Banco do Brasil MD&A 4Q12

Transcription

1 MD&A 4Q12

2 Banco do Brasil MD&A 4Q12 This report makes references and statements, planned synergies, growth estimates, earnings and strategies projections regarding Banco do Brasil s Conglomerate. Such statements are based on current expectations, estimates and projections of management about future events and financial trends that may affect the business of the Group. These forward looking statements are not guarantees of future performance and involve risks and uncertainties that could extrapolate the control of management, and thus can result in balances and values different from those anticipated and discussed in this report. The expectations and projections depend of the market conditions (technological changes, competitive pressures on products, prices, etc.), the macroeconomic performance of the country (interest and exchange rates, political and economic changes, inflation, changes in tax legislation, etc.) and international markets. Future expectations based in this report should consider the risks and uncertainties about the business of the Group. Banco do Brasil has no responsibility to update any estimate contained in reports published in previous periods. The tables and charts in this report show, in addition to the accounting balances and values, financial and managerial numbers. The changes of relative rates are calculated before rounding procedure in million of R$. Rounding used follows the rules established by Resolution 886/66 of IBGE s Foundation: if the decimal number is equal or greater than 0.5, it increases by one unit, if the decimal number is less than 0.5, there is no increase. 1

3 Banco do Brasil MD&A 4Q12 Index Index... 2 Index of Tables... 4 Index of Figures... 7 Presentation... 8 Glossary... 9 Earnings Summary Guidance Guidance Shareholder's Return Net Interest Income Spread by Portfolio Assets and Main Balance Sheet Items BIS Ratio 17 Loan portfolio BOMPRATODOS Fee Income Administrative Expenses Cost to Income Ratio Assumptions of the Guidance Key Statistics Summarized Financial Statements Summarized Balance Sheet Summarized Corporate Law Income Statement Income Statement with Reallocations Reallocations Details Glossary of Reallocations Total Operating Income and Expenses Loans Loan Portfolio Individuals Loan Portfolio Loans to Companies Agribusiness Loan Portfolio BOMPRATODOS Credit Risk Total Loan Portfolio Individuals Loan Portfolio Loans to Companies Agribusiness Loan Portfolio Foreign Loan Portfolio and BV Loan Portfolio Renegotiated Loan Portfolio Concentration Liquidity Funding Other Components of the Balance Sheet Deferred Taxes Acturial Asset Goodwill on equity Intangible assets Financial Earnings Analysis of Investments Funding Analysis Volume and Rate Analysis Spread Managerial Margin Net Interest Income Non-Financial Business Fee Income Cards Asset Management Insurance

4 Banco do Brasil MD&A 4Q Capital Market Administrative Expenses Personnel Expenses Operating Structure Other Administrative Expenses Service Network MaisBB Network Abroad Service Network Other Income Information Productivity Ratios Risk Management Risk Management Credit Risk Market Risks Liquidity Risk Operating Risk Capital Structure Strategic Investments Informations of Subsidiaries and Affiliates International businesses Banco Patagonia Banco Votorantim Banco Votorantim Financial Statements Summarized Balance Sheet Summarized Corporate Law Income Statement Income Statement with Reallocations

5 Banco do Brasil MD&A 4Q12 Index of Tables Table Guidance Table 2. Expenses with Allowance for Loan Losses 4Q12 Guidance Table 3. Guidance Table 4. Income Statement with Reallocations - Main Lines Table 5. One-off Items Table 6. Main Earnings Indicators Table 7. NII Breakdown¹ Table 8. Annualized NIM ¹ Table 9. Main Balance Sheet Items Table 10. Sources and Uses Table 11. Loan Portfolio Classified and Broad Concepts Table 12. Classified Loan Portfolio Quality Indicators Table 13. Allowance for Loan Losses Expenses over Classified Loan Portfolio Table 14. Fee Income Table 15. Adjusted Administrative Expenses Table 16. Main Macroeconomic Indicators¹ Table 17. Ownership Structure % Table 18. Distribution of Dividends and Interest on Own Capital Table 19. Market Ratios Table 20. Participation of BB s Shares in Brazilian Stock Market Indexes % Table 21. Banco do Brasil Key Statistics Table 22. Ratings Table 23. Compulsory/Reserve Requirement Table 24. Summarized Balance Sheet - Assets Table 25. Summarized Balance Sheet - Liabilities Table 26. Summarized Corporate Law Income Statement Table 27. Income Statement with Reallocations Table 28. Statement of Reallocations and One-Off Items Table 29. Tax Impacts and Statutory Profit Sharing on One-Off Items Table 30. Total Operating Income and Expenses Table 31. Loan Portfolio Classified and Broad Concept Table 32. Loans in the Brazilian Banking Industry¹ Table 33. Individuals Loan Portfolio Table 34. Individuals Loan Portfolio¹ Market Share Table 35. Organic Classified Loan Portfolio Individuals Table 36. Organic Payroll Loans Breakdown¹ Table 37. Total Acquired Loan Portfolios¹ Table 38. Average Rates and Terms Table 39. Loans to Companies Table 40. Foreign Exchange for Export and Import Operations Table 41. Advance against Exchange and Advance against Draft Presentation Table 42. Financiamentos de Projetos em Infraestrutura Table 43. Loans to SME by Sector Table 44. SME Credit Products Table 45. Exports Table 46. Brazil s Share in World Agribusiness in December Table 47. Classified Agribusiness Loan Portfolio by Region Table 48. Agribusiness Loan Portfolio by Purpose Table 49. Agribusiness Loan Portfolio by Credit Line Table 50. Agribusiness Loan Portfolio by Financed Item Table 51. Agribusiness Loan Portfolio by Size Table 52. Agribusiness Loan by Type of Customer Table 53. Agribusiness Loan Portfolio Broad Concept by Funding Sources Table 54. Equalization Revenues and Weighting Factor Table 55. Equalizable Funds of the Agribusiness Portfolio Table 56. Disbursement by Purpose Rural Credit July to December Table 57. Distribution of Insurance in the Working Capital for Input Purchase July to December Table 58. Insurance in the Working Capital for Input Purchase by Region July to December Table 59. Mitigators Reinsurance in Working Capital for Input Purchase Table 60. Expenses with Allowance for Loan Losses over Classified Loan Portfolio

6 Banco do Brasil MD&A 4Q12 Table 61. Exp. with Allowance for Loan Losses over Classified Loan Portfolio BB and BB ex-bv Table 62. Classified Loan Portfolio Delinquency Indicators Table 63. NPL + 90 days Classified Loan Portfolio BB and BB ex-bv Table 64. Classified Loan Portfolio Average Risk¹ Table 65. Classified Loan Portfolio by Risk Level Table 66. Individuals Classified Loan Portfolio by Risk Level ex-bv Table 67. Changes in Allowance for Loan Losses Individuals Classified Loan Portfolio (ex-bv) Table 68. Classified Loans to Companies by Risk ex-bv Table 69. Changes in Allowance for Loan Losses Classified Loans to Companies (ex-bv) Table 70. Classified Agribusiness Loan Portfolio by Risk Level Table 71. Classified Agribusiness Loan Portfolio by Risk Level Individuals Table 72. Changes in Allowance for Loan Losses Agribusiness Individuals Table 73. Classified Agribusiness Loan Portfolio by Risk Level Companies Table 74. Changes in the Allowance for Loan Losses Agribusiness Companies Table 75. Agribusiness Transactions with/without Rollover Table 76. Classified Agribusiness Loan Portfolio Delinquency Indicators Table 77. Classified Foreign Loan Portfolio by Risk Level Table 78. Classified BV Loan Portfolio by Risk Level (50%) Table 79. Renegotiated Loan Portfolio Table Largest Borrowers Table Largest Borrowers in Relation to RE Table 82. Concentration of Loan Portfolio by Macro-Sector Table 83. Breakdown of Assets Table 84. Breakdown of Liabilities Table 85. Securities Portfolio by Category Table 86. Securities Portfolio by Maturity Market Value Table 87. Liquidity Balance Table 88. Market Funding Table 89. Foreign Borrowing Table 90. Issues in circulation abroad Table 91. Sources and Uses Table 92. Cost of Main Sources of Funding vs. Selic Rate Table 93. Segregation of Deposits by Deadline Chargeability Table 94. Breakdown of Tax Credit Table 95. Breakdown of Deferred Tax Liabilities Table 96. Previ Fundo Paridade Table 97. Previ Fundo de Destinação Table 98. Previ Fundo de Contribuição Table 99. Previ Fundo de Utilização Table 100. Previ (Plan 1) Effects of Half-Yearly Accounting Table 101. Goodwill on investment acquisition Table 102. Intangible Assets Table 103. Estimate of Amortization of Intangible Assets Table 104. Average Balances and Interest Rates Earning Assets (Quarterly) Table 105. Average Balances and Interest Rates Earning Assets Table 106. Spread by Portfolio Table 107. Securities Income Table 108. Average Balances and Interest Rates - Interest Bearing Liabilities (Quarterly) Table 109. Average Balances and Interest Rates - Interest Bearing Liabilities Table 110. Change in Revenues and Expenses and Change Volume / Rate (Quarterly) Table 111. Change in Revenues and Expenses and Change Volume / Rate Table 112. Volume Analysis (Earning Assets) Quarterly Rate Table 113. Volume Analysis (Earning Assets) Table 114. Adjusted NIM and Net Interest Income Table 115. Managerial Margin Table 116. Net Interest Income Breakdown¹ Table 117. Fee Income Table 118. Customer Base Table 119. Investment Funds and Managed Portfolios by Customer Table 120. Investment Funds and Managed by Type Table 121. Insurance Financial and Operational Results Table 122. Pension Plans Financial and Operational Results Table 123. Premium Bonds Financial and Operational Results

7 Banco do Brasil MD&A 4Q12 Table 124. Personnel Expenses Table 125. Other Adminstrative Expenses Table 126. Service Network Table 127. Network of Branches by Region Table 128. MaisBB Network Operating Data Table 129. Abroad Service Network Table 130. Other Operating Income Table 131. Other Operating Expenses Table 132. Coverage Ratios Adjusted¹ Table 133. Cost Income Ratio Adjusted¹ Table 134. Other Productivity Ratios Table 135. Balance in Foreign Currencies Table 136. Repricing Profile of Interest Rates Table 137. Breakdown of Operational Loss (%) Table 138. BIS Ratio Economic-Financial Conglomerate¹ Table 139. Main Accounts of the RWAE Quota (Economic-Financial Conglomerate) Table 140. RRE for Market Risk by Risk Factor Table 141. Allocated Capital for Operational Risk by Business Line Table 142. Risk Weighted Assets Exposures and RWAE (position 12/31/2012) Table 143. Interest in the Capital of Subsidiaries and Affiliates of the BB Banco Múltiplo Table 144. Interest in the Capital of Subsidiaries and Affiliates of the BB Banco de Investimentos Table 145. Interest in the Capital of Subsidiaries and Affiliates of the BB Seguros S.A Table 146. Non-Consolidated Interest in the Capital of Subsidiaries and Affiliates Table 147. Balance Sheets Consolidated Abroad Table 148. Results Consolidated Abroad Table 149. Banco Patagonia Key Income Figures Table 150. Banco Patagonia Balance Sheet Items Table 151. Banco Patagonia Operating and Structural Highlights Table 152. Banco Patagonia Indicators on Returns, Capital, and Credit Table 153. Balance Sheet Main Items Table 154. Summarized Corporate Law Income Statement Table 155. Income Statement with Reallocations¹ Quarterly Table 156. Income Statement with Reallocations¹ Annual Table 157. Margin, net of interest and profit margin Table 158. Loan portfolio Table 159. Vehicle Portfolio Table 160. Delinquency Ratios of Own Portfolio Total Table 161. Own Loan Portfolio by Level of Risk Total Table 162. Rates of Delay of the Managed Portfolio Total Table 163. Managed Loan Portfolio by Level of Risk Total Table 164. Funding Table 165. Main productivity indicators Table 166. Operating and Structural Highlights Table 167. BIS Ratio Table 168. Balance Sheet Assets - Quarterly Table 169. Balance Sheet Assets Annual Table 170. Balance Sheet Liabilities - Quarterly Table 171. Balance Sheet Liabilities - Annual Table 172. Summarized Corporate Law Income Statement - Quarterly Table 173. Summarized Corporate Law Income Statement - Annual Table 174. Income Statement with Reallocations - Quarterly Table 175. Income Statement with Reallocations - Annual

8 Banco do Brasil MD&A 4Q12 Index of Figures Figure 1. Earnings per Share, Dividends and Interest on Own Capital Figure 2. Foreign Borrowing (US$ billion) Figure 3. BIS Ratio Figure 4. BOMPRATODOS Main Individuals Credit Lines Figure 5. Organic Auto Loan Portfolio NPL + 90 days and Risk Level - % Figure 6. Working Capital and Investment Figure 7. Cost to Income Ratio Adjusted¹ - % Figure 8. Disbursements by Onlending Fund - % Figure 9. Trade Balance (FOB) Figure 10. Production vs. Planted Area of the Grains Harvest Figure 11. Percentage of Operations Contracted with Risk Mitigators July to December Figure 12. Price/Cost Ratio of Soybean and Corn Figure 13. BOMPRATODOS Main Individuals Credit Lines Figure 14. Organic Auto Loans Portfolio NPL + 90 days and Risk Level Figure 15. SME Working Capital Figure 16. Allowance for Loan Losses Classified Loan Portfolio Figure 17. NPL + 90 days BB vs. BI - % Figure 18. Quarterly Vintage Figure 19. Annual Vintage Figure 20. Annual Vintage Own Auto Loans Portfolio Figure 21. Market Share of BB Funding Figure 22. Spread Analysis Figure 23. Securities Portfolio by Index (BB Multiple Bank) Figure 24. Asset Management Figure 25. Changes of BB s Staff Figure 26. Automated Teller Machines Figure 27. Transactions by Service Channel - % Figure 28. Changes in Foreign Exchange Exposure in % of the Referential Equity Amount (RE) Figure 29. Composition of Banco do Brasil's Assets and Liabilities in the Country Figure 30. Net Position of BB Consolidated Figure 31. Liquidity Reserve in Local Currency (Last Business Day) Figure 32. Liquidity Reserve Foreign Currency (Last Business Day) Figure 33. DRL Indicator Figure 34. Production by Channel and Delinquency of the 1st Installment Light Vehicles Figure 35. Delinquency 90 Days of Vintages after 4 Months of the origination - BV Financeira - %. 117 Figure 36. Origination (Auto Financing and Payroll Loans) Figure 37. Allow. Loan Losses of Manag. Port. vs. Allow. for Loan Losses of Classified Portfolio

9 Banco do Brasil MD&A 4Q12 Presentation The Management Discussion and Analysis Report presents the economic/financial situation of Banco do Brasil (BB). Addressed to market analysts, stockholders and investors, with quarterly periodicity, this report releases content with data on main economic indicators, BB's shares performance and risk management. The reader will also find tables with historical series, from up to eight periods, of the Summarized Balance Sheet, the Summarized Corporate Law Income Statement, the Income Statement with Reallocations, the Analytic Spread besides information about profitability, productivity, quality of the loan portfolio, capital structure, capital market, and structural data. At the end of this report, the quarter Financial Statements and the Notes to the Financial Statements will be presented. Highlights 1) Since 2Q12, the nomenclature "Recurring Income" was changed to "Adjusted Net Income"; 2) In Chapter 3, the information about the Agribusiness Credit Portfolio goes to show: (i) the definition of credit portfolio in the broad concept, and (ii) the breakdown of the funding and equalization reavenue as tables; 3) Also in Chapter 3, the information about the Renegotiated Loan Portfolio was reformulated. Moreover, the table "k" of Note Number 10, which shows the Banco do Brasil s Loan portfolio, was reformulated, in order to demonstrate the flow of renegotiated loans; 4) Since 4Q12, the Net Interest Income and Net Interest Margin historical data were reviewed, from 1Q11, due to reallocation of Hybrid Capital Instrument expenses updating and subordinated debt expenses updating, previously accounted on Other Operational Expenses, reallocated to Financial Intermediation Expenses. Moreover, these expenses were transferred from Treasury to Financial Expense for Institutional Funding; 5) On Chapter 9, the Cost to Income historical data was reviewed in order to reflects the adjusted net income; 6) In Chapter 11.1, the strategic investments of Banco do Brasil will be presented showing the intermediate shareholder; 7) On Chapter 12, historical data of NPL + 90 days indicator of Banco Votorantim was reviewed to comply with BB methodology. On-line Access The Management Discussion and Analysis can also be read through Banco do Brasil s Investor Relations website. Further information about BB is also available there, such as: Corporate Governance, news, frequently asked questions, a download center which contains versions of this report for the Adobe Reader software. General information, Balance Sheet Analysis, and Complete Financial Statements; the historical series in Excel: presentations to the market; Social and Environment Responsibility Report Social Balance Sheet; Conference Calls on Results and other are also available on the website. Banco do Brasil Investor Relations bb.com.br bb.com.br/ir 8

10 Banco do Brasil MD&A 4Q12 Glossary Adjusted Net Income: net income excluding one-off items. Adjusted NIM: net interest margin divided by the average balance of earning assets. Annualized Return on Equity: ratio between the net income and the arithmetic average of shareholders equity of the reporting period on the previous period, excluding non-controlling interest. Annualized exponentially. BOMPRATODOS: a set of measures aligned to the Bank's new institutional positioning: Excellence in Relationships. Consists in reducing interest rates in several credit lines for individuals and small and medium enterprises, accompanied by an exclusive financial advisory service to stimulate awareness in the use of credit. Classified Loan Portfolio: loan portfolio booked in compliance with Resolution CMN 2,682/99. Commercial Funding: Includes Total Deposits, Agribusiness Letters of Credit - LCA, Mortgage Bonds - LCI and repurchase agreements operations with private securities. Correspondent Banking Services: are companies, whether or not members of the National Financial System, made by financial institutions and other institutions authorized by the Central Bank of Brazil for the provision of service to customers and users of these institutions. Cost to Income Ratio: productivity indicator that measures the relation between administrative expenses and operating revenues. When the ratio is lower, more efficient is the company. Coverage Ratio Adjusted: productivity indicators expressed by the relations: 1) fee income / administrative expenses, 2) fee income / expenses of personnel. Indices based on the statements of income with reallocations. Domestic Loan Portfolio - Broad concept: classified loan portfolio plus guarantees provided and private securities, considering the operations in the country. Earnings Assets: reflects the sum of all assets that produce a financial return to the institution. The total return of these assets is included in the gross income from financial intermediation. Guarantees: are operations where the BB guarantees the settlement of the contracts. Insurance Ratio: reflects how the companies of insurance, pension plan and capitalization contributed to the formation of Banco do Brasil s conglomerate adjusted net income. Institutional Funding: Includes funding directed to institutional investors, with the use of instruments such Senior Debt, Letters Financial end Instrument Hybrid Capital and Debt (IHCD). Interest Bearing Liabilities: includes the sum of all liabilities that carry an expense for the institution. The total financial cost of these liabilities reflects the expense of financial intermediation. Leverage: financial indicator that measures the ratio between the total assets and shareholders' equity of the company. Loan Portfolio - Broad concept: classified loan portfolio plus guarantees provided and private securities. Managed Loan Portfolio: concept adopted by Banco Votorantim, loan portfolio accounted as established by the CMN Resolution 2,862/99, added to private securities and guarantees, which includes assets assigned with recourse to other financial institutions and the assets assigned to Credit Receivables Investment Funds FIDCs. Managed Loan Portfolio: Broad Concept: concept adopted by Banco Votorantim, managed loan portfolio, plus private securities and guarantees. Managerial Spread: spread is the result of the managerial financial margin divided by the respective average balances. For managerial financial margin calculation, financial revenues classified by portfolio are calculated first. Subsequently, the opportunity costs defined for each of the portfolio lines are deducted. Considering the individuals and companies loan portfolios, with free resources, the opportunity cost is the average Selic rate. For the agribusiness portfolio and other directed resources, the opportunity cost is calculated according to the funding source and the necessity or not of compulsory investing part of this funding. 9

11 Glossary Net Interest Gain: defined as interest income from earning assets less interest expenses from interest bearing liabilities. Net Interest Income (NII): It is calculated as the difference between income and expenses from financial intermediation considering the reallocations. Net Interest Margin: Applying the concept of spread to the banking industry, which is calculated by dividing net interest income by average earning assets. Net Interest Rate: difference between average rate of earning assets and average rate of interest bearing liabilities. Organic Loan Portfolio: Loan Portfolio excluding 50% of the Banco Votorantim transactions and the acquired portfolios. Overdue Renegotiated Loan Portfolio: It comprises the renegotiated loans for debts composition due to delay in payments by customers. Furthermore, it does not comprise the rollover operations of agribusiness loan portfolio. Private Securities: operations are characterized by the acquisition of securities (commercial paper and debentures) issued by private companies. Reallocations: adjustments made in the Corporate Law Income Statement in order to provide a better understanding of the business and the company's performance. Tax Hedge: hired operations to reduce the effects of foreign exchange variation on the result, considering the impact on taxes. 10

12 Banco do Brasil MD&A 4Q12 Earnings Summary BB s Net Income reaches R$ 12.2 billion in 2012 Banco do Brasil recorded net income of R$ 12.2 billion in This performance corresponds to ROAE of 19.8%. Adjusted net income (excluding one-off items) reached R$ 11.5 billion in the year, equivalent to adjusted ROAE of 18.7%. The 2012 earnings were driven mainly by expansion of businesses and improvement of the relationship with clients which allowed the increase in net interest income (NII) and diversification of fee income. The indicator that measures the delinquency of operations more than 90 days overdue decreased and remained lower than that observed in the Brazilian Banking Industry (BI). In the 4Q12, Banco do Brasil recorded net income of R$ 4.0 billion, representing ROAE of 27.0%. Adjusted net income totaled R$ 3.2 billion in the quarter, equivalent to ROAE of 21.2%. Adjusted net income, excluding Previ, was of R$ 10.7 billion in 2012, up 7.5% over 2011, the highest amount ever observed. In 4Q12, Net income, excluding Previ, reached R$ 3.0 billion, with increase of 21.1% and 11.1% over 3Q12 and 4Q11, respectively Guidance The following table presents the 2012 Guidance. The balance sheet items were calculated from the amounts recorded in Dec/12, against Dec/11. The lines of income statement figures were calculated by dividing the amount accumulated in 2012 by the amount accumulated in Table Guidance Items 2012 Performance 2012 Guidance Adjusted Return on Equity 18.7% 17% - 20% Net Interest Income¹ 12.0% 10% - 14% Total Deposits 6.7% 14% - 18% Domestic Loan Portfolio 23.1% 17% - 21% Individuals² 16.3% 19% - 23% Companies 29.5% 18% - 22% Agribusiness 20.7% 13% - 16% Allow ance for Loan Losses³ 3.2% 3.1% - 3.5% Fee Income 15.5% 13% - 18% Administrative Expenses 13.9% 8% - 12% Tax Rate 27.6% 31% - 34% 1- Historical data reviewed since 1Q11. In previous methodology, the growth of Net Interest Income would be 13.3% YoY. 2 - Considers credits acquired with recourse, according to CMN Resolution 3533/ Expenses with allowance for loan losses (PCLD) of the last twelve months/average loan portfolio of the same period. Table 2. Expenses with Allowance for Loan Losses 4Q12 Guidance 4Q12 Performance 4Q12 Guidance Allow ance for Loan Losses¹ R$ billion R$ 3.5 a R$ 3.7 billion The main reasons for the deviations in the 2012 Guidance are: a) Total Deposits - diversification of the Bank s funding base focused on new products notably Agribusiness Letters of Credit which in 2012 increased 358.2% (+R$ 26.6 billion); b) Individuals Loan Portfolio - demand for credit lower than expected in the economy and reduction of Banco Votorantim s auto loans; c) Companies Loan Portfolio growth in credit demand by firms, especially in the last quarter of the year; 11

13 Earnings Summary d) Agribusiness Loan Portfolio high demand, mainly from medium/large farmers and agricultural cooperatives, as well as the contracting of the 2012/2013 harvest; e) Administrative Expenses addition of operations, mainly business with the Mapfre insurance group, Banco Postal and Banco Patagonia, which did not impact earnings during part of 2011; f) Tax Rate - tax benefit arising from interest on own capital. Guidance 2013 The following table presents the 2013 Guidance. The forecast is prepared for the year and the quarterly monitoring can be adversely affected by seasonality or specific events of the period being considered. Starting on 2013: (i) the Guidance of total deposits was replaced by Commercial Funding (total deposits, LCA, LCI and Repurchase Agreements Operations with Private Securities), (ii) Domestic Loan Portfolio was replaced by Domestic Loan Portfolio Broad Concept (Includes Private Securities and Guarantees), and (iii) Tax Rate was excluded. Table 3. Guidance 2013 Items 2013 Guidance Adjusted Return on Equity¹ 14% - 17% Net Interest Income 7% - 10% Commercial Funding² 15% - 19% Domestic Loan Portfolio - Broad Concept³ 16% - 20% Individuals 18% - 22% Companies 16% - 20% Agribusiness 13% - 17% Allow ance for Loan Losses⁴ 3,0% - 3,4% Fee Income 10% - 14% Administrative Expenses 7% - 10% 1 Adjusted ROE estimated for 2013 uses estimated shareholders equity, according to current legislation on December 31, Includes total deposits, Agribusiness Letters of Credit - LCA, Mortgage Bonds - LCI and Repurchase Agreements Operations with Private Securities. 3 - Domestic Loan Portfolio, in Broad Concept, includes private securities and guarantees. 4 - Expenses with allowance for loan losses (PCLD) of the last twelve months/average classified loan portfolio of the same period. The assumptions used in the preparation of the 2013 Guidance can be found at the end of this Summary. Shareholder's Return Remuneration to shareholders reaches R$ 4.9 billion in 2012 BB s earnings per share reached R$ 4.30 in Banco do Brasil maintained a 40% payout ratio for its shareholders with R$ 4.9 billion remuneration, comprised by R$ 1.6 billion in dividends and R$ 3.3 billion of interest on own capital. 12

