Earnings Summary 4Q13

Transcription

1 Earnings Summary Earnings Record Net Income of R$ 15.8 billion in 2013 Banco do Brasil presents record Net Income of R$ 15.8 billion in This performance corresponds to ROE of 22.9%. Adjusted Net Income, excluding one-off items, reached R$ 10.4 billion in 2013, equivalent to adjusted ROE of 15.0%. The earnings of the Bank in 2013 were driven mainly by expansion of businesses, cost control, as well as the impact of the IPO of BB Seguridade in 2Q13. In, Banco do Brasil reported record Net Income of R$ 3.0 billion, performance that corresponds to ROE of 18.0%. Net Income, excluding one-off items, reached R$ 2.4 billion in the, equivalent to adjusted ROE of 14.2%. Figure 1. Earnings (R$ billion) and ROE (%) Q12 3Q Net Income Adjusted Net Income ROE - % Adjusted ROE - % Guidance The following table presents the 2013 Guidance, Performance of the year, and 2014 Guidance. 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. In 2013, the following indicators presented deviations in relation the 2013 Guidance: a) Net Interest Income: performance impacted mainly by the growth of the loan portfolio in lines of lower risk and by the increased funding cost due the increase in TMS (effective Average Selic Rate); b) Commercial Funding: performance arising from management of funding mix; 1 - Banco do Brasil Sumário do Resultado

2 c) Individuals Loan Portfolio: lower demand from customers, especially in consumer finance loan; d) Agribusiness Loan Portfolio: high demand, notably in Investment and Agroindustry, for resources to harvest 2013/2014. Table 1. Guidance Items 2013 Guidance - % 2013 Performance - % 2014 Guidance - % Adjusted Return on Avarege Equity¹ Net Interest Income Commercial Funding² Domestic Loan Portfolio - Broad Concept³ Individuals Companies Agribusiness ALLL Expenses⁴ Fee Income Administrative Expenses 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/ 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. The Adjusted ROE used in the Guidance is calculated based on the Adjusted Shareholders Equity, not considering the effects of the restatement of assets and actuarial liabilities arising from the Deliberation CVM/695, as indicated in the following table: X X Table 2. Adjusted Shareholders Equity R$ million Dec/12 Dec/13 Shareholders' Equity 61,499 72,225 Benefit Plans (4,571) (2,671) Corporate Profit Sharing 574 2,698 Adjusted Shareholders' Equity 65,496 72,197 Adjusted Shareholders' Equity - Average - 68,846 The assumptions used in the calculation of 2014 Guidance can be found at the end of this Summary. Return to Shareholders Remuneration to shareholders reaches R$ 6.3 billion in 2013 BB s earnings per share reached R$ 5.58 in Banco do Brasil maintained a 40% payout ratio for its shareholders with R$ 6.3 billion remuneration in 2013, in accordance to the following figure. 2 - Banco do Brasil Sumário do Resultado

