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

Transcription

1 (Convenience Translation into English from the Original Previously Issued in Portuguese) Banco Daycoval S.A. Individual and Consolidated Financial Statements for the Six-month Period and for the Year Ended December 31, 2016 and Independent Auditor s Report Deloitte Touche Tohmatsu Auditores Independentes

2 Deloitte Touche Tohmatsu Dr. Chucri Zaidan Avenue, nº th to 12 th floors - Golden Tower São Paulo - SP Brazil Tel: + 55 (11) Fax: + 55 (11) (Convenience Translation into English from the Original Previously Issued in Portuguese) INDEPENDENT AUDITOR S REPORT To the Management and Shareholders of Banco Daycoval S.A. Opinion We have audited the accompanying individual and consolidated financial statements of Banco Daycoval S.A. ( Bank or Daycoval ) and its subsidiaries ( Consolidated ), which comprise the balance sheet as at December 31, 2016 and the income statement, statement of changes in equity and statement of cash flows for six-month Period and for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements present fairly, in all material respects, the individual and consolidated financial position of Banco Daycoval S.A. as at December 31, 2016, and its individual and consolidated financial performance and its individual and consolidated cash flows for six-month Period and for the year then ended, in accordance with accounting practices adopted in Brazil applicable to financial institutions authorized to operate by the Central Bank of Brazil ( BACEN ). Basis for Opinion We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Individual and Consolidated Financial Statements section of our report. We are independent of the Bank and its subsidiaries in accordance with the relevant ethical requirements in the Code of Ethics for Professional Accountants and the professional standards issued by the Federal Accounting Council ("CFC"), and we have fulfilled our other ethical responsibilities in accordance with these standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and, therefore, we do not provide a separate opinion on these matters. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to clients. Please see for a more detailed description of DTTL and its member firms. Deloitte provides audit, consulting, financial advisory, risk management, tax and relates services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500 companies through a globally connected network of member firms in more than 150 countries bringing world-class capabilities, insights, and high-quality service to address clients most complex business challenges. To learn more about how Deloitte s approximately 225,000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn or Twitter Deloitte Touche Tohmatsu. All rights reserved.

3 Allowance for loan losses As disclosed in Note 9 to the financial statements, the allowance for loan losses estimate involves internal models while determining the borrower s rating, which take into account the financial and economic data, market inputs, masterfile information, restricted collaterals, default level, among others. In view of the complexity underlying such internal model, the use of estimates and the high level of judgment by Management while determining those ratings and the related allowance recognized, we consider such matter as an area of interest in our audit approach, including the involvement of senior members of our engagement team. Allowances for loan losses are recognized pursuant to the regulations issued by the Central Bank of Brazil ( BACEN ), notably the National Monetary Council (CMN) Resolution 2682, and are based on the analyses of outstanding lending transactions (past-due and current), in accordance with the internal policies that consider the determination of credit ratings. Our procedures included, but were not limited to: (i) understanding the internal model used to determine the rating; (ii) understanding the provisioning criteria adopted by the Bank; (iii) reading the Bank s provisioning policy; (iv) testing, on a sampling basis, the accuracy and completeness of the databases used to calculate provisions; (v) analyzing provisioning criteria for lending transactions on a sampling basis; (vi) challenging the main assumptions and significant judgments made by Management while estimating provisions; (vii) testing the design, implementation and effectiveness of internal controls; and (viii) recalculating the amounts provisioned on a sampling basis. Hedge Accounting Market Risk As disclosed in Note 6 to the financial statements, Banco Daycoval S.A. has derivative transactions designated as market risk hedge accounting so as to hedge against risks arising from the exposure to changes in the fair value of its liabilities funding in foreign currency arising from the risk of exposure to fair value changes relating to fluctuations in the foreign currency (U.S. dollar and Euro fluctuations) and Libor interest rate applied to funds raised abroad, which are hedged items. Pursuant to BACEN Circular 3082/02, transactions designated for hedge accounting purposes must meet certain conditions on a cumulative basis, such as providing evidence of the transaction effectiveness since its inception, during the transaction course and until its settlement. Due to the complexity of the matter and the judgment level of estimates in determining the fair values of hedged financial liabilities, we consider this matter as an area of interest in our audit approach, including the work of senior members of our audit team in analyzing the hedge effectiveness and adequacy of documentation, policies, designated transactions and effectiveness tests. Our audit procedures included, but were not limited to: (i) understanding, together with Management, the market risk hedge strategies in place at Banco Daycoval S.A.; (ii) analyzing the designation documentation and policies prepared by Management with respect to hedge structures, comprising the hedged risk description, and detailed transaction information, highlighting the risk management process and methodology applied to assess the hedge effectiveness since the transaction inception; (iii) recalculating the transaction amounts recorded on a sampling basis; (iv) analyzing the hedge structure effectiveness tests carried out by Management; (v) testing the design, implementation and effectiveness of internal controls and (vi) reviewing the financial statements, considering the minimum disclosures required, as shown in Note Deloitte Touche Tohmatsu. All rights reserved. 2

