Earnings Summary 1Q14

Transcription

1 Earnings Summary Earnings Net Income of R$ 2.7 billion in the Banco do Brasil presents Net Income of R$ 2.7 billion in the, up 4.7% on 1Q13. This performance corresponds to ROE of 15.5%. Adjusted Net Income, excluding one-off items, reached R$ 2.4 billion in the, equivalent to adjusted ROE of 14.0%. The earnings of the Bank were driven mainly by expansion of businesses. Figure 1. Earnings (R$ billion) and ROE (%) Q13 4Q13 Net Income Adjusted Net Income ROE - % Adjusted ROE - % Guidance The following table presents the 2014 Guidance and Performance of the year. The balance sheet items were calculated by comparing balances of the end of period. The income statement figures were calculated by comparing the amounts accumulated in the year. It is important to note that the forecast is prepared for the year and the quarterly monitoring can be adversely affected by specific events of the period. The assumptions used in the calculation of 2014 Guidance can be found at the end of Earnings Summary 4Q Banco do Brasil Earnings Summary

2 Table 1. Guidance Items 2014 Guidance - % 2014 Performance - % Adjusted Return on Avarege Equity¹ Net Interest Income Commercial Funding² Domestic Loan Portfolio - Broad Concept³ Individuals X Companies Agribusiness ALLL Expenses⁴ Fee Income X Administrative Expenses X 1 Adjusted ROE estimated for 2013 and 2014 uses estimated shareholders equity, free from the effects of the restatement of assets and actuarial, liabilities arising from the Deliberation CVM/695 and Corporate Profit Sharing. 2 Includes total deposits, Agribusiness Letters of Credit - LCA, Mortgage Bonds - LCI and Repurchase Agreements Operations with Private Securities. 3 - Domestic Loan Portfolio, in broad concept, includes private securities and guarantees. 4 ALLL expenses of the last 12e months/average classified loan portfolio of the same period. In the, the following indicators presented deviations in relation the 2014 Guidance: a) Net Interest Income: performance impacted mainly by the increase in TMS in the period. (effective Average Selic Rate); b) Domestic Loan Portfolio - Broad Concept: result especially driven by the growth of the Agribusiness and Mortgage loan portfolios; c) Individuals Loan Portfolio: due to lower volume of Acquired Loan Portfolio in the period and reduction of the balance of BV portfolio originated in previous vintages to Dec/11; d) Agribusiness Loan Portfolio: high demand, notably in Investment and Agroindustry, for resources to harvest 2013/2014. e) Fee Income: underperforming Guidance was mainly due to the loyalty and transparency in customer relations strategy, prospects for revenue gains in the medium and long term; f) Administrative Expenses: Were influenced by costs of a seasonal nature. The expectation is that these effects are diluted throughout the year. The Adjusted ROE used in the Guidance is calculated based on the Adjusted Shareholders Equity, as indicated in the following table, not considering the effects of the restatement of assets and actuarial liabilities, arising from the Deliberation CVM/695, and Corporate Profit Sharing. Table 2. Adjusted Shareholders Equity R$ million Dec/13 Mar/14 Shareholders' Equity 72,225 73,517 Benefit Plans (2,671) (2,671) Corporate Profit Sharing 2,698 2,483 Adjusted Shareholders' Equity 72,197 73,704 Adjusted Shareholders' Equity - Average - 72, Banco do Brasil Earnings Summary

3 Return to Shareholders Remuneration to shareholders reaches R$ 1.1 billion in the Banco do Brasil s earnings per share reached R$ 0.99 in the. The Bank maintained a 40% payout ratio for its shareholders with R$ 1.1 billion remuneration in the period, in accordance to the following figure. Figure 2. Earnings per Share, Dividends and Interest on Own Capital Q13 4Q13 Dividends (R$ billion) Interest on Own Capital (R$ billion) Earnings per Share (R$) Income Statement with Reallocations Earnings driven by business growth The following table, extracted from the income statement with reallocations, presents the main highlights of the period. The breakdown of statement of income with reallocations can be found in Section of the MD&A report. The NII, difference between the Financial Intermediation Income and the Financial Intermediation Expenses, reached R$ 11.8 billion in the up 8.0% on the same period of In this comparison, fee income and administrative expenses grew 6.6% and 9.7%, respectively. 3 - Banco do Brasil Earnings Summary

