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ANNUAL REPORT

2006


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04

06

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Message from the Board of Directors

Main Indicators

Operational Performance

Profile

Social Responsibility

Financial Statements

Corporate Information

A Successful Strategy

Promoting Sustainable Growth Risk Management Stronger Infra-structure New Products

Main Activities

Staff

Ratings

Community

Products and Services


Message From the Board of Directors

A successful strategy Our growth was 66% for the overall credit portfolio and approximately a 90% increase in the middle-market portfolio

After selling the consumer finance operation in 2004, Indusval Multistock Bank concentrated its efforts in the credit area, focusing on small and mid-size companies that are classified in the segment known as middle-market. We build up our structure within this strategy, trained our personnel, launched new products, introduced foreign exchange operations and now we have begun to see the results. In 2005, the commercial credit portfolio growth was 25%, after the

outstanding 100% portfolio expansion, achieved in the previous year. The same strategy was maintained in 2006, however we had prepared the bank for a sustainable growth. The macroeconomic scenario was stable even though the outlook indicated moderate growth in the Brazilian economy. As expected, we expanded our agencies network and we implemented a Structured Finance Area to complement the services already offered to our customers. We

Main Indicators 56

Credit operations R$ millions

163

73

150

60 45

205

69 425 242

126 Dec. 03

4 Annual Report 2006

Dec. 04

Dec. 05

Dec. 06

■ ■ ■ ■

Middle-market Foreign exchange Credits acquisitions Consumer finance


reviewed all management processes and invested in personnel, information technology, compliance and control systems. We had achieved our goals and obtained a growth of 66% in the overall credit portfolio, and approximately a 90% increase in the middle-market portfolio. After evaluating these results, as well as the investments made in 2006, we reinforced our commitment to the strategy implemented. We believe that our growth direction will be maintained in 2007 while

Basel index

31.9

%

we will continue to improve the quality of our services and maintain our low credit risk exposure. We appreciate the cooperation of all our employees and customers. The Bank´s and Consolidated Financial Statements, as well as supporting documents regarding the fiscal years ending on December 31 2005 and December 31, 2006 remain at the disposal of the employees, customers and shareholders. Board of Directors

Total deposits

30.4

332

22.5 189

15.4 Dec. 03

Dec. 04

127

Dec. 05

136

Dec. 06

150

Dec. 03

Dec. 04

Dec. 05

Dec. 06

Dec. 04

Dec. 05

Total assets

Dec. 03

Dec. 06

1.121

R$ millions

585

63

Dec. 03

255

Minimum 11%

Net worth R$ millions

526

R$ millions

724

Dec. 04

772

Dec. 05

Dec. 06

Banco Indusval Multistock 5


6 Annual Report 2006


Operational Performance

Promoting sustainable growth At the end of 2005, the economic growth expectations for Brazil in this coming year were not promising. Nevertheless, we were optimistic with the stable outlook and the potential for a favorable performance in the Brazilian foreign trade. As such, we defined an investment and growth strategy based on lasting and sustainable principles. Throughout the year, these efforts have produced positive results that exceeded our expectations. Our credit portfolio increased to approximately R$ 644 million. Credits generated by the bank increased by 90%, while credit acquisition decreased 24%, resulting in an overall growth rate of 66% in comparison to the previous year. Net worth increased by 10%, achieving R$ 150 million. The year-end profit levels were 17.3%, reflecting growth of 20.9% in comparison to 2005. During the second half, profitability reached an even higher level: 21.2%, which is 45% higher than the profits recorded in the same period of the previous year. The expansion rhythm should remain intense during the first half of 2007. Our current capital base is sufficient to support this growth, as indicated by our Basel Index (capital – asset – risk proportion): 22.5% in 2006, that is the double of the minimum required. The performance in 2006 was also positive from a qualitative perspective. We maintained high liquid and quality assets

that can be measured by two indicators: liquid assets to total assets ratio, maintained at 38%, and the ratio of non performing loans (loans overdue to more than 60 days), decreased from 2.47% of the overall portfolio in December 2005 to 1.21% in 2006. Our conservative credit processes, and our track record in checking and controlling receivables, sustain these asset quality indicators. In addition, our provision for potential loan losses is adequate to our risk profile. During the past year, we improved the governance and management structure for operational risk. We created the Computer and Information Security Committee that manages information security including operational and contingency risks; the Audit and Compliance Committee receives and analyzes internal audit reports, checks updates and fulfillment to the compliance program; and the Legal Committee that is also focused on legal and image risks. In accordance with Central Bank Resolution NÂş 3380, a Statutory Compliance Director was appointed and an Implementation Team was established to define the required targets and actions to enforce this Resolution.

Our performance in 2006 was positive and exceeded the expectations of all indicators, including qualitative patterns

Banco Indusval Multistock 7


Operational Performance

Our risk management practices are becoming more and more conservative

8 Annual Report 2006

Risk Management Our risk management practices are becoming more and more conservative. Weekly meetings are held by the Credit Committee to manage credit risk. The credit control is very severe and when necessary, daily decisions are made by the Committee through electronic meetings. Operation classifications are defined by a mathematical formula and the Committee is not authorized to make the requirements more lenient. Follow-up of the receivables portfolio performance and collateral control is conducted by the credit department using several instruments including electronic solutions. Risks generated by commercial activities are managed by the Treasury Department that seeks to eliminate currency and index mismatching, resulting credit department to obtain sustainable growth. To accomplish this, liquid assets are linked to a deposit percentage. Assets, liabilities and tenors are adjusted using financial instruments (futures, swaps, etc.) according to their origin. This year, all parameters were respected and the positions were monitored on a daily basis by other directors and on a weekly basis by the Cash Committee that evaluates scenarios and determines whether the risk parameters (stress test and VAR) should be altered. They also follow projected cash flows and possible measures in case of liquidity stress.

Bonds and security positions were classified as “for negotiation” for approximately 98% of the portfolio, 0.5% were classified as “available for sale” and the remaining 1.2% as “held to maturity”. Financial derivative operations are all “mark-to-market” and are basically related to position and operation protection.

Stronger Infrastructure In order to strengthen our infrastructure, we invested in processes, policies, systems, equipment, agencies set-ups and remodeling, personnel recruitment and development. During the past year we opened branches in Campinas, Goiânia and Belo Horizonte and in January 2007, in Curitiba. In January of last year we had 219 employees and in December we reached 255 employees. This growth was more aggressive in the business and business support departments and less aggressive in the back-office. The main reason for this growth was the investment in information technology that ensures that all branches throughout the country can offer the same level of quality services and information as the Head Office. We currently have 30 mainframes and 265 workstations with integrated operation and support from all the required security, backup and contingency systems. Considering this growth environment, we were also able to improve our Efficiency Ratio that decreased from 0.59 in 2005 to 0.56 in 2006.


The number of employees increased; and we improved the human resources management policies. In 2006 we introduced a new trainee program that had seven thousand candidates in the selection process. We also restructured the internship program, including evaluation and professional development procedures. Employee training was intensified with 270 enrollments and 1,169 hours/participant. We also implemented a profit sharing program for 100% of the operational staff, based on budget accomplishment and performance evaluation program that has already resulted in improved performance. The job position and wage program was modified, the hierarchy levels were restructured and clear-cut rules for transfers and promotions were established.

New products Along with the growth in the middlemarket, we expanded our product portfolio. After the meticulous due diligence process we were accepted into the Global Trade Finance Program (GTFP), an International Finance Corporation (IFC) initiative that supports international trade of emerging countries (for more information access the website www.ifc.org/gtfp). Consequently, we have begun operations as a credit agent for pre-export financing, offering special conditions to our customer base.

Other products and services were launched such as “compror”, a line of credit that enables companies to make cash payments to their suppliers, “vendor”; agribusiness operations such as Rural Producer Notes* (CPR) and Certificates of Agribusiness Creditor Rights** (CDCA), in addition to other structured operations. We dedicated our attention to product planning, attracting larger customers that are classified in an upper middle-market range. For these customers we offer personalized, flexible and efficient service. We want to cooperate and follow up the growth of these customers, reducing their credit risks by using receivables as guarantees. These operations used to be based only on receivables, but now they are using different methods, for example, part of them could have the risk mitigated by “sale and supply agreements”, company’s exports track record or based on criteria that we also consider real assets.