14 Banco do Brasil MD&A 4Q12 Figure 1. Earnings per Share, Dividends and Interest on Own Capital Q11 3Q12 4Q Dividends (R$ billion) Interest on Own Capital (R$ billion) Earnings per Share (R$) Earnings driven by business growth The following table, extracted from the income statement with reallocations, presents the main highlights of the period. The NII, difference between the Financial Intermediation Income and the Financial Intermediation Expenses of the Bank, closed 2012 at R$ 45.7 billion, up 12.0% from the same period of the previous year. This performance was driven by loan portfolio growth. The performance of fee income was due to high credit supply, service rendering structure reformulation, strategy to make the current client base more profitable and BOMPRATODOS strategy. The fee income details can be found in Section 8.1 of MD&A. The growth of administrative expenses of 13.9% in the comparison of 2012/2011 was influenced by the incorporation of operations, particularly business with the Mapfre insurance group, Banco Postal and Banco Patagonia, which were not yet consolidated in the financial statements throughout a part of Excluding these components, the increase in administrative expenses was 10.1% in the period. Table 4. Income Statement with Reallocations - Main Lines Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Financial Intermediation Income 25,970 25,084 24,868 (4.2) (0.9) 102, , Loan Operations + Leasing 16,833 16,854 17, ,101 69, Securities 7,189 6,623 6,255 (13.0) (5.6) 30,849 27,982 (9.3) Financial Intermediation Expenses¹ (15,153) (13,833) (12,835) (15.3) (7.2) (62,019) (58,796) (5.2) Net Interest Income¹ 10,817 11,251 12, ,830 45, Allow ance for Loan Losses (2,892) (3,764) (3,636) 25.7 (3.4) (11,827) (14,651) 23.9 Net Financial Margin 7,925 7,488 8, ,003 31, Fee income 5,027 5,280 5, ,242 21, Income f/ Insur., Pension P. and premium bonds ,265 2, Contribution Margin 12,397 12,315 13, ,429 50, Administrative Expenses (6,966) (7,123) (7,499) (24,752) (28,194) 13.9 Personnel Expenses (3,954) (4,001) (4,211) (13,943) (15,777) 13.1 Other Administrative Expenses (3,012) (3,122) (3,288) (10,809) (12,417) 14.9 Commercial Income 5,370 5,128 5, ,461 21, Legal Claims 275 (281) (23) - (91.6) (135) (813) Labor Law suits (278) (182) (196) (29.7) 7.3 (724) (726) 0.2 Other Operating Income (435) (761) (590) 35.6 (22.4) (687) (2,539) Income Before Taxes 4,940 3,964 5, ,970 17,883 (5.7) Income and Social Contribution Taxes (1,425) (891) (1,324) (7.1) 48.7 (5,388) (4,455) (17.3) Corporate Profit Sharing (450) (372) (500) (1,737) (1,745) 0.4 Adjusted Net Income 3,025 2,657 3, ,751 11,528 (1.9) 1- Historical data reviewed since 1Q11. In previous methodology, the growth of Net Interest Income would be 13.3% over In the Other Operating Income line, the amount recorded regarding actuarial gains and losses of Benefits Plan I of Previ decreased R$ 1.6 billion (-54.5%) over

15 Earnings Summary In the comparison of 4Q12/4Q11, NII presented growth of 11.2% and fee income increased 9.1%, driven by loan portfolio growth. The reallocations details can be found in Section of MD&A. One-Off Items The result of one-off items was positive in R$ 678 million in 2012, net of tax and statutory profit sharing. Items considered as one-off in this year were: (i) expenses with provision originating from lawsuits relating to economic plans; and (ii) tax efficiency, resulting from periodic review concerning the treatment conferred to the activation of tax credits; (iii) reversal of additional allowance for loan losses; and (iv) disposal of properties. The Secondary Public Offer of BB Progressive II Real Estate Investment Fund shares, completed in December 2012, permitted full recognition of the difference between market value of properties transferred to the Fund and their book value in BB s balance sheet. The impact of this transaction in BB income for the 4Q12 was of R$ million, net of taxes effects and statutory profit sharing. Table 5. One-off Items R$ million 4Q11 3Q12 4Q Adjusted Net Income 3,025 2,657 3,180 11,751 11,528 (+) One-Off Items of the Period (53) Sale of Investments Economic Plans (95) (255) (167) (103) (968) Tax Efficiency Additional Allow ance for Loan Losses Sale of Real Estate - - 1,103-1,103 Tax Eff. and Stat. Profit Sharing on One-Off Items (625) (78) (401) Net Income 2,972 2,728 3,967 12,126 12,205 Table 6. Main Earnings Indicators Indicators - % 4Q11 3Q12 4Q Net Interest Margin (NIM)¹ ³ Exp. w ith Allow ance for Loan Losses / Portfolio ² Adjusted Cost-Income Ratio ³ Adjusted Cost-Income Ratio³ - 12 Months Adjusted Return on Equity ¹ Effective Tax Rate Annualized Indicators. 2 - Allowance for loan losses expenses of the last 12 month period divided by the average classified loan portfolio in the same period. 3 - Historical data reviewed since 1Q11. Net Interest Income The breakdown of the net interest income is presented in the following table. In this disclosure, the revenues from loan operations and the funding expenses do not consider the exchange rate flutuations. Financial expenses result mainly from time deposits and savings. As of 4Q12, expenses of funding held with institutional investors comprising senior debt, subordinated debt and Hybrid Capital Instrument and abroad were detached in a specific line. A series of such data has been reprocessed since 1Q11, to maintain comparability. The treasury line comprises: (i) the interest revenues; (ii) revenues from remunerated compulsory deposits; (iii) tax hedge; derivatives and other financial instruments that offset the effects of exchange rate changes on the result. Because it involves targeted resources, with specific investments in loans linked to public lending programs, for example, Finame, BNDES and FCO, the cost of these resources were separated from financial expenses of funding and allocated to the line Other. 14

16 Banco do Brasil MD&A 4Q12 Table 7. NII Breakdown¹ Quarterly Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 Net Interest Income 10,817 11,251 12, Loan Operations income 15,971 16,071 16, Funding Expenses (7,200) (6,678) (6,241) (13.3) (6.5) Financial Expense for Institutional Funding (584) (742) (919) Recovery of Write-offs Loans , Treasury Income 2,779 2,639 2,235 (19.6) (15.3) Other (1,000) (852) (441) (55.9) (48.3) 1 - Historical data reviewed since 1Q11. Spread by Portfolio The table below presents the managerial spread by transactions. Spread is the result of the managerial financial margin divided by the respective average balances. For managerial financial margin calculation, financial revenues classified by portfolio are calculated first. Subsequently, the opportunity costs defined for each of the portfolio lines are deducted. Considering the individuals and companies loan portfolios, with free funds, the opportunity cost is the average Selic rate. For the agricultural portfolio and other directed funds, the opportunity cost is calculated according to the funding source and the need of reserve requirements to this funding. Net Interest Margin, in turn, is the application of the concept of spread to the banking industry, which is calculated by dividing net interest income by average earning assets. "Risk-Adjusted NIM" is calculated based on ratio between net financial margin and earnings assets, that is, it considers expenses with allowance for loan losses. The following table presents the performance of the BB' spreads. Table 8. Annualized NIM ¹ % 4Q11 3Q12 4Q Loan Operations Individuals Companies Agribusiness Deposits Time Deposits Demands Deposits Saving Deposits Other Deposits Net Interest Margin (NIM) Risk Adjusted NIM Historical data reviewed since 1Q11. Assets and Main Balance Sheet Items Total assets surpass R$ 1.15 trillion The total assets of Banco do Brasil reached R$ 1.15 trillion, which represented a 17.2% growth over Dec/11. The main lines of assets are loan operations and leasing, securities and short-term interbank investments that accounted for 76.1% of BB's total assets in Dec/12. Regarding liabilities, highlight to deposits, representing 41.0% of total liabilities, as well as the increase in the share of Agribusiness Letters of Credit. The following table presents the main items of the Balance Sheet. 15

17 Earnings Summary Table 9. Main Balance Sheet Items Chg. % R$ million Dec/11 Sep/12 Dec/12 On Dec/11 On Sep/12 Total Assets 981,230 1,103,913 1,150, Loan Portfolio - Broad Concept¹ 465, , , Domestic Loan Portfolio - Broad Concept¹ 430, , , Securities 168, , , Short-Term Interbank Operations 166, , , Commercial Funding² 450, , , Total Deposits 442, , , (0.8) Demand Deposits 62,016 61,486 74, Savings Deposits 100, , , Interbank Deposits 14,450 15,733 16, Time Deposits 265, , ,013 (1.1) (8.3) Judicial Deposits 77,667 84,983 86, Agribusiness Letters of Credit + Mortgage Bonds 7,431 22,882 34, Repurchase Agreements Oper. w ith Private Securities 664 8,444 9, Money Market Borrow ing 195, , , Shareholder s Equity 58,416 64,104 66, Includes private securities and guarantees provided. 2 Includes Total Deposits, Agribusiness Letters of Credit - LCA, Mortgage Bonds - LCI and repurchase agreements operations with private securities. Solid structure of funding sources ensures business expansion Banco do Brasil s structure of funding presents greater diversification, with reduction of the share of deposits and increase of Agribusiness Letters of Credit and Other Commercial Papers, as shown in the table below. It is also worth emphasizing Foreign Borrowing and the issuance of domestic Hybrid Capital Instrument. Regarding the uses, the loan portfolio remains as the main destiny of funding, representing 78.1% of the sources total as of Dec/12, as the following table show: Table 10. Sources and Uses Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Sources 576, , , Commercial Funding² 450, , , Total Deposits 442, , , (0.8) Agribusiness Letters of Credit + Mortgage Bonds 7, , , Repurchase Agreem. Oper. w ith Priv. Securities , , , Domestic Onlending 50, , , Financial and Development Funds 4, , , Subordinated Debt 25, , , Others Commercial Papers¹ 8, , , Domestic Hybrid Debt Capital Instruments - - 8, , Foreign Borrow ing² 37, , , Uses 576, , , Available Funds 52, , , (19.4) Compulsory Deposits 93, , , (14.5) (6.3) Net Loan Portfolio (a) + (b) - (c) 430, , , Loan Portfolio (a) 422, , , Private Securities (b) 26, , , Allow ance for Loan Losses (c) (19,015) (3.3) (21,282) (3.2) (21,210) (3.1) 11.5 (0.3) Indicators - % Net Loan Portfolio / Total Deposits Net Loan Portfolio / Funding Net Loan Portfolio / Total Deposits Includes Letters of Credit and Debentures (Explanatory Note 19). 2 - Includes Foreign Borrowings, Foreign Securities Obligations, Subordinated Debt Abroad and Hybrid Capital Instruments. The balance of foreign borrowings reached US$ 45.0 billion in Dec/12, an amount 30.1% higher than that observed in Dec/11, with emphasis on abroad issues of securities, including: Hybrid Capital Instrument in the amount of US$ 1.0 billion in January, which won the Best Financing Innovation 16

18 Banco do Brasil MD&A 4Q12 award; senior debt in Euros and Yens in September, which marked the return of BB to the Japanese market. In October BB performed new fund raising in the foreign market, with the issuance of 10-year debt securities, totaling US$ 1.9 billion. In January 2013, Bank issue US$ 2.0 billion of Hybrid Capital instrument debt, its highest funding raising, at the rate of 6.25% p.a. Securities were purchased by investors from the United States, Europe and Asia. Figure 2. Foreign Borrowing (US$ billion) Repo Individuals 7.3 Companies Bond Issues Interbanking Dec/11 Sep/12 Dec/12 BIS Ratio BIS Ratio higher than the minimum required The BIS ratio of Banco do Brasil closed Dec/12 at 14.83%, higher than the minimum of 11% required by BCB, indicating a surplus in Referential Equity (RE) of R$ 27.9 billion. The issues held in Jan/13 of domestic subordinated letters of credit (total of R$ 5.2 billion) and foreign funding as Hybrid Capital Instrument (US$ 2.0 billion) represent a positive impact around 128 bps over BIS Ratio of Dec/12. Figure 3. BIS Ratio Dec/11 Sep/12 Dec/12 Tier I Tier II 17

19 Earnings Summary Loan portfolio Loan Portfolio grows with quality The loan portfolio in the broad concept reached R$ billion in Dec/12, with expansion of 24.9% in twelve months and 9.1% in relation to that observed in Sep/12, as shown in the table below. Banco do Brasil share in the domestic credit market was 20.4% in Dec/12, indicating an increase in relation to the share observed in Dec/11 (19.2%) and Sep/12 (19.6%). Table 11. Loan Portfolio Classified and Broad Concepts Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11On Sep/12 Loan Portfolio (a) 422, , , Brazil 390, , , Individuals 130, , , Payroll Loan 51, , , Salary Loans 15, , , (1.0) Auto Loans 31, , , Mortgage 6, , , Credit Card 13, , , Overdraft Accounts 2, , , (3.7) (12.3) Other 10, , , Companies 171, , , SME 68, , , Middle and Large 103, , , Agribusiness 88, , , Individuals 57, , , Companies 31, , , Abroad 32, , , Private Securities and Guarantees (b) 42,104 51,535 55, Loan Portfolio - Broad concept (a + b) 465, , , Individuals 130, , , Companies 210, , , Agribusiness 89, , , Abroad 34, , , Individuals Loan Portfolio backed by lower-risk lines The individual loan portfolio in the broad concept closed December at R$ billion, an increase of 16.8% in twelve months and of 6.1% over Sep/12, accounting for 26.3% of the Bank s loan portfolio in the broad concept. Considering only BB organic loan portfolio, i.e., excluding the acquired portfolios and 50% of the operations of Banco Votorantim, the individual portfolio grew 25.9% in twelve months and 7.1% over the previous quarter. This performance was favored by the development of the BOMPRATODOS strategy. In the auto loans segment, there was significant growth in its terms of organic portfolio, which reached R$ 11.0 billion in Dec/12 (up 134.9% over Dec/11 and 20.3% against Sep/12), while the profile of these new operations is within the strict credit analysis adopted by BB. Payroll loans totaled R$ 58.6 billion in Dec/12, with expansion of 14.3% over the same period of 2011 and 2.7% over the previous quarter. BB s market share in this segment was 31.2% in Dec/12. Mortgage loans have grown steadily since the beginning of operations in Individuals mortgage loans reached R$ 10.2 billion in Dec/12, with an increase of 69.0% in twelve months and of 19.8% over Sep/12. BB s market share in the individual segment reached 3.7% in Dec/12, against 3.0% in Dec/11. Companies mortgage loan portfolio has also enjoyed a prominent position, reaching a balance of R$ 2.7 billion in Dec/12. Total mortgage loan portfolio (individual + companies) reached an amount of R$ 12.9 billion in Dec/12, with growth of 68.5% in twelve months. The total volume 18

20 Banco do Brasil MD&A 4Q12 disbursed in the mortgage loans was R$ 7.1 billion in 2012, with an increase of 43.2% in relation to Loans to Companies growth driven by company s credit demand The loans to Companies in the broad concept reached R$ billion, with growth of 30.3% in the annual comparison and of 10.8% over Sep/12, representing 47.1% of the total loan portfolio. In the loan to companies it is worth to emphasize the expansion of the working capital lines (working capital, receivables, pre-aproved credit, credit card and overdraft account), with balance of R$ billion, an increase of 35.6% over Dec/11. The lines of credit to investments reached R$ 87.4 billion (considering R$ 44.6 billion for companies and R$ 42.8 billion for agribusiness) in Dec/12 (+25.0% in the twelve months comparison) Disbursement of credit for investment reached R$ 42.8 billion in 2012 (growth of 27.0% in relation to 2011), with emphasis to fund transfer facilities from BNDES, Pronaf, Investimento Agropecuário, FCO and PROGER, being 73% of these funds allocated to SME and Rural Producers. In BNDES fund transfer facilities, since 2008, BB is the leading financial agent operating in the global transfer of funds, with market share of 28.6% in The credit operations for small and medium-sized enterprises reached R$ 88.9 billion in Dec/12 (up 30.7% in twelve months). This performance was especially favored by the BOMPRATODOS program. Moreover, BB has been using the Fundo de Garantia de Operações FGO (Operations Guarantee Fund) and the Fundo de Aval às Micro e Pequenas Empresas Fampe (Endorsement for Micro and Small Enterprises Fund) to allow greater access to the credit for SME and to reduce the operating cost for the final borrower. Accordingly, the working capital lines for SME grew R$ 13.2 billion in twelve months and R$ 6.4 billion in the quarter, totaling R$ 61.0 billion in Dec/12. The investment credit lines to SME closed Dec/12 at R$ 25.9 billion, a growth of 40.9% in twelve months and 10.7% over Sep/12. BNDES Card, a product in which BB maintains the leadership in disburses, quantity of cards and transactions, reached, in Dec/12, an accumulated disbursement of R$ 17.9 billion since the beginning of card sales. This amount represented an increase of R$ 7.2 billion in the last 12 months, with 67.4% of the cards issued in the market. BB s Foreign Loan Portfolio in the broad concept reached R$ 46.4 billion in Dec/12, a balance 32.8% higher than that the one verified in Dec/11. The balance of ACC/ACE (advance against exchange and advance against draft presentation) operations reached R$ 11.2 billion in Dec/12, an increase of 15.8% in twelve months, ensuring BB a market share of 32.1% in the end of Agribusiness Loan Portfolio in the broad concept surpasses R$ 108 billion Banco do Brasil is the absolute leader in agribusiness lending, with a market share of 62.5%. The agribusiness portfolio in the broad concept, including agricultural loan and agroindustrial operations, represented 18.6% of the total loan portfolio in Dec/12, reaching R$ billion, an expansion of 20.8% in twelve months. It is worth to highlight the Pronaf and Pronamp lines, which reached R$ 24.2 billion and R$ 11.9 billion, respectively, with an increase in twelve months of 20.7% and 66.1% in the same order. These operations were driven by adjustments in the credit conditions that expanded the target public of this credit line. The individual agribusiness loan portfolio reached R$ 74.1 billion in Dec/12, growing 29.5% against Dec/11. The companies agribusiness loan portfolio reached R$ 32.9 billion (up 4.7%). The use of insurance to support the 2012/2013 harvest working capital for input purchase reached 53.0% of the operations on Dec/12 i.e., R$ 6.8 billion. The delinquency of the agribusiness portfolio remains low levels, with the NPL+90 days ratio of 0.6%, against 0.7% in Dec/11. Delinquency Ratios fall and remain below Banking Industry The ratio that measures non-performing loans for more than 90 days ended Dec/12 at 2.05% (1.77%, excluding the operations of BV), lower than that recorded by Brazilian Banking Industry, which 19

21 Earnings Summary reached 3.64% in the same period. BB also presents a better credit structure than the Industry. Operations classified at risk levels AA-C closed Dec/12 at 94.5% of the total portfolio, against 92.4% observed in the Industry. The following table presents quality indexes of loan portfolio. Table 12. Classified Loan Portfolio Quality Indicators % Dec/11 Sep/12 Dec/12 NPL + 15 days/total Portfolio (%) NPL days/total Portfolio (%) NPL + 60 days/total Portfolio (%) NPL days/total Portfolio (%) NPL + 90 days/total Portfolio (%) AA - C Loans / Total Portfolio (%) Allow ance/loan Portfolio Individuals Allow ance/loan Portfolio Companies Allow ance/loan Portfolio Allow ance/npl + 60 days Allow ance/npl + 90 days Average Risk BB Average Risk Banking Industry NPL + 90 days/total Portfolio BI Allowance for loan losses increased 25.7% in relation to 4Q11, variation in line with the growth of the classified loan portfolio of 24.3% in the period. Table 13. Allowance for Loan Losses Expenses over Classified Loan Portfolio Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 (A) Allow ance for Loan Losses - Quarterly (2,892) (3,764) (3,636) 25.7 (3.4) (B) Allow ance for Loan Losses - 12 Months (11,827) (13,907) (14,651) (C) Classified Loan Portfolio 422, , , (D) Average Classified Portfolio 3 Months 412, , , (E) Average Classified Portfolio 12 Months 383, , , Expenses over Portfolio (A/D) - % Expenses over Portfolio (B/E) - % The balance of provisions ended the quarter at R$ 21.2 billion, which provides coverage of 196.5% of non-performing loans for more than 90 days, a percentage higher than that verified in Banking Industry that reached 151.9% in Dec/12. BOMPRATODOS BOMPRATODOS boosts loans operations BOMPRATODOS program was launched last April. The program reflects the new strategic positioning of Banco do Brasil and includes a range of actions whose comprise financial advisory, interest rates reduction in the main credit lines for individual and SME and improvement of the relationship with clients. Thus, BB aim to encourage the conscious use of credit and to contribute for the maintenance of delinquency ratios at a level lower than the Banking Industry, allowing the credit expansion with quality. The following figures show the improvement of the main credit products offered for individuals in the scope of BOMPRATODOS. In the traditional products, such as payroll loans and consumer credit, the program allowed BB to maintain the growing path, strengthening Banco do Brasil positioning in those segments. As a result, BB Crediário portfolio, a line designed as consumer finance for the purchase of goods, increased, closing Dec/12 with balance of R$ 570 million (+130.4% compared to March 2012). The auto loans operations originated at the BB branches totaled R$ 11.0 billion in Dec/12, with expansion of 138.6% over Mar/12. It is worth emphasizing the auto loans operations originated at BB branches, 20

22 Banco do Brasil MD&A 4Q12 which totaled R$ 11.0 billion in Dec/12, with expansion of 138,6% over Mar/11. This performance occurred without a change in the criteria for credit grant analysis of the new operations, ensuring the maintenance of the portfolio s quality. Furthermore, the auto loans operations are concentrated in individuals clients that have checking account for over five years. Figure 4. BOMPRATODOS Main Individuals Credit Lines R$ million INSS Payroll Loan¹ Consumer Finance 4,032 4,140 17,024 17,296 17,118 3,909 16,121 3,596 3,703 15,327 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Auto Loans 11,022 BB Crediário 570 9, ,693 4,619 6, Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 1 Excludes acquired loan portfolios. The following charts show that auto non-performing loans for more than 90 days (NPL + 90 days) of Banco do Brasil is lower than that recorded by the Banking Industry. In addition, the breakdown of this portfolio by risk level indicates that 94.4% of the operations are concentrated among levels AA-C, with an improvement of 400 base points over Mar/12. Figure 5. Organic Auto Loan Portfolio NPL + 90 days and Risk Level - % NPL + 90 days - BB Organic vs BI Vehicle Loans Portfolio by Risk Level Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 BB Banking Industry Dec/11 Sep/12 Dec/12 AA-C D-H 21

23 Earnings Summary The evolution of working capital and investment loans for SME can be seen in the following chart. Comparing to Mar/12 these operations grew 18.5% and 18.2%, respectively, positively impacted by the BOMPRATODOS program that added volume and improved the SME customer relationship. Figure 6. Working Capital and Investment R$ million 61,028 47,867 48,162 51,513 54,639 18,364 20,137 21,898 23,378 25,883 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Working Capital Investments Fee Income Business growth diversifies Fee Income The expansion of the credit supply, the Bank s strong performance in the retail segment, focused on customer service and the retention and expansion of customer relationships, and the BOMPRATODOS program have been favorable for the expansion of business volume, contributing to the diversification of fee revenues. These revenues increased 15.5% in twelve months and 9.6% in the 4Q12/4Q11 comparison. Table 14. Fee Income Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Fee Income 5,002 5,280 5, ,242 21, Credit / Debit Cards 1,084 1,189 1, ,926 4, Account Fees 1,136 1,081 1,073 (5.6) (0.7) 4,077 4, Asset Management (3.8) 3,197 3, Loans Operations ,822 2, Collections ,241 1, Billings Interbank Insurance, P. Plans and Premium Bonds Capital Market Income Other (1.4) 1,764 2, Credit Card revenues reached R$ 99.4 billion in 2012, an increase of 23.0% over the same period of In the 4Q12, the credit card revenues grew 26.4% over 4Q11, driven by more intensive use of cards as a payment method, the increase in the average expenditure and the use of innovative solutions such as access to credit. Highlights to the results from business and BNDES cards that grew 33.9% in relation to Total credit card portfolio balance rose 33.5% in relation to the prior year, reaching a financial volume of R$ 27.2 billion. Banco do Brasil, through BB Gestão de Recursos - BB DTVM, is the leader in assets under management in Brazil since In Dec/12, BB reached the total of R$ billion in assets under management and a market share of 20.0%. BB s market share would reach 20.7% if we consider 22

24 Banco do Brasil MD&A 4Q % of the balance of assets under management by BV, with Votorantim Asset Management VAM (R$ 34.0 billion on Dec/12). In November 2012, Banco do Brasil announced its intention of creating BB Seguridade, a whollyowned subsidiary responsible for consolidating under a single company all its activities of insurance, open pension plans, premium bonds and similar activities, including any future expansions of these activities. The organization chart with corporate structure intended after the establishment of BB Seguridade is stated in item 8.4 of Income Analysis. Additional information about fee income, cards, insurance, asset management and performance in the capital market can be founded in chapter 8 of the MD&A. The MaisBB Network, which includes the Banco Postal, resulted in 2.3 million new opening proposals of checking account in 2012, 556 thousand adherences to credit cards and loan disbursement of R$ 7.4 billion, totaling 1.5 million operations. Comparing the production of this channel with the 2011 performance, there was a 146% increase in credit disbursement. Of this amount, payroll loans accounted for 35% of the total. Administrative Expenses The growth of 13.9% in administrative expenses in the comparison of 2012/2011 was influenced by expenses arising from: (i) partnership with the Mapfre insurance group; (ii) the acquisition of Banco Patagonia; and (iii) the acquisition of the right to use the Banco Postal network. Excluding these three factors, the increase in administrative expenses was 10.1% in the same comparison. This percentage resulted from the salary agreement granted on the base-date of Sep/11, adjustment of administrative provisions by inflation of period from Oct/11 to Sep/12, increase in the number of employees in the period, contractual payment adjustments made, as well as the expansion of the distribution network. Table 15. Adjusted Administrative Expenses Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Administrative Expenses (6,966) (7,123) (7,499) (24,752) (28,194) 13.9 Personnel Expenses (3,954) (4,001) (4,211) (13,943) (15,777) 13.1 Other Administrative Expenses (3,012) (3,122) (3,288) (10,809) (12,417) 14.9 Cost to Income Ratio Relevant variations in other operating income and expenses are presented in item 9.3 of the 4Q12 of MD&A report. In twelve month comparison, the performance of fee income and control of administrative expenses led to an improvement in the ratio that measures personnel expenses coverage as well as the one that measures administrative expenses coverage. Coverage rate reduction in relation to the 3Q12 results was driven by the increase in personnel expenses and contract adjustments that are typical of the 4Q12. Cost to Income ratio ratio, a ratio between administrative expenses and operating revenues, closed 4Q12 at 43.2%. This performance is explained by the reduction in the amount recorded referring to the recognition of actuarial gains and losses of Previ Benefits Plan I and by the factors that impacted administrative expenses as mentioned in the Administrative Expenses item. 23

