Performance Analysis 3Q08

Transcription

1 Performance Analysis 3Q08

2 This report makes references and statements about expectations, planned synergies, growth estimates, results forecasts and future strategies related to Banco do Brasil, its subsidiaries, associated companies and affiliates. Although these references and statements reflect what the managers believe, they may involve a lack of precision and risks that are hard to predict, therefore leaving room for results or consequences different from those anticipated and discussed here. These expectations are highly dependent on market conditions, on the general economic performance of the country, on the sector and on international markets. Banco do Brasil will not be held responsible for updating any estimate contained in this report. The tables and graphs from this report present financial figures rounded off in R$ million. The rounding used is in compliance with the rules established by the International System of Units (SI) and with Resolution 886/66 of Fundação IBGE: if the last digit is equal to or higher than 5, the last remained digit is increased by one unit; if the last digit is lower than 5, the last remained digit is decreased by one unit. Variations, both nominal and in percentage, were calculated using numbers in units.

3 Summary Index of Tables...5 Index of Figures...8 Presentation...11 Summary of Results Economic Environment BB Securities Shares Warrants Performance of the Shares Corporate Governance Other Information Summarized Financial Statements Summarized Balance Sheet Summarized Corporate Law Income Statement Income Statement with Reallocations Details of the Reallocations Balance Sheet Analysis Breakdown Analysis of Assets Liquidity Analysis Securities Portfolio Loan Portfolio Individual Loan Portfolio Business Loan Portfolio Agribusiness Loan Portfolio Tax Credits Analysis of Liabilities Deposits and Money Market Funding Foreign Borrowing Analysis of Results Net Interest Income Analysis of Investments Analysis of Funding Analysis of Volume and Spread Provision for Credit Risk Retail Loan Portfolio Commercial Portfolio Agribusiness Portfolio Foreign Trade Loan Portfolio Foreign Loan Portfolio and Others Income Fee Revenues from Checking Account Fees Asset Management Cards Collections...100

4 7.7 Administrative Expenses Personnel Expenses Other Administrative Expenses Distribution Network Automated Channels Productivity Coverage Ratios Net Value Added Risk Management Risk Management Market Risks Liquidity Risk Credit Risk Operating Risk Capital Structure Shareholders Equity Regulatory Capital Economic Capital Analysis of Consolidated Information Summary Financial Statements Balance Sheet Law Income Statement Statement with Reallocation Productivity Ratios Insurance, Pension Plans and Capitalization Income Statement by Line of Business Combined Ratio Brasilveículos Brasilsaúde Aliança do Brasil Brasilcap Brasilprev BB Previdência Financial Statements Summarized Balance Sheet Summarized Corporate Law Income Statement Income Statement with Reallocations...151

5 Index of Tables Table 1. Main Macroeconomic Indicators...24 Table 2. Shareholding Breakdown...26 Table 3. Distribution of Dividends/Interest on Own Capital...26 Table 4. Shareholders by Range of Shares Owned...27 Table 5. Free Float by Range of Shares Owned...27 Table 6. Breakdown of the Series C Warrant Holders...29 Table 7. Series C Warrants...29 Table 8. Expected Dilution of Capital...29 Table 9. Other Information...36 Table 10. Summarized Balance Sheet Assets...38 Table 11. Summarized Balance Sheet - Liabilities...39 Table 12. Summarized Corporate Law Income Statement...40 Table 13. Income Statement with Reallocations (R$ million)...41 Table 14. Reallocations Other Operating Income/Expenses...42 Table 15. Breakdown of Assets...46 Table 16. Liquidity Balance...47 Table 17. Securities Portfolio by Category...48 Table 18. Securities Portfolio by Maturity - Market Value...48 Table 19. Loan Portfolio...49 Table 20. Individual Loan Portfolio...51 Table 21. Business Loan Portfolio...52 Table 22. ACC/ACE Average Volume per Contract...52 Table 23. SME Credit Products...53 Table 24. Exports...55 Table 25. Agribusiness Loan Portfolio by Region...55 Table 26. Agribusiness Loan Portfolio by Purpose...56 Table 27. Agribusiness Loan Portfolio by Product...56 Table 28. Agribusiness Loan Portfolio by Financed Items...57 Table 29. Funds Released for the 07/08 Crop by Customer Size...57 Table 30. 3Q08 Estimated Payback Schedule...59 Table /2009 Crop Plan...60 Table 32. Breakdown of Tax Credit...61 Table 33. Liabilities...62 Table 34. Sources and Uses...63 Table 35. Compulsory Released New Resolutions...64 Table 36. Transactions Concerning Other Banks Loan Portfolio...65 Table 37. Foreign Borrowing...68 Table 38. Foreign Issues...68 Table 39. Net Interest Income...69 Table 40. Revenues from Loans Net of Exchange Impact (Res. 2,770)...69 Table 41. Analysis of Volume (Earning Assets) and Quarterly Spread 2Q08 and 3Q Table 42. Analysis of Volume (Earning Assets) and 9 Months Spread 9M07 e 9M Table 43. Margin, Net of Interest and Profit Margin...71 Table 44. Revenues from Loans Net of Exchange Impact (Res. 2,770)...72 Table 45. Securities Income...73 Table 46. Avg Balance of the BS accounts and info. on interest rates - Earning assets (quarterly)...74 Table 47. Avg Balance of the Bal. Sheet accounts and Info. on Int. rates Earning assets (9 months).74 Table 48. Avg Balances of the BS accounts and info. on int rates Int.Bearing Liabilities (quarterly)...75 Table 49. Avg Balances of the BS accounts and info. on interest rates Int. Bearing Liab. (9 months).76 Table 50. Int. increase and decrease (Inc. and Exp.) due to changes in Volume and Rates (quarterly).77 Table 51. Int. increase and decrease (Inc. and Exp.) due to changes in Volume and Rates (9 months).78 Table 52. Net Financial Margin...79

6 Table 53. Expenses with Allowance for Loan Losses over Portfolio...79 Table 54. Loan Portfolio by Level of Risk...80 Table 55. Deliquency Ratio - %...82 Table 56. Average Portfolio Risk...83 Table 57. Retail Loan Portfolio by Level Risk...84 Table 58. Changes in the Allowance - Retail...85 Table 59. Commercial Loan Portfolio by Level Risk...87 Table 60. Changes in the Allowance - Commercial...87 Table 61. Agribusiness Loan by Portfolio...88 Table 62. Changes in the Allowance - Agribusiness...88 Table 63. Portfolio With and Without Roll Over Agribusiness...89 Table 64. Foreign Trade Loan Porfolio by Level Risk...91 Table 65. Changes in Allowance Foreign Trade...91 Table 66. Foreign Loan Portfolio by Level Risk...92 Table 67. Other Transactions Portfolio...92 Table 68. Services Revenues...93 Table 69. Complaints Registered at Bacen...95 Table 70. Investment Funds and Managed Portfolios by Costumer...96 Table 71. Investment Funds and Managed Portfolios by Type...97 Table 72. Services Revenues from Cards...99 Table 73. Commercial Income Table 74. Personnel Expenses Table 75. Employee Training Table 76. Other Administrative Expenses Table 77. Distribution Network Table 78. Wholesale Pillar Branches Table 79. Distribution Network Abroad Table 80. Coverage Ratios Table 81. Net Value Added Table 82. Consolidated BB VaR Table 83. Foreign Network's VaR Table 84. Fixed Interest Rate Portfolio's VaR Table 85. VaR for the International Trading Table 86. VaR for the DomesticTrading Table 87. Sensitivity to Interest Rate Table 88. Concentration of the Loan Portfolio on the 100 Largest Borrowers Table 89. Concentration of the Loan Portfolio of the 100 th Largest Borrowers in relation to RE Table 90. Concentration of the Loan Portfolio by Macro-sector Table 91. Derivative Transactions Businesses Exposures Table 92. Monitoring of Operational Loss Table 93. Percentage of capital allocated, by business line, on , by the Alternative Standardized Approach Table 94. Shareholders Equity Table 95. BIS Ratio Table 96. BIS Ratio Economic-Financial Consolidated Table 97. Changes in Composition of BIS Ratio Table 98. Fixed Asset Ratio Table 99. Economic Capital Table 100. Distribution of Economic Capital in the Loan Portfolio Table 101. Interest in the capital of companies Table 102. Summarized Balance Sheet Table 103. Besc Summarized Balance Sheet Table 104. Corporate Income Statement Table 105. Reallocated Statement of Income Table 106. Eficiency Ratio %...142

7 Table 107. Coverage Ratio Table 108. Insurance, Pension Plans and Capitalization Table 109. Income Statement by Line of Business Table 110. Brasilveículos Data Table 111. Brasilsaúde Data Table 112. Aliança do Brasil Data Table 113. Brasilcap Data Table 114. Brasilprev Data Table 115. Balance Sheet - Assets Table 116. Balance Sheet - Liabilities Table 117. Summarized Corporate Law Income Statement Table 118. Income Statement with Reallocations...151

8 Index of Figures Figure 1. Total Distribution of the Free Float...27 Figure 2. Equity Held by Foreign Investors...28 Figure 3. BB Shares vs. Ibovespa...30 Figure 4. BBAS3 in Ibovespa...31 Figure 5. BBAS3 participation in ISE, ITAG and IGC...32 Figure 6. Average amount traded BBAS Figure 7. Average financial volume BBAS Figure 8. Market Ratios...34 Figure 9. Earning Assets vs. Interest Bearing Liabilities...45 Figure 10. Breakdown of Assets...46 Figure 11. Liquidity Balance...47 Figure 12. Securities Portfolio with Maturities between 0 and 5 years and after 5 years...48 Figure 13. Trade Balance (FOB)...54 Figure 14. CRB Food Index...54 Figure 15. Production vs. Planted Area...55 Figure 16. Agribusiness Loan Portfolio by Customer...57 Figure 17. Agribusiness Loan Portfolio by Funding Sources...58 Figure 18. Equalization Revenues and Weighting Factors...58 Figure 19. Agricultural Insurance and Proagro...59 Figure 20. Deposits and Market Funding...66 Figure 21. Market Share of BB Funding...67 Figure 22. NIM Analysis...71 Figure 23. NIM by Loan Portfolio...72 Figure 24. Securities Portfolio by Index (Multiple Bank)...73 Figure 25. Expenses with Allowance for Loan Losses over Portfolio...79 Figure 26. Breakdown of Allowances...80 Figure 27. CLP/CT BB vs. BI...81 Figure 28. Allowance/Past Due Loans +90 days BB x BI...82 Figure 29. Quarterly Vintage...86 Figure 30. Anual Vintage...86 Figure 31. Stratified Agribusiness Portfolio...90 Figure 32. Agribusiness Portfolio Avarege Risk Evolution...90 Figure 33. Customer Base...94 Figure 34. Asset Management...96 Figure 35. Credit and Debit Cards...98 Figure 36. Card Sales...99 Figure 37. BB Billings Volume Figure 38. Changes in Commercial Income Figure 39. Changes in Workforce Figure 40. Employees Age Figure 41. Aged Bracked Figure 42. Level of Education Figure 43. Productivity Ratios Figure 44. Total Distribution Network Figure 45. Automated Teller Machines Figure 46. Share of Automated Transactions / Total Transactions Figure 47. Costumer Access Options Figure 48. Coverage Ratios Figure 49. Productivity Ratios Figure 50. Business vs. Expenses Figure 51. Balance in Foreign Currencies Figure 52. Changes in Foreign Exchange Exposure...116

9 Figure 53. Composition of Banco do Brasil's assets and liabilities in the country Figure 54. Net Position Figure 55. Financial Consolidated BB VaR Figure 56. Consolidated Abroad Network's VaR Figure 57. Fixed Interest Rate Portfolio's VaR Figure 58. VaR for the International Trading portfolio Figure 59. VaR for thedomestic Trading portfolio Figure 60. Liquidity Reserve - Domestic Treasury Figure 61. DRL Indicator Figure 62. Liquidity Reserve - International Treasury Figure 63. Measuring and management instruments Figure 64. BIS Ratio Figure 65. Combined Ratio...145

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11 Presentation The Performance Analysis report presents the economic/financial situation of Banco do Brasil (BB) in quarterly periodicity. Geared toward market analysts, shareholders and investors, this report addresses topics such as the economic environment, performance of BB instruments, corporate governance practices, and risk management. Besides, there are separated analyses of the capital structure and the results. The reader will also find tables with historical series, from eight periods, of the Summarized Balance Sheet, the Summarized Corporate Law Income Statement, the Income Statement with Reallocations, the Analytic Spread, and other information about profitability, productivity, loan portfolio quality, capital structure, capital market, and structural data. In this quarter we sought to provide greater disclosure of some topics that gained notoriety in our company and in the market during the last months. We reformulated information about insurance, included new information about the funding of Banco do Brasil and updated our information about the BIS Ratio. We also reformulated the presentation of our loan portfolio. In the past editions, our portfolio had been detailed according to the manager of operations. We used to present the Retail, Commercial, Agribusiness and Foreign Trade Portfolios. As of this report, the portfolio will be classified by clients: Individual, Business and Agribusiness portfolios. The main products will be detailed in each segment. In the chapter Provision for Credit Risk the classification by the manager of operations was held. BB s individual loan portfolio is presented with an innovative conception among Brazilian banks. We present the transactions using the vintage concept. This differentiated approach adds transparency to allow monitoring the deliquency over time in accordance with contract of the operations. Finally, the financial statements and the explanatory notes for the quarter under analysis can be found. ON-LINE ACCESS The Performance Analysis report can also be read through Banco do Brasil s Investor Relations website. Further information is also made available about the Bank, such as: Corporate Governance, news items, frequently asked questions, and the Download Center, containing 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: audio of the teleconferences on results, and others. LINKS OF INTEREST Banco do Brasil S.A. Investor Relations bb.com.br bb.com.br/ir 11 - Banco do Brasil MDA 3Q08

12 Summary of Results BB earns R$ 5.9 billion until September 2008 Banco do Brasil s net income of R$ 5.9 billion in the nine first months of 2008 is 52.5% higher than the one observed in the same period of The net income corresponds to a return on equity of 31% in opposition to 24% in the same period of the previous year and earnings per share of R$ In the third quarter, BB s net income reached R$ 1.9 billion, growth of 36.9% over the same period of the last year and 13.6% over the last quarter. Disregarding one-off items, the recurring net income surpass R$ 2 billion, 24% higher than the one observed in the last September and 39.2% stronger than in the one recoreded in the last quarter. Net income per share was R$ 0.73 for the quarter BB recorded earnings per share of R$ 0.73, a sum 32.1% higher than that recorded in 3Q07, and 12.5% higher than that recorded in the previous quarter. In the year, until September, the earnings per share ratio reached R$ Earnings per Share - R$ Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 9M07 9M08 Return on stockholders' equity reached 30.5% The result for the quarter corresponded to an annualized Return on Equity (ROE) of 30.5%, as compared to 27.9% in 2Q08 and 26.3% in the same period of It is worth to mention that the recurring net income, in the amount of R$ 2,037 million, afforded a recurring ROE of 33.6% in the period. In the year to date basis, the ROE was 31,0% and the recurring ROE was 26,7% Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 9M07 9M08 Recurring ROE - % ROE - % 12 - Banco do Brasil MDA 3Q08

13 The sum of R$ 747 million was distributed to the shareholders in the form of dividends and Interest on Own Capital The amount earmarked for shareholders came to R$ million, equivalent to 40% of the net income (payout ratio). Of this total, R$ million were distributed as interest on own capital (JCP) and R$ million as dividends. In the year, the amount distributed to the shareholders as Interest on Own Capital reached R$ 2,344 million.. Dividends and Interest on Own Capital (R$ million) 2, ,536 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 9M07 9M08 Analysis of Results In order to promote comparability of the Bank performance, the analysis presented here is based on the numbers of the financial group (branches in the country and abroad and financial subsidiaries), reserving a section at the end of the summary to address the impacts of the economic/financial consolidation, which incorporates, proportionately, the accounting information of the non-financial associated companies from the Group. In addition, the income statement with reallocations was utilized to permit a better understanding of the Bank's performance in the different business lines. The breakdown of reallocations is in Chapter 5.3. of the Performance Analysis report. R$ million Quarterly Flow Chg. % 9 months Flow Chg. % Income Statement with Reallocations 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 on 9M07 Financial Intermediation Income 10,267 10,956 15, ,998 37, Loan and Lease 6,567 7,258 9, ,814 23, Securities 3,355 3,052 5, ,558 12, Financial Intermediation Expenses (5,111) (5,213) (9,839) (14,558) (20,594) 41.5 Net Interest Income 5,156 5,743 5, ,440 17, Allowance for Loan Losses (1,216) (1,687) (1,339) 10.1 (20.6) (3,881) (4,560) 17.5 Net Financial Margin 3,940 4,056 4, ,560 12, Fee Income 2,498 2,633 2, ,318 7, Contribution Margin 5,963 6,178 6, ,462 19, Administrative Expenses (3,368) (3,582) (3,685) (9,750) (10,658) 9.3 Personnel Expenses (1,759) (1,933) (1,967) (5,143) (5,676) 10.4 Other Administrative Expenses (1,572) (1,636) (1,704) (4,497) (4,939) 9.8 Commercial Income 2,595 2,595 3, ,712 8, Legal Claims (73) (74) (230) (64) (72.2) Labor Lawsuits (146) (141) (159) (457) (431) (5.6) Other Revenues and Expenses (385) (709) (684) 77.7 (3.4) (1,397) (2,035) 45.6 Resultado Antes da Trib. s/ o Lucro 2,467 2,182 2, ,044 7, Income and Social Contribution Taxes (650) (507) (465) (28.4) (8.4) (1,962) (1,546) (21.2) Statutory Profit Sharing (175) (212) (239) (492) (751) 52.6 Recurring Income 1,642 1,463 2, ,590 5, Extraordinary Items (278) 181 (170) (38.8) 0.0 (749) Net Income 1,364 1,644 1, ,841 5, Banco do Brasil MDA 3Q08

14 Ratios - % 3Q07 2Q08 3Q08 9M07 9M08 NIM Allowance / Loan Portfolio Efficiency Ratio Recurring ROE Tax Rate Net Interest Income grew 15.3% in relation to 3Q07 and 3.5% in relation to 2Q08. The consistent advance of Net Interest Income, which in 3Q08 kept the trend observed in previous quarters, was based on the loan portfolio growth and on the expansion of time deposit fundings, which permitted the earning assets growth. Besides the quarterly growth, its worth to mention the increase observed in the nine months flow when the net interest income expanded 11.7% in relation to the same period of the previous year. The table below shows the loan portfolio contribution to the Bank's financial income, split into its main business lines, recording the interest revenue and the opportunity cost over the funds used to back these operations. In addition, it segregates the amounts corresponding to written-off revenue, originally accounted for as income from loans, and the income from earning compulsory deposits. Finaly, other income is shown to complete the net interest income formation. The other income is comprised mainly of income from treasury, resulting from transactions with securities, derivatives and foreign exchange. Quarterly Flow Chg. % 9 months Flow Chg. % R$ million 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 on 9M07 Net Interest Income 5,156 5,743 5, ,440 17, Loans 3,515 3,883 4, ,201 11, Individuals 1,745 2,017 2, ,013 6, Businesses 992 1,149 1, ,858 3, Agribusinesses (0.3) 8.1 2,331 2,152 (7.7) Others 1,641 1,860 1, (2.9) 5,239 5, Remunerated Compulsory ,206 1, Written-offs Recovery (5.8) 1,033 1, Others (12.6) (15.5) 3,000 2,836 (5.5) Loan operations are consolidated as the most important source of intermediation revenues, and expanded their share in the net interest income, from 67.6% in 2Q08, to 69.6%. Emphasis is placed on the income from operations with individuals, which account for 35.1% of the NII, and operations with businesses, which grow at a faster pace than that of the other portfolios, and increased their share in net interest income from 20.0% in 2Q08 to 21.6% this quarter. On the other hand there was a share reduction of the other results that comprise the NII. Annualized NIM - % 3Q07 2Q08 3Q08 9M07 9M08 Loan Operations Individuals Companies Agribusinesses Others Global NIM Banco do Brasil MDA 3Q08

15 Although the NIM over Loan Operations remained flat at 9.4%, and the other items that comprise the margin recorded an increase from 4.9% to 5.2% in the quarter, the Bank's Global NIM exhibited a small decrease to 7.2%. In nine months, the global NIM reached 7.1%. The reduction observed in the quarter is due to the earning assets mix change and to the increase of the funding costs. During the period, the growth of time deposits, faster than the growth recorded by loan portfolio, led asset allocation in Short-term Interbank Investments. Although these operations contributed to the NIM reduction in percentage terms, they brought about real earnings to the Net Interest Income. Balance Chg. % R$ million Sep/07 Jun/08 Sep/08 on Sep/07 on Jun/08 Total Funding 172, , , Total Deposits 172, , , Domestic Onlending 16,528 19,255 19, Financial and development funds 1,847 2,251 2, Subordinated Debt 9,829 10,774 11, Foreign Borrowing 1 5,530 5,750 6, Compulsory Deposits (33,641) (39,421) (45,892) Net Loan Portfolio 140, , , Loan Portfolio 150, , , Provision for Credit Risk (9,663) (11,165) (11,187) Available Funds 31,751 15,167 32, Includes Foreign Borrowings, Obligations for Securities Abroad, Obligations for Foreign Onlendings and Hybrid Capital and Debt Instruments Ratios - % Sep/07 Jun/08 Sep/08 Net Loan Portfolio / Total Deposits Net Loan Portfolio / Total Funding Available Funds / Total Funding The tables above show how the deposits growth has influenced the Banco do Brasil funding availability. Available funds have exhibited growth, reaching R$ 32.8 billion at the end of September. The ratio between the loan portfolio and total funding exhibited a reduction, from 92.2% in 2Q08 to 85.3% at the end of 3Q08. Moreover, the ratios detail how BB s loan portfolio is backed. Besides deposits, it is backed by other funding sources, such as onlendings from BNDES, resources from Financial and Development Funds, foreign borrowings and others. Assets of the Bank surpass R$ 445 billion Total assets grew 10.2% in the quarter, and 26.5% in 12 months, reaching R$ billion. The loan portfolio, in amplified concept that includes collateral provided and private securities, attained R$ billion, growth of 6.9% in the quarter. In the midst of the international financial crisis, BB has been favored by its solidity in a movement known as "flight to quality". Time deposit expansion strategy, allied with the migration of resources previously deposited with peers, permitted the deposit basis strong growth, which amounted to R$ billion, 33.6% growth in 12 months and 17.7% just in the last quarter. Time deposits that grew 32.1% in the quarter deserve special emphasis Banco do Brasil MDA 3Q08

16 Chg. % Equity Items - R$ million Sep/07 Jun/08 Sep/08 on Sep/07 on Jun/08 Total Assets 351, , , Loan Portfolio 150, , , Securities 74,126 70,461 72,944 (1.6) 3.5 Short-term Interbank Investments 51,419 54,272 71, Deposits 172, , , Demand Deposits 38,712 43,628 42, (1.5) Saving Deposits 43,831 49,096 52, Interbank Deposits 5,603 5,578 6, Time Deposits 83,640 96, , Money Market Borrowing 74,845 93,335 85, (8.3) Shareholders Equity 23,065 26,371 27, With a focus on individual clients, the Loan Portfolio grows more than the industry The loan portfolio reached R$ billion, expansion of 34.6% in 12 months and of 6.4% in the quarter. The domestic loan portfolio grew 37.5% in 12 months and 5.0% in the quarter, surpassing the banking system growth of 3.5% in the quarter and 34.0% in 12 months. The individual loan portfolio grew 45.4% in relation to the same prior-year period and 5.9% in the quarterly comparison and attained R$ 42.9 billion. The main highlight in this segment is vehicle financing, which grew 151.7% in 12 months and 19.1% in the quarter. Another highlight is Consumer Finance Backed by Direct Deposits (CDC Salário), a line designed for account holders that receive their earnings at BB, which grew 7.7% in the quarter and 62.2% in 12 months. Payroll loans continues to be the best selling item in this portfolio, with a balance of R$ 14.5 billion and growth of 32.0% in 12 months and of 3.7% in the quarter. Loans to businesses attained R$ 85.2 billion, expansion of 42.7% in relation to 3Q07 and of 8.8% in relation to 2Q08. Working capital and investment lines deserve special emphasis. Working capital lines attained R$ 41.2 billion, growth of 74.8% in 12 months and of 8.9% in the quarter. Investment lines grew 47.6% in the year, and 10.7% in the quarter, attaining the sum of R$ 17.1 billion. Due to seasonal effects, there is a settlement concentration of the 2007/2008 harvest in the quarter. For this reason, the Agribusiness portfolio exhibited a reduction of 1.8% in the quarter, as opposed to growth of 24.9% in comparison with the same period of Chg. % Loan Portfolio R$ million Sep/07 Jun/08 Sep/08 on Sep/07 on Jun/08 Loan Portfolio 150, , , Brazil 137, , , Individuals 29,486 40,503 42, Payroll Loan 11,022 14,028 14, Vehicles Loan 2,228 4,702 5, Consumer Finance backed by Direct Deposit 2,310 3,478 3, SMEs 22,340 29,234 32, Business (Medium and Large Enterprises) 37,353 49,018 53, Agribusinesses 48,447 61,611 60, (1.8) Individuals 38,070 43,168 42, (1.2) Companies 10,377 18,442 17, (3.0) Besc Abroad 12,558 9,717 12, Banco do Brasil MDA 3Q08

17 Improvement in the Quality of the Loan Portfolio permits decrease of expenses with Provisions Expenses with credit risk provisioning exhibited a considerable reduction, and amounted to R$ 1.3 billion in 3Q08. The expenses with Allowance / Loan Portfolio ratio, which measures the relation between expenses with Allowances for Loan Losses accumulated in the last 12 months and the Average Loan Portfolio in period, was reduced to 3.3%, in opposition to 3.6% in the previous quarter and 3.7% in 3Q07. The expenses volume reduction is reflected in the loan portfolio average risk, which exhibited reduction of 20 base points in relation to the previous quarter. Although the amount of past due loans continues at 3.7% of the total portfolio, there was an expressive improvement in past due loans over 90 days, which reduced their share in the loan portfolio from 2.5% to 2.2%, and past due loans over 60 days, reduced from 2.8% to 2.6%. Ratios - % Sep/07 Jun/08 Sep/08 Past Due Loans / Loan Portfolio Allowance / Loan Portfolio Past Due Loans + 60 days / Loan Portfolio Past Due Loans + 90 days / Loan Portfolio Allowance / Past Due Loans + 60 days Allowance / Past Due Loans + 90 days Average Risk Fee Income had a slight increase in the quarter Fee income totaled R$ 2,660 billion in the quarter. In spite of the CMN regulations on the fee collection, which mainly affected the Account and Loan Operation fees, these incomes exhibited growth of 1.0% in the quarter and of 6.5% in relation to the same prior-year period. In nine months, the fee income summed up R$ 7,865 million, growth of 7.5% in relation to the same period of the prior year. The fee income expansion is due mainly to the client base growth and to the business with credit cards and collection services development. Moreover, the fee exemption granted to the beneficiaries of payrolls acquired by the Bank in 2007 ended and also contributed to the reduction of the impact of the regulations. There was a demand increase for time deposits in the quarter, against a demand decrease for investment funds. In spite of the 1.8% reduction in assets under management, Banco do Brasil expanded its share in the industry, attaining a 19.8% market share, as opposed to 18.1% in the previous quarter. The strong market share growth in the quarter reinforces the BB s icon as a safe harbor and contributes to the asset management fee income inflow. Highlights Sep/07 Jun/08 Sep/08 Accounts thousands 25,235,408 27,410,598 30,066,594 Points of Service 15,212 15,353 15,438 Assets under Management R$ million 206, , ,512 Credit Cards - million Administrative Expenses under control, within the Guidance Administrative expenses, which comprise personnel expenses and other administrative expenses, totaled R$ 3,671 million, which represents growth of 2.8% in the quarter and of 10.2% in relation to the third quarter of In a year to date basis those expenses summed up R$ 10,645 million, growth of 10.1% in relation to the same period of the last year Banco do Brasil MDA 3Q08

18 The Commercial Income, which expresses the business earnings after deductions necessary for carrying on the business, recorded an increase of 19.1% in relation to the previous quarter. Growth at this level ratifies the understanding that the expenses increase is in a slower pace than that of the contribution margin. In relation to personnel expenses, the Bank provisioned R$ 37.6 million for adjustment of employees earnings and R$ 35.6 million for adjustment of the stock of benefits already granted to the employees. The average workforce of the period grew 1.3% in relation to the previous quarter. As regards Other Administrative Expenses, the growth of 4.1% in the period is in line with the organic growth of business, the investment in new projects and in structural reorganization. In addition, during the period the Bank provisioned R$ 37.1 million, anticipating possible contractual readjustments with service providers, especially those relating to the transportation of cash, surveillance and outsourced services. Exchange effect has an impact on BB's effective tax rate The effective tax rate closed the third quarter at 18.6%. The main factor that influenced the reduction of the tax rate was the foreign exchange fluctuation of the period - the Dollar was quoted at R$ 1.59 in the beginning of the quarter and closed quoted at R$ and its effects on the investments of Banco do Brasil abroad. The gain produced by exchange devaluation on the shareholders' equity of BB s foreign subsidiaries did not affected the tax (IRPJ, CSLL, PIS/PASEP and COFINS) calculation bases, as it is a case of equity pickup. However, the result of the foreign exchange hedge operations, contracted to protect these assets from the exchange fluctuations, is computed in the calculation bases of those taxes. The mismatching in the tax treatment between the investment result and the hedge operations generated a gain of R$ 183 million in the quarter. Banco do Brasil is analyzing the contracting of liability derivative transactions that stop the effect of exchange variance on the tax basis in future quarters. The quarter performance impacted the YTD tax rate, from 29.9% in the last year same period to 23.4% in this year. Incorporation of the BESC System On September 30, the Shareholders' Meetings of Banco do Brasil, BESC and BESCRI approved the incorporation of the BESC System by BB. We present an incorporation analysis in a glance in the table below. The deal enabled Banco do Brasil to assume absolute leadership in clients and branch network in the state of Santa Catarina. Additionally, Banco do Brasil incorporated R$ 7.0 billion in assets and a deposits base of R$ 3.6 billion. September 2008 BB* Besc + Bescri Consolidated Chg. % Equity Indicators - millions of R$ Assets 451,868 7, , Loan Operations 201, , Deposits 226,238 3, , Shareholders' equity 27, , Third party funds: 241,512 2, , Administrative Indicators Employees (thousands) 85,392 3,316 88, Checking account holders (thousands) 30,067 1,101 31, Branches 4, , *Numbers of Banco do Brasil refer to the Economic/Financial Consolidation 18 - Banco do Brasil MDA 3Q08

19 As the incorporation took place upon quarterly closing, the figures above were not incorporated to those of Banco do Brasil in the Report Analysis. The exception is the balance sheet numbers, such as assets and the loan portfolio which we included in BB s balance sheet analysis. Recurring Income and Extraordinary Items Among the one-off items of the period (- R$ 170million), it is worth to mention the provisions for contingent liabilities (- R$ 360 million) and the using of tax credit (R$ 194 million), both of them related to the BESC System operations, acquired by BB in September 30. The table below details the one-off items impacts that occurred in the third quarter of 2008: Income Statement with Reallocations R$ million 3Q07 2Q08 3Q08 9M07 9M08 Recurring Income Total Extraordinary Items (278) 181 (170) (748) 799 Loan Operations Credit Assignment 67 Equity Int. in the Results of Subs and Affil. Disposal of Investments (VISA Internacional) 197 Personnel Expenses Cassi Assistance Plan (403) (403) Other Administrative Expenses Change of Cards Basis (54) (54) Legal Risk (Legal Claims) Economic Plans (91) (54) (192) (128) (328) Commercial Result PAA Retirement Incentive Plan (141) (817) Passivos Contigentes (BESC) (360) (360) Equity in the Earnings (Loss) of Subsidiary and Associated Companies Disposal of Investments (Telemar) Disposal of Investments (Visa International) 108 Revaluation of Consolidated Interest 241 Income Tax and Social Contribution Inc. Tax and Social Contrib. without Extraordinary Items Tax Credit (BESC) Tax Efficiency Corporate Net Income 1,364 1,644 1,867 3,841 5, Banco do Brasil MDA 3Q08

20 Estimates The performance of 3Q08 confirms most of the estimates disclosed to the market in the previous quarters. We present below the comments from the 2008 guidance perspective: Administrative Expenses, ROE, NIM, Fee Income (Maintain) Administrative Expenses: grew 9.4% in relation to the same period of the previous year. In the YTD, the expansion of expenses was 9.3%. In keeping with the performance of the last quarters and the control of expenses that is being practiced by the Banco, we maintain the guidance. Recurring Return on Equity: despite the excellent performance in 3Q08, when Recurring ROE closed at 33.6%, we maintain the expectation that the ratio will end the year between 23% and 27%. Average NIM: Ended 3Q08 at 7.1%. We believe that in 4Q08 the growth of the loan portfolio should be accompanied by a significant growth of the deposits base. We maintain the guidance. Fee Income: Although 3Q08 was the first quarter in which fee income suffered the impact of CMN Resolution 3,518/07, it recorded a 1% growth in relation to the previous quarter and of 7.5%, when comparing the first 9 months of 2008 with the same period of Hence we maintain the expectation that the income will grow between 5% and 8% in Allowance for Loan Losses, Total Deposits, Tax Rate and Loan Portfolio (Reviewed) Allowance for Loan Losses over Loan Portfolio: remained below the level recorded in the previous quarter and the interval projected for 2008 (from 3.7% to 4% of the average loan portfolio), which reveals the good asset quality and the agribusiness loan portfolio risk improvement. In view of the performance in recent quarters, we reviewed the 2008 expectation for the ratio to remain between 3.5% and 3.8% of the average loan portfolio. Total Deposits: the Bank's success in the strategy of intensifying funding through deposits, combined with the migration of funds invested at peers to BB, due to the international financial crisis, contributed toward the growth of 33.6% in the base of deposits, in relation to the same prior-year period. For this reason, we reviewed the total deposits growth for an interval between 25% and 30% in Effective Tax Rate: The YTD tax rate is 23.4% due to the quarter performance, when the tax rate account for 18.6% of the income. For this reason, we reviewed the expectation for the 2008 tax rate for an interval between 23% and 25%. Domestic Loan Portfolio: Due to the strong performance in the last twelve months, with growth of 37.5%, we changed the loan portfolio growth guidance to between 30% and 35%. We also changed the estimates for the individuals and businesses portfolios, as shown below: Growth led by individual loans: between 40% and 45%. Businesses loans should grow between 35% and 40%. The agribusiness performance will allow growth of 20% of this portfolio. We maintain the previous estimate Banco do Brasil MDA 3Q08

