BANCO BRADESCO S.A. Consolidated Financial Statement of the Prudential Conglomerate
Statement of Financial Position
| R$ thousand | |||
| Note | On June 30, 2021 | On December 31, 2020 | |
| Assets | |||
| Cash and due from banks | 5 | 24,192,876 | 22,978,342 |
| Financial instruments | 1,212,888,753 | 1,182,097,164 | |
| - Interbank investments | 6 | 116,576,082 | 190,604,202 |
| - Compulsory deposits with the Brazilian Central Bank | 7 | 85,377,496 | 83,757,533 |
| - Securities | 8 | 379,045,089 | 328,704,315 |
| - Derivative financial instruments | 9 | 29,747,639 | 23,905,679 |
| - Loans | 10 | 465,546,707 | 445,665,923 |
| - Other financial instruments | 11 | 136,595,740 | 109,459,512 |
| Leases | 10 | 2,742,488 | 2,646,438 |
| Expected credit loss associated with credit risk | 10 | (44,264,515) | (45,199,423) |
| - Loans | (41,352,780) | (42,233,636) | |
| - Leases | (61,280) | (70,468) | |
| - Other receivables | (2,850,455) | (2,895,319) | |
| Deferred tax assets | 36 | 80,991,346 | 82,102,508 |
| Investments in associates and jointly controlled entities | 12 | 53,370,882 | 54,216,070 |
| Premises and equipment, net | 13 | 11,031,793 | 11,297,277 |
| Intangible assets | 14 | 31,642,774 | 30,725,354 |
| Accumulated depreciation and amortization | (29,149,092) | (27,189,565) | |
| - Premises and equipment | 13 | (6,441,419) | (6,444,355) |
| - Intangible assets | 14 | (22,707,673) | (20,745,210) |
| Other assets | 15 | 32,520,375 | 32,246,419 |
| Accumulated Impairment of Assets | (3,193,448) | (3,385,680) | |
| Total assets | 1,372,774,232 | 1,342,534,904 |
The accompanying Notes are an integral part of these Financial Statements.
| 3 |
Consolidated Financial Statement of the Prudential Conglomerate
Statement of Financial Position
| R$ thousand | |||
| Note | On June 30, 2021 | On December 31, 2020 | |
| Liabilities | - | ||
| Deposits and other financial liabilities | 1,156,689,690 | 1,138,080,543 | |
| - Deposits from banks | 16 | 315,905,917 | 297,754,653 |
| - Deposits from customers | 17 | 545,993,097 | 548,238,035 |
| - Securities issued | 18 | 143,653,201 | 153,764,739 |
| - Subordinated debts | 19 | 47,570,546 | 53,255,401 |
| - Derivative financial instruments | 9 | 21,230,748 | 17,816,827 |
| - Other financial liabilities | 20 | 82,336,181 | 67,250,888 |
| Provisions | 21 | 29,021,988 | 30,265,510 |
| - Other reserves | 29,021,988 | 30,265,510 | |
| Deferred income tax assets | 36 | 5,185,633 | 4,144,164 |
| Other liabilities | 23 | 35,370,089 | 26,337,090 |
| Total liabilities | 1,226,267,400 | 1,198,827,307 | |
| Shareholders' equity | 24 | - | |
| Capital | 83,100,000 | 79,100,000 | |
| Treasury shares | (226,449) | (440,514) | |
| Capital reserves | 11,441 | 11,441 | |
| Profit reserves | 61,100,338 | 59,405,815 | |
| Other comprehensive income | 2,502,827 | 5,625,898 | |
| Equity attributable to controlling shareholders | 146,488,157 | 143,702,640 | |
| Non-controlling shareholders | 25 | 18,675 | 4,957 |
| Total equity | 146,506,832 | 143,707,597 | |
| Total equity and liabilities | 1,372,774,232 | 1,342,534,904 |
The accompanying Notes are an integral part of these Financial Statements.
| 4 |
Consolidated Financial Statement of the Prudential Conglomerate
Income Statement
| Note | R$ thousand | ||
| Six months ended on June 30 | |||
| 2021 | 2020 | ||
| Revenue from financial intermediation | 47,605,999 | 38,547,089 | |
| - Loans | 10 | 35,863,840 | 37,359,319 |
| - Leases | 10 | 99,966 | 87,554 |
| - Net gain or (loss) with Securities | 9 | 12,157,827 | 16,053,455 |
| - Net gain or (loss) from derivative financial instruments | 9 | 529,806 | (19,951,597) |
| - Net gain or (loss) with Foreign exchange income | 11 | (487,745) | 4,493,107 |
| - Net gain or (loss) with Reserve requirement | 7 | 937,998 | 1,278,272 |
| - Sale or transfer of financial assets | (1,495,693) | (773,021) | |
| Expenses from financial intermediation | (12,284,308) | (48,741,796) | |
| - Open market funding | 19 | (12,880,961) | (16,166,951) |
| - Borrowing and on-lending | 15 | 596,653 | (32,574,845) |
| Net revenue from financial intermediation | 35,321,691 | (10,194,707) | |
| Expected Credit Loss Associated with Credit Risk expense | 10 | (7,458,275) | (15,549,313) |
| - Loans | (7,276,460) | (15,728,614) | |
| - Leases | 8,017 | 47,709 | |
| - Other receivables | (189,832) | 131,592 | |
| Gross income from financial intermediation | 27,863,416 | (25,744,020) | |
| Net other operating income (expenses) | (10,827,822) | 14,281,233 | |
| - Fee and commission income | 26 | 9,367,516 | 8,819,426 |
| - Income from banking fees | 26 | 3,965,817 | 4,070,835 |
| - Personnel expenses | 27 | (8,756,831) | (8,685,451) |
| - Other administrative expenses | 28 | (10,452,287) | (10,519,421) |
| - Tax expenses | 29 | (3,000,523) | (1,773,647) |
| Result of Investments in Subsidiaries/Associates and Jointly Controlled Companies | 12 | 1,670,566 | 26,625,312 |
| - Other operating income | 30 | 3,098,486 | 2,672,100 |
| - Other operating expenses | 31 | (5,926,866) | (6,212,668) |
| - Provision (expenses)/reversals | 22 | (793,700) | (715,253) |
| - Labor | (426,371) | (289,676) | |
| - Tax | 309,893 | (7,262) | |
| - Civil | (572,340) | (75,163) | |
| - Others | (104,882) | (343,152) | |
| Operating profit/(loss) | 17,035,594 | (11,462,787) | |
| Non-operating income/(expense) | 32 | (92,877) | (33,718) |
| Income/(loss) before income taxes and non-controlling interests | 16,942,717 | (11,496,505) | |
| Income taxes | 36 | (4,803,498) | 18,392,255 |
| Non-controlling interests in subsidiaries | (12,157) | (7,609) | |
| Net income | 12,127,062 | 6,888,141 | |
| Net income attributable to shareholders: | |||
| Controlling shareholders | 12,127,062 | 6,888,141 | |
| Non-controlling shareholders | 12,157 | 7,609 | |
| Basic and diluted earnings per share based on the weighted average number of shares (expressed in R$ per share): | |||
| - Earnings per common share | 24 | 1.19 | 0.68 |
| - Earnings per preferred share | 24 | 1.31 | 0.74 |
The accompanying Notes are an integral part of these Financial Statements.
| 5 |
Consolidated Financial Statement of the Prudential Conglomerate
Changes in Shareholders' Equity
| Events | R$ thousand | |||||||
| Capital | Capital reserves | Profit reserves | Other comprehensive income | Treasury shares | Retained earnings | Total | ||
| Share premium | Legal | Statutory | ||||||
| Balance on December 31, 2019 | 75,100,000 | 11,441 | 9,623,394 | 42,783,815 | 6,645,085 | (440,514) | - | 133,723,221 |
| Capital increase with reserves | 4,000,000 | - | - | (4,000,000) | - | - | - | - |
| Asset valuation adjustments (1) | - | - | - | - | (3,168,156) | - | - | (3,168,156) |
| Net income | - | - | - | - | - | - | 6,888,141 | 6,888,141 |
| Allocations: | ||||||||
| - Reserves | - | - | 344,407 | 4,234,180 | - | - | (4,578,587) | - |
| - Interest on Shareholders' Equity Paid and/or provisioned | - | - | - | - | - | - | (2,309,554) | (2,309,554) |
| Balance on June 30, 2020 | 79,100,000 | 11,441 | 9,967,801 | 43,017,995 | 3,476,929 | (440,514) | - | 135,133,652 |
| Balance on December 31, 2020 | 79,100,000 | 11,441 | 10,450,722 | 48,955,093 | 5,625,898 | (440,514) | - | 143,702,640 |
| Capital increase with reserves | 4,000,000 | - | - | (4,000,000) | - | - | - | - |
| Cancellation of Treasury Shares | - | - | - | (440,514) | - | 440,514 | - | - |
| Acquisition of treasury shares | - | - | - | - | - | (226,449) | - | (226,449) |
| Asset valuation adjustments (1) | - | - | - | - | (3,123,071) | - | - | (3,123,071) |
| Net income | - | - | - | - | - | - | 12,127,062 | 12,127,062 |
| Allocations: | - | - | - | - | - | - | ||
| - Reserves | - | - | 606,353 | 5,528,684 | - | - | (6,135,037) | - |
| - Interest on Shareholders' Equity Paid and/or provisioned | - | - | - | - | - | - | (5,992,025) | (5,992,025) |
| Balance on June 30, 2021 | 83,100,000 | 11,441 | 11,057,075 | 50,043,263 | 2,502,827 | (226,449) | - | 146,488,157 |
|
(1) Includes the effects of exchange rate variations related to the conversion of investments abroad. The accompanying Notes are an integral part of these Financial Statements. |
| 6 |
Consolidated Financial Statement of the Prudential Conglomerate
Statement of Added Value
| Description | R$ thousand | |||
| Six months ended on June 30 | ||||
| 2021 | % | 2020 | % | |
| 1 - Revenue | 49,766,100 | 166.5 | 31,598,498 | 14,617.8 |
| 1.1) Financial intermediation | 47,605,999 | 159.2 | 38,547,089 | 17,832.3 |
| 1.2) Fees and commissions | 13,333,333 | 44.6 | 12,890,261 | 5,963.2 |
| 1.3) Expected Credit Loss Associated with Credit Risk expense | (7,458,275) | (24.9) | (15,549,313) | (7,193.3) |
| 1.4) Other | (3,714,957) | (12.4) | (4,289,539) | (1,984.4) |
| 2 - Financial intermediation expenses | (12,284,308) | (41.1) | (48,741,796) | (22,548.5) |
| 3 - Inputs acquired from third parties | (6,597,032) | (22.1) | (6,856,668) | (3,172.0) |
| Outsourced services | (2,026,330) | (6.8) | (2,055,938) | (951.1) |
| Data processing | (1,205,223) | (4.0) | (1,113,812) | (515.3) |
| Communication | (614,605) | (2.1) | (640,639) | (296.4) |
| Asset maintenance | (606,884) | (2.0) | (603,414) | (279.1) |
| Financial system services | (512,088) | (1.7) | (503,549) | (232.9) |
| Advertising and marketing | (337,545) | (1.1) | (405,973) | (187.8) |
| Security and surveillance | (298,718) | (1.0) | (370,826) | (171.5) |
| Transport | (310,536) | (1.0) | (333,260) | (154.2) |
| Material, water, electricity and gas | (222,600) | (0.7) | (264,949) | (122.6) |
| Travel | (11,773) | - | (47,229) | (21.8) |
| Other | (450,730) | (1.5) | (517,079) | (239.2) |
| 4 - Gross added value (1-2-3) | 30,884,760 | 103.3 | (23,999,966) | (11,102.7) |
| 5 - Depreciation and amortization | (2,657,568) | (8.9) | (2,409,182) | (1,114.5) |
| 6 - Net added value produced by the entity (4-5) | 28,227,192 | 94.4 | (26,409,148) | (12,217.2) |
| 7 - Added value received through transfer | 1,670,566 | 5.6 | 26,625,312 | 12,317.2 |
| Share of profit of controlled/associates and jointly controlled companies | 1,670,566 | 5.6 | 26,625,312 | 12,317.2 |
| 8 - Added value to distribute (6+7) | 29,897,758 | 100.0 | 216,164 | 100.0 |
| 9 - Added value distributed | 29,897,758 | 100.0 | 216,164 | 100.0 |
| 9.1) Personnel | 7,692,805 | 25.7 | 7,571,420 | 3,502.6 |
| Salaries | 4,479,343 | 15.0 | 4,382,768 | 2,027.5 |
| Benefits | 2,018,738 | 6.8 | 2,120,998 | 981.2 |
| Government Severance Indemnity Fund for Employees (FGTS) | 366,821 | 1.2 | 384,687 | 178.0 |
| Other | 827,903 | 2.8 | 682,967 | 315.9 |
| 9.2) Tax, fees and contributions | 8,868,047 | 29.7 | (15,504,577) | (7,172.6) |
| Federal | 8,230,835 | 27.5 | (16,127,594) | (7,460.8) |
| State | 5,879 | - | 242 | 0.1 |
| Municipal | 631,333 | 2.1 | 622,775 | 288.1 |
| 9.3) Remuneration for providers of capital | 1,197,687 | 4.0 | 1,253,571 | 579.9 |
| Rental | 856,336 | 2.9 | 869,327 | 402.2 |
| Asset leases | 341,351 | 1.1 | 384,244 | 177.8 |
| 9.4) Added Value distributed to shareholders | 12,139,219 | 40.6 | 6,895,750 | 3,190.1 |
| Interest on Shareholders' Equity/Dividends paid and/or provisioned | 5,992,025 | 20.0 | 2,309,554 | 1,068.4 |
| Retained earnings | 6,135,037 | 20.5 | 4,578,587 | 2,118.1 |
| Non-controlling interests in retained earnings | 12,157 | - | 7,609 | 3.5 |
The accompanying Notes are an integral part of these Financial Statements.
| 7 |
Consolidated Financial Statement of the Prudential Conglomerate
Statement of Cash Flow
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Cash flow from operating activities: | ||
| Income/(Loss) before income taxes and non-controlling interests | 16,942,717 | (11,496,505) |
| Adjustments for: | 6,139,593 | (14,199,832) |
| - Effect of changes in exchange rates in cash and cash equivalents | 229,404 | (1,903,871) |
| - Allowance for loan losses | 7,458,275 | 15,549,313 |
| - Depreciation and amortization | 2,657,568 | 2,409,182 |
| - Constitution of Asset Impairment Losses | 232,665 | 59,502 |
| - Expenses with civil, labor and tax provisions | 1,293,278 | 1,274,174 |
| - Result of Investments in Subsidiaries/Associates and Jointly Controlled Companies | (1,670,566) | (26,625,312) |
| - Loss on sale of fixed assets | 28,208 | 14,021 |
| - (Gain)/Loss on Sale of Non-Financial Assets Held for Sale | (60,818) | 25,909 |
| - Foreign exchange variation of assets and liabilities overseas/Other | (4,028,421) | (5,002,750) |
| (Increase)/Decrease in interbank investments | (15,423,842) | (186,010) |
| (Increase)/Decrease in reserve requirement - Central Bank | (1,619,963) | 9,627,682 |
| (Increase)/Decrease in trading securities and derivative financial instruments | (9,332,188) | (2,179,790) |
| (Increase)/Decrease in loans and leases | (28,553,168) | (54,299,641) |
| (Increase)/Decrease in Deferred income tax assets | (1,175,879) | (1,362,142) |
| (Increase)/decrease in other assets | (266,885) | 384,136 |
| (Increase)/Decrease in Other financial instruments | (26,759,425) | 8,327,074 |
| Increase/(Decrease) in Deposits and other financial instruments | 30,991,618 | 154,196,995 |
| Increase/(Decrease) in Deferred income tax liabilities | (1,474,988) | (1,574,956) |
| Increase/(Decrease) in Provisions | (2,536,800) | (2,408,962) |
| Increase/(decrease) in other liabilities | 9,244,202 | 27,196,833 |
| Income tax and social contribution paid | (2,598,824) | (897,714) |
| Net cash provided by/(used in) operating activities | (26,423,832) | 111,127,168 |
| Cash flow from investing activities: | ||
| Maturity of and interest on held-to-maturity securities | 2,161,763 | 30,048,273 |
| Sale of/maturity of and interest on available-for-sale securities | 64,039,430 | 41,618,032 |
| Proceeds from Non-Financial Assets Held for Sale | 302,107 | 190,256 |
| Sale of investments | - | 1,956 |
| Sale of premises and equipment | 132,806 | 391,051 |
| Purchases of available-for-sale securities | (104,064,173) | (43,069,510) |
| Purchases of held-to-maturity securities | - | (18,491,475) |
| Purchase of premises and equipment | (523,795) | (832,298) |
| Intangible asset acquisitions | (1,206,378) | (969,452) |
| Dividends and interest on shareholders' equity received | 8,138 | 79,299 |
| Net cash provided by/(used in) investing activities | (39,150,102) | 8,966,132 |
| Cash flow from financing activities: | ||
| Securities issued | 41,056,607 | 39,068,011 |
| Settlement and interest payments of funds from issuance of securities | (53,125,105) | (59,347,299) |
| Subordinated debt issuance | 2,747,400 | - |
| Settlement and interest payments of subordinated debts | (8,951,289) | (1,099,682) |
| Interest on shareholders' equity paid | (3,936,815) | (715,628) |
| Non-controlling interest | 1,561 | (8,875) |
| Acquisition of treasury shares | (226,449) | - |
| Net cash provided by/(used in) financing activities | (22,434,090) | (22,103,473) |
| Net increase/(decrease) in cash and cash equivalents | (88,008,024) | 97,989,827 |
| Cash and cash equivalents - at the beginning of the period | 189,954,270 | 61,399,815 |
| Effect of changes in exchange rates in cash and cash equivalents | (229,404) | 1,903,871 |
| Cash and cash equivalents - at the end of the period | 101,716,842 | 161,293,513 |
| Net increase/(decrease) in cash and cash equivalents | (88,008,024) | 97,989,827 |
The accompanying Notes are an integral part of these Financial Statements.
| 8 |
Consolidated Financial Statement of the Prudential Conglomerate
Index of Notes
Notes to Financial Statements of the Prudential Conglomerate are as follows:
Page
| 1) | OPERATIONS | 10 |
| 2) | PRESENTATION OF THE FINANCIAL STATEMENTS | 10 |
| 3) | SIGNIFICANT ACCOUNTING PRACTICES | 12 |
| 4) | USE OF SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS | 20 |
| 5) | CASH AND CASH EQUIVALENTS | 22 |
| 6) | INTERBANK INVESTMENTS | 22 |
| 7) | COMPULSORY DEPOSITS WITH THE BRAZILIAN CENTRAL BANK | 23 |
| 8) | SECURITIES | 24 |
| 9) | DERIVATIVE FINANCIAL INSTRUMENTS | 28 |
| 10) | LOANS | 35 |
| 11) | OTHER FINANCIAL INSTRUMENTS | 45 |
| 12) | INVESTMENTS IN SUBSIDIARIES/ASSOCIATES AND JOINTLY CONTROLLED COMPANIES | 47 |
| 13) | PREMISES AND EQUIPMENT | 48 |
| 14) | INTANGIBLE ASSETS | 48 |
| 15) | OTHER ASSETS | 49 |
| 16) | DEPOSITS FROM BANKS | 50 |
| 17) | DEPOSITS FROM CUSTOMERS | 52 |
| 18) | SECURITIES ISSUED | 52 |
| 19) | SUBORDINATED DEBT | 53 |
| 20) | OTHER FINANCIAL LIABILITIES | 54 |
| 21) | PROVISIONS | 54 |
| 22) | PROVISIONS, CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS - TAX AND SOCIAL SECURITY | 55 |
| 23) | OTHER LIABILITIES | 59 |
| 24) | SHAREHOLDERS' EQUITY (PARENT COMPANY) | 59 |
| 25) | NON-CONTROLLING INTERESTS IN SUBSIDIARIES | 61 |
| 26) | FEE AND COMMISSION INCOME | 61 |
| 27) | PAYROLL AND RELATED BENEFITS | 61 |
| 28) | OTHER ADMINISTRATIVE EXPENSES | 62 |
| 29) | TAX EXPENSES | 62 |
| 30) | OTHER OPERATING INCOME | 62 |
| 31) | OTHER OPERATING EXPENSES | 62 |
| 32) | NON-OPERATING INCOME (LOSS) | 63 |
| 33) | RELATED-PARTY TRANSACTIONS | 64 |
| 34) | RISK AND CAPITAL MANAGEMENT | 66 |
| 35) | EMPLOYEE BENEFITS | 72 |
| 36) | INCOME TAX AND SOCIAL CONTRIBUTION | 73 |
| 37) | OTHER INFORMATION | 75 |
| 9 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
1)OPERATIONS
Banco Bradesco S.A. (Bradesco), Institution leading conglomerate Prudential, is a private-sector publicly traded company and universal bank, its headquarters is located in Cidade de Deus, s / n, in the city of Osasco, State of São Paulo, Brazil, 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.
These consolidated financial statements were prepared in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil (Bacen), pursuant to CMN Resolution No. 4,720/19 and Bacen Resolution No. 2/20. The main objective of this standard is to bring similarity with the presentation guidelines of the financial statements in accordance with the international accounting standards, International Financial Reporting Standards (IFRS). The main changes implemented were: statement of financial position accounts are presented in order of liquidity and enforceability; statement of financial position balances for the period and the other statements are presented in comparison with the end of the previous fiscal year. The changes implemented by the new standard did not impact Net Income or Shareholders' Equity.
Management states that it has disclosed all relevant information in the consolidated financial statements of Bradesco and that the accounting policies have been applied in a consistent manner in all period presented.
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 the acquisition of investments in associates, subsidiaries or jointly controlled companies is presented in the intangible assets caption (Note 14a).
The financial statements include estimates and assumptions, which are reviewed at least annually, 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.
Certain figures included in this report have been subject to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
Throughout the financial statements, we indicate that certain information is available on different websites managed by Bradesco. None of the information contained on the websites referred to or referenced in this report is part or is incorporated by reference in this document.
| 10 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
Bradesco's financial statements of the Prudential Conglomerate were approved by the Board of Executive Officers on August 27, 2021.
Below are the significant directly and indirectly owned companies and investment funds included in the financial statements of the Prudential Conglomerate:
| Activity | Equity interest | |||
| On June 30, 2021 | On December 31, 2020 | |||
| Financial Institutions | ||||
| Ágora Corretora de Títulos e Valores Mobiliários S.A. | Brokerage | 100.00% | 100.00% | |
| Banco Bradescard S.A. | Cards | 100.00% | 100.00% | |
| Banco Bradesco Argentina S.A.U (1) | Banking | 100.00% | 100.00% | |
| Banco Bradesco BBI S.A. | Investment bank | 100.00% | 100.00% | |
| Banco Bradesco BERJ S.A. | Banking | 100.00% | 100.00% | |
| Banco Bradesco Europa S.A. (1) | Banking | 100.00% | 100.00% | |
| Banco Bradesco Financiamentos S.A. | Banking | 100.00% | 100.00% | |
| Banco Bradesco S.A. New York Branch (1) | Banking | 100.00% | 100.00% | |
| Banco Bradesco S.A. Grand Cayman Branch (1) (2) | Banking | 100.00% | 100.00% | |
| Banco Losango S.A. | Banking | 100.00% | 100.00% | |
| Bradesco-Kirton Corretora de Câmbio S.A. | 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 (1) | Brokerage | 100.00% | 100.00% | |
| Bradesco Securities, Inc. (1) | Brokerage | 100.00% | 100.00% | |
| Bradesco Securities, UK. Limited (1) | Brokerage | 100.00% | 100.00% | |
| Bradescard México, sociedad de Responsabilidad Limitada (3) | 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% | |
| Cidade Capital Markets Ltd. (1) | Banking | 100.00% | 100.00% | |
| Kirton Bank 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% | |
| BAC Flórida Bank (4) | Banking | 100.00% | 100.00% | |
| BAC Flórida Investments (4) | Investment bank | 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% | |
| Tempo Serviços Ltda. | Services | 100.00% | 100.00% | |
| BITZ Serviços Financeiros S.A. | 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% | |
| RCB Investimentos S.A. | Holding | 65.00% | 65.00% | |
| RCB Portfolios Ltda. | Resource Manager | 100.00% | 100.00% | |
| Itapeva Recuperação de Créditos Ltda. | Credit Recoverer | 100.00% | 100.00% | |
| Investment Funds (5) | ||||
| Bradesco F.I. Referenciado DI Uniao | Investment Fund | 88.20% | 87.70% | |
| Bradesco F.I.C.F.I. Referenciado DI Galáxia | 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 Pioneiro | Investment Fund | 100.00% | 100.00% | |
| Bradesco F.I. Mult. Cred. Priv. Inv. Exterior Andromeda | Investment Fund | 100.00% | 100.00% | |
| BRAM FI RF Referenciado DI | Investment Fund | 100.00% | 100.00% |
| 11 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| Activity | Equity interest | |||
| On June 30, 2021 | On December 31, 2020 | |||
| Fundo de Investimento Referenciado DI GJ | Investment Fund | 100.00% | 100.00% | |
| FI RF Referenciado DI GJ BRA | Investment Fund | 100.00% | 100.00% | |
| Bradesco F.I. Mult. Cred. Priv. Inv. Exterior RV LOCAL | Investment Fund | 100.00% | 100.00% | |
| Bradesco FII F.I. Referenciado Cred.Privado | Investment Fund | 100.00% | 100.00% |
(1) The functional currency of these companies abroad is the Real;
(2) 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;
(3) The functional currency of this company is the Mexican Peso;
(4) The functional currency of these companies abroad is the Dollar; and
(5) The investment funds in which Bradesco assumes or substantially retains the risks and benefits were consolidated.
3)SIGNIFICANT ACCOUNTING PRACTICES
| a) | Functional and presentation currencies |
Financial statements of Prudential Conglomerate are are presented in Brazilian reais, which is also Bradesco's functional currency. Real is the functional currency for Foreign branches and subsidiaries, except for Mexico which the functional currency is Mexican Pesos and BAC Florida which functional currency is US Dollar.
Foreign branches and subsidiaries are mainly a continuation of activities in Brazil, therefore, there are the real as the functional currency and assets, liabilities and income are adjusted pursuant to the accounting politicies in Brazil and converted into reais according to the exchange rate of the local currency. The effects of convertion of foreign investiments which the functional currency is other than Real are recorded in Equity under the Asset valuation adjustments caption.
| 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 5.
| d) | Financial instruments |
| I. | Interbank investments |
| 12 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
Repurchase agreements are recorded at acquisition cost, plus income earned up to the balance sheet date, less a provision for devaluation, when applicable.
The composition, terms and income earned from interbank investments are presented in Note 6.
| II. | 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 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 8.
| III. | Impairment of Financial Assets |
The balances of the securities classified in the securities available for sale and securities held to maturity categories are reviewed to determine whether there is any indication of impairment loss - Impairment.
When an impairment loss is identified, we recognize an expense in income for the year. This occurs when the book value of the asset exceeds its recoverable value.
In order to calculate the recoverable amount, the estimate of loss is made by models using observable data or by judgment based on the experience of our Organization.
The composition of Impairment for Securities is presented in Note 8d.
| IV. | 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.
| 13 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
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 9.
| e) | Provisions for expected losses associated with credit risk for loans and leases, advances on foreign exchange contracts, other receivables with credit characteristics |
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.
| 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.
| 14 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
Renegotiated operations are maintained at least at the same rating in which they were classified on the date of renegotiation.
As permitted by Resolution No. 4,803/20 issued by CMN, as amended by Resolution No. 4,855/20, renegotiated operations from March 1 to December 31, 2020 may be maintained at the same level as they were classified on February 29, 2020, except: (a) operations with a delay of 15 days or more on February 29, 2020; and (b) transactions with evidence of the counterparty's inability to honor the obligation under the new conditions agreed.
Considering the provisions of the CMN Resolution No. 4,846/20, for loans in the scope of the Emergency Employment Support Program (PESE) the provision is being calculated only on the portion of the loan whose risk is assumed by the Organization, the amount of the provision related to each risk level is presented in Note 9c (IV).
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 provisions for expected losses associated with credit risk are calculated in an amount sufficient to cover probable losses and are in accordance with the rules and instructions of CMN and Bacen, associated with the assessments carried out by Management in determining credit risks.
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 10.
| f) | 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 'Deferred tax assets' 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 'Deferred taxes', 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. In November 2019, Constitutional Amendment No. 103 was enacted, which establishes in Article 32, the increase in the social contribution rate on the net profit of 'Banks' from 15% to 20%, effective from March 2020. For the other companies, the social contribution is calculated considering the rate of 9%.
| 15 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
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 36.
g)Investments
i. Acquisition of investments
The accounting entry is made at the acquisition cost, broken down into: I - book value in accordance with accounting rules applicable to financial instutitions authorized to operate by Bacen; and II - goodwill or negative goodwill on the acquisition of the investment, which is the difference between the acquisition cost and the book value of the net assets acquired.
ii. Associates, Controlled and Jointly Controlled Entities
Investments in controlled and associates companies, where Bradesco has significant influence over the investee or holds at least 20% of the voting rights, and jointly controlled companies, are accounted for using the equity method.
The amount of goodwill for associates and jointly controlled entities is presented together with the respective investment, while for controlled companies it is presented as intangible assets.
In the consolidated financial statements, the assets and liabilities of the controlled companies are consolidated at their book value.
The composition of controlled, associates and jointly controlled companies are disclosed in Note 12.
| h) | Premises and equipment |
Relates to the tangible assets used by the Bank in its activities.
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, are disclosed in Note 13.
| i) | Intangible assets |
Relates to the right over intangible assets used by the Bank in its activities.
Intangible assets comprise:
| · | 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; |
| · | 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; and |
| 16 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| · | Goodwill on acquisition of investments: constituted by the difference between the acquisition cost and the book value of the shares is amortized over the estimated time in which the asset should contribute, directly or indirectly, to the future cash flow. |
Intangible assets and the movement in these balances by class are presented in Note 14.
| j) | Other assets |
Other assets include taxes to be offset relating to income tax and social contribution credits from previous years and prepayments made but not yet utilized in the current period.
Also classified in this group are prepaid expenses that represent the application of funds in advance payments, whose rights to benefits or provision of services will occur in future periods, being recorded in the income statement on an accrual basis are classified as other assets.
Incurred costs relating to assets that will generate revenue in subsequent periods are recognized in the Income Statement according to the terms and the amount of expected benefits and directly recognized in the Income Statement when the corresponding assets or rights are no longer part of the institution's assets or when future benefits are no longer expected.
