BANCO CRUZEIRO DO SUL REPORTS 4Q10 AND 2010 RESULTS 4Q10 AND 2010 HIGHLIGHTS

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1 BANCO CRUZEIRO DO SUL REPORTS 4Q10 AND 2010 RESULTS São Paulo, March 30, Banco Cruzeiro do Sul (BM&FBovespa - CZRS4), a privatesector, multiple-service bank that operates with a commercial and investment portfolio, is authorized to execute exchange operations, with focus on the personal-credit segment through paycheckdeductible loans to public employees and social security beneficiaries, and with operations also in the corporate lending segment through short-term loans, usually secured by receivables, to small and midsized (middle-market) companies, announces its results for the fourth quarter of 2010 (4Q10) and fiscal year Banco Cruzeiro do Sul s audited financial statements are prepared in accordance with the Brazilian Corporate Law, considering the amendments introduced by Law 11,638/07 and Law 11,941/09 as well as the rules of the National Monetary Council (CMN), the Brazilian Central Bank (BACEN) and the Accounting Pronouncements Committee (CPC) when applicable. 4Q10/2010 Conference Call March 31, 2011 Portuguese 10:00 am (Brasília) 09:00 am (New York) Dial in: Code: Banco Cruzeiro do Sul Replay: Code: English 11:30 am (Brasília) 10:30 am (New York) Dial in: Replay: Code: Investor Relations Fausto Vaz Guimarães Neto João de Lacerda Soares Roberto Coutinho Naira Oey Phone: +55 (11) ri@bcsul.com.br Website: 4Q10 AND 2010 HIGHLIGHTS Net income in 4Q10 was R$31.0 million, with 10.9% ROAE, 24.6% less than the R$41.1 million recorded in 4Q09. Net income in 2010 stood at R$151.5 million, with 13.7% ROAE, up 85.0% on the R$81.9 million in In 4Q10, the direct origination of paycheck-deductible loans totaled R$1,412.2 million, with monthly average of R$470.7 million. In 2010, the direct origination totaled R$4,802.0 million, with monthly average of R$400.2 million the best year in the bank s history; Loan portfolio reached R$6.868 billion, comprising: direct and credit card paycheck-deductible personal loans of R$6.559 billion and middle-market loans of R$308.7 million; Time deposits totaled R$4,572.6 million, increasing 10.8% on the previous quarter (R$4,127.8 million) and 36.3% in relation to the same period in 2009 (R$3,354.3 million); Shareholders equity came to R$1,126.6 million, 1.2% lower than in 3Q10 (R$1,140.1 million) and 5.5% higher than in the same period of 2009 (R$1,068.2 million). Average shareholders equity stood at R$1,137.7 million in the quarter. The capital adequacy (Basel) ratio stood at 21.2%; In January 2011, the bank raised US$400 million offshore through its medium-term notes program, with a five-year term and a coupon of 8.25% p.a. 1

2 MANAGEMENT COMMENTS In the fourth quarter of 2010, our origination of paycheck-deductible loan assets accompanied the seasonality of the product and was relatively lower than in the previous quarter, though higher than in the same period in In 2010, origination was higher than initially expected, confirming the demand for credit in the year. Our origination did not abandon our strategy of quality and liquidity, both for paycheck-deductible personal and for middle-market loans, and remained selective, with efforts always concentrated in operations with more attractive returns and low credit risk. This quarter, more specifically in November, we were impacted by the events involving Banco Panamericano, which momentarily made our funding operations costlier, leading us to adopt an even more conservative strategy by increasing our cash and cash equivalents (R$867.5 million). However, it did not change our funding volume and asset origination, especially payroll-deductible loans, though it affected our profitability in the period. We are projecting growth in our paycheck-deductible loan origination, in line with the product's seasonal nature and market trends, always looking out for opportunities to increase our market share. With this in mind, the Bank is prioritizing organic growth and has been investing in both personnel and technology in order to achieve the growth it has planned for the near future. Consequently, our administrative and personnel expenses were impacted by non-recurring expenses associated with the new debt issue and expenses arising from events, sponsorships and donations, totaling R$5.0 million. Our efficiency ratio in the period was 52.5%. Funding through time deposits with special guarantee (DPGEs) continue to represent a consistent funding source in terms of volume as well as maturities and prices, with the maturing deposits often renewed for longer terms and at lower rates. The discontinuance of DPGEs, planned for 2016, and the reduction of the funding limits to of 20% per year, are part of our funding strategy by which a substantial portion of the funds raised under this modality will be replaced by others such as foreign funding, FIDCs and time deposit certificates. We are continuing our efforts to reduce our dependence on asset assignments to other financial institutions, with the aim of holding a higher volume of assets in the portfolio, though we still maintain relationships with partner financial institutions in order to assign credits as an alternative funding source, with price and maturity levels compatible with our operations. In January 2011, the bank raised US$400 million offshore through its medium-term notes program, for a five-year term and a coupon of 8.25% p.a. The procedures for the accounting classification and disclosure of operations involving the sale or transfer of financial assets are in accordance with Central Bank Resolutions 3,809 and 3,895. The Resolution 3,895 postponed to January 2012 the compliance with Resolution 3,533 and requires banks that had adopted them to resort to the accounting procedures used previously. Banco Cruzeiro do Sul presents its fourth-quarter figures based on this new accounting methodology, with revenue and expenses from assignments with risk retention apportioned in advance, instead of in accordance with the remaining duration of the operations. As a consequence, the accounting result is once again impacted by advance revenue from assignments. Net income in 4Q10 was R$31.0 million, with 10.9% ROAE, 24.6% lower than the R$41.1 million recorded in 4Q09. Net income in 2010 was R$151.5 million, which increased 85.0% from