4 Other Matters Statements of value added The individual and consolidated statements of value added ( DVA ) for the year ended December 31, 2016, prepared under the responsibility of the Bank s management, were subject to audit procedures performed together with the audit of the Bank s financial statements. In forming our opinion, we assess whether these statements are reconciled with the financial statements and accounting records, as applicable, and whether their form and content are in accordance with the criteria set out in technical pronouncement CPC 09 - Statement of Value Added. In our opinion, these statements of value added were fairly prepared, in all material respects, in accordance with the criteria set out in such technical pronouncement and are consistent in relation to the individual and consolidated financial statements taken as a whole. Other Information Accompanying the Individual and Consolidated Financial Statements and the Independent Auditor s Report Management is responsible for such other information. The other information comprises the Management Report. Our opinion on the individual and consolidated financial statements does not cover the Management Report and we do not express any form of audit conclusion thereon. In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the Management Report and, in doing so, consider whether such report is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the Management Report, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Individual and Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil ( BACEN ), and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the individual and consolidated financial statements, Management is responsible for assessing the Bank s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Bank and its subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Bank s and its subsidiaries financial reporting process Deloitte Touche Tohmatsu. All rights reserved. 3

5 Auditor s Responsibilities for the Audit of the Individual and Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements 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 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 the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 and its subsidiaries internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. Conclude on the appropriateness of Management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank s and its subsidiaries ability to continue as going concerns. 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 individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Bank and its subsidiaries to cease to continue as going concerns. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements 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. We are responsible for the direction, supervision and performance of the 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 of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit Deloitte Touche Tohmatsu. All rights reserved. 4

6 We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and, where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the 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 matter or when, in extremely rare circumstances, we determine that 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 benefits of such communication. The accompanying individual and consolidated financial statements have been translated into English for the convenience of readers outside Brazil. São Paulo, February 21, 2017 DELOITTE TOUCHE TOHMATSU Auditores Independentes Carlos Claro Engagement Partner 2017-SPO Deloitte Touche Tohmatsu. All rights reserved. 5

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15 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. BALANCE SHEETS AS AT DECEMBER 31, 2016 AND 2015 (In thousands of Brazilian reais - R$) ASSETS Note Bank Consolidated Bank Consolidated CURRENT ASSETS 12,452,386 12,735,527 13,399,386 13,800,516 Cash Note 4 135, , , ,971 Interbank investments Note 5 3,066,538 3,002,248 3,787,816 3,787,816 Money market investments 2,731,808 2,731,808 3,566,205 3,566,205 Interbank deposits 254, ,944 87,678 87,678 Foreign currency investments 80,496 80, , ,933 Securities and derivatives Note 6 89, , , ,553 Own portfolio 80, , , ,605 Derivatives 8,950 8, , ,468 Linked to guarantees - - 4,220 4,220 Asset-backed technical reserves - 59,264-41,260 Interbank accounts 150, , , ,102 Payments and receipts pending settlement Restricted deposits - Central Bank of Brazil 150, , , ,041 Correspondents ,061 76,061 Lending operations 5,868,464 5,871,491 6,118,685 6,123,791 Lending operations - public sector Note 7. a) 132, ,668 63,446 63,446 Lending operations - private sector Note 7. a) 6,069,596 6,073,190 6,458,993 6,464,657 (Allowance for loan losses) Note 9 (333,800) (334,367) (403,754) (404,312) Leasing operations - 222, ,573 Leases receivable Note 7.a) - 233, ,571 (Allowance for lease losses) Note 9 - (11,640) - (6,998) Other receivables 2,981,385 3,003,673 2,554,955 2,586,288 Foreign exchange portfolio Note 10.a) 515, , , ,095 Income receivable 3,914 4,173 5,118 5,867 Insurance premiums Note 19.a) Trading account Note 6.f) 4,113 4,113 12,379 12,379 Other Note 10.b) 2,615,596 2,636,944 1,947,934 1,977,835 (Allowance for other loan losses) Note 9 (158,030) (158,030) (130,571) (130,571) Other assets Note , , , ,422 Repossessed assets 103, ,518 90,722 91,392 (Allowance for repossessed assets losses) (13,238) (13,238) (11,470) (11,470) Prepaid expenses 70,155 27, ,160 92,500 9