4 Table 3. Income Statement with Reallocations - Main Lines Quarterly Flow Chg. % R$ million 1Q13 4Q13 On 1Q13 On 4Q13 Financial Intermediation Income 24,004 31,858 30, (4.1) Loan Operations + Leasing 17,231 20,157 19, (1.1) Securities 5,872 8,954 8, (1.4) Financial Intermediation Expenses (13,053) (20,010) (18,738) 43.5 (6.4) Net Interest Income¹ 10,950 11,848 11, (0.1) Allow ance for Loan Losses (3,275) (4,188) (4,187) 27.8 (0.0) Net Financial Margin 7,676 7,660 7,644 (0.4) (0.2) Fee income 5,387 6,177 5, (7.1) Income f/ Insur., Pension P. and Premium Bonds , Contribution Margin 12,724 13,538 13, (2.3) Administrative Expenses (7,061) (8,432) (7,746) 9.7 (8.1) Personnel Expenses (4,069) (4,673) (4,493) 10.4 (3.9) Other Administrative Expenses (2,992) (3,758) (3,253) 8.7 (13.4) Commercial Income 5,580 5,011 5,392 (3.4) 7.6 Legal Claims (163) 23 (262) Labor Law suits (252) (243) (243) (3.5) 0.2 Other Operating Income (925) (723) (757) (18.1) 4.6 Income Before Taxes 4,250 4,105 4,228 (0.5) 3.0 Income and Social Contribution Taxes (1,138) (889) (1,107) (2.7) 24.6 Corporate Profit Sharing (390) (438) (362) (7.2) (17.4) Adjusted Net Income 2,685 2,424 2,436 (9.3) 0.5 The following table presents the result of one-off items net of tax and statutory profit sharing. Table 4. One-off Items R$ million 1Q13 4Q13 Adjusted Net Income 2,685 2,424 2,436 (+) One-Off Items of the Period (128) Economic Plans (348) (56) (343) Tax Efficiency Additional ALLL - Semiannual Reversion - (267) - Provision Legal Law suits - Adjustment Parameters and Policies Agree BV Allow ance for Loan Losses - Extraordinary - (166) - Provision for Agreement Committee (186) - - Law suits Reconciliation Sale of Itapebi Refis (Tax Recovery Program) Extraordinary Provision for Law suits Tax Eff. and Stat. Profit Sharing on One-Off Items 102 (86) (193) Net Income 2,557 3,025 2,678 Net Interest Income The breakdown of the net interest income is presented in the following table. In this disclosure, the revenues from loan operations and the funding expenses do not consider the exchange rate changes. 4 - Banco do Brasil Earnings Summary

5 Table 5. NII Breakdown Quarterly Flow Chg. % R$ million 1Q13 4Q13 On 1Q13 On 4Q13 Net Interest Income¹ 10,950 11,848 11, (0.1) Loan Operations income 16,451 18,709 19, Funding Expenses (7,102) (9,442) (9,974) Financial Expense for Institutional Funding² (1,275) (1,694) (1,604) 25.8 (5.3) Recovery of Write-offs³ Treasury Income⁴ 2,073 3,350 3, (3.3) Other⁵ (25.8) 1 - Revised data from due to adjustment in other credits without operating characteristic credit. 2 - Included senior debt, subordinated debt and hybrid capital instrument and abroad (IHCD). 3 - Reallocation held in 1T14, referring to the restoration and recovery of write-off in this month. 4 - Included interest income, profitable compulsory deposits income, tax hedge, derivatives and other financial instruments that compensate the exchange variation in result. 5 - Since 1Q13, costs of directed resources arising from official government programs and funds that were previously presented in the line Other were relocated to Funding Expenses and / or Institutional Funding items, depending on the source of funding. In the, the Net Interest Income (NII) reached R$ 11.8 billion, increased 8.0% on 1Q13. Noteworthy are the following lines in its composition: I. Loans Operations reached R$ 19.2 billion, 16.8% increase, due mainly to the increase in the volume of loans; II. Funding Expenses and Financial Expenses for Institutional Funding increased 40.4% and 25.8%, respectively, mainly impacted by the increase in the volume of resources raised and increase of 46.7% in Selic rate. The strategy of portfolio diversification minimized the increase in Funding Expenses; III. Recovery of Write-offs reached R$ 809 million, growth of 16.5%, given the actions aligned strategies for collection and recovery of write-off presented in Chapter 3.3 of this Report. IV. Treasury results recorded R$ 3.2 billion, 56.2% evolution, mainly due to increase of Selic rate and volume with Compulsory and Securities. Additional information about net interest income can be founded in chapter 5 of the MD&A. Spread by Portfolio The following table presents the managerial spread segmented by transactions. Managerial spread of credit presented recovery after recorded reduction during six quarters, driven by companies segment. Spread is the result of the managerial financial margin divided by the respective average balances. Table 6. Annualized Managerial NIM % 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Loan Operations Individuals Companies Agribusiness For managerial financial margin calculation, financial revenues classified by portfolio are calculated first. Subsequently, the opportunity costs defined for each of the portfolio lines are deducted. Considering the individuals and companies loan portfolios, with free resources, the opportunity cost is 5 - Banco do Brasil Earnings Summary

