Committed to you. Management Analysis of Financial Statements. Semi-Annual Report. June 2007

Transcription

1 Committed to you Management Analysis of Financial Statements SemiAnnual Report June 2007

2 Summary History...5 Ratios...6 Ownership...7 Structure...8 Branch Network...10 Business...11 Risk Management...12 Credit Portfolio Breakdown...15 Funding...17 Time Deposits Breakdown...18 Client Base...18 Management Report...19 Economy Scenario and Financial System...19 Corporate and Market Context...20 Economic and Financial Performance...21 Social and Environmental Responsibility...23 Investments in Subsidiaries...23 CVM Instruction 381/ Final...23 Current Assets...24 Long Term Assets...25 Current Liabilities...26 LongTerm Liabilities...27 Income Statements...28 Statement of Changes in Financial PositionSource of Funds...29 Statement of Changes in Financial PositionUse of Funds...30

3 Statements of Changes in Shareholders' Equity...31 Notes to the Financial Statements OPERATIONS PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS MONEY MARKET INVESTMENTS FINANCIAL INSTRUMENTS LENDING OPERATIONS OTHER RECEIVABLES PERMANENT ASSETS FUNDINGS ABROAD OTHER LIABILITIES SHAREHOLDERS' EQUITY OPERATING LIMITS RELATED PARTY TRANSACTIONS PENSION PLAN OTHER OPERATING REVENUES / (EXPENSES) OTHER INFORMATION Appendix I Appendix II...69

4 SemiAnnual Report June 2007

5 History The Bank's origin comes from the 1940 s, in the northcenter of Minas Gerais state, at the city of Curvelo where it was founded by local business men. In 1955, under the name Mercantil de Minas Gerais the Bank was acquired by Mr. Oswaldo de Araújo and Mr. Vicente de Araújo, who relocated its headquarters into Belo Horizonte, starting thereafter Bank's tradition of safety and solidity based on a philosophy of ongoing growth. Along the following years, new shareholders integrated the actual management, including Bank's present Chairman, Mr. Milton de Araújo. In the 1960 s, the Bank acquired several other banks and its branches, increasing its network from 4 up to 52 units. In the 1970 s two other banks were acquired. One of them was Banco Mercantil do Brasil, which name began to be used by the institution since then. These changes allowed the Bank to start the 1980 s with approximately 100 branches. In 1999 the Bank renewed its brand and branches in order to consolidate a modern image with its c u s t o m e r s a n d t h e m a r k e t. Management goals aim to valorize and strengthen Mercantil do Brasil's brand in accordance with adequate services for its customer profile. Nowadays, the Bank has 171 branches, 04 Corporate Platforms, 29 service centers and 2,598 employees well located in the main geoeconomic centers of Brazil, mostly in Minas Gerais and in the SouthEast of the country, comprising the Bank's target area.

6 Ratios _ (in Million Brazilian Reais) Total Assets Lending Operations & Assigned Credits Dez 2002 Dez 2003 Dez 2004 Dez 2005 Dez 2006 Jun 2007 Dez 2002 Dez 2003 Dez 2004 Dez 2005 Dez 2006 Jun 2007 Total Deposits Shareholder s Equity Dez 2002 Dez 2003 Dez 2004 Dez 2005 Dez 2006 Jun 2007 Dez 2002 Dez 2003 Dez 2004 Dez 2005 Dez 2006 Jun 2007 BIS 16,2% Net Income 12,0% 13,4% 12,9% 13,9% 11,7% ,0% * Dez 2002 Dez 2003 Dez 2004 Dez 2005 Dez 2006 Jun 2007 Dez 2002 Dez 2003 Dez 2004 Dez 2005 Dez 2006 Jun 2007 * Net Income of 1st Semester /

7 Ownership Controlling Group ON: 62,5 PN: 6,5% Free Float ON: 37,5 PN: 93,5% ON: 81,8% LEASING S.A ON: 100,0% DISTRIBUIDORA S.A ELETRODADOS CORRETORA IMOBILIÁRIA S.A DE SEGUROS E PREVIDÊNCIA PRIVADA S.A CORRETORA S.A CÂMBIO, TÍTULOS E VALORES MOBILIÁRIOS VIDA E PREVIDÊNCIA ON: 100% ON: 100% ON: 100% ON: 99,9% ON: 99,0% FINANCEIRA S.A ON: 76,4% BANCO MERCANTIL DE INVESTIMENTOS S.A ON: 78,8% Financial Segment Activity Participation % Jun 2007 Mercantil do Brasil Distribuidora S.A. Títulos e Valores Mobiliários Asset Management % Mercantil do Brasil Leasing S.A. Arrendamento Mercantil Leasing % Banco Mercantil de Investimentos S.A. Investment Banking 78.76% Mercantil do Brasil Financeira S.A. Crédito, Financiamento e Investimentos Mercantil do Brasil Corretora S.A. Corretora de Câmbio, Títulos e Valores Mobiliários Finance 76.41% Foreign Exchange & Securities Brokerage 99.97% Insurance Segment Activity Participation % Jun 2007 Minas Brasil Seguradora Vida e Previdência S.A. Life Insurance & Pension Plans 99.00% Companhia de Seguros Minas Brasil Insurance Company 81.75% Other Segments Eletrodados Corretora de Seguros e Previdência Privada S.A. Activity Insurance Management, Brokerage & Private Pension Participation % Jun % Mercantil do Brasil Imobiliária S.A. Real State Broker % 7

8 Structure BOARD OF DIRECTORS Chairman Milton de Araújo VicePresident Maurício de Faria Araújo Councilers Daniela de Araújo Coelho Flávio Batista de Noronha Guarani José Carneiro de Araújo José Longo José Ribeiro Vianna Neto Marco Antônio Marques Cardoso Rita de Cássia Pimenta de Araújo MANAGEMENT President Milton de Araújo Executive Directors André Luiz Figueiredo Brasil Athaíde Vieira dos Santos Marco Antônio Andrade de Araújo Milton Loureiro Júnior Valci Braga Rezende FISCAL COUNCIL Geraldo Perrillo Júnior Glaydson Ferreira Cardoso Jorge Ferreira Cunha José Régis da Silva Pontes Yehuda Waisberg CONTROLLER Controller Executive Luiz Carlos de Araújo VicePresidents Hélio de Araújo Maurício de Faria Araújo Renato Augusto de Araújo Executive Vice President Luiz Henrique Andrade de Araújo 8

9 Chairman Milton de Araújo Internal Audit Carlos Roberto Pereira VicePresident Hélio de Araújo VicePresident Maurício de Faria Araújo VicePresident Renato Augusto de Araújo Executive VicePresident Luiz Henrique Andrade de Araújo Legal José Ribeiro Vianna Neto Executive Directors Business Support André L. F. Brasil Operational Support & Credit Athaíde V. dos Santos Strategic Business Marco Antônio A. De Araújo Strategy, International Business & Technology Milton Loureiro Júnior Commercial Valci Braga Rezende Commercial Planning & Management and Electornic Channels Financial Products and Marketing Human Resources Credit Collections & Recovery Back Office Controller Automatic Paycheck Deductible Loans Real Estate Rural Lending Guarantees Performance, Strategy & Risk Management International Business Technology Funding Retail Business Management Regional Dealers Insurance and Private Plans Finance Vehicles 9

10 Branch Network Mercantil do Brasil has 171 branches, 04 Business Platforms, 01 branch abroad in Grand Cayman Island and 29 sales units distributed countrywide, among which 31% allocated in capital cities and 69% in other cities. The Bank focuses its business activities in the states of Minas Gerais, interior of São Paulo, Rio de Janeiro, Espírito Santo, Goiás and Federal District (Brasília), with 143 branches (83% of the network). GEOGRAPHIC FOCUS MT 01 MS 01 PR 06 BA 05 CE 01 RN 01 PB 01 PE 03 AL 01 SE 01 Goiás 07 Distrito Federal 03 Minas Gerais 81 Espírito Santo 05 Rio de Janeiro 10 RS 04 São Paulo 40 SC 04 10

11 Business B e s i d e s R e t a i l b a n k i n g, Mercantil do Brasil complements its product portfolio with specific segments such as Vehicle Financing, Leasing, Securities, Insurance, Pension Plans, Automatic Payroll Deductible Loans ( Crédito Consignado ), Credit Cards and Real Estate. Retail Business focuses on I n d i v i d u a l s, w h o c o n s i s t predominantly of professionals and persons in the middle class income bracket. For the SME's Business, the goals are companies with annual revenues up to R$ 12 million. Companies Segment have a distinct structure that focuses on companies with annual revenues a b o v e R $ 1 2 m i l l i o n. Y o n d e r specialized branches located in the capital cities of Minas Gerais, Rio de Janeiro and São Paulo, MB provides this specialized structure inside of its retail branches for customers with this profile located in the cities of Anápolis, Brasília, Campinas, Curitiba, Florianópolis, Goiânia, Porto Alegre, Recife, Salvador and Vitória. Bank's branches are able to offer all financial products and services to customers, which are classified as it follows: INDIVIDUALS Checking Accounts, Savings, Time Deposits and Funds; Personal Credit, Revolving Overdraft Facilities, Working Capital, Vehicle Financing and Credit Card; Pension Plans, Insurance and Securities. Special Services (collection, custody, tax payments, etc). SME & CORPORATE Checking Accounts, Savings, Time Deposits and Funds; Working Capital, Discount of Receivables, Revolving Overdraft Facilities, Vehicle Financing, Finame and Leasing; Bid and Performance Bonds, Trade Finance, Real Estate and Insurance. Special Services (collection, custody, tax payments, etc).

12 Risk Management MARKET RISK Mercantil do Brasil has an independent risk management, which attributions are planning, controlling and managing market, credit and liquidity risks. They are controlled by an Unhedged Position Management System (comprising terms and currencies) which follows guidelines established by ALC (Assets and Liabilities Committee). ALC is integrated by the Executive Vice President, Executive Directors (5) and Executive Managers (2). Since the year 2000, MB has been applying two market risk appraisal models: the Proprietary Model and the Central Bank Standard Model, both in accordance with CMN's Resolution # 2,692 and Circular # 2,972 / The Proprietary Model is based on an appraisal risk methodology named V@R, which evaluates the business and Treasury operations market risks. Its mensuration parameters are driven by historical series of 100 days, with a reliability level of 95% and holding period of 1 day, being the existing correlation between them also taken into consideration. Risk factors considered by this analysis are: Pré, TR, TBF, ANBID, %CDI, US$, and EURO, all defined by the function of their respective shares on Assets and Liabilities' positions. This procedure structure allows yonder a daily followup through V@R calculations based on instability simulations of credit portfolio s c e n a r i o s, a g a i n s t t h e m a i n macroeconomic variables in worst stress, providing the most appropriate hedge alternative. The ALC meets every two months or else whenever required by one of its members. CREDIT RISK MB's Credit Policies and Procedures aim to increase bank's competitiveness and credit portfolio quality in accordance with the best market practices, considering all of management's risk criteria. MB's Credit Policies seek to ensure: ongoing monitoring of lending operations verification of the appropriate risk control for each operation; certification of MB's assets security levels, quality and liquidity; maintenance of lending operations flexibility and profitability ; and minimal risks on lending operations. Credit decision is basically centralized in Business Desks which main function is to analyse all proposals in accordance with their limits and provide which ones will be further analyzed by Credit Committee and Superior Credit Committee. With a modern structure and specialized professionals, wellprepared in credit grant, business desks help improving and developing Bank's business quality. They analyze the major part of its daily operations, including helping and coordinating commercial managers' actions towards costumers' necessities. 12

13 Mercantil do Brasil applies two analysis tools for individual customers' credit risk evaluation: "Credit Score" and "Behaviour Score" models with respect to new customers and existing customers of the Bank, respectively. The Credit Score model evaluates potential new customers by analyzing personal information such as age, sex, profession, annual income, civil status, etc. Based on a statistical default of the profile of such potential customer the Bank uses the Credit Score model to decide whether credit can be offered in the particular circumstances. The Behavior Score model allows the Bank to decide whether to provide credit to existing customers by analyzing such customer's account(s) with the Bank, in particular the historical payments of previous credits. These models were developed by internal analysts of the Bank working together with a s p e c i a l i z e d B r a z i l i a n c r e d i t consultant. For SME's customers with monthly revenues up to R$ 300 thousand, an electronic statistical model is used for automatic customers classification and credit limit grants. In case of SME's and Corporate customers with monthly revenues above R$ 300 thousand, credit analysts meet under a committee and apply a Ratingmodelb a s e d e v a l u a t i o n t o c l a s s i f y customers risks in accordance with Resolution # 2,682 / OPERATIONAL RISK Conselho Monetário Nacional (National Monetary Council) settled through Resolution # 3,380 the establishment of an Operational Risk Management structure to all financial institutions under the supervision of Brazilian Central Bank. M B s O p e r a t i o n a l R i s k Management is centralized in Operational Risk & Compliance Department which reports directly to the Executive Management, allowing liveliness and assertion in decision making process. M B s O p e r a t i o n a l R i s k Procedures formally approved by its Institutional Policies are applied through specific procedures and methodologies, which are placed to strenghthen MB s practices for q u a l i t a t i v e a n d q u a n t i t a t i v e Operational Risk management, in identifying, evaluating, controlling and calculating risks global impact on f i n a n c i a l a n d n o n f i n a n c i a l subsidiaries of MB's Conglomerate. Operational Risk Management Department follows the deviation of several risk exposure scenarios that the bank is subjected to, reflecting on MB's business environment and its commitment to clients, shareholders, employees and society. Furthermore, Bank's GRI system ( G R I G e s t ã o d e R i s c o e Inadimplência ) aim to weekly analyse some of credit customers performance ratios. This analysis identifies possible future incapacity of payment, allowing MB to accomplish preventive actions to reduce default. 13

14 LIQUIDITY RISK According to CMN's Resolution #2,804, the Bank manages Liquidity Risk through established followup monitoring systems in comparison with its credit positions in financial and capital markets, evidencing the unhedged risks of its operations. In order to attend the legislation mentioned above, Mercantil do Brasil applies two appraisal models: Unhedged Flows Behaviour System ( Mapa de Descasamento dos Fluxos ) and Daily Products Behaviour ( Movimentação Diária de Produtos ). The first model allows verifying each operation by product, index numbers and maturity. The second one provides statistical cash flows of Asset and Liability's products. Besides, cash flow projections are made based on historical assets and liabilities' behaviour. The stress scenario simulations allow identifying possible future problems that could materially and adversely affect the Bank. All securities issued abroad by MB were hedged through swap operations or BM&F's future contracts, which means that only daily foreign trade finance operations are submitted to currencies unhedged. The Bank operates very low volumes of this kind of transaction. R$ Mismatch Maturity Maturity Assets Liabilities Balance Up to 30 days* 2,153,672, ,621,145, ,526, From 31 to 90 days 827,566, ,948, ,618, From 91 to 180 days 477,337, ,699, ,638, From 181 to 360 days 652,791, ,907, ,883, More than 360 days 1,494,677, ,423,277, (928,599,344.81) TOTAL 5,606,045, ,137,977, ,067, * Up to 30 days, Saving Deposits in a total amount of R$ 169,116 thousand are included. R$ Mismatch Currencies Currencies Assets Liabilities Balance PRÉ 3,170,153, ,376,475, ,793,678, IGPM 144,960, ,960, TR 71,188, ,558, (113,369,389.93) TJLP 116,147, ,804, (1,656,637.92) CDI 1,110,328, ,735,143, (1,624,814,418.35) SELIC 302,596, ,295, ,300, IGPDI 2,476, ,476, US$ * 685,253, ,944, (691,463.42) EURO * 2,939, ,755, , TOTAL 5,606,045, ,137,977, ,067, * The Bank hedges against US$ and Euro exposure through Swap operations. 14

