Banco do Brasil MD&A 4Q12

Transcription

1 MD&A 4Q12

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

92 Chapter 9 Administrative Expenses In the twelve months view it is worth to highlight the effect of the accounting of Banco Patagonia (2011/April) and Mapfre Group (2011/June) expenses and the acquisition of the right of use of Banco Postal network (2012/January). These items increased by R$ 719 million the other administrative expenses. Disregarding this impact the twelve months flow growth of other adminstrative expenses would be 8.5%. It is worth to say that BB maintains a tight expenses control program, which offset partially the increase observed. Table 125. Other Adminstrative Expenses Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Other Administrative Expenses (3,012) (3,122) (3,288) (10,809) (12,417) 14.9 Telecommunications and Data Processing (556) (543) (574) (2,022) (2,224) 10.0 Amortization and Depreciation (331) (340) (232) (30.1) (31.9) (1,293) (1,271) (1.7) Security. Guard and Transport Services (450) (532) (536) (1,622) (2,056) 26.8 Expenses w ith Premises and Equipment (448) (471) (517) (1,625) (1,896) 16.7 Advertising and Public Affairs (263) (170) (239) (9.2) 40.8 (683) (724) 5.9 Expenses w ith Outsourced Services (525) (617) (671) (1,974) (2,436) 23.4 Other Administrative Expenses (439) (449) (520) (1,590) (1,811) Service Network Since January 1st, 2012, the Banco Postal service network, with over 6,000 points, joined the MaisBB network of banking agents. With this partnership the service network of Banco do Brasil was in 5,425 Brazilian municipalities in December 31, 2012, representing 97% of the total Brazilian municipalities. Banco do Brasil has partnerships to share automated teller machines (ATMs) and to use the lottery network where is possible to make withdraws, deposits, payments, besides other services. These partnerships consolidate the sprayed and national distribution network of Banco do Brasil. Table 126. Service Network Distribution Channel Situation Dec/11 Sep/12 Dec/12 On Dec/11 On Sep/12 Branches 5,263 5,339 5, SAA (Selfservice Rooms) 4,919 4,936 4, Services Posts 8,583 8,747 8, Subtotal 18,765 19,022 19, MaisBB Netw ork 14,232 20,481 17, (12.5) Banking Agents 14,232 14,286 11,719 (17.7) (18.0) Banco Postal - 6,195 6, Shared Distribution Channels Chg. % CEF - lottery stores 10,993 11,732 12, Banco 24h 11,566 11,801 12, ATM: BRB + CEF 1,975 2,241 2, Subtotal 24,534 25,774 27, Total 57,531 65,277 64, (1.7) BB has the largest branches chain of Brazil. The following table shows the distribution of the branches chain per region of the country. Table 127. Network of Branches by Region BB Banking Industry Share % North 311 1, Northeast 1,159 3, Middle West 477 1, Southeast 2,356 11, South 1,059 4, Total 5,362 22,

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

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

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

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

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

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

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

100 Liabilities Assets Chapter 10 Risk Management Figure 30. Net Position of BB Consolidated R$ billion - 12/31/ ,09% 218,2 0,86% 9,8-0,1-0,01% -2,9-41,7-0,25% -3,64% -55,2-4,83% -128,2-11,21% FIXED PRICE INDEX TJLP US$ / GOLD W/O INDEX CDI / TMS / FACP IRP/TBF/TR Statement of Repricing Profile of Interest Rates Below is presented a table containing the inventory of operations sensitive to the variations in the interest rates, allocated by risk factor and by indexation term of interest rate, of BB Consolidated: Table 136. Repricing Profile of Interest Rates R$ million - 12/31/2012 Assets < 1 Mo 1 > 3 Mo 3 > 6 Mo 6 > 12 Mo 1 > 3 Yrs > 3 Yrs Total Fixed 201,391 39,873 62,476 56, ,334 67, ,689 CDI/TMS 201, ,305 TR/TBF/IRP - 78, ,857 Price Index - 12, ,615 TJLP 1,609 28, ,439 US$/ME 53,059 28,355 24,657 16,342 21,818 57, ,023 Total - Assets 457, ,530 87,133 72, , ,997 1,055,927 Passivos Fixed¹ 150,394 18,930 32,313 20,422 42,573 47, ,528 CDI/TMS 256, ,554 TR/TBF/IRP - 207, ,088 Price Index - 2, ,752 TJLP 1,215 29, ,493 US$/ME 55,140 17,466 25,910 18,286 27,355 60, ,876 Total - Liabilities 463, ,514 58,223 38,708 69, ,614 1,014,291 Gap (5,940) (86,984) 28,910 34,044 55,223 16,382 41,636 Cumulative Gap (5,940) (92,925) (64,015) (29,970) 25,253 41,636 Cumulative Gap as % Assets (Earning Assets) -1.3% -46.1% 33.2% 46.8% 44.1% 13.1% 3.9% 1 - The total of checking account deposits in pre-indexed liabilities (R$ 60.4 billion) are considered. 99

101 Banco do Brasil MD&A 4Q Liquidity Risk Liquidity risk is defined as an occurrence of imbalances between marketable assets and enforceable liabilities - "mismatchings" between payments and receipts - that may affect the payment capacity of the institution, taking into account the different currencies and settlement terms of their rights and obligations. The Banco do Brasil considers the risk of liquidity risks associated with the solvency, liquidation and systemic. Banco do Brasil maintains levels of liquidity apropriate for the institution's commitments assumed in Brazil and abroad, resulting from its broad and diversified depositor base and the quality of its assets, the capillarity of its network of overseas branches and its ability of access to the international capital market. Stringent control over liquidity risk is in accordance with the Market and Liquidity Risk Policy established for the Conglomerate, fulfilling the requirements of national banking supervision and of the other countries where BB operates. The liquidity risk management of Banco do Brasil separates liquidity in Reais from liquidity in Foreign Currencies. For this purpose, it uses the following tools: I Projections of Liquidity; II Stress Test; III Liquidity Risk Limits; VI Liquidity Contingency Plan. Liquidity risk management tools are periodically monitored and reported to the Strategic Committees of the institution. The liquidity risk limits currently used in the Banco do Brasill are the Liquidity Reserve, applied to the short-term liquidity risk, and the Availability of Free Funds Indicator (DRL), dedicated to the management of liquidity risk for medium and long term. The figure below presents the monthly monitoring of the Liquidity Reserve in Local Currency of BB in the last day position of the month. Figure 31. Liquidity Reserve in Local Currency (Last Business Day) Dec/11 Jan/12 Feb/12 Mar/12 Apr/12 May/12 Jun/12 Jul/12 Aug/12 Sep/12 Oct/12 Nov/12 Dec/12 Average Liquidity Liquidity Reserve The figure below presents the monitoring of the Liquidity Reserve in Foreign Currency of BB. 100

102 Chapter 10 Risk Management Figure 32. Liquidity Reserve Foreign Currency (Last Business Day) Dec/11 Jan/12 Feb/12 Mar/12 Apr/12 May/12 Jun/12 Jul/12 Aug/12 Sep/12 Oct/12 Nov/12 Dec/12 Average Liquidity Liquidity Reserve In June 2012, the management of liquidity risk started to use new way of consolidation of the variables that make up the Foreign Currency Liquidity. This consolidation takes into account the risk of transfer of foreign currency resources abroad to Brazil and the order way around, which reduced the volatility of the series and, consequently, resulted in a decrease in the amount of the Liquidity Reserve in Foreign Currency. The indicator of the Availability of Free Funds (DRL), another liquidity risk limit used by BB, aims to guarantee a balance between funding and investment of resources from the commercial portfolio of the internal area and to ensure the financing of Liquidity in local currency with commercial and structural resources. The limit of DRL, defined annually by the Global Risk Committee (CRG) according to the funding and commercial investment goals, is the parameter used in the planning and in the execution of the institution's budget and its monitoring is performed on a monthly basis In 2012, the composition of products used in the calculation of DRL was reevaluated in order to identify transactions with financial characteristics aligned with the goals of the indicator is not contemplated and improve the management of liquidity risk medium and long term. Changing the composition of the index resulted, primarily, from the inclusion of large volume of securities purchased with the purpose of lending not classified credit in the non-trading portfolio that CMN Resolution 3,464. The improvement of the DRL composition enabled that CRG approved a salary lower limit for the year 2012, assuming the scaling of values for the gradual achievement of this limit. 101

103 Banco do Brasil MD&A 4Q12 Figure 33. DRL Indicator Dec/11 Jan/12 Feb/12 Mar/12 Apr/12 May/12 Jun/12 Jul/12 Aug/12 Sep/12 Oct/12 Nov/12 Dec/12 DRL Monthly DRL Limit Due to the seasonality observed on January and February 2012 regarding funding and investments, it was not possible to meet the scale of values for the period. However, from March on, the curve of the budget execution indicates the adequacy of the DRL indicator limits. In the last quarter of the year, due to the interest rate reduction movement conducted by BB, and increasing credit operations, it was necessary to reevaluate the limit of the DRL indicator (availability of free resources). This change, combined with the new funding strategy, allowed BB to achieve the defined businesses objectives, maintaining the balance between sources and uses of commercial resources. Such measure allows the Bank to perform the management of its assets and liabilities without impairing its net liquidity, which remains at comfortable levels, as shown in the Liquidity Reserve in Local Currency figure of this chapter. It is highlighted that the maintenance of liquidity in domestic and foreign currencies, above their limits of Liquidity Reserve, enables the implementation of the strategic planning of BB at a comfortable level of risk exposure liquidity Operating Risk Operating risk represents the possibility of loss resulting from faults, deficiencies, or the inadequacy of internal processes, personnel and systems, or derived from external events. This definition includes the possibility of losses arising from legal risks associated to the inadequacy or deficiency in contracts entered into by the institution, as well as penalties due to non-compliance with legal provisions and indemnities for third party damages arising from activities developed by the institution. In quantitative terms, the table below presents the behavior of the BB consolidated operating losses by categories of loss events. The BB has to consider the constitutions/reversals of provisions - notably for contingent liabilities - total calculated operational losses for categories Labor Issues and Failures in Business as normative guidance of the Central Bank of Brazil. 102

104 Chapter 10 Risk Management Table 137. Breakdown of Operational Loss (%) Loss Event Category 4Q11 1Q12 2Q12 3Q12 4Q12 Labor Issues Business Failures External Fraud and Theft¹ Physical Assets Damage Internal Frauds System Failures Activities Interruption Process Failures Total The category External Fraud and Theft, by characteristics of the loss events that it consolidates, is managerially sensitized by releases made before of the calculation on a monthly basis, so the percentages may vary in previous periods. The percentage values presented in the table above represent the position at December, 31st In compliance with Resolution CMN 3,380 and with the requirements of Basel II, there was a review of specific policies associated with operational risk, which were approved by the Board of Directors in December Banco do Brasil uses many risk management instruments, and periodically monitors operating loss, in order to adopt mitigation measures. Refining this model, Banco do Brasil developed an operational risk identification methodology applied to the mapping of its organizational processes, enabling the identification of possible operating losses prior to their effective materialization. Satisfying the minimum requirements of the Notice of Public Hearing Bacen no. 39/2011, in the last quarter, BB reviewed its operational risk management structure and started a management tool acquisition process. These changes afforded the review of the plan for candidature to the use of internal models for allocation of capital to operational risk. 103

105 Banco do Brasil MD&A 4Q Capital Structure The BIS ratio was determined according to the criteria established by CMN Resolutions 3,444/2007 and 3,490/2007, which address the calculation of Referential Equity (RE) and of Required Referential Equity (RRE), respectively. The information relating to Banco Votorantim (BV) are consolidated by the Equity Method (EM). Performance Banco do Brasil ended December 2012 with Reference Equity of 34.1% higher than the observed in the same period of the previous year, reaching R$ 107,925 million. Table 138. BIS Ratio Economic-Financial Conglomerate¹ R$ million Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Reference Equity (RE) 80,482 84,932 91, , ,925 Tier I 60,615 65,183 67,905 72,724 76,769 Capital 33,123 33,123 33,123 33,123 48,400 Reserves² 24,126 23,945 27,416 27,035 16,137 Reavaluation reserves (5) (5) (5) (5) (5) Mark-to-Market Securit. And Derivatives ,238 1,561 1,420 Treasury shares (0) - - (162) (461) Accumulated Earnings or Losses Corporate Profit Sharing Income accounts - 1,662-1,910 - Tax Credit excl. RE's Tier I Res.3059 (0) (0) (0) (0) - Deferred Assets (165) (142) (128) (114) (111) Mark-to-market (351) (413) (586) (833) (701) Additional Provision Hybrid Capital and Debt Instruments - Tier I 2,719 5,692 6,315 9,572 11,515 Tier II 24,878 24,598 28,751 32,894 36,074 Subordinated debt 24,522 24,180 28,160 32,057 32,401 Revaluation reserves Mark-to-market Hybrid Capital and Debt Instruments - Tier II ,969 Deduction from the RE (5,011) (4,849) (5,503) (5,323) (4,919) Financial Instruments Excluded from RE (5,011) (4,849) (5,503) (5,323) (4,919) RSE/RRE 63,326 65,528 70,497 74,469 80,035 Credit Risk³ 59,802 61,472 66,494 70,520 76,077 Market risk⁴ Operating Risk⁵ 3,433 3,876 3,876 3,751 3,751 Surplus/(insufficiency) of RE 17,156 19,403 20,654 25,826 27,890 K Coefficient % The information and book balances of BV are no longer included in the statements of limits of risk management and in the calculation basis of the BB's BIS Ratio, retroactive to 9/30/ Referring to the RWAE portion pursuant to circular 3,360 of 9/12/ Referring to the PCAM, PJUR, PCOM and PACS portions, Circulars 3361 to 3364/2007, 3366/2007, 3368/2007 and 3389/ Referring to the POPR portion, pursuant to circular 3,383, of 4/30/2008. On January/13, Banco do Brasil issued subordinated bonds abroad in the amount of US$ 2.0 billion, and issued R$ 5.2 billion subordinated financial letters in the domestic market. These issuances, when approved by Bacen (Central Bank of Brazil), will be classified as Tier II capital by BB, resulting in an increase of 128 base points over BB s Basel Ratio of December BB's RRE reached the sum of R$ 80,035 million in December 2012, an increase of 26.4% in comparison to December The major part of the requirement was caused by the credit risk portion (RWAE), which reflects mainly the growth of loan operations. The following table presents the main variations in the RWAE quota accounts in the fourth quarter of 2012, in relation to the same 2011 period, considering the Economic-Financial Consolidated: 104

106 Chapter 10 Risk Management Table 139. Main Accounts of the RWAE Quota (Economic-Financial Conglomerate) Chg. % R$ million Dec/11 Sep/12 Dec/12 On Dec/11 On Sep/12 Loan Operations 35,538 43,147 47, Other Credits (gold, advances to FGPC, other advances) 8,207 9,121 9, Securities and Derivatives 3,762 3,267 3,584 (4.7) 9.7 Loans to release 1,775 1,836 2, Permanent 2,951 2,989 3, Other 7,569 10,160 9, (2.1) TOTAL 59,802 70,520 76, Considering market risk, we present in the following table the Required Referential Equity in December 2012, by risk factor. Table 140. RRE for Market Risk by Risk Factor R$ million Risk Factors Dec/11 Sep/12 Dec/12 On Dec/11 On Sep/12 RRE FX RRE Interest Rate RRE Commodities (35.0) 6.5 RRE Shares (11.0) (13.9) RRE Market Risk¹ Includes positions of BNC and BB's stake in BV's positions. Chg. % To calculate the portion of Capital Operational Risk Factory (POPR), Banco do Brasil uses the Alternative Standardized Approach provided by the Central Bank of Brazil Circular No 3,383/2008. The value of POPR, segregated by lines of business, is complemented by additional plots, explained in the line "subsidiaries and affiliates in the country and abroad" which result is driven to the change of the investment value of BB in non-financial companies plus the value of the stake in Banco Votorantim. The current POPR, obtained by the average amount on a six half period, that ended with the balance of June, 30 th 2012, is being complied with its respective capital allocation, monthly, during the period of July to December Table 141. Allocated Capital for Operational Risk by Business Line Business Line Amount (R$ million) Share % Asset Management Subsidiaries and Affiliates in the Country and Abroad Commercial 1, Retail Brokerage Corporate Finance Trading and Sales 1, Payments and Settlements Financial Agent Services Retail TOTAL 3,

107 Banco do Brasil MD&A 4Q12 Table 142. Risk Weighted Assets Exposures and RWAE (position 12/31/2012) R$ million RWA Sep/12 Dec/12 Sep/12 Dec/12 Available Founds Short-term Interbank Investments Securities and Financial Derivatives Interbank Accounts Loans Leasing Outros Direitos Other Assets Permanent Assets Risk Weighted Assets Exposure¹ RWAE² 20% % 5, % % 11,458 14,815 1,260 1, % 20,201 22,956 2,222 2,525 50% 2,781 2, % 26,921 29,835 2,961 3,282 20% % % 819 1, % % % 97, ,666 10,735 11, % 234, ,212 25,786 28, % 13,903 15,014 1,529 1, % 45,607 55,578 5,017 6,114 75% % % % 1,840 3, % 8,582 10, , % 72,493 73,987 7,974 8, % % 4,431 3, % 27,172 27,359 2,989 3,009 Credit Commitment non-cancellable unconditionally and unilaterally by the Institution Advance payment granted by the Institution Guarantees provided Tax Credits Operations to settle of foreign currency, gold or securities purchase in the cash market Operations to settle of foreign currency, gold or securities sale in the cash market 50% % 8,344 8, % 7,545 8, % % % 13,316 10,543 1,465 1,160 20% % % % 12,187 12,531 1,341 1, % 21,017 20,094 2,312 2, % 7,260 6, % % % % Assets deducted from the RE to be deducted from the RWAE -100% (5,437) (5,029) (598) (553) -300% (0) - (0) - Total 641, ,605 70,520 76, Sum of products of the respective Risk Weighted Assets exposures, adjusted by the Conversion Factor. 2 - Risk Weighted Assets Exposure multiplied by

108 Banco do Brasil MD&A 4Q Strategic Investments 11.1 Informations of Subsidiaries and Affiliates Table 143. Interest in the Capital of Subsidiaries and Affiliates of the BB Banco Múltiplo Eq u ity S h a re - % B o o k V a lu e In c o me A c tivity D e c / 12 D e c / 11 D e c / C o n so lid a te d Eq u ity In te re sts B a n kin g S e g me n t Banc o do Brasil AG. Viena Banking (1) , , ,06 7 BB Leasing S.A. Arrendamento Merc antil Leasing (1) ,453,732 3,550, ,13 9 BB Leasing Company Ltd. Leasing (1) , ,12 6 1,518 BB Sec urities Asia Pte. Ltd. Brokerage (1) ,891 9,200 (482) BB Sec urities LLC. Brokerage (1) , ,919 15,42 5 BB Sec urities Ltd. Brokerage (1) , ,17 0 9,517 BB USA Holding Company, Inc. Banking (1) ,734 2,127 (853) Brasilian Americ an Merc hant Bank Holding (1) , ,82 9 8,14 4 Besc DTVM S.A. Asset Management (1) ,12 7 7, Banc o Patagonia S.A. Multiple Bank (1) , , ,218 Banc o Votorantim S.A. Multiple Bank (2) ,504,357 3,811,149 (877,731) EuroBank Banking (1) ,00 1 (12,89 7 ) In ve stme n t S e g me n t BB Banc o de Investimento S.A. Investment Bank (1) ,815,300 2,676,091 1,12 4,34 7 S e g me n t o f F u n d M a n a g e me n t BB DTVM S.A. Asset Management (1) , , ,48 1 S e g me n t o f In su ra n c e, P riva te P e n sio n F u n d, a n d C a p ita liz a tio n ¹ BB Seguros Partic ipaç ões S.A. Holding (1) ,887, ,65 6 BB Corretora de Seg. e Adm. de Bens S.A. Brokerage (1) , ,10 2 BB Seguridade S.A. Holding (1) ,468,031 - S e g me n t o f P a yme n t M e th o d s BB Adm. de Cartões de Crédito S.A. Servic e Rendering (1) , , ,09 7 BB Elo Cartões Partic ipaç ões S.A. Holding (1) ,843 15,031 (3,812 ) BB Elo Partic ipaç ões S.A. Holding (2) Elo Serviç os S.A. Servic e Rendering (2) O th e r S e g me n ts BB Administradora de Consórc ios S.A. Consortiums (1) , , ,88 7 BB Tur Viagens e Turismo Ltda. Tourism (1) ,579 10,497 (1,188) BB Money Transfers Inc. Servic e Rendering (1) ,903 2,464 (934) Cobra Tec nologia S.A. IT (1) , , ,93 4 BV Partic ipaç ões S.A. Holding (2) , ,18 6 (3 8,23 7 ) 1 - On 12/17/2012 was approved the creation of the BB Seguridade, Holding that control Insurance business at the Bank. Up to the end of 2012 was held in the Multiple Bank the equivalence result of BB Seguros e Participações SA and BB Corretora de Seg. e Adm. De Bens S.A, having been migrated to the new Holding just the investment balances. (1) Subsidiaries fully included in the accounting consolidation. (2) Joint ventures proportionately included in the accounting consolidation (3) Affiliates companies proportionately included in the accounting consolidation as defined by Central Bank of Brazil. 107

109 Chapter 11 Strategic Investiments Table 144. Interest in the Capital of Subsidiaries and Affiliates of the BB Banco de Investimentos Eq u ity S h a re - % B o o k V a lu e In c o me A c tivity D e c / 12 D e c / 11 D e c / C o n so lid a te d Eq u ity In te re sts In ve stme n t S e g me n t Kepler Weber S.A. Industry (2) , ,66 8 4,50 8 Companhia Brasileira de Sec urit. Cibrasec Credit Ac quisition (3) ,14 4 9, Neoenergia S.A. Energy (2) ,325,228 1,386, ,64 3 S e g me n t o f In su ra n c e, P riva te P e n sio n Seg. Brasileira de Créd. à Exportaç ão SBCE Insuranc e Company (3) ,85 0 3, S e g me n t o f P a yme n t M e th o d s Cia Bras. de Soluç ões e Serv. CBSS Alelo Servic e Rendering (2) , , ,00 8 Cielo S.A. Servic e Rendering (2) ,287,667 1,470, ,73 6 Tec nologia Banc ária S.A. Tec ban Servic e Rendering (3) , ,25 9 5,83 8 O th e r S e g me n ts Ativos S.A. Sec uritizadora de Créd. Financ. Credit Ac quisition (1) , , ,14 4 (1) Subsidiaries fully included in the accounting consolidation. (2) Joint ventures proportionately included in the accounting consolidation (3) Affiliates companies proportionately included in the accounting consolidation as defined by Central Bank of Brazil. Table 145. Interest in the Capital of Subsidiaries and Affiliates of the BB Seguros S.A Eq u ity S h a re - % B o o k V a lu e Inc ome A c tivity D e c / 12 D e c / 11 D e c / C o n so lid a te d Eq u ity In te re sts S e g me n t o f In su ra n c e, P riva te P e n sio n Nossa Caixa Capitalizaç ão S.A. Capitalization (1) ,50 2 5, Brasilprev Seguros e Previdênc ia S.A. Insuranc e Company /Pension (2) , , ,97 6 Brasilc ap Capitalizaç ão S.A. Capitalization (2) , , ,86 4 BB Mapfre SH1 Partic ipaç ões S.A. Holding (2) ,015,815 1,920, ,37 6 Mapfre Vida S.A Companhia de Seguros Alianç a do Brasil Vida Seguradora S.A Alianç a Partic ipaç ões S.A Mapfre Partic ipaç ões S.A Insurance Company Insuranc e Company Insurance Company Holding Holding Mapfre BB SH2 Partic ipaç ões S.A. Holding (2) ,111,194 1,174,896 (36,134) Mapfre Seguros Gerais S.A Mapfre Affinity Seguradora S.A Mapfre Assistência S.A Brasilveículos Companhia de Seguros Aliança do Brasil Seguros S.A Alianç a REV Partic ipaç ões S.A Insuranc e Company Insuranc e Company Service Rendering Insurance Company Insurance Company Holding (1) Subsidiaries fully included in the accounting consolidation. (2) Joint ventures proportionately included in the accounting consolidation Table 146. Non-Consolidated Interest in the Capital of Subsidiaries and Affiliates S h a re - % B o o k V a lu e Eq u ity Inc ome A c tivity D e c / 12 D e c / 11 D e c / Eq u ity In te re st Mapfre Nossa Caixa Vida e Previdênc ia S.A¹ Insuranc e Company /Pension (4) , Cadam S.A. Mining (4) , ,99 9 5,78 3 Cia. Hidromineral Piratuba Sanitation (4) ,30 5 2,311 6 Itapebi Geraç ão de Energia Energy (4) , , ,97 2 Estruturadora Brasileira de Projetos - EBP Servic e Rendering (4) ,82 7 1, Consolidated - see note 2 on December 2012 (4) Affiliates companies accounted for by equity method International businesses The BB s strategic overseas positioning was aimed at wholesale and retail activities in favor of Brazilian immigrant communities, in funding Brazilian companies with business involving foreign trade and acting in the capital market. The conglomerate's actions are aimed at intensifying relations with international financial institutions, economic agents, and governments, in support of implementing transnational and binational projects. 108

110 Banco do Brasil MD&A 4Q12 In the United States, since October Banco do Brasil Americas works with products and services as savings and credit card. Focused on individuals, the institution currently has three branches located in Florida. In Europe, technological and business platforms are being restructured starting from the centralization of activities and transformation of BB branches into regional offices of the wholly-owned subsidiary of BB AG. Viena. The Bank has focused efforts in continuing to be the first bank for Brazilians at home and overseas, with capillarity to assist its customers everywhere. The table below presents the balance of mainly balance sheet accounts of units abroad (branches, affiliates and subsidiaries), including Banco Patagonia and EuroBank. The amounts related to operations between units abroad were eliminated and the line BB Group represents the balance operations between units abroad and the rest of the BB Group in the domestic market. Table 147. Balance Sheets Consolidated Abroad Chg. % R$ million Dec/11 Sep/12 Dec/12 On Dec/11 On Sep/12 ASSETS 85, , , Short -Term Interbank Investments 18,295 19,309 25, Marketable Securities 7,678 9,079 10, Securities for Trading 1, ,156 (11.0) 16.7 Securities Available for Sale 6,263 7,995 9, Securities Held to Maturity (18.4) 1.0 Loans 32,480 41,464 45, Public Sector 4,233 3,765 3,017 (28.7) (19.9) Private Sector 28,247 37,699 42, Other Assets 3,599 8,253 6, (27.2) BB Group 23,535 34,589 37, LIABILITIES 85, , , Deposits 29,247 38,867 40, Demand Deposits 4,353 4,632 4, (1.5) Time Deposits 14,503 23,357 23, Interbank Deposits 10,391 10,878 11, Funds From Accept and Securities Placed 13,227 18,145 22, Borrow ing 9,077 9,999 10, Subordinated Debt and Perpetual Bonuses 7,526 13,555 13, (0.3) Other Liabilities 8,542 6,847 6,921 (19.0) 1.1 BB Group 12,326 18,072 22, Shareholders Equity 5,642 7,210 7, Attributable to parent company 5,198 6,653 6, Participation of non-controlling Table 148. Results Consolidated Abroad Chg. % R$ million On 2011 Net Income (Losses) ,5 Attributable to parent company ,5 Participation of non-controlling , Banco Patagonia In April 2010, BB acquired the shareholding control of Banco Patagonia, from Argentina, through the acquisition of 51% of its capital. This business was a milestone in the internationalization process and the first step of the new operating model in promising markets. Subsequently, the Brazilian Central Bank authorized the BB to increase its participation in that bank up to 75% of its total capital through Public Offer (PO). The authorization was conceded by the Comisión Nacional de Valores da Argentina on August/2011 and the period from to , PO was made on the Stock Exchange of Buenos Aires. After the closing, in , Banco do Brasil now holds 58.96% of capital and voting of Banco Patagonia. 109

111 Chapter 11 Strategic Investiments The aim of the transaction was to expand the partnership with Brazilian and Argentine companies and diversify the products and services portfolio, seeking to potentialize customer service, expand the loan portfolio and operate in the value chain of the Corporate segment of Argentina, mainly in the Buenos Aires and Rio Negro provinces. The BB aims, with the acquisition, associate their experience in serving major Brazilian corporate groups with the expertise of the Banco Patagonia in operations with local companies, especially in the management of company payrolls, and also operates in the retail banking segment. We list below a selection of economic and structural indicators for Banco Patagonia, and income figures. Table 149. Banco Patagonia Key Income Figures Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q On 2011 Net Interest Income (21.3) Allow ance for Loan Losses (25) (62) (40) 59.7 (36.0) (45) (134) Fee income Administrative Expenses (136) (161) (164) (468) (626) 33.8 Others Income Before Taxes (1.7) (16.9) Taxes (69) (88) (67) (2.7) (24.1) (159) (270) 70.1 Net Income (1.0) (11.6) Table 150. Banco Patagonia Balance Sheet Items Balance Chg. % R$ million Dec/11 Sep/12 Dec/12 On Dec/11 On Sep/12 Assets 8,424 9,696 11, Loan Operations 5,099 6,504 7, Exposure to Public Sector (3.1) Deposits 5,924 6,805 7, Shareholders' Equity 1,082 1,357 1, Table 151. Banco Patagonia Operating and Structural Highlights Chg. % Dec/11 Sep/12 Dec/12 On Dec/11 On Sep/12 Clients 813, , , Bank Branches Branches in Buenos Aires Service Points Employees 3,133 3,234 3, (0.3) Table 152. Banco Patagonia Indicators on Returns, Capital, and Credit % 4Q11 3Q12 4Q12 Return on Equity Capital Adequacy Ratio (Basel) Provisions / Past Due Loans (+90 days) Past Due Loans (+90 days) / Loan Portfolio

112 Banco do Brasil MD&A 4Q Banco Votorantim 12.1 Banco Votorantim The partnership with Votorantim Finanças in the joint direction of Banco Votorantim, stared in September 2009, has a strategic orientation and long-term vision, and has made it possible for BB to explore business opportunities in a number of segments, namely: I) Development of the credit asset origination model ( BV Originadora BVO ): Banco Votorantim and BB have advanced in the structuring of a model of direct origination of credit assets to BB, the BVO, which will be focused on new car dealers and BB clients. Based on this new model, to be implemented in 2013, Banco do Brasil will improve the Bank s presence in dealers by expanding the origination potential for new businesses in the environment external to bank branches. II) Mais BB Project: BB and BV Financeira have built up their partnership in the consumer finance segment. BB relies on promoters, managed by BV Financeira, to offer the payroll loan, prepayment of 13 th salary and other products, within BB s branches, contributing to the increase in the bank s credit origination volume; III) Offering of investment products: BB and Banco Votorantim have been jointly operating in the development and distribution of innovative and customized Receivables Investment Funds (FIDCs), Real Estate Investment Funds (FIIs), Equity Investment Funds (FIPs) and Private Credit Funds. At the end of 2012, total funds related to this partnership was R$3.3 billion, managed by VAM Votorantim Asset Management. Fourth quarter highlight was BB Progressivo II, Real Estate Fund, comprised of 64 properties branches and commercial buildings rent to BB for a period of 10 years. Public offer of R$ 1.6 billion reached a demand higher than R$ 20 billion and counted with the participation of approximately 48 thousand investors; IV) Expansion of business of the Wholesale segment: deepening of the partnership in businesses related to large companies, focusing on credit origination, structured products, derivatives (hedge), and mandates for issues of shares and bonds in the international market; V) Expansion of distribution channels: BB obtains access to a wide network of outsourced distribution channels well developed: concessionaires, sales, promoters and stores of BV Financeira. The consolidation of BV financial statements in the financial statements of BB is proportional to BB's ownership interest in the total capital of BV. The assets and liabilities started to be consolidated since 3Q09 and the income statement accounts since the 4Q09. All figures presented below reflect 100% of Banco Votorantim balances, balance sheet accounts and income accounts. Further information can be obtained from the website of Investor Relations of Banco Votorantim ( Table 153. Balance Sheet Main Items R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 Total Assets 111, , , Securities and Financial Derivatives 26,733 35,487 37, Loans 58,726 58,079 56,955 (3.0) (1.9) Deposits¹ 25,625 18,373 15,454 (39.7) (15.9) Money Market Borrow ing 33,535 36,216 42, Shareholdes' Equity 7,824 8,829 8, (7.0) 1 - Except other deposits. Chg. % 111

113 Chapter 12 Banco Votorantim Table 154. Summarized Corporate Law Income Statement Quarterly Flow Chg. % 12 Months Flow Chg. % R$ million 4Q11 3Q12 4Q12 On 4Q11On 3Q On 2011 Financial Intermediation Income 3,138 3,214 3, ,016 13,914 (13.1) Loans 2,899 2,232 2,148 (25.9) (3.8) 11,092 9,181 (17.2) Leasing (28.5) (6.9) (22.8) Securities 771 1,081 1, ,858 4, Financial Derivatives (815) (264) (405) (50.4) 53.4 (1,198) (1,108) (7.4) Foreign Exchange Portfolio Compulsory Investments (86.4) (51.6) (62.1) Sale or Transference of Financial Assets Financial Intermediation Expenses (2,339) (2,046) (2,079) (11.1) 1.6 (11,035) (9,148) (17.1) Money Market Funds (2,218) (1,863) (1,872) (15.6) 0.5 (10,129) (8,252) (18.5) Borrow ing, Assignments and Onlending (121) (174) (145) 19.3 (16.7) (906) (808) (10.8) Sale or Transference of Financial Assets - (10) (62) (70) - Net Interest Income 799 1,168 1, ,981 4,766 (4.3) Allow ance for Loan Losses (1,097) (1,332) (1,066) (2.8) (20.0) (3,343) (5,423) 62.2 Net Interest Margin (298) (164) ,638 (657) - Other Operating Income (Expenses) (657) (626) (710) (1,955) (2,444) 25.0 Fee Income (0.6) ,247 1,035 (17.0) Personnel Expenses (209) (221) (279) (859) (978) 13.9 Other Administrative Expenses (433) (395) (443) (1,545) (1,572) 1.7 Taxes (150) (127) (129) (13.9) 1.5 (623) (478) (23.3) Equity Interest in Subsidiaries and Affiliates (0) (0) 70 - Other Operating Revenues (4.2) Other Operating Expenses (200) (194) (286) (438) (774) 76.7 Operating Income (955) (790) (503) (47.3) (36.4) (317) (3,101) Non-operating Income (85) (43) (24) (72.3) (45.4) (76) (139) 84.3 Income Before Taxes (1,040) (834) (527) (49.4) (36.8) (393) (3,241) Income and Social Contribution Taxes (40.3) (22.7) 561 1, Profit Sharing (85) (36) (120) (355) (363) 2.1 Net Income (643) (497) (358) (44.3) (28.0) (187) (1,988) Summary of the Results The consolidated results of BV were mainly impacted by the factors connected to Retail, with special emphasis on: I. Delinquency of vehicle portfolios originated from July/10 to September/11 with quality lower than historic average and still representing 48% of the vehicles portfolio (62% in December 2011); II. Effectiveness of BACEN Resolution 3,533 that changed rules of the credit concession market, thus impacting income of banks operating in this market; III. 45% reduction in volume originated by the Retail segment in 2012, in comparison with the amount recorded in 2011, to ensure quality and profitability of new credit vintage; and IV. Gradual rise in the managed portfolio of Retail. Even in view of these factors, consolidated income improved 28.0% in relation to the prior quarter, mainly due to the 34% decrease (R$ 397 million) in the allowance for loan losses (Retail PCLD and this is the third consecutive quarterly reduction. It is worth emphasizing two additional points: I. BV returned to report a positive net margin in the 4Q12 (R$ 205 million), which is the result of the effective adjustment process started in the 4Q11 and that will be completed in 2013; II. Administrative expenses added to personnel expenses recorded R$ 721 million in the 4Q12, 17% higher than the R$ 615 million recorded in the 3Q12. These expenses were impacted by the intensification of the Retail segment collection processes, the collective labor agreement, and expenses related to the restructuring process; In 2012, BV put forward the Change Schedule that gathers main strategic initiatives of the bank adjustment process that started in the 4Q11 and has full support from shareholders. 112

114 Banco do Brasil MD&A 4Q12 Change Schedule has three main fronts: I. New production: improvements in processes and credit models contributed to reduce light vehicles delinquency in the 4Q12 (September 2012: 9.2%, December 2012: 7.7%). In the 1S13, a new credit engine will be implemented to permit increase automatic decisions and expand BV credit model risk discrimination capacity, further reducing delinquency indicators; II. Treatment of inventory originated from July 2010 to September 2011: collection processes continued to improve with different actions per customer profile. In addition, coverage index of Retail credit transactions rose from 84% in September 2012 to 90% in December 2012; and III. Efficiency and Governance: besides attracting professionals with market experience and adequate the organizational structures to the new production threshold of Retail, BV continued acting in the refinement of internal controls and the implementation of operational improvements in Retail. Note that in the 4Q12, subsidiary BV Financeira changed recognition criterion for costs associated to loans and financing produced after the start of operation, as explained in detail in note 2 of BV financial statements. Table 155. Income Statement with Reallocations¹ Quarterly Quarterly Flow 3Q12 4Q12 Chg. % R$ million Corp. Law Reallocations Reallocated Corp. Law Reallocations Reallocated On 3Q12 Financial Intermediation Income 3,212 (47) 3,167 3,352 (116) 3, Loans 2,212 (46) 2,169 2,148 (114) 2,034 (6.2) Leasing (6.9) Securities 1,081-1,081 1,391-1, Financial Derivatives (264) (1) (265) (405) (2) (406) 53.2 Foreign Exchange Portfolio Compulsory Investments (51.6) Sale or Transference of Financial Assets Financial Intermediation Expenses (2,044) - (2,046) (2,079) - (2,079) 1.6 Money Market Funds (1,863) - (1,863) (1,872) - (1,872) 0.5 Borrow ing, Assignments and Onlending (174) - (174) (145) - (145) (16.7) Sale or Transference of Financial Assets (8) - (10) (62) - (62) Net Interest Income 1,168 (47) 1,120 1,273 (116) 1, Allow ance for Loan Losses (1,332) 46 (1,286) (1,066) 114 (951) (26.0) Net Interest Margin (164) (1) (166) 207 (2) Other Operating Income (Expenses) (626) (2) (628) (710) (2) (712) 13.3 Fee Income Personnel Expenses (221) - (221) (279) - (279) 26.2 Other Administrative Expenses (395) - (395) (443) - (443) 12.1 Taxes (127) 0 (126) (129) 0 (128) 1.6 Equity Interest in Subsidiaries and Affiliates Other Operating Revenues 36 (10) (29) Other Operating Expenses (194) 7 (188) (286) 26 (260) 38.6 Operating Income (790) (4) (794) (503) (4) (507) (36.2) Non-operating Income (43) - (43) (24) - (24) (45.4) Income Before Taxes (834) (4) (838) (527) (4) (530) (36.7) Income and Social Contribution Taxes (22.5) Profit Sharing (36) - (36) (120) - (120) Net Income (497) - (497) (358) - (358) (28.0) 1 - Reallocations refer to: (i) income from recovery of credits that were written-off to losses and credit expenses referring to the portfolio granted with coobligation, classified under line Credit Transactions, and reallocated to allowance for loan losses and (ii) foreign investments exchange variations, which were accounted for under Other Operating Income (Expenses) and reallocated to Income from Derivative Financial Instruments, as well as these investments hedging strategy tax effects. 113

115 Chapter 12 Banco Votorantim Table 156. Income Statement with Reallocations¹ Annual 12 Months Flow Chg. % R$ million Corp. Law Reallocations Reallocated Corp. Law Reallocations Reallocated On 2011 Financial Intermediation Income 16, ,176 13,914 (254) 13,660 (15.6) Loans 11, ,153 9,181 (331) 8,849 (20.7) Leasing (22.8) Securities 4,858-4,858 4,940-4, Financial Derivatives (1,198) 99 (1,098) (1,108) 77 (1,031) (6.1) Foreign Exchange Portfolio Compulsory Investments (62.1) Sale or Transference of Financial Assets Financial Intermediation Expenses (11,035) - (11,035) (9,148) - (9,148) (17.1) Money Market Funds (10,129) - (10,129) (8,252) - (8,252) (18.5) Borrow ing, Assignments and Onlending (906) - (906) (808) - (808) (10.8) Sale or Transference of Financial Assets (70) - (70) - Net Interest Income 4, ,142 4,766 (254) 4,511 (12.3) Allow ance for Loan Losses (3,343) (165) (3,507) (5,423) 331 (5,092) 45.2 Net Interest Margin 1,638 (4) 1,634 (657) 77 (580) - Other Operating Income (Expenses) (1,955) (77) (2,032) (2,444) (61) (2,505) 23.3 Fee Income 1,247-1,247 1,035-1,035 (17.0) Personnel Expenses (859) - (859) (978) - (978) 13.9 Other Administrative Expenses (1,545) - (1,545) (1,572) - (1,572) 1.7 Taxes (623) (3) (626) (478) (2) (479) (23.3) Equity Interest of Subsidiaries and Affiliates (0) - (0) Other Operating Revenues 263 (180) (143) Other Operating Expenses (438) 106 (332) (774) 84 (689) Operating Income (317) (81) (398) (3,101) 16 (3,085) Non-operating Income (76) (139) - (139) - Income Before Taxes (393) 22 (370) (3,241) 16 (3,224) Income and Social Contribution Taxes 561 (22) 538 1,616 (16) 1, Profit Sharing (355) - (355) (363) - (363) 2.1 Net Income (187) 0 (187) (1,988) 0 (1,988) Reallocations refer to: (i) income from recovery of credits that were written-off to losses and credit expenses referring to the portfolio granted with coobligation, classified under line Credit Transactions, and reallocated to allowance for loan losses and (ii) foreign investments exchange variations, which were accounted for under Other Operating Income (Expenses) and reallocated to Income from Derivative Financial Instruments, as well as these investments hedging strategy tax effects. Net Interest Income Financial intermediation income increased 2.2% in relation to the 3Q12, mainly due to the increase in income from Securities transactions that was driven by the growth of income from structured transactions of the Corporate & Investment Banking (CIB) sector and good Treasury performance. In the accumulated income for 2012, income from financial intermediation decreased 15.6% in relation to the prior year, mainly due to the 20.7% reduction in income from credit transactions, which is the reflex of the decrease in credit granting transactions income. Note that subsidiary BV Financeira operates as an extension of BB for vehicle financing outside branch environment and that, until December 2011, BV Financeira carried out frequent credit granting with co-obligation transactions with BB, recognizing income from these transactions upon granting as provided for in the law prevailing at the time. However, since January 2012, CMN Resolution no. 3,533 became effective, changing accounting rules for credit granting (with co-obligation) carried out beginning as of Under the new rules, the revenues from these operations, should be appropriated over the remaining period of the contracts. Moreover, credits assigned with substantial retention of risk should remain recorded in full in the assets of the assignor (selling institution). This regulatory change impacted securitization market and income of banks operating in this market, in addition to being the main reason for the annual reduction recorded in the Bank s income from credit transactions. Note that Banco Votorantim remains responsible for expenses with credit granting and prepaid settlement of contracts granted with co-obligation. In 2012, expenses of R$ 394 million were recognized in comparison with R$ 726 million in 2011 referring to prepaid settlement of these contracts. Financial intermediation expenses grew 1.7% in relation to 3Q12. In the annual comparison, they decreased 17.1%, a decrease explained mainly by the reduction in basic interest rate (Selic) and in average balance of funds raised. 114

116 Banco do Brasil MD&A 4Q12 In the last years, Banco Votorantim managed to expand the average term of its funding, which contributed to the reduction of the maturity mismatch between assets and liabilities to very conservative and historically low levels. This fact, together with the slight retraction of credit portfolio in 2012, substantially reduced the need for additional funding. And in this favorable context, the Bank has acted to reduce its funding cost. In 2012, NIM presented a retraction of 60 base points in relation to prior year, mainly due to the reduction in credit granting income, which adversely affected gross financial margin (MFB). Table 157. Margin, net of interest and profit margin R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 Average Earning Assets (AEA) 109, , ,762 (2.4) 2.4 Average Interest Bearing Liabilities (AIBL) 99,323 94,232 95,379 (4.0) 1.2 Net Interest Gain¹ 1,705 1,369 1,535 (10.0) 12.2 Interest Income 4,037 3,407 3,610 (10.6) 5.9 Interest Expense (2,331) (2,038) (2,074) (11.0) 1.8 Net Interest Income Other Items ² (803) (248) (379) (52.8) 52.5 NII 902 1,120 1, AIBL / AEA % (1.6) (1.2) Interest Rate on AEA³ - % (8.8) 3.6 Interest Rate on AIBL⁴ - % (7.6) 0.6 Net Interest Rate⁵ - % (10.7) 9.4 Adjusted NIM⁶ - % (7.9) 9.7 NIM % Defined as interest income less interest expenses. 2 - Contains derivatives, debt assumption contracts, foreign exchange portfolio, gold loans, credit guarantor fund, foreign exchange gain/loss abroad and other income of a financial intermediation nature. 3 - Total interest income divided by the average balance of assets generating income. 4 - Total interest expenses divided by the average balance of liabilities generating expenses. 5 - Difference between the average rate of assets generating assets and the average rate of liabilities generating expenses. 6 - Income net of interest divided by the average balance of assets generating income. Loan portfolio Managed credit portfolio closed 2012 at R$ 68.4 billion. The balance of assets originated by the Retail segment and granted with co-obligation closed December 2012 at R$ 9.1 billion, presenting another reduction as a result of the new regulatory environment imposed by CMN Resolution no. 3,533. Out of this amount, R$ 8.7 billion, or 96% of the total balance, the BB shareholder was the assignee, regularly acquires vehicle financing portfolios and payroll loan portfolios originating from BV, in line with its strategy of operation in the in consumer loan. The decrease of the Retail Loan Portfolio is associated with the institution's more conservative approach to the new economic and regulatory context and the systemic increase in the default rate of the individuals, specifically vehicle financing segment. The expanded portfolio of the BV Empresas segment (medium sized companies) recorded balance of R$ 9.5 billion in 4Q12, practically stable in the quarter and with expansion of 5.4% in the last 12 months. This segment continues to operate with a high level of substantial guarantees, which provided coverage for 100% of the portfolio at the end of Expanded credit portfolio of the Corporate sector - of which BV is one of the leaders - ended 4Q12 with balance of R$ 31.8 billion and remained stable in the last 12 months. With the intention of increasing its importance to clients and to expand service revenues, CIB strengthened its platform of value-added products (derivatives, structured products, investment bank services and local and international distribution). 115

117 Chapter 12 Banco Votorantim Table 158. Loan portfolio R$ milhões 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 Classified Loan Portfolio (a) 58,726 58,079 56,955 (3.0) (1.9) Individuals (Retail) 37,810 37,812 37,424 (1.0) (1.0) Payroll Loans 6,201 7,168 7, Vehicles (Leasing and Consumer) 31,255 30,274 29,893 (4.4) (1.3) Others¹ (3.3) Business Loans² 20,916 20,266 19,531 (6.6) (3.6) Corporate 12,752 11,758 11,188 (12.3) (4.8) BV Enterprises 8,164 8,508 8, (1.9) Assigned Assets - with recourse (b) 15,360 10,494 9,054 (41.1) (13.7) FIDCs (c) 5,182 2,908 2,376 (54.1) (18.3) Managed Credit Portfolio (d=a+b+c) 79,268 71,480 68,385 (13.7) (4.3) Garantees Provided (e) 11,859 12,592 12, Securities and Derivatives (f) 6,234 8,494 8, Managed Loan Portfolio Broad Concept (d+e+f) 97,361 92,566 90,067 (7.5) (2.7) Retail 58,352 51,214 48,854 (16.3) (4.6) Corporate 39,009 41,352 41, (0.3) 1 - Personal Loan + CDC with no guarantees + Credit card; 2 - Include balance of foreign loans; December/12: R$ 1.7 million; Var. % BV has refined the credit policies, processes and models of Retail. Since 1Q12, it has been using the internal rating model practiced by BB in the credit approval process, besides new tools and indicators for performance management of the portfolio. Table 159. Vehicle Portfolio Production Dec/11 Sep/12 Dec/12 Average rate per crop - % p.y Average term per crop - months Loan to Value (Financed value / Asset value) average % Used vehicles / Light Vehicles - % Loan Portfolio Portfolio Average rate - % p.y Portfolio duration - months Loan to Value (Financed value / Asset value) average % Used vehicles / Vehicles portfolio - % Average vehicle age (years) The initiatives adopted resulted in the origination of auto loans with quality record in The following chart - "NPL + 30" - reflects the delay after 30 days of the first installment of the harvests of light vehicles, and has a high correlation with delinquency over 90 days, signaling a trend of improvement in behavior "NPL + 90." Throughout 2012, the "NPL + 30" remained at historically low levels, indicating that auto loans of this period have an excellent quality. 116

118 dec/09 jan/10 feb/10 dec/09 jan-10 feb/10 mar-10 apr/10 may/10 jun-10 jul-10 aug/10 sep/10 oct/10 nov-10 dec/10 jan-11 feb/11 mar-11 apr/11 may/11 jun-11 jul-11 aug/11 sep/11 oct/11 nov-11 dec/11 jan-12 feb/12 mar-12 apr/12 may/12 jun-12 jul-12 aug/12 mar/10 apr/10 may/10 jun/10 jul/10 aug/10 sep/10 oct/10 nov/10 dec/10 jan/11 feb/11 mar/11 apr/11 may/11 jun/11 jul/11 aug/11 sep/11 oct/11 nov/11 dec/11 jan/12 feb/12 mar/12 apr/12 may/12 jun/12 jul/12 aug/12 sep/12 oct/12 nov/12 dec/ Banco do Brasil MD&A 4Q12 Figure 34. Production by Channel and Delinquency of the 1st Installment Light Vehicles Multi-brand Car Dealers Car Dealers NPL + 30 days Figure 35. Delinquency 90 Days of Vintages after 4 Months of the origination - BV Financeira - % NPL 90 days - 4 months (BV Financeira) NPL 90 days - 4 months (Central Bank of Brazil) 117

119 Chapter 12 Banco Votorantim Figure 36. Origination (Auto Financing and Payroll Loans) R$ bilhões Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 R$27,3 (45%) R$15,0 Delinquency and Allowance for Loan Losses Delinquency in the auto financing market, in which BV has a strong presence, doubled in 2011 (2.5% in Dec./10; 5.0% in Dec./11) and reached 6.1% in May 2012, record of the Central Bank s historical series. After 17 months of consecutive rises, in the second half of 2012 delinquency started to decrease, but closed 2012 still at the high level of 5.3%. Even in this context of high delinquency, expenses with allowance for loan losses (PCLD), net of revenues with recovery of loans written off as loss, presented a reduction of 26% in relation to the previous quarter, this being the third consecutive quarterly decrease. In the Wholesale segment, the allowance for loan losses totaled R$ 182 million in the 4Q12, compared to R$ 119 million in the 3Q12, mainly due to advanced recognition of full provision for judicial recovery of BV Empresas (medium companies) segment, which reflects the conservative position adopted by the Bank in relation to credit granting. In the Retail segment, expenses with allowance for loan losses reported an expressive reduction of 34% in the 4Q12, in comparison with the 3Q12. This further quarterly reduction is explained by four main factors: (i) lower impact of portfolios originated from July 10 to September 2011, which have delinquency record above historic average; (ii) better quality of crops beginning as of September 2011; (iii) improvement in collection processes, with the application of new policies and incentives; and (iv) seasonal improvement of collection conditions for individuals due to 13 th salary payment. A significant reduction in the provision for loans losses contributed to make Banco Votorantim report a positive net margin in the 4Q12. Beginning as of the 4Q12, in order to align information disclosed to the market to the methodology used by BB, Banco Votorantim incorporated to its income disclosure materials the indicator delay in credit operations past due for over 90 days, permitting a better analysis of the Bank s credit portfolio quality. 118

120 Banco do Brasil MD&A 4Q12 Figure 37. Allow. Loan Losses of Manag. Port. vs. Allow. for Loan Losses of Classified Portfolio , ,294 1,456 1,438 1,398 1,332 1, ,097 1, Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Expenses with Allowance for Loan Losses - Loan Portfolio - R$ million NPL + 90 Days - Classified Portfolio (%) Expenses with Allowance for Loan Losses - Managed Portfolio - R$ million Over 90 days (E-H overdue) - Classified Portfolio Table 160. Delinquency Ratios of Own Portfolio Total R$ million 4Q11 3Q12 4Q12 Loan Portfolio 58,726 58,079 56,955 NPL + 90 days 4,062 4,628 3,979 NPL + 90 days/loan Portfolio - % Write-off (546) (1,269) (1,434) Recovery of Write-offs Net Loss (509) (1,205) (1,341) Net Loss/Loan Portfolio - annualized - % Provision (3,206) (4,522) (4,154) Allow ance/npl + 90 days - % Allow ance Expenses / Loan Portfolio (12 months average) - % Table 161. Own Loan Portfolio by Level of Risk Total Dec/11 Sep/12 Dec/12 R$ million Balance Provision Share Balance Provision Share Balance Provision Share AA-C 53, , , D-H 5,278 2, ,672 4, ,079 3, Add. Allow Total Allow. - 3, , ,108 - Total 58,726 3, ,079 4, ,955 4, BV is responsible for the risks of assets assigned with recourse and for the FIDCs (Credit Receivables Investment Funds) in which it holds 100% of the subordinated shares. Thus, seeking to guarantee a more consistent communication to the market about the effective quality of its loan portfolio, we 119

121 Chapter 12 Banco Votorantim present below information on delinquency and provision including the assignments in which there is risk retention, called Managed Portfolio. In consolidated balance sheet, delinquency of managed portfolio transactions past-due for over 90 days closed the 4Q12 at 6.6%, with a reduction of approximately 80 base points over the 3Q12. In the Wholesale segment, delinquency closed 2012 at 2.4%, stable in relation to September 2012, mainly due to delinquency growth in BV Empresas segment, which closed the 4Q12 at 3.1%. The rise in delinquency among medium sized companies, also observed in the market, results mainly from the slower pace of economic activity. According to data from Bacen, the average delinquency of businesses ended 4Q12 at 4.0%. In the Retail segment, transactions past-due for over 90 days represented 8.3% of the managed portfolio in the 4Q12, a reduction of 110 base points over the prior quarter. Delinquency of light vehicle segment managed portfolio closed 2012 at 7.7%, with a reduction of 140 points in relation to the 3Q12. Table 162. Rates of Delay of the Managed Portfolio Total R$ million 4Q11 3Q12 4Q12 Managed Loan Portfolio 79,268 71,481 68,385 NPL + 90 days 4,596 5,276 4,520 NPL + 90 days/managed Loan Portfolio - % Write-off (546) (1,269) (1,434) Recovery of Write-offs Net Loss (509) (1,205) (1,341) Net Loss/Managed Loan Portfolio - annualized - % Provision (3,675) (4,914) (4,518) Allowance/NPL + 90 days - % Allow ance Expenses / Managed Loan Portfolio (12 months average) - % Table 163. Managed Loan Portfolio by Level of Risk Total Dec/11 Sep/12 Dec/12 R$ million Balance Provision Share Balance Provision Share Balance Provision Share AA-C 73, , , D-H 5,828 3, ,363 4, ,721 4, Add. Allow Allow. - 3, , ,471 - Total 79,268 3, ,481 4, ,385 4, Funding The total amount of funds obtained reached R$ 77.2 billion at the end of December Including the resources originating from asset assignments, the balance of funds obtained amounted to R$ 91.6 billion. In current favorable funding context, in which the Brazilian Central Bank also reduced Selic rate, Banco Votorantim operated to reduce its raising costs. In 2012, the Bank used funds deriving from capital contribution, issuance of Financial Notes, external credit facilities and assignment of credit assets to Banco do Brasil and FIDC s to reduce its raising costs. This strategy, which also involved the migration of funds to other instruments, such as Financial Notes and Debentures linked to repurchase and resale commitments, allowed a reduction in volume of time deposits. This fund migration movement, also noted in the market in general, has contributed to increase average raising terms. At the end of 2012, the balance of Financial Notes and debentures linked to repurchase and resale commitments reached 40% of total raised funds, compared to 32% in

