The main figures obtained by Bradesco in the first semester of 2016 are presented below:

1.   Adjusted Net Income⁽¹⁾ for the first semester of 2016 stood at R$8.274 billion (a 5.7% decrease compared to the R$8.778 billion recorded in the same period of 2015), corresponding to earnings per share of R$3.14 and Return on Average Adjusted Shareholders’ Equity⁽²⁾ of 17.4%⁽²⁾.

2.   As for the source, the Adjusted Net Income is composed of R$5.730 billion from financial activities, representing 69.3% of the total, and of R$2.544 billion from insurance, pension plans and capitalization bonds operations, which together account for 30.7%.

3.   In June 2016, Bradesco’s market capitalization stood at R$144.366 billion⁽³⁾.

4.   Total Assets, in June 2016, stood at R$1.105 trillion, an increase of 7.3% over the June 2015 balance. The return on Average Total Assets was 1.5%.

5.   In June 2016, the Expanded Loan Portfolio⁽⁴⁾ reached R$447.492 billion, a decrease of 3.4% over June 2015. Operations with individuals totaled R$148.919 billion (an increase of 3.8% over June 2015), while corporate section operations totaled R$298.573 billion (a 6.7% decrease over June 2015).

6.   Assets under Management stood at R$1.589 trillion, an 10.1% increase over June 2015.

7.   Shareholders’ Equity totaled R$96.358 billion in June 2016, 10.8% higher than in June 2015. The calculated Basel III Ratio, based on the Prudential Conglomerate stood at 17.7% in June 2016, 13.7% of which was classified as Common Equity/Tier I.

8.   A total of R$2.906 billion was paid to shareholders as Interest on Shareholders’ Equity for the profit generated in the first semester of 2016, of which R$1.567 billion was paid in the form of monthly and intermediaries and R$1.339 billion provisioned.

9.   The Interest Earning Portion of the Net Interest Income stood at R$29.517 billion, an increase of 10.6% compared with the first semester of 2015.

10. The Delinquency Ratio over 90 days stood at 4.6% in June 2016 (3.7% in June 2015).

11. The Operating Efficiency Ratio (ER)⁽⁵⁾ in June 2016 was 37.4% (37.9% in June 2015), while in the “risk-adjusted” concept, it stood at 48.1% (46.5% in June 2015).

12. Written Insurance Premiums, Pension Plan Contributions and Capitalization Bond Income totaled R$32.439 billion in the first semester of 2016, up 6.9% when compared with the same period of 2015. Technical Reserves stood at R$190.649 billion, an increase of 15.8% compared with the balance in June 2015.

13. Investments in infrastructure, information technology and telecommunications amounted to R$2.993 billion in the first semester of 2016, up 10.6% over the same period of the previous year.

14. Taxes and contributions paid or recorded in provision, including social security, totaled R$20.155 billion in the first semester of 2016, of which R$6.527 billion was related to taxes withheld and collected from third parties, and R$13.628 billion was calculated based on activities developed by the Bradesco Organization, equivalent to 164.7% of the Adjusted Net Income⁽¹⁾.

15. Bradesco has an extensive Customer Service Network in Brazil, with 4,483 Branches and 3,485 Service Points (PAs). Customers of Bradesco can also count on 726 ATMs located on company premises (PAEs), 40,452 Bradesco Expresso service points, 31,761 Bradesco ATMs, and 19,075 Banco24Horas Network ATMs.

16. Payroll, plus charges and benefits totaled R$6.497 billion in the first semester of 2016. Social benefits provided to all 89,424 employees of the Bradesco Organization and their dependents amounted to R$1.634 billion, while investments in education, training and development programs totaled R$51.124 million.

17. In July 2016, Bradesco informed the market that the acquisition of 100% of the share capital of HSBC Bank Brasil S.A. – Banco Múltiplo and HSBC Serviços e Participações Ltda. (together, known as "HSBC Brasil") had been completed and the amount paid to HSBC Latin America Holdings Limited was R$16.0 billion. This value is subject to adjustment post-closing based on the balance sheet of HSBC Brasil (IFRS based).

