INTEGRATED REPORT 2016 BRADESCO

MAIN FINANCIAL INDICATORS

G4-9 | G4-EC1

STATEMENT OF INCOME

G4-9 | G4-EC1

NON-RECURRING EVENTS

The following table presents a comparison between the main non-recurring events that impacted book net income.

INCOME ORIGINATION

In its daily operations, we strive to maintain a balance, with different businesses and sources of income as a means of diversifying the risks inherent to its activities. It operates mainly on two fronts: in the banking/financial area and in insurance, supplementary pension plans and capitalization bonds. They account respectively for 68% and 32% of the our income. This ensures a secure diffusion of income, encompassing loans, investments, asset management, corporate and private banking, cards, consortia, insurance, supplementary pensions, capitalization bonds and others. The following charts show the breakdown of our net income.

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NET INCOME AND PROFITABILITY

Shareholders' equity totaled R$100,442 million in December 2016, growing 13.0% over 2015. The return on average equity (ROAE) was 17.6% at the end of the period.

Adjusted net income for the period was R$17,121 million (a reduction of 4.2% compared with the adjusted net income of R$17,873 million in 2015), corresponding to R$3.09 per share.

Total assets reached R$1.294 trillion, an increase of 19.8% over the previous year, driven by the higher business volume and by the consolidation of HSBC Brasil from the third quarter of 2016. The return on average assets (ROAA) was 1.5%.

VALUE ADDED STATEMENT

The added value represents how much wealth we produce and how this wealth is distributed in society year on year. Worthy of note is the growth in added value for shareholders and in remuneration of work.

At the end of 2016, added value totaled R$48,144 million, up 2.1% over the previous year. Of this amount: (i) R$15,555 million, or 32.3%, went to the government in the form of contributions, taxes and fees; (ii) R$15,468 million, or 32.1%, corresponded to employee remuneration; (iii) R$10,145 million, or 21.1%, was reinvested in the business; and (iv) R$6,976 million, or 14.5%, was distributed to the shareholders as interest on own equity.

(R$ MILLION)

G4-EC1

BASEL RATIO – BASEL III

Our capital structure is compliant with Basel III requirements, ensuring that management is better positioned to achieve strategic targets and inspire trust and peace of mind for shareholders and investors.

At the end of the year, Reference Equity totaled R$101,127 million, compared with risk weighted assets of R$656,189 million. The total Basel ratio reached 15.4%, 10.5% above the required by the Brazil’s Central Bank (Bacen), and Tier I Capital reached 12.0%, a 0.7 percentage point reduction compared with December 2015, impacted basically: (i) by the effect of the consolidation of HSBC Brasil, which influenced (a) the weighted assets, (b) goodwill/intangible assets (c) the other prudential adjustments, which were also impacted by the alteration of the application of the adjustment factor in accordance with CMN Resolution no. 4,192/13, which increased from 40% in January 2015 to 60% from January 2016; and partially offset: (ii) by the issuance of subordinate debt, authorized by the Central Bank in November 2016 to make up Tier I/ Complementary Capital amounting to R$5.0 billion.

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FULL IMPACT – BASEL III

There follows a simulation for Basel III, considering some of the main future adjustments, which include: (i) the application of 100% of the deductions in the implantation schedule; (ii) the reallocation of funds by payment of dividends by the insurance business; (iii) the application of tax credits; (iv) the anticipation of the multiplier of portions of market and operational risk, from 9.875% to 8% and the impact of CMN Resolution no. 4,517/16; and (v) the impact of the acquisition of HSBC Brasil (amortization of goodwill/intangible assets and synergy in the incorporation process), resulting in a common equity ratio of 12.2% which, with potential funding via subordinate debt, may total a Tier 1 Basel ratio of approximately 12.9% at the end of 2018.

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1. Published (Schedule 60%).
2. Effect of full impact. Includes the stock of goodwill/intangible paid for in the purchase of HSBC Brasil, net of amortizations and reallocation of funds, via payment of Bradesco Seguros Group dividends.
3. Considers the anticipation of the multiplier of portions of market and operational risk, from 9.875% to 8% in 2019, and the change in rules for the consolidation of proportional companies in accordance with CMN Resolution No. 4,517/16.
4. Refers to the required minimums in accordance with the Bacen communications No. 3,768/15 and 3,769/15. It should be noted that Bacen established the counter-cyclical portion of equity required at 0%, which may reach 2.5% by 2019, and includes 1% for the systemic importance portion in 2019.
5. Considers the possibility of management issuing complementary equity by 2018, if market conditions permit this.