15 In R$ Thousand, unless otherwise stated Credit Portfolio CREDIT PORTFOLIO BREAKDOWN a) By Type and Industry Type / Industry Jun / 2007 % Dec / 2006 % Individuals* 761,363 25% 617,115 22% SME & Corporate 2,249,365 75% 2,162,794 78% Services 354,793 12% 331,022 12% Construction Companies 271,783 9% 257,046 9% Retail Business 243,240 8% 229,388 8% Transportation 199,656 7% 217,875 8% Wholesale Business 185,376 6% 266,924 10% Petrochemical 72,762 3% 69,897 3% Auto Parts 65,915 2% 50,184 2% Fuel Distribution Companies 43,534 2% 44,016 2% Pet Food 38,714 1% 38,053 1% Mining 38,234 1% 41,503 1% Integrated Energy Companies 35,455 1% 65,269 2% Other 699,903 23% 551,618 20% TOTAL CREDIT PORTFOLIO 3,010, % 2,779, % TOTAL RISK * 3,692,519 3,329,813 * MB has operations originated by individuals that were assigned to the market, which total amount was R$ 681,791 thousand at June 30, 2007 (R$ 549,905 thousand at December 31, 2006). b) By Product Jun / 2007 Dec / 2006 Product Balance % Balance % Working Capital 1,601,747 53% 1,443,806 52% Vehicle Finance 255,025 8% 270,947 10% Payroll Deductibles 239,308 8% 148,771 5% Personal Credit 235,758 8% 227,427 8% Discount of Receivables 196,648 6% 176,748 6% Rural Lending 164,855 5% 163,367 5% Finame 117,968 4% 156,164 6% Revolving Overdraft Facilities 91,035 3% 79,300 3% Real State 55,857 2% 56,354 2% Trade Finance 48,725 2% 45,209 2% Other 3,801 1% 11,816 1% TOTAL CREDIT PORTFOLIO 3,010, % 2,779, % TOTAL RISK * 3,692,519 3,329,813 * MB has operations originated by individuals that were assigned to the market, which total amount was R$ 681,791 thousand at June 30, 2007 (R$ 549,905 thousand at December 31, 2006). 15

16 c) By Average Ticket R$ Product Jun / 2007 Dec / 2006 Average Ticket Average Ticket Rural Lending 900, ,914 Trade Finance 284, ,845 Real State 224, ,792 Finame 149, ,738 Working Capital 53,840 49,755 Vehicle Financing 18,358 17,523 Discount of Receivables 12,229 11,940 Personal Credit 2,711 2,847 Payroll Deductibles 1,994 1,519 Revolving Overdraft Facilities 1,106 1,417 Other 152, ,161 d) By Geography Region Jun / 2007 Dec / 2006 Balance % Balance % Minas Gerais 1,539,902 51% 1,398,566 50% São Paulo 500,562 17% 502,756 18% Rio de Janeiro 185,601 6% 160,603 6% Goiás 136,111 5% 102,424 4% Espírito Santo 72,489 2% 76,489 3% Brasília 40,076 1% 38,973 1% Other 535,986 18% 500,098 18% Total 3,010, % 2,779, % TOTAL RISK * 3,692,519 3,329,813 * MB has operations originated by individuals that were assigned to the market, which total amount was R$ 681,791 thousand at June 30, 2007 (R$ 549,905 thousand at December 31, 2006). e) By Average Maturity and Duration Bank s credit portfolio presented an average maturity of 8.2 months in the first Semester of 2007 (7.2 months in December of 2006). Credit Portfolio Jun / 2007 Dec / 2006 Up to 360 days 75% 80% Over 360 days 25% 20% f) By Risk Concentration 16 Concentration Jun / 2007 Dec / 2006 Balance % Balance % Largest Debtor 33,405 1% 24,146 1% 10 Largest Debtors 165,825 6% 152,630 6% 20 Largest Debtors 248,170 8% 241,218 9% 50 Largest Debtors 420,576 14% 424,126 15% 100 Largest Debtors 613,024 20% 607,947 22%

17 Funding Breakdown Balance Demand Deposits 360,655 Savings Deposits 169,116 Time Deposits 2,203,526 Other Deposits 11,091 Securities Issued Abroad 289,616 Subordinated Debt 246,336 Total 3,280,340 Time Deposits 67% Demand Deposits 11% Securities Issued Abroad 9% Subordinated Debt 8% Savings 5% Other Deposits 0,3% 17

18 Time Deposits Breakdown a) By Currency Product Amount % CDI 2,047,693 92% PRÉ 106,323 5% SELIC 35,291 2% OTHER 16,218 1% TOTAL 2,203, % b) By Average Maturity Term Jun / 2007 Dec / 2006 Dec / 2005 Dec / 2004 Months Until 1 year 37% 36% 41% 55% Above 1 year 63% 64% 59% 45% c) By Investor Customer Jun / 2007 % Individuals 1,001,714 46% SME & Corporate 1,082,816 49% Institutional Investors 54,503 2% Investment Funds 64,493 3% TOTAL 2,203, % Client Base Jun / 2007 % 555, % Individuals 516,367 93% Corporate 39,388 7% INSS Beneficiaries 250,640 1 INSS: Public Social Security 18

19 Management Report first sixmonth ended June 30, 2007 Dear Shareholders: We hereby submit to your appreciation the Financial Statements of Banco Mercantil do Brasil S.A., and the consolidated financial statements comprehending the companies of the group. Economy Scenario and Financial System In the end of the first sixmonth period of 2007, a new growth cycle is found in the Brazilian economy, strengthened by the power of the expansion of the worldwide economy activity. Such performance is being evidenced by economic activity indicators above the expectations, making the most progressive ones to believe in a Gross Domestic Product (GDP) of 5.0% for The industrial growth was 4.8% until June, as compared to the same period in The retail business, on its turn, with an expansion spread to all segments thereof, had an increase on the volume of sales of 11.8% in June, as compared to June 2006, and an accumulated development of 9.9% for the first sixmonth period in The inflation measured by the Consumer Price Index Comprehensive ( IPCA ) was 2.1% for this first sixmonth period is equivalent to 4.2% for the year and is placed under the target core of 4.5% per year defined by the monetary authority, contributing for the maintenance of a gradual adjustment on the basic interest rate,

20 in December 2006 in 13.2% per year and 12.0% per year at the end of the first semester in 2007, generating a wave of optimism from economic agents. In another segment, exports reached the amount of US$ 73.1 billion, perfecting a trading chain of US$ billion, and a surplus on the balance of trade of US$ 20.6 billion, 6.2% above the accumulated amount for the first semester of Such expansion scenario is encouraging a higher demand for working capital funding by companies and a higher search for loans and financings by individuals, facts which set forth the continuing growth of lending operations on the Brazilian Financial System in the first semester of For the second semester of 2007, expectations are even higher and promising, taking into account this is a period of seasonal registrations of a higher level of economic activity, revived this year by the notable optimism of economic agents and by the trust of consumers in a new and continuing cycle of selfsustained growth. This favorable scenario consolidates the perspectives for good businesses for Mercantil do Brasil. Corporate and Market Context With stamina and speediness, Mercantil do Brasil has been intensely worked to comply with the directives o f i t s S t r a t e g i c a n d M a r k e t Multiannual Plan in force, reviewed in the second semester of 2006, and presenting a new operating dimension at the end of the first semester of Within this improvement context, twenty one facilities were closed in the beginning of the semester, once they have failed to meet the performance standards expected by the Bank, of which nine were in Rio de Janeiro, four in Minas Gerais, two in Rio Grande do Sul, two in São Paulo, one in Brasília, one in Goiás and one in Bahia. Therefore, Mercantil do Brasil is placed as a traditional mediumrange retail bank, adjusted on a corporate basis and introduced into a perspective for a new expansion cycle within the Brazilian economy, with branches and points of service to individuals and legal entities, on a strategical manner in the main economic cores of Brazil, also counting on the service segmentation in Individuals, Legal Entities and Corporations. T h e i m p r o v e m e n t o f a relationship structure and capacities has been the purpose of continuing investments by Mercantil do Brasil for the increase of its activities and proceeds. The technological structure is focused on a proper support to good service to clients and business expansion, counting on a permanent u p d a t i n g p r o c e s s. M o r e o v e r, transactions from clients within electronic channels represent approximately 54.0% of transactions in the Bank. The Bank continuously invests in the qualification of its staff, seeking a proper combination of financial and human capitals in order to optimize even more the service and the offering of products and services. T h e r e f o r e, t h e B a n k i s prioritizing investments in distance training and improvement of the 20

21 m a n a g e m e n t t h r o u g h t h e implementation of one of the most modern training management tools, called Knowledge Station. The dimension and importance of this tool are converted by the expressive milestone of 4,570 participations in distance training recorded in the first semester of 2007, based on more than 30 programs available and designed for employees pursuant to their assignments. Thus, Mercantil do Brasil ensures the dissemination of knowledge and increased qualification of its human capital with quality and speediness. Among such inclass or distance trainings, programs for the technical improvement of IT professionals, technical capacity for ANBID Certification, meetings for strategical and motivational alignment and with Consigned Credit, Vehicle Leasing and Insurance teams, and specific technical programs in accordance to the demands of several areas of the Bank are highlighted. Economic and Financial Performance SOURCES AND USES OF FUNDS Mercantil do Brasil historically dedicates a special attention to the structure of liabilities, which constitutes a determining factor of success in the competitive process, in implementing an operating growth strategy and in increasing results, with the strength and security concept the Bank enjoys within the market. In a perspective as such, the Bank analyses and continuously seeks the most proper sources of financings, which at the end of the first semester reached the total of R$ 4.8 billion; R$ 4.1 billion of such amount are sourced from the domestic market and R$ 0.7 billion from the foreign market. Among the domestic sources of financings, total deposits increased R$ 2.8 billion, and a stress is made for Time Deposits that totaled R$ 2.2 billion, with an expansion of 6.8% on the last twelve months and 5.2% on the first semester, especially constituted by a spread, proportioning a better funding cost performance, besides a higher stability and continuance of funding to active transactions. Mercantil do Brasil began to perform foreign fundings on the second semester of 2004 and, after successive programs and tranches, the amount of R$ million on June 2007 was recorded. Out of such amount, R$ million were funded in the first semester of 2007 and R$ million are related to a funding occurred on the second semester of 2006, through the issue of subordinateddebt bonds, which came to integrate the Capital Level II of Bank in March The positive impact of such subordinated debt on the Basel rate of Mercantil do Brasil increased from 11.7% in December 2006 to 16.2% at the end of first semester of 2007 and is allowing new operating leverage platforms for the Bank. With respect to the sourcing, total assets reached R$ 5.9 billion and evidenced a development of 20.4% in the last twelve months and 18.1% compared to December We highlight the expansion of 15.3% in the last twelve months and 7.0% in the first semester signed in Lending operations, which reached R$ 2.7 billion. The development of the percentage of lending operations classified in lowrisk bands, from AA 21

22 to C, of 88.5% in June 2006 and 88.6% in December 2006 for 89.7% in June 2007, shows a better quality of lending operations at the end of first semester of this fiscal year. L e n d i n g o p e r a t i o n s f o r individuals, which offer a higher percentage of compensation, increased concerning the total of lending operations from 19.6% in December 2006 to 21.9% at the end of first semester of 2007, consonant to the directives of the Strategic and Market Multiannual Plan of Mercantil do Brasil. Interbank investments and securities and derivative financial instruments recorded a balance of R$ 2.1 billion, 40.0% above the amount recorded in June 2006 and 38.6% compared to December NET INCOME, DIVIDENDS AND SHAREHOLDERS' EQUITY Financial income increased 3.5% on the first semester, when compared to the same period in 2006, resulting a balance of R$ million. Lending operations revenues increased 7.7% compared to the amount assessed on the same period in 2006 and represent 77.1% in Financial Income, against 74.1% assessed in June Financial expenses reached R$ million on the first semester, 9.3% lower than accumulated expenses for the sixmonth period in To constitute this balance, Expenses with allowances for credit risk from R$ 99.4 million increased 11.1%, when compared to the same expenses recorded in the same period of On the other hand, Funding expenses recorded R$ million, with a decrease of 16.5% against the amount assessed in June 2006, thus showing an important reduction on the funding cost. Gross financial income was R$ million for the sixmonth period, representing a gross margin of 37.3% in June 2007, higher than the 28.5% in June 2006, and reflecting a favorable combination of growth in Financial income and reduction of Financial expenses. Income from services rendered increased to R$ 56.4 million, 4.1% for the period ended as of June 2007, compared to the same period in T o c o n t e m p l a t e t h e repositioning strategical effort of Mercantil do Brasil, including expenses related to the closing of branches and labor indemnities, at the end of first semester of 2007, Personnel expenses recorded R$ million and Other operating expenses were R$ million. Net income as of 30 June 2007 was R$ 17.2 million and corresponds to R$ per thousand shares, equivalent to an annual profitability of 7.0% on the final shareholders' equity. Dividends to shareholders have been declared, as interest on own capital, in the amount of R$ 7.8 million, relatively to the first semester of 2007, corresponding to the net income tax amount of R$ 6.6 million; Common shares were assessed at R$ and Preferred Shares were R$ 11.90, per thousand shares. Shareholders' equity reached the amount of R$ million (managed of R$ million), increasing 2.6% against June 2006, corresponding to the equity amount of R$ per thousand shares. Reference shareholders' equity is R$ million, and it includes consolidated shareholders' equity of Financial Institutions of Mercantil do Brasil and Capital Level II related to the subordinated debt to the amount of R$ million pursuant to CMN Resolution Number 3.444/

23 Social and Environmental Responsibility Mercantil do Brasil has a Social and Environmental Responsibility Policy with well defined directives. This policy formalizes the commitment of managers, employees and partners to a responsible performance oriented to the development of society and preservation of environment. t h r o u g h c u l t u r e, s p o r t s a n d environmental awareness, during the entire first semester, a wide internal and external disclosure was performed with actions and information related to the social and environmental responsibility. In addition to continue to comply with this Policy, promoting and encouraging actions oriented to the education of children and teens Investments in Subsidiaries Investments in subsidiaries are detailed in a specific part of financial statements. CVM Instruction 381/2003 I n c o m p l i a n c e w i t h t h e provisions in CVM Instruction 381/2003, Mercantil do Brasil and its subsidiaries inform that, in the first semester of 2007, Deloitte Touche Tohmatsu Auditores Independentes provided, on an exclusively basis, external audit services. FINAL T h e B r a z i l i a n e c o n o m y performance above the expectations in the first semester of 2007 allows the forecast of an economic activity expansion for the second semester in an accelerated pace, delineating a scenario with wide opportunities of businesses for Mercantil do Brasil. Finally, we would like to thank our clients and shareholders for the confidence and support we have been granted, and the employees, who are engaged to the continuous corporate improvement. Belo Horizonte, July The Management. 23