18. Major Awards and Acknowledgments in the period:

·       Voted, for the fifth consecutive time, as the "Best Bank in the country," and Bradesco BBI was recognized for the second time as the "Best Investment Bank in Brazil" in the edition of "Awards for Excellence 2016" (Euromoney magazine);

·       Bradesco was awarded “Best Bank of the Year” in efinance 2016, by Executivos Financeiros (Financial Executives magazine), with 14 awards;

·       Bradesco Asset Management (Bram) received from Standard & Poor's, the level AMP-1 (very strong), which is the highest in the scale of quality management of S&P Global Ratings; and

·       Featured in the "Global Finance 2016" awards, receiving two awards: Receba Fácil, in the Trade Finance category and “Novo Net Empresa” for cell phones, in the Transaction Services (Global Finance magazine) category.

Bradesco Organization is fully committed to the socio-economic development of the country. We set our business guidelines and strategies with a view to incorporating the best corporate sustainability practices, considering the context and the potential of each region, thus contributing to the generation of shared value in the long-term. To reinforce this positioning, we highlight the adherence to corporate initiatives recognized worldwide, such as the Global Compact, the Equator Principles, CDP, Principles for Responsible Investment (PRI), GHG Protocol Program and Empresas pelo Clima (EPC - Business for the Climate Platform). Our governance structure includes the Sustainability Committee, responsible for advising the Board of Directors on establishing guidelines and corporate actions for this area, and with the multi-departmental Committee responsible for coordinating the strategy´s implementation. Excellence in business management is recognized by the main indexes of Sustainability, such as the Dow Jones Sustainability Index (DJSI), of the New York Stock Exchange, the Corporate Sustainability Index (ISE), and the Carbon Efficient Index (ICO2), both of BM&FBOVESPA.

With a broad social and educational program in place for 59 years, Fundação Bradesco operates 40 schools across Brazil. In 2016, an estimated budget of R$593.360 million will benefit approximately 101,566 students enrolled in its schools at the following levels: basic education (from kindergarten to high school and higher secondary technical-professional education), youth and adult education; and preliminary and continuing vocational training, which focuses on creating jobs and income. In addition to being guaranteed to be free, quality education, the students enrolled in the Basic Education system, numbering over 43 thousand, also receive uniforms, school supplies, meals, medical and dental assistance. With regard to the distance learning system (EaD), it is estimated that more than 550 thousand students will benefit from it through its e-learning portal "Escola Virtual" (Virtual School). These students will conclude at least one of the various courses offered in its schedule, and another 21,490 students will benefit from projects and initiatives carried out in partnership with Centers for Digital Inclusion (CDIs), the Educa+Ação Program, and from Technology courses (Educar e Aprender – Educating and Learning).

Adjusted Net Income and Profitability

The return on the Average Adjusted Shareholders’ Equity (ROAE), which is calculated on a linear basis, registered 17.4% in June 2016. The adjusted net income decreased 5.7% in the comparative study between semesters, impacted, largely, by the increase in allowance for loan losses expenses, as a result of: (i) the leveling of provisioning for certain corporate client operations, particularly a specific case, whose downgraded rating had an impact of R$1,201 million; and (ii) the increase in delinquency due to the escalating economic slowdown.

The main events that affected adjusted net income are detailed below.

Adjusted net income reached R$4,161 million in the second quarter of 2016, an increase of R$48 million, or 1.2%, compared to the previous quarter, mainly due to: (i) the decrease in allowance for loan losses expenses due to the impact produced by the downgraded rating in the particular case of a corporate client, whose effect in the second quarter of 2016 was R$365 million whereas in the first quarter of 2016 it was R$836 million; (ii) the increase in (a) fee and commission income and (b) the “interest-earning portion of the NII” and the “non-interest-earning portion of the NII”, partly offset by: (iii) a decrease in the income of insurance premiums, pension and capitalization bonds; (iv) higher other net operating expenses; and (v) higher personnel and administrative expenses.

In the comparison between the first semester of 2016 and the same period in the previous year, the adjusted net income decreased R$504 million, which reflects an increase in (i) allowance for loan losses expenses, for the reasons detailed above; and (ii) personnel and administrative expenses. However, it’s important to highlight the increase in: (i) the interest-earning portion of the NII; (ii) fee and commission income; and (iii) income from Insurance Premiuns, Pension Plans and Capitalization Bonds, net of technical reserves, retained claims and others.