In addition, presented as other assets, there are non-financial assets held for sale, which are goods received in full or partial settlement of distressed loans not intended for own use and own assets for use that will be settled by their sale, which are available for immediate sale and whose disposal is highly probable within the period of one year. The goods received are registered by the lower value between: the fair value of the good, net of sales expenses and the gross book value of the related distressed loan. The own goods are recorded at the lower value between: the fair value of the good, net of sales expenses and its book value, net of provisions for impairment and of accumulated depreciation or amortization.
The composition of Other Assets is presented in Note 15.
k)Provisions for Impairment of Assets
Assets, which are subject to amortization or depreciation, are reviewed to verify impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized based on the excess the carrying amount of the asset or the cash generating unit (CGU) over its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its fair value, less costs to sell, and its value in use.
For the purpose of impairment testing, the assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to a ceiling of the operating segments, for the purpose of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes.
When assessing the value in use, projections of future results based on business and budget plans are used, and the estimated future cash flows are discounted to their present value using a discount rate before taxes, that reflects the current market conditions of the time value of money and the specific risks of the asset or CGU.
| 17 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
The Organization's corporate assets do not generate separate cash flows and are utilized by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.
Impairment losses are recognized in the consolidated Statement of Income. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or group of CGUs) and then to reduce the carrying amount of the other assets in the CGU (or group of CGUs) on a pro rata basis.
| l) | Deposits and other financial instruments |
| I. | Securities sold under agreements to repurchase, borrowing and on-lending, deposits from customers, securities issued and subordinated debt |
They are measured at cost plus, when applicable, accrued interest recognized on a pro rata basis with the exception of securities sold under agreements to repurchase with no restricions on resale which are measured at fair value.
The composition of these accounts is shown in Notes 16, 17, 18 and 19.
| II. | Funding expenses |
Expenses related to funding transactions involving the issuance of securities reduce the corresponding liability and are recognized in profit or loss over the term of the transaction, according to Note 18.
m) 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 - Provisions, contingent liabilities and contingent assets, 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. |
| 18 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
Details on lawsuits, as well as segregation and changes in amounts recognized, by type, is presented in Note 22.
n)Post-employment benefits
The recognition, measurement and disclosure of employee benefits are made in accordance with the criteria established by CPC 33 (R1) - Employee Benefits, approved by CMN Resolution No. 4,877/2020.
Defined Contribution Plans
Bradesco and its subsidiaries sponsor supplementary pension plans for their employees and Management. Contributions for these pension plans are recognized as expenses in the Income Statement when they are incurred. Once the contributions are paid, the Organization, in the capacity of employer, has no obligation to make any additional payment.
Defined Benefit Plans
The Organization's net obligation, in relation to the defined benefit plans, arises exclusively from institutions acquired and the plans are calculated separately for each plan, estimating the defined future benefit that the employees they will be entitled to post-employment leave when they leave the Organization or when they retire.
Bradesco's net obligation for defined benefit plans is calculated on the basis of an estimate of the value of future benefits that employees receive in return for services rendered in the current and prior periods. This value is discounted to its present value and is presented net of the fair value of any assets of the plan.
The calculation of the obligation of the defined benefit plan is performed annually by a qualified actuary using the projected unit credit method as required by the standard accounting.
Remeasurement of the net obligation comprise: actuarial gains and losses; the difference between the return on plan assets and the net interest recognized on the defined benefit liability and any change in the effect of the asset ceiling (excluding interest), and is recognized in other comprehensive income.
The net interest and other costs related to the defined benefit plans are recognized in the result.
Details on employee benefits are presented in Note 35.
| o) | 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 37 and are disclosed in accordance with the criteria established by CPC 24 - Subsequent Events, approved by CMN Resolution No. 4,818/2020.
| 19 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
p)Recurring and non-recurring net income
Non-recurring income is the income that is related to the atypical activities of the institution and is not expected to occur with frequency in future years. Recurring revenue corresponds to typical activities of the institution and has the predictability of occurring frequently in future years. Recurring and non-recurring revenues are presented in note 37b.
4)USE OF SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS
The Organization makes estimates and judgments that can affect the reported amount of assets and liabilities within the next fiscal year, in which the best premises are determined according to the applicable standard.
Such estimates and judgments are continually valued and based on our historical experience and a number of other factors including future event expectations, regarded as reasonable, under the current circumstances.
The estimates and judgments that have a significant risk and might have a relevant impact on the amounts of assets and liabilities within the next fiscal year, with the possibility of the effective results being different to those established previously, are disclosed below and are related to the following notes:
| Accounting estimates and judgments | Note |
| ● Fair value of financial instruments | 8, 9, 34 and 37a |
| ● Allowance for expected credit loss associated with credit risk | 9 |
| ● Impairment of financial assets | 8 |
| ● Impairment of intangible assets and goodwill | 14 |
| ● Taxes on profits | 36 |
| ● Contingent provisions | 22 |
| I. | Fair value of financial instruments |
Financial instruments recognized at fair value in our consolidated financial statements consist primarily of financial assets classified as trading, including derivatives and financial assets classified as available for sale. The fair value of a financial instrument corresponds to the price that would be received for the sale of an asset or that would be paid for the transfer of a liability in a transaction not enforced among market participants on the date of measurement.
These financial instruments are categorized in a hierarchy which is based on the lowest level of information, and significant to the fair value measurement. For instruments classified as Level 3, Bradesco's uses a significant amount of judgment to arrive at fair market value metrics. The decisions is based on knowledge and on the observations of relevant markets for the individual assets and liabilities and these judgments may vary based on market conditions. When applying the judgment, the Organization's analyze a series of prices and the volumes of transactions of third parties to understand and assess the extent of the available market references and judgment required in modeling processes or with third parties. Based on these factors, Bradesco's determined whether fair values are observable in active markets or if markets are inactive.
The imprecision of the estimate of unobservable market information can impact the gain or loss that is recorded for a given position. Furthermore, although the Organization's believe that the assessment methods are appropriate and consistent with those of other market participants, the use of methodologies or different assumptions to determine the fair value of certain financial instruments can result in an estimate of the fair value that is different on the date of disclosure.
| 20 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| II. | Allowance for expected credit loss associated with credit risk |
The measurement of the expected credit loss associated with credit risk requires the use of quantitative models and suppositions about the future economic conditions and credit behavior.
Several significant judgments are also required to apply the accounting requirements for the measurement of the allowance for expected credit loss associated with credit risk, such as:
• Determine the criteria for the classification of credit operations;
• Select quantitative models and assumptions suitable for the measurement of the expected loan losses; and
• Group together similar loan operations in order to measure the loan losses.
The process of determining the level of allowance for loan losses requires estimates and the use of judgment. Losses in subsequent periods may differ from initial calculations that are based on current estimates and assumptions.
| III. | Impairment of financial assets |
The measurement of the impairment of financial assets requires the use of complex quantitative models and suppositions about future economic conditions, credit behavior and their guarantees.
Several significant judgments are also required to apply the accounting requirements for the measurement of the impairment, such as:
• Determine the criteria to measure the value of the guarantees related to each security;
• Select quantitative models and assumptions suitable for the measurement of the impairment; and
• Establish different prospective scenarios and their assumptions.
The process of determining the impairment requires estimates and the use of judgment. Actual losses in subsequent periods may differ from initial calculations based on such estimates and assumptions.
| IV. | Impairment of intangible assets and goodwill |
The Organization analyzes, at least annually, whether the book value of intangible assets and goodwill (including goodwill identified in the acquisition of affiliates and jointly controlled companies) was impaired. The first step in the process is identifying the independent cash generating units (CGUs) and their allocations of goodwill. A CGU's book value, including allocated goodwill, is then compared to its value in use to see whether there is impairment. If a cash-generating unit's value in use is less than its book value, goodwill is impaired. Detailed calculations may need to be carried out taking into consideration changes in the market in which a business operates (e.g. competition and regulatory change). Calculations are based on discounted cash flows before tax at an interest rate that is adjusted by appropriate risk for the operational unit; in both cases determining these values requires the use of judgment. While forecasts are compared with actual performance and external economic data, expected cash flows naturally reflect the Organization's view of future performance.
| 21 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| V. | Taxes on profits |
The determination of our income tax liability (including social contribution) is a complex task that is related to analysis of our deferred tax assets and liabilities and payable income tax. In general, our assessment requires us to estimate the future amounts of current and deferred income tax. Our assessment of the possibility of realizing deferred tax is subjective and involves assessments and assumptions that are inherently uncertain. Support for our assessments and assumptions may change over time because of unanticipated events or circumstances that affect the determination of our tax liability.
Significant judgment is required, to determine whether an income tax position will be sustained upon examination, even after the outcome of any administrative or judicial proceeding based on the technical merits. Judgment is also required to determine the value of a benefit which is eligible for recognition in our consolidated financial statements.
Additionally, we monitor the interpretation of tax legislation and decisions made by tax authorities and courts, in order to adjust any previous judgment as to accrued income tax. These adjustments may also result from our own income tax planning or resolution of income tax controversies, and may be material to our operating income for any given period.
| VI. | Contingent provisions |
The provisions are regularly reviewed, and formed, whenever the loss is considered probable, taking into account the opinion of the legal advisors, the nature of the lawsuits, the similarity with previous cases, the complexity and the pronouncements of Courts.
5)CASH AND CASH EQUIVALENTS
| R$ thousand | ||
| On June 30, 2021 | On December 31, 2020 | |
| Cash and due from banks in domestic currency | 18,319,300 | 17,408,794 |
| Cash and due from banks in foreign currency | 5,873,390 | 5,568,512 |
| Investments in gold | 186 | 1,036 |
| Total cash and due from banks | 24,192,876 | 22,978,342 |
| Interbank investments (1) | 77,523,966 | 166,975,928 |
| Total cash and cash equivalents | 101,716,842 | 189,954,270 |
| (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. |
| 6) | INTERBANK INVESTMENTS |
a)Breakdown and maturity
| R$ thousand | ||||||
| 1 to 30 | 31 to 180 | 181 to 360 | More than 360 days | On June 30, 2021 | On December 31, 2020 | |
| days | days | days | ||||
| Securities purchased under agreements to resell: | ||||||
| Own portfolio position | 14,929,480 | 8,679,389 | - | - | 23,608,869 | 29,009,834 |
| ● Financial treasury bills | 212,826 | 403,813 | - | - | 616,639 | 2,354,661 |
| ● National treasury notes | 8,387,548 | 8,248,257 | - | - | 16,635,805 | 20,337,218 |
| ● National treasury bills | 3,757,432 | 27,319 | - | - | 3,784,751 | 5,013,122 |
| ● Other | 2,571,674 | - | - | - | 2,571,674 | 1,304,833 |
| Funded position | 65,715,665 | 2,789,136 | - | - | 68,504,801 | 144,319,002 |
| ● National treasury notes | 32,920,086 | 2,789,136 | - | - | 35,709,222 | 31,720,823 |
| ● Financial treasury bills | - | - | - | - | - | 109,161,526 |
| 22 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| R$ thousand | ||||||
| 1 to 30 | 31 to 180 | 181 to 360 | More than 360 days | On June 30, 2021 | On December 31, 2020 | |
| days | days | days | ||||
| ● National treasury bills | 32,795,579 | - | - | - | 32,795,579 | 3,436,653 |
| Unrestricted position | 4,881,243 | 6,473,535 | - | - | 11,354,778 | 5,857,577 |
| ● National treasury bills | 4,881,243 | 6,473,535 | - | - | 11,354,778 | 5,857,577 |
| Subtotal | 85,526,388 | 17,942,060 | - | - | 103,468,448 | 179,186,413 |
| Interest-earning deposits in other banks: | ||||||
| ● Interest-earning deposits in other banks: | 1,624,135 | 3,593,582 | 2,458,130 | 5,449,100 | 13,124,947 | 11,422,541 |
| ● Allowance for losses | - | (2,819) | (7,302) | (7,192) | (17,313) | (4,752) |
| Subtotal | 1,624,135 | 3,590,763 | 2,450,828 | 5,441,908 | 13,107,634 | 11,417,789 |
| Total on June 30, 2021 | 87,150,523 | 21,532,823 | 2,450,828 | 5,441,908 | 116,576,082 | |
| % | 74.7 | 18.5 | 2.1 | 4.7 | 100.0 | |
| Total on December 31, 2020 | 167,037,492 | 15,197,711 | 2,915,463 | 5,453,536 | 190,604,202 | |
| % | 87.6 | 8.0 | 1.5 | 2.9 | 100.0 |
b)Income from interbank investments
Classified in the statement of income as income from operations with securities.
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Income from investments in purchase and sale commitments: | ||
| • Own portfolio position | 406,937 | 288,914 |
| • Funded position | 1,491,451 | 1,590,498 |
| • Unrestricted position | 1,459,590 | 1,472,958 |
| Subtotal | 3,357,978 | 3,352,370 |
| Income from interest-earning deposits in other banks | 175,540 | 240,176 |
| Total (Note 9f III) | 3,533,518 | 3,592,546 |
7)COMPULSORY DEPOSITS WITH THE BRAZILIAN CENTRAL BANK
a)Reserve requirement
| R$ thousand | |||
| Remuneration | On June 30, 2021 | On December 31, 2020 | |
| Compulsory deposit - demand deposits | not remunerated | 11,150,240 | 9,857,922 |
| Compulsory deposit - savings deposits | savings index | 19,707,278 | 19,524,472 |
| Compulsory deposit - time deposits | Selic rate | 54,519,978 | 54,375,139 |
| Total | 85,377,496 | 83,757,533 |
For more information on compulsory deposits see Note 37 f.
b)Revenue from reserve requirement
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Reserve requirement - Bacen (Compulsory deposit) | 936,547 | 1,274,927 |
| Reserve requirement - SFH (1) | 1,451 | 3,345 |
| Total | 937,998 | 1,278,272 |
| (1) | Deposits requirement to SFH (Housing Finance System) are recorded under the caption 'Other assets'. |
| 23 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
8)SECURITIES
Information on securities as follows:
a)Summary of the consolidated classification of securities by operating segment and issuer
| R$ thousand | ||||
| On June 30, 2021 | % | On December 31, 2020 | % | |
| Trading securities | 61,390,747 | 16.2 | 54,486,599 | 16.6 |
| - Government securities | 52,012,204 | 13.7 | 47,338,471 | 14.4 |
| - Corporate securities | 9,378,543 | 2.5 | 7,148,128 | 2.2 |
| Available-for-sale securities (2) | 252,352,081 | 66.6 | 208,948,127 | 63.5 |
| - Government securities | 150,554,433 | 39.7 | 112,145,304 | 34.1 |
| - Corporate securities | 101,797,648 | 26.9 | 96,802,823 | 29.4 |
| Held-to-maturity securities (2) | 65,302,261 | 17.2 | 65,269,589 | 19.9 |
| - Government securities | 59,499,217 | 15.7 | 58,367,248 | 17.8 |
| - Corporate securities | 5,803,044 | 1.5 | 6,902,341 | 2.1 |
| Total | 379,045,089 | 100.0 | 328,704,315 | 100.0 |
| - Government securities | 262,065,854 | 69.1 | 217,851,023 | 66.3 |
| - Corporate securities | 116,979,235 | 30.9 | 110,853,292 | 33.7 |
| Total | 379,045,089 | 100.0 | 328,704,315 | 100.0 |
| 24 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| b) | Consolidated classification by category, maturity and operating segment |
| I) | Trading securities |
| Securities | R$ thousand | |||||||||
| On June 30, 2021 | On December 31, 2020 | |||||||||
| 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 | - | 1,425,227 | 3,249,586 | 10,889,698 | 15,564,511 | 15,570,455 | (5,944) | 14,038,511 | (29,041) | |
| National treasury notes | - | - | - | 19,378,766 | 19,378,766 | 19,239,641 | 139,125 | 22,817,806 | 243,032 | |
| Financial bills | - | 138,937 | 108,405 | 143,740 | 391,082 | 392,272 | (1,190) | 242,525 | (49,562) | |
| Debentures | 402 | 288 | 602 | 849,037 | 850,329 | 909,736 | (59,407) | 834,070 | (203,948) | |
| National treasury bills | 4,234,445 | 3,537,925 | 5,190,297 | 3,302,614 | 16,265,281 | 16,300,139 | (34,858) | 9,182,993 | 16,798 | |
| Brazilian foreign debt securities | - | - | 74,084 | 180,631 | 254,715 | 255,069 | (354) | 725,515 | 24,314 | |
| Other | 4,189,444 | 757,277 | 70,799 | 3,668,543 | 8,686,063 | 8,631,838 | 54,225 | 6,645,179 | 57,115 | |
| Total | 8,424,291 | 5,859,654 | 8,693,773 | 38,413,029 | 61,390,747 | 61,299,150 | 91,597 | 54,486,599 | 58,708 |
| II) | Available-for-sale securities |
| Securities (2) | R$ thousand | |||||||||
| On June 30, 2021 | On December 31, 2020 | |||||||||
| 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 | 6,574,497 | 22,792,152 | 37,462,940 | 17,639,330 | 84,468,919 | 84,516,449 | (47,530) | 65,371,659 | 1,786,777 | |
| Debentures | 3,432,574 | 3,314,100 | 3,133,093 | 56,594,709 | 66,474,476 | 66,929,309 | (454,833) | 64,259,489 | (2,420,550) | |
| National treasury notes | - | - | - | 16,972,833 | 16,972,833 | 16,893,968 | 78,865 | 28,820,736 | 1,061,917 | |
| Foreign corporate securities | 56,855 | 25,060 | - | 6,012,043 | 6,093,958 | 5,845,978 | 247,980 | 6,653,994 | 329,095 | |
| Shares | 3,940,462 | - | - | - | 3,940,462 | 4,083,956 | (143,494) | 3,402,217 | (114,379) | |
| Foreign government bonds | 1,496,140 | 5,310,583 | 1,314,590 | 229,151 | 8,350,464 | 8,358,194 | (7,730) | 6,508,219 | 7,185 | |
| Certificates of real estate receivables | - | - | 1,845 | 1,739,368 | 1,741,213 | 1,692,088 | 49,125 | 1,686,696 | (74,137) | |
| Brazilian foreign debt securities | - | - | - | 8,223,038 | 8,223,038 | 7,963,456 | 259,582 | 9,572,373 | 350,269 | |
| Financial treasury bills | - | 49,252 | 440,193 | 32,021,556 | 32,511,001 | 32,471,880 | 39,121 | 1,841,854 | (9,719) | |
| Promissory Notes | 3,755 | 145,896 | 1,204,280 | 2,377,215 | 3,731,146 | 3,604,852 | 126,294 | 7,167,074 | 94,332 | |
| Other | 3,573,269 | 1,604,024 | 2,083,669 | 12,583,609 | 19,844,571 | 19,939,934 | (95,363) | 13,663,816 | (64,570) | |
| Subtotal | 19,077,552 | 33,241,067 | 45,640,610 | 154,392,852 | 252,352,081 | 252,300,064 | 52,017 | 208,948,127 | 946,220 | |
| Accounting Hedge (Note 9f II) (1) | - | - | - | - | - | - | 69,185 | - | (792,271) | |
| Securities reclassified to 'Held-to-maturity securities' | - | - | - | - | - | - | 1,124,118 | - | 1,356,329 | |
| Total | 19,077,552 | 33,241,067 | 45,640,610 | 154,392,852 | 252,352,081 | 252,300,064 | 1,245,320 | 208,948,127 | 1,510,278 |
| 25 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| III) | Held-to-maturity securities |
| Securities (2) | R$ thousand | |||||||||
| On June 30, 2021 | On December 31, 2020 | |||||||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | More than 360 days | Amortized cost (3) | Fair value (4) | Gain (loss) not accounted for | Amortized cost (3) | Gain (loss) not accounted for | ||
| National treasury bills | 11,167,165 | - | 17,362,481 | 13,065,301 | 41,594,947 | 41,289,276 | (305,671) | 40,189,771 | 1,251,064 | |
| Certificates of real estate receivables | - | - | 436,614 | 5,214,402 | 5,651,016 | 6,025,143 | 374,127 | 6,703,402 | 87,221 | |
| National treasury notes | 74 | 580 | 456 | 17,903,159 | 17,904,269 | 17,126,268 | (778,001) | 18,125,276 | 571,546 | |
| Other | - | 25,219 | - | 126,810 | 152,029 | 154,750 | 2,721 | 251,140 | 5,343 | |
| Total | 11,167,239 | 25,799 | 17,799,551 | 36,309,672 | 65,302,261 | 64,595,437 | (706,824) | 65,269,589 | 1,915,174 |
c)Breakdown of the portfolios by financial statement classification
| Securities | R$ thousand | |||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | More than 360 days | Total on June 30, 2021 (3) (4) | Total on December 31, 2020 (3) (4) | |
| Securities pledged as collateral | 21,175,034 | 12,535,398 | 23,024,770 | 146,176,661 | 202,911,863 | 224,993,450 |
| Fixed income securities | 16,062,042 | 12,535,398 | 23,024,770 | 146,176,661 | 197,798,871 | 220,481,277 |
| ● National treasury notes | 74 | 580 | 456 | 16,188,025 | 16,189,135 | 51,531,617 |
| ● Financial treasury bills | - | 1,213,436 | 2,904,427 | 15,348,685 | 19,466,548 | 13,564,409 |
| ● National treasury bills | 5,334,478 | - | 14,036,193 | 20,774,395 | 40,145,066 | 39,574,199 |
| ● Debentures | 2,692,002 | 3,314,388 | 789,408 | 56,888,050 | 63,683,848 | 57,999,576 |
| ● Financial bills | - | 251,566 | 224,936 | 240,623 | 717,125 | 672,358 |
| ● Certificates of real estate receivables | - | 3 | 438,460 | 7,082,500 | 7,520,963 | 8,415,381 |
| ● Foreign corporate securities | 154,809 | 307,288 | 21,232 | 6,368,583 | 6,851,912 | 8,987,020 |
| ● Brazilian foreign debt securities | - | - | 74,084 | 7,829,138 | 7,903,222 | 9,539,840 |
| ● Bank deposit certificates | - | 15 | - | 158 | 173 | 7,174,433 |
| ● Promissory Notes | 3,755 | 145,896 | 1,208,251 | 2,390,899 | 3,748,801 | 134 |
| ● Other | 7,876,924 | 7,302,226 | 3,327,323 | 13,065,605 | 31,572,078 | 23,022,310 |
| Equity securities | 5,112,992 | - | - | - | 5,112,992 | 4,512,173 |
| ● Shares of listed companies | 5,112,992 | - | - | - | 5,112,992 | 4,512,173 |
| Restricted securities | 17,494,048 | 26,591,122 | 46,654,965 | 82,908,597 | 173,648,732 | 99,639,643 |
| Subject to repurchase agreements | 17,361,528 | 26,317,425 | 45,425,388 | 77,411,633 | 166,515,974 | 86,875,614 |
| ● National treasury bills | 16,620,554 | 26,317,327 | 43,081,101 | 11,888,612 | 97,907,594 | 65,768,921 |
| ● Foreign corporate securities | - | - | - | 2,919,405 | 2,919,405 | - |
| ● National treasury notes | - | - | - | 35,010,509 | 35,010,509 | 13,130,009 |
| ● Financial treasury bills | - | 98 | - | 26,462,879 | 26,462,977 | 124,651 |
| ● Other | 740,974 | - | 2,344,287 | 1,130,228 | 4,215,489 | 7,852,033 |
| Given in guarantee to the Brazilian Central Bank | - | - | - | - | - | 5,252,403 |
| 26 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| Securities | R$ thousand | |||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | More than 360 days | Total on June 30, 2021 (3) (4) | Total on December 31, 2020 (3) (4) | |
| ● National treasury bills | - | - | - | - | - | 4,435,912 |
| ● National treasury notes | - | - | - | - | - | 816,491 |
| Privatization rights | - | - | - | 27,106 | 27,106 | 29,532 |
| Given in guarantee | 132,520 | 273,697 | 1,229,577 | 5,469,858 | 7,105,652 | 7,482,094 |
| ● National treasury notes | - | - | - | 3,025,929 | 3,025,929 | 3,771,886 |
| ● National treasury bills | 21,075 | 12,751 | 444,225 | 1,344,238 | 1,822,289 | 1,407,985 |
| ● Financial treasury bills | - | 260,946 | 785,352 | 1,099,691 | 2,145,989 | 2,191,305 |
| ● Other | 111,445 | - | - | - | 111,445 | 110,918 |
| Securities sold under repurchase agreements - unrestricted | - | - | 2,454,199 | 30,295 | 2,484,494 | 4,071,222 |
| ● National treasury bills | - | - | 2,454,199 | - | 2,454,199 | 3,557,407 |
| ● National treasury notes | - | - | - | 30,295 | 30,295 | 513,815 |
| Total | 38,669,082 | 39,126,520 | 72,133,934 | 229,115,553 | 379,045,089 | 328,704,315 |
| % | 10.2 | 10.3 | 19.0 | 60.5 | 100.0 | 100.0 |
(1) For derivative financial instruments considered as accounting hedges, the category used is 'Available-for-Sale Securities';
(2) In compliance with Article 8 of Bacen Circular Letter No. 3,068/01, Bradesco declares that it has the financial capacity and intention to maintain held-to-maturity securities until their maturity dates. At the time of preparation of the consolidated financial statements as at June 30, 2020, Management decided to reclassify Securities Available for Sale to Held to Maturity, in the amount of R$20,009,471 thousand, without any gain or loss, as the gain in the amount of R$1,794,263 thousand, is being retained in shareholders' equity and will be recognized in income statement over the remaining period of the securities, according to article 5 of said Circular. In the first semester of 2021, there were no sales or reclassifications of securities classified in this category;
(3) The number of days to maturity was based on the contractual maturity of the instruments, regardless of their accounting classification; and
(4) The fair value of securities is determined based on the market price quotation available at the end of the reporting period. If no market price quotation is available at the end of the reporting period, amounts are estimated based on the prices quoted by dealers, pricing models, quotation models or price quotations for instruments with similar characteristics. For investment funds, the original amortized cost reflects the fair value of the respective quotas.
d)Impairment for Securities
In the first semester of 2021, there was an impairment recognized related to financial assets, mostly debentures, related to securities classified in the categories 'Available for Sale' and 'Held until Maturity' in the amount of R$232,665 thousand (R$644,987 thousand in 2020), net of constitution/reversal and which includes the result from a sale or transfer of financial assets. There was no impairment of shares in te period, classified in the category available for sale (R$188 thousand in 2020), totaling R$232,665 thousand (R$645,175 thousand in 2020).
| 27 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
9)DERIVATIVE FINANCIAL INSTRUMENTS
Bradesco carries out transactions involving derivative financial instruments, which are recognized in the statement of financial position or in off-balance-sheet accounts, to meet its own needs in managing its global exposure, as well as to meet its customer's requests, in order to manage their exposure. These operations involve a range of derivatives, including interest rate swaps, currency swaps, futures and options. Bradesco's risk management policy is based on the utilization of derivative financial instruments mainly to mitigate the risks from operations carried out by the Bank and its subsidiaries.
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. Should market prices not be available, fair values are based on dealer quotations, pricing models, discounted cash flows or similar techniques for which the determination of fair value may require judgment or significant estimates by Management.
Quoted market prices are used to determine the fair value of derivative financial instruments. The fair value of swaps is determined by using discounted cash flow modeling techniques that use yield curves, reflecting adequate risk factors. The information to build yield curves is mainly obtained from Securities, Commodities and Futures Exchange (B3), and the domestic and international secondary market. These yield curves are used to determine the fair value of currency swaps, interest rate and other risk factor swaps. The fair value of forward and futures contracts is also determined based on market price quotations for derivatives traded on an exchange or using methodologies similar to those outlined for swaps. The fair values of credit derivative instruments are determined based on market price quotation or from specialized entities. The fair value of options is determined based on mathematical models, such as Black & Scholes, using yield curves, implied volatilities and the fair value of corresponding assets. Current market prices are used to calculate volatility. To estimate the fair value of the over-the-counter (OTC) financial derivative instruments, the credit quality of each counterparty is also taken into account, relating an expected loss for each derivative portfolio (Credit valuation adjustment).
Derivative financial instruments in Brazil mainly refer to swaps and futures and are registered at B3.
Foreign derivative financial instruments refer to swap, forward, options, credit and futures operations and are mainly carried out at the stock exchanges in Chicago and New York, as well as the over-the-counter (OTC) markets.
Macro-strategies are defined for the Trading (proprietary) and Banking portfolios. Trading Portfolio transactions, including derivatives, look for gains from directional movements in prices and/or rates, arbitrage, hedge and market-maker strategies that may be fully or partly settled before the originally stipulated maturity date. The Banking Portfolio focuses on commercial transactions and their hedges.
