Rule 12g3-2(b) Exemption # Reference Form 2013 Position 12/31/2012

Transcription

1 Rule 12g3-2(b) Exemption # Reference Form 2013 Position 12/31/2012

2 Updates Version/ Date of change Section changed 1-05/31/2013 All 2 06/18/ , 4.2, 12.6, 12.7, 12.8 and /03/ , 12.7, 12.8, e /01/

3 Banco do Brasil S.A. Reference Form/2013 Summary DEFINITIONS IDENTIFICATION OF THE OWNERS OF THE FORM CONTENT Statement by the President and by the Investor Relations Officer AUDITORS Regarding independent auditors, indicate: Total remuneration of independent auditors in the last year Other relevant information SELECTED FINANCIAL INFORMATION Principal balance sheet and income Non-accounting measurements Subsequent events to the last financial statements at year-end Policy of allocation of the results of the three last fiscal years a. regulation on profit retention b. regulations regarding dividend distribution c. periodicity of dividend distribution d. restrictions on distribution of dividends Net income appropriation (BR GAAP) Dividends of retained income or reserves which were constituted in previous fiscal years Indebtedness level (IFRS) Obligations by maturity and type of guarantee (IFRS) Other relevant information RISK FACTORS Risk factors that may influence the investment decision a. risks related to Banco do Brasil b. risks related to its direct or indirect controlling shareholder or control group c. risks related to its shareholders d. risks related to its subsidiaries and associated companies e. risks related to its suppliers f. risks related to its customers g. risks related to economy sectors in which the issuer operates: h. risks related to the regulation of sectors in which the issuer operates i. risks related to foreign countries where the issuer operates: j. risks relating to our common stock and ADS Eventual expectations of variation in the exposure to risks listed in item Relevant and non-confidential lawsuits, administrative or arbitration proceedings Lawsuits whose adverse parties are managers, controlling shareholders or investors Relevant secret proceedings, not disclosed in items 4.3 and Recurring or related lawsuits, administrative or arbitration proceedings a. amounts involved b. reserved amount, if any c. practices of Banco do Brasil or of its controlled company that generated such contingency

4 Summary 4.7. Describe other relevant contingencies not covered by prior items Rules of the foreign issuer s home country MARKET RISKS Main market risks to which Banco do Brasil is exposed Market risk management policy a. risks for which protection is sought b. equity protection strategy (hedge): c. instruments used for equity protection (hedge) d. parameters used to manage those risks e. whether the issuer operates financial instruments for other purposes than equity (hedge) f. organization structure for risk management control g. adequacy of operating structure and internal controls Changes in the market risks or in the risk management policy Other relevant information ISSUER HISTORY Establishment of the issuer a. date: 10/12/ b. form: Banco do Brasil, a mixed-capital company, is a multiple bank c. country of establishment: Brazil Duration Brief history Registration date at CVM Main corporate events of Banco do Brasil and its subsidiaries or associates Filing for bankruptcy Other relevant information ISSUER'S ACTIVITIES Summary description of activities developed by Banco do Brasil Information of each segment a. products and services marketed b. revenues from the area and its share in issuer's net revenues c. profit or loss from the area and its share in issuer's net profit Description of products and services Customers responsible for over 10% of total net revenues Relevant effects of state regulation on Banco do Brasil's activities a. need for government authorization b. environmental policy of Banco do Brasil c. dependency on patents, brands, licenses, grants, franchises, royalties contracts Countries from which Banco do Brasil obtains relevant revenues a. the revenue from clients attributed to the base-country of the issuer and its share in total net revenue b. revenue from clients attributed to each foreign company and their share in total net revenue of the issuer, and

5 Banco do Brasil S.A. Reference Form/2013 c. total revenue from foreign companies and their share in the total net revenue of the issuer Regulation in other countries Significant long-term relationships Other relevant information ECONOMIC GROUP Economic group a. Direct and indirect parent companies b. Subsidiaries and associated companies: c. issuing entity's ownership interest in Group companies d. group companies' ownership interest in the issuing entity e. companies under joint ownership: Organization chart in accordance with item 8.1: Operations of corporate restructurings that occurred in the group Other information that the issuer considers relevant RELEVANT ASSETS Non-current assets that are relevant for carrying out the activities a. fixed assets, including rented out or leased out ones, identifying their location b. patents, trademarks, permits, concessions, franchises and technology transfers, informing: 147 c. companies in which the issuer has ownership interest Other relevant information COMMENTS FROM THE EXECUTIVE OFFICERS The Directors should comment on: a. general financial conditions b. capital structure and possibility of redemption of shares or quotas c. payment capacity in relation to the financial commitments assumed d. funding for working capital and for investments in non-current assets used e. funding for working capital and investments in non-current assets to be used to cover liquidity deficits f. indebtedness levels and the characteristics of those debts g. limits of use of the financings already contracted: h. material changes in each item of the financial statements The Directors must comment: a. income from issuer's operations: b. variations of income attributable to changes in prices, exchange rates, inflation, volumes and the introduction of new products and services c. impact of inflation, of price changes of the main inputs and products, of foreign exchange rate and interest rate in the issuer's operating and financial income Main impacts in the financial statements (IFRS) a. acquisition or disposal of an operating segment b. constitution, acquisition or disposal of equity interest c. unusual events or operations Comments from the Executive Officers a. significant changes in accounting practices

6 Summary b. significant effects of changes in accounting practices c. qualification and emphasis in the independent accountants' report Critical accounting practices a. allowance for losses with loans to customers b. provision for labor, fiscal and civil claims c. revenue recognition d. deferred tax assets e. long-lived assets f. useful life of non-current assets g. pension plans h. criteria for asset impairment tests Internal controls adopted to ensure the preparation of trustworthy financial statements a. efficiency level of such controls b. recommendations on internal controls addressed on the independent auditor's Public securities offering: Material items not disclosed in the financial statements of Banco do Brasil a. the assets and liabilities directly or indirectly held by Banco do Brasil which do not appear in its Balance Sheet (off-balance sheet items), such as: i. operating leases, assets and liabilities ii. receivables portfolios written off for which the entity takes on risks and responsibilities, representing potential liabilities iii. contracts for future purchase and sale of products or services iv. contracts for unfinished constructions v. contracts for the future receipt of financing b. other items not disclosed in the financial statements Comments on each item indicated in section a. inasmuch as such items change or may change the revenues, expenses, operating income or other items of the financial statements b. nature and purpose of the transaction c. nature and amount of the obligations taken on by and the rights generated in favor of Banco do Brasil as a result of the transaction Main elements of the Banco do Brasil 's business plan a. investments, including: i. quantitative and qualitative description of ongoing and forecast investments ii. financing sources of the investments iii. material ongoing and forecast divestitures b. Acquisition of plants, equipment, patents or other assets c. New products and services Other factors which had a material impact on operating performance PROJECTIONS Market forecasts a. projection subject b. projected period and validity period of the projections c. assumptions of the projections

7 Banco do Brasil S.A. Reference Form/2013 d. values of the indicators subject of the forecast Projections on the developments of indicators a. alterations or substitutions of projections b. projections relating to periods already elapsed - Projected x Realized c. projections relative to periods that are still ongoing: SHAREHOLDER' MEETING AND MANAGEMENT Description of the administrative structure of Banco do Brasil a. duties b. date of installation: c. mechanisms of performance evaluation of each body or committee: d. Individual assignments and powers of the members of the Executive Board: e. mechanisms of evaluation of performance of management Rules, policies and practices related to the general meetings a. term for Call: b. competencies: c. address (physical or electronic) where the documents of the meeting will be available d. identification and management of conflicts of interest e. request for proxies by management for the exercise of the voting right: f. formalities required for acceptance of proxy instruments granted by shareholders g. forums and pages on the Internet h. live transmission of the video and/or audio of the meetings: i. mechanisms to allow the inclusion, in the agenda, of shareholders proposals: Dates and newspapers of publication Rules, policies and practices related to the Board of Directors a frequency of meetings: b If there are, restriction to the exercise of the voting right of members of the board c rules for identification and management of conflicts of interests: Arbitration clause in the bylaws for the resolution of conflicts Administrators and members of the Fiscal Council of Banco do Brasil Members of the statutory committees, as well as those of the audit, risk, financial and compensation committees Directors and members of the Fiscal Council Marital relationship, stable union or kinship up to second degree between a. officers of Banco do Brasil b. (i) officers of BB and (ii) officers of BB directly or indirectly controlled companies c. (i) officers of BB or of its directly or indirectly controlled companies and (ii) BB directly or indirectly controlled companies d. (i) officers of BB and (ii) officers of direct and indirect parent companies of BB Subordinate relations, service delivery or control maintained between the issuer s officers and: a. company directly or indirectly controlled by Banco do Brasil b. direct or indirect parent company of Banco do Brasil c. supplier, client, debtor or creditor of the issuer, of its controlled, parent companies

8 Summary Agreements made by board members Provide other information the Company deems relevant MANAGEMENT COMPENSATION Policy or practice for compensation of the managers Compensation of managers recognized in net income Variable compensation of managers Share-based compensation plan for managers Quantity of shares or quotas directly or indirectly held by managers Share-Based compensation recognized in net income Stock option compensation Exercised option and stock given Description of the share and option based compensation Pension plans in force granted to managers Additional information concerning the managers Benefits to managers in case of removal from office or retirement Percentage of the total remuneration of each body recognized in the net income Amounts recognized in the net income of the issuer as remuneration of managers Amounts recognized in the net income of related parties Other relevant information HUMAN RESOURCES Description of Human resources of Banco do Brasil a. number of employees b. number of outsourced workers c. turnover rate d. exposure of the issuer to labor liabilities and contingencies Relevant change occurring in relation to the figures disclosed in item Policies for remuneration of the employees of Banco do Brasil a. variable remuneration and salary policy b. benefits c. share-based compensation plans of non-director employees Relations between Banco do Brasil and trade unions CONTROL Identification of the group of controlling shareholders Shareholders or group of shareholders with the same stake of 5% or above Distribution of capital, as established in the last Shareholders Meeting (SM) Organization Chart of the direct and indirect controlling shareholders Shareholders' agreement filed at the head office Relevant changes in the interests of the members of the holding group and directors Other relevant information TRANSACTIONS WITH RELATED PARTIES Rules, policies and practices of the issuer regarding the performance of transactions with related parties Additional information on transactions with related parties

9 Banco do Brasil S.A. Reference Form/2013 a. name of the related parties: b. relationship of the parties with the issuer: c. transaction date: d. purpose of the agreement: e. sum involved in the business f. current balance g. sum corresponding to the interest of such a related party in the business, if it is possible to measure h. related guarantees and insurance: i. duration: j. conditions of rescission or termination: k. when this relationship is a loan or other type of debt, also inform: i. nature and reasons for the operation ii. interest rate charged Additional information on each transaction or series of transactions mentioned in item a. Identify the steps taken to deal with conflicts of interest: b. Demonstrate the commutative nature of the agreed conditions or the appropriate compensatory payment: CAPITAL Information on the capital Issuer capital increases Stock splits, reverse splits and stock grants Capital decreases of Banco do Brasil Other relevant information SECURITIES Rights of each class and type of shares issued a. right to dividends b. voting right c. convertible into other class or type of share, indicating: i. conditions ii. effects on capital stock d. rights to capital reimbursement e. right to participate in public offering by control sale f. restrictions to trade g. conditions to change rights ensured to such securities h. other relevant characteristics i. foreign issuers Statutory rules that limit voting right of significant shareholders or that oblige them to conduct a public offering Exceptions and suspensive clauses related equity and political rights set forth in the bylaws Trade volume as well as higher or lower quotations of securities trade at stock exchange Other securities issued Indicate the Brazilian markets in which the security is of Banco do Brasil will be admitted for negotiation

10 Summary Regarding each class and type of securities admitted for negotiation in foreign markets appoint: a. country: b. market: c. administrative entity of the market in which the securities will be negotiated: d. date of admission for negotiation: e. if there is any, indicate segment of negotiation: f. date of beginning of listing in the negotiation segment: g. percentage of volume of negotiations abroad regarding the total volume of negotiations h. percentage of negotiations abroad in comparison with total negotiated a volume: 1.20% i. proportion of deposit certificates abroad in relation with each class and species of shares: j. custodian institution: Public offerings carried out by the issuer or third parties Public offerings of acquisitions by the issuer relative to shares issued by third parties Other relevant information SHARE BUYBACK PLANS AND TREASURY SECURITIES Share repurchase plans a. dates of resolutions that approved buyback plans b. for each plan, please indicate: i. amount of planned shares, separated by class and type ii. percentage in relation to total outstanding shares, separated by class and type iii. repurchase period iv. reserves and profit available for repurchase v. other important features vi. amount of acquired shares, separated by class and type vii. weighted average acquisition price segregated by class and type viii. percentage of shares acquired in relation to the total approved Changes in securities held in treasury Information on securities held in treasury at the close of the last fiscal year Other relevant information SECURITIES TRADING POLICY Policy for securities trading of its issuance a. approval date b. related persons c. main characteristics d. Provision of negotiation prohibition periods Other material information INFORMATION DISCLOSURE POLICY Internal standards, regulations or procedures adopted by Banco do Brasil Disclosure policy of material act or fact Management responsible for the information disclosure policy Other relevant information NON-RECURRING TRANSACTIONS

11 Banco do Brasil S.A. Reference Form/ Acquisition or disposal of any material asset non-operating Significant changes in the method used by the Banco do Brasil to conduct business Relevant contracts entered into by BB and subsidiaries non-operating Other material information

12 Definitions DEFINITIONS For purposes of this Reference Form, the terms "we" and "our" and verbs in first person plural refers to the Banco do Brasil, except different reference in this Document. The terms below have the meanings assigned to them, unless different reference in this Document: ACC Accounting practices adopted in Brazil ACE AGE Advance Against Exchange Accounting practices adopted in Brazil, as established in the Stock Corporations Law, rules and regulations issued by CVM, and technical bulletins published by the Brazilian and the guidelines issued by the Banco Central do Brasil (Central Bank of Brazil). Advance against Draft Presentation Extraordinary Shareholders Meeting ESM AGO Shareholders Meeting SM ANBIMA Brazilian Financial and Capital Markets Association Audit Committee Audit Committee from Banco do Brasil, in compliance with Resolution CMN 3198, May 27, Banco do Brasil, Banco or BB Banco do Brasil S.A. Banco Patagonia Banco Patagonia S.A. Banco Votorantim or BVSA Banco Votorantim S.A. Banking Reform Law Law 4595 of December 31, BB DTVM BB Gestão de Recursos Distribuidora de Títulos e Valores Mobiliários S.A. BEP Banco do Estado do Piauí S.A. BESC Banco do Estado de Santa Catarina S.A. BESCRI Besc S.A. Crédito Imobiliário. BIS BIS Agreement BIS Ratio BM&FBOVESPA BNDES BNDESPAR Board of Auditors Board of Directors Board of Executive Officers Brasil or country Brazilian Government BRB Bylaws CAGR ou TACC Cassi CDB CDC CDI CEF Banco Central do Brasil, Central Bank or Bacen Bank of International Settlements Set of prudential banking rules issued by the Basel Committee on Banking Supervision, in order to give greater strength to the global financial system. Some of these rules were adopted in Brazil (in some cases with adjustments and/or adaptations) by Resolution CMN 2099, from August 17, 1994, as amended. International concept defined by the Basel Committee that recommends the minimum ratio of 8% of Reference Equity (RE), as treated in CMN Resolution 3,444, of Feb. 28, 2007, as amended, and the risk weighted assets according to current regulations (Equity Required Reference), as regards the CMN Resolution 3490 of Aug. 29, 2007, as amended. In Brazil, the minimum rate is 11%. BM&FBOVESPA S.A. Securities, Commodities and Futures Exchange São Paulo Stock Market. National Bank for Economic and Social Development. BNDES Participações S.A. BNDESPAR. Banco do Brasil s Board of Auditors. Banco do Brasil s Board of Directors. Banco do Brasil s Board of Executive Officers. Federative Republic of Brazil. Federative Republic of Brazil government. Banco de Brasília S.A. Banco do Brasil s Bylaws. Compound Annual Growth Rate Fund for Assistance of Employees from Banco do Brasil. Certificate of deposit, representative of fixed term deposit. Consumer Credit. Interbank Deposit Certificate. Caixa Econômica Federal. Central Bank of Brazil. Cetip CMN CNPJ Cofins Contribution Margin Controlling Shareholder CPF Cetip S.A. OTC Derivative and Assets. National Monetary Council (Conselho Monetário Nacional). Company Tax Registry Contribution to Social Security Financing. It is the value that represents the contribution of the product, customer or result in the formation of the result. It aims to identify the contribution portion of each product/service or unit to cover the fixed costs and the formation of the BB s results. Federal Government, through National Treasury Individual Tax Registry

13 Banco do Brasil S.A. Reference Form/2013 CSLL CVM Datacenter Complex Dólar, dólar, dólar norteamericano ou US$ Economatica Efficiency Ratio Employees Executive Directorship FCO Febraban Federal Constitution Fenaban FGC FGCN FGHAB Fundação Getulio Vargas or FGV FI-FGCN FI-FGHAB Finame Fitch Free Resources Funcafé Government Market IBGE Ibracon IFRS IGP-DI IGP-M Independent Counselor INPC INPI INSS IOF IPCA IRPJ ISSQN KPMG Large Companies or Corporate Clients Social Contribution on Net Income. Securities and Exchange Commission of Brazil. Set of buildings that will keep the environment safe for hosting IT equipment, regardless of external variables, resulting from a partnership between Banco do Brasil and CEF. It will be built through a Public Private Partnership and have a minimum built area of 24.0 thousand m2, with 5200 m2 exclusive for IT equipment, of which 4,200 m2 will be occupied by the Banco do Brasil and 1.0 thousand m2 occupied by CEF. Currency of the United States of America. Economatica Software of Support to Investors Ltda., which keeps the system Economatica, tool for analyzing equity investments. It evidences operational efficiency, indicating the percentage of operating revenues consumed by administrative expenses. The lower the index the better the relationship between revenue and expenses. Individuals that appear on the active staff of Banco do Brasil or in the supplementary staff, and that keep with the BB an employment contract, under current labor laws, and registered on June 15, Executive Directorship of Banco do Brasil. Constitutional Financing Fund for the Midwest. Brazilian Federation of Banks. Constitution of the Federative Republic of Brazil. National Federation of Banks. Credit Guarantor Fund Guarantee Fund for Shipbuilding, which holds shares issued by Banco do Brasil through the Guarantee Caixa Multimarket Shipbuilding Fund. The Housing Guarantee Fund, which holds shares issued by Banco do Brasil through the FGHAB Multimarket Fund. Getulio Vargas Foundation. Fundo de Investimento Caixa Garantia Construção Naval Multimercado. Fundo de Investimento Caixa FGHAB Multimercado. Special Agency of Industrial Investment. Fitch Ratings Brasil Ltda. Resources used by financial institutions considering part of their funding on which there is no liability specific of targeting. Brazilian Coffee Fund. Market that consists of all organs of direct and indirect administration, municipalities, foundations and public companies that depend on public transfers of Federal, State, Federal District and Municipalities. Brazilian Institute of Geography and Statistics. Institute of Brazilian Independent Auditors. International Financial Reporting Standards. Consumer Price Index Internal Availability - released by FGV. General Market Price Index, released by FGV. It is a member of the Board of Directors that (i) has no link with Banco do Brasil, except share in the social capital, (ii) is not and has not been, for the last three years, working with the company or entity related to the controlling shareholder (exclude people from this restriction related to public education and / or research), (iii) has not been, for the last three years, an employee or officer of the BB's controlling shareholder or a company controlled by the BB, (iv) is not supplying or purchaser, direct or indirect, of services or products of the BB, to an extent that the loss of independence, (v) is not an employee or officer of a company or entity that offers services and products to the BB, (vi) not a spouse or second degree relative of any director of the BB, or (vii) receive any other compensation beyond the BB's member of its Board of Directors (excluding from this restriction cash earnings generated from any involvement in the capital). Independent Counselors will also be considered those elected by the faculties provided for in Article 141 paragraphs 4 or 5, or Article 239 of the Corporations Law. National Consumer Price Index. Brazilian Industrial Property Office. Social Security National Institute. Tax on Financial Operations. Extended Consumer Price Index. Corporate Income Tax. Tax on Services of any Nature. KPMG Independent Auditors. Companies, credit cooperatives and associations with annual gross revenues greater than R$90.0 million for the industrial sector and R$150.0 million for the commercial and services sectors. 13

14 Definitions Management Managers/Officers MAPA/MF Mid-Sized Companies or Mid and Large Companies The Board of Directors, the Executive Board, the Board of Officers and the Directors from Banco do Brasil. Members from the Board of Directors, the Executive Board, the Board of Officers and Directors from Banco do Brasil. Ministry of Agriculture, Livestock and Supply and Ministry of Finance. It refers to companies, credit cooperatives and associations with annual gross revenues between R$10.0 million and R$90.0 million for the industrial sector, between R$25.0 million and R$150.0 million for the commercial and services sector. Novo Mercado Listing Rules Agreement to participate on the Novo Mercado of BM&FBOVESPA, signed on May 31, 2006, between Banco do Brasil, its Management, the Shareholder Controlling and BM&FBOVESPA. Novo Mercado or New Market Special listing segment of the Differentiated levels of Corporate Governance of BM&FBOVESPA, disciplined by the Novo Mercado Rules. PAE Pasep PCLD PIB PIS Poupex Poupex Mortgage Credit Electronic Service Station Equity Formation Program for Civil Servants. Allowance for loan losses GDP Social Integration Program. Savings and Financing Association. Operating agreement between Banco do Brasil and Poupex to offer mortgage credit to customers of the BB, using Poupex resources. Previ Pension Plan of Banco do Brasil s Employees. Pronaf National Program for Family-based Agricultural Empowerment. Real, real ou R$ Current Currency in Brazil. Retail Market Market made up of individual customers and Micro and Small Enterprises. Selic Basic interest rate, the benchmark of the Special Settlement and Custody System, released by the Monetary Policy Committee Series C Warrants Warrants of ordinary shares issued and distributed for free by Banco do Brasil to its shareholders on June 17, Small Companies or SME It refers to companies, credit cooperatives and associations with annual gross revenues lower than R$25.0 million. SPC Department of Pensions. Stock Corporations Law Law 6404 of December 15, Susep Private Insurance Superintendency. TAA ATM Tax Responsibility Law Complementary Law 101 of May 4, Tesouro Nacional National Treasury TJLP Long Term Interest Rate. TR Taxa Referencial. TVM Securities United States VGBL Wholesale Market United States of America. Retirement Plan. Market formed by segments of Medium and Large Companies and Corporate, composed of companies with the legal nature of private law and gross annual revenues exceeding R$ 10.0 million. Worker s Assistance Fund or FAT Special fund, under the Ministry of Labor and Employment - MTE, for the financing of the Unemployment Insurance Program, the salary bonus and for Economic Development Programs

15 Banco do Brasil S.A. Reference Form/ IDENTIFICATION OF THE OWNERS OF THE FORM CONTENT 1.1 Statement by the President and by the Investor Relations Officer I, Aldemir Bendine, President of Banco do Brasil, declare that I have reviewed this Reference Form and that all the information contained herein complies with the provisions of CVM Instruction 480, especially arts. 14 to 19, and also that the set of information contained therein is a true, accurate and complete portrait of the economic and financial situation of Banco do Brasil and of the risks inherent to its activities and of the securities issued thereby. I, Ivan de Souza Monteiro, Vice President of Financial Management and Investor Relations, of Banco do Brasil, declare that I have reviewed this Reference Form and that all the information contained herein complies with the provisions of Instruction CVM 480, especially arts. 14 to 19, and also that the set of information contained therein is a true, accurate and complete portrait of the economic and financial situation of Banco do Brasil and of the risks inherent to its activities and of the securities issued thereby. 15

16 Section 2 Auditors 2. AUDITORS 2.1. Regarding independent auditors, indicate: Year ended at December 31, a. corporate name KPMG Auditores Independentes KPMG Auditores Independentes KPMG Auditores Independentes b. people in charge, CPF (Taxpayer register) c. date when services were contracted Mr. Francesco Luigi Celso CPF: 050,243, fcelso@kpmg.com.br Phone: (55 11) Address: Rua Dr. Renato Paes de Barros, nº 33, CEP São Paulo, SP Fax: (55 11) Mr. José Claudio Costa CPF: 107,506, jccosta@kpmg.com.br Phone: (55 61) Address: SBS Quadra 2, Bloco Q, Lote 3, Salas 708 a 711-Ed. João Carlos Saad, CEP Brasília - DF Fax: (55 61) March 21, 2006 (Contract 2006/ ) Mr. Francesco Luigi Celso CPF: fcelso@kpmg.com.br Phone: (55 11) Address: Rua Dr. Renato Paes de Barros, nº 33, CEP São Paulo, SP Fax: (55 11) Mr. Giusepe Masi CPF: 074,811, gmasi@kpmg.com.br Phone: (55 61) Address: SBS Quadra 2, Bloco Q, lote 3, Salas 708 a 711-Ed. João Carlos Saad, CEP Brasília DF Fax: (55 61) February 18, 2011 Agreement 2010/ Mr. Giuseppe Masi CPF: 074,811, gmasi@kpmg.com.br Phone: (55 61) Address: SBS Quadra 2, Bloco Q, lote 3, Salas 708 a 711-Ed. João Carlos Saad, CEP Brasília DF Fax: (55 61) Mr. Carlos Massao Takauthi CPF: ctakauthi@kpmg.com.br Phone: (55 61) Address: SBS Quadra 2, Bloco Q, lote 3, Salas 708 a 711-Ed. João Carlos Saad, CEP Brasília DF Fax: (55 61) March 20, 2012 Agreement 2012/ d. description of services e. substitution of the auditor Rendering of technical services of accounting audit on financial statements of Banco do Brasil Conglomerate, prepared in accordance with Brazilian accounting practices, accounting principles generally accepted in the USA (US GAAP), and international accounting standards (IFRS). Rendering of technical services of accounting audit on financial statements of Banco do Brasil Conglomerate, prepared in accordance with Brazilian accounting practices, and with international accounting standards (IFRS), and other correlated services. None None None Rendering of technical services of accounting audit on financial statements of Banco do Brasil Conglomerate, prepared in accordance with Brazilian accounting practices, and with international accounting standards (IFRS international Financial Reporting Standards), and other correlated services Total remuneration of independent auditors in the last year Inform total amount of independent auditors' remuneration in previous year, discriminating fees referring to audit services from those related to any other services provided In 2012, were paid R$ 10,986, referring to the contract for the rendering of external audit services Other relevant information Provide other information that the issuer deems relevant. There is nothing to report. 16

17 Banco do Brasil S.A. - Reference Form/ SELECTED FINANCIAL INFORMATION 3.1. Principal balance sheet and income The consolidated financial statements of Banco do Brasil for the years ended December 31, 2010, 2011 and 2012 were prepared and audited in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and with interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and respective predecessor bodies, on the date of the conclusion of the fiscal years. The consolidated financial statements have been audited in accordance with Brazilian and international auditing standards and reflect assets, liabilities, income and expenses of Banco do Brasil, its subsidiaries, interest in jointly-owned subsidiaries (joint ventures) and in the Special Purpose Entity (SPE), as well as the results attributable to the BB referring to interest in associates. All intragroup transactions and unrealized results in transactions between companies of the same group have been excluded in the consolidation. Minority interest is presented in the Consolidated Balance Sheet in a caption separated from shareholders' equity. Net income attributable to minority shareholders is stated separately in the consolidated statement of income and in the consolidated statement of comprehensive income. The balances of balance sheet items and of corporate interests which shared control with other shareholders have been proportionally consolidated in accordance to participation in capital stock of investee. The table below presents the selected financial information available in the financial statements of Banco do Brasil, for the years 2010, 2011 and 2012: Consolidated Financial Information Year ended December 31 R$ million, unless otherwise specified a. Shareholders' equity 54,419 63,269 69,898 b. Total assets 802, ,823 1,136,007 c. Interest income 85, , ,931 d. Net interest income 42,082 45,516 48,576 e. Net income 11,330 12,737 11,438 f. Number of shares, ex-treasury (millions of units). 2,861 2,865 2,845 g. Book value of the share h. Earnings per share Source: Consolidated Financial statements in IFRS. i) other accounting information selected by the issuer The main accounting information was presented above Non-accounting measurements Should the issuer have disclosed its results in the last year, or wish to disclose the nonaccounting measurements, such as Ebitda (earnings before interest, tax, depreciation and amortization) or Ebit (earnings before interest, and income tax) in this form, the issuer must: (a) inform the value of non-accounting measurements; (b) reconcile the disclosed values and the values of the audited financial statements; And (c) explain why it understands that said measurement is more appropriate for the correct understanding of its financial condition and results of its operations None. 17

18 Section 3 - Selected Financial Information 3.3. Subsequent events to the last financial statements at year-end Identify and comment on any event subsequent to the last financial statements at year-end which may significantly alter them. Funding In January/2013, Banco do Brasil S.A. issued Subordinated Financial Bills in the country, totaling R$ 5.2 billion and foreign funding in the form of Hybrid Capital and Debt Instrument in the amount of US$ 2 billion. BB Seguridade On February 20, 2009, Banco do Brasil's special shareholders' meeting approved: a) IPO of wholly-owned subsidiary BB Seguridade Participações S.A., and its registration as a publiclyheld company with CVM (Brazilian Securities and Exchange Commission); b) disposal of shares issued by BB Seguridade at a number and price to be timely defined by Banco do Brasil s Board of Directors in a primary public distribution offer and/or secondary distribution of shares pursuant to the terms included in said meeting minutes; c) capital increase in BB Seguridade, within the limit of up to 10% of total shares issued by BB Seguridade, in the hypothesis a primary offer is performed, according to decision to be timely taken by Banco do Brasil s Board of Directors; d) delegation of power to Banco do Brasil s Board of Directors to define if the offer will be a primary offer and/or a secondary offer, as well as aspects and procedures required for its occurrence. 3.4 Policy of allocation of the results of the three last fiscal years Describe the policy of allocation of the results of the three last fiscal years, indicating: The allocation of the results of Banco do Brasil is carried out based on the financial statements, in accordance with the Brazilian accounting standards (BRGAAP). a. regulation on profit retention Since the creation of the Statutory Reserve for Operational Margin and for Equalization of Dividends in December 2006, Banco do Brasil has been allocating amounts to these reserves, pursuant to its Bylaws (Article 44, item IV) and in accordance with article 194 of Law 6.404/76 (which regards the creation of statutory reserves). Operational Margin Reserve was created "so as to ensure an operational margin compatible with the development of the company's operations, constituted by up to 100% (one hundred percent) of the net income balance, up to the limit of 80% (eighty percent) of the capital stock". Dividends Equalization Reserve seeks to "secure resources for the payments of dividends, constituted by up to 50% (fifty percent) of the net income, up to 20% (twenty percent) of capital stock." b. regulations regarding dividend distribution The shareholders are entitled to receive mandatory dividends each fiscal year, the percentage of profit established in the Bylaws, according to article 202 of Law 6.404/76. The shareholders of Banco do Brasil are ensured to receive a minimum mandatory dividend every half year equivalent to 25% of net adjusted income, as defined in the Bylaws (art. 45) The distribution of interim dividends is allowed in periods shorter than one semester, as per the terms of the Bylaws, (article 45, paragraph 3), observing the competences established in the Directors Council (art. 29 I and VII) and the Board of Directors (art. 21, II "a" and art. 45, paragraph 1). On December 28, 2006, the General Shareholders' Meeting of Banco do Brasil approved the amendment of the Bylaws, admitting the distribution of interim dividends in periods shorter than a semester, as of fiscal Complying with the law in force and as resolved by the Board of Directors, the Managing Board may authorize the payment or credit to shareholders as own capital remuneration, as well as the imputing of its value to the minimum mandatory dividend (art. 46 of the BB's Bylaws). 18

19 Banco do Brasil S.A. - Reference Form/2013 In the last three years, Banco do Brasil paid 40% (forty percent) of net income as dividends or/and interest on equity (IEO). The interest on own capital payments are imputed to the value of dividends payable over Net Income for the semester. In addition, the BB adopts the practice of distributing interim dividends, deducted from the Dividend Equalization Reserves, to complement the distributed amount, reaching 40% of the net income for the period. As of January 1996, the Brazilian companies have been authorized to pay interest to the shareholders and consider the deductible payments for tax effects over corporate income tax and, as of 1997, also for effects of social contribution over net income. The deduction is limited to what is the highest between: (i) 50.0% of the net income for the period (after the deduction of social contribution on net income and before the deduction of the provision for income tax) before recording of interest on own capital, regarding which payment will be made; and (ii) 50,0% of the balance of accrued income and profit. Interest on own capital is limited to the pro rata die variation of the Long Term Interest Rate (TJLP) over shareholders' equity accounts. The value of dividends and/or interest on own capital payable to shareholders shall incur financial charges which are levied based on current legislation, as of the moment the semester or fiscal year has ended, in which they have been calculated up to the last effective day of payment, with the possibility of interest on arrears when the payment does not take place on the date set by the law, by the General Shareholders Meeting or by deliberation of the Board of Directors. (Bylaws of the BB, art. 45, paragraph 2). c. periodicity of dividend distribution As of the first quarter of 2007, Banco do Brasil adopted a quarterly periodicity to pay dividends/interest on equity, in line with the resolutions of the General Shareholders' Meeting of December 28, d. restrictions on distribution of dividends Possible restrictions for the distribution of dividends imposed by law or special regulations applicable to the issuer, as well as contracts, legal, administrative and arbitral decisions. There are no restrictions regarding dividend distribution Net income appropriation (BR GAAP) Detailing - The allocation of the results of Banco do Brasil is carried out based on the financial statements, in accordance with the Brazilian accounting standards (BRGAAP). Year ended at December 31, R$ million, except as indicated a) Adjusted Net Income in the Period 1 12,676 13,203 13,281 b) Distributed dividend 4,705 4,899 4,924 Interest on own capital 2,403 3,051 3,354 Dividends to shareholders 2,302 1,848 1,570 Minimum compulsory dividend 3,169 3,301 3,320 c) Distributed Dividend vs. Adjusted Net Income 37.1% 37.1% 37.1% d) Dividend distribution by class and type of shares 2 R$1.73 R$1.71 R$1.72 Interest on own capital R$0.88 R$1.07 R$1.17 Dividends to shareholders R$0.85 R$0.64 R$0.55 e) Date of payment of dividends and interest on own capital 1st quarter 05/31/ /27/ /22/2012 2nd quarter Interest on own capital 08/26/ /26/ /23/2012 Dividends to shareholders 08/26/ /26/ /31/2012 3rd quarter Interest on own capital 11/30/ /25/ /20/2012 Dividends to shareholders 11/30/ /25/ /26/2012 4th quarter Interest on own capital 12/30/ /07/ /28/2012 Dividends to shareholders 02/28/ /29/ /08/2013 f) Return on average Shareholders' Equity 27.0% 22.4% 19.9% g) Retained Net Income 3 7,878 8,163 7,878 Legal reserve Statutory Reserve 7,290 7,551 7,263 19

20 Section 3 - Selected Financial Information Year ended at December 31, R$ million, except as indicated Statutory Reserve for Operational Margin 5,832 6,041 6,537 Statutory Reserve for dividend equalization 1,458 1, h) Date of Approval of Retention 04/27/ /26/ /25/ Adjusted Net Income: It is the calculated net income in accordance with the accounting practices adopted in Brazil (BRGAAP), after the absorption of possible accumulated losses, deducting the provision for income tax, added of adjustments in credits for accumulated income, without deducting the participation of employees in the profit sharing program and after the constitution of the Legal Reserve; formation, if necessary, of the Reserve for Contingency and Unrealized Profit Reserves. 2 - Expressed in Brazilian reais, it is calculated by the division of dividends and interest on own capital paid in the period due to the quantity of extreasury shares in the periods. 3 - Values highlighted in the Statements of Changes in Shareholders' Equity for the years 2010, 2011 and 2012 in the line Allocations - Reserves. Source: Statement of Changes in Shareholders' Equity, BB s Accounting information and Note 24 - Shareholders equity Dividends of retained income or reserves which were constituted in previous fiscal years Report if dividends of retained income or reserves which were constituted in previous 3 fiscal years The allocation of the results of Banco do Brasil is carried out based on the financial statements, in accordance with the Brazilian accounting standards (BRGAAP). The Board of Directors meets annually to approve the determination of the payout. In a meeting carried out on February 24, 2012 it was defined that the minimum percentage was 40% of net income, calculated according to the accounting practices adopted in Brazil (BRGAAP), complying with the policy of payment of dividends and/or interest on own capital every quarter, as per article 45 of the Bylaws. The Statutory Reserve for Equalization of Dividends, which ensures the resources for the payment of dividends, is constituted by up to 50% of net income BRGAAP, after the statutory allocations of Adjusted Net Income (constitution of legal reserve; if applicable, formation of Contingency Reserve and Reserve for Unrealized Profit; and payment of Minimum Mandatory Dividends and Interest on Own Capital), up to the limit of 20% of the Capital Stock. In the fiscal years ended December 31, 2010, 2011 and 2012 the values of interim dividends paid in the 1st and 3rd quarters, using the Statutory Dividend Equalization Reserve, presented as follows: Year ended at December 31, R$ million Interim dividends Source: Consolidated financial information of Banco do Brasil, Note 24 Shareholders' equity Indebtedness level (IFRS) In a table, describe the level of indebtedness of the issuer, indicating: (a) total value of debt, of any nature; (b) debt ratio (current liabilities plus non-current liabilities, divided by shareholders' equity); (c) should the issuer wish to, another indebtedness ratio, indicating: (c.i) The method used to calculate the ratio; e (c.ii) This rate is understood to be more appropriate for the correct comprehension of the financial situation of the level of indebtedness of the issuer R$ million, except as indicated Dec/10 Dec/11 Dec/12 a. total debt, of any nature; 748, ,554 1,066,109 b) indebtedness level (current liabilities + non-current liabilities, divided by shareholders' equity) Source: Consolidated Financial statements in IFRS. 1 - O Shareholders' equity attributable to the majority interest was R$ million, R$62,550 million and R$ 69,025 million in Dec/10, Dec/11 and Dec/12, respectively Obligations by maturity and type of guarantee (IFRS) In a chart, separating debts with real guarantees, debts with fluctuating chirorographic guarantees, appoint the amount of obligations of the issuer according to maturity date. Total Banco do Brasil s debt amount, understood as total liabilities is included in item 3.7.a of this Reference Form. However, differently from industrial, commercial and general service companies, the level of indebtedness presented in item 3.7.a is inadequate to evaluate the compositions of the resources used by the Banking industry. Considering that the banks basically operate as "financial 20

21 Banco do Brasil S.A. - Reference Form/2013 intermediaries", raise funds from savers to pass on to takers, so that most part all the liabilities of financial institutions are constituted by this type of fund raising, classified as operational liabilities. Thus, in table below are presented: Corporate Debts, including Borrowing and onlendings, Liabilities from issuance of securities, Subordinated Debts, Hybrid capital, debt and securitization instruments. Below, we present reconciliation table between Corporate Debts and total liabilities. 12/31/2012 In R$ million Unsecured Floating Real Total Borrowing and onlendings 13, ,760 a) Less than 1 year 12, ,568 b) more than 1 year and less than 3 1, ,042 b) more than 3 years and less than d) over 5 years Liabilities from issuance of securities 68, ,642 a) Less than 1 year 24, ,788 b) more than 1 year and less than 3 5, ,354 b) more than 3 years and less than 5 32, ,325 d) over 5 years 6, ,175 Subordinated debts 1 24, ,073 a) Less than 1 year b) more than 1 year and less than 3 6, ,303 b) more than 3 years and less than 5 4, ,802 d) over 5 years 12, ,860 Capital and debt hybrid instruments 15, ,061 a) Less than 1 year b) more than 1 year and less than b) more than 3 years and less than d) over 5 years 15, ,061 Securitization a) Less than 1 year b) more than 1 year and less than b) more than 3 years and less than d) over 5 years Total 122, ,374 a) Less than 1 year 37, ,552 b) more than 1 year and less than 3 13, ,179 b) more than 3 years and less than 5 37, ,277 d) over 5 years 34, , Does not include funds from the Constitutional Fund for Developing the Midwest (FCO). Source: Consolidated financial statements in IFRS, Note 31 and 32. Corporate debts and financial statements - Reconciliation R$ million 12/31/2012 Total liabilities (A) 1,066,109 Corporate liabilities (B) 122,374 Borrowing and onlendings 13,760 Liabilities from issuance of securities 68,642 Subordinated debt, except FCO 24,073 Hybrid capital and debt instruments 15,061 Securitization 838 Operating liabilities (C=A-B) 943,735 Customer deposits 455,515 Amounts payable to financial institutions 16,790 Financial liabilities at fair value through profit or loss 3,827 Obligations under repurchase agreements 225,787 Repass borrowings - Country 63,519 21

22 Section 3 - Selected Financial Information R$ million 12/31/2012 Labor, tax and civil provisions 8,839 Liabilities due to insurance contracts and supplementary pension 55,843 Liabilities due to current taxes 5,796 Liabilities due to deferred taxes 6,890 Constitutional Fund for Financing of the Midwest - FCO 16,603 Other accounts payable 6,980 Other liabilities 77,346 Source: Consolidated financial statements in IFRS, Note 31 and Other relevant information Analysis Volume And Rate The analysis of volume and rate allows for the verification of impacts on net interest revenue resulting from the variation in volume of business and interest rates. 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 assets generating income and liabilities generating expenses. The Average Rate variation was calculated by the variation in the interest rate in the period multiplied by the average quantity of assets generating income or by the average quantity of liabilities generating expenses in the first period. The Net Variation is the difference between the interest income of the present period and that of the previous period. The variation by Average Volume is the difference between the Net Variation and that resulting from the Average Rate. The following information is included for analysis effects and must be read jointly with the financial statements of the BB contained in the section Management Comments. The statement seeks to establish the reason between revenues and assets corresponding to interest generators, and between the expenses and liabilities corresponding to interest generators. For these reasons it is possible to know the relative investment and raising rates, as well as calculating measurements such as net interest margin (spread). Moreover, the statements are used to identify, through the analysis of "volume vs. rates", which for the effects in the forming of the results of the financial intermediation, originated from variations in volume are eight from one period to the other. Earning and unearning assets R$ million, except for percentages Earning Assets 1 Average Balance Interest Rate (%) Average Balance Interest Rate (%) Average Balance Interest Compulsory which remuneration 39,502 3, ,993 7, ,851 5, Loans to customers 323,726 48, ,251 58, ,789 63, Financial Assets (TVM) 134,069 10, ,490 20, ,283 19, Deposits received under security repurchase agreements Rat e (%) 114,617 11, ,046 14, ,274 14, Loans to Fin. Institutions 31,417 4, ,912 6, ,044 3, Total 643,331 78, , , , , Unprofitable assets 1 Tax credits 21,940 21,233 21,813 Other Assets 82,203 93,022 91,614 Fixed assets 5,221 5,874 6,747 Total 109, , ,174 Total Average Assets 752, ,821 1,051, Average balances of the balance sheets at the end of each period. Other interest revenues were not considered. Source: Consolidated financial information in IFRS. Interest-bearing and non-interest-bearing liabilities R$ million, except for percentages Remunerated Liabilities 1 Average Balance Interest Rate (%) Average Balance Interest Rate (%) Average Balance Interest Customer deposits 271,948 (21,545) ,195 (29,613) ,728 (29,146) 7.8 Obligations related to Committed Operations 151,510 (15,361) ,702 (19,695) ,496 (16,876) 8.0 Short-term liabilities 7,582 (377) ,976 (2,405) ,973 (219) 1.8 Long-term liabilities 81,442 (4,069) ,131 (7,471) ,283 (10,792) 6.7 Rate (%) 22

23 Banco do Brasil S.A. - Reference Form/2013 R$ million, except for percentages Average Balance Interest Rate (%) Average Balance Interest Rate (%) Average Balance Interest Amounts payable to financial inst. 16,250 (1,247) ,211 (1,458) ,708 (894) 5.7 Total 528,732 (42,599) ,215 (60,642) ,187 (57,927) 7.5 Non-Remunerated Liabilities 1 Demand deposits 58,110 59,367 67,619 Other liabilities 118, , ,026 Shareholders' Equity 47,375 58,434 66,584 Total 223, , ,228 Total average liabilities 752, ,821 1,051, Average balances of the balance sheets at the end of each period. Other interest expenses were not considered. Source: BB s consolidated financial information in IFRS. Change in revenue and expense due to variations in Volume and Rate Rate (%) R$ million Earning Assets Average Volume / /2011 Avarege Rate 2 Net Change 3 Volume Average 1 Average Rate 2 Net Change 3 Compulsory which remuneration 3, ,679 (93) (1,182) (1,275) Loans to customers 8, ,571 11,399 (6,394) 5,005 Financial Assets (TVM) 3,564 6,331 9,895 2,873 (3,583) (711) Deposits received under security repurchase agreements (332) 2,836 2,503 4,685 (4,431) 254 Loans to Fin. Institutions 1, , (2,717) (2,261) Total 4 16,969 11,550 28,519 19,303 (18,291) 1,012 Interest Bearing Liabilities Customer deposits (4,383) (3,685) (8,068) (4,319) 4, Obligations related to Committed Operations (2,007) (2,327) (4,334) (3,351) 6,169 2,819 Short-term liabilities (744) (1,284) (2,028) (18) 2,205 2,186 Long-term liabilities (1,896) (1,506) (3,402) (3,444) 123 (3,321) Amounts payable to financial institutions (81) (130) (211) Total 4 (9,358) (8,685) (18,043) (11,086) 13,801 2, Variation in interest revenues (earning assets) or other interest expenses (interest bearing liabilities) which took place due to oscillation in volumes. It is obtained from the subtraction of Net Variation (3) from the Average Rate (2). 2 - Variation in interest income (earning assets) or other interest expenses (interest bearing liabilities) which took place due to oscillation in rates. It is obtained as of the following formula: ((Interest Current Period/ Balance Current Period) x Balance Previous Period) - (Interest Previous Period). 3 - Total Variation in interest revenues (profitable assets) or other interest expenses (remunerated liabilities) which took place due to oscillation in volume and rate. It is obtained from subtractions of Interest of the Current Period from Interest of the Previous Period. 4 - The line 'total' in the table "Increase and Reduction of Interest (Revenue and Expense) due to the variations in Volume and Rate", in columns "Average Rate" and "Average Volume" must not be read as the sum of values relative to items in Profitable Assets or Costly Liabilities. The sum is impossible because the calculation of variations due to the rate and volume of each component being carried out by the effective rate, without considering the relative weight ("weighted average") of each item in the composition of total earning assets and interest bearing liabilities. Therefore, the consigned values in the total line are solely relative to the variations in rate and volume of total profitable assets and costly liabilities. Source: BB s consolidated financial information in IFRS. Spread - Net Interest income/earning assets Total average balance of assets generating income 643, , ,241 Total average balance of liabilities generating expenses 528, , ,187 Income net of interest 35,803 46,278 50,004 Interest Income 78, , ,931 Interest expenses (42,599) (60,642) (57,927) Interest Bearing Liabilities / Earning Assets - % Interest rate on the average balance of assets generating income Interest rate on the average balance of liabilities generating expenses Net Income Margin % Net Profit Margin % Total interest income divided by the average balance of assets generating income. 2 - Total interest expenses divided by the average balance of liabilities generating expenses. 3 - Difference between average rate of earning assets and the average rate of liabilities generating expenses. 4 - Income net of interest divided by the average balance of assets generating income. Source: Consolidated financial information in IFRS. 23

24 Section 3 - Selected Financial Information Ratios (%) Banco do Brasil uses, among others, the following indicators. We highlight that they are non-accounting measures usually adopted under BR GAAP and were measured according to IFRS balances and cannot be compared to those used by other financial institutions: Return on Average Net Equity (ROE): Calculated as the result between the division of the Company's Net Income / Average Shareholders' Equity, the Return on average Shareholders' Equity indicates how much the Company profited for each monetary unit invested. The BB's management understands that the indicator aids in the correct comprehension of performance, as it makes the profitability rate offered to the Company's own capital evident Return on Average Assets (ROA): Calculated as the result between the division of the Company's Net Income / Average Assets, over the return on average net equity which indicates how much the Company profited for each monetary unit of each asset. Earnings per share: It is an indicator which is frequently used to assess the profitability of a company. The Result per Share can be Basic or Diluted. The Basic Earnings per Share is calculated as of the division of the total average of shares, except treasury shares, by the profit in the period. To calculate Earning Income per Share it is necessary to adjust the average of the quantity of shares by the potential of bonus conversion. Average Risk: It can be obtained as of the relationship between the constituted provision and the total loans to clients, it indicates the level of risk existing in a loan portfolio. The index points out the necessary provision amount to support possible losses in the loans granted. Tax rate: Calculated percentage based on the division of expenses with Income Tax (IR) and Social Contribution on Net Income (CSLL) by the Result before Taxation on Income deducted of the Statutory Participations in Income. The indexes are presented as follows: Return on Equity - % ROA - % Earnings per share Basic Diluted Average risk - % Tax rate - % Average quantity of total shares without treasury stock / income for the period 2 - Average quantity of total shares + (bonus x conversion factor) / income for the period 3 - Allowance for doubtful accounts / Loan portfolio Securities Portfolio The chart below appoints the portfolio of bonds and securities listed in the groupings of financial assets at fair value through the result, available for sale and maintained up to maturity and their market values on the appointed dates. R$ million 12/31/ /31/ /31/ Financial assets at fair value through income or loss 50,598 66,898 73,541 Debt instruments 50,387 66,581 71,543 Brazilian federal government bonds 44,322 49,736 54,806 Securities issued by non-financial companies 1,361 7,415 6,334 Foreign government bonds 924 1, Securities issued by financial companies ,413 Brazilian government bonds issued abroad Investments in mutual funds 2,917 6,969 2,284 Capital instruments ,998 Trade shares , Financial assets available for sale 75,011 84,353 96,705 Debt instruments 73,716 83,100 95,823 Brazilian federal government bonds 49,056 48,669 48,005 Securities issued by non-financial companies 16,275 24,058 34,396 Foreign government bonds 3,734 3,698 4,594 24

