BANCO CRUZEIRO DO SUL ANNOUNCES ITS RESULTS FOR THE THIRD QUARTER OF 2011

Transcription

1 BANCO CRUZEIRO DO SUL ANNOUNCES ITS RESULTS FOR THE THIRD QUARTER OF 2011 São Paulo, November 14, Banco Cruzeiro do Sul (BM&FBovespa - CZRS4), a private-sector, multiple-service bank operating a commercial and investment portfolio and authorized to execute foreign exchange operations, with operations primarily in the personal-credit segment through paycheck-deductible loans to public employees and social security beneficiaries, and which also offers short-term loans to the middle market segment, typically secured by receivables, announces today its results for the third quarter of 2011 (3Q11). Banco Cruzeiro do Sul s audited financial statements are prepared in accordance with the Brazilian Corporate Law, considering the amendments introduced by Law 11,638/07 and Law 11,941/09 as well as the rules of the National Monetary Council (CMN), the Brazilian Central Bank (BACEN) and the Accounting Pronouncements Committee (CPC) when applicable. 3Q11 Conference Call November 17, 2011 Portuguese 10:00 a.m. (Brasília) 7:00 a.m. (New York) Dial-in: Code: Banco Cruzeiro do Sul Replay: Code: English 12:00 p.m. (Brasília) 9:00 a.m. (New York) Dial-in: Replay: Code: Investor Relations Fausto Vaz Guimarães Neto João de Lacerda Soares Roberto Coutinho Naira Oey Tel.: +55 (11) Q11 HIGHLIGHTS Net income in 3Q11 was R$24.0 million, lower than the R$40.5 million recorded in 2Q11 and down from the R$45.2 million in 3Q10, accompanied by ROAE of 8.2%. Net income in the first nine months was R$105.5 million, for annualized ROAE of 12.2%; Direct paycheck-deductible loan origination totaled R$1,098.3 million in 3Q11, and R$3,272.8 million in 9M11, for monthly averages of R$366.1 million and R$363.6 million, respectively; Our loan portfolio reached R$8.088 billion, divided among: direct and credit card paycheck-deductible personal loans of R$7.791 billion and middle market loans of R$296.7 million; Time deposits totaled R$4,426.8 million, up 7.2% on the previous quarter (R$4,130.9 million) and 7.2% on 3Q10 (R$4,127.8 million); Shareholders equity in the third quarter came to R$1,185.4 million, 0.9% higher than in 2Q11 (R$1,175.2 million). Average shareholders equity stood at R$1,174.4 million and the capital adequacy (Basel) ratio stood at 13.7%. ri@bcsul.com.br Site: 1

2 MANAGEMENT COMMENTS In the third quarter of 2011, our credit origination remained in line with our strategy of quality and liquidity, with the origination of paycheck-deductible personal loans remaining in line with the product trends. Our origination of assets in both paycheck-deductible personal loans and loans for the middle market segment remained selective, with efforts concentrated in operations with more attractive returns. Our administrative and personnel expenses came to R$92.7 million in 3Q11. Funding in the local market with and without guarantees from the FGC through time deposits with special guarantee (DPGEs) continued to represent a consistent funding source in terms of volume as well as maturities and prices, with maturities often renewed at longer terms. The elimination of DPGEs, scheduled for 2016, with the reduction of 20% each year in funding limits, is part of our funding strategy, with the consequent substitution of the funds raised through this instrument by other instruments available in the market and in our portfolio. The partnership with financial institutions for credit assignment as an alternative funding source, at prices and terms that are compatible with our operations, and the launch of new FIDCs are part of these new instruments. In the first nine months of 2011, the Bank raised R$30.0 million through private issues of ten-year notes. The procedures for the accounting classification and disclosure of operations involving the sale or transfer of financial assets are in accordance with the Brazilian Central Bank Resolution 3,809. Thus, Banco Cruzeiro do Sul presents its third-quarter figures with the booking of revenues and expenses from assignments with risk retention apportioned in advance, instead of in accordance with the remaining term of the operations. We also present our financial statements under IFRS standards, which substitutes the consolidated balance sheet required by the Securities and Exchange Commission of Brazil (CVM) when we held our IPO. Net income in 3Q11 totaled R$24.0 million, lower than the R$40.5 million recorded in 2Q11 and from the R$45.2 million in 3Q10. ROAE in 3Q11 was 8.2%. Net income in the first nine months was R$105.5 million, for annualized ROAE of 12.2%. Third-quarter net income was impacted by the increase in funding costs chiefly due to the depreciation of the Brazilian Real. Shareholders equity in the third quarter came to R$1,185.4 million, 0.9% higher than in 2Q11 (R$1,175.2 million). Average shareholders equity stood at R$1,174.4 million in the quarter. Our Tier 1 and 2 Regulatory Capital totaled R$1,766.1 million for calculation of the Basel ratio, which stood at 13.7% in the quarter, of which 9.1% was Tier 1 and 4.6% was Tier 2. Banco Cruzeiro do Sul s market capitalization on September 30, 2011, based on its stock (CZRS4) price of R$13.90, was R$1,900.5 million. Market capitalization corresponded to 1.60 times shareholders equity in the third quarter. The Bank s stock appreciated by 14.3% in the past 12 months. Bear in mind that these stock gains do not consider the dividends and interest on equity paid in the periods mentioned. Earnings per share came to R$0.18, down on 2Q11 (R$0.30) and 3Q10 (R$0.33). The Bank s free float stood at 19.4% in the period. 2