Shareholders’ Equity totaled R$96,358 million in June 2016, up 10.8% over June 2015. Based on the Prudential Conglomerate, the Basel III Ratio was calculated at 17.7%, 13.7% of which is classified as Common Equity/ Tier I.

Total Assets registered R$1.105 trillion in June 2016, a 7.3% increase over June 2015, driven by the increased turnover. Return on Average Assets (ROAA) reached 1.5%, calculated on a linear basis.

The 12-month ER⁽¹⁾ recorded 37.4%, a 0.2 p.p. increase as compared with the previous quarter, partially impacted by: (i) higher operating expenses, mainly administrative expenses, originated from: (a) advertising and marketing; and (b) outsourced services; partially offset by: (ii) the growth of (a)  the fee and commission income, originated by the increase in the volume of business and services provided; and (b) the net interest income. In the annual comparison, such indicator showed and improvement of 0.5 p.p. mainly due to the increase in (i) the interest-earning portion of the NII; (ii) fee and commission income; and (iii) income from Insurance Premiums, Pension Plans and Capitalization Bonds, net of technical reserves, retained claims and others; offset, largely, by: (iv) the increase in operating expenses during the period.

In the ER – quarterly, the indicator was partially impacted by: (i) higher administrative expenses, largely, due to the same reason detailed above; (ii) lower income from Insurance Premiums, Pension Plans and Capitalization Bonds, net of technical reserves, retained claims and others; (iii) higher net operating expenses of other operating revenues; and offset by: (iv) the growth of the fee and commission income, originated by the increase in the volume of business and services provided.

The risk adjusted ER reflects the impact of the risk associated with loan operations⁽²⁾ and reached 48.1%, impacted primarily by the leveling of provisions for corporate clients carried out in the first semester of 2016.

It is important to mention that the ER performance reflects the strategy of sustainable growth, which includes, among other things, (i) the availability of appropriate products and services for clients through the segmentation of the base and of digital channels, (ii) the optimization of points of service, and (iii) the strict control of operating expenses, arising from the actions of the Efficiency Committee and of investments in Information Technology, to the amount of R$2.993 billion in the first semester of 2016.

In the quarterly comparison, the R$70 million, or 0.5%, increase was, mainly, due to: (i) the higher interest-earning portion of the NII, to the value of R$49 million, with emphasis on “Securities/ Other”", a result of an improved management in investment resources and funding operations; and (ii) non-interest-earning portion of the NII, in the amount of R$21 million.

In the comparison between the first semester of 2016 and the same period in the previous year, net interest income increased by R$2,714 million, or 10.0%, due to: (i) a higher interest-earning portion of the NII, to the amount of R$2,829 million, particularly in “Credit Intermediation”; and offset by: (ii) the non-interest-earning portion of the NII, to the amount of R$115 million.

Expanded Loan Portfolio⁽¹⁾

In June 2016, the expanded loan portfolio of Bradesco totaled R$447.5 billion, a 3.4% decrease in comparison with the previous quarter, impacted, partially, by the exchange rate variation. Micro, Small and Medium-sized Companies and Large Companies presented a reduction of 5.7% and 5.2%, respectively, while the loans to individuals increased 0.8% during the period.

In relation to the last 12 months, the portfolio also decreased 3.4%. The Legal Entities registered a decline of 6.7%, impacted mainly by the segment of Micro, Small and Medium-sized Companies, but credits allocated to Individuals grew 3.8%.

For Individuals, the products that had the strongest growth in the last 12 months were: (i) real estate financing; and (ii) credit card. For the Legal Entity, the notable products were: (i) export financing; and (ii) operations bearing credit risk – commercial portfolio (debentures and promissory notes).

Allowance for Loan Losses (ALL) Expenses ⁽¹⁾

In the first semester of 2016, allowance for loan losses expenses totaled R$10,472 million, registering a variation of 46.9%, or
R$3,342 million, over the same period of the previous year, mainly impacted by: (i) the levelling of provisions for certain corporate clients, particularly a specific case, whose downgraded rating had an impact of R$1,201 million in the first semester (this operation is 100% provisioned); and (ii) by the higher delinquency rate, mainly due to the escalating economic slowdown in the period. In the second quarter of 2016, this expenditure was reduced by 7.8%, or R$424 million, primarily due to the lower impact produced by the specific case, stated above, the effect of which, during the second quarter of 2016, was of R$365 million and, in the first quarter of 2016, in which it was R$836 million.

