

4,367

Other

- 

9,924

16,006

1,038,581

1,064,511

1,079,599

(15,088)

72,519

41

- Other activities

5,304

- 

- 

15,877

21,181

15,885

5,296

45,320

5,218

Other

5,304

- 

- 

15,877

21,181

15,885

5,296

45,320

5,218

Subtotal

13,886,035

10,244,321

79,893,857

133,833,592

237,857,805

238,776,497

(918,692)

185,410,003

1,166,021

Accounting Hedge (Note 7f)

-

-

-

-

- 

-

(285,786)

- 

21,282

Securities reclassified to “Held-to-maturity securities”

-

-

-

-

- 

-

(682,319)

- 

(319,569)

Total

13,886,035

10,244,321

79,893,857

133,833,592

237,857,805

238,776,497

(1,886,797)

185,410,003

867,734

 

Bradesco  85

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

III) Held-to-maturity securities

 

Securities (2) (6)

On June 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

144

1,278

11,100

28,460,134

28,472,656

27,966,644

(506,012)

12,262,241

(506,546)

National treasury bills

- 

- 

- 

16,214,867

16,214,867

16,214,867

- 

- 

- 

Certificates of real estate receivables

- 

41

9,896

11,428,173

11,438,110

10,932,098

(506,012)

12,233,203

(506,724)

National treasury notes

144

1,237

1,204

814,220

816,805

816,805

- 

8,381

- 

Other

- 

- 

- 

2,874

2,874

2,874

- 

20,657

178

- Insurance companies and capitalization bonds

- 

- 

- 

5,296,593

5,296,593

5,457,266

160,673

5,160,517

545,001

National treasury notes

- 

- 

- 

5,296,593

5,296,593

5,457,266

160,673

5,111,576

529,199

Financial treasury bills

- 

- 

- 

- 

- 

- 

- 

48,941

15,802

- Pension plans

- 

18,257

- 

22,451,388

22,469,645

24,108,260

1,638,615

24,843,381

2,571,005

National treasury notes

- 

18,257

- 

22,451,388

22,469,645

24,108,260

1,638,615

24,843,381

2,571,005

Total

144

19,535

11,100

56,208,115

56,238,894

57,532,170

1,293,276

42,266,139

2,609,460


86  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

c)   Breakdown of the portfolios by financial statement classification

 

Securities

On June 30 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

Total in 2018

(3) (4)

Total in 2017

(3) (4)

days

days

days

days

Own portfolio

24,383,244

10,735,775

37,041,969

309,936,212

382,097,200

357,211,631

Fixed income securities

11,546,032

10,735,775

37,041,969

309,936,212

369,259,988

344,955,041

● National treasury notes

145

518,377

365,446

82,204,531

83,088,499

114,409,451

● Financial treasury bills

- 

2,544,872

1,214,104

68,042,288

71,801,264

69,825,098

● National treasury bills

1,288,155

45,289

25,043,900

100,420,329

126,797,673

73,222,917

● Debentures

773,823

1,032,716

4,937,619

35,805,099

42,549,257

43,555,795

● Financial bills

- 

737,572

543,968

4,409,741

5,691,281

11,508,754

● Certificates of real estate receivables

- 

41

20,708

12,403,317

12,424,066

13,543,236

● Foreign government bonds

238,610

3,415,259

- 

434,135

4,088,004

1,881,833

● Foreign corporate securities

1,219,764

202,406

650,838

4,316,534

6,389,542

8,483,254

● Brazilian foreign debt securities

26,986

- 

- 

1,215,527

1,242,513

608,326

● Promissory Notes

- 

1,697,278

4,139,988

143,554

5,980,820

1,274,940

● Bank deposit certificates

228,368

500,079

69,521

15,879

813,847

674,507

● Other

7,770,181

41,886

55,877

525,278

8,393,222

5,966,930

Equity securities

12,837,212

- 

- 

- 

12,837,212

12,256,590

● Shares of listed companies

1,030,747

- 

- 

- 

1,030,747

1,557,599

● Shares of other companies

11,806,465

- 

- 

- 

11,806,465

10,698,991

Restricted securities

240,154

4,810,290

43,461,246

84,384,563

132,896,253

74,389,224

Subject to repurchase agreements

113,027

4,529,232

38,233,983

68,097,844

110,974,086

54,455,555

● National treasury bills

- 

3,133,397

33,783,948

52,241,875

89,159,220

49,235,023

● Foreign corporate securities

86,688

609,873

1,117,263

4,839,448

6,653,272

4,696,472

● National treasury notes

- 

697,695

3,042,440

5,825,735

9,565,870

263,726

● Brazilian foreign debt securities

12,517

- 

- 

680,571

693,088

3,575

● Debentures

13,822

88,256

271,817

2,488,325

2,862,220

- 

● Financial treasury bills

- 

11

18,515

2,021,890

2,040,416

256,759

Given in guarantee to the Brazilian Central Bank

- 

- 

- 

- 

- 

83,599

● National treasury bills

- 

- 

- 

- 

- 

83,599

Privatization rights

- 

- 

- 

41,707

41,707

46,517

Given in guarantee

127,127

281,058

5,227,263

16,245,012

21,880,460

19,803,553

● National treasury notes

- 

- 

- 

4,321,160

4,321,160

11,581,723

● National treasury bills

26,603

113,176

4,764,328

566,196

5,470,303

4,815,167

● Financial treasury bills

31,969

167,882

462,935

11,107,200

11,769,986

3,365,256

 

Bradesco  87

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

 

Securities

On June 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

68,555

- 

- 

250,456

319,011

41,407

Derivative financial instruments (1) (5)

14,266,937

489,127

502,063

939,573

16,197,700

15,050,310

Securities sold under repurchase agreements - unrestricted

- 

- 

2,888,421

235,368

3,123,789

8,689,222

● National treasury bills

- 

- 

2,888,421

- 

2,888,421

6,682,457

● National treasury notes

- 

- 

- 

235,368

235,368

1,734,685

● Financial treasury bills

- 

- 

- 

- 

- 

272,080

Total

38,890,335

16,035,192

83,893,699

395,495,716

534,314,942

455,340,387

%

7.3

3.0

15.7

74.0

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;
(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 first semester of 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$407,060 thousand (R$833,283 thousand in 2017).

 

88  Economic and Financial Analysis Report – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

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

 

 

On June 30 - R$ thousand

2018

2017

Nominal value

Net amount value

Nominal value

Net amount value

Futures contracts

 

 

 

  

Purchase commitments:

171,790,932

 

159,200,720

 

- Interbank market

108,247,938

- 

106,564,494

2,446,235

- Foreign currency

63,229,924

- 

52,586,084

- 

- Other

313,070

- 

50,142

- 

Sale commitments:

203,727,196

- 

165,675,492

- 

- Interbank market (1)

127,964,886

19,716,948

104,118,259

- 

- Foreign currency (2)

75,046,070

11,816,146

61,478,973

8,892,889

- Other

716,240

403,170

78,260

28,118

 

 

 

 

 

Option contracts

 

 

 

  

Purchase commitments:

129,394,145

 

24,809,185

 

- Interbank market

113,733,788

- 

13,245,179

10,574,362

- Foreign currency

15,238,538

1,083,819

11,285,617

1,646,871

- Other

421,819

198,651

278,389

- 

Sale commitments:

179,044,451

 

21,139,860

 

- Interbank market

164,666,564

50,932,776

2,670,817

- 

- Foreign currency

14,154,719

- 

9,638,746

- 

- Other

223,168

- 

8,830,297

8,551,908

 

 

 

 

 

Forward contracts

 

 

 

  

Purchase commitments:

16,853,738

 

12,297,961

 

- Foreign currency

16,193,212

- 

11,784,574

- 

- Other

660,526

- 

513,387

13,868

Sale commitments:

19,398,654

 

16,254,153

 

- Foreign currency (2)

18,441,365

2,248,153

15,754,634

3,970,060

- Other

957,289

296,763

499,519

- 

 

 

 

 

 

Swap contracts

 

 

 

  

Assets (long position):

77,511,734

 

73,627,402

 

- Interbank market

6,254,688

2,251,595

7,936,977

5,599,559

- Fixed rate

49,942,201

24,265,065

51,922,671

21,065,185

- Foreign currency

14,138,588

- 

12,440,983

- 

- IGPM

732,450

- 

437,700

- 

- Other

6,443,807

3,886,787

889,071

- 

Liabilities (unrestricted position):

59,702,490

 

49,911,825

 

- Interbank market

4,003,093

- 

2,337,418

- 

- Fixed rate

25,677,136

- 

30,857,486

- 

- Foreign currency

26,729,241

12,590,653

13,846,145

1,405,162

- IGPM

736,000

3,550

710,000

272,300

- Other

2,557,020

- 

2,160,776

1,271,705

 

Derivatives include operations maturing in D+1.

(1) Includes: (i) accounting hedges to protect CDI-related funding totaling R$4,728,847 thousand (R$4,603,132 in 2017); and (ii) accounting hedges to protect interbank investments, in the amount of R$10,485,976 thousand (R$16,383,339 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$57,968,309 thousand (R$48,677,787 thousand in 2017).

 

90  Economic and Financial Analysis Report – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 June 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

13,807,244

(3,503,487)

10,303,757

19,750,382

(6,396,785)

13,353,597

Adjustment receivable - future

8,343

- 

8,343

13,382

- 

13,382

Receivable forward purchases

1,583,553

- 

1,583,553

654,841

- 

654,841

Receivable forward sales (1)

2,855,478

- 

2,855,478

626,747

- 

626,747

Premiums on exercisable options

1,264,191

182,378

1,446,569

454,280

(52,537)

401,743

Total assets (A)

19,518,809

(3,321,109)

16,197,700

21,499,632

(6,449,322)

15,050,310

Adjustment payables - swaps

(9,250,216)

(3,045,997)

(12,296,213)

(8,530,214)

(3,348,041)

(11,878,255)

Adjustment payables - future

(187,242)

- 

(187,242)

(205,948)

- 

(205,948)

Payable forward purchases

(674,881)

- 

(674,881)

(1,001,656)

- 

(1,001,656)

Payable forward sales

(1,731,148)

- 

(1,731,148)

(698,620)

- 

(698,620)

Premiums on written options

(1,461,766)

(252,333)

(1,714,099)

(496,239)

25,067

(471,172)

Total liabilities (B)

(13,305,253)

(3,298,330)

(16,603,583)

(10,932,677)

(3,322,974)

(14,255,651)

       

- 

   

Net Effect (A-B)

6,213,556

(6,619,439)

(405,883)

10,566,955

(9,772,296)

794,659

 

(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 June 30 - R$ thousand

1 to 90

91 to 180

181 to 360

More than 360

2018

2017

days

days

days

days

Futures contracts (1)

92,094,401

15,275,638

83,728,089

184,420,000

375,518,128

324,876,212

Option contracts

10,575,551

219,139,291

61,835,904

16,887,850

308,438,596

45,949,045

Forward contracts (1)

20,128,597

7,135,137

6,885,732

2,102,926

36,252,392

28,552,114

Swap contracts

6,154,907

13,968,065

11,736,518

105,354,734

137,214,224

123,539,227

Total in 2018

128,953,456

255,518,131

164,186,243

308,765,510

857,423,340

 

Total in 2017

117,468,390

35,166,373

150,111,407

220,170,428

 

522,916,598

 

(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, Audit Committee Report Summary 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 June 30 - R$ thousand

2018

2017

Government securities

 

  

National treasury bills

3,769,858

2,994,173

National treasury notes

4,916,695

4,614,789

Total

8,686,553

7,608,962

 

V)  Revenues and expenses, net

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Swap contracts

(1,707,929)

356,397

Forward contracts (1)

(846,856)

(663,409)

Option contracts

(362,071)

(156,219)

Futures contracts (1)

(4,409,651)

(697,699)

Foreign exchange variation of assets and liabilities overseas

4,032,369

442,516

Total (Note 7g)

(3,294,138)

(718,414)

 

(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 June 30 - R$ thousand

2018

2017

B3 (stock exchange)

622,280,049

305,061,353

B3 (over-the-counter)

179,960,643

166,497,363

Overseas (stock exchange) (1)

45,476,695

44,100,246

Overseas (over-the-counter) (1)

9,705,953

7,257,636

Total

857,423,340

522,916,598

 

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

 

 

e)   Credit Default Swaps (CDS)

 

On June 30, 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$768,422 thousand (2017 - R$220,210 thousand) and “bonds of the Brazilian public debt” in the amount of R$1,318,275 thousand (2017 - R$363,902 thousand); and the risk transferred in credit swaps whose underlying assets are Brazilian public debt”, was R$(886,834) thousand (R$(16,541) thousand in 2017), and “foreign public debt derivatives” was R$(231,348) thousand, amounting to a total net credit risk value of R$968,515 thousand (2017 - R$567,571 thousand), with an effect on the calculation of required shareholders’ equity of R$68,538 thousand (2017 - R$23,122 thousand). 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$304 thousand (2017 - R$(616) thousand). There were no credit events, as defined in the agreements, during the period.

92 Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

f)    Hedge Accounting

 

On June 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 June 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)

10,485,976

9,484,831

19,579

11,747

Hedge of interest payments on funding (2)

4,728,847

4,637,720

(44,727)

(26,836)

Total in 2018

15,214,823

14,122,551

(25,148)

(15,089)

*

 

 

 

 

Hedge of interest receipts from investments in securities (1)

16,383,339

18,046,986

204,456

122,674

Hedge of interest payments on funding (2)

4,603,132

4,594,907

(28,839)

(17,303)

Total in 2017

20,986,471

22,641,893

175,617

105,371

 

(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$5,074 thousand.

 

The gains/(losses) related to the cash flow hedge recorded in the income statements in during the first semester of 2018 were R$14,464 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 June 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)

1,382,494

752,159

(260,638)

(156,383)

Total in 2018

1,382,494

752,159

(260,638)

(156,383)

*

 

 

 

  

Hedge of exchange variation on future cash flows (1)

1,172,402

661,360

(154,335)

(92,601)

Total in 2017

1,172,402

661,360

(154,335)

(92,601)

 (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, Audit Committee Report Summary 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$4,182 thousand.

 

Gains/(losses) related to the hedge of investments abroad recorded in income accounts in during the first semester of 2018 were  R$(6,258) thousand.

 

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

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Fixed income securities (1)

10,663,613

11,233,595

Interbank investments (Note 6b)

5,263,483

10,340,164

Equity securities

83,770

770,083

Subtotal

16,010,866

22,343,842

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

9,339,830

14,493,952

Income from derivative financial instruments (Note 7d V)

(3,294,138)

(718,414)

Total

22,056,558

36,119,380

 

(1) In the first semester of 2018, there were losses due to impairment of financial assets (mostly debentures), net of reversals, in the amount of R$405,592 thousand (R$833,283 thousand in 2017); and

(2) In the first semester of 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 June 30 - R$ thousand

Remuneration

2018

2017

Compulsory deposit – demand deposits

not remunerated

7,230,446

4,820,146

Compulsory deposit – savings deposits

savings index

20,437,684

19,270,779

Compulsory deposit – time deposits

Selic rate

43,685,879

38,155,072

Requirement  rural loans funds

not remunerated

46,225

- 

Additional compulsory deposit – savings deposits

Selic rate

- 

5,226,260

Reserve requirement – SFH

TR + interest rate

1,241,906

825,908

Total

 

72,642,140

68,298,165

 

For more information on compulsory deposits see Note 34.

