Business Context and Reporting Period
This Form 6-K filing by Banco Bradesco S.A. (Bradesco) covers the economic and financial analysis for the period ended September 30, 2013 (Third Quarter 2013 and Year-to-Date). Bradesco is a major Brazilian universal bank operating in banking, insurance, pension plans, and capitalization bonds. The report highlights the bank's performance against a backdrop of global economic uncertainty, including U.S. monetary policy shifts and slower Chinese growth, while maintaining a positive outlook for the Brazilian market driven by infrastructure investments and social mobility.
Key Financial Metrics
| Metric | Value (R$) | Period |
|---|---|---|
| Adjusted Net Income | 9.003 billion | 9 Months 2013 |
| Adjusted Net Income | 3.082 billion | 3Q 2013 |
| Total Assets | 907.694 billion | Sept 30, 2013 |
| Shareholders' Equity | 67.033 billion | Sept 30, 2013 |
| Expanded Loan Portfolio | 412.559 billion | Sept 30, 2013 |
| Assets Under Management | 1.256 trillion | Sept 30, 2013 |
| Market Capitalization | 136.131 billion | Sept 30, 2013 |
| Return on Average Adjusted Equity (ROAE) | 18.4% | 9 Months 2013 (Annualized) |
| Return on Average Assets (ROAA) | 1.3% | 9 Months 2013 (Annualized) |
| Capital Adequacy Ratio | 16.4% | Sept 30, 2013 |
| Delinquency Ratio (>90 days) | 3.6% | Sept 30, 2013 |
| Efficiency Ratio | 42.1% | Last 12 Months |
Material Changes vs. Prior Period
- Profitability: Adjusted Net Income for the first nine months of 2013 increased by 4.6% (R$398 million) compared to the same period in 2012. Third-quarter adjusted net income rose 3.5% quarter-over-quarter.
- Loan Portfolio: The expanded loan portfolio grew 11.0% year-over-year to R$412.6 billion. Growth was driven by Individuals (+10.9%) and Companies (+11.0%).
- Credit Quality: The delinquency ratio over 90 days improved significantly, dropping 0.5 percentage points to 3.6% from 4.1% in September 2012. Allowance for Loan Losses (ALL) expenses decreased by 7.3% year-over-year.
- Financial Margin: Total financial margin decreased by 2.0% year-over-year (R$662 million) primarily due to lower non-interest margin gains from market arbitrage, partially offset by a 1.1% increase in interest financial margin due to higher business volume.
- Insurance Segment: Insurance, pension plan, and capitalization bond income increased 13.4% year-over-year to R$35.3 billion. Net income for this segment rose 4.4%.
- Costs: Personnel expenses increased 6.1% year-over-year, largely due to collective bargaining agreements. Administrative expenses rose only 2.5% despite the opening of 4,499 new service points.
Guidance, Outlook, and Risks
Management Commentary and Outlook
Management maintains a positive outlook for 2013, citing sustainable credit growth and declining delinquency. The bank expects the Brazilian economy to benefit from infrastructure concessions and major sporting events. Bradesco was included in the Dow Jones Sustainability World Index for the second consecutive year.
2013 Guidance
- Loan Portfolio Growth: 11% to 15%
- Interest Financial Margin: 1% to 3% growth
- Fee and Commission Income: 12% to 16% growth
- Operating Expenses: 2% to 6% growth
- Insurance Premiums: 12% to 15% growth
Risks and Contingencies
- Macroeconomic Risks: Exposure to global economic transitions, U.S. monetary policy changes, and commodity price fluctuations.
- Credit Risk: Potential increase in customer delinquency and allowance for loan losses.
- Regulatory Changes: Implementation of Basel III capital requirements in Brazil starting October 1, 2013.
- Legal Provisions: Significant provisions exist for tax risks (R$16.8 billion) and civil/labor claims (R$6.4 billion), though management deems them sufficient.
Investor Verification Checklist
- Non-Recurring Adjustments: Verify the R$71 million in non-recurring events added to Book Net Income to arrive at Adjusted Net Income for 9M13.
- Delinquency Trends: Confirm the sustainability of the 0.5 p.p. drop in the >90 days delinquency ratio amidst economic headwinds.
- Fee Income Drivers: Analyze the 13.4% year-over-year growth in fee and commission income, specifically the contribution from credit cards and fund management.
- Capital Adequacy: Review the impact of the new Basel III regulations (effective Oct 1, 2013) on the 16.4% Capital Adequacy Ratio.
- Insurance Combined Ratio: Monitor the Combined Ratio of 86.9% for the insurance segment to ensure underwriting profitability remains stable.
- Shareholder Returns: Verify the R$3.145 billion allocated to shareholders as Interest on Shareholders' Equity and Dividends for the first nine months.