6 the average Selic rate. For the agricultural portfolio and other directed resources, the opportunity cost is calculated according to the funding source and the need of reserve requirements to this funding. Net Interest Margin, in turn, is calculated by dividing net interest income by average earning assets. "Risk-Adjusted NIM" is calculated based on ratio between net financial margin and earnings assets, that is, it considers expenses with allowance for loan losses. Table 7. Annualized Managerial NIM % 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Net Interest Margin (NIM) Risk Adjusted NIM Assets and Main Balance Sheet Items Total assets reach R$ 1.37 trillion The total assets of Banco do Brasil reached R$ 1.37 trillion in Mar/14, a growth of 16.2% in twelve months, accordance shown the following figure. The main lines of assets are loan operations and leasing, securities and short-term interbank investments that accounted for 77.3% of BB's total assets in Mar/14. Regarding liabilities highlight to commercial funding, representing 44.4% of total liabilities. Table 8. Main Balance Sheet Items Chg. % R$ million Mar/13 Dec/13 Mar/14 On Mar/13 On Dec/13 Total Assets 1,179,208 1,303,915 1,369, Loan Portfolio - Broad Concept¹ 592, , , Domestic Loan Portfolio - Broad Concept¹ 544, , , Securities 182, , , (2.7) Short-Term Interbank Operations 236, , , Commercial Funding 516, , , Total Deposits 468, , , (1.8) Demand Deposits 68,693 75,818 72, (5.0) Savings Deposits 122, , , Interbank Deposits 17,879 27,155 27, Time Deposits 259, , ,625 (7.9) (3.5) Judicial Deposits 89, , , Agribusiness Let. of Credit + Mortgage Bonds 39,373 82,640 97, Repurchase Agreem. Oper. w ith Priv. Securities 9,170 33,562 28, (14.2) Money Market Borrow ing 240, , , Shareholder s Equity 62,121 72,225 73, Includes private securities and guarantees provided. Information about Other Components of the Balance Sheet such as Actuarial Assets and Liabilities, Previ Surplus Allocation Funds and Resumption of Contributions can be founded in chapter 8 of the MD&A. Solid structure of funding sources ensures business expansion Banco do Brasil s structure of funding presents greater diversification, as shown in the following table. The commercial funds totaled R$ billion in Mar/14, a growth of 17.7% in twelve months. The Bank maintains its strategy of change in funding mix, aiming its cost reduce, growing mainly in LCA (Agribusiness Letters of Credit), LCI (Mortgage Bonds) and Saving Deposits. 6 - Banco do Brasil Earnings Summary

