Bradesco(BBDO) - 2024 Q4 - Annual Report

PART I Key Information This section details significant risks to the company's business, financial condition, and operating results, covering macroeconomic, industry, and share-related factors - The company's operations are significantly influenced by Brazil's political and economic conditions, including government influence, high inflation, and changes in the SELIC base interest rate[31] - Key risks to the business include potential increases in past-due loans, counterparty risk, regulatory changes regarding reserve requirements, and intense competition from traditional banks and fintechs[32] - The company faces risks related to cybersecurity, socio-environmental impacts from client projects, climate change, and potential damage to its reputation[34] - Shareholders and ADS holders are exposed to risks including limited voting rights for preferred shares, volatility in the Brazilian securities market, and potential difficulties in receiving dividends[34] Information on the Company This section provides a comprehensive overview of Banco Bradesco, covering its history, strategic initiatives, business segments, and regulatory framework History and Development of the Company - Founded in 1943, Banco Bradesco S.A. has grown to become a major financial institution offering a wide range of banking and financial products in Brazil and internationally[211][213] - The company has recently engaged in several strategic acquisitions and partnerships to enhance its digital presence, investment management capabilities, and healthcare services, including acquiring 100% of Banco Digio[214][219][222] - A strategic partnership was formed with John Deere Brasil, acquiring a 50% stake in Banco John Deere S.A. to strengthen its position in the agribusiness and construction financing sectors[225] - In 2024, the company completed the merger of its asset management subsidiary, Bradesco Asset Management (BRAM), into Banco Bradesco S.A. to optimize its organizational structure[223] Business Overview - In 2024, Bradesco initiated a strategic transformation plan to streamline its operating model, creating specialized Business Units (Wholesale, Wealth, Retail, Digital, Credit, Treasury) to enhance agility and customer-centricity[230] - The company's sustainability strategy focuses on sustainable business, climate change, and financial citizenship, aligning with the UN's Sustainable Development Goals, and has committed to decarbonize its loan and investment portfolios by 2050 as part of the Net-Zero Banking Alliance[243][246] - Bradesco's risk management framework is based on a Three Lines Model (Business/Support, Oversight, and Internal Audit) to identify, measure, mitigate, and monitor various risks including credit, market, liquidity, and operational risks[271] Gross Revenues by Segment (R$ in thousands) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Banking | | | | | Interest and similar income from loans and advances | 101,599,850 | 101,912,948 | 100,297,936 | | Fee and commission income and income from banking fees | 36,213,830 | 34,269,254 | 33,802,362 | | Insurance, Pension Plans and Capitalization Bonds | | | | | Insurance Income | 121,003,371 | 106,546,307 | 95,343,634 | | Fee and commission income and income from banking fees | 1,923,437 | 1,164,685 | 1,701,005 | Organizational Structure - Banco Bradesco S.A. is a publicly-held company controlled by Cidade de Deus Participações, which is in turn owned by the Aguiar Family, Fundação Bradesco, and another holding company, Nova Cidade de Deus Participações S.A[797] Property, Plant and Equipment - As of December 31, 2024, the company owned 786 properties and leased 4,087 properties in Brazil, in addition to 11 properties abroad, for its operational needs[801] Operating and Financial Review and Prospects This section analyzes the company's financial performance, liquidity, and capital resources, detailing the impact of economic conditions and key financial metrics Operating Results Brazilian Economic Indicators | Indicator | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Inflation (IPCA) | 4.8% | 4.6% | 5.8% | | Real Appreciation/(Depreciation) vs. USD | (27.9)% | 7.2% | 6.5% | | Period-end Exchange Rate (R$/US$) | 6.1923 | 4.8413 | 5.2177 | | Change in real GDP | 3.6% | 3.2% | 3.0% | | Average base interest rates | 10.0% | 13.0% | 12.4% | - Net income increased by 21.0% to R$17,542 million in 2024 from R$14,503 million in 2023[843] - Net interest income rose by 22.5% in 2024 to R$67.5 billion, primarily due to lower interest expenses on time deposits and other funding sources, reflecting the decrease in the SELIC rate[815][828] - Expenses for expected loss on loans and advances decreased by 11.7% in 2024, driven by an improved portfolio profile and more efficient collection processes[835] - Gross profit from insurance and pension plans grew by 70.8% in 2024, due to a 15.6% increase in insurance and pension income[834] Liquidity and Capital Resources - As of December 31, 2024, the Liquidity Coverage Ratio (LCR) was 141.1% and the Net Stable Funding Ratio (NSFR) was 121.2%, both in compliance with Basel III requirements[879] Capital Ratios (Basel III) | Ratio | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Tier I capital | 12.4% | 13.2% | 12.4% | | Common equity | 10.5% | 11.7% | 11.0% | | Total Ratio | 14.8% | 15.8% | 14.8% | - The company's Basel ratio was 14.8% as of December 31, 2024, exceeding the 11.5% minimum required by the Central Bank of Brazil[921] Capital Expenditures (R$ in thousands) | Category | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Infrastructure | 799,913 | 1,071,481 | 752,394 | | Information