Banco Safra S.A. and subsidiaries · Deposits 3(n) and 10(a) 896,296 1,521,127 Interbank deposits...

(A free translation of the original in Portuguese)

Banco Safra S.A. and subsidiaries Consolidated interim financial statements at September 30, 2012 and report on review

BANCO SAFRA S.A. AND SUBSIDIARIES ("CONSOLIDATED")

BALANCE SHEET

All amounts in thousands of reais (A free translation of the original in Portuguese)

CONSOLIDATED

ASSETS Notes 9.30.2012 9.30.2011

CURRENT ASSETS 54,864,308 68,042,063

Cash 3(b) and 4 484,765 357,742

Interbank investments 3(c) and 4 and 5 6,573,880 22,571,765

Money market investments 4,917,864 20,419,498

Interbank deposits 961,588 1,465,640

Foreign currency investments 694,428 686,627

Securities and derivative financial instruments 3(d) and 6 12,559,665 7,057,809

Own portfolio 8,047,756 3,505,654

Subject to repurchase agreements 1,306,441 -

Derivative financial instruments 3(e) and 7 265,058 202,320

Restricted deposits - Brazilian Central Bank 115,439 144,359

Linked to guarantees 109,514 835,637

Securities pledged in guarantee of technical reserves 11(b) 2,715,457 2,369,839

Interbank and interdepartmental accounts 2,257,350 5,765,052

Payments and receipts pending settlement 189,619 522,038

Deposits - Brazilian Central Bank 13(a) 2,061,632 5,239,808

Internal transfers of funds and other 6,099 -

Credit operations 3(g) and 8 29,622,603 30,800,957

Credit operations 29,945,914 31,030,214

(Allowance for loan losses) (323,311) (229,257)

Other receivables 3,275,641 1,393,437

Foreign exchange portfolio 9 2,688,246 548,553

Negotiation and intermediation of securities 13(b) 142,868 167,382

Sundry 13(c) 444,527 677,502

Other assets - prepaid expenses 3(i) 90,404 95,301

NON-CURRENT ASSETS 36,683,446 18,252,511

LONG-TERM RECEIVABLES 36,285,302 17,629,307

Interbank investments 3(c) and 4 and 5 1,385,496 364,181

Interbank deposits 1,385,496 364,181

Securities and derivative financial instruments 3(d) and 6 17,825,275 2,249,600

Own portfolio 10,126,054 1,804,873

Subject to repurchase agreements 5,201,477 -

Derivative financial instruments 3(e) and 7 1,626,037 222,854

Restricted deposits - Brazilian Central Bank 151,595 -

Linked to guarantees 630,107 221,873

Securities pledged in guarantee of technical reserves 11(b) 90,005 -

Credit operations 3(g) and 8 16,517,032 14,446,837


(Allowance for loan losses) (1,125,616) (1,017,650)

Other sundry receivables 13(c) 539,688 566,760

Foreign exchange portfolio 9 3,117 2,224

Sundry 13(c) 536,571 564,536

Other assets 3(i) 17,811 1,929

INVESTMENTS 3(j) and 15 258,300 391,016

PROPERTY AND EQUIPMENT IN USE 3(k) and 16 97,649 206,307

Property and equipment - 233,063

Other property and equipment assets in use 333,861 310,954

(Accumulated depreciation) (236,212) (337,710)

INTANGIBLE ASSETS 3(l) and 16 42,195 25,881

Intangible assets 73,786 47,167

(Accumulated amortization) (31,591) (21,286)

TOTAL ASSETS 91,547,754 86,294,574

(continued)


BALANCE SHEET

All amounts in thousands of reais

CONSOLIDATED

LIABILITIES AND EQUITY Notes 9.30.2012 9.30.2011

CURRENT LIABILITIES 57,552,672 56,062,813

Deposits 3(n) and 10(a) 11,418,591 15,364,256

Demand deposits 682,108 647,690

Savings deposits 1,212,122 1,189,595

Interbank deposits 3,626,912 3,162,464

Time deposits 5,897,449 10,364,507

Money market funding 3(n) and 10(b) 21,878,188 23,534,236

Own portfolio 18,085,566 12,783,954

Third party portfolio 3,792,622 10,750,282

Funds from acceptance and issuance of securities 3(n) and 10(c) 6,598,754 1,626,811

Funds from financial bills, bills of credit and similar notes 6,479,295 1,485,386

Securities issued abroad 119,459 141,425

Interbank and interdepartmental accounts 470,491 477,224

Receipts and payments pending settlement 299,218 308,659

Third-party funds in transit 162,713 166,725

Internal transfers of funds 8,560 1,060

Borrowings and onlendings 3(n) and 10(d) 7,032,700 8,742,941

Foreign borrowings 3,746,246 5,145,011

Transfer of financial assets 2,340 26,839

Domestic onlendings 3,239,964 3,296,519

Lending of shares 44,150 274,572

Derivative financial instruments 3(e) and 7 4,541,552 2,690,129

Other obligations 5,612,396 3,627,216

Collected taxes and other 1,465,435 1,243,690

Foreign exchange portfolio 9 2,662,848 387,271

Social and statutory 17(b) 186,729 176,288

Taxes and social security contributions 14(c) 447,736 657,792

Technical reserves - insurance and pension plan 3(o) and 11(a) 248,981 227,770

Negotiation and intermediation of securities 13(b) 114,375 196,964

Sundry 13(d) 486,292 737,441

NON-CURRENT LIABILITIES 27,142,019 24,645,869

LONG-TERM LIABILITIES 27,109,101 24,610,076

Deposits 3(n) and 10(a) 896,296 1,521,127

Interbank deposits 208,582 102,332

Time deposits 687,714 1,418,795

Money market funding - Own portfolio 3(n) and 10(b) 2,534,326 3,825,230

Funds from acceptance and issuance of securities 3(n) and 10(c) 9,716,518 7,207,032

Funds from financial bills, bills of credit and similar notes 6,452,547 4,340,367

Securities issued abroad 3,263,971 2,866,665

Borrowings and onlendings 3(n) and 10(d) 5,614,641 4,815,590

Foreign borrowings 73,555 87,311

Transfer of financial assets - 3,177

Domestic onlendings 5,541,086 4,725,102

Derivative financial instruments 3(e) and 7 700,818 561,430

Other obligations 7,646,502 6,679,667 Taxes and social security contributions 14(c) 2,040,004 2,147,740

Technical reserves - insurance and pension plan 3(o) and 11(a) 2,556,849 2,148,291

Subordinated debt 3(n) and 10(e) 2,623,423 2,101,727

Sundry 13(d) 426,226 281,909

DEFERRED INCOME 3(r) 32,918 35,793

EQUITY 17 6,853,063 5,585,892

Capital 4,219,440 2,812,000

Revenue reserves 2,391,599 2,761,922

Carrying value adjustments 242,024 11,970

TOTAL LIABILITIES AND EQUITY 91,547,754 86,294,574

The accompanying notes are an integral part of these financial statements.


STATEMENT OF INCOME FOR THE PERIODS ENDED SEPTEMBER 30

All amounts in thousands of reais unless otherwise stated (A free translation of the original in Portuguese)

CONSOLIDATED

Notes 2012 2011

INCOME FROM FINANCIAL INTERMEDIATION 7,285,926 7,394,492


Result from transactions with marketable securities 2,079,198 2,739,458

Financial income from insurance and pension plan operations 11(c) 170,052 129,214

Foreign exchange transactions 9 42,842 58,336

Compulsory investments 13(a) 211,695 180,384

Other financial income 2,236 -

EXPENSES ON FINANCIAL INTERMEDIATION (4,581,401) (4,981,970)

Result from derivative financial instruments (310,793) (165,897)

Funds obtained in the market (3,592,664) (4,349,753)

Borrowings and onlendings (443,333) (340,403)

Financial expenses with pension plan funds 11(c) (159,943) (117,923)

Financial assets sale or transfer operations (1,441) (7,994)

Other finance costs 12(c-I and II) (73,227) -

GROSS PROFIT ON FINANCIAL INTERMEDIATION

BEFORE THE ALLOWANCE FOR LOAN LOSSES 2,704,525 2,412,522

RESULT FROM ALLOWANCE FOR LOAN LOSSES (592,252) 278,317

Allowance for loan losses 3(g) and 8(b) (687,256) (756,645)

Recovery of credits written off 3(g) and 8(c) 95,004 1,034,962

GROSS PROFIT ON FINANCIAL INTERMEDIATION 2,112,273 2,690,839

OTHER OPERATING INCOME (EXPENSES) (756,332) (1,010,941)

Income from services rendered 13(e) 371,623 381,597

Income from bank fees 13(f) 161,030 152,204

Personnel expenses 13(g) (836,510) (819,272)

Administrative expenses 13(h) (423,766) (424,845)

Tax expenses 14(a-II) (195,825) (214,634)

Equity in the earnings of subsidiary and associated companies 15(a) - (284)

Result from insurance and pension plan 3(o) and 11(c) 79,878 72,453

Other operating income 13(i) 152,369 47,768

Other operating expenses 13(j) (65,131) (205,928)

OPERATING PROFIT 1,355,941 1,679,898

NON-OPERATING PROFIT 98 2,936

PROFIT BEFORE TAXATION 1,356,039 1,682,834

INCOME TAX AND SOCIAL CONTRIBUTION ON NET INCOME 3(q) and 14(a-I) (462,644) (794,213)

PROFIT FOR THE PERIOD 893,395 888,621

Earnings per shares in R$ (Note 3(a)) 0.59 0.62

STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIODS ENDED SEPTEMBER 30


PROFIT FOR THE PERIOD 893,395 888,621

Carrying value adjustments 405,501 20,028

Taxes (174,174) (7,813)

COMPREHENSIVE INCOME 1,124,722 900,836



STATEMENT OF CHANGES IN EQUITY FOR THE PERIODS ENDED SEPTEMBER 30 (NOTE 17)



Retained earnings

Paid-up

Capital

Revenue

Carrying value

(accumulated

capital

reserves

reserves

adjustments

deficit)

Total

AT JANUARY 1, 2011

2,245,458

72,723

3,295,806

(245)

-

5,613,742

Capital increase - merger of reserves

657,195

(72,723)

(584,472)

-

-

-

Capital decrease - disposal of investment

(90,653)

-

-

-

-

(90,653)

Reverse share split

-

-

(7,080)

-

-

(7,080)

Carrying value adjustments - available-for-sale securities

-

-

-

12,215

-

12,215

Profit for the period

-

-

-

-

888,621

888,621

Allocation:

Legal reserve

-

-

44,431

-

(44,431)

-

Special reserve

-

-

678,237

-

(678,237)

-

Interest on capital

-

-

-

-

(165,953)

(165,953)

Dividends

-

-

(665,000)

-

-

(665,000)

AT SEPTEMBER 30, 2011

2,812,000

-

2,761,922

11,970

-

5,585,892

AT JANUARY 1, 2012

3,980,315

-

2,024,647

10,697

-

6,015,659

Capital increase - merger of reserves

350,000

-

(350,000)

-

-

-

Capital decrease - disposal of investment

(110,875)

-

-

-

-

(110,875)

Carrying value adjustments - available-for-sale securities

-

-

-

231,327

-

231,327

Profit for the period

-

-

-

-

893,395

893,395

Appropriation:

Legal reserve

-

-

44,670

-

(44,670)

-

Special reserve

-

-

672,282

-

(672,282)

-

Interest on capital

-

-

-

-

(176,443)

(176,443)

AT SEPTEMBER 30, 2012

4,219,440

-

2,391,599

242,024

-

6,853,063



STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED SEPTEMBER 30

All amounts in thousands of reais (A free translation of the original in Portuguese)