7 Table 9. Sources and Uses Balance Chg. % R$ million M ar/13 Share % Dec/13 Share % M ar/14 Share % On M ar/13 On Dec/13 Source s 627, , , Commercial Funding² 516, , , Total Deposits 468, , , (1.8) Agribusiness Let. of Credit + Mortgage Bonds 39, , , Repurchase Agreem. Op. w ith Priv. Securities 9, , , (14.2) Domestic Onlending 65, , , Foreign Borrow ing ¹ 59, , , Subordinated Debt 38, , , Capital Eligible Debt ² - - 8, , (3.1) Others Commercial Papers ³ 9, , , Domestic Hybrid Debt Capital Instruments 8, , , (1.4) Financial and Development Funds 5, , , Compulsory Deposits (77,273) (12.3) (90,746) (12.3) (87,796) (11.6) 13.6 (3.3) Us e s 627, , , Net Loan Portfolio (a) = (b) + (c) +(d) 551, , , Loan Portf olio (b) 536, , , Private Securities (c) 36, , , (0.3) Allow ance for Loan Losses (d) (21,414) (3.4) (23,662) (3.2) (24,075) (3.2) A djusted Net Loan Portfolio (a) - (e) 455, , , Domestic Onlending Loans (e) 96, , , A vailable Funds 75, , , Indicators - % Net Loan Portfolio / Total Deposits Net Loan Portfolio / Funding A djusted Net Loan Port. / Commercial Funding Net Loan Portfolio / Total Deposits Includes Foreign Borrowings, Foreign Securities Obligations, Subordinated Debt Abroad and Hybrid Capital Instruments. 2 - Apart from Subordinated Debt, from 4Q13 on, according Bacen Circular-letter 3,624/ Includes Letters of Credit and Debentures. The Net Loan Portfolio remains as the main destiny of funding, representing 86.3% of the sources total as of Mar/14. Investments in private securities are a highlight with growth of 23.2% over 12 months. Considering the significant amount of credit originated by domestic onlendings, in the 2Q13 the indicator adjusted net loan portfolio over commercial funding was created. This new indicator disregards the credit originated by domestic onlendings. At the end of Mar/14 the index reached 86.5%, demonstrating that the credit portfolio of BB is appropriate to its level of commercial funding. The balance of external funding, including fixed income securities, certificates of deposit, deposits and repurchase agreements, reached US$ 53.4 billion at the end of Mar/14, an increase of 12.6% in twelve months and 4.4% on Dec/13. The fixed income securities issued by the Bank in the international capital market totaled US$ 16.2 billion at the end of Mar/14. The perpetual bonds issued in January and March 2012 and January 2013 are in accordance with CMN 4.192/13 and 4.193/13 Resolutions and make up the Supplementary Capital Bank, as emphasized by Chapter 4 of MD&A. BIS Ratio BIS Ratio higher than the minimum required Banco do Brasil s BIS III ratio reached 13.84% at Mar/14, higher than the regulatory minimum. The Index of Tier I Capital (IC Level I) held in Mar/14 recorded 9.93% and 7.83% of Principal Capital Index (PCI). Both indicators are framed in the regulatory minimum. The Referential Equity (RE) of BB 7 - Banco do Brasil Earnings Summary

8 reached R$ billion in Mar/14. Additional information regarding regulatory capital can be consulted in Chapter 9 of the MD&A. Loan Portfolio Loan Portfolio in the Broad Concept grew 18.0% in last 12 months The loan portfolio in the broad concept reached R$ billion in Mar/14, with expansion of 18.0% in twelve months, as shown in the following table. The classified loan portfolio attained R$ billion in Mar/14, with expansion of 17.6% in the same comparison. Table 10. Loan Portfolio Classified and Broad Concepts Balance Chg. % R$ million Mar/13 Share % Dec/13 Share % Mar/14 Share %On Mar/13 On Dec/13 Loan Portfolio (a) 536, , , Brazil 494, , , Individuals 155, , , Payroll Loan 60, , , Salary Loans 17, , , Consumer Finance 5, , , (3.5) (2.5) Auto Loans 36, , , (4.1) (2.1) Mortgage 11, , , Credit Card 15, , , (2.8) Overdraft Accounts 2, , , Other 5, , , (0.4) Companies 228, , , SME 89, , , Government 10, , , Middle and Large 128, , , Agribusiness 109, , , Individuals 76, , , Companies 33, , , Abroad 42, , , (3.9) Private Securities and Guarantees (b) 55,913 69,498 67, (2.3) Loan Portfolio - Broad concept (a + b)¹ 592, , , Brazil 544, , , Individuals 156, , , Companies 277, , , Agribusiness 110, , , Abroad 48, , , (2.9) 1 Includes private securities and guarantees provided. Growth of the loan portfolio Agribusiness, Companies and Mortgage highlights were as shown in the following figure. Banco do Brasil s. 8 - Banco do Brasil Earnings Summary

