Banco Bradesco : Consolidated Financial Statements | IFRS 2018

Summary

IndependentAuditors' Report..................................................................................................................................... 3

Audit Committee's Report........................................................................................................................................... 8

Consolidated Statements of Income ........................................................................................................................... 9

Consolidated Statements of Comprehensive Income ............................................................................................... 10

Consolidated Statements of Financial Position ......................................................................................................... 11

Consolidated Statements of Changes in Equity .................................................................................................. 12-13

Consolidated Statements of Cash Flows ............................................................................................................ 14-15 Notes to the Consolidated Financial Statements

• 1) General information ................................................ 16

• 2) Significant accounting practices ............................. 16

• 3) Risk Management ................................................... 44

  • 3.1. Credit risk .................................................... 45

  • 3.2. Market risk ................................................... 52

  • 3.3. Liquidity risk ................................................ 61

  • 3.4. Fair value of financial assets and liabilities.. 72

  • 3.5. Independent Model Validation ..................... 78

  • 3.6. Capital management ................................... 79

  • 3.7. Insurance risk/subscription risk ................... 82

• 4) Estimates and judgments ....................................... 87

• 5) Operating segments ............................................... 89

• 6) Net interest income ................................................. 93

• 7) Net fee and commission income ............................. 94

• 8) Net gains/(losses) on financial assets and liabilities

  at fair value through profit or loss ........................... 94

• 9) Net gains/(losses) on financial instruments classified

  as held for trading ................................................... 94

• 10) Net gains/(losses) on financial assets at fair value

  through other comprehensive income .................... 94

• 11) Net gains/(losses) on financial instruments classified

  as available for sale ................................................ 95

• 12) Net gains/(losses) on foreign currency

  transactions ............................................................ 95

13)Net income from insurance and pension plans ....... 95

14) Personnel expenses ............................................... 96

15) Other administrative expenses ............................... 96

16) Depreciation and amortization ................................ 96

17) Other operating income/(expenses) ....................... 96

18) Income tax and social contribution ......................... 97

19) Earnings per share ............................................... 100

20) Cash and cash equivalents ................................... 100

21) Financial assets and liabilities at fair value through

profit or loss .......................................................... 101

22) Financial assets and liabilities held for trading ..... 102

23)Derivative financial instruments ............................ 103

24) Financial assets at fair value through other

comprehensive income ........................................ 108

25) Financial assets available for sale ....................... 109

26) Loans and advances to financial institutions ........ 109

27)Loans and advances to customers ....................... 110

28)Bonds and securities at amortized cost ................ 112

29) Investments held to maturity ................................ 113

30) Financial assets granted as collateral .................. 113

31) Non-current assets held for sale ........................... 114

32) Investments in associates and joint ventures ....... 115

33) Property and equipment ....................................... 118

34) Intangible assets and goodwill ............................. 120

35) Other assets ......................................................... 121

36) Deposits from banks ............................................. 122

37) Deposits from customers ...................................... 122

38) Funds from securities issued ................................ 122

36) Subordinated debt ................................................ 124

40) Insurance technical provisions and pension plans 126

41) Supplemental pension plans ................................ 134

42) Provisions, Contingents Assets and Liabilities and

Legal Obligations-Tax and Social Security ........ 136

43) Other liabilities ...................................................... 140

44) Equity ................................................................... 141

45)Transactions with related parties .......................... 143

46)Off-balance sheet commitments ........................... 145

• 47) New standards and amendments and interpretations

  of existing standards ............................................ 146

• 48) Other information .................................................. 151

Independent Auditors' Report onconsolidated financial statements

To

Shareholders and the Board of Directors of Banco Bradesco S.A.

Osasco-SP

Opinion

We have audited the consolidated financial statements of Banco Bradesco S.A. ("Bradesco"), which comprise

the consolidated statement of financial position as of December 31, 2018 and the respective consolidated statements of income and comprehensive income, changes in shareholders' equity and cash flows for the year

then ended, and notes, including significant accounting policies and other clarifying information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Banco Bradesco S.A as of December 31, 2018, and of its consolidated performance and its consolidated respectives cash flows, for the year then ended, in accordance with International Financial Reporting Standards (IFRS) issued by theInternational Accounting Standards Board

(IASB).

Basis for opinion

We conducted our audit in accordance with Brazilian and International Standards on Auditing. Ourresponsibilities under those standards, are further described in the "Auditor's Responsibilities for the Audit of

the Consolidated Financial Statementssection of our report.We are independent of the Bradesco and its subsidiaries in accordance with the relevant ethical requirements included in the Accountant´s Professional Ethics Code and the professional standards issued by the Brazilian 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.

Key Audit Matters

Key audit matters are those that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were treated in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and, therefore, we do not express a separate opinion on these matters.