24 FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS for the six months ended June 30, 2007 and 2006 (in thousand) (Ptax Bid = R$ 1,92540 Jun 29 th, 2007 & R$ 2,1635 Jun 30 th, 2006). US$ R$ ASSETS Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 CURRENT ASSETS 2,471,253 1,874,527 4,758,150 4,055,540 Cash 30,424 22,841 58,578 49,417 Interbank Investments 777, ,823 1,496,851 1,211,177 Money Market Investments , ,545 1,414,210 1,149,998 Interbank Deposits ,921 28,278 82,641 61,179 Securities & Derivative Financial Instruments , , , ,628 Own Portfolio 306, , , ,275 Linked to Central Bank of Brazil 14,781 2,418 28,459 5,231 Linked to Granted Guarantees 21,350 17,621 41,107 38,122 Interbank Accounts 174, , , ,043 Payments & Receipts Pending Settlement 22,025 28,533 42,406 61,732 Restricted Deposits: Central Bank of Brazil 151, , , ,943 Restricted Deposits: National Housing System Correspondents ,560 1,325 Interbranch Accounts 6,234 5,383 12,003 11,646 Internal Transfer of Funds 6,234 5,383 12,003 11,646 Lending Operations 5 969, ,589 1,865,754 1,643,370 Public Sector ,587 1,919 31,560 Private Sector 1,039, ,864 2,001,443 1,736,996 (Allowance for Loan Losses) (71,470) (57,863) (137,608) (125,186) Leasing Operations 5 (44) 2 (85) 5 Lease Operations Private Sector 7,505 4,854 14,451 10,501 (Unearned Income on Lease Operations) (7,415) (4,796) (14,276) (10,377) (Allowance for Doubtful Lease Receivables) (135) (55) (260) (119) Other Credits 143, , , ,976 Foreign Exchange Portfolio Pending Settlement Purchased Foreign Exchange 27,952 19,011 53,819 41,130 Rights to Foreign Exchange Sold 12,415 7,345 23,904 15,891 (Advances in Local Currency) (1,477) (131) (2,843) (283) Income Receivable from Advances Granted Income Receivable 5,230 4,391 10,070 9,499 Trading Operations Sundry: Tax Credits ,996 29,787 67,381 64,445 Receivables from Insurance Operations ,442 33,127 74,016 71,670 Debtors for Purchase of Assets 5.1 1,626 2,199 3,130 4,758 Recoverable Taxes 6.3 6,054 5,309 11,656 11,486 Reimbursable Payments Notes & Credits Receivable 4,318 5,206 8,313 11,263 Receivables from Subsidiaries Sundry Debtors 11,669 10,199 22,467 22,066 Other Receivables 2,837 2,327 5,462 5,035 (Allowance for Other Doubtful Accounts Losses) 5.2 (1,370) (1,367) (2,638) (2,957) Other Assets 27,053 17,693 52,088 38,278 Other Assets 7,979 4,530 15,363 9,801 (Allowance for Devaluation) (265) (429) (511) (929) Prepaid Expenses 15.e 19,339 13,592 37,236 29,406 24

25 CONSOLIDATED BALANCE SHEETS for the six months ended June 30, 2007 and 2006 (in thousand) (Ptax Bid = R$ 1,92540 Jun 29 th, 2007 & R$ 2,1635 Jun 30 th, 2006). US$ R$ ASSETS Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 LONG TERM ASSETS 814, ,085 1,567,446 1,142,511 Interbank Investments 34,514 4,344 66,453 9,398 Interbank Investments ,514 4,344 66,453 9,398 Securities & Derivative Financial Instruments 23,063 8,140 44,405 17,611 Own Portfolio ,063 8,140 44,405 17,611 Lending Operations 462, , , ,205 Public Sector 13,804 1,665 26,579 3,602 Private Sector 473, , , ,995 (Provision for Doubtful Loan Accounts) 5.2 (24,453) (14,972) (47,081) (32,392) Leasing Operations (21) (2) (40) (5) Lease Operations Private Sector 6,010 3,863 11,572 8,357 (Unearned Income on Lease Operations) (6,010) (3,863) (11,572) (8,357) (Provision for Doubtful Leasing Accounts) 5.2 (21) (2) (40) (5) Other Credits 288, , , ,161 Tax Credits ,380 51, , ,970 Debtors for Deposits in Guarantees , , , ,634 Debtors for Purchase of Assets , ,319 Recoverable Taxes Reimbursable Payments ,999 52, , ,015 Notes & Credits Receivable 8,344 3,226 16,066 6,980 Other (Allowance for Other Losses) 5.2 (78) (104) (151) (226) Other Assets 5,637 2,376 10,854 5,141 Prepaid Expenses 15.e 5,637 2,376 10,854 5,141 PERMANENT ASSETS 87,559 74, , ,595 Investments 3,034 5,993 5,842 12,966 Domestic Subsidiaries 7.1 Other Investments 5,452 8,228 10,498 17,802 (Allowance for Losses) (2,418) (2,235) (4,656) (4,836) Property & Equipment in Use 42,675 34,187 82,167 73,963 Property in Use ,640 30,956 72,473 66,974 Other 33,313 28,343 64,141 61,320 (Accumulated Depreciation) (28,278) (25,113) (54,447) (54,331) Leased Property 18,781 12,746 36,160 27,577 Leased Property ,559 17,267 45,360 37,357 (Accumulated Depreciation) (4,778) (4,520) (9,200) (9,780) Deferred Assets 23,069 21,765 44,417 47,089 Organization & Expansion Costs ,967 36,605 75,027 79,195 (Accumulated Amortization) (15,898) (14,840) (30,610) (32,106) TOTAL ASSETS 3,372,900 2,477,303 6,494,182 5,359,646 25

26 (Ptax Bid = R$ 1,92540 Jun 29 th, 2007 & R$ 2,1635 Jun 30 th, 2006). US$ R$ LIABILITIES Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 CURRENT LIABILITIES 1,857,053 1,459,470 3,575,569 3,157,563 Deposits 706, ,456 1,359,876 1,322,886 Demand Deposits 187, , , ,907 Savings Deposits 87,834 79, , ,764 Interbank Deposits 4,888 6,429 9,411 13,909 Time Deposits 425, , , ,919 Other ,680 1,387 Money Market Funding 651, ,899 1,253,582 1,031,771 Third Parties 651, ,899 1,253,582 1,031,771 Funds from Acceptance & Issuance of Securities 2,125 31,268 4,091 67,649 Securities Issued Abroad 8.a 2,125 31,268 4,091 67,649 Interbank Accounts 23,909 25,960 46,035 56,165 Receipts & Payments Pending Settlement 23,909 25,960 46,035 56,165 Interbranch Accounts 3,004 2,502 5,784 5,412 ThirdParty Funds in Transit 2,753 2,391 5,300 5,172 Internal Transfer of Funds Borrowings 35,598 14,306 68,540 30,950 Foreign Borrowings 8.b 35,598 14,306 68,540 30,950 Domestic Onlendings Official Institutions 30,956 28,084 59,602 60,760 Brazilian National Economic & Social Development Bank (BNDES) ,038 1,125 Brazilian National Equipment Financing Authority (FINAME) 30,310 27,489 58,359 59,472 Brazilian National Treasury Foreign Onlendings 8.c Derivative & Financial Instruments 2,490 10,932 4,794 23,652 Derivative & Financial Instruments 4.3 2,490 10,932 4,794 23,652 Other Liabilities 401, , , ,318 Collected Taxes & Other 9.a 11,744 9,875 22,612 21,364 Foreign Exchange Portfolio Pending Settlement Sold Foreign Exchange 12,406 7,289 23,887 15,770 Purchase Foreign Exchange 29,076 19,330 55,983 41,820 (Advances on Export Contracts) 5.1 (18,638) (12,478) (35,886) (26,997) Social and Statutory 9,476 5,806 18,246 12,562 Taxes and Social Security 9.b 10,808 16,689 20,809 36,106 Trading Operations Technical Reserves Insurance & Pension Plans 9.c 212, , , ,409 Sundry: CONSOLIDATED BALANCE SHEETS for the six months ended June 30, 2007 and 2006 (in thousand) Sundry Creditors Domestic 9.h 104,083 19, ,401 42,394 Liabilities Under Government Agreements 1, ,533 2,114 Creditors for Prepaid Residual Value 2,151 2,298 4,142 4,971 Debts from Insurance & Pension Plans Transactions 9.f 6,303 6,480 12,136 14,020 Allowance for Payables 15,066 12,679 29,008 27,431 Subordinated Debt 9.g 4,340 8,357 Other ,092 1,327 26

27 (Ptax Bid = R$ 1,92540 Jun 29 th, 2007 & R$ 2,1635 Jun 30 th, 2006). US$ R$ LIABILITIES Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 LONGTERM LIABILITIES 1,225, ,319 2,359,771 1,638,460 Deposits 719, ,886 1,384,512 1,261,074 Time Deposits 719, ,886 1,384,512 1,261,074 Funds from Acceptance and Issuance of Securities 148,294 50, , ,175 Securities Issued Abroad 8.a 148,294 50, , ,175 Borrowings 7,522 14,482 Foreign Borrowings 8.b 7,522 14,482 Domestic Onlendings Official Institutions 30,499 38,759 58,723 83,855 Brazilian National Economic & Social Development Bank (BNDES) 2,309 2,506 4,446 5,421 Brazilian National Equipment Financing Authority (FINAME) 27,504 35,574 52,956 76,965 Brazilian National Treasury ,321 1,469 Foreign Onlendings 8.c 20,056 38,616 Financial Instruments and Derivatives ,970 5,989 71,183 12,957 Other Liabilities 263,182 79, , ,399 Taxes and Social Securities 9.b 91,583 46, ,333 99,713 Technical Reserves Insurance and Pension Plans 9.c 1,518 1,042 2,922 2,254 Sundry: CONSOLIDATED BALANCE SHEETS for the six months ended June 30, 2007 and 2006 (in thousand) Creditors for Prepaid Residual Value 1,665 2,050 3,205 4,435 Reserve for Contingencies 9.d 44,817 30,399 86,291 65,769 Subordinated Debt 9.g 123, ,979 Other Deferred Income 1, ,951 1,883 Deferred Income 1, ,951 1, Shareholders Equity Managed by the Bank 289, , , ,740 Minority Interest 30,481 35,147 58,689 76,040 Shareholders Equity 258, , , ,700 Capital 111,341 99, , ,375 Brazilian Residents 111,341 99, , ,375 Capital Reserves 29,373 26,115 56,554 56,500 Share Premium Reserve 7,307 6,502 14,068 14,068 Investment Grants 20,561 18,298 39,588 39,588 Monetary Restatement Property and Equipment 1,340 1,193 2,580 2,580 Other Revaluation Reserves 18,317 14,382 35,267 31,116 Subsidiaries and Affiliates 10.b 18,317 14,382 35,267 31,116 Profit Reserves 99,723 84, , ,709 Legal Reserves 19,424 16,759 37,399 36,259 Statutory Reserves 80,299 68, , ,450 For Payment of Dividends 17,703 14,863 34,086 32,156 For Capital Increase 62,595 53, , ,294 TOTAL LIABILITIES 3,372,900 2,477,303 6,494,182 5,359,646 27

28 CONSOLIDATED INCOME STATEMENTS for the six months ended June 30, 2007 and 2006 (in thousand) (Ptax Bid = R$ 1,92540 Jun 29 th, 2007 & R$ 2,1635 Jun 30 th, 2006). US$ R$ Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Financial Income 295, , , ,829 Lending Operations 223, , , ,468 Leasing Operations 4,286 3,433 8,253 7,427 Securities Transactions 93,519 71, , ,191 Derivative Financial Instruments 4.3 (34,631) (10,267) (66,679) (22,213) Foreign Exchange Operations 1, ,602 1,471 Compulsory Investments 6,670 5,771 12,843 12,485 Financial Expenses (171,195) (165,963) (329,619) (359,062) Funding Operations (109,991) (116,193) (211,777) (251,384) Leasing Operations (2,856) (2,312) (5,499) (5,002) Borrowings Assignments & Onlendings Operations (513) (505) (9,870) (10,930) Provision for Doubtful Accounts 5.2 (53,222) (42,406) (102,473) (91,746) Gross Financial Income 123,960 86, , ,767 Other Operating Income / (Expenses) (104,963) (76,160) (202,096) (164,772) Income from Services Rendered 14.a 27,064 25,330 52,109 54,802 Personnel Expenses 14.b (69,143) (50,960) (133,127) (110,252) Other Administrative Expenses 14.c (71,820) (57,764) (138,282) (124,973) Tax Expenses (13,647) (11,900) (26,275) (25,745) Income from Insurance, Pension Plans &Capitalization Premiums Changes in Technical Reserves Capitalization. Insurance & Pension Plans 87,258 72, , ,755 (439) (2,763) (8,450) (5,977) Pension Plan Benefit Expenses (1,063) (1,081) (2,046) (2,338) Marketing Expenses (13,412) (11,345) (25,824) (24,545) Insurance Claim Expenses (53,027) (43,785) (102,098) (94,728) Equity in Subsidiaries (Appendix 1 Page 61) (2,379) 253 (4.581) 5,470 Other Operating Income (Appendix 1 Page 61) 26,976 13,842 51,939 29,947 Other Operating Expenses (Appendix 1 Page 61) (17,382) (11,180) (33,468) (24,188) Operating Income 18,997 10,629 36,576 22,995 Non Operating Income ,734 Income 1,620 2,321 3,119 5,021 Expenses (1,294) (1,519) (2,492) (3,287) Income Before Taxes & Profit Sharing 19,322 11,430 37,203 24,729 Income Tax & Social Contribution (444) (1,264) (8,540) (2,735) Provision for Income Tax (3,752) (3,470) (7,225) (7,507) Provision for Social Contribution (912) (749) (1,756) (1,621) Deferred Tax Assets 229 2, ,393 Statutory Profit Sharing (4,431) (868) (8,532) (1,878) Management (311) (354) (598) (765) Employees (4,121) (514) (7,934) (1,113) Minority Interest (1,537) (2,673) (2,959) (5,784) Net Income for SixMonth Period 8,919 6,624 17,172 14,332 28

29 CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION for the six months ended June 30, 2007 and 2006 (in thousand) (Ptax Bid = R$ 1,92540 Jun 29 th, 2007 & R$ 2,1635 Jun 30 th, 2006). US$ R$ Jun 07 Jun 06 Jun 07 Jun 06 SOURCE OF FUNDS 583, ,584 1,124, ,999 NET INCOME FOR THE SIXMONTH PERIOD 8,919 6,624 17,172 14,332 ADJUSTMENT TO NET INCOME 1,073 2,924 20,650 6,327 Amortization & Depreciation 7,343 6,380 14,139 13,804 Allowance for Losses Assets not in Use (48) (1,077) (92) (2,331) Investments (81) (351) (156) (760) Income of Investment Evaluation under Equity Method 2,379 (253) 4,581 (5,470) Income of Equity Method Income of Interest on Capital Amortization of Premium & Discount (20) (202) (38) (4,380) Updating of Equity Bonds 2,399 (50) 4,619 (1,090) Writeoff of Deferred Assets Profit / Loss on Fixed Assets Sold (15) 86 (28) 1,870 Other Adjustments 797 (363) 1,535 (786) CHANGES IN MINORITY INTEREST 1,537 2,673 2,959 5,784 MINORITY INTEREST ON INTEREST ON OWN CAPITAL (548) (875) (1,055) (1,894) CHANGES IN INCOME FOR FUTURE FISCAL YEARS FUNDS FROM THIRD PARTIES 563, ,159 1,084, ,279 Increase on Liabilities 556, ,091 1,072, ,988 Deposits 51, ,151 99, ,495 Committed Transactions 209, , , ,525 Interbank Accounts 23,883 25,948 45,984 56,138 Borrowings & Onlendings Liabilities 10,033 21,706 Derivative Financial Instruments 31,938 4,989 61,494 10,793 Other Liabilities 239,302 31, ,753 68,331 Decrease in Assets Securities & Derivative Financial Instruments Leasing Operations Disposal & Adjustments of Assets & Investments 6,348 7,068 12,223 15,291 Assets not in Use 2,172 2,064 4,182 4,465 Property in Use ,003 Property in Lease 12 1,561 2,400 3,378 Investments 2,777 2,979 5,346 6,445 Dividends Received from Subsidiaries & Affiliates 29

30 CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION for the six months ended June 30, 2007 and 2006 (in thousand) (Ptax Bid = R$ 1,92540 Jun 29 th, 2007 & R$ 2,1635 Jun 30 th, 2006). US$ R$ Jun 07 Jun 06 Jun 07 Jun 06 USE OF FUNDS 584, ,224 1,125, ,382 DIVIDENDS AND INTEREST ON OWN CAPITAL 4,055 3,604 7,808 7,798 ADDITIONS: 3,185 7,526 61,330 16,283 Assets not in Use 3, ,855 2,047 Property in Use 1, , Property in Lease 7,824 2,786 15,064 6,027 Investments 19,567 3,387 37,675 7,327 DEFERRED CHARGES 2,502 3,197 4,817 6,917 INCREASE IN CURRENT AND LONG TERM ASSETS 47, , , ,189 Interbank Investments 208, , , ,238 Securities & Derivative Financial Instruments 82,551 5, ,943 11,861 Interbank Account 22,088 32,702 42,529 70,750 Interbranch Accounts 862 1,247 1,659 2,698 Lending Operations 119, , , ,047 Leasing Operations 8 17 Other Credits 3,197 28,683 61,560 62,055 Other Assets 6,390 1,628 12,304 3,523 0 DECREASE IN CURRENT AND LONG TERM LIABILITIES 74,967 38, ,342 83,195 Interbranch Accounts 10,082 4,226 19,411 9,144 Liabilities on Bonds & Securities Abroad 48,424 34,227 93,236 74,051 Liabilities on Loans & Onlendings 16,462 31,695 INCREASE / (DECREASE) IN CASH & CASH EQUIVALENTS (926) (639) (1,783) (1,383) Beginning of Period 31,350 23,480 60,361 50,800 End of Period 30,424 22,841 58,578 49,417 Increase (Decrease) (926) (639) (1,783) (1,383) 30

