Banco do Brasil S.A. - MD&A 4Q16

Transcription

1 MD&A 4Q16

2 Banco do Brasil S.A. - MD&A 4Q16 This report makes references and statements, planned synergies, growth estimates, earnings and strategies projections regarding Banco do Brasil s Conglomerate. Such statements are based on current expectations, estimates and projections of management about future events and financial trends that may affect the business of the Group. These forward looking statements are not guarantees of future performance and involve risks and uncertainties that could extrapolate the control of management, and thus can result in balances and values different from those anticipated and discussed in this report. The expectations and projections depend of the market conditions (technological changes, competitive pressures on products, prices, etc.), the macroeconomic performance of the country (interest and exchange rates, political and economic changes, inflation, changes in tax legislation, etc.) and international markets. Future expectations based in this report should consider the risks and uncertainties about the business of the Group. Banco do Brasil has no responsibility to update any estimate contained in reports published in previous periods. The tables and charts in this report show, in addition to the accounting balances and values, financial and managerial numbers. The changes of relative rates are calculated before rounding procedure in million of R$. Rounding used follows the rules established by Resolution 886/66 of IBGE s Foundation: if the decimal number is equal or greater than 0.5, it increases by one unit, if the decimal number is less than 0.5, there is no increase.

3 Banco do Brasil S.A. - MD&A 4Q16 Table of Contents Presentation... 8 Highlights... 8 On-line Access... 8 Glossary... 9 Guidance Results Results New Indicators Earnings Summary Key Statistics Corporate Governance Financial Statements Summary Balance Sheet Summary Income Statement with Reallocations Reallocations Details Glossary of Reallocations Tax Effect and Statutory Profit Sharing on One-Off Items Loan Banco do Brasil Lending Process Loan Portfolio Individuals Loan Portfolio Companies Loan Portfolio Agribusiness Loan Portfolio Concentration Credit Risk Individuals Loan Portfolio Loans to Companies Agribusiness Loan Portfolio Foreign Loan Portfolio Credit Collection, Regularization and Recovery Management of Past Due Credits Credit Collection and Regularization Process Credit Collection, Regularization and Recovery Operating Flow Process Efficiency Renegotiated Loan Portfolio Funding Financial Earnings Net Interest Income Loan Operations Funding Expenses Institutional Funding Expenses Written-Off Credit Recovery Treasury Assets and Liabilities Analysis Assets Analysis Liabilities Analysis Volume and Rate Analysis Credit Spread by Portfolio Fee Income Checking Account Fees Payment Methods Cards Base and Turnover Cards Service Income Asset Management Capital Market Insurance Consortium Productivity and Efficiency Key Productivity Indicators

4 Table of Contents 7.2. Personnel Expenses Other Administrative Expenses Service Network Automated Service Channels Other Operating Income and Expenses Operational Loss Actuarial Assets and Liabilities Previ Plano Cassi Effects in Shareholders Equity CVM 695/ Previ Plano 1 Surplus Allocation Funds Risk Management Risk Management Capital Structure Strategic Investments Information on Subsidiaries and Affiliates Banco Votorantim International Businesses Banco Patagonia Managerial Financial Statements

5 Banco do Brasil S.A. - MD&A 4Q16 List of Tables Table 1. Indicators % Table 2. Adjusted Shareholders Equity for Guidance Calculation R$ million Table Guidance Table 4. New Indicators Table 5. Net Income R$ million Table 6. Alternative Concepts of ROE R$ million Table 7. Market Ratios % Table 8. Fee Income R$ million Table 9. Credits Renegotiated When Past Due R$ million Table 10. Main Macroeconomic Indicators¹ Table 11. Ownership Structure % Table 12. Distribution of Dividends and Interest on Own Capital Table 13. Market Ratios Table 14. Participation of BB s Shares in Brazilian Stock Market Indexes % Table 15. Participation in the International Market - % Table 16. Banco do Brasil Key Statistics Table 17. Ratings Table 18. Compulsory/Reserve Requirement (%) Table 19. Balance Sheet Summary - Assets Table 20. Balance Sheet Summary - Liabilities Table 21. Income Statement with Reallocations Table 22. Statement of Reallocations and One-Off Items Table 23. Tax Effect and Statutory Profit Sharing on One-Off Items Table 24. Loan Portfolio Classified and Broad Definition Table 25. Managerial Loan Portfolio Broad Definition Table 26. Loans in the Brazilian Banking Industry Table 27. Individuals Loan Portfolio Table 28. Individuals Loan Portfolio Market Share Table 29. Total Acquired Loan Portfolio¹ Table 30. Organic Classified Loan Portfolio - Individuals Table 31. Account Time Customers with Credit Transactions Table 32. BB s Organic Auto Loan Portfolio - Customers Characteristics Table 33. Average Rates and Maturity Table 34. Companies Loan Portfolio Table 35. Companies Portfolio Breakdown Table 36. Foreign Exchange for Export and Import Operations Table 37. Forward Exchange Contracts (ACC) and Advance against Draft Presentation (ACE) Table 38. Account Time - Percentage of the Very Small and Small Companies Portfolio Balance Table 39. Loan to Very Small and Small Companies by Sector Table 40. Very Small and Small Companies Credit Products Table 41. Brazil s Share in World Agribusiness in Dec/ Table 42. Classified Agribusiness Loan Portfolio by Region Table 43. Agribusiness Loan Portfolio by Purpose Table 44. Agribusiness Loan Portfolio by Credit Line/Program Table 45. Agribusiness Loan Portfolio by Financed Item Table 46. Agribusiness Loan Portfolio by Customer Size Table 47. Agribusiness Loan Portfolio by Customer Type Table 48. Agribusiness Loan Portfolio Broad Definition by Funding Sources Table 49. Equalization Revenues and Weighting Factor Table 50. Equalization Revenues Flow Table 51. Equalizable resources in the Agribusiness Portfolio Table 52. Disbursements by Purpose Rural Credit Table 53. Insurance in the Working Capital for Input Purchase Table Largest Borrowers in Relation to the Classified Loan Portfolio Table Largest Borrowers in Relation to RE¹ Table 56. Concentration of Companies and Agro Companies Loan Portfolio by Macro-Sector Table 57. Classified Loan Portfolio by Risk Level Table 58. ALLL Expenses over Classified Loan Portfolio

6 List of Tables Table 59. Classified Loan Portfolio Delinquency Indicators Table 60. Individuals Classified Loan Portfolio by Risk Level Table 61. Changes in Allowance for Loan Losses Individuals Classified Loan Portfolio Table 62. NPL +90d Individuals Portfolio - % by Credit Line Table 63. Classified Loans to Companies by Risk Level Table 64. Changes in Allowance for Loan Losses Classified Loans to Companies Table 65. NPL +90d Companies Portfolio - % by Credit Line Table 66. Classified Agribusiness Loan Portfolio by Risk Level Table 67. NPL +90d Agribusiness Portfolio - % by Credit Line Table 68. Classified Agribusiness Loan Portfolio by Risk Level Individuals Table 69. Changes in Allowance for Loan Losses Agribusiness Individuals Table 70. Classified Agribusiness Loan Portfolio by Risk Level Companies Table 71. Changes in the Allowance for Loan Losses Agribusiness Companies Table 72. Agribusiness Transactions with Rollover and without it Table 73. Classified Agribusiness Loan Portfolio Delinquency Indicators Table 74. Classified Abroad Loan Portfolio by Risk Level Table 75. Renegotiated Loan Portfolio Multiple Bank¹ Table 76. Renegotiated Portfolio by Risk Level Table 77. Commercial Funding Table 78. Institutional Funding Table 79. Funding Abroad Borrowing - Type Table 80. Funding Abroad Borrowing - Product Table 81. Sources and Uses Table 82. Current Debt Issues Abroad Table 83. Main Indexers Table 84. Net Interest Income Breakdown Table 85. Loan Operations Table 86. Funding Result¹ Table 87. Funding vs. Selic Rate Table 88. Institutional Funding Expenses Table 89. Written-Off Credit Recovery Table 90. Treasury Results Table 91. Securities Income Table 92. Securities Portfolio by Category Market Value Table 93. Securities Portfolio by Maturity Market Value Table 94. Financial Derivatives Table 95. Liquidity Balance Table 96. Open Market Funding Expenses Table 97. Other Treasury Components Table 98. Average Balances and Interest Rates Earning Assets (Quarterly) Table 99. Average Balances and Interest Rates Earning Assets (Yearly) Table 100. Average Balances and Interest Rates - Interest Bearing Liabilities (Quarterly) Table 101. Average Balances and Interest Rates - Interest Bearing Liabilities (Yearly) Table 102. Volume Analysis (Earning Assets) Quarterly Rate Table 103. Volume Analysis (Earning Assets) Yearly Rate Table 104. NIM Table 105. Adjusted NIM and Net Interest Income Table 106. Change in Revenues and Expenses and Change Volume / Rate (Quarterly) Table 107. Change in Revenues and Expenses and Change Volume / Rate Yearly Table 108. Managerial Margin Table 109. Spread by Portfolio Table 110. Fee Income Table 111. Customers and Checking Accounts Table 112. Cards Base Table 113. Number of Transactions Table 114. Cards Service Income and Expenses Quarterly Flow Table 115. Cards Service Income and Expenses Annual Flow Table 116. Investment Funds and Managed Portfolio by Customer Table 117. Investment Funds and Managed Portfolio by Type Table 118. Management of Investment Funds With Socio-Environmental Characteristics Table 119. Private Equity Indirect Interest Table 120. BB Seguridade Performance Ratios Table 121. Consortium Current Quotas per Type

7 Banco do Brasil S.A. - MD&A 4Q16 Table 122. Consortium Average Ticket Table 123. Consortium¹ Average Term and Average Management Rate Table 124. Pre-Tax and Pre-Provision Earnings Table 125. Efficiency Ratios Table 126. Cost-to-Income and Coverage Ratios Adjusted¹ Table 127. Other Productivity Ratios Table 128. Personnel Expenses Table 129. BB s Staff Members Profile Table 130. Other Administrative Expenses Table 131. Service Network Table 132. Branch Network by Region Table 133. Other Operating Income/Expenses Table 134. Breakdown of Operational Loss (%) Table 135. Composition of Assets Table 136. Actuarial Assumptions Table 137. Previ (Plano 1) Effects of Accounting CVM 695/ Table 138. Cassi Effects of Accounting CVM 695/ Table 139. Impact on Shareholders' Equity CVM 695/ Table 140. Previ (Plano1) Fundo Paridade Table 141. Previ (Plano1) Fundo de Utilização Table 142. Balance in Foreign Currencies Table 143. Repricing Profile of Interest Rates Table 144. BIS Ratio Table 146. Minimum Required Reference Equity referring to the RWA CPAD portion Table 147. Minimum Required Reference Equity referring to the portion of RWA MPAD Table 148. Minimum Required Reference Equity referring to the RWA OPAD Portion Table 149. RWA CPAD segregated by the Risk-Weighting Factor (RWF) Table 150. Interest in the Capital of Subsidiaries and Affiliates Table 151. Income Statement with Reallocations¹ - Quarterly Table 152. Income Statement with Reallocations¹ - Yearly Table 153. Net Interest Margin and Profit Margin Table 155. Managed Portfolio Quality Table 156. BIS Ratio Table 157. Foreign Service Network Table 158. Consolidated Abroad - Balance Sheets Table 159. Consolidated Abroad - Income Statement Items Table 160. Banco Patagonia Balance Sheet Highlights Table 161. Banco Patagonia Funding Table 162. Banco Patagonia Main Lines of the Income Statement Table 163. Banco Patagonia Profitability, Capital and Credit Indicators Table 164. Banco Patagonia Operating and Structural Highlights Table 165. Summary Balance Sheet - Managerial Assets Table 166. Summary Balance Sheet - Managerial Liabilities Table 167. Summary Corporate Law Income Statement - Managerial Table 168. Summary Income Statement with Reallocations - Managerial Table 169. Net Interest Income - Managerial Table 170. Fee Income - Managerial Table 171. Administrative Expenses - Managerial

8 List of Figures List of Figures Figure 1. Loan Portfolio Comparative % Figure 2. Net Interest Income Comparative % Figure 3. Pre-Tax and Pre-Provision Earnings R$ million Figure 4. Net Interest Income R$ million Figure 5. NIM and Loans Average Balance R$ billion Figure 6. Managerial Spread by Segment % Figure 7. Fee Income Main Lines 4Q15 = Figure 8. Administrative Expenses R$ million Figure 9. Basel % Figure 10. Loan Portfolio (Broad Definition) R$ million Figure 11. Commercial Funding R$ million Figure 12. Coverage¹ Ratios by Segment % Figure 13. ALL Expenses by Segment R$ million Figure 14. Average Risk % Figure 15. NPL +90 days % Figura 16. Structure of Senior Management Figura 17. Strategic Committees Figure 18. Banco do Brasil Lending Process Figure 19. Classified Loan Portfolio BB by Contracted Period - % and R$ billion Figure 20. BB s Classified Loan Portfolio in Brazil by maturity - % Figure 21. Organic Individuals Loan Portfolio Direct Consumer Credit and Auto Loan - % Figure 22. Organic Payroll Loan Breakdown - % Figure 23. Maturity of transactions contracted in the quarter Payroll Loan Figure 24. Maturity of Transactions Contracted in the quarter Auto Loan Figure 25. Loan to Value - Organic Auto Loan Portfolio - % Figure 26. Loan to Value - Mortgage Portfolio - % Figure 27. Disbursements by Onlending Fund - % Figure 28. BB s Market Share in Brazilian Agribusiness % Figure 29. Working Capital for Input Purchase Breakdown Risks - % Figure 30. Classified Loan Portfolio Average Risk Figure 31. Classified Loan Portfolio Coverage Index Figure 32. ALLL Classified Loan Portfolio Figure 33. NPL +90d Percentage on the Classified Loan Portfolio Figure 34. NPL +90d per segment Percentage on the Domestic Classified Loan Portfolio Figure 35. New NPL and Write-Off Percentage on the Classified Loan Portfolio Figure 36. ALLL Expenses / New NPL (%) Figure 37. Individuals Loan Portfolio Annual Vintage Figure 38. Very Small and Small Companies Loans Portfolio Annual Vintage Figure 39. Collection, Regularization and Recovery Network Figure 40. Credit Regularization Rate Over Collection Period - % Figure 41. Collection and Regularization before Write Off¹ - % Figure 42. Accumulated Recovery (R$ billions) and Cash Recovery Index - % Figure 43. Write-Off Percentage on the Classified Loan Portfolio Figure 44. New NPL and Write-Off Percentage on the Renegotiated Loan Portfolio Figure 45. Market Share of BB s Funding (R$ billion) Figure 46. Securities Portfolio by Index (BB Multiple Bank)¹ Figure 47. Payment Methods Organizational Chart Main Companies¹ Figure 48. Total Turnover R$ billion Figure 49. Traditional and Specific Business Total Turnover R$ billion Figure 50. Fiduciary Management and Market Share R$ billion Figure 51. Domestic Custody Total Assets and Market Share R$ billion Figure 52. Fixed Income Securities Origination Domestic and International Markets Figure 53. Individuals Equity Secondary Market Figure 54. Gold Custody Balance and Revenues Figure 55. Consortium Fee Income and Current Quotas Figure 56. Individuals Loan Portfolio and Branches Figure 57. Bank Product and Branches Figure 58. BB s Staff Evolution

9 Banco do Brasil S.A. - MD&A 4Q16 Figure 59. Transactions by Service Channels - % Figure 60. Number of Registered Users (million) Internet and Mobile Figure 61. Number of Transactions (million) Individuals Internet and Mobile Figure 62. Automated Teller Machines Figure 63. Transactions - ATMs vs Teller (% average) Figure 64. Tecnology Investments Figure 65. Storage Capacity and Availability Index Figure 66. Operational Loss for Value Range (%) Figure 67. Fraudulent vs Performed Transactions (per million) Figure 68. Ratio between Recovery Potential and Performed Recovery Service Channels (%) Figure 69. Prevented Number of Attacks versus Number of Attacks (%) Figure 70. Changes in Foreign Exchange Exposure as a % of the Referential Equity Amount (RE) 110 Figure 71. Banco do Brasil Assets and Liabilities Composition Figure 72. BB Consolidated Net Position (R$ billion) Figure 73. Banco Patagonia Net Income R$ million

10 Presentation Presentation The Management Discussion and Analysis Report presents the economic/financial Banco do Brasil s situation. Addressed to market analysts, stockholders and investors, with quarterly periodicity, this report releases content with data on main economic indicators, BB's shares performance and risk management. The reader will also find tables with historical series, from up to eight periods, of the Summarized Balance Sheet, the Income Statement with Reallocations, besides information about profitability, productivity, loan portfolio quality, capital structure, capital market, and structural data. At the end of this report, the Financial Statements and the Notes to the Financial Statements will be presented. Highlights This quarter a new chapter was included: Guidance. There, the two substituted indicators are presented (Adjusted ROE and ALLL Expenses), and other five were changed (Net Interest Income, Domestic Loan Portfolio in Broad Definition, Individuals, Companies and Agribusiness Domestic Loan Portfolio in Broad Definition). The Summary was remodeled, with a new layout and new information; On chapter 3, the tables with the Individuals, Companies, Individuals Agribusiness and Abroad risk levels with the Supplementary provision were changed. On-line Access The Management Discussion and Analysis report can also be read through Banco do Brasil s Investor Relations website. Further information about BB is also available there, such as: Corporate Governance, news, frequently asked questions and a Download center. Banco do Brasil Investor Relations bb.com.br bb.com.br/ir 8

11 Banco do Brasil S.A. - MD&A 4Q16 Glossary Leverage: financial indicator that measures the ratio between the total assets and shareholders' equity of the company. Earnings Assets: reflects the sum of all assets that produce a financial return to the institution. The total return of these assets is included in the gross income from financial intermediation. Commercial Funding: Includes Total Deposits, Agribusiness Letters of Credit - LCA, Mortgage Bonds - LCI and repurchase agreements operations with private securities. Institutional Funding: Includes funding directed to institutional investors, with the use of instruments such Senior Debt, Letters Financial and Instrument Hybrid Capital and Debt (IHCD). Classified Loan Portfolio: sum of the credit operations, financing, leasing, other credit with loan characteristics and acquired loan portfolio. Loan Portfolio - Broad concept: it corresponds to the Classified Loan Portfolio added of the private securities and guarantees operations. Organic Domestic Loan Portfolio - Broad concept: it corresponds to the Loan Portfolio Broad concept added of the private securities and guarantees operations. Domestic Loan Portfolio - Broad concept: classified loan portfolio plus guarantees provided and private securities, disregarding acquired loan portfolio. Managed Loan Portfolio: concept adopted by Banco Votorantim, loan portfolio accounted as established by the CMN Resolution 2,862/99, added to private securities and guarantees, which includes assets assigned with recourse to other financial institutions and the assets assigned to Credit Receivables Investment Funds FIDCs. Managed Loan Portfolio - Broad Concept: concept adopted by Banco Votorantim, managed loan portfolio, plus private securities and guarantees. Organic Loan Portfolio: Loan Portfolio excluding the acquired portfolios. Overdue Renegotiated Loan Portfolio: It comprises the renegotiated loans for debts composition due to delay in payments by customers. Furthermore, it does not comprise the rollover operations of agribusiness loan portfolio. Correspondent Services: are companies, whether or not members of the National Financial System, made by financial institutions and other institutions authorized by the Central Bank of Brazil for the provision of service to customers and users of these institutions. Opportunity Cost: managerial assessment tool used to compare the effective result of active operations and the hypothetical result of use in a replacement alternative. The Average Selic Rate (TMS) is generally considered. Fairness opinion: economic, financial and corporate analysis that provides those who will decide on a certain merger and acquisition transaction or to provide the shareholders an independent and unbiased opinion stating that, under the market conditions to which the company was subjected at the time the aforementioned transaction was negotiated, its terms were fair to the company and all its shareholders. Guarantees: operations where the BB ensures the settlement of the contracts for import and export. Structural Hedge: hired operations to cancel the changes in foreign currency effects on assets abroad. Tax Hedge: hired operations to reduce the foreign exchange variation effects on the result, considering the impact on taxes. Coverage Ratio Adjusted: indicates the magnitude of the coverage of tariff revenues on expenses. Cost to Income Ratio: productivity indicator that measures the relation between administrative expenses and operating revenues. When the ratio is lower, more efficient is the company. Adjusted Net Income: net income excluding one-off items. ADB: Average Daily Balance 9

12 Glossary Net Interest Income (NII): It is calculated as the difference between income and expenses from financial intermediation considering the reallocations. Extraordinary Items: revenues or expenses incurred relevant identified in results for the period and which do not refer to the normal business of the Bank and/or refer to values recorded in previous years. Adjusted NIM: net interest margin divided by the average balance of earning assets. Net Interest Rate: difference between average rate of earning assets and average rate of interest bearing liabilities. Net Interest Management: calculated on the basis of the financial revenues received, less any opportunity costs, is defined according to each type of product. Net Interest Gain: defined as interest income from earning assets less interest expenses from interest bearing liabilities. Interest Bearing Liabilities: includes the sum of all liabilities that carry an expense for the institution. The total financial cost of these liabilities reflects the expense of financial intermediation. Reallocations: adjustments made in the Corporate Law Income Statement in order to provide a better understanding of the business and the company's performance. Annualized Return on Equity: ratio between the net income and the arithmetic average of shareholders equity of the reporting period on the previous period, excluding non-controlling interest. The value was annualized for capitalization. Managerial Spread: spread is the result of the managerial financial margin divided by the respective average balances. For managerial financial margin calculation, financial revenues classified by portfolio are calculated first. Subsequently, the opportunity costs defined for each of the portfolio lines are deducted. Considering the individuals and companies loan portfolios, with free resources, the opportunity cost is the average Selic rate. For the agribusiness portfolio and other directed resources, the opportunity cost is calculated according to the funding source and the necessity or not of compulsory investing part of this funding. Net Interest Margin: Applying the concept of spread to the banking industry, which is calculated by dividing net interest income by average earning assets. Private Securities: operations characterized by the acquisition of securities (commercial paper and debentures) mainly issued by private companies. 10

13 Banco do Brasil S.A. - MD&A 4Q16 Guidance Results The following table shows the Guidance and its comparison with the year s performance. The loan portfolio performance is related to the balance comparison in 12 months. The indicators related to income are measured by comparing the amounts accrued during the year. Projections are prepared for the fiscal year, so that variations over the quarters may reflect specific events of the period. The assumptions used to prepare these projections were presented in 4Q15 Earnings Summary. The results depend on market conditions, the country's economic and international markets performance, which may impact the actual performance from those forecasted in our projections. In, the following indicators were different from the expected: a) Companies Loan Portfolio: results impacted by lower demand and amortizations of securities combined effect; b) Agribusiness Loan Portfolio: performance reflects the amortizations in agribusiness portfolio; c) Administrative Expenses: influenced by strict expenses control. Table 1. Indicators % Guidance Adjusted ROE¹ 7 to Net Interest Income 11 to Domestic Loan Portfolio - Broad Definition² -9 to Individuals 1 to Companies -19 to Agribusiness 4 to ALLL Expenses³ 4.5 to Fee Income 6 to Administrative Expenses 4 to Adjusted ROE for includes the adjusted shareholders equity, free from the effects of: (i) the restatement of assets and actuarial, liabilities arising from the Deliberation CVM 695; and (ii) minority interests in subsidiaries. 2 - Includes classified loan portfolio in Brazil, private securities and guarantees. 3 Accumulated 12 months ALLL expenses/12 months average classified loan portfolio. The adjusted ROE is calculated based on the adjusted shareholders equity, indicated in the following table. Table 2. Adjusted Shareholders Equity for Guidance Calculation R$ million Dec/15 Dec/16 Shareholders' Equity (a) 81,536 87,194 Benefit Plans (b) (13,918) (15,492) Corporate Profit Sharing (c) 3,128 3,213 Adjusted Shareholders' Equity (a-b-c) 92,326 99,473 Adjusted Shareholders' Equity - Average 95, Results The following table shows the 2017 Guidance. The balance sheet items were calculated by comparing balances from the end of period. The income statement figures were calculated by comparing the accumulated amounts during the year. The projections are made considering the year as a whole, so that variations over the quarters may reflect specific events of the period. Two items have been replaced for 2017 Guidance, as follows: a) Adjusted ROE: the indicator is determined by the ratio between the adjusted net income and the average adjusted shareholders equity. This comprised the Guidance and was 11

14 Guidance replaced in the 2017 Guidance by the Adjusted Net Income value range. The new indicator is not impacted by shareholders equity fluctuations. b) ALLL Expenses: the indicator is determined by the ratio between the ALLL expenses and the average classified loan portfolio. This comprise the Guidance and was replaced in the 2017 Guidance by the interval of the ALLL expenses net of write-offs. The new indicator is not influenced by the average portfolio calculation and considers the credit recovery effort. Five items have been changed for 2017 Guidance, as follows: a) Net Interest Income: the indicator was determined by variation of the sum of the loan operations, write-offs, treasury and funding expenses and financial expense for institutional funding, in the period. In 2017, the write-offs will not be added to net interest income and will become part of the ALLL expenses indicator. b) Domestic Loan Portfolio in the Broad Definition: the indicator was determined by the sum of the organic loan portfolio, the acquired portfolio loan and private securities and guarantees operations. The new indicator, Organic Domestic Loan Portfolio, will not consider the acquired loan portfolio, since it has a different dynamic than the other portfolios. I. Individuals Loan Portfolio: the new indicator will not consider the acquired loan portfolio, consisting of payroll loan and auto loans. II. III. Table Guidance Companies Loan Portfolio: the new indicator will consider the agribusiness loan to companies portfolio, which was previously part of the agribusiness loan portfolio Indicator. Agribusiness Loan Portfolio: the new indicator will only consider rural loans Guidance Adjusted Net Income - R$ billion 9.5 to 12.5 NII (Net of Recovery of Write-offs) - % 0 to 4 Organic Domestic Loan Portfolio - Broad Definition - % 1 to 4 Individuals - % 4 to 7 Companies - % -4 to -1 Rural Loans - % 6 to 9 ALLL Expenses net of Recovery of Write-offs - R$ billion to Fee Income - % 6 to 9 Administrative Expenses - % 1.5 to 4.5 The forecasts for 2017 have been prepared based on the following assumptions: Assumptions influenced by management a) Digital intensification service model, with investments in the operational structure efficiently; b) Focus on service excellence, in order to increase the client portfolio profitability and enhance revenues; c) Do not consider new acquisitions and/or partnerships that might be signed to exploit specific segment; d) Current business model maintenance disconsidering the companies disposal or Bank businesses, notably those fee generators; e) Adjustments in contracts with suppliers and collective bargaining agreement (ACT) aligned with the market; f) Loan portfolio growth in macro strategic sectors observing economic conditions. Assumptions that are not under management control a) National and international regulatory changes in the financial market; b) World economy growth at a moderate pace; 12

15 Banco do Brasil S.A. - MD&A 4Q16 c) Monetary conditions normalization in the USA; d) Current domestic macroeconomic policy structure maintenance: floating exchange rate, inflation targets and fiscal discipline; e) Maintaining a high level of idleness in the domestic labor market; f) Domestic economy (DDP) gradual recovery perspective. New Indicators The 2017 Guidance changed five and replaced two indicators, as explained in the 2017 Results section. Follow table to exemplify the application of the indicators with their respective values in the last two financial years. Table 4. New Indicators Dec/15 Dec/16 Adjusted Net Income - R$ billion NII (Net of Recovery) - % Organic Domestic Loan Portfolio - Broad Definition - % 6.5 (8.5) Individuals - % Companies - % 6.2 (19.2) Rural Loans - % ALLL Expenses net of Recovery of Write-offs - R$ billion The figures below compare the new vision of the segments of the Loan Portfolio (Individual, Corporate and Rural) and the Net Interest Income in the last two fiscal years, with the indicators published until. Figure 1. Loan Portfolio Comparative % Dec/15 Dec/ (19.2) (19.2) Companies - New Companies - Old Individuals - Old Individuals - New Rural Loans Agribusiness 13

16 Guidance Figure 2. Net Interest Income Comparative % Dec/15 Dec/ NII (Net of Recovery of Write-offs) Net Interest Income 14

17 Banco do Brasil S.A. - MD&A 4Q16 Earnings Summary Adjusted Net Income was R$7.2 billion Banco do Brasil recorded adjusted net income of R$7.2 billion in, mainly due to the increase in allowance for loan losses. Table 5. Net Income R$ million Chg. % 4Q15 3Q16 4Q16 On 4Q15 On 3Q On 2015 Total Operating Income (Banking Product) 24,262 24,370 24, ,788 96, Operating Income 23,868 24,299 24, ,094 95, Net Interest Income 14,267 15,099 15, ,537 59, Fee Income 5,982 6,022 6, ,470 24, Eq. Interest of Subsidiaries and Affiliates 979 1,064 1, ,830 4, Other Operating Income 2,640 2,113 2,008 (24.0) (5.0) 8,257 7,990 (3.2) Previ - Plano de Benefícios 1 40 (141) (141) 0.0 (0.0) 358 (389) 0.0 Previ - Fundo de Utilização Restatement (57.2) (28.7) 1,337 1,044 (21.9) Total Operating Expenses (13,700) (13,655) (14,262) (49,350) (53,991) 9.4 Administrative Expenses (8,480) (8,419) (8,617) (31,709) (32,817) 3.5 Personnel Expenses (5,031) (5,283) (5,210) 3.6 (1.4) (19,296) (20,238) 4.9 Other Administrative Expenses (3,449) (3,137) (3,406) (1.2) 8.6 (12,413) (12,579) 1.3 Legal Risk (905) (629) (748) (17.4) 18.9 (1,966) (2,747) 39.7 Other Tax Expenses (130) (121) (96) (26.1) (20.7) (467) (426) (8.9) Taxes on Revenues (1,167) (1,274) (1,327) (4,322) (5,116) 18.4 Other Operating Expenses (3,018) (3,212) (3,475) (10,886) (12,885) 18.4 Non-Operating Income Pre-Tax and Pre-Provision Earnings 10,590 10,770 10, (1.3) 39,605 42, Allowance for Loan Losses (6,991) (6,644) (7,486) (23,671) (31,552) 33.3 Other/Taxes (952) (1,789) (1,396) 46.7 (22.0) (4,339) (3,773) (13.1) Adjusted Net Income 2,648 2,337 1,747 (34.0) (25.2) 11,594 7,171 (38.2) One-Off Items (136) (91) (784) , (69.2) Net Income 2,512 2, (61.6) (57.1) 14,400 8,034 (44.2) The next table presents alternative concepts of ROE, as follows: a) ROE: calculated based on the statement of income; Chg. % b) Market ROE: reflects the metrics that market analysts use in their forecasts; c) Adjusted ROE: Guidance indicator; and d) Shareholders ROE: BB s shareholders return. The Instrument Qualified to Common Equity Tier 1 (CET1) Capital is not considered in the indicator because the interest payment must be made from retained earnings or profit reserves. Table 6. Alternative Concepts of ROE R$ million 4Q15 3Q16 4Q ROE - (a)/(b) % a) Net Income 2,512 2, ,400 8,034 b) Shareholders' Equity - Average 82,675 84,587 86,459 81,075 84,365 Market ROE - (c)/(b-d) % c) Adjusted Net Income 2,648 2,337 1,747 11,594 7,171 d) Corporate Profit Sharing - Average 3,373 3,231 3,286 3,111 3,171 Adjusted ROE - (c)/(b-d-e) % e) Benefit Plans - Average (12,532) (16,832) (16,162) (11,299) (14,705) Shareholders' ROE - (c)/(b-d-f) % f) Instruments Qualifying to CET1 Capital - Average 8,100 8,100 8,100 8,100 8,100 15

18 Earnings Summary Market Ratios The Price/Book value ratio evolution from 0.50 in 2015 to 0.90 in was the highlight. Table 7. Market Ratios % E¹ Earnings per Share Adjusted Earnings per Share Dividend Yield² Price/Earnings 12 months Price/Book Value ¹ Bloomberg estimate based on the analysts projections average. Banco do Brasil is not responsible for this information. In 02/15/2017. ² Dividends and Interest on Own Capital 12 months / Market Capitalization. Pre-Tax and Pre-Provision Earnings increased 7.3% The increase in the Pre-Tax and Pre-Provision is a reflection of the operational efficiency. The cost-toincome ratio, indicator that measures the relation between administrative expenses and operating revenues, decreased from 41.6% in 2015 to 39.7% in. When the ratio is lower, more efficient is the company. Highlight in the year for the Net Interest Income growth (+13.0%) supported by the revenue from individuals loans (+18.9%) and for the strict administrative expenses control (+3.5%). Figure 3. Pre-Tax and Pre-Provision Earnings R$ million 39,605 6,805 1,534 (1,108) 439 (3,306) (1,473) 42, ,085,, ,585,, ,205,, ,205,, ,520,, ,460,, Pre-Tax and Pre- Net Interest Income Fee Income Administrative Provision Earnings Expenses 2015 Eq. Interest of Subsidiaries and Affiliates Other Operating Income/Expenses Result Other Pre-Tax and Pre- Provision Earnings 16