21 Estimates 2008 x Performance 3Q08 Observed Estimate Indicadores 9M08* Before Revised Administrative Expenses 9.3% 7% - 10% - Recurring ROE 26.7% 23% - 27% - Credit Cards 23.7 million 25 million - NIM 7.1% 7% - 7.5% - Fee Income 7.5% 5% - 8% - Loan Portfolio Brazil 37.1% 25% - 30% 30% - 35% Individuals 45.4% 35% - 40% 40% - 45% Businesses 42.9% 30% - 35% 35% - 40% Agribusinesses 24.9% 20% - Total Deposits 33.6% 18% - 22% 25% - 30% Tax Rate 23.4% 26% - 28% 23% - 25% Allowance for Loan Losses 3.3% *Annual Growth Rate. 3.7% - 4% Average Portfolio 3.5% - 3.8% Average Portfolio 21 - Banco do Brasil MDA 3Q08

22 Consolidation of economic (non-financial) companies In the first quarter of 2008, Banco do Brasil started publishing the consolidated statements for the financial conglomerate and for the financial and economic conglomerate. The main differences between these two views are described in the "Consolidated Balance Sheet Analysis" chapter. Financial Consolidated Financial-Economic Consolidated Financial Statements R$ million Jun/08 Sep/08 Jun/08 Sep/08 Assets 403, , , ,938 Available Funds 5,633 6,712 5,754 6,846 Short-term Interbank Investments 54,272 71,069 54,283 71,091 Securities 70,461 72,944 82,301 85,953 Loan Portfolio 190, , , ,201 Other Assets 83,021 91,777 84,082 92,847 Liabilities 403, , , ,826 Deposits 195, , , ,809 Money Market Borrowing 93,335 85,603 93,097 85,339 Other Liabilities 88, , , ,789 Shareholders Equity 26,371 27,889 26,371 27,889 R$ million Financial Consolidated Financial-Economic Consolidated Income Statement with Reallocations 2Q08 3Q08 2Q08 3Q08 Financial Intermediation Income 10,956 15,784 11,247 16,083 Financial Intermediation Expenses (5,213) (9,839) (5,415) (10,051) Net Interest Income 5,743 5,945 5,833 6,032 Allowance for Loan Losses (1,687) (1,339) (1,687) (1,338) Fee Income 2,633 2,660 2,905 2,933 Administrative Expenses (3,569) (3,685) (3,662) (3,817) Personnel Expenses (1,933) (1,967) (1,989) (2,020) Other Administrative Expenses (1,636) (1,704) (1,672) (1,797) Legal Claims (74) 4 (74) 4 Labor Lawsuits (141) (159) (141) (159) Other Income / Expenses (722) (654) (907) (779) Income Before Taxes 2,182 2,741 2,267 2,876 Income and Social Contribution Taxes (507) (465) (592) (598) Statutory Profit Sharing (212) (239) (212) (241) Recurring Income 1,463 2,037 1,463 2,037 Extraordinary Items 181 (170) 181 (170) Net Income 1,644 1,867 1,644 1, Banco do Brasil MDA 3Q08

23 We present below the main differences in the Income Statement with Reallocations Financial Intermediation Income - Financial Income of Insurance Operations: + R$ 283 Million Expenses from Financial Intermediation Fee Income - Financial Expenses of Technical Provisions for Insurance, Pension Plan and Capitalization: - R$ 189 million - Addition of R$ 273 million Other Operating Income - Results from Insurance, Pension Plan and Capitalization Operations: + R$ 218 Million - Holdings in Subsidiaries and Affiliates: reduction of R$ 264 million 23 - Banco do Brasil MDA 3Q08

24 1 Economic Environment Volatility in Global Financial Markets The third quarter of 2008 was characterized by the deterioration of turbulence in international financial markets, generating losses and volatility which were not seen in central economies for a long time. This panorama was reflected in greater risk aversion and in deterioration of the growth prospects of the global economic activity. Concerns about the possibility of a world recession, and the worsening of the liquidity crisis in the financial system, brought instability to the Brazilian market: in the quarter, the US dollar (closing ptax) recorded a 20.3% valuation in relation to the Real, going from R$ 1.59 to R$ In the same period, the Bovespa Index dropped 23.8%, oscillating between 65,017 and 49,541 points. In turn, the Brazilian country risk, which started the quarter at 231 points, reached 304 points on September 30, appreciation of 32.0%. The quarter was marked by the announcement of the bankruptcy of Lehman Brothers, billion-dollar aid from the American government to the AIG insurance group, and the crash of Washington Mutual, the most important bankruptcy case in the history of the United States, among other factors that cast doubt on the solvency of large American corporations. Combined with these factors, there was an expectation regarding the announcement of an aid package to the financial system by the American government. The package was rejected by the United States house of representatives on September 29, which was reflected in the crash of stock exchanges around the world, and in the first interruption of BOVESPA in nine years, triggering the circuit breaker after losses attained 10% during the trading session. The American aid package would only be announced on October 3. Table 1. Main Macroeconomic Indicators 3Q07 2Q08 3Q08 12 months GDP Change %* International Reserves** Country Risk*** Ptax Dollar Sale (4.5) (9.0) Accumulated IGP-DI FGV Accumulated IGP-M FGV Accumulated IPCA IBGE Selic (end of period - %) Accumulated Selic Accumulated TR (exbtn) TJLP IBGE Ptax Dollar Sale *** * Deseasonalized variance (quarter over previous quarter) ** Amount accumulated in the year up to the end of the period (in US$ billion) *** Closing Rate Source: Economática Rationale of the Brazilian Economy Although Brazil is not immune to the crisis that influences markets, in the last quarter the solidity of macroeconomic grounds contributed toward a greater resilience of the domestic economy in relation to previous crises. During the period, the higher deficit in current transactions, influenced by the lower commercial balance and by the increase of net remittances of services and income, continued to be financed by foreign direct investments. International reserves continued to grow and Brazil's position of net creditor in foreign currency was reinforced Banco do Brasil MDA 3Q08

25 The fiscal results continued in line with the targets defined by the Government and sufficient to guarantee a course of gradual reduction of the public debt/gdp ratio. The activity level indicators proved robustness with expansion of industrial production, of sales, of the level of employment and of the real salary mass. Although there was an important cool-down of the level of domestic prices, both in the wholesale and in the retail markets, this event was not sufficient to reduce uncertainties in relation to the future dynamics of inflation. Therefore, and considering the objective of the Central Bank to take inflation back to the central value of the target (4.5%) in 2009, Copom maintained the adjustment cycle of the basic interest rate, positioning it at the level of 13.75% p.y.. In spite of the fundraising costs rise, the bank credit market growth continued to exhibit a good performance. By the end of August, the credit inventory of the economy reached 38% of the GDP, the highest result of the historic series started in June/88, with an annual expansion rate around 32% Banco do Brasil MDA 3Q08

26 2 BB Securities 2.1 Shares At the end of the third semester of 2008, Banco do Brasil s capital stock was R$ 13,699,012, made up of 2,565,255,836 ordinary shares, represented in dematerialized form and without any nominal value. The largest shareholder is the National Treasury, with 64.7% of the capital, followed by Caixa de Previdência dos Funcionários do Banco do Brasil (Previ), with 10.4%, and BNDESPar the equity investment Company of National Bank for Economic and Social Development with 2.5%. The other shares, totaling 21.5%, are spread out in the market (free float). The total amount of 2,565,255,836 shares existing at the end of 3Q08 already includes the 23,074,306 shares issued on , resulting from the accquisition of Banco do Estado de Santa Catarina-Besc and of Besc S.A. Housing Loans-Bescri. The merger process was approved by the shareholders of BB, Besc and Bescri at meetings held on and is currently being ratified by the Central Bank. These shares were issued and not assigned to the shareholders, awaiting the aforementioned ratification and the performance of the period for exercising the right to withdrawal for the minority shareholders of the merged institutions. Approximately 96% of all the shares issued belong to the National Treasury and the rest to Companhia de Desenvolvimento do Estado de Santa Catarina-Codesc and other minority shareholders. Table 2. Shareholding Breakdown Shareholders 3Q07 2Q08 3Q08 % National Treasury Previ BNDESPar Free Float Individuals Companies Foreign Capital Subtotal BESC and BESCRI shares Total The 2008 payout rate was defined as 40% of the net income by the Board of Directors, in a meeting held on In turn the policy for payment of dividends and/or interest on own capital is of quarterly periodicity, pursuant to Art. 43 of the Bank's By-laws. In this manner, in the third quarter of this year, the Bank distributed the sum of R$ million to its shareholders, with R$ million as interest on own capital (R$ per share in the period) and R$ million as dividends (R$ per share in the period). We emphasize that the shares issued on account of the merger of Besc/Bescri are only entitled to the dividends of 3Q08, in the proportion of 1/90 over the declared amount, since the sum of interest on own capital (JCP) declared in this quarter was based on the shareholding position of , as per the notice to the shareholders dated Table 3. Distribution of Dividends/Interest on Own Capital R$ million 3Q07 2Q08 3Q08 National Treasury PREVI BNDES Individuals Companies Foreign Capital Shares in Homologate Process BESC & BESCRI Total Banco do Brasil MDA 3Q08

27 BB s shareholder base is characterized by the great number of shareholders with a small share in the capital. As can be seen from the table below, 338,410 shareholders (94.0%) account for 1.6% of the capital, while 21,712 shareholders (6.0%) hold 98.4% of the total of the shares. Table 4. Shareholders by Range of Shares Owned Range of shares owned N. Shareholders % Shareholders Qty. Shares % Qty. Shares 1 to 10 shares 107, , to 50 shares 91, ,355, to 100 shares 39, ,932, to 1,000 shares 99, ,907, Over 1,000 shares 21, ,525,485, Total 360, ,565,255, Table 5. Free Float by Range of Shares Owned Range of shares owned N. Shareholders % Shareholders Qty. Shares % Qty. Shares 1 to 10 shares 107, , to 50 shares 91, ,355, to 100 shares 39, ,932, to 1,000 shares 99, ,907, Over 1,000 shares 21, ,892, Total 360, ,663, Regarding the total of Bank s shares that are well spread out in the market (21.5%), that is, the free float, it can be see a predominance of foreign capital (53.5%), followed by Individuals (25.8%) and Businesses (20.7%). Sep/07 Jun/08 Sep/ % 26.5% 25.8% 49.5% 55.0% 53.5% 23.5% 18.5% 20.7% Figure 1. Total Distribution of the Free Float Individuals Businesses Foreign Investors 27 - Banco do Brasil MDA 3Q08

28 Equity Held by Foreign Investors From 2002 onwards, a noteworthy increase has been noted in the participating interest of foreigners in the Bank's capital. With the Bank's Public Stock Offerings held in 2006 and 2007 and the "B" and "C" Warrant Subscription, the interest held by foreign parties significantly increased, from 3.4% in 2005 to 9.9% at the end of 2007, and reaching 11.5% at the end of 3Q08, representing 53.5% of the free float Q08 Figure 2. Equity Held by Foreign Investors 28 - Banco do Brasil MDA 3Q08

29 2.2 Warrants In 1996, when BB was increasing its capital, three series of warrants were issued: A, B, and C, maturing in 2001, 2006, and 2011, respectively. The exercise price for these warrants was established at R$ 8.50, with readjustment by the IGP-DI pro rata temporis. The distribution and some characteristics of the "C" Warrants, in September 2008, are represented according to the following tables: Table 6. Breakdown of the Series C Warrant Holders % 3Q07 3Q08 Individuals Companies Foreign Capital Total Series "C" Warrants showed the following characteristics in September 30 th, 2008: Table 7. Series C Warrants Warrant Code Exercise Date Number Exercise Price R$ Quotation in R$ Series C BBAS to ,880, In a simulation, considering the total of 2,565.2 million shares, the potential dilution in the Bank's capital is 0.7%, assuming that until 2011 there will not be any additional capital increases and that all the C bonds will be exercised by maturity (03.31 to ). Conversion: 1 Warrant = shares Total of Shares= 2,565,255,836 Table 8. Expected Dilution of Capital Warrants Qty. Warrants Qty. Shares Dilution of Capital - % Series C 5,880,483 18,416, Banco do Brasil MDA 3Q08

30 2.3 Performance of the Shares Market The Brazilian stock market in the third quarter of the current year continued to suffer the impact of the foreign economic scenario. Concerns with the inflation rise in global terms and with the erratic behavior of oil and commodity prices, added to the results of financial institutions, especially those related to the mortgage sector, resulting in strong devaluation at the main international exchanges. Internally, Bacen took some steps to contain the decrease of liquidity in the financial market, and to help financial institutions in difficulties, particularly small and mid-sized ones. The main measures acted on the bank compulsories that were reduced and can be fully released by Bacen depending on the market's requirements. The purchase of loan portfolio can also be performed by means of release of the compulsory, with authorization from the Central Bank. In the midst of this turbulent scenario, Ibovespa closed 3Q08 at 49,541 points, expressive devaluation of 23.7% in relation to the end of The total volume traded was R$ billion, corresponding to the daily average of R$ 4.8 billion with the volume of trade attaining thousand. In the banking sector, the high volatility and the devaluation of shares of the segment continued, with investors fearful that other financial institutions could be affected by the crisis of the North American financial sector. BB shares As a consequence of the world crisis and greater risk aversion, the shares of BB ended the third quarter quoted at R$ In the YTD in 12 months shares recorded devaluation of 23.3%, while Ibovespa fell 18.1%, according to the following graph. (18.1)% (23.3)% Sep07 Oct07 Nov07 Dec07 Jan08 Feb08 Mar08 Apr08 May08 Jun08 Jul08 Aug08 Sep08 BB Ibovespa Source: Economática Figure 3. BB Shares vs. Ibovespa 30 - Banco do Brasil MDA 3Q08

31 Participation in Ibovespa The Bovespa Index (Ibovespa) is an index that represents the Brazilian stock market, composed by shares that were traded in at least 80% of the trading sessions carried out. From this, the Tradability Index is worked out, made up by the financial volume and by the quantity traded of each share transacted, which determines the ranking of the stock share in the market. Out of the total of shares, the 80% with the highest Tradability index are determined, to represent the Ibovespa index. The growth of the Bank's share in the theoretical portfolio of Ibovespa can be verified in the following graph. In the theoretical portfolio of Ibovespa in force for the next four months (Sept/08 - Dec/08), the Bank occupies 11th place, as opposed to 12th place in the portfolio of May/08 - Aug/08. The Public Offerings carried out in 2006 and 2007 and the split of shares, in the proportion of 1:3, favored the increase of the instrument's liquidity in the market, permitting access by small investors to the Bank's shares May/06 - Aug/06 Sep/06 - Dec/06 Jan/07 - Apr/07 May/07 - Aug/07 Sep/07 - Dec/07 Jan/08 - Apr/08 May/08 - Aug/08 Sep/08 - Dec/08 BBAS3 Banking Industry Source: Bovespa Figure 4. BBAS3 in Ibovespa Besides having representatively share in Ibovespa, BB is also listed in the following Bovespa s Indexes: ITAG (Special Tag Along Stock Index), IGC (Special Corporate Governance Stock Index) and ISE (Corporate Sustainability Index). The ITAG index is designed to measure the return of a theoretical portfolio composed of shares of companies which offer, in case of control sale, better conditions to minority shareholders than those required by law. Its portfolio is made up with share of companies which offer to minority common stocks more than 80% tag along in relation to the price obtained by the controlling interest, in case of control sale. BB, which participates of Bovespa s Novo Mercado, offers 100% tag along to minority shareholders. The IGC index is designed to measure the return of a theoretical portfolio composed of shares of companies with a recognized good level of corporate governance and which are traded in Bovespa s Novo Mercado or are classified at Level 1 or Level 2. Finally, the ISE index is designed to measure the return on a portfolio composed of shares of companies highly committed to social responsibility and corporate sustainability, and also to promote good practices in the Brazilian corporate environment. BB participates in ISE portfolio since the index were created, in Banco do Brasil MDA 3Q08

32 The chart bellow shows BB s shares in these indexes. 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% ISE ITAG IGC To ITAG/IGC: 1 4Q07; 2 1Q08; 3 2Q08; 4 3Q08 To ISE: 1 Dec05 a Nov06; 2 Dec06 a Nov07; 3 Dec07 a Nov08 Source: Bovespa Figure 5. BBAS3 participation in ISE, ITAG and IGC Trade involving the shares of Banco do Brasil exhibited growth in the last 12 months, with an increase both in the average financial volume traded and in the average quantity of transactions. The growth in trade was essentially due to the split of shares and to the increase of the Free Float after the Public Offering of Shares of BB held at the end of 4Q07. The lower price and the rise of liquidity paved the way for the increase of trade by small investors. The daily average trade with BB s shares in the second quarter was 3,476, up 104.1% over 3Q07 and 4.9% over 2Q08. The downslide in the quantity traded, presented in the third quarter, is essentially due to the turbulence in the global economic environment, which penalized not only the instruments of Banco do Brasil, but also those of other Brazilian financial institutions. Unit 4,650 4,150 3,650 3,150 2,650 2,150 1,650 1, Sep/06 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Source: Economática Figure 6. Average amount traded BBAS3 As regards the financial volume, the average volume daily traded was R$ 78.0 million in 3Q08. This number represents an increase of 29.7% in relation to 3Q07 and a decrease of 31.8% in relation to 2Q08. As is the case of quantity, there was a decrease in the average volume traded in relation to 2Q08, following the performance of other banks shares and the market in general Banco do Brasil MDA 3Q08

33 R$ 142,000, ,000, ,000,000 82,000,000 62,000,000 42,000,000 22,000,000 2,000,000 Sep/06 Nov/06 Jan/07 Mar/07 May/07 Jul/07 Sep/07 Nov/07 Jan/08 Mar/08 May/08 Jul/08 Sep/08 Source: Economática Figure 7. Average financial volume BBAS3 Market Ratios The P/L ratio, which indicates a time estimate, in years, for investors to recover the capital invested in the purchase of shares, assuming the full distribution of company profits; attained 8.25x in September 2008, as opposed to 15.03x in September BB s net income per share reached R$ 0.73 in 3Q08, against R$ 0.55 in 3Q07. The Price/equity value per share (VPA) ratio of 2.21 in September 2008 denotes that the Bank's shares are traded more than twice the VPA, i.e., the Bank is worth at Bovespa 221% of the amount of its Shareholders Equity. Market capitalization reached R$ 58,360 million at the end of September 2008 as opposed to R$ 76,482 million in the same period of the previous year, a decrease of 23,7%. The capitalization of the free float was R$ 12,550 million, 10.5% higher than the R$ 11,354 million in September In 3Q08, the Bank distributed the sum of R$ million to the shareholders, with R$ million as Interest on Own Capital (R$ per share in the period) and R$ million as dividends Dividendos (R$ per share in period). The Dividend Yield in 3Q08, calculated on the basis of the division of the dividend distributed in the quarter by the market value of the Bank, reached 1.6%. The graph below shows the behavior of the main multiples of the Bank over the last quarters Banco do Brasil MDA 3Q08

34 Price / Earnings 12 months** Earnings per Share - R$ ** ' Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/ Q06 4Q06 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Price / Book Value** Book Value per Share - R$** Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Dec/06 Mar/07 Jun/07 Sep/07Dec/07 Mar/08 Jun/08 Sep/08 Market Capitalization - R$ million Free Float Capitalization - R$ million 52,820 55,040 69,054 76,482 75,269 58,750 66,478 58, Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Net Income - R$ milion Dividends and Interest on Own Equity - R$ million 2,347 1,248 1,068 1,364 1,217 1,644 1, T06 4T06 2T07 3T07 4T07 1T08 2T08 3T08 1,597 1, H07 1H08 1Q08 2Q08 3Q08 Dividend Yield - % Payout - % H07 1H08 1Q08 2Q08 3Q08 2H07 1H08 1Q08 2Q08 3Q08 ** Adjusted series considering the stock split (1:3) occcured in the second quarter of Figure 8. Market Ratios 34 - Banco do Brasil MDA 3Q08

35 3 Corporate Governance Banco do Brasil has achieved a prominent position due to practices that guarantee the balance of rights and the rendering of accounts to the shareholders and to the company, the sustainability of business and ethics in the relationship with its audiences. Proof of this is BB's participation in Bovespa s Novo Mercado, a segment that gethers the institutions with the most stringent Corporate Governance practices, and the presence of the company's shares in the ITAG and IGC indexes, which respectively group the companies with differentiated Tag Along, and those with the best corporate governance practices. We have based our performance not only on compliance with the applicable legislation, but also on disclosing as many details as possible about our activities to the market, in a timely manner and without losing sight of the quality of information provided. Besides the extensive range of reports and of information made available at our site, the APIMEC meetings and other events with shareholders, we have distinguished ourselves by summoning the market to conferences whenever we consider it necessary to elucidate specific topics involving our company. This was how it was with the agribusiness teleconference, in May 2008, where we openly discussed with the market the main characteristics and prospects for agribusiness, which is of significant importance in our loan portfolio. To this effect, we also held the conference call entitled "The international financial crisis - Opportunities for Banco do Brasil" in October, discussing the current financial scenario, its impacts and new business opportunities. These actions ratify the commitment of Banco do Brasil to value the relationship with shareholders and with the market, and to transparency in business management. The slides, the sound and the transcription of the call conferences are all available at our site. Management BB's management bodies are the Board of Directors, advised by the Audit Committee, and the Executive Board, made up of the Executive Board of Directors (president and nine vice-presidents) and by 27 statutory directors. The Bank also has a permanent Fiscal Council. Decisions are taken collectively at all levels of the Company. With the purpose of involving all the executives in the definition of strategies and approval of proposals for BB s different businesses, the Management uses committees, subcommittees and commissions at a strategic level, which guarantee agility and security for the decision taking. Highlights of the period July August September Signed a proposal to purchase all the shares of Companhia de Seguros Aliança do Brasil (Aliança do Brasil), held by Companhia de Participações Aliança da Bahia (Aliança da Bahia), by BB Banco de Investimentos (BB-BI). Proposal depends on the authorization of the Superintendency of Private Insurance (SUSEP). Banco do Brasil S/A and the South African bank FirstRand Limited signed an agreement for the organization of a multiple bank to operate in the Brazilian vehicle financing and leasing market. Banco do Brasil will take part in the operation through BB-BI, which will have 73.5% of the total shares, consisting of 100% of the preferred shares and 47% of the common shares. SUSEP authorized the continuation of the process for acquisition of all the shares held by Aliança da Bahia in Aliança do Brasil by BB-BI. As a result of this approval, BB-BI paid the amount of R$ 670 million for all the shares held by Aliança da Bahia (30% of the total capital and 60% of the voting capital of Aliança do Brasil). At shareholders meetings held on September 30, the shareholders of Banco do Brasil S.A., Banco do Estado de Santa Catarina S.A. (BESC), and Besc S.A. Crédito Imobiliário (BESCRI) approved the acquisition of BESC and of BESCRI by Banco do Brasil. The acquired companies were extinguished on that date, and their shareholders will receive shares of Banco do Brasil, as described in the Material Fact disclosed on 9/11/2008 and in the Information to Shareholders publicized on 10/1/ Banco do Brasil MDA 3Q08

36 4 Other Information Table 9. Other Information 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Profitability Net Income per Share - R$ ** ROE Annualized % Recurring ROE Annualized % ROE Accumulated and Annualized % ROA - Annualized % NII / Earning Assets Annualized Productivity Efficiency - % Service Revenues / Personnel Expenses - % Service Revenues / Adm. Expenses - % Personnel Expenses per Collaborator - R$ 19,933 20,076 28,204 27,358 25,758 20,466 22,125 24,476 Collaborators / (Branches + PAA + PAB) Customers per Collaborator Assets per Collaborator R$ thousand 3,200 3,477 3,737 3,825 3,932 4,230 4,304 4,684 Loan Portfolio / Points of Service R$ million Quality of the Loan Portfolio Allowance / Loan Portfolio - % Allowance / (E + F + G + H) - % Portfolio Net of Allowance / Total Portfolio - % Capital Structure Leverage (times) BIS Ratio- % Total Quantity of Shares thousand 825,3 825,3 2, , , , , ,565.3 Capital Market Price / Earnings 12 months ** Price / Book Value ** Market Capitalization - R$ million 52,820 55,040 69,054 76,482 75,269 58,750 66,478 58,360 Book Value per Share - R$ ** Price of Share - R$ ** Structural Information Total of Points of Service 15,113 15,133 15,161 15,212 15,297 15,324 15,353 15,186 Branches 3,969 3,974 3,977 3,984 4,008 4,024 4,052 4,077 PAA PAB 1,236 1,226 1,209 1,208 1,247 1,251 1,249 1,225 PAE 5,875 5,895 5,906 5,949 5,948 5,935 5,911 5,717 SAA 3,841 3,847 3,879 3,884 3,906 3,925 3,951 3,980 PAP Total of Customers thousand 24,374 24,575 24,912 25,235 26,003 26,440 27,411 28,640 Individuals thousand 22,815 22,993 23,294 23,599 24,336 24,742 25,636 26,617 Businesses thousand 1,559 1,581 1,618 1,636 1,667 1,698 1,775 2,023 Total of Savings Accounts thousand 15,360 15,759 16,266 16,425 16,651 17,091 17,710 18,002 Individuals thousand 15,238 15,640 16,144 16,300 16,526 16,961 17,409 17,717 Businesses thousand Collaborators 92,619 92,580 89,108 89,514 90,974 92,801 93,733 94,935 Employees * 82,672 82,468 79,310 80,048 81,855 83,417 84,258 85,392 Interns 9,947 10,112 9,798 9,466 9,119 9,384 9,475 9,543 * Adjusted Concept: See Chapter ** Adjusted series considering the stock split (1:3) occurred in the second quarter of Banco do Brasil MDA 3Q08

37 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 3Q08 Global Ratings Fitch Ratings Individual C/D C/D C/D C/D C/D C/D C/D C/D C/D Short-Term - Local Currency B B F3 F3 F3 F3 F3 F3 F3 Long-Term - Local Currency BB+ BB+ BBB- BBB- BBB- BBB- BBB- BBB- BBB- Short-Term - Foreign Currency B B F3 F3 F3 F3 F3 F3 F3 Long-Term - Foreign Currency BB+ BB+ BBB- BBB- BBB- BBB- BBB- BBB- BBB- Moody's Financial Strength D C C C C C C C C Short-Term - Local Currency P-1 P-1 P-1 P-1 P-1 P-1 P-1 P-1 P-1 Short-Term - Foreign Currency NP NP NP NP NP NP NP NP NP Long-Term Debt- Foreign Currency Baa3 Baa3 Baa3 Baa3 Baa3 Baa3 Baa3 Baa3 Baa3 Long-Term Deposits - Local Currency A1 A1 A1 A1 A1 A1 A1 A1 A1 Long-Term Deposits - Foreign Currency Ba3 Ba3 Ba3 Ba3 Ba2 Ba2 Ba2 Ba2 Ba2 Standard & Poor's Long-Term - Local Currency BB BB BB+ BB+ BB+ BBB- BBB- BBB- BBB- Long-Term - Foreign Currency BB BB BB+ BB+ BB+ BBB- BBB- BBB- BBB- National Ratings Fitch Ratings Short-Term F1+(bra) F1+(bra) F1+(bra) F1+(bra) F1+(bra) F1+(bra) F1+(bra) F1+(bra) F1+(bra) Long-Term AA(bra) AA(bra) AA+(bra) AA+(bra) AA+(bra) AA+(bra) AA+(bra) AA+(bra) AA+(bra) Moody's Short-Term BR-1 BR-1 BR-1 BR-1 BR-1 BR-1 BR-1 BR-1 BR-1 Long-Term Aaa.Br Aaa.br Aaa.br Aaa.br Aaa.br Aaa.br Aaa.br Aaa.br Aaa.br Compulsory Investments Demand Deposits Rate(1) (5) 45% 45% 45% 45% 45% 45% 45% 45% 42% Additional(2) (6) 8% 8% 8% 8% 8% 8% 8% 8% 5% Compulsory Investments* 25% 25% 25% 25% 25% 25% 25% 25% 30% Compulsory Investments (micro finance) 2% 2% 2% 2% 2% 2% 2% 2% 2% Free 20% 20% 20% 20% 20% 20% 20% 20% 21% Savings Deposits Rate(3) (7) 20% 20% 20% 20% 20% 20% 20% 20% 15% Additional(2) 10% 10% 10% 10% 10% 10% 10% 10% 10% Compulsory Investments* (8) 60% 60% 60% 65% 65% 65% 65% 65% 70% Free 10% 10% 10% 5% 5% 5% 5% 5% 5% Time Deposits Rate(4) 15% 15% 15% 15% 15% 15% 15% 15% 15% Additional(2) (6) 8% 8% 8% 8% 8% 8% 8% 8% 5% Free 77% 77% 77% 77% 77% 77% 77% 77% 80% Judicial Deposits Rate 0% 0% 0% 0% 0% 0% 0% 0% 0% Free 100% 100% 100% 100% 100% 100% 100% 100% 100% * In BB, the compulsory investments are applied in Rural Credit. (1) Paid over in cash without remuneration (2) Paid over in cash at Selic rate. (3) Paid over in cash at TR + interest of 6.17% p.a. (4) Linked to securities (5) Since the base period of to , compliance since (6) Since the base period of to , compliance since (7) To the base periods between and , compliance from to (8) Exclusively to the base periods between and (compliance from to ) Banco do Brasil MDA 3Q08

38 5 Summarized Financial Statements 5.1 Summarized Balance Sheet Table 10. Summarized Balance Sheet Assets R$ million Balance Chg. % Sep/07 Jun/08 Sep/08 on Sep/07 on Jun/08 ASSETS 351, , , Current and Long-term Assets 345, , , Available Funds 4,366 5,633 6, Short-term Interbank Investments 51,419 54,272 71, Securities 74,126 70,461 72,944 (1.6) 3.5 Securities Available for Trading 14,046 18,503 18, (0.9) Securities Available for Sale 38,466 35,088 37,066 (3.6) 5.6 Securities Held to Maturity 20,029 15,654 16,288 (18.7) 4.0 Financial Derivatives 1,585 1,216 1,258 (20.6) 3.5 Interbank Accounts 31,503 38,260 38, (0.1) Deposits with the Central Bank 29,199 33,666 35, Compulsory Deposits on Demand Deposits and Float 10,768 12,952 12, Compulsory Deposits on Savings Deposits 18,430 20,714 22, Other 2,304 4,594 2, (41.8) Intrabank Accounts Loans 129, , , Public Sector 4,643 14,670 9, (38.2) Private Sector 134, , , ( Allowance for Loan Losses) (9,341) (10,773) (10,783) Leasing (48.3) 5.8 Leasing and Subleasing Receivables 1,095 1,369 1, (Unearned Lease Income) (1,047) (1,320) (1,518) (Allowance for Lease Losses) (23) (36) (44) Other Receivables 53,245 56,962 66, Receivable on Guarantees Honored Foreign Exchange Portfolio 11,538 10,060 17, Income Receivable (1.4) (5.4) Trading and Brokerage of Securities Specific Credits Specific Operations (95.2) 0.1 Tax Credits 13,881 14,218 14, Actuarial Assets 2,364 2,092 2,003 (15.3) (4.2) Warrants Deposits Receivable 15,110 15,975 16, Other Credits 9,915 14,328 15, (Provision or Doubtful Receivables) (856) (1,069) (1,106) (With Loan Characteristics) (300) (357) (360) (Without Loan Characteristics) (556) (713) (746) Other Assets 1,495 4,096 4, Interest in Companies (3.7) 14.4 Other Assets (Provision for Possible Losses) (152) (147) (150) (1.1) 2.3 Prepaid Expenses 1,393 3,988 4, Permanent Assets 5,912 8,089 9, Investments 1,276 2,411 2, Property and Equipment 2,657 2,769 2, Leasing Assets 1,430 2,329 2, Deferred Charges Banco do Brasil MDA 3Q08

39 Table 11. Summarized Balance Sheet - Liabilities R$ million Balance Chg. % Sep/07 Jun/08 Sep/08 on Sep/07 on Jun/08 LIABILITIES AND SHAREHOLDER S EQUITY 351, , , Current and Long-term Liabilities 328, , , Deposits 172, , , Demand Deposits 38,712 43,628 42, (1.5) Savings Deposits 43,831 49,096 52, Interbank Deposits 5,603 5,578 6, Time Deposits 83,640 96, , Investment Deposits (31.5) (39.1) Money Market Borrowing 74,845 93,335 85, (8.3) Funds from Acceptances and Securities Placed 1,616 1, (58.0) (63.5) Foreign Securities 1,616 1, (58.0) (63.5) Interbank Accounts 1,929 3,611 2, (32.5) Intrabank Accounts 1,497 1,185 1,315 (12.2) 11.0 Borrowing 2,981 3,085 4, Foreign Borrowing 2,981 3,085 4, Domestic Onlending Official Institutions 16,528 19,255 19, National Treasury 3,132 3,246 3, BNDES 5,121 9,555 9, (1.8) Finame 7,516 5,802 6,085 (19.0) 4.9 Other Institutions Foreign Onlending Financial Derivatives 2,475 1,955 1,370 (44.6) (29.9) Other Accounts Payable 54,428 57,209 70, Collection of Taxes and Contributions 1,917 2,489 2, Foreign Exchange Portfolio 11,600 7,880 15, Shareholder and Statutory Distributions 1,056 1,194 1, Taxes and Social Security 12,081 12,467 13, Trading and Brokerage of Securities , Financial and Development Funds 1,847 2,251 2, Perpetual Securities Special Operations (0.7) (0.1) FCO (Subordinated Debt) 9,829 10,774 11, Actuarial Liabilities 3,932 4,166 4, Other Liabilities 11,037 15,026 16, Unearned Income Shareholders Equity 23,065 26,371 27, Capital 12,711 13,212 13, (Unpaid Capital) Capital Reserves Revaluation Reserves Revenue Reserves 8,933 13,090 12, (2.6) Mark-to-Market Securities and Derivatives (33) - - Retained Earnings (Accumulated losses) 1-0 (92.9) - (Treasury Shares) Income Accounts 1,031-1, Note: For comparative purposes, in compliance with CVM Resolution nº 506, reclassifications were made in the balances of the Balance Sheet as of the second quarter of 2007 (2Q07, 3Q07, 4Q07 and 1Q08) referring to the judicial deposit of the lawsuit for full offsetting of the accumulated tax loss of Income Tax and of the negative bases of Social Contribution Tax (Note 22-c), aiming at adaptation to the accounting procedures/classifications adopted in June 2008, originating from the application of CMN Resolution nº 3,535 of The procedure implies an increase of balance in Receivables from Guarantee Deposits (Note 9-b) and Other Fiscal and Social Security Liabilities (Note 30-c) in the amounts of R$ 9,081,671 thousand (2Q07), R$ 9,253,112 thousand (3Q07), R$ 9,460,032 thousand (4Q07), and R$ 9,608,928 thousand (1Q08) Banco do Brasil MDA 3Q08

