bbdprudential2018_6k.htm - Generated by SEC Publisher for SEC Filing

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of March, 2019
Commission File Number 1-15250
 

 
BANCO BRADESCO S.A. 
(Exact name of registrant as specified in its charter)
 
BANK BRADESCO
(Translation of Registrant's name into English)
 
Cidade de Deus, s/n, Vila Yara
06029-900 - Osasco - SP
Federative Republic of Brazil
(Address of principal executive office)
 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.  Form 20-F ___X___ Form 40-F _______

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

Yes _______ No ___X____

 .


 
 

 


 
 

 


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Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Financial Position of the Prudential Conglomerate on December 31In thousands of Reais

 

Assets

2018

2017

Current

577,735,243

558,032,310

Cash and due from banks (Note 4)

19,485,882

14,873,276

Interbank investments (Notes 3d and 5)

102,531,796

153,097,317

Securities purchased under agreements to resell

96,206,122

144,732,820

Interbank investments

6,328,042

8,370,390

Allowance for losses

(2,368)

(5,893)

Securities and derivative financial instruments (Notes 3e, 3f and 6)

125,456,647

100,275,000

Own portfolio

26,586,950

33,101,539

Securities sold under repurchase agreements – Repledge only

72,272,955

44,445,387

Derivative financial instruments (Notes 3f and 6d II)

13,804,497

13,502,214

Given in guarantee

8,615,238

8,637,026

Securities sold under repurchase agreements – unrestricted

4,177,007

588,834

Interbank accounts

91,631,476

66,819,313

Unsettled payments and receipts

4,012,910

80,930

Reserve requirement (Note 7):

 

 

- Reserve requirement - Brazilian Central Bank

87,596,916

66,714,226

- SFH - housing finance system

19,887

21,760

Correspondent banks

1,763

2,397

Interdepartmental accounts

144,041

262,954

Internal transfer of funds

144,041

262,954

Loans (Notes 3g and 8)

136,756,125

129,923,666

Loans:

 

 

- Public sector

38,881

158,168

- Private sector

155,025,029

149,448,435

Loans transferred under an assignment with recourse

909,392

1,031,500

Allowance for loan losses (Notes 3g, 8f, 8g and 8h)

(19,217,177)

(20,714,437)

Leases(Notes 3g and 8)

(9,531)

(26,826)

Leases operations and sublease receivables

 

 

- Private sector

801,433

993,487

Unearned income from leases

(765,959)

(936,215)

Allowance for leases losses (Notes 3g, 8f, 8g and 8h)

(45,005)

(84,098)

Other receivables

98,881,268

88,761,571

Receivables on sureties and guarantees honored (Note 8a-3)

167,777

128,392

Foreign exchange portfolio (Note 9a)

20,459,806

17,469,599

Receivables

7,083,686

5,230,885

Securities trading

1,815,557

1,399,468

Specific receivables

36,490

24,483

Sundry (Note 9b)

71,261,445

66,334,465

Allowance for other loan losses (Notes 3g, 8f, 8g and 8h)

(1,943,493)

(1,825,721)

Other assets (Note 10)

2,857,539

4,046,039

Other assets

2,933,708

2,805,331

Allowance for losses

(1,672,777)

(1,378,745)

Prepaid expenses (Notes 3i and 10b)

1,596,608

2,619,453

Long-term receivables

407,559,670

355,023,418

Interbank investments (Notes 3d and 5)

1,397,869

1,245,341

Interbank investments

1,397,869

1,245,341

Securities and derivative financial instruments (Notes 3e, 3f and 6)

169,867,077

141,987,702

Own portfolio

113,969,911

113,052,066

Securities sold under repurchase agreements – Repledge only

54,125,125

21,315,432

Derivative financial instruments (Notes 3f and 6d II)

917,554

679,455

Privatization rights

39,273

44,127

Given in guarantee

576,950

2,474,440

Securities sold under repurchase agreements – unrestricted

238,264

4,422,182

Interbank accounts

1,263,430

1,196,317

Unsettled payments and receipts

740

Reserve requirement (Note 7):

 

 

- SFH - housing finance system

1,263,430

1,195,577

 

Bradesco     3


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Financial Position of the Prudential Conglomerate on December 31In thousands of Reais

 

Assets

2018

2017

Loans (Notes 3g and 8)

172,576,410

157,376,898

Loans:

 

 

- Public sector

4,000,000

4,000,000

- Private sector

175,077,005

159,671,106

Loans transferred under an assignment with recourse

7,149,860

7,424,110

Allowance for loan losses (Notes 3g, 8f, 8g and 8h)

(13,650,455)

(13,718,318)

Leases(Notes 3g and 8)

(83,335)

(62,404)

Leases receivables:

 

 

- Private sector

1,104,509

1,210,134

Unearned income from leases

(1,104,285)

(1,209,824)

Allowance for leases losses (Notes 3g, 8f, 8g and 8h)

(83,559)

(62,714)

Other receivables

62,281,616

52,561,358

Receivables

2,189

Securities trading

621,558

257,297

Sundry (Note 9b)

61,727,548

52,314,491

Allowance for other loan losses (Notes 3g, 8f, 8g and 8h)

(67,490)

(12,619)

Other assets (Note 10)

256,603

718,206

Prepaid expenses (Notes 3i and 10b)

256,603

718,206

Permanent assets

76,057,124

74,531,257

Investments (Notes 3j and 11)

55,352,831

53,295,293

Earnings of Associates and Subsidiaries:

 

 

- In Brazil

54,974,562

52,962,795

- Overseas

335,109

288,067

Other investments

102,319

175,686

Allowance for losses

(59,159)

(131,255)

Premises and equipment (Notes 3k and 12)

4,644,254

4,547,187

Premises

172,998

543,399

Other premises and equipment

10,507,953

9,257,290

Accumulated depreciation

(6,036,697)

(5,253,502)

Leases premises and equipment (Note 12)

3,542,750

3,876,128

Leased Assets

5,489,242

6,362,591

Accumulated depreciation

(1,946,492)

(2,486,463)

Intangible assets (Notes 3l and 13)

12,517,289

12,812,649

Intangible Assets

27,494,505

25,162,805

Accumulated amortization

(14,977,216)

(12,350,156)

Total

1,061,352,037

987,586,985

 

The accompanying Notes are an integral part of these Financial Statements.

 

                                      

                                             

4                December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Financial Position of the Prudential Conglomerate on December 31In thousands of Reais

 

Liabilities

2018

2017

Current

617,950,592

619,024,457

Deposits (Notes 3n and 14a)

213,932,026

168,495,555

Demand deposits

35,482,198

34,317,789

Savings deposits

111,170,912

103,332,697

Interbank deposits

386,006

1,698,981

Time deposits (Note 14a)

66,892,910

29,146,088

Securities sold under agreements to repurchase (Notes 3n and 14b)

208,546,161

242,437,351

Own portfolio

133,189,778

105,367,187

Third-party portfolio

66,700,064

128,356,541

Unrestricted portfolio

8,656,319

8,713,623

Funds from issuance of securities (Note 14c)

66,217,948

82,709,188

Mortgage and real estate notes, letters of credit and others

64,927,439

81,561,359

Securities issued overseas

786,514

970,705

Structured Operations Certificates

503,995

177,124

Interbank accounts

24,355,267

20,904,697

Unsettled payments and receipts

22,988,512

19,546,537

Correspondent banks

1,366,755

1,358,160

Interdepartmental accounts

5,770,638

5,855,275

Third-party funds in transit

5,770,638

5,855,275

Borrowing (Note 15a)

27,906,561

17,279,622

Borrowing overseas

27,906,561

17,279,622

On-lending in Brazil - official institutions (Note 15b)

7,631,435

11,052,779

National treasury

105,725

97,200

BNDES

2,419,524

5,039,056

FINAME

5,104,742

5,915,013

Other institutions

1,444

1,510

Derivative financial instruments (Notes 3f and 6d II)

15,575,014

13,657,362

Derivative financial instruments

15,575,014

13,657,362

Other liabilities

48,015,542

56,632,628

Payment of taxes and other contributions

512,445

1,003,974

Foreign exchange portfolio (Note 9a)

5,554,384

7,654,624

Social and statutory

4,941,359

4,444,353

Tax and social security (Note 18a)

2,086,429

1,863,868

Securities trading

3,242,839

2,274,148

Financial and development funds

1,299

1,299

Subordinated debts (Note 17)

6,471,550

10,821,546

Sundry (Note 18b)

25,205,237

28,568,816

Long-term liabilities

321,849,952

257,699,337

Deposits (Notes 3n and 14a)

130,117,548

98,186,971

Interbank deposits

24,969

469,750

Time deposits (Note 14a)

130,092,579

97,717,221

Securities sold under agreements to repurchase (Notes 3n and 14b)

939,212

6,120,732

Own portfolio

939,212

6,120,732

Funds from issuance of securities (Note 14c)

96,405,010

64,655,367

Mortgage and real estate notes, letters of credit and others

92,926,316

62,335,983

Securities issued overseas

3,326,073

2,128,023

Structured Operations Certificates

152,621

191,361

Borrowing (Note 15a)

1,808,215

1,240,945

Borrowing overseas

1,808,215

1,240,945

On-lending in Brazil - official institutions (Note 15b)

17,538,623

19,716,515

BNDES

8,315,761

8,753,797

FINAME

9,222,862

10,962,718

Derivative financial instruments (Notes 3f and 6d II)

549,487

439,897

Derivative financial instruments

549,487

439,897

Other liabilities

74,491,857

67,338,910

Tax and social security (Note 18a)

2,396,031

3,104,514

Subordinated debts (Note 17)

12,188,392

16,241,102

Eligible Debt Capital Instruments (Note 17)

34,992,913

23,129,838

 

Bradesco     5


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Financial Position of the Prudential Conglomerate on December 31In thousands of Reais

 

Liabilities

2018

2017

Sundry (Note 18b)

24,914,521

24,863,456

Deferred income

357,364

387,587

Deferred income

357,364

387,587

Non-controlling interests in subsidiaries (Note 19)

73,260

18,128

Shareholders' equity (Note 20)

121,120,869

110,457,476

Capital:

 

 

- Domiciled in Brazil

66,668,912

58,361,598

- Domiciled overseas

431,088

738,402

Capital reserves

11,441

11,441

Profit reserves

53,688,370

49,902,013

Asset valuation adjustments

761,572

1,884,536

Treasury shares (Note 20d)

(440,514)

(440,514)

Total

1,061,352,037

987,586,985

 

The accompanying Notes are an integral part of these Financial Statements.

6                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Income of the Prudential Conglomerate on December 31 In thousands of Reais

 

 

2018

2017

2nd semester

Year ended

Year ended

Revenue from financial intermediation

56,367,212

102,366,983

124,909,956

Loans (Note 8j)

36,084,454

70,103,617

72,730,163

Leases (Note 8j)

663,510

1,442,785

1,871,316

Operations with securities (Note 6g)

15,202,621

31,276,145

41,481,779

Income from derivative financial instruments (Note 6g)

1,103,917

(6,079,321)

1,893,815

Foreign exchange operations (Note 9a)

1,108,297

1,637,575

2,287,568

Reserve requirement (Note 7b)

2,135,106

3,966,507

4,935,462

Sale or transfer of financial assets

69,307

19,675

(290,147)

 

 

 

 

Expenses from financial intermediation

33,152,414

72,754,619

90,355,961

Retail and professional market funding (Note 14e)

20,993,235

41,469,233

59,152,502

Borrowing and on-lending (Note 15c)

2,329,786

11,843,283

4,523,807

Leases (Note 8j)

515,280

1,184,585

1,600,669

Allowance for loan losses (Notes 3g, 8g and 8h)

9,314,113

18,257,518

25,078,983

 

 

 

 

Gross income from financial intermediation

23,214,798

29,612,364

34,553,995

 

 

 

 

Other operating income (expenses)

(9,744,298)

(9,232,081)

(19,317,416)

Fee and commission income (Note 21)

12,915,704

25,387,276

24,040,649

Other fee and commission income

9,020,543

17,427,324

16,407,948

Income from banking fees

3,895,161

7,959,952

7,632,701

Payroll and related benefits (Note 22)

(8,778,862)

(17,322,334)

(19,275,625)

Other administrative expenses (Note 23)

(10,915,866)

(21,674,319)

(21,675,359)

Tax expenses (Note 24)

(3,106,428)

(5,017,238)

(4,829,965)

Equity in the earnings (losses) of unconsolidated and jointly controlled companies (Note 11)

4,671,931

16,783,480

7,732,041

Other operating income (Note 25)

3,032,584

6,321,420

8,857,244

Other operating expenses (Note 26)

(7,563,361)

(13,710,366)

(14,166,401)

Operating income

13,470,500

20,380,283

15,236,579

Non-operating income (loss) (Note 27)

(588,555)

(897,974)

(706,063)

Income before income tax and social contribution and non-controlling interests

12,881,945

19,482,309

14,530,516

Income tax and social contribution (Notes 31a and 31b)

(2,787,066)

(384,485)

129,068

Current income tax

(717,164)

(1,094,109)

(1,167,669)

Current Social Contribution

310,342

(875,287)

(934,135)

Deferred Tax

(2,380,244)

1,584,911

2,230,872

Non-controlling interests in subsidiaries

(4,434)

(12,871)

(1,829)

Net income

10,090,445

19,084,953

14,657,755

 

The accompanying Notes are an integral part of these Financial Statements.

Bradesco     7


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Changes in Shareholders’ Equity – In thousands of Reais                         

 

Events

Capital

Capital reserves

Profit reserves

Asset valuation adjustments

Treasury shares

Retained earnings

Total

Share premium

Legal

Statutory

Balance on June 30, 2018

67,100,000

11,441

7,989,741

39,341,704

(963,649)

(440,514)

113,038,723

Capital increase with reserves

 

 

 

 

 

 

 

Asset valuation adjustments

 

 

 

 

1,725,221

 

 

1,725,221

Net income

 

 

 

 

 

 

10,090,445

10,090,445

Allocations:

 

 

 

 

 

 

 

 

   -  Reserves

 

 

504,522

5,852,403

 

 

(6,356,925)

-  Interest on Shareholders’ Equity Paid

 

 

 

 

 

 

(3,733,520)

(3,733,520)

Balance on December 31, 2018

67,100,000

11,441

8,494,263

45,194,107

761,572

(440,514)

121,120,869

 

 

             

Balance on January 1st, 2017

51,100,000

11,441

6,807,128

43,641,474

(677,116)

(440,514)

100,442,413

Capital increase with reserves

8,000,000

(8,000,000)

Asset valuation adjustments

2,561,652

2,561,652

Net income

14,657,755

14,657,755

Allocations:

 

 

 

 

 

 

 

 

   -  Reserves

732,888

6,720,523

(7,453,411)

-  Interest on Shareholders’ Equity Paid and/or provisioned

(7,204,344)

(7,204,344)

Balance on December 31, 2017

59,100,000

11,441

7,540,016

42,361,997

1,884,536

(440,514)

110,457,476

 

 

             

Balance on December 31, 2017

59,100,000

11,441

7,540,016

42,361,997

1,884,536

(440,514)

110,457,476

Capital increase with reserves

8,000,000

(8,000,000)

Asset valuation adjustments

(1,122,964)

(1,122,964)

Net income

19,084,953

19,084,953

Allocations:

 

 

 

 

 

 

 

 

   -  Reserves

954,247

10,832,110

(11,786,357)

-  Interest on Shareholders’ Equity Paid and/or provisioned

(7,298,596)

(7,298,596)

Balance on December 31, 2018

67,100,000

11,441

8,494,263

45,194,107

761,572

(440,514)

121,120,869

 

The accompanying Notes are an integral part of these Financial Statements.

 

                                                                                                                                                                

8                December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Added Value of the Prudential Conglomerate on December 31In thousands of Reais

 

Description

2nd semester

%

2018

%

2017

%

1 – Revenue

54,853,682

124.5

101,220,348

229.8

117,869,034

288.0

1.1) Financial intermediation

56,367,212

127.9

102,366,983

232.4

124,909,956

305.2

1.2) Fees and commissions

12,915,704

29.3

25,387,276

57.6

24,040,649

58.7

1.3) Allowance for loan losses

(9,314,113)

(21.1)

(18,257,518)

(41.4)

(25,078,983)

(61.3)

1.4) Others (Includes Private Social Investment (Note 32b))

(5,115,121)

(11.6)

(8,276,393)

(18.8)

(6,002,588)

(14.7)

2 – Financial intermediation expenses

(23,838,301)

(54.1)

(54,497,101)

(123.7)

(65,276,978)

(159.5)

3 – Inputs acquired from third-parties

(7,501,495)

(17.0)

(14,470,957)

(32.8)

(14,221,890)

(34.7)

Outsourced services

(2,165,103)

(4.9)

(4,240,041)

(9.6)

(4,077,092)

(10.0)

Data processing

(1,271,218)

(2.9)

(2,429,828)

(5.5)

(2,315,538)

(5.7)

Communication

(716,898)

(1.6)

(1,448,900)

(3.3)

(1,578,468)

(3.9)

Asset maintenance

(565,651)

(1.3)

(1,129,485)

(2.6)

(1,148,790)

(2.8)

Financial system services

(487,832)

(1.1)

(934,416)

(2.1)

(1,004,376)

(2.5)

Security and surveillance

(364,901)

(0.8)

(748,577)

(1.7)

(818,221)

(2.0)

Transport

(371,158)

(0.8)

(737,162)

(1.7)

(769,728)

(1.9)

Material, water, electricity and gas

(295,013)

(0.7)

(594,690)

(1.3)

(625,709)

(1.5)

Advertising and marketing

(562,311)

(1.3)

(957,351)

(2.2)

(804,905)

(2.0)

Travel

(124,152)

(0.3)

(228,680)

(0.5)

(194,234)

(0.5)

Others (Includes Private Social Investment (Note 32b))

(577,258)

(1.3)

(1,021,827)

(2.3)

(884,829)

(2.2)

4 – Gross value added (1-2-3)

23,513,886

53.4

32,252,290

73.2

38,370,166

93.7

5 – Depreciation and amortization

(2,301,479)

(5.2)

(4,979,855)

(11.3)

(5,171,507)

(12.6)

6 – Net value added produced by the entity (4-5)

21,212,407

48.1

27,272,435

61.9

33,198,659

81.1

7 – Value added received through transfer

4,671,931

10.6

16,783,480

38.1

7,732,041

18.9

Equity in the earnings (losses) of unconsolidated and jointly controlled companies

4,671,931

10.6

16,783,480

38.1

7,732,041

18.9

8 – Value added to distribute (6+7)

25,884,338

58.7

44,055,915

100.0

40,930,700

100.0

9 – Value added distributed

25,884,338

58.8

44,055,915

100.0

40,930,700

100.0

9.1) Personnel

7,724,126

17.5

15,282,463

34.7

17,194,644

42.0

Salaries

4,006,952

9.1

7,795,742

17.7

8,489,938

20.7

Benefits

1,988,746

4.5

3,954,160

9.0

4,923,102

12.0

Government Severance Indemnity Fund for Employees (FGTS)

368,685

0.8

706,841

1.6

1,207,056

2.9

Other

1,359,743

3.1

2,825,720

6.4

2,574,548

6.3

9.2) Tax, fees and contributions

6,948,230

15.8

7,441,594

16.9

6,781,878

16.6

Federal

6,289,582

14.3

6,225,705

14.1

5,921,328

14.5

State

4,949

8,040

10,768

Municipal

653,699

1.5

1,207,849

2.7

849,782

2.1

9.3) Remuneration for providers of capital

1,117,103

2.5

2,234,034

5.1

2,294,594

5.6

Rental

824,816

1.9

1,626,564

3.7

1,637,849

4.0

Asset leases

292,287

0.7

607,470

1.4

656,745

1.6

9.4) Value distributed to shareholders

10,094,879

22.9

19,097,824

43.3

14,659,584

35.8

Interest on Shareholders’ Equity Dividends paid and/or provisioned

3,733,520

8.5

7,298,596

16.6

7,204,344

17.6

Retained earnings

6,356,925

14.4

11,786,357

26.8

7,453,411

18.2

Non-controlling interests in retained earnings

4,434

12,871

1,829

 

The accompanying Notes are an integral part of these Financial Statements.

Bradesco     9


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Statement of Cash Flow of the Prudential Conglomerate on December 31In thousands of Reais

 

 

 

 

 

 

2018

2017

2nd semester

Year ended

Year ended

Cash flow from operating activities:

 

 

 

Income before income tax and social contribution and non-controlling interests

12,881,945

19,482,309

14,530,516

Adjustments to net income before income tax and social contribution

15,833,218

34,970,948

48,568,200

Effect of Changes in Exchange Rates in Cash and Cash equivalents

(296,694)

(716,246)

(801,320)

Allowance for loan losses

9,314,113

18,257,518

25,078,983

Depreciation and amortization

2,301,479

4,979,855

5,171,507

Impairment losses of assets

660,608

1,066,200

2,597,726

Expenses/ reversal with civil, labor and tax provisions

1,850,725

3,634,696

2,339,705

Share of profit (loss) of unconsolidated and jointly controlled companies

(4,671,931)

(16,783,480)

(7,732,041)

(Gain)/loss on sale of fixed assets

43,498

63,115

58,603

(Gain)/loss on sale of foreclosed assets

267,699

549,851

578,985

Foreign exchange variation of assets and liabilities overseas/Other

6,363,721

23,919,439

21,276,052

Net income before taxes after adjustments

28,715,163

54,453,257

63,098,716

(Increase)/Decrease in interbank investments

3,668,712

79

(2,669,175)

(Increase)/Decrease in trading securities and derivative financial instruments

(1,741,170)

2,679,216

2,884,798

(Increase)/Decrease in interbank and interdepartmental accounts

3,283,360

(511,740)

19,076,892

(Increase)/Decrease in loans and leases

(13,705,000)

(40,974,449)

(3,317,016)

(Increase)/Decrease in other receivables and other assets

(2,893,818)

(19,500,702)

(11,220,492)

(Increase)/Decrease in reserve requirement - Central Bank

(16,196,682)

(20,882,690)

(8,677,695)

Increase/(Decrease) in deposits

43,440,925

77,367,048

31,210,877

Increase/(Decrease) in securities sold under agreements to repurchase

(12,727,343)

(39,072,710)

(9,182,363)

Increase/(Decrease) in borrowings and on-lending

3,498,572

5,594,973

(8,910,300)

Increase/(Decrease) in other liabilities

(14,537,350)

(6,417,292)

(19,995,567)

Increase/(Decrease) in deferred income

(8,548)

(30,223)

(64,499)

Income tax and social contribution paid

(800,251)

(2,746,145)

(4,867,351)

Net cash provided by/(used in) operating activities

19,996,570

9,958,622

47,366,825

Cash flow from investing activities:

 

 

 

Maturity of and interest on held-to-maturity securities

786,900

2,453,986

1,716,924

Sale of/maturity of and interest on available-for-sale securities

69,826,151

117,484,407

77,021,457

Proceeds from sale of foreclosed assets

324,385

645,794

798,171

Sale of investments

96,477

179,176

Sale of premises and equipment

55,038

296,766

891,316

Purchases of available-for-sale securities

(51,158,729)

(136,643,975)

(104,967,939)

Purchases of held-to-maturity securities

(35,768,558)

(35,768,558)

(33,798)

Investment acquisitions

(277,184)

(279,111)

(5,246,640)

Purchase of premises and equipment

(1,315,798)

(1,747,900)

(1,630,375)

Intangible asset acquisitions

(1,684,989)

(3,875,330)

(1,966,793)

Dividends and interest on shareholders’ equity received

5,096,013

5,116,246

3,506,941

Net cash provided by/(used in) investing activities

(14,020,294)

(52,138,499)

(29,910,736)

Cash flow from financing activities:

 

 

 

Funds from securities issued

42,199,461

95,196,518

70,915,810

Settlement and Interest payments of Funds from issuance of securities

(52,337,462)

(91,035,793)

(100,286,827)

Issuance of subordinated debts

10,890,606

10,890,606

6,594,610

Settlement and Interest payments of subordinated debts

(1,856,477)

(12,947,073)

(14,303,148)

Interest on Shareholders’ Equity Paid

(1,690,172)

(6,483,196)

(6,397,874)

Non-controlling interest

(1,312)

42,261

(364)

Net cash provided by/(used in) financing activities

(2,795,356)

(4,336,677)

(43,477,793)

Net increase/(decrease) in cash and cash equivalents

3,180,920

(46,516,554)

(26,021,704)

Cash and cash equivalents - at the beginning of the period

106,621,071

155,898,993

181,119,377

Effect of Changes in Exchange Rates in Cash and Cash equivalents

296,694

716,246

801,320

Cash and cash equivalents - at the end of the period

110,098,685

110,098,685

155,898,993

Net increase/(decrease) in cash and cash equivalents

3,180,920

(46,516,554)

(26,021,704)

 

The accompanying Notes are an integral part of these  Financial Statements.

 

10                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Notes to Financial Statements of the Prudential Conglomerate are as follows:

 

   

Page

     

1)

OPERATIONS

12

2)

PRESENTATION OF THE FINANCIAL STATEMENTS

12

3)

SIGNIFICANT ACCOUNTING PRACTICES

14

4)

CASH AND CASH EQUIVALENTS

20

5)

INTERBANK INVESTMENTS

20

6)

SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS

21

7)

INTERBANK ACCOUNTS – RESERVE REQUIREMENT

31

8)

LOANS

32

9)

OTHER RECEIVABLES

42

10)

OTHER ASSETS

43

11)

INVESTMENTS

44

12)

PREMISES AND EQUIPMENT AND LEASED ASSETS

45

13)

INTANGIBLE ASSETS

45

14)

DEPOSITS, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND FUNDS FROM ISSUANCE OF SECURITIES

46

15)

BORROWING AND ON-LENDING

48

16)

PROVISIONS, CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS – TAX AND SOCIAL SECURITY

49

17)

SUBORDINATED DEBT

53

18)

OTHER LIABILITIES

54

19)

NON-CONTROLLING INTERESTS IN SUBSIDIARIES

55

20)

SHAREHOLDERS’ EQUITY (PARENT COMPANY)

55

21)

FEE AND COMMISSION INCOME

56

22)

PAYROLL AND RELATED BENEFITS

57

23)

OTHER ADMINISTRATIVE EXPENSES

57

24)

TAX EXPENSES

57

25)

OTHER OPERATING INCOME

58

26)

OTHER OPERATING EXPENSES

58

27)

NON-OPERATING INCOME (LOSS)

58

28)

RELATED-PARTY TRANSACTIONS

59

29)

RISK AND CAPITAL MANAGEMENT

61

30)

EMPLOYEE BENEFITS

65

31)

INCOME TAX AND SOCIAL CONTRIBUTION

68

32)

OTHER INFORMATION

69

 

 

Bradesco     11


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

1)      OPERATIONS

 

Banco Bradesco S.A. (Bradesco), Institution leading conglomerate Prudential, is a private-sector publicly traded company and universal bank that, through its commercial, foreign exchange, consumer financing and housing loan portfolios, carries out all the types of banking activities for which it has authorization. The Bank is involved in a number of other activities, either directly or indirectly, through its subsidiaries, specifically leasing, investment banking, brokerage, consortium management, credit cards, real estate projects, insurance, pension plans and capitalization bonds. All these activities are undertaken by the various companies in the Bradesco Organization (Organization), working together in an integrated manner in the market.

