Bradesco(US:BBD)2025-03-31 13:24Key Information Risk Factors The company faces diverse risks, including macroeconomic instability in Brazil, industry-specific challenges like credit and market risks, operational failures, regulatory changes, and risks related to its shares and ADSs Risks relating to Brazil The company's performance is significantly affected by Brazil's macroeconomic environment, including government influence, high inflation, interest rate volatility, currency depreciation, and geopolitical conflicts - The Brazilian government's influence over the economy, coupled with political and economic uncertainties, directly impacts the company's business and the value of its securities3638 Key Brazilian Economic Indicators (2022-2024) | Indicator | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Inflation (IPCA) | 4.83% | 4.62% | 5.79% | | Real/U.S. Dollar Depreciation | 27.9% | (7.2)% | (6.5)% | | Year-End Exchange Rate (R$/US$) | 6.19 | 4.84 | 5.22 | | Year-End SELIC Rate | 12.25% | 11.75% | 13.75% | - The Brazilian government enacted Constitutional Amendment No. 132/23 for tax reform, which will replace five sales taxes with a dual VAT system (CBS and IBS); the impact on the company's operations cannot yet be estimated5657 - Geopolitical conflicts, such as those in Eastern Europe and the Middle East, create widespread uncertainty, impacting commodity prices, global inflation, and risk appetite, which could negatively affect the Brazilian economy and the company's operations7374 Risks relating to the Company and the Brazilian Banking Industry The company faces industry-specific risks including credit risk (with a 4.0% delinquency ratio in 2024), market risk from fair value investments, liquidity challenges, operational risks like cybersecurity, evolving regulatory compliance, and intensifying competition from fintechs - The delinquency ratio for loans overdue more than 90 days decreased to 4.0% as of December 31, 2024, compared to 5.1% as of December 31, 202384 - As of December 31, 2024, investments classified as "fair value through profit or loss" and "fair value through other comprehensive income" represented 25.5% of the company's assets, exposing it to significant market volatility80 - Compulsory deposits with the Central Bank of Brazil amounted to R$109.8 billion as of December 31, 2024; changes in these requirements can reduce operating margins101 - The company faces increasing competition from other large banks, both public and private, as well as new players like fintechs and bigtechs, intensified by the implementation of Open Finance in Brazil160 - Failure to adequately protect against cybersecurity risks could materially affect the company; in 2022 and 2023, subsidiaries experienced two significant security incidents, though none occurred in 2024166174 - The company is subject to legal proceedings regarding inflationary adjustments from economic plans of the 1980s and 1990s; an agreement was reached with savers' representatives, and its term was extended for another 30 months in December 2022150155 Risks relating to Shares and ADSs Investors in the company's shares and ADSs face risks including limited voting rights for ADS and preferred share holders, volatility and lower liquidity in the Brazilian securities market, and potential suspension of dividend payments - Holders of ADSs will only receive voting instructions if the company authorizes the depositary bank to do so, potentially limiting their ability to vote at shareholder meetings193194 - Under Brazilian Corporate Law, preferred shareholders have limited voting rights, which similarly restricts the voting ability of preferred share ADS holders195 - The Brazilian securities market is substantially smaller, less liquid, and more volatile than major markets, which may limit an investor's ability to sell shares at a desired price and time197 - Dividend payments to ADS holders are dependent on the company paying dividends on its common and preferred shares; the Board may suspend mandatory dividends if payment is deemed incompatible with the company's financial condition199200 Information on the Company History and Development Founded in 1943, Bradesco has evolved into a leading Brazilian multi-service bank, strategically expanding its digital, healthcare, and financial services through recent acquisitions and partnerships - In 2024, the company engaged in several strategic partnerships and acquisitions to enhance its market position, particularly in healthcare and specialized financing217219225 - Key Strategic Transactions in 2022-2024 - Banco Digio S.A.: Completed the acquisition of the remaining 49.99% stake in February 2022, making Digio a wholly-owned subsidiary focused on digital financial services214 - Tivio Capital: Acquired a 51% stake in the investment management firm (previously BV DTVM) in February 2023216 - Hospital Santa Lúcia: Acquired a 20% stake in the largest hospital network in Brazil's Midwest region in September 2024217 - Hospital Mater Dei: Entered an investment agreement to develop and operate a new hospital in São Paulo, holding