3 (R$81.9 million), with 13.7% ROAE. This growth does not consider the difference in accounting procedures (adoption of Resolution 3,533 as of November 2008 and of Resolution 3,809 as of November 2009) used in the periods under analysis. Net income in the period was impacted by non-recurring revenues and expenses resulting from the marking to market of our securities portfolio and by other non-recurring revenues and expenses. As a result, recurring net income came to R$30.0 million in 4Q10 and R$145.7 million in Shareholders equity came to R$1,126.6 million in the quarter, 1.2% lower than in 3Q10 (R$1,140.1 million), and 5.5% higher than in the same period of 2009 (R$1,068.2 million). The reduction in shareholders equity in the fourth quarter is due to the payment of dividends (R$30 million) and interest on equity (R$15.7 million) in the quarter. Average shareholders equity was R$1,137.7 million in the fourth quarter and R$1,109.7 million in the year. In September 2010, we carried out a stand-alone issue of US$400 million, with a ten-year term and a coupon of 8.875%. The issue is a subordinated debt, qualified for tier 2 capital and authorized by the Central Bank of Brazil on December 14, 2010 to compose our reference capital for the calculation of the Basel ratio, which stood at 21.2% in the quarter. Banco Cruzeiro do Sul s market capitalization on December 31, 2010 was R$2,078.3 million, with its stock (CZRS4) trading at R$15.20 per share. Market capitalization corresponded to 1.8 times average shareholders equity in the fourth quarter. The bank s stock gained 19.5% in the last 12 months. Bear in mind that these stock gains do not consider the dividends and interest on equity paid in the periods mentioned. Earnings per share in the fourth quarter came to R$0.23. In the fourth quarter of 2010, the bank s free float stood at 19.4%. In 4Q10, direct paycheck-deductible loan origination totaled R$1,412.2 million, with a monthly average of R$470.7 million. Total origination in 2010 was R$4,802.0 million, with a monthly average of R$400.2 million the best year in the bank s history. Origination in the fourth quarter is in line with the product s historical seasonality and is a record for fourth quarters. Assets from paycheck-deductible credit card operations reached R$319.4 million in 4Q10, increasing 9.8% on 3Q10 (R$290.9 million) and 6.3% in relation to 4Q09 (R$300.6 million). The number of cards issued increased to 387,200, increasing by 1.0% in relation to 4Q09 (383,300) and by 3.4% compared to 3Q10 (374,400). Active clients financing their outstanding balances accounted for The middle-market segment ended the fourth quarter with a loan portfolio of R$308.7 million, up 6.3% from 3Q10 (R$290.3 million) and up 11.7% from 4Q09 (R$276.3 million). The amounts in the middle-market portfolio are consistent with our strategy for this business segment. In the fourth quarter of 2010, Banco Cruzeiro do Sul s foreign exchange desk maintained its operations in the interbank market, imports and exports, paper currency distribution, gold exports and the buying and selling of foreign currencies for financial and commercial fund transfers. 3

4 The loan portfolio, including guarantees, accounts receivable and subordinated quotas in receivables-backed investment funds (FIDCs) booked under the item Securities, totaled R$6.868 billion, divided into: R$6.559 billion in direct and credit card paycheck-deductible personal loans and R$308.7 million in middle-market loans. The overall portfolio grew by 6.4% from 3Q10 (R$6.454 billion) and by 50.8% from 4Q09 (R$4.553 billion). Gross income from financial intermediation came to R$212.3 million in 4Q10, 7.6% lower than in 3Q10 (R$229.8 million) and 15.7% higher than in 4Q09 (R$183.5 million). Time deposits totaled R$4,572.6 million, increasing 10.8% on 3Q10 (R$4,127.8 million) and 36.3% in relation to 4Q09 (R$3,354.3 million). On December 31, 2010, our cash and cash equivalents stood at R$867.5 million, equivalent to 77.0 shareholders equity. Period Highlights (R$ million) 4Q10 3Q10 4Q09 4Q10 x 3Q10 4Q10 x 4Q09 Paycheck-deductible origination 1, , (8.2%) 56.4% Net profit (31.5%) (24.7%) Shareholder's equity 1, , ,068.2 (1.2%) 5.5% Credit portfolio quality (AA-C) 97.5% 96.7% 97.2% 0.8 p.p. 0.3 p.p. Credit portfolio quality (D-H/Credit) 2.5% 3.3% 2.8% (0.8 p.p.) (0.3 p.p.) Active clients (thousand) 1, , , % 10.6% Paycheck-deductible credit portfolio¹ 6, , , % 53.4% SME's credit portfolio % 11.7% Average commission to bank correspondents 6.2% 6.0% 8.2% 0.2 p.p. (2.2 p.p.) Capital adequacy ratio 21.2% 14.7% 16.1% ¹ Considers credit card and subordinated quotas of FIDCs 4

5 COMMENTS ON PERFORMANCE Net Income The procedures for the accounting classification and disclosure of operations involving the sale or transfer of financial assets are in accordance with Central Bank Resolution 3,809. On July 29, 2010, the Central Bank postponed the compliance with Resolution 3,533 to January 2012, and asked the banks to resort to the accounting procedures used previously. Therefore, Banco Cruzeiro do Sul presents its fourth-quarter figures partially based on this new accounting methodology, with revenue and expenses from assignments with risk retention apportioned in advance instead of in accordance with the remaining duration of the operations. As a result, the accounting result is once again impacted by advance revenue from assignments. This quarter, more specifically in November, we were impacted by the events involving Banco Panamericano, which momentarily made our funding operations costlier, leading us to adopt an even more conservative strategy by increasing our cash and cash equivalents, compromising the period s profitability. Thus, net income in 4Q10 was R$31.0 million, with 10.9% ROAE, 24.6% lower than the R$41.1 million recorded in 4Q09. Net income in 2010 came to R$151.5 million, with 13.7% ROAE, 85% higher than the R$81.9 million registered in This growth does not consider the difference in accounting procedures (adoption of Resolution 3,533 as of November 2008 and of Resolution 3,809 as of November 2009) used in the periods under analysis Q09 3Q10 4Q10 Recurring Net Income Net income in the period was impacted by non-recurring revenues and expenses resulting from the marking to market of our securities portfolio and by other non-recurring revenues and expenses. As a result, recurring net income was R$30.0 million in 4Q10 and R$145.7 million in Net Income 31.0 Securities 2.3 Derivative (10.8) Other Operating Expenses 5.0 Income tax and social contributions 2.5 Expenses and Income Non-Recurring (1.0) Recurring Net Income