31 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the sixmonth period ended as of 30 June 2007 and 2006 (in thousand) Events BALANCES AS OF 01 JAN 2007 REALIZATION OF RESERVES UPDATING OF EQUITY BONDS WRITEOFF OF REVALUATION IN SUBSIDIARIES REVALUATION OF ASSETS IN SUBSIDIARIES (see notes 7.2, 10) NET INCOME FOR THE SIXMONTH PERIOD ALLOCATIONS: Reserves (see note 10) Interest on Own Capital (see note 10) BALANCES AS OF 30 JUN 2007 CHANGES FOR THE PERIOD BALANCES AS OF 01 JAN 2006 REALIZATION OF RESERVES UPDATING OF EQUITY BONDS ADJUSTMENT TO MARKET VALUE REVALUATION OF ASSETS IN SUBSIDIARIES (see notes 7.2, 10) NET INCOME FOR THE SIXMONTH PERIOD ALLOCATIONS: Reserves (see note 10) Interest on Own Capital (see note 10) BALANCES AS OF 30 JUN 2006 ANGES FOR THE PERIOD Capital Realized Capital 214, , , ,375 Reserves Capital Revaluation Subsidiaries 56, ,743 (565) (211) 5,300 56, ,267 4,524 56, ,045 (1,008) 6,079 56, ,116 5,071 Profit Reserves Legal Statutory 36, , ,070 37, ,607 9,070 35, , ,826 36, ,450 6,826 Adjust, to Market Value Securities &Derivatives (292) Retained Earnings 17, (9,929) (7,808) 1,008 14,332 (7,542) (7,798) Total 483, (211) 5,300 17,172 (7,808) 498,202 14, , ,079 14,332 (7,798) 485,700 12,941 31

32 NOTES TO THE FINANCIAL STATEMENTS for the six months ended June 30, 2007 and 2006 (In R$ Thousand, unless otherwise stated) 1. OPERATIONS Banco Mercantil do Brasil S.A. (hereinafter referred to as Bank ) operates in the segments of commercial, mortgage loan, and foreign exchange portfolios, through its network of 171 branches, 04 business units, and 29 points of services in Brazil, a branch abroad in Grand Cayman, and a staff with 2,598 employees. The Bank also operates in other financial segments, and in the areas of investment, consumer credit, business leasing, dealing of securities, intermediation of securities, and in insurance and supplementary pension plan, through its subsidiaries. Banco Mercantil do Brasil S.A., through its subsidiary Mercantil do Brasil Distribuidora S.A. Títulos e Valores Mobiliários, also operates in investment fund management. 2. PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS 2.1 Presentation of Financial Statements The financial statements have been prepared in accordance with the Brazilian accounting practices and are presented pursuant to the Brazilian c o r p o r a t e l a w, s t a n d a r d s, instructions, and procedures established by the Brazilian Monetary Council ( CMN ), Central Bank of Brazil ( BACEN ), Brazilian Securities Commission ( CVM ), and the Superintendence of Private Insurance ( SUSEP ). 2.2 Consolidated Financial Statements The consolidated financial statements include the accounts of Banco Mercantil do Brasil S.A. and its direct and indirect subsidiaries listed below, and follow the principles of full consolidation established by the CVM Ruling Number 247/1996, as follows: Company Activity Participation % Jun / 2007 Jun / 2006 Banco Mercantil de Investimentos S.A. Investment bank Companhia de Seguros Minas Brasil Insurance company Eletrodados Corretora de Seguros e Previdência Privada S.A. Mercantil do Brasil Corretora S.A. Corretora de Câmbio, Títulos e Valores Mobiliários Insurance and Private pension Management & Brokerage Foreign Exchange & Securities broker Mercantil do Brasil Distribuidora S.A. Títulos e Valores Mobiliários Securities Dealer Mercantil do Brasil Financeira S.A. Crédito, Financiamento e Investimentos Financier Mercantil do Brasil Imobiliária S.A. Real Estate Broker Mercantil do Brasil Leasing S.A. Arrendamento Mercantil Leasing Minas Brasil Seguradora Vida e Previdência S.A. Life insurance and pension plans In preparing the consolidated financial statements, the balances of any assets and liabilities between the companies, the revenues, and expenses, and the unrealized profits or losses, have been eliminated. 32

33 2.3 Branch Abroad T h e B a n k i n i t i a t e d t h e operations of its full branch in Grand Cayman in December 2006 with the purpose of developing and expanding new business related to the domestic and international money market making feasible new financial flows and stocks, the administration of assets and operations structured in this segment. The accounting balances of the branch as of 31 December 2006 are as follows: Description Jun / 2007 R$ thousand US$ thousand Current and NonCurrent Assets 37,128 19,275 Current and NonCurrent Liabilities 36,154 18,770 Shareholders Equity Net Income (Loss) (434) (225) During the first half of 2007, the Bank subscribed capital to the branch of Grand Cayman in the amount of US$ 5,000, of which US$ 4,000 are unpaid. 2.4 Main Accounting Practices Revenues and expenses are recorded on the accrual basis of accounting. Current and noncurrent assets and liabilities are stated at their realizable or contractual amounts, and include earned income or incurred charges through the balance sheet date, when applicable. In operations with fixed rate income or charges, amounts to be earned or incurred are stated as reductions of the assets and liabilities to which they refer. Financial revenues and expenses are accounted for on a prorata die basis, and calculated on an exponential basis, except for those concerning discounted notes or related to operations abroad, which are calculated on a straightline basis. Transactions with postfixed rates or rates linked to foreign currency are updated up to the date of balance sheets. The financial statements of the branch abroad are adapted to the accounting criteria in force in Brazil, and translated to Brazilian Reais by the foreign exchange rate for the closing of the balance sheet, with its effects being recognized in the result of the period. Interbank investments are stated at cost plus income earned through the balance sheet date. Securities and notes are classified according to the trading intent, and are divided into three categories pursuant to the BACEN Circular Letter Number 3.068/01, and supplementary regulation: a) Trading securities securities acquired for the purpose of being actively and frequently traded. They are adjusted to market value against income; b) Heldtomaturity securities securities, except for unredeemable 33

34 shares, which the Bank intends to, is obliged to, or has the financial capacity to maintain in portfolio until their maturity. They are stated at cost plus income earned, against income and; c) Securities available for sale securities that cannot be classified into the other two categories. They are adjusted to market value against a separate caption in shareholders' equity, net of tax effects. Gains and losses, when realized, are recognized as of the trading date against the specific account in shareholders' equity. Derivatives are classified on the acquisition date, according to the management's intention whether to use them as a hedge instrument or not, pursuant to BACEN Circular Letter Number 3.082/02. The o p e r a t i o n s u s i n g f i n a n c i a l instruments, and which do not meet the hedging requirements established by BACEN, mainly derivatives with the purpose of managing the Bank's global risk exposure, are carried at market value, with gains or losses recognized directly in income. The allowance for doubtful accounts was calculated in accordance with CMN Resolution Number 2.682/99, and Central Bank of Brazil's supplementary regulations, and is based on a system for evaluation of costumer risk and analysis of operations, and is recorded in an amount considered by Management to be sufficient to cover possible losses on the realization of corresponding assets. The classification of securitized rural credit operations, specifically in relation to the criterion for evaluating the risk on the debt's restated principal, in accordance with the Central Bank of Brazil guidelines, corresponds to the respective interest, with the allowance to be limited to the face value of the principal deducted from the present value of the Brazilian National Treasury security guaranteeing the debt, at a discount rate of 12% per year. The criterion for evaluating the credit risk related to interest on securitized rural credit operations is in accordance with the rules of CMN Resolution Number 2.682/99. The commissions concerning securitized lending operations are recorded as prepaid expenses, and recognized through the term of the respective operations. C o n s o l i d a t e d l e a s i n g operations are stated at their present value, calculated based on the respective internal rates of return. Income from those operations is recorded on a monthly basis, according to their terms, by using the exponential method. The control of contingencies in assets and liabilities and legal liabilities is made in accordance with the criteria set forth in the CVM Resolution number 489/05: a) Contingent assets they are not recognized on an accounting basis, except when the management has the entire control of the situation, or when there are real guarantees or favorable court decisions, featuring the gains as an almost certain one. T h e c o n t i n g e n t a s s e t s w i t h probability of probable success are only disclosed in the financial statements. b) Contingent liabilities created whenever they are classified as probable losses, provided that the opinion of legal advisors, the nature of actions, and the similarity with former processes, the complexity and 34

35 the position of the Courts are complied with, except for labor liabilities, to which the provision is recorded based on the historical loss. c) Legal liabilities they arise out of legal proceedings related to tax liabilities, whose purpose is to c h a l l e n g e i t s l e g a l i t y o r constitutionality. Such proceedings have their amounts fully recognized in financial statements, regardless the evaluation on the success likelihood. Investments in subsidiaries are accounted for under the equity method of accounting. Properties in use, except for real estates under revaluation, are stated at cost. Depreciation is determined under the straightline method, based on the following annual rates: furniture and fixtures, and equipment 10% and communication system, IT system, security system, and vehicles 20%. Leased property is depreciated under the straightline method at accelerated rates in accordance with the provisions of the Ministry of Finance Administrative Rules Numbers 140/84 and 113/88. Deferred charges are stated and amortized as follows: (a) leasehold improvement costs under the straightline method over lease agreement terms, (b) software acquisition and development costs under the straightline method, over 5 years, and (c) facility installation and adaptation costs under the straightline method and over a term not exceeding 10 years. The provision for income tax is recorded on an accrual basis, and is determined based on income a d j u s t e d b y t e m p o r a r y a n d permanent additions and deductions, at the rate of 15%, plus a 10% surtax on annual taxable income in excess of R$ 240. Social contribution tax was determined at the rate of 9%. D e f e r r e d t a x e s a r i s i n g f r o m temporary differences, tax loss carryforwards and the negative basis of social contribution, if any, are recognized based on a technical study for estimating future taxable income, pursuant to the CVM Instruction number 371/02, CMN Resolution n u m b e r / 0 2, a n d complementary regulation. Interest on capital paid and payable to shareholders, and received and receivables from subsidiaries, is calculated pursuant to Law number 9.249/95, and is recorded in income, under the captions Financial expenses and Financial income, respectively, in accordance with the tax legislation. For purposes of presentation of the financial statements, the following criteria are followed: a) interest on capital paid and payable is eliminated from financial expenses and charged to retained earnings; and b) interest on capital received and receivable from subsidiaries is reclassified to the caption Equity in subsidiaries. The balance of interest on capital receivable is recorded u n d e r t h e h e a d i n g I n c o m e receivable. The preparation of financial statements requires management to make estimates and assumptions that, in its best judgment, affect the reported amounts of assets and liabilities, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 35

36 3. MONEY MARKET INVESTMENTS Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Own Portfolio 148,269 83, , ,227 Treasury Bills ( LFTs ) 36,799 36,799 Brazilian Treasury Bills ( LTNs ) 148,269 44, ,629 79,568 Brazilian Treasury Bonds ( NTNs ) 1,860 1,860 Third Party Portfolio 1,265,941 1,066,484 1,253,581 1,031,771 Treasury Bills ( LFTs ) 260, , , ,432 Brazilian Treasury Bills ( LTNs ) 1,005, , , ,199 Brazilian Treasury Bonds ( NTNs ) 198, ,140 Total 1,414,210 1,149,998 1,414,210 1,149,998 Current 1,414,210 1,149,998 1,414,210 1,149,998 4.FINANCIAL INSTRUMENTS 4.1 FINANCIAL INSTRUMENTS The financial instruments are as follows: MB Bank Bank Assets Description Book Value Market value Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Interbank Investments 349, , , ,666 Securities 295, , , ,517 Lending Operations & Other Receivables (1) 2,493,357 2,165,023 2,446,943 2,136,978 Bank Liabilities Interbank Deposits 9,411 16,344 9,411 16,344 Term Deposits 2,213,947 2,072,413 2,213,943 2,072,406 Borrowings & Onlendings 240, , , ,565 Liabilities on Securities Issued Abroad 289, , , ,824 Other Obligations Subordinated Debt (2) 246, ,616 Derivative Financial Instruments 75,977 36,609 75,977 36,609 (1) Net of the allowance for doubtful accounts. (2) As of 27 April 2007, the tranche of US$ 125,000 was recognized as complementary capital, comprising the reference capital then reclassified for other obligations subordinated debt, (see note 8.a). 36

37 Bank Assets Description Book Value Market value Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Interbank Investments 149,094 70, ,094 70,577 Securities 704, , , ,239 Lending Operations & Other Receivables (1) 2,825,221 2,354,060 2,771,192 2,323,292 Bank Liabilities Interbank Deposits 9,411 13,909 9,411 13,909 Term Deposits 2,203,526 2,055,993 2,203,521 2,055,985 Borrowings & Onlendings 240, , , ,565 Liabilities on Securities Issued Abroad 289, , , ,824 Other Obligations Subordinated Debt (2) 246, ,616 Derivative Financial Instruments 75,977 36,609 75,977 36,609 (1) Net of provision for doubtful debtors (2) In April 27th of 2007 the Draft of US$ 125,000 was recognized as supplementary Capital, composing the reference Capital to which it was reclassified as Other Obligations Subordinated Debt, (See Note # 8.a). 4.2 SECURITIES MB Bank Description LFT CDB NTNB * Other TOTAL 1 Trading Securities June 2007 Maturities Cost Market Cost Market Cost Market Cost Market Cost Market 2nd Half ,708 13,707 51,852 51,852 65,560 65,559 1st Half ,783 1,783 1,783 1,783 2nd Half nd Half , , , ,156 1st Half ,411 31,408 31,411 31,408 1st Half st Half ,816 62,816 62,816 62,816 1st Half ,194 14,194 14,194 14,194 TOTAL 226, ,087 54,110 54,110 14,194 14, , ,318 Receivable Total 295,318 Current 295,318 * Global 37 is a prefixed bond from the Brazilian Government, issued in the global market, whose face amount is given in Dollars and its compensation rate equals to 7.50% per year. 37

38 MB Bank Description LFT CDB NTNB * Other TOTAL June Trading Securities Maturities Cost Market Cost Market Cost Market Cost Market Cost Market 2nd Half , st Half nd Half , st Half nd Half nd Half , nd Half st Half Total Geral 94, Current 180,517 Description LFT CDB NTNB 1 Trading Securities June 2007 Investment Fund Quotes Other TOTAL Maturities Cost Market Cost Market Cost Market Cost Market Cost Market Cost Market 2nd Half ,708 13,707 60,725 60,725 74,433 74,432 1st Half ,783 1,783 1,783 1,783 2nd Half nd Half , , , ,156 1st Half ,411 31,408 31,411 31,408 1st Half st Half ,816 62,816 62,816 62,816 1st Half ,194 14,194 14,194 14,194 Undetermined 172, ,091 12,285 13, , ,563 Total 226, ,087 62,983 62,983 14,194 14, , ,091 13,213 14, , ,755 2 Securities Available for Sale Maturities Cost Market Cost Market Cost Market Cost Market Cost Market Cost Market 2nd Half ,595 6,595 43,947 43,947 50,542 50,542 1st Half ,646 4,646 10,867 10,867 15,513 15,513 2nd Half ,773 5,773 5,773 5,773 1st Half nd Half ,815 37,808 37,815 37,808 Undetermined 103, , , ,561 Total 55,653 55,646 54,814 54, , , , ,021 3 Hold to Maturity Securities Cost Market Cost Market Cost Market Cost Market Cost Market Cost Market 2nd Half Undetermined Total Grand Total 704,409 Current 660,004 Non Current 44,405 38

