Banco Daycoval S.A. (Convenience Translation into English from the Original Previously Issued in Portuguese)

Transcription

1 (Convenience Translation into English from the Original Previously Issued in Portuguese) Banco Daycoval S.A. Financial Statements for the Six-month Period and for the Year Ended December 31, 2014 and Report of Independent Auditors Deloitte Touche Tohmatsu Auditores Independentes

2 (Convenience Translation into English from the Original Previously Issued in Portuguese) To the Shareholders and Management of Banco Daycoval S.A. São Paulo - SP Introduction We have audited the accompanying individual and consolidated financial statements of Banco Daycoval S.A. (the Bank ) and its subsidiaries ( Consolidated ), which comprise the balance sheet as of December 31, 2014, and the related statements of income, changes in shareholder s equity ( Bank ), and cash flows for the six-month period and for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Brazilian accounting practices applicable to the institutions authorized to operate by the Central Bank of Brazil ( BACEN ). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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4 BANCO DAYCOVAL S.A. BALANCE SHEETS AS AT DECEMBER 31, 2014 AND 2013 (In thousands of Brazilian reais - R$) ASSETS Note Bank Consolidated Bank Consolidated CURRENT ASSETS 11,378,640 11,513,577 8,886,317 9,001,553 Cash 135, ,934 88,292 91,368 Interbank investments Note 5 2,514,870 2,514,870 2,021,232 2,021,232 Money market investments 2,411,501 2,411,501 1,895,978 1,895,978 Interbank deposits 61,941 61, , ,002 Foreign currency investments 41,428 41,428 9,252 9,252 Securities and derivatives Note 6 488, , , ,076 Own portfolio 209, , , ,697 Linked to repurchase agreements - - 9,020 9,020 Derivatives 205, ,639 4,061 4,061 Linked to guarantees 73,250 73,250 1,179 1,179 Asset-backed technical reserves - 33,077-29,119 Interbank accounts 179, , , ,245 Payments and receipts pending settlement Restricted deposits - Central Bank of Brazil 138, , , ,412 Correspondents 40,043 40,043 81,821 81,821 Lending operations 5,217,804 5,217,804 4,477,748 4,477,748 Lending operations - public sector Note 7 51,175 51,175 22,385 22,385 Lending operations - private sector Note 7 5,476,120 5,476,120 4,820,109 4,820,109 (Allowance for loan losses) Note 9 (309,491) (309,491) (364,746) (364,746) Other receivables 2,664,217 2,671,707 1,743,824 1,750,888 Foreign exchange portfolio Note 10.a) 502, , , ,041 Income receivable 7,139 7,777 9,421 10,358 Insurance premiums Note 19.a) Trading account Note 6.f) 2,416 2,416 1,235 1,235 Other Note 10.b) 2,159,868 2,166,117 1,380,194 1,385,733 (Allowance for other loan losses) Note 9 (7,945) (7,945) (12,067) (12,067) Other assets Note , , , ,996 Repossessed assets 69,568 69,568 48,413 48,413 (Allowance for repossessed assets losses) (8,016) (8,016) (4,363) (4,363) Prepaid expenses 117, , , ,946 NONCURRENT LONG-TERM ASSETS 7,380,544 7,392,858 5,902,595 5,918,160 Securities and derivatives Note 6 1,287,282 1,323,316 1,084,037 1,119,971 Own portfolio 1,081,244 1,117, , ,832 Linked to repurchase commitments 47,741 47,741 62,951 62,951 Derivatives 107, , , ,410 Linked to guarantees 50,972 50,972 36,637 36,637 Asset-backed technical reserves Lending operations 4,437,304 4,437,304 3,566,392 3,566,392 Lending operations - public sector Note 7 57,523 57,523 46,469 46,469 Lending operations - private sector Note 7 4,514,051 4,514,051 3,624,266 3,624,266 (Allowance for loan losses) Note 9 (134,270) (134,270) (104,343) (104,343) Other receivables 1,370,986 1,371,308 1,063,552 1,063,786 Foreign exchange portfolio Note 10.a) 1,176 1, Other Note 10.b) 1,369,810 1,370,132 1,063,552 1,063,786 Other assets Note , , , ,011 Prepaid expenses 284, , , ,011 PERMANENT ASSETS 224,668 30, ,041 30,235 Investments 198, , Equity in domestic subsidiaries Note , ,351 - Other investments Fixed assets 26,442 29,752 26,044 29,415 Properties in progress Note 14 2,960 2, Properties in use - 9,629-9,629 Other use of assets 38,239 39,354 35,273 36,163 (Accumulated depreciation) (14,757) (22,191) (9,229) (16,377) Intangible assets TOTAL ASSETS 18,983,852 18,937,050 15,000,953 14,949,948 The accompanying notes are an integral part of these financial statements

