BBD

Business Context and Reporting Period

This Form 6-K filing presents the unaudited Financial Statements of the Prudential Conglomerate of Banco Bradesco S.A. (Bradesco) for the six-month period ended June 30, 2015. The statements were prepared in accordance with Resolution No. 4.280/13 of the National Monetary Council (CMN) and regulations of the Central Bank of Brazil. Bradesco operates as a universal bank with diversified activities including commercial banking, leasing, investment banking, insurance, and asset management.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability: Net income increased by approximately 20.7% to R$8.72 billion, driven primarily by a significant increase in "Equity in the earnings of subsidiaries and affiliates" (R$9.22 billion in 2015 vs. R$0.80 billion in 2014). However, Gross Income from Financial Intermediation declined sharply by 59.2% to R$7.97 billion.
• Expense Growth: Financial intermediation expenses rose to R$47.52 billion from R$29.32 billion. The allowance for loan losses increased to R$7.97 billion from R$6.85 billion, reflecting higher provisioning.
• Balance Sheet Expansion: Total assets grew by 8.4% to R$844.77 billion. The loan portfolio expanded by 8.1%, while deposits decreased slightly. Shareholders' equity increased by 13.2% to R$86.97 billion, aided by a capital increase of R$5 billion via stock split and capitalization of reserves.
• Cash Flow: Operating cash flow turned negative (R$-26.25 billion) compared to a positive R$26.99 billion in the prior year, largely due to a decrease in deposits and securities sold under repurchase agreements, offset by increases in funds from issuance of securities.

Guidance, Outlook, Risks, and Unusual Items

• Regulatory Changes: The filing notes the implementation of Law No. 12.973/14, which ended the Transition Tax Regime (RTT) and altered tax legislation for IRPJ, CSLL, PIS, and COFINS. Additionally, Provisional Measure No. 675/15 proposed increasing the Social Contribution on Net Profit (CSLL) for financial institutions from 15% to 20% effective September 1, 2015.
• Reserve Requirements: The Central Bank of Brazil redefined rules for compulsory deposits on time resources and savings deposits, increasing collection rates and changing remuneration structures.
• Contingencies: Significant provisions exist for tax risks (R$6.47 billion), labor claims (R$2.55 billion), and civil claims (R$3.27 billion). Major tax disputes involve PIS/COFINS calculation bases and the deductibility of loan losses.
• Capital Management: The Basel III ratio improved to 16.0%, with Tier I capital at 12.8%. The company maintains a share buy-back program valid until June 2016.
• Dividends: The Board approved interim dividends and interest on shareholders' equity for the first semester of 2015 totaling R$912 million, paid in July 2015.

Investor Verification Checklist

• Equity Earnings Volatility: Verify the sustainability of the R$9.2 billion equity earnings from affiliates, which was the primary driver of net income growth despite a collapse in core financial intermediation gross income.
• Provisioning Adequacy: Assess the R$7.97 billion allowance for loan losses against the 8.1% growth in the loan portfolio and the economic outlook for Brazil.
• Tax Liability Exposure: Review the R$6.47 billion provision for tax risks and the potential impact of the proposed CSLL rate increase to 20%.
• Liquidity Position: Analyze the negative operating cash flow of R$26.25 billion and the reliance on securities sold under repurchase agreements (R$270.47 billion) for funding.
• Capital Structure: Confirm the impact of the 20% stock split and capital increase on earnings per share and future dividend capacity.