122 Banco do Brasil MD&A 4Q12 Table 164. Funding R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 Deposits 25,625 18,373 15,454 (15.9) (39.7) Committed Operations¹ 20,664 19,801 20, (2.4) Acceptances and Issues 17,867 20,110 22, Financial Letters 7,144 9,840 10, Obligations for Foreign Securities 5,932 6,486 8, Other (ALC, MB* and Debentures) 4,790 3,784 3, (19.8) Subordinated Debt 7,397 8,049 6,991 (13.1) (5.5) Certificate of Deposit 3,088 3,335 2,163 (35.2) (30.0) Subordinated Notes 2,200 2,559 2, Financial Letters 2,109 2,154 2,137 (0.8) 1.3 Onlendings 6,315 5,624 5,213 (7.3) (17.5) Loans 5,163 5,392 4,976 (7.7) (3.6) Ohter Funding² 2,797 1,557 1,553 (0.3) (44.5) Total Funding 85,828 78,079 77,232 (1.1) (10.0) Securitization 20,542 14,226 14, (29.8) Assigned Assets w ith recourse 15,360 10,494 10, (28.9) Assigned Assets to FIDCs³ 5,182 3,732 3,490 (6.5) (32.7) Total Funding and Securitization 106,370 92,305 91,647 (0.7) (13.8) Foreign Funding⁴/Funding and Securitization % Loan Portfolio / Total Deposits % Loan Portfolio / Total Deposits. Excluding Compulsory % Funding with private securities; 2 - Includes Box of Options and NCE; 3 - FIDCs where Banco Votorantim and BV Financeira hold 100% of the subordinated shares; 4 - Includes Foreign securities, Foreign borrowings and Subordinated Note * - Mortgages Bonds Chg. % Personnel Expenses Personnel expenses totaled R$ 279 million, in comparison with R$ 221 million in the prior quarter. This increase reflects higher expenses with proceeds, payroll charges and benefits resulting from the collective labor agreement of 2012, as well as non-recurring expenses related to the restructuring process. In 2012, personnel expenses totaled R$ 978 million, a growth of 13.9% in relation to prior year, mainly due to punctual expenses referring to the restructuring process. In addition, note that in 2012, bookkeeping of commission expenses paid to the Retail commercial team was changed. These expenses, formerly recognized in line Statutory Profit Sharing started to be reported in line Personnel Expenses and explain approximately 40% of annual increase verified in personnel expenses. As a result of several actions adopted in 2012, including adequacy of organizational structure to the new level of Retail origination. Accumulated efficiency index of the last 12 months closed the 4Q12 at 51.0%, also impacted by nonrecurring expenses associated to the restructuring process in progress. This index history was adjusted after methodology was reviewed and criterion was conformed to BB format. Table 165. Main productivity indicators 4Q11 3Q12 4Q12 Cost to Income Ratio¹ (12 months accumulated) - % Personnel Expenses and Other Administrative Expenses - R$ mill Personnel expenses + Other Administrative Expenses / Net income from financial intermediation + expenses with Allowance for Loan Losses + Service Revenues + Result of Other Operating Income and Expenses. 2 - Includes employees and interns Other Administrative Expenses In the 4Q12, the administrative expenses amounted R$ 443 million, in relation to R$ 395 million in the prior quarter. This growth is explained mainly by the intensification of Retail collection processes and 121

123 Chapter 12 Banco Votorantim by expenses related to the restructuring process in progress, such as the rescission of the car rent contract used by the Retail commercial team. In relation to 2011, administrative expenses for 2012 rose 1.7%, mainly due to the intensification of Retail collection processes that increased court and notary fee expenses, but that also contributed to reduce delinquency and increase credit recovery. Table 166. Operating and Structural Highlights Dec/11 Sep/12 Dec/12 Customers - thousand 5,532 5,586 5,504 Assets Under Management - R$ million¹ 38,584 45,557 47,315 Number of Branch Offices Includes offshore products and treasury products. BIS Ratio The Prudential adjustment process in progress, started in the 4Q11, is fully supported by Banco do Brasil and Votorantim Finanças shareholders, who are committed to maintaining the Bank s capital structure at proper levels. In June 2012, shareholders resolved to increase the capital of the Bank by R$ 2.0 billion, involving equal investments in the amount of R$ 1.0 billion each. This commitment of shareholders also extends to the preparation of Banco Votorantim for the new regulatory environment of Basel III. BIS ratio closed the 4Q12 at 14.3% (9.3% as Tier I), reporting an increase of 20 base points in relation to the 4Q11 and remaining above the minimum ratio of 11% established by CMN (National Monetary Council) Resolution no. 2,099/94. Table 167. BIS Ratio R$ million Dec/11 Sep/12 Dec/12 RE - Referential Equity 12,054 13,002 12,111 RE Tier I 8,086 8,449 7,875 RE Tier II 3,968 4,553 4,236 RRE - Required Referential Equity 9,386 9,396 9,310 Sufficiency of RE: (RE RRE) 2,668 3,606 2,800 BIS Ratio: (RE x 100) / (RRE / 0.11) % Tier I % Tier II % Change Plan To resume sustainable growth with profitability in the medium term, BV continues making fast progress in the implementation of its Change Agenda, which has three main fronts: Quality of the new production: The priority of the prudential adjustment process was to ensure the quality and profitability of the auto financings originated since 3Q11. For this purpose, a series of initiatives have been implemented from 4Q11, including: I. Credit: improvement of the credit policies, processes and models. In 2012, new variables were incorporated to the credit model, such as BB internal rating and additional information from credit bureaus (ex.: Serasa Experian), which increased the model s risk discrimination capacity. II. III. Profitability: focus on clients with a better risk profile, with adaptation of the origination volumes and improvement of the remuneration model of commercial areas, and Operating model: intensification of the focus on multi-brand dealers (used vehicles) for origination of financings targeting the own loan portfolio, which is historically more profitable for BV Financeira. In car dealers (new vehicles), BV Financeira will operate mainly in direct origination of credit assets to BB, using the BV Originadora model. 122

124 Banco do Brasil MD&A 4Q12 Handling of Inventory: the second front of the Change Agenda is related to the handling of the auto financing portfolios originated between July 2010 and September 2011, which have delinquency above the historical average. In addition to the gradual increase in coverage rate of Retail credit transactions, review and intensification of collection processes were conducted to minimize losses. Efficiency and Governance: the third front addresses initiatives that aim to increase efficiency and refine corporate governance, such as: i) review of the internal model of remuneration paid to distribution channels, ii) attraction of experienced professionals and appreciation of internal talent, iii ) adequacy of organizational structures to the new level of origination and funding, and iv) strengthening of internal controls and improvements in policies and procedures. 123

125 Banco do Brasil MD&A 4Q12 13 Financial Statements Summarized Balance Sheet Table 168. Balance Sheet Assets - Quarterly R$ million M ar/ 11 Jun/ 11 Sep / 11 D ec/ 11 M ar/ 12 Jun/ 12 Sep / 12 D ec/ 12 A SSET S 8 6 6, , , , ,0 0 4,9 72 1,0 51,4 10 1,10 3,9 13 1,150,4 8 6 C urrent and Lo ng - T erm A sset s 8 4 7, , , , , ,0 2 9, ,0 8 0, ,12 6,8 3 0 Available Funds 12,575 19,639 20,466 10,034 14,983 17,239 14,495 12,311 Short-Term Interbank Investments 146, , , , , , , ,323 Open M arket Investments 124, , , , , , , ,514 Interbank Deposits 21,635 22,543 27,391 27,256 24,165 27,450 23,245 29,809 M arketable Securities 146, , , , , , , ,357 Securities for Trading 51,742 55,591 63,154 63,257 63,544 65,196 67,923 74,711 Securities Available for Sale 76,310 79,882 75,364 88,385 77,105 84,581 94,366 95,321 Securities Held to M aturity 17,052 17,903 18,280 15,191 13,850 15,893 16,227 12,910 Financial Derivatives 1,396 1,258 2,046 1,397 1,484 1,865 1,554 1,415 Interbank Accounts 94,232 94,897 95,468 96, ,073 96,853 91,876 83,401 Central Bank Deposits 87,053 89,283 89,654 93,660 94,146 91,068 85,478 80,098 Compuls. Dep, on Demand, Dep. &Float 15,744 15,877 14,366 14,307 14,656 10,585 12,293 15,741 Compulsory Dep, on Savings Dep. 71,309 73,406 75,288 79,353 79,490 80,483 73,185 64,357 Others 7,179 5,614 5,814 2,682 7,927 5,784 6,398 3,303 Interdepartmental Accounts Loans 325, , , , , , , ,713 Public Sector 7,702 7,607 8,441 8,486 5,968 6,956 8,642 10,768 Private Sector 334, , , , , , , ,885 Loans Linked to Assignment ,581 (Allowance for Loan Losses) (16,140) (16,892) (17,816) (18,222) (18,790) (19,579) (20,583) (20,522) Leasing 3,499 3,351 3,158 2,851 2,566 2,305 2,111 1,883 Leasing and Sub-Leasing Receivables 3,694 3,563 3,372 3,064 2,774 2,468 2,256 2,011 (Allowance for Lease Losses) (195) (212) (214) (213) (208) (164) (145) (128) Other Receivables 114, , , , , , , ,466 Receivable on Guarantees Honored Foreign Exchange Portfolio 15,082 14,278 18,000 17,615 19,593 20,680 18,469 17,276 Income Receivable 971 1,065 1,079 1,410 1,509 1,664 1,699 1,818 Trading and Brokerage of Securities , Specific Credits 1,057 1,086 1,117 1,146 1,177 1,205 1,234 1,264 Credits from Ins., Pension and Savings Bonds 1,070 1,574 1,670 1,742 1,984 2,285 2,277 2,194 Tax Credits 22,325 22,351 23,772 22,754 23,726 24,821 25,988 24,981 Atuarial Assets 10,563 12,051 12,688 13,372 13,870 14,386 14,783 16,249 Fundo Paridade 1,531 1,554 1,587 1,608 1,646 1,669 1, Warrants Deposits Receivable 24,203 24,604 25,314 25,584 26,077 26,454 27,502 28,082 Surplus Destination Fund - PREVI 7,854 7,894 7,953 8,030 8,108 8,221 8,337 8,458 Fundo de Destinação 7,854 4,279 4,111 3,684 3,503 3,192 2,853 2,374 Fundo de Contribuição - 1,279 1,199 1,096 1, Fundo de Utilização - 2,336 2,644 3,249 3,592 4,095 4,634 5,358 Other Credits 30,784 32,132 34,435 37,564 36,514 39,840 44,222 51,171 (Provision for Doubtful Receivables) (1,565) (1,330) (1,256) (1,665) (1,447) (1,605) (1,392) (1,476) (With Loan Characteristics) (681) (630) (580) (580) (575) (598) (554) (560) (Without Loan Characteristics) (884) (700) (676) (1,085) (872) (1,007) (838) (916) Other Assets 4,069 4,740 4,831 5,120 5,226 4,597 4,543 3,909 Others (Provision for Possible Losses) (181) (187) (185) (188) (187) (181) (173) (195) Prepaid Expenses 3,846 4,464 4,557 4,840 4,906 4,256 4,186 3,547 Permanent A sset s 19, , , , , , , ,6 56 Investments 8,126 8,002 7,948 7,973 7,927 7,756 7,990 7,640 Investm, in Assoc. and Subsidiary Co. 7,052 6,966 6,925 6,841 6,727 6,598 6,390 6,175 Other Investments 1,159 1,114 1,102 1,216 1,284 1,243 1,689 1,556 (Provision for Losses) (84) (78) (79) (84) (84) (84) (89) (91) Property and Equipment 4,867 5,030 5,210 5,589 5,646 5,703 5,945 6,637 Land and Buildings in Use 3,645 3,859 4,011 4,217 4,341 4,532 4,889 4,360 Land and Buildings in Use Reavaliation Other Property and Equipment in Use 7,452 7,722 7,966 8,344 8,497 8,554 8,686 9,664 (Accumulated Depreciation) (6,381) (6,701) (6,918) (7,123) (7,342) (7,533) (7,773) (7,531) Intangible 6,036 5,771 8,984 9,736 9,245 8,790 9,201 9,309 Intangible Assets 10,381 10,583 14,216 14,947 15,019 13,007 13,558 13,976 (Accumulated Amortization) (4,345) (4,812) (5,232) (5,211) (5,774) (4,217) (4,356) (4,668) Deferred Charges Organization and Expansion Costs 2,086 2,074 2,074 2,034 2,029 2,004 1,689 1,686 (Accumulated Amortization) (1,841) (1,863) (1,890) (1,903) (1,918) (1,911) (1,611) (1,616) 124

126 Chapter 13 Financial Statements Table 169. Balance Sheet Assets Annual R$ million C A GR - % A SSET S 52 1, , , , ,150, C urrent and Lo ng - T erm A sset s 511, , , , ,12 6, Available Funds 5,545 7,843 9,745 10,034 12, Short-Term Interbank Investments 119, , , , , Open M arket Investments 95, ,174 85, , , Interbank Deposits 24,249 24,224 22,519 27,256 29, M arketable Securities 86, , , , , Securities for Trading 26,136 38,274 50,445 63,257 74, Securities Available for Sale 38,374 62,161 75,142 88,385 95, Securities Held to M aturity 20,123 22,439 16,656 15,191 12,910 (10.5) Financial Derivatives 2,276 1,463 1,624 1,397 1,415 (11.2) Interbank Accounts 21,287 26,592 89,526 96,342 83, Central Bank Deposits 20,882 24,280 87,035 93,660 80, Compuls. Dep, on Demand, Dep. &Float 12,381 10,161 18,487 14,307 15, Compulsory Dep, on Savings Dep. 8,501 14,118 68,548 79,353 64, Others 405 2,312 2,491 2,682 3, Interdepartmental Accounts Loans 190, , , , , Public Sector 4,040 6,388 7,184 8,486 10, Private Sector 200, , , , , (Allowance for Loan Losses) (13,179) (17,685) (16,433) (18,222) (20,522) 11.7 Loans Linked to Assignment ,581 - Leasing 2,968 4,701 3,857 2,851 1,883 (10.8) Leasing and Sub-Leasing Receivables 3,039 4,932 4,048 3,064 2,011 (9.8) (Allowance for Lease Losses) (71) (231) (191) (213) (128) 15.8 Other Receivables 83,279 95, , , , Receivable on Guarantees Honored Foreign Exchange Portfolio 20,914 8,671 11,878 17,615 17,276 (4.7) Income Receivable ,410 1, Trading and Brokerage of Securities Specific Credits ,030 1,146 1, Credits from Ins., Pension and Savings Bonds ,109 1,742 2, Tax Credits 16,499 21,910 21,970 22,754 24, Atuarial Assets 7,794 12,655 8,116 13,372 16, Fundo Paridade - - 1,778 1, Warrants Deposits Receivable 18,007 21,209 23,388 25,584 28, Surplus Destination Fund - PREVI - - 7,595 8,030 8,458 - Fundo de Destinação - - 7,595 3,684 2,374 - Fundo de Contribuição , Fundo de Utilização ,249 5,358 - Other Credits 19,325 29,539 38,269 37,564 51, (Provision for Doubtful Receivables) (1,377) (1,682) (1,572) (1,665) (1,476) 1.8 (With Loan Characteristics) (579) (702) (690) (580) (560) (0.8) (Without Loan Characteristics) (798) (980) (882) (1,085) (916) 3.5 Other Assets 1,256 2,358 3,884 5,120 3, Others (Provision for Possible Losses) (170) (176) (177) (188) (195) 3.5 Prepaid Expenses 1,118 2,170 3,673 4,840 3, Permanent A sset s 9,512 17,010 19, , , Investments 1,524 6,645 8,128 7,973 7, Investm, in Assoc. and Subsidiary Co ,776 7,116 6,841 6, Other Investments ,097 1,216 1, (Provision for Losses) (68) (78) (84) (84) (91) 7.6 Property and Equipment 3,339 4,214 4,904 5,589 6, Land and Buildings in Use 2,668 3,336 3,557 4,217 4, Land and Buildings in Use Reavaliation Other Property and Equipment in Use 5,610 6,632 7,394 8,344 9, (Accumulated Depreciation) (4,940) (5,753) (6,198) (7,123) (7,531) 11.1 Leased Assets Leases Assets (Accumulated Depreciation) (4) (2) Intangible 4,041 5,677 6,452 9,736 9, Intangible Assets 4,043 7,659 10,259 14,947 13, (Accumulated Amortization) (2) (1,982) (3,808) (5,211) (4,668) Deferred Charges (41.6) Organization and Expansion Costs 1,846 2,247 2,155 2,034 1,686 (2.2) (Accumulated Amortization) (1,241) (1,775) (1,868) (1,903) (1,616)

127 Banco do Brasil MD&A 4Q12 Table 170. Balance Sheet Liabilities - Quarterly R$ million M ar/ 11 Jun/ 11 Sep / 11 D ec/ 11 M ar/ 12 Jun/ 12 Sep / 12 D ec/ 12 LIA B ILIT IES A N D SHA R EHOLD ER ' S EQU IT Y 8 6 6, , , , ,0 0 4,9 72 1,0 51,4 10 1,10 3,9 13 1,150,4 8 6 C urrent and Lo ng - T erm A sset s 8 14, , , , , ,776 1,0 3 9, ,0 8 4,0 2 9 Deposits 381, , , , , , , ,085 Demand Deposits 59,553 61,138 57,614 62,016 60,659 60,592 61,486 74,760 Savings Deposits 90,516 89,217 95, , , , , ,744 Interbank Deposits 12,069 11,553 13,586 14,450 14,272 15,003 15,733 16,569 Time Deposits 219, , , , , , , ,013 Investment Deposits M oney M arket Borrowing 180, , , , , , , ,787 Own Portfolio 55,939 68,406 64,864 66,475 53,366 40,197 43,276 59,994 Repurchase Agreements with Private Securities - 3, ,663 9,703 8,444 9,554 Third-Party Portfolio 123, , , , , , , ,546 Free M oviment Portfolio Funds From Accept and Securities Placed 19,550 22,420 29,163 32,323 36,234 47,432 53,737 70,670 Agribusiness Letter of Credit 2,330 4,102 5,953 7,422 9,277 16,157 22,807 34,005 Commercial Papers 4,495 5,292 8,412 8,717 9,322 10,249 9,552 9,923 Foreign Securities 12,725 13,026 14,798 16,185 17,634 21,026 21,379 26,743 Interbank Accounts 2,292 3,188 3, ,221 2,895 3, Receipts and Paym. Pending Settlement 2,280 3,177 3, ,208 2,886 3,269 0 Correspondent Banks Interdepartmental Accounts 1,968 1,757 1,790 3,819 1,911 2,370 2,127 5,180 Third-Party Funds in Transit 1,946 1,747 1,787 3,817 1,908 2,353 2,123 5,177 Internal Transfers of Funds Borrowing 8,939 9,699 12,185 12,257 11,556 13,061 13,398 14,081 Domestic Borrowings - Other Banks Foreign Borrowing 8,872 9,640 12,069 12,136 11,442 12,958 12,989 13,672 Domestic Onlending Official Institutions 51,626 51,353 48,024 50,991 51,565 52,396 52,763 63,519 Federal Treasury 1,552 1,603 1,689 1,722 1,677 1,723 1, National Development Bank (BNDES) 27,163 26,406 27,503 28,978 29,420 29,944 32,195 41,763 Caixa Econômica Federal (CEF) Fed. Prog. for Cap. Equip. Finan. (Finame) 14,897 15,414 16,292 17,506 17,798 18,006 18,438 19,494 Other Institutions 7,847 7,733 2,272 2,446 2,258 2, Foreign Onlending Financial Derivatives 4,916 4,290 4,438 3,621 4,266 4,004 3,624 3,439 Other Accounts Payable 163, , , , , , , ,156 Collection of Taxes and Contributions 3,263 3,747 3, ,258 3,553 5, Foreign Exchange Portfolio 33,361 27,063 29,689 28,416 27,665 29,548 25,067 26,404 Stockholders and Statutory Distributions 1,662 2,326 2,425 2,122 1,522 2,069 1,521 1,818 Taxes and Social Security 23,952 25,747 27,770 28,057 26,215 27,978 30,244 30,913 Trading and Brokerage of Securities 1,670 1, ,271 1,190 1,231 Tech. Prov. Insur., Pension Plans and Saving Bonds 34,999 38,972 41,965 45,023 49,091 51,798 55,187 60,234 Financial and Development Funds 3,499 3,578 3,705 4,002 4,104 4,567 4,667 5,089 Hybrid Capital Istruments 2,521 2,366 2,872 2,846 6,160 6,854 15,138 15,061 Special Operations Subordinated Debt (FCO) 24,464 27,155 29,694 30,885 31,440 38,366 40,252 40,676 Actuarial Liabilities 6,921 7,032 7,099 7,142 7,200 7,002 7,061 6,714 Other Liabilities 27,250 27,764 29,697 32,077 30,554 32,016 34,482 40,595 D ef erred Inco me Shareho ld ers Eq uit y 52, , ,713 58, , , , ,0 70 Capital 33,078 33,123 33,123 33,123 33,123 33,123 33,123 48,400 Capital Reserves Revaluation Reserves Reserve for Retained Earnings 16,442 20,650 20,290 24,121 23,940 27,411 27,030 16,132 M ark-to-m arket Securities and Derivatives ,238 1,561 1,420 Retained Earnings (Accumulated Losses) 0 - (26) (Treasury Shares) (0) (0) (0) (0) - - (162) (461) Non-Controlling Interest Income Accounts 2,208-2,122-1,662-1,

128 Chapter 13 Financial Statements Table 171. Balance Sheet Liabilities - Annual R$ million C A GR - % LIA B ILIT IES A N D SHA R EHOLD ER ' S EQU IT Y 52 1, , , , ,150, C urrent and Lo ng - T erm A sset s 4 9 1, , , , ,0 8 4, Deposits 270, , , , , Demand Deposits 51,949 56,459 63,503 62,016 74, Savings Deposits 54,965 75,742 89, , , Interbank Deposits 14,065 11,619 18,998 14,450 16, Time Deposits 149, , , , , Investment Deposits M oney M arket Borrowing 91, , , , , Own Portfolio 21,927 31,902 56,795 66,475 59, Repurchase Agreements with Private Securities , Third-Party Portfolio 69, ,745 84, , , Others , Funds From Accept and Securities Placed 3,479 7,362 13,486 32,323 70, Agribusiness Letter of Credit ,422 34,005 - Commercial Papers 269 2,765 4,314 8,717 9, Foreign Securities 3,210 4,597 9,172 16,185 26, Interbank Accounts Receipts and Paym. Pending Settlement (18.8) Correspondent Banks Interdepartmental Accounts 2,496 3,229 3,688 3,819 5, Third-Party Funds in Transit 2,495 3,215 3,683 3,817 5, Internal Transfers of Funds Borrowing 7,627 6,370 8,598 12,257 14, Domestic Borrowings - Other Banks Foreign Borrowing 7,627 6,370 8,598 12,136 13, Domestic Onlending Official Institutions 22,436 31,390 50,764 50,991 63, Federal Treasury 3,485 2,101 1,549 1, (32.7) National Development Bank (BNDES) 11,168 19,630 26,978 28,978 41, Caixa Econômica Federal (CEF) Fed. Prog. for Cap. Equip. Finan. (Finame) 6,585 8,381 14,046 17,506 19, Other Institutions 1,199 1,133 8,043 2, (14.1) Foreign Onlending (2.8) Financial Derivatives 3,895 4,724 5,297 3,621 3,439 (3.1) Other Accounts Payable 89, , , , , Collection of Taxes and Contributions Foreign Exchange Portfolio 15,964 12,174 29,506 28,416 26, Stockholders and Statutory Distributions 1,838 2,625 1,992 2,122 1,818 (0.3) Taxes and Social Security 17,570 24,297 27,613 28,057 30, Trading and Brokerage of Securities , , Tech. Prov. Insur., Pension Plans and Saving Bonds 12,675 17,339 32,369 45,023 60, Financial and Development Funds 2,458 4,135 3,568 4,002 5, Hybrid Debt and Capital Istruments 1,185 3,516 3,361 2,846 15, Special Operations (2.3) Subordinated Debt (FCO) 11,772 18,553 23,412 30,885 40, Actuarial Liabilities 5,662 6,374 6,907 7,142 6, Other Liabilities 19,531 30,725 28,757 32,077 40, D ef erred Inco me Shareho ld ers Eq uit y 2 9, ,119 50, , , Capital 13,780 18,567 33,078 33,123 48, Capital Reserves Revaluation Reserves (10.6) Reserve for Retained Earnings 15,977 17,301 16,889 24,121 16, M ark-to-m arket Securities and Derivatives , Retained Earnings (Accumulated Losses) (Treasury Shares) (31) (31) (0) (0) (461) 96.1 Non-Controlling Interest (0)

129 Banco do Brasil MD&A 4Q Summarized Corporate Law Income Statement Table 172. Summarized Corporate Law Income Statement - Quarterly R$ million 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 F inancial Int ermed iat io n Inco me 21,909 23,948 28,633 25,172 25,114 26,882 24,225 23,846 Loans 14,019 15,014 17,022 15,944 16,435 17,274 15,952 16,440 Leasing (22) Securities 6,133 6,952 10,574 7,189 7,004 8,100 6,623 6,255 Financial Derivatives (413) (878) 233 (403) (845) 25 (206) (409) Foreign Exchange Portfolio (1,577) (450) Compulsory Investments 1,597 1,742 1,969 1,923 1,850 1,570 1,388 1,117 Operations of Sales/Transf. of Financial Assets Financial Inc. from Insur., Pension & Savings Bonds Financial Intermediation Expenses (15,299) (16,753) (23,277) (18,226) (18,456) (20,456) (17,316) (16,132) M oney M arket Funds¹ (11,829) (13,088) (15,743) (13,709) (13,908) (13,040) (12,481) (11,684) Borrowing. Assignments and Onlending¹ (839) (816) (4,249) (1,305) (1,108) (3,922) (1,220) (1,125) Allowance for Loan Losses (2,631) (2,848) (3,285) (3,211) (3,440) (3,494) (3,615) (3,323) Gro ss Inco me f ro m F inanc. Int ermed iat io n 6,610 7,195 5,356 6,946 6,658 6,425 6,909 7,714 Other Operating Income ( Expenses) (1,756) (1,821) (1,895) (2,128) (2,853) (1,955) (3,290) (2,382) Fee Income 2,835 2,865 3,138 3,374 3,466 3,645 3,591 3,784 Banking Fees Revenues 1,272 1,522 1,581 1,652 1,585 1,611 1,689 1,700 Personnel Expenses (3,272) (3,531) (3,850) (4,260) (3,932) (3,981) (4,183) (4,406) Other Administrative Expenses (3,133) (3,201) (3,425) (3,664) (4,045) (3,888) (4,062) (4,018) Taxes (1,019) (1,084) (1,027) (1,129) (1,083) (1,071) (1,109) (1,154) Equity Int. in the Results of Subs. and Affil. (20) (140) (115) 463 (8) (76) Income from Insur., Pension & Savings Bonds Other Operating Revenues 3,085 3,905 2,698 3,290 3,443 2,320 2,465 3,506 Other Operating Expenses¹ (2,016) (2,826) (2,139) (1,963) (2,689) (1,662) (2,268) (2,347) Op erat ing Inco me 4,854 5,374 3,461 4,818 3,806 4,470 3,619 5,332 Non-Operating Income ,099 Inco me B ef o re T axes 4,872 5,548 3,485 4,826 3,826 4,501 3,679 6,431 Income and Social Contribution Taxes (1,497) (1,705) (148) (1,372) (882) (1,011) (522) (1,826) Statutory Profit Sharing (443) (484) (420) (443) (407) (443) (386) (600) Non-Controlling Interest (0) (27) (27) (39) (35) (39) (44) (37) N et Inco me 2,932 3,330 2,891 2,972 2,502 3,008 2,728 3, Historical data were reviewed since 2011 first quarter due to the accounting of premium paid to clientes arising from judicial deposits and adjustment of resources released in the scope of BB Crédito Imobiliário (Banco do Brasil real state loans), in accordance with CMN resolution 3,706/09, in the Money Market Funds expenses, those expenses were previously accounted for in Other Operating Expenses. Additionally, the Borrowing Assignments and Onlending historical data was reviewed since the 1Q11, due to the accounting of expenses related to remuneration of resources intended to INSS (Brazilian Social Security) benefits payments and adjustment of resources to refund to Tesouro Nacional, those expenses were previously accounted for in Other Operating Expenses. 128

130 Chapter 13 Financial Statements Table 173. Summarized Corporate Law Income Statement - Annual R$ million C A GR - % F inancial Int ermed iat io n Inco me 55,641 63,138 78,035 99, , Loans 33,221 40,368 50,960 61,998 66, Leasing Securities 20,692 21,350 23,238 30,849 27, Financial Derivatives (1,283) (1,223) (2,239) (1,461) (1,434) 2.8 Foreign Exchange Portfolio ,083 (374) 147 (24.9) Compulsory Investments 1, ,586 7,231 5, Sale or Transf. Financial Assets Financ. Inc. Insur., Pension & S.Bonds Op F inancial Int ermed iat io n Exp enses (42,821) (45,052) (52,473) (73,554) (72,360) 14.0 M oney M arket Funds¹ (25,531) (30,146) (38,756) (54,370) (51,112) 18.9 Borrowing. Assignments and Onlending¹ (8,685) (2,510) (3,473) (7,210) (7,376) (4.0) Allowance for Loan Losses (8,606) (12,396) (10,244) (11,975) (13,872) 12.7 Gro ss Inco me f ro m F inancial Int ermed iat io n 12,819 18,086 25,562 26,107 27, Ot her Op erat ing Inco me ( Exp enses) (1,150) (4,494) (7,151) (7,600) (10,480) 73.7 Fee Income² 9,771 10,172 10,777 12,213 14, Banking Fees Revenues² 2,040 3,339 5,396 6,028 6, Personnel Expenses (8,870) (11,838) (13,020) (14,913) (16,503) 16.8 Other Administrative Expenses (7,917) (11,212) (13,040) (13,422) (16,013) 19.3 Taxes (2,635) (3,333) (3,750) (4,259) (4,416) 13.8 Equity Int. in the Results of Subs. and Affil. 1,392 (991) (46) (34.0) Inc. for Ins., Pens. Plans & Sav.Bonds Op ,574 1,888 2,265 2, Other Operating Income 11,782 16,974 13,788 12,978 11,735 (0.1) Other Operating Expenses¹ (7,605) (9,180) (9,144) (8,945) (8,966) 4.2 Op erat ing Inco me 11,669 13,592 18,410 18,507 17, Non-Operating Income 413 1, , Inco me B ef o re T axes 12,082 15,435 18,781 18,732 18, Income and Social Contribution Taxes (2,145) (3,903) (5,321) (4,722) (4,241) 18.6 Statutory Profit Sharing (1,134) (1,385) (1,756) (1,791) (1,835) 12.8 Non-Controlling Interest - (1) 0 (93) (156) - N et Inco me 8,803 10,148 11,703 12,126 12, Historical data were reviewed since 2011 first quarter due to the accounting of premium paid to clientes arising from judicial deposits and adjustment of resources released in the scope of BB Crédito Imobiliário (Banco do Brasil real state loans), in accordance with CMN resolution 3,706/09, in the Money Market Funds expenses, those expenses were previously accounted for in Other Operating Expenses. Additionally, the Borrowing Assignments and Onlending historical data was reviewed since the 1Q11, due to the accounting of expenses related to remuneration of resources intended to INSS (Brazilian Social Security) benefits payments and adjustment of resources to refund to Tesouro Nacional, those expenses were previously accounted for in Other Operating Expenses. 2 - As of 1Q10 some accounting lines of Fee Income were reclassified to Banking Fees Revenues, according to Bacen Circular Letter n. 3,490/

131 Banco do Brasil MD&A 4Q Income Statement with Reallocations Table 174. Income Statement with Reallocations - Quarterly R$ million 1Q11 2 Q11 3 Q11 4 Q11 1Q12 2 Q12 3 Q12 4 Q12 F inancial Int ermed iat io n Inco me 2 2, , , , , , , ,8 6 8 Loans 14,598 15,550 17,620 16,717 17,211 18,074 16,756 17,449 Leasing (22) Securities 6,133 6,952 10,574 7,189 7,004 8,100 6,623 6,255 Financial Derivatives (413) (878) 233 (403) (845) 25 (206) (409) Foreign Exchange Portfolio (1,577) (450) Compulsory Investments 1,597 1,742 1,969 1,923 1,850 1,570 1,388 1,117 Operations of Sales/Transf. of Financial Assets Financ. Inc. Insur., Pension & S.Bonds Op FX Gain (Loss) on Foreign Investments (29) (124) (116) (9) Other Op. Inc. of a Fin. Intermed. Nature 75 (185) 40 (5) (1) (3) Tax Hedge (19) (82) (55) F inancial Int ermed iat io n Exp enses ( 12,74 9 ) ( 13,9 9 2 ) ( 2 0,12 5) ( 15,153 ) ( 15,10 1) ( 17,0 2 8 ) ( 13,8 3 3 ) ( 12,8 3 5) M oney M arket Funds¹ (11,910) (13,175) (15,876) (13,847) (13,992) (13,105) (12,613) (11,950) Borrowing.Assignments and Onlending¹ (839) (816) (4,249) (1,305) (1,108) (3,922) (1,220) (885) N et Int erest Inco me 9, , , , , , , ,0 3 3 Allowance for Loan Losses (2,629) (3,047) (3,259) (2,892) (3,576) (3,677) (3,764) (3,636) N et F inancial M arg in 7,13 6 7,0 55 6, , ,2 58 7, , ,3 9 8 Fee Income 4,108 4,388 4,720 5,027 5,051 5,256 5,280 5,484 Fee Income 2,835 2,865 3,138 3,374 3,466 3,645 3,591 3,784 Banking Fee Income 1,272 1,522 1,581 1,652 1,585 1,611 1,689 1,700 Inc. for Ins., Pens. Plans & Sav.Bonds Op Taxes on Revenues (977) (1,027) (1,006) (1,071) (1,015) (1,031) (1,049) (1,088) C o nt rib ut io n M arg in 10,779 11, ,171 12, , , , ,4 2 2 Administrative Expenses (5,692) (5,886) (6,208) (6,966) (6,626) (6,946) (7,123) (7,499) Personnel Expenses (3,145) (3,364) (3,481) (3,954) (3,694) (3,871) (4,001) (4,211) Other Administrative Expenses (2,547) (2,522) (2,727) (3,012) (2,932) (3,075) (3,122) (3,288) Other Tax Expenses (40) (48) (67) (61) (62) (73) (64) (68) C o mmercial Inco me 5, ,14 9 4, ,3 70 5,12 2 5,74 8 5,12 8 5,8 55 Legal Risk (177) (188) (491) (4) (489) (368) (463) (219) Legal Claims (98) (190) (122) 275 (250) (258) (281) (23) Labor Lawsuits (79) 2 (369) (278) (238) (110) (182) (196) Other Operating Income (Expenses) (50) 330 (532) (435) (515) (672) (761) (590) Eq.Interest in Resul. Subs. and Affil. 9 (16) (18) (29) (67) Other Operating Income/Expenses (59) 346 (514) (482) (516) (674) (731) (523) Other Operating Income 1,587 1,311 1,401 1,641 1,516 1,333 1,368 1,578 PREVI 624 1, Other Operating Expenses¹ (2,269) (2,261) (2,445) (2,654) (2,422) (2,397) (2,386) (2,389) Op erat ing Inco me 4,8 19 5, ,8 73 4, ,118 4,70 8 3, ,0 4 6 Non-Operating Income (4) Inco me B ef o re T axes 4, , , , ,13 9 4,73 8 3, ,0 4 2 Income and Social Contribution Taxes (1,474) (1,566) (924) (1,425) (967) (1,273) (891) (1,324) Interest on Own Capital Tax Benefit Interest on Own Capital Tax Benefit (442) (472) (373) (450) (433) (440) (372) (500) Non-Controlling Interest (0) (27) (27) (39) (35) (39) (44) (37) A d just ed N et Inco me 2, , ,573 3, ,70 4 2, ,6 57 3,18 0 Extraordinary Items (53) (201) Sale of Investments Economic Plans (35) (95) (362) (184) (255) (167) Tax Efficiency Reversal of Additional Provision for Loan Losses Disposal of Properties ,103 Tax Effects and Statut. Profit Shar. on One-Off Items (8) (79) (33) (17) 81 (625) N et Inco me 2, , , ,9 72 2,50 2 3, ,72 8 3, Historical data were reviewed since 2011 first quarter due to the accounting of premium paid to clientes arising from judicial deposits and adjustment of resources released in the scope of BB Crédito Imobiliário (Banco do Brasil real state loans), in accordance with CMN resolution 3,706/09, in the Money Market Funds expenses, those expenses were previously accounted for in Other Operating Expenses. Furthermore, expenses with restatement of Subordinated Debt and Hybrid Capital Instruments accounted for in Other Operating Expenses were reallocated to Money Market Funds expenses since the 1Q11. Additionally, the Borrowing Assignments and Onlending historical data was reviewed since the 1Q11, due to the accounting of expenses related to remuneration of resources intended to INSS (Brazilian Social Security) benefits payments and adjustment of resources to refund to Tesouro Nacional, those expenses were previously accounted for in Other Operating Expenses. 130

132 Chapter 13 Financial Statements Table 175. Income Statement with Reallocations - Annual R$ million C A GR - % F inancial Int ermed iat io n Inco me 58,399 65,182 80, , , Loans 34,507 41,509 53,405 64,486 69, Leasing Securities 20,495 21,350 23,238 30,849 27, Financial Derivatives (1,283) (1,223) (2,239) (1,461) (1,434) 2.8 Foreign Exchange Portfolio ,083 (374) 147 (24.9) Compulsory Investments 1, ,586 7,231 5, Sale or Transference of Financial Assets Financ. Inc. Insur., Pension & S.Bonds Op FX Gain (Loss) on Foreign Investments 941 (1,042) (149) (21.5) Other Op. Inc. of a Fin. Intermed. Nature 392 2, (75) Tax Hedge 334 (776) (147) (1.5) F inancial Int ermed iat io n Exp enses (33,884) (32,269) (42,038) (62,019) (58,796) 14.8 M oney M arket Funds¹ (25,200) (29,759) (38,565) (54,809) (51,660) 19.7 Borrowing.Assignments and Onlending¹ (8,685) (2,510) (3,473) (7,210) (7,136) (4.8) N et Int erest Inco me 24,515 32,913 38,398 40,830 45, Allowance for Loan Losses (6,799) (11,629) (10,675) (11,827) (14,651) 21.2 N et F inancial M arg in 17,716 21,284 27,724 29,003 31, Fee Income 11,811 13,511 16,173 18,242 21, Fee Income² 9,771 10,172 10,777 12,213 14, Banking Fee Income² 2,040 3,339 5,396 6,028 6, Inc. for Ins., Pens. Plans & Sav.Bonds Op ,574 1,888 2,265 2, Taxes on Revenues (2,362) (3,149) (3,627) (4,081) (4,183) 15.4 C o nt rib ut io n M arg in 28,058 33,220 42,157 45,429 50, Administrative Expenses (15,358) (19,185) (22,565) (24,752) (28,194) 16.4 Personnel Expenses (8,112) (10,280) (12,244) (13,943) (15,777) 18.1 Other Administrative Expenses (7,246) (8,905) (10,322) (10,809) (12,417) 14.4 Other Tax Expenses (140) (100) (107) (216) (268) 17.6 C o mmercial Inco me 12,560 13,936 19,484 20,461 21, Legal Risk (722) (502) (1,076) (860) (1,539) 20.8 Legal Claims (161) (242) (427) (135) (813) 49.8 Labor Lawsuits (560) (260) (649) (724) (726) 6.7 Other Operating Income (Expenses) (2,198) 332 (908) (687) (2,539) 3.7 Eq.Interest in Resul. Subs. and Affil. (97) (94) (0.8) Other Operating Income/Expenses (2,102) 281 (1,010) (709) (2,445) 3.9 Other Operating Income 3,698 6,843 4,999 5,939 5, PREVI - 1,193 4,299 2,981 1,355 - Other Operating Expenses (5,799) (7,755) (10,309) (9,629) (9,595) 13.4 Op erat ing Inco me 9,639 13,766 17,500 18,914 17, Non-Operating Income (28.6) Inco me B ef o re T axes 10,052 13,844 17,543 18,970 17, Income and Social Contribution Taxes (2,416) (4,155) (5,242) (5,388) (4,455) 16.5 Interest on Own Capital Tax Benefit ,221 1, Interest on Own Capital Tax Benefit (951) (916) (1,637) (1,737) (1,745) 16.4 Non-Controlling Interest - (26) 0 (93) (156) - A d just ed N et Inco me 6,685 8,747 10,664 11,751 11, Extraordinary Items 2,118 3,315 1, (24.8) Reversal of Additional Provision for Loan Losses (1,594) (676) Disposal of Investments 142 1, Economic Plans (372) 157 (371) (103) (968) 27.0 Revaluation of Consolidated Shares Change of Credit Card Basis (54) Previ Unrecognized Actuarial Gains 5,326 3, Cassi Unrecognized Actuarial Losses (1,259) Sale of Interest in VISA Internacional Credit Assignment Tax Efficiency (12.3) Contingent Liabilities (BESC) (360) Tax Credits (BESC) Provision for Labor, Civil and Tax Claims - (1,367) Tax Credits - Differential of CSLL rate - 1, Voluntary Resignation Program - BNC - (215) Reversal of Labor Liabilities Capital Gain - BB Seguros Participações Disposal of Properties ,103 - Tax Effects and Stat. Profit Shar. on One-Off Items (986) (1,870) (527) (78) (401) (20.2) N et Inco me 8,803 12,062 11,703 12,126 12, Historical data were reviewed since 2011 first quarter due to the accounting of premium paid to clientes arising from judicial deposits and adjustment of resources released in the scope of BB Crédito Imobiliário (Banco do Brasil real state loans), in accordance with CMN resolution 3,706/09, in the Money Market Funds expenses, those expenses were previously accounted for in Other Operating Expenses. Furthermore, expenses with restatement of Subordinated Debt and Hybrid Capital Instruments accounted for in Other Operating Expenses were reallocated to Money Market Funds expenses since the 1Q11. Additionally, the Borrowing Assignments and Onlending historical data was reviewed since the 1Q11, due to the accounting of expenses related to remuneration of resources intended to INSS (Brazilian Social Security) benefits payments and adjustment of resources to refund to Tesouro Nacional, those expenses were previously accounted for in Other Operating Expenses. 2 - As of 1Q10 some accounting lines of Fee Income were reclassified to Banking Fees Revenues, according to Bacen Circular Letter n. 3,490/

133 Banco do Brasil MD&A 4Q12 Vice Presidency of Financial Management and Investor Relations Vice-Presidency Ivan de Souza Monteiro Head of Investor Relations Gustavo Henrique Santos de Sousa Executive Manager Gisele Campana Rodrigues Divisional Managers Erick Figueiredo Rodrigues Heverton Masaru Ono Joaquim Camilo de Castro Analysts Adriano Gonçalves de Souza Alita de Oliveira Arantes Bruno Santos Garcia Carlos Vieira do Nascimento Cléber Antonio Lima Rentroia Daniela Priscila da Silva Danilo de Melo Farias Diogo Simas Machado Elias Santos Lima Eva Maria Gitirana de Oliveira Fabíola Lopes Ribeiro Glauco Ribeiro Barbirato Tavares Gustavo Correia de Brito Hilzenar Souza Alves da Cunha Janaína Marques Storti Joabel Martins de Oliveira Leonardo Resende Nader Marcelo de Campos e Silva Marcone Edson de Vasconcelos Formiga Filho Mariana Reschke da Cunha Rafael Augusto Sperendio Raquel Castelo de Carvalho Ferrari 132

134 Financial Statements 2012 Results

135 INDEX Management Report 1 Financial Statements 18 Balance Sheet Statement of Income Statement of Changes in Shareholders Equity Statement of Cash Flows Statement of Added Value Notes to the Financial Statements 27 Note 1 The Bank and its Operations Note 2 Company Restructuring Note 3 Presentation of the Financial Statements Note 4 Description of Significant Accounting Policies Note 5 Information by Segment Note 6 Cash and Cash Equivalents Note 7 Short-term Interbank Investments Note 8 Securities and Derivative Financial Instruments Note 9 Interbank Accounts Note 10 Loan Operations Note 11 Other Receivables Note 12 Foreign Exchange Portfolio Note 13 Other Assets Note 14 Investment Note 15 Property and Equipment Note 16 Intangible Assets Note 17 Deposits and Securities Sold under Repurchase Agreements Note 18 Borrowing and Onlendings Note 19 Resources from Acceptances and Securities Issues Note 20 Other Liabilities Note 21 Operations of Insurance, Pension and Capitalization Note 22 Other Operating Income/Expenses Note 23 Non-operating Income Note 24 Stockholders' Equity Note 25 Taxes Note 26 Related-Party Transactions Note 27 Employee benefits Note 28 Contingent Liabilities and Legal Obligations Taxes Pension Plan Note 29 Risk Management and Regulatory Capital Note 30 Statement of Comprehensive Income Note 31 Other Information Independent Auditors Report 138 Summary of Audit Comitee Report 141 Declaration of the Board of Directors 143 Fiscal Council Report 144 Declaration of the Executive Board members about the Financial Statements 145 Declaration of the Executive Board members about the Report of the Independent Auditors 146 Members of the Management Bodies 147

136 Banco do Brasil S.A. Management Report, 2012 Dear Shareholders, We present the Management Report of Banco do Brasil (BB) for 2012, in conformity with the requirements of the Brazilian Corporate Law, the National Monetary Council (CMN), the Central Bank of Brazil (Bacen), the Brazilian Securities and Exchange Commission of Brazil (CVM) and BB's Bylaws. 1. Macroeconomic Environment The year 2012 was marked by an increase in the global aversion to risk. The cooling of major emerging economies (particularly the Chinese) influenced the drop of commodity prices, potentializing adverse effects on exports and economic activity of the emerging world. The Brazilian economy, although acknowledged as being more resilient in the face of external problems, did not escape unscathed from the deceleration of global growth, requiring the Government to implement fiscal, monetary and credit measures to stimulate the economy. In this scenario, inflation decreased in comparison with the previous year, and the 12-month accumulated Expanded Consumer Price Index variation was within the target interval. The reduction of the SELIC interest rate to a historical threshold of 7.25% per year and the decline in bank spreads led to a significant reduction in the cost of borrowings for the final borrower. 2. Highlights of the Period We present below a chronological list of some events that merit special emphasis in the period: i) the starting of activities of the Banco Postal (Postal Bank) in BB's service network, on January 2, 2012; ii) iii) iv) on January 19,2012, acquisition of the total shares of EuroBank (currently Banco do Brasil Americas), a North-American financial institution; authorization by the Central Bank of Brazil for the classification as tier-i capital, in the category of a hybrid capital instruments, for the Perpetual Bonds issuances made in January (US$ 950 million) and March (US$ 725 million) of 2012; the launch of "BOMPRATODOS", a new form of relationship between BB and its customers, on April 4, 2012; v) in March, Banco do Brasil reached the milestone of R$ 1 trillion in assets, keeping the conquest in 2012; vi) vii) viii) ix) authorization from the Central Bank of Brazil for reclassifying as tier II capital R$ billion related to the June issuance of Subordinate Debts Instruments; in June, participation of BB in the Rio+20 Conference as one of the main official partners; in September, Banco do Brasil was selected for the Dow Jones Sustainability World Index (DJSI) of the New York Stock Exchange for the first time, in relation to the 2012/2013 period; execution of a contract between BB and the Federal Government in September, under which a loan was granted in the form of a Hybrid Debt Capital Instrument, for funding the 2012/2013 crop, amounting to R$ 8.1 billion, classified as tier I and II capital, as authorized by the Central Bank of Brazil; x) creation, in October, of the Management of Businesses with Cooperatives, by the Bank s Board of Officers, in line with the International Year of Cooperatives established by the United Nations Organization (UNO); xi) xii) xiii) in October, BB carried out its largest funding transaction in the foreign market, through the issue of ten-year debt securities totaling US$ billion; launch of the BB Progressivo II - Mortgage Investment Fund on November 13, 2012, with a bid price of R$ 1.59 billion; moving forward with the corporate restructuring of the Bank s insurance, open-end private pension and premium bonds, in November the Board of Directors authorized the start of studies that will enable the incorporation of a company named BB Seguridade S.A. 1

137 Banco do Brasil S.A. Management Report, Strategic Plan for the Period of 2013/2017 For the 2013/2017 period, Banco do Brasil gave priority to two main objectives: to significantly increase its efficiency and productivity, and to generate sustainable results through businesses which have a strong social orientation. In order to achieve increased efficiency and productivity, the Company will undergo a significant review and simplification of its main processes, which will result in more innovative, convenient and efficient channels, products and services, thus contributing to a reduction in expenses and the generation of better results for the stockholders. Businesses with a strong social orientation, such as the Minha Casa, Minha Vida Program and the Oriented Productive Microcredit programs will remain in the Bank s strategy and play a key role in its corporate mission of fostering sustainable development in Brazil. 4. Economic-Financial Performance 4.1 Overview Banco do Brasil closed 2012 with a net income of R$ 12.2 billion and an annualized return on equity of 19.8%. Earnings per share was R$ 4.30 for the period. Assets amounted to R$ 1.2 trillion, an increase of 17.2% in twelve months, with a return on assets of 1.1% in 2012, giving the Bank the leading position in the Brazilian Financial System at the end of the year, particularly in loan operations, with a 20.4% market share. Shareholders' equity reached R$ 66.1 billion, an increase of 13.1% in 12 months. Table 1. Highlights R$ million Earnings¹ (%) Net Income 12,126 12, Gross Income from Financial Intermediation 26,107 27, Fee Income 18,242 21, Income from Insurance, Pension Plans e Savings Bonds 2,265 2, Administrative Expenses² (28,335) (32,516) 14.8 R$ billion Equity Dec/11 Dec/12 Dec/11 (%) Assets 981 1, Loan Portfolio - Broad Concept³ Deposits and Market Funding Total Deposits Shareholders Equity BIS Ratio % Indicators (%) Earnings per Share (R$) Return on Assets % Return on Equity % thousand Structural Information (%) Base Customers 56,001 58, Total Checking Account 36,121 37, Individuals 33,875 35, Companies 2,247 2, Branches 5,263 5, Employees 113, , Asset Management (R$ billion) Items based on Consolidated Financial Statements; 2 - Refers to the sum of Personnel Expenses and Other Administrative Expenses; 3 - Includes Private Securities and Guarantees Offered; 4 -Time and Demand Deposits, Savings Deposits, Interbank Deposits, Money Market Borrowings, Agribusiness Letters of Credit and Commercial Papers. 2

138 Banco do Brasil S.A. Management Report, 2012 See further information about the economic-financial performance of BB in the Management Discussion and Analysis Report at Stock Performance BB s market value totaled R$ 73.0 billion at the end of December In the theoretical portfolio of Ibovespa in force for the next four months (Jan/2013 Apr/2013), the Bank occupies 8th place, with a market share of 2.934%. BBAS3 was traded in all BM&FBovespa's sessions, in the daily mid amount of R$ million in 2012, as opposed to R$ million in the same period of previous year, and continues to be listed in the theoretical portfolios of the major São Paulo Stock Exchange indexes: Ibovespa, Ibrx50, IGC, ISE and Itag. At the end of 2012, the American Depositary Receipt - ADR Level I Program of Banco do Brasil recorded 19.9 million receipts in circulation. Banco do Brasil, aligned with its profit reinvestment and dividend distribution policy, keeps the payout of 40% of the earned in the form of dividends and interest on own equity with quarterly periodicity. Thus, in 2012 an amount of R$ 4.9 billion was paid to shareholders, of which R$ 1,570.2 million was paid as dividends and R$ 3,353.8 million was paid as interest on own capital. The 60% of the remaining income were used as legal and statutory reserves. 4.3 Informations of Subsidiaries and Affiliates Table 2. Interest in the Capital of Subsidiaries and Affiliates of the BB Banco Múltiplo Equity Share - % Book Va lue Inc ome Ac tivity De c /12 De c/11 De c / Consolida te d Equity Inte re sts Ba nking Se gme nt Banco do Brasil AG. Viena Banking (1) , ,921 16,067 BB Leasing S.A. Arrendamento Mercantil Leasing (1) ,453,732 3,550, ,139 BB Leasing Company Ltd. Leasing (1) ,157 92,126 1,518 BB Securities Asia Pte. Ltd. Brokerage (1) ,891 9,200 (482) BB Securities LLC. Brokerage (1) ,096 55,919 15,425 BB Securities Ltd. Brokerage (1) ,305 86,170 9,517 BB USA Holding Company, Inc. Banking (1) ,734 2,127 (853) Brasilian American Merchant Bank Holding (1) , ,829 8,144 Besc DTVM S.A. Asset Management (1) ,127 7, Banco Patagonia S.A. Multiple Bank (1) , , ,218 Banco Votorantim S.A. Multiple Bank (2) ,504,357 3,811,149 (877,731) EuroBank Banking (1) ,001 (12,897) Inve stme nt S e gme nt BB Banco de Investimento S.A. Investment Bank (1) ,815,300 2,676,091 1,124,347 Se gment of Fund Ma na ge me nt BB DTVM S.A. Asset Management (1) , , ,481 Se gment of Insura nc e, Priva te P e nsion Fund, and Ca pita liza tion¹ BB Seguros Participações S.A. Holding (1) ,887, ,656 BB Corretora de Seg. e Adm. de Bens S.A. Brokerage (1) , ,102 BB Seguridade S.A. Holding (1) ,468,031 - Se gment of P ayme nt Me thods BB Adm. de Cartões de Crédito S.A. Service Rendering (1) ,326 19,124 15,097 BB Elo Cartões Participações S.A. Holding (1) ,843 15,031 (3,812) BB Elo Participações S.A. Holding (2) Elo Serviços S.A. Service Rendering (2) Othe r S e gme nts BB Administradora de Consórcios S.A. Consortiums (1) ,960 98, ,887 BB Tur Viagens e Turismo Ltda. Tourism (1) ,579 10,497 (1,188) BB Money Transfers Inc. Service Rendering (1) ,903 2,464 (934) Cobra Tecnologia S.A. IT (1) , ,563 17,934 BV Participações S.A. Holding (2) ,119 52,186 (38,237) 1 - On 12/17/2012 was approved the creation of the BB Seguridade, Holding that control Insurance business at the Bank. Up to the end of 2012 was held in the Multiple Bank the equivalence result of BB Seguros e Participações SA and BB Corretora de Seg. e Adm. De Bens S.A, having been migrated to the new Holding just the investment balances. (1) Subsidiaries fully included in the accounting consolidation; (2) Joint ventures proportionately included in the accounting consolidation; (3) Affiliates companies proportionately included in the accounting consolidation as defined by Central Bank of Brazil. 3