3 Figure 2. Earnings per Share, Dividends and Interest on Own Capital Q12 3Q Dividends (R$ billion) Interest on Own Capital (R$ billion) Earnings per Share (R$) Income Statement with Reallocations Earnings driven by business growth The following table, extracted from the income statement with reallocations, presents the main highlights of the period. The breakdown of statement of income with reallocations can be found in Section of the MD&A report. The NII, difference between the Financial Intermediation Income and the Financial Intermediation Expenses, reached R$ 46.4 billion in 2013, over In comparison /3Q13, the NII increased 1.9%. The fee income grew 10.6% in relation to 2012 and 6.2% in comparison /3Q13. The administrative expenses increased of 7.2% on Table 3. Income Statement with Reallocations - Main Lines Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q12 3Q13 On 4Q12 On 3Q On 2012 Financial Intermediation Income 24,868 28,412 31, , , Loan Operations + Leasing 17,427 18,886 20, ,835 74, Securities 6,255 7,703 9, ,982 30, Financial Intermediation Expenses (12,835) (16,670) (20,010) (58,796) (67,584) 14.9 Net Interest Income 12,033 11,742 11,961 (0.6) ,729 46, Allow ance for Loan Losses (3,636) (3,915) (4,188) (14,651) (15,600) 6.5 Net Financial Margin 8,398 7,827 7,773 (7.4) (0.7) 31,078 30,813 (0.9) Fee income 5,484 5,819 6, ,071 23, Income f/ Insur., Pension P. and Premium Bonds ,349 3, Contribution Margin 13,422 13,349 13, ,315 52, Administrative Expenses (7,499) (7,399) (8,432) (28,194) (30,222) 7.2 Personnel Expenses (4,211) (4,166) (4,673) (15,777) (17,124) 8.5 Other Administrative Expenses (3,288) (3,233) (3,758) (12,417) (13,098) 5.5 Commercial Income 5,855 5,856 5,124 (12.5) (12.5) 21,854 22, Legal Claims (23) (204) (813) (459) (43.6) Labor Law suits (196) (218) (243) (726) (1,025) 41.2 Other Operating Income (590) (1,274) (836) 41.6 (34.4) (2,539) (4,264) 68.0 Income Before Taxes 5,042 4,204 4,105 (18.6) (2.4) 17,883 16,712 (6.5) Income and Social Contribution Taxes (1,324) (998) (889) (32.9) (10.9) (4,455) (3,954) (11.3) Corporate Profit Sharing (500) (368) (438) (12.4) 19.0 (1,745) (1,565) (10.3) Adjusted Net Income 3,180 2,610 2,424 (23.8) (7.1) 11,528 10,353 (10.2) 3 - Banco do Brasil Sumário do Resultado

4 The following table presents the result of one-off items net of tax and statutory profit sharing. Table 4. One-off Items R$ million 4Q12 3Q Adjusted Net Income 3,180 2,610 2,424 11,528 10,353 (+) One-Off Items of the Period ,405 Economic Plans (167) (295) (56) (968) (683) Tax Efficiency Additional ALLL - Semiannual Reversion (267) 699 (229) BV Allow ance for Loan Losses - Extraordinary - - (166) - (166) Sale of Real Estate 1, ,103 - Provision for Agreement Committee (186) Law suits Reconciliation BB Seguridade Shares Disposal (IPO) ,820 Expenses of BB Seguridade Shares Disposal (IPO) (172) Sale of Itapebi Refis (Tax Recovery Program) Extraordinary Provision for Law suits (404) Tax Eff. and Stat. Profit Sharing on One-Off Items (625) (73) (86) (401) (3,796) Net Income 3,967 2,704 3,025 12,205 15,758 The following table presents the main earnings indicators. Table 5. Main Earnings Indicators Indicators - % 4Q12 3Q Net Interest Margin (NIM)¹ ALLL Expenses / Portfolio ² Adjusted Cost-Income Ratio Adjusted Cost-Income Ratio - 12 Months Adjusted Return on Equity ¹ Annualized Indicators. 2 - ALLL expenses of the last 12 month period divided by the average classified loan portfolio in the same period. 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 movements. Since 4Q12, expenses of funding held with institutional investors comprising senior debt, subordinated debt and Hybrid Capital Instrument Domestic and Abroad were detached in specific items, called institutional funding. The treasury comprises: (i) interest income; (ii) profitable compulsory deposits income; (iii) tax hedge, derivatives and other financial instruments that compensate the exchange variation effect in the result. Since 1Q13, provisioned resources in BB that were mandatorily driven to loans linked to official government programs, such as Finame, BNDES and FCO, 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 order to maintain comparability, the information for the 2012 year was reprocessed. 4 - Banco do Brasil Sumário do Resultado