We also implemented a profit sharing program for 100% of the operational staff

*CPR: Cédulas do Produtor Rural – a financial instrument through which the farmer sells his crop before harvesting and assumes an obligation to deliver a certain amount of commodities at a future date to a specified location. ** CDCA: Certificados de Direitos Creditórios do Agronegócio – financial instrument issued to cooperatives or legal entities that store, sell, process or industrialize raw materials or agricultural machinery.

Banco Indusval Multistock 9


Profile

Main

1967

1971

1991

1992

Indusval Brokerage House is established.

The partners of Ciampolini & Ribeiro purchase Indusval Brokerage House.

Indusval Brokerage House becomes a multi-service bank.

Indusval Bank begins its foreign exchange portfolio operations.

activities We are a commercial bank focused on

middle-market companies

The bank’s total assets summed R$ 1.121 billion (US$ 524 million at an exchange rate of R$ 2.1376/US$ 1) in December 2006, representing a year-end growth of 45%, we are a commercial bank focused on middle-market companies, with operations guaranteed mainly by receivables. Among the main reasons of our success, is our agility in making decisions and in-depth knowledge of the middle-market segment. Our activities include: • Financing and services directed at small and mid-size companies. • Flexible and personalized services using technological resources and specialized professionals. • Supply of structured products, including agribusiness services such as CPR and CDCA. • Investment funding for medium and large scale customers. • International operations including foreign trade lending, currency exchange and funding. • Transactions on the Stock Exchange and Mercantile and Futures Exchange.

Ratings Indusval Multistock Bank credit ratings by international risk agencies: Standard & Poors´s Worldwide Local Currency: ‘B/Stable/B’ Foreign Currency: ‘B/Stable/B’ Brazil: ‘brBBB-/Stable/brA-3’ Report issued in September 2006 Fitch Ratings National Long Term BBB (Brazil) Short Term F3 (Brazil) Stable Outlook Report issued in October 2006 Passages from the Standard & Poor’s report, which is available on the site: www.indusval.com.br: Indusval has a good track record of asset quality. [...] The bank’s strict credit processes and its track record in checking and monitoring receivables support the asset quality indicators. [...] Indusval’s profitability is adequate for its business profile. [...] The main reasons for the bank’s success are its agility in making decisions and its in-depth knowledge of the middle market segment. [...]

10 Annual Report 2006


1993

2000

2003

2004

2006

2007

Indusval Bank initiates their middle-market credit operations.

Indusval acquires 50% of the finance company in partnership with Multistock Bank and begins consumer finance sales.

Indusval merges with Multistock and starts to operate as Indusval Multistock Bank. Beginning of foreign trade lending operations.

The finance company is sold to HSBC and the bank focuses its operations on the middle-market segment.

Opening of branches in Campinas, Goiânia, Belo Horizonte and Curitiba. Expressive growth in the middle-market portfolio.

The institution celebrates its 40th anniversary on October 31st.

PRODUCTS AND SERVICES Investments / Funding

Credit and Banking Services

Indusval Multistock Bank offers a full range of investments, seeking the best combination of returns and security based on the risk profile option. We highlight: • Banking Certificates of Deposit (BCDs), fixed and variable rates • Indusval Fixed Income Multifund In 2006, the volume of deposits from individuals and legal entities increased 59%, achieving R$ 526 million, represented mainly by BCDs with a small portion of Interbank Certificates of Deposit (ICD). Despite our excellent liquidity situation (cash on hand represents 44% of total deposits and 155% of net worth), maintained with long term deposits that offer lower costs than other alternatives, we are always aware of other funding methods, such as Receivable Investment Funds (FIDCs) and foreign issues.

We provide a high quality customer service therefore we can supply specific requirements. A specialized team is dedicated to mid-size companies and handles the following banking products: • Checking account, overdraft protection, line of credit • Working capital loans / Factoring • “Compror” • “Vendor” • Collections • Structured Finance • Agribusiness operations – CPR and CDCA • Internet banking • Letters of credit The credit profile in Reals increased to approximately R$ 644 million in 2006. Credit generated by the Bank increased 76%, while the credit acquisition decreased by 24%, resulting in an overall growth of 66% in relation to the previous year. The balance in Reais is comprised by 521 customers, who each maintain an average balance of R$ 800 thousand and have contracted operations that amount to roughly R$ 1.35 billion throughout the year.

Banco Indusval Multistock 11


Profile

Indusval Multistock Brokage House’s customer base includes institutional, Brazilian and foreign individuals and legal entities

12 Annual Report 2006

Foreign Exchange and International Operation A specialized team advises and follows international operations, combining expertise, technology and partnerships with Brazilian and foreign banks, meeting clients´ needs. • Foreign Exchange Services • International Trade Collection • Export Financing (pre and post shipping) • Import Financing • International Guarantees • Remittance • Advisory service for business structures backed by foreign trade and pre-payment of exports.

In 2006, export transactions reached US$ 303 million, being US$ 191 million export financing. We also financed US$ 19 million of import transactions. The final credit portfolio balance was US$ 76 million, contracted by 80 customers, representing a growth of 158% in comparison to 2005.

Stock Exchange Transactions Indusval Multistock Brokerage House operates in money and capital markets with emphasis on trading shares, gold, options, futures and commodities, mainly on the Bovespa (São Paulo Stock Exchange) term market. It also sets up hedge and swap operations and new share offerings on the primary and secondary markets. Their customer base includes institutional, Brazilian and foreign individuals and legal entities. Small and medium scale individual customers have access to the website www.industrade. com.br that enables internet trading on Bovespa and the Mercantile and Futures Exchange (BM&F). Last year, our trading on Bovespa attained R$ 3.6 billion; on BM&F we had 555 thousand contracts; and exchange transactions accounted for US$ 454 million.


Social Responsibility

Staff The number of permanent employees grew 26% last year, increasing from 198 to 255. In relation to gender, 74% of the employees are male and 26% are female. The break even point has not yet been achieved but the growth index had a greater impact on the number of female employees (see the table below). Indusval Multistock treats its employees with respect and appreciates the time they dedicate to our institution. The employees have relevant benefits (see the table below) that during the past year summed a total of R$ 4.6 million, equivalent to 20% of the institution’s profit. Most of these benefits are given on a voluntary basis.

Growth of the operational staff in 2006 January

December

Growth

167

188

13%

Males Females

52

67

29%

Total

219

255

16%

Employee benefits In thousands of R$ Healthcare / medical insurance Dental plan Meals Transportation

2,374 111 1,741 341

Life insurance

41

Other

45

Total

4,653

During the past year we strengthened our staff relations, creating the profit sharing plan that distributed R$ 3.1 million, equivalent to 13.2% of our profit. We also restructured the career plan, creating internship and traineeship programs. We started to recruit physically challenged people and we had very good results.

Taxes We earned over R$ 25 million in taxes, fees and contributions during 2006. This volume was equal to 106% of the year-end profit.

Banco Indusval Multistock 13


Social Responsibility

Community

We do more than just finance projects; we participate in the management of some social entities

We have been setting commitments with several civil society organizations in order to develop projects to transform the lifestyle of children, youths and families from the suburbs of São Paulo city. We do more than just finance the projects; some of our top managers help administrating some entities seeking to ensure effective results to the social investment.

During 2006, those investments were equal to 2.2% of our profit – almost R$ 500 thousand – as shown in the table below.

Social investment in 2006 In thousands of RS Social entities

342

Incentive projects – Lei Rouanet

132

Municipal Fund for the Rights of Children and Adolescents Total

These are the social entities that we contribute to:

23 497

Associação Criança Brasil Maintains child care and socio-educational centers for more than 600 children and youths in the southern region of the city of Sao Paulo. Offers quality education and training directed to citizenship.

Associação Obra do Berço Promotes educational, cultural and health related activities for approximately three thousand children, youths and adults. It has existed in Sao Paulo for 65 years and offers projects related to formal and supplementary education, social inclusion and introduction to the professional market.