9 Figure 3. Loan Portfolio in Broad Concept (R$ billion) and Market Share (%) (50.00) Mar/13 Jun/13 Sep/13 Dec/13 Mar/ (10.00) (20.00) (30.00) (40.00) (50.00) (60.00) Individuals Companies Agribusiness Abroad Market Share BB¹ - % 1 - Market share of the domestic classified loan portfolio. Individuals Loan Portfolio reaches R$ 170 billion The individual loan portfolio in the broad concept closed Mar/14 at R$ billion, an increase of 8.6% on Mar/13, accounting for 24.3% of the Bank s loan portfolio. Considering only BB organic loan portfolio, i.e., excluding the acquired portfolios and the operations of Banco Votorantim, the individual portfolio grew 14.6% in twelve months. Of this total, 75.3% concentrated in loans at lower risk, such as Payroll loan, Salary loan, Auto Loans and Mortgages (74.8% at Mar/13). BB s own auto loans portfolio reached to R$ 11.4 billion in the. In the following figure the graph on the left show that the majority of the customers are BB s account holders for over 10 years. The payroll loan portfolio is mainly composed clients that offer lower risk: civil servants (87.7% of total) and INSS pensioners (8.2%). The Bank holds a 27.1% market share in this segment. The total mortgage loan portfolio reached R$ 27.0 billion in Mar/13, an increase of 88.0% in twelve months, as shown the graph on the right the following figure. In this portfolio, Individual and business segments grew 79.0% and 122.6% in the same comparison. BB s market share in mortgage to individuals reached 5.6% in Mar/14, compared to 4.1% in Mar/ Banco do Brasil Earnings Summary

10 Figure 4. Organic Loan Portfolio Auto (R$ billion) Mortgage Loan Portfolio (R$ billion) % 63.4% 64.0% % 17.9% 17.9% % 18.7% 18.1% Mar/13 Dec/13 Mar/14 Account Time up to 5 years From 5 to 10 years Over 10 years Mar/13 Jun/13 Sep/13 Dec/13 Mar/14 Mortgage - Individuals Mortgage - Companies Loans to Companies surpass R$ 324 billion The loans to companies in the broad concept reached R$ billion, with growth of 16.9% on Mar/13. This portfolio represents 46.4% of the total loan portfolio. In twelve months, working capital and investment transactions grew 11.3% and 26.6%, respectively, as shown in the following table. These operations were positively influenced by the large amount of loans with corporate and large corporate companies. Other highlights were transactions with securities and guarantee, as they reached balances of R$ 40.7 billion and R$ 19.1 billion at the end of Mar/14, respectively, with increases of 25.1% and 13.1% on Mar/13 in the same order. These transactions are performed with large companies and have a history of low risk. Table 11. Companies Loan Portfolio in the Broad Concept R$ billion Mar/13 Share % Dec/13 Share % Mar/14 Share % On Mar/13On Dec/13 Working Capital¹ (0.0) Investiments Corporate Bonds & Notes (2.0) Guarantees (5.3) Trade Finance² (2.2) (2.5) Other Companies Loan Portfolio Includes working capital lines, receivables, credit card, pre-approved-credit and overdraft account. 2 - Includes ACC (forward exchange contracts), ACE (advance against draft presentation) and BNDES Exim. Chg. % Disbursement for investment loan reached R$ 12.3 billion in the, an increase of 19.3% in relation to 1Q13, with emphasis to resources onlending from BNDES, Pronaf, Investimento Agropecuário, FCO and Proger. The credit operations for small and medium-sized enterprises (SME) reached R$ billion in Mar/14, up 12.2% in twelve months. In Mar/14 working capital and investment lines for SME reached R$ 64.5 billion and R$ 33.6 billion respectively, up 7.3% and 24.6% in the same order. At the end of Mar/14, BB had 2.3 million clients in this segment. Approximately 93% of the portfolio balance is applied to account holders with over 2 years of relationship with the Bank Banco do Brasil Earnings Summary