16 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. BALANCE SHEETS AS AT DECEMBER 31, 2016 AND 2015 (In thousands of Brazilian reais - R$) Note Bank Consolidated Bank Consolidated NONCURRENT LONG-TERM ASSETS 8,799,598 9,019,174 7,981,262 8,103,154 Interbank investments Note 5 47,705 40,447 41,000 12,914 Interbank deposits 47,705 40,447 41,000 12,914 Securities and derivatives Note 6 2,304,806 2,349,230 1,480,436 1,521,440 Own portfolio 2,049,613 2,094, ,836 1,006,143 Linked to repurchase commitments 44,228 44, Derivatives 83,409 83, , ,284 Linked to guarantees 127, , , ,384 Asset-backed technical reserves ,629 Lending operations 4,475,317 4,476,561 4,693,012 4,694,475 Lending operations - public sector Note 7. a) 21,664 21,664 31,893 31,893 Lending operations - private sector Note 7. a) 4,701,050 4,703,097 4,857,699 4,859,440 (Allowance for loan losses) Note 9 (247,397) (248,200) (196,580) (196,858) Leasing operations - 164, ,852 Leases receivable Note 7.a) - 169, ,405 (Allowance for lease losses) Note 9 - (5,281) - (5,553) Other receivables 1,811,578 1,828,674 1,505,650 1,520,681 Foreign exchange portfolio Note 10.a) 7,573 7,573 5,661 5,661 Other Note 10.b) 1,811,641 1,828,737 1,504,246 1,519,277 (Allowance for other loan losses) Note 9 (7,636) (7,636) (4,257) (4,257) Other assets Note , , , ,792 Prepaid expenses 160, , , ,792 PERMANENT ASSETS 510,998 19, ,779 26,385 Investments 495, , Equity in domestic subsidiaries Note , ,036 - Other investments Property and equipment in use 15,913 18,908 22,097 25,492 Fixed assets in course - - 2,960 2,960 Other Note 14 40,564 46,292 39,861 45,855 (Accumulated depreciation) Note 14 (24,651) (27,384) (20,724) (23,323) Intangible assets TOTAL ASSETS 21,762,982 21,774,347 21,846,427 21,930,055 The accompanying notes are an integral part of these financial statements. 10

17 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. BALANCE SHEETS AS AT DECEMBER 31, 2016 AND 2015 (In thousands of Brazilian reais - R$) Note Bank Consolidated Bank Consolidated LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES 9,981,181 10,077,745 10,882,353 10,990,503 Deposits Note 15 3,498,433 3,500,998 3,162,786 3,191,542 Demand deposits 599, , , ,513 Interbank deposits 339, , , ,944 Time deposits 2,551,795 2,554,795 2,108,136 2,146,845 Foreign currency deposit 7,642 7,642 8,240 8,240 Money market funding Note 15 1,802,497 1,802, , ,545 Own portfolio 44,206 44, Third parties 1,758,291 1,758, , ,545 Funds from acceptance and issuance of securities 2,654,647 2,654,422 4,163,664 4,163,395 Mortgage loan notes Note 16.1) 452, , , ,853 Agribusiness letters of credit Note 16.1) 372, , , ,942 Financial bills Note 16.1) 1,798,481 1,798,481 2,089,702 2,089,702 Securities issued abroad Note 16.2) 30,856 30,631 1,233,167 1,232,898 Interbank accounts 1,699 1,699 3,537 3,537 Interbranch accounts 63,911 63,911 41,093 41,093 Borrowings Note 17 1,104,246 1,104,246 1,515,507 1,515,507 Foreign borrowings 1,104,246 1,104,246 1,515,507 1,515,507 Domestic onlendings - official institutions Note , , , ,959 BNDES 73,079 73,079 80,164 80,164 FINAME 55,267 55,267 61,795 61,795 Derivatives Note 6.f) 34,116 34,116 9,363 9,363 Technical reserves - insurance Note 19.b) - 57,394-41,249 Other payables 693, , , ,313 Collected taxes and other 6,931 6,933 6,916 6,916 Foreign exchange portfolio Note 20.a) 60,883 60, , ,502 Social and statutory Note 20.b) 59,734 61,306 62,130 62,712 Tax and social security Note 20.c) 261, , , ,829 Trading account Note 6.f) 1,299 1,299 10,003 10,003 Other Note 20.d) 302, , , ,

18 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. BALANCE SHEETS AS AT DECEMBER 31, 2016 AND 2015 (In thousands of Brazilian reais - R$) Note Bank Consolidated Bank Consolidated NONCURRENT LONG-TERM LIABILITIES 9,099,321 8,949,878 8,155,417 8,058,389 Deposits Note 15 1,816,112 1,727,062 1,630,748 1,550,016 Interbank deposits 13,730 13, , ,615 Time deposits 1,802,382 1,713,332 1,473,133 1,392,401 Funds from acceptance and issuance of securities 4,614,062 4,546,561 3,843,306 3,818,847 Mortgage loan notes Note 16.1) 89,854 89,854 96,824 96,824 Agribusiness letters of credit Note 16.1) 41,967 41,967 4,745 4,745 Financial bills Note 16.1) 2,812,687 2,759,560 1,886,652 1,878,341 Securities issued abroad Note 16.2) 1,669,554 1,655,180 1,855,085 1,838,937 Borrowings Note , ,444 1,004,586 1,004,586 Foreign borrowings 299, ,444 1,004,586 1,004,586 Domestic onlendings - official institutions Note , , , ,367 BNDES 122, ,733 19,618 19,618 FINAME 78,179 78, , ,749 Derivatives Note 6.f) 2,209 2,209 1,934 1,934 Other payables 2,166,582 2,173,690 1,551,476 1,559,639 Foreign exchange portfolio Note 20.a) Tax and social security Note 20.c) 1,679,538 1,679,538 1,356,843 1,360,723 Other Note 20.d) 487, , , ,847 DEFERRED INCOME 25,042 88,393 21,906 93,554 NONCONTROLLING INTERESTS SHAREHOLDERS EQUITY 2,657,438 2,657,438 2,786,751 2,786,751 Capital 1,892,143 1,892,143 1,892,143 1,892,143 Residents in Brazil Note 23.a) 1,892,143 1,892,143 1,892,143 1,892,143 Capital reservers Earnings reserves Note 23.g) 778, , , ,605 Valuation adjustments to equity Available-for-sale marketable securities (13,301) (13,301) (38,239) (38,239) (Treasury shares) Nota 23.d.1) - - (11,568) (11,568) TOTAL LIABILITIES 21,762,982 21,774,347 21,846,427 21,930,055 The accompanying notes are an integral part of these financial statements. 12