5 Table 6. NII Breakdown Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q12 3Q13 On 4Q12 On 3Q On 2012 Net Interest Income 12,033 11,742 11,961 (0.6) ,729 46, Loan Operations income 16,323 17,888 18, ,171 69, Funding Expenses (6,934) (8,477) (9,442) (30,496) (32,518) 6.6 Financial Expense for Institutional Funding (1,258) (1,521) (1,694) (4,917) (6,058) 23.2 Recovery of Write-offs 1, (33.2) (14.0) 3,748 3,430 (8.5) Treasury Income 2,638 2,999 3, ,777 11,094 (5.8) Other In 2013, the Net Interest Income (NII) increased 1.5% compared with the previous year. Noteworthy are the following lines in its composition: I. Loans Operations Income reached R$ 69,997 million, 7.4% increase, due to the increase in the volume of loans; II. Funding Expenses and Financial Expenses for Institutional Funding increased 6.6% and 23.2%, respectively, mainly impacted by the increase in the volume of resources raised. The BB s strategy of portfolio diversification minimized the increase in Funding Expenses; III. Treasury Income recorded R$ 11,904 million, 5.8% reduction, mainly due to reduction in rates of profitable additional compulsory in The demand deposit rates began 2012 at 12%, ending the year at 0%. In case of time deposits rates, the percentage was 12% until 3Q12, decreasing to 11% from the 4Q12. Moreover, the effective Selic rate fell 3.2% in 2013/2012 comparison. In /3Q13 comparison, the NII grew 1.9%, recording R$ 11,961 million. Noteworthy the following figures in NII s composition: I. Loans Operations Income 4.5% increase, due to the increase in the volume of loans and restoration of rates; II. Funding Expenses increased 11.4%, due the volume of resources raised and the increase of effective Selic rate. The strategy of portfolio diversification minimized the increase in Funding Expenses. The Financial Expenses for Institutional Funding increased 11.4%, mainly due to the increase of effective Selic rate; III. Treasury Income increment was impacted mainly due: (i) grew of 8.1% in effective Selic rate; (ii) profit on sales of securities from BB s abroad network. 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 by transactions. Spread is the result of the managerial financial margin divided by the respective average balances. For managerial financial margin calculation, financial revenues classified by portfolio are calculated first. Subsequently, the opportunity costs defined for each of the portfolio lines are deducted. Considering the individuals and companies loan portfolios, with free resources, the opportunity cost is 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. 5 - Banco do Brasil Sumário do Resultado

6 Table 7. Annualized Managerial NIM % 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Loan Operations Individuals Companies Agribusiness Net Interest Margin, in turn, is the application of the concept of spread to the banking industry, which is calculated by dividing net interest income by average earning assets. "Risk-Adjusted NIM" is calculated based on ratio between net financial margin and earnings assets, that is, it considers expenses with allowance for loan losses. Table 8. Annualized Managerial NIM % 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Net Interest Margin (NIM) Risk Adjusted NIM Assets and Main Balance Sheet Items Total assets surpass R$ 1.3 trillion The total assets of Banco do Brasil surpassed R$ 1.3 trillion in Dec/13, a growth of 13.5% 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 76.3% of BB's total assets in Dec/13. Regarding liabilities highlight to commercial funding, representing 46.6% of total liabilities. Table 9. Main Balance Sheet Items Chg. % R$ million Dec/12 Sep/13 Dec/13 On Dec/12 On Sep/13 Total Assets 1,149,308 1,259,260 1,303, Loan Portfolio - Broad Concept¹ 580, , , Domestic Loan Portfolio - Broad Concept¹ 530, , , Securities 184, , , Short-Term Interbank Operations 219, , , (0.9) Commercial Funding 515, , , Total Deposits 472, , , Demand Deposits 74,760 69,191 75, Savings Deposits 117, , , Interbank Deposits 16,569 21,013 27, Time Deposits 263, , ,311 (6.0) 0.3 Judicial Deposits 86,346 97, , Agribusiness Let. of Credit + Mortgage Bonds 34,075 70,112 82, Repurchase Agreem. Oper. w ith Priv. Securities 9,554 25,646 33, Money Market Borrow ing 225, , , (1.8) Shareholder s Equity 61,499 65,924 72, Includes private securities and guarantees provided. 2 Includes Total Deposits, LCA (Agribusiness Letters of Credit), LCI (Mortgage Bonds) and repurchase agreements operations with private securities. 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. 6 - Banco do Brasil Sumário do Resultado