CAPITAL BUFFER MARGIN

In 2016, the financial margin reached R$62,454 million, growing by R$7,067 million or 12.8%, compared with 2015, reflecting growth in operational earnings: (i) yielding interest of R$8,282 million, worthy of note being loan intermediation driven in part by the consolidation of HSBC Brasil from the third quarter of 2016; (ii) non-interest earning portion of R$49 million; offset: (iii) by the effect of losses from the impairment of financial assets (previously stated as shareholders' equity) amounting to R$1,264 million.

In 2016, the net interest margin on loans varied 2.0% compared with 2015, due basically: (i) to the increase in the (a) average spread and (b) the average volume of business, justified in part by the consolidation of HSBC Brasil from the third quarter; offset: (ii) by the increase in delinquency, due particularly to the intensification of the deceleration in economic activity in the period; and (iii) by the impact produced by the effect of aligning the level of provisioning for determined operations with corporate clients during the first half of 2016, worthy of note being one specific case whose demotion to an H rating produced an impact of R$1,201 million.

(R$ Million, Unless otherwise Indicated)

INTEREST EARNING PORTION OF NET CREDIT INTERMEDIATION

EXPENSES WITH PROVISION FOR LOAN LOSSES

In 2016, the expenses from the provision for loan losses totaled R$21,739 million, a variation of 43.3%, or R$6,565 million, compared with the previous year, due in great part: (i) to the increase in delinquency, impacted mainly by the intensification of the deceleration in economic activity in the period; (ii) to the impact produced by the effect of aligning the level of provisioning for operations with corporate clients, worthy of note being one specific case whose worsened rating produced an impact of R$1,201 million in the first half of the year; and (iii) the effect of the consolidation of HSBC Brasil from the third quarter of 2016.

The reinforcement of the policy and loan concession processes, the quality of the guarantees obtained and the improvement of loan recovery processes mitigated the effects of the growth in delinquency.

(R$ Million)

INSURANCE WRITTEN PREMIUMS, PENSION PLAN CONTRIBUTIONS AND CAPITALIZATION BOND INCOME

The Bradesco Seguros Group is one of our main sources of earnings, showing resilience even in more volatile years. Net income in 2016 was R$5.551 billion, 5.0% up on the previous year due: (i) to a 10.5% increase in revenue; (ii) the increase in financial and asset income; (iii) the 0.4 percentage point decrease in the commercialization rate; (iv) the improvement in the administrative efficiency ratio, even taking into account the category's collective agreement in January; offset in part: (v) by the 2.7 percentage point increase in the claim rate; (vi) by the effect of the R$101.9 million from the review of the extended guarantee operation business plan; and (vii) by the effect of the increase in the Social Contribution (CSLL) rate.

Revenue from insurance written premiums, pension plan contributions and capitalization bonds reached R$71.419 billion, growing 10.5% compared with 2015, influenced by Health, Life, Pension Plan and Capitalization products, which grew 14.7%, 10.7%, and 6.5% respectively. Technical reserves reached R$223.342 billion, growing 25.6% in the period.

Net Income (r$ Million)

INSURANCE WRITTEN PREMIUMS, PENSION PLAN CONTRIBUTIONS AND CAPITALIZATION BOND INCOME (R$ MILLION)

FEE INCOME

Our fee income, which accounts for around 30% of our earnings, has been growing steadily with excellent prospects for continued expansion, mainly due to the improvement of the client segmentation process.

In 2016, fee income totaled R$28,024 million, an increase of R$3,185 million or 12.8% over 2015, driven mainly by: (i) the increase in operational volume, the result of ongoing investment in the service channels and in technology, allied with the growth provided by the acquisition of HSBC Brasil in the third quarter of 2016; and (ii) by progress in the client segmentation process, to ensure an improved offering of products and services. The revenues that most contributed to this result were from: (i) the growth in checking account revenues, basically the result of improved client segmentation; (ii) the robust performance of card activities, due to (a) the increase in the financial volume transacted and (b) the higher number of transactions; and the growth in revenues from: (iii) fund management; (iv) consortium management; (v) underwriting/financial advisory services; (vi) collection; and (vii) custody and brokerage services.