Portfolio risk is controlled using information consolidated by risk factor; effective portfolio risk management requires joint use of derivatives with other instruments, including stocks and bonds.
| 28 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| a) | Amount of derivative financial instruments recognized by index |
| R$ thousand | ||||||||||
| Total on June 30, 2021 | Total on December 31, 2020 | |||||||||
| Nominal value | Net amount value (3) | Original amortized cost | Fair value adjustment | Fair value | Nominal value | Net amount value (3) | Original amortized cost | Fair value adjustment | Fair value | |
| Futures contracts | - | |||||||||
| Purchase commitments: | 80,763,175 | - | - | - | 66,164,471 | 1,947 | - | 1,947 | ||
| - Interbank market | 54,234,388 | - | 24,935,041 | - | 1,389 | - | 1,389 | |||
| - Foreign currency | 23,272,087 | - | 38,325,935 | - | 558 | - | 558 | |||
| - Other | 3,256,700 | 2,930,595 | 2,903,495 | 2,506,405 | - | - | - | |||
| Sale commitments: | 183,710,719 | - | - | - | 219,975,799 | (560) | - | (560) | ||
| - Interbank market (1) | 141,205,879 | 86,971,491 | 168,771,042 | 143,836,001 | (2) | - | (2) | |||
| - Foreign currency (2) | 42,178,735 | 18,906,648 | 50,807,667 | 12,481,732 | (51) | - | (51) | |||
| - Other | 326,105 | - | 397,090 | - | (507) | - | (507) | |||
| - | ||||||||||
| Option contracts | - | |||||||||
| Purchase commitments: | 46,821,707 | 1,282,492 | 244,475 | 1,526,967 | 29,583,214 | 1,569,236 | 895,667 | 2,464,903 | ||
| - Interbank market | 1,952,386 | 605,931 | 563,936 | 2,200 | 566,136 | 17,631,050 | - | 654,888 | 193,325 | 848,213 |
| - Foreign currency | 12,803,730 | 4,547,272 | 330,969 | (129,282) | 201,687 | 11,397,301 | - | 834,129 | 701,089 | 1,535,218 |
| - Other | 32,065,591 | - | 387,587 | 371,557 | 759,144 | 554,863 | 21,022 | 80,219 | 1,253 | 81,472 |
| Sale commitments: | 42,631,172 | (1,702,851) | (145,956) | (1,848,807) | 33,297,547 | (1,658,735) | (589,180) | (2,247,915) | ||
| - Interbank market | 1,346,455 | - | (874,365) | 295 | (874,070) | 19,925,808 | 2,294,758 | (811,696) | (194,670) | (1,006,366) |
| - Foreign currency | 8,256,458 | - | (274,238) | (58,890) | (333,128) | 12,837,898 | 1,440,597 | (594,337) | (363,298) | (957,635) |
| - Other | 33,028,259 | 962,668 | (554,248) | (87,361) | (641,609) | 533,841 | - | (252,702) | (31,212) | (283,914) |
| - | ||||||||||
| Forward contracts | - | |||||||||
| Purchase commitments: | 114,358,452 | (372,948) | (6,672) | (379,620) | 76,011,205 | 4,696,245 | 14,818 | 4,711,063 | ||
| - Interbank market | - | - | - | - | - | 246,269 | 246,269 | 1,859 | 14,818 | 16,677 |
| - Foreign currency | 110,103,029 | 81,240,345 | (621,085) | 18 | (621,067) | 70,345,084 | 48,576,798 | (453) | - | (453) |
| - Other | 4,255,423 | - | 248,137 | (6,690) | 241,447 | 5,419,852 | 4,451,509 | 4,694,839 | - | 4,694,839 |
| Sale commitments: | 38,195,102 | 5,986,351 | (39,072) | 5,947,279 | 22,736,629 | (132,076) | (4,678) | (136,754) | ||
| - Foreign currency (2) | 28,862,684 | - | 1,023,398 | - | 1,023,398 | 21,768,286 | - | (82,681) | - | (82,681) |
| - Other | 9,332,418 | 5,076,995 | 4,962,953 | (39,072) | 4,923,881 | 968,343 | - | (49,395) | (4,678) | (54,073) |
| - | ||||||||||
| Swap contracts | - | |||||||||
| Assets (long position): | 94,615,388 | 10,878,219 | 3,161,284 | 14,039,503 | 66,137,077 | 11,193,030 | 3,594,420 | 14,787,450 | ||
| - Interbank market | 21,517,670 | - | 745,700 | 464,436 | 1,210,136 | 4,062,990 | - | 104,256 | 216,862 | 321,118 |
| 29 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| R$ thousand | ||||||||||
| Total on June 30, 2021 | Total on December 31, 2020 | |||||||||
| Nominal value | Net amount value (3) | Original amortized cost | Fair value adjustment | Fair value | Nominal value | Net amount value (3) | Original amortized cost | Fair value adjustment | Fair value | |
| - Fixed rate | 37,588,546 | 26,769,057 | 4,527,304 | (195,943) | 4,331,361 | 33,427,359 | 19,386,846 | 4,160,018 | 26,031 | 4,186,049 |
| - Foreign currency | 26,148,922 | 6,600,231 | 4,543,442 | 2,758,672 | 7,302,114 | 24,369,039 | 1,177,263 | 6,169,577 | 3,051,417 | 9,220,994 |
| - IGPM | 590,671 | - | 631,924 | 40,697 | 672,621 | 636,581 | - | 432,391 | 22,676 | 455,067 |
| - Other | 8,769,579 | 3,872,659 | 429,849 | 93,422 | 523,271 | 3,641,108 | - | 326,788 | 277,434 | 604,222 |
| Liabilities (unrestricted position): | 68,347,229 | (9,793,173) | (975,258) | (10,768,431) | 50,474,891 | (10,842,603) | (2,648,682) | (13,491,285) | ||
| - Interbank market | 32,245,992 | 10,728,322 | (142,273) | (383,215) | (525,488) | 7,317,810 | 3,254,820 | (103,210) | (26,306) | (129,516) |
| - Fixed rate | 10,819,489 | - | (3,657,648) | (307,353) | (3,965,001) | 14,040,513 | - | (2,431,630) | (1,448,121) | (3,879,751) |
| - Foreign currency | 19,548,691 | - | (4,281,598) | (239,403) | (4,521,001) | 23,191,776 | - | (7,119,016) | (801,099) | (7,920,115) |
| - IGPM | 836,137 | 245,466 | (846,200) | (75,027) | (921,227) | 868,696 | 232,115 | (541,495) | (44,689) | (586,184) |
| - Other | 4,896,920 | - | (865,454) | 29,740 | (835,714) | 5,056,096 | 1,414,990 | (647,252) | (328,467) | (975,719) |
| Total | 669,442,944 | 6,278,090 | 2,238,801 | 8,516,891 | 564,380,833 | 4,826,484 | 1,262,365 | 6,088,849 |
Derivatives include operations maturing in D+1.
(1) Includes: (i) accounting hedges to protect CDI-related funding totaling R$88,074,641 thousand (R$128,431,775 thousand in december 2020); and (ii) accounting cash flow hedges in the amount of R$50,146,956 thousand (R$12,942,667 thousand in December 2020) (Note 9II);
(2) Includes specific hedges to protect assets and liabilities, arising from foreign investments. Investments abroad totaling the amount of R$28,690,027 thousand (R$29,678,043 thousand in December 2020); and
(3) Reflects the net balance between the Asset and Liability position.
| 30 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
b)Breakdown of derivative financial instruments (assets and liabilities) shown at original amortized cost, fair value and maturity
| R$ thousand | ||||||||||
| On June 30, 2021 | On December 31, 2020 | |||||||||
| Original amortized cost | Fair value adjustment | Fair value | % | 1 to 90 days | 91 to 180 days | 181 to 360 days | More than 360 days | Total | Total | |
| Swaps | 10,878,219 | 3,161,284 | 14,039,503 | 47.2 | 232,329 | 287,468 | 4,559,116 | 8,960,590 | 14,039,503 | 14,787,449 |
| Future | - | - | - | - | - | - | - | - | - | 1,947 |
| Forward purchases | 4,054,851 | (6,690) | 4,048,161 | 13.6 | 100,405 | 358,774 | 492,185 | 3,096,797 | 4,048,161 | 5,699,164 |
| Forward sales (1) | 10,172,080 | (39,072) | 10,133,008 | 34.1 | 5,751,449 | 397,908 | 227,254 | 3,756,397 | 10,133,008 | 952,216 |
| Premiums on exercisable options | 1,282,492 | 244,475 | 1,526,967 | 5.1 | 134,117 | 11,938 | 58,485 | 1,322,427 | 1,526,967 | 2,464,903 |
| Total assets (A) | 26,387,642 | 3,359,997 | 29,747,639 | 100.0 | 6,218,300 | 1,056,088 | 5,337,040 | 17,136,211 | 29,747,639 | 23,905,679 |
| Swaps | (9,793,173) | (975,258) | (10,768,431) | 50.7 | (506,265) | (70,127) | (3,819,088) | (6,372,951) | (10,768,431) | (13,491,283) |
| Future | - | - | - | - | - | - | - | - | - | (560) |
| Forward purchases | (4,427,799) | 18 | (4,427,781) | 20.9 | (350,390) | (441,002) | (478,296) | (3,158,093) | (4,427,781) | (988,100) |
| Forward sales | (4,185,729) | - | (4,185,729) | 19.7 | (86,796) | (248,526) | (120,150) | (3,730,257) | (4,185,729) | (1,088,969) |
| Premiums on written options | (1,702,851) | (145,956) | (1,848,807) | 8.7 | (224,984) | (28,289) | (993,576) | (601,958) | (1,848,807) | (2,247,915) |
| Total liabilities (B) | (20,109,552) | (1,121,196) | (21,230,748) | 100.0 | (1,168,435) | (787,944) | (5,411,110) | (13,863,259) | (21,230,748) | (17,816,827) |
| - | ||||||||||
| Net position (A-B) | 6,278,090 | 2,238,801 | 8,516,891 | 5,049,865 | 268,144 | (74,070) | 3,272,952 | 8,516,891 | 6,088,852 |
| (1) | Includes receivable adjustments relating to hedge of assets and liabilities, designated and/or indexed in foreign currency, primarily, arising from foreign investments, eliminating the effects of exchange variation of these assets and liabilities. |
c)Futures, options, forward and swap contracts - (Reference Value)
| R$ thousand | |||||||
| 1 to 90 days | 91 to 180 days | 181 to 360 days | More than 360 days | On June 30, 2021 | On December 31, 2020 | ||
| Futures contracts (1) | 74,022,373 | 32,455,740 | 115,251,994 | 42,743,787 | 264,473,894 | 286,140,270 | |
| Option contracts | 16,638,575 | 36,583,669 | 29,531,782 | 6,698,853 | 89,452,879 | 62,880,761 | |
| Forward contracts (1) | 47,952,348 | 56,249,734 | 39,153,117 | 9,198,355 | 152,553,554 | 98,747,834 | |
| Swap contracts | 4,751,080 | 6,779,909 | 26,109,717 | 125,321,911 | 162,962,617 | 116,611,968 | |
| On June 30, 2021 | 143,364,376 | 132,069,052 | 210,046,610 | 183,962,906 | 669,442,944 | - | |
| On December 31, 2020 | 217,293,689 | 58,889,385 | 73,258,594 | 214,939,165 | 564,380,833 |
| (1) | Includes contracts relating to hedges for the protection of assets and liabilities, designated and/or indexed in foreign currency, primarily, arising from foreign investments, eliminating the effects of exchange variation of these assets and liabilities. |
| 31 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
d)Types of margin offered in guarantee of derivative financial instruments, mainly futures contracts
| R$ thousand | ||
| On June 30, 2021 | On December 31, 2020 | |
| Government securities | ||
| National treasury notes | 3,105,413 | 4,368,766 |
| Total | 3,105,413 | 4,368,766 |
e)Revenues and expenses, net
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Swap contracts | (528,744) | (817,296) |
| Forward contracts (1) | 293,507 | 1,290,247 |
| Option contracts | (246,079) | 732,081 |
| Futures contracts (1) | 1,011,122 | (21,156,629) |
| Total (Note 9f III) | 529,806 | (19,951,597) |
(1) Includes the gain (loss) and the respective adjustment to the market capitalization of the hedge for protection of the assets and liabilities, designated and/or indexed in foreign currency, primarily, arising from foreign investments.
| f) | Reference values of derivative financial instruments, by trading location and counterparts |
| R$ thousand | ||
| Total on June 30, 2021 | Total on December 31, 2020 | |
| B3 (stock exchange) | 328,288,563 | 325,254,129 |
| B3 (over-the-counter) | 295,696,781 | 203,170,001 |
| - Financial Institutions | 83,061,226 | 44,352,011 |
| - Companies | 212,280,719 | 158,472,601 |
| - Individuals | 354,836 | 345,389 |
| Overseas (stock exchange) (1) | 20,803,331 | 15,256,532 |
| Overseas (over-the-counter) (1) | 24,654,269 | 20,700,171 |
| Total | 669,442,944 | 564,380,833 |
(1) Comprised of operations carried out on the Chicago and New York Stock Exchanges and over-the-counter markets.
| I) | Credit Default Swaps (CDS) |
In general, these represent bilateral agreements in which one of the parties purchases protection against the credit risk of a certain financial instrument (the risk is transferred). The selling counterparty receives remuneration that is usually paid linearly over the term of the agreement.
In the case of a default, the purchasing counterparty will receive a payment to offset the loss incurred on the financial instrument. In this case, the selling counterparty usually receives the underlying asset of the agreement in exchange for the payment.
| R$ thousand | ||
| On June 30, 2021 | On December 31, 2020 | |
| Risk received in credit Swaps: | 3,357,272 | 3,872,939 |
| - Debt securities issued by companies | 777,417 | 1,024,244 |
| - Bonds of the Brazilian public debt | 2,061,127 | 2,580,026 |
| - Bonds of foreign public debt | 518,728 | 268,669 |
| Risk transferred in credit Swaps: | (930,409) | (1,304,372) |
| - Brazilian public debt derivatives | (320,141) | (332,589) |
| - Foreign public debt derivatives | (610,268) | (971,783) |
| Total net credit risk value | 2,426,863 | 2,568,567 |
| Effect on Shareholders' Equity | 77,738 | 105,226 |
| Remuneration on the counterparty receiving the risk | (26,056) | (26,462) |
| 32 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
The contracts related to credit derivatives transactions described above are due in 2025. There were no credit events, as defined in the agreements, during the period.
| II) | Hedge Accounting |
On June 30, 2021, Bradesco maintained hedge, in accordance with Bacen's Circular No. 3,082/02, composed by:
Cash Flow Hedge - the financial instruments classified in this category, aims to reduce exposure to future changes in interest and foreign exchange rates, which impact the outcome of the organization. The effective portion of the changes in fair value of these instruments is recognized in a separate account of shareholders' equity, net of tax effects and is only transferred to the income statement in two situations: (i) in case of ineffectiveness of the hedge; or (ii) the realization of the hedge object. The ineffective portion of the respective hedge is recognized directly in the income statement.
| Strategy | R$ thousand | |||
| Hedge instrument nominal value | Hedge object accounting value | Fair Value Accumulated Adjustments in shareholders' equity (gross of tax effects) | Fair Value Accumulated Adjustments in shareholders' equity (net of tax effects) | |
| Hedge of interest receipts from investments in securities (1) | 50,146,956 | 50,497,467 | (320,036) | (176,020) |
| Hedge of interest payments on funding (2) | 88,074,641 | 87,415,329 | 817,790 | 449,785 |
| Total on June 30, 2021 | 138,221,597 | 137,912,796 | 497,754 | 273,765 |
| Hedge of interest receipts from investments in securities (1) | 12,942,667 | 13,197,717 | 100,114 | 55,063 |
| Hedge of interest payments on funding (1) | 128,431,775 | 126,398,921 | (316,082) | (173,845) |
| Total on December 31, 2020 | 141,374,442 | 139,596,638 | (215,968) | (118,782) |
(1) Referring to the DI interest rate risk, using DI Futures contracts in B3 and Swaps, with the maturity until 2027, making the cash flow prefixed; and
(2) Referring to the DI interest rate risk, using DI Futures contracts in B3 and Swaps, with maturity dates until 2023, making the cash flow prefixed.
The effectiveness of the hedge portfolio is in accordance with Bacen's Circular No. 3,082/02.
For the next 12 months, the gains/(losses) related to the cash flow hedge, which we expect to recognize in the income statement, amount to R$97,063 thousand.
There were no gains/(losses) related to the ineffectiveness of the cash flow hedge recorded in the income statement in the first semester of 2021 and 2020.
Fair value hedge - financial instruments classified in this category are intended to offset risks arising from exposure to changes in the market value of the hedged item. The hedged object is adjusted to market value, classified in DPV - Available for Sale and the effective portion of the valuations or devaluations of this instrument is recognized in the income statement, net of tax effects and is only transferred to equity in two situations : (i) in case of hedge ineffectiveness; or (ii) when performing the hedge. The ineffective portion of the hedged item is recognized directly in an equity account.
| Strategy | R$ thousand | |||
| Fair value of hedge instruments | Fair value of hedged items | Market adjustment recorded in income (gross of tax effects) | Market adjustment recorded in income (net of tax effects) | |
| Hedge of shares | 728,197 | 728,197 | (33,804) | (18,592) |
| Total on June 30, 2021 | 728,197 | 728,197 | (33,804) | (18,592) |
Referring to share risk, using swap contracts, with maturities up to 2022.
The effectiveness of the hedge portfolio is in accordance with Bacen Circular No. 3,082/02.
| 33 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
For the next 12 months, no gains/(losses) related to the fair value hedge accounting are expected.
There were no gains/(losses) related to the fair value hedge, recorded in equity accounts, in the first semester of 2021.
Hedge of investments abroad - the financial instruments classified in this category, have the objective of reducing the exposure to foreign exchange variation of investments abroad, whose functional currency is different from the national currency, which impacts the result of the organization. The effective portion of the valuations or devaluations of these instruments is recognized in a separate account of shareholders' equity, net of tax effects and is only transferred to income in two situations: (i) hedge ineffectiveness; or (ii) in the disposal or partial sale of the foreign operation. The ineffective portion of the respective hedge is recognized directly in the income statement.
| Strategy | R$ thousand | |||
| Hedge instrument nominal value | Hedge object accounting value | Fair Value Accumulated Adjustments in shareholders' equity (gross of tax effects) | Fair Value Accumulated Adjustments in shareholders' equity (net of tax effects) | |
| Hedge of exchange variation on future cash flows (1) | 3,725,293 | 2,545,325 | (428,569) | (224,752) |
| Total on June 30, 2021 | 3,725,293 | 2,545,325 | (428,569) | (224,752) |
| Hedge of exchange variation on future cash flows (1) | 4,839,546 | 2,570,621 | (576,303) | (316,967) |
| Total on December 31, 2020 | 4,839,546 | 2,570,621 | (576,303) | (316,967) |
(1) Whose functional currency is different from the real, using Forward and Dollar Futures contracts, with the object of hedging the foreign investment referenced to MXN (Mexican Peso) and USD (United States Dollar).
The effectiveness of the hedge portfolio is in accordance with Bacen's Circular No. 3,082/02.
For the next 12 months, the gains/(losses) related to the hedge of investments abroad (specifically the over-hedge made to cover tax effects), which we expect to recognize in the result, amount to R$(3,983) thousand.
The gains/(losses) related to the hedge of investments abroad, recorded in income accounts, in the first semester of 2021, was R$4,688 thousand (R$(14,859) thousand in 2020).
| III) | Income from securities, insurance and derivative financial instruments |
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Fixed income securities (1) | 9,425,520 | 13,411,985 |
| Interbank investments (Note 6b) | 3,533,518 | 3,592,546 |
| Equity securities (2) | (801,211) | (951,076) |
| Subtotal | 12,157,827 | 16,053,455 |
| Net gain or (loss) from derivative financial instruments (Note 9e) | 529,806 | (19,951,597) |
| Total | 12,687,633 | (3,898,142) |
(1) In the first semester of 2021, there was constitution, due to impairment of financial assets (mostly debentures), in the amount of R$232,665 thousand (R$58,036 thousand in 2020), net of constitution/reversal. There was no result from a sale or transfer of financial assets in first semester of 2021 (R$644,987 thousand in 2020); and
(2) In the first semester of 2021, there was no impairment of shares (R$188 thousand in 2020).
| 34 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
10)LOANS
Information relating to loans, including advances on foreign exchange contracts, leasing and other receivables with credit characteristics is shown below:
a)By type and maturity
| R$ thousand | |||||||||||
| Performing loans | |||||||||||
| 1 to 30 days | 31 to 60 days | 61 to 90 days | 91 to 180 days | 181 to 360 days | More than 360 days | Total on June 30, 20201(A) | -4% | Total on December 31, 2020 (A) | -4% | ||
| Discounted trade receivables and loans (1) | 20,548,678 | 12,753,274 | 12,149,639 | 29,962,036 | 38,709,705 | 131,229,597 | 245,352,929 | 40.2 | 228,926,469 | 39.7 | |
| Financing and on-lending | 5,754,021 | 4,353,057 | 4,594,514 | 13,707,080 | 23,654,847 | 124,499,053 | 176,562,572 | 28.9 | 175,522,629 | 30.4 | |
| Agricultural and agribusiness loans | 1,662,229 | 1,375,085 | 1,073,634 | 2,842,724 | 4,967,275 | 8,808,798 | 20,729,745 | 3.4 | 19,796,632 | 3.4 | |
| Subtotal | 27,964,928 | 18,481,416 | 17,817,787 | 46,511,840 | 67,331,827 | 264,537,448 | 442,645,246 | 72.5 | 424,245,730 | 73.5 | |
| Leases | 94,476 | 91,490 | 91,234 | 265,668 | 476,754 | 1,702,077 | 2,721,699 | 0.4 | 2,612,693 | 0.5 | |
| Advances on foreign exchange contracts (2) | 3,255,285 | 1,789,533 | 1,734,258 | 4,185,455 | 5,828,508 | 49,977 | 16,843,016 | 2.8 | 7,531,922 | 1.3 | |
| Subtotal | 31,314,689 | 20,362,439 | 19,643,279 | 50,962,963 | 73,637,089 | 266,289,502 | 462,209,961 | 75.7 | 434,390,345 | 75.3 | |
| Other receivables (3) | 25,187,420 | 11,637,298 | 8,390,251 | 9,993,227 | 4,554,698 | 378,521 | 60,141,415 | 9.9 | 53,150,318 | 9.2 | |
| Credit portfolio | 56,502,109 | 31,999,737 | 28,033,530 | 60,956,190 | 78,191,787 | 266,668,023 | 522,351,376 | 85.6 | 487,540,663 | 84.5 | |
| Acquisition of credit card receivables | 6,081,828 | 2,038,824 | 743,515 | 413,376 | 71,808 | - | 9,349,351 | 1.5 | 8,349,458 | 1.4 | |
| Subtotal | 62,583,937 | 34,038,561 | 28,777,045 | 61,369,566 | 78,263,595 | 266,668,023 | 531,700,727 | 87.1 | 495,890,121 | 85.9 | |
| Sureties and guarantees | 629,570 | 1,366,636 | 2,475,559 | 10,441,421 | 14,577,057 | 47,882,466 | 77,372,709 | 12.7 | 80,236,696 | 13.9 | |
| Guarantee given on rural loans assigned | - | - | - | 10,391 | 28 | 44,544 | 54,963 | - | 49,335 | - | |
| Letters of credit for imports | 112,873 | 144,010 | 214,201 | 281,449 | 207,983 | 388 | 960,904 | 0.2 | 1,056,613 | 0.2 | |
| Confirmed exports loans | - | 435 | 2,078 | 1,579 | 7,978 | - | 12,070 | - | 10,034 | - | |
| Total - Memorandum accounts | 742,443 | 1,511,081 | 2,691,838 | 10,734,840 | 14,793,046 | 47,927,398 | 78,400,646 | 12.9 | 81,352,678 | 14.1 | |
| Total on June 30, 2021 | 63,326,380 | 35,549,642 | 31,468,883 | 72,104,406 | 93,056,641 | 314,595,421 | 610,101,373 | 100.0 | |||
| Total on December 31, 2020 | 50,124,635 | 32,797,925 | 28,706,360 | 69,953,413 | 82,805,068 | 312,855,398 | 577,242,799 | 100.0 |
| 35 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| R$ thousand | ||||||||||
| Non-performing loans | ||||||||||
| Past-due installments | ||||||||||
| 1 to 30 days | 31 to 60 days | 61 to 90 days | 91 to 180 days | 181 to 540 days | Total on June 30, 2021 (B) | -4% | Total on December 31, 2020 (B) | -4% | ||
| Discounted trade receivables and loans (1) | 881,008 | 983,886 | 951,933 | 2,112,934 | 2,025,107 | 6,954,868 | 87.8 | 6,801,586 | 83.3 | |
| Financing and on-lending | 162,889 | 174,820 | 86,560 | 196,634 | 127,093 | 747,996 | 9.4 | 867,296 | 10.6 | |
| Agricultural and agribusiness loans | 13,968 | 11,280 | 7,730 | 16,431 | 34,809 | 84,218 | 1.1 | 202,882 | 2.5 | |
| Subtotal | 1,057,865 | 1,169,986 | 1,046,223 | 2,325,999 | 2,187,009 | 7,787,082 | 98.3 | 7,871,764 | 96.4 | |
| Leases | 919 | 866 | 465 | 802 | 522 | 3,574 | - | 3,878 | - | |
| Advances on foreign exchange contracts (2) | 6,452 | 2,974 | 3,840 | 849 | - | 14,115 | 0.2 | 75,506 | 0.9 | |
| Subtotal | 1,065,236 | 1,173,826 | 1,050,528 | 2,327,650 | 2,187,531 | 7,804,771 | 98.5 | 7,951,148 | 97.3 | |
| Other receivables (3) | 41,736 | 10,062 | 6,316 | 18,094 | 38,760 | 114,968 | 1.5 | 216,724 | 2.7 | |
| Total on June 30, 2021 | 1,106,972 | 1,183,888 | 1,056,844 | 2,345,744 | 2,226,291 | 7,919,739 | 100.0 | |||
| Total on December 31, 2020 | 1,316,820 | 976,538 | 779,029 | 1,888,160 | 3,207,325 | 8,167,872 | 100.0 |
| R$ thousand | |||||||||||
| Non-performing loans | |||||||||||
| Installments not yet due | |||||||||||
| 1 to 30 days | 31 to 60 days | 61 to 90 days | 91 to 180 days | 181 to 360 days | More than 360 days | Total on June 30, 2021 (C) | -4% | Total on December 31, 2020 (C) | -4% | ||
| Discounted trade receivables and loans (1) | 597,101 | 475,831 | 523,617 | 1,182,247 | 1,974,020 | 6,285,625 | 11,038,441 | 72.7 | 10,025,193 | 73.6 | |
| Financing and on-lending | 157,722 | 142,468 | 143,021 | 403,957 | 672,806 | 2,525,410 | 4,045,384 | 26.6 | 3,459,717 | 25.4 | |
| Agricultural and agribusiness loans | 233 | 874 | 1,320 | 2,514 | 8,594 | 17,019 | 30,554 | 0.2 | 63,519 | 0.5 | |
| Subtotal | 755,056 | 619,173 | 667,958 | 1,588,718 | 2,655,420 | 8,828,054 | 15,114,379 | 99.5 | 13,548,429 | 99.5 | |
| Leases | 909 | 877 | 872 | 2,452 | 3,745 | 8,360 | 17,215 | 0.1 | 29,867 | 0.2 | |
| Subtotal | 755,965 | 620,050 | 668,830 | 1,591,170 | 2,659,165 | 8,836,414 | 15,131,594 | 99.6 | 13,578,296 | 99.7 | |
| Other receivables (3) | 4,807 | 3,847 | 3,603 | 9,441 | 11,975 | 19,861 | 53,534 | 0.4 | 42,224 | 0.3 | |
| Total on June 30, 2021 | 760,772 | 623,897 | 672,433 | 1,600,611 | 2,671,140 | 8,856,275 | 15,185,128 | 100.0 | |||
| Total on December 31, 2020 | 683,107 | 633,139 | 575,280 | 1,445,602 | 2,409,750 | 7,873,642 | 13,620,520 | 100.0 |
| 36 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| R$ thousand | |||||
| Total | |||||
| Total on June 30, 2021 (A+B+C) | -4% | Total on December 31, 2020 (A+B+C) | -4% | ||
| Discounted trade receivables and loans (1) | 263,346,238 | 41.6 | 245,753,248 | 41.1 | |
| Financing and on-lending | 181,355,952 | 28.6 | 179,849,642 | 30.0 | |
| Agricultural and agribusiness loans | 20,844,517 | 3.3 | 20,063,033 | 3.3 | |
| Subtotal | 465,546,707 | 73.5 | 445,665,923 | 74.4 | |
| Leases | 2,742,488 | 0.4 | 2,646,438 | 0.4 | |
| Advances on foreign exchange contracts (2) | 16,857,131 | 2.7 | 7,607,428 | 1.3 | |
| Subtotal | 485,146,326 | 76.6 | 455,919,789 | 76.1 | |
| Other receivables (3) | 60,309,917 | 9.5 | 53,409,266 | 8.9 | |
| Credit portfolio | 545,456,243 | 86.1 | 509,329,055 | 85.0 | |
| Acquisition of credit card receivables | 9,349,351 | 1.5 | 8,349,458 | 1.4 | |
| Subtotal | 554,805,594 | 87.6 | 517,678,513 | 86.4 | |
| Sureties and guarantees | 77,372,709 | 12.2 | 80,236,696 | 13.4 | |
| Guarantee given on rural loans assigned | 54,963 | - | 49,335 | - | |
| Letters of credit for imports | 960,904 | 0.2 | 1,056,613 | 0.2 | |
| Confirmed exports loans | 12,070 | - | 10,034 | - | |
| Total - Memorandum accounts | 78,400,646 | 12.4 | 81,352,678 | 13.6 | |
| Total on June 30, 2021 | 633,206,240 | 100.0 | |||
| Total on December 31, 2020 | 599,031,191 | 100.0 |
(1) Including credit card loans and advances on credit card receivables of R$10,898,410 thousand (R$9,922,375 thousand in December 2020);
(2) Advances on foreign exchange contracts are classified as a deduction from 'Other financial liabilities';
(3) The item 'Other Receivables' comprises receivables on sureties and guarantees honored, receivables on sale of assets, securities and credits receivable, income receivable from foreign exchange contracts and export contracts and credit card receivables (cash and installment purchases at merchants), in the amount of R$35,744,936 thousand (R$34,605,794 thousand in december 2020); and
(4) Percentage of each type in relation to the total loan portfolio, including sureties and guarantee, loan assignment and acquisition of receivables, co-obligations in rural loan assignments, credits opened for importation and confirmed export credits.