19 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. INCOME STATEMENTS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2016 AND FOR THE YEAR ENDED DECEMBER 31, 2016 AND 2015 (In thousands of Brazilian reais - R$, unless otherwise stated) 2nd half of 2016 Note Bank Consolidated Bank Consolidated Bank Consolidated INCOME FROM FINANCIAL INTERMEDIATION 1,863,041 2,028,542 2,927,449 3,235,027 5,316,763 5,384,193 Lending operations Note 24.a) 1,474,174 1,474,774 2,896,954 2,898,058 2,955,998 2,956,215 Leasing operations Note 24.b) - 154, ,679-45,066 Securities transactions Note 24.c) 359, , , , , ,592 Derivatives Note 24.d) (44,338) (44,077) (713,867) (713,197) 1,366,573 1,366,822 Foreign exchange transactions Note 24.e) 74,024 74,024 69,347 69, , ,498 EXPENSES ON FINANCIAL INTERMEDIATION (1,276,250) (1,367,369) (2,429,696) (2,617,688) (4,280,494) (4,304,614) Funding operations Note 24.f) (896,112) (886,084) (1,655,297) (1,638,446) (2,771,576) (2,761,181) Borrowings and onlending Note 24.g) (59,866) (59,866) (105,102) (105,102) (820,328) (820,417) Leasing operations Note 24.b) - (95,209) - (191,006) - (31,930) Financial assets sale or transfer (43,010) (43,010) (60,722) (60,722) (37,174) (37,174) Allowance for loan losses Note 9 (277,262) (283,200) (608,575) (622,412) (651,416) (653,912) GROSS PROFIT FROM FINANCIAL INTERMEDIATION 586, , , ,339 1,036,269 1,079,579 OTHER OPERATING INCOME (EXPENSES) (207,941) (257,762) 105,335 21,893 (443,072) (477,408) Income from services provided 49,167 52,843 93, , , ,710 Results of insurance operations Note 19.d) - 1,927-4, Personnel expenses Note 24.h) (135,426) (149,191) (255,150) (286,634) (241,280) (267,676) Other administrative expenses Note 24.i) (238,699) (237,740) (465,854) (464,019) (476,032) (470,906) Tax expenses Note 24.j) (49,635) (55,203) (103,932) (114,978) (105,270) (111,951) Equity in subsidiaries Nota 12 33,685-39,985-31,707 - Other operating income Note 24.k) 225, ,725 1,072,145 1,091, , ,240 Other operating expenses Note 24.l) (92,500) (107,123) (275,815) (309,782) (199,214) (207,751) OPERATING INCOME 378, , , , , ,171 NON-OPERATING INCOME (3,473) (1,839) (1,239) 1,706 (5,435) (394) INCOME BEFORE INCOME TAXES 375, , , , , ,777 INCOME TAX AND SOCIAL CONTRIBUTION Note 21.a) (101,111) (126,718) (150,056) (187,443) (109,312) (121,833) Provision for income tax (76,202) (91,431) (163,458) (185,173) (156,321) (164,555) Provision for social contribution (64,892) (76,647) (136,408) (153,513) (111,547) (114,620) Deferred tax assets 39,983 41, , , , ,342 PROFIT SHARING Note 26.1) (21,855) (22,408) (44,923) (46,553) (46,437) (47,869) NONCONTROLLING INTERESTS - (35) - (72) - (62) NET INCOME 252, , , , , ,013 Number of shares Note 23.c) 204,123, ,123, ,123, ,123, ,130, ,130,241 Earnings per share - R$ The accompanying notes are an integral part of these financial statements. 13