19 Banco do Brasil S.A. - MD&A 4Q16 Net Interest Income increased 13.0% In, the NII increased 13.0%. The loan operations income (+R$6,888 million) and recovery of write-offs (+R$854 million) supported the performance. Figure 4. Net Interest Income R$ million 6,888 (1,597) (465) 854 1,124 59,341 52, Net Interest Income 2015 Loan Operations income Funding Expenses Financial Expense for Institutional Funding Recovery of Write-offs Treasury Income Net Interest Income The following figure shows the NIM evolution, reflex of the repricing process started in 2015, and the loans average balance decrease. Figure 5. NIM and Loans Average Balance R$ billion Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Loans¹ NIM - %² ¹ Average balances of loans operations, leasing and acquired loan portfolio. ² NIM - NII/Earning Assets average. Managerial spread is the managerial financial margin divided by the respective average balances result, annualized. 17

20 Earnings Summary Figure 6. Managerial Spread by Segment % Q15 1Q16 2Q16 3Q16 4Q16 Individuals Loan Operations Companies¹ Agribusiness ¹ It does not include loans with government sector. Fee Income achieves R$24.0 billion Highlight to the account fees (19.2%) and fund management fees (9.9%). Table 8. Fee Income R$ million Chg. % Chg. % 4Q15 3Q16 4Q16 On 4Q15 On 3Q On 2015 Fee Income 5,982 6,022 6, ,470 24, Checking Account 1,458 1,600 1, ,224 6, Asset Management 890 1, (4.4) 3,513 3, Insurance, P. Plans and Premium Bonds ,915 3, Collections (1.0) (2.0) 1,699 1,679 (1.2) Loan Fees ,718 1,684 (2.0) Credit/Debit Cards (18.8) 4.8 1,806 1,372 (24.0) Other 1,534 1,515 1, ,594 6, Figure 7. Fee Income Main Lines 4Q15 = Q15 1Q16 2Q16 3Q16 4Q16 Insurance, P. Plans and Premium Bonds Asset Management Checking Account Administrative Expenses increases only 3.5% Banco do Brasil constantly seeks to improve its operational efficiency and productivity maintaining strict control of administrative expenses. Disregarding lump-sum bonus granted to employees regarding the CBA /2018 of R$392.9 million, growth would be only 2.3%. 18

21 11, 00 9,000 7,000 5,000 3,000 1,000 (1, 00) Banco do Brasil S.A. - MD&A 4Q16 Figure 8. Administrative Expenses R$ million ,031 4,789 4,956 5,283 5,210 3,449 3,019 3,017 3,137 3,406 4Q15 1Q16 2Q16 3Q16 4Q16 Personnel Expenses Other Administrative Expenses Cost-to-Income Ratio 12m - % ¹ ¹ Cost-to-Income ratio: Administrative Expenses/Operating Revenues. Data from Income Statement with Reallocations. Core Capital Ratio was 9.6% The Core Equity Tier I (CET1) maintained the pace of growth of the last four quarters and reached 9.6%, above the minimum required. Figure 9. Basel % Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Tier I Tier II CET1 19

22 1, , , , , , Earnings Summary Loan Portfolio and Commercial Funding In the loan portfolio (broad definition) decreased 11.3%. The companies loan portfolio decreased 19.2%, impacted by working capital (-20.3%) and private securities and guarantees (-30.9%). Commercial funding decreased 8.3% aligned with the loan portfolio. During the period, highlight to the reduction of the repurchase agreement with private securities (-50.9%) and interbank deposits (-50.2%). Figure 10. Loan Portfolio (Broad Definition) R$ million (1.2) (6.9) (11.3) Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Companies Individuals Agribusiness Abroad 12m Growth - % Figure 11. Commercial Funding R$ million (0.5) (2.3) (6.1) (8.3) Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Time Deposits Agrib. Letters of Credit and Mortgage Bonds Saving Deposits Demand Deposits Other 12m Growth - % Loan Portfolio Quality In 4Q16 the Bank developed new credit risk levels, which establish intermediary and complementary levels to those standardized by CMN Resolution 2,682/1999. There was an increase in risk levels from 20

23 Banco do Brasil S.A. - MD&A 4Q16 9 to 30 and a provision reinforcement as a consequence. Companies and individuals coverage ratios increased, bringing more balance to the portfolios. Figure 12. Coverage¹ Ratios by Segment % Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Individuals Companies Agribusiness ¹ Ratio between the total provision (required plus additional) and the balance of transactions due over 90 days. Figure 13. ALL Expenses by Segment R$ million 9,145 6,991 1,326 1,408 4,754 8,277 1,282 6,644 1,411 7,486 2,207 4,319 5,794 4,370 5,517 1, , (336) 4Q15 1Q16 2Q16 3Q16 4Q16 98 Agribusiness Abroad Companies Individuals The Bank average risk (ratio between the required provision and the classified loan portfolio) remains lower than Brazilian Banking Industry (BI). Figure 14. Average Risk % Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Average Risk - BI Average Risk - BB 21

24 Earnings Summary The delinquency ratio (NPL +90d) (ratio between the operations more than 90 days overdue and the classified loan portfolio balance) was 3.29% in December/16. In 4Q16, a specific case was written-off. Figure 15. NPL +90 days % Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 NPL +90d - BI NPL +90d - BB NPL +90d - ex-specific case Table 9. Credits Renegotiated When Past Due R$ million Chg. % 4Q15 3Q16 4Q16 On 4Q15 On 3Q16 Credits Renegotiated When Past Due 19,653 25,694 27, Initial Balance 15,520 25,050 25, New Transactions 6,015 2,758 3,873 (35.6) 40.4 Amortization Net of Interest¹ (1,037) (744) (1,113) Write-Off (845) (1,370) (1,368) 62.0 (0.2) ALLL / Loan Portfolio (B/A) NPL + 90 days / Loan Portfolio (C/A) ALLL Balance/NPL + 90 days (B/C) Credits Renegotiated/Classified Portfolio - % * Principal and interest payments net of interest accrued in period. Institutional Reorganization BB started a set of measures to reorganize the Bank, expected to take place during Among them: a) revision and downsizing of BB's organizational structure at all levels: strategic (Head Office), tactical (Superintendence), operations and support (regional offices) and service network (branches and points of sale); b) service network will be reorganized in order to adapt it to the new profile and behavior of our clients, benefiting from synergies, with optimization of structures and the expansion of digital services, without impacting the presence of BB in the municipalities in which it operates. At the end of the process, 379 full branches will be transformed into points of service and 402 full branches will be closed; and c) Extraordinary Incentivized Retirement Plan (PEAI) with 9,409 accessions. The annual savings with administrative expenses, except personnel, is estimated to be R$ 750 million, of which R$ 450 million coming from the new organizational structure and R$ 300 million from the reduction of expenses with cash transportation, rentals, maintenance of real estate, among others. 22

25 Banco do Brasil S.A. - MD&A 4Q Key Statistics Table 10. Main Macroeconomic Indicators¹ Economic Activity Nominal GDP in 4 Quarters (R$ in currents billions) 5, , ,000.6 NA GDP (% YTD in 12 months) (3.8) NA Family Consumption (3.9) NA Government Consumption (1.1) NA Gross Fixed Capital Formation 5.8 (4.2) (13.9) NA Exports 2.4 (1.1) 6.3 NA Imports 7.2 (1.9) (14.1) NA Physical Retail Sales (% YTD in 12 months) (4.3) NA Business Leaders Confidence (Index - Average in the Quarter) Consumer Confidence (Index - Average in the Quarter) Industrial Production (% YTD in 12 months) 2.1 (3.0) (8.3) NA Labour Market Total w ages (index - base: Mar/12=100) NA Real average income (R$ last quarter prices) 2, , ,030.0 NA Formal Employment - net creation in the last 12 months 730, ,714 (1,625,551) NA Ocupied population - average of quarter (thousand) 91,622 92,724 92,227 NA Unemployment - (% labor force -average of quarter) NA External Sector Payment Balance Current Account (GDP in 12 months) (3.0) (4.3) (3.3) NA Foreign Direct Investment (US$ billion -year accumulated) NA Trade Balance (US$ billion -year accumulated) 2.3 (4.0) Exports (US$ billion - year accumulated) Basic items Manufactured Semi-manufactured Especial Operations Imports (US$ billion -year accumulated) Capital goods Intermediate goods Consume goods Fuel International Reserves (US$ billions - end of period) NA Emerging Market Bond Index (in bases points - end of period) Credit Default Sw ap 10Y (basis points - end of period) Exchange rate (US$ - end of period) Public Finances Public Sector Gross Debt (% GDP) NA Nominal Result (R$ billions - in 12 months) (157.5) (343.9) (613.0) NA Nominal Result (% GDP - in 12 months) (3.0) (6.0) (10.2) NA Monetary Indicators Selic (p.y % - end of period) Selic (in 12 months) All indicators were obtained from official sources such as Central Bank of Brazil, FGV (Getúlio Vargas Foundation), IBGE, etc. NA - Not Available. Table 11. Ownership Structure % Shareholders Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Federal Government Shares Owned by the Company Free Float Individuals Companies Previ Foreign Capital Total Number of Shares 2,865,417,020 2,865,417,020 2,865,417,020 2,865,417,020 2,865,417,020 23

26 Chapter 1 - key Statistics Table 12. Distribution of Dividends and Interest on Own Capital R$ million 4Q15 1Q16 2Q16 3Q16 4Q16 Federal Government Individuals Companies Previ Foreign Capital Total 1, Values subject to income tax of 15%. Table 13. Market Ratios 4Q15 1Q16 2Q16 3Q16 4Q16 Earnings per Share - R$¹ Price / Earnings (12 months)¹ Price / Book Value¹ Market Capitalization - R$ million¹ 41,163 55,215 47,843 63,493 78,224 Book Value - BBAS3 - R$² BBAS3 Closing Price - R$ Change - % - BBAS3 (3.0) 34.1 (13.1) Dividend Yield - %³ Does not include Treasury Shares; 2 Equity / Share Capital ex Treasury; 3 Dividends and Interest on Capital 12 months / Market Capitalization. Table 14. Participation of BB s Shares in Brazilian Stock Market Indexes % May/15 - Aug/15 Sep/15 - Dec/15 Jan/16 - Apr/16 May/16 - Aug/16 Sep/16 - Dec/16 Bovespa Index - Ibovespa Brazil 50 Index - IBrX Carbon Efficient Index - ICO Financial Index - IFNC Corporate Governance Trade Index - IGCT Special Corporate Governance Stock Index - IGCX Corporate Sustainability Index - ISE Special Tag Along Stock Index - ITAG Mid-Large Cap Index - MLCX Table 15. Participation in the International Market - % Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 MSCI Brazil Index

27 Banco do Brasil S.A. - MD&A 4Q16 Table 16. Banco do Brasil Key Statistics 4Q15 1Q16 2Q16 3Q16 4Q16 Balance Sheet Items R$ billion Assets 1, , , , ,401.4 Shareholders Equity Loan Portfolio Loan Portfolio - Broad Definition¹ Deposits Demand Deposits Saving Deposits Time Deposits Profitability Adjusted ROE - Annual Basis - % ROE - Annual Basis - % Adjusted ROA - Annual Basis - Quarterly % NIM % - Annual Basis Productivity Cost/Income Ratio - % Cost/Income Ratio 12 months Accumulated - % Fee Income / Personnel Expenses - % Fee Income / Adm. Expenses - % Personnel Expenses per Employee - R$ thousand Employees in Branches / Branches Netw ork Checking Accounts per Employee in branches Assets per Employee R$ thousand 12,832 12,787 13,184 13,267 13,927 Loan Portfolio Broad Definition/ Points of Service R$ million Loan Portfolio Quality Allow ance for Loan Losses / Loan Portfolio - % Coverage Ratio + 90 days - % Portfolio Net of Allow ance / Total Portfolio - % Capital Structure Leverage (times) BIS Ratio - %² Tier I Core Capital Total Quantity of Shares - million 2, , , , ,865.4 Structural Information Branches 5,429 5,428 5,428 5,430 5,440 Ow n Service Netw ork 17,614 17,462 17,181 17,092 16,625 Total Customers - thousand 63,566 63,890 64,187 64,383 64,798 Total Checking Accounts - thousand 37,841 37,824 37,755 37,808 37,307 Individuals - thousand 35,420 35,419 35,353 35,177 34,902 Companies - thousand 2,421 2,406 2,402 2,631 2,405 Total Savings Accounts - thousand 39,162 39,252 39,310 39,211 39,255 Staff 113, , , , ,950 Employees 109, , , , ,622 Interns 4,066 4,612 4,725 3,592 2,328 Market Share Assets NA Deposits NA Loan Agribusiness³ Asset Management⁴ Cards Revenues NA Insurance Premium Vehicle Persons Housing Rural Collection Pension (PGBL, VGBL, other) Capitalization Import Exchange Export Exchange Includes private securities, guarantees provided and the individual portfolio acquired with recourse, under CMN Resolution 3,533/ From 1Q15 the BIS ratio was calculated with reference to prudential conglomerate. 3 Series Reviewed due to change of Notimp s Central Bank of Brazil methodology. 4 - Does not include Banco Votorantim s asset management. NA - Not Available. 25

28 Chapter 1 - key Statistics Table 17. Ratings 4Q15 1Q16 2Q16 3Q16 4Q16 Global Ratings Fitch Ratings Availability bb+ bb+ bb- bb- bb- Short-Term - Local Currency B B B B B Long-Term - Local Currency BB+ BB+ BB BB BB Outlook - Local Currency Negative Negative Negative Negative Negative Short-Term - Foreign Currency B B B B B Long-Term - Foreign Currency BB+ BB+ BB+ BB BB Outlook - Foreign Currency Negative Negative Negative Negative Negative Moody's Short-Term - Local Currency P-3 NP NP NP NP Short-Term - Foreign Currency P-3 NP NP NP NP Long-Term Debt - Foreign Currency Baa3 Baa3 Ba2 Ba2 Ba2 Long-Term Deposits - Local Currency Baa3 Ba2 Ba2 Ba2 Ba2 Long-Term Deposits - Foreign Currency Baa3 Ba3 Ba3 Ba3 Ba3 Outlook Negative Negative Negative Negative Negative Standard & Poor's Long-Term - Local Currency BB+ BB BB BB BB Outlook - Local Currency Negative Negative Negative Negative Negative Short-Term - Foreign Currency B B B B B Long-Term - Foreign Currency BB+ BB BB BB BB Outlook - Foreign Currency Negative Negative Negative Negative Negative National Ratings Fitch Ratings Short-Term F1+(bra) F1+(bra) F1+(bra) F1+(bra) F1+(bra) Long-Term AAA (bra) AAA (bra) AA+(bra) AA+(bra) AA+(bra) Outlook Negative Negative Negative Negative Negative Moody's Short-Term BR-1 BR-1 BR-1 BR-1 BR-1 Long-Term Aaa.br Aa2.br Aa2.br Aa1.br Aa1.br Outlook Negative Negative Negative Negative Negative Table 18. Compulsory/Reserve Requirement (%) 4Q15 1Q16 2Q16 3Q16 4Q16 Compulsory/Reserve Requirements (%) Demand Deposits Rate Reserve Requirements (rural loan) Reserve Requirements (micro finance) Unmarked Savings Deposits Rural Rate Additional Reserve Requirements Unmarked Mortgage Rate Additional Reserve Requirements Unmarked Time Deposits Rate Additional Unmarked

29 Banco do Brasil S.A. - MD&A 4Q16 Corporate Governance Governance at Banco do Brasil (BB) defines a broad view of principles and practices to strengthen management transparency and increase its institutional value. These guidelines are constantly updated as a result of legal or statutory changes. BB adopts the best practices in corporate governance, ensuring the balance of rights between shareholders, accountability to investors and society, ethics in dealing with the various stakeholders and business sustainability tools aligning the behavior of executives with the interests of its stakeholders and shareholders, society in general. Since 2006, Banco do Brasil has been part of the Novo Mercado BM&F Bovespa listing segment that brings together companies subject to stricter corporate governance practices. BB is also, listed in the Corporate Sustainability Index (ISE), of Shares With Differentiated Tag Along (ITAG) and Corporate Governance (IGC). In 2012, BB was listed for the first time in the Dow Jones Sustainability Index (DJSI), the New York Stock Exchange, where it remained in This boosts its international position. Banco do Brasil s governance structure consists of the Board of Directors, composed of 8 members, assisted by the Audit and Remuneration Committees and Internal Audit, and the Executive Board, composed of the Board of Officers (CEO and 9 Chief Officers) and 27 Bylaws Officers. The Bank also has a permanent Board of Auditors composed of five full members and five alternates. The Bank has introduced tools to evaluate the performance of the Board of Directors, the Audit Committee and the Executive Board, which enables the mapping and identification of improvement opportunities in their respective performance. In addition to the Bylaws, the Code of Corporate Governance and Code of Ethics are documents that support the best practices of corporate governance at Banco do Brasil. In 2012, BB created the model for Statutory Performance Evaluation and Remuneration Committee, body responsible for proposing variable remuneration policies for management to the Board of Directors. BB's Bylaws separate management duties in order to avoid conflicts of interest. The Bylaws also prevent members of the Board of Directors or Executive Board from making decisions on matters in which they have a potential conflict of interest. At all levels of the Bank, decisions are made collectively in order to engage executives in defining strategies and approval of proposals regarding BB s various businesses. To that end the Management uses committees, subcommittees and commissions at a strategic level, ensuring speed and security for the decision-making process. BB s Bylaws also provide, in Article 24, Section (III) (2) that the members of the Executive Board must be career employees of Banco do Brasil. The chart below shows BB s management structure. 27

30 Directorships Executive Board Units Board of Officers Vice Presidencies Chapter 1 - key Statistics Figura 16. Structure of Senior Management Shareholders General Meeting Remuneration Committee Audit Committee Board of Directors Board of Auditors Internal Audit Chief Executive Officer Government Affairs Agribusiness and Small Ventures Retail Services Technology Services, Infrastructure and Operations Wholesale Internal Controls and Risk Management Retail Distribution and Human Resources Financial Management and Investor Relations Press Agribusiness Finance Capital Markets and Infraestructure Private Bank Individuals Costumers Human Resources Digital Business Partners Channels Accounting Risk Management Restructuring of Operational Assets Executive Secretary Controlling Related Companies Governance Institutional Security Investor Relations Internal Controls Government Affairs Wholesale Solutions Operational Risk Corporate Bank Legal Supplies and Shared Services IT Architecture and Governance Credit Brand Strategy Technology Engineering and Construction I Distribution Means of Payment Engineering and Construction II Southeastern Distribution Micro and Small Business Operating Solutions Strategy and Organization Operations Loans, Financing Operations and Mortgage Figura 17. Strategic Committees Know the Code of Governance in the BB s Investor Relations website: 28

31 Banco do Brasil S.A. - MD&A 4Q Financial Statements Summary 2.1. Balance Sheet Summary Table 19. Balance Sheet Summary - Assets Chg. (%) on R$ million Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 ASSETS 1,401,129 1,448,212 1,401, (3.2) Current and Long-Term Assets 1,369,026 1,416,556 1,368,249 (0.1) (3.4) Cash and Cash Equivalents 18,054 12,929 12,806 (29.1) (1.0) Short-Term Interbank Investments 352, , , (5.2) Securities and Derivative Financial Instruments 117, , , (3.5) Securities Available for Trading 7,860 6,721 6,074 (22.7) (9.6) Securities Available for Sale 102, , , (4.4) Securities Held to Maturity 3,865 2,966 5, Derivative Financial Instruments 3,362 2,985 1,613 (52.0) (46.0) Interbank Accounts 65,408 72,260 68, (5.2) Deposits w ith Central Bank of Brazil 60,811 63,637 63, (0.3) Compulsory Dep. on Demand Dep. and Float 8,018 9,997 11, Compulsory Dep. on Savings Deposits 52,793 53,640 52,007 (1.5) (3.0) Other 4,597 8,623 5, (41.2) Interdepartamental Accounts (37.0) 78.5 Loans 627, , ,923 (10.0) (3.0) (Allow ance for Loan Losses) (32,490) (36,571) (34,838) 7.2 (4.7) Leasing (31.8) (5.9) Other Receivables 185, , , (0.3) Receivable from Guarantees Honored (1.3) Foreign Exchange Portfolio 21,420 18,980 17,472 (18.4) (7.9) Accrued Income 2,821 2,882 2,676 (5.1) (7.2) Securities Trading 1, ,107 (33.0) 16.5 Specific Credits Tax Credits 39,995 44,657 42, (4.0) Actuarial Assets (1,476) (4,977) (2,202) 49.2 (55.8) Fundo Paridade Fund of Surplus Allocation - Previ 8,960 9,458 9, (0.3) Sundry Debtors from Escrow Deposits 43,819 49,550 50, Sundry 70,011 73,987 73, (0.9) (Allow ance for Other Credits) (2,317) (2,340) (2,747) (With Loan Characteristics) (1,030) (935) (1,255) (Without Loan Characteristics) (1,288) (1,405) (1,492) Other Assets (5.1) (4.2) Assets Not for Ow n Use and Materials in Stock (Allow ance for Impairment) (121) (127) (138) Prepaid Expenses (5.4) (7.0) Permanent Assets 32,103 31,656 33, Investments 15,452 16,482 16, Property and Equipment 7,323 7,199 7, Intangible 9,311 7,964 8,715 (6.4) 9.4 Deferred (0) - - Jointly Controlled Companies 182, , , Securities and Derivative Financial Instruments 145, , , Loans 21,827 20,731 20,415 (6.5) (1.5) Tax Credits 7,344 7,057 7,284 (0.8) 3.2 Investments (12,004) (13,118) (13,613) Other Assets 20,155 18,947 25, Total Assets - Managerial 1,584,039 1,651,982 1,624, (1.7) 29

32 Chapter 2 - Financial Statements Summary Table 20. Balance Sheet Summary - Liabilities Chg. (%) on R$ million Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 LIABILITIES AND SHAREHOLDER S EQUITY 1,401,129 1,448,212 1,401, (3.2) Current and Long-Term Liabilities 1,319,133 1,362,052 1,313,737 (0.4) (3.5) Deposits 464, , ,981 (4.0) 1.9 Demand Deposits 66,550 61,623 69, Savings Deposits 151, , ,763 (0.1) 2.1 Interbank Deposits 41,483 23,919 20,665 (50.2) (13.6) Time Deposits 204, , ,203 (0.2) 0.4 Securities Sold Under Repurshase Agreements 333, , , (8.7) Repurchase Agreements w ith Private Securities 52,142 31,621 25,591 (50.9) (19.1) Funds from Acceptance and Securities Issuance 188, , ,166 (12.4) (4.8) Agribusiness Letters of Credit 134, , ,965 (7.3) (6.1) Mortgage Bonds 18,121 17,521 17,074 (5.8) (2.6) Commercial Papers 2,117 2,673 2, Foreign Securities 33,500 20,274 20,393 (39.1) 0.6 Interbank Accounts 31 3,255 1 (96.5) (100.0) Interdepartamental Accounts 5,439 2,468 2,450 (55.0) (0.7) Borrow ings 29,655 22,812 20,409 (31.2) (10.5) Domestic Onlending 90,065 85,078 83,083 (7.8) (2.3) National Treasury (16.2) (11.2) BNDES 37,981 33,581 32,087 (15.5) (4.4) Caixa Econômica Federal 19,691 22,918 23, Finame 29,981 26,019 24,766 (17.4) (4.8) Other Institutions 2,234 2,392 2, (2.9) Derivative Financial Instruments 3,289 2,300 1,870 (43.1) (18.7) Other Liabilities 204, , , (1.9) Billing and Collection of Taxes and Contributions 398 4, (89.5) Foreign Exchange Portfolio 15,600 23,450 23, (1.1) Shareholders and Statutory Distributions 1,588 1,281 1,126 (29.1) (12.1) Taxes and Social Security 19,934 26,625 25, (4.3) Securities Trading (39.8) (50.0) Financial and Development Funds 15,003 14,620 14,791 (1.4) 1.2 Subordinated Debt 89,178 83,752 85,341 (4.3) 1.9 Equity and Debt Hybrid Securities 7,867 5,956 5,525 (29.8) (7.2) Subordinated Instruments 59,936 60,027 61, Debt Instruments Qualified as Capital 21,375 17,770 17,840 (16.5) 0.4 Actuarial Liabilities 6,248 7,619 7, Other Liabilities 55,531 62,155 61, (1.2) Deferred Income (2.8) 2.3 Shareholders Equity 81,536 85,724 87, Capital 60,000 67,000 67, Instruments Qualifying to Common Equity Tier 1 Capital 8,100 8,100 8, Capital Reserves Revaluation Reserves (2.6) (0.7) Profit Reserves 29,031 25,409 27,647 (4.8) 8.8 Other Comprehensive Income (17,043) (17,874) (16,929) (0.7) (5.3) Benefit Plans (13,918) (16,832) (15,492) 11.3 (8.0) Retained Earnings (Accumulated Losses) - 1, (Shares Ow ned by the Company) (1,697) (1,855) (1,855) Non-Controlling Interests 3,128 3,359 3, (4.4) Jointly Controlled Companies 182, , , Securities Sold Under Repurshase Agreements 13,955 15,383 14, (3.6) Funds from Acceptance and Securities Issuance 13,126 10,259 11,798 (10.1) 15.0 Tech. Prov. Insur. Pension Plans & Saving Bonds 131, , , Other Liabilities 24,297 22,029 29, Total Liabilities - Managerial 1,584,039 1,651,982 1,624, (1.7) 30

33 Banco do Brasil S.A. - MD&A 4Q Income Statement with Reallocations Table 21. Income Statement with Reallocations Quarterly Flow Chg. (%) on Annual Flow Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Financial Intermediation Income 39,785 46,834 47, , ,825 (13.8) Loan Operations (1) (41) 26,009 27,529 30, , ,644 (6.5) Sale or Transference of Financial Assets (1) (24.4) (9.9) 2,096 2, Lease Operations (42) (31.2) (9.9) (19.5) Securities (2) (11) (43) (59) 13,123 17,246 16, (2.3) 61,651 57,922 (6.0) Financial Derivatives (44) 237 (134) (432) - - 1,380 (2,180) - Foreign Exchange Portfolio (45) (385) 416 (58) (85.0) - 2,756 1,905 (30.9) Compulsory Investments 1,390 1,535 1,236 (11.1) (19.5) 5,097 5, FX Gain (Loss) on Foreign Equity (3) (4) (46) (392) 108 (117) (70.0) - 3,966 (2,358) - Tax Hedge (5) (6) (246) 98 (107) (56.7) - 3,085 (1,863) - Financial Intermediation Expenses (25,518) (31,735) (32,602) (136,428) (103,483) (24.1) Money Market Funds (7) (22) (47) (25,914) (29,122) (30,706) (98,250) (112,405) 14.4 Borrow ing, Assignments and Onlending (3) (7) (33) (48) 396 (2,613) (1,896) - (27.4) (38,178) 8,922 - Net Interest Income 14,267 15,099 15, ,537 59, Allow ance for Loan Losses (12) (26) (27) (49) (6,991) (6,644) (7,486) (23,671) (31,552) 33.3 Net Financial Margin 7,276 8,455 7, (7.2) 28,866 27,790 (3.7) Fee Income 5,982 6,022 6, ,470 24, Service Fee Income (50) 4,015 3,859 4, ,299 15, Banking Fee Income (51) 1,967 2,163 2, ,171 8, Taxes on Revenues (5) (15) (34) (1,167) (1,274) (1,327) (4,322) (5,116) 18.4 Contribution Margin 12,092 13,203 12, (2.4) 47,015 46,678 (0.7) Administrative Expenses (8,480) (8,419) (8,617) (31,709) (32,817) 3.5 Personnel Expenses (19) (20) (38) (53) (5,031) (5,283) (5,210) 3.6 (1.4) (19,296) (20,238) 4.9 Other Administrative Expenses (13) (14) (54) (3,449) (3,137) (3,406) (1.2) 8.6 (12,413) (12,579) 1.3 Other Tax Expenses (15) (21) (55) (130) (121) (96) (26.1) (20.7) (467) (426) (8.9) Commercial Income 3,481 4,663 4, (10.6) 14,839 13,435 (9.5) Legal Risk (905) (629) (748) (17.4) 18.9 (1,966) (2,747) 39.7 Civil Claims (16) (17) (23) (24) (435) (475) (538) (1,196) (1,590) 33.0 Labor Law suits (18) (19) (20) (25) (470) (153) (209) (55.5) 36.4 (771) (1,158) 50.2 Other Operating Income (341) - - 2, (99.0) Eq. Int. in Results of Subsidiaries and Affiliates (4) (28) (29) (31) (40) 979 1,064 1, ,830 4, Other Operating Income/Expenses Result 16 (1,027) (1,457) (935) (4,241) - Other Operating Income (2) (8) (10) (18) (52) 2,640 2,113 2,008 (24.0) (5.0) 8,257 7,990 (3.2) Previ - Plano de Benefícios 1 (8) (9) 40 (141) (141) - (0.0) 358 (389) - Previ - Fundo Utilização Restatement (10) (57.2) (28.7) 1,337 1,044 (21.9) Other Operating Expenses (9) (11) (12) (13) (14) (16) (17) (35) (56) (3,018) (3,212) (3,475) (10,886) (12,885) 18.4 Operating Income 3,571 4,071 3,080 (13.8) (24.4) 15,768 10,716 (32.0) Non-Operating Income (36) Income Before Taxes 3,600 4,126 3,143 (12.7) (23.8) 15,934 10,944 (31.3) Income and Social Contribution Taxes (6) (21) (30) (32) (57) (60) (61) (140) (1,079) (771) - (28.5) (828) (1,179) 42.4 Interest on Ow n Capital Tax Benefit (71.9) (56.8) 2,000 1,060 (47.0) Statutory Profit Sharing (62) (347) (303) (184) (46.8) (39.2) (1,790) (919) (48.7) Minority Interest Earnings (39) (58) (465) (407) (441) (5.3) 8.2 (1,722) (1,675) (2.7) Adjusted Net Income 2,648 2,337 1,747 (34.0) (25.2) 11,594 7,171 (38.2) One-Off Items (136) (91) (784) - - 2, (69.2) Economic Plans (22) (23) (0) (323) (182) - (43.7) (403) (1,072) Extraordinary Provision for Law suits (24) (25) (86.2) (52.9) (2,057) Additional Allow ance for Loan Losses (26) (27) (28) (29) (1,876) 3,257 - Tax Credit on CSLL (31) (32) , Funds and Programs Adjustment (33) (127) - - Prov. for Commitment to Buy Loyalty Program Points from Partners (35) (765) - - Cateno - Gestão de Contas de Pagamentos S.A (36) (37) , Unrealized Earnings - Cateno (30) (37) (3,474) - - Extraordinary Incentivated Retirement Program (38) - - (1,401) - - (372) (1,401) - BrasilPrev Effect in Minority Shares (39) (74) - - BrasilPrev, Susep Circular-letter 457/12 and 462/13 (40) Exchange Rate Effect on Banco Patagonia (41-58) (541) (541) - - Investment Revaluation in Stocks and Shares (59) (321) (321) - - Tax Eff. and Stat. Prof. on One-Off Items (34) (60) (61) (62) (271) (2,546) #N/D (803) #N/D (68.5) Net Income 2,512 2, (61.6) (57.1) 14,400 8,034 (44.2) 31

34 Chapter 2 - Financial Statements Summary Each index presented in the table above lines corresponds to the event item in the table "Statement of Reallocations and One-Off Items" Reallocations Details In this chapter, the adjustments made in the Corporate Law Income Statement to obtain the Income Statement with Reallocations are detailed. Adjustments aim to: a) Separate the one-off items and show the adjusted net income for the period; b) Change the manner that income and expenses are shown, in order to provide a better understanding of the business and the company's performance; c) Allow the Net Interest Income (NII) recorded during the period to reflect, effectively, the gain from all the earning assets, seeking to inform the market regarding the spread achieved from the division of this margin by average balance of earning assets. For this, it was necessary to: I - Include in the NII the income recorded in other operating income that had financial intermediation characteristics and that was derived from earning assets recorded in the other receivables in the Balance Sheet; II - Identify the foreign exchange gain/(loss) on assets and liabilities abroad during the period in a specific NII item; III - Keep amounts related to negative foreign exchange adjustments and expenses reversal that were recorded in Other Operating Income and/or Other Expenses Income to avoid inverting the balance of accounts which have a financial intermediation nature; IV - Include, in the NII, all expenses related to Subordinated Debt and Perpetual Securities The next table it shows the statement of the reallocations performed during the period: 32