a 51% stake in the SPE218 - Atlântica and Rede D'Or Partnership: Formed a new hospital network, Atlântica D'Or, with Rede D'Or, holding a 49.99% stake, to develop hospitals in several regions219221 - Cielo S.A.: Completed a tender offer in September 2024 to take the payment solutions company private, increasing its total ownership to 50.72%222421 - Bradesco Asset (BRAM): Merged its asset management subsidiary BRAM into the parent company in July 2024 to optimize structure223 - John Deere Bank: Entered into a strategic partnership to acquire a 50% stake in Banco John Deere S.A., strengthening its position in agribusiness financing, completed in February 2025225 Business Overview Bradesco operates in Banking and Insurance, Pension Plans, and Capitalization Bonds segments, serving 73.2 million clients through a strategic plan focused on operational efficiency, customer experience, and digital capabilities, leveraging an extensive distribution network - In February 2024, Bradesco announced a new strategic plan to streamline its operating model, creating specialized Business Units (Wholesale, Wealth, Retail, Digital, etc.) to enhance agility and customer-centricity230 - The company's sustainability strategy focuses on sustainable business, climate change, and financial citizenship; in 2024, it surpassed its R$250 billion target for financing socio-environmental activities and was recognized in the Dow Jones Sustainability Index for the 19th consecutive time243261269 Revenue by Business Segment (R$ in thousands) | Segment | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Banking | | | | | Interest and similar income | 101,599,850 | 101,912,948 | 100,297,936 | | Fee and commission income | 36,213,830 | 34,269,254 | 33,802,362 | | Insurance, Pension Plans & Capitalization | | | | | Insurance Income | 121,003,371 | 106,546,307 | 95,343,634 | | Fee and commission income | 1,923,437 | 1,164,685 | 1,701,005 | - As of December 31, 2024, the bank served 73.2 million clients, comprising 36.4 million individuals and 1.8 million companies with checking accounts, plus 66.6 million savings accounts375400 - Digital channels accounted for 99% of all transactions in 2024, with mobile and internet banking representing 95% of this total; the bank has 27.8 million active individual mobile app users514515 Competition Bradesco operates in a highly competitive Brazilian financial market, facing strong competition from large banks and growing fintechs, intensified by Open Finance, while maintaining significant market shares in key segments Market Share of Key Products (2024) | Product/Service | Market Share (%) | Source | | :--- | :--- | :--- | | Savings Deposits | 12.5% | Central Bank of Brazil | | Loans (Total) | 10.2% | Central Bank of Brazil | | Payroll-Deductible Loans | 14.4% | Central Bank of Brazil | | Housing Loans | 10.8% | Central Bank of Brazil | | Insurance Premiums & Contributions | 22.9% | SUSEP/ANS/FENAPREVI | | Investment Funds & Managed Portfolios | 16.7% | ANBIMA | - The Brazilian financial market is highly concentrated, with the five largest institutions holding 65.5% of deposits as of September 2024555 - Competition is intensifying due to the growth of fintechs and regulatory initiatives like Open Finance, which aims to stimulate innovation and competition by standardizing data sharing between institutions551160 Regulation and Supervision Bradesco's operations are extensively regulated by Brazilian authorities, covering capital adequacy, compulsory deposits, lending limits, AML/anti-corruption, and recent developments like Open Finance and evolving tax legislation - The company is subject to capital adequacy standards based on Basel III, requiring minimum ratios for Common Equity, Tier I Capital, and Total Capital; as of December 31, 2024, the bank was in compliance with all requirements577916921 - Financial institutions must maintain compulsory deposits with the Central Bank; as of December 2024, the requirements were 21.0% for demand deposits and 20.0% for savings and time deposits595596 - The implementation of Open Finance in Brazil, mandated by the Central Bank, is a key regulatory development designed to foster innovation and competition by enabling standardized data sharing among financial institutions551552 - The company must comply with stringent anti-money laundering (AML) and anti-corruption laws, including Law No. 9,613/98 and Law No. 12,846/13, which require robust internal controls, client due diligence, and reporting of suspicious transactions to COAF660672 Operating and Financial Review and Prospects Operating Results In 2024, Bradesco's net income increased by 21.0% to R$17.5 billion, driven by higher net interest income and insurance profits, and reduced loan loss expenses, despite a R$2.25 billion net loss on fair value financial assets Consolidated Income Statement Highlights (R$ in thousands) | Line Item | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Net interest income | 67,454,564 | 55,082,419 | 22.5% | | Fee and commission income | 28,336,487 | 26,956,763 | 5.1% | | Gross profit from insurance and