25 Earnings Summary Figure 7. Cost to Income Ratio Adjusted¹ - % Q11 3Q12 4Q12 Cost to Income Ratio (12 months accumulated) - % Cost to Income Ratio - % 1 Cost to Income historical data was reviewed in order to reflects the adjusted net income. Historical data reviewed since 1Q11. Assumptions of the Guidance The estimates for 2013 were prepared with the consideration of the following assumptions: Assumptions influenced by management: 1. Increase in profitability of the client portfolio as a way to leverage revenues; 2. Expansion of the service network, new clients base, and profitability of the current client portfolio, based on the partnership with Banco Postal; 3. Maintenance of the current business model, without considering new acquisitions and/or partnerships that might be entered into to exploit specific segments; 4. Alignment of the cost structure to business volume growth; 5. Adjustments in contracts to suppliers and collective bargaining agreement aligned with the market; Assumptions that are not under management control: 1. Low growth of developed economies in 2013; 2. Greater resistance, but not immunity, of the Brazilian economy to foreign shocks; 3. A political environment without institutional rupture; 4. Maintenance of sovereign credit rating as investment grade; 5. Maintenance of the current domestic macroeconomic policy structure: floating exchange rate, inflation targets (nominal anchor) and fiscal discipline, entailing a gradual and consistent reduction of the relationship between Public Sector Net Debt (PSND) and the Gross Domestic Product (GDP); 6. Increase of the Brazilian Trade Balance and its effects in the Foreign Trade Portfolio; 7. A gradual increase in the Brazilian economy's potential growth (potential GDP); 8. Evolution of interest rates, foreign exchange, inflation rate and GDP according to the market's consensus; 9. An advancement of the regulatory mark / microeconomic agenda with stimulus to public and private investments; 10. Regulatory stability, also in what concerns the rates of taxes levied on the Bank's activities, labor legislation, and social security legislation; 11. Change in capital consumption rules and rates of the compulsory payment - macroprudential measures; 12. Implementation of Basel III recommendations; 13. Guidelines of the 2013/2014 Harvest Plan. 24

26 Banco do Brasil MD&A 4Q Key Statistics Table 16. Main Macroeconomic Indicators¹ Economic Activity GDP (% YTD in 12 months) 5.2 (0.3) NA Family Consumption NA Government Consumption NA Gross Fixed Capital Formation 13.6 (6.7) NA Exports 0.5 (9.1) NA Imports 15.4 (7.6) NA Use of Installed Capacity (%) NA Agent Population (% YTD in 12 months) Unemployment Rate (% YTD in 12 months) Formal employment net creation in 12 m (thousand jobs) 1, , , Industrial Production (% YTD in 12 months) 3.1 (7.4) (2.7) External Sector Current Transactions (% YTD in 12 months) (1.7) (1.5) (2.2) (2.1) (2.4) Direct Foreign Investment (US$ billion) International Reserves (US$ billion year accumulated) Sovereign Risk (base points EOP) Trade Balance (US$ billion year accumulated) Exports (US$ billion year accumulated) Imports (US$ billion year accumulated) Ptax Dollar Sale (EOP) Ptax Dollar Sale (% YTD in 12 months) 31.9 (25.5) (4.3) Monetary Ratios IGP-DI FGV (% YTD in 12 months) 9.1 (1.4) IGP-M FGV (% YTD in 12 months) 9.8 (1.7) IPCA IBGE (% YTD in 12 months) Selic (EOP %) Accumulated Selic (% YTD in 12 months) Accumulated TR (exbtn) (% YTD in 12 months) TJLP - IBGE (EOP %) Libor (EOP %) Public Finance Primary Surplus (% GDP 12 months accumulated) PSGD (% GDP) PSND (% GDP) - Without Petrobras Credit Ratios Banking Industry Loan Portfolio (R$ billion) 1, , , , ,359.6 Individuals (R$ billion) ,108.0 Companies (R$ billion) , ,251.7 Credit/GDP (% YTD in 12 months) Household Debt (%) Total Default (% past due loans over 90 days) Individuals² Companies² Total Investment Rate (%)² Individuals Companies Total Spread (%)² Individuals Companies Average Term (%)² Individuals Companies All indicators were obtained from oficial sources such as Central Bank of Brazil, FGV (Getúlio Vargas Foundation), IBGE, etc. 2 - Loans as Reference for Interest Rate. NA - Not Avaiable 25

27 Chapter 1 - Key Statistics Table 17. Ownership Structure % Shareholders Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Federal Government Previ BNDESPar Treasury Shares Free Float Individuals Companies Foreign Capital Total Number of Shares 2,865,417,052 2,865,417,067 2,865,417,067 2,865,417,020 2,865,417,020 Table 18. Distribution of Dividends and Interest on Own Capital R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Federal Government Previ BNDES Individuals Companies Foreign Capital Total 1, , , , ,579.8 Table 19. Market Ratios 4Q11 1Q12 2Q12 3Q12 4Q12 Earnings per Share - R$ Price / Earnings (12 months) Price / Book Value Market Capitalization - R$ million 67,910 74,358 55,962 71,062 73,355 Book Value - BBAS BBAS 3 Closing Price - R$ Change - % - BBAS3 (4.6) 9.5 (24.7) Dividend Yield - %¹ Dividends and Interest on Own Capital 12 months / Market Capitalization Table 20. Participation of BB s Shares in Brazilian Stock Market Indexes % Sep/11 - Dec/11 Jan/12 - Apr/12 May/12 - Aug/12 Sep/12 - Dec/12 Jan/13 - Apr/13 Bovespa Index - Ibovespa Brazil Index - IBrX Brazil 50 Index - IBrX Carbon Efficient Index - ICO Financial Index - IFNC Corporate Governance Trade Index - IGCT Special Corporate Governance Stock Index - IGC Corporate Sustainability Index - ISE Special Tag Along Stock Index - ITAG Mid-Large Cap Index - MLCX Preview of the Theoretical Portfolio 26

28 Banco do Brasil MD&A 4Q12 Table 21. Banco do Brasil Key Statistics 4Q11 1Q12 2Q12 3Q12 4Q12 Balance Sheet Items R$ billion Assets , , , ,150.5 Shareholders Equity Loan Portfolio Loan Portfolio - Broad Concept¹ Deposits Demand Deposits Saving Deposits Time Deposits Profitability Earnings per Share - R$ ROE - Annual Basis % Adjusted ROE - Annual Basis % ROA - Annual Basis % NII / Earning Assets - Annual Basis Productivity Cost/Income Ratio² - % Cost/Income Ratio 12 months accumulated² - % Fee Income / Personnel Expenses² - % Fee Income / Adm. Expenses² - % Personnel Expenses per Employee Employees⁴ / (Branches + PAA + PAB) Checking Accounts per Collaborator⁴ Assets per Employee⁴ 8,018 8,252 8,578 8,952 9,445 Loan Portfolio / Points of Service³ R$ million Loan Portfolio Quality Allow ance / Loan Portfolio - % Allow ance / NPL+ 90 days - % Portfolio Net of Allow ance / Total Portfolio - % Capital Structure Leverage (times) BIS Ratio - % Tier I Tier II Total Quantity of Shares - thousand 2,865 2,865 2,865 2,865 2,865 Structural Information Branches 5,263 5,266 5,317 5,339 5,362 Total Service Points³ 18,765 18,655 18,845 19,022 19,144 Total Customers - thousand 56,001 56,921 57,466 57,879 58,551 Total Checking Accounts - thousand 36,121 36,539 36,690 37,084 37,418 Individuals - thousand 33,875 34,261 34,396 34,687 35,049 Companies - thousand 2,247 2,278 2,294 2,397 2,369 Total Savings Accounts - thousand 24,709 24,910 32,626 34,275 36,042 Staff 122, , , , ,811 Employees 113, , , , ,182 Interns 8,567 8,374 8,568 8,836 7,629 Market Share Assets Deposits BNDES Onlending Loan Agribusiness Asset Management Cards Revenues ND Import Exchange Export Exchange It includes private securities, guarantees provided and the individual portfolio acquired with recourse, in accordance with the Resolution CMN 3533/ Serie revised due to changes in methodology, referring to the Income Statement with reallocations. 3 - Own network. 4 - Include employees and interns NA - Not Available 27

29 Chapter 1 - Key Statistics Table 22. Ratings 4Q11 1Q12 2Q12 3Q12 4Q12 Global Ratings Fitch Ratings Individual¹ C / D Availability¹ - bb+ bb+ bb+ bb+ Short-Term - Local Currency F2 F2 F2 F2 F2 Long-Term - Local Currency BBB BBB BBB BBB BBB Short-Term - Foreign Currency F2 F2 F2 F2 F2 Long-Term - Foreign Currency BBB BBB BBB BBB BBB Moody's Financial Strength C+ C+ C- C- C- Short-Term - Local Currency P-1 P-1 P-2 P-2 P-2 Short-Term - Foreign Currency P-2 P-2 P-2 P-2 P-2 Long-Term Deposits - Foreign Currency Baa1 Baa1 Baa1 Baa1 Baa1 Long-Term Deposits - Local Currency A2 A2 A3 A3 A3 Long-Term Debt- Foreign Currency Baa2 Baa2 Baa2 Baa2 Baa2 Standard & Poor's Short-Term - Foreign Currency A-3 A-3 A-2 A-2 A-2 Long-Term - Local Currency BBB BBB BBB BBB BBB Long-Term - Foreign Currency BBB BBB BBB BBB BBB National Ratings Fitch Ratings Short-Term F1+(bra) F1+(bra) F1+(bra) F1+(bra) F1+(bra) Long-Term AAA (bra) AAA (bra) AAA (bra) AAA (bra) AAA (bra) Moody's Short-Term BR-1 BR-1 BR-1 BR-1 BR-1 Long-Term Aaa.br Aaa.br Aaa.br Aaa.br Aaa.br 1 - The Fitch Ratings Individual index was replaced by the Availability index, which measures, basically, the same risk characteristics. Table 23. Compulsory/Reserve Requirement Compulsory/Reserve Requirements Demand Deposits 4Q11 1Q12 2Q12 3Q12 4Q12 Rate ¹ 43% 43% 43% 44% 44% Additional ² 12% 12% 12% 6% 0% Reserve Requirements* ³ 28% 28% 28% 34% 34% Direct Lending (micro finance) ⁴ 2% 2% 2% 2% 2% Unmarked 15% 15% 15% 14% 20% Savings Deposits Rate ⁵ 17% 17% 17% 17% 17% Additional ⁶ 10% 10% 10% 10% 10% Reserve Requirements ⁷ 68% 68% 68% 68% 68% Unmarked 5% 5% 5% 5% 5% Time Deposits Rate ⁸ 20% 20% 20% 20% 20% Additional ⁹ 12% 12% 12% 12% 11% Unmarked 68% 68% 68% 68% 69% Judicial Deposits Rate ¹⁰ 0% 0% 0% 0% 0% Unmarked 100% 100% 100% 100% 100% Reserve Requirements at BB are directed to Rural Credit. 1 - Up to 06/21/2010: 42% rate (Bacen Circular 3,413 of 10/14/2008); From 06/28/2010 to 07/02/2012: 43% rate; From 07/09/2012 to 06/16/2014: 44% rate; Up to 06/23/2014: 45% rate (Bacen Circular 3,497 of 06/24/2010). 2 - Up to 07/15/2012: 12% rate (Bacen Circular 3,514 of 12/03/2010); From 07/16/2012 to 09/30/2012: 6%; Since 10/01/2012: 0% (Bacen Circular 3,609 of 09/14/2012). 3 - Up to 06/30/2012: 28%; (MCR 6-2 Changed by Bacen Resolution 3,746 of 06/30/2009); Since 07/01/2012: 34% (Bacen Circular 4,096 of 06/28/2012). 4 - Bacen Resolution 3,422, of 11/30/ Up to 06/25/2010: 15% rate; From 06/28/2010 to 06/24/2011: 16% rate; From 06/27/2011 to 06/29/2012: 17% rate; From 07/02/2012 to 06/28/2013: 18% rate; From 07/01/2013 to 06/27/2014: 19%; From 06/30/0214 to 06/26/2015: 20% (Bacen Resolution 3,705 of 03/26/2009). 6 - Bacen Circular 3,486, From 02/24/ Up to 06/30/2010: 70%; From 07/01/2010 to 06/30/2011: 69%; From 07/01/2011 to 06/30/2012: 68%; From 07/01/2012 to 06/30/2013: 67%; From 07/01/2013 to 06/30/2014: 66%; From 07/01/0214 to 06/30/2015: 65% (Bacen Resolution 3,705 of 03/26/2009). 8 - Up to 12/05/2010: 15% rate (Bacen Circular 3,485 of 02/24/2010); From 12/06/2010: 20% rate (Bacen Circular 3,513 of 12/03/2010). 9 - Up to 12/03/2010: 8% rate (Bacen Circular 3,486 of 02/24/2010); From 12/06/2010: 12% rate (Bacen Circular 3,514 of 12/03/2010) Bacen Circular 3,223, of 02/06/

30 Banco do Brasil MD&A 4Q Summarized Financial Statements 2.1. Summarized Balance Sheet Table 24. Summarized Balance Sheet - Assets Balance Chg. % R$ million Dec/11 Sep/12 Dec/12 On Dec/11 On Sep/12 ASSETS 981,230 1,103,913 1,150, Current and Long-Term Assets 957,800 1,080,698 1,126, Available Funds 10,034 14,495 12, (15.1) Short-Term Interbank Investments 166, , , Securities and Financial Derivatives 168, , , Securities Available for Trading 63,257 67,923 74, Securities Available for Sale 88,385 94,366 95, Securities Held to Maturity 15,191 16,227 12,910 (15.0) (20.4) Financial Derivatives 1,397 1,554 1, (9.0) Interbank Accounts 96,342 91,876 83,401 (13.4) (9.2) Deposits w ith the Central Bank 93,660 85,478 80,098 (14.5) (6.3) Compulsory Dep. on Demand Dep. and Float 14,307 12,293 15, Compulsory Dep. on Savings Deposits 79,353 73,185 64,357 (18.9) (12.1) Other 2,682 6,398 3, (48.4) Intrabank Accounts Loans 379, , , Public Sector 8,486 8,642 10, Private Sector 388, , , Loans Linked to Assignment , (Allow ance for Loan Losses) (18,222) (20,583) (20,522) 12.6 (0.3) Leasing 2,851 2,111 1,883 (34.0) (10.8) Leasing and Subleasing Receivables 3,064 2,256 2,011 (34.4) (10.9) (Allow ance for Lease Losses) (213) (145) (128) (40.0) (11.8) Other Receivables 129, , , Receivable on Guarantees Honored Foreign Exchange Portfolio 17,615 18,469 17,276 (1.9) (6.5) Income Receivable 1,410 1,699 1, Trading and Brokerage of Securities (33.5) Specific Credits 1,146 1,234 1, Credits from Insur., Pension Plans and Saving Bonds 1,742 2,277 2, (3.6) Tax Credits 22,754 25,988 24, (3.9) Actuarial Assets 13,372 14,783 16, Fundo Paridade 1,608 1, (54.0) (56.8) Warrants Deposits Receivable 25,584 27,502 28, Surplus Destination Fund - PREVI 8,030 8,337 8, Fundo de Destinação 3,684 2,853 2,374 (35.6) (16.8) Fundo de Contribuição 1, (33.7) (14.4) Fundo de Utilização 3,249 4,634 5, Other Credits 37,564 44,222 51, (Provision or Doubtful Receivables) (1,665) (1,392) (1,476) (11.3) 6.1 (With Loan Characteristics) (580) (554) (560) (3.4) 1.2 (Without Loan Characteristics) (1,085) (838) (916) (15.6) 9.3 Other Assets 5,120 4,543 3,909 (23.7) (14.0) Other Assets (Provision for Possible Losses) (188) (173) (195) Prepaid Expenses 4,840 4,186 3,547 (26.7) (15.3) Permanent Assets 23,430 23,215 23, Investments 7,973 7,990 7,640 (4.2) (4.4) Property and Equipment 5,589 5,945 6, Intangible 9,736 9,201 9,309 (4.4) 1.2 Deferred Charges (46.6) (10.9) 29

31 Chapter 2 Summarized Financial Statements Table 25. Summarized Balance Sheet - Liabilities Balance Chg. % R$ million Dec/11 Sep/12 Dec/12 On Dec/11 On Sep/12 LIABILITIES AND SHAREHOLDER S EQUITY 981,230 1,103,913 1,150, Current and Long-Term Liabilities 922,467 1,039,460 1,084, Deposits 442, , , (0.8) Demand Deposits 62,016 61,486 74, Savings Deposits 100, , , Interbank Deposits 14,450 15,733 16, Time Deposits 265, , ,013 (1.1) (8.3) Money Market Borrow ing 195, , , Repurchase Agreements w ith Private Securities 664 8,444 9,554 1, Funds from Acceptances and Securities Placed 32,323 53,737 70, Agribusiness Letter of Credit 7,422 22,807 34, Commercial Papers 8,717 9,552 9, Foreign Securities 16,185 21,379 26, Interbank Accounts 24 3, (99.3) Intrabank Accounts 3,819 2,127 5, Borrow ing 12,257 13,398 14, Domestic Borrow ing Foreign Borrow ing 12,136 12,989 13, Domestic Onlending Official Institutions 50,991 52,763 63, National Treasury 1,722 1, (58.6) (31.0) BNDES 28,978 32,195 41, CEF Finame 17,506 18,438 19, Other Institutions 2, (73.3) 33.2 Foreign Onlending (14.5) (8.6) Financial Derivatives 3,621 3,624 3,439 (5.0) (5.1) Other Accounts Payable 181, , , Collection of Taxes and Contributions 360 5, (91.8) Foreign Exchange Portfolio 28,416 25,067 26,404 (7.1) 5.3 Shareholder and Statutory Distributions 2,122 1,521 1,818 (14.4) 19.5 Taxes and Social Security 28,057 30,244 30, Trading and Brokerage of Securities 836 1,190 1, Tech. Prov. Insur., Pension Plans and Saving Bonds 45,023 55,187 60, Financial and Development Funds 4,002 4,667 5, Hybrid Capital Istruments 2,846 15,138 15, (0.5) Special Operations FCO (Subordinated Debt) 30,885 40,252 40, Actuarial Liabilities 7,142 7,061 6,714 (6.0) (4.9) Other Liabilities 32,077 34,482 40, Unearned Income Shareholders Equity 58,416 64,104 66, Capital 33,123 33,123 48, Revaluation Reserves (1.8) (0.4) Reserve for Retained Earnings 24,121 27,030 16,132 (33.1) (40.3) Mark-to-Market Securities and Derivatives 724 1,561 1, (9.0) Retained Earnings (Accumulated losses) (Treasury Shares) (0) (162) (461) - - Corporate Profit Sharing Income Accounts - 1,

32 Banco do Brasil MD&A 4Q Summarized Corporate Law Income Statement Table 26. Summarized Corporate Law Income Statement Quarterly F lo w C hg. % A nnual F lo w C hg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 F inancial Intermediatio n Inco me 25,172 24,225 23,846 (5.3) (1.6) 99, , Loans 15,944 15,952 16, ,998 66, Leasing (22) (43.8) Securities 7,189 6,623 6,255 (13.0) (5.6) 30,849 27,982 (9.3) Financial Derivatives (403) (206) (409) (1,461) (1,434) (1.8) Foreign Exchange Portfolio (11.9) 45.3 (374) Compulsory Investments 1,923 1,388 1,117 (41.9) (19.5) 7,231 5,925 (18.1) Sale or Transf. Financial Assets Financ. Inc. Insur., Pension & S.Bonds Ope (2.4) (6.0) F inancial Intermediatio n Expenses (18,226) (17,316) (16,132) (11.5) (6.8) (73,554) (72,360) (1.6) M oney M arket Funds¹ (13,709) (12,481) (11,684) (14.8) (6.4) (54,370) (51,112) (6.0) Borrowing, Assignments and Onlending¹ (1,305) (1,220) (1,125) (13.8) (7.8) (7,210) (7,376) 2.3 Allowance for Loan Losses (3,211) (3,615) (3,323) 3.5 (8.1) (11,975) (13,872) 15.8 Gro ss Inc. fro m F in. Intermediatio n 6,946 6,909 7, ,107 27, Other Operating Inco me (Expenses) (2,128) (3,290) (2,382) 11.9 (27.6) (7,600) (10,480) 37.9 Fee Income 3,374 3,591 3, ,213 14, Banking Fees Income 1,652 1,689 1, ,028 6, Personnel Expenses (4,260) (4,183) (4,406) (14,913) (16,503) 10.7 Other Administrative Expenses (3,664) (4,062) (4,018) 9.7 (1.1) (13,422) (16,013) 19.3 Taxes (1,129) (1,109) (1,154) (4,259) (4,416) 3.7 Eqty. Int. in the Res. of Subs., and Affiliates 56 (8) (76) (42.0) Inc. for Ins., Pens. Plans & Sav.Bonds Op ,265 2, Other Operating Income 3,290 2,465 3, ,978 11,735 (9.6) Other Operating Expenses¹ (1,963) (2,268) (2,347) (8,945) (8,966) 0.2 Operating Inco me 4,818 3,619 5, ,507 17,227 (6.9) Non-operating Income ,099 12, , , Inco me B efo re T axes 4,826 3,679 6, ,732 18,437 (1.6) Income and Social Contribution Taxes (1,372) (522) (1,826) (4,722) (4,241) (10.2) Statutory Profit Sharing (443) (386) (600) (1,791) (1,835) 2.5 M inority Interest Earnings (39) (44) (37) (5.0) (15.9) (93) (156) 67.3 N et Inco me 2,972 2,728 3, ,126 12, Historical data were reviewed since 2011 first quarter due to the accounting of premium paid to clients arising from judicial deposits and adjustment of resources released in the scope of BB Crédito Imobiliário (Banco do Brasil real state loans), in accordance with CMN resolution 3,706/09, in the Money Market Funds expenses, those expenses were previously accounted for in Other Operating Expenses. Additionally, the Borrowing Assignments and Onlending historical data was reviewed since the 1Q11, due to the accounting of expenses related to remuneration of resources intended to INSS (Brazilian Social Security) benefits payments and adjustment of resources to refund to Tesouro Nacional, those expenses were previously accounted for in Other Operating Expenses. 31

33 Chapter 2 Summarized Financial Statements 2.3. Income Statement with Reallocations Table 27. Income Statement with Reallocations Quarterly Flow Chg. % Annual Flow Chg. R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Financial Intermediation Income 25,970 25,084 24,868 (4.2) (0.9) 102, , Loan Operations (1) 16,717 16,756 17, ,486 69, Lease Operations (22) (43.8) Securities 7,189 6,623 6,255 (13.0) (5.6) 30,849 27,982 (9.3) Financial Derivatives (403) (206) (409) (1,461) (1,434) (1.8) Foreign Exchange Portfolio (11.9) 45.3 (374) Compulsory Investments 1,923 1,388 1,117 (41.9) (19.5) 7,231 5,925 (18.1) Sale or Transference of Financial Assets Financ. Inc. Insur., Pension & S.Bonds Op (2.4) (6.0) FX Gain (Loss) on Foreign Equity (2) 9 21 (9) (17.5) Other Op. Inc. of a Fin. Int. Nature (3) (4) (5) (5) (1) (3) (37.7) (75) Tax Hedge (6) (7) (25.5) (7.8) Financial Intermediation Expenses (15,153) (13,833) (12,835) (15.3) (7.2) (62,019) (58,796) (5.2) Money Market Funds¹ (8) (9) (13,847) (12,613) (11,950) (13.7) (5.3) (54,809) (51,660) (5.7) Borrow ing, Assignments and Onlending¹ (10) (1,305) (1,220) (885) (32.2) (27.5) (7,210) (7,136) (1.0) Net Interest Income 10,817 11,251 12, ,830 45, Allow ance for Loan Losses (11) (12) (2,892) (3,764) (3,636) 25.7 (3.4) (11,827) (14,651) 23.9 Net Financial Margin 7,925 7,488 8, ,003 31, Fee Income 5,027 5,280 5, ,242 21, Services Income 3,374 3,591 3, ,213 14, Banking Fee Income 1,652 1,689 1, ,028 6, Inc. for Ins., Pens. Plans & Sav.Bonds Op ,265 2, Taxes on Revenues (6) (13) (1,071) (1,049) (1,088) (4,081) (4,183) 2.5 Contribution Margin 12,397 12,315 13, ,429 50, Administrative Expenses (6,966) (7,123) (7,499) (24,752) (28,194) 13.9 Personnel Expenses (14) (3,954) (4,001) (4,211) (13,943) (15,777) 13.1 Other Administrative Expenses (15) (16) (17) (3,012) (3,122) (3,288) (10,809) (12,417) 14.9 Other Tax Expenses (13) (61) (64) (68) (216) (268) 24.2 Commercial Income 5,370 5,128 5, ,461 21, Legal Risk (4) (463) (219) 5,928.6 (52.7) (860) (1,539) 79.0 Legal Claims (15) (18) (24) 275 (281) (23) - (91.6) (135) (813) Labor Law suits (14) (19) (278) (182) (196) (29.7) 7.3 (724) (726) 0.2 Other Operating Income (435) (761) (590) 35.6 (22.4) (687) (2,539) Eq. Int. in Results of Subs. And Affil. (2) 47 (29) (67) (94) - FX Other Operating Income / Expenses (482) (731) (523) 8.6 (28.4) (709) (2,445) Other Oper. Income (1) (3) (5) (10) (18) (19) (20) (21) 1,641 1,368 1,578 (3.8) ,939 5,795 (2.4) PREVI (20) (45.9) (0.0) 2,981 1,355 (54.5) Other Operating Expenses¹ (4) (9) (11) (16) (17) (21) (2,654) (2,386) (2,389) (10.0) 0.1 (9,629) (9,595) (0.4) Operating Income 4,931 3,904 5, ,914 17,776 (6.0) Non-Operating Income (22) (23) 9 60 (4) Income Before Taxes 4,940 3,964 5, ,970 17,883 (5.7) Income and Social Contrib. Taxes (7) (25) (27) (1,425) (891) (1,324) (7.1) 48.7 (5,388) (4,455) (17.3) Interest on Ow n Capital Tax Benefit ,221 1, Statutory Profit Sharing (26) (450) (372) (500) (1,737) (1,745) 0.4 Minority Interest Earnings (39) (44) (37) (5.0) (15.9) (93) (156) 67.3 Adjusted Net Income 3,025 2,657 3, ,751 11,528 (1.9) One-Off Items (53) , Sale of Investments (22) Economic Plans (8) (24) (95) (255) (167) 76.3 (34.4) (103) (968) Tax Efficiency (25) (36.9) Reversal of Additional Provision for Loan Losses (12) Sale of Property (23) - - 1, ,103 - Tax Eff. and Stat. Prof. on One-Off Items (26) (27) (625) - - (78) (401) Net Income 2,972 2,728 3, ,126 12, Historical data were reviewed since 2011 first quarter due to the accounting of premium paid to clientes arising from judicial deposits and adjustment of resources released in the scope of BB Crédito Imobiliário (Banco do Brasil real state loans), in accordance with CMN resolution 3,706/09, in the Money Market Funds expenses, those expenses were previously accounted for in Other Operating Expenses. Additionally, the Borrowing Assignments and Onlending historical data was reviewed since the 1Q11, due to the accounting of expenses related to remuneration of resources intended to INSS (Brazilian Social Security) benefits payments and adjustment of resources to refund to Tesouro Nacional, those expenses were previously accounted for in Other Operating Expenses. 32

