Business Context and Reporting Period
This Form 6-K filing covers Banco Bradesco S.A.'s financial results and economic analysis for the third quarter and the first nine months ended September 30, 2010. Bradesco operates as a multiple-service bank in Brazil with extensive operations in insurance, private pension plans, and savings bonds. The reporting period reflects a robust Brazilian economic environment with strong credit expansion and improving asset quality.
Key Financial Metrics
| Metric | 9 Months 2010 | 9 Months 2009 | 3Q 2010 | 3Q 2009 |
|---|---|---|---|---|
| Adjusted Net Income (R$ million) | 7,120 | 5,747 | 2,518 | 1,795 |
| Book Net Income (R$ million) | 7,035 | 5,831 | 2,527 | 1,811 |
| Total Assets (R$ billion) | 611.9 | 485.7 | 611.9 | 485.7 |
| Total Loan Portfolio (R$ billion) | 255.6 | 215.5 | 255.6 | 215.5 |
| Shareholders' Equity (R$ billion) | 46.1 | 38.9 | 46.1 | 38.9 |
| Return on Average Equity (ROAE) | 22.5% | 21.5% | 24.4% | 21.5% |
| Return on Average Assets (ROAA) | 1.7% | 1.6% | 1.7% | 1.6% |
| Capital Adequacy Ratio (Basel II) | 15.7% | 17.7% | 15.7% | 17.7% |
| Delinquency Ratio (>90 days) | 3.8% | 5.0% | 3.8% | 5.0% |
| Coverage Ratio (>90 days) | 191.8% | 166.5% | 191.8% | 166.5% |
| Efficiency Ratio (12-month) | 42.5% | 40.9% | 42.5% | 40.9% |
Material Changes vs. Prior Period
- Profitability Growth: Adjusted Net Income for the first nine months of 2010 increased by 23.9% compared to the same period in 2009. This was driven by a 30.8% increase in Gross Income from Financial Intermediation and a 27.1% reduction in Allowance for Loan Losses (PLL) expenses.
- Loan Portfolio Expansion: The total loan portfolio grew 18.6% year-over-year to R$255.6 billion. Growth was led by the Individuals segment (+23.0%) and SMEs (+27.5% in the last 12 months), partially offset by a slower growth in Large Corporate loans.
- Asset Quality Improvement: The delinquency ratio for loans overdue more than 90 days fell to 3.8% from 5.0% in September 2009. Consequently, PLL expenses decreased significantly despite the portfolio expansion.
- Expense Increases: Personnel and administrative expenses rose 15.0% and 22.6% respectively year-over-year, attributed to organic growth, the consolidation of Banco Ibi, and collective bargaining agreements.
- Insurance Segment: The Insurance, Private Pension, and Savings Bonds segment contributed R$2.125 billion to Adjusted Net Income (30% of total), with a 12.1% increase in net income compared to 2009.
Guidance, Outlook, and Risks
- 2010 Guidance: Management projects full-year 2010 loan portfolio growth between 21% and 25%. Specific targets include 16-20% growth for Individuals, 25-29% for SMEs, and 22-26% for Large Corporate. Financial margin is expected to grow 14-18%, and Fee and Commission Income 7-11%.
- Economic Outlook: Bradesco forecasts 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%), with the Selic rate stabilizing at 10.75%.
- Strategic Alliances: The bank entered into a Memorandum of Understanding with Banco do Brasil and Caixa Econômica Federal to manage the "Elo" credit card brand. Additionally, Bradesco sold a 55% controlling interest in CPM Braxis to Capgemini.
- Risks: Key risks include changes in regional and international economic conditions, inflation rates, customer delinquency, interest rate fluctuations affecting margins, and regulatory changes. The filing notes that actual results may differ materially from forward-looking statements due to these uncertainties.
Investor Verification Checklist
- PLL Adequacy: Verify the sustainability of the 191.8% coverage ratio for loans >90 days and the composition of the R$16.0 billion allowance (specific vs. generic vs. additional provisions).
- Expense Trajectory: Monitor the impact of the collective bargaining agreement and Banco Ibi consolidation on the Efficiency Ratio, which rose to 42.5% (12-month) from 40.9% in 2009.
- Non-Interest Margin: Review the significant decline in non-interest financial margin (down 51.1% YTD) due to lower treasury gains compared to the volatile 2009 period.
- Capital Adequacy: Confirm the Tier I Capital ratio of 13.5% remains sufficient given the aggressive loan growth targets for 2010.
- Insurance Solvency: Assess the Combined Ratio of 85.3% for the insurance group and the impact of regulatory changes (RN 206/09) on health insurance provisions.