35 Banco do Brasil S.A. - MD&A 4Q16 Table 22. Statement of Reallocations and One-Off Items R$ million Quarterly Flow Annual Flow Item From To Event 4Q15 3Q16 4Q Sale or Transference of Financial Assets Loan Operations Loan Operations , , Other Operating Income Securities Financial Investment Income Borrow ing, Assignments and Onlending FX Gain (Loss) on Foreign Equity FX Gain (Loss) on Foreign Equity (855.1) (117.5) 3,502.7 (2,358.3) 4 Eq. Int. in Results of Subsidiaries and Affiliates FX Gain (Loss) on Foreign Equity FX Gain (Loss) on Foreign Equity (0.0) 5 Taxes on Revenues Tax Hedge Tax Hedge (14.4) 5.3 (5.7) (100.2) 6 Income and Social Contribution Taxes Tax Hedge Tax Hedge (231.9) 92.6 (100.8) 2,889.1 (1,762.5) 7 Money Market Funds Borrow ing, Assignments and Onlending Restatement Expenses - Funds and Programs (115.2) (133.8) (128.8) (464.5) (514.4) 8 Other Operating Income Previ - Plano de Benefícios 1 Actuarial Assets and Liabilities Valuation Adjustements Other Operating Expenses Previ - Plano de Benefícios 1 Actuarial Assets and Liabilities Valuation Adjustements - (140.8) (140.8) - (389.0) 10 Other Operating Income Previ - Fundo Utilização Restatement Actuarial Assets and Liabilities Valuation Adjustements , , Securities Other Operating Expenses Provision for Impairment (31.9) - 12 Allow ance for Loan Losses Other Operating Expenses Allow ance for Loan Losses (Cred. w /o Char. of Fin. Int.) (124.3) (435.7) (299.8) (328.2) 13 Other Administrative Expenses Other Operating Expenses Goodw ill Amorization (253.2) (275.9) (275.8) (1,011.8) (1,105.5) 14 Other Administrative Expenses Other Operating Expenses Premiums Paid to Costumers (565.8) (486.3) (480.2) (2,077.1) (1,977.4) 15 Other Tax Expenses Taxes on Revenues Taxes on Revenues (1,181.2) (1,269.2) (1,333.1) (5,196.1) (5,216.0) 16 Other Operating Expenses Civil Claims Expenses w ith Civil Claims 35.3 (397.0) (490.8) (3,095.3) (1,465.2) 17 Other Operating Expenses Civil Claims Reversal of Contingent Liabilities Other Operating Income Labor Law suits Reversal of Labor Liabilities Personnel Expenses Labor Law suits Provision for Labor Law suits (316.1) (298.3) (276.7) (1,193.0) (1,342.1) 20 Personnel Expenses Labor Law suits Reversal of Labor Liabilities Other Tax Expenses Income and Social Contribution Taxes Taxes on Revenues Money Market Funds Economic Plans Economic Plans (122.6) (129.9) (166.5) (406.3) (622.9) 23 Civil Claims Economic Plans Economic Plans (193.0) (15.2) 3.7 (449.1) 24 Civil Claims Extraordinary Provision for Law suits Extraordinary Provision for Law suits (1,891.2) Labor Law suits Extraordinary Provision for Law suits Extraordinary Provision for Law suits (124.2) 6.6 (165.9) (89.7) 26 Allow ance for Loan Losses Additional Allow ance for Loan Losses Additional Provision for Loan Losses (2,300.0) - 27 Allow ance for Loan Losses Additional Allow ance for Loan Losses Reversal of Additional Alow ance for Loan Losses , Eq. Int. in Results of Subsidiaries and Affiliates Additional Allow ance for Loan Losses Additional Provision for Loan Losses - BV (70.4) - 29 Eq. Int. in Results of Subsidiaries and Affiliates Additional Allow ance for Loan Losses Reversal of Additional Alow ance for Loan Losses - BV Income and Social Contribution Taxes Unrealized Earnings - Cateno Cateno Operation , Eq. Int. in Results of Subsidiaries and Affiliates Tax Credit on CSLL Tax Credit on CSLL Income and Social Contribution Taxes Tax Credit on CSLL Tax Credit on CSLL , Borrow ing, Assignments and Onlending Funds and Programs Adjustment Funds and Programs Adjustment (126.6) - 34 Taxes on Revenues Tax Eff. and Stat. Prof. on One-Off Items Cateno Operation (1,070.4) - 35 Other Operating Expenses Prov. for Commitment to Buy Loyalty Program Points from Partners Provision - Loyalty Program (765.0) - 36 Non-Operating Income Cateno - Gestão de Contas de Pagamentos S.A Cateno Operation , Unrealized Earnings - Cateno Cateno - Gestão de Contas de Pagamentos S.A Cateno Operation , Personnel Expenses Extraordinary Incentivated Retirement Program Extraordinary Incentivated Retirement Program - - (1,400.8) (372.5) (1,400.8) 39 Minority Interest Earnings BrasilPrev Effect in Minority Shares BrasilPrev Effect in Minority Shares (74.5) - 40 Eq. Int. in Results of Subsidiaries and Affiliates BrasilPrev, Susep Circular-letter 457/12 and 462/13 BrasilPrev, Susep Circular-letter 457/12 and 462/ Loan Operations Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia (317.0) - - (317.0) - 42 Lease Operations Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia (13.5) - - (13.5) - 43 Securities Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia (135.2) - - (135.2) - 44 Financial Derivatives Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia (24.1) - - (24.1) - 45 Foreign Exchange Portfolio Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia (25.1) - - (25.1) - 33

36 Chapter 2 - Financial Statements Summary 46 FX Gain (Loss) on Foreign Equity Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia (463.5) - - (463.5) - 47 Money Market Funds Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia Borrow ing, Assignments and Onlending Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia Allow ance for Loan Losses Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia Service Fee Income Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia (109.2) - - (109.2) - 51 Banking Fee Income Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia (0.2) - - (0.2) - 52 Other Operating Income Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia (86.0) - - (86.0) - 53 Personnel Expenses Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia Other Administrative Expenses Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia Other Tax Expenses Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia Other Operating Expenses Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia Income and Social Contribution Taxes Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia Minority Interest Earnings Exchange Rate Effect on Banco Patagonia Exchange Rate Effect on Banco Patagonia Securities Investment Revaluation in Stocks and Shares Investment Revaluation in Stocks and Shares (321.0) - - (321.0) - 60 Income and Social Contribution Taxes Tax Eff. and Stat. Prof. on One-Off Items Tax Eff. and Stat. Prof. on One-Off Items (286.7) ,133 (705.9) 61 Income and Social Contribution Taxes Tax Eff. and Stat. Prof. on One-Off Items Cateno Operation (3,571) - 62 Statutory Profit Sharing Tax Eff. and Stat. Prof. on One-Off Items Tax Eff. and Stat. Prof. on One-Off Items (38) (97.1) 34

37 Banco do Brasil S.A. - MD&A 4Q Glossary of Reallocations (1) Sale or transfer of financial assets. (2) Revenues from financial investments of the companies from payment methods segment. (3) and (4) Corresponds to the results of exchange rate changes on investments in subsidiaries and branches abroad. (5) and (6) Reduction the effects of exchange variation on the result. (7) Funding expenses on funds and programs. (8) and (9) Financial revenues (expenses) arising from the review of the actuarial assets and liabilities of Previ. (10) Financial income from restatement of Fundo Utilização da Previ. (11) Impairment of securities issued by private companies. (12) Allowance for loan loss expenses for credits without characteristics of financial intermediation. (13) Expenses from amortization of goodwill on investments. (14) Payroll acquisition amortization. (15) Tax expenses reallocated to compose the contribution margin. (16) Expenses arising from civil claims. (17) Reversal of balances that, due to the Chart of Accounts of the Central Bank of Brazil (Cosif), could not be accounted for in other operating expenses in the corporate law income statement. (18) e (20) Reversal of balances that, due to the Chart of Accounts of the Central Bank of Brazil (Cosif), could not be accounted for in personnel expenses in the corporate law income statement. (19) Provision for expenses arising from labor lawsuits. (21) Tax expenses reallocated to compose the contribution margin. (22) e (23) Expenses with provision arising from lawsuits relating to economic plans. (24) e (25) Extraordinary provisions for lawsuits. (26) Additional allowance for loan losses recognized in previous fiscal years. (27) Partial reversal of additional allowance for loan losses recognized in previous fiscal years. (28) Additional allowance for loan losses recognized in previous fiscal years of Banco Votorantim. (29) Partial reversal of additional allowance for loan losses recognized in previous fiscal years of Banco Votorantim. (30) Tax credit for the increased CSLL tax rate. (31) and (32) Extraordinary provision on credit operations of Banco Votorantim. (33) Extraordinary expenses arising from funds and programs adjustments. (34) Tax credit for the increased CSLL tax rate. (35) Provision for commitment with partners to buy points of loyalty programs. (36) Non-operating income occurred in the Cateno operation. (37) Unrealized earnings occurred in the Cateno operation. (38) Expenses from incentivated retirement program. (39) Subisidiaries minority sharing on the financial results of BB Seguridade, referring to the financial results of the suitability of BrasilPrev liabilities adequacy. (40) BrasilPrev liabilities adequacy in compliance with Susep Circular-letter 457/12 and 462/13. (41) to (58) Exchange rate effect of the devaluation of the Peso Argentino on Banco Patagonia. (59) Investments revaluation in Stocks and Shares. 35

38 Chapter 2 - Financial Statements Summary (60) and (62) One-off items effects on the payment of statutory profit sharing and unification of these effects on income and social contribution taxes. (61) Income and social contribution taxes ocurred in the Cateno operation Tax Effect and Statutory Profit Sharing on One-Off Items The next table shows the effects of taxes and statutory profit sharing on each one-off item. Table 23. Tax Effect and Statutory Profit Sharing on One-Off Items Quarterly Flow Annual Flow R$ million 4Q15 3Q16 4Q Economic Plans Extraordinary Provision for Law suits (242) (71) (33) 922 (425) Additional Allow ance for Loan Losses (239) (1,570) Tax Credit on CSLL (212) - Funds and Programs Adjustment Prov. for Commitment to Buy Loyalty Program Points from Partners Extraordinary Incentivated Retirement Program BrasilPrev Effect in Minority Shares BrasilPrev, Susep Circular-letter 457/12 and 462/ (155) - Exchange Rate Effect on Banco Patagonia Investment Revaluation in Stocks and Shares Unrealized Earnings - Cateno (3,816) - Taxes on Revenues Total (271) (1,476) (803) 36

39 Banco do Brasil S.A. - MD&A 4Q Loan Banco do Brasil Lending Process Advanced methodologies for credit risk calculation supports lending process in Banco do Brasil. BB develops these methodologies and follows the best risk management practices. Customer risk reflects the likelihood that a borrower will default in a period of 1 year after the risk analysis. Banco do Brasil determines the volume of resources exposed to that borrower. To calculate the risk the Bank uses internal and external information, in addition to the history of the relationship with that customer, as follows. I. Customer File Information: the customer information analysis from internal and external sources, including restrictive information; II. III. IV. Behavior within BB: indebtedness evaluation, credit products use, payment punctuality and data on relationships with the Bank; Behavior within the Banking Industry: indebtedness analysis at other banks, use of competitors products and payment punctuality within the Banking Industry; Personalized Methodologies - evaluation of financial statements, customer s segment outlook and other market information. Risk is calculated on a mass basis for individual customers, microbusinesses and rural producers, and on a customized basis for companies and public sector entities. The Bank s system, in the mass analysis, calculates automatically the customer s credit risk, with immediate results being used to contract the operation. Banco do Brasil s technicians and corporate systems calculations carry out customized analyses. Committees are responsible for the approval of these customers risk. Customer risk is an important piece of information to establish credit limit, to define proper classification of Loan risk, and to guide business with the customer. Figure 18. Banco do Brasil Lending Process Costumer Costumer File Information Customer Risk External Information Internal Information SCR¹ Behavioral Credit Limit Income / Revenue Risk Portfolio Warranties Approval Levels Limit Value Risk ESTABLISHMENT OF CREDIT LIMIT Credit Limit Portfolio 1 - SCR: Central Bank of Brazil Credit Information System 3.1. Loan Portfolio For a better understanding of BB s loan operations, we present the following definitions related to the loan portfolio. The information presented in this chapter is segmented into individuals, companies and agribusinesses. a) Classified Loan Portfolio: sum of the credit operations, financing, leasing, other credit with loan characteristics and acquired loan portfolio. b) Loan Portfolio Broad Definition: classified loan portfolio added of the private securities and guarantees operations, where: b.1) Private Securities: operations characterized by the acquisition of securities (commercial papers and debentures) mainly issued by private companies and underwritten by BB. b.2) Guarantees: operations where BB ensures the settlement of the contracts. 37

40 Chapter 3 - Loan c) Jointly Controlled Companies: Corresponds to BB jointly controlled companies portfolio. Table 24. Loan Portfolio Classified and Broad Definition R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Classified Loan Portfolio (a) 719, , , (9.2) (2.8) Brazil 656, , , (6.3) (2.2) Individuals 184, , , Payroll Loan 64, , , (1.8) (0.9) Mortgage 37, , , Credit Card 23, , , Auto Loans 23, , , (14.1) 1.2 Salary Loans 18, , , (5.4) Consumer Finance 7, , , (12.0) (11.8) Overdraft Account 2, , , (18.8) Other 7, , , Companies 298, , , (16.6) (5.4) Middle Market and Corporates 167, , , (14.8) (5.5) Very Small and Small Companies 90, , , (23.8) (8.3) Government 41, , , (8.0) 0.5 Agribusiness 173, , , Individuals 122, , , Companies 51, , , (6.2) (4.0) Abroad 62, , , (39.6) (12.2) Private Securities and Guarantees (b) 78,804 62,807 54,467 (30.9) (13.3) Loan Portfolio - Broad Definition (a + b) 798, , , (11.3) (3.7) Brazil 724, , , (8.6) (3.1) Individuals 184, , , Companies 364, , , (19.2) (6.9) Agribusiness 174, , , Abroad 73, , , (38.1) (11.4) 1- Series revised up to 1Q15. Balance Chg. % on The table below shows the managerial loan portfolio broad definition, which considers the credit operations of the jointly controlled companies. According to the regulatory requirements, these companies are no longer consolidated in the financial statements of BB since Table 25. Managerial Loan Portfolio Broad Definition Balance Chg. % on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Loan Portfolio - Broad Definition 798, , ,059 (11.3) (3.7) Jointly Controlled Companies 18,130 17,728 17,172 (5.3) (3.1) Managerial Loan Port. - Broad Definition 816, , , (11.2) (3.7) Brazil 741, , , (8.4) (3.2) Individuals 194, , , (0.5) Companies 371, , , (18.9) (6.6) Agribusiness 174, , , Abroad 74, , , (38.2) (11.2) 38

41 Banco do Brasil S.A. - MD&A 4Q16 The table below shows BB s market share in the classified loan portfolio of the Brazilian Banking Industry (BI). Table 26. Loans in the Brazilian Banking Industry Balance R$ billion Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Dec/15 Sep/16 BI 3,219 3,161 3,130 3,111 3,106 (3.5) (0.1) Individuals 1,512 1,521 1,530 1,542 1, Companies 1,707 1,640 1,600 1,568 1,546 (9.5) (1.4) BB Market Share - % Chg. % on The next figure shows the Classified Loan Portfolio BB in Brazil for the contracted period. In certain cases, loan disbursement might continue to occur during quarters after the loan is taken out, being then added to the related quarter. Considering the portfolio of Dec/16, 28.3% of assets were contracted in. Assets contracted before 2015 corresponds to 52.4%. Figure 19. Classified Loan Portfolio BB by Contracted Period - % and R$ billion % % % % Up to % Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Other Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 The next figure demonstrates the BB s Classified Loan Portfolio in Brazil by maturity. More than 80% of the portfolio matures with more than 360 days, in line with the investment, mortgage and payroll loans trend, while 6.0% of the portfolio has a maturity of less than 90 days, notably working capital operations with companies. 39

42 Chapter 3 - Loan Figure 20. BB s Classified Loan Portfolio in Brazil by maturity - % Dec/ Up to 30 days From 31 to 60 days From 61 to 90 days From 91 to 180 days 81.0 From 181 to 360 days Over 360 days Individuals Loan Portfolio The following tables show the main credit lines to individuals. The payroll loan and auto loan include the balance of the total acquired joint obligation loan portfolio. Table 27. Individuals Loan Portfolio Balance Chg. % on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Classified Loan Portfolio (a) 184, , , Direct Consumer Credit 90, , , (1.5) (2.8) Payroll Loan 64, , , (1.8) (0.9) Salary Loans 18, , , (5.4) Consumer Finance 7, , , (12.0) (11.8) Mortgage 37, , , Credit Card 23, , , Auto Loans 23, , , (14.1) 1.2 Renegotiated Loan 5, , , Overdraft Account 2, , , (18.8) Microcredit (11.5) (9.0) Other 1, (32.8) (7.9) Private Securities and Guarantees (b) (38.8) (8.3) Jointly Controlled Companies (c) 9, , , (10.7) Managerial Loan Portfolio (a+b+c) 194, , , (0.5) BB remains among the market leaders in loan operations with lower risk. The following table shows BB's participation in these lines of credit. Table 28. Individuals Loan Portfolio Market Share Dec/15 Sep/16 Dec/16 R$ million BB¹ BI Share % BB¹ BI Share % BB¹ BI Share % Payroll Loan 64, , , , , , Auto Loan² 22, , , , , , Mortgage 37, , , , , , Includes the acquired joint obligation loan portfolio, in compliance with CMN Resolution 3,533/08. 2 Includes only free resources. BB s total acquired loan portfolio is composed of payroll and auto loan operations. The decrease on the annual basis was mainly due to the reorganization and consolidation of the sector, specially the payroll loan segment. The joint obligation loan portfolio are 99.0% of this total. 40

43 Banco do Brasil S.A. - MD&A 4Q16 Table 29. Total Acquired Loan Portfolio¹ Balance R$ million Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Dec/15 Sep/16 Payroll Loan 2,064 1,726 1,421 1, (56.1) (21.7) Auto Loan 15,354 16,390 15,748 13,369 14,184 (7.6) 6.1 Total 17,419 18,116 17,169 14,528 15,091 (13.4) Includes the balance of acquired joint obligation loan portfolio, in compliance with CMN Resolution 3,533/08. Chg. % on The table below shows the organic individuals classified loan portfolio, that excludes the acquired portfolio. Table 30. Organic Classified Loan Portfolio - Individuals Balance Chg. % on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Organic Classified Loan Portf. 166, , , (0.2) Direct Consumer Credit 88, , , (0.2) (2.5) Payroll Loan 62, , , (0.0) (0.6) Salary Loan 18, , , (5.4) Consumer Finance 7, , , (12.0) (11.8) Mortgage 37, , , Credit Card 23, , , Renegotiated Loan 5, , , Auto Loan 8, , , (25.9) (8.4) Overdraft Account 2, , , (18.8) Microcredit (11.5) (9.0) Other 1, (32.8) (7.9) Civil servants and pensioners contracted the majority of Direct Consumer Credit and Auto Loans, which portfolio was R$94.2 billion in Dec/16. Figure 21. Organic Individuals Loan Portfolio Direct Consumer Credit and Auto Loan - % Dec/15 Sep/16 Dec/16 Civil Servants INSS Retirees and Pensioners Private Sector Employees BB s knowledge of its customers is one of the important components of credit methodology. Of those with credit transactions at BB, 88.9% have an account for at least five years. 41

44 Chapter 3 - Loan Table 31. Account Time Customers with Credit Transactions % Dec/15 Sep/16 Dec/16 Account Time Up to 1 year From 1 to 2 years From 2 to 5 years From 5 to 10 years Over 10 years Payroll Loan In the 4Q16, the disbursement was R$6.4 billion, total of R$27.0 in. The payroll loan portfolio was R$ 62.5 billion in Dec/16. It s mainly composed by operations with civil servants and INSS pensioners, who have lower risk. The table below shows the portfolio breakdown. Figure 22. Organic Payroll Loan Breakdown - % Dec/15 Sep/16 Dec/16 Civil Servants INSS s Retirees and Pensioners Private Sector Employees Most payroll loan contracted at BB in 4Q16 have a maturity of over 60 months. The characteristic of this portfolio allows customers to lengthen the term and generates loyalty and an opportunity to offer other products during this time. Figure 23. Maturity of transactions contracted in the quarter Payroll Loan 0 to 12 months 2.4% 13 to 24 months 6.0% 25 to 36 months 7.5% 85 to 96 months 41.5% 37 to 48 months 9.1% 73 to 84 months 6.0% 61 to 72 months 17.0% 49 to 60 months 10.5% Auto Loan The balance of BB s organic auto loan portfolio was R$6.2 billion in Dec/16. Disbursement was R$561.7 million in 4Q16 and R$2.6 billion in the year. 42

45 Banco do Brasil S.A. - MD&A 4Q16 The following table shows the main characteristics of the customers of BB s organic auto loan portfolio. Most customers have hold accounts for over 10 years and receive their salary through the Bank. Table 32. BB s Organic Auto Loan Portfolio - Customers Characteristics % Dec/15 Sep/16 Dec/16 Account Time Up to 5 years From 5 to 10 years Over 10 years Salary Paid through Banco do Brasil Paid through other banks The next figure shows maturity of auto loan transactions contracted at Banco do Brasil in 4Q16. Approximately 75.6% of the disbursement matures up to 48 months. Figure 24. Maturity of Transactions Contracted in the quarter Auto Loan 0 to 12 months 4.4% 49 to 60 months 24.4% 13 to 24 months 19.9% 37 to 48 months 19.4% 25 to 36 months 32.0% The figure below shows the Loan-to-Value (LTV). BB s customers committed, in average, 34.3% of the asset s value in 4Q16, which further reduces the likelihood of default. Figure 25. Loan to Value - Organic Auto Loan Portfolio - % Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 LTV Down Payment Mortgage Credit granted for real estate financing in 4Q16 was R$2.0 billion and R$10.0 during the year. Over the last 12 months the balance increased R$ 4.9 billion confirming the trend of portfolio growth importance, with the increase from 22.3% to 24.4% in organic portfolio. The increase was due the expansion of products offered to customers and process efficiency gain. BB had a 7.9% of market share in Dec/16, an increase of 50bps from the same period of the last year. 43

46 Chapter 3 - Loan For mortgages, the LTV was aligned to the BI, according to Abecip¹ data. Figure 26. Loan to Value - Mortgage Portfolio - % Dec/14 Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 LTV BB LTV BI 1 - Source: Abecip (Brazilian Association of Real Estate and Savings Account Entities). Date as of Oct/16 The table below shows the average maturity and the rates of the operations with lower risk. The average maturity is calculated by weighting the remaining term with the closing balance. Table 33. Average Rates and Maturity Banco do Brasil Auto Financing Dec/14 Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Average Rate - % p.m Average Maturity - months Mortgage Average Contract Amount - R$ thousand Average Rate - % p.y Average Maturity - months Payroll Loan Average Rate - % p.m Average Maturity - months Direct Consumer Credit Average Rate - % p.m Average Maturity - months Companies Loan Portfolio The companies loan portfolio decrease in annual basis is a result, mainly, from the reduction of working capital operations. Table 34. Companies Loan Portfolio Balance Chg. % on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Classified Loan Portfolio (a) 298, , , (16.6) (5.4) Working Capital 151, , , (20.3) (6.0) Investiments 66, , , (10.8) (3.0) Renegotiated Loan 14, , , ACC/ACE 17, , , (22.0) (14.9) Mortgage 11, , , (1.9) (1.9) Credit Card 15, , , (32.2) (11.1) Receivables 13, , , (35.4) (13.2) Pre-Aproved-Credit 2, , , (38.5) (9.4) BNDES Exim 2, (60.2) (6.6) Overdraft Account (2.3) (15.6) Other 3, , , (17.0) (3.0) Private Sec. and Guarantees (b) 65, , , (30.9) (14.4) Jointly Controlled Companies (c) 7, , , (7.2) 10.8 Loan Portfolio - Broad Definition (a+b+c) 371, , , (18.9) (6.6) The table below shows the distribution of the companies portfolio, considering the broad definition. 44

47 Banco do Brasil S.A. - MD&A 4Q16 Table 35. Companies Portfolio Breakdown Balance Chg. % on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Classified Loan Portfolio (a) 298, , , (16.6) (5.4) Middle Market and Corporates 167, , , (14.8) (5.5) Very Small and Small Companies 90, , , (23.8) (8.3) Government 41, , , (8.0) 0.5 Private Sec. and Guarantees (b) 65, , , (30.9) (14.4) Jointly Controlled Companies (c) 7, , , (7.2) 10.8 Loan Portfolio - Broad Definition (a+b+c) 371, , , (18.9) (6.6) Foreign Trade Finance BB is the main partner in Brazilian foreign trade, closing 4Q16 with a market share of 16.8% and 15.5% in foreign exchange for export and import operations, respectively. BB ended the quarter with a 21.8% market share in operations of Forward Exchange Contracts (ACC) and Advance against Draft Presentation (ACE). Table 36. Foreign Exchange for Export and Import Operations Export Exchange 4Q15 1Q16 2Q16 3Q16 4Q16 4Q15 3Q16 Contracted Amount (US$ million) 9,346 9,384 11,198 8,433 8,061 (13.8) (4.4) Market Share - % (22.8) (19.6) Import Exchange Balance Chg. % on Contracted Amount (US$ million) 5,811 5,819 4,402 4,593 5,066 (12.8) 10.3 Market Share - % (8.8) 6.9 Table 37. Forward Exchange Contracts (ACC) and Advance against Draft Presentation (ACE) Balance Chg. % on 4Q15 1Q16 2Q16 3Q16 4Q16 4Q15 3Q16 Contracted Amount (US$ million) 2,185 1,865 2,276 1,354 1,496 (31.5) 10.6 Quantity of Contracts 3,258 2,353 3,128 2,554 2,410 (26.0) (5.6) Average Vol. per Contract (US$ thousand) (7.4) 17.2 Investment Loan Banco do Brasil s disbursements for investment Loan were R$6.2 billion in 4Q16, total of R$24.4 billion in. Highlight to the Pronaf/Pronamp/Proger/FCO which represents almost half of disbursements in year. The next chart shows the onlending funds share in disbursements. Figure 27. Disbursements by Onlending Fund - % 2015 BNDES/Finame Pronaf/Proger/Pronamp/FCO Agribusiness Investment Transport Infrastructure Finance Development Funds BNDES Card Other 45

48 Chapter 3 - Loan Loan to the Government Banco do Brasil works to meet the states, the Federal District and the municipalities in their demands, seeking to provide solutions to public entities, that allow public policies through investments in sectors such as urban mobility, health, education and public safety in order to contribute to the development of the country and generate real benefits for the population of the locations served. In 4Q16 there were disbursed R$1.3 billion to states and municipalities, total of R$3.7 billion in. Under Central Bank of Brazil Circular 3,644/2013, Article 37, a Weighting Factor Risk (FPR) of 0% must be applied to the portion of exposure covered by credit guarantees provided by the National Treasury transactions, without thereby compromising capital. Loan to Very Small and Small Companies At the end of 4Q16, BB had 2.3 million very small and small companies customers. Companies with annual revenues up to R$ 25 million are categorized as very small and small companies customers. The following table shows that 98.5% of this portfolio was concentrated in account holders who have accounts time over two years. Table 38. Account Time - Percentage of the Very Small and Small Companies Portfolio Balance % Dec/15 Sep/16 Dec/16 Account Time Up to 1 year From 1 to 2 years From 2 to 5 years From 5 to 10 years Over 10 years The following tables show the main lines of loan to very small and small companies. Table 39. Loan to Very Small and Small Companies by Sector Balance R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Trade 38, , , (26.1) (9.8) Service Segment 28, , , (21.6) (6.2) Industry 23, , , (22.8) (8.5) Total 90, , , (23.8) (8.3) Table 40. Very Small and Small Companies Credit Products Chg. % on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Working Capital 56, , , (23.7) (8.6) Investment 31, , , (23.6) (7.8) Foreign Trade 1, , , (36.0) (10.8) Total 90, , , (23.8) (8.3) Agribusiness Loan Portfolio Balance Chg. % on Agribusiness is one of the main sectors of the Brazilian economy, with fundamental importance to the country s growth and development. Brazil is one of the world s leading agribusiness exporters, with emphasis on the production, export and trade of major agricultural supply chains. 46

49 Banco do Brasil S.A. - MD&A 4Q16 Table 41. Brazil s Share in World Agribusiness in Dec/16 Item Production Export % World Trade Orange Juice 1º 1º 73.4% Sugarcane 1º 1º 46.9% Soybean and Related Product 2 1º 41.9% Poultry 2º 1º 38.6% Coffee 1º 1º 26.8% Cattle % Corn 3º % Cotton 5º 4º 8.2% Source: USDA PSD online. The leading role of agribusiness in Brazil arises from the combination of factors related to natural resources, cutting-edge technology, credit supply and farmers competence. This set of attributes gives Brazil a privileged position in the world agribusiness context. Agricultural and livestock activity follows the agricultural calendar, known as the crop-year, which begins in July of each year and ends in June of the following year. The data presented in this report includes information from second quarter of /2017 crop. Agribusiness at BB Banco do Brasil is one of the main agents encouraging agribusiness development in Brazil, in line with the criteria established for the maintenance of socio-environmental sustainability. Operating from the small producer to large agribusiness companies, BB finances the costs of producing and trading agricultural products, stimulates rural investment, including warehousing, seed improvement, industrialization and the modernization of agricultural machinery and farm implements, as well as the rural properties adequacy to environmental legislation. Thus, BB supports the Brazilian agribusiness in all stages of the production chain. Historically, Banco do Brasil remains as the main agribusiness financial agent in the country, contributing significantly to supply the credit demand. According to Central Bank of Brazil s data, BB had a 59.2% market share of the Brazilian rural financing portfolio in Dec/16. Figure 28. BB s Market Share in Brazilian Agribusiness % Dec/ Banco do Brasil Other Financial Institutions The distribution of agribusiness operations by Brazilian region shows the share of each in the loan portfolio. Table 42. Classified Agribusiness Loan Portfolio by Region Region Rural Credit - % Agroindustry - % Total - % Southeast South Midw est Northeast North

50 Chapter 3 - Loan The following table shows a breakdown of BB s agribusiness portfolio, divided into working capital for input purchase, investments, agroindustry, crop trading and others. Table 43. Agribusiness Loan Portfolio by Purpose Balance Chg. % on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Classified Loan Portfolio 173, , , Investment 79, , , Working Capital for Input Purchase 51, , , Agroindustry 36, , , (19.4) (3.8) Crop Trading 4, , , (11.3) Other 1, (65.5) (26.0) Rural Product Bills and Guarantees 1, (35.0) (4.7) Loan Portfolio - Broad Definition 174, , , The following table shows the breakdown of the agribusiness loan portfolio by credit line/program. Highlight to Pronaf (national program for family producers support) which was R$ 41.9 billion in Dec/16, an increase of 6.8% on an annual basis. Pronamp (national program for the medium rural producers support) was R$ 24.6 billion in Dec/16, an increase of 8.2% in 12 months. Also important is the ABC Program (low carbon agriculture), with R$9.2 billion in Dec/16, an increase of 0.7% in 12 months. Table 44. Agribusiness Loan Portfolio by Credit Line/Program Balance R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Classified Loan Portfolio 173, , , Rural Loans 137, , , Pronaf 39, , , Work. Capital for Input Purchase 30, , , Pronamp 22, , , FCO Rural 9, , , Agricultural Investment 9, , , (1.3) Low Carbon Agriculture Program 9, , , (3.5) BNDES/Finame Rural 9, , , (11.8) (3.6) Agricultural Selling 4, , , (11.7) Other 3, , , (10.1) (5.6) Loans to Companies 36, , , (19.4) (3.8) Rural Product Bills and Guarantees 1, (35.0) (4.7) Rural Loans - Broad Definition 138, , , Loan Portfolio - Broad Definition 174, , , The following table shows the balance of agribusiness loan transactions by financed item. Chg. % on 48

51 Banco do Brasil S.A. - MD&A 4Q16 Table 45. Agribusiness Loan Portfolio by Financed Item Balance Chg. % on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Classified Loan Portfolio 173, , , Livestock 34, , , Meat 22, , , Milk 12, , , Machinery and Equipment 22, , , Soybean 13, , , Corn 5, , , Coffee 3, , , (7.0) Sugarcane 3, , , (3.3) Aviculture 3, , , Sw ine Production 2, , , Rice 1, , , (8.1) Cotton (1.6) (15.0) Other 45, , , (2.0) Loans to Companies 36, , , (19.4) (3.8) Rural Product Bills and Guarantees 1, (35.0) (4.7) Loan Portfolio - Broad Definition 174, , , The following table shows the balance of agribusiness loan portfolio and the breakdown for each customer type. Table 46. Agribusiness Loan Portfolio by Customer Size Balance Chg. % on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Classified Loan Portfolio 173, , , Medium and Large Sized 80, , , Small 42, , , Companies 42, , , (7.0) (2.6) Agroindustrial Cooperatives 9, , , (2.6) (9.4) Rural Product Bills and Guarantees 1, (35.0) (4.7) Loan Portfolio - Broad Definition 174, , , The next table shows the distribution of the balance of the Agribusiness Loan Portfolio by customer type. Table 47. Agribusiness Loan Portfolio by Customer Type Balance Chg. % on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Classified Loan Portfolio 173, , , Individuals 122, , , Companies 51, , , (6.2) (4.0) Rural Product Bills and Guarantees 1, (35.0) (4.7) Loan Portfolio - Broad Definition 174, , , BB uses 81.6% own funds in rural and agro industrial financing (mainly demand deposits, rural savings accounts and agribusiness letters of credit). In addition to those, BB also onlends funds from the BNDES (Brazilian development bank), the FAT (workers protection fund), and institutional funds such as the FCO (constitutional fund for financing of the Midwest) and the Funcafé (coffee production economy defense fund). The following table shows the agribusiness loan portfolio broad definition by funding sources. 49