25 Banco do Brasil S.A. - Reference Form/2013 R$ million 12/31/ /31/ /31/2012 Brazilian government bonds issued abroad 2,751 3,313 4,393 Securities issued by financial companies 799 1,656 2,125 State and municipal bonds Mutual funds 1,076 1,675 2,305 Capital instruments 1,295 1, Trade shares 1,295 1, Financial assets held to maturity 16,607 14,997 12,713 Debt instruments 16,607 14,997 12,713 Brazilian federal government bonds 16,156 14,801 12,509 Securities issued by financial companies Brazilian government bonds issued abroad Foreign government bonds 41 - Securities issued by non-financial companies Source: Consolidated financial statements Notes 18, 19 and 20. Maturity of securities The tables below indicate the maturity dates of securities in the BB's portfolio, presented by market value, on the appointed dates. R$ million As of December 31, 2010 Maturity in years Without maturity Due in up up to 1 year Due from 1 and 5 years Due from 5 to 10 years Due after 10 years Total Total by category 4,740 35,877 79,681 11,006 10, ,216 Securities at fair value through income or loss 2,922 12,971 28,583 3,427 2,695 50,598 Securities available for sale ,173 43,319 7,236 3,465 75,011 Securities held to maturity -- 3,733 7, ,752 16,607 Source: Consolidated financial statements Notes 18, 19 and 20. R$ million As of December 31, 2011 Maturity in years Without maturity Due in up up to 1 year Due from 1 and 5 years Due from 5 to 10 years Due after 10 years Total Total by category 5,260 40, ,553 12,107 3, ,223 Securities at fair value through profit or loss 2,410 21,156 42, ,898 Securities available for sale 2,850 14,843 51,769 11,771 3,110 84,353 Securities held to maturity -- 4,106 10, ,997 Source: Consolidated financial statements Notes 18, 19 and 20. R$ million As of December 31, 2012 Maturity in years Without maturity Due in up up to 1 year Due from 1 and 5 years Due from 5 to 10 years Due after 10 years Total by category 5,498 43, ,914 18,376 11, ,959 Securities at fair value through profit or loss 4,500 19,074 48,112 1, ,541 Securities available for sale ,139 53,272 16,081 6,215 96,705 Securities held to maturity - 4,376 2, ,274 12,713 Source: Consolidated financial statements Notes 18, 19 and 20. Loans to customers The table below shows the BB's loans to customers by type, sector of economic activity and maturity for each of the periods indicated. Portfolio by modalities R$ million 12/31/ /31/ /31/2012 Loans 325, , ,418 Loans and bills discounted 140, , ,445 Financing 103, , ,448 Rural and agribusiness financing 77,639 93, ,263 Real estate financing 3,476 7,801 13,157 Financing of Infrastructure and development Credit operations linked to assignments 89 Total 25

26 Section 3 - Selected Financial Information R$ million 12/31/ /31/ /31/2012 Other receivables with loan characteristics 19,990 22,664 27,773 Credit card operations 10,624 12,474 16,087 Advances on foreign exchange contracts 9,055 9,774 11,352 Guarantees honored Others Lease operations 4,220 3,064 2,055 Total loans to customers 349, , ,246 Provision for losses with loans to customers (11,019) (12,299) (16,176) (Allowance for loan losses) (10,594) (11,976) (15,618) (Provision for other losses) (278) (147) (427) (Allowance for lease losses) (147) (176) (131) Total loans to customers, net of allowance for losses 338, , ,070 Breakdown of the loan portfolio by sector R$ million 12/31/ /31/ /31/2012 Public Sector 6,877 8,636 12,804 Private sector 342, , ,442 Rural 57,981 68,088 86,626 Industry 106, , ,341 Commerce 40,544 63,585 59,816 Financial services 1,175 3,510 1,401 Private Individuals 87, , ,649 Housing 2,932 6,074 10,196 Other services 45,596 51,258 71,413 Total loans to customers 349, , ,246 Provision for losses with loans to customers (11,019) (12,299) (16,176) Total loans to customers, net of allowance for losses 338, , ,070 The table below appoints the listing of loans to clients by maturity date. R$ million 12/31/ /31/ /31/2012 Installments falling due 01 to 30 days 23,373 30,755 42, to 60 days 17,115 20,388 27, to 90 days 12,705 16,730 22, to 180 days 37,633 44,347 56, to 360 days 58,930 73,734 85,296 Over 360 days 194, , ,243 Other 1 1, Subtotal 345, , ,759 Installments overdue 01 to 14 days 495 1, to 30 days to 60 days to 90 days to 180 days , to 360 days 776 1,170 1,221 Over 360 days Subtotal 3,719 5,447 5,487 Total 349, , , Operations with third party risk tied to Government Funds and Programs, mainly Pronaf, Procera, FAT, BNDES and FCO. Source: Consolidated financial statements Financial leasing portfolio per maturity date. R$ million 12/31/ /31/ /31/2012 Maturities Up to one year 1 1,913 1,660 1,244 More than one year, up to five years 2,297 1, Over 5 years Total present value 4,220 3,065 2, Includes values relative to matured installments 26

27 Banco do Brasil S.A. - Reference Form/2013 BIS Ratio The BIS Ratio is the most appropriate indicator to assess the potential leverage of financial institutions and is calculated based on an international concept defined by the Basel Committee which recommends the minimum relationship of 8% between the referential shareholders' equity and the weighted risks according to the regulation in force (Required Referential Shareholders' Equity - PRE) In Brazil, the minimum and demanded relationship is given by the F factor, according to CMN Resolution 3490, of August 29, 2007, and Circular Letter of the Bacen 3360 of September 12, For financial institutions, the minimum relationship must be 11%. Financial institutions act basically as financial intermediates rising resources from savers and passing them on to borrowers. Therefore, the most significant part of liabilities of the Banking industry is relative to operating liabilities inherent to the activities of the segment. Thus, indebtedness constitutes an important component of the business on a financial institution. Due to the specific characteristics, the Bacen demands of financial institutions have capital which is compatible with the risk of their operations. In order for a financial institution to sustain growth with its loan operations, for example, it is necessary to have reinforcement compatible with its capital. For this reason, the financial authorities establish limits for leverage through minimum demands of capital to support exposure to risks. Regulatory Capital For financial institutions, is important to evaluate that called "regulatory capital" demanded by the Bacen. The implementation of the rules from Basel II in Brazil has led to modifications, especially in how the necessary capital is measured to support the own risks of banking activities. To regulate the transition from Basel I to Basel II (standardized approach), Bacen published rules about capital requirement (Pillar I), process of supervision and transparency of information (Pillars II and III). Referential Equity (RE) In February 28, 2007, the CMN approved the changes in the definition of RE of financial institutions through resolution number 3,444, canceling resolution number 2.837of May 30, On the same date, Bacen edited Circular notice no 3,343/2007, which regards the procedures to be adopted in the request of enrollment of instruments of funding for Level I and Level II of RE. Referential Equity is constituted by the summary of Level I and Level II installments, deducting the balances of assets represented by the following fundraising instruments issued by the financial institution: shares, hybrid capital and debt instruments, subordinated debt instruments and other financial instruments described in Res. No /07, art. 12 and art. 13, 3. Required Referential Equity (RRE) CMN Resolution 3,490, of , established the Required Referential Equity (RRE) concept to substitute the Required Shareholders' Equity (RSE) concept, revoking exhibit IV of CMN Resolution 2099/1994, and other rules concerning the topic. The RE value must exceed that of RRE, which must be calculated considering at least the sum of the following installments: RRE = P EPR + P CAM + P JUR + P COM + P ACS + P OPR Where: P EPR - installment concerning exposure weighted through risk weighting factor (FPR) assigned to them; P CAM - installment concerning risk of exposure in gold, foreign currency and in operations subject to exchange rate variation; n P JURi P JUR = installment relative to the risk of operations subject to variation of interest rates and i 1 classified in the negotiation portfolio, as per Resolution no. 3,464, of June 27, 2007, where n = number of different installments relative to the risk of operations subject to variation of interest rate and classified in the portfolio of negotiations; P COM - Installment concerning risk of operations subject to variation of price of goods (commodities); 27

28 Section 3 - Selected Financial Information P ACS - Installment concerning risk of operations subject to variation of share price and classified in the trading portfolio, as per Resolution 3,464 of June 26, 2007; P OPR - Installment relative to operational risk. The RE revisions were incorporated by Banco do Brasil in July Regarding the RRE, the norm was effective as of July 1, The BIS Ratio, detailed as follows was calculated according to the following criteria established by CMN Resolution No. 3,444/2007 and no. 3,490/2007, which regard the calculation of RE and RRE, respectively. Performance The table below shows the evolution and composition of Banco do Brasil Referential Shareholders' Equity, which reached R$ 107,925 million in December 2012, an increase of 34.1% over the previous year. In relation to 2011/2010, there was a 20.3% growth. The RRE of Banco do Brasil reached the amount of R$80,035 million in December 2012, with an increase of 26.4% compared to December 2011 The greatest variation in the RRE of the requirement was caused by the credit risk portion (P EPR ), which reflects mainly the growth of loan operations. The BIS ratio of Banco do Brasil ended December 31, 2012 at 14.8%. In relation to the situation observed as of December 31, 2011 and 2010, there was a relative stability in this indicator. December 31 Variation (%) R$ million / /2011 Referential Equity - RE 66,928 80, , Level I 52,397 60,615 76, Level II 19,763 24,878 36, Deduction from the RE (5,233) (5,011) (4,919) (4.2) (1.8) RSE/RRE 52,297 63,326 80, Credit risk 1 48,901 59,802 76, Market Risk Operating Risk 3 3,365 3,433 3, Surplus/(insufficiency) of RE 14,630 17,156 27, BIS Ratio - % Referring to the PEPR portion pursuant to circular 3,360 of 9/12/ Relative to the installments PCAM, PJUR, PCOM and PACS, Circular notices to 3.364/2007, 3.366/2007, 3.368/2007 and 3.389/ Relative to the installment PEPR, as per circular notice 3,360 of September 30, Source: Consolidated financial information of Banco do Brasil. 28

29 Banco do Brasil S.A. Reference Form / RISK FACTORS 4.1. Risk factors that may influence the investment decision The potential purchasers of the Banco do Brasil's securities must carefully consider the specific risks related to BB and to the securities themselves. All information registered in the offering memorandum must be considered in light of the financial circumstances and objectives of the investment, particularly the risk factors listed below. Potential investors must also observe that the risks listed below are not the only ones to which the BB is subject to. The Bank's business, the financial conditions and results of the operations can be adversely affected by any one of these risk factors. The market price of securities may be reduced due to any one of these risk factors, causing full or partial losses to the investor. There are other risk factors which BB considers unlikely or which the Bank currently has no knowledge about, which can lead to similar effects as the risks listed below. The risks may take place individually or jointly. The order in which to risks are presented below is not related to likelihood that any of the risks below shall occur. a. risks related to Banco do Brasil Investment in common shares of the Bank by foreigners is limited to 20% of the Bank's total capital stock. According to article 52, sole paragraph, of the Transitory Constitutional Provisions, the President of Brazil, upon a decree, may increase the share of foreign capital in financial institutions, should the President understand that it constitutes a national interest. On September 16, 2009 the President of the Republic signed a Presidential Decree authorizing said increase in the interest held by foreigners in Banco do Brasil to 20%. Any increase of this limit depends on a new Presidential Decree, which is out of the Bank's control. Additionally, the Bank cannot foresee the effects of this limitation for foreign investors or which measures the Federal Government may take in the future. If the number of outstanding shares (free float) of the Bank held by foreign stockholders approaches the limit of 20%, the sale of BB shares to foreign investors may not be possible, which may negatively impact the liquidity and stock price of the Bank. The Votorantim s conglomerate has been promoting since 2011, adjustments in the calculation of Allowance for Loan Losses. The review of procedures for calculating the Allowance for Loan Losses of Banco Votorantim may cause impact on its results of operations and, consequently, in the Banco do Brasil s conglomerate. Banco Votorantim may not be able to record all deferred tax credits. The accounting record of tax credits deriving from tax losses (IRPJ), negative bases (CSLL) and temporary differences are regulated in accordance with CMN Resolution 3,059 of December 20, 2002 and CMN Resolutions 3,355, of March 31, 2006, and 3,655 of December 17, In accordance with these Resolutions, financial institutions and other institutions authorized to operate by the Brazilian Central Bank, including the Bank, may only recognize tax credits when the following conditions are met, on a cumulative basis: (i) presentation of the profit or taxable income history for income tax and social contribution purposes, as applicable, evidenced by the occurrence of these situations in, at least, three of the last five years, period which should include the period under discussion; and (ii) expected future generation of profit or taxable income for income tax and social contribution purposes in subsequent periods, as applicable, based on internal technical studies that demonstrate the likelihood of future obligations in tax and contributions that would allow the realization of tax credit in the maximum period of ten years. (iii) deferred tax credits based on temporary differences are mainly related to long-term provisions for credit losses. In accordance with Resolution 3,655, total tax credits, except those arising from 29

30 Section 4 Risk Factors temporary differences, may not exceed 10% of Level 1 Regulatory Capital beginning January The portion of tax credit that exceeding this limit will be excluded for purposes of determining Level 1 Regulatory Capital. (iv) Banco Votorantim s deferred tax assets are accounted for based on above-mentioned regulatory laws, and are also supported by Technical Studies on Deferred Tax Credits Realization. For the purpose of avoiding possible write-offs that may affect the institution s statement of income and, consequently, reduce Banco Votorantim Conglomerate shareholders' equity, Technical Studies are periodically reviewed focusing tax capacity for future realization of Deferred Tax Assets. In case any of above-mentioned events (i) and (ii) occur, Banco Votorantim could be obliged by the Brazilian Central Bank to reduce/write-off deferred tax credits, with resulting impact on its assets and shareholders' equity. Banco Votorantim may increase its provisions for civil and labor contingencies in coming years. Civil and labor contingencies may occur due to the activities of BV Financeira - a Banco Votorantim wholly-owned subsidiary - which are labor intensive and have retail nature, being, therefore, scattered among several customers. Any improvements in the calculation methodologies of provision of Contingent Liabilities may cause us to suffer an impact on our income. The Bank estimates future losses in lawsuits on a monthly basis, using methodologies to determine provision for Contingent Liabilities. As we are dealing with predictive models they are subject to reevaluations, in order to better adjust them to the risk management policy and to good market practices Banco do Brasil maintains its expansion strategy in offering vehicle financing, including through Banco Votorantim, which can increase its loan portfolio risk. The Bank maintains its vehicle financing strategy, including through Banco Votorantim. Possible changes in the macroeconomic scenario can raise allowance for losses in amounts higher than the provisions for other BB operations, causing adverse effects on operating income, including in the long term. The insurance and pension products have their profitability strongly linked to the model used for the pricing and for the formation of reserves, which, if poorly sized, may have a significant effect on the results of such products. Brasilprev: Our insurance and pension company periodically defines and reviews prices and establishes calculations for the formation of reserves based on parameters and models aligned with the current practices of actuarial and/or statistical estimates in the country. Such models include assumptions and projections that are inherently uncertain and that at certain times may involve judgment of value or historical data with low statistical significance, including as regards the receipt of contributions, payment of benefits, result of investments, interest rates, rate of reinvestment, retirement, mortality, morbidity and persistence. Although recognized practices and periodic reviews are adopted in the policies and procedures of pricing and formation of reserves, an inherent risk of significant variations remains in the amounts payable, of sufficiency of collateral assets and consequently, of variations in the result and future value of the portfolios of pension products. Accordingly, if such risk were to materialize, the company would be forced to raise the level of its reserves and to record the effects on the financial statements, resulting in a material adverse effect on the economic situation and on the expectation of future results from the business. BB-Mapfre: Insurance products are characterized by uncertainty in relation to future indemnity disbursements in view of the covered events. Hence the company uses actuarial and statistical models that consider the historical behavior of risk and project, with a given level of reliability, the premiums that should be charged from the new insured, as well as the amounts of technical provisions that should be formed to guarantee obligations with the contracts sold. The company maintains underwriting policies and risk management processes designed to constantly monitor the performance of products and the 30

31 Banco do Brasil S.A. Reference Form /2013 adequacy of technical provisions, as well as the adoption of actions to minimize deviations that could affect business profitability. Nevertheless, due to the nature of the business, deviations could occur over and above those provided for in the models, such as frequency of claims (quantities), severity of indemnities (amounts), mortality, morbidity, persistence, interest rates, expenses, etc., which would affect business profitability and that could produce an increase in premiums and in technical provisions that would be presented in the financial statements for the period of their occurrence. The Bank expanded its reach by contracting ECT (post office) to act as correspondent through Banco Postal, and may incur operating and legal risks. Contracting ECT (post office) to act as correspondent through Banco Postal, caused operational risks to banking activities with possibility of losses related to: a) Labor issues related to the possibility of ECT employees discussing isonomy; b) Non-conformity in the process of opening accounts at Banco Postal; c) System failures deriving from payment and receipt differences the Bank and ECT present divergences in transaction status; d) Improper service or operating error of a Bank Postal employee, thus generating customer complaints. e) False documentation for the opening of account; f) Differences in cash relief between logical control and physical count; g) Electronic frauds and accidents in Banco Postal service network; h) Adjustment of deposited check amounts caused by the additional blockade of 1 day for pouch transportation; i) Sanctions resulting from non-compliance with CMN/Bacen Resolutions 3954/3959 Signaling/Ambiance. In addition, investments in security and surveillance equipment for Banco Postal may generate a demand for contract rebalance or closing of some points. Banco do Brasil's growth strategy, by means of acquisitions, may reduce the BIS ratio, increasing the risk profile. The expansion of the Bank's activities by means of acquisitions may reduce the solvency ratios of the Institution, regardless of future impacts caused by a capital increase. Reduction in this ratio may represent the increase in the Bank's risk of not reaching current or future regulatory capital. Banco do Brasil has broadened the offer of loans to consumers which may elevate the credit risk of the Bank's portfolio. Since 2004, Banco do Brasil s loan portfolio, in line with the market, has had a cycle of uninterrupted credit increase. This growth was accentuated as of 2008 when private banks credit granting strongly decreased and was supported by anticyclic actions of public institutions. In 1T2013, the growth of Banco do Brasil s loan portfolio refleted the continuity of the expansion strategy adoptes in 2012, with the "Bom pra todos" (Good for all) program, which includes offering cheaper and more conscious credit focused on individuals and micro and small companies (SME). We highlight the quarterly BB s loan portfolio growth of 2.8% im caparison with market growth of 2.5%. In March 2013, 94.3% of the Bank s loan transactions were concentrated on regular risks (from AA to C ) and average risk of 3.8%, 1.5 p.p. below the Banking Industry. There is the possibility of our models, management methods and procedures adopted for the management of market, liquidity, credit and operational risk not being totally efficient in avoiding exposure to uncategorized or unforeseen risks. The set of methodologies, policies, processes and methods employed in the management of market, liquidity, credit and operational risks might not fully capture the exposure arising from uncategorized or unforeseen risks. The statistical models and the management tools used in the estimation of our exposures are based on historical data, and due to the time horizon considered in the series, might not be accurate in the 31

32 Section 4 Risk Factors measurement of capital for the coverage of unpredictable or uncategorized factors. Likewise, our stress tests and the sensitivity analyses, based on macroeconomic scenarios, might not capture all the possible impacts on our income. We may incur losses resulting from failures, inadequacies or deficiencies of internal processes, people, systems, which may also be caused by external and unforeseen factors or events that are not corrected handled by our models specific to operational risk at the Bank. It is also noted that the bank's capital allocation policy for unforeseen/unidentified risks may prove insufficient, resulting in further unexpected losses. Therefore, losses could be significantly higher than those indicated in the reports disclosed to the market, even if we have prudential margin for this purpose. Rural loans may increase due to the Federal Government policy, which may adversely affect the Bank's profitability. Our agribusiness loan portfolio is responsible for 18.6% of our credit operations. In the first quarter of 2013, the loan portfolio yielded an annual spread of 7.6%, with the spread of the agribusiness portfolio of 4.6%. The banking liabilities of Demand Deposits (34%) and of Rural Savings Accounts (68%) are the main sources of funds to back Rural Lending and Agribusiness Lending operations. These resources account for 65.7% of the total portfolio. It is worth emphasizing that these rates are defined by the National Monetary Council (CMN) and guide the economic and agricultural policy in the country. The change in the abovementioned percentages results in the need to increase or reduce the availability of resources to the sector. However, the financial impacts will depend both on the new rule to be established for obligatory and additional compulsory deposits, and on the internal business rule. The Bank may be requested to contribute with Previ, which might have a negative effect on the operational results. On November 24, 2010, by means of the Memorandum of Understanding between BB, Previ and trade unions of the employees, the parties agreed on the partial allocation of the surplus of Benefit Plan no. 1 Previ. As a result of the agreement, BB created the Fundo de Destinação do Superávit (Surplus Allocation Fund), accounted for in Other Receivables - Credit Instruments Receivable - Previ, through the write-off of actuarial assets in the amount of R$ 7,519 million. In 2011, BB transferred the amount of R$ 1,398 million from the Fundo de Destinação (Allocation Fund) to the Fundo de Contribuição (Contribution Fund), to deal with the suspension of the collection of contributions over the period of three years, and the amount of R$ 3,002 million to the Fundo de Utilização (Usage Fund), which BB will be able to use once the requirements established by the legislation applicable to benefit plans have been met. On March 31, 2013, the Allocation, Contribution and Usage Funds presented balances of R$ 1,917 million, R$ 636 million and R$ 5,822 million, respectively. These funds are indexed monthly by the actuarial target (INPC or National Consumer Price Index + 5% per annum). For the period of 2011 to 2013, consistent with the negotiation of the intended use of the accumulated surplus of Benefit Plan no. 1, on November 24, 2010, contributions will be funded by the Contribution Fund. Such measure is dependent upon maintenance of the Contingency Reserve at a percentage no lower than 25% of the Mathematical Reserve of Benefit Plan no. 1, as provided by the current legislation (Complementary Law 109/2001 and CGPC Resolution 26/2008). The system adopted in the actuarial revaluations of Benefit Plan no. 1 is the interest capitalization system. In the next few years, Previ, for various reasons, might not be able to maintain the accumulation of surplus of Benefit Plan no. 1 and, under these conditions, BB will have to resume its contribution as plan sponsor, using our own resources, a fact that could give rise to adverse impacts on our financial situation and operating income. According to Note 27 - Employee Benefits, an integral part of our consolidated financial statements, BB had registered in assets, on March 31, 2013, the amount of R$ 12,352 million corresponding to the surplus of the Benefit Plan 1, calculated based on criteria defined by our management, pursuant to CVM Deliberation nº 695/2012. These criteria include long-term actuarial and financial estimates and assumptions, as well as the application and interpretation of regulatory standards in effect on this date. Accordingly, inaccuracies inherent in the use of estimates and assumptions may result in divergences between the amount recorded and the amount actually realized, resulting in negative impacts to the result of operations of the Bank. 32

33 Banco do Brasil S.A. Reference Form /2013 Banco do Brasil is responsible for the social charges not established in the benefits plan of Previ and the provisions of the Bank may not be sufficient to cover possible liabilities. Banco do Brasil is responsible for the social security charges of the retired employees up to April 14, 1967 which are not covered by Previ's benefit plans. This provision is calculated using the capitalization financial regime which is based on actuarial calculations. The Bank is also responsible for the charges from legal decisions which increment the benefits of people receiving pension and retired people, in addition to those provided for by Previ's plans. To meet the demands of CVM Resolution 695 of December 13, 2012, on March 31, 2013 the amount of R$ 1,081 million in provisions relative to actuarial liabilities was accounted for. However, the Bank cannot estimate if the additional provisioned value (or any other amount estimated in the future) will be sufficient to cover possible liabilities due to changes in the assumptions and hypothesis which will guide the calculation of said liabilities or upon events which force the Bank to increase the value of pensions and benefits owed by the Previ benefit plan. Therefore, the significant increments in Bank liabilities, due to additional provisions may negatively affect the financial results of the Bank. Banco do Brasil may increase its expenses and provisions for labor contingencies due to the increase in the number of individual and collective lawsuits questioning bank clerk working hours (from 08 to 06 daily hours) for certain positions of trust, which may adversely affect the Bank s income. BB, in compliance with 2012/2013 Collective Bargaining Agreement, implemented on January 28, 2013 the new Job Plan that contemplates Positions of Trust (8 working hours) and some Remunerated Positions (6 working hours), adjusting these functions remuneration to new working hours. This implementation did not meet unions and some employees expectations, as they expected reduced working hours without salary reduction. Also, change in Remunerated Positions working hours and their existence together with some commissions that are to be extinct, with eight working hours, may facilitate recognition by the Court of the period prior to the Job Plan. To mitigate this risk, a specific Collective Agreement for the establishment of Voluntary Reconciliation Commissions (CCV) intended to negotiate with this public outside the courts in order to cancel collective labor lawsuits on this matter, both current and future. If actual losses exceed the allowance for credit risk of the Bank, BB's results may be adversely affected. The result of the Bank's operations and its financial situation depend on the ability of the institution to assess the losses associated with the risks we are exposed and are considered in their pricing policies. Provisions for loans are conducted in accordance with the parameters established in CMN Resolution 2,682/99. In addition, our provisions are supported by estimates based on available information and involve a number of factors, including the history and events of losses/defaults, economic environment, characteristics of the operation and internal risk rating. As the main financier of Brazilian agribusiness, the Bank is subject to the risks inherent to this activity, such as weather and issues related to the variation in prices of commodities, for which the Bank has mitigation mechanisms such as crop insurance. In addition, it is worth highlighting postponed agribusiness transactions correspond to 4.9% of agribusiness portfolio but with an expressive volume of recorded provisions that correspond to 16.4% of this portfolio, an amount that is significantly higher than non-postponed portfolio s average risk of 2.0%. Within the management process is also important to note the establishment by the BB of the additional provisions to deal with sudden changes in the economic and mitigate impacts on the assets of the Group. BB may be required to make extraordinary contributions to Economus, Fusesc and Prevbep, which may negatively affect operating income. According to note no Employee Benefits, an integral part of the our financial statements, the sum of R$ 1,292 million was recorded in its liabilities on March 31, 2013 and corresponded to the Bank's obligation with the set of Plans of the Sponsored Entities (Economus, Prevbep, Fusesc), determined with a basis on criteria defined by the Bank's management, aligned with CVM Deliberation 695/2012. These criteria include long-term actuarial and financial estimates and assumptions, as well as the application and interpretation of regulatory standards in effect on this date. Accordingly, 33

34 Section 4 Risk Factors inaccuracies inherent in the use of estimates and assumptions may result in divergences between the amount recorded and the amount actually realized, resulting in negative impacts to the result of operations of the Bank. The assumption of joint responsibility in relation to claims in case of failure in the coverage by reinsurers could give rise to obligations for our company, in relation to claims of clients. Brasilprev: The use of reinsurance contracts does not release the company from its responsibility to our clients in the event the reinsurance company fails to perform its contractual obligations. Consequently, a credit event resulting in the insolvency of the reinsurer would obligate our insurance and pension company to honor all the contracts, regardless of whether these are above the limits defined in the risk underwriting policy. BB-Mapfre: The insurance company is fully responsible for the performance of the contract with the insureds, regardless of the contracting of reinsurance. Nonperformance of the contractual obligations by the reinsurer or the potential insolvency hereof, may produce an adverse effect on our income. Accordingly, the company maintains a reinsurance policy and risk management processes designed to monitor the reinsurers with which we have contracts. The Bank's acquisitions may involve emerging segments of which the Bank has no experience or target banks with policies that differ from those practiced by the Bank. Banco do Brasil maintains the process of acquiring other institutions and strategic partnerships abroad. The maintenance of the same levels of quality and success presented in Brazil assumes the excellence of BB, also in new institutions acquired and strategic partnerships abroad, demanding more capacity and operational qualification, including in the scope of new institutions/partnerships. The potential lack of said qualification abroad where the culture and different laws from those presented in Brazil, may adversely affect the results of BB. Banco do Brasil may face risks related to the effects of mergers and acquisitions. In recent years, Banco do Brasil has taken over, acquired interest in banks and established new strategies and may execute further new takeovers and acquisitions and enter into strategic partnerships as part of its growth strategy in the national and international markets. Consequently, the Bank could be subject to the risks relating to these transactions. These risks include: (i) possibility of overestimating the business value, object of acquisition/partnership, especially if it is consider that these businesses cannot supply the expected result, and therefore the investments may not offer the expected return; (ii) the Bank may face problems with the integration of products, client base, services, technology, facilities and personnel, which may adversely affect/compromise the internal controls, procedures and policies; (iii) possibility of financial and operating synergies expected from such acquisitions, takeovers and strategic partnerships not being fully obtained, which could produce adverse impacts on the Bank's business and on the operating and cash flow results; (iv) The Bank may incur liabilities and/or unexpected contingencies related to the acquired businesses or to strategic partnerships made; (v) The Bank, as successor of the businesses of these institutions subject to acquisition may be held responsible for the liabilities, including those whose origins occurred prior to the transaction. The Bank may also be subject to risks related to acts of former management and subject to potential liabilities of these acts which took place before the transaction. 34

35 Banco do Brasil S.A. Reference Form /2013 b. risks related to its direct or indirect controlling shareholder or control group Banco do Brasil is subject to public policies taken by the Federal Government, that affect the economic political Brazilian scenario and may demand changes to our strategy and policies that could adversely affect our operations or prospects The political and economic context in which the Bank is part influences significantly the profitability and direction of the strategic actions of the Bank. Significant changes to economic policies (fiscal, monetary, exchange or other policies set by the Federal Government) and the possible financial instability resulting from these events could have an adverse effect on the Brazilian economy and our business and financial results. The Federal Government and the Bank have the authority to implement, and have been implementing, certain measures to establish appropriate levels of remuneration for the Bank's operations with the Federal Government. There are no guarantees that the Federal Government will maintain the current strategy and policies regarding the Bank in the future. Any change to its strategy and policies could adversely affect our business. As the controlling shareholder, the Federal Government may adopt policies which lead to adverse effects over the Bank. Banco do Brasilis a public company, publicly traded, set up in the form of a semi-public corporation, which has the Brazilian government, through the National Treasury, as its controlling stockholder. It s incumbent upon the President of the Republic of Brazil to nominate the President of the Bank, who is also a member of the Board of Executive Officers and the Board of Directors. The Federal Government, through the Ministers of State for Finance and for Planning, Budget and Management, also nominates most of the members of the Board of Directors. In turn, it is incumbent upon the Board of Directors to appoint the other members of the Board of Executive Officers of BB, a statutory body responsible for the administration of the Company's business. As provided for in the Banco do Brasil s Bylaws, in its relationship with its controller the Federal Government, the Bank is engaged to: (i) execute functions and services as the financial agent of the National Treasury and other functions designated by law; (ii) implement financial actions which are of the interest of the Federal Government and execute the official government programs through Treasury funds or of any other nature; and (iii) to grant surety in favor of the Federal Government. Banco do Brasil s Bylaws also establish that any actions or steps taken by the Bank in the capacity of provider of services engaged by the Federal Government are subordinated to certain guarantees, including the placement of funds in the Bank, which should be sufficient to act as a contingency plan for financial changes and compensation for the service rendered by the Bank, the sum of which cannot be lower than the cost of the service rendered. Notwithstanding the existence of these mechanisms in the Bylaws relating to the rendering of services to the Federal Government, in the condition of the majority stockholder, it can establish, through its representatives in the governing bodies, that we shall develop business activities that prioritize strategic objectives or programs of interest to the Brazilian Federal Government. Hence if we make investments and incur costs in carrying out business of interest to the federal government, situations could occur that would conflict with the economic and entrepreneurial objectives of our market performance. c. risks related to its shareholders Banco do Brasil might need additional resources in the future, which may take place through the issuance of securities, which may affect the price of shares and result in the dilution in participation an investor holds in shares. Banco do Brasil may need to raise funds in the future through the private or public issuance of shares or securities convertible into shares or interchangeable for shares. Any fundraising though the 35

36 Section 4 Risk Factors distribution of shares or securities convertible into shares or exchangeable for them may result in the alteration of the price of shares and in the dilution of the investor's shareholdings. Shareholders may not receive dividends and/or interest on equity. The Bylaws of Banco do Brasil determine half-annual minimum mandatory dividend payments to its shareholders equivalent to 25% of adjusted net income, as dividends or interest on capital. Moreover, the net income of the Bank may be capitalized, and used to offset losses or even retained for the constitution of reserves, as provided for in the Brazilian Corporate Law (Law 6,404). Besides, Brazilian Corporations Law allows us to suspend the minimum dividend distribution of one specific exercise, if our Board of Directors decides to communicate that this distribution is incompatible with our financial situation. BB distributes dividends on net income computed in accordance with accounting practices adopted in Brazil (BR GAAP), which may be different from the established international accounting standards (IFRS). d. risks related to its subsidiaries and associated companies The Bank can have its result influenced by its interest in subsidiaries and associated companies, in Brazil and abroad. The Bank has direct and indirect interest in several financial and non-financial companies, in Brazil and abroad. The equity in the earnings of these subsidiary or affiliates companies is included in our results of operations. These investments contributed to 30.0% of Multiple Bank s net income for the period from January to March Thus, any negative results obtained in the activities of these companies may negatively impact the Bank's results. In addition, as a result of possible negative results in these subsidiaries and associated companies, there is no guarantee that the Bank will receive dividends or other payments from these companies. e. risks related to its suppliers The Bank is subject to the interruption of some services provided by outsourced companies, and that may adversely interfere with business. The Bank uses a wide network of outsourced companies that provide accessory or supplementary services to its regular operation. Accordingly, the Bank is subject to negative effects arising from the possibility of services provided by outsourced service provides being interrupted, mainly those related to information technology and security. f. risks related to its customers Guaranties related to non-performing loans can be difficult to be recovered and transformed into value for the Bank. Guarantees linked to unpaid loans may be difficult to recover, as they depend on an external variable, that is, they depend on the lawsuit progress, which, most of the time, is object of court appeals by debtors, intended to postpone recovery. In situations where the debtor is going through a very difficult economic-financial situation, there is also competition with preferred and privileged credits (labor and tax credits). Lawsuits are pressure instruments that make possible, in a certain stage, friendly renegotiation of the borrower s debts, through agreements. When guarantee is legally achieved (settlement, adjudication), there is an additional effort to incorporate assets to the Bank s equity to be later bid for sale, and transformed into value. The counterparties to our derivatives may result in losses to the Bank. We are subject to credit risk in our exposures with derivatives (swaps, forwards and futures, etc..), in case of default by counterparties of their contractual obligations. Possible delinquency may be caused by deterioration of ability to pay the counterparties, due to lack of liquidity, bankruptcy, etc.., Or by several factors, such as operational failures of agents involved in the settlement (counterparty, financial intermediaries, agents and clearing houses, etc.), impaired delivery of traded assets, among others that may prevent the fulfillment of margin calls and settlement of securities or physical assets of derivative object. In markets with higher volatility, without adequate provision of collateral by 36

37 Banco do Brasil S.A. Reference Form /2013 counterparties, the success of the counterparties trading strategies can enhance the credit risk exposures in derivatives held by the Banco do Brasil. The Bank's capacity to collect payroll loan installments depends on the effectiveness and validity of executed contracts, the employers' and public bodies' credit risk, as well as the maintenance of jobs by borrowers. Part of our revenues results from payments originating from the installments of payroll-consigned loans, which are debited directly from the paychecks of the employees and retirees/pensioners. These deductions could be suspended if the agreements executed between us and the employers/public entities are terminated or if the employee has his or her employment contract terminated, or terminates his or her contract with the employer. In the case of termination of the contracts, the system for collections of these loans could be impaired, compromising effectiveness and leading to an increase in operating costs. Consequently, it would be necessary to change the direction of further lending to credit facilities with greater risk and a higher interest rate, with consequent reduction of the client's borrowing potential. If the employee has his or her employment contract terminated, or dies, the payments of the payroll-consigned loan would depend exclusively on the financial capacity of the borrower or of his or her successors to pay off the loan. If these factors were confirmed, they would raise the risk of our loan portfolio, requiring default control measures with possible restrictions on further lending, having a negative impact on our income. The increasing number of payroll-deduction loans is subject to changes in laws and regulations, interpretation by the courts and policies of public entities. The installments relating to the payroll-consigned loans are debited in the payroll of the civil servants and employees of public institutions and companies that have a payroll consignment agreement signed with us. Such deductions are regulated by various federal, state and municipal laws and/or regulations, which set the deductible limits. Therefore, the enactment of a new law and/or regulation, or alterations that revoke or provide new interpretations for the existing ones, which serve to prohibit or restrict, or could also affect our capacity to deduct charges directly from the payroll and can increase the risk profile of our loan portfolio, with a direct impact on the rates of delinquency. To operate with payroll-consigned loans, we have a license issued by the public entities to which the civil servants and employees are associated; any change in the regulations that govern such changes may hinder and even prevent us from offering payroll-consigned loans to these employees. g. risks related to economy sectors in which the issuer operates: The Brazilian securities market is subject to a high volatility level due to other countries' evolution and perception of risks. The market of securities issued by Brazilian companies is influenced by economic and market conditions in Brazil and, at different levels, by market conditions in other Latin-American countries, emerging countries and the USA and Europe. Although economic conditions are different in each country, investors' reaction to events in one country may bring volatility to capital markets of other countries. The Bank is subject to lawsuits deriving from Economic Plans, which may adversely affect its income. To achieve stability and growth of productive capacity, Government started to act on economic guidelines to give a new direction to growth factors, development and income distribution. Accordingly, stabilization programs known as economic plans were established, among which "Bresser Plan (in June 1987)", "Summer Plan (in January 1989), "Collor I Plan (March 1990)" and "Collor II Plan (March 1991)", which adjusted rates and indices practiced the financial system and other economy segments, among other actions. Implementation of these economic plans generated an income difference in savings deposits and judicial deposits. This difference is being discussed in court by savers and financial institutions. In case Higher Courts consolidate the understanding that the payment of the difference is owed by the financial institution that received deposits, results of a great part of institutions that comprise the financial system, including the Bank, may be adversely affected. 37

38 Section 4 Risk Factors The Federal Government exercises influence over the Brazilian economy, and governmental actions may adversely affect the Brazilian markets and our business. The economic theoretical reference most commonly accepted claims that Government existence is required to guide, correct and complement the market system. For this, the use of economic policies such as monetary, tax, credit, foreign exchange, among others, are used as instruments that aim at maintaining the economic system operation. There is no doubt that changes in these policies and new regulations may affect our businesses and strategies. However, the Bank cannot estimate perfectly the attitude to be adopted by Government for the management of economic policy, and this may impact not only the Brazilian economy but also provoke changes in the market and adversely affect the Bank's business and its financial results. Brazilian economy is vulnerable to external shocks that may have an important adverse effect on Brazilian economic growth, and on the Bank's business and its operating result. Globalization and internationalization of capital markets are processes that imply in vulnerability of nations to external adverse events. Accordingly, despite the fact that significant improvement in economic foundations and macro-economic structural changes have increased Brazil s resiliency to external shocks, Brazil is not immune to fluctuations in the international financial economic scenario. In 2009, for example, when developed economies faced one of the worst recessions since the 30 s, resulting from subprime crisis that started in the United States, the Brazilian economy recorded a PIB downturn of 0.3%. Accordingly, current difficulties of US economy to recover and recession present in several countries of the Euro zone affect the Brazilian economy in several manners. The most important ones are the decline in commerce and capital flow, fall in commodities prices, and reversal/accommodation of businessmen and consumers expectations. Therefore, adverse events as those mentioned above may lead to the deterioration of macroeconomic conditions in Brazil and resulting impacts, such as the hindrance of bank system customers payment capacity, could directly affect the Bank s business, limiting execution of some strategies. The Bank's capacity of paying interest may be limited by liquidity restrictions in Brazil. As it is not immune to external/ internal crisis, the occurrence of an event that may lead to capital flight from Brazil and/or induce the Brazilian Central Bank to abruptly and suddenly raise basic interest rate, may have effects on local liquidity conditions. Liquidity restriction (either internal or external) may contribute to the lack of funds and of other net assets in some Brazilian companies and financial institutions, and may affect natural dynamics of credit market and other Bank s businesses. No guarantee can be given that adverse events that are able to affect Brazilian economy will not directly or indirectly affect the capacity of some customers of honoring their financial commitments with the Bank or, otherwise, adversely affect the financial conditions or results of the Bank's operations. The profitability of the Bank's business may be harmed by the worsening of domestic or global economic conditions. As an institution that operates in the domestic and international markets, the Bank is subject to adverse effects resulting from the worsening of local and global economic environments general conditions. Factors such as economic growth, market liquidity, inflation, interest rates, assets prices, and delinquency level, among others, have the potential to affect the Bank s business profitability. Also, with the internationalization strategy of the Bank, changes to local and international financial system regulations may also affect the Bank s business profitability. The Bank is subject to foreign exchange instability, including devaluation of Brazilian real, which may adversely affect the Bank. As of January 1999, Brazil adopted the free fluctuation exchange regime, which facilitates better and faster adjustment of foreign accounts to possible international crisis. In this system, in addition to exchange rate fluctuation according to foreign currency offer and demand, the Brazilian Central Bank is able to intervene in the market, buying or selling foreign currency to avoid great variations in exchange rate quotation. Likewise, Government also has instruments that may be used to contain undesired fluctuations and/or changes in domestic currency price trajectory before the dollar. Of course, even counting with Brazilian Central Bank and/or Government action, more intense valuation 38

39 Banco do Brasil S.A. Reference Form /2013 and/or devaluation movements may occur, bringing consequences to domestic economy and the Bank s business. Despite the fact that the Bank adopted several hedging strategies, they do not guarantee that exchange rate sudden changes will not hinder customers capacity of paying their express obligations or obligations indexed to the dollar, which has the potential to affect the Bank s business, profit and dividend distributions and the Bank s shares market price, mainly when translated into dollar. Also, a possible movement of foreign exchange devaluation may generate inflation pressures in Brazil, which also have the potential to adversely affect the Bank s businesses. Changes in interest rates carried out by the Brazilian Central Bank may adversely affect the Bank's operating results and its profitability. In mid-1999, Brazil officially adopted the inflation targeting policy. In this system, basic interest rate Selic (Special Settlement and Custody System) is the main monetary policy instrument, and is used to pursue the convergence of inflation to the target trajectory defined every year by the National Monetary Council. Conduction of monetary policy supposes, among other aspects, that the Brazilian Central Bank Monetary Policy Committee (Copom) adjusts basic interest rate in response to demand and offer movements that may deviate inflation from target trajectory. Accordingly, the Bank s businesses are subject to basic interest rate changes that may adversely affect the demand for credit, funding costs, spread in transactions, and increase customer delinquency risks, with potential impact on the Institution s operating income and profitability. The increasingly competitive environment and recent consolidation in the brazilian banking industry may adversely affect the Banco do Brasil. Rapid decrease in interest rates and resulting reduction in bank spreads impose new challenges to the financial industry. Among these challenges, there is the necessity of expanding business volume, which, in this more competitive environment, adversely affects rates and tariffs charged for bank services. In this environment, banks will have to invest in operating efficiency, which includes reducing expenses and optimizing processes to maintain competitiveness. Inclusion of population in bank services, rise of C/D/E classes, free bank option for public servants and portability indicate the rise of competition, including with large financial institutions fighting over market niches that were exclusive of medium banks. Entrance of non-bank competitors, such as large retail traders and construction companies, and new foreign banks starting operations may also adversely affect the financial industry operation environment in the Brazilian market. This environment may also be affected by the bank consumer behavior, as he/she is more informed, connected and, as a result, more demanding in his/her relation with financial institutions. This affects bank competition, requiring more investments in service quality, multi-channel technologies and products and services. In the event that Brazil experiences high inflation in the future, there may be adverse effects on the Bank's operating results and financial conditions. In the past, Brazil had high inflation rates, a period that bore several economic plans adopted by the Federal Government to inhibit the process. Ineffectiveness of different actions had negative effects on Brazilian economy and the Bank s businesses. Even considering success in fighting inflation, after the adoption of the inflation targeting system in 1999 (in 2012, Brazil completed nine consecutive years of inflation targeting), there is no guarantee that new inflation pressures will not affect Brazilian economy in the future. Accordingly, resumption of inflation process with inflation exceeding targets established by the Government and consequent actions adopted to permit convergence of inflation trajectory to target interval, making the Government use instruments such as increase in basic interest rate and/or macroprudential actions to contain credit rise, may generate adverse impacts on the Banco Brasil s operating income and financial situation. The Bank s future profitability is subject to external factors, including interest and foreign exchange rates, and market price of its securities portfolio. The Bank's operating result is subject to exogenous factors, including changes in market interest rates, foreign exchange rates, and security prices. Accordingly, the capacity of ensuring satisfactory return rates on assets and shareholders' equity depends on the Bank's capacity to improve its 39

40 Section 4 Risk Factors revenue, reduce costs and adjust its assets portfolio to minimize adverse impacts arising from fluctuations in macroeconomic factors. On March 28, 2013, Multiple Bank's securities portfolio was composed as follows: (i) (ii) 78.7% of securities indexed to interbank deposit dertificates) or to average Selic rate; 18.1% of pre-fixed securities; and (iii) 3.2% of securities indexed to other indicators (so that the Bank's securities portfolio indicators are mostly floating). The BB's foreign investments, as well as foreign funds, may adversely affect its profitability in case of material variations in Brazilian Real/Foreign Currencies exchange rate. For the purpose of reducing the effects of foreign exchange variation in results, the BB adopts hedge strategies. Net foreign exchange exposure as of March 28, 2013 was negative by R$2.91 billion. While BB Consolidated total foreign exchange exposure, calculated according to Circular 3,389, was R$1.96 billion. The Bank is subject to all risks related to long-term transactions, whether related to economic activity, interest rate levels, maturity mismatches or changes in requirements defined by the Banco Central do Brasil. As of March 28, 2013, the Bank presented asset mismatch in transactions exposed to fixed interest rate risk, being assets and liabilities average periods and months, respectively. In case of market interest rate variation, all fixed securities would be affected, whether in Bank's results for securities classified as for trading, or in shareholders' equity for securities classified as available for sale. All mentioned factors may provoke adverse effects on the Bank's financial situation and operating result. Exposure to Federal Government debt could have an adverse effect on the BB. Although remuneration of these securities is mostly pre-defined, their market prices are subject to fluctuations, and may impact profitability of the Bank s securities portfolio. This may occur due to changes in domestic and/or global macro-economic scenarios or due to other events that are able to affect the agents perception of Federal Government payment capacity, either in relation to principal or to coupons of debt securities within maturity. Accordingly, market conditions for the negotiation of a security portfolio has the potential to affect, adversely or not, the Bank s operating income and financial situation as a result of marking-to-market of securities held in portfolio. Banco do Brasil invests in highly liquid Federal Government debt securities. March 28, 2013, 9.7% of the Bank's assets consisted in securities issued by the Federal Government. As of March 2013, the last data available, consolidated net debt of the Brazilian public sector, according to data published by the Brazilian Central Bank, was R$ 1,596 billion or 35.5% of Gross Domestic Product (GDP). At December 31, 2012, this amount was R$ 1,550 billion, or 35.2% of GDP. In case Federal Government does not honor obligations referring to the payment of principal or coupons of securities representing its debt within these papers' term or these papers have their liquidity or market value reduced, the BB's operating results and financial situation may be adversely affected as a result of marked-to-market public securities held in portfolio. h. risks related to the regulation of sectors in which the issuer operates Brazilian Central Bank promotes extensive and continuous reviews on regulations, thus affecting Brazilian banks, including the Bank. Banco Central do Brasil stands out from among the bodies that comprise the Banking Industry for its attribution of enforcing discipline and inspection. The Brazilian regulatory structure that governs financial institutions is continuously evolving as a result of the interpretation and application of international treaties and agreements, in addition to market disturbances and volatilities and the search for the soundness of the National Financial System. These elements motivate the Brazilian government to create or change existing laws and regulations, and this may adversely affect the Bank's operations and earnings. The Bank is subject to government laws and regulations that are applied to all its activities, including those that are mandatory or disciplinary: 40

41 Banco do Brasil S.A. Reference Form / minimum capital requirement; - mandatory deposits and compulsory deposits; - fixed capital investment requirements; - limits and other credit restrictions; - accounting and statistical requirements; - price and salary controls; - creation of or increase in tax calculation criteria; - other requirements or limitations resulting from the global financial crisis context. Sometimes, these regulations affect the customers' capacity to obtain credit and restrict the Banco do Brasil's credit portfolio growth. They may also have a permanent character that affects business over long periods. There is no guarantee that in the future Federal Government will not adopt new regulations that may affect the Banco do Brasil's liquidity, customers' solvency, the Bank's financing strategy, the growth of loans or even profitability. Presently, it is impossible to file a bankruptcy or liquidation proceeding against the BB, but this may change if Brazilian law is altered. Law no. 6,024 of March 13, 1974, (the "Financial Institution Liquidation Law") authorizes the Brazilian Central Bank to extra-judicially intervene in the operations of or liquidate private or Brazilian state governments' financial institutions (but not Federal Government's). The Bank, as an entity with Federal Government majority interest, is therefore not subject to intervention or extra-judicial liquidation by the Bacen. In addition, according to Article 2, item I of Law 11,101 of February 9, 2005 (the "New Bankruptcy Law"), listed state and private companies (mixed capital companies), such as the Bank, are not subject to bankruptcy lawsuit. Therefore, in the Banco Brasil's case, only the Federal Government, as its controller, has the authority to intervene and liquidate. In view of the above exposed, the filing of a liquidation lawsuit against the Bank is not permitted, or may be limited by Brazilian law. However, there is no guarantee that the New Bankruptcy Law, the Brazilian Corporate Law or the Financial Institution Liquidation Law will not be altered in the future, whether by a National Congress legislative proceeding or a provisional act that modifies the Banco do Brasil's current legal situation. In case these changes occur, operations may be adversely affected, as well as it capacity of complying with its payment obligations. Changes in Brazilian accounting practices arising from their convergence with international accounting practices (IFRS) may adversely affect the Bank's results. The Accounting Pronouncements Committee (CPC) issued several accounting pronouncements that are consistent with International Accounting Standards IFRS, some of which were received by the Banco Central do Brasil. In addition to the CPC pronouncements received by Bacen, the Bank applied others that do not conflict with the rules issued by the National Monetary Council - CMN and by Bacen. As explained in Note no Presentation of the Financial Statements, the adoption of new accounting practices received by Bacen in the future may produce important impacts on the financial statements, with a possible effect on the Banco do Brasil s income. Capital control implemented by the Brazilian Government may affect the Banco do Brasil s business, operations or perspectives. Foreign exchange and foreign trade in Brazil are regulated by the Foreign Exchange and International Capital Market Regulation (RMCCI) of the Banco Central do Brasil, as well as specific legislation. As provided for in the Foreign Exchange and International Capital Market Regulation (RMCCI), there is freedom to purchase and sale foreign currency and most transactions are allowed, except those prohibited by law or subject to specific regulations, such as foreign capital market and derivative investments of individuals or legal entities. Prevailing foreign exchange model maintains premises provided for in federal law, such as: - forced domestic currency course; - transactions subject to register with the Banco Central do Brasil; - formalization of transactions via foreign exchange contracts; 41