139 Banco do Brasil S.A. Management Report, 2012 Table 3. Non-Consolidates Interest in the Capital of Subsidiaries and Affiliates S ha re - % Book Va lue Equity Inc ome Ac tivity De c/12 De c/11 De c / Equity Inte re st Mapfre Nossa Caixa Vida e Previdência S.A¹ Insurance Company /Pension (4) , Cadam S.A. Mining (4) ,216 27,999 5,783 Cia. Hidromineral Piratuba Sanitation (4) ,305 2,311 6 Itapebi Geração de Energia Energy (4) ,259 75,719 30,972 Estruturadora Brasileira de Projetos - EBP Service Rendering (4) ,827 1, Consolidated - see note 2 on December (4) Affiliates accounted by equity method. 5. Service Network and Channels Banco do Brasil closed 2012 with 64.2 thousand service points, including its own network, shared distribution channel correspondents, covering 97.5% of the Brazilian municipalities (5,425). The Bank s own network featured 5,362 branches, 13,782 points of service and 44,393 automatic teller machines BB has the largest branches chain of the Country, with a market share of 24.1%. The network of correspondents, identified by the MaisBB brand, closed the period with 11,719 points of service and agreements with other establishments, and 6,195 points of the Banco Postal (Postal Bank). The self-service through the Internet closed 2012 with the mark of 1,752.5 million transactions performed by individuals, corresponding to 19.7% of the total number of transactions. More than 13.6 million clients are authorized to use the channel. Through cell phones million transactions. The public sector self-service through the Internet and cell phones recorded million transactions performed by 21.4 thousand users and Call Center million transactions by 11.1 million customers. In the period the Bank also released access to the Financial Manager through mobile devices ipad and Blackberry, which were added to the other already available mobile connection platforms, such as the ipod Touch, iphone and smartphones with the Android operating system. The Financial Manager reached million operations, being used for more than thousand companies, mainly small businesses. The Bank has opened eco-efficient branches in the district of Pirituba in São Paulo, and in the district of Messejana in Fortaleza. The project reduces environmental impacts and generates savings of up to 20% in electric power and 30% in water consumption, thus contributing for the rational use of natural resources. Abroad, Banco do Brasil conducts operations in 24 countries, and in 21 of them it is present by means of own units. Also, it operates through 1,124 correspondent banks in 139 countries. Moreover, in Argentina, the Patagonia Bank closed 2012 with 187 service points and an area specialized in business with corporate clients. Banco do Brasil Americas, based in the United States, continued to operate the three existing branches and implemented 48 thousand shared automatic teller machines, in addition to Internet and Mobile Banking services. 6. Businesses 6.1 BOMPRATODOS The release of BOMPRATODOS (GOOD FOR ALL) offered many benefits to Banco do Brasil s clients. More than 9 million clients have used products or services with lower fees or prices and over 5 million have taken out loans with lower interest rates. It is noted that 12% of the clients who took out loans had no previous loan transactions with BB. The auto loan was the highlight, once that percentage grew 17%. In addition, the Bank attracted more than 1.5 million new current account holders. It was recorded that 208 thousand clients chose to receive their salaries at BB through the Free Bank Option and 26% of this total obtained a loan or financing after the transfer of the earnings. 4

140 Banco do Brasil S.A. Management Report, 2012 The disbursement in Direct Consumer Credit operations grew 42.1%, reaching a total of R$ 65.8 billion. With the grant of loans with lower interest rates, coupled with the encouragement of the conscious use of loans, which is based on the right choice of the line(s) of credit to be contracted, Banco do Brasil helped to reduce the indebtedness and default of its clients. The main results provided by the BOMPRATODOS in the end of the year were: i) R$ 9.9 billion of disbursement in vehicle financing transactions. (397.2% above the daily average before the BOMPRATODOS); ii) R$ 62.5 billion total disbursements in credit lines giving priority to micro and small companies, a 19.9% increase in relation to the same period in With the new BOMPRATODOS strategic positioning, Banco do Brasil has reduced its fees by up to 34%, and the interest rates of a number of loan facilities by up to 64%, enabling the carrying out of new businesses, mainly by attracting new clients, retaining the clients which are the target public of the Free Bank Option and increasing the profits from clients which had few businesses with BB. With the results achieved, the Bank was able to further improve its business conditions, achieving perpetuity and sustainability in the relationships with its clients, which are based on mutual trust and business ethics. For further information, please check out the website: Loan Portfolio The loan portfolio of BB in broad concept, comprising provided guarantees and private securities, has reached R$ billion in December 2012, with expansion of 24.9% within 12 months, which corresponded to the Bank's domestic credit market share of 20.4%. At the end of December 2012, the credit portfolio in broad concept and formed by transactions with individuals totaled R$ billion. The credit portfolio in broad concept and formed by transactions with companies totaled R$ billion. Agribusiness portfolio is highlighted in the broad concept ended the year with a history balance of R$ billion in agricultural loan and agroindustrial transactions. The delinquency ratio remained under control. The indicator that measures the non-performing loans for more than 90 days (ratio between loans over 90 days past due and the loan portfolio) ended the period in 2.1%. Comparing that indicator with that observed in the Brazilian Banking Industry (BI), of 3.6%, it can be noted that the delinquency ratio in BB remains at low levels. BB also presents a better credit structure than BI. Operations classified at risk levels AA-C closed December 2012 at 94.5% of the total portfolio, against 92.4% observed in BI Individual Customers The main credit lines comprising the portfolio are highlighted as follows: Payroll Loan Payroll loan deduction lending remains as the mode with greater representation in the portfolio for individuals, with 38.6% of the total, already considering portfolio acquisitions and ownership interest in Banco Votorantim. With the customers base qualification strategy and a focus on lines of lower risk, payroll loan portfolio exhibited growth of 14.3% in the last 12 months, which reinforces the Bank's leadership in this segment, with 31.2% market share. The loans granted to civil servants were the most representative of this portfolio, accounting for 86.35% of the total loans. The portfolio is still comprised loans were granted to INSS's retirees and pensioners (8.75%) and employees from the private sector (4.90%). Auto Loans The balance of auto loans transactions, including acquisition of portfolios and ownership interest in Banco Votorantim, reached R$ 35.9 billion, an increase of 14.5% in relation to December We emphasize the growth of the operations originated in Banco do Brasil's branches with accountkeeping customers, which reached the balance of R$ 11.0 billion, showing a progress of 134.9% in relation to the same period of the prior year, boosted by the relationship strategy BOMPRATODOS. Although the disbursement increased, the profile of the new operations continued within the criteria adopted over the last few years, thus assuring the portfolio's quality within the historical series of performance. 5

141 Banco do Brasil S.A. Management Report, 2012 Mortgage Bonds At the end of 2012, mortgage bonds to individuals recorded a balance of R$ 10.2 billion, an increase of 69.0% in comparison with December Disbursements in the year totaled R$ 5.1 billion, an increase of 69.2% in comparison with the same period of The increase in the number of contracts under the Programa Minha Casa, Minha Vida (Housing Financing Program) is concentrated in the household income range from R$ 1,600 to R$ 3,100, using funds from the Government Severance Indemnity Fund. This year the Bank also started to serve the household income range of up to R$ 1,600 as an agent of the Fundo de Arrendamento Residencial (Residential Lease Fund). In 2012, the Bank substantially increased its Minha Casa, Minha Vida operations, achieving a growth of 385,3% in comparison with the previous year. In the second half of 2012, BB also started to operate in the Programa Nacional de Habitação Rural (National Rural Mortgage Program), the aim of which is to reduce the housing deficit in rural areas. Accessibility Credit In February, the Bank launched the BB Crédito Acessibilidade (Accessibility Credit Financing line), in combination with the governmental program Viver sem Limites (Living Without Limit), a national plan for the rights of the handicapped. The new product is intended for customers with a monthly income of up to 10 minimum salaries, for acquisition of assistive technology products, with the interest rate of 0.57% per month and exemption of financial transaction tax. Banco do Brasil operates with exclusivity in granting this type of credit in the manner proposed by the Government, and, in little more than 11 months of contracting, the portfolio reached R$ 14.7 million. FIES In 2012, as a financial agent of the Fundo de Financiamento Estudantil (Student Financing Fund) - FIES, BB carried out 183 thousand operations. The excellent service provided by Banco do Brasil made it possible for the portfolio originated by BB to reach a balance of R$ 6.3 billion, a growth of 276.3% in comparison with the same period of Companies Customers The main amounts which comprise the balance of the corporate portfolio are presented below, segregated between the Micro and Small Enterprises and the Wholesale segments. In the year, highlighting the disbursement of R$ 24.0 billion in onlending operations of BNDES, which represented a share of 28.6% of interest and guaranteed the leadership in the ranking for the period. Micro and Small Companies At the end of 2012, BB had 2.25 million customers that are micro and small companies (SME s) (2.34 million accounts), holding its position as the main partner of the segment and reinforcing its positioning as the "Bank for Micro and Small Companies". The balance of transactions in favor of SMEs was of R$ 88.9 billion, an 30.7% increase as compared to December It is worth emphasizing the allocation of R$ 61.0 billion for working capital, which represented growth of 27.5% in relation to the same period of the prior year. Only one credit line, BB Giro Empresa Flex (BB Working Capital Corporate), showed a balance of R$ 19.2 billion, corresponding to 31.5% of the working capital portfolio. The balance of micro and small enterprise investment financing operations reached R$ 25.9 billion in December, an increase of 40.9% in relation to the same period of One of the highlights is the BNDES card, which reached the balance of R$ 8.9 billion, corresponding to 49.5% of growth in comparison to December Banco do Brasil maintains the leadership of the BNDES Card in the market in amounts disbursed, quantity of cards issued and quantity of transactions. In operations to micro and small-sized companies, Banco do Brasil made full use of the Fundo de Garantia de Operações (Operaction Guarantee Fund) - FGO. At the end of December, there were thousand operations with Fundo de Garantia de Operações (Operaction Guarantee Fund) - FGO coverage, totaling the invested balance of R$ 13.9 billion. Another highlight is BNDES Capital de Giro Progeren (BNDES Working Capital), which is part of the BNDES Progeren (Program for Strengthening Employment and Income Generation Capacity). In 6

142 Banco do Brasil S.A. Management Report, , the funds released totaled R$ 5.8 billion, an increase of 169.8% in comparison with the same period of At the end of 2012, BB supported 248 Local Productive Arrangements, delivering services to thousand ventures. The balance of operations with micro and small companies participating in Local Productive Arrangements reached R$ 3.2 billion. BB s partnership in Local Productive Arrangements aims at expanding credit granting, foster entrepreneurship training, expansion and technological innovation, contributing for access to the markets. In its Directed Productive Microcredit, the Bank's action is aligned to a Federal Government's microcredit program called Crescer. At the end of 2012 the Oriented Productive Microcredit reached R$ million in credit operations for working capital and investments for individual entrepreneurs and micro companies with annual revenues up to R$ 120 thousand. More than 534 thousand customers were benefited throughout the country. Wholesale Clients The service model in four segments, Middle, Upper Middle, Corporate and Large Corporate, allowed an expressive improvement in negotiation relationship, especially in what concerns rates and terms, and allowed the provision of more competitive conditions to customers. In December, the loan portfolio of wholesale customers in the broad concept, which includes private securities and guarantees provided by the Bank showed a balance of R$ billion, a 30.1% growth in 12 months. The main Structured Operations totaled over R$ 41.8 billion in new contracts in Out of that total, BB's share was R$ 21.4 billion, of which R$ 6.7 billion in long-term financing operations such as with the BNDES, the Fundo Constitucional do Centro-Oeste (Center-West Region Constitutional Fund) FCO and the Fundo da Marinha Mercante (Merchant Marine Fund) - FMM, and R$ 14.7 billion in Capital Market, through debentures, promissory note issuances and quotas of receivables investment funds FDIC s, in addition to receivables, facilities and long-term working capital operations Agribusiness BB continues to act as the main partner of the Brazilian agribusiness with a market share of 62.5% in the National Rural Credit System. Agribusiness portfolio in the broad concept ended the year with a balance of R$ billion in agricultural loan and agroindustrial transactions. This sum represents an increase of 20.8% in relation to December/2011. Of the total agribusiness portfolio, R$ 24.2 billion refers to loans under the Programa Nacional de Fortalecimento da Agricultura Familiar (National Program for Strengthening Family Agriculture) - Pronaf, R$ 11.9 billion under the Programa Nacional de Apoio ao Médio Produtor Rural (National Program for Supporting Medium-Sized Rural Producers) - Pronamp, R$ 39.1 billion refers to loans to other producers, R$ 26.6 billion refers to loans to agribusiness companies and R$ 6.3 billion refers to loans to agricultural cooperatives. In the contracting of rural credit loans, special emphasis is placed on the use of risk mitigation mechanisms (bad weather and prices). In December, 53.0% of the agricultural costing operations contracted in the harvest of 2012/2013 were covered with production insurance (Agricultural Insurance or Proagro), price insurance (options contracts). Credit support for agribusiness sustainability is present in the Pronaf Agroecologia (Agroecology), Pronaf Eco (Ecology), Pronaf Florestal (Forestry) and the Programa de Agricultura de Baixo Carbono (Low Carbon Agricultural Program) - ABC Program. The ABC Program program encourages rural producers to use agriculture and livestock raising techniques that reduce the issue of greenhouse gases and deforestation. It was a highlight in 2012, with over 7,126 loans contracted, reaching a total of R$ 2.7 billion. From July to December 2012, BB had invested R$ 1.6 billion in the ABC program, of a total of R$ 1.5 billion forecast for the entire 2012/2013 crop. Plantation financing under the Direct Planting System, one of the technologies included in the voluntary commitments assumed by Brazil in the COP-15, has an expressive volume, corresponding to 50.3% of the total amount financed for agricultural costs by BB in the 2012/2013 crop. 6.3 Funding BB's funding reached R$ billion at the end of December 2012, including domestic and international markets. The following were the highlights in domestic funding: 7

143 Banco do Brasil S.A. Management Report, 2012 i) R$ 34.0 billion in agribusiness credit letters; ii) iii) iv) R$ 4.0 billion in onlendings of funds and programs and R$ 86.3 billion in judicial deposits and in bonds covering court-ordered government payments; R$ 8.1 billion allocated to the financing of operations in the agriculture and livestock raising segment related to the 2012/2013 crop, through a contract entered into between BB and the Federal Government, granting credit in the form of a Hybrid Debt Capital Instrument, the amount of which is eligible as Tier I and II capital; R$ 5.21 billion in Subordinate Debts Financial that are classifiable as tier II capital. Considering that issuance, the balance of operations classified as subordinate debt in the domestic market, totaled R$ 10.3 billion in nominal amounts. In the international market, BB conducted 5 issuances, 2 of which supported by perpetual subordinate debt securities classifiable as tier I capital and in conformity with Basel III guidelines, 1 issuance of subordinate securities classifiable as tier II capital and 2 issuances of senior notes. Considering those issuances, the total volume of current operations at nominal amounts is US$ billion; Marking its return to the Japanese market in September, Banco do Brasil executed government funding of senior debt in Japan ("Euro-Yen operation ) in the amount of JPY 24.7 billion, equivalent to approximately US$ 317 million. BB s largest funding transaction in the foreign market was carried out in October, through the issue of ten-year debt securities totaling US$ billion. Because of the demand, which exceeded US$ 11.4 billion, the transaction s rate was one of the lowest rates ever contracted by a financial institution in Brazil Asset Management Banco do Brasil, through BB Gestão de Recursos - BB DTVM, is the leader in investment fund national industry since At the end of 2012 reached R$ billion in assets under management, with a market share of 20.0%. The highlights in the period are: i) the volume of funds invested in Extra-Market Funds, not considered in the Anbima ranking, totaled R$ 75.4 billion; ii) iii) iv) the volume of funding of R$ 1.5 billion achieved by the group of Allocation Funds, in the Private Banking segment; the launch, in February, of a public offering for shares of the Bank's first Office Income Mortgage Investment Fund, for acquisition of commercial properties from Previ and generating monthly income for shareholders from the rental paid by renters; the launch, in March, of the first Fundo de Investimentos em Participações (equity investment fund) - FIP in its portfolio, called Brazil Ports and Logistical Assets Fund, which obtained funding in the amount of R$ million as subscribed capital. In relation to funding transactions with a social and/or environmental focus, the Bank offers the following funds in its portfolio: (i) BB Referenciado Social 50; (ii) BB Ações Índice de Sustentabilidade Empresarial Jovem; (iii) BB Multimercado Balanceado LP Jovem; (iv) BB Multimercado Global Acqua LP Private; (v) BB Ações Carbono Sustentabilidade FIA and BB Ações Carbono Sustentabilidade com Opção de Venda FIA. The BB DTVM is a signatory of the Principles for Responsible Investment issued by the United Nations and is developing a method for integrating environmental social and corporate governance themes in investment decision-making. Funds management in Banco do Brasil is directed to all market segments and, since 2006, received from Moody's, the maximum score (MQ1) in Management Quality Excellence. In the Private Banking segment, Banco do Brasil closed 2012 with R$ 66.4 billion in managed funds. In credit this segment presented the balance of R$ 6.4 billion at the end of December, an increase of 70.0% in 12 months. 6.5 Government Clients Banco do Brasil is the main financial agent in 16 states, 16 capitals, and over 433 municipalities, and is in charge of centralizing the business between them. Its participation in the federal, state, and local 8

144 Banco do Brasil S.A. Management Report, 2012 governments in the implementation of public policies, projects, and programs turns the bank into a developer of social businesses and the propeller of the Country's development. Proinveste (Program for Supporting Investments in the Brazilian States and Federal District) is a line of credit whose objective is to increase the investment capacity of the Brazilian States and Federal District through transfer of funds by the National Bank for Social and Economic Development - BNDES. In 2012, Banco do Brasil carried out nine operations. 6.6 Cards Revenues from credit cards increased 23.0% in comparison with the previous year. The intense use of cards as means of payment and an instrument that grants access to the traditional credit facilities has increased the revenues from these products, especially in the corporate segments and among BNDES card clients, which together grew 33.9% in the year. In 2012, BB increased the number of businesses with the Ourocard Crediário cards, reinforcing its strategy of offering consumer loans through the BB Crediário line, which increased the disbursement of this line of credit by 271% in comparison with the previous year. Furthermore, in November 2012, BB started to offer BB Crediário loans to the holders of cards with the Elo brand. 6.7 Insurance, Pension Plans and Premium Bonds The BB Mapfre Group maintained the 1st position in the collection of insurance premiums in the Brazilian market. BB Mapfre SH1, the company that concentrates the insurance companies of the life, housing and rural segments, recorded revenues of R$ 4.7 billion and an income of R$ million at the end of Mapfre BB SH2, the company that brings together the insurance companies of the auto, property and affinity segments recorded revenues of R$ 6.6 billion and a net income of R$ 264,2 million. In the open private pension segment, Brasilprev obtained a managed portfolio of R$ 67.6 billion, recorded a growth of 37.4% over the last twelve months, holding a market share of 26.0% in collection at the end of With regard to closed-end private pension plans, BB Previdência ended the year with R$ billion in equity, 41 corporate plans by 54 sponsoring companies, 2 plans created by 2 trade and professional entities, and 77 thousand participants. In 2012, another highlight was the increase of R$ 3.3 billion in the private pension inventory of the private business model, whose current volume is R$ 10.8 billion. Brasilcap presented revenue 17.6% higher than in the year 2011, totaling R$ 3.9 billion. Its technical provisions exceeded the amount of R$ 6.5 billion, which represents growth of 29.4% and consolidates the leadership position in the market. 6.8 Capital Market In the domestic capital market, BB offers share purchase and sale services through its network of branches, the Internet (home broker) and mobile devices. The amount traded was R$ billion and 827 thousand businesses were carried out, R$ billion of which through the new home broker. In November, the BB Progressivo II - Mortgage Investment Fund was established, with assets consisting of 64 rented properties in all regions of Brazil, and to own Banco do Brasil. The properties will continue to be used by the Bank and have been leased for an initial period of ten years. In the public share offering held in the same month, 15,919,690 shares were subscribed and paid up in the amount of R$ each. According to the ranking of the Anbima (Brazilian Financial and Capital Markets Association), in 2012, with the intermediation of BB-Banco de Investimento - BB-BI: i) coordinated 82 issues of fixed-income securities, totaling a volume of R$ 21,279 million, holding the 3rd position in the consolidated origination ranking, with a market share of 19.5%; ii) coordinated 78 issues of debentures and promissory notes, with a total origination volume of R$ 20,806 million; iii) carried out transactions involving Mortgage Backed Securities - CRIs and Receivables Investments Founds - FIDCs which generated a total of R$ million in the securitization market; 9

145 Banco do Brasil S.A. Management Report, 2012 iv) coordinated 7 public share offerings totaling R$ billion in the variable income market. In terms of distribution, BB reached the 5th position in ranking, representing 9.3% of market share; v) took part in 4 mergers and acquisitions, which totaled R$ 2,251 million, holding the 11th position in Anbima's consolidated ranking accumulated up to September, 30, the latest available data. 6.9 Services By means of the bank collection, tax deposit form collection and standing order services, Banco do Brasil provides services to over 590 thousand companies, which brought in R$ 926 billion in 2012, with a total of billion in securities. These services added R$ billion in revenue, growth of 2.18% in relation to Authorized Direct Debit had 1.23 million electronic drawees and 13% market share, and over 23.7 million bank payment forms were electronically processed. In the payroll agreement segment, the Bank processed R$ billion. BB served a total of 12 million public officers and employees from private enterprises with this service. As far as benefit payments are concerned, which were carried out through a specific card and credited to the beneficiary's bank account, more than R$ 7.8 billion/month of benefits related to a several government programs were paid. In relation to tax collection, the amount raised in 2012 was R$ billion, an increase of R$ 5.8 billion or 2.1% in comparison with the previous year. The Bank's outstanding product was DARF, which grew 14.5%, totaling R$ 162 billion. In the cooperative sector, BB has made available the Compe (Centralized Check Clearance System) and SPB (Brazilian Payment System) Integration Services. By the end of 2012, the service had been rendered to 325 credit cooperatives, involving 463,799 cooperative members. By means of the Licitações-e portal, 51 thousand bidding processes in the total amount of R$ billion. BB Administradora de Consórcios ended 2012 with 401 thousand active quotas, growth of 15.6% in 12 months. The automobile segment, which grew 18.4%, reaching 369 thousand quotas in December, merits special emphasis. There were 130 thousand new consortium quotas sold in the period, representing R$ 4.0 billion in letters of credit Pension Institutes Banco do Brasil is the leading financial institution in terms of revenues from Private Social Security Regimes, with total managed funds of R$ 24.4 billion in December, and fee generation of R$ 49.2 million in In 2012, the Bank increased its development and sustainability of the civil servant service social security system, in support of the government's policies. The Bank has promoted and actively participated in events held in partnership with the Ministry of Social Security and in specific training and social security governance programs for managers, directors and employees of Private Social Security Regimes Internationalization In the US, the release of the brand Banco do Brasil Americas in October marked BB s 204th anniversary and the start-up of the operations of the bank acquired in Florida (formerly Eurobank), laying the grounds for the expansion of the Bank s operations in the North-American market. In addition to the brokerage houses based in London and New York, Banco do Brasil has opened BB Securities Asia in Singapore and started to serve the main investment markets. In Europe, the Bank is continuing to improve the existing governance framework and consolidating the implementation of the business support center in Portugal - BB Europa Servicing Center. Banco Patagonia in Argentina presented an increase of 48.6% in its result for 2012 in comparison with 2011, which reflects the impact of the BB governance on this subsidiary. Loan operations increased by 42.0%. 10

146 Banco do Brasil S.A. Management Report, Foreign Trade In the foreign trade, BB maintained its leadership of the export and import exchange market, with volumes of US$ 63,640.5 million and US$ 46,894.1 million, and market shares of 27.1% and 21.8%, respectively. BB reached the milestone of US$ 36,787.9 million and US$ 34,084.3 million in purchase and sale transactions, respectively, in exchange market. A special highlight is the prepaid foreign currency card called Ourocard Visa Travel Money, which has reached 56.3% of the total foreign currency sales for international traveling (cash exchange). Export operations (advances before and after exports) stood out with concessions of US$ 15.3 billion and a market share of 32.1%. In relation to imports, the financed volume was US$ 988 million. In onlending from governmental programs, financing disbursements under the Programa de Financiamento as Exportações (Export Financing Program) - Proex totaled US$ 447,064 thousand and other disbursements in the BNDES-Exim line reached US$ 924,810 thousand. Online exchange and foreign trade services conducted through the Internet represented 68% of exchange contracts for exports and 49% for imports. BB also offers international business training services. In 2012, 8,652 people were trained throughout the country, exceeding by 36.55% the result obtained in To permit import, export and drawback operations in all Brazilian regions, through an operation agreement between Banco do Brasil and the Ministério de Desenvolvimento, Indústria e Comércio Exterior (Ministry of Development, Industry and Foreign Trade) - MDIC, 785,644 documents were analyzed in Corporate Management 7.1 Corporate Governance Banco do Brasil's corporate governance structure consists of the Board of Directors (made up of eight members), advised by the Audit Committee, the Compensation Committee and the Internal Audit Department; and the Executive Board, which is made up of the Board of Officers (President and nine Vice-Presidents) and 27 statutory officers. BB also maintains, on a permanent basis, a Board of Auditors made up of five full members and five substitute members. As a good corporate governance practice, the Bank has implemented instruments to assess the performance of the Board of Directors, the Audit Committee and the Executive Board, which enables the mapping and identification of opportunities for the improvement of their actions. In addition to the Bylaws, the Code of Corporate Governance and the Code of Ethics are documents that provide support for Banco do Brasil's best corporate governance practices. In compliance with Central Bank of Brazil Resolution 3,921/2010, Banco do Brasil has created a model for evaluating the performance of Statutory Directors and the Compensation Committee, which is the body responsible for proposing variable compensation policies for Managers of the Conglomerate to the Board of Directors. Decisions are taken collectively at all levels of the Bank. With the purpose of involving the executives in the definition of strategies and approval of proposals for Banco do Brasil's different businesses. The Management uses committees, subcommittees and commissions at a strategic level, which ensure the agility and security for the decision making. 7.2 Market Relations Banco do Brasil makes available a wide range of reports and information to the Brazilian Securities and Exchange Commission and on its Investor Relations website. Banco do Brasil also adopts the practice of inviting the market to conferences whenever its Management finds necessary to provide clarification on specific topics related to the Bank. In 2012, Banco do Brasil took part in 104 meetings with investors and analysts in the country, 9 non-deal roadshows abroad, 11 conferences in the country and abroad, and organized 8 teleconferences on net income with analysts and investors, besides responses to customized service to investor and market analysts. In 2012, in order to strengthen its relationship with individual investors, Banco do Brasil, together with the Association of Capital Markets Analysts and Investment Professionals (APIMEC), held meetings in 11

147 Banco do Brasil S.A. Management Report, 2012 six Brazilian capitals: Porto Alegre, Brasília, Belo Horizonte, Fortaleza, São Paulo and Rio de Janeiro. Altogether, these events brought together over 1,000 people. 7.4 Corporate Controls Risk Management In 2012, Banco do Brasil approved its internal model for capital calculation to cover operational risk: actively participated in discussions about the new banking regulations established under the Basel III Accord and the review exercises promoted by the Basel Committee for Banking Supervision; approved its policy and reviewed the capital management processes and procedures; and converted its explanatory notes on risk management into IFRS format. Further information can be found in the Risk Management Report available on the Investor Relations website. Internal Controls The main aim of the various internal control activities carried out in 2012 was to segregate functions to achieve the goal of assessing the compliance of the processes carried out by the Bank with external and internal laws and regulations, with a review, validation and certification of the controls defined by managers for products, services and processes. Accordingly, we highlight the high level of security observed in the processes for the preparation of the Financial Statements and Reference Form disclosed in Prevention and Avoidance of Money Laundering and Financing of Terrorism The Bank supports and actively contributes to the actions taken within the National System for Prevention and Fight Against Money Laundering through its participation in the meetings for the preparation and implementation of the Enncla (National Strategy for the Fight Against Corruption and Money Laundering), and formalization of Technical Cooperation Agreements with institutions such as the Ministério da Justiça (Ministery of Justice), the Coaf (Council for Financial Activities Control), linked to the Ministério da Fazenda (Ministry of Finance), and the Ministério Público do Estado de São Paulo (São Paulo State Public Prosecution Office). Banco do Brasil also promotes a number of events which provide training for employees on Prevention of Money Laundering Prevention/Terrorism Financing, including training courses, seminars and certifications. In 2012, more than 64.5 thousand employees underwent training. Security of Environments, Service Channels and Information The investments in technology, together with the ongoing training of professionals, contribute to the protection of customers, employees and society. In 2012, the investments in the modernization of the units security apparatus totaled R$ 873 million. The expansion of BB Token and the implementation of the BB Code for clients who own smartphones stood out. The BB Code uses the QR two-dimensional bar code and cryptographic techniques in the transactions carried out on the Internet. It also continued to implement biometrics on automated teller machines and cashiers. In 2012, BB started the migration from Secure Sockets Layer digital certificates (SSL - Secure Sockets Layer) to the ICP-Brasil standard. It also increased the use of ICP-Brasil standard digital certificates in the operating processes, as they are not only an excellent security tool, but also increase operating efficiency thousand foreign exchange contracts were signed using digital certificates, accounting for 57.5% of the total contracts signed in Banco do Brasil, leading to savings of approximately R$ 1,707.1 thousand in the period. In May, the Banco do Brasil Citizen Information Service was opened, in line with the provisions of Law 12,527/11 - Information Access Act. According to the Information Access Act, Banco do Brasil is the tenth entity most strictly supervised by the Brazilian Federal Government. BB Eco Eficiente Program The BB Eco Eficiente (BB Eco-efficiency Program) approved in 2012 developed a set of coordinated actions covering the entire organization, the purpose of which is to generate sustainable profit gains. The program, which has a permanent nature, addresses topics related to the main variables which comprise the Bank s results, from the point of view of efficiency and productivity, and is in line with the supply of global demands for a reduction of the environmental impact of operations. 12

148 Banco do Brasil S.A. Management Report, Technology As far as strategic projects are concerned, we highlight the project for the modernization of the technological infrastructure on the Bank's premises abroad and the development of a new solution for the processes of the financial area and treasury department, as well as human resources and logistics. The construction of a new Data Processing Center in Brasília, Distrito Federal, is at the conclusion stage. This center will support the safe continuity of businesses with very high availability, even in the event of extreme disasters. In 2012, BB has also heavily invested in the preparation of a strong corporate technological environment to comply with the various regulatory requirements, such as the solutions in progress to ensure alignment with the Basel II standards in the segments of market, credit and operational risk. 8. People 8.1 Talents, Performance and Career In 2012, the Bank held 3 public contests and hired 4,969 new employees. Approximately 15 thousand employees selected from the Talent and Opportunities Database advanced in their careers in 2012 through internal professional development programs. In order to make a follow-up of professional performance, about 113 thousand employees had their performance individually assessed by means of the instrument called "Competency-based Performance Management". With a view to consolidating information on a number of people management and managerial performance indicators, the "People Management Radar" and the "Manager Radar" were launched, which enable the mapping of the profiles of approximately 6,415 units and 5,266 managers. Such tools provide the Bank with subsidies to make diagnoses, monitor performance and establish strategies for the development of managers and their teams. In line with the Bank's internationalization strategy, in April 2012, the Career Advancement Program - Managers of Foreign Units was approved, which will be used to identify and develop career employees to work for Banco do Brasil abroad. 8.2 Compensation and Benefits The Bank improved its variable compensation policy through the implementation of the Programa de Desempenho Gratificado (Rewarded Performance Program) - PDG, which recognizes the branch managers and regional superintendents of the Bank's Business Network who achieved the highest performance. Of these employees, the 30% which achieved the best rating in the second half of 2011 received a bonus in June In addition, Profit Sharing for the 2nd half of 2011 and the 1st half of 2012, paid in February and October 2012, respectively. The table below shows the remuneration and the benefits granted to the employees: Table 4. Compensation and Benefits R$ million (%) Payroll¹ 13,503 15, Supplementary Pension² Health Care Plans² Statutory Profit Sharing³ 1,791 1, Training (27.7) 1 - Expenses with salaries, benefits, social charges and personnel provisions 22.c (Personnel Expenses); 2 - Funding of supplementary pension and health care plans, pursuant to Note 22.c and 27 (Bank's contributions table to benefit plans); 3 - Amount set aside for Profit and Gain Sharing, as Statement of income for the year; 4 - According to Note 22.c. 8.3 Corporate Education In 2012, instructor-led training programs reached 50,850 employees. Bank's new concept implementation - BOMPRATODOS - was preceded by distance trainings using video classes and training monitoring system, with 10,415 employees trained in the Strategic module, 52,565 in the 13

149 Banco do Brasil S.A. Management Report, 2012 Negotiation course, and 61,762 in the Mortgage Credit and Vehicle course. In partnership with Banco Postal (Postal Bank), 8,579 multipliers were formed and they trained 12,000 employees. As regards Minha Casa Minha Vida project, 5,469 employees were trained to develop specific knowledge on mortgage credit. Also, 4,100 agents were prepared to work in the Guided Productive Microcredit and training actions were started to transform sales force. The Bank also provided training on Operational Efficiency and Strategic Planning for 160 Executives and 1,153 Managers of Divisions and Support Units, with a view to spreading the concept and culture of productivity and efficiency. Through the Knowledge Internal Certification Program, 28,655 employees were certified, fact that shows the high interest of employees to be up to date with matters related to the exercise of their job. In line with the BB Corporate Strategy, in 2012, R$ million were invested in entrepreneurial education, and Universidade Corporativa do Banco do Brasil (Banco do Brasil Corporate University) - UniBB celebrated its tenth anniversary. 9. Sustainability In relation to BB s actions in the social and environmental spheres during the year, the following stand out: i) were one of the main official partners in Rio+20 Conference, carried out in June, which included more than 45,000 accredited participants, with broad participation of foreign delegations, heads of state and civil society representatives. The Banco do Brasil Foundation also participated with a focus on civil society and actions concentrated in the People s Summit; ii) iii) iv) during Rio+20, it joined the Green Municipalities Program, which fosters development in the State of Pará; in August, the Social Businesses Workshop was held with representatives from Yunus Social Business (YSB) on the main experiences related to this topic, with a view to identifying new ways of operating in the low income segment; the Business Pact for Integrity and Against Corruption was signed, whereby the Bank made a public commitment to spread the best business ethics practices; v) for the first time, the Bank was selected for the Dow Jones Sustainability World Index (DJSI) of the New York Stock Exchange in relation to the 2012/2013 period, consolidating its international reputation as a sustainability-driven company; vi) vii) viii) ix) xi) xii) was ranked by the Brazilian GHG Protocol Program, for the second consecutive year, in the Gold Category for its inventory of Greenhouse Gas Emissions; selected, in partnership with Fundação Banco do Brasil (Banco do Brasil Foundation) and the Cooperforte Institute, 62 third-sector projects supported by volunteer employees throughout Brazil. The funds, which amount to more than R$ 3.6 million, are allocated to actions that create jobs and preserve the environment. In addition, in the third quarter, the fourth 4th public bid to support projects aimed at the promotion and protection of children s and adolescents rights, using funds arising from tax relief, was opened. selected, in partnership with Fundação Banco do Brasil (Banco do Brasil Foundation) and Brazilian Development Bank, 39 projects of cooperatives/associations supported by the Sustainable Regional Development Strategy all over Brazil. The funds provided were invested in projects that create jobs and income, totaling R$ 8.8 million from Fundação Banco do Brasil (Banco do Brasil Foundation) and R$ 12 million approved by BNDES (Brazilian Development Bank); had its sustainable performance recognized once again by being listed on the BM&FBovespa Corporate Sustainability Index for the 2012/2013 period, a position the Bank has maintained since the disclosure of the first portfolio in 2005; updated its BB Agenda 21 Sustainability Plan for the 2013/2015 period, with a view to supporting the improvement of the BB sustainability practices and helping the Bank become a world reference in this area; participated in the 18th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP 18) held in Qatar. In 2012, the Sustainable Development Strategy, which seeks to foster sustainable growth in the areas where the Bank operates, recorded a total of 4.1 thousand Business Plans under implementation, 14

150 Banco do Brasil S.A. Management Report, 2012 benefiting 1.5 million people in 4.1 thousand Brazilian municipalities. The balance of the operations contracted reached R$ 14.9 billion, R$ 9.4 billion (63.3%) of which refers to the Pronaf (National Program for the Strengthening of Family Agriculture). Under the Programa Água Brasil (Brazilian Water Program), in March 2012, BB, in partnership with the Equator Principles Association, WWF/EUA and the Business and Biodiversity Offsets Program B2B, held the workshop Biodiversity for Banks, which was attended by the main Brazilian banks, and whose purpose was to provide guidance for banks on the process of including the risks related to biodiversity and ecosystem services in their financing and investment decision-making. Also in 2012, BB issued specific social and environmental guidelines for the grant of loans to the agribusiness and electricity sectors, and, moving forward with this initiative, suggested guidelines for the grant of loans to the construction industry and mining sectors, which were submitted to the analysis of the stakeholders at a panel held for this specific purpose in November For more information on BB's sustainable development actions, please visit the website Legal Information In accordance with criteria defined by the Brazilian Statute of Micro and Small Businesses (General Law of Micro and Small Businesses), 96.3% of BB's business clients are classified as micro and small businesses. The volume of funds used by SMEs reached R$ 59.1 billion in 2012, representing a 27.8% increase as compared to the previous year. The balance of working capital operations contracted by micro companies totaled R$ 9.95 billion, and of small companies totaled R$ 30.4 billion. Investment operations aimed at micro companies reached R$ 4.0 billion; for small companies, investments reached R$ 13.8 billion. In compliance with CVM (Securities and Exchange Commission of Brazil) number 381, Banco do Brasil reports that KPMG Auditores Independentes has not provided, to the Bank and subsidiaries, any services that could affect its independence in relation to audit work in In the engagement of services not related to external audits, Banco do Brasil adopts procedures based on the applicable legislation and on internationally accepted principles that preserve the independence of the auditor. These principles consist of: (i) the auditor should not audit his own work and (ii) the auditor should not act managerially before his client nor promote the interests of his client. In 2012, Banco do Brasil contracted KPMG Auditores Independentes to render other services not related to the Bank's and its subsidiaries' external audit, in the amount of R$ 1,753.5 thousand, which represent 16.8% of fees for audit external services. The contracted services were: Hire Date End date of hiring Type of service Amount of pay (R$) 11/14/ /31/2012 Corporate income tax and advisory services 15, /27/ /29/2012 Risk Based Capital Requirements analysis 10, /01/ /01/2013 Tax Consulting / Tributary 149, /24/ /23/2013 Review of the deductibility of losses on receivables 90, /31/ /31/2013 Permanent Tax Advisory 177, /20/ /31/2012 Revision of the Declaration Integrated Economic and Fiscal Information of Legal Entities (DIPJ) 84, /20/ /31/2012 Diagnosis and risk matrices segregation of functions in systems 1,002, /26/ /31/2013 Assessment ICAAP 102, /23/ /31/2012 Working revision Income Tax Declaration Companies , /26/ /31/2012 Payroll tax relief arising from Medida Provisória 563 4, /27/ /31/2012 Advice - Consultation capital reduction 20, Tax Revisions, DIPJ, Statement of Verification of 09/18/ /31/2012 Social Contributions (DACON) 61, /29/ /20/2012 Cost of the final product 28, According to rules that govern external audit services, KPMG Auditores Independentes presents to Banco do Brasil, on a periodic basis an Independence Letter. 15

151 Banco do Brasil S.A. Management Report, 2012 In Banco do Brasil, contracting of services related to the external audit should be preceded by an opinion of the Audit Committee. According to the provisions of Securities Exchange Commission of Brazil Resolution 488/05, BB explains that: i) Fixed investments in 2012 totaled R$ 2,086.0 thousand, with emphasis on investments in new service locations and on branches environment improvement (R$ 1,301 million), as well as on information technology (R$ 705 million); ii) iii) iv) has R$ million non-active tax credits arising from requirements defined by National Monetary Council Resolutions 3,059 of December 20, 2002 and March 31, 2006, and presented in a financial statement note for 2012; records in a memorandum account, according to rules provided for in Cosif (Financial Institutions Accounting Plan), the amount of R$ 20.8 billion deriving from Co-obligations and Risks in Guarantees Provided to clients and companies of the BB Conglomerate; in 2009 was entered contract Interbank Revolving Credit Line to release with Banco Votorantim, by the limit equivalent to the value of equity of that institution. Transaction was accounted for in memorandum accounts, in accordance with rules provided for in the Cosif (Financial Institutions Accounting Plan) and is published in Note 'Related Parties' of Financial Statements for In compliance with article 8 of Central Bank of Brazil Circular 3,068/2001, Banco do Brasil confirms that it has the intention and financial capacity to hold until maturity the securities classified in the "Securities Held to Maturity" category. The financial capacity is backed by a cash flow forecast that does not take into consideration the possibility of selling these securities. Moreover, Banco do Brasil, its Shareholders, the Officers, and the members of the Board of Auditors Committee undertake to resolve all and any dispute or controversy related with the New Market Listing Regulation by means of the Arbitration Chamber of the Bovespa Market, in compliance with a commitment clause contained in the By-laws of Banco do Brasil. 11. Main Awards Received in the Period i) Licitações-e Portal was again the great winner of the VI Award, granted during the VII Congresso Brasileiro de Pregoeiros (VII Brazilian Barkers Congress), held in March, under categories: Best Electronic Trading Session System 2011 and Best Interaction with Supplier 2011 and Greater number of trading sessions performed and completed in 2011 ; ii) iii) iv) in April, BB's President, Aldemir Bendine, received from Minas Gerais State governor, Antonio Anastasia, the Inconfidência Medal, the greatest commendation granted by Minas Gerais state, which is annually granted to personalities and entities that contributed to Minas Gerais state development; in the annual publication The Banker s Deals of The Year 2012, released in April, Banco do Brasil, which issued US$ 1 billion in subordinated debt abroad in January, was the winner in the "most impressive funding transactions" category; in May, BB was chosen as the bank that provided the best service to its customers and the country in 2011, thus receiving the diploma of "Quality in Banks ", granted by magazine Banco Hoje; v) in May, BB reached the first position in equity sales ranking of Bloomberg, one of the main world agencies that provide information to the financial market; vi) vii) viii) also in May, Banco do Brasil received a recognition plate on the important role it performs in disclosing and contributing to the achievement of Millennium Objectives in Brazil; Banco do Brasil leads world ranking of the most robust bank of the planet, according to survey conducted by the US independent risk classification agency - Weiss Ratings. The survey was published in BankingMyWay website, specialized in the international bank market; in September, the BB External Ombudsman s Office was recognized as one of ten best ombudsman s offices in Brazil by the Ouvidorias Brasil Award, a joint initiative of the Associação Brasileira de Ouvidores (Brazilian Association of Ombudsmen), the Associação Brasileira das Relações Empresa/Cliente (Brazilian Association of Customer/Enterprise Relationships) and the Consumidor Moderno (Modern Consumer) magazine. 16

152 Banco do Brasil S.A. Management Report, 2012 ix) in September, BB was acknowledged as a leading company by the Época Green Company Award; x) in September, Banco do Brasil was the winner of the 2012 Brazil Intangibles Award (PIB) in the special category Brazil Top Intangibles for the Banking sector, and held the first position in the general ranking for the first time in September; xi) xii) in September, Banco do Brasil received, for the second consecutive year, the Corporate Architecture Award, this time for the project developed by the Estilo 2.0 Santa Maria (Rio Grande do Sul State) Agency in the category Inland Professionals Projects Completed ; in September, BB held the third position in the Brand Finance ranking of the most valuable brands in Brazil and Latin America in 2012; xiii) Banco do Brasil held the first position in the Banks category and the third position in the 2012 general ranking of Reliable Brands of Reader s Digest; xiv) xv) xvi) also in September, BB was considered the favorite brand of the new Brazilian middle class according to a survey conducted by Data Popular; BB has been the top of mind brand in the "Banks category of the Folha Top of Mind award since its very first edition. It was also the top of mind brand in the Finance category and, among financial institutions, it is also the first brand to be mentioned when it comes to the Soccer World Cup and Olympic Games; in October, the 2012 issue of the Guide to Responsible Banking of the Instituto Brasileirode Defesa do Consumidor (Brazilian Consumer Defense Institute), where BB stood out as the only bank among its peers to achieve a performance classified as good ; xvii) also in October, BB was considered as the largest bank in Latin America by the AméricaEconomia Intelligence magazine; xviii) in a survey disclosed in November by the CVA Solutions consulting firm, the Bank held the first position in the ranking of the institutions that most appeal to account holders"; xix) xx) also in November, the BB s BOMPRATODOS (GOOD FOR ALL) campaign was one of the winners at the 25th edition of Marketing Best award, which is annually held by the Referência Publishing House through the Marketing magazine and Madia Mundo Marketing; the Universidade Corporativa do Banco do Brasil (Banco do Brasil Corporate University) achieved the following public recognition in 2012: Best Corporate Education Program in Brazil, National Benchmark in Learning & Performance in Brazil in 2012, and was listed as one of the Best Brazilian Corporate Universities by the Brazilian CUBIC (Corporate University Best-in- Class) Award. Acknowledgments We thank the dedication and diligence of our employees and collaborators, as well as the trust of shareholders, customers and society. For more information, visit the Investor Relations Website: 17

153

154

155

156

157

158

159

160

161

162 Notes to the financial statements 27/02/ :37 1 The Bank and its Operations Banco do Brasil S.A. ( Banco do Brasil or the Bank ) is a publicly traded company established under private law, with both public and private stockholders, and is subject to the requirements of Brazilian corporate legislation. It is headquartered in Setor Bancário Sul, Quadra 1, Lote 32, Bloco C, Edifício Sede III, Brasília, Distrito Federal, Brazil. Its purpose is to carry out all asset, liability and accessory banking operations, to provide banking services, to promote financial intermediation and originate financial transactions in various forms, including foreign exchange transactions and supplementary activities, with an emphasis on insurance, private pension, capitalization, securities brokerage, administration of credit/debit cards, consortiums, investment funds and management portfolios, and to practice any activities permitted for the institutions that are part of the National Finance System. It is also the main financial agent of the Brazilian Federal Government and is therefore required to carry out the functions attributed to it by law, specifically those of article 19 of Law 4,595/ /02/ :37 2 Company Restructuring a) Acquisitions BB Americas (successor of EuroBank) On , the Bank concluded the acquisition, through cash payment of US$ 6 millions, of the entire capital stock and voting capital of BB Americas, a north-american financial institution, corresponding to 835,855 common shares. Investment and goodwill balances were measured based on adjusted equity of BB Americas, on December 2011, converted at the exchange rate of Amount paid 10,651 Adjusted equity value on (27,203) Value of goodwill (1) 37,854 Goodwill 18,058 Goodwill of assets fair value 19,796 Capital investment 90,098 27/02/ :37 BB Americas, a close corporation headquartered in the state of Florida (United States), has a network of three branches located in the cities of Coral Gables, Pompano Beach and Boca Raton. The BB Americas acquisition is expected to contribute to Banco do Brasil s expansion of business in the United States, through its operations in the North-American retail market, focusing on Brazilian and Hispanic people that live in the USA. b) Partnership Elo Serviços S.A. The Bank, Banco Bradesco S.A. (Bradesco) and Caixa Econômica Federal (Caixa) concluded the negotiations to maintain Caixa Participações S.A. (Caixa Participações) as an Elo Serviços S.A. (Elo Serviços) shareholder, through the Stockholders' Agreement between Elo Participações S.A. (Elo Participações) and Caixa Participações. Elo Serviços is a private operating company that has development and management functions related to Bandeira Elo, which went into the national market on The agreed equity structure has the following composition: Elo Serviços % of Total Share Elo Participações 66,665 Caixa Participações 33,335 Elo Participações is the company which equity interest held by the Bank and by Bradesco are 49.99% and 50.01% of the entire capital, respectively. 27

163 Notes to the financial statements c) Corporate reorganization in the area of insurance, private pension plans, capitalization and reinsurance BB Cor Participações S.A. On , the Bank established the company BB Cor Participações S.A. (BB Cor), which now holds 100% of the equity of BB Corretora de Seguros e Administradora de Bens S.A. (BB Corretora). The Bank s objective is to increase the market share of BB Corretora, which will commercialize, inside and outside of the Bank s distribution channels, third-party products in the branches where the Bank doesn t have exclusivity agreements with partners companies. BB Cor will also hold equity interest in other companies which operates as brokers in the sale of insurance, open pension funds, capitalization and/or health insurance and dental plans in which the Bank may participate in the future. BB Seguridade Participações S.A. On , the Bank established the company BB Seguridade Participações S.A. (BB Seguridade), which now holds the following equity interests: a) 100% of the shares issued by BB Cor. b) 100% of the shares issued by BB Seguridade Participações S.A., which in turn holds the following equity interests: (i) (ii) (iii) (iv) (v) 74.9% of the total shares (of which 49.9% are common shares) issued by BB Mapfre SH1 Participações S.A., which operates in the field of life insurance in partnership with Grupo Mapfre. 50.0% of the total shares (of which 49.0% are common shares) issued by Mapfre BB SH2 Participações S.A., which operates in the field of property insurance also in partnership with Grupo Mapfre. 74.9% of the total shares (of which 49.9% are common shares) issued by Brasilprev Seguros e Previdência Privada S.A., which operates in the field of open pension fund in partnership with Principal Financial Group; 66.7% of the total shares (of which 49.9% are common shares) issued by Brasilcap Capitalização S.A.,which operates in the field of capitalization in partnership with Icatu Seguros S.A. e a Cia de Seguros Aliança da Bahia; and 100.0% of the shares issued by Nossa Caixa Capitalização S.A., which operates in the field of capitalization. The Bank has the following objectives in setting up the BB Seguridade: a) to consolidate, under a single company, all Banco do Brasil activities in the field of insurance, capitalization, open pension funds and related activities, including any other future expansions of these activities, in Brazil or abroad, organic or otherwise; b) to provide economies of scale in these operations; and c) to obtain cost and expenses reduction in the security segment. The Bank intends to do a public offering of the shares of BB Seguridade and make sure that its management will be independent and committed to concepts of transparency, accountability, equality and social and environmental responsibility. The administration of BB Seguridade, supported by monitoring tools that align the executives behavior with the interests of shareholders and society, will be conducted in conformity with the best corporate governance practices, so that BB Seguridade may be listed in the special segment (Novo Mercado) of the stock market of BM&FBovespa S.A. - Bolsa de Valores, Mercadorias e Futuros. Brasilprev Seguros e Previdência S.A. On , the Stock Purchase Agreement to the acquisition, by Brasilprev, of the entire capital stock and voting capital from Brasilprev Nosso Futuro Seguros e Previdência S.A. (successor of Mapfre Nossa Caixa Vida e Previdência - MNCVP), that was owned by BB Seguros (49%) and Mapfre Brasil Participações S.A. (51%), was formalized. The adjusted amount to the transaction totalized R$157,974 thousand, adjusted by CDI rate until the settlement date. On , the agreement was settled by the amount of R$166,958 thousand. 28

164 Notes to the financial statements Operation summary: Position at 31 July, 2012 Amount paid 166,958 MNCVP s equity 24,637 Goodwill recorded on Brasilprev Seguros e Previdência S.A. 142,321 Percentage of Brasilprev Seguros e Previdência S.A. total share % Proportionate goodwill 106,734 Unrealized results elimination, impacting goodwill 52,486 Remaining goodwill consolidated position 54,248 3 Presentation of Financial Statements The Financial Statements have been prepared in accordance with the accounting guidelines derived from Brazilian corporation law, the rules and instructions issued by the Conselho Monetário Nacional (CMN), Banco Central do Brasil (Bacen), the Conselho Nacional de Seguros Privados (CNSP), the Superintendência de Seguros Privados (Susep), and Comissão de Valores Mobiliários (CVM), as applicable. The preparation of financial statements in accordance with accounting practices adopted in Brazil, applicable to financial institutions, requires that Management use judgment in the determination and recording of accounting estimates, when applicable. Significant assets and liabilities subject to these estimates and assumptions include: the residual value of fixed assets, the allowance for loan losses, deferred tax assets, provision for labor, civil and tax demands, appreciation of financial instruments, assets and liabilities relating to post-employment benefits and other provisions. The final amounts of transactions involving these estimates are only known upon their settlement. The financial statements include operations of Banco do Brasil in Brazil and abroad (Banco do Brasil), and the consolidated financial statements also include operations of financial and non-financial subsidiaries in Brazil and abroad, Jointly Controlled entities, Special Purpose Entity - Dollar Diversified Payment Rights Finance Company, including the Investment Funds which the Bank controls directly or indirectly, and investments in subsidiaries and associated companies, in accordance with Bacen requirements (BB-Consolidated). In the preparation of these consolidated financial statements, amounts resulting from transactions between consolidated companies, including the ownership interest held by one in another, balances of balance sheet accounts, revenues, expenses and unrealized profits, net of tax effects, were eliminated. Non-controlling interest in net equity and in income were separately disclosed in the financial statements. The balances of balance sheet and income accounts of ownership interest which control is shared with other stockholders were consolidated proportionally to the ownership held in the capital. Leasing operations were considered based on the financial method, and the amounts were reclassified from the heading of leased assets to the heading of leasing operations, after deduction of residual amounts received in advance. The Accounting Pronouncements Committee (CPC) is responsible for issuing accounting standards and interpretations, based on international accounting standards, approved by the CVM. Bacen adopted the following pronouncements of the CPC, applied by the Bank, as applicable: CPC 00 - Statement Basic Conceptual, CPC 01 Reduction in Recoverable Value of Assets, CPC 03 - Statement of Cash Flows (DFC), CPC 05 Related Party Disclosures, CPC 10 Share-Based Payment, CPC 23 Accounting Policies, Changes in Accounting Estimates and Errors, CPC 24 Events After the Reporting Period and CPC 25 - Provisions, Contingent Liabilities and Contingent Assets. Additionally, the Banco Central do Brasil issued CMN Resolution 3,533/2008, which became effective in January, 2012, which established procedures for classification, accounting and disclosure of sale and transfer transactions related to financial assets. This Resolution establishes the criteria for the write-off of financial assets as specified in the CPC 38 Financial Instruments: Recognition and Measurement. 27/02/ :37 29

165 Notes to the financial statements The Bank has also applied the following pronouncements which do not conflict with the Bacen rules, as established by Article 22, 2 of Law 6,385/1976: CPC 09 Value Added Statement, CPC 12 Adjustment at Present Value, CPC 22 Information by segment, CPC 33 Employee Benefits and CPC 41 Income per share. Pronouncements CPC 07 - Government Grants and Assistance, CPC 17 - Construction Contracts, CPC 29 - Biological Assets and Agricultural Produce and CPC 35 - Separate Statements, which do not conflict with the Bacen rules, may be applied by the Bank as events or transactions covered by the aforementioned CPCs take place. The application of other standards, which depend on Bacen s regulations, results primarily in immaterial adjustments or in changes in disclosure, except the following pronouncements, that may result in significant impacts on the financial statements: CPC 04 - Intangible Assets and CPC 15 - Business Combinations - a) reclassification of intangible assets identified in acquisitions of controlling interest of Banco Nossa Caixa and of Banco Votorantim, in 2009, as well as on acquisition of controlling interest of Banco Patagonia, in 2011, and BB Americas in 2012, from the investment account to the account of intangible assets, in the group of Non-Current Assets Permanent; b) derecognition of goodwill amortization expenses from acquisitions; and c) recognition of amortization expenses of intangible assets with definite useful lives, identified in the acquisitions. CPC 19 Investment in Joint Ventures - in accordance with CPC 19, in the formation of joint ventures SH1 and SH2, in , the equity interests received in the formation of the partnership are recorded at fair value; the carrying amount of contributed assets by the Banco do Brasil, including any goodwill, is written off and the result of the transaction is recognized in proportion to the equity of new companies incorporated by Mapfre. CPC 38 - Financial Instruments: Recognition and Measurement - adjustment in the allowance for loan losses, due to the adoption of the incurred loss criterion. These financial statements were approved by the Executive Board of Directors on Shareholding interest included in the consolidated financial statements, segregated by business segments 30