52 Chapter 3 - Loan Table 48. Agribusiness Loan Portfolio Broad Definition by Funding Sources R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Agricultural Savings 87, , , Agribusiness Letters of Credit 37, , , Demand Deposits 16, , , FCO 12, , , BNDES/FINAME 11, , , Other¹ 8, , , Loan Portfolio - Broad Definition 174, , , National Treasury, Funcafé, Rural Product Bills and Guarantees. Balance Banco do Brasil acts as a financial agent in rural credit operations encouraged by the Federal Government, intending to finance actions in the public interest. These operations are carried out with reduced interest rates and BB uses resources from savings accounts, demand deposits, FAT, National Treasury, Funcafé and FCO as funding. To make this intermediation feasible and cover the funding costs, credit risks, tax and administrative costs and BB s profitability, National Treasury and Central Bank of Brazil may authorize following subsides: a) Equalization Revenues: amount paid by the National Treasury that represents revenues for the banks to cover the administrative and tax costs, besides the guarantee of a profitability rate on the applied resources; b) Weighting factor: multiplier adopted by the Federal Government to the use of resources from demand deposits and rural savings. Through this mechanism the banks are authorized to operate lower rates of rural credit. The released amount is invested in operations with market rates, in order to compensate the profitability difference from operations encouraged by the Federal Government. The mechanism of a weighting factor reduces the amount of assets subject to equalization, and allows banks to increase interest income proportionally. At BB, the released funds has TMS remuneration. The next table shows a history of equalization revenues and weighting factor. Table 49. Equalization Revenues and Weighting Factor Quarterly Flow R$ million 4Q15 1Q16 2Q16 3Q16 4Q16 Equalization Revenues 1,963 1,383 1,416 1,706 1,722 Weighting Factor Total 2,052 1,731 1,897 1,779 1,789 Table 50. Equalization Revenues Flow R$ million 4Q15 1Q16 2Q16 3Q16 4Q16 Initial Balance 11,765 3,385 1,357 2,767 1,700 Flow (8,380) (2,028) 1,411 (1,067) 1,718 Final Balance 3,385 1,357 2,767 1,700 3,418 1 Source: Explanatory Note 11.b. Quarterly Flow The following table shows the distribution of funds eligible for equalization from BB s Agribusiness Portfolio. 50

53 Banco do Brasil S.A. - MD&A 4Q16 Table 51. Equalizable resources in the Agribusiness Portfolio Balance R$ million Dec/15 Sep/16 Dec/16 Classified Loan Portfolio 173, , ,111 Equalizable Resources 91,937 96,189 91,105 Investments 49,221 51,892 49,924 Working Capital for Input Purchase 40,889 42,672 39,529 Crop Trading 1,827 1,625 1,652 Non-Equalizable Resources 81,929 82,660 88,006 Rural Product Bills and Guarantees 1, Loan Portfolio - Broad Definition 174, , ,814 In the /2017 crop, BB disbursed R$36.8 billion in agricultural loans. If considered the loans granted in 1S16 as anticipated working capital for input purchase the disbursement was R$47.1 billion. The Family Agriculture disbursement was R$7.9 billion, while the disbursement for Companies was R$22.4 billion. Operations through the National Program Support for Medium Farmers (Pronamp) were R$6.4 billion. The next table compares the disbursements of the /2017 crop to the 2015/ one, detailing the credit purpose, destination and customer type. Table 52. Disbursements by Purpose Rural Credit R$ million Crop 15/16 (A) Crop 16/17 (B) Change (%) (B/A) Family - Pronaf 8,011 7,947 (0.8) Working Capital for Input Purchase 4,721 5, Investment 3,290 2,939 (10.7) Medium - Pronamp 7,794 6,410 (17.8) Working Capital for Input Purchase 7,243 5,331 (26.4) Investment 551 1, Companies 27,821 22,444 (19.3) Working Cap. for Input Purch./Crop Trading 24,746 19,575 (20.9) Investment 3,076 2,869 (6.7) Total 43,627 36,802 (15.6) Risk Mitigators Banco do Brasil encourages the contracting of protection against bad weather (Agricultural Insurance or Proagro) in operations of working capital for input purchase. The strategy improves with each new crop, including the mass offering of options, such as Seguro Faturamento. The risk mitigation strategy takes into account several types of information on the customers requested transactions, such as activity risk, type of crop to be financed and financing location. Those types of information allow the use of the protective devices (agricultural insurance/proagro or options) that best fit the risk profile of each transaction. The following table shows the recent historic use of risk mitigators in the working capital for input purchases. Table 53. Insurance in the Working Capital for Input Purchase Operation Contracted R$ million Crop 14/15 Share % Crop 15/16 Share % Crop 16/17 Share % Working Capital for Input Purchase 14, , , Total Insured 8, , , Proagro 4, , , Crop Insurance 3, , , Hedge Price Without Insurance 6, , , The distribution of risks assumed as a result of agricultural insurance in the /2017 crop is detailed below. 51

54 Chapter 3 - Loan Figure 29. Working Capital for Input Purchase Breakdown Risks - % Mapfre Re 20.0 BB Mapfre 20.0 IRB Re Concentration The following tables show the concentration level of the portfolio with customers and business groups with which Banco do Brasil has operations. The first table shows the 100 largest borrowers over the classified loan portfolio and the second, over the Reference Equity (RE). Table Largest Borrowers in Relation to the Classified Loan Portfolio Period 1st. Customer (%) Balance 2nd. to 20th. (%) Balance 21st. to 100th (%) Balance Top 100 Largest (%) Balance Mar/ , , , ,352 Jun/ , , , ,753 Sep/ , , , ,446 Dec/ , , , ,567 Mar/ , , , ,699 Jun/ , , , ,403 Sep/ , , , ,701 Dec/ , , , ,529 Table Largest Borrowers in Relation to RE¹ R$ million Period 1st. Customer (%) Balance 2nd. to 20th. (%) Balance 21st. to 100th (%) Balance Top 100 Largest (%) Balance Mar/ , , , ,352 Jun/ , , , ,753 Sep/ , , , ,446 Dec/ , , , ,567 Mar/ , , , ,699 Jun/ , , , ,403 Sep/ , , , ,701 Dec/ , , , , RE for Dec/16 was R$ 130,453 million, according to the prudential conglomerate. The next table shows the concentration of the companies and agro companies considering Multiple Bank, Guarantees & Securities and Abroad loan portfolio. Each macro-sector is divided into various economic sectors related with each other. The portfolio is in accordance with the main business of each customer. 52

55 Banco do Brasil S.A. - MD&A 4Q16 Table 56. Concentration of Companies and Agro Companies Loan Portfolio by Macro-Sector R$ million Balance Chg. % on Macro-Sector Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Oil and Gas 47, , , (18.5) (10.8) Public Administration 42, , , (9.6) 0.4 Eletricity 40, , , (13.4) (5.7) Metalw orking and Steel 43, , , (20.3) (6.8) Foodstuffs of Vegetable Origin 37, , , (21.7) (5.1) Transport 33, , , (21.0) (3.4) Housing 22, , , (9.9) (2.7) Services 24, , , (23.0) (4.2) Automotive 28, , , (37.5) (13.6) Foodstuffs of Animal Origin 15, , , (0.2) Retail Trade 19, , , (26.9) (12.1) Specific Bulding Activities 15, , , (21.9) (6.8) Financials Institutions 17, , , (42.3) (37.3) Agricultural Consumables 11, , , (30.4) (9.5) Textile and Garments 11, , , (31.3) (12.4) Electrical and Electronic Goods 9, , , (24.0) (0.4) Pulp and Paper 10, , , (32.5) (14.0) Heavy Construction 8, , , (17.4) (4.8) Telecommunication 7, , , (21.8) 1.5 Chemicals 9, , , (37.5) (7.5) Wholesale Trade and Industries 6, , , (20.7) (12.3) Timber and Furniture 6, , , (18.0) (11.2) Leather and Shoes 3, , , (23.5) (3.6) Beverages 1, , , (30.8) (7.0) Other Activities (74.4) Total 476, , , (21.0) (7.5) Domestic Loan Portfolio 350, , ,605 Abroad Loan Portfolio 49,946 32,408 26,574 Guarantees 28,236 16,229 15,101 Securities 48,563 44,758 37,634 Total 476, , ,914 53

56 Chapter 3 - Loan 3.2. Credit Risk All risk segmentations of the loan portfolio in this section refer to the Classified Portfolio, in compliance with CMN Resolution 2,682/99, unless otherwise indicated. Banco do Brasil maintains a consistent process for risk credit evaluation and monitoring in loan transactions. The main loan portfolio s quality indicator is the Average Risk, which shows the ratio between the required provision and the classified loan portfolio. The figure below shows BB s classified loan portfolio average risk historical evolution and its comparison with the Brazilian Banking Industry (BI). This index at BB remains lower than BI. Figure 30. Classified Loan Portfolio Average Risk Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Average Risk - BB Average Risk - BI¹ 1 - Ratio created through Average Risk Index available at SGS (Time Series Management System) of the Central Bank of Brazil. The following chart shows the coverage index (ALLL/NPL +90d), which states the ratio between the total provision (minimum, supplementary and additional) and the balance of transactions due over 90 days. The current provision enables BB to record a percentage higher than BI. It is worth mentioning that BB has sufficient provisions to support potential scenarios changes, such as higher delinquency. Figure 31. Classified Loan Portfolio Coverage Index Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 ALLL/NPL + 90d % - BI¹ ALLL/NPL + 90d % - BB Consolidated 1 - Ratio created through Average Risk Index available at SGS (Time Series Management System) of the Central Bank of Brazil. The next figure shows the Allowance for Loan and Lease Losses ALLL, segregating the minimum, supplementary, required and additional provision. In BR GAAP accounting standards, Banco do Brasil records credit provision for its portfolio following the statistical model risk provision according to CMN Resolution 2,682/99. The additional provision is recorded from the management's experience by applying stress testing on the portfolio, considering the operations default history and aligned with the good banking practice. 54

57 Banco do Brasil S.A. - MD&A 4Q16 Figure 32. ALLL Classified Loan Portfolio R$ million 33,577 3,228 35,398 1,209 36,968 37, ,070 1,535 30,349 34,189 36,968 37,514 34,535 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Provision Supplementary Provision Additional Provision Minimum Provision Historically, BB has a delinquency ratio lower than BI, as shown in the next figure. The delinquency ratio (NPL +90d) states the ratio between the operations more than 90 days overdue and the classified loan portfolio balance. Figure 33. NPL +90d Percentage on the Classified Loan Portfolio Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 NPL +90d - BB NPL +90d - BI 1 - Simulation excluding the oil and gas sector specific case effect. The following graphic shows the NPL by BB s business segments. Figure 34. NPL +90d per segment Percentage on the Domestic Classified Loan Portfolio Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Companies Individuals Agribusiness The following chart shows the New NPL/Loan Portfolio index, which indicates the future delinquency trend. The index is calculated by the ratio between: (i) the quarterly change of the transactions more 55

58 Chapter 3 - Loan than 90 days overdue balance, plus the quarterly write-off; and (ii) the previous quarter classified loan portfolio balance. The write-off process strictly follows the CMN Resolution 2,682/99. Operations classified as risk H are accounted as write-off only after six months in delinquency at this risk level, with recording not being allowed on a shorter period. Figure 35. New NPL and Write-Off Percentage on the Classified Loan Portfolio Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 New NPL (R$ billion) Write Off ( R$ billion) New NPL( t)/loan Portfolio( t-1) The next figure shows the index between Allowance for Loan Losses expenses and the New NPL index. Figure 36. ALLL Expenses / New NPL (%) Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 ALLL/New NPL (%) The results achieved with loan portfolio management risk, combined with a low delinquency ratio and historical high coverage ratio, have enabled the continuous improvement of BB s risk classification methodology. In 4Q16, BB improved its retail portfolio s rating assessment, establishing intermediate levels to those minimum required by Resolution CMN nº 2,682/99. The column Supplementary Provision from next table presents the balance of these interim levels. 56

59 Banco do Brasil S.A. - MD&A 4Q16 Table 57. Classified Loan Portfolio by Risk Level R$ million Balance Dec/15 Required Provision Share % Balance Sep/16 Required Provision Share % Balance Minimum Provision¹ Supplementary Provision Required Provision Share % AA , , ,3 A , , ,0 B , , ,2 C , , ,3 D , , ,3 E , , ,5 F , , ,9 G , , ,8 H , , ,7 Total , , ,0 AA-C , , ,8 D-H , , ,2 1 Minimum required provision by Resolution CMN nº 2,682/99. The next table presents the ALLL expenses over the Classified Loan Portfolio, as well the average Classified Loan Portfolio, the recovery of credit and its impact at the ALLL and the ALLL indexes in annual and quarterly basis. Only the recovered credit in installments impacts the ALLL expenses. Table 58. ALLL Expenses over Classified Loan Portfolio R$ million, unless other indicated 4Q15 1Q16 2Q16 3Q16 4Q16 on 4Q15 on 3Q16 ALLL Expenses Dec/16 Balance Chg. % (A) BB - 12 months (23,671) (27,161) (30,248) (31,056) (31,552) (B) BB - 3 months (6,991) (9,145) (8,277) (6,644) (7,486) Average Loan Portfolio (C) BB - 12 months 691, , , , ,845 (0.4) (1.7) (D) BB - 3 months 713, , , , ,757 (7.1) (2.8) Installment Recovery of Write-offs (E) 12 months 1,521 1,788 2,212 2,480 2, (F) Quarterly Net ALLL Expenses (A+E) 12 months (G) (22,149) (25,373) (28,035) (28,576) (28,862) (B+F) Quarterly (H) (6,350) (8,671) (7,463) (6,091) (6,636) ALLL Indexes - % (A/C) ALLL Expenses/Loan Porfolio 12M - BB (B/D) ALLL Expenses/Loan Porfolio 3M - BB (G/C) Net ALLL Expenses/Loan Porfolio 12M - BB (H/D) Net ALLL Expenses/Loan Porfolio 3M - BB The following table shows the key credit risk management indicators, some of them previously mentioned. 57

60 Chapter 3 - Loan Table 59. Classified Loan Portfolio Delinquency Indicators R$ million, unless other indicated 4Q15 1Q16 2Q16 3Q16 4Q16 Classified Loan Portfolio 719, , , , ,591 NPL + 15 days 28,056 34,020 33,896 39,921 37,032 NPL + 15 days/loan Portfolio - % NPL + 15 days/loan Portfolio - % - excluding specific case NPL + 60 days 18,910 22,641 25,722 27,559 25,134 NPL + 60 days/loan Portfolio - % NPL + 60 days/loan Portfolio - % - excluding specific case NPL days/loan Portfolio - % NPL + 90 days 16,051 18,262 22,559 23,535 21,504 NPL + 90 days/loan Portfolio - % NPL + 90 days/loan Portfolio - % - excluding specific case NPL days/loan Portfolio - % NPL + 90 days/loan Portfolio - BI - % Write-off 4,813 5,176 5,434 6,143 9,000 Write-off - excluding specific case 6,078 Recovery of Write-off (1,247) (861) (1,384) (968) (1,359) Recovery of Write-off/Write-off - % Net Loss 3,566 4,315 4,050 5,176 7,641 Net Loss/Loan Portfolio - % annualized Net Loss/Loan Portfolio - % annualized - excluding specific case 2.92 Provision (Minimum + Supplementary + Additional) 33,577 35,398 36,968 37,514 36,070 ALLL/Loan Portfolio - % ALLL/NPL + 15 days - % ALLL/NPL + 60 days - % ALLL/NPL + 90 days - % Individuals Loan Portfolio The following table shows the individuals classified loan portfolio and the respective changes in the allowance for loan losses and the NPL over 90 days. Table 60. Individuals Classified Loan Portfolio by Risk Level Dec/15 Sep/16 Dec/16 R$ million Balance Required Provision Share % Balance Required Provision Share % Balance Minimum Supplementary Provision¹ Provision Required Provision Share % AA 52, , , A 49, , , B 56, , , C 13, , , , D 2, , , E 1, , , F 1, , , G 1, , , H 5,340 5, ,447 5, ,575 4,575-4, Total 184,324 8, ,144 9, ,431 9, , AA-C 172,468 1, ,717 1, ,949 1, , D-H 11,856 7, ,428 8, ,483 7, , Minimum required provision by Resolution CMN nº 2,682/99. 58

61 Banco do Brasil S.A. - MD&A 4Q16 Table 61. Changes in Allowance for Loan Losses Individuals Classified Loan Portfolio R$ million, unless other indicated 4Q15 1Q16 2Q16 3Q16 4Q16 Classified Individuals Loan Portfolio 184, , , , ,431 Initial Allow ance 8,572 8,792 9,010 9,041 9, Risk Migration 1,243 1,514 1,132 1,409 1,908 a) Risk Deterioration 2,168 2,207 2,214 2,228 3,939 b) Risk Improvement (925) (693) (1,081) (818) (2,032) 2 - New Transactions Write-offs (1,106) (1,190) (1,251) (1,309) (1,357) Total (1+2+3) Other Impacts¹ (326) (384) (241) (169) (88) Allow ance Required (CMN Res. 2,682) 8,792 9,010 9,041 9,144 9,993 Provision Expenses - R$ million 1,326 1,408 1,282 1,411 2,207 Provision / Loan Portfolio - % Provision Flow / Loan Portfolio - % NPL + 15 days/loan Portfolio - % NPL + 90 days/loan Portfolio - % Amortization, settlement, release of installments and charge debt. The following table shows the NPL of the main lines regarding individuals credit portfolio and the share of each line in relation to the total loan portfolio. Thus, it is possible to analyze the delinquency of each product in relation to the relevance of this line in the portfolio. Table 62. NPL +90d Individuals Portfolio - % by Credit Line Dec/15 Sep/16 Dec/16 NPL Share % NPL Share % NPL Share % Individuals Payroll Loan Mortgage Credit Card Salary Loan Auto Loans Vintage The following graph shows the vintage of the individual s loan portfolio delinquency. This methodology affords greater detailing and is closer to the portfolio than traditional indicators, in order to evaluate how the delinquency of a set of operations contracted for in a particular period behaves over the time. Loans that have been nonperforming for more than 90 days are considered delinquent. Overdraft and credit card operations are not included in the individuals loan portfolio. The following graph shows the vintage by year, making it easier to interpret the data. 59

62 Chapter 3 - Loan Figure 37. Individuals Loan Portfolio Annual Vintage Loans to Companies The following tables show the classified loan portfolio for companies and the respective changes in allowance for loan losses. In Companies portfolio, the Bank applied the improvements in rating assessment to the Very Small and Small Companies portfolio. Wholesale portfolio will receive these improvements in 1Q17. Table 63. Classified Loans to Companies by Risk Level R$ million Balance Dec/15 Required Provision Share % Balance Required Provision Share % Balance Minimum Provision¹ Supplementary Provision Required Provision Share % AA , , ,5 A , , ,8 B , , ,8 C , , ,3 D , , ,4 E , , ,0 F , , ,5 G , , ,5 H , , ,3 Total , , ,0 AA-C , , ,4 D-H , , ,6 1 Minimum required provision by Resolution CMN nº 2,682/99. Sep/16 Dec/16 60

63 Banco do Brasil S.A. - MD&A 4Q16 Table 64. Changes in Allowance for Loan Losses Classified Loans to Companies R$ million, unless other indicated 4Q15 1Q16 2Q16 3Q16 4Q16 Classified Loan Portfolio to Companies 298, , , , ,204 Initial Allow ance 13,996 15,342 16,665 19,185 19, Risk Migration 3,748 4,329 5,407 4,743 5,185 a) Risk Deterioration 4,447 4,955 6,455 5,504 6,370 b) Risk Improvement (699) (626) (1,049) (760) (1,184) 2 - New Transactions Write-offs (2,974) (3,431) (3,274) (3,994) (3,896) Total (1+2+3) 1,571 1,375 2,601 1,086 1,722 Other Impacts¹ (226) (52) (81) (710) (101) Allow ance Required (CMN Res. 2,682) 15,342 16,665 19,185 19,561 21,183 Provision Expenses - R$ million 4,319 4,754 5,794 4,370 5,517 Provision / Loan Portfolio - % Provision Flow / Loan Portfolio - % NPL + 15 days/loan Portfolio - % NPL + 90 days/loan Portfolio - % Amortization, settlement, release of installments and charge debt. In the table below it is presented the NPL of the main lines regarding companies credit portfolio and the share of each line in relation to the total loan portfolio. Thus it is possible to analyze the delinquency of each product in relation to the relevance of this line in the portfolio. Table 65. NPL +90d Companies Portfolio - % by Credit Line Dec/15 Sep/16 Dec/16 NPL Share % NPL Share % NPL Share % Companies Working Capital Investments FEC/ACE Receivables The following chart shows Very Small and Small Companies credit on an annual basis, making it easier to interpret the data. Figure 38. Very Small and Small Companies Loans Portfolio Annual Vintage 61

64 Chapter 3 - Loan Agribusiness Loan Portfolio The Classified Agribusiness Loan Portfolio by risk level table is shown on the following table. As well as in Companies portfolio, the retail portfolio received the improvements in rating assessment, notably the Individuals Agribusiness portfolio. The improvement will affect the whole Agribusiness portfolio in 1Q17. Table 66. Classified Agribusiness Loan Portfolio by Risk Level R$ million Balance Dec/15 Sep/16 Dec/16 Required Provision Share % Balance Required Provision Share % Balance Minimum Supplementary Provision¹ Provision Required Provision Share % AA 91, , , A 38, , , B 32, , , C 4, , , D , E 3, , , F G H 2,501 2, ,625 2, ,889 1,889-1, Total 173,866 4, ,848 5, ,111 3, , AA-C 166, , , , D-H 7,696 4, ,776 4, ,413 3, , Minimum required provision by Resolution CMN nº 2,682/99. The table below shows the NPL of the main lines regarding Agribusiness credit portfolio and the share of each line in relation to the total loan portfolio. Thus, it is possible to analyze the delinquency of each product in relation to the relevance of this line in the portfolio. Table 67. NPL +90d Agribusiness Portfolio - % by Credit Line Dec/15 Sep/16 Dec/16 NPL Share % NPL Share % NPL Share % Agribusiness Pronaf Working Capital for Input Purchase Pronamp BNDES/Finame Rural The following tables show the individuals agribusiness loan portfolio by risk level and the respective changes in the allowance for loan losses. A better average risk is mainly due to the low loss history and high level of collateral added to agribusiness financing, observed during the rating assessment improvement process. Table 68. Classified Agribusiness Loan Portfolio by Risk Level Individuals R$ million Balance Dec/15 Sep/16 Dec/16 Required Provision Share % Balance Required Provision Share % Balance Minimum Supplementary Provision¹ Provision Required Provision Share % AA 63, , , A 18, , , B 29, , , C 3, , , D , E 3, , , F G H 2,420 2, ,581 2, ,846 1,846-1, Total 122,347 4, ,523 4, ,785 3, , AA-C 114, , , D-H 7,403 4, ,606 4, ,240 2, ,

65 Banco do Brasil S.A. - MD&A 4Q16 1 Minimum required provision by Resolution CMN nº 2,682/99. Table 69. Changes in Allowance for Loan Losses Agribusiness Individuals R$ million, unless other indicated 4Q15 1Q16 2Q16 3Q16 4Q16 Classified Agrib. Loan Portfolio - Individuals 122, , , , ,785 Initial Allow ance 4,335 4,615 5,093 4,678 4, Risk Migration 999 1, (283) a) Risk Deterioration 1,557 1,533 1,235 1,290 1,658 b) Risk Improvement (558) (509) (747) (478) (1,941) 2 - New Transactions Write-offs (537) (482) (717) (667) (648) Total (1+2+3) (139) 226 (772) Other Impacts¹ (272) (121) (276) (147) (223) Allow ance Required (CMN Res. 2,682) 4,615 5,093 4,678 4,757 3,763 Provision Expenses - R$ million (346) Provision / Loan Portfolio - % Provision Flow / Loan Portfolio - % (0.26) 1 - Amortization, settlement, release of installments and charge debt. The following tables show the agribusiness loan portfolio for companies by risk level and the respective changes in the allowance for loan losses. Table 70. Classified Agribusiness Loan Portfolio by Risk Level Companies R$ million Balance Dec/15 Sep/16 Dec/16 Required Provision Share % Balance Required Provision Share % Balance Required Provision Share % AA 27, , , A 20, , , B 2, , , C , , D E F G H Total 51, , , AA-C 51, , , D-H Minimum required provision by Resolution CMN nº 2,682/99. Table 71. Changes in the Allowance for Loan Losses Agribusiness Companies R$ million, unless other indicated 4Q15 1Q16 2Q16 3Q16 4Q16 Classified Agrib. Loan Portfolio - Companies 51,519 53,445 53,078 50,326 48,327 Initial Allow ance Risk Migration a) Risk Deterioration b) Risk Improvement (32) (33) (30) (36) (29) 2 - New Transactions Write-offs (65) (58) (38) (66) (9) Total (1+2+3) (24) 19 Other Impacts¹ (7) 13 (4) (58) (17) Allow ance Required (CMN Res. 2,682) Provision Flow - R$ million (16) 10 Provision / Loan Portfolio - % Provision Flow / Loan Portfolio - % (0.03) Amortization, settlement, release of installments and charge debt. 63

66 Chapter 3 - Loan Portfolio with and without Rollover The average portfolio risk is influenced by the operations of the harvests from 2005 to 2007 with rollover in a total balance of R$6,915 million in Dec/16. The CMN Resolution 2,682/99, which provides for the classification of risk and constitution of allowances for loan losses, requires the maintenance of risk of the renegotiated loans at the risk level locked at the time of renegotiation. Due to this regulation, renegotiated transactions increase the loan portfolio s average risk. In the following table, the classified agribusiness loan portfolio, in 4Q16, is segregated in operations with rollover and without it. Operations more than 90 days overdue (BB risk + third parties) accounted for 0.88% of the total portfolio without rollover in Dec/16, while the same indicator for the transactions with rollover was 3.45%. Table 72. Agribusiness Transactions with Rollover and without it R$ million Balance Portfolio w ithout Rollover¹ Required Provision Past Due 90 Balance Portfolio w ith Rollover¹ Required Provision Past Due 90 AA 93, A 31, (0) B 35, , C 9, , D E F G H 1,363 1, Total 172,196 2,968 2,120 6,915 1, AA-C 168, , D-H 3,421 2,021 2,014 1,992 1, Non-performing loans at level AA refers to credit with third party risk. The following table shows the balance, the NPL +90days and the average risk of the classified agribusiness loan portfolio segmented in the total portfolio, with rollover and without it. 64

67 Banco do Brasil S.A. - MD&A 4Q16 Table 73. Classified Agribusiness Loan Portfolio Delinquency Indicators R$ million Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Classified Loan Portfolio ALLL NPL + 15 days NPL + 15 days/loan Portfolio - % 1,66 1,80 1,45 1,79 1,81 NPL + 90 days NPL + 90 days/loan Portfolio¹ - % 0,97 1,19 0,95 0,96 0,99 ALLL/Loan Portfolio - % 2,83 3,03 2,75 2,82 2,27 Write-off Transactions w ithout Rollover - BB Risk + Third Parties ALLL NPL + 90 days NPL + 90 days/ Transactions w ithout Rollover - % 0,85 1,03 0,82 0,85 0,88 ALLL / Transactions w ithout Rollover - % 2,33 2,53 2,30 2,36 1,72 Write-off Transactions w ith Rollover - BB Risk + Third Parties ALLL NPL + 90 days NPL + 90 days/ Transactions w ith Rollover - % 4,64 6,58 5,11 3,31 3,45 ALLL / Transactions w ith Rollover - % 18,85 19,28 17,76 16,60 15,75 Write-off Simulation: Trans. w /o Rollover ex-drag effect of Trans. w / Rollover a - BB Risk + Third Parties b - ALLL Average Risk (b/a) - % 0,83 1,01 0,81 0,83 0, The past due resulting from non-performing operations with third party risk was included in the calculation of the index Foreign Loan Portfolio The following table shows the Abroad Portfolio by risk level. Table 74. Classified Abroad Loan Portfolio by Risk Level R$ million Balance Dec/15 Sep/16 Dec/16 Required Provision Share % Balance Required Provision Share % Balance Minimum Supplementary Provision¹ Provision Required Provision Share % AA 37, , , A 12, , , B 6, , , C , , D 5, E F G H ,560 3, Total 62,691 1, ,106 3, , AA-C 56, , , D-H 5,937 1, ,717 3, Minimum required provision by Resolution CMN nº 2,682/99. 65

68 Chapter 3 - Loan 3.3. Credit Collection, Regularization and Recovery Management of Past Due Credits Banco do Brasil monitors credits presenting signs of default. The treatment of past due transactions is carried out in three stages: conduction, collection and regularization/recovery. I. Conduction seeks to avoid the default, in a preventive manner; II. Collection is to regularize past due operations in a short period of time; this reduces process costs and maintains the good relationship with the customer; III. Regularization and recovery is to minimize losses, regularizing and recovering the highest possible amount Credit Collection and Regularization Process Banco do Brasil uses its own quantitative models, which, together with automated collection and regularization platforms, track and manage non-performing customers behavior. These customers profiles are statistically identified based on previous behavior in relation to collection proceedings, which results in determining likelihood of the collection and regularization. I. Customers with a high probability of regularization; II. III. Customers with an intermediate probability of regularization; Customers with a low probability of regularization. Based on information and variables analysis, proceedings, service network, renegotiation and discount policies, as well as credit cession to other companies, are established actions that support BB s collection and regularization model. The conceptual model that supports the process is based on the following assumptions: I. Customer Profile: actions are defined based on customer s profile, taking into consideration variables such as segmentation, relationship level, products contracted, indebtedness with BB, among others; II. III. IV. Service Network: regularization and recovery process occurs in several frameworks on a sequential basis. Simultaneous approach to the customer is avoided; Sequential Actions: credit collection actions are pre-determined according to each customer profile and their intensity increases along the time; Value Relations: variable approach that respects the relationship level of each customer with BB; V. Information Systems: advanced analytical and operating platforms, which automate credit collection process and improve business efficiency, are used. Historic performance of credit collection actions determines the likelihood of credits in default to be regularized. The main consequence of statistical follow-up is the possibility of continuously improve the process with feedback from strategies with best results during the period. The possibility of segregating non-performing customers is an important aspect of the credit collection and regularization strategy, of discount policy and credit cession. Banco do Brasil uses credit cession as part of the recovery strategy, with the purpose of reducing losses and unpaid portfolio management costs, through transactions with autonomous companies Credit Collection, Regularization and Recovery Operating Flow Sequential use of credit collection and recovery channels is closely related to BB s strategy success. 66

69 Banco do Brasil S.A. - MD&A 4Q16 Figure 39. Collection, Regularization and Recovery Network Gecor Network: refers to a group of business units specialized in dealing with past due credits of customers with indebtedness higher than R$ 400 thousand Process Efficiency The following figures show results obtained in credit collection and regularization flow. From the volume of credit that entered to the collection process in the last 12 months, 94.3% were resolved within 360 days in the Dec/16. Figure 40. Credit Regularization Rate Over Collection Period - % Until to to to to to to to 360 Credit Regularization Sep/16 Credit Regularization Dec/16 BB prioritizes receiving past due operations as soon as possible, and even acting preventively to avoid worsening the risk and new write-offs. BB collected and regularized R$ 17.9 billion in the last twelve months. Past due loans classified at risk H represented 10.8% of this amount and 89.2%. Both the amount received as the percent regularized in other risk levels are the largest of the series, reflecting the success of BB collection strategy. 67

70 Chapter 3 - Loan Figure 41. Collection and Regularization before Write Off¹ - % Dec/15 Dec/ Other Risks Risk H months accumulated The recovery strategy of written off credit is geared towards receiving the defaulting operations in cash, which does not generate new credit provisions (ALLL). In the last 12 months R$ 4.6 billion were recovered. From this volume, R$ 2.2 billion were received in cash. Figure 42. Accumulated Recovery (R$ billions) and Cash Recovery Index - % Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 In addition, the following chart demonstrates the behavior of write-offs accumulated in 12 months in relation to average balance of the classified credit portfolio during the same period. BB has better historic indexes than the main market peers. Figure 43. Write-Off Percentage on the Classified Loan Portfolio Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Banco do Brasil Peer Average¹ 1 Corresponds to the three Brazilian largest private banks. 68