42 Section 4 Risk Factors - maintenance of rules on foreign capital in Brazil. Notwithstanding the favorable economic environment for Brazil, adverse events may force Federal Government to adopt a more restrictive policy for capital movement such as measures provided for in Law 4,131 of September 3, Many factors that are beyond the Banco do Brasil's control may affect the possibility of Federal Government imposing restrictions to foreign exchange and foreign trade transactions in Brazil at any time. These factors include: - amount of foreign exchange reserves; - availability of sufficient foreign currency on the date of maturity of a liability; - charges on Brazil's debt service in relation to the economy as a whole; - any political restrictions to which Brazil may be subject to. Any restrictions may adversely affect the Banco do Brasil's business, transactions or perspective and its capacity of paying obligations abroad in foreign currency. Any restrictions to interest rates of bank loans may adversely affect the Banco do Brasil with the reduction of revenues and imposition of restrictions to loans. Interest constitutional limit of 12% per year is not effective due to the revocation of paragraph 3 of Article 192 of Federal Constitution by Constitutional Amendment no. 40/203 and the contents of STF Binding no. 7, as it was understood that its application was dependent on the issuance of a Supplementary Law, which did not occur. As regards legal interest limit, prevailing position in STJ is not to apply it to bank credit notes and contracts (common loan) based on that, in the first case, governing law (Law no. 10,931/04) does not impose any limit nor attributes to any agency its limit and, in the second case, limit provided for in Decree no. 22,626/33 (Usury Law) is not applicable to financial institutions, which are submitted to Law no. 4,595/64 (Bank Reform Law). Anyway, interest charged by the Bank may always be reviewed by Courts, in case it is proven that agreed-upon rate exceeds average rate practiced by the financial market, without relevant justification, characterizing the abuse. Also in relation to interest legal limit, STJ understands that this limit should be twice as much as SELIC rate, when credit transaction is backed by rural, commercial and industrial notes, considering the interpretation STJ has on Decree-Laws no. 167/67 and 413/69, that govern them. As regards capitalization of agreed-upon interest, STJ admits it both for bank credit notes and rural, commercial and industrial credit notes, as well as for contracts (common loan). Regarding notes, STJ is backed by the provisions of respective governing standards. When it comes to contracts (common loan), STJ accepts the capitalization of interest for instruments executed beginning as of March 30, 2000, resulting from the interpretation of Article 5 of Provisional Act no. 2,170-32, of August 23, 2011 (originally included in Provisional Act no. 1,963-17, of March 30, 2000), provided that expressly agreed upon. Note that the Direct Action for Unconstitutionality no is awaiting STF judgment on unconstitutionality of that legal provision. If this action is considered valid, Courts will probably reestablish the veto on interest capitalization for contracts (common loan), backed by the Usury Law. Finally, as regards late payment surcharge, note that it is expressly prohibited in rural, commercial and industrial notes, as respective regulations provide for limits to delinquency charges. STJ has been permitting it for bank credit notes and contracts (common loan), provided that expressly agreed-upon and complying with provision of Abstract 472, in verbis: 'Charging late payment surcharge, whose amount may not exceed the sum of remuneration and delay charges provided for in contract excludes the payment of remuneration and delay interest, and contract fine. Banco do Brasil may not be able to record all deferred tax credits. The accounting record of tax credits deriving from tax losses (IRPJ), negative bases (CSLL) and temporary differences are regulated in accordance with CMN Resolution 3,059 of December 20, 2002 and CMN Resolutions 3,355, of March 31, 2006, and 3,655 of December 17, In accordance with these Resolutions, financial institutions and other institutions authorized to operate by the Brazilian Central Bank, including the Bank, may only recognize tax credits when the following conditions are met, on a cumulative basis: (i) presentation of the profit or taxable income history for income tax and social contribution purposes, as applicable, evidenced by the occurrence of these situations in, at least, three of the last five years, period which should include the period under discussion; and 42

43 Banco do Brasil S.A. Reference Form /2013 (ii) expected future generation of profit or taxable income for income tax and social contribution purposes in subsequent periods, as applicable, based on internal technical studies that demonstrate the likelihood of future obligations in tax and contributions that would allow the realization of tax credit in the maximum period of ten years. Deferred tax credits based on temporary differences are mainly related to long-term provisions for credit losses. In accordance with Resolution 3,655, total tax credits, except those arising from temporary differences, may not exceed 10% of Tier I Capital beginning January 2011, and may not exceed 10% beginning January The portion of tax credit that exceeding this limit will be excluded for purposes of determining Tier I Capital. In the last five years, the Bank presented expressive positive tax bases, confirming depletion of tax credit estimates of its internal technical studies that permitted the maintenance of all tax credits recorded in assets. In case the Bank is not able to maintain its taxable income in the future, it may be obliged by the Bacen to reduce/decrease deferred tax credits, with the resulting impact on its assets and shareholders' equity. As a result, this decrease or reduction could have an adverse effect on the Banco do Brasil's financial situation and operating results. Changes in minimum levels of housing and agriculture loans may adversely affect the Bank's profitability. Agriculture: CMN Resolution 3549/2008 permitted authorized financial institutions to raise rural savings funds; savings may be used, in the ambit of the Brazilian Savings and Loans System (SBPE). Based on this resolution, 90% of savings accounts are allocated to rural credit payments and 10% to compose home savings funds. Currently, rural credit payments related to funds in savings accounts is 68%, while real estate credit is 65%. The change in the abovementioned percentages results in the need to increase or reduce the availability of resources to the sector. However, the financial impacts will depend both on the new rule to be established for obligatory and additional compulsory deposits, as well as negotiations with the National Treasury related to the equalizations of financial charges. Housing: CMN Resolution 3549/2008 permitted authorized financial institutions to raise rural savings funds; savings may be used, in the ambit of the Brazilian Savings and Loans System (SBPE), up to the limit of 10%. In addition to said regulation, CMN Resolution 3392/2010, establishes in the attached regulation minimum percentages of home savings to be applied, as follows: I) 65%, at minimum, of real estate financing transactions, being: a) 80%, at minimum, of percentage above of home financing transactions in the ambit of the National Housing System (SFH), being; and b) remaining percentage of real estate financing transactions contracted at market rates. On March 31, 2013, home savings funds maturity provided for in regulation above was complied with. Changes in reserve requirements and compulsory deposits may adversely affect Banco do Brasil. "Compulsory Liabilities" are characterized as one of the monetary policy instruments executed by the Banco Central do Brasil. To control the effects resulting from the supply and demand of currency, i.e. control of liquidity and consequently of the benchmark annual overnight Selic rate of the economy, the Central Bank reduces or increases the value of the rates levied on the amounts funded by the commercial banks in several types of compulsory deposits. Changes to Compulsory Requirements rules and/or rates that increase the value of deposits with the Banco Central do Brasil reduce our capacity both in Consumer Credit and other investments. Main highlights of the period: -Demand Deposit: Circular Letter no. 3,622 of December 27, 2012, creates a deduction on the enforceability of demand resources, which may be realized by the value of loans made, during the final day of the calculation period, pursuant to art. 1 and 2 of Resolution 4,170. The measure took effect from the calculation period from 01/28 to 02/08/2013. Circular 3632, of 02/21/2013, amending the calculation periods, reporting and compliance, excludes COSIF Deposit Early Warning and Investment and the anticipated rate increase from 45% to 06/23/2014. The measure will take effect from the calculation period of 04/22 to 04/26/

44 Section 4 Risk Factors Banco do Brasil may be obliged to recognize liabilities linked to government funds and programs and to manage Union's assets higher than those recorded. Banco do Brasil operates as a financial agent of government funds and programs whose main purpose is to allocate funds from several sources - mainly from Constitutional Financing Fund for the Midwest (FCO), the Workers' Assistance Fund (FAT) and the National Treasury Official loan operations Budget - to loans at benefited rates for some economy sectors, mainly the agribusiness. We highlight the Income and Employment Generation Program (Proger) and the National Family Farming Strengthening Program (Pronaf). In most cases, Banco do Brasil records liabilities corresponding to allocated funds that are subject to the reconciliation of balances and rendering of accounts to those who allocated the funding and control bodies. With the implementation of a new system to control these funds and the review of methodologies and interface with other corporate systems for accounting and operating management, the Bank may verify overstatements in the reconciliation of liability balances, which may result in adverse impact for the Banco do Brasil's results of operations. Also, Banco do Brasil provides asset management services to the Union that encompasses financing to the rural sector and public entities, whose proceedings are being reviewed; divergences between corresponding accounting records and managed portfolio amounts may be verified. Adequacy of Capital Minimum Requirement imposed to the Bank due to the Basel Agreement II may adversely affect the Banco do Brasil's results of operations and financial conditions. The implementation of the rules of Basel II in Brazil, especially in relation to the capital requirement, produced several modifications in the method of measuring capital to bear the risks inherent to banking activities. The implementation schedule of Basel II in Brazil was officialized by the Brazilian Central Bank by means of Communication 12,746, of , and subsequently adjusted by Communication 16137, of September 27, This agenda was built in phases, initially establishing, as regards capital requirement, the use of a standardized approach (defined by Bacen), and at the end, the use of advanced models. On October 29, 2009, Bacen, through Release 19,028, adjusted the schedules previously disclosed, with a view to supplementing the measures and procedures required for proper implementation of Basel II in Brazil. From Bacen point of view, financial institutions must permanently maintain capital (Regulatory Capital) compatible with its activities risks, which is the RRE (Required Regulatory Capital). RRE is determined considering at least the sum of capital requirements calculated for credit, market and operating risks. BIS Ratio or Capital Adequacy Ratio is an international indicator defined by the Bank Supervision Basel Committee that recommends the minimum ratio of 8% between capital and assets weighed by risks. In Brazil, minimum required ratio is 11%, as per prevailing regulation. As of March 31, 2013, BB s BIS Ratio was 16.29, an increase of 203 bps in comparison with index determined as of March 31, 2012 (14.26). As a result of changes in capital adequacy rules or in the Brazilian economic performance as a whole, the BB's BIS Ratio may be adversely affected. The Bank may also be forced to limit its loan operations, dispose of some assets or take other measures that may adversely affect the Banco do Brasil's operations results and financial situation. Federal Government announced a wide tax reform plan that, if implemented, may adversely affect the Banco do Brasil's business. Federal Government regularly approves reforms and other changes in tax regime that impact the Bank. These reforms include changes in evaluation frequency and, occasionally, in the enactment of temporary taxes, whose revenues are allocated to the purposes designated by government. Federal Government announced a wide tax reform plan in Brazil, mainly intended to increase economy funds allocation efficiency. If the reform is approved, it will imply a wide restructuring of the Brazilian tax system, including the possibility of a value-added tax - levied on assets and services and that would replace several taxes (including social contributions, federal excise tax on industrialized 44

45 Banco do Brasil S.A. Reference Form /2013 products, and state VAT) - being created. The effects of these changes, if approved, and any other changes arising from additional reforms may not be quantified and the Bank may not assure that these reforms, once implemented, will have an adverse impact on its business. Note that prior changes in the tax system brought uncertainties to the financial system, increased loan costs, and may contribute to the future reduction of the Banco do Brasil's loan portfolio performance as a result of the deterioration of borrowers' economic and financial conditions. These changes may occur in the future and adversely affect the Banco do Brasil's operations and financial situation, if they do occur. Currently, tax reform is no longer a priority for the Brazilian Federal Government. The implementation of new capital requirements deriving from the Basel III Agreement may reduce the Bank's business leverage capacity. In March 2013, Central Bank of Brazil disclosed a set of rules that provides, among other aspects, on implementation of Basel III in Brazil, most of them to be effective beginning as of October 1, Note that banks will be obliged to maintain a minimum additional reserve of Principal Capital, denominated Principal Capital Surplus, to preserve Principal Capital during stress periods or for anticyclic purposes. i. risks related to foreign countries where the issuer operates: Banco do Brasil is present in North America, South America, Africa, Asia and Europe. Any changes in the economies of these countries or regions may adversely affect the Bank's results. Any adverse situations in the economy of the regions where the Bank operates abroad may have effects on our foreign branches results located in the affected markets. Among the main factors that contribute to these impacts, we can point out the reduction in foreign trade operations of Brazilian companies established abroad, as well as foreign companies that trade with Brazil, causing a decrease in revenues volume and, accordingly, a decrease in results of the Bank's international network. Depending on the markets affected and the profile of customers of each of these markets, as well as on the nature of the economic adversity, we can also observe a reduction in the number of customers served by the Banco do Brasil, which is normally, but not only, observed in the cities where we operate mainly in the retail segment as Japan, USA and Portugal. In a crisis scenario, another adverse consequence would be the reduction in spreads of operations that suffer direct impact from interest rate changes, provoking the reduction in earnings. Another risk factor that may affect the profitability of those branches is related to changes in bank regulations of the countries in which the Banco do Brasil operates, especially referring to the credit risk exposure in relation to assigned capital. j. risks relating to our common stock and ADS Holders of ADS may be unable to exercise preemptive rights with respect to common shares underlying the ADS. ADS holders who are United States residents may not be able to exercise the preemptive rights relating to the common shares underlying our ADS unless a Registration Statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a Registration Statement with respect to the common shares relating to these preemptive rights, and therefore we may not file any such Registration Statement. If a Registration Statement is not filed and an exemption from registration does not exist, the depositary bank will attempt to sell the preemptive rights, and ADS owners will be entitled to receive the proceeds of the sale. However, the preemptive rights will expire if the depositary cannot sell them. ADS owners rights differ from those of stockholders of companies organized under the laws of the United States or other jurisdiction. Our corporate affairs are governed by our bylaws and the Brazilian Corporations Law, which differ from the legal principles that would apply if we were incorporated in the United States or elsewhere outside of Brazil. Under the Brazilian Corporations Law, ADS owners and stockholders may have different rights respect to the protection of your interests than those in jurisdictions outside Brazil, including those related to actions taken by our Board of Directors. 45

46 Section 4 Risk Factors Holders of ADS may face difficulties in protecting their interests. Our corporate affairs are governed by our bylaws and the Brazilian Corporations Law, which differ from the legal principles that would apply if we were incorporated in the United States or elsewhere outside of Brazil. In addition, the rights of an ADS holder, which are derived from the rights of holders of our common shares in order to protect their interests against actions by our Board of Directors, are different under the Brazilian Corporations Law than under the laws in other jurisdictions. Rules against insider trading and self-dealing and the preservation of stockholder interests may also be different in Brazil than in the United States. The plaintiff s bar for enforcing stockholders rights in Brazil is less active than in the United States. In addition, stockholders in Brazilian companies do not usually have the ability to bring a class action. We are a state-controlled company organized under the laws of Brazil and all of our directors and officers reside in Brazil. Substantially all of our assets and those of our directors and officers are located in Brazil. As a result, our ADS holders may not be able to effect service of process upon us or our directors and officers within the United States or other jurisdictions outside Brazil or to enforce judgments against us or our directors and officers obtained in the United States or other jurisdictions outside Brazil. As US court sentences related to civil liabilities based on US federal guarantee laws may only be effective in Brazil if certain requirements are met, ADS holders may face difficulties to protect their interest in lawsuits against us or against our Board of Directors members and executives than shareholders of a company established in a different US state or jurisdiction. Stockholders and ADS owners may not receive dividends and/or interest on equity. According to our bylaws, we must distribute to our shareholders in the form of dividends or interest on equity, 25% of our adjusted net income, which may be substantially different from our net income calculated in accordance with IFRS. This adjusted net income can be capitalized, used to offset losses or retained as provided in the Corporations Law. Besides, Brazilian Corporations Law allows us to suspend the minimum dividend distribution of one specific exercise, if our Board of Directors decides to communicate that this distribution is incompatible with our financial situation. For more information, refer to Note 24.f and articles 45 Compulsory Dividend and 46 Interest on Equity of our Bylaws. Judgments of Brazilian courts with respect to our common shares or ADS will be payable only in Brazilian Reais. If proceedings are brought in Brazilian courts to enforce our obligations under our common shares or ADS, we will not be required to settle our obligations in any currency other than Brazilian Real. Under Brazilian exchange control limitations and according to Brazilian laws, an obligation in Brazil to pay amounts denominated in a currency other than reais will be satisfied in reais at the exchange rate published by the Central Bank or competent court on the date of the judgment. These amounts are then adjusted to reflect exchange rate variations through the effective payment date. The exchange rate in force may not fully compensate you for any claim arising out of or related to our obligations under our common shares or ADS. A holder of our ADS may find it more difficult than a holder of our common shares to exercise his or her voting rights at our stockholders meetings. Holders may exercise voting rights with respect to the common shares represented by our ADS only in accordance with the deposit agreement relating to our ADS. There are no provisions under Brazilian law or under our bylaws that limit the exercise by ADS holders of their voting rights through the depositary with respect to the underlying common shares. However, there are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, our common stockholders will receive notice of stockholders meetings through publication of a notice in an official government publication in Brazil and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders will not receive notice directly from us. In accordance with the deposit contract, our company will issue a notice to the depositary bank, which, on its turn, will post to ADS holders a notice on the meeting and terms describing voting instructions, as soon as possible. To exercise their voting rights, ADS holders must then instruct the depositary as to voting. Due to these procedural steps involving the depositary, the process for exercising voting rights may take longer for 46

47 Banco do Brasil S.A. Reference Form /2013 ADS holders than for holders of common shares. ADS for which the depositary fails to receive timely voting instructions will not be voted at any meeting. Investors that exchange ADS may lose your ability to remit foreign currency abroad and obtain Brazilian tax advantages if you exchange our ADS for our common shares. The Brazilian custodian for the common shares underlying our ADS must obtain a certificate of registration from the Central Bank to be entitled to remit U.S. dollars abroad for payments of dividends and other distributions relating to our common shares, or upon the disposition of our common shares. If you decide to exchange ADS for the underlying common shares, you will be entitled to continue to rely on the custodian s certificate of registration for five business days from the date of exchange. After that period, you may not be able to obtain and remit U.S. dollars abroad upon the disposition of our common shares, or distributions relating to our common shares, unless you obtain your own certificate of registration or register under CMN Resolution No. 2,689, dated January 26, 2000, which entitles registered foreign investors to buy and sell on the Brazilian stock exchanges. If you do not obtain a certificate of registration or register under Resolution No. 2,689, you will generally be subject to less favorable tax treatment on gains with respect to our common shares. Mandatory arbitration provisions in our bylaws may limit the ability of a holder of our ADS to enforce liability under U.S. securities laws. Under our bylaws, any disputes among us, our stockholders and our management with respect to the application of Novo Mercado rules, Brazilian Corporate Law and the application of the rules and regulations regarding Brazilian capital markets will be resolved by arbitration conducted pursuant to the BM&FBovespa Arbitration Rules in the Market Arbitration Chamber. Any disputes among stockholders, including ADS holders, and disputes between us and our stockholders, including ADS holders, will also be submitted to arbitration. As a result, a court in the United States might require that a claim brought by an ADS holder predicated upon the U.S. securities laws be submitted to arbitration in accordance with our bylaws. In that event, a purchaser of ADS would be effectively precluded from pursuing remedies under the U.S. securities laws in the U.S. courts. Actual or anticipated sales of a substantial number of our common shares in the future could decrease the market prices of our ADS. The sale or expected sale of a substantial number of our common shares in the future could negatively affect the market prices of our common shares and ADS. If controlling shareholders, investors considered as relevant or large investor decide in the future sell substantial amounts of our common shares, the market prices of our ADS may decrease significantly. As a result, you may not be able to sell your ADS at or above the price they paid for them. The relative volatility and lack of liquidity of the Brazilian Bonds and Securities market may substantially limit the investor's ability to sell the shares at the desired moment and price. The investment in bonds and securities, such as shares, implies in inherent risks, as it is a variable income investment. Therefore, upon investing in shares of Banco do Brasil, the shareholder is subject to the volatility of the capital market. The investment in securities traded in emerging markets such as Brazil normally involves greater risk in comparison with other world markets, and are considered more speculative in nature. The Brazilian securities market is substantially smaller, less liquid and more concentrated, and can present more volatility than the world securities markets, such as the United States. The Brazilian capital market is characterized by a significant concentration in market capitalization, represented by a small group of companies responding, period by period, for the most of volume traded on the BM&FBovespa. These features of the Brazilian capital market may substantially limit the capacity of investors selling its shares for the desired price and time, what can adversely affect share prices. 47

48 Section 4 Risk Factors 4.2. Eventual expectations of variation in the exposure to risks listed in item 4.1 As regards each of the risks mentioned above and if significant, comment on expected reduction or increase in issuer s exposure to such risks Banco do Brasil expects that risk factors evidenced below may suffer some type of variation when exposed to risk. a. risks related to Banco do Brasil: Banco do Brasil s acquisitions may involve business segments in which BB do not have primary experience or target banks with policies different from our policies. The analysis and evaluation of target bank are carried out by BB professionals and also outside advisors with great experience in Merger and Acquisitions, who are hired in the domestic and international markets. Such procedures, combined with contractual mechanisms, including guarantees, are taken to mitigate risks related to the new operations and Banco do Brasil conglomerate. Banco do Brasil may face risks related to the effects of mergers and acquisitions. Banco do Brasil in recent years made acquisitions and strategic alliance with other companies. The analysis and evaluation of target banks is done by BB professionals with expertise and also by analysts and consultants with extensive experience in mergers and acquisitions, hired in national and international markets. Such procedures are taken to minimize risks to the conglomerate of the BB. Banco do Brasil establishes contractual arrangements, including guarantees, to mitigate risks arising from possible hidden liabilities and contingencies related to the acquired banks, merged companies and partnerships. f. risks related to its customers Banco do Brasil s ability to charge payments due from payroll-deduction loan transactions depends on the effectiveness and validity of agreements entered into with and the credit risk of private employers and public sector entities, as well as on borrowers keeping their jobs. The risk associated with the possibility of contract rescission between employers and borrowers is minimized at Banco do Brasil since for the most part, consigned credit borrowers linked to the public sector. The possibility of contract rescission in the public sector, by its nature, is less than that found in the private sector. The employment relationship with the public sector guarantees the borrower greater job stability, significantly reducing portfolio risk. Additionally, Banco do Brasil has been investing in accessory solutions, such as the credit insurance, which pays off the debtor's obligations in the event of his death. Our increasing number of payroll-deduction loans is subject to changes in laws and regulations, interpretation by the courts and policies of public entities. The growth of credit to individuals in the current country's scenario should be aligned to the objective of maintaining good economic indicators. Accordingly, changes in laws and regulations occur mainly for the purpose of preventing the excessive increase of the borrower's indebtedness. Banco do Brasil has tried to improve mechanisms for credit granting analysis to adequate it to customers' needs, without excessively jeopardizing their payment capacity. As regards the risk associated to changes in payroll credit laws and regulations, Banco do Brasil has followed up this issue with regulatory agencies so as to adopt actions to mitigate its impacts. Court interpretations in individual lawsuits are punctual cases that generally involve the reduction of the borrower's capacity; for these cases, Banco do Brasil makes available alternatives that permit the reorganization of conditions through dedicated credit lines. Finally, Banco do Brasil maintains its leadership in the payroll loan sector with the strategy of offering competitive business conditions, investment in automation, improvement of credit analysis tools, updating of reference file basis and alternative credit lines as risk minimizers. 48

49 Banco do Brasil S.A. Reference Form /2013 h. risks related to the regulation of sectors in which the issuer operates Changes in minimum levels of housing and agriculture loans may adversely affect the Banco do Brasil's profitability. Real estate credit portfolio has been growing steadily (66% in the period March, March, 2013), which increases the necessity of raising funds with home savings (and, accordingly, of total savings) to cover the volume of projected businesses. The main risks inherent to these transactions are as follows: change in real estate loan regulations and sudden changes in the performance of economy. As an alternative funding for real estate credit transactions, Banco do Brasil launched in April, 2013 of Mortgage Loan Notes. Changes in minimum levels of lending for agriculture may result in the need to enlarge or reduce the availability of resources to the sector. These financial impacts will depend on the new rule to be established for the mandatory and additional reserve requirements as well as the internal rules of business. i. risks related to foreign countries where the issuer operates: Banco do Brasil is present in North America, South America, Africa, Asia and Europe. Any changes in the economies of these countries or regions may adversely affect the Bank's results. The expansion of Banco do Brasil s international operations will have three vectors as drivers: overseas Brazilian communities, the transnationalization of Brazilian corporations, and expansion of the Brazil's business relations with the world. Internationalization strategy aims mainly to support and increase satisfaction of customers that are resident, established or travelling abroad, expand profitable relations and strengthen the participation of foreign branches in the Bank s results. Accordingly, several initiatives were adopted, such as: acquisitions of Banco Patagonia, in Argentina, and of EuroBank, in the USA, whose name was changes to Banco do Brasil Americas, and the opening of a securities brokerage firm in Singapore. Although these actions are totally aligned to the strategy of expanding and diversifying BB s international operations, they increase the risk that changes in these countries or regions adversely affect the Bank s results, even if not very representatively, proportional to the size of achieved market in comparison with BB s global operations Relevant and non-confidential lawsuits, administrative or arbitration proceedings Describe judicial, administrative or arbitration processes to which the issuer or its controlled companies are parties, among labor, tax, civil and others: (i) that are not under secrecy and (ii) that are relevant for the business of the issuer or its subsidiaries. The processes related to item 4.3 have been obtained from a materiality of R$ 711 million. Thus, those item the financial impacts of which, in case of loss, exceed such materiality have been selected to comprise the sample of the Bank. In case of nonexistence of such information, the Bank used the updated intended value as a parameter for selection. Control: a. court 1st Civil Court - Archive b. court level Court of Justice of Maranhão c. filing date 08/01/1993 d. parties to the process Plaintiff: Banco do Brasil S.A. Defendant: Cooperativa Mista Nossa Senhora das Graças Ltda. e. amounts, goods or rights involved f. main facts Amount of the lawsuit: CR$ 57,165, as of 08/01/1993. Value of the case updated as of 12/31/2012: R$ 3,012,000, Intended value: CR$ 57,165, as of 08/01/1993. Intended value updated as of 12/31/2012: R$ 3,012,000, This is an action for recovery of defaulted credits represented by Rural Credit Securities. Motions to Execution (Control 2007/ ) stayed execution and are still pending lower court decisions (acknowledgment stage). g. chance of loss The chance of loss by Banco do Brasil is remote. h. analysis of impact in case of loss of process i. reserved amount In case of loss, the impact will be the non-receipt of the defaulted credit, besides the costs of losing party. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. 49

50 Section 4 Risk Factors Control: a. court 4th Civil Court Archive b. court level Court of Justice of Maranhão c. filing date 08/10/1993 d. parties to the process e. amounts, goods or rights involved f. main facts Plaintiff: Banco do Brasil S.A. Defendant: Destilaria Caiman S.A. Amount of the lawsuit: CR$ 14,687,959, as of 08/10/1993. Value of the case updated as of 12/31/2012: R$ 773,895, Intended value: CR$ 14,687,959, as of 08/10/1993. Intended value updated as of 12/31/2012: R$ 773,895, It refers to a Writ of Execution, booked under no , to recover overdue credits represented by Rural and Industrial Credit Notes. Motions to Collection Lawsuit were judged groundless in the lower court, and Civil Appeals filed by Executed Parties are pending judgment. g. chance of loss The chance of loss by Banco do Brasil is possible. h. analysis of impact in case of loss of process i. reserved amount In case of loss, the impact will be the non-receipt of the defaulted credit, besides the costs of losing party. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification possible does not demand a reserve coverage. Control: a. court 5th Civil Court Archive b. court level Court of Justice of Minas Gerais c. filing date 08/09/1995 d. parties to the process Plaintiff: Banco do Brasil S.A Defendant: Mendes Junior Engenharia S.A. e. amounts, goods or rights involved f. main facts Amount of the lawsuit: R$ 304,219, as of 08/09/1995. Value of the case updated as of 12/31/2012: R$ 1,247,058, Intended value: R$ 304,219, as of 08/09/1995. Intended value updated as of 12/31/2012: R$ 1,247,058, This is an action for recovery of credit represented by an industrial credit security. Motions filed by the debtor were judged groundless. Suspended Lawsuit Special Appeal and Extraordinary Appeal filed by the counter party against the decision that rejected requests for reconsideration are awaiting judgment. g. chance of loss The chance of loss by Banco do Brasil is remote. h. analysis of impact in case of loss of process i. reserved amount In case of loss, the impact will be the non-receipt of the defaulted credit, besides the costs of losing party. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. Control: a. court 16th Federal Court b. court level Federal Regional Court c. filing date 01/29/1998 d. parties to the process Plaintiff: Banco do Brasil S.A Defendant: Brazilian Revenue Service Department e. amounts, goods or rights involved f. main facts Amount of the lawsuit: R$ 1, as of 01/29/1998. Intended value: 8,761,088, as of 06/29/2007 Intended value updated as of 12/31/2012: R$ 12,579,790, Writ of mandamus based on the Unconstitutionality/illegality of the limitation of the compensation of the IR tax losses and negative CSLL bases, in the percentage of 30%, for each base-year. Extraordinary Appeal no. 591,340 suspended since May 26, 2011 (general repercussion). g. chance of loss The chance of loss by Banco do Brasil is probable. h. analysis of impact in case of loss of process i. reserved amount Legal obligation constituted in the amount of R$ 11,697,619, (Balance as of 31/12/2010). Conversion into income of the whole judicial deposit made under the records, related to the intended amount. This is a Legal Obligation according to the classification based on CVM Resolution 594, of 09/15/2009, Item

51 Banco do Brasil S.A. Reference Form /2013 Control: a. court 4th Federal Court - Archive b. court level Federal Regional Court c. filing date 04/19/1999 d. parties to the process Plaintiff: Luiz Carlos Tanaka Defendant: Banco Central and Banco do Brasil S.A e. amounts, goods or rights involved f. main facts Amount of the lawsuit: R$ 519,820, as of 04/19/1999. Value of the case updated as of 12/31/2012: R$ 1,641,148, Intended value: R$ 519,820, as of 04/19/1999. Intended value updated as of 12/31/2012: R$ 1,641,148, Popular Action - Statement of nullity of sale of future Dollar contracts - Banco Fontecindam. Sentence published on March 15, Appeal filed by the parties. Lawsuits forwarded to the Court. Judgment is being awaited. g. chance of loss The chance of loss by Banco do Brasil is remote. h. analysis of impact in case of loss of process i. reserved amount Class action filed against several Banks that prevent measuring the values and identifying possible holders of the right sought. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. Control: a. court 22nd Federal Court - Archive b. court level Federal Regional Court c. filing date 04/22/1999 d. parties to the process Plaintiff: Luiz Carlos Tanaka Defendant: Banco Central and Banco do Brasil S.A e. amounts, goods or rights involved f. main facts Restated value of the case: R$ 3,306,244, Popular Action - Declaration of nulity of operations performed by Bacen, through Banco do Brasil. Sentence published on March 15, Appeal filed by the parties. Lawsuits forwarded to the Court. Judgment is being awaited. g. chance of loss The chance of loss by Banco do Brasil is remote. h. analysis of impact in case of loss of process i. reserved amount Class action filed against several Banks that prevent measuring the values and identifying possible holders of the right sought. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. Control: a. court 22nd Federal Court - Archive b. court level Federal Regional Court c. filing date 05/05/1999 d. parties to the process Plaintiff: Luiz Carlos Tanaka Defendant: Banco Central and Banco do Brasil S.A e. amounts, goods or rights involved f. main facts Amount of the lawsuit: R$ 5,431,000, as of 05/05/1999. Value of the case updated as of 12/31/2012: R$ 17,196,271, Intended value: R$ 5,431,000, as of 05/05/1999. Intended value updated as of 12/31/2012: R$ 17,196,271, Popular Action - Statement of nullity of operations of sale of future foreign exchange contracts (future dollar contracts). Sentence published on March 15, Appeal filed by the parties. Lawsuits forwarded to the Court. Judgment is being awaited. g. chance of loss The chance of loss by Banco do Brasil is remote. h. analysis of impact in case of loss of process i. reserved amount Class action filed against several Banks that prevent measuring the values and identifying possible holders of the right sought. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. Control: a. court 21st Federal Court - Archive b. court level Federal Regional Court c. filing date 05/27/2004 d. parties to the process Plaintiff: Banco do Brasil S.A Defendant: INSS e. amounts, goods or rights Amount of the lawsuit: R$ 1, as of 05/27/

52 Section 4 Risk Factors Control: involved Value of the case updated as of 12/31/2012: R$ 1, Intended value: R$ 493,768, as of 05/27/2004 Intended value updated as of 12/31/2012: R$ 806,832, Writ of Mandamus against the social security national institute aiming at releasing the obligation of payment of employer social security national contribution on the bonuses (nonsalary funds) paid to the employees. Judgment stage of Appeal Requesting Clarification of the f. main facts Decision that judged the appeal filed by the Bank, as the sentence denied requested safety. g. chance of loss The chance of loss by Banco do Brasil is possible. h. analysis of impact in case of loss of process The whole collection of the intended amount. i. reserved amount There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification possible does not demand a reserve coverage. Control: a. court 10th Court of Diffuse Homogeneous, Collective and Individual Rights - Archive b. court level Court of Justice of Mato Grosso do Sul c. filing date 05/29/2007 d. parties to the process Plaintiff: Brazilian Rights Defense and Justice Promotion Agency Defendant: Banco do Brasil S.A. - Company into which BCN merged - Nossa Caixa e. amounts, goods or rights involved f. main facts g. chance of loss h. analysis of impact in case of loss of process i. reserved amount Amount of the lawsuit: R$ 4,000,000, as of 05/29/2007. Value of the case updated as of 12/31/2012: R$ 5,758,409, Intended value: R$ 4,000,000, as of 05/29/2007. Intended value updated as of 12/31/2012: R$ 5,758,409, This is a Public Civil Action aiming at the recomposition of the balance in savings account related to the periods in which Bresser and Verão Economic Plans were issued. The action was filed against ten financial institutions. There has been no judgment yet. The chance of loss by Banco do Brasil is remote, considering the decision of the Second Section of the Superior Court of Justice (STJ), in the judgment of Special Appeal No /SC, which set the understanding that the public civil actions, related to inflation losses for the economic plants have a five-year statute of limitations. The Action was filed outside the five-year period. Class action filed against several Financial Institutions that prevents measuring the values and identifying possible holders of the right sought. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. Control: a. court Court of Justice of Rio de Janeiro - Archive: b. court level 1st Corporate Court c. filing date 05/31/2007 Plaintiff: ABRAVIDA - Associação Brasileira dos Voluntários contra Ilegalidades, Danos e d. parties to the process Abusos Defendant: Banco do Brasil S.A. e. amounts, goods or rights involved f. main facts Amount of the lawsuit: R$ 20,519,800,332.00, as of 05/31/2007. Value of the case updated as of 12/31/2012: R$ 27,445,411, Intended value: R$ 20,519,800,332.00, as of 05/31/2007. Intended value updated as of 12/31/2012: R$ 27,445,411, Inflationary losses related to Bresser and Verão Economic Plan. The Superior Court of Justice recognized the five-year statute of limitations for actions of that nature - an opinion that has been sustained by BB. The process is suspended by operation of Res. 81 of the TJRJ, issued because of the Clause of general Repercussion of STF. Record forwarded to the general file, in batch 1917, on January 26, g. chance of loss The chance of loss by Banco do Brasil is remote. h. analysis of impact in case of loss of process As this is a Public Civil Action, it is impossible to measure the impacts of a remote loss. i. reserved amount There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. Control: a. court 33rd Civil Court Archive b. court level Court of Justice of Minas Gerais c. filing date 01/04/

53 Banco do Brasil S.A. Reference Form /2013 d. parties to the process e. amounts, goods or rights involved f. main facts Control: Plaintiff: Banco do Nordeste do Brasil S.A. Defendant: Mendes Junior Engenharia S.A, Banco do Brasil S.A and others Amount of the lawsuit: R$ 694,858, as of 01/04/2008 Value of the case updated as of 12/31/2012: R$ 929,378, Intended value: R$ 694,858, as of 01/04/2008 Intended value updated as of 12/31/2012: R$ 929,378, This is an action for recovery of credits filed by Banco do Nordeste do Brasil S.A. against company Mendes Júnior Engenharia S.A. et al. BB joined to the action. The intention of the defendants is that, in case of conviction in the main action, BB is declared to be liable, because of the effects of the Credit Assignment Agreement formalized between Construtora Mendes Júnior S/A, together with its affiliated company Mendes Júnior International Company, and Banco do Brasil S/A, in July/1989. Current stage: discussion on acceptance or not of impleader to the Union (Special Appeal) g. chance of loss The chance of loss by Banco do Brasil is remote. h. analysis of impact in case of loss of process i. reserved amount The financial impact would be, in case of conviction of the defendants in the main action, and if BB is declared to be liable, it being compelled to refund the defendants for the amounts to be paid. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. Control: a. court Federal Regional Court DF - Archive: b. court level 17th Court TRF-DF c. filing date 07/09/2009 Plaintiff: Banco do Brasil S.A., Banco Popular do Brasil, BB-Banco de Investimento, BB-DTVM d. parties to the process and BB-Corretora Defendant: Brazilian revenue service Delegate - DF e. amounts, goods or rights involved f. main facts Amount of the lawsuit: R$1,000.00, as of 07/09/2009. Intended value: 1,244,638, as of 12/31/2010 Intended value updated as of 12/31/2012: R$ 1,400,726, Writ of mandamus, filed aiming at the assessment of the contributions to PIS/PASEP and COFINS based on the turnover corresponding to the gross income resulting from the provision of services, pursuant to article 2 of LC 70/91, not making the payments as set forth in Law 9,718/98. The process was extinguished, without judgment on the merits, as regards BB DTVM and BB - Investment Bank, considering the non-standing of the jointly acting authority, since the tax domicile of the subsidiaries is Rio de Janeiro, and the same measure may be filed in their name, before the Delegate of the Brazilian revenue service of Rio de Janeiro. Lawsuit forwarded to the TRF1, for necessary review. g. chance of loss The chance of loss by Banco do Brasil is possible. h. analysis of impact in case of loss of process Maintenance of payment as provided in Law no. 9,718/98. Recognized Legal Obligation. i. reserved amount This is a Legal Obligation according to the classification based on CVM Resolution 594, of 09/15/2009, Item 10. Control: a. court 5th Civil Court of Campo Grande Archive Main lawsuit is currently with the STJ (Higher Court of Justice). There are provisional b. court level executions in progress with the 5th Civil Court of Campo Grande, Mato Grosso do Sul State (MS). c. filing date 07/29/2005 Plaintiffs: Giordani Costa Hoteis e Turismo Ltda, Luiz Carlos Giordani Costa and Maria Regina d. parties to the process Rampazzo Giordani Costa Defendant: Banco do Brasil S.A. e. amounts, goods or rights involved f. main facts Amount of the lawsuit: 1, as of 07/29/2005 Intended value: 3,341,298, as of 05/03/2007 Intended value updated as of 12/31/2012: R$ 4,812,050, It refers to declaratory action for the review of contract clauses, plus claim for indemnity for pain and suffering, property damage and loss of profit, and refund claim. The lawsuit is suspended due to the judgment of the Bank s bill of review with STJ, which was converted into a Special Appeal, not judged yet, (this Special Appeal, if accepted by STJ, will return the lawsuit to TJMS so that requests for reconsideration are analyzed). The authors have already made tens of credit granting to third parties, of amounts they understand to be entitled in the lawsuit. Through an Injunction obtained from STJ, survey of amounts in provisional execution office is prohibited. 53

54 Section 4 Risk Factors Control: g. chance of loss The chance of loss by Banco do Brasil is possible. h. analysis of impact in case of loss of process Payment of indemnity, in accordance with parameters to be established by STJ. i. reserved amount There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification possible does not demand a reserve coverage. Control: a. court 18th Civil Court of the Capital Archive: b. court level Court of Justice of Pernambuco c. filing date 05/25/1995 d. parties to the process Bankrupt: Cia Industrial do Nordeste Brasileiro (Massa Falida) Usina Catende Authorizing: Banco do Brasil S.A. e. amounts, goods or rights involved f. main facts Amount of the lawsuit: R$ 478,690, (05/25/1995) Value of the case updated as of 12/31/2012: R$ 1,962,251, Intended value: R$ 478,690, (05/25/1995) Intended value updated as of 12/31/2012: R$ 1,962,251, It refers to Banco do Brasil credit authorization in the bankruptcy lawsuit of Usina Catende. There is information of the existence of a Union debt with the Plant, in a lawsuit finally judged, whose adjusted amount may reach R$1 billion. Public auction of the Industrial Plant was authorized, however, there were no bidders in the 1st auction, with minimum value of R$100,785,893.00, neither in the 2nd auction, carried out on July 31, 2012, with minimum value of R$65,523,000.00, after exclusion of goodwill. In the 3rd auction held on August 29, 2012, there were no bidders either. In the 4th auction held on October 30, 2012, there was a bid in the amount of R$40 million, but it was not honored by the bidder. The 5th auction is scheduled for May 7, 2013, with minimum value of R$65.5 million. g. chance of loss The chance of loss by Banco do Brasil is remote. h. analysis of impact in case of loss of process i. reserved amount In case of loss, the impact will be the non-receipt of the defaulted credit, besides the costs of losing party. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. Control: a. court Court of Santa Bárbara do Sul (Archive 121/ ) b. court level Lower Court Court of Santa Bárbara do Sul (Rio Grande do Sul State) c. filing date 09/22/2011 d. parties to the process Plaintiff: Ernesto Miozzo Succession Defendant: Banco do Brasil S.A. e. amounts, goods or rights involved f. main facts Value of the case R$ 7,852,432,708.91, as of 07/20/2011 Value of the case updated as of 12/31/2012: R$ 8,577,953, Intended value R$ 7,852,432,708.91, as of 07/20/2011 Intended value updated as of 12/31/2012: R$ 8,577,953, It refers to a common lawsuit filed by Ernesto Miozzo successors that discusses the lack of notification to the widow of Ernesto Miozzo in the records of the collection lawsuit filed by BB against A. Ferrari e Cia Ltda, Ernesto Miozzo and Other (Archive 121/ of the same court), whose pledged assets were the property of the deceased. Nullity of clauses on financial charges is also discussed and lawsuit value is based on financial statements presented by the Bank in the collection lawsuit. Lower court extinguished the lawsuit without judging the merit and recognized the existence of judicial estoppel. The authors appealed against the sentence. After the Bank s response, the lawsuit will be forwarded to the Court for judgment. g. chance of loss The chance of loss by Banco do Brasil is remote. h. analysis of impact in case of loss of process i. reserved amount Value assigned to the claim derives from the ACCOUNT VALUE presented by the BANK in the enforcement proceedings. That is the reason for the high amount. Therefore, it is necessary to clarify that the lawsuit amount does not represent any Bank s debt, and may remotely imply debt value reduction on collection. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. Control: a. court 8th Federal Court/Federal District b. court level Higher Court of Justice c. filing date 06/21/

55 Banco do Brasil S.A. Reference Form /2013 d. parties to the process e. amounts, goods or rights involved f. main facts Control: Plaintiff: Arlindo Chinaglia Júnior Defendants: Banco do Brasil, União, Paulo César Ximenes, Isaías Batista de Araújo and others Amount of the lawsuit: R$ 1,362,918, as of 06/17/1996 Intended value: R$ 1,362,918, as of 06/17/1996 Intended value updated: R$ 5,624,872,681.25, as of 12/31/2012 Object of the lawsuit: Annulment of agreement entered into by Banco do Brasil and INSS in bank tariff collection lawsuit. Lawsuit was extinct without lower Court judging the merit. However, the Federal Public Prosecution Office appealed and obtained the reform of the sentence in the TRF1 to permit continuity of the citizen lawsuit. Defendants filed a Special Appeal against this decision (no /DF), pending STJ appreciation. g. chance of loss The chance of loss by Banco do Brasil is remote. h. analysis of impact in case of loss of process i. reserved amount In the hypothesis STJ judges Special Appeal groundless, and the appeal is finally judged, lawsuit will progress and its merit will be appreciated by the lower Court. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification remote does not demand a reserve coverage. Control: a. court 1st Civil Court - Archive b. court level Court of Justice of the State of Bahia c. filing date 02/14/1995 d. parties to the process e. amounts, goods or rights involved f. main facts Plaintiff: Banco do Brasil S.A. Defendant: Barreto de Araújo Produtos de Cacau S/A Defendant: Barreto de Araújo Lv. Ind. E Com. S/A Defendant: IMBASA Ind. De Mamonas da Bahia S/A Defendant: Orlando Moscozo Barreto de Araújo Defendant: Tadeusz Pfeiffer Amount of the lawsuit: R$ 974,394, as of 02/14/1995 Intended value: R$ 910,865, as of 12/01/2005. Intended value updated as of 12/31/2012: R$ 1,377,974, It refers to a collection lawsuit for a defined amount filed by Banco do Brasil S.A. against Barreto de Araújo Produtos de Cacau S/A and others, aiming that defendants pay the full debt, which totaled R$974,394, at that time plus financial charges, inflation adjustment, and interest stipulated in agreements, beginning as of the last book entry up to effective and full payment, subject to attachment of assets pledged in guarantee and/or others that are sufficient to cover collection. After collection was stayed, it was judged partially valid and the Bank s credit was a little reduced, convicting the company Barreto de Araújo to pay attorney s fees. Bahia State Court of Justice (TJBA), when judging appeals filed by the parties, partially accepted both appeals, determining on debt collection the calculation of interest on arrears limited to 1% p.a., plus interest of 12% p.a., permitted capitalization, inflation adjustment as agreed-upon in the instrument (IGPM index), non-payment of late payment surcharge and AMBID/SETIP, and reduced fine from 10% to 2% and, finally, decided that attorney s fees would be paid on a reciprocal basis. The same TJBA decides for non-capitalization, expressly acknowledges collection excess and determines calculation of settlement quantum, reflecting such difference in attorney s fees, which are limited to 5% of suit value, but once it is admitted that attorney s fees would be paid on a reciprocal basis, the amount of which is dependent on said settlement; at this time, it will be verified which party owes more, obtaining, after offset, owed fees balance. The Bank filed a Special Appeal against this decision, aiming at canceling interest rate limit of 12% p.a., as well as the pure potestative character of the clause that establishes interest capitalization and, accordingly, cancel reciprocal payment of attorney s fees, turning it the defendants responsibility. g. chance of loss The chance of loss by Banco do Brasil is possible. h. analysis of impact in case of loss of process i. reserved amount In case of loss, the impact will be the non-receipt of the defaulted credit, besides the costs of losing party. There is no amount reserved for the process. According to CVM resolution 594, of 09/15/2009, the classification possible does not demand a reserve coverage. Control: a. court Special Body of the Court of Justice of the State of São Paulo - Archive: b. court level Court of Justice of the State of São Paulo c. filing date 02/01/2010 Jointly acting authority: Mayor of the Municipality of São Paulo d. parties to the process Requesting Party: Sindicato dos Trabalhadores na Administração Pública e Autarquias no Município de São Paulo - SINDSEP-SP e. amounts, goods or Value of the exclusivity agreement executed between Banco do Brasil and the Municipality of São 55

56 Section 4 Risk Factors Control: rights involved Paulo in the amount of R$726,000, The writ of mandamus has as purpose the suspension of the effects of Decree No. 51,198/10 that provides on the consignations in payroll of the municipal civil servants. Preliminary injunction f. main facts granted by the Rapporteur was suspended by the President of the Superior Court of Justice. Waiting the judgment of the request for writ of mandamus. g. chance of loss The chance of loss by Banco do Brasil is possible. h. analysis of impact in case of loss of process i. reserved amount Loss of the exclusivity in the granting of consigned loan to employees of the Municipality of São Paulo. There is no reserved amount. According to CVM resolution 594, of 9/15/2009, the classification possible does not demand a reserve coverage. Control: a. court Court of Justice of the State of São Paulo - Archive: b. court level 10th Court of Public Treasury c. filing date 06/22/2007 d. parties to the process e. amounts, goods or rights involved f. main facts Plaintiff: Walter Negrisolo Defendant: Banco do Brasil S.A. - Company into which BCN merged - Banco Nossa Caixa Case value: R$2,080,000,000.00, as of 06/22/2007 Value of the case updated as of 12/31/2012: R$ 2,986,611, Intended value: R$2,080,000,000,00, as of 06/22/2007. Intended value updated as of 12/31/2012: R$ 2,986,611, Popular action - declaration of invalidity of a Contract between the State of São Paulo and BNC - exclusivity in the provision of banking services related to payroll. The judge denied the granting of the preliminary injunction sought by the plaintiff of the popular action. The process is waiting for the realization of expert evidence. g. chance of loss The chance of loss by Banco do Brasil is possible. h. analysis of impact in case of loss of process Loss of exclusivity of payroll of the state civil servants. i. reserved amount There is no reserved amount. According to CVM resolution 594, of 9/15/2009, the classification possible does not demand a reserve coverage Lawsuits whose adverse parties are managers, controlling shareholders or investors Non-confidential judicial, administrative or arbitration processes to which Banco do Brasil or its controlled companies are party, the opposite parties of which are officers or former officers, parent or former parent companies, or investors in Banco do Brasil or its controlled companies. Banco do Brail and its subsidiaries are not parties to lawsuits, administrative proceedings or arbitration proceedings whose counter parties are officers or former officers, controlling shareholders or former controlling shareholders, or investors considered as relevant, considering the materiality of R$711 million. 4.5 Relevant secret proceedings, not disclosed in items 4.3 and 4.4. As regards relevant confidential proceedings to which the issuer or its subsidiaries are parties and that have not been disclosed in items 4.3 and 4.4 above, analyze the impact in case of loss and notify involved amounts Banco do Brail and its controlled companies are not a party to confidential processes that are considered to be relevant. 56