CONSOLIDATED

2012 2011

CASH FLOWS FROM OPERATING ACTIVITIES

ADJUSTED PROFIT 2,096,045 2,648,270

Profit for the period 893,395 888,621

Adjustments to profit:

Depreciation and amortization 23,588 28,079

Allowance for loan losses 687,256 756,645

Equity in the earnings of subsidiary and associated companies - 284

Adjustment to market value of trading securities, derivative financial instruments and hedge 18,989 (152,487)

Provisions for civil, labor and other contingencies 66,763 41,243

Provisions for legal, tax and social security obligations (79,933) 269,383

Interest on subordinated debt 23,343 22,289

Provision for current and deferred income taxes 462,644 794,213

CHANGES IN ASSETS AND LIABILITIES 4,208,682 (2,615,060)

(Increase) decrease in interbank investments 6,810,485 (812,902)

(Increase) decrease in securities - for trading (6,386,548) 2,489,347

(Increase) decrease in derivative financial instruments (assets/liabilities) 469,268 (1,126,296)

(Increase) decrease in interbank and interdepartmental accounts (assets/liabilities) 3,415,463 (4,048,975)

(Increase) decrease in credit operations (3,215) (9,443,065)

(Increase) decrease in other receivables 264,473 (181,126)

(Increase) decrease in other assets 9,926 (66,130)

Increase (decrease) in deposits (4,185,813) 2,318,155

Increase (decrease) in money market funding (2,891,876) (544,731)

Increase (decrease) in borrowings and onlendings (407,682) 3,243,442

Increase (decrease) in funds from acceptance and issuance of securities 6,093,926 4,406,782

Increase (decrease) in foreign exchange portfolio (assets/liabilities) 102,603 (274,232)

Increase (decrease) in collected taxes and other 1,445,172 1,227,325

Increase (decrease) in other payables 168,414 725,447

Taxes paid (695,914) (528,101)

NET CASH PROVIDED BY OPERATING ACTIVITIES 6,304,727 33,210

CASH FLOWS FROM INVESTING ACTIVITIES

Available-for-sale securities (13,873,889) (533,112)

(Acquisitions) (15,751,882) (469,553)

Sales 1,877,993 (63,559)

Securities held to maturity (59,772) (204,827)

(Acquisitions) (76,587) (159,856)

Redemptions 16,815 (44,971)

Purchase of property and equipment in use (16,857) (17,023)

Sale of property and equipment in use 667 13,893

Acquisition of assets not for use (9,053) (1,278)

Acquisition of investments (436) (448)

Sale of investments 65,651 65,661

Increase in intangible assets (21,749) (13,419)

NET CASH USED IN INVESTING ACTIVITIES (13,915,438) (690,553)

CASH FLOWS FROM FINANCING ACTIVITIES

Capital reduction - (5,024)

Securities issued abroad - 1,298,889

Subordinated debt 355,050 821,272

Dividends paid - (665,000)

NET CASH PROVIDED BY FINANCING ACTIVITIES 355,050 1,450,137

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,255,661) 792,794

Cash and cash equivalents at the beginning of the period 9,411,583 10,553,427

Cash and cash equivalents at the end of the period 2,155,922 11,346,221

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,255,661) 792,794



STATEMENT OF VALUE ADDED FOR THE PERIOD ENDED SEPTEMBER 30All amounts in thousands of reais (A free translation of the original in Portuguese)

CONSOLIDATED 2012 2011

Income 7,458,672 8,329,767 Financial operations 7,285,926 7,394,492

Banking services and income from bank fees 532,653 533,801

Result from allowance for loan losses (592,252) 278,317

Result from insurance and pension plan 79,878 72,453

Other operating income 152,467 50,704

Expenses (4,646,532) (5,187,898) Financial operations (4,581,401) (4,981,970)

Other operating expenses (65,131) (205,928)

Expenses from acquired inputs (335,594) (363,362) Facilities (24,430) (20,505)

Data processing and telecommunications (30,468) (38,624)

Third party services (59,792) (64,172)

Financial system services (31,246) (27,027)

Surveillance services, security and transport (23,813) (24,211)

Legal and notary fees (68,361) (90,226)

Other (97,484) (98,597)

Gross value added 2,476,546 2,778,507

Retentions - depreciation and amortization (23,592) (28,079)

Net value added generated by the Company 2,452,954 2,750,428

Value added received through transfer - Equity in the earnings of subsidiary and associated companies - (284)

Total value added to distribute 2,452,954 2,750,144

Distribution of value added 2,452,954 2,750,144 Personnel 723,923 714,192 Remuneration and profit sharing 551,817 553,599

Benefits 54,634 59,393

Government Severance Indemnity Fund for Employees (FGTS) 32,678 36,963

Labor contingencies 71,280 56,333

Other 13,514 7,904

Taxes and contributions 771,056 1,113,927 Federal 737,609 1,088,519

State 369 240

Municipal 33,078 25,168

Remuneration on third parties' capital - rentals 64,580 33,404 Remuneration on own capital 893,395 888,621 Interest on capital 176,443 165,953

Profit reinvested in the period 716,952 722,668


BOARD OF DIRECTORS José Manuel da Costa GomesContador - CRC nº 1SP219892/O-0


1

NOTES TO THE FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2012 AND 2011 (All amounts in thousands of reais unless otherwise stated)

1. OPERATIONS Banco Safra S.A. and its subsidiaries are engaged in asset, liability and accessory operations inherent in the related authorized lines of business (commercial, including foreign exchange, housing loans, credit, financing and investment, and commercial leasing), and complementary activities among which are insurance operations, pension fund, brokerage and distribution of securities, management of credit cards and investment funds, and managed portfolios, in accordance with current legislation and regulations.

2. PRESENTATION OF THE FINANCIAL STATEMENTS

a) Presentation of the Financial statements

The financial statements of Banco Safra S.A. and its subsidiaries ("Consolidated") have been prepared and are presented in conformity with accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank (BACEN), and in compliance with Brazilian Corporate Law, and reflect the changes introduced by Laws 11,638/2007 and 11,941/2009, and the standards and instructions of the National Monetary Council (CMN), the Brazilian Securities Commission (CVM), and the Superintendence of Private Insurances (SUSEP), as applicable. The financial statements have been prepared considering leasing operations under the financial method. Thus, the financial result of these transactions is presented together with the credit operations in the Statement of income. Advances on foreign exchange contracts are presented in conjunction with the foreign exchange portfolio for credit operations. The presentation of foreign exchange gains and losses is adjusted so that income and expenses represent only the changes and differences in exchange rates applied to the foreign currency amounts. The consolidated financial statements for Banco Safra S.A. were approved by the Board of Directors on October 29, 2012.

b) Consolidation

The Balance sheet accounts and the income and expenses between the parent and subsidiary companies, as well as the unrealized profits between the consolidated companies, were eliminated on consolidation. The Exclusive investment funds of consolidated companies are consolidated. The securities and investments included in the portfolios of these funds are classified by transactions and were distributed into types of Notes, in the same categories on which they were originally allocated.

The consolidated financial statements include Banco Safra and its subsidiaries shown below, including the exclusive investment funds consolidated on a proportional basis, highlighting:

Participation (%) 9.30.2012 9.30.2011

Banco Safra (Cayman Islands) Limited (1) 100.00 100.00 J.Safra Corretora de Valores e Câmbio Ltda. 100.00 100.00 Safra Asset Management Ltda. (2) 100.00 100.00 Safra Leasing S.A. – Arrendamento Mercantil 100.00 100.00 Banco J, Safra S.A. 100.00 100.00 J. Safra Participações Ltda. (3) - 90.98 Sercom Comércio e Serviços Ltda. 100.00 100.00 Safra Vida e Previdência S.A. 100.00 99.98 Safra Seguros Gerais S.A. 100.00 100.00

2

(1) Entities based abroad. (2) Formerly Safra Distribuidora de Títulos e Valores Mobiliários Ltda. (3) Formerly Safra Cia. Securitizadora de Créditos Imobiliários. This investment, consolidated on a proportional basis,

was transferred to the controlling stockholder on 4.11.2012, due to the capital decrease of Banco Safra (Note 17(a)).

c) Reclassifications for comparative purposes

On the balance sheet, advance payments on foreign exchange contracts in leasing operations, previously classified as Obligations for purchase of foreign currency (liabilities), started to be reclassified as foreign currency exchange purchases pending settlement (assets). The amount involved was R$ 1,190,592. We highlight that the above reclassifications did not give rise to alteration in profit, equity position, or the earnings per share.

3. SIGNIFICANT ACCOUNTING PRACTICES

a) Determination of profit

Profit is determined on the accrual basis of accounting, which establishes that it should be included in the results of operations for the period in which they occur, simultaneous with when they relate, regardless of receipt or payment.

The earnings per share for the period ended 9.30.2012 were calculated based on the number of shares issued at the base date (1,513,299,608). For comparability purposes, the earnings per share for 9.30.2011 (1,430,407,149) were calculated based on the equivalent amount of shares, taking into consideration the adjustment related to the change in shares during the period, which did not change the equity amount.

b) Cash flow

I- Cash and cash equivalents: are represented by cash and deposits held at call with financial institutions, recorded on the line item 'Cash', interbank deposits, units in investment funds, and fixed interest investments retrievable within 90 days, with an immaterial risk of market value variation. 'Cash equivalents' are amounts held for the purpose of settling short term cash obligations and not for investment or other purposes.

II- Cash flow statement: prepared based on the criteria set out in Accounting Standard CPC 03 - Cash flow statements, approved by CMN Resolution 3,604/2008. This standard foresees the cash flow statements being made up of amounts used for operating, investing, and financing purposes, i.e..

• Operating activities are the main income generating activities of the entity that are neither investing nor financing activities. Included in this section are the funding activities that are carried out for the purposes of financial intermediation and other operational activities that are typical of a financial institution;

• Investing activities are those related to the buying and selling of long-term assets and other investments not included as cash equivalents, such as available-for-sale and held-to-maturity investments; and

• Financing activities are those that result in changes to the size and composition of the entity's and third parties' capital. Included in this section are structured funding activities aimed at raising resources to finance the Entity itself.

Cash flows from operating activities are presented using the indirect method. Cash flows from investing and financing activities are presented based on gross payments and receivables.

c) Short-term interbank investments

These are stated at cost, plus, when applicable, accrued income and monetary and foreign exchange rate variations up to the Balance sheet date, calculated on a pro rata basis.

d) Securities

In accordance with Brazilian Central Bank (BACEN) Circular 3,068/2001, securities are classified according to management's intention into three specific categories:

3

• Trading securities: securities acquired to be actively and frequently traded. The securities are stated in current

assets, regardless of their maturities and adjusted to market against income for the period;

• Available-for-sale: securities that can be traded but are not acquired to be actively and frequently traded or held to maturity. The income earned is recognized in the Statement of income, and unrealized gains and losses arising from market value fluctuations are recognized in a specific account in equity, net of taxes;

• Held-to-maturity: securities which the Bank has the intention and financial capacity to hold in portfolio up to their maturity. These securities are stated at cost, plus income accrued.

The reconsideration of how securities are categorized occurs at the point of preparation of the half-year statements, taking into consideration their intended use and financial capacity, in accordance with procedures established by BACEN Circular 3,068/2001.

e) Derivative financial instruments

Derivative financial instruments used to hedge exposures to risks through the change of certain characteristics of the financial assets and liabilities hedged that are considered highly effective and follow all the requirements of designation and documentation under BACEN Circular 3,082/2002 are classified as accounting hedges according to their nature:

• Market risk hedge - hedged financial assets or liabilities and the related derivative financial instruments are recorded at market value, with the related gains or losses recognized in the Statement of income; and

• Cash flow hedge - hedged financial assets or financial liabilities and the related derivative financial instruments are recorded at market value, with the related gains or losses, net of taxes, recognized in a specific account of equity entitled "Carrying value adjustments". The non-effective hedge portion is recognized directly in the Statement of income.