PERSONNEL EXPENSES

During the year, personnel expenses totaled R$17,637 million, growing R$2,938 million or 20.0% against the previous year, explained mainly by the variations in the (i) structural portion, related to increased expenses with salaries, social charges and benefits, impacted by the (a) increase in salary levels in accordance with the collective agreements for 2015 and 2016, and (b) the effect of the consolidation of HSBC Brasil from the third quarter of 2016; and (ii) the non structural portion, a reflex, in part, of higher expenses with (a) management and employee profit share and (b) severance costs.

Personnel Expenses (R$ Million)

Obs.: Structural = salaries + social charges + benefits + pension plan; and
Non structural = Profit share plan + training + Labor provision + severance costs.

Employees*

* In 2016, includes 21,016 HSBC Brasil employees; and in 2014, includes the transfer of 2,431 Scopus Tecnologia employees to IBM Brasil.

ADMINISTRATIVE EXPENSES

Due to the efforts of the Efficiency Committee, we have been able to maintain our administrative expenses at a controlled level, helping to improve the Operating Efficiency Ratio.

In 2016, administrative expenses totaled R$19,134 million, 17.1% or R$2,795 million higher than in 2015, reflecting the increase in expenses caused by: (i) the growth in business and service volume in the period, impacted partially by the effect of the consolidation of HSBC Brasil from the third quarter of 2016; (ii) by contract readjustments; and (iii) by the cost of advertising and marketing actions, mainly related to the 2016 Rio Olympic and Paralympic games in the third quarter of the year.

Administrative Expenses (R$ Million)

Service Points (Units)*

BREAKDOWN OF PERSONNEL AND ADMINISTRATIVE EXPENSES

In 2016, personnel and administrative expenses totaled R$36,771 million, an increase of 18.5% or R$5,733 million, caused in part by the effect of the consolidation of HSBC Brasil from the third quarter of the year.

OPERATING EFFICIENCY RATIO (ER)¹

The Operating Efficiency Ratio (ER) ended 2016 at 39.5%, 2.0 percentage points higher than 2015. If we were to not consider the effect of the impairment of financial assets (previously stated in shareholders' equity) amounting to R$1,264 million in the fourth quarter, the indicator would be 38.9%. The factors that most contributed to this performance were: (i) the increase in operational expenses in the period, impacted by the effect of the consolidation of HSBC Brasil from the third quarter of the year; offset: (ii) by the growth in revenue from (a) service provision due to the higher volume of business and services provided and (b) by the financial margin.

The Operating Efficiency Ratio on a risk adjusted basis, which reflects the impact of risk associated with lending operations², reached 52.2% (51.2% not considering the effect of impairment), mainly due to the effect of the alignment of the level of provisioning for corporate client operations in the first half of the year.

Excluding the impacts of the consolidation of HSBC Brasil and the impairment of financial assets, the performance of the Operating Efficiency Ratio reflects our sustainable growth strategy, which includes, among others, (i) the provision of products and services suitable for clients by means of the segmentation of the client base and the digital channels, (ii) the optimization of the service points and (iii) ongoing control of operational expenses, the result of the actions of the Efficiency Committee and investments in Information Technology, which totaled R$6.595 billion in the year.

1. ER = (personnel expenses - profit share + administrative expenses)/(financial margin + fee and commission income + insurance income + equity in the earnings of unconsolidated companies + other operating income - other operating expenses).
2. Including Allowance for Loan Loss (ALL) expenses adjusted for discounts granted, loan recovery and sale of foreclosure assets, among others.

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1. Including ALL Expenses adjusted for discounts granted, loan recovery and sale of foreclosure assets, among others.
2. ER = (personnel expenses -profit share + administrative expenses)/(financial margin + fee and commission income + insurance income + equity in the earnings of unconsolidated companies + other operating income – other operating expenses).

OPERATING COVERAGE RATIO

The ratio* was 76.2% at the end of 2016, impacted in part by the increase in operational expenses caused by the consolidation of HSBC Brasil from the third quarter of the year. However, maintenance of this indicator at a high level is due essentially to the ongoing expense control efforts, including (a) the actions of the Efficiency Committee, (b) investments in information technology, which totaled R$6.595 billion in the year, and (c) measures to expand the product and service offering to the entire client base.