 

 

b)   Revenue from reserve requirement

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Reserve requirement – Bacen (Compulsory deposit)

1,806,363

2,654,557

Reserve requirement – SFH

25,038

28,890

Total

1,831,401

2,683,447

 

94  Economic and Financial Analysis Report – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 June 30 - R$ thousand

Performing loans

1 to 30

31 to 60

61 to 90

91 to 180

181 to 360

More than 360

Total in 2018 (A)

% (4)

Total in 2017 (A)

% (4)

days

days

days

days

days

days

Discounted trade receivables and loans (1)

21,208,973

10,776,495

9,857,340

19,406,815

24,979,282

74,346,049

160,574,954

36.6

151,440,966

36.0

Financing

5,134,249

3,689,421

3,524,314

9,512,955

17,382,825

89,442,868

128,686,632

29.3

127,607,532

30.4

Agricultural and agribusiness loans

2,093,884

1,224,200

1,393,421

4,436,148

4,030,545

8,838,838

22,017,036

5.0

21,649,869

5.2

Subtotal

28,437,106

15,690,116

14,775,075

33,355,918

46,392,652

172,627,755

311,278,622

70.9

300,698,367

71.6

Leases

95,070

83,395

86,298

241,278

391,931

1,060,564

1,958,536

0.4

2,155,805

0.5

Advances on foreign exchange contracts (2)

3,436,390

1,842,654

1,667,060

2,588,279

3,429,569

65,079

13,029,031

3.0

9,696,091

2.3

Subtotal

31,968,566

17,616,165

16,528,433

36,185,475

50,214,152

173,753,398

326,266,189

74.3

312,550,263

74.4

Other receivables (3)

17,594,166

6,509,662

3,418,536

5,141,922

2,873,220

625,519

36,163,025

8.2

30,796,183

7.3

Total loans

49,562,732

24,125,827

19,946,969

41,327,397

53,087,372

174,378,917

362,429,214

82.5

343,346,446

81.7

Acquisition of credit card receivables

1,425,815

656,901

482,985

827,125

521,319

- 

3,914,145

0.9

1,639,010

0.4

Subtotal

50,988,547

24,782,728

20,429,954

42,154,522

53,608,691

174,378,917

366,343,359

83.4

344,985,456

82.1

Sureties and guarantees

3,635,781

540,799

1,538,495

6,352,354

9,681,031

50,016,487

71,764,947

16.3

73,743,868

17.6

Loan assignment - real estate receivables certificate

33,116

33,114

33,112

95,298

142,223

478,166

815,029

0.2

967,852

0.2

Guarantee given on rural loans assigned

- 

- 

- 

- 

- 

76,709

76,709

- 

88,696

- 

Letters of credit for imports

95,987

135,660

35,326

84,322

48,558

- 

399,853

0.1

299,127

0.1

Confirmed exports loans

2,791

- 

- 

20,000

60,000

- 

82,791

- 

42,065

- 

Total - Off-balance-sheet accounts

3,767,675

709,573

1,606,933

6,551,974

9,931,812

50,571,362

73,139,329

16.6

75,141,608

17.9

Total in 2018

54,756,222

25,492,301

22,036,887

48,706,496

63,540,503

224,950,279

439,482,688

100.0

 

 

Total in 2017

43,180,520

27,252,104

19,952,724

50,026,306

67,080,689

212,634,721

 

 

420,127,064

100.0

 

Bradesco  95

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

 

On June 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)

1,865,793

1,398,293

898,460

2,741,370

3,415,103

10,319,019

83.6

11,820,224

83.0

Financing

294,903

221,016

255,648

278,869

215,585

1,266,021

10.3

1,360,323

9.6

Agricultural and agribusiness loans

26,868

30,611

14,327

43,470

89,385

204,661

1.7

252,496

1.8

Subtotal

2,187,564

1,649,920

1,168,435

3,063,709

3,720,073

11,789,701

95.6

13,433,043

94.4

Leases

2,864

2,462

1,827

3,875

3,046

14,074

0.1

50,016

0.4

Advances on foreign exchange contracts (2)

20,654

14,374

6,722

55,958

- 

97,708

0.8

268,319

1.9

Subtotal

2,211,082

1,666,756

1,176,984

3,123,542

3,723,119

11,901,483

96.5

13,751,378

96.7

Other receivables (3)

7,941

22,282

36,400

65,014

294,051

425,688

3.5

473,926

3.3

Total in 2018

2,219,023

1,689,038

1,213,384

3,188,556

4,017,170

12,327,171

100.0

 

 

Total in 2017

1,949,551

1,858,367

1,709,969

3,564,998

5,142,419

 

 

14,225,304

100.0

 

 

On June 30 - R$ thousand

Non-performing loans

Installments not yet due

1 to 30

31 to 60

61 to 90

91 to 180

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)

670,255

520,606

485,447

1,174,755

1,920,801

4,655,074

9,426,938

61.4

11,823,792

67.5

Financing

229,832

194,686

193,637

531,894

874,835

3,486,593

5,511,477

35.9

5,227,531

29.9

Agricultural and agribusiness loans

1,973

55,496

1,625

9,477

51,702

72,106

192,379

1.3

248,690

1.4

Subtotal

902,060

770,788

680,709

1,716,126

2,847,338

8,213,773

15,130,794

98.6

17,300,013

98.8

Leases

2,676

2,492

2,358

6,566

12,217

24,759

51,068

0.3

158,674

0.9

Subtotal

904,736

773,280

683,067

1,722,692

2,859,555

8,238,532

15,181,862

98.9

17,458,687

99.7

Other receivables (3)

6,570

5,678

5,198

14,106

21,276

113,929

166,757

1.1

44,171

0.3

Total in 2018

911,306

778,958

688,265

1,736,798

2,880,831

8,352,461

15,348,619

100.0

 

 

Total in 2017

981,713

873,623

815,367

2,046,166

3,397,966

9,388,023

 

 

17,502,858

100.0

 

96  Economic and Financial Analysis Report – June 2018

 
 

 

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

 

Notes to the Consolidated Financial Statements

 

 

On June 30 - R$ thousand

Total

Total in 2018 (A+B+C)

% (4)

Total in 2017 (A+B+C)

% (4)

Discounted trade receivables and loans (1)

180,320,911

38.6

175,084,982

38.8

Financing

135,464,130

29.0

134,195,386

29.7

Agricultural and agribusiness loans

22,414,076

4.8

22,151,055

4.9

Subtotal

338,199,117

72.4

331,431,423

73.4

Leases

2,023,678

0.4

2,364,495

0.5

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

13,126,739

2.8

9,964,410

2.2

Subtotal

353,349,534

75.6

343,760,328

76.1

Other receivables (3)

36,755,470

7.9

31,314,280

6.9

Total loans

390,105,004

83.5

375,074,608

83.0

Acquisition of credit card receivables

3,914,145

0.8

1,639,010

0.4

Subtotal

394,019,149

84.3

376,713,618

83.4

Sureties and guarantees

71,764,947

15.4

73,743,868

16.3

Loan assignment - real estate receivables certificate

815,029

0.2

967,852

0.2

Guarantee given on rural loans assigned

76,709

- 

88,696

- 

Letters of credit for imports

399,853

0.1

299,127

0.1

Confirmed exports loans

82,791

- 

42,065

- 

Total - Off-balance-sheet accounts

73,139,329

15.7

75,141,608

16.6

Total in 2018

467,158,478

100.0

 

 

Total in 2017

 

 

451,855,226

100.0

 

(1) Including credit card loans and advances on credit card receivables of R$13,898,610 thousand (R$16,355,388 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$26,466,763 thousand (R$24,313,631 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.

 

Bradesco  97

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

b) By type and levels of risk

 

 

On June 30 - R$ thousand

Levels of risk

AA

A

B

C

D

E

F

G

H

Total in 2018

% (1)

Total in 2017

% (1)

Discounted trade receivables and loans

23,439,090

80,138,999

15,263,030

27,927,510

7,954,786

5,431,828

4,035,570

2,508,364

13,621,734

180,320,911

46.3

175,084,982

46.7

Financing

80,758,260

21,350,712

15,288,788

9,677,595

2,445,095

1,815,134

770,134

525,953

2,832,459

135,464,130

34.7

134,195,386

35.8

Agricultural and agribusiness loans

7,063,750

5,233,147

7,309,202

1,979,127

487,852

106,340

30,820

23,969

179,869

22,414,076

5.7

22,151,055

5.9

Subtotal

111,261,100

106,722,858

37,861,020

39,584,232

10,887,733

7,353,302

4,836,524

3,058,286

16,634,062

338,199,117

86.7

331,431,423

88.4

Leases

307,429

358,156

1,200,690

47,882

14,558

26,918

9,718

2,590

55,737

2,023,678

0.5

2,364,495

0.6

Advances on foreign exchange contracts (2)

5,386,378

2,666,797

2,401,881

2,088,041

32,236

336,905

46,588

23,648

144,265

13,126,739

3.4

9,964,410

2.7

Subtotal

116,954,907

109,747,811

41,463,591

41,720,155

10,934,527

7,717,125

4,892,830

3,084,524

16,834,064

353,349,534

90.6

343,760,328

91.7

Other receivables

8,370,725

19,498,679

3,665,447

3,920,189

229,872

138,786

66,333

41,747

823,692

36,755,470

9.4

31,314,280

8.3

Total in 2018

125,325,632

129,246,490

45,129,038

45,640,344

11,164,399

7,855,911

4,959,163

3,126,271

17,657,756

390,105,004

100.0

 

 

%

32.1

33.1

11.6

11.7

2.9

2.0

1.3

0.8

4.5

100.0

 

 

 

Total in 2017

115,125,703

123,307,634

45,766,139

43,597,254

12,317,567

7,360,307

3,814,006

3,254,798

20,531,200

  

 

375,074,608

100.0

%

30.7

32.9

12.1

11.6

3.3

2.0

1.0

0.9

5.5

 

 

100.0

 

 

(1) Percentage of each type in relation to the total loan portfolio, excluding sureties and guarantees, loan assignments, acquisition of receivables and co-obligation in rural loan assignments; and
(2) Note 10a.

 

98  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

c)   Maturity ranges and levels of risk

 

 

On June 30 - R$ thousand

Levels of risk

Non-performing loans

AA

A

B

C

D

E

F

G

H

Total in 2018

% (1)

Total in 2017

% (1)

Installments not yet due

- 

- 

1,218,336

3,015,406

2,014,099

1,412,330

1,229,427

1,199,366

5,259,655

15,348,619

100.0

17,502,858

100.0

1 to 30

- 

- 

147,685

175,036

109,696

71,179

62,985

58,616

286,109

911,306

5.9

981,713

5.6

31 to 60

- 

- 

111,026

193,438

87,366

56,518

53,314

42,345

234,951

778,958

5.1

873,623

5.0

61 to 90

- 

- 

92,789

122,944

84,577

56,819

52,680

43,099

235,357

688,265

4.5

815,367

4.7

91 to 180

- 

- 

174,356

290,593

231,560

166,237

140,474

112,493

621,085

1,736,798

11.3

2,046,166

11.7

181 to 360

- 

- 

249,739

574,945

387,036

253,688

232,893

207,133

975,397

2,880,831

18.8

3,397,966

19.4

More than 360

- 

- 

442,741

1,658,450

1,113,864

807,889

687,081

735,680

2,906,756

8,352,461

54.4

9,388,023

53.6

Past-due installments (2)

- 

- 

425,449

973,491

1,627,512

792,682

1,479,706

884,769

6,143,562

12,327,171

100.0

14,225,304

100.0

1 to 14

- 

- 

8,874

116,736

758,439

30,023

19,257

95,406

179,523

1,208,258

9.8

891,711

6.3

15 to 30

- 

- 

407,750

230,713

88,128

56,094

39,730

26,754

161,596

1,010,765

8.2

1,057,840

7.4

31 to 60

- 

- 

8,825

605,082

176,184

115,667

392,767

51,459

339,054

1,689,038

13.7

1,858,367

13.1

61 to 90

- 

- 

- 

17,019

572,894

117,062

97,856

57,600

350,953

1,213,384

9.8

1,709,969

12.0

91 to 180

- 

- 

- 

3,941

31,867

452,774

912,593

631,761

1,155,620

3,188,556

25.9

3,564,998

25.1

181 to 360

- 

- 

- 

- 

- 

21,062

17,503

21,789

3,871,756

3,932,110

31.9

5,045,460

35.4

More than 360

- 

- 

- 

- 

- 

- 

- 

- 

85,060

85,060

0.7

96,959

0.7

Subtotal

- 

- 

1,643,785

3,988,897

3,641,611

2,205,012

2,709,133

2,084,135

11,403,217

27,675,790

 

31,728,162

 

Specific provision

- 

- 

16,438

119,667

364,161

661,504

1,354,567

1,458,894

11,403,217

15,378,448

 

18,701,475 

 

 

(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, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

 

On June 30 - R$ thousand

Levels of risk

Performing loans

AA

A

B

C

D

E

F

G

H

Total in 2018

% (1)

Total in 2017

% (1)

Installments not yet due

125,325,632

129,246,490

43,485,253

41,651,447

7,522,788

5,650,899

2,250,030

1,042,136

6,254,539

362,429,214

100.0

343,346,446

100.0

1 to 30

12,118,323

19,937,335

5,540,695

8,070,868

841,999

2,134,881

137,607

115,073

665,951

49,562,732

13.7

37,797,509

11.0

31 to 60

6,327,183

9,988,422

2,741,474

3,867,114

269,140

383,238

81,619

42,990

424,647

24,125,827

6.7

25,079,153

7.3

61 to 90

5,494,534

8,756,098

2,237,401

2,716,640

318,865

123,939

38,749

29,004

231,739

19,946,969

5.5

18,054,696

5.3

91 to 180

13,111,787

15,468,788

4,983,890

5,786,390

772,045

305,507

101,660

341,914

455,416

41,327,397

11.4

43,241,903

12.6

181 to 360

16,816,798

20,477,232

6,778,451

6,476,260

889,329

363,055

135,022

121,584

1,029,641

53,087,372

14.6

53,654,051

15.6

More than 360

71,457,007

54,618,615

21,203,342

14,734,175

4,431,410

2,340,279

1,755,373

391,571

3,447,145

174,378,917

48.1

165,519,134

48.2

Generic provision

- 

646,232

434,853

1,249,543

752,279

1,695,270

1,125,015

729,495

6,254,539

12,887,226

 

11,837,048

 

Total in 2018

125,325,632

129,246,490

45,129,038

45,640,344

11,164,399

7,855,911

4,959,163

3,126,271

17,657,756

390,105,004

 

 

 

Existing provision

- 

729,562

486,564

1,510,055

1,673,601

5,242,726

4,821,206

3,031,175

17,657,756

35,152,645

 

 

 

Minimum required provision

- 

646,232

451,291

1,369,210

1,116,440

2,356,774

2,479,582

2,188,389

17,657,756

28,265,674

 

 

  

Excess provision

- 

83,330

35,273

140,845

557,161

2,885,952

2,341,624

842,786

- 

6,886,971

 

 

 

Total in 2017

115,125,703

123,307,634

45,766,139

43,597,254

12,317,567

7,360,307

3,814,006

3,254,798

20,531,200

 

 

375,074,608

 

Existing provision

- 

695,860

502,746

1,483,407

1,892,632

5,452,992

3,762,097

3,131,563

20,531,200

 

 

37,452,497

 

Minimum required provision

- 

616,537

457,661

1,307,917

1,231,756

2,208,092

1,907,002

2,278,358

20,531,200

  

 

30,538,523

  

Excess provision

- 

79,323

45,085

175,490

660,876

3,244,900

1,855,095

853,205

- 

 

 

6,913,974

 

                                                                                                                                                                                                                                               

(1) Percentage of maturities by installment.