Technology | 5,452,546 | 5,223,193 | 5,992,979 | | Total | 6,252,459 | 6,294,674 | 6,745,373 | Directors, Senior Management and Employees This section outlines the composition and practices of the company's governance bodies, including compensation, and provides information on its workforce Board of Directors and Board of Executive Officers - The Board of Directors is composed of eleven members, including four independent members, and the Board of Executive Officers consists of 21 members[954][956] - Mr. Luiz Carlos Trabuco Cappi serves as the Chairman of the Board of Directors, and Mr. Marcelo de Araújo Noronha serves as the Chief Executive Officer[957][1007] Compensation - In 2024, the total compensation for Directors, the Statutory Board of Executive Officers, and subsidiaries was R$611.9 million, with an additional R$547.8 million contributed to pension plans on their behalf[1099][1100] - The compensation policy requires that 50% of net variable compensation be used to acquire company-related shares, which are restricted and paid in three annual installments, aligning with CMN Resolution No. 3,921/10[1099] Board Practices - The company has a permanently operating Fiscal Council with five effective members, two of whom are elected by minority shareholders, to provide independent oversight[1104][1105] - The Board of Directors is supported by seven advisory committees, including statutory Audit and Compensation committees, and non-statutory committees for Integrity, Risks, Sustainability, Succession, and Strategy[1106] Employees Employee Headcount | As of December 31, | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Total number of employees | 84,022 | 86,222 | 88,381 | - As of year-end 2024, the workforce was composed of 50% women, 29% Black people, and 5% people with disabilities[1130] - In 2024, the company invested over R$141 million in employee education through its corporate university, UniBrad, which recorded over 1.5 million participants in its programs[1139] Major Shareholders and Related Party Transactions This section details the company's ownership structure, identifying major shareholders and their holdings, and summarizes transactions with related parties Major Shareholders Major Shareholders' Holdings as of December 31, 2024 | Shareholder | Common Shares % | Total Shares % | | :--- | :--- | :--- | | Cidade de Deus Participações | 46.08% | 23.09% | | Fundação Bradesco | 17.23% | 8.63% | | NCF Participações | 8.52% | 5.39% | - Fundação Bradesco, a non-profit institution focused on education, is a key shareholder, holding 31.63% of the total capital directly and indirectly as of December 31, 2024[1156] Related Party Transactions - All transactions with related parties are conducted under conditions and at rates consistent with those for third-party transactions[1168] Financial Information This section addresses legal proceedings and the company's dividend distribution policy, detailing provisions for losses and monthly distribution practices Legal Proceedings - As of December 31, 2024, the company had provisioned a total of R$17,900 million for legal proceedings with a probable risk of loss[1174] Provisions for Probable Losses by Type (as of Dec 31, 2024) | Type of Claim | Provision Allocation | | :--- | :--- | | Civil matters | 43.7% | | Tax and social security | 41.7% | | Labor claims | 14.6% | - Contingent liabilities with a possible risk of loss, which are not provisioned, totaled R$46,933 million for tax matters and R$11,570 million for civil claims as of December 31, 2024[1174] - The criminal proceeding related to Operation Zealots against two former executive officers was definitively extinguished, with their acquittal certified as final and unappealable on January 31, 2025[1172] Policy on Dividend Distributions - The company has a policy of making monthly dividend distributions, primarily in the form of interest on shareholders' equity, which is tax-deductible for the company[1176][1177] - The mandatory minimum dividend distribution is at least 30% of the annual adjusted net income, in accordance with the company's bylaws[1211] The Offer and Listing This section details the trading of the company's securities on the NYSE and B3, highlighting its adherence to B3's 'Level 1' corporate governance standards Offer and Listing Details - The company's American Depositary Shares (ADSs) are traded on the New York Stock Exchange (NYSE) under the symbols 'BBD' for preferred shares and 'BBDO' for common shares[1183] Markets - The company's shares are traded on the B3 stock exchange in Brazil, and as of December 31, 2024, Bradesco accounted for 2.9% of the total market capitalization of all companies listed on the B3[1191][1193] - Bradesco adheres to B3's 'Level 1' corporate governance segment, which requires enhanced transparency, disclosure, and a minimum free float of 20%[1200][1203] Additional Information This section provides detailed information on the company's corporate structure, shareholder rights, dividend policies, exchange controls, and Brazilian and U.S. tax considerations Memorandum and Articles of Association - The company is required to distribute a minimum of 30% of its recurring net income as annual dividends, with preferred shareholders entitled to dividends 10.0% higher than those paid to common shareholders[1211][1213] - In the event of a change in control, the acquirer must offer non-controlling common shareholders 100% of the price per share paid to the controlling shareholders, and preferred shareholders must be offered 80% of that price[1227] Exchange Controls - The Central Bank of Brazil has the authority to impose temporary restrictions on the remittance of foreign