| 37 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| b) | By type and levels of risk |
| R$ thousand | ||||||||||||||
| Levels of risk | ||||||||||||||
| AA | A | B | C | D | E | F | G | H | Total on June 30, 2021 | % (1) | Total on December 31, 2020 | % (1) | ||
| Discounted trade receivables and loans | 34,107,689 | 62,045,613 | 78,395,416 | 42,422,263 | 15,911,650 | 5,815,885 | 5,960,487 | 3,255,277 | 15,431,958 | 263,346,238 | 42.4 | 245,753,248 | 41.7 | |
| Financing and on-lending | 99,940,473 | 36,729,945 | 22,044,067 | 13,656,590 | 2,872,482 | 1,626,037 | 2,032,104 | 1,068,251 | 1,386,003 | 181,355,952 | 29.1 | 179,849,642 | 30.5 | |
| Agricultural and agribusiness loans | 5,649,469 | 9,214,220 | 5,032,147 | 713,565 | 119,190 | 34,595 | 11,866 | 10,034 | 59,431 | 20,844,517 | 3.3 | 20,063,033 | 3.4 | |
| Subtotal | 139,697,631 | 107,989,778 | 105,471,630 | 56,792,418 | 18,903,322 | 7,476,517 | 8,004,457 | 4,333,562 | 16,877,392 | 465,546,707 | 74.8 | 445,665,923 | 75.6 | |
| Leases | 451,554 | 1,040,139 | 1,142,642 | 38,361 | 19,128 | 8,020 | 1,783 | 18,142 | 22,719 | 2,742,488 | 0.4 | 2,646,438 | 0.4 | |
| Advances on foreign exchange contracts (2) | 7,548,445 | 4,729,012 | 3,210,371 | 1,197,386 | 28,161 | 20,148 | 800 | - | 122,808 | 16,857,131 | 2.7 | 7,607,428 | 1.3 | |
| Subtotal | 147,697,630 | 113,758,929 | 109,824,643 | 58,028,165 | 18,950,611 | 7,504,685 | 8,007,040 | 4,351,704 | 17,022,919 | 485,146,326 | 77.9 | 455,919,789 | 77.3 | |
| Other receivables | 16,721,326 | 19,054,623 | 10,251,653 | 11,610,494 | 1,726,710 | 181,564 | 215,946 | 74,239 | 473,362 | 60,309,917 | 9.7 | 53,409,266 | 9.1 | |
| Subtotal | 164,418,956 | 132,813,552 | 120,076,296 | 69,638,659 | 20,677,321 | 7,686,249 | 8,222,986 | 4,425,943 | 17,496,281 | 545,456,243 | 87.6 | 509,329,055 | 86.4 | |
| Sureties and guarantees (3) | 65,222,750 | 3,970,055 | 1,535,132 | - | 3,902,880 | 2,578,051 | 163,841 | - | - | 77,372,709 | 12.4 | 80,236,696 | 13.6 | |
| Total on June 30, 2021 | 229,641,706 | 136,783,607 | 121,611,428 | 69,638,659 | 24,580,201 | 10,264,300 | 8,386,827 | 4,425,943 | 17,496,281 | 622,828,952 | 100.0 | |||
| % | 37.0 | 22.0 | 19.5 | 11.2 | 3.9 | 1.6 | 1.3 | 0.7 | 2.8 | 100.0 | ||||
| Total on December 31, 2020 | 219,471,812 | 122,452,705 | 117,906,653 | 65,477,031 | 22,182,521 | 9,920,712 | 7,833,465 | 4,030,224 | 20,290,628 | 589,565,751 | 100.0 | |||
| % | 37.2 | 20.8 | 20.0 | 11.1 | 3.8 | 1.7 | 1.3 | 0.7 | 3.4 | 100.0 |
(1) Percentage of each type in relation to the total loan portfolio, excluding sureties and guarantees, loan assignments, acquisition of receivables and co-obligation in rural loan assignments;
(2) Advances on foreign exchange contracts are presented in the statement of financial position as a deduction from 'Other financial liabilities'; and
(3) The provision for losses, associated to the financial guarantees provided, is being evaluated as provided by CMN Resolution No. 4,512/16, more information on the methodology used, see Note 18a I.
| 38 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| c) | Composition of loan operations by risk level and delay situation |
| I) | Levels of risk |
| R$ thousand | |||||||||||||
| Levels of risk | |||||||||||||
| Non-performing loans (3) | |||||||||||||
| AA | A | B | C | D | E | F | G | H | Total on June 30, 2021 | % (1) | Total on December 31, 2020 | % (1) | |
| Installments not yet due | - | - | 1,488,523 | 1,880,782 | 3,128,784 | 1,767,163 | 1,288,768 | 1,360,687 | 4,270,421 | 15,185,128 | 99.9 | 13,620,520 | 100.0 |
| 1 to 30 | - | - | 97,937 | 118,622 | 160,610 | 78,298 | 53,397 | 56,180 | 195,728 | 760,772 | 5.0 | 683,107 | 5.0 |
| 31 to 60 | - | - | 76,620 | 92,275 | 128,579 | 68,739 | 45,278 | 48,413 | 163,993 | 623,897 | 4.1 | 633,139 | 4.6 |
| 61 to 90 | - | - | 78,401 | 92,194 | 130,431 | 67,654 | 48,747 | 50,183 | 204,823 | 672,433 | 4.4 | 575,280 | 4.2 |
| 91 to 180 | - | - | 157,992 | 200,342 | 316,119 | 184,086 | 133,497 | 141,553 | 467,022 | 1,600,611 | 10.5 | 1,445,602 | 10.6 |
| 181 to 360 | - | - | 244,760 | 324,796 | 530,445 | 305,840 | 216,196 | 243,535 | 805,568 | 2,671,140 | 17.6 | 2,409,750 | 17.7 |
| More than 360 | - | - | 832,813 | 1,052,553 | 1,862,600 | 1,062,546 | 791,653 | 820,823 | 2,433,287 | 8,856,275 | 58.3 | 7,873,642 | 57.9 |
| Past-due installments (2) | - | - | 299,463 | 582,343 | 1,067,265 | 769,539 | 747,756 | 733,488 | 3,719,885 | 7,919,739 | 99.9 | 8,167,872 | 100.0 |
| 1 to 14 | - | - | 8,445 | 33,263 | 44,198 | 25,429 | 18,136 | 18,623 | 99,273 | 247,367 | 3.1 | 360,698 | 4.4 |
| 15 to 30 | - | - | 232,331 | 157,937 | 177,948 | 65,638 | 33,445 | 33,376 | 158,930 | 859,605 | 10.9 | 956,122 | 11.7 |
| 31 to 60 | - | - | 58,687 | 367,107 | 306,761 | 98,894 | 59,802 | 60,637 | 232,000 | 1,183,888 | 14.9 | 976,538 | 12.0 |
| 61 to 90 | - | - | - | 18,174 | 482,415 | 133,402 | 78,375 | 74,079 | 270,399 | 1,056,844 | 13.3 | 779,029 | 9.5 |
| 91 to 180 | - | - | - | 5,862 | 55,943 | 423,791 | 520,334 | 512,667 | 827,147 | 2,345,744 | 29.6 | 1,888,160 | 23.1 |
| 181 to 360 | - | - | - | - | - | 22,385 | 37,664 | 34,106 | 2,090,007 | 2,184,162 | 27.6 | 3,137,419 | 38.4 |
| More than 360 | - | - | - | - | - | - | - | - | 42,129 | 42,129 | 0.5 | 69,906 | 0.9 |
| Subtotal | - | - | 1,787,986 | 2,463,125 | 4,196,049 | 2,536,702 | 2,036,524 | 2,094,175 | 7,990,306 | 23,104,867 | 21,788,392 | ||
| Specific provision | - | - | 17,880 | 73,894 | 419,604 | 761,011 | 1,018,262 | 1,465,923 | 7,990,306 | 11,746,880 | 11,958,866 |
(1) Percentage of maturities by type of installment;
(2) For transactions with terms of more than 36 months, past-due periods are doubled, as permitted by Resolution No. 2,682/99; and
(3) For contracts with installments past-due for more than 14 days or which have been restructured or where the borrower is bankrupt or in judicial recovery.
| 39 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| R$ thousand | ||||||||||||||
| Levels of risk | ||||||||||||||
| Performing loans (2) | ||||||||||||||
| AA | A | B | C | D | E | F | G | H | Total on June 30, 2021 | % (1) | Total on December 31, 2020 | % (1) | ||
| Installments not yet due | 164,212,824 | 132,119,339 | 118,239,514 | 66,903,760 | 16,365,649 | 5,118,475 | 5,965,306 | 2,322,116 | 9,406,878 | 520,653,861 | 99.7 | 486,586,139 | 99.8 | |
| 1 to 30 | 12,788,535 | 19,645,035 | 8,137,242 | 11,083,542 | 1,996,807 | 287,138 | 93,386 | 99,958 | 672,951 | 54,804,594 | 10.5 | 44,177,948 | 9.1 | |
| 31 to 60 | 9,448,835 | 9,872,511 | 5,795,970 | 5,119,259 | 1,027,211 | 173,125 | 79,879 | 53,236 | 429,711 | 31,999,737 | 6.1 | 30,282,983 | 6.2 | |
| 61 to 90 | 7,937,925 | 8,096,887 | 5,687,860 | 4,789,926 | 994,044 | 171,398 | 85,785 | 54,469 | 215,236 | 28,033,530 | 5.4 | 26,424,865 | 5.4 | |
| 91 to 180 | 18,421,490 | 17,522,013 | 12,434,613 | 8,283,554 | 1,934,757 | 451,763 | 1,098,193 | 214,542 | 595,265 | 60,956,190 | 11.6 | 62,087,977 | 12.7 | |
| 181 to 360 | 24,889,412 | 21,367,779 | 17,004,744 | 9,943,592 | 2,494,779 | 1,114,163 | 339,539 | 229,501 | 808,278 | 78,191,787 | 15.0 | 68,742,343 | 14.1 | |
| More than 360 | 90,726,627 | 55,615,114 | 69,179,085 | 27,683,887 | 7,918,051 | 2,920,888 | 4,268,524 | 1,670,410 | 6,685,437 | 266,668,023 | 51.1 | 254,870,023 | 52.3 | |
| Past due up to 14 days | 206,132 | 694,213 | 48,796 | 271,774 | 115,623 | 31,072 | 221,156 | 9,652 | 99,097 | 1,697,515 | 0.3 | 954,524 | 0.2 | |
| Subtotal | 164,418,956 | 132,813,552 | 118,288,310 | 67,175,534 | 16,481,272 | 5,149,547 | 6,186,462 | 2,331,768 | 9,505,975 | 522,351,376 | 100.0 | 487,540,663 | 100.0 | |
| Generic provision | - | 664,068 | 1,182,883 | 2,015,266 | 1,648,127 | 1,544,864 | 3,093,231 | 1,632,238 | 9,505,975 | 21,286,652 | 22,737,256 | |||
| Total on June 30, 2021 | 164,418,956 | 132,813,552 | 120,076,296 | 69,638,659 | 20,677,321 | 7,686,249 | 8,222,986 | 4,425,943 | 17,496,281 | 545,456,243 | ||||
| Existing provision | - | 790,115 | 1,475,279 | 5,613,482 | 5,820,673 | 3,694,700 | 5,062,502 | 4,311,483 | 17,496,281 | 44,264,515 | ||||
| Minimum required provision | - | 664,068 | 1,200,763 | 2,089,160 | 2,067,731 | 2,305,875 | 4,111,493 | 3,098,161 | 17,496,281 | 33,033,532 | ||||
| Supplementary provision | - | 126,047 | 274,516 | 3,524,322 | 3,752,942 | 1,388,825 | 951,009 | 1,213,322 | - | 11,230,983 | ||||
| Total on December 31, 2020 | 150,472,706 | 119,931,844 | 116,110,882 | 65,268,599 | 18,342,165 | 7,048,542 | 7,833,465 | 4,030,224 | 20,290,628 | 509,329,055 | ||||
| Existing provision | - | 728,056 | 1,409,023 | 5,803,040 | 4,885,649 | 3,405,380 | 4,763,946 | 3,913,701 | 20,290,628 | 45,199,423 | ||||
| Minimum required provision | - | 599,659 | 1,161,109 | 1,958,058 | 1,834,216 | 2,114,563 | 3,916,732 | 2,821,157 | 20,290,628 | 34,696,122 | ||||
| Supplementary provision | - | 128,397 | 247,914 | 3,844,982 | 3,051,433 | 1,290,817 | 847,214 | 1,092,544 | - | 10,503,301 |
(1) Percentage of maturities by type of installment; and
(2) Transactions past-due for less than 15 days and which have not been restructured and where the borrower is not bankrupt or in judicial recovery.
| 40 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| II) | Breakdown of loans and allowance for loan losses |
| Level of risk | R$ thousand | |||||||
| Portfolio balance | ||||||||
| Non-performing loans | Performing loans | Total | % (1) | % Accrued on June 30, 2021 (2) | Cumulative % on December 31, 2020 (2) | |||
| Installments past due | Installments not yet due | Total - non-performing loans | ||||||
| AA | - | - | - | 164,418,956 | 164,418,956 | 30.2 | 30.2 | 29.6 |
| A | - | - | - | 132,813,552 | 132,813,552 | 24.3 | 54.5 | 53.1 |
| B | 299,463 | 1,488,523 | 1,787,986 | 118,288,310 | 120,076,296 | 22.0 | 76.5 | 75.9 |
| C | 582,343 | 1,880,782 | 2,463,125 | 67,175,534 | 69,638,659 | 12.8 | 89.3 | 88.7 |
| Subtotal | 881,806 | 3,369,305 | 4,251,111 | 482,696,352 | 486,947,463 | 89.3 | ||
| D | 1,067,265 | 3,128,784 | 4,196,049 | 16,481,272 | 20,677,321 | 3.8 | 93.1 | 92.3 |
| E | 769,539 | 1,767,163 | 2,536,702 | 5,149,547 | 7,686,249 | 1.4 | 94.5 | 93.7 |
| F | 747,756 | 1,288,768 | 2,036,524 | 6,186,462 | 8,222,986 | 1.5 | 96.0 | 95.2 |
| G | 733,488 | 1,360,687 | 2,094,175 | 2,331,768 | 4,425,943 | 0.8 | 96.8 | 96.0 |
| H | 3,719,885 | 4,270,421 | 7,990,306 | 9,505,975 | 17,496,281 | 3.2 | 100.0 | 100.0 |
| Subtotal | 7,037,933 | 11,815,823 | 18,853,756 | 39,655,024 | 58,508,780 | 10.7 | ||
| Total on June 30, 2021 | 7,919,739 | 15,185,128 | 23,104,867 | 522,351,376 | 545,456,243 | 100.0 | ||
| % | 1.5 | 2.8 | 4.3 | 95.7 | 100.0 | |||
| Total on December 31, 2020 | 8,167,872 | 13,620,520 | 21,788,392 | 487,540,663 | 509,329,055 | |||
| % | 1.6 | 2.7 | 4.3 | 95.7 | 100.0 |
(1) Percentage of level of risk in relation to the total portfolio; and
(2) Cumulative percentage of level of risk on total portfolio.
| III) | Operations |
| Exposure - Loans | R$ thousand | |||||||
| On time | Past-due until 14 days | Past-due 15 to 60 days | Past-due 61 to 90 days | Past-due 91 to 180 days | Past-due 181 to 360 days | Past-due more than 360 | Total | |
| Total on June 30, 2021 | 507,219,205 | 10,859,640 | 10,672,165 | 3,168,679 | 6,570,779 | 6,844,253 | 121,522 | 545,456,243 |
| Total on December 31, 2020 | 473,965,604 | 9,877,889 | 11,034,801 | 3,327,229 | 4,869,964 | 6,004,066 | 249,502 | 509,329,055 |
| 41 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| IV) | Emergency Employment Support Program (PESE) |
Considering the provisions of the CMN Resolution No. 4,846/20, we demonstrate below the loans relating to the Emergency Employment Support Program (PESE) classified by level of risk and accompanied by the amount of the provision made for each level of risk:
| Rating | R$ thousand | |||
| On June 30, 2021 | On December 31, 2020 | |||
| Assets | Provision | Assets | Provision | |
| AA | 10,805 | - | 14,144 | - |
| A | 96,793 | 72 | 93,650 | 70 |
| B | 234,557 | 352 | 272,091 | 408 |
| C | 740,277 | 9,630 | 977,458 | 14,330 |
| D | 146,796 | 6,604 | 113,968 | 5,127 |
| E | 16,249 | 1,218 | 6,991 | 524 |
| F | 7,054 | 740 | 2,227 | 234 |
| G | 6,893 | 1,034 | 1,348 | 202 |
| H | 13,824 | 2,074 | 5,188 | 778 |
| Total | 1,273,248 | 21,724 | 1,487,065 | 21,673 |
d)Concentration of loans
| R$ thousand | ||||
| On June 30, 2021 | % (1) | On December 31, 2020 | % (1) | |
| Largest borrower | 4,874,248 | 0.9 | 10,661,873 | 2.1 |
| 10 largest borrowers | 37,784,222 | 6.9 | 38,638,446 | 7.6 |
| 20 largest borrowers | 55,409,315 | 10.2 | 56,123,996 | 11.0 |
| 50 largest borrowers | 81,574,777 | 15.0 | 80,415,643 | 15.8 |
| 100 largest borrowers | 100,841,998 | 18.5 | 98,516,270 | 19.3 |
| (1) | Percentage on total portfolio (as defined by Bacen). |
e)By economic sector
| R$ thousand | ||||
| On June 30, 2021 | % | On December 31, 2020 | % | |
| Public sector | 5,413,913 | 1.0 | 11,810,973 | 2.3 |
| Oil, derivatives and aggregate activities | 4,382,004 | 0.8 | 10,661,873 | 2.1 |
| Production and distribution of electricity | 1,016,412 | 0.2 | 1,074,867 | 0.2 |
| Other industries | 15,497 | - | 74,233 | - |
| Private sector | 540,042,330 | 99.0 | 497,518,082 | 97.7 |
| Companies | 258,913,168 | 47.5 | 241,088,403 | 47.3 |
| Real estate and construction activities | 19,765,203 | 3.6 | 20,092,249 | 3.9 |
| Retail | 39,042,056 | 7.2 | 36,498,461 | 7.2 |
| Services | 39,827,671 | 7.3 | 30,106,424 | 5.9 |
| Transportation and concession | 24,554,879 | 4.5 | 23,662,184 | 4.6 |
| Automotive | 11,592,050 | 2.1 | 15,625,309 | 3.1 |
| Food products | 17,329,529 | 3.2 | 13,378,255 | 2.6 |
| Wholesale | 17,636,408 | 3.2 | 16,479,704 | 3.2 |
| Production and distribution of electricity | 6,562,166 | 1.2 | 6,979,203 | 1.4 |
| Iron and steel industry | 9,352,019 | 1.7 | 10,036,586 | 2.0 |
| Sugar and alcohol | 8,320,627 | 1.5 | 6,878,558 | 1.4 |
| Holding | 1,713,844 | 0.3 | 2,971,345 | 0.6 |
| Capital goods | 3,474,134 | 0.6 | 3,408,997 | 0.7 |
| Pulp and paper | 3,533,466 | 0.6 | 3,589,015 | 0.7 |
| Chemical | 5,488,355 | 1.0 | 5,510,960 | 1.1 |
| Cooperative | 3,632,928 | 0.7 | 3,829,556 | 0.8 |
| Financial | 2,843,428 | 0.5 | 3,062,861 | 0.6 |
| Leisure and tourism | 4,010,651 | 0.7 | 4,011,957 | 0.8 |
| Textiles | 2,443,590 | 0.4 | 2,481,493 | 0.5 |
| Agriculture | 1,514,464 | 0.3 | 1,631,959 | 0.3 |
| 42 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| R$ thousand | ||||
| On June 30, 2021 | % | On December 31, 2020 | % | |
| Oil, derivatives and aggregate activities | 1,933,472 | 0.4 | 2,177,060 | 0.4 |
| Other industries | 34,342,228 | 6.3 | 28,676,267 | 5.6 |
| Individuals | 281,129,162 | 51.5 | 256,429,679 | 50.3 |
| Total | 545,456,243 | 100.0 | 509,329,055 | 100.0 |
| f) | Changes in the renegotiated portfolio |
| R$ thousand | ||
| 2021 | 2020 | |
| Opening Balances at the beginning of the year | 29,757,140 | 19,033,643 |
| Amount renegotiated | 15,251,892 | 15,635,273 |
| Amount received/Others (1) | (13,867,009) | (8,696,011) |
| Write-offs | (2,632,728) | (2,844,995) |
| Closing balance on June 30 | 28,509,295 | 23,127,910 |
| Allowance for loan losses | 17,635,412 | 15,773,135 |
| Percentage on renegotiated portfolio | 61.9% | 68.2% |
(1) Includes the settlement of renegotiated contracts through the execution of new operations.
g)Income from loans and leasing
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Discounted trade receivables and loans | 23,857,122 | 25,422,891 |
| Financing and on-lending | 8,251,812 | 8,650,507 |
| Agricultural and agribusiness loans | 638,840 | 772,270 |
| Subtotal | 32,747,774 | 34,845,668 |
| Recovery of credits charged-off as losses | 3,116,066 | 2,513,651 |
| Subtotal | 35,863,840 | 37,359,319 |
| Leases, net of expenses | 99,966 | 87,554 |
| Total | 35,963,806 | 37,446,873 |
| 43 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
h)Provision for expected losses, changes in provision for expected losses and expected credit loss associated with credit risk expense
| I) | Composition - Provisions for Expected Losses Associated with Credit Risk |
| Level of risk | R$ thousand | |||||||||
| Provision | ||||||||||
| % Minimum provisioning required | Minimum required | Supplementary | Existing | % On June 30, 2021 (1) | % On December 31, 2020 (1) | |||||
| Specific | Generic | Total | ||||||||
| Installments past due | Installments not yet due | Total specific | ||||||||
| AA | - | - | - | - | - | - | - | - | - | - |
| A | 0.5 | - | - | - | 664,068 | 664,068 | 126,047 | 790,115 | 0.6 | 0.6 |
| B | 1.0 | 2,995 | 14,885 | 17,880 | 1,182,883 | 1,200,763 | 274,516 | 1,475,279 | 1.2 | 1.2 |
| C | 3.0 | 17,470 | 56,424 | 73,894 | 2,015,266 | 2,089,160 | 3,524,322 | 5,613,482 | 8.1 | 8.9 |
| Subtotal | 20,465 | 71,309 | 91,774 | 3,862,217 | 3,953,991 | 3,924,885 | 7,878,876 | 1.6 | 1.8 | |
| D | 10.0 | 106,726 | 312,878 | 419,604 | 1,648,127 | 2,067,731 | 3,752,942 | 5,820,673 | 28.2 | 26.6 |
| E | 30.0 | 230,862 | 530,149 | 761,011 | 1,544,864 | 2,305,875 | 1,388,825 | 3,694,700 | 48.1 | 48.3 |
| F | 50.0 | 373,878 | 644,384 | 1,018,262 | 3,093,231 | 4,111,493 | 951,009 | 5,062,502 | 61.6 | 60.8 |
| G | 70.0 | 513,442 | 952,481 | 1,465,923 | 1,632,238 | 3,098,161 | 1,213,322 | 4,311,483 | 97.4 | 97.1 |
| H | 100.0 | 3,719,885 | 4,270,421 | 7,990,306 | 9,505,975 | 17,496,281 | - | 17,496,281 | 100.0 | 100.0 |
| Subtotal | 4,944,793 | 6,710,313 | 11,655,106 | 17,424,435 | 29,079,541 | 7,306,098 | 36,385,639 | 62.2 | 64.7 | |
| Total on June 30, 2021 | 4,965,258 | 6,781,622 | 11,746,880 | 21,286,652 | 33,033,532 | 11,230,983 | 44,264,515 | 8.1 | ||
| % | 11.2 | 15.3 | 26.5 | 48.1 | 74.6 | 25.4 | 100.0 | |||
| Total on December 31, 2020 | 5,737,220 | 6,221,646 | 11,958,866 | 22,737,256 | 34,696,122 | 10,503,301 | 45,199,423 | 8.9 | ||
| % | 12.7 | 13.8 | 26.5 | 50.3 | 76.8 | 23.2 | 100.0 |
(1) Percentage of existing provision in relation to total portfolio, by level of risk.
| 44 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| II) | Changes in allowance for loan losses |
| R$ thousand | ||
| 2021 | 2020 | |
| - Specific provision (1) | 11,958,866 | 14,403,070 |
| - Generic provision (2) | 22,737,256 | 15,376,291 |
| - Supplementary provision (3) | 10,503,301 | 6,884,368 |
| Opening Balances at the beginning of the year | 45,199,423 | 36,663,729 |
| Constituição de provisão para créditos de liquidação duvidosa (Nota 9h III) | 7,458,275 | 15,549,313 |
| Write-offs | (8,305,034) | (9,827,856) |
| Exchange variation | (88,149) | 702,450 |
| Closing balance on June 30 | 44,264,515 | 43,087,636 |
| - Specific provision (1) | 11,746,880 | 12,829,718 |
| - Generic provision (2) | 21,286,652 | 18,262,639 |
| - Supplementary provision (3) | 11,230,983 | 11,995,279 |
(1) For contracts with installments past-due for more than 14 days;
(2) Recognized based on the customer/transaction classification and therefore not included in the preceding item; and
(3) The supplementary provision is constituted considering our provisioning model, which is based on statistical models that capture historical and prospective information, and Management's experience, in order to reflect our expectation of losses in different economic scenarios (positive, expected and adverse).
| III) | Allowance for Loan Losses expense net of amounts recovered |
Expenses with the allowance for loan losses, net of credit write-offs recovered, are as follows.
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Amount recorded | 7,458,275 | 15,549,313 |
| Amount recovered | (3,113,125) | (2,513,651) |
| Expected Credit Loss Associated with Credit Risk expense net of amounts recovered (1) | 4,345,150 | 13,035,662 |
(1) In the first semester of 2021, there was an assignment of credit for active operations, in the amount of R$2,073,710 thousand (R$582,315 thousand in 2020), whose sale value was R$331,423 thousand (R$32,355 thousand in 2020) and credit assignments for operations already written off for losses, without retaining risks and benefits in the amount of R$6,631,379 thousand (R$6,862,439 thousand in 2020), whose sale value was R$419,134 thousand (R$173,181 thousand in 2020).
| 11) | OTHER FINANCIAL INSTRUMENTS |
Sundry
| R$ thousand | ||
| On June 30, 2021 | On December 31, 2020 | |
| Foreign exchange portfolio (a) | 44,583,358 | 25,944,605 |
| Credit card operations | 35,744,936 | 34,605,794 |
| Trade and credit receivables | 23,913,853 | 18,393,488 |
| Debtors for escrow deposits | 17,238,072 | 16,804,132 |
| Securities trading | 5,791,667 | 5,259,185 |
| Receivables | 8,143,165 | 7,525,945 |
| Payments to be reimbursed | 711,956 | 618,949 |
| Receivables on sureties and guarantees honored | 284,511 | 146,158 |
| Other investments | 41,415 | 41,415 |
| Receivables from sale of assets | 142,807 | 119,841 |
| Total | 136,595,740 | 109,459,512 |
| 45 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
a)Foreign exchange portfolio
Balances
| R$ thousand | ||
| On June 30, 2021 | On December 31, 2020 | |
| Assets - other financial instruments | ||
| Exchange purchases pending settlement | 30,763,005 | 17,464,744 |
| Foreign exchange and forward documents in foreign currencies | 4,482 | 2,589 |
| Exchange sale receivables | 17,502,310 | 8,823,836 |
| (-) Advances in domestic currency received | (3,801,273) | (536,195) |
| Income receivable on advances granted | 114,834 | 189,631 |
| Total | 44,583,358 | 25,944,605 |
| Liability - Other financial instruments | ||
| Exchange sales pending settlement | 17,220,355 | 9,396,397 |
| Exchange purchase payables | 32,635,427 | 16,968,588 |
| (-) Advances on foreign exchange contracts | (16,857,131) | (7,607,428) |
| Other | 70 | 74 |
| Total | 32,998,721 | 18,757,631 |
| Net foreign exchange portfolio | 11,584,637 | 7,186,974 |
| Memorandum accounts: | ||
| - Loans available for import | 960,904 | 1,056,613 |
| - Confirmed exports loans | 12,070 | 10,034 |
Foreign exchange results
Adjusted foreign exchange results for presentation purposes
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Revenue from financial intermediation - foreign exchange income | (487,745) | 4,493,107 |
| Adjustments: | ||
| - Income on foreign currency financing (1) | 38,737 | 316,165 |
| - Income on export financing (1) | 658,791 | 950,444 |
| - Expenses of liabilities with foreign bankers (2) (Note 16d) | (189,107) | (4,883,591) |
| - Funding expenses (3) | (620,603) | (948,667) |
| - Other (4) | 1,217,024 | 1,165,418 |
| Total adjustments | 1,104,842 | (3,400,231) |
| Net foreign exchange income | 617,097 | 1,092,876 |
(1) Recognized in 'Income from loans';
(2) Related to funds for financing of advances on foreign exchange contracts and import financing, recognized in 'Borrowing and on-lending expenses';
(3) Refers to funding expenses of investments in foreign exchange; and
(4) Primarily includes the exchange rate variations of resources invested in foreign currency.
| 46 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
12)INVESTMENTS IN CONTROLLED/ASSOCIATES AND JOINTLY CONTROLLED COMPANIES
The income/expense from the equity method accounting of investments was recognized in the statement of income, under 'Share of profit (loss) of unconsolidated and jointly controlled companies', and are demonstrated below:
| Companies (1) | R$ thousand | |||||||||||
| Capital | Shareholders' equity adjusted | Number of shares/quotas held (in thousands) | Equity interest in capital | Adjusted income accumulated on June 30 | Book value | Equity accounting adjustments accrued on June 30 (4) | ||||||
| Ordinary (ON) |
Preferential (PN) | Quotas | 2021 | 2020 | On June 30, 2021 | On December 31, 2020 | 2021 | 2020 | ||||
| Bradseg Participações S.A. | 18,221,181 | 33,477,576 | 8,189 | - | - | 97.20% | 2,201,914 | 2,335,869 | 32,540,204 | 33,760,185 | 2,140,260 | 2,270,465 |
| Quixaba Empreendimentos e Participações Ltda. | 10,463,487 | 10,309,996 | - | - | 10,463,487 | 100.00% | 201,330 | 174,815 | 10,309,996 | 10,153,660 | 201,330 | 174,815 |
| Bradesco Seguros S.A. | 5,000,000 | 11,910,918 | 774,414 | - | - | 6.32% | 765,016 | 2,306,171 | 752,770 | 815,755 | 48,349 | 145,750 |
| Ágora Investimentos S.A. | 865,780 | 426,463 | 310,000 | - | - | 100.00% | 3,878 | 6,379 | 426,463 | 425,601 | 3,878 | 6,379 |
| Bradescard Elo Participações S.A. | 1,400,000 | 2,369,758 | 4,167,605 | - | - | 100.00% | 223,102 | 153,341 | 2,369,758 | 2,148,903 | 223,102 | 153,341 |
| Embaúba Holdings Ltda. | 326,000 | 526,193 | - | - | 326,000 | 87.70% | 4,352 | 5,806 | 461,471 | 457,132 | 3,817 | 5,092 |
| BF Promotora de Vendas Ltda. | 2,426,220 | 2,167,146 | - | - | 2,426,220 | 100.00% | 1,528 | 372 | 2,167,146 | 2,165,618 | 1,528 | 372 |
| Haitong Banco de Investimento do Brasil S.A. | 420,000 | 561,360 | 12,734 | 12,734 | 20.00% | 34,460 | 6,330 | 112,272 | 106,085 | 6,892 | 1,266 | |
| Credival - Participações Administração e Assessoria Ltda. | 1,021,027 | 1,065,219 | - | - | 102,102,687 | 100.00% | 10,532 | 11,201 | 1,065,219 | 1,054,686 | 10,532 | 11,201 |
| Bankpar Brasil Ltda. (2) | - | - | - | - | - | - | - | 18,778 | - | - | - | 18,778 |
| Foreign exchange gain/loss of branches abroad | - | - | - | - | - | - | - | - | - | - | (1,025,017) | 23,734,363 |
| Other (3) | - | - | - | - | - | - | - | - | 3,165,583 | 3,128,445 | 55,895 | 103,490 |
| Earnings of Associates and Subsidiaries | 53,370,882 | 54,216,070 | 1,670,566 | 26,625,312 |
(1) Date related to June 30, 2021;
(2) Company disposed of in September 2020;
(3) Basically, earnings of affiliates and subsidiaries overseas and investments in the following companies: Ganant Corretora de Seguros Ltda., Miramar Holdings S.A., Tapajós Holding Ltda. and Imagra Imobiliária e Agrícola Ltda; and
(4) The adjustment considers income calculated periodically by the companies and includes equity variations recognized by the investees not recognized in profit or loss, as well as alignment of accounting practice adjustments, where applicable.
| 47 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| 13) | PREMISES AND EQUIPMENT |
| R$ thousand | ||||||
| Annual depreciation rate | Cost | Accumulated depreciation | Accumulated Impairment of Assets | Cost, net of depreciation | ||
| On June 30, 2021 | On December 31, 2020 | |||||
| Property and equipment: | ||||||
| - Buildings | 4% | 59,182 | (38,668) | (2,764) | 17,750 | 19,100 |
| - Land | - | 54,730 | - | - | 54,730 | 54,730 |
| Facilities, furniture and premises and equipment | 10% | 5,202,734 | (2,926,389) | (61,305) | 2,215,040 | 2,310,876 |
| Security and communication systems | 10% | 376,454 | (235,445) | - | 141,009 | 149,273 |
| Data processing systems | 20 to 40% | 4,968,375 | (3,151,986) | - | 1,816,389 | 1,851,020 |
| Transportation systems | 10 to 20% | 192,560 | (88,931) | (72) | 103,557 | 111,514 |
| Assets under construction | - | 177,758 | - | - | 177,758 | 280,806 |
| Total on June 30, 2021 | 11,031,793 | (6,441,419) | (64,141) | 4,526,233 | ||
| Total on December 31, 2020 | 11,297,277 | (6,444,355) | (75,603) | 4,777,319 |
(1) In 2020, Impairment of 'Other Operating Expenses' was recorded in the amount of R$20,509 thousand (R$25,471 thousand in 2019).