40 5.2 Summarized Corporate Law Income Statement Table 12. Summarized Corporate Law Income Statement R$ million Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 s/3q07 s/2q08 9M07 9M08 s/9m07 Financial Intermediation Income 10,333 10,683 14, ,138 36, Loans 6,517 6,912 8, ,670 22, Leasing (1.1) Securities 3,355 3,052 5, ,558 12, Financial Derivatives (149) 303 (85) (43.2) (232) - Foreign Exchange Portfolio 155 (111) (50) - (55.2) 367 (32) - Compulsory Investments ,206 1, Financial Intermediation Expenses (6,483) (6,958) (11,386) (18,981) (25,640) 35.1 Money Market Funds (4,753) (5,125) (7,045) (13,535) (17,131) 26.6 Borrowing, Assignments and Onlending (498) (88) (2,973) (1,297) (3,794) Allowance for Loan Losses (1,232) (1,744) (1,367) 11.0 (21.6) (4,149) (4,715) 13.6 Gross Income from Financial Intermediation 3,850 3,726 3,579 (7.0) (3.9) 11,157 11,053 (0.9) Other Operating Income (Expenses) (2,062) (1,569) (1,406) (31.8) (10.4) (5,546) (3,797) (31.5) Fee Income 2,498 1,986 1,987 (20.5) 0.0 7,318 6,545 (10.6) Banking Fees Income ,320 - Personnel Expenses (2,449) (2,074) (2,324) (5.1) 12.0 (6,820) (6,306) (7.5) Other Administrative Expenses (1,736) (1,819) (1,976) (4,855) (5,469) 12.6 Taxes (513) (524) (503) (1.9) (4.0) (1,526) (1,537) 0.7 Equity Int, in the Results of Subs, and Affil, , Other Operating Revenues 1,363 1,922 1,217 (10.7) (36.7) 4,056 4, Other Operating Expenses (1,274) (1,784) (1,240) (2.7) (30.5) (3,746) (4,225) 12.8 Operating Income 1,789 2,157 2, ,611 7, Non-operating Income (63.2) (73.5) Income Before Taxes 1,831 2,216 2, (1.2) 5,696 7, Income and Social Contribution Taxes (293) (361) (83) (71.7) (77.0) (1,362) (754) (44.6) Statutory Profit Sharing (175) (212) (239) (492) (751) 52.6 Net Income 1,364 1,644 1, ,841 5, Banco do Brasil MDA 3Q08

41 5.3 Income Statement with Reallocations Table 13. Income Statement with Reallocations (R$ million) Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 On 9M07 Financial Intermediation Income ,7 44, ,1 Loan operations (4) (14) ,0 24, ,8 Lease operations ,3 (1,1) ,9 Securities (11) ,5 88, ,9 Financial Derivatives (149) 303 (85) (43,2) (232) - Foreign Exchange Portfolio 155 (111) (50) - (55,2) 367 (32) - Compulsory Investments ,4 25, ,3 FX Gain (Loss) on Foreign Investments (1) (100) (294) (486) Other Op. Inc. of a Fin. Intermed. Nature (2) (21,1) (90,4) (1,2) Financial Intermediation Expenses (5.111) (5.213) (9.839) 92,5 88,7 (14.558) (20.594) 41,5 Money Market Funds (3) (4.613) (5.125) (6.866) 48,8 34,0 (13.261) (16.800) 26,7 Borrowing, Assignments and Onlending (498) (88) (2.973) 497, ,2 (1.297) (3.794) 192,6 Net Interest Margin ,3 3, ,7 Allowance for Loan Losses (5) (1.216) (1.687) (1.339) 10,1 (20,6) (3.881) (4.560) 17,5 Net Financial Margin ,9 13, ,7 Fee Income ,5 1, ,5 Services Income (20,5) 0, (10,6) Banking Fee Income , Taxes on Revenues (6) (11) (476) (511) (489) 2,7 (4,4) (1.416) (1.488) 5,1 Contribution Margin ,7 9, ,1 Administrative Expenses (3.368) (3.582) (3.685) 9,4 2,9 (9.750) (10.658) 9,3 Personnel Expenses (7) (9) (10) (1.759) (1.933) (1.967) 11,8 1,8 (5.143) (5.676) 10,4 Other Administrative Expenses (8) (17) (1.572) (1.636) (1.704) 8,4 4,1 (4.497) (4.939) 9,8 Other Tax Expenses (6) (37) (13) (15) (60,3) 9,4 (110) (43) (61,2) Commercial Income ,2 19, ,9 Legal Risk (219) (215) (155) (29,2) (28,0) (687) (496) (27,9) Legal Claims (8) (13) (73) (74) (230) (64) (72,2) Labor Lawsuits (7) (146) (141) (159) 9,1 12,4 (457) (431) (5,6) Other Operating Income (Expenses) 48 (257) (211) - (17,7) (66) (654) 890,8 Eq Int. in Results of Subs. and Affil. (1) (11) (12) (16) ,9 15, ,1 FX Other Operating Income/Expenses (100) (486) (475) 375,1 (2,3) (579) (1.420) 145,1 Other operating income (2) (3) (4) ,2 21, ,1 Other operating expenses (2) (5) (805) (1.133) (1.259) 56,4 11,1 (2.625) (3.611) 37,6 Operating Income ,4 28, ,2 Non-Operating Income (63,2) (73,5) ,4 Income Before Taxes ,1 25, ,4 Income and Social Contrib Taxes (9) (10) (11) (13) (15) (650) (507) (465) (28,4) (8,4) (1.962) (1.546) (21,2) Interest on Own Capital Tax Benefit ,8 11, ,5 Statutory Profit Sharing (175) (212) (239) 37,0 13,1 (492) (751) 52,6 Recurring Income ,0 39, ,2 Extraordinary Items (278) 181 (170) (38,8) - (749) Cassi Assistance Plan (9) (403) (403) - - Cassi Provision for non-recurring IR and CS (9) PAA Retirement Incentive Plan (10) (141) (817) - - PAA Provision for non-recurring IR and CS (10) Permanent Exclusions Tax Benefits (11) Sale of share in VISA Internacional Sale of share in VISA Int IR/CS/Pasep/Cofins (73) - Disposal of Investments (Telemar) (12) Revaluation of Consolidated Shares Economic Plans (13) (91) (54) (192) (128) (328) Economic Plans - IR/CS (13) Credit Assignment Tax Efficiency (14) Change of Credit Cards Basis (15) - (54) (54) - Chg of Cred Card Prov. for non recur IR & CS (15) Contingent Liabilities (BESC) (16) - - (360) (360) - Cont..Liabil. (BESC) Prov. for non recur IR & CS (16) Tax Credti (BESC) (17) Net Income 1,364 1,644 1, ,841 5, Banco do Brasil MDA 3Q08

42 5.3.1 Details of the Reallocations The adjustments made in the statement of income to get the Reallocated Statement of Income are detailed below. The adjustments do not change the final result, since they only intend to arrange more coherently revenue and expense items, considering the performance dynamics of a financial institution. Basically, these adjustments were intended to: a) allow the financial margin recorded in the period to reflect, effectively, the gain from all the Earning Assets, seeking to inform the market what was the spread achieved from the division of this margin by the assets, except the permanent assets. For this, it was necessary to: Include in the financial margin the income recorded in Other Operating Income that had financial intermediation characteristics and which was derived from Earning Assets recorded in the Balance Sheet Under Other Receivables; Identify the foreign exchange gain/(loss) on financial assets and liabilities abroad in the period in a specific financial margin item (financial equity); To keep in financial margin, amounts related to negative foreign exchange adjustments that were recorded in Other Operating Income and Expenses to avoid inverting the balance of accounts of a financial intermediation nature. b) segregate the impacts of extraordinary events in order to demonstrate recurring income of the Bank in the period. Reallocations in the gross financial margin (1) The foreign exchange gain (loss) on foreign financial equity is reallocated from equity in the (earnings)/loss of subsidiary and associated companies for inclusion in the financial margin. This adjustment is required to maintain the equilibrium and coherence of the analysis of the spread, since assets and liabilities previously included in permanent assets are included in other balance sheet items after consolidation. The spread would be improperly reduced without reallocation. In 2Q08, this reallocation was of (R$ 294 million) and in 3Q08, R$ 496 million. (2) The reallocations of Other Operating Income/Expenses to Other Operating Income of a financial intermediation nature are detailed below: Table 14. Reallocations Other Operating Income/Expenses R$ million Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 s/3q07 s/2q08 9M07 9M08 s/9m07 Income from Special Operations (5.3) Income from Specific Credits FX Readjustment (9) (466.7) (103.8) (3.2) FX Readjustment Income (100.0) (100.0) 1,641 1,012 (38.3) FX Readjustment Expense (486) (708) (9) (98.1) (98.7) (1,390) (769) (44.7) Total (21.1) (90.4) (1.2) (3) Reallocation of Other Operating Income to Funding Operations in the Market. Refers to the reversal of charges with the restatement of savings deposits recorded upon the closing of the semesters. In the months after the closing of the Balance Sheets, this reallocation is necessary in order to correctly evidence the Gross Financial Margin. In this manner, this reallocation is only performed in the first and third quarters of the year. In 1Q08 the charges were R$ million (R$ 180 million in 3Q08) Banco do Brasil MDA 3Q08

43 (4) Reallocation of Other Operating Income to Loan Operations corresponding to the equalization revenues of charges on loan operations. As of January/2008 these revenues began to be accounted for in Other Operating Income, and had to be reallocated to the group of Loan Operations for purposes of comparability. Equalization revenues amounted to R$ 287 million in 2Q08 and R$ 265 million in 3Q08. Reallocations in the net financial margin (5) The expense with the Allowance for Loan Losses includes credits without characteristics of financial intermediation, so this part of the allowance is reallocated to Other Operating Expenses. In 2Q08, this reallocation was of R$ 57 million and in 3Q08, R$ 28 million. Reallocations in the contribution margin (6) Considering the model used for the income statement, tax expenses on revenues are reallocated and included in the contribution margin. In 2Q08, this reallocation was of R$ 511 million and in 3Q08, R$ 489 million. Reallocations in the operational result (7) and (8) The expenses with Legal Claims and Labor Lawsuits were separated in the Income Statement with Reallocations, into a group called Legal Risk. It aims to provide a better analysis of the administrative expenses and giving more transparency to this kind of risk. Amounts reallocated in 2Q08 and 3Q08 were, respectively: - Labor claims: (R$ 141 million) and (R$ 159 million); - Civil claims: (R$ 74 million) and 4 million. Extraordinary Items (9) The restructuring of health plan managed by Caixa de Assistência dos Funcionários do Banco do Brasil (Cassi), implied the extraordinary accounting of R$ 266 million in 3Q07, net of taxes. Cassi restructuring was the subject matter of a Significant Event divulged on July 3, (10) Early Resignation Plan (PAA) for employees over 50 years of age and with 15 years of contribution to Previ, which implied the extraordinary accounting of R$ 93 million in 3Q07, net of taxes. PAA was the subject matter of a Significant Event divulged on July 3, (11) Considering the rate of recurring tax as that calculated on the first nine months of 2007, in 3Q07 the rate was lower due to the fiscal benefit of permanent exclusions in the calculation base of taxes referring to foreign exchange gains occurring in the period. The difference between the rate that was calculated in 9M07 and in 3Q07 is the amount that was reallocated as positive extraordinary effect on net income. (12) Sale of shares of Telemar Participações, belonging to Alutrens Participações, controlled by Brasilcap Capitalização S.A. and by Brasilveículos Companhia de Seguros S.A., associated companies of BB Banco de Investimentos, wholly-owned subsidiary of Banco do Brasil, generating positive extraordinary result of R$ 142 million in 2Q08. (13) Civil claims of Economic Plans on savings deposits, generating extraordinary expenses in 3Q08 in the amount of R$ 192 million. For purposes of comparison the quarterly sums of these claims in the years 2007 and 2008 were determined and treated as extraordinary items. To wit: 1Q07 of R$ 11.2 million, 2Q07 of R$ 26 million, 3Q07 of R$ 91.1 million; 4Q07 of R$ 71 million, 1Q08 of R$ 82 million, and 2Q08 of R$ 54 million. (14) Tax efficiency generated by the Bank in a periodic review as to the treatment of the deductibility of tax expenses used until then. In view of this review, it was feasible to obtain tax efficiency in 1Q08 and 2Q08 in the amount of approximately R$ 302 million and R$ 110 million, respectively Banco do Brasil MDA 3Q08

44 (15) Expense of R$ 54 million originating from the substitution of the base of credit cards with a magnetic stripe by cards with a chip. At the end of 2Q08 cards with a chip represent 95.5% of the credit card base. (16) Extraordinary expenses in 3Q08 of R$ 238 million net of taxes, corresponding to reinforcement of provisions for Contingent Liabilities - labor, civil and fiscal - originating from BESC, aiming to adapt them to the valuation criteria of Contingent Liabilities adopted by BB. (17) Tax Credit recorded in 3Q08, in the amount of R$ 194 million, originating from timing differences and CSLL recoverable generated at Besc/Bescri. Amounts not recorded at those institutions as there was no expectation of realization within the timelines established by BACEN Banco do Brasil MDA 3Q08

45 6 - Balance Sheet Analysis 6.1 Breakdown Banco do Brasil consolidated its leadership in the third quarter as the largest Brazilian financial institution in terms of assets. Total Assets reached R$ 444,702 million, increase of 26.5% in 12 months and 10.2% in the quarter. Earning Assets grew 25.5% in 12 months, and 10.3% in the quarter. The relative share of Earning Assets remained stable in the third quarter, and showed a slight reduction, from 82.8% to 80.0%, in relation to the same period of the previous year. Among the earning assets it is worth highlighting the strong growth of Loan Operations and Earning Compulsory Deposit, of 35.6% and 26.7%, respectively, in relation to September An increase can be seen in the relative share of Interest Bearing Liabilities in the quarter, from 69.9% of Total Liabilities in the previous quarter to 70.4%. This indicator remained stable in the annual comparison. The growth of Time Deposit funding explains the development of interest-bearing liabilities and also of the Earning Compulsory Deposit. This growth was 24.7% in the quarter and 41.9% in the annual comparison. It is worth mentioning that due to a revaluation of the calculation methodology of Earning Assets and Interest Bearing Liabilities, the historic series of these indicators was redone. Earning Assets 1 vs. Interest Bearing Liabilities 2 - % Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Earning Assets Interest Bearing Liabilities Others Assets Other Liabilities Figure 9. Earning Assets vs. Interest Bearing Liabilities 1 Cash and cash equivalents in foreign currency, marketable securities, financial investments, loan operations, Leasing, Earning Compulsory Deposit and other Earning Assets vs. Interest-bearing Liabilities 2 Savings Accounts, Interbank Deposits, Time Deposits, Money Market Borrowings, Foreign Borrowings, Onlendings, Financial and Development Funds, Subordinated Debts, Hybrid Capital and Debt Instruments, and Foreign Securities Issued Abroad Banco do Brasil MDA 3Q08

46 6.2 Analysis of Assets Loan operations, an item that holds the highest relative share in relation to total assets, maintained the growth trend presented in recent quarters and attained the a net of allowances balance of R$ 175,613 million, which corresponds to 39.5% of the total assets. In 12 months, Loan Operations presented expansion of 35.6%. The growth of 31.1% in Liquidity Assets (excepting Securities) also deserves special emphasis in the quarter. The growth reflects the performance of Open Market Investments, which advanced 39.9% in the period and 43.5% in relation to the same period of The share of this item in total assets reached 17.5%, as opposed to 14.7% in the previous quarter. However, Investments in Securities grew at a slower pace than the other assets, reducing their share in total assets from 17.5% in 2Q08 to 16.4% in 3Q Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Other Assets Loans and Leasings Liquidity Assets except Securities Tax Credits Securities Figure 10. Breakdown of Assets Table 15. Breakdown of Assets R$ million Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Total Assets 296, , , , , , , ,702 Liquidity Assets except Securities 33,837 46,695 56,051 55,785 55,476 77,319 59,332 77,780 Securities 73,108 73,350 72,071 74,126 75,201 70,091 70,461 72,944 Loans and Leasing 113, , , , , , , ,613 Tax Credits 8,604 8,642 13,746 13,881 13,826 13,904 14,218 14,840 Other Assets 66,939 73,147 74,658 78,347 83,859 91,344 93, , Banco do Brasil MDA 3Q08

47 6.3 Liquidity Analysis The liquidity of Banco do Brasil, determined by the difference between Liquidity Assets and Liabilities, attained R$ 48,483 million in September This sum represents growth of 93.0% in relation to the previous quarter and of 7.7% in relation to the same prior-year period. R$ million 48,910 43,256 44,107 45,019 48,312 36,361 48,483 25,124 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Figure 11. Liquidity Balance In analyzing the table below, which details the calculation of the liquidity balance, we can observe that Money Market Borrowings slipped back 8.3% in the quarter, contributing to a downslide of 7.1% in Liquidity Liabilities. In the same period, Cash and Cash Equivalents and Interbank Investments grew respectively, 32.6% and 30.9%, contributing toward growth of 13.2% in Liquidity Assets. Table 16. Liquidity Balance R$ million Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Liquidity Assets (A) 103, , , , , , , ,395 Available Funds 4,749 5,511 4,437 4,366 4,352 4,668 5,060 6,712 Interbank Investments 29,088 41,185 51,614 51,419 51,124 72,651 54,272 71,069 Securities (except linked to Bacen) 69,235 69,226 67,921 69,683 70,250 65,203 64,706 62,615 Liquidity Liabilities (B) 54,162 72,665 79,865 80,448 77, ,161 98,913 91,912 Interbank Deposits 4,878 5,026 5,146 5,603 5,144 6,247 5,578 6,309 Money Market Borrowing 49,283 67,639 74,719 74,845 72,270 99,914 93,335 85,603 Liquidity Balance (A - B) 48,910 43,256 44,107 45,019 48,312 36,361 25,124 48, Banco do Brasil MDA 3Q08

48 6.4 Securities Portfolio The securities portfolio showed a decrease of 1.6% in relation to 3Q07 and increase of 3.5% in relation to 2Q08. We emphasize that derivative financial instruments represent 1.7% of total securities portfolio or R$ 1,258 million. Table 17. Securities Portfolio by Category R$ million Balances Share % Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Sep/07 Sep/08 Securities 73,108 73,350 72,071 74,126 75,201 70,091 70,461 72, Available for Trading 7,494 7,361 10,856 14,046 19,112 18,033 18,503 18, Available for Sale 40,641 40,711 39,379 38,466 38,109 34,787 35,088 37, Held to Maturity 24,409 24,263 20,589 20,029 16,830 16,371 15,654 16, Financial Derivatives 564 1,016 1,247 1,585 1, ,216 1, In the chart below we note an increase in securities maturing between 0 and 5 years in relation to the securities portfolio with a decrease in securities maturing between 5 and 10 years. Table 18. Securities Portfolio by Maturity - Market Value R$ million Up to 1 year 1 to 5 years 5 to 10 years Over 10 years Balance Share % Balance Share % Balance Share % Balance Share % Total Dec/06 24, , , , ,476 Mar/07 22, , , , ,309 Jun/07 26, , , , ,801 Sep/07 27, , , , ,542 Dec/07 30, , , , ,073 Mar/08* 29, , , , ,619 Jun/08 23, , , , ,270 Set/08 23, , , , ,029 *The value on Mar/08 refers to the Economic-Finance Consolidated. In the chart below we note an increase in securities maturing between 1 and 5 years as compared to June 2008, and a decrease in securities maturing after 5 years. Sep/07 Jun/08 Sep/08 9.6% 19.0% 17.1% 38.2% 33.7% 33.1% 52.3% 47.3% 49.8% 0 to 1 year 1 to 5 years After 5 years Figure 12. Securities Portfolio with Maturities between 0 and 5 years and after 5 years 48 - Banco do Brasil MDA 3Q08

49 6.5 Loan Portfolio As of this quarter, with the objective of improving the presentation and analysis of loan information, the portfolio will be detailed by clients, i.e., there will be portfolios of Individuals, Businesses and Agribusiness, to the detriment of the previous segmentation: retail (SME and Businesses), commercial (medium and large companies and corporate clients), agribusiness and foreign trade portfolio. In relation to the loan portfolio of the National Financial System, last September the balance reached R$ 1,148.9 billion, up 7.6% over June and growth of 34.0% in twelve months, representing 39.1% of the GDP, against 33.0% in the same period of The Bank's domestic loan portfolio rose to rates above the Financial System, evidencing BB's capacity and efficiency in loan concession. An increase of 37.5% was observed in the annual comparison and growth of 5.0% over Jun/08. Considering the Bank's Total Portfolio (domestic and abroad), a growth rate of 34.3% was verified in 12 months and a growth of 6.4% over the immediately prior quarter, as can be seen in the table below. In the Financial System, loans granted with free resources, corresponding to 71.9% of the total Financial System, amounted to R$ billion in September, an increase of 37.1% in twelve months. The annual increase of 44.3% in loans to businesses, a balance of R$ billion, deserves special emphasis. Loans to individuals attained R$383.5 billion, growth of 29.7% in twelve months. At BB, loans for individuals rose 5.9% in relation to the last quarter and 45.4% in 12 months. In this segment, credit card, payroll and vehicle loans continue with robust growth, deserving special emphasis. In the businesses segment, the rates were even better, 8.8% and 42.7% on the same comparative bases. It is emphasized that both segments grew at higher rates than the Financial System. The balance of agribusiness operations attained a lower performance level than in the other quarters. In twelve months it grew 24.9%, but with slight shrinkage in relation to the prior quarter (1.8%). This shrinkage is explained by the seasonality, as this period is characterized by the payment of loans from the past crop and start of concession for the next harvest. Table 19. Loan Portfolio R$ million Balance Change on (%) Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Sep/07 Jun/08 Brazil 120, , , , , , , , Individuals 23,996 26,130 27,904 29,486 31,998 36,620 40,503 42, Businesses 51,916 55,166 56,345 59,693 65,485 69,118 78,252 85, MSE 18,323 19,448 21,390 22,340 24,622 25,675 29,234 32, Other 33,593 35,718 34,955 37,353 40,863 43,443 49,018 53, Agribusiness 45,064 46,774 48,769 48,447 51,883 56,524 61,611 60, (1.8) - Individual 36,557 37,756 38,577 38,070 40,162 40,684 43,168 42, (1.2) - Companies 8,507 9,018 10,192 10,377 11,721 15,839 18,442 17, (3.0). Besc Foreign 12,181 12,318 12,214 12,558 11,373 10,499 9,717 12, Total 133, , , , , , , , Banco do Brasil MDA 3Q08

50 6.5.1 Individual Loan Portfolio At the end of September of this year, loans to individuals amounted to R$ 42,881 million, an increase of 45.4% in twelve months and of 5.9% over the prior quarter. The amounts already consider the incorporation of R$ 554 million referring to the Besc Individual Loan Portfolio. It is emphasized that the Besc loan portfolio was separated only in the individuals (75.8%) and businesses (24.2%) view, hence it is not yet distributed in the various products that form the BB portfolio. Individual loan portfolio is well diversified and started to operate with mortgage loans this year. The product with greatest significance is payroll loans with 33.9% share of the total portfolio, followed by credit cards (15.3%) and vehicle loans (13.1%). Of the total Payroll Loan operations of Financial System, a balance of R$ 75.3 billion at the end of Sept/08, according to the Central Bank, BB holds a market share of 19.3%. These operations grow at higher rates at BB, 3.7% against the immediately previous quarter and 32.0% in twelve months, against 1.0% and 23.8%, respectively, in the Financial System. The activity in this line of credit is focused on civil servants, 82.7% of the total. In Sept/08 the average term of operations was 35 months and the average rate was 2.4%. In the 3Q08, BB s loan portfolio reached R$ 5,607 million, growth of 151.7% in twelve months and 19.3% over the last quarter. Out of the vehicle loan portfolio balance, R$ 1,909.5 million are from partnerships, which represents 34.1% of the total portfolio. R$ million are from leasing, wich represents 15.8% of the loan portfolio. The average term of leasing operations is 54.4 months for the loans granted by partnerships and 48.4 months for the others and the average rate is 1.49% p.m. and 1.43% p.m., respectively. In the case of other vehicle loans, the average term is 48.8 months for partnerships and 43.2 months for the others, with average rate of 1.5% p.m. and 1.6% p.m., respectively. The change of the loan portfolio presentation entailed some alterations in the distribution of the Overdraft Account and Credit Card products. In the old view (by manager), these products contained a balance both of individuals and of businesses, although they are essentially designed for individuals. The historic series evidenced in the table below contains the balances of these products borrowed by individuals; the amounts loaned to businesses are detailed in section Businesses Loan Portfolio. Credit Card operations grew 103.4% in twelve months, closing 3Q08 with a balance of R$ 6,564 million. We emphasize the inclusion in the loan portfolio, as of 2008, of the installments purchases made with credit cards and financed by retailers. The Bank's credit card base increased 33.4% in 12 months, going from 17.8 million in Sept/07 to 23.7 million in Sept/08. And, in relation to overdraft accounts, which represents 50.3% of the total accounts, the balance of last September was R$ 2,717 million, positive variance of 9.9% in twelve months and 0.8% over June/08. This product represents 6.3% of the total individual loan portfolio Banco do Brasil MDA 3Q08

51 Table 20. Individual Loan Portfolio R$ million Balance Change on (%) Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Sep/07 Jun/08 Direct Consumer Credit (CDC) 16,139 17,126 18,493 19,761 21,585 22, Payroll Loan 10,173 11,022 11,888 12,781 14,028 14, Vehicle Loan¹ 3,740 3,794 3,884 3,892 4,079 4, Consumer Loan Backed by Direct Deposits 2,225 2,310 2,720 3,087 3,478 3, Mortgage Receivables 1,722 2,228 3,033 3,544 4,702 5, BB Giro Rápido (WCL) 3,078 3,227 3,801 5,885 6,463 6, Turnover 2,525 2,473 2,298 2,704 2,697 2, Credit Cards (4.7) (4.3) Overdraft Accounts Others 3,933 3,856 3,797 4,158 4,475 4, (9.4) Total 27,904 29,486 31,998 36,620 40,503 42, ¹ Contains balance of Leasing operations and Finame Pro-Caminhoneiro PF, R$ million and R$ 99.8 million respectively. Loans for the lower income population Aiming to expand the strategic focus on the Microcredit segment, as well as greater synergy in the implementation of the strategies defined for Lower Income, in May/08, Banco do Brasil S.A. approved the creation of Lower Income Directoship - Diren, which assembled, as of June, in a single structure, attention to clients with an income of up to 1 Minimum Salary. The new Directorship added Banco Popular do Brasil-BPB, the Sustainable Regional Development Management-DRS, the management of the network of BB/BPB correspondents and the loan portfolio from this segment to its management. At the end of the third quarter of 2008, the microcredit portfolio exhibited a balance of R$ 549 million, out of a total 1.3 million operations, with average amount of R$ 419. In this quarter were released R$ million involving the contracting of thousand operations Banco do Brasil MDA 3Q08

52 6.5.2 Business Loan Portfolio With significant activity in the business segment, BB closed Sept/08 with a loan portfolio balance of R$ 85,343 million, an increase of 43.0% in twelve months and 9.1% over June/ 08. Like in the individual portfolio, the amount referring to the business loan portfolio incorporated from Besc was apparted and is not listed in the distribution by products. The table below shows the business loan portfolio by products. It is emphasized that the Credit Card and Overdraft Account lines present the balances of these products borrowed by businesses; the balances of these products loaned to individual are highlighted in section Individual Loan Portfolio. Table 21. Business Loan Portfolio R$ million Balance Change on (%) Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Sep/07 Jun/08 Working Capital 22,363 23,554 26,684 30,351 37,809 41, Investment 10,852 11,560 13,065 13,885 15,419 17, Receivables 7,233 7,154 8,309 8,382 8,963 9, Pre-Approved Credit 2,111 2,194 2,196 2,375 2,810 3, ACC/ACE 7,780 8,414 8,471 7,460 7,359 9, BNDES Exim 3,467 3,873 3,766 3,866 3,939 3,615 (6.7) (8.2) Credit Cards Overdraft Accounts Besc Other 2,046 2,403 2,393 2,123 1, (80.3) (60.6) Total 56,345 59,693 65,485 69,118 78,252 85, The product with the largest share is working capital, which serves to fulfill any financial needs of companies, with 48.2% of the total loan portfolio. This credit line shown an increase of 74.8% in twelve months and 8.9% over June/08. The figures of loan concession for investment did not suffer the influence of the international financial crisis that deteriorated over September. The balance at the end of 3Q08 reached R$ 17,065 million, positive development of 47.6% in twelve months and 10.7% in the quarterly comparison. This line of credit represents 20.0% of the total business portfolio. The balance of R$ 9,178 million of ACC/ACE loans recorded growth of 24.7% in the quarterly comparison. This result was influenced by the foreign exchange devaluation of 19.1% that occurred in 3Q08, with the exchange rate (R$/US$) closing at R$1.90 at the end of September as opposed to R$1.60 on June 30. The table below shows details of the ACC/ACE transactions: Table 22. ACC/ACE Average Volume per Contract Change on (%) ACC/ACE Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Sep/07 Jun/08 Volume Contracted (US$ million) 4,175 3,880 3,800 2,219 3,400 3, Quantity of Contracts 7,382 6,871 6,279 5,373 5,322 5,760 (16.2) 8.2 Average Volume per Contract (US$ thousand) Loans to SMEs - In the delivery of services to SMEs, Banco do Brasil continued to act as the principal partner. At the end of the third quarter of 2008, BB had 1.77 million accounts with 1.72 million micro and small business clients. Of the total account holders, around 566 thousand companies received differentiated service provided by specialized managers Banco do Brasil MDA 3Q08

53 BB has also been building up its share of the cooperativist credit segment. Among the products made available to this market, it is worth highlighting the Compe/SPB Integration Service, whereby credit cooperatives have access to the System for the Clearing of Checks and Other Instruments and to the Payment Settlement and Transfer System (SPB). This service allowed bank products to be made available to around thousand cooperative members, associated with 314 credit cooperatives that are partners of BB, considering its integration. In September 2008, BB was participating in 174 Local Productive Arrangements (APL), delivering services to more than 9.5 thousand companies, to which R$ 1,145.3 million were made available, being R$ million in loans for working capital and to finance investments. The amount of R$ 92 million was set aside for the companies from the APLs in the third quarter in funds for foreign trade, with R$ million earmarked for operations geared toward agribusiness. At the end of July, the bank also launched BB Giro APL, a working capital line designed exclusively for SMEs that participate in APL, offering special conditions to these companies in order to drive the sustainable development of entrepreneurship and of the communities in which the APLs are included. The balance of these transactions for SMEs was R$ 32.0 million, a 43.4% increase in relation to September 2007, with an emphasis on Investment operations. Table 23. SME Credit Products R$ million Balance Change on (%) Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Sep/07 Jun/08 Working Capital 14,868 15,553 16,932 17,752 20,069 21, Investment 5,813 5,852 6,387 6,709 7,476 8, Foreign Trade ,303 1,213 1,689 1, Total 21,390 22,340 24,622 25,675 29,234 32, BB set aside R$ 21,645 million for working capital, that represented 39.2% growth in relation to the same period of 2007, and 7.9% over 2Q08. Among the credit facilities, the following should be highlighted: a) BB Giro Rápido aims at satisfying the need for working capital, without requiring tangible collateral. In 3Q08, this line of credit reached a balance of R$ 5.59 billion, representing 25.8% of the working capital balance; b) BB Giro Empresa Flex purpose is supplying working capital and financing for goods and services acquisition. The customer can determine the loan payment conditions in accordance with the company's cash flow. Launched in June 2007, this credit line has reached the balance of R$ 4.68 billion, growth of 180% in The investment amount in 3Q08 was R$ billion, representing growth of 44.2% in comparison to the same period in These also deserve highlighting: a) Proger Urbano Empresarial, the main credit line for investments, a R$ 4.92 billion balance and an increase of 32.8% over 3Q07; b) BNDES Card, a product in which BB is the leader, with 63% of the cards issued, and which reached R$ million in volume of transactions in September 2008; c) Finame Empresarial, presented a R$ million balance, an increase of 135.4% over 3Q Banco do Brasil MDA 3Q08

54 6.5.3 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 agribusiness in all its segments and in all stages of the productive chain, from the small farmer to the large agroindustrial companies. The Brazilian Trade Balance has increased as a result of the positive contribution from agribusiness. The trade balance of this sector generated a US$ 46.4 billion surplus up to the third quarter of US$ billion M08 Agribusiness Brazil Source: MAPA Ministério da Agricultura, Pecuária e Abastecimento (Ministry of Agriculture, Cattle and Suply) Figure 13. Trade Balance (FOB) The scenario of sliding commodity prices in US dollars is offset by the devaluation of the Real. The chart below shows the behavior of the CRB (Commodities Research Bureau) index, which represents the average quotation trend of the main commodities in the international market. In the index simulation, converting the commodities US dollar price to Reais, we verified the compensatory movement CRB Food Index in US$ CRB Food Index in R$(*) 220 Index - Basis Mar/02 = Index - Basis Mar/02 = nov-02 mar-03 jul-03 nov-03 mar-04 jul-04 nov-04 mar-05 jul-05 nov-05 mar-06 jul-06 nov-06 mar-07 jul-07 nov-07 mar-08 jul-08 nov Source : Bloomberg. (*) Original index converted by exchange tax R$/US$ Figure 14. CRB Food Index 54 - Banco do Brasil MDA 3Q08

55 The table below shows exports flow broken into the main products. Table 24. Exports US$ million M08 Soybeans and Related Products 9,922 9,477 9,308 11,381 15,328 Meat 6,060 8,066 8,641 11,295 11,338 Leather, Hides and Shoes 2,672 3,069 3,471 3,554 2,488 Sugar 3,137 4,684 7,772 6,578 5,453 Forest Products 5,852 7,197 7,881 8,819 7,235 Coffee, Mate and Spices 1,860 2,669 3,535 4,093 3,479 Fruit Juice 1,103 1,245 1,570 2,374 1,564 Tobacco 1,406 1,707 1,752 2,262 1,707 Other Products 2,122 5,487 5,495 8,059 6,413 Total 34,134 43,601 49,424 58,416 55,006 Source: MAPA Ministério da Agricultura, Pecuária e Abastecimento (Ministry of Agriculture, Cattle and Suply) The sector s performance in the last few years is due to the permanent quest for new technologies and for valuing the services provided by the professionals from this area, always aiming at improving profitability and continuity in the enterprises. In the following graph, the increased productivity per planted area, as a result of gains in productivity, can be visualized. Production (million ton) /95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09* Productivity (ton/ha)-% Production (million ton) Area (million ha) Productivity (ton/ha) - % * Forecast Figure 15. Production vs. Planted Area Regarding the distribution of agribusiness transactions by the country regions in September 2008, it can be seen a higher concentration in the Southeast region. Table 25. Agribusiness Loan Portfolio by Region Region Share - % North 3.0 Northeast 5.7 Midwest 23.0 Southeast 34.4 South Banco do Brasil MDA 3Q08

