Business Context and Reporting Period
Company: Banco Bradesco S.A. (Bank Bradesco)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter and Nine Months ended September 30, 2009
Context: Bradesco reported stable net income for the first nine months of 2009 despite a global economic crisis that increased delinquency levels. The bank highlighted a comprehensive distribution network of over 5,900 branches and significant growth in assets under management.
Key Financial Metrics
| Metric | 9M 2009 | 3Q 2009 | YoY Variation (9M) |
|---|---|---|---|
| Net Income | R$ 5.831 billion | R$ 1.811 billion | +0.2% |
| Net Interest Income | R$ 22.262 billion | R$ 7.587 billion | +29.3% |
| Fees and Commissions | R$ 8.491 billion | R$ 2.857 billion | +5.5% |
| Total Assets | R$ 485.686 billion | R$ 485.686 billion | +14.9% |
| Total Loan Portfolio | R$ 215.536 billion | R$ 215.536 billion | +10.2% |
| Shareholders' Equity | R$ 38.877 billion | R$ 38.877 billion | +13.8% |
| Return on Average Equity (Annualized) | 21.8% | 21.8% | -3.6 p.p. |
| Efficiency Ratio | 41.7% | 41.7% | -1.3 p.p. |
| Capital Adequacy Ratio (Basel II) | 17.7% | 17.7% | +2.1 p.p. |
| Delinquency Ratio (>90 days) | 5.0% | 5.0% | +1.6 p.p. |
Material Changes vs. Prior Period
- Profitability Stability: Net income for the nine-month period remained virtually flat (+0.2%) compared to 9M 2008, driven by a 29.3% increase in Net Interest Income which offset higher provisions for loan losses (PLL) and operating expenses.
- Loan Loss Provisions: PLL expenses increased significantly year-over-year (+104.0% for 9M) due to the global financial crisis and a strategic decision in 2Q09 to increase excess provisions by R$ 1.3 billion. However, the provision expense in 3Q09 dropped 34.2% quarter-over-quarter as economic activity showed signs of upturn.
- Asset Growth: Total Assets grew 14.9% year-over-year, while the Loan Portfolio expanded 10.2%, with Corporate loans growing 11.3% and Individual loans growing 8.2%.
- Insurance Segment: Net income from insurance and private pension plans decreased 12.4% year-over-year to R$ 1.499 billion, impacted by higher claims (specifically health/H1N1) and an increase in social contribution rates.
- Non-Operating Income: 3Q09 non-operating income dropped 76.7% quarter-over-quarter due to the absence of the R$ 2 billion gain from the partial sale of Visanet Brasil recorded in 2Q09.
Guidance, Outlook, and Risks
Management Commentary and Outlook
Management maintains a positive view of Brazil's economic recovery, projecting GDP growth of 0.1% for 2009 and 5.4% for 2010. The bank expects the delinquency ratio to improve as employment and income expectations rise.
2009 Guidance
- Loan Portfolio Growth: 8% to 12% (Individuals: 9-12%; Corporate: 7-11%).
- Net Interest Income: 18% to 22% growth.
- Fees and Commissions: 6% to 10% growth.
- Operating Expenses: 6% to 11% growth.
- Specific Products: Payroll Deductible Loans expected to grow 20-30%; Cards 10-14%.
Risks and Contingencies
- Economic Slowdown: Continued impact on delinquency levels, particularly in the corporate segment, though growth in delinquency is slowing.
- Insurance Claims: Increased severity of health claims due to the H1N1 virus and post-employment benefits.
- Regulatory Changes: Impact of increased social contribution rates on the insurance segment.
- Contingency Provisions: Significant provisions recorded for economic plans (R$ 387 million in 3Q09).
Investor Verification Checklist
- Adjusted vs. Reported Income: Verify the reconciliation between Reported and Adjusted Net Income, noting reclassifications of loan commissions and insurance interest.
- PLL Coverage: Confirm the adequacy of the Provision for Loan Losses (PLL) balance of R$ 14.953 billion, which includes R$ 2.991 billion in excess provisions, against the 5.0% delinquency ratio.
- Visanet Brasil Impact: Assess the sustainability of earnings excluding the one-time R$ 2 billion gain from the Visanet Brasil sale in 2Q09.
- Insurance Solvency: Review the Insurance Group's combined ratio (88.9%) and the impact of the H1N1 virus on future claims reserves.
- Capital Adequacy: Validate the Tier I Capital ratio of 14.3% under Basel II rules to ensure compliance with regulatory requirements.