The fixed assets to shareholders' equity ratio is 29.6% (30.1% in December 31, 2020) when only considering companies and payment institutions within the economic group (the 'Prudential Conglomerate'), where the maximum limit is 50.0% as required by Resolution No. 2,669/99.
14)INTANGIBLE ASSETS
a)Goodwill
The goodwill recognized from investment acquisitions totaled R$3,933,561 thousand (R$4,874,282 thousand on December 31, 2020), net of provisions for impairment and accumulated amortization, of which: (i) R$1,370,638 thousand (R$1,370,638 thousand on December 31, 2020) recognized in 'Investments' arose from the acquisition of shares of associates and jointly controlled companies (Cielo/Fleury); and (ii) R$2,562,923 thousand (R$3,503,644 thousand on December 31, 2020) arose from the acquisition of shares of subsidiaries, relating to the future profitability/client portfolio/fair value, which is amortized in up to twenty years, recognized in Intangible Assets.
In the first semester of 2021, goodwill was amortized totaling R$947,773 thousand (R$813,142 thousand in 2020).
b)Intangible assets
Acquired intangible assets consist of:
| R$ thousand | |||||
| Rate of Amortization (1) | Cost | Accumulated amortization | Cost net of amortization | ||
| On June 30, 2021 | On December 31, 2020 | ||||
| Acquisition of rights to provide financial services | Contract | 7,958,613 | (4,475,908) | 3,482,705 | 4,014,696 |
| Software | 20% | 10,977,230 | (8,200,685) | 2,776,545 | 2,340,084 |
| Goodwill (2) | Up to 20% | 12,291,231 | (9,646,752) | 2,644,479 | 3,589,978 |
| Other | Contract | 415,700 | (384,328) | 31,372 | 35,386 |
| Total on June 30, 2021 | 31,642,774 | (22,707,673) | 8,935,101 | ||
| Total on December 31, 2020 | 30,725,354 | (20,745,210) | 9,980,144 |
(1) Intangible assets are amortized over an estimated period of economic benefit, composed of: (i) Software and Other recorded under 'Other Administrative Expenses'; and (ii) Acquisition of Payroll and Goodwill in 'Other Operating Expenses'; and
(2) On June 30, 2021, primarily composed of goodwill on the acquisition of equity interest in BAC Florida Bank - R$1,532,872 thousand (R$7,706,513 thousand in 2020), Bradescard Mexico - R$12,122 thousand (R$12,796 thousand in 2020), Bradesco BBI - R$60,228 thousand (R$69,026 thousand in 2021), Kirton Bank - R$704,390 thousand (R$1,421,663 thousand in 2020) and RCB Investimentos - R$119,001 thousand (R$141,023 thousand in 2020).
| 48 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
c)Changes in intangible assets by type
| R$ thousand | ||||
| On December 31, 2020 | Additions / (reductions) | Amortization for the period | On June 30, 2021 | |
| Acquisition of rights to provide financial services | 4,014,696 | 43,513 | (575,504) | 3,482,705 |
| Software | 2,340,084 | 850,117 | (413,656) | 2,776,545 |
| Goodwill - Future profitability | 2,666,436 | 2,274 | (655,993) | 2,012,717 |
| Goodwill - Based on intangible assets and other reasons | 529,961 | - | (257,763) | 272,198 |
| Goodwill - Difference in fair value of assets/liabilities | 393,581 | - | (34,017) | 359,564 |
| Other | 35,386 | 61,795 | (65,809) | 31,372 |
| On June 30, 2021 | 9,980,144 | 957,699 | (2,002,742) | 8,935,101 |
| On June 30, 2020 | 10,680,316 | 960,543 | (1,941,359) | 9,699,500 |
15)OTHER ASSETS
| R$ thousand | |||
| On June 30, 2021 | On December 31, 2020 | ||
| Prepaid taxes | 12,128,767 | 13,396,320 | |
| Other assets and values (a) | 4,279,591 | 4,257,084 | |
| Other debtors | 2,887,987 | 3,740,489 | |
| Interbank and interdepartmental accounts | 11,288,808 | 9,037,149 | |
| Specific receivables | 100,948 | 105,410 | |
| Other | 1,834,274 | 1,709,967 | |
| Total | 32,520,375 | 32,246,419 |
| a) | Other Assests and Value |
| I) | Non-financial assets held for sale/other |
| R$ thousand | ||||
| Cost | Accumulated Impairment of Assets | Cost net of provision | ||
| On June 30, 2021 | On December 31, 2020 | |||
| Real estate | 2,642,204 | (1,704,526) | 937,678 | 964,744 |
| Vehicles and similar | 390,908 | (255,232) | 135,676 | 126,399 |
| Inventories/warehouse | 5,667 | - | 5,667 | 7,444 |
| Machinery and equipment | 4,151 | (2,889) | 1,262 | 1,487 |
| Other | 13,591 | (13,304) | 287 | 39 |
| Total on June 30, 2021 | 3,056,521 | (1,975,951) | 1,080,570 | |
| Total on December 31, 2020 | 3,049,453 | (1,949,340) | 1,100,113 |
| II) | Prepaid expenses |
| R$ thousand | ||
| On June 30, 2021 | On December 31, 2020 | |
| Anticipation for Acquisition of rights to provide financial services | 136,101 | 136,583 |
| Commission on the placement of loans and financing (1) | 26,991 | 66,835 |
| Advertising and marketing expenses (2) | 307,153 | 404,116 |
| Other (3) | 752,825 | 600,097 |
| Total | 1,223,070 | 1,207,631 |
(1) Commissions paid to storeowners, car dealers and correspondent banks - payroll-deductible loans;
(2) Prepaid expenses of future advertising and marketing campaigns on media; and
(3) It includes, principally, (i) anticipation of commissions concerning the operational agreement to offer credit cards and other products and (ii) card issue costs.
| 49 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
16)DEPOSITS FROM BANKS
| R$ thousand | ||||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | More than 360 days | On June 30, 2021 | On December 31, 2020 | |
| Demand deposits - Financial Institutions | 2,063,312 | - | - | - | 2,063,312 | 1,675,506 |
| Interbank deposits | 450,761 | 1,686,241 | 402,426 | 200,321 | 2,739,749 | 797,217 |
| Securities sold under agreements to repurchase (a) | 248,498,479 | 3,564,095 | - | 2,420,735 | 254,483,309 | 247,477,131 |
| Borrowings (b) | 4,157,005 | 18,698,009 | 10,264,805 | - | 33,119,819 | 23,989,841 |
| Onlending (c) | 1,655,382 | 2,857,915 | 2,936,544 | 16,049,887 | 23,499,728 | 23,814,958 |
| Total on June 30, 2021 | 256,824,939 | 26,806,260 | 13,603,775 | 18,670,943 | 315,905,917 | |
| % | 81.3 | 8.5 | 4.3 | 5.9 | 100.0 | |
| Total on December 31, 2020 | 251,942,233 | 18,319,819 | 9,944,641 | 17,547,960 | 297,754,653 | |
| % | 84.6 | 6.2 | 3.3 | 5.9 | 100.0 |
| a) | Securities sold under agreements to repurchase |
| R$ thousand | ||||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | More than 360 days | On June 30, 2021 | On December 31, 2020 | |
| Securities pledged as collateral | 166,853,378 | 2,758,803 | - | 2,420,735 | 172,032,916 | 92,899,592 |
| ● Government securities | 157,242,064 | 291,577 | - | - | 157,533,641 | 79,862,308 |
| ● Debentures | 3,650,806 | - | - | 11,376 | 3,662,182 | 7,505,862 |
| ● Foreign | 5,960,508 | 2,467,226 | - | 2,409,359 | 10,837,093 | 5,531,422 |
| Securities received as collateral (1) | 67,749,158 | 805,292 | - | - | 68,554,450 | 144,460,029 |
| Right to sell or repledge the collateral (1) | 13,895,943 | - | - | - | 13,895,943 | 10,117,510 |
| Total on June 30, 2021 | 248,498,479 | 3,564,095 | - | 2,420,735 | 254,483,309 | |
| % | 97.6 | 1.4 | - | 1.0 | 100.0 | |
| Total on December 31, 2020 | 245,379,026 | 561,529 | 10,993 | 1,525,583 | 247,477,131 | |
| % | 99.2 | 0.2 | - | 0.6 | 100.0 |
| (1) | Represented by government securities. |
b)Borrowing
| R$ thousand | ||||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | On June 30, 2021 | On December 31, 2020 | ||
| Overseas | 4,157,005 | 18,698,009 | 10,264,805 | 33,119,819 | 23,989,841 | |
| Total on June 30, 2021 | 4,157,005 | 18,698,009 | 10,264,805 | 33,119,819 | ||
| % | 12.6 | 56.4 | 31.0 | 100.0 | ||
| Total on December 31, 2020 | 2,893,968 | 15,074,570 | 6,021,303 | 23,989,841 | ||
| % | 12.1 | 62.8 | 25.1 | 100.0 |
c)On-lending (1)
| R$ thousand | |||||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | More than 360 days | On June 30, 2021 | On December 31, 2020 | ||
| In Brazil | 1,655,382 | 2,857,915 | 2,936,544 | 16,049,887 | 23,499,728 | 23,814,958 | |
| - FINAME | 240,806 | 1,667,134 | 1,562,393 | 7,659,873 | 11,130,206 | 10,979,709 | |
| - BNDES | 1,414,576 | 1,190,756 | 1,239,528 | 8,388,597 | 12,233,457 | 12,720,831 | |
| - National Treasury | - | - | 134,623 | - | 134,623 | 112,354 | |
| - Other institutions | - | 25 | - | 1,417 | 1,442 | 2,064 | |
| Total on June 30, 2021 | 1,655,382 | 2,857,915 | 2,936,544 | 16,049,887 | 23,499,728 | ||
| % | 7.0 | 12.2 | 12.5 | 68.3 | 100.0 | ||
| Total on December 31, 2020 | 1,841,255 | 2,559,667 | 3,391,905 | 16,022,131 | 23,814,958 | ||
| % | 7.7 | 10.8 | 14.2 | 67.3 | 100.0 |
(1) Onlendings consist of funds borrowed for local onlending, in which we borrow from Brazilian governmental agencies and entities to make loans to Brazilian entities for investments in facilities, equipment and farming, among others.
| 50 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
d)Borrowing and on-lending expenses
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Borrowing: | ||
| - In Brazil | 642 | 6,553 |
| - Overseas | (1,567,228) | 26,938,451 |
| Subtotal borrowing | (1,566,586) | 26,945,004 |
| On-lending in Brazil: | ||
| - BNDES | 436,088 | 293,331 |
| - FINAME | 344,206 | 450,476 |
| - National Treasury | 530 | 2,441 |
| - Other institutions | 2 | 2 |
| On-lending overseas: | ||
| - Payables to foreign bankers (Note 11a) | 189,107 | 4,883,591 |
| Subtotal on-lending | 969,933 | 5,629,841 |
| Total | (596,653) | 32,574,845 |
e)Cost for market funding and inflation
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Savings deposits | 1,487,217 | 1,747,802 |
| Time deposits | 3,249,600 | 3,190,572 |
| Securities sold under agreements to repurchase | 4,436,822 | 5,395,297 |
| Securities issued | 2,281,034 | 4,058,129 |
| Subordinated debts (Note 18a) | 1,056,573 | 1,341,995 |
| Other funding expenses (Note 19b) | 369,715 | 433,156 |
| Total | 12,880,961 | 16,166,951 |
| 51 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
17)DEPOSITS FROM CUSTOMERS
| R$ thousand | ||||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | More than 360 days | On June 30, 2021 | On December 31, 2020 | |
| Demand deposits - customers (1) | 52,741,828 | - | - | - | 52,741,828 | 50,909,043 |
| Savings deposits (1) | 137,400,709 | - | - | - | 137,400,709 | 136,698,248 |
| Time deposits (2) | 19,903,957 | 26,486,501 | 70,366,955 | 239,093,147 | 355,850,560 | 360,630,744 |
| Total on June 30, 2021 | 210,046,494 | 26,486,501 | 70,366,955 | 239,093,147 | 545,993,097 | |
| % | 38.4 | 4.9 | 12.9 | 43.8 | 100.0 | |
| Total on December 31, 2020 | 204,044,551 | 50,745,362 | 55,180,239 | 238,267,883 | 548,238,035 | |
| % | 37.1 | 9.3 | 10.1 | 43.5 | 100.0 |
(1) Classified within 1 to 30 days, without considering the historical turnover average; and
(2) Consider the maturities established in the investments.
18)SECURITIES ISSUED
| R$ thousand | ||||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | More than 360 days | On June 30, 2021 | On December 31, 2020 | |
| Securities - Brazil: | ||||||
| - Financial bills (1) | 344,084 | 14,618,800 | 27,361,981 | 38,937,845 | 81,262,710 | 90,442,619 |
| - Letters of credit for real estate | 752,262 | 5,683,446 | 7,652,780 | 12,244,816 | 26,333,304 | 27,601,333 |
| - Letters of credit for agribusiness | 328,582 | 1,515,769 | 2,001,597 | 9,714,799 | 13,560,747 | 14,694,484 |
| - Letters of credit guaranteed by property (2) | - | 523,165 | 4,390,783 | 5,219,257 | 10,133,205 | 7,930,718 |
| Subtotal | 1,424,928 | 22,341,180 | 41,407,141 | 66,116,717 | 131,289,966 | 140,669,154 |
| Securities - Overseas: | ||||||
| - MTN Program Issues (3) | 458,101 | 4,309 | 206,510 | 1,048,865 | 1,717,785 | 2,113,000 |
| - Securitization of future flow of money orders received from overseas | - | 453,476 | 50,022 | 7,824,465 | 8,327,963 | 9,119,512 |
| Subtotal | 458,101 | 457,785 | 256,532 | 8,873,330 | 10,045,748 | 11,232,512 |
| Structured Operations Certificates | 38,367 | 74,416 | 182,013 | 2,022,691 | 2,317,487 | 1,863,073 |
| Total on June 30, 2021 | 1,921,396 | 22,873,381 | 41,845,686 | 77,012,738 | 143,653,201 | |
| % | 1.4 | 15.9 | 29.1 | 53.6 | 100.0 | |
| Total on December 31, 2020 | 2,461,435 | 33,338,441 | 34,365,862 | 83,599,001 | 153,764,739 | |
| % | 1.6 | 21.7 | 22.3 | 54.4 | 100.0 |
(1) In December 31, 2020, it includes the amount of R$2,034,532 thousand, related to Financial Bills with guarantee in financial assets (LFG), registered in accordance with Circular Letter No. 4,050 of BACEN of May 13, 2020, transaction settled on May 6, 2021;
(2) Funding guaranteed by the real estate credit portfolio, in the amount of R$10,549,843 thousand (R$8,942,892 thousand in December 31, 2020), which complies with all the requirements determined by BACEN Resolution No. 4,598/17, of which: sufficiency requirement, liquidity requirement, term requirement, Programs 1, 2 and 3 for the issuance of letters of credit guaranteed by property (LIGs) had, at issuance, respectively, a weighted average term for the portfolio of assets of 264, 269 and 275 months and a term of 9.54 and 54 months, with no maturity of LIGs in the following 180 days, the credit rights correspond to 0.75% of total assets and 45.31% of the value of collateral of the properties, Currently, the credit portfolio of the guarantor assets is concentrated in the AA and A ratings, with 86.52% and 7.99%, respectively. Additionally, the LIG Term of Issue and the asset portfolio management policy, pursuant to article 11 of BACEN Resolution No. 4,598/17; and
(3) Issuance of securities on the international market to invest in foreign exchange transactions, pre-export financing, import financing and working capital financing, predominately in the medium and long-term.
| 52 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
a)Movement of funds from issuance of securities
| R$ thousand | ||
| 2021 | 2020 | |
| Opening Balances at the beginning of the year | 153,764,739 | 186,297,851 |
| Issuance | 41,056,607 | 39,068,011 |
| Interest | 2,281,034 | 4,058,129 |
| Settlement and interest payments | (53,125,105) | (59,347,299) |
| Exchange variation | (324,074) | 568,411 |
| Closing balance on June 30 | 143,653,201 | 170,645,103 |
19)SUBORDINATED DEBT
a)Composition by maturity
| R$ thousand | ||||
| Original term in years | Nominal amount | On June 30, 2021 | On December 31, 2020 | |
| In Brazil | - | |||
| Financial bills: | - | |||
| 2022 | 7 | 4,305,011 | 6,783,499 | 6,662,957 |
| 2023 | 7 | 1,347,452 | 2,047,519 | 2,011,986 |
| 2024 | 7 | 67,450 | 98,414 | 93,765 |
| 2025 | 7 | 5,425,906 | 6,214,992 | 6,126,601 |
| 2027 | 7 | 401,060 | 412,766 | 403,352 |
| 2021 | 8 | - | - | 2,565 |
| 2023 | 8 | 1,699,346 | 2,573,884 | 2,798,899 |
| 2024 | 8 | 136,695 | 203,574 | 196,932 |
| 2025 | 8 | 6,193,653 | 6,364,075 | 6,340,117 |
| 2026 | 8 | 694,800 | 794,458 | 783,605 |
| 2028 | 8 | 55,437 | 56,966 | 55,702 |
| 2021 | 9 | - | - | 15,460 |
| 2024 | 9 | 4,924 | 9,925 | 9,347 |
| 2025 | 9 | 370,344 | 521,945 | 507,771 |
| 2027 | 9 | 89,700 | 108,281 | 104,782 |
| 2021 | 10 | 17,001 | 53,627 | 56,608 |
| 2022 | 10 | 54,143 | 137,018 | 128,910 |
| 2023 | 10 | 688,064 | 1,399,083 | 1,318,725 |
| 2025 | 10 | 284,137 | 648,320 | 596,797 |
| 2026 | 10 | 196,196 | 351,411 | 329,699 |
| 2027 | 10 | 256,243 | 354,845 | 338,894 |
| 2028 | 10 | 248,300 | 328,932 | 308,959 |
| 2030 | 10 | 134,500 | 146,641 | 139,596 |
| 2031 | 10 | 1,363,600 | 1,365,882 | - |
| 2026 | 11 | 3,400 | 5,666 | 5,477 |
| 2027 | 11 | 47,046 | 67,482 | 65,771 |
| 2028 | 11 | 74,764 | 106,839 | 100,369 |
| Perpetual | 10,674,055 | 10,808,377 | 9,389,642 | |
| Subtotal in Brazil | 41,964,421 | 38,893,288 | ||
| Overseas: | - | |||
| 2021 | 11 | - | - | 8,539,366 |
| 2022 | 11 | 5,502,420 | 5,606,125 | 5,822,747 |
| Subtotal overseas | 5,606,125 | 14,362,113 | ||
| Total (1) (2) (3) | 47,570,546 | 53,255,401 |
(1) It includes the amount of R$25,515,920 thousand (R$26,741,610 thousand on December 31, 2020), refers to subordinated debts recognized as 'Eligible Debt Capital Instruments' for regulatory capital purpose - see note 34b;
(2) The information on results is presented on Note 16e, cost for market funding; and
(3) In the first semester of 2021, the subordinated debt issued abroad - Bradesco Grand Cayman - reached the maturity date and was settled for R$8,314,720 thousand.
| 53 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
b)Movement of subordinated debts
| R$ thousand | ||
| 2021 | 2020 | |
| Opening Balances at the beginning of the year | 53,255,401 | 49,318,063 |
| Issuance | 2,747,400 | - |
| Interest | 1,056,573 | 1,341,995 |
| Settlement and interest payments | (8,951,289) | (1,099,682) |
| Exchange variation | (537,539) | 3,988,493 |
| Closing balance on June 30 | 47,570,546 | 53,548,869 |
20)OTHER FINANCIAL LIABILITIES
| R$ thousand | |||
| On June 30, 2021 | On December 31, 2020 | ||
| Interbank and interdepartmental accounts | 38,772,079 | 36,652,214 | |
| Foreign exchange portfolio (Note 11a) | 32,998,721 | 18,757,631 | |
| Obligations for operations linked to assignment | 5,007,602 | 6,098,991 | |
| Securities trading | 5,557,779 | 5,742,052 | |
| Total | 82,336,181 | 67,250,888 |
21)PROVISIONS
a)Other reserves
| R$ thousand | |||
| On June 30, 2021 | On December 31, 2020 | ||
| Provision for contingencies (Note 22b III) | 20,991,315 | 21,310,181 | |
| Provision for Financial guarantees provided (I) | 2,122,336 | 2,219,444 | |
| Other | 5,908,337 | 6,735,885 | |
| Total | 29,021,988 | 30,265,510 |
| I) | Financial guarantees |
Financial guarantees provided are contracts requiring the Organization to make specific payments to the holder of the financial guarantee for a loss it will incur when a specific debtor fails to make the payment under the terms of the debt instrument. The provision for financial guarantees provided is formed based on the best estimate of the non-recoverable amount of the guarantee, if such disbursement is likely. The provisioning parameters are established based on the internal credit risk management models. In the case of retail operations, quantitative models are adopted, while in wholesale the combination of quantitative models with individualized analyzes is adopted.
| R$ thousand | ||||
| On June 30, 2021 | On December 31, 2020 | |||
| Guaranteed Values | Provisions | Guaranteed Values | Provisions | |
| Surety and guarantees in judicial and administrative proceedings of a fiscal nature | 35,709,414 | (845,704) | 36,166,993 | (856,200) |
| Bank sureties | 40,369,125 | (1,273,993) | 43,056,379 | (1,353,020) |
| Others | 1,294,170 | (2,639) | 1,013,324 | (10,224) |
| Total | 77,372,709 | (2,122,336) | 80,236,696 | (2,219,444) |
| 54 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
22)PROVISIONS, CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS - TAX AND SOCIAL SECURITY
a)Contingent assets
Contingent assets are not recognized in the financial statements. However, there are ongoing proceedings where the chance of success is considered probable, such as: a) Social Integration Program (PIS), Bradesco has made a claim to offset PIS against Gross Operating Income, paid under Decree-Laws No. 2,445/88 and No. 2,449/88, regarding the payment that exceeded the amount due under Supplementary Law No. 07/70 (PIS Repique); and b) other taxes, the legality and/or constitutionality of which is being challenged, where the decision may lead to reimbursement of amounts paid.
b)Provisions classified as probable losses and legal obligations - tax and social security
The Organization is a party to a number of labor, civil and tax lawsuits, arising from the normal course of business.
Management recognized provisions where, based on their opinion and that of their legal counsel, the nature of the lawsuit, similarity to previous lawsuits, complexity and the courts standing, the loss is deemed probable.
Management considers that the provision is sufficient to cover the future losses generated by the respective lawsuits.
Provisions related to legal obligations are maintained until the conclusion of the lawsuit, represented by judicial decisions with no further appeals or due to the statute of limitation.
| I | -Labor claims |
These are claims brought by former employees and outsourced employees seeking indemnifications, most significantly for unpaid 'overtime', pursuant to Article 224 of the Consolidation of Labor Laws (CLT). Considering that the proceedings database is basically composed by proceedings with similar characteristics and for which there has been no official court decision, the provision is recognized considering the following factors, among others: date of receipt of the proceedings (before or after the labor reform of November 2017), the average calculated value of payments made for labor complaints settled in the past 12 months before and after the labor reform, and inflation adjustment on the average calculated values.
Overtime is monitored by using electronic time cards and paid regularly during the employment contract, so that the claims filed by Bradesco's former employees do not represent individually relevant amounts.
| II | -Civil claims |
These are claims for pain and suffering and property damages, related to banking products and services, the inclusion of information about debtors in the credit restriction registry and the replacement of inflation adjustments excluded as a result of government economic plans. These lawsuits are individually controlled using a computer-based system and provisioned whenever the loss is deemed as probable, considering the opinion of the legal advisors, the nature of the lawsuits, similarity with previous lawsuits, complexity and positioning of the courts. Most of these lawsuits involve the Special Civil Court (JEC), in which the claims are limited to 40 minimum wages.
In relation to the legal claims that are pleading alleged differences in the adjustment of inflation on savings account balances and due to the implementation of economic plans that were part of the
| 55 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
federal government's economic policy to reduce inflation in the 80s and 90s, Bradesco, despite complying with the law and regulation in force at the time, has provisioned certain proceedings, taking into consideration the claims in which they were mentioned and the perspective of loss of each demand, in view of the decisions and subjects still under analysis in the Superior Court of Justice (STJ), such as, for example, the application of interest in executions arising from Public Civil Actions and succession.
In December 2017, with the mediation of the Attorney's General Office (AGU), the entities representing the bank and the savings accounts, entered into an agreement related to litigation of economic plans, with the purpose of closing these claims, in which conditions and schedule were established for savings accounts holders to accede to the agreement. This agreement was approved by the Federal Supreme Court (STF) on March 1, 2018. On March 11, 2020, the signatory entities signed an amendment extending the collective agreement for a period of 5 (five) years, the Federal Supreme Court approved the extension of the agreement for 30 months, an opportunity in which it will evaluate the results and may extend it for another 30 months. As this is a voluntary agreement, Bradesco is unable to predict how many savings account holders will choose to accept the settlement offer. It is important to note that Bradesco understands that the provisioning was made to cover the eligible proceedings to the related agreement. The proceedings that are not in the scope of the agreement, including those related to merged banks are individually revaluated based on the procedural stage they are in.
Note that, regarding disputes relating to economic plans, the Federal Supreme Court (STF) suspended the prosecution of all lawsuits at the cognizance stage, until the Court issues a final decision on the right under litigation.
| III | -Provision for tax risks |
The Organization is disputing the legality and constitutionality of certain taxes and contributions in court, for which provisions have been recognized in full, although there is a good chance of a favorable outcome, based on the opinion of Management and their legal counsel. The processing of these legal obligations and the provisions for cases for which the risk of loss is deemed as probable is regularly monitored in the legal court. During or after the conclusion of each case, a favorable outcome may arise for the Organization, resulting in the reversal of the related provisions.
The main cases are:
| - | PIS and COFINS - R$2,696,746 thousand (R$2,697,431 thousand in December 2020): claims to calculate and collect contributions to PIS and Cofins only on the sale of goods / rendering of services (billing), excluding from the calculation bases Financial income; |
| - | Pension Contributions - R$1,725,736 thousand (R$1,660,787 thousand in December 2020): official notifications related to the pension contributions on financial contributions in private pension plans, considered by the authorities to be compensatory sums subject to the incidence of pension contributions and to an isolated fine for not withholding IRRF on the financial contributions; |
| - | IRPJ/CSLL on losses of credits - R$879,408 thousand (R$1,262,225 thousand in December 2020): we are requesting to deduct from income tax and social contributions payable (IRPJ and CSLL, respectively) amounts of actual and definite loan losses related to unconditional discounts granted during collections, regardless of compliance with the terms and conditions provided for in Articles 9 to 14 of Law No. 9,430/96 that only apply to temporary losses; |
| 56 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| - | IRPJ/CSLL on MTM - R$639,418 thousand (R$635,802 thousand in December 2020): IRPJ and CSLL deficiency note related to the exclusions of revenues marking Securities at fair value in 2007; and |
| - | INSS - Contribution to SAT - R$443,448 thousand (R$440,524 thousand in December 2020): in an ordinary lawsuit filed by the Brazilian Federation of Banks - Febraban, since April 2007, on behalf of its members, is questioned the classification of banks at the highest level of risk, with respect to Work Accident Risk - RAT, which eventually raised the rate of the respective contribution from 1% to 3%, in accordance with Decree No. 6,042/07. |
In general, the provisions relating to lawsuits are classified as non-current, due to the unpredictability of the duration of the proceedings in the Brazilian justice system. For this reason, the estimate has not been disclosed with relation to the specific year in which these lawsuits will be finalized.
| IV | -Provisions by nature |
| R$ thousand | ||
| On June 30, 2021 | On December 31, 2020 | |
| Labor claims | 6,451,867 | 6,472,878 |
| Civil claims | 7,563,477 | 7,591,658 |
| Provision for tax risks | 6,975,971 | 7,245,645 |
| Total (Note 21a) | 20,991,315 | 21,310,181 |
| V | -Changes in provisions - Provision expenses |
| R$ thousand | |||
| Labor | Civil | Tax | |
| Balance on December 31, 2020 | 6,472,878 | 7,591,658 | 7,245,645 |
| Adjustment for inflation | 380,367 | 176,947 | 47,146 |
| Provisions, net of (reversals and write-offs) | 426,371 | 572,340 | (309,893) |
| Payments | (827,749) | (777,468) | (6,927) |
| Balance on June 30, 2021 | 6,451,867 | 7,563,477 | 6,975,971 |
| c) | Contingent liabilities classified as possible losses |
The Organization maintains a system to monitor all administrative and judicial proceedings in which the institution is plaintiff or defendant and, based on the opinion of legal counsel, classifies the lawsuits according to the expectation of loss. Case law trends are periodically analyzed and, if necessary, the related risk is reclassified. In this respect, contingent lawsuits deemed to have a possible risk of loss are not recognized as a liability in the financial statements and totaled, on June 30, 2021, R$6,754,201 thousand (R$6,718,086 thousand in December 2020) for civil claims and R$29,579,768 thousand (R$28,453,423 thousand in December 2020) for tax proceedings.
