Banco Bradesco reported net income of BRL 3 billion (about $1.4 billion) for the third quarter. This was a 3.5% increase sequentially and 6.5% on a year-over-year basis. We are maintaining our narrow-moat rating and our fundamental outlook for the company at this time.

Net interest income was BRL 11.7 billion, up 17% sequentially from BRL 10 billion and down 15% from BRL 13.8 billion in the third quarter of 2012. Digging deeper, interest income was actually BRL 11.7 billion for both the second quarter of 2013 and the third quarter of 2012 when adjusted for non-recurring events and fiscal hedging, demonstrating stability in the figure. The loan portfolio ended the period at BRL 412 billion, representing 2.5% growth sequentially and 11% growth over the previous year.

Loan growth has been somewhat disappointing over the last 12 months, as 11% falls below management guidance of 13%-17% at the outset of the year and is at the low end of a revised estimate of 11%-15% following the second quarter. Fee income totaled BRL 4.9 billion, flat sequentially and up from BRL 4.4 billion in the third quarter of 2012.

Card income had the strongest influence on fee income growth, contributing BRL 1.8 billion versus BRL 1.5 billion in the prior year. Income before tax improved to BRL 4.8 billion from BRL 4.6 billion in the second quarter and was above the BRL 4.4 billion reported in the third quarter of 2012. While Banco Bradesco booked significantly decreased loan losses, overall expenses rose faster than revenue, which caused returns on equity to fall to 18.4% from 18.8% in the second quarter.

The bank showed continuing improvement in the quality of its loan portfolio. Loans delinquent 90 days or more accounted for 3.6% of loans, an improvement from 3.7% in the second quarter, and down from 4.1% in the year-earlier third quarter. Additionally, the bank ended the quarter with a Tier 1 capital ratio of 12.7%, a solid increase above 11.6% in the second quarter.