5 BANCO DAYCOVAL S.A. BALANCE SHEETS AS AT DECEMBER 31, 2014 AND 2013 (In thousands of Brazilian reais - R$) LIABILITIES Note Bank Consolidated Bank Consolidated CURRENT LIABILITIES 8,699,768 8,671,536 6,507,424 6,542,675 Deposits Note 15 2,848,400 2,778,419 2,666,623 2,666,069 Demand deposits 457, , , ,366 Interbank deposits 155, , , ,520 Time deposits 2,227,913 2,158,767 2,147,311 2,147,311 Foreign currency deposit 8,164 8,164 3,872 3,872 Money market funding Note , , , ,644 Own portfolio 47,202 47,202 71,605 71,605 Third parties 695, , , ,039 Funds from acceptance and issuance of securities Note 16 3,102,153 3,100,760 1,837,344 1,836,044 Mortgage loan notes 422, , , ,572 Agribusiness letters of credit 222, , , ,591 Financial bills 1,314,803 1,314,803 1,380,550 1,379,599 Securities issued abroad 1,142,227 1,140,834 36,631 36,282 Interbank accounts 1,421 1, Interbranch accounts 27,115 27,115 22,190 22,190 Borrowings Note 17 1,184,127 1,184, , ,206 Foreign borrowings 1,184,127 1,184, , ,206 Domestic onlendings - official institutions Note , , , ,225 BNDES 58,595 58,595 40,957 40,957 FINAME 72,911 72,911 76,268 76,268 Derivatives Note 6.f) 24,217 24,217 3,271 3,271 Technical reserves - insurance Note 19.b) - 32,723-29,107 Other payables 638, , , ,046 Collected taxes and other 5,287 5,287 3,992 3,992 Foreign exchange portfolio Note 20.a) 31,703 31,703 9,334 9,334 Social and statutory Note 20.b) 49,907 50,487 44,162 45,214 Tax and social security Note 20.c) 220, , , ,857 Trading account Note 6.f) 5,741 5,741 1,407 1,407 Other Note 20.d) 324, ,301 93,702 96,242 NONCURRENT LONG-TERM LIABILITIES 7,751,340 7,731,969 6,039,617 5,952,587 Deposits Note 15 1,088,672 1,080,003 1,115,362 1,042,195 Interbank deposits 169, , , ,816 Time deposits 918, , , ,379 Funds from acceptance and issuance of securities Note 16 4,674,373 4,663,246 2,952,585 2,938,558 Mortgage loan notes 36,147 36,147 41,148 41,148 Agribusiness letters of credit 1,998 1,998 9,385 9,385 Financial bills 2,551,815 2,550,776 1,523,539 1,523,539 Securities issued abroad 2,084,413 2,074,325 1,378,513 1,364,486 Borrowings Note , , , ,539 Foreign borrowings 496, , , ,539 Domestic onlendings - official institutions Note , , , ,305 BNDES 70,454 70,454 55,892 55,892 FINAME 130, , , ,413 Derivatives Note 6.f) 1,104 1, Other payables 1,289,529 1,289, , ,159 Foreign exchange portfolio Note 20.a) Tax and social security Note 20.c) 1,223,975 1,224, , ,827 Other Note 20.d) 65,484 65,856 23,194 23,332 DEFERRED INCOME 10,036 10,044 13,636 13,672 NONCONTROLLING INTERESTS SHAREHOLDERS EQUITY 2,522,708 2,522,708 2,440,276 2,440,276 Capital- 1,892,143 1,892,143 1,868,862 1,868,862 Residents in Brazil Note 23.a) 1,892,143 1,892,143 1,797,652 1,797,652 Capital increase Note 23.b) ,210 71,210 Capital reserves Revaluation reserves Note 23.g) ,058 1,058 Earnings reserves Note 23.g) 693, , , ,033 Valuation adjustments to equity Available-for-sale securities (19,998) (19,998) (17,080) (17,080) Treasury shares Note 23.d.1) (44,171) (44,171) (7,493) (7,493) TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 18,983,852 18,937,050 15,000,953 14,949,948 The accompanying notes are an integral part of these financial statements. 4

6 BANCO DAYCOVAL S.A. INCOME STATEMENTS FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 2014 AND FOR THE YEAR ENDED DECEMBER 31, 2014 AND 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) 2nd half of 2014 Note Bank Consolidated Bank Consolidated Bank Consolidated INCOME FROM FINANCIAL INTERMEDIATION 2,047,527 2,056,259 3,048,213 3,063,959 2,329,448 2,344,621 Lending operations Note 24.a) 1,223,817 1,223,817 2,266,120 2,266,120 1,736,037 1,743,035 Securities transactions Note 24.b) 217, , , , , ,896 Derivatives Note 24.c) 443, , , , , ,402 Foreign exchange transactions Note 24.d) 162, , , , , ,288 EXPENSES ON FINANCIAL INTERMEDIATION (1,595,174) (1,590,057) (2,361,643) (2,352,098) (1,561,574) (1,561,625) Funding operations Note 24.e) (1,134,010) (1,128,893) (1,620,225) (1,610,680) (874,721) (867,774) Borrowings and onlending Note 24.f) (252,599) (252,599) (280,924) (280,924) (175,336) (182,334) Financial assets sale or transfer (3,845) (3,845) (3,845) (3,845) (33,028) (33,028) Allowance for loan losses Note 9 (204,720) (204,720) (456,649) (456,649) (478,489) (478,489) GROSS PROFIT FROM FINANCIAL INTERMEDIATION 452, , , , , ,996 OTHER OPERATING INCOME (EXPENSES) (208,751) (217,522) (224,799) (241,181) (412,835) (420,564) Income from services provided 50,908 56,746 91, ,436 73,648 93,946 Results of insurance operations Note 19.d) - 1,299-2,925-2,798 Personnel expenses Note 24.g) (108,282) (120,397) (196,157) (218,461) (167,221) (185,576) Other administrative expenses Note 24.h) (228,511) (222,211) (453,501) (445,195) (376,086) (376,116) Tax expenses Note 24.i) (45,870) (48,589) (88,297) (93,956) (77,845) (83,691) Equity in subsidiaries 11,256-12,377-7,659 - Other operating income Note 24.j) 197, , , , , ,931 Other operating expenses Note 24.k) (85,585) (88,196) (172,489) (179,976) (82,407) (88,856) INCOME FROM OPERATIONS 243, , , , , ,432 NONOPERATING INCOME (9,110) (9,049) (14,623) (14,562) (4,450) (4,450) INCOME BEFORE INCOME TAXES 234, , , , , ,982 INCOME TAX AND SOCIAL CONTRIBUTION Note 21.a) (63,201) (67,679) (124,915) (133,139) (79,902) (85,778) Provision for income tax (88,196) (91,407) (122,801) (128,686) (127,208) (131,398) Provision for social contribution (55,693) (56,960) (77,058) (79,397) (78,697) (80,383) Deferred tax assets 80,688 80,688 74,944 74, , ,003 PROFIT SHARING Note 26.1) (25,775) (26,406) (44,088) (44,775) (36,883) (38,354) NONCONTROLLING INTERESTS - (30) - (59) - (46) NET INCOME 145, , , , , ,804 Number of shares Note 23.c) 243,675, ,675, ,675, ,675, ,309, ,309,937 Earnings per share - R$ The accompanying notes are an integral part of these financial statements. 5