Expected losses from loans and advances to clients, loan commitments, financial guarantees, financial assets at fair value through other comprehensive income and securities at amortized cost

As mentioned in notes 2d, 3.1, 4, 27 and 47, Bradesco periodically reviews its portfolio of loans and advances to clients, loans commitments, financial guarantees, financial assets at fair value through other comprehensive income and securities at amortized cost (as hereinafter defined "transactions subject to credit risk"), evaluating

the estimated expected losses from these transactions (impairment), in the amount of R$ 31,105,579 thousand, R$ 2,551,676 thousand e R$ 719,216 thousand, R$ 337,506 thousand, R$ 3,022,038 thousand, respectively, as of December 31, 2018. Beginning January 1, 2018, IFRS 9-Financial Instruments standard entered into force, which among other changes, modifies the measurement of the estimated loss for transactions subject to credit risk from an "incurred losses" to an "expected losses" model. In accordance with that amendment, the Bradesco reviewed and modified its internal policies and methodologies for loss measurement for transactions subject to credit risk. The new methodologies require, by its nature, the use of judgments and assumptions by Bradesco, which include analysis of both external factors, such as general economic conditions and projections, and internal factors, such as payment and renegotiation history, counterparty credit risk evaluation and collaterals.

Due to the relevance of transactions subject to credit risk and the level of uncertainty and judgment for the determination of the expected loss, as well as related disclosure requirements, we consider this as a significant matter for the audit.

How our audit approached this matter

On a sample basis, we tested the design and operating effectiveness of relevant internal controls related to the approval and registration of transactions subject to credit risk, the analysis of policies and manuals related to the models, the application of the methodologies, the use of indexes and assumptions in the calculation ofthe expected losses of transactions subject to credit risk. On a sample basis, we evaluated the expected loss for transactions subject to credit risk considered individually significant; we inspected the documentation and assumptions that support Bradesco's evaluation of the expected losses, including the sufficiency analysis of the guarantees. We have also tested, with the technical support of our specialists, the models, assumptions and data used by Bradesco to measure expected losses for transactions subject to credit risk evaluated on a collective basis, including the assumptions and data used to determine the expected losses through the application of statistical calculations to evaluate the performance and stability of those models and methodologies developed by Bradesco. Our procedures also included the evaluation of the disclosures made by Bradesco in the consolidated financial statements in relation to the applicable rules.

Based on the evidence obtained through the procedures summarized above, we consider adequate the level of expected losses and related disclosures in the context of the consolidated financial statements taken as a whole, for the year ended December 31, 2018.

Measurement of financial instruments

As disclosed in the Notes 2d, 3.4, 21a e b, 23, 24 and 47, derivative financial instruments levels 2 and 3 amount to R$ 14,735,842 thousand (assets) and R$ 16,119,653 thousand (liabilities), the financial instruments measured at fair value through profit or loss levels 2 and 3 amount to R$ 18,792,441 thousand and the financial instruments measured at fair value through other comprehensive income levels 2 and 3 amount to R$ 8,123,144 thousand. These instruments, measured at fair value, are relevant to the consolidated financial statements of Bradesco. For the financial instruments for whose fair value measurement does not directly use quoted prices (Levels 2 and 3 in the fair value hierarchy), the determination of the fair value is subject to a higher uncertainty level to the extent Bradesco makes significant judgments to estimate such amounts. Therefore, we consider the fair value measurement of these financial instruments including the evaluation of indicative of evidence of loss as a significant matter in our audit.

How our audit approached this matter

On a sample basis, we tested the design and operating effectiveness of the relevant internal controls adopted by Bradesco to capture and process the information, parameterization of the calculation models for the financial instruments for which parameters are not observable (Levels 2 and 3 in the fair value hierarchy). For a sample of financial instruments classified in levels 2 and 3, with the technical support of our specialists in financial instruments, we evaluated the pricing models developed by Bradesco for determining fair values and the data reasonableness, the parameters and information included in the models, as well as the criteria and policies related to indicative evidence of loss and we recalculate, on a sample basis, the amount of certain transactions. Our procedures also included the evaluation of the disclosures made by Bradesco in the consolidated financial statements.

Based on the evidence obtained from the procedures summarized above, we consider adequate the fair value measurement of financial instruments and disclosures in the context of the consolidated financial statements taken as a whole, for the year ended December 31, 2018.

• Provisions and contingent liabilities - tax, civil and labor

As described in Notes 2j and 42, Bradesco is defendant in tax, civil and labor lawsuits in the normal course of its activities, with provisions recognized in the consolidated financial statements in the amounts of R$ 8,204,206 thousand, R$ 5,614,362 thousand, and R$ 5,983,603 thousand, respectively. Some laws, regulations and judicial proceedings in Brazil have high complexity levels, and, therefore, the measurement, recognition and disclosure of Provisions and Contingent Liabilities, related to lawsuits, and/or, in certain cases,adherence to laws and regulations, require Bradesco's professional judgment. Due to the relevance,complexity and judgment involved in the evaluation, measurement and disclosures related to Provisions and Contingent Liabilities, as well as those related to the compliance with laws and regulations, we consider this as a significant matter in our audit.

