Business context and reporting period
Banco Bradesco S.A. is a Brazil-focused, full-service bank with insurance, pension, capitalization and asset-management businesses. This Form 20-F reports the fiscal year ended December 31, 2009, with audited consolidated financial statements under U.S. GAAP. It is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide clear Q4-only results.
Key financial metrics
Amounts are in R$ billions unless stated otherwise.
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Net interest income | 33.13 | 25.37 | +30.6% |
| Provision for loan losses | 10.82 | 6.65 | +62.7% |
| Non-interest income | 31.73 | 23.66 | +34.1% |
| Non-interest expense | 40.38 | 35.63 | +13.3% |
| Income before tax | 13.67 | 6.75 | +102.6% |
| Parent company net income | 9.22 | 7.02 | +31.3% |
| Total assets | 496.82 | 435.47 | +14.1% |
| Loans, gross | 179.93 | 174.84 | +2.9% |
| Deposits | 171.12 | 164.50 | +4.0% |
| Shareholders’ equity, including noncontrolling interest | 46.11 | 37.26 | +23.7% |
- Net interest income after loan-loss provisions was R$22.31 billion, up 19.2%. Net interest margin was 8.2%, versus 7.7%; return on average parent-company equity was 23.4%, versus 21.2%.
- Non-performing loans were R$11.09 billion, or 6.2% of loans, compared with 4.1% in 2008. The allowance for loan losses was R$14.57 billion, up 41.2%, and covered 131.4% of non-performing loans.
- Cash flow: operating activities provided R$18.82 billion (versus using R$28.30 billion in 2008); investing used R$27.43 billion; financing provided R$35.03 billion. Cash and cash equivalents increased R$26.42 billion to R$83.98 billion.
- Funding and debt: long-term debt was R$50.82 billion, short-term borrowings R$7.98 billion, and federal funds purchased/securities sold under repurchase agreements R$108.36 billion. Deposits remained a key funding source.
- Regulatory capital ratio was 17.8%, up from 16.1%, against an 11% minimum; reported capital exceeded the minimum by R$21.42 billion.
Material changes versus the prior comparable period
- Profit rebounded from 2008 as net interest income rose and non-interest income recovered. Net trading gains shifted from a R$371 million loss to a R$3.08 billion gain.
- Credit costs worsened: provisions rose 62.7%, while non-performing loans increased 54.5%. Management said delinquency improved in the final quarter as Brazil’s economy recovered, but full-year credit quality deteriorated.
- Interest expense fell 26.1%, helped by lower rates and real appreciation; interest income was nearly flat, as asset growth was offset by lower yields.
- Brazil’s real appreciated 25.5% against the U.S. dollar in 2009. Brazil’s GDP contracted 0.2%, while the year-end SELIC rate was 8.75%.
Outlook, commentary, risks and unusual items
- Management expected Brazilian GDP and domestic demand to grow in 2010, supported by consumption and investment, while noting that further SELIC increases were probable to contain inflation. These are narrative expectations, not quantified company earnings guidance.
- Unusual income included R$2.41 billion of pretax gains from partial sales of Cielo shares and R$732 million from the exchange of Bradesco Dental for an interest in Odontoprev. These items contributed materially to non-interest income.
- The 2009 tax expense was R$4.42 billion, versus a R$401 million tax benefit in 2008. The filing attributes the change principally to higher pretax income and foreign-exchange-related tax adjustments.
- Litigation provisions totaled R$10.84 billion at year-end, mainly tax-related (63.9%), civil (21.6%) and labor (14.6%). Management considered provisions sufficient and stated that no individual litigation matter was material. Possible tax assessments of R$189 million were not provisioned.
- Off-balance-sheet financial guarantees and letters of credit totaled R$36.05 billion. Key risks include borrower defaults, market and counterparty losses, funding costs, Brazilian regulatory or tax changes, currency and interest-rate volatility, competition, and insurance-reserve estimation.
- Management reported effective disclosure controls and internal control over financial reporting; the independent auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Review the audited notes and Q4 2009 earnings release for quarterly-only profit, credit costs, delinquency trends and any seasonal effects; this annual filing does not clearly state standalone Q4 results.
- Assess whether the higher loan-loss allowance adequately covers rising non-performing loans, and track subsequent charge-offs and recoveries.
- Separate recurring earnings from the Cielo and Odontoprev gains and the rebound in trading results; verify their tax and cash effects.
- Check funding composition and liquidity, including reliance on repurchase agreements, deposit maturities, and the distinction between cash, liquid securities and compulsory Central Bank deposits.
- Monitor the status and potential outcomes of tax litigation, the R$189 million of possible tax assessments, and the card-sector regulatory proposals and strategic arrangements.