71 Banco do Brasil S.A. - MD&A 4Q Renegotiated Loan Portfolio The following table shows the renegotiated loan portfolio. It does not include the renegotiated operations of the agribusiness portfolio, discussed in section of this MD&A. These are the main lines of the following table: a) Renegotiated Credits: loan operations renegotiated during the period, falling due or past due; a.1) Renegotiated When Past Due: loan operations renegotiated during the period due to payment delay by customers; a.2) Renewed: loan operations not past due renegotiated during the period to settle in whole or in part previous operations or any other kind of agreement that changes the maturity or payment terms originally agreed to. Up to 3Q16, it was just available for Individuals and from 4Q16 on, also for Companies. In 4Q16, 17.0% of new renegotiations included more than 90 days overdue operations, and 14.4% included written off operations. Table 75. Renegotiated Loan Portfolio Multiple Bank¹ R$ million 4Q15 1Q16 2Q16 3Q16 4Q16 Credits Renegotiated 13,957 9,811 11,921 9,190 9,955 Renegotiated When Past Due 6,015 3,611 5,026 2,758 3,873 Renew ed - not Past Due 7,942 6,200 6,895 6,432 6,082 Credits Renegotiated When Past Due - Changes Initial Balance 15,520 19,653 22,038 25,050 25,694 New Transactions 6,015 3,611 5,026 2,758 3,873 Amortization Net of Interest² (1,037) (449) (979) (744) (1,113) Write-Off (845) (777) (1,036) (1,370) (1,368) Past due Renegotiated Loan Portfolio (A) 19,653 22,038 25,050 25,694 27,086 ALLL Balance (B) 8,585 9,495 10,369 10,784 11,925 NPL + 90 days (C) 3,171 4,303 5,642 6,370 7,375 Indicators - % ALLL / Loan Portfolio (B/A) NPL + 90 days / Loan Portfolio (C/A) ALLL Balance/NPL + 90 days (B/C) Credits Renegotiated/Classified Portfolio Accordingly to Financial Statements Note 10.k Individuals Statements 2 Principal and interest payments net of interest accrued in period. Figure 44. New NPL and Write-Off Percentage on the Renegotiated Loan Portfolio Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 New NPL (R$ billion) Write Off (R$ billion) New NPL(t)/Credits Renegotiated(t-1) In the next table, the renegotiated loan portfolio breakdown by risk level is shown: 69

72 Chapter 3 - Loan Table 76. Renegotiated Portfolio by Risk Level Dec/15 Sep/16 Dec/16 R$ million Balance Provision Share % Balance Provision Share % Balance Provision Share % AA A 1, , B 2, , , C 2, , , D , , E 4,276 1, ,195 1, ,949 1, F 1, ,634 1, ,147 1, G 1,476 1, ,182 1, ,753 1, H 5,137 5, ,112 6, ,652 6, Total 19,653 8, ,694 10, ,086 11, AA-C 5, , , D-H 13,723 8, ,456 10, ,996 11,

73 Banco do Brasil S.A. - MD&A 4Q Funding The evolution of funding is directly related to the decrease in the volume of credit, in addition to the increase in BB's liquidity applications. The variations in agribusiness letters of credit volume, repurchase agreement with private securities and interbank deposits significantly influenced the decrease in the commercial funding amount in the last quarter. In the annual comparison, the decrease in the commercial funding volume was mainly due to the decrease in the interbank deposits volume and repurchase agreements with private securities. Table 77. Commercial Funding Balance Chg. (%) on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Commercial Funding 669, , , (8.3) (1.0) Saving Deposits 151, , , (0.1) 2.1 Agribusiness Letters of Credits 134, , , (7.3) (6.1) Judicial Deposits 113, , , Time Deposits 90, , , (9.5) (2.3) Demand Deposits 66, , , Rep. Agreement with Private Securities¹ 52, , , (50.9) (19.1) Interbank Deposits 41, , , (50.2) (13.6) Mortgage Bonds² 18, , , (5.8) (2.6) Jointly Controlled Companies 2,674 2,984 2, (1.7) Total Managerial 672, , ,545 (8.3) (1.0) 1 Includes part of the balances of the Repurchase Agreements Private Securities shown on Notes to the Consolidated Financial Statements. 2 Includes the balance of CRI (Certificates of Real Estate Receivables). The following figure shows BB s market share in deposits and money market funding in the BI. Figure 45. Market Share of BB s Funding (R$ billion) Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Demand Deposits (%)Market Share¹ Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Savings Deposits (%)Market Share¹ Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Time Deposits² (%)Market Share¹ Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Money Market Borrowing³ (%)Market Share¹ 1 - Information about share in the BI from the Dados selecionados de Entidades Supervisionadas report of the Central Bank of Brazil website < Position: Sep/ Includes Judicial Deposits. 3 - Includes Total Deposits and Money Market Borrowing. 71

74 Chapter 4 - Funding The following table shows the Institutional Funding balance, consisting in the issuance of securities acquired by institutional investors. Table 78. Institutional Funding Balance Chg. (%) on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Institutional Funding 237, , , (9.9) (0.0) Borrowing, Assignments and Onlending 128, , , (3.9) (0.7) Hybrid Capital Instruments 37, , , (15.7) (1.1) Financial Letters 27, , , Securities Issued Abroad 33, , , (39.1) 0.6 Subordinated Debt Overseas 11, , , (16.4) 1.9 Jointly Controlled Companies 16,639 10,532 12,033 (27.7) 14.3 Total Managerial 254, , ,505 (11.0) 0.6 The decrease in the last 12 months in institutional funding was mainly impacted by a decrease in securities issued abroad, and hybrid capital instruments. The following tables show the BB s foreign funding balance (by type and by product), including Banco Patagonia and BB Americas. Table 79. Funding Abroad Borrowing - Type US$ million Balance Chg. (%) on Type Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Issues and Certificates of Deposit 18, , , (15.8) 0.0 Interbanking Deposits and Loans 16, , , (29.8) (13.8) Businesses 6, , , Individuals 3, , , Repo 1, , (19.7) (12.6) Others (19.5) TOTAL 46, , , (15.9) (3.5) The decrease in foreign funding compared to the last 12 months, was mainly caused by the decrease in interbanking deposits and loans, and issues and certificates of deposit. BB commercial funding abroad is composed by demand deposits, time deposits and saving deposits. Table 80. Funding Abroad Borrowing - Product US$ million Balance Chg. (%) on Product Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Issues and Certificates of Deposit 18, , , (15.8) 0.0 Time Deposits 12, , , (22.9) (10.5) Loans 7, , , (14.5) (11.1) Demand Deposits 2, , , Saving Deposits 1, , , Pledge , , Repo 1, , (19.7) (12.6) Call Account 1, (27.0) 36.8 Over 1, (74.3) 3.5 Special Account (19.5) TOTAL 46, , , (15.9) (3.5) Sources and Uses The indicators in the following table show the relation between funding sources and investments at Banco do Brasil. Given the significant amount of credit originated by domestic onlending, the following table shows the adjusted net loan portfolio indicator over commercial funding, which disregards the credit originated by domestic onlending. 72

75 Banco do Brasil S.A. - MD&A 4Q16 Table 81. Sources and Uses R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Sources 887, , , (10.5) (1.0) Commercial Funding 669, , , (8.3) (1.0) Total Deposits 464, , , (4.0) 1.9 Agrib. Letters of Credit and Mortgage Bonds 152, , , (7.1) (5.7) Repurch. Agreement with Private Securities¹ 52, , , (50.9) (19.1) Domestic Onlending 90, , , (7.8) (2.3) Subordinated Debt 59, , , Foreign Borrowing² 74, , , (32.4) (4.0) Hybrid Capital Instuments 37, , , (15.7) (1.1) Financial and Development Funds 15, , , (1.4) 1.2 Commercial Paper³ 2, , , Compulsory Deposits (60,811) (6.8) (63,637) (7.9) (63,451) (8.0) 4.3 (0.3) Uses 887, , , (10.5) (1.0) Net Loan Portfolio (a) 734, , , (10.8) (3.6) Classified Loan Portfolio 719, , , (9.2) (2.8) Private Securities 48, , , (21.7) (15.8) Allowance for Loan Losses (33,577) (3.8) (37,514) (4.7) (36,070) (4.5) 7.4 (3.8) Available Funds 153, , , (9.2) 13.3 Domestic Onlending Loans (b) 128, , , (4.0) (0.7) Adjusted Net Loan Portfolio (a) - (e) 606, , , (12.2) (4.3) Indicators - % Balance Net Loan Portfolio / Total Deposits Net Loan Portfolio / Commercial Funding Adjusted Net Loan Portfolio / Commercial Funding Net Loan Portfolio / Sources Chg. (%) on 1 - Includes part of the balance of Private Securities shown on Notes to the Consolidated Financial Statements. 2 - Includes Foreign Borrowings, Foreign Securities, foreign Onlending, Subordinated debt abroad and Hybrid Capital and Debit Instruments Abroad. 3 - Includes Letters of Credit and Debentures. The following table presents the fixed income securities issued by BB in the international capital market. Table 82. Current Debt Issues Abroad Issue Date Maturity Volume (US$ thousand) Cupon (%) ¹ Issue price Return for Investor (%) Premium over Treasury Currency Balance Dec/16 (US$ thousand) Rating S&P/Moody's/Fitch Structure 07/18/ /18/ , S BRL 107,411 SR / Ba2 / SR GMTN 04/29/ /15/ , Q USD 36,000 BBB / Ba1 / SR MT /20/2009 Perpetual 1,500, S USD 1,498,500 SR / B2 / SR Perpetual 01/22/ /22/ , S USD 500,000 BB / Ba2 / BB GMTN 10/05/ /15/ , S USD 660,000 SR / Ba3 / SR Subordinated 05/26/ /26/2022 1,500, S USD 1,500,000 SR / Ba3 / SR Subordinated 11/23/ /23/ , S USD 500,000 SR / Ba2 / SR 3(a)2 01/20/2012 Perpetual 1,000, S USD 648,727 B- / SR / SR Perpetual 03/05/2012 Perpetual 750, S USD 750,000 B- / SR / SR Perpetual 06/19/ /19/ , S USD 750,000 B / Ba3 / SR Subordinated 10/10/ /10/2022 1,925, S USD 1,809,700 BB / Ba2 / BB 3(a)2 01/31/2013 Perpetual 2,000, S USD 1,988,000 B- / SR / SR Perpetual 07/25/ /25/ , A mid-swap EUR 738,430 BB / Ba2 / BB GMTN 12/20/ /20/ , A CHF mid-swap+190 CHF 270,483 BB / Ba2 / BB GMTN 03/26/ /25/ , A EUR mid-swap+230 EUR 316,470 BB / Ba2 / BB GMTN 06/18/2014 Perpetual 2,500, S USD 2,169,700 B- / B2 / SR Perpetual 1 - A: annual; S: semiannual; Q: quaterly. Banco do Brasil did not make any debt repurchase operations in 4Q16. 73

76 Chapter 5 - Financial Earnings 5 - Financial Earnings In this chapter the main components of Banco do Brasil s financial results are analyzed Net Interest Income The following tables present two NII visions, set up as follows: the first line represents the NII as recorded in the income statement with reallocations, obtained from the new consolidation standard. The so called Jointly Controlled Companies line presents the balance of the jointly controlled companies that are no longer consolidated. Finally, the last line item shows the managerial figures, obtained from the consolidation method used until the 3Q15. Table 83. Main Indexers Chg. (%) on % 4Q15 3Q16 4Q Q15 3Q CDI (3.6) (6.6) 5.7 TMS (3.5) (6.6) 5.7 TJLP TR (11.2) (15.1) 9.7 Exchange Rate (US$) (16.5) The next table presents the NII s breakdown. Table 84. Net Interest Income Breakdown Rate Quarterly Flow Chg. (%) on Annual Flow Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Net Interest Income 14,267 15,099 15, ,537 59, Net Interest Income W/O Recovery 13,020 14,131 13, (1.1) 48,820 54, Loan Operations 25,332 26,117 25,131 (0.8) (3.8) 94, , Funding Expenses (11,305) (11,366) (10,806) (4.4) (4.9) (42,539) (44,136) 3.8 Financial Expense for Institutional Funding¹ (3,830) (3,737) (3,523) (8.0) (5.7) (14,313) (14,778) 3.2 Treasury² 2,824 3,117 3, ,923 12, Recovery of Write-offs 1, , ,717 4, Jointly Controlled Companies 2,481 2,148 2, ,551 9, Managerial Net Interest Income 15,501 16,279 16, ,371 63, Includes senior debt, subordinated debt and hybrid capital instrument (IHCD) domestic and abroad; 2 - Includes interest income, tax hedges, derivatives and other financial instruments that offset the exchange rate variation in the result. The Net Interest Income (NII) performance and its components highlights are presented below: I. 13.0% up compared to 2015 (R$6,805 million), supported by higher loan operations income (R$6,888 billion) and the increase of the recovery of write-offs (R$854 million). II. Decrease of R$560.2 million and R$213.3 million in Funding and Institutional Funding respectively in the quarter, due volume and rate decrease in some lines Loan Operations Table 85. Loan Operations Quarterly Flow Chg. (%) on Annual Flow Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Revenue from Loans 25,332 26,117 25,131 (0.8) (3.8) 94, , Individuals 9,197 10,559 10, (3.0) 33,686 40, Companies 9,371 8,834 8,434 (10.0) (4.5) 35,676 35, Agribusiness 5,315 5,300 5,139 (3.3) (3.0) 19,303 20, Equalization 1,963 1,706 1,722 (12.2) 0.9 7,569 6,228 (17.7) Abroad (0.5) (7.3) 3,553 2,873 (19.1) Sale or Transference of Financial Assets (24.4) (9.9) 2,096 2, Other Leasing (31.2) (9.9) (19.5) Jointly Controlled Companies 1,062 1,088 1,054 (0.8) (3.1) 3,770 4, Managerial Revenue from Loans 26,393 27,204 26,185 (0.8) (3.7) 98, ,

77 Banco do Brasil S.A. - MD&A 4Q16 Compared to 2015, credit revenues increased R$6,358 million in individuals due to loan portfolio repricing process started in 2015, R$826 million in Agribusiness, due to loan portfolio growth. Even with the reduction of 16.6% in companies portfolio, growth of R$124 million in revenues on this line Funding Expenses Funding expenses cover operations with clients, excluding repo transactions with private securities. It is also part of funding expenses compulsory and FGC expenses. Table 86. Funding Result¹ Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Funding Result (11,305) (11,366) (10,806) (4.4) (4.9) (42,539) (44,136) 3.8 Commercial Funding (8,057) (8,223) (7,832) (2.8) (4.8) (31,012) (31,754) 2.4 Time Deposits (2,163) (2,113) (1,844) (14.8) (12.7) (8,228) (8,070) (1.9) Savings Deposits (2,896) (2,962) (2,857) (1.3) (3.5) (10,979) (11,518) 4.9 Judicial Deposits (2,999) (3,149) (3,131) 4.4 (0.6) (11,804) (12,167) 3.1 Bonds (4,470) (4,511) (4,046) (9.5) (10.3) (15,962) (17,323) 8.5 Agribusiness Letters of Credit (3,987) (4,037) (3,636) (8.8) (9.9) (14,152) (15,488) 9.4 Mortgage Bonds (483) (473) (410) (15.0) (13.3) (1,810) (1,835) 1.4 Compulsory Deposits 1,390 1,535 1,236 (11.1) (19.5) 5,097 5, FGC (169) (166) (163) (3.4) (2.1) (663) (667) 0.6 Jointly Controlled Companies (76) (64) (70) (7.9) 9.7 (302) (283) (6.0) Managerial Funding Expenses (11,381) (11,429) (10,875) (4.4) (4.8) (42,841) (44,419) Repurchase Agreements with Private Securities not included. Quarterly Flow Chg. (%) on Annual Flow In 4Q16, funding expenses decreased compared to the last quarter. The most relevant variations were in expenses with time deposits and Agribusiness letters of credit (R$269 million and R$401 million), due to lower volumes and rates (6.6% CDI reduction in the quarter). Compared to 2015, the TR rose 9.7%, influencing the growth with saving deposits and judicial deposits (R$538 million and R$363 million). The Agribusiness Letters of Credit expenses rose R$ 1,336 million, influenced by the higher volume and CDI during the year, even with the decrease on the 4Q15. The table below shows BB s deposits funding cost compared to the average Selic rate for the period. Table 87. Funding vs. Selic Rate R$ million Average Balance 4Q15 3Q16 4Q16 Cost as % of Selic Average Balance Cost as % of Selic Average Balance Cost as % of Selic Savings Deposits 150,985 (2,896) ,750 (2,962) ,757 (2,857) 58.8 Agribusiness Letters of Credits 135,239 (3,987) ,165 (4,037) ,875 (3,636) 87.6 Time Deposits - Judicial Deposits 113,692 (2,999) ,860 (3,149) ,787 (3,131) 79.9 Time Deposits 89,026 (2,163) ,668 (2,113) ,197 (1,844) 70.0 Demand Deposits 66, , , Interbank Deposits 40,943 (214) ,080 (197) ,969 (177) 24.8 Mortgage Bonds 18,145 (483) ,843 (473) ,816 (410) 75.2 Total Funding 614,256 (12,740) ,561 (12,931) ,603 (12,056) Institutional Funding Expenses The following table shows the breakdown of institutional funding expenses. 75

78 Chapter 5 - Financial Earnings Table 88. Institutional Funding Expenses Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Institutional Funding (3,830) (3,737) (3,523) (8.0) (5.7) (14,313) (14,778) 3.2 Borrow ing, Assignments and Onlending (1,851) (1,909) (1,724) (6.9) (9.7) (6,610) (7,512) 13.7 Financial Letters (903) (1,009) (965) 6.9 (4.4) (3,493) (3,947) 13.0 Hybrid Capital Instruments (607) (470) (472) (22.3) 0.3 (2,245) (1,915) (14.7) Securities Issued Abroad (281) (209) (218) (22.5) 4.3 (1,109) (846) (23.8) Subordinated Debt Abroad (164) (139) (145) (11.6) 4.5 (599) (558) (6.8) Subordinated CDB¹ (23) (257) - - Jointly Controlled Companies (329) (339) (274) (16.7) (19.2) (1,265) (1,245) (1.6) Managerial Institutional Funding (4,159) (4,076) (3,797) (8.7) (6.8) (15,579) (16,023) Not renewed CDB. Quarterly Flow Chg. (%) on Annual Flow From 2015, R$465.1 million growth in institutional expenses, due to the increase of R$1,356 million in Borrowing, Assignment and Onlendings and Financial Letters. These expenses were partially offset by the reduction in expenses with Hybrid Capital Instruments (R$330 million), Securities Issued Abroad (R$263.5 million) and Subordinated CDB (R$256.9 million) Written-Off Credit Recovery More information on the credit recovery process and balances can be found in chapters 3.2 and 3.3 of this report. Table 89. Written-Off Credit Recovery Quarterly Flow Chg. (%) on Annual Flow Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Recovery of Write-offs 1, , ,717 4, Jointly Controlled Companies Managerial Credit Recovery of Write-offs 1,346 1,059 1, ,059 4, Treasury The treasury result covers the outcome with interest and exchange variation of typical treasury activities and contains the result of the incident exchange variation on financial income from loans and borrowing and institutional funding expenses. Table 90. Treasury Results Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Treasury 2,824 3,117 3, ,923 12, Securities 13,380 16,958 16, (0.9) 52,215 62, Open Market (11,264) (13,765) (13,090) 16.2 (4.9) (42,488) (49,679) 16.9 Financial Derivatives 511 (200) (580) (230) (1,156) Other Treasury Components¹ (79.2) (67.3) 1, (64.4) Jointly Controlled Companies (40.5) (29.6) 2,290 1,372 (40.1) Managerial Treasury 3,302 3,521 3, (1.8) 13,213 13, Contains itens not showed in the Treasury breakdown, including Exchange variation. Next, the analyses of treasury components are shown: Securities Income Quarterly Flow Chg. (%) on Annual Flow The table below shows the results of operations with securities presenting only the operations classified by the Central Bank as securities / Interbank Investments. 76

79 Banco do Brasil S.A. - MD&A 4Q16 Table 91. Securities Income Quarterly Flow Chg. (%) on Annual Flow Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Securities Income 13,380 16,958 16, (0.9) 52,215 62, Fixed Income Securities 13,376 16,864 16, (1.2) 52,071 62, Interbank Accounts 10,434 12,930 13, ,932 47, Revaluation Curve 2,982 3,900 3, (8.4) 11,994 14, Income/Loss from Negotiation (110) 22 (53) (52.3) - (525) 79 - Mark to Market (62) 5 (0) (99.4) (92.3) Foreign Income (96.7) (38.0) (94.4) Other Jointly Controlled Companies (25.1) (27.5) 2,486 2,180 (12.3) Managerial Securities Income 14,054 17,655 17, (2.0) 54,702 64, The figure below shows the classification of the BB Multiple Bank portfolio of securities by type of index. Figure 46. Securities Portfolio by Index (BB Multiple Bank)¹ 3Q16 4Q % 10.8% 3.7% CDI / Average Selic Rate Fixed 86.3% 10.9% 2.8% Other 1 3Q16 revised The tables below show the breakdown of the securities portfolio. Table 92. Securities Portfolio by Category Market Value Balance Chg. (%) on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Securities 113, , , (2.7) Available for Trading 7, , , (22.7) (9.6) Available for Sale 102, , , (4.4) Held to Maturity 3, , , Table 93. Securities Portfolio by Maturity Market Value Up to 1 year 1 to 5 years 5 to 10 years Over 10 years R$ million Balance Share % Balance Share % Balance Share % Balance Share % Total Mar/15 19, % 54, % 32, % 6, % 112,643 Jun/15 18, % 49, % 37, % 4, % 109,831 Sep/15 19, % 56, % 29, % 3, % 108,543 Dec/15 19, % 55, % 32, % 6, % 113,684 Mar/16 20, % 71, % 22, % 4, % 117,791 Jun/16 12, % 74, % 23, % 6, % 117,205 Sep/16 12, % 79, % 22, % 8, % 122,339 Dec/16 11, % 74, % 24, % 8, % 119,005 77

80 Chapter 5 - Financial Earnings Table 94. Financial Derivatives Balance Chg. (%) on R$ million Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 Financial Derivatives 3,362 2,985 1,613 (52.0) (46.0) Jointly Controlled Companies 1,336 1,703 1, (21.1) Mangerial Financial Derivatives 4,698 4,688 2,955 (37.1) (37.0) The table below shows the liquidity balance, difference between the liquidity Assets and Liabilities. Table 95. Liquidity Balance Balance Chg. (%) on R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Liquidity Assets (A) 484, , , (4.5) Interbank Investments 352, , , (5.2) Securities (except linked to Bacen) 113, , , (2.5) Available Funds 18, , , (29.1) (1.0) Liquidity Liabilities (B) 375, , , (9.0) Money Market Borrow ing 333, , , (8.7) Interbank Deposits 41, , , (50.2) (13.6) Liquidity Balance (A - B) 109, , , Open Market Operations Open market expenses are mainly expenses incurred in repurchase agreements securities in its own portfolio and third parties. Table 96. Open Market Funding Expenses Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Open Market (11,264) (13,765) (13,090) 16.2 (4.9) (42,488) (49,679) 16.9 Third Party Portfolio (9,233) (11,810) (11,253) 21.9 (4.7) (35,480) (41,987) 18.3 Ow n Portfolio (1,808) (1,750) (1,652) (8.7) (5.6) (6,177) (6,743) 9.2 Interbank Deposits (214) (197) (177) (17.1) (10.2) (816) (915) 12.1 Other Open Market Op. (9) (9) (8) (13.0) (9.6) (15) (34) Jointly Controlled Companies (538) (639) (495) (7.9) (22.5) (1,923) (2,301) 19.7 Managerial Open Market (11,802) (14,405) (13,585) 15.1 (5.7) (44,411) (51,979) 17.0 Other Treasury Components Quarterly Flow Chg. (%) on Annual Flow The other treasury components group contains, in addition to gains/losses results over equity abroad and tax hedge, the foreign exchange variance in loan operations, funding and institutional funding among others, recorded in the "other". Table 97. Other Treasury Components Quarterly Flow Chg. (%) on Annual Flow Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Other Treasury Components (79.2) (67.3) 1, (64.4) Gain (Loss) over Equity Abroad (392) 108 (117) (70.0) - 3,966 (2,358) - Tax Hedge (246) 98 (107) (56.7) - 3,085 (1,863) - Foreign Exchange Portfolio (67.0) (37.7) (39.2) Other 642 (183) 201 (68.7) - (6,154) 4,406 - Jointly Controlled Companies (178) (84) (95) (46.8) 13.4 (1,134) (315) (72.2) Managerial Other Treasury Components (54) (34.2) 78

81 Banco do Brasil S.A. - MD&A 4Q Assets and Liabilities Analysis Assets Analysis Table 98. Average Balances and Interest Rates Earning Assets (Quarterly) R$ million Average Balance¹ 3Q16 Revenues ³ Yearly Rate (%)² Average Balance¹ 4Q16 Revenues ³ Yearly Rate (%)² Earning Assets 1,255,583 44, ,234,731 43, Loans and Leasing⁴ 661,142 26, ,526 25, Secur. + Interbank Invest. w /o Hedge 533,516 16, ,058 16, Remunerated Compulsory Deposits 53,852 1, ,629 1, Other 7, , Non Earning Assets 178, ,495 Other Assets 102, ,439 Tax Credits 44,338 43,880 Permanent Assets 31,637 32,176 TOTAL ASSETS 1,433,800 1,419, Arithmetic average of the closing balances of months that comprise the period; 2 Annualized rate (business day by 252); 3 - Calculated partial effect of exchange rate change; 4 - Included:Loans Operations, Leasing and acquired loan portfolio. Table 99. Average Balances and Interest Rates Earning Assets (Yearly) R$ million Average Balance¹ Revenues ³ Yearly Rate (%)² Average Balance¹ Revenues ³ Yearly Rate (%)² Earning Assets 1,194, , ,232, , Loans and Leasing⁴ 677,001 94, , , Secur. + Interbank Invest. w /o Hedge 458,854 52, ,781 62, Remunerated Compulsory Deposits 48,959 5, ,286 5, Other 9, , Non Earning Assets 187, ,769 Other Assets 119, ,183 Tax Credits 34,085 42,831 Permanent Assets 34,311 31,755 TOTAL ASSETS 1,382,293 1,411, Arithmetic average of the closing balances of months that comprise the period; 2 Annualized rate; 3 - Calculated partial effect of exchange rate change; 4 - Included:Loans Operations, Leasing and acquired loan portfolio

82 Chapter 5 - Financial Earnings Liabilities Analysis Table 100. Average Balances and Interest Rates - Interest Bearing Liabilities (Quarterly) R$ million Average Balance¹ Expenses⁴ Yearly Rate (%)² Average Balance¹ Expenses⁴ Yearly Rate (%)² Interest Bearing Liabilities 1,164,642 (30,798) ,138,740 (29,066) Q16 Money Market Borrow ing 399,196 (13,568) ,940 (12,913) 14.4 Time Deposits 202,528 (5,262) ,984 (4,975) 10.4 Saving Deposits 148,750 (2,962) ,757 (2,857) 8.0 Agribusiness Letters of Credit 134,165 (4,037) ,875 (3,636) 12.1 Subordinated Debt 91,125 (1,618) ,877 (1,582) 7.1 Domestic Borrow ing and Onlending 85,613 (1,259) ,680 (1,226) 6.1 Interbank Deposits 25,080 (197) ,969 (177) 3.3 Foreign Securities Borrow ing 20,579 (209) ,378 (218) 4.2 Foreign Borrow ing and Onlending 23,073 (650) ,164 (497) 9.9 Others Commercial Papers³ 20,294 (474) ,419 (410) 8.9 Financial and Development Funds 14,239 (562) ,698 (574) 16.9 Other Liabilities 269, ,486 Other Liabilities 133, ,351 Shareholder s Equity 76,834 76,933 Demand Deposits 59,194 65,202 TOTAL LIABILITIES 1,433,800 1,419, Arithmetic average of the closing balances of months that comprise the period. 2 Annualized rate (business day by 252); 3 - Included: Letters of Credit, Debentures, Mortgage Bonds and Mortgage Receivables Certificates. 4 - Calculated partial effect of exchange rate change. 4Q16 Table 101. Average Balances and Interest Rates - Interest Bearing Liabilities (Yearly) R$ million Average Balance¹ Expenses⁴ Yearly Rate (%)² Average Balance¹ Expenses⁴ Yearly Rate (%)² Interest Bearing Liabilities 1,122,041 (104,787) 9.3 1,145,401 (115,730) 10.1 Money Market Borrow ing 327,790 (41,672) ,634 (48,763) 13.2 Time Deposits 205,110 (20,032) ,826 (20,236) 10.0 Saving Deposits 147,886 (10,979) ,710 (11,518) 7.7 Agribusiness Letters of Credit 127,911 (14,152) ,360 (15,488) 11.6 Subordinated Debt 92,103 (6,593) ,220 (6,420) 6.9 Domestic Borrow ing and Onlending 90,184 (4,930) ,288 (4,981) 5.8 Interbank Deposits 36,568 (816) ,888 (915) 3.1 Foreign Borrow ing and Onlending 25,576 (1,679) ,984 (2,531) 10.6 Foreign Securities Borrow ing 35,805 (1,109) ,673 (846) 3.7 Others Commercial Papers³ 20,114 (1,810) ,250 (1,835) 9.1 Financial and Development Funds 12,994 (1,013) ,567 (2,196) 15.1 Other Liabilities 260, ,998 Other Liabilities 118, ,579 Shareholder s Equity 74,415 77,262 Demand Deposits 67,522 62,157 TOTAL LIABILITIES 1,382,293 1,411, Arithmetic average of the closing balances of months that comprise the period. 2 Annualized rate 3 - Included: Letters of Credit, Debentures, Mortgage Bonds and Mortgage Receivables Certificates. 4 - Calculated partial effect of exchange rate change

83 Banco do Brasil S.A. - MD&A 4Q Volume and Rate Analysis Table 102. Volume Analysis (Earning Assets) Quarterly Rate R$ million 3Q16 4Q16 Abs. Chg. Assets Earning Assets (a)¹ 1,255,583 1,234,731 (20,852) Net Interest Income (b) 15,099 15, Spread - % (b/a) Gain/(loss) w ith Volume² (251) Gain/(loss) w ith Spread³ Arithmetic average of the closing balances of months that comprise the period. 2 - Gain/(Loss) resulting from multiplying the earning assets volume of the current period for the spread of the previous period net previous NII; 3 - Gain/(Loss) resulting from multiplying the earning assets volume of the previous period for the spread of the current period net previous NII; 4 - Combined Gain/(Loss) of the effects above. Table 103. Volume Analysis (Earning Assets) Yearly Rate R$ million 2015 Abs. Chg. Assets Earning Assets (a)¹ 1,194,742 1,232,630 37,888 Net Interest Income (b) 52,537 59,341 6,805 Spread - % (a/b) Gain/(loss) w ith Volume² 1,666 Gain/(loss) w ith Spread³ 4, Arithmetic average of the closing balances of months that comprise the period. 2 - Gain/(Loss) resulting from multiplying the earning assets volume of the current period for the spread of the previous period net previous NII; 3 - Gain/(Loss) resulting from multiplying the earning assets volume of the previous period for the spread of the current period net previous NII; 4 - Combined Gain/(Loss) of the effects above. See the Net Interest Margin evolution below. Table 104. NIM 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 NII / (Earning Assets) - Annualized ¹ NFM / (Earning Assets) - Annualized NII/Earning Assets average, annualized; 2 - Risk adjusted Net Interest Margin (NII less Provision for Loan Losses)/Earning Assets average, annualized. Table 105. Adjusted NIM and Net Interest Income R$ million 4Q15 3Q16 4Q Average Interest Earning Assets (AIEA) (a) 1,219,170 1,255,583 1,234,731 1,194,742 1,232,630 Average Interest Bearing Liabilities (AIBL) (b) 1,146,321 1,164,642 1,138,740 1,122,041 1,145,401 NII (c) 14,267 15,099 15,333 52,537 59,341 Net Interest Gain (d) 11,929 13,933 14,160 47,519 54,235 Interest Income (1.d) 40,146 44,731 43, , ,965 Interest Expense(2.d) (28,216) (30,798) (29,066) (104,787) (115,730) Net Interest Income Other Items¹ (e) 2,338 1,166 1,173 5,018 5,106 AIBL / AIEA % (b/a) Yield Average Assets² ⁴ - % (1.d/a) Liabilities Average Cost ² ⁴ - % (2.d/b) Net Interest Rate² ³ - % Adjusted NIM² - % (d/a) NIM² % (c/a) Includes derivatives, debt assumption contracts, foreign exchange portfolio, recovery of write-offs, gold loans, credit guarantor fund, foreign exchange gain/loss abroad and other income of a financial intermediation nature. 2 - Annualized Rates. 3 - Difference between average rate of earning assets and average rate of interest bearing liabilities. 4 - Calculated partial effect of exchange rate change. The table below shows the allocation of changes in interest income and expenses due to the variation in the average volume of interest earning assets and interest bearing liabilities and by the change in the average interest rate on these assets and liabilities, during the periods under analysis. 81