The main fiscal proceedings in this category are:
| - | IRPJ and CSLL deficiency note - 2013 to 2015 - R$9,514,680 thousand (R$9,431,944 thousand in December 2020): due to the disallowance of interest expenses (CDI), related to certain investments and deposits between the companies of the Organization; |
| - | COFINS - 2001 and 2005 - R$5,438,644 thousand (R$5,353,592 thousand in december 2020): Fines and disallowances of Cofins loan compensations, released after a favorable decision in a judicial proceeding, where the unconstitutionality of the expansion of the intended calculation base was discussed for revenues other than those from billing (Law No. 9,718/98); |
| - | IRPJ and CSLL - 2006 to 2017 - R$3,143,603 thousand (R$2,970,591 thousand in December 2020), relating to goodwill amortization being disallowed on the acquisition of investments; |
| 57 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| - | Leasing companies' Tax on Services of any Nature (ISSQN), R$2,635,707 thousand (R$2,485,745 thousand in December 2020) which relates to the municipal tax demands from municipalities other than those in which the company is located and where, under law, tax is collected; |
| - | Social Security Contribution Taxes - 2014 to 2016 - R$2,101,658 thousand (R$2,079,650 thousand in December 2020): related to food and meal allowance made available to employees, according to the Worker's Food Program - PAT, through card and not 'in natura'; |
| - | IRPJ and CSLL deficiency note - 2000 to 2014 - R$1,061,577 thousand (R$848,605 thousand in December 2020): relating to disallowance of exclusions and expenses, differences in depreciation expenses, insufficient depreciation expenses, expenses with depreciation of leased assets, operating expenses and income and disallowance of tax loss compensation; and |
| - | IRPJ and CSLL deficiency note - 2005 to 2016 - R$849,647 thousand (R$834,272 thousand on December 31, 2020): relating to disallowance of expenses with credit losses; |
| - | PLR - Profit Sharing - Base years from 2009 to 2011 - R $ 499,740 thousand (R$462,516 thousand in December 2020): assessments for the requirement of social security contribution on amounts paid to employees as profit sharing, for alleged disregard of the rules contained in Law No. 10,101 / 00 from acquired companies; and |
- PIS and COFINS notifications and disallowances of compensations - R$275,961 thousand (R$274,311 thousand in December 2020): related to the unconstitutional extension of the basis of calculation intended for other income other than the billing (Law No. 9,718/98), from acquired companies.
d)Other matters
Due to the so-called 'Operação Zelotes' ('Zealots Operation'), which investigates the alleged improper performance of members of CARF - Administrative Council of Tax Appeals, a criminal proceeding against two former members of Bradesco's Board of Executive Officers was opened in 2016 and received by the 10th Federal Court of Judicial Section of the Federal District. The investigation phase of the process was already completed, and is currently waiting for the decision of the first-degree court, Bradesco is not part of this process.
The Company's Management conducted an internal evaluation of records and documents related to the matter and found no evidence of any illegal conduct practiced by its former representatives.
As a result of Operação Zelotes, the Corregedoria Geral do Ministério da Fazenda (General Internal Affairs of the Ministry of Finance) promoted an investigative administrative procedure to verify the need for the establishment of an Administrative Accountability Process ('PAR'). The filing decision of the related procedure was published in Section 2 of the Diário Oficial da União (Federal Official Gazette) on February 3, 2020. The decision given by the Official of the Ministry of Economy accepted in full the Final Report of the Processing Committee, the Opinion of the National Treasury Attorney General's Office and the Joint Order of the General Coordination of Management and Administration, and of the Leadership of the Advisory and Judgment Division, which confirmed, expressly recognizing, the lack of evidence that Bradesco had promised, offered or given, directly or indirectly, an unfair advantage to public agents involved in the related operation, in accordance with the provisions laid down in Article 5, section I, of Law No. 12,846, of 2013.
| 58 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| 23) | OTHER LIABILITIES |
| R$ thousand | ||
| On June 30, 2021 | On December 31, 2020 | |
| Sundry creditors | 4,772,360 | 4,973,529 |
| Payment of taxes and other contributions | 7,258,070 | 550,328 |
| Credit card operations | 3,262,709 | 3,337,914 |
| Taxes and contributions payable | 2,758,539 | 2,736,994 |
| Liabilities for acquisition of assets and rights | 1,163,923 | 677,370 |
| Social and statutory | 5,383,567 | 3,646,975 |
| Obligations for quotas of investment funds | 2,189,684 | 2,194,442 |
| Other | 8,581,237 | 8,219,538 |
| Total | 35,370,089 | 26,337,090 |
| 24) | SHAREHOLDERS' EQUITY (PARENT COMPANY) |
a)Capital stock in number of shares
Fully subscribed and paid-in capital stock comprises non-par, registered, book-entry shares.
| On June 30, 2021 | On December 31, 2020 | |
| Common | 4,870,579,247 | 4,435,106,575 |
| Preferred | 4,848,500,325 | 4,435,106,111 |
| Subtotal | 9,719,079,572 | 8,870,212,686 |
| Treasury (common shares) (1) (2) | (5,402,200) | (7,307,259) |
| Treasury (preferred shares) (1) (2) | (3,845,300) | (27,378,542) |
| Total outstanding shares | 9,709,832,072 | 8,835,526,885 |
(1) In the second quarter of 2021, there was a repurchase of shares issued by the Company to be held in treasury and in the first quarter of 2021, the cancellation of all shares held in treasury issued by the Company was approved (item e); and
(2) Includes shares acquired on June 29 and 30, 2021 (ON - 1,365,300 and PN - 1,155,100), with financial settlement in July 2021.
b)Transactions of capital stock involving quantities of shares
| Common | Preferred | Total | |
| Number of outstanding shares as at December 31, 2020 | 4,427,799,316 | 4,407,727,569 | 8,835,526,885 |
| Increase of capital stock with issuing of shares - bonus of 10% (1) | 442,779,931 | 440,772,756 | 883,552,687 |
| Acquisition of treasury shares | (5,402,200) | (3,845,300) | (9,247,500) |
| Number of outstanding shares as at June 30, 2021 | 4,865,177,047 | 4,844,655,025 | 9,709,832,072 |
(1) It benefited the shareholders registered in the records of Bradesco on April 16, 2021.
In the Special Shareholders' Meeting of March 10, 2021, the approval was proposed by the Board of Directors to increase the capital stock by R$4,000,000 thousand, increasing it from R$79,100,000 thousand to R$83,100,000 thousand, with a bonus in shares, through the capitalization of part of the balance of the account 'Profit Reserves - Statutory Reserve', in compliance with the provisions in Article 169 of Law No. 6,404/76, by issuing 883,552,687 new nominative-book entry shares, with no nominal value, whereby 442,779,931 are common and 440,772,756 are preferred shares, which will be allocated free-of-charge to the shareholders as bonus, to the ratio of 1 new share for every 10 shares of the same type that they own on the base date.
| c) | Earnings per share |
| i. | Basic earnings per share |
| 59 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
The basic earnings per share was calculated based on the weighted average number of common and preferred shares outstanding, as shown in the calculations below. For the purposes of calculating earnings per share, the quantity of shares was adjusted as if the share bonus approvaed on March 10, 2021 had occurred at the beginning of the earliest period presented:
| Six months ended on June 30 | ||
| 2021 (1) | 2020 (1) | |
| Net earnings attributable to the Organization's common shareholders (R$ thousand) | 5,789,074 | 3,288,180 |
| Net earnings attributable to the Organization's preferred shareholders (R$ thousand) | 6,337,988 | 3,599,961 |
| Weighted average number of common shares outstanding (thousands) | 4,869,319 | 4,870,579 |
| Weighted average number of preferred shares outstanding (thousands) | 4,847,603 | 4,848,500 |
| Basic earnings per share attributable to common shareholders of the Organization (in Reais) | 1.19 | 0.68 |
| Basic earnings per share attributable to preferred shareholders of the Organization (in Reais) | 1.31 | 0.74 |
| ii. | Diluted earnings per share |
Diluted earnings per share is the same as basic earnings per share since there are no potentially dilutive instruments.
| d) | Interest on Shareholders' Equity/dividends |
Bradesco's capital remuneration policy aims to distribute interest on shareholders' equity at the maximum amount calculated under current legislation, and this is included, net of Withholding Income Tax (IRRF), in the calculation for mandatory dividends for the year under the Company's Bylaws.
At a meeting of the Board of Directors held on June 22, 2021, the Board of Executive Officers' proposal for payment to shareholders of intermediary interest on equity, for the first semester of 2021, in the amount of R$ 5,000,000 thousand, of which R$ $0.490007301 per common share and R$0.539008031 per preferred share, which payment was made on July 12, 2021.
Interest on shareholders' equity for the first semester of 2021, is calculated as follows:
| R$ thousand | % (1) | |
| Net income for the period | 12,127,062 | |
| (-) Legal reserve | 606,353 | |
| Adjusted calculation basis | 11,520,709 | |
| Monthly and intermediary interest on shareholders' equity (gross), paid | 5,992,025 | |
| Withholding income tax on interest on shareholders' equity | (898,804) | |
| Interest on shareholders' equity (net) accumulated on June 30, 2021 | 5,093,221 | 44.21 |
| Interest on shareholders' equity (net) accumulated on June 30, 2020 | 1,963,121 | 30.00 |
(1) Percentage of interest on shareholders' equity/dividends after adjustments.
Interest on shareholders' equity were paid, as follows:
| Description | R$ thousand | ||||
| Per share (gross) | Gross amount paid | Withholding Income Tax (IRRF) (15%) | Net amount paid | ||
| Common | Preferred | ||||
| Monthly interest on shareholders' equity paid | 0.103499 | 0.113849 | 901,886 | 135,283 | 766,603 |
| Supplementary interest on shareholders´ equity paid | 0.151749 | 0.166924 | 1,407,668 | 211,150 | 1,196,518 |
| Total accrued on June 30, 2020 | 0.255248 | 0.280773 | 2,309,554 | 346,433 | 1,963,121 |
| Monthly interest on shareholders' equity paid | 0.103499 | 0.113849 | 992,025 | 148,804 | 843,221 |
| Intermediary interest on shareholders' equity paid (1) | 0.490007 | 0.539008 | 5,000,000 | 750,000 | 4,250,000 |
| Total accrued on June 30, 2021 | 0.593506 | 0.652857 | 5,992,025 | 898,804 | 5,093,221 |
(1) Paid on July 12, 2021.
| 60 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| e) | Treasury shares |
In the Special Shareholders' Meeting held on March 10, 2021, was approved the cancellation of all shares held in the treasury issued by the Company, acquired through a share buyback program, consisting of 34,685,801 nominative-book-entry shares, being 7,307,259 common shares and 27,378,542 preferred, without reduction of share capital, approved by Bacen on April 6, 2021.
On April 23, 2021, the Board of Directors decided to revoke the repurchase program of shares issued for treasury and subsequent sale or cancellation, currently in effect, approved on December 23, 2020, which authorized the acquisition of up to 15,000,000 shares and institute a new repurchase program ('new program') that authorizes Bradesco's Board of Directors to acquire, in the period from April 26, 2021 up to 48,705,792 common shares and up to 48,485,003 preferred shares.
On June 30, 2021, 5,402,200 common shares and 3,845,300 preferred shares remained in treasury, in the amount of R$226,449 thousand. The minimum, average and maximum cost per common share is R$21.89, R$22.91 and R$24.28 and per preferred share is R$25.30, R$26.70 and R$28.31 respectively. The market value of these shares, on June 30, 2021, was R$21.86 per common share and R$25.73 per preferred share.
25)NON-CONTROLLING INTERESTS IN SUBSIDIARIES
As of June 30, 2021, the balance of minority interests in subsidiaries was R$18,675 thousand (R$4,957 thousand on December 31, 2020), represented, basically by Odontoprev.
| 26) | FEE AND COMMISSION INCOME |
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Credit card income | 3,467,826 | 3,364,786 |
| Checking account | 3,942,672 | 3,902,133 |
| Loans | 1,296,244 | 1,378,580 |
| Collections | 863,454 | 910,174 |
| Consortium management | 1,053,244 | 929,317 |
| Asset management | 724,498 | 800,684 |
| Custody and brokerage services | 703,497 | 644,044 |
| Underwriting/ Financial Advisory Services | 644,362 | 424,123 |
| Payments | 220,976 | 235,573 |
| Other | 416,560 | 300,847 |
| Total | 13,333,333 | 12,890,261 |
27)PAYROLL AND RELATED BENEFITS
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Salaries | 4,479,343 | 4,382,768 |
| Benefits | 2,018,738 | 2,120,998 |
| Social security charges | 1,430,847 | 1,498,718 |
| Employee profit sharing | 799,830 | 634,065 |
| Training | 28,073 | 48,902 |
| Total | 8,756,831 | 8,685,451 |
| 61 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
28)OTHER ADMINISTRATIVE EXPENSES
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Accumulated depreciation and amortization | 2,657,568 | 2,409,182 |
| Outsourced services | 2,026,330 | 2,055,938 |
| Data processing | 1,205,223 | 1,113,812 |
| Rental | 856,336 | 869,327 |
| Communication | 614,605 | 640,639 |
| Asset maintenance | 606,884 | 603,414 |
| Financial system services | 512,088 | 503,549 |
| Security and surveillance | 298,718 | 370,826 |
| Advertising and marketing | 337,545 | 405,973 |
| Transport | 310,536 | 333,260 |
| Asset leases | 341,351 | 384,244 |
| Water, electricity and gas | 174,094 | 193,923 |
| Supplies | 48,506 | 71,026 |
| Travel | 11,773 | 47,229 |
| Other | 450,730 | 517,079 |
| Total | 10,452,287 | 10,519,421 |
| 29) | TAX EXPENSES |
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Contribution for Social Security Financing (COFINS) | 1,960,448 | 718,868 |
| Social Integration Program (PIS) contribution | 323,793 | 121,555 |
| Tax on Services (ISSQN) | 553,835 | 536,400 |
| Municipal Real Estate Tax (IPTU) expenses | 76,414 | 85,698 |
| Other | 86,033 | 311,126 |
| Total | 3,000,523 | 1,773,647 |
30)OTHER OPERATING INCOME
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Other interest income | 907,583 | 809,723 |
| Reversal of other operating provisions | 1,202,201 | 1,175,366 |
| Revenues from recovery of charges and expenses | 135,072 | 208,328 |
| Other | 853,630 | 478,683 |
| Total | 3,098,486 | 2,672,100 |
31)OTHER OPERATING EXPENSES
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Other finance costs | 269,146 | 318,946 |
| Sundry losses | 191,221 | 163,029 |
| Discount granted | 960,295 | 1,282,746 |
| Commissions on loans and financing | 337,530 | 227,859 |
| Card marketing expenses | 1,441,104 | 1,547,641 |
| Other | 2,727,570 | 2,672,447 |
| Total | 5,926,866 | 6,212,668 |
| 62 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
32)NON-OPERATING INCOME (LOSS)
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Gain/loss on sale and write-off of assets and investments | 32,610 | (39,930) |
| Recording/reversal of non-operating provisions (1) | (150,307) | (33,949) |
| Other | 24,820 | 40,161 |
| Total | (92,877) | (33,718) |
(1) Includes primarily the provision for devaluation of non-financial assets held for sale.
| 63 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
33)RELATED-PARTY TRANSACTIONS
| a) | Related-party transactions (direct and indirect) are carried out according to CMN Resolution No. 4,818/20 and CVM Resolution No. 642/10. The Organization has a Transaction Policy with related parts disclosed on the Investor Relations website. The transactions are carried out under conditions and at rates consistent with those entered into with third parties at that time. The transactions are as follows: |
| R$ thousand | ||||||||
| Controlling shareholders (1) | Affiliates, controlled and shared control (2) | Key Management Personnel (3) | Total | |||||
| On June 30, 2021 | On December 31, 2020 | On June 30, 2021 | On December 31, 2020 | On June 30, 2021 | On December 31, 2020 | On June 30, 2021 | On December 31, 2020 | |
| Assets | ||||||||
| Interbank investments | - | - | 202,885 | 186,504 | - | - | 202,885 | 186,504 |
| Securities and derivative financial instruments | 27,498 | 62,326 | 647,926 | 644,796 | - | - | 675,424 | 707,122 |
| Loans and other assets | 10 | 16 | 7,629,669 | 1,605,223 | 172,770 | 119,659 | 7,802,449 | 1,724,898 |
| Liabilities | ||||||||
| Demand deposits/Savings accounts | 320 | 164,651 | 519,986 | 105,727 | 22,846 | 17,685 | 543,152 | 288,063 |
| Time deposits | 2,291,195 | 1,289,430 | 2,721,060 | 2,869,377 | 258,399 | 126,130 | 5,270,654 | 4,284,937 |
| Securities sold under agreements to repurchase | 92,364 | 675,893 | 24,174 | 247,825 | - | - | 116,538 | 923,718 |
| Funds from issuance of securities and subordinated debts | 12,680,788 | 11,480,275 | 8,822,769 | 8,741,750 | 714,180 | 702,417 | 22,217,737 | 20,924,442 |
| Derivative financial instruments | - | 32,219 | - | 2,431 | - | - | - | 34,650 |
| Interest on own capital payable | 1,609,487 | 1,195,928 | - | - | - | - | 1,609,487 | 1,195,928 |
| Other liabilities | - | - | 9,868,309 | 10,834,610 | 53,028 | 18,594 | 9,921,337 | 10,853,204 |
| In the six month period ended June 30 - R$ thousand | |||||||||
| Controlling shareholders (1) | Affiliates, controlled and shared control (2) | Key Management Personnel (3) | Total | ||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||
| Income from financial intermediation | 25,473 | 56,014 | 26,454 | 20,439 | - | - | 51,927 | 76,453 | |
| Financial intermediation expenses | (242,645) | (311,663) | (195,106) | (464,102) | (14,380) | (18,091) | (452,131) | (793,856) | |
| Income from services provided | 97 | 62 | 47,198 | 32,966 | 103 | 47 | 47,398 | 33,075 | |
| Other expenses net of other operating revenues | 31,096 | 27,848 | (1,225,612) | (984,633) | (260,153) | (81,747) | (1,454,669) | (1,038,532) |
(1) Cidade de Deus Cia. Coml. de Participações, Fundação Bradesco, NCF Participações S.A., BBD Participações S.A. and Nova Cidade de Deus Participações S.A.;
(2) Companies listed in Note 12; and
(3) Members of the Board of Directors and the Board of Executive Officers.
| 64 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| b) | Remuneration of key management personnel |
Each year, the Annual Shareholders' Meeting approves:
| · | The annual total amount of Management compensation, set forth at the Board of Directors Meetings, to be paid to board members and members of the Board of Executive Officers, as determined by the Company's Bylaws; and |
| · | The amount allocated to finance Management pension plans, within the Employee and Management pension plan of the Organization Bradesco. |
For 2021, the maximum amount of R$888,044 thousand was determined for the remuneration of the Directors, and part of this refers to the social security contribution to the INSS, which is an obligation of the Organization, and R$520,400 thousand to cover supplementary pension plan defined contributions.
The current policy on Management compensation sets forth that 50% of net variable compensation, if any, must be allocated to the acquisition of preferred class b shares issued by BBD Participações S.A. and / or preferred shares issued by Banco Bradesco S.A., which vest in three equal, annual and successive installments, the first of which is in the year following the payment date. This procedure complies with CMN Resolution No. 3,921/10, which sets forth a management compensation policy for financial institutions.
Short and medium term remuneration to Managers
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Remuneration and Social Security Contribution to the INSS | 391,120 | 310,695 |
| Total | 391,120 | 310,695 |
Post-employment benefits
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Defined contribution supplementary pension plans | 204,338 | 217,734 |
| Total | 204,338 | 217,734 |
Bradesco does not offer its Key Management Personnel long-term benefits related to severance pay or share-based compensation, pursuant to CPC 10 - Share-Based Payment, approved by CMN Resolution No. 3,989/11.
Shareholding
Together, members of the Board of Directors and Board of Executive Officers had the following shareholding in Bradesco:
| Direct ownership | On June 30, 2021 | On December 31, 2020 | |
| ● Common shares | 0.33% | 0.53% | |
| ● Preferred shares | 0.80% | 0.91% | |
| ● Total shares (1) | 0.57% | 0.72% |
(1) On June 30, 2021, direct and indirect shareholding of the members of Bradesco's Board of Directors and Board of Executive Officers amounted to 2.33% of common shares, 0.84% of preferred shares and 1.58% of all shares (2.65% of common shares, 0.95% of preferred shares and 1.80% of all shares on December 31, 2020).
| 65 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
34)RISK AND CAPITAL MANAGEMENT
a)Risk Management
Bradesco carries out a corporate risk control in an integrated and independent manner, preserving and giving value to a collective decision-making environment, developing and implementing methodologies, models and tools for measurement and control. It promotes the dissemination of the risk culture to all employees, at all hierarchical levels, from the business areas to the Board of Directors.
The risk management and capital structures have policies, rules and procedures, ensuring that the Organization maintains controls compatible with the nature of its operations, the complexity of its products and services, activities, processes, systems and the size of its exposure to risks. These structures are also composed of various committees, commissions and departments that subsidize the Board of Directors, the Chief Executive Officer, the Chief Risk Officer (CRO) and the Executive Board of the Organization in decision making, including:
| · | Integrated Risk Management and Capital Allocation Committee, whose purpose is to advise the Board of Directors in the performance of its duties related to the management policies and limits of exposure to risks and ensure within the scope of the Organization compliance with the related processes, policies, related standards and compliance with regulations and legislation applicable to the Organization; and |
| · | Risk Committee, whose main objective is to evaluate the Organization's risk management framework and, eventually, to propose improvements. |
Both advise the Board of Directors in the performance of its duties in the management and control of risks, capital, internal controls and compliance.
Detailed information on risk management process, reference equity and also Bradesco's risks exposures may be found in Risk Management Report - Pillar 3, available on the Investors Relations website (bradescori.com.br - Market Information - Risk management).
b)Capital Management
The Basel Ratio is part of the set of indicators, monitored and evaluated in the process of Capital Management, and is intended to measure the sufficiency of capital in relation to the exposure to risks. The table below shows the composition of the Reference Equity and of the Risk Weighted Assets, according to the standards of Bacen. During the period, Bradesco has fulfilled all the minimum regulatory requirements.
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Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
Below is the Basel Ratio:
| Calculation basis - Basel Ratio (1) | R$ thousand | |
| Prudential Conglomerate | ||
| On June 30, 2021 | On December 31, 2020 | |
| Tier I capital | 125,012,212 | 118,281,835 |
| Common equity | 115,591,995 | 108,982,064 |
| Shareholders' equity | 146,488,157 | 143,702,640 |
| Non-controlling interest / Other | (404,362) | 164,088 |
| Prudential adjustments | (30,491,800) | (34,884,664) |
| Additional capital (1) | 9,420,217 | 9,299,771 |
| Tier II capital (2) | 16,095,703 | 17,441,839 |
| Subordinated debts (Resolution No. 4,192/13) | 16,078,980 | 16,274,254 |
| Subordinated debts (prior to CMN Resolution No. 4,192/13) | 16,723 | 1,167,585 |
| Reference Equity (a) | 141,107,915 | 135,723,674 |
| - Credit risk | 799,070,311 | 779,588,540 |
| - Market risk | 18,660,501 | 14,690,553 |
| - Operational risk | 66,907,975 | 64,413,820 |
| Risk-weighted assets - RWA (b) | 884,638,786 | 858,692,912 |
| Basel ratio (a/b) | 16.0% | 15.8% |
| Tier I capital | 14.2% | 13.8% |
| - Common equity | 13.1% | 12.7% |
| - Additional capital | 1.1% | 1.1% |
| Tier II capital | 1.8% | 2.0% |
(1) According to Resolution No. 4,783/20, the minimum required for tier I and common equity are 8.625% and 7.125%, respectively; and
(2) 'Eligible Debt Capital Instruments' for regulatory capital purposes referred to Note 19a.
c) Indicator of Global Systemic Importance (IAISG)
According to the Circular Letter No. 3,751/15 and Resolution No. 54/20, Bradesco discloses annually the calculation for the evaluation of global systemic importance (IAISG), calculated on a consolidated basis, which establishes an additional capital requirement for financial institutions classified as systemically important. For more information and details, visit our Investor Relations website (www.bradescori.com.br - Market Information - Risk Management).
d)Social and environmental risk
The social and environmental risk is represented by potential damages that an economic activity can cause to society and to the environment. The social and environmental risks associated with financial institutions are mostly indirect and stem from business relationships, including those with the supply chain and with customers, through financing and investment activities.
The social and environmental risk management process has a governance structure, comprised of committees, policies, standards and procedures, allowing the risk to be properly identified, measured, mitigated, monitored and reported. This process complies with Resolution No. 4,327/14 of the Central Bank and observes the principles of relevance and proportionality, which is necessary in view of the complexity of the financial products and the profile of Organization's activities.
The Organization seeks to constantly incorporate and improve the criteria for managing the social and environmental risk arising from business relations with customers, through loan and financing operations, guarantees, suppliers and investments, which comprise the scope of analysis reflected in the Organization Social and Environmental Risk Standard.
The Organization has made several commitments related to environmental and social aspects, such as the Carbon Disclosure Project (CDP), the Principles for Responsible Investment (PRI), the Business
| 67 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
Charter for Human Rights and Promotion of Decent Work (Ethos), the United Nations Environment Program (UNEP-FI), the Global Compact, among others.
Moreover, the Organization has been a signatory of the Equator Principles since 2004, and among the requirements evaluated are follows the management of social environmental risks and impacts, climate, employment and working conditions, biodiversity conservation, sustainable management of natural resources, indigenous people and cultural heritage, projects financed by the Organization, pursuant to the Brazilian legislation and the standards and guidelines of the International Finance Corporation (IFC), besides the World Bank Group's Health, Safety and Environment Guidelines. During the credit granting process, transactions under Equator Principles undergo a social and environmental risk analysis.