166 Notes to the financial statements Banking segment % of Total Share Banco do Brasil Ag. Viena (1) (4) Banking 100% 100% BB Leasing Company Ltd. (1) (4) Leasing 100% 100% BB Leasing S.A. Arrendamento Mercantil (1) (4) Leasing 100% 100% BB Securities Asia Pte. Ltd. (1) (4) Broker 100% 100% BB Securities LLC. (1) (4) Broker 100% 100% BB Securities Ltd. (1) (4) Broker 100% 100% BB USA Holding Company, Inc. (1) (4) Holding 100% 100% Brasilian American Merchant Bank (1) (4) Banking 100% 100% BB Americas (1) (4) Bank 100% -- Besc Distribuidora de Títulos e Valores Mobiliários S.A. (1) (4) Asset Management 99.62% 99.62% Banco Patagonia S.A. (1) (4) Bank 58.96% 58.96% Banco Votorantim S.A. (2) (4) Bank 50% 50% Investment segment BB Banco de Investimento S.A. (1) (4) Investment Bank 100% 100% Kepler Weber S.A. (2) (4) Industry 17.56% 17.56% Companhia Brasileira de Securitização Cibrasec (3) (5) Credits Acquisition 12.12% 12.12% Neoenergia S.A. (2) (4) Energy 11.99% 11.99% Segment of Fund Management BB Gestão de Recursos Distribuidora de Títulos e Valores Mobiliários S.A. (1) (4) Asset Management 100% 100% Segment of Insurance, Private Pension Fund and Capitalization BB Seguridade Participações S.A. (1) (4) Holding 100% -- BB Cor Participações S.A. (1) (4) Holding 100% -- BB Corretora de Seguros e Administradora de Bens S.A. (1) (4) Broker 100% 100% BB Seguros Participações S.A. (1) (4) Holding 100% 100% Nossa Caixa Capitalização S.A. (1) (4) Capitalization 100% 100% BB Mapfre SH1 Participações S.A. (2) (4) Holding 74.99% 74.99% Aliança Participações S.A. (2) (6) Holding % Mapfre Participações Ltda. (2) (6) Holding % Companhia de Seguros Aliança do Brasil (2) (4) Insurance Company 74.99% 74.99% Mapfre Vida S.A. (2) (4) Company/Pension 74.99% 74.99% Vida Seguradora S.A. (2) (4) Insurance Company 74.99% 74.99% Brasilprev Seguros e Previdência S.A. (2) (4) Pension/Insurance 74.99% 74.99% Brasilprev Nosso Futuro Seguros e Previdência S.A. (2) (4) Pension/Insurance 74.99% 49% Brasilcap Capitalização S.A. (2) (4) Capitalization 66.66% 66.66% Mapfre BB SH2 Participações S.A. (2) (4) Holding 50% 50% Aliança Rev Participações S.A. (2) (6) Holding -- 50% Aliança do Brasil Seguros S.A. (2) (4) Insurance Company 50% 50% Brasilveículos Companhia de Seguros (2) (4) Insurance Company 50% 50% Mapfre Seguros Gerais S.A. (2) (4) Insurance Company 50% 50% Mapfre Affinity Seguradora S.A. (2) (4) Insurance Company 50% 50% Mapfre Assistência S.A. (2) (4) Service Rendering 50% 50% Votorantim Corretora de Seguros S.A. (2) (4) Broker 50% 50% Seguradora Brasileira de Crédito à Exportação SBCE (3) (4) Insurance Company 12.09% 12.09% Segment of Payment Methods BB Administradora de Cartões de Crédito S.A. (1) (4) Service Rendering 100% 100% BB Elo Cartões Participações S.A. (1) (4) Holding 100% 100% Elo Participações S.A. (2) (4) Holding 49.99% 49.99% Companhia Brasileira de Soluções e Serviços CBSS (2) (4) Service Rendering 49.99% 49.99% Elo Serviços S.A. (2) (4) Service Rendering 33.33% 33.33% Cielo S.A. (2) (4) Service Rendering 28.68% 28.72% Tecnologia Bancária S.A. Tecban (3) (4) Service Rendering 13.53% 13.53% Other Segments Ativos S.A. Securitizadora de Créditos Financeiros (1) (4) Credit Acquisition 100% 100% Ativos S.A. Gestão de Cobrança e Recuperação de Crédito (1) (4) Credit Acquisition 100% 100% BB Administradora de Consórcios S.A. (1) (4) Consortium 100% 100% BB Tur Viagens e Turismo Ltda. (1) (5) Tourism 100% 100% BB Money Transfers Inc. (1) (4) Service Rendering 100% 100% Cobra Tecnologia S.A. (1) (4) IT 99.97% 99.97% (1) Subsidiaries. (2) Joint venture, proportionately included in consolidation. (3) Associated companies, proportionately included in consolidation, as Bacen s Regulation. (4) Financial Statements for consolidation on Dezember/2012. (5) Financial Statements for consolidation on November/2012. (6) Companies discontinued during the fiscal year Activity Activity Activity Activity Activity Activity BV Participações S.A. (2) (4) Holding 50% 50% The following investment funds, which are directly or indirectly controlled by the Bank, were also consolidated: BV Financeira FIDC V, BVIA Fundo de Investimento em Participações and Fundo de 31

167 Notes to the financial statements Investimento Nióbio I as well as Dollar Diversified Payment Rights Finance Company, a specialpurpose entity located abroad. For comparison purposes, due to changes in accounting policies, the following reclassifications were made at Banco do Brasil and BB-Consolidated in 2011: a) R$ 1,290,781 thousand, from the grouping of Other Operating Expenses Negotial Relationship Bonus to the grouping of Expenses with Deposits and with Securities Sold Under Repurchase Agreements Judicial Deposits, in order to better reflect the nature of the operation; b) R$ 23,741 thousand, from the grouping of Other Operating Expenses Other to the grouping of Expenses with Deposits and with Securities Sold Under Repurchase Agreements Other, to reflect better the nature of the operation; c) R$ 34,480 thousand, from the grouping of Other Operating Expenses INSS to the grouping of Expenses of Borrowings and Onlendings - Other, in order to better reflect the nature of the operation; and d) R$ 57,156 thousand, from the grouping of Other Operating Expenses - Expenses with funds to be returned to the Federal Treasury - Law n.º 9,138/1995, to the grouping of Expenses of Borrowings and Onlendings - National Treasury, in order to better reflect the nature of the operation. 4 Description of Significant Accounting Policies 27/02/ :37 The accounting policies adopted by Banco do Brasil are applied consistently in all periods presented in these financial statements and applied to all the entities of the Conglomerate. a) Statement of income In accrual basis accounting, revenues and expenses are reported in the closing process of the period in which they are incurred, regardless of receipt or payment. The operations with floating financial charges are adjusted pro rata die, based on the variation of the indexes agreed, and operations with fixed financial charges are recorded at redemption value, adjusted for unearned income or prepaid expenses for future periods. The operations indexed to foreign currencies are adjusted up to the reporting date using current rates. b) Present value measurement Financial assets and liabilities are presented at present value due to the application of the accrual basis in the recognition of their interest income and expenses. Non-contractual liabilities are primarily represented by contingent liabilities and legal obligations, for which the disbursement date is uncertain and is not under the Bank control. They are measured at present value because they are initially recognized at estimated disbursement value on the valuation date and are updated monthly. c) Cash and cash equivalents Cash and cash equivalents comprise available funds in local currency, foreign currency, investments in gold, investments in repurchase agreements own resources, interbank deposits and investments in foreign currencies, with high liquidity and insignificant risk of change in value, with maturity not exceeding 90 days. d) Short-term interbank investments Short-term interbank investments are recorded at their investment or acquisition amount, plus income accrued up to the balance sheet date and adjustment to allowance for losses. e) Securities The securities purchased for the Bank's portfolio are recorded at the actual amount paid, including brokerage charges and fees, and are classified based on management s intention, in one of three categories, according to Bacen Circular 3,068/2001: Trading Securities: these are securities purchased to be actively and frequently traded. They are adjusted monthly to market value. The increases and decreases in value are recorded in income and expense accounts for the period; 32

168 Notes to the financial statements Securities available for sale: these are securities that may be traded at any time, but are not acquired to be actively and frequently traded. They are adjusted monthly to market value and their increases and decreases in value are recorded, net of tax effects, in Accumulated Other Comprehensive Income in Stockholders' Equity. Securities held to maturity: these are securities that the Bank owns and has the financial capacity and intent to hold to maturity. These securities are not adjusted to market value. The financial capacity is supported by a cash flow projection that does not consider the possibility of sale of these securities. The mark-to-market methodology used for securities was established following consistent, verifiable criteria, which consider the average price of trading on the day of calculation or, if not available, the daily adjustment of future market transactions reported by Anbima, BM&FBovespa or the net expected realizable value obtained through pricing models, using future interest rate curves, foreign exchange rates, and price and currency index, all consistent with prices adopted during the year. Income accrued on the securities, irrespective of the category in which they are classified, is appropriated on a pro rata die basis on an accrual basis until the date of maturity or final sale, according to the exponential or straight-line method, based on the contractual remuneration and purchase price, and recorded directly in the statement of income for the period. Impairment of securities classified as available for sale and held to maturity, if considered not to be temporary, are recorded directly in expense for the period and a new cost basis for the asset is determined. Upon sale, the difference between the sale amount and the cost of purchase plus accrued income is considered as a result of the transaction and is recorded on the date of the transaction as a gain or loss on securities. f) Derivative financial instruments Derivative financial instruments are adjusted to market value at each monthly trial balance and balance sheet date. Increases or decreases in value are recorded in income or expense accounts of the respective financial instruments. The mark-to-market methodology used for derivative financial instruments was established following consistent and verifiable criteria, which consider the average price of trading on the date of calculation or, if not available, pricing models that estimate the expected net realizable value. Derivative financial instruments used to offset, in whole or in part, the risks arising from exposure to variations in financial asset or liability market values are considered hedge instruments and are classified according to their nature: Market Risk Hedge - increases or decreases in value of the financial instruments, as well as of the hedged item, are recorded in income/expenses accounts for the period; and Cash Flow Hedge - the effective portion of the increases or decreases in value of the derivative financial instruments classified in this category are recorded, net of tax effects, in Accumulated Other Comprehensive Income in Stockholders' Equity. The effective amount is that in which the variation of the hedged item, directly related to the corresponding risk, is offset by the variation in the financial instrument used for the hedge, considering the accumulated effect of the transaction. Other variations in these instruments are recorded directly in the statement of income/expenses for the period. g) Loan and lease operations, advances on foreign exchange contracts, other receivables with loan characteristics and allowance for loan losses Loans, leases, advances on foreign exchange contracts and other receivables with loan characteristics are classified according to Management's judgment with respect to the level of risk, taking into consideration market conditions, past experience and specific risks in relation to the operation, to borrowers and guarantors, observing the parameters established by CMN Resolution 2,682/1999, which requires periodic analyses of the portfolio and its classification into nine levels, ranging from AA (minimum risk) to H (maximum risk), as well as the classification of operations more than 15 days overdue as non-performing. Income from loans overdue for more than 60 days, regardless of their risk level, will only be recognized as income when effectively received. Operations classified at level H, which remain in this classification for 180 days, are written off against the existing allowance. 33

169 Notes to the financial statements Renegotiated operations are maintained, at a minimum, at the same level at which they were rated. The renegotiations of loans already written off against the allowance are rated as H level and any gains from renegotiation are recognized as income when effectively received. Allowance for loan losses, considered sufficient by management, satisfies the minimum requirement established by the aforementioned CMN Resolution 2,682/1999 (Note 10.e). h) Taxes Taxes are calculated based on the rates shown in the table below: Taxes Income Tax (15% + additional 10%) 25% Social Contribution on Net Income (CSLL) (1) 15% Social Integration Program/Public servant fund program (PIS/Pasep) (2) 0.65% Contribution to Social Security Financing (Cofins) (2) 4% Tax on services of any kind (ISSQN) Up to 5% (1) Rate applied to financial companies and to non-financial companies in the areas of insurance, private pension plans and capitalization. For others non-financial companies, the CSLL rate is 9%. (2) For non-financial firms that have opted for the non-cumulative regime of calculation, the PIS/PASEP rate is 1.65% and the Cofins rate is 7.6%. Deferred tax assets (tax credits) and deferred tax liabilities are recorded by applying the current rates of taxes on their respective bases. For recording, maintaining, and writing off tax credits the Bank follows the established criteria by CMN Resolution 3,059/2002, and amended by CMN Resolution 3,355/2006 and 3,655/2008, and they are supported by a study of their realizability. i) Prepaid expenses These expenses refer to the application of payments made in advance, for which the benefits or the services will occur in subsequent periods. Prepaid expenses are recorded at cost and amortized as incurred. j) Permanent assets Investments: investments in subsidiaries and associated companies in which the Bank has significant influence or an ownership interest of 20% or more of the voting shares, and in other companies which are part of a group or are under common control are accounted for by the equity method based on the stockholders equity of the subsidiary or associated company. Goodwill, the premium paid over the book value of the investment acquired due a future profitability expectation, is based on financial economic evaluations which substantiate the purchase price of the business and is amortized based on annual income projections of those evaluations. Goodwill is tested for impairment annually. The statements of the branches and subsidiaries abroad are adapted to the prevailing accounting criteria in Brazil and translated into Brazilian Reais using current exchange rates, in conformity with Bacen Circulars 2,397/1993 and 2,571/1995, and their impacts are recorded in the statement of income for the period. Other permanent investments are valued at acquisition cost, less allowance for impairment losses, as applicable. Property and equipment: property and equipment are stated at cost less depreciation, calculated using the straight-line method at the following annual rates: buildings and improvements - 4%; vehicles - 20%; data processing systems - 20% and others - 10% (Note 15). Deferred: deferred assets are recorded at cost of acquisition or formation, net of accrued amortization. They are composed mainly of restructuring costs, and the expenditures, up to , with third party properties, as a result of opening branches, which are amortized according to rates based on rental terms, as well as expenditures on the acquisition and development of information systems, which are amortized at 20% per annum (p.a.). Intangible: intangible assets consist of rights that have as their object intangible assets intended for the maintenance of the company or that are exercised for that purpose, including acquired goodwill. An asset meets the criteria for identification as an intangible asset, when it is separable, i.e, it can be separated from the entity and sold, transferred or licensed, rented or exchanged, individually or jointly Rate 34

170 Notes to the financial statements with a contract, related assets or liabilities, regardless of the intention for use by the entity; or results from contractual rights or other legal rights, regardless of whether these rights are transferable or separable from the entity or other rights and obligations. The intangible assets have finite useful lives and compromises disbursements for the acquisition of: (i) rights to provide banking services (rights to managing payrolls), amortized over the terms of contracts; (ii) software, amortized on a straight-line basis at a rate of 20% per year from the date it is available for use; and (3) in the right to use the Banco Postal network (included in Other Intangible Assets), which is amortized according to the contractual period. Intangible assets are adjusted by allowance for impairment losses, if applicable (Note 16). The amortization of intangible assets is recorded in Other Administrative Expenses account. k) Impairment of non-financial assets At the end of each reporting period, the Bank assesses whether there is any indication that a nonfinancial asset may be impaired based on internal and external sources of information. If there is an indication that an asset may be impaired, the Bank estimates the recoverable amount of the asset. The recoverable amount of the asset is the higher of: i) its fair value less costs to sell it; and ii) its value in use. The Bank tests, at least annually, the recoverable amount of intangible assets not yet available for use and goodwill on acquisition of investments, regardless whether there is an indication of impairment or not. This test can be applied any time during the year, provided it is performed at the same period every year. If the recoverable amount of the asset is less than its carrying amount, the asset's carrying amount is reduced to its recoverable amount through a provision for impairment, which is recognized in the Income Statement. Methodologies in assessing the recoverable amount of the main non-financial assets: Property and Equipment in Use: Land and buildings - in determining the recoverable amount of land and buildings, technical assessments are carried out in accordance with the rules of the Brazilian Association of Technical Standards - ABNT. Data processing systems - in determining the recoverability, the market value is considered, if it is available, or the recoverable value for use in the operations of the Bank. Otherwise the calculation considers the projection of cash flows arising from the use of each asset during its useful life, discounted to present value based on the rate of the Interbank Deposit Certificate - CDI. Other assets - although they are subject to impairment testing, other assets have little value individually and, given the cost-effectiveness, the Bank does not assess the recoverable value of these items individually. However, the Bank conducts inventory each year, and lost or damaged goods are properly derecognized. Investments and Goodwill on acquisition of investments The methodology for calculating the recoverable amount of goodwill and investments for future profitability consists of measuring the expected result of the investment using discounted cash flow (DCF). To measure this result, the assumptions made are based on (i) operational projections, results and investment plans, (ii) macroeconomic scenarios developed by the Bank, and (iii) internal methodology for calculating the cost of capital based on the Capital Asset Pricing Model - CAPM. Specifically in the acquisition of Banco Nossa Caixa, which was merged into the Banco do Brasil in November 2009, the methodology is to compare the goodwill paid, less the accumulated amortization, with the present value of the results of the Bank designed for the State of São Paulo, minus assets with finite lives. The projections are based initially on results and progress based on growth assumptions of profitability for Banco do Brasil and they are discounted using the cost of capital rate, which is calculated using an internal methodology based on the Capital Asset Pricing Model CAPM. Intangible Rights to Managing Payrolls - The model for assessing the recoverable amount of the rights to managing payroll involves monitoring contracts performance, that are calculated from the contribution margins of customer relationship related to each contract in order to check if the projections that 35

171 Notes to the financial statements justified the acquisition of assets match the observed performance. For the contracts that do not achieve the expected performance levels, a provision for impairment loss is recognized. Software - Software, substantially developed by the Bank in accordance with its needs constantly receive investments for modernization and adaptation to new technologies and business requirements. Considering that there are no similar products on the market and considering the high cost to deploy metrics that allow calculation of its value in use, the impairment test for software evaluates its usefulness to the company so that when software is retired, its value is derecognized. Other Intangible Assets - Right to use the Banco Postal network - The methodology to evaluate the recoverable amount of the right to use the network of the Banco Postal involves the calculation of the present value of income flows from operations contracted through Banco Postal, that are projected based on realized values and assumptions defined in the business plan, and are discounted based on the weighted average cost of capital (WACC). The losses recorded on the result to adjust the recoverable value of these assets, if any, are stated in the respective notes. l) Employee benefits Employee benefits related to short-term benefits for current employees are recognized on the accrual basis as the services are provided. Post-employment benefits, comprising supplementary retirement benefits and medical assistance for which the Bank is responsible, are assessed in accordance with criteria established by CVM Resolution 600/2009 (Note 27). As of , the evaluations are performed twice a year and not per year as on In defined-contribution plans, the actuarial risk and the investment risk are borne by the plan participants. Accordingly, cost accounting is based on each period's contribution amount representing the Bank's obligation. Consequently, no actuarial calculation is required when measuring the obligation or expense, and there are neither actuarial gains nor losses. In defined benefit plans, the actuarial risk and the investment risk value of plan assets fall either partially or fully on the sponsoring entity. Accordingly, cost accounting requires the measurement of plan obligations and expenses, with a possibility of actuarial gains and losses, leading to record a liability when the amount of the actuarial obligation exceeds the value of plan assets, or an asset when the amount of assets exceeds the value of plan obligations. In the latter instance, the asset should be recorded only when there is evidence that it can effectively reduce the contributions from the sponsor or refundable in future. The portion of actuarial gains or losses recognized in income of the Bank corresponds to the excess of the Bank that did not fit in the corridor divided by the average remaining working time of the employees who participate in the plan. The corridor is the greater of: 1-10% of the total actuarial obligation present value of the defined benefit, and 2-10% of the fair value of plan assets. The Bank, as permitted by CVM Resolution 600/2009, adopted the procedure of recognizing actuarial gains/losses in the period in which the service was performed. Contributions to be paid by the Bank to medical assistance plans in some cases will endure after the employee s retirement. Therefore, the Banks obligations are evaluated by the present actuarial value of the contributions to be paid over the expected period when the plan participants and beneficiaries will be linked to the plan. Such obligations are evaluated and recognized under the same criteria used for defined benefit plans. The actuarial asset recognized in the balance sheet (Note 27) refers to the actuarial gains and its implementation must occur by the end of the plan. There may be partial completion of actuarial assets, conditioned upon satisfying the requirements of the Supplementary Law 109/2001 and Resolution CGPC 26/2008. m) Deposits and Securities Sold Under Repurchase Agreements Deposits and securities sold under repurchase agreements are recorded at the amount of the liabilities and include, when applicable, related charges up to the balance sheet date, on a daily pro rata die basis. 36

172 Notes to the financial statements n) Operations related to insurance, pension plan and capitalization activities Statement of Income/Expenses Insurance premiums and selling expenses are recorded upon the issuance of policies or billings and are recognized in income/expenses, according to the elapsed coverage period. Revenues from premiums and the corresponding selling expenses, related to present risks without the issuing of respective policies are recognized in the statement of income/expenses based on estimates. Income from insurance premiums of unelapsed risks is deferred for the validity period of the insurance policies, by means of the formation of provision for unearned premiums, based on the earned premiums issued. Accepted coinsurance, retrocession and Dpvat convention (Personal injuries caused by motor vehicles) operations are recorded based on information received from similar companies, IRB Brasil Resseguros S.A. and the Seguradora Lider - Dpvat, respectively. The revenue from pension plans, life insurance plans with living benefits and capitalization plans are recognized in the statement of income when effectively received, as a contra-entry to the recognition of technical provisions, except the revenue to cover risks in cases of combined pension plans, which must be recognized by the duration of the risk, regardless of its receipt. The selling costs are deferred on the issuing of the contract or policy and allocated to income/expenses on a straight-line basis, over the average estimated period for their recovery, except the ones related to capitalization. Other income and expenses are determined on the accrual basis of accounting. Technical Provisions Rules and procedures for the formation of technical provisions are regulated by the Resolution 162/2006 of the National Council of Private Insurance (CNSP) and Resolutions n o 181/2007, n o 195/2008 and n o 204/2009 of CNSP. Insurance Provision for Unearned Premiums (PUP) is constituted (i) to cover the loss claims that might occur considering compensations and expenses related to risks on the date of calculation and (ii) to record the installments of premiums that will be allocated to income during the term of insurance policies, calculated on a pro rata die basis, using the start date and the insured risk expiry date as base. Provision for Unearned Premiums for Present Risks but Not Yet Issued (PUP-PRNI) represents the adjustment for the Provision for Unearned Premiums given the existence of assumed risks, whose policy has not been formally issued. It is calculated using a methodology based on construction of triangles of "run-off", which considers the time period between the start date of the effectiveness of the risk and the date of the issuance of the policy on a retrospective basis, in the period of 24 months. Provision for Premium Deficiency (PPD) represents the need for coverage of possible deficiencies of the provisions of premiums, to cover future obligations related to insurance contracts. Provision for Unsettled Loss Claims (PULC) represents the estimate of probable payments of reinsurance compensation, net of ceded coinsurance recoveries, determined based on claims notices received up to the reporting date. The PULC includes allowance for claims under litigation, determined according to criteria defined and documented in the Actuarial Technical Note. The provisioned values are monetarily restarted including the estimated costs to be incurred with costs of loss of suit. Provision for Claims Incurred but not Reported (IBNR) represents the amount expected of claims incurred but not reported until the base date of the financial statements. It is calculated using an actuarial method which determines the best estimate based on the history of each business branch in relation to claims incurred but not reported and as defined in each Actuarial Technical Note. Premium Complementary Provision (PCP) has as object to maintain the company protected in monthly transitions, keeping the amount of the technical premium provisions (PUP and PUP-PRNI) higher than or equal to the daily average of the month of calculation. It is calculated to complement the PUP, the value of PCP is the positive difference between the daily average PUP and the PUP on the last day of the month. In this calculation, all the current risks must be considered, issued or not. Pension plan Mathematical Provision for Future Benefit Payments represents the sum of the premiums and contributions transferred by the participants, net of the loading rate, plus the financial income earned 37

173 Notes to the financial statements from the investments of the resources. This provision refers to participants whose perception of the benefits has not yet started. Provision for benefits granted refers to those already receiving the benefits. Provisions for a Deficiency in Contributions and in Premiums are formed to meet the possible adverse changes in the technical risks made in the mathematical provisions of benefits granted and to be granted, resulting from the trend for a higher survival rate of participants and the calculation is made using the Mitigated AT 2000 Male/Female mortality table and related assumptions, considering all the effective plans. Provision for Financial Fluctuation is formed to account for the potential impacts of unfavorable variations in future rates of funds earmarked for the payment of benefits and redemptions to participants, considering the minimum remuneration guaranteed in existing contracts. Provision of Benefits to Settle (PBAR) corresponds to the total value of annuities and income earned, not paid as a result of incurred events, including the updating of appropriate value, and the estimated values relating to lawsuits and the outcomes of final judgment. Capitalization Mathematical Reserve for Redemption is calculated on the face value of the notes, restated based on actuarial technical notes approved by Susep. Provisions for Redemption of Overdue and Prepaid Notes are recorded at the values of the notes with finalized and rescinded capitalization periods, restated in the period between the date of the right to redemption and effective settlement. Provision for Unrealized Draws for Premiums are calculated on the face value of the notes, based on actuarial technical notes approved by Susep. The write-off of the provision for unrealized draws for premiums is recorded by the amount equivalent to the lapsed risk, i.e., the balance of provision for unrealized draws for premiums represents the defrayed amounts of premiums draws not yet executed. Provision for Draws for Premiums Payable is formed at the amounts of the notes payable from draws for premiums restated for the period between the date of the draw and the effective settlement. Liability adequacy test LAT The Bank conducts the liability adequacy test, according to Circular Susep 457/2012, for the insurance, reinsurance and pension plan operations. This test is performed semiannually to check the adequacy of provisions, and uses current estimations of contracts future cash flows. The methodology takes into account the best estimation of all future cash flows, considering premises of cancellation, claim, longevity, annuitization, other expenses related to the operations, and business revenues. Cash flows are discounted to present value, according to the Term Structure of the Interest Rates - ETTJ published by Susep, as the respective guarantees provided on the effective contracts. The test related to the baseline date has shown no insufficiency in any of the groups of insurance, reinsurance and private pension plan contracts. o) Contingent assets and liabilities and legal obligations The recognition, measurement and disclosure of contingent assets and liabilities and legal obligations are made in accordance with the criteria defined by CPC 25 Provisions, Contingent Assets and Contingent Liabilities, approved by CMN Resolution 3,823/2009 (Note 28). Contingent assets are only recognized in the financial statements upon the existence of evidence assuring their realization, usually represented by the final judgment of the lawsuit and by the confirmation of the capacity for its recovery by receipt or offsetting by another receivable. Contingent liabilities are recognized in the financial statements when, based on the opinion of legal advisor and Management, the risk of loss of legal or administrative proceedings is considered probable, with a probable outflow of financial resource for the settlement of the obligation and when the amounts involved are measurable with sufficient assurance, being quantified when judicial noticed and revised monthly as follows: 38

174 Notes to the financial statements Aggregated cases that are similar and recurring in nature and whose values are not considered relevant. Provisions are based on statistical data for groups of cases, type of judicial body (Special Civil Court or Common Court) and plaintiff. For labor claims, provisions are based on the average payments for cases closed in the last 24 months, adjusted for the change in the National Wide Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo or IPCA). For civil claims, provisions are based on the average payments for cases closed in the last 24 months, and for those related to economic plans, provisions are based on the average payments made in the last 24 months. Individual cases considered unusual or whose value is considered relevant by our legal counsel. Provisions are based on: the amount claimed; probability of an unfavorable decision; evidence presented; evaluation of legal precedents; other facts raised during the process; judicial decisions made during the course of the case; and the classification and the risk of loss of legal actions. Contingent liabilities, individually measured, considered as possible losses are not recognized in the balance sheet and only need to be disclosed in the notes to the financial statements, while those classified as remote do not require provisioning or disclosure. Legal obligations (fiscal and social security) are derived from tax obligations provided in the legislation, regardless of the probability of success of lawsuits in progress, which have their amounts recognized in full in the financial statements. p) Funding Expenses Expenses related to funding transactions involving the issuance of securities are capitalized and presented as reduction of the corresponding liability. The expenses are recognized in the income statement over the term of the transaction. q) Other Assets and Liabilities Assets are stated at their realizable amounts, including, when applicable, related income and monetary and exchange variations on a daily pro rata die basis, and allowance for losses, when deemed appropriate. Liabilities comprise known or measurable amounts, including related charges and monetary and exchange variations on a daily pro rata die basis. r) Earnings per share The disclosure of earnings per share is done according to the criteria defined in Resolution CVM 636/2010. The Bank's basic earnings per share were calculated by dividing the net profit attributable to stockholders by the weighted average number of total shares, excluding treasury shares (Note 24.e). s) Recently issued accounting statements Through Resolution 695/2012, dated , the CVM adopted the CPC 33 (R1). The main changes are: i) elimination of the corridor method; ii) actuarial gains and losses are now entirely recognized as actuarial assets or liabilities, and creating a corresponding credit or debit in a stockholder's equity account, called Accumulated Other Comprehensive Income. The measurements of the net value of the actuarial asset or liability which are recognized against adjustments to equity valuation should not be reclassified to income statement in the following period; iii) the financial expense/income of the plan is now recognized at its net value based on the discount rate; iv) new disclosure requirements are included in the financial statements and v) the standard must be applied retrospectively in accordance with CPC 23 - Accounting Policies, Changes in Accounting Estimates and Errors. The adoption of this standard is applied for fiscal years beginning on or after Had the standard been effective on , it would have impacted the financial statements as follows: 39

175 Notes to the financial statements Plano 1 - Previ Plano Informal - Previ Plano de Associados - Cassi Other Plans Total Increase/(decrease) in actuarial assets (Increase)decrease in deferred tax liabilities (Increase) in actuarial liabilities Increase in deferred tax assets Effect in Shareholders' Equity (4,441,209) ,649 (4,417,560) 1,900, (10,119) 1,890, (109,101) (2,577,272) (719,062) (3,405,435) -- 43,640 1,030, ,625 1,362,174 (2,540,816) (65,461) (1,546,363) (417,907) (4,570,547) 5 Information by Segment The information by segment was compiled with a basis on the reports used by Management in the appraisal of the segment's performance, decision making regarding the allocation of funds for investment and other purposes, the regulatory environment and the similarities between goods and services. The operations of Banco do Brasil are basically divided into five segments: banking, investments, fund management, insurance (insurance, pension and capitalization) and payment methods. In addition, the Bank participates in other business activities, such as consortium and operating support, that were aggregated in "Other Segments". Intersegment transactions are conducted under normal market conditions, substantially under the terms and conditions for comparable transactions, including interest rates and collateral. These transactions do not involve abnormal payment risks. a) Banking Segment Responsible for the most significant portion of Banco do Brasil results, predominantly from operations in Brazil, this segment involves a large diversity of products and services, such as deposits, loans and services that are made available to customers by means of a wide variety of distribution channels, located in the country and abroad. The operations of the banking segment include business with the retail, wholesale and government markets, carried out by network and customer service teams, and business with micro-entrepreneurs and the informal sector, performed through banking correspondents. b) Investments Segment In this segment, deals are performed in the domestic capital market, with activity in the intermediation and distribution of debts in the primary and secondary markets, as well as equity interest and the rendering of financial services. The operations income of the segment is obtained by means of revenues accrued in investments in securities minus expenses with funding to third parties. The existing equity interests are concentrated at associated and subsidiary companies. Financial service fee income results from economic/financial advisory services, underwriting, fixed and variable income. c) Segment of Fund Management Responsible for operations inherent to the purchase, sale and custody of securities, portfolio management, institution, organization and management of investment funds and clubs. Revenues mainly derived from commissions and management fees charged to investors for services rendered. d) Segment of Insurance, Private Pension Plan, and Capitalization In this segment, products and services offered are related to life, property and automobile insurance, complementary private pension plans and capitalization plans. Income is derived mainly from revenues from insurance premiums issued, contributions for private pension plans, capitalization bonds and investments in securities, net of commercialization expenses, technical provisions and expenses related to benefits and redemptions. 27/02/ :37 40

176 Notes to the financial statements e) Segment of Payment Methods Such segment is responsible for funding, transmission, processing services and financial settlement of operations in electronic means. Revenues are derived mainly from commissions and management fees charged to commercial and banking establishments for the services rendered described in the previous paragraph, as well as income from rent, installation and maintenance of electronic terminals. f) Other segments Other segments comprise the operational support and consortium segments, which have not been aggregated as they are not individually significant. Their revenues are originated mainly from rendering services not covered in previous segments, such as: credit recovery, consortium administration, development, manufacture, commercialization, rent and integration of digital electronic systems and equipment, peripherals, programs, inputs and computing supplies, intermediation of air tickets, lodging and organization of events. 41

177 Notes to the financial statements 2nd Half 2012 BB-Consolidated Banking Investment Fund Management Insurance and Related Payment methods Other Segments Intersegment transactions Total Income 63,536, , ,695 3,306,771 1,367, ,852 (1,147,442) 69,157,322 Income from loans and leases 33,652, (144,690) 33,508,186 Income from operations with securities and derivative financial instruments Income from exchange operations and Compulsory Financial results from insurance operations, pension plans and capitalization 12,074, ,286 31,096 41, ,432 11,456 (182,912) 12,264,393 2,788, (9) 11 (11) 2,788, ,421, ,989 1,452,321 Income from service fees 5,077, , , ,766 1,191, ,035 (668,539) 7,374,892 Income from tariffs, rates and commissions Equity in the earnings/(loss) of subsidiary and associated companies Results from Insurance, Pension Plan and Capitalization Operations 3,193,601 16, , ,388,694 (95,427) 11, (84,324) ,228, (3,360) 1,224,833 Other Income 6,844, ,146 5,248 73,435 26, ,350 (178,919) 7,240,221 Expenses (55,944,069) (378,476) (111,202) (2,182,238) (767,925) (704,712) 1,041,112 (59,047,510) Expenses of Market funding (24,225,997) (106,917) (1,222) (15,310) 184,832 (24,164,614) Loans, assignments, transfers and leases (3,173,084) (15) (38) -- (3,173,137) Allowance for loan losses (6,938,015) 367 (6) (18) -- (6,937,659) Interest and inflation adjustment of technical reserves (1,077,102) (1,077,102) Personnel Expenses (8,166,040) (26,412) (29,933) (185,222) (82,294) (102,728) 3,028 (8,589,601) Other administrative expenses (6,168,127) (71,228) (13,437) (500,905) (125,680) (98,636) 635,287 (6,342,726) Depreciation (396,983) (1,306) -- (7,370) (8,753) (3,497) -- (417,909) Amortization of deferred (133,252) (13,547) (4,147) (1,548) -- (152,494) Amortization of intangible assets (1,166,996) (3) (170) (50) -- (1,167,219) Operations of Sale or Transfer of Financial Assets (37,290) (37,290) Revenues / (Expenses) from impairment 2, (1,203) Other expenses (1) (5,540,311) (172,977) (67,826) (398,092) (544,454) (482,887) 217,965 (6,988,582) Profit before tax and profit sharing (2) 7,592, , ,493 1,124, , ,140 (106,330) 10,109,812 Income tax and social contribution (3) (1,513,045) (54,770) (205,092) (386,976) (201,955) (31,167) 45,079 (2,347,926) Profit sharing (963,033) -- (259) (16,584) (1,084) (4,628) -- (985,588) Non-controlling interest) (81,292) (2) -- (81,294) Net Income (4) 5,035, , , , ,181 74,343 (61,251) 6,695,004 Balance Sheets Assets 1,084,778,159 6,180, ,453 69,427,954 4,654,755 4,095,177 (19,572,066) 1,150,486,189 Investment in subsidiaries and associate companies 12,689,935 2,559, , (9,597,139) 6,174,615 Liabilities 1,018,427,232 3,502, ,959 64,755,850 3,707,762 1,577,854 (8,344,742) 1,084,416,224 (1) According to Banco Central do Brasil standards, since January 2011, the goodwill amortization is recognized (note 14.c). In the semester, R$ 67,128 thousand were amortized in the segments of Insurance, Pension Plans and Capitalization. (2) In Intersegment transactions, the amount of R$ 106,330 thousand refers to the elimination of unrealized results, as follows: R$ 103,000 thousand related to Ativos S.A. and R$ 3,330 thousand from Cobra Tecnologia. (3) In BB-Consolidated, the amount of R$ 45,079 thousand (highlighted in intersegment transactions), related to the tax credit on unrealized results. (4) In intersegment transactions, the amount of R$ 61,251 thousand, refers to the elimination of unrealized gains net of tax effects. 42

178 Notes to the financial statements 2012 BB-Consolidated Banking Investment Fund Management Insurance and Related Payment methods Other segments Intersegment transactions Total Income 129,810,332 1,165,787 1,250,870 6,414,990 2,533,195 1,553,089 (2,134,762) 140,593,501 Income from loans and leases 68,498, (242,886) 68,255,260 Income from operations with securities and derivative financial instruments Income from exchange operations and Compulsory Financial results from insurance operations, pension plans and capitalization 26,285, ,692 57,423 72, ,461 23,556 (398,610) 26,547,563 6,072, (115) (10) (22) 6,072, ,829, ,891 2,886,810 Income from service fees 10,102, , , ,288 2,197,747 1,033,561 (1,169,829) 14,485,551 Income from tariffs, rates and commissions Equity in the earnings/(loss) of subsidiary and associated companies Results from Insurance, Pension Plan and Capitalization Operations 6,187,671 33, , ,585, ,212 32, , ,361, (12,851) 2,349,113 Other Income 12,433, ,650 13, ,398 47, ,982 (367,455) 13,147,749 Expenses (116,178,034) (726,372) (215,422) (4,318,896) (1,364,703) (1,301,663) 1,948,333 (122,156,757) Expenses of Market funding (51,230,961) (255,303) (1,222) (33,441) 408,795 (51,112,132) Loans, assignments, transfers and leases (8,901,417) (31) (73) -- (8,901,521) Allowance for loan losses (13,873,844) (64) 1, (13,871,868) Interest and inflation adjustment of technical reserves (2,132,244) (2,132,244) Personnel Expenses (15,709,857) (50,089) (57,970) (354,273) (135,452) (201,587) 5,785 (16,503,443) Other administrative expenses (12,218,571) (98,902) (24,912) (964,112) (214,592) (205,890) 1,223,199 (12,503,780) Depreciation (924,750) (2,613) -- (14,611) (13,886) (6,944) -- (962,804) Amortization of deferred (173,456) (23,359) (5,097) (3,634) -- (205,546) Amortization of intangible assets (2,336,780) (8) (3,914) (120) -- (2,340,822) Operations of Sale or Transfer of Financial Assets (37,290) (37,290) Revenues / (Expenses) from impairment 2, (6,291) (4,174) Other expenses (1) (10,773,225) (319,813) (133,091) (830,297) (984,154) (851,107) 310,554 (13,581,133) Profit before tax and profit sharing (2) 13,632, ,415 1,035,448 2,096,094 1,168, ,426 (186,429) 18,436,744 Income tax and social contribution (3) (2,595,261) (84,581) (417,468) (752,462) (397,558) (72,608) 79,354 (4,240,584) Profit sharing (1,776,606) -- (505) (36,634) (1,894) (19,623) -- (1,835,262) Non-controlling interest (156,050) (155,778) Net Income (4) 9,104, , ,475 1,306, , ,467 (107,075) 12,205,120 Balance Sheets Assets 1,084,778,159 6,180, ,453 69,427,954 4,654,755 4,095,177 (19,572,066) 1,150,486,189 Investment in subsidiaries and associate companies 12,689,935 2,559, , (9,597,139) 6,174,615 Liabilities 1,018,427,232 3,502, ,959 64,755,850 3,707,762 1,577,854 (8,344,742) 1,084,416,224 (1) According to Banco Central do Brasil standards, since January 2011, the goodwill amortization is recognized (note 14.c). In 2012, R$ 160,504 thousand were amortized in the segment of Insurance, Pension Plans and Capitalization. (2) In Intersegment transactions, the amount of R$ 186,429 thousand refers to the elimination of unrealized results, as follows: R$ 183,099 thousand related Ativos S.A. and R$ 3,330 thousand from Cobra Tecnologia. (3) In BB-Consolidated, the amount of R$ 79,354 thousand (highlighted in intersegment transactions), related to the tax credit on unrealized results, was recorded as assets. (4) In intersegment transactions, the amount of R$ 107,075 thousand, refers to the elimination of unrealized gains net of tax effects. 43

179 Notes to the financial statements 2011 BB-Consolidated Banking Investment Fund Management Insurance and Related Payment methods Other segments Intersegment transactions Total Income 128,222,668 1,240,772 1,151,629 5,341,223 2,050,591 1,429,425 (2,311,930) 137,124,378 Income from loans and leases 64,458, (212,096) 64,246,868 Income from operations with securities and derivative financial instruments Income from exchange operations and Compulsory Financial results from insurance operations, pension plans and capitalization 29,301, ,856 87,223 44, ,996 27,407 (575,451) 29,387,642 6,857, (66) (64) 7 6,857, ,404, ,163 2,463,807 Income from service fees 9,042, , , ,767 1,739, ,614 (1,051,657) 12,470,806 Income from tariffs, rates and commissions Equity in the earnings/(loss) of subsidiary and associated companies Results from Insurance, Pension Plan and Capitalization Operations 5,579,578 34, , ,770, ,007 20, (2,249) , ,237, ,778 2,264,977 Other Income 12,757, ,514 15, ,543 82, ,468 (559,674) 13,417,078 Expenses (113,730,369) (794,750) (220,901) (3,759,638) (1,128,120) (1,067,861) 2,099,834 (118,601,805) Expenses of Market funding (54,430,764) (382,356) (44,033) 487,636 (54,369,517) Loans, assignments, transfers and leases (8,842,864) (83) (122) -- (8,843,069) Allowance for loan losses (11,976,368) (15) (104) , (11,975,091) Interest and inflation adjustment of technical reserves (1,660,831) (1,660,831) Personnel Expenses (14,272,512) (45,133) (52,581) (267,576) (96,446) (184,612) 6,285 (14,912,575) Other administrative expenses (9,771,831) (55,205) (24,138) (968,267) (219,490) (208,853) 1,168,966 (10,078,818) Depreciation (948,365) (2,427) -- (11,736) (11,192) (6,590) -- (980,310) Amortization of deferred (119,974) (22,514) (2,406) (5,045) -- (149,939) Amortization of intangible assets (2,213,194) (159) -- (2,213,353) Revenues / (Expenses) from impairment 3, (160) ,959 Other expenses (1) (11,157,616) (309,614) (144,078) (828,714) (798,434) (619,752) 436,947 (13,421,261) Profit before tax profit sharing (2) 14,701, , ,728 1,581, , ,564 (212,096) 18,732,119 Income tax and social contribution (3) (3,382,131) (66,818) (370,866) (566,901) (305,956) (120,539) 90,756 (4,722,455) Profit sharing (1,740,848) (21) (432) (22,793) (1,534) (24,915) -- (1,790,543) Non-controlling interest (93,133) (93,131) Net Income (4) 9,485, , , , , ,112 (121,340) 12,125,990 Balance Sheets Assets 931,760,537 7,034,312 1,073,470 52,216,493 2,997,253 4,491,293 (18,343,451) 981,229,907 Investment in subsidiaries and associate companies 11,289,612 3,681, , (8,617,573) 6,837,985 Liabilities 873,167,951 3,832, ,641 48,293,129 2,368,896 1,984,794 (7,780,894) 922,813,537 (1) According to Banco Central do Brasil standards, since January 2011, the goodwill amortization is recognized (note 14.c). The goodwill amortization in the amount of R$ 188,879 thousand was recognized in 2011 in the segment of Insurance, Pension Plans and Capitalization. (2) In Intersegment transactions, the amount of R$ 212,096 thousand refers to the elimination of unrealized results to Ativos S.A. (3) In BB-Consolidated, the amount of R$ 90,756 thousand (highlighted in intersegment transactions), related to the tax credit on unrealized results, was recorded as assets. (4) In intersegment transactions, the amount of R$ 121,340 thousand, refers to the elimination of unrealized gains net of tax effects. 44

180 Notes to the financial statements 6 Cash and Cash Equivalents Banco do Brasil 27/02/ :37 BB-Consolidated Cash and Cash Equivalents 11,189,103 9,227,217 12,310,731 10,034,370 Local currency 7,911,931 7,907,973 8,713,507 8,462,693 Foreign currency 3,277,172 1,319,244 3,577,404 1,554,778 Investments in gold ,820 16,899 Interbank Investments (1) 46,995,321 33,650,878 45,495,087 33,817,769 Open market investments sales pending settlement held position 16,228,931 9,486,246 20,760,206 10,051,955 Interbank deposits 30,766,390 22,786,426 24,517,998 22,259,298 Foreign currency -- 1,378, ,883 1,506,516 Total Cash and Cash Equivalents 58,184,424 42,878,095 57,805,818 43,852,139 (1) Investments whose maturity is less than or equal to 90 days. 45

181 Notes to the financial statements 7 Short-term Interbank Investments a) Breakdown Banco do Brasil BB-Consolidated 27/02/ : Open Market Investments 181,893, ,234, ,513, ,032,202 Sales Pending Settlement Own Resources 16,228,931 9,486,246 22,009,970 13,543,025 Treasury Financial Bills ,145, ,394 National Treasury Bills 11,352,573 1,651,681 12,692,699 2,870,134 National Treasury Notes 4,876,358 7,834,279 5,727,161 9,622,482 Other Securities , ,015 Sales Pending Settlement Financed Position 165,664, ,747, ,261, ,489,177 Treasury Financial Bills 107,322, ,114, ,449, ,931,871 National Treasury Bills 44,809,832 15,766,156 48,362,285 17,590,708 National Treasury Notes 13,163, ,332 14,081, ,532 Other Securities 368,839 19, ,839 19,066 Sales Pending Settlement Short Position , Federal Government bonds National Treasury , Interbank Deposits 60,415,198 45,338,862 29,809,481 27,255,604 Total 242,308, ,572, ,323, ,287,806 Current assets 220,109, ,955, ,206, ,233,680 Non-current assets 22,199,005 16,617,249 14,116,523 17,054,126 b) Income from Short-term Interbank Investments Banco do Brasil BB-Consolidated 2nd half nd half Income from Open Market Investment 6,851,793 14,134,309 13,713,582 7,151,460 14,753,915 14,572,708 Own resources 559, , , ,106 1,084, ,870 Financed position 6,292,120 13,241,574 13,505,910 6,521,329 13,652,899 14,003,370 Short position ,025 16,356 90,468 Income from Investiments in Interbank Deposits 962,906 1,887,440 1,392, , , ,255 Total 7,814,699 16,021,749 15,105,991 7,377,124 15,258,520 15,118,963 46

182 Notes to the financial statements 8 Securities and Derivative Financial Instruments a) Securities Banco do Brasil Maturity in days Without maturity Market Value Total Total More than 360 Cost Market value Mark to Market Cost Market value Mark to Market 1 Trading securities -- 1,926,036 1,393,079 2,333,872 9,838,871 15,318,467 15,491, ,391 20,027,918 20,202, ,951 Federal Government Bonds -- 1,926,036 1,380,194 2,304,567 9,838,871 15,276,361 15,449, ,307 19,944,448 20,119, ,973 Treasury financial bills , ,644 3,110,815 4,279,920 4,279, ,541,051 4,540,848 (203) National treasury bills , ,654 2,072,923 6,138,837 8,769,437 8,916, ,449 8,147,166 8,277, ,545 National treasury notes -- 1,663, ,219 2,227,004 2,252,783 25,779 7,256,231 7,300,862 44,631 Corporate bonds ,885 29, ,106 42, ,470 83,448 (22) Debentures ,885 29, ,106 42, ,979 82,956 (23) Shares Securities available for sale 169,205 1,276,864 8,472,818 8,497,385 62,470,370 79,959,346 80,886, ,296 75,653,601 76,229, ,498 Federal Government Bonds ,638 4,184,079 7,969,298 33,985,034 45,659,453 46,732,049 1,072,596 50,868,728 51,523, ,571 Treasury financial bills ,352,568 5,830,322 18,800,072 27,982,783 27,982, ,882,160 37,878,949 (3,211) National treasury bills , ,205 1,115,774 4,264,142 6,569,061 6,576,021 6,960 3,947,646 3,941,706 (5,940) National treasury notes , ,230,392 3,424,312 3,440,096 15,784 2,355,233 2,355, Agricultural debt securities ,561 5,823 8,004 7,721 (283) 9,870 8,948 (922) Brazilian foreign debt securities ,792,818 2,927,616 3,792, ,202 2,740,420 3,312, ,535 Foreign Government bonds -- 19, ,021,641 3,300,731 4,191,926 4,341, ,449 3,598,264 3,697,663 99,399 Other , , ,056 35, , ,236-7,899 Corporate bonds 169, ,226 4,288, ,087 28,485,336 34,299,893 34,154,593 (145,300) 24,784,873 24,705,800-79,073 Debentures ,059,194 30,553 23,411,101 25,498,378 25,500,848 2,470 18,083,554 18,156,296 72,742 Promissory notes ,545 1,202, , ,738,009 1,736,531 (1,478) 3,133,697 3,129,503 (4,194) Credit Notes ,308 20,179 (129) Shares in investment funds 168, ,729 1,107, ,063 (121,311) 1,050, ,921 (128,946) Shares (37) Rural Product Bills - Commodities -- 45, , ,377 5, , , , ,803 (1,817) Certificate of deposit , , , , , , Certificates of Agribusiness Credit Rights ,856 43,082 43, Financial bills ,966,732 2,100,316 1,966,732 (133,584) Other , ,240,059 2,164,974 2,271, ,926 1,299,234 1,282,241-16,993 47

183 Notes to the financial statements Maturity in days Without maturity Banco do Brasil Market value Total Total More than Securities held to maturity ,468 3,980, ,912 4,534,365 4,428,438 (105,927) 7,911,771 7,743,430 (168,341) Federal Government Bonds ,468 3,980, ,120 4,245,359 4,250,646 5,287 7,610,557 7,615,908 5,351 Treasury financial bills ,980, ,806 4,123,983 4,122,864 (1,119) 7,469,498 7,466,589 (2,909) National treasury notes , ,842 26,643 (199) 25,224 24,323 (901) Brazilian foreign debt securities , ,314 94, ,139 6, , ,996 9,161 Corporate bonds , , ,792 (111,214) 301, ,522 (173,692) Other , , ,792 (111,214) 301, ,522 (173,692) Cost Market value Mark to Market Cost Market value Mark to Market Total 169,205 3,202,900 9,925,365 14,811,315 72,698,153 99,812, ,806, , ,593, ,175, ,108 Maturity in days Without maturity Banco do Brasil Market value Total Total More than 360 Total by portfolio 169,205 3,202,900 9,925,365 14,811,315 72,698,153 99,812, ,806, , ,593, ,175, ,108 Own portfolio 169,205 3,202,900 5,865,660 5,409,405 40,369,309 54,348,104 55,016, ,375 45,795,878 45,883,998 88,120 Subject to repurchase agreements ,059,704 8,583,489 29,553,737 41,870,650 42,196, ,280 54,311,273 54,806, ,066 Deposits with the Banco Central do Brasil ,443 51,490 51,459 (31) 47,490 47,422 (68) Pledged in guarantee ,405 2,723,664 3,541,934 3,542, ,438,649 3,437,639 (1,010) Cost Market value Mark to Market Cost Market value Mark to Market Maturity in years Without maturity Due in up to one year Banco do Brasil Market value Total Total Due from 1 to 5 years Due from 5 to 10 years Total by category 169,205 27,939,580 53,805,409 14,349,118 4,543,626 99,812, ,806, ,593, ,175,398 1 Trading securities -- 5,652,985 9,735, , ,318,467 15,491,858 20,027,918 20,202,869 2 Available for sale securities 169,205 18,247,069 43,846,607 14,242,758 4,381,004 79,959,346 80,886,642 75,653,601 76,229,099 3 Held to maturity securities -- 4,039, ,729 2, ,622 4,534,365 4,428,438 7,911,771 7,743,430 Due after 10 years Cost Market value Cost Market value 48

184 Notes to the financial statements Banco do Brasil Book value Book value Current Non-current Total Current Non-current Total Total by portfolio 37,949,042 62,963, ,912,865 38,042,296 66,301, ,343,739 Own portfolio 21,520,600 33,602,337 55,122,937 21,749,007 24,302,592 46,051,599 Subject to repurchase agreements 15,598,409 26,597,913 42,196,322 16,208,777 38,598,302 54,807,079 Deposits with Banco Central do Brasil 16 51,443 51, ,406 47,422 Pledged in guarantee 830,017 2,712,130 3,542,147 84,496 3,353,143 3,437,639 Banco do Brasil Total by category 1 Trading securities 15,491,858 15% 20,202,869 19% 2 Available for sale securities 80,886,642 80% 76,229,099 73% 3 Held to maturity securities 4,534,365 5% 7,911,771 8% Portfolio book value 100,912, % 104,343, % Mark to market held to maturity (105,927) (168,341) Portfolio market value 100,806, ,175,398 49

185 Notes to the financial statements BB-Consolidated Maturity in days Without maturity Market value Total Total More than 360 Cost Market value Mark to Market Cost Market value Mark to Market 1 - Trading securities 4,499,617 7,750,681 6,755,559 4,567,766 51,137,694 72,401,254 74,711,317 2,310,063 61,652,443 63,257,425 1,604,982 Federal Government Bonds 121,024 6,556,796 5,778,747 3,767,328 40,787,004 54,950,295 57,010,899 2,060,604 47,821,152 48,771, ,797 Treasury financial bills ,938 3,190, ,874 6,689,617 10,859,168 10,857,445 (1,723) 11,124,859 11,126,040 1,181 National treasury bills ,940 1,118,809 2,769,578 18,653,982 22,556,667 23,162, ,642 13,073,931 13,317, ,862 National treasury notes -- 2,696,347 1,342, ,728,714 17,322,364 18,767,769 1,445,405 19,582,402 20,059, ,121 Agricultural debt securities , , , ,456 (1) 230, , Brazilian foreign debt securities ,792 20,052 62,421 92,731 92,265 (466) 61,236 62,265 1,029 Foreign Government bonds 2,136 63,163 80,480 1, , , ,805 46, , , ,657 Other 118,888 2,791,321 36, ,251 72,273 3,436,915 3,401,850 (35,065) 3,328,725 3,448, ,461 Corporate bonds 4,378,593 1,193, , ,438 10,350,690 17,450,959 17,700, ,459 13,831,291 14,485, ,185 Debentures 6, , , ,825 4,622,913 5,085,316 5,193, ,851 3,578,465 4,028, ,598 Promissory notes , , , ,330 84, Certificate of banking credit ,170,748 5,172,907 2,159 Shares 1,997, ,944,733 1,997,674 52,941 1,607,857 1,476,955 (130,902) Shares in investment funds 2,347, ,705 7, ,127 3,127,306 3,194,118 66,812 2,078,705 2,299, ,051 Rural Product Bills - Commodities -- 9,678 61,564 30,830 83, , ,495 3, , ,303 7,310 Certificate of deposit , , , ,349 2,025,777 2,032,971 7, , ,937 23,673 Eurobonds ,447 31, , , , ,965 93,032 (1,933) Financial bills , , , , Others 26, ,807 81,688 4,434,550 4,553,194 4,563,879 10, , ,193 83,229 50