84 Chapter 5 - Financial Earnings Table 106. Change in Revenues and Expenses and Change Volume / Rate (Quarterly) 4Q16 / 3Q16 4Q16 / 4Q15 R$ million Average Volume¹ Average Rate ² Net Change³ Average Volume¹ Average Rate ² Net Change³ Earning Assets ⁴ (730) (774) (1,504) 545 2,536 3,081 Secur. + Interbank Invest. w /o Hedge (110) (47) (156) 2,153 1,270 3,422 Loans and Leasing (648) (338) (986) (1,946) 1,745 (201) Remunerated Compulsory Deposits (29) (270) (299) 14 (168) (154) Other 3 (67) (64) (23) Interest Bearing Liabilities ⁴ 661 1,070 1, (1,043) (850) Saving Deposits (19) Interbank Deposits 25 (5) (116) 37 Time Deposits Open Market Borrow ing (1,830) (32) (1,862) Foreign Borrow ing and Onlending (101) 70 Domestic Borrow ing and Onlending (38) 58 Financial and Development Funds (18) 5 (13) (6) 5 (1) Subordinated Debt (30) Foreign Securities Borrow ing (8) (1) (9) 164 (100) 63 Agribusiness Letters of Credit Others Commercial Papers⁵ (11) Net Change - Average Rate. 2 - (Current Period Interest / Current Period Balance) x (Previous Period Balance) - (Previous Period Interest). 3 - Current Period Interest - Previous Period Interest. 4 - Calculated according to the same methodology presented in footnotes 1, 2 and 3; 5 - Included: Letters of Credit, Debentures, Mortgage Bonds and Mortgage Receivables Certificates. Table 107. Change in Revenues and Expenses and Change Volume / Rate Yearly R$ million Average Volume¹ Average Rate² Net Change³ Earning Assets ⁴ 5,224 12,435 17,659 Secur. + Interbank Invest. w /o Hedge 5,450 4,710 10,159 Loans and Leasing (1,280) 8,169 6,888 Remunerated Compulsory Deposits Other (84) Interest Bearing Liabilities ⁴ (2,360) (8,583) (10,943) Saving Deposits (140) (398) (538) Interbank Deposits 205 (304) (99) Time Deposits 228 (432) (204) Money Market Borrow ing (5,403) (1,689) (7,092) Foreign Borrow ing and Onlending 168 (1,020) (852) Domestic Borrow ing and Onlending 225 (276) (51) Financial and Development Funds (237) (946) (1,183) Subordinated Debt (77) Foreign Securities Borrow ing 490 (226) 264 Agribusiness Letters of Credit (633) (703) (1,336) Others Commercial Papers⁵ (12) (13) (25) 1 - Net Change - Average Rate. 2 - (Current Period Interest / Current Period Balance) x (Previous Period Balance) - (Previous Period Interest). 3 - Current Period Interest - Previous Period Interest. 4 - Calculated according to the same methodology presented in footnotes 1, 2 and 3; 5 - Included: Letters of Credit, Debentures, Mortgage Bonds and Mortgage Receivables Certificates. /

85 Banco do Brasil S.A. - MD&A 4Q Credit Spread by Portfolio Determining the managerial financial margin begins as follows: a) Accrued interest income, classified by type of portfolio; b) The opportunity costs defined for each of the lines that make up the portfolios are deducted. For credit intended for individuals and companies, 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 source of funding and the need to implement a mandatory part of this funding source. Table 108. Managerial Margin Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q Loan Operations 10,971 11,424 11, (1.2) 40,871 45, Individuals 5,138 5,629 5, ,624 22, Companies 3,807 3,583 3,458 (9.2) (3.5) 14,475 14, Agribusiness 2,026 2,211 2, (1.5) 7,773 8, Spread Quarterly Flow Chg. (%) on Annual Flow The following table presents the managerial spread by portfolio. The rate results from the managerial financial margin divided by respective average balances. Table 109. Spread by Portfolio % 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Loan Operations Individuals Companies¹ Agribusiness Government operations not included. 83

86 Chapter 6 - fee Income 6 - Fee Income The Bank aim for excellence in the relationship with customers and the services expansion volume. The digital transformation, which consists in product and service digitization, provides the clients more comfort, agility and convenience in purchase experience. The strategy initially adopted with the clients of the Estilo Digital segment, generated gains in operational efficiency and profitability compared to face-to-face service. More assertive offer of customized products and services brings the needs of the clients closer to the solutions that the Bank offers, a strategy that generates greater satisfaction and profitability per customer. In annual comparison, highlight for checking account fees and asset management fees. The fee income related to 2015 includes part of the interchange revenues from Cateno. Excluding these revenues, the evolution of fee income in /2015 comparison would have been 8.8%. Table 110. Fee Income Quarterly Flow Chg. (%) Annual Flow Chg. (%) R$ million 4Q15 3Q16 4Q16 4Q15 3Q Fee Income 5,982 6,022 6, ,470 24, Checking Account Fees 1,458 1,600 1, ,224 6, Asset Management Fees 890 1, (4.4) 3,513 3, Insurance, Pension and Premium Bonds ,915 3, Collections (1.0) (2.0) 1,699 1,679 (1.2) Loan Fees ,718 1,684 (2.0) Credit / Debit Cards (18.8) 4.8 1,806 1,372 (24.0) Billings ,045 1, Interbank National Treasury and Manag. of Official Funds Fiduciary Services (7.1) Consortium (4.3) Capital Market Other (13.5) 4.6 1,900 1,867 (1.8) Jointly Controlled Companies 1,268 1,383 1, ,455 5, Managerial Fee Income 7,250 7,405 7, ,925 29, In the following sections are presented the main fee generator business in Banco do Brasil Checking Account Fees BB maintained the growth in its customer base in the last quarters. BB s customers and checking accounts basis in the last 12 months are shown below. Table 111. Customers and Checking Accounts thousands Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Dec/15 Sep/16 Customers 63,566 63,890 64,187 64,383 64, Checking Accounts 37,841 37,824 37,755 37,808 37,307 (1.4) (1.3) Individuals 35,420 35,419 35,353 35,177 34,902 (1.5) (0.8) Companies 2,421 2,406 2,402 2,631 2,405 (0.7) (8.6) 6.2. Payment Methods Position Chg. (%) BB maintains its card business expansion earnings strategy, diversifying its activities by launching new products and solutions contributing with the best customer service combined with operational efficiency. The search for synergies and business expansion in partnership with the affiliate companies complement the strategy. 84

87 Banco do Brasil S.A. - MD&A 4Q16 The electronic payment methods main business organizational chart, in which Banco do Brasil has direct or indirect equity interest, is presented below. Figure 47. Payment Methods Organizational Chart Main Companies¹ 1 It considers December 31, position Cards Base and Turnover BB is one of the Elo, Visa and Mastercard credit card brands leading issuers, position achieved due to a wide customer base and diversified operational strategy, in addition to issuing cards with multiple functions (credit, debit, prepaid, banking and sales) platform. The table below shows the total cards issued (credit, debit and prepaid). Table 112. Cards Base Chg. (%) thousands Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 Total of Cards 76,502 74,872 68,790 (10.1) (8.1) Credit Cards 22,633 20,875 17,937 (20.7) (14.1) Elo 2,367 2,721 2,343 (1.0) (13.9) Debit Cards/Prepaid 53,868 53,997 50,853 (5.6) (5.8) Elo 5,659 7,539 6, (9.4) BB s cards base with recurring use i.e., with at least one purchase in the last thirty days - was 8.3 million for the credit function and 11.9 million in debit function, in Dec/16. These figures reinforce the high growth potential of the card businesses vis à-vis the significant existing base of card-holding customers in the BB Holding The following table shows the amount of transactions with BB cards. 85

88 Chapter 6 - fee Income Table 113. Number of Transactions Quarterly Flow Chg. (%) Annual Flow Chg. (%) million 4Q15 3Q16 4Q16 4Q15 3Q Number of Transactions ,331 2, Credit Cards , Debit Cards/Prepaid ,359 1, The financial volume transacted (total turnover), in, grew 5.5% compared to the same period of the previous year. Considering only traditional transactions, there was a 8.1% increase in the same period comparison. Figure 48. Total Turnover R$ billion Q16 2Q16 3Q16 4Q Debit/Prepaid Cards Credit Cards Figure 49. Traditional and Specific Business Total Turnover R$ billion Q16 2Q16 3Q16 4Q Especific Business¹ Traditional Segment 1 It is included transactions with Ourocard Agribusiness, Ourocard Crediário, BNDES Card, bills payd with credit cards, Prepaid Ourocard and Alelo and B2B/companies purchases Cards Service Income Cards service operating income derives from the issuance and cards use in credit, debit and installment credit transactions by customers and from credentialing/acquiring services, prepaid cards and card brands, which are provided by Bank s affiliates. Cards service operating income does not include revenues and expenses arising from minimum or partial invoice payment (revolving credit). However, it includes the administrative and operating costs directly related to the card business, identified to the present period. 86

89 Banco do Brasil S.A. - MD&A 4Q16 The following table show the breakdown of the card service operational income and the income after taxes. Table 114. Cards Service Income and Expenses Quarterly Flow R$ million 4Q15 4Q16 Chg. (%) Total Operating Income 2,312 2, Issuance 1, (1.2) Acquiring 637 1, Other Revenues (18.0) Expenses (1,429) (1,674) 17.1 Issuance (665) (628) (5.6) Acquiring (650) (917) 41.1 Other Expenses (114) (129) 13.2 Cards Services Income Tax Effect (322) (357) 10.9 Cards Services Income After Tax Table 115. Cards Service Income and Expenses Annual Flow R$ million 2015 Chg. (%) Total Operating Income 8,697 9, Issuance 3,671 3, Acquiring 2,452 3, Other Revenues 2,574 2,462 (4.4) Expenses (5,345) (5,909) 10.6 Issuance (2,648) (2,559) (3.4) Acquiring (2,295) (2,787) 21.4 Other Expenses (402) (563) 40.1 Cards Services Income 3,352 3, Tax Effect (1,198) (1,357) 13.3 Cards Services Income After Tax 2,154 2, Asset Management BB Gestão de Recursos DTVM SA, based in Rio de Janeiro and with an office in São Paulo, is primarily engaged in the administration, funds management e distribution and portfolios managed. The graph below shows the Brazilian asset management industry evolution and the BB Asset Management DTVM market share in the ANBIMA (Brazilian Association of Financial and Capital Markets) ranking, since Figure 50. Fiduciary Management and Market Share R$ billion ,269 1, , , , , ,509 1,778 1,868 2,002 2,200 2, BB Market (ex-bb) Market Share - % Source: Anbima. 87

90 Chapter 6 - fee Income According to ANBIMA s Asset Management Ranking, BB DTVM is a leader in the following segments: institutional investors, government and retail. The following tables show the distribution of the managed assets by customer and by type of product. Table 116. Investment Funds and Managed Portfolio by Customer Balance Chg. (%) R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Institutional Investors 281, , , Government 103, , , Retail 78, , , High income 43, , , RPPS 39, , , Private 21, , , Middle Market 14, , , Corporate 13, , , Foreign Investors 8, , , (8.3) (6.1) Total 603, , , According to the ANBIMA s Asset Management ranking, data on the distribution by type are disclosed without the deduction of quotas of own and third-party funds, that in Dec/ was R$3.9 billion. Table 117. Investment Funds and Managed Portfolio by Type Balance Chg. (%) R$ million Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Investment Fund 591, , , Fixed¹ 382, , , Equity 40, , , (8.6) (5.7) Multimarket 13, , , Others² 156, , , Managed Portfolios 15, , , (1.9) 4.2 Fixed 15, , , (2.1) 4.2 Equity (1.1) Total 607, , , From October 2015 on, in accordance to CVM Instruction no. 555, the Short-Term, Referenced in DI Index and External Debt Funds were grouped in Fixed Income category. 2 - Includes Pension, Exchange, FIP, ETF, Real Estate and e Off Shore funds. Custody Banco do Brasil stands out as one of the main custody, controllership, accounting and bookkeeping assets industry leaders. BB ended with R$808 billion in custody, 17.8% over the same period of the previous year. The custody volume expansion in is mainly due to: i) increase in the BB DTVM assets under management; ii) iii) advance in Credit Receivables Investment Funds, and; growth in social security sector net resources. The next graph shows the evolution of the custody resources in Banco do Brasil. 88

91 Banco do Brasil S.A. - MD&A 4Q16 Figure 51. Domestic Custody Total Assets and Market Share R$ billion Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Third-Party Own Resources Market Share - % Source: Anbima. Sustainability Currently, BB DTVM manages five investment funds with socio-environmental characteristics. The following table shows the balance of assets under management in these funds. Table 118. Management of Investment Funds With Socio-Environmental Characteristics Chg. (%) R$ million Dec/15 Dec/16 Dec/15 BB Multi Global Acqua LP Private FI (49.5) BB Referenciado DI Social (8.5) BB Previdenciário Ações Governança BB Ações ISE Jovem FIC BB Ações Carbono Sustent. FIA (11.1) Total (33.9) Source: CVM - Brazilian Securities and Exchange Commission Capital Market Balance Banco do Brasil operates in the capital market through its wholly-owned subsidiary BB-Banco de Investimento S.A.(BB-BI). In the international capital markets, BB operates through its wholly-owned subsidiaries: BB Securites Ltd. (London), Banco do Brasil Securities LLC. (New York) and BB Securities Asia Pte Ltd. (Singapore). BB-BI s portfolio includes services that involve market research, transactions structuring and distribution, assets settlement and custody, as well as products and services for individuals and companies. The main products and services are highlighted below: I. Mergers and acquisitions: BB-BI provides financial advice on acquisitions, corporate restructuring (business combinations, split-offs and mergers), private placements, public offering of shares (IPO) and issues appraisal and fairness opinion reports for companies. II. Gold: The Bank provides gold purchase and sale services for its customers, in the form of gold certificates or ingots, as well as services related these assets custody. III. Private Equity: BB-BI holds shares in 15 funds and acts as an advisor for 7 of them, with 53 indirect investments in companies located in various regions in Brazil, from a number of sectors (energy, infrastructure, logistics, ports, railways, agribusiness, etc.) and in different stages of development (consolidated companies, emerging companies and companies with innovative technology). 89

92 Chapter 6 - fee Income IV. Fixed Income: (i) Domestic market: services for debentures, commercial notes and financial bills coordination, structuring and placement are offered through BB Investimentos.(ii) International market: coordination, structuring and placement of securities issued by companies, banks and the Government through brokerage houses based in London, New York and Singapore, which makes BB a global player in the capital market. V. Equity: BB-BI provides all stages public share offerings advisory services, tender offers for acquisition of shares (OPAs) and offerings of Cepacs (instruments used to raise resources to fund public construction projects). It also provides services related to the structuring and placement of Real Estate Investment Funds (FII). For individual investors, the equity portfolio includes share purchase and sale services, and, for private banking investors, it also includes share lease services. VI. Securitization: The contracting companies rely on BB-BI s experience to structure, coordinate and distribute receivables transactions. The securities negotiable in Capital Markets, arising from the securitization transactions, are Receivables Investment Funds (FIDCs), Real Estate Receivables Certificates (CRIs) and Agribusiness Receivables Certificates (CRAs). Performance in the Capital Market In, BB-BI participated in 33 operations, including debentures and promissory notes, with a volume of R$10.8 billion. In origination, BB was the 3 rd, on the Anbima ranking, with a market share of 16.6%. In securitization market, we coordinated 12 Agribusiness Receivables Certificate (CRA) operations, totaling R$1.2 billion, which ranked BB BI in 2 nd place in Anbima origination ranking in the year. In relation the foreign capital market BB ended in second place in ANBIMA foreign issuance ranking. In 4Q16, 02 Brazilian issuers accessed the international bond market, issuing a total of US$1.25 billion, with BB acting as lead manager in one of the transactions, in the amount of US$750 million. Regarding foreign companies, BB co-managed 3 transaction in 4Q16 totaling US$6.26 The following graph demonstrates BB-BI performance in the domestic and international market of fixed income securities. Figure 52. Fixed Income Securities Origination Domestic and International Markets ,540 30,564 18,972 21,799 10,675 8,709 8,316 1, ,688 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q Volume (R$ million) Revenues (R$ million) For retail investors, BB-BI offers the sale and purchase of shares service through BB s branch service network, internet (home broker) and mobile. In 4Q16, the trading volume was R$10.1 billion. The following graph shows the quarterly series. 90

93 Banco do Brasil S.A. - MD&A 4Q16 Figure 53. Individuals Equity Secondary Market ,805 36,490 6,816 8,048 6,057 5,883 7,399 8,705 10,316 10,069 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q Volume (R$ million) Revenues (R$ million) In the private equity industry, BB-BI holds quotas in 15 funds. The total capital allocated by BB-BI to the private equity sector is R$1,306.8 million, as shown in following table. Table 119. Private Equity Indirect Interest R$ million Commited Capital of BB-BI Dec/15 Sep/16 Dec/16 Share in Committed Capital of the Fund (%) Commited Capital of BB-BI Share in Committed Capital of the Fund (%) Commited Capital of BB-BI Share in Committed Capital of the Fund (%) FIP Angra Infraestrutura FIP Logística Brasil FIP Brasil Energia FIP Infra Brasil FIP Coliseu FIP Redentor FMIEE Rio Bravo Nordeste II FMIEE Jardim Botanico VC I FMIEE Fundotec II FIP Fundo Brasil de Governança Corporativa FIP Brasil Agronegócio FIP Brasil Sustentabilidade FIP Fundo Brasil de Internacionalização de Empresas FIP Brasil Portos e Ativos Logísticos FIP Brasil Óleo e Gás FIP Fundo Brasil de Internacionalização de Empresas II Total 1, , ,306.8 The figure below shows the balance held by BB-BI in the gold market and revenues from custody. 91

94 Chapter 6 - fee Income Figure 54. Gold Custody Balance and Revenues Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Custody Value (R$ million) Revenues (R$ million) 6.5. Insurance BB Seguridade is the Banco do Brasil insurance group. Established in 2012, the company resulted from the corporate restructuring undertaken since Among its activities are the sale of insurance products, pension plans, premium bonds and brokerage services. Additional information on BB Seguridade and insurance businesses can be found in that company s MD&A, available at The following table shows the main BB Seguridade performance ratios. 92

95 Banco do Brasil S.A. - MD&A 4Q16 Table 120. BB Seguridade Performance Ratios R$ million 4Q15 3Q16 4Q16 Performance Ratios - % Insurance - Life, Mortgage Life and Rural Loss Ratio¹ Comission Ratio² Technical Margin Combined Ratio³ Expanded Combined Ratio⁴ Adjusted ROAE Insurance - Property and Casualty Loss Ratio¹ Comission Ratio² Technical Margin Combined Ratio³ Expanded Combined Ratio⁴ Adjusted ROAE Pension Plans Comission Ratio² Adjusted ROAE Premium Bonds Comission Ratio² Premium Bonds Margin Adjusted ROAE Brokerage Quarterly Flow Adjusted Operating Margin Adjusted Net Margin Loss Ratio = Expenses with Claims / Earned Premiums. 2 Comission Ratio = Acquisition Costs / Earned Premiums. 3 Combined Ratio = (General Expenses + Administrative expenses + Acquisition Costs + Expenses with Claims + Revenue of Policy Issuance + Result with Reinsurance) / Earned Premiums. 4 Expanded Combined Ratio = (General Expenses + Administrative Expenses + Acquisition Costs + Expenses with Claims + Revenue of Policy Issuance + Result with Reinsurance) / (Earned Premiums + Net Investment Income) Consortium The consortium market had R$74 billion businesses in November, according to recent data from the Brazilian Association of Consortium Administrators - ABACl, the number of customers was 6.9 million. Banco do Brasil operates in the consortium market through its subsidiary, BB Administradora de Consórcios S.A. In Nov/16, according to the latest data available in Brazilian Central Bank, BB Consórcios had a 9.7% market share. Table 121. Consortium Current Quotas per Type Balance Chg. (%) units Dec/15 Share % Sep/16 Share % Dec/16 Share % Dec/15 Sep/16 Auto 601, , , (4.6) Mortgage 18, , , Motorcycle 10, , , (5.4) (0.4) Tractor/Truck 7, , , Electric and Electronic Devices 3, , , (2.6) Services 3, , , (16.1) (13.2) Total 644, , , (4.3) 93

96 Chapter 6 - fee Income Figure 55. Consortium Fee Income and Current Quotas , , , , ,495 4Q15 1Q16 2Q16 3Q16 4Q16 Active Quotas (units) Management Fees - R$ million The tables below show a comparison of the average ticket, average term and average management fee of the quotas sold in the last periods. Table 122. Consortium Average Ticket Balance R$ 4Q15 1Q16 2Q16 3Q16 4Q16 Mortgage 169, , , , ,867 Tractor/Truck 141, , , , ,346 Auto 27,846 33,114 35,394 31,232 39,431 Motorcycle 9,052 9,451 9,881 10,907 11,833 Services 5,247 7,143 7,101 7,343 7,360 Electric and Electronic Devices 2,989 4,589 4,535 4,736 4,557 Table 123. Consortium¹ Average Term and Average Management Rate Average Term (months) Average Rate (%) Average Term (months) Average Rate (%) Average Term (months) Average Rate (%) Mortgage Tractor/Truck Auto Motorcycle Services Electric and Electronic Devices Contracted in the period 4Q15 3Q16 4Q16 94

97 Banco do Brasil S.A. - MD&A 4Q Productivity and Efficiency Banco do Brasil has improved its operational efficiency and productivity due to strict control of administrative, personnel and operating expenses Key Productivity Indicators This section presents the productivity indicators usually adopted in the analysis of financial institutions. In the following table it is presented the Pre-Tax and Pre-Provision Earnings, which is composed primarily by the banking product and the total operating expenses, and shows the evolution of the Bank's businesses. Table 124. Pre-Tax and Pre-Provision Earnings Quarterly Flow Chg. (%) Annual Flow Chg. (%) R$ million 4Q15 3Q16 4Q16 4Q15 3Q Total Operating Income (Banking Product) 24,262 24,370 24, ,788 96, Operating Income 23,868 24,299 24, ,094 95, Net Interest Income 14,267 15,099 15, ,537 59, Fee Income 5,982 6,022 6, ,470 24, Eq. Interest of Subsidiaries and Affiliates 979 1,064 1, ,830 4, Other Operating Income 2,640 2,113 2,008 (24.0) (5.0) 8,257 7,990 (3.2) Previ - Plano de Benefícios 40 (141) (141) - (0.0) 358 (389) - Previ - Fundo de Utilização Restatement (57.2) (28.7) 1,337 1,044 (21.9) Total Operating Expenses (13,700) (13,655) (14,262) (49,350) (53,991) 9.4 Administrative Expenses (8,480) (8,419) (8,617) (31,709) (32,817) 3.5 Personnel Expenses (5,031) (5,283) (5,210) 3.6 (1.4) (19,296) (20,238) 4.9 Other Administrative Expenses (3,449) (3,137) (3,406) (1.2) 8.6 (12,413) (12,579) 1.3 Legal Risk (905) (629) (748) (17.4) 18.9 (1,966) (2,747) 39.7 Other Tax Expenses (130) (121) (96) (26.1) (20.7) (467) (426) (8.9) Taxes on Revenues (1,167) (1,274) (1,327) (4,322) (5,116) 18.4 Other Operating Expenses (3,018) (3,212) (3,475) (10,886) (12,885) 18.4 Non-Operating Income Pre-Tax and Pre-Provision Earnings 10,590 10,770 10, (1.3) 39,605 42, In the table below it is presented the main indicator disregarding the lump-sum bonus granted to employees regarding the CBA (collective bargaining agreement) /2018, in the amount of R$392.8 million. Table 125. Efficiency Ratios Quarterly Flow Chg. (%) Annual Flow Chg. (%) R$ million 4Q15 3Q16 4Q16 4Q15 3Q Pre-Tax and Pre-Provision Earnings¹ 10,590 10,377 10, ,605 42, Administrative Expenses¹ (8,480) (8,812) (8,617) 1.6 (2.2) (31,709) (33,210) 4.7 Cost-to-Income Ratio (%)² It excludes the lump-sum bonus granted to employees in 3Q16 (R$ million). 2 - The cost-to-income ratio is calculated considering the last 12 months. In the next table it can be seen that the personnel expenses coverage ratio (fee income/personnel expenses), administrative expenses coverage ratio (fee income/administrative expenses) and cost-toincome ratio (administrative expenses/total operating income) improved due to the positive performance of the net interest income and fee income in the /2015 comparision, besides the strict expenses control. 95

98 Chapter 7 - Productivity and Efficiency Table 126. Cost-to-Income and Coverage Ratios Adjusted¹ Quarterly Flow Annual Flow % 4Q15 1Q16 2Q16 3Q16 4Q Fee Income/Personnel Exp. - Quarterly Fee Income/Personnel Exp months Fee Income/Administ. Exp. - Quarterly Fee Income/Administ. Exp months Cost-to-Income Ratio Cost-to-Income Ratio - 12 months It refers to the Income Statement with Reallocations. The following table shows other productivity ratios. Table 127. Other Productivity Ratios Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Assets per Employee - R$ thousand 12,832 12,787 13,184 13,267 13,927 Checking Accounts/Own Service Network 2,148 2,166 2,197 2,212 2,244 Checking Accounts/Employees in Branches Fee Income/Own Service Network - R$ thousand Personnel Expenses per Employee - R$ thousand Credit Portf. (Broad Definition)/Own Service Network - R$ million Employees in Branches/(Branches+Services Posts) The following charts show the evolution of BB s productivity over the last 5 years. The first graph shows the growth of individuals classified loan portfolio and the number of branches over the previous period. Figure 56. Individuals Loan Portfolio and Branches (1.0) (0.2) Dec/12 Dec/12 Dec/13 Dec/13 Dec/14 Dec/14 Dec/15 Dec/15 Dec/16 Dec/16 Indiv. Loan Portfolio - Average 12M Branches - Average 4 quarters The next chart shows the evolution of the bank product (total operating revenues) and the number of branches. Figure 57. Bank Product and Branches (0.2) (1.0) Dec/12 Dec/12 Dec/13 Dec/13 Dec/14 Dec/14 Dec/15 Dec/15 Dec/16 Dec/16 Bank Product - Average 12M Branches - Average 4 quarters 96

99 Banco do Brasil S.A. - MD&A 4Q Personnel Expenses In the /2015 comparison, the personnel expenses increased 4.8%. Disregarding the lump-sum bonus granted to employees regarding the CBA /2018, growth would be only by 2.3%, significantly lower than the inflation of the same period. Table 128. Personnel Expenses Chg. (%) R$ million 4Q15 3Q16 4Q16 4Q15 3Q Personnel Expenses (5,031) (5,283) (5,210) 3.6 (1.4) (19,296) (20,238) 4.9 Salaries (2,787) (2,350) (3,267) (9,666) (10,555) 9.2 Social Charges (943) (782) (973) (3,358) (3,353) (0.2) Administrative Personnel Provisions¹ (303) (1,265) (2,831) (2,585) (8.7) Benefits (723) (661) (796) (2,574) (2,789) 8.4 Pension Fund (239) (198) (256) (754) (842) 11.7 Training (23) (15) (22) (4.8) 49.9 (68) (65) (3.8) Remunerat. for Directors and Officers (12) (12) (13) (46) (49) 7.6 Jointly Controlled Companies (338) (329) (340) (1,288) (1,326) 3.0 Personnel Expenses Managerial (5,369) (5,611) (5,550) 3.4 (1.1) (20,584) (21,564) Excludes expenses with labor lawsuits. Quarterly Flow Chg. (%) Annual Flow The following informations show the changes in BB s staff and the staff members profile. Figure 58. BB s Staff Evolution 113, , , , , , , , , ,622 4,066 4,612 4,725 3,592 2,328 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Employees Interns Table 129. BB s Staff Members Profile Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Employees 109, , , , ,622 Female 45,382 45,627 45,542 45,408 41,549 Male 63,809 64,237 64,073 63,751 59,073 Educational Level High School 23,489 23,635 22,846 22,060 19,750 College 47,658 47,563 47,210 46,916 43,083 Specialization, Master's and Doctorate 37,728 38,356 39,250 39,875 37,575 Others Turnover - Quarterly Index (%) The turnover index 8.6 in Dec/16 reflects the Plano Extraordinário de Aposentadoria Incentivada (PEAI), as announced in a material fact on November 20, Other Administrative Expenses In the following table the total balance is presented in accordance with current regulations and the line referring to the balance of jointly controlled companies and affiliates, enabling comparability to prior periods. 97

100 Chapter 7 - Productivity and Efficiency In the /2015 comparison the other administrative expenses increased 1.3%, below the guidance range. In relation to the last quarter, the following variations stand out: I - Rent and Property Maintenance - increase of R$47.9 million, referring to new contracts, and contractual adjustments and indemnities paid for the return of real estate; II - Security and Transport Services - increase of R$35 million, due to the variation from the annual price adjustment provided for the armed surveillance contracts (price renegotiation); III - Amortization and Depreciation - an increase of R$13.6 million, mainly due to the construction and remodeling of real estate properties, acquisition of furniture and equipment, data processing equipment and software. Table 130. Other Administrative Expenses Chg. (%) R$ million 4Q15 3Q16 4Q16 4Q15 3Q Other Administrative Expenses (3,449) (3,137) (3,406) (1.2) 8.6 (12,413) (12,579) 1.3 Rent and Property Maintenance¹ (603) (758) (600) (0.6) (20.8) (2,607) (2,662) 2.1 Security and Transport Services (626) (627) (634) (2,303) (2,371) 2.9 Telecommunications and Data Processing (367) (381) (660) (1,920) (2,015) 4.9 Expenses with Outsourced Services (521) (467) (520) (0.3) 11.4 (1,953) (1,933) (1.0) Amortization and Depreciation (333) (345) (357) (1,293) (1,376) 6.4 Advertising and Public Affairs (280) (140) (179) (35.8) 27.8 (639) (566) (11.4) Other Administrative Expenses (718) (418) (455) (36.6) 8.8 (1,697) (1,655) (2.5) Jointly Controlled Companies (538) (478) (529) (1.7) 10.7 (1,762) (1,886) 7.1 Managerial Other Adm. Expenses (3,987) (3,614) (3,935) (1.3) 8.9 (14,174) (14,465) Revised series since 1Q15. Quarterly Flow Chg. (%) Annual Flow The data on the structure of the Bank to contribute to the formation of other administrative expenses, is presented as follows Service Network Banco do Brasil ended with 66.5 thousand points of service, including its own service network, shared network channels and agents in the country. It is present in 99.7% of the Brazilian municipalities. BB has partnerships for ATM sharing and to use the chain of lottery stores for withdrawals, deposits, payments and other services. These partnerships consolidate the wide spread and national customer service of Banco do Brasil and its effects can be realized in the reduction of electronic service stations of the network itself and the increase in the amount of the Banco 24h terminals shared network. The table below shows the breakdown of BB s Service Network Table 131. Service Network Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 Own Service Network 17,614 17,092 16,625 (5.6) (2.7) Branches 5,429 5,430 5, Service Posts 1,799 1,736 1,705 (5.2) (1.8) Automated Service Posts 10,386 9,926 9,480 (8.7) (4.5) MaisBB Network 14,361 13,676 13,630 (5.1) (0.3) Agents in the Country¹ 8,206 7,531 7,484 (8.8) (0.6) Banco Postal 6,155 6,145 6,146 (0.1) 0.0 Shared Network Channels 35,708 36,004 36, CEF - Lottery Stores 13,161 13,096 13,077 (0.6) (0.1) Banco 24h 18,550 19,456 19, ATM: BRB + CEF 3,997 3,452 3,296 (17.5) (4.5) Total 67,683 66,772 66,496 (1.8) (0.4) 1- Review of agreements with agents in the country. Quantity Chg. (%) 98

101 Banco do Brasil S.A. - MD&A 4Q16 BB has the largest branch network in Brazil. The following table shows the distribution of branches by region of the country. Table 132. Branch Network by Region BB Banking Industry Share % Southeast 2,435 12, Northeast 1,139 3, South 1,060 4, Middle West 486 1, North 320 1, Total 5,440 23, Automated Service Channels BB s automated service channels are a strategic advantage, providing a wide range of services and products to customers, contributing to cost control. At the end of 4Q16, these channels accounted for 96.2% of transactions. Mobile and Internet Banking BB Mobile and Internet Banking seek to make the customers experience increasingly simple, fast, secure and convenient, with the availability of a broad product and service portfolio in order to provide service where the customer is at any time. The transactions made through these channels are responsible for a significant portion of total banking transactions at Banco do Brasil. The next figure shows the evolution of the percentage of transactions performed by service channel. Figure 59. Transactions by Service Channels - % Dec/13 Dec/14 Dec/15 Dec/16 Internet + Mobile POS + Agents in the Country Other Service Channels (ATM + CABB + Branch Cash) The next two charts show the recent evolution of the number of registered users and transactions in mobile and internet banking channels, respectively. Figure 60. Number of Registered Users (million) Internet and Mobile Dec/13 Dec/14 Dec/15 Dec/16 Internet Mobile 99

102 Chapter 7 - Productivity and Efficiency Figure 61. Number of Transactions (million) Individuals Internet and Mobile CAGR 50.6% 2, , , , , Q13 4Q14 4Q15 4Q16 Internet Mobile Automated Teller Machines Banco do Brasil has the largest automated teller machine (ATM) network in the country. The following figure shows the number of ATMs owned by BB, ATMs from the partnership with Caixa Econômica Federal (CEF), Banco de Brasília (BRB) and the Banco24h network. Figure 62. Automated Teller Machines 65,601 64,888 64,785 64,860 63,706 3,997 3,635 3,599 3,452 3,296 18,550 18,504 18,935 19,456 19,868 43,054 42,749 42,251 41,952 40,542 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Automated Teller Machines ATM: Banco 24h ATM: BRB + CEF The next chart shows that the ATMs, compared with the branches and service posts, account for absolute most of the basic banking transactions such as multiple checks, withdrawals, deposits and payments. Figure 63. Transactions - ATMs vs Teller (% average) Q13 4Q14 4Q15 4Q16 Check Withdrawals Deposits Payments 100