39 Description LFT CDB NTNB 1 Trading Securities June 2006 Investment Fund Quotes Other TOTAL Maturities Cost Market Cost Market Cost Market Cost Market Cost Market Cost Market 2nd Half ,269 65,341 50,111 50, , ,452 1st Half ,510 5,510 5,510 5,510 2nd Half ,106 12,106 2,911 2,911 15,017 15,017 1st Half ,560 1,560 1,560 1,560 2nd Half nd Half ,965 22,029 21,965 22,029 2nd Half ,865 28,100 28,865 28,100 1st Half Undetermined 147, ,737 1,510 1, , ,530 Total 99,340 99,476 60,508 60,508 28,865 28, , ,737 2,398 2, , ,502 2 Securities available for sale Maturities Cost Market Cost Market Cost Market Cost Market Cost Market Cost Market 2nd Half ,656 45,705 10,347 10,347 56,003 56,052 1st Half ,464 2,464 2,464 2,464 2nd Half ,403 5,403 9,603 9,603 15,006 15,006 1st Half ,071 1,071 1,071 1,071 2nd Half ,023 1,023 1,023 1,023 1st Half Undetermined 126, , , ,468 Total 56,128 56,177 19,950 19, , , , ,595 3 HeldToMaturity Securities Cost Market Cost Market Cost Market Cost Market Cost Market Cost Market 2nd Half Total Grand Total 541,239 Current 523,628 Noncurrent 17,611 Subsidiaries Companhia de Seguros Minas Brasil (CSMB) and Minas Brasil Seguradora Vida e Previdência S.A. (MBSVP) bear Exclusive Investment Funds, which, pursuant to CVM Ruling Number 408/04, are categorized as a specific purpose entity. The list of these funds is the following: Exclusive Investment Funds Company 1 MB FIX I Fixed Rate CSMB 2 MB FIX II Fixed Rate CSMB 3 MB FIX VI Fixed Rate CSMB 4 MB Prev VII Fixed Rate MBSVP 5 MB Prev VIII Fixed Rate MBSVP 6 MB Prev IX Fixed Rate MBSVP 7 MB Prev X Fixed Rate MBSVP 8 MB Prev XII Compound Multimarket MBSVP 39

40 The consolidated investment portfolio of exclusive funds is comprised of committed transactions linked to Brazilian Treasury Bonds in the amount of R$ 178,023, R$ 138,655 in June 2006 and by securities, as follows: Description LFT CDB LTN NTN Shares TOTAL June Trading Securities Maturities Cost Market Cost Market Cost Market Cost Market Cost Market Cost Market 2nd Half ,867 50,867 50,867 50,867 Undetermined Total 50,867 50, ,239 51,239 June Trading Securities Maturities Cost Market Cost Market Cost Market Cost Market Cost Market Cost Market 2nd Half ,859 57, , ,655 58,020 58,020 1st Half ,339 18,339 18,339 18,339 Undetermined Total ,859 57, , ,655 18,339 18, ,547 76,547 Other than investments in funds mentioned above, CSMB and MBSVP have investments in non exclusive funds. For the purposes of disclosure, securities classified as Trading Securities are presented in current assets, regardless their maturity, pursuant to the BACEN Circular Number 3.068/01. For adjusting these securities to market value, the parameters disclosed by ANDIMA and stock exchanges, as the case may be, are used. CDBs recorded in balance sheets (Bank and Consolidated) relate to postfixed bonds, whose market value equals to actual cost. 4.3 Derivative Financial Instruments The Bank transacts in derivative markets in order to minimize the risks arising from its financial operations. Derivatives negotiated by the Bank are mainly used as instruments to protect the institution against foreign exchange risks. The derivative contracts negotiated by the Bank are swap o p e r a t i o n s r e c o r d e d a t t h e Clearinghouse for Settlement and Custody of Securities ( CETIP ). Swap contracts are mainly used as instruments to offset the changes in foreign exchange rates. The major risk factors of derivative financial instruments are related to the foreign exchange rate. Risk management is c o n t r o l l e d a n d s u p e r v i s e d independently from the risk exposure generating areas. Its daily risk evaluation and measurement are based on statistical tools, such as nonparametric VaR techniques, and sensitivity and stress analysis. Notional amounts of financial instruments position are recorded in memorandum accounts and the adjustments in balance sheet accounts. To obtain the swap transaction market value, the cash flow of each of its parts discounted at present value is estimated in accordance with the rates disclosed by the Commodities and Futures Exchange ( BM&F ), adjusted by the risk spread ascertained in the closing of the operation. 40

41 I) The updated value of derivative financial instruments recorded in memorandum accounts, individual and consolidated, are as follows: Description Jun / 2007 Jun / 2006 Future Contracts Purchase Commitments: 192,620 Foreign currency 192,620 Swap Contracts Bank Assets: 417, ,195 Interbank market 5,754 Foreign currency 417, ,441 Bank Liabilities: 493, ,804 Interbank market 454, ,047 SELIC 5,757 Foreign currency 39,013 II) The composition and value of the derivative financial instruments recorded in balance sheet accounts, Bank and Consolidated, are as follows: Description Purpose Matched Asset 01 to 90 days Hedge 91 to 360 days Hedge Over 360 days Over 360 days Hedge Hedge International funding International funding International funding International funding Index Notional Adjustment Risks Assets Liabilities Value Curve Market RCDI V@R Swap Contracts Dollar CDI 13,210 (2,316) (2,175) 192 (106) Dollar CDI 15,681 (2,685) (2,619) 881 (126) Dollar CDI 399,627 (67,100) (71,120) 61,352 (3,058) Libor Dollar 43,000 8 (63) (1) Total em ,518 (72,093) (75,977) 62,425 (3,291) Total em ,052 (36,609) (40,971) 17,625 (3,181) III) Collaterals offered for derivative financial instruments, individual and consolidated, are as follows: Description MB Bank Jun / 2007 Jun / 2006 Future Contracts Brazilian Government Securities 15,651 15,651 Treasury Bills ( LFTs ) 15,651 15,651 Contratos de Swap Títulos Privados 66,453 17,293 Certificados de Depósito Interfinanceiro 66,453 17,293 Total 82,104 23,797 41

42 IV) Net revenues / (expenses) on derivative transactions are as follows: Descrição MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Swap Contracts (62,765) (21,871) (62,765) (21,871) Future Contracts (4,045) (342) (3,914) (342) Total (66,810) (22,213) (66,679) (22,213) The result of derivative instruments is recorded at Financial Income Securities Transactions and monetary variation assets. 5. LENDING OPERATIONS 5.1 Lending operations and other receivables are as follows: Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Lending operations 2,631,938 2,283,683 2,941,101 2,458,153 Debtors for purchase of assets 3,456 7,204 3,968 8,077 Income receivable from advances granted Advances on foreign exchange contracts 35,886 26,997 35,886 26,997 Lending operations at present value 28,987 18,296 TOTAL 2,672,064 2,318,451 3,010,726 2,512,090 Current 1,875,695 1,692,199 2,043,162 1,800,878 NonCurrent 796, , , , The movement in the allowance for loan losses, other receivables, and unearned premiums receivable are as follows: Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Lending operations and other receivables Balances as of 31 Dec 2006 / 31 Dec , , , ,748 Allowance recognized 167, , , ,861 Allowance reversal (68,251) (51,060) (72,090) (54,066) Effect on income 99,424 89, ,863 91,795 Loan writeoffs losses (102,546) (91,431) (103,873) (92,513) Balances as of 30 Jun 2007 / 30 Jun , , , ,030 Unpaid Premium Receivable Balances as of 31 Dec 2006 / 31 Dec ,592 3,080 Allowance recognized 1,903 5,420 Allowance reversal (2,293) (5,469) Effect on income (390) (49) Loan writeoffs losses (929) (176) Balances as of 30 Jun 2007 / 30 Jun ,273 2,855 Total of Effect on Income 99,424 89, ,473 91,746 Grand Total on 30 Jun 2007 / 30 Jun , , , ,885 Current 134, , , ,262 NonCurrent 43,782 30,773 47,272 32,623 42

43 Recovered credits amounted to R$ 10,018, R$ 5,117 in June 2006 (MB Consolidated R$ 10,832, R$ 5,753 in June 2006). Recovered credits in 2007 contemplate the auction sale of part of writeoff portfolio for losses. Renegotiated credits amounted to R$ 133,336, R$ 190,596 in June 2006 ( R$ 134,373, R$ 190,743 in June 2006). Loans in installments amounted to R$ 111,526, R$ 84,637 in June 2006 ( R$ 115,025, R$ 88,574 in June 2006). Securitized rural credits are indexed to the General Price Index Market ( IGPM ), earn interest at the weighted average of 1,28% per year, a n d r e p r e s e n t % o f t h e Institution's lending operations, with principal of R$ 149,238 and interests of R$ 964, totaling R$ 150,202, in June In June 2006, the amount for the principal was R$ 143,646, and interests were R$ 1,070, totaling R$ 144, For the fiscal half year, the Bank c o n d u c t e d c r e d i t a s s i g n m e n t transactions with coobligation amounting R$ 323,487 (R$ 238,122 in June 2006), the positive reflection of which on the income was R$ 42,742 (R$ 26,394 in June 2006), net of taxes. The accounting balances of credit assignments with coobligation already performed by the Bank is recorded in a memorandum account in the amount of R$ 681,791 (R$ 415,930 in June 2006). The deferred expenses concerning lending operations of the period formerly recognized under Prepaid expenses were recognized under the caption Thirdparty service expenses, u n d e r t h e s u b g r o u p O t h e r administrative expenses, amounting R$ 18,748 (R$ 12,298 in June 2006) (see note 14.c) The risk rating for lending operations, leasing operations, and debtors for purchase of assets is as follows: MB Bank Individuals Lending Operations & Other Receivables Legal Entities Risk Status Industry Commerce Services Level Past Total Status Current Due Current Past Due Current Past Due Current Past Due June 2007 Total Grand Total PCLD % AA 34,708 34, ,150 71, , , ,251 A 353, , , , , ,738 1,175,112 5, B 27,821 16,141 43,962 97,869 1,960 59,731 2,656 80,592 6, , ,474 2, C 6,595 15,512 22,107 67,077 3,082 52,744 6,027 55,321 6, , ,672 6, D 8,003 13,889 21,892 11,250 5,256 14,026 5,560 7,014 4,739 47,845 69,737 6, E 2,820 14,711 17, ,281 2,387 6, ,368 17,179 34,710 10, F 2,638 16,241 18, , , ,616 17,562 36,441 18, G 1,096 12,227 13, , , ,842 9,197 22,520 15, H 3,097 56,204 59,301 2,183 10,514 2,307 20,024 1,535 16,283 52, , , Total 440, , , ,894 31, ,494 54, ,040 40,866 2,086,987 2,672, ,707 June 2006 AA 35,941 35, , , ,087 1,010,092 1,046,033 A 326, , , , , , ,380 3, B 5,010 13,380 18,390 45,059 3,876 26,520 2,871 37,983 5, , ,646 1, C 2,990 11,684 14,674 13,831 3,186 16,902 4,523 18,705 4,746 61,893 76,567 2, D 13,824 19,657 33,481 9,360 5,505 7,814 7,613 3,457 3,296 37,045 70,526 7, E 8,684 14,994 23,678 3,000 4,107 5,150 5, ,218 20,428 44,106 13, F 3,617 13,031 16, ,229 1,366 5,568 7,105 2,456 23,056 39,704 19, G 1,924 11,397 13, , , ,964 9,481 22,802 15, H 2,542 49,804 52,346 3,189 10,321 2,177 14, ,855 37,341 89,687 89, Total 400, , , ,272 34, ,234 45, ,672 27,482 1,783,545 2,318, ,428 Current Lending receivable or past due credit operations up to 14 days. Past Due Lending past due credit operations over 15 days. 43

44 Risk Level Individuals Lending Operations & Other Receivables Legal Entities Status Industry Commerce Services Current Past Due Total Status Current Past Due Current Past Due Current Past Due June 2007 Total Grand Total PCLD % AA 42,042 42, ,413 77, , , ,991 A 480, , , , , ,407 1,404,086 7,019 0,50 B 29,652 21,525 51, ,476 2,212 59,828 3,083 84,576 7, , ,650 3,106 1,00 C 8,124 19,226 27,350 70,053 3,517 55,635 6,994 63,944 7, , ,463 7,063 3,00 D 8,290 16,221 24,511 12,303 5,486 15,474 5,694 7,226 5,918 52,101 76,612 7,662 10,00 E 2,820 16,065 18, ,316 2,528 6, ,641 18,808 37,693 11,308 30,00 F 2,712 17,148 19, , , ,866 17,882 37,742 18,871 50,00 G 1,098 12,676 13, , , ,219 9,604 23,378 16,365 70,00 H 3,291 57,399 60,690 2,221 10,571 2,331 20,317 1,559 16,422 53, , , ,00 Total 578, , , ,821 32, ,756 56, ,043 46,334 2,271,758 3,010, ,505 June 2006 AA 41,740 41, , , ,822 1,059,680 1,101,420 A 395, , , , , , ,558 4,482 0,50 B 6,084 15,951 22,035 46,798 4,027 28,515 2,943 45,684 6, , ,547 1,566 1,00 C 2,994 14,441 17,435 14,094 3,742 16,967 4,774 19,320 5,831 64,728 82,163 2,465 3,00 D 13,835 20,594 34,429 9,360 5,704 7,850 8,058 4,940 3,718 39,630 74,059 7,406 10,00 E 8,743 15,458 24,201 3,000 4,126 5,150 5, ,218 20,600 44,801 13,440 30,00 F 3,617 13,342 16, ,253 1,366 7,184 7,104 2,466 24,814 41,773 20,887 50,00 G 1,924 11,732 13, , , ,026 9,625 23,281 16,296 70,00 H 2,600 50,685 53,285 3,309 10,800 2,183 14, ,962 38,203 91,488 91, ,00 Total 476, , , ,257 36, ,903 47, ,133 29,766 1,893,128 2,512, ,030 Current Lending receivable or past due credit operations up to 14 days. Past Due Lending past due credit operations over 15 days. 44

45 MB Bank Listed by Maturity Date OUTSTANDING OPERATIONS AA A B C D E F G H TOTAL % CURRENT 713,966 1,163, , ,063 39,835 6,885 4,103 1,919 9,037 2,383, to 30 days 100, ,088 67,507 55,683 2, , to 60 days 74, ,884 51,084 35,052 2, , to 90 days 73, ,167 49,958 26,951 1,267 1, , , to 180 days 94, ,248 34,383 23,369 10, , , to 360 days 105, ,061 29,589 16,103 3, , More than 360 days 265, ,698 31,984 22,905 19,918 3,631 2,385 1,163 3, , PAST DUE UP TO 14 DAYS 1,285 11,966 1,508 1, , TOTAL AS OF 30 JUN ,251 1,175, , ,737 40,293 6,971 4,140 1,941 9,122 2,400, % 26,77 43,98 9,96 6,80 1,51 0,26 0,15 0,07 0,34 89,84 Total em ,046, , ,572 52,428 34,455 17,710 12,420 2,892 8,247 2,077, % OUTSTANDING OPERATIONS PAST DUE 22,501 23,023 20,970 20,491 22,671 11,759 56, , to 30 days 1,708 1,951 1, ,324 9, to 60 days 1,171 1, ,956 7, to 90 days 1,049 1, ,017 6, to 180 days 2,889 3,124 2,666 1,703 2,231 1,151 5,692 19, to 360 days 5,119 4,858 4,677 3,229 3,959 2,112 10,686 34, More than 360 days 10,565 10,795 10,659 13,700 14,157 7,249 33, , PAST DUE INSTALLMENTS 4,960 7,912 8,474 7,248 9,630 8,820 46,985 94, to 14 days 162 1, ,151 4, to 30 days 4,585 1,680 1, ,435 10, to 60 days 177 4,638 1,841 1,467 1, ,372 12, to 90 days ,219 1,568 2, ,715 11, to 180 days ,925 4,923 6,149 10,215 24, to 360 days ,500 29, More than 360 days 1,597 1, TOTAL AS OF 30 JUN ,461 30,935 29,444 27,739 32,301 20, , , % TOTAL AS OF 30 JUN ,074 24,139 36,071 26,396 27,284 19,910 81, , % GRAND TOTAL AS OF 30 JUN ,251 1,175, , ,672 69,737 34,710 36,441 22, ,147 2,672, ,00 % AS OF 30 JUN ,046, , ,646 76,567 70,526 44,106 39,704 22,802 89,687 2,318, ,00 %