7 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 Dec/13, a growth of 17.7% in twelve months. In the 2Q13, BB started to offer repurchase agreement operations with private securities to its customers, which closed 2013 at R$ 33.6 billion, a growth of 30.9% on Sep/13. The funding instrument, together with the LCA (Agribusiness Letters of Credit) and LCI (Mortgage Bonds), has contributed to the realization of the strategy of funding cost reduction. Table 10. Sources and Uses Balance Chg. % R$ million Dec/12 Share % Sep/13 Share % Dec/13 Share % On Dec/12 On Sep/13 Sources 610, , , Commercial Funding² 515, , , Total Deposits 472, , , Agribusiness Let. of Credit + Mortgage Bonds 34, , , Repurchase Agreem. Op. w ith Priv. Securities 9, , , Domestic Onlending 63, , , Foreign Borrow ing ¹ 55, , , (8.9) Subordinated Debt 32, , , (28.4) (42.7) Capital Eligible Debt ² , Others Commercial Papers ³ 9, , , (3.3) 3.8 Domestic Hybrid Debt Capital Instruments 8, , , Financial and Development Funds 5, , , Compulsory Deposits (80,098) (13.1) (88,488) (12.8) (90,746) (12.3) Uses 610, , , Net Loan Portfolio (a) = (b) + (c) +(d) 539, , , Loan Portfolio (b) 525, , , Private Securities (c) 35, , , Allow ance for Loan Losses (d) (21,210) (3.5) (22,106) (3.2) (23,662) (3.2) Adjusted Net Loan Portfolio (a) - (e) 446, , , Domestic Onlending Loans (e) 93, , , Available Funds 70, , , Indicators - % Net Loan Portfolio / Total Deposits Net Loan Portfolio / Funding Adjusted 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 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 87.1% of the sources total as of Dec/13. Investments in private securities are a highlight with growth of 28.6% 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 Dec/13 the index reached 86.2%, 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$ 51.2 billion at the end of 2013, an increase of 13.7% in twelve months and 3.7% on Sep/13. The fixed income securities issued by the Bank in the international capital market totaled US$ 15.8 billion at the end of Dec/13. 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. 7 - Banco do Brasil Sumário do Resultado

8 BIS Ratio BIS Ratio higher than the minimum required Banco do Brasil s BIS III ratio reached 14.53% at Dec/13, higher than the regulatory minimum. The Index of Tier I Capital (IC Level I) held in Dec/13 recorded 10.5% and 8.2% of Principal Capital Index (PCI). Both indicators are framed in the regulatory minimum. The Referential Equity (RE) of BB reached R$ billion in Dec/13. Additional information regarding regulatory capital can be consulted in Chapter 9 of the MD&A. Loan Portfolio Banco do Brasil extends leadership in the credit market The loan portfolio in the broad concept reached R$ billion in Dec/13, with expansion of 19.3% in twelve months, as shown in the following table. The classified loan portfolio attained R$ billion in Dec/13, with expansion of 18.6% in the same comparison. Table 11. Loan Portfolio Classified and Broad Concepts Balance Chg. % R$ million Dec/12 Share % Sep/13 Share % Dec/13 Share %On Dec/12 On Sep/13 Loan Portfolio (a) 525, , , Brazil 480, , , Individuals 151, , , Payroll Loan 58, , , Salary Loans 17, , , (3.7) Consumer Finance 5, , , (0.9) (1.7) Auto Loans 35, , , (1.1) 0.5 Mortgage 10, , , Credit Card 15, , , Overdraft Accounts 2, , , (0.3) (15.8) Other 5, , , Companies 221, , , SME 88, , , Government 8, , , Middle and Large 123, , , Agribusiness 106, , , Individuals 74, , , Companies 32, , , Abroad 45, , , Private Securities and Guarantees (b) 55,127 67,248 69, Loan Portfolio - Broad concept (a + b) 580, , , Brazil 530, , , Individuals 152, , , Companies 270, , , Agribusiness 107, , , Abroad 50, , , Gowth of the loan portfolio Companies and Agribusiness (in broad concept), highlights were as shown in the following figure. Banco do Brasil s Market share in total credit of Banking Industry reached 21.1%. 8 - Banco do Brasil Sumário do Resultado