34 Banco do Brasil MD&A 4Q Reallocations Details In this chapter, the adjustments made in the Corporate Law Income Statement to get the Income Statement with Reallocations are detailed. Such adjustments aim to: a) Separate the one-off items and show the adjusted net income for the period; b) Change the manner that income and expenses are shown, in order to provide a better understanding of the business and the Company's performance; c) Allow the Net Interest Income (NII) recorded in the period to reflect, effectively, the gain from all the earning assets, seeking to inform the market what is the spread achieved from the division of this margin by average balance of earning assets. For this, it was necessary to: I - Include in the NII the income recorded in other operating income that had financial intermediation characteristics and which was derived from earning assets recorded in the other receivables in the Balance Sheet; II - Identify the foreign exchange gain/(loss) on assets and liabilities abroad in the period in a specific NII item; III To keep in NII, amounts related to negative foreign exchange adjustments and expenses reversal that were recorded in other operating income/expenses to avoid inverting the balance of accounts which have a financial intermediation nature; IV - Detect and cancel the effects of tax hedge transactions entered into as of 4Q08, on the effective tax rate and NII; V Include, in the NII, all of the expenses related to Subordinated Debt and Perpetual Securities Follows below the statement of the reallocations performed in the period: 33

35 Chapter 2 Summarized Financial Statements Table 28. Statement of Reallocations and One-Off Items R$ million IT EM F R O M TO EV EN T 4 Q 11 3 Q 12 4 Q Other Operating Income Loan Operations Equaliz. Rev. of Charges over Loan Oper. - Harvest , , , Eq. Int. in Results of Subs. And Affil FX Gain (Loss) on Foreign Investments FX Gain (Loss) on Foreign Equity (9.3) Other Operating Income Other Op. Inc. of a Fin. Intermed. Nature FX Readjustment Other Operating Expenses Other Op. Inc. of a Fin. Intermed. Nature FX Readjustment (14.6) (6.6) (10.5) (1,075.1) (104.2) 5 Other Operating Income Other Op. Inc. of a Fin. Intermed. Nature Other Op. Inc. of a Fin. Intermediation Nature Tax on Revenues Tax Hedge Tax Hedge Income and Social Contribution Taxes Tax Hedge Tax Hedge M oney M arket Funds Economic Plans Economic Plans - (125.6) (96.9) - (493.2) 9 Other Operating Expenses M oney M arket Funds Funding Expenses - Subord. Debt and Hybrid Cap. Inst. (138.4) (257.2) (362.8) (439.2) (1,040.9) 10 Other Operating Income Borrowing, Assignments and Onlending Reversal with Pronaf Expenses Allowance for Loan Losses Other Operating Expenses Allow. for Loan Losses (Cred. w/o Char. of Fin. Int.) (319.8) (163.4) (147.9) Allowance for Loan Losses Reversal of Additional Provision for Loan Losses Reversal of Additional Provision for Loan Losses Other Tax Expenses Tax on Revenues Taxes on Revenues (1,068.5) (1,044.9) (1,085.5) (4,043.6) (4,148.4) 14 Personnel Expenses Labor Lawsuits Provision for Labor Lawsuits (306.2) (182.3) (195.5) (969.1) (726.7) 15 Other Administrative Expenses Legal Claims Expenses of Legal Claims (127.8) (410.0) (93.9) (562.7) (1,357.3) 16 Other Administrative Expenses Other Operating Expenses Banco Postal Amortization Expenses - (60.0) (60.0) - (180.0) 17 Other Administrative Expenses Other Operating Expenses Premiums Paid to Costumers (523.5) (470.4) (575.9) (2,051.1) (2,058.6) 18 Other Operating Income Legal Claims Reversal of Contingent Liabilities Other Operating Income Labor Lawsuits Reversal of Labor Liabilities Other Operating Income PREVI Revision in the Actuarial Assets and Liab. of Previ , , Other Operating Income Other Operating Expenses Reversal of Provision - Pension Plan Liabilitie Non-Operating Income Sale of Investments Sale of Investments Non-Operating Income Sale of Properties Sale of Properties - - 1, , Legal Claims Economic Plans Economic Plans (94.9) (129.3) (70.4) (102.6) (474.8) 25 Income and Social Contribution Taxes Tax Efficiency Tax Efficiency Statutory Profit Sharing Tax Eff. and Stat. Profits over One-Off Items Tax Effects and Statutory Profits over One-Off Items 6.9 (13.2) (100.4) (53.3) (90.4) 27 Income and Social Contribution Taxes Tax Eff. and Stat. Profits over One-Off Items Tax Effects and Statutory Profits over One-Off Items (524.6) (24.7) (310.1) 34

36 Banco do Brasil MD&A 4Q Glossary of Reallocations (1) Refers to the equalization revenues of charges on rural credit operations. The calculations for equalization of the interest rates are based on the administrative rulings of the Ministry of Finance, which determine the calculation formulas, according to the source of funds. (2) Corresponds to the result of the changes of rights and obligations relating to foreign exchange variations incurred due to the periodic restatement of loans and financings payable in foreign currency. (3) to (5) Includes financial income and expenses from foreign exchange besides other operating income with characteristics of financial intermediation. (6) and (7) Mechanism that reduces the effects of exchange variation on the result. (8) and (24) Expense with provision arising from lawsuits relating to the economic plans. (9) Expenses related to restatement of Subordinated Debt and Hybrid Capital Instruments accounted for in other operating expenses. (10) Restatement expenses reversal of Pronaf funding accounted for in other operating income. (11) Allowance for loan losses expenses for credits without characteristics of financial intermediation. (12) Partial reversal of additional allowance for loan losses recognized in previous fiscal years. (13) Tax expenses reallocated to form the contribution margin. (14) Expenses arising from labor law suits. (15) Expenses arising from legal claims. (16) Banco Postal intangible amortization expenses. (17) Portion of the premium paid to costumers accounted for in other administrative expenses. (18) Reversal of balances that, due to the Chart of Accounts of the Central Bank of Brazil (COSIF), could not be accounted for in other administrative expenses in the corporate law income statement. (19) Reversal of balances that, due to the Chart of Accounts of the Central Bank of Brazil (COSIF), could not be accounted for in personnel expenses in the corporate law income statement. (20) Revenues arising from the review of the actuarial assets and liabilities of Previ. (21) Reversal of provision expense related to Pension Plan Liabilities of Banco do Brasil, accounted for in other operating income. (22) Partial sale of investments of BB Group. On 2Q11, sale of Visa International and Mastercard share. (23) Sale of Properties for launch the Real State Fund BB Progressivo II. (25) Revenue related to tax efficiency generated by the Banco do Brasil in the periodic review of the fiscal base. (26) e (27) Segregation of effects of one-off items of the period on the payment of statutory profit sharing (PLR), and unification of effects of these items on taxes (IR and CSLL). The table below shows separately the effect of each extraordinary item on taxes and on PLR. Table 29. Tax Impacts and Statutory Profit Sharing on One-Off Items Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Sale of Investments (75) - - Economic Plans (34.4) Tax Efficiency - (32) (49) (32) (35.4) Reversal of Additional Provision for Loan Losses - - (211) (309) - Property Fund - - (488) (488) - Total (625) - - (78) (401)

37 Capítulo 2 Demonstrações Contábeis Resumidas 2.4. Total Operating Income and Expenses Follows below the table with the rearrangement of income and expense of the Income Statement with Reallocations aiming to show the percentage of consumption by total operating expenses in relation to the total operating income. Table 30. Total Operating Income and Expenses Balance R$ million 4Q11 Share % 3Q12 Share % 4Q12 Share % 2011 Share % 2012 Share % Total Operating Income 15, , , , , Net Interest Income 10, , , , , Fee Income 5, , , , , Insur., Pens. Plan and Saving Bonds Income , , Eq. Int. in Results of Subs. And Affil (29) (0.2) (67) (0.4) (94) (0.1) Other Operating Income 1, , , , , PREVI , , Other Operating Expenses (2,654) (16.7) (2,386) (14.6) (2,389) (13.6) (9,629) (15.9) (9,595) (14.4) Total Operating Expenses (10,993) (69.0) (12,462) (76.1) (12,510) (71.3) (41,736) (68.8) (48,834) (73.3) Expanded Administrative Expenses (6,970) (43.8) (7,586) (46.4) (7,718) (44.0) (25,612) (42.2) (29,732) (44.6) Administrative Expenses (6,966) (43.7) (7,123) (43.5) (7,499) (42.7) (24,752) (40.8) (28,194) (42.3) Personnel Expenses (3,954) (24.8) (4,001) (24.4) (4,211) (24.0) (13,943) (23.0) (15,777) (23.7) Other Administrative Expenses (3,012) (18.9) (3,122) (19.1) (3,288) (18.7) (10,809) (17.8) (12,417) (18.6) Legal Risk (4) (0.0) (463) (2.8) (219) (1.2) (860) (1.4) (1,539) (2.3) Other Tax Expenses (61) (0.4) (64) (0.4) (68) (0.4) (216) (0.4) (268) (0.4) Taxes on Revenues (1,071) (6.7) (1,049) (6.4) (1,088) (6.2) (4,081) (6.7) (4,183) (6.3) Allow ance for Loan Losses (2,892) (18.2) (3,764) (23.0) (3,636) (20.7) (11,827) (19.5) (14,651) (22.0) Operating Income 4, , , , , Non-Operating Income (4) (0.0) Income Before Taxes 4, , , , , Income Taxes and Statutory Profit Sharing (1,875) (11.8) (1,263) (7.7) (1,824) (10.4) (7,126) (11.7) (6,200) (9.3) Minority Interest Earnings (39) (0.2) (44) (0.3) (37) (0.2) (93) (0.2) (156) (0.2) Adjusted Net Income 3, , , , , One-Off Items (53) (0.3) Net Income 2, , , , ,

38 Banco do Brasil MD&A 4Q Loans 3.1. Loan Portfolio Below we present the key concepts for the correct understanding of the tables contained in this chapter. a) Classified Loan Portfolio: Loan Portfolio booked in compliance with Resolution CMN 2,682/99. b) Organic Loan Portfolio: Loan Portfolio excluding 50% of the Banco Votorantim transactions and the acquired portfolios. c) Loan Portfolio Broad Concept: Classified Loan Portfolio plus Private Securities and Guarantees. c.1) Private Securities: operations characterized by the acquisition of securities (commercial paper and debentures) issued by private companies. c.2) Guarantees: operations where the BB guarantees the settlement of the contracts. Table 31. Loan Portfolio Classified and Broad Concept Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share %On Dec/11On Sep/12 Classified Loan Portfolio (a) 422, , , Brazil 390, , , Individuals 130, , , Payroll Loan 51, , , Salary Loans 15, , , (1.0) Auto Loans 31, , , Mortgage 6, , , Credit Card 13, , , Overdraft Account 2, , , (3.7) (12.3) Other 10, , , Companies 171, , , SME 68, , , Middle and Large 103, , , Agribusiness 88, , , Individuals 57, , , Companies 31, , , Abroad 32, , , Private Securities and Guarantees (b) 42,104 51,535 55,127 Loan Portfolio - Broad Concept (a + b) 465, , , Individuals 130, , , Companies 210, , , Agribusiness 89, , , Abroad 34, , , Table 32. Loans in the Brazilian Banking Industry¹ Balance Chg. % R$ million Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 On Dec/11On Sep/12 BI 2,029,844 2,074,680 2,168,641 2,237,793 2,359, Individuals 940, ,289 1,014,590 1,054,640 1,107, Companies 1,089,442 1,101,391 1,154,050 1,183,153 1,251, Market Share BB - % Central Bank of Brazil Press Release (December/12). 37

39 Chapter 3 Loans Individuals Loan Portfolio The following tables present the main credit lines to individuals. It is noteworthy that the lines of payroll loans and auto financing include the balance of the acquired loan portfolios with recourse, in compliance with the Resolution 3,533/08 of the Central Bank of Brazil. Table 33. Individuals Loan Portfolio Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share %On Dec/11On Sep/12 Classified Loan Portfolio 130, , , Direct Consumer Credit 72, , , Payroll Loan 51, , , Consumer Finance 5, , , (0.3) Salary Loans 15, , , (1.0) Mortgage 6, , , Auto Loans 31, , , Credit Card 13, , , Overdraft Account 2, , , (3.7) (12.3) Microcredit Other 4, , , Private Securities and Guarantees , Loan Portfolio - Broad Concept 130, , , Table 34. Individuals Loan Portfolio¹ Market Share Dec/11 Sep/12 Dec/12 R$ million BB BI Share % BB BI Share % BB BI Share % Payroll Loan 51, , , , , , Mortgage 6, , , , , , Auto Loans 31, , , , , , It includes the balance of acquired loan portfolios with recourse, in compliance with CMN Resolution 3,533/08. The individuals classified organic loan portfolio, excluding the acquired portfolios and 50% of the Banco Votorantim transactions, which grew 7.1% QoQ and 25.9% over the same period of the last year. The growth of BB own auto loans portfolio, which achieved a balance of R$ 11.0 billion, an evolution of 20.3% over September/12 and 134.9% over December/11 is an important highlight. Additionaly, 60% of these operations are concentrated in individuals customers A and B (Private and Estilo), which hold a current accounts for more than 10 years, and 19.7% are concentrated in costumers which hold a current accounts between 5 and 10 years. Furthermore, 47.1% of the auto loans portfolio customers are payroll customers. In section of this report it is presented the evolution of the auto loans portfolio since the implementation of the program BOMPRATODOS. The credit card transactions, which grew 16.6% QoQ, were positively influenced by seasonal growth of purchases in the last quarter of each year. 38

40 Banco do Brasil MD&A 4Q12 Table 35. Organic Classified Loan Portfolio Individuals Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share %On Dec/11On Sep/12 Organic Classified Loan Portf. 91, , , Direct Consumer Credit 60, , , Payroll Loan 39, , , Consumer Finance 5, , , (0.3) Salary Loans 15, , , (1.0) Mortgage 6, , , Auto Loans 4, , , Credit Card 13, , , Overdraft Account 2, , , (3.7) (12.3) Microcredit Other 4, , , Table 36. Organic Payroll Loans Breakdown¹ Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Civil Servants 33, , , INSS s Retirees and Pensioners 3, , , Private Sector Employees 2, , , Until 3Q12, it was demonstrated the classified payroll loans breakdown. Table 37. Total Acquired Loan Portfolios¹ Balance Chg. % R$ million Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 On Dec/11 On Sep/12 Payroll Loan 8,855 8,515 8,334 8,004 7,684 (13.2) (4.0) Auto Loans 10,869 10,235 9,501 8,576 9,756 (10.2) 13.8 Total 19,724 18,750 17,835 16,580 17,441 (11.6) It includes the balance of acquired loan portfolios with recourse, in compliance with CMN Resolution 3,533/08. Table 38. Average Rates and Terms R$ million Dec/11 Sep/12 Dec/12 Banco do Brasil Direct Consumer Credit - Auto¹ Average Rate - % p.m Average Term - months Mortgage Average Contract Amount Average Term - months Payroll Loan¹ Average Rate - % p.m Average Term - months BV - Auto Loans Average Rate - % p.m Average Term - months Historical data reviewed since 2011/September. As of 3Q12, the average maturity of the portfolio was calculated by weighting the remaining term of the balance due determined in closings balance sheets, unlike the previous methodology that considered the average maturity of the operations to be paid. The rates also began to be weighted regarding the closing balance due. 39

41 Chapter 3 Loans Loans to Companies The following table shows the key credit lines to companies. We highlight, in the quarterly comparison, the working capital operations, which grew 17.3%. These operations were positively influenced by the large amount of loans with corporate e large corporate companies. Table 39. Loans to Companies Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share %On Dec/11On Sep/12 Classified Loan Portfolio 171, , , Working Capital 84, , , Investiments 37, , , Receivables 17, , , Pre-Aproved-Credit 2, , , ACC/ACE 9, , , (20.4) BNDES Exim 4, , , (14.8) (4.8) Credit Card 7, , , Overdraft Account (16.0) Mortgage 1, , , Other 4, , , Private Sec. and Guarantees 38, , , Loan Portfolio - Broad Concept 210, , , BB disbursed R$ 24.0 billion in on-lending operations of BNDES from January to December 2012, which represented a share of 28.6% in the total amount of these transactions and guaranteed the leadership in the ranking for the period. It is noteworthy that the BB performance in these operations was the highest among the major Brazilian banks. Foreign Trade Finance BB is the main partner of the Brazilian foreign trade and closed 4Q12 with market share of 26.2% and 23.1% in foreign exchange for export and import operations, respectively. With leadership in the operations of Advance against Exchange and Advance against Draft Presentation, BB closed the fourth quarter of 2012 with a 32.1% market share in these segments. Table 40. Foreign Exchange for Export and Import Operations Export Exchange Balance Chg. % 4Q11 1Q12 2Q12 3Q12 4Q12 On 4Q11 On 3Q12 Contracted Amount (US$ million) 17,179 16,657 19,093 14,544 13,346 (22.3) (8.2) Market Share - % Import Exchange Contracted Amount (US$ million) 11,192 10,030 11,581 12,076 13, Market Share - % Table 41. Advance against Exchange and Advance against Draft Presentation Balance Chg. % 4Q11 1Q12 2Q12 3Q12 4Q12 On 4Q11 On 3Q12 Contracted Amount (US$ million) 3,297 4,225 4,204 4,108 2,759 (16.3) (32.8) Quantity of Contracts 3,741 3,530 3,923 3,641 3,636 (2.8) (0.1) Average Vol. per Contract (US$ thousands) 881 1,197 1,072 1, (13.9) (32.7) Investment Loans Banco do Brasil s disbursements for investment loans totaled R$ 42.8 billion in 2012, an increase of 27% over the previous year. Highlight to the onlending funds with resources from BNDES, Pronaf, Agribusiness Investment, FCO and PROGER. It is noteworthy that 73% of these resources were allocated to the Micro, Small and Medium Enterprises and Farmers. The chart below shows the onlending funds share in disbursements of such modality. 40

42 Banco do Brasil MD&A 4Q12 Figure 8. Disbursements by Onlending Fund - % BNDES/Finame Pronaf FCO Agribusiness Investiment Proger Other In 2012, BB approved financial support for large infrastructure projects in the amount of R$ 47.5 billion. Of this total, R$ 14 billion was disbursed during the year. The approved projects are funded through the onlending lines of BNDES and through the 3,844/10 Resolution. The table below shows the macroeconomic sectors benefited from these investments. Table 42. Financiamentos de Projetos em Infraestrutura R$ million Approved in 2012 Disbursements in 2012 Transport 20,032 1,842 Energy 7,426 4,828 Marine Sector and Oil 4, Urban Infrastructure 3, Infrastructure - Others 4,235 3,501 Other 7,317 2,047 Total 47,487 13,982 Loans to SME Banco do Brasil remained as the main partner of the segment of small and mediumsized enterprises. At the end of 4Q12, BB had 2.34 million SME checking accounts with 2.25 million SME customers. The balance of loans to SME customers in December/2012 was R$ 88.9 billion, an increase of 30.7% over the same period in Companies with annual revenues of up to R$ 25 million are eligible to be categorized as SME customer. The following table releases the key credit lines to SMEs. Table 43. Loans to SME by Sector Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Industry 23, , , Trade 29, , , Service Segment 15, , , Total 68,062 80,001 88,

43 Chapter 3 Loans Table 44. SME Credit Products Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Working Capital 47, , , Investment 18, , , Foreign Trade 1, , , Total 68,062 80,001 88, Among the products of credit for investment, the BNDES Card, a product that BB keeps lead in amounts disbursed, quantity of cards and number of transactions, reached in Dec/12 R$ 17.9 billion of accumulated disbursement since the beginning of its commercialization. This amount represents an increase of R$ 7.3 billion in the last 12 months, with 67.4% of the cards issued in the market. In this quarter, the balance of these operations reached R$ 8.9 billion, an increase of 49.5% over the same period in Highlights also include the operations of BNDES Automático (Investment and Working Capital), which BB is responsible for disbursements of R$ 6.5 billion, equivalent to 51% of this line in the BNDES portfolio. It is noteworthy that, of this amount, R$ 5.8 billion was disbursed in PROGEREN program, which aims to finance production and generation of employment and income. In working capital and investments finance to SME, Banco do Brasil widely uses the Fundo Garantidor de Operações (FGO), an operations guarantee fund, in order to mitigate credit risk in the transactions and expand portfolio volume. Banco do Brasil is a manager and shareholder of FGO, a fund with private nature and whose equity is formed by the integralization of quotas by the National Treasury and other financial agents. The integralization from each shareholder is equal to 0.5% of the portfolio to be guaranteed. In the case of losses, the use of FGO is limited to 7% of the guaranteed portfolio for each financial agent. The guarantees from FGO in the loan and financing operations reach up to 80% of the amount contracted, being this amount limited to R$ 500 thousand per proponent in an investment operation and R$ 100 thousand per proponent with fiduciary guarantee in the working capital operations. At the end of December 2012, there were thousand operations with FGO (Operations Guarantee Fund) coverage, totaling the balance of R$ 13.9 billion, which represents an increase of 12.6% to the previous quarter. At the end of December 2012, the operations guaranteed by this Fund represented approximately 26.7% of the disbursements observed in the lines that permit the link with this collateral. Another important mechanism to enable the contracting of investment financing operations is the Fundo de Aval às Micro e Pequenas Empresas (Fampe), a guarantee fund for SME. Fampe supplements by up to 80% of the value of guarantees necessary for the concession of credit to SME. At the end of 4Q12, the debit balance of operations guaranteed by Fampe reached R$ 3.3 billion, whereas the secured debit balance was R$ 2.4 billion. Services to Cooperatives and Local Productive Arrangements BB has also been operating together with cooperativist credit segment in order to contribute to the sector strengthening through providing financial products and services. Among the available solutions are Compe Sistema de Compensação de Cheques e Outros Papéis (Checks Clearing System) and SPB Sistema de Liquidação de Pagamentos e Transferências Interbancárias (System of Payments Settlements and Interbank Transfers) integration Services and Ourocard Cooperativas credit card. Until 4Q12 this service allowed the partnership with 325 credit cooperatives, with thousand cooperative members. In December 2012, BB supported 248 Local Productive Arrangements (LPA), serving 23.2 thousand enterprises. Were provided R$ 3.2 billion up to the end of 4Q12, which contributed to the sustainable growth of the locations where the LPAs act Agribusiness Loan Portfolio Agribusiness is one of the main sectors of the Brazilian economy, with fundamental importance to the growth of the Country. In its role as an agent of public policies, Banco do Brasil represents a link between the government and the rural producer, acting as the largest financier of Brazilian 42

44 Banco do Brasil MD&A 4Q12 agribusiness in all its segments and in all stages of the productive chain, from the small farmer to the large agro-industrial companies. Up to December 2012, the Brazilian trade balance showed a US$ 19.4 billion surplus. The observed volume is sustained by the positive numbers in the Brazilian agribusiness trade balance, which, in the same period, recorded a surplus of US$ 79.4 billion, as the following graph shows. Figure 9. Trade Balance (FOB) US$ billion Agribusiness Brazil Source: MAPA Ministério da Agricultura Pecuária e Abastecimento (Ministry of Agriculture, Livestock and Food Suply). The tables below reflect the flow of exports broken down by key products and Brazil's share in international agribusiness. Table 45. Exports R$ million Soybean and Related Products 17,980 17,240 17,107 24,139 26,114 Meat 14,545 11,787 13,630 15,639 15,736 Sugarcane chain 7,873 9,716 13,776 16,180 15,045 Forest Products 9,326 7,223 9,282 9,638 9,067 Coffee, Mate and Spices 4,971 4,470 5,962 9,034 6,749 Tobacco 2,752 3,046 2,762 2,935 3,257 Leather and Related Products 3,140 2,041 2,639 2,761 2,624 Fruit Juice 2,152 1,752 1,925 2,566 2,451 Other Products 9,066 7,480 9,358 11,699 14,771 Total 71,806 64,756 76,441 94,591 95,814 Source: MAPA Ministério da Agricultura Pecuária e Abastecimento (Ministry of Agriculture, Livestock and Food Suply). Table 46. Brazil s Share in World Agribusiness in December 2012 Production Export % World Trade Coffee 1º 1º 28.6 Orange Juice 1º 1º 81.8 Cattle 2º 2º 16.2 Sugarcane 1º 1º 45.3 Soybean and Related Products 1º 1º 38.8 Poultry 3º 1º 35.6 Corn 3º 2º 23.2 Cotton 5º 3º 11.3 Source: USDA PSD online 43