How our audit approached this matter

On a sample basis, we tested the design and operating effectiveness of the relevant internal controls related to the identification, evaluation, measurement and disclosure of Provisions and Contingent Liabilities, as well as those related to the compliance with laws and regulations. Additionally, we evaluated the sufficiency of the recognized provisions and disclosed amounts, by evaluating the criteria and assumptions adopted in the measurement methodology, also considering the assessment of the internal and external legal advisors of Bradesco, as well as historical data and information. This work included, when necessary, the involvement of our legal and tax specialists in the evaluation of the likelihood of unfavorable outcome and the documentationand information related to the main tax matters involving Bradesco. Our procedures also included the evaluation of the disclosures made by Bradesco in the consolidated financial statements.

Based on the evidence obtained from the procedures summarized above, we consider adequate Bradesco'slevel of provisions and contingent liabilities as well as the respective disclosures in the context of the consolidated financial statements taken as a whole, for the year ended December 31, 2018.

• Impairment of assets

The consolidated financial statements include deferred tax assets in the amount of R$ 53,280,933 thousand (Note 18c) and intangible assets, which include goodwill on the acquisition of investments in the amount of R$ 5,576,068 thousand and other intangible assets in the amount of R$ 4,795,136 (note 34a) which realization is based on future profitability based on business plans and budgets prepared by Bradesco and which are supported by several economic and business assumptions, among others. As described in Notes 2j and 4, considering the frequent changes that occur in the economic and regulatory environment of the markets where it operates, Bradesco continuously evaluates the assumptions and estimates of taxable profit, profitability of the cash generating units "CGU" to which goodwill and intangible assets are allocated, growth rates, discount

rates, and cash flow projections or at least the existence of indicative impairment losses on assets. In view of the level of judgment inherent in the determination of these estimates and the potential impact that changes in the assumptions could cause on the consolidated financial statements, we consider this area significant to our audit.

How our audit approached this matter

On a sample basis, we tested the design and operating effectiveness of the relevant internal controls related to the assessment prepared by Bradesco of indicative of impairment losses of those assets. Additionally, we evaluated, with the technical support of our corporate finance specialists when necessary, the reasonableness and consistency of the data and assumptions used for preparing such assessment. We also performed an analysis of the reasonableness of the mathematical calculations included in technical study support for tax credits. Our procedures also included the evaluation of the disclosures made by Bradesco in the consolidated financial statements.

Based on the evidence obtained from the procedures summarized above, we consider adequate the measurement of the recoverable amounts of assets and related disclosures in the context of the consolidated financial statements taken as a whole, for the year ended December 31, 2018.

• Technical Provisions-Insurance and Pension Plans

As mentioned in Notes 2l and 40, Bradesco has liabilities related to insurance and pension plans contractsdenominated "Technical Provisions", in the amount of R$ 251,578,287 thousand, which includes among

others, the following provisions involving judgment: Provision for Claims Incurred But Not Reported (IBNR) in the amount of R$ 4,332,935 thousand, Claims Incurred But Not Enough Reported (IBNeR) and Provision for

Claims to be settled (PSL) in the amount of R$ 5,818,525 thousand, Provision for Unearned Premiums for risks in force but not yet issued (PPNG-RVNE) in the amount of 158,535 thousand, Mathematical Provision for Benefits to be Granted-Insurance in the amount of R$ 1,218,860 thousand, Mathematical Provision for Benefits Granted in the amount of R$ 8,833,164 thousand, Provision for Insufficient Premiums in the amount of R$ 2,133,130 mil, Provision for Related Expenses in the amount of R$ 558,190 mil and Other Technical Provisions in the amount R$ 2,007,136 thousand. The measurement of such provisions and the liability adequacy test require significant judgment of Bradesco in the determination of methodologies and assumptions, which include, among others, loss ratio, mortality, longevity, persistency, and interest rates. Due to the relevance of these technical provisions and the impact that any change in calculation assumptions of technical provisions and of liability adequacy test could cause on the consolidated financial statements, we consider this matter significant to our audit.

How our audit approached this matter

On sampling basis, we tested the design and operating effectiveness of the relevant internal controls related to the process of determination and measurement, the technical provisions identified above and of liability adequacy test. With the technical support of our actuarial specialists, we evaluated the methodologies, the consistency of data and reasonableness of assumptions, such as loss ratio, mortality, longevity persistency and interest rates, used in the measurement the technical provisions and of liability adequacy test, as well as we performed the recalculation, on a sample bases, of technical provisions and liability adequacy test. Additionally, we tested the reasonableness of the databases used in the actuarial calculations. Our audit procedures also