14 Annual Report 2006


Projeto Arrastão A 38 year-old non-profit organization that conducts educational projects for 1,300 children, youths and adults to promote citizenship participation and inclusion, acting in the suburbs of São Paulo city.

Instituto de Cidadania Empresarial The institute was created from a partnership among São Paulo city’s companies, Government and civil society, in order to implement an innovative development projects to the community. One example is the Casulo Project, focused on cultural education for youths from suburbs in the southern region of the city of Sao Paulo.

Banco Indusval Multistock 15


Financial Statements 2006 Report os Independent Auditors To the Board of Directors and Stockholders Banco Indusval S.A. 1

We have audited the accompanying balance sheet of Banco Indusval S.A. (Indusval Multistock) and the consolidated balance sheet of Banco Indusval S.A. and its subsidiaries (Indusval Multistock Consolidated) as of December 31, 2006, and the related statements of income, of changes in stockholders’ equity and of changes in financial position of Banco Indusval S.A. (Indusval Multistock) for the year and six-month period then ended, as well as the consolidated statements of income and of changes in financial position for the year then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements.

2

We conducted our audit in accordance with approved Brazilian auditing standards, which require that we perform the audit to obtain reasonable assurance about whether the financial statements are fairly presented in all material respects. Accordingly, our work included, among other procedures: (a) planning our audit taking into consideration the significance of balances, the volume of transactions and the accounting and internal control systems of the Bank and its subsidiaries, (b) examining, on a test basis, evidence and records supporting the amounts and disclosures in the financial statements, and (c) assessing the accounting practices used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

3

In our opinion, the financial statements audited by us present fairly, in all material respects, the financial position of Banco Indusval S.A. (Indusval Multistock) and of Banco Indusval S.A. and its subsidiaries (Indusval Multistock Consolidated) at December 31, 2006, and the results of operations, the changes in stockholders’ equity and the changes in financial position of Banco Indusval S.A. (Indusval Multistock) for the year and six-month period then ended, as well as the consolidated results of operations and changes in financial position for the year then ended, in accordance with accounting practices adopted in Brazil.

4

Our reviews were conducted for the purpose of issuing a report on the financial statements referred to in the first paragraph, taken as a whole. The statement of added value, presented to provide supplementary information about Banco Indusval S.A. (Indusval Multistock) and its subsidiaries, is not required by the Brazilian Central Bank as part of the financial statements. This information has been subjected to the audit procedures described in paragraph 2 and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole.

5

The audit of the financial statements for the year ended December 31, 2005, presented for comparison purposes, was conducted by other independent auditors who issued an unqualified opinion thereon dated February 22, 2006. São Paulo, February 6, 2007 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5

Ricardo Baldin Contador CRC 1SP110374/O-0

16 Annual Report 2006


Balance sheets at december 31 In thousands of reais Indusval Multistock

Indusval Multistock Consolidated

2006 976,210 10,010 151,008 143,352 7,656

2005 689,250 1,851 103,250 76,200 27,050

2006 986,831 10,074 151,008 143,352 7,656

2005 704,789 1,858 103,250 76,200 27,050

260,705 166,685 86,558 5,259 2,203

233,726 97,170 126,468 8,398 1,690

261,119 166,690 86,558 5,668 2,203

234,114 97,558 126,468 8,398 1,690

446 2

306 8

446 2

306 8

444

298

444

298

Loans Loans - private sector Loans - public sector Allowance for loan losses

387,227 377,575 15,816 (6,164)

280,336 283,519

387,227 377,575 15,816 (6,164)

280,336 283,519

Other receivables Foreign exchange portfolio Income receivable Negotiation and intermediation of securities Sundry Allowance for loan losses

162,549 159,123

64,246 61,212

548 4,480 (1,602)

116 4,204 (1,286)

172,692 159,123 34 10,192 4,945 (1,602)

79,390 61,212 16 15,022 4,426 (1,286)

4,265 3,996

4,265 3,996

269

5,535 5,577 (266) 224

5,535 5,577 (266) 224

104,930

43,314

105,621 118

Assets Current assets Cash Short-term interbank investments Open market investments Interbank deposits Marketable securities and derivative financial instruments Own portfolio Subject to repurchase agreements Linked to guarantees Derivative financial instruments Interbank accounts Payments and receipts pending settlement Restricted credits Deposits with the Brazilian Central Bank

Other assets Other assets Provision for loss Prepaid expenses Long-term receivables Marketable securities and derivative financial instruments Own portfolio Linked to guarantees

90,687 72,997 25,865 (8,175)

Other receivables Foreign exchange portfolio Sundry Allowance for losses

14,243 375 14,279 (411)

Property and equipment Properties in use Revaluation of properties in use Other Accumulated depreciation Total assets

269

(3,183)

43,966 108 108

118

Loans Loans - private sector Loans - public sector Allowance for loan losses

Permanent assets Investments Subsidiary and associated companies: In Brazil Membership certificates Other investments

(3,183)

36,788 43,883 (7,095) 6,526 6,526

38,145 29,290

32,419 25,243

27,110

23,066

2,180

90,687 72,997 25,865 (8,175) 14,816 375 14,852 (411)

36,788 43,883 (7,095) 7,070 7,070

28,197 19,135

23,650 16,255

2,177

16,149 2,986

13,307 2,948

8,855 1,508 3,538 6,866 (3,057)

7,176 1,508 3,538 4,845 (2,715)

9,062 1,508 3,538 7,318 (3,302)

7,395 1,508 3,538 5,273 (2,924)

1,119,285

764,983

1,120,649

772,405

The accompanying notes are an integral part of these financial statements.

Banco Indusval Multistock 17


Financial Statements 2006 Balance sheets at december 31 In thousands of reais Indusval Multistock

Indusval Multistock Consolidated

Liabilities and stockholders' equity Current liabilities Deposits Demand deposits Interbank deposits Time deposits Other

2006 816,700 388,963 31,385 65,001 292,526 51

2005 500,439 216,899 18,363 29,742 168,703 91

2006 817,412 379,544 31,035 52,922 292,040 3,547

2005 507,401 207,884 18,142 20,334 168,537 871

Funds obtained in the open market Own portfolio Third party portfolio

188,669 86,430 102,239

180,856 126,108 54,748

188,669 86,430 102,239

180,856 126,108 54,748

18 18

19 19

18 18

19 19

27,549 27,549

1,331 1,331

27,549 27,549

1,331 1,331

164,144 164,144

72,419 72,419

164,144 164,144

72,419 72,419

47,357 363 9,977 8,282 15,155 11,420 2,160

28,915 168 4,167 3,887 11,447 7,283 1,963

57,488 363 9,977 9,016 24,396 11,420 2,316

44,892 168 4,167 4,126 26,985 7,283 2,163

Long-term liabilities Deposits Time deposits Other liabilities Taxes and social security contributions Sundry

152,876 146,852 146,852 6,024 6,019 5

128,269 123,970 123,970 4,299 4,294 5

153,528 146,852 146,852 6,676 6,671 5

128,729 123,970 123,970 4,759 4,754 5

Stockholders' equity Capital Brazilian residents Revaluation reserve Revenue reserve Adjustment to market value - Securities and derivatives Retained earnings Treasury shares

149,709

136,275

149,709

136,275

106,611 2,343 32,232 2 12,356 (3,835)

106,611 2,417 23,871 32 7,179 (3,835)

106,611 2,343 32,232 2 12,356 (3,835)

106,611 2,417 23,871 32 7,179 (3,835)

1,119,285

764,983

1,120,649

772,405

Interbank accounts Receipts and payments pending settlement Interdepartmental accounts Third party funds in transit Borrowings Foreign borrowings Other liabilities Collection and payment of taxes and similar charges Foreign exchange portfolio Taxes and social security contributions Negotiation and intermediation of securities Derivative financial instruments Sundry

Total liabilities and stockholders' equity

The accompanying notes are an integral part of these financial statements.