Derivative financial instruments contracted at the request of third parties or on own behalf that fail to meet the accounting hedge criteria established by the Brazilian Central Bank, especially derivative financial instruments used to manage overall risk exposure, are recorded at market value, with gains and losses recognized directly in income.

f) Market value measurement

The market value measurement methodology (probable realizable value) of securities and derivative financial instruments is based on the economic scenario and pricing models developed by management and include gathering of average prices practiced in the market, applicable at the Balance sheet date. Accordingly, when these items are financially settled, actual results may differ from estimates.

g) Credit operations and allowance for loan losses

These are recorded at present value based on the index and contractual interest rate, on a pro rata basis, calculated up to the Balance sheet date and are recorded on the accrual basis until the 60th day overdue. Those transactions which are past due for more than 60 days, independent of their risk level rating, have their income recorded only when received. The Bank records allowances for loan losses in conformity with the ratings established by CMN Resolution 2,682/1999, which requires the classification of transactions in nine risk levels, from "AA" (minimum risk) to "H" (maximum risk), and also based on an analysis of outstanding transactions, periodically performed and reviewed by management, which considers, among others, the historical experience with borrowers, the economic scenario and global and specific portfolio risks. The transactions classified in rating "H" remain under this rating for six months, when they are then written off against the existing allowance and controlled for five years in a memorandum account, no longer being included in the Balance sheet. Renegotiated transactions remain at least at the same risk level in which they were classified. Renegotiated transactions that had already been written off against the allowance and that were recorded in memorandum accounts are rated in risk level H, and any income from the renegotiation is only recognized when actually received. When a significant amount is paid or new material events justify changing a transaction's risk level, the transaction may be reclassified to a lower risk rating.

4

h) Write down of financial instruments

In accordance with CMN Resolution 3,533/2008, financial assets are written down when the contractual rights to the cash flows from these assets expire, or when substantially all the risks and rewards of ownership of the instrument are transferred. When substantially all the risks and rewards are not transferred nor retained, Safra assesses the control of the instrument in order to determine whether it should be maintained in assets. Securities linked to repurchase and assignment of credit with co-obligation are not derecognized because Safra retains substantially all the risks and rewards to the extent there is, respectively, a commitment to repurchase them at a predetermined amount or to make payments in the event of default of the original debtor of the credit operations, Financial liabilities are written down if the obligation is contractually extinguished or settled.

i) Other assets

These correspond basically to assets not held for use, especially those received in lieu of payment, and prepaid expenses, corresponding to the use of resources whose benefits or services will occur in future periods.

j) Investments

Investments in subsidiary and associated companies in which the Bank has significant influence or its interest is 20% or more of the voting capital are recorded by the equity method of accounting. Other investments refer basically to shares of companies in which the Bank, directly or indirectly, does not have significant influence or does not hold more than 20% of the voting capital and are, therefore, stated at cost, adjusted by a provision for impairment. Dividends received from these investments are recognized within the result.

k) Property and equipment in use

These correspond to rights in tangible assets that are maintained or used in the Bank and its subsidiaries' activities, including those rights received as a result of transactions that transfer the risks, rewards, and control of such assets to the Bank. They are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line method at annual rates based on the economic useful lives of assets, as follows: properties in use - 4%; communication and security systems, facilities, aircraft, and furniture and fixtures - 10%; and vehicles and data processing equipment - 20%. They are adjusted by a provision for impairment losses.

l) Intangible assets

These correspond to rights in intangible assets that are maintained or used in the Bank and its subsidiaries' activities. Intangible assets with finite useful lives are amortized on the straight-line method over the estimated period in which they will generate economic benefits. They are adjusted by a provision for impairment losses.

m) Impairment of non-financial assets

CMN Resolution 3,566/2008 provides the procedures applicable to the recognition, measurement and disclosure of impairment and requires compliance with CPC Technical Pronouncement 1 - Impairment of assets. Impairment of non-financial assets is recorded as a loss when the book value of an asset or a cash generating unit is higher than its recoverable or realizable value. A cash-generating unit is the smallest identifiable group of assets which generates substantial cash flows irrespective of other assets and groups of assets. When applicable, impairment losses are recorded in income for the period in which they were identified. Non-financial assets are periodically reviewed for impairment, at least on an annual basis, to determine if there are any indications that the assets' recoverable or realizable value is impaired. Accordingly, in conformity with the above standards, Safra Group's management is not aware of any material adjustments that might affect the ability to recover the amounts recorded in property and equipment and intangible assets at 9.30.2012 and 2011.

n) Money market funding and borrowings and onlendings

The stated amounts include income, monetary adjustments (on a pro rata basis) and exchange variations, as applicable, incurred through the Balance sheet date.

5

Incurred transaction costs, basically relating to amounts paid to third parties for intermediation, placement and distribution services for entity securities are accounted for against the securities and are recognized on a monthly basis to the appropriate expense account i.e. "pro rata temporis", except when the instruments are measured at fair value through the profit or loss.

o) Insurance and private pension plan operations

I - Technical reserves - insurance and pension plan

Insurance and private pension plan reserves are recorded based on technical actuarial notes, in accordance with criteria established by SUSEP and National Council of Private Insurances (CNSP) Resolutions 162/2006, 181/2007, 195/2008 and 204/2009:

• Provision for unearned premiums (PPNG): corresponds to the portion of insurance premiums retained

corresponding to the non-elapsed risk period of the insurance contracts, on a pro rata basis. That reserve related to retrocession transactions is recognized based on information received from IRB Brasil Resseguros S.A. In addition, the Reserve for current risks not issued (RVNE) is recognized to cover risks that were not issued on the date of calculation;

• Provision for unsettled claims (PSL): based on estimates of indemnities relating to claims received until the end of the period, and monetarily restated according to SUSEP regulations;

• Reserves for unvested and vested benefits: represent the amount of the obligations assumed with the participants of the defined contribution plans PGBL and VGBL and are recognized according to the methodology established in a technical actuarial note approved by SUSEP;

• Reserve for incurred but not reported losses (IBNR): calculated based on actuarial studies and recorded to cover claims that have occurred but have not been notified by the insured party;

• Contribution deficiency reserve (PIC): recorded annually based on an actuarial valuation to cover occasional insufficiency of mathematical reserves for unvested and vested benefits;

• Premium deficiency reserve (PIP): consists of a prospective actuarial calculation, recognized in the event of insufficiency of the unearned premium reserve (PPNG);

• Administrative expenses reserve (PDA): recognized to cover the administrative expenses of the VGBL and PGBL pension plans and individual life insurance, calculated based on approved methodology in the technical actuarial note;

• Supplementary premium reserve (PCP): recognized on a monthly basis to supplement the PPNG, and its amount is equal to the difference, if positive, between the average of the sum of amounts calculated daily during the recognition month and the PPNG recorded, considering risks in force, whether written or not.

II - Liability adequacy test

The liability adequacy test, which came into force as a result of the SUSEP Circular 410/2010, is performed on a yearly basis, and seeks to ensure the adequacy of the Entity's technical provisions. The test takes into account the minimum assumptions determined by SUSEP and by Safra's own internal actuaries. In the preparation of financial statements, the liability adequacy test is carried out to check the adequacy of the insurance liabilities net of related acquisition costs. To carry out this test, Safra uses the best estimates of cash flows, claims and administrative expenses. If the test determines the need of an additional provision, the adjustment must be made: • in the provisions for Incurred but not reported losses (IBNR), Provision for unsettled claims (PSL) e Reserve for

Future Policy Benefits (PBAR), as appropriate, for deficiencies arising from the provisions for claims or

• through an increase in the provision for premium insufficiency/contributions or provision for risks in progress, as appropriate, for the deficiencies arising from the other provisions.

Long-term insurance contracts are measured according to assumptions made at the beginning of the contract. When the liability adequacy test requires the use of new assumptions, these are considered prospectively.

6

III - Calculation of insurance and reinsurance earnings

Insurance premiums, net of co-insurance premiums, as well as acquisition costs are recognized at the point of issue of the policy contract or invoice. Insurance premium income is recognized into the Statement of income over the course of the policy risk period. This is achieved by establishing an unearned premium reserve, and a deferral of the acquisition costs. Pension plan contributions are recognized as received. Reinsurance premiums are deferred and recognized over the course of the covered period. Income and expenses arising from insurance operations with DPVAT are recognized based on the information received from Seguradora Líder dos Consórcios do Seguro DPVAT S.A.

p) Provisions, contingent assets and liabilities, and legal, tax and social security obligations

The recognition, measurement and disclosure of contingent assets and liabilities and legal obligations are made in conformity with the criteria set forth in the CPC Technical Pronouncement 25 - Provisions, Contingent Liabilities and Contingent Assets, approved by CMN Resolution 3,823/2009 and BACEN Circular 3,429/2010, as described below:

(i) Contingent assets - possible assets that have come about as a result of a past event but whose existence will only be confirmed by the occurrence or not of one or more uncertain future events that are not fully under the control of the entity. The contingent asset is not recognized in the accounts, but is disclosed in the Notes when it is probable that the asset will be recognized. By extension, when evidence arises that makes the asset a practical certainty, the asset is no longer contingent and is recognized in the accounts.

(ii) Contingent liabilities - a present (legal or constructive) obligation as a result of past events, in which it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably measured, should be recognized by the entity as a provision. If the outflow of resources to settle the obligation is not probable or cannot be reliably measured, then a contingent liability is created instead of a provision. The contingent liability is not registered in the accounts but is disclosed in the Notes, unless the likelihood of having to settle the obligation is remote.

Contingent liabilities also come about as a result of possible obligations arising from past events and whose existence will be confirmed only by the occurrence of one or more uncertain future events that are not fully under the control of the entity. These possible obligations should also be disclosed.

Obligations are evaluated by management, based on the best estimates and taking into consideration the opinion of legal advisors, who create a provision when the likelihood of a loss is considered probable; when the likelihood is considered possible, then this is disclosed. Obligations for which there is a remote chance of loss are neither provided for or disclosed.

(iii) Legal (tax and social security obligations) - refer to lawsuits challenging the legality or constitutionality of certain taxes. The amount under litigation is quantified, accrued and adjusted on a monthly basis.

The judicial deposits not linked to provisions for contingencies and legal obligations are updated on a monthly basis.

q) Taxes

Calculated at the rates below, considering the effective relevant legislation for each tax rate.

Income tax 15.00% Income tax surcharge 10.00% Social contribution (1) 15.00% Social Integration Program (PIS) (2) 0.65% Social Contribution on Revenues (COFINS) (2) 4.00% Service tax (ISS) Up to 5.00%

(1) Non-financial institution subsidiaries continue to be subject to a rate of 9% for this contribution; (2) Non-financial institution subsidiaries that perform a non-cumulative calculation continue to be subject to PIS and COFINS rates of 1.65% and 7.6%, respectively.

7

r) Deferred income

Refers to income received before fulfillment of the obligation that gave origin to it. The recognition, as effective income, will be recorded over the term of the transaction.

s) Use of accounting estimates

The preparation of financial statements requires management to make estimates and assumptions that, in its best judgment, affect the amounts of certain financial and non-financial assets and liabilities, income and expenses and other transactions, such as: (i) the market value of certain financial assets and financial liabilities and derivative financial instruments; (ii) depreciation rates of property and equipment items; (iii) amortization of intangible assets; (iv) provisions required to cover risks of contingent liabilities; (v) tax credits; (vi) impairment of trade receivables, and (vii) insurance and pension plan technical reserves. The amounts of the possible liquidation of these assets and liabilities, financial or otherwise, may differ from those estimates.