7 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. STATEMENTS OF CHANGES IN EQUITY FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 2014 AND FOR THE YEAR ENDED DECEMBER 31, 2014 AND 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) Earnings reserves Special Valuation Capital Capital Revaluation Unrealized earnings adjustments Treasury Retained Note Capital increase reserves reserves Legal earnings Statutory reserves to equity shares earnings Total BALANCE AS AT DECEMBER 31, ,359,143 66,583 1,577 1,185 77,832 12, ,269 6,977 4,822 (1,290) - 2,203,507 Capital increase: Capital increase 438,509 (438,509) Ratified - 443, ,136 Adjustment to fair value- Securities and derivatives (21,902) - - (21,902) Buypack of Bank s shares Note 23.d.1) (301,660) - (301,660) Sale of the shares issued by the Company itself Note 23.d.1) (1,298) - - 3,698-2,400 Cancellation of Bank s shares Note 23.d.1) (291,759) , Grant of options to purchase shares ("vesting period") Exercise of the stock options granted - - (854) Realization of revaluation reserve (194) Income tax and social contribution on revaluation reserve Net income , ,804 Allocations: Legal reserve , (11,689) - Statutory reserve , (110,037) - Additional dividends after 12/31/ (6,977) (6,977) Interest on capital Note 23.f) (112,272) (112,272) BALANCE AS AT DECEMBER 31, ,797,652 71, ,058 89,521 12, ,103 - (17,080) (7,493) - 2,440,276 BALANCE AS AT DECEMBER 31, ,797,652 71, ,058 89,521 12, ,103 - (17,080) (7,493) - 2,440,276 Capital increase: Capital increase - 23, ,281 Ratified 94,491 (94,491) Adjustment to fair value- Securities and derivatives (2,918) - - (2,918) Buypack of Bank s shares Note 23.d.1) (100,091) - (100,091) Sale of the shares issued by the Company itself Note 23.d.1) (1,457) - - 5,104-3,647 Cancellation of Bank s shares Note 23.d.1) (58,309) , Grant of options to purchase shares ("vesting period") Exercise of options to purchase shares granted - - (710) Profit-taking to be held (12,409) ,409 - Exercise of the stock options granted (226) Income tax and social contribution on revaluation reserve Net income , ,145 Allocations: Legal reserve , (13,907) - Statutory reserve , (157,401) - Interest on capital Note 23.f) (120,182) (120,182) BALANCE AS AT DECEMBER 31, ,892, , ,738 - (19,998) (44,171) - 2,522,708 6

8 BANCO DAYCOVAL S.A. STATEMENTS OF CHANGES IN EQUITY FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 2014 AND FOR THE YEAR ENDED DECEMBER 31, 2014 AND 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) Earnings reserves Special Valuation Capital Capital Revaluation Unrealized earnings adjustments Treasury Retained Note Capital increase reserves reserves Legal earnings Statutory reserves to equity shares earnings Total BALANCE AS AT JUNE 30, ,892, ,153 12, ,822 - (4,948) (44,521) 65,853 2,502,588 Adjustment to fair value- Securities and derivatives (15,050) - - (15,050) Buypack of Bank s shares Note 23.d.1) (52,474) - (52,474) Sale of the shares issued by the Company itself Note 23.d.1) (669) - - 2,008-1,339 Cancellation of Bank s shares Note 23.d.1) (50,816) , Grant of options to purchase shares ("vesting period") Exercise of options to purchase shares granted - - (443) Profit-taking to be held (12,409) ,409 - Exercise of the stock options granted (112) Income tax and social contribution on revaluation reserve Net income , ,516 Allocations: Legal reserve , (7,275) - Statutory reserve , (157,401) - Interest on capital Note 23.f) (59,657) (59,657) BALANCE AS AT DECEMBER 31, ,892, , ,738 - (19,998) (44,171) - 2,522,708 The accompanying notes are an integral part of these financial statements. 7