It is important to note the balance in credit operations – the Bacen concept, presented a 3.7% decrease in the annual comparison and a 3.4% decrease in the quarterly comparison.

The effect in the growth of delinquency rates was mitigated by the reinforcement of the credit granting policies, quality of guarantees, as well as the improvement of the credit recovery processes.

Income from Insurance, Pension Plans and Capitalization Bonds

Net Income for the second quarter of 2016 totaled R$1.164 billion (R$1.380 billion in the first quarter of 2016), a decrease of 15.7% in comparison with the previous quarter, presenting an annualized return on Adjusted Shareholder’s Equity of 20.5%⁽¹⁾.

In the first semester of 2016, the Net Income totaled R$2.544 billion, in line with the result presented in the same period of the previous year (R$2.566 billion), with an annualized return on the Adjusted Shareholders’ Equity of 22.4%⁽¹⁾.

Income from Insurance, Pension Plans and Capitalization Bonds

In the second quarter of 2016, in comparison with the previous quarter, revenue showed an increase of 13.6%, driven by the "Life and Pension", "Auto/RE", "Capitalization" and "Health" products, which grew by 22.0%, 16.6%, 6.1% and 4.2%, respectively.

In the first semester of 2016, this section registered an increase of 6.9% in comparison with the same period of the previous year, influenced by the “Health” and “Capitalization” products, which increased by 16.7% and 4.0%, respectively.

Net earnings for the second quarter of 2016 were 15.7% lower than the results presented in the previous quarter, largely due to: (i) the introduction of a supplemental coverage provision, whose methodology of calculation takes into account the discount of the projected cash flow of the insurance contracts in force, based on the interest rates’ fixed-term structure (ETTJ). These curves present approximately 1.0 p.p. of variation between the dates of the calculation base, resulting in an increase of R$144 million, the SCP (Supplemental Coverage Provision), with the other compensations, net of tax, of R$79.2 million; (ii) the increase of 4.7 p.p. in the claims ratio index; partially offset by: (iii) the increase of 13.6% in revenue; (iv) by the maintenance of the commercialization index; (v) by the improvement in the administrative efficiency index; and (vi) by the increase in financial and equity earnings.

Net income for the first semester of 2016 remained in line with the earnings presented in the same semester of the previous year, largely due to: (i) the turnover growth of 6.9%; (ii) maintenance of the commercialization index and of the administrative efficiency index, considering the collective bargaining of the category in January 2016; (iii) the increase in financial and  equity results, offset by (iv) the constitution of a supplemental coverage provision, as previously mentioned in the preceding paragraph (v) by the increase of 3.0 p.p. in the claims ratio index; and (vi) by the increase in the Social Contribution rate (CSLL).

Minimum Capital Required – Grupo Bradesco Seguros

According to CNSP Resolution No. 321/15, corporations should adjust shareholder’s equity (ASE) equal to or higher than the minimum capital required (MCR). MCR is equivalent to the highest value between the base capital and the risk capital. For companies regulated by the ANS, Normative Resolution No. 373/15 establishes that corporations should adjust shareholder’s equity (ASE) equal to or higher than the Solvency Margin.

The capital adjustment and management process is continuously monitored and aims to ensure that Grupo Bradesco Seguros keeps a solid capital base to support the development of activities and cope with the risks in any market situation, in compliance with regulatory requirements and/or Corporate Governance principles. Companies must permanently maintain capital compatible with the risks for their activities and operations, according to the characteristics and peculiarities of each company belonging to Grupo Bradesco Seguros, represented by adequate capital levels. Grupo Bradesco Seguros permanently observes the limits required by the respective regulatory entities. The Minimum Capital Required in May 2016 was R$8.684 billion.

Fee and Commission Income

In the comparison between the first semester of 2016 and the same period of the previous year, the increase of R$1,167 million, or 9.8%, in the revenues of provision of services, was mainly due to: (i) an increase in the volume of operations arising from continuous investment in service channels and in technology; and (ii) an advance in the client segmentation process improving the ability to offer products and services. It must be noted that the sources that have significantly contributed to this result derived from: (i) an increase in checking account income, mainly due to an improvement in the client segmentation process; (ii) the good performance of the card business, as a result of (a) the increase in financial volume traded; and (b) the highest volume of transactions performed; and increase in revenue in the areas of: (iii) fund management; (iv) consortium management; (v) underwriting / financial advisory services; and (vi) custody and brokerage services.