4. CASH AND CASH EQUIVALENTS

9.30.2012 9.30.2011 Cash 484,765 357,742

Money market investments - own portfolio (1) 956,725 10,094,788

Interbank deposits 20,004 207,064

Foreign currency investments 694,428 686,627

Total 2,155,922 11,346,221

(1) On 9.30.2011 included R$ 564,713 through exclusive investment fund (Note 6 (b)).

5. INTERBANK INVESTMENTS

9.30.2012 9.30.2011 Amounts by maturity Up to 90

days From 91 to 365 days

Over 365 days Total Total

Money market investments 4,917,864 - - 4,917,864 20,419,498

Own portfolio 956,725 - - 956,725 9,530,075

National Treasury 956,725 - - 956,725 9,461,763

Private entities - - - - 68,312 Securities under resell agreement - Third-party portfolio - National Treasury

3,961,139 - - 3,961,139 10,889,423

Interbank deposits (1) 432,132 529,456 1,385,496 2,347,084 1,829,821

Foreign currency investments 694,428 - - 694,428 686,627 Total on 9.30.2012 6,044,424 529,456 1,385,496 7,959,376 22,935,946

Total on 9.30.2011 21,929,964 641,801 364,181 22,935,946

(1) R$ 722,500 (R$ 620,000 as at 9.30.2011) of this amount relate to operations between non-related financial institutions, which are held as guarantees against certain compulsory payments-on-account.

8

6. SECURITIES

a) Breakdown by maturity by class:

9.30.2012 9.30.2011

Cost

Mark-to-market

adjustment

Market value

No stated maturity

Up to 90

days

From 91 to 365 days

Over 365

days

Market value

Trading securities 11,078,209 41,922 11,120,131 2,733,315 1,261,332 7,125,484 - 5,816,273 Government Securities 8,344,660 41,348 8,386,008 - 1,260,524 7,125,484 - 2,939,940 National Treasury Bills 6,002,923 13,162 6,016,085 - 1,260,524 4,755,561 - 438,142 National Treasury Notes 2,323,733 28,201 2,351,934 - - 2,351,934 - 2,493,495 Financial Treasury Bills 18,004 (15) 17,989 - - 17,989 - 8,303 Linked to Technical Reserve - Note 11(b) 2,715,457 - 2,715,457 2,715,457 - - - 2,293,521 Quotas of investment funds - PGBL and VGBL 2,647,826 - 2,647,826 2,647,826 - - - 2,232,265 Quotas of investment funds - DPVAT 67,631 - 67,631 67,631 - - - 61,256 Quotas of investment funds - - - - - - - 564,713 Private entities – Shares

9,689 574 10,263 10,263 - - - 5,538 Foreign securities 8,403 - 8,403 7,595 808 - - 12,561 Shares 7,595 - 7,595 7,595 - - - 12,561 Eurobonds 808 - 808 - 808 - - - Available-for-sale securities 16,602,427 422,942 17,025,369 74,512 492,964 339,375 16,118,518 2,820,640 Government Securities 14,306,765 421,528 14,728,293 - - 263,715 14,464,578 602,641 National Treasury Bills 6,947,142 86,817 7,033,959 - - - 7,033,959 32,191 National Treasury Notes 7,359,623 334,711 7,694,334 - - 263,715 7,430,619 570,450 Linked to Technical Reserve - National Treasury Bills - Note 11(b) 89,611 394 90,005 - - - 90,005 76,318 Private Securities 1,686,376 1,020 1,687,396 74,512 12,667 75,660 1,524,557 1,561,105 Debentures 1,011,082 - 1,011,082 - - 51,352 959,730 950,023 Certificates of real estate receivables (CRI) 21,645 759 22,404 - - - 22,404 161,483 Shares 74,251 261 74,512 74,512 - - - 94,003 Bank Deposit Certificates 579,398 - 579,398 - 12,667 24,308 542,423 355,596 Foreign securities 519,675 - 519,675 - 480,297 - 39,378 580,576 Eurobonds 39,378 - 39,378 - - - 39,378 133,498 Bank Deposit Certificates 480,297 - 480,297 - 480,297 - - 447,078 Securities held to maturity 348,345 - 348,345 - 247,595 20,030 80,720 245,322 Government securities - National Treasury Bills 80,720 - 80,720 - - - 80,720 - Private Securities 267,625 - 267,625 - 247,595 20,030 - 162,280 Debentures - - - - - - - 16,239 Promissory Notes 267,625 - 267,625 - 247,595 20,030 - 146,041 Foreign securities - Bank Deposit Certificates - - - - - - - 83,042 Derivative financial instruments - Assets (Note 7) 1,890,560 535 1,891,095 - 44,355 220,703 1,626,037 425,174

Total on 9.30.2012 29,919,541 465,399 30,384,940 2,807,827 2,046,246 7,705,592 17,825,275 9,307,409

Total on 9.30.2011 9,251,499 55,910 9,307,409 2,970,336 1,557,117 2,530,356 2,249,600

9

b) By type:

9.30.2012 9.30.2011

No stated maturity Up to 90 days From 91 to 365 days


Own portfolio 92,370 2,001,891 5,953,495 10,126,054 18,173,810 5,310,527

Government Securities - 1,260,524 5,857,805 8,562,119 15,680,448 2,340,712

National Treasury Bills - 1,260,524 3,538,909 1,489,897 6,289,330 392,354

Financial Treasury Bills - - 17,550 - 17,550 3,648

National Treasury Notes - - 2,301,346 7,072,222 9,373,568 1,944,710

Private Securities 84,775 260,262 95,690 1,524,557 1,965,284 2,293,636

Debentures - - 51,352 959,730 1,011,082 966,262

Shares 84,775 - - - 84,775 99,541

Promissory Notes - 247,595 20,030 - 267,625 146,041

Quotas of investment funds (1) - - - - - 564,713

Bank Deposit Certificates - 12,667 24,308 542,423 579,398 355,596

Certificates of real estate receivables (CRI) - - - 22,404 22,404 161,483

Foreign securities 7,595 481,105 - 39,378 528,078 676,179

Eurobonds - 808 - 39,378 40,186 133,498

Shares 7,595 - - - 7,595 12,561

Bank Deposit Certificates - 480,297 - - 480,297 530,120

Linked to repurchase commitments - - 1,306,441 5,201,477 6,507,918 -

National Treasury Notes - - 1,003,704 5,084,634 6,088,338 -

National Treasury Bills - - 302,737 116,843 419,580 -

Restricted deposits - National Treasury - - 115,439 151,595 267,034 144,359

National Treasury Notes - - 115,417 68,013 183,430 144,359

National Treasury Bills - - 22 83,582 83,604 -

Linked to guarantees - National Treasury (2) - - 109,514 630,107 739,621 1,057,510

National Treasury Bills - - 97,531 472,135 569,666 77,979

Financial Treasury Bills - - 439 - 439 4,655

National Treasury Notes - - 11,544 157,972 169,516 974,876

Insurance and pension plan guarantee reserves - (Note 11(b)) 2,715,457 - - 90,005 2,805,462 2,369,839

Government securities - National Treasury Bills - - - 90,005 90,005 76,318

Quotas of investment funds - DPVAT 67,631 - - - 67,631 61,256

Quotas of investment funds - PGBL and VGBL 2,647,826 - - - 2,647,826 2,232,265

Derivative financial instruments - Assets (Note 7) - 44,355 220,703 1,626,037 1,891,095 425,174

Total on 9.30.2012 2,807,827 2,046,246 7,705,592 17,825,275 30,384,940 9,307,409

Total on 9.30.2011 2,970,336 1,557,117 2,530,356 2,249,600 9,307,409

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(1) At 9.30.2011, Safra Group's exclusive funds were mainly represented by R$ 564,713 of securities under agreement to resell (guaranteed by Government Bonds) with Banco Safra S.A.

(2) Relates to derivative guarantees worth R$ 602,250 (R$ 927,299 at 9.30.2011) held in custody worth R$ 85,482 (R$ 85,236 at 9.30.2011) and amounts for civil and labor suits (Note 12(c-I)) worth R$ 51,888 (R$ 44,975 at 9.30.2011).

(3) Securities classified as held to maturity, are valued at market value, would present a positive adjustment on 9.30.2012 in the amount of R$ 2,674. c) Developments and market value adjustment:

1.01 a

9.30.2012 1.01 a

9.30.2011 Opening balance – Mark-to-market adjustment 21,864 (134,790) Trading securities 7,383 (2,105) Available-for-sale securities 16,915 (4,301) Derivative financial instruments (assets and liabilities) (10,212) (136,519) Fair value hedge 7,778 8,135 Activity affecting: 387,038 175,904 Results (18,989) 152,487 Trading securities 34,539 24,338 Derivative financial instruments (assets and liabilities) (10,680) 124,761 Fair value hedge (42,848) 3,388 Equity – Available for sale 406,027 23,417 Closing balance – Mark-to-market adjustment 408,902 41,114 Trading securities 41,922 22,233 Available-for-sale securities 422,942 19,116 Derivative financial instruments (assets and liabilities) (20,892) (11,758) Fair value hedge (35,070) 11,523

11

7. DERIVATIVE FINANCIAL INSTRUMENTS

The main purpose of the use of derivative financial instruments by Banco Safra and its subsidiaries is to provide to their customers products that hedge these customers' assets against risks from currency and interest rate fluctuations Furthermore, these instruments are used by the Bank in the daily management of the risks assumed in its operations, including the hedging of the portfolio of fixed interest securities and operations defined by management.

The main risks related to the derivative financial instruments are: credit risk, market risk, and liquidity risk, as defined below:

• Credit risk is the exposure to losses in the event of default by counterparties or by debtors of contracted amounts. • Market risk is the exposure to fluctuations in interest rates, foreign exchange rates, commodity prices, stock market prices, and other values, and due to

the type of product, volume of operations, terms and conditions of the agreement and underlying volatility. • Liquidity risk is the risk arising from mismatches between negotiable assets and payable liabilities in transactions with derivative financial instruments that

might affect the payment ability of the entity, taking into consideration the currencies and settlement terms of their assets and liabilities.

Banco Safra and its subsidiaries' positions are monitored by an independent control function, which uses a specific system to manage risk, including calculating the Value at Risk (VaR) with a confidence interval of 99 percent, stress tests, back testing, and other technical resources. The Group has a Market Risk Committee, consisting of high-ranked executives, which meets on a weekly basis to analyze the market conditions and a Treasury and Risk Committee, including members of the Executive Committee, which meets on a monthly basis to discuss detailed aspects of Market Risk management, as well as reviewing risk limits, stress scenarios, strategies and outcomes.