9 Figure 3. Loan Portfolio in Broad Concept (R$ billion) and Market Share (%) (50.00) Dec/12 Mar/13 Jun/13 Sep/13 Dec/ (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$ 168 billion The individual loan portfolio in the broad concept closed Dec/13 at R$ billion, an increase of 10.6% in twelve months, accounting for 24.3% of the Bank s loan portfolio in the broad concept. Considering only BB organic loan portfolio, i.e., excluding the acquired portfolios and the operations of Banco Votorantim, the individual portfolio grew 16.2% in twelve months. Of this total, 74.5% concentrated in loans at lower risk, such as Payroll loan, Salary loan, Auto Loans and Mortgages (74.1% at Dec/12). BB s own auto loans portfolio increased 7.6% on De/12, the balance reached to R$ 11.9 billion. 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 by civil servants (87.6% of total) and INSS pensioners (8.3%), with a 27.9% market share in these segments The total mortgage loan portfolio reached R$ 24.1 billion in Dec/13, an increase of 87.2% in twelve months, as shown the graph on the right the following figure. In the Individual portfolio, the balance of the mortgage portfolio growth 78.0% in the same comparison, ending the period with a balance of R$ 18.2 billion. BB s market share in mortgage to individuals reached 5.3% in Dec/13, compared to 4.0% in Dec/ Banco do Brasil Sumário do Resultado

10 Figura 4. Organic Loan Portfolio Auto (R$ billion) Mortgage Loan Portfolio (R$ billion) % 61.9% 63.4% 18.3% 19.3% 17.9% % 18.8% 18.7% 0 Dec/12 Sep/13 Dec/ Dec/12 Mar/13 Jun/13 Sep/13 Dec/13 Account Time up to 5 years From 5 to 10 years Over 10 years Mortgage - Individuals Mortgage - Companies Loans to Companies surpass R$ 323 billion The loans to companies in the broad concept reached R$ billion, with growth of 19.5% on Dec/12. This portfolio represents 46.7% of the total loan portfolio. In twelve months, working capital and investment transactions grew 14.1% and 26.3%, respectively. These operations were positively influenced by the large amount of loans with corporate and large corporate companies. Table 12. Companies Loan Portfolio in the Broad Concept R$ billion Dec/12 Share % Sep/13 Share % Dec/13 Share % On Dec/12On Sep/13 Working Capital¹ Investiments Corporate Bonds & Notes Guarantees Trade Finance² 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. % Securities and guarantee transactions are also a highlight, as they reached balances of R$ 43.8 billion and R$ 19.2 billion at the end of Dec/13, respectively, with increases of 26.6% and 7.8% on Dec/12 in the same order. These transactions are performed with large companies and have a history of low risk. Disbursement for investment loan reached R$ 55.8 billion in 2013, an increase of 30.3% in relation to 2012, with emphasis to resources onlending from BNDES, Pronaf, Investimento Agropecuário, FCO and Proger. Since 2008 BB is the financial agent leader in global transfer of resources from BNDES lines, reaching in 2013 a market share of 24.3% in the first ten months of BB is also a leader in Cartão BNDES, BNDES Automático e BNDES Finame Agrícola. In 2013, were contracted R$ 54 billion in financing infrastructure projects. The Bank approved financial support to major investment projects in infrastructure, including sectors such as energy, marine and oil, transport and telecommunications. The approved projects are funded through the BNDES lines and funding abroad as Resolution CMN 3,844/ Banco do Brasil Sumário do Resultado