45 Chapter 3 Loans The sector's performance in the last few years is due to the permanent quest for new technologies and for appreciation of the services provided by the professionals from this area, always aiming at improving profitability and perennial in the businesses. Those improvements in technology and technical assistance quality have allowed the Brazilian production to increase much more than proportionally to the opening of new land for agriculture. In the following chart, the increased productivity per planted area, as a result of productivity gains, can be visualized. Figure 10. Production vs. Planted Area of the Grains Harvest 2, , , , , , , , /06 06/07 07/08 08/09 09/10 10/11 11/12 12/13¹ Production (million ton.) Area (million ha) Yield (ton/ha) Source: Conab Companhia Nacional de Abastecimento (National Company of Food and Supply). 1 Fourth survey of 2012/2013 Grains Crop. Agribusiness at BB The distribution of agribusiness operations by Brazilian region shows the share of each one in the loan portfolio. Table 47. Classified Agribusiness Loan Portfolio by Region Região Rural Credit - % Agroindustry - % Total - % North Northeast Midw est Southeast South The rural credit finances the costs of producing and trading of agricultural products, stimulates rural investments, including warehousing, processing and the industrial transformation of agricultural products. It also promotes sustainable agricultural techniques that contribute to improve income, reduce the emission of greenhouse gases and preserve natural resources. In this sense, we can highlight the BB s performance in ABC Program (Program for Low Carbon Agriculture), which encourages farmers to use sustainable farming techniques to reduce the issuance of greenhouse gases and deforestation. The balance of this portfolio reached the amount of R$ 2.7 billion. It is noteworthy that in the 2012/13 Crop, from July to December, R$ 1.6 billion was contracted, which is equivalent to 88% of the contracted amounts in the Sistema Nacional de Crédito Rural (National Credit Farming System). Agricultural and cattle breeding activity follows the agricultural calendar, known as the harvest-year, which begins in July of each year and ends in June of the following year. In this scenario, the current harvest (2012/2013) began in Jul/12 and will end in Jun/13. 44

46 Banco do Brasil MD&A 4Q12 In the first quarter of the crop year, funds are required for input purchase for the summer crop and there is a concentration of the loans raised in the preceding summer harvest-year. From October to December, the demand for working capital for input purchase continues, however, at a lower volume than in the first quarter of the crop. During the harvest's third quarter (January to March) demand begins for the winter harvest's loans, and for the summer harvest in the northern and northeastern regions. And demand grows during the harvest-year's last quarter for loans to crop trading, since this is a harvesting period The rural portfolio of Brazilian Banking Industry attained R$ million in December/12, an increase of 21.4% in twelve months. The rural portfolio represented 18.6% of 4Q12 BB s loan portfolio in the broad concept. BB continues to act as the main partner of the Brazilian agribusiness with a market share of 62.5%. The following table shows a breakdown of BB's agribusiness portfolio, divided into working capital for input purchase, investments, agroindustry and crop trading. Table 48. Agribusiness Loan Portfolio by Purpose Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share %On Dec/11On Sep/12 Classified Loan Portfolio 88, , , Work. Capital for Input Purchase 28, , , Investment 32, , , Crop Trading 4, , , Agroindustry 20, , , Other 2, , , (33.1) (6.5) Rural Product Bills and Guarantees Loan Portfolio - Broad Concept 89, , , The following table shows the breakdown of the agribusiness loan portfolio by credit line. The balance of the National Program for Strengthening Family Agriculture (Pronaf) which totaled R$ 24.2 billion in December/12 is a highlight, with an increase of 8.4% over 3Q12 and 20.7% over the same period of the last year. Pronaf intended for financial support to agricultural and non-agricultural activities explored by direct employment of the workforce of the family farmer. It is worth to highlight the National Program for Support the Medium Rural Producer (Pronamp) as well, which totaled R$ 11.9 billion in December/2012, an increase of 23.0% in the quarterly comparison and 66.1% YoY. Table 49. Agribusiness Loan Portfolio by Credit Line Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share %On Dec/11On Sep/12 Classified Loan Portfolio 88, , , Work. Capital for Input Purchase 18, , , Loans to Companies 21, , , Pronaf 20, , , Pronamp 7, , , FCO Rural 6, , , BNDES/Finame Rural¹ 5, , , Other 9, , , Rural Product Bills and Guarantees Loan Portfolio - Broad Concept 89, , , The following table shows the balance of the loan transactions intended for agribusiness by financed item. 45

47 Chapter 3 Loans Table 50. Agribusiness Loan Portfolio by Financed Item Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Classified Loan Portfolio 88, , , Livestock 18, , , Meat 12, , , Milk 6, , , Soybean 6, , , Corn 3, , , Sugarcane 2, , , Machinery and Equipments 8, , , Coffee 2, , , Rice 1, , , Aviculture 2, , , Cotton 1, , , (0.6) Sw ine Production , , Other 39, , , Rural Product Bills and Guarantees Loan Portfolio - Broad Concept 89, , , The following table shows the view by customer size in relation to the total balance of the agribusiness loan portfolio. Table 51. Agribusiness Loan Portfolio by Size Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share %On Dec/11 On Sep/12 Classified Loan Portfolio 88, , , Mini 5, , , Small 18, , , Medium and Large Sized 33, , , Agroindustrial Cooperatives 5, , , Companies 25, , , Rural Product Bills and Guarantees Loan Portfolio - Broad Concept 89, , , In the table below we present the distribution of the balance of the Agribusiness Loan Portfolio by type of customer. Table 52. Agribusiness Loan by Type of Customer Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share %On Dec/11On Sep/12 Classified Loan Portfolio 88, , , Individuals 57, , , Companies 31, , , Rural Product Bills and Guarantees Loan Portfolio - Broad Concept 89, , , In rural and agro industrial financing, BB uses 77.2% of own funds (mainly demand deposits, rural savings accounts and Agribusiness Letter of Credit). In addition to those, BB also onlending funds from the Brazilian Development Bank (BNDES), the Workers Protection Fund (FAT), and institutional funds such as the Constitutional Fund for Financing of the Midwest (FCO) and the Coffee Production Economy Defense Fund (Funcafé). Next, the agribusiness loan portfolio broad concept by funding sources is shown: 46

48 Banco do Brasil MD&A 4Q12 Table 53. Agribusiness Loan Portfolio Broad Concept by Funding Sources Balance R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % Agricultural Savings 55, , , Demands Deposits 15, , , Agribusiness Letters of Credit , , FCO 8, , , BNDES/FINAME 5, , , FAT 2, , , Other¹ 1, , , Loan Portfolio - Broad Concept 89, , , National Treasury, Agribusiness Letter of Credit, Funcafé, Rural Product Bills and guarantees. Banco do Brasil acts as a financial agent in rural credit operations encouraged by the government and intended to finance actions in the public interest. These operations are carried out with reduced interest rates and BB uses as funding resources that came from savings accounts, demand deposits, FAT, National Treasury, Funcafé and FCO. To make this intermediation feasible and cover the funding costs, credit risks, tax and administrative costs and BB s profitability, National Treasury and Brazilian Central Bank may authorize following subsides: a) Equalization of taxes: amount paid by the National Treasury that represents a revenue for the banks to cover the administrative and tax costs, besides the guarantee of a profitability rate over the applied resources; b) Weighting factor: is a multiplier adopted by the Federal Government to the application of resources from demand deposits and rural savings. Through this mechanism the banks are authorized to meet lower rates of rural credit, allowing the released amount to be invested in operation with market rates, in order to compensate the profitability difference from operations encouraged by the Government. The mechanism of weighting factor reduces the equalization revenues, but allows for an increase in interest income, once the results from the financial institution with the application of the resources in market rates reduces the amount of resources to be equalized by the Government and makes the proportional compensation in the profitability. In Banco do Brasil, the release of funds for cash are applied with TMS remuneration. The following table shows a history of the revenues received by way of interest rate equalization and weighting factor. Table 54. Equalization Revenues and Weighting Factor Balance R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Equalization Revenues ,009 Weighting Factor Total ,046 The following table evidences the distribution of equalizable funds from BB's Agribusiness portfolio. Table 55. Equalizable Funds of the Agribusiness Portfolio Balance R$ million Dec/11 Sep/12 Dec/12 Classified Loan Portfolio 88,658 97, ,984 Equalizable Resources 33,194 37,359 46,568 Working Capital for Input Purchase 17,687 18,554 24,701 Investments 13,332 17,451 20,625 Crop Trading 2,174 1,354 1,242 Non-Equalizable Resources 55,465 60,298 60,416 Rural Product Bills and Guarantees Total Broad Portfolio 89,361 98, ,971 47

49 Chapter 3 Loans In its role as a financier of the Brazilian agribusiness, Banco do Brasil reaches all segments, from small farmers to agroindustry. The following table shows the comparative of disbursements of the 2012/13 harvest to 2011/12 harvest, detailing the purpose of credit and its destination. Table 56. Disbursement by Purpose Rural Credit July to December R$ million Crop 11/12 (A) Crop 12/13 (B) Change (%) (B/A) Familiar 5,543 7, Working Capital for Input Purchase 3,167 3, Investiment 2,376 3, Corporate 20,942 27, Working Capital for Input Purchase 13,019 17, Investiment 4,004 6, Crop Trading 3,918 4, Total 26,485 34, The next table shows the use of risk mitigators in the working capital for input purchase in the 2012/2013 harvest. Table 57. Distribution of Insurance in the Working Capital for Input Purchase July to December Operation Contracted R$ million Crop 10/11 Share % Crop 11/12 Share % Crop 12/13 Share % Working Capital for Input Purchase 10, , , Total Insured 6, , , Proagro 3, , , Crop Insurance 2, , , Hedge Price Without Insurance 3, , , Since 2006/07 harvest, Banco do Brasil has required the conjugated contracting protection against bad weather (Agricultural Insurance or Proagro) in operations of working capital for input purchase. Since then, the strategy has been maintained and improved with each new crop, including the mass offer of options during the 2009/10 crop. The risk mitigation strategy takes into account several types of information on the customers' requested transactions, such as customer risk, type of crop to be financed, and financing location. Those types of information allow driving the protective devices (agricultural insurance/proagro or Options) that are most fitting to the risk profile of each transaction. The insurance in the working capital for input purchase is concentrated in the soybean and corn crops, which have a greater hiring in the South region. The following table presents the percentage of insurance by region. Table 58. Insurance in the Working Capital for Input Purchase by Region July to December Mitigators by Region - %¹ Crop 10/11 Crop 11/12 Crop 12/13 North Northeast Midw est Southeast South It does not include the hedge price. The exposures originated from the crop insurance hiring in the 2012/2013 crop are not restricted to the Grupo Segurador BB Mapfre, once reinsurance contracts were signed on the mitigated balance, as the following table shows. 48

50 R$ / Kg Banco do Brasil MD&A 4Q12 Table 59. Mitigators Reinsurance in Working Capital for Input Purchase Reinsurance Country % IRB Re Brazil 30.0 Mapfre Re Spain 15.0 Munich Re Germany 13.5 Sw iss Re Sw itzerland 12.2 Scor Re Sw itzerland 10.1 BB Mapfre Brazil 10.0 Partner Re Sw itzerland 5.6 Hannover Germany 2.9 R+Versicherun Germany 0.7 Total Figure 11. Percentage of Operations Contracted with Risk Mitigators July to December Crop 2010/2011 Crop 2011/2012 Crop 2012/ Working Capital for Input Purchase with Insurance Working Capital for Input Purchase without Insurance Details of the price and cost of corn and soybeans in the history of recent harvests are shown in the next figure. The margin is represented by the percentage of net revenues versus costs involved in each culture, i.e., the part designed for the producer. The values of price and cost of crops are referenced to the state of Paraná, using the main cities to find a proportional average. Figure 12. Price/Cost Ratio of Soybean and Corn Margin % - Soybean Evolution Price and Cost - Soybean /09 09/10 10/11 11/12 12/13 08/09 09/10 10/11 11/12 12/13 Price Cost 49

51 R$ / Kg Chapter 3 Loans Margin % - Corn Evolution Price and Cost - Corn /09 09/10 10/11 11/12 12/13 08/09 09/10 10/11 11/12 12/13 Price Cost Source: Banco do Brasil BOMPRATODOS Launched on April 4th, BOMPRATODOS includes a set of measures that combine financial advice, reduction of interest rates in the main lines of credit to individuals and SME, as well as improving the customer relationship. In addition, these measures stimulate the use of credit and contribute to the maintenance of delinquency levels below the market average. The following figures show the evolution of the main lines offered to individuals customers within the scope of BOMPRATODOS. In traditional lines, such as payroll and consumer credit, the growth is aligned with the historical development, strengthening the good positioning of BB in these segments. Figure 13. BOMPRATODOS Main Individuals Credit Lines R$ million INSS Payroll Loan¹ Consumer Finance 3,909 4,032 4,140 17,024 17,296 17,118 3,596 3,703 15,327 16,121 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Auto Loans 11,022 BB Crediário 570 9, ,693 4,619 6, Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 1 Excluding acquired loan portfolio. The chart below shows that the organic auto non-performing loans overdue for more than 90 days (NPL + 90 days) of Banco do Brasil is lower than that recorded by the Brazilian Banking Industry. Moreover, the breakdown of this portfolio by risk level indicates that 94.4% of these operations are concentrated among the AA-C levels, with an improvement of 20 bps in the quarter. 50

52 Banco do Brasil MD&A 4Q12 Figure 14. Organic Auto Loans Portfolio NPL + 90 days and Risk Level NPL BB vs BI Auto Loans Portfolio by Risk Level Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 BB BI Dec/11 Sep/12 Dec/12 AA-C D-H The evolution of the working capital for SME can be seen in the chart below. These operations grew 11.7% in the quarter, amounting to R$ 61.0 billion balance in December/12, positively impacted by the BOMPRATODOS program that added volume and improved the SME customer relationship. Figure 15. SME Working Capital R$ million Working Capital 61,028 47,867 48,162 51,513 54,639 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 51

53 Chapter 3 Loans 3.2. Credit Risk All segmentations of the loan portfolio in this section consider the classified portfolio, in compliance with CMN Resolution 2,682/99, unless otherwise indicated. The expenses with allowance for loan losses increased 25.7% in comparison to 4Q11, in line with the growth of 24.3% observed in the loan portfolio, considering the same period. Table 60. Expenses with Allowance for Loan Losses over Classified Loan Portfolio Balance Chg. % R$ million 4Q11 1Q12¹ 2Q12 3Q12 4Q12 On 4Q11 On 3Q12 (A) Allow ance for Loan Losses Expenses - Quarterly (2,892) (3,576) (3,677) (3,764) (3,636) 25.7 (3.4) (B) Allow ance for Loan Losses Expenses - 12 months (11,827) (12,773) (13,403) (13,907) (14,651) (C) Classified Loan Portfolio 422, , , , , (D) Average Loan Portfolio - 3 months 412, , , , , (E) Average Loan Portfolio - 12 months 383, , , , , Expenses / Portfolio (A/D) - % Expenses / Portfolio (B/E) - % In order to maintain the comparability of the periods, a managerial criterion was used for the Mar/12 loan portfolio balance, revised to consolidate the acquired portfolios, according to CMN Resolution 3,533/08. If Banco Votorantim s operations were not considered, the BB classified loan portfolio would grow 10.1% in the Dec-12/Set-12 comparison, higher than the percentage increase in the respective allowance for loan losses in the same period (0.2%). Table 61. Exp. with Allowance for Loan Losses over Classified Loan Portfolio BB and BB ex-bv Balance Chg. % R$ million 4Q11 1Q12¹ 2Q12 3Q12 4Q12 On 4Q11On 3Q12 BB Allow ance for Loan Losses Expenses (2,892) (3,576) (3,677) (3,764) (3,636) 25.7 (3.4) Allow ance for Loan Losses Exp., ex-bv (A) (2,343) (2,782) (2,958) (3,098) (3,103) BB Classified Loan Portoflio 422, , , , , BB Classified Loan Portoflio, ex-bv (B) 393, , , , , Expenses/Portfolio (A/B) - % In order to maintain the comparability of the periods, a managerial criterion was used for the Mar/12 loan portfolio balance, revised to consolidate the acquired portfolios, according to CMN Resolution 3,533/08. The figure below details the allowance for loan losses, segregating the minimum provisions required by CMN Resolution 2,682/99 from the total booked. In Dec/12, the total allowance for loan losses increased 11.6% in comparison with the same period of the previous year and decreased 0.3% in comparison to Sep/12. 52

54 Banco do Brasil MDA 4Q12 Figure 16. Allowance for Loan Losses Classified Loan Portfolio R$ million 19,015 1,756 19,573 1,714 20,340 1,521 21,282 21,210 1,580 1,156 17,259 17,859 18,819 19,702 20,054 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Required Provision Additional Provision The main indicators of non-performing loans and provisions are presented in the next table. Table 62. Classified Loan Portfolio Delinquency Indicators R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Classified Loan Portfolio¹ 422, , , , ,672 NPL + 15 days 15,366 16,982 16,772 17,794 17,299 NPL + 15 days/loan Portfolio - % NPL + 60 days 10,541 11,405 11,782 12,372 12,490 NPL + 60 days/loan Portfolio - % NPL days/loan Portfolio - % NPL + 90 days 9,158 9,574 10,064 10,507 10,796 NPL + 90 days/loan Portfolio - % NPL days/loan Portfolio - % NPL + 90 days/loan Portfolio - BI - % Write-off 2,456 3,032 2,705 2,817 3,232 Recovery of Write-off (851) (750) (1,109) (813) (1,076) Recovery of Write-off/Write-off - % Net Loss 1,604 2,282 1,596 2,004 2,156 Net Loss/Loan Portfolio - % annualized Provision 19,015 19,573 20,340 21,282 21,210 Allow ance for loan losses/loan Portfolio - % Allow ance for loan losses/npl + 15 days % Allow ance for loan losses/npl + 60 days % Allow ance for loan losses/npl + 90 days % In order to maintain the comparability of the periods, a managerial criterion was used for the Mar/12 loan portfolio balance, revised to consolidate the acquired portfolios, according to CMN Resolution 3,533/08. 53

55 Chapter 3 Loans The NPL + 90 days of BB ended Dec/12 at 2.05%, a decrease of 14 bps over Sep/12 and 11 bps in relation to Dec/11. BB s NPL + 90 days remains lower than that observed in the Brazilian Banking Industry (BI) which reached 3.64% in Sep/12, rose of 4 bps YoY. The evolution of NPL + 90 days of Banco do Brasil has been historically at a lower level than that recorded by the BI, as the following figure shows Figure 17. NPL + 90 days BB vs. BI - % NPL + 90 days/loan Portfolio - BI NPL + 90 days/loan Portfolio - BB Table 63. NPL + 90 days Classified Loan Portfolio BB and BB ex-bv % Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 NPL + 90 days/loan Portfolio - BB NPL + 90 days/loan Portfolio - ex-bv Allow ance for loan losses/npl + 90 days - BB Allow ance for loan losses/npl + 90 days - ex-bv The following table shows that the BB's portfolio average risk presented a decrease in the comparison with the same period of the previous year and keeps stable in the QoQ view. The BB s indicator keeps below than that recorded by the Banking Industry. Table 64. Classified Loan Portfolio Average Risk¹ % Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 BB Average Risk BI Average Risk Required Provision/Loan Portfolio Total Loan Portfolio The total loan portfolio of BB presents better risk levels than those observed in the Banking Industry in the same classification. That is, operations of BB rated risk levels of AA-C represented 94.5% of the total in Dec/12 against the 92.4% reported by the Banking Industry as a whole. 54

56 Banco do Brasil MDA 4Q12 Table 65. Classified Loan Portfolio by Risk Level Dec/11 Sep/12 Dec/12 R$ million Balance Provision Share Balance Provision Share Balance Provision Share BI¹ AA 118, , , A 102, , , B 142,910 1, ,272 1, ,407 1, C 32, ,671 1, ,295 1, D 8, , , E 3,724 1, ,655 1, ,918 1, F 1, , , G 1,812 1, ,278 1, ,149 1, H 10,241 10, ,947 11, ,248 12, Total 422,989 17, ,744 19, ,672 20, AA-C 397,149 2, ,713 3, ,859 3, D-H 25,839 14, ,032 16, ,813 16, December/12 preliminary data Individuals Loan Portfolio The following table shows the individual loan portfolio and the respective changes in the allowance for loan losses. These figures do not consider the transactions of the partnership with Banco Votorantim. The operations rated as AA-C risk level accounted for 92.2% of the total in Dec/12, an increase of 50 bps in the QoQ comparison and 110 bps YoY. Table 66. Individuals Classified Loan Portfolio by Risk Level ex-bv Dec/11 Sep/12 Dec/12 R$ million Balance Provision Share Balance Provision Share Balance Provision Share AA , , A 26, , , B 55, , , C 18, , , D 2, , , E , F G H 5,098 5, ,318 5, ,288 5, Total 111,569 7, ,564 7, ,056 7, AA-C 101,662 1, ,198 1, ,645 1, D-H 9,907 6, ,365 6, ,412 6,

57 Chapter 3 Loans Table 67. Changes in Allowance for Loan Losses Individuals Classified Loan Portfolio (ex-bv) R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Classified Individuals Loan Portfolio 111, , , , ,056 Initial Allow ance 7,583 7,629 7,612 7,771 7, Risk Migration 990 1,157 1,082 1,236 1,104 a) Risk Deterioration 1,593 1,605 1,582 1,737 1,710 b) Risk Improvement (603) (448) (500) (500) (606) 2 - New Transactions Write-offs (1,040) (1,201) (1,040) (1,029) (1,118) Total (1+2+3) Other Impacts¹ (182) (162) (158) (316) (227) Final Allow ance 7,629 7,612 7,771 7,899 7,913 Allow ance Required by CVM Res ,629 7,612 7,771 7,899 7,913 Provision Flow - R$ Million 1,086 1,184 1,199 1,156 1,132 a) Additional Provision b) Provision Expenses 1,086 1,184 1,199 1,156 1,132 Provision / Loan Portfolio - % Provision Flow / Loan Portfolio - % NPL + 15 days/loan Portfolio NPL + 90 days/loan Portfolio Amortization, settlement, release of installments and charge debt. Vintage We present the vintage of the individuals delinquency in the following graphs. This methodology, affords greater detailing and closer to the portfolio than traditional indicators. Vintage makes it possible to evaluate how the delinquency of a set of operations contracted in a particular period behaves over time. For delinquency, the non-performing loans for more than 90 days are considered and for determination of the individuals loan portfolio, the overdraft and credit card operations are not accounted. The Vintage shows how the operations contracted most recently present a more favorable delinquency curve than those contracted at the beginning of the monitoring. This result shows the constant optimization in the credit analysis, concession and monitoring models. The inflections presented in the curves refer to loan assignments. The following chart shows the quarterly vision of the individuals Vintage. The lines show how the delinquency of the operations hired in each quarter has behaved, in subsequent periods. The longer lines, therefore, refers to the longest period of observation. 56

58 Banco do Brasil MDA 4Q12 Figure 18. Quarterly Vintage The second graph contains the vintage with annual periodicity, facilitating the viewing and interpretation of data. Figure 19. Annual Vintage In the following graph, we present the detailing of the own vehicle financing portfolio, in the annual view. 57

59 Chapter 3 Loans Figure 20. Annual Vintage Own Auto Loans Portfolio Loans to Companies The following tables show the loan portfolio for companies and the respective changes in allowance for loan losses. These figures do not consider the transactions of the partnership with Banco Votorantim. The share of operations rated in the AA-C risk levels reached 95.2% of the total portfolio in Dec/2012. Table 68. Classified Loans to Companies by Risk ex-bv Dec/11 Sep/12 Dec/12 R$ million Balance Provision Share Balance Provision Share Balance Provision Share AA 72, , , A 35, , , B 40, , , C 4, , , D 2, , , E 1, , , F G , , H 2,817 2, ,765 3, ,237 4, Total 160,918 4, ,020 6, ,109 6, AA-C 153, , , D-H 7,769 4, ,836 5, ,087 6,

60 Banco do Brasil MDA 4Q12 Table 69. Changes in Allowance for Loan Losses Classified Loans to Companies (ex-bv) R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Classified Loan Portfolio to Companies 160, , , , ,109 Initial Allow ance 4,609 4,981 5,181 5,740 6, Risk Migration 1,167 1,267 1,324 1,612 1,517 a) Risk Deterioration 1,370 1,569 1,608 1,800 1,851 b) Risk Improvement (203) (301) (284) (188) (334) 2 - New Transactions Write-offs (860) (1,123) (879) (1,047) (1,218) Total (1+2+3) Other Impacts¹ (81) (92) (105) (82) (153) Final Allow ance 4,981 5,181 5,740 6,459 6,938 Allow ance Required by CVM Res ,981 5,181 5,740 6,459 6,938 Provision Flow - R$ Million 1,233 1,323 1,439 1,765 1,697 a) Additional Provision b) Provision Expenses 1,233 1,323 1,439 1,765 1,697 Provision / Loan Portfolio - % Provision Flow / Loan Portfolio - % NPL + 15 days/loan Portfolio NPL + 90 days/loan Portfolio Amortization, settlement, release of installments and charge debt Agribusiness Loan Portfolio Next, the Classified Agribusiness Loan Portfolio by risk level is presented. Table 70. Classified Agribusiness Loan Portfolio by Risk Level Dec/11 Sep/12 Dec/12 R$ million Balance Provision Share Balance Provision Share Balance Provision Share AA 19, , , A 16, , , B 39, , , C 7, , , D 2, , , E F G H 1,456 1, ,363 1, ,320 1, Total 88,658 2, ,656 2, ,984 2, AA-C 83, , , D-H 5,388 2, ,317 2, ,092 2, The following tables present the individuals agribusiness loan portfolio by risk level and the respective changes in the allowance for loan losses. 59