 

2)      PRESENTATION OF THE FINANCIAL STATEMENTS

 

The Financial Statements of the Prudential Conglomerate were prepared to comply with the requirements of Resolution No. 4,280/13 of the National Monetary Council (CMN) and additional rules of the Brazilian Central Bank (Bacen). Thus, specific requirements were applied when consolidating the financial statements of Bradesco, its foreign branches, subsidiaries and investment funds. These  requirements are not necessarily the same as those established by corporate law.

                                                                                                                                   

For the preparation of these consolidated financial statements, equity interests, balances of balance sheet accounts, revenues, expenses and unrealized gains were eliminated and net income and shareholders’ equity attributable to the non-controlling shareholders were accounted for in a separate line. Investments in companies in which shareholding control is shared with other shareholders are accounted for using the equity method. Goodwill on acquisitions of investments in subsidiaries / affiliates and jointly controlled companies is presented in investments and intangible assets (Note 13a).

 

The financial statements include estimates and assumptions, such as: the calculation of estimated loan losses; fair value estimates of certain financial instruments; civil, tax and labor provisions; impairment losses of securities classified as available-for-sale and held-to-maturity securities and non-financial assets; and the determination of the useful life of specific assets. Actual results may differ from estimates and assumptions.

 

Bradesco’s financial statements of the Prudential Conglomerate were approved by the Board of Executive Officers on March 21, 2019.

 

Below are the significant directly and indirectly owned companies and investment funds included in the financial statements of the Prudential Conglomerate:

 

 

On December 31

Activity

Equity interest

2018

2017

Financial Institutions

 

 

 

Ágora Corretora de Títulos e Valores Mobiliários S.A.

Brokerage

100.00%

100.00%

Banco Alvorada S.A. (1)

Banking

100.00%

99.99%

Banco Bradescard S.A.

Cards

100.00%

100.00%

Banco Bradesco Argentina S.A.U (2) (3)

Banking

100.00%

99.99%

Banco Bradesco BBI S.A. (4)

Investment bank

99.96%

99.85%

Banco Bradesco BERJ S.A.

Banking

100.00%

100.00%

Banco Bradesco Cartões S.A.

Cards

100.00%

100.00%

Banco Bradesco Europa S.A. (3)

Banking

100.00%

100.00%

Banco Bradesco Financiamentos S.A.

Banking

100.00%

100.00%

Banco Bradesco S.A. New York Branch (3)

Banking

100.00%

100.00%

Banco Bradesco S.A. Grand Cayman Branch (3) (5)

Banking

100.00%

100.00%

Banco Losango S.A.

Banking

100.00%

100.00%

Bradesco-Kirton Corretora de Câmbio S.A. (6)

Exchange Broker

99.97%

99.97%

Bradesco Leasing S.A. Arrendamento Mercantil

Leases

100.00%

100.00%

Bradesco S.A. Corretora de Títulos e Valores Mobiliários

Brokerage

100.00%

100.00%

Bradesco Securities Hong Kong Limited (3)

Brokerage

100.00%

100.00%

Bradesco Securities, Inc. (3)

Brokerage

100.00%

100.00%

Bradesco Securities, UK. Limited (3)

Brokerage

100.00%

100.00%

 

12                December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

 

On December 31

Activity

Equity interest

2018

2017

Bradescard México, sociedad de Responsabilidad Limitada (7)

Cards

100.00%

100.00%

BRAM - Bradesco Asset Management S.A. DTVM

Asset management

100.00%

100.00%

BEC - Distribuidora de Títulos e Valores Mobiliários Ltda.

Asset management

100.00%

100.00%

BEM - Distribuidora de Títulos e Valores Mobiliários Ltda.

Asset management

100.00%

100.00%

BMC Asset Management - DTVM Ltda. (8)

Asset management

-

100.00%

Cidade Capital Markets Ltd. (3)

Banking

100.00%

100.00%

Crediare S.A. Crédito, Financiamento e Investimento (9)

Banking

50.00%

50.00%

Kirton Bank Brasil S.A.

Banking

100.00%

100.00%

Nova Marília Administração de Bens Móveis e Imóveis Ltda.

Asset management

100.00%

100.00%

Serel Participações em Imóveis S.A.

Asset management

100.00%

100.00%

Consortium Management

 

 

 

Bradesco Administradora de Consórcios Ltda.

Consortium management

100.00%

100.00%

Payment Institutions

 

 

 

Alvorada Administradora de Cartões Ltda.

Services

100.00%

100.00%

Bankpar Consultoria e Serviços Ltda.

Services

100.00%

100.00%

BCN - Consultoria, Adm. Bens, Serv. e Publicidade Ltda.

Services

100.00%

100.00%

Tempo Serviços Ltda.

Services

100.00%

100.00%

Securitization Companies

 

 

 

Alvorada Cia. Securitizadora de Créditos Financeiros

Credit acquisition

100.00%

100.00%

Alvorada Serviços e Negócios Ltda.

Credit acquisition

100.00%

100.00%

Cia. Securitizadora de Créditos Financeiros Rubi

Credit acquisition

100.00%

100.00%

Investment Funds (10)

 

 

 

Bradesco F.I. Referenciado DI Performance

Investment Fund

100.00%

100.00%

Bradesco F.I. Referenciado DI Uniao

Investment Fund

79.15%

66.09%

Bradesco F.I.C.F.I. Referenciado DI Galáxia

Investment Fund

100.00%

100.00%

Bradesco F.I. Mult. Cred. Priv. Inv. Exterior Pioneiro

Investment Fund

100.00%

100.00%

Alpha F.I. Mult. Créd. Priv. Inv. no Exterior

Investment Fund

100.00%

100.00%

Bradesco F.I. Mult. Cred. Priv. Inv. Exterior Andromeda

Investment Fund

100.00%

100.00%

Fundo de Investimento Referenciado DI GJ

Investment Fund

100.00%

100.00%

FIP Multisetorial Plus

Investment Fund

100.00%

100.00%

FII - F.I.R.F. Cred. Privado

Investment Fund

100.00%

100.00%

Bradesco F.I. Mult. Créd. Priv. Inv. no Exterior - CDI Mais

Investment Fund

100.00%

100.00%

 

(1) In December 2018 there was acquisition of shares held by a minority shareholder;
(2) Change in the percentage of participation, by assignment of quotas and change of corporate name to unilateral company;

(3) The functional currency of these companies abroad is the Real;

(4) In November, 2017, Banco Boavista Interatlântico S.A. was merged into Banco Bradesco BBI S.A. increasing the interest by means of subscription of shares and in May, 2018, there were acquisition of shares held by minority shareholders by Banco Bradesco S.A;

(5) The special purpose entity International Diversified Payment Rights Company is being consolidated. The company is part of a structure set up for the securitization of the future flow of payment orders received overseas;

(6) In November 2018, there was a change in the corporate name of Bradesco-Kirton Corretora de Títulos e Valores Mobiliários S.A. to Bradesco-Kirton Corretora de Câmbio S.A.;

(7) The functional currency of this company is the Mexican Peso;

(8) Company incorporated in August, 2018, by the company Banco Bradesco Financiamentos S.A.;

(9) At the request of the Central Bank of Brazil, from March 2018 we started to consolidate the Crediare S.A. Crédito, Financiamentos e Investimentos; and

(10) The investment funds in which Bradesco assumes or substantially retains the risks and benefits were consolidated.

 

 

 

Bradesco     13


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

3)   SIGNIFICANT ACCOUNTING PRACTICES

 

a)   Functional and presentation currencies

 

Financial statements of Prudential Conglomerate are presented in Brazilian reais, which is also Bradesco’s functional currency. Foreign branches and subsidiaries are mainly a continuation of activities in Brazil, and, therefore has the real as functional currency and assets, liabilities and profit or loss are translated into Brazilian reais using the appropriate currency exchange rate, to comply with accounting practices adopted in Brazil. Foreign currency translation gains and losses arising are recognized in the period’s statement of income in the lines “Derivative Financial Instruments” and “Borrowing and On-lending”.

 

b)   Income and expense recognition

 

Income and expenses are recognized on an accrual basis in order to determine the net income for the period to which they relate, regardless of when the funds are received or paid.

 

Fixed rate contracts are recognized at their redemption value with the income or expense relating to future periods being recognized as a deduction from the corresponding asset or liability. Finance income and costs are recognized daily on a pro-rata basis and calculated using the compounding method, except when they relate to discounted notes or to foreign transactions, which are calculated using the straight-line method.

 

Floating rate and foreign-currency-indexed contracts are adjusted for interest and foreign exchange rates applicable at the reporting date.

 

c)   Cash and cash equivalents

 

Cash and cash equivalents include: funds available in currency, investments in gold, securities sold under agreements to repurchase and interest-earning deposits in other banks, maturing in 90 days or less, from the time of the acquisition, which are exposed to insignificant risk of change in fair value. These funds are used by Bradesco to manage its short-term commitments.

 

Cash and cash equivalents detailed balances are presented in Note 4.

 

d)   Interbank investments

 

Unrestricted repurchase and reverse repurchase agreements are stated at their fair value. All other interbank investments are stated at cost, plus income earned up to the end of the reporting period, net of any devaluation allowance, if applicable.

 

The breakdown, terms and proceeds relating to interbank investments are presented in Note 5.

 

e)   Securities – Classification

 

·       Trading securities – securities acquired for the purpose of being actively and frequently traded. They are recognized at cost, plus income earned and adjusted to fair value with changes recognized in the Statement of Income for the period;

 

·       Available-for-sale securities – securities that are not specifically intended for trading purposes or to be held to maturity. They are recognized at cost, plus income earned, which is recognized in profit or loss in the period and adjusted to fair value with changes recognized in shareholders’ equity, net of tax, which will be transferred to the Statement of Income only when effectively realized; and

 

·       Held-to-maturity securities – securities for which there is positive intent and financial capacity to hold to maturity. They are recognized at cost, plus income earned recognized in the Statement of Income for the period.

 

Securities classified as trading and available-for-sale, as well as derivative financial instruments, are recognized in the consolidated statement of financial position at their fair value. Fair value is generally based on quoted market prices or quotations for assets or liabilities with similar characteristics. If market

 

14                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

prices are not available, fair values are based on traders’ quotations, pricing models, discounted cash flows or similar techniques to determine the fair value and may require judgment or significant estimates by Management.

 

Classification, breakdown and segmentation of securities are presented in Note 6.

 

f)    Derivative financial instruments (assets and liabilities)

 

Derivative financial instruments are designed to meet the Company´s own needs to manage Bradesco´s global exposure, as well to meet customer requests, in order to manage its positions.

 

The transactions are recorded at their fair value considering the mark-to-market methodologies adopted by Bradesco, and their adjustment can be recorded in the statement of income or equity, depending on the classification as accounting hedge (and the category of accounting hedge) or as an economic hedge.

 

Derivative financial instruments used to mitigate the risks of exposures in currencies, indexes, prices, rates or indexes are considered as hedge instruments, whose objectives are: (i) to ensure exposures remain with risk limits; (ii) change, modify or reverse positions due to market changes and operational strategies; and (iii) reduce or mitigate exposures of transactions in inactive markets, under stress or low liquidity conditions.

 

Instruments designated for hedge accounting purposes are classified according to their nature in:

 

·       Market risk hedge: the gains and losses, realized or not, of the financial instruments classified in this category as well as the financial assets and liabilities, that are the object of the hedge, are recognized in the Statement of Income; and

 

·       Cash flow hedge: the effective portion of valuation or devaluation of the financial instruments classified in this category is recognized, net of taxes, in a specific account in shareholders’ equity. The ineffective portion of the hedge is recognized directly in the Statement of Income; and

 

·       Hedge of net investment in foreign operations - the financial instruments classified in this category are intended to hedge the exchange variation of investments abroad, whose functional currency is different from the national currency, and are accounted for in accordance with the accounting procedures applicable to the hedge category of cash flow, that is, with the effective portion recognized in shareholders' equity, net of tax effects, and the non-effective portion recognized in income for the period.

 

For derivatives classified in the hedge accounting category, there is a follow-up of: (i) strategy effectiveness, through prospective and retrospective effectiveness tests, and (ii) mark-to-market of hedge instruments.

 

A breakdown of amounts included as derivative financial instruments, in the statement of financial position and off-balance-sheet accounts, is disclosed in Note 6.

 

g)   Loans and leasing, advances on foreign exchange contracts, other receivables with credit characteristics and allowance for loan losses

 

Loans and leasing, advances on foreign exchange contracts and other receivables with credit characteristics are classified by risk level, based on: (i) the parameters established by CMN Resolution No. 2,682/99, which requires risk ratings to have nine levels, from “AA” (minimum risk) to “H” (maximum risk) considering, among other things, the delay levels (as described in table below); and (ii) Management’s assessment of the risk level. This assessment, which is carried out regularly, considers current economic conditions and past experience with loan losses, as well as specific and general risks relating to operations, debtors and guarantors.

 

 

 

Bradesco     15


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Past-due period (1)

Customer rating

● from 15 to 30 days

B

● from 31 to 60 days

C

● from 61 to 90 days

D

● from 91 to 120 days

E

● from 121 to 150 days

F

● from 151 to 180 days

G

● more than 180 days

H

 

(1)  For transactions with terms of more than 36 months, past-due periods are doubled, as permitted by CMN Resolution No. 2,682/99.

 

Interest and inflation adjustments on past-due transactions are only recognized in the Statement of Income up to the 60th day that they are past due.

 

H-rated past-due transactions remain at this level for six months, after which they are written-off against the existing allowance and controlled in off-balance-sheet accounts for at least five years.

 

Renegotiated operations are maintained at least at the same rating in which they were classified.

Renegotiations already written-off against the allowance and that were recognized in off-balance-sheet accounts, are rated as level “H” and any possible gains derived from their renegotiation are recognized only when they are effectively received. When there is a significant repayment on the operation or when new material facts justify a change in the level of risk, the loan may be reclassified to a lower risk category.

 

The estimated allowance for loan losses is calculated to sufficiently cover probable losses, according to CMN and Bacen standards and instructions, together with Management’s assessment of the credit risk.

 

The classification of the generally loans to the same economic client or group is defined as the one that presents the highest risk. In exceptional cases, different ratings for a particular loan are accepted according to the nature, value, purpose of the loan and characteristics of the guarantees.

 

Type, values, terms, levels of risk, concentration, economic sector of client’s activity, renegotiation and income from loans, as well as the breakdown of expenses and statement of financial position accounts for the allowance for loan losses are presented in Note 8.

 

Leasing

 

The portfolio of leasing operations consists of contracts firmed with the support of Decree No. 140/84, of the Ministry of Finance, which contains clauses of: (a) non-cancellation; (b) purchase option; and (c) post-fixed or fixed restatement and are accounted for in accordance with the standards established by Bacen, as follows:

 

I-      Leases receivable

 

Reflect the balance of installments receivable, restated according to the indexes and criteria established by contractual agreement.

 

II-    Unearned income from leasing and Guaranteed Residual Value (GRV)

 

Recorded at the contractual amount, conversely to adjusted accounts of unearned revenues from leasing and Residual value to balance, both submitted through negotiated conditions. The GRV received in advance is recorded in Other Liabilities – Creditors by Anticipation of the Residual Value until the date of contractual termination. The adjustment at present value of the lease payments and the GRV receivable from the financial leasing operations is recognized as excessive/insufficient depreciation on leased assets, in order to reconcile the accounting practices. In operations whose delays are equal to or greater than 60 days, the appropriation to the result occurs upon receipt of contractual installments, in accordance with CMN Resolution No. 2,682/99.

 

 

16                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

III-  Leased fixed assets

 

It is recorded at acquisition cost, minus the accrued depreciations. The depreciation is calculated using the linear method, with the benefit of a 30% reduction in the normal life cycle of the asset, provisioned in the current legislation. The main annual rates of depreciation used, as base for this reduction, are the following: vehicles and the like, 20%; furniture and utensils, 10%; machinery and equipment, 10%; and other assets, 10% and 20%.

 

IV-  Losses on leases

 

The losses recorded in the sale of leased assets are deferred and amortized over the remaining normal life cycle of assets, and are shown along with the Leased Fixed Assets (Note 8k).

 

V-    Excessive (insufficient) depreciation

 

The accounting records of leasing operations are maintained as legal requirements, specific for this type of operation. The procedures adopted and summarized in items "II" to "IV" above differ from the accounting practices provisioned in Brazilian corporate law, especially concerning the regime of competence in the record of revenues and expenses related to lease contracts. As a result, in accordance with Bacen Circular No. 1,429/89, the present value of outstanding leasing installments was calculated, using the internal rate of return of each contract, recording a leasing revenue or expenditure, conversely to the entries of excessive or insufficient depreciation, respectively, recorded in Permanent Assets, with the objective of adapting the leasing operations to the regime of competence (Note 8k).

 

h)   Income tax and social contribution (assets and liabilities)

 

Deferred tax assets, calculated on income tax losses, social contribution losses and temporary differences, are recognized in “Other Receivables - Sundry” and the deferred tax liabilities on tax differences in leasing depreciation (applicable only for income tax), fair value adjustments on securities, inflation adjustment of judicial deposits, among others, are recognized in “Other Liabilities - Tax and Social Security”, in which for the differences in leasing depreciation only the income tax rate is applied.

 

Deferred tax assets on temporary differences are realized when the difference between the accounting treatment and the income tax treatment reverses. Deferred tax assets on income tax and social contribution losses are realizable when taxable income is generated, up to the 30% limit of the taxable profit for the period. Deferred tax assets are recognized based on current expectations of realization considering technical studies and analyses carried out by Management.

 

The provision for income tax is calculated at 15% of taxable income plus a 10% surcharge. For financial companies, for companies considered as such and for the insurance industry, the social contribution on the profit was calculated until August 2015, considering the rate of 15%. For the period between September 2015 and December 2018, the rate was changed to 20%, according to Law No. 13,169/15 and the rate is 15% again as from January 2019. For the other companies, the social contribution is calculated considering the rate of 9%.

 

Provisions were recognized for other income tax and social contribution in accordance with specific applicable legislation.

 

The breakdown of income tax and social contribution, showing the calculations, the origin and expected use of deferred tax assets, as well as unrecognized deferred tax assets, is presented in Note 31.

 

i)    Prepaid expenses

 

Prepaid expenses consist of funds already disbursed for future benefits or services, which are recognized in the profit or loss on an accrual basis.

 

Incurred costs relating to assets that will generate revenue in subsequent periods are recognized in the Statement of Income according to the terms and the amount of expected benefits and directly recognized in the Statement of Income when the corresponding assets or rights are no longer part of the institution’s assets or when future benefits are no longer expected.

 

Bradesco     17


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

In the case of the remuneration paid for the origination of credit operations or leasing to the banking correspondents related to credit operations originated during 2015 and 2016, Bradesco opted to recognize part of the total value of compensation, pursuant to the provisions of Bacen Circular No. 3,738/14. As of 2017, the remuneration mentioned is fully recognized as an expense.

 

Prepaid expenses are shown in detail in Note 10b.

 

j)    Investments

 

Investments in unconsolidated and jointly controlled companies, where Bradesco has significant influence over the investee or holds at least 20% of the voting rights, are accounted for using the equity method.

 

Tax incentives and other investments are stated at cost, impairment, where applicable.

 

The composition of unconsolidated companies, as well as other investments, are disclosed in Note 11.

 

k)   Premises and equipment

 

Relates to the tangible assets used by the Bank in its activities, including those resulting from transactions that transfer risks, benefits and control of the assets to the Bank.

 

Premises and equipment are stated at acquisition cost, net of accumulated depreciation, calculated by the straight-line method based on the assets’ estimated economic useful life, using the following rates: real estate – 4% per annum; installations, furniture, equipment for use, security systems and communications – 10% per annum; transport systems – 10% to 20% per annum; and data processing systems – 20% to 40% per annum, and adjusted for impairment, when applicable.

 

The breakdown of asset costs and their corresponding depreciation, as well as the unrecognized surplus value for real estate and the fixed asset ratios, are disclosed in Note 12.

 

l)    Intangible assets

 

Relates to the right over intangible assets used by the Bank in its activities.

 

Intangible assets comprise:

 

·       Future profitability/acquired client portfolio and acquisition of right to provide banking services: they are recognized and amortized over the period in which the asset will directly and indirectly contribute to future cash flows and adjusted for impairment, where applicable; and

 

·       Software: stated at cost less amortization calculated on a straight-line basis over the estimated useful life (20% p.a.), from the date it is available for use and adjusted for impairment, where applicable. Internal software development costs are recognized as an intangible asset when it is possible to show the intent and ability to complete and use the software, as well as to reliably measure costs directly attributable to the intangible asset. These costs are amortized during the software’s estimated useful life, considering the expected future economic benefits.

 

Intangible assets and the movement in these balances by class are presented in Note 13.

 

m) Impairment

 

Financial and non-financial assets are tested for impairment.

 

Objective evidence of impairment may comprise the non-payment or payment delay by the debtor, possible bankruptcy process or the significant or extended decline in an asset value.

 

An impairment loss of a financial or non-financial asset is recognized in the profit or loss for the period if the carrying amount of an asset or cash-generating unit exceeds its recoverable value.

 

18                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

n)   Securities sold under agreements to repurchase

 

These are recognized at the value of the liabilities and include, when applicable, related charges up updated to the end of the reporting period, calculated on a daily pro-rata basis.

 

A breakdown of the contracts recognized in deposits and securities sold under agreements to repurchase, as well as terms and amounts recognized in the statement of financial position and statement of income, is presented in Note 14.

 

o)   Provisions, contingent assets and liabilities and legal obligations – tax and social security

 

Provisions, contingent assets and liabilities, and legal obligations, as defined below, are recognized, measured and disclosed in accordance with the criteria set out in CPC 25, approved by CMN Resolution No. 3,823/09 and CVM Resolution No. 594/09 and in accordance with Circular Letter nº 3,429/10:

 

·       Contingent Assets: these are not recognized in the financial statements, except to the extent that there are real guarantees or favorable judicial decisions, to which no further appeals are applicable, and it is considered virtually certain that cash inflows will flow to Bradesco. Contingent assets with a chance of probable success are disclosed in the notes to the financial statements;

 

·       Provisions: these are recognized taking into consideration the opinion of legal counsel, the nature of the lawsuits, similarity with previous lawsuits, complexity and positioning of the courts, whenever an entity has a present obligation (legal or constructive) as a result of a past even, it is probable that an outflow of resources will be required to settle the obligation and when the amount can be reliably measured;

 

·       Contingent Liabilities: according to CPC 25, the term “contingent” is used for liabilities that are not recognized because their existence will only be confirmed by the occurrence of one or more uncertain future events beyond Management’s control. Contingent liabilities do not meet the criteria for recognition because they are considered as possible losses should only be disclosed in the notes when relevant. Obligations deemed remote are not recognized as a provision nor disclosed; and

 

·       Legal Obligations – Provision for Tax Risks: results from judicial proceedings, which contest the applicability of tax laws on the grounds of legality or constitutionality, which, regardless of the assessment of the probability of success, are fully provided for in the financial statements.

 

Details on lawsuits, as well as segregation and changes in amounts recognized, by type, is presented in Note 16.

 

p)   Funding expenses

 

Expenses related to funding transactions involving the issuance of securities reduce the corresponding liability and are recognized in the profit or loss over the term of the transaction, according to Notes 14c and 17.

 

 

q)   Other assets and liabilities

 

Assets are stated at their realizable amounts, including, when applicable, related income and inflation and exchange variations (on a daily prorated basis), less provision for losses, when deemed appropriate. Liabilities include known or measurable amounts, including related charges and inflation and exchange variations (on a daily prorated basis).

 

 

Bradesco     19


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

r)    Subsequent events

 

These refer to events occurring between the reporting date and the date the financial statements are authorized to be issued.

 

They comprise the following:

 

·       Events resulting in adjustments: events relating to conditions already existing at the end of the reporting period; and

 

·       Events not resulting in adjustments: events relating to conditions not existing at the end of the reporting period.

 

Subsequent events, if any, are described in Note 32.

 

 

4)     CASH AND CASH EQUIVALENTS

 

 

On December 31 - R$ thousand

2018

2017

Cash and due from banks in domestic currency

14,604,346

12,858,488

Cash and due from banks in foreign currency

4,880,713

2,014,413

Investments in gold

823

375

Total cash and due from banks

19,485,882

14,873,276

Interbank investments (1)

90,612,803

141,025,717

Total cash and cash equivalents

110,098,685

155,898,993

 

(1)  It refers to operations that mature in 90 days or less from the date they were effectively invested and with insignificant risk of change in fair value.

 

5)      INTERBANK INVESTMENTS

 

a)    Breakdown and maturity

 

 

On December 31 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360 days

2018

2017

days

days

days

Securities purchased under agreements to resell:

 

 

 

 

 

 

Own portfolio position

6,934,652

19,170,537

26,105,189

12,880,529

● Financial treasury bills

5,604,716

 

5,604,716

605,335

● National treasury notes

659,028

6,369,513

7,028,541

10,104,097

● National treasury bills

322,927

12,801,024

13,123,951

2,133,622

● Other

347,981

347,981

37,475

Funded position

23,154,078

42,929,820

66,083,898

128,293,877

● National treasury notes

523,787

26,683,117

27,206,904

61,691,772

● Financial treasury bills

13,973,377

13,973,377

21,736,942

● National treasury bills

8,656,914

16,246,703

24,903,617

44,865,163

Unrestricted position

250,216

3,766,819

4,017,035

3,558,414

● National treasury bills

250,216

3,766,819

4,017,035

3,558,414

Subtotal

30,338,946

65,867,176

96,206,122

144,732,820

Interest-earning deposits in other banks:

 

 

 

 

 

 

● Interest-earning deposits in other banks:

2,187,396

2,463,590

1,677,056

1,397,869

7,725,911

9,615,731

● Provision for losses

(28)

(2,120)

(220)

(2,368)

(5,893)

Subtotal

2,187,368

2,461,470

1,676,836

1,397,869

7,723,543

9,609,838

Total in 2018

32,526,314

68,328,646

1,676,836

1,397,869

103,929,665

 

%

31.3

65.7

1.7

1.3

100.0

 

Total in 2017

33,952,366

115,882,685

3,262,266

1,245,341

 

154,342,658

%

22.0

75.1

2.1

0.8

 

100.0

 

20                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

b)   Income from interbank investments

 

Classified in the statement of income as income from operations with securities.

