Business Context and Reporting Period
Company: Banco Bradesco S.A. (Bank Bradesco)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2021
Business Overview: Bradesco is a leading private-sector universal bank and prudential conglomerate in Brazil. Its operations include commercial banking, foreign exchange, consumer financing, housing loans, leasing, investment banking, brokerage, insurance, and pension plans. The financial statements are prepared in accordance with Brazilian Central Bank (Bacen) regulations and International Financial Reporting Standards (IFRS) principles.
Key Financial Metrics
| Metric (R$ thousand) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|
| Net Revenue from Financial Intermediation | 35,321,691 | (10,194,707) |
| Operating Profit | 17,035,594 | (11,462,787) |
| Net Income | 12,127,062 | 6,888,141 |
| Net Income Attributable to Controlling Shareholders | 12,127,062 | 6,888,141 |
| Basic EPS (Common Share) | R$ 1.19 | R$ 0.68 |
| Basic EPS (Preferred Share) | R$ 1.31 | R$ 0.74 |
| Total Assets (June 30, 2021) | 1,372,774,232 | 1,342,534,904 (Dec 31, 2020) |
| Total Loans and Leases (Gross) | 485,146,326 | 455,919,789 (Dec 31, 2020) |
| Allowance for Loan Losses | (44,264,515) | (45,199,423) (Dec 31, 2020) |
| Shareholders' Equity | 146,506,832 | 143,707,597 (Dec 31, 2020) |
| Basel Ratio | 16.0% | 15.8% (Dec 31, 2020) |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased by approximately 76% year-over-year, rising from R$6.9 billion to R$12.1 billion. This turnaround was driven by a significant improvement in net revenue from financial intermediation, which swung from a loss of R$10.2 billion in 2020 to a profit of R$35.3 billion in 2021.
- Derivative Performance: A major contributor to the 2020 loss was a net loss of R$19.95 billion on derivative financial instruments. In the first half of 2021, this reversed to a net gain of R$529.8 million.
- Reduced Credit Loss Provisions: The expense for expected credit loss associated with credit risk decreased significantly from R$15.5 billion in 2020 to R$7.5 billion in 2021, reflecting improved credit quality or stabilization of the portfolio.
- Loan Portfolio Growth: The gross loan and lease portfolio grew by approximately R$29.2 billion (6.4%) compared to the end of 2020, reaching R$485.1 billion.
- Capitalization: Shareholders' equity increased by R$2.8 billion to R$146.5 billion, supported by net income and a capital increase via bonus shares.
Guidance, Outlook, Risks, and Unusual Items
- Dividends and Interest on Equity: The Board approved the payment of intermediary interest on shareholders' equity for the first half of 2021 totaling R$5.0 billion (net of tax), paid in July 2021. The payout ratio (interest on equity net of tax) was 44.21% of net income.
- Capital Management: The Basel ratio stands at 16.0%, well above regulatory minimums. Tier I capital is 14.2% and Common Equity is 13.1%.
- COVID-19 Impact: Management continues to monitor the pandemic's impact. While the crisis has been factored into provisioning levels, the duration and potential deterioration of the economic environment remain uncertain. The bank has maintained a Business Continuity Plan and digital transformation efforts.
- Unusual Items: Non-recurring net income for the period was a loss of R$707 million, primarily due to the amortization of goodwill (R$701 million) related to atypical acquisitions. Recurring net income was R$12.8 billion.
- Legal and Tax Contingencies: Significant provisions exist for tax, civil, and labor lawsuits totaling R$21.0 billion. Key tax disputes involve PIS/COFINS calculation bases and pension contributions. Contingent liabilities not recognized in the balance sheet total approximately R$36.3 billion (civil and tax).
- Regulatory Changes: A new law (Law No. 14,183) increased the Social Contribution on Net Income (CSLL) rate for financial institutions by 5% for the second half of 2021. Management assesses the impact as not material for the full year due to the short duration.
Investor Verification Checklist
- Credit Quality Trends: Verify the stability of the allowance for loan losses (R$44.3 billion) and the migration of loans between risk ratings (AA to H) in light of the ongoing economic recovery.
- Derivative Exposure: Review the composition of the R$669.4 billion nominal value of derivative instruments and the sensitivity of fair values to interest rate and exchange rate fluctuations.
- Tax Litigation Outcomes: Monitor the status of major tax provisions (R$7.0 billion), particularly regarding PIS/COFINS and pension contributions, as favorable rulings could reverse these provisions.
- Goodwill Amortization: Assess the impact of the R$701 million goodwill amortization on future earnings and the sustainability of recurring income metrics.
- Liquidity Position: Confirm the adequacy of cash and cash equivalents (R$101.7 billion) and the maturity profile of liabilities to ensure coverage of short-term obligations.