12

a) Asset and liability accounts

9.30.2012 9.30.2011

Cost

Mark-to-market

adjustment

Market value Up to 90

days From 91 to 365 days Over 365 days Market value

Derivative financial instruments - Assets

Non Deliverable Forward (NDF) 74,694 - 74,694 7,665 15,167 51,862 45,894

Options premiums 2,831 23 2,854 2,753 7 94 3,708

Interbank Deposit (DI) Index 94 - 94 - - 94 - Bovespa Index 580 23 603 596 7 - 3,708 Foreign Currency 2,157 - 2,157 2,157 - - - Forward 1,352,010 (781) 1,351,229 1,967 - 1,349,262 39,076

Purchase receivable – Government Securities 899,205 (502) 898,703 1,967 - 898,703 37,827 Sales receivable 452,805 (279) 452,526 - - 450,559 1,249 Swap - Amounts receivable 441,049 1,293 442,342 24,331 193,192 224,819 316,092

Interest rate 10,139 12,074 22,213 4,785 735 16,693 22,065 Foreign Currency 363,068 26,567 389,635 16,946 173,737 198,952 277,950 Commodities 32,406 (14,122) 18,284 2,600 13,090 2,594 16,077 Shares 35,436 (23,226) 12,210 - 5,630 6,580 - Credit default swaps (CDS) 18,327 - 18,327 5,990 12,337 - 19,581

Future 1,649 - 1,649 1,649 - - 823

Total assets at 9.30.2012 1,890,560 535 1,891,095 44,355 220,703 1,626,037 425,174

Total assets at 9.30.2011 410,613 14,561 425,174 21,807 180,513 222,854

Derivative financial instruments - Liabilities

Non Deliverable Forward (NDF) (1,800) - (1,800) (649) (1,151) - (1,484)

Options premiums (1) (2,995,210) 39,973 (2,955,237) (758,607) (1,686,380) (510,250) (2,459,970)

Bovespa Index (90) (36) (126) (126) - - (149) Foreign Currency (2,992,963) 40,009 (2,952,954) (756,324) (1,686,380) (510,250) (2,459,821) Shares (2,157) - (2,157) (2,157) - - - Forward

(1,350,007) 745 (1,349,262) (1,349,262) - - (37,827)

Payables on deliverable sales – Government Securities (450,802) 243 (450,559) (450,559) - - -

Liabilities for purchases payable (899,205) 502 (898,703) (898,703) - - (37,827)

Swap - Amounts payable (1) (866,196) (62,145) (928,341) (259,429) (478,344) (190,568) (741,004)

Interest rate (66,045) (61,440) (127,485) (13,942) (47,611) (65,932) (150,035) Foreign Currency (329,058) (22,076) (351,134) (161,107) (122,165) (67,862) (267,810) Commodities (254,874) 7,740 (247,134) (56,423) (177,105) (13,606) (323,159) Shares (207,363) 13,454 (193,909) (19,514) (131,227) (43,168) - Bovespa Index (8,856) 177 (8,679) (8,443) (236) - - Credit default swaps – CDS (5,472) - (5,472) (5,472) - - (10,840)

Future (2,258) - (2,258) (2,258) - - (434)

Total liabilities at 9.30.2012 (5,220,943) (21,427) (5,242,370) (2,375,677) (2,165,875) (700,818) (3,251,559)

Total liabilities at 9.30.2011 (3,225,240) (26,319) (3,251,559) (879,380) (1,810,749) (561,430)

(1) Includes premiums of structured fixed income transactions in the amount of R$ 3,424,753 (R$ 2,836,690 at 9.30.2011) - Note 10.

13

a) Composition by notional value

9.30.2012 9.30.2011

Locations Up to 90 days From 91 to 365 days

Over 365 days Notional amount Notional amount

Non Deliverable Forward (NDF) 566,902 331,803 368,306 1,267,011 633,032

Bought CETIP 347,559 331,302 368,306 1,047,167 622,144

Sold CETIP 219,343 501 - 219,844 10,888

Options premiums 7,882,349 16,583,073 5,686,702 30,152,124 22,942,488

Long positions 411,216 240 13,068 424,524 474,488

Interbank Deposit (DI) index BM&FBOVESPA - - 13,068 13,068 -

Bovespa Index BM&FBOVESPA 5,096 240 - 5,336 103,608

Foreign currency CETIP 406,120 - - 406,120 370,880

Short positions 7,471,133 16,582,833 5,673,634 29,727,600 22,468,000

Bovespa Index BM&FBOVESPA 4,684 - - 4,684 5,979

Foreign currency CETIP 7,466,449 16,582,833 5,673,634 29,722,916 22,462,021

Forward 452,866 - 899,318 1,352,184 39,345

Income receivable 2,015 - 899,318 901,333 9,457

Shares BM&FBOVESPA 2,015 - - 2,015 1,386

Government Securities BM&FBOVESPA - - 899,318 899,318 8,071

Sales receivable - Government Securities BM&FBOVESPA 450,851 - - 450,851 29,888

Swap 2,960,066 4,388,858 2,662,054 10,010,976 8,034,639

Interest rate BM&FBOVESPA 95,000 86,000 382,322 563,322 478,500

Interest rate CETIP 577,484 1,493,457 622,985 2,693,926 4,538,086

Foreign currency CETIP 1,950,977 1,048,375 1,084,759 4,084,111 1,083,457

Commodities CETIP 246,535 993,858 282,230 1,522,623 1,934,596

Bovespa Index CETIP 42,641 1,198 - 43,839 -

Shares 47,428 765,969 289,758 1,103,155 -

Future 8,535,215 7,276,249 7,060,278 22,871,742 19,302,337 Long positions 430,924 62,149 2,848,014 3,341,087 3,313,274 Interest rate BM&FBOVESPA 160,874 62,149 2,848,014 3,071,037 3,145,211 Foreign currency BM&FBOVESPA 261,152 - - 261,152 168,063

Commodities BM&FBOVESPA / CME 8,898 - - 8,898 - Short positions 8,104,291 7,214,100 4,212,264 19,530,655 15,989,063 Interest rate BM&FBOVESPA 7,871,618 7,214,100 4,212,264 19,297,982 15,647,810 Foreign currency BM&FBOVESPA 232,673 - - 232,673 341,253

Credit default swaps (CDS) Over-the-counter 518,209 271,836 - 790,045 229,742

CETIP 11,304,536 21,217,494 8,321,669 40,843,700 31,022,072 BM&FBOVESPA / CME(1) 9,092,861 7,362,489 8,354,986 24,810,336 19,929,769 Over-the-counter 518,209 271,836 - 790,045 229,742

Total 20,915,606 28,851,818 16,676,658 66,444,082 51,181,583

(1) Chicago Mercantile Exchange – CME

14

b) Credit derivatives

Banco Safra makes use of derivative financial instruments of credit in order to offer their customers, through issuance of securities, opportunities to diversify their investment portfolios.

Banco Safra held the following positions in credit derivatives, shown at their notional value:

9.30.2012 9.30.2011 Risks transferred (1) 395,023 229,742 Credit swap whose underlying assets are: Securities 395,023 229,742 Risks received (1) (395,023) (229,742) Credit swap whose underlying assets are: Securities (395,023) (229,742) Net transferred exposure total - - Net received exposure total - -

(1) The transferred and received risks refer to the same issuers.

During the period there was no occurrence of a credit event related to the facts set forth in the agreements.

There was no significant effect on the calculation of Required Regulatory Capital (PRE) at 9.30.2012, in accordance with CMN Resolution 3,490/2007. The credit risk exposures of Banco Safra are mitigated, as provided in BACEN Circular 3,360/2007, by guarantee instruments contracted with customers.

c) Hedging of financial assets and financial liabilities

The aim of the designated hedge accounting applied by Safra is to protect against the effects of market interest rates (CDI or Libor) or exchange variations to assets and liabilities fair value (depending on their nature).

Market value (R$) MTM object to hedge

(R$) (2) Notional value (R$) Strategy - Market Risk Hedge 9.30.2012 9.30.2011 9.30.2012 9.30.2011

Hedge derivative instrument

9.30.2012 9.30.2011 Fixed portfolio (1) 12,868,909 13,512,079 246,373 150,929 DI futures (11,486,394) (11,611,342) Fixed funding, 8.8.2011 - R$ 800,000 (3) (892,423) (844,156) (82,562) (32,345) DI futures 916,896 864,546 Fixed funding, 1.27.2011 - US$ 500,000 (4) (1,187,718) (1,044,484) (163,656) (109,245) Fixed swap x Libor 1,187,718 1,044,484 Fixed funding, 5.16.2011 - US$ 300,000 (3) (627,254) (563,698) (12,088) (4,891) DDI futures 629,654 570,739 Fixed funding - R$ 300,000 (3) (335,604) (305,571) (23,137) 7,075 DI futures 336,822 313,851 Total (35,070) 11,523

(1) Financial assets and liabilities with fixed rates, mainly credit operations and funding – Note 13 (c). (2) Fully recorded in profit (loss). (3) Note 10(c) - Funds from acceptance and issuance of securities (4) Note 10(c) – Subordinated Debt

The effectiveness of hedges designated by Safra for accounting purposes is in accordance with the parameters set out in BACEN Circular 3,082/2002.

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8. CREDIT PORTFOLIO

a) Credit operations per risk level and the related allowance:

9.30.2012 9.30.2011 Risk levels AA A B C D E F G H Total Total

Loans and discounted bills 13,241,645 1,918,930 868,198 529,478 443,400 258,527 65,122 86,628 392,478 17,804,406 16,150,648

Financing 6,898,878 200,030 9,823 21,575 399 - - - 2 7,130,707 7,206,296

Rural and agro-industrial financing 637,255 42,264 11,505 2,677 391 - - 1,149 225 695,466 960,301

Housing loans 376,221 3,735 3,162 9,422 204 78 32 - 340 393,194 320,470

Advances on foreign exchange contracts 1,441,661 27,606 3,221 7,307 1,646 1,147 - 47 - 1,482,635 1,206,207

Onlendings BNDES/FINAME 6,015,070 1,702,506 496,901 246,223 162,690 56,343 20,607 22,376 73,135 8,795,851 7,951,978

BNDES/FINAME 5,872,241 1,690,171 494,330 242,449 160,126 54,949 20,268 21,848 63,804 8,620,186 7,572,974

FINAME – Leases 142,829 12,335 2,571 3,774 2,564 1,394 339 528 9,331 175,665 379,004

Direct consumer credit and leases 1,411,179 4,236,479 428,497 737,854 201,256 79,417 33,454 38,854 175,722 7,342,712 8,769,977

Direct consumer credit 1,199,137 4,056,720 395,470 713,271 175,247 71,911 30,105 32,774 141,481 6,816,116 7,221,606

Leases 212,042 179,759 33,027 24,583 26,009 7,506 3,349 6,080 34,241 526,596 1,548,371

Other receivables 2,029,947 1,768,682 53,942 41,249 45,026 2,326 25 961 1,433 3,943,591 3,928,824 Total transactions with credit characteristics 32,051,856 9,900,232 1,875,249 1,595,785 855,012 397,838 119,240 150,015 643,335 47,588,562 46,494,701

Guarantees and sureties 8,724,906 7,078,150 Total with guarantees and sureties at 9.30.2012 32,051,856 9,900,232 1,875,249 1,595,785 855,012 397,838 119,240 150,015 643,335 56,313,468 53,572,851

Allowance at 9.30.2012 (49,691) (19,299) (100,249) (204,018) (198,879) (83,456) (150,000) (643,335) (1,448,927) (1,246,907)

Total transactions with credit characteristics 31,867,472 9,833,781 1,933,900 1,569,395 659,004 84,380 29,590 28,221 488,958 46,494,701

Guarantees and sureties 7,078,150 Total with guarantees and sureties at 9.30.2011 31,867,472 9,833,781 1,933,900 1,569,395 659,004 84,380 29,590 28,221 488,958 53,572,851

Allowance at 9.30.2011 (157,364) (97,353) (57,714) (156,779) (197,630) (42,182) (20,710) (28,217) (488,958) 1,246,907


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b) Allowance for loan losses:

The changes in the allowance for loan losses were as follows:

9.30.2012 9.30.2011 Balance at the beginning of the period 1,318,083 802,050 Allowance recorded 687,256 756,645 Mandatory minimum allowance (CMN Resolution 2,682/1999)

809,856 525,745

Additional Allowance (122,600) 230,900 Write-offs (556,412) (311,788) Balance at the end of the period 1,448,927 1,246,907

Minimum allowance required (CMN Resolution 2,682/1999) 1,128,927 730,317 Additional allowance 320,000 516,590

In recognizing the provision above, Banco Safra's management not only considers the minimum provisioning levels defined by CMN Resolution 2,682/1999 but also thoroughly analyzes the risk of loan losses supported by a widely tested and periodically re-evaluated internal credit rating methodology approved by management.

c) Renegotiated loans and recovery of receivables

The balance of renegotiated loans was R$ 345,426 (R$ 224,521 at 9.30.2011), and provision for loan losses was R$ 196,191 (R$ 147,658 at 9.30.2011).