 

 

Year ended December 31 - R$ thousand

2018

2017

Income from investments in purchase and sale commitments:

 

 

• Own portfolio position

1,357,213

1,064,822

• Funded position

5,622,852

16,016,339

• Unrestricted position

1,809,839

747,625

Subtotal

8,789,904

17,828,786

Income from interest-earning deposits in other banks

507,817

527,887

Total (Note 6g)

9,297,721

18,356,673

 

6)     SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS

 

Information on securities and derivative financial instruments is as follows:

 

a)    Summary of the consolidated classification of securities by operating segment and issuer

 

 

On December 31 - R$ thousand

2018

%

2017

%

Trading securities

47,565,943

16.1

48,217,917

19.9

- Government securities

26,808,530

9.1

24,116,495

9.9

- Corporate securities

6,035,362

2.0

9,919,753

4.1

- Derivative financial instruments (1) (5)

14,722,051

5.0

14,181,669

5.9

Available-for-sale securities (2)

182,282,394

61.7

181,767,575

75.0

- Government securities

116,586,269

39.5

126,630,718

52.3

- Corporate securities

65,696,125

22.2

55,136,857

22.7

Held-to-maturity securities (2)

65,475,387

22.2

12,277,210

5.1

- Government securities

53,930,505

18.3

17,645

- Corporate securities

11,544,882

3.9

12,259,565

5.1

Total

295,323,724

100.0

242,262,702

100.0

 

 

 

 

 

- Government securities

197,325,304

66.8

150,764,858

62.2

- Corporate securities

97,998,420

33.2

91,497,844

37.8

Total

295,323,724

100.0

242,262,702

100.0

 

 

 

Bradesco     21


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

b)      Consolidated classification by category, maturity and operating segment

 

I)    Trading securities

 

Securities

On December 31 - R$ thousand

2018

2017

1 to 30 
days

31 to 180 
days

181 to 360 
days

More than 360
days

Fair/book value (3) (4)

Amortized cost

Fair Value Adjustment

Fair/book value (3) (4)

Fair Value Adjustment

Financial treasury bills

319,444

14,104,478

14,423,922

14,422,969

953

15,052,479

1,618

National treasury notes

69,261

224,201

6,637,103

6,930,565

6,689,680

240,885

7,635,052

250,850

Financial bills

40,417

224,899

214,092

251,521

730,929

734,297

(3,368)

799,623

1,209

Debentures

48,289

178,575

758,104

984,968

1,183,263

(198,295)

1,999,785

(173,765)

National treasury bills

298,740

464,377

225,921

3,331,964

4,321,002

4,263,824

57,178

1,074,842

4,456

Brazilian foreign debt securities

659,602

659,602

645,523

14,079

307

Derivative financial instruments (1) (5)

10,716,945

2,357,250

730,302

917,554

14,722,051

15,853,855

(1,131,804)

14,181,669

(4,790,915)

Other

2,562,851

528,130

24,748

1,677,175

4,792,904

4,839,124

(46,220)

7,474,160

(27,667)

Total

13,736,503

4,118,301

1,373,638

28,337,501

47,565,943

48,632,535

(1,066,592)

48,217,917

(4,734,214)

Derivative financial instruments (liabilities) (5)

(15,038,965)

(373,896)

(162,153)

(549,487)

(16,124,501)

(12,487,343)

(3,637,158)

(14,097,259)

(3,794,840)

 

II)   Available-for-sale securities

Securities (2) (6)

On December 31 - R$ thousand

2018

2017

1 to 30 
days

31 to 180 
days

181 to 360 
days

More than 360
days

Fair/book value (3) (4)

Amortized cost

Fair Value Adjustment

Fair/book value (3) (4)

Fair Value Adjustment

National treasury bills

14,228,693

40,551,096

13,678,225

32,589,626

101,047,640

100,094,000

953,640

109,550,759

2,338,917

Debentures

843,075

1,668,834

724,845

41,311,358

44,548,112

45,725,023

(1,176,911)

34,988,998

(643,636)

National treasury notes

1,620,743

10,409,252

12,029,995

11,530,425

499,570

10,077,566

386,255

Foreign corporate securities

1,169,626

404,280

7,902,658

9,476,564

9,561,158

(84,594)

10,034,235

147,226

Shares

6,175,793

6,175,793

7,503,170

(1,327,377)

7,328,787

(848,627)

Foreign government bonds

3,202,547

(8,007)

Certificates of real estate receivables

21,680

2,741

1,571,974

1,596,395

1,565,015

31,380

1,041,845

(22,512)

Promissory Notes

13,233

201,567

214,800

214,265

535

495,528

(761)

Other

2,472,386

879,247

72,422

3,769,040

7,193,095

7,172,536

20,559

5,047,310

79,512

Subtotal

23,754,860

46,093,854

14,879,772

97,553,908

182,282,394

183,365,592

(1,083,198)

181,767,575

1,428,367

Accounting Hedge (Note 6f)

-

-

-

-

-

-

(409,784)

-

(103,723)

Securities reclassified to “Held-to-maturity securities”

-

-

-

-

-

-

(491,064)

-

(366,102)

Total

23,754,860

46,093,854

14,879,772

97,553,908

182,282,394

183,365,592

(1,984,046)

181,767,575

958,542

 

22                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

III) Held-to-maturity securities

 

Securities (2) (6)

On December 31 - R$ thousand

2018

2017

1 to 30

31 to 180

181 to 360

More than 360

Amortized cost (3)

Fair value (4)

Gain (loss) not accounted for

Amortized cost (3)

Gain (loss) not accounted for

days

days

days

days

National treasury bills

53,109,511

53,109,511

54,743,449

1,633,938

Certificates of real estate receivables

29,857

11,514,177

11,544,034

11,357,496

(186,538)

12,259,565

(295,783)

National treasury notes

133

1,101

1,077

815,718

818,029

880,974

62,945

7,115

Other

3,813

3,813

3,813

10,530

(420)

Total

133

30,958

1,077

65,443,219

65,475,387

66,985,732

1,510,345

12,277,210

(296,203)

 

c)      Breakdown of the portfolios by financial statement classification

 

Securities

On December 31 - R$ thousand

1 to 30 
days

31 to 180 
days

181 to 360 
days

More than 360
days

Total in 2018

(3) (4)

Total in 2017

(3) (4)

Own portfolio

26,773,248

7,098,701

1,610,795

105,074,117

140,556,861

146,153,605

Fixed income securities

19,751,087

7,098,701

1,610,795

105,074,117

133,534,700

137,982,552

● National treasury notes

69,394

1,135

1,077

1,982,233

2,053,839

8,563,144

● Financial treasury bills

627,427

12,286,768

12,914,195

14,043,257

● National treasury bills

14,527,433

3,740,378

819,601

32,583,996

51,671,408

47,730,251

● Debentures

891,364

1,668,833

468,532

37,125,911

40,154,640

36,988,782

● Financial bills

40,417

224,899

214,092

355,725

835,133

799,623

● Certificates of real estate receivables

21,680

32,598

13,240,985

13,295,263

13,404,917

● Foreign corporate securities

171,014

336,339

10,323

3,735,894

4,253,570

5,604,804

● Brazilian foreign debt securities

1,818,063

1,818,063

736,048

● Bank deposit certificates

97,603

253,068

10

350,681

332,055

● Promissory Notes

13,233

201,567

214,800

2,863,290

● Other

3,918,949

12,457

97,170

1,944,532

5,973,108

6,916,381

Equity securities

7,022,161

7,022,161

8,171,053

● Shares of listed companies

7,022,161

7,022,161

8,171,053

Restricted securities

1,303

37,712,708

12,816,447

85,099,083

135,629,541

76,916,412

Subject to repurchase agreements

35,704,868

12,386,268

78,306,944

126,398,080

65,760,819

● National treasury bills

32,648,316

11,557,423

56,404,319

100,610,058

56,213,201

● Foreign corporate securities

1,095,893

393,956

4,714,900

6,204,749

5,729,357

● National treasury notes

1,844,910

11,246,552

13,091,462

2,816,750

 

 

Bradesco     23


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Securities

On December 31 - R$ thousand

1 to 30 
days

31 to 180 
days

181 to 360 
days

More than 360
days

Total in 2018

(3) (4)

Total in 2017

(3) (4)

● Financial treasury bills

115,749

591,416

707,165

287,956

● Other

434,889

5,349,757

5,784,646

713,555

Privatization rights

39,273

39,273

44,127

Given in guarantee

1,303

2,007,840

430,179

6,752,866

9,192,188

11,111,466

● National treasury notes

4,389,414

4,389,414

4,066,134

● National treasury bills

1,552,326

430,179

42,786

2,025,291

3,946,983

● Financial treasury bills

572

455,514

2,253,425

2,709,511

3,035,421

● Other

731

67,241

67,972

62,928

Derivative financial instruments (1) (5)

10,716,945

2,357,250

730,302

917,554

14,722,051

14,181,669

Securities sold under repurchase agreements - unrestricted

3,074,454

1,096,943

243,874

4,415,271

5,011,016

● National treasury bills

3,074,454

1,096,943

4,171,397

2,735,165

● National treasury notes

243,874

243,874

2,273,706

● Financial treasury bills

2,145

Total

37,491,496

50,243,113

16,254,487

191,334,628

295,323,724

242,262,702

%

12.7

17.0

5.5

64.8

100.0

100.0

 

(1) Consistent with the criteria in Bacen Circular Letter No. 3,068/01 and due to the characteristics of the instruments, we are classifying the derivative financial instruments, in the "Securities for Trading" category. For derivative financial instruments considered as accounting hedge, the category used is "Available-for-Sale Securities;
(2) In compliance with Article 8 of Bacen Circular Letter No. 3,068/01, Bradesco declares that it has the financial capacity and intention to maintain held-to-maturity securities until their maturity dates. At the time of preparation of the consolidated financial statements as of June 30, 2018, Management decided to reclassify Securities available for Sale to Held to Maturity, in the amount of R$ 17,022,922 thousand, without any result, as the result (loss) in the gross amount of R$ (297,343) thousand, was retained in shareholders’ equity and will be recognized in income over the remaining period of the securities, according to article 5 of said Circular. This reclassification was based on the alignment of the risk management strategy. In the second semester of 2018 and in 2017, there were no sales or reclassifications of securities classified in this category;
(3) The number of days to maturity was based on the contractual maturity of the instruments, regardless of their accounting classification;
(4) The fair value of securities is determined based on the market price available at the end of the reporting period. If no market price quotation is available at the end of the reporting period, amounts are estimated based on the prices quoted by dealers, pricing models, quotation models or price quotations for instruments with similar characteristics. For investment funds, the original amortized cost reflects the fair value of the respective quotas;
(5) Includes hedge for protection of assets and liabilities, denominated in or indexed to foreign currency, primarily, arising from foreign investments, eliminating the effects of exchange variation of these assets and liabilities. For a better analysis of these items, consider the net exposure (Note 6d II); and
(6) In the year ended on December 31, 2018, there were impairment losses on financial assets (mostly debentures), net of reversals, related to securities classified as “Available-for-Sale” and “Held-to-Maturity” in the amount of R$ 979,765 thousand (R$ 2,517,178 thousand in 2017).

 

 

24                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

d)      Derivative financial instruments

 

Bradesco carries out transactions involving derivative financial instruments, which are recognized in the statement of financial position or in off-balance-sheet accounts, to meet its own needs in managing its global exposure, as well as to meet its customer’s requests, in order to manage their exposure. These operations involve a range of derivatives, including interest rate swaps, currency swaps, futures and options. Bradesco’s risk management policy is based on the utilization of derivative financial instruments mainly to mitigate the risks from operations carried out by the Bank and its subsidiaries.

 

Securities classified as trading and available-for-sale, as well as derivative financial instruments, are recognized in the consolidated statement of financial position at their fair value. Fair value is generally based on quoted market prices or quotations for assets or liabilities with similar characteristics. Should market prices not be available, fair values are based on dealer quotations, pricing models, discounted cash flows or similar techniques for which the determination of fair value may require judgment or significant estimates by Management.

 

Quoted market prices are used to determine the fair value of derivative financial instruments. The fair value of swaps is determined by using discounted cash flow modeling techniques that use yield curves, reflecting adequate risk factors. The information to build yield curves is mainly obtained from Securities, Commodities and Futures Exchange (B3), and the domestic and international secondary market. These yield curves are used to determine the fair value of currency swaps, interest rate and other risk factor swaps. The fair value of forward and futures contracts is also determined based on market price quotations for derivatives traded on an exchange or using methodologies similar to those outlined for swaps. The fair values of credit derivative instruments are determined based on market price quotation or from specialized entities. The fair value of options is determined based on mathematical models, such as Black & Scholes, using yield curves, implied volatilities and the fair value of corresponding assets. Current market prices are used to calculate volatility. To estimate the fair value of the over-the-counter (OTC) financial derivative instruments, the credit quality of each counterparty is also taken into account, relating an expected loss for each derivative portfolio (Credit valuation adjustment).

 

Derivative financial instruments in Brazil mainly refer to swaps and futures and are registered at B3.

 

Operations involving forward contracts of interest rates, indexes and currencies are contracted by Management to hedge Bradesco’s overall exposures and to meet customer needs.

 

Foreign derivative financial instruments refer to swap, forward, options, credit and futures operations and are mainly carried out at the stock exchanges in Chicago and New York, as well as the over-the-counter (OTC) markets.

 

Macro-strategies are defined for the Trading (proprietary) and Banking portfolios. Trading Portfolio transactions, including derivatives, look for gains from directional movements in prices and/or rates, arbitrage, hedge and market-maker strategies that may be fully or partly settled before the originally stipulated maturity date. The Banking Portfolio focuses on commercial transactions and their hedges.

 

Portfolio risk is controlled using information consolidated by risk factor; effective portfolio risk management requires joint use of derivatives with other instruments, including stocks and bonds.

 

The Financial Statements include a Risk Management and Capital Note on the main risk-control metrics and the risk management structure’s key aspects. This Note complements the Securities and Derivatives Note and shows these instruments' exposures under various views, as well as derivatives' revenues and expenses.

 

Bradesco     25


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

I)     Amount of derivative financial instruments recognized by index

 

 

On December 31 - R$ thousand

2018

2017

Nominal value

Net amount value

Original amortized cost

Mark-to-market adjustment

Fair value

Nominal value

Net amount value

Original amortized cost

Mark-to-market adjustment

Fair value

Futures contracts

 

 

 

 

 

 

 

 

 

 

Purchase commitments:

227,726,255

 

1,308

1,308

127,891,433

 

817

817

- Interbank market

174,849,777

110,937,866

912

912

79,771,752

24,366,908

558

558

- Foreign currency

52,576,329

393

393

47,956,458

101

101

- Other

300,149

11,525

3

3

163,223

49,452

158

158

Sale commitments:

129,283,059

 

(6,026)

(6,026)

122,185,585

 

(903)

(903)

- Interbank market (1)

63,911,911

(5,995)

(5,995)

55,404,844

(795)

(795)

- Foreign currency (2)

65,082,524

12,506,195

(21)

(21)

66,666,970

18,710,512

- Other

288,624

(10)

(10)

113,771

(108)

(108)

 

 

 

 

 

 

 

 

 

 

 

Option contracts

 

 

 

 

 

 

 

 

 

 

Purchase commitments:

34,094,128

 

1,365,520

108,423

1,473,943

9,175,002

 

1,056,007

4,355

1,060,362

- Interbank market

18,526,773

507,784

512,578

29,882

542,460

1,425,013

429,323

414,684

6,637

421,321

- Foreign currency

14,764,233

3,216,607

822,075

72,814

894,889

7,306,564

630,326

(25,298)

605,028

- Other

803,122

88,633

30,867

5,727

36,594

443,425

215,284

10,997

23,016

34,013

Sale commitments:

30,281,104

 

(1,648,053)

13,854

(1,634,199)

11,477,775

 

(990,049)

46,336

(943,713)

- Interbank market

18,018,989

(990,383)

(29,966)

(1,020,349)

995,690

(508,012)

(5,926)

(513,938)

- Foreign currency

11,547,626

(603,269)

31,513

(571,756)

10,253,944

2,947,380

(459,139)

49,552

(409,587)

- Other

714,489

(54,401)

12,307

(42,094)

228,141

(22,898)

2,710

(20,188)

 

 

 

 

 

 

 

 

 

 

 

Forward contracts

 

 

 

 

 

 

 

 

 

 

Purchase commitments:

13,597,633

 

731,145

731,145

10,486,497

 

(114,832)

(114,832)

- Interbank market

213,196

213,196

15,577

15,577

- Foreign currency

12,488,148

135,002

135,002

10,372,477

(113,800)

(113,800)

- Other

896,289

292,399

580,566

580,566

114,020

(1,032)

(1,032)

Sale commitments:

19,213,840

 

(164,382)

(164,382)

15,582,794

 

324,705

324,705

- Foreign currency (2)

18,609,950

6,121,802

(188,371)

(188,371)

14,947,271

4,574,794

(27,176)

(27,176)

- Other

603,890

23,989

23,989

635,523

521,503

351,881

351,881

 

 

 

 

 

 

 

 

 

 

 

Swap contracts

 

 

 

 

 

 

 

 

 

 

Assets (long position):

73,300,586

 

13,411,279

(1,240,227)

12,171,052

62,796,097

 

17,199,754

(4,795,270)

12,404,484

- Interbank market

4,439,901

2,845,083

319,859

89,857

409,716

6,286,693

3,427,373

508,363

42,409

550,772

- Fixed rate

51,759,240

23,444,731

11,671,420

(1,910,637)

9,760,783

48,791,015

23,275,888

15,958,367

(5,664,001)

10,294,366

- Foreign currency

15,551,428

1,296,270

461,908

1,758,178

6,161,641

696,030

555,291

1,251,321

- IGPM

753,483

7,483

55,731

54,099

109,830

652,450

2,482

44,228

46,710

- Other

796,534

67,999

64,546

132,545

904,298

34,512

226,803

261,315

                     

 

26                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

On December 31 - R$ thousand

2018

2017

Nominal value

Net amount value

Original amortized cost

Mark-to-market adjustment

Fair value

Nominal value

Net amount value

Original amortized cost

Mark-to-market adjustment

Fair value

Liabilities (unrestricted position):

56,095,194

 

(10,324,279)

(3,651,012)

(13,975,291)

45,733,215

 

(8,805,334)

(3,841,176)

(12,646,510)

- Interbank market

1,594,818

(17,713)

(27,358)

(45,071)

2,859,320

(116,128)

(38,488)

(154,616)

- Fixed rate

28,314,509

(6,187,481)

(3,397,316)

(9,584,797)

25,515,127

(7,016,419)

(3,438,816)

(10,455,235)

- Foreign currency

23,368,048

7,816,620

(3,751,368)

25,542

(3,725,826)

14,288,568

8,126,927

(1,476,907)

(81,285)

(1,558,192)

- IGPM

746,000

(117,080)

(75,724)

(192,804)

728,000

75,550

(36,205)

(70,796)

(107,001)

- Other

2,071,819

1,275,285

(250,637)

(176,156)

(426,793)

2,342,200

1,437,902

(159,675)

(211,791)

(371,466)

Total

583,591,799

 

3,366,512

(4,768,962)

(1,402,450)

405,328,398

 

8,670,165

(8,585,755)

84,410

 

Derivatives include operations maturing in D+1.

(1) Includes: (i) accounting hedges to protect CDI-related funding totaling R$ 8,285,152 thousand (R$ 6,769,979 in 2017); and (ii) accounting hedges to protect interbank investments, in the amount of R$ 9,784,183 thousand (R$ 16,030,487 thousand in 2017) (note 6f); and
(2) Includes specific hedges to protect assets and liabilities, arising from foreign investments. Investments abroad totaling the amount of R$ 59,884,730 thousand (R$ 49,543,254 thousand in 2017).

                               

 

Bradesco     27


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

II)   Breakdown of derivative financial instruments (assets and liabilities) shown at original amortized cost, fair value and maturity

 

 

On December 31 - R$ thousand

2018

2017

Original amortized cost

Mark-to-market adjustment

Fair value

%

1 to 90 days

91 to 180 days

181 to 360 days

More than 360 days

Total

Total

Adjustment receivable - swaps

13,411,279

(1,240,227)

12,171,052

83.0

12,140,572

30,480

12,171,052

12,404,484

Adjustment receivable - future

1,308

1,308

1,308

1,308

817

Receivable forward purchases

882,677

882,677

6.0

201,434

123,425

544,004

13,814

882,677

163,775

Receivable forward sales (1)

193,071

193,071

1.0

44,060

26,997

118,992

3,022

193,071

552,231

Premiums on exercisable options

1,365,520

108,423

1,473,943

10.0

527,205

9,194

67,306

870,238

1,473,943

1,060,362

Total assets (A)

15,853,855

(1,131,804)

14,722,051

100.0

12,914,579

159,616

730,302

917,554

14,722,051

14,181,669

Adjustment payables - swaps

(10,324,279)

(3,651,012)

(13,975,291)

87.0

(13,945,102)

(30,189)

(13,975,291)

(12,646,510)

Adjustment payables - future

(6,026)

(6,026)

(6,026)

(6,026)

(903)

Payable forward purchases

(151,532)

(151,532)

1.0

(71,237)

(50,792)

(22,432)

(7,071)

(151,532)

(278,607)

Payable forward sales

(357,453)

(357,453)

2.0

(168,047)

(119,813)

(52,914)

(16,679)

(357,453)

(227,526)

Premiums on written options

(1,648,053)

13,854

(1,634,199)

10.0

(1,010,667)

(41,177)

(86,807)

(495,548)

(1,634,199)

(943,713)

Total liabilities (B)

(12,487,343)

(3,637,158)

(16,124,501)

100.0

(15,201,079)

(211,782)

(162,153)

(549,487)

(16,124,501)

(14,097,259)

 

Net Effect (A-B)

3,366,512

(4,768,962)

(1,402,450)

 

(2,286,500)

(52,166)

568,149

368,067

(1,402,450)

84,410

 

(1)  Includes receivable adjustments relating to hedge of assets and liabilities, designated and/or indexed in foreign currency, primarily, arising from foreign investments, eliminating the effects of exchange variation of these assets and liabilities.

 

III) Futures, options, forward and swap contracts – (Reference Value)

 

 

On December 31 - R$ thousand

1 to 90

91 to 180

181 to 360

More than 360

2018

2017

days

days

days

days

Futures contracts (1)

199,908,795

30,528,629

22,092,725

104,479,165

357,009,314

250,077,018

Option contracts

12,045,860

3,259,021

38,680,422

10,389,929

64,375,232

20,652,777

Forward contracts (1)

19,008,660

8,405,385

4,195,332

1,202,096

32,811,473

26,069,291

Swap contracts

4,388,287

12,029,281

35,170,283

77,807,929

129,395,780

108,529,312

Total in 2018

235,351,602

54,222,316

100,138,762

193,879,119

583,591,799

 

Total in 2017

156,288,398

39,749,826

30,830,564

178,459,610

 

405,328,398

 

(1)  Includes contracts relating to hedges for the protection of assets and liabilities, designated and/or indexed in foreign currency, primarily, arising from foreign investments, eliminating the effects of exchange variation of these assets and liabilities.

 

28                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

IV) Types of margin offered in guarantee of derivative financial instruments, mainly futures contracts

 

 

On December 31 - R$ thousand

2018

2017

Government securities

 

 

National treasury bills

2,401,816

National treasury notes

4,525,418

4,555,551

Total

4,525,418

6,957,367

 

V)  Revenues and expenses, net

 

 

Years ended December 31 - R$ thousand

2018

2017

Swap contracts

(1,880,402)

85,043

Forward contracts (1)

(140,362)

(193,436)

Option contracts

(166,403)

(231,423)

Futures contracts (1)

(3,892,154)

2,233,631

Total (Note 6g)

(6,079,321)

1,893,815

 

(1) Includes the gain (loss) and the respective adjustment to the market capitalization of the hedge for protection of the assets and liabilities, designated and/or indexed in foreign currency, primarily, arising from foreign investments.

 

VI) Reference values of derivative financial instruments, by trading location and counterparts

 

 

On December 31 - R$ thousand

2018

2017

B3 (stock exchange)

373,784,215

225,585,190

B3 (over-the-counter)

163,922,802

143,287,208

Financial Institutions

89,665,773

87,978,346

Companies

74,158,676

55,165,575

Individuals

98,354

143,287

Overseas (stock exchange) (1)

31,202,691

32,785,343

Overseas (over-the-counter) (1)

14,682,091

3,670,657

Total

583,591,799

405,328,398

 

(1) Comprised of operations carried out on the Chicago and New York Stock Exchanges and over-the-counter markets.

 

e)      Credit Default Swaps (CDS)

 

In general, these represent bilateral agreements in which one of the parties purchases protection against the credit risk of a certain financial instrument (the risk is transferred). The selling counterparty receives remuneration that is usually paid linearly over the term of the agreement.

 

In the case of a default, the purchasing counterparty will receive a payment to offset the loss incurred on the financial instrument. In this case, the selling counterparty usually receives the underlying asset of the agreement in exchange for the payment.

 

 

On December 31 - R$ thousand

2018

2017

Risk received in credit Swaps:

3,330,639

584,987

- Debt securities issued by companies

749,735

468,214

- Bonds of the Brazilian public debt

2,574,317

116,773

- Bonds of foreign public debt

6,587

Risk transferred in credit Swaps:

(271,236)

- Brazilian public debt derivatives

(96,870)

- Foreign public debt derivatives

(174,366)

Total net credit risk value

3,059,403

584,987

Effect on Shareholders' Equity

61,551

49,162

Remuneration on the counterparty receiving the risk

(7,372)

195

 

Bradesco     29


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

The contracts related to credit derivatives transactions described above are due in 2025. There were no credit events, as defined in the agreements, during the period.

 

f)       Hedge Accounting

 

On December 31, 2018, Bradesco maintained hedge, in accordance with Bacen's Circular No. 3,082 / 02, composed by:

 

I)    Cash Flow Hedge - the financial instruments classified in this category, aims to reduce exposure to future changes in interest rates, which impact the outcome of the organization. The effective portion of the valuations or devaluations of these instruments is recognized in a separate account of shareholders' equity, net of tax effects and is only transferred to income in two situations: (i) in case of ineffectiveness of the hedge; or (ii) the realization of the hedge object. The ineffective portion of the respective hedge is recognized directly in the income statement.