20 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. STATEMENTS OF CHANGES IN EQUITY FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2016 AND FOR THE YEAR ENDED DECEMBER 31, 2016 AND 2015 (In thousands of Brazilian reais - R$) Earnings reserves Adjustments Capital Capital Revaluation of equity Treasury Retained Note Capital increase reserves reserves Legal Bylaws valuation shares earnings Total BALANCE AS AT JUNE 30, ,892, , ,576 (19,583) (11,568) 41,980 2,854,890 Adjustment to fair value- Available-for-sale marketable securities , ,282 Acquisition of own shares Note 23.c.1) (328,698) - (328,698) Sale of Bank s shares Note 23.c.1) (158) Cancellation / redemption of own shares Note 23.c.1) (378,060) - 339,990 - (38,070) Exercise of options to purchase shares granted - - (590) Net income , ,411 Allocations: Legal reserve , (12,621) - Statutory reserve , (192,865) - Interest on capital Note 23.d) (89,495) (89,495) BALANCE AS AT DECEMBER 31, ,892, , ,223 (13,301) - - 2,657,438 BALANCE AS AT DECEMBER 31, ,892, , ,576 (38,239) (11,568) - 2,786,751 Adjustment to fair value- Available-for-sale marketable securities , ,938 Acquisition of backgrounds Note 23.c.1) (328,698) - (328,698) Sale of Bank s shares Note 23.c.1) (158) Cancellation of Bank s shares Note 23.c.1) (378,060) - 339,990 - (38,070) Exercise of options to purchase shares granted - - (810) Net income , ,870 Allocations: Legal reserve , (20,344) - Statutory reserve , (192,865) - Interest on capital Note 23.d) (194,471) (194,471) BALANCE AS AT DECEMBER 31, ,892, , ,223 (13,301) - - 2,657,438 14

21 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. STATEMENTS OF CHANGES IN EQUITY FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2016 AND FOR THE YEAR ENDED DECEMBER 31, 2016 AND 2015 (In thousands of Brazilian reais - R$) Earnings reserves Adjustments Capital Capital Revaluation of equity Treasury Retained Note Capital increase reserves reserves Legal Bylaws valuation shares earnings Total BALANCE AS AT DECEMBER 31, ,892, , ,738 (19,998) (44,171) 2,522,708 Adjustment to fair value- Available-for-sale marketable securities (17,591) - - (17,591) Derivates classified as cash flow hedge (650) - - (650) Sale of Bank s shares Note 23.c.1) (1,608) - 4,287-2,679 Cancellation of Bank s shares Note 23.c.1) (28,316) - 28, Grant of options to purchase shares ("vesting period") Exercise of options to purchase shares granted - - (554) Realization of future earnings - - (201) Realization of revaluation reserve (1,294) ,279 (15) Income tax and social contribution on subsidiary s revaluation Net income , ,013 Allocations: Legal reserve , (21,601) - Statutory reserve , (258,762) - Interest on capital Note 23.d) (153,684) (153,684) BALANCE AS AT DECEMBER 31, ,892, , ,576 (38,239) (11,568) - 2,786,751 The accompanying notes are an integral part of these financial statements. 15

22 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2016 AND FOR THE YEAR ENDED DECEMBER 31, 2016 AND 2015 (In thousands of Brazilian reais - R$) 2nd half of 2016 Bank Consolidated Bank Consolidated Bank Consolidated CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME 252, , , , , ,013 Adjustment to reconcile net income to net cash provided by operating activities Depreciation and amortization 1,020 1,147 3,997 4,272 6,240 6,612 Deferred taxes (39,983) (41,360) (149,810) (151,243) (158,556) (157,342) Provision for risks 84,528 86, , , , ,398 Other provisions (424) (424) (3,333) (3,333) - Allowance for loan losses 298, , , , , ,478 Allowance for leasing losses - (325) - 4,370-12,551 Allowance for other loan losses (21,648) (21,648) 30,838 30, , ,883 Allowance for losses on other assets ,768 1,768 3,454 3,454 Effects of exchange rate changes in cash and cash equivalents (32,576) (32,576) (53,740) (53,740) (108,228) (108,228) Shere of profit (loss) of subsidiaries (33,685) - (39,985) - (31,707) - TOTAL RECONCILIATION ADJUSTMENTS 256, , , , , ,806 ADJUSTED NET INCOME 508, ,958 1,113,959 1,169, , ,819 CHANGES IN ASSETS AND LIABILITIES (786,893) (826,052) 219, ,702 (131,092) (378,126) (Increase) Decrease in interbank investments (249,698) (178,150) (189,196) (145,734) (82,372) (54,286) Increase in securities and derivates (584,840) (585,858) (455,425) (439,270) (127,128) (172,704) (Increase) Decrease in interbank and interbranch accounts 26,726 26,726 96,103 96,103 (31,001) (31,001) Increase in lending operations (269,780) (282,124) (109,821) (116,991) (1,681,122) (1,677,636) Increase in leasing operations - (99,604) - (59,886) - (368,932) (Increase) Decrease in other receivables (968,948) (974,581) (605,746) (594,884) 182, ,835 (Increase) Decrease in other assets 64,700 73, , ,382 17,606 23,279 Increase in deposits 458, , , , , ,136 Decrease in money market funding 13,884 13,884 44,206 44,206 (47,202) (47,202) Increase in funds from acceptance and issuance of securities 643, , , , , ,894 Increase (Decrease) in borrowings and onlendings 99,556 99,555 (132,325) (132,326) (59,735) (59,735) Increase in other payables 39,504 56, , , , ,489 Income tax and social contribution paid (70,305) (71,599) (132,726) (135,184) (121,263) (134,773) Increase (Decrease) in deferred income 10,010 6,060 3,136 (5,161) 11,870 83,510 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (278,321) (277,094) 1,333,584 1,330, , ,693 CASH FLOWS FROM INVESTING ACTIVITIES Capital increase of subsidiaries - - (218,770) - Purchase of fixed assets (514) (442) (737) (855) (6,873) (12,725) NET CASH USED IN INVESTING ACTIVITIES (514) (442) (737) (855) (225,643) (12,725) CASH FLOWS FROM FINANCING ACTIVITIES Increase in funds from acceptance and issuance of securities 55,441 54,767 (1,635,236) (1,633,418) (455,722) (460,658) Decrease in borrowings and onlendings (473,379) (473,379) (920,146) (920,145) 831, ,859 Interest on capital/dividends paid (143,204) (143,204) (153,564) (153,564) (109,692) (109,692) Capital increase Purchase/ Sale of own shares (366,768) (366,768) (366,768) (366,768) (4,287) (4,287) NET CASH PROVIDED BY FINANCING ACTIVITIES (927,910) (928,584) (3,075,714) (3,073,895) 262, ,222 EFFECTS OF EXCHANGE RATE CHANGES IN CASH AND CASH EQUIVALENTS 32,576 32,576 53,740 53, , ,228 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,174,169) (1,173,544) (1,689,127) (1,690,860) 953, ,418 Cash and cash equivalents at beginning of six-month period / year endend 2,363,485 2,364,184 2,878,443 2,881,500 1,924,673 1,927,082 Cash and cash equivalents at end of six-month period / year ended 1,189,316 1,190,640 1,189,316 1,190,640 2,878,443 2,881,500 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,174,169) (1,173,544) (1,689,127) (1,690,860) 953, ,418 The accompanying notes are an integral part of these financial statements. 16