The recovery of receivables amounted to R$ 95,004 in the period (R$ 1,034,962 at 9.30.2011). The balance for the period ended 9.30.2011 refers substantially to the judicial approval with an agreement signed between Banco Safra S.A. and Whirlpool S.A. at 7.8.2011 to close the ordinary collection lawsuit filed by Banco Safra since 2001, of R$ 958,534.

d) Breakdown of the portfolios by maturity:

9.30.2012 9.30.2011

Overdue contracts: 2,971,726 2,171,505 Overdue installments 586,814 419,663 Up to 14 days 168,152 119,351 From 15 to 60 days 133,729 100,289 From 61 to 90 days 70,498 41,442 From 91 to 180 days 130,039 79,163 Over 180 days 84,396 79,418

Installments not yet due

2,384,912 1,751,842

Up to 90 days 438,313 371,674

From 91 to 365 days 806,096 580,684

Over 365 days 1,140,503 799,484 Falling due contracts: 44,616,836 44,323,196 Up to 90 days 14,028,441 14,842,902 From 91 to 365 days 13,985,844 14,540,983 Over 365 days 16,602,551 14,939,311

Total 47,588,562 46,494,701

Non accrual amounts receivable greater than 60 days past due are R$ 1,040,097 (R$ 525,176 at 9.30.2011) and greater than 90 days past due are R$ 710,203 (R$ 417,321 at 9.30.2011).

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e) Breakdown of the portfolios by activity:

9.30.2012 9.30.2011

Private sector Rural 728,685 969,754 Industry 12,030,556 12,532,191 Commerce 12,293,871 11,356,569 Financial institutions 1,149,303 780,418 Other services 15,207,406 14,342,622 Individuals 5,782,914 6,192,677 Housing 395,827 320,470

Total 47,588,562 46,494,701

9. FOREIGN EXCHANGE PORTFOLIO

9.30.2012 9.30.2011

Assets Liabilities Assets Liabilities

Exchange purchases pending settlement (M.E.) and Obligations for exchange purchase (M.N.) 1,200,255 1,071,627 350,768 173,094 Exchange variation 110,445 - 177,849 - Interbank for timely settlement 855,512 855,512 17,539 17,539 Interbank for future settlement 153,197 153,197 - - Other 81,101 62,918 155,380 155,555

Receivables for exchange sales (M.N.) and Exchange sales pending settlement (M.E.) 1,491,108 1,591,221 200,009 214,177 Exchange variation - 50,572 - 1,003 Interbank for future settlement 616,092 616,902 - - Interbank for timely settlement 799,557 799,557 148,527 148,527 (-) Advances received (52,049) - (15,992) - Other 126,698 124,492 67,474 64,647

Total 2,691,363 2,662,848 550,777 387,271

Foreign exchange transactions 42,842 58,336

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10. MONEY MARKET FUNDING, BORROWINGS AND ONLENDINGS, AND MANAGED FUNDS

At September 30, funds raised comprised the following:

Short term Long term Total Short term Long term Total Deposits (a) 11,418,591 896,296 12,314,887 15,364,256 1,521,127 16,885,383 Money market funding (b) 21,878,188 2,534,326 24,412,514 23,534,236 3,825,230 27,359,466 Funds from acceptance and issuance of securities (c)

6,598,754 9,716,518 16,315,272 1,626,811 7,207,032 8,833,843

Borrowings and onlendings (d) 6,991,844 5,614,641 12,606,485 8,742,941 4,815,590 13,558,531 Subordinated debt (e) - 2,623,423 2,623,423 - 2,101,727 2,101,727 Structured fixed income transactions (1)

2,811,460 613,293 3,424,753 2,603,856 232,834 2,836,690 Total raised funds 49,698,837 21,998,497 71,697,334 51,872,100 19,703,540 71,575,640 Managed funds (2) (f) 30,609,770 33,446,251 Total managed funds 102,307,104 105,021,891

(1) Funds recorded in derivative financial instruments (Note 7(a)) (2) Does not include investment funds in fund quotas, exclusive funds and money market investments with Banco

Safra.

a) Deposits

9.30.2012 9.30.2011

No maturity

date Up to 90



Demand deposits 682,108 - - - 682,108 647,690

Time deposits - 2,414,182 3,483,267 687,714 6,585,163 11,783,302

Savings deposits 1,212,122 - - - 1,212,122 1,189,595

Interbank deposit - 839,306 2,787,606 208,582 3,835,494 3,264,796

Total on 9.30.2012 1,894,230 3,253,488 6,270,873 896,296 12,314,887 16,885,383

Total on 9.30.2011 1,837,285 4,591,779 8,935,192 1,521,127 16,885,383

b) Money market funding

9.30.2012 9.30.2011

Up to 90 days From 91 to 365

days Over 365 days Total Total

Own portfolio Government Securities 6,436,995 - - 6,436,995 -Own securities 4,931,130 6,717,441 2,534,326 14,182,897 16,609,184

Third-party portfolio -Government Securities 3,792,622 - - 3,792,622 10,750,282

Total on 9.30.2012 15,160,747 6,717,441 2,534,326 24,412,514 27,359,466

Total on 9.30.2011 16,503,970 7,030,266 3,825,230 27,359,466

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c) Funds from acceptance and issuance of securities

9.30.2012 9.30.2011

Up to 90



Funds from financial bills, bills of credit and similar notes 1,744,297 4,734,999 6,452,547 12,931,843 5,825,753 Financial Bills 745,683 3,269,944 6,282,234 10,297,861 4,197,259 Agribusiness credit notes 863,788 1,266,708 79,529 2,210,025 1,290,917 Mortgage bills 43,949 76,894 - 120,843 179,001 House Loan Bills 90,877 121,453 - 212,330 40,323 Debentures - - 90,784 90,784 118,253

Securities issued abroad 42,178 77,280 3,263,971 3,383,429 3,008,090 Medium term notes (Reais) - Hedge - Note 7(d) - 14,062 878,361 892,423 844,156 Medium term notes (U.S. dollar) - Hedge - Note 7(d) 9,481 - 617,771 627,252 563,698 Medium term notes (fixed) - Hedge - Note 7(d) - - 335,604 335,604 305,571 Medium term note (Other) 32,751 63,317 1,436,403 1,532,471 1,297,768 Incurred transaction costs - Note 3(n) (54) (99) (4,168) (4,321) (3,103) Total on 9.30.2012 1,786,475 4,812,279 9,716,518 16,315,272 8,833,843

Total on 9.30.2011 720,038 906,773 7,207,032 8,833,843

d) Borrowings and onlendings

9.30.2012 9.30.2011

Up to 90 days From 91 to 365 days


Foreign borrowings (1) 1,863,871 1,882,375 73,555 3,819,801 5,232,322Transfer of financial assets 1,300 1,040 - 2,340 30,016Lending of shares 3,294 - - 3,294 274,572Domestic onlendings 885,583 2,354,381 5,541,086 8,781,050 8,021,621 Government Securities 14,122 9,259 - 23,381 85,105 BNDES 107,703 295,901 740,031 1,143,635 1,447,646 FINAME 763,758 2,049,221 4,801,055 7,614,034 6,488,870Total on 9.30.2012 2,794,904 4,237,796 5,614,641 12,647,341 13,558,531

Total on 9.30.2011 3,228,339 5,514,602 4,815,590 13,558,531

(1) Credit lines opened for import and export financing.

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e) Subordinated debt

I. Analysis of balance

Issue Maturity 9.30.2012 9.30.2011 Index Bank Deposit Certificates - CDB (1) (3)

2006 2016 713,141 721,568 106% of CDI Financial bills - LF

722,564 335,675

2010 2016 139,836 124,274 IPCA +interest of 7,19% to 7,7%

2010 (1) 2016 199,907 200,105 114% of CDI 2010 (2) 2020 12,768 11,296 IPCA + 7,27%

2012 2019 189,396 -

IPCA + interest of 4,41% to

6,28% 2012 2019 125,764 - 114% CDI 2012 (4) 2019 50,727 - 114% CDI 2012 (5) 2022 4,166 - IPCA + 4,91% Medium term notes - Hedge – Note 7(e) 2011(1) 2021 1,187,718 1,044,484 US$ + 6,75% Total 2,623,423 2,101,727

(1) Operations with half yearly interest payments. (2) Operations with interest to be paid upon the settling of the contract. (3) Of the amount issued, R$ 1,459 (R$ 1,476 at 9.30.2011) is in the portfolio.

(4) Operations approved by Bacen on 10.18.2012, established by Letter 09062/2012-BCB/DEORFCOFI1. (5) It is in process of approval with BACEN. II. Transactions

January 1 to September 30, 2012 At the beginning of the period 2,120,428

Exchange variation abroad 83,716

Funding 355,050

Interest paid (120,503)

Appropriation to income 184,732

Interest 143,846

Variation in mark-to-market adjustment (hedge) 40,886

At the end of the period 2,623,423

f) Managed funds

The Safra Group is responsible for the management, administration and distribution of shares of investment funds, whose net assets at 9.30.2012, including funds managed by a company outside the Safra Group, totaled R$ 55,011,574 (R$ 60,214,257 at 9.30.2011), of which R$ 27,186,536 (R$ 37,545,866 at 9.30.2011) refers to financial investment funds, R$ 16,484,437 (R$ 16,375,507 at 9.30.2011) to share investment funds, R$ 7,773,142 (R$ 5,728,171 at 9.30.2011) to other investment funds, and R$ 3,567,459 (R$ 564,713 at 9.30.2011) to exclusive funds. Income from fund management, administration and share distribution fees, recorded in 'Income from services rendered', totals R$ 144,693 (R$ 154,888 in 2011) - Note 13(e). At 9.30.2012, the managed funds maintain an amount of R$ 4,349,908 (9.30.2011 - R$ 9,827,786) in financial investments, mainly consisting of purchase and sale commitments, with Banco Safra, within the legally established limit.

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11. INSURANCE AND PENSION PLAN OPERATIONS

a) Technical reserves

CONSOLIDATED

INSURANCE PENSION PLAN TOTAL

9.30.2012 9.30.2011 9.30.2012 9.30.2011 9.30.2012 9.30.2011

Reserve for unvested and vested benefits

- - 2,647,679 2,232,228 2,647,679 2,232,228 Provision for unearned premiums

53,073 45,848 - - 53,073 45,848

Provision for unsettled claims 53,708 57,876 - - 53,708 57,876 Incurred but not reported losses (IBNR)

34,112 23,243 - - 34,112 23,243 Premium deficiency reserve - Benefits to be granted

- - 9,599 11,050 9,599 11,050

Contribution deficiency reserve - Benefits to be granted

- - 3,643 4,116 3,643 4,116

Supplementary premium reserve

577 495 - - 577 495

Administrative expenses 979 454 605 738 1,583 1,192

Other - - 1,855 13 1,855 13

Total 142,449 127,916 2,663,381 2,248,145 2,805,829 2,376,061

b) Securities pledge in guarantee of technical reserves

CONSOLIDATED

9.30.2012 9.30.2011 Securities and derivative financial instruments 2,805,462 2,369,839

Quotas of investment funds - PGBL/VGBL 2,647,826 2,232,265

Subject to repurchase agreement – Debentures/NTN-B - 32,561

Private securities 986,173 787,621

Bank Deposit Certificates - CDB (*) 380,968 429,993 Financial bills 359,863 156,641 Debentures 98,264 105,190 Shares 81,644 95,797 Promissory Notes 65,434 - Government Securities 1,643,901 1,388,250

Financial Treasury Bills 656,902 494,550 National Treasury Notes 986,999 893,700 Other 17,752 23,833

Other securities 157,636 137,574

Government securities - National Treasury Bills 90,005 76,318 Quotas of investment funds - DPVAT agreement 67,631 61,256

Receivables from reinsurance operations 16,661 17,949 Total 2,822,123 2,387,788

(*) Includes R$ 40,452 (R$ 97,329 at 9.30.2011) in subordinated CDB operations.

