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