186 Notes to the financial statements Maturity in days Without maturity BB-Consolidated Market Value Total Total More than 360 Cost Market value Mark to Market Cost Market value Mark to Market 2 Securities available for sale 997,713 1,951,390 9,079,022 9,108,574 74,184,718 93,906,515 95,321,417 1,414,902 87,718,978 88,385, ,031 Federal Government Bonds 52,652 1,212,468 4,331,663 8,334,301 41,983,950 54,534,638 55,915,034 1,380,396 57,249,922 57,987, ,537 Treasury financial bills ,426 3,352,568 5,830,322 18,801,136 28,111,273 28,111, ,899,363 37,896,131 (3,232) National treasury Bills , ,960 1,236,600 9,692,324 12,525,695 12,611,058 85,363 6,521,962 6,505,823 (16,139) National treasury notes ,322 72, ,647,692 5,856,605 6,008, ,681 5,382,028 5,405,085 23,057 Agricultural debt securities ,817 17,355 22,928 23, ,309 15,726 (583) Brazilian foreign debt securities ,923,846 2,997,832 3,924, ,959 2,804,722 3,422, ,387 Foreign Government bonds -- 19, ,262,562 3,301,738 4,430,206 4,583, ,097 4,262,119 4,364, ,520 Other 52, , , ,511 62, , ,946 14,527 Corporate bonds 945, ,922 4,747, ,273 32,200,768 39,371,877 39,406,383 34,506 30,469,056 30,397,550 (71,506) Debentures ,181,812 34,014 24,894,910 27,072,620 27,110,736 38,116 19,312,246 19,387,871 75,625 Promissory notes ,684 1,402, , ,966,340 1,964,866 (1,474) 3,264,269 3,260,067 (4,202) Credit Notes ,566 92,438 (128) Shares in investment funds 172, ,263,761 2,405,101 2,436,408 31,307 3,745,464 3,672,635 (72,829) Shares 770, , ,339 1, , ,974 (9,942) Rural Product Bills - Commodities -- 76, , ,335 17,326 1,106,304 1,107, , ,803 (1,817) Certificate of deposit , ,348 1,200 22, , , , , Certificates of Agribusiness Credit Rights ,856 43,082 43, Financial bills ,191 2,026,926 2,218,730 2,085,117 (133,613) Eurobonds , , , ,593 5, , ,728 (16,600) Other 2,075 6,699 99,664 78,110 2,506,487 2,601,159 2,693,036 91,877 1,558,133 1,516,219 (41,914) 3 Securities held to maturity , ,939 4,014,198 8,576,689 12,909,853 12,952,681 42,828 15,190,739 15,051,003 (139,736) Federal Government Bonds , ,939 4,014,198 8,243,618 12,440,041 12,592, ,636 14,802,618 14,836,574 33,956 Treasury financial bills ,980, ,664 4,129,837 4,128,722 (1,115) 7,469,498 7,466,589 (2,909) National treasury notes , , ,396,059 7,520,837 7,664, ,119 7,114,983 7,140,757 25,774 National treasury bills -- 9,778 23,360 34, , , ,851 3, , ,215 1,930 Agricultural debt securities Brazilian foreign debt securities , ,315 94, ,141 6, , ,996 9,161 Other Corporate bonds -- 26, , , ,004 (109,808) 388, ,429 (173,692) Debentures ,690 17,282 18,690 1, Certificate of deposit -- 26, , , ,522 (1) Other , , ,792 (111,215) 388, ,429 (173,692) Total 5,497,330 9,848,926 16,049,520 17,690, ,899, ,217, ,985,415 3,767, ,562, ,693,437 2,131,277 51

187 Notes to the financial statements BB Consolidated Market Value Total Total Maturity in days Without maturity More than 360 Cost Market value Mark to market Cost Market value Mark to market Total by portfolio 5,497,330 9,848,926 16,049,520 17,690, ,899, ,217, ,985,415 3,767, ,562, ,693,437 2,131,277 Own portfolio 5,497,330 9,788,207 10,569,207 7,462,304 94,323, ,479, ,640,497 3,160, ,318, ,934,070 1,615,555 Subject to repurchase agreements -- 4,523 5,173,138 9,166,031 35,154,644 48,913,095 49,498, ,241 57,834,094 58,348, ,162 Deposits with the Banco Central do Brasil ,443 51,490 51,459 (31) 47,490 47,422 (68) Pledged in guarantee -- 56, ,175 1,062,187 4,371,200 5,773,055 5,796,758 23,703 5,362,061 5,363,689 1,628 Allowance for securities losses (1,635) -- (1,635) (1,635) BB-Consolidated Market value Total Total Maturity in days Without maturity Due in up to one year Due from 1 to 5 years Due from 5 to 10 years Due after 10 years Cost Market value Cost Market value Total by category 5,497,330 43,588, ,213,325 18,001,026 6,684, ,217, ,985, ,562, ,693,437 1 Trading securities 4,499,617 19,074,006 49,281,725 1,762,534 93,435 72,401,254 74,711,317 61,652,443 63,257,425 2 Available for sale securities 997,713 20,138,986 51,888,092 16,081,574 6,215,052 93,906,515 95,321,417 87,718,978 88,385,009 3 Held to maturity securities -- 4,375,992 8,043, , ,263 12,909,853 12,952,681 15,190,739 15,051,003 52

188 Notes to the financial statements BB-Consolidated Book value Book value Current Non-current Total Current Non-current Total Total by portfolio 58,896, ,046, ,942,587 82,503,105 84,330, ,833,173 Own portfolio 40,160,278 87,403, ,563,934 65,381,143 39,439, ,820,535 Subject to repurchase agreements 17,298,906 32,233,089 49,531,995 16,599,145 40,002,383 56,601,528 Deposits with Banco Central do Brasil 16 51,443 51, ,406 47,422 Pledged in guarantee 1,437,168 4,359,666 5,796, ,801 4,840,887 5,363,688 Allawance for securities losses -- (1,635) (1,635) BB-Consolidated Total by category 1 Trading securities 74,711,317 41% 63,257,425 38% 2 Available for sale securities 95,321,417 52% 88,385,009 53% 3 Held to maturity securities 12,909,853 7% 15,190,739 9% Portfolio book value 182,942, % 166,833, % Mark to market held to maturity 42,828 (139,736) Portfolio market value 182,985, ,693,437 b) Income from operations with securities Banco do Brasil BB-Consolidated 2nd Half/ nd Half/ Short-term Interbank Investments (Note 7.b) 7,814,699 16,021,749 15,105,991 7,377,124 15,258,520 15,118,963 Fixed-income securities 3,892,882 8,475,403 10,999,120 5,160,139 10,829,235 12,873,139 Variable-income securities 213,516 1,645,826 2,492, ,205 1,894,293 2,856,560 Total 11,921,097 26,142,978 28,598,042 12,878,468 27,982,048 30,848,662 c) Reclassification of securities There was no reclassification of securities in the years ended and d) Derivative financial instruments The Bank uses derivative financial instruments to manage, at the consolidated level, its positions and to meet clients' needs, classifying its own positions as hedge (market risk and risk of cash flow) and trading, both with limits and approved by committees at the Bank. The hedge strategy of the equity positions is in line with macroeconomic analyses and is approved by the Executive Board of Directors. In the options market, active or long positions have the Bank as holder, while passive or short positions have the Bank as writer. The models used to manage risks with derivatives are reviewed periodically and the decisions made follow the best risk/return relationship, estimating possible losses based on the analysis of macroeconomic scenarios. The Bank uses tools and systems to manage the derivatives. Trading in new derivatives, standardized or not, is subject to a prior risk analysis. Risk analysis of the subsidiaries is undertaken on an individual basis and its risk management is done on a consolidated basis. The Bank uses statistical methods and simulations to measure the risks of its positions, including derivatives, using models of values at risk sensibility and stress analysis. 53

189 Notes to the financial statements Risks The main risks inherent to derivative financial instruments, resulting from the business dealings of the bank and its subsidiaries are credit, market, liquidity and operating risks. Credit risk is the exposure to loss in the event of default by a counterparty to a transaction. The credit exposure in futures contracts is minimized due to daily settlement in cash. The swap contracts, recorded in Cetip are subject to credit risk if the counterparty is not able or willing to perform its contractual obligations, while the swap contracts registered in the BM&FBovespa are not subject to the same risk, given that the Bank operations in Brazil have the same stock exchange as guarantor. Total credit exposure in swaps is R$ 683,971 thousand (R$ 989,363 thousand at ). The swap operations in negotiations associated with the funding and/or investing operation in the amount of R$ 114,172 thousand (R$ 131,172 thousand at ) are recorded at values updated as changes incurred from their indexes (curve), and are not valuated at market value, as allowed by Circular n.º 3.150/2002 from Banco Central do Brasil. Market risk is the possibility of losses caused by changes in the behavior of interest rates and exchange rates, on stock prices and commodities. Market liquidity risk is the possibility of loss resulting from the inability to perform a transaction within a reasonable time and without significant loss of value due to the size of the transaction in the volume usually negotiated. Operational risk denotes the probability of financial losses resulting from failures or inadequacy of people, processes and systems, or factors such as catastrophes or criminal activities. 54

190 Notes to the financial statements Breakdown of the Portfolio of Derivatives for Trading by Index Banco do Brasil BB-Consolidated By Index Notional value Cost Market value Notional value Cost Market value Notional value Cost Market value Notional value Cost Market value Futures contracts Purchase commitments 12,298, ,820, ,829, ,657, Interbank deposits 3,151, ,061, ,235, ,920, Currencies 9,009, ,270, ,122, ,412, T-Note Index , , Foreign exchange coupon 130, ,219, ,629, Libor , , Commodities 6, , , , SCC (1) , , Sales commitments 7,824, ,929, ,314, ,534, Interbank deposits 6,083, ,802, ,202, ,328, Currencies 519, , ,717, , T-Note , , Index 5, , , BGI (2) Foreign exchange coupon 391, , ,264, ,385, Libor 775, ,900, , ,900, Commodities 48, , , , SCC (1) , , Forward operations Asset position 4,956, , ,917 4,396, , ,283 4,976, , ,468 4,408, , ,388 Term securities Term currencies 4,932, , ,173 4,395, , ,090 4,953, , ,720 4,407, , ,195 Term commodities 23,437 1, , ,440 1, , Liability position 5,033,403 (254,151) (112,251) 3,895,747 (401,673) (218,134) 5,053,850 (274,598) (133,121) 3,908,174 (402,141) (371,496) Term securities Term currencies 5,012,151 (251,465) (108,742) 3,876,452 (396,463) (214,262) 5,032,598 (271,912) (129,612) 3,888,879 (396,931) (367,624) Term commodities 21,252 (2,686) (3,509) 19,295 (5,210) (3,872) 21,252 (2,686) (3,509) 19,295 (5,210) (3,872) (1) Foreign exchange swap with periodic adjustments. (2) Live cattle futures contract. 55

191 Notes to the financial statements Banco do Brasil BB-Consolidated By Index Notional value Cost Market value Notional value Cost Market value Notional value Cost Market value Notional value Cost Market value Option market (1) 3,011,309 (1,218,030) (1,309,199) 2,221,406 (692,676) (765,525) 28,331,053 (1,258,135) (1,345,157) 237,550,891 (1,699,950) (1,751,209) Purchase - Purchase options ,370 5,231 13,516 2,616,595 54,999 35,042 95,686, , ,983 Foreign currency ,370 5,231 13,516 2,374,145 27,799 10,576 1,776,275 92, ,575 Interbank Market Interbank deposit ,063,775 15,722 3 Flexible Currency Options ,284 8,918 5, ,996 36,475 45,593 Shares ,000 2,471 2,419 12, Commodities Other ,166 15,811 16,981 27, Sold Purchase options ,556 5, ,308,148 18,005 25,281 32,660,372 26,815 16,967 Foreign currency ,370 5, ,576,416 3,773 8,223 1,381,121 16,244 2,303 Interbank Market Interbank deposits ,300,000 5,051 7,763 31,149,000 7,238 13,254 Flexible Currency Options ,040 2,583 3,386 25, Shares ,249 6,570 5,890 76,657 2, Commodities Other , , Purchase Sales options 1,324,902 (70,661) (198,119) 224,406 (43,036) (106,928) 5,349,227 (158,713) (268,322) 66,835,621 (529,172) (624,645) Foreign currency 6,362 (369) (71) 187,255 (6,390) (14,724) 3,361,794 (38,546) (17,792) 3,213,968 (103,160) (188,062) Interbank Market (3,082) -- Pre-fixed 1,318,001 (70,214) (198,033) 36,579 (36,579) (92,175) 1,318,001 (70,214) (198,032) 341,433 (363,888) (419,484) Interbank deposit ,706,550 (7,011) (2) Flexible Currency Options ,478 (42,450) (44,400) 515,284 (50,425) (16,039) Shares ,250 (6,444) (6,857) 48,363 (863) (585) Commodities 539 (78) (15) 572 (67) (29) 539 (78) (15) 4,090 (484) (264) Other ,165 (981) (1,226) 5,760 (259) (209) Sold Sales options 1,686,407 (1,147,369) (1,111,080) 1,684,074 (660,374) (672,272) 11,057,083 (1,172,426) (1,137,158) 42,368,380 (1,343,121) (1,381,514) Foreign currency 7,152 (123) (161) 166,304 (5,805) (179) 1,665,321 (7,596) (12,594) 2,135,010 (19,752) (932) Interbank Market (1,869) (27,128) Pre-fixed 1,318,001 (1,138,412) (1,107,965) 642,201 (642,201) (669,108) 1,318,001 (1,138,412) (1,107,965) 1,203,083 (1,279,274) (1,299,343) Interbank deposit ,299,000 (4,674) (7,019) 37,534,200 (5,166) (41,783) Flexible Currency Options ,404 (6,145) (1,813) 527,454 (22,793) (7,553) Shares ,050 (6,664) (4,751) 13,000 (129) (169) Commodities 361,254 (8,834) (2,954) 875,569 (12,368) (2,985) 361,807 (8,874) (2,980) 881,935 (13,052) (3,574) Other ,500 (61) (36) 73,528 (1,086) (1,032) (1) The variation of the notional value found in BB-Consolidated is due to the expiration of options contracts and negotiating with clients of Banco Votorantim. 56

192 Notes to the financial statements Banco do Brasil BB-Consolidated By Index Notional value Cost Market value Notional value Cost Market value Notional value Cost Market value Notional value Cost Market value Swap contracts Asset position 10,609, , ,327 6,701, , ,722 18,420, ,860 1,055,188 13,062, , ,395 Interbank Deposit 3,586,875 84,766 85, ,188 61,836 80,870 4,341, , ,608 2,142, , ,012 Foreign currency 3,866,850 28,909 93,639 1,213,604 38,840 44,766 5,932, , ,943 3,117, , ,595 Pre-fixed 3,122,623 70, ,792 4,813,230 31, ,959 4,740,658 90, ,447 5,609, , ,808 IPCA 32,998 2,671 5,232 19,454 3,133 4,127 2,564,763 53, ,207 1,145,831 25,378 47,747 IGPM ,552 59, , ,702 53,303 65,835 Commodities , , Other ,749 27,953 30, ,155 11,969 18,379 Liability position 9,374,401 (418,890) (679,220) 11,087,323 (485,385) (664,715) 15,714,678 (601,099) (1,278,313) 17,932,498 (756,780) (1,030,868) Interbank Deposit 2,879,964 (51,334) (51,989) 382,305 (48,577) (57,518) 3,035,137 (65,814) (64,510) 1,555,655 (77,685) (86,700) Foreign currency 2,940,202 (181,162) (274,150) 5,631,972 (375,879) (428,098) 3,558,735 (115,185) (217,616) 6,054,431 (399,665) (390,030) Pre-fixed 3,546,697 (186,206) (352,956) 4,794,242 (57,564) (175,754) 5,446,677 (217,599) (442,458) 6,607,473 (66,181) (211,733) TMS ,804 (3,365) (3,345) ,804 (3,365) (3,345) TR 7,538 (188) (125) ,490 (1,297) (1,769) 5,952 (679) (1,150) IGPM ,650 (50,081) (88,323) 393,635 (45,454) (57,719) IPCA ,323,836 (150,303) (460,973) 2,316,169 (161,053) (251,758) Commodities (4) (10) 1,211 (6) (169) Other ,784 (816) (2,654) 719,168 (2,692) (28,264) Other derivative financial instruments Asset position Foreign currency 5,449,357 60,598 66, ,487 25,830 35,099 8,251,772 51, ,618 2,032,592 25, ,359 Liability position Foreign currency 3,353,018 (57,912) (68,325) 3,466,916 (169,264) (178,426) 4,613,640 (58,263) (618,265) 3,999,095 (164,651) (194,059) 57

193 Notes to the financial statements Breakdown of the credit derivatives portfolio by maturity (notional value) Banco do Brasil BB-Consolidated More than More than Futures 1,409,860 9,892, ,440 8,125,540 20,122,962 27,750,708 8,159,411 20,398,253 9,498,125 34,088,966 72,144, ,192,175 Fowards 2,358,994 5,127,902 1,835, ,794 9,989,789 8,292,316 2,360,981 5,154,621 1,846, ,209 10,030,686 8,317,170 Option 3, , ,768 2,245,320 3,011,309 2,221,406 19,800,588 5,233, ,557 2,491,084 28,331, ,550,891 Swap 1,104,965 7,660,404 2,551,355 8,667,023 19,983,747 17,788,799 1,680,396 11,779,069 3,684,524 16,990,961 34,134,950 30,995,377 Credit derivatives ,917, ,917,836 2,039,539 Other (1) 6,234,285 1,079,382 1,225, ,930 8,802,375 4,214,403 7,270,623 3,150,239 1,864, ,802 12,865,412 6,031,687 (1) Related, essentially, to Non Deliverable Forwards (NDF) which are traded in the over-the-counter (OTC) market and have as their object an exchange rate of a specific currency. Breakdown of the credit derivative portfolio by notional value, trading market and counterpart ( ) Banco do Brasil BB-Consolidated Futures contracts Foward operations Option market Swap contracts Other Futures contracts Foward operations Option market Swap contracts Credit derivatives Other BM&FBovespa 19,347, ,011, ,368, ,331, Over-the-counter Financial Institutions 775, ,678,592 8,802, ,919 40, ,632,381 1,917,836 9,627,136 Client -- 9,989, ,305, ,989, ,502, ,238,276 Breakdown of the credit derivative portfolio Banco do Brasil BB-Consolidated Notional value Market value Notional value Market value Notional value Market value Notional value Market value Asset position - transferred risk ,563,278 6,983 1,861,338 22,608 Credit swaps Derivatives with Banks ,563,278 6,983 1,861,338 22,608 Liability position - received risk ,558 (4,303) 178,201 (18,073) Credit swaps Derivatives with Banks ,558 (4,303) 178,201 (18,073) 58

194 Notes to the financial statements The portfolio of credit derivatives is composed exclusively of purchases and sales carried out by Banco Votorantim. Currently the portfolio is composed of customers whose risk is rated as investment grade and, as counterparty, contains the main international market leaders for this product. For the sale of protection is approved credit limit, for both the risk client and for the counterparty, according to the approval of the committees and forums of credit. The credit limit risk allocation is made to the client by the reference value (notional) of derivatives, considering the amounts deposited as collateral. For the purpose of mitigating the risk, transactions are performed in portfolio trading with client sovereign risk, especially Brazil. In this case, we consider the potential future exposure to allocate credit limit to the counterparty. The portfolio of credit derivatives did not generate impacts in the PEPR - Portion related to the exposures weighted by risk factor for calculating the BIS Ratio, since information from Banco Votorantim were not included in the calculation, according to determination of the Banco Central do Brasil (Note 29.f). Breakdown of margin given as guarantee for transactions with derivative financial instruments Banco do Brasil BB-Consolidated Treasury financial bills 1,638,888 2,553,252 1,682,541 2,575,122 National treasury notes , ,150 National treasury bills , ,916 Foreign government bonds , ,279 Eurobonds ,196 4,836 Other , Total 1,638,888 2,553,252 3,893,575 4,479,303 59

195 Notes to the financial statements Portfolio of derivatives designated as hedge accounting Banco do Brasil BB-Consolidated Hedge Market Risk Hedging instruments Assets 387, ,295 5,663,119 10,776,038 Future ,811,931 6,991,760 Swap 387, ,295 1,851,188 2,068,382 Options ,715,896 Liabilities ,334,672 26,580,744 Future ,277,102 24,451,844 Swap ,057,570 1,195,548 Options ,352 Hedged items Assets ,306,775 22,368,654 Loan Operations ,023,528 19,359,558 Securities ,173, ,204 Lease transactions ,891 1,827,441 Foreign Investments , ,021 Other assets ,430 Liabilities 387, ,199 5,014,884 4,040,513 Other liabilities 387, ,199 5,014,884 4,040,513 Cash Flow Hedge Hedging instruments Assets Swap Liabilities (275,376) -- Borrowing Bonds (Principal) (275,376) -- Hedged items Assets , Foreign Investments , The Bank, in order to hedge against possible fluctuations in interest and exchange rates of its securities, contracted derivative operations to offset the exposure to the market value changes. The hedge was assessed as effective, in accordance with the Circular n.º 3.082/2002 from Banco Central do Brasil, which require evidence of hedge effectiveness between 80% and 125%. Income gains and losses with hedging instruments and hedged items Banco do Brasil BB-Consolidated 2nd Half/ nd Half/ Hedged items losses (12,536) (36,253) (22,779) (1,948,797) (2,682,508) (2,416,199) Hedging instruments gains -- 18,932 25,615 1,913,130 2,659,181 2,420,493 Net effect (12,536) (17,321) 2,836 (35,667) (23,327) 4,294 Hedged items gains ,285 1,679,877 2,991,250 2,457,216 Hedging instruments losses (10,351) (10,351) (6,208) (1,691,928) (2,947,269) (2,372,996) Net effect (10,351) (10,351) (1,922) (12,052) 43,980 84,220 60

196 Notes to the financial statements Derivative financial instruments segregated by current and non-current Banco do Brasil BB-Consolidated Current Non-current Current Non-current Current Non-current Current Non-current Assets Forward 129,535 15, ,210 22, ,879 15, ,292 22,096 Options , , ,220 5,730 Swap 113, , , , , , , ,963 Credit derivatives , , Other derivatives 65, , ,397 32,221 94,532 30,827 Total 308, , , , , ,335 1,067, ,616 Liabilities Forward (100,550) (11,701) (191,565) (26,569) (121,221) (11,900) (344,927) (26,569) Options (184,542) (1,124,656) (779,200) -- (259,585) (1,145,895) (1,984,894) (21,265) Swap (296,216) (383,004) (366,335) (298,380) (326,893) (951,420) (553,594) (477,274) Credit derivatives (4,303) -- (18,073) -- Other derivatives (65,313) (3,012) (173,151) (5,275) (613,521) (4,744) (188,392) (5,667) Total (646,621) (1,522,373) (1,510,251) (330,224) (1,325,523) (2,113,959) (3,089,880) (530,775) 61

197 Notes to the financial statements e) Income from derivative financial instruments Banco do Brasil BB-Consolidated 2nd Half/ nd Half/ Swap 810 (46,771) (594,112) (14,535) (114,805) (754,955) Forward (17,049) 158,167 35,748 (18,502) 165,754 39,282 Options (55,995) (130,375) (101,374) (63,627) (99,060) (58,785) Futures (308,107) (333,390) 214,348 (488,215) (1,220,599) (489,760) Credit derivatives ,870 18,575 20,303 Other 32,972 (129,940) (69,762) (36,066) (184,350) (217,105) Total (347,369) (482,309) (515,152) (614,075) (1,434,485) (1,461,020) f) Asset Valuation Adjustment of securities and derivatives recognized in Stockholders' equity Opening balance Net change Tax effects Closing balance Opening balance Net change Tax effects Closing balance Avaiable for sale securities Banco do Brasil (60,124) (141,730) 61,493 (140,361) (27,161) (54,938) 21,975 (60,124) Branches and (1) 741, ,402 (1,981) 1,267, , , ,662 subsidiaries abroad Associated and subsidiary companies Cash Flow Hedge 42, ,500 (166,600) 292, ,528 (112,040) 44,816 42,304 Associated and subsidiary companies - 1,914 (486) 1, Total 723, ,086 (107,574) 1,420, , ,852 67, ,842 (1) It does not contain tax effect on the mark-to-market of securities from branches and subsidiaries abroad, due to the tax exemption of Grand Cayman branch. 9 Interbank Accounts a) Restricted deposits Banco do Brasil 27/02/ :37 BB-Consolidated Compulsory Deposits at Banco Central do Brasil 79,509,305 90,736,391 80,097,865 93,659,856 Additional reserve requirements on deposits 27,451,495 34,766,271 27,618,289 36,003,271 Time deposits 16,305,833 23,265,337 16,660,511 24,886,309 Savings deposits 20,361,605 17,291,294 20,361,605 17,291,294 Demand deposits 15,152,436 13,421,937 15,216,673 13,484,505 Resources for rural credit (1) -- 1,991, ,991,552 Resources for microfinance 237, ,787 2,925 Real State 2,042,906 1,925,807 2,042,906 1,925,807 Compensation of wage changes fund 2,153,301 2,038,805 2,153,301 2,038,805 Provision for losses (117,467) (117,587) (117,467) (117,587) Other 7,072 4,589 7,072 4,589 National Treasury - Rural credit 179, , , ,194 Total 81,731,495 92,786,392 82,320,055 95,709,857 Current assets 81,708,213 92,785,842 82,296,773 95,709,307 Non-current assets 23, , (1) Refers to funds deposited in the Banco Central do Brasil, because of non transferring to rural credits (Note10.a), according to Resolution CMN nº 3745/2009. The funds were subject to special supply by the Banco Central do Brasil and maintained by the Bank, and recorded in borrowings and onlendings (Note18.b). 62

198 Notes to the financial statements b) Income on compulsory deposits Banco do Brasil BB-Consolidated 2nd Half nd Half Income Credit Linked to Banco Central do Brasil 2,404,571 5,665,803 6,735,294 2,437,604 5,791,333 7,066,582 Additional reserve requirements on deposits 1,154,788 2,768,794 3,435,153 1,167,837 2,821,995 3,576,244 Requirements over time resources 683,346 1,751,003 2,100, ,330 1,823,332 2,290,704 Savings deposits 566,437 1,146,006 1,149, ,437 1,146,006 1,149,675 Resources for rural credit , ,959 Income Credit Linked to Real State 55, , ,010 55, , ,010 Income Credit Linked to National Treasury Rural Credit 11,736 21,231 20,722 11,736 21,231 20,722 Total 2,471,783 5,799,435 6,900,026 2,504,816 5,924,965 7,231, Loan Operations a) Portfolio by modality Banco do Brasil BB-Consolidated 27/02/ : Loan Operations 454,725, ,757, ,234, ,267,032 Loans and securities discounted 205,452, ,356, ,272, ,977,806 Financing 124,302, ,983, ,435, ,279,127 Rural and agribusiness financing 112,092,156 92,769, ,263,199 93,207,757 Real estate financing 12,787,651 7,647,830 13,157,380 7,801,492 Financing of Infrastructure and development , Loan operations linked to cessions 89, , Other receivables with loan characteristics 32,980,668 22,146,945 33,426,898 22,657,460 Credit card operations 16,084,427 12,473,666 16,084,427 12,473,666 Advances on exchange contracts (1) 10,905,389 9,399,692 11,351,558 9,773,934 Other Receivables linked to acquired operations 5,673, ,673, Guarantees honored 107,456 76, ,503 76,698 Other 209, , , ,162 Lease transactions 12,288 29,981 2,010,667 3,064,082 Total Loan Portfolio 487,717, ,934, ,672, ,988,574 Allowance for loan losses (18,867,399) (17,236,001) (21,210,060) (19,014,978) (Allowance for loan losses) (18,346,070) (16,680,638) (20,521,819) (18,221,987) (Allowance for other losses) (521,329) (555,363) (560,327) (579,788) (Allowance for lease losses) (127,914) (213,203) Total Loan Portfolio Net of Provisions 468,850, ,698, ,462, ,973,596 (1) Advances on exchange contracts are classified as a deduction to other liabilities. 63

199 Notes to the financial statements b) Loan operations income Banco do Brasil BB-Consolidated 2nd half/ nd half/ Loan operations income 29,180,126 58,982,243 55,075,090 32,391,100 66,100,359 61,997,797 Loans and securities discounted 18,893,523 38,376,962 35,291,190 20,231,033 41,020,567 37,626,250 Financing 4,128,117 8,308,722 8,468,184 5,675,495 12,001,244 12,457,722 Rural and agribusiness financing 3,436,468 6,838,370 6,238,552 3,447,669 6,863,885 6,293,490 Recovery of loans previously written-off as loss 1,713,150 3,405,429 3,416,496 1,889,276 3,747,662 3,644,134 Income from foreign currency financing 344, , , , , ,669 Income from housing financing 460, , , , , ,802 Advances on exchange contracts 159, , , , , ,018 Guarantees honored 7,738 12,183 11,397 7,813 12,278 11,436 Other 36,554 65,988 57,449 36,518 86,905 13,276 Lease transactions income (Note 10.i) 9,942 19,961 21, ,487 1,871,395 2,249,071 Total 29,190,068 59,002,204 55,097,086 33,294,587 67,971,754 64,246,868 c) Breakdown of the loan portfolio by sector Banco do Brasil BB-Consolidated % % % % Public sector 12,794, ,407, ,897, ,552, Government 5,525, ,622, ,525, ,622, Direct administration 5,162, ,246, ,162, ,246, Indirect administration 363, , , ,121 - Business activities 7,268, ,785, ,372, ,930, BB Group , Industry 3,000, ,851, ,075, ,993, Financial intermediaries 187, , , , Other services 4,081, ,790, ,094, ,816, Private sector 474,923, ,526, ,774, ,435, Rural 86,444, ,637, ,615, ,075, Industry 149,117, ,174, ,878, ,983, Commerce 56,117, ,766, ,820, ,120, Financial intermediaries 6,686, , ,076, , Individuals 100,634, ,342, ,195, ,154, Housing 10,105, ,003, ,187, ,073, Other services 65,817, ,824, ,999, ,229, Total 487,717, ,934, ,672, ,988,

200 Notes to the financial statements d) Loan portfolio by risk level and maturity Banco do Brasil Normal operations AA A B C D E F G H Installments falling due 01 to 30 11,415,733 8,210,959 14,641,307 2,756, , ,131 22,451 25, ,535 37,912,554 28,978, to 60 9,934,675 5,417,756 8,273,320 1,615, ,337 90,669 16,500 16,696 72,801 25,749,525 18,968, to 90 10,176,045 3,570,456 5,916, , ,620 50,690 23,606 11,184 50,057 20,924,287 15,302, to ,357,378 9,998,177 17,626,405 3,844, , ,983 49,808 46, ,223 52,057,640 40,341, to ,592,543 17,462,232 31,510,694 6,184,079 1,211, , ,116 88, ,677 79,940,204 68,438,414 More than ,866,984 60,526,535 82,097,741 16,431,120 4,196,601 1,653, , ,460 3,383, ,114, ,969,680 Installments overdue Up to 14 days 115, , , ,648 39,187 20,773 5,860 5,091 18, , ,726 Other (1) 753, , ,236 Subtotal 163,212, ,309, ,296,338 31,874,099 7,275,709 2,524, , ,663 4,246, ,117, ,547,525 (1) Operations with third party risk linked to government funds and programs, primarily Pronaf, Procera, FAT, BNDES and FCO. They include the amount of overdue installments in the total amount of R$ 60,214 thousand, which comply with rules defined in each program for reimbursement with the managers and do not imply a credit risk for the Bank. Abnormal operations AA A B C D E F G H Installments falling due 01 to ,499 97,889 54,937 41,086 37,271 53, , , , to ,494 43,444 25,924 32,297 29,604 42, , , , to ,920 31,039 21,486 25,354 23,908 32, , , , to ,446 92,072 62,611 73,218 72,989 96, , , , to , , , , , , ,644 1,406,713 1,369,451 More than , , , , , ,614 2,364,040 4,246,745 3,813,031 Installments overdue 01 to ,505 17,087 12,097 11,053 10,303 16,650 60, , , to ,326 53,601 16,157 22,517 17,288 29,902 98, , , to , ,006 34,610 43,162 35,026 64, , , , to ,136 65,564 50,996 45,156 50, , , , to ,217 3,854 68, , , , , , to ,711 5,495 9,234 80, , , ,108 More than ,735 4, , , ,348 Subtotal , , , , ,279 1,158,850 6,568,943 11,600,182 10,386,703 Total 163,212, ,309, ,851,583 32,763,668 7,974,256 3,396,406 1,531,994 1,862,513 10,815, ,717, ,934,228 65

201 Notes to the financial statements BB-Consolidated Normal operations AA A B C D E F G H Installments falling due 01 to 30 11,556,169 12,214,226 14,912,059 2,871, , ,808 25,645 27, ,821 42,483,168 30,980, to 60 10,282,109 6,429,171 8,697,147 1,688, ,803 96,875 17,854 18,639 76,941 27,637,892 20,544, to 90 10,529,425 4,370,222 6,068,535 1,011, ,051 53,290 24,761 12,886 53,951 22,330,994 16,810, to ,169,614 12,499,716 18,143,820 4,297, , ,424 57,501 51, ,013 56,414,257 44,507, to ,455,115 20,488,097 32,357,067 6,473,750 1,325, , , , ,366 85,133,634 73,826,615 More than ,663,674 69,465,407 85,603,950 17,237,796 4,298,011 1,861, , ,738 3,427, ,571, ,530,645 Installments overdue Up to 14 days 125, , , ,145 43,377 21,488 5,950 5,230 22, ,644 1,274,057 Other (1) 753, , ,219 Subtotal 168,535, ,622, ,018,910 33,689,633 7,592,620 2,773, , ,166 4,341, ,049, ,446,770 (1) Operations with third party risk linked to government funds and programs, primarily Pronaf, Procera, FAT, BNDES and FCO. They include the amount of overdue installments in the total amount of R$ 60,214 thousand, which comply with rules defined in each program for reimbursement with the managers and do not imply a credit risk for the Bank. Abnormal operations AA A B C D E F G H Installments falling due 01 to , ,008 72,004 51,070 43,955 61, , , , to ,490 73,469 42,714 42,374 36,373 50, , , , to ,892 59,818 37,221 34,757 30,208 40, , , , to , , ,343 99,833 90, , ,642 1,216,887 1,096, to , , , , , , ,999 2,057,231 1,997,344 More than , , , , , ,747 2,760,094 5,764,451 5,659,019 Installments overdue 01 to ,639 36,551 26,649 21,613 18,498 24, , , , to ,801 84,342 33,866 35,258 30,057 45, , , , to , ,457 53,875 53,116 42,339 73, , , , to ,388 87,860 61,538 52,101 58, , , , to ,109 3,587 13,732 87, , , ,397 1,051, , to ,733 9,384 16,681 92,219 1,125,492 1,247,626 1,202,980 More than ,917 4, , , ,141 Subtotal ,388,014 1,605,689 1,116,575 1,144,515 1,064,561 1,396,162 7,906,806 15,622,322 14,541,804 Total 168,535, ,622, ,406,924 35,295,322 8,709,195 3,917,635 1,788,143 2,149,328 12,248, ,672, ,988,574 66

202 Notes to the financial statements e) Allowance for loan losses by risk level Banco do Brasil Level of risk % Provision Value of loans Value of Additional allowance allowance (1) Existent Allowance Value of loans Minimum required provision Additional allowance (1) Existent Allowance AA 0 163,212, ,730, A ,309, ,548 87, ,664 81,453, ,266 72, ,591 B 1 160,851,583 1,608, ,608, ,786,166 1,387, ,387,911 C 3 32,763, ,910 90,361 1,073,271 31,016, , ,431 1,128,928 D 10 7,974, ,426 83, ,154 7,545, , , ,364 E 30 3,396,406 1,018, ,887 1,403,809 3,148, , ,614 1,692,310 F 50 1,531, , , ,242 1,461, , ,606 1,087,570 G 70 1,862,513 1,303, ,286 1,479,045 1,475,298 1,032, ,186 1,216,895 H ,815,685 10,815, ,815,685 9,315,432 9,315, ,315,432 Total 487,717,981 17,819,763 1,047,636 18,867, ,934,228 15,504,024 1,731,977 17,236,001 (1) Refers to the additional provision to the minimum required by CMN Resolution nº. 2,682/1999. This provision is established based on the experience of Management, by simulating the loan portfolio, considering the history of default of operations and in accordance with good banking practice. BB-Consolidated Level of risk % Provision Value of loans Value of allowance Additional allowance (1) Minimum Existent Allowance Value of loans required provision Additional allowance (1) Existent Allowance AA 0 168,535, ,935, A ,622, , , , ,693, ,469 74, ,992 B 1 167,406,924 1,674, ,674, ,909,626 1,429,096 1,212 1,430,308 C 3 35,295,322 1,058,860 90,361 1,149,221 32,610, , ,485 1,176,804 D 10 8,709, ,920 90, ,253 8,299, , ,676 1,006,610 E 30 3,917,635 1,175, ,486 1,576,777 3,724,019 1,117, ,390 1,880,596 F 50 1,788, , ,245 1,120,317 1,762, , ,465 1,238,778 G 70 2,149,328 1,504, ,286 1,679,816 1,811,761 1,268, ,186 1,452,419 H ,248,426 12,248, ,248,426 10,241,471 10,241, ,241,471 Total 525,672,070 20,054,278 1,155,782 21,210, ,988,574 17,259,041 1,755,937 19,014,978 (1) Refers to the additional provision to the minimum required by CMN Resolution nº. 2,682/1999. This provision is established based on the experience of Management, by simulating the loan portfolio, considering the history of default of operations and in accordance with good banking practice. f) Changes in allowance for loan losses Includes loans, leases and other receivables with characteristics of credit. Banco do Brasil BB-Consolidated 2nd half/ nd half/ Opening balance 17,938,957 17,236,001 16,499,018 20,340,145 19,014,978 17,314,731 Provision/(reversal) 5,625,803 11,110,720 10,065,243 6,922,752 13,952,236 11,827,192 Minimum required allowance 6,060,973 11,795,061 10,099,080 7,287,755 14,552,391 11,837,069 Additional allowance (435,170) (684,341) (33,837) (365,003) (600,155) (9,877) Exchange fluctuation foreign allowances 2,417 7,041 4,332 (3,416) 14,115 1,241 Write-Off (4,699,778) (9,486,363) (9,332,592) (6,049,421) (11,786,561) (10,183,060) Added values (1) ,292 54,874 Closing balance 18,867,399 18,867,399 17,236,001 21,210,060 21,210,060 19,014,978 (1) Refers to the balance from Banco Patagonia in 2011 and from Eurobank in

203 Notes to the financial statements g) Changes in allowance for other loan losses Includes provisions for other receivables without characteristics of credit. Banco do Brasil BB-Consolidated 2nd half/ nd half/ Opening balance 840, , ,015 1,007,310 1,084, ,992 Provision/(reversal) 1,819 (102,565) 136,419 14,907 (80,368) 147,899 Exchange fluctuation foreign allowances (2,421) (1,641) 1,684 Write-Off / Other settings (154) 5,998 (5,955) (103,953) (86,881) 51,625 Added values (1) ,533 Closing balance 842, , , , ,844 1,084,733 (1) Refers to the balance from Banco Patagonia. h) Leasing portfolio by maturity Banco do Brasil BB-Consolidated Up to 1 year (1) 11,811 18,942 1,216,647 1,659,973 More than 1 year and up to 5 years , ,012 1,395,455 Over 5 years ,008 8,654 Total Present Value 12,288 29,981 2,010,667 3,064,082 (1) Includes amounts related to installments overdue. i) Income from leasing transactions Banco do Brasil BB- Consolidated 2nd half/ nd half/ Lease revenue 9,942 19,961 21, ,487 1,871,395 2,249,071 Leasing 9,942 19,961 21, ,487 1,871,395 2,249,071 Lease expenses (9,132) (17,692) (17,058) (827,656) (1,525,315) (1,633,241) Leasing (9,132) (17,692) (17,058) (825,133) (1,520,838) (1,630,642) Operating leases (58) (116) (116) Loss on disposal of leased assets (2,465) (4,361) (2,483) Total 810 2,269 4,938 75, , ,830 j) Concentration of loans Banco do Brasil % of credit portfolio % of credit portfolio 10 largest debtors 34,666, ,837, Next 50 largest debtors 44,172, ,549, Next 100 largest debtors 28,708, ,769,

204 Notes to the financial statements k) Renegotiated credits Banco do Brasil BB- Consolidated 2nd half/ nd half/ Credits renegotiated during the period (1) 16,228,324 32,276,944 24,312,877 18,207,261 36,006,290 29,313,212 Renegotiated by delay (2) 1,047,789 2,380,155 2,174,333 1,334,771 2,817,198 2,656,501 Renovated (3) 15,180,535 29,896,789 22,138,544 16,872,490 33,189,092 26,656,711 Changes on credits renegotiated by delay Opening balance 5,629,820 5,223,638 4,507,020 6,473,222 6,039,018 4,973,546 Contracts (2) 1,047,789 2,380,155 2,174,333 1,334,771 2,817,198 2,656,501 Interest received and appropriated 211,830 (6,863) (40,623) 151,828 (112,673) (112,131) Write-Off (628,725) (1,336,216) (1,417,092) (694,146) (1,477,868) (1,478,898) Closing balance 6,260,714 6,260,714 5,223,638 7,265,675 7,265,675 6,039, Amount of credits renegotiated by delay (4) 6,260,714 5,223,638 7,265,676 6,039,018 Allowance for loan losses of the portfolio renegotiated by delay 4,329,824 3,774,167 4,553,265 3,924,637 (%) Allowance for loan losses on the portfolio 69.2% 72.3% 62.7% 65.0% 90 days default of the portfolio renegotiated by delay 988, ,719 1,114, ,282 (%) Portfolio default 15.8% 16.2% 15.3% 15.8% (1) Represents the balance renegotiated, during the period of the loan operations, falling due or overdue, using internet, automated teller machines (ATM) network or branches. (2) Renegotiated credit for composition of debts due to payment delay by clients. (3) Renegotiated credits of non-matured operations for the extension, renewal, granting new operation for partial or full settlement of previous operation or any other type of agreement that changes the maturity or the payment terms, originally agreed. (4) Includes the amount of R$ thousand in Banco do Brasil (R$22,503 thousand as of ) related to the renegotiated rural credits. The amount of R$ thousand (R$ 5,671,920 thousand as of ), related to deferred credits from rural portfolio supported in specific legislation, is not included. l) Supplementary information Banco do Brasil BB- Consolidated Releasable contracted credits 141,468, ,395, ,611, ,974,517 Guarantees provided (1) 10,974,691 7,345,903 15,927,569 12,604,492 Confirmed export credits 1,604,942 1,032,833 1,634,685 1,037,372 Contracted credit opened for import 604, , , ,697 Linked resources (2) 1,307, ,848 1,352,710 1,093,251 Linked credit operations (2) 1,219, ,043 1,219, ,511 (1) For these operations, the Bank maintains an allowance recorded in Other Liabilities - Sundry, (Note 20,e) totaling R$ 139,787 thousand in Banco do Brasil (R$ 111,760 thousand, on ) and R$ 115,624 thousand in BB-Consolidated (R$ 115,624 thousand, on ), calculated in accordance with Resolution CMN nº 2,682/1999. (2) On , there are no operations in default and no judicial questioning on active operations or linked to the funds raised to implement these operations. In accordance with Resolution nº 680/2011 of the Executive Council of Fund for Workers Assistance - CODEFAT, Banco do Brasil had applied, on , resources from the Fund for Workers Assistance - FAT in the amount of R$ 3,625,759 thousand in Loans and securities discounted, R$ 410,495 thousand in Financing and R$ 1,675,141 thousand in Rural and agribusiness financing. 11 Other Receivables a) Specific credits In the Banco do Brasil, refer to National Treasury credits extension of the terms of rural financing - in the amount of R$ 1,263,075 thousand (R$ 1,146,328 thousand on ), as established by Law 9,138/ /02/ :37 69

205 Notes to the financial statements b) Sundry Banco do Brasil BB-Consolidated Deferred tax asset - tax credit (Note 25.e) 21,101,751 19,748,466 24,981,086 22,753,544 Actuarial assets - Previ (Note 27.d) 16,249,057 13,372,004 16,249,057 13,372,004 Credit card operations (Note 10.a) 16,084,427 12,473,666 16,084,427 12,473,666 Sundry debtors from escrow deposits - lawsuit (Note 28.d) 13,986,906 13,348,256 13,986,906 13,348,256 Sundry debtors from escrow deposits - contingencies (Note 28.c) ,496, ,187,865 Income tax and social contribution to offset 9,372,247 7,700,142 10,650,417 8,788,727 Fund of allocation of surplus - Previ (Note 27.e) 9,198,717 9,638,387 9,198,717 9,638,387 Credit linked to acquired operations (1) (Note10.a) 5,673, ,673, Receivables acquisition 3,755,228 2,880,844 3,755,228 2,880,844 National Treasury - interest rate equalization agricultural crop 3,203,305 3,519,364 3,203,305 3,519,364 Notes and credits receivable - other 1,196,549 1,035,859 3,099,274 2,286,374 Receivables - non-financial companies ,793,935 2,387,450 Sundry debtors - domestic 1,492,499 1,391,821 1,871,714 1,819,216 Premiums on credits linked to operations acquired in assignment 1,290, ,290, Receivables - National Treasury 1,149,609 1,047,434 1,149,609 1,047,434 Advances to cards transactions processing s companies 439, , , ,904 Salary advances and other advances 272, , , ,757 Advances to Credit Guarantee Fund (FGC) 223, , , ,679 Sundry debtors from escrow deposits - other , ,737 Sundry debtors - foreign 90,288 83, , ,334 Sundry debtors for purchasing assets 85, ,381 85, ,383 Rights for acquisition of royalties and government credits 31,253 59,948 31,253 59,948 Other 516, , , ,995 Total 117,480,687 98,629, ,682, ,911,868 Current assets 56,977,892 43,831,069 65,948,206 51,189,006 Non-current assets 60,502,795 54,798,755 63,733,942 57,722,862 (1) Refer to the payroll loans and vehicle financing portfolios granted to individuals, acquired by the Bank with assignment of the transferor, accounted for in accordance with CMN Resolution 3.533/

206 Notes to the financial statements 12 Exchange Portfolio a) Breakdown Other Receivables Banco do Brasil BB-Consolidated Exchange purchases pending settlement 13,226,152 14,931,009 14,365,123 15,362,484 Bills of exchange and time drafts in foreign currency 25,434 79,730 25,434 79,730 Receivables from sales of foreign exchange 19,952,335 21,667,265 20,702,935 21,672,632 (Advances received in National/foreign currency) (17,988,498) (19,629,278) (17,997,703) (19,631,530) Foreign currency receivables 5,903 5,549 5,903 5,549 Income receivable on advances granted and financed imports 160, , , ,539 Total 15,382,100 17,169,064 17,276,132 17,615,404 27/02/ :37 Current assets 15,381,834 17,169,064 17,275,866 17,615,404 Non-current assets Other Liabilities Exchange sales pending settlement 22,452,554 23,448,449 23,203,204 23,453,654 (Financed imports) (20,274) (5,569) (20,274) (5,569) Exchange purchase liabilities 12,954,530 13,967,565 14,084,421 14,360,893 (Advances on exchange contracts) (10,491,956) (9,091,438) (10,923,409) (9,453,929) Foreign currency payables 5,009 5,175 56,728 59,199 Unearned income on advances granted 3,124 2,009 3,124 2,009 Total 24,902,987 28,326,191 26,403,794 28,416,257 Current liabilities 12,075,195 16,044,850 13,576,002 16,134,916 Non-current liabilities 12,827,792 12,281,341 12,827,792 12,281,341 Net Exchange Portfolio (9,520,887) (11,157,127) (9,127,662) (10,800,853) Memorandum Accounts Credit opened for imports 933, ,272 1,094, ,877 Confirmed export credit 1,604,942 1,032,833 1,634,685 1,037,372 b) Exchange Results Banco do Brasil BB-Consolidated 2nd Half/ nd Half/ Exchange income 2,725,828 9,724,027 11,627,681 3,140,605 10,670,803 13,113,223 Exchange expenses (2,550,887) (9,719,785) (12,210,625) (2,857,315) (10,523,530) (13,487,440) Exchange result 174,941 4,242 (582,944) 283, ,273 (374,217) 71

207 Notes to the financial statements 13 Other Assets Banco do Brasil 27/02/ :37 BB-Consolidated Non-operating Assets (1) 299, , , ,124 Assets in special regime 162, , , ,674 Vehicles , ,999 Property 105,541 76, ,554 96,006 Housing property 23,457 18,675 23,457 18,675 Machinery and equipment 7,234 8,056 8,158 8,980 Other ,811 14,790 Materials in stock 34,036 22,655 74,398 59,341 Subtotal Other Assets 333, , , ,465 (Impairment) (175,237) (170,279) (195,286) (188,463) Prepaid Expenses 2,214,220 4,017,349 3,547,325 4,840,224 Insurance and capitalization selling expenses ,305, ,521 Premiums for purchased credits payroll (2) 1,538,305 3,265,592 1,027,801 2,370,968 Right on the custody of judicial deposits 446, , , ,948 Commissions paid to tradesmen financing of vehicles 3,471 11, , ,671 Personnel expenses meal program 100,500 92, ,500 92,751 Premium paid to costumers partnerships retailers 56,070 63,590 56,070 63,590 Other 69,509 69, , ,775 Total Other Assets 2,372,166 4,136,593 3,909,240 5,120,226 Current assets 1,140,591 1,524,119 2,592,306 2,723,551 Non-current assets 1,231,575 2,612,474 1,316,934 2,396,675 (1) The Bank recognized impairment losses of assets not in use in the amount of R$ 38,636 thousand (R$ 41,380 thousand as of ) in the Banco do Brasil and the amount of R$ 40,820 thousand (R$ 46,891 thousand as of ) in the BB-Consolidated. (2) The amounts are amortized over the maturity of the installments of loans acquired from other financial institutions. 72

208 Notes to the financial statements 14 Investments a) Changes in Subsidiaries, Associated Companies and Joint Ventures 27/02/ :37 Banco do Brasil BB-Consolidated Book value Changes in the year/2012 Book value Equity income Book value Changes in the year/2012 Book value Equity income DividendsOther Events Equity income Dividends Other Events Equity income Domestic 18,034,933 (1,709,669) 750,939 2,269,871 19,346,074 2,425,518 6,440, (571,099) (95,551) 5,774,010 (11,672) BB Seguros Participações S.A. (1) 3,887,002 (337,596) (4,406,062) 856, , BB Seguridade Participações S.A. (1) ,468, ,468, Banco Votorantim S.A. (2) (3) 3,504, ,184,523 (877,731) 3,811,149 (321,734) BB Leasing S.A. - Arrendamento Mercantil 3,453,732 (30,196) ,139 3,550, , BB Banco de Investimento S.A. 1,815,300 (319,235) 55,679 1,124,347 2,676, , BB Gestão de Recursos - Distribuidora de Títulos e Valores Mobiliários S.A. 125,829 (617,481) 5, , , , Cobra Tecnologia S.A. (3) 124, (758) 17, ,563 (8,725) BV Participações S.A. 105,119 (14,696) -- (38,237) 52,186 44, BB Administradora de Consórcios S.A. 49,960 (87,308) ,887 98, , BB Corretora de Seguros e Administradora de Bens S.A. (1) 33,512 (287,785) (32,829) 287, , Cadam S.A. 22, ,783 27,999 (25,841) 22, ,783 27,999 (25,841) BB Administradora de Cartões de Crédito S.A. 19,326 (15,097) (202) 15,097 19,124 17, BB-Elo Cartões Participações S.A. 18, (3,812) 15,031 (8,428) Besc Distribuidora de Títulos e Valores Mobiliários S.A. - Bescval 7,127 (94) ,133 5, Tecnologia Bancária S.A. - Tecban 6, ,946 8,753 (829) Cia. Hidromineral Piratuba 2, , , , Companhia Brasileira de Securitização Cibrasec (4) 2,286 (181) , Cia. Catarinense de Assessoria e Serviços CCA (5) /02/ :37 Itapebi , (30,512) 30,972 75,719 23,506 Brasilprev Nosso Futuro Seguros e Previdência S.A. (6) , (12,072) (2,250) Estruturadora Brasileira de Projetos - EBP ,421 1,827 (2,875) BB Aliança Participações S.A. (7) , Nossa Caixa Capitalização S.A. (8) Pronor Other equity (9) , ,517 (134,731) 4,831 (4,796) Goodwill/bargain purchase on acquisition of investiments 4,856, (523,116) -- 4,333, ,265, (604,032) -- 5,661,095 73

209 Notes to the financial statements Banco do Brasil BB-Consolidated Book value Changes in the year/2012 Book value Equity income Book value Changes in the year/2012 Book value Equity income Dividends Other EventsEquity income Dividends Other Events Equity income Abroad 2,187, (191,912) 611,629 2,607, , , (358,832) 359, , ,551 Brasilian American Merchant Bank 816, ,257 8, ,829 5, Banco Patagonia 637, (36,855) 224, , , Banco do Brasil AG. Viena (Áustria) 213, ,771 16, ,921 4, BB Leasing Company Ltd 83, ,451 1,518 92, BB Americas ,898 (12,897) 57, BB Securities LLC 37, ,398 15,425 55,919 5, Other equity abroad 43, ,739 1,547 47,760 33,267 43, ,739 1,547 47,760 33,267 Goodwill on acquisition of investiments 356, (3,964) , , (3,964) , Profit/(loss) with exchange in the branches (260,993) 260, , (260,993) 260, ,786 Profit/(loss) with exchange in the subsidiaries and associated (96,509) 96, , (96,509) 96, ,498 Increase/decrease in equity resulting from other changes (105) (105) Total Investments in Subsidiaries, Associated and Joint Ventures 20,222,750 (1,709,669) 559,027 2,881,500 21,953,608 3,020,730 6,840, (929,931) 263,603 6,174, ,879 (Accumulated Impairment) (4,267) (4,267) (228) (6,998) (6,998) (2,958) (1) The control of BB Seguros Participações S.A and BB Corretora de Seguros e Administradora de Bens S.A. have been transferred to BB Seguridade Participações S.A.(Note 2.c) (2) Includes Capital increase in the amount of R$ 1,000,000 thousand. (3) Excluded unrealized result arising from transactions with the Banco do Brasil. (4) The information refers to the period from December/2011 to November/2012. (5) Company in liquidation process, not valued by the equity method. (6) Company acquired by Brasilprev in July/2012, and consolidated from this date. (7) Investment transferred to holding BB-Mapfre SH1 Participações S.A. (8) Investment transferred to subsidiary BB-Seguros Participações S.A. in the 1st half of (9) Refers to investments on non-financial associated companies. 74