11 The Bank has used instruments have allowed greater access to credit and reduced cost for the borrower, such as Fundo de Garantia de Operações FGO (Operations Guarantee Fund) and the Fundo de Aval às Micro e Pequenas Empresas Fampe (Endorsement for Micro and Small Enterprises Fund). BB s Foreign Loan Portfolio in the broad concept reached R$ 55.2 billion in Mar/14, an increase of 14.1% in twelve months. BB is the main partner of the Brazilian foreign trade and closed with market share of 26.5% and 23.9% in foreign exchange for export and import operations, respectively. With leadership in the operations of ACC (Forward Exchange Contracts) and ACE (Advance against Draft Presentation), BB closed the with a 25.1% market share in these segments. Agribusiness Loan Portfolio reaches R$ 150 billion Banco do Brasil is the absolute leader in agribusiness loans, with a 68.5% market share. One of the main sectors of the Brazilian economy, this segment has crucial importance for Brazil s growth and development. The agribusiness portfolio in the broad concept, including agricultural loan and agro-industrial operations, increased 35.7% in 12 months, reaching R$ billion in Mar/14, as show the following graph. This segment represented 21.4% of the total loan portfolio in the period. Figure 5. Agribusiness Loan Portfolio Broad Concept (R$ billion) (.5000) (1.000) (1.5000) (2.000) - (2.5000) Mar/13 Jun/13 Sep/13 Dec/13 Mar/14 Individuals Companies NPL + 90 days/agrobusiness Loan Portfolio - % Banco do Brasil operations reaches from the small producer to large agribusiness companies. In the broad concept, the individual and companies agribusiness loan portfolio increased 29.5% and 50.3% in twelve months respectively. Among the main reasons for the evolution are the most attractive interest rates in investment operations, which increased the demand for credit and transactions with large companies in the agribusiness sector. The Agribusiness loan portfolio breakdown by purpose in the comparative /1Q13 highlights operations: (i) investment, an increase of 34.7% (+R$ 15.8 billion); (ii) Agroindustrial Credit, an increase of 58.9% (+ R$ 13.1 billion); and (iii) Work Capital for Input Purchase, up 24.1% (+R$ 5.4 billion). Agribusiness Loan Portfolio by Credit Line/Program in the same comparison highlights operations: (i) Pronaf increase of 19.0% (+R$ 4.8 billion); and (ii) Pronamp, an increase of 42.9% (+R$ 5.3 billion) Banco do Brasil Earnings Summary

12 BB is allocating R$ 70 billion agribusiness in the 2013/2014 crop, a volume 14% higher than the value disbursed (R$ 61.5 billion). Of this total, R$13.2 billion will finance family agriculture and R$56.8 billion will aid business farmers and rural cooperatives Since the beginning of the 2013/2014 crop, Banco do Brasil has disbursed R$56.9 billion, R$11.1 billion for family farms and R$ 45.8 billion for agriculture business. Volumes represent 81.3%, 84.4% and 80.6%, respectively, of the estimated for the entire 2013/14 crop. The delinquency of the agribusiness portfolio remains low levels, with the NPL+90 days ratio of 0.74% in Mar/14 compared to 0.64% in Mar/13 and 0.78% in Dec/13. Delinquency Ratios below Banking Industry The historical evolution of the Bank s average risk (ratio between the required provision and the total of the classified loan portfolio) maintains the trend of decrease since Jun/09 and much lower than Banking Industry, as show the following graph. Figure 6. Classified Loan Portfolio Average Risk Mar/10 Mar/11 Mar/12 Mar/13 Mar/14 Average Risk - BB Consolidated Average Risk - BI The coverage index (ALLL/NPL +90d) expresses the ratio between the total provision (required plus additional) and the balance of the transactions due over 90 days. The current provision enables the Bank to record a 193.5% coverage index, a percentage higher than BI. Historically, the BB shows delinquency ratio lower than BI, as shown in the next figure. The delinquency ratio (NPL +90d) expresses the ratio between the operations due over 90 days and the classified loan portfolio balance reached 1.97% in Mar/ Banco do Brasil Earnings Summary