103 Banco do Brasil S.A. - MD&A 4Q16 Technology Investiments Banco do Brasil continually invests in technology to improve operational efficiency, reduce operating losses, expand business and improve customer service. Between 2010 and were invested R$21.1 billion. The next figure shows the distribution of the total amount invested throughout the period. Figure 64. Tecnology Investments Total Technology Investments (R$ billion) An important result of technology investments is related to the significant increase in the storage data capacity and the availability index, as shown in the next figure. Figure 65. Storage Capacity and Availability Index ,191 18,286 24,730 10, , ,873 1,870 14, Total 20 0 Storage Capacity (Terabytes) Availbility Index (%) 7.4. Other Operating Income and Expenses The following table shows the main lines in other operating income/expenses. The line "Other" is the sum of unimportant and minor subaccounts. 101

104 Chapter 7 - Productivity and Efficiency Table 133. Other Operating Income/Expenses Quarterly Flow Chg. (%) Annual Flow Chg. (%) R$ million 4Q15 3Q16 4Q16 4Q15 3Q Other Operating Income 2,640 2,113 2,008 (24.0) (5.0) 8,257 7,990 (3.2) Income from Guarantee Deposits (3.4) 2,631 3, Recovery of Charges and Expenses (7.1) (8.2) 1,302 1, Receivables Income¹ (0.6) 898 2, Card Transactions , (21.0) Income from non-financial Associated Companies Other Operating Expenses (3,018) (3,212) (3,475) (10,886) (12,885) 18.4 Negotiation Relationship Allowance (566) (486) (480) (15.1) (1.3) (2,077) (1,977) (4.8) Card Transactions (344) (311) (279) (18.9) (10.4) (1,599) (1,323) (17.3) Actuarial Liabilities (219) (284) (284) 29.6 (0.0) (959) (1,192) 24.2 Discounts Granted on Renegotiations (355) (261) (412) (896) (1,314) 46.7 Remuneration for Transactions of Banco Postal (301) (332) (237) (21.4) (28.7) (1,170) (1,176) 0.5 Income from Guarantee Deposits (248) (412) (395) 59.2 (4.2) (935) (1,366) 46.1 Goodwill Amotization (253) (276) (276) 8.9 (0.0) (1,012) (1,105) 9.3 Negotiation Relationship Bonus (25) (214) (224) (87) (698) - Other Oper. Exp. from Non-Financ. Comp. (99) (115) (113) 14.8 (1.3) (368) (436) 18.3 Other 466 (404) (760) (2,189) Revised series since 1Q Operational Loss Banco do Brasil classifies its operating losses in categories of operational risk events according to CMN Resolution 3,380/2006. BB considers constitutions/reversals of provisions - notably for contingent liabilities in the total operating losses calculated for the Labor Issues, Business Failures and Process Failures categories. BB registers in "Business Failures" category operating losses related to reimbursements or indemnities to account and non-account holders due to lawsuit and administrative proceedings, excluding those arising from fraud, and from questions related to service practices and products and services sold by the Bank and its business partners. The category "Labor Issues" registers losses arising from disagreements in the employee-employer relationship involving contracts or laws, health, safety and discrimination in the workplace, including losses due to joint liability relating to outsourced employers. Losses resulting from "External Fraud and Theft" are characterized by third party acts with intent to misappropriate BB s or customers valuables and assets. Operational losses originated from electronic fraud and external theft standout in this category. The "Process Failures" category is characterized by the possibility of losses on payments to other banks, business partners, suppliers, regulators, supervisory and controlling agencies, resulting from failures or inadequacies in the implementation, conduction and management of the activities associated with the respective internal processes. The following table shows the percentage share for each category. Table 134. Breakdown of Operational Loss (%) 4Q15 1Q16 2Q16 3Q16 4Q16 Business Failures (0.9) Labor Issues External Fraud and Theft Process Failures Internal Fraud Physical Assets Damage System Failures Activities Interruption (2.2) - - Total

105 Banco do Brasil S.A. - MD&A 4Q16 BB s operational losses are concentrated (95%) in amounts below R$5 thousand, with 85% in amounts below to R$1 thousand. Figure 66. Operational Loss for Value Range (%) Up to R$1, from R$1, to R$4, From R$5, to R$9, From R$10, to R$24, More than R$25, The behavior of the External Fraud and Theft category is presented on the following figures by describing the main variations of amounts and quantities, among other information. This category includes operating losses arising from electronic fraud, external theft, cards losses and document fraud. Electronic Fraud The result observed in 4Q16 maintains the downward trend in the percentage of transactions contested by clients. This reduction is a result of mitigation actions implemented by BB in automated service channels. Among these, we highlight: expansion of biometrics in BB ATMs; mass migration from magnetic ribbon cards to chip cards; and improvements in monitoring transaction rules in automated service channels. The next graph shows the ratio between the amount of fraudulent transactions to every 1 million transactions performed on these channels. Figure 67. Fraudulent vs Performed Transactions (per million) Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 BB acts to mitigate operational losses in customer automated service channels, as to recover amounts taken. The next figure shows the recovered percentage compared to the total losses recorded. 103

106 Chapter 7 - Productivity and Efficiency Figure 68. Ratio between Recovery Potential and Performed Recovery Service Channels (%) Q15 1Q16 2Q16 3Q16 4Q16 Recovery Potential Performed Recovery External Theft BB continues to implement actions to reduce incidents with external theft, providing security solutions always aiming to protect their customers, employees and the assets of the Group. In this sense, physical security solutions for facilities have been expanded, regarding ATM network, the safety equipment, the optimization of the provision of the alarm system maintenance, to strategies for cash management as well as continued dissemination of operational risk culture and safety through training, information and courses available in UniBB. All these actions have a purpose to mitigate the operational losses from third party acts against the bank. In 4Q16 there was a 27.9% reduction in the number of attacks compared to 4Q15. The ratio of attacks avoided in the 4Q16 against the total attacks was 31.4%, while in 4Q15 this ratio was 38.0%. Figure 69. Prevented Number of Attacks versus Number of Attacks (%) Q15 1Q16 2Q16 3Q16 4Q16 104

107 Banco do Brasil S.A. - MD&A 4Q Actuarial Assets and Liabilities Banco do Brasil records on its balance sheet the benefit plans assets and liabilities granted to its employees. Previ (Plano 1) is the most relevant actuarial asset while Cassi is the most relevant actuarial liability. The actuarial assets and liabilities are periodically determined based on actuarial appraisal reports. Its availability depends on compliance with requirements established by law and regulatory authorities. From 2Q16, Banco do Brasil will inform the other components of the Balance Sheet in the investor relations website ( on historical series spreadsheet Previ Plano 1 History Previ Plano 1 (Plan) was created in 1967 and structured as a Defined Benefit Plan. Until December 2000, beneficiaries (retirees and pensioners) and sponsor (Banco do Brasil) funded the Plan, with a contribution ratio of 2/3 by BB and 1/3 by members. On December 23, 1997 it was closed to new members. From January 2001, in accordance to Constitutional Amendment #20 were implemented equal contributions (50%) by BB and by members and beneficiaries. Due to contribution parity, BB s participation in the surplus is 50% of the Plan actuarial assets and obligations at present value. During the period of Plan surplus, were suspended contributions by participants and sponsor, from Jan/07 to Dec/13. That same month, BB signed a Memorandum of Understanding with Previ to define the allocation and use of the Plan surplus, as determined in the Complementary Law 109/2001 and in the Resolution CGPC 26/2008. From Dec/10 to Dec/13, the contributions used Fundo de Contribuição resources. In January 2014, considering the lower accumulated surplus, Previ announced the contributions resumption, both for beneficiaries and sponsor. Since then BB has used Fundo de Utilização for Plan contributions. Plano 1 actuarial balance is measured on a semiannual basis (June and December) and contemplates: (i) the plan s surplus amount at the end of current six-month period and (ii) the plan estimated financial results at the end of subsequent six-month period, considering current service cost projections, contributions, liabilities interest costs and return on assets. Based on the Plan estimated financial results at the end of subsequent six-month period, BB makes an anticipated monthly recognition at 1/6 ratio of projected gains or losses throughout the six-month period to which it refers. Beneficiaries Employees who were Previ members on December 24, 1997 and those dismissed or fired before then but opted to remain in the plan are members of Plano 1. Three groups characterize the beneficiaries: I. Contrato 97: only the work force employed before April 14, They were included due to a contract signed on December 24, 1997 between BB and Previ. The contract provides a sponsor commitment to bear the contributions for the unformed mathematical reserve period. Beginning in April 1967, the Contrato 97 mathematical reserves were paid-in to Plano 1; II. Employees admitted from April 15, 1967 to December 23, 1997; III. Grupo Especial: includes participants from Plano 1 - Previ, who received additional supplemental retirement arising from administrative decisions and/or judicial decisions. Review The Plan assets are measured at fair value concerning to the market value or discounted cash flow, as shown below. Plano 1 actuarial liabilities correspond to the net present value of benefits owed to participants. Its calculated considering survival statistics provided in actuarial table AT 2000 (decreased by 10%) and a nominal discount rate calculated based on the future interest rate curve in tradings with inflation 105

108 Chapter 8 - Actuarial Assets and Liabilities linked government bonds. The rate used by BB is different from the Previ rate (established by CGPC 18/2006). Table 135. Composition of Assets % Dec/15 Sep/16 Dec/16 Variable Income Fixed Income Real Estate Investments Loans and Financing Others Amounts Listed in Fair Value of Plan Asset In the Entity's Ow n Financial Instruments In Properties or Other Assets Used by Entity Table 136. Actuarial Assumptions % H16 Real discount rate (p.y.) Nominal rate of return on investments (p.y.) The Plan actuarial assets (liabilities) are equivalent to 50% (parity) of the positive or negative difference between assets at fair value and liabilities at present value. BB s deficit reduction in 2H16 was due the Plan s Assets increase, despite the Actuarial Liabilities growth. Banco do Brasil recognizes in advance the variation projected for the following six-month period, reducing the actuarial assets volatility. The contributions shown in item f below (contribution of funds) come from Fundo de Utilização, whose balances are detailed in the table Previ (Plano 1) - Fundo de Utilização in chapter 8.4. Table 137. Previ (Plano 1) Effects of Accounting CVM 695/2012 R$ million 4Q15 1Q16 2Q16 3Q16 4Q16 (a) Fair Value of the Plan's Assets 118, , , , ,946 (b) Present Value of Actuarial Liabilities (121,330) (121,330) (139,707) (139,707) (148,350) (c) Surplus/(deficit) BB = [(a) + (b)] x 50% (1,476) (1,476) (4,910) (4,910) (2,202) (d) Actuarial Assets (Initial Period) 3,193 (1,476) (1,453) (4,910) (4,977) (e) Anticipated Financial Results 40 (110) (110) (199) (199) (f) Contributions of Funds (h) Amount Recognized in Semi-Annual Adjustment - Shareholders' Equity (4,872) - (3,482) - 2,797 (i) Actuarial Assets/(Liabilities) (End Period) = (d) + (e) + (f) + (g) (1,476) (1,453) (4,910) (4,977) (2,202) 8.2. Cassi BB is the sponsor of a health plan managed by Cassi. This health plan s main purpose is to provide coverage for expenses with the participants health. Participants in the Plano de Associados (Plan) are: I. Associates: active employees, former employees (self-sponsored), retirees and BB s pensioners; II. Dependents: spouse, domestic partner, children and stepchildren who are younger than 24 years old; III. Indirect Dependents: any relative of the associate admitted before the bylaws amendment of Cassi had successive mismatches between revenue and expenses. In 1995, the operating deficit was apportioned between sponsors and associates. To assure the financial stability of the plan, Cassi and BB amended its bylaws in The main changes included the access restriction by new Indirect Dependents and the contributions increase from the associates and the sponsor. BB signed a new agreement with Cassi in 2007 to amend its bylaws, which is still in effect. The main changes were: I. sponsor 4.5% contribution of the total payroll or the retirement or pension benefit total value for all groups; 106

109 Banco do Brasil S.A. - MD&A 4Q16 II. monthly contributions from associates and pension beneficiaries was increased to 3% of the total payroll or the retirement or pension benefit total value; III. BB R$315 million contribution to invest in the Cassi s operational model improvement; IV. deficit of indirect dependents assumption by BB until the extinction of this group. The 2007 measures were complemented in when Banco do Brasil and the representative entities signed a Memorandum of Understanding. This resulted in a proposal that was approved by the members and will guarantee R$40 million monthly increase for the Plan, as follows: I. Bank R$23 million extraordinary monthly compensation in CASSI favor, until December 2019; II. additional 1% associates extraordinary monthly contribution, until December 2019, on the same personal contribution calculation basis, in the estimated amount of R$17 million per month; and III. hiring a specialized company to analyze, review and develop processes, projects and actions focused on the governance, management and operation model of CASSI. The table below shows the evolution of Cassi s actuarial liabilities since CVM Resolution 695/2012. Table 138. Cassi Effects of Accounting CVM 695/2012 R$ million 4Q15 1Q16 2Q16 3Q16 4Q16 (a) Fair Value of the Plan's Assets (b) Present Value of Actuarial Liabilities (6,248) (6,248) (7,519) (7,519) (7,948) (c) Deficit BB = [(a) + (b)] (6,248) (6,248) (7,519) (7,519) (7,948) (d) Actuarial Liabilities (Initial Period) (6,389) (6,248) (6,368) (7,519) (7,619) (e) Amounts recognized in statement of income (212) (266) (266) (248) (248) (f) BB - Amount paid (g) Amount Recognized in Semi-Annual Adjust - Shareholders' Equity (1,062) - (236) (h) Actuarial Liabilities (Period End) = [(d) + (e) + (f) + (g)] (6,248) (6,368) (7,519) (7,619) (7,948) 8.3. Effects in Shareholders Equity CVM 695/2012 The table below shows the effects of accounting of actuarial asset and the actuarial liability on BB s Equity due to CVM 695/2012. The effects on BB s Equity occur every six months, considering the actuarial studies performance. Table 139. Impact on Shareholders' Equity CVM 695/2012 R$ million Dec/15 Previ - Plano 1 Cassi Other Plans¹ Valuation Adjustments (4.872) (4.602) Tax Effects (71) (38) Effect in Shareholders' Equity (2.934) (2.773) Total Jun/16 Valuation Adjustments (3.482) (1.062) (312) (4.857) Tax Effects Effect in Shareholders' Equity (2.089) (637) (187) (2.914) Dec/16 Valuation Adjustments (236) (329) Tax Effects (1.119) (892) Effect in Shareholders' Equity (141) (196) Series revised up to 1Q Previ Plano 1 Surplus Allocation Funds Banco do Brasil has the following amounts recognized in its assets: I. Parity contribution between sponsor and participants, booked in May/2006 and based on the remaining reserve balance, with an initial amount of R$2.2 billion; 107

110 Chapter 8 - Actuarial Assets and Liabilities II. The 2010 agreed partial surplus allocation, recognized as Fundo de Destinação. It was subsequently segregated into Fundo de Contribuição and Fundo de Utilização. Fundo Paridade The Fund is adjusted monthly according to the actuarial target National Consumer Price Index (INPC + 5% per year) and, since January/2007, has been used to offset any financial imbalance of Contrato 97. Table 140. Previ (Plano1) Fundo Paridade R$ million 4Q15 1Q16 2Q16 3Q16 4Q16 Initial Balance Contributions to Plano 1 - Contrato (5) - - Restatement Contribution - Grupo Especial (0) Closing Balance Fundo de Utilização In 2Q11, the Fundo de Utilização was created through Fundo de Destinação resources transfers. It represents the amount subject to use by Banco do Brasil and reflects Previ s accounting surplus distribution. This reserve is corrected by the actuarial target (INPC + 5% per year) and the resources use depends of the plan obligations full coverage existence (art. 25, CGPC Resolution 26/2008). Since 1Q14 with the periodic contributions resumption, BB uses the fund for Previ (Plano 1) contributions. Table 141. Previ (Plano1) Fundo de Utilização R$ million 4Q15 1Q16 2Q16 3Q16 4Q16 Initial Balance 8,768 8,960 9,200 9,377 9,458 Restatement Contributions to Plano 1 (163) (133) (131) (131) (177) Closing Balance 8,960 9,200 9,377 9,458 9,

111 Banco do Brasil S.A. - MD&A 4Q Risk Management 9.1. Risk Management Risk management in the Financial Group of Banco do Brasil covers credit, market, liquidity and operational risks in a comprehensive manner. Management activities are performed by specialized structures, according to objectives, policies, strategies, processes, procedures and systems described in each one of these risks. To find out more about the risk management process at Banco do Brasil, access the website bb.com.br/ir. Banco do Brasil adopts the policy of managing its exchange risk to reduce its effects on the consolidated economic-financial result. The table below shows BB Consolidated assets, liabilities and derivatives statement, referenced in foreign currencies. Net foreign exchange exposure for December 30,, was negative in the amount of US$1,080 million. Table 142. Balance in Foreign Currencies R$ million BALANCE SHEET Currency Assets Liabities U.S. Dollar 155, ,410 Euro 9,139 9,318 Pound Sterling Yen 2,487 2,477 Swiss Franc Canadian Dollar 4 84 Gold 8 - Other 11,884 10,603 Total 179, ,488 Net Position - Balance Sheet Items 14,678 R$ million DERIVATIVES Currency Long Short U.S. Dollar 62,040 53,353 Euro 3,581 3,812 Pound Sterling 2, Yen 771 1,049 Swiss Franc Canadian Dollar Other 73 4 Total 69,975 58,817 Net Position - Derivatives 11,158 TOTAL OF DERIVATIVES AND BALANCE SHEET 249, ,305 Total Net Position (3,520) Total Net Position in US$ million (1,080) BB Consolidated s regulatory foreign exchange exposure, calculated according to Bacen Circular 3,641, of March 04, 2013, considering the fiscal hedging strategy adopted, was R$3,714 million at December 30,. The tax hedge purpose is to reduce the result volatility, after the tax effects, since exchange gains on investments abroad are not subject to taxation and likewise losses do not generate deduction in the tax basis. The chart below shows the quarterly behavior of BB Consolidated s foreign exchange exposure in relation to the Referential Equity amount (RE) since September

112 Chapter 9 - Risk Management Figure 70. Changes in Foreign Exchange Exposure as a % of the Referential Equity Amount (RE) Dec/14 Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Other Currencies Currency Basket Balance Sheet by Index The following figure shows BB Consolidated s composition of assets and liabilities, including derivatives, detailed by index. Figure 71. Banco do Brasil Assets and Liabilities Composition R$ billion ASSETS LIABILITIES 1, ,701.3 Fixed CDI / TMS / FACP IRP/TBF/TR Price Index TJLP US$ / Gold W/O Index The following graph shows BB Consolidated s net mismatches, by index: 110

113 Banco do Brasil S.A. - MD&A 4Q16 Figure 72. BB Consolidated Net Position (R$ billion) 17.4% % 14.2 (1.8) (8.2) (77.3) (88.5) -0.1% -0.5% -4.5% -5.2% (135.0) -7.9% FIXED PRICE INDEX TJLP US$ / GOLD W/O INDEX CDI / TMS / FACP IRP/TBF/TR Interest Rates Statement Repricing Profile The following table shows the inventory operations that are sensitive to interest rate changes, allocated by risk factor and by the indexation period of BB s consolidated interest rate: Table 143. Repricing Profile of Interest Rates R$ million < 1 Mo 1 > 3 Mo 3 > 6 Mo 6 > 12 Mo 1 > 3 Yrs > 3 Yrs Total Assets 844,787 85, ,820 95, , ,643 1,609,322 Fixed 469,500 51,795 31,688 80, ,174 99, ,825 CDI/TMS 274, ,941 TR/TBF/IRP , ,434 Price Index , ,003 TJLP 1,614 23, ,842 US$/ME 98,732 10,312 23,695 15,246 26, , ,277 Liabilities 802,360 60, ,812 53,127 68, ,464 1,532,024 Fixed¹ 365,941 22,209 15,579 31,977 43,385 58, ,368 CDI/TMS 363, ,443 TR/TBF/IRP , ,387 Price Index - - 3, ,776 TJLP 1,031 25, ,621 US$/ME 71,945 12,984 12,070 21,150 25, , ,429 Gap 42,427 24,552 (92,992) 42,609 59,523 1,179 77,298 Cumulative Gap 42,427 66,979 (26,013) 16,596 76,119 77,298 - Cumul. Gap as % Assets (11.0) The total deposits of checking accounts in pre-indexed liabilities (R$42.4 billion) are included Capital Structure Given the significant amount of technical terms used in the chapter, we present a glossary of the abbreviations used: a) MRRE: Minimum Required Reference Equity; b) RWA: Risk-Weighted Asset; c) RWACPAD: related to credit risk exposures, subject to the calculation of capital requirements under the standardized approach; 111

114 Chapter 9 - Risk Management d) RWAMPAD: related to market risk exposures, subject to the calculation of capital requirements under the standardized approach; e) RWAOPAD: related to capital requirement for operational risk exposures under the standardized approach. The Basel Index is calculated under the criteria established by CMN Resolutions 4,192/2013 and 4,193/2013, which establish the rules for calculating the Referential Equity (RE) and the Minimum Required Reference Equity (MRRE) in relation to Risk-Weighted Assets (RWA), respectively, considering Banco Votorantim under the equity method of accounting as established by the Central Bank of Brazil. The consolidation scope used as a base for checking the operating limits is the Prudential Conglomerate, as defined in CMN resolution 4,280/2013, from January 1, Under the Financial Institutions Accounting Plan (Cosif), the Prudential conglomerate not only includes financial institutions as well as consortium managers, payment institutions, companies that acquire operations or take direct or indirect credit risk, and investment funds in which risks and benefits are substantially retained. Performance The table below shows the calculation of PR value and RWA. Table 144. BIS Ratio R$ million Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Reference Equity (RE) 135, , , , ,453 Tier I 95,714 89,978 86,188 87,976 90,284 Common Equity Tier I 68,677 65,336 63,965 65,500 67,718 Shareholders Equity 71,314 73,623 73,099 75,039 76,703 Instruments Eligible to Capital 8,100 8,100 8,100 8,100 8,100 Prudential Adjustments (10,737) (16,387) (17,234) (17,639) (17,085) Tax credits from temporary differences dependent on generation of profits (10% excess) (3,425) (5,538) (6,887) (6,877) (6,099) Sup. Investments, Tax credits of temporary differences dependent on profit generation (15% excess)¹ (2,847) (4,598) (4,589) (5,049) (4,637) Intangible Assets composed as of 10/01/2013 (2,346) (3,382) (3,246) (3,514) (4,258) Goodwill paid on acquisition of investment on the basis of expected future profitability (1,076) (1,563) (1,394) (1,233) (954) Non-controlling interest (403) (529) (511) (465) (493) Tax credits arising from tax losses and negative basis of Social Contribution (562) (606) (440) (336) (500) Actuarial Assets related to Defined Benefit Pension Funds net of deferred tax liability associated - (68) (74) (77) (66) Tax credits arising from tax loss of excess depreciation (62) (87) (81) (77) (76) Deferred Assets (17) (15) (13) (11) - Additional Tier I Capital 27,037 24,641 22,224 22,476 22,565 HCDI authorized by CMN n.º 4,192/2013 resolution 21,375 19,482 17,570 17,770 17,840 HCDI authorized by previous rules to the CMN n.º 4,192/2013 resolution² 5,661 5,160 4,653 4,706 4,725 Tier II 39,837 38,466 38,885 39,085 40,170 Eligible to Capital Subordinated Debts 39,840 38,466 38,905 39,096 40,182 Subordinated Debts authorized by CMN n.º 4,192/2013 resolution - Financial Letters 5,787 5,748 5,584 5,286 5,466 Subordinated Debts authorized by previous rules to the CMN n.º 4,192/2013 resolution 34,053 32,718 33,320 33,810 34,716 FCO Funding³ 22,995 23,239 23,842 24,332 25,237 Financial Letters and Certificates of Deposits⁴ 11,058 9,479 9,479 9,479 9,479 Tier II deductions (3) (0) (19) (12) (12) Funding instruments issued by financial institutions (3) (0) (19) (12) (12) Risk-Weighted Assets (RWA) 840, , , , ,851 Credit Risk (RWACPAD) 785, , , , ,214 Market Risk (RWAMPAD) 18,347 27,620 25,508 16,418 18,844 Operational Risk (RWAOPAD) 36,389 31,708 31,708 37,152 43,793 Minimum Required Referential Equity (MRRE)⁵ 92,456 78,082 75,060 71,341 69,703 MRRE Margin (RE-MRRE) 43,095 50,362 50,014 55,720 60,750 Tier I Capital Ratio (Tier I/RWA) - (%) Core Capital Ratio (CC/RWA) - (%) BIS Ratio (RE/RWA) - (%) According to CMN Resolution 4,442/2015, from November 2015, the methodology to calculating the deduction of the investment in Banco Votorantim SA. Reference Equity was changed, including it in the calculation of the Basket. Thus, on September 30,, R$1,783,222 thousand were deducted and R$2,424,271 thousand They were weighted 250% in RWA.. 2 In September 30,, Banco do Brasil considered the total amount of instruments eligible to capital Tier I, authorized by the Central Bank to compose the Reference Equity (RE) according to CMN Resolution 3,444/2007, and that do not meet the standards required by the CMN Resolution 4,192/2013, based on the Central Bank orientation related to the limit established on article 28 sections I to X of CMN Resolution 4,192/ According to CMN Resolution 4,192/2013, the balance of FCO is eligible for inclusion in the RE. 112

115 Banco do Brasil S.A. - MD&A 4Q16 4 In September 30, was considered the balance of subordinated debt instruments that composed the RE at Dec 31, 2012, applying a decay of 60%, as determined by CMN Resolution 4,192/ Under CMN Resolution 4,193/2013, it corresponds to the Factor F applied to the amount of RWA. CMN Resolution No. 4,193/2013 established the factor "F" representing the BIS ratio to be observed during the process of Basel III requirements implementing. Table 145. Factor F applied to the amount of Risk-Weighted Assets (RWA) Period Factor "F" (%) 10/01/2013 to 12/31/ /01/ to 12/31/ /01/2017 to 12/31/ /01/2018 to 12/31/ From 01/01/2019 on 8.0 The Reference Equity, considering the requirements for regulatory capital calculation under Basel III, was R$130,453 million, while MRRE was R$69,703 million. The following table shows the composition of RWA CPAD, considering main exposures. Table 146. Minimum Required Reference Equity referring to the RWA CPAD portion Dec/16 R$ million RWA CPAD MRRE (%) Loan Operations 410,264 40, Other Credits 62,900 6, Securities and Derivatives 43,978 4, Tax Credits 42,767 4, Permanent Assets 28,359 2, Loans to release 18,100 1, Guarantees Provided 5, Investments in Clearings Guaratee Funds Other 31,557 3, TOTAL 643,214 63, Regarding the market risk portion (RWA MPAD ), the following table shows the MRRE as of September, per risk factor: Table 147. Minimum Required Reference Equity referring to the portion of RWA MPAD Dec/16 R$ million RWA MPAD MRRE (%) FX 16,416 1, Interest Rate 2, Commodities TOTAL 18,844 1, Table 148. Minimum Required Reference Equity referring to the RWA OPAD Portion Dec/16 R$ million RWA OPAD MRRE (%) Commercial 25,013 2, Retail 13,770 1, Payments and Settlements 2, Financial Agent Services 1, Asset Management 1, Retail Brokerage Corporate Finance Trading and Sales (2,086) (206) (4.8) TOTAL 43,793 4,

116 Chapter 9 - Risk Management Table 149. RWA CPAD segregated by the Risk-Weighting Factor (RWF) R$ million RWF (%) RWA CPAD 1 Available Founds , , Short-term Interbank Investments , , Securities and Financial Derivatives ,138 1, ,978 2,072 1,250 4, Investments in Clearings Guarantee Funds Interbank Accounts , ,797 1,264 Loans 50 3, ,777 16, ,013 10, ,769 12, Leasing ,413 1,226 Other Receivables 75 16,909 1, , ,790 2,843 Other Assets Permanent Assets ,840 1, ,520 1, Credit Commitment non-cancellable unconditionally and unilaterally by the Institution 75 7, , Loans to Concede , , Advance payment granted by the Institution 85 7, , Guarantees provided , , ,739 2,937 Tax Credits ,875 1, , Derivatives adjustment due to variation of credit quality from counterparty Total 643,214 63, Sum of products of the respective Risk Weighted Assets exposures, adjusted by the Conversion Factor. 2 - Risk Weighted Assets Exposure multiplied by 9.875%. Dec/16 MRRE² 114

117 Banco do Brasil S.A. - MD&A 4Q Strategic Investments Information on Subsidiaries and Affiliates The following table presents the equity of Banco do Brasil S.A on its subsidiaries and affiliates. Table 150. Interest in the Capital of Subsidiaries and Affiliates Equity Interest Share (%) Book Value E quity Income R$ thousand Activity Dec/16 Dec/15 Dec/16 4Q16 Banco do Brasil - AG. Viena Banking (I) 100 1,099, ,646 (4,066) Banco Patagonia S.A. Multiple Bank (I) ,446,066 1,181, ,170 Banco Votorantim S.A. Multiple Bank (II) ,828,153 4,212,970 60,393 BB Adm. de Cartões de Crédito S.A. Service Rendering (I) ,973 18,977 6,423 BB Administradora de Consórcios S.A. Consortiums (I) , ,078 78,025 BB Americas Multiple Bank (I) , ,422 3,461 BB Banco de Investimento S.A. Investment Bank (I) 100 2,884,547 3,018, ,672 Ativos S.A. Securitizadora de Créd. Financ. Credit Acquisition (I) 100 1,056, ,652 48,779 Cielo S.A. Service Rendering (II) ,834,175 2,604, ,464 Companhia Brasileira de Securit. Cibrasec Credit Acquisition (II) ,177 9, Kepler Weber S.A. Industry (II) ,391 82,725 (1,022) Neoenergia S.A. Energy (II) ,168,345 1,154,899 (7,386) Seg. Brasileira de Créd. à Exportação SBCE Insurance Company (II) ,351 2, Tecnologia Bancária S.A. Tecban Service Rendering (II) ,206 50,603 1,366 BB DTVM S.A. Asset Management (I) , , ,583 BB Elo Cartões Participações S.A. Holding (I) 100 4,383,793 4,801, ,473 Elo Participações S.A. Holding (II) , ,152 24,907 CBSS - Alelo Service Rendering (II) , ,113 28,710 Elo Serviços Service Rendering (II) ,534 23,101 (906) Cateno Gestão de Contas de Pagamento S.A.¹ Service Rendering (II) ,631,654 3,654,804 51,768 BB Leasing S.A. Arrendamento Mercantil Leasing (I) 100 4,167,684 4,376,690 86,753 BB Securities LLC. Brokerage (I) , ,037 1,168 BB Seguridade Participações S.A. Holding (I) ,168,774 4,716, ,713 BB Corretora de Seg. e Adm. de Bens S.A.² Brokerage (I) ,984 61, ,114 BB Seguros Participações S.A. Holding (I) ,847,255 6,637, ,723 BB Mapfre SH1 Participações S.A. Holding (II) ,978,220 2,138, ,619 Brasilcap Capitalização S.A. Capitalization (II) , ,698 66,842 Brasildental Operadora de Planos Odontológicos S.A. Service Rendering (II) ,533 7, Brasilprev Seguros e Previdência S.A. Insurance / Pension (II) ,790,343 1,775, ,090 IRB - Brasil Resseguros Reinsurance (II) , ,294 75,841 Mapfre BB SH2 Participações S.A. Holding (II) ,657,372 1,786,095 20,616 BB Tecnologia e Serviços S.A. IT (I) , ,046 12,088 BB USA Holding Company, Inc. Holding (I) Besc DTVM S.A. Asset Management (I) ,159 7, Brasilian American Merchant Bank Banking (I) 100 1,717,477 1,510,626 5,267 BB Securities Asia Pte. Ltd. Brokerage (I) ,907 20, BB Securities Ltd. Brokerage (I) , , (I) Subsidiaries fully included in the accounting consolidation. (II) Affiliate companies accounted for by equity method. 1 - The values shown (Book Value and Equity Income) of company Cateno Gestão de Contas de Pagamento S.A. are equivalent to 30% of direct participation by BB Multiple Bank. 2 On Dec/16 BB Cor. Participações S.A was incorporated by BB Corretora de Seg. e Adm. de Bens S.A. BB holds direct and indirect participations through BB Banco de Investimentos S.A. in the following companies: I. Ativos SA: 75.71% by BB-BI and 24.29% by Brazilian American Merchant Bank (BAMB); II. Cateno: 30.0% by BB Multiple Bank and 20.1% by BB-BI, totaling 50.1%; III. Tecban: 8.01% by BB-BI and 4.51% by BB Multiple Bank, totaling 12.52%; IV. Cibrasec: 4.9% by BB-BI and 4.8 by BB Multiple Bank, totaling 9.7%. 115