 

Strategy

On December 31 - R$ thousand

Hedge instrument nominal value

Hedge object accounting value

Fair Value Accumulated Adjustments in shareholders' equity (gross of tax effects)

Fair Value Accumulated Adjustments in shareholders' equity (net of tax effects)

Hedge of interest receipts from investments in securities (1)

9,784,183

8,048,943

Hedge of interest payments on funding (2)

8,285,152

8,054,345

(140,745)

(84,447)

Total in 2018

18,069,335

16,103,288

(140,745)

(84,447)

*

 

 

 

 

Hedge of interest receipts from investments in securities (1)

16,030,487

14,708,544

40,060

24,036

Hedge of interest payments on funding (2)

6,769,979

6,671,048

(84,044)

(50,426)

Total in 2017

22,800,466

21,379,592

(43,984)

(26,390)

(1) Referring to the DI interest rate risk, using DI Futures contracts in B3, with the maturity in 2019, making the cash flow prefixed; and

(2) Referring to the DI interest rate risk, using DI Futures contracts in B3, with maturity dates in 2020, making the cash flow prefixed.

The effectiveness of the hedge portfolio is in accordance with Bacen's Circular No. 3,082/02.

 

For the next 12 months, the gains related to the cash flow hedge, which we expect to recognize in the income statement, amount to R$ (33,690) thousand.

 

The gains/(losses) related to the cash flow hedge recorded in the income statements in the year ended on December 31, 2018 were R$ 22,970 thousand (R$ 13,944 thousand in 2017).

 

II)   Hedge of investments abroad - the financial instruments classified in this category, have the objective of reducing the exposure to foreign exchange variation of investments abroad, whose functional currency is different from the national currency, which impacts the result of the organization. The effective portion of the valuations or devaluations of these instruments is recognized in a separate account of shareholders' equity, net of tax effects and is only transferred to income in two situations: (i) hedge ineffectiveness; or (ii) in the disposal or partial sale of the foreign operation. The ineffective portion of the respective hedge is recognized directly in the income statement.

 

Strategy

On December 31 - R$ thousand

Hedge instrument nominal value

Hedge object accounting value

Fair Value Accumulated Adjustments in shareholders' equity (gross of tax effects)

Fair Value Accumulated Adjustments in shareholders' equity (net of tax effects)

Hedge of exchange variation on future cash flows (1)

1,375,232

755,611

(269,039)

(161,423)

Total in 2018

1,375,232

755,611

(269,039)

(161,423)

*

 

 

 

 

Hedge of exchange variation on future cash flows (1)

1,110,888

582,567

(59,739)

(35,843)

Total in 2017

1,110,888

582,567

(59,739)

(35,843)

 

(1) Whose functional currency is different from the real, using Forward contracts, with the object of hedging the foreign investment referenced to MXN (Mexican Peso).

The effectiveness of the hedge portfolio is in accordance with Bacen's Circular No. 3,082/02.

 

30                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

For the next 12 months, the gains/(losses) related to the hedge of investments abroad, which we expect to recognize in the result, amount to R$ 4,775 thousand.

 

Gains/(losses) related to the hedge of investments abroad recorded in income accounts in the year ended on December 31, 2018 were R$ (7,943) thousand (R$ (359) thousand in 2017).

 

g)      Income from securities, insurance and derivative financial instruments

 

 

Years ended December 31 - R$ thousand

2018

2017

Fixed income securities (1)

21,730,863

21,980,157

Interbank investments (Note 5b)

9,297,721

18,356,673

Equity securities (2)

247,561

1,144,949

Subtotal

31,276,145

41,481,779

Income from derivative financial instruments (Note 6d V)

(6,079,321)

1,893,815

Total

25,196,824

43,375,594

 

(1)  In the year ended on December 31, 2018, there were losses due to impairment of financial assets (mostly debentures), net of reversals, in the amount of R$ 979,765 thousand (R$ 2,487,725 thousand in 2017); and

(2) In the year ended on December 31, 2017, there were losses due to impairment of shares in the amount of R$ 29,453 thousand.

 

7)      INTERBANK ACCOUNTS – RESERVE REQUIREMENT

 

a)       Reserve requirement

 

 

On December 31 - R$ thousand

Remuneration

2018

2017

Compulsory deposit – demand deposits

not remunerated

7,186,254

4,415,702

Compulsory deposit – savings deposits

savings index

21,999,114

24,672,508

Compulsory deposit – time deposits

Selic rate

58,411,548

37,579,791

Requirement  rural loans funds

not remunerated

 

46,225

Reserve requirement – SFH

TR + interest rate

1,283,317

1,217,337

Total

 

88,880,233

67,931,563

 

For more information on compulsory deposits see Note 32.

 

b)       Revenue from reserve requirement

 

 

Years ended December 31 - R$ thousand

2018

2017

Reserve requirement – Bacen (Compulsory deposit)

3,916,299

4,881,320

Reserve requirement – SFH

50,208

54,142

Total

3,966,507

4,935,462

 

 

Bradesco     31


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

8)      LOANS

 

Information relating to loans, including advances on foreign exchange contracts, leasing and other receivables with credit characteristics is shown below:

 

a)   By type and maturity

 

 

On December 31 - R$ thousand

Performing loans

1 to 30

31 to 60

61 to 90

91 to 180

181 to 360

More than 360

Total in 2018 (A)

-4%

Total in 2017 (A)

-4%

days

days

days

days

days

days

Discounted trade receivables and loans (1)

22,214,980

11,257,383

8,889,913

21,331,402

25,617,558

75,411,504

164,722,740

35.7

149,628,112

35.4

Financing

4,861,488

5,011,360

3,634,089

10,339,936

14,704,213

94,997,026

133,548,112

29.0

123,493,295

29.2

Agricultural and agribusiness loans

708,431

883,765

889,401

3,171,885

5,978,208

8,298,395

19,930,085

4.3

19,934,705

4.7

Subtotal

27,784,899

17,152,508

13,413,403

34,843,223

46,299,979

178,706,925

318,200,937

69.0

293,056,112

69.3

Leases

93,240

87,987

85,056

225,530

370,644

1,079,859

1,942,316

0.4

2,120,826

0.5

Advances on foreign exchange contracts (2)

1,418,072

1,691,617

1,501,668

5,516,585

3,950,908

65,079

14,143,929

3.1

9,319,868

2.2

Subtotal

29,296,211

18,932,112

15,000,127

40,585,338

50,621,531

179,851,863

334,287,182

72.5

304,496,806

72.0

Other receivables (3)

23,034,410

9,910,016

3,849,634

6,636,750

4,233,432

607,840

48,272,082

10.5

35,763,862

8.5

Total loans

52,330,621

28,842,128

18,849,761

47,222,088

54,854,963

180,459,703

382,559,264

83.0

340,260,668

80.5

Acquisition of credit card receivables

1,379,816

802,771

459,614

805,428

481,272

3,928,901

0.9

2,668,353

0.6

Subtotal

53,710,437

29,644,899

19,309,375

48,027,516

55,336,235

180,459,703

386,488,165

83.9

342,929,021

81.1

Sureties and guarantees

2,975,110

1,435,271

1,299,313

7,316,209

10,954,418

48,890,757

72,871,078

15.8

78,867,347

18.6

Loan assignment - real estate receivables certificate

30,450

30,449

30,447

87,628

130,776

439,678

749,428

0.2

902,429

0.2

Guarantee given on rural loans assigned

8,544

57,119

65,663

76,984

Letters of credit for imports

71,966

63,277

21,371

201,046

3,934

361,594

0.1

294,229

0.1

Confirmed exports loans

20,000

431

21,515

28,445

70,391

62,537

Total - Off-balance-sheet accounts

3,097,526

1,529,428

1,351,131

7,626,398

11,126,117

49,387,554

74,118,154

16.1

80,203,526

18.9

Total in 2018

56,807,963

31,174,327

20,660,506

55,653,914

66,462,352

229,847,257

460,606,319

100.0

 

 

Total in 2017

44,083,249

31,712,164

18,136,794

47,320,051

63,136,612

218,743,677

 

 

423,132,547

100.0

 

32                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

On December 31 - R$ thousand

Non-performing loans

Past-due installments

1 to 30

31 to 60

61 to 90

91 to 180

181 to 540

Total in 2018 (B)

-4%

Total in 2017 (B)

-4%

days

days

days

days

days

Discounted trade receivables and loans (1)

1,539,952

981,513

1,073,421

2,265,548

3,373,406

9,233,840

84.2

9,831,873

83.6

Financing

237,537

177,277

114,368

261,738

240,249

1,031,169

9.4

1,185,609

10.1

Agricultural and agribusiness loans

19,988

29,511

71,386

98,495

38,979

258,359

2.4

361,187

3.1

Subtotal

1,797,477

1,188,301

1,259,175

2,625,781

3,652,634

10,523,368

96.0

11,378,669

96.8

Leases

4,731

3,813

3,039

5,634

1,459

18,676

0.2

31,175

0.3

Advances on foreign exchange contracts (2)

4,699

8,715

507

87,396

1,838

103,155

0.9

110,536

0.9

Subtotal

1,806,907

1,200,829

1,262,721

2,718,811

3,655,931

10,645,199

97.1

11,520,380

98.0

Other receivables (3)

34,821

27,416

62,093

80,906

111,044

316,280

2.9

234,828

2.0

Total in 2018

1,841,728

1,228,245

1,324,814

2,799,717

3,766,975

10,961,479

100.0

 

 

Total in 2017

1,710,252

1,390,289

1,178,395

2,960,238

4,516,034

 

 

11,755,208

100.0

 

 

On December 31 - R$ thousand

Non-performing loans

Installments not yet due

1 to 30

31 to 60

61 to 90

91 to 180

181 to 360

More than 360

Total in 2018 (C)

-4%

Total in 2017 (C)

-4%

days

days

days

days

days

days

Discounted trade receivables and loans (1)

602,091

524,586

426,764

1,085,350

1,668,602

4,537,184

8,844,577

64.3

10,781,178

61.7

Financing

179,974

189,395

153,387

410,843

652,948

2,909,925

4,496,472

32.7

6,225,552

35.7

Agricultural and agribusiness loans

946

1,972

3,562

12,710

42,792

72,831

134,813

1.0

291,808

1.7

Subtotal

783,011

715,953

583,713

1,508,903

2,364,342

7,519,940

13,475,862

98.0

17,298,538

99.1

Leases

6,163

5,239

4,004

12,203

21,116

80,145

128,870

0.9

97,858

0.6

Subtotal

789,174

721,192

587,717

1,521,106

2,385,458

7,600,085

13,604,732

98.9

17,396,396

99.7

Other receivables (3)

5,084

4,742

4,221

11,453

17,795

102,329

145,624

1.1

48,847

0.3

Total in 2018

794,258

725,934

591,938

1,532,559

2,403,253

7,702,414

13,750,356

100.0

 

 

Total in 2017

952,775

840,197

846,044

1,950,721

2,988,823

9,866,683

 

 

17,445,243

100.0

 

Bradesco     33


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

On December 31 - R$ thousand

Total

Total in 2018 (A+B+C)

-4%

Total in 2017 (A+B+C)

-4%

Discounted trade receivables and loans (1)

182,801,157

37.7

170,241,163

37.6

Financing

139,075,753

28.7

130,904,456

28.9

Agricultural and agribusiness loans

20,323,257

4.2

20,587,700

4.6

Subtotal

342,200,167

70.6

321,733,319

71.1

Leases

2,089,862

0.4

2,249,859

0.5

Advances on foreign exchange contracts (2) (Note 9a)

14,247,084

2.9

9,430,404

2.1

Subtotal

358,537,113

73.9

333,413,582

73.7

Other receivables (3)

48,733,986

10.0

36,047,537

8.0

Total loans

407,271,099

83.9

369,461,119

81.7

Acquisition of credit card receivables

3,928,901

0.8

2,668,353

0.6

Subtotal

411,200,000

84.7

372,129,472

82.3

Sureties and guarantees

72,871,078

15.0

78,867,347

17.4

Loan assignment - real estate receivables certificate

749,428

0.2

902,429

0.2

Guarantee given on rural loans assigned

65,663

76,984

Letters of credit for imports

361,594

0.1

294,229

0.1

Confirmed exports loans

70,391

62,537

Total - Off-balance-sheet accounts

74,118,154

15.3

80,203,526

17.7

Total in 2018

485,318,154

100.0

 

 

Total in 2017

 

 

452,332,998

100.0

 

(1) Including credit card loans and advances on credit card receivables of R$ 13,205,662 thousand (R$ 15,344,607 thousand in 2017);
(2) Advances on foreign exchange contracts are classified as a deduction from “Other Liabilities”;
(3) The item “Other Receivables” comprises receivables on sureties and guarantees honored, receivables on sale of assets, securities and credits receivable, income receivable from foreign exchange contracts and export contracts and credit card receivables (cash and installment purchases at merchants), in the amount of R$ 29,465,930 thousand (R$ 26,109,733 thousand in 2017); and
(4) Percentage of each type in relation to the total loan portfolio, including sureties and guarantee, loan assignment and acquisition of receivables.

 

 

34                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

b) By type and levels of risk

 

 

On December 31 - R$ thousand

Levels of risk

AA

A

B

C

D

E

F

G

H

Total in 2018

% (1)

Total in

2017

% (1)

Discounted trade receivables and loans

22,697,312

85,872,190

15,498,879

26,907,437

6,660,540

4,488,193

4,941,691

2,592,025

13,142,890

182,801,157

38.1

170,241,163

38.0

Financing

82,694,007

28,703,892

10,262,714

9,308,804

2,099,505

1,206,559

1,257,754

686,825

2,855,693

139,075,753

29.0

130,904,456

29.2

Agricultural and agribusiness loans

4,529,665

8,674,519

4,370,067

2,076,093

339,133

76,246

50,370

58,191

148,973

20,323,257

4.2

20,587,700

4.6

Subtotal

109,920,984

123,250,601

30,131,660

38,292,334

9,099,178

5,770,998

6,249,815

3,337,041

16,147,556

342,200,167

71.3

321,733,319

71.8

Leases

332,123

314,307

1,227,159

30,053

15,632

58,704

28,598

12,727

70,559

2,089,862

0.4

2,249,859

0.5

Advances on foreign exchange contracts (2)

6,405,692

2,376,087

2,792,441

1,992,999

39,612

40,725

374,408

1,330

223,790

14,247,084

3.0

9,430,404

2.1

Subtotal

116,658,799

125,940,995

34,151,260

40,315,386

9,154,422

5,870,427

6,652,821

3,351,098

16,441,905

358,537,113

74.7

333,413,582

74.4

Other receivables

15,703,086

22,489,811

4,696,735

4,589,912

251,561

167,320

81,028

43,252

711,281

48,733,986

10.1

36,047,537

8.0

Subtotal

132,361,885

148,430,806

38,847,995

44,905,298

9,405,983

6,037,747

6,733,849

3,394,350

17,153,186

407,271,099

84.8

369,461,119

82.4

Financial guarantees provided (3)

58,032,545

3,772,435

2,149,091

8,395,269

521,738

72,871,078

15.2

78,867,347

17.6

Total in 2018

190,394,430

152,203,241

40,997,086

53,300,567

9,927,721

6,037,747

6,733,849

3,394,350

17,153,186

480,142,177

100.0

 

 

%

39.6

31.7

8.5

11.1

2.1

1.3

1.4

0.7

3.6

100.0

 

 

 

Total in 2017

178,567,474

130,084,098

42,352,068

49,153,772

13,805,998

7,656,290

4,264,014

2,952,535

19,492,217

 

 

448,328,466

100.0

%

39.8

29.0

9.4

11.0

3.1

1.7

1.0

0.7

4.3

 

 

100.0

 

 

(1) Percentage of each type in relation to the total loan portfolio, excluding sureties and guarantees, loan assignments, acquisition of receivables and co-obligation in rural loan assignments;

(2) Note 9a; and

(3) The provision for losses, associated to the financial guarantees provided, is being evaluated as provided by CMN Resolution No. 4,512/16, more information on the methodology used, see Note 18c.

 

Bradesco     35


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

c)     Composition of loan operations by risk level and delay situation

 

I)       Levels of risk

 

 

On December 31 - R$ thousand

Levels of risk

Non-performing loans (3)

AA

A

B

C

D

E

F

G

H

Total in 2018

% (1)

Total in 2017

% (1)

Installments not yet due

1,164,852

2,577,215

1,759,840

1,571,846

1,144,297

962,224

4,570,082

13,750,356

100.0

17,445,243

100.0

1 to 30

119,888

159,876

93,403

82,138

48,786

51,144

239,023

794,258

5.8

952,775

5.5

31 to 60

94,160

138,753

77,019

71,480

57,172

45,239

242,111

725,934

5.3

840,197

4.8

61 to 90

78,911

107,997

66,026

62,461

54,200

37,675

184,668

591,938

4.3

846,044

4.8

91 to 180

152,681

263,804

189,550

179,652

110,610

109,945

526,317

1,532,559

11.1

1,950,721

11.2

181 to 360

203,898

405,095

312,396

282,637

182,809

185,724

830,694

2,403,253

17.5

2,988,823

17.1

More than 360

515,314

1,501,690

1,021,446

893,478

690,720

532,497

2,547,269

7,702,414

56.0

9,866,683

56.6

Past-due installments (2)

375,656

830,579

818,566

801,283

1,306,894

1,070,767

5,757,734

10,961,479

100.0

11,755,208

100.0

1 to 14

22,654

63,500

48,851

33,065

654,240

16,856

169,106

1,008,272

9.2

672,622

5.7

15 to 30

344,552

183,119

82,752

48,165

21,898

25,190

127,780

833,456

7.6

1,037,630

8.8

31 to 60

8,450

561,870

172,202

107,263

50,995

50,037

277,428

1,228,245

11.2

1,390,289

11.9

61 to 90

14,426

494,106

132,820

67,341

329,049

287,072

1,324,814

12.1

1,178,395

10.0

91 to 180

7,664

20,655

467,734

491,743

627,815

1,184,106

2,799,717

25.5

2,960,238

25.2

181 to 360

12,236

20,677

21,820

3,656,426

3,711,159

33.9

4,360,831

37.1

More than 360

55,816

55,816

0.5

155,203

1.3

Subtotal

1,540,508

3,407,794

2,578,406

2,373,129

2,451,191

2,032,991

10,327,816

24,711,835

 

29,200,451

 

Specific provision

15,405

102,233

257,841

711,939

1,225,596

1,423,094

10,327,816

14,063,924

 

16,827,363

 

 

(1) Percentage of maturities by type of installment;
(2) For transactions with terms of more than 36 months, past-due periods are doubled, as permitted by Resolution No. 2,682/99; and

(3) For contracts with installments past-due for more than 14 days or which have been restructured or where the borrower is bankrupt or in judicial recovery.

 

 

36                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

On December 31 - R$ thousand

Levels of risk

Performing loans (2)

AA

A

B

C

D

E

F

G

H

Total in 2018

% (1)

Total in 2017

% (1)

Installments not yet due

132,155,633

147,711,442

37,212,401

41,294,235

6,710,916

3,590,911

4,052,884

1,352,210

6,753,450

380,834,082

99.5

337,667,215

99.2

1 to 30

13,207,542

21,623,988

4,479,404

7,866,081

673,486

431,656

1,687,325

86,485

549,472

50,605,439

13.3

36,743,988

10.7

31 to 60

8,440,769

12,472,947

3,382,236

3,666,223

249,126

237,068

38,463

37,645

317,651

28,842,128

7.5

26,856,104

7.9

61 to 90

5,590,317

8,015,917

1,898,924

2,689,336

207,693

153,547

46,442

31,655

215,930

18,849,761

4.9

16,223,038

4.8

91 to 180

14,230,691

18,509,993

6,332,900

5,898,410

546,062

350,938

391,543

133,280

828,271

47,222,088

12.3

41,026,091

12.1

181 to 360

17,478,428

21,332,813

6,665,643

6,763,722

1,262,809

444,973

246,065

130,139

530,371

54,854,963

14.3

53,429,784

15.7

More than 360

73,207,886

65,755,784

14,453,294

14,410,463

3,771,740

1,972,729

1,643,046

933,006

4,311,755

180,459,703

47.2

163,388,210

48.0

Past due up to 14 days

206,252

719,364

95,086

203,269

116,661

73,707

229,774

9,149

71,920

1,725,182

0.5

2,593,453

0.8

Subtotal

132,361,885

148,430,806

37,307,487

41,497,504

6,827,577

3,664,618

4,282,658

1,361,359

6,825,370

382,559,264

100.0

340,260,668

100.0

Generic provision

742,154

373,074

1,244,925

682,758

1,099,385

2,141,329

952,951

6,825,370

14,061,946

 

12,695,067

 

Total in 2018

132,361,885

148,430,806

38,847,995

44,905,298

9,405,983

6,037,747

6,733,849

3,394,350

17,153,186

407,271,099

 

 

 

Existing provision

835,484

425,604

1,461,479

1,465,249

4,643,542

5,642,159

3,380,476

17,153,186

35,007,179

 

 

 

Minimum required provision

742,154

388,479

1,347,158

940,599

1,811,324

3,366,925

2,376,045

17,153,186

28,125,870

 

 

 

Excess provision

93,330

37,125

114,321

524,650

2,832,218

2,275,234

1,004,431

6,881,309

 

 

 

Total in 2017

114,221,205

126,270,682

41,868,307

39,822,819

12,920,442

7,648,898

4,264,014

2,952,535

19,492,217

 

 

369,461,119

 

Existing provision

712,568

458,716

1,336,231

1,902,446

5,464,736

4,118,336

2,932,657

19,492,217

 

 

36,417,907

 

Minimum required provision

631,353

418,683

1,194,685

1,292,042

2,294,669

2,132,007

2,066,774

19,492,217

 

 

29,522,430

 

Excess provision

81,215

40,033

141,546

610,404

3,170,067

1,986,329

865,883

 

 

6,895,477

 

 

(1) Percentage of maturities by type of installment; and

(2) Transactions past-due for less than 15 days and which have not been restructured and where the borrower is not bankrupt or in judicial recovery.

 

II)            Operations

 

Exposure

Operation

On time

Past-due 0 to 14 days

Past-due 15 to 60 days

Past-due 61 to 90 days

Past-due 91 to 180 days

Past-due 181 to 360 days

Past-due more than 360

Total

Loans

367,273,035

11,383,723

11,217,012

3,100,334

6,423,034

7,694,882

179,079

407,271,099

 

 

Bradesco     37


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

d)    Concentration of loans

 

 

On December 31 - R$ thousand

2018

% (1)

2017

% (1)

Largest borrower

9,092,151

2.2

9,410,382

2.5

10 largest borrowers

37,315,119

9.2

30,628,439

8.3

20 largest borrowers

52,976,450

13.0

45,506,149

12.3

50 largest borrowers

76,660,370

18.8

66,362,206

17.9

100 largest borrowers

94,185,453

27.4

82,897,313

22.4

 

(1)  Percentage on total portfolio (as defined by Bacen).

 

e)     By economic sector

 

 

On December 31 - R$ thousand

2018

%

2017

%

Public sector

9,259,368

2.3

9,676,927

2.6

Oil, derivatives and aggregate activities

9,092,151

2.2

9,410,382

2.5

Production and distribution of electricity

1,829

1,322

Services

165,388

265,223

0.1

Private sector

398,011,731

97.7

359,784,192

97.4

Companies

204,685,795

50.3

185,795,799

50.3

Real estate and construction activities

25,267,761

6.2

29,383,442

8.0

Retail

32,472,286

8.0

23,935,638

6.5

Services

19,082,600

4.7

17,994,363

4.9

Transportation and concession

17,257,010

4.2

14,185,413

3.8

Automotive

11,284,972

2.8

10,014,454

2.7

Food products

12,040,631

3.0

8,866,028

2.4

Wholesale

11,467,168

2.8

9,045,916

2.4

Production and distribution of electricity

4,784,015

1.2

7,360,804

2.0

Iron and steel industry

7,698,444

1.9

7,001,290

1.9

Sugar and alcohol

6,907,858

1.7

7,042,811

1.9

Holding

3,872,935

1.0

3,539,364

1.0

Capital goods

3,385,548

0.8

3,740,520

1.0

Pulp and paper

3,359,793

0.8

3,358,341

0.9

Chemical

3,534,785

0.9

3,464,871

0.9

Cooperative

2,657,072

0.7

3,007,516

0.8

Financial

2,611,622

0.6

2,988,105

0.8

Leisure and tourism

3,076,927

0.8

2,570,126

0.7

Textiles

2,038,464

0.5

1,848,748

0.5

Agriculture

1,824,795

0.4

1,870,938

0.5

Oil, derivatives and aggregate activities

1,824,116

0.4

1,787,235

0.5

Other industries

28,236,993

6.9

22,789,876

6.2

Individuals

193,325,936

47.5

173,988,393

47.1

Total

407,271,099

100.0

369,461,119

100.0

 

38                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

f)   Breakdown of loans and allowance for loan losses

 

Level of risk

On December 31 - R$ thousand

Portfolio balance

Non-performing loans

Performing loans

Total

% (1)

% 2018 YTD (2)

% 2017 YTD (2)

Installments past due

Installments not yet due

Total - non-performing loans

AA

132,361,885

132,361,885

32.6

32.6

30.9

A

148,430,806

148,430,806

36.4

69.0

65.1

B

375,656

1,164,852

1,540,508

37,307,487

38,847,995

9.5

78.5

76.4

C

830,579

2,577,215

3,407,794

41,497,504

44,905,298

11.0

89.5

87.2

Subtotal

1,206,235

3,742,067

4,948,302

359,597,682

364,545,984

89.5

 

 

D

818,566

1,759,840

2,578,406

6,827,577

9,405,983

2.3

91.8

90.7

E

801,283

1,571,846

2,373,129

3,664,618

6,037,747

1.5

93.3

92.8

F

1,306,894

1,144,297

2,451,191

4,282,658

6,733,849

1.7

95.0

93.9

G

1,070,767

962,224

2,032,991

1,361,359

3,394,350

0.8

95.8

94.7

H

5,757,734

4,570,082

10,327,816

6,825,370

17,153,186

4.2

100.0

100.0

Subtotal

9,755,244

10,008,289

19,763,533

22,961,582

42,725,115

10.5

 

 

Total in 2018

10,961,479

13,750,356

24,711,835

382,559,264

407,271,099

100.0

 

 

%

2.7

3.4

6.1

93.9

100.0

 

 

 

Total in 2017

11,755,208

17,445,243

29,200,451

340,260,668

369,461,119

 

 

 

%

3.2

4.7

7.9

92.1

100.0

 

 

 

 

(1) Percentage of level of risk in relation to the total portfolio; and
(2) Cumulative percentage of level of risk on total portfolio.