23 (Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DAYCOVAL S.A. STATEMENTS OF VALUE ADDED FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2016 AND FOR THE YEAR ENDED DECEMBER 31, 2016 AND 2015 (In thousands of Brazilian reais - R$) 2nd half of 2016 Bank Consolidated Bank Consolidated Bank Consolidated REVENUES 1,826,408 1,989,843 3,327,885 3,621,802 5,108,886 5,204,050 Income from financial intermediation 1,863,041 2,028,542 2,927,449 3,235,027 5,316,763 5,384,193 Revenue from services 49,167 52,843 93, , , ,710 Allowance for loan losses (277,262) (283,200) (608,575) (622,412) (651,416) (653,912) Other 191, , , , , ,059 EXPENSES (998,988) (1,084,169) (1,821,121) (1,995,276) (3,629,078) (3,650,702) Expenses on financial intermediation (998,988) (1,084,169) (1,821,121) (1,995,276) (3,629,078) (3,650,702) INPUTS PURCHASED FROM THIRD PARTIES (230,001) (227,614) (446,507) (441,748) (454,331) (446,344) Materials, electric power and other (35,208) (37,793) (70,412) (75,737) (95,709) (100,926) Outside services (194,793) (189,821) (376,239) (366,163) (358,829) (345,759) Asset recovery GROSS VALUE ADDED 597, ,060 1,060,257 1,184,778 1,025,477 1,107,004 DEPRECIATION AND AMORTIZATION (1,020) (1,147) (3,997) (4,272) (6,240) (6,612) TOTAL WEALTH CREATED BY THE BANK / CONSOLIDATED 596, ,913 1,056,260 1,180,506 1,019,237 1,100,392 WEALTH RECEIVED IN TRANSFER 33,685-39,986-31,707 - Equity in subsidiaries 33,685-39,986-31,707 - WEALTH FOR DISTRIBUTION 630, ,913 1,096,246 1,180,506 1,050,944 1,100,392 DISTRIBUTION OF WEALTH 630, ,913 1,096,246 1,180,506 1,050,944 1,100,392 EMPLOYEES 137, , , , , ,636 Salaries and wages 93, , , , , ,594 Benefits 39,596 42,587 77,565 84,536 76,096 81,816 Severance pay fund (FGTS) 4,004 4,596 7,596 9,838 7,219 9,226 TAXES 232, , , , , ,911 Federal 228, , , , , ,769 State 1,073 1,089 2,484 2,538 2,628 2,658 Municipal 3,354 4,220 7,469 9,412 9,819 11,484 THIRD PARTIES 7,678 8,980 15,207 17,847 15,252 17,770 Rentals 7,678 8,980 15,207 17,847 15,252 17,770 SHAREHOLDERS 252, , , , , ,013 Interest on capital 89,495 89, , , , ,684 Retained earnings of six-month period / year endend 160, , , , , ,329 NON-CONTROLLING INTERESTS The accompanying notes are an integral part of these financial statements. 17