9 BANCO DAYCOVAL S.A. STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 2014 AND FOR THE YEAR ENDED DECEMBER 31, 2014 AND 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) 2nd half of Bank Consolidated Bank Consolidated Bank Consolidated CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME 145, , , , , ,804 Adjustment to reconcile net income to net cash provided by operating activities Depreciation and amortization 3,018 3,226 5,898 6,309 1,831 2,215 Deferred taxes (80,688) (80,688) (74,944) (74,944) (126,003) (126,003) Provision for risks 83,475 83, , , , ,195 Allowance for loan losses 201, , , , , ,457 Allowance for other loan losses 3,714 3,714 9,673 9,673 7,032 7,032 Allowance for losses on other assets 3,006 3,006 3,653 3,653 (1,483) (1,483) Exercise of stock option Equity in subsidiaries (11,256) - (12,377) - (7,659) - TOTAL RECONCILIATION ADJUSTMENTS 202, , , , , ,267 ADJUSTED NET INCOME 348, , , , , ,071 CHANGES IN ASSETS AND LIABILITIES (1,527,790) (1,542,776) (2,399,265) (2,415,849) (2,168,635) (2,173,175) Increase in interbank investments 88,420 88,420 85,631 85,631 3,141 3,141 Increase in securities and derivatives (423,712) (435,630) (487,109) (510,204) (351,193) (429,164) (Increase) in interbank and interbranch accounts (8,710) (8,710) 33,711 33,711 (51,670) (51,670) Increase in lending operations (1,211,635) (1,212,122) (2,057,944) (2,058,431) (1,762,511) (1,701,549) Increase in other receivables (767,940) (768,834) (1,041,268) (1,040,567) (571,921) (571,389) Increase in other assets (63,102) (60,729) (117,087) (110,594) (89,623) (78,563) Increase (decrease) in deposits 88,899 86, , ,158 (395,516) (393,496) Increase / (Decrease) in money market funding (52,181) (52,181) (24,403) (24,403) 71,605 71,605 Increase in funds from acceptance and issuance of securities 896, , , ,704 1,092,741 1,092,662 Increase (decrease) in borrowings and onlendings (393,852) (393,852) 137, ,032 49,036 49,036 Increase / (Decrease) in other payables 376, , , ,519 (85,192) (86,256) Income tax and social contribution paid (55,309) (55,995) (97,562) (98,777) (81,761) (81,761) Increase (decrease) in deferred income (1,377) (1,387) (3,600) (3,628) 4,229 4,229 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,179,556) (1,182,706) (1,508,224) (1,511,786) (1,405,745) (1,402,104) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (3,028) (3,028) (7,764) (7,764) (21,448) (21,448) NET CASH USED IN INVESTING ACTIVITIES (3,028) (3,028) (7,764) (7,764) (21,448) (21,448) CASH FLOWS FROM FINANCING ACTIVITIES Increase in funds from acceptance and issuance of securities 1,167,346 1,171,108 2,235,805 2,238, , ,995 Decrease in borrowings and onlendings 784, ,093 81,988 81, , ,006 Interest on capital/dividends paid (61,800) (61,800) (90,909) (90,909) (92,964) (92,964) Capital increase ,281 23, , ,136 Purchase / sale of own shares (50,467) (50,467) (94,987) (94,987) (297,963) (297,963) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,839,172 1,842,934 2,155,178 2,158,073 1,003,806 1,002,210 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 656, , , ,523 (423,387) (421,342) Cash and cash equivalents at beginning of 2ºnd half / year ended 1,268,085 1,269,882 1,285,483 1,288,559 1,708,870 1,709,901 Cash and cash equivalents at end of 2ºnd half / year ended 1,924,673 1,927,082 1,924,673 1,927,082 1,285,483 1,288,559 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 656, , , ,523 (423,387) (421,342) The accompanying notes are an integral part of these financial statements. 8

10 BANCO DAYCOVAL S.A. STATEMENTS OF VALUE ADDED FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 2014 AND FOR THE YEAR ENDED DECEMBER 31, 2014 AND 2013 (In thousands of Brazilian reais - R$) 2nd half of Bank Consolidated Bank Consolidated Bank Consolidated REVENUES 2,037,719 2,057,530 3,154,696 3,186,154 2,094,655 2,134,004 Income from financial intermediation 2,047,527 2,056,259 3,048,213 3,063,959 2,329,448 2,344,621 Revenue from services 50,908 56,746 91, ,436 73,648 93,946 Allowance for loan losses (204,720) (204,720) (456,649) (456,649) (478,489) (478,489) Other 144, , , , , ,926 EXPENSES (1,390,454) (1,385,337) (1,904,994) (1,895,449) (1,083,085) (1,083,136) Expenses on financial intermediation (1,390,454) (1,385,337) (1,904,994) (1,895,449) (1,083,085) (1,083,136) INPUTS PURCHASED FROM THIRD PARTIES (217,719) (209,907) (432,794) (421,486) (359,822) (356,860) Materials, electric power and other (37,648) (40,235) (60,942) (65,712) (50,424) (55,012) Outside services (180,179) (169,780) (371,960) (355,882) (310,048) (302,498) Asset recovery GROSS VALUE ADDED 429, , , , , ,008 DEPRECIATION AND AMORTIZATION (3,018) (3,226) (5,898) (6,309) (1,831) (2,215) TOTAL WEALTH CREATED BY THE BANK / CONSOLIDATED 426, , , , , ,793 WEALTH RECEIVED IN TRANSFER 11,256-12,377-7,659 - Equity in subsidiaries 11,256-12,377-7,659 - WEALTH FOR DISTRIBUTION 437, , , , , ,793 DISTRIBUTION OF WEALTH 437, , , , , ,793 EMPLOYEES 116, , , , , ,225 Salaries and wages 73,028 80, , , , ,723 Benefits 39,675 42,278 69,052 73,170 58,714 63,048 Severance pay fund (FGTS) 3,479 3,970 6,587 7,524 5,658 6,454 TAXES 168, , , , , ,328 Federal 164, , , , , ,765 State ,787 1,802 1,775 1,790 Municipal 3,186 4,110 5,782 7,581 4,923 6,773 THIRD PARTIES 7,667 8,969 14,702 17,290 13,782 16,390 Rentals 7,667 8,969 14,702 17,290 13,782 16,390 SHAREHOLDERS 145, , , , , ,804 Interest on capital 59,657 59, , , , ,272 Retained earnings 85,859 85, , , , ,532 NONCONTROLLING INTERESTS The accompanying notes are an integral part of these financial statements. 9