46 Listed by Maturity Date OUTSTANDING OPERATIONS AA A B C D E F G H TOTAL % CURRENT 769,505 1,391, , ,023 42,835 7,020 4,177 1,920 9,310 2,697, to 30 days 105, ,728 69,371 56,504 2, , to 60 days 78, ,444 51,887 35,684 2, , to 90 days 77, ,703 50,809 27,614 1,384 1, , , to 180 days 105, ,721 37,374 25,288 12, , , to 360 days 119, ,160 31,207 19,726 4, , More than 360 days 283, ,588 34,349 31,207 20,274 3,723 2,434 1,163 3, , PAST DUE UP TO 14 DAYS 1,486 12,742 1,535 1, , TOTAL AS OF 30 JUN ,991 1,404, , ,756 43,293 7,112 4,214 1,942 9,402 2,715, % TOTAL AS OF 30 JUN ,101, , ,081 53,375 35,985 17,769 12,528 2,899 8,437 2,256, % OUTSTANDING OPERATIONS PAST DUE 28,734 28,816 24,206 22,824 23,610 12,399 57, , to 30 days 2,020 2,367 1, ,387 10, to 60 days 1,403 1,522 1, ,016 7, to 90 days 1,281 1,406 1, ,075 7, to 180 days 3,565 3,895 3,094 1,948 2,356 1,223 5,845 21, to 360 days 6,406 6,090 5,417 3,694 4,221 2,256 10,950 39, More than 360 days 14,059 13,536 12,292 15,067 14,584 7,611 33, , PAST DUE INSTALLMENTS 5,384 8,891 9,113 7,757 9,918 9,037 47,685 97, to 14 days 189 1, ,181 4, to 30 days 4,926 1,832 1, ,470 11, to 60 days 233 5,103 2,044 1,597 1, ,444 13, to 90 days ,405 1,709 2, ,783 12, to 180 days ,073 5,055 6,287 10,431 25, to 360 days ,776 29, More than 360 days 1,600 1, TOTAL AS OF 30 JUN 34,118 37,707 33,319 30,581 33,528 21, , , % TOTAL AS OF 30 JUN ,466 28,788 38,074 27,032 29,245 20,382 83, , % TOTAL AS OF 30 JUN 2007 GRAND TOTAL 770,991 1,404, , ,463 76,612 37,693 37,742 23, ,111 3,010, % TOTAL AS OF 30 JUN ,101, , ,547 82,163 74,059 44,801 41,773 23,281 91,488 2,512, %

47 6. OTHER RECEIVABLES 6.1 Tax credits a) Tax credits are composed as follows: Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Income Tax Tax Basis 420, , , ,269 Tax Loss 34,226 43,852 59,875 85,577 Temporary Differences 386, , , ,692 Tax Late 25% 25% 25% 25% Total Income Tax Effect 105,235 95, , ,567 Social Contribution Tax Basis 298, , , ,917 Tax loss carryforwards 1,000 1,117 Temporary differences 298, , , ,800 Tax rate 9% 9% 9% 9% Social contribution tax effect 26,903 24,996 28,943 26,813 Effect on Executive Act ( MP ) Number 1.807/99, as emended by /01 27,513 27,538 31,637 32,035 Total contribution tax effect 54,416 52,534 60,580 58,848 Grand Total 159, , , ,415 Current 63,622 60,592 67,381 64,445 NonCurrent 96,029 87, , ,970 b) Changes in tax credits in the periods are as follows: MB Bank Tax Credits Temporary Differences Tax Loss / Tax Loss Carryforwards MP Number /01 Temporary Differences Tax Loss / Tax Loss Carryforwards MP Number /01 Income Tax Balances as of 31 Dec ,314 9, ,488 16,926 Recognition 35,092 36,402 Realization (32,728) (1,379) (33,802) (1,958) Net Effect on Income 2,364 (1,379) 2,600 (1,958) Balances as of 30 Jun ,678 8, ,088 14,968 Social Contribution Balances as of 31 Dec ,475 27,534 29, ,809 Recognition 11,216 11,694 Realization (11,788) (21) (11,895) (262) Net Effect on Income (573) (201) Balances as of 30 Jun ,903 27,513 28, ,547 Total 159, ,636 47

48 Tax credits referring to temporary additions arising from judicial contingencies amount to R$ 47,612 (R$ 32,766 in June 2006) and ( R$ 56,917, R$ 41,920 in June 2006) and they are recognized with an expected realization through Tax credits with realization forecasted for the period from 2020 to 2025 arise from temporary differences related to provisions for securitized rural and social contribution tax MP Number /01. T a x c r e d i t s c a p a b l e o f offsetting, recognized and registered in accordance with the MP Number 1.807/99, emended by , dated 24 August 2001, arise from the application of 18% on tax loss carryforwards and temporary additions to net income for the calculation of the social contribution tax, corresponding to computation periods ended through December 31, For current tax credits, expected realization amounts compared to present value of credits, and calculated based on funding rates for the corresponding periods, are shown below: MB Bank Realization of Tax Credits Fiscal Years Income Tax Social Contribution Grand Total Credit Credit MP Total June ,205 9, ,496 39, ,974 8,292 1,406 9,698 37, ,600 1,356 2,087 3,443 9, ,213 3,271 3, ,177 7,282 4,005 11,287 53, ,639 5,641 5, to ,540 10,541 10, to Total 105,235 26,903 27,513 54, ,651 Present Value 83,592 39, ,769 June ,845 9, ,617 36, ,580 8,290 1,545 9,835 37, , ,896 2,613 9, ,259 2,598 3, ,544 1,276 2,730 4,006 7, ,499 5,274 3,073 8,347 37, ,674 3,675 3, to ,805 11,805 11, to Total 95,244 24,996 27,538 52, ,778 Present Value 69,560 32, ,887 48

49 Realization of Tax Credits Fiscal Years Income Tax Social Contribution Grand Total Credit Credit MP Total June ,541 10,166 1,061 11,227 42, ,327 8,534 2,010 10,544 40, ,923 1,810 2,334 4,144 13, , ,491 3,554 4, ,978 7,431 4,388 11,819 54, , ,117 7,106 14, to ,146 12,147 12, to Total 123,056 29,033 31,547 60, ,636 Present Value 97,778 42, ,597 June ,097 9, ,085 39, ,473 8,605 2,165 10,770 41, ,921 1,037 2,547 3,584 13, , ,545 2,884 6, ,854 1,279 3,076 4,355 10, ,334 6,259 3,488 9,747 47, ,162 4,162 4, to ,223 13,223 13, to Total 116,567 26,813 32,035 58, ,415 Present Value 83,128 35, ,415 As already mentioned, the Bank and its subsidiaries have recognized tax credits for tax loss carryforwards and temporary differences pursuant to the requirements set forth in CVM Instruction Number 371/02, CMN Resolution Number 3.059/02 and c o m p l e m e n t a r y r e g u l a t i o n s. Realization of these tax credits is c o n t i n g e n t t o t h e e f f e c t i v e materialization of future income projections included in technical studies prepared by Management in December 2006, reviewed in June 2007 and approved by the Board of Directors and Fiscal Council. Therefore, these projections for realization of tax credits are estimates and are not directly related to expected book income. 49

50 The effects of Income and Social Contribution Taxes for the period are as follows: Description MB Bank Jun / 2007 Jun/ 2006 Jun / 2007 Jun/ 2006 IR* CSL** IR CSL IR CSL IR CSL Income before taxes and profit sharing 27,645 27,645 11,160 11,160 37,203 37,203 24,729 24,729 ( ) Elimination of income of company taxed on an estimated basis (1,358) (1,358) (881) (881) Tax Basis 27,645 27,645 11,160 11,160 35,845 35,845 23,848 23,848 Statutory rate 25% 9% 25% 9% 25% 9% 25% 9% Notional expense 6,911 2,488 2,790 1,004 8,961 3,226 5,962 2,146 Adjustments to notional expense related to: (4,190) (1,668) (5,504) (1,618) (2,327) (1,350) (3,722) (1,712) Effect of interest deduction on own capital (1,952) (703) (1,950) (702) (3,331) (1,199) (3,581) (1,289) Result of equity accounting method (890) (320) (3,755) (958) Nondeductible expenses , Statutory profit sharing (1,772) (638) (2,133) (768) Other additions / permanent exclusions 231 (76) (431) (37) 2, (1,164) (577) Tax Benefits (154) (119) (263) (227) Taxes computed on an estimated basis Expenses with IRPJ***/ CSL / (Revenues) 2, (2,833) (614) 6,583 1,957 2, Total 3,387 (3,447) 8,540 2,735 * IR = Income Tax ** CSL = Social Contribution Tax *** IRPJ = Income Tax for Legal Entities 6.2 Debtors for escrow deposits This account is comprised of the following: Description MB Bank Jun / 2007 Jun/ 2006 Jun / 2007 Jun/ 2006 Appealable labor deposits in judicial proceedings 12,759 11,193 13,105 11,366 Labor deposits in judicial proceedings 96,676 66,251 98,229 67,467 Tax deposits 94,528 65, , ,013 Deposits in civil lawsuits 3,499 2,404 4,814 3,863 Deposits for insurance claims 8,130 8,802 Other deposits 13,728 12,733 15,644 14,123 Total 221, , , ,634 NonCurrent 221, , , ,634 In the first half of 2007, a huge volume of labor proceedings came into execution, which caused an increase on labor deposits in judicial proceedings. As of December 2005, the Bank started to make escrow deposits in court of a portion of the Social Contribution on Billings ( COFINS ) computed on the difference between the gross income and the income from services rendered sustained by a j u d i c i a l d e c i s i o n a b o u t t h e unconstitutionality of the 1, Article 3, of the Law Number 9.718/98, which has contributed to the raise of court deposits for tax lawsuits and allowances for tax risks (see note 9.b). The legal liabilities and the other contingency liabilities for such causes are provisioned and classified under the captions Other Tax and Social Security Liabilities and Other Liabilities, Sundry Provision for contingent liabilities (see notes 9.b and 9.d). 50

51 6.3 Recoverable Taxes This account comprises, mostly, prepayments of income and social contribution taxes made in accordance with prevailing legislation. 6.4 Receivables from insurance operations are comprised as follows: Description Jun / 2007 Jun / 2006 Insured Parties 67,533 64,572 Domestic insured parties (accepted coinsurance) Domestic insurance companies Reinsurance companies 2,842 2,060 Other operating receivables 3,123 4,145 Total 74,016 71,670 Current 74,016 71, Receivables from insurance operations are comprised as follows: Total MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 State Income Surtax ( AIRE ) 47,397 43,727 54,708 50,472 Tax on Income ( PIS ) 6,840 22,849 7,913 25,222 Social Contribution on Billings ( COFINS ) 35,278 Tax on Revenue ( Finsocial ) 5,800 5,649 Tax on Bank Transactions ( CPMF ) 5,046 4,975 Social Contribution Tax Rate Difference 4,529 4,529 6,689 6,689 Actuarial surplus Pension plan 12,311 10,918 12,311 10,918 Social Security Credits 19 3,997 8,487 Other ,517 1,981 Total 71,485 82, , ,393 Current NonCurrent 71,077 82, , ,015 The State Income Surtax refers to bonds covering courtordered payments of government debts, receivable from the Minas Gerais State Government, arising from the final and unappealable court decision. Although this asset is lawful and realizable, its receipt term and settlement depend on the State's specific budgeting and cash availability, and the Bank recognized a provision for losses on the realization of this asset in the account Reserve for Contingent Liabilities in accordance with the guidelines from the Central Bank of Brazil (see note 9.d). T h e a m o u n t f o r t h e contribution to the Employees' Profit 51

52 Participation Program ( PIS ) arises out of an action transited in rem judicatam in December 2005, where the Mercantil do Brasil Group obtained a decision concerning the ceasing to pay said tax on a comprehensive tax basis in accordance with the Law 9.718/98. Therefore, the recognized asset corresponds to the difference existing between PIS paid b e t w e e n F e b r u a r y a n d November 2005 on the comprehensive tax basis, and the PIS ascertained on the income for services rendered, the new tax basis. In 2006, the Bank entered with a judicial action requesting the use of such asset to settle federal taxes, once the Internal Revenue Service ( SRF ) denied such request in an administrative proceeding. In July 2006, the Bank obtained a writ of mandamus number , which approved the request for credit qualification for the PIS. On the following month, the Bank started to settle such amounts. The writ of mandamus was designed to invalidate temporarily authority acts or suppression of administrative rights. R e g a r d i n g t h e S o c i a l Contribution on Billings ( COFINS ), the asset nature is the same than the PIS, however, Mercantil do Brasil Group did not bring a joint action, and each institution of the group entered with an individual action. Thus, the value of COFINS in the consolidated basis is represented by R$ 549 with respect to the action brought by Mercantil do Brasil Corretora S.A., transited in rem judicatam on 5 December 2005, and R$ 34,729 with respect to the action brought by Companhia de Seguros Minas Brasil, transited in rem judicatam on 15 September The credits related to Finsocial arise from a final and unappealable decision transited in rem judicatam, w h i c h h a s b e e n c o n s i d e r e d unfounded the collection of such contribution, and the Government was obliged to return to Mercantil do Brasil Group such collected amounts, plus interest in arrears and indexation for inflation. The credits concerning the CPMF arise from payments made on operations constituting the corporate purpose of the subsidiary Mercantil do Brasil Leasing S.A., and on financial operations. In accordance with the Articles 2, subsection IV and 8, subsection III, of Law Number 9.311/96, the operations constituting the corporate purpose are not subject to the levy of such tax. Therefore, said tax was paid without being due, and, to such effect, the supreme courts had already decided. Said tax credits are deemed effective by the independent legal counsels, which confirm that the success is probable to the Company. As per those paid on financial operations, a reserve for contingent liabilities was set aside in connection therewith (see note 9.d). The lawsuit regarding the social contribution tax rate difference refers to the alleged overpayment of the CSL produced by the difference between the tax rate established by the MP Number 1.807, dated 28 January 1999, currently, the MP Number /01, and its enactment by the SRF Regulatory Instruction Number 081/99, which, in construing such MP, illegally increased the tax rate for such tax. As the action has not transited in rem judicatam, the allowance for losses in the recognition of such asset was created during the first half of 2005 (see note 9.b). Actuarial Surplus Pension Plan refers to the recognition of the actuarial surplus reported in recent years in the Pension Plan for the employees of the Mercantil do Brasil Group (Caixa Vicente de Araújo de Assistência aos Funcionários do Grupo 52