56 Agribusiness loan finances the costs of producing and marketing of agricultural products, stimulates rural investments, including warehousing, processing and the industrial transformation of agricultural products. Furthermore, it encourages the introduction of rational methods in the productive system. The agribusiness loan portfolio of Financial System attained R$ billion in Sep/08, an increase of 22% in twelve months. At BB, the balance amounted to R$ 60,524 million, decrease of 1.8% in the last quarter and increase of 24.9% in relation to Sep/07. In Sep/08, the agribusiness loan portfolio represents 32.0% of the domestic portfolio as opposed to 34.2% in Jun/08. Due to the loans settlement season, from July to September, this reduction is expected. Otherwise, it is expected an increase of the agribusiness loan portfolio due to the harvest of 2008/2009. Loans for financing costs and marketing, intended to finance crops and livestock goods and services, account for 62.8% of the Agribusiness Loan Portfolio. Investment loans, intended for the modernization of the productive activity, accounted for 38.3% of this portfolio. Table 26. Agribusiness Loan Portfolio by Purpose R$ million Change on (%) Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Sep/07 Jun/08 Costs 18,932 17,856 19,918 19,999 21,396 21, Investment 19,357 19,731 20,111 20,656 22,140 21, (3.3) Marketing 9,526 9,899 10,884 14,915 17,094 16, (5.0) Other , Total 48,769 48,447 51,883 56,524 61,611 60, The funds made available by the Bank are obtained mainly from savings deposits (MCR 6-4), demand deposits (MCR 6-2), the Constitutional Fund for Developing the Midwest (FCO), Worker s Support Fund (FAT), Coffee Crop Fund (Funcafe), BNDES/Finame and the National Treasury. Table 27. Agribusiness Loan Portfolio by Product R$ million Change on (%) Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Sep/07 Jun/08 Agricultural and Livestock Costs 14,800 13,847 15,336 15,384 16,695 16, (2.4) Loans to Companies 12,036 11,903 12,890 13,705 15,587 14, (5.4) Pronaf / Proger Rural 8,757 9,100 10,177 13,348 14,233 13, (2.0) FCO Rural 4,238 4,267 4,087 4,196 4,354 4, BNDES / Finame Rural 3,894 4,069 4,055 4,091 4,165 3,906 (4.0) (6.2) Others 5,052 5,261 5,341 5,805 6,577 6, Total 48,769 48,447 51,883 56,524 61,611 60, (1.8) Proger Rural is a product that offers fixed loans for agricultural and cattle breeding funding, besides financial support for fixed and semi-fixed investments; and the National Family Agriculture Empowerment Program - Pronaf is aimed at the financing of agricultural activity funding. These two products added up to R$ 13,955 million in September 2008, growing 53.4% in relation to the same period of the previous year, and showing a decrease of 2% in relation to the previous quarter. FCO Rural offers a financial supplement for working capital and costs for the Brazilian Midwest farmers. Transactions in the product grew 10% in the past 12 months, totaling R$ 4,692 million in September The BNDES/Finame Rural products have the objective of financing investments in the modernization of machines and equipment intended for rural production. Transactions with these products totaled R$ 3,906 million in September Banco do Brasil MDA 3Q08

57 The following table shows the balance of the loan transactions intended for agribusiness by item financed: Table 28. Agribusiness Loan Portfolio by Financed Items R$ million Chg. % Items Financed Sep/07 Part.% Jun/08 Part.% Sep/08 Part.% on Sep/07 on Jun/08 Livestock 5, , , Soybeans 2, , , (3.1) Corn 2, , , (1.8) Sugar Cane 1, , , Machinery and Equipment 1, , , (2.3) Coffee 1, , , Rice , , (3.2) Poultry , , Fertilizers (14.9) (10.4) Cotton Manioc (1.5) Pork (10.4) (0.3) Others (5.1) Total 48, , , Banco do Brasil reaches all the agribusiness segments when financing the Brazilian agribusiness, from the small producer to the large agro-industrial companies. The table below reveals the loan portfolio, showing that while financing mini and small producers accounts for 87.7% of the total of contracts, the transactions with the other agents show a 66.8% share of the contracted amount. Table 29. Funds Released for the 07/08 Crop by Customer Size R$ million Qty. Contracts Qty. Contracts - % Amount Contracted Amount Contracted - % Mini 105, ,669, Small 173, ,586,761, Medium and Large Sized 38, ,789,766, Cooperatives ,259, Total 317, ,349,456, In the figure below we present the distribution of the Agribusiness Loan Portfolio balance by customer. It is worth emphasizing the performance of the agroindustrial segment (business), the growth of which came to 82.5% in twelve months, attaining the volume of R$ 17,894 million: R$ billion T08 Individuals Businesses Figure 16. Agribusiness Loan Portfolio by Customer 57 - Banco do Brasil MDA 3Q08

58 Next, the Agribusiness Loan Portfolio by Funding Sources is shown: R$ million 7,353 9,233 9,015 11,385 10,028 16,854 18,671 24,141 25,375 27,388 9,112 8,834 8,550 8,955 7,836 5,489 5,421 5,623 5,876 6,329 4,519 4,350 4,338 4,467 4,058 5,119 5,375 4,857 5,553 7,139 Demand Deposits Saving FAT FCO BNDES/Finame Others Deposits Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Figure 17. Agribusiness Loan Portfolio by Funding Sources Saving Deposits, the main portfolio funding, grew 62.5% in the last 12 months, reaching a balance of R$ 27,388 million in September The Bank uses funds from savings accounts, demand deposits, Worker s Support Fund-FAT, National Treasury, Coffee Crop Fund-Funcafé and Constitutional Fund for Developing the Midwest (FCO) in rural financings at reduced interest rates. To make this kind of intermediation viable, the National Treasury or the Constitutional Fund compensates the Bank, in the form of equalization, for the difference between the funding, credit risk and administrative and tax costs and the amount charged to the taker of the loan. Moreover, weighting factors are set for financing obtained with funds from demand and savings deposits. The weighting factor is a multiplier that helps to fulfill liabilities and raise revenues upon the release of funds in the Bank's cash for investments. The following figure shows the revenues data track received by way of interest rate equalization and weighting factor. R$ million Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Equalization Revenues Wheighting Factors Figure 18. Equalization Revenues and Weighting Factors We can observe a decrease of R$ 82 million in the installments paid to the Bank by way of equalization in 3Q08 in relation to 3Q07 and of an increase of R$ 9 million in relation to the last quarter. The revenue from the weighting factor was decreased by R$ 14 million in relation to 3Q07 and R$ 44 million in relation to the previous quarter Banco do Brasil MDA 3Q08

59 Besides the risk management mechanisms applicable to all the Bank s loan portfolios, the Bank applies, in the management of the agribusiness portfolio, specific methods for identifying risks and minimizing losses. The Bank has mechanisms for mitigating risks from agribusiness loan portfolio. In the 2008/2009 harvest, up to September/2008, 74.2% of the loan transactions were carried out with Agricultural Insurance or Proagro (government insurance) and amounted to R$ 6,027 billion. The following chart shows the increase in percentage in the use of Agriculture Insurance and Proagro: ContractsCROP 08/09 9.2% 1.2% 7.5% CROP 08/09 CROP 07/ % 74.2% 25.8% 50.0% 50.0% 70.4% Agricultural Costs with mitigation Agricultural Costs without mitigation AGRICULTURAL COSTS WORKING CAPITAL INVESTIMENT AGROINDUSTRIAL CREDIT MARKETING Figure 19. Agricultural Insurance and Proagro In the table below, we show the 3Q08 estimated payback schedule. It s also worth to mention that BB received 83.7% of the estimated payments and R$ 1.8 billion were payed in advance. Table 30. 3Q08 Estimated Payback Schedule R$ million Events Value Share (%) Received over Estimated (A) 6, Past Due Apt to Rolled-Over Estimated Payback 7, Advance Estimated Payment (B) 1, (A + B) 8, Banco do Brasil MDA 3Q08

60 At the next table seguinte is shown the 2008/2009 Crop Plan. Table /2009 Crop Plan R$ million Purpose Business Family Total Share % Cost 18,037 5,131 23, Investment 2,320 2,710 5, Marketing 2,663-2, Total 23,021 7,840 30, Funding Source Agri Saving Deposits 13,386 4,959 18, Demand Deposits 5, , FCO 950 1,066 2, Funcafé , BNDES/Finame Others 2,000 1,015 3, Total 23,021 7,840 30, Banco do Brasil MDA 3Q08

61 6.6 Tax Credits In 1998, BB went to court with an application for the full carryforward of accumulated tax loss of IT and of negative bases of Social Contribution. Since then, the Bank has offset these tax losses in full against income tax and social contribution taxable income and has made judicial deposits of the taxes otherwise due (on 70% of the amount offset). In May 2007, the tax credits that had been written off since the beginning of the lawsuit were reactivated, in the sum of R$ 4,913.2 million, in contra account to the re-formation of provision relating to the portion of 70% of Incom Tax and Social Contribution, for which judicial deposits were formed. The Tax Credit balance reached R$ 14.9 billion in September 2008, 4.4% higher than that recorded in June In relation to September 2007, there was an increase of 7.9% in Tax Credits. At the end of 3Q08, the recorded tax credits were formed mainly by credits originating from timing differences, 63.8% of the total. These differences stem from the tax legislation that does not permit the inclusion of certain expenses in the calculation basis as soon as they occur (accrual basis), but rather when they are financially settled (cash basis). The takeover of Besc alone originated the recording of R$ million in tax credit of this nature. It is emphasized that as this operation was carried out with the exchange of assets between BB and Besc, the credits of this institution that were generated by accumulated losses could not be used. Table 32. Breakdown of Tax Credit R$ million Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Temporary differences 7,050 7,300 7,707 7,959 7,995 8,253 8,872 9,560 Social contribution to offset 1,411 1,229 1, Income and social contribution taxes Lawsuit 0 0 4,913 4,893 4,868 4,846 4,895 4,959 Other* Total Tax Credit 8,604 8,642 13,746 13,877 13,826 13,904 14,337 14,969 Income Tax / Lair - % ,6 * Includes Tax Losses and Negative Bases and Mark-to-Market, Tax Credits Abroad and Pasep and Cofins The figure above shows the composition of tax credit at the level of Inter-temporal Differences, of Social Contribution recoverable and Incom Tax/Social Contribution Judicial Proceeding. The Income Tax/EBIT ratio ended September at 18.6%, a strong reduction of 7.1 p.p. This fact has a strong influence of the foreign exchange in the period. The US Dollar rose from R$ 1.59 at the beginning of 3Q08 and closed quoted at R$ The gain produced by exchange devaluation on the subsidiaries of BB abroad did not sensitize the tax (IRPJ, CSLL, PIS/PASEP and COFINS) calculation bases, as it is a case of equity pickup. However, the result of the foreign exchange hedge operations contracted to protect the assets from these fluctuations is computed in the taxation calculation basis. Hence this mismatching in the tax treatment between the result of the investment and of the actual hedge generated a gain of R$ 183 million for BB and was reflected in the downslide of the rate of tax verified. During the nine first months of 2008, it is observed the tax credit conduct of R$ 2,220.7 million, equivalent to 73.53% of their estimation of use, which appeared in the technical study prepared in December 31, 2007 (R$ thousand). Also according to this study, the expectation of achieving the tax credit nominal value, considering the reformation of those written-off over the lawsuit (70%), is estimated for 6 years and will be used R$ million Banco do Brasil MDA 3Q08

62 6.7 Analysis of Liabilities The volume of deposits funded by Banco do Brasil exhibited a 33.6% growth in relation to the same prioryear period. This growth is mainly explained by Time Deposits, which exhibited growth of 52.8% in 12 months and of 32.1% just in 3Q08. Savings Deposits also deserve emphasis, with growth of 20.2% in 12 months. Money Market Borrowings, which exhibited considerable growth in recent quarters, decreased by 8.3% in 3Q08, causing the annual growth to shrink to 14.4%. Table 33. Liabilities R$ million Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Deposits 158, , , , , , , ,050 Demand Deposits 40,059 35,588 36,841 38,712 51,311 44,172 43,628 42,980 Savings Deposits 36,714 38,942 40,831 43,831 45,839 48,112 49,096 52,693 Interbank Deposits 4,878 5,026 5,146 5,603 5,144 6,247 5,578 6,309 Time Deposits 76,900 80,860 81,427 83,640 85,520 91,261 96, ,797 Investment Deposits Money Market Funding 49,283 67,639 74,719 74,845 72,270 99,914 93,335 85,603 Foreign Borrowing 6,041 6,673 4,841 4,597 4,131 3,555 4,942 5,544 Domestic Onlending 14,335 13,950 15,240 16,528 17,487 18,250 19,255 19,640 Other Liabilities 47,098 51,334 60,399 60,436 60,778 64,965 64,090 35,976 Shareholders Equity 20,758 21,638 22,305 23,065 24,262 25,407 26,371 27,889 Total Liabilities 296, , , , , , , ,702 As from this quarter we presented a new table, which evidences the funding sources that have sustained the growth of Banco do Brasil s loan portfolio. The objective of providing greater disclosure to "Loan / Deposits" ratio is due to the fact that Banco do Brasil funding is not just comprised for deposits. The domestic loan portfolio is also backed by onlendings, as BNDES fund, and by resources from constitutional fund, with an emphasis on FCO Constitutional Fund for Developing the Midwest. Loans in foreign currency, as is the case of the ACC and ACE lines, are backed by borrowing instruments abroad Banco do Brasil MDA 3Q08

63 The table bellow shows the deposit growth influencing Banco do Brasil funding availability. Available funds are growing and reached R$ 32.8 billion at the end of September. The loan portfolio and funding ratio decreased from 92.2% in the 2Q08 to 85.3% in the 3Q08. The ratios also describe the way that the loan portfolio is backed. Besides the deposits, there are other funding sources such as BNDES funding, resources from financial and development funds, foreign borrowings and others. Table 34. Sources and Uses R$ million Balance Change on (%) Sep/07 Jun/08 Sep/08 Sep/07 Jun/08 Total Funding 172, , , Total Deposits 172, , , Domestic Onlending 16,528 19,255 19, Financial and Development Funds 1,847 2,251 2, FCO (Subordinated Debt) 9,829 10,774 11, Foreign Borrowing 1 5,530 5,750 6, Compulsory Deposits (33,641) (39,421) (45,892) Net Loan Portfolio 140, , , Loan Portolio 150, , , Allowance for Loan Losses (9,663) (11,165) (11,187) Available Funds 31,751 15,167 32, Index - % Net Loan Portfolio / Total Deposis Net Loan Portfolio / Total Funding Available Funds / Total Funding Inclui Foreign Borrowing, Foreign Securities, Foreign Onlending and Perpetual Securities The loan / total funding ratio ended the quarter with 85.3% against 92.2% in the previus quarter and 81.6% in the same period of the last year. Available funds, measured by the difference between total funding and net loan portfolio reached R$ 32.8 billion, in opposition to R$ 15.2 billion in the last quarter and R$ 31.8 billion in the 3Q07. Available funds represented 14.7% of the total funding in the end of the quarter. The decrease in the Credit / Deposits ratio was influenced mainly by the Time Deposits and Saving Deposits expansion, shown in the beginning of this chapter. The deposits expansion occurred in a faster pace when compared to the loan portfolio. During the quarter, the deposits growth arose from the Bank s strategy of prioritizing funding by CDB - Bank Deposit Certificate. Combined with this strategy, there was a movement known as "flight to quality": at times of uncertainty in the economic environment, Banco do Brasil is seen as a safe harbor, receiving funds formerly invested at peers. Moreover, the measures published by CMN and by the Central Bank, have contributed toward the release of compulsory deposits. The table below lists the impacts of the latest measures published on the amounts deposited by BB in September and October, and forecasts the releases of funds planned for November Banco do Brasil MDA 3Q08

64 Table 35. Compulsory Released New Resolutions Month Resolution Number Amount (R$) Observations September/08 Resolution 3,405, of ,000,000 Resolution 3,408, of ,000,000 Increase of the deductible amount of the additional compulsory from R$ 100,000,000 to R$ 300,000,000 Increase of the deductible amount of the compulsory of the time deposits from R$ 300,000,000 to R$ 700,000,000 October/08 November/08* Resolution 3,408, of ,050,000,000 Resolution 3,410, of ,000,000 Resolution 3,410, of ,300,000,000 Resolution 3,413, of ,200,000,000 Resolution 3,416, of ,080,000,000 Reduction of the rate of the additional compulsory of the time deposits and demand deposits from 8% to 5% Increase of the deductible amount of the additional compulsory from R$ 300,000,000 to R$ 1,000,000,000 Increase of the deductible amount of the compulsory of the time deposits from R$ 700,000,000 to R$ 2,000,000,000 Reduction of the rate of the compulsory on demand resources from 45% to 42% Deduction of the compulsory deposit on the demand resources relating to the advance of FGC contributions - circular letter 3416 of Central Bank. Resolution 3,417, of ,494,000,000 Deduction of time deposits compulsory by interbank loan portfolio acquisition and interbank operations.. TOTAL 14,894,000,000 *N.B.: the amounts of November 2008 are projected. Until September the alterations in the compulsory paved the way for the growth of the Bank's funding at R$ 200 million. In October, however, releases of compulsory added R$ 5,450 million to the resources available to finance the growth of the loan portfolio and the acquisition of loan portfolios from other institutions. Finally, we detail the impact of resolution 3,417, published by the Central Bank on October 30. This measure determines that from the compulsory over time deposits 70% must be deposit in cash, with no remuneration. Over this amount, can be reduced the amount applied in the acquisition of loan portfolios of small and medium financial institutions. Currently, the compulsory over time deposits is around R$ 9,600 million, considering R$ million in cash. Though Banco do Brasil have been acquiring loan portfolios from financial companies in order to reduce the amount deposited. BB is also highlighted among large banks for its systems and developed methodologies to support technical analysis of those portfolios. It brings agility and safeness to the process Banco do Brasil MDA 3Q08

65 Table 36. Transactions Concerning Other Banks Loan Portfolio Period Value Line of Business (1) R$ billion Total business in the last 18 months, until Sep/ Only payroll portfolio Closed transactions in Oct/08 (2) 5.9 Transactions in negotiation in Nov/08 (2) 0.8 Total of transactions until Nov/ % payroll 29% vehicle 27% Companies Payroll Vehicle Companies Payroll Vehicle Companies (1) the business considers the purchase of credit portfolio and interbank operations with portfolio guarantee (2) from the total amount fo R$ 17.1 billion in loans analysed for acquisition in Oct/08 and Nov/08, there were R$ 6,7 billion approved (39%) 65 - Banco do Brasil MDA 3Q08

66 6.8 Deposits and Money Market Funding Banco do Brasil's market funding reached R$ billion in September 2008, a robust increase of 9.3% in relation to June 2008 and of 27.8% in 12 months. Result of strategic change at the beginning of the second semester in which BB started to focus on funding, especially time deposits. Time deposits grew in a faster pace than the other lines, both in the quarterly (32.1%) and in the annual (52.8%) comparison. The deterioration of the international financial crisis in the second half of this year also benefited BB, as the market seeks more solid banks for deposits. Of the total sum of time deposits, 61% are deposits in Real and 25.6% are earning judicial deposits. Upon the closing of September of this year, this portfolio amounted to R$ 85.6 billion, 8.3% lower than in June/08; the Own Portfolio reduced the balance by R$ 17.3 billion, going from R$ 46.4 billion last June to R$ 28.9 billion in September. Basically this balance is comprised of government bonds of the LFT (Financial Treasury Bills) type (R$ 23.3 billion). The figure below shows the growth of fundings. R$ billion Demand Deposits Saving Deposits Interbanking Deposits Time and Investment Deposits Money Market Borrowing Total Figure 20. Deposits and Market Funding Sep/07 Jun/08 Sep/ Banco do Brasil MDA 3Q08

67 Market share funding is show next* R$ million , ,588 36,841 38,712 51, ,172 43,628 42, ,714 38,942 40,831 43, ,839 48,112 49,096 52,693 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Demand Deposits Market Share - % Saving Deposits Market Share - % ,900 80,860 81,427 83, ,520 91, , , , , , , , , , ,652 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Time Deposits Market Share - % Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Money Market Funding Market Share - % Figure 21. Market Share of BB Funding 67 - Banco do Brasil MDA 3Q08

68 6.8.1 Foreign Borrowing With the deterioration of the international financial crisis, particularly in September with the bankruptcy of the Lehman Brothers bank, the tendency is for foreign fundings to decrease. The tables below show how BB's funding activities are structured. It is emphasized that the position of September 30 does not yet fully reflect the deterioration of the international scenario, and operations maturing in the next few months might not be renewed. It is also emphasized that the diversification of BB's foreign funding has helped to diminish the effect of the lack of international liquidity. Moreover, BB is seen as a Safe Harbor by the market, which contributes to maintain overseas deposits. Repurchase agreements (Repo) were the most severely affected by the reduction of foreign liquidity, and decreased US$ 246 million from Jun/08 to Sep/08. Growth of 17.5% was verified in twelve months, a balance US$ 426 million higher than that verified in Sep/07. The highlight of the quarter was funding with businesses that grew 66.9%, in the comparison between Sep/08 and the same month of In relation to interbank fundings, there was also a reduction in the lines with a term above 90 days. Despite the shortening of the term, and the difficulty in price parameterization, BB has been managing to renew part of the lines and even to contract new operations. Table 37. Foreign Borrowing US$ million Produtos Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Interbanking 2,271 2,329 2,709 2,951 3,019 Repo 2,429 2,554 3,074 3,101 2,855 Businesses 2,377 3,285 3,255 3,546 3,967 Special Individuals 1,931 1,986 2,099 2,097 2,052 Issues 1,857 1,678 2,002 1,923 2,056 TOTAL 11,346 12,393 13,729 14,406 14,784 In relation to Foreign Issues, we emphasize that of September 5 when, in the midst of the financial crisis and of the global credit and liquidity difficulties, BB obtained US$ 200 million at a very interesting rate for a time like this, confirming its credibility with foreign investors as well. The table below lists the issues in force. Table 38. Foreign Issues Issue Date Volume in US$ million Term in years Cupom (%) Interest Interval Issue price Return for the Investor (%) Premium over Treasury Rating Program Quarterly BBB/Baa1 MT L3M+0.60 Quarterly *266 AAA/Aaa MT Quarterly BBB/Baa1 MT Quarterly BBB/Baa1 MT Quarterly BBB+/Baa1 Visanet Quarterly BBB+/Baa1 Visanet Quarterly BBB/Baa1 MT Half-Yearly A2 Subord. Debt Perpetual 7.95 Quarterly Ba1 Perpetual Securities Half-Yearly Baa3 GMTN L3M+0,55 Quarterly L3M+0,55 AAA/Aaa MT ,25 Quarterly A-/A1 MT L3M+1,20 Quarterly 100,00 L3M+1,20 A-/A1 MT 100 * 492 basis points over Libor 68 - Banco do Brasil MDA 3Q08

69 7 Analysis of Results 7.1 Net Interest Income Table 39. Net Interest Income R$ million Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 on 9M07 Financial Intermediation Income 10,267 10,956 15, ,998 37, Loans 6,517 7,199 8, ,670 23, Leasing (1.1) Securities 3,355 3,052 5, ,558 12, Financial Derivatives (149) 303 (85) (43.2) (232) - Foreign Exchange Portfolio 155 (111) (50) - (55.2) 367 (32) - Compulsory Investments ,206 1, FX Gain (Loss) on Foreign Investments (100) (294) (486) Other Op, Inc, of a Fin, Intermed, Nature (21.1) (90.4) (1.2) Financial Intermediation Expenses (5,111) (5,213) (9,839) (14,558) (20,594) 41.5 Money Market Funds (4,613) (5,125) (6,866) (13,261) (16,800) 26.7 Borrowing, Assignments and Onlending (498) (88) (2,973) (1,297) (3,794) Net Interest Income 5,156 5,743 5, ,440 17, The Net Interest Income (NII) represents the result from financial intermediation business before provisions for credit risks. In 3Q08, the margin was R$ 5,945 million, growing 14.7% in relation to the same period of In the comparison with 2Q08, the margin grew 3.5%. In the group of Financial Intermediation Income we emphasize loan operation revenues with growth of 38.0% in the annual comparison and of 24.9% in the quarter. It is worth emphasizing that revenues from loan operations suffer effects of exchange variation due to loans involving other currencies. If we were to separate the exchange impact resulting from operations backed by CMN Resolution 2,770, revenues from loans would grow 32.9% in the year and 13.1% in the quarter, as shown in the table below. We also emphasize the growth in Security Revenues in the period. These revenues reached R$ 5,754 million, a growth of 71.5% in 12 months and of 88.5% in relation to the previous quarter. The strong growth in the period results mainly from "Income from Foreign Investments", which exhibited a result of R$ 1,596 million, against a negative result of R$ 224 million in the previous quarter. It is important to emphasize that the effect of exchange variation on Financial Intermediation Revenues finds a contra account in other components of net income, such as Borrowing, Assignment and Onlending Expenses and Income from Financial Derivatives. Hence the impact on the Net Interest Income Gross Financial Margin is nil. Table 40. Revenues from Loans Net of Exchange Impact (Res. 2,770) R$ million Quarterly Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 Loans and Leasing Revenues* 6,567 7,258 9, FX Impact in Loan Portfolio (Res. 2,770) 21 (433) Loans and Leasing Revenues before FX Impact (Res. 2,770) 6,546 7,692 8, * It considers recovery of write-offs. Financial Intermediation Expenses grew 88.7 in the quarter. The growth is partly explained by exchange variation, off set the impacts on the increase of Financial Intermediation Income. The "Foreign Onlending Expenses" and "Expenses with Foreign Banks" accounts exhibited growth of R$ 2,273 million in the period Banco do Brasil MDA 3Q08

70 The strong growth of the base of deposits, mentioned in our "Balance Sheet Analysis", also contributed significantly to the increase in Financial Intermediation Expenses. The "Expenses with Time Deposits" account exhibited growth of R$ 1,423 million in the quarter, variation of 124.7%. These factors contributed to the increase of the funding cost (Financial Intermediation Expenses / Interest Bearing Liabilities), which went from 7.5% in 2Q08 to 13.7% this quarter, reflected in the reduction of the spread over earning assets, from 1.77% in 2Q08 to 1.75% in 3Q08. The following table demonstrates the formation of the Net Interest Income as of the evolution of the Nim and of the growth of the volume of investments in the quarterly flow. Table 41. Analysis of Volume (Earning Assets) and Quarterly Spread 2Q08 and 3Q08 R$ million 2Q08 3Q08 Abs. Chg. Volume: Assets Earning Assets * 323, ,584 16,681 Net Interest Income 5,743 5, Spread - % ** (0.0276) Gain/(loss) with volume 6, Gain/(loss) with spread 5,624 (89) Gain/(loss) with volume and spread (5) * Average Balances ** Net Interest Income / (Earning Assets) Table 42. Analysis of Volume (Earning Assets) and 9 Months Spread 9M07 e 9M08 R$ million 9M07 9M08 Abs. Chg. Volume: Assets Earning Assets * 268, ,185 57,842 Net Interest Income 15,440 17,240 1,799 Spread - % ** (0.4687) Gain/(loss) with volume 18,768 3,328 Gain/(loss) with spread 14,182 (1.258) Gain/(loss) with volume and spread (271) * Average Balances ** Net Interest Income / (Earning Assets) 70 - Banco do Brasil MDA 3Q08

71 Spread During the quarter, the expansion strategy of the base of time deposits contributed to the growth of 6.0% in Interest Bearing Liabilities, contra account of increase of 5,2% in the Average Earning Assets. The Loan Portfolio growth, in terms of average balance, was of 5.1% in this quarter. The lost growth of loan portfolio than Earning Assets and Interest Bearing Liabilities contributed to the expasion of NIM of 7,2% in 3Q08 against 7,3% in the last quartely and 7,5% in 3Q07. Otherwise, the growth of deposits allowed BB increase hardly the Short Term Interbank Investments that, although these instruments recorded rates lower than loan portfolio, made a real gain in NII Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 9M07 9M08 NII / (Earning Assets) - Annualized Figure 22. NIM Analysis Table 43. Margin, Net of Interest and Profit Margin R$ million 3Q07 2Q08 3Q08 9M07 9M08 Average Earning Assets (AEA) 281, , , , ,185 Average Interest Bearing Liabilities (AIBL) 239, , , , ,023 Net Interest Gain (1) 5,056 5,225 5,251 14,220 15,945 Interest Income 10,124 10,390 15,011 28,649 36,360 Interest Expense (5,067) (5,165) (9,760) (14,429) (20,416) Net Interest Income Other Items (2) ,220 1,295 NII 5,156 5,743 5,945 15,440 17,240 AIBL / AEA % Interest Rate on AEA (3) - % Interest Rate on AIBL (4) - % Net Interest Rate (5) - % Adjusted NIM (6) - % NIM % (1) Defined as interest income less interest expenses. (2) 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 (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 interest rate on AEA and interest rate on AIBL. (6) Net interst gain divided by the average earning assets Banco do Brasil MDA 3Q08

72 7.2 Analysis of Investments Loan and Lease Operation Revenues, disregarding recovery of write-offs, reached R$ 8,652 in 3Q08, a growth of 38.1% in the year and of 26.6% in the quarterly comparison. It is worth emphasizing that these revenues suffer the effects of exchange variation relating to loans involving other currencies. Considering the exchange variation, the annualized investment rate went down from 16.9% in 2Q08 to 20.5% in 3Q08. The table below shows how, even if we separate the exchange impact, it is verified that the annualized rate presented an increase, both in relation to the previous quarter, and in relation to the same prior-year period. Table 44. Revenues from Loans Net of Exchange Impact (Res. 2,770) R$ million Quarterly Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 3Q08 Loans and Leasing Revenues Average Balance * 136, , , Loans and Leasing Revenues 6,265 6,833 8, FX Impact in Loan Portfolio (Res. 2,770) 21 (433) Loans and Leasing Revenues before FX Impact (Res. 2,770) 6,244 7,267 8, Annualized Interest Rate *It does not consider recovery of write-offs Spread by Portfolio The figure below shows NIM evolution on loans by portfolio. It can be noticed that the Business and Agribusiness NIM exhibited growth, with reduction only in operations with Individuals. However, even the portfolio expansion and the maintenance of good spreads in these businesses was not sufficient to offset the effects of the growth of the deposit base, hence the global spread experienced a slight reduction, dropping to 7.1% in 3Q08. The individual loan portfolio continues the most appealing line of the loan portfolio due to the resulting spread. However, with the lower risk and lower rates operations growth, such as payroll loans and vehicles, the portfolio records of interest rates and NIM downtrend. The consistent growth of business portfolio loans was accompanied by recovery in the NIM of these businesses, which reached 6.6% in the quarter. The spread of Agribusiness operations exhibited significant growth in the quarter, attaining 5.2% in 3Q08, against 4.9% in the previous quarter. This development is explain by the reduce of agribusiness loans that exhibited lower NIM. 31.8% 28.9% 28.8% 27.7% 26.6% 24.1% 23.4% 22.0% 8.0% 7.3% 7.0% 7.2% 6.9% 6.9% 6.5% 6.6% 7.0% 6.4% 6.6% 6.6% 5.8% 5.0% 4.9% 5.2% 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Individuals Businesses Agribusiness Figure 23. NIM by Loan Portfolio 72 - Banco do Brasil MDA 3Q08

73 Securities income in 3Q08 totaled R$ 5,754 million, an amount 71.5% higher than that recorded in the same period of previous year and 88.5% higher than the last quarter. The oscillation was mainly due to the exchange variation recorded in transactions that involve foreign currencies. The following table shows the origin of the revenues of the securities portfolio revenues. Emphasis is placed both on the exchange variation that was reflected in Foreign Income, and on the result originating from Short-term Interbank Investments, which exhibited growth of 25.5% in the quarter and of 28.2% in relation to 3Q07. Table 45. Securities Income R$ million Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 in 3Q07 in 2Q08 9M07 9M08 in 9M07 Securities Income 3,355 3,052 5, ,558 12, Fixed Income Securities 3,352 3,050 5, ,531 12, Revaluation Curve 1,921 1,913 2, ,998 6, Income/Loss from Negotiation 9 (63) (30) - (53.2) 78 (105) - Mark to Market (41) (69) (43) 20 - Interbank Accounts 1,462 1,494 1, ,498 4, Foreign Income - (224) 1, ,596 - Others (61.4) (31.4) 27 5 (82.9) The figure below shows the main indices in BB s securities portfolio. Due to the rising interest rate scenario, as part of the monetary policy, BB keeps the strategy of concentrating most of its exposure to postfixed securities. 0.1% 5.4% 0.0% 27.3% 67.2% Floating Fixed TR and Others Dolar IGP-M IPCA Figure 24. Securities Portfolio by Index (Multiple Bank) 73 - Banco do Brasil MDA 3Q08

74 Table 46. Avg Balance of the BS accounts and info. on interest rates - Earning assets (quarterly) R$ million 2Q08 3Q08 Average Balance Interest Annualized Rate (%) Average Balance Interest Annualized Rate (%) Earning Assets Available Funds in Foreign Currency Securities + Interbank Investments on Hedge 131,294 3, ,817 5, Loans + Leasing 171,741 6, ,497 8, Remunerated Compulsory Deposits 20, , Total 323,903 10, ,584 15, Non Earning Assets Tax Credits 14,106 14,490 Other Assets 48,704 60,116 Permanent Assets 7,832 8,968 Total 70,641 83,574 TOTAL ASSETS 394, ,158 Table 47. Avg Balance of the Bal. Sheet accounts and Info. on Int. rates Earning assets (9 months) R$ million 9M07 9M08 Average Balance Interest Annualized Rate (%) Average Balance Interest Annualized Rate (%) Earning Assets Available Funds in Foreign Currency 1, Securities + Interbank Investments on Hedge 118,235 9, ,305 12, Loans + Leasing 132,043 17, ,219 22, Remunerated Compulsory Deposits 16,916 1, ,882 1, Total 268,342 28, ,185 36, Non Earning Assets Tax Credits 11,459 14,152 Other Assets 40,079 50,779 Permanent Assets 5,843 7,841 Total 57,381 72,772 TOTAL ASSETS 325, , Banco do Brasil MDA 3Q08

75 7.3 Analysis of Funding In 3Q08, Interest Bearing Liabilities reached the average balance of R$ 298,201 million, growing 5.6% in the quarter and 24.5% compared to the same period of previous year. The annualized funding rate, calculated by the ratio between Financial Intermediation Expenses and Interest Bearing Liabilities, was 13.7% in 3Q08, against 7.5% in 2Q08. It is worth emphasizing that the exchange devaluation had an impact on the dollar denominated funding lines during the quarter. Separating the impact of exchange variation, the funding rate of Interest Bearing Liabilities in this quarter would grow 9.6 base points, attaining 8.7%. This variation results from the increases in the basic interest rate, with an impact on our entire funding mix, and from the increase in expenses with interest with Time Deposits. Time Deposits, which exhibited consistent growth in the quarter, started to record a larger share among Interest Bearing Liabilities. The growth in volume was accompanied by the increase of the funding cost, as a result of the increase of the Average Selic Rate and of the effects of exchange variation. Table 48. Avg Balances of the BS accounts and info. on int rates Int.Bearing Liabilities (quarterly) R$ million 2Q08 3Q08 Average Balance Interest Annualized Rate (%) Average Balance Interest Annualized Rate (%) Interest Bearing Liabilities Saving Deposits 48,762 (837) ,990 (1,059) 8.6 Interbank Deposits 5,863 (118) 8.3 5,926 (96) 6.6 Time Deposits 94,180 (1,656) ,421 (3,079) 10.9 Money Market Borrowing 96,757 (2,439) ,087 (2,520) 12.4 Foreign Borrowing 2, (32.9) 3,761 (2,498) Onlending 18,934 (234) ,392 (346) 7.3 Financial and Development Funds + Subordinated Debt 12,814 (121) ,346 (129) 3.9 Foreign Securities Borrowing 2,165 (27) 5.1 2,279 (32) 5.8 Total 282,290 (5,165) ,201 (9,760) 13.7 Other Liabilities Demand Deposits 43,358 41,382 Other Liabilities 42,666 57,230 Shareholder s Equity 26,230 27,344 Total 112, ,957 TOTAL LIABILITIES 394, , Banco do Brasil MDA 3Q08