In the first semester of 2021, there was hiring Advisory Service for one (01) Corporate Loan to projects classified under the criteria of the Equator Principles.
e)Below is the statement of financial position by currency and maturity
I - The statement of financial position by currency
| R$ thousand | ||||
| On June 30, 2021 | On December 31, 2020 | |||
| Balance | Local currency | Foreign currency (1) (2) | Foreign currency (1) (2) | |
| Assets | - | |||
| Cash and due from banks | 24,192,876 | 16,531,944 | 7,660,932 | 7,789,263 |
| Financial instruments | 1,212,888,753 | 1,097,409,696 | 115,479,057 | 90,136,459 |
| - Interbank investments | 116,576,082 | 113,671,392 | 2,904,690 | 1,998,229 |
| - Compulsory deposits with the Brazilian Central Bank | 85,377,496 | 85,313,362 | 64,134 | 61,658 |
| - Securities | 379,045,089 | 345,727,274 | 33,317,815 | 32,920,582 |
| - Derivative financial instruments | 29,747,639 | 29,626,559 | 121,080 | 700,618 |
| - Loans | 465,546,707 | 425,390,526 | 40,156,181 | 33,940,017 |
| - Other financial instruments | 136,595,740 | 97,680,583 | 38,915,157 | 20,515,355 |
| Leases | 2,742,488 | 2,742,488 | - | - |
| Expected credit loss associated with credit risk | (44,264,515) | (41,983,619) | (2,280,896) | (2,773,441) |
| - Loans | (41,352,780) | (39,071,904) | (2,280,876) | (2,773,427) |
| - Leases | (61,280) | (61,280) | - | - |
| - Other receivables | (2,850,455) | (2,850,435) | (20) | (14) |
| Deferred tax assets | 80,991,346 | 80,986,684 | 4,662 | 24,172 |
| Investments in subsidiaries/affiliates and jointly controlled entities | 53,370,882 | 52,939,178 | 431,704 | 461,036 |
| Premises and equipment, net | 11,031,793 | 10,862,467 | 169,326 | 175,402 |
| Intangible assets | 31,642,774 | 31,465,210 | 177,564 | 175,979 |
| Accumulated depreciation and amortization | (29,149,092) | (28,865,911) | (283,181) | (289,815) |
| - Premises and equipment | (6,441,419) | (6,304,711) | (136,708) | (140,372) |
| - Intangible assets | (22,707,673) | (22,561,200) | (146,473) | (149,443) |
| Other assets | 32,520,375 | 31,918,886 | 601,489 | 871,221 |
| Accumulated Impairment of Assets | (3,193,448) | (3,189,070) | (4,378) | (5,441) |
| Total assets | 1,372,774,232 | 1,250,817,953 | 121,956,279 | 96,564,835 |
| - | ||||
| Liabilities | - | |||
| Deposits and other financial liabilities | 1,156,689,690 | 1,036,416,216 | 120,273,474 | 109,794,929 |
| - Deposits from banks | 315,905,917 | 271,488,298 | 44,417,619 | 30,144,125 |
| - Deposits from customers | 545,993,097 | 517,881,548 | 28,111,549 | 34,241,101 |
| - Securities issued | 143,653,201 | 133,607,453 | 10,045,748 | 11,232,513 |
| - Subordinated debts | 47,570,546 | 41,964,421 | 5,606,125 | 14,362,114 |
| - Derivative financial instruments | 21,230,748 | 17,716,376 | 3,514,372 | 4,556,394 |
| - Other financial liabilities | 82,336,181 | 53,758,120 | 28,578,061 | 15,258,682 |
| Provisions | 29,021,988 | 28,829,133 | 192,855 | 134,313 |
| - Other reserves | 29,021,988 | 28,829,133 | 192,855 | 134,313 |
| 68 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| R$ thousand | ||||
| On June 30, 2021 | On December 31, 2020 | |||
| Balance | Local currency | Foreign currency (1) (2) | Foreign currency (1) (2) | |
| Deferred income tax assets | 5,185,633 | 4,935,617 | 250,016 | 321,193 |
| Other liabilities | 35,370,089 | 34,646,347 | 723,742 | 980,843 |
| Total liabilities | 1,226,267,400 | 1,104,827,313 | 121,440,087 | 111,231,278 |
| - | ||||
| Shareholders' equity | - | |||
| Equity attributable to controlling shareholders | 146,488,157 | 146,488,157 | - | - |
| Non-controlling shareholders | 18,675 | 18,675 | - | - |
| Total Shareholders' equity | 146,506,832 | 146,506,832 | - | - |
| Total Liability and Shareholders' equity | 1,372,774,232 | 1,251,334,145 | 121,440,087 | 111,231,278 |
| Net position of assets and liabilities | 516,192 | (14,666,443) | ||
| Net position of derivatives (2) | (22,286,386) | (4,216,783) | ||
| Other net off-balance-sheet accounts (3) | 131,820 | 3,144,242 | ||
| Net foreign exchange position (passive) (4) | (21,638,374) | (15,738,984) |
(1) Amounts originally recognized and/or indexed mainly in USD;
(2) Excluding operations maturing in D+1, to be settled at the rate on the last day of the month;
(3) Other commitments recognized in off-balance-sheet accounts; and
(4) Assets, liabilities and results of foreign investments and dependencies are translated into Brazilian reais at the local currency exchange rates, and the effects resulting from the conversion process totaled R$(1,015,750) thousand in the first semester of 2021 (R$23,814,915 thousand in 2020) were recorded in the result. These effects were neutralized by the results obtained by the financial instruments used to hedge the effects of the exchange variation produced by our investments abroad. For investments abroad that have a functional currency different from the real, the effects of the conversion are recorded in Shareholders' Equity in the Balance for Valuation Adjustments.
| 69 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
II - The statement of financial position by maturity
| R$ thousand | ||||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | More than 360 days | No stated maturity | Total | |
| Assets | ||||||
| Cash and due from banks | 24,192,876 | - | - | - | - | 24,192,876 |
| Financial instruments | 551,719,844 | 168,153,099 | 91,743,951 | 401,271,859 | - | 1,212,888,753 |
| - Interbank investments (1) | 89,135,462 | 19,547,884 | 2,450,828 | 5,441,908 | - | 116,576,082 |
| - Compulsory deposits with the Brazilian Central Bank | 85,377,496 | - | - | - | - | 85,377,496 |
| - Securities (1) (2) | 243,170,292 | 26,983,814 | 9,173,143 | 99,717,840 | - | 379,045,089 |
| - Derivative financial instruments (1) (2) | 9,212,058 | 5,084,447 | 5,266,401 | 10,184,733 | - | 29,747,639 |
| - Loans | 36,426,337 | 85,770,930 | 70,058,616 | 273,290,824 | - | 465,546,707 |
| - Other financial instruments | 88,398,199 | 30,766,024 | 4,794,963 | 12,636,554 | - | 136,595,740 |
| Leases | 2,742,488 | - | - | - | - | 2,742,488 |
| Expected credit loss associated with credit risk | (8,897,286) | (7,392,982) | (5,732,187) | (22,242,060) | - | (44,264,515) |
| - Loans | (7,659,121) | (6,162,096) | (5,415,839) | (22,115,724) | - | (41,352,780) |
| - Leases | (4,627) | (9,002) | (10,053) | (37,598) | - | (61,280) |
| - Other receivables | (1,233,538) | (1,221,884) | (306,295) | (88,738) | - | (2,850,455) |
| Deferred tax assets | 43,763 | 9,010,829 | 5,649,020 | 66,287,734 | - | 80,991,346 |
| Investments in controlled/associates and jointly controlled entities | - | - | - | - | 53,370,882 | 53,370,882 |
| Premises and equipment, net | 141,896 | 709,481 | 851,377 | 2,832,890 | 54,730 | 4,590,374 |
| Intangible assets | 264,227 | 866,290 | 994,418 | 6,632,159 | 178,007 | 8,935,101 |
| Other assets | 17,448,938 | 4,727,734 | 2,546,909 | 7,796,794 | - | 32,520,375 |
| Accumulated Impairment of Assets | (3,193,277) | - | - | (171) | - | (3,193,448) |
| Total on June 30, 2021 | 584,463,469 | 176,074,451 | 96,053,488 | 462,579,205 | 53,603,619 | 1,372,774,232 |
| Total on December 31, 2020 | 567,994,241 | 167,773,420 | 93,469,692 | 458,832,644 | 54,464,907 | 1,342,534,904 |
| Liabilities | ||||||
| Deposits and other financial liabilities | 541,123,617 | 90,951,890 | 139,354,601 | 374,451,205 | 10,808,377 | 1,156,689,690 |
| - Deposits from banks (1) (3) | 256,824,939 | 26,806,260 | 13,603,775 | 18,670,943 | - | 315,905,917 |
| - Deposits from customers (3) | 210,046,494 | 26,486,501 | 70,366,955 | 239,093,147 | - | 545,993,097 |
| - Securities issued | 1,921,396 | 22,873,381 | 41,845,686 | 77,012,738 | - | 143,653,201 |
| - Subordinated debts | - | 53,627 | 5,655,933 | 31,052,609 | 10,808,377 | 47,570,546 |
| - Derivative financial instruments | 11,413,891 | 1,144,191 | 4,013,598 | 4,659,068 | - | 21,230,748 |
| - Other financial liabilities | 60,916,897 | 13,587,930 | 3,868,654 | 3,962,700 | - | 82,336,181 |
| Provisions | 6,655,275 | 1,164,346 | 1,437,002 | 19,765,365 | - | 29,021,988 |
| - Other reserves | 6,655,275 | 1,164,346 | 1,437,002 | 19,765,365 | - | 29,021,988 |
| Deferred income tax assets | 45,467 | 5,686 | 40,674 | 5,093,806 | - | 5,185,633 |
| 70 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| R$ thousand | ||||||
| 1 to 30 days | 31 to 180 days | 181 to 360 days | More than 360 days | No stated maturity | Total | |
| Other liabilities | 33,359,541 | 356,407 | 465,647 | 1,188,494 | - | 35,370,089 |
| Shareholders' equity | ||||||
| Equity attributable to controlling shareholders | - | - | - | - | 146,488,157 | 146,488,157 |
| Non-controlling shareholders | - | - | - | - | 18,675 | 18,675 |
| Total Shareholders' equity | - | - | - | - | 146,506,832 | 146,506,832 |
| Total on June 30, 2021 | 581,183,900 | 92,478,329 | 141,297,924 | 400,498,870 | 157,315,209 | 1,372,774,232 |
| Total on December 31, 2020 | 548,294,619 | 119,439,238 | 105,071,542 | 416,632,266 | 153,097,239 | 1,342,534,904 |
| Net assets accumulated on June 30, 2021 | 3,279,569 | 86,875,691 | 41,631,255 | 103,711,590 | ||
| Net assets accumulated on December 31, 2020 | 19,699,622 | 68,033,805 | 56,431,955 | 98,632,333 |
(1) Repurchase agreements are classified according to the maturity of the transactions;
(2) Investments in investment funds are classified as 1 to 30 days; and
(3) Demand and savings deposits are classified as 1 to 30 days, without considering average historical turnover.
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Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| 35) | EMPLOYEE BENEFITS |
Bradesco and its subsidiaries sponsor a private defined contribution pension for employees and directors, that allows financial resources to be accumulated by participants throughout their careers by means of employee and employer contributions and invested in an Exclusive Investment Fund (FIE). The plan is managed by Bradesco Vida e Previdência S.A. and BRAM - Bradesco Asset Management S.A. DTVM is responsible for the financial management of the FIEs funds.
The supplementary pension plan counts on contributions from employees and administrators of Bradesco and its subsidiaries equivalent to at least 4% of the salary by employees and, 5% of the salary, plus the percentage allocated to covers of risk benefits (invalidity and death) by the company. Actuarial obligations of the defined contribution plan are fully covered by the plan assets of the corresponding FIE. In addition to the plan, in 2001, participants who chose to migrate from the defined benefit plan are guaranteed a proportional deferred benefit, corresponding to their accumulated rights in that plan. For the active participants, retirees and pensioners of the defined benefit plan, now closed to new members, the present value of the actuarial obligations of the plan is fully covered by guarantee assets.
Following the merger of Banco Alvorada S.A. (successor from the spin-off of Banco Baneb S.A.) into Kirton Bank S.A. Banco Múltiplo, on April 30, 2019, Kirton Bank S.A. Banco Múltiplo maintains variable contribution and defined benefit retirement plans, through Fundação Baneb de Seguridade Social - Bases related to the former employees of Baneb.
Banco Bradesco S.A. sponsors both variable benefit and defined contribution retirement plans, through Caixa de Assistência e Aposentadoria dos Funcionários do Banco do Estado do Maranhão (Capof), to employees originating from Banco BEM S.A.
Banco Bradesco S.A. sponsors a defined benefit plan through Caixa de Previdência Privada Bec - Cabec for employees of Banco do Estado do Ceará S.A.
Kirton Bank S.A. Banco Múltiplo, Bradesco Capitalização S.A., Kirton Corretora de Seguros S.A., Bradesco Kirton Corretora de Câmbio S.A. and Bradesco Seguros S.A. sponsor a defined benefit plan called APABA for employees originating from Banco Bamerindus do Brasil S.A., and Kirton Administração de Serviços para Fundos de Pensão Ltda. sponsors for its employees a defined contribution plan, known as the Kirton Prev Benefits Plan (Plano de Benefícios Kirton Prev), both managed by MultiBRA - Pension Fund.
Banco Losango S.A. Banco Múltiplo, Kirton Bank S.A. Banco Múltiplo and Credival - Participações, Administração e Assessoria Ltda. sponsor three pension plans for its employees, which are: Losango I Benefits Plan - Basic Part, in the defined benefit mode, Losango I - Supplementary Part and PREVMAIS Losango Plan, the last two in the form of contribution variable, all managed by MultiBRA - Settlor - Multiple Fund.
Banco Bradesco S.A. also took on the obligations of Kirton Bank S.A. Banco Múltiplo with regard to Life Insurance, Health Insurance Plans, and Retirement Compensation for employees coming from Banco Bamerindus do Brasil S.A., as well as Health Plan of Lloyds employees.
Bradesco, in its offices abroad, provides pension plans for its employees and managers, in accordance with the standards established by the local authorities, which allows the accrual of financial resources during the professional career of the participant.
Total expenses with contributions made in the first semester of 2021, were R$407,185 thousand (R$419,188 thousand in 2020).
In addition to this benefit, Bradesco and its subsidiaries offer their employees and administrators other benefits, including: health insurance, dental assistance, life and personal accident insurance and
| 72 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
professional training, the amount of which, including the aforementioned contributions, totaled, in the first semester of 2021, the amount of R$2,046,810 thousand (R$2,169,900 thousand in 2020).
| 36) | INCOME TAX AND SOCIAL CONTRIBUTION |
| a) | Calculation of income tax and social contribution charges |
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Income before income tax and social contribution | 16,942,717 | (11,496,505) |
| Total burden of income tax and social contribution at the current rates | (7,624,223) | 5,173,427 |
| Effect on the tax calculation: | ||
| Earnings of Associates and Subsidiaries | 751,755 | 11,981,390 |
| Net non-deductible expenses of non-taxable income | 118,381 | (4,010) |
| Interest on shareholders' equity (paid and payable) | 1,382,410 | 1,039,299 |
| Other amounts (1) | 568,179 | 202,149 |
| Income tax and social contribution for the period | (4,803,498) | 18,392,255 |
(1) Primarily, includes: (i) the exchange rate variation of assets and liabilities, derived from investments abroad; (ii) the equalization of the effective rate of non-bank financial companies and insurance companies, starting in 2020, and of non-financial companies, in relation to that shown; and (iii) incentive deductions.
| b) | Breakdown of income tax and social contribution in the statement of income |
| R$ thousand | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Current taxes: | ||
| Income tax and social contribution payable | (2,494,037) | (1,179,531) |
| Deferred taxes: | ||
| Constitution/realization in the period on temporary additions and exclusions | (1,489,594) | 3,472,864 |
| Use of opening balances of: | ||
| Social contribution loss | (394,678) | (24,581) |
| Income tax loss | (501,036) | (31,364) |
| Constitution in the period of: | ||
| Social contribution loss | 29,366 | 7,178,400 |
| Income tax loss | 46,481 | 8,976,467 |
| Total deferred tax expense | (2,309,461) | 19,571,786 |
| Income tax and social contribution for the period | (4,803,498) | 18,392,255 |
| c) | Deferred income tax and social contribution |
| R$ thousand | |||||
| Balance on December 31, 2020 | Amount recorded | Realized / Decrease | Balance on June 30, 2021 | ||
| Allowance for loan losses | 44,068,304 | 3,730,679 | (4,234,672) | 43,564,311 | |
| Civil provisions | 3,407,997 | 125,454 | (138,450) | 3,395,001 | |
| Tax provisions | 2,989,560 | 52,295 | (93,735) | 2,948,120 | |
| Labor provisions | 2,911,167 | 279,218 | (288,573) | 2,901,812 | |
| Impairment of securities and investments | 3,279,002 | 174,057 | (122,990) | 3,330,069 | |
| Non-financial assets held for sale | 850,483 | 111,666 | (105,330) | 856,819 | |
| Fair value adjustment of trading securities and derivatives | 975,563 | 96,035 | (132,936) | 938,662 | |
| Amortization of goodwill | 312,984 | 12,456 | (5,574) | 319,866 | |
| Other | 4,846,540 | 578,879 | (987,893) | 4,437,526 | |
| Total deductible taxes on temporary differences | 63,641,600 | 5,160,739 | (6,110,153) | 62,692,186 | |
| Income tax and social contribution losses in Brazil and overseas | 18,422,330 | 75,847 | (895,714) | 17,602,463 | |
| Subtotal | 82,063,930 | 5,236,586 | (7,005,867) | 80,294,649 | |
| Adjustment to fair value of available-for-sale securities | 38,578 | 658,826 | (707) | 696,697 |
| 73 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| R$ thousand | |||||
| Balance on December 31, 2020 | Amount recorded | Realized / Decrease | Balance on June 30, 2021 | ||
| Total deferred tax assets (Note 3f) | 82,102,508 | 5,895,412 | (7,006,574) | 80,991,346 | |
| Deferred tax liabilities (Note 35e) | 4,144,164 | 1,424,494 | (383,025) | 5,185,633 | |
| Deferred tax assets, net of deferred tax liabilities | 77,958,344 | 4,470,918 | (6,623,549) | 75,805,713 |
The accounting record of the deferred tax assets was made using the rates applicable to the period projected for its realization and is based on the projection of future results and on a technical analysis. On June 30, 2021, no deferred tax assets were constituted, substantially, on temporary differences, in the amount of R$10,836 thousand (R$10,613 thousand in December 2020), which will be recorded upon the effective perspectives of realization, according to the technical study and analyses made by the Board and by the Standards of Bacen.
On March 1, 2021, the Constitution Amendment No. 1,034 ('MP') was published and converted into Law No. 14,183, on July 14, 2021. The Amendment increases the Social Contribution rates on Net Income - CSLL for financial, insurance and cooperatives services by five percent, for the period from July 1 to December 31, 2021.
Considering management assessment of the aforementioned Law did not generate significant impacts on the Financial Statements for June 2021 and, considering the short period of validity of the increase in the rate, the Organization, assessed, also that is not expected material impacts on the Financial Statements relating to the second half of 2021.
| d) |
Expected realization of deferred tax assets on temporary differences, tax loss and negative basis of social contribution |
| R$ thousand | |||||
| Temporary differences | Carry-forward tax losses | Total | |||
| Income tax | Social contribution | Income tax | Social contribution | ||
| 2021 | 5,544,543 | 4,391,168 | 21,945 | 17,687 | 9,975,343 |
| 2022 | 8,969,952 | 7,150,630 | 122,046 | 98,234 | 16,340,862 |
| 2023 | 8,572,757 | 6,810,733 | 169,936 | 141,011 | 15,694,437 |
| 2024 | 7,781,494 | 6,201,730 | 74,556 | 81,764 | 14,139,544 |
| 2025 | 2,894,133 | 2,289,698 | 1,484,029 | 1,235,000 | 7,902,860 |
| 2026 | 1,018,126 | 807,725 | 2,053,767 | 1,715,993 | 5,595,611 |
| 2027 | 138,573 | 109,214 | 2,278,179 | 1,895,952 | 4,421,918 |
| 2028 | 6,237 | 4,989 | 2,213,982 | 1,830,447 | 4,055,655 |
| 2029 | 269 | 215 | 839,297 | 1,328,638 | 2,168,419 |
| Total | 34,926,084 | 27,766,102 | 9,257,737 | 8,344,726 | 80,294,649 |
The projected realization of deferred tax assets is an estimate and it is not directly related to the expected accounting income.
On June 30, 2021, the present value of deferred tax assets, calculated based on the average funding interest rate, net of tax effects, amounts to R$74,695,153 thousand (R$77,862,336 thousand in December 2020), of which: R$59,647,219 thousand (R$61,355,105 thousand in December 2020) relates to temporary differences and R$15,047,934 thousand (R$16,507,231 thousand in December 2020) to tax losses and negative basis of social contribution.
| 74 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
| e) | Deferred tax liabilities |
| R$ thousand | ||||
| Balance on December 31, 2020 | Amount recorded | Realized/Decrease | Balance on June 30, 2021 | |
| Fair value adjustment to securities and derivative financial instruments | 687,135 | 390,961 | - | 1,078,096 |
| Difference in depreciation | 232,849 | 5,989 | (8) | 238,830 |
| Judicial deposit | 2,003,189 | 71,318 | (36,587) | 2,037,920 |
| Other | 767,841 | 141,315 | (32,808) | 876,348 |
| Total deferred liabilities on temporary exclusions | 3,691,014 | 609,583 | (69,403) | 4,231,194 |
| Adjustment to fair value of available-for-sale securities | 453,150 | 814,911 | (313,622) | 954,439 |
| Total deferred tax expense (Note 36c) | 4,144,164 | 1,424,494 | (383,025) | 5,185,633 |
| 37) | OTHER INFORMATION |
a) Fair value of financial assets and liabilities
The carrying amounts and the fair values of the financial assets and liabilities are:
| R$ thousand | |||||
| On June 30, 2021 | On December 31, 2020 | ||||
| Book value | Fair Value | Book value | Fair Value | ||
| Assets | |||||
| Interbank investments | 116,576,082 | 116,599,294 | 190,604,202 | 190,653,041 | |
| Compulsory deposits with the Brazilian Central Bank | 85,377,496 | 85,377,496 | 83,757,533 | 83,757,533 | |
| Securities: | |||||
| - Trading securities | 61,390,747 | 61,390,747 | 54,486,599 | 54,486,599 | |
| - Available-for-sale securities | 252,352,081 | 252,352,081 | 208,948,127 | 208,948,127 | |
| - Held-to-maturity securities | 65,302,261 | 64,595,437 | 65,269,589 | 67,184,763 | |
| Derivative financial instruments | 29,747,639 | 29,747,639 | 23,905,679 | 23,905,679 | |
| Loans (1) | 545,456,243 | 550,563,966 | 509,329,055 | 513,941,797 | |
| Other financial instruments | 76,285,823 | 76,285,823 | 57,540,757 | 57,450,757 | |
| Liabilities | |||||
| Deposits from banks | 315,905,917 | 316,141,843 | 297,754,653 | 297,715,281 | |
| Deposits from customers | 545,993,097 | 546,160,811 | 548,238,035 | 548,286,913 | |
| Securities issued | 143,653,201 | 137,207,199 | 153,764,739 | 152,849,637 | |
| Subordinated debt | 47,570,546 | 48,456,706 | 53,255,401 | 54,201,259 | |
| Derivative financial instruments | 21,230,748 | 21,230,748 | 17,816,827 | 17,816,827 | |
| Other financial liabilities | 65,479,050 | 65,479,050 | 67,250,888 | 69,770,927 |
For financial instruments that are measured at fair value, the disclosure of the measurements is required according to the following hierarchical levels of fair value:
·Level 1
Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active market, as well as Brazilian government securities that are highly liquid and are actively traded in over-the-counter markets.
·Level 2
Valuation uses observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level
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Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
2 assets and liabilities include derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data, including but not limited to yield curves, interest rates, volatilities, equity or debt prices and foreign exchange rates.
·Level 3
Valuation uses unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities normally include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant Management judgment or estimation. This category generally includes certain corporate and bank debt securities and certain derivative contracts. The main unobservable inputs used in the determination of the fair value are the credit spreads that vary between 2% and 7%.
To fair value securities which have no consistent, regularly updated, public price source, Bradesco uses models defined by the Fair Value Commission and documented in the fair value manual for each security type. Through the use of methods and both mathematical and financial models which capture the effects and variations in the prices of assets at fair value, or similar instruments, Bradesco is able to ascertain in a clear and consistent manner the determination of fair value of its Level 3 assets and liabilities.
The table below presents the composition of the securities and derivative financial instruments measured at fair value, classified using the hierarchical levels:
| R$ thousand | ||||||||
| On June 30, 2021 | On December 31, 2020 | |||||||
| Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | |
| Trading securities | 53,567,268 | 7,420,073 | 403,406 | 61,390,747 | 47,058,649 | 7,108,516 | 319,434 | 54,486,599 |
| Financial treasury bills | 15,564,512 | - | - | 15,564,512 | 14,038,511 | - | - | 14,038,511 |
| National treasury notes | 13,403,633 | 5,975,132 | - | 19,378,765 | 16,472,705 | 6,345,101 | - | 22,817,806 |
| Financial bills | - | 391,083 | - | 391,083 | - | 242,524 | - | 242,524 |
| National treasury bills | 16,265,281 | - | - | 16,265,281 | 9,182,993 | - | - | 9,182,993 |
| Debentures | 144,960 | 556,066 | 149,303 | 850,329 | 180,311 | 479,006 | 174,753 | 834,070 |
| Brazilian foreign debt securities | 254,716 | - | - | 254,716 | 725,515 | - | - | 725,515 |
| Other | 7,934,166 | 497,792 | 254,103 | 8,686,061 | 6,458,614 | 41,885 | 144,681 | 6,645,180 |
| Derivatives | 101,606 | 9,161,687 | (746,402) | 8,516,891 | 58,389 | 6,257,640 | (227,177) | 6,088,852 |
| Derivative financial instruments (assets) | 113,389 | 29,554,796 | 79,454 | 29,747,639 | 98,393 | 23,787,991 | 19,295 | 23,905,679 |
| Derivative financial instruments (liabilities) | (11,783) | (20,393,109) | (825,856) | (21,230,748) | (40,004) | (17,530,351) | (246,472) | (17,816,827) |
| Available-for-sale securities | 168,085,798 | 73,675,983 | 10,590,300 | 252,352,081 | 130,216,973 | 68,185,691 | 10,545,463 | 208,948,127 |
| National treasury notes | 16,972,833 | - | - | 16,972,833 | 28,820,737 | - | - | 28,820,737 |
| Debentures | 6,879,154 | 50,070,062 | 9,525,259 | 66,474,475 | 6,302,933 | 48,378,732 | 9,577,824 | 64,259,489 |
| National treasury bills | 84,468,920 | - | - | 84,468,920 | 65,371,659 | - | - | 65,371,659 |
| Shares | 1,331,442 | 2,607,658 | 1,362 | 3,940,462 | 2,296,700 | 1,104,155 | 1,362 | 3,402,217 |
| Foreign government bonds | 8,350,465 | - | - | 8,350,465 | 6,508,218 | - | - | 6,508,218 |
| Foreign corporate securities | 6,093,957 | - | - | 6,093,957 | 6,653,994 | - | - | 6,653,994 |
| Promissory Notes | - | 3,731,145 | - | 3,731,145 | - | 7,167,074 | - | 7,167,074 |
| Certificates of real estate receivables | - | 1,621,945 | 119,268 | 1,741,213 | - | 1,567,572 | 119,124 | 1,686,696 |
| Other | 43,989,027 | 15,645,173 | 944,411 | 60,578,611 | 14,262,732 | 9,968,158 | 847,153 | 25,078,043 |
| Total | 221,754,672 | 90,257,743 | 10,247,304 | 322,259,719 | 177,334,011 | 81,551,847 | 10,637,720 | 269,523,578 |
| Public | 196,563,325 | 5,975,132 | 28,180 | 202,566,637 | 153,108,209 | 6,345,101 | 30,466 | 159,483,776 |
| Private | 25,191,347 | 84,282,611 | 10,219,124 | 119,693,082 | 24,225,802 | 75,206,746 | 10,607,254 | 110,039,802 |
| 76 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
Derivative Assets and Liabilities
The Organization's derivative positions are determined using quantitative models that require the use of multiple inputs including interest rates, prices and indexes to generate continuous yield or pricing curves and volatility factors. The majority of market inputs are observable and can be obtained mainly from B3 and the secondary market. Exchange traded derivatives valued using quoted prices are classified within Level 1 of the valuation hierarchy. However, few classes of derivative contracts are listed on an exchange; all others are classified as Level 2 or Level 3.
The yield curves are used to determine the fair value by the method of discounted cash flow, for currency swaps and swaps based on other risk factors. The fair value of futures and forward contracts is also determined based on quoted market prices on the exchanges for exchanges-traded derivatives or using similar methodologies to those described for swaps. The fair value of options is determined using external quoted prices or mathematical models, such as Black-Scholes, using yield curves, implied volatilities and the fair value of the underlying asset. Current market prices are used to determine the implied volatilities. The fair values of derivative assets and liabilities also include adjustments for market liquidity, counterparty credit quality and other specific factors, where appropriate.
The majority of these models do not contain a high level of subjectivity as the methodologies used in the models do not require significant judgment and inputs to the model are readily observable from active quoted markets. Such instruments are generally classified within Level 2 of the valuation hierarchy.
Derivatives that are valued based using significant unobservable market parameters and that are not actively traded are classified within Level 3 of the valuation hierarchy.
The table below presents a reconciliation of all securities and derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| R$ thousand | |||||
| Trading securities | Assets Derivative | Liabilities Derivatives | Available-for-sale securities | Total | |
| Balance on December 31, 2020 | 319,434 | 19,295 | (246,472) | 10,545,463 | 10,637,720 |
| Recognized in income | 93,762 | - | - | 81,650 | 175,412 |
| Recognized in other comprehensive income | - | - | - | 416,576 | 416,576 |
| Acquisitions | 105 | 60,159 | (579,384) | 619,643 | 100,523 |
| Disposals | (9,895) | - | - | (1,183,598) | (1,193,493) |
| Maturities | - | - | - | (59,646) | (59,646) |
| Transfer to other levels (1) | - | - | - | 170,212 | 170,212 |
| Balance on June 30, 2021 | 403,406 | 79,454 | (825,856) | 10,590,300 | 10,247,304 |
| 77 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
Sensitivity analysis for financial assets classified as Level 3 (unobservable inputs):
| Scenarios | R$ thousand | ||||
| On June 30, 2021 | On December 31, 2020 | ||||
| Impact on income | Impact on shareholders' equity | Impact on income | Impact on shareholders' equity | ||
| Interest rate in Reais | 1 | (12) | (77) | (25) | (177) |
| 2 | (2,346) | (15,485) | (3,672) | (29,423) | |
| 3 | (4,437) | (28,794) | (6,971) | (59,072) | |
| Price indexes | 1 | (4) | - | (4) | - |
| 2 | (218) | - | (83) | - | |
| 3 | (433) | (1) | (165) | - | |
| Exchange coupon | 1 | - | - | - | - |
| 2 | - | (3) | - | (8) | |
| 3 | - | (5) | - | (17) | |
| Foreign currency | 1 | - | (23) | - | (22) |
| 2 | - | (566) | - | (608) | |
| 3 | - | (1,132) | - | (1,216) | |
| Equities | 1 | (1,397) | (7) | (671) | (7) |
| 2 | (34,924) | (187) | (15,373) | (187) | |
| 3 | (69,848) | (375) | (33,542) | (375) |
The sensitivity analyses were carried out based on the scenarios prepared for the respective dates, always taking into consideration market inputs available at the time and scenarios that would adversely impact our positions, in accordance with the scenarios below:
Scenario 1: Based on market information (B3, Anbima, etc.), stresses were applied for 1 basis point on the interest rate and 1.0% variation on prices. For example: for a Real/US dollar exchange rate of R$4.98, a scenario of R$5.03 was applied, while for a 1-year fixed interest rate of 6.58%, a scenario of 6.59% was applied;
Scenario 2: 25.0% stresses were determined based on market information. For example: for a Real/US dollar exchange rate of R$4.98, a scenario of R$6.23 was applied, while for a 1-year fixed interest rate of 6.58%, a 8.23% scenario was applied. The scenarios for other risk factors also accounted for 25% stresses in the respective curves or prices; and
Scenario 3: 50.0% stresses were determined based on market information. For example: for a Real/US dollar quote of R$4.98 a scenario of R$7.47 was applied, while for a 1-year fixed interest rate of 6.58%, a 9.88% scenario was applied. The scenarios for other risk factors also accounted for 50% stresses in the respective curves or prices.
| 78 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
Financial instruments not measured at fair value
The table below summarizes the carrying amounts and the fair values of the financial assets and liabilities that were not measured at fair value in the statement of financial position, classified using the hierarchical levels:
| R$ thousand | ||||||||||
| On June 30, 2021 | On December 31, 2020 | |||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | Book value | Level 1 | Level 2 | Level 3 | Fair Value | Book value | |
| Assets | ||||||||||
| Interbank investments | - | 116,599,294 | - | 116,599,294 | 116,576,082 | - | 190,653,041 | - | 190,653,041 | 190,604,202 |
Securities held to maturity | 58,568,784 | 5,788,939 | 237,714 | 64,595,437 | 65,302,261 | 60,391,701 | 6,557,341 | 235,721 | 67,184,763 | 65,269,589 |
| Loans | - | - | 550,563,966 | 550,563,966 | 545,456,243 | - | - | 513,941,797 | 513,941,797 | 509,329,055 |
| Liabilities | ||||||||||
| Deposits from banks | - | - | 316,141,843 | 316,141,843 | 315,905,917 | - | - | 297,715,281 | 297,715,281 | 297,754,653 |
| Deposits from customers | - | - | 546,160,811 | 546,160,811 | 545,993,097 | - | - | 548,286,913 | 548,286,913 | 548,238,035 |
| Securities issued | - | - | 137,207,199 | 137,207,199 | 143,653,201 | - | - | 152,849,637 | 152,849,637 | 153,764,739 |
| Subordinated debt | - | - | 48,456,706 | 48,456,706 | 47,570,546 | - | - | 54,201,259 | 54,201,259 | 53,255,401 |
Below we list the methodologies used to determine the fair values presented above:
Interbank investments: Fair values were estimated for groups of similar loans based upon type of loan, credit quality and maturity. Fair value for fixed-rate transactions was determined by discounted cash flow estimates using interest rates approximately equivalent to our rates for new transactions based on similar contracts. Where credit deterioration has occurred, estimated cash flows for fixed and floating-rate loans have been reduced to reflect estimated losses.