6 Net Income Recurring Net Income Q09 1Q10 2Q10 3Q10 4Q10 Future Net Income Our credit operations booked on the balance sheet have a market value of R$2.2 billion¹. R$ Credit Portfolio Carrying Value 4Q10 Market Value Gain or Loss Potential Carrying Value 3Q10 Market Value 2,176,607 2,244,717 68,110 1,497,584 1,759,566 Gain Po ¹- Note 22 a of Financial Statements of the fourth quarter of Gross Income from Financial Intermediation Gross income from financial intermediation came to R$212.3 million in 4Q10, 7.6% lower than in 3Q10 (R$229.8 million) and 15.7% higher than in 4Q09 (R$183.5 million) Q09 3Q10 4Q10 The increase in gross revenue from financial intermediation in relation to the same period last year was influenced by the higher revenue from loan operations. The reduction in gross revenue from financial intermediation from 3Q10 is mainly due to the higher funding expenses, reflecting the increase in liquidity due to the events involving Banco Panamericano. 6

7 Net Interest Margin Our net interest margin remains stable, as shown in the chart below: 11.3% 8.3% 9.9% 9.9% 10.2% 10.0% Q09 3Q10 4Q10 Origination of Paycheck-Deductible Personal Loans Direct paycheck-deductible loan origination totaled R$1,412.2 million in 4Q10 and R$4,802.0 million in The monthly averages were R$470.7 million and R$400.2 million in 4Q10 and 2010, respectively. Loan origination in 4Q10 decreased by 8.2% in relation to 3Q10 (R$1,538.2 million), in line with the product's seasonal nature, and increased by 56.4% over 4Q09 (R$903.1 million). In the year, total origination was 41.0% higher than in 2009 (R$3,405.6 million). Loan origination in the year was a record in the Bank s history. 4, , , , ,663 2,196 1,249 3, , ,148 Public Employees INSS 1, , , , ,386 1,265 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 Our paycheck-deductible loan origination in 4Q10 was divided as follows: 10.5% for INSS beneficiaries and 89.5% for public employees. In 2010, our origination was divided as follows: 13.6% for INSS beneficiaries and 86.4% for public employees. The public paycheck-deductible loan market has maintained the performance of recent quarters, increasing by 4.1% between September 2010 and December 2010, compared to growth of 26.4% between December 2009 and December The continuous growth of the paycheck-deductible 7

8 sector is indeed notable, underscoring the increasing demand for this market. Paycheck-deductible loans represent approximately 60 personal loans contracted in Brazil. 140, , ,000 80,000 60,000 40,000 20,000 56,179 59,452 62,635 65,623 68,201 71,495 PAYCHECK-DEDUCTIBLE LOANS 21.4% 79, % 26.8% 87,577 92, % 117, , , , % 40.1% 32.9% 28.9% 26.4% 60% 50% 40% 30% 20% 10% - Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 0% Paycheck-deductible loans (R$ billion) YOY The 20 main agreements for paycheck-deductible personal loan origination accounted for 68.6 our direct origination in 4Q10, versus 65.1% in 3Q10, as shown below: 20 Major Production Codes 4Q10 3Q10 State 34.1% 30.2% Federal 22.8% 23.9% INSS 10.5% 9.9% Municipalities 1.2% 1.1% Total 68.6% 65.1% Securities The Bank s securities portfolio stood at R$5,067.2 million, 15.0% down on 3Q10 (R$5,962.6 million) and 24.8% greater than in 2009 (R$4,058.7 million). Investments in the subordinated quotas of receivables-backed investment funds (FIDCs) represented R$4,842.6 million, or 95.6 total, and are included in our own portfolio, as shown below (R$5,151.5 million in 3Q10, or 86.4 total). Bonds Portfolio (R$ '000) 4Q10 3Q10 4Q09 4Q10 x 3Q10 4Q10 x 4Q09 Own Portfolio 176, , ,538 (70.6%) (26.5%) Subordinated quotas FIDCs 4,842,572 5,151,451 3,498,025 (6.0%) 38.4% Subject to repurchase commitments 8,667 91, ,673 (90.5%) (93.5%) Derivative Financial Instruments 20,557 46,212 49,857 (55.5%) (58.8%) Subject to guarantees provided 18,678 73, ,561 (74.5%) (86.4%) Privatization Currency Total 5,067,220 5,962,618 4,058,654 (15.0%) 24.8% Loan Portfolio The loan portfolio, including guarantees, accounts receivable and subordinated quotas in receivables-backed investment funds (FIDCs) booked under the item Securities, totaled R$6.868 billion, divided into: R$6.559 billion in direct and credit card paycheck-deductible personal loans and 8