pension plans | 8,942,260 | 5,235,711 | 70.8% | | Expected loss on loans and advances | (26,636,777) | (30,176,989) | (11.7)% | | Net income for the year | 17,542,153 | 14,502,765 | 21.0% | - Net interest income increased by 22.5% to R$67.5 billion in 2024, primarily due to a R$12.1 billion (7.7%) reduction in interest expenses, reflecting lower average interest rates on funding liabilities like time deposits and insurance contracts815831 - Expenses for expected loss on loans and advances decreased by 11.7% to R$26.6 billion in 2024, driven by an improved credit portfolio profile and more efficient collection processes835 - The company experienced a net loss of R$2.25 billion on financial assets at fair value through profit or loss, compared to a R$10.9 billion gain in 2023, mainly due to lower returns on investments in government securities833 Liquidity and Capital Resources Bradesco maintains robust liquidity and capital, with LCR at 141.1% and NSFR at 121.2%, primarily funded by R$648.8 billion in customer deposits, and capital ratios well above Basel III minimums, with R$6.25 billion in 2024 capital expenditures Key Liquidity and Capital Ratios (as of Dec 31, 2024) | Indicator | 2024 | 2023 | | :--- | :--- | :--- | | Liquidity Coverage Ratio (LCR) | 141.1% | 191.6% | | Net Stable Funding Ratio (NSFR) | 121.2% | 126.7% | | Tier 1 Capital Ratio | 12.4% | 13.2% | | Total Basel Ratio | 14.8% | 15.8% | - The bank's principal funding sources are customer deposits (R$648.8 billion) and securities sold under repurchase agreements (R$283.0 billion) as of year-end 2024882887891 - Net cash provided by operating activities was R$50.2 billion in 2024, a significant improvement from a net use of R$177.6 million in 2023, mainly due to changes in the portfolio of financial assets at fair value through profit or loss904905 Capital Expenditures (R$ 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 Board of Directors and Board of Executive Officers The company's governance is structured with an 11-member Board of Directors, including four independent members, and a 21-member Board of Executive Officers, all subject to Central Bank approval - The Board of Directors is composed of 11 members, with four being independent; the Chairman is Luiz Carlos Trabuco Cappi954957960 - The Board of Executive Officers consists of 21 members, led by Chief Executive Officer Marcelo de Araújo Noronha, and is responsible for the company's management and operations9561007 - The election of all members of the Board of Directors and the Board of Executive Officers requires approval from the Central Bank of Brazil957 Compensation In 2024, total compensation for directors and executive officers was R$611.9 million, with 50% of variable pay deferred in shares, and R$547.8 million contributed to pension plans - In 2024, the total compensation for directors and executive officers amounted to R$611.9 million1099 - The company's compensation policy requires that 50% of net variable compensation be deferred and paid in restricted shares over three years1099 - Contributions to pension plans for directors and officers totaled R$547.8 million in 20241100 Employees As of December 31, 2024, Bradesco had 84,022 employees, with a diverse workforce (50% women, 29% Black), investing over R$141 million in employee education and training Employee Headcount | Year | Total Employees | | :--- | :--- | | 2024 | 84,022 | | 2023 | 86,222 | | 2022 | 88,381 | - The company promotes diversity and inclusion, with a workforce comprising 50% women and 29% Black individuals as of year-end 202411301131 - In 2024, over R$141 million was invested in employee education through UniBrad, which saw more than 1.5 million participants in its training programs1139 Major Shareholders and Related Party Transactions Major Shareholders As of December 31, 2024, Bradesco's share capital includes 5.31 billion common and 5.29 billion preferred shares, controlled by Cidade de Deus Participações (46.08% voting shares), with Fundação Bradesco holding 31.63% of total capital Major Shareholder Ownership (as of Dec 31, 2024) | Shareholder | % of Common Shares | % of 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, holds a total of 31.63% of the company's capital through direct and indirect ownership1156 - As of December 31, 2024, foreign investors held 11.91% of common shares and 58.11% of preferred shares1167 Financial Information Legal and Regulatory Proceedings As of December 31, 2024, the company provisioned R$17.9 billion for probable legal losses across civil, tax, and labor claims, with additional R$46.9 billion in possible tax contingent liabilities Provisions for Probable Losses (as of Dec 31, 2024) | Category | Provisioned Amount (R$ million) | % of Total | | :--- | :--- | :--- | | Civil Matters | 7,827.3 | 43.7% | | Tax and Social Security | 7,457.2 | 41.7% | | Labor Claims | 2,613.4 | 14.6% | | Total | 17,897.8 | 100.0% | - Contingent liabilities classified with a possible risk of loss, which are not provisioned, amounted to R$46.9 billion for tax matters and R$11.6 billion for civil claims11741818 - A criminal proceeding from Operation Zealots against two former executive officers was concluded with their acquittal, which became final and unappealable on January 31, 20251172 Market Risk Disclosures Market Risk Management Bradesco manages market risk from interest rate and foreign exchange fluctuations using VaR, stress testing, and sensitivity analysis, with a maximum one-day VaR of R$44.1 million in 2024 and a potential R$13.7 billion loss from a 50% adverse shock Sensitivity Analysis of Trading and Banking Portfolios (as of Dec 31, 2024, R$ in thousands) | Scenario | Impact on Net Income | | :--- | :--- | | 1 bp shock (interest) / 1% shock (prices) | (60,070) | | 25% shock (prices and rates) | (7,221,066) | | 50% shock (prices and rates) | (13,738,128) | - The Value at Risk (VaR) for the trading portfolio (1-day horizon, 99% confidence) ranged from a minimum of R$7.8 million to a maximum of R$44.1 million during 20241358 - The VaR model's adherence is monitored via backtesting; in 2024, the daily results exceeded the 99% confidence level VaR twice in the hypothetical view and three times in the effective view, which is considered within acceptable parameters1357 Controls and Procedures Management's Assessment of Internal Controls As of December 31, 2024, Bradesco's management concluded that both disclosure controls and internal control over financial reporting were effective, a conclusion concurred with by KPMG Auditores Independentes Ltda - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were effective at a reasonable assurance level13701371 - Based on the COSO 2013 framework, management assessed its internal control over financial reporting as effective as of December 31, 20241375 - The independent registered public accounting firm, KPMG Auditores Independentes Ltda., audited and issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 202413771378 Corporate Governance and Other Matters Principal Accountant Fees and Services In fiscal year 2024, total fees paid to KPMG Auditores Independentes Ltda. for audit, audit-related, and other services amounted to R$73.8 million Accountant Fees (R$ 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 | Share Repurchase Program The company's share repurchase program, active until November 2025, authorized acquiring up to 53.4 million common and 53.2 million preferred shares, with 23.8 million common and 21.3 million preferred shares repurchased in 2024 Share Repurchases in 2024 | Share Class | Total Shares Repurchased | | :--- | :--- | | Common Shares | 23,843,100 | | Preferred Shares | 21,344,200 | Cybersecurity Bradesco prioritizes cybersecurity with a multi-layered framework for threat identification, protection, detection, and response, governed by dedicated departments and committees adhering to best practices and regulations like CMN Resolution No. 4,893/21 - The company's cybersecurity strategy is built on a framework of identifying threats, protecting against attacks, detecting incidents, and ensuring effective response and recovery14021413 - A multi-layered security infrastructure is in place, utilizing technologies like WAAP, DDoS prevention, firewalls, and Endpoint Detection and Response (EDR) to protect internal and external perimeters1404 - Cybersecurity governance is managed by the Corporate Security Department and the IT Infrastructure Department (DITI), with oversight from various committees, and follows a three-lines-of-defense model to ensure integrated risk control141114141432 - The company adheres to Brazilian regulations, including CMN Resolution No. 4,893/21, which sets requirements for cybersecurity policies and the hiring of cloud computing and data storage services1409 Financial Statements Consolidated Financial Statements The consolidated financial statements for 2024 reflect a strong financial position with total assets growing to R$2.07 trillion and net income increasing 21.0% to R$17.54 billion, driven by higher net interest income and insurance profits Consolidated Statement of Financial Position (R$ in thousands) | Item | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total assets | 2,069,484,362 | 1,927,523,249 | | Total liabilities | 1,900,541,870 | 1,760,509,125 | | Total equity | 168,942,492 | 167,014,124 | Consolidated Statement of Income (R$ in thousands) | Item | 2024 | 2023 | | :--- | :--- | :--- | | Net interest income | 67,454,564 | 55,082,419 | | Income before income taxes | 16,900,514 | 10,208,351 | | Net income | 17,542,153 | 14,502,765 | | - Attributable to shareholders of the parent | 17,252,900 | 14,251,329 | Earnings Per Share (in R$) | Share Class | 2024 | 2023 | | :--- | :--- | :--- | | Common Share | 1.55 | 1.27 | | Preferred Share | 1.71 | 1.41 | Consolidated Statement of Cash Flows (R$ in thousands) | Item | 2024 | 2023 | | :--- | :--- | :--- | | Net cash from operating activities | 50,228,485 | (177,628) | | Net cash from investing activities | (5,013,549) | 83,606,232 | | Net cash from financing activities | (23,676,490) | (23,062,770) | | Net increase in cash and cash equivalents | 21,538,446 | 60,365,834 |