18 Annual Report 2006


Statement of income In thousands of reais

Six-month period ended December 31

Indusval Multistock

Indusval Multistock Consolidated

Years ended December 31

Years ended December 31

Income from financial intermediation Loans Marketable securities Derivative financial instruments Foreign exchange

2006 97,786 63,441 23,987 (1,868) 12,226

2006 184,576 110,746 52,005 (3,139) 24,964

2005 151,545 94,332 52,168 (3,993) 9,038

2006 184,623 110,746 52,100 (3,187) 24,964

2005 151,522 94,332 52,168 (4,016) 9,038

Expenses on financial intermediation Money market funding Loans, assignments and onlendings Allowance for loan losses

58,246 43,193 8,289 6,764

116,846 84,307 19,443 13,096

100,471 83,015 7,376 10,080

115,391 82,852 19,443 13,096

93,806 76,343 7,383 10,080

Gross profit from financial intermediation

39,540

67,730

51,074

69,232

57,716

(21,860) 1,886

(38,748) 3,429

(29,795) 2,689

(39,642) 11,605

(34,732) 9,283

1,853

3,699

5,163

(14,277) (7,941) (2,616) 160 (925)

(24,850) (14,867) (4,736) 279 (1,702)

(21,600) (11,809) (3,598) 322 (962)

(28,235) (18,911) (5,690) 3,701 (2,112)

(24,989) (16,492) (4,630) 3,183 (1,087)

17,680

28,982

21,279

29,590

22,984

(194)

(495)

54

(528)

64

Profit before taxation

17,486

28,487

21,333

29,062

23,048

Income tax and social contribution Income tax Social contribution Deferred tax asset

(3,727) (3,063) (1,156) 492

(4,853) (4,924) (1,920) 1,991

(1,784) (1,787) (761) 764

(5,428) (5,337) (2,082) 1,991

(3,499) (2,500) (1,031) 32

Net income for the six-month period/year

13,759

23,634

19,549

23,634

19,549

31,296,247

31,296,247

0.76

0.63

Other operating income (expenses) Income from services rendered Equity in the earnings of subsidiary and associated companies Personnel expenses Other administrative expenses Taxes Other operating income Other operating expenses Operating profit Non-operating income (expenses)

Number of outstanding shares Net income per share - R$

The accompanying notes are an integral part of these financial statements.

Banco Indusval Multistock 19


Financial Statements 2006 Statement of changes in stockholders’ equity In thousands of reais

Capital At December 31, 2004 Appropriation to revaluation reserve Realization of revaluation reserve Adjustment to market value Net income for the year Appropriation to legal reserve Interest on own capital Revenue reserve

106,611

At December 31, 2005

106,611

1,167 1,304 (54)

16,499

Adjustment to market value 30

Retained earnings

Treasury shares

6,394

(3,835)

At December 31, 2006

106,611

2,417

23,871

32

7,179

1,250

7,372

2

785

2,417 (74)

23,871

32

7,179 74

(11,446)

(3,835)

(3,835)

7,179

At June 30, 2006 Realization of revaluation reserve Adjustment to market value Appropriation to legal reserve Interest on own capital

106,611

At December 31, 2006

106,611

(10,170)

2,343

32,232

2

12,356

(74)

8,361

(30)

5,177

2,380 (37)

31,543

2

3,896 37 13,759 (689) (4,647)

(3,835)

12,356

(3,835)

689

2,343

32,232

(37)

689

The accompanying notes are an integral part of these financial statements.

2

8,460

136,275 (30) 23,634

23,634 (1,182) (10,170) (7,179)

1,182

136,275 9,409

(30)

Changes in the year

126,866 1,304 2 19,549

19,549 (978) (11,446) (6,394)

6,394

106,611

Total

54

978

At December 31, 2005 Realization of revaluation reserve Adjustment to market value Net income for the year Appropriation to legal reserve Interest on own capital Revenue reserve

20 Annual Report 2006

Revenue reserves

2

Changes in the year

Changes in the six-month period

Revaluation reserve

(3,835)

149,709 13,434 140,597 13,759 (4,647) 149,709 9,112


Statement of changes in financial position In thousands of reais

Six-month period ended December 31 Financial resources were provided by Adjusted net income for the six-month period/ year Net income for the six-month period/ year Depreciation and amortization Equity in the earnings of subsidiary and associated companies Restatement of membership certificates Adjustment to market value - Securities and derivatives

2006 424,533 12,396 13,759 490 (1,853)

Indusval Multistock

Indusval Multistock Consolidated

Years ended December 31

Years ended December 31

2006 365,279 20,819 23,634 914 (3,699)

2005 171,693 14,925 19,549 537 (5,163)

2006 360,203 21,747 23,634 985

2005 168,775 18,225 19,549 609

(30)

2

(2,842) (30)

(1,935) 2

(195)

Change in deferred income for the six-month period/year

(195)

412,137

344,460

156,963

338,456

150,745

Increase in liabilities Deposits Funds obtained in the open market Interbank and interdepartmental accounts Borrowings and onlendings Other liabilities

232,530 112,156

340,868 194,946 7,813 26,217 91,725 20,167

64,563 46,209

334,810 194,542 7,813 26,217 91,725 14,513

94,910 76,556

Decrease in assets Short-term interbank investments Marketable securities Interbank and interdepartmental accounts Other assets

178,193 177,388

54,699

54,699

805

54,533 85 81

54,533 85 81

From third parties

26,741 79,433 14,200

Disposal of assets and investments Assets not for own use Investments Property and equipment in use

1,414 1,349

3,592 3,496

65

96

949 17,405

37,617 1,037 36,512 68

949 17,405

3,646 3,496

1,136 1,037

150

99

84

Dividends received from subsidiaries 416,100

357,120

172,500

351,987

169,732

Interest on own capital

4,647

10,170

11,446

10,170

11,446

Investments Assets not for own use Equity investments Other investments Property and equipment in use

1,318 501

4,952 1,915 345 3 2,689

6,350 3,736

4,755 1,915

6,297 3,736

104 2,510

38 2,802

2,561

Financial resources were used for

3 814

346

Investments in deferred charges Increase in assets Short-term interbank investments Marketable securities Interbank and interdepartmental accounts Loans Other receivables Other assets Decrease in liabilities Funds obtained in the open market Other liabilities

378,881 166,989 138,579 72,890 423 31,254 31,254

98,802 34,299 49,006 15,497

337,062 47,758 27,015 140 160,790 101,048 311

55,556 20,729 34,827

95,945 34,619 49,006 12,320 55,698 20,729 34,969

8,433

8,159

(807)

8,216

(957)

1,577 10,010

1,851 10,010

2,658 1,851

1,858 10,074

2,815 1,858

8,433

8,159

(807)

8,216

(957)

Increase (decrease) in cash Changes in financial position Cash At the beginning of the six-month period/year At the end of the six-month period/year

341,998 47,758 26,979 140 160,790 106,020 311

346

Increase (decrease) in cash

The accompanying notes are an integral part of these financial statements.

Banco Indusval Multistock 21


Financial Statements 2006 NOTES TO THE FINANCIAL STATEMENTS AT DECEMBER 31, 2006 AND 2005 In thousands of reais

1 OPERATIONS Banco Indusval S.A. (commercial bank) and its subsidiaries operate mainly with commercial and foreign exchange portfolios and other transactions related to securities brokers. Indusval Financeira, Crédito Financiamento e Investimento S.A. was merged into Banco Indusval S.A. on October 24, 2005, based on its net asset position at September 30, 2005. This transaction was approved by the Extraordinary General Meeting held on October 24, 2005, and has not yet been approved by the Brazilian Central Bank (BACEN).

2 PRESENTATION OF THE FINANCIAL STATEMENTS The financial statements of Banco Indusval S.A. (Indusval Multistock) and the consolidated financial statements of Banco Indusval S.A. and its subsidiaries (Indusval Multistock Consolidated) have been prepared in accordance with accounting practices adopted in Brazil and the regulations of the Brazilian Central Bank (BACEN).