76 Table 49. Avg Balances of the BS accounts and info. on interest rates Int. Bearing Liab. (9 months) R$ million 9M07 9M08 Average Balance Interest Annualized Rate (%) Average Balance Interest Annualized Rate (%) Interest Bearing Liabilities Saving Deposits 40,446 (2,302) ,163 (2,682) 7.3 Interbank Deposits 4,983 (621) ,808 (333) 7.7 Time Deposits 81,023 (4,732) ,430 (6,433) 8.6 Money Market Borrowing 69,715 (5,369) ,649 (7,117) 10.5 Foreign Borrowing 3,550 (189) 7.2 3,374 (2,575) Onlending 14,995 (760) ,739 (848) 6.1 Financial and Development Funds + Subordinated Debt 11,409 (348) ,842 (371) 3.9 Foreign Securities Borrowing 2,170 (110) 6.8 2,019 (55) 3.7 Total 228,291 (14,429) ,023 (20,416) 9.7 Other Liabilities Demand Deposits 36,621 42,335 Other Liabilities 38,566 46,410 Shareholder s Equity 22,244 26,189 Total 97, ,934 TOTAL LIABILITIES 325, , Banco do Brasil MDA 3Q08

77 7.4 Analysis of Volume and Spread The table below shows the appropriation of changes in interest income and expenses due to the change in the average volume of earning assets and interest bearing liabilities and the change in the average interest rate on such assets and liabilities, in the quarters 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 interest rate change was calculated by the interest rate change in the period multiplied by the average of earning assets and the average of interest bearing liabilities in the first period. The volume change was recorded as the difference between the interest volume in the most recent period and the one in the prior period. Among Earning Assets, we can observe that both in the quarterly and in the annual comparison, the increase of revenues with interest is being explained by "Loans and Leasing" and by operations with "Securities and Interbank Investments". In relation to Loan Operations and Leasing, the table shows how the growth of revenues with interest accompanies the course of the Average Volume of these operations. Now in relation to operations with "Securities and Interbank Investments", the growth of revenues with interest results from the growth of the Average Rate. In relation to Interest Bearing Liabilities, the greatest fluctuations in expenses with interest occurred in the "Time Deposits" and "Foreign Borrowings" accounts. As regards "Time Deposits", the increase was explained both by the Average Rate and by the Average Volume. Now in relation to "Foreign Borrowing", the increase of expenses with interest is largely explained by the growth of the Average Rate. It is important to stress the impact of exchange variation, which is reflected in the Average Rate both of the Earning Assets and of the Interest Bearing Liabilities. Table 50. Int. increase and decrease (Inc. and Exp.) due to changes in Volume and Rates (quarterly) R$ million 3 rd Quarter 2008/ rd Quarter 2008/2 nd Quarter 2008 Average Volume (1) Average Rate (2) Net Change (3) Average Volume (1) Average Rate (2) Net Change (3) Earning Assets 2,608 2,279 4, ,885 4,621 Available Funds in Foreign Currency (0) (83) (83) 8 (29) (21) Securities + Interbank Investments on Hedge 463 1,936 2, ,470 2,702 Loans + Leasing 2, , ,399 1,819 Remunerated Compulsory Deposits Interest Bearing Liabilities (1,918) (2,775) (4,693) (521) (4,074) (4,595) Saving Deposits (168) (108) (276) (46) (176) (222) Interbank Deposits (15) (1) Time Deposits (909) (582) (1,491) (609) (813) (1,423) Money Market Borrowing (278) (294) (572) 346 (427) (81) Foreign Borrowing (247) (2,147) (2,395) (630) (2,136) (2,766) Onlending (55) (11) (66) (8) (104) (112) Financial and Development Funds + Subord. Debt (16) 1 (15) (5) (2) (7) Foreign Securities Borrowing (5) 6 1 (2) (4) (5) (1) Net Change - Average Rate (2) ((Interest Current Period / Balance Current Period) x Balance Previous Period) - (Interest Previous Period) (3) Current Interest - Interest for Previous Period 77 - Banco do Brasil MDA 3Q08

78 Table 51. Int. increase and decrease (Inc. and Exp.) due to changes in Volume and Rates (9 months) R$ million 9 Months 2008 / 9 Months 2007 Average Volume (4) Average Rate (5) Net Change (6) Earning Assets 6,448 1,263 7,711 Available Funds in Foreign Currency (27) (20) (47) Securities + Interbank Investments on Hedge 1,567 1,295 2,862 Loans + Leasing 4,920 (304) 4,616 Remunerated Compulsory Deposits 282 (2) 280 Interest Bearing Liabilities (4,006) (1,980) (5,986) Saving Deposits (476) 95 (381) Interbank Deposits (47) Time Deposits (1,243) (458) (1,701) Money Market Borrowing (1,703) (46) (1,749) Foreign Borrowing 135 (2,521) (2,386) Onlending (169) 81 (88) Financial and Development Funds + Subord. Debt (41) 18 (24) Foreign Securities Borrowing (4) Net Change - Average Rate (5) ((Interest Current Period / Balance Current Period) x Balance Previous Period) - (Interest Previous Period) (6) Current Interest - Interest for Previous Period 78 - Banco do Brasil MDA 3Q08

79 7.5 Provision for Credit Risk Table 52. Net Financial Margin R$ million Quarterly Flow Chg. % Half-yearly Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 on 9M07 Net Interest Income 5,156 5,743 5, ,440 17, Allowance for Loan Losses (1,216) (1,687) (1,339) 10.1 (20.6) (3,881) (4,560) 17.5 Net Financial Margin 3,940 4,056 4, ,560 12, In the quarterly flow, Allowance for Loan Losses recorded an increase of 10.1% in relation to the same period of last year and reduction of 20.6% in the previous trimester. This behavior in the PCLD (allowance for loan losses) rate results from the improvement of the portfolio risk level, the use of part of the additional provision and the improvement in the portfolio quality. The ratio by expenses of provisions and the average total portfolio - both accumulated in 12 months - went from 3.7% in 3Q07 to 3.3% in 3Q08. In 3Q08, the ratio by the quarterly provision expenses and the average of the loan portfolio in the period was lower than to the same period of previous year, in 0.7%. Table 53. Expenses with Allowance for Loan Losses over Portfolio R$ million 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 (A) Allowance for Loan Losses - Quarterly (1,257) (1,431) (1,236) (1,216) (1,497) (1,534) (1,687) (1,339) (B) Allowance for Loan Losses - 12 Months (5,743) (5,830) (5,309) (5,139) (5,380) (5,483) (5,934) (6,057) (C) Loan Portfolio 133, , , , , , , ,201 (D) Average Portfolio 3 Months 128, , , , , , , ,431 (E) Average Portfolio 12 Months 113, , , , , , , ,398 Expenses over Portfolio (A/D) - % Expenses over Portfolio (B/E) - % ,257 1,431 1,236 1,216 1,497 1,534 1,687 1,339 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 (A) Alowance for Loan Losses - Quarterly Expenses Over Portfolio (B/E) - % Expenses Over Portfolio (A/D) - % Figure 25. Expenses with Allowance for Loan Losses over Portfolio 79 - Banco do Brasil MDA 3Q08

80 The figure below details the allowance for loan losses, segregating the minimum provisions required by CMN Resolution 2,682 from the total booked. An increase can be observed in the volume of provisions required, which climbed from R$ 11,165 million in July, 2008 to R$ 11,187 million in September, an increase of 20 base points, below the growth of the loan portfolio, which grew 6.4% in the period. The Total Provision (Required + Additional) presents 15.8% of growth in the last 12 months, lower than the growth of the portfolio of 34.6%. This fact is explained by the use of part of the Additional Provision allocated to the Loan Portfolio. R$ million 8,635 1,397 7,238 9,133 9,441 9,663 10,313 10,694 1,582 1,580 1,586 1,655 1,090 7,551 7,786 8,084 8,727 9,604 11,165 11, ,308 10,468 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Provision Required Additional Provision Total Provision Figure 26. Breakdown of Allowances Events occurred during the third quarter of 2008 that resulted in the allocation to the rural portfolio of Additional Provision in the classified loan portfolio resulting from the reclassification in accordance with the periods of delinquency provided in CMN Resolution 2,682/99 of unrenegotiated operations backed by the abovementioned resolutions, maintained in a normal situation until 2/15/2008. The Allowance for Loan Losses generated on account of this adjustment was R$ million. Operations classified at risk levels AA-C increased from 90.4%, in June 2008, to 91.0%, in September Table 54. Loan Portfolio by Level of Risk R$ million Sep/07 Jun/08 Sep/08 Balance Allowance Comp. % Balance Allowance Comp. % Balance Allowance Comp. % BI* AA 39, , , A 30, , , B 48, , , C 17, , , D 5, , , E 2, , , F , G 1, , , H 4,614 4, ,997 5, ,220 6, Total 150,184 8, ,082 10, ,201 10, AA-C 136,247 1, ,896 1, ,913 1, D-H 13,937 6, ,186 8, ,288 9, * Previous data of June/ Banco do Brasil MDA 3Q08

81 The ratio of Portfolio Net of Allowances (CLP) over the Total Portfolio (CT) expresses the overall evaluation of the weighted portfolio, in accordance with CMN Resolution 2,682. The following chart shows that Banco do Brasil has maintained a quality in its loan portfolio in line with the Brazilian Financial System (BI) Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 BB BI Figure 27. CLP/CT BB vs. BI The table below shows the maintenance in past-due loans in the Loan Portfolio when compared to June The volume overdue for 15 days of the domestic portfolio amounted to R$ 7,376 million, reaching 3.7% in 3Q08, in line with that observed in June The volume overdue above 60 days reached 2.6%, below with that observed in June The volume overdue above 90 days reached 2.2%, below to the 2.5% observed in June The average risk of the portfolio is 5.4% in September 2008, lower than the 5.9% recorded in June The increase of the average risk is explained by the amortization and settlement of agribusiness operations, combined with a better risk level for contracted operations regarding the 2008/2009 harvest. Another factor is the higher efficiency in collection of defaulted loans originated from new technological solutions and new retail collection process by retaining specialized judicial collection firms Banco do Brasil MDA 3Q08

82 Table 55. Deliquency Ratio - % R$ million 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Loan Portfolio 133, , , , , , , ,201 Loans overdue 5,500 6,008 6,915 7,525 7,248 7,574 7,089 7,414 Past Due Loans/Loan Portfolio Past Due Loans + 15 days 5,466 5,962 5,930 7,125 7,222 7,521 6,899 7,376 Past Due Loans + 15 days/loan Portfolio Past Due Loans + 60 days 3,863 3,930 4,111 5,157 5,259 4,907 5,323 5,234 Past Due Loans + 60 days/loan Portfolio Past Due Loans + 90 days 3,382 3,391 3,508 3,986 4,268 4,164 4,689 4,471 Past Due Loans + 90 days/loan Portfolio Write-off 1, ,164 1,316 1,342 Recovery of Write-offs (425) (346) (386) (302) (414) (422) (425) (400) Net Loss Net Loss/Loan Portfolio - % annualized Provision 8,635 9,133 9,441 9,663 10,313 10,694 11,165 11,187 Allowance/Loan Portfolio Allowance/Past Due Loans + 15 days - % Allowance/Past Due Loans + 60 days - % Allowance/Past Due Loans + 90 days - % The graph below shows the ratio between the provision required to the provision for transactions overdue for more than 90 days of the Bank and of BI (National Financial System). In comparison with BI, it can be observed that the Bank has a level of provision that is more than sufficient to cover transactions overdue for more than 90 days Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 90 Days BB 90 Days BI Figure 28. Allowance/Past Due Loans +90 days BB x BI 82 - Banco do Brasil MDA 3Q08

83 The decrease of the average risk of the portfolio (Provision required/portfolio) in relation to the last quarter is explained by the increase of the loan portfolio contracted with lower risk levels. The average risk of the portfolio went from 5.4% in June 2008 to 5.2%, pursuant to the following table: Table 56. Average Portfolio Risk Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Average Risk BB Average Risk BI Banco do Brasil MDA 3Q08

84 7.5.1 Retail Loan Portfolio The Retail Loan Portfolio grew 42% in relation to the same prior-year period and 6.1% in relation to June Part of this growth is explained by the increase in the CDC product portfolios and Vehicle Financing in the Individual client segment, with increase of 33.2% and 151.7% in the Sept-07/Sep-08 period, respectively. In the segment of Micro and Small Businesses growth is explained by the increase in the Working Capital and Investment portfolio, an increase of 36.0% and 44.2% respectively. Besides that, Banco do Brasil took a series of coordinate measures to reduce the delinquency in its loan operations. The process of collections and credit recovery was improved, to optimize the return of borrowed capitals and maintain the customer base. Amongst the measures taken are: automatic renegotiation of the credit through the automatic teller machines and internet; the employees training to recovering of loans; and the changes in collecting focus, from product to customer, with strategies definition directed to each customer profile and its historical relationship with BB. Table 57. Retail Loan Portfolio by Level Risk Sep/07 Jun/08 Sep/08 R$ million Balance Provision Comp. % Balance Provision Comp. % Balance Provision Comp. % AA 3, , , A 7, , , B 22, , , C 10, , , D 1, , , E F G H 1,702 1, ,098 2, ,476 2, Total 48,576 3, ,978 3, ,968 4, AA-C 44, , , D-H 4,479 2, ,636 3, ,216 3, Banco do Brasil MDA 3Q08

85 The quality of the portfolio remained close to that recorded in the previous quarter. The movement of Allowance for Loan Losses of the retail portfolio is detailed in the table below: Table 58. Changes in the Allowance - Retail R$ million 3Q07 4Q07 1Q08 2Q08 3Q08 Retail Loan Portfolio 48,576 53,407 58,654 64,978 68,967 Initial Allowance 2,839 3,016 3,305 3,511 3, Risk Migration a) Risk Deterioration 977 1,083 1,039 1,255 1,393 b) Risk Improvement (377) (471) (464) (626) (814) 2 New Transactions Write-offs (630) (599) (671) (760) (779) Total ( ): Other Impacts* (103) (48) (65) (36) 89 Final Allowance** 3,016 3,305 3,511 3,951 4,348 Allowance Required by CMN Resolution 2,682 3,016 3,305 3,511 3,951 4,348 Provision Flow - R$ million ,200 1,176 a) Added Provision*** 139 b) Provision Expenses 1,061 1,176 Provision / Portfolio - % Provision Flow / Portfolio - % * Amortization, settlement, release of installments and debit from charges **Purchases in installments payable by credit card included in 1Q08: R$ 32 million *** Additional provision included in Retail Portfolio. Vintage From this quarter on, we present the individual loan portfolio Vintage. This differentiated approach is better than the traditional ones because it adds transparency to allow monitoring the delinquency over time in accordance with contract of the operations. By monitoring by vintage, it is possible to observe the behavior of the delinquency of the operations hired in a specific period. In the first chart, for example, the monitoring is on a quarterly period. The lines show the performance of the delinquency of the loans hired in the previous period. Therefore, the longest lines refer to the oldest monitored period. The delinquency of past due loans + 90 days was considered in the charts bellow. To determine the individual loan portfolio, operations such as credit card, vehicle loan and overdraft account were not considered. The chart shows that the newest loans present a better performance due to delinquency than the ones hired in the beginning of the monitoring process. This results presents the improvement analysis, monitoring and granting of credit models Banco do Brasil MDA 3Q08

86 Delinquency 90 days Months Vintage Figure 29. Quarterly Vintage The second chart show the monitoring of annual vintage, in order to facilitate its view and interpretation. Delinquency 90 days Vintage Months Figure 30. Anual Vintage 86 - Banco do Brasil MDA 3Q08

87 7.5.2 Commercial Portfolio The corporate portfolio reflected growth, of 9.6%, over the last three months. This performance was due mainly to the increase in transactions with large corporate groups. The business portfolio is strongly influenced by the contracting and settlement of transactions involving expressive amounts with large clients. The portfolio quality remains in line with that observed in 2Q08. At the end of September 2008, the risk levels AA to C remained at 98.1% of the total Portfolio. Table 59. Commercial Loan Portfolio by Level Risk R$ million Sep/07 Jun/08 Sep/08 Balance Provision Comp. % Balance Provision Comp. % Balance Provision Comp. % AA 12, , , A 6, , , B 6, , , C D E F G H Total 26, , , AA-C 25, , , D-H Table 60. Changes in the Allowance - Commercial R$ million 3Q07 4Q07 1Q08 2Q08 3Q08 Commercial Loan Portfolio 26,034 29,613 33,473 40,456 44,336 Initial Allowance Risk Migration (38) (2) 13 a) Risk Deterioration b) Risk Improvement (68) (115) (127) (101) (93) 2 New Transactions Write-offs (47) (23) (29) (30) (54) Total ( ): Other Impacts* (18) (56) (13) (5) (14) Final Allowance Allowance Required by CMN Resolution 2, Changes in the Provision - in R$ million Provision / Portfolio - % Changes in the Provision - % of Portfolio * Amortization, settlement, release of installments and debit from charges 87 - Banco do Brasil MDA 3Q08

88 7.5.3 Agribusiness Portfolio The agribusiness portfolio increased by 24.9% (Sep/07-Sep/08) and decreased by 1.8% as compared to the previous quarter. In September 2008 the loans ranked at risk levels AA-C accounted for 86.3% of the portfolio, higher than 85.5% in June The ratio between the allowances required (Resolution 2,682) and the stock of loans decrease from 7.6% in 2Q08 to 7.2% in 3Q08. The changes in the provision were negative in 3Q08, considering the changes in the provision adjusted by the use of additional provision. This movement results mainly from the amortization/settlement of renegotiated operations classified at high risk levels due to rescheduling. Table 61. Agribusiness Loan by Portfolio Sep/07 Jun/08 Sep/08 R$ million Balance Provision Comp. Balance Provision Comp. Balance Provision Comp. AA 8, , , A 12, , , B 15, , , C 5, , , D 2, , , E 1, , , F G H 1,718 1, ,809 2, ,592 2, Total 48,446 3, ,611 4, ,524 4, AA-C 41, , , D-H 6,674 2, ,936 4, ,289 3, The following table details the changes in Allowance for Loan Losses for the Portfolio Agribusiness. Table 62. Changes in the Allowance - Agribusiness R$ million 3Q07 4Q07 1Q08 2Q08 3Q08 Agribusiness Loan Portfolio 48,446 51,883 56,524 61,611 60,524 Initial Allowance 3,244 3,286 3,659 4,440 4, Risk Migration (275) (62) 288 (589) (261) a) Risk Deterioration , b) Risk Improvement (670) (731) (723) (1,139) (782) 2 New Transactions , Write-offs (156) (92) (140) (235) (395) Total ( ): Other Impacts* 10 (24) 3 (29) 272 Final Allowance 3,286 3,659 4,440 4,665 4,329 Allowance Required by CMN Resolution 2,682 3,286 3,659 4,440 4,665 4,329 Changes in the Provision - in R$ million a) Additional Provision** b) Provision Expense (41) Provision / Portfolio - % Changes in the Provision - % of Portfolio (0.1) *Amortization, liquidação, liberação de parcelas e débito de encargos ** Additional Provision allocated to the agribusiness loan portfolio 88 - Banco do Brasil MDA 3Q08

89 The use of Additional Provision in 3Q08 refers to the operating risk classification of third-party risk operations in accordance with the periods of delinquency provided in CMN Resolution 2,682, combined with delinquency originating from unrenegotiated operations, maintained in a normal situation until 2/15/2008. The average risk of the portfolio is strongly influenced by the operations of the harvests of 2005 to 2007 extended with total balance of R$ 14,170 million. In the following table, the Agribusiness Loan Portfolio in divided in extended and unextended operations. Table 63. Portfolio With and Without Roll Over Agribusiness Risk Balance Portfolio Without Roll Over Allowance for Loan Losses Past Due_90 Portfolio with Roll Over Past Due 90/ Ballance 2 Balance Allowance for Loan Losses Past Due_90 AA 11, , A 13, , B 13, , C 4, , D 1, , E F G H 1,068 1, ,502 1, Past Due 90/ Ballance 2 Total 46,326 2, % 14,170 2, % (1) The past dua loans with risk AA were to loans with third part risk (2) The past due loans with third part risk were not included in the calculated of this index According to the table above, transactions overdue for more than 90 days represent 1.2% of the total unextended portfolio. If we compare this indicator to the extended operations, there is a gap of only 50 base points. On the other hand, the average risk of extended operations is higher than the unextended portfolio, 15.5% against 4.6%. The increase of the average risk of the agribusiness portfolio resulted from a regulatory issue as CMN Resolution 2,682 establishes the maintenance of the risk of the renegotiated operation at the level of risk observed at the time of the renegotiations. Simulation carried out removing the drag effect provoked by the extended operations over the other unextended operations of the client presents a reduction of the average risk from 4.6% to 2.75%. Part of the operations that comprise the agribusiness portfolio has third-party risk, representing a total of R$ 4.2 billion. Disregarding these operations the average risk of the portfolio rises from 4.6% to 4.8% (non-rescheduled portfolio) and from 2.75% to 2.92%(non-rescheduled portfolio without drag effect) respectively. Disregarding these operations, the average portfolio risk of extended operations goes from 15.5% to 17.2% Banco do Brasil MDA 3Q08

90 In the figure below the agribusiness portfolio is segregated in rescheduled and non-rescheduled operations, by appropriation and respective shares. 3Q08* 22.7% Costs 52.3% Investiment 33.8% Refinancing 13.8% With Roll Over: R$ 12.8 billion Average Risk: 17.2% 77.3% Costs 58% Investiment 28.3% Without Roll Over: R$ 43.5 billion Portfolio With Roll Over Portfolio Without Roll Over Marketing 5.9% Average Risk: 4.8% Without Roll Over Effect: 2.92 * Agribusiness Portfolio without third party risk Figure 31. Stratified Agribusiness Portfolio In 2008, the Agribusinesses Portfolio improved its quality, since the average risk of the contracted operations is better than the amortizated and liquidated operations. In 3Q08, it was contracted R$ 6.6 billions with an avarege risk of 0.7%, while in 3Q07 it was contracted R$ 5.8 billions with an avarege risk of 1.0%. Average Risk Contract 1.6% Contract Amount R$ 25.3 Bi Average Risk Amort/Liquid 6.1% Amou Amort/Liquid R$ 21.1 Bi 5,000 10% 4,000 8% 3,000 6% 2,000 4% 1,000 2% - Jan Feb Mar Apr Mai Jun Jul Aug Sep Contract Amort/Liq AR Contract AR Amor/Liq 0% Figure 32. Agribusiness Portfolio Avarege Risk Evolution 90 - Banco do Brasil MDA 3Q08

91 7.5.4 Foreign Trade Loan Portfolio The Foreign Trade Loan Portfolio recorded an increase of 2.9% (Sept/07 Sept/08). Loans rated at levels of risk AA to C went up from 98.1% in September 2007 to 98.7% in September 2008 and those rated as D-H came down 1.9% to 1.3% in the same period. Table 64. Foreign Trade Loan Porfolio by Level Risk Sep/07 Jun/08 Sep/08 R$ million Balance Provision Comp. Balance Provision Comp. Balance Provision Comp. AA 6, , , A 1, , , B 2, , , C D E F G H Total 12, , , AA-C 11, , , D-H The table below shows the effects of the global risk of the Foreign Trade Loan Portfolio on provisions, the provision vs. portfolio ratio of which decrease from 1.5% in 3Q07 to 1.0% in 3Q08. Table 65. Changes in Allowance Foreign Trade R$ million 3Q07 4Q07 1Q08 2Q08 3Q08 Foreign Trade Loan Portfolio 12,073 11,911 11,019 10,826 12,900 Initial Allowance Risk Migration 38 (22) (28) (21) (6) a) Risk Deterioration b) Risk Improvement (46) (54) (45) (45) (42) 2 New Transactions Write-offs (15) (14) (23) (48) (30) Total ( ): (11) (34) 12 Other Impacts* (6) (11) (6) 7 (172) Final Allowance Allowance Required by CMN Resolution 2, Changes in the Provision - in R$ million a) Additional Provision** b) Provision Expense (10) Provision / Portfolio - % Changes in the Provision - % of Portfolio * Amortization, settlement, release of installments and debit from charges ** Additional Provision allocated to the foreign trade loan portfolio 91 - Banco do Brasil MDA 3Q08

92 7.5.5 Foreign Loan Portfolio and Others The table below shows the risk profile of BB s foreign loan portfolio. In June 2008 the loans ranked at risk levels AA-C accounted for 99.2% of the total portfolio, 20 base points higher than the previous quarter, and to the same period in Table 66. Foreign Loan Portfolio by Level Risk Sep/07 Jun/08 Sep/08 R$ million Balance Provision Comp. Balance Provision Comp. Balance Provision Comp. AA 8, , , A 2, , , B 1, , , C D E F G H Total 12, , , AA-C D-H The table below exhibits the rating by risk of the other loans not classified in the Retail, Commercial, Agribusiness, Foreign Trade and Abroad portfolios. The loan portfolio of Besc corresponds to 30% of the balance in Sept/08. The remaining balance refers largely to the portfolio of recovery of write-offs. Table 67. Other Transactions Portfolio Sep/07 Jun/08 Sep/08 R$ million Balance Provision Comp. Balance Provision Comp. Balance Provision Comp. AA A B C D E F G H Total 2,497 1, ,495 1, ,441 1, AA-C D-H 1,685 1, ,577 1, ,633 1, Banco do Brasil MDA 3Q08

93 7.6 Income Fee Table 68. Services Revenues R$ million Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 on 9M07 Services Revenues 2,498 2,633 2, ,318 7, Account Fees ,147 2, Loan Fees (19.9) (16.0) (10.9) Credit Card Fees , Investiment Fund Management Fees (0.8) 1,262 1, Billings Interbank (33.5) (10.1) (21.1) Collection Services Rendered to Affiliated (0.4) Official Services Fees (52.5) (69.3) Others (7.6) The change in the regulations regarding collection of bank fees by the Central Bank, in December 2007, determined the creation of specific accounting subheadings to account for the Bank fee income, detailed in Circular Letter 3,371, segregating it from the other service revenues. Banking Fees, characterized as such by the Central Bank, amounted to R$ million in 3Q08, a sum 4.2% higher than the prior quarter anterior, evidencing BB s adaptation in relation to the regulatory changes. However, for purposes of comparability, and aiming to facilitate the reading and understanding of the figures, the segregation determined bye the Central Bank was not adopted in the above table, that maintained the overview of the main products and services that comprise the Bank Fee Income. Fee Income totaled R$ 2,660 million in 3Q08, recording growth of 6.5% in relation to 3Q07, and of 1.0% in relation to 2Q08, remaining in line with the guidance proposed (5% - 8%) for this year. In relation to Investment Fund Management revenue, BB's strategy of focusing fundings on time deposits, entailed a decrease of 0.8% in relation to 2Q08, but in twelve months, the performance continues to grow at a rate of 16.7% Banco do Brasil MDA 3Q08

94 7.6.1 Revenues from Checking Account Fees The new regulation of the Central Bank that governs the collection of individual tariffs came into force in the second quarter of Provisions of the Central Bank directly affected the tariff income with Loan Operations and Checking Accounts. In relation to Loan Operations, the prohibition of the collection of the Credit Opening Tariff (TAC), main tariff of this item, was reflected in the reduction of 19.9% in 3Q08, in relation to the same prior-year period. The decrease of these revenues was 16.0% in relation to 2Q08. Moreover, the new regulations of the Central Bank impacted the Brazilian Financial System (BI) regarding the obligation to inform the Total Effective Cost CET in loan operations contracted by individuals. Explanations regarding the main changes that occurred and simulators can be found on BB site, allowing the comparison of the conditions offered by BB to the conditions offered by other Banks. Regarding checking account tariffes, among other effects, the regulation abolished inactive checking account maintenance tariffs and tariffs for processing checks. However, the impact of the regulations was minimized by the vigorous growth of the client base and this item ended 3Q08 with a balance of R$ 782 million, recording growth of 7.6% in relation to 3Q07, and of 1.0% in relation to 2Q08. This item was accountable for 29.4% of all the RPS (Banking Service Fees), a share practically equal to the same period of 2007 of 29.1%. Aiming to portray its client base better, BB started to segment it in account holders, savings account clients, INSS beneficiaries and other clients. Savings account clients are those that do not have a checking account, but maintain an active savings account at the Bank; INSS beneficiaries are not account holders and do not have a savings account either; and other clients are those that have some BB product by means of partnerships. Of the non-checking account holder clients, 7.2 million are savings account clients, 2.5 million are beneficiaries of INSS (National Institute of Social Security) and 4.7 million consumers of other products and services. It is emphasized that BB's strategy is to increase the supply of products and services by means of partnerships; the growth of the base of non-account holding clients went from 3.3 million in 4Q07 to 4.7 million this quarter. In 3Q08 the total client base reached 44.5 million clients, already including 1.4 million individual clients of Banco Popular. The graph below shows the increase of account holders, segregated in individuals and businesses, in relation to the individual account holders, 1.4 million are related to the account holders of Banco Popular. Growth of 12.2% was recorded in 3Q08 over the same quarter of 2007, with growth of 3.7% over 2Q08. The performance of businesses was even better, growth of 23.6% over 3Q07 and 14.0% over 3Q07. in thousand 24,150 24,353 24,676 24,999 25,746 26,157 27,054 28,044 1,559 1,581 1,618 1,636 1,667 1,698 1,775 2,023 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Individuals Businesses Figure 33. Customer Base 94 - Banco do Brasil MDA 3Q08

95 As of the first semester of this year, aiming to increase the satisfaction and loyalty of clients, BB focused on improvement in the delivery of services provided by its branch network. The table below shows the participation of complaints registered at Bacen in the total quantity registered. It is emphasized that the data refers to banks that have more than 1 million clients in their bases. In Sep/08, 11 institutions took part in this evaluation (Banco IBI; Nossa Caixa; CEF; ABN; Banrisul; BB; Bradeco;HSBC; Itaú; Santander; and Unibanco), whereas BB did not appear in the ranking of Bacen formed by the 5 banks with the highest quantity of complaints. Table 69. Complaints Registered at Bacen 3Q07 4Q07 1Q08 2Q08 3Q08 Complaints of BB registered at Bacen 886 1,092 1,026 1,321 1,239 Total complaints registered at Bacen 9,539 9,975 5,856 8,383 9,529 Current Account Holder Base 26,635,963 27,413,659 27,854,506 28,828,261 30,066,594 Index * Complaints BB / Total Bacen 9.3% 10.9% 17.5% 15.8% 13.0% * ((Number of complaints) / (number of clients)) x 100, Banco do Brasil MDA 3Q08

96 7.6.2 Asset Management In the third quarter of 2008, Banco do Brasil accumulated R$ 516 million in Investment Fund Management Fees, a growth of 16.7% in relation to the same period of Revenues with investment fund management and managed portfolios continue to increase their share of the total RPS collected, going from 17.7% in 3Q07 and reaching 19.4% in this quarter. BB Administração de Ativos - Distribuidora de Títulos e Valores Mobiliários (BB DTVM), a wholly-owned subsidiary of Banco do Brasil, increased its market share this quarter, according to the Anbid ranking, rising from 18.1% in Sep/07 and reaching 19.8% in Sep/08. In relation to the balance of assets under management the growth was 16.7% in twelve months and reached R$ billion, distributed between investment funds with R$ billion and managed portfolios with R$ 11.2 billion. R$ billion 19,1 19,1 19,1 182,7 193,1 208,9 18,1 206,9 18,3 220,1 19,3 19,4 19,8 241,3 245,9 241,5 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Asset Management Market Share - % Figure 34. Asset Management The table below evidences the Investment Funds and Managed Portfolios segmented in clients. It can be noticed that the highest balance is that of institutional investors that rose 30.4% in twelve months and already has a share of 44.0% of the total resources followed by the funds earmarked for the Individual Client and Government segments, which hold 25.3% and 16.6%, respectively. Table 70. Investment Funds and Managed Portfolios by Costumer R$ million Chg. % Sep/07 Share % Jun/08 Share % Sep/08 Share % on Sep/07 on Jun/08 Institutional Investors 81, , , Individuals 60, , , (7.5) Government 36, , , (7.8) Businesses 19, , , (8.2) Foreign Investors 8, , , Total 206, , , (1.8) 96 - Banco do Brasil MDA 3Q08

97 In relation to the concentration of assets under management, in Sep/08, 55.5% were in fixed income, item of largest share of the portfolio, with growth of 14.8% in the comparison with Sep/07. The table below shows the concentration of assets under management per type. It is important to emphasize the advance of the Variable Income portfolio that represented 17.5% of the total in Sep/07 and reached 19.8% in September of this year. Table 71. Investment Funds and Managed Portfolios by Type R$ million Chg. % Sep/07 Share % Jun/08 Share % Sep/08 Share % on Set/07 on Jun/08 Investment Fund 196, , , (1.8) Fixed 112,411, , , (2.7) Variable 30,120, , , (6.0) Multimarket 31,498, , , (1.1) (6.2) Others 22,359, , , Managed Portfolios 10, , , (2.0) Fixed 4,360, , , Variable 6,114, , , (26.4) (24.7) TOTAL 206, , , (1.8) 97 - Banco do Brasil MDA 3Q08