 

 

Bradesco     39


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Level of risk

On December 31 - R$ thousand

Provision

% Minimum provisioning required

Minimum required

Excess

Existing

% 2018 YTD (1)

% 2017 YTD (1)

Specific

Generic

Total

Installments past due

Installments not yet due

Total specific

AA

-

A

0.5

742,154

742,154

93,330

835,484

0.6

0.6

B

1.0

3,756

11,649

15,405

373,074

388,479

37,125

425,604

1.1

1.1

C

3.0

24,917

77,316

102,233

1,244,925

1,347,158

114,321

1,461,479

3.3

3.4

Subtotal

 

28,673

88,965

117,638

2,360,153

2,477,791

244,776

2,722,567

0.7

0.8

D

10.0

81,857

175,984

257,841

682,758

940,599

524,650

1,465,249

15.6

14.7

E

30.0

240,385

471,554

711,939

1,099,385

1,811,324

2,832,218

4,643,542

76.9

71.4

F

50.0

653,447

572,149

1,225,596

2,141,329

3,366,925

2,275,234

5,642,159

83.8

96.6

G

70.0

749,537

673,557

1,423,094

952,951

2,376,045

1,004,431

3,380,476

99.6

99.3

H

100.0

5,757,734

4,570,082

10,327,816

6,825,370

17,153,186

17,153,186

100.0

100.0

Subtotal

 

7,482,960

6,463,326

13,946,286

11,701,793

25,648,079

6,636,533

32,284,612

75.6

71.7

Total in 2018

 

7,511,633

6,552,291

14,063,924

14,061,946

28,125,870

6,881,309

35,007,179

8.6

 

%

 

21.5

18.7

40.2

40.1

80.3

19.7

100.0

 

 

Total in 2017

 

8,284,457

8,542,906

16,827,363

12,695,067

29,522,430

6,895,477

36,417,907

 

9.9

%

 

22.7

23.5

46.2

34.9

81.1

18.9

100.0

 

 

 

(1) Percentage of existing provision in relation to total portfolio, by level of risk.

 

 

40                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

g)    Changes in allowance for loan losses

 

 

Years ended December 31 - R$ thousand

2018

2017

- Specific provision (1)

16,827,363

22,468,102

- Generic provision (2)

12,695,067

10,754,921

- Excess provision (3) (4)

6,895,477

7,490,351

- Loans

6,895,477

4,429,361

- Guarantees provided (4)

3,060,990

Opening balance on December 31

36,417,907

40,713,374

Accounting for allowance for loan losses (Note 8h-1) (5)

18,257,518

25,078,983

Accounting for/reversal of provisions for guarantees provided (4)

(3,060,990)

Write-offs

(19,918,125)

(26,347,868)

Exchange variation

249,879

34,408

Closing balance on December 31

35,007,179

36,417,907

- Specific provision (1)

14,063,924

16,827,363

- Generic provision (2)

14,061,946

12,695,067

- Excess provision (3)

6,881,309

6,895,477

 

(1) For contracts with installments past due for more than 14 days;
(2) Recognized based on the customer/transaction classification and therefore not included in the preceding item;
(3) The excess provision is recognized based on Management’s experience and the expectation in relation to the loan portfolio, to determine the total provision deemed sufficient to cover specific and general credit risk, when considered together with the provision calculated based on levels of risk and the corresponding minimum percentage in the provision established by Resolution No. 2,682/99. The excess provision per customer was classified according to the level of risk (Note 8f);
(4) Until December, 31, 2016, included the constitution of provision for guarantees provided, encompassing sureties, guarantees, credit letters, and standby letter of credit, which comprises the concept of “excess” provision that totaled R$ 3,060,990 thousand. In accordance with Resolution No. 4,512/16, in the first quarter of 2017, part of this balance (R$ 604,623 thousand) was allocated to a specific account under "Other Liabilities - Sundry" (Note 18b), and the remaining balance (R$ 2,456,367 thousand) was allocated to “Excess Provision”; and

(5) Includes, on December 31, 2017, the formation of allowance for loan losses, in the amount of R$ 2,456,367 thousand, as a result of the adequacy of the provision for guarantees provided, already mentioned in the previous item.

 

h)      Allowance for Loan Losses expense net of amounts recovered

 

Expenses with the allowance for loan losses, net of credit write-offs recovered, are as follows.

 

 

Years ended December 31 - R$ thousand

2018

2017

Amount recognized (1)

18,257,518

22,622,616

Amount recovered (2) (3)

(7,148,997)

(7,026,796)

Allowance for Loan Losses expense net of amounts recovered

11,108,521

15,595,820

 

(1) In the year ended on December 31, 2017, it refers to the formation of allowance for loan losses, in the amount of R$ 25,078,983 thousand, excluding the portion related to the adequacy of the provision for guarantees provided, in the amount of R$ 2,456,367 thousand (Note 8g);

(2) Classified in income from loans (Note 8j); and
(3) In the year ended on December 31, 2018, credit was granted for operations already written-off for losses, without the retention of risks and benefits, in the amount of R$ 13,810,254 thousand (R$ 7,866,440 thousand in 2017), whose sale value was R$ 204,472 thousand (R$ 88,226 thousand in 2017).

 

i)       Changes in the renegotiated portfolio

 

 

On December 31 - R$ thousand

2018

2017

Opening balance on December 31

17,183,869

17,501,423

Amount renegotiated

15,193,567

16,185,863

Amount received

(9,472,888)

(10,108,040)

Write-offs

(5,761,336)

(6,395,377)

Closing balance on December 31

17,143,212

17,183,869

Allowance for loan losses

13,426,625

13,146,472

Percentage on renegotiated portfolio

78.3%

76.5%

 

Bradesco     41


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

j)      Income from loans and leasing

 

 

Years ended December 31 - R$ thousand

2018

2017

Discounted trade receivables and loans

45,389,872

47,484,746

Financing

15,599,858

16,511,812

Agricultural and agribusiness loans

1,964,890

1,706,809

Subtotal

62,954,620

65,703,367

Recovery of credits charged-off as losses

7,148,997

7,026,796

Subtotal

70,103,617

72,730,163

Leases, net of expenses

258,200

270,647

Total

70,361,817

73,000,810

 

k)     Conciliation of the composition of the portfolio of financial leasing, at present value, with the accounting balances (Notes 3g and 8b):

 

 

Years ended December 31 - R$ thousand

2018

2017

Financial Leases Receivables

1,905,943

2,203,621

Unearned income from leases

(1,870,244)

(2,146,039)

Financial leased assets, plus lease losses (net)

5,249,325

6,057,054

Accrued depreciation on asset finance leasing:

(1,706,575)

(2,180,926)

- Accumulated depreciation

(2,676,861)

(3,313,851)

Difference in depreciation

970,286

1,132,925

Prepaid guaranteed residual value (Note 18b)

(1,488,587)

(1,683,851)

Total present value

2,089,862

2,249,859

 

9)      OTHER RECEIVABLES

 

a)      Foreign exchange portfolio

 

Balances

 

 

On December 31 - R$ thousand

 

2018

2017

Assets – other receivables

 

 

Exchange purchases pending settlement

16,843,467

13,631,205

Foreign exchange and forward documents in foreign currencies

36,149

8,185

Exchange sale receivables

3,583,992

3,816,306

(-) Advances in domestic currency received

(283,780)

(176,370)

Income receivable on advances granted

279,978

190,273

Total

20,459,806

17,469,599

Liabilities – other liabilities

 

 

Exchange sales pending settlement

3,593,445

3,854,054

Exchange purchase payables

16,205,817

13,228,153

(-) Advances on foreign exchange contracts

(14,247,084)

(9,430,404)

Other

2,206

2,821

Total

5,554,384

7,654,624

Net foreign exchange portfolio

14,905,422

9,814,975

Off-balance-sheet accounts:

 

 

-  Loans available for import

361,594

294,229

-  Confirmed exports loans

70,391

62,537

 

 

42                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Foreign exchange results

 

Adjusted foreign exchange results for presentation purposes

 

 

Years ended December 31 - R$ thousand

2018

2017

Foreign exchange income

1,637,575

2,287,568

Adjustments:

 

 

- Income on foreign currency financing (1)

200,184

151,836

- Income on export financing (1)

1,652,684

2,080,324

- Expenses of liabilities with foreign bankers (2) (Note 15c)

(1,066,302)

(1,089,448)

- Funding expenses (3)

(1,669,410)

(1,628,839)

- Other (4)

592,710

(3,385)

Total adjustments

(290,134)

(489,512)

Adjusted foreign exchange income

1,347,441

1,798,056

 

(1) Recognized in “Income from loans”;
(2) Related to funds for financing of advances on foreign exchange contracts and import financing, recognized in “Borrowing and on-lending expenses”;
(3) Refers to funding expenses of investments in foreign exchange; and
(4) Primarily includes the exchange rate variations of resources invested in foreign currency.

 

b)   Sundry

 

 

On December 31 - R$ thousand

2018

2017

Deferred tax assets (Note 31c)

51,904,188

49,780,375

Credit card operations

29,465,930

28,778,086

Debtors for escrow deposits

16,956,079

15,961,301

Trade and credit receivables

18,913,688

9,661,418

Prepaid taxes

11,970,820

9,395,426

Other debtors

2,501,793

3,630,522

Payments to be reimbursed

777,069

713,030

Receivables from sale of assets

190,810

186,725

Other

308,616

542,073

Total

132,988,993

118,648,956

 

10)    OTHER ASSETS

 

a)     Foreclosed assets/other

 

 

On December 31 - R$ thousand

Cost

Provision for losses

Cost net of provision

2018

2017

Real estate

2,469,837

(1,377,335)

1,092,502

1,225,444

Vehicles and similar

433,728

(276,788)

156,940

175,972

Inventories/warehouse

9,697

9,697

17,351

Machinery and equipment

3,881

(3,296)

585

2,037

Other

16,565

(15,358)

1,207

5,782

Total in 2018

2,933,708

(1,672,777)

1,260,931

 

Total in 2017

2,805,331

(1,378,745)

 

1,426,586

 

b)    Prepaid expenses

 

 

On December 31 - R$ thousand

2018

2017

Anticipation for acquisition of right to provide financial services

564,532

1,713,545

Commission on the placement of loans and financing (1)

535,297

406,722

Advertising and marketing expenses (2)

190,112

129,284

Other (3)

563,270

1,088,108

Total

1,853,211

3,337,659

(1) Commissions paid to storeowners, car dealers and correspondent banks – payroll-deductible loans;
(2) Prepaid expenses of future advertising and marketing campaigns on media; and
(3) It includes, principally, (i) anticipation of commissions concerning the operational agreement to offer credit cards and other products and (ii) card issue costs.

 

Bradesco     43


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

11)    INVESTMENTS

 

The income/expense from the equity method accounting of investments was recognized in the statement of income, under “Equity in the Earnings (Losses) of Affiliates and Subsidiaries”, and are demonstrated below:

 

Companies (1)

Years ended December 31 - R$ thousand

Capital

Shareholders’ equity adjusted

Number of shares/quotas held (in thousands)

Equity interest in capital

Adjusted income

Book value

Equity accounting adjustments (4)

Ordinary (ON)

Preferential (PN)

Preferential

(PN)

Quotas

2018

2018

2017

Bradseg Participações S.A.

17,408,789

30,749,558

8

97.20%

6,139,353

29,888,570

5,967,451

4,755,605

Quixaba Empreendimentos e Participações Ltda.

10,463,487

14,536,876

10,463,487

100.00%

1,532,457

14,536,969

1,532,457

1,248,174

Kirton Seguros S.A. (2)

-

62,654

300,371

Bradesco Seguros S.A. (2)

8,940,099

19,390,396

49

6.32%

3,243,212

1,225,473

204,971

Tibre Holdings Ltda.

350,000

626,640

350,000

100.00%

24,974

626,640

24,974

41,746

Bradescard Elo Participações S.A.

880,000

1,658,687

4,167,605

100.00%

348,708

1,695,236

348,708

175,103

Embaúba Holdings Ltda.

326,000

493,425

285,905

87.70%

19,418

432,734

17,030

107,114

BF Promotora de Vendas Ltda.

2,426,220

2,267,070

2,426,220

100.00%

26,204

2,267,070

26,204

(6,302)

Haitong Banco de Investimento do Brasil S.A.

420,000

502,985

12,734

12,734

20.00%

3,010

100,597

602

(22,637)

Credival - Participações Administração e Assessoria Ltda.

1,021,027

1,171,946

102,102,670

100.00%

57,022

1,171,946

57,022

68,853

Bankpar Brasil Ltda.

330,000

650,183

330,000

100.00%

53,294

650,183

53,294

67,049

Foreign exchange gain/loss of branches abroad

 

 

 

 

 

 

 

8,303,913

699,450

Other (3)

 

 

 

 

 

 

 

2,714,253

184,200

297,515

Earnings of Associates and Subsidiaries

 

 

 

 

 

 

 

55,309,671

16,783,480

7,732,041

 

(1) Date related to December 31, 2018;

(2) Company incorporated in June 2018 by Bradesco Seguros S.A.;

(3) Basically, earnings of affiliates and subsidiaries overseas and investments in the following companies: Ganant Corretora de Seguros Ltda., Miramar Holdings S.A., Tapajós Holding Ltda. and Imagra Imobiliária e Agrícola Ltda; and

(4) The adjustment considers income calculated periodically by the companies and includes equity variations recognized by the investees not recognized in profit or loss, as well as alignment of accounting practice adjustments, where applicable.

                                                                                                                         

44                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

12)    PREMISES AND EQUIPMENT AND LEASED ASSETS

 

 

On December 31 - R$ thousand

Annual depreciation  rate

Cost

Depreciation

Cost net of depreciation

2018

2017

Property and equipment:

 

 

 

 

 

- Buildings

4%

86,135

(37,787)

48,348

184,476

- Land

-

86,863

86,863

303,473

Facilities, furniture and premises and equipment

10%

5,713,358

(2,880,678)

2,832,680

2,330,378

Security and communication systems (1)

10%

334,602

(200,221)

134,381

120,791

Data processing systems (1)

20 to 40%

4,371,949

(2,860,007)

1,511,942

1,570,670

Transportation systems

10 to 20%

87,757

(58,004)

29,753

36,620

Fixed Assets in course

                                 -  

287

287

779

Subtotal

 

10,680,951

(6,036,697)

4,644,254

4,547,187

Leases premises and equipment

 

5,489,242

(1,946,492)

3,542,750

3,876,128

Total in 2018

 

16,170,193

(7,983,189)

8,187,004

 

Total in 2017

 

16,163,280

(7,739,965)

 

8,423,315

(1) In the year ended in 2018, Impairment losses were recognized in the lines “Other Operating Expenses” in the amount of R$31,323 thousand (R$52,450 thousand in 2017).

 

The immobilization index in relation to the reference equity "prudential conglomerate" was 36.3%, with a maximum limit of 50.0% as required by Resolution No 2,669/99.

 

13)    INTANGIBLE ASSETS

 

a)   Intangible assets

 

Acquired intangible assets consist of:

 

 

On December 31 - R$ thousand

Rate of Amortization (1)

Cost

Amortization

Cost net of amortization

2018

2017

Acquisition of financial services rights

Contract

6,612,137

(2,381,532)

4,230,605

2,338,353

Software (2)

20%

9,203,388

(6,730,314)

2,473,074

2,508,995

Goodwill (3)

 Up to 20%

11,660,023

(5,850,210)

5,809,813

7,958,780

Other

 Contract

18,957

(15,160)

3,797

6,521

Total in 2018

 

27,494,505

(14,977,216)

12,517,289

 

Total in 2017

 

25,162,805

(12,350,156)

 

12,812,649

 

(1) Intangible assets are amortized over an estimated period of economic benefit and recognized in “other administrative expenses” and “other operating expenses”, where applicable;
(2) Software acquired and/or developed by specialized companies; and
(3) On December 31, 2018, primarily composed of goodwill on the acquisition of equity interest in Bradescard - R$ 549,406 thousand, Bradescard Mexico - R$ 15,490 thousand, Bradesco BBI - R$ 100,638 thousand; and Kirton Bank - R$ 4,253,818 thousand, considering the portion of goodwill allocated to entities not consolidated in the prudential conglomerate, the total goodwill of Kirton Bank is R$ 4,490,388 thousand.

 

b)   Changes in intangible assets by type

 

 

On December 31 - R$ thousand

Opening balance

Additions / (reductions) (1)

Amortization for the period

Closing balance

Acquisition of financial services rights

2,338,353

2,998,230

(1,105,978)

4,230,605

Software

2,508,995

902,116

(938,037)

2,473,074

Goodwill – Future profitability

4,524,741

4,191

(951,621)

3,577,311

Goodwill – Based on intangible assets and other reasons

2,548,412

(802,777)

1,745,635

Goodwill – Difference in fair value of assets/liabilities

885,627

(74,253)

(324,507)

486,867

Other

6,521

2,167

(4,891)

3,797

Total in 2018

12,812,649

3,832,451

(4,127,811)

12,517,289

Total in 2017

15,156,852

1,997,143

(4,341,346)

12,812,649

(1) Includes, in the year ended in December 31, 2018, impairment in the amount of R$ 55,112 thousand (R$ 30,683 thousand in 2017).

 

Bradesco     45


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

14)    DEPOSITS, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND FUNDS FROM ISSUANCE OF SECURITIES

 

a)   Deposits

 

 

On December 31 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

● Demand deposits (1)

35,482,198

35,482,198

34,317,789

● Savings deposits (1)

111,170,912

111,170,912

103,332,697

● Interbank deposits

154,264

228,111

3,631

24,969

410,975

2,168,731

● Time deposits (2)

9,024,048

15,792,524

42,076,338

130,092,579

196,985,489

126,863,309

Total in 2018

155,831,422

16,020,635

42,079,969

130,117,548

344,049,574

 

%

45.3

4.7

12.2

37.8

100.0

 

Total in 2017

144,300,004

11,604,165

12,591,386

98,186,971

 

266,682,526

%

54.1

4.4

4.7

36.8

 

100.0

 

(1) Classified as 1 to 30 days, not considering average historical turnover; and
(2) Considers the actual maturities of the investments.

 

b)   Securities sold under agreements to repurchase

 

 

On December 31 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

Own portfolio

128,663,528

3,184,159

1,342,091

939,212

134,128,990

111,487,919

● Government securities

114,383,516

205,445

87,816

114,676,777

58,557,309

● Debentures of own issuance

5,741,412

2,978,714

1,092,771

30,265

9,843,162

44,581,241

● Foreign

8,538,600

161,504

908,947

9,609,051

8,349,369

Third-party portfolio (1)

66,700,064

66,700,064

128,356,541

Unrestricted portfolio (1)

8,422,107

234,212

8,656,319

8,713,623

Total in 2018

203,785,699

3,418,371

1,342,091

939,212

209,485,373

 

%

97.4

1.6

0.6

0.4

100.0

 

Total in 2017

207,018,572

15,719,159

19,699,620

6,120,732

 

248,558,083

%

83.3

6.3

7.9

2.5

 

100.0

 

(1)  Represented by government securities.

 

 

46                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

c)   Funds from issuance of securities

 

 

On December 31 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

2018

2017

Securities – Brazil:

 

 

 

 

 

 

- Financial bills

1,547,274

13,816,662

16,836,317

86,686,856

118,887,109

105,902,749

- Letters of credit for real estate

493,425

8,579,819

13,040,573

3,267,902

25,381,719

27,020,911

- Letters of credit for agribusiness

516,795

6,404,679

3,691,895

2,495,226

13,108,595

10,973,682

- Letters of credit property guaranteed (2)

476,332

476,332

Subtotal

2,557,494

28,801,160

33,568,785

92,926,316

157,853,755

143,897,342

Securities – Overseas:

 

 

 

 

 

 

- Securitization of future flow of money orders received from overseas

20,263

375,174

367,578

2,079,163

2,842,178

2,464,179

- MTN Program Issues (1)

4,207

19,292

1,246,910

1,270,409

634,549

Subtotal

24,470

375,174

386,870

3,326,073

4,112,587

3,098,728

Structured Operations Certificates

8,789

260,272

234,934

152,621

656,616

368,485

Total in 2018

2,590,753

29,436,606

34,190,589

96,405,010

162,622,958

 

 %

1.6

18.1

21.0

59.3

100.0

 

Total in 2017

2,973,577

31,282,315

48,453,296

64,655,367

 

147,364,555

 %

2.0

21.2

32.9

43.9

 

100.0

 

(1) Issuance of securities on the international market to invest in foreign exchange transactions, pre-export financing, import financing and working capital financing, predominately in the medium and long-term; and

(2) Funding is secured by the Real Estate Credit Portfolio, for the amount of R$ 549,665 thousand, which meets all Central Bank (BACEN) Resolution No. 4,598/17 requirements: 115.38% sufficiency (including fiduciary agent remuneration), liquidity; the asset portfolio's weighted average tenor being 309 months, issuing LIGs (secured real estate notes or 'covered bonds') with tenor 35 months, none due within 180 days, receivables corresponding to 0.05% of total assets and 61.46% of the properties' guarantee amount. The credit portfolio’s guarantor assets are mostly rated AA and A (66% and 23% respectively). In addition, the LIG Issue and the asset portfolio management policy, as required by Article 11 of BACEN Resolution No. 4,598/17, can be found at the following address https://banco.bradesco/html/prime/produtos-servicos/investimentos/letra-imobiliaria-garantida.shtm.

Bradesco     47


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

d)   Movement of funds from issuance of securities

 

 

R$ thousand

 

2018

2017

Opening balance on December 31

147,364,555

162,213,586

Issuance

95,196,518

70,915,810

Interest

10,567,670

14,433,363

Settlement and interest payments

(91,035,793)

(100,286,827)

Exchange variation

530,008

88,623

Closing balance on June 30

162,622,958

147,364,555

 

e)   Cost for market funding and inflation

 

 

Years ended December 31 - R$ thousand

2018

2017

Savings deposits

4,646,528

5,730,457

Time deposits

6,285,102

7,604,041

Securities sold under agreements to repurchase

15,811,266

25,640,610

Funds from issuance of securities

10,567,670

14,433,363

Subordinated debts (Note 17)

3,517,067

5,100,017

Other funding expenses

641,600

644,014

Total

41,469,233

59,152,502

 

15)    BORROWING AND ON-LENDING

 

a)  Borrowing

 

 

On December 31 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

2018

2017

days

days

days

days

Overseas

5,781,401

13,500,609

8,624,551

1,808,215

29,714,776

18,520,567

Total in 2018

5,781,401

13,500,609

8,624,551

1,808,215

29,714,776

 

%

19.5

45.4

29.0

6.1

100.0

 

Total in 2017

3,057,063

8,979,714

5,242,845

1,240,945

 

18,520,567

%

16.5

48.5

28.3

6.7

 

100.0

 

b)  On-lending

 

 

On December 31 - R$ thousand

1 to 30

31 to 180

181 to 360

More than 360

2018

2017

days

days

days

days

In Brazil

881,476

3,230,381

3,519,578

17,538,623

25,170,058

30,769,294

- FINAME

415,545

2,263,759

2,425,438

9,222,862

14,327,604

16,877,731

- BNDES

465,806

966,622

987,096

8,315,761

10,735,285

13,792,853

- National Treasury

105,725

105,725

97,200

- Other institutions

125

1,319

1,444

1,510

Total in 2018

881,476

3,230,381

3,519,578

17,538,623

25,170,058

 

%

3.5

12.8

14.0

69.7

100.0

 

Total in 2017

899,536

4,738,203

5,415,040

19,716,515

 

30,769,294

%

2.9

15.4

17.6

64.1

 

100.0

 

48                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

c)     Borrowing and on-lending expenses

 

 

Years ended December 31 - R$ thousand

2018

2017

Borrowing:

 

 

- In Brazil

7,864

393,837

- Overseas

9,192,892

1,194,692

Subtotal borrowing

9,200,756

1,588,529

On-lending in Brazil:

 

 

- BNDES

824,260

1,130,511

- FINAME

747,745

708,243

- National Treasury

4,215

7,023

- Other institutions

5

53

On-lending overseas:

 

 

- Payables to foreign bankers (Note 9a)

1,066,302

1,089,448

Subtotal on-lending

2,642,527

2,935,278

Total

11,843,283

4,523,807

 

 

16)  PROVISIONS, CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS – TAX AND SOCIAL SECURITY

 

a)   Contingent assets

 

Contingent assets are not recognized in the financial statements. However, there are ongoing proceedings where the chance of success is considered probable, such as: a) Social Integration Program (PIS), Bradesco has made a claim to offset PIS against Gross Operating Income, paid under Decree-Laws No. 2,445/88 and No. 2,449/88, regarding the payment that exceeded the amount due under Supplementary Law No. 07/70 (PIS Repique); and b) other taxes, the legality and/or constitutionality of which is being challenged, where the decision may lead to reimbursement of amounts paid.

 

b)   Provisions classified as probable losses and legal obligations – tax and social security

 

The Organization is a party to a number of labor, civil and tax lawsuits, arising from the normal course of business.

 

Management recognized provisions where, based on their opinion and that of their legal counsel, the nature of the lawsuit, similarity to previous lawsuits, complexity and the courts standing, the loss is deemed probable.

 

Management considers that the provision is sufficient to cover the future losses generated by the respective lawsuits.

 

Provisions related to legal obligations are maintained until the conclusion of the lawsuit, represented by judicial decisions with no further appeals or due to the statute of limitation.

 

I -      Labor claims

 

These are claims brought by former employees and outsourced employees seeking indemnifications, most significantly for unpaid “overtime”, pursuant to Article 224 of the Consolidation of Labor Laws (CLT). In proceedings in which a judicial deposit is used to guarantee the execution of the judgment, the labor provision is made considering the estimated loss of these deposits. For proceedings with similar characteristics and for which there has been no official court decision, the provision is recognized based on the average calculated value of payments made for labor complaints settled in the past 12 months; and for proceedings originating from acquired banks, with unique characteristics, the calculation and assessment of the required balance is conducted periodically, based on the updated recent loss history.

 

Bradesco     49


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Overtime is monitored by using electronic time cards and paid regularly during the employment contract and, accordingly, the claims filed by former employees do not represent significant amounts.

 

II -     Civil claims

 

These are claims for pain and suffering and property damages, mainly relating to protests, returned checks, the inclusion of information about debtors in the credit restriction registry and the replacement of inflation adjustments excluded as a result of government economic plans. These lawsuits are individually controlled using a computer-based system and provisioned whenever the loss is deemed as probable, considering the opinion of Management and their legal counsel, the nature of the lawsuits, similarity with previous lawsuits, complexity and positioning of the courts.