3 SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (a) Consolidation The consolidated financial statements comprise the financial statements of Banco Indusval S.A. (Banco Indusval Multistock) and its subsidiaries Indusval S.A. Corretora de Títulos e Valores Mobiliários (Indusval Multistock Corretora), CredRealiza Promotora de Vendas Ltda. and Multistock Companhia Securitizadora de Créditos (Multistock Securitizadora). The results of operations of Indusval Financeira, Crédito, Financiamento e Investimento S.A. (Indusval Multistock Financeira) were consolidated up to October 24, 2005, date on which it was merged into Banco Indusval S.A. Orbix Global Partners Administradora de Recursos Ltda. (Orbix) was consolidated proportionally to the Bank’s ownership, in compliance with Resolution 2723 of the National Monetary Council (CMN), as it forms part of the economic and finance conglomerate. The Bank’s investments in these subsidiaries, as well as the assets and liabilities, income and expenses, and the unrealized results of intercompany transactions, were eliminated upon consolidation.

(b) Determination of the results of operations Income and expenses are recorded on the accrual basis of accounting.

(c) Short-term interbank investments Short-term interbank investments are recorded at cost plus income accrued up to the balance sheet date, net of a provision for losses, when applicable.

(d) Marketable securities and derivative financial instruments Marketable securities are classified and valued as follows: • Trading securities - securities acquired to be traded on a frequent and active basis, adjusted to market value against results for the period; • Securities available for sale - securities that are neither trading securities nor securities held to maturity, adjusted to market value against a stockholders’ equity account, net of tax effects; and

22 Annual Report 2006


• Securities held to maturity - securities which management acquires with the intention and financial capacity to hold up to maturity, recorded at acquisition cost plus accrued income with contra entry to results for the period. Derivative financial instruments are classified at the inception of the operation, taking into consideration the intention of management to use them as hedge instruments or not. They are recorded at market value and realized and unrealized gains and losses are recognized directly in results for the period. Derivative financial instruments which do not meet the hedging criteria established by BACEN, particularly derivatives used to manage overall risk exposure, are recorded at market value and valuations and devaluations are recognized directly in results for the period.

(e) Loans The loans, in their different categories, are recorded at present value, including income accrued up to the balance sheet date when post fixed, and net of unearned income, calculated based on the terms of the transactions, when prefixed. The restatement of loans overdue is recorded as income from loans up to the 60th day and as unearned income as from the 61st day. Loans in arrears classified as level “H” are held in this classification for six months, after which they are written off against the existing allowance and controlled, for up to five years, in memorandum accounts, no longer being recognized in the balance sheet. Renegotiated loans are held in the same level at which they were previously classified. Renegotiations of loans that had already been written off against the allowance and which were recorded in memorandum accounts, are classified as level “H” and any gains on renegotiation are only recognized when actually received.

(f) Allowance for loan losses The allowance for loan losses is based on management’s analysis of the operations in order to determine the amount required, case by case, and takes into consideration the economic environment, past experience and the specific and overall risks of the portfolios, as well as the rules established by Resolution 2682/99, of December 21, 1999, and in accordance with Circular 2974/00, of March 24, 2000, both of the Brazilian Central Bank.

(g) Investments The investments in subsidiaries, associated and jointly-owned subsidiaries are recorded on the equity method of accounting. Investments in membership certificates, mainly represented by the São Paulo Stock Exchange (BOVESPA) and the Commodities and Futures Exchange (BM&F) certificates, are recorded at cost and adjusted by the equity increases of the membership certificates reported by the respective entities. Other investments are recorded at cost.

(h) Property and equipment Property and equipment are stated at cost plus price-level restatements up to December 31, 1995 and revaluation of properties for own use (Note 11(d)). Depreciation is computed on the straight- line method at the annual rates of 5% for buildings, 20% for vehicles and data processing systems, 25% for air-conditioning equipment and 10% for other items.

(i) Interbank and time deposits and funds obtained in the open market These deposits and the funds obtained in the open market are stated at their contractual amount plus accrued charges, in proportion to the time elapsed from the day on which the operation was contracted.

(j) Borrowings Foreign currency borrowings are stated at present value, including the charges incurred up to the balance sheet date and restated at the official exchange rates ruling on the balance sheet date.

Banco Indusval Multistock 23


Financial Statements 2006 (k) Share loan contract liabilities Share loan agreement liabilities, recorded under “Other liabilities - Negotiation and intermediation of securities”, in current liabilities, are stated at their contractual values, which are adjusted monthly according to the market value of the shares and by the respective adjustments of the derivatives (hedge).

(l) Income tax and social contribution (assets and liabilities) Deferred income tax and social contribution on net income credits, calculated on tax losses and temporary additions, are recorded in “Other receivables - Sundry”. Tax credits on temporary additions are realized upon the use and/or reversal of the provisions on which they were recorded. The tax credits on tax losses are realized in accordance with the generation of taxable income. The provision for income tax was calculated at the rate of 15% plus an additional 10% on taxable income that exceeds R$ 240 thousand per annum, and includes the tax incentives. The provision for social contribution was calculated at the rate of 9% of adjusted taxable income, in accordance with current legislation.

(m) Contingent assets and liabilities and legal obligations - taxes and social security contributions The recognition and estimation of contingent assets and liabilities and legal obligations are carried out in accordance with the criteria established by Deliberation 489/05 of the Brazilian Securities Commission (CVM). Contingent liabilities are recorded taking into account the opinion of legal advisors; the nature of the processes; similarities with previous processes and complexity, where there is a probable disbursement of funds for the settlement of the obligations and when the amounts involved can be estimated with a reasonable level of security. Contingent liabilities whose unfavorable outcome is regarded as possible are recorded in the books, based on the individual assessment of management, considering the historical experience with results of processes of the same nature. Cases where an unfavorable outcome is regarded as remote do not require a provision and disclosure.

4 MARKETABLE SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (a) Valuation, classification and risk management The valuations of fixed income securities, as well as of derivative financial instruments, are obtained from the markets with greatest liquidity or, in the absence of such, from related markets, including interpolation and extrapolation of the terms. All transactions with financial derivatives are “marked to market” and aim to hedge interest rate risks, which are controlled and managed together with other exposures to such risk factors; these mechanisms have proven to be effective in relation to the proposed objectives. The portfolio of share loan contracts (Note 3k) is almost entirely sold in the spot market, with simultaneous purchase of purchase options and sale of sale options, resulting in a funding transaction at prefixed rates, whose results are recognized over the term of the transaction.

(b) Marketable securities The cost of marketable securities plus accrued income, compared to market values are:

24 Annual Report 2006


Indusval Multistock 2006 Market/ book value

Maturity (days)

50,757 8,888 149,909 44,520

50,762 8,888 149,975 44,505

Up to 360 days Over 360 days Up to 360 days Over 360 days

66 (15)

1,356

1,359

Up to 360 days

3

3,013

3,013

Up to 360 days

258,443

258,502

Cost Trading securities Financial Treasury Bills - LFTs Financial Treasury Bills - LFTs National Treasury Bills - LTNs National Treasury Bills - LTNs Variable income securities Securities available for sale Financial Treasury Bills - LFTs National Treasury Bills - LTNs Securities held to maturity Private securities - Bank Deposit Certificates - CDBs Total

2005 Adjustment to market

Market/ book value

5

30,885

137,399 510 4,022 56,197 3,023

59

232,036

Indusval Multistock Consolidated 2006 Market/ book value

Cost Trading securities Financial Treasury Bills - LFTs Financial Treasury Bills - LFTs National Treasury Bills - LTNs National Treasury Bills - LTNs Quotas in investment funds Variable income securities Securities available for sale Financial Treasury Bills - LFTs National Treasury Bills - LTNs Securities held to maturity Private securities - Bank Deposit Certificates - CDBs Other Total

51,165 8,888 149,909 44,520 5

51,171 8,888 149,975 44,505 5

1,356

1,359

3,013 118

3,013 118

258,974

259,034

2005

Maturity (days)

Adjustment to market

Market/ book value

6

30,885

Up to 360 days Over 360 days Up to 360 days Over 360 days

66 (15)

Up to 360 days Up to 360 days

3

137,399 6 815 4,099 56,197

Up to 360 days

3,023 108 60

232,532

c) Financial instruments (i) Position Indusval Multistock/Indusval Multistock Consolidated Call option

Put option

Maturity

Futures market Interest rate Currencies

36,974 2,818

Forward market Currencies

3,649

Up to 360 days

Swap Currencies

9,754

Up to 360 days

32,927 2,685

Up to 360 days Up to 360 days

Banco Indusval Multistock 25


Financial Statements 2006 (ii) Position of contracts Indusval Multistock Consolidated Assets

Liabilities

Swap Forward Futures Options

90 2,203

11,330

2,203

11,420

Value of contracts recorded 9,754 3,649 75,404 317,752

Result for the year (19) (90) (450) (2,628) (3,187)

The contracts of derivative financial instruments are registered at the Brazilian Commodities and Futures Exchange (BM&F) and the Central System for Custody and Financial Settlement of Securities (CETIP).

