BBD

Business Context and Reporting Period

This Form 6-K filing by Banco Bradesco S.A. (Bank Bradesco) covers the consolidated financial results for the six-month period ended June 30, 2004. The report details the bank's performance within the Brazilian economic context, characterized by a recovery in economic activity, a decline in the basic interest rate (CDI) from 11.79% in 1H03 to 7.56% in 1H04, and a positive exchange rate variation of 7.56% for the first half of 2004. The period included significant strategic moves, such as the acquisition of Banco BEM and Banco Zogbi, and the integration of Banco BCN.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Growth: Net income increased by 21.7% year-over-year, driven by a 16.5% increase in income from financial intermediation and a 28.3% surge in commissions and fees. This growth occurred despite a significant drop in interest rates.
• Asset Expansion: Total assets grew by 14.1%, with the credit portfolio expanding by 10.1%. Notable growth was seen in auto financing (+46.1% in average volume) and rural loans (+33.6%).
• Reduced Provisions: The provision for loan losses decreased by 22.9% to R$ 1,075 million, reflecting improved credit portfolio quality and a selective credit granting policy. The allowance for loan losses (PDD) coverage ratio for abnormal course credits increased to 159.0%.
• Insurance and Pension Growth: Technical reserves for insurance, private pension plans, and savings bonds grew by 29.7% to R$ 29.5 billion, driven by increased sales of PGBL and VGBL products.
• Acquisitions: The consolidation of Banco BEM and Banco Zogbi contributed to the growth in assets and personnel expenses, partially offset by synergies from the integration of Banco BCN.

Guidance, Outlook, and Risks

Management Commentary: Management attributes the strong performance to a strategy focused on securing new transactions and business volume to offset the impact of falling interest rates. The bank emphasizes its conservative risk management approach and the successful integration of acquired institutions. The outlook remains positive, anticipating that economic growth will gain momentum in the second half of 2004, supported by seasonal factors and increased consumption.

Risks and Contingencies:

• Market Volatility: The second quarter of 2004 was affected by a volatile market environment, which negatively impacted the price of local and foreign debt securities and spiked medium-to-long-term interest rates in the futures market.
• Interest Rate Risk: Continued declines in the CDI rate pose a risk to interest income, though the bank aims to mitigate this through volume growth and spread management.
• Credit Risk: While the portfolio quality is improving, risks remain regarding customer defaults and the need for adequate loan loss provisions.
• Legal and Tax: The bank faces various labor, civil, and tax contingencies, for which provisions have been recorded based on legal advice.

Key Facts for Investor Verification

• Net Income per Share: Verify the reported R$ 7.90 per share for the first half of 2004.
• Credit Portfolio Quality: Confirm the 91.3% of the portfolio classified as normal course (AA to C) and the 159.0% coverage ratio for abnormal credits.
• Capital Adequacy: Verify the consolidated capital adequacy ratio of 18.07% (financial) and 15.74% (economic-financial), well above the 11% regulatory minimum.
• Acquisition Integration: Assess the financial impact and synergy realization from the acquisitions of Banco BEM, Banco Zogbi, and the integration of Banco BCN.
• Insurance Segment Performance: Review the 29.7% growth in technical reserves and the 17.5% increase in earned premiums for the insurance group.