 

Most of these lawsuits are brought to the Special Civil Court (JEC), in which the claims are limited to 40 times the minimum wage and do not have a significant impact on the Organization’s financial position.

 

In relation to the legal claims that are pleading alleged differences in the adjustment of inflation on savings account balances and due to the implementation of economic plans that were part of the federal government’s economic policy to reduce inflation in the 80s and 90s, Bradesco, despite complying with the law and regulation in force at the time, has provisioned certain proceedings, taking into consideration the claims in which they were mentioned and the perspective of loss, of each demand, in view of the decisions and subjects still under analysis in the Superior Court of Justice (STJ), such as, for example, the application of default interest in executions arising from Public Civil Actions, interest payments and succession.

 

In December 2017, with the mediation of the Attorney’s General Office (AGU), the entities representing the bank and the savings accounts, entered into an agreement related to litigation of economic plans, with the purpose of closing these claims, in which conditions and schedule were established for savings accounts holders to accede to the agreement. This agreement was approved by the Federal Supreme Court (STF) on March 1, 2018, the period of adhesion for interested parties is for 02 (two) years from this date. As this is a voluntary agreement, Bradesco is unable to predict how many savings account holders will choose to accept the settlement offer. It is important to note that Bradesco understands that the provisioning was made to cover the eligible proceedings to the related agreement. The proceedings that are not in the context of the agreement including those related to incorporated banks are evaluated individually based on the procedural stage they are in.

 

Note that, regarding disputes relating to economic plans, the Federal Supreme Court (STF) suspended the prosecution of all lawsuits at the cognizance stage, until the Court issues a final decision on the right under litigation.

 

III -   Provision for tax risks

 

The Organization is disputing the legality and constitutionality of certain taxes and contributions in court, for which provisions have been recognized in full, although there is a good chance of a favorable outcome, based on the opinion of Management and their legal counsel. The processing of these legal obligations and the provisions for cases for which the risk of loss is deemed as probable is regularly monitored in the legal court. During or after the conclusion of each case, a favorable outcome may arise for the Organization, resulting in the reversal of the related provisions.

 

The main cases are:

 

-        PIS and COFINS – R$ 2,553,454 thousand (R$ 2,465,109 thousand in 2017): a request for authorization to calculate and pay PIS and COFINS based on effective billing, as set forth in Article 2 of Supplementary Law No. 70/91, removing from the calculation base the unconstitutional inclusion of other revenues other than those billed;

 

 

50                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

-        Pension Contributions – R$ 1,579,892 thousand (R$ 1,365,577 thousand in 2017): official notifications related to the pension contributions on financial contributions in private pension plans, considered by the authorities to be compensatory sums subject to the incidence of pension contributions and to an isolated fine for not withholding IRRF on the financial contributions;

 

-        IRPJ/CSLL on losses of credits – R$ 1,461,621 thousand (R$ 1,614,663 thousand in 2017): we are requesting to deduct from income tax and social contributions payable (IRPJ and CSLL, respectively) amounts of actual and definite loan losses related to unconditional discounts granted during collections, regardless of compliance with the terms and conditions provided for in Articles 9 to 14 of Law No. 9,430/96 that only apply to temporary losses;

 

-        IRPJ/CSLL on MTM – R$ 607.258 thousand: IRPJ and CSLL deficiency note related to the exclusions of revenues marking Securities at fair value in 2007;

 

-        INSS – Contribution to SAT – R$ 417,442 thousand (R$ 401,018 thousand in 2017): in an ordinary lawsuit filed by the Brazilian Federation of Banks – Febraban, since April 2007, on behalf of its members, is questioned the classification of banks at the highest level of risk, with respect to Work Accident Risk – RAT, which eventually raised the rate of the respective contribution from 1% to 3%, in accordance with Decree No. 6,042/07.

 

In general, the provisions relating to lawsuits are classified as non-current, due to the unpredictability of the duration of the proceedings in the Brazilian justice system. For this reason, the estimate has not been disclosed with relation to the specific year in which these lawsuits will be finalized.

 

IV - Provisions by nature

 

 

On December 31 - R$ thousand

2018

2017

Labor claims

5,687,916

5,247,198

Civil claims

4,445,739

4,384,585

Provision for tax risks

7,111,865

6,403,193

Total (Note 18b)

17,245,520

16,034,976

 

V - Changes in provisions

 

 

R$ thousand

2018

Labor

Civil

Tax

Balance on December 31,  2017

5,247,198

4,384,585

6,403,193

Adjustment for inflation

650,351

508,402

256,158

Provisions, net of (reversals and write-offs)

1,114,920

629,596

475,269

Payments

(1,324,553)

(1,076,844)

(22,755)

Balance on December 31,  2018

5,687,916

4,445,739

7,111,865

 

 

c)   Contingent liabilities classified as possible losses

 

The Organization maintains a system to monitor all administrative and judicial proceedings in which the institution is plaintiff or defendant and, based on the opinion of legal counsel, classifies the lawsuits according to the expectation of loss. Case law trends are periodically analyzed and, if necessary, the related risk is reclassified. In this respect, contingent lawsuits deemed to have a possible risk of loss are not recognized as a liability in the financial statements. The main proceedings in this category are the following:

 

-    COFINS – R$ 5,070,337 thousand (R$ 4,902,151 thousand in 2017): Fines and disallowances of Cofins loan compensations, released after a favorable decision in a judicial proceeding, where the unconstitutionality of the expansion of the intended calculation base was discussed for revenues other than those from billing (Law No. 9,718/98);

 

-        2006 to 2013 IRPJ and CSLL – R$ 2,728,468 thousand (R$ 2,320,956 thousand in 2017), relating to goodwill amortization being disallowed on the acquisition of investments;

Bradesco     51


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

-    Leasing companies’ Tax on Services of any Nature (ISSQN), R$ 2,478,296 thousand (R$ 2,394,087 thousand in 2017) which relates to the municipal tax demands from municipalities other than those in which the company is located and where, under law, tax is collected;

 

-    IRPJ and CSLL deficiency note – 2004 to 2012 – R$ 1,759,431 thousand (R$ 2,431,844 thousand in 2017): relating to disallowance of exclusions and expenses, differences in depreciation expenses, insufficient depreciation expenses, expenses with depreciation of leased assets, operating expenses and income and disallowance of tax loss compensation;

 

-    IRPJ and CSLL deficiency note – 2012 and 2013 – R$ 1,689,160 thousand: due to the disallowance of operating expenses (CDI), related to resources that were capitalized between the companies of the Organization;

 

-    PIS and COFINS notifications and disallowances of compensations – R$ 360,893 thousand (R$ 390,236 thousand in 2017): related to the unconstitutional extension of the basis of calculation intended for other income other than the billing (Law No. 9,718/98), from acquired companies; and

 

-    IRPJ and CSLL deficiency note – R$ 859,049 thousand (R$ 969,713 thousand in 2017): relating to disallowance of exclusions with losses in collections.

 

d)  Other matters

 

On May 31, 2016, three members of Bradesco’s Board of Executive Officershave been charged by the Brazilian Federal Police under the so-called “Operation Zealots”, which investigates the alleged improper performance of members of CARF - Administrative Council of Tax Appeals. On July 28, 2016, the Public Prosecutor's Office filed charges against the three members of the Board of Executive Officers, and a former member of the Board of Directors, which was received by the Federal District Judiciary Section’s 10th Federal Court Judge. Currently, only two members of Bradesco's Board of Executive Officers remain in the process. The business executives presented their responses in the criminal case, pointing out facts and evidence demonstrating their innocence. The investigation phase of the process was already completed, and is currently waiting for the decision of the first degree court.

 

The Company's Management conducted a careful internal evaluation of records and documents related to the matter and found no evidence of any illegal conduct practiced by its representatives. Bradesco provided all of the information to the authorities and competent regulatory bodies, both in Brazil and abroad.

 

As a result of the news about the Operation Zealots, a Class Action was filed against Bradesco and three members of its Board of Executive Officers before the District Court of New York, on June 3, 2016, based on Section 10 (b) and 20 (a) of the Securities Exchange Act of 1934. The demand is based on the allegation that investors who purchased preferred American Depositary Shares (“ADS”) of Bradesco between April 30, 2012 and July 27, 2016 had suffered losses caused by alleged violation regarding the American laws of capital markets. On September 29, 2017, the Court limited the proposed class to investors who purchased preferred ADS Bradesco between August 8, 2014 and July 27, 2016, as well as excluding one of the executives. The Class Action is currently, in the phase of pre-trial Discovery, and is awaiting a decision regarding the petition of class certification by the Lead Plaintiff, which Bradesco has already contested.

 

Bradesco was also summoned by the Corregedoria Geral do Ministério da Fazenda for the opening of an administrative investigation to verify the need to file an Administrative Accountability Process ("PAR"). The Administrative Accountability Process may imply the application of fine and/or be mentioned in public lists that may eventually bring restrictions on business with public entities.

 

 

 

52                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

17)    SUBORDINATED DEBT

 

a)   Composition by maturity

 

 

On December 31 - R$ thousand

Original term in years

Nominal amount

2018

2017

In Brazil:

 

 

 

 

Subordinated CDB:

 

 

 

 

2019

10

20,000

69,851

62,303

Financial bills:

 

 

 

 

2018 (1)

6

10,130,108

2019

6

21,858

39,261

36,139

2018 (1)

7

316,757

2019

7

3,172,835

3,490,180

3,436,734

2020

7

1,700

3,038

2,801

2022

7

4,305,011

6,010,103

5,597,559

2023

7

1,359,452

1,829,083

1,699,872

2024

7

67,450

80,479

73,861

2025 (2)

7

5,425,906

5,578,707

2018 (1)

8

119,417

2019

8

12,735

31,742

28,184

2020

8

28,556

59,398

54,383

2021

8

1,236

2,192

2,027

2023

8

1,706,846

2,464,978

2,265,488

2024

8

136,695

172,590

159,205

2025

8

6,193,653

6,427,806

6,624,611

2026 (2)

8

870,300

894,417

2021

9

7,000

14,064

13,125

2024

9

4,924

7,444

6,611

2025

9

400,944

491,031

457,679

2027 (2)

9

144,900

149,211

2021

10

19,200

44,962

40,429

2022

10

54,143

108,467

99,338

2023

10

688,064

1,146,189

1,070,085

2025

10

284,137

451,136

392,376

2026

10

361,196

480,443

438,776

2027

10

258,743

295,946

273,498

2028 (2)

10

248,300

257,524

2026

11

3,400

4,622

4,271

2027

11

47,046

58,346

53,996

2028

11

74,764

84,304

77,079

Perpetual (1)

 

9,201,200

9,254,743

5,004,967

Subtotal in Brazil

 

 

40,002,257

38,541,679

Overseas:

 

 

 

 

2019

10

1,333,575

2,955,140

2,523,797

2021

11

2,766,650

6,359,999

3,701,272

2022

11

1,886,720

4,335,459

5,425,738

Subtotal overseas

 

 

13,650,598

11,650,807

Total (3) (4)

 

 

53,652,855

50,192,486

(1) Subordinated debt transactions that matured in 2018;

(2) Issues of financial letters subordinate were recognized under the heading “Eligible Debt Capital Instruments”;

(3) It includes the amount of R$ 34,992,913 thousand (R$ 23,129,838 thousand in 2017), referring to subordinated debts recognized in “Eligible Debt Capital Instruments”; and

(4) The information on results are presented on Note 14e, cost for market funding.

 

 

Bradesco     53


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

b)   Movement of subordinated debts

 

 

R$ thousand

2018

2017

Opening balance on December 31

50,192,486

52,628,865

Issuance

10,890,606

6,594,610

Interest

3,517,067

5,100,017

Settlement and interest payments

(12,947,073)

(14,303,148)

Exchange variation

1,999,769

172,142

Closing balance on December 31

53,652,855

50,192,486

 

18)    OTHER LIABILITIES

 

a)   Tax and social security

 

 

On December 31 - R$ thousand

2018

2017

Provision for deferred income tax (Note 31e)

2,409,771

3,110,313

Taxes and contributions on profit payable

593,594

688,094

Taxes and contributions payable

1,479,095

1,169,975

Total

4,482,460

4,968,382

 

b)   Sundry

 

 

On December 31 - R$ thousand

2018

2017

Credit card operations

3,912,283

6,698,199

Civil, tax and labor provisions (Note 16b IV)

17,245,520

16,034,976

Loan assignment obligations

8,058,619

8,454,076

Provision for payments

6,339,727

6,128,964

Sundry creditors

3,752,064

4,308,087

Obligations by quotas of investment funds

3,776,118

5,073,931

Creditors - prepayment of residual value

1,488,587

1,683,851

Liabilities for acquisition of assets and rights

378,803

223,889

Other (1)

5,168,037

4,826,299

Total

50,119,758

53,432,272

 

(1) It includes a specific provision for financial guarantees provided, pursuant to Resolution No. 4,512/16.

 

c)   Financial guarantees

 

Financial guarantees provided are contracts requiring the Organization to make specific payments to the holder of the financial guarantee for a loss it will incur when a specific debtor fails to make the payment under the terms of the debt instrument. The provision for financial guarantees provided is formed based on the best estimate of the non-recoverable amount of the guarantee, if such disbursement is likely. The provisioning parameters are established based on the internal credit risk management models. In case of retail operations, these models use historical information, while in wholesale operations, in addition to historical information, we adopted simulation processes to capture unobserved events. Any increase in liabilities related to financial guarantees is recognized in the statement of income under “Other operating income/expenses”.

 

 

On December 31 - R$ thousand

2018

2017

Guaranteed Values

Provisions

Guaranteed Values

Provisions

Surety and guarantees in judicial and administrative proceedings of a fiscal nature

38,131,363

(261,834)

31,961,448

(306,158)

Bank sureties

33,641,655

(424,536)

43,049,171

(446,968)

Others

1,098,060

(32,847)

3,856,728

(62,274)

Total

72,871,078

(719,217)

78,867,347

(815,400)

 

 

54                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

19)    NON-CONTROLLING INTERESTS IN SUBSIDIARIES

 

 

On December 31 - R$ thousand

2018

2017

Banco Bradesco BBI S.A.

5,044

17,918

Other

68,216

210

Total

73,260

18,128

 

20)    SHAREHOLDERS’ EQUITY (PARENT COMPANY)

 

a)   Capital stock in number of shares

 

Fully subscribed and paid-in capital stock comprises non-par, registered, book-entry shares.

 

 

On December 31

2018

2017

Common

3,359,929,223

3,054,481,112

Preferred

3,359,928,872

3,054,480,793

Subtotal

6,719,858,095

6,108,961,905

Treasury (common shares)

(5,535,803)

(5,032,549)

Treasury (preferred shares)

(20,741,320)

(18,855,746)

Total outstanding shares

6,693,580,972

6,085,073,610

 

 

b)   Transactions of capital stock involving quantities of shares

 

 

Common

Preferred

Total

Number of outstanding shares as at December 31, 2017

3,049,448,563

3,035,625,047

6,085,073,610

Increase of capital stock with issuing of shares – bonus of 10% (1)

305,448,111

305,448,079

610,896,190

Increase of shares in treasury – bonus of 10%

(503,254)

(1,885,574)

(2,388,828)

Number of outstanding shares as at December 31, 2018

3,354,393,420

3,339,187,552

6,693,580,972

 

(1) It benefited the shareholders registered in the records of Bradesco on March 29, 2018.

 

In the Extraordinary General Meeting of March 12, 2018, the approval was proposed by the Board of Directors to increase the capital stock by R$ 8,000,000 thousand, increasing it from R$ 59,100,000 thousand to R$ 67,100,000 thousand, with a bonus in shares, through the capitalization of part of the balance of the account “Profit Reserves - Statutory Reserve”, in compliance with the provisions in Article 169 of Law No. 6,404/76, by issuing 610,896,190 new nominative-book entry shares, with no nominal value, whereby 305,448,111 are common and 305,448,079 are preferred shares, attributed free-of-charge to the shareholders as bonus, to the ratio of 1 new share for every 10 shares of the same type that they own on the base date, and was approved by the Bacen on March 16, 2018.

 

c)   Interest on Shareholders’ Equity

 

Bradesco’s capital remuneration policy aims to distribute interest on shareholders’ equity at the maximum amount calculated under current legislation, and this is included, net of Withholding Income Tax (IRRF), in the calculation for mandatory dividends for the year under the Company’s Bylaws.

 

The Board of Directors’ Meeting held on June 29, 2018, approved the Board of Executive Officers’ proposal to pay to the shareholders interim interest on shareholder’s equity for the first semester of 2018, of R$ 1,212,000 thousand, of which R$ 0.172465322 are per common share and R$ 0.189711854 per preferred share, whose payment was made on July 16, 2018.

 

The Board of Directors’ Meeting held on December 21, 2018 approved the Board of Executive Officers’ proposal to pay to the shareholders complementary interest on shareholder’s equity for the year 2018, of R$ 4,665,000 thousand, of which R$ 0.663820730 are per common share and R$ 0.730202804 per preferred share, whose payment will be made on March 8, 2019.

 

Bradesco     55


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

Interest on shareholders’ equity for the year ended December 31, 2018 is calculated as follows:

                                                                                            

 

R$ thousand

% (1)

Net income for the period

19,084,953

 

(-) Legal reserve

954,247

 

Adjusted calculation basis

18,130,706

 

Monthly, intermediaries and supplementary interest on shareholders’ equity (gross), paid and/or provisioned

7,298,596

 

Withholding income tax on interest on shareholders' equity

(1,094,789)

 

Interest on Shareholders’ Equity (net) accumulated in December 2018

6,203,807

34.22

Interest on Shareholders’ Equity (net) accumulated in December 2017

6,123,692

43.98

 

(1) Percentage of interest on shareholders’ equity after adjustments.

 

Interest on shareholders’ equity were paid or recognized in provisions, as follows:

 

Description

R$ thousand

Per share (gross)

Gross amount paid/ recognized in provision

Withholding Income Tax (IRRF) (15%)

Net amount paid/recognized in provision

Common

Preferred

Monthly interest on shareholders’ equity paid

0.206998

0.227698

1,282,344

192,352

1,089,992

Intermediary interest on shareholders’ equity paid

0.172494

0.189743

1,102,000

165,300

936,700

Supplementary interest paid on shareholders´ equity

0.754465

0.829911

4,820,000

723,000

4,097,000

Total accrued on December 31, 2017

1.133957

1.247352

7,204,344

1,080,652

6,123,692

 

 

 

 

 

 

Monthly interest on shareholders’ equity paid

0.206998

0.227698

1,421,596

213,239

1,208,357

Intermediary interest on shareholders’ equity paid

0.172465

0.189712

1,212,000

181,800

1,030,200

Supplementary interest on shareholders’ equity provisioned

0.663821

0.730203

4,665,000

699,750

3,965,250

Total accrued on December 31, 2018

1.043284

1.147613

7,298,596

1,094,789

6,203,807

 

 

d)   Treasury shares

 

Bradesco acquired a total of 5,535,803 common shares and 20,741,320 preferred shares for a total amount of R$ 440,514 thousand in the year ended on December 31, 2018 which all remain in treasury. The minimum, average and maximum cost per common share is R$ 19.34962, R$ 24.55863 and R$ 27.14350, and per preferred share is R$ 19.37456, R$ 26.98306 and R$ 33.12855, respectively. The fair value was R$ 33.85 per common share and R$ 38.65 per preferred share on December 31, 2018.

 

21)    FEE AND COMMISSION INCOME

 

 

Years ended December 31 - R$ thousand

2018

2017

Credit card income

6,938,697

6,773,675

Checking account

7,169,064

6,652,711

Loans

3,094,990

2,984,609

Collections

1,982,018

1,965,601

Consortium management

1,683,942

1,526,660

Asset management

1,789,935

1,621,758

Custody and brokerage services

981,190

848,802

Underwriting/ Financial Advisory Services

815,242

801,219

Payments

448,416

409,267

Other

483,782

456,347

Total

25,387,276

24,040,649

 

 

56                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

22)    PAYROLL AND RELATED BENEFITS

 

 

Years ended December 31 - R$ thousand

2018

2017

Salaries

7,795,742

8,489,938

Benefits

3,954,160

4,923,102

Social security charges

2,746,712

3,288,037

Employee profit sharing

1,564,735

1,477,086

Provision for labor claims

1,114,920

950,740

Training

146,065

146,722

Total (1)

17,322,334

19,275,625

(1) In 2017, includes the effects of the Special Voluntary Termination Plan.

23)    OTHER ADMINISTRATIVE EXPENSES

 

 

Years ended December 31 - R$ thousand

2018

2017

Depreciation and amortization

4,969,328

5,158,875

Outsourced services

4,240,041

4,077,092

Data processing

2,429,828

2,315,538

Rental

1,626,564

1,637,849

Communication

1,448,900

1,578,468

Asset maintenance

1,129,485

1,148,790

Financial system services

934,416

1,004,376

Security and surveillance

748,577

818,221

Advertising and marketing

957,351

804,905

Transport

737,162

769,728

Asset leases

607,470

656,745

Water, electricity and gas

391,072

384,279

Supplies

203,618

241,430

Travel

228,680

194,234

Other

1,021,827

884,829

Total

21,674,319

21,675,359

 

24)    TAX EXPENSES

 

 

Years ended December 31 - R$ thousand

2018

2017

Contribution for Social Security Financing (COFINS)

3,066,895

3,193,239

Social Integration Program (PIS) contribution

507,030

583,416

Tax on Services (ISSQN)

1,067,149

744,612

Municipal Real Estate Tax (IPTU) expenses

123,406

101,452

Other

252,758

207,246

Total

5,017,238

4,829,965

 

 

Bradesco     57


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

25)    OTHER OPERATING INCOME

 

 

Years ended December 31 - R$ thousand

2018

2017

Other interest income

1,717,936

1,499,432

Reversal of other operating provisions (1)

3,058,146

5,593,034

Revenues from recovery of charges and expenses

284,994

287,781

Other

1,260,344

1,476,997

Total

6,321,420

8,857,244

 

(1) In the year ended December 31, 2017, it includes: (i) reversal of generic provision for guarantees provided, encompassing sureties, guarantees, credit letters, and standby letter of credit, pursuant to Resolution No. 4,512/16; and (ii) reversals of: (a) provision for tax risks regarding the PIS process, to offset overpaid amounts; and (b) provision for tax risks related to IRPJ/CSLL on credit losses.

 

26)    OTHER OPERATING EXPENSES

 

 

Years ended December 31 - R$ thousand

2018

2017

Other finance costs

3,430,264

3,499,638

Sundry losses

1,815,406

1,800,668

Discount granted

1,527,778

1,503,676

Commissions on loans and financing

604,101

1,056,371

Intangible assets amortization

10,527

12,632

Other (1)

6,322,290

6,293,416

Total

13,710,366

14,166,401

 

(1)  In the year ended on December 31, 2017, it includes a specific provision for guarantees provided, encompassing sureties, guarantees and credit letters, pursuant to Resolution No. 4,512/16.

 

27)    NON-OPERATING INCOME (LOSS)

 

 

Years ended December 31 - R$ thousand

2018

2017

Gain/loss on sale and write-off of assets and investments

(612,966)

(637,588)

Recording/reversal of non-operating provisions (1)

(361,808)

(179,067)

Other

76,800

110,592

Total

(897,974)

(706,063)

 

(1)  Includes primarily allowance for non-use assets (BNDU).

 

 

58                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

28)    RELATED-PARTY TRANSACTIONS

 

a)   Related-party transactions (direct and indirect) are carried out under conditions and at rates consistent with those entered into with third parties, when applicable, and effective on the dates of the operations. The transactions are as follows:

 

 

On December 31 - R$ thousand

 

Controllers (1)

Affiliates, controlled and shared control (2)

Key Management Personnel (3)

Total

 

2018

2017

2018

2017

2018

2017

2018

2017

Assets

 

 

 

 

 

 

 

 

Interbank investments

378,687

724,369

378,687

724,369

Securities and derivative financial instruments

16,015

-

16,015

Loans, other receivables and assets

9

5,990,326

1,433,470

49,244

6,039,579

1,433,470

Liabilities

 

 

 

 

 

 

 

 

Demand deposits/Savings accounts

227

297

110,272

238,943

14,769

15,094

125,268

254,334

Time deposits

1,581,681

903,293

2,665,087

1,253,993

103,175

72,119

4,349,943

2,229,405

Securities sold under agreements to repurchase

1,317,711

13,388

233,340

2,642

10,096

1,333,741

243,436

Funds from issuance of securities and subordinated debts

8,569,271

6,632,932

14,881,873

12,332,608

797,182

846,947

24,248,326

19,812,487

Derivative financial instruments

165

27,551

165

27,551

Interest on own capital and dividends payable

1,540,846

2,275,419

1,540,846

2,275,419

Other liabilities

10,003,583

8,906,073

5,484

10,009,067

8,906,073

 

 

Years ended December 31 - R$ thousand

 

Controllers (1)

Affiliates, controlled and shared control (2)

Key Management Personnel (3)

Total

 

 

2018

2017

2018

2017

2018

2017

2018

2017

Income from financial intermediation

15,024

(6,870)

22,489

58,333

37,513

51,463

Financial intermediation expenses

(793,853)

(880,189)

(933,294)

(1,134,057)

(55,045)

(84,818)

(1,782,192)

(2,099,064)

Income from services provided

334

314,173

365,523

247

314,754

365,523

Other expenses net of other operating revenues

(50,745)

(2,652)

(1,944,524)

(883,512)

323,130

(1,672,139)

(886,164)

 

(1) Cidade de Deus Cia. Coml. de Participações, Fundação Bradesco, NCF Participações S.A., BBD Participações S.A. and Nova Cidade de Deus Participações S.A.;
(2) Companies listed in Note 11; and
(3) Members of the Board of Directors and the Board of Executive Officers
.

Bradesco     59


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

b)   Remuneration of key management personnel

 

Each year, the Annual Shareholders’ Meeting approves:

 

·       The annual total amount of Management compensation, set forth at the Board of Directors Meetings, to be paid to board members and members of the Board of Executive Officers, as determined by the Company’s Bylaws; and

 

·       The amount allocated to finance Management pension plans, within the Employee and Management pension plan of the Organization Bradesco.

 

For 2018, the maximum amount of R$ 530,689 thousand was set for Management compensation and R$ 534,780 thousand to finance defined contribution pension plans.

 

The current policy on Management compensation sets forth that 50% of net variable compensation, if any, must be allocated to the acquisition of preferred class b shares issued by BBD Participações S.A. and / or preferred shares issued by Banco Bradesco S.A., which vest in three equal, annual and successive installments, the first of which is in the year following the payment date. This procedure complies with CMN Resolution No. 3,921/10, which sets forth a management compensation policy for financial institutions.