5 LOANS - INDUSVAL MULTISTOCK AND INDUSVAL MULTISTOCK CONSOLIDATED (a) Analysis of the loan portfolio by type of operation and allowance for loan losses 2006 Levels Operations Loans and discounted bills Foreign currency financing Other financing

AA

Total loan operations

A 232,659 7,957 21,057

B 156,269 3,841

C 48,649

D 7,706

E 6,187

F 1,141

261,673

160,110

48,649

7,706

6,187

1,141

53,082

81,682

15,101

649

G 48

H 6,739

Total 459,398 11,798 21,057

48

6,739

492,253

375

150,889

Advances on foreign exchange contracts Other credits

461

101

283

Total credits

461

314,856

242,075

63,750

8,355

6,187

1,141

97

7,114

644,036

1,574

2,421

1,913

836

1,856

570

68

7,114

16,352

Allowance for loan losses

49

894

2005 Levels Operations Loans and discounted bills Foreign currency financing Other financing

AA

Total loan operations

A 184,340 10,510 19,943

B 73,244 2,250

C 18,238

D 10,719

E 717

F 437

G 2,026

H 4,978

Total 294,699 12,760 19,943

214,793

75,494

18,238

10,719

717

437

2,026

4,978

327,402

33,343

17,285

2,727

1,639

Advances on foreign exchange contracts Other credits

555

277

Total credits

555

248,413

92,779

20,965

12,358

717

1,836

2,026

4,978

384,627

1,242

928

629

1,236

215

918

1,418

4,978

11,564

Allowance for loan losses

26 Annual Report 2006

1,399

56,393 832


During the year, the provision for loan losses amounted to R$ 13,096 (R$ 10,080 in 2005), the amount of credits written off against the allowance for loan losses was R$ 8,308 (R$ 4,913 in 2005) and the amount of credits recovered was R$ 2,525 (R$ 1,659 in 2005). At December 31, 2006, the portfolio of renegotiated credits amounted to R$ 25,777 (R$ 9,821 in 2005).

(b) Analysis of loan operations by business sector 2006 Industry Commerce Financial intermediaries Other services Individuals

2005 367,838 154,679 1,515 47,817 72,187

170,640 73,516 1,005 57,718 81,748

644,036

384,627

(c) Analysis of loan operations by index 2006 Fixed rate Floating rate (Interbank Deposit Certificate - CDI) Referential rate (TR)/ Basic Financial Rate (TBF) Other

2005 288,170 352,861 309 2,696

183,357 200,313 590 367

644,036

384,627

(d) Analysis of loan operations by maturity at December 31 2006

2005

Overdue From 15 to 60 days From 61 to 180 days Over 180 days

Not yet due Up to 180 days From 181 to 360 days Over 360 days

2,746 2,367 1,860

3,430 3,695 2,494

6,973

9,619

462,722 82,035 92,306

303,222 34,861 36,925

637,063

375,008

644,036

384,627

(e) Concentration of loans 2006 Clients 10 largest clients 11 to 50 largest clients 51 to 100 largest clients Other Total

Amount

Percentage 139,296 253,725 170,182 80,833

21.63 39.40 26.42 12.55

Accumulated percentage 21.63 61.03 87.45 100.00

644,036

Banco Indusval Multistock 27


Financial Statements 2006 2005 Clients 10 largest clients 11 to 50 largest clients 51 to 100 largest clients Other

Amount

Percentage 112,005 164,566 87,552 20,504

Total

29.12 42.79 22.76 5.33

Accumulated percentage 29.12 71.91 94.67 100.00

384,627

(f) Non-performance loans Among the transactions classified as “D to H�, only a portion would also be classified as abnormal course credit (overdue for over 60 days). The other transactions received these classifications due to criteria of credit analysis, despite the fact that they are performing normally. The table below segregates these transactions: normal course and abnormal course. Level Abnormal course Normal course

D 914 7,441

E 1,468 4,720

8,355

6,188

F

G 776 365

57 40

H 4,516 2,598

1,141

97

7,114

Total 7,731 15,164 22,895

(g) Middle market transactions Middle market transactions refer to a commercial portfolio comprised essentially of credit to small and middle-sized companies.

Type of transaction Current accounts Loans Discounts ACC/ACE/FINIMP

Total amount 96,371 285,559 35,829 162,687

Number of clients 288 299 74 80

ACC: Advances Against Exchange Contracts ACE: Advances Against Export Contracts FINIMP: Import Financing (*) Considers the contracted term of the transactions.

28 Annual Report 2006

Number of contracts

Average balance per client

Average balance per contract

308 548 627 398

334 955 484 2,079

312 521 57 205

Average term (*) 140 332 33 135


(h) Middle market transactions - classified as “guaranteed by receivables” and “guaranteed by real guarantees” Real guarantees Transactions Current accounts Loans Discounts ACC/ACE/ FINIMP

Total of the transactions

Guaranteed Monitored by lien/Warrants receivables and CPRs

Other types of lien

Lien on properties

10,214

Securities/ shares CDBs

Lien on vehicles

96,371 285,559 35,829

86,711 219,039 35,829

5,375

20,211

162,687

58,216

19,346

12,672

580,446

399,795

24,721

32,883

10,214

1,353

12,427

68.88

4.26

5.67

1.76

0.23

2.14

Percentage - %

1,353

3,259

Total guarantees

Other

86,711 259,482 35,829

31

9,168

99,402 31

481,424 82.94

CDB: Bank Deposit Certificate CPR: Rural Certificate

6 FOREIGN EXCHANGE PORTFOLIO Indusval Multistock and Consolidated 2006 Assets Exchange purchases pending settlement Rights on sales of exchange Advances in local currency Other

Liabilities Exchange sales pending settlement Liabilities for purchases of exchange Advances on foreign exchange contracts Other

2005 150,559 7,410 (965) 2,494

58,934 919 (98) 1,457

159,498

61,212

7,037 151,332 (149,098) 706

916 58,228 (54,977)

9,977

4,167

7 OTHER RECEIVABLES - SUNDRY Indusval Multistock 2006 Tax credits (Note 9) Debtors for purchase of assets Debtors for deposits in guarantee Taxes and contributions for offset Notes and credits receivable Sundry debtors - local and other

Current Long-term

Indusval Multistock and consolidated

2005

2006

2005

7,170 894 6,737 3,706 26 226

5,214 832 915 3,268 308 193

7,170 894 7,310 4,149 26 248

5,214 832 1,459 3,412 308 271

18,759

10,730

19,797

11,496

4,480 14,279

4,204 6,526

4,945 14,852

4,426 7,070

Banco Indusval Multistock 29


Financial Statements 2006 8 INVESTMENTS (a) Investments in subsidiary and associated companies - Indusval Multistock

2006 Capital Shares owned (number) Stockholders' equity

Indusval Multistock Corretora

CredRealiza Promotora de Vendas

11,500 4,348 26,521

549 189,314 588

Net income for the period 2nd half of 2006 2006 2005

480 838 157

141 7

Interest at December 31, 2006 - % Interest at December 31, 2005 - %

100 100

100 100

1,710 3,680 2,093

141 7

26,522 22,841

588

Equity in the earnings (loss) 2nd half of 2006 2006 (3) 2005 (3) Investment December 31, 2006 December 31, 2005

Multistock Securitizadora

Indusval Multistock Financeira

Orbix (2)

2 12 13

3,210 (1)

(306)

100

100

50

2 12 13

Total

1,853 3,699 3,210

(153)

27,110 23,066

225

(1) Results appropriated up to October 24, date on which the company was merged into Banco Indusval S.A. (2) Investment purchased on October 28, 2004 and sold on December 27, 2005. (3) The difference between net income for the period and equity in the earnings (loss) refers to the restatement of membership certificates of the Corretora in the amount of R$ 2,842 (R$ 1,899 in 2005). On August 31, 2006, Multistock Companhia Securitizadora de Créditos Financeiros was merged into Credrealiza Promotora de Vendas Ltda., which absorbed the total shares that comprise the capital of Multistock Companhia Securitizadora de Créditos Financeiros. The total assets merged amount to R$ 238. On January 31, 2007, the Bank sold 100% of the quotas that comprise the capital of Credrealiza Promotora de Vendas Ltda. for R$ 988, obtaining a gain of R$ 400.