9 R$308.7 million in middle-market loans. The overall portfolio grew by 6.4% from 3Q10 (R$6.454 billion) and by 50.8% from 4Q09 (R$4.553 billion). Credit Portfolio (R$ '000) 4Q10 3Q10 4Q09 4Q10 x 3Q10 4Q10 x 4Q09 Paycheck-Deductible Loans¹ 1,716, % 1,012, % 931, % 69.6% 84.4% - Loans (direct way) 1,673, % 900, % 803, % 85.8% 108.2% - Credit Card 43, % 111, % 127, % (61.0%) (65.8%) Subordinated Quotas of FIDCs 4,842, % 5,151, % 3,345, % (6.0%) 44.7% - Loans (direct way) 4,566, % 4,972, % 3,172, % (8.2%) 43.9% - Credit Card 275, % 179, % 173, % 53.9% 59.3% Total Paycheck-Deductible Personal Loans 6,559, % 6,163, % 4,276, % 6.4% 53.4% Middle Market 308, % 290, % 276, % 6.3% 11.7% Total On-balance 6,868, % 6,454, % 4,553, % 6.4% 50.8% ¹ Considers 3533 effects 6, , , , , , , , , , , , , , , , , , , Q09 3Q10 4Q10 Subordinated quotas of FIDC On Balance Credit (Loans) Direct Paycheck-Deductible Personal Loans The portfolio of direct paycheck-deductible personal loans reached R$6,240.0 million in 4Q10 (R$1,673.3 million of which in assets booked on the balance sheet and R$4,566.8 million in subordinated quotas of FIDCs), increasing 56.9% on 4Q09 (R$3,976.3 million) and 6.3% in relation to 3Q10 (R$5,872.8 million). Paycheck-Deductible Credit Cards Assets from paycheck-deductible credit card operations reached R$319.4 million in 4Q10 (R$43.6 million booked on the balance sheet and R$275.8 million in subordinated quotas of FIDCs), up 9.8% from 3Q10 (R$290.9 million, of which R$111.7 million were booked on the balance sheet and R$179.2 million in subordinated quotas of FIDCs), and 6.3% higher than in 4Q09 (R$300.6 million, of which R$127.4 million were booked on the balance sheet and R$173.1 million in subordinated quotas of FIDCs) Q09 3Q10 4Q Subordinated Quota FIDC Credit Portfolio 9

10 The number of cards issued was 387,200, increasing by 1.0% in relation to 4Q09 (383,300) and by 3.4% compared to 3Q10 (374,400). Active clients financing their outstanding balances accounted for Q09 3Q10 4Q10 The Bank currently holds agreements for the origination of paycheck-deductible loans with 212 government entities as well as the INSS social security system. We continue to pursue new instruments for the distribution of paycheck-deductible personal credit in existing business segments, building on the success of the paycheck-deductible credit cards. Middle Market Loans The middle-market segment ended the fourth quarter with a loan portfolio of R$308.7 million, up 6.3% from 3Q10 (R$290.3 million) and up 11.7% from 4Q09 (R$276.3 million). The amounts in the middle-market portfolio are consistent with our strategy for this business segment Q09 3Q10 4Q10 The Bank maintains a conservative approach in relation to the origination of loans in the middle market. In the fourth quarter, we had 106 active clients in the segment, with an average portfolio term of 190 days and an average ticket of R$1.2 million per operation. Our focus remains on paycheck-deductible personal loans, both directly or through paycheckdeductible credit cards, where we have built a portfolio of high liquidity and quality, though without foregoing the middle-market segment, seeking to diversify the loan portfolio. Quality of the Loan Portfolio Security in the approval and execution of credit operations is fundamental for developing the business and maintaining the quality of the loan portfolio. This efficient loan-portfolio management 10

11 is demonstrated by the quality of the portfolio, with 97.5 credit assets rated between AA and C, based on Central Bank Resolution 2,682. At the close of 4Q10, the provision for loan losses stood at R$46.4 million, increasing by 38.5% in relation to 3Q10 (R$33.5 million). This increase in provisions is in line with the 45.3% growth (considers credit booked on the balance sheet, excluding FIDCs) in the loan portfolio in 4Q10 compared with 3Q % 4.6% 8.0% AA 82.5% A B C The quality of our loans is ensured by the low level of default in paycheck-deductible loans, historically lower than 1% and averaging 0.8%. In 4Q10, based on the consolidated balance sheet the provision for paycheck-deductible loan operations accounted for 0.76 the portfolio. Our Ratings Banco Cruzeiro do Sul is analyzed by the following rating agencies: LF Rating, RiskBank, Moody s, Austin Rating and Standard & Poor s. Our ratings are shown in the chart below: Agency Rating Type LF Rating A Brazilian Currency Austin Rating A- Domestic Scale RISKbank Moody's Standard & Poor's (RISKbank Index) General Ranking in Sep/10: 40 (Jun/10: 45) Low risk for short term General disclosure: Excellent Ba 2/NP Negative Outlook Ba 2/NP Negative Outlook Ba 3/NP Negative Outlook A1.br/BR-1 Negative Outlook BB-/B Estable Outlook BrA-/2 Estable Outlook Brazilian Currency Foreign Currency Deposits Brazilian Currency Subordinated Domestic Scale Foreign Currency Deposits Brazilian Currency Foreign Exchange In the fourth quarter of 2010, Banco Cruzeiro do Sul s foreign exchange desk maintained its operations in the interbank market, imports and exports, paper currency distribution, gold exports and the buying and selling of foreign currencies for financial and commercial fund transfers. Following the high-volume and low-risk strategy, operations target institutions authorized by the Brazilian Central Bank, and price variations are always covered by derivative markets in Brazil and abroad. The area's activities in the interbank market took the Bank to the 19 th position in December 2010 and 17 th position in 2010 in the ranking published by the Central Bank. 11