3 Direct paycheck-deductible loan origination totaled R$1,098.3 million in 3Q11, and R$3,272.8 million in 9M11, for monthly averages of R$366.1 million and R$363.6 million, respectively. Loan origination in 3Q11 fell 1.1% in relation to 2Q11 (R$1,110.7 million) and by 28.6% from 3Q10 (R$1,538.2 million). In the first nine months, loan origination was 3.4% lower than in 9M10 (R$3,389.7 million), but in line with the Bank s strategy of seeking more attractive returns. Assets from paycheck-deductible credit card operations reached R$359.5 million in 3Q11, up 8.0% from 2Q11 (R$332.9 million) and 23.6% from 3Q10 (R$290.9 million). The number of cards issued stood at 407,200, an 8.7% increase over 3Q10 (374,400) and 2.7% higher than in 2Q11 (396,500). Active clients financing their outstanding balances accounted for The middle market segment ended the quarter with a loan portfolio of R$296.7 million, down 18.5% from 2Q11 (R$364.2 million) and up 2.2% from 3Q10 (R$290.3 million). In the third quarter of 2011, Banco Cruzeiro do Sul s foreign exchange desk maintained its operations in the interbank market, imports and exports, paper currency distribution, gold exports and the buying and selling of foreign currencies for financial and commercial fund transfers. The loan portfolio, including guarantees, accounts receivable and subordinated shares in receivables-backed investment funds (FIDCs) booked under the item Securities, totaled R$8.088 billion, divided into: direct and credit card paycheck-deductible personal loans of R$7.791 billion and middle market loans of R$296.7 million. The overall portfolio grew by 6.7% on 2Q11 (R$7.580 billion) and by 25.3% on 3Q10 (R$6.454 billion). Gross income from financial intermediation totaled R$222.3 million in 3Q11, up 6.8% from 2Q11 (R$208.1 million) and down 3.3% from 3Q10 (R$229.8 million). Time deposits totaled R$4,426.8 million, up 7.2% on the previous quarter (R$4,130.9 million) and 7.2% on 3Q10 (R$4,127.8 million). It is worth highlighting the 14.0% increase in time deposits not guaranteed by the DPGE over 2Q11. On September 30, 2011, the Bank s cash and cash equivalents stood at R$370.9 million, equivalent to 31.3 shareholders equity. Period Highlights (R$ million) 3Q11 2Q11 3Q10 3Q11 x 2Q11 3Q11 x 3Q10 Paycheck-deductible origination 1, , ,063.8 (1.1%) 4.4% Net profit (40.8%) (47.0%) Shareholder's equity 1, , , % 4.0% Credit portfolio quality (AA-C) 97.5% 94.9% 96.7% 2.6 p.p. 0.8 p.p. Credit portfolio quality (D-H/Credit) 2.5% 5.1% 3.3% (2.6 p.p.) (0.8 p.p.) Active clients (thousand) 1, , , % 27.8% Paycheck-deductible credit portfolio¹ 7, , , % 26.4% SME's credit portfolio (18.5%) 2.2% Average commission to bank correspondents 6.3% 6.7% 6.0% (0.4 p.p.) 0.3 p.p. Capital adequacy ratio 13.7% 18.3% 14.7% ¹ Considers credit card and subordinated quotas of FIDCs 3

4 COMMENTS ON PERFORMANCE Net Income Net income in 3Q11 was R$24.0 million, down on the R$40.5 million recorded in 2Q11 and on the R$45.2 million in 3Q10, accompanied by ROAE of 8.2%. Net income in the first nine months was R$105.5 million, for annualized ROAE of 12.2%. Third-quarter net income was impacted by the increase in funding costs chiefly due to the depreciation of the Brazilian Real in the period. Net Interest Margin Our net interest margin contracted slightly, reflecting the higher funding costs, as presented in the chart below: 11.3% 8.3% 9.9% 10.2% 7.4% 6.1% Q10 2Q11 3Q11 Future Net Income Our credit operations booked on the balance sheet have a market value of R$2.299 billion¹. R$ Credit Portfolio Carrying Value 3Q11 Market Value Gain or Loss Potential 2,223,062 2,299,533 76,471 ¹- Note 23 a to the Financial Statements of the third quarter of Gross Income from Financial Intermediation Gross income from financial intermediation totaled R$222.3 million in 3Q11, up 6.8% from 2Q11 (R$208.1 million) and down 3.3% from 3Q10 (R$229.8 million) Q10 2Q11 3Q11 4

5 Origination of Paycheck-Deductible Personal Loans The direct origination of paycheck-deductible personal loans totaled R$1,098.3 million in 3Q11, and R$3,272.8 million in 9M11. Monthly averages were R$366.1 million and R$363.6 million, respectively. Loan origination in the third quarter was 1.1% lower than in 2Q11 (R$1,110.7 million) and 28.6% smaller than in 3Q10 (R$1,538.2 million). In the first nine months, loan origination was 3.4% lower than in 9M10 (R$3,389.7 million), but in line with the Bank s strategy of seeking more attractive origination returns. 4, ,276 3,406 3, , , , ,663 2, ,196 2, , M Public Employees INSS 1, ,538 1, ,111 1,058 1,064 1, ,386 1, Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Our paycheck-deductible loan origination in 3Q11 was divided between 27.1% for INSS beneficiaries and 72.9% for public employees, while 26.6 origination in 9M11 went to INSS beneficiaries, and 73.4% to public employees. The government paycheck-deductible loan market expanded by 4.2% between July and September 2011, compared to growth of 17.8% between September 2010 and September The growth of the paycheck-deductible loan sector underscores the demand in this market. PAYCHECK-DEDUCTIBLE LOANS 112, , , , , , ,655 87,577 92,961 56,179 59,452 62,635 65,623 68,201 71,495 79,418 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Paycheck-deductible loans (R$ billion) Client Portfolio At the close of 3Q11, we had 1,719,502 active clients, 83,732 or 5.1%, more than in 2Q11 and 27.8% more than in 3Q10. The chart below provides the breakdown of the active client base among INSS beneficiaries, public employees and paycheck-deductible credit cards. 5