(b) Other investments - Indusval Multistock Consolidated 2006 Membership certificates São Paulo Stock Exchange - BOVESPA Brazilian Commodities and Futures Exchange - BM&F Other

Other investments Brazilian Custody and Settlement Company (CBLC) (formerly Calispa) Other (*)

(*) Refer substantially to works of art and sundry securities.

30 Annual Report 2006

2005 7,191 8,768 190

5,644 7,481 182

16,149

13,307

771 2,215

771 2,177

2,986

2,948


9 INCOME TAX AND SOCIAL CONTRIBUTION – INDUSVAL MULTISTOCK (a) Calculation of the expense for the period 2006

2005

Profit before income tax and social contribution

28,487

21,333

Income tax and social contribution at the rates of 25% and 9%, respectively

(9,686)

(7,253)

Effect of additions and deductions in the calculation of the taxes Equity in the earnings of subsidiaries Interest on own capital paid Effect of temporary additions and deductions Offset of tax losses Other amounts

1,258 3,458 (1,956) 274 (192)

1,755 3,892 (1,705) 941 (178)

Income tax and social contribution expense for the period

(6,844)

(2,548)

(b) Changes in tax credit 2006 Opening balance Appropriation/(write-off) Total tax credits Deferred tax liabilities Tax credits net of deferred tax liabilities Percentage of stockholders' equity

2005 6,678 492 7,170 828 6,342 4.23

4,633 581 5,214 881 4,333 3.18

(c) Estimate for the realization of tax credits Balance at December 31, 2006 Allowance for loan losses Social contribution - article 8 - Provisional Measure 1858 Other

2007

2008

5,557

5,557

901

513

712 7,170

6,070

2010

388 414

298

802

298

(d) Estimates of realization The Bank’s management, based on a technical study which considers the maintenance of the historic profitability and the generation of future tax liabilities, estimates the realization of tax credits within a maximum period of three years. The present value of the tax credits, using the Long-term Interest Rate (TJLP), is R$ 6,970.

Banco Indusval Multistock 31


Financial Statements 2006 10 OTHER LIABILITIES (a) Negotiation and intermediation of securities - Indusval Multistock Consolidated Negotiation and intermediation of securities are represented as follows: 2006 Creditors - pending settlement account Clearing houses for the custody and settlement of securities Creditors for share loans (*) Transactions with financial assets to be settled Other

2005 7,027 1,691 15,155 308 215

14,803 158 11,674 199 151

24,396

26,985

(*) Refers to the liability for share loan contracts (Note 3(k)).

(b) Provision for contingent liabilities Banco Indusval and its subsidiaries are challenging in court the legality of various taxes and contributions. Provisions for the amounts involved have been recorded in “Other liabilities - Taxes and social security contributions� in the amount of R$ 5,192 (R$ 3,412 in 2005) in Indusval Multistock and R$ 5,844 (R$ 3,872 in 2005) in Indusval Multistock Consolidated. The Bank and its subsidiaries, based on the opinion of its legal advisors, do not expect to incur losses from the outcome of these lawsuits in excess of the provisions already recorded.

11 DEPOSITS AND FUND RAISING Deposits and funds obtained abroad by maturity - Indusval Multistock Consolidated are as follows: 2006 Maturities Deposits

No maturity

Demand Interbank Time Other

31,035

Total in reais

34,582

Up to 3 months

From 3 to 12 months

Over 1 year

9,396 5,349

43,153 227,544

373 59,621

146,378

14,745

270,697

59,994

146,378

19,090

93,189

51,865

33,835

363,886

111,859

3,547

Foreign borrowings 34,582

32 Annual Report 2006

Up to 1 day

Total 31,035 52,922 438,892 3,547 526,396 164,144

146,378

690,540


2005 Maturities Deposits

No maturity

Demand Interbank Time Other

18,142

Total in reais

19,013

Up to 1 day

Up to 3 months

From 3 to 12 months

Over 1 year

366

19,599 108,514

735 59,677

123,590

366

128,113

60,412

123,950

62,640

9,779

190,753

70,191

871

Foreign borrowings 19,013

366

Total 18,142 20,334 292,507 871 292,507 72,419

123,590

404,273

12 STOCKHOLDERS’ EQUITY (a) Capital Fully subscribed and paid-up capital comprises 31,296,247 shares, of which 16,948,594 are common shares and 14,347,653 preferred shares, with no par value. 1,591,879 shares are held in treasury.

(b) Dividends and interest on own capital The by-laws provide for the distribution of a minimum annual dividend of 25% of net income adjusted in accordance with article 202 of Law 6404/76. During the year, a distribution of interest on own capital of R$ 10,170 (R$ 11,446 in 2005) was approved, calculated based on the Long-term Interest Rate (TJLP), under the terms of article 9 of Law 9249/95, and recorded for tax purposes as a financial expense. The tax benefit arising from this distribution was R$ 3,458 (R$ 3,892 in 2005).

(c) Revenue reserves At the Extraordinary General Meeting held on April 30, 2003, the stockholders approved the new wording of the by-laws of the Bank, enabling the appropriation of a portion of annual net income to: (i) a dividend equalization reserve to ensure the regular flow of dividend payments, including interest on own capital; and (ii) a reserve for reinforcement of working capital to guarantee financial resources for the Bank’s operations. The total of these reserves cannot exceed the Bank’s capital.

(d) Revaluation of properties The Bank carried out a revaluation of properties in use in the first half of 2005 (properties in use), based on an appraisal report issued by qualified experts, approved by the stockholders in an Extraordinary General Meeting. The results of this revaluation were recorded as required by Circular 2824/98 of the Brazilian Central Bank (BACEN) and may be summarized as follows: Book value of land and buildings at June 30, 2005

2,160

Market value of land and buildings in accordance with the appraisal reports

3,986

Recording of the difference represented by the appreciation Appropriation to revaluation reserve

1,826

Income tax and social contribution on net income on the revaluation of land and buildings

(522)

Revaluation reserve recorded, net of income tax and social contribution

1,304

Banco Indusval Multistock 33


Financial Statements 2006 13 ANALYSIS OF THE STATEMENT OF INCOME ACCOUNTS (a) Revenues from services rendered 2006 Indusval Multistock Management of funds Collection Transfer of funds Guarantees provided Custody services Stock exchange brokerage services Foreign exchange brokerage services Other services

2005

Consolidated

34 1,854 332 944

Indusval Multistock

Consolidated

28 1,581 307 515

265

339 1,854 332 944 16 7,451 271 398

258

428 1,581 307 515 16 5,873 214 349

3,429

11,605

2,689

9,283

(b) Other administrative expenses 2006 Indusval Multistock Water, electricity and gas Rent Communications Philanthropic contributions Maintenance and conservation of assets Materials Data processing Promotions and public relations Advertising and publicity Publications Insurance Services of the financial system Third party services Surveillance and security Specialized technical services Transport Travel Other administrative expenses

2005 Consolidated

179 119 1,064 462 362 267 695 240

264 140 1,460 500 553 359 856 282

222 87 1,283 4,029 60 2,609 292 427 2,470 14,867

Indusval Multistock

Consolidated

274 87 1,538 6,088 60 2,863 396 496 2,695

86 69 920 346 185 249 580 213 161 147 70 1,269 2,283 59 3,112 187 234 1,639

264 75 1,187 463 441 339 751 256 161 231 70 1,708 4,351 59 3,563 236 364 1,973

18,911

11,809

16,492

(c) Personnel expenses 2006 Payroll Fees Benefits Social charges Training Interns

Indusval Multistock 12,052 3,836 3,829 4,789 199 145 24,850

34 Annual Report 2006

2005 Consolidated 13,478 4,358 4,641 5,409 204 145 28,235

Indusval Multistock 8,850 4,185 3,076 5,370 109 10 21,600

Consolidated 10,477 4,522 3,853 6,012 115 10 24,989


(d) Tax expenses 2006 Tax on Bank Account Outflows (CPMF) Service Tax (ISS) Social Integration Program (PIS) Social Contribution on Revenues (COFINS) Other

Indusval Multistock 225 238 536 3,301 436

2005 Consolidated 264 629 606 3,734 457

4,736

Indusval Multistock 204 184 405 2,491 314

5,690

Consolidated 240 485 500 3,067 338

3,598

4,630

14 OPERATING LIMITS - INDUSVAL MULTISTOCK CONSOLIDATED In compliance with Resolution 2099/94 of BACEN, a minimum stockholders’ equity has to be maintained equivalent to 11% of the asset transactions weighted by risk levels that range from 0% to 300%. At December 31, 2006, the Bank’s index was 22.45% (30.43% in 2005), calculated based on the consolidated financial statements.