11 The credit operations for small and medium-sized enterprises (SME) reached R$ 99.9 billion in Dec/13, up 12.3% in twelve months. At the end of Dec/13, BB had 2.3 million clients in this segment, whose use of instruments 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) to allow more access to credit and cost reduction for the final borrower. In Dec/13 working capital and investment lines for SME reached R$ 65.3 billion and R$ 32.4 billion respectively (+7.1% and +25.2% in the same order). BB s Foreign Loan Portfolio in the broad concept reached R$ 56.8 billion in Dec/13, an increase of 13.0% in twelve months. BB is the main partner of the Brazilian foreign trade and closed with market share of 24.6 and 22.7% 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 31.3% market share in these segments. Agribusiness Loan Portfolio surpasses R$ 144 billion Banco do Brasil is the absolute leader in agribusiness loans, with a 66.1% 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, represented 20.9% of the total loan portfolio in Dec/13. This portfolio increased 34.1% in 12 months, reaching R$ billion, as show the following graph. Figure 5. Agribusiness Loan Portfolio Broad Concept (R$ billion) (.5000) (1.000) (1.5000) (2.000) (10.00) Dec/12 Mar/13 Jun/13 Sep/13 Dec/13 Individuals Companies NPL + 90 days/agrobusiness Loan Portfolio - % (2.5000) 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 28.9% and 45.8% 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 growth of the loan portfolio of Agribusiness in the comparative 2013/2012 was mainly due to expansion of operations: (i) Agroindustrial Credit, an increase of 59.2% (+ R$ 12.9 billion), (ii) Work Capital for Input Purchase, with increase of 21.4% in 12 months (+R$ 7.7 billion), (iii) Pronaf increase of 19.5% (+R$ 4.7 billion), (iv) Pronamp, an increase of 41.7% (+R$ 4.9 billion), and (iv) investment, an increase of 35.2% (+R$ 15.1 billion) Banco do Brasil Sumário do Resultado

12 The delinquency of the agribusiness portfolio remains low levels, with the NPL+90 days ratio of 0.78% in Dec/13. The increase of this indicator in the quarter resulting from: (i) the time limit provided the borrower extend their debt (CMN Resolution 4,028/11), and (i) seasonal factor in operations of Work Capital for Input Purchase. Delinquency Ratios below Banking Industry The figure below shows the historical evolution of the average risk (ratio between the required provision and the total of the classified loan portfolio) BB s classified loan and its comparison with the Brazilian Banking Industry (BI). It can be seen that the BB s indicator maintains the trend of decrease since Jun/09 and much lower than BI. Figure 6. Classified Loan Portfolio Average Risk Dec/08 Dec/09 Dec/10 Dec/11 Dec/12 Dec/13 Average Risk - BB Consolidated Average Risk - BI The following chart shows the coverage index (ALLL/NPL +90d), which 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 191.7% coverage index, a percentage higher than BI. Figure 7. Classified Loan Portfolio Coverage Index Dec/08 Dec/09 Dec/10 Dec/11 Dec/12 Dec/13 ALLL/NPL + 90d % - BB ex-bv ALLL/NPL + 90d % - BB Consolidated ALLL/NPL + 90d % - 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 Banco do Brasil Sumário do Resultado