 

Short and medium term remuneration to Managers

 

 

Years ended December 31 - R$ thousand

2018

2017

Salaries

485,949

456,262

Total

485,949

456,262

 

Post-employment benefits

 

 

Years ended December 31 - R$ thousand

2018

2017

Defined contribution supplementary pension plans

474,378

473,663

Total

474,378

473,663

 

Bradesco does not offer its Key Management Personnel long-term benefits related to severance pay or share-based compensation, pursuant to CPC 10 – Share-Based Payment, approved by Resolution No. 3,989/11.

 

Shareholding

 

Together, members of the Board of Directors and Board of Executive Officers had the following shareholding in Bradesco:

 

 

On December 31

2018

2017

● Common shares

0.55%

0.46%

● Preferred shares

1.07%

1.04%

● Total shares (1)

0.81%

0.75%

 

(1) On December 31, 2018, direct and indirect shareholding of the members of Bradesco’s Board of Directors and Board of Executive Officers amounted to 2.60% of common shares, 1.11% of preferred shares and 1.85% of all shares (2.34% of common shares, 1.08% of preferred shares and 1.71% of all shares in 2017).

 

60                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

29)    RISK AND CAPITAL MANAGEMENT

 

a)   Risk Management

Bradesco carries out a corporate risk control in an integrated and independent manner, preserving and giving value to a collective decision-making environment, developing and implementing methodologies, models and tools for measurement and control. Within Bradesco the dissemination of knowledge amongst employees at all hierarchical levels is stimulated, from the business areas to the Board of Directors.

 

Risk and capital management structures have established policies, standards and procedures, ensuring that the Bradesco Organization maintains a control process consistent with the nature of its operations, complexity of its products and services, activities, processes, systems and the extent of its exposure to risks. These structures are also composed by a number of committees, commissions and departments that provide support to the Board of Directors and the Executive Board in decision-making. The most notable amongst these are the Integrated Risk Management and Capital Allocation Committee, whose role is to ensure compliance with the Organization's risk management processes and policies, and the Risk Committee, whose main objective is to assess the Organization's risk management framework and eventually propose improvements. Both advise the Board of Directors in the performance of its duties in the management and control of risks and capital.

 

Detailed information on risk management process, reference equity and also Bradesco's risk exposures may be found in Investors Relations website at bradescori.com.br – Market Information.

 

b)   Capital Management

 

The Basel Ratio is part of the set of indicators that are monitored and evaluated in the process of Capital Management, and is intended to measure the sufficiency of capital in relation to the exposure to risks. The table below shows the composition of the Reference Equity and of the Risk Weighted Assets, according to the standards of Bacen. During the period, Bradesco has fulfilled all the minimum regulatory requirements.

 

Below is the Basel Ratio:

 

Calculation basis - Basel Ratio

On December 31 - R$ thousand

Prudential Conglomerate

2018

2017

Tier I capital

90,322,147

80,084,744

Common equity

81,090,060

75,079,777

Shareholders’ equity

121,120,869

110,457,476

Non-controlling interest / Other

169,606

68,072

Prudential adjustments (1)

(40,200,415)

(35,445,771)

Additional Capital (2)

9,232,087

5,004,967

Tier II capital

27,618,026

24,588,090

Subordinated debts (Resolution No. 4,192/13)

22,416,933

16,947,024

Subordinated debts (previous to CMN Resolution No. 4,192/13)

5,201,093

7,641,066

Reference Equity (a)

117,940,173

104,672,834

 

 

 

- Credit risk

598,057,619

554,928,771

- Market risk

10,407,258

8,908,205

- Operational risk

53,150,786

47,605,162

Risk-weighted assets – RWA (b)

661,615,663

611,442,138

 

 

 

Basel ratio (a/b)

17.8%

17.1%

Tier I capital

13.7%

13.1%

- Principal capital

12.3%

12.3%

- Additional capital

1.4%

0.8%

Tier II capital

4.2%

4.0%

 

(1) As from January 2018, the factor applied to prudential adjustments went from 80% to 100%, according to the timeline for application of deductions of prudential adjustments, defined in Article 11 of Resolution No. 4,192/13. Includes the positive effects of Resolution No. 4,680/18, reducing the impact of deferred tax assets arising from tax losses; and

(2) Authorization of subordinated debts to compose Tier I in the amount of R$ 4,179 thousand (R$ 1,737 thousand in December 2018 and in R$ 2,442 thousand in January 2019).

Bradesco     61


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

c) Indicator of Global Systemic Importance (IAISG)

 

According to Bacen Circular Letter No 3,751/15, Bradesco calculated the indicators for the evaluation of global systemic importance (IAISG), disclosed in Investor Relations website (bradescori.com.br - Market Information - Risk Management – Global Systemic Importance Index – Annex I and II).

 

d)    Social and environmental risk

The social and environmental risk is represented by potential damages that an economic activity can cause to society and to the environment. The social and environmental risks associated with financial institutions are mostly indirect and stem from business relationships, including those with the supply chain and with customers, through financing and investment activities.

 

The social and environmental risk management process has a robust governance structure, comprised of committees, policies, standards and procedures, allowing the risk to be properly identified, measured, mitigated, monitored and reported. This process complies with Resolution No. 4,327/14 of the Central Bank and observes the principles of relevance and proportionality, which is necessary in view of the complexity of the financial products and the profile of Organization’s activities.

 

The Organization seeks to constantly incorporate and improve the criteria for managing the social and environmental risk arising from business relations with customers, through loan and financing operations, guarantees, suppliers and investments, which comprise the scope of analysis reflected in the Organization Social and Environmental Risk Standard.

 

The Organization has made several commitments related to environmental and social aspects, such as the Carbon Disclosure Project (CDP), the Principles for Responsible Investment (PRI), the Business Charter for Human Rights and Promotion of Decent Work (Ethos), the United Nations Environment Program (UNEP-FI), the Global Compact, among others.

 

Moreover, the Organization has been a signatory of the Equator Principles since 2004, and among the requirements evaluated are as follows the working conditions, impacts to the community and the environment of projects financed by the Organization, pursuant to the Brazilian legislation and the standards and guidelines of the International Finance Corporation (IFC), besides the World Bank Group's Health, Safety and Environment Guidelines. During the credit granting process, transactions under Equator Principles undergo a social and environmental risk analysis.

 

In the year 2018, there was no hiring Advisory Service and Financing Project Finance and Corporate Loan to projects classified under the criteria of the Equator Principles III.

 

 

 

 

 

62                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

e)    Below is the statement of financial position by currency and maturity

 

I – The statement of financial position by currency

 

 

On December 31 - R$ thousand

2018

2017

Balance

Local

Foreign (1) (2)

Foreign (1) (2)

Assets

 

 

 

 

Current and long-term assets

985,294,913

908,544,484

76,750,429

65,171,235

Cash and due from banks

19,485,882

14,605,169

4,880,713

2,014,413

Interbank investments

103,929,665

102,106,333

1,823,332

2,317,795

Securities and derivative financial instruments

295,323,724

276,623,608

18,700,116

16,113,338

Interbank and interdepartmental accounts

93,038,947

93,038,947

Loans and leases

309,239,669

275,902,251

33,337,418

30,206,332

Other receivables and assets

164,277,026

146,268,176

18,008,850

14,519,357

Permanent assets

76,057,124

76,023,332

33,792

33,822

Investments

55,352,831

55,352,831

Premises and equipment and leased assets

8,187,004

8,166,465

20,539

22,068

Intangible assets

12,517,289

12,504,036

13,253

11,754

Total

1,061,352,037

984,567,816

76,784,221

65,205,057

 

 

 

 

 

Liabilities

 

 

 

 

Current and long-term liabilities

939,800,544

858,411,673

81,388,871

63,336,987

Deposits

344,049,574

328,285,360

15,764,214

13,305,597

Securities sold under agreements to repurchase

209,485,373

199,876,322

9,609,051

8,349,369

Funds from issuance of securities

162,622,958

158,510,370

4,112,588

3,098,728

Interbank and interdepartmental accounts

30,125,905

27,112,624

3,013,281

3,022,997

Borrowing and on-lending

54,884,834

24,969,494

29,915,340

18,858,163

Derivative financial instruments

16,124,501

14,805,018

1,319,483

520,154

Other liabilities:

 

 

 

 

- Subordinated debts

53,652,855

40,002,256

13,650,598

11,650,807

- Others

68,854,544

64,850,229

4,004,316

4,531,172

Deferred income

357,364

357,364

Non-controlling interests in subsidiaries

73,260

73,260

Shareholders’ equity

121,120,869

121,120,869

Total

1,061,352,037

979,963,166

81,388,871

63,336,987

 

 

 

 

 

Net position of assets and liabilities

 

 

(4,604,650)

1,868,070

Net position of derivatives (2)

 

 

(43,541,075)

(52,680,961)

Other net off-balance-sheet accounts (3)

 

 

(296,977)

(268,316)

Net foreign exchange position (passive) (4)

 

 

(48,442,702)

(51,081,207)

 

(1) Amounts originally recognized and/or indexed mainly in USD;
(2) Excluding operations maturing in D+1, to be settled at the rate on the last day of the month;
(3) Other commitments recognized in off-balance-sheet accounts; and

(4) Assets, liabilities and results of foreign investments and dependencies are translated into Brazilian reais at the local currency exchange rates, and the effects resulting from the conversion process totaled R$ 8,349,789 thousand in the period and were recorded in the result. These effects were neutralized by the results obtained by the financial instruments used to hedge the effects of the exchange variation produced by our investments abroad. For investments abroad that have a functional currency different from the real, the effects of the conversion are recorded in Shareholders' Equity in the Balance for Valuation Adjustments.

 

 

Bradesco     63


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

II - The statement of financial position by maturity                                                          

 

 

On December 31 - R$ thousand

1 to 30 days

31 to 180 days

181 to 360 days

More than 360 days

Maturity not stated

Total

Assets

 

 

 

 

 

 

Current and long-term assets

468,869,804

134,190,088

57,866,635

324,368,386

985,294,913

Cash and due from banks

19,485,882

-

19,485,882

Interbank investments (1)

81,825,647

19,029,313

1,676,836

1,397,869

-

103,929,665

Securities and derivative financial instruments (1) (2)

186,583,907

18,888,912

3,175,112

86,675,793

-

295,323,724

Interbank and interdepartmental accounts

89,226,431

2,067,814

481,272

1,263,430

-

93,038,947

Loans and leases

28,705,061

63,668,168

44,373,365

172,493,075

-

309,239,669

Other receivables and assets

63,042,876

30,535,881

8,160,050

62,538,219

-

164,277,026

Permanent assets

3,932,892

1,952,043

2,341,492

12,064,996

55,765,701

76,057,124

Investments

 

 

 

 

55,352,831

55,352,831

Premises and equipment

3,612,233

347,416

416,900

3,723,592

86,863

8,187,004

Intangible assets

320,659

1,604,627

1,924,592

8,341,404

326,007

12,517,289

Total in December 31, 2018

472,802,696

136,142,131

60,208,127

336,433,382

55,765,701

1,061,352,037

Total in December 31, 2017

452,704,060

96,569,323

70,792,140

313,922,696

53,598,766

987,586,985

 

Liabilities

 

 

 

 

 

 

Current and long-term liabilities

452,367,542

68,238,899

97,344,151

321,849,952

939,800,544

Deposits (3)

155,831,422

16,020,635

42,079,969

130,117,548

-

344,049,574

Securities sold under agreements to repurchase (1)

203,785,699

3,418,371

1,342,091

939,212

-

209,485,373

Funds from issuance of securities

2,590,753

29,436,606

34,190,589

96,405,010

-

162,622,958

Interbank and interdepartmental accounts

30,125,905

-

30,125,905

Borrowing and on-lending

6,662,877

16,730,990

12,144,129

19,346,838

-

54,884,834

Derivative financial instruments

15,038,965

373,896

162,153

549,487

-

16,124,501

Other liabilities:

 

 

 

 

 

 

- Subordinated debts

7,059

149,894

6,314,597

47,181,305

-

53,652,855

- Others

38,324,862

2,108,507

1,110,623

27,310,552

-

68,854,544

Deferred income

357,364

-

357,364

Non-controlling interests in subsidiaries

-

-

-

-

73,260

73,260

Shareholders’ equity

-

-

-

-

121,120,869

121,120,869

Total in December 31, 2018

452,724,906

68,238,899

97,344,151

321,849,952

121,194,129

1,061,352,037

Total in December 31, 2017

441,118,957

85,212,006

93,081,081

257,699,337

110,475,604

987,586,985

 

Net assets accumulated on December 31, 2018

20,077,790

87,981,022

50,844,998

65,428,428

 

 

Net assets accumulated on December 31, 2017

11,585,103

22,942,420

653,479

56,876,838

 

 

 

(1) Repurchase agreements are classified according to the maturity of the transactions;
(2) Investments in investment funds are classified as 1 to 30 days; and
(3)
Demand and savings deposits are classified as 1 to 30 days, without considering average historical turnover.

 

 

64                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

30)    EMPLOYEE BENEFITS

 

Bradesco and its subsidiaries sponsor a private defined contribution pension for employees and directors, that allows financial resources to be accumulated by participants throughout their careers by means of employee and employer contributions and invested in an Exclusive Investment Fund (FIE). The Plan is managed by Bradesco Vida e Previdência S.A. and BRAM – Bradesco Asset Management S.A. DTVM is responsible for the financial management of the FIEs funds.

 

The Supplementary Pension Plan counts on contributions from employees and administrators of Bradesco and its subsidiaries equivalent to at least 4% of the salary by employees and, 5% of the salary, plus the percentage allocated to covers of risk benefits (invalidity and death) by the company. Actuarial obligations of the defined contribution plan are fully covered by the plan assets of the corresponding FIE. In addition to the plan, in 2001, participants who chose to migrate from the defined benefit plan are guaranteed a proportional deferred benefit, corresponding to their accumulated rights in that plan. For the active participants, retirees and pensioners of the defined benefit plan, now closed to new members, the present value of the actuarial obligations of the plan is fully covered by guarantee assets.

 

Banco Alvorada S.A. (successor from the spin-off of Banco Baneb S.A.) maintains variable contribution and defined benefit retirement plans, through Fundação Baneb de Seguridade Social – Bases related to the former employees of Baneb.

 

Bradesco sponsors both variable benefit and defined contribution retirement plans, through Caixa de Assistência e Aposentadoria dos Funcionários do Banco do Estado do Maranhão (Capof), to employees originating from Banco BEM S.A.

 

Bradesco sponsors a defined benefit plan through Caixa de Previdência Privada Bec – Cabec for employees of Banco do Estado do Ceará S.A.

 

Kirton Bank S.A. Banco Múltiplo, Kirton Capitalização S.A., Kirton Corretora de Seguros S.A., Bradesco Kirton Corretora de Câmbio S.A. and Kirton Seguros S.A. sponsor a defined benefit plan called APABA for employees originating from Banco Bamerindus do Brasil S.A., and Kirton Administração de Serviços para Fundos de Pensão Ltda. sponsors for its employees a defined contribution plan, known as the Kirton Prev Benefits Plan (Plano de Benefícios Kirton Prev), both managed by MultiBRA – Pension Fund.

 

Banco Losango S.A. Banco Múltiplo, Kirton Bank S.A. Banco Múltiplo and Credival – Participações, Administração e Assessoria Ltda. sponsor three pension plans for its employees, which are: Losango I Benefits Plan – Basic Part, in the defined benefit mode, Losango I – Supplementary Part and PREVMAIS Losango Plan, the last two in the form of contribution variable, all managed by MultiBRA – Settlor – Multiple Fund.

 

Bradesco also took on the obligations of Kirton Bank S.A. Banco Múltiplo with regard to Life Insurance, Health Insurance Plans, and Retirement Compensation for employees coming from Banco Bamerindus do Brasil S.A., as well as complementing Retirement and Health Plan of Lloyds employees.

 

In accordance with CPC 33 (R1) - Employee Benefits, approved by CVM Resolution No. 600/09, Bradesco and its subsidiaries, as sponsors of these plans, considering the economic and actuarial study, have calculated their actuarial commitments using real interest rate and recognize in their financial statements the obligation due. The resources guaranteeing the pension plans are invested in accordance with the relevant legislation (public and private securities, shares of listed companies and properties). Below are the main assumptions used by the independent actuary in the actuarial assessment of our plans, based on CPC 33 (R1):

 

 

 

 

 

Bradesco     65         


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

Risk factors

On December 31

2018

2017

Nominal discount rate

 8.8% - 9.31% a.a.

 8.5% - 10% p.a.

Nominal rate of minimum expected return on assets

 9.6% - 25.01% a.a.

 7.01% - 25.16% a.a.

Nominal rate of future salary increases

 4.0% a.a.

 4.3% p.a.

Nominal growth rate of social security benefits and plans

 4.0% a.a.

 4.3% p.a.

Initial rate of growth of medical costs

 8.16% - 9.72% a.a.

 10.51% a.a.

Inflation rate

 4.0% a.a.

 4.3% p.a.

Biometric table of overall mortality

 AT 2000 and BR-SEM

 AT 2000 and BR-SEM

Biometric table of entering disability

 Per plan

 Per plan

Expected turnover rate

-  

-  

Probability of entering retirement

 100% in the 1ª eligibility to a benefit by the plan

 100% in the 1ª eligibility to a benefit by the plan

 

Considering the above assumptions, in accordance with CPC 33 (R1), the present value of the actuarial obligations of the benefit plans and of its assets to cover these obligations, is represented below:

 

 

Years ended December 31 - R$ thousand

Retirement Benefits

Other post-employment benefits

2018

2017

2018

2017

(i) Projected benefit obligations:

 

 

 

 

At the beginning of the year

2,323,338

2,141,393

563,079

498,591

Cost of current service

151

186

215

Interest cost

219,239

227,980

54,654

54,230

Participant’s contribution

881

1,197

Actuarial gain/(loss)

179,851

144,624

87,962

39,303

Benefit paid

(192,870)

(192,042)

(36,602)

(29,260)

At the end of the year

2,530,590

2,323,338

669,093

563,079

 

 

 

 

 

(ii) Plan assets at fair value:

 

 

 

 

At the beginning of the year

2,375,529

2,127,872

-

-

Expected earnings

225,060

227,360

-

-

Actuarial gain/(loss)

(61,063)

196,186

-

-

Contributions received:

 

 

 

 

Employer

15,472

14,957

-

-

Employees

881

1,197

-

-

Benefit paid

(192,870)

(192,043)

-

-

At the end of the year

2,363,009

2,375,529

 

 

 

 

 

(iii) Changes in the unrecoverable surplus

 

 

 

 

At the beginning of the year

206,752

123,416

-

-

Interest on the irrecoverable surplus

20,327

13,730

-

-

Change in the unrecoverable surplus

(173,054)

69,606

-

-

At the end of the year

54,025

206,752

 

 

 

 

 

(iv) Financed position:

 

 

 

 

Plans in deficit

221,606

154,561

669,093

563,079

Net balance

221,606

154,561

669,093

563,079

 

The net cost/(benefit) of the pension plans, recognized in the statement of income, include the following components:

 

 

Years ended December 31 - R$ thousand

2018

2017

Projected benefit obligations:

 

 

Cost of service

151

401

Cost of interest on actuarial obligations

273,893

282,210

Expected earnings from the assets of the plan

(225,060)

(227,360)

Net cost/(benefit) of the pension plans

48,984

55,251

 

66                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

Maturity profile of the present value of the obligations of the benefit plans defined for the next years:

 

 

On December 31 - R$ thousand

Retirement Benefits

Other post-employment benefits

Weighted average duration (years)

9.86

15.00

2019

202,553

34,171

2020

208,484

35,379

2021

214,845

38,409

2022

220,785

41,560

2023

226,353

45,091

After 2023

1,209,851

278,367

 

Contributions to defined-benefit plans are expected to total RS 18,282 thousand in 2019.

 

The long-term rate of return on plan assets is based on the following:

 

- Medium- to long-term expectations of the asset managers; and

- Public and private securities, a significant portion of the investments portfolio of our subsidiaries, the profitability of which is higher than inflation plus interest, with short to long-term maturities.

 

The resources guaranteeing the pension plans are invested in accordance with the relevant legislation (public and private securities, shares of listed companies and properties) and the weighted-average allocation of the pension plan's assets by category is as follows:

 

 

On December 31

Assets of the Alvorada Plan

Assets of the Bradesco Plan

Assets of the Kirton Plan

Assets of the Losango Plan

2018

2017

2018

2017

2018

2017

2018

2017

Asset categories

 

 

 

 

 

 

 

 

Equities

-

-

7.9%

4.7%

-

-

17.7%

17.3%

Fixed income

93.3%

92.7%

87.5%

90.6%

100.0%

100.0%

82.3%

82.7%

Real estate

5.4%

5.7%

2.5%

2.6%

-

-

-

-

Other

1.3%

1.6%

2.1%

2.1%

-

-

-

-

Total

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

 

The table below, of the sensitivity analysis of benefit plan obligations, shows the impact on actuarial exposure (8.5% - 10.0% p.a.) by means of the amendment in the premise regarding the discount rate by 1 p.p.:

 

Rate

Discount rate/Medical inflation rate

Sensitivity Analysis

Effect on actuarial liabilities

Effect on the present value of the obligations

Discount rate

9.80% - 10.31%

Increase of 1 p.p.

reduction

(185,803)

Discount rate

7.80% - 8.31%

Decrease of 1 b.p.

increase

491,193

Medical Inflation

9.16% - 10.72%

Increase of 1 p.p.

increase

74,081

Medical Inflation

7.16% - 8.72%

Decrease of 1 b.p.

reduction

(62,077)

 

Bradesco, in its offices abroad, provides pension plans for its employees and administrators, in accordance with the standards established by the local authorities, which allows the accrual of financial resources during the professional career of the participant.

 

Expenses related to contributions made during the year ended on December 31, 2018 was R$ 942,427 thousand (R$ 988,905 thousand in 2017).

 

In addition to this benefit, Bradesco and its subsidiaries offer other benefits to their employees and administrators, including health insurance, dental care, life and personal accident insurance, and professional training. These expenses, including the aforementioned contributions, the amount of R$ 4,550,580 thousand during the year ended on December 31, 2018 (R$ 5,594,368 thousand in 2017).

 

Bradesco     67         


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

31)    INCOME TAX AND SOCIAL CONTRIBUTION

 

a)  Calculation of income tax and social contribution charges

 

 

Years ended December 31 - R$ thousand

2018

2017

Income before income tax and social contribution

19,482,309

14,530,516

Total burden of income tax and social contribution at the current rates (1)

(8,767,039)

(6,538,732)

Effect on the tax calculation:

 

 

Earnings of Associates and Subsidiaries

7,552,566

3,479,418

Net non-deductible expenses of nontaxable income

350,288

382,588

Interest on shareholders’ equity (paid and payable)

3,284,368

3,241,955

Other amounts (2)

(2,804,668)

(436,161)

Income tax and social contribution for the period

(384,485)

129,068

(1) Current rates: (i) 25% for income tax; (ii) 20% for the social contribution to financial and companies treated as such, including the insurance segment, and of 9% for the other companies (Note 3h); and

(2) Primarily, includes: (i) the exchange rate variation of assets and liabilities, derived from investments abroad; (ii) the equalization of the effective rate in relation to the rate 45% shown; and (iii) the deduction incentives.

 

 

b)  Breakdown of income tax and social contribution in the statement of income

 

 

Years ended December 31 - R$ thousand

2018

2017

Current taxes:

 

 

Income tax and social contribution payable

(1,969,396)

(2,101,804)

Deferred taxes:

 

 

Amount recorded/realized in the period on temporary differences

(92,642)

2,822,943

Use of opening balances of:

 

 

Social contribution loss

(283,290)

(426,488)

Income tax loss

(291,446)

(320,595)

Constitution in the period on:

 

 

Social contribution loss

841,995

145,483

Income tax loss

1,410,294

9,529

Total deferred tax assets

1,584,911

2,230,872

Income tax and social contribution for the period

(384,485)

129,068

 

c)  Deferred income tax and social contribution

 

 

R$ thousand

Balance on 12/31/2017

Amount recorded

Realized / Decrease (2)

Balance on 12/31/2018

Allowance for loan losses

29,056,223

7,859,314

(6,049,913)

30,865,624

Civil provisions

1,820,884

475,382

(516,135)

1,780,131

Tax provisions

2,446,181

272,781

(169,030)

2,549,932

Labor provisions

2,047,251

813,290

(587,437)

2,273,104

Provision for devaluation of securities and investments

192,948

4,313

(93,032)

104,229

Provision for devaluation of foreclosed assets

604,209

320,847

(261,075)

663,981

Adjustment to fair value of trading securities

3,693,734

955,711

(2,459,683)

2,189,762

Amortization of goodwill

313,933

33,387

(18,554)

328,766

Other

4,405,705

2,445,498

(3,118,306)

3,732,897

Total deductible taxes on temporary differences

44,581,068

13,180,523

(13,273,165)

44,488,426

Income tax and social contribution losses in Brazil and overseas

4,885,505

2,252,289

(574,736)

6,563,058

Subtotal

49,466,573

15,432,812

(13,847,901)

51,051,484

Adjustment to fair value of available-for-sale securities

313,802

539,497

(595)

852,704

Total deferred tax assets (Note 9b) (1)

49,780,375

15,972,309

(13,848,496)

51,904,188

Deferred tax liabilities (Note 31e)

3,110,313

309,959

(1,010,501)

2,409,771

Deferred tax assets, net of deferred tax liabilities

46,670,062

15,662,350

(12,837,995)

49,494,417

(1) Deferred tax assets from financial companies in the financial and insurance sectors were calculated considering the increase in the social contribution rate, determined by Law No.11,727/08 (Note 3h).

 

 

68                 December 2018


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

The accounting record of the tax credits was made by the rates applicable to the period provisioned for its realization and is based on the projection of future results and on a technical analysis. Due to being classified in the condition established by art.1, paragraph I of CMN Resolution No. 3,059/02, with amendments introduced by CMN Resolution No. 4,441/15 and article 3 of CMN Circular No. 3,776/15, Bradesco protocolled with Bacen, an authorization request to maintain the stock and constitute new tax credits, which was deferred on January 22, 2019. On December 31, 2018, no tax credits were constituted, substantially, on temporary differences, in the amount of R$ 485,249 thousand, which will be recorded upon the effective perspectives of realization, according to the technical study and analyses made by the Board and by the Standards of Bacen

 

 

d)  Expected realization of deferred tax assets on temporary differences, tax loss and negative basis of social contribution

 

 

R$ thousand

Temporary differences

Income tax and social contribution losses

Total

Income tax

Social contribution

Income tax

Social contribution

2019

8,309,616

4,981,401

164,345

113,183

13,568,545

2020

7,238,195

4,337,922

202,503

122,821

11,901,441

2021

6,109,818

3,662,543

361,029

217,402

10,350,792

2022

4,546,682

2,725,618

676,636

406,012

8,354,948

2023

1,300,394

761,362

1,931,069

1,188,772

5,181,597

After 2023

321,912

192,963

315,700

863,586

1,694,161

Total

27,826,617

16,661,809

3,651,282

2,911,776

51,051,484

 

The projected realization of deferred tax assets is an estimate and it is not directly related to the expected accounting income.