Held-to-maturity securities: Financial assets are carried at amortized cost. Fair values are estimated according to the assumptions described in Note 3(d). See Note 8b (III) for further details regarding held-to-maturity securities.
Loan: The fair values for performing loans are calculated by discounting scheduled principal and interest cash flows through maturity using market discount rates and yield curves that reflect the credit and interest rate risk inherent to the type of loan at each reporting date. The fair values for non-performing loans are based on discounting cash flows or the value of underlying collateral.
| 79 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
The non-performing loans were allocated into each loan category for purposes of calculating the fair-value disclosure. Assumptions regarding cash flows and discount rates are based on available market information and specific borrower information.
Deposits from banks and clients: The fair value of fixed-rate deposits with stated maturities was calculated using the contractual cash flows discounted with current market rates for instruments with similar maturities and terms. For floating-rate deposits, the carrying amount was considered to approximate fair value.
Funds from securities issued: The carrying values of funds from securities issued approximate the fair values of these instruments.
Subordinated debt: Fair values for subordinated debts were estimated using a discounted cash flow calculation that applies interest rates available in the market for similar maturities and terms.
b)Recurring and non-recurring net income
According to BCB Resolution no. 2/2020 (Article 34) and Bradesco Organization's policy for evaluating and measuring non-recurring events, we present below the recurring and non-recurring net income for the periods:
Our consolidated net income in the six months ended on June 30, 2021, was R$12,127 million, the recurring net income was R$12,834 million and the non-recurring net income was R$(707) million, which is not expected to occur in future years, below we detail:
Non-recurring events in the six months ended on June 30, 2021: i. Amortization of Goodwill - R$(701) million: Amortization of goodwill due to expected future profitability, related to the atypical acquisition for the Organization's businesses considering the history of other acquisitions of the Organization, where we do not expect to have these effects beyond the next two years; and ii. Others - R$(6) million.
Our net income in the six months ended on June 30, 2020 was R$6,888 million, the recurring net income was R$7,626 million and the non-recurring net income was R$(738) million, net of taxes, below we detail:
Non-recurring event in the six months ended on June 30, 2020: i. Amortization of Goodwill - R$(738) million: Amortization of goodwill for expected future profitability, related to the atypical acquisition considering the history of other acquisitions of the Organization.
c)Investment funds
The Organization manages investment funds and portfolios with net assets which, on June 30, 2021, amounted to R$1,082,126,243 thousand (R$1,023,287,047 thousand in December 2020).
d)Private Social Investment
During the first semester of 2021, the Private Social Investments made by Bradesco and other companies in the Prudential Conglomerate amounted to R$30,631 thousand (R$102,734 thousand in 2020).
| 80 |
Consolidated Financial Statement of the Prudential Conglomerate Financial Statements |
e)Consortium funds
| R$ thousand | ||
| On June 30, 2021 | On December 31, 2020 | |
| Monthly estimate of funds receivable from consortium members | 685,828 | 639,242 |
| Contributions payable by the group | 38,842,497 | 35,489,135 |
| Consortium members - assets to be included | 34,321,525 | 31,182,122 |
| Credits available to consortium members | 7,329,511 | 7,069,000 |
| In units | ||
| On June 30, 2021 | On December 31, 2020 | |
| Number of groups managed | 3,439 | 3,436 |
| Quantity of assets pending delivery | 142,152 | 144,368 |
| Quantity of total delivered assets | 2,166,000 | 2,211,946 |
| Quantity of total active consortium members | 1,510,771 | 1,529,142 |
| Quantity of total dropouts and cancellations | 1,463,171 | 1,457,884 |
| Default rate | 3.43% | 3.38% |
| In units | ||
| Six months ended on June 30 | ||
| 2021 | 2020 | |
| Quantity of assets delivered in the semester | 103,953 | 122,176 |
| Quantity of active consortium members in the semester | 144,478 | 180,390 |
| Quantity of dropouts and cancellations in the semester | 143,876 | 167,085 |
f)In 2021, there were changes in the rules of compulsory collection as follows:
| Description | Previous Rule | Current Rule |
| Time Deposits |
BCB RESOLUTION No. 21, OF OCTOBER 2, 2020 (Revoked) II- 20% from the calculation period which starts on March 22, 2021 and ends on March 26, 2021. |
BCB Resolution No. 78, of March 10, 2021 I- 17% until the period of calculation which starts on November 22, 2021 and ends on November 26, 2021, with adjustment on December 6, 2021. II- 20% from the calculation period which starts on November 29, 2021 and ends on December 6, 2021, with adjustment on December 13, 2021 |
g)Since March 11, 2020 the World Health Organization (WHO) declared COVID-19, which originated in China at the end of 2019 and spread throughout the world, a pandemic resulting in a significant increase in the restrictions of national and international travel, downtime for many businesses and services in virtually all countries, government orders of social isolation to slow the spread of the virus, among other restrictions, generating an environment of strong financial volatility and increasing uncertainties, in addition to social, economic and employment instability. The COVID-19 pandemic has brought great challenges and uncertainties to the whole world, being considered the largest pandemic ever seen, according to the WHO. The crisis caused as a result of the pandemic can be observed from the beginning of March 2020 generating certain negative impacts on the Brazilian economy, such as (i) higher risk aversion, with pressures on the exchange rate; (ii) greater difficulties in foreign trade; and (iii) increase in the uncertainties of economic agents.
In order to mitigate the impacts of this crisis, governments and central banks around the world have intervened in the economy of their countries and have adopted unconventional measures, like the closing of non-essential economic activity and actions of monetary stimulus, with the practice of zero interest in addition to fiscal expansion.
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In Brazil, various measures have been adopted, including some directly impacting the liquidity of the financial markets, the credit markets, monetary and fiscal policy and exchange rates. In this context, in addition to the various measures taken by the Monetary Policy Committee (COPOM) and the Central Bank of Brazil, such as interest rate changes, the National Monetary Council and the Federal Government approved, in extraordinary meetings, diverse measures to help the Brazilian economy tackle the adverse effects caused by the virus.
The Executive and Legislative Powers acted to approve bills that minimize the repercussion of COVID-19, including proposing the temporary suspension of taxes (such as the relaxation of the IOF on loans and the deferral of payment of PIS/COFINS) and granting tax benefits to the sectors of the economy/workers most affected.
We cannot control, and nor can we predict what measures or policies the government may adopt in response to the current or future economic situation in Brazil, nor how the intervention or government policies will affect the Brazilian economy and how they will affect our operations. Below we highlight the main items of our statement of financial position which may potentially be impacted:
| · | Financial instruments: whose market value may vary significantly given the price volatility of these assets, especially those issued by private companies that have a higher credit risk; |
| · | Loans: there was a worsening of the economic situation, as well as the updating of prospective scenarios in order to capture the current and future events resulting from the pandemic, increasing the risk of credit operations, resulting in a migration between credit ratings and, consequently, a higher level provisioning; |
| · | Deferred tax assets: whose recoverability depends on future taxable profits, which may be affected depending on the consequences of the pandemic event if it extends over a long period of time; |
| · | Intangible assets: may have their recoverable amount impacted on the basis of the changes caused by the crisis to their main assumptions of realization, such as the rates of returns initially expected; |
| · | Funding: volatility, as well as uncertainties in credit and capital markets, generally reduces liquidity, which could result in an increase in the cost of funds for financial institutions, which may impact our ability to replace, appropriately and at reasonable costs, obligations that are maturing and/or the access to new resources to execute our growth strategy; |
| · | Technical provisions of insurance and pension resources: that depending on the evolution of the crisis can be impacted negatively given the possible increase in the level of claims, mainly in the 'life' segment and a higher frequency of claims from 'health' policyholders with the increased use of hospitals, furthermore, we may experience higher demand for early redemptions by pension plan participants, which would impact our revenues through a reduction in the management fees we charge; and |
| · | Civil and labor provisions: the number of labor lawsuits may increase as a result of third party suppliers that go bankrupt as Bradesco may be considered co-responsible in these lawsuits. It is also possible that we could experience a greater volume of civil processes, mainly involving reviews and contract renewals. |
Bradesco's Crisis Committee continues to assess the pandemic scenario and report to the Board of Directors, regarding the assessments of the evolution of the pandemic and its reflexes in our operations and society. In addition, we have a Segment Governance meeting - Covid, which plays an important role in verifying various points and the scope of these actions in the Organization. We remain with the Business Continuity Plan (PCN) active, prioritizing remote work in administrative centers and maintaining the rotation of employees from the branch network. Faced with the context of the pandemic, the Organization continues to strengthen its mentality towards the digital environment in a consistent and timely manner, with the aim of minimizing the impacts involved.
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One of the main objectives of our risk management structure is to monitor the allocation of capital and liquidity, aiming to maintain the levels of risk in accordance with the limits established and, in addition, monitor the economic scenarios actively (national and international), as well as the evolution of the COVID-19 pandemic and will make every effort to maintain the fullness of our operations, the services to the population, and the stability of the national financial system.
We offer emergency lines of credit to companies, such as funds for financing of payrolls, as well as the extension of the installments of loan operations to individuals for which the amounts in question, up to the date of approval of these financial statements, were imaterial.
The measurements of the future financial and economic impacts related to the pandemic will continue to be assessed, although, they possess a certain level of uncertainty and depend on the development of the pandemic, part of the impact of the pandemic is already reflected in the level of provisioning, however your duration or deterioration cannot yet be predicted, which could continue adversely affecting the global and local economy for an indefinite period of time, which negatively affects the results of financial institutions and, consequently, the performance of our operations.
| h) | On July 29, 2020, Law No. 14,031 was sanctioned, amending, from the fiscal year of 2021, the tax treatment incident on the exchange rate variation of the portion with risk coverage (hedge) of the value of the investment made by financial institutions and other institutions, authorized to operate by the Central Bank of Brazil, in a subsidiary, associated company, branch, branch office or branch domiciled abroad, registered in accordance with the regime of competence, which should be computed in determining the real income and on the base of the Social Contribution on Net Income (CSLL) of the investing legal entity, domiciled in Brazil, in the ratio of: (i) 50%, in 2021; and (ii) 100%, from the fiscal year of 2022. |
| Marcelo da Silva Rego |
| Accountant - CRC 1SP301478/O-1 |
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Consolidated Financial Statement of the Prudential Conglomerate Independent Auditors' Report |
To
Board of Directors and Shareholders of
Banco Bradesco S.A.
Osasco - SP
Opinion
We have audited the consolidated financial statements of the Prudential Conglomerate of Banco Bradesco S.A. ('Bradesco'), which comprise the consolidated balance sheet as of June 30, 2021 and the respective consolidated statements of income, changes in shareholders' equity and cash flows for the six-month period then ended, as well as the related explanatory notes, including a summary of the main accounting policies. These special purpose financial statements have been prepared in accordance with specific procedures established by Resolution 4280, dated October 31, 2013, of the National Monetary Council (CMN) and supplementary regulations of the Central Bank of Brazil (BACEN), described in the note 2 - Presentation of the financial statements.
In our opinion, the accompanying consolidated financial statements of the Prudential Conglomerate present fairly, in all material respects, the consolidated financial position of the Prudential Conglomerate of Banco Bradesco S.A. as of June 30, 2021, the consolidated performance of its operations and its respective consolidated cash flows, for the for the six-month period then ended, in accordance with Resolution 4280/13 of CMN, and supplementary regulations of Central Bank of Brazil (BACEN), for the preparation of special purpose consolidated financial statements, as described in the note 2 to financial statements.
Basis for opinion
We conducted our audit in accordance with Brazilian and International Standards on Auditing (ISAs). Our responsibilities under those standards, are further described in the 'The Auditors' responsibilities for the audit of the consolidated financial statements of the Prudential Conglomerate' section of our report. We are independent of Bradesco and its subsidiaries, in accordance with the ethical requirements established in the Accountant´s Professional Ethics Code and the professional standards issued by the Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis
We draw attention to note 2 to the consolidated financial statements that disclose that the consolidated financial statements of the Prudential Conglomerate of Bradesco were prepared by Bradesco´s management to meet the requirements of Resolution 4280/13 of CMN, and supplementary regulations of BACEN. Consequently, our report on these consolidated financial statements has been prepared solely for meeting these specific requirements and thus may not be appropriate for other purposes. Our opinion is not modified in relation to this topic.
Key Audit Matters
Key audit matters are those that, in our professional judgment, were of most significance in our audit of the current period. These matters were treated in the context of our audit of the consolidated financial statements of the Prudential Conglomerate as a whole, and in forming our opinion thereon, and, we do not express a separate opinion on these matters.
Evaluation of the measurement of the allowance for loan losses
As disclosed in notes 3e and 10, Bradesco recorded a provision of R$ 44,264,515 thousand for allowance for loan losses (which comprise loans, leasing, advances on foreign exchange contracts and other receivables with credit characteristics) as of June 30, 2021.
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To determine the allowance for loan losses, Bradesco classifies credit operations in nine risk levels ('ratings'), taking into account factors and assumptions of customers and operations, such as economic and financial situation, indebtedness level, economic sector, collateral characteristics, late payments and other factors and assumptions provided for in CMN Resolution No. 2,682/99, with 'AA' being the minimum risk and 'H' being the maximum risk, applying the respective loss percentages established in such Resolution for each risk level.
Additionally, Bradesco complements its estimates (supplementary provision) through internal evaluation based on statistical models that capture historical and prospective information, in order to reflect its expected losses in different economic scenarios (positive, expected and adverse).
We consider the measurement of the allowance for loan losses as a key audit matter, due to the significant judgment, accentuated by the effects of the current economic situation resulting from the Covid-19 pandemic, involved in the assessment of the assumptions used in the classification of loans operations and in determining the supplementary provision.
How our audit approached this matter
The primary procedures we performed to address the matter significant to our audit is summarized below.
We tested the design and operational effectiveness of certain internal controls automated and manual, related to the processes of (i) development, approval and application of internal methodologies for assessing risk levels ('ratings') of clients that support the classification of operations; (ii) the definition, approval and application of the main assumptions used in assigning the ratings, including those related to the individual review of the credit risk analysis and the governance established for the respective approval.
Additionally, for individually assessed clients, we analyze, based on sampling (by statistical criteria and specific items), the data that support the definition and review of customer ratings by Bradesco, such as the loan proposal, financial and registration information, restructuring operational and / or financial, guarantees and judicial reorganization plan, verifying the adherence of this rating assignment in relation to Bradesco's internal policies. For massively assessed clients, we tested the allocation of provisioning percentages according to the internal methodologies for assessing the risk levels of each client. We also evaluated the methodologies and assumptions used to determine the supplementary provision, which include Bradesco's assessment of the impacts generated by the Covid-19 pandemic, such as increased delinquency in certain sectors, increase in the unemployment rate, among others.
We analyzed, by statistical sampling, the arithmetic calculation of the allowance for loan losses, considering the assessment of compliance with the requirements established by CMN Resolution No. 2,682/99, as minimum ratings in relation to days past due, assigning the worst rating for the same economic group and maintenance of the previous rating for cases of renegotiation / loan recovery. We also evaluated the disclosures made in the consolidated financial statements.
Based on the evidence obtained through the procedures summarized above, we consider the measurement of the allowance for loan losses adequate, in the context of the consolidated financial statements taken as a whole for the six-month period ended June 30, 2021.
Evaluation of the measurement of securities of private issuers
As mentioned in notes 3d, 8 e 3a to the consolidated financial statements, the amount of securities of private issuers is R$ 116,979,235 thousand, which includes securities measured at market value, whose prices or market parameters are not observable (levels 2 and 3 of the fair value hierarchy).
The determination of the market values of securities of private issuers, whose prices or market parameters are not observable, is subject to a greater level of uncertainty, as Bradesco makes significant judgments in determining the methods and assumptions used, such as interest rates and credit spreads. The securities of private issuers classified in the categories 'Available for sale' and 'Held to maturity' are also evaluated for
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indications of evidence of impairment, which also involves a high level of judgment in their determination considering the methodologies and assumptions used, such as assessing credit risk and guarantees.
We consider the measurement of market value and the evaluation of indicative of impairment of securities of private issuers as a significant matter for our audit, due to the degree of judgment, accentuated by the current economic scenario of pandemic due to the Covid-19, involved in determining the methods and assumptions used.
How our audit approached this matter
The primary procedures we performed to address the matter significant to our audit is summarized below.
We tested the design and operational effectiveness of certain internal controls automated and manual, related to the processes of (i) defining, approving and applying the models used to measure the market value of securities of private issuers; (ii) capture of relevant data to measure the market value; (iii) evaluation of adherence to the calculations of the market value of certain financial instruments by independent department; (iv) definition and application of the assumptions used in the evaluation of the indicative of impairment of the securities of private issuers, such as the credit risk of the counterparty and the evaluation of guarantees.
For a statistical sample of securities of private issuers, whose parameters for measuring market value are not observable, we evaluated, with the involvement of our pricing professionals of financial instruments with knowledge and experience in the sector, the models developed by Bradesco for the determination of market values, through the use of independent parameters.
Additionally, based on sampling (by statistical criteria and specific items), we evaluate the assumptions considered in the analysis of the credit spread used in the pricing of certain financial instruments of private issuers, as well as those considered in the evaluation of the indicative and in the measurement of impairment, including the possible effects linked to the new pandemic scenario due to Covid-19, such as the increase in defaults in certain sectors, increase in the unemployment rate, among others.
Our procedures also included the assessment of the disclosures made by Bradesco in the consolidated financial statements.
Based on the evidence obtained through the procedures summarized above, we consider adequate the measurement of securities of private issuers, in the context of the consolidated financial statements taken as a whole for the six-month period ended June 30, 2021.
Evaluation of the measurement of provisions and the disclosure of contingent liabilities - Tax, civil and labor
As described in notes 3m and 22, Bradesco is defendant in lawsuits of tax, civil and labor nature, related to the normal course of its activities, with the respective provisions recorded in the consolidated financial statements in the amounts of R$ 6,975,971 thousand, R$ 7,563,477 thousand and R$ 6,451,867 thousand, respectively.
For certain tax and civil lawsuits, such as those related to the legality and constitutionality of certain taxes, indemnity for moral and property damage, relating to banking products and services, insertion of information about debtors in the credit restrictions register, monetary correction adjustments of the balances savings accounts due to the implementation of economic plans by the Federal Government, and some other specific civil actions, it took significant judgment to determine the likelihood of loss and estimate the amount involved. For labor lawsuits, Bradesco used a model, based on data from similar lawsuits closed, segregating the lawsuits in relation to the entry date versus the date of implementation of the labor reform, calculating the average loss for each group of lawsuits.
We consider the uncertainty measurement of provisions and the disclosure of contingent liabilities as a key audit matter.
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How our audit approached this matter
The primary procedures we performed to address the matter significant to our audit is summarized below.
We tested the design and operational effectiveness of certain internal controls automated an d manual, related to the evaluation and measurement of the provisions and disclosures of contingent liabilities, including controls related to (i) the evaluation of information received from external and internal legal advisors on tax, civil and labor lawsuits; and (ii) evaluation of the models and assumptions used to measure the provision and contingent labor liabilities.
For certain civil and tax lawsuits, we analyze the recognized provisions and the amounts disclosed, considering the assessment of internal and external legal advisors, as well as historical data and information/jurisprudence related to the lawsuits in question and other similar processes. We involved our tax professionals with knowledge and experience in the sector who assisted us in the assessment of certain tax processes in relation to technical merits and the supporting documentation for Bradesco's assessment of the likelihood and estimate of loss.
We obtained and evaluated the confirmation received directly from Bradesco's external legal advisors for tax lawsuits, which included an assessment of the likelihood of loss and an estimate of the amount of the loss, as well as assessments of the likelihood of loss and risk measurement received from internal legal advisors. for certain civil processes. We compared these assessments and estimates with those used by Bradesco and assessed the adequacy of the disclosures related to civil and tax contingencies in relation to these matters.
For labor claims, the main procedures comprised: (i) evaluation of the model used by Bradesco, through the analysis of different simulated scenarios, comparing with the results obtained by the Bradesco model; (ii) analysis of the segregations used in the models, by the nature of the processes, including the time of entry and the author's characteristics; (iii) test on the mathematical precision of the calculations made by Bradesco to determine the provision for labor claims based on the loss history of the last years in similar cases.
We also evaluated for tax, civil and labor claims, the sufficiency of the provision through the history of disbursement in relation to the respective provision amounts, intensifying the analyzes in relation to the understanding of specific cases that have diverged from the average of historical disbursements.
Based on the evidence obtained through the procedures summarized above, we consider the measurement of provisions and the disclosure of tax, civil and labor contingent liabilities adequate, in the context of the consolidated financial statements taken as a whole for the six-month period ended on June 30, 2021.
Assessment of the recoverability of deferred tax assets
The consolidated financial statements include assets related to deferred tax assets in the amount of R$ 80,991,346 thousand (notes 3f and 36c) whose realization is based on estimates of future profitability.
These projections are based on the business plans and budgets prepared by Bradesco and require the adoption of a series of assumptions related to future events and conditions. Changes in certain assumptions about the future, such as interest rates, foreign exchange rates and applicable tax rates, could have a significant impact on projections and, consequently, on the recoverability of deferred tax assets.
We consider the assessment of the recoverability of deferred tax assets as a key audit matter due to the degree of judgment necessary to evaluate the projections of future taxable profits and the main underlying key assumptions, especially accentuated of possible effects on the economic situation resulting from the Covid-19 pandemic.
How our audit approached this matter
The primary procedures we performed to address the matter significant to our audit is summarized below:
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We tested the design and operational effectiveness of certain internal controls over the Bradesco process to assess the recoverability of deferred tax assets, including controls related to the development and approval of key assumptions for the budget and the final projections of taxable profits by Bradesco.
We involved our corporate finance professionals with knowledge and experience in the sector who assisted us on the assessment of assumptions, including growth rates for the main business lines, future interest rates, foreign exchange rates and applicable tax rates underlying Bradesco's projections of future taxable profits, including the possible effects on its projections of future taxable profits linked to the current economic situation resulting from the Covid-19 pandemic.
In addition, we tested the mathematical calculations included in the technical study of realization of the respective deferred tax assets and the disclosures made by Bradesco in the consolidated financial statements.
Based on the evidence obtained through the procedures summarized above, we consider adequate the assessment of recoverability of deferred tax assets in the context of the consolidated financial statements taken as a whole for the six-month period ended on June 30, 2021.
Evaluation of the impairment testing of intangible assets
As mentioned in notes 3i, 3k and 14, the consolidated financial statements include intangible assets, which comprise goodwill on the acquisition of investments in the amount of R$ 3,993,561 thousand and other intangible assets in the amount of R$ 3,619,084 thousand.
Bradesco performs impairment tests at least annually or when there are events or circumstances that indicate that the book value may not be recoverable. As part of the impairment test of these assets, Bradesco estimated recoverable amounts of the relevant 'CGU' Cash Generating Units and investments based on the present value of future cash flows. Future cash flow projections consider business plans and budgets and require a series of business and economic assumptions.
We consider the evaluation of the impairment testing of intangible assets as a key audit matter, due to the high degree of subjectivity, especially accentuated by the current social and economic scenario resulting from the pandemic state due to Covid-19, in determining significant assumptions, including the growth rates for different businesses, revenue and expense flows, and the discount rates used.
How our audit approached this matter
The primary procedures we performed to address the matter significant to our audit is summarized below.
We tested the design and operational effectiveness of certain internal controls over Bradesco's analysis of the impairment testing of intangible assets, including controls related to (i) review of the budget process; (ii) the development, review and approval of the key assumptions used in the analysis, such as growth rates and discount rates; and (iii) independent review of the calculation methodology to perform the impairment test.
We involve our corporate finance professionals with knowledge and experience in the sector who assisted us in: (i) evaluating the assumptions used, such as growth rates used for different businesses, estimated revenue and expense flows, comparing them with information obtained from internal and external sources, including the possible effects on the premises generated by the current social and economic scenario resulting from the pandemic state due to Covid-19; (ii) evaluation of the discount rates used in the impairment test, comparing them with the discount rate ranges that were developed independently, using public market data available to comparable entities; (iii) evaluation of the adherence of the revised projections in relation to the realized cash flows; and (iv) evaluation of the mathematical precision of certain stages of the calculation of the present value.
Our procedures also included the assessment of the disclosures made by Bradesco in the consolidated financial statements in relation to this matter.
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Based on the evidence obtained through the procedures summarized above, we consider the evaluation of the impairment testing of intangible assets adequate in the context of the consolidated financial statements taken as a whole for the six-month period ended June 30, 2021.
Application controls and general information technology controls
Bradesco's technology environment has processes for managing access and changes in systems and applications, for developing new programs, besides automated controls and/or controls with automated components in the several relevant processes. In order to maintain its operations, Bradesco provides its employees with access to systems and applications, taking into account the duties performed by them and within its organizational structure. The controls to authorize, monitor, restrict and/or revoke the respective accesses to this environment aim to assure that the accesses and information updates are appropriately performed and by the appropriate professionals, to mitigate the potential risk of fraud or error arising from inappropriate access or change in a system or information, and to ensure the integrity of financial information and accounting records.
We consider this area as significant for our audit due to Bradesco's high dependence on its technology systems, the high volume of transactions processed daily, and the importance of access controls and change management in its systems and applications to plan the nature, timing and extent of our audit procedures.
How our audit approached this matter
The primary procedures we performed to address the matter significant to our audit is summarized below.
With the assistance of our information technology professionals with experience and knowledge in the sector, we performed the following procedures:
| (i) | We tested the design and operational effectiveness of certain key access controls, such as authorizing new users, revoking disconnected users and reviewing active users; |
| (ii) | We carry out tests, based on sampling, since we plan to rely on specific information, on information extracted from certain systems, considered relevant for the purposes of preparing the consolidated financial statements; |
| (iii) | In areas where, in our judgment, there is a high dependence on information technology, our tests also included the assessment of password policies, security settings and controls on developments and changes in systems and applications; |
| (iv) | When we identify key internal controls for the financial reporting process and other relevant processes that are fully automated or with any component dependent on systems and applications, we test the design and operational effectiveness of these controls. |
The evidence obtained through the procedures summarized above allowed us to consider application controls and general information technology controls to plan the nature, timing and extent of our audit procedures in the context of the consolidated financial statements taken as whole for the six-month period ended June 30, 2021.
Other matters
Bradesco prepared a set of general-purpose consolidated financial statements for six month period ended June 30, 2021, in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil, on which we issued an audit report without modifications dated August 03, 2021.
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Statement of added value
The consolidated statement of added value for the six-month period ended June 30, 2021, prepared under the responsibility of Bradesco's management, and presented as supplementary information in relation to the special purpose required by Resolution 4,280, dated October 31, 2013, of the National Monetary Council (CMN) and supplementary regulations of the Central Bank of Brazil (BACEN), was subjected to audit procedures performed in conjunction with the audit of Bradesco's financial statements of the Prudential Conglomerate of Bradesco. For the purposes of forming our opinion, we assess whether these statements are reconciled with the financial statements of Prudential Conglomerate and accounting records, as applicable, and if their form and content are in accordance with the criteria set forth in Technical Pronouncement CPC 09 - Statement of Value Added. In our opinion, these consolidated statements of value added have been properly prepared, in all material respects, in accordance with the criteria set forth in this Technical Pronouncement and are consistent with the consolidated financial statements of Prudential Conglomerate taken as a whole.
Responsibilities of management and those in charge with governance for the consolidated financial statements of the Prudential Conglomerate
Management is responsible for the preparation and fair presentation of the consolidated financial statements of the Prudential Conglomerate in accordance with the Resolution 4280/13 of CMN, and supplementary regulations of BACEN, which main criteria and accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Central Bank of Brazil, and the internal controls as management determines is necessary to enable the preparation of consolidated financial statements of the Prudential Conglomerate that are free from material misstatement whether due to fraud or error.
In preparing the consolidated financial statements of the Prudential Conglomerate, management is responsible for assessing Bradesco's ability to continue as going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate Bradesco and its subsidiaries or to cease operations, or there has no realistic alternative but to do so.
Those charged with governance are those responsible for overseeing Bradesco´s financial reporting process in preparing the consolidated financial statements of the Prudential Conglomerate.
Auditors' responsibilities for the audit of the consolidated financial statements of the Prudential Conglomerate
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements of the Prudential Conglomerate, prepared by the management in accordance with Resolution 4280/13 of CMN, and supplementary regulations of BACEN, as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor´s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements of Prudential Conglomerate.
As part of an audit in accordance with the Brazilian and International Standards on Auditing, taking into account NBC TA 800 (Special Conditions - Auditing of Financial Statements according to Special Purpose Accounting Structures), we exercise professional judgment, and maintain professional skepticism throughout the audit. We also:
| · | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting material misstatement resulting from fraud is higher than for the one resulting from error, as fraud may involve collusion, forgery, intentional omission or misrepresentations, or the override of internal controls. |
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| · | Obtain an understanding of internal control relevant to the audit to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Bradesco and its subsidiaries internal control. |
| · | Evaluate the appropriateness of the accounting policies used and the reasonableness of accounting estimates and related disclosures made by Bradesco. |
| · | Conclude on the appropriateness of management's use of the going concern basis of accounting, and, based on the audit evidence obtained, whether material uncertainty exists related to events or conditions that may cast significant doubt on Bradesco's ability to continue as going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements, or if such disclosures are inadequate to modify our opinion. Our conclusions are based on the audit evidences obtained up to the date of our auditor's report. However, future events or conditions may cause Bradesco and its subsidiaries to cease to continue as a going concern. |
| · | Evaluate the overall presentation, structure and content of the consolidated financial statements of Prudential Conglomerate, including the disclosures and whether the consolidated financial statements of Prudential Conglomerate represent the underlying transactions and events in a manner that achieves fair presentation. |
| · | Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements of Prudential Conglomerate. We are responsible for the direction, supervision and performance of group audit. We remain solely responsible for our audit opinion. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provided those charged with governance with a statement that we have complied with the relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be though to bear our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determined those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report, unless law or regulation precludes public disclosure about the matters, or when, in extremely rare circumstances, we determine a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefit of such communication.
Osasco, August 26, 2021
KPMG Auditores Independentes
CRC 2SP-028567/F
Original report in Portuguese signed by
Cláudio Rogélio Sertório
Contador CRC 1SP212059/O-0
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Banco Bradesco SA published this content on 27 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 August 2021 19:41:32 UTC.