118 Chapter 10 - Strategic Investments Banco Votorantim The equity method is used to present BV s financial information in BB s financial statements. Banco do Brasil owns a 50.0% stake of BV. All numbers presented below reflect 100% of BV s balances, balance sheet accounts and income accounts. More detailed information about Banco Votorantim can be obtained from the Management Report Earnings 4Q16 available on Earnings Highlights BV s 4Q16 net income was R$119 million, ROE of 5.8% p.y.. In the Net Income was R$426 million. The main highlights of the annual result were the (i) Net Financial Margin (NFM) growth, (ii) increase in fee income and (iii) expenses control, with growth below inflation in personal and administrative expenses. The NFM s growth compared to the 2015 was mainly due to the reduction in expenses with allowance for loans losses, reflecting the improvement of 20 basis points in NPL. The decrease in NII the /2015 comparison was offset by the 17.3% growth of income from insurance and fees in the same period. Compared to 2015, administrative and personnel expenses increased 2.0%, despite inflation of 6.3% in the last twelve months. The last twelve months cost income ratio of was 38.8% in Dec/16, from 39.4% in Dec/15. Table 151. Income Statement with Reallocations¹ - Quarterly 3Q16 Quarterly Flow Chg. (%) on R$ million Corp. Law Adjustm. Adjusted Corp. Law Adjustm. Adjusted 3Q16 Financial Intermediation Income 4,263 (197) 4,066 3,739 (297) 3,442 (15.4) Loans 1,701 (176) 1,524 1,959 (262) 1, Leasing (32.6) Securities 1,598-1,598 1,156-1,156 (27.7) Financial Derivatives 163 (21) 143 (48) (35) (82) - Foreign Exchange Portfolio (27.3) Compulsory Investments (47.1) Sale or Transference of Financial Assets (14.8) Financial Intermediation Expenses (2,894) - (2,894) (2,370) - (2,370) (18.1) Money Market Funds (2,326) - (2,326) (1,882) - (1,882) (19.1) Borrow ing, Assignments and Onlending (86) - (86) (79) - (79) (8.1) Sale or Transference of Financial Assets (482) - (482) (409) - (409) (15.0) Net Interest Income 1,369 (197) 1,172 1,369 (297) 1,072 (8.6) Allow ance for Loan Losses (705) 213 (492) (1,071) 448 (623) 26.7 Net Financial Margin (34.0) Other Operating Income (Expenses) (445) (37) (483) (386) (189) (575) 19.1 Fee Income Personnel Expenses (264) - (264) (370) - (370) 40.0 Other Administrative Expenses (283) - (283) (304) - (304) 7.6 Tax Expenses (87) 0 (87) (94) 1 (94) 7.7 Equity Interest in Subsidiaries and Affiliates (9.0) Other Operating Revenues and Expenses (146) (38) (184) 11 (190) (179) (3.0) Operating Income 219 (21) 198 (88) (38) (126) - Non-operating Income 3-3 (8) - (8) - Income Before Taxes 222 (21) 201 (96) (38) (134) - Income and Social Contribution Taxes (81) 21 (59) Profit Sharing (29) - (29) (19) - (19) (34.6) Net Income Adjustments refer to: (i) income from written-off credits recovery and credit expenses referring to the portfolio granted with co-obligation, classified under line Loans, and reallocated to Allowance for Loan Losses and (ii) foreign investments exchange variations, which were accounted for under Other Operating Income (Expenses) and reallocated to Income from Derivative Financial Instruments, as well as these investments hedging strategy tax effects. 4Q16 116

119 Banco do Brasil S.A. - MD&A 4Q16 Table 152. Income Statement with Reallocations¹ - Yearly Annual Flow 2015 Chg. (%) on R$ million Corp. Law Adjustm. Adjusted Corp. Law Adjustm. Adjusted 2015 Financial Intermediation Income 20,338 (433) 19,905 14,853 (580) 14,273 (28.3) Loans 8,247 (684) 7,563 6,661 (720) 5,942 (21.4) Leasing (50.1) Securities 5,007-5,007 4, , Financial Derivatives 2, , (390) (17) - Foreign Exchange Portfolio (264) - (264) - Compulsory Investments Sale or Transference of Financial Assets 4, ,147 3,242-3,242 (21.8) Financial Intermediation Expenses (15,203) - (15,203) (9,633) - (9,633) (36.6) Money Market Funds (10,734) - (10,734) (7,799) - (7,799) (27.4) Borrow ing, Assignments and Onlending (1,441) - (1,441) Sale or Transference of Financial Assets (3,028) - (3,028) (2,208) - (2,208) (27.1) Net Financial Margin 5,135 (433) 4,702 5,220 (580) 4,641 (1.3) Allow ance for Loan Losses (3,061) 667 (2,394) (2,467) 388 (2,079) (13.1) Net Interest Margin 2, ,308 2,753 (192) 2, Other Operating Income (Expenses) (2,318) 42 (2,276) (1,940) (216) (2,156) (5.3) Fee Income ,123-1, Personnel Expenses (1,210) - (1,210) (1,230) - (1,230) 1.7 Other Administrative Expenses (1,123) - (1,123) (1,148) - (1,148) 2.3 Tax Expenses (402) (15) (417) (386) 14 (372) (10.8) Equity Interest of Subsidiaries and Affiliates Other Operating Income and Expenses Operating Income (244) (408) Non-operating Income (29) - (29) Income Before Taxes (273) (408) Income and Social Contribution Taxes 936 (276) 660 (257) (77.2) Profit Sharing (181) - (181) (132) - (132) (27.2) Net Income (11.6) 1 - Adjustments refer to: (i) income from written-off credits recovery and credit expenses referring to the portfolio granted with co-obligation, classified under line Loans, and reallocated to Allowance for Loan Losses and (ii) foreign investments exchange variations, which were accounted for under Other Operating Income (Expenses) and reallocated to Income from Derivative Financial Instruments, as well as these investments hedging strategy tax effects. Table 153. Net Interest Margin and Profit Margin Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q16 Average Interest Earning Assets 98,020 93,723 93,121 (5.0) (0.6) Average Interest Bearing Liabilities 91,861 88,196 87,039 (5.2) (1.3) Net Interest Gain ¹ 1, , Interest Income 3,897 3,892 3,501 (10.2) (10.0) Interest Expense (2,896) (2,893) (2,368) (18.2) (18.2) Net Interest Income Other Items² (62) (163.4) (135.6) NII 1,098 1,172 1,072 (2.4) (8.6) AIBL / AEA % (0.3) (0.7) Yield Average Assets - % ³ (5.7) (10.0) Liabilities Average Cost - % ⁴ (14.3) (17.8) Net Interest Rate - % ⁵ Adjusted NIM - % ⁶ NIM % (8.1) 1 - Defined as interest income less interest expenses. 2 - Includes derivatives, debt assumption contracts, foreign exchange portfolio, gold loans, credit guarantor fund, foreign exchange gain/loss abroad and other income from financial intermediation nature. 3 - Total interest income divided by average interest earning assets. 4 - Total interest expenses divided by average interest bearing liabilities. 5 - Difference between average rate of earning assets and average rate of interest bearing liabilities. 6 - Net Interest Gain divided by average interest earning assets. Balance Sheet Highlights The Broad Definition Loan Portfolio decreased in the last twelve months but grew in the last quarter, both in Retail and Wholesale. In the annual comparison, the decrease still reflects the more conservative stance in loan granting. 117

120 Chapter 10 - Strategic Investments Funding performance, in last quarters, also reflects the conservative stance in loan granting and consequently lower funding demand. BV improved its funding profile, reducing its cost and growing in more stable financial instruments, such as letters and assigned assets obligations. This funding sources accounted for almost 50% (R$34.2 billion) of total funding sources in Dec/16. Table 154. Balance Sheet Main Items R$ million Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 Total Assets¹ 110, , ,998 (6.6) (0.8) Broad Definition Loan Portfolio 65,526 60,010 60,880 (7.1) 1.4 Classified Loan Portfolio 50,984 47,019 47,620 (6.6) 1.3 Retail (Individuals) 33,606 33,229 33,459 (0.4) 0.7 Wholesale (Business Loans) 17,377 13,789 14,161 (18.5) 2.7 Guarantees provided, Securities and Other 14,542 12,992 13,260 (8.8) 2.1 Securities and Financial Derivatives 32,974 31,623 31,165 (5.5) (1.4) Funding 77,953 65,704 67,349 (13.6) 2.5 Letters 17,199 17,518 20, Financial Letters 13,634 14,552 17, Agribusiness and Real Estate Letters of Credit 3,565 2,966 2,934 (17.7) (1.1) Debenture (Linked to Repurchase) 17,927 17,530 15,959 (11.0) (9.0) Assigned Assets Obligations 15,677 13,208 13,756 (12.3) 4.2 Other 27,150 17,449 17,148 (36.8) (1.7) Shareholders' Equity 7,617 8,416 8, It considers creditors adjustments on anticipation of residual amounts, in financial leasing operations. Chg. (%) on The NPL +90 days of Managed loan portfolio growth was due to specific remained stable in relation to Sep/16, and 20 basis points lower than Dec/15. The NPL +90 days of Retail portfolio decreased 20bps compared to Dec/15, to 5.5%, reflecting the decrease in auto loans delinquency that, in the last twelve months, decreased 20bps while the delinquency increased 40bps in the banking industry in the segment, in the same period. Table 155. Managed Portfolio Quality R$ million 4Q15 3Q16 4Q16 Managed Loan Portfolio¹ 51,250 47,031 47,620 NPL + 90 days 2,923 2,567 2,638 NPL + 90 days/managed Loan Portfolio - % 5.7% 5.5% 5.5% Write-off (693) (624) (469) Recovery of Write-offs Net Loss (495) (448) (207) Net Loss/Managed Loan Portfolio - annualized - % 3.9% 3.9% 1.7% New NPL 903 1, New NPL/Managed Loan Portfolio² 1.8% 2.2% 1.1% Provision³ 4,387 3,267 3,684 Allow ance/npl + 90 days - % 150.1% 127.3% 139.7% Balance AA-C 45,486 42,427 42,026 Balance AA-C/Managed Loan Portfolio 88.8% 90.2% 88.3% 1 - It includes assets assigned with recourse previously to the Resolution 3, (Difference from the NPL amount from the last quarter and this quarter + write-off)/ Loan portfolio of the previous quarter. 3 - It includes ALLL of assets with recourse. BIS Ratio BIS ratio and Referential Equity Tier I (RE Tier I) ratio remain above the minimum required, in reduction RE Tier II Is due to the reduction in the volume of subordinated debt eligible for capital. 118

121 Banco do Brasil S.A. - MD&A 4Q16 Table 156. BIS Ratio R$ million Dec/15 Sep/16 Dec/16 RE - Referential Equity 10,742 9,737 9,219 RE Tier I 6,686 6,894 6,837 RE Tier II 4,056 2,843 2,382 RWA 70,549 61,626 61,207 Credit Risk 62,926 56,871 55,922 Market Risk 2,843 1, Operational 4,780 3,625 4,615 MRRE - Minimum Required Referential Equity 7,760 6,086 6,044 BIS Ratio 15.2% 15.8% 15.1% RE Tier I 9.5% 11.2% 11.2% RE Tier II 5.7% 4.6% 3.9% 119

122 Chapter 10 - Strategic Investments International Businesses BB's presence abroad aims to maintain its reference position for Brazilian companies and individuals in international markets. The foreign service network of the Bank consists of 38 subsidiaries located in 23 countries. In addition to this structure, Banco do Brasil has an agreement with others financial institutions abroad to service its customers. At the end of 4Q16, there were 883 banks acting as BB correspondents in 105 countries. Table 157. Foreign Service Network Agências Subagências Escritórios de Representação Subsidiárias e Sucursais Securities e Unid. de Serv. Compartilhados Assunción - Paraguay Ciudad del Este - Paraguay Caracas - Venezuela Banco do Brasil Americas / Miami - Florida - U.S. Securities Buenos Aires - Argentina Hamamatsu - Japan Cidade do Mexico - Mexico Banco do Brasil AG - Branch Office Spain - Madri BB Securities LLC - U.S. Frankfurt - Germany Nagoia - Japan Dubai - United Arab EmiratesBanco do Brasil AG - Branch Office Itály - Milan BB Securities Limited - England Grand Cayman - Cayman IslanSanta Cruz de La Sierra - BoliLima - Peru Banco do Brasil AG - Branch Office France - Paris BB Securities PTE - Singapore La Paz - Bolivia Luanda - Angola Banco do Brasil AG (Aktiengesellschaft) / Vienna - Austria London - England Montevidéu - Uruguay Banco Patagonia S.A. / Buenos Aires - Argentina Unid. Serv. Compartilhados Miami - U.S. Panama - Panama BB USA Holding Company, Inc. / Nova Iorque - U.S. Banco do Brasil USA Servicing Center / Orlando - U.S. New York - U.S. Brasilian American Merchant Bank / George Town - Grand Cayman - Cayman IBanco do Brasil Europa Servicing Center / Lisbon - Portugal Santiago - Chile Banco do Brasil AG - Branch Office Portugal - Lisbon Tokyo - Japan Banco do Brasil AG - Branch Office - Marquis of Pombal Shangay - China Banco do Brasil AG - Branch Office Portugal - City of Port Table 158. Consolidated Abroad - Balance Sheets Quarterly Flow Chg. (%) on R$ million Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 ASSETS 223, , ,151 (27.4) (2.1) Short -Term Interbank Investments 49,282 34,072 33,712 (31.6) (1.1) Marketable Securities 13,695 10,903 11,585 (15.4) 6.3 Securities Available for Trading 4,403 2,993 3,082 (30.0) 3.0 Securities Available for Sale 9,292 7,910 8,503 (8.5) 7.5 Loans 62,406 43,106 37,845 (39.4) (12.2) Public Sector 1, (46.1) (16.8) Private Sector 60,993 42,191 37,084 (39.2) (12.1) Other Assets 7,668 3,373 6,675 (12.9) 97.9 BB Group 90,325 74,151 72,334 (19.9) (2.5) LIABILITIES 223, , ,151 (27.4) (2.1) Deposits 74,821 51,268 50,323 (32.7) (1.8) Demand Deposits 10,375 8,333 9,418 (9.2) 13.0 Time Deposits 27,541 21,393 22,817 (17.2) 6.7 Interbank Deposits 36,905 21,542 18,088 (51.0) (16.0) Acceptances and Securities Placed Funds 33,500 20,274 20,393 (39.1) 0.6 Borrow ings 27,373 22,260 19,967 (27.1) (10.3) Subordinated Debt and Perpetual Bonuses 40,539 33,137 32,928 (18.8) (0.6) Other Liabilities 9,089 9,129 8,370 (7.9) (8.3) BB Group 25,795 19,321 18,929 (26.6) (2.0) Shareholders Equity 12,259 10,216 11,241 (8.3) 10.0 Attributable to Parent Company 11,253 9,441 10,419 (7.4) 10.4 Non-Controlling participation 1, (18.3) 6.1 Table 159. Consolidated Abroad - Income Statement Items R$ million 4Q15 3Q16 4Q16 4Q15 3Q16 Non-Controlling Participation (4.0) Attributable to Parent Company (49) - - Net Income (94.1) (93.4) Banco Patagonia Chg. (%) on All figures presented in this chapter reflect 100% of balances, balance sheet and income statement of Banco Patagonia. The following tables show the highlights of balance sheets, income statement and structural data for Banco Patagonia. 120

123 Banco do Brasil S.A. - MD&A 4Q16 In 4Q16 Banco Patagonia s Net Income was R$174.9 million, up 3.6% compared with the same period of the previous year. Table 160. Banco Patagonia Balance Sheet Highlights Quarterly Flow Chg. (%) on R$ million Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 Assets 19,043 14,308 15,158 (20.4) 5.9 Loans 9,151 7,545 8,028 (12.3) 6.4 Deposits 12,722 9,747 10,784 (15.2) 10.6 Shareholders' Equity 2,452 1,888 2,004 (18.3) 6.1 Table 161. Banco Patagonia Funding Quarterly Flow Chg. (%) on R$ million Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 Interbanking (26.1) (5.2) Repo (85.9) (63.6) Companies 1,944 1,565 1,487 (23.5) (5.0) Individuals 1,212 1,328 1, Issues (1.2) Total 3,666 3,235 3,302 (9.9) 2.1 Table 162. Banco Patagonia Main Lines of the Income Statement Quarterly Flow Chg. (%) on R$ million 4Q15 3Q16 4Q16 4Q15 3Q16 Financial Intermediation Income (14.3) Allow ance for Loan Losses 29 (21) (20) - - Gross Income from Financial Intermediation (13.4) (15.1) Fee income Administrative Expenses (210) (268) (290) Other (15) Income Before Taxes (18.0) Income and Social Contribuition Taxes (62) (104) (61) (2.5) (41.5) Net Income (4.6) Figure 73. Banco Patagonia Net Income R$ million

124 Chapter 10 - Strategic Investments Table 163. Banco Patagonia Profitability, Capital and Credit Indicators (%) 4Q15 3Q16 4Q16 Return on Equity BIS Ratio (Basel) Provisions / Past Due Loans (+90 days) NPL+90 days Table 164. Banco Patagonia Operating and Structural Highlights Quarterly Flow Chg. (%) on Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 Customers 1,003,930 1,043,569 1,068, Branches Branches in Buenos Aires Service Points (0.5) Employees 3,361 3,425 3,

125 Banco do Brasil S.A. - MD&A 4Q Managerial Financial Statements In the following tables show the managerial financial statements, prepared in accordance with the accounting standards used until 3Q15. These statements reflect the consolidation of the 50 companies in the BB Conglomerate. They cover Banco do Brasil subsidiaries and 24 joint ventures and associates. Among the main subsidiaries, joint ventures and associates, highlight to Banco Votorantim, BB Mapfre SH1, Mapfre BB SH2, Brasilcap Brasilprev, Cielo, Alelo, Cateno and Tecban. Table 165. Summary Balance Sheet - Managerial Assets Chg. (%) R$ million Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 ASSETS 1,584,039 1,651,982 1,624, (1.7) Current and Long-Term Assets 1,562,827 1,632,368 1,603, (1.8) Available Funds 18,359 13,293 13,150 (28.4) (1.1) Short-Term Interbank Investments 358, , , (4.9) Securities and Financial Derivatives 262, , , Financial Derivative Instruments 4,698 4,688 2,955 (37.1) (37.0) Interbank Accounts 65,444 72,425 68, (5.2) Deposits w ith the Central Bank 60,821 63,802 63, (0.3) Compulsory Dep. on Demand Dep. and Float 8,028 10,162 11, Compulsory Dep. on Savings Deposits 52,793 53,640 52,007 (1.5) (3.0) Other 4,623 8,623 5, (41.2) Intrabank Accounts (37.0) 78.5 Loans 649, , ,339 (9.9) (3.0) (Allow ance for Loan Losses) (34,073) (38,049) (36,594) 7.4 (3.8) Leasing (28.6) (0.7) Other Receivables 201, , , Receivable on Guarantees Honored (1.1) Foreign Exchange Portfolio 22,515 19,676 17,730 (21.3) (9.9) Income Receivable 2,849 3,155 2,697 (5.3) (14.5) Trading and Brokerage of Securities 2,015 1,017 1,236 (38.7) 21.5 Specific Credits Credits from Insur., Pension Plans and Saving Bonds 5,968 5,032 4,477 (25.0) (11.0) Tax Credits 47,339 51,714 50, (3.0) Actuarial Assets (1,476) (4,977) (2,202) 49.2 (55.8) Fundo Paridade Warrants Deposits Receivable 46,703 52,545 53, Surplus Destination Fund - Previ 8,960 9,458 9, (0.3) Other Credits 68,767 72,569 78, (Provision for Other Credits) (2,755) (2,469) (2,917) (With Loan Characteristics) (1,457) (1,054) (1,413) (3.0) 34.0 (Without Loan Characteristics) (1,298) (1,415) (1,504) Other Assets 4,642 5,041 4, (4.7) Assets Not in Use and Materials in Stock (1.6) (Provision for Impairment) (144) (155) (161) Prepaid Expenses 4,099 4,490 4, (4.9) Permanent Assets 21,212 19,613 20,687 (2.5) 5.5 Investments 3,448 3,364 3,242 (6.0) (3.6) Property and Equipment 7,866 7,593 7, Intangible 9,873 8,639 9,477 (4.0) 9.7 Deferred Charges

126 Chapter 11 - Managerial Financial Statements Table 166. Summary Balance Sheet - Managerial Liabilities Chg. (%) R$ million Dec/15 Sep/16 Dec/16 Dec/15 Sep/16 LIABILITIES AND SHAREHOLDER S EQUITY 1,584,039 1,651,982 1,624, (1.7) Current and Long-Term Liabilities 1,502,021 1,565,799 1,536, (1.9) Deposits 465, , ,699 (3.8) 1.9 Demand Deposits 66,452 61,555 69, Savings Deposits 151, , ,763 (0.1) 2.1 Interbank Deposits 42,449 25,117 21,797 (48.7) (13.2) Time Deposits 204, , , Money Market Borrow ing 347, , , (8.5) Repurchase Agreements w ith Private Securities 52,134 31,325 25,339 (51.4) (19.1) Funds from Acceptances and Securities Placed 201, , ,964 (12.3) (3.7) Agribusiness Letter of Credit 136, , ,248 (7.5) (6.1) Mortgage Bonds 18,317 17,684 17,259 (5.8) (2.4) Commercial Papers 9,403 10,760 12, Foreign Securities 37,557 20,963 21,145 (43.7) 0.9 Interbank Accounts 31 3,255 1 (96.5) (100.0) Intrabank Accounts 5,480 2,519 2,500 (54.4) (0.8) Borrow ing 34,006 25,050 22,582 (33.6) (9.8) Domestic Borrow ing 1, (82.1) 14.3 Foreign Borrow ing 32,903 24,877 22,385 (32.0) (10.0) Domestic Onlending Official Institutions 91,898 86,833 84,785 (7.7) (2.4) National Treasury (12.2) (10.9) BNDES 38,772 34,394 32,885 (15.2) (4.4) CEF 19,691 22,918 23, Finame 30,984 26,915 25,628 (17.3) (4.8) Other Institutions 2,234 2,392 2, (2.9) Financial Derivatives 4,746 3,783 3,224 (32.1) (14.8) Other Accounts Payable 351, , , Collection of Taxes and Contributions 499 4, (87.5) Foreign Exchange Portfolio 16,366 23,908 23, (2.5) Shareholder and Statutory Distributions 1,778 1,442 1,355 (23.8) (6.0) Taxes and Social Security 24,128 30,605 29, (3.3) Trading and Brokerage of Securities 926 1, (30.3) (36.2) Tech. Prov. Insur. Pension Plans & Saving Bonds 131, , , Financial and Development Funds 15,003 14,620 14,791 (1.4) 1.2 Hybrid Debt Capital Istruments 7,867 5,956 5,525 (29.8) (7.2) FCO (Subordinated Debt) 57,041 55,990 57, Actuarial Liabilities 6,248 7,619 7, Other Liabilities 62,257 68,782 76, Debt Instruments Elegible to Capital 27,734 24,964 25,299 (8.8) 1.3 Unearned Income (2.9) 2.0 Shareholders Equity 81,536 85,724 87, Capital 60,000 67,000 67, Instruments Elegible to Principal Capital 8,100 8,100 8, Capital Reserves Revaluation Reserves (2.5) (0.7) Reserve for Retained Earnings 29,031 25,402 27,647 (4.8) 8.8 Other Comprehensive Income (17,043) (17,874) (16,929) (0.7) (5.3) Benefit Plans (13,918) (16,832) (15,492) 11.3 (8.0) Retained Earnings (Accumulated Losses) - 1, (Shares Ow ned by the Company) (1,697) (1,854) (1,854) Corporate Profit Sharing 3,128 3,360 3, (4.4) 124

127 Banco do Brasil S.A. - MD&A 4Q16 Table 167. Summary Corporate Law Income Statement - Managerial Quarterly Flow Chg. (%) Annual Flow R$ million 4Q15 3Q16 4Q16 4Q15 3Q Chg. (%) Financial Intermediation Income 41,891 48,939 50, , ,714 (8.2) Loan Operations 26,570 28,429 31, , ,441 (6.4) Income from Lease Operations (2.1) (8.0) (13.0) Income from Securities 13,331 17,913 17, (3.3) 63,598 59,963 (5.7) Income from Financial Derivatives 207 (143) (473) - - 2,397 (2,251) - Income from Foreign Exchange Portfolio (421) 422 (45) (89.2) - 2,986 1,829 (38.7) Income from Compulsory Investments 1,390 1,543 1,241 (10.8) (19.6) 5,097 5, Sale or Transference of Financial Assets (5.7) 592 1, Financ. Inc. Insur., Pension and S.Bonds Op (22.0) (6.6) 1,820 1, Financial Intermediation Expenses (33,741) (40,162) (42,376) (169,995) (141,756) (16.6) Money Market Funds (26,972) (30,500) (31,633) (104,244) (117,288) 12.5 Borrow ing, Assignments and Onlending 173 (2,729) (2,246) - (17.7) (38,327) 5,564 - Allow ance for Loan Losses (6,942) (6,933) (8,497) (27,424) (30,032) 9.5 Gross Income from Financial Intermediation 8,151 8,777 7,851 (3.7) (10.6) 21,436 33, Other Operating Income (Expenses) (3,675) (4,356) (5,700) (13,069) (17,059) 30.5 Service Fee Income¹ 5,104 5,150 5, ,385 20, Banking Fee Income 2,036 2,255 2, ,430 8, Personnel Expenses (5,640) (5,971) (7,250) (22,520) (24,476) 8.7 Other Administrative Expenses (4,752) (4,410) (4,721) (0.7) 7.1 (17,267) (17,669) 2.3 Other Taxes Expenses (1,574) (1,687) (1,634) 3.8 (3.2) (6,221) (6,748) 8.5 Eq. Int. in Results of Subsidiaries and Affiliates (879) 21 (49) (94.4) - 3,660 (97) - Inc. for Ins., Pens. Plans and Sav.Bonds Op. 1,241 1,198 1, ,326 4,972 (6.6) Other Operating Income 3,681 3,290 3,250 (11.7) (1.2) 12,585 13, Other Operating Expenses (2,893) (4,202) (4,401) (15,446) (15,904) 3.0 Operating Income 4,475 4,422 2,151 (51.9) (51.4) 8,367 16, Non-Operating Income (26) (29.9) 5, (99.5) Income Before Taxes 4,449 4,431 2,157 (51.5) (51.3) 14,127 16, Income and Social Contribution Taxes (1,158) (1,459) (632) (45.4) (56.7) 3,995 (6,092) - Statutory Profit Sharing (368) (318) (121) (67.2) (62.1) (1,981) (1,129) (43.0) Minority Interest Earnings (411) (407) (441) (1,742) (1,675) (3.8) Net Income 2,512 2, (61.6) (57.1) 14,400 8,034 (44.2) Effective Tax Rate (32.9) 38.6 Table 168. Summary Income Statement with Reallocations - Managerial Quarterly Flow Chg. (%) Annual Flow Chg. (%) R$ million 4Q15 3Q16 4Q16 4Q15 3Q Net Interest Income 15,501 16,279 16, ,371 63, Allow ance for Loan Losses (7,331) (7,037) (8,062) (25,266) (32,961) 30.5 Net Financial Margin 8,171 9,242 8, (9.1) 32,105 31,005 (3.4) Fee Income 7,250 7,405 7, ,925 29, Inc. for Ins., Pens. Plans and Sav.Bonds Op. 1,241 1,198 1, ,941 4, Taxes on Revenues (1,450) (1,549) (1,505) 3.8 (2.9) (5,371) (6,123) 14.0 Contribution Margin 15,212 16,296 16, (1.8) 58,599 59, Administrative Expenses (9,357) (9,225) (9,485) (34,760) (36,029) 3.7 Other Taxes Expenses (155) (143) (122) (21.3) (15.0) (554) (519) (6.4) Commercial Income 5,700 6,927 6, (7.7) 23,285 22,555 (3.1) Legal Claims (434) (458) (521) (1,157) (1,547) 33.8 Labor Law suits (510) (179) (231) (54.7) 29.3 (1,174) (1,290) 9.9 Other Operating Income / Expenses Result (542) (1,626) (2,048) (2,691) (6,346) Income Before Taxes 4,170 4,691 3,552 (14.8) (24.3) 18,238 13,302 (27.1) Income and Social Contribution Taxes (674) (1,618) (1,155) 71.4 (28.6) (2,980) (3,423) 14.9 Interest on Ow n Capital Tax Benefit (71.9) (56.8) 1,829 1,060 (42.1) Statutory Profit Sharing (383) (328) (209) (45.6) (36.4) (1,943) (1,032) (46.9) Minority Interest Earnings (465) (407) (441) (5.3) 8.2 (1,722) (1,675) (2.7) Adjusted Net Income 2,648 2,337 1,747 (34.0) (25.2) 11,594 7,171 (38.2) Effective Tax Rate

128 Chapter 11 - Managerial Financial Statements Table 169. Net Interest Income - Managerial Quarterly Flow Chg. (%) Annual Flow Chg. (%) R$ million 4Q15 3Q16 4Q16 4Q15 3Q Management Net Interest Income 15,501 16,279 16, ,371 63, Loan Operations 26,393 27,204 26,185 (0.8) (3.7) 98, , Funding Expenses (11,381) (11,429) (10,875) (4.4) (4.8) (42,841) (44,419) 3.7 Financial Expense for Institutional Funding¹ (4,159) (4,076) (3,797) (8.7) (6.8) (15,579) (16,023) 2.9 Recovery of Write-offs 1,346 1,059 1, ,059 4, Treasury² 3,302 3,521 3, (1.8) 13,213 13, Includes senior debt instruments, subordinated debt and IHCD in the country and abroad. 2 - Includes income from interest, tax hedging, derivatives and other financial instruments that compensate for the effects of exchange rate variation in the results. Table 170. Fee Income - Managerial Quarterly Flow Chg. (%) Annual Flow Chg. (%) R$ million 4Q15 3Q16 4Q16 4Q15 3Q Managerial Fee Income 7,250 7,405 7, ,925 29, Credit / Debit Cards 1,773 1,705 1, ,504 6, Account Fees 1,737 1,601 1,661 (4.4) 3.7 5,227 6, Asset Management Fees 1,220 1,416 1, (2.7) 4,726 5, Loan Fees ,993 2, Collections (1.0) (2.1) 1,700 1,680 (1.2) Billings ,045 1, Insurence, Pension and Premium Bonds ,012 1, Interbank National Treasury and Manag. of Official Funds Fiduciary Services (7.1) Capital Market Consortium (4.3) Other (12.1) 7.9 2,036 1,921 (5.7) Table 171. Administrative Expenses - Managerial Quarterly Flow Chg. (%) Annual Flow R$ million 4Q15 3Q16 4Q16 4Q15 3Q Chg. (%) Management Administrative Expenses (9,357) (9,225) (9,485) (34,758) (36,029) 3.7 Personnel Expenses Management (5,369) (5,611) (5,550) 3.4 (1.1) (20,584) (21,564) 4.8 Salaries (2,980) (2,549) (2,062) (30.8) (19.1) (10,431) (9,939) (4.7) Administrative Personnel Provisions (303) (1,265) (1,283) (2,831) (3,986) 40.8 Social Charges (1,003) (836) (1,036) (3,582) (3,590) 0.2 Benefits (848) (717) (855) (3,043) (3,013) (1.0) Pension Fund (174) (199) (257) (509) (846) 66.2 Remunerat. for Directors and Officers (28) (26) (31) (104) (114) 10.0 Training (31) (19) (25) (18.8) 36.2 (83) (77) (7.7) Other Administrative Expenses (3,987) (3,614) (3,935) (1.3) 8.9 (14,174) (14,465) 2.1 Telecommunications and Data Processing (580) (483) (538) (7.2) 11.5 (2,213) (2,164) (2.2) Amortization and Depreciation (393) (419) (428) (1,480) (1,679) 13.4 Security. Guard and Transport Services (634) (633) (642) (2,330) (2,396) 2.8 Expenses w ith Premises and Equipment (698) (806) (895) (2,766) (3,101) 12.1 Advertising and Public Affairs (330) (179) (234) (29.1) 31.1 (771) (710) (7.8) Expenses w ith Outsourced Services (673) (618) (654) (2.9) 5.7 (2,501) (2,480) (0.8) Other Administrative Expenses (680) (477) (545) (19.9) 14.3 (2,114) (1,936) (8.4) 126

129 Banco do Brasil S.A. - MD&A 4Q16 Vice Presidency of Financial Management and Investor Relations Chief Financial Officer Alberto Monteiro de Queiroz Netto Head of Investor Relations Bernardo de Azevedo Silva Rothe Executive Manager Rodrigo Felippe Afonso Divisional Managers Heverton Masaru Ono João Domingos Cicarini Júnior Joaquim Camilo de Castro IR Especialist Janaína Marques Storti Analysts Adriano Gonçalves de Souza Bruno Santos Garcia Cleber Antonio Lima Rentroia Daniela Priscila da Silva Debora Stefani Diogo Simas Machado Eva Maria Gitirana de Oliveira Fabíola Lopes Ribeiro Felipe de Mello Pimentel Fernanda Vasconcelos de Meneses Fernando Mascarenhas de Oliveira Filipe Cardoso Duda Gustavo Correia de Brito Itala Tonon Jefferson Guarnieri Aquino Joabel Martins de Oliveira Luiz Fernando de Almeida Peterson Luiz Barbosa Regina Knysak Vilmar Francisco Thewes Vitor Lopes Rodrigues Viviane de Sousa 127

130 Banco do Brasil S.A. Limited assurance report about supplementary accounting information included within the performance analysis report December 31, (A free translation of the original report in Portuguese on the supplementary accounting information presented in the Performance Analysis Report) KPMG Auditores Independentes