210 Notes to the financial statements Realized capital stock Adjusted Stockholders' Equity Net income (loss) for 2012 Quantity of Shares (in thousands) Common Preferred Ownership interest in the total capital % Domestic Banco Votorantim S.A. 7,026,842 8,210,436 (1,987,774) 42,524,745 9,449, BB Seguros Participações S.A. 3,103,201 4,432, , , BB Leasing S.A. - Arrendamento Mercantil 3,261,860 3,550, ,139 3, BB Banco de Investimento S.A. 1,743,112 2,676,091 1,124,347 3, Itapebi 105, , ,743 19, BV Participações S.A. 90, ,372 (76,474) 15,106 15, Tecnologia Bancária S.A. Tecban (1) 166, ,072 42, , BB Gestão de Recursos - Distribuidora de Títulos e Valores Mobiliários S.A. 109, , , , Cobra Tecnologia S.A. 119, ,925 16, , , Cadam S.A. 183, ,388 29, , Companhia Brasileira de Securitização Cibrasec (2) 68,482 75,429 6, BB Administradora de Consórcios S.A. 49,960 98, , BB Corretora de Seguros e Administradora de Bens S.A. 26,918 33, , BB Administradora de Cartões de Crédito S.A. 9,300 19,123 15, , BB-Elo Cartões Participações S.A. 26,500 15,031 (3,812) 10, Cia. Hidromineral Piratuba 4,070 14, Besc Distribuidora de Títulos e Valores Mobiliários S.A. - Bescval 6,336 7, ,168, Estruturadora Brasileira de Projetos EBP 100,000 16,438 12,789 3,859 1, Cia. Catarinense de Assessoria e Serviços - CCA Abroad Banco Patagonia 298,926 1,399, , ,101, Brasilian American Merchant Bank 492, ,830 8, , Banco do Brasil AG. Viena (Áustria) 50, ,921 16, BB Leasing Company Ltd ,126 1,518 1, BB Securities LLC 10,215 55,919 15,424 5, BB Americas 101,124 57,001 (12,896) 835, (1) Banco do Brasil s direct interest of 4.51%. (2) Banco do Brasil s direct interest of 3.03%. b) Other Investments Banco do Brasil BB-Consolidated Tax incentive investments 11,386 11,386 91,121 84,403 Equity securities Stocks and shares 53,796 52,738 58,261 56,789 Other investments (1) 3,206 3,232 1,406,414 1,074,638 Other investments abroad Total 68,764 67,717 1,556,260 1,216,279 Accumulated Impairment (44,984) (44,979) (83,895) (77,200) (1) Includes, in BB-Consolidated, the amount of R$ 996,686 thousand (R$ 914,059 thousand in ), relating to the investments of Neoenergia S.A., a jointly-owned subsidiary. 75

211 Notes to the financial statements c) Goodwill on acquisition of investments Changes of Goodwill Banco do Brasil BB-Consolidated 2nd half/ nd half/ Opening Balance 5,005,131 5,213,406 5,134,967 6,388,517 6,623,497 6,887,332 Acquisitions -- 37, ,965 54, , ,355 Amortizations (1) (300,049) (589,361) (291,526) (408,508) (832,526) (574,805) Exchange Variation (2) (18,756) 24, (18,756) 24, Other (3) (245,385) Closing Balance 4,686,326 4,686,326 5,213,406 6,015,501 6,015,501 6,623,497 (1) Recorded in Other Operating Expenses. (2) Refers to the goodwill from Banco Patagonia and BB Americas. (3) Includes the decrease of the ownership interest in Brasilveículos Companhia de Seguros and Companhia de Seguros Aliança do Brasil, in the amounts of R$ 123,645 thousand and R$ 121,740 thousand, respectively. d) Expected Goodwill Amortization After 2019 Total Banco do Brasil 700, , ,475 1,007,709 1,112,997 45,539 46,442 41,514 4,686,326 Banco Nossa Caixa 617, , , ,156 1,007, ,042,610 Banco Votorantim 54,569 56,722 57,981 60,466 61, ,871 Banco Patagonia 21,614 45,752 46,394 44,003 40,063 40,838 41,651 35, ,616 BB Americas 6,632 5,122 2,344 3,084 4,342 4,701 4,791 6,213 37,229 Tax effects (1) (280,264) (326,796) (365,789) (403,083) (445,199) (18,216) (18,577) (16,606) (1,874,530) Net total 420, , , , ,798 27,323 27,865 24,908 2,811,797 Other Equity BB-BI 95, , , , , , , ,756 Cielo 84,084 96,394 93, , , , , ,768 Alelo 11,732 14,147 13,268 14,602 16,071 17,690 19, ,988 BB Mapfre SH1 Participações S.A. 102,404 18,781 22,254 24,050 25, ,803 Aliança do Brasil 87, ,336 Vida Seguradora 15,068 18,781 22,254 24,050 25, ,467 Mapfre BB SH2 Participações S.A. 14,266 16,482 18,297 20,134 22, ,303 Brasilveículos 14,266 16,482 18,297 20,134 22, ,303 BB Seguros 18,308 15,505 11,022 9,154 8,593 8,780 7, ,021 Brasilcap 18,308 15,505 11,022 9,154 8,593 8,780 7, ,021 Brasilprev ,672 49,292 Brasilprev Nosso Futuro Seguros e Previdência S.A ,672 49,292 BB Consolidated 931, ,390 1,073,295 1,183,593 1,309, , ,043 88,186 6,015,501 Tax effects (1) (364,531) (388,309) (426,223) (470,236) (520,256) (85,224) (94,358) (35,275) (2,384,412) Net total 567, , , , , , ,685 52,911 3,631,089 (1) 25% of income tax and 15% of social contribution for financial companies and for non-financial companies of insurance, private pension plan and capitalization, and 25% of income tax and 9% of social contribution for others non-financial companies. The expected amortization of goodwill generated by acquisitions of equity is based on projections of results that supported the business, prepared by specialized firms or technical area of the Bank, contemplating the timing of the estimates and discount rates used in calculating the net present value of expected cash flows. 76

212 Notes to the financial statements e) Goodwill Impairment test Recoverable amount of goodwill on acquisition of investment is determined based on value in use, which is evaluated at discounted cash flow method, that is based on cash flow projections of the invested entity (cash-generating unit) and on measurement of the discount rate of this flow. Assumptions adopted to measure this flow are based on public information, on budget and on business plan of evaluated entities. These assumptions consider current and past performance, as well as expected market and macroeconomic growth. The cash flow of the entities below were designed for ten years, perpetuating from the eleventh year, with growth rate established. For the periods of excess cash flow to the terms of budget and business plan, the growth estimates are in line with those adopted by the entities. The nominal discount rate was measured, annually, based on the CAPM (Capital Asset Pricing Model) adjusted to the Brazilian market and referenced in Reais (R$), with the exception of Banco Patagonia, which model was adjusted to Argentine market and referenced in Argentine Pesos (ARS). Entities (cash-generating units) Growth rate (1) Discount rate (2) Banco Votorantim 3.60% % Banco Patagonia 14.20% 24.52% Alelo 3.20% 11.93% Aliança do Brasil 0.00% 12.17% Brasilveículos 0.00% 12.17% Brasilcap 2.85% 9.16% Vida Seguradora 0.00% 12.17% (1) Nominal growth in perpetuity. (2) Geometric mean of ten years of projection. The impairment test of goodwill on acquisition of Banco Nossa Caixa, which was incorporated by Banco do Brasil, considers the value in use of Banco do Brasil in the state of São Paulo (cashgenerating unit). Cash flows are based on cash-generating unit results in 2012, with increase of PIB (Gross Domestic Product) and IPCA (National Consumer Price Index) designed for ten years. Cash flows were discounted by ETTJ (Term Structure of Interest Rates), collected at the BM&FBovespa. Entity (cash-generating unit) Growth rate (1) Discount rate (1) Banco do Brasil State of São Paulo Goodwill of Banco Nossa Caixa 9.22% 11.82% (1) Geometric mean of ten years of projection. According to the sensitivity analysis performed, there is no indication that changes in assumptions can make the book value of cash-generating units exceed the recoverable amount. The recoverable amount of goodwill on acquisition of Cielo is determined by the net value of sale, based on the share price issued by the company on BM&FBovespa. Entity (cash-generating unit) Share price CIEL3 (1) Cielo R$ (1) Closing price of share on 09/28//2012. In 2012 and 2011, there was no impairment loss on goodwill generated in the acquisition of investments. 77

213 Notes to the financial statements 15 Property and Equipment Banco do Brasil Book Balance Changes (1) Depreciation Provision for Impairment Cost Accumulated Depreciation Accumulated Impairment Book Balance (1) 27/02/ :37 Buildings 2,083,939 13,810 (165,868) (4,407) 3,815,742 (1,883,861) (4,407) 1,927,474 Data processing systems 1,550, ,075 (541,429) (960) 4,712,039 (3,158,544) (960) 1,552,535 Furniture and equipment in use 617, ,805 (117,512) -- 1,550,590 (818,668) ,922 Constructions in progress 219, , , ,006 Land 208,267 (23,213) , ,054 Facilities 182,643 6,291 (32,892) ,722 (687,680) ,042 Security systems 128,709 46,276 (27,836) ,533 (204,384) ,149 Communication systems 64,368 11,419 (15,528) ,135 (146,876) -- 60,259 Furniture and equipment in stock 4,192 (1,172) , ,020 Transport systems 1,680 1,745 (251) -- 5,051 (1,877) -- 3,174 Total 5,062,238 1,605,080 (901,316) (5,367) 12,667,892 (6,901,890) (5,367) 5,760,635 (1) Includes write-offs R$ 20,465 thousand for Land, R$ 40,523 thousand for Facilities and R$ 238,489 thousand for Buildings due to the transfer 64 properties to BB Progressivo Fundo de Investimento Imobiliário (FII) (Note 31.d). BB-Consolidated Book Balance Changes (1) Depreciation Provision for Impairment Cost Accumulated Depreciation Accumulated Impairment Book Balance (1) Buildings 2,175,027 43,078 (169,629) (4,407) 3,961,117 (1,912,641) (4,407) 2,044,069 Data processing systems 1,706, ,204 (556,912) (960) 5,002,092 (3,322,367) (960) 1,678,765 Furniture and equipment in use 790, ,950 (149,620) (924) 2,106,451 (1,173,738) (924) 931,789 Constructions in progress 252, , ,013, ,013,496 Land 228, , , ,552 Facilities 220,932 10,910 (38,945) ,756 (733,859) ,897 Security systems 130,576 47,265 (28,320) ,727 (207,206) ,521 Communication systems 70,277 11,763 (16,766) ,995 (155,721) -- 65,274 Transport systems 10,475 2,732 (2,612) -- 35,863 (25,268) -- 10,595 Furniture and equipment in stock 4,192 (1,172) , ,020 Total 5,589,086 2,016,987 (962,804) (6,291) 14,174,069 (7,530,800) (6,291) 6,636,978 (1) Includes write-offs R$ 20,465 thousand for Land, R$ 40,523 thousand for Facilities and R$ 238,489 thousand for Buildings due to the transfer 64 properties to BB Progressivo Fundo de Investimento Imobiliário (FII) (Note 31.d). 16 Intangible Assets a) Changes and breakdown Banco do Brasil 27/02/ : Book value Acquisitions Write-offs Amortization Provision for impairment (1) Cost Accumulated amortization Accumulated impairment Book value Rights to manage payroll (2) (3) 6,027,015 2,179,202 (840,919) (1,949,915) 3,112 9,266,042 (3,797,759) (49,788) 5,418,495 Softwares 664, ,220 (26) (203,595) -- 1,204,554 (502,024) ,530 Other intangible assets (4) 2,823,856 4, (180,000) -- 2,828,518 (180,000) -- 2,648,518 Total 9,515,802 2,425,084 (840,945) (2,333,510) 3,112 13,299,114 (4,479,783) (49,788) 8,769,543 (1) Recorded in Other Operating Expenses. (2) Impairment reversal valued at R$ 3,112 thousand. (3) The values of acquisitions and write-offs include contracts renegotiated in the period, in which the new contract value is recorded and the past contract value is written-off without effects on Statement of Income. (4) Refers mainly to the right to use the structure of the Postal Bank to correspondent banking services (Note 31.b). 78

214 Notes to the financial statements BB-Consolidated Book value Acquisitions Write-offs Amortization Provision for impairment (1) Cost Accumulated amortization Accumulated impairment Book value Rights to manage payroll (2) (3) 6,027,015 2,179,202 (840,919) (1,949,915) 3,112 9,266,042 (3,797,759) (49,788) 5,418,495 Softwares 871, ,669 (311) (210,471) -- 1,913,342 (688,993) -- 1,224,349 Other intangible assets (4) 2,837,547 9,733 (125) (180,435) (995) 2,847,737 (181,017) (995) 2,665,725 Total 9,736,024 2,752,604 (841,355) (2,340,821) 2,117 14,027,121 (4,667,769) (50,783) 9,308,569 (1) Recorded in Other Operating Expenses. (2) Impairment reversal valued at R$ 3,112 thousand. (3) The values of acquisitions and write-offs include contracts renegotiated in the period, in which the new contract value is recorded and the past contract value is written-off without effects on Statement of Income. (4) Refers mainly to the right to use the structure of the Postal Bank to correspondent banking services (Note 31.b). b) Estimate for Amortization Banco do Brasil Year Total Amounts to be amortized 2,155,288 2,122,326 2,063,466 2,057, ,597 8,769,543 BB-Consolidated Year Total Amounts to be amortized 2,263,093 2,230,131 2,171,271 2,165, ,402 9,308,569 79

215 Notes to the financial statements 17 Deposits and Securities Sold under Repurchase Agreements a) Deposits Banco do Brasil BB-Consolidated Demand Deposits 72,958,427 60,371,172 74,759,878 62,016,372 Individuals 30,583,585 24,720,856 30,651,601 24,779,124 Companies 26,932,192 22,063,307 28,789,127 23,728,405 Restricted 7,555,584 6,522,029 7,566,356 6,528,126 Government 3,774,800 3,530,600 3,774,800 3,530,600 Foreign currency 1,178, ,764 1,178, ,684 Special from Federal Treasury 824, , , ,242 Financial system institutions 573, , , ,732 Related companies 896, , , ,726 Domiciled abroad 29,272 38,570 28,361 38,134 Other 609, , , ,599 Savings Deposits 117,744, ,109, ,744, ,109,839 Individuals 110,270,220 93,778, ,270,220 93,778,940 Companies 7,212,425 6,056,292 7,212,425 6,056,292 Related companies 244, , , ,435 Financial system institutions 16,605 17,172 16,605 17,172 Interbank Deposits 18,971,133 18,139,907 16,568,656 14,450,354 Time Deposits 251,027, ,183, ,012, ,808,991 National currency 140,394, ,957, ,937, ,801,983 Judicial 86,261,246 77,591,835 86,346,242 77,666,810 Foreign currency 17,620,533 10,018,819 23,978,073 14,724,246 Workers Assistance Fund FAT (Note 17.e) 5,952,981 7,924,910 5,952,981 7,924,910 Funproger (Note 17.f) 198, , , ,175 Other 599, , , ,867 Total 460,700, ,804, ,085, ,385,556 27/02/ :37 Current liabilities 342,814, ,937, ,051, ,505,147 Non-current liabilities 117,886, ,867, ,033, ,880,409 b) Segregation of deposits by deadline chargeability Banco do Brasil Without maturity Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years More than 5 years Time deposits (1) 95,370,613 18,174,206 21,836,439 42,373,814 73,164, , ,027, ,183,824 Savings deposits 117,744, ,744, ,109,839 Demand deposits 72,958, ,958,427 60,371,172 Interbank deposits 149,908 9,662,369 6,918,612 1,942, ,788 10,043 18,971,133 18,139,907 Total 286,222,991 27,836,575 28,755,051 44,316,227 73,451, , ,700, ,804,742 (1) Includes the amounts of R$ 138,021,226 thousand (R$ 151,015,003 thousand on ), relating to time deposits with early repurchase clause (liquidity commitment), considering the original maturity dates. 80

216 Notes to the financial statements BB-Consolidated Without maturity Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years More than 5 years Time deposits (1) 95,392,491 24,952,081 25,931,026 43,286,774 73,340, , ,012, ,808,991 Savings deposits 117,744, ,744, ,109,839 Demand deposits 74,759, ,759,878 62,016,372 Interbank deposits 35,193 7,487,177 6,749,782 1,622, , ,256 16,568,656 14,450,354 Total 287,931,605 32,439,258 32,680,808 44,909,694 73,634, , ,085, ,385,556 (1) Includes the amounts of R$ 143,123,684 thousand (R$ 156,117,461 thousand, on ), relating to time deposits with early repurchase clause (liquidity commitment), considering the original maturity dates. c) Securities sold under repurchase agreements Banco do Brasil BB-Consolidated Own Portfolio 42,602,833 54,245,739 59,994,120 66,475,487 Corporate bonds 9,553, ,897 19,642,180 10,966,500 Treasury Financial Bills 30,307,570 42,442,652 30,341,365 41,684,702 Securities abroad 1,316,578 2,376,421 1,838,920 2,805,225 National Treasury Notes ,210 2,165,001 2,431,697 National Treasury Bills 1,424,688 8,433,559 5,740,101 8,137,004 Other , ,359 Third-Party Portfolio 166,912, ,956, ,546, ,695,556 Treasury Financial Bills 107,311, ,124, ,044, ,356,969 National Treasury Notes 13,165, ,333 14,086, ,549 National Treasury Bills 44,659,712 15,765,106 46,641,515 17,181,358 Securities abroad 1,776,121 3,218,920 1,773,621 3,209,680 Free movement portfolio ,639 4,233 Total 209,514, ,202, ,786, ,175,276 Current liabilities 200,237, ,149, ,649, ,926,104 Non-current liabilities 9,277,362 8,052,259 11,137,834 10,249,172 d) Expenses with deposits and with securities sold under repurchase agreements Banco do Brasil BB-Consolidated 2nd half nd half Deposits (13,092,190) (27,899,510) (29,745,796) (13,735,797) (29,298,352) (31,238,929) Time deposits (6,043,334) (13,692,272) (15,398,314) (6,618,701) (15,019,897) (17,037,407) Judicial deposits (3,467,729) (6,871,449) (6,485,085) (3,467,682) (6,870,821) (6,484,844) Savings deposits (3,378,765) (6,867,289) (6,908,451) (3,378,765) (6,867,289) (6,908,451) Interbank deposits (202,362) (468,500) (953,946) (270,649) (540,345) (808,227) Securities sold under repurchase agreements (7,279,945) (15,659,707) (17,664,283) (7,859,182) (16,891,272) (19,701,431) Third-party portfolio (6,312,398) (13,281,503) (13,638,792) (6,430,849) (13,564,923) (14,132,852) Own portfolio (967,533) (2,369,696) (4,023,843) (1,413,629) (3,279,504) (5,424,202) Free movement portfolio (14) (8,508) (1,648) (14,704) (46,845) (144,377) Other (1,820,923) (3,063,912) (1,696,165) (2,569,635) (4,922,508) (3,429,157) Total (22,193,058) (46,623,129) (49,106,244) (24,164,614) (51,112,132) (54,369,517) 81

217 Notes to the financial statements e) Workers Assistance Fund (FAT) Program Resolution TADE (1) Type (2) Return of FAT funds Initial date Final date Available TMS (3) TJLP Applied (4) Total Available TMS (3) TJLP Applied (4) Total Proger Rural and Pronaf 325,502 1,536,768 1,862, ,533 2,635,836 3,008,369 Pronaf Custeio 04/2005 RA 11/ ,910 5,844 12,754 7,571 31,489 39,060 Pronaf Investimento 05/2005 RA 11/ ,831 1,269,113 1,546, ,326 1,809,716 2,060,042 Giro Rural Aquisição de Títulos 03/2005 SD 01/ /2014 5, , , , ,546 Giro Rural Fornecedores 14/2006 RA 08/ ,219 63,248 82,467 94, , ,475 Rural Custeio 02/2006 RA 11/ ,956 3, ,868 6,764 Rural Investimento 13/2005 RA 11/ ,445 66,702 82,147 19, , ,482 Proger Urbano 218,136 3,415,019 3,633, ,644 4,050,543 4,634,187 Urbano Investimento 18/2005 RA 11/ ,587 3,414,695 3,632, ,207 4,042,844 4,278,051 Urbano Capital de Giro 15/2005 RA 11/ ,717 4, ,177 Empreendedor Popular 01/2006 RA 11/ ,720 3,239 4,959 Other 58, , ,556 52, , ,354 Exports 27/2005 RA 11/ ,066 Integrar Área Urbana 25/2005 RA 11/ FAT Giro Setorial Micro e Pequenas Empresas 08/2006 RA 09/ ,850 8,866 16, ,800 49,326 FAT Giro Setorial Veículos MGE 09/2006 RA 02/ FAT Giro Setorial Veículos MPE 08/2006 RA 02/ ,505 3,844 7,349 FAT Fomentar Micro e Pequenas Empresas 11/2006 RA 08/ ,222 3,898 5,120 1,173 7,958 9,131 FAT Fomentar Médias e Grandes Empresas 12/2006 RA 07/ ,986 24,993 34,979 8,292 57,065 65,357 FAT Taxista 02/2009 RA 09/ , , ,342 28,890 77, ,353 FAT Turismo Investimento 01/2012 RA 08/ ,124 9,069 25, FAT Turismo Capital de Giro 02/2012 RA 08/ , , , FAT Encargos a capitalizar ,345 33,822 43,167 Total 601,902 5,351,079 5,952,981 1,008,632 6,916,278 7,924,910 (1) TADE Allocation Term of Special Deposits. (2) RA - Automatic Return (monthly, 2% on the balance) and SD - Available Balance. (3) Funds remunerated by the Average Selic Rate (TMS). (4) Funds remunerated by the Long Term Interest Rate (TJLP). 82

218 Notes to the financial statements FAT is a special accounting and financial fund, established by Law 7,998/1990, attached to the Ministry of Labor and Employment and managed by the Executive Council of the Workers Assistance Fund (Codefat). Codefat is a collective, tripartite, equal level organization, composed of representatives of workers, employers and government. The main actions to promote employment using FAT funds are structured around the Programs for the Generating Employment and Earnings (Proger), which resources are allocated through special deposits, established by Law 8,352/1991, in official federal financial institutions, including, among others, Proger in the urban program - Investment and Working Capital - and rural program, the National Program for Strengthening Family Farming - Pronaf, in addition to the special lines such as FAT Integrar Rural e Urbano, FAT Giro Setorial Micro e Pequenas Empresas (micro and smallsized companies), FAT Giro Setorial Médias e Grandes Empresas (medium and large-sized companies), FAT Giro Setorial Veículos Micro e Pequenas Empresas (micro and small-sized companies), FAT Giro Setorial Veículos Médias e Grandes Empresas (medium and large-sized companies), FAT Fomentar Micro e Pequenas Empresas (micro and small-sized companies), FAT Fomentar Médias e Grandes Empresas (medium and large-sized companies), FAT Giro Agropecuário, FAT Inclusão Digital (digital inclusion), FAT Taxista (taxi), FAT Turismo Investimento and FAT Turismo Capital de Giro. The FAT special deposits, allocated with Banco do Brasil, while available, incur interest on a daily pro rata die basis using the Average Selic Rate (TMS). As they are applied on loans, the interest rate is changed to the Long-term Interest Rate (TJLP) during the effective period of the loans. The earnings on the Bank s funds are paid to FAT on a monthly basis, as established in Codefat Resolutions 439/2005 and 489/2006. f) Guarantee Fund for Generation of Employment and Earnings (Funproger) The Guarantee Fund for Generation of Employment and Earnings (Funproger) is a special accounting fund established on November 23, 1999 by Law 9,872/1999, amended by Law 10,360/2001 and by Law 11,110/2005 and regulated by Codefat Resolution 409/2004, and its amendments. It is managed by Banco do Brasil under the supervision of Codefat/MTE and the balance is R$ 198,610 thousand (R$ 147,175 thousand as of ). The objective of Funproger is to provide guarantees to entrepreneurs who do not have the necessary guarantees of their own to contract financing by Proger Urbano and Programa Nacional de Microcrédito Produtivo Orientado, through the payment of a commission. The net assets of Funproger are accumulated through funds arising from the difference between the Average Selic Rate (TMS) and the Long-Term Interest Rate (TJLP) in respect of the remuneration of the special deposit balances available in FAT. Other sources of funds are the earnings from its operations and the income on its cash resources paid to Banco do Brasil, the fund manager. 18 Borrowings and Onlendings a) Borrowings Abroad up to 90 days from 91 to 360 days Banco do Brasil from 1 to 3 years from 3 to 5 years Borrowings from BB Group companies abroad 1,049,819 3,062,325 17,645, ,758,081 13,908,697 Borrowings from bankers abroad 2,027,947 7,124, ,915 46,248 9,856,328 8,399,183 Linked to public sector borrowings (1) , , , ,453 Imports 97, ,534 44,847 6, , ,816 Exports 3,000 24, ,053 10,996 Total 3,178,547 10,605,839 18,717,141 52,578 32,554,105 23,485,145 27/02/ :37 Current liabilities 13,784,386 8,368,049 Non-current liabilities 18,769,719 15,117,096 (1) Maturity date as of April 2015 at the rate of 6.92% p.a. 83

219 Notes to the financial statements BB-Consolidated up to 90 days from 91 to 360 days from 1 to 3 years from 3 to 5 years Domestic Borrowing from non financial companies 402, , ,354 Other borrowings -- 1,927 3, ,707 7,640 Abroad Borrowings from bankers abroad 2,933,501 8,843, ,071 63,318 12,497,974 10,878,923 Linked to public sector borrowings (1) , , , ,453 Imports 74,795 95,518 15, , ,380 Exports 205, , , ,324 Total 3,616,416 9,355,646 1,045,653 63,318 14,081,033 12,257,074 Current liabilities 12,972,062 9,505,975 Non-current liabilities 1,108,971 2,751,099 (1) Maturity date as of April 2012 at the rate of 6.92% p.a. b) Onlendings Domestic Official institutions Programs Finance charges Banco do Brasil BB-Consolidated National Treasury - Rural Credit 633,638 1,643, ,279 1,721,507 Pronaf Recoop Cacau TMS (if available) or 0.5% p.a. to 4% p.a. (if applied) 5.75% p.a. to 8.25% p.a. or IGP-DI + 1% p.a. or IGP-DI + 2% p.a. IGP-M + 8% p.a. or TJLP + 0.6% p.a. or 6.35% p.a. 475,613 1,424, ,613 1,424,918 69,955 96,511 69,955 96,511 86, ,007 86, ,007 Other -- 1,355 19,527 80,996 97,071 BNDES 40,284,112 27,227,981 41,762,751 28,978,454 Banco do Brasil Banco Votorantim 0% p.a. to 11% p.a. or TJLP/exch. var. + 0% p.a. to 6% p.a. Pre/TJLP/IPCA/exch. var % p.a. to 9.91% p.a. 40,284,112 27,227,981 40,284,112 27,227, ,478,639 1,750,473 Caixa Econômica Federal , , , ,253 Finame 16,485,748 16,168,925 19,494,062 17,506,428 Banco do Brasil 0% p.a. to 11% p.a. or TJLP/exch. var % p.a. to 5.5% p.a. 16,485,748 16,168,925 18,489,696 16,176,962 Banco Votorantim TJLP/ Pre + 0.3% p.a. to 11.5% p.a ,004,366 1,329,466 Other official institutions 653,052 2,443, ,052 2,446,402 Special supply - Rural savings TR -- 1,991, ,991,552 Funcafé TMS (if available) or 6.75% p.a. (if applied up to 06/2012) or 5.5% p.a. (if applied from 07/2012) 652, , , ,475 Other ,375 Total 60,952,032 47,822,288 63,518,626 50,991,044 Current liabilities 16,710,092 16,089,557 17,756,624 17,474,727 Non-current liabilities 44,241,940 31,732,731 45,762,002 33,516,317 84

220 Notes to the financial statements Foreign Banco do Brasil BB-Consolidated Funds obtained under the terms of Resolution CMN 3844/2010 3,504, ,931 87, ,876 Special fund for support to small and medium manufacturing companies Total 3,504, ,408 87, ,353 Current liabilities , ,114 Non-current liabilities 3,503, ,294 87,009 89,239 c) Expense of borrowings and onlendings Banco do Brasil BB-Consolidated 2nd Half/ nd Half/ Borrowings expenses (1,027,981) (3,170,360) (2,562,073) (491,416) (2,410,077) (2,552,815) Onlendings expenses (1,446,635) (2,927,330) (2,645,933) (1,496,502) (3,057,469) (2,845,223) BNDES (1,039,872) (2,004,278) (1,655,383) (1,087,467) (2,111,620) (1,785,195) Finame (300,309) (689,079) (638,948) (324,604) (743,347) (716,019) National Treasury (44,103) (123,135) (159,462) (46,183) (126,943) (162,725) Foreign (24,105) (35,279) (68,942) (58,086) Caixa Econômica Federal (11,022) (20,388) (11,552) (11,022) (20,388) (11,552) Other (27,225) (55,171) (111,646) (27,225) (55,171) (111,646) Expenses for financial and development funds liabilities Expenses for obligations with bankers abroad (190,172) (654,532) (648,696) (190,172) (654,532) (648,696) (163,102) (1,198,847) (1,107,293) (167,392) (1,254,129) (1,163,094) Total (2,827,891) (7,951,070) (6,963,995) (2,345,481) (7,376,206) (7,209,828) 85

221 Notes to the financial statements 19 Resources from Acceptances and Securities Issues Borrowings Issued Value Remuneration p.a. Date of Funding Maturity Banco do Brasil Global Medium - Term Notes Program 6,303,172 5,198,652 R$ 350, % 07/ / , ,199 USD 100,000 Libor 6m+2.55% 07/ / , ,595 USD 950, % 01/ /2015 1,978,662 1,819,507 USD 500, % 01/ /2020 1,044, ,919 EUR 750, % 01/ /2016 2,098,921 1,880,432 JPY 24,700, % 09/ / , Senior Notes 4,952, ,260 USD 500, % 11/ /2017 1,033, ,260 USD 1,925, % 10/ /2022 3,918, Structured Notes USD 332, a 2.15% 688, Certificates of Deposits - Long Term 1,926,853 1,795,894 USD 2, % 05/2010 (1) 05/ ,750 USD 100, % 01/2011 (1) 01/ ,510 USD 99, % 02/2011 (1) 01/ ,635 USD 100, % 03/2011 (1) 03/ ,441 USD 200, % 03/2011 (1) 03/ ,867 USD 10, % 08/2011 (1) 08/ ,652 USD 30, % 09/2011 (1) 09/ ,253 USD 233, % 10/2011 (1) 02/ ,586 USD 25, % 11/2011 (1) 02/ ,059 USD 150, % 11/2011 (1) 12/ ,265 USD 2, % 12/2011 (1) 06/ ,750 USD 2, % 12/2011 (1) 04/ ,750 USD 5, % 12/2011 (1) 04/ ,376 USD 10, % 08/ / , USD 230, % 08/ / , USD 35, % 08/ / , USD 1, % 09/ /2014 3, USD 11, % 09/ / , USD 50, % 10/ / , USD 26, % 10/ / , USD 5, % 10/ / , USD 25, % 10/ / , USD 48, % 10/ / , USD 32, % 11/ / , USD 2, % 12/ /2014 4, USD 199, % 12/ / , USD 48, % 12/ / , USD 215, % 12/ / , USD 5, % 12/ / ,

222 Notes to the financial statements Borrowings Issued Value Remuneration p.a. Date of Funding Maturity Certificates of Deposits - Short Term (2) USD 7,754,338 4,128,590 Certificates of Deposits - Short Term (2) 32,898,221 6,595,550 Short Term R$ 11,037,065 1,095,276 Long Term (3) R$ 21,861,156 5,500,667 Issuance costs R$ -- (393) Financial Letters 3,569,719 3,486,743 Short Term R$ 3,536, Long Term (4) R$ 33,419 3,486,743 Total Banco do Brasil 58,093,209 22,139,689 Banco Patagonia Bonds GPAT Series I ARS 50, % 03/ / ,648 Bonds GPAT Series II ARS 94, % 05/ / ,287 Bonds GPAT Series III ARS 71, % 08/ / ,886 Bonds GPAT Series IV ARS 50, % 11/ / ,660 Bonds GPAT Series V ARS 100, % 01/ / , Bonds GPAT Series VI ARS 150, % 03/ / , Bonds GPAT B Series VII ARS 150,000 BADLAR ptos. 04/ / , Bonds GPAT A Series VIII ARS 33, % 07/ / , Bonds GPAT B Series VIII ARS 58,205 BADLAR ptos. 07/ / , Bonds GPAT A Series IX ARS 27, % 08/ /2013 9, Bonds GPAT B Series IX ARS 110,100 BADLAR ptos. 08/ / , Bonds GPAT A Series X ARS 50, % 11/ / , Bonds GPAT B Series X ARS 97,611 BADLAR ptos. 11/ / , Bonds Banco Patagonia Clase I Series 1 ARS 200,000 BADLAR PB 12/ / , Total Banco Patagonia 393,669 99,481 Special Purpose Entities Abroad (5) Securitization of future flow of payment orders from abroad USD 250, % 12/ / , ,772 USD 250,000 Libor 3m+0.55% 03/ / , ,116 USD 200,000 Libor 3m+1.20% 09/ / , ,310 USD 150, % 04/ / , ,962 Total Special Purpose Entities Abroad 837,797 1,141,160 Banco Votorantim Debentures 748,029 1,565,574 Post-fixed R$ 0.35% + DI 06/ / ,898 Post-fixed R$ 100 a 111% DI 06/ / , ,676 Letters of Credit - Real Estate R$ a 97.36% DI 11/ / ,265 3,490 Letters of Credit - Agribusiness 1,106, ,979 Post-fixed R$ a 97.50% DI 12/ /2020 1,104, ,712 Pre-fixed R$ 8.48 a 12.35% 05/ /2013 2,584 8,267 Financial Letters 5,483,544 3,572,168 Pre-fixed R$ 8.27 a 14.00% 07/ / ,269 28,443 Post-fixed R$ 100 a % DI 09/ /2017 5,159,520 3,446,800 Post-fixed R$ 3.42 a 7.81% + IPCA 01/ / ,100 69,980 Post-fixed R$ 108 a % Selic 02/ / ,159 25,625 Post-fixed R$ 5.05 a 5.99%+IGPM 08/ /2013 1,496 1,320 87

223 Notes to the financial statements Borrowings Issued Value Remuneration p.a. Date of Funding Maturity Global Medium - Term Notes Program 4,005,727 2,966,110 Short Term (6) 1,497,964 73,118 Long-Term 2,507,763 2,892,992 R$ 100, % 12/ / ,476 USD 47, % 09/ / ,443 89,691 R$ 94, % 04/ / , ,721 USD 250, % 02/2010 (1) 08/ ,976 USD 37, % 04/2010 (1) 02/ ,329 CHF 125, % 12/2010 (1) 12/ ,268 USD 2, % 02/ /2016 2,557 2,236 USD 625, % 02/ /2016 1,288,682 1,189,180 USD 37, % 03/ / ,571 68,159 USD 2, % 04/ /2014 2,102 1,884 R$ 10, % 05/ / ,627 17,368 USD 1, % 05/ /2016 1, R$ 309, % 05/ / , ,959 USD 29, % 07/2011 (1) 07/ ,855 R$ % 01/ / R$ % 01/ / R$ 1, % 02/ /2015 2, USD 5, % 06/ /2014 7, USD 5, % 07/ /2014 6, USD 6, % 07/ /2014 6, USD % 07/ /2014 1, USD 700 No Coupon 10/ /2014 1, R$ 1, % 10/ /2017 1, USD % 12/ /2014 1, R$ % 03/ / R$ % 06/ / R$ % 07/ / R$ % 08/ / R$ % DI 01/ /2013 1, R$ % DI 02/ / R$ % 03/ / R$ % DI 03/ / R$ % 03/ /2014 1, R$ % 03/ / R$ % 03/ / R$ 1, % 03/ /2014 1, R$ % 03/ / USD % 04/ /2014 1, R$ % 04/ / R$ 4, % 04/ /2014 5, USD % 04/ / USD % 04/ / USD % 06/ / USD % 06/ / R$ % DI 07/ / R$ % 07/ / USD % 07/ / USD % 07/ / R$ 1, % DI 01/ /2014 1, R$ % DI 02/ / R$ % 03/ / R$ % 03/ / USD 1, % 03/ /2019 2,

224 Notes to the financial statements Borrowings Issued Value Remuneration p.a. Date of Funding Maturity R$ % 04/ / R$ % 04/ / R$ % 05/ / R$ 1, % 05/ /2015 1, R$ % 07/ / USD 25, % 07/ / , USD % 08/ / USD % 09/ /2015 1, USD % 09/ / USD % 09/ /2015 1, USD % 09/ /2014 1, USD % 10/ / R$ % 10/ / R$ % 10/ / USD 50, % 10/ / , USD % 10/ / USD % 11/ / R$ % 11/ / USD 50, % 11/ / , USD 25, % 12/ / , Total Banco Votorantim 11,410,259 8,933,321 Non-Financial Corporations Cibrasec Real Estate Receivables Certificates (7) R$ 3,869 5,577 Kepler Weber S,A, Debentures R$ TJLP+3.80% 09/ / ,465 15,194 Ativos S,A, Securitizadora de Créditos Financeiros Debentures R$ DI % 03/ / ,812 68,053 Total Non-Financial Corporations 55,146 88,824 Eliminated Amount on Consolidation (8) (119,956) (79,185) Total BB-Consolidated 70,670,123 32,323,290 Current liabilities 24,846,154 15,246,923 Non-current liabilities 45,823,969 17,076,367 (1) Operations settled in advance during the year (2) Securities maturing in less than 360 days and interest rates of the certificate issued between 0.23% p.a. and 9.40% p.a. (3) Operations with maturity between 360 and 718 days. (4) Operations with a maturity of more than 360 days and rates between 100% and 107% Interbank Deposit. (5) The Special Purpose Entity (SPE) - "Dollar Diversified Payment Rights Finance Company" was organized under the laws of the Cayman Islands for the following purposes: (a) the issuance and sale of securities in the international market; (b) use of resources obtained by issuing securities to pay for the purchase, with the BB, the rights to payment orders issued by banking correspondents located in the U.S. and by the agency of BB New York in U.S. dollars, for any agency for Brazil ("Rights on Consignment"); and (c) making payments of principal and interest on securities and other payments payable on the issuance of these securities. The SPE declares that it has no relevant asset or liability other than the rights and duties originating from the contracts for issue of securities, Bank does not hold the control, is not a shareholder, the owner, or is a beneficiary of any of the results of operations of the SPE. The liabilities arising from the issued securities are paid by the SPE using the funds accumulated in its account. (6) Securities with a maturity of less than 360 days. (7) Reference Rate - TR, General Market Price Index - IGP-M, IPCA and average maturity of 134 months. (8) Refers to securities issued by BB-Consolidated, in possession of subsidiary abroad. 89

225 Notes to the financial statements 20 Other Liabilities a) Financial and Development Funds Banco do Brasil BB-Consolidated Merchant Navy 2,250,825 1,352,310 2,250,825 1,352,310 Pasep (1) 1,969,767 1,983,929 1,969,767 1,983,929 Funds from the State Government of São Paulo 761, , , ,911 Consolidation of Family Farming CAF 25,840 26,424 25,840 26,424 Special Lending Program for Agrarian Reform Procera 25,007 27,705 25,007 27,705 Combating Rural Poverty Our First Land CPR/NPT 11,296 6,405 11,296 6,405 Land and Agrarian Reform BB Banco da Terra 4,735 1,812 4,735 1,812 Other 39,949 39,759 39,949 39,759 Total 5,088,608 4,002,255 5,088,608 4,002,255 Current liabilities 3,121,529 2,002,989 3,121,529 2,002,989 Non-current liabilities 1,967,079 1,999,266 1,967,079 1,999,266 (1) The Bank is administrator of the Public Servant Heritage Formation Program - Pasep, guaranteeing a minimum return corresponding Long- Term Intrest Rate - TJLP. b) Taxes and Social Security Banco do Brasil BB-Consolidated 27/02/ : Legal liabilities (Note 28.d) 13,073,718 12,754,899 13,881,845 13,516,326 Deferred tax liabilities (Note 25.d) 6,789,199 6,090,342 7,442,774 7,095,787 Taxes and contributions on net income payable 3,842,067 2,705,225 4,641,641 3,476,176 Provision for tax litigation (Note 28.a) 140, ,943 2,020,124 1,400,444 Provision for taxes and contributions on net income 123,421 93,045 1,156, ,808 Taxes and contributions payable 850, , , ,820 Other 316, ,399 1,122,929 1,076,331 Total 25,135,984 22,921,600 30,913,385 28,056,692 Current liabilities 19,016,935 17,444,318 24,030,336 20,689,746 Non-current liabilities 6,119,049 5,477,282 6,883,049 7,366,946 90

226 Notes to the financial statements c) Subordinated Debt Funding Issued Remuneration p.a. Funding Date Value Maturity Banco do Brasil FCO Resources from Fundo Constitucional do Centro-Oeste 16,602,973 14,771,005 Funds applied (1) 15,938,342 13,811,498 Resources available (2) 627, ,167 Charges to capitalize 36,691 35,340 Subordinated CDB Issued in the Country 4,711,053 4,305, , % from CDI 03/ /2014 1,344,943 1,227,011 1,335, % from CDI 03/ /2015 2,000,773 1,823,569 1,000, % from CDI 11/ /2015 1,365,337 1,254,487 Subordinated Debt Abroad 6,673,140 4,683,538 USD thousand 300, % 09/ / , ,210 USD thousand 660, % 10/ /2021 1,382,336 1,260,310 USD thousand 1,500, % 05/ /2022 3,105,980 2,847,018 USD thousand 750, % 06/ /2023 1,565, Subordinated Letters of Credit 9,196,989 3,429,443 1,000, % from CDI 03/ /2016 1,331,338 1,219,800 1,006, % from CDI 03/ /2017 1,210,944 1,107, , % from CDI 04/ / , ,864 13, % from CDI 05/ / ,997 14, , % from CDI 09/ / , , , % from CDI 05/ / , , % from CDI 05/ / , , % from CDI 05/ / , ,500 IPCA+5.45% 05/ / , , % from CDI 06/ / , ,000 IPCA+5.40% 06/ / , ,000 IPCA+5.53% 06/ / , ,200 IPCA+5.30% 06/ /2018 7, ,800 CDI+1.11% 06/ / , ,300 IPCA+5.56% 06/ / , ,400 CDI+1.10% 06/ / , ,000 IPCA+5.50% 06/ / , , % from CDI 06/ / , IPCA+5.32% 06/ / , % from CDI 06/ / , ,600 IPCA+5.40% 06/ / , ,900 CDI+1.06% 06/ / , ,400 IPCA+5.33% 07/ / , ,000 IPCA+5.24% 07/ / , , % from CDI 07/ / , , % from CDI 07/ / , , % from CDI 07/ / , , % from CDI 07/ / , ,000,000 Pré 10.51% 09/ /2018 1,025, Total Subordinated Debt from Banco do Brasil 37,184,155 27,189,053 Banco Votorantim Subordinated CDB Issued in the Country 1,081,280 1,544, ,500 CDI+0,49% 11/ / ,988 8,500 CDI+0,49% 12/ / ,223 7,929 CDI+0,54% 12/ / ,359 32,500 IGPM+7,22% 12/ / ,718 57,500 IPCA+7,93% 03/ / ,244 94,825 7,500 IPCA+7,86% 08/ / ,713 10,269 5,250 IPCA+7,92% 08/ /2014 8,217 7,199 19,500 IPCA+8,00% 08/ / ,599 26,787 2,500 IPCA+7,95% 08/ /2014 3,915 3, ,000 CDI+1,67% 08/ / , , ,000 CDI+1,64% 12/ / , , ,000 CDI+1,67% 12/ / , ,049 Subordinated Notes USD thousand 575,000 7,38% 01/ /2020 1,346,054 1,099,873 Subordinated Letters of Credit 1,068,271 1,054,722 5,000 IPCA+7.25% 11/ /2020 (3) -- 5,422 94,950 CDI+1.30% 11/ / ,587 95,964 30,000 CDI+1.60% 12/ / ,020 30, ,900 CDI+1.94% 05/ / , ,887 35,550 IGPM+7.55% 05/ / ,900 38,042 1,400 IPCA+7.76% 05/ /2017 1,719 1,510 4,650 IPCA+7.85% 05/ /2017 5,718 5,020 7,500 IPCA+7.95% 05/ /2017 9,206 8,079 45,000 IPCA+7.95% 07/ / ,314 47,648 15,000 IGPM+7.70% 07/ / ,148 15,813 6,922 IPCA+8.02% 07/ /2019 8,320 7,300 25,000 IPCA+7.90% 08/ / ,137 26,420 25,000 IPCA+7.93% 08/ / ,053 26,352 20,000 IPCA+7.76% 08/ / ,902 21,002 11,000 IPCA+7.85% 08/ / ,196 11,581 10,050 IGPM+7.70% 08/ / ,861 10,571 1, % from CDI 08/ /2017 1,446 1,317 33, % from CDI 09/ / ,645 34,034 15,000 IGPM+6.74% 09/ / ,655 15, , % from CDI 10/ / , , IPCA+5.45% 10/ /2014 (3) ,000 IGPM+6.71% 10/ / ,266 18,454 16,046 IPCA+7.10% 11/ /2016 (3) -- 17,392 25, % from CDI 11/ /2013 (3) -- 25,247 5,349 IPCA+7.20% 11/ /2016 (3) -- 5,413 16,920 IPCA+7,10% 11/ / , ,640 IPCA+7,20% 11/ /2016 5, ,640 IPCA+7,25% 11/ /2020 5, ,128 IPCA+7% 11/ /2016 1, Total Subordinated Debt from Banco Votorantim ,698,656 Subordinated debt issued by the Banco do Brasil, in the possession of subsidiary abroad, eliminated in the BB-Consolidated (3,581) (3,026) Total Subordinated Debt from BB-Consolidated (4) 40,676,179 30,884,683 (1) Contracted charges are paid by borrowers, with less the del credere of the financial institution, according to article 9 of Law n.º 7,827/1989. (2) Remunerated based on extra-rate announced by the Banco Central do Brasil (Bacen), according to article 9 of Law n.º 7,827/1989. (3) Operations paid in advance. (4) The amount of R$ 32,400,578 thousand (R$ 24,522,493 thousand as of ) compose the tier II of the Referential Equity (RE), in compliance with CMN Resolution n.º 3,444/2007. As determined by Bacen, subordinated debts issued by Banco Votorantim do not compose the Bank s RE (Note 29.f). 91

227 Notes to the financial statements d) Equity and Debt Hybrid Securities Raising Issued Value Remuneration p.a. Banco do Brasil and BB-Consolidated Raising Date Perpetual Bonds USD thousand 1,750, % 01 and 03/2012 3,743, USD thousand 1,500, % 10/2009 3,104,493 2,848,001 8,100, % 09/2012 8,214, Total Banco do Brasil 15,062,363 2,848,001 Values eliminated in the BB-Consolidated (1,292) (2,209) Total BB-Consolidated 15,061,071 2,845,792 Non-current liabilities 14,818,494 2,797,313 Current liabilities 242,577 48,479 In the Perpetual Bonds, the amount of R$ 14,484,062 thousand compose the Referential Equity (R$ 2,718,895 thousand as of ), according to CMN Resolution n.º 3,444/2007 (Note 29.f). The bonus of USD 1,500,000 thousand, issued in October 2009, has the option of redemption at the initiative of the Bank from 2020 or on each semiannual payments of interest thereafter, provided by prior authorization of Bacen. If the Bank does not exercise the option to redeem on October 2020, the interest on the bonds will be fixed on this date for 7.782% over the trading price of 10 years North American Treasury bonds. Thereafter, every 10 years, the interest on the bonds will be corrected by taking into account the trading price of 10 years North American Treasury bonds. The bonds issued in January and March (reopening), 2012, in the amounts of USD 1,000,000 thousand and USD 750 million, respectively, may have changed its terms and conditions, without the prior permission of the bondholders, in order to maintain or manage securities as tier I capital or tier II capital, due to the implementation of Basel III rules, provided that the modifications do not adversely affect the interests of the bondholders. If the Bank does not exercise the redemption option in April 2023, the rate of bond interest is reset on that date and every 10 years according to the U.S. Treasury for 10 years in force at the time plus the initial credit spread. The bonds have the following options of redemption, subject to prior authorization of the Banco Central do Brasil: (i) the Bank may, at its option redeem the bonds in whole but not in part in April 2023 and on each subsequent interest payment every six months, at the base price of redemption; (ii) the Bank may, at its option redeem the bonds in whole but not in part, on any date prior to April 2023, according to tax event, at the base price of redemption; (iii) the Bank may, at its option redeem the bonds in whole but not in part, on any date prior to April 2023, according to regulatory event, at the higher value between the base price of redemption and the Make-whole amount. The bonds issued in October 2009 and in January and March 2012 determine that the Bank suspend semiannual payments of interest and / or accessories on those securities issued (which will not be due or accrued) if: (i) the Bank is not framed or payment of such charges do not allow the Bank complies with the levels of capital adequacy, operating limits, or its financial indicators are under the minimum level required by Brazilian regulations applicable to banks; (ii) the Banco Central do Brasil or the regulatory authorities determine the suspension of payment of such charges; (iii) any event of insolvency or bankruptcy occurs; (iv) a default occurs; or (v) the Bank has not distributed dividends or interest on equity to common stockholders for the period of calculation of such interest and / or accessories. The bonus issued in September 2012, totaling R$ 8,100,000 thousand, will have interest paid semiannually adjusted by the Selic rate, within thirty calendar days (i) from the payment of dividends or interest on capital of the respective period, or (ii) from the capital increase provided by the shareholders profit, whichever is earlier. There will be no payment of financial charges for a particular semester until (i) the payment or crediting of dividends (including interest on equity), or (ii) the capital increase provided by the 92

228 Notes to the financial statements shareholders. Unpaid financial charges do not accumulate. If the payment or crediting of dividends, or the capital increase don t occur until June 30 or December 31 of the following fiscal year, the unpaid financial charges may cease to be required. The payments will be postponed if the Bank is not framed in the operational limits established by regulations or if this payment do not allow the Bank complies with those limits. In such cases the payment will be pro rata updated by Selic rate. Amortization or redemption of debt, partial or full, agreed between the parties, can occur only if the dividends were being paid duly and authorized by the Banco Central do Brasil. The redemption of the obligation, even partial, is conditioned upon the Bank meet the requirements regarding operational limits established by regulation, and also that the redemption does not involve noncompliance situation. The amount due will be pro rata temporis updated by the agreed rate. The debt can not be redeemed by State initiative. In the event of dissolution or liquidation of the Bank, the payment of principal and charges debt will be subordinated to the other liabilities payment. This funding was authorized by the Banco Central do Brasil to integrate the Tier I capital to the regulatory limit (CMN n.º 3,444/2007), and the remaining to integrate Tier II capital, starting on September

229 Notes to the financial statements e) Sundry Banco do Brasil BB-Consolidated Credit/debit card operations 15,054,758 11,641,835 15,054,758 11,641,835 Actuarial liabilities (Note 27.d) 6,714,372 7,141,907 6,714,372 7,141,907 Provisions for pending payments 3,760,688 3,349,150 5,376,719 4,657,605 Sundry creditors domestic 1,873,475 1,562,062 4,912,992 3,838,316 Provisions for civil claims (Note 28.a) 3,945,650 3,244,433 4,208,172 3,473,970 Provision for labor claims (Note 28.a) 2,496,821 2,340,058 2,945,490 2,514,536 Liabilities for operations linked to loan operations 89, ,844, Funds linked to loan operations 1,307, ,848 1,352,710 1,093,251 Liabilities for official agreements 1,011, ,697 1,011, ,697 Liabilities for premiums granted to customer for loyalty 800,262 1,240, ,262 1,240,521 Liabilities for assets acquisition 721, , ,021 1,004,336 Liabilities for rendering payment services 647, , , ,304 Sundry creditors abroad 84,292 31, , ,447 Provision for losses with the Compensation Fund of Wages Variations FCVS 217, , , ,118 Provisions for guarantees provided 139, , , ,624 Guarantees on credit assignments 2, , Other 742, , , ,623 Total 39,610,633 34,409,854 47,309,679 39,219,090 Current liabilities 31,270,022 26,207,258 36,898,627 29,024,394 Non-current liabilities 8,340,611 8,202,596 10,411,052 10,194, Operations of Insurance, Pension Plan and Capitalization a) Operation credits BB-Consolidated Direct insurance premiums to receive 1,454,249 1,244,809 Credit of insurance business with insurers 80,808 58,944 Credit of insurance transactions with reinsurers 656, ,023 Credit of pension plans 2,678 2,732 Total 2,193,948 1,741,508 27/02/ :37 Current assets 2,191,786 1,738,997 Non-current assets 2,162 2,511 94

230 Notes to the financial statements b) Technical provisions BB-Consolidated Insurance 5,393,434 4,121,294 Provision for unearned premiums 3,159,605 2,227,821 Provision for unsettled claims 1,474,351 1,310,803 Provision for claims incurred but not reported 445, ,402 Provision for premium insufficiency 190, ,830 Other provisions 122,988 97,438 Pension plan 50,545,598 37,576,720 Mathematical provision for future benefits 48,334,700 35,590,671 Mathematical provision for vested benefits 870, ,039 Provision for financial surplus 428, ,493 Provision for contribution insufficiency 415, ,213 Provision for premium insufficiency 44,473 34,123 Provision for claims incurred but not reported 15,624 7,464 Other provisions 436, ,717 Capitalization 4,294,494 3,324,923 Mathematical provision for redemptions 4,077,525 3,160,764 Provision for prize draws and redemptions 150, ,227 Other provisions 66,526 50,932 Total 60,233,526 45,022,937 Current liabilities 15,179,674 12,384,381 Non-current liabilities 45,053,852 32,638,556 c) Technical provisions by product BB-Consolidated Insurance 5,393,434 4,121,294 Auto 1,571,647 1,053,107 Life 2,278,323 1,614,310 Property/casualty 1,300,378 1,261,397 Dpvat 243, ,480 Pension plan 50,545,598 37,576,720 Free benefit generating plan - PGBL 14,096,010 12,519,440 Living benefits life insurance - VGBL 30,827,149 19,902,250 Traditional plans 5,622,439 5,155,030 Capitalization 4,294,494 3,324,923 Total 60,233,526 45,022,937 95