57 Banco do Brasil S.A. Reference Form / Recurring or related lawsuits, administrative or arbitration proceedings Describe repetitive or connected judicial, administrative processes or arbitrations, based on similar legal facts and causes, non-confidential, and which are material in conjunction, to which Banco do Brasil or its subsidiaries are parties, segregating between labor, tax, civil and other, and indicating: a) values involved; accrued value, if any; c) practices of Banco do Brasil or of its subsidiary that had generated such contingency a. amounts involved R$ 12/31/2012¹ Amounts involved for Legal Demands 17,731,654, Amounts involved for Civil Demands 7,642,510, Economic Plans 2,514,333, Other Civil Demands 5,128,177, Amounts involved for Tax Demands 7,052,934, Municipal notices of infringement related to ISSQN 1,106,908, INSS Tax Infringement Notices - Salary Bonuses 15,287, Other Tax Demands 5,930,739, Amounts involved for Labor Demands 3,036,210, Collective Labor Demands 650,901, Other Labor Demands 2,385,309, Correspond to the sum of the values of the processes with possibility of loss classified as possible and probable. b. reserved amount, if any. R$ 12/31/2012 Reserved for Legal Demands 9,173,787, Provision for Civil Demands 4,208,172, Economic Plans 1,896,303, Other Civil Demands 2,311,869, Provisions for Tax Demands 2,020,125, Municipal notices of infringement related to ISSQN ¹ 74,001, Other Tax Demands 1,946,124, Provision for labor claims 2,945,490, Collective Labor Demands 646,711, Other Labor Demands 2,298,779, Infringement notices issued by the Brazilian Social Security Institute, aiming at the payment of contributions applicable on salary bonuses paid in the collective agreements for the period from 1995 to 2006, in the amount of R$ 1,025,848, c. practices of Banco do Brasil or of its controlled company that generated such contingency - Civil Lawsuits The most significant civil lawsuits classified as probable losses are those aimed at the collection of the difference between the actual rates of inflation suffered and the rate used for inflation correction of financial investments during the period of the various economic Plans (Collor Plan, Bresser Plan and Summer Plan). Bresser Economic Plan Banco do Brasil is a defendant in actions in which the plaintiff seeks for the payment of differences related to Bresser Economic Plan. The most relevant actions demand the payment of the difference between the current inflation rate and the inflation rate used to adjust the financial investments during the period of Bresser Economic Plan. The number of actions related to Bresser Economic Plan as of December 31, 2010, totaled 44,685 actions. Plano Verão (Summer Plan) The Bank is a defendant in actions in which the plaintiff seeks for the payment of differences related to Plano Verão (Summer Plan). The most relevant actions demand the payment of the difference between the current inflation rate and the inflation rate used to adjust the financial investments during the period 57

58 Section 4 Risk Factors of Plano Verão (Summer Plan). The number of actions related to Economic Plan as of December 31, 2010, totaled 97,806 actions. Collor Economic Plan The Bank is a defendant in actions in which the plaintiff claims the payment of differences related to Collor Economic Plan. The most relevant actions demand the payment of the difference between the current inflation rate and the inflation rate used to adjust the financial investments during the period of Collor Economic Plan. The number of actions related to Collor Economic Plan as of December 31, 2010, totaled 120,418 actions. The amounts reserved for the actions related to Bresser, Verão and Collor economic plans, classified as "Probable Loss!" by the legal counselors of Banco do Brasil, are totaled in subitem 4.6.b of this Reference Form. The classification Other Civil Demands comprises mostly actions with request for pain and suffering, damages and lost profits, undue payment, losing party costs, annulment/nullity of agreement, annulment/nullity of credit security, annulment and substitution of security, collection, exclusion of record in blacklist, nullity of debt, interests - application of art. 192 of the Federal Constitution, commission of permanence - illegality and interests - illegality of capitalization. Tax lawsuits The Bank is subject to challenges by the tax authorities in relation to taxes, which can give rise to notice assessments with the subject matter of jurisdiction or the sum of taxable income or deductible expense. The actions resulting from the infringement notices refer, mainly, to Taxes on Services of Any Nature (ISSQN), Provisional Tax on Financial Operations (CPMF), Social Contribution on Net Profit (CSLL), Corporate Income Tax (IRPJ) and Tax on Financial Operations (IOF), and, as guarantee for some of them, there are pledges in cash or in real estate. Labor Lawsuits The Bank is a party to labor lawsuits mainly filed by former employees or trade unions of the banking industry. Allowance for probable losses represent various claimed requests, such as: compensation, overtime, distortion of the working day, Additional Function and Representation, and others Describe other relevant contingencies not covered by prior items Banco do Brasil and its subsidiaries do not have other contingencies considered material, subject to the materiality of R$ 711 million besides those informed in the prior items Rules of the foreign issuer s home country As to the rules of the foreign issuer s country of origin and rules of the country where the marketable securities of the foreign issuer are held in custody, if different from the country of origin, identify: a) restrictions imposed to the exercise of political and economic rights; b) restrictions to the circulation and transfer of marketable securities; c) hypotheses of cancel of registry; and d) other issues of interest to investors Not applicable. 58

59 Banco do Brasil S.A. - Reference Form/ MARKET RISKS 5.1. Main market risks to which Banco do Brasil is exposed Describe on a quantitative and qualitative basis the main market risks to which the issuer is exposed, including foreign exchange and interest rate risks. The market risks to which Banco do Brasil is subject are the following: I. interest rate; II. III. IV. exchange rates; share price; and (iv) prices of commodities. Interest rate exposure risk (item I ) includes risks of fluctuations in fixed interest rates, foreign currency coupons, price index coupons and other interest rate coupons. Example: Prefixed, dollar coupon, IPCA (Amplified Consumer Price Index) coupon, TR (Referential Rate) coupon; the exchange rate exposure risk (item II ) is the risk of changes in the exchange rates practiced in the market. Example: Reais x Dollar, Reais x Euro, Reais x Yen; risk of share price exposure (item III ) is the risk of changes in stock prices practiced in the market. Example: PETR4 (Petrobras-PN), VALE5 (Vale-PNA) risk of commodities price exposure (item IV ) is the risk of changes in practiced in the market. Example: Fattened Cattle, Soy, Corn. Note that the exposures to share prices and price of goods are not currently relevant to the Bank. In order to analyze market risks, the Bank segregates its positions in the Negotiation and Nonnegotiation Portfolio in conformity with CMN Resolution 3464/07 and Bacen Circular 3,354/07, as follows: I. Trading book: consisting in all the transactions in its own position undertaken as business deals or intended as a hedge for its trading portfolio, for which there is an intention of trading prior to their contractual expiry, subject to normal market conditions and that do not have a non-trading clause. II. Banking Book: consisting in transactions with proprietary positions not classified in the Trading Book and the key feature of which is the intention of keeping these transactions until expiry. After these considerations, Banco do Brasil exposures are presented in the table below, segregated by the most relevant market risk factors (interest rates and foreign exchange rates), which are monitored by Banco do Brasil Top Management. Mismatching Map by Indexing Units and Interest rate Coupons R$ billion Assets Liabilities Net Mismatching Risk Factor Prefixed (193.7) (266.2) (312.5) CDI/TMS (159.4) (235.6) (256.5) 26.2 (4.4) (55.2) TBF/TR (157.5) (180.6) (207.1) (96.5) (109.1) (128.2) Price Index (6.6) (0.3) (2.8) TJLP (26.4) (31.1) (30.5) (0.2) (0.1) (0.1) Dollar/Other currencies (107.2) (135.1) (204.9) (1.5) (0.7) (2.9) (1) Includes External Network Among the principal market risks to which the Bank is exposed, we point out the increase in the asset and liability exposure of Prefixed indexing units, CDI/TMS and TBF/TR. The increase in the net asset position risk factor prefixed is mainly explained by the growth of the loan portfolio, in credit operations contracted with this type of rates. To finance asset growth, increased borrowings, which are referenced predominantly in CDI / TMS, explaining the growth of short position post-fixed. As to exchange risk, the Bank adopted, in compliance with Bacen Circular Letter 3,389, of June 25, 2008, the strategy of assuming a short position in foreign currency, through inflow of foreign funding, due to the tax effects arising from the exchange variation on its foreign investments. 59

60 Section 5 - Market Risks The Bank adopts the strategy of tax hedge, whouse purpose 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 Market risk management policy Describe market risks management policy adopted by the issuer, its objective, strategies and instruments, indicating: Banco do Brasil established policies and strategies for market risk management and for the management of the derivative financial instruments, which determine the Company s guidelines of performance in the risk management process. Within the sphere of the market risk management policies and strategies of Banco do Brasil, the general principle adopted is that the market risk management model aims to identify, assess, monitor and control exposures to the market risk of its own positions. In the Banco do Brasil market risk management process, own positions are segregated in a Negotiation and Non-negotiation Portfolio for which global, specific and operating risks are established by Strategic Risk Committees. It is added that express mechanisms are used in a regulatory system in the market risk management process. These mechanisms detail the operating procedures necessary for the implementation of organizational decisions concerning the Company s business and activities and the fulfillment of legal requirements besides those of regulatory and supervisory agencies. a. risks for which protection is sought Among the risks for which the Banco do Brasil seeks protection, there is a specific policy to manage the Bank's exposure to foreign exchange risk in order to minimize its effects on the Economic-Financial Consolidated results. b. equity protection strategy (hedge): Banco do Brasil s market risk management policy is aimed at the mapping, control and mitigation of the risks and mismatching cases determined. In this context, the Risk Directorate is in charge of the mapping and determination of market risks and of mismatching of terms, currency and indices identified between the Banco do Brasil s asset and liability positions. Based on this survey, the Risk Directorate informs the Finance Directorate of the established corporate limits and calculated values. The Finance Directorate, through Asset and Liability Management, is in charge of the management of mismatching cases determined and, for this purpose, analyzes the information received together with the current economic situation and the use of scenarios, and suggests strategic directions and any necessary hedges. c. instruments used for equity protection (hedge) Banco do Brasil carries out transactions with derivative financial instruments to manage own positions and comply with its customers necessities. Transactions with derivative financial instruments used for the purpose of fully or partially offsetting risks arising from exposures to variations in market value of financial assets and liabilities, considered as (hedge) instruments, are segregated from those not intended for hedge, both with their own limits and objectives. Transactions with hedge derivative financial instruments are classified according to their nature: Market Risk Hedge - the increases or decreases in the value of the derivative financial instruments, as well as of the hedged item, are recorded in income accounts in the statement of income for the period; Cash Flow Hedge the effective amount of the increases or decreases in value of the financial instruments classified in this category is recorded, net of tax effects, in a separate Stockholders' Equity account. Derivative financial instruments used by the Bank are compatible with defined objectives, in compliance with the risk and return ratio and considering the economic scenario, the main of which are: (i) Futures contracts for interest and foreign exchange rates traded in BM&FBOVESPA; 60

61 Banco do Brasil S.A. - Reference Form/2013 (ii) (iii) (iv) Futures contracts for foreign exchange traded in Chicago Mercantile Exchange Group - CME; Forward Currency Contracts - Non-Deliverable Forward - NDF; and Interest rate and foreign exchange rate swap contracts. d. parameters used to manage those risks Banco do Brasil uses statistical and simulation methodologies to measure the market risks of its exposures. Among the metrics resulting from the use of these methodologies, it is worth highlighting: I. Value at risk (VaR), II. III. Sensitivity; and Stress. Value at risk (VaR) The VaR is a metric used to estimate the potential maximum loss, under routine market conditions, presented daily in monetary values, considering a particular confidence interval and time horizon. To measure VaR, Banco do Brasil adopts a Background Simulation system and the following parameters: I. 99% of one-tailed confidence interval; II. III. 252 retrospective scenarios of daily shock factors; and 10-day holding period. The risk factors employed to measure VaR for market exposure risks are rated in the following classes: I. interest rates; II. III. IV. exchange rates; share price; and prices of commodities. Performance of the VAR metrics is assessed every month by applying a backtesting procedure. This assessment is separated from the VaR metric development and use procedures. The objective of backtesting, executed monthly, is to assess the accuracy of the market risk model (VaR). This assessment is separated from the VaR metric development and use procedures. The methodology used by the Bank consists of verifying whether the number of extrapolations (quantity of times the negative returns exceeded the losses estimated by VaR) is compatible with that predicted by the model (from the statistical viewpoint), and whether they occurred independently over time. Complementarily, aiming to offer a comparison between models, an evaluation is performed to determine the magnitude of extreme values, in addition to the arrangement of the VaR models. Sensitivity By using sensitivity metrics, simulations are made of the effects in the exposure values arising from changes in the market risk factor levels. The sensitivity analysis uses as a method the application of parallel shocks on the market curves of the most relevant risk factors. Such a method is aimed at stimulating the effects on the Bank s income when faced with potential scenarios, which consider possible fluctuations in the interest rates practiced in the market. The application of parallel shocks on the market curves assumes that uptrends or downtrends in the interest rates occur in an identical manner, both for short terms and for longer terms. Since market movements do not always exhibit such behavior, this method can present minor deviations in the simulated values. Stress In conclusion, BB uses the Stress metrics arising from simulations of its exposure subject to market risks under extreme conditions, such as financial crises and economic upheavals. Stress Tests are intended to size plausible impacts or events, but unlikely to occur, in the regulatory and economic capital 61

62 Section 5 - Market Risks requirements. Stress Tests cover exposure simulations, retrospective and based on background series of shocks in market risk factors, as well as of a forward-looking nature, based on projections of economic and financial scenarios. The stress backtesting method estimates the percentage of variation of the market value of exposures, through the application of shocks compatible with specific scenarios capable of reproducing historical periods of market stress or of greater losses of the institution, considering the following parameters: I. Metrics: minimum (worst loss) and maximum (greatest gain) of the historical series of daily returns of the trading portfolio; II. III. IV. Extension of the historical series: from 1/4/2000 to the base date; Holding period: one month (21 business days); and Test periodicity: weekly. The control, monitoring and daily supervision of the stress limits, for the trading portfolio of Banco do Brasil and for its groups and books, are carried out based on the metrics of the stress backtest. The stress backtesting method estimates the percentage of variation of the market value of exposures subject to the risk factors underlying the capital requirement for the hedging of market risks, through the application of shocks on the market risk factors, estimated from stress scenarios generated by the Strategy and Organization Directorate (Direo) and by the Finance Directorate (Difin), considering the following parameters: I. Metrics: greatest losses and greatest gains estimated for the returns of the trading portfolio in the period; II. III. IV. Extension of the series: prospecting for 21 business days; Holding period: one month (21 business days); and Test periodicity: weekly. The prospective stress tests aim to prospectively simulate adversities based on characteristics of the institution s portfolio and of the macroeconomic environment, under severe and plausible conditions. e. whether the issuer operates financial instruments for other purposes than equity (hedge) Whether the issuer operates financial instruments for other purposes than equity (hedge), and which are these objectives: Banco do Brasil also uses derivative financial instruments in intentional position-taking strategies with the objective of seizing market opportunities, considering the market risk limits established previously by the Global Risk Committee. f. organization structure for risk management control In conformity with Resolution 3464, issued by the National Monetary Council and published by the Brazilian Central Bank on June 26, 2007, the management process structure of market risks intend to identify, evaluate, monitor and control risks associated to each institution individually and to the financial conglomerate, as well as identify and monitor risks associated to other companies that are members of the financial-economic consolidated group. Banco o Brasi has a structure to manage market risks, the Risk Management Office (Diris), that is compatible with the characteristics of the Bank's transactions and segregated from business units and the Internal Audit unit. One of the main responsibilities of Diris in market and liquidity risk management is: the proposition of policies, guidelines, methodologies and limits of market risk, as well as the identification, assessment, monitoring and control of the market risks of the Financial Conglomerate. In the market risk management process, we segregated decision, performance and control functions in the organization structure. Also, in the risk management control organization structure, we emphasize the actions of the Market Risk and Liquidity Subcommittee and the Global Risk Committee, established to decentralize the Bank's decision process, guaranteeing quality and agility to decisions with own internal regulations. The Market Risk and Liquidity Subcommittee and the Global Risk Committee hold ordinary monthly meetings and their main responsibilities are as follows: 62

63 Banco do Brasil S.A. - Reference Form/2013 Market Risk and Liquidity Subcommittee - It is the responsibility of the Market Risk and Liquidity Subcommittee, in the ambit of Banco do Brasil, including facilities abroad and companies composing the financial conglomerate, except those on which the Bank does not hold shareholding control, to decide on: I. Decide on: - models for market risk and liquidity management, complying with the strategies approved by the Global Risk Committee; and - specific limits of market risk exposure. II. Assess on: - backtesting and internal validation results and define, when necessary, corrective measures in market risk management models. III. Analyze and propose to the Global Risk Committee: - market risk exposure global limits; and - allocation of capital to cover market risk. Global Risk Committee - It is the responsibility of the Global Risk Committee in the ambit of Banco do Brasil, including facilities abroad and companies composing the financial conglomerate, except those in which the Bank does not hold the shareholding control, to decide on: I. the strategy for market risk, liquidity, credit and operating management; II. III. IV. risk exposure global limits; allocation of capital due to risks; and risk factors that will comprise documents and reports to be forwarded to regulatory agencies and other institutions. g. adequacy of operating structure and internal controls Adequacy of operating structure and internal controls to verify the effectiveness of the policy adopted: Banco do Brasil control activities, related to the market risk management are structured in levels, as follows: I. First level: It is the primary responsibility of the Risk Management Office (Diris) to ensure that its functions are conducted in accordance with applicable law and regulations and internal policies and procedures; II. III. Second level: it is the responsibility of the Internal Control Office (Dicoi) to separately verify if processes, products and services of the areas - Diris in this case - are in conformity with applicable laws, standards and regulations; Third level: it is the responsibility of the Internal Audit (Audit) to perform reviews focusing on risks, verify the adequacy of internal controls by evaluating its quality, sufficiency and compliance. In this manner, the market risk management activities carried out by Diris (at 1st level), are subject to periodic validation by Dicoi (at 2nd level), according to the requirements of Circular BC no In addition, the Internal Audit carries out the annual evaluation of the whole process (in the 3rd level) subject to external audit and inspections of the Banco Cental do Brasil. Validation steps The validation carried out, in a separate manner, by the Internal Controls Directorate, as per the requirements of Circular BC no. 3,478, evaluates various quantitative and qualitative aspects of the market risk model, with special emphasis on: I. methodologies, assumptions, documentation and theoretical grounds; II. III. IV. inclusion of all significant risks; scope, consistency, integrity and reliability of the entry data; adequacy of the respective controls; 63

64 Section 5 - Market Risks V. adequacy of the technological infrastructure. The validation work is also aimed at periodically assessing the market risk policy management process of Banco do Brasil, certifying the formulation and periodic review by the Risk Management Directorate, its formalization with the Board of Directors, and dissemination in institutional channels. These activities make it possible to analyze the effectiveness of risk management as a corporate control present across all the hierarchical levels of the institution. Validation of the market risk management process is also annually submitted to Internal Audit evaluation, which verifies mainly: I. effectiveness of validation process; integration of internal risk model to daily management activities, including stress tests; II. III. compliance with risk management policies, including limit structures and related policies; integrity of tests of compliance and their effective use in verifying performance and improving the model. Evaluations of corporate controls related to risk management after completing all methodology stages, which properly considered each process characteristics, permitted us to conclude that, in the last evaluation, policies, reports, processes to make available management information, as well as governance structure are adequate for the institution s market risk management. Accordingly, evaluations of internal control effectiveness in the Treasury environment concluded that they mitigate operating risks related to the institution s market risk management, and possible improvements were included in action plans, which will be monitored by Dicoi Changes in the market risks or in the risk management policy Inform if, in comparison with the previous year, there were significant changes in the main market risks to which the issuer is exposed or in the risk management policy adopted. The most material changes were: segregation of Market and Liquidity Risk Specific Policies, review of Policies extension that now define that Subsidiaries, Associates and Interest may define their direction based on guidelines followed by Banco do Brasil, and review of the Policy for the Use of Derivative Financial instruments, emphasizing that the BB may perform derivative transactions to take intentional stands Other relevant information Banco do Brasil maintains no transactions that may be classified as exotic derivatives. Risk Management in Banco do Brasil Banco do Brasil considers risk management and capital management as the key factors of decision making, providing greater stability, better capital allocations and optimizing the risk/return ratio. Accordingly, BB invests in the continuous improvement of the process and risk management practices, in accordance with international market references and and prudential banking rules. Learn more on market risk management in the Investors Relations website ( com Investidores) at: Risk Management Circular Corporate Governance of Risks The risk governance model adopted by Banco do Brasil involves a structure of committee and subcommittees, with the participation of several areas of the Institution, contemplating the following aspects: (a) Segregation of duties: business x risk; (b) Specific structure for risk appraisal/management; (c) Defined management process; (d) Decisions at several hierarchical levels; (e) Clear rules and structure of spheres of authority; (f) Reference to best management practices. All decisions relating to risk management are made in a collegiate manner and in accordance with the guidelines and rules of Banco do Brasil. The risk governance of Banco do Brasil, covering the Multiple Bank and its Wholly-Owned Subsidiaries, is centralized in the Global Risk Committee - GRC, formed by the Steering Committee, with the main competencies: establish the strategy for market risk, liquidity, credit and operating management; to decide on minimum liquidity reserves and on liquidity contingency plan; to approve the allocation of capital in view of the risks. 64

65 Banco do Brasil S.A. - Reference Form/2013 Global Risk Committee meets regularly, once per month, and extraordinarily at the coordinator s summon following the request of any of its members to discuss matters requiring urgent decision, observing quorum for installation and administrative convenience. Aiming to confer agility to the management process, were created Subcommittees of Credit Risk (SCR), of Market and Liquidity Risk (SMLR) and of Operating Risk (SOR), which decide and/or instrumentalize GRC, have decision-making power by delegation. Risk Management Process The risk management process of Banco do Brasil involves a continuous flow of information, observing the following phases: Preparation: fact finding and analysis phase. Steps for handling the risks are analyzed and proposed in this stage for discussion and resolution in the subcommittees, and if necessary, for subsequent discussion and resolution in GRC; Decision: decisions are made in a collegiate fashion at the competent levels and are communicated to the intervening areas; Execution: the intervening areas, implement the decisions made; Tracking/Management: evaluation of the fulfillment of resolutions and their impacts on BB, communicating the status of these actions to the competent forum (subcommittee or CRG). Control over these decisions and reporting to the sub-committees/grc assist in improving the management process. In addition, information on policies liquidity risk, credit risk and operational risk can be found in Section 7.9, Risk Management item. 65

66 Section 6 Issuer History 6. ISSUER HISTORY 6.1. Establishment of the issuer In relation to the establishment of the issuer, we inform that: a. date: 10/12/1808. b. form: Banco do Brasil, a mixed-capital company, is a multiple bank. c. country of establishment: Brazil Duration Undetermined Brief history Established as a private, mixed-capital corporation, Banco do Brasil's controlling shareholder is the Union. Banco do Brasil was the first bank to operate in Brazil and the first company to make a public offering of shares in the Brazilian capital market. With over 200 years of existence, Banco do Brasil actively contributes to the development of Brazil. Its brand reminds qualities such as solidity, trust and credibility. After adopting the configuration of a multiple bank in 2001, Banco do Brasil started to present increasing and consistent results. In the position of a complete bank, with sustainable vision of businesses, Banco do Brasil adds to its competitive and profitable operation in the financial market, the function of an economic and social development agent. In 2006, year in which it completed 100 years listed in the stock exchange, Banco do Brasil joined the New Market, a distinguished segment of BM&FBOVESPA for companies using the best corporate governance practices. Listed in the new Market for more than six years, by adopting good governance practices, the Bank shows that its Management is committed to transparency, rendering of accounts, equity and social-environmental responsibility, supported by the use of monitoring tools that align the behavior of executives to the interest of shareholders and society in general. In April 2007, the Bank communicated the market that it was considering to incorporate BESC. This event marked the beginning of a new expansion period for the Bank. In August 2008, BB began a restructuring process in the insurance, pension and premium bonds area. In the next periods, Banco do Brasil announced several businesses and intentions related to this restructuring, aiming at increasing the participation of this segment in the Bank's results. The details of such transactions are presented in the Section 6.5 as follow. One of the greatest global financial crisis of all times, occurred in 2008, resulted in immediate lack of liquidity. Banco do Brasil benefited from its robust structure in the middle of the crisis as investors sought for a safe harbor to shelter its funds, and presented a growth of 24.6% in total deposits portfolio (Dec 2009 in relation to Dec 2008). Also in 2008, Banco do Brasil competed at equal conditions with its peers, as it was authorized to acquire financial institutions (MP 443/08 enacted into Law 11,908 of March 3, 2009). In 2008, the Bank communicated the merger of BESC, BESCRI and BEP and the acquisition of control on Banco Nossa Caixa. In 2009, still immerse in the uncertainties brought by the global crisis, Banco do Brasil reassumed its leadership in the financial sector in terms of total assets, with a balance of R$709 billion. One factor that collaborated to leadership resumption was the expansion of its credit portfolio, driven both by the organic growth and the acquisitions of Banco Nossa Caixa and 50% of Banco Votorantim's capital. In November 2009, SEC approved the request of the Banco do Brasil to issue Level I ADRs to be traded in the over-the-counter market. The North-American, The Bank of New York Mellon was nominated as the deposit agent of Level I ADRs. Banco do Brasil obtained the approval of the Brazilian Central Bank and CVM regarding the issuance and started the issuance of Level I ADRs on December 2, In December 2010, the first anniversary of the launching of the American Depositary Receipt (ADR) Program of BB was celebrated, the performance of which is outstanding in this segment. In the first 12 66

67 Banco do Brasil S.A. - Reference Form/2013 months of the Program, the landmark of 8.9 million ADR assets was achieved, a record volume for this category. In June 2010, the Bank made a primary and secondary public offering of BB shares for the purpose of: (i) strengthen its capital basis; (ii) implement its organic and inorganic expansion strategy: and (iii) increase the liquidity of shares in the secondary market. At the end of the offering, 30.4% of BB's shares were outstanding shares, exceeding the minimum limit of 25% required by the the regulation of BM&FBovespa New Market. In addition, Banco do Brasil's capital is exclusively formed by common shares, and each share grants to its holder one vote in the Shareholders' Meeting decisions (Bylaws, article 7). In 2010, the Bank started the process of increasing its share in the market of cards by acquiring shareholding interest and establishing strategic partnerships, detailed in Section was also a year marked by the implementation of BB's strategy of strengthening its operations abroad. In this context, it is important to note that FED, ("The Board of Governors of the Federal Reserve System"), after a careful analysis of important factors determined by the US bank legislation, granted the "Financial Holding Company" status to Banco do Brasil, fact that will allow Banco do Brasil to conduct bank activities in the USA under the same conditions of local banks. In addition, FINRA (Financial Industry Regulatory Authority) authorized the operation of BB Securities in underwriting, registered offerings and dealings. In addition, Banco do Brasil, aiming at consolidating and expanding its leadership position in the bank retail market in Brazil, started in 2010 the project BB 2.0 Retail Transformation Program. Created in July 2009, the Program is intended to reformulate management and business models of BB. The main actions of the program implemented are as follows: (i) hiring of approximately 10,000 employees were allocated in the branches' network; (ii) integration of service channels; (iii) implementation of a new business platform and (iv) new branch environment. During 2011, the Program focused on implementing actions intended to make the customers basis profitable, among which the implementation of a new model of relationship with individuals, improvement of services provided, training of sales force in the new business platform, and implementation of consumption trend models for eight banking products that are priorities in retail trade operation. In May 2011, Banco do Brasil won the bid to establish a network for Banco Postal, belonging to Empresa Brasileira de Correios e Telégrafos (Correios), with a financial offer of R$2.8 billion. Since January 1, 2012, Banco do Brasil started operating through the Banco Postal network, installed in 6,192 post offices. By operating in that network, the Bank allowed to expand its customer base with existing customers, increase profitability from existing customers and expend its distribution network to 95% of the Brazilian municipalities, and advance to 2015 the strategy of increasing service points all over the country by In March 2012, Banco do Brasil reached the mark of R$1 trillion in assets, closing the year at R$1.15 trillion, which represented an expansion of 17.2% in relation to December Besides, the Amplified business loan portfolio that considers guarantees provided and private securities in the portfolio, attained R$ 580 billion, growth of 24.9% in December Banco do Brasil s share in the domestic loan portfolio was 20.4% in December In April 2012, Banco do Brasil launched the Bompratodos program, which it is a set of measures covering financial advisory services, reduction of interest rates of the main lines of credit geared towards individual clients and micro and small enterprises and improvement of the relationship with clients. Through this program, Banco do Brasil sought to stimulate the conscious use of credit and to contribute towards the maintenance of low delinquency, allowing the expansion of credit with quality. In August 2012, BB announced the Primary and Secondary Public Distribution Offer of Real Estate Investment Fund Shares - BB Progressivo II FII. 15,919,690 shares were disposed of in a Secondary Offer with par value of R$ The full recognition of the difference between market value of properties transferred to the Fund and their book value in BB s balance sheet produced an impact, net of taxes in the BB s results in the amount of R$ 615 million. In September 2012, the Federal Government granted BB credit in the amount of R$ 8.1 billion, in the form of federal government debt securities, earmarked for the funding of operations of the agricultural and livestock segment referring to the 2012/2013 crop season. In return, BB issued a Hybrid Capital and Perpetual Debt Instrument. Fund raising became eligible to comprise Banco do Brasil s level I and II capital. 67

68 Section 6 Issuer History Moving forward with the corporate restructuring of the Bank s insurance, open-end private pension and capitalization activities, in November 2012, Banco do Brasil started the studies enabling the incorporation of a company named BB Seguridade S.A. Creating BB Seguridade, Banco do Brasil intends to: (i) consolidating under one company only all of Banco do Brasil s activities in the insurance, capitalization, private pension plans and related activities, including any future expansions of such activities in Brazil or overseas, organic or not;(ii) provide economies of scale in such operations; (ii) obtain reductions of costs and expenses in the insurance industry; and (iv) expand the range of activity of BB Corretora de Seguros e Administradora de Bens S.A., which will begin to trade third-party products, in the lines in which Banco do Brasil does not have exclusivity agreements with partner companies, inside and outside the distribution channels of Banco do Brasil. Banco do Brasil intends BB Seguridade to be a publicly-held company that adheres to the best corporate governance practices. On was started secondary public offering of shares issued by BB Seguridade in the New Market, a special segment of BM&FBovespa Registration date at CVM 07/20/ Main corporate events of Banco do Brasil and its subsidiaries or associates a) event Review of the partnership with Principal Financial Group b) main business conditions In April 2010, BB Seguros Participações and PFG do Brasil Ltda., member of the Principal Financial Group ( Principal ), reviewed their strategic partnership on that date in developing and marketing open-ended private pension plans in Brazil. They entered into Shareholders' and Operating Agreements which provide for the conditions in their partnership, including the composition of management, exercising voting rights, preemptive rights, rights for joint sales and restrictions on trading Brasilprev's shares. Principal acquired a 4% shareholding in Brasilprev held by Serviço Brasileiro de Apoio às Micro e Pequenas Empresas - SEBRAE. The partnership provides that Banco do Brasil's current distribution channels will market exclusively open-ended pension plans by Brasilprev until October 2032; and on the other hand, BB Seguros became the owner of a % interest in the equity capital of Brasilprev, as in the following breakdown of shareholders: Common Shares Preferred Shares Total (%) Amount (%) Amount (%) Amount Principal: , , ,634 BB Seguros , ,145,040 74,995 1,717,446 Total ,145, ,145, ,290,080 c) companies involved BB Seguros Participações S.A. PFG do Brasil Ltda. (a company in the Principal Financial Group) Brasilprev Seguros e Previdência S.A. d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding structure Brasilprev's shareholding structure showed the following change: before and after the transaction Shareholder Before Future Total Ordinary shares (%) Ordinary shares (%) Preferred shares (%) BB Seguros ,995 Principal: ,005 SEBRAE f) strategic rationale This partnership is intended to intensify Brasilprev's operations, and hence to obtain a better positioning and dispute market leadership in Brazil's open-ended pension fund market. In addition, it also intends to consolidate an association between BB Seguros, a wholly-owned subsidiary of the Banco do Brasil that owns the country's largest number of points of service, and Principal, the owner of a vast experience in the international market and a leader in private pension plans for small and medium-sized companies in the United States. 68

69 Banco do Brasil S.A. - Reference Form/2013 a) event Acquisition of the equity control of Banco Patagonia b) main business conditions In April 2010, Banco do Brasil and the controlling shareholders of Banco Patagonia entered into an Agreement for Purchase and Sale of Shares (51% of the shares with voting rights in the capital). The price specified for acquiring the 366,825,016 class B common shares was US$ 479,660,391.00, which results in US$ per share. From September 1, 2011 to October 5, 2011, a Public Acquisition Offer was carried out for shares class A and B, held by minority shareholders at the price of US$1.3140, with a deduction of $ weight per share, corresponding to dividends paid for the year ended December As a result of this Offering, acquired 135,174,290 common class B shares at ARS per share (considering the deduction of ARS per share, corresponding to the dividends of 2010 already paid). Banco do Brasil became the holder of 424,101,958 class B common shares, corresponding to 58.96% of the capital stock and voting capital of Banco Patagonia. c) companies involved Banco do Brasil S.A. Banco Patagonia S.A. Former controlling shareholders of Banco Patagonia S.A. (Messrs. Jorge Guillermo Stuart Milne, Ricardo Alberto Stuart Milne, and Emilio Carlos González Moreno). d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding Banco do Brasil has 58.96% of the shares equity capital with voting rights. structure before and after the transaction f) strategic rationale The transaction acquiring the control of Banco Patagonia is intended to: (A) increase partnerships with Brazilian and Argentine companies; (B) diversify the portfolio of Banco Patagonia goods and services in order to enhance its customer assistance; (C) expand Banco Patagonia's credit portfolio, in particular through transactions with Brazilian companies that operate in Argentina and local companies in the wholesale activity; and (D) be present in the corporate sector's value chain in Argentina, by assisting micro and small businesses, their employees (payroll services), suppliers, etc. 69

70 Section 6 Issuer History a) event Acquisition of Banco Nossa Caixa b) main business conditions Share Purchase and Sale Agreement entered into between Banco do Brasil and the Government of the State of São Paulo ("GESP") for acquisition of the equity control of Banco Nossa Caixa, by purchasing 76,262,912 common shares that represent roughly 71.25% of the equity capital of Banco Nossa Caixa on December 19, 2008, at the acquisition price of R$ per share, totaling R$ 5,386,496, payable in 18 monthly and consecutive installments of R$ 299,249, each, updated by the Selic rate from November 20, 2008 until the date of actual payment of the respective installments, the first to mature on March 10, In the case of delays in payment of the installments, the Agreement provided for a 12% p.a. late fine pro rata die, without prejudice to inflation updating by the Selic rate until the date of actual payment. In case of delays above 60 days as of each installment's maturity, GESP may: (i) consider acceleration of the price installments or (ii) terminate the Agreement by Banco do Brasil's return of the shares and payment of a contractual fine equal to 20% of the price, updated by the Selic rate and less the sum of the fine. Minority shareholders were offered the same conditions proposed by GESP, by means of public offering for the acquisition of shares, besides the likelihood of receiving a sight payment. This offering's settlement took place on September 10, 2009, and once it was concluded, Banco do Brasil became the owner of 99.32% of Banco Nossa Caixa's capital. The transaction was authorized under State Law 13,286 dated December 18, 2008 and approved by the Bank's Special Shareholders' Meeting held on December 23, On November 30, 2009 Banco do Brasil's special shareholders' meeting approved: (i) the Protocol and Justification for the Merger of Banco Nossa Caixa into Banco do Brasil; (ii) ratification of the appraisal firms' appointment; (iii) the appraisal reports of the shares issued by Banco Nossa Caixa and Banco do Brasil; (iv) the merger of Banco Nossa Caixa into Banco do Brasil pursuant to the Protocol and Justification for the Merger, and approval by Banco do Brasil's management to perform all the supplementary actions required for the mentioned merger. With this approval, Banco Nossa Caixa was extinguished and succeeded by Banco do Brasil with regard to its rights and obligations, regardless of any other formalities besides those provided for in law; (v) Banco do Brasil's capital increase owing to the takeover of Banco Nossa Caixa, by absorbing the merged company's shareholders' equity into the merging company pursuant to the Protocol and Justification for the Merger, totaling R$ 18,308, and adding up to a total capital of R$ 18,566,919, through the issue of 1,674,027 new common shares; and (vi) the change in article 7 of Banco do Brasil's By-laws, reflecting the capital increase mentioned in item (v) above. On April 1, 2010 Banco Central do Brasil approved the takeover of Banco Nossa Caixa. As of April 9, 2010 Banco Nossa Caixa's shares were converted into Banco do Brasil shares and April 8, 2010 was the last day of trading BNCA3 shares in the stock market. Banco Nossa Caixa's registration was cancelled in the CVM, and the same occurred in the São Paulo Stock Exchange. For the share conversion, the replacement rate used was of 1 common registered share issued by Banco Nossa Caixa for common registered shares issued by Banco do Brasil. There were no dissenting shareholders. Integration of the BNC network was concluded on June 30, The transaction was approved on August 4, 2010 by CADE - Conselho Administrativo de Defesa Econômica. c) companies involved Banco do Brasil S.A. Banco Nossa Caixa S.A d) effects by the transaction on the shareholding structure e) shareholding structure before and after the transaction Banco do Brasil took over Banco Nossa Caixa, with the resulting increase in its equity capital and the issuing of new shares. Banco do Brasil shareholding structure: Before - Total Shares After - Total Shares 2,568,186,485 2,569,860,512 Banco Nossa Caixa shareholding structure: After Before Gesp 71.25% Takeover by Banco do Brasil. Minority interests 28.75% The operation allowed Banco do Brasil (i) to strengthen its presence in the State of São Paulo, where it became holder of the largest network of branches; (ii) extend its customer base and loan operations in that State; (iii) become the financial agent of the State of São Paulo; (iv) increase the base of lower-cost deposits; and (v) expand services with higher profitability of Banco Nossa Caixa's customer base. 70

71 Banco do Brasil S.A. - Reference Form/2013 a) event Takeover of Bescleasing and Bescredi b) main business conditions In April 2010, Banco do Brasil's special shareholders' meeting approved the capital increase owing to the mentioned corporate takeovers through the absorption of the shareholders' equities of the merged companies into the merging company, pursuant to the Protocol and Justification for the Mergers. Banco do Brasil already held 99% of the capital of Bescleasing and 99.58% of that in Bescredi. Hence, Banco do Brasil's capital increase totaling R$ 274, resulted from absorption of 1% of Bescleasing's shareholders' equity and of % of that in Bescredi, both appraised at their book value on June 30, This capital increase implied the issue of 9,039 shares with no par value by Banco do Brasil, with the rights and prerogatives provided for in the By-laws. The merged companies' dissenting shareholders received a refund of the shares' book value on June 30, 2009, equal to R$ for Bescleasing minority shareholders and R$ for Bescredi minority shareholders, pursuant to paragraph 3, article 264, and indentation II, article 137, both in the LSA. The term for exercising the right to withdraw expired on September 22, c) companies involved Banco do Brasil S.A. Besc S.A. Arrendamento Mercantil (Bescleasing) Besc Financeira S.A. Crédito, Financiamento e Investimento (Bescredi) d) effects by the transaction on the shareholding structure e) shareholding structure before and after the transaction f) strategic rationale There was no relevant change in the Banco do Brasil shareholding structure, as the merger of Bescredi and Bescleasing gave rise to an issue of only 9,039 Banco do Brasil shares. Banco do Brasil held 99% of the capital of Bescleasing and 99.58% of that in Bescredi. Owing to the takeover, Bescleasing and Bescredi were extinguished and their rights and obligations were assumed by Banco do Brasil. BESC, the former controller of Bescleasing and Bescredi, was merged into Banco do Brasil on September 30, 2008, which succeeded it in all of its rights and obligations. Hence, Banco do Brasil became the controller of Bescleasing and Bescredi. Leasing activities by Bescleasing had been discontinued since 2005 and there no longer any outstanding transactions. Operating activities by Bescredi for granting loans had been discontinued since April As the portfolios of Bescleasing and Bescredi were small as compared to Banco do Brasil's portfolio, and as the latter has greater experience in managing these credit lines, and that its structures were able to absorb the activities, the takeover of these companies was decided on April 13, a) event Corporate Restructuring - Brasilveículos. b) main business conditions On May 2010, BB Seguros Participações acquired all the interest (60.0% of the common shares with voting rights and 30% of the total capital stock) held by Sul América Companhia Nacional de Seguros in Brasilveículos Companhia de Seguros, represented by 19,092,856 common shares. The price stipulated for this transaction was R$340 million, indexed from January 1, 2010 until the closing day of the transaction, through the application of an index corresponding to 100% of the variation of the CDI. Hence, Brasilveículos will have the following shareholders: Common shares (%) Previous Preferred shares (%) Common shares (%) Current Preferred shares (%) BB Seguros Sul América c) companies involved BB Seguros Participações S.A. SulAmérica Companhia Nacional de Seguros Brasilveículos Companhia de Seguros d) effects by the transaction on the shareholding structure e) shareholding structure before and after the transaction No change in Banco do Brasil's shareholding structure. No change in Banco do Brasil's shareholding structure. See item b above. f) strategic rationale To raise the contribution by the social security area to Banco do Brasil's profit figures, expanding its share in the partnerships in this segment as well as the volume of business, based on noncompetition by its partners in the activities in which Banco do Brasil's distribution channels are used to place the services. 71

72 Section 6 Issuer History a) event Divestiture of Ownership Interest - Brasilsaúde. b) main business conditions In May 2010, BB Seguros Participações S.A. sold its stake in Brasilsaúde Companhia de Seguros (49.92% of the total capital stock) to Sul América Seguro Saúde S.A.. The price stated for this transaction was of R$ 28.4 million. On June 14, 2010 the Bank's Board of Directors ratified the decision by the CEO, ad referendum by the Board of Directors, to approve the sale of the equity interests held by BB Seguros in Brasil Saúde. c) companies involved BB Seguros Participações S.A. Sul América Seguro Saúde S.A. Brasilsaúde Companhia de Seguros d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding See item b above. structure before and after the transaction f) strategic rationale Segment focused on two major players, with product distribution in the channel predominantly broker. Regulator different from other areas of activity, with compressed margins, high risk and accidents. a) event Takeover of Banco Popular do Brasil (BPB) b) main business conditions In May 2012, BPB's book value shareholders' equity absorbed by Banco do Brasil was R$ 18,518, in accordance with the appraisal report prepared by KPMG Auditores Independentes. Owing to the takeover, the total assets of BPB, at the time a wholly-owned subsidiary of Banco do Brasil, were fully transferred to the latter. As this was a merger of a wholly-owned subsidiary, new shares were not issued by Banco do Brasil on this occasion, and there were no changes in its equity capital or in its By-laws. BPB was a closely held corporation in the form of a Banco do Brasil subsidiary, intended to operate specifically with micro-finance. The complete integration of Banco Popular do Brasil took place on July 30, c) companies involved Banco do Brasil S.A. Banco Popular do Brasil S.A. d) effects by the transaction on the shareholding structure e) shareholding structure before and after the transaction No change in Banco do Brasil's shareholding structure. Banco do Brasil S.A. Banco do Brasil shareholding structure: Before - Total Shares After - Total Shares 2,569,860,512 2,569,860,512 Banco popular do Brasil shareholding structure: Before After 567,891 Extinction. f) strategic rationale For Banco do Brasil, the merger was justified by the expansion of its position in dealing with microfinance and intensification of the process of simplifying, integrating, and consolidating the activity's financial transactions. 72

73 Banco do Brasil S.A. - Reference Form/2013 a) event Increased Holding in Cielo and CBSS b) main business conditions In July 2010, BB-BI acquired 4.655% of the capital of Companhia Brasileira de Soluções e Serviços CBSS and 5.11% of capital stock of Cielo, Santander Group, Spain. In 2009, the amount was R$ 1,116.7 million, of which R$ 61.7 million referring to increase in equity interest at CBSS and R$ 1,055 million at Cielo. Following the transaction, BB-BI's share in Cielo's equity capital increased from 23.61% to 28.75%, and in CBSS's equity capital from 40.35% to 45.0%. On January 2011, BB-BI entered into a share purchase and sale agreement with Visa International Service Association ("Visa International"), for the acquisition of part of the shares held in CBSS, equal to 4.99% of that company's equity capital. In this transaction, BB-BI agreed to pay Visa International the sum of R$ 85.5 million, and its shareholding in CBSS increased from 45.00% to 49.99%. c) companies involved BB Banco de Investimento S.A. (BB-BI) Santander Group, Spain Companhia Brasileira de Soluções e Serviços (CBSS) Cielo S.A. (Cielo) d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding structure before and after the transaction The share of BB-Bi in Cielo's equity capital increased from 23.54% to 28.65%. In CBSS's equity capital, both transactions increased BB-BI's interest from 40.35% to 49.99%. f) strategic rationale To consolidate the conglomerate's card market share, obtaining synergy gains and leading to new business being structured. 73

74 Section 6 Issuer History a) event Conversion of ON to PN shares and Corporate Reorganization Brasilcap b) main business conditions BB Seguros Participações S.A., wholly-owned subsidiary of BB, undersigned a Share Purchase and Sale Agreement in January 2011 to acquire the entire equity interest (16.67% of Common Shares) held by Sul América Capitalização S.A. in Brasilcap Capitalização, for R$ 137 million. With the legitimate intention of not taking away from Brasilcap the mechanisms that allowed it to survive in an environment of free competition, and at the same time, of keeping the associated company governed according to market conditions with operating efficiency, on June 15, 2011, the Extraordinary General Meeting of shareholders of Brasilcap approved the inclusion of a new article in its Bylaws, allowing the conversion of common stock into preference stock, in the proportion of one common share to one preferred share. On August 5, 2011, the participants of a new Extraordinary General Meeting approved the conversion of 50% of the nominative common shares into preferred shares of the partners BB Seguros and Sulacap, as requested. Shareholding position prior to the conversion of common shares into preferred shares issued by BB Seguros and by Sulacap: Shareholders Common shares Common shares (%) Preferred shares Preferred shares (%) Total Shares Total capital (%) BB Seguros Participações S.A. 161,967, ,967, Sul América Capitalização S.A. - SULACAP 54,010, ,010, Cia. de Seguros Aliança da Bahia 51,197, ,197, Icatu Seguros S.A. 54,010, ,010, Minority Shareholders 2,812, ,812, TOTAL 324,000, ,000, Hence after the stock conversion process, Company s ownership structure is as follows: Shareholders Common shares Common shares (%) Preferred shares Preferred shares (%) Total Shares Total capital (%) BB Seguros Participações S.A. 80,983, ,983, ,967, Sul América Capitalização S.A. - SULACAP 27,005, ,005, ,010, Cia. de Seguros Aliança da Bahia 51,197, ,197, Icatu Seguros S.A. 54,010, ,010, Minority Shareholders 2,812, ,812, TOTAL 216,010, ,989, ,000, Shareholding position after acquisition financial settlement of the contract of purchase and sale of shares, on July 22, 2011, by BB Seguros, of the ownership interest of Sulacap in the capital stock of Brasilcap: Shareholders Common shares Common shares (%) Preferred shares Preferred shares (%) Total Shares Total capital (%) BB Seguros Participações S.A. 107,989, ,989, ,978, Sul América Capitalização S.A. - SULACAP Cia. de Seguros Aliança da Bahia 51,197, ,197, Icatu Seguros S.A. 54,010, ,010, Minority Shareholders 2,812, ,812, TOTAL 216,010, ,989, ,000, c) companies involved BB Seguros Participações S.A. Sul América Capitalização S.A. Brasilcap Capitalização S.A. d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding See item b above. structure before and after the transaction f) strategic rationale (i) This acquisition by BB Seguros of total shareholding interest in Brasilcap held by Sulacap is inserted in a broader context of BB Conglomerate restructuring of its capitalization business (premium bonds). (ii) Prevent BB Seguros, in the context of the signature of the contract of purchase and sale of shares between BB Seguros and Sulacap, from becoming the direct parent company of the associated company, and consequently, to prevent Brasilcap from becoming an indirect subsidiary of the Federal Government. 74

75 Banco do Brasil S.A. - Reference Form/2013 a) event Transfer of Controlling interest Nossa Caixa Capitalização b) main business conditions In February 2011, the controlling interest held by BB at Nossa Caixa Capitalização was transferred to BB Seguros Participações S.A. Shareholding position prior to the transfer of the controlling interest of BB to BB Seguros: Common shares Common shares (%) Preferred shares Preferred shares (%) Total capital (%) Shareholders Total Shares Banco do Brasil S.A. 5,399, ,399, Minority interests Shareholding position after the transfer of the controlling interest of BB to BB Seguros: Common shares Common shares (%) Preferred shares Preferred shares (%) Total capital (%) Shareholders Total Shares BB Seguros Participações S.A. 5,399, ,399, Minority interests c) companies involved Banco do Brasil S.A. BB Seguros Participações S.A. Nossa Caixa Capitalização S.A. d) effects by the transaction on the shareholding structure e) shareholding structure before and after the transaction After the transfer of shareholding control, BB no longer has direct shareholding interest in Nossa Caixa Capitalização S.A.. See item b above. f) strategic rationale The transfer of controlling interest of Nossa Caixa Capitalização is included in a larger context of restructuring and partnership with Icatu, since BB Seguros is a company that was created by BB precisely to hold interest in insurance and equity investment companies and in open supplementary pension entities. a) event Acquisition of EuroBank (Banco do Brasil Americas) b) main business In April 2011, Banco do Brasil and shareholders of the North-American bank EuroBank entered into conditions an Agreement for the Purchase of Shares to acquire 100% of the Bank s capital. The price of the acquisition was US$ 6 million. This transaction was approved by BB Extraordinary Shareholders' Meeting, by the Brazilian Central Bank (on August 9, 2011), and by the other North-American regulatory agencies: Florida Office of Financial Regulation - FLOFR (on October 19, 2011), Federal Deposit Insurance Corporation - FDIC (on November 7, 2011) and the Federal Reserve Board - FRB (on December 16, 2011). In January 19, 2012 the acquisition took place of all the shares of EuroBank, on payment to the sellers and the transfer of 835,855 common shares to Banco do Brasil, equal to EuroBank s entire voting capital stock. On October 12, 2012, EuroBank launched the brand Banco do Brasil Americas, as a reference to the company s new name. c) companies involved Banco do Brasil S.A. EuroBank Former controlling shareholders of EuroBank 75

76 Section 6 Issuer History a) event Acquisition of EuroBank (Banco do Brasil Americas) d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding Banco do Brasil shareholding structure: structure before and Before - Total shares After - Total shares after the transaction 2,865,417,020 2,865,417,020 EuroBank s shareholding structure (Banco do Brasil Americas) Before After 19 shareholders 835,855 Banco do Brasil 835,855 f) strategic rationale Transaction to acquire EuroBank represents an opportunity for BB to get inserted in the North- American retail banking market, especially in Brazilian and Hispanic communities. A. acquisition is in line with internationalization strategy and its objective is: (i) expand business with Brazilians living in the United States; (ii) diversify product and service portfolio offered by EuroBank; and (iii) strengthen service provided. a) event Elo Project Ownership interest at Elo Participações S.A. b) main business conditions Holding interest in company Elo Participações S.A, with the execution of the Shareholders Agreement between BB and Bradesco in April 2011 to develop, integrate and consolidate joint businesses related to electronic payment means. c) companies involved BB Elo Cartões Participações S.A. d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding Shareholding structure of Elo Participações S.A.: structure before and Before After after the transaction Common shares (%) Common shares (%) Bradescard BB Elo Cartões Participações S.A f) strategic rationale BB and Bradesco establish a joint venture to integrate part of their card transactions and launch a national credit, debit and pre-paid card brand. a) event Launch of Elo brand and creation of Elo Serviços b) main business conditions Launching of Elo brand in April 2011: issuing banks started to trade Elo cards (Banco do Brasil, Bradesco and Caixa Econômica Federal-CEF) after formalization of the Operating Agreement by the same Institutions in March Establishment of company Elo Serviços S.A., administrator of Elo Cards: Partnership established between Elo Participações S.A. and Caixa Participações (CaixaPar) through a shareholders agreement disclosed in a Material Fact of April 17, Shareholding structure of Elo Serviços S.A. is as follows: Elo Participações S.A. with % of the shares and Caixa Participações S.A., with %. c) companies involved Elo Participações S.A. d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding structure before and after the transaction BB, indirectly, through its wholly-owned subsidiary BB Elo Cartões Participações S.A., now holds 33.33% of Elo Serviços S.A. shares f) strategic rationale Elo Serviços S.A. was established through a partnership between three large financial institutions: BB. Caixa and Bradesco. The Company will be the administrator of credit, debit and pre-paid cards issued with ELO brand. The Company s governance will be shared by Elo Participações and Caixa Participações and will be contemplated in the company s Shareholders Agreement. 76