61 Chapter 3 Loans Table 71. Classified Agribusiness Loan Portfolio by Risk Level Individuals Dec/11 Sep/12 Dec/12 R$ million Balance Provision Share Balance Provision Share Balance Provision Share AA 1, , , A 11, , , B 32, , , C 6, , , D 2, , , E F G H 1,326 1, ,296 1, ,242 1, Total 57,194 2, ,842 2, ,051 2, AA-C 52, , , D-H 4,821 2, ,736 1, ,549 1, Table 72. Changes in Allowance for Loan Losses Agribusiness Individuals R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Classified Agrib. Loan Portfolio - Individuals 57,194 59,485 63,507 65,842 74,051 Initial Allow ance 2,763 2,571 2,571 2,624 2, Risk Migration a) Risk Deterioration b) Risk Improvement (374) (227) (245) (256) (343) 2 - New Transactions Write-offs (269) (285) (196) (138) (184) Total (1+2+3) (104) Other Impacts¹ (88) (21) (47) (150) (82) Final Allow ance 2,571 2,571 2,624 2,615 2,637 Allow ance Required by CVM Res ,571 2,571 2,624 2,615 2,637 Provision Flow - R$ Million a) Additional Provision b) Provision Expenses Provision / Loan Portfolio - % Provision Flow / Loan Portfolio - % Amortization, settlement, release of installments and charge debt. The following tables show the agribusiness loan portfolio for companies by risk level and the respective changes in the allowance for loan losses. Table 73. Classified Agribusiness Loan Portfolio by Risk Level Companies Dec/11 Sep/12 Dec/12 R$ million Balance Provision Share Balance Provision Share Balance Provision Share AA 17, , , A 4, , , B 7, , , C 1, D E F G H Total 31, , , AA-C 30, , , D-H

62 Banco do Brasil MDA 4Q12 Table 74. Changes in the Allowance for Loan Losses Agribusiness Companies R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Classified Agrib. Loan Portf. - Companies 31,465 32,174 31,321 31,815 32,933 Initial Allow ance Risk Migration a) Risk Deterioration b) Risk Improvement (24) (23) (25) (32) (47) 2 - New Transactions Write-offs (5) (67) (23) (3) (10) Total (1+2+3) 50 (25) Other Impacts¹ (25) (24) (19) (32) (49) Final Allow ance Allow ance Required by CVM Res Provision Flow - R$ Million (2) (8) a) Additional Provision b) Provision Expenses (2) (8) Provision / Loan Portfolio - % Provision Flow / Loan Portfolio - % (0.0) (0.0) 1 - Amortization, settlement, release of installments and charge debt. The portfolio average risk is influenced by the operations of the harvests from 2005 to 2007 with rollover in a total balance of R$ 5,247 million in December The CMN Resolution 2,682/99 which provides the classification of risk and the creation of allowance for loan losses, requires the maintenance of risk of the renegotiated loans at the risk level found at the time of renegotiation. Due to this regulation, the renegotiated transactions increase the loan portfolio's average risk. In the following table, the Classified Agribusiness Loan Portfolio is segregated in operations with and without rollover. It is noted that the operations past-due for over 90 days (BB risk) accounted for 0.4% of the total portfolio without rollover in December/12, while the same indicator for the transactions with rollover reached 3.9%. Table 75. Agribusiness Transactions with/without Rollover R$ million Balance Portfolio w ithout Rollover Allow ance for Loan Losses Past Due 90 Balance Portfolio w ith Rollover Allow ance for Loan Losses Past Due 90 AA 19, A 22, (0) B 51, , C 5, D 1, E F G H Total 101,737 2, , AA-C 98, , D-H 3,187 1, , Non-performing loans at level AA refer to credit with third party risk. In the table below we present the balance, rate of non-performing loans more than 90 days and average risk of the classified agribusiness loan portfolio segmented in total portfolio, with and without rollover. The relation between the provisions required (CMN Resolution 2,682/99) and the balance of operations presented an improvement of 30 bps in relation to Sep/12 and 60 bps in relation to the same period of the previous year. A simulation performed with non-extended BB risk transactions, after removing the drag effect caused by extended loans, shows that the average risk remains stable in Dec/12 at 0.39%. 61

63 Chapter 3 Loans Table 76. Classified Agribusiness Loan Portfolio Delinquency Indicators R$ million Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Classified Loan Portfolio 88,658 91,658 94,828 97, ,984 Allow ance for Loan Losses 2,914 2,865 2,927 2,913 2,918 NPL + 90 days NPL + 90 days/loan Portfolio¹ Allow ance/loan Portfolio - % Write-off Transactions w ithout Rollover - BB Risk + Third Parties 82,964 86,119 89,568 92, ,737 Allow ance for Loan Losses 1,677 1,744 1,887 1,960 2,042 NPL + 90 days NPL + 90 days/ Transactions w ithout Rollover - % Allow ance for Loan Losses / Transactions w ithout Rollover - % Write-off Transactions w ith Rollover - BB Risk + Third Parties 5,694 5,540 5,260 5,126 5,247 Allow ance for Loan Losses 1,238 1,121 1, NPL + 90 days NPL + 90 days/ Transactions w ith Rollover - % Allow ance for Loan Losses / Transactions w ith Rollover - % Write-off Simulation: Transac. w ithout Rollover ex-drag effect of Transac. w ith Rollover a - BB Risk + Trird Parties 82,964 86,119 89,568 92, ,737 b - Allow ance for Loan Losses Average Risk (b/a) c - BB Risk 82,139 85,340 88,812 91, ,063 d - Allow ance for Loan Losses Average Risk (d/c) The delay resulting from non-performing operations with third party risk was included in the calculation of the rate Foreign Loan Portfolio and BV Loan Portfolio The following tables show the Foreign Portfolio and the BV Portfolio by risk level, respectively. Table 77. Classified Foreign Loan Portfolio by Risk Level Dec/11 Sep/12 Dec/12 R$ million Balance Provision Share Balance Provision Share Balance Provision Share AA 21, , , A 6, , , B 4, , , C D E F G H Total 32, , , AA-C 32, , , D-H The BV s portfolio showed an increase of the share of operations rated as risk AA-C reaching 89.3% of the total portfolio (+80 bps in the QoQ comparison). 62

64 Banco do Brasil MDA 4Q12 Table 78. Classified BV Loan Portfolio by Risk Level (50%) Dec/11 Sep/12 Dec/12 R$ million Balance Provision Share Balance Provision Share Balance Provision Share AA 5, , , A 17, , , B 2, , , C 1, , , D E F G H ,462 1, ,339 1, Total 29,363 1, ,039 2, ,477 2, AA-C 26, , , D-H 2,639 1, ,336 2, ,039 1, Renegotiated Loan Portfolio The following table presents the renegotiated loan portfolio (including BV). The balance of this portfolio includes the participation in BV, and in the other hand, it does not comprise the rollover operations of agribusiness loan portfolio, discussed in the section of this report. Hereafter are described the definitions of the main lines of the following table: a) Credits Renegotiated: loan operations renegotiated during the period, falling due or overdue; b) Renegotiated by Delay: loan operations renegotiated in the period due to payment delay by customers; c) Renovated: loan operations not overdue renegotiated in the period to settle entirely or in part previous operations or any other kind of agreement that changes maturity or payment terms originally agreed. Table 79. Renegotiated Loan Portfolio R$ million 4Q11 3Q12 4Q12 Credits Renegotiated 5,000 9,775 8,432 Renegotiated by Delay Renovated 4,255 9,174 7,699 Credits Renegotiated by Delay - Changes Initial Balance 5,948 6,473 6,862 Contracts Interest Received and Appopriated (222) Write-Off (432) (299) (395) Overdue Renegotiated Loan Portfolio¹ 6,039 6,862 7,266 Allow ance for Loan Losses Balance 3,925 4,449 4,553 NPL + 90 days 954 1,095 1,114 Indicators - % All. for Loan Losses / Loan Portfolio NPL + 90 days / Loan Portfolio All. for Loan Losses Balance/NPL + 90 days It is included the renegotiated rural credit that accounted for R$ 24.6 million in December/2012 (R$ 22.5 million in Dec/11). 63

65 Chapter 3 Loans 3.3. Concentration Table Largest Borrowers Period 1st. Customer (%) Balance 2nd. To 20th. (%) Balance 21st. To 100th (%) Balance Top 100 Largest (%) Balance Mar/ , , , ,152 Jun/ , , , ,862 Sep/ , , , ,793 Dec/ , , , ,117 Mar/ , , , ,654 Jun/ , , , ,117 Sep/ , , , ,682 Dec/ , , , ,079 Table Largest Borrowers in Relation to RE Period 1st. Customer (%) Balance 2nd. To 20th. (%) Balance 21st. To 100th (%) Balance Top 100 Largest (%) Balance Mar/ , , , ,152 Jun/ , , , ,862 Sep/ , , , ,793 Dec/ , , , ,117 Mar/ , , , ,654 Jun/ , , , ,117 Sep/ , , , ,682 Dec/ , , , ,079 64

66 Banco do Brasil MD&A 4Q12 Table 82. Concentration of Loan Portfolio by Macro-Sector R$ million Balance Chg. % Macro-sector¹ Dec/11 Share % Sep/12 Share % Dec/12 Share %On Dec/11On Sep/12 Metalw orking and Steel 27, , , Building 22, , , Foodstuffs of Vegetable Origin 23, , , (1.1) Oil and Gas 24, , , Eletricity 17, , , Services 19, , , (8.9) Automotive 15, , , Transport 13, , , Retail Trade 12, , , Foodstuffs of Animal Origin 11, , , Electrical and Electronic Goods 9, , , Textile and Garments 9, , , Pulp and Paper 6, , , Government , Agricultural Consumables 6, , , Telecommunication 7, , , Chemicals 6, , , Timber and Furniture 5, , , Wholesale Trade and Industries 4, , , Beverages 2, , , Leather and Shoes 2, , , Other Activities 13, , , Total 259, , , Domestic Loan Portfolio 191, , ,680 Abroad Loan Portfolio 27,967 35,898 38,163 Guarantees 14,999 19,408 19,083 Securities 25,051 31,271 34,842 Total 259, , , It does not include Banco Votorantim loan portfolio. 65

67 Banco do Brasil MD&A 4Q Liquidity The total assets grew 17.2% in twelve months, highlights to the growth of the Loans and Leasing. Table 83. Breakdown of Assets Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Total Assets 981, ,103, ,150, Liquidity Assets 344, , , Available Funds 10, , , (15.1) Interbank Investments 166, , , Securities (except linked to Bacen) 168, , , Other Assets 636, , , Tax Credits 22, , , (3.9) Loans and Leasing 379, , , Other 234, , , (0.8) Table 84. Breakdown of Liabilities Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Total Liabilities 981, ,103, ,150, Liquidity Liabilities 209, , , Interbank Deposits 14, , , Money Market Borrow ing 195, , , Other Liabilities 771, , , Savings Deposits 100, , , Time Deposits 265, , , (1.1) (8.3) Judicial Deposits 77, , , Agribusiness Letters of Credits 7, , , Other 405, , , Table 85. Securities Portfolio by Category Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Securities 168, , , Available for Trading 63, , , Available for Sale 88, , , Held to Maturity 15, , , (15.0) (20.4) Financial Derivatives 1, , , (9.0) Table 86. Securities Portfolio by Maturity Market Value Up to 1 year 1 to 5 years 5 to 10 years Over 10 years R$ million Balance Share % Balance Share % Balance Share % Balance Share % Mar/11 35, % 86, % 14, % 9, % 144,938 Jun/11 36, % 88, % 18, % 10, % 153,217 Sep/11 48, % 93, % 11, % 2, % 156,635 Dec/11 45, % 105, % 12, % 3, % 166,693 Mar/12 42, % 94, % 13, % 3, % 154,303 Jun/12 44, % 91, % 17, % 12, % 165,623 Sep/12 47, % 94, % 22, % 13, % 178,482 Dec/12 49, % 109, % 18, % 6, % 182,985 Total The table below shows the liquidity balance, diference between the liquidity Assets and Liabilities. 66

68 Chapter 4 - Liquidity Table 87. Liquidity Balance Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Liquidity Assets (A) 344, , , Available Funds 10, , , (15.1) Interbank Investments 166, , , Securities (except linked to Bacen) 168, , , Liquidity Liabilities (B) 209, , , Interbank Deposits 14, , , Money Market Borrow ing 195, , ,

69 Banco do Brasil MD&A 4Q Funding The funding of Banco do Brasil in the market recorded reached R$ billion in 2012 growth of 13.5% in the last twelve months. Highlight for the growth of Agribusiness Letters of Credit for detriment to Time Deposits, reflecting the diversification strategy of funding. Table 88. Market Funding Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Demand Deposits 62, , , Saving Deposits 100, , , Interbank Deposits 14, , , Time Deposits 265, , , (1.1) (8.3) Judicial Deposits 77, , , Money Market Borrow ing 195, , , Agribusiness Letters of Credits 7, , , Others Commercial Papers 8, , , TOTAL 653, , , Includes Mortgage Linked Bonds, Letters of Credit and Debentures (Note 19). We present below the market shares of Banco do Brasil in the deposits and money market funding of the Brazilian Banking Industry (BI). Figure 21. Market Share of BB Funding R$ billion 33,4 33,5 59,6 61,1 31,2 31,6 32,0 31,5 32,0 57,6 62,0 60,7 60,6 61,5 74,8 23,5 22,9 23,3 23,8 23,7 23,4 23,6 112,1 105,6 100,1 101,8 95,5 90,5 89,2 117,7 Mar/11 Jun/11 Sep/11 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Demand Deposits Market Share¹ - % Mar/11 Jun/11 Sep/11 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Savings Deposits Market Share¹ - % 25,6 26,1 27,0 252,8 27,8 28,7 265,8 270,1 30,4 31,0 285,8 286,8 263, ,2 219,0 Mar/11 Jun/11 Sep/11 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Time Deposits Market Share¹ - % Mar/11 Jun/11 Sep/11 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Money Market Borrowing² Market Share¹ - % 1 - Information about participation in the BI comes from the top 50 banks of the Central Bank site. Position: Sep/12; 2 - Considered Total Deposits and Money Market Borrowing. The amount raised abroad by the Banco do Brasil reached US$ 45.0 billion at the end of December 2012, a growth of 6.4% in relation to September 2012 and of 30.1% in relation to December In 68

70 Chapter 5 - Funding 4Q12, the expansion of Banco do Brasil s funding in other countries was led by the Issues and Certificate of Deposits operations, which recorded an increase of US$ 2.2 billion in relation to the previous quarter, with growth of 14.2%. The operations of Banco Patagonia, which representing 9.6% of the total funding abroad, recorded balances of US$ 2.5 billion in Businesses, US$ 1.3 billion in Individual, US$ 137 million in Interbanking, US$ 188 million in Issues and US$ 218 million in Repo. Table 89. Foreign Borrowing US$ million Balance Chg. % Modality¹ Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Issues² 10, , , Interbanking 10, , , Businesses 6, , , Individuals 3, , , Repo 3, , , (46.2) (16.4) Special TOTAL 34, , , Since Jun/11 and Mar/12, the information on Banco Patagonia and Eurobank (currently BB Americas) has been incorporated into the balances of the products; 2 - The total issues comprises the emissions in the international capital market and the CDs (Certificates of Deposit). The following table presents the issues of the Banco do Brasil in the international capital market. The volume of current operations abroad amounted to US$ 14.8 billion in nominal values. Table 90. Issues in circulation abroad Issue Date Volume in US$ million Curren cy Term in years Cupom (%) Interest Interval Issue price Return for Investor (%) Premium over Treasury Rating Structure USD Quarterly A/A3 securitization USD Half-Yearly Baa1 Tier II Subordinated BRL Half-Yearly Baa1 senior USD 6 L3M+0,55 Quarterly L3M+0,55 - AA-/Aa3 securitization USD Quarterly A/A3 securitization USD 7 L3M+1,2 Quarterly L3M+1,20 - A/A3 securitization USD 5 L6M+2,55 Half-Yearly L6M+2,55 - Baa1 senior ,500 USD Half-Yearly Baa2 perpetual USD Half-Yearly Baa1 senior USD Half-Yearly Baa1 senior USD Half-Yearly Baa1 senior USD Half-Yearly Baa1 Tier II Subordinated ,009 EUR Annual mid-sw ap+200 Baa1 senior ,500 USD Half-Yearly Baa1 Tier II Subordinated USD Half-Yearly Baa1 senior ,000 USD Half-Yearly BB perpetual USD Half-Yearly BB perpetual USD Half-Yearly BB+/Baa1 Tier II Subordinated JPY Half-Yearly BBB / Baa1 senior ,925 USD Half-Yearly BBB / Baa1 senior ,000 USD Half-Yearly Baa1 / BBB perpetual Sources and Uses The indicators of the following table show the relationship between funding sources and investments in Banco do Brasil. 69

71 Banco do Brasil MD&A 4Q12 In December 2012, funding sources totaled a balance R$ billion, an increase of 19.8%, over the previous year. Emphasis on the growth of Agribusiness Letters of Credit (LCA) and Mortgage Bonds (LCI) which grew R$ 26.6 billion in the past 12 months. Funding via LCA has emerged as a choice of low cost funding. About the Uses, highlight to Private Securities, that advanced 33.5% to the end of 2012, from a year earlier. However, the loan portfolio remains the main destination of the funds raised. Table 91. Sources and Uses Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Sources 576, , , Commercial Funding 450, , , Total Deposits 442, , , (0.8) Agribusiness Letters of Credit and Mortgage Bonds 7, , , Repurchase Agreement w ith Private Securities , , , Domestic Onlending 50, , , Financial and Development Funds 4, , , Subordinated Debt 25, , , Commercial Paper¹ 8, , , Domestic Hybrid Capital Instuments - - 8, , Foreign Borrow ing² 37, , , Uses 576, , , Available Funds 52, , , (19.4) Compulsory Deposits 93, , , (14.5) (6.3) Net Loand Portfolio (a) + (b) - (c) 430, , , Loan Portfolio (a) 422, , , Private Securities (b) 26, , , Allow ance for Loan Losses (c) (19,015) (3.3) (21,282) (3.2) (21,210) (3.1) 11.5 (0.3) Indicators - % Net Loan Portfolio / Total Deposits Net Loan Portfolio / Commercial Funding Net Loan Portfolio / Sources Includes Letters of Credit and Debentures (Note 19); 2 - Includes Foreign Borrowings, Foreign Securities, Foreign Onlendings, Subordinated debt abroad and Hybrid Capital Instruments abroad. The table below shows the funding cost at BB in comparison to the Average Selic Rate of the period. In comparison to 3Q12 it is possible to note an increase of 140 pb. in this ratio. This increase was mainly impacted by Savings, Judicial and Time Deposits Funds and Programs, once those funding are not linked to the Average Selic Rate of the period, those deposits became relatively more expensive, impacting the funding cost of the Bank. Table 92. Cost of Main Sources of Funding vs. Selic Rate R$ million Average Balance 4Q11 3Q12 4Q12 Cost as % of Selic Average Balance Cost as % of Selic Average Balance Cost as % of Selic Demand Deposits 59, , , Savings Deposits 97,971 (1,822) ,128 (1,443) ,461 (1,514) 76.2 Time Deposits - Funds and Programs 8,671 (142) ,062 (105) ,915 (103) 86.4 Time Deposits - Judicial Deposits 77,552 (1,684) ,990 (1,750) ,031 (1,718) Others Time Deposits - Netw ork and Institutional 174,250 (4,097) ,593 (3,392) ,081 (2,811) 90.2 Interbank Deposits 13,856 (144) ,395 (137) ,455 (134) 47.3 Agribusiness Letters of Credits 6,908 (164) ,848 (344) ,033 (420) 81.4 Total 431,801 (7,889) ,807 (6,826) ,611 (6,279)

72 Chapter 5 - Funding Table 93. Segregation of Deposits by Deadline Chargeability R$ million Short-Term² Part. % Long-Term³ Part. % Total Total Time Deposits¹ , , Saving Deposits , Demand Deposits , Interbank Deposits , , Total , , Includes the amount of R$ 143,127.7 million (R$ 156,117.5 million on ) relating to time deposits with repurchase clause advance (liquidity commitment), considered the original maturity; 2 - With maturity up to 1 year; 3 - With maturity over 1 year. 71

73 Banco do Brasil MD&A 4Q12 6 Other Components of the Balance Sheet 6.1. Deferred Taxes Tax Credits (Deferred tax assets) Tax credits derive mainly from Income Tax, Social Contribution and tax loss intertemporary differences. Intertemporary differences arise from the divergence in treatment given by the accounting and tax rules for certain expenses that compose the profit of the period. For instance, once the provision expenses are constituted on the basis of probable losses, they may only be deductible when the losses effectively occur. The amount of tax credits of intertemporary differences represents 89.3% of the stock in December Tax credits originated from tax losses in the Income Tax and from the negative base of the Social Contribution represent a tax benefit as it may be offset against the generation of taxable income in the future. Table 94. Breakdown of Tax Credit Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Time Differences 19, , , (3.8) Allow ance for Loan Losses 8, , , (2.0) Passive Reserves 6, , , (4.7) Loan Operations Law No 9.430/96 3, , , Mark to Market Other Provisions 1, , , (30.6) Social contrib. on Net Income 2, , , (18.3) (3.1) Tax Loss / Negative Base (51.2) (33.3) Excess Depreciation (10.9) (3.5) Total Tax Credit 22, , , (3.9) In 2012, it was observed the realization of tax credits at Banco do Brasil in the amount of R$ 6,145,702 thousand. This amount corresponds to % of the projection of tax credits utilization for 2012, according to technical study carried out in , as detailed in the Note to the Financial Statements 25-e. Deferred tax liabilities The deferred tax liability represents the amount of income tax payable in a future period that is related to income and chargeable gains classified as intertemporary differences. Similarly the tax credit for intertemporary differences, the deferred tax liabilities comes from the accounting and tax regulations about income arising from equity adjustments and whose realization is conditioned in the future. The table below shows the breakdown of deferred tax liability: Table 95. Breakdown of Deferred Tax Liabilities Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Acturial Gains 5, , , Leasing Portfolio Adjustment (28.2) (12.2) Restatement of Judicial Deposits Market-to-market (25.2) Other (31.1) (65.4) Total Deferred Tax Liabilities 7, , , (6.9) 72

74 Chapter 6 Other Components of the Balance Sheet 6.2. Acturial Asset Overview The actuarial asset of Banco do Brasil represents the portion of the sponsor in the surplus obtained by the Plano de Benefícios 1 Plano 1 (Benefit Plan 1) managed by Caixa de Previdência dos Funcionários do Banco do Brasil - Previ, and it is measured as determined by CVM Resolution 600/2009. Its value is calculated periodically on the basis of an actuarial valuation report and its availability is subject to the accomplishment of the requirements stated in the legislation and by regulatory authorities. Benefit Plan I, established as a Defined Benefit plan, was funded by contributions from participants, beneficiaries (retirees and pensioners) and from the sponsor (Banco do Brasil) until December 2000, at a rate of 2/3 (two thirds) for the Bank and 1/3 (one third) for the participants. The access of new participants was closed on December 23, From January 2001, the parity contribution was implemented, 50% by Banco do Brasil and 50% by the participants and beneficiaries, in order to adjust to the provisions of Constitutional Amendment N. 20. Plano 1 Participants The employees who held a condition of Previ membership in December 24, 1997 and those who, dismissed earlier, but chose to remain in the plan, are the participants in Previ s Plano 1. The participants are divided into two groups: I) Contract 97: group of employees hired before April 14, 1967 that were not retired and that until that date did not have conditions for retirement. They were covered by the contract signed on between Banco do Brasil and Previ, which established the commitment of the sponsor with the payment of the pensions related to the period in which there wasn t the formation of mathematical reserve. Since April/1967, the mathematical reserves to guarantee the benefits of this group started to be integrated in the Plan 1; II) Employees hired between April 15, 1967 and December 23, Once Plano 1 is in a surplus situation, the contributions by the participants and sponsor have been suspended since January Fundo Paridade The implementation of the parity contribution allowed, from the remaining reserve balance, the constitution of the Fundo Paridade (Parity Fund) which initially amounted to R$ 2.2 billion. Currently, the fund is monthly adjusted based on the actuarial target (INPC + 5% per year), and, since January 2007, has been used to offset any financial imbalance in the ratio between the Unamortized Reserve and Advanced Amortization arising from the agreement entered into with Previ in 1997 (Contract 97), which granted supplementary benefits to the participants of Plano 1 who joined the Plan up to and had not retired up to that date. Table 96. Previ Fundo Paridade R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Initial Balance 1,587 1,608 1,646 1,669 1,715 Contribuitions to the Plano 1 - Contract 97 (20) 0 (21) 0 (17) Restatement Amortizing contribution anticipated - Grupo Especial (1,014) Closing Balance 1,608 1,646 1,669 1, On 4Q12, BB and Previ decided for the payment of the mathematical reserves which guarantee the supplemental retirement of participants from Contract 97, as provided in Article 84 from Previ s Bylaws. The amount of R$ 1,014 billion, as calculated by an actuary hired, was paid in bonds of Plano 1, partially deducting from Fundo Paridade, as detailed in the Note to the Financial Statements 27. Fundo de Destinação On November 24, 2010, BB signed a Memorandum of Understanding in order to define the partial destination and utilization of the Plan surplus, as determined in the Complementary Law 109/2001 and 73

