The main figures obtained by Bradesco in 2014 are presented below:

1.   Adjusted Net Income⁽¹⁾ for 2014 stood at R$ 15.359 billion (a 25.9% increase compared to the R$ 12.202 billion recorded in the same period of 2013), corresponding to earnings per share of R$ 3.66 and Return on Average Adjusted Equity⁽²⁾ of 20.1%.

2.   As for the source, the Adjusted Net Income is composed of R$ 10.953 billion from financial activities, representing 71.3% of the total, and of R$ 4.406 billion from insurance, pension plans and capitalization bonds operations, which together account for 28.7%.

3.   On December 31, 2014, Bradesco market value stood at R$ 145.536 billion⁽³⁾, showing a growth of 13.6% over December 31, 2013.

4.   Total Assets, in December 2014, stood at R$ 1.032 trillion, an increase of 13.6% over the December 2013 balance. The return on Average Total Assets was 1.6%, an increase of 0.2 p.p. over December 2013 (1.4%).

5.   In December 2014, the Expanded Loan Portfolio⁽⁴⁾ reached R$ 455.127 billion, up 6.5% over December 2013. Operations with individuals totaled R$ 141.432 billion (an increase of 8.2% over December 2013), while corporate segment operations totaled
R$ 313.695 billion (up 5.8% over December 2013).

6.   Assets under Management stood at R$ 1.426 trillion, a 13.2% increase from December 2013.

7.   Shareholders’ Equity totaled R$ 81.508 billion in December 2014, 14.9% higher than in December 2013. Capital Adequacy Ratio stood at 16.5% in December 2014, 12.9% of which was classified as Common Equity/Tier I.

8.   A total of R$ 5.055 billion were paid to shareholders as Interest on Shareholders’ Equity and Dividends for the first three quarters of 2014, of which R$ 1.824 billion were paid in monthly and interim installments and R$ 3.231 billion were provisioned.

9.   The Interest Earning Portion of the Net Interest Income stood at R$ 47.806 billion, up 12.0% compared to 2013.

10. The Delinquency Ratio over 90 days remained stable in the last twelve months, and stood at 3.5% on December 31, 2014.

11. The Operating Efficiency Ratio (ER)⁽⁵⁾ in December 2014 was 39.2%, the best level ever recorded (42.1% in December 2013), while in the “risk-adjusted” concept, it stood at 47.9% (52.1% in December 2013).

12. Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income totaled R$ 56.152 billion in 2014, up 12.9% when compared to 2013. Technical Reserves stood at R$ 153.267 billion, an increase of 12.5% compared to the balance on December 2013.

13.Investments in infrastructure, information technology and telecommunications amounted to R$ 4.998 billion in 2014, up 3.2% over the same period last year.

14.Taxes and contributions paid or recorded in provision, including social security, totaled R$ 24.225 billion, of which R$ 10.902 billion related to taxes withheld and collected from third parties, and R$ 13.323 billion calculated based on activities developed by Bradesco Organization, equivalent to 86.7% of the Adjusted Net Income⁽¹⁾.

15.Bradesco has an extensive Customer Service network in Brazil, with 4,659 Branches and 3,486 Service Points (PAs). Customers can also count on 1,145 ATMs, 50,006 Bradesco Expresso service points, 31,089 Bradesco Dia & Noite ATMs, and 17,593 Banco24Horas Network ATMs.

To provide for better understanding, comparison and analysis of Bradesco results, we use the Adjusted Income Statement for analysis and comments contained in this Economic and Financial Analysis Report, obtained from adjustments made to the Book Income Statement, detailed at the end of this Press Release,

which includes adjustments to non-recurring events shown on the previous page. Note that the Adjusted Income Statement serves as the basis for the analysis and comments made in Chapters 1 and 2 of this report.

The return on the Average Adjusted Shareholder’s Equity (ROAE) stood at 20.1% in December 2014. Such performance stems from the growth of adjusted net income, which increased by 4.6% quarter-over-quarter and 25.9% compared with the previous year. The main events that affected adjusted net income are detailed below.