231 Notes to the financial statements d) Guarantee of technical provisions BB-Consolidated Insurance Pension plan Capitalization Total Insurance Pension plan Capitalization Total Shares in Investment Funds (VGBL and PGBL) -- 44,593, ,593, ,110, ,110,668 Shares in Investment Funds (except VGBL and PGBL) 3,249,862 4,190,789 2,206,084 9,646,735 2,062,447 3,888,047 2,055,333 8,005,827 Federal Government securities 627,578 2,052,271 1,224,747 3,904,596 1,305,715 1,891, ,098 3,630,684 Corporate bonds 609, , ,971 1,769, ,318 25, ,228 1,400,764 Credit rights 1,116, ,338 1,184, , , ,268 Property 10, ,806 12, ,330 Deposits held at IRB and deposits in court 1, ,363 4, ,234 Total 5,615,027 50,996,607 4,499,140 61,110,774 4,453,619 37,915,804 3,521,352 45,890,775 e) Financial and operational results per segment BB Consolidated 2nd Half Insurance Pension plan Capitalization Total Insurance Pension plan Capitalization Total Insurance Pension plan Capitalization Total Financial results 211,853 1,040, ,507 1,452, ,766 1,991, ,692 2,886, ,569 1,699, ,904 2,463,807 Financial income 267,231 2,222, ,875 2,693, ,884 4,256, ,322 5,270, ,678 3,064, ,158 3,902,843 Financial expenses (55,378) (1,181,275) (4,368) (1,241,021) (112,118) (2,265,458) (5,630) (2,383,206) (72,109) (1,364,673) (2,254) (1,439,036) Interest and inflation adjustment of technical reserves (10,277) (898,087) (168,738) (1,077,102) (98,904) (1,712,648) (320,692) (2,132,244) (45,330) (1,431,745) (183,756) (1,660,831) Operating income 1,086,205 5, ,367 1,224,833 2,026,790 68, ,737 2,349,113 1,977, , ,800 2,264,977 Retained premiums and contributions (Note 21.f) 3,288,634 6,960,607 1,352,159 11,601,400 6,238,435 13,820,627 2,563,440 22,622,502 4,758,355 9,051,576 1,931,345 15,741,276 Change in technical provisions (545,546) (6,870,606) (53,006) (7,469,158) (912,488) (13,610,865) (27,035) (14,550,388) (314,944) (8,758,582) (33,913) (9,107,439) Retained claims (1,239,273) (1,239,273) (2,481,325) (2,481,325) (2,104,517) (2,104,517) Selling expenses (417,610) (64,978) (85,682) (568,270) (817,832) (103,782) (173,469) (1,095,083) (360,944) (126,459) (77,941) (565,344) Expenses with prize draws and redemptions of financial bonds Expenses with benefits and redemptions of pension plans (1,080,104) (1,080,104) (2,109,199) (2,109,199) (1,669,691) (1,669,691) -- (19,762) -- (19,762) -- (37,394) -- (37,394) -- (29,308) -- (29,308) Total 1,287, , ,136 1,600,052 2,422, , ,737 3,103,679 2,356, , ,948 3,067,953 96

232 Notes to the financial statements f) Retained premiums of insurance, pension plan contributions and capitalization certificates BB Consolidated 2nd Semester/2012 Financial year/2012 Financial year/2011 Insurance 3,288,634 6,238,435 4,758,355 Premiums issued 3,648,542 6,855,229 5,354,295 Coinsurance premiums ceded (33,355) (45,371) (119,991) Reimbursed premiums (9,699) (17,237) (17,416) Reinsurance premiums ceded, consortiums and funds (316,854) (554,186) (458,533) Pension plan 6,960,607 13,820,627 9,051,576 Premiums issued 5,873,054 11,883,137 7,283,078 Supplementary pension contributions (includes VGBL) 1,094,138 1,970,805 1,801,338 Reimbursed premiums (6,585) (33,315) (32,840) Capitalization 1,352,159 2,563,440 1,931,345 Revenues from capitalization certificates 1,352,159 2,563,440 1,931,345 Total 11,601,400 22,622,502 15,741, Other Operating Income/Expense a) Service fee income Banco do Brasil BB-Consolidated 27/02/ :37 2nd Half/ nd Half/ Credit/debit card 970,076 2,083,301 1,657,135 2,065,214 4,130,904 3,296,989 Fund Management 866,322 1,751,358 1,649,996 1,622,495 3,216,787 3,040,218 Billing 649,298 1,290,488 1,221, ,285 1,316,430 1,241,237 Collection 427, , , , , ,241 Interbank 353, , , , , ,994 Loans and provided guarantees 343, , , , , ,772 By non-financial associated/subsidiaries companies , , ,071 Insurance, pension and capitalization 301, , , , , ,083 Capital market income 10,876 21,261 20, , , ,516 Account fee 171, , , , , ,788 National Treasury and official funds management 149, , , , , ,136 Consortium management fees , , ,972 Provided to related companies 177, , ,280 23,807 67, ,975 Other services 238, , , , , ,295 Total 4,659,715 9,318,869 8,273,102 7,374,892 14,485,551 12,213,287 b) Bank fee income Banco do Brasil BB-Consolidated 2nd Half/ nd Half/ Service package 1,751,957 3,548,646 3,243,848 1,752,431 3,549,685 3,245,485 Loans and customer information file 622,467 1,234,805 1,092, ,392 1,467,892 1,451,406 Card income 390, , , , , ,066 Investment funds management , , ,033 Deposit account 123, , , , , ,076 Funds transfer 102, , , , , ,413 Other 64, ,606 36,157 84, ,018 77,810 Total 3,055,508 5,924,711 5,452,195 3,388,694 6,585,614 6,028,289 97

233 Notes to the financial statements c) Personnel expenses Banco do Brasil BB-Consolidated 2nd Half/ nd Half/ Salaries (3,682,028) (7,048,184) (6,310,077) (4,264,683) (8,157,337) (7,117,073) Social charges (1,352,892) (2,529,111) (2,177,070) (1,529,151) (2,872,138) (2,455,755) Personnel administrative provisions (1,058,466) (2,146,522) (2,019,056) (1,058,466) (2,146,522) (2,019,056) Benefits (1,012,004) (1,956,434) (1,750,454) (1,103,825) (2,145,931) (1,911,015) Provisions for labor claims (1) (377,394) (724,978) (969,096) (377,806) (726,667) (969,096) Pension Plans (184,593) (326,608) (297,787) (190,649) (337,281) (305,754) Directors and advisors fees (12,602) (24,543) (21,986) (32,445) (62,238) (58,260) Training (25,368) (41,635) (65,113) (32,576) (55,329) (76,566) Total (7,705,347) (14,798,015) (13,610,639) (8,589,601) (16,503,443) (14,912,575) (1) Includes the positive amounts of R$ 244,826 thousand for the 2nd half/2012 and R$ 309,829 thousand for 2012 fiscal year, related to the reimbursement to the Bank by the government of the state of São Paulo of values paid in advance by the Bank to former employees from Banco Nossa Caixa (BNC), groups A and B, as a retirement complementation. d) Other administrative expenses Banco do Brasil BB-Consolidated 2nd Half/ nd Half/ Amortization (1,188,973) (2,396,231) (2,323,773) (1,319,712) (2,546,366) (2,363,293) Outsourcing Services (941,402) (1,763,637) (1,211,324) (951,119) (1,766,910) (1,294,143) Communications (666,561) (1,311,483) (1,245,217) (717,538) (1,410,206) (1,354,235) Lawsuit (501,015) (1,349,674) (559,204) (503,936) (1,357,334) (562,656) Transport (605,274) (1,171,361) (814,798) (627,500) (1,214,679) (857,868) Depreciation (384,735) (901,316) (931,355) (417,909) (962,804) (980,310) Rent (376,836) (717,246) (601,296) (457,602) (868,618) (734,522) Security services (428,121) (817,675) (747,377) (440,671) (840,936) (763,813) Data processing (507,692) (1,046,378) (903,392) (399,345) (813,517) (667,731) Financial system services (326,045) (583,181) (493,813) (405,376) (743,601) (661,529) Specialized technical services (85,845) (188,265) (217,125) (337,122) (669,115) (679,824) Maintenance and upkeep (276,145) (526,898) (452,339) (313,415) (594,627) (499,907) Marketing (200,376) (356,237) (304,457) (269,146) (473,791) (420,337) Water, electricity and gas (184,985) (372,043) (341,729) (193,758) (389,606) (355,222) Promotion (116,578) (208,905) (224,202) (139,563) (250,147) (263,049) Domestic travel (64,064) (128,602) (154,085) (78,058) (154,395) (186,366) Materials (64,053) (126,833) (124,683) (75,127) (145,825) (140,115) Other (240,660) (441,243) (377,866) (433,451) (810,475) (637,500) Total (7,159,360) (14,407,208) (12,028,035) (8,080,348) (16,012,952) (13,422,420) 98

234 Notes to the financial statements e) Other operating income Banco do Brasil BB-Consolidated 2nd Half/ nd Half/ Equalization of rates Agricultural crop 1,813,842 3,388,971 2,487,737 1,813,842 3,388,971 2,487,737 Previ defined benefit plan income (Note 27.c) 574,577 1,355,234 2,981, ,577 1,355,234 2,981,314 Surplus allocation update Plan 1 (Note 27.e) 596,660 1,081,756 1,014, ,660 1,081,756 1,014,421 Collateral deposits update 556,648 1,142,777 1,500, ,054 1,129,716 1,500,521 Recovery of charges and expenses 716,791 1,158, , , , ,989 Reversal of provisions actuarial liabilities 396, , , , Negative exchange readjustment/ Reclassification of liabilities balances From non-financial associated/subsidiaries companies -- 75, ,937 12, , , , , ,191 Receivables income 213, , , , , ,622 Cards transactions 170, , , , , ,434 Reversal of provisions administrative expenses 62, , ,622 62, , ,622 Reversal of provisions labor, civil and tax claims 25 70, , , ,529 Dividends received 11,074 36,623 27,150 9,701 30,884 27,150 Reversal of provisions - personnel expenses 2,915 7,799 13,379 2,915 7,799 13,379 Other 335, , , ,656 1,400,933 1,354,235 Total 5,451,582 10,521,311 11,784,868 5,971,295 11,734,849 12,977,559 f) Other operating expenses Banco do Brasil BB-Consolidated 2nd Half/ nd Half/ From non-financial associated/subsidiaries companies (941,784) (1,794,195) (1,442,557) Cards transactions (528,785) (1,329,379) (1,260,254) (528,481) (1,328,663) (1,260,254) Amortization of goodwill (300,049) (589,361) (291,526) (408,508) (832,526) (574,805) Actuarial liabilities update (509,200) (825,449) (997,770) (509,200) (825,449) (997,770) Hybrid capital and debt instruments update (413,134) (680,974) (226,783) (413,134) (680,974) (226,783) Discounts granted on renegotiations (117,767) (223,450) (212,885) (249,091) (396,459) (289,749) Business partners (1) (3,273) (7,519) (12,784) (209,368) (389,416) (538,520) Collateral deposits update (2) (124,380) (274,870) (424,633) (124,380) (274,870) (424,633) Negotial relationship bonus (107,684) (214,626) (156,060) (107,684) (214,626) (156,060) ATM Network (100,395) (210,272) (160,117) (100,395) (210,272) (160,117) Failures/frauds and other losses (88,158) (196,194) (459,735) (88,158) (196,194) (459,735) Life insurance premium - consumer credit (70,932) (149,179) (165,180) (70,932) (149,179) (165,180) Negative exchange readjustment/ Reclassification of liabilities balances (7,164) (7,164) (798,957) (17,090) (104,232) (1,075,131) Update of interest own capital/dividends (9,090) (25,056) (41,133) (9,090) (25,056) (41,133) INSS Social Security (12,562) (23,983) (7,483) (12,562) (23,983) (7,483) Fees for the use of Sisbacen Banco Central do Brasil System (15,097) (23,860) (16,823) (15,097) (23,860) (16,823) Previ actuarial adjustment (11,119) (20,216) (23,709) (11,119) (20,216) (23,709) Proagro Expenses (8,601) (15,947) (13,018) (8,601) (15,947) (13,018) Other (492,100) (931,483) (344,560) (790,768) (1,459,828) (1,071,200) Total (2,919,490) (5,748,982) (5,613,410) (4,615,442) (8,965,945) (8,944,660) (1) Refers mainly to commission for loans originated by partners and commercial agreements with tenants. (2) Refers to the adjustment of the provision for deposit in court regarding the lawsuit (Income Tax and Social Contribution Tax on Net Income) as Note 28.d. 99

235 Notes to the financial statements 23 Non-operating Income Banco do Brasil BB-Consolidated 2nd Half nd Half Non-operating income 1,228,798 1,338, ,320 1,268,926 1,412, ,519 Profit on disposal of assets 1,157,919 1,178,604 25,378 1,167,973 1,200,788 37,315 Reversal of provision for devaluation of other assets 18,578 41,423 36,873 19,042 42,019 39,105 Profit on disposal of investments / equity interest 1,189 1, ,653 19,301 25, ,396 Capital gains 6,653 12,672 21,796 10,645 20,943 48,806 Rental income 8,797 17,908 15,774 9,353 18,909 16,561 Interest and inflation adjustment of debtors for disposal of property 7,350 15,272 19,201 7,350 15,272 19,201 Other non-operating income 28,312 71,367 52,645 35,262 89,277 86,135 Non-operating expenses (59,945) (100,941) (100,133) (109,818) (202,928) (214,167) Loss on disposal of assets (7,191) (9,924) (14,024) (48,743) (99,603) (108,867) Other assets devaluation (38,636) (54,006) (41,380) (40,820) (57,456) (46,891) Capital losses (12,747) (34,223) (43,994) (14,942) (37,210) (45,049) Other non-operating expenses (1,371) (2,788) (735) (5,313) (8,659) (13,360) Total 1,168,853 1,237, ,187 1,159,108 1,209, ,352 27/02/ : Stockholders' Equity a) Book value and market value per common share Stockholders' equity - Banco do Brasil () 65,776,796 58,148,690 Book value per share (R$) Market value per common share (R$) Stockholders' equity - BB-Consolidated (1) () 66,069,965 58,416,370 (1) Reconciled with the equity of Banco do Brasil (Note 24.g) Book value per share is calculated based on the equity of Banco do Brasil. b) Capital The capital, entirely subscribed and paid-in, of R$ 48,400,000 thousand (R$ 33,122,569 thousand as of December 31, 2011) of Banco do Brasil is divided into 2,865,417,020 book-entry common shares without par value. The Federal Government is the largest shareholder, holding control of the majority of our voting shares. The increase of the capital in 2012, in the amount of R$ 15,277,431 thousand, resulted from the use of Statutory Reserve to Operating Margin, approved by the Special Meeting of Stockholders held on and by the Banco Central do Brasil on The Bank may, even without amending its by-laws, if approved by the Meeting of Stockholders, and in the conditions established therein, increase its capital up to the limit of R$ 80,000,000 thousand, by issuing common shares, granting stockholders preference for subscribing the capital increase proportionally to the number of held shares. c) Revaluation reserves The revaluation reserves, totalling R$ 4,645 thousand (R$ 4,730 thousand as of December 31, 2011), refer to revaluations of assets made by the associated/subsidiary companies. In the fiscal year of 2012, there was a reserve realization in the amount of R$ 85 thousand, due to depreciation, trasferred to Retained Earnings (Accumulated Losses) in the amount of R$ 1,511 thousand in 2011, in which R$ 1,183 thousand resulted from the write-off from the disposal of the equity interest of the BB Banco de Investimento in the Pronor Petroquímica and R$ 328 thousand due to depreciation. In accordance with CMN Resolution 3,565/2008, the remaining amount will be kept until the date of its effective realization. 27/02/ :37 100

236 Notes to the financial statements d) Capital and profit reserves Capital reserves 1 -- Profit Reserves (1) 16,413,044 24,297,550 Legal Reserve 4,112,056 3,496,562 Statutory Reserves (1) 12,300,988 20,800,988 Operating margin 8,025,178 16,765,834 Equalization of dividends 4,275,810 4,035,154 (1) In the BB-Consolidated, figures of profit reserve and statutories reserves are R$ 16,132,046 thousand and R$ 12,019,990 thousand, respectively, due to the R$ 280,998 thousand elimination of subsidiary company unrealized results. The Statutory reserve for operating margin aims to guarantee an operating margin consistent with the development of the Bank s operations and consists of up to 100% of net income, after the legal destinations, including dividends, limited to 80% of the capital. Statutory reserve for dividend equalization provides funds for the payment of dividends, the portion consisting of up 50% of the net income, after legal distributions, including dividends, up to 20% of the capital. e) Earnings per share 2nd half/ Net profit attributable to stockholders () 6,753,930 12,309,870 12,247,330 Weighted average number of shares Basic 2,857,109,880 2,861,260,055 2,861,404,718 Diluted 2,857,109,880 2,861,260,055 2,869,849,797 Earnings per share Basic earnings per share (R$) Diluted earnings per share (R$) f) Interest on own capital / Dividends Amount () Amount per share (R$) Base date of payment Payment date 1st quarter/2012 Dividends paid 181, Interest on own capital paid 840, st quarter/2012 Dividends paid 350, Interest on own capital paid 850, st quarter/2012 Dividends payable 304, Interest on own capital paid 817, st quarter/2012 Dividends payable 734, Interest on own capital paid 845, Total destined to shareholders in ,923, Dividends 1,570, Interest on own capital (1) 3,353, Net income for the period 12,309,

237 Notes to the financial statements Amount () Amount per share (R$) Base date of payment Payment date 1st quarter/2011 Dividends paid 449, Interest on own capital paid 723, nd quarter/2011 Dividends paid 595, Interest on own capital paid 736, rd quarter/2011 Dividends paid 360, Interest on own capital paid 795, st quarter/2011 Dividends paid 442, Interest on own capital paid 794, Total destined to shareholders in ,898, Dividends 1,847, Interest on own capital (1) 3,051, Net income for the period 12,247,330 (1) Amounts subject to the rate of 15% Income Tax Withholding In accordance with Laws 9,249/1995 and 9,430/1996 and the Bank's Bylaws, Management decided on the payment of Interest on own capital to its stockholders, imputed to the value of the dividends, plus additional dividends, equivalent to 40% of the net income. The interest on own capital is calculated based on adjusted net equity accounts and is limited on a pro rata basis to the variation of long-term interest rate, as long as there is profit computed before its deduction or reserve for retained earnings and profit reserves at least twice its amount. To comply with the Income Tax legislation, the amount of interest on own capital was recorded as corresponding entries against "Financial expenses" and, for purposes of disclosure of these financial statements, reclassified to "Retained earnings". The total interest on own capital during 2012, provided an expense reduction on tax charges totaling R$ 1,341,517 thousand (R$ 1,220,523 thousand in 2011). g) Reconciliation of Net Income and Stockholders' Equity Net Income Stockholders' equity 2nd half/ Banco do Brasil 6,753,930 12,309,870 12,247,330 65,776,796 58,148,690 Unrealized results (58,926) (104,750) (121,340) (280,998) (176,248) Noncontrolling interests , ,928 BB-Consolidated 6,695,004 12,205,120 12,125,990 66,069,965 58,416,370 (1) Refers to results from credit assignment operations from Banco do Brasil to Ativos S.A. h) Noncontrolling Interests Stockholders' equity Banco Patagonia S,A, 574, ,869 Besc Distribuidora de Títulos e Valores Mobiliários S.A Cobra Tecnologia S.A Noncontrolling Interests 574, ,928 i) Stockholdings (Number of shares) Gradual development of shares held by the Bank's stockholders, directly or indirectly, of more than 5% and by the directors and members of the Fiscal Council and Audit Committee: 102

238 Notes to the financial statements Acionistas Shares %Total Shares % Total Federal Government 1,693,127, ,693,127, Ministério da Fazenda 1,453,487, ,483,727, Fundo Fiscal de Investimento e Estabilização 110,650, ,500, Caixa F1 Garantia Construção Naval 105,663, FGO Fundo de Investimento em Ações 9,466, Fundo Garantidor para Investimentos 7,500, ,500, FGEDUC Fundo de Investimento Multimercado 6,360, Fundo de Garantia à Exportação ,400, Caixa de Previdência dos Funcionários do Banco do Brasil Previ (1) 297,523, ,773, BNDES Participações S.A. BNDESPar (1) 5,522, ,696, Treasury Shares 20,200, Other Stockholders 849,043, ,818, Total 2,865,417, ,865,417, Resident Stockholders 2,336,615, ,420,960, Non Resident Stockholders 528,801, ,456, (1) Connected to the Controller. Common shares (ON) (1) Board of Directors (Except for Bank s CEO, listed in the Bank s Steering Committee) 8 11 Executive Committee 112,821 27,463 Audit Committee (1) The shareholding interest of the Board of Directors, Executive Committee and Audit Committee represents approximately 0,004% of the Bank's capital stock. j) Movement of shares outstanding/free Float Quantidade % Quantidade % Free Float at the start date 871,791, ,752, Acquisition of shares - repurchase program (Note 24.k) (20,200,000) -- Acquisition of shares payment based on shares (Note 24.m) (130,146) -- Acquisition of shares by Previ (1,826,300) (3,461,229) Sale of shares by Federal Government (749,403) (209,000) Subscription of Bonus Shares -- 6,283 Acquisition of shares (repurchase program) -- 4,687,773 Other Changes (1) 44,776 15,581 Free Float at the end date (2) 848,930, ,791, Outstanding shares 2,865,417, ,865,417, (1) Refers mainly to changes coming from Technical and Advisory Bodies. (2) According to the Law n,º 6,404/1976 and the regulation of BM&FBovespa's New Market, The shares held by the Board of Directors and Executive committee are not included. k) Treasury shares On July 13, 2012, the Board of Directors approved the repurchase program of up to 50 million shares within 180 days from that date, aiming at the acquisition of shares to hold in treasury for subsequent sale or withdrawal without capital reduction, aiming at generating value for stockholders. Until December 31, 2012, 20,200,000 shares were acquired, in the amount of R$ 461,246 million, related to the repurchase program. Minimum, average and maximum cost per stock are respectively R$ 18.28, R$ e R$ The market value for each of these stocks as of December 31, 2012, was R$ On , the Bank communicated the closing of the shares repurchase program. 103

239 Notes to the financial statements l) C subscription bonuses On the Bank announced the conditions to convert the C subscription bonuses (BBAS13) issued gratuitously to stockholders of the record on The conversion period was established as being between and (up to to the holders of bonuses custodied on stock exchange). Each bonus had the right to be converted into common shares at the price of R$ 8.50 per Bonus, adjusted for inflation based on the Fundação Getúlio Vargas index, from to the date of the record of subscription right exercise request. The holders of 1,496,831 Bonuses exercised their right to convert their Bonuses into common shares resulting in the issuance of 4,687,773 common shares on , upon the approval of the Banco Central do Brasil. The non converted Bonuses in the amount of 2,831,873 expired on m) Share-Based Payment As of November 2011, the Bank approved variable compensation payment in stocks or stock-based instruments to the members of the Executive Board. They received, as a 2011 annual bonus, and according to the global amount approved at the Annual Meeting of Stockholders as of April 27, 2011, an amount between two and four salaries, according to the achievement of the Return on Equity - ROE target, set at 20%. For performances between 100% and 105% of target achievement, each member of the Executive Board would receive two additional salaries; for performances between 105% and 115%, the compensation would be proportionately calculated, and for greater performances above 115 %, each member would receive four salaries. In 2011 the Return on Equity - ROE was 22,6%. Depending on the percentage of achieving the goal, the Bank allocated R$ 3,593 thousand for share-based payment to be made in three annual installments. As of February 2012, the Bank reacquired 130,146 shares, placed in treasury, of which 130,131 were transferred to members of the Executive Board as of March 08, The shares transferred were blocked for trading, and the release will occur in three annual installments, according to the schedule presented in the table below. Share-Based Payment - Schedule of release Number of shares Release Date First installment 43,409 03,08,2013 Second installment 43,361 03,10,2014 Third installment 43,361 03,09,2015 Total 130,131 Minimum, average and maximum cost per stock are respectively R$ 27.38, R$ and R$ 27.88, The market value for each of these stocks as of December 31, 2012, was R$ The CMN Resolution 3,921 as of November 25, 2010, which deals with the remuneration policy for financial institutions executives, requires that, at least 50% of variable remuneration shall be paid in stocks or stock-based instruments, of which at least 40% should be deferred for future payment, with a minimum period of three years, set by the risks and the executive activity. Due to the related Resolution, the Bank approved a new policy of variable remuneration for the Executive Board, valid from Such policy covers, besides the Return of Equity ROE recurrent, the achievement of several requirements which are still being calculated, i.e., individual evaluation and performance agreement of the Unit which the Manager is linked. Therefore, the closing process of all requirements and the calculation of the exact value to be paid to the Executive Board will be done at an opportune time. For the financial year 2012, in accordance with the global amount approved by the Annual Meeting of Stockholders, on , the Bank accrued R$ 16,324 thousand, which is equivalent to 10 fees per beneficiary, for the payment of variable remuneration to the members of the Executive Board. Based on the result of the 1 st half of 2012, on , an advance of 2.5 fees was carried out for each member of the Executive Board. If the constraints set out in the remuneration policy for the year 2012 are not achieved, the anticipated value will be reverted in favor of the Bank. 104

240 Notes to the financial statements 25 Taxes a) Breakdown of income tax and social contribution expenses Banco do Brasil BB-Consolidated 2nd Half nd Half Present values (1,614,192) (4,122,519) (2,741,136) (3,199,252) (6,854,101) (4,789,543) Domestic income tax and social contribution (1,580,218) (4,050,534) (2,705,774) (3,007,246) (6,501,872) (4,621,313) Foreign income tax (33,974) (71,985) (35,362) (192,006) (352,229) (168,230) Deferred values 25,205 1,188,001 (896,700) 851,326 2,613,517 67,088 Deferred tax liabilities (314,795) (827,122) (1,533,784) (153,710) (745,059) (1,339,271) Leasing transactions portfolio adjustment and accelerated depreciation 892 1,048 (641) 892 (76,601) 150,450 Mark to Market (MTM) 325 (5,840) 81, , , ,809 Actuarial gains (219,144) (516,887) (1,137,073) (219,144) (516,887) (1,137,073) Interest and inflation adjustment of judicial deposits (107,927) (243,581) (329,147) (107,927) (243,581) (329,147) Foreign profits 33, , Transactions carried out on the futures market , ,903 Recovered credits (1) (22,673) (61,862) (152,213) (22,673) (61,862) (152,213) Deferred tax assets 340,000 2,015, ,084 1,005,036 3,358,576 1,406,359 Temporary differences 342,243 1,992, ,640 1,006,684 3,335,679 1,550,983 Tax losses/csll negative bases 44,794 (1,255) (46,861) 44,794 (1,255) (37,231) Mark to Market (MTM) (57,365) 43,184 (141,839) (56,769) 43,861 (143,537) Transactions carried out on the futures market 10,328 (19,709) 36,144 10,327 (19,709) 36,144 27/02/ :37 Total Income Tax and Social Contribution (1,588,987) (2,934,518) (3,637,836) (2,347,926) (4,240,584) (4,722,455) (1) According to article 12 of Law 9,430/96. b) Reconciliation of income tax and social contribution charges Banco do Brasil BB-Consolidated 2nd Half nd Half Profit before tax and profit sharing 9,212,521 16,824,075 17,448,327 10,109,812 18,436,744 18,732,119 Total charges of IR (25%) and CSLL (15%) (3,685,008) (6,729,630) (6,979,331) (4,043,925) (7,374,698) (7,492,848) Charges upon Interest on Own Capital 665,239 1,341,516 1,220, ,239 1,341,516 1,220,523 Equity in subsidiaries and associated companies 538,218 1,152,600 1,208,292 (33,730) 105, ,952 Employee profit sharing 343, , , , , ,597 Tax credits recorded previous periods -- 52, , , ,438 Other amounts 549, ,780 (95,459) 675, , ,883 Income Tax and Social Contribution (1,588,987) (2,934,518) (3,637,836) (2,347,926) (4,240,584) (4,722,455) c) Tax Expenses Banco do Brasil BB-Consolidated 2nd Half nd Half Cofins (1,133,264) (2,218,609) (2,206,068) (1,502,115) (2,912,362) (2,852,105) ISSQN (286,551) (580,474) (563,480) (370,355) (742,470) (721,066) PIS/Pasep (184,150) (360,521) (358,486) (250,351) (485,959) (476,088) Other (41,185) (89,774) (86,736) (139,678) (275,643) (210,216) Total (1,645,150) (3,249,378) (3,214,770) (2,262,499) (4,416,434) (4,259,475) 105

241 Notes to the financial statements d) Deferred tax liabilities Banco do Brasil BB-Consolidated Arising from actuarial gains (1) 5,904,974 5,325,069 5,904,974 5,325,069 Arising from interest and inflation adjustment of judicial deposits 386, , , ,541 Arising from mark-to-market 266, , , ,458 Arising from recovered credit (2) 214, , , ,213 Entities abroad 12,865 14,470 14,570 14,480 Arising from leasing portfolio adjustment 2,568 3, , ,556 Other 2,050 2,050 32, ,470 Total deferred tax liabilities 6,789,199 6,090,342 7,442,774 7,095,787 Income tax 3,639,986 3,263,580 4,240,172 4,050,295 Social contribution 2,181,246 1,954,775 2,226,793 2,170,237 Cofins 832, , , ,907 PIS/Pasep 135, , , ,348 (1) The realization of deferred tax liabilities on actuarial gains is related to the achievement of the values of actuarial asset (Note 27). (2) According to article 12 of Law 9,430/96. e) Deferred tax assets (Tax Credit) Recorded Banco do Brasil Balance Constitution Write-off Balance Temporary differences 17,214,542 7,497,086 (5,641,343) 19,070,285 Allowance for loan losses 7,226,100 4,622,538 (4,022,295) 7,826,343 Passive reserves 6,163,373 1,434,884 (1,392,829) 6,205,428 Loan Operations effects of Law 9,430/96 3,463,297 1,215,795 (110,711) 4,568,381 Mark to market 211, ,315 (95,499) 308,681 Other provisions 149,907 31,554 (20,009) 161,452 CSLL written to 18% (MP 2,158/2001) 2,487, (456,423) 2,031,422 Tax losses/ negative bases 46,079 1,901 (47,936) 44 Total tax credits recorded 19,748,466 7,498,987 (6,145,702) 21,101,751 Income tax 10,778,046 4,684,674 (3,549,296) 11,913,424 Social contribution 8,947,408 2,793,512 (2,586,024) 9,154,896 Cofins 19,805 17,884 (8,931) 28,758 PIS/Pasep 3,207 2,917 (1,451) 4,

242 Notes to the financial statements BB-Consolidated Balance Constitution Write-off Balance Temporary differences 19,474,111 8,891,920 (6,051,004) 22,315,027 Allowance for loan losses 8,086,873 5,068,312 (4,127,903) 9,027,282 Passive reserves 6,540,682 2,052,136 (1,520,879) 7,071,939 Loan Operations effects of Law 9,430/96 3,463,297 1,215,795 (110,711) 4,568,381 Mark to market 284, ,443 (98,620) 509,001 Other provisions 1,099, ,234 (192,891) 1,138,424 CSLL written to 18% (MP 2,158/2001) 2,487, (456,423) 2,031,422 Tax losses/ negative bases 175,213 5,004 (94,649) 85,568 Excess depreciation 616, (67,306) 549,069 Total tax credits recorded 22,753,544 8,896,924 (6,669,382) 24,981,086 Income tax 12,835,645 5,634,773 (3,904,122) 14,566,296 Social contribution 9,893,077 3,240,993 (2,754,383) 10,379,687 PIS/Pasep 21,362 18,191 (9,357) 30,196 Cofins 3,460 2,967 (1,520) 4,907 Not Recorded Banco do Brasil BB-Consolidated Tax credit abroad 420, , , ,192 Temporary differences ,231 49,224 Portion of Tax losses / negative bases , Portion of mark to market negative ajustment ,064 Total tax credits not recorded 420, , , ,480 Income tax 262, , , ,514 Social contribution 157,598 87, , ,966 Realization expectative The expectation of realization of the deferred tax assets (tax credits) is based on technical study, prepared in , and the present value is determined based on the average rate of funding of Banco do Brasil. Banco do Brasil BB-Consolidated Par value Present value Par value Present value In ,400,517 4,220,319 5,227,268 4,769,913 In ,527,334 4,202,831 5,144,829 4,529,498 In ,526,227 3,171,511 3,978,247 3,376,935 In ,372,641 2,941,214 3,906,384 3,177,678 In ,252,258 4,437,679 5,950,381 4,703,021 In ,774 18,877 70,674 47,981 In ,710 29,020 In ,963 23,009 In ,118 19,225 In , ,259 In ,201 65,944 Total tax credits ,101,751 18,992,431 24,981,086 20,894,483 In 2012 it was possible to observe the realization of tax credits at Banco do Brasil in the amount of R$ 6,145,702 thousand, corresponding to % of the respective projection of use for the period of 2012, contained in the technical study prepared on

243 Notes to the financial statements The realization of the nominal value of tax credit recorded, considering the recovery of those issued during the processing of the lawsuit (70%), based on a technical study conducted by the Banco do Brasil on , is designed for 5.5 years in following proportions: Banco do Brasil BB-Consolidated Tax losses/csll recoverable (1) Intertemporary differences (2) Tax losses/csll recoverable (1) Intertemporary differences (2) In % 18% 48% 18% In % 18% 46% 18% In % 1% 18% In % 1% 18% In % 1% 28% From % 3% -- (1) Projected consumption linked to the capacity to generate IRPJ and CSLL taxable amounts in subssequent periods. (2) The consumption capacity results from the movements of provisions (expectation of reversals, write-offs and uses). 26 Related Party Transactions The costs of salaries and other benefits granted to key management personnel of the Banco do Brasil Group (Board of Directors, Executive Board, Audit Committee and Tax Council): 2nd half Short-term benefits 16,430 37,157 28,126 Fees 12,007 22,953 19,107 Executive Board 10,709 20,321 16,940 Audit Committee 998 2,057 1,603 Board of Directors Fiscal Council Profit sharing 3,986 8,393 6,863 Other 437 5,811 2,156 Benefits for employment termination 3,872 9,109 3,501 Total 20,302 46,266 31,627 27/02/ :37 The Bank does not offer post-employment benefits to its key management personnel, except for those who are part of the staff of the Bank, which participate in the Pension Plan for Employees of the Banco do Brasil (Previ). The Bank does not grant loans to key management personnel, pursuant to the prohibition to all financial institutions established by the Banco Central do Brasil. The balances referring to transactions between the consolidated companies of the Bank are eliminated in the Consolidated Financial Statements. Regarding to majority shareholder, the transactions with National Treasury and with agencies of the direct administration of the Federal Government that maintain banking operations with the Bank are included. The Bank has banking transactions with these related parties, such as interest bearing and noninterest bearing deposits, loans, and sale and repurchases transactions, except for key management personnel. There are also service render and guarantee agreements. These transactions are conducted under terms and rates consistent with those applied with outsourced when applicable. These transactions do not involve payment risks. On , the Bank signed a loan agreement with the Federal Government in the amount of R$ 8.1 billion whose terms and conditions are described in note 20.d. The funds invested in government securities and in federal funds and programs from onlendings of the Official Institutions are listed as notes 8 and 18, respectively. The Bank sponsors the Banco do Brasil Foundation which goals are the promotion, support, encouragement and sponsorship of actions at the educational, cultural, social, philanthropic, recreational/sports and promote scientific and technological research activities and assistance to 108

244 Notes to the financial statements urban or rural communities. In 2012, The Bank made contributions to the FBB in the amount of R$ 38,289 thousand (R$ 42,527 thousand in 2011). The information related to onlending and other transactions with other sponsored entities are disclosed in Note 27. Acquisition of Portfolio of Loans Transferred by Banco Votorantim Assignment with substantial retention of risks and benefits (with coobligation) Assignment with substantial transfer of risks and benefits (without coobligation) 2nd half ,257,964 2,257,964 10,643,782 89, , Result unrealized net of tax effects 639,635 1,549, ,357 Summary of related party transations Controller (1) Subsidiaries (2) Jointly controlled (3) Associated companies (4) Key Management personnel (5) Other related parties (6) Total Assets Interbank deposits -- 33,617, ,617,623 Securities -- 43, , ,201 Loan operations 651,090 37,130 7, ,024,255 2,719,542 Receivables from related companies -- 62,183 15, ,228 Other assets ,871 1,023, ,295,558 Liabilities Demand deposits 836,011 59, , , ,966 2,001,386 Saving deposits , ,233 Remunerated time deposits -- 3,733, ,031 1,025 2,218 6,087,695 10,795,020 Securities sold under repurchase agreements -- 5,309, ,570,501 11,879,857 Borrowings and onlendings 633,638 25,320, ,665,342 85,619,216 Other liabilities (7) 8,214, ,295 7, ,934 9,224,686 Guarantees and Other (8) ,966 6,800, ,707,966 Coobligations Income from interest and render of services 2nd half ,588 1,251,909 78, ,933 1,525,528 Expenses from raising funds (44,103) (1,117,324) (87,252) (2,208) (452) (1,989,245) (3,240,584) Income from interest and render of services ,514 2,416, ,243 1, ,527 2,917,919 Expenses from raising funds (69,462) (2,112,547) (130,993) (4,923) (740) (3,144,660) (5,463,325) (1) National Treasury and agencies of the direct administration of the Federal Government, (2) Includes related companies in Note 3 as identified in item (1), (3) Includes related companies in Note 3 as identified in item (2), (4) Includes related companies in Note 3 as identified in item (3), (5) Board of Directors, Executive Board, Audit Committee and Tax Council, (6) Includes public and party-state owned companies controlled by the Federal Government and entities linked to employees, (7) Includes the Contract Hybrid Capital Instrument Debt with the Federal Government (Note 20,d), (8) Includes Opening Contract Interbank Revolving Credit Line to release with Banco Votorantim, equivalent to the value of equity of that institution, 109

245 Notes to the financial statements Controller (1) Subsidiaries (2) Jointly controlled (3) Associated companies (4) Key Management personnel (5) Other related parties (6) Total Assets Interbank deposits -- 20,590,919 18, ,609,353 Securities -- 61,940 94, ,253 Loan operations 836,224 49,612 7, ,750 1,417,447 Receivables from related companies -- 68, ,442 Other assets , ,130 Liabilities Demand deposits 717,309 89,547 45,639 33, ,535 1,783,609 Saving deposits , ,151 Remunerated time deposits -- 5,247, , ,357 4,696 5,132,867 10,985,653 Securities sold under repurchase agreements -- 1,680, , ,113,044 3,623,860 Borrowings and onlendings 1,643,963 14,326, ,735,159 59,705,857 Other liabilities -- 1,251,984 70, ,125,124 2,447,387 Guarantees and Other (7) ,116 7,474, ,104,027 Coobligation Income from interest and render of services 2nd half ,224 1,188,008 13,550 77, ,129 1,719,009 Expenses from raising funds (31,632) (858,044) (2,170) (3,044) (648) (1,769,594) (2,665,132) Income from interest and render of services ,931 1,982,470 47, , ,145 2,698,940 Expenses from raising funds (97,341) (1,192,412) (50,671) (3,306) (1,014) (2,986,825) (4,331,569) (1) National Treasury and agencies of the direct administration of the Federal Government, (2) Includes related companies in Note 3 as identified in item (1), (3) Includes related companies in Note 3 as identified in item (2), (4) Includes related companies in Note 3 as identified in item (3), (5) Board of Directors, Executive Board, Audit Committee and Tax Council, (6) Includes public and party-state owned companies controlled by the Federal Government and entities linked to employees, (7) Includes Opening Contract Interbank Revolving Credit Line to release with Banco Votorantim, equivalent to the value of equity of that institution. 110

246 Notes to the financial statements 27 Employee Benefits Banco do Brasil sponsors the following private pension and complementary health plan entities that provide for complementation of retirement and healthcare benefits for its employees: Previ - Caixa de Previdência dos Funcionários do Banco do Brasil Cassi - Caixa de Assistência dos Funcionários do Banco do Brasil Economus Instituto de Seguridade Social Fusesc - Fundação Codesc de Seguridade Social SIM - Caixa de Assistência dos Empregados dos Sistemas Besc e Codesc, do Badesc e da Fusesc Plans Benefits Classification Previ Futuro Retirement and Pension Defined contribution Plano de Benefícios 1 Retirement and Pension Defined benefit Plano Informal Retirement and Pension Defined benefit Plano de Associados Health Care Defined benefit Prevmais Retirement and Pension Defined contribution Regulamento Geral Retirement and Pension Defined benefit Regulamento Complementar 1 Retirement and Pension Defined benefit Grupo B Retirement and Pension Defined benefit Plano Unificado de Saúde - PLUS Health Care Defined benefit Plano Unificado de Saúde - PLUS II Health Care Defined benefit Plano de Assistência Médica Complementar - PAMC Health Care Defined benefit Multifuturo I Retirement and Pension Defined contribution Plano de Benefícios 1 Retirement and Pension Defined benefit Plano de Saúde Health Care Defined contribution Prevbep - Caixa de Previdência Social Plano BEP Retirement and Pension Defined benefit 27/02/ :37 Number of participants covered by benefit plans sponsored by the Bank # of participants # of participants Actives Retired/Users Total Actives Retired/Users Total Retirement and Pension Plans 116, , , , , ,991 Plano de Benefícios 1 Previ 28,826 84, ,790 30,659 83, ,484 Plano Previ Futuro 70, ,153 67, ,950 Plano Informal -- 4,182 4, ,649 7,649 Other plans 17,432 12,304 29,736 17,676 14,232 31,908 Health Care Plans 118,534 94, , ,376 92, ,857 Cassi 104,824 84, , ,293 83, ,495 Other plans 13,710 9,386 23,096 14,083 9,279 23,362 Bank s contributions to benefit plans 2nd half Retirement and Pension Plans 1,679,589 2,243,701 1,164,046 Plano de Benefícios 1 Previ (1) 1,288,647 1,521, ,401 Plano Previ Futuro 168, , ,647 Plano Informal 155, , ,618 Other plans 67, , ,380 Health Care Plans 501, , ,943 Cassi 446, , ,390 Other plans 55, ,418 95,553 Total 2,180,923 3,171,661 2,058,989 (1) Refers to the contributions from participants comprised by Agreement 97 and Plan 1, considering that these contributions occurred respectively by the realization of the Parity Fund (Note 27.e.1) and the Contribution Fund (Note 27.e.3). Agreement 97 aims to regulate the way funding is required to achieve a portion equivalent to 53.7% of guarantee amount concerning the payment of supplement retirement due to the participants who joined the Bank up to and who have retired or will retire after the aforementioned date, except for those participants who are part of the Plano Informal. The Bank's contributions to benefit plans during the 1st half 2013 are estimated in R$ 1,804,873 thousand. 111

247 Notes to the financial statements Values recognized in income 2nd half Retirement and Pension Plans 686,194 1,453,449 2,327,438 Plano de Benefícios 1 Previ 574,577 1,355,234 2,981,314 Plano Previ Futuro (168,498) (299,276) (240,647) Plano Informal 384, ,240 (244,809) Other plans (104,016) (65,749) (168,420) Health Care Plans (707,720) (1,302,529) (1,132,022) Cassi (618,693) (1,151,709) (998,483) Other plans (89,027) (150,820) (133,539) Total (21,526) 150,920 1,195,416 a) Retirement and pension plans Previ Futuro (Previ) Participants in this plan are the Bank's employees hired as from The active participants contribute to Previ an amount between 7% and 17% of their contribution salary, which varies based on time of service and the amount of the contribution salary. There is no contribution for retired participants. The sponsor contributes an amount equal to the contributions of the participants, limited to 14% of the total contribution payroll of these participants. Plano de Benefícios 1 (Previ) The participants of this plan are the Bank s employees who were enrolled up to Due to the establishment of parity between the Bank's and participants' contributions, in December 2000, a parity fund was set up, and its resources are being used for the purpose of offsetting contributions to the plan. Due to the accumulated surplus, the contributions of participants, beneficiaries (retirees and pensioners) and of the sponsor (Banco do Brasil) were suspended, since January According to the Memorandum of Understanding signed between the Bank, Previ and entities representing the beneficiaries, it was proposed to amend the Rules of the Plan 1, which includes the suspension of contributions for the years 2011, 2012 and 2013, and its maintenance must be linked to the existence of the Special Reserve of the plan. Plano Informal (Previ) This responsibility of this plan is exclusive of Banco do Brasil whose contractual obligations include: (a) retirement pensions to founder participants and pension payments to beneficiaries of participants deceased up to ; (b) payment of retirement supplements to the other participants employed by Banco do Brasil who retired up to or who, on that date, would have the right through length of service to retire and who had at least 20 years of effective service with the Bank; and (c) increase in the amount of retirement benefits and of pensions beyond the provided in the benefit plan of Previ, resulting from judicial decisions and from administrative decisions due to restructuring of the job and salary plan and of incentives created by the Bank. On , Banco do Brasil and Previ formalized an agreement whereby the Banco do Brasil paid up, with Fundo Paridade funds, 100% of the mathematical reserves relating to the Grupo Especial, that is Banco do Brasil s exclusive liability, of which operations had migrated from Plano Informal to Plano de Benefícios 1 of Previ. The Grupo Especial includes participants from Plano de Benefícios 1 - Previ, listed in the first paragraph of the first clause of the contract of , which received additional supplemental retirement arising from administrative decisions and/or judicial decisions. (Notes 27.e and 27.f) Prevmais (Economus) The participants of this plan are the employees from Banco Nossa Caixa (merged into Banco do Brasil on ) enrolled after , and the participants previously linked to the Regulamento Geral benefit plan who opted for the distribution of their vested account balances. The funding for income benefits is equally provided by employees and employer, not exceeding 8% of the participants' salary. The plan also provides risk benefits, such as complementation of sickness aid, work - related accident, disability benefits and death pension. 112

248 Notes to the financial statements Regulamento Geral (Economus) The participants of this plan are the employees from Banco Nossa Caixa enrolled up to This plan is closed to new members. Employees and the sponsor contribute equally, on average, with 12.11% of participation salary. Regulamento Complementar 1 (Economus) The participants of this plan are the employees from Banco Nossa Caixa. This plan offers the benefits of supplemental sickness benefit and annuity for death and disability. The cost of the plan is the responsibility of the sponsor, participants and retired/users. Grupo B' (Economus) The participants of this plan are the employees from Banco Nossa Caixa admitted between to and their beneficiaries. This plan is closed to new members. The level of benefit to be granted when the implementation of all the conditions laid down in regulation is known a priori. Multifuturo I (Fusesc) The participants of this plan are the employees from Banco do Estado de Santa Catarina - Besc (merged into Banco do Brasil on ) enrolled after and the employees previously linked to Fusesc's Benefit Plan 1 who opted for this plan. Employees and sponsor equally contribute from 2.33% to 7% of participation salary to that plan, as determined by each participant. Plano de Benefícios 1 (Fusesc) The participants of this plan are the employees from Besc enrolled until This plan is closed to new members. Employees and the sponsor contribute equally, on average, with 9.89% of participation salary. Plano BEP (Prevbep) Participants of this plan are the employees from Banco do Estado do Piauí BEP (merged in to Banco do Brasil on ). Employees and the sponsor contribute equally, on average, with 3.58% of participation salary. b) Health Care Plans Plano de Associados (Cassi) The Bank is the sponsor of a health plan managed by Cassi which the main objective is to provide coverage for expenses related to the promotion, protection, recovery and rehabilitation of a member's health and of his/her enrolled beneficiaries. Each month, the Bank contributes with a sum equivalent to 4.5% of the total payroll or of the total retirement or pension plan benefit. Monthly contributions from members and pension beneficiaries amount to 3% of the payroll or the total retirement or pension plan benefits and co-participation in some hospital procedures. Plano Unificado de Saúde - PLUS (Economus) The participants of this plan are the employees from Banco Nossa Caixa. Participation in this plan takes place by means of a 1.5% contribution of gross salary, without limitation, covering the owner and his/her preferred dependants, deducted from the owner's payroll and 10% as a co-participation in the price of each medical visit and low-cost exams, made by the owner and his/her dependants (preferred and non-preferred). Plano Unificado de Saúde - PLUS II (Economus) For employees from Banco Nossa Caixa. Participation in this plan takes place by means of a 1.5% contribution of gross salary, without limitation, covering the owner and his/her preferred dependants, deducted from the owner's payroll and 10% as a co-participation in the price of each medical visit and low-cost exams, made by the owner and his/her preferred dependants and children of age. The plan does not provide for non-preferred dependants. Plano de Assistência Médica Complementar - PAMC (Economus) The participants of this plan are the employees from Banco Nossa Caixa stationed in the State of São Paulo. The plan owners are those employees retired due to disability in Groups "B" and "C", and their 113

249 Notes to the financial statements dependants, who participate in costs in as much as they use it, and according to the salary range progressive table. Plano de Saúde (SIM) The participants of this plan are the employees from Besc. Monthly contributions from members amount to 3% of the total payroll. 114

250 Notes to the financial statements c) Actuarial valuations The actuarial valuations are prepared every six months and the information contained in the tables below refers to those carried out on the base dates of and Changes in present value of defined benefit actuarial obligations Plano 1 Previ Plano Informal Previ Plano de Associados Cassi Other plans Initial Balance (98,849,541) (90,805,477) (1,905,370) (1,994,759) (6,046,932) (5,297,173) (5,622,610) (5,189,411) Interest cost (10,235,720) (9,798,080) (177,875) (204,672) (625,078) (577,040) (573,868) (540,832) Current service cost (514,081) (517,332) (95,589) (84,607) (38,113) (49,031) Benefits paid net of contributions retirees 7,502,104 6,718, , , , , , ,864 Liabilities transferred from other plans (6,576) Reductions / settlements (1) ,217, , Actuarial gain / (loss) on actuarial obligation (2) (26,316,202) (4,447,076) (522,353) (3,557) (1,437,674) (591,928) (1,249,223) (208,624) Closing Balance (128,413,440) (98,849,541) (1,091,017) (1,905,370) (7,717,855) (6,046,932) (6,949,678) (5,622,610) Present value of actuarial liabilities with surplus (128,413,440) (98,849,541) (4,921,429) (4,477,749) Present value of actuarial liabilities without surplus (1,091,017) (1,905,370) (7,717,855) (6,046,932) (2,028,249) (1,144,861) (1) In Plano Informal, it refers mainly to the migration of Grupo Especial to Plano de Benefícios 1 Previ. (Notes 27.e and 27.f) (2) The actuarial loss in 2012 is due mainly to the decrease in the discount rate, that was 10.56% p.a. on and 8.71% p.a. on Changes in fair value of plan assets Plano 1 Previ Plano Informal Previ Plano de Associados Cassi Other plans Initial Balance 133,079, ,566, ,477,749 4,339,122 Estimated yield on plan assets 13,460,271 14,934, , ,661 Contributions received 1,521, , , , , , , ,699 Benefits paid net of contributions retirees (7,502,104) (6,718,424) (297,318) (297,618) (487,418) (503,816) (403,496) (371,864) Equity transfer ,576 Actuarial gain / (loss) on plan assets 11,469,755 (17,199,016) ,843 (130,445) Closing Balance 152,029, ,079, ,921,429 4,477,

251 Notes to the financial statements Amounts recognized in the balance sheet Plano 1 Previ Plano Informal Previ Plano de Associados Cassi Other plans ) Fair value of the plan assets 152,029, ,079, ,921,429 4,477,749 2) Present value of actuarial liabilities (128,413,440) (98,849,541) (1,091,017) (1,905,370) (7,717,855) (6,046,932) (6,949,678) (5,622,610) 3) Surplus/(deficit) (1+2) 23,615,696 34,229,855 (1,091,017) (1,905,370) (7,717,855) (6,046,932) (2,028,249) (1,144,861) 4) Surplus/(deficit) plot sponsor 11,807,848 17,114,928 (1,091,017) (1,905,370) (7,717,855) (6,046,932) (1,287,286) (863,246) 5) Unrecognized actuarial gains/(losses) (4,441,209) 3,742,924 (109,101) (162,896) (2,577,272) (1,240,517) (695,413) (270,228) 6) Net actuarial (liability)/asset (4-5) (1) 16,249,057 13,372,004 (981,916) (1,742,474) (5,140,583) (4,806,415) (591,873) (593,018) (1) The actuarial assets recorded in other receivables (Note 11.b) will be realized before the end of the plan. The end of the plan is understood as the date in which the last commitment will be paid. Amounts recognized in statement of income relating to defined benefit plans Plano 1 Previ Plano Informal Previ Plano de Associados Cassi Other plans 2nd half nd half nd half nd half Current service cost (131,537) (257,040) (258,666) (52,205) (95,589) (84,608) (6,351) (13,653) (24,592) Interest cost (2,597,226) (5,117,860) (4,899,040) (81,946) (177,875) (204,672) (317,269) (625,078) (577,041) (44,248) (91,889) (298,536) Expected yield on plan assets 3,303,340 6,730,134 7,467, ,942 Amortization of net actuarial gains/(losses) ,715 (238,560) (259,387) (40,137) (62,999) (91,006) (31,347) (85,696) (106,314) (77,356) Unrecognized past service cost (4,956) (9,912) (9,913) Expense with active employees (181,264) (330,124) (295,574) (69,786) (131,300) -- Effect of unrecognized assets/liabilities (92) Other adjustments/reversals , , , ,587 (134) (Expense)/income recognized in Statement of Income 574,577 1,355,234 2,981, , ,240 (244,809) (618,693) (1,151,709) (998,483) (193,043) (216,569) (161,768) 116

252 Notes to the financial statements Composition of the plan assets, shown as a percentage of the total Plano 1 - Previ Plano Informal - Previ Plano de Associados - Cassi Other plans Fixed Revenue 31.5% 30.2% % 90.9% Floating Revenue 59.6% 62.2% % 4.3% Real estate investments 5.2% 4.0% % 1.8% Loans and financing 3.3% 3.2% % 1.8% Other 0.4% 0.4% % 1.2% Amounts listed in fair value of plan assets In the entity s own financial instruments 8.1% 5.5% In properties or other assets used by the entity 0.1% 0.1% % Comparative table showing expected and actual return from plan assets Expected yield nominal rate on plan assets at the beginning of the fiscal year (p.a.) Plano 1 Previ Plano Informal Previ Plano de Associados Cassi Other plans % 10.96% % 10.96% Expected yield on assets for the period (R$ (1) 13,460,271 14,934, , ,661 thousand) Effective yield () (2) 24,930,026 (2,264,406) , ,792 (1) to Real rate 6.10% p.a. and Inflation rate 4.20% p.a.; to Real rate 5.70% p.a. and Inflation rate 4.20% p.a to Real rate 6.30% p.a. and Inflation rate 4.38% p.a.; to Real rate 6.30% p.a. and Inflation rate 4.38% p.a. (2) Considers the effects of floating income investments. 117

253 Notes to the financial statements Main actuarial assumptions adopted in each period Plano 1 Previ Plano Informal Previ Plano de Associados Cassi Outros Planos (1) Inflation rate (p.a.) 4.20% 4.20% 4.20% 4.20% 4.20% 4.20% 4.20% 4.20% Real discount rate (p.a.) 4.33% 6.10% 4.33% 6.10% 4.33% 6.10% 4.33% 6.10% Nominal rate of return on investments (p.a.) 8.71% 10.56% % 10.56% Real rate of expected salary growth (p.a.) 0.14% % 0.65% Average remaining work period (years) Table actuarial survival (2) AT-83 AT-83 AT-83 AT-83 Capitalization method Projected credit unit Projected credit unit Projected credit unit Projected credit unit (1) Grouped actuarial assumptions are expressed as weighted averages. (2) Prevmais, Multifuturo I and Plano de Benefícios 1 (Fusesc) plans used the AT