24 BANCO DAYCOVAL S.A. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In thousands of Brazilian reais - R$, unless otherwise stated) 1. GENERAL INFORMATION Banco Daycoval S.A. (the Bank or Daycoval ) is a publicly-held entity, organized as a full-service bank authorized to operate commercial, foreign exchange, investment, and lending and financing portfolios, through its direct and indirect subsidiaries, and also leasing portfolio, asset management, life insurance, pension plans and provision of services. The Bank is part of Daycoval Group and conducts its businesses on an integrated basis. The Bank started to operate the leasing portfolio on December 15, 2015, when BACEN s approval of the acquisition by Daycoval of all shares issued by Banco Commercial Investment Trust do Brasil S.A. was published in the Federal Official Gazette (Note 2.1). a) Joint Tender Offer for purposes of cancellation of the publicly-held company registration and delisting from Level 2 of the Corporate Governance segment of BM&FBOVESPA: Banco Daycoval S.A., in conformity with the provisions set forth in article 157, paragraph 4, of Law 6404, of December 15, 1976, as amended, and the Brazilian Securities and Exchange Commission ( CVM ) Instruction 358, of January 3, 2002, as amended, has informed to the market on June 24, 2015 that its controlling shareholders, together with the Bank, pursuant to articles 49, 50 and 52 of the Bank s Bylaws, CVM Instruction 361, of March 5, 2002, as amended, intends to conduct: (i) a tender offer for the acquisition of the Shares Subject to the Tender Offer, for purposes of cancellation of the Bank s registration for trading of shares in the market as securities issuer, class "A", as set forth in CVM Instruction 480, of December 7, 2009, as amended, along with (ii) a tender offer for the acquisition of the Shares Subject to the Tender Offer, for the Bank s delisting from the special listing segment of BM&FBOVESPA S.A. Bolsa de Valores Mercadorias e Futuros ( BM&FBOVESPA ), called Level 2 of the Corporate Governance segment ( Tender Offer ). On July 1, 2016, Banco Daycoval and its controlling shareholders disclosed the notice on the Joint Tender Offer for the Acquisition of Preferred Shares issued by Banco Daycoval. The notice contains all information necessary for the Tender Offer held on August 11, On that date, Banco Daycoval has communicated the successful outcome of the joint tender offer auction for the acquisition of all preferred shares issued by the Bank and held by the Bank s noncontrolling shareholders and management. As a result of the Auction, the current controlling shareholders of Banco Daycoval ( Controlling Shareholders ), together with Banco Daycoval ( Offerors ), acquired 58,394,941 preferred shares issued by Banco Daycoval, corresponding to 23.80% of the Bank s capital, at the unit price of R$9.08, totaling R$530,226, of which 31,143,119 preferred shares in the amount of R$282,780, acquired by Banco Daycoval and 27,251,822 preferred shares in the amount of R$247,446, acquired by the Controlling Shareholders, at the ratio and within the limits set in the Notice disclosed on July 1,

25 As the number of preferred shares issued by Banco Daycoval and held by its noncontrolling shareholders acquired by the Offerors in the Auction exceeded the minimum amount of two thirds of the outstanding shares of Banco Daycoval, as set forth in article 16, II, of CVM Instruction 361 and in the Notice, Banco Daycoval has continued with the acts necessary for the Conversion of Registration, in the manner and within the deadline set forth in CVM Instruction 480, upon the subsequent delisting from the Level 2 of the Corporate Governance segment of BM&FBOVESPA. The Extraordinary General Meeting held on September 5, 2016 decided on and approved the redemption of 3,891,298 outstanding preferred shares that have not been acquired by the Offerors on the Auction date, representing 1.58% of Banco Daycoval s capital. The redemption price was R$9.18 per share. After the completion of the joint tender offer, Banco Daycoval bought back 4,942,839 preferred shares held by related parties in the amount of R$45,374, with redemption price of R$9.18 per share. The meeting of the Board of Directors held on December 20, 2016 decided on and approved the cancellation of all treasury shares, totaling 37,340,711 registered preferred shares, without decreasing capital. The cancellation of shares will be subject to the resolution of the Bank s Extraordinary Shareholders Meeting to be held on February 24, 2017, on the amendment to Article 6 of the Bank s Bylaws, so as to ratify and document the number of shares after the cancellation. 2. PRESENTATION OF THE FINANCIAL STATEMENTS The Bank s financial statements, including its foreign branch, and the consolidated financial statements( Consolidated ), have been prepared in accordance with the accounting practices adopted in Brazil, based on the accounting guidelines set forth in the Brazilian Corporate Law (Law 6404/76), and the changes introduced by Law 11638/07 and Law 11941/09 for the accounting for transactions, coupled with 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 ), when applicable. All relevant information in the financial statements, and only such information, is being disclosed and corresponds to the information used by the Bank s Management in managing the Bank. As part of the process of convergence with the International Financial Reporting Standards (IFRS), the Accounting Pronouncements Committee (CPC) has issued several pronouncements related to the international accounting convergence process that have been approved by the CVM but not all of them have been ratified by the BACEN. Thus, in the preparation of the financial statements, the Bank has adopted the following pronouncements that have been approved by the BACEN, s follows: a) CPC 01 (R1) - Impairment of Assets (Ratified by CMN Resolution 3566/08); b) CPC 03 (R2) - Statements of Cash Flows (Ratified by CMN Resolution 3604/08); c) CPC 05 (R1) - Related-party Disclosures (Ratified by CMN Resolution 3750/09); d) CPC 10 (R1) - Share-based Payment (Ratified by CMN Resolution 3989/11); e) CPC 23 - Accounting Policies, Changes in Accounting Estimates and Errors (Ratified by CMN Resolution 4007/11); 19