Adjusted net income reached R$ 4,132 million in the fourth quarter of 2014, up R$ 182 million compared to the previous quarter, mainly due to (i) higher net interest income, due to increased “interest” and “non-interest” earning portions; (ii) increased fee and commission income, due to an increase in business volume; (iii) higher income from insurance, pension plans and capitalization bonds; and partially impacted by: (iv) increased administrative and personnel expenses.

In 2014, adjusted net income reached R$ 15,359 million, up R$ 3,157 million from the previous year, due to: (i) higher revenues from interest earning portion; (ii) increased fee and commission income; (iii) higher income from Insurance, Pension Plans and Capitalization Bonds; (iv) increased administrative and personnel expenses, although at a rate below inflation for the period; and (v) increase in other operating expenses, net of other operating income.

Shareholders’ Equity stood at R$ 81,508 million in December 2014, up 14.9% over December 2013. Capital Adequacy Ratio stood at 16.5%, 12.9% of which was classified as Common Equity/Tier I.

Total Assets reached R$ 1.032 trillion in December 2014, a 13.6% increase over December 2013, driven by the increased business volume. Return on Average Assets (ROAA) reached 1.6%.

The 12-month accumulated ER⁽¹⁾ reached 39.2% in the fourth quarter of 2014, again registering his best historical level, and in line with the published target. This result was due to: (i) investments in organic growth, which enabled an increase in income; and (ii) the continued efforts to control expenses, including our Efficiency Committee actions and investments in Information Technology, which have improved internal systems and processes. It should be mentioned that the 0.7 p.p. improvement compared to the previous quarter was primarily due to: (i) higher fee and commission and net interest income; and (ii) the strict control of our operating expenses, which were held below inflation; all these factors also contributed to the improvement of the ER in the “risk-adjusted” concept, reflecting the impact of the risk associated with loan operations⁽²⁾, which reached 47.9%, an improvement of 0.8 p.p. in the quarter.

Quarterly ER rose from 38.5% in the third quarter of 2014 to 39.9% in the fourth quarter of 2014, primarily due to: (i) higher administrative expenses, primarily due to the seasonal effect of the fourth quarter, which impacted mainly advertising expenses; and partially offset by: (ii) the increase in revenues from fees and commission and in the interest earning portion. This indicator showed improvement when compared with the same period of the previous year, primarily due to the increase in interest earning portion and in fees and commission income.

In the quarter-over-quarter comparison, the R$ 705 million growth was mainly due to: (i) increased income from interest earning portion, totaling R$ 525 million, particularly in Insurance and Loans; and (ii) increased non-interest earning portion of the net interest income, totaling R$ 180 million.

In the year-over-year comparison, net interest income was up R$ 5.009 million, primarily due to: (i) higher interest earning portion, totaling R$ 5.120 million, due to the increase in business volumes, particularly in the Loan and Funding business lines, and offset by: (ii) lower non-interest earning portion, totaling R$ 111 million.

In December 2014, Bradesco’s expanded loan portfolio totaled R$ 455.1 billion. The increase of 2.5% in the quarter was primarily due to: (i) SMEs, which recorded a 2.8% growth; (ii) Individuals, recording a 2.5% growth and (iii) Corporations, which grew 2.3%.

In the last twelve months, the portfolio increased by 6.5%, broken down by: (i) 8.2% in Individuals; (ii) 7.3% in Corporations; and (iii) 3.4% in SMEs.  

In the Corporate segment, the products that posted the strongest growth in the last 12 months were: (i) real estate financing; and (ii) rural loans. For Individuals, the highlights were: (i) real estate financing; and (ii) payroll-deductible loan. It should be mentioned that products which present the lowest risk represented the greatest growth.

In the fourth quarter of 2014, allowance for loan losses (ALL) stood at R$ 3,307 million, down R$ 41 million, or 1.2% compared to the previous quarter, despite the 3.2% increase in the volume of loan operations – as defined by Bacen, reflecting the reduction in delinquency during the period.

