Business Context and Reporting Period
Company: Banco Bradesco S.A. (Bank Bradesco)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter and First Nine Months ended September 30, 2010
Business Overview: Bradesco is a major Brazilian financial institution with an extensive distribution network including 6,374 branches and service points, 31,759 ATMs, and over 22 million checking accounts. The organization operates across banking, insurance, private pension, and savings bond sectors.
Key Financial Metrics
| Metric (R$ Million) | 9 Months 2010 | 9 Months 2009 | Variation |
|---|---|---|---|
| Adjusted Net Income | 7,120 | 5,747 | +23.9% |
| Book Net Income | 7,035 | 5,831 | +20.7% |
| Total Financial Margin | 24,038 | 22,262 | +8.0% |
| Fee and Commission Income | 9,804 | 8,491 | +15.5% |
| Allowance for Loan Losses (PLL) | (6,408) | (8,788) | -27.1% (Expense Reduction) |
| Total Assets | 611,903 | 485,686 | +26.0% |
| Total Loan Portfolio | 255,618 | 215,536 | +18.6% |
| Shareholders' Equity | 46,114 | 38,877 | +18.6% |
| Assets Under Management | 838,455 | 674,788 | +24.3% |
Profitability and Efficiency Ratios (9M 2010)
- Return on Average Shareholders' Equity (ROAE): 22.5% (Annualized)
- Return on Average Assets (ROAA): 1.7% (Annualized)
- Efficiency Ratio: 42.5% (Accumulated 12 months)
- Capital Adequacy Ratio (Basel II): 15.7% (Tier I: 13.5%)
- Delinquency Ratio (>90 days): 3.8% (Down from 5.0% in 3Q09)
- Coverage Ratio (>90 days): 191.8%
Material Changes vs. Prior Period
- Income Growth: Adjusted Net Income rose 23.9% year-over-year, driven by an 8.0% increase in financial margin and a 15.5% surge in fee and commission income. The insurance segment contributed R$2.125 billion (30% of total income), up 12.1% from the prior year.
- Asset Expansion: Total assets grew 26.0% and the loan portfolio expanded 18.6%. Growth was led by the Individuals segment (+23.0%) and SMEs (+27.5% over 12 months).
- Cost Management: Expenses with the Allowance for Loan Losses decreased 27.1% due to improved delinquency rates and higher loan recoveries. However, personnel expenses increased 15.0% and administrative expenses rose 22.6%, largely due to organic growth, the merger of Banco Ibi, and collective bargaining agreements.
- Asset Quality: The delinquency ratio for credits overdue >90 days dropped to 3.8%, the lowest in four consecutive quarters, while coverage ratios reached record highs.
Guidance, Outlook, and Risks
Management Outlook and Guidance (2010)
- Loan Portfolio Growth: 21% to 25% (Individuals: 16-20%; Corporate: 25-29%)
- Financial Margin: 14% to 18% growth
- Fee and Commission Income: 7% to 11% growth
- Operating Expenses: 9% to 13% growth
- Insurance Premiums: 16% to 20% growth
Economic Scenario
Management projects Brazil's GDP growth at 7.5% for 2010 and 4.7% for 2011. Inflation is expected to remain near the target center (4.7% in 2011), with the Selic rate stabilizing at 10.75%. The outlook assumes continued robust expansion in credit and consumption supported by low unemployment.
Risks and Contingencies
- Forward-Looking Statements: Results are subject to risks including general economic conditions, industry trends, and changes in assumptions regarding interest rates and inflation.
- Non-Recurring Items: Book income was adjusted for non-recurring events including partial investment sales (CPM Braxis), tax credit records, and provisions for civil contingencies related to economic plans (REFIS).
- Strategic Alliances: New agreements were formed for dental insurance (with BB Seguros) and credit card management (with Banco do Brasil and Caixa), introducing integration risks and opportunities.
Investor Verification Checklist
- Adjusted vs. Book Income: Verify the impact of non-recurring items (R$85 million adjustment in 9M10) on reported profitability.
- Expense Trajectory: Monitor the 22.6% year-over-year increase in administrative expenses to ensure it aligns with revenue growth.
- Asset Quality Trends: Confirm the sustainability of the declining delinquency ratio (3.8%) and high coverage ratios (191.8%) in a changing economic environment.
- Merger Integration: Assess the ongoing financial impact of the Banco Ibi merger on personnel and administrative costs.
- Capital Adequacy: Review the Tier I Capital ratio (13.5%) against regulatory requirements and growth plans.