13 Figure 8. NPL +90d Percentage on the Classified Loan Portfolio Dec/08 Dec/09 Dec/10 Dec/11 Dec/12 Dec/13 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 6.5% on 4Q12 representing a much lower percentage than the 22.2% average classified loan portfolio increase. Table 13. ALLL Expenses over Classified Loan Portfolio BB and BB ex-bv Chg. % R$ million 4Q12 1Q13 2Q13 3Q13 On 4Q12 On 3Q13 12 months ALLL Expenses (A) BB (14,651) (14,354) (14,896) (15,048) (15,600) (B) BB ex-bv (11,940) (11,934) (12,663) (13,033) (13,829) Quarterly ALLL Expenses (C) BB (3,636) (3,278) (4,219) (3,915) (4,188) (D) BB ex-bv (3,103) (2,776) (3,687) (3,468) (3,899) Average Loan Portfolio (E) BB - 12 months 459, , , , , (F) BB - 3 months 508, , , , , (F) BB ex-bv - 3 months 479, , , , , ALLL Index - % (A/E) (C/F) (D/G) 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. Without this effect, the 12 months accumulated expenses would grow 9.6% in comparison with the same period of the last year. Table 14. Net ALLL Expenses Partial Recovery of Write-off Balance Chg. % R$ million 4Q12 1Q13 2Q13 3Q13 On 4Q12 On 3Q13 ALLL Expenses - Quarterly (3,636) (3,278) (4,219) (3,915) (4,188) ALLL Expenses - 12 months (14,651) (14,354) (14,896) (15,048) (15,600) Partial Recovery of Write-off - Quarterly (33.7) 59.8 Partial Recovery of Write-off - 12 months 1,451 1,300 1,360 1,257 1,127 (22.3) (10.3) Net ALLL Expenses - Quarterly (3,251) (3,110) (3,675) (3,756) (3,933) Net ALLL Expenses - 12 months (13,200) (13,054) (13,536) (13,791) (14,473) Banco do Brasil Sumário do Resultado

14 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, 92.8% of the credit volume that enrolled in charge process, of a specific vintage, are sorted up to 360 days. Additionally, the following graphs shows the relation between 12 months accumulated write-off and the 12 months classified loan portfolio average balance, 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 9. Write-Off and Recovery of Write-Off/Write-Off Write-Off % on the Classified Loan Portfolio Recovery of Write-Off/Write-Off % Mar/12 Jun/12 Sep/12 Dec/12 Mar/13 Jun/13 Sep/13 Dec/13 Banco do Brasil Peer Average¹ Mar/12 Jun/12 Sep/12 Dec/12 Mar/13 Jun/13 Sep/13 Dec/13 Banco do Brasil Peer Average¹ 1 Corresponds to the three Brazilian largest private banks. 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 15. Classified Loan Portfolio Quality Indicators % Dec/12 Sep/13 Dec/13 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 Banco do Brasil Sumário do Resultado

15 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 2013, fee income grew 10.6% over the previous year, as shown in the following table. Highlight for the increase of 20.1% in credit / debit card operations income, mainly driven by the increase in volume transactions and average ticket of operations, as well as the development of insurance, pension plan and premium bonds revenues, due to the higher volume of the BB Seguridade business. Table 16. Fee Income Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q12 3Q13 On 4Q12 On 3Q On 2012 Fee Income 5,484 5,819 6, ,071 23, Credit / Debit Cards 1,279 1,433 1, ,739 5, Account Fees 1,068 1,024 1,030 (3.5) 0.6 4,356 4,120 (5.4) Asset Management 883 1,040 1, (2.4) 3,582 4, Loans Operations ,141 2, Collections (1.0) 1,316 1, Insurance, P. Plans and Premium Bonds¹ , Billings Interbank Capital Market Other ,967 2, Change in the composition of Income from insurance, private pension plans and premium bonds by the establishment of BB Seguridade. 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, which presented a change of 7.2% in the 2013/2012 comparison, inside the 2013 Guidance. In the year, the personnel expenses grew 8.5% over 2012, mainly driven by adjustment of 8.0% of salaries and benefits (the salary adjustment also has an impact on expenses related to charges and administrative personnel provisions). In the /3Q13 comparison, personnel expenses increased due to: (i) the salary readjustment, fully realized since Oct/13 with retroactive effect to Sep/13, and (ii) higher spending with benefits as the 13th food assistance. Other Administrative Expenses, meanwhile, grew 5.5% in the year, below inflation for the same period, primarily reflecting the control of administrative costs and streamlining processes. The growth of these costs in /3Q13 comparison resulted from seasonal events, such as the increasing of currency supply and salary readjustment for security services Banco do Brasil Sumário do Resultado

