Business Context and Reporting Period
Company: Banco Bradesco S.A. (Bank Bradesco)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Year ended December 31, 2012 (Consolidated Financial Statements)
Filing Date: March 28, 2013
Accounting Standards: International Financial Reporting Standards (IFRS)
Business Overview: Bradesco operates primarily in two segments: Banking (retail, corporate, investment banking, leasing) and Insurance (auto, health, life, pension plans). The organization is headquartered in Osasco, Brazil, and is listed on the NYSE and BM&FBOVESPA.
Key Financial Metrics (Year Ended Dec 31, 2012)
| Metric (R$ thousand) | 2012 | 2011 |
|---|---|---|
| Net Interest Income | 43,492,965 | 35,611,286 |
| Net Fee and Commission Income | 12,804,795 | 10,834,333 |
| Net Income (Total) | 11,351,694 | 11,089,442 |
| Net Income (Controlling Shareholders) | 11,291,570 | 10,958,054 |
| Basic EPS (Ordinary) | R$ 2.83 | R$ 2.74 |
| Basic EPS (Preferred) | R$ 3.12 | R$ 3.01 |
| Total Assets | 801,186,699 | 722,086,892 |
| Total Liabilities | 729,840,309 | 662,704,798 |
| Total Equity | 71,346,390 | 59,382,094 |
| Net Cash from Operating Activities | 51,612,398 | (37,060,630) |
| Loans and Advances to Customers (Net) | 269,652,428 | 245,874,949 |
| Impairment of Loans and Advances | (11,510,179) | (8,296,151) |
Material Changes vs. Prior Period
- Revenue Growth: Net interest income increased by 22.1% (R$ 7.88 billion) and net fee income rose by 18.2% (R$ 1.97 billion) compared to 2011.
- Profitability: Net income attributable to controlling shareholders increased by 3.0% to R$ 11.29 billion.
- Asset Expansion: Total assets grew by 10.9% to R$ 801.2 billion, driven by a 9.9% increase in the loan portfolio to customers.
- Impairment Costs: Provisions for loan impairment increased by 38.7% to R$ 11.51 billion, reflecting higher credit risk exposure.
- Cash Flow: Operating cash flow turned significantly positive (R$ 51.6 billion) compared to a negative R$ 37.1 billion in 2011, largely due to changes in compulsory deposits and insurance technical provisions.
- Capital Adequacy: The Capital Adequacy Ratio for the Consolidated Economic and Financial group stood at 16.14%, well above the regulatory minimum of 11%.
Guidance, Outlook, Risks, and Unusual Items
- Subsequent Event (Capital Increase): On March 11, 2013, the Special General Meeting approved a capital increase of R$ 8 billion via a 10% bonus share issuance, raising share capital to R$ 38.1 billion.
- Acquisitions: In 2012, Bradesco acquired the remaining stake in Banco do Estado do Rio de Janeiro (BERJ) for R$ 50.6 million, achieving 100% ownership. The 2011 acquisition of BERJ resulted in a bargain purchase gain of R$ 406 million recognized in 2011.
- Risk Management:
- Credit Risk: Maximum credit risk exposure increased 11.2% to R$ 943.9 billion. Impaired loans represented 10.0% of the total customer loan portfolio.
- Market Risk: Value at Risk (VaR) for the trading portfolio increased to R$ 200.3 million at year-end 2012, primarily due to higher exposure to fixed-rate and price index instruments.
- Liquidity Risk: The organization maintains a Minimum Liquidity Reserve (RML) and monitors cash flow mismatches daily.
- Contingencies: Significant tax and social security litigation exists, including disputes over Cofins (R$ 7.86 billion), INSS on autonomous brokers (R$ 1.14 billion), and loan loss deductibility (R$ 798 million). Management believes provisions are sufficient.
- Unusual Items: The 2012 income statement included a gain of R$ 793 million from the sale of Serasa shares. Additionally, R$ 1.17 billion in impairment losses were recognized on available-for-sale assets.
Investor Verification Checklist
- Loan Quality: Verify the trend in the impairment provision ratio (3.9% of gross loans in 2012 vs. 3.3% in 2011) and the composition of the impaired portfolio (10% of total loans).
- Capital Adequacy: Confirm the Capital Adequacy Ratio of 16.14% against the 11% regulatory requirement and the margin of R$ 30.9 billion.
- Dividend Policy: Review the distribution of R$ 3.89 billion in dividends and interest on equity in 2012 and the impact of the subsequent 10% bonus share issuance.
- Tax Litigation: Assess the potential impact of ongoing tax disputes totaling over R$ 10 billion on future cash flows.
- Market Risk Exposure: Analyze the increase in VaR and sensitivity to interest rate and exchange rate fluctuations, particularly regarding the trading portfolio.
- Insurance Reserves: Review the adequacy of technical provisions for insurance and pension plans, which totaled R$ 118.8 billion.