6 Credit Card 1, ,635.8 Public Employee 1, INSS 1, , , Q10 2Q11 3Q11 Distribution Network For the origination of paycheck-deductible personal loans to public employees and INSS beneficiaries, in 3Q11, Banco Cruzeiro do Sul had a nationwide network of 452 correspondent banks, 16 which are exclusive banks, as shown in the chart below, compared with 404 (16% exclusive) in 2Q11 and 312 (20% exclusive) in 3Q10. The 10 largest correspondent banks accounted for 28.3 our direct origination in 3Q CORRESPONDENTS BY REGION 3Q % % 20.6% 9.5% 16.4% Q10 2Q11 3Q11 MID-WEST NORTHEAST NORTH SOUTHEAST SOUTH We constantly review the performance of our correspondent banks with the aim of increasing both origination and quality. These correspondent banks use third parties and employees to reach the target public. The average weighted commission paid to correspondents in 3Q11 was 6.3%, versus 6.7% in 2Q11 and 6.0% in 3Q10. The average weighted commission paid in 3Q11 was in line with 2Q11 and 5.2% greater than in 3Q10. INSS Other Agreement Average Commission 9.39% 8.54% 7.99% 5.99% 6.72% 6.30% 5.61% 6.02% 5.68% 3Q10 2Q11 3Q11 The slight decline between 2Q11 and 3Q11 was due to the lower paycheck-deductible loan origination to INSS beneficiaries, in which commissions are slightly higher compared to other agreements. 6

7 In the middle market segment, the distribution network is organized in the form of Banco Cruzeiro do Sul's own commercial platforms located in the cities of São Paulo, Ribeirão Preto, Rio de Janeiro, and Goiânia, and is composed of 124 active clients. Agreements with Government Entities In 3Q11, this sales team had at its disposal 412 agreements (codes), 158 of which were federal, 124 state and 130 municipal. These agreements involved permission to offer paycheck-deductible personal loans to more than 3,000 government entities at the federal, state and municipal levels, including the INSS social security system. Between 3Q10 and 3Q11, forty new government entities were added to our agreement network Q10 2Q11 3Q11 The 20 largest agreements with government entities accounted for 63.1 our direct origination in 3Q Major Production Codes The approval of new agreements with municipal, state and federal entities to offer paycheckdeductible loans to public employees is formalized in strict observance of all applicable regulations. The process includes all necessary measures to minimize any risks (legal, image and operational). These procedures aim to avoid any problems that could emerge regarding the linking of loans to the payroll accounts of each government entity. Accordingly, three pillars are observed in these processes: 1. If the entity falls under the scope of the tax liability law (Supplementary Law 101 dated May 4, 2000); 2. If the entity is authorized by law to permit the linking of obligations owed under the loan agreement to the payroll accounts of its employees, duly approving and encompassing paycheckdeductible loan operations to government workers; 3Q11 2Q11 State 18.5% 19.8% Federal 17.5% 19.4% INSS 27.1% 27.7% Municipalities 0.0% 0.0% Total 63.1% 66.8% 3. If the entity has an IT platform compatible with the operation of loan agreements over the internet. 7

8 Securities The Bank s securities portfolio stood at R$6,495.3 million, 8.9% up on the same period in 2010 (R$5,962.6 million) and 3.1% greater than in 2Q11 (R$6,302.2 million). Investments in the subordinated shares of receivables-backed investment funds (FIDCs) represented R$5,919.1 million, or 91.1 total, and are included in our own portfolio as shown below (R$5,751.7 million in 2Q11, or 91.3 total). Bonds Portfolio (R$ '000) 3Q11 2Q11 3Q10 3Q11 x 2Q11 3Q11 x 3Q10 Own Portfolio 386, , ,242 (19.2%) (35.6%) Subordinated quotas FIDCs 5,919,149 5,751,657 5,151, % 14.9% Subject to repurchase commitments , % (100.0%) Derivative Financial Instruments 167,696 50,264 46, % 262.9% Subject to guarantees provided 22,105 22,098 73, % (69.8%) Total 6,495,272 6,302,168 5,962, % 8.9% Loan Portfolio The loan portfolio, including guarantees, accounts receivable and subordinated shares in receivables-backed investment funds (FIDCs) booked under the item Securities, totaled R$8.088 billion, divided into: R$7.791 billion in direct and credit card paycheck-deductible personal loans, and middle market loans of R$296.7 million. The overall portfolio grew by 6.7% over 2Q11 (R$7.580 billion) and by 25.3% over 3Q10 (R$6.454 billion). Credit Portfolio (R$ '000) 3Q11 2Q11 3Q10 3Q11 x 2Q11 3Q11 x 3Q10 Paycheck-Deductible Loans¹ 1,872, % 1,464, % 1,012, % 27.8% 85.0% - Loans (direct way) 1,703, % 1,281, % 900, % 33.0% 89.2% - Credit Card 168, % 183, % 111, % (8.2%) 50.8% Subordinated Quotas of FIDCs 5,919, % 5,751, % 5,151, % 2.9% 14.9% - Loans (direct way) 5,728, % 5,602, % 4,972, % 2.2% 15.2% - Credit Card 191, % 149, % 179, % 27.9% 6.6% Total Paycheck-Deductible Personal Loans 7,791, % 7,216, % 6,163, % 8.0% 26.4% Middle Market 296, % 364, % 290, % (18.5%) 2.2% Total On-balance 8,088, % 7,580, % 6,454, % 6.7% 25.3% ¹ Considers 3533 effects 6, , , , , , , , , , , , , , , , , , , Q10 2Q11 3Q11 Subordinated quotas of FIDC On Balance Credit (Loans) o Direct Paycheck-Deductible Loans Direct paycheck-deductible loans came to R$7,431.9 million in 3Q11 (R$1,703.9 million of which in assets booked on the balance sheet and R$5,728.1 million in subordinated shares of FIDCs), 26.5% higher than in 3Q10 (R$5,872.8 million) and 8.0% up on 2Q11 (R$6,883.4 million). 8