 

100  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

d)   Concentration of loans

 

 

On June 30 - R$ thousand

2018

% (1)

2017

% (1)

Largest borrower

9,087,540

2.3

8,081,522

2.2

10 largest borrowers

33,697,877

8.6

30,854,198

8.2

20 largest borrowers

51,765,908

13.3

47,158,666

12.6

50 largest borrowers

73,806,142

18.9

69,048,720

18.4

100 largest borrowers

91,523,131

23.5

86,436,740

23.0

 

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

 

e)   By economic sector

 

 

On June 30 - R$ thousand

2018

%

2017

%

Public sector

9,325,261

2.4

8,081,522

2.2

Oil, derivatives and aggregate activities

9,087,540

2.3

8,081,522

2.2

Production and distribution of electricity

2,294

- 

- 

- 

Other industries

235,427

0.1

- 

- 

Private sector

380,779,743

97.6

366,993,086

97.8

Companies

199,728,582

51.2

196,668,157

52.4

Real estate and construction activities

28,087,651

7.2

29,665,326

7.9

Retail

26,948,921

6.9

21,528,041

5.7

Services

19,300,153

4.9

17,827,415

4.8

Transportation and concession

15,966,918

4.1

14,735,277

3.9

Automotive

12,016,051

3.1

12,865,841

3.4

Food products

12,394,433

3.2

10,469,874

2.8

Wholesale

9,916,910

2.5

9,726,602

2.6

Production and distribution of electricity

6,004,914

1.5

7,865,649

2.1

Iron and steel industry

7,639,265

2.0

7,566,006

2.0

Sugar and alcohol

7,564,020

1.9

7,004,304

1.9

Holding

3,835,191

1.0

5,835,271

1.6

Capital goods

2,740,303

0.7

4,493,802

1.2

Pulp and paper

3,046,627

0.8

3,881,806

1.0

Chemical

3,823,138

1.0

3,683,140

1.0

Cooperative

3,831,002

1.0

3,911,770

1.0

Financial

2,364,089

0.6

3,396,929

0.9

Leisure and tourism

2,824,784

0.7

2,812,210

0.7

Textiles

1,961,281

0.5

2,374,860

0.6

Agriculture

1,994,657

0.5

2,498,668

0.7

Oil, derivatives and aggregate activities

1,820,208

0.5

2,348,986

0.6

Other industries

25,648,066

6.6

22,176,380

5.9

Individuals

181,051,161

46.4

170,324,929

45.4

Total

390,105,004

100.0

375,074,608

100.0

 

 

Bradesco  101

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

f)    Breakdown of loans and allowance for loan losses

 

Level of risk

On June 30 - R$ thousand

Portfolio balance

Non-performing loans

Performing loans

Total

% (1)

% 2018 YTD (2)

% 2017 YTD (2)

Installments past due

Installments not yet due

Total - non-performing loans

AA

- 

- 

- 

125,325,632

125,325,632

32.1

32.1

30.6

A

- 

- 

- 

129,246,490

129,246,490

33.1

65.2

63.5

B

425,449

1,218,336

1,643,785

43,485,253

45,129,038

11.6

76.8

75.7

C

973,491

3,015,406

3,988,897

41,651,447

45,640,344

11.7

88.5

87.3

Subtotal

1,398,940

4,233,742

5,632,682

339,708,822

345,341,504

88.5

 

 

D

1,627,512

2,014,099

3,641,611

7,522,788

11,164,399

2.9

91.4

90.6

E

792,682

1,412,330

2,205,012

5,650,899

7,855,911

2.0

93.4

92.6

F

1,479,706

1,229,427

2,709,133

2,250,030

4,959,163

1.3

94.7

93.6

G

884,769

1,199,366

2,084,135

1,042,136

3,126,271

0.8

95.5

94.5

H

6,143,562

5,259,655

11,403,217

6,254,539

17,657,756

4.5

100.0

100.0

Subtotal

10,928,231

11,114,877

22,043,108

22,720,392

44,763,500

11.5

 

 

Total in 2018

12,327,171

15,348,619

27,675,790

362,429,214

390,105,004

100.0

 

 

%

3.2

3.9

7.1

92.9

100.0

 

 

 

Total in 2017

14,225,304

17,502,858

31,728,162

343,346,446

375,074,608

 

 

 

%

3.8

4.7

8.5

91.5

100.0

 

 

 

 

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

 

102  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

Level of risk

On June 30 - R$ thousand

Provision

% Minimum provisioning required

Minimum required

Excess

Existing

% 2018 YTD (1)

% 2017 YTD (1)

Specific

Generic

Total

Installments past due

Installments not yet due

Total specific

AA

-

- 

- 

- 

- 

- 

- 

- 

- 

- 

A

0.5

- 

- 

- 

646,232

646,232

83,330

729,562

0.6

0.6

B

1.0

4,255

12,183

16,438

434,853

451,291

35,273

486,564

1.1

1.1

C

3.0

29,205

90,462

119,667

1,249,543

1,369,210

140,845

1,510,055

3.3

3.4

Subtotal

 

33,460

102,645

136,105

2,330,628

2,466,733

259,448

2,726,181

0.8

0.8

D

10.0

162,751

201,410

364,161

752,279

1,116,440

557,161

1,673,601

15.0

15.4

E

30.0

237,805

423,699

661,504

1,695,270

2,356,774

2,885,952

5,242,726

66.7

74.1

F

50.0

739,853

614,714

1,354,567

1,125,015

2,479,582

2,341,624

4,821,206

97.2

98.6

G

70.0

619,338

839,556

1,458,894

729,495

2,188,389

842,786

3,031,175

97.0

96.2

H

100.0

6,143,562

5,259,655

11,403,217

6,254,539

17,657,756

- 

17,657,756

100.0

100.0

Subtotal

 

7,903,309

7,339,034

15,242,343

10,556,598

25,798,941

6,627,523

32,426,464

72.4

73.5

Total in 2018

 

7,936,769

7,441,679

15,378,448

12,887,226

28,265,674

6,886,971

35,152,645

9.0

 

%

 

22.5

21.2

43.7

36.7

80.4

19.6

100.0

 

 

Total in 2017

 

9,823,513

8,877,962

18,701,475

11,837,048

30,538,523

6,913,974

37,452,497

 

10.0

%

 

26.2

23.7

49.9

31.6

81.5

18.5

100.0

 

 

 

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

 

Bradesco  103

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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)

8,928,778

14,790,527

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

- 

(3,060,990)

Net write-offs/other

(10,200,000)

(14,891,394)

Closing balance on June 30

35,152,645

37,452,497

- Specific provision (1)

15,378,448

18,701,475

- Generic provision (2)

12,887,226

11,837,048

- Excess provision (3)

6,886,971

6,913,974

 

(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 the first quarter of 2017, part of this balance (R$604,623 thousand) was allocated to a specific account under "Other Liabilities - Sundry" (Note 20b), and the remaining balance (R$2,456,367 thousand) was allocated to “Excess Provision - Loans”; and
(5) Includes, in the first semester of 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 six month period ended June 30 - R$ thousand

2018

2017

Amount recognized (1)

8,928,778

12,334,160

Amount recovered (2) (3)

(3,081,988)

(3,613,145)

Allowance for Loan Losses expense net of amounts recovered

5,846,790

8,721,015

 

(1) In the first semester of 2017, it refers to the formation of allowance for loan losses, in the amount of R$14,790,527 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 first semester of 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 (2017 – R$3,324,546 thousand), whose sale value was R$155,490 thousand (2017 – R$35,393 thousand).

 

i)    Changes in the renegotiated portfolio

 

 

On June 30 - R$ thousand

2018

2017

Opening balance on December 31

17,183,869

17,501,423

Amount renegotiated

7,361,730

8,967,012

Amount received

(4,379,099)

(5,246,690)

Write-offs

(2,979,635)

(3,025,781)

Closing balance on June 30

17,186,865

18,195,964

Allowance for loan losses

13,338,338

13,710,615

Percentage on renegotiated portfolio

77.6%

75.3%

 

104 Economic and Financial Analysis Report – June 2018

 
 

 

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

 
otes to the Consolidated Financial Statements

 

j)    Income from loans and leases

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Discounted trade receivables and loans

22,233,630

24,660,926

Financing

7,687,919

8,541,308

Agricultural and agribusiness loans

944,575

837,771

Subtotal

30,866,124

34,040,005

Recovery of credits charged-off as losses

3,081,988

3,613,145

Subtotal

33,948,112

37,653,150

Leases, net of expenses

109,970

144,686

Total

34,058,082

37,797,836

 

10)    OTHER RECEIVABLES

 

a)   Foreign exchange portfolio

 

Balances

 

 

On June 30 - R$ thousand

2018

2017

Assets – other receivables

 

  

Exchange purchases pending settlement

23,199,914

13,857,981

Foreign exchange and forward documents in foreign currencies

13,581

17,894

Exchange sale receivables

7,896,854

3,568,514

(-) Advances in domestic currency received

(380,749)

(202,110)

Income receivable on advances granted

213,019

159,827

Total

30,942,619

17,402,106

Liabilities – other liabilities

 

 

Exchange sales pending settlement

8,400,162

3,591,982

Exchange purchase payables

20,874,410

13,475,321

(-) Advances on foreign exchange contracts

(13,126,739)

(9,964,410)

Other

3,321

2,642

Total

16,151,154

7,105,535

Net foreign exchange portfolio

14,791,465

10,296,571

Off-balance-sheet accounts:

 

  

-  Loans available for import

399,853

299,127

-  Confirmed exports loans

82,791

42,065

 

Foreign exchange results

 

Adjusted foreign exchange results for presentation purposes

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Foreign exchange income

548,796

1,197,531

Adjustments:

 

 

- Income on foreign currency financing (1)

117,450

87,591

- Income on export financing (1)

795,112

1,141,892

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

(339,639)

(670,637)

- Funding expenses (3)

(437,210)

(898,476)

- Other (4)

384,187

9,119

Total adjustments

519,900

(330,511)

Adjusted foreign exchange income

1,068,696

867,020

 

(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, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

 

b)   Sundry

 

 

On June 30 - R$ thousand

2018

2017

Deferred tax assets (Note 33c)

57,031,670

53,440,286

Credit card operations

26,466,763

25,952,641

Debtors for escrow deposits

18,381,584

17,217,696

Trade and credit receivables

10,101,710

6,989,931

Prepaid taxes

11,971,106

7,089,264

Other debtors

4,240,722

4,259,311

Payments to be reimbursed

1,169,262

726,571

Receivables from sale of assets

211,910

149,750

Other

924,694

944,496

Total

130,499,421

116,769,946

 

11)    OTHER ASSETS

a)   Foreclosed assets/other

 

 

On June 30 - R$ thousand

Cost

Provision for losses

Cost net of provision

2018

2017

Real estate

1,568,670

(338,262)

1,230,408

1,300,798

Vehicles and similar

610,444

(343,811)

266,633

316,353

Goods subject to special conditions

724,579

(724,579)

- 

- 

Inventories/warehouse

20,850

- 

20,850

29,017

Machinery and equipment

9,479

(8,508)

971

1,320

Other

23,132

(21,918)

1,214

2,950

Total in 2018

2,957,154

(1,437,078)

1,520,076

 

Total in 2017

2,970,686

(1,320,248)

 

1,650,438

 

b)   Prepaid expenses

 

 

On June 30 - R$ thousand

2018

2017

Deferred insurance acquisition costs (1)

1,001,111

1,324,510

Commission on the placement of loans and financing (2)

462,456

477,827

Advertising and marketing expenses (3)

146,674

57,349

Other (4)

1,019,875

1,090,844

Total

2,630,116

2,950,530

 

(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.

 

12)    INVESTMENTS

 

a)   Composition of investments in the consolidated financial statements

 

Associates and Jointly Controlled Companies

On June 30 - R$ thousand

2018

2017

- Cielo S.A.

4,353,993

4,118,924

- Elo Participações S.A.

1,185,702

1,027,388

- Fleury S.A.

670,595

650,348

- IRB-Brasil Resseguros S.A.

511,188

671,112

- Swiss Re Corporate Solutions Brasil

458,254

- 

- Aquarius Participações S.A.

316,051

312,800

- Haitong Banco de Investimento do Brasil S.A.

102,958

116,760

- Others

397,398

371,671

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

7,996,139

7,269,003

- Tax incentives

234,717

234,717

- Other investments

169,243

168,717

Provision for:

 

 

- Tax incentives

(207,933)

(207,933)

- Other investments

(46,802)

(46,820)

Total investments

8,145,364

7,417,684

 

106  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

b)    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 six month period ended June 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

2,370,930

372

- 

50.01%

282,078

141,067

104,471

- Aquarius Participações S.A.

518,592

645,002

254,110

- 

49.00%

106,982

52,421

49,168

- Haitong Banco de Investimento do Brasil S.A.

420,000

514,790

12,734

12,734

20.00%

(6,985)

(1,397)

(10,544)

- Others (3)

 

 

 

 

 

 

583,698

551,361

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

 

 

 

 

 

 

775,789

694,456

 

(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, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

13)    PREMISES AND EQUIPMENT

 

On June 30 - R$ thousand

Annual rate

Cost

Depreciation

Cost net of depreciation

2018

2017

Property and equipment:

 

 

 

 

 

- Buildings

4%

2,224,187

(678,119)

1,546,068

1,177,292

- Land

-

899,779

- 

899,779

854,333

Facilities, furniture and premises and equipment

10%

5,222,406

(2,896,397)

2,326,009

2,460,917

Security and communication systems

10%

361,425

(224,229)

137,196

137,586

Data processing systems

20 to 40%

7,549,605

(4,954,236)

2,595,369

2,503,287

Transportation systems

10 to 20%

88,709

(54,397)

34,312

43,856

Fixed Assets in course

-

53,835

- 

53,835

181,598

Total in 2018

 

16,399,946

(8,807,378)

7,592,568

 

Total in 2017

 

15,009,233

(7,650,364)

 

7,358,869

 

The fixed assets to shareholders’ equity ratio is 44.9% 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$7,926,986 thousand, net of accumulated amortization, as applicable, of which: (i) R$1,830,861 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$6,096,125 thousand arose from the acquisition of shares of subsidiaries/shared control, 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.

                                                                                                                               

During the first semester of 2018, goodwill was amortized totaling R$1,255,491 thousand (R$1,184,031 thousand in 2017) (Note 28).

 

b)   Intangible assets

 

Acquired intangible assets consist of:

 

 

On June 30 - R$ thousand

Rate of Amortization (1)

Cost

Amortization

Cost net of amortization

2018

2017

Acquisition of financial services rights

Contract

5,847,062

(2,083,588)

3,763,474

2,109,323

Software (2)

20%

11,861,330

(8,348,403)

3,512,927

3,827,855

Goodwill (3)

 Up to 20%

11,496,767

(5,400,642)

6,096,125

8,660,768

Other

 Contract

65,600

(31,648)

33,952

51,530

Total in 2018

 

29,270,759

(15,864,281)

13,406,478

 

Total in 2017

 

27,008,380

(12,358,904)

 

14,649,476

 

(1) Intangible assets are amortized over an estimated period of economic benefit and recognized in “other administrative expenses” and “other operating expenses”, where applicable;
(2) Software acquired and/or developed by specialized companies; and
(3) On June 30, 2018, primarily composed of goodwill on the acquisition of equity interest in Bradescard - R$574,764 thousand, Odontoprev - R$64,304 thousand, Bradescard Mexico - R$16,163 thousand, Europ Assistance - R$1,849 thousand, Bradesco BBI S.A. - R$108,789 thousand and Kirton Bank - R$5,321,860 thousand.

