The main figures obtained by Bradesco in 2013 are presented below:

1.   Adjusted Net Income⁽¹⁾ for 2013 stood at R$12.202 billion (a 5.9% increase compared to the R$11.523 billion recorded in the same period last year), corresponding to earnings per share of R$2.91 and Return on Average Adjusted Shareholders’ Equity⁽²⁾ of 18.0%.

2.   Adjusted Net Income is composed of R$8.462 billion from financial activities, representing 69.3% of the total, and R$3.740 billion from insurance, pension plan and capitalization bond operations, which accounted for 30.7%.

3.     On December 31, 2013, Bradesco’s market capitalization stood atR$128.085 billion⁽³⁾. As of May 2013, Bradesco common shares compose the Ibovespa index. 

4.   Total Assets stood at R$908.139 billion in December 2013, a 3.3% increase over the same period in 2012. Return on Total Average Assets was 1.4%.

5.   The Expanded Loan Portfolio⁽⁴⁾ stood at R$427.273 billion in December 2013, up 10.8% during the same period in 2012. Operations with individuals totaled  R$130.750 billion (up 11.2% on December 2012), while operations with companies totaled R$296.523 billion (up 10.6% on December 2012). 

6.   Assets under Management stood at R$1.260 trillion, a 2.8% increase from December 2012. 

7.   Shareholders’ Equity stood at R$70.940 billion in December 2013, up 1.3% on December 2012. Capital Adequacy Ratio (Basel III) stood at 16.6% in December 2013, 12.3% of which fell under Tier I Capital.

8.  Interest on Shareholders’ Equity and Dividends were paid and recorded in provision to shareholders totaling R$4.078 billion on income for 2013, R$1.803 billion of which was paid as monthly and interim interest and R$2.275 billion was recorded in provision.

9.     Interest Financial Margin stood at R$42.686 billion, up 1.6% in comparison with 2012. 

10.   The Delinquency Ratio over 90 days dropped 0.6 p.p. in the last 12 months and stood at 3.5% on December 31, 2013 (4.1% on December 31, 2012).

11.   The Efficiency Ratio⁽⁵⁾ in December 2013 stood at 42.1% (41.5% in December 2012), whereas the “adjusted to risk” ratio stood at 52.1%, (52.7% in December 2012). 

12.   Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income totaled R$49.752 billion in 2013, up 12.3% over 2012. Technical Reserves stood at R$136.229 billion, up 9.7% on December 2012. 

13.   Investments in infrastructure, information technology and telecommunications amounted to R$4.842 billion in 2013, up 9.8% over the same period last year.

14.   Taxes and contributions, including social security, paid or recorded in provision, amounted to R$21.758 billion, of which R$9.902 billion referred to taxes withheld and collected from third parties and R$11.856 billion from Bradesco Organization activities, equivalent  to 97.2% of Adjusted Net Income⁽¹⁾.

15.   Bradesco has an extensive customer service network in Brazil, with 4,674 Branches and 3,586 Service Branches - PAs. Customers can also use 1,180 PAEs – ATMs (Automatic Teller Machines) in companies, 46,851 Bradesco Expresso service points, 33,464 Bradesco Dia & NoiteATMs and 14,739 Banco24Horas ATMs.

16.   Payroll, plus charges and benefits, totaledR$11.013 billion. Social benefits provided to the 100,489 employees of the Bradesco Organization and their dependents amounted to R$2.702 billion, while investments in training and development programs totaled R$126.836 million.

17.   For the ninth consecutive year, Bradesco was selected to compose the Corporate Sustainability Index (ISE) of BM&FBovespa – Securities, Commodities and Futures Exchange, which reflects the returns of a share portfolio comprising those companies with the best performance in all aspects of corporate sustainability.