11 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2014 AND 2013 (In thousands of Brazilian reais - R$, unless otherwise stated) 1. GENERAL INFORMATION Banco Daycoval S.A. (the Bank or Daycoval ) is a full-service bank authorized to operate commercial, foreign exchange, investment, and lending and financing portfolios, through its direct and indirect subsidiaries, and to provide services including management of assets, life insurance and pension plans. The Bank is part of Daycoval Group and conducts its businesses on an integrated basis. 2. PRESENTATION OF FINANCIAL STATEMENTS The Bank s financial statements, including its foreign branch, and the consolidated financial statements ( Consolidated ) have been prepared in accordance with the Brazilian accounting practices, which include the accounting guidelines a set forth by the Brazilian Corporate Law - Law 6404/76 and the changes introduced by Law 11638/07 and Law 11941/09 for the accounting of operations, together, when applicable, the standards and instructions of the National Monetary Council ( CMN ), the Central Bank of Brazil ( BACEN ), and the Standard Chart of Accounts for Financial Institutions ( COSIF ), the Brazilian Securities and Exchange Commission ( CVM ), the National Private Insurance Council CNSP, the Private Insurance Authority ( SUSEP ), and Accounting Pronouncements Committee ( CPC ). As part of the process of convergence with the International Financial Reporting Standards (IFRS), the Accounting Pronouncements Committee (CPC) issued several pronouncements related to the international convergence which have been approved by CVM but not all of them have been ratified by BACEN. Accordingly, in preparing the interim financial statements, the Bank adopted the following pronouncements already ratified by BACEN: a) CPC 01 - Impairment of assets (BACEN Resolution 3566/08); b) CPC 03 - Statements of cash flows (BACEN Resolution 3604/08); c) CPC 05 - Related-party disclosures (BACEN Resolution 3750/09); d) CPC 10 (R1) - Share-based payment (BACEN Resolution 3989/11, effective beginning January 1 st, 2012); e) CPC 23 - Accounting practices, changes in estimates and correction of errors BACEN Resolution 4007/11, effective beginning January 1 st, 2012); f) CPC 24 - Events after the reporting period (BACEN Resolution 3973/11); g) CPC 25 - Provisions, Contingent Liabilities and Contingent Assets (BACEN Resolution 3823/09); and h) Basic Conceptual Pronouncement (R1) - Framework for the Preparation and Presentation of Financial Statements (BACEN Resolution 4144/12). 10

12 In the consolidated financial statements, the balances and transactions between the Bank, its foreign branch and its direct and indirect subsidiaries have been eliminated. Net income and shareholders equity amounts related to minority interests were disclosed in a separate caption. The financial statements of the foreign branch and indirect subsidiary had the accounting criteria adjusted to the Brazilian accounting practices and translated into Brazilian reais. The consolidated financial statements include the accounts of the Bank, its foreign branch, and the following direct and indirect subsidiaries as follows: Ownership interest - % Financial activity - Foreign branch Banco Daycoval S.A. - Cayman Branch Insurance and pension plan activity Dayprev Vida e Previdência S.A. ( Dayprev ) Non-financial activity ACS Participações Ltda. ( ACS ) Daycoval Asset Management Administração de Recursos Ltda. ( Daycoval Asset ) IFP Promotora de Serviços de Consultoria e Cadastro Ltda. ( IFP ) SCC Assessoria em Cadastro e Cobrança Ltda. ( SCC ) Treetop Investments Ltd. ( Treetop ) SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies adopted for the Bank in preparation of the individual and consolidated financial statements can be summarized as follows: a) Income and expenses are recorded on the accrual basis, Operations with fixed rates are stated at redemption amount, and income and expenses for future periods are reported as a reduction of the related assets and liabilities. Financial income and expenses are calculated under the exponential method, except when resulting from foreign operations, which are calculated under the straight-line method. Operations with floating rates or indexed to foreign currencies are adjusted through the balance sheet date. b) Interbank investments and other receivables, except securities and derivatives, are stated at cost, plus monetary and exchange variations and interest earned. When fair value is lower than carrying amount, an allowance is recorded to adjust the asset to realizable. c) Under BACEN Resolution 3604/08, cash and cash equivalents are represented by cash and deposits in financial institutions, recorded under the captions Cash, interbank investments, and securities classified in the own portfolio, whose total application term is 90 days, and the change in their fair value is considered immaterial. d) Securities are stated at cost plus income earned, as detailed below: (i) fixed-income securities are adjusted at the applicable interest rate through their maturities; (ii) shares are adjusted based on the average price informed by the Stock Exchange which trades more shares; and (iii) investments in investment funds adjusted based on the share value informed by the fund managers. Securities can be classified in conformity with BACEN Circular Letter 3068/01 into one of the following three categories: Trading securities - securities bought and held principally for the purpose of selling them in the near term and reported at fair value, with unrealized gains and losses included in income for the period; 11

13 Available-for-sale securities - securities not classified as either trading securities or held-tomaturity securities. Unrealized gains and losses are reported in a separate component of shareholders equity, net of taxes, and are included in income for the year when realized; and Held-to-maturity securities - securities that the enterprise has the positive intent and ability to hold to maturity and stated at cost, plus income earned, included in income for the period. Bonuses resulting from investments in shares of publicly-traded companies are recorded in securities portfolio only according to the respective number, without modifying the value of investments, when the corresponding shares are considered ex-rights on the stock exchange. Dividends and interest on capital from investments in publicly-traded companies are recorded as income when related shares are considered ex-rights on the stock exchange. e) Derivatives consist of option, forward, futures and swap transactions and are reported in conformity with BACEN Circular Letter 3082/02, as described below: Option transactions - premiums received or paid are recorded at fair value under the caption derivatives in assets or liabilities, respectively, until the exercise of the option, and reported as a decrease or increase in the cost of the asset for the exercise of the option or as income or expense in the event of non-exercise; Futures transactions - daily adjustments are recorded at fair value under the caption Trading account in assets or liabilities and allocated daily to income or expense; Currency swap and forward transactions - differential receivable or payable is recorded at fair value under the caption Derivatives in assets or liabilities, respectively, and allocated to income or expense; and Forward transactions - are recorded at final contract value, less the difference between that value and the cash price of the asset, with recognition of income and expenses over the contract periods. Derivative transactions are stated at fair value as of the balance sheet date, with gains and losses reported as described below: Derivatives that not qualify as hedge - in income or expense in the statement of income; and Derivatives that qualify as hedge - classified as market risk value or cash flow hedges. Market risk hedges are intended to offset the movement in the fair value of the hedged item, with gains or losses included in income or expenses in the statement of income. Cash flow hedges are intended to offset the change in estimated future cash flows, with gains or losses, net of taxes, included in a separate component of shareholders equity, with any other change included in income or expense in the statement of income. f) Lending operations are classified based on Management s risk assessment, considering the past experience with prior borrowers and guarantors, economic scenario, and specific and overall portfolio risks, pursuant to CMN Resolution 2682/99, which requires a periodic analysis of the portfolio and its classification into nine rating levels from AA (minimum risk) to H (maximum risk - loss). Income from lending operations past-due for more than 60 days, regardless of the risk level, is only recognized when actually received, H-rated loans remain as such for six months and, thereafter, are written off against the existing allowance and remain controlled in a memorandum account not shown on the balance sheet. 12