 

108 Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

c)   Changes in intangible assets by type

 

 

On June 30 - R$ thousand

Opening balance

Additions / (reductions)

Amortization for the period

Closing balance

Acquisition of financial services rights

4,051,898

250,115

(538,539)

3,763,474

Software

3,790,418

383,415

(660,906)

3,512,927

Goodwill – Future profitability

3,761,412

4,191

(458,265)

3,307,338

Goodwill – Based on intangible assets and other reasons

2,548,412

- 

(466,777)

2,081,635

Goodwill – Difference in fair value of assets/liabilities

1,048,717

(11,116)

(330,449)

707,152

Other

32,993

4,038

(3,079)

33,952

Total in 2018

15,233,850

630,643

(2,458,015)

13,406,478

Total in 2017

16,338,785

660,710

(2,350,019)

14,649,476

 

Bradesco  109

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 June 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

● Demand deposits (1)

31,216,803

- 

- 

- 

31,216,803

30,607,724

● Savings deposits (1)

103,076,706

- 

- 

- 

103,076,706

95,736,763

● Interbank deposits

1,202,201

397,396

18,593

27,711

1,645,901

530,268

● Time deposits (2)

12,080,437

13,444,159

13,348,086

124,332,164

163,204,846

133,323,857

Total in 2018

147,576,147

13,841,555

13,366,679

124,359,875

299,144,256

 

%

49.3

4.6

4.5

41.6

100.0

 

Total in 2017

134,612,567

13,178,067

9,462,504

102,945,474

 

260,198,612

%

51.7

5.1

3.6

39.6

 

100.0

 

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

 

b)   Securities sold under agreements to repurchase

 

 

On June 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

Own portfolio

110,105,526

10,328,891

3,768,231

2,334,442

126,537,090

100,900,029

● Government securities

99,413,361

227,315

31,247

- 

99,671,923

48,963,151

● Debentures of own issuance

3,246,250

8,453,508

3,736,984

1,379,020

16,815,762

45,712,666

● Foreign

7,445,915

1,648,068

- 

955,422

10,049,405

6,224,212

Third-party portfolio (1)

68,804,954

392,858

- 

- 

69,197,812

124,405,286

Unrestricted portfolio (1)

6,915,006

11,512

- 

- 

6,926,518

11,239,069

Total in 2018

185,825,486

10,733,261

3,768,231

2,334,442

202,661,420

 

%

91.6

5.3

1.9

1.2

100.0

 

Total in 2017

190,628,589

20,045,847

12,085,461

13,784,487

 

236,544,384

%

80.6

8.5

5.1

5.8

 

100.0

 

(1)  Represented by government securities.

 

110  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

c)   Funds from issuance of securities

 

 

On June 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

Securities – Brazil:

 

  

 

  

 

 

- Financial bills

3,308,679

30,033,155

12,853,233

64,904,278

111,099,345

92,402,618

- Letters of credit for real estate

2,472,432

7,794,479

9,370,956

6,218,962

25,856,829

25,885,306

- Letters of credit for agribusiness

2,149,968

5,379,240

3,046,861

1,835,458

12,411,527

7,338,033

Subtotal

7,931,079

43,206,874

25,271,050

72,958,698

149,367,701

125,625,957

Securities – Overseas:

 

 

 

 

 

 

- Securitization of future flow of money orders received from overseas

12,263

585,714

470,040

1,197,297

2,265,314

2,718,792

- MTN Program Issues (1)

2,290

39,932

- 

1,114,664

1,156,886

286,587

- Issuance costs

- 

- 

- 

(19,593)

(19,593)

(24,542)

Subtotal

14,553

625,646

470,040

2,292,368

3,402,607

2,980,837

Structured Operations Certificates

6,196

75,858

313,784

136,564

532,402

399,739

Total in 2018

7,951,828

43,908,378

26,054,874

75,387,630

153,302,710

 

%

5.2

28.6

17.0

49.2

100.0

 

Total in 2017

7,538,842

34,132,101

30,806,616

56,528,974

 

129,006,533

%

5.8

26.5

23.9

43.8

 

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, Audit Committee Report Summary 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

51,327,057

24,748,158

Interest

4,561,679

7,553,334

Settlement and interest payments

(38,107,061)

(54,189,925)

Exchange variation

509,727

87,608

Closing balance on June 30

153,302,710

129,006,533

 

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

 

In the six month period ended June 30 - R$ thousand

2018

2017

Savings deposits

2,300,039

3,053,831

Time deposits

2,530,805

4,395,784

Securities sold under agreements to repurchase

7,966,325

12,445,548

Funds from issuance of securities

4,561,679

7,553,334

Subordinated debts (Note 18)

1,737,414

2,877,207

Other funding expenses

365,976

283,817

Subtotal

19,462,238

30,609,521

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

5,702,616

9,610,905

Total

25,164,854

40,220,426

 

16)    BORROWING AND ON-LENDING

 

a)   Borrowing

 

 

On June 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

- 

- 

- 

- 

- 

4,595

Overseas

4,310,302

9,131,226

11,236,271

655,832

25,333,631

23,428,759

Total in 2018

4,310,302

9,131,226

11,236,271

655,832

25,333,631

 

%

17.0

36.0

44.4

2.6

100.0

 

Total in 2017

4,601,032

11,453,977

5,456,273

1,922,072

 

23,433,354

%

19.6

48.9

23.3

8.2

 

100.0

 

b)   On-lending

 

 

On June 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

In Brazil

944,581

3,569,356

3,375,295

18,144,786

26,034,018

33,113,627

- FINAME

517,172

2,441,059

2,310,822

9,888,333

15,157,386

18,624,785

- BNDES

427,216

1,128,297

1,024,916

8,256,453

10,836,882

14,423,109

- National Treasury

- 

- 

38,238

- 

38,238

64,143

- Other institutions

193

- 

1,319

- 

1,512

1,590

Total in 2018

944,581

3,569,356

3,375,295

18,144,786

26,034,018

 

%

3.6

13.7

13.0

69.7

100.0

 

Total in 2017

1,324,226

4,490,188

5,410,342

21,888,871

 

33,113,627

%

4.0

13.6

16.3

66.1

 

100.0

 

112  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

                   

c)     Borrowing and on-lending expenses

 

In the six month period ended June 30 - R$ thousand

2018

2017

Borrowing:

 

 

- In Brazil

99,704

404,799

- Overseas

8,336,399

865,869

- Exchange variation from assets and liabilities overseas

(4,011,644)

(260,729)

Subtotal borrowing

4,424,459

1,009,939

On-lending in Brazil:

 

 

- BNDES

444,164

594,927

- FINAME

391,407

352,380

- National Treasury

1,714

3,146

- Other institutions

2

24

On-lending overseas:

 

 

- Payables to foreign bankers (Note 10a)

339,639

670,637

Subtotal on-lending

1,176,926

1,621,114

Total

5,601,385

2,631,053

 

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, but the amounts are not material, such as: a) Social Integration Program (PIS), Bradesco has made a claim to offset PIS against Gross Operating Income, paid under Decree-Laws No. 2,445/88 and No. 2,449/88, regarding the payment that exceeded the amount due under Supplementary Law No. 07/70 (PIS Repique); and b) other taxes, the legality and/or constitutionality of which is being challenged, where the decision may lead to reimbursement of amounts paid.

 

b)   Provisions classified as probable losses and legal obligations – tax and social security

 

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

 

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

 

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

 

Provisions related to legal obligations are maintained until the conclusion of the lawsuit, represented by judicial decisions with no further appeals or due to the statute of limitation.

 

I -      Labor claims

 

These are claims brought by former employees and outsourced employees seeking indemnifications, most significantly for unpaid “overtime”, pursuant to Article 224 of the Consolidation of Labor Laws (CLT). In proceedings in which a judicial deposit is used to guarantee the execution of the judgment, the labor provision is made considering the estimated loss of these deposits. For proceedings with similar characteristics and for which there has been no official court decision, the provision is recognized based on the average calculated value of payments made for labor complaints settled in the past 12 months; and for proceedings originating from acquired banks, with unique characteristics, the calculation and assessment of the required balance is conducted periodically, based on the updated recent loss history.

 

Bradesco  113

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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.

 

There are a significant number of legal claims pleading alleged differences in adjustment for inflation on savings account balances due to the implementation of economic plans that were part of the federal government’s economic policy to reduce inflation in the ‘80s and ‘90s.

 

Although Bradesco complied with the law and regulation in force at the time, these lawsuits have been recognized in provisions, taking into consideration the claims where Bradesco is the defendant and the perspective of loss, which is considered after the analysis of each demand, based on the current decision of the Superior Court of Justice (STJ).

 

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$2,539,566 thousand (R$2,417,306 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 – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

                   

-        IRPJ/CSLL on losses of credits – R$1,642,162 thousand (R$1,818,351 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$1,524,434 thousand (R$1,432,305 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$665,685 thousand (R$967,829 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$409,269 thousand (R$389,895 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 June 30 - R$ thousand

2018

2017

Labor claims

5,989,460

5,424,197

Civil claims

5,443,371

5,077,427

Provision for tax risks

7,803,196

8,144,298

Total (Note 19b)

19,236,027

18,645,922

 

 

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

349,334

252,507

137,317

Provisions, net of (reversals and write-offs)

793,541

489,752

87,877

Payments

(708,211)

(645,451)

(11,366)

Balance on June 30, 2018

5,989,460

5,443,371

7,803,196

(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

Bradesco  115

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

necessary, the related risk is reclassified. In this respect, contingent lawsuits deemed to have a possible risk of loss are not recognized as a liability in the financial statements. The main proceedings in this category are the following: a) 2006 to 2013 income tax and social contribution, relating to goodwill amortization being disallowed on the acquisition of investments, for the amount of R$6,425,178 thousand (R$6,039,972 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$4,986,645 thousand (R$4,788,245 thousand in 2017); c) Leasing companies’ Tax on Services of any Nature (ISSQN), total lawsuits correspond to R$2,441,982 thousand (R$2,495,215 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 2007 to 2013, differences in depreciation expenses, insufficient depreciation expenses, expenses with depreciation of leased assets, operating expenses and income and disallowance of tax loss compensation, in the amount of R$1,963,924 thousand (R$1,650,518 thousand in 2017); e) IRPJ and CSLL tax assessments for the years 2012 and 2013, due to the acquisition of operating expenses (CDI), related to funds that were capitalized among the companies of the Organization, whose assessed amount is R$ 1,649,533 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$1,416,045 thousand (R$1,358,577 thousand in 2017); g) IRPJ and CSLL deficiency notice relating to the disallowance of loan loss deductions, for the amount of R$575,842 thousand (R$711,345 thousand in 2017); and h) IRPJ and CSLL deficiency note, amounting to R$498,977 thousand (R$477,162 thousand in 2017) relating to profit of subsidiaries based overseas, for the calendar years of 2008 and 2009.

 

d)   Other matters

 

On May 31, 2016, criminal proceedings were opened against three members of Bradesco’s Board of Executive Officers was 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 28, 2016, the Public Prosecutor's Office filed charges against three members of the Board of Executive Officers, at that time, and a former member of its Board of Directors that was received by the Judge of the 10th Federal Court of the Federal District Judiciary Section. 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 investigation phase of the process was already completed, and is currently waiting for final allegations and the decision of the first degree court.

 

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 the information to the competent regulatory bodies, in Brazil and abroad.

 

On account of the news of Operation Zealots, a class action was filed in the District Court of New York, on June 3, 2016, based on Section 10 (b) and 20 (a) of the Securities Exchange Act of 1934. On October 21, 2016, the plaintiff leader appointed by the court presented the addendum of the (Action Complaint) pointing us as defendants, Bradesco and three members of its Board of Executive Officers, at that time. The demand is based on the allegation that investors who purchased preferred American Depositary Shares (“ADS”) of Bradesco between April 30, 2012 and July 27, 2016 suffered losses caused by alleged violation regarding the American laws of capital markets. On September 29, 2017, the Court limited the proposed class to investors who purchased ADS Bradesco between August 8, 2014 and July 27, 2016. Demand has passed to the discovery phase, so the limitation of the aforementioned class would be maintained. Considering the stage that the demand is, 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 on the opening of an Administrative Accountability Process ("PAR"). This process may imply the application of a fine and / or mention in public lists that may eventually bring restrictions on business with public entities.

 

116  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

                   

18)    SUBORDINATED DEBT

 

a)     Composition by maturity

 

 

On June 30 - R$ thousand

Original term in years

Nominal amount

2018

2017

In Brazil:

 

  

 

  

Subordinated CDB:

 

 

 

 

2019

10

20,000

66,261

59,165

Financial bills:

 

 

 

 

2017 (1)

6

- 

- 

4,137,605

2018 (2)

6

277,547

483,418

10,020,338

2019

6

21,858

37,751

34,794

2017 (1)

7

- 

- 

48,988

2018 (2)

7

81,350

187,130

303,367

2019

7

3,172,835

3,463,740

3,430,347

2020

7

1,700

2,931

2,704

2022

7

4,305,011

5,800,914

5,357,935

2023

7

1,359,452

1,763,720

1,620,946

2024

7

67,450

77,227

70,671

2018 (2)

8

- 

- 

113,780

2019

8

12,735

29,959

26,632

2020

8

28,556

56,876

52,066

2021

8

1,236

2,114

1,962

2023

8

1,706,846

2,363,547

2,151,832

2024

8

136,695

165,864

152,059

2025

8

6,193,653

6,421,420

6,346,344

2021

9

7,000

13,589

12,558

2024

9

4,924

7,011

6,217

2025

9

400,944

473,998

443,762

2021

10

19,200

42,770

38,747

2022

10

54,143

104,104

95,355

2023

10

688,064

1,108,844

1,041,595

2025

10

284,137

421,900

366,674

2026

10

361,196

458,892

417,858

2027

10

258,743

284,868

259,033

2026

11

3,400

4,332

3,998

2027

11

47,046

56,136

51,577

2028 (3)

11

74,764

80,684

- 

Perpetual

 

5,000,000

5,204,706

5,373,689

Subtotal in Brazil

 

 

29,184,706

42,042,598

Overseas:

 

 

 

 

2019

10

1,333,575

2,941,734

2,523,950

2021

11

2,766,650

6,327,013

5,424,522

2022

11

1,886,720

4,315,207

3,700,034

Issuance costs on funding

 

 

(12,205)

(15,467)

Subtotal overseas

 

  

13,571,749

11,633,039

Total (4) (5)

 

 

42,756,455

53,675,637

 

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

(3) New issues of financial letters, in 2017, referring to subordinate debts were recognized under the heading “Eligible Debt Capital Instruments”;
(4) It includes the amount of R$23,585,220 thousand (R$22,622,595 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, Audit Committee Report Summary 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

- 

6,515,846

Interest

1,737,414

2,877,207

Settlement and interest payments

(11,087,550)

(8,501,057)

Exchange variation

1,927,190

172,578

Closing balance on June 30

42,756,455

53,675,637

 

 

19)    OTHER LIABILITIES

                                                                                                          

a)   Tax and social security

 

 

On June 30 - R$ thousand

2018

2017

Provision for deferred income tax (Note 33f)

3,643,429

3,675,178

Taxes and contributions on profit payable

1,985,118

2,073,341

Taxes and contributions payable

1,081,979

1,214,567

Total

6,710,526

6,963,086

 

b)   Sundry

 

 

On June 30 - R$ thousand

2018

2017

Credit card operations (1)