98 7.6.3 Cards Income from cards continues to exhibit robust growth and recorded an increase of 46.5% in this quarter in twelve months and of 11.3% over 2Q08, starting to represent 11.5% of the total RPS, against 8.3% in the same quarter of This behavior is the result of BB's strategy of action to improve the rates of activation, retention and average consumption of cards. Transactions with cards recorded an increase of 25.8% in twelve months and of 5.9% over 2Q08. Operations with credit cards grow faster, 27.6% in twelve months and 7.5% over 2Q08, as opposed to 24.1% in twelve months and 4.3% over 2Q08 for debit cards. There were million transactions with credit cards and million with debit cards. The total card base attained 75.7 million, positive variance of 21.2% in twelve months and of 1.0% over the prior quarter. Of this total, 31.3% are credit cards that grow faster than debit cards, 33.4% in twelve months, as opposed to an increase of 16.4% in debit cards. The key item of this quarter is the base of cards issued by means of partnerships that reached 1.7 million cards, an amount 106.2% higher than that verified in 3Q07. Until the end of the quarter, BB had 22 active partnerships with several segments for issuing cards. In relation to the Visa Vale cards, BB ended the quarter with 1.6 million units in its base, up 53.9% over the same prior-year period. The revenue attained R$ million, 29.3% higher in 12 months. in million Credit Cards Debit Cards Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Figure 35. Credit and Debit Cards Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Accompanying the growth both of transactions and of the total base, revenue with cards in 3Q08 reached R$ 16.5 billion, a sum 34.3% higher than that verified in the same period of 2007 and 10.4% higher in comparison with 2Q08. It is emphasized that BB's performance in cards is superior to the market, which in twelve months, obtained the following behavior, according to Associação Brasileira de Empresas de Cartões de Crédito e Serviços (Abecs - Brazilian Association of Credit Card and Service Companies): revenue (24%); transactions (21%) and; issue (14%). A result of the good indicators evidenced above, BB gained market share and went from 15.8% in Sep/07 to 16.6% last September, in terms of total revenue volume, according to information publicized by Abecs Banco do Brasil MDA 3Q08

99 R$ billion Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Credit Cards Debit Cards Figure 36. Card Sales Total revenues obtained with cards reached R$ 944 million, a 64.2% growth in relation to the same period in the previous year. Fee income with cards also deserve to be highlighted, with R$ 305 million in the quarter, a 46.5% growth when compared to revenues obtained in the same period of The share by these earnings in total Service Provision Revenues rose to 11.5% during the quarter, 320 base points higher than the percentage recorded in 3Q07. Table 72. Services Revenues from Cards R$ million Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 on 9M07 Service Revenues - Cards Financing Income , Equity Income - Visanet (44.5) Other Income and Other Services Total Revenues ,691 2, Banco do Brasil MDA 3Q08

100 7.6.4 Collections Revenues from collections reached R$ 266 million in 3Q08, an increase of 9.6% in 12 months and 3.3% in relation to 2Q08. If we consider the first 9 months of the YTD, the variation was 10.33% with a balance of R$ 772 million. The share of these revenues in the total Fee Income amounted to 10.0% in 3Q08. In relation to the total volume collected with the billing service, a balance of R$ billion was observed in 3Q08, growth of 33.9% in twelve months and 7.5% over 2Q08. There were million active collection agreements in the period, with the issuance of million payment slips, of which 36.9 million were settled at BB. R$ million 92,067 91,844 98, , , , , ,621 Figure 37. BB Billings Volume 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q Banco do Brasil MDA 3Q08

101 7.7 Administrative Expenses Table 73. Commercial Income R$ million Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 on 9M07 Contribution Margin 5,963 6,178 6, ,462 19, Administrative Expenses (3,368) (3,582) (3,685) (9,750) (10,658) 9.3 Personnel Expenses (1,759) (1,933) (1,967) (5,143) (5,676) 10.4 Other Administrative Expenses (1,572) (1,636) (1,704) (4,497) (4,939) 9.8 Other Tax Expenses (37) (13) (15) (60.3) 9.4 (110) (43) (61.2) Commercial Income 2,595 2,595 3, ,712 8, Commercial income represents the Bank s business earnings after the deduction of the expenses necessary for carrying on the business. In 3Q08, the Bank recorded R$ 3,092 million in Commercial Income, against R$ 2,595 million in 2Q08. The increase of 19.1% reflects the growth of administrative expenses at a slower pace than that of the margin of contribution. Furthermore, in 12 months, the increase of administrative expenses is in line with the Bank's guidance. The Administrative Expenses reached R$ 3,685 million in 3Q08, an increase of 2.9% in the quarter. The variation reflects the expense control policy adopted by the Bank, also considering the growth of the Bank's business and the investment in new projects that involve the acquisition of other financial institutions, the establishment of partnerships and structural reorganization. Basis 4Q % 28.0% 24.4% 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Net Financial Income Contribution Margin Commercial Income Figure 38. Changes in Commercial Income Banco do Brasil MDA 3Q08

102 7.7.1 Personnel Expenses Personnel Expenses reached R$ 1,967 million in 3Q08, an increase of 11.8% in the year and 1.8% in relation to the previous quarter. The maintenance of personnel expenses at the same level as the previous quarter reflects provisions formed for salary readjustment to be granted upon the base date of the bankers and increase of the Bank's staff. Table 74. Personnel Expenses R$ million Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 on 9M07 Personnel Expenses (1,759) (1,933) (1,967) (5,143) (5,676) 10.4 Salaries (827) (1,028) (919) 11.1 (10.7) (2,560) (2,790) 9.0 Benefits (228) (261) (266) (666) (784) 17.7 Social Charges (310) (362) (357) 14.9 (1.6) (937) (1,039) 10.9 Training (18) (15) (20) (45) (45) (0.0) Remuneration for Counselors and Directors (3) (4) (5) (10) (13) 26.2 Administrative Personnel Provisions (373) (261) (401) (926) (1,006) 8.7 In accordance with the base date, provision was formed for personnel expenses in the amount of R$ 37.6 million. Provisions of R$ 35.6 million were also made for adjustment of the inventory of benefits already granted to the employees. In addition to provisions, the increase of the Bank's investment in the training of its employees also contributed to the growth of personnel expenses The Bank invested R$ 20 million in training in 3Q08, against R$ 15 million in 2Q08. In relation to 3Q07 the items that contributed the most toward the increase of personnel expenses were the rise in the rate of Occupational Accident Insurance - SAT, from 1% to 3%, the salary readjustment of 6% granted in the Collective Agreement of September/2007, added to the gradual realignment of the staff after the Advance Resignation Plan (PAA). At the end of 3Q08, Banco do Brasil had 94,935 collaborators, a headcount 6.1% higher than that of September 2007 and 1.3% higher than that of June With the takeover of BESC, BB 3,316 employees were added to the staff of BB, and are included in the base of employees of BB in 4Q08. It is important to emphasize that part of this staff adhered to the Resignation Plan with Incentive - PDI that can be exercised up to ,947 10,112 9,798 9,466 9,119 9,384 9,475 9,543 92,619 82,672 92,580 82,468 89,108 79,310 89,514 80,048 90,974 81,855 92,801 83,417 93,733 84,258 94,935 85,392 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Total Employees Interns Figure 39. Changes in Workforce Banco do Brasil MDA 3Q08

103 Staff distribution by age remained stable in 3Q08 in relation to the previous quarter, recording a small increase of employees between 26 and 35 years of age and over 45 years of age. In contra account there was a slight reduction of employees between 36 and 45 years of age. 3Q07 2Q08 3Q % 8.9% 25.4% 9.3% 25.8% 9.3% 33.2% 33.8% 34.0% 33.0% 31.5% 30.9% Up to 25 years 26 to 25 years 36 to 45 years Over 45 years Figure 40. Employees Age In connection with the staff member composition according to years worked in the Bank, it is worth mentioning that 41.8% have been with the institution for up to 5 years. It is verified that the bracket that records the highest growth is that of employees that have been working at the Bank for between 21 and 25 years, growth of 1.6 percentage points in one quarter. 3Q07 2Q08 3Q % 10.8% 40.5% 14.5% 11.5% 41.6% 16.1% 11.6% 41.8% 12.6% 8.5% 6.7% 5.5% 16.3% 5.1% 18.9% 4.3% 19.5% Up to 5 years 6 to 10 years 11 to 15 years 16 to 20 years 21 to 25 years Over 25 Figure 41. Aged Bracked Banco do Brasil MDA 3Q08

104 The graph below shows the evolution of the degree of education of the Bank employees. As a result of the Bank's investments in education and training, the number of employees with undergraduate courses, specialization courses, and master or doctorate courses keep an uptrend in relation to prior quarters. 3Q07 2Q08 3Q % 0.7% 19.4% 0.6% 19.9% 0.5% 35.4% 34.1% 33.5% 46.8% 45.9% 46.1% Elementary School Holders of Bachelor s Degree High School Specialization, Master s or Doctor s Degree Figure 42. Level of Education Some BB productivity ratios are shown below. Assets per Employees - R$ Thousand Customers per Employees 3,200 3,477 3,737 3,825 3,932 4,334 4,304 4, Dec /06 Mar/07 Jun/07 Sep/07 Dec /07 Mar/08 Jun/08 Sep /08 Dec/06 Mar/07 Jun/07 Sep /07 Dec/07 Mar/08 Jun/08 Sep /08 Employees / (Branch + PAA + PAB) Dec /06 Mar/07 Jun/07 Sep/07 Dec /07 Mar/08 Jun/08 Sep /08 Figure 43. Productivity Ratios Banco do Brasil MDA 3Q08

105 Besides having a staff with a high level of education, BB maintains a policy of constant investment in training programs and certifications. The amount of R$ 27.5 million was invested in 5.5 million hours of training in 3Q08. In addition, courses geared toward Anbid/Andima certification are offered to the workforce; it is emphasized that 46.9% of all the employees already have some certification from these associations. Table 75. Employee Training 3Q07 4Q07 1Q08 2Q08 3Q08 Hours of Training 1,046, ,634 1,306,943 1,195,236 5,530,013 Total employees 80,048 81,855 83,417 84,258 85,392 Hours of training by employees Employees with Anbid Certification - CPA 10 21,833 27,551 30,092 31,961 33,709 Employees with Anbid Certification - CPA 20 3,639 4,632 5,087 5,906 6,387 Total 25,472 32,183 35,179 37,867 40,096 Employees with certifications / Total 31.8% 39.3% 42.2% 44.9% 46.9% Internal, external and distance training programs, excepting scholarships Banco do Brasil MDA 3Q08

106 7.7.2 Other Administrative Expenses Other administrative expenses reached R$ 1,704 million in the third quarter, a 4.1% increase in relation to 2Q08 and a 8.4% increase in relation to 3Q07. Provisions for contractual readjustments was the item that contributed the most toward the growth of other administrative expenses in the quarter. Table 76. Other Administrative Expenses R$ million Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 on 9M07 Other Administrative Expenses (1,572) (1,636) (1,704) (4,497) (4,939) 9.8 Telecommunications and Data Processing (399) (420) (429) (1,159) (1,277) 10.2 Amortization and Depreciation (184) (193) (201) (546) (585) 7.1 Security. Guard and Transport Services (239) (251) (291) (689) (793) 15.1 Expenses with Premises and Equipment (195) (215) (215) (596) (640) 7.4 Marketing and Public Relations (103) (104) (88) (14.2) (15.3) (281) (256) (8.8) Expenses with Outsourced Services (174) (225) (216) 24.3 (4.0) (469) (650) 38.7 Other Administrative Expenses (279) (229) (263) (5.7) 15.1 (757) (738) (2.5) During 3Q08 the Bank provisioned readjustment for contracts, especially those relating to the transportation of money, surveillance and outsourced services, which totaled R$ 37.1 million. In relation to outsourced services, it is important to emphasize the Bank's strategy of reducing the quantity of outsourced workers, which contributed toward the reduction of expenses in this item. In comparison with the same period of the previous year, Banco do Brasil incurred an increase in expenses with surveillance, security and transportation services, also recording growth in expenses with outsourced services. The increase of these administrative expenses reflects the growth of the Bank's business, both the organic growth of business and expenses incurred due to the takeover movement of other financial institutions Banco do Brasil MDA 3Q08

107 7.7.3 Distribution Network With national coverage and presence in 3,288 municipalities in the country, which corresponds to 59% of the Brazilian municipalities, besides branches located in 23 countries, Banco do Brasil has the largest branch network in Brazil. At the end of 3Q08, Banco do Brasil s own service network in Brazil comprised 15,438 points (growth of 226 points in relation to 3Q07) and is classified in the chart below: Table 77. Distribution Network Dez/06 Mar/07 Jun/07 Set/07 Dez/07 Mar/08 Jun/08 Sep/08 Branches 3,969 3,974 3,977 3,984 4,008 4,024 4,052 4,077 PAA PAB 1,236 1,226 1,209 1,208 1,247 1,251 1,249 1,225 PAE 5,588 5,895 5,906 5,949 5,948 5,935 5,911 5,969 SAA 3,841 3,847 3,879 3,884 3,906 3,925 3,951 3,980 PAP Total* 15,113 15,133 15,161 15,212 15,297 15,324 15,353 15,438 *Besc and Bescri distribution network is not included The Bank s distribution network is divided into 5 types of points of service, besides the branches: PAA Advanced Service Post: these are points of service intended for towns lacking banking services. They have a small staff and electronic services; PAB Banking Service Post: this type of unit is located inside the premises of companies or government offices. This service structure requires one employee and electronic services; PAE Electronic Service Post: the structure of services is exclusively electronic; SAA Self-Service Room: exclusively electronic structure of services, installed in the main areas of the branches; e PAP Payment and collection post: located mainly in government offices (town halls) for carrying out receipts and payments. Employees and automated teller machines provide the service: North Retail Wholesale Govern Midwest High Income 1 Retail Wholesale Govern High Income 10 South Retail Wholesale Govern BB 6,0% High Income 9 BB 9,9% BB 38,7% BB 20,6% BB 24,8% Northeast Retail Wholesale Govern Southeast High Income 10 Retail Wholesale 1, Govern 5 High Income 46 Figure 44. Total Distribution Network Banco do Brasil MDA 3Q08

108 To render an excellent service and improve the level of satisfaction of clients, Banco do Brasil segments its customer base according to each profile and relationship, developing strategies for the specific segments. In the delivery of services to individuals, emphasis is placed on the bank correspondents that serve the clients of Banco do Brasil without using the Bank's infrastructure, generating cost savings. Banco do Brasil has 5,251 bank correspondents working all over the country and responsible for over 13.5 million transactions in 3Q08. In relation to the Wholesale market, the service network is comprised by 83 branches, of which 15 are Corporate and 68 Business branches, serving 39 thousand customers. Most of the network is located in the Southeast (57%) and South (27%) regions of Brazil, regions with the largest concentration of large companies. The services are segmented considering the annual sales volumes in accordance with the following table: Table 78. Wholesale Pillar Branches Industry Commerce Services Corporate Over R$ 90 million Over R$ 150 million Over R$ 150 million Business From R$ 10 to R$ 90 million From R$ 10 to R$ 150 million From R$ 10 to R$ 150 million On the other hand, the Government, comprised by direct management bodies, federal entities, foundations and public companies, was comprised by 29 agencies, whose business focus is the relationship with the Federal Government and the State and Municipal spheres, encompassing the Executive, Legislative, and Judicial Authorities. The strategy of working in this market has ensured appropriate solutions for the specific aspects of each one of the niches of its segment, acting to generate value through solutions with new products and freeing processes from red tape, with the exclusive electronic bidding service. The Banco do Brasil overseas network numbers 42 points of service (15 branch offices, 10 sub-branches, 12 representation offices and 5 subsidiaries) in 23 countries. Complementing this structure, BB keeps a relationship with other financial institutions abroad to service its customers, and, at the end of September, had 1,426 bank correspondents active in 151 countries. Table 79. Distribution Network Abroad Branches Sub-Branches Business Units and Representative Offices Subsidiaries Assunción Cascais Caracas Banco do Brasil AG Buenos Aires Gifu Mexico City Banco do Brasil Securities LLC Ciudad del Este Gunma Dubai BB Leasing Company Ltd. Frankfurt Hamamatsu Hong Kong BB Securities Ltd. Grand Cayman Ibaraki Lima BAMB Brazilian American Merchant Bank La Paz Nagano Montevideo(*) Lisbon Nagóia Luanda London Parque das Nações Panamá Madrid Porto Rome Miami Santa Cruz de La Sierra Seul(*) Milan Washington New York Shanghai Paris Santiago Tokyo (*) Unit process of installation Banco do Brasil MDA 3Q08

109 7.7.4 Automated Channels Banco do Brasil s self-service network represents a strategic differential, offering various services to BB client, besides supporting the cost control strategy of the institution. In September of 2008, BB had a network of 39,918 automated teller machines (ATMs) in Brazil and abroad, the largest network of selfservice terminals in Latin America. 39,661 39,765 39,952 39,417 39,279 38,692 38,766 39,918 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Figure 45. Automated Teller Machines The importance of Automated Teller Machines - TAA in the transactions of BB can be verified in the numbers below, which represent the percentage of banking operations carried out in the TAAs in the quarter: % of the drafts; % of delivered check books; % of deposits; and % of the receipts of bills and contractual payments. The share of automated transactions in the total transactions performed by BB customers attained 90.4% in June Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Figure 46. Share of Automated Transactions / Total Transactions Besides the cashiers at the branches and the ATMs, Banco do Brasil offers several other options for access to banking services, such as: the Internet, Financial Manager (and Internet banking tool for businesses), POS equipment (credit and debit card machines at the commercial establishments), telephone, fax, and mobile banking (WAP). At the end of the period, BB had 0.7 million clients capable of using the mobile banking service, and 8.5 million clients using the internet channel, keeping its leadership in internet banking Banco do Brasil MDA 3Q08

110 Banco do Brasil, in partnership with Visa, is the only bank to operate with Visa Mobile Pay technology in Latin America, which allows the clients of BB to pay for purchases using their mobile phones. This technology, combined with the mobile banking services already offered, confirms the Bank's avant garde positioning in banking technologies. Prioritizing customer service via virtual channels, Banco do Brasil started to make digitalized images of cleared checks available via the Internet in 2Q08. In 3Q08, Banco do Brasil delivered over 348 thousand digitalized documents. The chart below shows the service channel distribution of BB Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Jul/08 TAA Internet Internet Cash POS COBAN and Others Individuals Companies Figure 47. Costumer Access Options Banco do Brasil MDA 3Q08

111 7.7.5 Productivity Coverage Ratios The coverage ratios show the capacity for covering fixed costs using only service revenues. The coverage ratio of personnel expenses attained 125.1% in 3Q08, as opposed to 108.3% in 3Q07 and 126.9% in 2Q08. The deterioration in the indicator in the quarter is a result of the rise in personnel expenses, affected by an increase of provisions on employee benefits, provisions for salary readjustments (base date of Sep/08) and increase in the amounts provisioned for civil claims. In relation to revenues, the slowdown of the pace of growth of Fee Income is motivated by alterations in the banking regulation. The rate of coverage of administrative expenses went from 69.6% in 2Q08 to 69.5% in this quarter. Service Revenues / Personnel Expenses Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 9M07 9M08 Service Revenues / Administrative Expenses Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 9M07 9M08 Figure 48. Coverage Ratios It is emphasized that the criterion for calculation of the coverage rates excludes the extraordinary amounts of income and expenses. During this quarter R$ 192 million referring to the economic plans were excluded from other administrative expenses. In the case of revenues, R$ 673 million relating to bank fee income (change resulting from the new Central Bank regulations), are added to service revenues totaling the amount below. In relation to the other items there were no alterations. Table 80. Coverage Ratios R$ million 4Q06 1Q07 2Q07*** 3Q07 4Q07 1Q08 2Q08 3Q08 Service Revenues 2,287 2,377 2,437 2,498 2,590 2,568 2,633 2,660 Administrative Expenses 3,614 3,238 3,535 3,953 4,231 3,483 3,784 3,826 Personnel Expenses 2,050 1,783 1,914 2,308 2,343 1,899 2,074 2,126 Service Revenues / Personnel Exp.* Service Revenues / Administ. Exp.** * In the calculation of this ratio Labor Lawsuits are included, ** In the calculation of this ratio Legal Risk is included (Legal Claims and Labor Lawsuts), *** The amounts referring to the Suspension of Previ Contributions - Plan I and PAA were included in the calculation of Personnel Expenses of 2Q Banco do Brasil MDA 3Q08

112 Despite the expansion of the service network, necessary to meet the constant increase in the customer base, BB has kept its cost structur;e compatible with its generation of business, as seen in the graphs below: Loan Portfolio / Points of Service Service Revenues / Points of Service Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Points of Service Loan Portfolio / Points of Service - R$ million Points of Service Serv. Ver. / Points of Service - R$ thousand Personnel Expenses per Employee - R$ thousand Customers / (Branch + PAA + PAB) ,766 4,813 4,893 4,954 5,038 5,100 5,252 5,481 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Figure 49. Productivity Ratios R$ million 20,810 18,107 16,709 17,240 15,327 15,464 11,298 11,524 12,398 13,020 13,448 10,658 8,888 9,902 7,648 7,865 5,491 6, M08 Service Revenues Net Interest Margin Administrative Expenses * Annualized Figure 50. Business vs. Expenses Banco do Brasil MDA 3Q08

113 7.8 Net Value Added The table Net Value Added shows how Banco do Brasil s income is made up of the of the generation of value from each of the Bank s businesses, and then shows a breakdown of the distribution of these proceeds. The point of view used is the gross financial margin, which includes financial intermediation income and expenses, without allowances for loan losses. Table 81. Net Value Added R$ million Quarterly Flow Chg. % 9 months Flow Chg. % 3Q07 2Q08 3Q08 on 3Q07 on 2Q08 9M07 9M08 on 9M07 Net interest income 5,156 5,743 5, ,440 17, Income from Non-Financial Products 1,994 2,194 2, ,814 6, Account Fees ,147 2, Investment Fund Management Fees (0.8) 1,262 1, Loans (19.9) (16.2) (10.9) Billings Collections Credit Cards Fees , Insurance Others 1,400 1,374 1, ,149 4, Insurance Brokerage (76.6) (78.0) Insurance Results (50.5) Others Service Revenues ,455 1,148 (21.1) Equity Interest in Results of Subs.and Affil. 40 (128) (42.5) Other Operational Revenues ,046 2, Non Operation Income (63.2) (73.5) Value Added 8,550 9,311 9, ,403 28, Distribution of Value Added (7,186) (7,667) (7,801) (21,562) (22,311) 3.5 Operational Revenues (2,021) (2,820) (2,598) 28.6 (7.9) (6,506) (8,171) 25.6 Provision for Credit Risk (1,216) (1,687) (1,339) 10.1 (20.6) (3,881) (4,560) 17.5 Other Operational Income (805) (1,133) (1,259) (2,625) (3,611) 37.6 Personnel Expenses (2,080) (2,285) (2,365) (6,092) (6,859) 12.6 Personnel Expenses (1,905) (2,074) (2,126) (5,600) (6,108) 9.1 Statutory Profits Sharing (175) (212) (239) (492) (751) 52.6 Administrative Expenses (1,645) (1,710) (1,700) 3.3 (0.6) (4,727) (5,003) 5.9 Tax Expenses (1,162) (1,032) (968) (16.7) (6.2) (3,488) (3,077) (11.8) Taxes on Sale (476) (511) (489) 2.7 (4.4) (1,416) (1,488) 5.1 Other Tax Expenses (37) (13) (15) (60.3) 9.4 (110) (43) (61.2) Income and Social Contribution Taxes (650) (507) (465) (28.4) (8.4) (1,962) (1,546) (21.2) Extraordinary Items (278) 181 (170) (38.8) - (749) Value Added to Shareholders 1,364 1,644 1, ,841 5, Banco do Brasil MDA 3Q08

114 8 Risk Management 8.1 Risk Management Market Risks Introduction BB uses statistical and simulation methodologies to measure the market and liquidity risks of its positions. The main ones are: Value at Risk (VaR); Sensitivity (parallel shift and curvature of risk factors); Stress test. The Value at Risk (VaR) is a measure of maximum expected loss in monetary values, under normal market conditions, in a determined line period, given a chosen confidence interval. At BB, the VaR is measured by historical simulation methodology, with a confidence interval of 95%, for a period of 1 (one) day. The Historical Simulation methodology makes use of fluctuation interest rates, market ratios, exchange rates, shares, and commodities. This methodology undergoes a process of backtesting, which consists of comparing the distribution of the values calculated with the financial results actually occurred. In order to determinate the sensitivity of the Bank s capital to the impacts of extreme market movements, stress scenario tests are carried out. These scenarios are created from market shocks, which are based on significant historical moments or forecast economic-financial scenarios. Creating the scenarios is the responsibility of the Scenarios Commission, under the coordination of the economic department of the Bank. Policies The Policy on Market and Liquidity Risk and the Policy on the Use of Derivative Financial Instruments approved by the Board of Directors, are part of the strategic documentation regarding the institution's market and liquidity risk management. These documents are intended to establish guidelines to be complied with in the company's business decisions involving market and liquidity risk, dealing with quantitative aspects as well as the metrics used and the interest rate risk reference parameter, and also qualitative aspects such as the hedging policy, scope of management, and segregation of functions. Structure In accordance with CMN Resolution 3,464, of , financial institutions should implement a structure for the management of market risk segregated from the business units and from the unit executing the Internal Audit activity, and compatible with the nature of transactions, the complexity of products and the dimension of exposure to market risk of the institution. The Bank has a market risk management structure represented by the Risk Management Directorate (DIRIS), compatible with the Bank's nature of transactions, and totally segregated from the business units and the Internal Audit unit Banco do Brasil MDA 3Q08

115 The responsibilities of DIRIS in market risk management that merit special emphasis are the proposition of policies, guidelines, methodologies and market risk limits, as well as the identification, assessment, monitoring and control of the market and liquidity risk of the Financial Conglomerate, the identification and tracking of the market and liquidity risk of the other companies from the Economic and Financial Consolidation. Foreign Exchange Exposure Banco do Brasil uses derivative financial instruments to meet clients expectations and, in a conservative way, also uses it as a protective tool of the conglomerate active and passive positions. Therefore, it is not a practice of BB to mantain intencional positions in the derivative market. Below, we present the management statement of foreign currency assets and liabilities referenced to the American dollar, position at 09/30/2008: Figure 51. Balance in Foreign Currencies Foreign Currency Balance R$ Thousand R$ Thousand ASSETS 46,167,233 LIABILITIES 48,640,844 Current and Long-Term Assets 46,073,785 Current and Long-Term Liabilities 48,635,316 Avaiable Funds 1,878,930 Deposits 18,791,121 Short-Term Interbank Investments 8,603,093 Demand Deposits 3,224,840 Securities 5,384,229 Saving Deposits - Interbank Accounts - Interbank Deposits 5,032,444 Intrabank Accounts - Time Deposits 10,533,837 Loans/Leasing 16,337,863 Money Market Borrowing 6,028,466 Other Assets 13,869,671 Funds from Acceptance and Securities Placed 678,421 Permanent 93,448 Interbank Accounts - Investments 20,359 Intrabank Accounts 1,130,896 Property and Equipaments 65,958 Borrowing/Onlending 4,915,612 Leasing Assets - Financial Derivatives 1,370,681 Deferred 7,131 Other Accounts Payable 15,720,120 Unearned Income 5,527 Shareholder's Equity - OTHER ASSETS AND LIABILITIES Off Balance 1,544,393 Off Balance - TOTAL ASSETS 47,711,626 TOTAL LIABILITIES 48,640,844 NET 929, Banco do Brasil MDA 3Q08

116 Banco do Brasil s foreign exchange exposure calculated according to Bacen Circular 3,367, of September 12, 2007, was of R$ 1,205 million at September 30, The following chart shows the quarterly behavior of Banco do Brasil s foreign exchange exposure in relation to the Referential Equity Amount (RE) since March/2007: Foreign Exposure Exchange - % of RE 5.00% 4.00% 0.22% 3.00% 2.00% 1.00% 0.19% 1.77% 0.26% 2.37% 3.41% 0.33% 2.83% 3.30% 2.02% 1.04% 0.34% 0.28% 0.20% 1.26% 1.23% 1.22% 0.00% mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Exposure % Current Basket Exposure % Other Currencies G Portion Figure 52. Changes in Foreign Exchange Exposure Balance Sheet by Index Banco do Brasil manages its expositions in a consolidated manner, analysing the impacts of several scenarios and stress tests. We present below the composition of assets and liabilities of Banco do Brasil in the country, detailed by index: R$ billion Assets R$ billions Liabilities Fixed CDI/TMS/FACP IRP/TBF/TR Price Index TJLP US$/Gold W/O Index Asset: Tax Credit; Permanent Liabilities: Equity; Adm. Pro; Float Total R$ bi Figure 53. Composition of Banco do Brasil's assets and liabilities in the country Banco do Brasil MDA 3Q08

117 The chart below shows Banco do Brasil s net mismatches, by index in Brazil % R$ billion % % % % % % -9.78% Figure 54. Net Position Fixed Price Index US$/others TJLP CDI/TMS/FACP W/O Index IRP/TBF/TR PL/others Portfolios BB Consolidated The consolidated portfolio of Banco do Brasil is formed by asset and liability positions, comprised of commercial and treasury operations, including derivative financial instruments, recorded in the consolidated balance sheet of the BB Group. The illustration below shows a Box-Plot analysis of the Consolidated BB Value at Risk (VaR) since the third quarter of , , , ,000 50, Q Q Q Q Q Q Q Q 2008 Figure 55. Financial Consolidated BB VaR Banco do Brasil MDA 3Q08

118 The following table describes the BB Consolidated minimum, average, and maximum VaR for the following periods: Table 82. Consolidated BB VaR R$ Thousand Period Minimum Average Maximum Oct to Dec / , , ,420 Jan to Dec / , , ,455 Jan to Sep / , , ,496 BB Foreign Network The consolidated portfolio of the Abroad Network is made up of the positions of assets and liabilities, comprising commercial, financial, derivative and securities transactions, recorded in the balance sheets of Banco do Brasil s units located abroad. The illustration below shows a Box-Plot analysis of the Consolidated Abroad Network's VaR since the fourth quarter of ,000 40,000 35,000 US$ thousand 30,000 25,000 20,000 15,000 10,000 5, Q Q Q Q Q Q Q Q 2008 Figure 56. Consolidated Abroad Network's VaR The following table describes the Abroad Network's minimum, average, and maximum VaR for the following periods: Table 83. Foreign Network's VaR US$ thousand Period Minimum Average Maximum Oct to Dec / ,252 8,306 9,634 Jan to Dec / ,861 16,321 41,515 Jan to Sep / ,349 21,740 41, Banco do Brasil MDA 3Q08

119 BB Fixed Interest Rate Portfolio The risk management strategy for the set of Real-denominated operations and remunerated at pre-fixed interest rates establishes the VaR limit definition for corrected cost portfolio, which is composed by products accounted for by the corrected cost value. The products accounted for by the market value are managed by means of Domestic Treasury specific-portfolio limits. The Var methodology adopted for managing and keeping track of the limit of this portfolio presents a confidence level of 99% for the period of 10 days and the allocation of the marked-to-market values by standard vertices. The figure below shows a Box-Plot analysis of the BB Consolidated fixed interest rate portfolio's VaR since the fourth quarter of , , ,000 R$ thousand 500, , , , , Q Q Q Q Q Q Q Q 2008 Figure 57. Fixed Interest Rate Portfolio's VaR The following table describes the Fixed Interest Rate Portfolio's minimum, average, and maximum VaR for the following periods: Table 84. Fixed Interest Rate Portfolio's VaR R$ thousand Period Minumum Average Maximum Oct to Dec / , , ,078 Jan to Dec / , , ,701 Jan to Sep / , , , Banco do Brasil MDA 3Q08

120 BB International Trading For the purposes of management, Banco do Brasil segregates the trading transactions from the others, establishing specific strategies and limits. The diversification effect shows the risk reduction of the portfolio arising from the correlations between the assets which comprise it. The figure below shows a Box-Plot analysis of the International Trading portfolio's VaR since the fourth quarter of ,200 1,000 US$ thousand Q Q Q Q Q Q Q Q 2008 Figure 58. VaR for the International Trading portfolio The following tables describe the International Trading portfolio's minimum, average, and maximum VaR for the periods shown: Table 85. VaR for the International Trading US$ thousand Period Minimum Average Maximum Oct to Dec / Jan to Dec / ,114 Jan to Sep / Banco do Brasil MDA 3Q08

121 BB Domestic Trading The illustration below shows a Box-Plot analysis of the Domestic Trading portfolio's VaR since the fourth quarter of ,800 1,600 1,400 R$ thousand 1,200 1, Q Q Q Q Q Q Q Q 2008 Figure 59. VaR for thedomestic Trading portfolio The following table describes the Domestic Trading portfolio's minimum, average, and maximum VaR for the following periods: Table 86. VaR for the DomesticTrading R$ thousand Period Minimum Average Maximum Jul to Dec / Jan to Dec / ,584 Jan to Jun / , Banco do Brasil MDA 3Q08

122 Sensitivity to Interest Rate We present below a table containing the "Sensitivity to Interest Rate" analysis of Banco do Brasil Multiple Bank: Table 87. Sensitivity to Interest Rate BANCO DO BRASIL S/A Banco Múltiplo - Setembro/ Repricing Profiles Assets Liabilities R$ Million < 1 Mo 1 > 3 Mo 3 > 6 Mo 6 > 12 Mo 1 > 3 Yrs > 3 Yrs Total Prefixado 84,333 23,095 12,860 21,292 31,627 17, ,687 CDI/TMS 108, ,873 Inflação 0 10, ,316 TR/IRP 0 46, ,652 TJLP , ,347 US$/ME 7,990 5,729 7,872 8,659 5,612 3,898 39,761 Total - Ativos que redem juros 202, ,167 20,731 29,951 37,239 21, ,636 Prefixado (45,456) (11,024) (4,247) (10,668) (14,465) (8,305) (94,165) CDI/TMS (114,474) (114,474) Inflação 0 (4,308) (4,308) TR/IRP 0 (86,282) (86,282) TJLP (1,015) (24,234) (25,249) US$/ME (9,765) (4,614) (8,528) (9,263) (6,166) (921) (39,257) Total-Passivos que pagam juros (170,710) (130,462) (12,776) (19,931) (20,630) (9,225) (363,735) Interest Sensitivity Gap 31,457 (20,295) 7,955 10,020 16,609 12,154 57,901 Accumulated Gap 31,457 11,163 19,118 29,138 45,747 57,901 Accum Gap as % Assets (que rendem juros) 9.2% 3.3% 5.6% 8.5% 13.3% 16.9% 13.7% Banco do Brasil MDA 3Q08

123 8.1.2 Liquidity Risk Banco do Brasil maintains levels of liquidity that are adequate for the institution's commitments assumed in Brazil and abroad, resulting from its broad and diversified depositor base and the quality of its assets, the capillarity of its network of overseas branches and of access to the international capital market. Complete control over liquidity risk is in accordance with the Market and Liquidity Risk Policy established for the Conglomerate, fulfilling the requirements of national banking supervision and of the other countries where the Bank operates. Management instruments adopted in the Conglomerate are: Short, Medium and Long Term Liquidity Forecasts. Risk Limits. Liquidity Contingency Plan. Short, Medium and Long-term Liquidity Forecasts permit the evaluation of the effect of mismatching between funding and investments, with the objective of identifying situations that could compromise the institution's liquidity. It takes into consideration the budget planning of the institution, as well as market conditions. The Liquidity Reserve, monitored daily, is the limit of risk utilized in short term liquidity management of the domestic and international areas. It is the minimum level of assets of high liquidity to be maintained by the Bank, compatible with the exposure to risk resulting from the characteristic of its operations and from the market conditions. This Reserve is utilized as a parameter for the identification of a possible liquidity crisis and potential engagement of the Liquidity Contingency Plan. oct/07 nov/07 dec/07 jan/08 feb/08 mar/08 apr/08 may/08 jun/08 jul/08 aug/08 sep/08 Average Liquidity Liquidity Reserve Figure 60. Liquidity Reserve - Domestic Treasury A minimum limit for the Indicator of Availability of Free Funds (DRL) is defined annually by the Global Risk Committee (CGR) for management of the liquidity structure from the domestic area. This indicator, utilized in the planning and in the execution of the institution's budget, aims to guarantee a balance between funding and application of resources from the commercial portfolio and to ensure the financing of liquidity with structural resources. The DRL limit, monitored monthly, guides budget preparation according to funding and commercial investment goals and the liquidity management established by the Board of Directors Banco do Brasil MDA 3Q08