14 g) As set out by Bacen Resolution 3533/08, a financial asset is derecognized when the contractual rights to the asset s cash flows expire or when the asset is sold or transferred. The sale or transfer of a financial asset should be classified into the following categories: Transactions with substantial transfer of the risks and rewards: the assignor substantially transfers all the risks and rewards of ownership of the financial asset as follows: (i) unconditional sale of the financial asset; (ii) sale of the financial asset with repurchase option at its fair value at the date of repurchase; and (iii) sale of the financial asset with call or put options, whose exercise is improbable; Transactions with substantial retention of the risks and rewards: the assignor substantially retains all the risks and rewards of ownership of the financial asset as follows: (i) sale of the financial asset with repurchase commitment at a fixed price or at the selling price plus yields; (ii) securities lending agreements; (iii) sale of the financial assets with total return rate swap agreement, which transfers the market risk exposure back to the assignor; (iv) sale of the financial asset with call or put options whose exercise is probable; and (v) sale of receivables, when the losses incurred by the buyer or assignee, if any, are compensated by the seller or assignor, or when they are made with the acquisition of shares subordinated to the Receivables Investment Fund (FIDC) buyer; and Transaction with no substantial transfer or retention of the risks and rewards: transactions in which the assignor neither transfers nor retains, substantially, all the risks and rewards of ownership of the financial asset. The transfer or retention of the risks and rewards of ownership of the financial asset is analyzed by comparing Daycoval s exposure, before and after the sale or transfer, with the change in the present value of the financial asset s expected cash flows, discounted at the appropriate market interest rate. The allowance for loan losses is recorded as set out by BACEN Resolution 2682/99. h) Foreign exchange transactions are stated at realizable values, plus income and exchange variations earned on a pro rata daily basis, and the allowance for doubtful account, pursuant to CMN Resolution 2682/99, when applicable. i) Insurance premiums are recorded in income when the respective insurance policies and invoices are issued and deferred on a straight-line basis, over the insurance policy effective term, i.e., within the risk coverage period, by recording and reversing the unearned premium reserve and deferred selling expenses. j) Prepaid expenses related to commissions paid to third parties are controlled by contract and accounted for under the caption Prepaid expenses, the recognition of such expenses as Other administrative expenses is made on a pro-rata temporis basis, over the term of the respective contracts, or fully recognized, when such contracts are settled in advance. k) Investments in subsidiaries are stated under the equity method, which is applied to all associated companies in which the Bank has significant influence, that is, in which the Bank holds at least 20% of the voting capital. l) Other investments are stated at cost, less allowance for loss, when applicable. m) Property and equipment are stated at acquisition cost, except for real estate held by the subsidiary, which is recorded at acquisition cost plus revaluation at market value. Depreciation is calculated under the straight-line method at the annual rates stated in note 14, based on the economic useful lives of the assets. 13

15 n) Intangible assets correspond to rights acquired in intangible assets that are maintained or used in the operations of the Bank and its subsidiaries or exercised for such purpose; intangible assets with finite lives are amortized on a straight-line basis over the estimated period they will generate economic benefits. o) The impairment of non-monetary assets is recognized when the carrying amount of an asset or a cash generating unit is higher than its recoverable or realizable value. A cash generating unit is the smallest identifiable group of assets which generates cash flows substantially independent from other assets and groups of assets. Impairment losses are recorded in the statement of income for the period when they are recognized, when applicable. The amounts of non-monetary items, except those recorded under the captions Other assets and Other receivables - tax credits, are periodically, at least annually, tested for impairment. As at December 31, 2014 and 2013, there is no evidence of impairment of non-financial assets. p) Known or estimated liabilities, payables and contingencies, including tax charges calculated based on income for the period, include interest and exchange rate change or inflation adjustment accrued through the balance sheet date. Liabilities in foreign currency are translated into local currency at the exchange rates in effect on the balance sheet date, as informed by BACEN, and liabilities subject to indexation are inflation adjusted through the balance sheet date. Hedged liabilities are adjusted to fair value. q) The provision for income tax is recorded at the rate of 15%, plus a 10% surtax when applicable. Social contribution is calculated on net income adjusted under prevailing legislation, at the rate of 15%. r) Income tax and social contribution credits are recognized on temporary additions and deductions and based on legislation in effect at the date of recognition. These tax credits will be realized when the amounts on which they were recognized are utilized or reversed. s) Technical reserves - insurances - calculated in accordance with the technical notes approved by SUSEP and the criteria established by CNSP Resolution 162 of December 26, 2006 and subsequent changes introduced by CNSP Resolution 181, of December 19, 2007, as follows: Reserve for unsettled claims - is recorded, based on notices of claims, in an amount sufficient to cover future commitments under legal disputes, where the amount is determined by experts and legal counsel that perform the assessments based on insured amount and technical regulations, taking into account the likelihood of unfavorable outcome to the insurance company; and Reserve for incurred but not reported losses (IBNR) - recorded to cover insured losses that have occurred but have not been reported. t) Contingent assets and liabilities and legal, tax and social security obligations Contingent assets and liabilities and legal, tax and social security obligations are recognized, measured and disclosed, as follows: Contingent assets are not recorded in the financial statements, except when there is evidence that they will be realized and are not subject to appeals; 14