12 Funding We raise funds in the local market from institutional investors, individuals and companies. The instruments used for this funding are: time deposits with and without guarantee from Fundo Garantidor de Crédito (DPGEs), interbank deposits, credit assignments to other financial institutions and receivables-backed investment funds (FIDCs). In the international market, funding operations involve the issue of short- and medium-term notes. Funding through time deposits with special guarantee (DPGEs) continue to represent a consistent funding source in terms of volume as well as maturities and prices, with the maturing deposits often renewed for longer terms and at lower rates. The discontinuance of DPGEs, planned for 2016, and the reduction of the funding limits to of 20% per year, are part of our funding strategy by which a substantial portion of the funds raised under this modality will be replaced by others such as foreign funding, FIDCs and time deposit certificates. In 4Q10, the bank s funding sources were composed of: Time deposits from individuals and companies: 51.7%; Credit assignments to other financial institutions: 12.0%; Offshore funding operations (STN & MTN): 22.6%; Credit assignments to FIDCs (senior shares): 11.4%; Interbank Deposits: 2.2%. Funding (R$ '000) 4Q10 3Q10 4Q09 4Q10 x 3Q10 4Q10 x 4Q09 Time deposits¹ 4,572, % 4,127, % 3,354, % 10.8% 36.3% Interbank deposits² 196, % 206, % 363, % (4.5%) (45.8%) Securities issued abroad 1,996, % 1,990, % 888, % 0.3% 124.7% SubTotal On-balance 6,766, % 6,324, % 4,605, % 7.0% 46.9% Credit assingments 1,061, % 727, % 731, % 45.9% 45.1% FIDC's senior quotas 1,008, % 933, % 1,036, % 8.0% (2.7%) SubTotal Off-balance 2,070, % 1,661, % 1,768, % 24.6% 17.1% Total 8,836, % 7,986, % 6,374, % 10.6% 38.6% ¹ Considers Related Party Deposits of R$ million and R$2,382.7 million in DPGEs (deposits guaranteed by the government). ² Considers Related Party Deposits of R$ million, Interbank Deposits, Demand Deposits and Other Deposits. Time deposits totaled R$4,572.6 million, increasing 10.8% on the third quarter (R$4,127.8 million) and 36.3% in relation to the same period in 2009 (R$3,354.3 million). The portfolio of time deposits with and without guarantees from the FGC has a weighted average cost of the CDI rate and a weighted average term of 386 days. It is worth pointing out that the increase in time deposits not guaranteed by the DPGE grew 23.4% over 3Q10 and 53.9% over 4Q09, underlining our efforts to substitute the time deposits with special guarantee (DPGEs). Time deposits guaranteed by the DPGE grew 1.3% over 3Q10 and 23.3% compared to 4Q09. Time Deposits (R$ '000) 4Q10 3Q10 In January 2011, the bank raised US$400 million offshore through its medium-term notes program, with a five-year term and a coupon of 8.25% p.a., becoming the first midsized Brazilian bank to access the international capital markets after the events involving Banco Panamericano. 4Q09 4Q10 x 3Q10 4Q10 x 4Q09 DPGE 2, % 2, % 1, % 1.3% 23.3% CDB 2, % 1, % 1, % 23.4% 53.9% Total 4, % 4, % 3, % 10.8% 36.3% 12

13 Cash and Cash Equivalents In the fourth quarter, we controlled liquidity and the quality of our assets adopted in the previous quarters. We maintained our relationships with partner financial institutions, assigning credit assets that generated funds at prices and terms that are compatible with our operations. On December 31, 2010, our cash and cash equivalents stood at R$867.5 million, equivalent to 77.0 shareholders equity in the period (R$1,127 million), as shown in the table below. R$ million 4Q10 Local Currency 74,825 Foreign Investor 53,079 Cash and Gold 100 Cash equivalents 128,004 Interbank investments ¹ 713,588 Total of cash and cash equivalents 841,592 Goverment Bonds Free Portfolio 23,602 FIDC's cash balance 2,349 Goverment Bonds available at BM&F - Total 867,543 ¹- Refers to transactions with a maturity date of the actual application is less than 90 days. Administrative Expenses Administrative and personnel expenses totaled R$87.2 million in 4Q10, an increase of 1.1% in relation to the previous quarter (R$86.2 million). Personnel expenses came to R$31.6 million, 19.3% higher than in 3Q10 (R$26.5 million) and 2.0% higher than in the same period in 2009 (R$31.0 million). The increase in personnel expenses was due to the adjustment in the headcount to the growth in our paycheck-deductible loan origination and the consequent increase in taxes. Administrative expenses reduced 7.0% from 3Q10, while increasing by 32.6% from 4Q09. This increase was the result of non-recurring promotions, sponsorships and donations in 4Q10, as well as the new issue of securities offshore. Personnel and Administrative Expenses (R$ '000) 4Q10 3Q10 4Q10 x 3Q10 4Q09 4Q10 x 4Q09 Personnel expenses 31,592 26, % 30, % Administrative expenses 55,615 59,774 (7.0%) 41, % Total 87,207 86, % 72, % As a result, our efficiency ratio stood at 52.5% in the period. Administrative and personnel expenses were impacted by expenses arising from legal counseling on the offshore securities issue, sports sponsorships and bonuses. 13

14 CAPITAL STRUCTURE Shareholders Equity Shareholders equity came to R$1,126.6 million, 1.2% lower than in 3Q10 (R$1,140.1 million), and 5.5% higher than in the same period of 2009 (R$1,068.2 million). The reduction in shareholders equity in the fourth quarter is due to the payment of dividends (R$30 million) and interest on equity (R$15.7 million) in the quarter. Average shareholders equity stood at R$1,137.7 million in 4Q10 and R$1,109.7 million in ,048 1,069 1,068 1,127 1,068 1,140 1, Q09 3Q10 4Q10 Based on net income of R$31.0 million in 4Q10 and R$151.5 million in 2010, the bank s ROAE was 10.9% and 13.7% respectively. Capital Adequacy Ratio (BIS) The US$400 million offshore issue of subordinated debt in September 2010, with a ten-year term, was included in the bank's tier 2 capital for the calculation of its capital adequacy ratio, since December 14, 2010, upon authorization from the Central Bank of Brazil. 30.0% 19.0% 14.7% 15.7% 20.4% 16.1% 21.2% 16.1% 14.7% 21.2% Q09 3Q10 4Q10 As a result, the Basel ratio stood at 21.2% in the fourth quarter of 2010, well above the minimum of 11% required by the Central Bank of Brazil, and includes the tier I and II capital of R$1,677.9 million, as shown below: dec/10 Amount Credit-risk portion 753,696 Market-risk portion 28,348 Operating risk portion 88,767 Required reference capital (RRC) 870,812 Reference capital for compatibility limit of RC with RRC (RC), including Tier 2 capital 1,677,937 Capital Ratio (BIS) 21.20% 14