In the year-over-year comparison, this expense increased by 5.1%, even after accounting for the 7.3% increase in loan operations – as defined by Bacen, resulting from the stable delinquency level in the last 12 months.

It must be noted that these results were due to the consistency of the loan granting policy and processes, quality of guarantees obtained, as well as the constant improvement in the loan recovery process and the change in the product mix.

The total delinquency ratio, which contemplates operations that are over 90 days past due, was down when compared with the previous quarter.

This improvement was observed for Individuals as well as for SMEs. In the year-over-year comparison, this indicator remained stable.

Compared to the last quarter, short-term delinquency, including operations past due between 15 and 90 days, decreased for Individuals and for Corporations.

In the year-over-year comparison, this indicator also showed reduction, primarily due to the significant improvement in the Individuals segment.

Bradesco monitors the development of its loan portfolio, as well as respective risks, by internally applying the expanded portfolio concept. In addition to the allowance for loan losses (ALL) required by Bacen, Bradesco has excess ALL to support potential stress scenarios, as well as other operations/commitments bearing credit risks.

The following graph presents the changes in coverage ratio of the Allowance for Loan Losses (ALL) for loans past due for more than 60 and 90 days. This indicator shows some improvement when compared with the previous quarter, due to a drop in delinquency for the period. In December 2014, these ratios stood at comfortable levels, reaching 156.6% and 189.0%, respectively.

Net income for the fourth quarter of 2014 totaled R$ 1.236 billion, up 23.5% when compared to the same period in the previous year (R$ 1.001 billion), and to the third quarter of 2014 (R$ 1.058 billion), Net Income increased by 16.8%, and an annualized return on Adjusted Shareholder’s Equity of 29.4%.

Net Income for 2014 totaled R$ 4.406 billion, a 17.8% increase when compared to the same period in the previous year (R$ 3.740 billion), for a return on Adjusted Shareholders’ Equity of 23.7%.

Disregarding the DPVAT agreement, income increased 38.3% in the fourth quarter of 2014 when compared to the previous quarter, led by the performance of the Life and Pension Plans segment, which was driven by a greater concentration of private pension contributions during the period.

Disregarding the DPVAT agreement, an increase of 23.7% was recorded when compared to the fourth quarter of 2013, resulting from increased production of more than two digits across all segments.

Disregarding the DPVAT agreement, production increased by 13.9% in 2014 when compared to the same period of the previous year, driven by Auto/RE, Health, Capitalization and Life and Pension Plans products, which grew 28.0%, 22.5%, 15.2% and 7.0%, respectively.

Net income for the fourth quarter of 2014 was 16.8% higher compared to the previous quarter, primarily due to: (i) an increase in revenue; (ii) a 1.8 p.p. drop in claims ratio; (iii) a stable sales ratio; (iv) improvement in the administrative efficiency ratio; and (v) growth in the financial and equity income.

Net income for the fourth quarter of 2014 was 23.5% higher compared to the same period in the previous year, primarily due to: (i) an increase in revenue; (ii) a reduction in claims and sales ratio; (iii) improvement in the administrative efficiency ratio; and (iv) growth in the financial and equity income.

Net income for 2014 was 17.8% higher compared to the same period in the previous year, due to: (i) an increase in revenue; (ii) stable claims and sales ratio; (iii) improvement in the administrative efficiency ratio; and (iv) growth in the financial and equity income.

According to Resolution CNSP N^o302/13, corporations should have adjusted shareholder’s equity (ASE) equal to or higher than the minimum capital required (MCR). MCR is equivalent to the largest value between the base capital and risk capital. Until the National Council of Private Insurance (CNSP) regulates the market-risk additional capital, the Company is calculating the venture capital based on underwriting, credit and operating risks. For companies regulated by the ANS, Normative Resolution N^o209/09 establishes that corporations should have adjusted shareholder’s equity (ASE) equal to or higher than the Solvency Margin.