16 Contingent liabilities are recorded in the financial statements when the risk of loss on an administrative or judicial proceeding is assessed by the legal counsel and Management as probable, with probable outflow of funds to settle obligations, and when the amounts involved can be reliably measured. Contingent liabilities classified as possible loss by the legal counsel are only disclosed in notes to the financial statements. Those classified as remote loss do not require provision and disclosure; and Legal obligations (tax and social security) refer to lawsuits challenging the legality and constitutionality of certain taxes. The amount under litigation is determined, accrued and adjusted monthly. u) Earnings per share are calculated based on the number of shares at the balance sheet dates. v) The Bank has a Stock Option Plan, whose main characteristics are described in note 26.2). In each grant of options to purchase shares is calculated the probable fair value of this service and/or equity instrument for recognition in the income statement under Personnel expenses during the period in which specific conditions for acquiring rights to purchase shares of the Bank must be met ( vesting period ), and their credit account in stockholders equity under the caption capital reserves, as established by Resolution nº 3989/11 BACEN which endorses the CPC 10 (R1) Share-based payment. w) Uses of estimates - The preparation of financial statements requires Management to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues, expenses and other transactions, such as: (i) depreciation rates of property and equipment; (ii) amortization of intangible assets; (iii) allowance for loans losses; (iv) evaluation of financial instruments; and (v) reserves for contingencies. Actual results could differ from those estimates. x) Asset and liability financial instruments are adjusted to present value by unearned income and unearned expenses, which adjust these instruments to the amounts that would be obtained in case they were cash transactions, as well as floating-rate financial instruments, which are realized at their cash value and are periodically adjusted by their respective transactions rates. 4. CASH AND CASH EQUIVALENTS Cash and cash equivalents are as follows: Bank Consolidated Cash 135,525 88, ,934 91,368 Money market investments (1) 1,716,149 1,187,939 1,716,149 1,187,939 Interbank investments (2) 31,571-31,571 - Foreign-currency short-term investments (2) 41,428 9,252 41,428 9,252 Total cash and cash equivalents 1,924,673 1,285,483 1,927,082 1,288,559 (1) Interbank investments included in cash and cash equivalents are stated net of the amount recorded under Money market investments - third parties funding which as at December 31, 2014 and 2013, total R$695,352 (R$708,039 in 2013), for the Bank and the Consolidated. (2) Refers to investments in interbank deposits and foreign currency deposits maturing up to 90 days. 15

17 5. INTERBANK INVESTMENTS (Bank and Consolidated) Interbank investments are as follows: Type Maturity Amount Maturity Amount Money market investments Up to 1 st business day 2,411,501 Up to 1 st business day 1,895,978 Interbank deposits Up to September ,941 Up to November ,002 Foreign currencies Up to 1 st business day 41,428 Up to 1 st business day 9,252 Total 2,514,870 2,021, SECURITIES AND DERIVATIVES a) By category and type Securities: Adjusted cost Bank Fair Adjusted value (1) cost Fair value (1) Available-for-sale securities 1,498,926 1,462,871 1,128,635 1,095,954 Own portfolio 1,325,938 1,290,908 1,017, ,167 National Treasury Bills (LTN) 463, , , ,247 Treasury bills (LFT) 607, ,814 68,779 68,767 Foreign securities 88,312 79,854 88,541 82,074 Investment fund shares 163, , , ,569 Shares in listed companies 2,241 1,593 2,114 1,510 Linked to repurchase commitments 48,747 47,741 73,347 71,971 National Treasury Bills (LTN) 48,747 47,741 30,087 28,715 Treasury bills (LFT) ,260 43,256 Linked to guarantees (2) 124, ,222 37,823 37,816 National Treasury Bills (LFT) 124, ,145 37,750 37,743 National Treasury Notes (NTN) Total securities 1,498,926 1,462,871 1,128,635 1,095,954 16