13 Figure 7. NPL +90d Percentage on the Classified Loan Portfolio Mar/10 Mar/11 Mar/12 Mar/13 Mar/14 NPL +90d - BB ex-bv NPL +90d - BB Consolidated NPL +90d - BI The New NPL/Loan Portfolio index, which represents the future delinquency trend, is analyzed in the Chapter 3.2 of the MD&A. This index shows stable trend, demonstrating the BB s loan portfolio quality. The ALLL Expenses accumulated in 12 months increased 15.0% on 1Q13 representing a lower percentage than the 20.8% average classified loan portfolio increase. Table 12. ALLL Expenses over Classified Loan Portfolio BB and BB ex-bv Chg. % R$ million 1Q13 2Q13 3Q13 4Q13 ¹ On 1Q13 On 4Q13 12 months ALLL Expenses (A) BB (14,351) (14,893) (15,045) (15,597) (16,509) (B) BB ex-bv (11,930) (12,659) (13,029) (13,397) (14,410) Quarterly ALLL Expenses (C) BB (3,275) (4,219) (3,915) (4,188) (4,187) 27.8 (0.0) (D) BB ex-bv (2,773) (3,687) (3,468) (3,470) (3,785) Average Loan Portfolio (E) BB - 12 months 484, , , , , (F) BB - 3 months 528, , , , , (F) BB ex-bv - 3 months 501, , , , , ALLL Index - % (A/E) (C/F) (D/G) ALLL Reallocation regarding the recovery of operation that was write off on the same month. The following table shows the impact of the recovery of write-off in the allowance for loan and lease losses. It is worth remembering that only the partial recovery of write-off sensitizes the ALLL expenses Banco do Brasil Earnings Summary

14 Table 13. Net ALLL Expenses Partial Recovery of Write-off Balance Chg. % R$ million 1Q13 2Q13 3Q13 4Q13 ¹ On 1Q13 On 4Q13 ALLL Expenses - Quarterly (3,275) (4,219) (3,915) (4,188) (4,187) 27.8 (0.0) ALLL Expenses - 12 months (14,351) (14,893) (15,045) (15,597) (16,509) Partial Recovery of Write-off - Quarterly (2.0) Partial Recovery of Write-off - 12 months 1,300 1,360 1,257 1,127 1,208 (7.0) 7.2 Net ALLL Expenses - Quarterly (3,106) (3,675) (3,756) (3,933) (3,937) Net ALLL Expenses - 12 months (13,051) (13,533) (13,788) (14,470) (15,301) ALLL Reallocation regarding the recovery of operation that was write off on the same month. Banco do Brasil monitors loans with evidence of compromised quality. The item 3.3 of MD&A details the process of Billing and Credit Recovery. On average, 91.1% of the credit volume that enrolled in charge process, of a specific vintage, are sorted up to 360 days. Additionally, the following graphs shows: (i) the relation between 12 months accumulated write-off and the 12 months classified loan portfolio average balance; (ii) and the ratio between the total recovery of write-off and the write-off, both 12 months accumulated. It can be observed that BB, historically, has better index than the peer average. Figure 8. Write-Off and Recovery of Write-Off/Write-Off Write-Off % on the Classified Loan Portfolio Recovery of Write-Off/Write-Off % Jun/12 Sep/12 Dec/12 Mar/13 Jun/13 Sep/13 Dec/13 Mar/14 Jun/12 Sep/12 Dec/12 Mar/13 Jun/13 Sep/13 Dec/13 Mar/14 Banco do Brasil Peer Average¹ Banco do Brasil Peer Average¹ 1 Corresponds to the three Brazilian largest private banks Banco do Brasil Earnings Summary

15 The following table presents the main quality indexes of loan portfolio. Further information regarding Loan portfolio can be consulted in Chapter 3.2 of the MD&A. Table 14. Classified Loan Portfolio Quality Indicators % Mar/13 Dec/13 Mar/14¹ Average Risk BB NPL + 15 days/loan Portfolio NPL days/loan Portfolio NPL + 60 days/loan Portfolio NPL days/loan Portfolio NPL + 90 days/ Loan Portfolio AA - C Loans/Loan Portfolio ALLL/Loan Portfolio Individuals Allow ance/loan Portfolio Companies Allow ance/loan Portfolio ALLL/NPL + 15 days ALLL/NPL + 60 days ALLL/NPL + 90 days Average Risk Banking Industry NPL + 90 days/total Portfolio BI ALLL/NPL + 90 days, BI ALLL Reallocation regarding the recovery of operation that was write off on the same month. Fee Income Business growth diversifies Fee Income The expansion of the credit supply and stronger performance of the Bank in segment of Insurance, Asset Management and Capital Market have favored the expansion of turnover, contributing to the diversification of fee income. In, fee income reached R$ 5.7 billion, up 6.6% over 1Q13, as shown in the following table. Highlight for the increase of 18.4% in credit / debit card operations income, mainly driven by the increase in volume transactions and average ticket of operations. Table 15. Fee Income Quarterly Flow Chg. % R$ million 1Q13 4Q13 On 1Q13 On 4Q13 Fee Income 5,387 6,177 5, (7.1) Credit / Debit Cards 1,269 1,625 1, (7.6) Asset Management 939 1,015 1, Account Fees 1,012 1, (5.2) (6.9) Loans Operations (16.8) Collections (2.1) Insurance, P. Plans and Premium Bonds (2.2) (9.0) Billings (5.0) Interbank (4.8) Capital Market (8.8) (14.1) Other (8.9) 15 - Banco do Brasil Earnings Summary