15 The current level of capitalization is enough for the Bank to even double the credit risk portion booked on its balance sheet of December 31, Banco Cruzeiro do Sul Stock (BM&FBovespa CZRS4) The capital stock of Banco Cruzeiro do Sul comprises 99,897,555 common shares and 36,829,923 preferred shares (of which 26,498,021 shares, or 71.95%, make up the free float), for a total of 136,727,478 shares. The Bank s free float (CZRS4) is distributed as follows: Position Preferred % Total % Foreign investor 7,959, % 7,959, % Brazilian Corporations 6,099, % 6,099, % Brazilian Individuals 12,439, % 12,439, % Total Free Float 26,498, % 26,498, % Controllers 8,939, % 108,837, % Members of the Board 32, % 32, % Directors Treasury 1,360, % 1,360, % Total Management 10,331, % 110,229, % Total Shares 36,829, % 136,727, % Banco Cruzeiro do Sul s market capitalization on December 31, 2010 was R$2,078.3 million, with its stock (CZRS4) trading at R$15.20 per share. Market capitalization corresponded to 1.8 times average shareholders equity in the fourth quarter. The Bank s stock gained 19.5% in the last 12 months. Bear in mind that these stock gains do not consider the dividends and interest on equity paid in the periods mentioned. Earnings per share was R$0.23 in the fourth quarter. In the fourth quarter of 2010, the Bank s free float stood at 19.4%. The table below shows the amounts paid as interest on equity and dividends, which represent R$2.36 per share since the IPO: Date of approval Return Return value per share (R$) The Amount of Income (R$ 000) Date of Payment 08/23/2007 Interest on own capital , /04/ /21/2008 Interest on own capital , /01/ /12/2008 Dividends , /25/ /14/2008 Interest on own capital , /15/ /03/2008 Interest on own capital , /15/ /03/2009 Dividends , /16/ /17/2009 Interest on own capital , /14/ /14/2009 Interest on own capital , /27/ /29/2010 Interest on own capital , /22/ /07/2010 Interest on own capital , /28/ /01/2010 Interest on own capital , /14/ /02/2010 Interest on own capital , /15/ /05/2010 Interest on own capital , /18/ /15/2010 Interest on own capital , /14/ /17/2011 Dividends , /26/ /31/2011 Interest on own capital , /10/ /01/2011 Interest on own capital , /11/ /25/2011 Interest on own capital , /11/

16 Subsequent Event Banco Cruzeiro do Sul S.A. ( Bank ) announces the establishment of Cruzeiro do Sul Holding Financeira S.A., to which all of the common shares held by the current controlling shareholders of the institution were transferred on March 29, The transfer of these shares does not represent the entry of new individuals as shareholders or change in the current structure of the controlling block of shareholders of the Bank. With this measure, the controlling shareholders of Bank plan to continue improving the corporate governance of Bank. The pertinent documentation was submitted to the Central Bank of Brazil in accordance with governing laws and regulations. With the establishment of Cruzeiro do Sul Holding Financeira S.A., the shareholder s structure of the Bank turns to be as follows: Position Commom % Preferred % Total % Foreign investor - - 7,879, % 7,879, % Brazilian Corporations - - 6,077, % 6,077, % Brazilian Individuals ,541, % 12,541, % Total Free Float ,498, % 26,498, % Cruzeiro do Sul Holding 99,897, % % 99,897, % Luis Felippe Indio da Costa - - 6,067, % 6,067, % Luis Octavio A. L. Indio da Costa - - 2,872, % 2,872, % Members of the Board , % 32, % Directors Treasury - - 1,360, % 1,360, % Total Management 99,897, % 10,331, % 110,229, % Total Shares 99,897, % 36,829, % 136,727, % Client Portfolio In 4Q10, we had 1,464,825 active clients, 119,511 or 8.9% more than in 3Q10. The number of active clients in 2010 increased by 10.6% from The chart below provides a breakdown of the active client base among INSS beneficiaries, public employees and paycheck-deductible credit cards. Credit Card Public Employee INSS , , , , , , Q09 3Q10 4Q10 16

17 Distribution Network For the origination of paycheck-deductible personal loans to public employees and INSS beneficiaries, in 4Q10 Banco Cruzeiro do Sul had a nationwide network of 372 correspondent banks, 19 which are exclusive banks, compared with 312 in 3Q10 (20% exclusive) and 326 in 4Q09 (22% exclusive). The 10 largest correspondent banks accounted for 35.8% and 31.3 our direct origination in 4Q10 and 2010, respectively CORRESPONDENTS BY REGION 4Q % % 21.2% 10.5% 17.5% Q09 3Q10 4Q10 MID-WEST NORTHEAST NORTH SOUTHEAST SOUTH We constantly review the performance of our correspondent banks with the aim of increasing both origination and quality. These correspondent banks utilize third parties and employees to reach the target public % INSS Other Agreement Average Commission 6.75% 8.16% 9.39% 8.80% 5.99% 6.24% 5.61% 5.94% 4Q09 3Q10 4Q10 The average commission paid to correspondents in 4Q10 was 6.2%, versus 6.0% in 3Q10 and 8.2% in 4Q09. The average commission paid in 4Q10 remains in line with the previous quarter, 23.5% lower in comparison with the same period in 2009, regardless of the 56.4% increase in origination, reflecting the measures taken in previous quarters with our correspondent base with the purpose of increasing their efficiency. In the middle-market segment, the distribution network is organized in the form of Banco Cruzeiro do Sul's own commercial platforms located in the cities of São Paulo, Ribeirão Preto, Rio de Janeiro, and Goiânia, and is composed of 106 active clients. Agreements with Government Entities In 4Q10, this sales team had at its disposal 380 agreements (codes), 157 of which were federal, 111 state and 112 municipal. These agreements involved permission to offer paycheck-deductible personal loans to approximately 3,000 government entities at the federal, state and municipal levels, including the INSS social security system. Between 3Q10 and 4Q10, eight new government entities were added to our agreement network and 24 were added in the year. 17