9 o Paycheck-Deductible Credit Cards Assets from paycheck-deductible credit card operations reached R$359.5 million in 3Q11 (R$168.4 million booked on the balance sheet and R$191.1 million in subordinated shares of FIDCs), up 8.0% on 2Q11 (R$332.9 million, of which R$183.4 million were booked on the balance sheet and R$149.4 million in subordinated shares of FIDCs) and 23.6% up on 3Q10 (R$290.9 million, of which R$111.7 million were booked on the balance sheet and R$179.2 million in subordinated shares of FIDCs) Q10 2Q11 3Q11 Subordinated Quota FIDC Credit Portfolio The number of cards issued stood at 407,200, an 8.7% increase over 3Q10 (374,400) and 2.7% higher than in 2Q11 (396,500). Active clients financing their outstanding balances accounted for Banco Cruzeiro do Sul currently holds agreements for the origination of paycheck-deductible loans with 254 government entities as well as the INSS social security system Q10 2Q11 3Q11 o Middle Market Loans The middle market segment ended the quarter with a loan portfolio of R$296.7 million, down 18.5% on 2Q11 (R$364.2 million) and up 2.2% on 3Q10 (R$290.3 million) Q10 2Q11 3Q11 The Bank maintains a conservative approach in relation to the origination of loans in the middle market. In the third quarter, we had 124 active clients in the segment, with an average portfolio term of 157 days and average ticket by operation of R$1.0 million. 9

10 Banco Cruzeiro do Sul maintains its focus on paycheck-deductible personal loans, both directly or through paycheck-deductible credit cards, where it has built a portfolio of high liquidity and quality, though without foregoing the middle market segment, seeking to diversify the loan portfolio. Foreign Exchange Banco Cruzeiro do Sul s foreign exchange desk maintained its operations in the interbank market, imports and exports, paper currency distribution, gold exports and the buying and selling of foreign currencies for financial and commercial fund transfers. It also began sales of the StarCash card. Consistent with our high-volume and low-risk strategy, operations target institutions authorized by the Brazilian Central Bank, and price variations are covered by derivative markets in Brazil and abroad. The area's activities in the interbank market led Banco Cruzeiro do Sul to place 26 th in September 2011 in the ranking published by the Brazilian Central Bank. StarCash is a VISA, rechargeable prepaid card for international travel. Its target customers are people travelling abroad, in replacement of paper currency. Its features include password protection, possibility of recharge in several currencies and during the validity of the plastic, minimum charge of US$100.00, additional cards, withdrawals from Plus ATM network and purchases through Visa Electron function. Quality of the Loan Portfolio Security in the approval and execution of credit operations is fundamental for developing the business and maintaining the quality of the loan portfolio. This efficient loan-portfolio management is demonstrated by the quality of the portfolio, with 97.5 credit assets rated between AA and C, in accordance with Resolution 2,682 of the Brazilian Central Bank. At the end of 3Q11, the provision for loan losses stood at R$51.4 million, versus R$46.4 million in the second quarter of The quality of our loans is ensured by the low level of default in paycheck-deductible loans, historically lower than 1% and averaging 0.8%. In the quarter, based on the individual balance sheet, the provision for paycheck-deductible loan operations accounted for 0.66 the portfolio. 4.89% 0.03% 9.71% 82.84% AA A B C o Subsequent event As explained in the Final Considerations of the report prepared by the Board of Directors and Board of Executive Officers which is included in the balance sheet for the period ended June 30, 2011, Banco Cruzeiro do Sul s management decided to review the methodology for calculating the provision of loan losses, making it stricter. It was basically prudential measure, considering global uncertainties and their effects on Brazil and therefore do not imply prospects of increase in default 10

11 levels, given that they are reasonably stable considering the characteristics of the Bank s core segment (payroll-deductible loans). The changes to the methodology applied to the payroll-deductible loan portfolio on account of its massified nature, from the earlier focus on individuals, calculated according to Article 5 of Resolution 2,682/99, now considers as the calculation base, a consolidated portfolio held on the Bank s balance sheet and with (FIDCs), assignees with co-obligation and Cruzeiro do Sul Securitizadora. As announced at the time, this change in the calculation methodology, concluded at the end of the third quarter, will result in an additional provision, now estimated at approximately R$197 million. This provision will be implemented next quarter, thus negatively impacting 4Q11 results, net of taxes and contributions, by approximately R$118 million. Our Ratings Banco Cruzeiro do Sul is covered by the following rating agencies: LF Rating, RiskBank, Moody s, Austin Rating and Standard & Poor s. Agency Rating Type LF Rating A Brazilian Currency Austin Rating A- Domestic Scale RISKbank (RISKbank Index) General Ranking in Jun/11: 36 (Mar/11: 38) Low risk for short term General disclosure: Excellent Ba 2/NP Negative Outlook Brazilian Currency Foreign Currency Deposits Moody's Ba 2/NP Negative Outlook Brazilian Currency Ba 3/NP Negative Outlook Subordinated A1.br/BR-1 Negative Outlook Domestic Scale Standard & Poor's BB-/B Estable Outlook Foreign Currency Deposits BrA-/2 Estable Outlook Brazilian Currency Funding Banco Cruzeiro do Sul raises funds in the local market from institutional investors, individuals and companies. The instruments used for this funding are time deposits with and without guarantee from the Credit Guarantee Fund (DPGEs), interbank deposits, credit assignments to other financial institutions and receivables-backed investment funds (FIDCs). In the international market, funding operations involve the issue of short and medium-term notes. In 3Q11, the Bank s funding sources were composed of: Time deposits from individuals and companies: 45.0%; Credit assignments to other financial institutions: 12.3%; Offshore funding operations (STN & MTN): 30.9%; Credit assignments to FIDCs (senior quotas): 10.5%; Interbank deposits: 1.3%. 11