53 Financeiro Mercantil do Brasil CAVA), in accordance with the CVM Resolution Number 371/00 (see note number 13). Deferred taxes were calculated on the income arising out of such asset and recorded under the caption Other liabilities Taxes and social security (see note 9.d). The Social Security Contribution Credits result from a lawsuit on which a final favorable and unappealable decision has been rendered by the Supreme Court, related to the INSS levied on management fees and commissions paid to independent contractors in subsidiaries. RECOVERABLE CREDITS SUB JUDICE In November 2005, the Federal Supreme Court ( STF ) adjudicated as unconstitutional the 1, Article 3 of Law Number 9.718/98, constituting the new basis for the assessment of PIS and COFINS, as of February 1999, in widening the concept of invoicing. Therefore, the tax basis was reduced and created a current right to recover the overpayment of PIS and COFINS. The Bank and its subsidiaries, understanding such increase of tax basis of PIS and COFINS was unconstitutional, had entered at that time a writ of mandamus requesting the suspension of the payment of PIS on such extended tax basis and the recovery of PIS overpaid. Credits related to PIS have been recognized on an accounting basis in 2005, as previously mentioned, except for Companhia de Seguros Minas Brasil, which awaits the closing of such proceeding. Regarding the COFINS, Mercantil do Brasil group companies have a pending individual judicial action and, pursuant to the opinion of outside legal counsels, the success on such proceedings is probable. Mercantil do Brasil Corretora S.A. and Companhia de Seguros Minas Brasil had their proceedings transited in rem judicatam, and recognized on an accounting basis such credit as previously mentioned. Then, if the closing of such pending proceedings is favorable, the amount of credits to be recognized and recorded on an accounting basis is the following: COMPANIES Jun / 2007 PIS COFINS Banco Mercantil do Brasil S.A. 136,384 Banco Mercantil de Investimentos S.A. 1,790 Mercantil do Brasil Distribuidora S.A. 340 Mercantil do Brasil Financeira S.A. 7,607 Mercantil do Brasil Leasing S.A. 2,879 Eletrodados Corretora de Seguros e Previdência Privada S.A. 461 Mercantil Administração e Corretagem de Seguros S.A. 103 Mercantil do Brasil Administradora e Corretora de Seguros S.A. 325 Companhia de Seguros Minas Brasil 9,254 TOTAL 9, ,889 53

54 7. PERMANENT ASSETS 7.1 Investments Investments in subsidiaries are as follows: Description MBI (1) CSMB (2) MBF (3) C O M P A N I E S MBL (4) June 2007 BMI (5) MBC (6) MBD (7) ELET (8) MBSVP (9) TOTAL Capital 16,197 60,000 51,744 20,861 21,902 5,298 1,800 6,695 8, ,945 Adjusted shareholders equity 48, , ,081 24,420 43,041 8,504 3,294 7,311 11, ,462 Number of shares 64, , , ,759 49, , Common shares 64, , , ,264 23, , Preferred shares 5 28,419 38,495 25,561 1,459 Ownership Interest (%) 100,00 81,75 76,41 100,00 78,76 99,97 100,00 100,00 99,00 Net income for the period 1,065 5,482 2, , (75) ,844 Remuneration on capital 2,450 1, ,516 Income for the period 1,065 7,932 4, , (75) ,360 Result of accounting method 1,065 5,289 3, ,419 (4,597) 487 (75) 728 8,625 Accounting method 1,065 3,286 2, (75) 510 8,745 Updating of stock exchange membership 43 (4,716) 54 (4,619) Goodwill amortization / (negative goodwill) Remuneration on own capital paid to the Bank 2,003 1, ,461 Goodwill amortization / (negative goodwill) 48,308 99,606 81,056 24,420 33,899 8,501 3,294 7,311 11, ,939 Value of investments 16,197 60,000 51,744 20,861 21,902 5,298 1,800 6,695 8, ,945 54

55 June 2006 Capital 15,797 50,000 49,392 20,861 20,077 8,098 1,800 6,695 8, ,798 Adjusted shareholders equity 48,519 93,657 99,536 23,018 40,837 14,814 2,653 7,227 11, ,462 Number of shares 64, , , ,680 49, , Common shares 64, , , ,256 23, , Preferred shares 3 28,367 38,424 25,561 1,459 Ownership Interest (%) 100,00 55,70 76,34 100,00 78,72 99,97 100,00 100,00 99,00 Net income for the period 881 6,184 3, , ,529 Remuneration on capital 2,850 1, ,524 Income for the period 881 9,034 5,629 1,470 1, ,053 Result of accounting method 881 8,194 4,415 1,470 1,440 1, ,656 Accounting method 881 2,370 2,881 1, ,551 Updating of stock exchange membership Goodwill amortization / (negative goodwill) Remuneration on own capital paid to the Bank Amortizable premium / (discount) 28 1, ,090 4, (8) 4,380 1,587 1, ,635 (16) Value of investments 48,519 52,151 75,986 23,018 32,147 14,810 2,653 7,348 11, ,721 (1) Mercantil do Brasil Imobiliária S.A. (2) Companhia de Seguros Minas Brasil (3) Mercantil do Brasil Financeira S.A. (4) Mercantil do Brasil Leasing S.A. (5) Banco Mercantil de Investimentos S.A. (6) Mercantil do Brasil Corretora S.A. (7) Mercantil do Brasil Distribuidora S.A. (8) Eletrodados Corretora de Seguros e Previdência Privada S.A. (9) Minas Brasil Seguradora Vida e Previdência S.A. During the semester, 24,302 common shares and 1,718 issuing preferred shares of Companhia de Seguros Minas Brasil belonging to signatory parties of the shareholders' agreement of such Company were acquired, in the amount of R$ 31,316, representing an addition of 26.02% on the shareholding interest, from 55.73% in December 2006 to 81.75%. In 21 May 2007, the Special General Meeting of Mercantil do Brasil Corretora S.A. resolved a reduction of capital stock at book value, pursuant to the Article 22 of Law Number 9.249/95 in the amount of R$ 2,800, of which: R$ 503 shall be paid in cash to shareholders and R$ 2,297 shall be paid to the Bank in six (6) issuing equity bonds of BOVESPA, disposed of in an auction dated 29 May 2007 for R$ 45,840. The revenue of such transaction was recorded in Securities Transactions. In the first semester of 2006, shares in Companhia de Seguros Minas Brasil were purchased, which gave rise to a negative goodwill of R$ 4,237. The negative goodwill, grounded on the perspective of future profitability, was recorded and fully recognized in the result of the period once said Company, in accordance with the discounted cash f l o w s, r e a c h e d p r o f i t a b i l i t y thresholds enough for their appropriation. 55

56 7.2 Property and Equipment Property and Equipment are comprised of the following: a) Property and Equipment in Use Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Property and Equipment in Use 8,012 8,191 82,167 73,963 Properties in Use 72,473 66,974 Other 45,969 44,655 64,141 61,320 IT system 26,149 25,088 39,312 37,134 Furniture and Equipment 15,667 15,497 19,894 19,308 Communication System 2,342 2,362 2,382 2,404 Transportation System Other 1,296 1,193 1,874 1,716 Accumulated Depreciation (37,957) (36,464) (54,447) (54,331) Banco Mercantil do Brasil S.A.'s properties in use were transferred to its wholly subsidiary Mercantil do Brasil Imobiliária S.A., established on 29 May On 14 June 2002, this Company's Special Shareholders' Meeting approved the valuation of these properties at market prices, with the base date stated for 31 May The balance of these properties, classified in the consolidated as property and equipment, increased from R$ 59,710 to R$ 129,273, and the revaluation of R$ 69,563 was recorded in shareholders' equity under Revaluation Reserve Subsidiaries. Subsequently, this Company's capital was reduced and shareholders were paid with properties. Properties subject to these capital reductions were sold with a simultaneous lease for a tenyear period, renewable for an equal period with a lease guarantee for the next five years in compliance with the CMN Resolution Number 2.669/99. Mercantil do Brasil I m o b i l i á r i a S. A. ' s r e m a i n i n g properties continue in use by the Bank and its subsidiaries through lease agreements between the parties In accordance with BACEN Circular Letter Number 2.824/98, dated 30 December 2005, Mercantil do Brasil Imobiliária S.A. has revaluated its own properties in use by Banco Mercantil do Brasil S.A. and its subsidiaries to R$ 29,770, as approved by the Special Shareholders' Meeting held on 30 December 2005, which was conducted based on an appraisal report issued by an independent appraiser, generating a balance of Revaluation Reserve in the amount of R$ 19,266. On 28 March 2006, the same Company revalued the remaining fixed assets to R$ 7,398, increasing the balance of Revaluation Reserve by R$ 3,400. On 26 June 2006, the Special Shareholders' Meeting of the wholly subsidiary Eletrodados Corretora de Seguros e Previdência Privada S.A. reduced its capital by transferring its real estate in the amount of R$ 1,444 to Banco Mercantil do Brasil S.A. As of this same date, Banco Mercantil do Brasil S.A. increased the capital of its 56

57 subsidiary Mercantil do Brasil Imobiliária S.A., with a real estate in the amount of R$1,444, paidup through properties in use. This real estate was then revaluated to R$ 9,308 and approved by the Special Shareholders' Meeting, based on the appraisal report issued by an independent appraiser, generating an increase of R$ 7,864 in the Revaluation Reserve. The transfer of the real estate was a strategy adopted by the management for reducing the tax costs, considering that Mercantil do Brasil Imobiliária S.A. is taxed on an estimated basis. Pursuant to SUSEP Circular Letter Number 58/98, the subsidiary Companhia de Seguros Minas Brasil performed a revaluation of its properties as of 30 September 1998, approved by the Special Shareholders' Meeting of 6 October 1998, and conducted based on a report issued by an independent appraiser. On 30 January 2007, this subsidiary performed a new revaluation of its properties, also based on the report by an independent appraiser, approved by the Special Shareholders' Meeting dated 27 February The balance of this revaluation recorded on the consolidated fixed assets is R$ (R$ 10,338 as of 30 June 2006). 7.3 Leased Property It refers to leasing operations in the amount of R$ 36,160 (R$ 27,577 in June 2006). Assets are committed for sale to leaseholders for residual values of R$ 16,224 (R$ 13,393 in June 2006), at their discretion, upon termination of the respective agreements. Insurance policies for these assets, when contracted by the leaseholders, contain a benefit clause in favor of the Company. 7.4 Deferred Charges The deferred charges are composed as follows: Description Jun / 2007 MB Bank Jun / 2006 Jun / 2007 Jun / 2006 Organization and expansion costs 67,766 74,546 75,027 79,195 Leasehold improvements 10,505 12,470 11,016 12,690 Recognition and reorganization expense 1,471 1,471 Software acquisition and development costs 57,127 62,043 61,648 64,993 Other Accumulated amortization (28,934) (30,025) (30,610) (32,106) Total 38,832 44,521 44,417 47,089 57

58 8. FUNDINGS ABROAD a) Securities Issued Abroad The funds from acceptance and issuance of securities, individual e consolidated, are as follows: Program Tranche Inflow Values Balance in Brazilian Reais Jun / 2007 Jun / 2006 Annual Rate Issuance Date Maturity Date (1) 2nd US$ 30,000 65, % 06/Apr/05 06/Oct/06 (1) 4th US$ 50,000 96, , % 03/Nov/05 03/Nov/08 (2) 2nd US$ 100, , % 08/May/07 08/May/12 Total 289, ,824 Current 4,091 67,649 NonCurrent 285, ,175 (1)US$ Euro Medium Term Note Program (2)US$ Global Medium Term Note Program b) Loans Abroad Liabilities on loans abroad are mainly related to the refinancing of foreign exchange transactions from imports and exports. c) Onlendings Abroad On 14 September 2006, the National City Bank Cleveland Ohio, together with Overseas Private Investment Corporation OPIC (a USA government agency for private investment abroad) extended mediumterm loans in the amount of US$ 20,000 to Banco Mercantil do Brasil, intended for the increase of the vehicle loan portfolio. The operation term is 1,825 days, beginning on 23 October 2006 and ending on 22 October 2011, interest rate of % p.a., and it shall be paid in 10 halfyear installments as of 23 April 2007, and the first amortization of the debt principal shall have a 900daygrace period (30 months), and due on 23 April In June 2007, such operation, recognized as onlendings abroad, totaled R$ 39,288 (no amount recorded in June 2006). The contract of such operation has covenants clauses that determine the meeting to operational limits and the compliance with the legislations of the Central Bank of Brazil. 9. OTHER LIABILITIES a) Collected taxes and other are as follows: Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Federal taxes 18,642 17,317 18,861 17,370 State and municipal taxes 3,751 3,994 3,751 3,994 Total 22,393 21,311 22,612 21,364 Current 22,393 21,311 22,612 21,364 58

59 b) Taxes and social security are comprised as follows: Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Provision for tax risks 87,328 58, ,379 93,116 Provision for deferred income tax 6,008 4,854 12,634 6,597 Other taxes and contributions payable 8,448 9,139 16,016 31,450 Unprofited taxes and contributions payable 749 3,797 Provision for profited taxes and contributions payable ,656 Total 102,533 72, , ,819 Current 9,877 9,197 20,809 36,106 NonCurrent 92,656 63, ,333 99,713 Provision for tax risks Management follows the progress of these lawsuits and based on its outside legal counsels, recognized a provision for possible losses on all the lawsuits whose unfavorable outcome was considered probable, which is composed as follows: Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 COFINS (see note 6.2) 53,519 27,573 61,871 38,327 CSL 35,801 8,347 INSS Law 9.876/99 29,663 27,058 46,204 28,049 PIS Rate differential 4,110 4,110 17,667 16,278 CPMF ,270 1,173 Other Total 87,328 58, ,379 93,116 NonCurrent 87,328 58, ,379 93,116 Provision for tax risks COFINS relates to the matter of majoring the rate from 3.00% to 4.00%, and the majoring of tax basis, whose amounts are being judicially deposited in escrow. Companhia de Seguros Minas Brasil is in a judicial dispute on the merits of the res judicatam in the Action for Tax Foreclosure number , which discusses the unconstitutionality of the Law Number 7.689/88, which instituted the Social Contribution on Income ( CSL ). In September 2006, its external legal consultants revaluated the likelihoods of loss in connection with the matter, because of the contemporaneous case law being unfavorable to the taxpayer. Thus, the Company management decided to establish a provision for tax risks. In June 2007, the amount of such provision was R$ 27,399 (R$ 0.00 in June 2006). Provision for tax risks Social Security, INSS relates to the matter of majoring the rate of Social Security Contribution of financial institutions provided for in the Article 22, 1 of L a w N u m b e r / 9 1 a n d Complimentary Law Number 84/96, 59

60 amended by Law Number 9.876/99. Provision for tax risks PIS, Rate Differential relates to the matter of majoring the tax basis of PIS, entered by the Constitutional Amendment Number 01/94, later replaced by the Constitutional Amendment Number 10/96, which continue to require the PIS tax on the gross operating income, in a tax loss carryback basis as of January Such amounts are being judicially deposited in escrow. Provision for deferred income tax is composed as follows: Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Updating of escrow deposits 1,142 1,142 1,192 1,192 Revaluation Reserve 5, Actuarial Surplus Pension Plan 4,186 3,712 4,186 3,712 Depreciation Supervening 1, TVM Market Adjustment Total 6,008 4,854 12,634 6,597 NonCurrent 6,008 4,854 12,634 6,597 c) Technical reserves insurance and pension plans are composed as follows: Description Jun / 2007 Jun / 2006 Unearned premium reserve 117, ,749 Unpaid claims 104,289 82,710 Provision for occurred by unnoticed casualties 18,374 28,711 Life with survival coverage 125, ,567 Mathematical provision for benefits granted / to be granted 45,959 44,526 Other Total 412, ,663 Current 409, ,409 NonCurrent 2,922 2,254 d) Provision for contingent liabilities: Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Provision for State Income Surtax AIRE 3,509 2,186 4,050 3,055 Provision for Social Contribution Tax Rate Difference 4,529 4,529 6,689 6,689 Provision for Tax on Bank Transactions Administrative Ruling 06/97 3,925 3,925 Provision for labor proceedings 63,780 43,555 64,083 43,750 Provision for civil proceedings 3,499 2,405 6,353 7,169 Other ,191 1,181 Total 75,989 53,383 86,291 65,769 NonCurrent 75,989 53,383 86,291 65,769 6o