77 Banco do Brasil S.A. - Reference Form/2013 a) event Capital increase and Bonuses (Cielo) b) main business conditions Extraordinary Shareholders' Meeting held on April 29, 2011 approved the Company s capital increase of R$100,000, to R$263,834, through capitalization of reserves, with issuance of 272,956,760 new common shares and the free assignment, as bonus, of 1 new common share for each batch of 5 common shares to shareholders registered on April 29, 2011; and, beginning as of May 2, 2011, including, shares were traded ex right of bonus. Bonus benefit was simultaneously and at the same proportion extended to ADR s American Depositary Receipts, traded in the North- American Over-the Counter (OTC) market. Bonus payment was carried out at integers, so that, pursuant to the terms of Article 169, paragraph 3, of Law no. 6,404/76, excesses deriving from share fractions will be sold at BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros ( BM&FBOVESPA ) and determined net value will be made available to shareholders that hold fractions; and it is certain that any information related to this procedure was timely disclosed by the Company through a Notice to Shareholders. c) companies involved Shareholders and the Company d) effects by the Before the transaction After the transaction transaction on the Number of % Number shareholding structure shares shares of % e) shareholding structure before and after the transaction Columbus Holding S.A.. 390,986, ,183, BB BI S.A. 390,986, ,184, Lazard Asset Management LLC 146,686, ,024, Capital Research 68,452, ,142, Others 363,173, ,707, Treasury 4,497, ,497, Total 1,364,783, ,637,740, Not Applicable f) strategic rationale Changes derived from shareholders demands expressed in Cielo Board of Directors meetings. a) event Reverse Split (Cielo) b) main business conditions Extraordinary Shareholders' Meeting held on April 29, 2011 approved the Reverse Split of shares issued by the Company, at the proportion of 3 shares for each 1 share representing capital after reverse split, based on shareholding position verified on May 2, Due to the reverse split, total number of shares issued by the Company, subscribed and paid-in, went from 1,637,740,560 to 545,913,520 shares. After adjustment period, excesses deriving from share fractions were sold at BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros ( BM&FBOVESPA ) and determined net value was made available to shareholders that hold fractions; and it is certain that any information related to this procedure was timely disclosed by the Company through a Notice to Shareholders. c) companies involved Shareholders and the Company d) effects by the Before the transaction After the transaction transaction on the Number of % Number shareholding structure shares shares of % e) shareholding structure before and after the transaction Columbus Holding S.A.. 469,183, ,394, BB BI S.A. 469,184, ,394, Lazard Asset Management LLC 176,024, ,674, Capital Research 83,517, ,839, Others 435,332, ,110, Treasury 4,497, ,499, Total 1,367,740, ,913, Not Applicable f) strategic rationale Changes derived from shareholders demands expressed in Cielo Board of Directors meetings. 77

78 Section 6 Issuer History a) event Banco do Brasil and Mapfre partnership: b) main business conditions In July 2011, BB Seguros Participações S.A. and the Grupo Segurador Mapfre entered into a Partnership Agreement to form a strategic alliance in the field of personal insurance, casualties, and vehicles effective for 20 years, forming the Grupo Segurador Banco do Brasil & Mapfre (Grupo BB Mapfre). For the setting up of the partnership, two privately-owned holding companies ("SHs ") were organized, with the Mapfre group's majority interest in the voting shares and jointly managed, as described below: BB Mapfre SH1 Participações S.A. (SH1) with focus on insurance for individuals, property, and agriculture/rural: Common shares (%) Preferred shares (%) Total capital (%) BB Seguros Grupo Mapfre Mapfre BB SH2 Participações S.A. (SH2) with focus in property and casualty insurance, including vehicle insurance and excluding property, and agriculture: Common shares (%) Preferred shares Total capital (%) (%) BB Seguros Grupo Mapfre c) companies involved In order to separate individuals, property and agricultural/rural insurance business, which comprise SH1 operation lines, from equity and property and casualty insurance business, which is the scope of SH2, the holding BB Aliança REV Participações S.A. was established as the wholly-owned subsidiary of BB Seguros that subsequently concentrated shareholding control of Brasilveículos Seguros and Aliança do Brasil Seguros. In this transactions, the parties contributed the following assets of the insurance segments to SH s: (i) BB Seguros: businesses developed by companies Companhia de Seguros Aliança do Brasil, Brasilveículos Seguros, Aliança do Brasil Seguros, BB Aliança Participações and BB Aliança REV Participações; (ii) Mapfre Group: of the transactions carried out by the companies Mapfre Vera Cruz Seguradora, Mapfre Vera Cruz Vida e Previdência, Mares - Mapfre Riscos Especiais, Mapfre Seguradora de Garantias e Crédito, and Vida Seguradora. In order to equalize the intended shareholding in both holding companies, BB Seguros paid a sum of R$ million. BB Seguros Participações; Grupo Segurador Mapfre Companhia de Seguros Aliança do Brasil Brasilveículos Seguros Aliança do Brasil Seguros BB Aliança Participações BB Aliança REV Participações Mapfre Vera Cruz Seguradora Mapfre Vera Cruz Vida e Previdência Mares Mapfre Riscos Especiais Mapfre Seguradora de Garantias e Crédito Vida Seguradora d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding See item b above. structure before and after the transaction f) strategic rationale To raise the contribution by the social security area to Banco do Brasil's profit figures, expanding its share in the partnerships in this segment as well as the volume of business, based on non-competition by its partners in the activities in which Banco do Brasil's distribution channels are used to place the services. 78

79 Banco do Brasil S.A. - Reference Form/2013 a) event Creation of BB Securities Asia b) main business conditions In September 2011, BB established company BB Securities Asia Pte. Ltd., headquartered in the Republic of Singapore, as an indirect wholly-owned subsidiary, with initial capital of US$5 million. c) companies involved 100% of the interest belongs to Brazilian American Mechant Bank-BAMB, Wholly-owned subsidiary of BB. d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding No change in Banco do Brasil's shareholding structure. structure before and after the transaction f) strategic rationale The BB Securities Asia unit will be the third one and will form a team with London and New York in placing Brazilian company bonds in the region s international funds, expanding its presence in Asia. a) event Acquisition by Banco Votorantim S.A. of Votorantim Corretora de Seguros S.A. b) main business conditions Banco do Brasil S.A. (BB) holds an interest of 50% of the total capital and 49.99% of the voting capital both of Banco Votorantim S.A. (BV) or BV Participações S.A. On January 31, 2012, BV acquired from BV Participações S.A. all 200,000 common shares of Votorantim Corretora de Seguros S.A. for the amount of R$109.6 million. c) companies involved BV Participações S.A. Banco Votorantim S.A. Votorantim Corretora de Seguros S.A. d) effects by the transaction on the shareholding structure No change in Banco do Brasil's shareholding structure. Banco Votorantim S.A. now holds all shares of Votorantim Corretora de Seguros S.A. e) shareholding Votorantim Corretora de Seguros S.A. table structure before and BEFORE AFTER after the transaction Shareholder ON (%) ON (%) BV Participações S.A Banco Votorantim S.A f) strategic rationale The purpose of this transaction was to reduce BV Participações S.A. corporate structure and to use Banco Votorantim S.A. synergies. 79

80 Section 6 Issuer History a) event Approval of the Share repurchase plans (Cielo) b) main business conditions Board of Directors meeting held on March 16, 2012 authorized the Executive Board to acquire, on behalf of the Company, up to 2,000,000 common shares of its own issuance, with no par value, for the specific purpose of complying with the exercise of options and shares granted in the ambit of the Stock Options Plan, pursuant to the version changed and consolidated by the Extraordinary and Annual Shareholders' Meeting held on April 29, This authorization will prevail over 365 days, beginning as of the material event publication date, pursuant to the terms of sub-item c of article 8, of CVM Instruction no. 10/80, as amended. It is the Executive Board s responsibility to define the time and number to be acquired, within authorized limits and authorization effective period. Repurchase transactions are carried out in stock exchange at market prices with the intermediation of Bradesco S.A. Corretora de Títulos e Valores Mobiliários, headquartered at Avenida Paulista, 1450, 7th floor, São Paulo, São Paulo State, and Votorantim Corretora de Títulos e Valores Mobiliários Ltda., headquartered at Av. das Nações Unidas, 14,171 - Torre A 14th floor - São Paulo, São Paulo State, using balances available in the Company s capital reserve accounts, in conformity with guidelines of Circular Letter/CVM/SEP no. 002/2009 (item 19). c) companies involved Shareholders and the Company d) effects by the transaction on the shareholding structure Information not available yet e) shareholding Information not available yet structure before and after the transaction f) strategic rationale Changes derived from shareholders demands expressed in Cielo Board of Directors meetings. a) event b) main business conditions Capital increase of Banco Votorantim On June 27, 2012, Banco do Brasil S.A. (BB) and Votorantim Finanças S.A. (VF) approved the capital increase of Banco Votorantim S.A. (BV) in the amount of R$ 2 billion. This transaction involved equal contributions from BB and VF in the amount of R$1 billion. This approval was approved by the Central Bank on June 29, c) companies involved Banco do Brasil S.A. Votorantim Finanças S.A. Banco Votorantim S.A. d) effects by the No change in Banco do Brasil's shareholding structure. transaction on the shareholding structure e) shareholding Banco Votorantim S.A. table structure before and BEFORE AFTER after the transaction Shareholder ON (%) PN (%) ON (%) PN (%) Banco do Brasil S.A No changes Votorantim Finanças S.A No changes f) strategic rationale As provided for in shareholders agreement, BB and VF maintained BV capitalization at proper levels and intend to permit the Company s continuous growth. a) event Corporate Restructuring Insurance Field b) main business conditions On February 26th, 2013, the following documents were filed with the Brazilian Securities and Exchange Commission ( CVM ): (a) an application by BB Seguridade Participações S.A. ( BB Seguridade") to be registered as a public company, issuer category A, according to rule CVM 480, from December 7th, 2009, as amended ( Rule 480 ), in connection with the Public Offering; and (b) an application by Banco do Brasil to register a secondary public offering of common shares issued by BB Seguridade and owned by Banco do Brasil, all being registered book entry shares, with no par value, free of any liens ( Shares ). The Bookbuilding Process from the Secondary Public Offering of Common Shares issued by BB Seguridade ( Offering ) ended in , and BB s Board of Directors approved the price per share of R$ With the ending of the Public Offering of Shares of BB Seguridade and the full exercise of Green Shoe, the gross gain from the transaction will be R$ billion, which will have an impact on net income of BB in the 2nd quarter of R$ billion. Banco do Brasil S.A. Commonshres (ON) Common Shares (%) Preferred Shares Preferred Shares (%) Total Shares Total Capital (%) i) BB Seguridade 2,000,000, ,000,000,000 80

81 Banco do Brasil S.A. - Reference Form/2013 a) event Corporate Restructuring Insurance Field Participações S/A i.i) BB Seguros Participações S.A. 278,862, ,862, i.i.i) Controladas/Coligadas 1. Brasilcap 107,989, ,989, ,978, Brasilprev 572, ,145, ,717, BB Mapfre SH1 Participações S.A. 1,039,908, ,079,400, ,119,308, Mapfre BB SH2 Participações S.A. 369,162, ,230, ,393, BB Capitalização S.A. (antiga Nossa Caixa Capitalização) 5,400, ,400, i.ii) BB Cor Participações S/A 1, , i.ii.i) BB Corretora de Seguros e Administradora de Bens S.A. 1,000, ,000, Em decorrência da Oferta Pública das ações da BB Seguridade, alterou-se a configuração societária da área de seguridade do BB para: Banco do Brasil S.A. Commonshres Common Preferred Preferred Total Shares Total (ON) Shares (%) Shares Shares (%) Capital (%) i) BB Seguridade Participações S/A 1,325,000, ,325,000, i.i) BB Seguros Participações S.A. 278,862, ,862, i.i.i) Controladas/Coligadas 1. Brasilcap 107,989, ,989, ,978, Brasilprev 572, ,145, ,717, BB Mapfre SH1 Participaçõ es S.A. 1,039,908, ,079,400, ,119,308, Mapfre BB SH2 Participaçõ es S.A. 369,162, ,230, ,393, BB Capitalização S.A. (antiga Nossa Caixa Capitalizaç ão) 5,400, ,400, c) companies involved d) effects by the transaction on the shareholding structure e) shareholding structure before and after the transaction i.ii) BB Cor Participações S/A 1, , i.ii.i) BB Corretora de Seguros e Administradora de Bens S.A. 1,000, ,000, BB Seguridade Participações S.A. BB Cor Participações S.A. BB Seguros Participações S.A. BB Corretora de Seguros e Administradora de Bens S.A. No change in Banco do Brasil's shareholding structure. See item b above. f) strategic rationale Get the real value of the insurance segment of BB in the market. 81

82 Section 6 Issuer History 6.6. Filing for bankruptcy Inform whether there was an application for bankruptcy, provided that based on a material sum, or for judicial or out-of-court recovery by Banco do Brasil, and the current status of such applications: As provided in Law 11,101/2005, Banco do Brasil is not subject to judicial or extrajudicial recovery, or to bankruptcy. Banco do Brasil has not been subject to receivership until this Reference Form's date. 6.7 Other relevant information Notify on business proposals and the expected impacts. In particular, approach business reported in material facts or communicated to the market and that may generate corporate events such as mergers, business combinations, split-offs, mergers of shares, ownership interest divestiture and acquisition, major asset acquisitions and sales. a) event Banco do Brasil and CEF partnership b) main business conditions On February 12, 2010 Banco do Brasil informed the market that it had entered into a Memorandum of Understanding with Caixa Participações S.A. ("CaixaPar") and Caixa Econômica Federal (CEF), in order to conduct studies on the feasibility of an operating or corporate partnership in Cobra Tecnologia S.A. ("Cobra "), a company controlled by Banco do Brasil. This association will be intended to provide IT solutions, in particular to CEF and to Banco do Brasil, without prejudice to other activities currently conducted by Cobra. The Memorandum of Understanding has no binding effects and all additional information deemed to be important will be disclosed forthwith to the market according to the progress of the studies and future decisions. c) companies involved Banco do Brasil S.A. CEF CaixaPar Cobra d) strategic rationale The provision of IT solutions, in particular to CEF and to Banco do Brasil, without prejudice to other activities currently conducted by Cobra. a) event Memorandum of Understanding - External ATMs b) main business conditions On February 11, 2010 Banco do Brasil S.A., Banco Bradesco S.A., and Banco Santander (Brasil) S.A. informed that on that day they had entered into a non-binding memorandum of understanding on the feasibility of consolidating the operations of their respective external Self-Service Terminals ("External ATMs" - automatic teller machines installed outside the branch offices), such as those found in airports, service stations, supermarkets, shopping centers, drugstores, and bus terminals. On concluding this operation, the banks intend to have a business model to allow access by their customers to roughly 12 thousand External ATMs. This model will provide an expressive increase in the network's availability and capillarity, with efficiency gains as compared to the current form of individual use of the respective self-serviced networks. This model also includes the creation of a brand to identify the consolidated network. On November 25, 2010, Banco do Brasil S.A., Banco Bradesco S.A., and Banco Santander (Brasil) S.A. disclosed by means of a press release, the start of sharing tests for their external networks, with roughly 700 machines being put into operation by the three banks. The project's notice to the anti-monopoly authorities was delivered on December 9, 2010, within the legal deadline. The banks intend to conclude the operation in roughly 18 months. c) companies involved Banco do Brasil S.A. Bradesco Banco Santander d) strategic rationale Expand the network's availability and capillarity, with efficiency gains as compared to the current form of individual use of the respective self-serviced networks. 82

83 Banco do Brasil S.A. - Reference Form/2013 a) event USA - License for a Financial Holding Company b) main business conditions 1. On April 13, 2010 the Federal Reserve Bank - the FED, granted Banco do Brasil a license to create a Financial Holding Company (a controlling company). The license was granted only after a detailed analysis of the aspects required by US ban king laws, among which the level of capitalization of Banco do Brasil and the quality of its management. 2. In order to approve the creation of a Financial Holding Company in the United States, the FED also considered the quality of Brazilian banking supervision exercised by Banco Central do Brasil comprehensively and on a consolidated basis. c) companies involved Banco do Brasil S.A. d) strategic rationale Creating the FHC company allows BB to practice financial activities in US territory, directly or through its subsidiaries, pursuant to applicable legislation. In practice, with the new US company the Bank is able to expand its assistance network in the country, create new subsidiaries or expand the scope of existing activities (organic growth), acquire local banks (inorganic growth) and operate with US residents. a) event USA - Conversion of the license for BB Miami from Agency to Full Branch b) main business conditions In July 2010 BB Miami was licensed by FED regulators to convert its license from agency, which allowed it to operate with non-residents only, to full branch, allowing the facilities to operate with US residents. In addition, in order to specialize its units as a means of optimizing customer assistance, BB Miami absorbed BB New York's retail customer base, which branch became specialized in corporate customers. c) companies involved Banco do Brasil S.A. d) strategic rationale The Bank sought to concentrate its activities in specific facilities in order to increase productivity and reduce costs. a) event USA - License for Banco do Brasil Securities LLC to operate in Miami b) main business O Banco do Brasil Securities, LLC was licensed to open a branch in Miami. conditions c) companies involved Banco do Brasil S.A. d) strategic rationale To meet the strong demand by BB Miami customers for capital market services. a) event Europe - The newly created Servicing Center Europa b) main business conditions In July 2010 the Servicing Center Europa began operations in Lisbon, Portugal. These facilities are the second international unit for management services. c) companies involved Banco do Brasil S.A. Banco do Brasil AG - Viena d) Strategic rationale To centralize and rationalize (back-office services in the units located in Europe. 83

84 Section 6 Issuer History a) event Strategic partnerships Capitalization b) main business conditions BB Seguros Participações S.A. and and Grupo Icatu ( Icatu ), on 1/6/2010, entered into a Memorandum of Understanding with a view to forming a strategic alliance in the Brazilian market to develop and sell capitalization products (premium bonds). c) companies involved BB Seguros Participações S.A. Brasilcap Capitalização S.A. Icatu Holding S.A. Icatu Seguros S.A. Icatu Capitalização S.A. strategic rationale Proceed with the reorganization process in the capitalization area with: to increase the Participation of Security Business in the BB Conglomerate's Result; intensification of operation in channels that are alternative to BB s bank distribution channels; reduction in the number of partners, minimizing possible conflicts; impact maximization in market rankings; minimization of cash disbursement to BB; shared governance in subsidiaries. a) event Strategic partnerships Reinsurance b) main business conditions Proceeding with the reorganization of insurance area of the BB Conglomerate and in order to supplement the operations of its insurance companies, BB proposed to start negotiations with no binding effect, which was accepted by the Federal Government through the Ministry of Finance, for the acquisition of an ownership interest in the capital of IRB Brasil Re S.A. ( IRB ). c) companies involved BB Seguros Participações S.A. IRB Brasil Re S.A. Department of the Treasury d) strategic rationale Seek for supplementary operation in BB Conglomerate insurance transactions. a) event Strategic partnerships Dental care plans b) main business conditions BB Seguros Participações S.A., OdontroPrev S.A., Bradesco Seguros S.A. and ZNT Empreendimentos, Comércio e Participações Ltda entered into a Memorandum of Understanding, on 08/19/2010, without binding effect, with a view to forming a strategic alliance for development and commercialization of products of the dental business. c) companies involved BB Seguros Participações S.A. Odontoprev S.A. Bradesco Seguros S.A. ZNT Empreendimentos, Comércio e Participações Ltda. d) strategic rationale Find a partner with a structure that is able to satisfactorily meet main dental care necessities of the bank s employees and, at the same time, use private dental care commercial opportunities in Brazil. For this, partnership to operate in the market of dental care plans was based on the same assumptions that became the guidelines of the entire review process of BB s insurance area operation model. They are: i) increase in the Participation of Security Business in the BB Conglomerate's Result; ii) lack of competitor partners; iii) reduction in the number of partners, minimizing possible conflicts; iv) impact maximization in market rankings. 84

85 Banco do Brasil S.A. - Reference Form/2013 a) event Strategic partnerships Postal Bank b) main business conditions In May 2011, Banco do Brasil was declared the winner of the Bid to explore Banco Postal network of Empresa Brasileira de Correios e Telégrafos ECT, in the following 5 years and 6 months, extendable for another 5 years, through new payment to ECT of the basic value for access to the business and of the amount paid by the branch network, adjusted at Selic rate. Banco Postal is Correios brand for its operation as Bank Correspondent. With the partnership, Banco do Brasil counts with a network formed by over 6 thousand service establishments to provide services such as acceptance of proposals for the opening of current accounts, credit cards, credit transactions, in addition to financial transactions such as moving deposit accounts, payments, receipts and inquiries. c) companies involved Banco do Brasil S.A. Empresa Brasileira de Correios e Telégrafos - ECT d) strategic rationale Banco do Brasil partnership with Correios is an action that advances the strategy of expanding BB s service network. a) event Banco Votorantim Increased BB s interest b) main business conditions Banco do Brasil S.A. (BB) communicated on January 18, 2013 that it started to study with Votorantim Finanças S.A. (VF) the possibility of increasing its interest in Banco Votorantim S.A. (BV) capital. This transaction would involve only BB s preferred shares with no binding effect between the parties, at that time, to carry out said transaction. c) companies involved d) strategic rationale Banco do Brasil S.A. Votorantim Finanças S.A. Increase assets origination capacity in the competitive industry of consumption financing, access welldeveloped alternative distribution channels such as concessionaires, partners and BV Financeira stores, use sales promotion model operating nationwide in vehicle financing market and acquisition of payroll credit and vehicle financing portfolios through an Operating Agreement. a) event Russia Installation of Representation office in Moscow b) main business BB s strategy of entering promising Russian market, approved by the Board of Directors on conditions December 11, 2012, aims at mapping future customers in East Europe countries to facilitate transactions between the companies of the region and BB branches in Brazil and abroad, with expected increase in the Conglomerate s businesses. c) companies involved d) strategic rationale Banco do Brasil S.A. Meeting demands of Brazilian company s present in Russia and East Europe and map Russian companies that have or intend to have business with Brazil. a) event Japan Restructuring of operation b) main business conditions Restructuring of operations in Japan, approved by the Board of Directors on December 17, 2012, intends to strengthen BB s operation with corporate and retail segments that have Japanese customers, in addition to permit the expansion of service to regions that do not have BB s physical presence, through mobile service, among other business and productivity gains and cost reduction. c) companies involved d) strategic rationale Banco do Brasil S.A. Expansion of service with increase in the operating efficiency 85

86 Section 7 - Issuer's Activities 7. ISSUER'S ACTIVITIES 7.1. Summary description of activities developed by Banco do Brasil Banco do Brasil is the largest financial institution in Latin America in connection with assets, pursuant to the ranking by the Economática advisory firm, based on December 31, Banco do Brasil is a multiple bank based in Brasilia, has a material presence in every Brazilian state, and carries out activities in important world financial centers. It is focused on doing business driven by the creation of sustainable results and a performance compatible with market leaderships. As an agent of public policy, the Bank supports agribusiness, microand small businesses, and Brazilian foreign trade, by being involved in federal government program as well as by developing solutions intended to simplify transactions and services that assist these economic players. Having over 200 years of history, its key strength is in retail banking. In general, its business may be grouped in six major segments: (i) Banking; (ii) Investments; (iii) Asset Management; (iv) Insurance, Pension Funds, and Capitalization (premium bonds); (v) Means of Payment; and (vi) Others. The main aspects related to each segment are detailed in items 7.2 and 7.3 of this Reference Form. Banco do Brasil ended 2012 with a portfolio of more than 58.5 million clients (37.4 million checking accounts), which have access to a network of 19.1 thousand service points and 44.4 thousand automatic teller machines (ATMs), besides more than 14.7 thousand shared network points originating from partnerships (Banco 24h, CEF and BRB) and 17.9 thousand correspondents in the country, spread around 5,425 municipalities (considering the Banco Postal (Postal bank) as from Jan/12), with the involvement of almost 114 thousand employees. Banco do Brasil has rated its customers in three key market segments, in order to provide creative solutions and strengthen the bond: Retail, Wholesale, and Public Sector, which is in turn divided as shown in the table below: Retail Wholesale Public Sector Style Private Federal Executive Personalized Large Corporate State Executive Retail Corporate Local Executive Lower Income Business Judicial Authority Business Institutional Investors Legislative Authority Small Businesses Micro-businesses Financial Institutions The Bank is present in 24 foreign countries through its own network, which contained 49 units on 12/31/2012, distributed in the following countries: Germany, Angola, Argentina, Austria, Bolivia, Chile, China, South Korea, United Arab Emirates, Spain, United States, France, Cayman Islands, England, Italy, Japan, Mexico, Panama, Paraguay, Peru, Portugal, Uruguay, and Venezuela. This network is enhanced by correspondents, which on December 31, 2012 totaled 1,124 units in 139 countries. Additionally, in April/2011, the Bank expanded its presence in South America with the acquisition of the controlling interest of Banco Patagonia, in Argentina. In January 2012, BB completed a transaction for the acquisition off all BB Americas shares, a bank headquartered in Florida (USA), which has a network of three branches. In order to expand its business, in addition to preserving its leadership, Banco do Brasil has taken steps in the light of the increasing competition in the Brazilian banking scenario in recent years. The key measures adopted were as follows: acquisition and takeovers of financial institutions, entering into strategic partnerships, besides intensifying its international activities. In addition, Banco do Brasil has been increasing its capacity of marketing its products and services through a diversity of channels. It also launched a program to encourage improved customer assistance, with the aim to provide excellence in services by means of a differentiated, qualified, and innovative assistance structure. Hence, BB seeks to increase efficiency and profitability, always committed with sustainable results, high performance, and adding value to its actions, reconciling public and private interests, and creating growing returns to shareholders and to the country. 86

87 Banco do Brasil S.A. - Reference Form/2013 Other actions taken by Banco do Brasil in the period were reductions in fees and improvement in credit offer conditions, mainly for emerging classes, contributing to the access of a significant portion of the population to products and services that contribute to improve these people quality of life. Bompratodos was launched in April 2012 and comprises a set of measures and advantages whose purpose is to raise awareness in the use of credit to guarantee corporate sustainability. New strategy afforded the creation of a virtuous cycle, increasing business volume and the use of products and services offered by the banking institution. The table below shows Banco do Brasil in round numbers during the periods stated. R$ million, except as otherwise indicated Total assets 802, ,823 1,136,007 Loans to customers without Provisions 338, , ,071 Customer deposits 359, , ,515 Shareholders' equity 54,419 63,269 69,898 Net income 11,330 12,737 11,438 Return on average equity - % Information of each segment The following is information regarding each area a. products and services marketed Banco do Brasil is present in every financial market area and provides financial and non-financial solutions to its customers. BB rates its actions as follows, according to the defined definitions pursuant to IFRS 8: (i) Banking; (ii) Investments; (iii) Asset Management; (iv) Insurance, Pension Funds, and Capitalization (Premium Bonds); (v) Means of Payment; and (vi) Others. The information by segment was compiled with a basis on the reports used by Management in the appraisal of the segment's performance, decision making regarding the allocation of funds for investment and other purposes, considering the regulatory environment and the similarities between goods and services. The various types of management information used by Management in the performance appraisal and in the decision-making process are prepared in accordance with the laws and rules applicable to financial institutions, as determined by the Central Bank. Intersegment transactions are conducted under normal market conditions, substantially under the terms and conditions for comparable transactions, including interest rates and collateral. These transactions do not involve payment risks. Banking Segment The banking segment is accountable for the most significant portion of the Banco do Brasil s result, preponderantly obtained in Brazil, and involves a large diversity of products and services, such as deposits, loans and services that are made available to clients by means of a wide variety of distribution channels, located in the country and abroad. The banking segment operations include business with the retail, wholesale and government markets, carried out by the branch network and customer service teams, and business with micro-entrepreneurs and the informal sector, performed through correspondents in the country. Investment Segment Deals are performed in this segment in the domestic capital market, with activity in the intermediation and distribution of debts in the primary and secondary markets, besides equity interest and the rendering of financial services. The net interest income of the segment is obtained by means of revenues accrued in investments in securities minus expenses with funding to third parties. The existing equity interests are concentrated at our associated and subsidiary companies. Financial service fee income results from economic/financial advisory services, underwriting, fixed and variable income, and the rendering of services to associated companies. 87

88 Section 7 - Issuer's Activities Segment of Asset Management Responsible for operations inherent to the purchase, sale and custody of securities, portfolio management, institution, organization and management of investment funds and clubs. Income mainly derived from commissions and management fees charged to investors for services rendered. Security Segment In this segment, products and services offered are related to life, property and automobile insurance, complementary private pension plans and capitalization plans. Income of this segment comes mainly from insurance premiums issued, contributions for private pension plans, capitalization bonds and investments in securities, less commercialization expenses, technical provisions and expenses related to benefits and redemptions. Segment of Payment Methods Such segment is mainly responsible for funding, transmission, processing services and financial settlement of operations in electronic means. Revenues thereof are originated mainly from commissions and management fees charged to commercial and banking establishments for the services rendered described in previous paragraph, besides income from rent, installation and maintenance of electronic terminals. Other Segments Other segments comprise the operational support and consortium segments, which have not been aggregated by not being individually representative. Their revenues are originated mainly from provision of services not covered in previous segments, such as: credit recovery, consortium administration, development, manufacture, commercialization, rent and integration of digital electronic systems and equipment, peripherals, programs, inputs and computing supplies, intermediation of air tickets, lodging and organization of events. b. revenues from the area and its share in issuer's net revenues Table below. c. profit or loss from the area and its share in issuer's net profit Table below. 12/31/ /31/ /31/2012 R$ million % R$ million % R$ million % Total revenue (1) 108, , , Banking Segment 97, , , Investment Segment 2, , , Segment of Fund management , , Insurance Segment 6, , , Segment of payment methods 1, , , Other Segments 1, , , Intersegment transactions (1,140) (1.0) (1,806) (1.4) (1,929) (1.4) Total operating expenses (2) (50,165) 100 (69,657) 100 (70,230) Banking Segment (50,140) 99.9 (69,654) 99.9 (70,334) Investment Segment (348) 0.7 (486) 0.8 (355) 0.5 Segment of Fund management Insurance Segment Segment of payment methods (1) - Other Segments (43) 0.1 (49) Intersegment transactions 366 (0.7) 532 (0.8) 441 (0.6) Total net revenue (3) 58, , , Banking Segment 47, , , Investment Segment 2, , , Segment of Fund management , , Insurance Segment 6, , , Segment of payment methods 1, , ,

89 Banco do Brasil S.A. - Reference Form/ /31/ /31/ /31/2012 R$ million % R$ million % R$ million % Other Segments 1, , , Intersegment transactions (774) (1.4) (1,274) (1.9) (1,488) (2.2) Total net income (4) 11, , , Banking Segment 9, , , Investment Segment Segment of Fund management Insurance Segment 1, , Segment of payment methods Other Segments Intersegment transactions (172) (1.4) 1 - Total Income includes: Interest income and Non-interest income. 2 - Operating Expenses include: Interest expense and Net expense with provision for losses in loans to clients. 4 - Net Revenues include: Total Revenues - Total Operating Expenses 4 - Total Net Income is composed of the following: Net income for the year. Source: Consolidated Financial statements in IFRS. See below the reconciliation chart of the management income with consolidated income: R$ million Managem ent Adjustme nts (1) Consolidat ed Managem ent Adjustme nts (1) Consolidate d Managem ent Adjustme nts (1) Consolid ated Total Revenues 108, , ,452 1, , , ,574 Operating exp. Total (50,165) (611) (50,776) (69,657) (319) (69,976) (70,230) (1,980) (72,210) Total net revenue 58,627 (404) 58,223 63,795 1,254 65,049 67,635 (1,271) 66,364 Total net income 11,731 (401) 11,330 12, ,737 12,463 (1,025) 11, The main component refers to differences between the accounting methods used in the managerial reports in comparison to the accounting methods used in the Consolidated Statement of Income, prepared in accordance with IFRS Description of products and services Below follows the nature of Banco do Brasil's key products and services. This information is grouped according to the areas described in item 7.2 in the Reference Form. The Banking Segment: Individual Loans a) nature of the production process Credit transactions intended for individuals may be separated in two major groups: directed and non-directed. Among the non-directed, the main ones are: (i) Personal Overdraft Lines; (ii) BB Payroll based loans / Renewals; (iii) BB Automatic Loans, (iv) BB Payroll based loans, and (v) BB 13th salary based loans. Directed transactions are as follows: (i) Auto Loans and Auto Leasing; and (ii) Home Acquisition Loans. b) nature of the distribution process Personal Overdraft Lines, BB Payroll based loans / renewals, BB Automatic Loans, and Payroll based loans are provided through all the existing BB customer assistance channels. Formalizing them may take place through the Self-Service Terminals, the Banco do Brasil Customer Assistance Center / CABB, through the Bank's Internet website (bb.com.br), or in the BB branch network throughout the country. The commercialization of Vehicle financing and Vehicle Leasing also is present in BB branch network throughout the country. Home loan services are marketed in the retail and wholesale branches throughout the country. Business simulations with individuals may be made in the internal communications systems and the Internet. c) nature of the markets of activity: i) share in each of the markets Considering the sum of the loan portfolios with standing order in which the operations of BB Payroll based loans / Renewals, the balance reached R$ 21.0 billion in December 2011 and R$ 23.3 billion in December 2012, which corresponds to the market share of 24.6% in banking industry, according to information from Central Bank. Banco do Brasil is a market leader in payroll based loans. The total portfolio balance was of R$ 58.6 billion, or a 31.2% market share on December 31, The Banco do Brasil conglomerate (BB portfolio + 50% of Banco Votorantim) totaled R$ 35.9 billion on December 31, 2012 (including leases). Vehicles market share, considering those classified by BACEN as free funds, was 16.1%. Banking industry recorded on December 31, 2010 R$ billion in housing loans, and Banco do Brasil holding R$ 3.0 billion, with market share of 2.1%. In December 2011, the financial system recorded R$ billion, and Banco do Brasil holding R$ 6.0 billion, or a 3.0% market share. In December 31, 2012, the financial system recorded R$ 276 billion, and Banco do Brasil holding R$ 10.2 billion, or a 3.7% market share. 89

90 Section 7 - Issuer's Activities ii) market competition conditions Personal loans by Banco do Brasil have the following competitive advantages: (i) An automated approach and formalizing through self-service terminals and the Internet, quickly and safely; (ii) Banco do Brasil brand tradition; (iii) Capillarity of the branch network; (iv) Differentiated conditions based on the nature of the service or customer; (v) Competitive interest rates; (vi) BOMPRATODOS: Installment payments of the personal overdraft line and credit card with lower CDC interest rates; Overdraft accounts and Financing, 10 days without interest on the Overdraft accounts. d) occasional seasonality Services with seasonality: Overdraft accounts e BB Loans 13º Salary: In particular in December, when there is a decline in the portfolio volume owing to large repayments resulting from 13th salaries and vacation pay received by customers, who seek to pay of this type of transactions; e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, Banco do Brasil is subject to supervision and regulation by Central Bank (Law no. 4595/64). ii) dependence on a small number of suppliers The Bank depends very little on a small number of suppliers. iii) price volatility Interest rates charged for loan transactions depend on macro-economic conditions such as the basic interest rate, default rates, taxes and reserve requirements, among others. The Banking Segment: Companies loan: Loan transactions intended for legal entities are rated in three blocks: (i) Micro- and Small Company Credit; (ii) Commercial Credits; and (iii) Foreign Trade Credit. The Banking Segment: Loans to SMEs a) nature of the production process The customer under the Management of the Directorate of Micro and Small Enterprises are the Businesses, Domestic, with gross annual revenues up to R$ 25 million, except for Cooperatives. The chief services in the micro- and small business credit portfolio are: (i) BB Giro Rápido; (ii) BB Giro Empresa Flex; (iii) BB 13th Salary Working Capital; (iv) BB Working Capital Mix Pasep; (v) BB Working Capital APL - Local Productive Arrangements; (vi) Discounting Post-dated Checks; (vii) Discounting Receivables; (viii) Discounting Credit Card Receivables; (ix) Advances on Shop-owner Credits; (x) BB Working Capital based on Receivables; (xi) Proger Urban Corporate; (xii) BNDES Card, (xiii) BB Corporate Credit, and (xiv) Fat Tourism Funds. b) nature of the distribution process These transactions are intended to supply the financial needs of micro and small businesses. Customers are offered credit facilities pre-approved through the relationship channels. Customers also have assistance available through the Banco do Brasil Customer Assistance Center - CABB, offering a number of services and transactions. c) nature of the markets of activity: i) share in each of the The Central Bank does not disclose statistics for this segment. markets ii) market competition conditions Personal loans for micro and small businesses have the following competitive advantages, among others: (i) Adoption of highly automated credit analysis methodologies, providing much quicker decisions to credit applications; (ii) The use of a larger number of mass and automated solutions to achieve gains in scale and efficiency; (iii) The intensive use of technology in sales force relationship and training strategies; (iv) Simplification of credit procedures and improved profitability through cost efficiency; (v) Expanded supply of services through alternative channels; (vi) Relationship managers specialized in customer assistance; (vii) The use by micro- and small businesses of a Financial Manager (Internet Banking ), whereby it is possible to release loans, print bank statements, pay employees, bills, and taxes, among other transactions, and (viii) Use of self-service terminals to release working capital operations; (ix) Use of Call Center Banco do Brasil to offer an active offer of loan. 90

91 Banco do Brasil S.A. - Reference Form/2013 d) occasional seasonality There is no seasonality e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, Banco do Brasil is subject to supervision and regulation by Central Bank (Law no. 4595/64). ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Interest rates charged for loan transactions depend on macro-economic conditions such as interest rates, default rates, taxes and reserve requirements, among others. The Banking Segment: Commercial Credit a) nature of the production process Loan transactions intended for middle, upper-middle, corporate and large corporate companies. The areas are defined through a combination of the main economic variables (Manufacturing, Trade, and Services) and gross annual revenues (in millions) as show below: (i) Industry: Middle - between R$ 120 and R$ 400; Corporate between R$ 400 and R$ 1,500; Large Corporate - over R$ 1,500; (ii) Trade and Services: Middle - between R$ 25 and R$ 200; Upper Middle - between R$ 200 and R$ 600; Corporate between R$ 600 and R$ 2,000; Large Corporate - over R$ 2,000 The chief services in the commercial credit portfolio are: (i) BNDES Automático; (ii) BNDES Finem; (iii) BNDES Finame; (iv) Financial Leasing; (v) Finame Leasing; (vi) Corporate FCO; (vii) Letters of Guarantee; (viii) Foreign currency working capital loans; (ix) FMM - Merchant Navy Fund; (x) Advances against supply agreements; (xi) BB overdraft lines; (xii) BB Working Capital; (xiii) BB Vendor, and (xiv) Acquisition of receivables. b) nature of the distribution process Commercial credit transactions are made in Banco do Brasil branches specialized in assisting Middle, Upper-middle, Corporate and Large Corporate Companies. c) nature of the markets of activity: i) share in each of the markets Market share according to information from BNDES: Dec/10 Dec/11 Dec/12 BNDES (all lines) Leader with 19.4%; Leader with 21.5% Leader with 28.6% Market share according to information from Banco Central do Brasil: Dec/10 Dec/11 Dec/12 Working capital with funds raised abroad 5.9%; 3% 31.8% Overdraft Accounts 7.3% 6.3% 6.6% Working Capital 20.1% 19.6% 23.7% Vendor 33.0% 31.1% 31.9% ii) market competition conditions Commercial credit has the following competitive advantages, among others: (i) Extensive branch network; (ii) Access to short- or long-term funds for a company's funding of production (iii) Competitive interest rates; and (iv) safety, solidness, and flexibility of BB. d) occasional seasonality There is no seasonality e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, Banco do Brasil is subject to supervision and regulation by Central Bank (Law no. 4595/64). ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Interest rates charged for loan transactions depend on macro-economic conditions such as interest rates, default rates, taxes and reserve requirements, among others. 91

92 Section 7 - Issuer's Activities The Banking Segment: Foreign Trade Finance a) nature of the production process Foreign trade finance is intended to support business and funding for companies in their import and export transactions. The chief services in the foreign trade finance portfolio are: (i) Advances against Export Exchange Contracts (ACC) and Advances against Exchange Bills Delivered (ACE); (ii) Indirect ACC; (iii) BB Export Working Capital; (iv) BNDES-EXIM; (v) Working Capital); (vi) Direct Loans; (vii) Direct or on-lending import finance; (viii) International Leasing; (ix) Overdraft Lines; (x) Export Pre-Payments; (xii) Forfait Discounting; (xiii) and Import Letters of Credit. b) nature of the distribution process Foreign trade finance services are acquired in the Banco do Brasil internal and external networks, which also have available operating support and trading advice by 18 Foreign Exchange Regional Support Managers (Gecex) located in important Brazilian cities in four of the country's regions. In addition, Banco do Brasil uses the Internet to market ACC/ACE loans. c) nature of the markets of activity: i) share in each of the markets Exports: Banco do Brasil ended 2012 as a leader in the ACC and ACE markets, with a volume of US$ 2.7 billion in contracts. This sum is equal to 32.1% of the market for these loans during the period, according to Banco Central do Brasil data. (PROEX) In the BNDES Exim pre-shipment operations, in the year 2012, the volume of disbursements made by BB from January to December totaled US$ million, representing a share of 28.1 % among the financial agents that marketed the product in this period, according to the ranking of BNDES. In the BNDES Exim post-shipment operations, we had a notable performance as an agent bank, totaling US$ million in transactions, a market share of Please note also the volume of disbursements in Export Pre-Payment transactions (US$ 285 billion), Export Working Capital (US$ 2.8 billion), and Direct Loans (US$ 900 billion) from January to December Imports: In 2012 Banco do Brasil disbursed US$ 7.3 billion to finance imports by Brazilian companies, divided into Direct Import Loans (US$ 2.9 billion), On-lending (US$ 1.1 billion), Forfait Discounts (US$ 2.2 billion), and Import Letters of Credit (US$ 1.1 billion). ii) market competition conditions Foreign trade finance has the following competitive advantages in Banco do Brasil, among others: (i) An extensive customer assistance network in Brazil and in strategically located overseas offices; (ii) expertise in consultancy and advisory services on international business (commercial and financial) in Brazil and overseas; (iii) the acceptance of services owing to the Bank's reputation in the international market; an extensive network of overseas correspondent; (iv) rates compatible with those practiced in the international market, in addition to consultancy and advisory services provided by specialized employees during the entire process; and (v) safety, solidness, and flexibility by Banco do Brasil. d) occasional seasonality There is no seasonality e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, Banco do Brasil is subject to supervision and regulation by Central Bank (Law no. 4595/64). ii) dependence on a small number of suppliers The need for funding by means of credit lines obtained from overseas sources. iii) price volatility Interest rates charged for loan transactions depend on macro-economic conditions such as interest rates, default rates, taxes and reserve requirements, among others. The Banking Segment: Agribusiness Loans a) nature of the production process Banco do Brasil has solutions for all the segments and stages of the productive chain of agribusiness. For the productive segment, the credit facilities allow the financing of short-term needs (credit for funding and selling) and long-term needs (credit for investment allowing the modernization of the activity). The facilities are formatted in accordance with the various audiences, allowing the delivery of services to clients ranging from the area of family-based agriculture to large producers, as well as companies and cooperatives. Working Capital for Input Purchase Maintenance credits are intended to provide financial support through a fixed credit facility in order to undertake farming activities, whether in agriculture or cattle raising. Maintenance transactions are covered mainly by: (i) Maintenance of Agriculture and Livestock; (ii) Pronaf Agricultura Familiar; (iii) Pronamp; (iv) Funcafé; (v) FCO. Investment 92

93 Banco do Brasil S.A. - Reference Form/2013 Investment credit facilities serve to fund goods required for production and to modernize agricultural activities. The main products of investment operations are: (i) Pronamp; (ii) BNDES Automático Agropecuário; (iii) Moderagro; (iv) Prodecoop;(v) BNDES/Finame Rural PSI; (vi) FINAME Agrícola; (vii) Procap Agro; (viii) FCO; (ix) Pronaf Agricultor Familiar; (x) Pronaf Mais Alimentos; (xi) Investments in Agriculture and Livestock; (xii) ABC. Trading Credit facilities for marketing are intended to financially support sales of agricultural and livestock production. The trading operations are covered mainly by: (i) FGPP (Financing Guarantee of Prices to Producer; (ii) FEPM (Financing for Storage of Products; PGPM or FEE (Financing for Storage of non-pgpm Products; (iii) Funcafé; (iv) Own Production Trading; (v) Agro-industrial Credit; (vi) Discount of Rural Promissory Note or Rural Trade Notes; and (vii) CPR Rural Product Note. Other lines For the sectors that relate with producers, purchasing their production or supplying inputs used in the farming activity, BB offers services and credit facilities linked to the businesses that favor integration inside the chain. b) nature of the distribution process These lines are found in Banco do Brasil branches. In addition to branches, agribusiness services are found in other distribution channels by farmers and other players in the Brazilian agricultural production chain. Alternative channels for assistance by Banco do Brasil: (i) Canal Facilitador do Crédito (CFC): a personal computer application installed in the Bank's partner entities. This mechanism allows submitting rural loan applications from the partner entities by exchanging files, expediting the procedures for rural credit loans. These entities may be firms providing technical assistance, processors, cooperatives, local governments, unions, and associations; (ii) Business Intentions (ITF): this is a tool that serves to receive, submit, and follow up on business proposals by BB customers. This tool allows customers to register, send and follow up on their business proposals through the Internet. This exchange of information is automated internally to examine and handle proposals; and (iii) Cartão Ourocard Agronegócio: this is a card with multiple functions, combining the possibility of credit and debit transactions, bank account functions, and access to rural credit lines. Created especially for the individual or corporate rural producer, or for rural cooperatives, it enables the purchase of agricultural goods or products linked to their activity, makes financial resources available at the time when the client needs to make the payments relating to the goods purchased, with direct settlement in the rural financing obtained or with direct debit in the checking account. c) nature of the markets of activity: i) share in each of the markets The Sistema Nacional de Crédito Rural (SNCR) portfolio totaled R$171.3 million in December Banco do Brasil, reached a balance of R$ 107,971 million in the same period, the absolute leader in this market, and is responsible for 62.5% of the SNCR. ii) market competition conditions Owing to the capillarity of its branch network and deep knowledge of the market, there is a comparative advantage as compared to its competitors in the rural credit market. Known as the agribusiness bank in Brazil, BB has another very important advantage, which is its market and technical expertise in the agribusiness productive chain: over 200 analysts are strategically located throughout the country in order to transfer expertise, perform market surveys (prices, costs, climate, production, etc.), monitoring trends, identifying threats and opportunities and getting acquainted to the vocation and the particularities of each region and culture in Brazil. Another competitive advantage is the reputation of Banco do Brasil as a partner bank of Brazil's agribusiness. d) occasional seasonality The rural calendar complies with the harvest year. This period is different from the calendar year and covers a semester in one year and another semester in the following year. It starts in July in one year and ends in June of the following year, covering a 12-month period. In the first quarter of the crop year, funds will required for planting (Working Capital) the summer crop. Also during this period there is a concentration of payments of the Working Capital loans for the summer harvest in the preceding harvest-year. From October to December, the demand for working capital 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 working capital loans, and for the summer harvest in the northern and northeastern regions. And demand grows during the harvest-year's last quarter for working capital to fund sales, as this is a harvesting period. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation Rural credit operations are standardized by CMN and by the Central Bank. The Rural Credit Manual (MCR) edited by Bacen's Departamento de Normas do Sistema Financeiro, consolidates rural credit regulations in financing, investments, and projects. 93

94 Section 7 - Issuer's Activities ii) dependence on a small number of suppliers iii) price volatility The Bank has no dependency in relation to few suppliers on account of the structure of funding by the actual network of BB branches. The main sources of funds for rural credit transactions are demand deposits and rural savings Accounts. Transactions made with funding from demand deposits have controlled rates, which vary from 1% p.a. to 5.5% p.a.; transaction funded by means of rural savings have their rates based on funding costs, operating costs, risk, and rates practiced in the market. At each harvest plan, the Government may define a volume of funds from rural savings to be allocated to farming loans under controlled rates and the same levels as with demand deposits, by using the subsidy mechanism or equalizing financial charges. The Banking Segment: Public Sector Loans a) nature of the production process Credit facilities intended for the executive authority and the direct administration of local governments, states, and the Federal District. These are financings with a specific purpose for the respective credit lines, and should not be used for current expenses. Financing is contracted after verification of limits and conditions by the National Treasury Department, established in Article 32 of the Fiscal Responsibility Law and after credit analysis and approval by Banco do Brasil and fund allocator, if applicable. b) nature of the distribution process Credit facilities intended for local governments, states, and the Federal District are processed in Banco do Brasil's branch offices. c) nature of the markets of activity i) share in each of the There is no systematic information. markets ii) market competition Banco do Brasil competes with the following advantages: conditions (i) capillarity of the branch network; (ii) the official bank for 16 states and 16 capital cities; (iii) expertise in on-lending transactions funded by BNDES; (iv) safety, solidness, and flexibility. d) occasional seasonality e) chief inputs and raw materials i) subject to government control or regulation, showing the bodies and the applicable legislation ii) dependence on a small number of suppliers iii) price volatility There is no price volatility In an electoral year there is a period when the contracting of credit operations and the release of funds is prohibited. Public sector credit transactions are subject in particular to the following government regulation: Restrictions on Public Sector Loans regulated by Conselho Monetário Nacional, specifies that financial institutions and any other institutions licensed to operate by Banco Central do Brasil should comply with rules for credit transactions with Public Sector bodies and entities, pursuant to CMN Resolution no. 2827/2001, as emended; Article 32 of Complementary Law 101/2000 (the Fiscal Liability Law) provides for Confirmation of Limits and Conditions by the Ministry of Finance - through the National Treasury's secretary, prior to contracting local currency transactions. The applicable legislation, based on Complementary Law 101/2000, is defined by the Senate through its SF Resolution no. 43/2001, as emended. The Bank does not depend on a small number of suppliers. The Banking Segment: Licitações-e (equivalent to e-bids) a) nature of the production process b) nature of the distribution process An electronic commerce system developed by Banco do Brasil in 2001 and made available for the public sector to make purchases and to contract services electronically. The registration of the buyers and of the suppliers is performed through the network of branches of Banco do Brasil. The procedures involved in the purchases and contracting of services are carried out through the Portal c) nature of the markets of activity i) share in each of the There is no systematic information. markets ii) market competition Banco do Brasil competes with the following advantages: conditions (i) The savings generated for the buyers can as high as 30% on the market value of the goods and services acquired; (ii) Safety: the Bank places the stamp of banking security on the service with encrypted pages; (iii) Capillarity of the branch network; (iv) Technical Support 24 hours a day, 7 days a week; (v) Top award winning system at the Brazilian Conference of Auctioneers; (vi) Supplier base with more than 140 thousand companies registered. 94