18 Adjusted cost Consolidated Fair Adjusted value (1) cost Fair value (1) Trading securities 32,920 32,920 29,119 29,119 Assets guaranteeing technical reserves (Note 19.c)) 32,920 32,920 29,119 29,119 Investment fund shares 32,920 32,920 29,119 29,119 Available-for-sale securities 1,639,017 1,603,670 1,249,575 1,217,457 Own portfolio 1,465,872 1,431,550 1,138,264 1,107,529 National Treasury Bills (LTN) 464, , , ,247 Treasury Bills (LFT) 632, ,296 91,894 91,891 Foreign securities 112, , ,858 97,425 Investment fund shares 252, , , ,322 Shares in listed companies 4,072 4,421 3,728 3,644 Linked to repurchase commitments 48,747 47,741 73,347 71,971 National Treasury Bills (LTN) 48,747 47,741 30,087 28,715 Treasury Bills (LFT) ,260 43,256 Linked to guarantees (2) 124, ,222 37,823 37,816 Treasury Bills (LFT) 124, ,145 37,750 37,743 National Treasury Notes (NTN) Assets guaranteeing technical reserves (Note 19.c)) Investment fund shares Total securities 1,671,937 1,636,590 1,278,694 1,246,576 (1) The securities market value was calculated based on the prices and rates prevailing at December 31, 2014 and 2013, as disclosed by the Brazilian Financial and Capital Markets Association (ANBIMA), investment fund managed, in which the Bank maintains applications, BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros, and other pricing agents for securities acquired abroad. (2) As at December 31, 2014, securities linked to guarantees refer to securities linked to: (i) transactions conducted at BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias & Futuros, in the amount of R$94,629 (R$26,258 in 2013), (Note 6.m)); and (ii) transactions conducted in Clearing Houses, in the amount of R$29,593 (R$11,558 in 2013). b) By maturity: Bank 2014 Without Up to 3 3 to 12 1 to 3 3 to 5 Over Maturity months months Years years 5 years Total Federal government securities - 19, , , , ,893 1,231,607 National Treasury Bills (LTNs) , , ,571 Treasury Bills (LFT) - 19, , ,999 29, , ,959 National Treasury Notes (NTNs) Foreign securities ,300 79,854 Eurobonds and similar instruments ,300 79,854 Private-sector securities 1, ,593 Shares in listed companies 1, ,593 Investment fund shares 149, ,817 Multimarket investment fund 105, ,712 Real estate investment fund 29, ,656 Investment fund fixed rate 14, ,449 Total 151,410 19, , , , ,193 1,462,871 17

19 Bank 2013 Without Up to 3 3 to 12 1 to 3 3 to 5 Over maturity months months Years years 5 years Total Federal government securities - 19,153 6, , ,611 6, ,801 National Treasury Bills (LTNs) , , ,962 Treasury Bills (LFT) - 19,153 6,945 83,930 33,582 6, ,766 National Treasury Notes (NTNs) Foreign securities ,081 5,025 69,818 82,074 Eurobonds and similar instruments ,081 5,025 69,818 82,074 Private-sector securities 1, ,510 Shares in listed companies 1, ,510 Investment fund shares 154, ,569 Multimarket investment fund 98, ,841 Real estate investment fund 43, ,267 Investment fund fixed rate 12, ,461 Total 156,079 19,303 6, , ,636 75,974 1,095,954 Consolidated 2014 Without Up to 3 3 to 12 1 to 3 3 to 5 Over maturity months months Years years 5 years Total Federal government securities - 19, , , , ,213 1,256,638 National Treasury Bills (LTNs) , , ,963 Treasury Bills (LFT) - 19, , ,676 29, , ,598 National Treasury Notes (NTNs) Foreign securities 2, ,939 99, ,149 Eurobonds and similar instruments 2, ,939 99, ,149 Private-sector securities 4, ,421 Shares in publicly-traded companies 4, ,421 Investment fund shares 271, ,382 Multimarket investment fund 150, ,244 Real estate investment fund 29,656 29,656 Investment fund fixed rate 87,578 87,578 Investment fund shares 3,904 3,904 Total 278,453 19, , , , ,773 1,636,590 Consolidated 2013 Without Up to 3 3 to 12 1 to 3 3 to 5 Over maturity months months Years years 5 years Total Federal government securities - 19,153 6, , ,277 6, ,066 National Treasury Bills (LTNs) , , ,962 Treasury Bills (LFT) - 19,153 6, ,529 34,248 6, ,031 National Treasury Notes (NTNs) Foreign securities 2, ,836 5,025 78,732 97,425 Eurobonds and similar instruments 2, ,836 5,025 78,732 97,425 Private-sector securities 3, ,644 Shares in publicly-traded companies 3, ,644 Investment fund shares 264, ,441 Multimarket investment fund 147, ,313 Real estate investment fund 43, ,267 Investment fund fixed rate 69, ,531 Investment fund shares 4, ,330 Total 270,449 19,621 6, , ,302 84,888 1,246,576 18

20 c) Derivatives The Bank conducts operations involving derivative financial instruments recorded in balance sheet and memorandum accounts to meet its own and customers needs, which are recorded in balance sheet, income and memorandum accounts. Derivatives used are properly approved under the product use policy, Pursuant to this policy, prior to the implementation of each product all aspects should be analyzed, such as: objectives, forms of use, risks involved and adequate operational support infrastructure. The components of credit and market risks involved in derivatives are monitored daily, specific limits are set for derivative transactions, customers and custodians. Such limits are managed by a system that consolidates exposures by counterparty. Any deviations are promptly indicated and addressed for immediate solution. The market risk of derivatives is managed by a prevailing risk policy, pursuant to which potential risks of price fluctuations in the financial markets are centralized in the Treasury department, which provides hedge for the other areas. The main derivative financial instruments used by the Bank include: swaps, forward transactions (NDF), US dollar futures (DOL), interest rate (DI) and foreign exchange coupon (DDI). BACEN Circular Letter 3082/02 permitted a specific accounting in the cases derivatives are used to hedge against changes in fair value or cash flow. During the years ended December 31, 2014 and 2013, no derivative transactions were conducted between the Groups companies. d) Hedge The hedging strategy is determined based on the Bank s operation risk exposure limits, Whenever its operations have risk exposures above the established limits, which might result in significant fluctuations in its income, the Bank uses derivatives, contracted in the organized or over-thecounter market to hedge against such risks, according to the hedging rules of the BACEN Circular Letter 3082/02. The hedge instruments are intended to mitigate market, exchange variation and interest risks. According to the market liquidity, the maturity dates of hedge instruments are the closest possible to the dates of the financial flows of the hedged operation, so as to assure an efficient hedge. Hedge accounting As at December 31, 2014 and 2013, the Bank has a hedge market risk structure designed to offset the fluctuation of the foreign currency (US dollar) and Libor interest rate against payment of interest and the principal amount of foreign borrowings and financing. 19