16 Table 17. Adjusted Administrative Expenses Quarterly Flow Chg. % Annual Flow Chg. % R$ million 4Q12 3Q13 On 4Q12 On 3Q On 2012 Administrative Expenses (7,499) (7,399) (8,432) (28,194) (30,222) 7.2 Personnel Expenses (4,211) (4,166) (4,673) (15,777) (17,124) 8.5 Other Administrative Expenses (3,288) (3,233) (3,758) (12,417) (13,098) 5.5 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 77.1% in 2013, compared to 74.7% in Among the efficiency indicators, the relation of Checking Accounts / Own Network grew to 2,078 in Dec/13, compared to 1,955 in the previous year. The Chapter 7 of the MD&A provides information about Administrative Expenses, Other Operating Income, Efficiency Indicators and Operational Losses. 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. Information about cards can be founded in item 6.2 of the MD&A. Figure 10. Non-Financial Business Q12 1Q13 2Q13 3Q Credit Card Debit Card 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 its portfolio are services that involve everything from market research, structuring and distribution operations, settlement and custody of assets, as well as products and services for individuals and companies. In the assets management, Banco do Brasil is the leader in the national segment of investment funds since 1994 through BB Gestão de Recursos - BB DTVM. At the end of Dec/13 assets under management reached a total of R$ billion (+11.2% year over year) and a market share of 20.9%. After the IPO of BB Seguridade in abr/13, revenue expansion and market share of the Company has allowed consistent growth of its results. BB Security reached 24.3 % market share (up nov/13 data available), considering insurance (except life insurance), pension plan and premiums bonds. In 2013 net income reached R$ 2.5 billion which equals ROE of 39.3%. 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 Banco do Brasil Sumário do Resultado

17 The consortium market moved R$ 74.6 billion in terms of business volume in the period jan-nov/13, according to the Associação Brasileira de Administradoras de Consórcios ABAC. Considering only financials companies, the market share was 23.0%, according to Brazilian Central Bank data. The management rate revenues of consortium s administration in the reached R$ 70.4 million, 12.8 % higher than the same period in 2012, reflecting the growth in the number of active quotas. Information about strategic investments can be found in Chapter 10 of the MD&A report. Regarding the partnership with Banco Votorantim, the result in was again positive, confirming the progress in the restructuring of that Institution. Assumptions of the Guidance The estimates for 2014 were prepared with the consideration of the following assumptions: Assumptions influenced by management: 1. Increase in profitability of the client portfolio as a way to leverage revenues; 2. Maintenance of the current business model, without considering new acquisitions and/or partnerships that might be entered into to exploit specific segments; 3. Alignment of the cost structure to business volume growth; 4. Adjustments in contracts to suppliers and collective bargaining agreement aligned with the market. Assumptions that are not under management control: 1. Recovery of the world economy; 2. Normalization of monetary conditions in developed countries, especially in the USA 3. A political environment without institutional rupture; 4. Maintenance of Brazil with investment grade status; 5. Maintenance of the current domestic macroeconomic policy structure: floating exchange rate, inflation targets and fiscal discipline; 6. Concessions program in infrastructure contributes to a gradual increase in the rate of investment in the country in the medium and long term perspective; 7. Increase in the growth potential of the Brazilian economy in the medium and long term perspective; 8. Maintaining the average unemployment rate at historically low levels; 9. Continuity of social inclusion and income distribution process, but at a slower pace than seen in the recent past; 10. Continuity of the internationalization process of Brazilian companies; 11. Regulatory stability, also in what concerns the rates of taxes levied on the Bank's activities, labor legislation, and social security legislation Banco do Brasil Sumário do Resultado