18.   Major Awards and Acknowledgments in the period:

·       Bradesco was considered the best bank in Latin America, ranking first among the 25 best banks in Latin America (AmericaEconomia  magazine);

·       Bradesco was considered the largest private group in Brazil according to the Valor Grandes Grupos ranking, which ranks the country’s 200 largest groups (Valor Econômico newspaper);

·       Bradesco was recognized as the best Bank in Brazil (Best Developed and Emerging Markets Banks 2013 – Global Finance Magazine);

·       Bradesco was considered the best bank in the 8^th Best Companies for Shareholders Award (Capital Aberto magazine / Stern Stewart do Brasil Advisory Services);

·       Bradesco was leader of the Top MVP ranking as the company that most produces value from interaction with its stakeholders (Dom Strategy Partners Advisory Services);

·       Winner of the Value Creation Award, promoted by Abrasca, aiming at stimulating good corporate governance practices;

·       Winner of the first edition (2013) of the Top Case Award, in the Top Case Highlight category (Case Studies – Insight Communication magazine);

·       Bradesco was considered the best bank in people management, according to The Best in People Management survey (Valor Carreira/Valor Econômico newspaper, with technical support of Aon Hewitt); and

·       Grupo Bradesco Seguros was granted the Most Admired Companies in Brazil Award in the Corporate Healthcare Plan and Social Security categories (Carta Capital magazine).

With regards to sustainability, Bradesco divides its actions into three pillars: (i) Sustainable Finances, focused on banking inclusion, social and environmental variables for loan approvals and product offerings; (ii) Responsible Management, focused on valuing professionals, improving the workplace and adopting eco-efficient practices; and (iii) Social and Environmental Investments, focused on education, the environment, culture and sports. In this area, we point out Fundação Bradesco, which has a 57-year history of extensive social and educational work, with 40 schools in Brazil. In 2013, a budget of R$456.966 million benefited 101,781 students in its schools, in Basic Education (from Kindergarten to High School and Vocational Training - High School Level), Education for Youth and Adults; and Preliminary and Continuing Qualification focused on the creation of jobs and generation of income.

During the quarter, certain non-recurring events were recorded in our financial statements. Thus, to provide for better understanding and analysis of our performance, we adjusted our Book Net Income by excluding these events, composing our so-called Adjusted Net Income.

In October 2013, Law 12865/13 set forth the tax liability installment and cash payment program – Refis. Bradesco made a detailed evaluation of Organization’s tax claims and contingencies and, in November 2013, resolved to adhere to the program, basically for those claims challenging the mandatory payment of contribution for the Social Integration Program (PIS) and the Contribution for Social Security Financing (Cofins), referred to in Chapter I of Law 9718/98 levied on financial income generated by Organization’s financial institutions which had obtained writ of mandamus that suspended these payments. This adhesion resulted in a reversal of provision, net of tax effects, amounting to R$1,950 million. The proceedings involving other Organization companies that reclaim these payments or have escrow deposits are still under litigation.

Tax credits deriving from the investment acquisition operation were also recorded, amounting to R$462 million, given that they already comply with regulatory aspects and have effective perspectives of realization, in accordance with studies and analyses prepared by Management.

Also, in compliance with Susep Circular Letter 462/13, the Insurance Group began to adopt the risk-free yield curve (ETTJ) as discount rate of actuarial liability flow, which resulted in a net reversal of part of the technical reserves, totaling R$2,572 million. In the same period, we traded NTNs, given as collateral for technical reserves, in order to adjust  these securities at market prices, in line with the new liability rates (for more information, refer to Note 21b on page 198).

To provide for better understanding, comparison and analysis of Bradesco’s results, we use the Adjusted Income Statement for analysis and comments contained in this Report on Economic and Financial Analysis, 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.

In the fourth quarter of 2013, Bradesco posted adjusted net income of R$3,199 million, up 3.8%, or R$117 million over the previous quarter, mainly due to: (i) greater financial margin revenue, resulting from the increase in interest and non-interest revenues; (ii) improvement in fee and commission income, due to greater business volume; (iii) higher insurance, pension plan and capitalization bond operating income; and partially impacted by: (iv) higher tax expenses; and (v) higher personnel and administrative expenses.  