In the second quarter of 2016, fee and commission income totaled R$6,624 million, showing an increase of R$219 million, or 3.4%, in comparison with the previous quarter, primarily due to the increase in the volume of operations and the higher number of business days, with emphasis on the performance of revenue generated with: (i) loan operations, particularly income from collaterals; (ii) checking accounts; (iii) underwriting / financial advisory services; (iv) cards; (v) fund management; and (vi) custody and brokerage services.

Personnel Expenses

In the comparison between the first semester of 2016 and the same period of the previous year, the increase of R$573 million, or 8.1%, in personnel expenses, a figure below the levels of salary readjustments deriving from the collective agreement, is mainly due to the variations in the following expenses: (i) "structural portion" due to the increase in expenses with payroll, social charges and benefits, impacted by higher salaries, in accordance with the 2015 collective bargaining agreement; and (ii) "non-structural", mainly due to higher expenses with (a) costs deriving from the termination of employment contracts and (b) profit sharing between management and employees (EPS).

In the second quarter of 2016, the increase of R$128 million, or 3.4%, compared to the previous
quarter is mainly composed of the variation of R$137 million, or 19.0%, in the "non-structural" portion, mainly due to higher expenses with: (i) costs deriving from the termination of employment contracts; and (ii) provision for labor lawsuits.

Administrative Expenses

In the comparison between the first semester of 2016 and the same period of the previous year, the 10.9%, or R$821 million increase in administrative expenses, was primarily due to an increase in expenses originated from: (i) higher business volume in the period; (ii) the effect of advertising and marketing actions; (iii) contractual adjustments; and offset by: (iv) the optimization of service channels.

In the second quarter of 2016, the increase of 3.7%, or R$154 million, in administrative expenses over the previous quarter, was mainly due to: the increase in the business volume occurred in the period, consequently, impacting in higher expenses with: (i) outsourced services; (ii) advertising and marketing; (iii) asset maintenance and conservation; and (iv) communications; being offset, in part, by: (v) less expenses involving data processing, affected by the devaluation of the dollar in the period.

Other Operating Income and Expenses

In the first semester of 2016, other net operating expenses totaled R$3,684 million, a R$166 million increase, or 4.7%, over the same period of the previous year, primarily due to: (i) the constitution of the expense allowance for tax contingency, net of reversal, in the first half of 2016, in the amount of R$485 million; (ii) the constitution of the expense allowance for contingent liabilities, originating from the obligation through assignment of claims (FCVS), in the first half of 2016, in the amount of R$200 million; (iii) increased expenditure on civil provisions; offset by: (iv) the constitution of the provision expense for tax contingency, in the first semester of 2015, in the amount of R$571 million.

In the comparison between the second quarter of 2016 and the previous quarter, other operating expenses increased R$346 million, or 20.7%, partially due to: (i) the constitution of the expense allowance for tax contingency, net of reversal, in the first half of 2016, in the amount of R$485 million; (ii) the constitution of the expense allowance for contingent liabilities, originating from the obligation through assignment of claims (FCVS), in the first half of 2016, in the amount of R$200 million; offset by: (iii) lower operating expenses related to activities of cards and insurance, in the period.

Income Tax and Social Contribution

In the comparison between the first semester of 2016 and the same period of the previous year, the 8.5%, or R$394 million, decrease is related to: (i) an increase in provisioning/payment of interest on shareholder’s equity, due to the increase in the Long-Term Interest Rate (TJLP) in the period (from 5.7% in the first semester of 2015 to 7.5% in the first semester of 2016); (ii) a lower  taxable income, being partially offset by: (iii) the increase in the Social Contribution (CSLL) rate.

Income tax and social contribution expenses in the quarterly comparison showed a decrease of 16.9%, or R$390 million, mainly due to the reduction of the taxable income, impacted by higher nontaxable income.

Unrealized Gains

Unrealized gains totaled R$18,175 million at the end of the second quarter of 2016, an
R$5,078 million increase over the previous quarter. Such variation was mainly due to the market valuation in: (i) investments, particularly being the shares of Cielo, which appreciated 16.2%; and (ii) securities indexed to fixed income.