254 Notes to the financial statements In order to determine the values for the defined benefit plans, the Bank uses methods and assumptions different from those submitted by entities sponsored. The most significant differences are concentrated on the definition of the figures relating to Plano 1 Previ. Differences in assumptions of the Plano 1 - Previ Bank Previ Real discount rate (p.a.) 4.33% 5% Table actuarial survival AT-83 AT-2000 Evaluation of assets Exclusive funds Market value or discounted cash flow Discounted cash flow Capitalization method Projected credit unit Aggregate Method Reconciliation of amounts calculated in Plan 1 - Previ/Bank Value determined - Previ Incorporation of values from agreement 97 Plan assets Actuarial liabilities Effect in surplus ,295, ,969,218 (105,150,551) (97,420,089) 28,145,391 24,549,129 13,198,959 13,188,500 (13,198,959) (13,188,500) Adjustment in the value (1) of plan assets 5,534,235 (2,078,322) ,534,235 (2,078,322) Adjustment in the liabilities discount rate/ capitalization method Value determined - Bank (10,063,930) 11,759,048 (10,063,930) 11,759, ,029, ,079,396 (128,413,440) (98,849,541) 23,615,696 34,229,855 (1) Refers mainly to adjustments made by the Bank in determining the fair value of the investments in Litel, Neoenergia and in securities held to maturity. Actuarial amounts for the current period and for the last four years Plano 1 (Previ) Surplus/(deficit) 23,615,696 34,229,855 50,760,845 57,543,364 28,669,191 Defined benefit obligation (128,413,440) (98,849,541) (90,805,477) (80,270,786) (76,109,637) Plan assets 152,029, ,079, ,566, ,814, ,778,828 Actuarial gain / (loss) on actuarial obligation (26,316,202) (4,447,076) (9,185,047) (2,877,957) (5,403,784) Actuarial gain / (loss) on plan assets 11,469,755 (17,199,016) 11,929,947 28,727,461 30,071,523 Experience adjustment on plan liabilities (p.a.) (20.5%) (2.6%) (8.4%) (3.6%) (7.1%) Experience adjustment on plan assets (p.a.) 7.5% (6.9%) 16.7% 20.8% (28.7%) Plano Informal (Previ) Surplus/(deficit) (1,091,017) (1,905,370) (1,994,759) (1,743,386) (1,739,592) Defined benefit obligation (1,091,017) (1,905,370) (1,994,759) (1,743,386) (1,739,592) Actuarial gain / (loss) on actuarial obligation (522,353) (3,557) (344,304) (106,081) (198,313) Experience adjustment on plan liabilities (p.a.) (22.6%) (2.2%) (3.7%) (6.1%) (11.4%) Plano de Associados (Cassi) Surplus/(deficit) (7,717,855) (6,046,932) (5,297,172) (4,943,220) (4,677,766) Defined benefit obligation (7,717,855) (6,046,932) (5,297,172) (4,943,220) (4,677,766) Actuarial gain / (loss) on actuarial obligation (1,437,674) (591,928) (116,304) (13,974) (4,678) Experience adjustment on plan liabilities (p.a.) (14.8%) (5.3%) (2.9%) (0.3%) 0.1% Other Plans Surplus/(deficit) (2,028,249) (1,144,861) (850,289) (489,570) 171,899 Defined benefit obligation (6,949,678) (5,622,610) (5,189,411) (4,432,673) (446,280) Plan assets 4,921,429 4,477,749 4,339,122 3,943, ,179 Actuarial gain / (loss) on actuarial obligation (1,249,223) (208,624) (515,228) (802,924) (21,867) Actuarial gain / (loss) on plan assets 214,843 (130,445) 52,660 (118,451) 2,472 Experience adjustment on plan liabilities (p.a.) (13.3%) (4.7%) (6.9%) (17.6%) (4.9%) Experience adjustment on plan assets (p.a.) 2.0% (2.5%) (0.5%) (3.2%) 0.4% 119

255 Notes to the financial statements d) Overview of actuarial asset/(liability) recorded by the Bank Actuarial assets Actuarial liabilities Plano 1 (Previ) 16,249,057 13,372, Plano Informal (Previ) (981,916) (1,742,474) Plano de Associados (Cassi) (5,140,583) (4,806,415) Regulamento Geral (Economus) (115,616) (163,932) Regulamento Complementar 1 (Economus) (2,299) -- Plus I e II (Economus) (352,724) (313,822) Grupo B (Economus) (121,234) (115,264) Total 16,249,057 13,372,004 (6,714,372) (7,141,907) e) Allocations of the Surplus Plano 1 Fundo Paridade 2nd half Initial Balance 1,669,259 1,608,379 1,524,374 Interest and inflation adjustment 101, , ,125 Contributions to the Plano 1 Agreement 97 (1) (16,632) (37,257) (83,120) Contribuição amortizante antecipada Grupo Especial (2) (1,013,754) (1,013,754) -- Closing Balance 740, ,643 1,608,379 Fundo de Destinação Initial Balance 3,191,666 3,684,325 7,594,993 Interest and inflation adjustment 161, , ,911 Transfers to Fundo de Contribuição and Fundo de Utilização (979,598) (1,641,801) (4,400,579) Closing Balance 2,373,525 2,373,525 3,684,325 Fundo de Contribuição Initial Balance 934,906 1,096, Constitution (3) ,398,467 Adjustment for inflation 49, , ,247 Contributions to the Plano 1 (258,109) (470,415) (412,281) Closing Balance 726, ,637 1,096,433 Fundo de Utilização Initial Balance 4,094,721 3,249, Constitution (3) 979,598 1,641,801 3,002,112 Interest and inflation adjustment 283, , ,138 Closing Balance 5,357,912 5,357,912 3,249,250 (1) Includes the positive amount of R$ 185 thousand in the 2 nd half (R$ 392 thousand in 2012 and R$ 503 thousand in 2011) related to partial reversals for adjustments in prior periods. (2) Refers to the payment of 100% of mathematical reserves guarantors of additional supplemental retirement of the Special Group. (3) Funds setted up in the first half e.1) Fundo Paridade The plan was funded, up to , through a contribution of 2/3 (two thirds) from the Bank and another of 1/3 (one third) from participants. As from , in order to adjust to the provisions of Constitutional Amendment N. 20, both the Bank and the participants started to make a contribution of 1/2 (one half), and an agreement was signed by the parties involved and duly approved by the Supplementary Pension Plan Secretariat. The cost for the implementation of the equal contributions was defrayed by using the Plan's surplus at the time. As a result of this agreement, the Bank, yet, was entitled to recognize the amount of R$ 2,227,254 thousand, which was recorded in Fundos de Destinação Superávit - Previ. This Asset is monthly adjusted based on the actuarial goal (INPC + 5% per year) and, since January 2007, has been used to offset any financial imbalance in the ratio between the Unamortized Reserve and Advanced Amortization arising from the agreement entered into with Previ in 1997, which granted 120

256 Notes to the financial statements supplementary benefits to the participants of Plano 1 who joined the Plan up to and had not retired up to that date. e.2) Fundo de Destinação On , Banco do Brasil signed a Memorandum of Understanding with the entities that represents current and retired employees, the aim of which was to allocate and use a share of the Plan's surplus, as determined by Supplementary Law N. 109/2001 and CGPC Resolution N. 26/2008. In view of the approval of the measures provided for in the Memorandum of Understanding by Previ's Decision-Making Council, the Bank recorded, as of November 30, 2010, under "Fundos de Destinação - Previ", the amount of R$ 7,519,058 thousand against the write-off of the amount from "Other receivables - Actuarial assets", adjusted by the actuarial target (INPC + 5% p.a.). e.3) Fundo de Contribuição The fund is composed of resources transferred from the Fundo de Destinação to support the interruption of contribution payments for a period of three years, as established in the Memorandum of Understanding. The amount related to the Bank s contributions is transferred to Previ, in a monthly basis. The Fundo de Contribuição is updated by an actuarial goal (INPC + 5% p.a.). e.4) Fundo de Utilização The fund is composed of resources transferred from the Fundo de Destinação and it can be used by the Bank after fulfilling the requirements established by applicable law. The Fundo de Utilização is updated by an actuarial goal (INPC + 5% p.a.). f) Effects, in Plano Informal, of the migration of Grupo Especial from Plano Informal to Plano de Benefícios 1 Previ: Before reduction Gain with reduction After reduction Net present value of obligation 2,090,104 (999,087) 1,091,017 Fair value of plan assets Subtotal 2,090,104 (999,087) 1,091,017 Non recongnized actuarial gain / (loss) (403,550) 294,449 (109,101) Net liability recognized in the balance sheet 1,686,554 (704,638) 981, Contingent Liabilities and Legal Obligations Taxes and Pension Plan Labor Lawsuits The Bank is a party to labor litigations mainly filed by former employees or trade unions of the banking industry. Allowance for probable losses represent various claimed requests, such as: compensation, overtime, distortion of the working day, additional function and representation, and others. Tax Lawsuits The Bank is subject to challenges by the tax authorities in relation to taxes, which can give rise to notice assessments with the subject matter of jurisdiction or the sum of taxable income or deductible expense. Most of the lawsuits originating from tax assessment notices relate to ISSQN (Service tax), CPMF (Temporary Contribution on Financial Transactions), CSLL (Social Contribution on Net Income), IRPJ (Corporation Income Tax), IOF (Tax on credit, exchange and insurance operations or transactions related to securities) and welfare contributions to INSS (National Institution of Social Insurance). As guarantee for some of them, there are attachments in cash or in properties, when necessary. Civil Lawsuits Among the civil litigations, those which are related to the collection of the difference between inflation correction of financial investments and judicial deposits related to the period of economic plans (Bresser, Verão and Collor I and II Plans) can be detached. Through the judgment of the ADPF 165 (Arguição de Descumprimento de Preceito Fundamental Complaint of noncompliance of fundamental precept), Supremo Tribunal Federal (STF, the Supreme 26/02/ :50 121

257 Notes to the financial statements Court) has adjourned the actions involving these economic plans on the financial investments which are at the appeal stage. a) Contingent Liabilities Probable In compliance with the CMN Resolution No. 3,823/2009, the Bank makes allowance for labor, civil and tax lawsuits that have risk of probable losses. Changes in the provisions for civil, tax and labor claims classified as probable Banco do Brasil BB-Consolidated 2nd half/ nd half/ Labor lawsuits Initial Balance 2,339,205 2,340,058 2,462,390 2,603,883 2,514,536 2,538,036 Addition 617,679 1,038, , ,901 1,315, ,084 Reversal of the provision (53,799) (140,999) (224,698) (58,714) (149,451) (227,447) Written off due payment (464,285) (876,575) (551,527) (465,221) (881,044) (552,213) Price level correction 58, , ,458 58, , ,611 Amounts added/merged (1) ,058 9,058 53,465 Closing Balance 2,496,821 2,496,821 2,340,058 2,945,490 2,945,490 2,514,536 Tax lawsuits Initial Balance 110, , ,377 1,460,755 1,400,444 1,260,923 Addition 68, ,048 32, , , ,367 Reversal of the provision (35,859) (138,192) (56,162) (36,927) (151,281) (66,047) Written off due payment (7,962) (18,814) (13,077) (7,962) (18,814) (13,077) Price level correction 4,573 7,595 6,352 26,738 62,423 71,656 Change in equity interest held in associated (2) (237,556) companies Amounts added/merged (1) ,017 13, ,178 Closing Balance 140, , ,943 2,020,124 2,020,124 1,400,444 Civil lawsuits Initial Balance 3,724,973 3,244,433 3,464,569 3,987,095 3,473,970 3,594,694 Addition 763,982 1,968, , ,271 2,050, ,108 Reversal of the provision (268,816) (546,636) (433,245) (296,341) (585,653) (456,787) Written off due payment (399,616) (939,098) (620,022) (409,156) (954,546) (635,995) Price level correction 125, , , , , ,065 Amounts added/merged (1) ,885 Closing Balance 3,945,650 3,945,650 3,244,433 4,208,172 4,208,172 3,473,970 Total Labor, Tax and Civil 6,583,051 6,583,051 5,749,434 9,173,786 9,173,786 7,388,950 (1) In the first half 2011, it refers to the balance from Banco Patagonia and from companies that make up the BB-Mapfre partnership in the line of insurance, and, in the third quarter 2012, it refers to the balance from IBI Promotora. (2) Related to changes in equity interest held in non-financial associated companies. 122

258 Notes to the financial statements b) Contingent Liabilities Possible The labor, tax and civil lawsuits classified as "possible" risk are dispensed from making allowance, according to the CMN Resolution No. 3,823/2009. The balances of contingent liabilities classified as possible Banco do Brasil BB-Consolidated Labor claims 54, ,530 90, ,115 Tax Claims (1) 3,987,389 2,914,842 5,032,809 4,092,203 Civil claims 2,874,457 3,754,877 3,434,338 4,294,798 Total 6,916,751 6,777,249 8,557,868 8,527,116 (1) The main contingencies originate from (i) notices of labor infraction drawn by the INSS, aiming at the payment of contributions applicable on year-end bonuses paid in the collective agreements in the period from 1995 to 2006, in the amount of R$ 1,226,136 thousand, public transport pay and use of private car by employees of Banco do Brasil, in the amount of R$ 178,789 thousand and employee profit sharing corresponding to the period from April 2001 to October 2003, in the amount of R$ 29,271 thousand and (ii) notices of tax assessment drawn by the Treasuries of the Municipalities, aiming at the collection of ISSQN, which amounts R$ 469,355 thousand. c) Deposits in Guarantee of Funds Deposits in guarantee balances recorded for contingencies Banco do Brasil BB-Consolidated Labor claims 2,656,350 2,488,543 2,716,708 2,522,179 Tax claims 4,887,934 4,433,333 6,514,284 5,915,700 Civil claims 4,384,318 3,574,259 4,681,155 3,749,986 Total 11,928,602 10,496,135 13,912,147 12,187,865 d) Legal Obligations The Bank has a record in Other Liabilities - Tax and Social Security, of the amount of R$ 13,073,718 thousand (R$ 12,754,899 thousand on ) at Banco do Brasil and R$ 13,881,845 thousand (R$ 13,516,326 thousand on ) in BB-Consolidated, relating to the following actions: Judicial Proceeding: Income and Social Contribution Taxes In February 1998, the Bank applied for a writ of mandamus, in progress at the 16th Federal Court of Federal District claiming full compensation of accumulated losses of income tax and negative basis for the calculation of Social Contribution on Net Income (CSLL). Since then, the Bank has been fully offsetting tax loss and negative basis of social contribution against income tax and social contribution, by making judicial deposits of the amount due (70% of the compensated amount). These deposits prompted the 16th Federal Court of Federal District to issue an order recognizing the suspension of chargeability of these taxes until final judgment of the Bank's request, based on article 151, item II, of the Código Tributário Nacional (CTN). The case was dismissed in a first instance and an appeal brought by the Bank was denied by the Tribunal Regional Federal (TRF) of the 1st Region. The decision was challenged by extraordinary appeal filed by the Bank on Today, the appeal is pending in the TRF of the 1st Region, the judgment by the Supreme Court of another extraordinary feature (RE No 591,340), which was recognized by the Supreme Court because the general impact. The offsetting of tax loss carry forward and recoverable CSLL has resulted in the write-off of deferred tax credits, observing the limitation of 30%. Deferred taxes including corporate income tax (IRPJ) and social contribution on net income (CSLL) on the interest and inflation adjustment of judicial deposits are being offset with the tax credits resulting from the provision related to that judicial deposit, in compliance with paragraph 2, item II, article 1 of CMN Resolution n.º 3,059/2002, with no impact on income. Based on the hypothesis of a successful outcome to its lawsuit, observed as of September 2005 and January 2009, the Bank would have consumed the entire stock of tax loss carry forward and recoverable social contribution, respectively. Therefore, since the accrual period of October 2005 and 123

259 Notes to the financial statements February 2009, the amount of IRPJ and CSLL are being paid in full. Moreover, there would be a transfer of resources from the account used to record judicial deposits to that of cash and cash equivalents. Tax credits for the judicial deposits (principal) would be written off against the allowance of IRPJ and CSLL and would be reversed against income, the provision for tax risks related to the interest and inflation adjustment of the deposits, amounting to R$ 4,597,399 thousand. If the Bank were unsuccessful in its lawsuit (situation in which the amounts deposited judicially would be converted into income in favor of the National Treasury), the portions of IRPJ tax credits on tax losses and CSLL to offset would be reclassified to the representative asset account "IRPJ recoverable" and "CSLL recoverable", respectively, that could be used since the accrual period of October 2005 and February 2009, observing the limitation of 30%. These taxes recoverable, which would result from the adjustments of Statements of Economic-Fiscal Information of Businesses, corresponds to R$ 4,615,127 thousand on and its updating by the Selic Rate corresponds to R$ 1,355,256 thousand. This sum adjusts the provision for tax risks with respect to the updating of judicial deposits so that it will be sufficient to fully cancel the risk of a likely loss. The amounts related to this matter Legal Obligations - Provision for lawsuit 12,428,627 12,153,757 Judicial Deposits 13,986,906 13,348,256 Amount realized 7,817,011 7,817,011 Interest and inflation adjustment 6,169,895 5,531,245 The amount of tax credits corresponding to the 70% portion 6,585,045 6,585,045 Tax losses of IRPJ 3,002,033 3,002,033 CSLL negative bases/ CSLL recoverable 3,583,012 3,583,012 Judicial Proceeding: PIS/Pasep and Cofins Provision for lawsuit relating to the writ of mandamus intended to achieve recognition of the right of Banco do Brasil, BB Corretora, Ativos S.A. and Banco Votorantim to pay PIS/Pasep and Cofins according to the calculation bases set out in Complementary Laws nº. 7/1970 and nº. 70/1991, recorded in Banco do Brasil the amount of R$ 645,091 thousand (R$ 601,142 thousand on ) and R$ 1,453,218 thousand in BB-Consolidated (R$ 1,362,569 thousand on ), considering R$ 806,068 thousand from Banco Votorantim. Since the injunctions were suspended on , Banco do Brasil and BB Corretora returned to collect the PIS/Pasep and Cofins from the event of July 2010 as provided for in Law nº. 9,718/1998. The legal actions of Banco Votorantim, which concerns only to Cofins, had favorable judgments. The opposing party presented the necessary appeals, that now depend on decision of the Courts, especially STF decision Risk Management and Regulatory Capital a) Risk Management Process Banco do Brasil considers the management of risks one of the main vectors for the decision-making process. In the Banco do Brasil, collegiate risk management is performed completely apart from the business units. Risk management policies are approved by the Bank's Board of Directors. The Global Risk Committee (CRG), which is a discussion group composed by the President and by Vice-Presidents, is responsible for implementing and monitoring of these policies. The guidelines issued by the CRG are directed at specific sub-committees (Credit, Market and Liquidity and Operational), which are groups formed by Directors. To find out more about the risk management process at Banco do Brasil, access the website bb.com.br/ri. b) Credit Risk Credit Risk is associated with the possibility of loss resulting from uncertainty regarding the receipt of amounts agreed upon with borrowers, counterparts of contracts or issues of securities. 27/02/ :37 124

260 Notes to the financial statements In order to comply with the best practices of credit risk management and to increase efficiency in the economic capital management, Banco do Brasil uses risk and return metrics, present throughout its loan process, as a mechanism of risk management culture at the Institution. c) Liquidity Risk Liquidity risk takes two forms: market liquidity risk and cash flow liquidity risk (funding). The first is the possibility of loss resulting from the incapacity to perform a transaction in a reasonable period of time and without significant loss of value. The second is associated with the possibility of a shortage of funds to honor commitments assumed on account of the mismatching between assets and liabilities. d) Operational Risk Operational risk reflects the possibility of loss resulting from faults, deficiencies, or the inadequacy of internal processes, personnel and systems, or external events. This concept includes legal risks. e) Market Risk Market Risk reflects the possibility of loss that can be caused by changes in the behavior of interest and exchange rates and of prices of shares and commodities. Financial Instruments Fair Value Financial instruments recorded in balance-sheet accounts, compared to fair value: BB- Consolidated Unrealized gain/(loss), net of tax effects Book Value Fair Value Book Value Fair Value On Income On Stockholders Equity Assets Short-term interbank investments 219,323, ,239, ,287, ,287,194 (83,471) (612) (83,471) (612) Securities 182,942, ,985, ,833, ,693,437 1,457, ,295 42,828 (139,736) Adjustment of securities available for sale (Note 8.a) Adjustment of securities held to maturity (Note 8.a) ,414, , ,828 (139,736) 42,828 (139,736) Derivative financial instruments 1,414,580 1,414,580 1,396,700 1,396, Loan operations 469,712, ,589, ,045, ,158,229 (1,122,761) 113,184 (1,122,761) 113,184 Liabilities Interbank deposits 16,568,656 16,629,535 14,450,354 14,673,099 (60,879) (222,745) (60,879) (222,745) Time deposits 263,012, ,911, ,808, ,922, ,569 (113,154) 101,569 (113,154) Liabilities related to repurchase agreement 225,786, ,402, ,175, ,155, ,025 19, ,025 19,767 Borrowings and onlendings 77,687,149 77,729,376 63,350,471 63,280,538 (42,227) 69,933 (42,227) 69,933 Derivative financial instruments 3,439,482 3,439,482 3,620,655 3,620, Other liabilities 229,155, ,277, ,767, ,761, ,575 6, ,575 6,369 Unrealized gain/(loss), net of tax effects 1,512, ,037 97,659 (266,994) Determination of Fair Value of Financial Instruments Short-term interbank investments: The fair value was obtained by discounted future cash flows, using interest rates exercised by the market in similar operations in the balance sheet date. Securities: Securities are accounted for by market value, as provided for in Bacen Circular nº 3,068/2001, except for securities held to maturity. The securities fair value, including those held to maturity, were obtained according to rates collected at the market. 125

261 Notes to the financial statements Loan operations: Fixed rate operations have been estimated through the future cash flow discount method, considering the interest rates utilized by the Bank for contracting of similar operations at the balance sheet date. For these operations that are remunerated by floating rates, the fair value was equivalent to the book value itself. Interbank deposits: The fair value has been calculated through discount of the difference between future cash flows and rates currently applicable in the fixed operations market. In case of floating operations which maturities did not exceed 30 days, the book value was deemed equivalent to the fair value. Time deposits: The same criteria adopted for interbank deposits were utilized in the determination of the fair value. Money Market Borrowing: For operations at fixed rates, the fair value was determined calculating the discount of the estimated cash flows adopting a discount rate equivalent to the rates applicable in contracting of similar operations in the last market day. For floating operations, book values have been deemed equivalent to market value. Borrowing and onlendings: Such operations are exclusive to the Bank, without similarity in the market. In face of their specific characteristics, exclusive rates for each fund entered, inexistence of an active market and similar instrument, the fair values of such operations were considered equivalent to the book value. Other liabilities: Fair values have been determined by the discounted cash flow method, which takes into account interest rates offered in the market for obligations for which maturities, risks and terms are similar. Other financial instruments: Included or not in the balance sheet, fair value was approximately equivalent to the correspondent book value. Derivatives: According to Bacen Circular nº 3,082/2002, derivatives are recorded at market value. Derivatives' market value was estimated in accordance with an internal pricing model, with the use of the rates disclosed for transactions with similar terms and indices on the fiscal years' last business day. Level of information regarding assets and liabilities measured at fair value in the balance sheet According to the level of information in the measurement at fair value, the assessment techniques used by the Bank are the following: Level 1 Prices used are quoted in active markets for identical financial instruments. A financial instrument is considered quoted in an active market if the quoted prices are readily and regularly available and these prices represent real market transactions which occur regularly on an arm's length basis. Level 2 Other available information, excepted that from Level 1, is used, in which the prices are quoted in non-active markets or for similar assets and liabilities, or other available information is used or that can be corroborated by information observed in the market to support the assessment of the assets and liabilities. Level 3 Information that is not available in the market is used in the definition of the fair value. If the market for the financial instrument is not active, the Bank establishes the fair value using the valuation technique which takes into account internal data that is consistent with the economic methodologies accepted for pricing of financial instruments. 126

262 Notes to the financial statements Assets and liabilities measured at fair value in the balance sheet Balance at Level 1 Level 2 Level 3 Assets 171,447, ,356,266 56,289, ,375 Trading securities, measured by market value 74,711,317 55,657,463 19,053,854 - Derivative financial instruments 1,414,579-1,413, Available-for-sale securities, measured by market value 95,321,417 58,698,803 35,822, ,437 Liabilities 8,454,365-8,454, Hedge funding 5,014,884-5,014,884 - Derivative financial instruments 3,439,481-3,439, Balance at Level 1 Level 2 Level 3 Assets Trading securities, measured by market value 63,257,425 46,662,817 16,594, Derivative financial instruments 1,396, ,396, Available-for-sale securities, measured by market value 88,385,009 59,415,292 28,125, ,218 Liabilities Hedge funding 4,040,513 2,591,380 1,449, Derivative financial instruments 3,620, ,615,931 4,724 Changes on financial assets and liabilities measured at fair value in the balance sheet, classified as Level Assets Opening balance Acquisitions Write-offs Income Closing balance Trading securities, measured by market value Derivative financial instruments Available-for-sale securities, measured by market value 1,306,537 61,744 (529,579) (38,265) 800,437 Liabilities -- Derivative financial instruments 16, (16,230) 52 Assets Opening balance 2011 Acquisitions Write-offs Income Closing balance Trading securities, measured by market value 206, (206,140) Derivative financial instruments 186, (186,380) Available-for-sale securities, measured by market value 941, ,040 (340,530) (29,052) 844,218 Liabilities Derivative financial instruments 152, (149,056) 1,740 4,724 Sensitivity analysis (CVM Instruction nº 475/2008) The Banco do Brasil manages its risks in a dynamic process, identifying, assessing, monitoring, and controlling market risk exposure in its own position. In this context, the Bank takes into account the risk limits defined by the Strategic Committees and possible scenarios, to act in a timely manner in reversing any occasional adverse results. 127

263 Notes to the financial statements In accordance with CMN Resolution nº 3,464/2007 and with Bacen Circular nº 3,354/2007, to manage more efficiently its transactions exposed to market risks, Banco do Brasil separates its transactions, including derivative financial instruments, as follows: 1) Trading Book: consisting of own positions held for trading or as a hedge for its trading portfolio, for which there is an intention of trading prior to their contractual expiry, subject to normal market conditions and that do not have a non-trading clause. 2) Banking Book: consisting of transactions not classified in the Trading Book whose feature is held to maturity. The sensitivity analysis for all the operations with assets and liabilities of the Balance Sheet, in compliance with CVM Instruction nº 475/2008 does not adequately reflect the market risk management process and the best practices adopted by the Institution In order to determine the sensitivity of the Bank's capital to the impacts of market volatility (except Banco Votorantim capital), simulations were performed with three likely scenarios, two of which with an adverse effect for the Bank. The scenarios used are listed below: Scenario I: Likely situation, which reflects the perception of the Bank s senior management, the scenario most likely to occur for a 3-month horizon, considering macroeconomic factors and market information (BM&FBovespa, Andima, etc.). Assumptions: exchange rate real/dollar of R$ 2.02 and raising the Selic rate to 7.25% per annum based on market conditions observed at Scenario II: Possible situation. Assumptions employed: parallel shock of 25.0% in the risk variables, based on market conditions observed on considering the worst losses by risk factor and, therefore, ignoring the relation dynamics of macroeconomic factors; Scenario III: Possible situation. Assumptions employed: parallel shock of 50.0% in the risk variables, based on market conditions observed on considering the worst losses by risk factor and thus ignoring the relation dynamics of macroeconomic factors. The tables below summarize the results for the Trading Portfolio (Trading), excluding Banco Votorantim's positions, composed of public and private securities, derivative financial instruments and funds obtained through commitment operations. Scenario I Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Maintenance -- Decrease 3,619 TMS and CDI coupons Risk of variation of interest rate coupons Decrease 101 Increase (39) IPCA coupon Risk of variation of price index coupons Maintenance -- Decrease 1,064 Foreign currency coupons (US Dollars) Risk of variation of foreign currency coupons Increase 102 Increase -- Exchange rates variation Risk of variation of exchange rates Decrease (1,830) Decrease (283) Scenario II Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Increase (25,630) Increase (7,354) TMS and CDI coupons Risk of variation of interest rate coupons Increase (4) Increase (29) IPCA coupon Risk of variation of price index coupons Increase (643) Increase (1,014) Foreign currency coupons (US Dollars) Risk of variation of foreign currency coupons Decrease (36) Decrease -- Exchange rates variation Risk of variation of exchange rates Decrease (46,676) Decrease (22,918) 128

264 Notes to the financial statements Scenario III Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Increase (50,692) Increase (14,871) TMS and CDI coupons Risk of variation of interest rate coupons Increase (7) Increase (58) IPCA coupon Risk of variation of price index coupons Increase (1,263) Increase (1,981) Foreign currency coupons (US Dollars) Risk of variation of foreign currency coupons Decrease (73) Decrease -- Exchange rates variation Risk of variation of exchange rates Decrease (93,351) Decrease (45,837) For transactions classified in the Banking Book, appreciations or depreciations resulting from changes in interest rates practiced in the market do not imply in a significant financial and accounting impact on the Bank's income. It s a result of the portfolio quality that is composed on large scale of loan operations (consumer credit, agribusiness, working capital, etc.); retail funding (demand, time, and savings deposits), and securities, which are recorded in the books according to the agreed on rates when contracting these operations. In addition, it should be pointed out that these portfolios have as their key feature the intention of holding the respective positions to maturity, and hence they are not subject to the effects of fluctuating interest rates, or the fact that such transactions are naturally related to other instruments (natural hedge), hence minimizing the reflexes of a stress scenario. The tables below show a summary of the Trading Portfolio (Trading) and Non Trading (Banking), except from Banco Votorantim: Scenario I Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Maintenance -- Decrease 1,787,692 TR coupon Maintenance -- Decrease (2,928,968) TBF coupon Risk of variation of interest rate coupons Decrease (203) Decrease (671) TJLP coupon Increase 251,946 Decrease (248,336) TMS and CDI coupons Decrease (415,910) Increase 71,001 IGP-M coupon Maintenance -- Decrease 170,715 IGP-DI coupon Maintenance -- Decrease 280 Risk of variation of price index coupons INPC coupon Maintenance -- Decrease 405,481 IPCA coupon Maintenance -- Decrease 46,853 Foreign Currency Coupon Risk of variation of foreign currency coupons Increase 652,328 Increase 519,294 Exchange rate Risk of variation of exchange rates Decrease (13,634) Decrease (5,236) Scenario II Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Increase (6,451,975) Increase (3,562,867) TR coupon Decrease (5,238,026) Decrease (5,154,022) TBF coupon Risk of variation of interest rate coupons Decrease (137) Decrease (290) TJLP coupon Decrease (252,037) Decrease (205,023) TMS and CDI coupons Decrease (32,793) Decrease (102,427) IGP-M coupon Increase (120,834) Increase (168,062) IGP-DI coupon Increase (53) Increase (323) Risk of variation of price index coupons INPC coupon Increase (89,503) Increase (418,739) IPCA coupon Increase (17,295) Increase (45,617) Foreign Currency Coupon Risk of variation of foreign currency coupons Decrease (424,401) Decrease (710,749) Exchange rate Risk of variation of exchange rates Decrease (347,656) Decrease (423,350) 129

265 Notes to the financial statements Scenario III Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Increase (12,346,186) Increase (6,877,667) TR coupon Decrease (10,732,274) Decrease (10,669,317) TBF coupon Risk of variation of interest rate coupons Decrease (275) Decrease (582) TJLP coupon Decrease (509,781) Decrease (418,286) TMS and CDI coupons Decrease (65,597) Decrease (204,955) IGP-M coupon Increase (233,218) Increase (316,569) IGP-DI coupon Increase (106) Increase (643) Risk of variation of price index coupons INPC coupon Increase (177,352) Increase (821,008) IPCA coupon Increase (25,394) Increase (87,822) Foreign Currency Coupon Risk of variation of foreign currency coupons Decrease (860,419) Decrease (1,446,248) Exchange rate Risk of variation of exchange rates Decrease (695,312) Decrease (846,700) The scenarios used for preparing the framework of sensitivity analysis must use situations of deterioration of at least 25% and 50% for variable risk, in a individuallized basis, as determined by CVM Instruction nº 475/2008. Thus, the combined analysis of the results is impaired. For example, simultaneous shocks of increase in the prefixed interest rate and reduction of TR Coupon are not consistent from the macroeconomic perspective. The derivative transactions classified in the Banking Book, don t represent a relevant market risk to Banco do Brasil, as these positions originated mainly to fulfill the following situations: Changing the index of funding and lending transactions performed to meet customer needs; Market risk hedge, which purpose and effectiveness are described in Note 8.d. Also in this transaction, the interest and exchange rate variations have no effects on the Bank's income. On , the Banco do Brasil did not enter into any transaction classified as an exotic derivative, as described in CVM Instruction nº 475/ Attachment II. Interest in Banco Votorantim Banco Votorantim, in the first half of 2011, revised the criteria for classification of operations, which resulted in the migration of part of its trading book positions for non-trading. Thus, the sensitivity analysis of the positions regarding to the participation of Banco do Brasil in Banco Votorantim considers the trading and non-trading book together and the trading book in a segregated way. Simulations were also made with three possible scenarios, two of which with consequent adverse result, as follows: Scenario I: Likely situation, which reflects the perception of the Banco Votorantim senior management in the scenario most likely to occur. Assumptions employed: exchange rates real/dollar from R$ 2.07 and the Selic rate of interest 6.50% per year to Scenario II: Assumptions: parallel shock of 25% in the risk variables, based on market conditions observed on and considering the worst losses by risk factor and, therefore, ignoring the relation dynamics of macroeconomic factors; Scenario III: Assumptions: employed parallel shock of 50% in the risk variables, based on market conditions observed on and considering the worst losses by risk factor and therefore ignoring the relation dynamics of macroeconomic factors. In the tables below are presented the results for the positions of the Bank for its participation in Banco Votorantim: 130

266 Notes to the financial statements Scenario I Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Decrease 8,508 Decrease 16,682 Foreign currency coupons Risk of variation of foreign exchange coupon Maintenance -- Maintenance -- Foreign exchange fluctuation Risk of variation of exchange rates Decrease 3,986 Increase 1,395 Price Indexes Risk of variation of price index coupons Increase 1,177 Increase 130 Other Risk of variation of other coupons Maintenance -- Decrease (487) Scenario II Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Increase (13,281) Increase (37,944) Foreign currency coupons Risk of variation of foreign exchange coupon Increase (2,830) Increase (923) Foreign exchange fluctuation Risk of variation of exchange rates Increase (116,098) Increase (91,152) Price Indexes Risk of variation of price index coupons Decrease -- Decrease (315) Other Risk of variation of other coupons Increase (12,731) Increase (13,204) Scenario III Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Increase (35,578) Increase (87,694) Foreign currency coupons Risk of variation of foreign exchange coupon Increase (5,518) Increase (1,813) Foreign exchange fluctuation Risk of variation of exchange rates Increase (245,147) Increase (428,656) Price Indexes Risk of variation of price index coupons Decrease (9) Decrease (741) Other Risk of variation of other coupons Decrease (27,622) Increase (47,152) In the tables below are presented the results for the positions of the Bank for its participation in Banco Votorantim of the trading and non-trading book: Scenario I Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Decrease 134,287 Decrease 188,936 Foreign currency coupons Risk of variation of foreign exchange coupon Maintenance -- Increase (4,044) Foreign exchange fluctuation Risk of variation of exchange rates Decrease (1,702) Increase 2,190 TJLP Risk of variation of TJLP coupons Increase -- Maintenance -- TR/TBF Risk of variation of TR/TBF coupons Maintenance -- Maintenance -- Price Index Risk of variation of price index coupons Maintenance (4,178) Increase 1,

267 Notes to the financial statements Scenario II Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Increase (199,726) Increase (431,632) Foreign currency coupons Risk of variation of foreign exchange coupon Increase (4,896) Increase (16,839) Foreign exchange fluctuation Risk of variation of exchange rates Decrease (65,478) Increase (96,182) TJLP Risk of variation of TJLP coupons Decrease (3,614) Decrease (1,987) TR/TBF Risk of variation of TR/TBF coupons Decrease (38) Decrease (605) Price Index Risk of variation of price index coupons Increase (5,579) Decrease (2,649) Scenario III Risk Factor Concept Variation of rates Income Variation of rates Income Prefixed rate Risk of variation of prefixed interest rates Increase (512,460) Increase (1,003,137) Foreign currency coupons Risk of variation of foreign exchange coupon Increase (9,550) Increase (29,240) Foreign exchange fluctuation Risk of variation of exchange rates Decrease (133,102) Increase (441,553) TJLP Risk of variation of TJLP coupons Decrease (7,316) Decrease (4,100) TR/TBF Risk of variation of TR/TBF coupons Decrease (77) Decrease (1,206) Price Index Risk of variation of price index coupons Increase (6,894) Decrease (5,880) f) Regulatory Capital The BIS Ratio was determined in accordance with the criteria established by CMN Resolutions n.º 3,444/2007 and n.º 3,490/2007, which refer to the calculation of the Referential Equity (RE) and of the Required Referential Equity (RRE), respectively, without considering the information relating to Banco Votorantim as determined by Bacen. 132

268 Notes to the financial statements Economic and Financial Financial Economic and Financial Financial RE - Referential equity 107,925, ,285,842 80,481,841 82,154,035 Tier I 76,769,399 77,099,943 60,615,163 60,791,381 Shareholders' equity 66,069,965 66,350,927 58,416,370 58,592,587 Revaluation reserves (4,645) (4,644) (4,731) (4,730) Deferred Assets (110,795) (110,795) (164,671) (164,671) Mark-to-market (700,536) (700,536) (350,594) (350,594) Tax credits excluded from Tier I (106) (106) Hybrid Capital and Debt Instruments (1) 11,515,410 11,564,991 2,718,895 2,718,895 Tier II 36,074,411 36,024,829 24,877,818 24,877,817 Mark-to-market 700, , , ,594 Hybrid Capital and Debt Instruments (1) 2,968,652 2,919, Revaluation reserves 4,645 4,644 4,731 4,730 Subordinated Debt Qualifying as Capital 32,400,578 32,400,578 24,522,493 24,522,493 Funds obtained from the FCO 16,602,973 16,602,973 14,771,005 14,771,005 Funds obtained abroad 6,001,028 6,001,028 4,228,367 4,228,367 Funds obtained from the CD 1,615,433 1,615,433 2,337,638 2,337,638 Funds raised in Financial Bills 8,181,144 8,181,144 3,185,483 3,185,483 Deduction from the RE (4,918,664) (3,838,930) (5,011,140) (3,515,163) Financial instruments excluded from RE (4,918,664) (3,838,930) (5,011,140) (3,515,163) RRE - Required Referential Equity 80,034,881 79,435,474 63,326,079 62,528,344 Credit risk 76,076,547 75,730,245 59,802,205 59,260,188 Market Risk 207, ,377 90,442 90,442 Operational Risk 3,750,957 3,497,852 3,433,432 3,177,714 Sufficiency of RE: (RE RRE) 27,890,265 29,850,368 17,155,762 19,625,691 BIS Ratio: (RE x 100) / (RRE / 0.11) 14.83% 15.13% 13.98% 14.45% (1) According to CMN Resolution n.º 3,444/2007, Hybrid Capital and Debt Instruments authorized by Bacen to compose Tier I of the RE are limited to 15% (fifteen percent) of the total of Tier I, including the value of the Hybrid Capital and Debt Instruments itself. The values of the Hybrid Capital and Debt Instruments that may exceed that limit are added to Tier II of the RE. g) Fixed asset ratio The Fixed Asset Ratio is 25.85% of the Referential Equity-RE (27.19% on ) for the Consolidated Financial Report, and 21.64% (22.11% on ) for the Consolidated Economic and Financial Report, in compliance with CMN Resolution n.º 2,669/1999. The difference between the Fixed Assets Ratio of Consolidated Financial and Economic-Financial is the result of the inclusion of non-financial subsidiaries / affiliates that have high liquidity and low level of restraint, wich consequently reduces the Fixed Assets Ratio of Consolidated Financial and Economic. 133

269 Notes to the financial statements 30 Statement of Comprehensive Income Banco do Brasil BB-Consolidated 27/02/ :37 2nd half/ nd half/ Net income presented in the Statement of Income 6,753,930 12,309,870 12,247,330 6,695,004 12,205,120 12,125,990 Other comprehensive income / (loss) Accumulated other comprehensive income (Note 8.f) 103, , , , , ,852 Own (106,587) (141,730) (54,938) (106,587) (141,729) (54,938) Branches and subsidiaries abroad 302, , , , , ,830 Subsidiaries and affiliates (92,614) 418,414 (112,040) (92,614) 418,414 (112,040) Income and social contribution taxes related to unrealized (gains) / losses (Note 8.f) 78,554 (107,574) 67,555 78,554 (107,574) 67,555 Other comprehensive profit / (loss), net of income and social contribution taxes 182, , , , , ,407 Comprehensive income Banco do Brasil 6,936,035 13,006,382 12,503,737 6,877,109 12,901,632 12,382,397 Comprehensive income Non-controlling interests (81,294) (155,778) (93,131) 31 Other Information a) Distribution of Dividends and Interest on Own Capital During a meeting held on , the Board of Directors approved the setting of the payout rate equivalent to the minimum 40% of net income, for the year 2012, fulfilling the policy for payment of dividends yield and/or interest on own capital on a quarterly basis, pursuant to art. 43 of the Bank's By-Laws. b) Banco Postal Since , the Bank has had access to Correios (Brazilian Postal and Telegraph Corporation) agencies chain, with about 6.3 thousand service points located at 95% of Brazilian municipalities. Through this investment, the Bank anticipated its strategic plan of increasing its service points to achieve all the Brazilian municipalities. c) Investment Funds Management Position of investment funds managed by BB Gestão de Recursos - Distribuidora de Títulos e Valores Mobiliários S.A. 27/02/ :37 N o of Funds/Portfolios Balance () Managed funds ,022, ,792,780 Investment Funds ,833, ,844,665 Managed Portfolios ,189,443 11,948,115 d) Constitution of Real Estate Investment Fund In August 2012, the Bank subscribed 100% of the shares from BB Progressivo II Fundo de Investimento Imobiliário (FII), managed by Votorantim Asset Management (VAM). The Bank paid these shares by cash payment and by property transfer of 64 real estate, with substantial transfer of the risks and rewards. In November 2012, through Secondary Public Offering of Distribution of FII shares, the Bank disposed all the fund shares. The result obtained in this negotiation was achieved and recognized on the date of 134

270 Notes to the financial statements the shares' sale, occasion that Banco do Brasil was no longer the main holder of the Fund's risks and rewards. Effects of the real estate transfer to FII in the Bank's result: Banco do Brasil and BB-Consolidated Market value of real estate transferred to FII 1,402,469 Carrying amount of real estate transferred to FII (299,477) Profit before taxation 1,102,992 Income tax and social contribution (441,197) Net income 661,795 e) Details of branches, subsidiaries and associated abroad Banco do Brasil BB-Consolidated Assets BB Group 42,469,895 26,302,917 37,168,271 23,535,468 Third parties 72,412,267 51,529,172 87,178,714 62,051,334 Total assets 114,882,162 77,832, ,346,985 85,586,802 Liabilities BB Group 26,662,409 14,927,245 22,991,955 12,325,721 Third parties 83,453,373 59,457,189 93,863,535 67,619,119 Stockholders' equity 4,766,380 3,447,655 7,491,495 5,641,962 Attributable to parent company 4,766,380 3,447,655 6,917,391 5,198,093 Non-controlling interest , ,869 Total liabilities 114,882,162 77,832, ,346,985 85,586,802 2nd half/ nd half/ Income (loss) 323, , , , , ,051 Attributable to parent company 323, , , , , ,939 Non-controlling interest , ,049 93,112 f) Consortium funds Monthly forecast of Purchase Pool Members receivable funds 138, ,458 Obligations of the group due to contributions 7,454,133 7,450,510 Purchase Pool Members - assets to be contemplated 6,941,366 7,026,937 (In units) Quantity of groups managed Quantity of active purchase pool members 400, ,990 Quantity of assets deliverable to members (drawn or winning offer) 22,205 16,307 Quantity of assets delivered in the period 70,419 55,

271 Notes to the financial statements g) Assignment of Employees to Outside Agencies Federal government assignments are regulated by Law 10,470/2002 and Decree 4,050/ nd half/ Employees Ceded (1) Cost in the Period (R$ thousand) Employees Ceded (1) Cost in the Period (R$ thousand) Employees Ceded (1) Cost in the Period (R$ thousand) With costs for the Bank Federal Government ,854 Labor unions , , ,489 Other organizations/entities , ,036 Subsidiary and associated companies , Without cost to the Bank Federal, state and municipal governments External organizations (Cassi, FBB, Previ and Economus) Employee entities Subsidiary and associated companies Total 1,505 16,186 1,505 32,806 1,717 32,246 (1) Balance in the last day of the period. h) Remuneration of Employees and Managers Monthly wages paid to employees and Directors of the Banco do Brasil Lowest salary 1, , Highest salary 31, , Average salary 5, , Management President 55, , Vice-President 49, , Director 41, , Councilmembers Fiscal Council 4, , Board of Directors 4, , Audit Committee - Member 37, , R$ i) Insurance Policy of Assets Despite the reduced level of risk to which its assets are subject, the Bank contracts insurance cover for its assets in amounts considered sufficient to cover any losses. Insurance contracted by the Bank in force on Covered Risks Amounts Covered Value of the Premium Property insurance for the relevant fixed assets 925,195 3,315 Life insurance and collective personal accident for the Executive Board (1) Other 16, Total 942,688 3,622 (1) Refers to individual coverage for members of the Executive Board. j) Fundo Nacional de Aviação Civil (FNAC) Through Provisional Measure n o 600, dated , the federal government established that the FNAC resources for modernization, construction, expansion and renovation of public aerodromes can be managed by the Bank, directly or through its subsidiaries, as it was established in the act of Civil Aviation Secretariat of the Presidency of the Republic. 136

272 Notes to the financial statements The way to transfer the resources from FNAC to Banco do Brasil as well as its investments will be defined in a regulation. As a manager of the resources of FNAC, the Bank will hold a bidding process, and it can contract, on its own name or for the account of third parties, works and engineering services or any other specialized technical services. The Bank will be remunerated by its provided services, under the terms to be fixed in a joint act of ministers of Finance and Civil Aviation Secretariat of the Presidency of the Republic. 137

273 Banco do Brasil S.A. Financial Statements December 31, 2012 (a free translation of the original report in Portuguese containing financial statements prepared in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by Banco Central do Brasil)

274 KPMG Auditores Independentes SBS - Qd Bl. Q - Lote 03 - Salas 708 a 711 Edifício João Carlos Saad Brasília, DF - Brasil Caixa Postal Brasília, DF - Brasil Central Tel 55 (61) Fax 55 (61) Internet Report of Independent Auditors for Financial Statements To The Board of Directors, Shareholders and Management Banco do Brasil S.A. Brasília - DF We have audited the accompanying, individual and consolidated financial statements of Banco do Brasil S.A., which comprise the balance sheet as of December 31, 2012 and the related statements of income, of changes in stockholders' equity and of cash flows for the year and semester then ended, as well as the summary of significant accounting policies and other notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these individual and consolidated financial statements in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by Banco Central do Brasil, and for designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the Bank's preparation and fair presentation of the financial statements of Banco do Brasil S.A. in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of Banco do Brasil S.A.. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 2 KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative ( KPMG International ), uma entidade suíça. KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

275 Opinion In our opinion, the individual and consolidated financial statements referred to above present fairly, in all material respects, the financial position of Banco do Brasil S.A. at December 31, 2012, the financial performance of its operations and its cash flows for the year and semester then ended, in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by Banco Central do Brasil. Statement of value added We have also audited the individual and consolidated statement of value added (DVA), elaborated under the responsibility of the management of Banco do Brasil S.A., for the year and semester ended December 31, 2012, submission of which publicly-held companies are required to make according to Brazilian corporate law. This statement was subjected to the same audit procedures described above and, in our opinion, is presented fairly in all material respects in relation to the financial statements taken as a whole. Brasília, February 20, 2013 KPMG Auditores Independentes CRC 2SP014428/O-6 Original report in Portuguese signed by Giuseppe Masi Accountant CRC 1SP176273/O-7 Carlos Massao Takauthi Accountant CRC 1SP206103/O-4 3

276 Summary of the Audit Committee Report Introduction The Audit Committee of Banco do Brasil, statutory advisory body of the Board of Directors, has the following main duties: to revise the set of financial statements prior to publication and to assess the effectiveness of the internal control system and of the internal audit department and independent auditors. The Audit Committee s regulation is available at the website The Committee s field of activity comprises the Banco do Brasil Universal Bank and the following subsidiaries: BB DTVM Gestão de Recursos - Distribuidora de Títulos e Valores Mobiliários S.A., BB Banco de Investimento S.A., BB Leasing S.A. Arrendamento Mercantil; BB Administradora de Cartões de Crédito S.A., BB Administradora de Consórcios S.A. e Besc Distribuidora de Títulos e Valores Mobiliários S.A. The administrators of Banco do Brasil and its subsidiaries are responsible for preparing and assuring the integrity of the financial statements, for managing risks, for maintaining an effective internal control system and for monitoring compliance with applicable legal and regulatory requirements. The Internal Audit is independently accountable for the performance of systematic activities with the objective of contributing to the improvement of the business and risk management processes and to the effectiveness of the internal control system. KPMG Auditores Independentes is responsible for auditing the financial statements and for issuing an opinion on their adequacy in relation to the financial position in all the material respects, according to accounting practices adopted in Brazil applicable to institutions licensed to operate by the Brazilian Central Bank. It also evaluates, in the context of the audit work on the financial statements, the quality and adequacy of the internal control system and compliance with the legal and regulatory requirements. Operations Over the course of 2012, the Audit Committee held regular meetings, in compliance with its work plan approved by the Board of Directors, with the participation of representatives of management, the internal audit department and independent auditors, and with executives from the main areas of business, internal controls, risk management, accounting, legal, technology and treasury, besides internal work. At these meetings, the attention was focused on subjects related to the internal control system, accounting, risk and capital management processes, Basel Accords, technological solutions, asset management, contingencies, provisions, communication channel, External Ombudsman, external branches, and recommendations issued by the internal audit, independent auditors and by external inspection bodies. Maintained a dialogue with the internal audit and independent audit teams, on which occasions it considered their planning, learned the results of the main work and examined their conclusions and recommendations. The Committee revised the management reports, financial statements, notes to the financial statements and the independent auditor s reports. Where suggestions for improvement were observed, recommendations for improvement were made.

277 Conclusions Based on the activities developed in the period and having the duties and limitations inherent to the scope of its activities present, the Audit Committee concluded that: a. the internal control system is appropriate for the size and complexity of the Conglomerate s business and is subject to permanent attention from management; b. the internal auditor is effective and independent, as well as adequately reported to the Committee s request; c. the external auditors is effective and nothing was noted that would indicate noncompliance with applicable independence rules and regulations; d. the financial statements of the year ended at December 31, 2012 were prepared in compliance with the rules of law and with accounting practices adopted in Brazil, applicable to the institutions licensed to operate by the Brazilian Central Bank, and reflect, in all material respects, the financial situation on that date. Brasília-DF, February 20, Egidio Otmar Ames Coordinator Antônio Carlos Correia Henrique Jäger José Danúbio Rozo

278 DECLARATION OF THE BOARD OF DIRECTORS The Board of Directors of the Banco do Brasil S.A. declares that, in a meeting performed at this date, approved the summary of the Audit Commitee Report and, in compliance with the item V of Art. 142 of Law 6,404 of December 15, 1976, became aware and recommended the approval of the Director s accounts and of the Management s Report related to the fiscal year ended February 20, Nelson Henrique Barbosa Filho Aldemir Bendine Adriana Queiroz de Carvalho Bernardo Gouthier Macedo Henrique Jäger Sergio Eduardo Arbulu Mendonça

279 FISCAL COUNCIL REPORT THE FISCAL COUNCIL OF BANCO DO BRASIL S.A., according to its legal and statutory duties, have reviewed the management report and the financial statements, including the proposal concerning to result distribution related to the fiscal year ended December 31, 2012, which were approved by the Board of Directors at this date. Based on the exams performed, on information provided throughout the year and on the unqualified Independent Auditor s Report issued by KPMG Auditores Independentes, at this date, the Fiscal Council understand that the aforementioned documents are eligible to be submitted to the appreciation and approval of the Annual Meeting of Stockholder s. Brasília (DF), February 20, Anelize Lenzi Ruas de Almeida Member Clóvis Ailton Madeira Member Marcos Machado Guimarães Member Pedro Carvalho de Mello Member Paulo José dos Reis Souza President

280 Declaration of the Executive Board members about the Financial Statements According to the Art. 25 of CVM Instruction no. 480 of December 07, 2009, we declare that the Financial Statements of the Banco do Brasil related to the fiscal year ended December 31, 2012 were reviewed and, based on subsequent discussions, we agree that such statement fairly reflects, in all material facts, the financial position for the periods presented. Brasília (DF), February 19, Aldemir Bendine President Alexandre Corrêa Abreu Vice-president of Retail Business César Augusto Rabello Borges Vice-president of Government Geraldo Afonso Dezena da Silva Vice-president of Technology Ivan de Souza Monteiro Vice-president of Financial Management and Investors Relations Osmar Fernandes Dias Vice-president of Agribusiness and Small and Micro Companies Paulo Roberto Lopes Ricci Vice-president of Retail, Distribution and Operations Paulo Rogério Caffarelli Vice-president of Wholesale, International Business and Private Bank Robson Rocha Vice-president of Human Resources and Sustainable Development Walter Malieni Junior Vice-president of Internal Controls and Risk Management

281 Declaration of the Executive Board members about the Report of Independent Auditors According to Art. 25 of CVM Instruction no. 480 of December 07, 2009, we affirm based on our knowledge, on auditor s plan and on discussions about the audit results, that we agree, with no dissent, to the opinions expressed in the Report of Independent Auditors for Financial Statements of February 20, Brasília (DF), February 20, Aldemir Bendine President Alexandre Corrêa Abreu Vice-president of Retail Business César Augusto Rabello Borges Vice-president of Government Geraldo Afonso Dezena da Silva Vice-president of Technology Ivan de Souza Monteiro Vice-president of Financial Management and Investors Relations Osmar Fernandes Dias Vice-president Agribusiness and Small and Micro Companies Paulo Roberto Lopes Ricci Vice-president of Retail, Distribution and Operations Paulo Rogério Caffarelli Vice-president of Wholesale, International Business and Private Bank Robson Rocha Vice-president of Human Resources and Sustainable Development Walter Malieni Junior Vice-president of Internal Controls and Risk Management

282 MEMBERS OF THE MANAGEMENT BODIES PRESIDENT Aldemir Bendine VICE-PRESIDENTS Alexandre Corrêa Abreu César Augusto Rabello Borges Geraldo Afonso Dezena da Silva Ivan de Souza Monteiro Osmar Fernandes Dias Paulo Roberto Lopes Ricci Paulo Rogério Caffarelli Robson Rocha Walter Malieni Junior DIRETORS Adilson do Nascimento Anisio Admilson Monteiro Garcia Adriano Meira Ricci Antonio Mauricio Maurano Antonio Pedro da Silva Machado Carlos Alberto Araujo Netto Carlos Eduardo Leal Neri Clenio Severio Teribele Gueitiro Matsuo Genso Hayton Jurema da Rocha Hideraldo Dwight Leitão Ives Cézar Fülber Janio Carlos Endo Macedo José Carlos Reis da Silva José Mauricio Pereira Coelho Luiz Henrique Guimarães de Freitas Marcelo Augusto Dutra Labuto Márcio Hamilton Ferreira Marco Antonio Ascoli Mastroeni Marco Antonio da Silva Barros Marcos Ricardo Lot Nilson Martiniano Moreira Raul Francisco Moreira Sandro José Franco Sandro Kohler Marcondes BOARD OF DIRECTORS Nelson Henrique Barbosa Filho (Presidente) Aldemir Bendine Adriana Queiroz de Carvalho Bernardo Gouthier Macedo Henrique Jäger Sérgio Eduardo Arbulu Mendonça FISCAL COUNCIL Paulo José dos Reis Souza Anelize Lenzi Ruas de Almeida Clóvis Ailton Madeira Marcos Machado Guimarães Pedro Carvalho de Mello AUDIT COMMITTEE Egídio Otmar Ames Antônio Carlos Correia Henrique Jäger José Danúbio Rozo ACCOUNTING DEPT. Eduardo Cesar Pasa Contador Geral Contador CRC-DF /O-5 CPF Daniel André Stieler Contador CRC-DF /O-2 CPF

283