95 Banco do Brasil S.A. - Reference Form/2013 d) occasional seasonality (vii) First Portal of Public Purchases to conform to Law no. 12,462/11, which establishes the Distinct Regime for Public Purchases (RDC). None. e) chief inputs and raw materials i) subject to government control or regulation, showing the bodies and the applicable legislation ii)dependence on a small number of suppliers Licitações-e was developed in compliance with all the legal precepts that standardize the method of performance of competitive bidding via the Internet: (i) Law 8,666/ Regulates art. 37 of the Federal Constitution and establishes rules for competitive bidding and contracts of the Public Administration; (ii) Law 10,520/ Establishes a type of bidding process called pregão, for the purchase of common goods and services; (iii) Complementary Law 123/ Establishes the differentiated treatment applied to micro and small enterprises; Decree 5,450/ Regulates the reverse auction, in electronic form, for the purchase of common goods and services. Not applicable. iii) price volatility BB charges the buyers and the suppliers the amount for reimbursement of the costs relating to the delivery of the solution, as provided in Law 10,520/2002, Art. 5, item III. The pricing is performed according to the development of new functionalities and/or of addition of new technologies to the system. The Banking Segment: Funding - Demand Deposits a) nature of the production process Bank accounts for unrestricted transactions by customers, by means of checks, Internet, money transfers, magnetic cards or against receipt, with no direct interference by the Bank. b) nature of the distribution process Branch, Internet, TAA, CABB, and correspondent in the country. c) nature of the markets of activity: i) share in each of the markets Total BB Conglomerate Demand Deposit raising closed 2012 with a balance of R$74.8 billion. Considering only own fund raising (not including, for example, by proportional consolidation), this fund raising balance was R$59.9 billion on November 30, 2012, which is equivalent to 33.2% of market share and leadership in demand deposit raising, according to data provided by Bacen (Banco Central do Brasil) at Sisbacen (last available position: Nov/2012). ii) market competition conditions BB provides the advantage of its solid brand name, branch network capillarity, and a portfolio of services within reach through a banking account. d) occasional seasonality Demand deposit balances tend to grow at every year-end owing to the increased liquidity in the economy during this period. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, Banco do Brasil is subject to supervision and regulation by Central Bank (Law no. 4595/64). ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Not applicable. The Banking Segment: Funding - Savings Accounts a) nature of the production process Deposit account remunerated at TR (Reference Rate), plus monthly or quarterly interest as provided for in Law no. 12,703, of August 7, 2012 conversion of Provisions Act no. 567 of May 3, BB trades two savings accounts: (i) Poupança-Ouro: product managed by BB - a portion of these funds are directed to rural credit or to housing loans, in accordance with lending limits defined by Banco Central do Brasil; (ii) Poupança Poupex: Product of the Management of Savings and Loan Association POUPEX - A portion of these funds are employed in housing loans. b) nature of the distribution process TAA, Internet, Gerenciador Financeiro, BB cell phone self-service, CABB, and Branches. c) nature of the markets of activity: 95

96 Section 7 - Issuer's Activities i) share in each of the markets BB Conglomerate savings accounts total raising closed 2012 with a balance of R$117.7 billion. Raised volume reached R$115.0 billion on November 30, 2012, which is equivalent to 23.8% of market share and market vice-leadership, according to Sisbacen data (last position available: Nov/2012). ii) market competition conditions Savings accounts have become popular in the financial market as they are easy to understand. Another attraction is their preference by conservative investors. It is identical in all the institutions that market this item. In BB, savings have facilitators such as: automatic redemption to cover bank account debit balances, automatic investment of earnings in savings accounts, as well as automatic investment bank account balances. d) occasional seasonality None. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, Banco do Brasil is subject to supervision and regulation by Central Bank (Law no. 4595/64). ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) volatility/price Not applicable. The Banking Segment: Funding - Time Deposits a) nature of the production process Fixed Time Deposits are registered securities that entitle customers to receive earnings over a term specified on contracting. These securities are pre- or post-fixed income papers, with earnings having variations according to the index selected. In Banco do Brasil, Time Deposits are divided into CDBs (Bank Deposit Certificates) and RDBs (Bank Deposit Receipts), and are marketed in bookkeeping form, i.e.: by electronic means. b) nature of the distribution process Post-fixed: (i) BB CDB DI Parceria: Internet, CABB, Financial Manager, BB cell phone self-service, branch self-service terminals; (ii) BB CDB DI: Internet, CABB, Financial Manager, BB cell phone selfservice, branch self-service terminals; (iii) BB CDB DI SWAP: Branches only; Pre-fixed: (iv) BB CDB PRÉ: Internet, CABB, BB cell phone self-service, branch self-service terminals; (v) BB CDB PRÉ COM SWAP. Branches only; (vi) RDR PRÉ: Branches only. c) nature of the markets of activity: i) share in each of the markets BB Conglomerate Time Deposits funding closed 2012 with a balance of R$263.0 billion. Even considering only own raising (not including, for example, Banco Votorantim s proportional consolidation), raised volume reached R$238.0 billion on November 30, 2012, which is equivalent to 29.7% of market share and market leadership, according to Sisbacen data (last position available: Nov/2012). ii) market competition conditions Banco do Brasil trades in pre-fixed and post-fixed deposits. Post-fixed deposits have their earnings linked to the DI (inter-bank) rate, and options by customers for daily liquidity or on expiry only. Banco do Brasil also provides the choice of automatic redemption to cover bank account debit balances in the BB CDB DI and CDB DI Partnership form. One of the advantages of these products is the low sum involved, which may be transacted through the Internet, TAA, cell phone self-service, and Branch Customer Assistance. d) occasional seasonality None. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, Banco do Brasil is subject to supervision and regulation by Central Bank (Law no. 4595/64). ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Not applicable. 96

97 Banco do Brasil S.A. - Reference Form/2013 The Banking Segment: Funding - Subordinated Financial Bonds a) nature of the production process This is a credit instrument issue by financial institutions solely in book form, through its registration in the assets clearing and settlement systems authorized by Banco Central do Brasil. b) characteristics of the distribution process Investors interested in acquiring LFs should get in touch with the DIFIN/ GEROF Fixed Income desk asking for a quote, or this desk will inquire in the market offering this instrument based on a decision by the DIFIN Committee. Should the investor be interested in the rate informed as in item 3, the operator will close the transaction c) characteristics of the markets in which it operates: i) share in each of the markets In December 2012, Financial Bills amounted to R$174.6 billion in the market, while subordinated Financial Bills amounted to R$70.8 billion. BB s inventory of Financial Bills was R$3,569.7 million and of Subordinated Financial Bills was R$9,197 million. ii) market competition conditions Financial bills (LF) may be remunerated at interest, pre-fixed interest rate, whether or not combined with floating rates or a price index, but cannot be issued with a foreign exchange clause. Earnings may be paid at regular intervals of at least 180 days. The BB brand constitutes a differential, in view of the Bank's tradition and security. d) occasional seasonality None e) chief inputs and raw materials i) subject to government control or regulation, showing the bodies and the applicable legislation: possible dependence on few suppliers iii) price volatility When exercising its activities, Banco do Brasil is subject to supervision and regulation by Banco Central do Brasil (Law no. 4595/64). The Bank does not depend on a small number of suppliers. Despite not being subject to marking to market, there may be a market risk. The Banking Segment: Service package a) nature of the production process Service Package Comprised by a set of bank products or services classified as Priority, Distinct or Special, in accordance with Article 7 of Resolution no. 3,919/2010, according to which the customer pays a monthly fee. The amount charged on a monthly basis is lower than the sum of individual tariffs that comprise it. b) nature of the distribution process Branches, BB self-service terminals, Internet and correspondent in the country. c) nature of the markets of activity: i) share in each of the Not available markets ii) market competition conditions Service Packages provided by bank institutions are similar regarding product types, as market is regulated by BACEN, but differ in price and number of services provided. In this aspect, packages provided by Banco do Brasil are competitive, as they are among the cheapest in the market. d) occasional seasonality None. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation As regards the provision of Bank Services, Banco do Brasil is subject to BACEN Resolution no. 3,919/2010 and Law no. 8,078/1990 Consumer Defense Code. ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Not applicable. 97

98 Section 7 - Issuer's Activities The Banking Segment: Banco Votorantim a) nature of the production process b) nature of the distribution process Banco Votorantim has diversified activities, which cover: (i) retail transactions; (ii) corporate services; (iii) investment fund management; (iv) securities brokers; (v) leasing transactions; (vi) assistance for private banking customers; and (vii) international operations. With head office in São Paulo, Banco Votorantim is active in important cities such as Rio de Janeiro, Belo Horizonte, Porto Alegre, Curitiba, Campinas, Ribeirão Preto, Joinville, Caxias do Sul, and Nassau (Bahamas), with a representative office in London and a brokerage firm in New York. c) nature of the markets of activity: i) share in each of the markets According to data from Banco Central do Brasil, Banco Votorantim is ranked in 8th place in total assets, in September ii) market competition conditions d) occasional seasonality Competitive Advantages: Banco Votorantim's operations are conducted by a group of institutions that act in a concerted manner; BV provides companies with products and services intended for commercial and investment areas; BV Financeira is active in consumer loans; Votorantim Asset Management (VAM) is in charge of third-party funds; and Votorantim CTVM, of securities brokerage services. Not applicable. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, BV is subject to supervision and regulation by Banco Central do Brasil (Law 4595/64). ii) dependence on a small number of suppliers: BV does not depend on a small number of suppliers. iii) price volatility Not applicable. The Banking Segment: Collection Services a) nature of the production process b) nature of the distribution process A service allowing suppliers (assignors) of goods and services to receive the proceeds of their sales by issuing bank vouchers, serving for their customers (assignees) to easily settle their liabilities by means of any channels inter-connected to the bank network. Available in Banco do Brasil branches; c) nature of the markets of activity: i) share in each of the markets Number of Bills (thousand) ii) market competition conditions Market 1,793,215 1,921,301 2,102,222 BB 340, , ,929.9 Share % 19.0% 18.2% 17.6% Amounts (R$ million) Market 2,069, ,353, ,603,517.8 BB 449, , ,895.2 Share % 21.7% 21.8% 22.12% Source: Câmara Interbancária de Pagamentos (CIP) Títulos na COMPE. Not available d) occasional seasonality None. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, Banco do Brasil is subject to supervision and regulation by Central Bank (Law no. 4595/64). 98

99 Banco do Brasil S.A. - Reference Form/2013 ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Not applicable. The Investment Area: Securities Public Offering a) nature of the production process A transaction in which the Bank as an intermediary provides potential investors with securities issued by a varied number of issuers. b) nature of the distribution process (i) Banco do Brasil branch network and website. (ii) Direct Contact with Institutional Investors. c) nature of the markets of activity: i) share in each of the markets In 2012, BB occupied the first place in ANBIMA ranking of Variable Income Origination in number of transactions, and the third place in ANBIMA ranking of Variable Income Origination in value of transactions. ii) market competition conditions Owing to the growing importance of the Brazilian Capital Market to international investors and the earnings paid, competition grew among investment banks. Main European and North-American variable income houses are present in the Brazilian market. BB's key competitors in selling to non-institutional investors are brokerage firms associated with the major retail banks (Bradesco, Itaú, HSBC, Santander). d) occasional seasonality Issuing Companies select to market securities during favorable market conditions, which may result in a seasonal effect in events. It is also evidenced that during August these public offerings are not usual, in view of the vacation period in northern hemisphere countries. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation The Capital Market Law. Rules and regulations disclosed by CVM. ANBIMA Codes. The Brazilian Corporate Law. ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Not applicable. The Investment Area: Purchase and Sale of Shares a) nature of the production process A transaction in which the Bank intermediates share purchases and sales. b) nature of the distribution process Network of branches, Share Purchase and Sale platform in the Internet (Home Broker BB) and mobile devices (Tablets and Smartphones). c) nature of the markets of activity: i) share in each of the markets BB is not listed in the BM&FBovespa Home Broker Ranking as it does not have its own brokerage firm and operates through brokers with which it has agreements for system inter-connections. ii) market competition conditions Potential growth market. In recent years an increase in competition has been noted among brokers for a larger share in retail business. The key services provided are similar, but a number of competitors stand out for their more dynamic use of new technological tools. Among the key competitors are also brokerage firms associated to the major retail banks. Competitive Advantages: (i) It is possible to purchase and sell shares through the personal bank account, with no need to transfer funds to another account or to the brokerage firm; (ii) Capillarity of the branch network, serving to operate in the Branch Network throughout the country; (iii) Solidness of the BB brand name, which gives greater security to investors in connection with the products and services provided; (iv) A broad customer base not yet registered as investors gives Banco do Brasil ample chances for prospecting. Competitive Disadvantages: (i) Lack of its own brokerage firm; (ii) Operations only in the spot market. d) occasional seasonality The volume of business may change according to market fluctuations and investor expectations regarding performance of variable income. 99

100 Section 7 - Issuer's Activities e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation The Capital Market Law. CVM rules and regulations. Stock market regulations. The Brazilian Corporate Law. ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Not applicable. The Investment Area: Capital Market Service Provision a) nature of the production process Sale/acquisition: transfer transactions of companies or public concessions. These can be structured as the sale / acquisition of shares or of assets / liabilities in an industrial compound. Mergers/Acquisitions: these are transactions in which two or more companies merge and create a new one, or in which a company is absorbed by another. Transactions that generally include a corporate asset contribution and/or exchange of shares by the companies involved. Corporate restructuring: A transaction that creates a change in a company's shareholding structure. b) nature of the distribution process Banco do Brasil's corporate branch network. c) nature of the markets of activity: i) share in each of the markets Participation in Merger and Acquisition per number of transactions, pursuant to the Anbima ranking for the 3rd quarter of 2010: Announcement: 9, with 8 operations. Participation in Merger and Acquisition transactions per value of transactions: Announcement: 17th, with a volume of R$ 2,584 million. Source: Anbima Ranking ii) market competition conditions Competitive Advantages: (i) Banco do Brasil's credibility and countrywide activity with a broad relationship network covering a number of sectors and company sizes; (ii) Relevant share by BB in credit support to business; (iii) Increased prospecting for potential overseas investors. Competitive Disadvantages: (i) Need for compliance with the provisions of Law 8666/93. d) occasional seasonality None e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation The Capital Market Law. CVM rules and regulations. The Brazilian Corporate Law. ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Not applicable. The Investment Area: Qualified Safekeeping a) nature of the production process According to the Anbima Regulating Code and Best Practices for Qualified services to the Capital Market, the Qualified Safekeeping Service covers physical and financial settlement of assets, their safekeeping and management and information of events related to the assets. Safekeeping of the assets consists in controlling the assets in the name of customers, in book form, with depositaries, trustees, clearing houses and systems, reconcilement of positions recorded and responsibility for transactions with the assets registered. Settlement consists in validating operating information received from customers against information received from institutions intermediating transactions, timely remittance of information to the parties involved with the physical and/or financial settlement, in accordance with the rules from the different depositaries and settlement houses and systems. To perform this service, the Bank has records in individual accounts with the clearing houses involved in the transactions held, and uses its Bank Reserves account to control the flows of payments and receipts in connection with the transactions held. b) nature of the distribution process Requests for Qualified Safekeeping services come to Banco do Brasil through the branch network (the Wholesale and Government areas) as well as through direct requests from major market players (asset managers, qualified investors, corporate, customers, etc.) owing to the market 100

101 Banco do Brasil S.A. - Reference Form/2013 awareness of BB's Safekeeping services. c) nature of the markets of activity: i) share in each of the markets In the course of recent years, Banco do Brasil has maintained its position as one of the country's three largest custodians, according to the Anbima Asset Safekeeping Ranking. BB has sought to improve its position in the Ranking and to occupy a place among the major custodians in the Overseas Market segment. On January 2011 BB achieved the mark of 19 million ADRs issued. According to the Anbima Ranking for December 2010, BB is the country's third largest custodian with a total of R$ billion in assets in safekeeping (an increase of R$ 40.6 billion, or 8.0%, of assets in safekeeping in one year). ii) market competition conditions Competitive Advantages: (i) The BB brand tradition and solidness; (ii) Personalized Assistance; (iii) Customized Solutions; (iv) Alternative contingency environment; (v) Independent systems for registration, settlement, safekeeping, processing, and bookkeeping. d) occasional seasonality None e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation The Capital Market Law. Under Law no. 10,303 dated October 31, 2001, regulating and supervising financial services and investment funds came under the responsibility of CVM. The Brazilian Corporate Law. ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Not applicable. Asset Management Area; Asset Management a) nature of the production process BB Gestão de Recursos Distribuidora de Títulos e Valores Mobiliários S.A. (BB DTVM) is a specialist company in third parties funds management and administration and its main distributors is Banco do Brasil. Accordingly, the company manages assets allocated to different types of investment funds, as defined by CVM and established in its bylaws, aiming at the best risk/return rate that is adequate to the investor s profile. In addition, it is responsible, as the administrator, for all services that are directly or indirectly related to the fund operation and maintenance, providing information to regulatory agencies and shareholders. b) nature of the distribution process Self-service terminal, Internet, Gerenciador Financeiro, Branches, and CABB (after the 2nd investment through CABB). c) nature of the markets of activity: i) share in each of the markets In accordance with ANBIMA s fund administration ranking, BB DTVM closed 2012 with R$444.0 billion in third parties funds and market share of 20.0%, consolidating its position of largest administration firm of Brazil. This result represented a growth of 6.8% in relation to prior year. BB DTVM is also the largest administration firm of third parties funds of Brazil, with total volume of R$434.1 billion and market share of 19.9%, according to ANBIMA data of December ii) market competition conditions Competitive Advantages: (i) Expertise in the creation of investment solutions for every market segment; (ii) Excellence in Management Quality (MQ1 - the highest score in the rating), attributed since 2006 by Moody's, one of the world's key risk rating agencies; (iii) International Certification ISO 9001:08 Total Quality for its Process of Credit Risk Analysis, one of the most renowned titles of service and process quality, obtained in October The company was audited by Fundação Carlos Alberto Vanzolini and the title has international scope; (iv) soundness of the BB brand, as BB DTVM is a wholly-owned subsidiary of BB, largest financial conglomerate of Brazil, according to Bacen s data; (v) Leadership in management in the domestic investment fund and asset management market, pursuant to the Anbima ranking dated December 31, 2010; (vi) Chinese Wall Concept, required by Banco Central do Brasil, with complete segregation between third-party asset management and financial transactions of BB's own funds; (vii) Asset management model focused on different strategies for assets concentrated in: fixed income, variable income, and multi-markets / offshore; (viii) Signatory of PRI - Principles of Responsible Investments (ix) Qualified professionals acknowledged by the market, the result of a policy of continued technical training adopted by the company. d) occasional seasonality The key seasonal effect in BB's investment funds refers to investments / redemptions by the public 101

102 Section 7 - Issuer's Activities sector. In general, in December there are large withdrawals from short-term investment funds (intended for this public), while in January incoming funds are the rule. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, Banco do Brasil is subject to supervision and regulation by Banco Central do Brasil (Law no. 4595/64), in addition to CVM rules and regulations. ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility Not applicable. Segment of Insurance, Pension Plans and Capitalization (Premium Bonds) a) nature of the production process Banco do Brasil works to maintain an updated portfolio of insurance, open pension plans and capitalization bonds, valuating innovation in solutions and processes, seeking the universalization and streamlining of access purchase types, in addition to promoting the continuous expansion of the protection concept. Another characteristic of the production process is the attention to the after-sale, internal controls and compliance aspects, to maintain the competitiveness in relation to the other players of the insurance market, and the full compliance with the provisions of regulatory agents. The solutions sold are: (i) Personal Insurance (Life, Accident and Credit Life Insurance); (ii) Damage Insurance (Auto, for Agribusiness, Home, Property, Credit, Financial Risks and others); (iii) Open Supplementary Pension Plans; and (iv) Savings Bonds. b) nature of the distribution process These lines and services are marketed in the Branch Network, Self-Service Terminals, Internet, Mobile Banking and correspondents in the country. c) nature of the markets of activity: i) share in each of the markets Based on data made available by the Susep (Private Insurance Superintendency) in Dec/12, BB occupied the following positions: (i) Auto Insurance - 6th position in the ranking of billings and insurance premiums; (ii) Life Insurance - 1st position in the ranking of billings and insurance premiums; (iii) Open Supplementary Pension Plans - 2nd place in the turnover ranking and 3rd place in the total provisions ranking; (iv) Premium Saving Bonds - 1st place in the turnover and total provisions rankings. ii) market competition conditions Banco do Brasil's main competitive advantages are its traditional 200-year brand, in conjunction with a large distribution network for its lines and services. d) occasional seasonality It applies exclusively as refers to insurance for Agribusiness, more specifically in allusion to agricultural insurance policies, as these have a contracting date associated with the start of the crop season, when farmers take out bank loans and should guarantee the plantations (offered as collateral) against climatic risks. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation SUSEP is the agency in charge of controlling and inspecting the market for insurance, private pension plans, capitalization (premium bonds), and reinsurance. ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility None. The Means of Payment Area: Cards a) nature of the production process The Banco do Brasil card portfolio was designed to provide the type of card, its services and attributes, to meet the needs of different publics and sectors. In the case of Individuals, consumer habits and purchasing power of customers are taken into consideration, among other aspects. In the case of Legal Entities, the size of companies and their needs are taken into consideration, among other aspects. BB has been issuing the Ourocard brand since September 2001 with multiple functions and under the Visa and Mastercard banner. These cards put together in one single plastic credit and debit functions, as well as bank account transactions. As of June 2009 the Ourocard became available with the American Express banner, with a credit function. In April 2011 it issued multiple function cards in the Elo brand. On December 31, 2012, Banco do Brasil's debit and credit card base totaled 80.8 million

103 Banco do Brasil S.A. - Reference Form/2013 million in credit cards and 59.8 million in debit cards issued, b) nature of the distribution process Credit cards for Individuals are marketed through all of the Bank's distribution channels (branches, BB customer assistance, Internet, self-service terminals, and correspondents in the country). Credit cards for Legal Entities are marketed only in the Bank's branches, owing to their special features. On the other hand, private label cards for individuals are marketed through BB's partner companies, customer assistance, or the Internet. Beginning as of January 2012, Ourocard cards started to be traded also in Banco Postal. c) nature of the markets of activity: i) share in each of the markets Going from data estimated by the Brazilian Association of Credit Card and Service Companies - ABECS, we estimate that the market share of BB in the total turnover (credit, debit and private label) came to around 21.5% in ii) market competition conditions Competitive Advantages: (i) In addition to it being publicly recognized as a safe bank, Banco do Brasil is agile and innovative in the development of new products and services; (ii) It acts focused on life cycles and on providing customers with quality assistance, and (iii) It offers products and services for all client segments with one of the lowest rates and interest rates in the market. d) occasional seasonality During the year, the volume of card billings is seasonal according to purchases of goods and services, such a Mothers' Day, Children's Day, Christmas, etc. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation When exercising its activities, Banco do Brasil is subject to supervision and regulation by Central Bank (Law no. 4595/64). ii) dependence on a small number of suppliers The Bank does not depend on a small number of suppliers. iii) price volatility None. Services for Own Social Security Systems a) nature of the production process The entire process of creating lines and services prepared for the social security area is developed by means of a corporate tool to control and assess risks in the services. b) nature of the distribution process Marketing takes place through the branch network. c) nature of the markets of activity: i) share in each of the markets 1st place in asset management for the RPPS Regimes Próprios de Previdência Social market. Market share in this segment reached 31.3 and assets volume R$24.4 billion, position as of December 31, ii) market competition conditions The market is highly competitive in marketing its services, with CEF as the key competitor. Moreover, it should be explained that BB has an extensive portfolio of lines in support of its asocial security services, and may be retained when public bids are waived or not requited (Law no. 8666). d) occasional seasonality None. e) chief inputs and raw materials: i) subject to government control or regulation, showing the bodies and the respective legislation Ministry of Social Security, CVM, and TCE (Accounting Court). Federal Law 9717/98 and 10887/04 and CMN Resolution 3922/10. MPS Ordinances No. 402/08, No. 403/08 and No. 519/11. ii) dependence on a small number of suppliers BBDTVM, Banco do Brasil s wholly-owned subsidiary, operates as manager and administrator of investment funds intended to RPPS (Social Security Own Regime) segment. iii) price volatility Not Applicable 103

104 Section 7 - Issuer's Activities 7.4. Customers responsible for over 10% of total net revenues Confirm whether there are customers responsible for over 10% of the issuer's total net revenues, informing: (a) the total sum of revenues from customers and (b) operating areas that reflect revenues from customers. Banco do Brasil does not have customers responsible for over 10% of the institution's total net revenues Relevant effects of state regulation on Banco do Brasil's activities Describe relevant effects of state regulation on the issuer's activities: a. need for government authorization The need for governmental approval to exercise activities and background of relations with the public authorities in obtaining such approvals. The basic structure of the National Financial System - SFN was put in place under Law no. 4595/64, which created Conselho Monetário Nacional - CMN and granted Banco Central do Brasil the power of issuing currency and controlling credit, among other attributions. Key Regulatory Agencies System is composed of the following normative and supervisory bodies: Conselho Monetário Nacional - CMN (National Monetary Council): CMN is the Banking Industry's supreme authority and is in charge of monetary and financial policy in Brazil, and of the creation and overall supervision of monetary, credit, budgetary, fiscal, and public debt policies. Conselho Nacional de Seguros Privados (CNSP, National Council of Private Insurance) CNSP, under the Ministry of Finance, is the agency responsible for setting the guidelines and rules of the private insurance policy. It is composed of the Minister of Economy and Finance (President), representatives of the Ministry of Justice, Ministry of Social Security, Susep (Private Insurance Superintendency), Central Bank and CVM (Brazilian Securities and Exchange Commission). Conselho Nacional de Previdência Complementar (CNPC, National Council of Pension Plans) The CNPC (old Supplementary Pension Management Council) was created by Law 12,154, of 12/23/2009, is a body of the basic structure of the Ministry of Social Security, and performs the role of regulatory agency of the supplementary pension regime operated by closed supplementary pension entities. PREVIC Law 12,154, of December 23, 2009, created the National Superintendency of Supplementary Social Security - PREVIC, a special autonomous agency with administrative and financial independence and own equity, connected to the Ministry of Social Security. The Previc supervises and oversees the activities of closed supplementary social security entities and applies the policies of the supplementary social security regime operated by closed supplementary social security entities.. Banco Central do Brasil (BCB or Bacen, Central Bank) Law No. 4,595/64 granted the Central Bank powers to implement the monetary and credit policies established by the CMN, as well as to oversee public and private financial institutions and apply sanctions provided for in the legislation, whenever needed. 104

105 Banco do Brasil S.A. - Reference Form/2013 CVM The CVM is an autonomous agency connected to the Ministry of Finance (Law 6385/76), is headquartered in Rio de Janeiro and has jurisdiction all over Brazil, independent administrative power and own corporate personhood and equity. This agency is responsible for applying the CMN's policies in the securities market, with jurisdiction to regulate, develop, control and supervise this market, strictly in compliance with the Capital Market Law and the Brazilian Corporation Law. Susep The Private Insurance Superintendency (Susep) is the agency responsible for controlling and supervising the insurance, pension plans, capitalization (premium bonds) and reinsurance markets in Brazil. It is an autonomous agency connected to the Ministry of Finance, created by Decree-Law No. 73, of November 21, Legal Reform of the National Financial System, Amendment to the Brazilian Constitution Article 192 of the Brazilian Constitution, enacted in 1988, fixed a maximum limit of 12% per year for tax rates on bank loans. Since the enactment of the Constitution, however, this limit has not been applied, due to the pending regulation of the respective article. Many have been the attempts to regulate the maximum limit for tax rates on bank loans, but none have worked out. Accordingly, STF Binding Decision no. 7 reaffirms the understanding that the application of said limit depends on issuance of a Supplementary Law, which did not occur. In May 2003, however, the Constitutional Amendment 40 (EC 40/03) was approved in substitution for all subsections and paragraphs of article 192 of the Federal Constitution. Said Amendment replaced the restrictive constitutional provisions by a general permission for the National Congress to regulate the SFN (National Financial System). With the enactment of the Civil Code, at first, the maximum limit for the interest rates was indexed to the benchmark annual overnight Selic rate (Selic rate), except when the related parties agree to use in the loan other interest rates set forth in law. As regards legal interest limit, prevailing position in STJ is not to apply it to bank credit notes and contracts (common loan) based on that, in the first case, governing law (Law no. 10,931/04) does not impose any limit nor attributes to any agency its limit and, in the second case, limit provided for in Decree no. 22,626/33 (Usury Law) is not applicable to financial institutions, which are submitted to Law no. 4,595/64 (Bank Reform Law). Anyway, interest charged by the Bank may always be reviewed by Courts, in case it is proven that agreed-upon rate exceeds average rate practiced by the financial market, without relevant justification, characterizing the abuse. Also in relation to interest legal limit, STJ understands that this limit should be twice as much as SELIC rate, when credit transaction is backed by rural, commercial and industrial notes, considering the interpretation STJ has on Decree-Laws no. 167/67 and 413/69, that govern them. As regards capitalization of agreed-upon interest, STJ admits it both for bank credit notes and rural, commercial and industrial credit notes, as well as for contracts (common loan). Regarding notes, STJ is backed by the provisions of respective governing standards. When it comes to contracts (common loan), STJ accepts the capitalization of interest for instruments executed beginning as of March 30, 2000, resulting from the interpretation of Article 5 of Provisional Act no. 2,170-32, of August 23, 2011 (originally included in Provisional Act no. 1,963-17, of March 30, 2000), provided that expressly agreed upon. Note that the Direct Action for Unconstitutionality no is awaiting STF judgment on unconstitutionality of that legal provision. If this action is considered valid, Courts will probably reestablish the veto on interest capitalization for contracts (common loan), backed by the Usury Law. Finally, as regards late payment surcharge, note that it is expressly prohibited in rural, commercial and industrial notes, as respective regulations provide for limits to delinquency charges. STJ has been permitting it for bank credit notes and contracts (common loan), provided that expressly agreed-upon and complying with provision of Abstract 472, in verbis: 'Charging late payment surcharge, whose amount may not exceed the sum of remuneration and delay charges provided for in contract excludes the payment of remuneration and delay interest, and contract fine. 105

106 Section 7 - Issuer's Activities Main limitations and restrictions on Financial Institutions The activities carried out by financial institutions are subject to several limitations and restrictions. In general terms, these limitations and restrictions are related to credit granting, risk concentration, investments, repurchase agreements (repos), loans and trading in foreign currency, investment fund management, microcredit and payroll- deductible loans. Restrictions to credit granting Financial institutions cannot grant loans or advances: (i) to officers and members of their advisory board, board of directors, fiscal council and similar boards, as well as to their respective spouses; (ii) to second degree relatives of the individuals mentioned in item I above; III - To individuals or legal entities that hold interest in their capital stock above 10% (ten per cent), except in the case of specific authorization by the Banco Central do Brasil, on a case by case basis, with regard to transactions connected to purchase and sale agreements or commodity pledge, at limits fixed by the National Monetary Council, on a general basis; IV - To legal entities in which they holds interest of over 10% (ten per cent); (v) To legal entities in which they hold interest of over 10% (ten per cent), any of the officers or administrators of the financial institution itself, as well as their spouses and respective second degree relatives. In relation to public financial institutions, such as BB, the restriction in item IV above is not applicable (paragraph 2 of Article 34 of Law 4,595/1964). The restrictions regarding related party transactions are not applicable to transactions carried out between financial institutions in the interbanking market. In addition, currently there are restrictions imposed to financial institutions that limit credit granting to entities in the public sector, such as subsidiaries and government agencies, that come to add to the limits of indebtedness for these entities. Repurchase transactions Pursuant to the terms of CMN Resolution no. 3,339, of January 26, 2006, repurchase and resale agreements are fixed income purchase or sale transactions with commitment to resell or repurchase on a date agreed-upon by the parties, with admitted anticipation of resale or repurchase through agreement between the parties. The repos are subject to operating capital limits, based on the referential equity (as defined in CMN Resolution No. 3,444 of February 28, 2007) of the financial institution, adjusted according to the regulations of the Bacen. Financial institutions may only conduct repurchase committed transactions at an amount that is up to 30 times its regulatory capital. Within this limit, a repo involving private securities cannot exceed five times the amount of the referential equity. Limits for repos involving securities pegged to government authorities vary according to the type of security of the transaction and the risk perceived by the issuer. Fixed-income transactions Fixed-income transactions are characterized by having defined compensation rules. That is, these transactions have fixed income (fixed interest rates) or income pegged to indices (inflation rates, interest rates, etc). The trading of Federal Public Bonds comprise the definite purchase and sale of the Bonds issued by the Federal Government, and are registered in the Public Sector Securities Market Clearing System - Selic, according to the BACEN Circular No. 3,587, of 11/5/2010. Decree No of 07/04/2001 defines the characteristics of the Federal Public Bonds, and there are a large variety of public bonds, each one with specific terms (maturities) and profitability. Derivatives Derivatives are financial assets with full or partial amounts arising from other financial assets or commodities. BB uses derivatives to hedge its positions against price fluctuations, whether taken by the Bank in its transactions with clients or hedge against structural mismatches in Banco do Brasil. The derivatives market is regulated, mainly, by CMN Resolution 3505, on 10/26/2007, CMN Resolution 3568, on 05/29/2008, Law 11033, on 12/21/2004, SRF Instructive Norm 1022, on 04/05/2010, and CMN Resolution 2873, on 07/26/2001, given that it was not totally revoked. 106

107 Banco do Brasil S.A. - Reference Form/2013 Loans in Foreign Currency After registration with the Central Bank, financial institutions can contract loans in foreign currency from funds in international markets, without previous written approval from BACEN, including transfers of these funds in Brazil to Brazilian companies and other financial institutions. Banks carry out these transfers through loans in domestic currency and foreign currency. The transfer terms should be in line with the terms of the original transaction. The interest rates levied on the international loans should comply with the international market practices. In addition to the original operational cost, the financial institution can only charge for a transfer commission. The Central Bank can set limits to terms, interest rates and general conditions for loans in foreign currency. These limits change according to the economic environment and monetary policy. Exposure in foreign currency was set at 30% of the Referential Equity (RE), and can vary from 15% to 75% of the RE, according to Res. CMN 3,488 of 8/29/2007. Regulation of the International Capitals Market and Exchange Market To operate in the foreign exchange market, financial institutions need Bacen s authorization. Once they are authorized to operate in the market, they are submitted to RMCCI (Foreign Exchange Market and International Capital Regulation) provisions. Regulation of Asset Management Under Law and Law 10303, on 10/31/2001, the financial regulation and supervision of the mutual funds and equity are undertaken by the CVM. Only individuals or legal entities authorized by the CVM can act as administrators of third-party assets. Financial institutions must separate the management of third-party assets from its other activities. These institutions must appoint an administrator to act as the agent responsible for the management and supervision of these assets and a specialized technical department to carry out asset management activities. CMN, except in the case of very specific circumstances, prohibited institutions that manage third-party assets and their associated companies to invest in fixed-income funds managed by these same institutions. CVM allows investments in stock funds. There are specific rules related to the diversification of mutual funds portfolio and the composition aiming to reduce the exposure to certain types of risks. The Bacen introduced, in February 2002, changes that oblige the administrators of funds to conduct mark-to-market operations to its fixed-income securities and the results from the asset fund portfolio should be recorded at its market value. The CVM Instruction 409/94, together with other changes, consolidated the rules applicable to investment funds. Certain structured investment funds are exempt from said rules, and are governed by a different set of rules. The asset management industry is also self-governed by Anbima, which approves supplemental rules and policies, mainly with respect to market and advertising. Regulation of Microcredit Several measures have been taken to encourage low incomers to have more access to the Brazilian Banking Industry. These measures include the requirement to allocate credit, streamline banking procedures and release from regulation credit cooperatives. In Brazil, since 2003, due to CMN Resolution No. 3,422 of November 30, 2006, as amended by CMN Resolution No. 3,706 of March , commercial banks and other banks licensed to carry out commercial banking services, credit cooperatives and the Caixa Econômica Federal must allocate, at least, 2.0% of demand deposits collected by the institutions into low-interest loans for low-income earners, micro companies and informal businesses, based on a specific methodology. Interest rates on these loans cannot exceed 2% p.m. (or 4% p.m. for specific production loans - production microcredit), the reimbursement term cannot be less than 120 days (except for specific cases), and the principal amount of the loan cannot exceed R$2,000 for individuals and R$5,000 for micro companies (or R$15,000 in specific production loans). Regulations regarding the main credit facilities for individual clients In relation to the characteristics affecting the Vehicle Finance Agreements between BB and its borrowers, in general, these loans are regulated by the laws applicable to all business transactions and 107

108 Section 7 - Issuer's Activities by the Brazilian Civil Code, especially by articles 1,361 to 1,368-A, in the Title on Rights of Ownership, as Banco do Brasil S.A. - Reference Form/ refers to Chattel Mortgage. In addition to the Brazilian Civil Code, the Consumer Protection Code - Law 8078, of 9/11/1990 and Law 10,931, of 8/2/2004, which addresses the Bank Credit Note, also apply to vehicle finance agreements. Specifically in relation to payroll consigned loans, BB grants credit in compliance with the specific laws and regulations, following the example of Federal Law 10,820, regulated by Decree 4,840, both of 2003, which governs the granting of payroll consigned loans to employees under the regime of the Consolidation of Labor Laws; of the sole paragraph of art. 45 of Law 8112, of 1990, regulated by Decree 6,386, of 2008, which governs loans to federal public officials; and of Normative Instruction INSS/DC 121, of 2005, which governs the granting of loans to retirees and pensioners of the National Institute of Social Security. As refers to property finance, according to Written Notice Deorf/Cofin I 2008/06283, of 6/13/2008, Bacen authorized the creation of a real estate loan portfolio at BB. Specifically on Programa Minha Casa Minha Vida (My House, My Life Program), the regulation of the granting of loans follows Law 11,977, of 7/7/2009, altered by Law 12,424 of 6/16/2011 and regulated by Decree 7,499/11 of 6/16/2011. Regulation of Credit with to the Public Sector Credit operations with the bodies and entities of the public sector are subject to regulations in two main segments: The first one is the Credit Restrictions to the Public Sector and the second is the Verification of Limits and Conditions by the Department of National Treasury. Credit Restrictions to the Public Sector, as per Resolution of the National Monetary Council - CMN 2827/2001, and its amendments, establishes, for financial institutions and other institutions authorized to operate by the Central Bank, the rules for carrying out credit operations with these customers. Operations contracted by Banco do Brasil are included in Resolution No. 2827/2001. The Supplementary Law No. 101/2000, denominated the Tax Responsibility Law - LRF, in Article 32 therein, establishes the Verification of Limits and Conditions by the Ministry Finance, prior to contracting internal credit operations with the Public Sector - this verification is carried out by the Department of National Treasury - STN, an agency connect to this Ministry. The LRF obliges the Union, States, Federal District and Municipalities to verify the limits and conditions prior to carrying out credit operations, comprising: a) the Executive Power Legislative Power, which comprises the Accounting Court, the Judiciary Power and the Prosecutors Office; b) the respective direct administrations, funds, autonomous agencies, foundations and government-dependent governmentcontrolled companies. Credit operations from Banco do Brasil's portfolio are subject to a prior Verification of Limits and Conditions, and are contracted after the authorization issued by the Department of National Treasury. Regulation of public purchases and bids through Internet Licitações-e was developed in compliance with all the legal precepts that standardize the method of performance of competitive bidding via the Internet, based on Law 8,666/ Regulates art. 37 of the Federal Constitution and establishes rules for competitive bidding and contracts of the Public Administration. The system was implemented with the possibility of use of the option provided in Law10,520/ Reverse Auction, as well as the options of: waiver, price quote and invitation. The electronic reverse auction complies with the precepts of Decree 5,450/2005 which regulates the reverse auction, in electronic form, for the purchase of common goods and services. The system also offers the option of application of the differentiated treatment to micro and small enterprises, as provided in Complementary Law 123/2006. Licitações-e was the first public purchase system of Brazil that was adjusted to RDC (Public Contracting Distinct Regime), established by Law no. 12,462/2011. Assignment of Credit to Third-Parties CMN Resolution No. 2,836 consolidates the rules for the assignment of credits to third-parties and authorizes financial institutions and leasing companies to assign credits from loan operations, financing and lease agreements to individuals not registered with the National Financial System, upon cash settlement, without the co-obligation of the assignor and without permission to repurchase the assigned credits. 108

109 Banco do Brasil S.A. - Reference Form/2013 Regulations established to strengthen the Financial System Restrictions to Risk Concentration The Brazilian law prohibits financial institutions to concentrate their risks in a single individual or group of related individuals. The law prohibits financial institutions to assign credits to any individual or group of related individuals in an aggregate amount corresponding to 25% up of its referential equity. This limit is applicable to any operation that involves credit assignment, including: (i) loans and advances; (ii) guarantees; and (iii) subscription, purchase and trading of securities. Restrictions to Investments Financial Institutions cannot: (i) record, on a consolidated basis, permanent assets that exceed 50% of their referential equity; (ii) acquire assets, except for assets for own offices and service stations or (iii) acquire shareholding interests in other financial institutions abroad, without the prior approval of Bacen. When a bank receives real estates as payment for a debt, this property should be sold within the span of a year. This period can be extended for two additional one-year terms, subject to approval by the Central Bank. Internal Controls - Compliance All financial institutions should establish policies and internal procedures to control: (i) its activities; (ii) their financial, operating and administrative information system; and (iii) compliance with the applicable legislation and regulations. The boards of financial institutions are responsible for implementing a structure of effective internal controls, defining responsibilities and control procedures and establishing goals in all levels of the institution. The executive boards are also responsible for verifying the compliance with internal procedures. An internal audit department, which reports directly to the company's board of directors, should be responsible for the monitoring of quality, sufficiency, compliance and effectiveness. Independent Auditors and Audit Committee This independent audit, within the scope of its audit or review procedures and the audit committee should notify the Central Bank on the existence or proof of errors or frauds, within three business days after the identification of these errors or frauds, represented by: (i) the non-compliance with legal and regulatory rules that bring risks to the continuity of the audited entity; (ii) fraud in any amount caused by the entity's management; (iii) material frauds caused by the entity's employees or by third-parties; or (iv) errors that significantly compromises the accounting records of the entity. Independent auditors All financial institutions in Brazil should have their financial statements audited by independent auditors. These auditors can only be hired: (i) if they are registered with the CVM; certificate under analysis of the banks by the Institute of Brazilian Independent Auditors (Ibracon) and the Brazilian Institute of Independent Auditors; and (ii) if they meet the several requirements that assure their independence. At least every five consecutive years, the financial institutions should substitute their independent auditors (accountant in charge, officer or director, manager, supervisor and any other member, with management duties, of the team involved in the audit work), in accordance with a requirement established by Resolution CMN 3,606, of 9/11/2008 and its amendments. Ex-accountants can only be hired again after having passed full three years since their previous service. In addition, financial institutions must appoint a technically-qualified senior manager to be responsible for the compliance of all rules on financial statements and auditing. It is not permitted to hire individuals that worked in the auditing team in the previous 12 months. In addition to an audit report on the financial statements, the independent auditors should prepare: (i) an evaluation of the internal controls and risk management procedures exercised by financial institutions, namely in relation to its electronic system of data processing, showing all the potential failures verified; (ii) description of noncompliance of financial institutions with any applicable law that is pertinent to its financial statements or activities. 109

110 Section 7 - Issuer's Activities Audit Committee (Coaud) Under Resolution No. 3,198/04 and Circular 3,299, every financial institution (i) with referential equity or consolidated referential equity equal or higher than R$1 billion, (ii) with third-party asset management activities, assets equal or higher than R$1 billion or (iii) with third-party fund management activities, assets and deposits in the overall amount equal or higher than R$5 billion, should install an internal audit committee to indicate in its financial statements that this parameter was achieved within a year. The audit committee must be composed of, at least, three members, for a maximum five-year term for institutions with shares traded on the stock exchange and without a fixed term of office for closely-held institutions. The number of members, criteria for appointment, removal and compensation, term of office and duties of the audit committee should be expressed in the by-laws or in the articles of incorporation of the institution. At least one of the members of the audit committee should prove expertise in accounting and auditing that qualify the member for his position. As regards institutions with stock exchange traded shares, CMN Resolution no. 3,198/04 establishes a set of basic conditions for the exercise of Coaud member. Additionally, in Union-controlled institutions, such as Banco do Brasil, the members of the audit committee: (i) cannot have permanent positions licensed by the government (in this case, BB and the Federal Government); (ii) cannot have occupied, in the previous 12 months, a permanent position or functions in the government (in this case, BB and the Federal Government). The audit committee should present a report to the board of directors or the executive board, on a case by case basis, among other duties. Financial Report and audit requirements The Brazilian law requires that financial institutions prepare their financial statements according to certain standards established by the Brazilian corporation law and other applicable regulations. Every financial institution is obliged to have their financial statements audited on a six-month basis. Quarterly financial information, as required by Central Bank and CVM regulations, is subject to review by independent accountants. CMN Regulation for the Recording and Classification of Asset Sale or Transfer In January 2012, changes to the recording, classification and disclosure of assets sales and transfers in banks books became effective (as provided for in CMN Resolution no. 3,533 of January 31, 2008 and amendments). The accounting treatment becomes based on risk transfer criteria, and, secondarily, on control transfer. Therefore, the sales or transfers of financial assets should be classified and recorded in the accounting records according to the following categories: (iii) transactions without substantial transfer or retention of risks and benefits; (ii) transactions with substantial retention of risks and benefits; (iii) transactions without substantial transfer or retention of risks and benefits. The evaluation on the transfer or sale of risks and benefits of financial assets is a responsibility of the institution and must be carried out based on the criteria consistent and subject to verification. In line with Resolution No. 3,533, if the assignor significantly retains the risks and benefits of the assigned assets, these credits cannot be recorded as loans off balance sheet. This provision is equally applicable to transactions: (i) with repurchase agreements; (ii) in which the assignor undertakes the obligation of offsetting the assignee for losses; and (iii) carried out jointly with the acquisition of subordinated shares in Investment Funds of Credit Rights (" FIDC"). Guidelines to Capital Adequacy Brazilian financial institution should comply with the guidelines established by the Central Bank and the CMN similar to the Basel Accord due to the risk of capital adequacy, including the Basel Accord II, which is under implementation. The banks provide Bacen with the information needed to exercise its supervision activities, which include controlling the solvency or capital adequacy operations. The main fundamental of the Basel Accord II, as implemented in Brasil, is that a bank's own capital should cover the main risks, including credit risks, market risks and operational risks. The CMN and Bacen requirements are different from those of the Basel Accord II in the following aspects: (i) they imposes minimum capital at 11%, instead of the 8% in the Basel Accord II; (ii) they demand additional capital for operations involving swap foreign currency and interest rates off balance sheet; (iii) they ascribe different weighting of risks and factors of credit conversion to certain assets, 110

111 Banco do Brasil S.A. - Reference Form/2013 including tax credits; (iv) they demand the calculation of and report on minimum capital and capital interests on a consolidated basis; (v) they require that banks reserve a portion of their capital to cover operational risks. They prohibit the use of rating that are external to the institution to calculate the minimum capital required. The Central Bank adopts a conservative approach to define the demand for corporate risk capital. The shareholders' equity required, or "Referential Equity", is taken into account for the purpose of determining the operational limits of Brazilian financial institutions (except for limits of fixed assets), and is represented by the sum of the two following levels: I. Level I: It corresponds to the shareholders' equity, plus the balance of the credit accounts and deposits in escrow accounts for capital deficiencies, deducted by: (i) the results from debit accounts; (ii) the revaluation reserves, the reserve for contingencies and special profit reserves related to mandatory dividends not yet distributed; (iii) the amounts related to cumulative preferred shares, redeemable preferred shares, certain tax credits on fixed assets (deducted by the premiums paid upon the acquisition of investments); and (iv) the unrecorded balance of gains and losses from mark-to-market of securities classified under "securities available for sale" and derivative financial instruments used to hedge the cash flow. II. Level 2: it corresponds to revaluation reserves, reserves for contingencies and special profit reserves related to mandatory dividends not yet distributed, cumulative preferred shares, redeemable preferred shares, subordinated debts, hybrid capital and debt instruments and unrecorded balance of gains or losses arising from mark-to-market securities classified under "securities available for sale" and derivative financial instruments used to hedge the cash flow. The total amount of Level 2 is limited to the total amount of Level 1, provided that: (i) the total amount of the revaluation reserves is limited to 25% of the Referential Equity; (ii) the total amount of debts that are subordinated, plus the total amount of redeemable preferred shares, whose initial maturity is less than 10 years, is limited to 50.0% of the total amount of Level 1; and (iii) a reduction of 20.0% will be applied, each year, on the amount of subordinated debts and redeemable preferred shares recorded in Level 1, during the five years prior to the relevant maturity. Financial institutions should calculate the referential capital on a consolidated basis. As of July 2007, the balances of assets represented by shares, hybrid equity and debt instruments, subordinated debt instruments and other financial instruments authorized by the Central Bank for inclusion in Tier 1 and Tier 2, issued by financial institutions authorized by the Central Bank, must be deducted from the reference capital. In addition, Investment fund quotas proportional to these instruments should also be deducted by the referential equity, as well as the amounts related to: (i) interests in financial institutions in which the Bacen has no information access; (ii) the excess of funds applied in fixed assets, under the regulation in force; and (iii) the funds delivered or made available to third parties for related transactions. In addition to the limits to minimum capital realized and shareholders' equity, established under the regulation in force, financial institutions should maintain their referential equity in line with the exposure of its assets, liabilities and offset accounts structure. Financial institutions can only distribute income, related to any securities, in an amount higher than the amount possibly required by law or the applicable regulation, in case this distribution does not compromise the compliance with capital requirements and shareholders' equity. Bacen published the Public Hearing Notice no. 40, on February 17, 2012, giving the start to discussions on implementation of the Bank Supervision Committee recommendations related to financial institutions capital structure, known as Basel III. On March 1, 2013, Monetary Authority disclosed a set of 4 Resolutions and 15 Circular Letters defining the schedule for definitive implementation of rules discussed in EAP no. 40. Resolutions provide for that new rules should become effective in October The Role of the Public Sector in the Brazilian Banking System In light of the global financial crisis, on October 6, 2008, the Brazilian President enacted provisional measure related to the use of internal reserves of foreign currencies by the Central Bank in order to provide financial institutions with liquidity by means of rediscount and loan transactions. Additionally, Law No. 11,908 authorized: (i) BB and CEF to directly or indirectly acquire, with or without ownership, stakes in private and public financial institutions in Brazil, including insurance companies, social security institutions and capitalization companies (premium bonds); (ii) the institution of Caixa Banco de Investimentos S.A., a wholly-owned subsidiary of CEF, with the purpose of carrying out investment bank 111