* Fee and commission income/administrative and personnel expenses.

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ADJUSTED BALANCE SHEET

In December 2016, the balance of total assets was R$1.294 trillion, growth of 19.8% over the same period the previous year.

Shareholders' equity was R$100.442 billion, 13.0% up on 2015.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

CONSOLIDATED CASH FLOW STATEMENT

EXPANDED LOAN PORTFOLIO*

At the end of the year, we expanded loan portfolio totaled R$515.0 billion, growing 8.6% over the previous year. This included the consolidation of HSBC Brasil from the third quarter, with the corporate segment growing 5.1%, impacted by the large company segment, while loans for individuals grew 16.4%. The products for individuals that grew most over the last 12 months were: (i) real estate financing; and (ii) credit cards. For corporations, worthy of note were: (i) credit risk operations – commercial portfolio (bonds and promissory notes); and (ii) export finance.

(R$ BILLION, UNLESS OTHERWISE STATED)

* In addition to the credit portfolio – according to the Bacen definition – it includes sureties, guarantees, letters of credit, advances on credit card receivables, debentures, promissory notes, co-obligation in loan assignments to investment funds, real estate and agricultural credit receivables

BREAKDOWN OF EXPANDED LOAN PORTFOLIO BY PRODUCT AND TYPE (INDIVIDUAL AND CORPORATE)

DELINQUENCY RATIO > 90 DAYS*

The indicator, encompassing the balance of operations more than 90 days overdue, grew in 2016, reflecting the low demand for loans and the intensification of the deceleration of economic activity, which has impacted payment capacity, particularly for companies. However, worthy of note is the improvement in delinquency in the large company segment in the last quarter, with a decrease from 2.0% to 1.2%.

Also in the last quarter, loans totaling R$2 .0 billion that had already been written off as losses were negotiated without retention of risks or benefits. This did not affect the delinquency rates in the period nor did it have a significant effect on results.

* As defined by the Central Bank, Bacen.

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DELINQUENCY RATE FROM 15 TO 90 DAYS*

In the last quarter of 2016, short-term delinquency involving operations overdue between 15 and 90 days grew due to a fully provisioned client in the Large Company segment migrating from one overdue category band to another.

Noteworthy is the improvement of this indicator in the Individual segment, with a reduction of 0.7 of a percentage point in the same period.

* As defined by the Central Bank, Bacen.

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COVERAGE RATIOS ABOVE 60 AND 90 DAYS^{1, 2}

The charts at the side show the behavior of the coverage ratios for doubtful debtors overdue more than 60 and 90 days, taking HSBC Brasil into account from July. In December, the ratios showed very comfortable levels, with 158.8% and 188.4% coverage respectively.

This indicator reflects the consistency and robustness of credit concession policies and processes, as well as the quality of the guarantees obtained. We have a greater coverage level than required by regulatory bodies, helping to ensure business continuity. In addition to the allowance for loan losses required by Bacen, We have a R$7.5 billion excess provision to enable it to overcome potential situations of stress, as well as other operations/commitments involving credit risk.

Coverage Rate Above 60 Days (%)

Coverage Rate Above 90 Days (%)

FUNDS UNDER MANAGEMENT

The funds raised and under management totaled R$1.905 trillion, a variation of R$394,516 million or 26.1% compared with 2015. This is due mainly to the increase: (i) in funds managed in Brazilian currency, amounting to R$206,204 million; (ii) funds raised on the open market, amounting to R$69,344 million; (iii) the technical reserves for insurance, pension plans and capitalization bonds, amounting to R$45,507 million; and (iv) the revenues from the issuance of securities amounting to R$41,474 million.

We present limited dependence on interbank and external funds due to the efficiency with which it raises funds from clients in the domestic market. This efficiency is the result of (i) the exceptional positioning of its service points, (ii) the broad diversity of the products on offer and (iii) market confidence in our brand.

OUTLOOK FOR 2017

The following table contains forward-looking statements which are subject to risks and uncertainties because they were based on our management's assumptions and expectations and information available in the market up until February 2^nd, 2017, the date the 2016 results were disclosed, and which may be subject to alterations during the course of 2017. For further information, refer to the Report on Economic and Financial Analysis published quarterly and available on our Investor Relations website (www.bradesco.com.br/ir –> Reports and Spreadsheets > Financial Information).