In the year-over-year comparison, adjusted net income increased by 5.9% or R$679 million in 2013, for Return on Adjusted Average Shareholders’ Equity (ROAE) of 18.0%.

Shareholders’ Equity stood at R$70,940 million in December 2013, up 1.3% over 2012. The Capital Adequacy Ratio (Basel III) stood at 16.6%, 12.3% of which fell under Tier I Capital.  

Total Assets came to R$908,139 million in December 2013, up 3.3% over December 2012, driven by the increase in operations and greater business volume. Return on Average Assets (ROAA) came to 1.4%.

The “adjusted to risk” ER, which reflects the impact of risk associated with loan operations⁽¹⁾, totaled 52.1% in the fourth quarter of 2013, improving by 0.4 p.p. and 0.6 p.p. over the third quarter of 2013 and the same period in 2012, respectively, mainly due to the decrease of allowance for loan loss expenses in the last 12 months, due to the decrease in delinquency ratio level in the same period.

The decrease of the quarterly ER from the third quarter of 2013 was mainly due to better fee and commission income and financial margin, both increasing by 5.0%. In the year-over-year comparison, this indicator remained stable, proving the rigorous control of our operating expenses, despite the organic growth in the period.

ER in the last 12 months⁽²⁾remained stable at 42.1% in relation to the previous quarter and increased by 0.6 p.p. over the same period in the previous year, mainly due to: (i) the reduction in non-interest financial margin; and (ii) the impact of the 2012 and 2013 collective bargaining agreements.

The R$535 million increase quarter over quarter was mainly due to: (i) higher interest margin, totaling R$364 million, due to better Insurance and Funding margins; and (ii) higher non-interest margin, totaling R$171 million, basically as a result of higher gains from Insurance margin.

In the year-over-year comparison, financial margin came to R$43,286 million, a R$507 million decrease from 2012, due to: (i) lower result from the non-interest margin, in the amount of R$1,172 million, due to lower gains from the market arbitrage, and offset by:
(ii) the R$665 million increase in income from interest-earning operations due to an increase in business volume, led by Loan and Funding.

In December 2013, Bradesco’s expanded loan portfolio totaled R$427.3 billion, a 3.6% increase over the previous quarter due to: (i) the 4.3% growth in Corporations; (ii) the 3.3% growth in SMEs; and (iii) the 2.9% growth in Individuals.

In the last 12 months, this expanded loan portfolio increased 10.8%, driven by: (i) the 11.5% growth in SMEs; (ii) the 11.2% growth in Individuals; and (iii) the 10.0% growth in Corporations.   

To the Corporate segment, the products that posted the strongest growth in the last 12 months were: (i) export financing; and (ii) real estate financing – corporate plan. To the Individuals segment, the main highlights were: (i) real estate financing; and (ii) payroll-deductible loans.

In the fourth quarter of 2013, ALL expenses totaled R$2,961 million, a 2.8% variation from the previous quarter, but lower than the 3.7% growth in the loan portfolio – as defined by Bacen in the quarter. This result was due to the reduction in delinquency level, thanks to the adaptation and consistency of loan granting policy and processes, quality of guarantees obtained, as well as the loan recovery process improvement.

In the year-over-year comparison, this expense reduced by 7.4%, even considering the 11.0% increase in loan operations – as defined by Bacen, resulting from the reduced delinquency level in the last 12 months.

Total delinquency ratio, comprising the transactions overdue over 90 days, had a decrease in the quarter and in the last twelve months, thanks basically to: (i) the investment in the ongoing improvement in loan assignment models; (ii) the growth of payroll-deductible loan and real estate financing products, which

impacted the portfolio mix; and (iii) the improvement in internal models of loan risk monitoring. The drop among individual customers and SMEs was also a reason for the reduction. The higher delinquency ratio among Corporations was due to specific cases and does not represent a trend.