18 Q09 3Q10 4Q10 The 20 largest agreements with government entities accounted for 68.6% and 66.3 our direct origination in 4Q10 and 2010, respectively. The approval of new agreements with municipal, state and federal entities to offer paycheckdeductible loans to public employees is formalized in strict observance of all applicable regulations. The process includes all necessary measures to minimize any risks (legal, image and operational). These procedures aim to avoid any problems that could emerge regarding the linking of loans to the payroll accounts of each government entity. Accordingly, three pillars are observed in these processes: 1. If the entity falls under the scope of the tax liability law (Supplementary Law 101 dated May 4, 2000); 2. If the entity is authorized by law to permit the linking of obligations owed under the loan agreement to the payroll accounts of its employees, duly approving and encompassing paycheck-deductible loan operations to government workers; 3. If the entity has an IT platform compatible with the operation of loan agreements over the internet. Sustainability Project and Social Policies Banco Cruzeiro do Sul is aware of the importance of social responsibility, as well as of growth and sustainable development. For years, it has been providing assistance to sports and cultural activities, as well as philanthropic assistance to needy children and the elderly, provided incentives to artistic and cultural entities, as well as environmental conservation projects. In light of its commitment to reduce and compensate for CO2 emissions in unique manner, in 2010 Banco Cruzeiro do Sul entered into an alliance with the Ecoar Institute, a Public Interest Civil Society Organization (OSCIP), and with Sport Club Corinthians Paulista to launch the Playing for the Environment program. Under the program, in the club s centenary year, 100 trees will be planted for every soccer game and another 100 trees for each goal scored. The program is also open to employees and club fans, focusing on the aspects of compensation for greenhouse gas emissions, selective trash collection and environmental education. A total of 23,000 seedlings were planted in the year under the project. In addition, more than 4,100 seedlings were planted as part of carbon neutralization of the club and the Bank. The trees planted form the Corinthians Banco Cruzeiro do Sul Forest Reserve, a 103,000 sq. m. area located in Salto de Pirapora, in the interior of São Paulo. 18

19 Awards In May 2010, Banco Cruzeiro do Sul won the Agência Estado Empresas 2010 (Agencia Estado Business 2010 Achievement Award), which awards Brazil s ten top publicly traded companies. The award is a mark of distinction and one of the main indicators of excellence for companies in Brazil's investment market in Banco Cruzeiro do Sul was chosen from among 200 organizations, through a survey conducted by Agência Estado in partnership with Economática and the audit company KPMG, as one of the companies with the best performance for investors in The award came less than three years after Banco Cruzeiro do Sul's IPO in July People Management To advance our growth strategy, the People Management Department works to ensure that attitude and postures are effectively aligned with the organization s values: Result-oriented focus with accountability Commitment to the client Efficiency and effectiveness Entrepreneurism and agility Professionalism Ethical behavior Team spirit Respect for individuals In this light, the department drafts and updates its policies with a view to valuing, motivating, retaining and attracting human capital, and developing experienced professionals in their various areas of specialization. To achieve this, it developed, among other initiatives, the Internal Profit Sharing Program (PLR PLUS), which is in addition to the profit-sharing program established under the collective bargaining agreement, and is based on: Performance evaluations; Recognizing and promoting competencies; Professional dedication; Identification of areas that require attention; During the quarter we launched the Health and Quality of Life Program for employees and their family members, and offered lectures, training sessions and a healthcare plan with 1,691 beneficiaries. In 4Q10, Banco Cruzeiro do Sul had 736 employees, an increase of 4.8% on 3Q10 (702) and 18.3% on 4Q09 (622). The increase in the number of employees is due to operational adjustments to the new market conditions and to the growth in paycheck-deductible loan origination. Management of Market Risk In compliance with CMN Resolutions 3,464/07 and 3,354/06, Banco Cruzeiro do Sul has a special structure for managing the market risks of its operations. 19

20 We are also complying with CVM Instruction 474/08 by disclosing sensitivity analyses of our asset and liability positions and exposures, according to the Explanatory Note Sensitivity Analysis. The result of the market-risk analyses are discussed periodically in the Risks and Liquidity Committee, which evaluates primarily if the level of risk assumed by the operating areas are aligned with the operating limits pre-approved by Senior Management. Management of Operational Risk In compliance with CMN Resolution 3,380/06, Banco Cruzeiro do Sul has an Operational Risk Management Policy and a single structure for the entire Group to manage operational risks. The results of the studies conducted by the teams involved in the operational risk process are evaluated by the Risk and Liquidity Committee and by the Board of Directors and, if applicable, corrective or preventative measures are implemented to remedy the points raised. Also, in compliance with said Resolution, the Cruzeiro do Sul Group adopted the Basic Indicator Approach to calculate the portion of the Required Reference Capital (RRE) relating to operational risk (POPR Installment). Ombudsman Our ombudsman has the duty of representing the clients who use the bank s products and services. Accordingly, the Bank s Management assures that all of the conditions needed for the department to operate are guided by transparency, independence and impartiality when dealing with clients and accessing the required information. Audit Committee The Audit Committee of Banco Cruzeiro do Sul S.A., which was constituted under the terms of Article 34 of the Bank s Articles of Incorporation, elected in accordance with minutes of the annual and special shareholders meetings held on April 23, 2008, and installed on November 3, 2008, is a statutory body composed of three independent members with a one-year term of office, as determined by Resolution 3,198 of May 27, 2004, of the National Monetary Council (CMN). The members of the Audit Committee were reelected in accordance with the minutes of the Board of Directors meeting held on May 7, 2010 and were invested in office on August 2, 2010 with a term of office until the first Board of Directors meeting to be held after the annual shareholders meeting of The committee s composition, attributions and rules of conduct were established in accordance with the regulations issued by the Brazilian Central Bank and are governed by the Bank s Articles of Incorporation and by the Operational Rules of the Audit Committee, which were approved by the Company s Board of Directors. The Bank s Audit Committee is currently composed of the following members: Gilberto Braga, Miguel Vargas Franco Netto and Paulo Roberto Barral. 20