12 Funding (R$ '000) 3Q11 2Q11 Time deposits totaled R$4,426.8 million, up 7.2% on the previous quarter (R$4,130.9 million) and 7.2% on 3Q10 (R$4,127.8 million). The time deposits portfolio with and without guarantees from the FGC has a weighted average cost of the CDI rate and a weighted average term of 544 days. It is worth pointing out the 14.0% quarter-on-quarter increase in time deposits not guaranteed by the DPGE proves our efforts to replace deposits guaranteed by the DPGE, which grew 3.0% over 2Q11. 3Q10 3Q11 x 2Q11 3Q11 x 3Q10 Time deposits¹ 4,426, % 4,130, % 4,127, % 7.2% 7.2% Interbank deposits² 123, % 172, % 206, % (28.2%) (40.1%) Securities issued abroad 3,035, % 2,662, % 1,990, % 14.0% 52.5% SubTotal On-balance 7,585, % 6,964, % 6,324, % 8.9% 19.9% Credit assignments 1,212, % 1,275, % 727, % (5.0%) 66.6% FIDC's senior quotas 1,031, % 938, % 933, % 9.9% 10.4% SubTotal Off-balance 2,243, % 2,214, % 1,661, % 1.3% 35.0% Total 9,829, % 9,178, % 7,986, % 7.1% 23.1% ¹ Considers Related Party Deposits of R$ million and R$2,650.8 million in DPGEs (deposits guaranteed by the government). ² Considers Related Party Deposits of R$ million, Interbank Deposits, Demand Deposits and Other Deposits. Time Deposits (R$ '000) 3Q11 2Q11 3Q10 3Q11 x 2Q11 3Q11 x 3Q10 DPGE 2, % 2, % 2, % 3.0% 12.7% CDB 1, % 1, % 1, % 14.0% 0.0% Total 4, % 4, % 4, % 7.2% 7.2% o Subsequent event The Bank intends to maintain its credit assignment policy, directly or through FIDC subordinated shares, where it retains a significant portfolio of assets (approximately R$7.8 billion). In addition, our payroll-deductible loans, whether through individual loans or credit cards, are long-term operations at pre-fixed rates and the demand for this type of credit remains at satisfactory levels. Moreover, interest rate curves are on a continuously decline and as a result, it is possible to estimate with reasonable certainty the positive effects of this portfolio s appreciation in the immediate future. As a result, in order to facilitate funding, Banco Cruzeiro do Sul created a new FIDC, managed and administered by an institution that is totally independent from our Conglomerate to which the Bank transferred assets of payroll-deductible loans. We intend, therefore, to increase our liquidity and reduce funding costs to be prepared, with total tranquility and security to meet any market changes arising from the unpredictable consequences of the growing deterioration of international markets and its possible effects on Brazil. We are confident that the negative effects related to the prudential provision mentioned above will be surpassed by the financial benefits arising from this new funding instrument, already in the fourth quarter. Cash and cash equivalents In the third quarter, the Bank continued to exercise control over liquidity and the quality of assets adopted in previous quarters. We maintained our relationships with partner financial institutions, assigning credit assets that generate liquidity at prices and terms that are compatible with our 12

13 operations. On September 30, 2011, cash and cash equivalents stood at R$370.9 million, shown in the table below. R$ million 3Q11 Local Currency 1,545 Foreign Investor 30,234 Cash and Gold 912 Cash equivalents 32,691 Interbank investments ¹ 287,842 Total of cash and cash equivalents 320,533 Goverment Bonds Free Portfolio 14,830 FIDC's cash balance 35,524 Goverment Bonds available at BM&F - Total 370,887 ¹- Operations whose maturity date on the effective investment date is equal to or shorter than 90 days. CAPITAL STRUCTURE Shareholders Equity Shareholders equity in 9M11 stood at R$1,185.4 million, up 4.0% on the R$1,140.1 million recorded in 9M10. Average shareholders equity was R$1,174.4 million in 3Q11 and R$1,157.0 million in 9M11. 1,048 1,069 1,068 1,127 1,140 1,175 1, Q10 2Q11 3Q11 Based on net income of R$24.0 million in 3Q11 and R$105.5 million in 9M11, the Bank s annualized ROAE was 8.2% and 12.2% respectively. Capital Adequacy Ratio (BIS) The offshore issue of subordinated debt in September 2010 with a ten-year term and totaling US$400 million was included in the Bank's tier 2 capital on December 14, 2010, when authorized by the Central Bank of Brazil, for the calculation of its capital adequacy ratio. 30.0% 19.0% 14.7% 15.7% 20.4% 16.1% 21.2% 14.7% 18.3% 13.7% Q10 2Q11 3Q11 13