112 Section 7 - Issuer's Activities activities; and (iii) Banco Central do Brasil to carry out swap transactions of currencies with other central banks. Note that the authorization for acquisition of interest, mentioned in item (i) above, was extinct on June 30, 2012, as provided for in paragraph 4 of Article 2 of Law no. 11,908/2009. Resolution No. 3,656, CMN amended the by-laws of the FGC (Credit Guarantee Fund) to enable the investment of up to 50% of its shareholders' equity in: (i) the acquisition of credit rights of financial institutions and leasing companies; (ii) in the investment in banking deposits, with or without the issue of certificates, lease agreement letters and exchange letters of acceptance from associated institutions, provided that they are guaranteed by credit rights formed or to be formed arising from the relevant transaction, or other credit rights with real or personal guarantee; and and (iii) related transactions, under CMN Resolution No. 2,921. The FGC can sell any asset acquired through the transactions described in items (i), (ii) and (iii) above. Regulation on human resources management As provided in Art. 1 of Decree 3,735, of 1/24/2001, it is incumbent upon the Ministry of State of Planning to approve the following pleas of federal government-owned companies: review of Staffing and Compensation Plan, renewal of collective bargaining agreement or convention and profit sharing or gainsharing program. The content of the legislation mentioned explicitly, so that the Bank is subject to state regulation when it comes to revision, modification or creation of programs related to the topics listed above either. Furthermore, prior to the approval of any measure, the ministerial authorization is contingent upon the existence of sufficient budget allocation to cover personnel expenses and social charges. Information on employee hiring and dismissal activities is inspected monthly by the Federal Secretariat of Internal Control associated with the Presidency of the Republic, through the Brazilian Office of the Comptroller General (CGU). Corporate structure Apart from the exceptions provided in law, financial institutions must be organized as corporations, and are subject to the provisions set forth in the Brazilian Corporation Law and the rules issued by the Central Bank, and to supervisions by the CVM in case these companies are constituted as publicly-held companies. The capital stock of financial institutions can be divided in voting or nonvoting capital, and the non-voting part cannot exceed 50% of the total capital. Given the adhesion of Banco do Brasil to Bovespa's special listing segment, the Novo Mercado, its capital stock is divided exclusively into common shares. Classification of Credits and Provision for Doubtful Accounts Resolutions 2682 and 2697 of the CMN, published on 12/21/1999 and 02/24/2000, respectively, establish for the Banking Industry criteria for classifying credit operations and rules for recording a Provision for Doubtful Accounts - PCLD. CMN Resolution 2682 defines that credit operations should be classified into 9 risk levels and for these operations PCLD should be recorded at the following percentages: Risk rating AA A B C D E F G H Minimum provision (%) 0.0% 0.5% 1.0% 3.0% 10.0% 30.0% 50.0% 70.0% 100.0% The operational risk is calculated automatically based on operational data (nature, purpose, guarantees, terms, project's risks) and on the client (risk, credit limit and total debt). According to Resolution 2,682, the classification of operational risk should be revised: a) monthly due to delay in payment of the principal installment or charges, taking into account the delay periods as shown in the table below; b) every six months, for operations of a same client or economic group whose amount is higher than 5% (five per cent) of the institution's adjusted shareholders' equity; c) once every 12 months. 112

113 Banco do Brasil S.A. - Reference Form/2013 For loans overdue, the regulation establishes maximum risk classifications, as follows: Number of days overdue (1) 15 to 30 days 31 to 60 days 61 to 90 days 91 to 120 days 121 to 150 days 151 to 180 days More than 180 days Maximum classification B C D E F G H 1 - It is possible to double the period in case of loans with terms higher than 36 months. The operation classified as risk level "H" should be transferred to the offset account (Losses), along with the provisioned debt, six months after its classification as risk "H", as long as it is delayed more than 180 days. Financial institutions should properly document their policies and procedures for granting and classifying credit operations. The documents should be at the disposal of the Central Bank and of the independent auditors. The documents should be at the disposal of the Central Bank and of the independent auditors. Detailed information on composition of credit operations portfolio should be disclosed in the notes accompanying the financial statements, taking into account, at least: (i) the distribution of operations, separated by type of client and economic activity; (ii) distribution by term of maturity; and (iii) number of operations renegotiated, recorded against losses and operations recovered, in the exercise. Credit Risk Central System The Central Bank's Credit Information System - SCR is the main instrument used by the banking supervision to monitor credit portfolios of financial institutions. In this respect, it plays an important role in guaranteeing the stability of the National Financial System and crisis prevention, providing increased access to borrowers and greater transparency to society. The main goal of the SCR if to furnish the Central Bank with precise and systematic information on credit operations contracted by financial institutions, with the purpose of protecting the funds deposited by the citizens. Moreover, the SCR is used by financial institutions, provided it is specifically authorized by their clients, to evaluate the capacity of payment to clients. Institutions inform the amount of any credit operations, before or after maturity, and the amounts referring to guarantees or sureties offered by financial institutions to their clients, and it is mandatory to identify the clients with total liabilities equal to or higher than R$ 1, Resolution 3658, of 12/17/2008, altered and consolidated the regulations relating to the provision to Bacen of information on loan operations. Law Against Money Laundering According to Law 9613, which sets forth provisions on "laundering" crimes or concealment of assets, rights and values, financial institutions should: (i) identify and maintain updated the customer information file; (ii) maintain records of operations involving domestic or foreign currency, securities, metals or any other assets that can be converted into money for a period of at least five years; (iii) maintain internal controls and consolidated records that to check the clients' identity, the compatibility between their transfer of funds, economic activity and financial capacity; (iv) monitor operations performed or proposals made by the clients, with a view to detecting situations that, due to their characteristics (method of performance, parties involved, amounts, instruments used or lack of economic or legal grounds) might indicate the existence of signs of money-laundering or artifice to evade the established control mechanisms; and, (v) notify the competent authorities (without the client's knowledge) of signs of money-laundering detected. On July 10, 2012, Law no. 9,613/98 was changed by Law no. 12,683/12, which modernized it in several aspects, among which: elimination of the restricted list of crimes preceding money laundering, inclusion of new individuals and legal entities subject to the Law, and increase in penalties for non-compliance. Law 9,613 assigned responsibility to the supervision and control bodies of Brazilian Banking Industry for the regulation of matters within their jurisdiction. Additionally, it created the Council for Control of Financial Activities - COAF, the Brazilian Financial Intelligence Unit - UIF. COAF's purpose is to discipline, apply administrative penalties, receive, examine and identify suspected illegal activities provided in Law 9,613. Central Bank regulates Law No for financial institutions and other institutions authorized to operate by. Bacen issued Circular 3461, consolidating the regulations for the prevention and fighting of money-laundering in force at the time. In addition to the obligations provided in Law 9,613, Circular 3,461 prescribes specific procedures for the identification of clients; recording of transactions; monitoring and communications to COAF; business deals with politically exposed persons; relationship 113

114 Section 7 - Issuer's Activities with financial institutions and correspondents abroad; training of employees; and appointment of officer to take charge of the implementation and fulfillment of measures relating to money laundering prevention and fighting, including BB, branches and subsidiaries abroad. Circular Letter no. 3,542/2012 updated and expanded the list of transactions and situations that could characterize occurrence of crimes provided for in Law no. 9,613, liable to being communicated to Coaf. Banco do Brasil maintains in its Security Management Office an organizational structure sufficiently specialized to comply with all obligations deriving from Brazilian regulation on Money Laundering Prevention and Terrorism Funding. Politically exposed persons According to Circular 3,461, issued by Bacen, financial institutions should adopt differentiated procedures for the establishment, or maintenance, of a relationship with clients considered politically exposed persons - PEP. These procedures include the identification of the client as PEP; maintenance of up-to-date registration information; authorization, by senior management, for the commencement or maintenance of the business relationship; and reinforced monitoring of financial activity. According to the regulations, the term politically exposed persons includes government agents that occupy or have occupied, in the previous five years, in Brazil or in or on foreign countries, territories or premises, important positions, jobs or civil service roles, as well as their representatives, family members and other closely related persons. Law against Tax Evasion Usually, information protected by banking secrecy laws can only be furnished in compliance with a judicial order or order given by an investigation committee of the Federal Congress (Parliamentary Committee of Investigation). However, the Central Bank has authorization to demand that financial institutions furnish information generally protected by banking secrecy without judicial authorization to exercise their duties of supervision, as long as they have proof of a client's participation in tax evasion. These proofs can be represented by, elements: (i) transactions by the client with an amount lower than their market value; (ii) loans acquired from sources outside the financial system; (iii) operations involving "tax havens"; (iv) expenses or investments that exceed the income tax return; (v) remittance of money through nonresident accounts at amounts higher than the income tax return; and (vi) legal Entities whose registration with the roll of corporate taxpayers (CNPJ) were canceled or annulled. Moreover, in compliance with Normative Instruction 811/2008 of the Internal Revenue Service, financial institutions should communicate certain information relating to operations carried out in Brazil by means of a Statement of Information on Financial Activity, such as demand and term deposits, payments made in cash or by check, issuance of wire transfers or similar documents, and redemptions in cash or in installments. Regulations that Affect the Liquidity of the Financial Market Reserve requirements and others Bacen imposes, among other requirements, various compulsory deposits on financial institutions, using these reserves as a mechanism to control the liquidity of the financial system. The reserve requirements incur on demand deposits, savings deposit and time deposit and short position of foreign exchange. Some of the current types of reserves are as follows: Demand deposits The banks and other financial institutions in general have to deposit 44% of the average daily balance of their deposits, banking withdrawals, credit collection, tax revenue collection, debt assumption operations results from guarantee operations (under the terms of Bacen Circular 3274 dated February 2005 and its amendments). This rate will rise to 45% on 6/30/2014. Bacen's rules for reserve requirements on demand deposits are: 114

115 Banco do Brasil S.A. - Reference Form/2013 Normative Date Subject Circular 3,274 02/10/2005 Redefines and consolidates rules of reserve requirements and reserves on demand deposits Circular 3,323 05/30/2006 Changes the limit for the use of Financial Institutions cash and cash equivalents to comply with requirements. Circular 3,416 10/24/2008 It allows for deductions from the prepayment of the regular contribution to the FGC. Circular /24/2010 It alters the reserve requirement rate on cash funds. Provides on deduction of amount bound to rural credit financing for the purpose of complying with Circular 3,573 01/23/2012 requirements. Circular 3,586 03/19/2012 Changes Circular Letter no. 3,573, which provides on deduction of amount bound to rural credit financing. Changes Circular Letter no. 3,274, which redefines and consolidates rules on compulsory payment on cash Circular 3,603 06/28/2012 funds. Circular 3,622 12/27/2012 Permits deduction on payment of amount related to financing of Sub-Programs Liable to Economic Subsidy. Savings deposits The financial institutions usually have to deposit in an interest bearing account with Bacen, on a weekly basis, a sum of money equivalent to 17% of the total average balance of the savings account in the last week (under the terms of the Bacen Circular 3093, dated 03/01/2002 and its amendments). This rate will rise up to 18%, 19% and 20%, as from 07/01/2013, 06/30/2014 and 06/29/2015, respectively. At BB (as well as Banco da Amazônia and Banco do Nordeste), have farming savings account, whose funds raised are allocated to farm credit, including agroindustrial projects. Requirement establishes that 68% of volume raised in Rural Savings should be assigned to rural and agro-industrial credit for the 2012/13 crop, with a gradual scale of reduction of 1 p.p. per year until it reaches 65% on 2015/16 crop. In addition, the Bank uses the prerogative provided for in CMN Resolution no. 3,549 that institutions authorized to receive rural savings deposits may raise savings deposits in the ambit of the Brazilian System of Savings and Loans (SBPE). Additionally, at least 65% of the total amount of deposits in savings accounts of entities in the SBPE should be used to finance housing units, except in specific situations. The amounts that can be used to fulfill this requirement include, in addition to those allocated to housing units financing, collateral mortgage notes, charges on residential loans and other financing lines, as specified under Bacen's rules. Under Resolution 3023, on 10/11/2002, amended by Resolution 3843, the CMN set a 10% additional reserve requirement on the deposits and funds collected by SBPE's entities. The Bacen rules that govern the reserve requirement on savings accounts: Normative Date Subject Circular /01/2002 Redefine and consolidate the rules for reserve requirements on savings deposits Circular /24/2002 Redefines the rules for reserve requirements on savings deposits (changes in rates) Circular /27/2002 Changes the rates incurred on savings deposits reserve requirements Resolution /27/2008 Sets forth the funding of savings deposit Resolution /26/2009 Sets forth the percentages for reserve requirements for farm savings Resolution /26/2009 Changes Resolution 3549, on March 27, 2008, which sets forth the funding of savings deposits. Circular /30/2012 Clarifies savings deposits remuneration calculation formula. Circular /31/2012 Changes Circular Letter no. 3,093 that addresses mandatory deposit on savings deposit funds. Resolution /28/2012 Changes percentages for requirement assignment, for sub-requirement and for the faculty of applying rural savings funds, as well as mandatory deposit. Time deposits Under Circular 3569, on 12/22/2011 and its amendments, 20% of the time deposits of financial institutions should be deposited into a Bacen account. The balance of this account, limited to 50%, is remunerated with a basis on the Selic rate. The rules by BACEN that govern the reserve requirement for time deposit accounts : Standards Date Subject Circular /22/2011 Redefines and consolidates rules on compulsory payment on time funds. Circular /10/2012 Changes Circular Letter no. 3,569, which addresses compulsory payment on time funds. Circular /21/2012 Changes Circular Letter no. 3,569, which addresses compulsory payment on time funds. Circular /14/2012 Changes Circular Letter no. 3,569, which addresses compulsory payment on time funds. Circular /08/2012 Changes Circular Letter no. 3,569, which addresses compulsory payment on time funds. Additional Requirement (Savings deposits and time funds) Bacen demanded a requirement of an additional reserve was established on deposits raised by multiple banks, investment banks, commercial banks, development, loan, financing and investment banks, real estate companies and savings and loan associations (under the terms of Bacen Circular 3144, dated August 14, 2002 and its amendments). In these cases, the rate is 11% for demand deposits and time 115

116 Section 7 - Issuer's Activities deposits and 10% for savings deposits. The payments are made in an interest-bearing account at the Selic rate. Bacen's rules that govern the reserve requirement on additional Liabilities: Standards Date Subject Circular /14/2002 Sets Additional Liabilities Resolution /11/2002 Establishes mandatory additional deposit of 10% on savings deposits. Circular /24/2010 Alters the Circular 3144 that considers the additional requirement. Circular /03/2010 Alters the Circular 3144 that considers the additional requirement. Circular /23/2011 Alters the Circular 3144 that considers the additional requirement Circular /10/2012 Alters the Circular 3144 that considers the additional requirement Circular /28/2012 Alters the Circular 3144 that considers the additional requirement Circular /14/2012 Alters the Circular 3144 that considers the additional requirement Foreign exchange short position: Bacen Circular 3,548, of 7/8/2011, establishes that 60% of the daily short foreign exchange position, translated into national currency at exchange rate of the day, minus whichever is the lower, either US$ 1.0 billion or the amount corresponding to Level I of the Referential Equity, should be deposited in an account at Bacen, without remuneration. The calculation period is mobile and covers five consecutive business days, abandoning the first business day of the previous period on each day. Interfinancial Deposit - DI The Interfinancial Deposit is na instrument used to enable reserve swaps between Financial Institutions. The issue and transfer of the Interfinancial Deposit - DI is conducted exclusively on a registered and book-entry basis. Its recording and liquidation are made mandatorily with the CETIP (The Private Sector Securities Market Clearing System). It is regulated by CMN Resolution 3399, on 8/29/2006 (MNI 2-7-2), Bacen Circular 2190, on 06/26/1992, Bacen Circular 2905, on 06/30/1999, Bacen Circular 2585, on 06/27/1995 and Bacen Circular 3126, on 06/12/2002. Exposure to Foreing Currency and Gold Pursuant to CMN Resolution No. 3,488, the total consolidated exposure of a financial institution in foreign currencies and gold cannot exceed 30% of its reference stockholders equity, according to the CMN Resolution 3488 dated August 29, Foreign currency CMN Resolution No defines the possible modalities to invest abroad the cash and cash equivalents of banks authorized to operate in the foreign exchange market. They are: (i) securities issued by the Brazilian government; (ii) bonds issued by foreign governments; (iii) bonds issued by or liable to the Financial Institution; and (iv) time deposits of the financial institution. Rural credit Created by Law No. 4,829, of 11/05/1965, farm loans are normatized in the Fam Loan Handbook, published and updated by the Banco Central do Brasil. According to this manual, financial institutions are obliged to invest in farm loan operations amounts corresponding to: (i) 34% of the Value Subject to Payment (VSR) average related to demand deposits, calculated in the calculation period; (ii) 68% of the Value Subject to Payment (VSR) average related to farm loan deposits, calculated in the calculation period. These institutions must furnish Bacen, with no only monthly reports, but also a final document that proves the fulfillment of the obligation, up to the 20th day of the month of July for each year. After fulfilling the obligation, the institution that incurs on deficiency of liabilities has as an alternative date the first business day of August: (i) to pay the Bacen the amounts of the deficiency assessed; (ii) to pay the Bacen the fine on the calculated deficiency. Repurchase agreements, export notes, guarantees etc. Bacen set a reserve requirement for certain types of financial operations, such as: (i) repurchase agreements, export notes, derivative operations (Bacen Circular 2820, on 05/27/1998, which sets this reserve requirement rate at zero percent); and (ii) guarantees offered by the financial institutions (Bacen Circular 2704, on 07/03/1996, which sets this rate at zero percent). 116

117 Banco do Brasil S.A. - Reference Form/2013 Tax on Financial Transactions Financial operations in Brazil are generally subject to income tax and to IOF (tax on foreign exchange transactions). The income tax on income collected from financial transaction by resident Brazilians, in general, depends on: (i) the type of investment (equity investments are generally treated more generously than fixed income investments); and (ii) the term for investment (long-term investments usually have a more generous treatment). Income tax on income from financial transactions: (i) is considered a prepayment of the income tax due to legal entities; and (ii) only apply for individuals residing in Brazil. Investments in financial and capital markets made by individuals or legal entities residing or domiciled abroad are usually subject to the same tax rules applicable to those residing in Brazil, except for foreign investments that currently benefit from a favorable tax regime in compliance with the rules established by the CMN. Tax on Foreign Exchange Transactions (IOF) IOF (Tax on Financial Transactions), its summarized form, is predominantly not for tax purposes but for monetary policy control. It is charged on credit, insurance, foreign exchange transactions or transactions related to securities, pursuant to the terms of IOF Regulation (RIOF) Decree no. 6,306/2007. The IOF rate can be changed by an executive decree, which can generate results as of the date it is published. Maximum IOF rate on foreign exchange transactions is 25%, but in general it is reduced to 0.38%, with exceptions such as: (i) 6% on loan foreign exchange transactions with average minimum maturities of up to 360 days; (ii) 6.38% on foreign exchange transactions for the acquisition of assets or services using credit card outside Brazil; (iii) 0% for foreign exchange transactions related to the export of assets and services; and (iv) 0% for interbank foreign exchange transactions among SFN (national financial system) institutions authorized to operate in the foreign exchange market and among these and foreign financial institutions. The IOF can also be charged on the issue of securities, including operations carried out in the Brazilian stock, futures or commodities exchange ("IOF/Securities"). The IOF rate also applies to credit operations, except for foreign credit. The IOF levied on credit transactions is generally assessed at a daily rate of %, up to a limit of 1.5%. Moreover, an additional IOF rate of 0.38% is currently incurred on most of the credit transactions. Also, the IOF rate incurs on insurance transactions, at the rate of: (i) 0% for reinsurance transactions related to export credits or international transportation of goods and for operations in which premiums are attributed for the financing of life insurance plans with survival coverage, among others; (ii) 0.38% for premiums related to life insurance plans without survival coverage, among others; (iii) 2.38% for premiums paid in case of health insurance; and (iv) 7.38% for premiums paid in case of other types of securities. Regulations that Affect the Relationship Between Banks and Clients The relationship between financial institutions and their clients is regulated, in general, by the laws applicable to all commercial transactions and, in particular, by the Brazilian Civil Code. However, regulations established by the CMN and Bacen address specific issues related to banking activities and contracts, complementing the general regulation The Consumer Protection Code and the Bank Client Protection Code In 1990, the Brazilian Consumer Protection Code (CBDC) was created to establish strict rules to govern the relationship between products and services suppliers and consumers and protect the end consumer. In June 2006, the Brazilian Supreme Court of Justice ruled that the Brazilian Consumer Defense Code also applies to transactions between financial institutions and their clients. Financial institutions are also subject to specific regulation of the CMN, which specifically regulates the relationship between financial institutions and their clients. Accordingly, CMN Resolution no. 3,694/2009 established criteria related to the prevention of risks when contracting transactions and service provisions by financial institutions, enforcing conditions to be met in the relation with consumers of bank services and products. While CMN Resolution no. 3,919/2010 changed and consolidated standards about the charge of tariffs for the provision of services by financial institutions. The main changes introduced by the CBDC are: (i) financial institutions must ensure that clients are fully aware of all contractual clauses, including responsibilities and penalties applicable to both parties, in 117

118 Section 7 - Issuer's Activities order to protect the counterparties against abusive practices. All doubts, questions or complaints related to agreements or the publication of sections should be promptly dealt with, and fees, commissions or any other types of service or operational compensation cannot increased without reasonable justification (in any case, these charges cannot be higher than the limits set by Bacen); (ii) financial institutions are not allowed to transfer funds from different clients' accounts, without previous authorization; (iii) financial institutions cannot require that the transactions not related to them should be carried out by the same institution. If the transaction depends on other transactions, the client is free to choose another institution to carry out this transaction; (iv) financial institutions are not allowed to disclose misleading or abusive advertising containing information on contracts and services offered by them. Financial institutions are responsible for any damage caused or distortion made by their clients; (v) interest rates on individual and direct credits to the consumer should be reduced proportionally, in the case of early settlement of debts; (vi) Clients have the right to withdraw up to R$5,000.00, upon request. For larger amounts, clients have to notify the financial institution at least 24 hours in advance; and (vii) proper treatment to the elderly and physically disabled individuals. Banking Secrecy Financial institutions should keep under secrecy the banking transactions and services rendered to its clients. Financial institutions should keep under secrecy the banking transactions and services rendered to its clients. According to Supplemental Law 105, on 01/10/2009, the only circumstances in which information on clients, services and transactions with Brazilian financial institutions or credit card companies can be revealed to third-parties are as follows: (i) information exchange between financial institutions, for record purposes, including exchange through risk centers, under the rules of the National Monetary Council and the Bacen; (ii) supply of information contained in the records of bad-check issuers and debtors in default, credit protection entities, under the rules of the National Monetary Council and the; (iii) supply of information needed to identify taxpayers and the overall amount of their respective transactions, under the conditions and terms to be set by the Ministry of Finance, given by the financial institutions responsible for the withholding and payment of contributions to the Brazilian Revenue Service; (iv) notice to the applicable authorities regarding the practice of illegal criminal or administrative acts, comprising the supply of information on transactions involving funds from any criminal act; (v) disclosure of confidential information with the express consent of the interested parties; (vi) transactions carried out and information furnished by the Bacen in the exercise of its duties; (vii) information to be supplied to the Judiciary and Legislative Powers, within the limits to settle the dispute and the constitutional and legal jurisdictions; (viii) information supplied to the Union's tax administration under the terms and limits of the amounts set by the Executive Power; (ix) information supplied to tax agents provided that it is deemed essential by the applicable authority under the administrative process; (x) information supplied by the Bacen and the CVM, upon institution of administrative process and judicial authorization or in case of criminal acts or suspicion of criminal acts. Supplementary Law No. 105/09 also allows for the BACEN or the CVM to exchange information with foreign government authorities, as long as a specific agreement in this respect has been entered into. Bankruptcy Intervention, Administrative Liquidation and Bankruptcy The Central Bank can intervene in the transactions of a financial institution not under the control of the Brazilian government, in case of material risk for the creditors, or in case the institution, in a recurrent basis, breaches the applicable regulations. The Central Bank may also intervene if liquidation can be avoided or it may perform administrative liquidation or, in some circumstances, require the bankruptcy of any financial institution, except those controlled by the Brazilian government. Administrative Liquidation The administrative liquidation of any financial institution (except for public financial institutions under the control of the Brazilian government, such as the BB) can be carried out by the Bacen (Law 6024/74), provided that: (i) the debts of the financial institution are overdue; (ii) the financial institution is deemed insolvent; (iii) the financial institution incurred losses that might increase exponentially the exposure of the unsecured credits; (iv) the financial institution's management has significantly breached the law or regulation of the Brazilian banking system; (v) when the authorization to function is revoked and the institution does not start up normal liquidation procedures within the following 90 days, or if it has begun them but Bacen verifies that its management is slow, it could result in losses to the creditors; and 118

119 Banco do Brasil S.A. - Reference Form/2013 (v) the liquidation process may be requested also upon petition from the management of the institution (if the respective articles of incorporation have empowered them to do so) or upon proposal from a mediator, bearing the proper justifications. Administrative liquidation process may be halted: (i) At the discretion of the Bacen, if the parts involved the cause assume management of the financial institution after providing the necessary guarantees; (ii) inasmuch as concerns to the final accounts of the judicial liquidation, they are processed and approved and afterward filed in the appropriate public records; (iii) when converted to a normal liquidation; or (iv) when the financial institution in declared bankrupt. Temporary Special Administrative Regime (Regime de Administração Especial Temporária - RAET) In addition to the aforesaid procedures, the Central Bank may also establish the Temporary Special Administration Regime (Regime de Administração Especial Temporária), or the RAET, which is a less restrictive form of intervention by the Central Bank in private and non-federal public financial institutions and which allows institutions to continue to operate normally. RAET may be imposed by the Central Bank under the following circumstances: (i) continued practice of operations contrary to the economic and financial policies established by federal law; (ii) the institution fails to comply with the mandatory reserve regulations; (iii) the institution has operations or circumstances which demand intervention; (iv) risk-taking or fraudulent; (v) the institution is faced with a shortage of assets; and (vi) the event of any of the situations described above could result in a declaration of intervention. The main purpose of the RAET is to assist in maintaining solvency and financial conditions of the institution under special management. However, the RAET does not affect the daily routine of the commercial operations, liabilities or assets of the financial institutions, which continues to operate normally. There is no minimum term for a RAET, which could cease after the occurrence of any of the following events: (i) acquisition by the Federal Government of control of the financial institution; (ii) corporate restructuring, merger, split off or transfer of majority shareholdings of the financial institution, (iii) decision from Bacen; or (iv) declaration of extrajudicial liquidation of the financial institution. Reimbursement of Creditors in a Liquidation In the event of bankruptcy or liquidation of a financial institution, certain credits such as those for salaries up to as much as 150 minimum salaries per worker, to name a few, shall be given preference over any other credits.. The Credit Guarantor Fund (Fundo Garantidor de Crédito - FGC) is a system whereby deposits are guaranteed, comprised as a not for profit civil association of a private corporate nature which assures a maximum value of R$ 70, in deposits and credit instruments per individual against a financial institutions (or against financial institutions of the same financial group) and a maximum value of R$ 20 million in deposits for banks having deposits of as much as R$ 5 billion per bank. The Fund Credit Insurance (Seguro de Crédito do Fundo) is financed mainly by mandatory contributions from all Brazilian financial institutions which operate with client deposits. Payment of unsecured deposits and deposits by clients that are not covered by the Fund credit insurance is subject to payment prior to any and all other guaranteed credits and other credits in which specific legislation may extend special privileges. Furthermore, two laws affect the priority of payment to Brazilian bank creditors in the event of insolvency, bankruptcy or the like. Law 9.069, of June 29, 1995, provides protection against pledging of mandatory deposits held by financial institutions at the Central Bank. Such deposits cannot be associated with suits on the part of the creditors in general of a bank for payment of debts. Law of March 14, 1997 requires that assets of any insolvent bank financed by loans made by foreign institutions with lines of commercial financing be used to pay these lines owed and also have preference over the general creditors of the insolvent bank. Cancellation of a Bank License The Banking Reform Law (Lei de Reforma Bancária), Law of 1964, in conjunction with the specific regulations approved by CMN Resolution of December 5, 1985 provides that some penalties may be imposed on financial institutions in certain situations. Among these, a financial institution may be subject to operating license and/or to conducting foreign exchange transactions. Cancellations are 119

120 Section 7 - Issuer's Activities applicable under certain circumstances established by the Bacen such as for example, in the event of repeated: (i) violations of Bacen regulations by the financial institution's management; or (ii) negligence on the part of the financial institution to follow adequate banking practices in relation to their foreign exchange operations. Additionally, the Central Bank may, according to CMN Resolution 4.122, of November 28,.2002, cancel bank authorizations to operate of a given bank, if one or more of the following situations is/are identified at any time: (i) lack of practice on applicable standards for transactions considered as essential; (ii) lack of operating activity; (iii) institution is not located in the address informed to BACEN; (iv) interruption for more than 4 months, without justification, of delivery to BACEN of statements required by prevailing law; (v) non-compliance with business plan provided for in sub-item II of Article 6, considering the verification period addressed by Article 11. The cancellation of a banking license can only occur after the appropriate administrative proceeding carried out by Bacen. Sistema de Pagamentos Brasileiro (Brazilian Payment System, local acronym SPB) In December 1999 the Brazilian government introduced new regulations for liquidation of payments in Brazil, based on the guidelines implemented by the Bank of International Settlements BIS. Settlement systems legal basis was strengthened by Law no. 10,214/2011, which, among other provisions, acknowledges multilateral offset and makes possible effective realization of guarantees in the ambit of these systems, even in case of civil default of the member. The Central Bank and CVM have the power to regulate and supervise this system. The SPB started up operations in April In compliance with these rules, new clearing houses (private) must adopt procedures for the purpose of reducing the possibility of systemic crises and reduce the risks in the scope of offsetting and settlement systems. The most important principles of the SPB are: (i) the existence of two main payment and settlement systems: real-time, using the reserves deposited at the Central Bank and through the (clearing houses); (ii) the clearing houses with a few exceptions are responsible for payment orders which accept; and (iii) the bankruptcy laws do not affect payment orders made through credits from clearing houses nor does the guarantee extended to assure these orders. However, the clearing houses do have normal credits against any participant under the bankruptcy laws. The systems made up of clearing houses are responsible for the creation of security mechanisms and regulations to control risks and contingencies to prevent losses of the market participants and for the correct execution of the participant's participation for the performance of their settlements and exclusion of guarantee held under custody. The clearing houses and settlement service providers acknowledged as important for the system must reserve a portion of their assets as an additional guarantee of settlement of transactions. Under these regulations, responsibility for settlement of an operation is assigned to the clearing houses and settlement service providers responsible for it. Once a financial transaction has been submitted for clearing and settlement, it generally becomes the obligation of the relevant clearing house and/or settlement services provider to clear and settle it and it is no longer subject to the risk of bankruptcy or insolvency on the part of the market participant that submitted it for clearing and settlement. In this line, the Banco do Brasil follows the regulations of Foreign Exchange Transaction Houses in which the operation is referred to as "Títulos públicos federais em garantia" or Federal government securities held in guarantee. Bacen established that: (i) the systemically important deferred settlement systems must conduct final settlement of the results computed therefrom directly in accounts held at the Central Bank; (ii) Regarded as systemically important are: all systems that settle marketable securities, financial derivatives and foreign currencies; and fund transfer systems or systems involving settlement of other interbank transactions that have daily average financial turnover greater than 4% of the daily average financial turnover of the Sistema de Transferência de Reservas (Reserve Transfer System) or which in the judgment of the Central Bank may pose a risk to the flow of payments within the Brazilian Payment System (SPB) environment; (iii) the time limit for deferring settlement of the transaction must be by no later than: end of the day, in the event of a fund transfer system regarded systemically important; one business day, in the event of demand transactions for securities, except stocks; and three business days for shares traded on the stock exchanges. The settlement time limit in other situations is established by the Central Bank; and (iv) the operating entity must maintain shareholders' equity compatible to the risks inherent to the settlement systems in which it is engaged, complying with the minimum limit of R$30 million or R$5 million per system depending on whether it is regarded systemically important or not. 120

121 Banco do Brasil S.A. - Reference Form/2013 The financial institutions and other institutions contracted by Bacen are also necessary to create mechanisms for identifying and preventing liquidity risks in compliance with certain established procedures. In relation to these processes, the institutions must: (i) maintain criteria in order to evaluate liquidity risks and mechanisms in order to manage them; (ii) analyze economic and financial data to evaluate the impact of different market scenarios on liquidity and cash flow of the institution; (iii) prepare reports that enable the institution to monitor liquidity risks; (iv) identify and evaluate mechanisms to undo positions which could pose an economic and/or financial threat to the institution and to obtain the needed funds to perform such reversals; (v) adopt systems controls and test them periodically; (vi) readily provide the management of the institution with available information and analyses regarding any identified liquidity risk, including any conclusions or corrective measures adopted; and (vii) develop contingency plans to deal with liquidity crisis situations. Bacen regulations in particular inasmuch as regards monitoring and contingencies, are: Standards Date Subject Circular /28/2002 Institute the STR and approve its regulations. Communique /07/2002 Communicate the time grades and SPB messages to those associated thereto. Circular Letter /23/2009 Disclose procedures related to STR monitoring Communique /26/2010 Communicate change and publication of domain dictionaries Circular /18/2010 Change regulatory provisions related to the nature of the fund transfer orders, form of access and fees. Circular Letter /14/2010 Disclose procedures to be complied with in a contingency regime at STR. SPB - Digital Certification Banco do Brasil acquires and uses digital certificates, issued by Certifying Authorities accredited by the Brazilian Public Key Infrastructure - ICP-BRASIL, for the performance of financial activity, in conformity with the determinations of Bacen, described in the Security Manual document of SPB. Foreign Investment and Brazilian Constitution Foreign Banks The Brazilian Constitution forbids foreign financial institutions from establishing new branches in Brazil, except when duly authorized by the Brazilian government. A foreign financial institution duly authorized to operate in Brazil through a bureau or branch shall be subject to the same rules, regulations and requirements that are applicable to any Brazilian financial institution. Foreign Investment in Brazilian Financial Institutions According to the Brazilian Constitution (article 52 of Transitory Brazilian Provisions) the following are prohibited: (i) installation in Brazil of new financial institutions domicile abroad; and (ii) an increase in the share interest percentage of capital from financial institutions domiciled abroad. The prohibition referenced in this article does not pertain to authorizations resulting from international agreements of reciprocity or of interest to the Brazilian government. Foreign investors that do not have specific authorization and are in public negotiations, however can acquire shares having no voting rights, issued by financial institutions or even deposit receipts for securities (depositary receipts - DR ), representing non-voting shares which are distributed abroad. The launch of DR backed in voting stock is limited to a percentage of shareholding interest permitted in accordance with the terms of prevailing law, according to CMN Resolution 3.760/2009. In the case of the Banco do Brasil, the Government published based on prerogatives from the President of the Republic: (i) in relation to ADR anchoring, Decree 6960, as of September 16, 2009, authorized the Banco do Brasil to release an ADR program exclusively backed in common shares, revoking Decree 934, as of September 21, 1993, which established anchoring be exclusive to nominal preferred shares; (ii) in relation to capital, Decree (no number) of the same date, authorized the BB to increase foreign interest in its capital to as much as 20% (prior limit was 12.5%); (iii) decree 7184, authorized an increase in the Banco do Brasil capital based on the issue of as much as 286,000,000 common shares based on a public offer and primary stock distribution. 121

122 Section 7 - Issuer's Activities b. environmental policy of Banco do Brasil environmental policy of the issuer and costs incurred for compliance with environmental regulations and if the case may be other environmental practices including compliance with international environmental protection standard The Banco do Brasil's commitment to the environment can be seen in its General Policy, as guidelines for corporate behavior in relation to ethics and social and environmental responsibility. In this regard we have stressed the following guidelines included in the BB General Policy: (i) (ii) (iii) (iv) (v) (vi) (vii) we are committed to ethics and respect in our attitudes and relationships with interest publics and the environment; Our guidelines are transparent, ethics and social and environmental responsibility in the company's administrative and business practices; we operate in compliance with the pacts and commitments assumed in relation to human rights, fundamental labor rights, the environment and sustainable development and contribute toward the universalization of social and citizenship rights; we encourage, convey and implement sustainable development practices; we are committed to continual improvement of social and environmental performance of the Company; we assure compliance with administrative and business practices of the Company and legal requirements applicable to social and environmental concerns; we develop actions pertaining to eco-efficiency and the prevention of pollution and carbon emissions in products, services and processes; (viii) we work in concert with companies, governments and the community to define initiatives to reduce risks and benefit from opportunities related to climatic changes. Guidelines related to BB's commitment to the environment also can be found in specific company policies, such as for example: Specific Credit Risk Policy The Banco do Brasil prioritizes investments that propose to increase competition and productivity, leverage business in the productive chains, production organization and development of foreign trade; additionally we take into account aspects of social and environmental responsibility and capacity to generate employment and income. Likewise the BB does not take on any credit risks with clients responsible for deliberate damages to the environment. BB Sustainability Guidelines for Credit Agribusiness and Electric Power In the ambit of Programa Água Brasil, Banco do Brasil prepared a summary document based on internal standards and assumed public commitments about sustainability guidelines for the granting of credit to agribusiness and electric power industries and for financing related to the following themes: Water, Climate Change, Forests and Biodiversity. Continuous improvement of social-environmental criteria allows the Bank to update and adjust its credit granting practices, consolidating instruments, methods and processes aimed to mitigate social-environment risks. The document is available at BB Portal in the address below: Specific Policy for Supplier Relations The Banco do Brasil preferably works with suppliers that adopt socially responsible management for a better community and achieve a community that has better products and fewer social, economic and environmental risks; Suppliers who advocate principles and values related to health and safety in the workplace and to preserving the environment; And who implement development programs and environmental management, occupational health and workplace safety systems. Although the Bank does not directly incur costs for compliance with the environmental regulations owed to the nature of its operations as a financial institution, financing and loans extended by the Banco do 122

123 Banco do Brasil S.A. - Reference Form/2013 Brasil are in accordance with the principles provided for in Brazilian environmental legislation and operations in which there are any signs of environmental or labor irregularities are prohibited. The costs to Banco do Brasil in relation to compliance with Brazilian and international environmental protection standards total roughly R$ 100,000 per year. In order to implement the Brazil Water Program (Programa Água Brasil) we have a budget of R$ 34,000,000 to be invested over five years in conservation and environmental education projects related to consumer awareness, social and environmental risk mitigation and sustainable business in partnership with the FBB, WWF-Brasil and the National Water Agency (Agência Nacional de Águas). Among the commitments taken on by the Banco do Brasil in relation to compliance with environmental regulations with a number of domestic and international entities, we highlight the following: Protocolo Verde (Green Protocol) Statement of principles for sustainable development signed by official banks in 1995 and ratified in 2008 for the purpose of implementing policies and practices that are at all times and increasingly in compliance with the purpose of development which does not compromise the needs of future generations. In accordance with the Term of Responsibility signed, BB commits to: (i) financing sustainable development by means of credit lines and programs that promote the quality of life of the population, the sustainable use of natural resources and environmental protection; (ii) consider the impact and social and environmental costs in asset management (proprietary and third party) and in the analysis of client risks and investment projects, taking the Brazilian Environmental Policy (Política Nacional do Meio ambiente) as a base; (iii) promote sustainable consumption of natural resources and their by-products in internal processes; (iv) inform, notify and engage interested parties in the institution's sustainable policies and practices on a continual basis; and (v) promote conformity of procedures, cooperation and integration of forces among signatory organizations in the implementation of these principles. Corporate Agenda 21 (Agenda 21 Empresarial) Commitment agenda geared toward businesses, management practices and private social investments of the BB in best market practices to meet the expectations of the several relationship publics and in the company's position of social and environmental responsibility. During the process of updating Agenda 21 for the period, occurred in the second half of 2012, a Stakeholders Panel was conducted with employees, customers, shareholders, suppliers, civil society and specialized professionals, as well as a Sustainability Forum with executives of the Company s different areas. Both refer to BB s challenge priorities in this theme. To supplement improvement process of the Bank s sustainability practices, around 100 executives representing all Strategic Units of the Organization and other guests took part in the IV Workshop on Sustainable Development. Equator Principles The Ecuador Principles are a set of policies and guidelines (safeguards) to be observed in the analysis of investment projects, taking as a basis the criteria established by the International Finance Corporation, an arm of the World Bank. The safeguards discuss environmental assessments; protection of natural habitats; management of pests; security of dams; indigenous populations; involuntary resettlement of populations; cultural property; child labor, forced or slave labor, international water projects and health and safety in the workplace. The Banco do Brasil, in February 2005, was the first official bank to comprise the Brazilian financial institutions group abiding by the Ecuador Principles. In July 2006, the Company formalized its adhesion to the pact which was updated after a long process of consultation and debates between banks, clients and organizations of the civil society and in 2009, in the scope of shares of the Agenda 21, broadened the use of the Equator Principles for all projects in the mode Project Finance, independently of value. CEO Water Mandate - Global United Nations Compact The proposal of Organization of the United Nations - UN, so that the signatory companies of the Global Pact can approach the water matter and the management of this resource in its corporate strategies and therefore positively contribute in avoiding a global shortage of water. By adhering to the "CEO Water Mandate" in October 2010, Banco do Brasil voluntarily commits to act an essential role in the 123

124 Section 7 - Issuer's Activities management of water resources through six fronts: direct operations; Supply Chain; Collective Actions Public Policies; Engagement of the Community and Transparency. Carbon Disclosure Project Carbon Disclosure Project (CDP) is a non-profit organization whose objective is to create a relationship between shareholders and companies focused on business opportunities originated in global heating. This is a collective requirement, a questionnaire, which was formulated by institutional investors and sent to companies listed in the main stock exchanges of the world, seeking to obtain the disclosure of information on polices for climatic changes. In March 2005, Banco do Brasil, Brasilprev and Previ, jointly with the main global institutional investors, formally manifested their support to the request for the disclosure of information over the issuance of greenhouse gases - Carbon Disclosure Project, being one of the pioneering companies in accepting to reply the Brazilian questionnaire. Annually Banco do Brasil sends its greenhouse gas emission inventory to CDP for public disclosure; Brazilian Program GHG Protocol The "GHG Protocol" is one of the main tools to identify and calculate the emissions and support the management of greenhouse gases, they are used by most companies in the world. Banco do Brasil and other 16 national companies support the Brazilian initiative as founding-member, committing to carry out the stocktaking of its emissions as of the methodology which is being adapted to the Brazilian reality. Its use supports the adoption of policies and development of strategies based on a consistent knowledge of greenhouse gas emission s due to its activities and the opportunities to reduce it. Companies for the Climate The EPC Platform seeks to build a new economic model for the Country based on climatic balance. A total of 25 companies integrate this initiative, coordinated by the Getulio Vargas Foundation. As a member of the platform since its launching in 2009, BB is an active participant in the debates and positioning with the aim to guide the adapting process of the Brazilian economy to climatic changes. Caring for Climate - Global United Nations Pact Adopted by BB as of September 2009, it is an additional platform of commitments to the Global Pact launched in partnership with the United Nations Program for the Environment and the Global Corporate Council for the Sustainable Development for participants which wish to advance in solutions for climatic changes. Upon adopting (Caring for Climate ) the institutions commit: To work jointly with companies, in national and sector level, throughout its chain of value to establish norms and adopt joint initiatives for the reduction of risks and better use of the opportunities related to the climatic changes. (ii) to identify and understand the implications of climatic changes in the company's business and determine a coherent strategy to minimize risks and identify opportunities; (iii) to provoke actions to engage the government and society in the development of policies for a low carbon economy; (iv) to work jointly with companies, in national and sector level, throughout its chain of value to establish norms and adopt joint initiatives for the reduction of risks and better use of the opportunities related to the climatic changes. Água Brasil (Water Brazil) program Launched on 3/22/ World Water Day - The "Programa Água Brasil" whereby Banco do Brasil adopts the topic of "WATER" as its main line of action geared towards sustainability. The choice of the topic arose from the reflection that BB, as the largest bank in Brazil, should embrace more specifically a cause with an aspect of such material importance as its size and is supported by social, economic and environmental factors considered of major importance to the country's sustainable development, such as the shortage and pollution of the resource and the growing depletion of aquifers. In the rural environment, the highest priority was placed on 14 micro watersheds, representing the Brazilian biomes, with a focus on the development of sustainable practices in agriculture. In the urban environment, five cities were selected for the development of actions geared towards the appropriate treatment of solid waste and towards conscious consumption. Programa Água Brasil is structured around four pillars of activity, with the respective goals: 124

125 Banco do Brasil S.A. - Reference Form/2013 (i) (ii) (iii) (iv) Socio-environmental Projects: they are aimed at the improvement of the quality and supply of water, the enlargement of natural vegetation coverage in pilot watersheds, via environmental adequacy of rural properties; encouragement of the change of behavior and values in relation to the production, final destination and treatment of urban solid waste, in pilot cities; Communication and commitment: promotion of awareness and change of attitude of the internal audiences and of society in relation to the preservation of water resources; dissemination and reapplication of models and best practices of preservation and conservation of water resources; Risk mitigation: to optimize the socio-environmental criteria used in the financing and investment processes of Banco do Brasil; New businesses: to improve the business models geared towards sustainable regional development and to enlarge the portfolio of financial products and services with Banco do Brasil's socio-environmental bent. Efficient Carbon Index - ICO2 ICO2 is composed of the actions of the companies participating in the IBrX-50 index and considers in its weighing not only the free float of the companies' shares, but also the degree of efficiency of greenhouse gas emissions, identified by means of analysis of the emission inventories. Soy Moratorium Workgroup (GTS) The studies produced by GTS (workgroup) aim to reconcile environmental preservation with economic development through the responsible and sustainable use of Brazilian natural resources, catering to the aspirations of society. With the adhesion to the Soy Moratorium Workgroup - GTS, BB agrees not to finance soy production in deforested areas in the Amazon biome after July Besides representatives of the vegetable oil manufacturers and of grain exporters, GTS relies on the participation of nongovernmental organizations, of the Ministry of the Environment (MMA) and of the National Institute for Space Research (INPE). Fórum Amazônia Sustentável (Sustainable Amazon Forum) In 2008, Banco do Brasil joined Fórum Amazônia Sustentável, a group formed by various government, corporate and non-government entities which discusses the paths leading to sustainable development in the Amazon biome. World Water Council The Word Water Council is a multi-stakeholder international platform, created in 1996 at the initiative of specialists in water, supply and sanitation, from various organizations interested in the topic, in response to a growing concern with the issues of shortage of water resources across the global community. The Council's regional coordination in Brazil, known as "Seção Brasil", is handled by ANA - National Water Agency, which formalized the invitation for the Bank to join, considering the corporate strategic initiative in sustainability, materialized by means of Programa Água Brasil, of which ANA is one of the partners. BB became a member of the World Water Council in c. dependency on patents, brands, licenses, grants, franchises, royalties contracts Dependency on patents, brands, licenses, grants, franchises, royalties contracts necessary to develop the activities Except for the approval for functioning granted by the Brazilian Central Bank and the relative brands mentioned in item 9.1 (b) of the Reference Form, the Bank does not depend on any patents, brands, licenses, grants, franchises, relevant royalty contracts to develop its activities. 125

126 Section 7 - Issuer's Activities 7.6. Countries from which Banco do Brasil obtains relevant revenues Regarding the countries of which the issuer receives relevant revenues, identify: a. the revenue from clients attributed to the base-country of the issuer and its share in total net revenue In 2012, of the total of R$138,574 million in revenues of Banco do Brasil, R$134,772 million, or 97.3%, correspond to activities in the Country. b. revenue from clients attributed to each foreign company and their share in total net revenue of the issuer, and In 2012, of the total revenues from abroad, the Banco Patagonia was responsible for 38.6%, and Grand Cayman for 19.7% and USA for 12.2%. The others are dispersed around the other countries where Banco do Brasil is present. c. total revenue from foreign companies and their share in the total net revenue of the issuer. In 2012, of the total of R$ 138,574 million revenues of Banco do Brasil, R$ 3,802 million, or 2.7% correspond to activities abroad Regulation in other countries Regarding the foreign countries disclosed in item 7.6, inform the extent of subjection to regulation of this country and how said regulation affects the business of the issuer. Each branch, subsidiary or controlled company by Banco do Brasil abroad is subject to the regulations of the company where it is located. Moreover, prior to the acquisition of a financial institution outside of Brazil or the installation of a unit abroad, the Bank has the support of internationally renowned specialized consultancy firms, to carry out a detailed examination of the regulatory environment in these countries in order to verify the capacity of compliance with the legal demands from local supervision bodies and consequently, to be in conformity with the applicable law. As a result of these examinations, the Brazilian Central Bank confirms if the regulation specific to the location does not significantly impact its operations. In an affirmative case, a study considering the acquisition of installation of new facilities is reevaluated under the aspect of convenience and opportunity Significant long-term relationships Describe relevant long-term relationships of the issuer which are not available in other parts of this form. Following the relationship which Banco do Brasil has with the Complementary Pension Closed Bodies is presented to health insurance companies and with Fundação Banco do Brasil - FBB. More information is found in the due bylaws of said institutions, as well as in their websites on the Internet. Previ - Caixa de Previdência dos funcionários do Banco do Brasil Objectives and Sponsors Previ was funded on April 16, 1904, it is a closed complementary pension entity, without profit purposes, headquartered in the city of Rio de Janeiro (RJ). Previ aims at complying with its Bylaws, administrating and executing beneficial pension plans and other authorized plans, so as to insure to its participants, beneficiaries and aiding the benefits in the due regulations of each plan. Banco do Brasil and its members sponsor the entity. Both are responsible for, in addition to their legal obligations, contributing on a monthly basis on the dates and conditions established and with the quantities which are defined in the funding of the due Benefit Plans, pursuant to articles 65 and 66 of the Bylaws. 126