capital abroad, including dividends and capital repatriation, in cases of significant imbalance in Brazil's balance of payments[1264] Taxation - Dividends paid from profits generated since January 1, 1996, are not subject to Brazilian withholding income tax for non-resident holders[1277] - Interest on Shareholders' Equity (JCP) is subject to a 15% withholding income tax for non-resident holders, or 25% if the recipient is domiciled in a tax haven[1300] - Gains from the sale of shares on a Brazilian stock exchange are generally exempt from income tax for qualified non-resident investors not domiciled in a tax haven, while gains from sales outside the stock exchange are subject to progressive rates from 15.0% to 22.5%[1291][1293] Quantitative and Qualitative Disclosures About Market Risk This section details the company's market risk exposure, primarily from interest rate and foreign exchange fluctuations, outlining risk evaluation methodologies and quantitative data Sensitivity Analysis on Trading and Banking Portfolios (as of Dec 31, 2024) | Risk Factor | Scenario 2 (25% shock) | Scenario 3 (50% shock) | | :--- | :--- | :--- | | Interest rate in Reais | (R$ 4,085,285 thousand) | (R$ 7,975,990 thousand) | | Price indexes | (R$ 2,209,541 thousand) | (R$ 3,908,207 thousand) | | Foreign currency | (R$ 133,384 thousand) | (R$ 266,768 thousand) | | Equities | (R$ 801,129 thousand) | (R$ 1,602,258 thousand) | | Total not correlated | (R$ 7,221,066 thousand) | (R$ 13,738,128 thousand) | Value at Risk (VaR) of Trading Portfolio in 2024 (1-day horizon, net of tax) | Metric | Value (R$ in thousands) | | :--- | :--- | | Average VaR | 21,332 (Q1), 19,534 (Q2), 20,758 (Q3), 18,745 (Q4) | | Minimum VaR | 7,866 | | Maximum VaR | 44,197 | PART II Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and internal control over financial reporting as of December 31, 2024, with no material changes noted - Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2024[1370][1371] - Management assessed the internal controls over financial reporting based on the COSO framework (2013) and concluded they were effective as of December 31, 2024[1375] - The effectiveness of the internal control over financial reporting was audited by the independent registered public accounting firm, KPMG Auditores Independentes Ltda[1377] - No material changes were made to the internal control over financial reporting during the year ended December 31, 2024[1379] Other Information This section covers various governance and compliance topics, including audit fees, share repurchases, corporate governance practices, and cybersecurity policies Principal Accountant Fees and Services Fees Paid to KPMG Auditores Independentes Ltda. (R$ in thousands) | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | Audit fees | 69,548 | 63,298 | | Audit-related fees | 802 | 725 | | Other fees | 3,479 | 1,761 | | Total fees | 73,829 | 65,784 | Purchases of Equity Securities by the Issuer and Affiliated Purchasers - The company has a share buyback program effective from November 7, 2023, to November 7, 2025, authorizing the acquisition of up to 53.4 million common shares and 53.2 million preferred shares[1388] - During 2024, the company repurchased 23.8 million common shares and 21.3 million preferred shares under its buyback program[1389] Corporate Governance - As a foreign private issuer, Bradesco complies with a limited set of NYSE corporate governance rules but discloses significant differences from U.S. domestic issuer standards, particularly regarding board independence and committee composition[1392] Cybersecurity - The company maintains a robust cybersecurity framework focused on protection, resilience, threat identification, and incident response, managed at the highest strategic levels[1401][1402] - Cybersecurity governance is managed by the Corporate Security Department and the IT Infrastructure Department (DITI), following a three-lines model to ensure integrated and independent risk control[1411][1432] - The company employs multiple layers of security, including Web Application and API Protection (WAAP), DDoS prevention, intrusion detection systems, and continuous monitoring through Security Operational Centers (SOCs)[1404][1405] PART III Financial Statements This section contains the complete set of audited consolidated financial statements for Banco Bradesco S.A. and its subsidiaries for the three-year period ended December 31, 2024, prepared under IFRS Consolidated Statement of Financial Position Highlights (R$ thousands) | | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | 2,069,484,362 | 1,927,523,249 | | Loans and advances to customers, net | 672,382,105 | 579,501,819 | | Total Liabilities | 1,900,541,870 | 1,760,509,125 | | Deposits from customers | 644,338,463 | 621,934,680 | | Total Equity | 168,942,492 | 167,014,124 | Consolidated Statement of Income Highlights (R$ thousands) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net interest income | 67,454,564 | 55,082,419 | 69,811,272 | | Expected loss on loans and advances | (26,636,777) | (30,176,989) | (26,346,068) | | Income before income taxes | 16,900,514 | 10,208,351 | 24,621,610 | | Net income | 17,542,153 | 14,502,765 | 21,456,770 | - The independent auditor, KPMG, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of internal control over financial reporting as of December 31, 2024[2127] - Critical Audit Matters identified by the auditor include the assessment of the allowance for expected credit losses, the measurement of provisions for tax and civil contingent liabilities, the recoverability of deferred tax assets, and the measurement of certain insurance contract liabilities[2134]