14 Our tier 1 and 2 Regulatory Capital totaled R$1,766.1 million for the calculation of the Basel ratio (R$1,168.6 million of which tier 1 and R$597.5 million tier 2 capital), which stood at 13.7% in the quarter, of which 9.1% was tier 1 and 4.6%, tier 2, as shown below: Sep-11 Amount Credit-risk portion 1,168,664 Market-risk portion 152,026 Operating risk portion 94,830 Required reference capital (RRC) 1,415,520 Reference capital for compatibility limit of RC with RRC (RC), including Tier 2 capital 1,766,110 Capital Ratio (BIS) 13.72% Banco Cruzeiro do Sul Stock (BM&FBovespa CZRS4) The capital stock of Banco Cruzeiro do Sul comprises 99,897,555 common shares and 36,829,923 preferred shares, for a total of 136,727,478 shares, of which 26,509,721 shares (71.98 the preferred shares) are held by the market (free float). Position Commom % Preferred % Total % Foreign investor - - 7,844, % 7,844, % Brazilian Corporations - - 7,921, % 7,921, % Brazilian Individuals ,744, % 10,744, % Total Free Float ,509, % 26,509, % Cruzeiro do Sul Holding 99,897, % ,897, % Luis Felippe Indio da Costa - - 6,067, % 6,067, % Luis Octavio A. L. Indio da Costa - - 2,872, % 2,872, % Members of the Board , % 20, % Directors Treasury - - 1,360, % 1,360, % Total Management 99,897, % 10,320, % 110,217, % Total Shares 99,897, % 36,829, % 136,727, % On September 30, 2011, Banco Cruzeiro do Sul s market capitalization was R$1,900.5 million, representing 1.60 times shareholders equity in 3Q11, with its stock (CZRS4) trading at R$13.90 per share. The Bank s stock appreciated by 14.3% in the past 12 months. Bear in mind that these stock gains do not consider the dividends and interest on equity paid in the periods mentioned. Earnings per share in the third quarter were R$0.18, lower than in 2Q11 (R$0.30) and than in 3Q10 (R$0.33). The Bank s free float stood at 19.4%. The table below shows the amounts paid as interest on equity and dividends, which represent R$2.65 per share since the IPO: 14

15 Date of approval Return Return value per share (R$) The Amount of Income (R$ 000) Date of Payment 08/23/2007 Interest on own capital , /04/ /21/2008 Interest on own capital , /01/ /12/2008 Dividends , /25/ /14/2008 Interest on own capital , /15/ /03/2008 Interest on own capital , /15/ /04/2009 Dividends , /16/ /17/2009 Interest on own capital , /14/ /14/2009 Interest on own capital , /27/ /29/2010 Interest on own capital , /22/ /07/2010 Interest on own capital , /28/ /01/2010 Interest on own capital , /14/ /02/2010 Interest on own capital , /15/ /05/2010 Interest on own capital , /18/ /15/2010 Interest on own capital , /14/ /17/2011 Dividends , /26/ /31/2011 Interest on own capital , /10/ /01/2011 Interest on own capital , /11/ /25/2011 Interest on own capital , /11/ /12/2011 Dividends , /26/ /10/2011 Dividends , /20/ /30/2011 Dividends , /12/ /18/2011 Dividends , /30/ /22/2011 Dividends , /04/ /30/2011 Dividends , /13/2011 Administrative Expenses Administrative and personnel expenses totaled R$92.7 million in 3Q11, up 4.4% on the previous quarter. Personnel expenses came to R$28.6 million, 16.3% down on 2Q11 and 7.9% up on 3Q10. Personnel and Administrative Expenses (R$ '000) 3Q11 2Q11 3Q11 x 2Q11 As a result, our efficiency ratio stood at 60.8% in the period, in line with the Bank s target. Sustainability Project and Social Policies Banco Cruzeiro do Sul is aware of the importance of social responsibility, as well as of growth and sustainable development. For years, it has been providing assistance to sports and cultural activities, as well as philanthropic assistance to needy children and the elderly, provided incentives to artistic and cultural entities, as well as environmental conservation projects. We launched the Playing for the Environment project, a partnership between Ecoar Institute, Sport Club Corinthians Paulista and Sociedade Esportiva Palmeiras. The project is committed to reducing and compensating for CO 2 emissions in a unique manner, namely planting 100 trees for each soccer game played by Corinthians or Palmeiras, and an additional 100 trees for every goal scored. For each game in which the opposite team does not score a goal against Corinthians or Palmeiras, another 100 trees will be planted, while 200 trees will be planted for each penalty saved or missed by opponents. In addition, if either team wins the São Paulo State Championship, 1,000 trees will be planted, and if they win the Brazilian Championship or South American Cup, 3,000 trees will be planted. 3Q10 3Q11 x 3Q10 9M11 9M10 9M11 x 9M10 Personnel expenses 28,579 34,152 (16.3%) 26, % 91,849 78, % Administrative expenses 64,152 54, % 59, % 169, , % Total 92,731 88, % 86, % 261, , % 15