127 Banco do Brasil S.A. - Reference Form/2013 BB is also responsible for the systematic supervision and oversight of Previ's activities, as well as the approval, without any functional prejudice, of the members which integrate the Board of Directors, Executive Committee, Fiscal Council, and Previ's Consulting Council Including alternate members to be part of due social bodies. Participants and Benefit Plans All individuals who are enrolled in one of the Benefit Plans of Complementary Pension Plan managed by Previ are participants, in the terms and conditions of the Bylaws. The plans are: Plano de Benefícios 1 (Benefit Plan 1) - The employees of the Bank which were inscribed between and are part of this plan. On December 31, 2010 there were 118,516 participants, of which 29,655 were active, 69,306 retired and 19,555 pension beneficiaries. Considering the accumulated surplus, in 2007 to 2012 the contributions of the participants and beneficiaries (retired employees and people who receive pension) and of the sponsor (Banco do Brasil) were suspended. In 2010, under resolution CGPC nº 26/2008 the Memorandum of Understandings was signed between BB, the elected directors of PREVI and entities representing the participants, through which it was officially suggested that PREVI adopt measures to use the resources from the profit in Plano 1. The main points of this document are: (i) Incorporation of Special Benefits for Remuneration and Proportionality implemented in 2007 as permanent benefits of the Plan and of the relative funds to Net Assets and Benefits Plan: (ii) Special Temporary Benefit; iii) Minimum Benefit raised temporarily from 40% to 70% of the PREVI Installment; Suspension of the collection of contribution for three consecutive years; (iv) and creation of two Pension Funds, of equal value, to allocate the resources of the profit to the participants and beneficiaries and the sponsor, BB. Previ Future Plan - The employees of the Bank who enrolled as of December 24, 1997 are part of this plan. On December 31, 2010 there were 77,987 participants, of which 77,435 were active, 163 retired and 389 pension beneficiaries. The benefits granted to the participants and their beneficiaries have their values, form of granting and other conditions established in the due regulations of the benefit plans. Participants employed before April 14, 1967, who were not retired and who were not in a position on that date to request their retirement, contemplated in the contract signed on December 24, 1997 between the Bank and Previ.C Mathematical reserves ensuring benefits corresponding to such group are fully paid-up at Previ. The retirement benefit of this group is characterized as a defined contribution. As of December 31, 2012, Banco do Brasil and Previ formalized a contract through which the Bank paidin, with funds from the Parity Fund, 100% of mathematical reserves related to the Special Group, which encompasses members of Previ s Benefit Plan no. 1 qualified for the first paragraph of clause 2 of contract executed on December 24, 1997, which obtained additional retirement supplements deriving from administrative and/or court decisions. Plan Financing The financing conditions regarding the benefit plans managed by Previ, sponsored by Banco do Brasil and by Previ itself, shall be established in the due regulations, obeying as a general rule, that the sponsors shall support 50% (fifty percent) of the normal cost of the General Part of Benefit Plan 1 with at least 7% (seven percent) and at most 14% (fourteen percent) of the salary participation of the participants of Plano Previ Futuro to finance this plan. The normal contribution of the sponsors in the plans sponsored by Banco do Brasil and by Previ itself, under no hypothesis may exceed the contributions of the participants. Banco do Brasil will also transform special contributions for effects of paying up the value of the mathematical reserves which ensure the benefits to the participants admitted in the job prior to and to those retired after that date, as provided for in specific document. Equity and its Application Previ's equity is constituted by: (i) financial resources and estate; (ii) contributions from sponsors and participants, established in the due regulations of the benefit plans and other contributions offered by the sponsors or participants; (iii) enrollment fee or admission fees; (iv) income produced by their financial resources and estate, and; (v) donations, devises, assistance, subventions and other income from any other individuals or corporations, public or private. 127

128 Section 7 - Issuer's Activities Previ's estate will be fully invested seeking to meet its objectives. All financial resources and estate must be managed in compliance with the investment guidelines approved by the Board of Directors, so as to obtain security in investments, profitability compatible with the regulations of the benefit plans, including the monetary adjustments and regularity of liquidity flow of investments for the payment of benefits. Previ may invest part of its equity in real estate or other investments, destined for its participants, observing the due regulations and pertinent law. Cassi - Caixa de Assistência dos Funcionários do Banco do Brasil Objectives and Sponsor The Fund for Assistance of Employees of Banco do Brasil - Cassi, private corporation, constituted in a General Meeting of January 27, 1944, headquartered in the City of Brasília (DF), is a non-profit association, focused on social assistance in the self-management mode. CASSI's objectives are to comply with the Bylaws, Internal Regulations and Regulations and contracts of the following health care plans: (i) to grant assistance to cover expenses with the promotion, protection, recovery and rehabilitation of health, including dental health, of the members, their dependents and external participants; (ii) to grant assistance to cover funeral expenses of the members or registered beneficiaries; (iii) to develop actions, including scientific and technological research, seeking to promote health and prevent illnesses of the members, inscribed beneficiaries and external participants; (iv) to develop and execute occupational medicine programs for employees of Banco do Brasil and other entities or companies, upon agreement/convention; (v) to execute the health policy defined by Banco do Brasil for its employees upon contract/convention; and (vi) to manage other plans or programs of similar nature, as long as previously secured against possible expenses, as well as execute other services which it is legally authorized to do. No rendering of service may be created, majored, extended or authorized without the corresponding source of costing and budget availability. Banco do Brasil sponsors the Cassi Members Plan, being responsible for: (i) contributing on a monthly basis, in national currency, with the amount which it is allotted in the Associate Plan as per the Bylaws; (ii) to approve the absences, without no functional prejudice, of the members of the Board of Directors and Tax Board of Cassi to be part of their work in the due boards. Members The members of Cassi, in the terms and conditions provided for in the Bylaws and Members Plan Regulations: (i) the employees of Banco do Brasil in any category, inscribed in the Members' Plan; (ii) the retired employees who receive benefits from Previ and/or BB and/or Official Pension, inscribed in the Members' Plan; (iii) the members of the Board of Directors of BB not belonging to its roll of employees, in the quality of temporary associates, upon the performance of its functions and upon enrollment in the Associate Plan; and (iv) the employees of Previ itself, active and/or retired, with possessions in Previ up to July External participants are those who are enrolled in collective health care plans and are not sponsored or operated by Cassi, belonging to a group of set people, as per the regulation issued by the Supplementary Health National Agency, except in the Associates Plan. On December 31, 2010 there were 189,691 participants, of which 104,824 were active, 66,795 retired and 18,072 pension beneficiaries. Equity and Financing Model CASSI's resources are originated by: Contributions of the associates, temporary or not; dependents of deceased associates; Revenues from external participants or from other health plans and programs and assistance managed by CASSI; And contributions from sponsors, BB and Caixa de Previdência dos Funcionários do Banco do Brasil, among other hypothesis provided for in article 14 of their bylaws. The monthly contribution of the Associates Plan is calculated based on the following parameters of the total value of benefits of retirement or general income; Or by the total value of pension benefits paid by BB and/or Caixa de Previdência dos Funcionários do Banco do Brasil and/or Instituição Oficial de Previdência Social, including the Christmas bonus. 128

129 Banco do Brasil S.A. - Reference Form/2013 The monthly contribution of the sponsor, Banco do Brasil is 4.5% (four point five percent) and will not exceed this limit. Over the total value of retirement or pension benefits, or of the general profit, as defined by the regulation of the Associates plan and, once a year at 4.5% (four point five percent) over the Christmas bonus. The responsibility of the sponsor regarding Cassi is limited to the contribution provided herein. The monthly contribution of the members, owed exclusively for the Associates Plan is 3.0% (three percent) and will not exceed this limit. Over the total value of retirement or pension benefits, or of the general profit, as defined by the regulation of the Associates plan and, once a year at 3% (three percent) over the Christmas bonus. The responsibility of the members regarding Cassi is limited to the percentages mentioned above, added of co-participations provided for in the Bylaws and Regulation of the Associates Plan. Cassi's equity may be added through donations, legacies, aids, subventions granted by any individual or corporation, resulting from actions provided for in items I and II of Article 3 of its Bylaws. The contributions owed by active members, as well as co-participations will be collected by Banco do Brasil, upon discount in payroll to credit Cassi. The values owed to Cassi are received through the network of dependencies of Banco do Brasil, and in it they are invested or deposited, upon negotiation between the parties. Possible financial insufficiencies of the Members Plan of CASSI may be covered by Banco do Brasil, exclusively as contribution advances. Fundação Codesc de Seguridade Social - Fusesc With the merger of Banco do Estado de Santa Catarina S.A. (Besc) and Besc S.A. - Crédito Imobiliário (Bescri) by Banco do Brasil on September 30, 2008, the Bank became a successor to the liabilities as sponsor of the following Private Pension Plans managed by Fundação Codesc de Seguridade Social - Fusesc: (i) (ii) Benefit Plan 1 - Defined Benefit (DB) - maintained by Fusesc, since 1978, structured in contributive solidarity with other companies, geared toward their employees and dependents. This plan involved, on , 1,463 employees, with retirees, 406 pensioners and 3 active employees. Employees and the sponsor contribute equally, in average, with 9.89% of participation salary. Plano Multifuturo I (Multifuture Plan I), Defined Contribution (CD) - participants: employees enrolled as of and participants who have migrated from the Benefit Plan 1. This plan involved, on , 6,069 employees, with 3,480 retirees, 76 pensioners and 2,513 active employees. Employees and sponsor equally contribute from 2.33% to 7% of participation salary to that plan, as determined by each participant. In addition to Banco do Brasil there are other sponsors of the Benefit Plans managed by Fusesc, namely: Companhia de Desenvolvimento do Estado de Santa Catarina Codesc, BESC S.A. - Corretora de Seguros e Administradora de Bens Bescor, Agência de Fomento do Estado de Santa Catarina S.A. Badesc, a Caixa de Assistência dos Empregados dos Sistemas BESC e CODESC, do BADESC e da FUSESC SIM and the Foundation itself. Economus Instituto de Seguridade Social Banco Nossa Caixa, merged on November 11, 2009 into Banco do Brasil, is the sponsor of Private Pension and Medical Assistance Plans managed by Economus - Instituto de Seguridade Social, a closedend supplementary pension plan with its own assets and management independence. As a natural progression, Banco do Brasil has moved onto the condition of successor of the obligations, including the private pension plans. Following we present the pension and health plans. Private Pension Funds (i) General Regulation, of Defined benefit: Instituted on 1/1/1978, it offers complementation benefits to retirement plans due to death, illness assistance and payment due to death or invalidity. On , the plan was settled, in other words, the participants were ensured a benefit in proportion to the time of adhesion to the plan, which will be adjusted by INPC up to the date of demand of receipt, which is also stipulated. On ,852 participants were enrolled, of which 5,516 were active, 5,901 retired and 435 were receiving pension. Employees and the sponsor contribute equally, in average, with 12.11% of participation salary. 129

130 Section 7 - Issuer's Activities (ii) General Complementary Regulation no. 1 of Defined Benefit (BD): formed on January 1, 1978, offers the benefits of supplemental sickness benefit and annuity for death and disability. On , participants were enrolled, of which 4 were active, retired and 3 were receiving pension. The cost of the plan is the responsibility of the sponsor, participants and assisted. The sponsor's contribution focuses on real salary to participate in equal numbers with participants. (ii) General Complementary Regulation no. 2 of Defined Benefit (BD): organized on January 1, 1978, it provides benefits owing to death and disability. On , participants were enrolled, of which retired and 9 were receiving pension. The financing of this plan is under the responsibility of the participants and beneficiaries. (iv) Prevmais, Variable Contribution: organized on August 1, 2006, it provides supplementary income benefits supplementary disability retirement, pensions owing to death, illness assistance, and funeral subsidies. The plan in its contribution stage is a defined contribution arrangement, and in its receiving stage there is the likelihood of the participant opting for income in quotas or for life. On , participants were enrolled, of which retired and 61 were receiving pension. The plan is structured as variable contribution and the financing of risk benefits is shared between the sponsor and participants. The funding for the income benefits is equally shared, limited to 8% of the salaries of the participants. The costing plans are evaluated annually so as to determine the rates of contributions necessary to constitute guarantee reserves of the fund benefits, provisions and coverage of other expenses under responsibility of the participant and beneficial sponsors. Medical plans (i) Plano Unificado de Saúde PLUS: participation in this plan takes place by means of a 1.5% contribution of gross salary, without limitation, covering the owner and his/her preferred dependents, deducted from the owner's payroll and 10% as a co-participation in the price of each medical visit and low-cost exams, made by the owner and his/her dependents (preferred and non-preferred). On , participants were enrolled, of which active. (ii) Unified Health Plan PLUS II: Participation in this plan takes place by means of a 1.5% contribution of gross salary, without limitation, covering the owner and his/her preferred dependents, deducted from the owner's payroll and 10% as a co-participation in the price of each medical visit and low-cost exams, made by the owner and his/her preferred dependents and children of age. The plan does not provide for non-preferred dependents. On , participants were enrolled, of which active. (iii) PAMC Supplementary Medical Assistance Plan: Intended for employees in the State and the Capital City of the state of São Paulo. Plan owners are those employees retired due to disability in Groups "B" and "C", and their dependents, who participate in costs inasmuch as they use it, and according to the salary range progressive table. Regarding the benefits of retired people who formerly opted for the CLT and their pension beneficiaries, 1.5% is charged as contribution. The plans are seeking their sustainability between contributions and expenses incurred, with the exception of retirees and pensioners, who are subject to a 1.5% contribution. FBB Fundação Banco do Brasil Objectives Fundação Banco do Brasil a non-profit privately owned company with administrative and financial independence, instituted by Banco do Brasil is ruled by Bylaws and is headquartered in Distrito Federal. The activities and functioning of the Foundation are regulated with supplementation by its Internal Regulation. The Foundation seeks to promote, support, incentivize and sponsor actions in the education, health, culture, social assistance, recreation and sport, science and technology and assistance in urban-rural communities. Equity and revenue The possessions of the Foundation are its equity and revenue. 130

131 Banco do Brasil S.A. - Reference Form/2013 Equity is formed by: funding from BB; Donations and contributions in cash or values; and fixed and unfixed assets and rights which it may acquire or receive from individuals and corporations. The revenues originate from resources allocated by laws which incentivate the areas in which the Foundation acts, proceeds from any nature such as remuneration from its cash and cash equivalents, rendering of services, funding from conventions, assistance, contributions and subventions of the Public Powers must be invested through Banco do Brasil, maintaining their real value. The core of the Foundation will be made of employees granted by Banco do Brasil who will work in accordance with their remunerations according to the positions they have been designated for, without right to another remuneration from the Foundation, considering that: (i) BB will be refunded for all costs to maintain the Foundation, including expenses and charges for the grant of employees; and (ii) the Chairman and Executive Officers of the Foundation will be remunerated exclusively by BB. ASSISTANCE FUND FOR EMPLOYEES OF SYSTEMS BESC AND CODESC OF BADESC AND OF FUSESC - YES With the merger of Besc and Bescri on 9.30,2008, the Bank settled the obligations of sponsor of the SIM Plan, managed by Assistance Fund For Employees Of Systems Besc And Codesc Of Badesc And Of Fusesc - Yes For this Plan the bank has no obligations to contribute with the employers' union for the retired employees, registering in its financial statements only the contributions which have been passed onto active participants. On the plan had 7,487 members of which 2,716 were active members. In addition to Banco do Brasil there are other sponsors of the Health plans managed by SIM, namely: Companhia de Desenvolvimento do Estado de Santa Catarina Codesc, BESC S.A. - Corretora de Seguros e Administradora de Bens Bescor, Agência de Fomento do Estado de Santa Catarina S.A. Badesc and the Foundation itself. BEP Caixa de Previdências Social- PREVBEP Due to the merger of Banco do Estado do Piauí (BEP) on 11/28/2008. The Bank settled the sponsor obligations of the Defined Benefit Plan named Plan BEP. On , 193 participants were enrolled, of which 57 were active, 102 retired and 34 were receiving pension. Annual report In the relationship with its various audiences, Banco do Brasil values ethics and transparency, providing high quality information on a timely basis. Its businesses and practices follow principles that combine socio-environmental responsibility with profitability, ensuring a performance committed to the future of the planet. To consolidate this relationship of transparency, the Bank maintains the strategy of rendering accounts to society, following the guidelines of the Global Reporting Initiative (GRI). In establishing a single standard of information submittal, the GRI methodology, used internationally in the production of corporate reports, facilitates the comparison of its economic, social and environmental performances over time, and also between different companies. Banco do Brasil applies the indicators of the Financial Services Sector Supplement, declaring itself Level A+. In addition, it uses the criteria of the Brazilian Association of Listed Companies (Abrasca), indicators highly recognized in the preparation of annual reports. Believing that sustainability exists in all of the company's processes, BB opts to publish a single report. In the Annual Report of Banco do Brasil the socio-environmental issue is added to the habitual financial statements and economic results that were previously exclusive in renderings of accounts such as this. The Annual Report of Banco do Brasil can be accessed via the BB Portal, on the Investor Relations page, at the following address: 131

132 Section 7 - Issuer's Activities 7.9. Other relevant information Provide other information that the issuer considers relevant Competitive advantages Largest Banking Franchise in the Country The strength of Banco do Brazil s banking franchise grants to it a broad basis of commercial funding that reached R$515 billion as of December 31, 2012, including total deposits (R$472.1 billion). In addition, note the growth of funding through Agribusiness Credit Bills (LCA) and Real Estate Credit Bills (LCI) that reached R$34.1 billion on December 21, Fund raising from LCA has been a low cost funding option. Loan Portfolio Growth Potential The expanded loan portfolio reached R$ million in Dec/12, with expansion of 24.9% in 12 months. Banco do Brasil s share in the classified loan portfolio of Banco do Brasil reached 20.4% in Dec/12, indicating an increase in relation to the share observed in Dec/11 (19.2%). Brand Solidity The brand, Banco do Brasil is currently one of the best known and most valued brands in the Country. Among the brands that the Brazilian consumer remembered the most in 2012, according to the research carried out by Instituto DataFolha (award Top of Mind 2012), Banco do Brasil was the financial institution which the Brazilian people remembered the most, for the 20th consecutive year. In addition, in the 2012 edition of the research "The 100 most valuable brands in Brazil" carried out by consultancy firm Brand Finance, the brand Banco do Brasil maintained its position as the third most valuable brand in the Country. Values and attributes such as solidity, security and credibility are perceived from brand Banco do Brasil. The Institution s history proves that it is possible for a public bank to operate with agility, efficiency and profitability without leaving aside soundness, security and operation intended to the society as a whole. At BB, these aspects are supplementary to and strengthen each other. Global Sustainability Acknowledgment The search for sustainable development, expressed by the Bank s constant concern with future impacts of its decisions and actions during operation is also seen in BB s participation in entities that evaluate a company s contribution to the sustainable development in Brazil and the world, such as its inclusion in the Dow Jones Sustainability Index and, for the eighth consecutive year, in BM&FBovespa Corporate Sustainability Index. In 2012, the Bank was acknowledged as a leading company by the Época Green Company Award. Strategic Relationship with Federal, State and Municipal Government As the financial agent of the National Treasury, Banco do Brasil renders services related to the execution and financial management, receipt of resources for the Federation's Sole Account or transferring of resources to the other individuals of the Federation. In its operations with other federal bodies, business involves mainly the financing of resources for funds and programs for investments in specific areas, the receipt of taxes, payment of assistance packages, benefits, restitutions and transfer of resources. In the other spheres of the Federation, Banco do Brasil is currently the official financial agent of 16 states and 16 capitals. In addition, it maintains business with all municipalities of the Country, offering specific solutions for the management of taxes, funding, management and optimization of financial resources, to carry out payments, manage human resources and social security and to manage the generation of jobs and income. Technology In the ambit of strategic structuring projects, note the project for modernization of technological infrastructure in facilities abroad and the development of a new solution for processes of the financial, treasury, human resources and logistics areas. Construction of the new Data Processing Center 132

133 Banco do Brasil S.A. - Reference Form/2013 (Datacenter) in Brasília, Federal District, is in its final stage; this building will support the continuity of the business with security and very high availability, even in case of extreme disasters. In 2012, BB made expressive investments for the preparation of a robust corporate technological environment to support several regulatory requirements, for example, ongoing solutions for alignment to Basel II rules for market, credit and operating risks. High standards of Corporate Governance. Since 2002, Banco do Brasil has added to its Bylaws the main corporate governance practices established in the Novo Mercado Regulations of BM&FBOVESPA, a listing segment which lists the companies with the highest standards of corporate governance in the Country. These corporate governance standards seek to maximize efficiency in management and in the protection if the interests of all shareholders. On May 31, 2006, Banco do Brasil entered the Novo Mercado listing, when it entered into a the Novo Mercado Agreement with BM&FBOVESPA, when the company began to broaden the free float, which was 29.6% in 2010 versus 5.6% in Highly professional administration Banco do Brasil believes that the high qualification of its employees and its capacity to maintain them committed to their search for a positive performance favor the success of the Company's strategies. In order to do so, the Bank seeks to maintain competent and experienced professionals who identify with their goals. In addition, its board of directors is selected as of technical criteria. The Board of Directors is professionalized and has broad experience in various executive instances of the Banco do Brasil's Conglomerate, in addition to the extensive knowledge in the financial and banking areas. Main strategies Banco do Brasil conducts its long-term perspective for the mission, vision and corporate values. Mission: "to be a competitive and profitable bank, to promote the sustainable development of Brazil and to perform its public role efficiently". Values Ethics and transparency. Commitment with sustainable development of communities and the country. Social-environmental responsibility. Consumer respect. Excellence and specialization in relationship with customer. Participative management, collective decision-making and team work. Professional growth based on merit. Brand as a competitive difference. Proactivity in risk management. Commitment with soundness, profitability, efficiency and innovation. Respect to diversity. Commitment with shareholders and society. Vision of the Future To be the first bank of Brazilians, of companies and of the public sector, a reference overseas, the best bank to work for, recognized for its performance, long lasting relationships and socio-environmental responsibility. 133

134 Section 7 - Issuer's Activities Strategic Planning for the period 2013/2017 Banco do Brasil presented net income of R$11.4 billion in 2012, according to IFRS financial statements. This performance corresponded to Average Return on Shareholders' Equity of 17.2% and is analyzed in Section 10.2 of this Reference Form. For the 2013/2017 period, Banco do Brasil gave priority to two main objectives: to significantly increase its efficiency and productivity, and to generate sustainable results through businesses which have a strong social orientation. In order to achieve increased efficiency and productivity, the Company will undergo a significant review and simplification of its main processes, which will result in more innovative, convenient and efficient channels, products and services, thus contributing to a reduction in expenses and the generation of better results for the stockholders. With regard to operational efficiency, the BB Eco-efficiency Program approved in 2012 developed a set of coordinated actions covering the entire organization, the purpose of which is to generate sustainable profit gains. The program, which has a permanent nature, addresses topics related to the main variables which comprise the Bank s results, from the point of view of efficiency and productivity, and is in line with the supply of global demands for a reduction of the environmental impact of operations. Businesses with a strong social and environmental orientation, such as the My House, My Life and the Oriented Productive Microcredit programs will remain in the Bank s strategy and play a key role in its corporate mission of fostering sustainable development in Brazil. The Bank launched the BB Accessibility Credit Financing line was launched, in combination with the governmental program Viver sem Limites (Living Without Limit), a national plan for the rights of the handicapped. This new product is intended to customers with monthly income of up to 10 minimum salaries for the acquisition of assistive technology products, at interest rate from 0.57% p.m. and IOF exemption. As a financial agent of the Student Financing Fund (FIES), BB carried out 183 thousand operations in The excellent service provided by BB made it possible for the portfolio originated by BB to reach a balance of R$ 6.3 billion, a growth of 276.3% in comparison with the same period of Distribution Channels Service Network in the Country With national outreach and present in 3,652 Brazilian municipalities through its own service network, BB has the largest network of branches in Brazil. On December 31, 2010, Banco do Brasil's service network was made up of 19,144 points of service. Considering the own network, shared network and correspondents in the country, the number of municipalities which we service reaches 5,425; Branch Network - 5,362 North 5.8%* Northeast 21.6%* Midwest 8.9%* Southeast 43.9%* South 19.8%* * percentage of branches per region Source: Operating system of BB. The Bank's own distribution network is divided in five types of service points classified as Bacen Resolution 4072: Branch, Service Station (PA) and Electronic Service Station (PAE): 134

135 Banco do Brasil S.A. - Reference Form/ Own Network Branch 5,087 5,263 5,362 Customer Assistance Posts 4,815 4,919 4,945 PAE Electronic Service Post: 8,457 8,583 8,837 Subtotal 18,359 18,765 19,144 MaisBB Network 10,145 14,232 17,914 Correspondent in the country 10,145 14,232 11,719 Postal Bank - - 6,195 Shared network CEF - lottery 10,782 10,993 12,443 Banco 24h 10,294 11,566 12,344 ATM: BRB + CEF 1,804 1,975 2,347 Subtotal 21,042 24,534 27,134 Total 51,384 56,828 64,192 Source: Bank's operating system. Banco do Brasil segments its business in Retail, Wholesale and Government, stratifying its client base according to each profile and relationship needs, developing strategies and adequate distribution networks for each niche. The right of Retail distribution (including the style and high income branches) the main ones responsible for client relations with Individuals and Micro and Small Companies (SME) has closed 2012 with branches, 44% of this total located in the Southeast region. In addition, the Bank offers service through the Banco do Brasil Service Center - CABB and service such as withdrawal, payment of bills and other services through a network of correspondents in the country, which added 17,914 stations on December 31, In relation to the Wholesale market, the service network is composed of branches segmented according to the customer profile, responsible for the service to companies of the Large Corporate, Corporate and Corporate (Middle Market) segments. This network totaled 130 service points at the end of 2012, with 83 branches and 47 platforms (located in regional centers), with the following distribution: Southeast (55%), South (26%), Northeast (9%), Midwest (8%) and North (2%). Banco do Brasil is one of the main financial agents of the Federal, State and Municipal Governments in the deployment of public policies, projects and projects, which are drivers of the country's development. At present, besides the partnerships with the Federal Government, Banco do Brasil is the financial agent of 16 States, 16 Capitals and maintains business with most of the country's municipalities, offering specific solutions to public administration and the only institution to reckon with 32 branches exclusively focused in the Government as a customer. External Network On December 31, 2012, the Bank's network abroad had 49 active units located in 24 countries, of which 13 were branches, 8 sub-branches, 11 representative offices, 1 subsidiaries, 5 subsidiary's branches, 2 shared-service units and 2 business unit. In South America, Bank's presence is expanded by the Banco Patagonia network (Banco Universal Controlado), in Argentina, which adds 187 service points and in USA by Banco do Brasil Americas, with 3 branches in Florida. In addition to this structure, BB has agreements with other financial institutions abroad to serve its customers. On December 31, 2012, the Bank had 1,124 correspondent in 139 countries. Alternative Channels Banco do Brasil s self-service network represents a strategic differential, offering an extensive range of services to clients, besides supporting the cost control strategy of the institution. As of December 31, 2012, this network had 44,393 automatic teller machines (ATM), compared to 43,602 and 44,954 in December 2011 and December 2010, respectively. The ATM's are responsible for the processing of an expressive portion of the total banking operations performed by the Bank. In December 31, 2012, 96.5% of the cash withdrawals, 76.9% of the checkbooks delivered, 74.2% of the deposits and 68.2% of the receipts of bills and contractual payments passed through the ATM network. Besides the cashiers at the branches and the ATMs, BB offers other options for access to banking services, such as: The Internet, Financial Manager (and Internet banking tool for businesses), POS equipment (credit and debit card machines at the commercial 135

136 Section 7 - Issuer's Activities establishments), telephone, fax, and mobile banking (WAP). On December 31, 2010 the automated channels responded for 94% of the total transactions. Risk Management In the Section 5 of this Reference Form, we present the information in main market risks which Banco do Brasil is exposed and the market risk management policy. The liquidity, credit and operating risk are covered as follow: Liquidity Risk Policy Liquidity Risk Policy, annually reviewed and approved by the Board of Directors intends to guide Banco do Brasil s behavior. Subsidiaries, Associates and Investees may define their orientation based on guidelines provided to the Bank, considering specific needs and legal and regulatory aspects to which they are subject. This policy, which complies with provisions of national and international regulation, contemplates aspects related to: risk management structure; management scope and objectives; and management tools. Liquidity risk management Banco do Brasil maintains levels of liquidity that are adequate for the institution's commitments assumed in Brazil and abroad, resulting from its broad and diversified depositor base and the quality of its assets, the capillarity of its network of overseas branches and of access to the international capital market. Stringent control over liquidity risk is in accordance with the Market and Liquidity Risk Policy established for the Conglomerate, fulfilling the requirements of national banking supervision and of the other countries where the Bank operates. Liquidity risk instruments adopted in the Conglomerate are: (i) liquidity projections; (ii) stress test; (iii) liquidity risk limits; (iv) liquidity contingency plan. Liquidity risk management tools are periodically monitored and reported to the Strategic Committees of the institution. Short, Medium and Long-term Liquidity Forecasts permit the evaluation of the effect of mismatching between funding and investments, with the objective of identifying situations that could compromise the institution's liquidity, taking into consideration the budget planning of the institution, as well as market conditions. Stress Tests are performed periodically, when the Short-term Liquidity Projections are evaluated in alternative and stress scenarios, aiming to verify the institution's liquidity recovery capacity under adverse conditions and to identify corrective measures, if necessary. Regarding, liquidity risk limits, the Liquidity Reserve is utilized in short term operational liquidity management of the domestic and international areas, being the minimum level of assets of high liquidity to be maintained by the Bank, compatible with the exposure to risk resulting from the characteristic of its operations and from the market conditions. The Liquidity Reserve is utilized as a parameter for the identification of a liquidity contingency situation and to deploy the Liquidity Contingency Plan, being monitored on a daily basis. Still regarding liquidity risk limits Banco do Brasil utilizes, in the planning and execution of its annual budget, the indicator of Availability of Free Funds (DRL), which aims to guarantee a balance between funding and application of resources from the commercial portfolio and to ensure the financing of liquidity with structural resources. Credit Risk Policy The Credit Specific Policy guides the behavior in relation to credit and is applicable to all businesses that involve credit risk, inside Banco do Brasil, its Wholly-Owned Subsidiaries and Associates of the Financial Conglomerate, including businesses made on behalf of third parties, except, in this case, the adoption of a distinct rule deriving from the Bank s specific analysis or guidelines from fund allocator. Approved by the Board of Directors and annually reviewed, this Policy includes assumption of credit risk, collection and credit recovery and credit risk management. 136

137 Banco do Brasil S.A. - Reference Form/2013 With the application of the Credit Specific Policy, BB intends to: (i) guarantee proper levels of credit risk exposure; (ii) minimize losses; (iii) contribute to price businesses with credit risks; (iv) improve risk/return ratio management; (v) ensure efficient capital allocation; and (vi) provide greater soundness, solvency and competitiveness to the Conglomerate. Among other topics, Credit Specific Policy contemplates: (i) credit risk concept; (ii) job segregation; (iii) collective decision-making; (iv) risk appetite and limits; (v) customers classification; (vi) conditions for risk assumption; (vii) guidelines for collection and credit recovery (viii) expected losses and unexpected losses; (ix) provision and capital levels; (x) stress tests; and (xi) capital planning. Credit Risk Management In compliance with CMN Resolution no. 3,721/09, the Board of Directors (CA) approved Banco do Brasil credit risk management structure comprised by the Global Risk Committee (CRG), Credit Risk Sub- Committee (SRC), Credit Office (Dicre), Operating Assets Restructuring Office (Dirao) and Risk Management Office (Diris). Considering that Diris is the Bank s area responsible for management of global risks and has no link at all with third parties funds management or performance of transactions subject to credit risk, CA indicated the Risk Management Officer as the person responsible for managing Banco do Brasil s credit risk before Bacen. This credit risk management structure is compatible with transactions nature, with complexity of products and services and is proportional to the dimension of BB s credit risk exposure. Credit risk management is carried out based on guidelines established by the Specific Credit Policy, approved by CA, and transformed into strategies by CRG and SRC. Evaluation and validation of processes and procedures of this risk management structure are carried out by two internal areas, which guarantees proper job segregation and work independence. Internal Control Office (Dicoi) responds for the validation of Financial Conglomerate risk evaluation models and for the Bank s internal control system; and Internal Audit periodically appraises management processes to verify if they are in accordance with strategic guidelines, credit policy and internal standards. In addition, Independent Auditors analyze processes and procedures, contributing to verify if they are in conformity with regulatory requirements and internal definitions. Operating Risk Policy The Operating Risk Policy approved and reviewed each year by the Board of Directors contains guidelines to the Bank's areas intended to ensure the effectiveness of the operating risk management model. These policy, in accordance with the provisions of Basel II and the requirements of CMN Resolution 3380, permeate activities regarding operating risk management in order to detect, assess, measure, mitigate, control, and monitor operating risks inherent to the products, services, activities, processes, and systems of Banco do Brasil, its wholly-owned subsidiaries and the subsidiaries of the Financial Conglomerate. Operating risk management In Banco do Brasil, in accordance with the New Basel Accord and CMN Resolution 3380, operating risk is defined as the likelihood of losses arising from faults, deficiencies, or the inadequacy of internal processes, personnel and systems, or external events. This definition includes legal risks. Concepts of operating risk management activities addressing management stages identification, evaluation, control, mitigation and monitoring have been reviewed and standardized within risk categories managed by the Bank. Operating risk corporate management is centralized in Risk Management Office. The operational risk management structure at Banco do Brasil is comprised of the Risk Management and Internal Control Directorates and by the Security Management Unit. Internal Control Office operates independently in the second tier of risk control and validation. It is the Risk Management Office responsibility to aid product and service managers to identify and mitigate operating risks. With the operating risk identification methodology used by managers to map 137

138 Section 7 - Issuer's Activities processes, it is possible to identify the causes of an operating risk event by associating People, Processes, Systems, and External Events to risk factors. To better manage the operating risk, it is essential to identify generating causes, as well as evaluate possible impacts on the Bank s businesses, in case this risk arises. Banco do Brasil groups operating risk events considering characteristics that are similar in logical structure and that permit capturing, analyzing and monitoring events through computerized systems and integration with regulatory agencies. The Bank has standardized operating risk events in eight categories: (i) Labor Issues; (ii) Frauds and External Robbery; (iii) Business Failures; (iv) Internal Frauds; (v) Damage to Physical Assets; (vi) Process Failures; (vii) System Failures; (viii) Interruption of Activities. Key Risk Indicators (KRI's) Risk Key Indicators (ICR) are managerial tools used to control operating risks that warn about deviations in the institution s key processes, which expose it to risks and, therefore, generate financial losses. Through ICR s, it is possible to obtain a numeric indication of processes exposure to operating risks, so that it is possible to dimension the effect of exposure and determine risk level. We verified that ICR s act not only on effective losses, determining the establishment of mitigation strategies, but also on possible losses, reducing possibility of their materialization. Operating Loss Exposure Limits In order to ensure an effective management of operating risks, Banco do Brasil employs operating loss exposure limits, which are intended to establish the limits acceptable to the Bank for operating losses, which are remitted for examination every month by the Operating Risk Sub-Committee and Global Risk Committee (GRC). In this respect, the BB created the Operating Loss Global Limit in order to allow operating loss management and to allow the detection of weaknesses associated with processes likely to cause significant losses. Note specific limits established for operating losses related to Labor Issues, Business Failures, Internal Frauds, and External Robbery. With the objective of preventing or inhibiting weak points that may generate risks for the Banco do Brasil is used the Technical Risk Recommendation (RTR), issued to the process or product management areas when the need for adoption of loss mitigation actions is identified, besides guaranteeing the risk management process effectiveness. Overview of the banking industry Evolution of the Brazilian Banking Industry 2012 was marked by the reduction in interest rates and decrease in bank spreads, generating new management challenges for financial institutions. Even though banks profitability was lower than in prior years, they showed capacity to adjust to the situation and continued to present good results. In this scenario, one of the most discussed matters during the year was operating efficiency, which is leading banks to expand their investments in technology and optimize processes for the purpose of rationalizing expenses. Regarding revenues, in 2013, banks are expected to adopt special strategies, either by increasing their bases or portfolio return. As regards credit, it is noticeable that banks increased their attention on infrastructure projects financing of airports, railways, roads, ports, electric power generation and transmission in order to diversify their portfolios and expand their operation area. To meet this demand, financial institutions will have to seek alternative funding, either from internal or external sources. Themes like families indebtedness level and default in consumer credit facilities or short-term credit facilities shall continue to be discussed by banks, given the impact that the allowance for doubtful accounts generates in their balance sheets. Safer and long-term credit facilities, such as real estate credit, are expected to grow, even if moderately, as well as their share in the institutions portfolio. Regulatory and inspection agencies are also seeking changes to improve their standards and provide greater transparency to products and services offered by financial institutions to society the, improving security for the parties. 138

139 Banco do Brasil S.A. - Reference Form/2013 As regards internationalization of Brazilian financial institutions, greater emphasis is given to operation as investment banks and wholesale banking. On their turn, foreign banks obtained, in the last months, authorization to start operations in Brazil, which strengthens Brazilian market attractiveness. Mobile payments are acquiring relevance with formation of new partnerships and employment of new technologies, but also as a form of banking service and business platform while disclosure of a legal framework for payment means is expected. New players entered the cards market, increasing competitiveness; and the pre-paid type of card is gaining market share. Composition of the Brazilian Banking Industry Brazilian Financial System The National Financial System is composed by regulating and inspecting bodies such as the National Monetary Council, the Bacen, the Securities Commission, the Superintendence of Private Insurance and the Department of Private Pension Plans, which are subordinated to different entities and institutions. According to data made available by the Bacen website, on December 31, 2012, there were 2088 financial institutions regulated and inspected by the Central Bank, including: (i) (ii) (iii) 22 commercial banks private or public financial institution. The main purpose is the adequate and timely provision of the funds required to finance, in the short and medium term, the commerce, industry, service providing companies, individuals and third parties in general. The acceptance of freely disposable demand deposits is a typical activity of commercial banks; 14 Investment Banks Private financial institution specialized in transactions of temporary shareholding interest, of financing production with supply of fixed and working capital, and management of third parties funds. 137 Multiple Banks Private or public financial institution that carries out asset, liability and accessory transactions for several financial institutions through the following portfolios: commercial, investment and/or development, real estate credit, lease, credit, financing and investment. These transactions are subject to the same legal and regulatory standards applicable to single institutions that correspond to their portfolios. Brazilian Macroeconomic Scenario The Bank's financial situation and income from operations are directly influenced by the general economic environment prevailing in Brazil, and are especially affected by variables such as the GDP, inflation, interest rates, exchange variations, and the Federal Government's fiscal policy. In addition, the demand for banking products and services is affected by the evolution of the Brazilian economy. In 2010, Brazil s GDP had strong expansion (7.5%), driven mainly by investments, whose annual rate reached 21.3% in actual terms. But this growth was not maintained in 2011 and 2012, whose economy growth rates reached 2.7% and 0.9%, respectively. In this period, there were new uncertainties related to the Euro zone fiscal crisis and to difficulties in North-American and Chinese economic recovery, which directly affected industry and domestic investments performance. Even relative better performance of emerging economies (in comparison with the advanced world) and anti-cyclic monetary and fiscal policies did not ensure a more dynamic rhythm to internal activity, although consumption of families responded positively to these incentives. Under the fluctuating exchange rate regime, the Brazilian currency has been somewhat volatile. In 2010, Brazilian Real reached R$1.67/US$ at yearend (appreciation of 4.3%). In 2011 and 2012, in view of major uncertainties in the foreign environment and the consequent increase in risk aversion, as well as a decisive role of the Brazilian Central Bank in the exchange market, the movement towards the appreciation of real was reversed, and the Brazilian currency ended the respective years at R$1.88/US$ and R$2.04/US$ (devaluation of 12.6% and 8.9%, respectively). During 2010, in face of inflation pressure, IPCA (Extended Consumer Price Index) closed the year presenting a variation of 5.9% (level that is almost 1.5 percentage point above goal center). In face of prices rise, Brazilian Central Bank started a new tightening cycle of monetary conditions. In July 2010, the target of the base interest rate reached 10.75% p.a., which was maintained in this level until the end of the year. The cycle of interest rates held down repeated in the beginning of 2011, with the SELIC target reaching 12.50% p.a. in the middle of the year. However, with signs that the domestic economic activity would be affected by an increasingly adverse external environment, COPOM reversed the 139

140 Section 7 - Issuer's Activities process of tight monetary control, and the SELIC rate stood at 11.00% p.a. at the end of the year. The reduction continued in 2012 and the base interest rate ended the year at the lowest level in its history of 7.25% p.a. In addition, in order to avoid that the country slipped into recession, the government adopted a package of incentives to increase the added demand of economy. Besides making interest rates more flexible, it adopted several measures to encourage consumption, of which the temporary reduction in the taxes levied on durable goods should be highlighted. In terms of supply, it announced a program for investments in infrastructure and logistics, incentives to the purchase of capital goods, civil construction, privatization of airports and investments to reform/build ports. The following table shows selected macroeconomic data for the indicated period. Year ended December Actual GDP growth in % Inflation (IGP-M) in %¹ Inflation (IPCA) in %² Selic rate in % Change in Exchange Rate (R$/US$) by % 4 (4.3) Exchange rate at the end of the period (R$/US$) Average exchange rate over the period (R$/US$) Inflation measured by the IGP-M, the General Market Price Index of the Getulio Vargas Foundation. 2 - IPCA: Extended Consumer Price Index of the Brazilian Institute of Geography and Statistics 3 - Selic target. 4 - Positive amounts indicate devaluation of Real against the Dollar. Negative amounts indicate the opposite. Source: FGV, IBGE and Bacen. 140

141 Banco do Brasil S.A. - Reference Form/ ECONOMIC GROUP 8.1. Economic group Please describe the economic group in which the issuer is located: a. Direct and indirect parent companies The capital stock of Banco do Brasil S.A. is R$ 48,400,000, (forty-eight billion four hundred million Reais), divided into 2,865,417,020 (two billion, eight hundred sixty-five million, four hundred and seventeen thousand and twenty) book-entry common shares without par value. The Federal Government is the Bank's largest shareholder, with % of the shares. Since this is a mixed (public and private capital) corporation, the majority of the voting shares must belong to the government, as established by Decree-Law No. 200 of February 25, As of December 31, 2011 and 2012, Banco do Brazil's shares are held as follows: The holdings of the controlling shareholder are maintained by the National Treasury and funds that are directly or indirectly controlled by the Federal Government. List of Banco do Brasil's Shareholders 12/31/2011 (%) 12/31/2012 (%) BB shareholders % % Federal Government 59,088, Treasury Fundo de Garantia a Exportação 4,864,912 - Fiscal Fund for Investment and Stabilization 2,181, Shipbuilding Guarantee Fund - - Fundo Garantidor para Investimentos (Guarantee Fund for Investments) Public-Private Partnerships Guarantee Fund - - Fdo. Inv. Caixa FGHAB - - Caixa FI Shipbuilding Guarantee Fund BB FGEDUC Fundo Inv Mult BB FGO Investment Fund b. Subsidiaries and associated companies: In turn, Banco do Brasil is a shareholder of several companies that operate in different segments of the financial market or in activities related to its stated purpose, especially in activities such as asset management, insurance, investment banking, leasing operations, credit cards and consortiums for goods and services. The following tables present the ownership interests held by Banco do Brasil as of December 31, 2011 and 2012, with a description of the main field of activity of each company. Interest in the Capital of Subsidiaries and Affiliates of the BB Banco Múltiplo - Consolidated Segment/Company Banking Segment Activity 12/31/ /31/2012 c. d. c. d. bank's Ownership Interest in Group Companies (%) group companies' ownership interest in the Bank bank's Ownership Interest in Group Companies group Companies' ownership interest in the Bank BB Leasing S.A. - Arrendamento Mercantil (1) Leasing BESC DTVM S.A. (1) Asset Management Banco Votorantim S.A. (2) Multiple Bank Banco do Brasil AG - Viena (1) Banking BB Leasing Company Ltd (1) Leasing Banco do Brasil Securities LLC (1) Broker BB Securities Ltd. (1) Broker BB Securities Asia PTE LTD (1) Broker Brasilian American Merchant Bank - BAMB (1) Banking

142 Section 8 - Economic Group Segment/Company Activity 12/31/ /31/2012 c. d. c. d. bank's Ownership Interest in Group Companies (%) group companies' ownership interest in the Bank bank's Ownership Interest in Group Companies group Companies' ownership interest in the Bank BB USA Holding Company, Inc (1) Holding BB Americas (1) Multiple Bank Banco Patagonia S.A. (1) Multiple Bank Investment Segment BB Banco de Investimento S.A. (1) Investment Bank BB Asset Management Ireland LTD (1) Asset Management Segment of Fund management BB DTVM S.A. (1) Asset Management Insurance, Private Plan and Capitalization Sector BB Seguros Participações S.A. (1) Holding BB Corretora de Seg. e Adm. de Bens S.A. (1) Broker BB Seguridade Participações S.A. (5) (1) Holding Votorantim Corretora de Seg. S.A. (2) Broker Segment of payment methods BB Administradora de Cartões de Crédito S.A (1) Services BB Elo Cartões Participações S.A. (1) Holding Elo Participações S.A. (2) Holding Elo Serviços S.A. (2) Services Other Segments BB Administradora de Consórcios S.A. (1) Consortiums BB Tur Viagens e Turismo Ltda. (1) Tourism BB Money Transfers, Inc (1) Services Cobra Tecnologia S.A (1) IT BV Participações S.A. (2) Holding

143 Banco do Brasil S.A. - Reference Form/2013 Interest in the Capital of BB Banco de Investimentos - Consolidated Segment/Company Investment Segment Activity 12/31/ /31/2012 c. d. c. d. bank's Ownership Interest in Group Companies (%) group companies' ownership interest in the Bank bank's Ownership Interest in Group Companies group Companies' ownership interest in the Bank Kepler Weber S.A. (2) Industry Neonergia S.A. (2) Energy Companhia Brasileira de Securitização Cibrasec (3) Credit Acquisition Insurance, Private Pension Plan and Capitalization Sector Seguradora Brasileira de Créd. à Export. - SBCE (3) Insurance company Segment of payment methods Cielo S.A. (2) Services Cia. Brasileira de Soluções e Serviços - CBSS (2) Services Tecnologia Bancária S.A. Tecban (3) Services Other Segments Ativos S. A. Securitizadora de Créd. Financeiros (1) Credit Acquisition Ativos S.A. Gestão de Cobrança e Recup. de Créd. (1) Credit Acquisition Interest in the Capital of BB Seguros - Consolidated Segment/Company Insurance, Private Pension Plan and Capitalization Sector Activity 12/31/ /31/2012 c. d. c. d. bank's Ownership Interest in Group Companies (%) group companies' ownership interest in the Bank bank's Ownership Interest in Group Companies group Companies' ownership interest in the Bank Brasilcap Capitalização S.A. (2) Capitalization Brasilprev Seguros e Previdência S.A. (2) Insurance Company/ Pension Nossa Caixa Capitalização S.A. (1) Capitalization BB Mapfre SH1 Participações S.A. (2) Holding Mapfre Participações S.A. (2) Holding Mapfre Vida S.A. (2) Insurance company Companhia de Seguros Aliança do Brasil (2) Insurance company Vida Seguradora S.A. (2) Insurance company BB Aliança Participações S.A. (3) Holding Mapfre BB SH2 Participações S.A. (2) Holding Mapfre Seguros Gerais S.A. (2) Insurance company Mapfre Affinity Seguradora S.A. (2) Insurance company BB Mapfre Assistência S.A. (2) Services Brasilveículos Companhia de Seguros (2) Insurance company Aliança do Brasil Seguros (2) Insurance company BB Aliança Rev Participações S.A. (3) Holding

144 Section 8 - Economic Group Unconsolidated Interest in the Capital of Subsidiaries and Affiliates Segment/Company Activity 12/31/ /31/2012 c. d. c. d. bank's Ownership Interest in Group Companies (%) group companies' ownership interest in the Bank bank's Ownership Interest in Group Companies group Companies' ownership interest in the Bank Companhia Hidromineral Piratuba (4) Sanitation Itapebi Geração de Energia S.A. (4) Energy Cadam S.A. (4) Mining company Estruturadora Brasileira de Projetos - EBP (4) Services Mapfre Nossa Caixa Vida e Previd. S.A. (4) Insurance Company/ Pension Subsidiary. 2 Joint venture, included on pro rata basis in consolidation. 3 Affiliated companies, included on pro rata basis in consolidation, as established by Bacen. 4 Affiliates accounted by equity method. 5 The creation of BB Seguridade, holding company of the firms from the Bank s insurance branch, was approved on 12/17/2012. The equity in the earnings of subsidiaries and associated companies of BB Seguros e Participações S.A. and BB Corretora de Seg. e Adm. de Bens S.A. was held at Banco Múltiplo until the end of 2012, with only the balances of their investment having been migrated to the new holding company. c. issuing entity's ownership interest in Group companies Banco do Brasil's ownership interest in Group companies is listed in item 8.1."b" above. d. group companies' ownership interest in the issuing entity The analysis of shareholders of Banco do Brasil is described in item 8.1."a" above. Group companies have no ownership interest in Banco do Brasil. e. companies under joint ownership: Since Banco do Brasil is a company controlled by the National Treasury, all other companies controlled directly or indirectly by the Federal Government are under a common control with Banco do Brasil, and that includes all public companies, mixed-economy companies controlled by the Federal Government operating in diverse sectors of the economy (electric power, oil and financial), such as: Centrais Elétricas Brasileiras S.A - Eletrobrás, Companhia Hidro Elétrica do São Francisco - CHESF, Petróleo Brasileiro S.A - Petrobrás, and Caixa Econômica Federal Caixa Organization chart in accordance with item 8.1: If desired by the issuer, insert an organization chart of the economic group in which the issuer operates, provided that compatible with information presented in item 8.1. See the organization chart in subsequent page. (Position: 12/31/2012) Operations of corporate restructurings that occurred in the group Please describe the restructuring operations, such as mergers, business combinations, split-offs, mergers of shares, ownership interest divestiture and acquisition, major asset acquisitions and sales occurred in the group. Please see items 6.5 and 6.7. of this Reference Form Other information that the issuer considers relevant No further relevant information to add. 144

145 Banco do Brasil S.A. - Reference Form/