21 Implementation of the International Financial Reporting Standards (IFRS) at Banco Cruzeiro do Sul Resolution 3,786/09 of the National Monetary Council (CMN) and Official Letter 3,472/09 of the Brazilian Central Bank (BACEN) set forth that financial institutions and other institutions authorized to operate by the Central Bank and that are incorporated as publicly held companies or that are obligated to establish an Audit Committee must, as of December 31, 2010, prepare their annual consolidated financial statements in compliance with the International Financial Reporting Standards (IFRS), observing the international pronouncements issued by the International Accounting Standards Board (IASB). BACEN S Circular Letter 3,516/10 extended the period for disclosure of the IFRS Financial Statements related to fiscal year 2010 to 120 days. Based on the regulatory aspects, the management of Banco Cruzeiro do Sul implemented the IFRS Project. This project is designed to align the new requirements with corporate governance initiatives that seek i) the continuous improvement of the internal controls environment and ii) greater transparency in the group s management. The main impacts on Banco Cruzeiro do Sul s financial statements are described in Note 25e. As a result of this project, the consolidated financial statements of the Cruzeiro do Sul Conglomerate with a base date of December 31, 2010, will be presented in compliance with the international standards, in comparison with the base date of December 31, In compliance with Official Letter 3,435/10, Banco Cruzeiro do Sul s management will prepare the opening balance sheet for the base date of January 1, The following CMN resolutions have received some CPCs that are already causing an impact on the individual statements of financial institutions: Resolution 3,566/08 Asset Impairment; Resolution 3,604/08 Cash Flow Statement; Resolution 3,750/09 Disclosure of Related Parties; and Resolution 3,823/09 Provisions, Contingent Liabilities and Contingent Assets. As the Brazilian Central Bank (BACEN) approves the other pronouncements, the asymmetries between the financial statements prepared to meet BACEN s requirements and those prepared according to international standards will be eliminated, so that the criteria used for the individual financial statements and consolidated financial statements will be identical. 21

22 4Q10 4Q10 and and STATEMENT OF INCOME (R$ 000) Statement of Income (R$ '000) 4Q10 3Q10 4Q10 x 3Q10 4Q09 4Q10 x 4Q x 2009 Financial operations income 398, , % 325, % 1,473, , % Loans 317, , % 232, % 1,134, , % Securities income 132, ,675 (2.3%) 103, % 482, ,604 (1.4%) Derivative financial instruments (61,672) (117,683) (47.6%) (10,530) 485.7% (167,583) (243,871) (31.3%) Foreign exchange operations 9,795 10,484 (6.6%) , Financial operations expenses (186,020) (84,218) 120.9% (141,471) 31.5% (622,132) (427,321) 45.6% Deposits, money market and interbank funds (162,104) (71,954) 125.3% (94,595) 71.4% (519,194) (149,210) 248.0% Borrowings and repass (904) (1,017) (11.1%) (84) 976.2% (3,393) (84) % Foreign exchange operations (2,988) (100.0%) - (18,443) (100.0%) Sale or trasfering of financial assets operations (6,621) (11,360) (41.7%) (33,300) (80.1%) (70,047) (224,065) (68.7%) Allowance for doubtful loans (16,391) 113 ( %) (10,504) 56.0% (29,498) (35,519) (17.0%) Gross income on financial operations 212, ,765 (7.6%) 183, % 850, , % Other operating income/(expenses) (142,677) (158,251) (9.8%) (127,007) 12.3% (591,942) (395,595) 49.6% Service income 3,143 3, % 2, % 12,105 10, % Bank fees income % % 1,718 3,043 (43.5%) Personnel expenses (31,592) (26,475) 19.3% (30,980) 2.0% (110,296) (96,909) 13.8% Other administrative expenses (55,615) (59,774) (7.0%) (41,949) 32.6% (215,395) (158,598) 35.8% Tax expenses (9,456) (7,995) 18.3% (5,091) 85.7% (31,013) (21,363) 45.2% Equity in income of subsidiaries 171 2,340 (92.7%) 4,742 (96.4%) 1,338 15,263 (91.2%) Other operating income 1,139 4,012 (71.6%) 4,997 (77.2%) 11,204 24,566 (54.4%) Other operating expenses (51,293) (73,804) (30.5%) (61,874) (17.1%) (261,603) (172,386) 51.8% Operating results 69,667 71,514 (2.6%) 56, % 258, , % Non operating results (130) 1,199 (110.8%) before income taxes 69,725 71,514 (2.5%) 56, % 258, , % Income tax and social contributions (15,666) (26,266) (40.4%) (12,672) 23.6% (76,498) (21,142) 261.8% Provision for income tax (11,184) (10,781) 3.7% (15,005) (25.5%) (37,873) (68,116) (44.4%) Provision for social contribution (6,095) (6,337) (3.8%) (9,002) (32.3%) (21,613) (40,869) (47.1%) Deferred tax assets 1,613 (9,148) (117.6%) 11,335 (85.8%) (17,012) 87,843 (119.4%) Profit sharing - Employees (23,046) - - (2,717) 748.2% (30,806) (26,998) 14.1% Net profit/(loss) for the period 31,013 45,248 (31.5%) 41,144 (24.6%) 151,533 81, % Interest on own capital 15,700 15,800 (0.6%) 15, % 63,140 63,400 (0.4%) 22