16 In order to comply with technical planting standards and guarantee a sustainable forest, the forest must include at least 100 native species, such as pink and yellow tabebuia and hymenaea, among others. The Bank undertakes to take care of the seedlings for two years, until they are strong enough to survive on their own. As of November 1, 2011, a total of 34,900 seedlings had to be planted, surpassing the number of seedlings planted in 2010 (23,000). The trees planted in 2010 form the Corinthians Banco Cruzeiro do Sul Forest Reserve, a 103,000 sq. mt. area located in Salto de Pirapora, in the interior of São Paulo. For 2011, the new reserve is located in the Ressaca neighborhood in the town of Sarapuí, in the interior of São Paulo. Management of Market Risk In compliance with CMN Resolutions 3,464/07 and 3,354/06, Banco Cruzeiro do Sul has a special structure for managing the market risks of its operations. We are also complying with CVM Instruction 474/08 by disclosing sensitivity analyses of our asset and liability positions and exposures, according to the Explanatory Note Sensitivity Analysis. The result of the market-risk analyses are discussed periodically in the Risks and Liquidity Committee, which evaluates primarily if the level of risk assumed by the operating areas are aligned with the operating limits pre-approved by Senior Management. Personnel Management To advance our growth strategy, the People Management Department works to ensure that attitude and postures are effectively aligned with the organization s values: Result-oriented focus with accountability Commitment to the client Efficiency and effectiveness Entrepreneurism and agility Professionalism Ethical behavior Team spirit Respect for individuals In this light, the department drafts and updates its policies with a view to valuing, motivating, retaining and attracting human capital, and developing experienced professionals in their various areas of specialization. To achieve this, it developed, among other initiatives, the Internal Profit Sharing Program (PLR PLUS), which is in addition to the profit-sharing program established under the collective bargaining agreement, and is based on: Identification of areas that require attention; Recognizing and promoting competencies; Professional dedication; Performance evaluations; During the quarter, the Health and Quality of Life Program for employees and their family members, as well as lectures, training sessions and a healthcare plan covered 1,878 beneficiaries. In 3Q11, Banco Cruzeiro do Sul had 798 employees, an increase of 1.4% on 2Q11 (787) and 13.7% on 3Q10 (702). This increase is due to operational adjustments to meet the evolving market conditions and the growth in paycheck-deductible loan origination. 16

17 Management of Operational Risk In compliance with CMN Resolution 3,380/06, Banco Cruzeiro do Sul has an Operational Risk Management Policy and a single structure for the entire Conglomerate for managing operational risks. The results of the studies conducted by the teams involved in the operational risk process are evaluated by the Risk and Liquidity Committee and by the Board of Directors and, if applicable, corrective or preventive measures are implemented to remedy the points raised. In addition, in accordance with said resolution, the Cruzeiro do Sul Conglomerate adopted the POPR Share, the methodology of Basic Indicator Approach to calculate the Reserve Requirements related to the operational risk. Ombudsman Our ombudsman has the duty of representing the clients who use the Bank s products and services. Accordingly, the Bank s Management assures that all of the conditions needed for the department to operate are guided by transparency, independence and impartiality when dealing with clients and accessing the required information. Audit Committee The Audit Committee of Banco Cruzeiro do Sul S.A., which was constituted under the terms of Article 34 of the Bank s Articles of Incorporation, elected in accordance with minutes of the annual and special shareholders meetings held on April 23, 2008, and installed on November 3, 2008, is a statutory body composed of three independent members with a one-year term of office, as determined by Resolution 3,198 of May 27, 2004, of the National Monetary Council (CMN). The members of the Audit Committee were reelected in accordance with the minutes of the Board of Directors meeting held on April 29, 2011 for a term of office of one (1) year. The committee s composition, attributions and rules of conduct were established in accordance with the regulations issued by the Brazilian Central Bank and are governed by the Bank s Articles of Incorporation and by the Operational Rules of the Audit Committee, which were approved by the Company s Board of Directors. The Bank s Audit Committee is currently composed of the following members: Gilberto Braga, Miguel Vargas Franco Netto and Paulo Roberto Barral. The Bank s implementation of the International Financial Reporting Standards (IFRS) Resolution 3,786/09 of the National Monetary Council (CMN) and Official Letter 3,472/09 of the Brazilian Central Bank (BACEN) set forth that financial institutions and other institutions authorized to operate by the Brazilian Central Bank and that are incorporated as publicly held companies or that are obligated to establish an Audit Committee must, as of December 31, 2010, prepare their annual consolidated financial statements in compliance with the International Financial Reporting Standards (IFRS), observing the international pronouncements issued by the International Accounting Standards Board (IASB). 17

18 Based on the regulatory aspects, the management of Banco Cruzeiro do Sul implemented the IFRS Project. This project is designed to align the new requirements with corporate governance initiatives that seek i) the continuous improvement of the internal controls environment and ii) greater transparency in the group s management. The main impacts on Banco Cruzeiro do Sul s financial statements dated December 31, 2010, are detailed in Note 25e. As a result of this project, the consolidated financial statements of the Cruzeiro do Sul Conglomerate with a base date of December 31, 2010, will be presented in compliance with international standards, in comparison with the immediately prior year. In compliance with Official Letter 3,435/10, Banco Cruzeiro do Sul s Management prepared the opening balance sheet for the base date of January 1, The following CMN resolutions have received some CPCs that are already causing an impact on the individual statements of financial institutions: Resolution 3,566/08 Asset Impairment; Resolution 3,604/08 Cash Flow Statement; Resolution 3,750/09 Disclosure of Related Parties; and Resolution 3,823/09 Provisions, Contingent Liabilities and Contingent Assets. As the Brazilian Central Bank (BACEN) approves the other pronouncements, the asymmetries between the financial statements prepared to meet BACEN s requirements and those prepared according to international standards will be eliminated, so that the criteria used for the individual financial statements and consolidated financial statements will be identical. 18