Basel Ratio

In June 2016, the Capital of the Prudential Conglomerate stood at R$102,548 million, against risk-weighted assets totaling R$580,568 million. The Basel Ratio showed an increase of 0.8 p.p., from 16.9%, in March 2016, to 17.7%, in June 2016, and the Common Equity Tier I ratio from 12.9%, in March 2016, to 13.7%, in June 2016.

The table below shows the main events that impacted the Common Equity Tier I ratio in this quarter:

Additionally, it is worth stating that in the second quarter of 2016, the Brazilian Central Bank authorized the Subordinated Letters of Credit to compose Tier II, whose restated total, on June 30, 2016, reached R$1,107 million.

Full Impact – Basel III

We calculated a Basel III simulation, considering some of the main future adjustments, which include: (i) deductions of 100% according to the schedule of phase-in arrangements; (ii) the allocation of resources, obtained via payment of dividends, by our Insurance Group; (iii) the use of tax credits; (iv) the decrease in the market and operational risk multiplier (early adoption), from 9.875% to 8%; and (v) the impact of the acquisition of HSBC Brasil, reaching a Common Equity ratio of 11.3%, which, added to funding obtained via subordinated debt, may reach a Common Equity Tier I ratio of approximately 12.8% at the end of 2018.

The risks related to the international environment remain present, however it can be said that there is a certain moderation in them. On the one hand the loss of the Chinese foreign exchange reserves stagnated, which had brought uncertainties regarding the economic conditions of this country in the first quarter. On the other hand, it is worth acknowledging the continuity of timely actions by the main central banks worldwide, mainly, the European Central Bank (ECB), Bank of Japan and the Federal Reserve (Fed). The Brexit episode can contribute to the continuity of these actions, bearing in mind that its main consequence will be the moderation of growth in the UK and Europe.

In the Euro area, the ECB, in addition to expanding its balance sheet with the purchase of sovereign bonds, added assets from private companies to its purchase program. In the same direction, the Bank of Japan, as well as adopting negative nominal interest rates, continues to be committed to expanding its stimulus package. The Fed, in turn, indicated a more piecemeal posture to the rhythm of monetary normalization, in response to the moderation of economic activity. As a result, the dollar lost strength in comparison with other currencies and the price of commodities showed recovery, with emphasis on the prices of agriculture, which reacted more specifically to the prospects of an unfavorable climate and the possibility of a smaller harvest in the USA.

With regards to the domestic economy we highlight the increasing confidence of consumers and business, favoring the likelihood of economic stabilization and potential recovery in subsequent quarters. The labor market’s performance is notable, with a reduction in the rate of lay-offs of formal jobs.

However, in the short term the slowdown in economic activity continues to hinder ongoing fiscal adjustment. Thus, actions to ensure fiscal sustainability in the medium term, and progress on the reform agenda have become even more relevant. Efforts in this direction are necessary to maintain the economic predictability and to increase families’ and entrepreneurs’ trust, enabling the trend of increases in actual income and productive investments to resume. At the same time, moderation in the economy will allow the inflation to reach the set target more quickly, enabling the conditions to initiate a process of flexibility in monetary policy this year.

With the macroeconomic adjustments made, additional actions of a structural nature that can affect potential future growth continue to be essential. The constant search for excellence in education is Brazil’s front line in its struggle to become more competitive and to expedite its efforts to upgrade infrastructure. It should be remembered that, in the long term, the main source of economic growth is productivity, a theme that is even more relevant in a global context characterized by increased competition and an economic growth that is still fragile.

Investments will tend to play an increasingly important role in the composition of growth in coming years, especially in the process of the recovery of economic activity. This would benefit more from greater participation of the capital market in financing these projects. At the same time, despite the cyclical retraction of the consumer market in some sectors, structurally, the potential of the domestic demand for goods and services is not exhausted.

Bradesco maintains a positive outlook towards Brazil, with favorable perspectives for its operating sections. Credit volume is evolving at sustainable and risk-compatible rates, even when faced with a cyclical upswing in delinquency rates, due to the reduction of activity and the increase of the employment rate this year. The circumstances are still very promising for Brazilian banking and insurance sectors in the medium and long term.