26 f) CPC 24 - Events After the Reporting Period (Ratified by CMN Resolution 3973/11); g) CPC 25 - Provisions, Contingent Liabilities and Contingent Assets (Ratified by CMN Resolution 3823/09); h) Basic Conceptual Pronouncement (R1) Conceptual Framework to Prepare and Disclose the Financial Report (Ratified by CMN Resolution 4144/12; and i) CPC 33 (R1) - Employee Benefits - ratified by CMN Resolution 4424/15. The consolidated financial statements comprise the Bank, its foreign branch and the following direct and indirect subsidiaries: Ownership interest - % Leasing operations Daycoval Leasing - Banco Múltiplo S.A. ( Daycoval Leasing ) (current Banco Commercial Investment Trust do Brasil S.A.) (Note 2.1.) 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 Agência de Turismo Ltda. ( SCC ) Treetop Investments Ltd. ( Treetop ) In the consolidated financial statements, the balances and transactions between the Bank, its foreign branch, and its direct and indirect subsidiaries have been eliminated. Profit and equity amounts related to noncontrolling interests were disclosed in a separate caption. The accounting criteria used in the financial statements of the foreign branch and foreign indirect subsidiary have been adjusted to the accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Central Bank of Brazil (BACEN), and translated into Brazilian reais. The Board of Directors, in the meeting held on February 21, 2017, approved the financial statements for the years ended December 31, 2016 and ) Acquisition of Banco Commercial Investment Trust do Brasil S.A. On December 11, 2014, Daycoval entered into with CIT Group Inc., headquartered in New York, New York, USA ( CIT ), a purchase and sale agreement ( Agreement ) to acquire all shares issued by Banco Commercial Investment Trust do Brasil S.A. ( Banco CIT Brasil ), a full-service bank headquartered in Barueri, São Paulo State, offering small- and mid-sized companies financial solutions and equipment lease, especially involving information technology equipment. On November 4, 2015, Daycoval received an official letter from BACEN s Financial System Organization Department, informing that the meeting of the Central Bank s Executive Board held on October 27, 2015 approved the transfer of the shareholding control of Banco Commercial Investment Trust do Brasil S.A. to Daycoval. 20

27 On November 30, 2015, Daycoval informed that it has satisfied on that date all conditions precedent set forth in the agreement entered into on December 11, 2014 among Capita Corporation, The Capita Corporation do Brasil Ltda. and Banco Commercial Investment Trust do Brasil S.A., in connection with the acquisition of all shares issued by Banco CIT Brasil. On December 15, 2015, BACEN s approval of the acquisition of Banco CIT Brasil by Daycoval was published in the Federal Official Gazette. The balance sheets of Banco CIT Brasil, which are used as a basis for the calculation of the negative goodwill, have been prepared as at October 31, 2015 and considered adjustments in the amount of R$15,896, represented mainly by tax credits. The deduction on the amount of the net assets at book value, as set forth in the agreement, was R$53,935, totaling a negative goodwill of R$69,831. The negative goodwill recorded by Daycoval on the acquisition of Banco CIT Brasil is being fully amortized over a 10-year period, and deferred tax liabilities are recognized at the tax rates effective on the amortization date. The amount of R$61,544 (R$69,386 in 2015), recognized in the Bank s individual financial statements in caption "Permanent assets - Investments" was reclassified to caption "Deferred Income" for better presentation of the consolidated financial statements. Beginning February 1, 2016, as approved by BACEN and published in the Official Gazette on that date, Banco CIT Brasil changed its corporate name to Daycoval Leasing - Banco Múltiplo S.A. 3. SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies adopted by Banco Daycoval in the preparation of the individual and consolidated financial statements can be summarized as follows: a) Income and expenses are recorded on the accrual basis. Fixed-rate transactions are stated at the final amount, and income and expenses for future periods are recognized as a reduction of the related assets and liabilities. Finance income and costs are recorded on a pro rata basis and calculated based on the exponential method, except those related to discounted notes or foreign transactions, which are calculated under the straight-line method. Floating-rate transactions or those 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 inflation adjustment, exchange rate changes and contractual interest. When the realizable amount of an asset is lower than its carrying amount, an allowance for impairment is recorded to adjust such asset to its realizable amount. c) Under BACEN Resolution 3604/08, cash and cash equivalents are represented by cash and bank deposits, recorded in captions Cash and cash equivalents, Interbank investments, and Securities - own portfolio, with original investment term of 90 days or less; the risk of change in their fair value is considered immaterial. d) Securities are stated at cost plus income earned, as follows: (i) fixed-income securities are adjusted at the applicable interest rate based on the respective maturities; (ii) shares are adjusted based on the average price informed by the Stock Exchange where the shares are more traded; and (iii) investments in investment funds are adjusted based on the share price informed by the fund managers. 21