124 oct/07 nov/07 dec/07 jan/08 feb/08 mar/08 apr/08 may/08 jun/08 jul/08 aug/08 sep/08 Monthly DRL Annual Limit Figure 61. DRL Indicator The occurrence of departure from the limit of DRL (Availability of Free Funds) in the second quarter, resulting from the strategy of driving surplus liquidity at business operations, resulted, as established by CRG, in the implementation of a plan for re-composition of the structural liquidity as of June, whose positive impacts on the Bank's internal liquidity level can be observed in the figure shown above. oct/07 nov/07 dec/07 jan/08 feb/08 mar/08 apr/08 may/08 jun/08 jul/08 aug/08 sep/08 Average Liquidity Limit Figure 62. Liquidity Reserve - International Treasury The actions and steps to be taken in a liquidity crisis are defined in the Liquidity Contingency Plan. This Plan will be activated when the sum shown or the Liquidity projection points to levels below the Liquidity Reserve's pre-defined limit. As of the third quarter of 2008, the Liquidity Reserve of the consolidated Foreign Network substituted the Liquidity Reserve of the International Treasury as a parameter for activation of the Bank's Contingency Plan Banco do Brasil MDA 3Q08

125 8.1.3 Credit Risk Credit Risk Management With the intention of fulfilling the demands of Basel II and aligned with best risk management practices, the Bank developed its own methodology for the determination of risk components: Expected Default Frequency (FEI), Loss Given Default (LGD), exposure to credit risk, which are inputs for the measurement of the Economic Capital (EC) and of the Expected Loss (EL). The internal model for measuring the VaR of credit has its theoretical grounds based on the actuarial approach, which is widespread nowadays in the banking industry. The VaR of the loan portfolio is associated with a distribution of added loss for a given level of confidence. The mean value of this distribution is the Expected Loss, which represents how much the Bank expects to lose on average in a given period of time, the protection of which is performed by means of provision. Now the Economic Capital, which is associated with Unexpected Loss, is determined by the difference between VaR and EL. For this portion the Bank protects itself by allocating capital for risk coverage. Reliance Level (%) Frequency % EL Economic Capital VaR Losses - $ Figure 63. Measuring and management instruments The distribution of aggregate loss is generated using the following risk components as data input: EDF, LGD and exposure subject to credit risk. In relation to these risk components, the Bank has been working on the optimization of its modeling. The measurement of the VaR of Credit provides subsidies for the appraisal of risk and return of the Bank's loan portfolio, and for the process of establishment of limits for the loan portfolio. Its evaluation has helped in the decision-making process of the Bank, bringing historical information and allowing an analysis of the risk behavior trend. Furthermore, its use has proved extremely valuable in the dissemination of the credit risk management culture at the Bank Banco do Brasil MDA 3Q08

126 As regards the evaluation of the return, the values of EL and EC serve as inputs for the calculation of the Risk-Adjusted Return on Capital (RAROC). The use of RAROC is intended to subsidize important decision-making processes at the Bank. Its tracking in the historical perspective for the portfolios analyzed has allowed the assessment of risk and return to be present in the decisions of the Institution. The Bank developed a credit risk concentration control method, analyzing the interrelation among the various economic sectors that comprise the business loan portfolio. This model evaluates the concentration with a basis on the credit risk of the borrowers -Herfindhal Index. Besides the use of techniques for identification and quantification of concentration, BB monitors and controls the concentration of credit risk in terms of risk/exposure as an important tool to subsidize decisions regarding the definition of risk exposure limits. BB has management tools of credit risk appraisal, with an emphasis on: VaR and RAROC utilized in the evaluation of the Business segment, in the view of sectors of the economy, as a subsidy to the decision of definition of macrosectoral limits. QIP - Quality Index of the Portfolio - qualitative and quantitative indicator of the portfolio. The default concept follows the precepts defined by CMN Resolution 2,682/99. Deliquency rates of 15 and 90 days - correspond to the division of the balance overdue for more than 15 and 90 days, respectively, by the balance of the portfolio. Budget of credit risk - corresponds to the projection of PCLD to form the annual budget of BB. Credit risk management reports - systematic monitoring and projections for the loan portfolio from different views Banco do Brasil MDA 3Q08

127 Concentration BB's amplified Loan Portfolio, formed by the portfolio of loans in the country and abroad, guarantees granted and Private Securities, totaled R$ 214,501 million in September Of this portfolio, 22.7% of the transactions are concentrated on the 100 largest borrowers, compared to 23.3% in June 2008, as per the table below: Table 88. Concentration of the Loan Portfolio on the 100 Largest Borrowers R$ million Period 1 st Customer Balance 2 nd to 20 th Balance 21 st to 100 th Balance 100 th largest Balance Mar/ , , , ,385 Jun/ , , , ,413 Sep/ , , , ,120 Mar/ , , , ,118 Jun/ , , , ,844 Sep/ , , , ,629 Period Portfolio Colateral Securities Total Mar/07 140,387 3, ,109 Jun/07 145,233 3, ,426 Sep/07 150,184 4,034 1, ,289 Mar/08 172,760 5,864 1, ,055 Jun/08 190,082 6,582 3, ,629 Sep/08 202,201 7,500 4, ,501 The ratio between the exposure of the largest borrower and the Referential Equity Amount ended September 2008 in 13.4%, as per the table below: Table 89. Concentration of the Loan Portfolio of the 100 th Largest Borrowers in relation to RE R$ million Period 1º Customer Balance 2º to 20º Balance 21º to 100º Balance 100 largest Balance Mar/ , , , ,385 Jun/ , , , ,413 Sep/ , , , ,120 Mar/ , , , ,118 Jun/ , , , ,844 Sep/ , , , , Banco do Brasil MDA 3Q08

128 The amplified business loan portfolio totaled R$ million in September The greatest concentration is in transactions contracted with companies from the Oil macro sector that corresponds to 10.4% of the amplified business portfolio, growth of 102.8% in the last 12 months. The distribution of the Loan Portfolio Economic Macro Sectors is shown in the table below: Table 90. Concentration of the Loan Portfolio by Macro-sector Macro-sector Sep/07 Share % Jun/08 Share % Sep/08 Share % R$ million Change % On Sep/07 On Jun/08 Oil 6, , , Foodstuffs of Vegetable Origin 9, , , Metalworking and Steel 10, , , Services 7, , , Electricity 5, , , Automotive 5, , , Telecommunications 1, , , Foodstuffs of Animal Origin 3, , , Building 3, , , Textiles and Garments 3, , , Transport 3, , , Retail Trade 3, , , Electrical and Electronic Goods 3, , , Pulp and Paper 3, , , Agricultural Consumables 2, , , Chemicals 3, , , Beverages 1, , , Other Activities 2, , , Timber and Furniture 2, , , Wholesale Trade and Sundry Ind. 1, , , Leather and Shoes 1, , , (0.9) Internal Loan Portfolio 70, , , Abroad Loan Portfolio 12, , , Garantees 4, , , Securities 1, , , Total 88, , , Banco do Brasil MDA 3Q08

129 Businesses Exposure in derivative operations Clients exposure to currency swap is being highly monitored. Until , BB was creditor R$ million, and debtor R$ million net effect of R$ million. The following table lists the foreign exchange derivative operations with our clients, classified as the biggest creditors and debtors, according to the adjustment amount. The position of the adjustments is of Table 91. Derivative Transactions Businesses Exposures Largest Exposures BB Creditor (1) Largest Exposures BB Debtor (2) Customer Contract BB Creditor Customer Contract BB Debtor 1 Swap Currency Swap Term Option Currency Swap Term Option Term Option Term Option Term Option Term Option Term Option Term Option Currency Swap Term Option Currency Swap Term Option Currency Swap Term Option Term Option Term Option Currency Swap 1.6 Other Other Total Total (1) Contracts with 899 customers and average exposure of R$ 6.9 million (2) Contracts with 331 customers and average exposure of R$ 5.8 milhões Banco do Brasil MDA 3Q08

130 8.1.4 Operating Risk Introduction With the purpose of regulating Basel II in Brazil BACEN has been issuing several regulations. In June 29, 2006 it published CMN Resolution no. 3,380, which provides for implementation of the Operating Risk Management structure, and later Communiqué 16,137 on September 27, 2007, specifying a schedule for implementing Basel II, and it is expected that the approval process for the use of internal models should begin in 2011, for implementation in To this effect, BB implemented actions aimed to guarantee the alignment of its operational risk management structure with the provisions of CMN Resolution 3,380 and since the publication of Basel II has been adopting actions to build an internal model of effective management that consequently fulfills what is established by the regulator. Information about the Management Structure and Operating Risk Management Process can be found in more detail on BB's Internet page. Key Risk Indicators (KRI's) KRI's provide numerical data on the frequency or seriousness of relevant causes, associated with risk factors and sub-factors in connection with loss events. They have a positive relation with exposure to risk, i.e.: rising indicator signals increased risks. These indicators are being utilized as tools to assist in the management of operating risk in the internal processes of BB. Operating Loss Exposure Limits In order to ensure an effective management of operating risks, Banco do Brasil employs Operating Loss Exposure Limits, which are intended to establish the limits acceptable to the Bank for operating losses, which are remitted for examination every month by the Operating Risk Sub-Committee and Global Risk Committee (GRC), in order to put in place mitigating actions and to reduce exposure levels. In this respect, the GRC created the Operating Loss Global Limit in order to allow operating loss management based on statistically pre-established tolerance levels, and to allow the detection of weaknesses associated with processes likely to cause significant losses. Figure 1 depicts the progress of BB's operating losses, according to loss event classes and in percentages. Table 92. Monitoring of Operational Loss Loss Event Category 1Q08 2Q08 3Q08 Labor Issues 41.9% 44.4% 46.2% External Fraud and Theft 17.3% 16.5% 11.7% Process Failures 14.1% 18.4% 11.6% Business Failures 21.4% 15.6% 24.3% Physical Assets Damage 5.2% 5.0% 3.5% Internal Frauds 0.1% 0.1% 2.6% System Failures 0.1% 0.0% 0.1% Banco do Brasil MDA 3Q08

131 We emphasize the use of specific limits of exposure to operational loss for the foreign network, by overseas branch, and for the self-service channels in accordance with their respective financial activity, with the intention of facilitating and expediting the implementation of mitigation actions. The following channels have limits which are regularly defined and reviewed: TAA, POS, Internet for Individuals, Withdrawals Abroad, CABB, Cellular, Lottery Ticket Sales Outlets, 24hr Bank, TAA (CEF) and Financial Manager 3. A specific limit was defined for the internal fraud category process in the third quarter, with the purpose of minimizing operational loss that could arise from this process. Allocation of Capital A methodology was defined for the calculation of the portion of Required Referential Equity Amount (PRE) referring to the operating risk (Popr) as established by CMN Resolution 3,490, of , Bacen Circular 3,346, and Bacen Circular Letter 3,315, both of The detailing of the composition of the indicator of exposure to operational risk was defined in compliance with Bacen Circular Letter 3,316, of BB opted for the implementation of the Alternative Standardized Approach due: i) to the distribution capacity of the transactions of the Institution to the business lines, which represent different profiles of exposure to operating risk; ii) configure a prerequisite for the implementation of advanced measurement approaches; iii) represent the least impact on the capital structure of the institution. Accordingly there was approval of a manual of procedures that permits the association of the Result of BB with the business lines, according to figure 2. Table 93. Percentage of capital allocated, by business line, on , by the Alternative Standardized Approach Business Line Popr Retail Banking % Comercial Banking % Corporate Finance % Trading and Sales % Payment and Settlement % Agency Services % Asset Management % Retail Brokerage % β 3 TAA: Self-Service Terminals; POS: Storeowner debit terminal; CABB: Call Center Banco do Brasil; Lottery Ticket Sales Outlets: withdrawals performed at lottery ticket sales outlets; TAA (CEF): Terminals of CEF shared with BB Banco do Brasil MDA 3Q08

132 8.2 Capital Structure Shareholders Equity Banco do Brasil closed September with R$ 27,889 million in shareholders equity, an amount 20.9% higher than in the same period of the previous year and 5.8% higher in relation to June The growth of shareholders' equity in the last 12 months was due to the incorporation of the Results. Table 94. Shareholders Equity R$ million Dec/06 Mar/07 Jun/07 Sept/07 Dec/07 Mar/08 Jun/08 Sep/08 Shareholders Equity 20,758 21,638 22,305 23,065 24,262 25,407 26,371 27,889 Capital 11,913 11,913 12,711 12,711 13,212 13,212 13,212 13,699 Reserves 8,463 8,220 9,152 8,939 10,701 10,131 13,101 12,762 MTM Securities and Derivatives (33) P&L Accounts - 1,088-1,031-1,978-1, Banco do Brasil MDA 3Q08

133 8.2.2 Regulatory Capital The implementation of the rules of Basel II in Brazil, especially in relation to the capital requirement, produced several modifications in the method of measuring capital to bear the risks inherent to banking activities. The implementation schedule of Basel II in Brazil was officialized by the Brazilian Central Bank - BACEN by means of Communication 12,746, of , subsequently adjusted by Communication 16,137, of This agenda was built in phases, initially establishing, as regards capital requirement, the use of a standardized approach (defined by Bacen), and at the end, the use of advanced models. To regulate the transition from Basel I to Basel II (standardized approach), BACEN published several rules about capital requirement (Pillar I), process of supervision and transparency of information (Pillars II and III). Referential Equity Amount (RE) On , CMN approved alterations in the rules for definition of the RE (Referential Equity Amount) of financial institutions by means of Resolution 3,444, revoking CMN Resolution 2,837, of On the same date, BACEN published Circular 3,343/2007, which refers to the procedures to be adopted in the request for categorization of borrowing instruments at Level I and Level II of RE. The RE is formed by the sum of the portions: Level I, Level II and Deductions. Required Referential Equity Amount (RRE) CMN Resolution 3,490, of , established the Required Referential Equity Amount (RRE) concept to substitute the Required Shareholders' Equity (RSE) concept, revoking exhibit IV of CMN Resolution 2,099/1994, and other rules concerning the topic. The RRE was henceforth comprised of the following six portions: RRE = PEPR + PCAM + PJUR + PCOM + PACS + POPR Where: PEPR - portion referring to the exposures weighted by the FPR assigned thereto; PCAM - portion referring to the risk of exposures in gold, in foreign currency and in operations subject to exchange variance; PJUR - portion referring to the risk of operations subject to the variation of interest rates and classified in the trading book, as provided for by Resolution 3,464, of , where n = number of the different portions relating to the risk of operations subject to the variation of interest rates and classified in the trading book; PCOM - portion referring to the risk of operations subject to the variation of the price of commodities; PACS - portion referring to the risk of operations subject to the variation of the price of shares and classified in the trading book, as provided for in Resolution 3,464, of ; POPR - portion referring to the operational risk. The reviews in the Referential Equity Amount (RE) were incorporated by BB last July. As regards the Required Referential Shareholders' Equity (RRE), the rule started to be required as of Banco do Brasil MDA 3Q08

134 Performance Banco do Brasil ended the third quarter of 2008 with a Referential Equity Amount 10.8% higher than that observed in September 2007 and 6.3% higher than June 2008, reaching R$ 35,991 million. Table 95. BIS Ratio R$ million Dec/06 Mar/07 Jun/07 Sept/07 Dec/07 Mar/08 Jun/08 Sep/08 Referential Equity Amount - RE 30,756 31,852 31,534 32,469 34,900 36,387 33,852 35,991 Level I 20,729 21,580 21,007 21,732 23,951 25,243 22,470 23,971 Capital 11,913 11,913 12,711 12,711 12,711 13,212 13,212 13,212 Capital Increase Retained earnings (accumulated losses) Capital reserves Revenue reserves 8,101 7,858 9,145 8,933 10,695 10,125 13,090 12,750 Mark-to-Market Securit. and Derivatives (33) Treasury stock Income accounts - 1,088-1,031-1,978-1,461 Tax Credit excl. RE's Tier I Res.3059 (23) (33) (1,199) (1,199) (18) (22) (3,743) (3,702) Deferred Assets (15) (70) (113) (200) (239) (287) (335) Mark-to-market (4) (23) (14) (88) Tier II 10,027 10,272 10,527 10,737 10,949 11,144 11,382 12,020 Subordinated debt 8,957 9,241 9,540 9,813 9,986 10,385 10,745 11,209 Hybrid Capital and Debt Instruments 1,063 1, Inst of Cap. Issued by IF with FPR of 100% (11) (11) (13) (14) (8) Revaluation reserves Mark-to-market (104) (134) (126) RSE/RRE 19,569 20,384 21,858 22,698 24,605 26,196 28,477 29,165 Credit Risk (1) 19,130 19,968 21,323 21,851 23,821 25,470 27,611 28,661 APR Requirement 18,797 19,652 20,997 21,494 23,457 25,050 27,183 - Swap Requirement Market risk (2) FX Exposure Requirement Interest Rate Exposure Requirement Operating Risk (3) J) Surplus/(insufficiency) of RE 11,187 11,468 9,676 9,771 10,295 10,191 5,375 6,826 K Coefficient % (1) Referring to the PEPR portion pursuant to circular 3,360 of 9/12/2007. Until June/08 this item was comprised of the portions of APR Requirement and Swap Requirement. (2) Referring to the PCAM, PJUR, PCOM and PACS portions, Circulars 3,361 to 3,364/2007, 3,366/2007, 3,368/2007 and 3,389/2008. Until June/08 this item was formed by the Exchange Exposure Requirement and Interest Rate Exposure Requirement portions. (3) Referring to the POPR portion, pursuant to circular 3,383, of 4/30/2008. BB's RRE reached the sum of R$ 29.2 billion in September, up 2.4% over June. The main part of the requirement was caused by the credit risk portion, which reflects the growth of loans and by the capital requirement for operational risk of R$ 401 million. The reduction of the market risk requirement refers mainly to the interest portion. In September Banco do Brasil issued shares to make the incorporation of the BESC System viable. For this reason, there was a capital increase of R$ 487 million, which contributed toward the growth of the Referential Equity Amount. The K Coefficient exhibited growth of 13.1% in the previous quarter, going to 13.6% in 3Q08. This ratio is higher than the 11% required by the Central Bank and allows BB leverage of up to R$ 62,059 million in loan assets, considering the 100% weighting Banco do Brasil MDA 3Q08

135 Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Tier I Tier II Figure 64. BIS Ratio From this quarter on we started a historical series of the K index of Banco do Brasil in the Economic/Financial Consolidation view as well. The table details the growth of the index in past quarters, as of 1Q08. We point out that the deductions indicated in the table refer to investments of subsidiary/associated companies in subordinated CDBs (subordinated debts of other banks), as determined by CMN Resolution 3,444. Table 96. BIS Ratio Economic-Financial Consolidated Mar/08 Jun/08 Sep/08 Tier I Tier II Other Deduction - (0.2) (0.2) Coeficiente K - % CMN Resolution 3,059/02 determined, as from , an additional allocation of capital for the stock of tax credits that exceed a 5 year consumption period from the date of the balance sheet. According to the instruction, 40% of the remaining balance will be deducted from Tier I capital in 2005, 60% in 2006, and so on, until it arrives at 100% in Table 97. Changes in Composition of BIS Ratio Referential Shareholders Equity Required Shareholders Equity Effect in Basel Ratio R$ million Effect in Leaverage Net Income deducted of Interest on Own Capital 1, ,647 Increase of Subordinated Debt ,216 Other Changes in Referential Shareholders Equity ,773 Tax Credit excluding RE's Tier I Res Hybrid Capital and Debt Instruments ,436 Increase of Market Risk Requirement (764) 0.4 6,941 Increase of Credit Risk Requirement 1,050 (0.5) (9,545) Increase of Operational Risk Requirement 401 (0.2) (3,645) Changes in the quarter 2, ,193 Balance at Jun/08 33,852 28, ,865 Balance at Sep/08 35,991 29, ,059 Quarterly net variation 2, , Banco do Brasil MDA 3Q08

136 In the table above, it is possible to see the determinant factors for the increase of 50 base points in k coefficient ratio in the quarter, and increase in surplus leverage to R$ 13,193 million. Among the factors that contributed the most toward the recovery of the index, we emphasize the profit incorporation in the amount of R$ 1,281 million and R$ 464 million referring to the increase in funds borrowed as subordinated debt. Fixed Asset Ratio In the last quarter, the Fixed Asset Ratio grew from 16.3% to 16.8% by increase of Permanent Assets above the Adjusted Referential Equity Amount. With the current fixed asset level, BB was able to increase its fixed assets by R$ 12 billion, without leading to be out of the maximum 50% limit of the Referential Equity Amount. Table 98. Fixed Asset Ratio R$ million Dec/06 Mar/07 Jun/07 Sept/07 Dec/07 Mar/08 Jun/08 Sep/08 Shareholders' equity 20,758 21,638 22,305 23,065 24,262 25,407 26,371 27,889 Subordinated debts eligible as Capital 8,957 9,241 9,540 9,813 9,986 10,385 10,745 11,209 Hybrid Capital and Debt Instruments 1,063 1, Other (25) (48) (1,272) (1,325) (230) (275) (4,044) (4,045) Adjusted Referential Equity Amount (A) 30,753 31,852 31,531 32,467 34,899 36,387 33,852 35,990 Permanent Assets 5,794 5,835 5,903 5,912 6,304 7,464 8,089 9,383 Variable Income Securities Stock Exchange and Cetip Clearing (2) (6) (2) (2) (0) (0) (0) (1) Leased assets (1,198) (1,272) (1,320) (1,385) (1,455) (1,613) (2,271) (2,876) Losses with Leasing to be Amortized (30) (33) (41) (45) (52) (55) (58) (117) Deferred Assets (Resolution CMN 3,444) - - (70) (113) (200) (239) (287) (335) Total Fixed Assets (B) 4,564 4,527 4,468 4,367 4,597 5,557 5,511 6,093 Fixed Asset Ratio (B/A) - % Margin (Surplus) - % 10,813 11,399 11,298 11,867 12,853 12,637 11,415 11, Banco do Brasil MDA 3Q08

137 8.2.3 Economic Capital Banco do Brasil utilizes the concept of economic capital in its internal processes of risk management. The tables below present the total capital requirement and the requirement by sector of the economy. Table 99. Economic Capital Economic Capital We present below the economic capital requirement over the Credit Risk detailed by macro-sector. Table 100. Distribution of Economic Capital in the Loan Portfolio R$ million Sep/07 % Sep/08 % INDIVIDUALS 2, , COMPANIES 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Credit Risk Requirement(1) 4,117 4,049 4,022 4,080 4,434 4,443 Market Risk Requirement (2) 1,908 1,818 1,236 1, Operating Risk Requirement (3) 1,140 1,177 1,085 1,137 1,147 1,224 TOTAL 7,165 7,044 6,343 6,674 6,333 5,852 (1) As of August/08 (2) Trading book (3) Calculated by the bootstrap methodology Internal Model Agribusiness of Animal Origin Agribusiness of Vegetable Origin Automotive Beverages Wholesale Trade Retail Trade Building Leather and Shoes Other Activities Electrical and Eletronic Goods Electricity Agricultural Consumables Timber and Furniture Metalworking and Steel Pulp and Paper Oil Chemicals Services Telecomunications Textiles and Garments Transport TOTAL 4, , Banco do Brasil MDA 3Q08

138 9 - Analysis of Consolidated 9.1 Information Since 1Q08, the non-financial companies of the insurance, pension plan and capitalization segment and other activities start to comprise the consolidated statements of Banco do Brasil. Table 101. Interest in the capital of companies Share Book Value Book Value Atividade Financial Activity Country BB Gestão de Recursos - Distrib de Tít. e Val. Mobiliários S.A. Asset Management 100% 225, ,944 BB Banco de Investimento S.A. Investment Bank 100% 2,057,485 2,045,56 BB Banco Popular do Brasil S.A. Banking 100% 20,833 17,306 BB Leasing S.A. - Arrendamento Mercantil Leasing 100% 63,845 71,744 BESC Leasing S.A. - Arrendamento Mercantil Leasing 99% 19,501 - BESC Distribuidora de Títulos e Valores Mobiliários S.A. Asset Management 99.62% 7,922 - BESC Financeira S.A. - Crédito, Financiamento e Investimentos Credit and Financing 99.58% 18,995 - Financial - Foreign Banco do Brasil Ag. Viena Banking 100% 97,028 86,563 BB Leasing Company Ltd. Leasing 100% 79,337 72,548 BB Securities LLc. Asset Management 100% 3,424 6,443 BB Securities Ltd. Asset Management 100% 38,755 - Brasilian American Merchant Bank BAMB Banking 100% 641, ,828 Insurance, Pension and Capitalization Brasilveículos Companhia de Seguros Insurance Company 70.00% 198, ,386 Cia. de Seguros Aliança do Brasil Insurance Company 100% 894, ,783 Brasilcap Capitalizações S.A. Capitalization 49.99% 76,214 99,080 Brasilprev Seguros e Previdência S.A. Insurance Company/Pension 49.99% 197, ,580 Brasilsaúde Companhia de Seguros Insurance Company/Health 49.92% 26,294 24,603 Seguradora Brasileira de Crédito à Exportação SBCE Insurance Company 12.09% 2,343 2,193 Other Activities Ativos S.A. Credit Acquisition 100% 57,854 20,244 BB Administradora de Cartões de Crédito S.A. Service Rendering 100% 24,413 25,999 BB Administradora de Consórcios S.A. Consortiums 100% 21,194 24,454 BB Corretora de Seguros e Administradora de Bens S.A. Broker 100% 80,165 87,023 BB Tur Viagens e Turismo Ltda. Tourism 100% - - Cobra Tecnologia S.A. IT 99.39% - - Cia. Brasileira de Soluções e Serviços CBSS Visavale Service Rendering 40.35% 45,654 27,762 Cia. Brasileira de Meios de Pagamento CBMP Visanet Service Rendering 31.63% 143,305 95,554 Kepler Weber S.A. Industry 17.67% 32,301 29,215 Neoenergia S.A. Energy 11.99% 937,515 - Companhia Brasileira de Securitização Cibrasec Credit Acquisition 9.09% 6,691 - Tecnologia Bancária S.A. Tecban Service Rendering 8.96% 13,681 - BB Money Transfers, Inc Service Rendering 100% 2,338 - BB USA Holding Company, Inc Holding 100% 2,338 - EBP - Estruturadora Brasileira de Projetos Consulting 11.11% Itapebi Energy 19.00% 49,239 53, Banco do Brasil MDA 3Q08

139 9.2 Summary Financial Statements Balance Sheet On account of the takeover of BESC and of BESCRI R$ 7.1 billion were added to the Total Assets of the Economic Financial Consolidation of this quarter, which surpassed R$ billion. Table 102. Summarized Balance Sheet Financial Consolidated Economic Consolidated R$ thousand Economic-Financial Consolidated Chg. % Sep/08 Sep/08 Sep/08 Jun/08 Current and Long-Term Assets 435,318,844 16,192, ,826, ,461, Available Funds 6,711, ,210 6,846,649 5,753, Short-term Interbank Investments 71,068, ,917 71,091,681 54,283, Securities 72,944,259 13,063,933 85,953,522 82,301, Other Receivables 284,594,352 2,683, ,934, ,122, Permanent Assets 9,383,214 1,013,138 8,111,642 7,041, Investiments 2,934, ,835 1,483,731 1,190, Property and equipment 5,787, ,835 5,976,194 5,229, Deferred 661,323 52, , , Total Assets 444,702,058 17,205, ,938, ,502, Current and Long-Term Liabilities 416,670,606 14,898, ,883, ,968, Borrowing and Onlendings 24,505, ,870 24,648,701 22,500, Other Liabilities 392,164,827 14,694, ,234, ,468, Unearned Income 142,602 22, , , Shareholders Equity 27,888,850 2,284,710 27,888,850 26,370, Total Liabilites 444,702,058 17,205, ,938, ,502, The table below shows the Besc summarized balance sheet: Table 103. Besc Summarized Balance Sheet R$ thousand Besc - Consolidated Sep/08 Current and Long-Term Assets 6,229,974 Available Funds 66,828 Short-term Interbank Investments 1,483,521 Securities 1,962,627 Other Receivables 1,415,613 Permanent Assets 45,364 Investiments 5,067 Property and equipment 24,606 Deferred 15,691 Total Assets 6,275,338 Current and Long-Term Liabilities 5,839,648 Borrowing and Onlendings 4,004,426 Other Liabilities 1,248,380 Unearned Income 222,730 Shareholders Equity 212,960 Total Liabilites 6,275, Banco do Brasil MDA 3Q08

140 9.2.2 Law Income Statement Table 104. Corporate Income Statement Financial Non- Financial R$ thousand Consolidated Consolidated Chg. % 3Q08 3Q08 3Q08 3Q07 Financial Intermediation Income 15,176, ,066 15,475,878 10,670, Financial Intermediation Expenses (11,597,237) (188,510) (11,808,726) (6,745,342) 75.1 Gross Income from Financial Intermediation 3,579, ,556 3,667,152 3,925,056 (6.6 Other Operating Income / Expenses (1,405,931) 193,981 (1,448,568) (2,110,949) (31.4) Operating Income 2,173, ,537 2,218,584 1,814, Non Operating Income 15,705 89, ,979 94, Income Before Taxes 2,189, ,811 2,323,563 1,908, Income and Social Contribution Taxes (82,879) (133,011) (215,890) (369,042) (41.5) Profit Sharing (239,388) (1,327) (240,716) (175,496) 37.2 Net Income 1,866, ,473 1,866,957 1,364, Banco do Brasil MDA 3Q08

141 9.2.3 Statement with Reallocation Table 105. Reallocated Statement of Income Financial Consolidated Economic-Financial Consolidated R$ million Chg. % Financial Intermediation Income 15,784 16, Financial Income on Insurance Financial Intermediation Expenses (9,839) (10,051) 2.2 Technical Allowance for Insurance Net Financial Income 5,945 6, Allowance for Loan Losses (1,339) (1,338) - Fee Income 2,660 2, Administrative Expenses (3,685) (3,817) 3.6 Personnel Expenses (1,967) (2,020) 2.7 Other Administrative Expenses (1,704) (1,797) 5.5 Other Income and Expenses (809) (934) 15.5 Operating Income from Insurance Income Before Taxes 2,741 2, Income and Social Contribution Taxes (465) (598) 28.6 Interest on Own Capital Tax Benefit (239) (241) 0.6 Recurring Income 2,037 2,037 - Extraordinary Items (170) (170) - Net Income 1,867 1,867-3Q08 3Q Banco do Brasil MDA 3Q08

142 9.2.4 Productivity Ratios Table 106. Eficiency Ratio % Consolidated Financial 3Q08 R$ million Economic-Financial Consolidated 3Q08 A) Administrative Expenses (3,685) (3,905) Personnel Expenses (1,967) (2,020) Other Administrative Expenses (1,704) (1,797) Other Tax Expenses (15) (88) B) Legal Risk (155) (155) Legal Claims 4 4 Labor Lawsuits (159) (159) C) Operating Income 8,130 8,439 Net Interest Income 5,945 6,032 Fee Income 2,660 2,933 Other operating income 784 1,069 Other operating expenses (1,259) (1,594) Efficiency Ratio ((A+B)/C) - % The efficiency ratio, represented by Administrative Expenses plus Legal Risk divided by Operating Income, ended the quarter at 48.1%, a variation of 0.8 percentage points in relation to the previous quarter (48.9), considering the Economic-Financial Consolidation. Table 107. Coverage Ratio R$ million Economic- Consolidated Financial Financial Consolidated 3Q08 3Q08 Chg. % Fee Income 2,660 2, Administrative Expenses (3,685) (3,905) 6.0 Personnel Expenses (1,967) (2,020) 2.7 Legal Risk (155) (155) - Legal Claims Labor Lawsuits (159) (159) - Fee Income/Personnel Exp. - % 125.2% 134.6% - Fee Income/Administr. Expenses - % 72.3% 75.2% - The coverage ratio shows the capacity for covering fixed costs using service revenues. This ratio is obtained by dividing the Fee Income by the Administrative Expenses. This rate in relation to administrative expenses varied 0.3 p.p. over 2Q08 and, in relation to personnel expenses the variation was 0.6 p.p., in the same period of comparison, both in the consolidated view Banco do Brasil MDA 3Q08

143 9.3 Insurance, Pension Plans and Capitalization Banco do Brasil, through BB Banco de Investimentos, a wholly-owned subsidiary, maintains interest in companies in the areas of insurance, pension plans and capitalization, which enables it to offer its clients a broad range of non-banking products. The table below details the holdings and the line of business of each one of these companies. Table 108. Insurance, Pension Plans and Capitalization Company Share % Business Partnership BrasilVeículos Cia de Seguros Auto Sul América Seguros Cia. De Seguros Aliança do Brasil S.A Life & Property/Casualty Aliança da Bahia Brasilprev Pension Plans Principal Financial Group e Sebrae Brasilcap Capitalization Icatu Hartford, Sul América e Aliança da Bahia Brasilsaúde Health Sul América Seguros The Income Statement by Line of Business referring to 3Q08 is presented below to facilitate the understanding of the process and to improve the transparency of the insurance, pension and capitalization business. In July, in a decision made in mutual agreement among the partners, Banco do Brasil acquired the interest of Cia de Seguros Aliança do Brasil held by Companhia de Participações Aliança da Bahia Banco do Brasil MDA 3Q08

