ANNUAL REPORT
2006
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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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