4,206,497

6,860,198

Civil, tax and labor provisions (Note 17b)

19,236,027

18,645,922

Loan assignment obligations

7,886,502

8,276,329

Provision for payments

7,971,708

7,677,933

Sundry creditors

4,463,208

5,583,105

Liabilities for acquisition of assets and rights

1,242,623

1,721,276

Obligations by quotas of investment funds

1,701,450

613,300

Other (2)

5,122,804

3,719,175

Total

51,830,819

53,097,238

 

(1) According to Bacen Circular Letter No. 3,828/17, which changes the accounting in payment arrangements (Credit Card Transactions), in June 2018, part of these transactions were classified under "Interbank accounts" in the amount of R$16,876,074 thousand. For comparison purposes, the balances of prior periods were also reclassified in the amount of R$16,188,307 thousand; and

(2) On June 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 June 30 - R$ thousand

2018

2017

Guaranteed Values

Provisions

Guaranteed Values

Provisions

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

37,551,059

(282,664)

30,716,184

(156,113)

Bank sureties

33,162,821

(437,907)

39,733,861

(382,611)

Others

1,051,067

(46,242)

3,293,823

(55,073)

Total

71,764,947

(766,813)

73,743,868

(593,797)

 

118  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

20)    INSURANCE, PENSION PLANS AND CAPITALIZATION BONDS

 

a)   Technical provisions by account

 

 

On June 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

1,198,482

1,030,578

211,444,914

194,727,094

- 

- 

212,643,396

195,757,672

Mathematical reserve for vested benefits

329,439

251,537

8,326,312

9,082,204

- 

- 

8,655,751

9,333,741

Mathematical reserve for capitalization bonds

- 

- 

- 

- 

6,856,355

6,295,414

6,856,355

6,295,414

Reserve for claims incurred but not reported (IBNR)

3,452,578

3,107,443

941,359

1,285,867

- 

- 

4,393,937

4,393,310

Unearned premium reserve

4,189,858

4,325,119

654,177

535,283

- 

- 

4,844,035

4,860,402

Complementary reserve for coverage

- 

- 

523,189

492,475

- 

- 

523,189

492,475

Reserve for unsettled claims

4,430,673

4,754,596

1,354,698

1,576,136

- 

- 

5,785,371

6,330,732

Reserve for financial surplus

- 

- 

542,545

520,251

- 

- 

542,545

520,251

Reserve for draws and redemptions

- 

- 

- 

- 

922,948

950,211

922,948

950,211

Other reserves (4)

2,189,743

2,001,824

4,620,498

2,592,663

93,371

111,771

6,903,612

4,706,258

Total technical provisions

15,790,773

15,471,097

228,407,692

210,811,973

7,872,674

7,357,396

252,071,139

233,640,466

 

 

Bradesco  119

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

b)   Guarantees for technical provisions

 

 

On June 30 - R$ thousand

Insurance

Life and pension plans

Capitalization bonds

Total

2018

2017

2018

2017

2018

2017

2018

2017

Total technical provisions

15,790,773

15,471,097

228,407,692

210,811,973

7,872,674

7,357,396

252,071,139

233,640,466

(-) Commercialization surcharge – extended warranty

(93,896)

(199,179)

- 

- 

- 

- 

(93,896)

(199,179)

(-) Portion corresponding to contracted reinsurance

(170,986)

(773,943)

(14,561)

(38,918)

- 

- 

(185,547)

(812,861)

(-) Receivables

(965,525)

(1,038,596)

- 

- 

- 

- 

(965,525)

(1,038,596)

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

(1,311,828)

(1,249,575)

- 

- 

- 

- 

(1,311,828)

(1,249,575)

(-) Reserves from DPVAT agreements

(597,179)

(507,938)

- 

- 

- 

- 

(597,179)

(507,938)

To be insured

12,651,359

11,701,866

228,393,131

210,773,055

7,872,674

7,357,396

248,917,164

229,832,317

 

 

 

 

 

 

 

 

 

Investment fund quotas (VGBL and PGBL)

- 

- 

193,621,436

178,039,264

- 

- 

193,621,436

178,039,264

Investment fund quotas (excluding VGBL and PGBL)

5,616,880

6,239,508

21,095,458

23,019,770

1,039,066

1,842,557

27,751,404

31,101,835

Government securities

9,775,223

6,799,596

19,397,829

16,627,425

7,655,008

6,429,835

36,828,060

29,856,856

Shares

2,637

2,331

1,028,109

1,555,269

- 

- 

1,030,746

1,557,600

Private securities

14,901

92,008

152,994

161,498

37,921

39,819

205,816

293,325

Total technical provision guarantees

15,409,641

13,133,443

235,295,826

219,403,226

8,731,995

8,312,211

259,437,462

240,848,880

 

(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 – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

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

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Written premiums

19,022,785

18,407,621

Pension plan contributions (including VGBL)

13,994,030

15,242,822

Capitalization bond income

3,095,466

3,009,214

Granted coinsurance premiums

(24,608)

(28,635)

Refunded premiums

(294,853)

(170,802)

Net written premiums earned

35,792,820

36,460,220

Reinsurance premiums paid

(37,101)

(139,739)

Insurance, pension plan and capitalization bond retained premiums

35,755,719

36,320,481

 

21)    NON-CONTROLLING INTERESTS IN SUBSIDIARIES

 

 

On June 30 - R$ thousand

2018

2017

Banco Bradesco BBI S.A.

4,992

17,490

Other (1)

596,254

455,379

Total

601,246

472,869

 

(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 June 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 June 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, Audit Committee Report Summary 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 year ended June 30, 2018 is calculated as follows:

 

 

R$ thousand

% (1)

Net income for the period

8,994,508

  

(-) Legal reserve

449,725

 

Adjusted calculation basis

8,544,783

 

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

3,565,076

 

Withholding income tax on interest on shareholders' equity

(534,761)

 

Interest on shareholders' equity (net) accumulated on June 30, 2018

3,030,315

35.46

Interest on shareholders' equity (net) accumulated on June 30, 2017

2,388,635

31.50

 

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

 

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

 

Description

R$ thousand

Per share (gross)

Gross amount paid/ recognized in provision

Withholding Income Tax (IRRF) (15%)

Net amount paid/recognized in provision

Common

Preferred

Monthly interest on shareholders’ equity paid

0.103499

0.113849

621,136

93,170

527,966

Intermediary interest on shareholders’ equity paid

0.172494

0.189743

1,102,000

165,300

936,700

Supplementary interest paid on shareholders´ equity

0.170149

0.187164

1,087,022

163,053

923,969

Total accrued on June 30, 2017

0.446142

0.490756

2,810,158

421,523

2,388,635

 

 

  

 

 

  

Monthly interest on shareholders’ equity paid

0.103499

0.113849

694,268

104,140

590,128

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

0.236045

0.259650

1,658,808

248,821

1,409,987

Total accrued on June 30, 2018

0.512010

0.563211

3,565,076

534,761

3,030,315

(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 six months ended June 30, 2018 which all remain in treasury, and remain in treasury. The minimum, average and maximum cost per common share is R$19.34962, R$24.55863 and R$27.14350, and per preferred share is R$19.37456, R$26.98306 and R$33.12855, respectively. The fair value was R$24.38 per common share and R$26.90 per preferred share on June 30, 2018.

122 Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

23)    FEE AND COMMISSION INCOME

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Credit card income

3,377,417

3,307,532

Checking account

3,510,191

3,249,275

Loans

1,525,364

1,505,321

Collections

1,005,424

952,933

Consortium management

794,656

747,669

Asset management

788,057

679,990

Underwriting/ Financial Advisory Services

409,604

333,597

Custody and brokerage services

417,293

375,056

Payments

224,047

208,659

Other

312,788

296,250

Total

12,364,841

11,656,282

 

24)    PAYROLL AND RELATED BENEFITS

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Salaries

4,158,316

4,409,845

Benefits

2,140,232

2,208,583

Social security charges

1,436,459

1,598,099

Employee profit sharing

753,888

758,236

Provision for labor claims

793,541

372,354

Training

58,582

73,292

Total

9,341,018

9,420,409

 

25)    OTHER ADMINISTRATIVE EXPENSES

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Outsourced services

2,323,747

2,349,701

Depreciation and amortization

1,376,992

1,312,684

Data processing

1,141,149

1,090,705

Communication

779,921

834,196

Asset maintenance

554,886

556,527

Rental

568,074

577,313

Financial system services

470,345

521,407

Advertising and marketing

474,422

328,345

Security and surveillance

383,676

416,863

Transport

372,026

382,322

Water, electricity and gas

204,639

212,998

Supplies

112,170

135,851

Travel

136,248

117,569

Other

487,819

503,346

Total

9,386,114

9,339,827

 

Bradesco  123

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

26)    TAX EXPENSES

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Contribution for Social Security Financing (COFINS)

1,440,232

1,969,119

Social Integration Program (PIS) contribution

239,697

325,663

Tax on Services (ISSQN)

486,633

340,946

Municipal Real Estate Tax (IPTU) expenses

79,077

75,757

Other

172,889

205,199

Total

2,418,528

2,916,684

 

27)    OTHER OPERATING INCOME

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Other interest income

1,051,677

994,121

Reversal of other operating provisions (1)

986,821

4,008,717

Revenues from recovery of charges and expenses

155,612

169,459

Gains on sale of goods

9,645

3,631

Other

1,273,186

1,169,321

Total

3,476,941

6,345,249

 

(1) In the first semester of 2018, 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 six month period ended June 30 - R$ thousand

2018

2017

Other finance costs

2,103,576

2,409,385

Sundry losses

840,576

840,620

Discount granted

707,330

697,560

Commissions on loans and financing

304,370

495,988

Intangible assets amortization - payroll

538,539

496,893

Goodwill amortization (Note 14a)

1,255,491

1,184,031

Other (1)

3,172,799

3,510,505

Total

8,922,681

9,634,982

 

(1) In the first semester of 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 six month period ended June 30 - R$ thousand

2018

2017

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

(305,815)

(264,721)

Recording/reversal of non-operating provisions (1)

(57,162)

(80,094)

Other

34,431

52,354

Total

(328,546)

(292,461)

 

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

 

124 Economic and Financial Analysis Report – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 June 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

- 

- 

449,430

644,567

- 

- 

449,430

644,567

Securities and derivative financial instruments

16,297

- 

- 

- 

- 

- 

16,297

- 

Other receivables and assets

48

- 

369,797

7,675

- 

- 

336,936

7,675

Liabilities

 

 

 

 

 

 

 

 

Demand deposits/Savings accounts

25

23

12,021

1,162

14,983

16,383

27,029

17,568

Time deposits

956,146

1,345,381

914,189

135,177

197,858

79,084

2,068,193

1,559,642

Securities sold under agreements to repurchase

1,503,897

753,868

27,551

214,798

5,494

11,953

1,536,942

980,619

Funds from issuance of securities and subordinated debts

9,088,304

6,153,422

- 

- 

824,270

820,496

9,912,574

6,973,918

Derivative financial instruments

2,649

24,554

- 

- 

- 

- 

2,649

24,554

Interest on own capital and dividends payable

942,964

752,326

- 

- 

- 

- 

942,964

752,326

Other liabilities

- 

- 

9,715,317

9,895

- 

- 

9,715,317

9,895

 

 

 

In the six month period ended June 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

- 

- 

19,208

30,950

- 

- 

19,208

30,950

Financial intermediation expenses

(381,028)

(471,449)

(8,431)

(21,520)

(28,474)

(49,558)

(417,933)

(542,527)

Income from services provided

48

- 

158,271

198,958

- 

- 

158,319

198,958

Expenses in operations with derivatives

- 

(23,906)

- 

- 

- 

- 

- 

(23,906)

Revenues in operations with derivatives

12,822

- 

- 

- 

- 

- 

12,822

- 

Other expenses net of other operating revenues

25,449

(1,281)

(1,226,324)

(111,045)

(42,431)

- 

(1,243,987)

(112,326)

 

(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, Audit Committee Report Summary 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 Resolution No. 3,921/10, which sets forth a management compensation policy for financial institutions.      

 

Short-term Management benefits

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Salaries

216,332

220,074

Total

216,332

220,074

 

Post-employment benefits

 

 

In the six month period ended June 30 - R$ thousand

2018

2017

Defined contribution supplementary pension plans

234,843

224,201

Total

234,843

224,201

 

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

 

Shareholding

 

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

 

 

On June 30

2018

2017

● Common shares

0.55%

0.69%

● Preferred shares

1.09%

1.13%

● Total shares (1)

0.82%

0.91%

 

(1) On June 30, 2018, direct and indirect shareholding of the members of Bradesco’s Board of Directors and Board of Executive Officers amounted to 2.38% of common shares, 1.12% of preferred shares and 1.75% of all shares (3.12% of common shares, 1.17% of preferred shares and 2.15% of all shares in 2017).

 

126 Economic and Financial Analysis Report – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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) and Risk Committee, whose purpose is to 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 June 30 - R$ thousand

Prudential Conglomerate

2018

2017

Tier I capital

74,793,447

77,322,435

Common equity

69,588,741

71,948,746

Shareholders’ equity

113,038,723

106,807,513

Non-controlling interest / Other

108,510

39,089

Prudential adjustments (1)

(43,558,492)

(34,897,856)

Additional capital

5,204,706

5,373,689

Tier II capital

22,991,523

25,727,605

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

16,594,492

16,998,232

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

6,397,031

8,729,373

Reference Equity (a)

97,784,970

103,050,040

 

 

 

- Credit risk

588,341,324

550,858,207

- Market risk

16,070,748

20,530,346

- Operational risk

53,509,834

47,222,493

Risk-weighted assets – RWA (b)

657,921,906

618,611,046

 

 

 

Basel ratio (a/b)

14.9%

16.7%

Tier I capital

11.4%

12.5%

- Principal capital

10.6%

11.6%

- Additional capital

0.8%

0.9%

Tier II capital

3.5%

4.2%

 

(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.

 

Bradesco  127

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 June 30 - R$ thousand

2018

2017

Fixed rates

34,814

22,338

IGPM/IPCA

776

1,014

Exchange coupon

104

139

Foreign currency

327

245

Equities

312

94

Sovereign/Eurobonds and Treasuries

3,119

2,363

Other

8,729

148

Correlation/diversification effect

(3,520)

(1,208)

VaR (Value at Risk)

44,661

25,133

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$3.85 a scenario of R$3.89 was used, while for a 1-year fixed interest rate of 7.65%, a 7.66% 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$3.85 a scenario of R$4.82 was used, while for a 1-year fixed interest rate of 7.65%, a 9.56% 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$3.85 a scenario of R$5.78 was used, while for a 1-year fixed interest rate of 7.65%, a 11.47% 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 – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

I - Sensitivity Analysis – Trading Portfolio

 

 

On June 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

(1,061)

(187,874)

(368,222)

(612)

(135,622)

(265,946)

Price indexes

Exposure subject to variations in price index coupon rates

(38)

(5,800)

(10,934)

(36)

(4,692)

(8,843)

Exchange coupon

Exposure subject to variations in foreign currency coupon rates

(6)

(559)

(1,104)

(7)

(363)

(721)

Foreign currency

Exposure subject to exchange rate variations

(126)

(3,152)

(6,304)

(92)

(2,307)

(4,614)

Equities

Exposure subject to variation in stock prices

(82)

(2,058)

(4,115)

(24)

(1,198)

- 

Sovereign/Eurobonds and Treasuries

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

(391)

(39,021)

(75,665)

(57)

(7,041)

(14,048)

Other

Exposure not classified in other definitions

- 

(15)

(30)

- 

(2)

(5)

Total excluding correlation of risk factors

(1,704)

(238,479)

(466,374)

(828)

(151,225)

(294,177)

Total including correlation of risk factors

(1,187)

(202,129)

(396,022)

(634)

(142,348)

(279,540)

 

(1) Amounts net of tax.