144 9.3.1 Income Statement by Line of Business Table 109. Income Statement by Line of Business 9M08 Auto Insurance Life and Health Other Total Pension Plans R$ thousand Capitalization Consolidated Rev. from Insurance Pension Plans and Capitalization 744, ,391 1,028,280 1,888,788 2,760,957 1,522,088 6,171,833 Retained Insurance Premiums 744, ,391 1,028,280 1,888, ,888,788 Revenues from Pension Plans ,760,957-2,760,957 Revenues from Capitalization ,522,088 1,522,088 Changes in Technical Provisions (65,037) (1,692) (12,046) (78,775) (2,572,056) (1,361,311) (4,012,142) Insurance (65,037) (1,692) (12,046) (78,775) - - (78,775) Pension Plans (2,572,056) - (2,572,056) Capitalization (1,361,311) (1,361,311) Benefits and Redemption Expenses (206,369) - (206,369) Earned Premiums 679, ,700 1,016,234 1,810, ,810,013 Retained Claims (446,545) (86,624) (334,524) (867,694) - - (867,694) Marketing Expenses (80,670) (6,450) (332,555) (419,675) (43,118) (95,795) (558,588) Insurances (80,670) (6,450) (332,555) (419,675) - - (419,675) Pension Plans (43,118) - (43,118) Capitalization (95,795) (95,795) Other Operating Income (Expenses) (53,276) (5,902) (78,148) (137,326) 151,092 (15,378) (1,612) Administrative Expenses (77,220) (11,252) (65,830) (154,303) (124,231) (38,071) (316,606) Tax Expenses (17,743) (645) (41,180) (59,567) (1,503) (7,935) (69,005) Financial Income 63,216 4,884 40, , ,068 74, ,409 Financial Revenues 69,688 5, , ,852 1,479, ,897 1,917,138 Financial Expenses (6,472) (1,025) (74,553) (82,049) (1,233,321) (172,359) (1,487,729) Operating Income 66,841 8, , , ,840 78, ,227 Equity Account Adjust 128,396-2, , , ,849 Non-operating Income (0) 0 71,808 71, (54) 71,806 Income before Taxes 195,237 8, , , , , ,881 Income and Social Contribution Taxes (22,551) (2,582) (89,966) (115,098) (74,057) (27,728) (216,884) Profit Sharing (3,276) (1,211) (5,965) (10,452) (3,180) (2,810) (16,443) Net Income (Loss) 169,410 4, , , , , ,555 9M08 Auto Health Insurance Life and Other Total Pension Plans Capitalization Consolidated Equity Income Result 117,900 2, , ,601 66,813 91, ,438 Service Revenues Commission 75,876 4, , ,001 14,198 18, ,135 Service Revenues BB Fees , ,223 43,948 70, ,659 Service Revenues Assets Management 3, ,168 11,124 70,843 21, ,392 Insurance Value Added 197,276 7, , , , ,873 1,095, Banco do Brasil MDA 3Q08

145 9.3.2 Combined Ratio The combined ratio shows the percentage of earned premiums used up by operating expenses in the insurance business (retained claims, expenses with marketing and administrative expenses). The consolidated combined ratio showed improvement and closed the quarter at 90.6%, against 91.9% in 2Q Consolidated Auto Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q Health Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Life and Others Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Administrative / Earned Premius - % Expenses Expenses for Marketing / Earned Premius - % Retained Claims - Earned Premius - % Figure 65. Combined Ratio Banco do Brasil MDA 3Q08

146 9.3.3 Brasilveículos The Brasilveículos automobile insurance portfolio recorded R$ million in policies issued in 3Q08, displaying a 30.8% increase in the quarter. The insured fleet grew 2.5% in the quarter and 7.0% in 12 months, surpassing 777 thousand vehicles. The market share attained 6.5%, keeping the 7th place in the ranking of Susep. Table 110. Brasilveículos Data R$ thousand Chg. % Sep/07 Jun/08 Sep/08 on Sep/07 on Jun/08 Fleet thousand Volume of the Managed Portfolio 423, , , (13.3) Brasilsaúde Brasilsaúde Companhia de Seguros, founded in December 1995, is the result of an association between Banco do Brasil and Sul América Seguros. Brasilsaúde sells health insurance in the following modalities: Corporate, Professional, Individual and Dental. As of 2007 Brasilsaúde altered its insurance trading strategy, forming a partnership with a network of brokers that prospects business with clients presented by the network of branches of Banco do Brasil. As a result of this new strategy, the Company closed the period with a portfolio of 125 thousand Life insurance policies and R$ 45.1 million in earned premiums. Table 111. Brasilsaúde Data R$ thousand Chg. %. Sep/07 Jun/08 Sep/08 on Sep/07 on Jun/08 Lives Insured Volume of the Managed Portfolio 53,622 57,083 61, Aliança do Brasil In September 2008, Aliança had 1.8 million lives insured. With a market share of 41.8% in rural insurance, it is the first in the ranking of this segment. In relation to the same period of the previous year, Aliança do Brasil exhibited growth of 18.6% in retained premiums and reduction of 3.0% in retained claims. Table 112. Aliança do Brasil Data Chg. % R$ thousand Sep/07 Jun/08 Sep/08 on Sep/07 on Jun/08 Life Insurance Policies - thousand 1,803 1,614 1,791 (0.7) 10.9 Volume of the Managed Portfolio 880, ,185 1,074, Banco do Brasil MDA 3Q08

147 9.3.6 Brasilcap In the third quarter of 2008, revenues from capitalization reached R$ million, up 9% over the same prior-year period. This performance allowed Brasilcap to maintain its leadership in the capitalization market, with a market share of 24.2% in terms of collection, and 22.3% in terms of reserves. Table 113. Brasilcap Data Chg. % R$ thousand Sep/07 Jun/08 Sep/08 on Sep/07 on Jun/08 Quantity of Bonds thousand 2,782 2,865 2, Volume of the Managed Portfolio 2,628,910 2,887,674 3,045, Brasilprev Brasilprev is a supplementary pension plan company of Banco do Brasil, in association with the Principal Financial Group and Sebrae. These include the Traditional, PGBL and VGBL plans, and the company is currently ranked third in the pension plan market. In the third quarter of 2008 the collection with pension plans amounted to R$ million, growth of 21.3% in relation to the same period of The market share reached 13.6%, ante 11.7% in 3Q07. There was also a significant rise in the quantity of participants, which totaled 2,435 thousand, up 24.2% over 3Q07, and 6.3% over the previous quarter. Table 114. Brasilprev Data Chg. % R$ thousand Sep/07 Jun/08 Sep/08 on Sep/07 on Jun/08 Active participants thousand 1,960 2,291 2, Volume of the Managed Portfolio 14,662,505 18,358,901 19,101, BB Previdência BB Previdência is a multisponsored pension fund created in 1994, with the objective of instituting and managing private pension plans (annuity or income) offering benefits to public and private sector companies, trade associations, other associations and trade unions operating in Brazilian territory. Its main competitive advantages are: - lower management fees, as the institution has its own workforce which is shared with various plans; and - better investment rates for the assets under management, given the volumes that are invested. BB also provides, through BB Previdência - Fundo de Pensão Banco do Brasil - close-ended supplementary pension plans for companies Banco do Brasil MDA 3Q08

148 10 Financial Statements 10.1 Summarized Balance Sheet Table 115. Balance Sheet - Assets R$ million Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 ASSETS 296, , , , , , , ,702 Current and long-term assets 290, , , , , , , ,319 Available funds 4,749 5,511 4,724 4,366 4,352 4,668 5,633 6,712 Short-term interbank investments 29,088 41,185 51,614 51,419 51,124 72,651 54,272 71,069 Open market investments 17,490 30,512 39,961 42,938 43,391 57,925 44,053 61,616 Interbank deposits 11,598 10,673 11,653 8,481 7,733 14,725 10,219 9,453 Marketable securities 73,108 73,350 72,071 74,126 75,201 70,091 70,461 72,944 Securities for trading 7,494 7,361 10,856 14,046 19,112 18,033 18,503 18,332 Securities available for sale 40,641 40,711 39,379 38,466 38,109 34,787 35,088 37,066 Securities held to maturity 24,409 24,263 20,589 20,029 16,830 16,371 15,654 16,288 Financial derivatives 564 1,016 1,247 1,585 1, ,216 1,258 Interbank accounts 28,180 29,844 30,759 31,503 33,445 36,340 38,260 38,238 Central Bank deposits 26,967 26,998 28,711 29,199 32,278 31,102 33,666 35,564 Compuls. dep, on demand, Dep & float 11,209 10,507 11,714 10,768 10,768 11,127 12,952 12,220 Compulsory dep, on savings dep, 15,758 16,492 16,996 18,430 21,510 19,975 20,714 23,344 Others 1,213 2,846 2,048 2,304 1,167 5,238 4,594 2,675 Interdepartmental accounts Loans 113, , , , , , , ,599 Public sector 4,384 4,782 4,631 4,643 2,472 6,286 14,670 9,068 Private sector 117, , , , , , , ,315 (Allowance for loan losses) (8,366) (8,868) (9,104) (9,341) (9,980) (10,322) (10,773) (10,783) Leasing Leasing and sub-leasing receivables 1,018 1,079 1,068 1,095 1,109 1,150 1,369 1,575 Public sector Private sector ,002 1,028 1,081 1,311 1,527 (Unearned lease income) (979) (1,011) (1,024) (1,047) (1,054) (1,095) (1,320) (1,518) (Allowance for lease losses) (28) (23) (22) (23) (23) (25) (36) (44) Other receivables 40,482 45,022 50,344 53,245 54,883 57,546 56,962 66,365 Receivable on guarantees honored Foreign exchange portfolio 9,456 15,116 9,892 11,538 9,023 12,608 10,060 17,053 Income receivable Trading and brokerage of securities Specific credits Special operations Tax credits 8,604 8,642 13,746 13,881 13,826 13,904 14,218 14,840 Atuarial Assets 2,652 2,556 2,460 2,364 2,268 2,180 2,092 2,003 Warrants Deposits Receivable 13,699 14,129 14,710 15,110 15,409 15,734 15,975 16,596 Other credits 8,657 7,284 9,166 9,915 13,816 12,622 14,328 15,508 (Provision or doubtful receivables) (3,713) (3,904) (856) (856) (896) (1,003) (1,069) (1,106) (With loan characteristics) (240) (242) (315) (300) (311) (347) (357) (360) (Without loan characteristics) (3,472) (3,662) (541) (556) (585) (656) (713) (746) Other assets 951 1,055 1,079 1,495 2,865 3,785 4,096 4,241 Statutory profit sharing Others (Provision for possible losses) (162) (153) (148) (152) (152) (150) (147) (150) Prepaid expenses ,393 2,755 3,680 3,988 4,129 Permanent assets 5,794 5,835 5,903 5,912 6,304 7,464 8,089 9,383 Investments 1,109 1,176 1,262 1,276 1,368 2,427 2,411 2,935 Investm, in assoc. and subsidiary co, 1,057 1,121 1,207 1,233 1,316 2,380 2,369 2,895 Other investments (Provision for losses) (77) (73) (71) (65) (64) (57) (52) (56) Property and equipment 2,862 2,782 2,715 2,657 2,844 2,793 2,769 2,912 Land and buildings in use 2,286 2,314 2,328 2,337 2,349 2,376 2,403 2,490 Other property and equipment in use 4,253 4,240 4,257 4,305 4,594 4,628 4,688 4,942 (Accumulated depreciation) (3,677) (3,772) (3,870) (3,985) (4,100) (4,210) (4,321) (4,520) Leased assets 1,228 1,305 1,362 1,430 1,507 1,668 2,329 2,938 Leases assets 1,541 1,664 1,748 1,845 1,937 2,124 2,794 3,400 (Accumulated depreciation) (313) (358) (387) (415) (430) (456) (465) (462) Deferred charges Organization and expansion costs 1,302 1,325 1,365 1,402 1,490 1,534 1,585 1,690 (Accumulated amortization) (708) (754) (802) (852) (904) (959) (1,004) (1,091) *Adjusted series since June 2007, concerning the CMN Resolution # 3,535, of For futher information see Presentation Banco do Brasil MDA 3Q08

149 Table 116. Balance Sheet - Liabilities R$ million Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 LIABILITIES AND SHAREHOLDERS' EQUITY 296, , , , , , , ,702 Current and long-term assets 275, , , , , , , ,671 Deposits 158, , , , , , , ,050 Demand deposits 40,059 35,588 36,841 38,712 51,311 44,172 43,628 42,980 Savings deposits 36,714 38,942 40,831 43,831 45,839 48,112 49,096 52,693 Interbank deposits 4,878 5,026 5,146 5,603 5,144 6,247 5,578 6,309 Time deposits 76,900 80,860 81,427 83,640 85,520 91,261 96, ,797 Investment deposits Money market borrowing 49,283 67,639 74,719 74,845 72,270 99,914 93,335 85,603 Own portfolio 31,916 31,985 41,880 29,537 28,126 37,743 46,237 28,895 Third-party portfolio 16,867 31,354 32,539 40,859 44,144 61,771 46,418 56,707 Others 445 4, , Funds from acceptances and securities placed 2,304 2,099 1,487 1,616 1, , Foreign securities 2,304 2,099 1,487 1,616 1, , Interbank accounts 1,166 2,038 1,697 1, ,049 3,611 2,438 Receipts and payments pending settlement 1,163 2,036 1,695 1, ,036 3,598 2,423 Correspondent banks Interdepartmental accounts 2,397 1,913 1,318 1,497 2,428 1,369 1,185 1,315 Third-party funds in transit 2,281 1,896 1,293 1,470 2,311 1,273 1,160 1,268 Internal transfers of funds Borrowing 3,737 4,574 3,354 2,981 2,833 3,058 3,085 4,865 Foreign borrowing 3,737 4,574 3,354 2,981 2,833 3,058 3,085 4,865 Domestic onlending official institutions 14,335 13,950 15,240 16,528 17,487 18,250 19,255 19,640 Federal Treasury 2,989 3,077 3,141 3,132 3,185 3,184 3,246 3,276 National Development Bank (BNDES) 4,658 4,716 4,843 5,121 8,713 9,198 9,555 9,380 Fed. Prog. for Cap. Equip. Finan. (FINAME) 6,004 5,748 6,759 7,516 4,866 5,194 5,802 6,085 Other institutions Foreign onlending Financial derivatives 3,511 1,969 2,052 2,475 1,947 1,876 1,955 1,370 Other accounts payable 39,895 45,301 55,227 54,428 56,268 58,542 57,209 70,712 Collection of taxes and contributions 181 2,109 1,851 1, ,430 2,489 2,751 Foreign exchange portfolio 10,013 14,946 14,166 11,600 6,609 10,860 7,880 15,691 Stockholders and statutory distributions 1, , ,262 1,194 1,534 Taxes and social security 2,672 1,656 11,509 12,081 12,725 11,410 12,467 13,422 Trading and brokerage of securities , ,167 Financial and development funds 1,902 1,946 2,006 1,847 2,117 2,125 2,251 2,277 Special operations 1,085 1, Perpetual Securities Subordinated Debt 8,995 9,265 9,574 9,829 10,012 10,405 10,774 11,232 Actuarial liabilities 3,485 3,530 3,562 3,932 4,051 4,111 4,166 4,285 Other liabilities 10,255 9,802 10,648 11,037 18,533 13,789 15,026 16,379 Deferred income Shareholders equity 20,758 21,638 22,305 23,065 24,262 25,407 26,371 27,889 Capital 11,913 11,913 12,711 12,711 13,212 13,212 13,212 13,699 (Unpaid Capital) Capital reserves Revaluation reserves Revenue reserves 8,101 7,858 9,145 8,933 10,695 10,125 13,090 12,750 Mark-to-market securities and derivatives (33) Retained earnings (accumulated losses) (Treasury shares) Income accounts - 1,088-1,031-1,978-1,461 *Adjusted series since June 2007, concerning the CMN Resolution # 3,535, of For futher information see Presentation Banco do Brasil MDA 3Q08

150 10.2 Summarized Corporate Law Income Statement Table 117. Summarized Corporate Law Income Statement R$ million Dec/06 Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Sep/08 Financial Intermediation Income 9,404 9,708 10,125 10,333 10,172 10,901 10,683 14,966 Loans 5,816 6,101 6,069 6,517 6,610 7,001 6,912 8,698 Leasing Securities 3,274 3,043 3,167 3,355 3,088 3,749 3,052 5,754 Financial Derivatives (118) (149) (10) (449) 303 (85) Foreign Exchange Portfolio (5) (111) (50) Compulsory Investments Financial Intermediation Expenses (6,085) (6,418) (6,105) (6,483) (6,160) (7,237) (6,958) (11,386) Money Market Funds (4,237) (4,388) (4,416) (4,753) (4,281) (4,914) (5,125) (7,045) Borrowing. Assignments and Onlending (395) (410) (393) (498) (351) (720) (88) (2,973) Allowance for Loan Losses (1,454) (1,621) (1,296) (1,232) (1,528) (1,603) (1,744) (1,367) Gross Income from Financial Intermediation 3,319 3,290 4,020 3,850 4,012 3,663 3,726 3,579 Other Operating Income (Expenses) (1,719) (1,192) (2,297) (2,062) (2,350) (739) (1,569) (1,406) Service Revenues 2,287 2,377 2,437 2,498 2,590 2,568 1,986 1,987 Banking Fees Revenues Personnel Expenses (2,050) (1,859) (2,513) (2,449) (2,343) (1,899) (2,074) (2,324) Other Administrative Expenses (1,564) (1,467) (1,647) (1,736) (1,888) (1,665) (1,819) (1,976) Taxes (471) (489) (525) (513) (537) (509) (524) (503) Equity Int. in the Results of Subs. and Affil (63) Other Operating Revenues 812 1,124 1,575 1, ,264 1,922 1,217 Other Operating Expenses (821) (915) (1,561) (1,274) (1,261) (1,144) (1,784) (1,240) Operating Income 1,600 2,098 1,724 1,789 1,663 2,924 2,157 2,174 Non-operating Income Income Before Taxes 1,646 2,128 1,736 1,831 1,859 2,956 2,216 2,189 Income and Social Contribution Taxes (235) (539) (530) (293) (485) (309) (361) (83) Statutory Profit Sharing (164) (180) (137) (175) (157) (300) (212) (239) Net Income 1,248 1,409 1,068 1,364 1,217 2,347 1,644 1, Banco do Brasil MDA 3Q08

151 10.3 Income Statement with Reallocations Table 118. Income Statement with Reallocations R$ million 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Financial Intermediation Income 9,487 9,650 10,016 10,267 10,110 10, ,784 Loans 5,816 6,101 6,069 6,517 6,610 7, ,994 Leasing Securities 3,274 3,043 3,167 3,355 3,088 3, ,754 Financial Derivatives (118) (149) (10) (449) 303 (85) Foreign Exchange Portfolio (5) (111) (50) Compulsory Investments FX Gain(Loss)on Foreign Investments (27) (154) (223) (100) (94) 27 (294) 496 Other Op. Inc. of a Fin. Intermed. Nature Financial Intermediation Expenses (4,631) (4,664) (4,809) (5,111) (4,632) (5,482) (5.213) (9,839) Money Market Funds (4,237) (4,254) (4,416) (4,613) (4,281) (4,762) (5.125) (6,866) Borrowing.Assignments and Onlending (395) (410) (393) (498) (351) (720) (88) (2,973) Net Interest Income 4,855 4,986 5,208 5,156 5,478 5, ,945 Allowance for Loan Losses (1,257) (1,431) (1,236) (1,216) (1,497) (1,534) (1.687) (1,339) Net Financial Margin 3,598 3,555 3,971 3,940 3,981 3, ,606 Fee Income 2,287 2,377 2,437 2,498 2,590 2, ,660 Service Revenues ,987 Banking Fee Income Taxes on Revenues (438) (451) (489) (476) (495) (488) (511) (489) Contribution Margin 5,448 5,481 5,919 5,963 6,076 6, ,777 Administrative Expenses (3,396) (3,110) (3,268) (3,368) (3,708) (3,372) (3.582) (3,685) Personnel Expenses (1,846) (1,672) (1,713) (1,759) (1,936) (1,768) (1.933) (1,967) Other Administrative Expenses (1,516) (1,401) (1,519) (1,572) (1,729) (1,590) (1.636) (1,704) Other Tax Expenses (33) (37) (36) (37) (42) (14) (13) (15) Commercial Income 2,052 2,371 2,652 2,595 2,368 2, ,092 Legal Risk (251) (165) (303) (219) (306) (125) (215) (155) Legal Claims (48) (55) (102) (73) (87) 6 (74) 4 Labor Lawsuits (204) (111) (201) (146) (219) (132) (141) (159) Other Operating Income(Expenses) (201) (21) 0 48 (140) (143) (257) (211) Eq.Interest in Resul. Subs. and Affil FX Other Operating Income/Expenses (316) (211) (160) (100) (344) (411) (486) (475) Other Operating Income Other Operating Expenses (1,018) (833) (887) (805) (1,054) (1,162) (1.133) (1,259) Operating Income 1,600 2,185 2,349 2,424 1,922 2, ,726 Non-Operating Income Income Before Taxes 1,646 2,216 2,362 2,467 1,969 2, ,741 Income and Social Contribution Taxes (235) (569) (743) (650) (522) (572) (507) (465) Interest on Own Capital Tax Benefit Statutory Profit Sharing (164) (180) (137) (175) (157) (300) (212) (239) Recurring Income 1,248 1,466 1,481 1,642 1,290 1, ,037 Non-Recurring Items - (58) (413) (278) (73) (170) Previ Suspension of contributions - Plan I - (76) Previ Provision for Non-recurring IR and CS - 26 (26) Cassi - Assistance Plan (403) (90) Cassi - Provision for Non-recurring IR and CS PAA Prov, for Retirement Incentive Plan - - (676) (141) (98) PAA Provision for Non-recurring IR and CS Permanent Exclusions Tax Benefit Disposal of investments (Bov. Hold. & BM&F) Disp. of invest. Prov. for non-recurring IR & CS (51) Sale of Interest in VISA Internacional Sale of Interest in VISA Intern Inc.Tax/SC/Pasep/Cofins (73) - - Disposal of investments (Telemar) Revaluation of Consolidated Interest Economic Plans - (11) (26) (91) (71) (82) (54) (192) Economic Plans IR/CS Credit assignment Tax Efficiency Cards Replacement (54) - Cards Replacement Provision for IR and CS Contingent Liabilities (BESC) (360) Cont Liabilities (BESC) - Provision for IR and CS Tax Credit (BESC) Net Income 1,248 1,409 1,068 1,364 1,217 2,347 1,644 1, Banco do Brasil MDA 3Q08

152 Vice-Presidency of Finance, Capital Markets and Investor Relations Vice-President Aldo Luiz Mendes Investor Relations Manager Marco Geovanne Tobias da Silva Executive Manager Gilberto Lourenço da Aparecida Divisional Managers Eduardo Amaral Pilenghi Gisele Campana Rodrigues Analysts Ananias Pereira da Silva Neto Bruno Santos Garcia Carla Sarkis Teixeira Domingos Pereira dos Santos Neto Glauco Ribeiro Barbirato Tavares Karen de Rezende Machado Kimie Fueta Pellizzaro Joabel Martins de Oliveira Joaquim Camilo de Castro Leonardo Resende Nader Marcone Edson de Vasconcelos F.Filho Mariana Reschke da Cunha Marcelo de Campos e Silva Banco do Brasil MDA 3Q08

153 Financial Statements 3Q08 Performance Analysis 3Q Banco do Brasil MDA 3Q08

154 INDEX FINANCIAL STATEMENTS Balance Sheet 01 Income Statement 05 Statement of Changes in Stockholders Equity 06 Statement of Changes in Financial Position 07 EXPLANATORY NOTES NOTE 1 The Bank and its Operations 02 NOTE 2 Presentation of the Financial Statements 03 NOTE 3 Results of the Merger 06 NOTE 4 Accounting Practices 08 NOTE 5 Available Funds 13 NOTE 6 Interbank Investments 14 NOTE 7 Securities and Derivatives Financial Instruments 15 NOTE 8 Loan and Lease Operations 22 NOTE 9 Other Receivables 27 NOTE 10 Foreign Exchange Portfolio 28 NOTE 11 Other Assets 29 NOTE 12 Property and Equipment and Leased Assets 30 NOTE 13 Deposits 31 NOTE 14 Money Market Borrowing 32 NOTE 15 Borrowings - Foreign Borrowings 33 NOTE 16 Domestic Onlending Official Institutions 34 NOTE 17 Funds Obtained in Foreign Capital Markets (in R$/US$ million) 35 NOTE 18 Other liabilities 37 NOTE 19 Insurance, Pension Plans and Capitalization 39 NOTE 20 Analysis of Income Statement Items 41 NOTE 21 Shareholders' Equity 44 NOTE 22 Income Tax and Social Contribution on Net Income 47 NOTE 23 Tax Credits 49 NOTE 24 Equity in the Earnings (Loss) of Subsidiary and Associated Companies 52 NOTE 25 Related-Party Transactions 54 NOTE 26 Basel Accord 55 NOTE 27 Retirement and Pension and Health Plans - Post-Employment Benefits 56 NOTE 28 Compensation Paid to Employees and Management 62 NOTE 29 Assignment of Employees to External Organizations 63 NOTE 30 Commitments, Responsibilities and Contingencies 64 NOTE 31 Financial Instruments 66 NOTE 32 Statement of Cash Flow 68 NOTE 33 Statement of Added Value 69 NOTE 34 Other Information 70 INDEPENDENT AUDITORS REPORT EXECUTIVE BOARD

155 FINANCIAL STATEMENTS RESULTS September/2008 Todo seu

156 Banco do Brasil S.A. Financial Statements In thousands of reais Quarter ended in B A L A N C E S H E E T BB-Domestic and Foreign BB-Consolidado Branches A S S E T S CURRENT ASSETS Available Funds (Note 5) Short-term interbank investments (Note 6) Money market Interbank deposits Securities and derivative financial instruments Derivatives (Note 7) Own portfolio Subject to repurchase agreements Deposits with the Brazilian Central Bank Pledged in guarantee Securities subject to repurchase agreements (with free movement) Derivative financial instruments Interbank accounts Payments and receipts pending settlement Restricted deposits Brazilian Central Bank deposits National Treasury - rural credits receivable National Housing Financing System (SFH) Interbank onlendings Correspondent banks Interdepartmental accounts Internal transfers of funds Loan operations (Note 8) Loan operations Public sector Private sector (Allowance for loan losses) (Note 8e) ( ) ( ) Lease operations (Note 8) Lease and sublease receivables Public sector Private sector (Unearned income from lease operation) (34.249) ( ) (Allowance for lease losses) (20.472) Other receivables Receivables on guarantees honored Foreign exchange portfolio (Note 10a) Income receivable Negotiation and intermediation of securities Specific operations (Note 9a) Special operations Insurance, pension plan and capitalization Sundry (Note 9b) (Provision for other losses) (Notes 8f and 8g) ( ) ( ) Other assets Investments Other assets (Note 11a) (Provision for devaluations) (Note 11a) ( ) ( ) Prepaid expenses (Note 11b)

157 LONG-TERM RECEIVABLES Interbank Investments (Note 6) Money market Interbank deposits Securities and derivative financial instruments Derivatives (Note 7) Own portfolio Subject to repurchase agreements Deposits with the Brazilian Central Bank Pledged in guarantee Securities subject to repurchase agreements (with free movement) Derivative financial instruments Interbank accounts National Treasury - rural credits receivable Loan operations (Note 8) Loan operations Public sector Private sector (Allowance for loan losses) (Note 8e) ( ) ( ) Lease operations (Note 8) Lease and sublease receivables Public sector Private sector (Unearned income from lease operation) (12.667) ( ) (Allowance for lease losses) (23.074) Other receivables Receivables on guarantees honored Income receivable Specific credits (Note 9a) Insurance, pension plan and capitalization Sundry (Note 9b) (Provision for other losses) (Notes 8g and 8h) ( ) ( ) Other assets Prepaid expenses (Note 11b) PERMANENT ASSETS Investments Investments in subsidiary and associated companies (Note 24) Domestic Foreign Other investments (Provision for losses) (52.658) (66.131) Land and buildings in use (Note 12) Land and buildings in use Other property and equipment in use (Accumulated depreciation) ( ) ( ) Applications in fixed assets for leasing (Note 12) Leased assets (Accumulated depreciation) (68.457) ( ) Deferred charges Organization and expansion costs (Accumulated amortization) ( ) ( ) Total

158 L I A B I L I T I E S / S T O C K H O L D E R S' E Q U I T Y CURRENT LIABILITIES Deposits (Note 13) Demand deposits Savings deposits Interbank deposits Time deposits Sundry Deposits received under security repurchase agreements (Note 14) Own portfolio Third-party portfolio Unrestricted Portfolio Funds from acceptance and issue of securities Mortgage Notes Foreign securities Interbank accounts Receipts and payments pending settlement Correspondent banks Interdepartmental accounts Third-party funds in transit Internal transfers of funds Borrowings Domestic borrowings - other institutions Foreign borrowings (Note 15) Local onlendings - official institutions (Note 16) National Treasury National Bank for Economic and Social Development (BNDES) National Industrial Financing Authority (FINAME) Other institutions Foreign onlendings Foreign onlendings Derivative financial instruments (Note 7b) Derivative financial instruments Other liabilities Collection and payment of taxes and social contributions Foreign exchange portfolio (Note 10a) Social and statutory Taxes and social security contributions Negotiation and intermediation of securities Technical provisions - insurance, pension plan and capitalization (Note 19a) Financial and development funds (Note 18a) Hybrid capital and debt instruments Sundry (Note 18c)

159 LONG-TERM LIABILITIES Deposits (Note 13) Interbank deposits Time deposits Others deposits Deposits received under security repurchase agreements (Note 14) Own portfolio Third-party portfolio Unrestricted Portfolio Funds from acceptance and issue of securities Debentures Foreign Securities Borrowings Domestic Borrowings - Official Institutions Foreign borrowings (Note 15) Local onlendings - official institutions National Bank for Economic and Social Development (BNDES) National Industrial Financing Authority (FINAME) (Note 16) Foreign onlendings Foreign onlendings Derivative financial instruments (Note 7b) Derivative financial instruments Other liabilities Social and statutory Taxes and social security contributions Negotiation and intermediation of securities Technical provisions - insurance, pension plan and capitalization (Note 19a) Financial and development funds (Note 18a) Special operations Subordinated debt (Note 18d) Hybrid capital and debt instruments Sundry (Note 18c) DEFERRED INCOME Deferred income STOCKHOLDERS' EQUITY (Note 21) Capital Local residents Foreign residents Capital reserves Revaluation reserves Revenue reserves Adjustment to market value - securities and derivative financial instrumen Lucros ou Prejuízos Acumulados Total The accompanying notes are na integral part of these financial statements 4

160 Banco do Brasil S.A. Financial Statements In thousands of reais STATEMENT OF INCOME Quarter ended in BB-Domestic and Foreign BB-Consolidated Branches 3Q08 3Q07 3Q08 3Q07 INCOME FROM FINANCIAL INTERMEDIATION Loans Leases Securities Derivative financial instruments ( ) Foreign exchange, net (Note 10b) Compulsory deposits Insurance, pension plans and capitalization (Note 19e) EXPENSES FROM FINANCIAL INTERMEDIATION Deposits and funds obtained in the money market ( ) ( ) Borrowings and onlendings ( ) ( ) Leases (13.120) ( ) Exchange Operations (Note 10b) Insurance, pension plans and capitalization (Note 19e) Allowance for loan losses (Notes 8f and 8g) ( ) ( ) GROSS FINANCIAL INTERMEDIATION INCOME OTHER OPERATING INCOME/EXPENSES Banking service fees (Note 20a) Banking Fees (Note 20b) Personnel expenses (Note 20c) ( ) ( ) Other administrative expenses (Note 20d) ( ) ( ) Tax Expenses ( ) ( ) Equity in the (earnings)/loss of subsidiary and associated companies (Note 24) Insurance, pension plan and capitalization (Note 19e) Other operating income (Note 20e) Other operating expenses (Note 20f) ( ) ( ) OPERATING INCOME NON-OPERATING INCOME (Note 20g) Income Expenses (14.024) (14.230) PROFIT BEFORE TAXATION AND PROFIT SHARING INCOME TAX AND SOCIAL CONTRIBUTION ON NET INCOME (Note 22) Income tax ( ) ( ) Social contribution on net income ( ) ( ) Deferred tax credits PROFIT SHARING NET INCOME Number of shares Net income per share 0,73 0,55 0,73 0,55 The accompanying notes are an integral part of these financial statements 5

161 6 Banco do Brasil S.A. Financial Statements In thousands of Reais Quarter ended in Statement of Changes in Stockholders' Equity Capital Reserves Revenue Reserves Ajustments to Market Value Marketable Securities and Capital Donations Revaluation Earnings on Goodwill or Legal Statutory Expansion Derivatives Retained E V E N T S Realized Incentivos Reserves in Reserves Reserves Reserves Earnings Treasury shares treasury shares Total Fiscais Subsidiary and shares sale subscription Bank Subsidiary and Associated associated Companies companies Balances at Ajustments to market value - Securities and derivative financial instrument (Note 21h) Tax effect on adjusments - Securities and derivative financial instruments.. (Note 21h) Prescribed dividends Other events Donations Revaluations in subsidiary and associated companies Realization of revaluation reserves in subsidiary and associated companie (Note 21d) Net income for the period Apropriations Reserves Dividends... (Note 21f) Interest on own capital (Note 21f) Balance at Changes in the period Balance at Increase on capital Adjustment to market value - Securities and derivative financial instrument (Note 21h) Tax effect on adjusments - Securities and derivative financial instruments.. (Note 21h) Prescribed dividens Other events Reavaliations in subsidiaries and associated companies Realization of revaluation reseves in subsidiaries and associated compani (Note 21d) Net income for the period Apropriantions: Reserves Dividends (Note 21f) Interest on own capital (Note 21f) Balance at Changes in the period The accompanying notes are an integral part of these financial statements

162 Banco do Brasil S.A. Financial Statements In thousands of Reais STATEMENT OF CHANGES IN FINANCIAL POSITION BB- Domestic and Foreign branches BB-Consolidated 3Q08 3Q07 3Q08 3Q07 FINANCIAL RESOURCES WERE PROVIDED BY Net Income Adjustments to net income Depreciation and amortization Equity in the earnings (loss) of subsidiary and associated companies ( ) ( ) ( ) (50.162) (Profit)/loss on the disposal of property (16.659) (14.009) (16.659) (14.009) (Profit)/loss on the disposal of investements (Profit)/loss on the sale of assets (2.090) (21.782) (53.123) (21.952) Capital (gain)/loss (2.929) Provision/(reversal) for devaluation of other assets Changes in provision for Insurance, Pension Plans and Capitalization Other adjustments (61.115) ( ) Changes in the deferred income Marked to Market - Securities and derivative financial instruments Own funds Increase of capital with stocks Third party funds Increase in liabilities Deposits Repurchase agreements Funds from acceptance and issue securities Interbank and interdepartmental accounts Borrowing and onlendings Derivative financial instruments Other Liabilities Decrease in current assets and long-term receivables Short-term iterbank investiments Lease operations Disposal of assets and investments Non-operating assets Property and equipament in use and lease assets Investments Dividends and interest on own capital receivable from subsidiary/ associated co FINANCIAL RESOURCES WERE USED FOR Dividends and Bonuses Proposed Interest on own capital proposed Reversals in assets and investiments Non operating assets Property and equipament in use and lease assets Investments Adjustment to market value of subsidiaries (79) Deferred charges Increase in current assets and long-term receivables Short-term interbank investments Securities Interbank and interdepartamental accounts Loan operations Lease operations Other receivables Other assets Decrease in Liabilities Repurchase agreements Interbank and interdepartmental accounts Other liabilities Derivative financial instruments Decrease in cash and cash equivalents Change in cash and cash equivalents At the beginning of the period - June At the end of the period - September Increase in cash and cash equivalents

163 EXPLANATORY NOTES RESULTS September/2008 Todo seu