Bradesco monitors its loan portfolio and its risk using, internally, the expanded portfolio concept.

In addition to the allowance for loan losses (ALL), required by Bacen, Bradesco has an excess ALL to provide for possible stress situations, as well as other transactions/commitments bearing loan risks.

The following graph shows the changes in coverage ratio of ALL compared to loans overdue over between 60 and 90 days. In December 2013, these ratios stood at 158.9% and 192.3%, respectively.

Net income for the fourth quarter of 2013 stood at R$1.001 billion (R$878 million in the third quarter of 2013), up 14.0% over the previous quarter, for annualized Return on Adjusted Shareholders’ Equity of 27.3%.

In 2013, Net Income came to R$3.740 billion, up 4.3% from Net Income posted in 2012 (R$3.587 billion), for a return on Adjusted Shareholders’ Equity of 23.2%.

Non-recurring events in the fourth quarter of 2013:

(i) Financial Assets – financial available-for-sale assets amounting to R$6.9 billion were traded this quarter, and a loss of approximately R$1.4 billion (net of taxes) on these assets was recorded in income statement upon trading. However, fixed-income securities were acquired, with interest rates that reflect Brazil’s current economic scenario.

In addition, Management resolved to reclassify available-for-sale securities totaling R$19.1 billion to held-to-maturity securities, whose average maturity is scheduled to 2037.

(ii) Technical Reserves – in compliance with Susep Circular Letter 462/13, the Insurance Group adopted the risk-free yield curve (ETTJ) as discount rate of actuarial liability flow. The use of this rate, established by the Regulatory Agency, resulted in the reduction in technical reserves and, consequently, the recognition of approximately R$1.4 billion (net of taxes) in income statement.

The net effect of the matters above did not have significant impact on the fourth quarter 2013 results and are part of a more efficient ALM (Asset Liability Management) operation.

In the fourth quarter of 2013, total revenue increased by 30.9% over the previous quarter, led by the Life and Pension Plan segment, which was boosted by the greater concentration of pension plan contributions in the period.

Net income for the fourth quarter of 2013 was 14.0% higher than the previous quarter, mainly due to: (i) the 30.9% increase in revenue; (ii) the 1.6 p.p. decrease in claims ratio; (iii) the improved financial and equity income; and (iv) the increase in the administrative efficiency ratio.

In 2013, production was up 12.3% from the same period in 2012, led by Health, Capitalization Bond and Life and Pension Plan products, which increased 21.8%, 21.0% and 7.7%, respectively.

Net income for 2013 exceeded by 4.3% that of the previous year, due to: (i) a 12.3% increase in revenue; (ii) the improved financial and equity income; and (iii) the stability of administrative efficiency and claims ratios.

Grupo Bradesco Seguros’ capital levels are in compliance with the regulatory requirements and the global standards (Solvency II), with a leverage of 2.9 times its Shareholders’ Equity in the period.

In the fourth quarter of 2013, fee and commission income came to R$5,227 million, up R$250 million over the previous quarter, mainly due to the increase in business volume, led by the excellent performance of cards and underwriting / financial advisory revenues in this quarter. Other revenues that also contributed to this result were mainly due to: (i) loan operations; (ii) checking accounts; and (iii) consortia management.

In the year-over-year comparison, the increase of R$2,274 million, or 13.0%, in 2013 was due to ongoing investments in customer service channels and technology, which mainly resulted in: (i) the excellent performance of the credit card segment, driven by the growth in revenue and transactions; (ii) higher income from checking accounts, which was a result of a better business volume and an increase in the checking account holder base, which posted net growth of 707 thousand active accounts in the period; (iii) higher income from loan operations, due to greater volume of contracted operations and sureties and guarantees in the period; (iv) greater income from collections; (v) greater income from fund management, whose average volume of assets and portfolios under management increased by 8.3% in the period; and (vi) greater income from consortia management.