16 Diversification of business strengthens performance of Banco do Brasil Banco do Brasil, following its strategy of business diversification, has expanded its activities in the electronic means of payment, especially with the card market. This strategy has allowed negotiating better performance, greater operational efficiency and lower risk in credit operations. The next graph shows the results achieved in terms of revenues, up 22.8% in the comparison /1Q13. Information about cards can be founded in item 6.2 of the MD&A. Figure 9. Non-Financial Business BB Cards -Total Turnover (R$ billion) Total Turnover by Segment. PF e PJ (R$ billion) Q13 2Q13 3Q13 4Q13 Credit Card Debit Card 1Q13 2Q13 3Q13 4Q13 Individuals Companies Banco do Brasil is present in in the capital market through its subsidiaries in Brazil and abroad. Together, the companies of the BB s conglomerate promote the link between domestic issuers and investors in domestic and foreign market. In 2014, BB worked in 11 of 16 foreign funding transactions in the international capital market. Operations coordinated by BB exceeded $ 14 billion, representing share of 83.7% according to the operations of ranking Anbima. In the custody of assets in the domestic market segment, the Bank increased R$ 25.4 billion in total assets under custody and between Dec/13 Mar/14, reaching R$ billion. The market share of BB reached 21.6% in the period. BB growth for the quarter represented 83.2% of the market expansion. In the assets management, BB DTVM closed with R$ billion in assets under management and market share of 21.6%, consolidating its position of largest administration firm of Brazil. This result represented a growth of 8.3% in relation to same period of the prior year Banco do Brasil Earnings Summary

17 Figure 10. Asset Management Jun/12 Sep/12 Dec/12 Mar/13 Jun/13 Sep/13 Dec/13 Mar/14 Asset Management - R$ billion Market Share - % The net income of BB Seguridade reached R$ 649 million in the, earnings 37.5% higher than in the same period of Information about BB's operations in the insurance segment can be found in section 6.6 of the BB s MD&A and in the BB Seguridade s MD&A, avilable at The consortium market moved R$ 13.4 billion in terms of business volume in the first two months of 2014, according to the Associação Brasileira de Administradoras de Consórcios ABAC. The management rate revenues of consortium s administration in the reached R$ 71.3 million, result 15.0% higher than the 1Q13, reflecting the growth in the number of active quotas. Banco Votorantim returned to record positive net income since 4Q13, confirming the progress in the restructuring of that institution, which has been implemented over the past years. Information about strategic investments can be found in Chapter 10 of the MD&A report. Administrative Expenses and Cost to Income Ratio Administrative Expenses under control Banco do Brasil has been constantly seeking to improve its operational efficiency and productivity, maintaining tight control of its administrative expenses. In the comparison /1Q13, these expenses presented a change of 9.7%, reflection of the collective labor agreement of 2013 and the renegotiation of contracts for surveillance, security and shipping services. The effects of these events should be diluted throughout the year. Compared to 4Q13, administrative expenses decreased 8.1%. Table 16. Adjusted Administrative Expenses Quarterly Flow Chg. % R$ million 1Q13 4Q13 On 1Q13 On 4Q13 Administrative Expenses (7,061) (8,432) (7,746) 9.7 (8.1) Personnel Expenses (4,069) (4,673) (4,493) 10.4 (3.9) Other Administrative Expenses (2,992) (3,758) (3,253) 8.7 (13.4) 17 - Banco do Brasil Earnings Summary

18 The performance of fee income and the control of administrative expenses led to the improvement in the index that measures the cover of administrative expenses to 76.5% in, compared to 74.8% in 1Q13. Among the efficiency indicators, the relation of Checking Accounts / Own Network grew to 2,030 Mar/14, compared to 1,965 in the same period of the previous year. The Chapter 7 of the MD&A provides information about Administrative Expenses, Other Operating Income, Efficiency Indicators and Operational Losses Banco do Brasil Earnings Summary