75 Banco do Brasil MD&A 4Q12 in the Resolution CGPC 26/2008, which allowed the reclassification of R$ 7.52 billion for the Fundo de Destinação (Destination Fund), in contrast to the partial offset of the actuarial asset. This new fund is adjusted by the actuarial target (INPC + 5% per year). Table 97. Previ Fundo de Destinação R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Initial Balance 4,111 3,684 3,503 3,192 2,853 Restatement Transfer to Fundo de Utilização (527) (264) (398) (418) (562) Closing Balance 3,684 3,503 3,192 2,853 2,374 Fundo de Contribuição In the first half of 2011, BB promoted the creation of the Fundo de Contribuição (Contribution Fund), constituted of resources transferred from the Fundo de Destinação (Destination Fund) in order to compensate the suspension of collecting contributions for a period of three years, as stated in the Memorandum of Understanding. The Contribution Fund is also adjusted by the actuarial target. Table 98. Previ Fundo de Contribuição R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Initial Balance 1,199 1,096 1, Restatement Contribuitions to the Plano 1 (133) (108) (105) (110) (148) Closing Balance 1,096 1, Fundo de Utilização The Fundo de Utilização (Utilization Fund) reflects the accounting for Previ s special reserve for reversal split values of the participants and sponsor. This reserve is conditioned upon confirmation of full coverage of the present value of plan obligations (CGPC Resolution 26/2008, article 25). It is adjusted by the actuarial target (INPC + 5% per year). Table 99. Previ Fundo de Utilização R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Initial Balance 2,644 3,249 3,592 4,095 4,634 Constitution Restatement Closing Balance 3,249 3,592 4,095 4,634 5,358 Periodic update As stated by CVM Resolution 600/09, in the accounting of actuarial asset or liability to be recognized by the sponsor, the limit set by the Método do Corredor (corridor rule) must be observed. This rule only allows the accounting of amounts greater than 10% of the assets and/or liabilities, avoiding the volatility of the amount over time. Regarding the parity contribution, it is still considered the share of Banco do Brasil in the surplus, i.e. 50% of the Plan s present value of assets and actuarial liabilities. The measurement of the actuarial balance of Plano 1 is held every semester (in June and December) and includes (i) the plan surplus amount for the end of the current half and (ii) the estimated result of the plan for the end of the subsequent semester, considering the projections of the current service cost, participants contributions and interest costs. Based on the actuarial asset balance calculated for the current period (June and December), BB accounts the half-yearly adjustment of its actuarial assets with a contra entry to recurring income for the period. This appreciation is the amount of the surplus unrecognized that exceeded the corridor, divided by the average remaining working term of employees who participate in the Plano 1. 74

76 Chapter 6 Other Components of the Balance Sheet From the estimated actuarial results of Plano 1 to the end of the subsequent semester, BB accounts the recognition of that monthly amount at the rate of one sixth of the projected gains or losses, as the semester to which it relates. Table below shows the method used to estimate the actuarial asset. Table 100. Previ (Plan 1) Effects of Half-Yearly Accounting R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 (a) Fair Value of the Plan's Assets 133, , , , ,029 (b) Present Value of Actuarial Liabilities (98,850) (98,850) (105,772) (105,772) (128,413) (c) Surplus BB = [(a) + (b)] x 50% 17,115 17,115 13,848 13,848 11,808 (d) Amount Recognized before the Half-Yearly Accouting 13,372 13,870 14,386 14,783 16,249 Acturial Assets (Initial Period) 12,688 13,372 13,870 14,386 14,783 Antecipated Montly Recognition ¹ Contract 97 Contributions ² ,178 (e) Unrecognized Amount = (c) - (d) 3,743 3,245 (537) (935) (4,441) (f) Corridor Method - BB ³ 6,654 6,654 6,673 6,673 7,601 (g) Excess = (e) - (f) (h) Average Remaining Work Period (Half-Yearly) (i) Amount Recognized in Half-Yearly Adjust = (g) / (h) (j) Acturial Assets (Period End) = (f) + (i) 13,372 13,870 14,386 14,783 16,249 (1) Historical data were reviewed since 3Q12 considering the Antecipated M ontly Recognition of R$ 95.8 million (2) Values refer to payments assumed by BB in the Contract 97. The balances of the Parity Fund and the Contribution Fund were consumed, as shown in Note 27.e (3) 50% of max value of 10% of Assets or Liabilities (the highest) 75

77 Banco do Brasil MD&A 4Q Goodwill on equity The amortization quotas are revalued in an annual base, in accordance with results forecasts, which support the business. The estimates are elaborated by specialized companies and comprise the time and discount rates used for the calculation of the net present value of the futures cash flows. Table 101. Goodwill on investment acquisition R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Banco Nossa Caixa Book Value 4,961 4,961 4,961 4,961 4,961 Accumulated amortization (444) (562) (681) (800) (918) Balance w ithout amortization 4,517 4,399 4,280 4,161 4,043 Amortization expenses for the period¹ (58) (118) (119) (119) (118) Banco Votorantim Book Value Accumulated amortization (86) (98) (110) (122) (135) Balance w ithout amortization Amortization expenses for the period¹ (11) (12) (12) (12) (13) Banco Patagonia Book Value Accumulated amortization (13) (27) (41) (57) (73) Balance w ithout amortization Amortization expenses for the period¹ (5) (14) (14) (16) (16) Cielo Book Value 1,002 1,002 1,002 1,002 1,002 Accumulated amortization (119) (143) (155) (173) (191) Balance w ithout amortization Amortization expenses for the period¹ (21) (24) (12) (18) (18) Other expenses of the Conglom erate Book Value Accumulated amortization (273) (322) (371) (413) (449) Balance w ithout amortization Amortization expenses for the period¹ (47) (50) (49) (42) (36) 1 - Accounted for in Other Operating Expenses. Quarterly Flow 76

78 Chapter 6 Other Components of the Balance Sheet 6.4. Intangible assets The amortization expenses of intangible assets related to the Banco Postal exploitation right acquisition initiated on January/2012. The following table presents the movement of BB's intangible assets. Table 102. Intangible Assets R$ million 4Q11 1Q12 2Q12 3Q12 4Q12 Rights due to payroll acquisition Initial Balance 5,359 6,027 5,565 5,145 5,593 Amortization expenses for the period¹ (524) (555) (457) (470) (467) Other Acquisitions 1, , Write-offs (590) (14) (11) (693) (122) Final Balance (a) 6,027 5,565 5,145 5,593 5,418 Acquisition/development of softw are Initial Balance Amortization expenses for the period² (44) (49) (52) (56) (53) Other Acquisitions Write-offs Final Balance (b) ,224 Banco Postal Initial Balance 2,815 2,824 2,798 2,771 2,712 Amortization expenses for the period¹ - (30) (30) (60) (60) Other Acquisitions Write-offs Final Balance (c) 2,824 2,798 2,771 2,712 2,653 Other Intangible Assets Initial Balance Amortization expenses for the period² Other (9) (4) (3) (1) (2) Acquisitions Write-offs (3) Final Balance (d) Balance (a+b+c+d) 9,736 9,245 8,790 9,201 9, Accounted for in Other Administrative Expenses and reallocated to Other Operating Expenses in the Income Statement with Reallocations. 2 - Accounted for in Other Operating Expenses. Table 103. Estimate of Amortization of Intangible Assets R$ million Total Amounts to be Amortized 2,263 2,230 2,171 2, ,309 77

79 Banco do Brasil MD&A 4Q Financial Earnings This chapter presents Banco do Brasil s balance sheet items analysis (short-term investments and funding) and the analysis of the income and expenses of these assets and liabilities. Considering the balance sheet items, note the breakdown of earning assets and interest bearing liabilities, as well as management spread of credit transactions. In earnings sections, volume and rates are analyzed and interest revenue and expenses are recognized by changing the average volume of balance sheet items and average interest rate change Analysis of Investments Table 104. Average Balances and Interest Rates Earning Assets (Quarterly) R$ million Earning Assets Average Balance¹ 3Q12 Revenues Annualized Rate (%) Average Balance¹ 4Q12 Revenues Annualized Rate (%) Secur. + Interbank Invest. w /o Hedge 380,625 6, ,250 6, Loans + Leasing 454,831 16, ,021 16, Remunerated Compulsory Deposits 74,262 1, ,065 1, Other 6, , Total 916,666 24, ,540 23, Non Earning Assets Tax Credits 19,288 25,420 Other Assets 123, ,792 Permanent Assets 27,784 27,203 Total 170, ,416 TOTAL ASSETS 1,087,078 1,135, Arithmetic average of the closing balances of months that comprises the period Table 105. Average Balances and Interest Rates Earning Assets R$ million Earning Assets Average Balance¹ Revenues Annualized Rate (%) Average Balance¹ Revenues Annualized Rate (%) Secur. + Interbank Invest. w /o Hedge 306,091 30, ,430 27, Loans + Leasing 371,902 61, ,672 66, Remunerated Compulsory Deposits 71,852 7, ,859 5, Other 3, , Total 753,075 99, , , Non Earning Assets Tax Credits 22,799 23,237 Other Assets 107, ,721 Permanent Assets 27,751 27,841 Total 158, ,799 TOTAL ASSETS 911,439 1,065, Arithmetic average of the closing balances of months that comprises the period Spread by Portfolio The table below presents the managerial spread by transactions. Spread is the result of the managerial financial margin divided by the respective average balances. For managerial financial margin calculation, financial revenues classified by portfolio are calculated first. Subsequently, the opportunity costs defined for each of the portfolio lines are deducted. Considering the individuals and companies loan portfolios, with free funds, the opportunity cost is the average Selic rate. For the agricultural portfolio and other directed funds, the opportunity cost is calculated according to the funding source and the necessity or not of compulsory investing part of this funding. 78

80 Chapter 7 Financial Earnings Table 106. Spread by Portfolio 1 % 4Q11 3Q12 4Q Loan Operations Individuals Companies Agribusiness Other Global Spread Historical data reviewed since 1Q11. Figure 22. Spread Analysis Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 NII / (Earning Assets) - Annualized NFM / (Earning Assets) - Annualized 1 Historical data reviewed since 1Q11. Securities Income The income with securities ended the 4Q12 with a balance of R$ 6,255 million, representing a decrease of 5.6% in relation to 3Q12. This change was driven by reduction of 10.5% of the Average Selic Rate (TMS) over the 3Q12. In the annual comparison, the securities income decreased 9.3%, mainly influenced by: (i) reduction of 26.9% of TMS; and (ii) lower appreciation in the US dollar exchange in 2012 against It should be noted that the table below shows the results of all conglomerate operations (including non-financial companies, BB Banco de Investimento, Banco Votorantim, subsidiaries and branches abroad), only evidencing the operations classified by the Central Bank as Securities / Short-term Interbank Investments. Table 107. Securities Income Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Securities Income 7,189 6,623 6,255 (13.0) (5.6) 30,849 27,982 (9.3) Fixed Income Securities 6,947 6,553 6,091 (12.3) (7.0) 30,131 27,481 (8.8) Revaluation Curve 2,937 2,319 2,161 (26.4) (6.8) 12,000 9,644 (19.6) Income/Loss from Negotiation Mark to Market (183) 202 (5) (97.1) Interbank Accounts 3,785 3,844 3,526 (6.8) (8.3) 15,028 15, Foreign Income (77.7) (83.8) 2,489 1,647 (33.8) Others (32.3) (30.1) 79

81 Banco do Brasil MD&A 4Q12 The figure below presents the classification of BB's portfolio of securities by type of index. The classification below does not include the portfolio of BV. Figure 23. Securities Portfolio by Index (BB Multiple Bank) 24.8% 71.9% 3.3% CDI / Average Selic Rate Fixed Other 7.2. Funding Analysis Table 108. Average Balances and Interest Rates - Interest Bearing Liabilities (Quarterly) R$ million 3Q12 4Q12 Average Balance¹ Expenses Annualized Rate (%) Average Balance¹ Expenses Annualized Rate (%) Interest Bearing Liabilities Saving Deposits 110,128 (1,443) ,461 (1,514) 5.3 Interbank Deposits 15,395 (137) ,455 (134) 3.3 Time Deposits 282,644 (5,247) ,027 (4,631) 6.9 Money Market Borrow ing 213,628 (4,072) ,551 (3,787) 7.0 Foreign Borrow ing and Onlending 13,332 (324) ,602 (166) 5.0 Domestic Borrow ing and Onlending 52,743 (825) ,659 (600) 4.2 Financial and Development Funds 4,737 (71) 6.1 4,916 (119) 10.0 Subordinated Debt 49,094 (633) ,699 (756) 5.5 Foreign Securities Borrow ing 22,724 (352) ,087 (384) 5.6 Agribusiness Letters of Credit 20,848 (344) ,033 (420) 5.7 Others Commercial Papers 9,619 (18) 0.7 9,918 (16) 0.7 Total 794,892 (13,465) ,409 (12,528) 6.2 Other Liabilities Demand Deposits 60,640 67,667 Other Liabilities 168, ,703 Shareholder s Equity 63,542 65,177 Total 292, ,547 TOTAL LIABILITIES 1,087,078 1,135, Arithmetic average of the closing balances of months that comprises the period 80

82 Chapter 7 Financial Earnings Table 109. Average Balances and Interest Rates - Interest Bearing Liabilities R$ million Interest Bearing Liabilities Average Balance¹ Expenses Annualized Rate (%) Average Balance¹ Expenses Annualized Rate (%) Saving Deposits 92,918 (6,908) ,769 (6,445) 6.0 Interbank Deposits 13,921 (808) ,031 (540) 3.6 Time Deposits 237,138 (22,231) ,779 (21,412) 7.7 Money Market Borrow ing 183,157 (19,701) ,251 (16,908) 8.2 Foreign Borrow ing and Onlending 10,185 (3,773) ,699 (3,495) 27.5 Domestic Borrow ing and Onlending 50,581 (2,696) ,755 (2,986) 5.6 Financial and Development Funds 3,621 (649) ,522 (655) 14.5 Subordinated Debt 29,699 (1,329) ,494 (2,442) 5.4 Foreign Securities Borrow ing 14,995 (1,382) ,284 (1,728) 7.8 Agribusiness Letters of Credit 4,453 (434) ,968 (1,162) 6.5 Others Commercial Papers 6,297 (269) 4.3 9,664 (106) 1.1 Total 646,964 (60,182) ,217 (57,880) 7.5 Other Liabilities Demand Deposits 59,188 61,885 Other Liabilities 150, ,345 Shareholder s Equity 54,988 62,443 Total 264, ,672 TOTAL LIABILITIES 911,439 1,065, Arithmetic average of the closing balances of months that comprises the period Volume and Rate Analysis The two tables below show the allocation of changes in interest income and expenses due to the variation in the average volume of earning assets and interest bearing liabilities and by the change in the average interest rate on such assets and liabilities, in the periods under analysis. The changes in volume and interest rate were calculated based on changes in average balances in the period and the changes in the average interest rates on earning assets and interest bearing liabilities. The average rate change was calculated by the changes in the interest rate in the period multiplied by the average amount of assets generating income or by the average amount of liabilities generating expenses in the first period. The net change is the difference between the interest income of the present period and the previous period. The change by average volume is the difference between the net change and that resulting from the average rate. 81

83 Banco do Brasil MD&A 4Q12 Table 110. Change in Revenues and Expenses and Change Volume / Rate (Quarterly) R$ million Earning Assets Average Volume (1) Average Rate (2) Net Change (3) Average Volume (1) Average Rate (2) Net Change (3) Secur. + Interbank Invest. w /o Hedge 322 (690) (368) 1,281 (2,216) (934) Loans + Leasing 1,337 (997) 340 3,218 (2,727) 491 Remunerated Compulsory Deposits (117) (154) (271) (145) (657) (802) Other (3) (6) (9) 11 (17) (6) Total 1,300 (1,609) (309) 4,243 (5,494) (1,252) Interest Bearing Liabilities 4Q12/3Q12 Saving Deposits (70) (2) (72) (229) Interbank Deposits (9) 12 3 (21) Time Deposits (229) 1,521 1,292 Money Market Borrow ing (135) (684) 1, Foreign Borrow ing and Onlending (3) (22) Domestic Borrow ing and Onlending (61) (86) Financial and Development Funds (4) (44) (48) (26) Subordinated Debt (90) (34) (124) (309) 15 (294) Foreign Securities Borrow ing (73) 42 (32) (153) (37) (190) Agribusiness Letters of Credit (129) 52 (76) (324) 67 (256) Others Commercial Papers (0) 2 2 (2) Total (507) 1, (2,167) 4,284 2, Net Change - Average Rate 2 - (Current Period Interest / Current Period Balance) x (Previous Period Balance) - (Previous Period Interest) 3 - Current Period Interest - Previous Period Interest 4Q12/4Q11 In the 2012/2011 comparison, the growth in the net interest gain was driven by the growth of the loan portfolio. Table 111. Change in Revenues and Expenses and Change Volume / Rate R$ million Earning Assets Average Volume (1) Average Rate (2) Net Change (3) Secur. + Interbank Invest. w /o Hedge 4,735 (7,601) (2,867) Loans + Leasing 11,356 (6,442) 4,914 Remunerated Compulsory Deposits 233 (1,525) (1,292) Other 54 (223) (169) Total 16,103 (15,517) 586 Interest Bearing Liabilities Saving Deposits (888) 1, Interbank Deposits (40) Time Deposits (3,067) 3, Money Market Borrow ing (1,966) 4,759 2,793 Foreign Borrow ing and Onlending (692) Domestic Borrow ing and Onlending (176) (114) (290) Financial and Development Funds (131) 125 (6) Subordinated Debt (848) (266) (1,114) Foreign Securities Borrow ing (565) 220 (346) Agribusiness Letters of Credit (874) 146 (727) Others Commercial Papers (37) Total (9,451) 11,753 2, Net Change - Average Rate 2 - (Current Period Interest / Current Period Balance) x (Previous Period Balance) - (Previous Period Interest) 3 - Current Period Interest - Previous Period Interest 2012/

84 Chapter 7 Financial Earnings 7.4. Spread Table 112. Volume Analysis (Earning Assets) Quarterly Rate R$ million 3Q12 4Q12 Abs. Chg. Volume: Assets Earning Assets¹ 916, ,540 52,874 Net Interest Income 11,251 12, Spread - %² Gain/(loss) w ith volume³ 649 Gain/(loss) w ith spread⁴ 125 Gain/(loss) w ith volume and spread⁵ Arithmetic average of the closing balances of months that comprises the period. 2 - Net Interest Income / Earning Assets 3 - Gain/(Loss) resulting from multiplying the earning assets volume of the current period for the spread of the previous period. 4 - Gain/(Loss) resulting from multiplying the earning assets volume of the previous period for the spread of the current period. 5 - Combined Gain/(Loss) of the effects above. Table 113. Volume Analysis (Earning Assets) R$ million Abs. Chg. Volume: Assets Earning Assets¹ 753, , ,015 Net Interest Income 40,830 45,729 4,899 Spread - %² (0.3243) Gain/(loss) w ith volume³ 7,808 Gain/(loss) w ith spread⁴ (2,442) Gain/(loss) w ith volume and spread⁵ (467) 1 - Arithmetic average of the closing balances of months that comprises the period. 2 - Net Interest Income / Earning Assets 3 - Gain/(Loss) resulting from multiplying the earning assets volume of the current period for the spread of the previous period. 4 - Gain/(Loss) resulting from multiplying the earning assets volume of the previous period for the spread of the current period. 5 - Combined Gain/(Loss) of the effects above. Table 114. Adjusted NIM and Net Interest Income R$ million 4Q11 3Q12 4Q Average Earning Assets (AEA) 797, , , , ,091 Average Interest Bearing Liabilities (AIBL) 685, , , , ,217 Net Interest Gain 10,450 10,688 11,316 39,542 42,431 Interest Income 25,096 24,153 23,844 99, ,311 Interest Expense (14,646) (13,465) (12,528) (60,182) (57,880) Net Interest Income Other Items¹ ,288 3,298 NII 10,817 11,251 12,033 40,830 45,729 AIBL / AEA % Interest Rate on AEA² - % Interest Rate on AIBL² - % Net Interest Rate² ³ - % Adjusted NIM² ⁴ - % NIM² % Contains derivatives, debt assumption contracts, foreign exchange portfolio, recovery of write-offs, gold loans, credit guarantor fund, foreign exchange gain/loss abroad and other income of a financial intermediation nature. 2 - Rates are annualized. 3 - Difference between average rate of earning assets and average rate of interest bearing liabilities. 4 - Income net of interest divided by the average balance of earning assets Managerial Margin BB's managerial margin from loans and deposits is shown in the following table. Each line is calculated by the difference between financial revenue/expenses and the respective opportunity cost of each line, for example: the average Selic rate (TMS), Long-term interest rate (TJLP) or Referential Interest Rate (TR). 83

85 Banco do Brasil MD&A 4Q12 Table 115. Managerial Margin Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Loan Operations 8,244 8,878 8, ,321 35, Individuals 4,560 5,015 5, ,230 20, Companies 2,340 2,452 2, (3.3) 8,667 9, Agribusiness 1,344 1,411 1, ,424 5, Deposits 1, (32.2) (7.6) 5,664 4,154 (26.7) Time Deposits (37.1) (11.1) 3,426 2,485 (27.5) Demands Deposits (28.3) (1.6) 1,496 1,095 (26.8) Saving Deposits (17.0) (5.0) (22.7) Other Deposits (69.3) (43.5) (19.2) 7.6. Net Interest Income In the table below, loan operations and funding expenses do not consider the foreign exchange variation effect. Financial expenses result mainly from time deposits, savings, senior debt, hybrid debt capital instruments and subordinated debt. As of 4Q12, expenses of funding held with institutional investors comprising senior debt, subordinated debt and hybrid capital instrument and abroad were detached in specific line. A series of such data has been reprocessed since 1Q11, to maintain comparability. The treasury line comprises: (i) interest income; (ii) remunerated compulsory deposits income; (iii) tax hedge, derivatives and other financial instruments that compensate the exchange variation in result. The other line comprises, mainly, provisioned resources at BB that must be applied in loan operations regarding official government programs, as Finame, BNDES and FCO. Table 116. Net Interest Income Breakdown¹ Quarterly Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 Net Interest Income 10,817 11,251 12, Loan Operations 15,971 16,071 16, Funding Expenses (7,200) (6,678) (6,241) (13.3) (6.5) Funding Expenses ² (584) (742) (919) Recovery of Write-offs Loans , Treasury 2,779 2,639 2,235 (19.6) (15.3) Other (1,000) (852) (441) (55.9) (48.3) 1 Historical data reviewed since 1Q11. 84

86 Banco do Brasil MD&A 4Q Non-Financial Business 8.1. Fee Income The expansion of credit offer and BB strong performance in the retail segment, driven by the reorganization of its customer service structure, helped to promote loyalty and expansion of relationship with customers. Besides that, the BOMPRATODOS program has benefited the business volume expansion, contributing to growth and diversification of fee income. All these together contributed to the 9.6% increase over 4Q11 of fee income. In the 4Q12/4Q11 comparison, emphasis is given for income from: (i) card operations that totaled R$ 1.3 billion in 4Q12, an increase of 18.1% over the same period in 2011, aligned with credit cards revenues growth (26.4%); (ii) loans totaled R$ million in the quarter, up 23.9% from 4Q11, driven by the 24.3% increase in the loan portfolio in twelve months and (iii) checking accounts fees which increased 6.9% yoy, reflecting the 4.6% increase in customer base and 3.6% in number of checking accounts. The increase business volume supported by the BOMPRATODOS program and driven by rise in the consumption of existing customers and new checking account holders also favored a growth in fee income. The expansion of the Bank s financial and non-financial businesses has allowed a greater profitability enhancement of the client base, with the generation of sustainable businesses. Table 117. Fee Income Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Fee Income 5,027 5,280 5, ,242 21, Credit / Debit Cards 1,084 1,189 1, ,926 4, Account Fees 1,136 1,081 1,073 (5.6) (0.7) 4,077 4, Asset Management Fees (3.8) 3,197 3, Loan Fees ,822 2, Collections ,241 1, Billings Interbank Insurance, Pension and Savings Bonds Capital Market Fees Other (1.4) 1,764 2, Table 118. Customer Base Situation Chg. % thousand Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 On Dec/11 On Sep/12 Customers 56,001 56,921 57,466 57,879 58, Checking Accounts 36,121 36,539 36,690 37,084 37, Individuals 33,875 34,261 34,396 34,687 35, Companies 2,247 2,278 2,294 2,397 2, (1.1) 8.2. Cards The credit cards revenues reached R$ 99.4 billion in 2012, up 23.0% yoy. In 4Q12, the credit cards revenues increased 26.4% over the same prior-year period, driven by the more intensive use of cards as a payment method, increase in the average expenditure and offering of innovative solutions such as access to credit alternatives. The revenues with BNDES and credit cards for companies, which together grew 33.9% in the year, merits special emphasis. Thus, the balance of the total credit cards loan portfolio increased 33.5% in 4Q12 compared to the same period in the previous year, reaching a volume of R$ 27.2 billion. 85

87 Chapter 8 Non-Financial Business 8.3. Asset Management Banco do Brasil, through BB Gestão de Recursos - BB DTVM, is leader in investment fund national industry since In December 2012, reached R$ billion in Assets under Management, with a market share of 20.0%. Note that Banco do Brasil market share would reach 20.7% if considered 50.0% of funds managed by Banco Votorantim through Votorantim Asset Management - VAM (R$ billion at the end of the 4Q12). BB continued as the leader in the asset management of the following segments: I. Institutional Investors, with equity of R$ billion (21.3% of market share); II. Public Authorities, with R$ billion (61.9% of share); and III. Individual, Retail segment, with R$ 57.5 billion (33.4% of market share). The growth of 6.79% in assets under management, in 2012 in comparison to the previous year occurred mainly on account of the appreciation of assets from the portfolios. Figure 24. Asset Management Mar/11 Jun/11 Sep/11 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Asset Management - R$ billion Market Share - % Considering classification by Customers, Institutional Investors segment represents 39.3% of BB DTVM assets under management (as at December 2012). In 4Q12 there was a review of methodology for classification of products in individual and companies segments. Historical data were not revised. Table 119. Investment Funds and Managed Portfolios by Customer Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Institutional Investors 167, , , Individuals 91, , , Government 94, , , (11.1) Companies 43, , , (59.2) (59.6) Foreign Investors 18, , , Total 415, , , (1.8) 86