(a) Basel Index Calculation 2006 Percentage No risk Reduced risk Reduced risk Normal risk Tax credits

Swap credit risk Market risk - interest

20 50 100 300

2005

Balance 380,544 35,592 180,576 539,166 6,937

Weighted risk

Weighted risk

7,118 90,288 539,166 20,811

Balance 309,353 4,053 104,131 369,150 5,099

1,142,815

657,383

791,786

437,324

74 927

15 927

25 1,117

5 1,117

1,001

942

1,142

1,122

20 100

Basel index - %

22.45

811 52,066 369,150 15,297

30.43

(b) Operating limits 2006 Requirement (limit) Stockholders' equity required Minimum capital Property and equipment

24,000 24,000 66,273

Situation 141,926 106,612 11,792

2005 Margin 117,926 82,612 54,481

Requirement (limit) 24,000 24,000 61,036

Situation 128,611 106,612 9,787

Margin 104,611 82,612 51,249

Banco Indusval Multistock 35


Financial Statements 2006 15 RELATED PARTIES Related party transactions are carried out at normal market amounts, terms and payment conditions, and are represented by: 2006 Assets (liabilities)

2005

Income (expenses)

Assets (liabilities)

Income (expenses)

Demand deposits Time deposits Interbank deposits Other

(350) (486) (12,079) (44)

(17) (1,438)

(221) (166) (9,408) (138)

(27) (1,705)

Other non-consolidated related parties Foreign borrowings

(30,784)

(1,861)

(37,239)

(2,161)

16 MANAGEMENT OF INVESTMENT FUNDS The Bank manages the funds listed below, whose net assets at December 31 are as follows: 2006 Valeu - Fundo de Aplicação em Quotas de Fundos de Investimento Multi Fundo de Investimento Financeiro Indusval Agri-Sus Fundo de Investimento em Quotas de Fundos Multimercado

2005 10,433 1,898

10,369 2,995

15,757

17 SUPPLEMENTARY INFORMATION (a) Guarantees and sureties At December 31, the Bank’s responsibility for guarantees and sureties provided to third parties is as follows: 2006 Guarantees - financial institutions Guarantees - individuals and non-financial corporate entities Credits opened for import

2005 20,165 23,571 3,270

16,665 12,356 3,370

47,006

32,391

(b) Indusval Multistock Corretora (Brokerage Firm) The subsidiary Indusval Multistock Corretora acts as an intermediary in the trading of contracts on the forward, futures and options markets totaling R$ 994,717 at December 31, 2006 (R$ 574,484 at December 31, 2005). It is also responsible for the custody of clients’ securities totaling R$ 552,639 at December 31, 2006 (R$ 408,914 at December 31, 2005), deposited with the Brazilian Custody and Settlement Company (CBLC).

36 Annual Report 2006


(c) Personnel 2006 Employees

Banco Indusval Multistock

Indusval Multistock Corretora

Total

Support and control Operational

98 115

27 15

125 130

Total

213

42

255

(d) Statement of added value 2006 Indusval Multistock Analysis of added value Gross profit from financial intermediation Revenues from services rendered Other operating income/expenses

2005 Consolidated

Indusval Multistock

Consolidated

67,730 3,429 (13,086)

69,232 11,605 (17,850)

51,074 2,689 (7,232)

57,716 9,283 (14,332)

58,073

62,987

46,531

52,667

21,105 16,034 3,829 1,044 198

24,038 17,981 4,641 1,212 204

18,505 14,502 3,076 818 109

21,428 16,497 3,852 959 120

Government remuneration Tax expenses National Institute of Social Security (INSS) Income tax and social contribution

13,334 4,736 3,745 4,853

15,315 5,690 4,197 5,428

8,477 3,598 3,095 1,784

11,690 4,630 3,561 3,499

Interest on own capital

10,170

10,170

11,446

11,446

Reinvestment of profits

13,464

13,464

8,103

8,103

58,073

62,987

46,531

52,667

Distribution of added value Employee compensation Payroll Benefits Employment security fund Other charges

Banco Indusval Multistock 37


Corporate Information

Senior Management President Manoel Felix Cintra Neto Chief Executive Officer Luiz Masagão Ribeiro Managing Directors Antônio Geraldo da Rocha Carlos Ciampolini Company Credit Directors Mario Fukumitsu Roberto Carlos Carvalho Almeida

38 Annual Report 2006

Foreign Exchange and International Operations Director Kátia Moroni Financial Directors Gilberto Luiz dos Santos Lima Filho Ziro Murata Júnior Retail Operations Director Ney Guaycurú de Carvalho Ferreira Stock Exchange Operations Director José Costa Gonçalves


Companies, addresses and other contact information

Credits

Banco Indusval Multistock Website: www.indusval.com.br E-mail: banco@indusval.com.br

Belo Horizonte Branch Office Av. Olegário Maciel, 2.144 - 11º andar Salas 1101 e 1102 Santo Agostinho - Belo Horizonte - MG Cep 30.180-112 CNPJ: 61.024.352/0006-86 Telefone: (31) 2111-0888 Fax: (31) 2111-0861

Publisher and editor: Scriba Comunicação Corporativa

Curitiba Branch Office Rua Pasteur, 463 13º andar - salas 14 e 15 Batel - Curitiba - PR Cep: 80.250-080 CNPJ: 61.024.352/0003-33 Telefone: (41) 3312.1662 Fax: (41) 3312.1699

Printing: Neo.

Head Office Rua Boa Vista, 356 - 5º/12º andares São Paulo (SP) Brasil CEP: 01014-000 CNPJ: 61.024.352/0001-71 Telefone: (11) 3315-6777 Fax: (11) 3315-0130 Campinas Branch Office Av. José Bonifácio Coutinho Nogueira, 150 - 6º andar - sala 603 Jardim Madalena - Campinas/SP. Cep: 13091-611 CNPJ: 61.024.352/0004-14 Telefone: (19) 3206.0788 Fax: (19) 3207.3654 Goiânia Branch Office Av. Republica do Líbano, 1551 7º andar - sala 702 Ed. Vanda Pinheiro - Setor Oeste Goiânia (GO) CEP: 74115-030 CNPJ: 61.024.352/0005-03 Telefone: (62) 3225-6777 Fax: (62) 3224-2052

Graphic design: D´Lippi Design+Print Photography: Ricardo Teles

Indusval Multistock Brokerage House Website: www.indusvaltrade.com.br E-mail: induscor@indusval.com.br Rua Boa Vista, 356 - 5º/12º andares São Paulo (SP) - Brasil CEP: 01014-000 CGC: 65.913.436/0001-17 Telefone: (11) 3315-6777 Fax: (11) 3315-0130 CredRealiza Sales Promotion Company E-mail: consignado@indusval.com.br Rua Ezequiel Ramos 2-48 Térreo CEP: 17.010-021 - Centro CNPJ: 03.573.354/0002-02 Bauru (SP) - Brasil Telefone: 0800 7715966 ou (11) 3315 6877

Banco Indusval Multistock 39


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