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c) Result from insurance and pension plan

CONSOLIDATED

9.30.2012 9.30.2011

Income from financial intermediation 10,109 11,291 Financial income from insurance and pension plan operations 170,052 129,214 Financial expenses on insurance and pension plan operations (159,943) (117,923) Results from insurance and pension plan operations 79,878 72,453 Income from premiums and contributions - insurance and pension plans 435,528 445,807 Changes in technical reserves - insurance and pension plans (276,455) (301,893) Claims expenses (49,157) (53,015) Selling expenses (28,082) (15,518) Other income and expenses (1,955) (2,928) Income from services rendered (Note 13(e)) 18,823 16,003 Income from management of pension plans 18,823 16,003 Total 108,810 99,747

d) Liability adequacy test

SUSEP Circular 446/2012 suspended the effects of SUSEP Circular 410/2010 in the preparation of the interim financial statements for the year 2012. The last test was carried out at 12.31.2011 and the results obtained show that there is no need of additional adjustment to the setup provisions.

12. CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS - TAX AND SOCIAL SECURITY

a) Contingent assets

Contingent assets are not recognized in the accounting records. b) Contingent liabilities

Contingent liabilities are as follows:

I - Civil lawsuits

Civil lawsuits are represented basically by indemnity claims for property and/or moral damages due to direct consumer credit operations, collections and loans, protests of Notes, inclusion of customer data in the credit reporting agencies and understated inflation adjustments to saving accounts in connection with economic plans. These lawsuits are evaluated when a court notification is received and reviewed periodically, and are quantified based on the judicial stage, evidence produced and considering the case law according to the legal counsel's assessment of the likelihood of loss. The provision is recorded at the full amount for proceedings classified as a probable loss.

II - Labor lawsuits

Lawsuits filed to claim alleged labor rights derived from the labor legislation specifically relating to financial institutions, especially overtime. These are quantified when a court notification is received, estimated based on the value in discussion and accrued considering the historical percentage of losses of lawsuits (average cost) considered similar and usual.

23

III - Other risks

Specific contingencies quantified and provided for per individual evaluation, basically represented by Salary Variations Compensation Fund (FCVS) provisions.

IV - Tax and social security lawsuits

Mainly represented by administrative proceedings and lawsuits related to municipal and federal taxes. These are individually quantified when the notification of the proceedings is received, based on the amounts assessed and are accrued monthly. The provision is recorded at the full amount for proceedings classified as a probable loss.

c) The provisions recorded and the related changes for the periods are as follows:

I. Civil, labor and other

1.1 to 9.30.2012 1.1 to

9.30.2011 Civil Labor Other Total Total Opening balance 222,786 165,749 15,779 404,314 255,014 Monetary adjustment / Charges (2) 13,262 - 624 13,886 - Changes in the period reflected in income (3) 15,655 65,599 23,418 104,672 93,456 Amount recorded 24,577 71,689 23,418 119,684 96,358 Reversal (8,922) (6,090) - (15,012) (2,902) Payments (14,434) (37,361) 51,795 (52,213) Closing balance 9.30.2012 (1) 237,269 193,987 39,821 471,077 296,257 Closing balance 9.30.2011 (1) 178,082 118,175 296,257

Guarantee deposits (4) 31,075 45,255 - 76,330 Guarantee securities (5) 1,232 50,656 - 51,888 Total amounts guaranteed at 9.30.2012 32,307 95,911 - 128,218

Guarantee deposits (4) 52,142 56,124 - 108,266 Guarantee securities (5) 2,331 42,644 - 44,975 Total amounts guaranteed at 9.30.2011 54,473 98,768 - 153,241

(1) Note 13(d) (2) Recorded in other finance costs. (3) Notes 13(j) - Civil and other contingencies 13(g) - Labor contingencies (4) Note 13(c) (5) Note 6(b)

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II. Tax and social security contingencies and Legal obligations

1.1 to 9.30.2012

1.1 to 9.30.2011

Tax and social security

contingencies

Legal obligations

Total (1) Total

Opening balance 586,760 642,282 1,229,042 838,628 Monetary adjustment / Charges (2) 20,380 33,614 55,461 56,794 Changes in the period reflected in income (3) (136,419) 363 (136,056) 227,223 Amount recorded 70,867 363 71,084 227,223 Reversal(4) (208,286) - (208,677) - Payments - - - (17,337) Acquisitions in the period 2,199 - 2,199 2,703 Closing balance 9.30.2012 472,850 676,259 1,149,109 1,108,011 Closing balance 9.30.2011 466,651 641,360 1,108,011

Guarantee deposits at 9.30.2012 (5) 17,360 42,017 59,377 Guarantee deposits at 9.30.2011 (5) 25,523 10,244 35,767

(1) Note 14(c) (2) Recorded in other finance costs at 9.30.2012 and disclosed in Note 13(j) at 9.30.2011. (3) Tax and social security contingencies - Note 13(j); Legal obligations recognized within tax expenses. (4) Mainly comprising: (i) R$ 126,251, consisting of the reversal of the contingency for fines and charges related to the suit

challenging the calculation base used to determine the social integration program contribution (PIS) and social contribution on revenues (COFINS), on June 30, 2012, since the classification of the likelihood of loss was change to remote subsequent to the decision handed down by the Regional Federal Court on July 27, 2012; and (ii) R$ 71,523, consisting of the partial reversal of the ISS contingency related to Leasing operations, on 9.30.2012, the classification of which was changed following the judgement of the matter by the Superior Court of Justice (STJ)

(5) Note 13(c).

The main lawsuits involving tax and social security contingencies are as follows:

Tax and social security contingencies:

• Service tax (ISS) on lease transactions: several tax assessments and lawsuits related to the levy of this tax on lease transactions related to the location where the tax is levied and its taxable base, totaling R$ 187,939 (R$ 223,105 at 9.30.2011).

• Provisional Contribution on Financial Movements (CPMF) - Cash management: tax assessment related to the

product Cash management, because the tax authorities claimed that there was settlement/payment of receivables, at the risk and expense of third parties, without the related credit in the beneficiary's account, and also, pursuant to Article 5, I, of Law 9,311/1996, attributing the liability for payment of this tax to the Bank, an amount of R$ 98,476 (R$ 94,715 at 9.30.2011).

Legal obligations: Calculation basis of PIS and COFINS, amounting to R$ 660,842 (R$ 626,628 at 9.30.2011), concerning the calculation and payment of taxes on income, considered as sales and services revenue. Fully collateralized by bank guarantees.

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13. OTHER ACCOUNTS

a) Central Bank Deposits:

As at 9.30.2012, Central Bank deposits of R$ 2,061,632 (R$ 5,239,784 as at 9.30.2011) were made up of compulsory collections. The gain arising from compulsory collections subject to remuneration was R$ 211,695 (R$ 180,384 in 2011), and has been disclosed in the Statement of income as compulsory investments.

b) Negotiation and intermediation of securities:

9.30.2012 9.30.2011

ASSETS 142,868 167,382

Debtors pending settlement (1) 50,367 121,480

Guarantee deposits 31,384 32

Settlement and clearinghouse (1) 49,603 40,748

Financial assets and commodities pending settlement 11,314 5,122

Other 200 -

LIABILITIES AND EQUITY 114,375 196,964

Creditors pending settlement (1) 43,114 107,515

Settlement and clearinghouse (1) 65,372 61,833 Financial assets and commodities pending settlement 3,761 26,944

Other 2,128 672

(1) Refers basically to transactions on stock exchanges recorded by J. Safra Corretora de Valores e Câmbio Ltda. c) Other receivables:

9.30.2012 9.30.2011 Deferred tax assets - Note 14(b-I) 266,616 269,633

Debtors for deposits in guarantee 206,426 274,615 Debtors for deposits in guarantee of tax and social security contingencies and legal obligations (1)

130,096 166,349 Civil and labor contingencies - Note 12(c-I) 76,330 108,266

Taxes and contributions to be offset 50,251 87,310

Active operations to be processed 17,009 261,751

Assignment of loans receivable 1,745 5,974 Equalization rate for credit operations 85,066 90,079 Receivables from insurance and reinsurance operations 54,261 48,551

Hedge market adjustment- Note 7(e) 246,373 150,929

Other 53,351 53,196

TOTAL 981,098 1,242,038

(1) Payments linked to tax and social security contingencies and legal obligations are disclosed in Note 12(c-II)

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d) Other payables:

9.30.2012 9.30.2011

Provision for contingent liabilities - civil, labor and other - Note 12 (c-I) 471,077 296,257

Provision for payments to be made 210,180 212,088

Foreign creditor amounts 71,037 78,146 Credit card administration obligations 69,574 109,734

Orders to release 6,680 18,300

Passive operations to be processed 23,268 11,296

Roll over of amounts to release 12,593 213,185

Other 48,109 80,344 Total 912,518 1,019,350

e) Income from services rendered:

2012 2011

Custody and investment management fee (Note 10(f)) 144,693 154,888

Broker fees 13,900 13,813

Collections 50,410 49,633

Guarantees provided 105,845 108,133

Credit card operations 31,192 37,396

Exchange services 13,175 9,540

Other 12,408 8,194

Total 371,623 381,597

f) Income from bank fees:

2012 2011

Credit operations 55,248 30,361

Charges on DOC/TED transfers 10,156 10,506

Packages of services and registrations 48,395 84,437

Other current account services 47,231 26,900

Total 161,030 152,204

g) Personnel expenses:

2012 2011 Remuneration and profit sharing 551,817 553,598Benefits 54,634 58,583Payroll taxes 145,265 142,855Sub-total 751,716 755,036Labor contingencies - Note 12(c-I) 65,599 56,332Dismissal of employees 19,195 7,904Sub-total 84,794 64,236Total 836,510 819,272

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h) Administrative expenses:

2012 2011 Facilities 24,430 20,505Rent – Notes 19(c) and 17(a) 64,580 33,404Publicity and advertising 10,975 9,019Data processing and telecommunications 30,468 38,624Third party services 59,792 124,775Travel 25,201 12,622Financial system services 31,246 27,027Security and surveillance services 10,107 8,418Transport 13,706 15,793Depreciation and amortization 23,592 28,079Legal and notary fees 68,361 22,512Protection of information 48,717 61,885Other 12,591 22,182Total 423,766 424,845

i) Other operating income:

2012 2011 Reversal of tax and social security contingencies and adjustment of taxes to be offset and judicial deposits - Note 12(c-II) 139,276 28,988Rental income 2,610 8,700Other 10,483 10,080Total 152,369 47,768

j) Other operating expenses:

2012 2011

Debtors for deposits in guarantee of civil and other contingencies - Note 12(c-I) 39,073 37,124 Tax and social security contingencies - provisions and adjustment - Note 12(c-II) - 146,628 Other 26,058 22,176 Total 65,131 205,928

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14. TAXES

a) Analysis of expenses for income tax and social contribution

I - Reconciliation of income tax and social contribution charges

9.30.2012 9.30.2011

Profit before taxation 1,356,039 1,682,834 Charges (income tax and social contribution) at standard rates - Note 3(q) (542,416) (673,134)

Permanent (additions) deductions

Equity in the results of domestic subsidiary and associated companies - (113)

Exchange gain (loss) on investments abroad 72,402 56,960

Interest on capital 70,577 66,387

Dividends 8,753 12,812

Non-deductible expenses, net of non-taxable income 9,455 8,420

Deferred tax assets not recognized in the period (81,421) (265,545)

Income tax and social contribution for the period (462,644) (794,213)

II - Tax expenses

2012 2011

PIS / COFINS 146,489 181,703

Service tax (ISS) 26,959 20,287

Municipal real estate tax (IPTU) 4,693 4,590

Tax on financial transactions (IOF) 8,291 5,412

Other 9,393 2,642

Total 195,825 214,634

b) Deferred taxes

I - Origin of income tax and social contribution:

At

12.31.2011 Amount recorded

Amount realized

At 9.30.2012

At

9.30.2011

Provision for contingencies 152,229 46,076 (18,951) 179,354 112,621

Civil 89,065 10,513 (4,722) 94,856 71,194

Labor 63,164 26,523 (14,229) 75,458 41,427

Other - 9,040 - 9,040 -

Adjustment to market value of trading securities 164 - (164) - 47,693

Other 23,666 8,356 (13,485) 18,537 17,526

Total deferred tax assets on temporary differences 176,059 54,432 (32,600) 197,891 177,840

Income tax and social contribution losses 85,812 10,587 (27,674) 68,725 91,303

Adjustment to market value of available-for-sale securities (1) - - - - 490

Total deferred tax assets - Note 13(c) 261,871 65,019 (60,274) 266,616 269,633 (1) Expensed to carrying value adjustments in equity.