The capital adjustment and management process is continuously monitored, and aims to ensure that Grupo Bradesco Seguros keeps a solid capital base to support the development of activities and cope with the risks in any market situation, in compliance with regulatory requirements and/or Corporate Governance principles. Companies must permanently maintain a capital compatible with the risks for their activities and transactions, according to the characteristics and peculiarities of each company belonging to Grupo Bradesco Seguros, represented by adequate capital levels. Grupo Bradesco Seguros permanently observes the limits required by the respective regulatory entities. The Minimum Capital Required on December 31, 2014 was R$ 7.343 billion (November 2014).

In the fourth quarter of 2014, provision of services income totaled R$ 5,839 million, for a growth of R$ 200 million, or 3.5%, over the previous quarter, primarily due to increased business volume, led by the performance of cards and checking account income. 

In the year-over-year comparison, the increase of R$ 2,303 million, or 11.6%, was primarily due to: (i) increase in the volume of operations, which are resulting from continuous investments in technology and service channels; and (ii) progress in the customer segmentation process, allowing a more adequate offer of products and services. It must be noted that the incomes that have most contributed to this result derived from: (i) the good performance of the cards activity, result of (a) increased revenue; (b) increased credit and debit cards base; and (c) the greater volume of transactions made; (ii) the growth of checking account incomes, due primarily to increase in business; (iii) greater loan operations income, resulting from an increase in the volume of operations and sureties and guarantees in the period; and increase in income from: (iv) consortium management; (iv) fund management; and (vi) collection.

In the fourth quarter of 2014, the increase of R$ 112 million, or 3.1%, from the previous quarter is a result of variations in:

·         structural expenses – an increase of R$ 52 million arising from higher expenses with proceeds, social security contributions and benefits, due to an increase in wages, in accordance with the 2014 collective bargaining agreement; and

·         non-structural expenses – an increase of R$ 60 million, primarily due to greater expenses with: (i) provision for labor claims; and (ii) cost of terminations and charges.

In the year-over-year comparison, the increase of R$ 906 million, or 6.9%, was primarily due to:

·         the growth of R$ 710 million of the “structural” portion, related to higher expenses with payroll, social charges and benefits, affected by increased wage levels, in accordance with 2013 and 2014 collective agreements (readjustments of 8.0% and 8.5%, respectively); and

·       in the “non-structural portion”, the reduction of R$ 196 million, which resulted mainly from higher expenses with: (i) profit and income sharing of managers and employees; and (ii) termination and charges costs.

In the year-over-year comparison, the increase of 2.3% was primarily due to a consistent cost control, despite increasing expenses with: (i) growth in turnover and services in the period; (ii) contractual adjustments; and (iii) expansion of 2,440 Service Points in the period, bringing the total number of Service Points to 75,176 on December 31, 2014. We should note the performance of inflation indexes over the past 12 months: the IPCA and IGP-M were up 6.4% and 3.7%, respectively.

Quarter-over-quarter, the 14.6% increase was primarily due to: (i) the seasonal effect of higher advertising expenses, due to the investments made to support institutional positioning and product offering actions; and (ii) the increase in turnover and services concentrated in the period, which in turn resulted in greater expenses with: (a) third-party services; (b) maintenance and conservation of assets; and (c) data processing.

Expenses with income tax and social contribution were up 11.2% and 31.8% in the quarterly and annual comparison, respectively; these variations resulted from higher taxable income.

Unrealized gains totaled R$ 19,343 million in the fourth quarter of 2014, a R$ 345 million increase from the previous quarter. Such variation is mainly due to: (i) the appreciation of investments, mainly Cielo shares, which increased by 4.2% in the quarter;partially offset by (ii) the devaluation of fixed income securities.

The implementation of the new capital structure in Brazil began in October 2013. Through the CMN Resolution N^o4192/13, Bacen provided a new methodology to assess Capital, replacing CMN Resolution N^o3444/07.