19 STATEMENT OF INCOME (R$ 000) Statement of Income (R$ '000) 3Q11 2Q11 3Q11 x 2Q11 3Q10 3Q11 x 3Q10 9M11 9M10 9M11 x 9M10 Financial operations income 955, , % 313, % 1,667,336 1,074, % Loans 245, ,711 (13.2%) 285,507 (14.0%) 842, , % Securities income 316, , % 135, % 688, , % Derivative financial instruments 385,789 (162,370) (337.6%) (117,683) (427.8%) 113,215 (105,911) (206.9%) Foreign exchange operations 7,794 5, % 10,484 (25.7%) 22,618 14, % Financial operations expenses (733,126) (114,407) 540.8% (84,218) 770.5% (1,001,691) (436,112) 129.7% Deposits, money market and interbank funds (718,572) (95,239) 654.5% (71,954) 898.7% (957,888) (357,090) 168.2% Borrowings and repass (398) (841) (52.7%) (1,017) (60.9%) (1,260) (2,489) (49.4%) Sale or trasfering of financial assets operations (3,364) (4,237) (20.6%) (11,360) (70.4%) (12,746) (63,426) (79.9%) Allowance for doubtful loans (10,792) (14,090) (23.4%) 113 (9650.4%) (29,797) (13,107) 127.3% Gross income on financial operations 222, , % 229,765 (3.3%) 665, , % Other operating income/(expenses) (179,333) (131,605) 36.3% (158,251) 13.3% (472,592) (449,265) 5.2% Service income 2,978 2, % 3,049 (2.3%) 8,369 8,962 (6.6%) Bank fees income 48,718 47, % % 96, % Personnel expenses (28,579) (34,152) (16.3%) (26,475) 7.9% (91,849) (78,704) 16.7% Other administrative expenses (64,152) (54,685) 17.3% (59,774) 7.3% (169,461) (159,780) 6.1% Tax expenses (14,540) (14,335) 1.4% (7,995) 81.9% (38,978) (21,557) 80.8% Equity in income of subsidiaries (2,178) 2,598 (183.8%) 2,340 (193.1%) 3,750 1, % Other operating income 13,584 4, % 4, % 22,189 10, % Other operating expenses (135,164) (85,052) 58.9% (73,804) 83.1% (302,843) (210,310) 44.0% Operating results 42,953 76,531 (43.9%) 71,514 (39.9%) 193, , % Non operating results 23 2,577 (99.1%) % 2,645 (188) (1506.9%) Results before income taxes 42,976 79,108 (45.7%) 71,514 (39.9%) 195, , % Income tax and social contributions (18,976) (30,625) (38.0%) (26,266) (27.8%) (69,087) (60,832) 13.6% Provision for income tax 46,107 (16,474) (379.9%) (10,781) (527.7%) 21,104 (26,689) (179.1%) Provision for social contribution 27,628 (9,547) (389.4%) (6,337) (536.0%) 12,890 (15,518) (183.1%) Deferred tax assets (92,711) (4,604) % (9,148) 913.5% (103,081) (18,625) 453.5% Profit sharing - Employees - (7,966) (100.0%) - 0.0% (21,065) (7,760) 171.5% Net profit/(loss) for the period 24,000 40,517 (40.8%) 45,248 (47.0%) 105, ,520 (12.4%) Interest on own capital % 15,800 (100.0%) 11,000 47,440 (76.8%) 19

20 BALANCE SHEET - ASSETS (R$ 000) Assets (R$ '000) 3Q11 2Q11 3Q10 3Q11 x 2Q11 3Q11 x 3Q10 Current assets 8,070, % 8,529, % 9,301, % (5.4%) (13.2%) Bank and cash 32, % 52, % 123, % (37.4%) (73.5%) Interbank funds applied 423, % 341, % 171, % 24.1% 146.4% Securities and derivative financial instruments 6,319, % 6,302, % 5,962, % 0.3% 6.0% Interbank accounts 6, % 4, % 3, % 43.1% 78.8% Loans 786, % 789, % 698, % (0.4%) 12.6% Other receivable 487, % 1,021, % 2,285, % (52.3%) (78.7%) Other assets 14, % 18, % 56, % (22.1%) (75.1%) Non current assets 1,583, % 1,457, % 1,115, % 8.6% 42.0% Interbank funds applied 26, % 294, % 106, % (91.0%) (75.0%) Securities and derivative financial instruments 175, % % % % % Loans 1,245, % 906, % 757, % 37.5% 64.5% Other receivable 95, % 196, % 216, % (51.3%) (55.9%) Other assets 39, % 60, % 34, % (34.2%) 16.1% Permanent assets 235, % 231, % 209, % 1.5% 12.3% Investments 186, % 182, % 173, % 2.0% 7.5% Premises and equipment 34, % 35, % 22, % (3.2%) 51.0% Deferred charges 6, % 7, % 9, % (10.1%) (32.7%) Intangible 8, % 6, % 4, % 25.0% 99.2% Total Assets 9,888, % 10,219, % 10,626, % (3.2%) (6.9%) 20

21 BALANCE SHEET - LIABILITIES (R$ 000) Liabilities (R$ '000) 3Q11 2Q11 3Q10 3Q11 x 2Q11 3Q11 x 3Q10 Current Liabilities 4,114, % 4,615, % 6,009, % (10.9%) (31.5%) Deposits 2,783, % 2,761, % 3,339, % 0.8% (16.6%) Money market repurchase commitments 76, % 99, % 91, % (23.1%) (16.4%) Acceptances and endorsements 365, % 139, % 121, % 161.0% 201.3% Interbank accounts 2, % 3, % 1, % (13.7%) 58.8% Interdependent relations % % - 0.0% (89.8%) 100.0% Obligations due to loans - 0.0% 6, % 5, % (100.0%) (100.0%) Derivative financial instruments 154, % 177, % 25, % (12.9%) 498.8% Other liabilities 731, % 1,427, % 2,424, % (48.8%) (69.8%) Non current liabilities 4,588, % 4,427, % 3,476, % 3.6% 32.0% Deposits 1,766, % 1,541, % 994, % 14.6% 77.7% Acceptances and endorsements 1,962, % 1,895, % 1,869, % 3.5% 5.0% Derivative financial instruments 62, % 317, % 125, % (80.3%) (50.1%) Other liabilities 797, % 673, % 487, % 18.4% 63.4% Deferred income % % % 49.8% 27.8% Shareholders' equity 1,185, % 1,175, % 1,140, % 0.9% 4.0% Total Liabilities 9,888, % 10,219, % 10,626, % (3.2%) (6.9%) 21