 

On December 31, 2018, the present value of deferred tax assets, calculated based on the average funding interest rate, net of tax effects, amounts to R$ 48,172,896 thousand (R$ 46,495,376 thousand in 2017), of which: R$ 42,277,633 thousand (R$ 42,108,374 thousand in 2017) relates to temporary differences, R$ 5,895,263 thousand (R$ 4,387,002 thousand in 2017) to tax losses and negative basis of social contribution.

 

e)  Deferred tax liabilities

 

 

On December 31 - R$ thousand

2018

2017

Fair value adjustment to securities and derivative financial instruments

57,820

755,304

Difference in depreciation

242,572

283,231

Judicial deposit and others

2,109,379

2,071,778

Total

2,409,771

3,110,313

 

The deferred tax liabilities of companies in the financial sector were established considering the increased social contribution rate, established by Law No. 11,727/08 (Note 3h).

 

 

32)    OTHER INFORMATION

 

a)   The Organization manages investment funds and portfolios with net assets which, on December 31, 2018, amounted to R$ 897,577,143 thousand (R$ 834,646,218 thousand in 2017).

 

b)    Private Social Investment

 

During the year of 2018, the Private Social Investments made by Bradesco and other companies in the Prudential Conglomerate amounted to R$ 110,267 thousand (R$ 121,160 thousand in 2017).

Bradesco     69         


 
 

Financial Statements of the Prudential Conglomerate and Independent Auditor’s Report

 

Notes to the Financial Statements of the Prudential Conglomerate

 

 

c)   Consortium funds

 

 

On December 31 - R$ thousand

2018

2017

Credits available to consortium members

6,347,845

5,836,717

Off-balance-sheet

 

 

Monthly estimate of funds receivable from consortium members

653,690

633,191

Contributions payable by the group

31,570,330

30,776,291

Consortium members - assets to be included

27,468,111

26,811,848

 

 

 

On December 31 - In units

2018

2017

Number of groups managed

3,527

3,457

Number of active consortium members

1,503,817

1,410,736

Number of assets to be included

625,186

641,449

 

d)    As part of the convergence process with international accounting standards, the Brazilian Accounting Pronouncements Committee (CPC) issued several accounting pronouncements, as well as their interpretations and guidelines, which are applicable to financial institutions only after approval by CMN. Until December 31, 2018, the accounting pronouncements approved by CMN and adopted by Bradesco were as follows:

 

·       Resolution No. 3,566/08 – Impairment of Assets (CPC 01);

·       Resolution No. 3,604/08 – Statement of Cash Flows (CPC 03);

·       Resolution No. 3,750/09 – Related Party Disclosures (CPC 05);

·       Resolution No. 3,823/09 – Provisions, Contingent Liabilities and Contingent Assets (CPC 25);

·       Resolution No. 3,973/11 – Subsequent Event (CPC 24);

·       Resolution No. 3,989/11 – Share-based Payment (CPC 10 – R1);

·       Resolution No. 4,007/11 – Accounting Policies, Changes in Estimates and Error Correction (CPC 23);

·       Resolution No. 4,144/12 – Basic Conceptual Pronouncement (R1); and

·       Resolution No. 4,424/15 – Employee Benefits (CPC 33 – R1).

 

Presently, it is not possible to estimate when the CMN will approve the other CPC pronouncements or if they will be applied prospectively or retrospectively.

 

CMN Resolution No. 3,786/09 and Circular Letter No. 3,472/09 establish that financial institutions and other entities authorized by Bacen to operate, which are publicly-held companies or which are required to establish an Audit Committee shall, since December 31, 2010, annually prepare and publish in up to 90 days after the reference date of December 31 their consolidated financial statements, prepared under the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). As required by Resolution, on March 8, 2018, Bradesco published its consolidated financial statements for December 31, 2017 and 2016 on its website, in accordance with IFRS

 

 

 

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e)     For the year ended December 31, 2018, in order to simplify existing rules and lower compulsory deposit amounts, Central Bank of Brazil introduced the following changes:

 

Description

Previous Rule

Current Rule

Time Deposits

Time deposits were subject to compulsory deposits of 34% of the regulatory calculation base.

As from December 31, 2018, compulsory deposits required against time deposits were reduced to 33% on the regulatory calculation base.

Compulsory deposits for time deposits were subject to amount-base-maturity deduction.

As from December 31, 2018, this deduction has been revoked.

Savings Deposits

Compulsory deposits for savings were 24.5% on regulatory calculation base.

As from May 7, 2018, compulsory deposits required against savings accounts were reduced to 20% on the regulatory calculation base.

Savings Deposits (Rural)

Compulsory deposits for rural savings were 21% on regulatory calculation base.

As from May 7, 2018, compulsory deposits required against rural savings accounts were reduced to 20% on the regulatory calculation base.

Demand Deposits

Compulsory deposits for demand deposits were 40% on the regulatory calculation base, which was altered to 25% for the period from May 7, 2018 to December 28, 2018.

As from December 31, 2018, compulsory deposits required against demand accounts were reduced to 21% on the regulatory calculation base.

The amount deductible from compulsory deposit calculation base for demand deposits corresponded to the arithmetic average of reserve requirements determined in the calculation period was R$ 70,000,000.00 but rose to R$ 200,000,000.00 in the period from May 7, 2018 to December 28, 2018.

As from December 31, 2018, the calculation base for compulsory deposits required against demand account deposits will be subject to a R$ 500,000,000.00 deduction.

Requirements were based on the sum of the Banking Reserves account's daily balances, from the arithmetic average posted under "1.1.1.10.00-6 Cash", with 40% of the requirement and the balance of deductible transactions (amount- base-demand); the arithmetic mean of positions should correspond to 100% of the requirement, and the minimum daily position was 80%.

As of May 7, 2018, balances posted under "1.1.1.10.00-6 Cash" could no longer be used to fulfill compulsory deposit requirements.

As from December 31, 2018, the balance of transactions eligible for deduction (amount-base-demand) was revoked.

To ensure the requirement is fulfilled, the Banking Reserves account's daily balance is checked. The arithmetic average of these positions should correspond to 100% of the requirement and the daily position to at least 65%.

 

f)      On July 20, 2018, Odontoprev, a subsidiary of Bradesco Saúde S.A., informed the Market about the proposed acquisition of 100% of the share capital of Odonto System Planos Odontológicos Ltda., a company with head offices in Fortaleza /Ceará, for the amount of R$ 201,637 thousand, in addition to this amount, the acquisition foresees a variable price for the future, related the achievement of the future targets of growth of the EBITDA for Odonto System on 2018 and 2019. This transaction was approved, with no restrictions, by the Agência Nacional de Saúde Suplementar – ANS (National Supplementary Health Agency), Central Bank of Brazil – BACEN and Administrative Council for Economic Defense – CADE. The transaction was approved by the shareholders of the company, in General Meeting realized in August 6, 2018.

 

g)    On October 2, 2018, Bradesco entered into a strategic partnership with RCB Investimentos S.A., one of the leading companies in the credit management and recovery market in Brazil, after acquiring 65% of its shares. Bradesco expects to add more efficiency to its credit recovery process, as well as actively participate in the credit acquisition market for recovery.

 

h)    On December 31, 2018, Bradesco and the Fidelity Group concluded the termination of its joint venture in Fidelity Processadora S.A. ("Processing Company"), whereby Bradesco will be the sole shareholder of the Processing Company, whose shareholders’ equity is composed exclusively of the assets and liabilities relating to the provision of credit card processing services to the Bradesco Organization. The operation (a) aims to reduce the costs of processing and the increase in the efficiency of the credit card business; (b) will not have any impact on the activities and clients of Bradesco; and (c) did not involve any financial values. The parties, Bradesco and Fidelity Group, will also maintain their association in Fidelity Serviços S.A., a company that provides call center services, collection, fraud prevention, support and other related services.

 

Oswaldo Tadeu Fernandes

Accountant - CRC 1SP271968/O-5

 

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To

Shareholders and the Board of Directors of

Banco Bradesco S.A.

Osasco – SP

 

Opinion

 

We have audited the consolidated financial statements of the Prudential Conglomerate of Banco Bradesco S.A. (“Bradesco”), which comprise the consolidated balance sheet as of December 31, 2018 and the respective consolidated statements of income, changes in shareholders’ equity and cash flows for the six-month period and for the year then ended, and notes, comprising significant accounting policies. These special purpose financial statements have been prepared  in accordance with specific procedures established by Resolution 4280, dated October 31, 2013, of the National Monetary Council (CMN) and supplementary regulations of the Central Bank of Brazil (BACEN), described in the note 2 – Presentation of the financial statements.

 

In our opinion, the accompanying consolidated financial statements of the Prudential Conglomerate present fairly, in all material respects, the consolidated financial position of the Prudential Conglomerate of Bradesco as of December 31, 2018, the consolidated performance of its operations and its respective consolidated cash flows, for the six-month period and for the year then ended, in accordance with the Resolution 4280/13 of CMN, and supplementary regulations of BACEN, for the preparation of special purpose consolidated financial statements, as described in the note 2 to the financial statements.

 

Basis for opinion

           

We conducted our audit in accordance with Brazilian and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the “The Auditor’s responsibilities for the audit of the consolidated financial statements of the Prudencial Conglomerate” section. We are independent of Bradesco and its subsidiaries, in accordance with the ethical requirements established in the Accountant´s Professional Ethics Code and the professional standards issued by the Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Emphasis

 

We draw attention to note 2 to the consolidated financial statements that disclose that the consolidated financial statements of the Prudential Conglomerate of Bradesco were prepared by Bradesco´s management to meet the requirements of Resolution 4280/13 of CMN, and supplementary regulations of BACEN. Consequently, our report on these consolidated financial statements has been prepared solely for meeting these specific requirements and thus may not be appropriate for other purposes. Our opinion is not modified in relation to this topic.

 

Key Audit Matters

 

Key audit matters are those that, in our professional judgment, were of most significance in our audit of the six-month period and for the year ended on December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements of the Prudential Conglomerate as a whole, and in forming our opinion thereon, and, we do not express a separate opinion on these matters.

 

•           Allowance for doubtful accounts

 

As disclosed in Notes 3g and 8, for purposes of measuring the allowance for doubtful accounts, which total amount shown in the consolidated financial statements of Prudential Conglomerate is R$ 35,007,179 thousand, Bradesco classifies its loans (which comprise loans, leasing, advances on foreign exchange contracts, other receivables with credit characteristics), into nine risk levels, taking into account inputs and assumptions, from clients and operations, such as late payments, economic and financial position, indebtedness level, economic sector, collateral characteristics, and the other factors and assumptions described in CMN Resolution No 2.682/99, with rating “AA” being the minimum risk level, and “H” the maximum risk level. Bradesco initially applies the loss percentages established in such Resolution for each

 

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risk level for purposes of calculating the allowance and further increases the allowance, when necessary, based on additional internal evaluations (excess provision). The loans classification into risk levels as well as the loss percentages related to each risk level requires Bradesco to make assumptions and judgments, based on its internal risk classification methodologies, and the allowance for doubtful accounts represent Bradesco’s best estimate of the portfolio losses. Due to the relevance of loans and the uncertainties related to the estimate of the allowance for doubtful accounts, we consider this as a significant matter in our audit.

 

How our audit approached this matter

 

We evaluated the design and operating effectiveness of the internal controls related to the loans approval, recording and accrual processes as well as the internal risk rating methodologies that support the classification of transactions, the main assumptions used for calculation and the arithmetic accuracy of the allowance for doubtful accounts. We also evaluated, on a sample basis, whether Bradesco met the minimum requirements established by the CMN Resolution 2682/99, related to the determination of the allowance for doubtful accounts. We also evaluated whether the disclosures made in the consolidated financial statements of Prudential Conglomerate, described in Notes 3g and 8.

 

Based on the evidence obtained from the procedures summarized above, we considered adequate the Bradesco’s estimate of the allowance for doubtful accounts, as well as the respective disclosures in the context of the consolidated financial statements of Prudential Conglomerate taken as a whole.

 

•           Measurement of financial instruments with no observable market prices or parameters

 

As disclosed in the Notes 3e, 3f and 6, derivative financial instruments amount to R$ 14,722,051 thousand (assets) and R$ (16,124,501) thousand (liabilities), available-for-sale securities amount to R$ 182,282,394 thousand and trading securities amount to R$ 32,843,892 thousand. These instruments, measured at market value, are relevant to the consolidated financial statements of the Prudential Conglomerate of Bradesco. For the financial instruments whose market prices or parameters are not observable, the determination of market values is subject to a high level of uncertainty according as Bradesco performs significant judgments to estimate these values. In addition, financial assets classified as Available for Sale and Held to Maturity are also evaluated in relation to evidence of impairment losses. Therefore, we consider the measurement of the market value of these financial instruments as a significant matter in our audit.

 

How our audit approached this matter

 

As part of our procedures, we evaluated the design and operating effectiveness of the relevant internal controls implemented by Bradesco to mitigate the risk of material misstatement in the consolidated financial statements of Prudential Conglomerate arising from uncertainties in the market value measurement of financial instruments. For a sample of financial instruments which market value measurement prices or parameters are not observable, we evaluated, with the technical support of our specialists in financial instruments, whenever necessary, the models developed by Bradesco for determining market values and the reasonableness of data, parameters and information included in the pricing models used and we recalculated , on a sample basis, the market value of these transactions, as well as we reviewed the criteria and policies related to indications of evidence of impairment losses. Our procedures also included the evaluation of the Bradesco’s disclosures in the consolidated financial statements of Prudential Conglomerate in Notes 3e, 3f and 6.

 

Based on the evidence obtained from the procedures summarized above, we considered adequate the market value measurement of the financial instruments and the respective disclosures in the context of the consolidated financial statements of Prudential Conglomerate taken as a whole.

 

•           Provisions and contingent liabilities - tax, civil and labor

 

As described in Notes 3o and 16, Bradesco is defendant in lawsuits of tax, civil and labor nature, related to the normal course of its activities, which total provision recognized in the consolidated financial statements of Prudential Conglomerate amounts to R$ 7,111,865 thousand, R$ 4,445,739 thousand, and R$ 5,687,916 thousand, respectively. Some laws regulations and legal disputes in Brazil have high complexity levels, and, therefore, the measurement, recognition and disclosure of Provisions and Contingent Liabilities, related to lawsuits, and/or, in certain cases, adherence to laws and regulations, require Bradesco’s professional judgment. Due to the relevance, complexity and judgment involved in the evaluation, measurement, disclosures related to Provisions and Contingent Liabilities as well as the compliance with laws and regulations, we consider this as a significant matter in our audit.

 

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How our audit approached this matter

 

Our audit procedures included the evaluation of the design and operating effectiveness of the internal controls related to the identification, evaluation, measurement and disclosure of Provisions and Contingent Liabilities, as well as those related to the compliance with laws and regulations. Additionally, we evaluated the sufficiency of the recognized provisions and disclosed contingency amounts, by evaluating the criteria and assumptions adopted in the measurement methodology, considering the assessment of the internal and external legal advisors of Bradesco, as well as historical data and information. This work included, whenever necessary, the involvement of our legal experts in the evaluation of the likelihood of unfavorable outcome and of the documentation and information related to the main tax, matters involving Bradesco. We also evaluated whether the disclosures in the consolidated financial statements of Prudential Conglomerate are in accordance with the applicable accounting practices and provide information on the nature, exposure and amounts of provisions or disclosures related to the main tax, civil and labor matters in which Bradesco is involved.

 

Based on the evidence obtained from the procedures summarized above, we considered adequate Bradesco's estimate of the provisions and contingent liabilities, as well as the respective disclosures in the context of the consolidated financial statements taken as a whole.

 

•           Impairment of assets

 

The consolidated financial statements include deferred tax assets in the amount of R$ 49,780,375 thousand (Note 31c) and intangible assets, which include goodwill on acquisitions in the amount of R$ 7,958,780 thousand and other intangible assets in the amount of R$ 2,338,353 thousand (Note 13a) which realization is substantiated on future profitability based on business plans and budgets prepared by Bradesco and which are supported by several economic and business assumptions, among others. As described in Notes 3h, 3l and 3m, considering the frequent changes that occur in the economic or regulatory environment of the markets where it operates, Bradesco continuously evaluate the assumptions and estimates of taxable profit, profitability of the cash generating units (CGU) to which goodwill and intangible assets are allocated, growth rates, discount rates, and cash flow projections, or at least, indications of evidence of impairment losses of the assets. Due to the level of judgment inherent in the determination of these estimates and the potential impact that eventual changes in the assumptions could cause in the consolidated financial statements, we consider that this area is relevant to our audit.

 

How our audit approached this matter

 

On a sample basis, we tested the design and operating effectiveness of the relevant internal controls related to Bradesco´s assessment of indicators that the related assets may have suffered devaluation. Additionally, we evaluated, with the technical support of our corporate finance specialists, whenever necessary, the reasonableness and consistency of the data and assumptions used for preparing this assessment. We also made the analysis of the reasonableness of the mathematical calculations included in the technical study to support the tax credits. Our procedures also included the evaluation of the disclosures made by Bradesco in the consolidated financial statements of the Prudential Conglomerate.

 

Based on the evidence obtained from the procedures summarized above, we considered adequate the measurement of impairment and the respective disclosures in the context of the consolidated financial statements taken as a whole.

 

•           Technical Provisions – Insurance and Pension Plans – recorded as investments measured under the equity method

 

As mentioned in Notes 3o and 20, Bradesco has liabilities related to insurance contracts and pension plans denominated Technical Provisions, in the amount of R$ 250,568,252 thousand, which includes, among others, the following provisions that involves judgment: Provisions for Incurred and Unreported claims (IBNR) in the amount of R$ 4,332,935 thousand, Provisions for Claims Incurred and Not Sufficiently Reported (IBNeR) and Provisions for Losses to be Liquidated (PSL) in the amount of R$ 5,818,525 thousand,

 

 

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Provisions for Unearned Premiums in the amount of R$ 158,535 thousand, Mathematical Provisions of Benefits to be Granted - Insurance in the amount of R$ 1,218,860 thousand, Mathematical Provisions of Benefits Granted in the amount of R$ 8,833,164 thousand, Provisions for Premiums Insufficiency (PIP) in the amount of R$ 2,133,130 thousand, Provisions for Related Expenses in the amount of R$ 558,190 thousand and Other Technical Provisions in the amount of R$ 2,007,136 thousand. Provisions identified above, as well as the liabilities adequacy test, requires judgment in the selection of methodologies and assumptions which includes, among others, expectations of loss ratio, mortality, longevity, persistency, conversion into income and interest rates. Due to the relevance of Bradesco's judgment, subjectivity, uncertainties and the impact that eventual changes in assumptions and methodologies would have in the amount of Technical Provisions, we consider this matter relevant to our audit.

 

How our audit approached this matter

 

On a sample basis, we tested the design and operating effectiveness of the significant internal controls related with the processes; of calculation and measurement of the above mentioned Technical Provisions and the liability adequacy test. With the technical support of our actuarial specialists, we evaluate the methodologies, the consistency of data and reasonability of the assumptions, such as expectations of loss ratio, mortality, longevity, persistency, conversion into income and interest rates used for measuring the Technical Provisions and the liabilities adequacy test, as well as, on a sample bases,the recalculation of the technical provisions and the liabilities adequacy test. Our audit procedures also included the evaluation of the disclosures made in the consolidated financial statements adherence to regulation and disclosure to financial instruments asset offered to cover Technical Reserves.

 

Based on evidence obtained from the procedures summarized above, we considered Bradesco's estimate for the technical provisions of insurance and pension plans, as well as the respective disclosures adequate in the context of the consolidated financial statements as of December 31, 2018 taken as a whole.

 

•           Application controls and information technology general controls

 

Bradesco has a technological structure as well as a technology investment plan for conducting its business. The technology environment has processes of access management and changes in the systems and applications, development of new programs, besides automated controls and/or controls with automated components in the several relevant processes. In order to maintain its operations, Bradesco provides its employees with access to systems and applications, taking into account the duties performed by them and within its organizational structure. The controls to authorize, monitor, restrict, and/or revoke the respective accesses to this environment are important to assure that the accesses and information updates are appropriately performed and by the appropriate professionals, to mitigate the potential risk of fraud or error arising from inappropriate access or change in a system or information, and to guarantee the integrity of the financial information and accounting records. In view of the high investment level and heavy dependence of Bradesco on its technology systems, the high daily volume of processed transactions, and the importance of access controls and the management of changes in its systems and applications, we consider that this area is relevant to our audit.

 

How our audit approached this matter

 

The design and operating effectiveness of access controls, such as authorization of new users, revocation of terminated users, and periodic monitoring of active users were tested, on a sample basis, with the assistance of our information technology specialists, whenever we plan to rely on specific information extracted from certain systems considered relevant for the purpose of preparing the financial statements. In areas where our judgment is highly dependent on information technology, our tests included assessing password policies, security settings, and control over developments and changes in systems and applications. In addition, when we identify key internal controls for the financial reporting process and other relevant fully automated processes or with some component dependent on systems and applications, we tested, with the assistance of our information technology specialists, the design and operating effectiveness of these controls.

 

The evidence obtained from the above summarized procedures has allowed us to consider information from certain systems to plan the nature, time and extension of our substantive tests in the context of the consolidated financial statements of Prudential Conglomerate taken as a whole.

 

 

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Other matters

 

Bradesco prepared a set of general-purpose financial statements for the year ended December 31, 2018, in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil, on which we issued an audit report without modifications dated January 30, 2019.

 

Statements of added value

 

The consolidated statement of added value (DVA) for the six-month period and for the year ended December 31, 2018, prepared under the responsibility of Bradesco’s management, and presented as supplementary information in relation to the special purpose required by Resolution 4280, dated October 31, 2013, of the National Monetary Council (CMN) and supplementary regulations of the Central Bank of Brazil (BACEN), are subjected to audit procedures performed in conjunction with the audit of the consolidated financial statements of the Prudential Conglomerate of Bradesco. In order to form our opinion, we assessed whether those statements are reconciled with the consolidated financial statements of the Prudential Conglomerate and accounting records, as applicable, and whether their format and contents are in accordance with criteria determined in the Technical Pronouncement 09 (CPC 09) - Statement of Value Added issued by the Committee for Accounting Pronouncements (CPC). In our opinion, the statements of value added have been fairly prepared, in all material respects, in accordance with the criteria determined by the aforementioned Technical Pronouncement, and is consistent with the overall consolidated financial statements of the Prudential Conglomerate taken as whole.

 

Responsibilities of management and those in charge with governance for the consolidated financial statements of the Prudential Conglomerate

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements of the Prudential Conglomerate in accordance with Resolution 4280/13 of CMN, and supplementary regulations of BACEN, which main criteria and accounting practices are described in note no 2 to the financial statements, and the internal controls as management determines is necessary to enable the preparation of consolidated financial statements of the Prudential Conglomerate that are free from material misstatement whether due to fraud or error.

 

In preparing the consolidated financial statements of the Prudential Conglomerate, management is responsible for assessing Bradesco’s ability to continue as going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate Bradesco and its subsidiaries or to cease operations, or there has no realistic alternative but to do so.

 

Those charged with governance of Bradesco and its subsidiaries are those responsible for overseeing Bradesco´s financial reporting process in preparing the consolidated financial statements of the Prudential Conglomerate.

 

Auditor’s responsibilities for the audit of the consolidated financial statements of the Prudential Conglomerate

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements of the Prudential Conglomerate, prepared by the management in accordance with Resolution 4280/13 of CMN, and supplementary regulations of BACEN, as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor´s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements of Prudential Conglomerate.

 

As part of an audit in accordance with the Brazilian and International Standards on Auditing, taking into account NBC TA 800 (Special Conditions - Auditing of Financial Statements according to Special Purpose Accounting Structures), we exercise professional judgment, and maintain professional skepticism throughout the audit. We also:

 

 

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•    Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting material misstatement resulting from fraud is higher than for the one resulting from error, as fraud may involve collusion, forgery, intentional omission or misrepresentations, or the override of internal controls.

 

•    Obtain an understanding of internal control relevant to the audit to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Bradesco and its subsidiaries internal control.

 

•    Evaluate the appropriateness of the accounting policies used and the reasonableness of accounting estimates and related disclosures made by Bradesco.

 

•    Conclude on the appropriateness of management’s use of the going concern basis of accounting, and, based on the audit evidence obtained, whether material uncertainty exists related to events or conditions that may cast significant doubt on Bradesco’s and its subsidiaries ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements, or if such disclosures are inadequate to modify our opinion. Our conclusions are based on the audit evidences obtained up to the date of our auditor’s report. However, future events or conditions may cause Bradesco and its subsidiaries to cease to continue as a going concern.

 

•    Evaluate the overall presentation, structure and content of the consolidated financial statements of Prudential Conglomerate, including the disclosures and whether the consolidated financial statements of Prudential Conglomerate represent the underlying transactions and events in a manner that achieves fair presentation.

 

•    Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements of Prudential Conglomerate. We are responsible for the direction, supervision and performance of group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provided those charged with governance with a statement that we have complied with the relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be though to bear our independence, and where applicable, related safeguards.

 

From the matters communicated with those charged with governance, we determined those matters that were of most significance in the audit of the consolidated financial statements of Prudential Conglomerate for the six-month period and the year ended on December 31, 2018, and are therefore the key audit matters. We describe these matters in our auditor’s report, unless law or regulation precludes public disclosure about the matters, or when, in extremely rare circumstances, we determine a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefit of such communication.

 

Osasco, March 27, 2019

 

 

KPMG Auditores Independentes

CRC 2SP028567/O-1 F SP

 

Original report in Portuguese signed by

Rodrigo de Mattos Lia

Accountant CRC 1SP252418/O-3

 

 

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SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 2019
 
BANCO BRADESCO S.A.
By:
 
/S/Leandro de Miranda Araujo

    Leandro de Miranda Araujo
Executive Deputy Officer and
Investor Relations Officer.
 
 
FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.