In December 2014, Capital stood at R$ 98,605 million, against risk-weighted assets totaling R$ 597,213 million. The Capital Adequacy Ratio recorded an increase of 0.2 p.p. compared to the previous quarter, rising from 16.3% in December 2014 to 16.5% in December 2014, primarily due to: (i) the increase in Shareholders’ Equity, resulting from improved results for the quarter; and (ii) the effect of reallocation of funds from the Insurance Group, which had a positive impacted on prudential adjustments; partially offset by: (iii) the increase in risk-weighted assets, caused by the expansion of the loan portfolio.

We include a Capital Adequacy Ratio simulation, considering the opening of some of the main future adjustments, which include: (i) the application of 100% of the deductions provided in the implementation schedule; (ii) the reallocation of resources on behalf of our Insurance Group; and (iii) the realization of tax credits arising from tax losses until December 2018, for a rate of 12.4% of common equity, which, added to funding obtained via subordinated debt, may amount to an approximate Tier I ratio of 13.9 %.

Banco Bradesco has developed a measurement methodology, and structured processes for the implementation of buffer capital, so that it can maintain enough capital available to cope with the risks incurred.

The Governance structure responsible for the evaluations and approvals of buffer capital is composed of a Committee subordinated to the Board of Directors, and Committees that report to the Board of Executive Officers.

This structure decided to maintain a minimum buffer capital of 27%, considering the minimum regulatory capital requirement of 11%.

Considering the minimum required Common Equity of 11% according to the full interpretation of Capital Adequacy Ratio rules, profitability would be 24.2%.

The fourth quarter was characterized by increased financial volatility at the international level. Uncertainty regarding the global economy’s pace of recovery was compounded by a significant drop in commodity prices, especially oil. With the exception of the U.S., there was a downward revision of growth projections for major regions of the globe. The slowing growth of the Chinese economy is in progress, while persistently low inflation in the Euro area continue to frustrate the economic recovery of those countries. At the same time, the drop in oil prices, which began mid-year, has gained new momentum with the OPEC member countries’ decision not to reduce their production.  

However, so far the more adverse global scenario has not been enough to interrupt the recovery of U.S. growth. In this context, the Federal Reserve ended its program of asset purchase and signaling that the monetary normalization process can begin in the second half of 2015. Unlike the U.S., Euro area economies and Japan have faced increased difficulty in resuming sustained growth rates. With that, the Central Bank of Japan and the European Central Bank have been compelled to intensify the adoption of monetary stimulus measures.

The loss of exchange terms due to the dropping prices of commodities on a world level, and the trend of international appreciation of the dollar create challenges to emerging nations’ management of economic policy. On the other hand, this very same global scenario also creates some valuable opportunities for countries that adopt effective economic and institutional differentiation measures.

Under this context, it becomes increasingly imperative that Brazil strengthens its commitment to sustainable economic policies. Efforts in this direction represent a requirement for the maintenance of the macroeconomic predictability and income gains, in addition to raising the confidence level of economic agents. 

Indicators for domestic economic activities have been modest, further highlighting the relevance of structural initiatives aimed at promoting future growth. The constant search for excellence in education is Brazil’s front line in its battle to become more competitive and to expedite its efforts to upgrade infrastructure. It is always important to remind that, in the long term, the main source of economic growth is productivity, which becomes an even more relevant topic within a global context characterized by high levels of efficiency.

Productive investments tend to play an increasingly relevant role in the composition of growth over the next few years, which should be favored by the increased share of the capital market in funding of infrastructure projects. At the same time, despite the shift in consumer market expansion levels in some segments, the potential of domestic demand for goods and services has yet to be depleted, and there is still much room for growth. Income gains, employment formalization, diversification of consumption habits and social mobility are still key influential factors.

Bradesco maintains a positive outlook towards Brazil, with favorable perspectives for its operating segments. Credit volume is growing at sustainable and risk-compatible rates, whereas delinquency rates are stabilized at historically low and controlled levels. The scenario is still very promising for the Brazilian banking and insurance sectors.