61 Provision for State Income Surtax has been assessed based on market value: For the due payment, the provision was made in an amount equal to the reduction expected by the Management in ceasing such bonds. For the current payment, the difference between the cost value and actual value was provisioned. The provision for the Social Contribution Tax Rate Difference refers to the provision established for the receivable of such tax, recorded in payments reimbursable, pursuant to note 6.5. The provision for Tax on Bank Transactions refers to the legal challenge of the levy of the tax on the financial operations of the subsidiary Mercantil do Brasil Leasing S.A., based on Law number 9.311/96 (see note 6.5). Labor provisions have been computed based on a technical study performed by legal advisors. Such study assesses the percentage of losses in proceedings closed for the last two years, then applied to labor claims in force. Labor proceedings brought into action by the Brazilian Cashier's Union are individually analyzed, thus not considering the percentage of historical loss. Civil provisions are recorded based on judicial deposits in escrow already made. The provisions arising out of labor disputes and civil actions are deemed enough for covering eventual losses by the Management. e) The movement of tax risks (see note 9.b) and labor and civil proceedings (see note 9.d) is the following: Description Tax Provisions MB Bank Labor Provisions Civil Provisions Tax Provisions Labor Provisions Civil Provisions Balance as of 31 Dec ,585 46,457 3, ,420 46,658 6,197 Provisions 15,743 19, ,959 19, Settlements (2,431) (136) (2,431) (136) Balance as of 30 Jun ,328 63,780 3, ,379 64,083 6,353 Judicial deposits in escrow (see note 6.2.) 94,528 96,676 3, ,801 98,229 4,814 f) Expenses from Insurance and Pension Plans are as follows: Description Jun / 2007 Jun / 2006 Commissions on issued premiums 1,985 2,183 Payables to Instituto de Resseguros do Brasil IRB 3,662 5,332 Third party deposits 3,126 3,227 Insurance companies 925 1,069 Other payables from insurance operations 2,300 2,063 Payables from pension plan operations Total 12,136 14,020 Current 12,136 14,020 61

62 g) Subordinated Debt Program Tranche Inflow Value Amount in Brazilian Reais Jun / 2007 Jun / 2006 Annual Rate Issuance Date Maturity Date (2) 1ª US$ 125, , % 22 Sep Sep 16 Total 246,336 Current 8,357 NonCurrent 237,979 (1) US$ Global Medium Term Note Program On 27 July 2006, Mercantil do Brasil registered on the Ireland Stock Exchange the Global Medium Term Note Program in the amount of US$ 300,000. On 22 September 2006, the Bank issued the first tranche in the amount of US$ 125,000 of Callable Subordinated % Fixed Rate StepUp Notes due 2016, whose features are presented in the table above. As approved by the Central Bank of Brazil in the document 2007/ , dated 27 April 2007, such issuance was recognized as complimentary capital, as subordinated debt, comprising the reference equity (Level II Capital) for the purposes of computing the Basel and fixed assets/equity ratios pursuant to CMN Resolution Number 2.837/01. h) Other liabilities sundry creditors refer to amounts for prepaid settlements from lending operations made by the Bank, in the amount of R$ 20,390 and from repurchased operations in the amount of R$ 172,268. Allocable expenses from such operations amount to R$ 26,077. In June 2006, the balance of prepaid and repurchased settlements was null. 10. SHAREHOLDERS' EQUITY Capital is represented by 595,485,000 registered common shares with par value of R$ 0.36; then divided into 412,726,624 common shares and 182,758,376 preferred shares, fully subscribed and paid up. According to the ByLaws, shareholders are entitled to a minimum mandatory dividend of no less than 25% of the net income in each fiscal year, and preferred shareholders are entitled to dividends 10% higher than those attributable to each common share, or to noncumulative annual minimum dividends of 6% on the par value on the share, paying the higher dividend between such two alternatives. a ) N e t i n c o m e w a s a l l o c a t e d a s follows: Description MB Bank Jun / 2007 Jun / 2006 Net Income for the Period 17,172 14,332 Realization of Revaluation Reserves 565 1,008 Total Allocable 17,737 15,340 Legal Reserve Statutory Reserves 9,070 6,826 For capital increase 7,141 4,720 For future dividends 1,929 2,106 Interest on own capital attributed to dividend: 7,808 7,798 Net amount 6,637 6,628 Withheld income tax 1,171 1,170 Percentage of net income paid

63 According to the ByLaws, 90.0% of net income is allocated after dividends are distributed and the legal reserve is established, for statutory reserve for capital increase, limited to 80.0% of capital. The remaining balance is allocated to statutory reserves for future dividends. b) Revaluation reserves arising from revaluations in the subsidiaries are as follows: Description MB Bank Jun / 2007 Jun / 2006 Cia. De Seguros Minas Brasil 5,947 1,018 Mercantil do Brasil Imobiliária S.A. 29,320 30,098 Total 35,267 31, OPERATING LIMITS The Bank elected, under the regulation in force, for the calculation of consolidated fixed assets to equity ratio and risk ratio, covering all the financial institutions of the Group, which are all in compliance with the limits permitted by the Central Bank of Brazil. The fixed assets to equity ratio is 28.68% (35.81% in June 2006), against a permitted maximum of 50%, and the ratio of shareholders' equity to asset exposure risk (Basel Accord) was 16.17% (12.83% in June 2006), against a required minimum of 11%. The increase of Basel ratio and the reduction of fixed assets to equity ratio are due to the issuance program for bonds now classified as subordinated debt (see note 9.g). 63

64 12. RELATED PARTY TRANSACTIONS The balances and results of transactions with related parties carried out at market values, considering the absence of risk, are as follows: Assets / (Liabilities) Cash and cash equivalents Interbank investments MBI (1) CSMB (2) MBF (3) MBL (4) C O M P A N I E S BMI (5) MBC (6) June 2007 MBD (7) ELET (8) SASA (9) MBCS (10) MACS (11) MBSVP (12) , ,212 4,520 Total 5,832 3,752 2,776 12,360 Securities 4,470 4, ,422 Other receivables Interbank deposits (144,818) (7,067) (49,000) (200,885) Other liabilities (1,497) (1,940) (1,628) (338) (756) (615) (129) (3,028) (205) (1) (185) (10,322) Interest on own capital and dividends Reduction of capital (1,497) (1,702) (1,013) (244) (432) (96) (119) (1) (185) (5,289) (3,000) (3,000) Other (238) (615) (94) (324) (519) (10) (28) (205) (2,033) Cash & Cash Equivalents Interbank Investments June ,957 2, ,544 8,963 1,524 2,435 8,812 16,051 8,326 37,148 Securities 1,538 7,961 4, , ,421 Other Receivables Interbank Deposits (62,078) (10,011) (72,089) Other liabilities (1,152) (1,349) (1,589) (13,521) (719) (11,749) (6,243) (3,026) (363) (3) (220) (39,934) Reduction of capital (13,000) (11,496) (6,015) (3,000) (33,511) Other (1,152) (1,349) (1,589) (521) (719) (253) (228) (26) (363) (3) (220) (6,423) Assets / (Liabilities Revenue from interbank investments Other revenues/ (expenses) Revenue from interbank investments Other revenues/ (expenses) MBI (1) CSMB (2) (1) Mercantil do Brasil Imobiliária S.A. (2) Companhia de Seguros Minas Brasil (3) Mercantil do Brasil Financeira S.A. (4) Mercantil do Brasil Leasing S.A. (5) Banco Mercantil de Investimentos S.A. (6) Mercantil do Brasil Corretora S.A. MBF (3) MBL (4) C O M P A N I E S BMI (5) MBC (6) June 2007 MBD (7) ELET (8) SASA (9) MBCS (10) MACS (11) MBSVP (12) Total 153 (7,224) (223) (2,956) (9,469) 2,256 (933) (3,419) (469) (2,286) 132 (58) (178) (1,592) (112) (6,659) June (4,177) 926 (670) 1, (1,451) 1,916 (1,060) (2,477) (925) (1,425) (376) (202) (202) (1,854) (95) (6,700) (7) Mercantil do Brasil Distribuidora S.A. (8) Eletrodados Corretora de Seguros e Previdência Privada S.A. (9) SASA Serviços Administrativos S.A. (10) Mercantil do Brasil Administradora e Corretora de Seguros S.A. (11) Mercantil Administração e Corretagem de Seguros S.A. (12) Minas Brasil Seguradora Vida e Previdência S.A. 64

65 13. PENSION PLAN Banco Mercantil do Brasil S.A., jointly with other Group entities, is the sponsor of Caixa Vicente de A r a ú j o d e A s s i s t ê n c i a a o s Funcionários do Grupo Financeiro Mercantil do Brasil ( CAVA ), a nonprofit supplementary private pension entity established on 3 May The purpose is to grant benefits supplementary or similar to those granted by the Social Security to employees hired until 25 June 1980 (defined benefit plan for closed group) and to provide social services to participants and their beneficiaries. Sponsors' contributions are no less than 30% of the total cost of the benefit and service plan. Contributions for the period were R$ 250 (R$ 301 in June 2006) (MB Consolidated R$ 405, and R$ 488 in June 2006). Technical reserves are computed and established under the actuarial capitalization regime plus actual interest of 6% per year, with the variation of the Brazilian Index of Wide Consumer Prices ( IPCA ), under the defined benefit plan. The latest actuarial revaluation was performed in December As of 30 June 2007, the Bank and the Group entities had 2,641 ( 2, i n J u n e ) a c t i v e participants entitled only to nonretirement benefits; 516 (527 in June 2006) active participants entitled to retirement supplement and 602 (606 in June 2006) covered participants entitled to retirement benefits. The assumptions adopted by the independent actuary for determining this actuarial liability were as follows: nominal discount rate: 6% per year, nominal rate of salary level increase: 2% per year, plus IPCA: 2.06% per year. Based on the independent actuary's report for the year ended on 31 December 2006, on CVM Resolution Number 371/00, and on the Adhesion Agreement signed by the sponsors and CAVA, Banco Mercantil do Brasil S.A. Lead Sponsor recognized an actuarial surplus amounting to R$ 12,311 (R$ 0.00 in June 2006). The realization of this surplus is happening through the reduction of the contributions in accordance with CVM Resolution Number 371/00. The present value for the plan's actuarial obligations amounts R$ 20,781, and the fair value of the plan assets amounts to R$ 34,532 (see note 6.5). 14. OTHER OPERATING REVENUES / (EXPENSES) a) Income from services rendered is as follows: Description MB Bank Jun / 2007 Jun/ 2006 Jun / 2007 Jun / 2006 Management of investment funds 3,759 3,340 Collections 7,409 8,309 7,385 8,212 Custody Transfer of funds 1,235 1,023 1,209 1,013 Bank accounts 20,193 22,502 20,193 22,502 Credit cards 2,293 2,237 2,293 2,236 Collection services 2,644 2,768 2,644 2,768 Services provided 9,879 10,416 9,895 10,420 Guarantees provided 3,926 3,486 3,929 3,489 Business management agreements 8,162 7,450 Other services Total 56,388 58,824 52,109 54,802 65

66 b) Personnel expenses are as follows: Description MB Bank Jun / 2007 Jun/ 2006 Jun / 2007 Jun/ 2006 Management Compensation 1,832 1,838 4,364 4,461 Employees Compensation 52,155 49,931 63,890 60,557 Benefits 11,787 11,218 14,895 14,019 Payroll Charges 19,838 20,524 24,563 24,888 Indemnities 7,638 11,698 7,893 12,281 Labor Contingencies 17,323 (5,989) 17,522 (5,954) Total 110,573 89, , ,252 For the first half of 2006, the labor provision has been adjusted based on the study mentioned in note 9.d. c) Other administrative expenses are as follows: Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Utilities Water, Power and Gas 3,757 3,654 4,074 4,060 Rentals 13,267 13,242 11,356 11,315 Amortization and Depreciation 7,162 7,246 9,567 9,227 Leasing 5,872 6,744 5,872 6,744 Communications 5,386 6,074 7,102 7,528 Material, maintenance and preservations of properties 6,751 6,215 7,551 6,721 Information technology 14,561 12,273 14,995 12,713 Advertising and disclosures 1,746 3,161 2,986 4,186 Third party services (see note 5.3) 47,466 38,909 55,396 46,415 Finance system services 5,381 4,474 5,899 5,190 Transportation 4,093 3,643 4,389 3,865 Other administrative expenses 4,857 4,260 9,095 7,009 Total 120, , , ,973 d) Monetary variations on assets are as follows: Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Social Contribution Tax PIS 249 1, ,271 COFINS / FINSOCIAL 1, INSS State Government Bonds Receivable 2,366 1,749 2,963 2,213 66

67 CSMB obtained a favorable and nonappealable judicial decision in September 2006, which stated the unconstitutionality of 1 of Article 3 of Law Number 9.718/98, and widened the tax computation basis and collection COFINS. Based on such judicial decision and taking into account the new tax basis, Company established as of September 2006 recoverable payments in the amount of R$ 53,855. Such amount adjusted in June 2007, less compensations, equals to R$ 34,729. The increase of monetary variation assets of COFINS / FINSOCIAL arises from the record and later update of the balance in this account. The foreign exchange variation basically related to the adjustment of subordinated debt. 15. OTHER INFORMATION a) Collateral and guarantees The Bank and its subsidiaries provided collaterals and guarantees in the amount of R$ 421,925 (R$ 407,428 in June 2006) ( R$ 422,429, R$ 407,996 in June 2006). b) Investment funds Investment funds are managed by the subsidiary Mercantil do Brasil Distribuidora S.A. The shareholders' equity of the investment funds totals R$ 322,512 (R$ 323,581 in June 2006). This subsidiary also manages thirdparty funds in the amount of R$ 202,333 (R$ 161,468 in June 2006). c) Insurance The Bank and its subsidiaries maintain insurance policies for their main assets in amounts considered sufficient by the Management to cover possible losses on claims. d) The outstanding balance of commissions regarding securitized lending operations, recorded as prepaid expenses, amounts to R$ 8,924 (R$ 6,125 in June 2006). e) The increase of prepaid expenses is due to the deferment of expenses with commissions in foreign inflows (see notes 8.a, 8.c, 9.g). f) Agreement for clearance and settlement of obligations The Bank has an agreement for the clearance and settlement of obligations within the framework of the Brazilian Finance System pursuant to the CMN Resolution Number 3.263/05, resulting in a high degree of security on the settlement of its financial obligations in relation to the other financial institutions with which it has this type of agreement. g) For the first half of 2007, an agreement has been entered among the employees, the union and the Bank with respect to the profit sharing and/or additional benefits program ( PLR ). h) During the first quarter of 2007, 21 domestic branches were closed consonant to the Strategical Plan of the Bank. BANCO MERCANTIL DO BRASIL S.A. ATHAIDE VIEIRA DOS SANTOS Diretor Executivo LUIZ CARLOS DE ARAÚJO Contador CRC MG nº /O4 67

68 In R$ Thousand, unless otherwise stated Appendix 1 Equity in Subsidiaries Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Amortization of Premium and Discount 38 4, ,380 Update of Equity Bonds (4,619) 1,090 (4,619) 1,090 Equity Accounting Method 8,745 9,551 Interest on Own Capital 4,461 4,635 Total 8,625 19,656 (4,581) 5,470 Other Operational Income Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Recovery of Charges & Expenses 1,680 1, ,825 Reversal of Provision 1, , Active Monetary Variation on Assets (14.d) 32,687 11,260 36,538 13,871 Income from Insurance & Pension Transactions 12,122 12,261 Other 1, ,374 1,005 Total 36,752 15,023 51,939 29,947 Other Operational Expenses Description MB Bank Jun / 2007 Jun / 2006 Jun / 2007 Jun / 2006 Allowances and Equity Adjustments (1,357) (669) (2,315) (1,933) Larceny (50) (592) (50) (592) Granted Discounts (5,676) (3,049) (5,771) (3,129) OneTime Expenses (3,234) (2,283) (3,354) (2,528) Passive Monetary Variations (4,102) (1,408) (5,503) (2,835) Expenses from Insurance & Pension Transactions (15,720) (12,584) Outras (789) (544) (755) (587) Total (15,208) (8,545) (33,468) (24,188) 68

69