In 2013, administrative expenses increased 2.5% over 2012, mainly due to the strong cost control conducted by our Efficiency Committee. Note that this slight increase was a result of: (i) the opening of 3,819 service points in the period, for a total of 72,736 service points on December 31, 2013; (ii) the increase in business and service volume in the period; (iii) contractual adjustments; in addition to (iv) the IPCA and IGP-M inflation rates of the last 12 months, which came to 5.9% and 5.5% respectively.

In the fourth quarter of 2013, the 6.0% increase in administrative expenses over the previous quarter was mainly due to (i) the greater business and service volume recorded in the last quarter which, consequently, increased expenses; and (ii) the seasonal effect of greater advertising and publicity expenses, due to extra investments in initiatives regarding institutional maintenance and positioning and support of loan product offer this period of the year.

Other operating expenses, net of other operating income, totaled R$1,232 million in the fourth quarter of 2013, a R$38 million increase over the previous quarter, mainly due to greater expenses with civil contingencies in the period.

Year over year, other operating expenses, net of other operating income, increased by R$529 million in 2013, mainly as a result of greater expenses with: (i) operating provisions, particularly those for civil contingencies; and (ii) amortization of intangible assets.

Income tax and social contribution increased 3.5% in comparison with the previous quarter and 9.4% year over year, mainly due to the increase in taxable income.

The income tax and social contribution rate in the fourth quarter of 2013 was 34.5%, remaining stable when compared to the previous quarter.

Unrealized gains totaled R$13,868 million in the fourth quarter of 2013, a R$3,833 million increase from the previous quarter. This was mainly due to: (i) the effect of the adjustment of fixed-income security rates to market value; and (ii) the appreciation of investments, mainly Cielo shares, which valued by 9.5% in the quarter.

The persistent signs of economic recovery in recent months and the fact that the U.S. has begun reducing its monetary stimuli, have reinforced the upward tendency of long-term interest rates and the appreciation of the dollar in the coming quarters. Even though the financial markets are not expected to react as they did in May and June of last year, when these tendencies were created, the scenario does impose important short-term challenges, especially for emerging economies with weaker fundamentals.

In the fourth quarter of 2013, concerns related to growth in Europe and China were reduced, but fiscal adjustments and structural reforms, respectively, limited the space for a more substantial recovery in both regions.

Despite the expected acceleration of global economic activity, the risk of deflation is still present, which should ensure that the normalization of monetary policy in the developed countries takes place more gradually. In fact, commodity prices are likely to fall, reflecting macroeconomic factors, such as the strengthening of the U.S. dollar, as well as specific indicators, especially the strong expansion of supply in certain segments. However, the performances of the various commodity markets are likely to vary greatly among themselves.

Brazil’s economy should benefit from the acceleration of global growth in 2014; it is also better prepared than before to face the U.S. monetary policy’s current transition phase and the resulting challenges to domestic economic policy management. This view, supported by improved macroeconomic fundamentals and the institutional advances recorded in the last few years, is given added strength by the level of foreign reserves, which provide insurance to be resorted to if necessary.

The recovery of economic activity in the last few months has been chiefly fueled by investments in production, which will tend to increase further as a result of the recent public concessions program. This program, together with the major sporting events scheduled in 2014 and 2016, represents a unique opportunity for Brazil to improve its infrastructure, which is absolutely essential in order to enhance perception of the economy’s growth potential. 

Despite the risks to the scenario and the challenges faced by the Brazilian economy in the pursuit of higher sustainable growth in the near future, Bradesco is maintaining a positive outlook, with favorable prospects in its operational segments.

The volume of credit is growing at rates that are both sustainable and risk-compatible, while delinquency has been showing signs of a decline. Thanks to the intense and ongoing upward social mobility of recent years, the scenario for the banking and insurance sectors remains highly favorable.