BBD

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, 2014
Business Overview: Bradesco is a major Brazilian financial institution offering banking, insurance, pension plans, and capitalization bonds. As of September 2014, the organization operated 4,659 branches and 74,028 service points, serving over 26 million active checking account holders.

Key Financial Metrics

Profitability & Efficiency:
- Return on Average Adjusted Shareholder's Equity (ROAE): 20.4% (9M 2014)
- Return on Average Total Assets (ROAA): 1.6% (9M 2014)
- Operating Efficiency Ratio (ER): 39.9% (Best level ever recorded)
- Delinquency Ratio (>90 days): 3.6% (Stable)
- Capital Adequacy Ratio: 16.3% (12.6% Common Equity/Tier I)

Material Changes vs. Prior Period

• Profit Growth: Adjusted Net Income for the first three quarters of 2014 increased 24.7% year-over-year (YoY) to R$ 11.227 billion, compared to R$ 9.003 billion in 9M 2013. Quarterly Adjusted Net Income rose 3.8% from 2Q 2014.
• Asset Expansion: Total Assets grew 8.8% YoY to R$ 987.4 billion. The Expanded Loan Portfolio increased 7.7% YoY, driven by growth in both Corporate (7.2%) and Individual (8.6%) segments.
• Revenue Drivers: Net Interest Income (interest earning portion) rose 10.5% YoY. Fee and Commission Income increased 11.6% YoY, supported by higher volumes in funds management, credit operations, and card income.
• Expense Management: Despite a 7.2% increase in personnel expenses (due to collective agreements), the Operating Efficiency Ratio improved by 2.2 percentage points YoY to 39.9%.
• Insurance Segment: Written premiums and pension contributions grew 8.8% YoY. Net income from insurance operations increased 15.7% YoY.

Guidance, Outlook, and Risks

Management Commentary and Outlook

Management maintains a positive outlook for Brazil, citing sustainable credit growth and stabilized delinquency rates. The company highlighted strong performance in risk-adjusted efficiency and capital adequacy.

2014 Guidance (Full Year)

• Loan Portfolio Growth: 7% to 11% (Individuals: 8-12%; Companies: 6-10%)
• Net Interest Income (Interest Earning): 9% to 12% growth
• Fee and Commission Income: 11% to 14% growth
• Operating Expenses: 3% to 6% growth
• Insurance Premiums: 9% to 12% growth

Risks and Contingencies

• Macroeconomic Volatility: The filing notes international financial volatility, geopolitical concerns, and deceleration in Chinese growth as challenges for emerging markets.
• Credit Risk: While delinquency is stable, there was a noted increase in Allowance for Loan Losses (ALL) expenses (6.6% QoQ) due to specific corporate cases and portfolio growth.
• Unrealized Gains: Unrealized gains decreased R$ 2.7 billion QoQ, primarily due to the devaluation of Cielo shares (down 12.1% in the quarter).
• Non-Recurring Items: Adjusted Net Income excludes non-recurring events such as the reversal of tax provisions (Cofins case) and impairment of assets (Banco Espírito Santo shares).

Investor Verification Checklist

• Non-Recurring Adjustments: Verify the impact of the R$ 1.378 billion reversal of tax provisions and R$ 598 million asset impairment on Book vs. Adjusted Net Income.
• Cielo Exposure: Assess the impact of the 12.1% drop in Cielo share value on unrealized gains and potential future volatility.
• Credit Quality Trends: Monitor the slight increase in the >90 days delinquency ratio (3.6%) and the specific corporate cases driving higher loan loss provisions.
• Guidance Realization: Track Q4 performance to ensure full-year growth targets for loans (7-11%) and fees (11-14%) are met amidst the described macroeconomic headwinds.
• Capital Adequacy: Confirm the maintenance of the 16.3% Capital Adequacy Ratio under Basel III guidelines as the loan portfolio expands.