88 Banco do Brasil MD&A 4Q12 Table 120. Investment Funds and Managed by Type Balance Chg. % R$ million Dec/11 Share % Sep/12 Share % Dec/12 Share % On Dec/11 On Sep/12 Investment Fund 403, , , (2.0) Fixed 264, , , Equity 55, , , (0.3) (0.8) Multimarket 20, , , (62.2) (62.6) Others 63, , , Managed Portfolios 11, , , Fixed 11, , , Equity Total 415, , , (1.8) Asset management in Banco do Brasil is directed to all market segments and, since 2006, received the maximum score (MQ1) in Management Quality Excellence from Moody's Insurance In November/2012, Banco do Brasil announced its intention to create a wholly-owned subsidiary, BB Seguridade, responsible for consolidating, under a single company, all of its activities in the segments of insurance, pension plans and premium bonds. In 2013, depending on studies that indicate the viability, there is the intention to hold a public offering of shares issued by BB Seguridade. In addition, it was communicated the intention to form a new holding company, BB Cor Participações, a subsidiary of BB Seguridade, which will hold equity interest in the capital of BB Corretora. The organization chart with the corporate structure intended after the setup of BB Seguridade is shown below: BB Seguridade BB Cor.Participações 100% T 100% T BB Seguros 100.0% T 49.9% ON 74.9% T 49.0% ON 50.0% T 49.9% ON 74.9% T 49.9% ON 66.7% T BB Corretora Brokerage BB Mapfre SH1 Personal Insurance Mapfre BB SH2 P&C Brasilprev Pension Plans Brasilcap Premium Bonds Partner: Mapfre Participações Partner: Mapfre Participações Partner: PFG do Brasil Partners: Icatu Capitalização Aliança da Bahia The information about Insurance Ratio, Managerial Statement of income by Business Line, Combined Ratio-Broad Concept, and Operating Highlights from Insurance, Pension Plans and Premium Bonds were replaced by accounting information available in the Financial Statements (Note 21 Operations of Insurance, Pension Plans and Premium Bonds). The tables ahead show the Financial and Operational results per each segment: 87

89 Chapter 8 Non-Financial Business Table 121. Insurance Financial and Operational Results Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 Financial Results (11.0) (3.5) Financial income (1.2) 7.8 Financial expenses (23) (21) (35) Restatement and interest of technical reserves (9) (2) (8) - - Operating Income Retained premiums and contributions 1,194 1,592 1, Change in technical provisions (24) (230) (316) - - Retained claims (583) (618) (622) Selling expenses (168) (210) (207) 23.2 (1.5) Total Table 122. Pension Plans Financial and Operational Results Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 Financial Results (19.5) (12.7) Financial income 1,057 1,113 1, (0.3) Financial expenses (454) (557) (624) Restatement and interest of technical reserves (542) (495) (403) (25.7) (18.7) Operating Income Retained premiums and contributions 2,496 2,560 4, Change in technical provisions (2,384) (2,514) (4,357) Selling expenses (46) (32) (33) (29.1) 0.8 Expenses w ith benefits and redemptions of pension plans (5) (13) (7) 47.1 (47.9) Total (28.4) 43.5 Table 123. Premium Bonds Financial and Operational Results Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 Financial Results Financial income Financial expenses 2 (19) Restatement and interest of technical reserves (54) (78) (91) Operating Income Retained premiums and contributions Change in technical provisions (18) (498) 1, Selling expenses (26) (40) (46) Expenses w ith prize draw s and redemptions of financial bonds (536) (12) (2,077) - - Total Capital Market In the domestic capital Market, BB offers stocks trade services through its branches, internet (home broker) and mobile devices. In 4Q12, the amount traded reached 5.1 billion, with 189 thousand businesses. According to the Anbima s ranking (Brazilian Financial and Capital Markets Association), Banco do Brasil, until December/2012, through BB-Banco de Investimento (BB-BI): i. Coordinated 78 issues of debentures and promissory notes, totaling R$ 20,806 million of originated volume; ii. Carried out 4 CRI and FIDC operations, which generated a volume of R$ 473 million in the securitization market; iii. Coordinated 7 public offerings, in the wholesale distribution segment, which amounted to R$ 10,151 million in the equity market, reaching 1 st place in quantity of operations and 3 rd place in volume, according to the Anbima ranking; 88

90 Banco do Brasil MD&A 4Q12 iv. In the retail segment of the equity market, coordinated 3 public offerings that enabled earn R$ 9.6 million in revenues; v. In the mergers & acquisitions market, BB-BI participated in 4 operation carried out, in the amount of R$ 2,251 million, and took the 11th place in the Anbima ranking (accumulated data up to September 30, the latest information available). In the asset custody segment, the Bank closed the period in the 3rd place in the Anbima ranking, in December/2012 with custodied assets amounting to R$ 551 billion, representing a market share of 19.7%. In the gold tranding market, BB was responsible for a volume of R$ 25.4 million in transactions in 4Q12, which represented an increase of 20%, when compared with the same period of 2011, and growth of 19% in relation to the total volume traded in the 3Q12. In the private equity industry, BB-BI acts as an investor since 2004 and is currently shareholder of 15 funds. Since 2007, BB began providing financial-economic consulting services to Equity Investment Funds, acting as advisor in 6 funds invested. The total capital committed by BB-BI in the private equity industry is R$ 1,528 million. In the international capital market, BB, through its overseas brokers BB Securities Ltd (London), Banco do Brasil Securities LLC (New York) and BB Securities Asia Pte. Ltd. (Singapore), took part in 28 of the 68 foreign funding operations performed by companies, banks and the Brazilian government, of which 26 as lead manager and 2 as co-manager. Of the total sum of approximately US$ 50.3 billion issued up to the end of the 4Q12, BB participated in around US$ 29.0 billion. In addition, BB operated in 7 transactions of foreign issuers, as co-manager, in the amount of US$ 8.9 billion. 89

91 Banco do Brasil MD&A 4Q12 9 Administrative Expenses 9.1. Personnel Expenses The change of 5.2% in personnel expenses in the 4Q12-3Q12 comparison is explained mainly by subscription of Collective Labor Agreement 2012/2013 (Readjustment of 7.5%). It is observed that this adjustment impacted the entire 4Q12 and 3Q12 just the month of September. In twelve months comparison, the growth of 13.1% was, partially, due to increased by approximately R$ 293 million the expenses in the period, related the consolidation of the expenses with Banco Patagonia and Mapfre Group. Disregarding this effect, the growth of personnel expenses in the twelve months flow view would be 11.3%, justified by the compensation readjustment granted in September 2011, the adjustment in the administrative provisions based on the inflation from 2011 October to 2012 September and by the higher number of employees. Table 124. Personnel Expenses Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11On 3Q On 2011 Personnel Expenses (3,954) (4,001) (4,211) (13,943) (15,777) 13.1 Salaries (2,117) (1,900) (2,364) (7,117) (8,157) 14.6 Benefits (531) (522) (582) (1,911) (2,146) 12.3 Social Charges (715) (688) (841) (2,456) (2,872) 17.0 Training (37) (12) (21) (43.8) 73.3 (77) (55) (27.7) Pension Fund (95) (79) (111) (306) (337) 10.3 Remunerat. for Counselors and Directors (16) (16) (17) (58) (62) 6.8 Administrative Personnel Provisions (443) (784) (275) (38.0) (64.9) (2,019) (2,147) 6.3 The following figure shows the changes of BB s staff. Figure 25. Changes of BB s Staff Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Employees (Employees+Interns) Employees Interns 9.2. Operating Structure Other Administrative Expenses The increased observed in other administrative expenses in the 4Q12-3Q12 comparison is aligned with the contracts readjustments held. Highlights: (i) Amortization and Depreciation line, reduction in depreciation expense due to the sale of the buildings used by the BB to the Real State Fund, in addition to the change in method of accounting for depreciation of improvements made in third party properties; and (ii) Advertising and Public Affairs line, seasonal growth in expenses is justified by yearend campaigns, purchases calendars, among others. 90

92 Chapter 9 Administrative Expenses In the twelve months view it is worth to highlight the effect of the accounting of Banco Patagonia (2011/April) and Mapfre Group (2011/June) expenses and the acquisition of the right of use of Banco Postal network (2012/January). These items increased by R$ 719 million the other administrative expenses. Disregarding this impact the twelve months flow growth of other adminstrative expenses would be 8.5%. It is worth to say that BB maintains a tight expenses control program, which offset partially the increase observed. Table 125. Other Adminstrative Expenses Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Other Administrative Expenses (3,012) (3,122) (3,288) (10,809) (12,417) 14.9 Telecommunications and Data Processing (556) (543) (574) (2,022) (2,224) 10.0 Amortization and Depreciation (331) (340) (232) (30.1) (31.9) (1,293) (1,271) (1.7) Security. Guard and Transport Services (450) (532) (536) (1,622) (2,056) 26.8 Expenses w ith Premises and Equipment (448) (471) (517) (1,625) (1,896) 16.7 Advertising and Public Affairs (263) (170) (239) (9.2) 40.8 (683) (724) 5.9 Expenses w ith Outsourced Services (525) (617) (671) (1,974) (2,436) 23.4 Other Administrative Expenses (439) (449) (520) (1,590) (1,811) Service Network Since January 1st, 2012, the Banco Postal service network, with over 6,000 points, joined the MaisBB network of banking agents. With this partnership the service network of Banco do Brasil was in 5,425 Brazilian municipalities in December 31, 2012, representing 97% of the total Brazilian municipalities. Banco do Brasil has partnerships to share automated teller machines (ATMs) and to use the lottery network where is possible to make withdraws, deposits, payments, besides other services. These partnerships consolidate the sprayed and national distribution network of Banco do Brasil. Table 126. Service Network Distribution Channel Situation Dec/11 Sep/12 Dec/12 On Dec/11 On Sep/12 Branches 5,263 5,339 5, SAA (Selfservice Rooms) 4,919 4,936 4, Services Posts 8,583 8,747 8, Subtotal 18,765 19,022 19, MaisBB Netw ork 14,232 20,481 17, (12.5) Banking Agents 14,232 14,286 11,719 (17.7) (18.0) Banco Postal - 6,195 6, Shared Distribution Channels Chg. % CEF - lottery stores 10,993 11,732 12, Banco 24h 11,566 11,801 12, ATM: BRB + CEF 1,975 2,241 2, Subtotal 24,534 25,774 27, Total 57,531 65,277 64, (1.7) BB has the largest branches chain of Brazil. The following table shows the distribution of the branches chain per region of the country. Table 127. Network of Branches by Region BB Banking Industry Share % North 305 1, Northeast 1,154 3, Middle West 471 1, Southeast 2,353 11, South 1,056 4, Total 5,339 21,

93 Banco do Brasil MD&A 4Q12 Automated Channels The BB s service network is a strategic differential, offering a range of services to clients besides supporting the company to reduce its costs. The following figure shows the quantity of ATMs owned by BB, the ATMs from the partnership with Caixa Econômica Federal (CEF), Banco Regional de Brasília (BRB) and the network of Banco 24h. Figure 26. Automated Teller Machines Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Automated Teller Machines ATM: Banco 24h ATM: BRB + CEF The automated transactions are responsible for a main portion of the total of banking operations held by Banco do Brasil. The following figure shows the percentage of transactions by service channel. Figure 27. Transactions by Service Channel - % 93,8 93,5 93,4 94,6 94,0 9,0 10,4 10,9 12,0 12,3 12,9 11,1 11,6 12,0 14,0 6,2 6,5 6,6 5,4 5,9 18,7 18,5 18,1 18,8 18,8 19,6 21,5 20,9 20,6 19,7 33,6 32,0 31,9 31,2 29,2 4Q11 1Q12 2Q12 3Q12 4Q12 ATM Internet Individuals Internet Companies Cash POS COBAN and Other Automated Transactions In 2012, there is also the action of the channels below: i. cell phones million transactions carry out 2,961.4 thousand clients; ii. the public sector self-service (Internet and cell phones) million transactions performed by 21.4 thousand users; iii. the Financial Manager million operations, being used for more than thousand companies, mainly small businesses. 92

94 Chapter 9 Administrative Expenses MaisBB Network The MaisBB network, which comprises the Banking Agents and Banco Postal, is in over 17 thousand points around the Country. The network offers services in a differentiate opening hour, providing convenience for the clients. The partnership with Banco Postal has allowed BB to access about 1,8 thousand municipalities where it did not have branches or banking agents. The following table presents MaisBB Network operating data, segregated by Banking Agents and Banco Postal: Table 128. MaisBB Network Operating Data MaisBB Netw ork Banking Agents Banco Postal 3Q12 4Q12 3Q12 4Q12 Operating Data Individual Cheking Accounts Opening¹ (units) 250, , , ,433 Payments, Collections and Checkings² Deposits 2,121 2,146 4,517 4,573 Withdraw s 1,367 1,387 4,583 5,002 Account Statement ,326 2,389 Balance Checking ,160 2,460 Collections³ 52,370 52,164 15,070 14,223 Credit⁴ Quantity of Operations (units) 324, ,213 60,453 91,008 Disbursement Volume (R$ million) 2,120 2, Number of proposals. In 3Q12, Amount related to banking agents adjusted due to reprocessing of data; 2 - Number of transactions in thousand; 3 - Bills and taxes collection; 4 - Banco Postal data: operations performed in Banco Postal network and by Banco Postal clientes in further BB s channels Abroad Service Network The BB s abroad service network comprises 49 facilities located in 24 countries. In addition to this structure, Banco do Brasil has an agreement with other financial institutions to provide attendance to its clients. In the end of last December there were 1,124 banks acting as BB s banking agents in 139 countries. Table 129. Abroad Service Network Branches Sub-branches Representative Offices Subsidiaries and affiliates Shared Services Units Assuncion Cidade do Leste Caracas Banco do Brasil AG BB USA Serv. Center Rome Buenos Aires Gifu Mexico City Banco do Brasil Securities LLC BB Europa Serv. Center Frankfurt Gunma Dubai BB Leasing Company Ltd. Grand Cayman Hamamatsu Hong Kong BAMB Brazilian Americ. Merch. Bank La Paz Ibaraki Lima BB Securities Ltd. Londres London Nagano Luanda BB USA Holding Company Madrid Nagóia Montevideo BB Money Transfers, Inc. Miami Sta. Cruz de La Sierra Panama BB Securities Asia PTE, Ltd Milan Seoul BB AG - Branches Offices Portugal New York Washington Cascais Paris Shanghai Marquês de Pombal Santiago Tokyo Parque das Nações Porto Costa da Caparica Lisbon Business Units 93

95 Banco do Brasil MD&A 4Q Other Income Information The remaining relevant changes in other operating income and expenses are presented in the following tables. Table 130. Other Operating Income Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Other Operating Income 1,641 1,368 1,578 (3.8) ,939 5,795 (2.4) Recovery of charges and expenses (22.3) (16.2) Income from guarantee deposits¹ (30.4) (4.8) 1,501 1,130 (24.7) Update on Allocation of Surplus Funds - Previ ,014 1, From non-financial associated companies Credit Card transactions (59.8) (58.8) Reversal of Provisions - Personal, Adm., Acturial Obligations (76.4) (74.1) Receivables Income Other ,339 1, Refers mainly to income from securities operations update related to foreing trade. Table 131. Other Operating Expenses Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Other Operating Expenses (2,654) (2,386) (2,389) (10.0) 0.1 (9,629) (9,595) (0.4) Actuarial Liabilities (277) (234) (276) (0.6) 18.0 (998) (825) (17.3) Other Oper. Exp. from Non-Financ. Comp. (247) (463) (479) (1,443) (1,794) 24.4 Business Partners¹ (78) (98) (112) (539) (389) (27.7) Credit and Debit Card Transactions² (389) (405) (124) (68.2) (69.4) (1,260) (1,329) 5.4 Restatement of Guarantee Deposits (101) (64) (61) (39.9) (4.3) (425) (275) (35.3) Discounts Granted on Renegotiations (83) (94) (155) (290) (396) 36.8 Goodw ill Amotization⁴ (143) (208) (201) 40.5 (3.2) (575) (833) 44.8 Failures/Frauds and Other Losses (56) (48) (41) (27.1) (14.9) (460) (196) (57.3) Negotiation Relationship Allow ance⁴ (524) (470) (576) (2,051) (2,059) 0.4 Other (755) (305) (365) (51.6) 19.8 (1,590) (1,499) (5.8) 1 - Refers to expenses from partnerships, mainly in Banco Votorantim; 2 - Expenses related mainly to the the costs with individuals relationship program (points of card program) and fees over sales volume; 3 - Due to Aliança do Brasil and Nossa Caixa goodwill amortization expenses; 4 - Expenses mainly from negotiations for payroll acquisitions from Government Direct and Indirect Administration Productivity Ratios This section presents the productivity ratios usually used in the analysis of financial institutions. In the 12 Months Flow comparison, the good performance of fee income and the control of administrative expenses contribute to the improve of the ratio that measures personnel expenses coverage and administrative expenses coverage. In relation 4Q12-3Q12, the reduction of coverage ratios is justified by the increase in personnel expenses and contractual adjustments characteristic of the 4Q12. Table 132. Coverage Ratios Adjusted¹ Quarterly Flow Annual Flow R$ million 4Q11 1Q12 2Q12 3Q12 4Q Fee Income 5,027 5,051 5,256 5,280 5,484 18,242 21,071 Administrative Expenses 6,966 6,626 6,946 7,123 7,499 24,752 28,194 Personnel Expenses 3,954 3,694 3,871 4,001 4,211 13,943 15,777 Fee Income / Personnel Exp Fee Income / Administ. Exp Series revised due to change in methodology. Data relating to Income Statement with Reallocations. 94

96 Chapter 9 Administrative Expenses The cost income ratio with accumulated 12 months basis allows a analysis with less volatility. In the twelve months flow comparisons, the performance observed is affected by the expenses with Banco Postal and by the accounting of expenses with Banco Patagonia and Mapfre Group. Table 133. Cost Income Ratio Adjusted¹ Quarterly Flow Annual Flow R$ million 4Q11 1Q12 2Q12 3Q12 4Q Operating Income (A) 15,393 15,496 16,412 16,079 17,268 57,668 65,255 Net Financial Margin 7,925 7,258 7,934 7,488 8,398 29,003 31,078 Allow ance for Loan Losses 2,892 3,576 3,677 3,764 3,636 11,827 14,651 Fee Income 5,027 5,051 5,256 5,280 5,484 18,242 21,071 Equity Int. in the Results of Subs. and Affil (29) (67) 22 (94) Income f/ Insurance, Pension & Savings Bonds Op ,265 2,349 Other Operating Revenues 1,641 1,516 1,333 1,368 1,578 5,939 5,795 Other Operating Expenses (2,654) (2,422) (2,397) (2,386) (2,389) (9,629) (9,595) Administrative Expenses (B) 6,966 6,626 6,946 7,123 7,499 24,752 28,194 Personnel Expenses 3,954 3,694 3,871 4,001 4,211 13,943 15,777 Other Administrative Expenses 3,012 2,932 3,075 3,122 3,288 10,809 12,417 Cost Income Ratio (B/A) - % Cost Income Ratio 12 months- % Series revised due to change in methodology. Data relating to Income Statement with Reallocations. The following table presents further productivity ratios. Table 134. Other Productivity Ratios Quarterly Flow 4Q11 1Q12 2Q12 3Q12 4Q12 Assets per Employee¹ - 8,018 8,252 8,578 8,952 9,445 Checking Accounts per Employee¹ Employees¹/(Branches+PAA+PAB) Employees in Branches/(Branches+PAA+PAB) Credit Portfolio/Points of Service² - R$ million Fee Income/Points of Service² Personnel Expenses per Employee Checking Accounts/(Branches+PAA+PAB) 5,169 5,222 5,204 5,232 5, It includes the employees and interns 2 - Own network 95

97 Banco do Brasil MD&A 4Q Risk Management Risk Management Risk Management Risk management in the Financial Group of Banco do Brasil covers in a comprehensive manner the risks of credit, market, liquidity and operational. Management activities are performed by specialized structures, according to objectives, policies, strategies, processes, procedures and systems described in each one of these risks. Although activities are focused on credit, market, liquidity and operational risks, the Bank adopts mechanisms to ensure the sufficiency of capital to cover other risks incurred. Collegiate risk management is performed completely apart from the business units. Risks policies are approved by BB s Board of Directors and formulated by the Global Risk Committee (CRG), a discussion group composed by the President and by vice-presidents. Actions for implementing and monitoring guidelines issued by the CRG are directed at specific sub-committees (Credit, Market, Liquidity and Operations), which are groups formed by Directors Statutory. To find out more about the risk management process at Banco do Brasil, access the website bb.com.br/ir. The tables and graphs contained in this chapter do not consider the financial information of Banco Votorantim (BV), unless there is explicit reference to the contrary. Accordingly, the term BB Consolidated is defined as Banco do Brasil in Brazil and abroad, excluding BV Credit Risk Credit Risk is defined as the possibility of losses associated with non-performance by the borrower or counterparty of their respective financial obligations under the agreed terms, with loan agreement devaluation arising from the deterioration in the borrower's risk rating, with reduced earnings or remuneration, with benefits granted in the renegotiation and with recovery costs. The definition of credit risk involves, among others: I - the risk of the counterparty: is the possibility of non-performance, by a particular counterparty, of obligations relating to the settlement of transactions involving the trading of financial assets, including those relating to the settlement of derivative financial instruments; II - the country risk: is the possibility of losses associated with the non-performance of financial obligations under the terms agreed by a borrower or counterparty located outside the country, as a result of actions taken by the government of the country where the borrower or counterparty is located, and the transfer risk, understood as the possibility of obstacles in the currency conversion of amounts received; III - the commitment risk: the possibility of outlays to honor sureties, guarantees, co-obligations, loan commitments or other operations of a similar nature; IV - the intervener risk: the possibility of losses associated with the non-performance of financial obligations under the terms agreed by the intermediary or contracting party of loan operations; and V - the concentration risk: the possibility of credit losses arising from significant exposure to a counterparty, a risk factor or groups of counterparties related by common characteristics. At Banco do Brasil, the credit risk management structure is composed of a Risk Management Directorship, a Credit Directorship, and an Operating Assets Restructuring Directorship, and the Risk Management Director, by appointment of the Board of Directors, is in charge of the BB s credit risk management. This structure is in accordance with CMN Resolution 3721 dated April 30, Market Risks Market Risk reflects the possibility of losses resulting from fluctuations in the market values of positions held by a financial institution. It includes the risks of operations subject to foreign exchange variation, of interest rates, including non-trading portfolio (RBAN parcel) of stock prices and of commodity prices. 96

98 Chapter 10 Risk Management The Risk Management Directorship (Diris), in compliance with the CMN Resolution 3464, of June 26 th, 2007 is responsible for managing the market risk at Banco do Brasil, with a structure for managing market risk consistent with the nature of operations, the complexity of products and the dimension of the institution's risk exposure, segregated from the trading units and from the unit executing the internal audit activity. Banco do Brasil uses statistical methodologies to measure the market risks of its positions. Among the metrics resulting from the use of these methodologies, it is worth highlighting: I - Sensitivity; II - Value at Risk (VaR); and III - Stress. Banco do Brasil adopts the policy of managing its exchange risk so as to reduce its effects on the consolidated economic and financial result. Following, we present the statement of assets, liabilities and derivatives of BB Consolidated, referenced to foreign currencies. Net foreign exchange exposure, for December 31 st, 2012 is negative in the amount of US$ 1,296 million, reflecting the fiscal hedging strategy adopted by the Bank. The purpose of tax hedge is to reduce the volatility of the result, after the tax effects, since exchange gains on investments abroad are not subject to taxation and likewise losses do not generate deduction in the tax basis. Table 135. Balance in Foreign Currencies R$ million - 12/31/2012 BALANCE SHEET CURRENCY ASSETS LIABILITIES U.S. Dollar 104, ,889 Euro 13,501 11,413 Pound Sterling Yen 1,519 2,067 Sw iss Franc Canadian Dollar 3 2 Gold 20 - Other 10,067 10,939 Total 129, ,954 Net Position - Balance Sheet Items (14,962) DERIVATIVES CURRENCY LONG SHORT U.S. Dollar 29,294 16,374 Euro 3,577 5,231 Pound Sterling Yen 1, Sw iss Franc - 91 Canadian Dollar - - Other Total 34,998 22,684 Net Position - Derivatives 12,314 TOTAL OF DERIVATIVES AND BALANCE SHEET ITEMS 164, ,638 Total Net Position (2,648) Total Net Position - in U.S. Dollar in million (1,296) BB Consolidated regulatory foreign exchange exposure, calculated according to Bacen Circular 3,389, of June 25 th, 2008, was R$ 1,656.0 million at December 31 st, The chart below shows the quarterly behavior of BB Consolidated s foreign exchange exposure in relation to the Referential Equity amount (RE) since December

99 Banco do Brasil MD&A 4Q12 Figure 28. Changes in Foreign Exchange Exposure in % of the Referential Equity Amount (RE) 1.34% 0.07% 1.16% 0.09% 1.88% 0.68% 0.68% 0.79% 0.87% 3.53% 0.71% 0.84% 0.88% 0.50% 0.69% 0.73% 0.71% 0.56% 0.98% Dec/10 Mar/11 Jun/11 Sep/11 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Compensation "G Parcel" ¹ Other Currencies Currency Basket ¹ In accordance with Bacen Circular Letter no. 3389, of June 25th, 2008, the "G" portion is the value added to the conglomerate foreign exchange exposure in case the country's exposure and the exposure of the branches network abroad have opposite positions. In this situation, the portion with lower absolute value is added. Balance Sheet by Index Below is presented the composition of assets and liabilities, including derivatives, of BB Consolidated, detailed by index: Figure 29. Composition of Banco do Brasil's Assets and Liabilities in the Country R$ billion - 12/31/2012 FIXED 1, ,143.3 CDI / TMS / F ACP IRP/TBF/TR PRICE INDEX TJLP US$ / GOLD W/O INDEX Assets Liabilities The following chart shows BB Consolidated s net mismatches, by index: 98