 

Bradesco  129

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 June 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

(9,888)

(3,391,317)

(6,548,730)

(12,703)

(2,919,199)

(5,656,747)

Price indexes

Exposure subject to variations in price index coupon rates

(6,882)

(875,589)

(1,521,577)

(4,461)

(576,816)

(1,068,592)

Exchange coupon

Exposure subject to variations in foreign currency coupon rates

(1,059)

(121,925)

(230,361)

(390)

(23,140)

(45,733)

Foreign currency

Exposure subject to exchange rate variations

(2,158)

(53,877)

(107,754)

(3,960)

(98,963)

(197,925)

Equities

Exposure subject to variation in stock prices

(15,206)

(380,140)

(760,280)

(15,354)

(383,500)

(768,434)

Sovereign/Eurobonds and Treasuries

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

(3,619)

(150,202)

(294,581)

(2,943)

(128,620)

(232,913)

Other

Exposure not classified in other definitions

(1,203)

(30,070)

(60,139)

(11)

(285)

(569)

Total excluding correlation of risk factors

(40,015)

(5,003,120)

(9,523,422)

(39,822)

(4,130,523)

(7,970,913)

Total including correlation of risk factors

(26,088)

(4,060,049)

(7,803,724)

(27,541)

(3,707,424)

(7,155,441)

 

(1) Amounts net of tax effects.

 

130  Economic and Financial Analysis Report – June 2018

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 July 2017 to June 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 first semester of 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, Audit Committee Report Summary 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 June 30 - R$ thousand

2018

2017

Balance

Local

Foreign (1) (2)

Foreign (1) (2)

Assets

 

  

 

 

Current and long-term assets

1,210,274,356

1,118,057,636

92,216,720

72,152,749

Cash and due from banks

15,305,794

10,287,439

5,018,355

3,843,821

Interbank investments

108,674,003

106,039,979

2,634,024

1,249,623

Securities and derivative financial instruments

534,314,942

510,898,811

23,416,131

19,041,171

Interbank and interdepartmental accounts

72,886,101

72,886,101

- 

- 

Loans and leases

306,993,348

270,803,780

36,189,568

33,102,196

Other receivables and assets

172,100,168

147,141,526

24,958,642

14,915,938

Permanent assets

29,144,410

29,106,086

38,324

39,785

Investments

8,145,364

8,145,364

- 

- 

Premises and equipment and leased assets

7,592,568

7,569,151

23,417

24,391

Intangible assets

13,406,478

13,391,571

14,907

15,394

Total

1,239,418,766

1,147,163,722

92,255,044

72,192,534

 

 

 

 

 

Liabilities

 

  

 

 

Current and long-term liabilities

1,125,390,739

1,040,346,175

85,044,564

68,702,926

Deposits

299,144,256

280,535,522

18,608,734

16,154,351

Securities sold under agreements to repurchase

202,661,420

192,612,015

10,049,405

6,224,212

Funds from issuance of securities

153,302,710

149,900,104

3,402,606

2,980,837

Interbank and interdepartmental accounts

22,886,392

19,804,104

3,082,288

3,393,066

Borrowing and on-lending

51,367,649

25,871,122

25,496,527

23,790,249

Derivative financial instruments

16,603,583

15,469,890

1,133,693

253,655

Technical provision for insurance, pension plans and capitalization bonds

252,071,138

252,064,674

6,464

3,345

Other liabilities:

 

 

 

 

- Subordinated debts

42,756,455

29,184,706

13,571,749

11,633,039

- Others

84,597,136

74,904,038

9,693,098

4,270,172

Deferred income

388,058

388,058

- 

- 

Non-controlling interests in subsidiaries

601,246

601,246

- 

- 

Shareholders’ equity

113,038,723

113,038,723

- 

- 

Total

1,239,418,766

1,154,374,202

85,044,564

68,702,926

 

 

  

 

 

Net position of assets and liabilities

 

 

7,210,480

3,489,608

Net position of derivatives (2)

 

  

(63,324,679)

(48,559,070)

Other net off-balance-sheet accounts (3)

 

 

(643,360)

149,874

Net exchange position (liability)

 

 

(56,757,559)

(44,919,588)

 

(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 – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

II - The statement of financial position by maturity

 

 

On June 30 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

Maturity not stated

Total

Assets

 

 

 

 

 

  

Current and long-term assets

682,203,659

101,798,786

109,986,866

316,285,045

- 

1,210,274,356

Cash and due from banks

15,305,794

- 

- 

- 

- 

15,305,794

Interbank investments (1)

97,089,475

8,441,538

1,950,672

1,192,318

- 

108,674,003

Securities and derivative financial instruments (1) (2)

395,483,778

7,534,069

53,661,047

77,636,048

- 

534,314,942

Interbank and interdepartmental accounts

71,614,284

51,260

- 

1,220,557

- 

72,886,101

Loans and leases

30,104,317

62,925,726

45,596,063

168,367,242

- 

306,993,348

Other receivables and assets

72,606,011

22,846,193

8,779,084

67,868,880

- 

172,100,168

Permanent assets

471,125

2,352,922

2,770,630

14,167,060

9,382,673

29,144,410

Investments

- 

-

-

-

8,145,364

8,145,364

Premises and equipment

112,732

563,658

676,390

5,340,009

899,779

7,592,568

Intangible assets

358,393

1,789,264

2,094,240

8,827,051

337,530

13,406,478

Total on June 30, 2018

682,674,784

104,151,708

112,757,496

330,452,105

9,382,673

1,239,418,766

Total on June 30, 2017

643,403,746

91,628,554

67,115,188

378,704,627

8,272,017

1,189,124,132

             

Liabilities

 

 

 

 

 

 

Current and long-term liabilities

650,987,432

87,562,632

62,517,327

324,323,348

- 

1,125,390,739

Deposits (3)

147,576,147

13,841,555

13,366,679

124,359,875

- 

299,144,256

Securities sold under agreements to repurchase (1)

185,825,486

10,733,261

3,768,231

2,334,442

- 

202,661,420

Funds from issuance of securities

7,951,828

43,908,378

26,054,874

75,387,630

- 

153,302,710

Interbank and interdepartmental accounts

22,886,392

- 

- 

- 

- 

22,886,392

Borrowing and on-lending

5,254,883

12,700,582

14,611,566

18,800,618

- 

51,367,649

Derivative financial instruments

14,949,538

597,299

413,754

642,992

- 

16,603,583

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

215,572,484

3,781,977

1,600,151

31,116,526

- 

252,071,138

Other liabilities:

 

  

 

  

 

  

- Subordinated debts

91,933

566,410

439,271

41,658,841

- 

42,756,455

- Others

50,878,741

1,433,170

2,262,801

30,022,424

- 

84,597,136

Deferred income

388,058

- 

- 

- 

- 

388,058

Non-controlling interests in subsidiaries

-

-

- 

-

601,246

601,246

Shareholders’ equity

- 

-

-

-

113,038,723

113,038,723

Total on June 30, 2018

651,375,490

87,562,632

62,517,327

324,323,348

113,639,969

1,239,418,766

Total on June 30, 2017

612,965,358

94,705,072

79,311,742

294,861,578

107,280,382

1,189,124,132

             

Net assets accumulated on June 30, 2018

31,299,294

47,888,370

98,128,539

104,257,296

 

 

Net assets accumulated on June 30, 2017

30,438,388

27,361,870

15,165,316

99,008,365

 

 

 

(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, Audit Committee Report Summary 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 defined contribution and defined benefit retirement plans, through Fundação Baneb de Seguridade Social – Bases related to the former employees of Baneb.

 

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

 

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

 

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 first semester of 2018 totaled R$475,848 thousand (R$474,174 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$ 2,198,814 thousand during the first semester of 2018 (R$2,281,875 thousand in 2017).

 

134 Economic and Financial Analysis Report – June 2018

 

 
 

 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 six month period ended June 30 - R$ thousand

2018

2017

Income before income tax and social contribution

8,690,914

10,647,827

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

(3,910,911)

(4,791,522)

Effect on the tax calculation:

 

 

Equity investment in unconsolidated and jointly controlled companies

349,105

312,505

Net non-deductible expenses of nontaxable income

233,168

196,422

Interest on shareholders’ equity (paid and payable)

1,604,284

1,264,571

Other amounts (2)

2,129,115

415,505

Income tax and social contribution for the period

404,761

(2,602,519)

 

(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 six month period ended June 30 - R$ thousand

2018

2017

Current taxes:

 

  

Income tax and social contribution payable

(3,475,157)

(5,676,269)

Deferred taxes:

 

  

Amount recorded/realized in the period on temporary differences

992,259

4,075,395

Use of opening balances of:

 

  

Social contribution loss

(256,981)

(499,235)

Income tax loss

(277,122)

(606,943)

Constitution in the period on:

 

 

Social contribution loss

1,285,728

55,580

Income tax loss

2,136,034

48,953

Total deferred tax assets

3,879,918

3,073,750

Income tax and social contribution for the period

404,761

(2,602,519)

 

Bradesco  135

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 06/30/2018

Allowance for loan losses

29,789,386

3,947,333

2,842,983

30,893,736

Civil provisions

2,191,002

430,617

462,530

2,159,089

Tax provisions

2,874,482

84,040

74,282

2,884,240

Labor provisions

2,160,997

449,389

200,494

2,409,892

Provision for devaluation of securities and investments

239,482

27,177

17,685

248,974

Provision for devaluation of foreclosed assets

607,613

123,251

146,357

584,507

Adjustment to fair value of trading securities

3,704,394

546,698

1,099,633

3,151,459

Amortization of goodwill

346,069

19,491

9,200

356,360

Provision for interest on shareholder's equity (1)

- 

746,464

- 

746,464

Other

4,921,716

1,186,500

1,715,537

4,392,679

Total deductible taxes on temporary differences

46,835,141

7,560,960

6,568,701

47,827,400

Income tax and social contribution losses in Brazil and overseas

5,003,872

3,421,762

534,103

7,891,531

Subtotal (2)

51,839,013

10,982,722

7,102,804

55,718,931

Adjustment to fair value of available-for-sale securities

557,807

845,178

90,246

1,312,739

Total deferred tax assets (Note 10b)

52,396,820

11,827,900

7,193,050

57,031,670

Deferred tax liabilities (Note 33f)

4,562,687

890,058

1,809,316

3,643,429

Deferred tax assets, net of deferred tax liabilities

47,834,133

10,937,842

5,383,734

53,388,241

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

45.7%

 

 

54.6%

- 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

3,662,148

2,612,151

122,865

87,685

6,484,849

2019

7,365,835

4,342,178

285,416

110,753

12,104,182

2020

6,684,642

3,888,800

454,769

179,773

11,207,984

2021

5,368,177

3,113,579

807,629

414,149

9,703,534

2022

3,757,072

2,204,317

555,237

322,712

6,839,338

After 2022

2,887,231

1,941,270

2,251,004

2,299,539

9,379,044

Total

29,725,105

18,102,295

4,476,920

3,414,611

55,718,931

 

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

 

On June 30, 2018, the present value of deferred tax assets, calculated based on the average funding rate, net of tax effects, amounts to R$52,138,303 thousand (R$49,698,995 thousand in 2017), of which: R$44,741,311 thousand (2017 - R$45,488,454 thousand) of temporary differences; and R$7,396,992 thousand (R$4,210,541 thousand in 2017) to tax losses and negative basis of social contribution.

 

136  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

e)   Unrecognized deferred tax assets

 

On June 30, 2018, deferred tax assets of R$13,639 thousand (R$19,559 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 June 30 - R$ thousand

2018

2017

Fair value adjustment to securities and derivative financial instruments

624,190

1,059,687

Difference in depreciation

242,456

328,103

Judicial deposit and others

2,776,783

2,287,388

Total

3,643,429

3,675,178

 

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, Audit Committee Report Summary 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 June 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)

534,314,942

535,608,218

(593,521)

3,477,194

1,293,276

2,609,460

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

 

 

(1,886,797)

867,734

- 

- 

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

 

 

1,293,276

2,609,460

1,293,276

2,609,460

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

390,105,004

390,816,162

711,158

(3,841,295)

711,158

(3,841,295)

Investments (Notes 3j and 12) (2)

8,145,364

27,080,807

18,935,443

24,205,864

18,935,443

24,205,864

Treasury shares (Note 22d)

440,514

692,904

- 

- 

252,390

229,174

Time deposits (Notes 3n and 15a)

163,204,846

162,939,554

265,292

306,739

265,292

306,739

Funds from issuance of securities (Note 15c)

153,302,710

152,607,659

695,051

(146,878)

695,051

(146,878)

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

51,367,649

51,190,759

176,890

295,763

176,890

295,763

Subordinated debts (Note 18)

42,756,455

43,147,100

(390,645)

(902,504)

(390,645)

(902,504)

Unrealized gains excluding tax

 

 

19,799,668

23,394,883

21,938,855

22,756,323

 

(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 – June 2018

 
 

 

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

 
Notes to the Consolidated Financial Statements

 

b)    The Organization manages investment funds and portfolios with net assets which, on June 30, 2018, amounted to R$843,865,461 thousand (R$776,647,165 thousand in 2017).

 

c)   Consortium funds

 

 

On June 30 - R$ thousand

2018

2017

Monthly estimate of funds receivable from consortium members

648,493

607,210

Contributions payable by the group

30,638,913

30,245,004

Consortium members - assets to be included

26,553,286

26,388,770

Credits available to consortium members

6,162,460

5,796,239

b)         

 

 

On June 30 - In units

2018

2017

Number of groups managed

3,489

3,610

Number of active consortium members

1,443,669

1,384,333

Number of assets to be included

616,613

629,062

 

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 June 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, Audit Committee Report Summary and Fiscal Council’s Report
 
Notes to the Consolidated Financial Statements

 

e)     In the first semester of 2018, in order to adjust the structural levels of compulsory deposits, simplify and improve the rules and induce a reduction in the cost of credit, the Central Bank changed its rules for the collection of compulsory deposits, according to the table below:

 

Description

Standard before amendment

Amended 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 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, observing 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 will be submitted to the approval of the shareholders of the company, in General Meeting expected for August 6, 2018.

 

140  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Management Bodies

 

Reference date: July 10, 2018  Gilvandro Matos Silva   
  Jefferson Ricardo Romon  Integrated Risk Management Committee 
Board of Directors  José Augusto Ramalho Miranda  and Capital Allocation 
  José Gomes Fernandes  André Rodrigues Cano - Coordinator 
Chairman  Julio Cardoso Paixão  Alexandre da Silva Glüher 
Luiz Carlos Trabuco Cappi  Klayton Tomaz dos Santos  Josué Augusto Pancini 
  Manoel Guedes de Araujo Neto  Maurício Machado de Minas 
Vice-Chairman  Marcos Antônio Martins  Marcelo de Araújo Noronha 
Carlos Alberto Rodrigues Guilherme  Nairo José Martinelli Vidal Júnior  Moacir Nachbar Junior 
  Oswaldo Tadeu Fernandes  Cassiano Ricardo Scarpelli 
Members  Paulo Eduardo Waack  Eurico Ramos Fabri 
Denise Aguiar Alvarez  Roberto França  Marlos Francisco de Souza Araujo 
João Aguiar Alvarez  Roberto Medeiros Paula   
Milton Matsumoto  Romero Gomes de Albuquerque  Risk Committee 
Alexandre da Silva Glüher  Victor Rosa Marinho de Queiroz  José Alcides Munhoz - Coordinator 
Josué Augusto Pancini    Carlos Alberto Rodrigues Guilherme 
Maurício Machado de Minas  Regional Officers  André Rodrigues Cano 
  Ademir Aparecido Correa Junior   
Board  Alberto do Nascimento Lemos  Succession Planning and Nomination 
  Almir Rocha  Committee 
Executive Officers  Altair Luiz Guarda  Luiz Carlos Trabuco Cappi - Coordinator 
Chief Executive Officer  Altair Naumann  Carlos Alberto Rodrigues Guilherme 
Octavio de Lazari Junior  Amadeu Emilio Suter Neto  Milton Matsumoto 
  Antonio Piovesan  Octavio de Lazari Junior 
Executive Vice-Presidents  César Cabús Berenguer Silvany  André Rodrigues Cano 
Josué Augusto Pancini  Delvair Fidêncio de Lima  Glaucimar Peticov 
Maurício Machado de Minas  Francisco Assis da Silveira Junior   
Marcelo de Araújo Noronha  Francisco Henrique França Fernandes  Sustainability and Diversity Committee 
André Rodrigues Cano  Geraldo Dias Pacheco  Luiz Carlos Trabuco Cappi - Coordinator 
Cassiano Ricardo Scarpelli  João Alexandre Silva  Carlos Alberto Rodrigues Guilherme 
Eurico Ramos Fabri  João Pedro da Silva Villela  Milton Matsumoto 
  Joel Queiroz de Lima  Alexandre da Silva Glüher 
Managing Directors  José Flávio Ferreira Clemente  Josué Augusto Pancini 
Denise Pauli Pavarina  José Roberto Guzela  Maurício Machado de Minas 
Moacir Nachbar Junior  Luís Francisco da Silva Júnior  Octavio de Lazari Junior 
Renato Ejnisman  Nelson Veiga Neto  Marcelo de Araújo Noronha 
Walkiria Schirrmeister Marchetti  Osmar Sanches Biscuola  André Rodrigues Cano 
  Paulo Roberto Andrade de Aguiar  Denise Pauli Pavarina 
Deputy Directors    Moacir Nachbar Junior 
Aurélio Guido Pagani  Committees Subordinated to the Board of  Eurico Ramos Fabri 
Guilherme Muller Leal  Directors  Glaucimar Peticov 
Luiz Carlos Brandão Cavalcanti Junior    Marcos Aparecido Galende 
Rogério Pedro Câmara  Statutory Committees   
João Carlos Gomes da Silva    Committee to the Chief Executive Officer 
Bruno D´Avila Melo Boetger  Audit Committee   
Glaucimar Peticov  Milton Matsumoto - Coordinator  Executive Disclosure Committee 
José Ramos Rocha Neto  Paulo Roberto Simões da Cunha – Financial  Denise Pauli Pavarina - Coordinator 
  Expert  Josué Augusto Pancini 
Department Directors  Wilson Antonio Salmeron Gutierrez  Maurício Machado de Minas 
Amilton Nieto    Octavio de Lazari Junior 
André Bernardino da Cruz Filho  Compensation Committee  Marcelo de Araújo Noronha 
André Ferreira Gomes  Luiz Carlos Trabuco Cappi - Coordinator  André Rodrigues Cano 
Antonio Carlos Melhado  Carlos Alberto Rodrigues Guilherme  Moacir Nachbar Junior 
Antonio Daissuke Tokuriki  Milton Matsumoto  Antonio José da Barbara 
Antonio Gualberto Diniz  Valdirene Soares Secato (non-Manager)  Carlos Wagner Firetti 
Antonio José da Barbara    Marcelo Santos Dall’Occo 
Carlos Wagner Firetti  Non-Statutory Committees  Marcos Aparecido Galende 
Clayton Camacho    Oswaldo Tadeu Fernandes 
Edilson Wiggers  Compliance and Internal Control Committee  Haydewaldo Roberto Chamberlain da Costa 
Edson Marcelo Moreto  Carlos Alberto Rodrigues Guilherme -   
Fernando Antônio Tenório  Coordinator  Fiscal Consil 
Frederico William Wolf  Milton Matsumoto   
Hiroshi Obuchi  Alexandre da Silva Glüher  Sitting Members 
João Albino Winkelmann  Josué Augusto Pancini  Ariovaldo Pereira - Coordinator 
José Sérgio Bordin  Maurício Machado de Minas  Domingos Aparecido Maia 
Layette Lamartine Azevedo Júnior  Marcelo de Araújo Noronha  José Maria Soares Nunes 
Leandro José Diniz  André Rodrigues Cano  João Carlos de Oliveira 
Lucio Rideki Takahama  Moacir Nachbar Junior  Walter Luis Bernardes Albertoni 
Marcelo Frontini  Clayton Camacho   
Marcelo Santos Dall’Occo  Edilson Wiggers  Deputy Members 
Marcio Henrique Araujo Parizotto  Frederico William Wolf  Jorge Tadeu Pinto de Figueiredo 
Marcos Aparecido Galende  Marlos Francisco de Souza Araujo  Nilson Pinhal 
Marlos Francisco de Souza Araujo    Renaud Roberto Teixeira 
Mauricio Gomes Maciel  Ethical Conduct Committee  José Luiz Rodrigues Bueno 
Paulo Aparecido dos Santos  Carlos Alberto Rodrigues Guilherme -  Reginaldo Ferreira Alexandre 
Paulo Manuel Taveira de Oliveira Ferreira  Coordinator   
Roberto de Jesus Paris  Milton Matsumoto  Ombudsman Department 
Waldemar Ruggiero Júnior  Alexandre da Silva Glüher  Nairo José Martinelli Vidal Júnior - 
  Josué Augusto Pancini  Ombudsman 
Directors  Maurício Machado de Minas   
Albert Adell Roso  Octavio de Lazari Junior   
Alexandre Cesar Pinheiro Quercia  Marcelo de Araújo Noronha  General Accounting Department 
Antranik Haroutiounian  André Rodrigues Cano  Oswaldo Tadeu Fernandes 
Carlos Alberto Alástico  Clayton Camacho  Accountant– CRC 1SP271968/O-5 
Carlos Henrique Villela Pedras  Edilson Wiggers   
Carlos Leibowicz  Frederico William Wolf   
Edilson Dias dos Reis  Glaucimar Peticov   
Edmir José Domingues  Nairo José Martinelli Vidal Júnior   
Fernando Freiberger     
Fernando Honorato Barbosa     

 

 

Bradesco  141

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Independent Auditors’ Report on the Consolidated Financial Statements

 

To

Shareholders and the Board of Directors of

Banco Bradesco S.A.

Osasco – SP

Opinion

We have audited the consolidated financial statements of Banco Bradesco S.A. (“Bradesco”), which comprise the consolidated balance sheet as of June 30, 2018 and the respective consolidated statements of income, changes in shareholders’ equity and cash flows for the semester then ended, as well as the related explanatory notes, including a summary of the main accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Bradesco as of June 30, 2018, the consolidated performance of its operations and its respective consolidated cash flows, for the semester then ended, in accordance with the accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil.

Basis for opinion

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

Key Audit Matters

Key audit matters are those that, in our professional judgment, were of most significance in our audit of the current semester. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and, we do not express a separate opinion on these matters.

§         Allowance for doubtful accounts

As disclosed in Notes 3g and 9, for purposes of measuring the allowance for doubtful accounts, which total amount shown in the Consolidated Financial Statements is R$ 35,152,645 thousand, Bradesco classifies its loans (which comprise loans, leasing, advances on foreign exchange contracts, other receivables with credit characteristics), into nine risk levels, taking into account inputs and assumptions, from clients and operations, such as late payments, economic and financial position, indebtedness level, economy sector, guarantee characteristics, and the other factors and assumptions described in CMN Resolution No. 2.682/1999, with rating “AA” being the minimum risk level, and “H” the maximum risk level. Bradesco initially applies the loss percentages established in such Resolution for each risk level for purposes of calculating the allowance and further increases the allowance, when necessary, based on additional internal evaluations (excess provision). The classification of loans into risk levels as well as the loss percentages related to each risk level requires Bradesco to make assumptions and judgments, based on its internal risk classification methodologies, and the allowance for doubtful accounts represent Bradesco’s best estimate of the portfolio losses. Due to the relevance of loans and the uncertainties related to the estimate of the allowance for doubtful accounts, we consider this as a significant matter in our audit.

 

How our audit addressed this matter

 

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

 

142  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Independent Auditors’ Report on the Consolidated Financial Statements

 

Based on the evidence obtained from the procedures summarized above, we considered adequate Bradesco's estimate of the allowance for doubtful accounts, as well as the respective disclosures in the context of the consolidated financial statements taken as a whole.

§ Measurement of financial instruments

As disclosed in the Notes 3e, 3f, 7 and 34a, derivative financial instruments amount to R$ 16,197,700  thousand (assets) and R$ (16,603,583) thousand (liabilities), available-for-sale securities amount to R$ 237,857,805 thousand and trading securities amount to R$ 224,020,543 thousand. These instruments, measured at market value, are relevant to the consolidated financial statements of Bradesco. For the financial instruments whose the market prices or parameters are not observable, the determination of the market values is subject to a higher uncertainty level, to the extent Bradesco makes significant judgments to estimate such amounts In addition, financial assets classified as available-for-sale and held-to-maturity are also evaluated for indications of evidence of impairment losses. Therefore, we consider the market value measurement of these financial instruments as a significant matter in our audit.

 

How our audit addressed this matter

As part of our procedures, we evaluate the design, operating effectiveness of the relevant internal controls implemented by Bradesco to mitigate the risk of material misstatement in the consolidated financial statements arising from uncertainties in the market value measurement of financial instruments. For a sample of financial instruments which market value measurement parameters are not observable, we evaluate, with the technical support of our specialists in financial instruments, the models developed by Bradesco for determining market values and the reasonableness of data, parameters and information included in the pricing models used, and we recalculate the amount of operations, as well as the criteria and policies related to indications of evidence of impairment losses. Our procedures also included the evaluation of the disclosures made by Bradesco in the consolidated financial statements described in Notes 3e, 3f, 7 and 34a.

 

Based on the evidence obtained from the procedures summarized above, we considered the market value measurement of financial instruments and respective disclosures adequate in the context of the consolidated financial statements taken as a whole.

 

§ Provisions and contingent liabilities - tax, civil and labor

As described in Notes 3p and 17, Bradesco is defendant in lawsuits of tax, civil and labor nature, related to the normal course of its activities, which total provision recognized in the consolidated financial statements amounts to R$ 7,803,196  thousand, R$ 5,443,371 thousand, and R$ 5,989,460 thousand, respectively. Some laws, regulations and legal disputes in Brazil have high complexity levels, and, therefore, the measurement, recognition and disclosure of Provisions and Contingent Liabilities, related to lawsuits, and/or, in certain cases, adherence to laws and regulations, require Bradesco’s professional judgment. Due to the relevance, complexity and judgment involved in the evaluation, measurement, definition of recognition and disclosures related to Provisions and Contingent Liabilities, we consider this as a significant matter in our audit.

 

How our audit addressed this matter

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

 

Bradesco  143

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Independent Auditors’ Report on the Consolidated Financial Statements

 

Based on the evidence obtained from the procedures summarized above, we considered adequate Bradesco's estimate of the provisions and contingent liabilities, as well as the respective disclosures in the context of the consolidated financial statements taken as a whole.

 

§ Impairment of assets

The consolidated financial statements include deferred tax assets in the amount of R$ 57,031,670 thousand (Note 33) and intangible assets, which include goodwill on acquisitions in the amount of R$ 7,926,986 thousand and other intangible assets in the amount of R$ 3,763,474 thousand (Note 14) which realization depends on future profitability based on business plans and budgets prepared by Bradesco and which are supported by several economic and business assumptions, among others. Since they require the exercise of judgment, such estimates are prepared and reviewed internally according to Bradesco’s governance framework. As described in Notes 3h, 3l and 3m, considering the frequent changes that occur in the economic or regulatory environment of the markets where it operates, Bradesco continuously evaluate the assumptions and estimates of taxable profit, profitability of the cash generating units (CGU) to which goodwill and intangible assets are allocated, growth rates, discount rates, and cash flow projections or at least the existence of indicators of impairment of assets. In view of the relevance of the future profitability estimates made and the impact that changes in the assumptions of such estimates would have on the consolidated financial statements, we consider this area relevant to our audit.

 

How our audit addressed this matter

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

 

Based on the evidence obtained from the procedures summarized above, we considered the measurement of impairment and the respective disclosures adequate in the context of the consolidated financial statements taken as a whole.

 

§ Technical Provisions – Insurance and Pension Plans

As mentioned in Notes 3o and 20, Bradesco has liabilities related to insurance and pension plans contracts denominated Technical Provisions, in the amount of R$ 244,198,465 thousand. In view of the uncertainties inherent in insurance and pension plans contracts, the process of determination and measurement of technical reserves which includes the liability adequacy test, involves a high judgment level. Bradesco continuously evaluates methodologies and assumptions, which include, among others, expectations of loss ratio, mortality, longevity, persistency, conversion into income and interest rates. Due to the relevance of Bradesco's judgment, subjectivity, uncertainties and the impact that eventual changes in assumptions and methodologies would have on the amount of Technical Provisions, we consider this matter relevant to our audit.

 

How our audit addressed this matter

On sampling basis, we tested the design, operating effectiveness of the significant internal controls related to the Technical Provisions. With the technical support of our actuarial specialists, we made the evaluation of the methodologies used for measuring technical reserves and the liability adequacy test. We also evaluated, on a sample bases, the consistency of data and reasonableness of assumptions, such as loss ratio, mortality, longevity, persistency, conversion into income and interest rates, and we made the recalculation tests. Our audit procedures also included the evaluation of the disclosures made in the consolidated financial statements Notes 3o and 20.

 

Based on evidence obtained from the procedures summarized above, we considered Bradesco's estimate for the technical provisions of insurance and pension plans, as well as the respective disclosures adequate in the context of the consolidated financial statements taken as a whole.

 

§ Application controls and information technology general controls

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

 

144  Economic and Financial Analysis Report – June 2018

 
 

 

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

 

Independent Auditors’ Report on the Consolidated Financial Statements

 

How our audit addressed this matter

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

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

Other matters

 

Statement of added value

The consolidated statement of added value for semester the ended June 30, 2018, prepared under the responsibility of Bradesco's management, and presented as supplementary information in relation to the accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil, was subjected to audit procedures performed in conjunction with the audit of Bradesco's consolidated financial statements. For the purposes of forming our opinion, we assess whether these statements are reconciled with the consolidated financial statements and accounting records, as applicable, and if their form and content are in accordance with the criteria set forth in Technical Pronouncement CPC 09 - Statement of Value Added. In our opinion, these consolidated statements of value added have been properly prepared, in all material respects, in accordance with the criteria set forth in this Technical Pronouncement and are consistent with the consolidated financial statements taken as a whole.

 

Individual financial statements

Bradesco prepared a complete set of individual financial statements of Banco Bradesco S.A. for semester the ended June 30, 2018 in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil that were presented separately, over which we issued a separate independent audit report, without any modification, dated July 25, 2018.

 

Other information that accompany the consolidated financial statements and the auditor report


Bradesco’s management is responsible for the other information. The other information comprises the Management´s Report.

 

Our opinion on the consolidated financial statements does not cover other information, and we do not express any form of assurance conclusion thereon.


In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or with our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Bradesco  145

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary and Fiscal Council’s Report
 
Independent Auditors’ Report on the Consolidated Financial Statements

 

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

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Central Bank of Brazil, and the internal controls as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement whether due to fraud or error.

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

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

Auditors’ responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor´s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with the Brazilian and International Standards on Auditing, we exercise professional judgment, and maintain professional skepticism throughout the audit. We also:

 

·

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

 

·

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

 

·

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

 

·

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

·

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

 

146  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Independent Auditors’ Report on the Consolidated Financial Statements

 

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

 

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

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

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

 

Osasco, July 25, 2018

 

 

Blue logo 

KPMG Auditores Independentes

CRC 2SP028567/O-1 F SP

Rodrigo de Mattos Lia

Accountant CRC 1SP252418/O-3

Bradesco  147

 
 

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

 

To the Board of Directors of the

BRADESCO ORGANIZATION

 

·                PRESENTATION

 

The Statutory Audit Committee is a Body of a permanent nature, linked directly to the Board of Directors of the Bradesco Organization, governed by Resolution No. 3,198/2004, of the National Monetary Council (CMN), and other applicable regulations, among which is Law No. 6,404/76 - Lei das S/A (Corporation Law) and the Sarbanes-Oxley Act - for Companies registered in the U.S. Securities and Exchange Commission and listed on the New York Stock Exchange, possessing its own Internal Regulation, available on the website www.bradesco.com.br/ri, area of Corporate Governance.

 

The Audit Committee has the purpose of advising the Board of Directors on the exercise of its duties, acting primarily regarding (i) the quality, transparency and integrity of the individual and consolidated financial statements; (ii) the effectiveness of internal controls to mitigate the risks in relevant processes; and (iii) the assurance of the independence and quality of the work of Independent and Internal Audits.

 

It is the responsibility of the Management and of the Independent Audit to ensure that the individual or consolidated financial statements of the Bradesco Organization are complete and accurate, and are presented in accordance with the practices adopted in Brazil issued by the Accounting Pronouncements Committee (CPC) and with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

 

The Audit Committee is composed of a Board of Directors’ Member – Milton Matsumoto (coordinator), Paulo Roberto Simões da Cunha (financial specialist), and Wilson Antonio Salmeron Gutierrez. All the members meet the independence criteria set out in the current legislation.

 

 

·                DUTIES AND RESPONSIBILITIES

 

·         Management of Banco Bradesco and its Affiliated Companies

 

The Management is responsible: (i) for the definition and implementation of processes and procedures in order to collect data for the preparation of the financial statements, in compliance with the corporate legislation, with the accounting practices adopted in Brazil, in addition to those issued by the International Accounting Standards Board (IASB), of normative acts relevant to the Securities and Exchange Commission (CVM) and, due to Banco Bradesco being listed on the New York Stock Exchange, of the standards established by the Securities and Exchange Commission (CVM) by the Sarbanes-Oxley Act (SOX); (ii) for preparing and ensuring the integrity of financial statements, managing risks, maintaining an effective system of internal controls and ensuring compliance with the activities in accordance with the legal rules and regulations, and (iii) for processes, policies and internal control procedures to ensure the safeguarding of assets, the timely recognition of liabilities and the elimination or reduction, to acceptable levels of risk factors.

 

·         Internal Audit

 

The area directly subordinate to the Board of Directors. It responds by conducting periodic assignments, focused on the main risks, evaluating, wide and independently, the actions of management of these risks and the adequacy of internal controls and governance,

 

contemplating the areas and activities that have risks that are more sensitive to the operations and strategy of the Bradesco Organization.

 

In accordance with the existing regulations, the Audit Committee and the Board of Directors are responsible for approving the Regulation, the Work Plan and the Annual Report on the Activities of the Internal Audit.

 

148  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Audit Committee Report Summary

 

·         Independent Audit

 

KPMG Auditores Independentes (KPMG) is responsible for the audit of the annual financial statements published and for the revision of the quarterly information (ITRs) filed with the CVM, issuing reports that reflect the results of their verifications and to present their independent opinion regarding the reliability of the financial statements in relation to the practices adopted in Brazil, issued by the Accounting Pronouncements Committee (CPC) and with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), besides the adherence to the standards of the CVM, precepts of the Brazilian corporation law and North American regulations applicable to Banco Bradesco.

 

·         Risk Management and Monitoring

 

The Department of Risk Management (DCIR), linked to the Vice-Presidency of Risks, is responsible for strengthening the integrated vision of risks, through the identification, assessment, monitoring and management of risks, in conjunction with the various areas and companies of the Bradesco Organization.

 

·         Compliance and Internal Controls

 

The Department of Compliance, Conduct and Ethics (DCCE) is responsible for supporting the Board of Directors, the Audit Committee and the Board of Executive Officers in conducting a Program of Corporate Conduct (Compliance), which consists in the compliance with the internal and external laws and regulations, aligned with the Organization's strategy and its social surroundings.

 

It is also responsible for establishing standards and subsidizing the Areas in compliance with the issues related to integrity, conflict of interests, ethics, corporate and competitive conduct, anti-corruption, prevention of money laundering and the financing of terrorism,, and sanctions (restrictive lists).

 

·         Customer Call Center (SAC)

 

The monitoring of the performance of the Organization against the Rankings of Complaints is of competence of the Ombudsmen of Banco Bradesco and the Grupo Bradesco Seguros, reporting the main events, contributing with changes to the practices and routines to meet the expectations of clients and users.

 

To ensure the outcome and to stimulate the continuous improvement of processes, products and services, the Ombudsmen interact with the Dependencies and Related Companies, in addition to interacting with the Regulatory Agencies and those of Consumer Rights and Protection.

 

The Audit Committee holds semiannual meetings with the Ombudsman Areas.

Bradesco  149

 
 

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

 

·                SUMMARY OF ACTIVITIES – FIRST HALF OF 2018

 

The Committee has participated in 139 meetings, especially those with the Board of Directors, with the Fiscal Council, with executives from the areas of Business, Information Technology, of Internal Control, Compliance and Risk Management, with the internal and independent auditors, and with the Central Bank of Brazil. The meetings, duly formalized in Minutes, are presented as:

 

In the scope of Continuing Education, the members of the Committee participate in congresses, seminars and refresher courses and technical/professional development, which totaled 72 hours in the first half of 2018.

The work plan of the Audit Committee, for the period mentioned, had as its focus the main processes and products inherent to the business of the Bradesco Organization. Among the aspects considered most relevant, we highlight:

 

·  Impairment: loans and advances portfolio, including guarantees, sureties and debentures;

 

·  Fair value of financial instruments: measuring the fair value of derivative instruments, available-for-sale securities and trading, and their impacts when IFRS 9 is applied;

 

150  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Audit Committee Report Summary

 

·  Tax, Civil and Labor Provisions: integrity of the database and criteria adopted for the accounting provisions;

 

·  Recoverable value of assets – Tax Credits and Premiums: achievement supported by assumptions and estimates of future profitability based on the business plan and budget prepared by the Management;

 

·  Actuarial Technical Provisions: premises in adherence to the Actuarial Technical Notes and Pledged Assets (linked to bonds and securities);

 

·  Relationship with Clients: regulatory compliance in meeting the consumer service standards: Customer Service (SAC/Ombudsman) and Prevention of Money Laundering (PLD) and the Concentration Agreement – Administrative Council for Economic Defense (CADE), Central Bank of Brazil (Bacen), and the Program of Consumer Rights and Protection (Procon): commitment signed at the time of acquisition of HSBC;

 

·  Management of credit portfolios: evolution of different credit portfolios in the face of the economic framework, renewals, recoveries and concessions of new credits;

 

·  Compliance: effectiveness of structures responsible for ensuring compliance with the laws, rules and regulations applicable to the business;

 

·  Internal Control Systems: effective action of the first three lines of defense, as to the responsibility of each one in the improvement of the controls adopted, aiming to mitigate the risks inherent to the business processes.

 

·                Internal Audit

 

To allow the effective and appropriate monitoring of the activities performed by the Internal Audit, in adherence to the regulations in force, the Audit Committee received information of the highlights of the work carried out, by means of reports and executive overviews, and periodic meetings were also part of the work of the Audit Committee with the Internal Audit.

 

Upon acknowledgement of the focal points and recommendations, the Audit Committee has followed the remedial measures taken by the Management with the areas audited.

 

Annually, the function of Internal Audit is submitted to a process of technical evaluation conducted by the Committee, whose results are discussed with the Board of the Internal Audit. This practice of evaluation is one of the important items in the maintenance of the Program for Quality Certification of The Institute of Internal Auditors (IIA), which envisages the continuous improvement of the management of the processes in this Area and in the adoption of best practices (methodologies, tools and management).

 

The Internal Audit has responded adequately to the demands of the Audit Committee and to the needs and requirements of the Organization and the Regulatory Agencies.

 

·                Independent Audit

 

With respect to the Audits of the Financial Statements of Banco Bradesco and Affiliated Companies performed in the first half of 2018, conducted by KPMG Auditores Independentes (KPMG), the teams responsible for the assignment presented, in a timely manner, the results and main conclusions to the Audit Committee.

 

The highlight is the procedure of this Committee, upon acknowledging the relevant aspects involving the evaluation of the accounting systems and internal controls, drawn up in connection with the audits of the Financial Statements, to monitor the implementation of the respective recommendations for the improvement of processes, systems and risk mitigations.

Bradesco  151

 
 

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

 

The Audit Committee has evaluated the proposals presented by KPMG to perform Other Services, in relation to the verification of the absence of conflicts of interest or risk of loss of independence.

 

Based on the planning submitted by the Independent Auditors, in subsequent discussions about the results of the assignments and the formal process of "Technical Evaluation of the Independent Audit", the Committee considers that the assignments were adequate to the business of the Organization.

 

·                Management and Monitoring of Risks

 

In the meetings during the first half of 2018 with the area responsible for the Integrated Control of Risks (DCIR) and other correlated departments of the Bradesco Organization, issues regarding the Matrix of Corporate Risks were dealt with.

 

For the Market Risks and Liquidity, weekly, the Audit Committee through the reports received, monitors the results of the "trading" portfolio and the limits established by governance for the corresponding Value at Risk (VARs), Minimum Reserves of Liquidity (RML) and Liquidity Coverage Ratio (LCR). The main exposures in currencies, indexes and assets are also reported to the Audit Committee, including the "Banking" Portfolio with the correspondent Economic Value of Equity (∆EVE).

 

For the Credit Risks, monthly, the Committee meets with the area responsible for the Integrated Control of Risks for assessment of the evolution of the main Credit Portfolios, delinquency levels by individuals, legal entities and their respective Segments, as well as by modalities and sectors of the economy. In these meetings verifications are made as to the sufficiencies of provision, concentration levels and approaches for credit recovery.

 

·                Compliance and Internal Control System

 

The Management of the Internal Control System in the Bradesco Organization is exercised by an Independent Unit of the commercial areas.

 

During the first half of 2018, the Audit Committee monitored the work of the Department of Integrated Control of Risks (DCIR), in the evaluation of adherence to the Internal Control System and in the identification, monitoring, and management of the more relevant risks.

 

The evaluations were completed at the time of the meetings with the various business and control areas, with the independent and internal audits, in the monitoring of the main processes, and Management’s commitment to act to mitigate risks, and in the continuous improvement of the associated internal controls.

 

Assumptions that allow the Audit Committee to recognize that the activities carried out in the context of Compliance and Corporate internal control system are properly routed, considering the size and complexity of the Organization and record as positive, the efforts that have been made to guarantee the efficiency of its operations, of information that generate the financial reports, as well as the compliance with internal and external standards to which the transactions are subjected.

 

 

·                Customer Call Center (SAC)

 

In the meetings of the area of Ombudsman with the Audit Committee specific situations of complaints via the various Whistle Blowing Channels available were addressed. Details presented regarding the current normatized and practiced procedures in disagreement to such guidelines, with a record of actions sent to Business managers involved with the theme of rectifying such anomalies, which allow, corporately, the improvement of processes and the acculturation of areas in the marketing of products and services of the Bradesco Organization.

 

·                Financial Statements of Banco Bradesco and Affiliated Companies

 

The Committee met with the areas of General Accounting (CG), Planning, Budget and Control (COPD), Internal Audit (IGL) and Independent Audit (KPMG) to assess the financial statements, the occasion in which the aspects of preparation of balance sheets and individual and consolidated balance sheets, the explanatory notes and the financial reports published were verified.

 

152  Economic and Financial Analysis Report – June 2018

 
 

 

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

 
Audit Committee Report Summary

 

The accounting practices adopted were also examined, in accordance with the regulations in Brazil, including those issued by the responsible supervisory authorities – Central Bank of Brazil (Bacen), Superintendence of Private Insurance (SUSEP), Securities and Exchange Commission (CVM) and National Supplementary Health Agency (ANS). The Committee reviewed the procedures for the preparation and disclosure of the consolidated financial statements prepared in accordance with standards issued by the International Accounting Standards Board (IASB).

 

Before the disclosure of the Quarterly Information (ITRs) and the semiannual balance sheet of June 30, 2018, the Committee met with KPMG to assess the aspects of independence of auditors and the control environment in generating the figures for disclosure.

 

The Committee held a semiannual meeting with the Board of Directors of the Bradesco Organization and with the Fiscal Council, at which time it presented the results of the work of its activities and the respective recommendations to be addressed to the executives.

 

·                CONCLUSION

 

Based on the work, evaluations, reviews, and discussions mentioned above, and taking into account the context and scope of its duties, the Audit Committee on recognizing that all the relevant issues that they were presented with are adequately disclosed in the Financial Statements and Financial Reports for the fiscal year ended on June 30, 2018, accompanied by the Report of the Independent Auditors issued with no exceptions, recommends to the Board of Directors the approval of the mentioned Financial Statements.

 

 

Cidade de Deus, Osasco, SP, July 25, 2018.

 

 

 

 

MILTON MATSUMOTO

                                                                                              (Coordinator)

 

 

PAULO ROBERTO SIMÕES DA CUNHA

                                                                   (Financial Specialist)

 

 

WILSON ANTONIO SALMERON GUTIERREZ

 

Bradesco  153

 
 

Consolidated Financial Statements, Independent Auditors' Report, Audit Committee Report Summary 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 Resolution No. 3,059/02, of National Monetary Council; and the Circular Letter No. 3,171/02, of the Brazilian Central Bank, whose values are shown in respective Explanatory Notes; (iii) meetings with Independent Auditors; (iv) Audit Committee reports; (v) analysis of documents and substantially, information received; and (vi) periodic meetings with administrators and managers of Bradesco's areas, concluded that the reviewed documents appropriately reflect the assets and liabilities, financial status and activities developed by Bradesco in the first semester of 2018, supporting Audit committee's opinion that internal controls are appropriate considering the size and complexity of its business, structured in conformity with internal and external standards, which are subjected and supported by financial reportings systems in order to assure operating efficiency.

In view of the foregoing, the Fiscal Council's members 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, July 25, 2018.

 

 

 

Ariovaldo Pereira

 

Domingos Aparecido Maia

 

José Maria Soares Nunes

 

João Carlos de Oliveira

 

Walter Luis Bernardes Albertoni

154 Economic and Financial Analysis Report – June 2018

 
 

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

 

banco.bradesco.com/ri

 

 

Bradesco  155

 
 
 
 
 
SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 7, 2018
 
BANCO BRADESCO S.A.
By:
  
/S/Denise Pauli Pavarina
    Denise Pauli Pavarina
Executive Director Manager 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.