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II- Deferred tax liabilities:

9.30.2012 9.30.2011

Excess depreciation 634,425 972,641

Adjustment to market value of derivative financial instruments 68,917 51,143

Adjustment to market value of available-for-sale securities(1) 180,977 7,839

Monetary adjustment of judicial deposits 6,576 8,106

Total - Note 14(c) 890,895 1,039,729 (1) Expensed to carrying value adjustments in equity.

III. Expected realization of deferred tax assets on temporary differences, income tax and social contribution losses

and deferred taxes on excess depreciation.

Deferred tax assets

Period Temporary differences

Income tax and social

contribution losses Total

Provision for deferred taxes

and contributions

Net deferred taxes

2012 16,502 6,557 23,059 (127,573) (104,514)

2013 49,164 42,210 91,374 (556,621) (465,247)

2014 35,828 19,958 55,786 (203,742) (147,956)

2015 35,828 - 35,828 (1,315) 34,513

2016 35,022 - 35,022 (1,315) 33,707

2017 25,547 - 25,547 (329) 25,218

Total 197,891 68,725 266,616 (890,895) (624,279)

Present Value (*) 175,427 64,572 239,999 (840,787) (600,788) (*) For adjustment to present value, the CDI projected interest rate for future periods was used, net of tax effects.

At 9.30.2012 unrecognized deferred tax amounts on temporary differences came to R$ 1,110,379 (R$ 909,464 at 9.30.2011). c) The tax and social security obligations are shown below:

9.30.2012 9.30.2011

Income tax and social contribution payable 398,330 528,439 Taxes and contributions payable 49,406 129,353 Provision for deferred taxes and contributions - Note 14(b-II) 890,895 1,039,729 Tax and social security contingencies and legal obligations - Note 12(c-II) 1,149,109 1,108,011 Total 2,487,740 2,805,532

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15. INVESTMENTS

At 9.30.2012, other investments are mainly represented by shares and quotas of unrelated parties, stated at cost, in the amount of R$ 251,084 (R$ 384,405 at 9.30.2011).

16. PROPERTY AND EQUIPMENT IN USE AND INTANGIBLE ASSETS

a) Analysis

9.30.2012 9.30.2011

Cost

Accumulated depreciation/ amortization

Property and

equipment, net Cost

Accumulated depreciation/amortization

Property and

equipment, net

Permanent assets 333,861 (236,212) 97,649 544,017 (337,710) 206,307

Rental properties - Note 17(a) - - - 231,063 (119,505) 111,558 Facilities, furniture and equipment in use

68,001 (36,029) 31,972 70,219 (36,978) 33,241

IT and data processing equipment

131,688 (111,271) 20,417 122,792 (106,319) 16,473

Construction in progress 9,609 - 9,609 5,821 - 5,821

Transportation system 119,108 (86,392) 32,716 108,518 (72,136) 36,382

Other 5,455 (2,520) 2,935 5,604 (2,772) 2,832 Intangible assets - Software 73,786 (31,591) 42,195 47,167 (21,286) 25,881

b) Changes in property and equipment and intangible assets

Property and equipment Intangible assets 2012 2011 2012 2011

Opening balance 207,381 263,358 28,987 17,815 Acquisitions 14,792 14,592 21,728 13,419 Capital decrease - Note 17(a) (109,277) (38,221) - - Disposals (1,532) (14,158) - - Exchange variation - - - Transfers 1,332 (3,462) 21 - Depreciation/amortization expenses (15,047) (22,726) (8,541) (5,353) Closing balance 97,649 206,307 42,195 25,881

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17. EQUITY

a) Shares

The capital of Banco Safra S.A. is represented by 757,637,598 common shares (1,534 at 9.30.2011) and 755,662,010 (1,530 at 9.30.2011) preferred shares of stockholders domiciled in Brazil, with no par value, totaling 1,513,299,608 (3,064 at 9.30.2011).

In the Extraordinary General Stockholders Meeting held on 4.11.2012, a capital reduction of Banco Safra S.A. was approved by transferring the investment in J. Safra Participações Ltda. with a value of R$ 110,875, to the controlling stockholder by way of the extinction of 25,917,737 shares. This process was approved by the BACEN on 6.21.2012. This transactions resulted in a reduction of R$ 109,277 in investment and net permanent assets in the Consolidated balance sheet.

At the Extraordinary General Meeting (AGE) held on 6.15.2012, the stockholders approved a capital increase of R$ 350,000 through the capitalization of the Profit reserves, issuing 39,917,858 common shares and 39,813,769 preferred shares, totaling 79,731,627 new shares. This process was approved by the BACEN on 7.23.2012.

Changes in capital were as follows:

Number of shares

Common shares

Preferred

shares

Total

Total capital

At 12.31.2011 730,695,526 728,790,192 1,459,485,718 3,980,315 Capital decrease – AGE 4.11.2012 (12,975,786) (12,941,951) (25,917,737) (110,875) Capital increases AGE 6.15.2012 - with profit reserves 39,917,858 39,813,769 79,731,627 350,000 At 9.30.2012 757,637,598 755,662,010 1,513,299,608 4,219,440

b) Dividends

The stockholders have a right to a minimum dividend equivalent to 1% of the capital corresponding to common and preferred shares, respectively.

At the Extraordinary General Meeting held on 6.29.2012, the stockholders approved interest on capital totaling R$ 176,443, based on the long-term interest rate (TJLP). This amount must be credited on 12.21.2012 individually to the stockholders forming the final ownership composition at that date.

In line item "Social and statutory", the amount of R$ 186,729 (R$ 171,632 at 9.30.2011) is included, which relates to dividends and interest on own capital payable from current and previous periods.

c) Capital and revenue reserves

9.30.2012 9.30.2011 Revenue reserves 2,391,599 2,761,922 Legal 149,268 86,307 Special (*) 2,242,331 2,675,615

(*) Reserve consists aiming to promote the formation of resources for future development of these resources to capital, payment of interim dividends, maintaining operating margin compatible with the development of the company's and / or expansion of their activities.

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18. RISK MANAGEMENT

Banco Safra has a set of rules and procedures to ensure compliance with legal provisions, regulatory standards, best market practices, and its internal policies. Banco Safra concentrates its operating, liquidity and market risk management frameworks on the Corporate Risk Board and its credit risk management framework on the Credit Analysis Department, thus establishing the basis for compliance with the prevailing regulations.

a) Credit risk

Banco Safra is exposed to credit risk, which is the risk that arises when a counterparty causes a financial loss by failing to meet a contractual obligation. Significant changes in the economy or in the financial health of a specific segment of industry that represent a concentration in the portfolio held by Banco Safra can result in losses that differ from those provided for in the Balance sheet date. Therefore, Banco Safra carefully controls the exposure to credit risk.

Exposures to this type of risk mainly arise from direct loan operations, indirect loan operations (with the intermediation of financial agents), debentures, financial investments, derivatives and other securities. There is also the credit risk in connection with financial agreements not recorded in the Balance sheet, such as loan commitments or pledging of collaterals, sureties and guarantees.

The Credit Risk Management Committee concentrates the Credit Risk governance to ensure a total vision across the entire credit life cycle. In order to ensure the necessary independence of the risk function, this committee comprises executive officers and superintendents responsible for Corporate Risk Management, Credit Analysis, Policies, Modeling and Portfolio Management, Monitoring, Collection and Validation. Depending on the nature of the issue, the Committee may refer it to the Board of Directors.

b) Market risk

Market risk is the possibility of losses arising from fluctuations in market prices in the positions held.

Banco Safra tracks its total exposure to market risks, measured by the daily Value at Risk (VaR) at a 99% confidence level, adopting as a policy a maximum expected loss of less than 1% of its tier-1 regulatory capital. To be able to comply with this regulation, the Bank sets targets for Treasury that are compatible with this risk exposure.

Banco Safra's market risk assessments also include the use of stress metrics, contemplating crises in historical periods and prospective stressed economic scenarios, in addition to the effects of stress among risk factor families. Additionally, stop loss limits are established.

The Market Risk area actively participates in the approval of new products or financial instruments that may introduce new risk factors for Treasury management. As it is responsible for mark-to-market pricing processes and result and risk calculation, the approval of the Market Risk area is required before new products are implemented.

The policies that govern market risk management - Market Risk Policy and Market Risk Limits Policy - are disclosed to Treasury, control and support areas (liquidity and market risk managers, internal audit, internal controls and compliance, liquidity and market risk validation and information technology) through the corporate intranet, in addition to the disclosure of the Market Risk management framework to the public.

c) Liquidity risk

Liquidity risk consists of the possibility that the Bank may not have sufficient financial resources to honor its commitments as a result of mismatches between payments and receipts, considering the different currencies and settlement terms of rights and obligations.

To manage liquidity risk, there are committees for the management of assets and liabilities, convened every month, with the objective of defining the liquidity strategies to be followed in a two-year horizon. Cash is monitored on a daily basis and reported to the responsible managers and officers.

Banco Safra submits to the Brazilian Central Bank the liquidity risk reports determined by CMN Resolution 2,804/2000, with specifications established by BACEN Circular 3,393/2008. These reports are prepared based on management information of the Investment Risk area to comply with the prevailing regulations.

The Investment Risk area uses statistics and projections on the behavior of payments and receipts to assess impacts on cash over time in a series of scenarios: planning or normality, run off, stress and hard stress and there is also the possibility of using an arbitrary scenario. The results from the application of these scenarios are discussed at the meetings of the Committee of Assets and Liabilities.

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d) Capital management

Banco Safra's capital risk management objectives encompass a concept wider than "equity" and include the following aspects:

- Comply with the requirements established by the regulatory bodies of the bank markets where it operates;

- Safeguard its operating capacity so that it continues providing return to stockholders and benefits to other stakeholders; and

- Maintain a solid capital base to support the development of its business.

Capital adequacy and the use of regulatory capital are monitored by Banco Safra, through techniques based on guidelines established by the Basel Committee, as implemented by the Brazilian Central Bank (BACEN), for oversight purposes. The required information is submitted to the appropriate body on a monthly basis.

The bank authority requires that each bank or group of bank institutions maintains a minimum regulatory capital ratio of 11%.

Banco Safra's regulatory capital is divided into two tiers (Note 20):

Tier I capital - share capital, retained earnings and reserves for the recognition of retained earnings.

Tier II capital - qualified subordinated debt and unearned income arising from the measurement at fair value of shares available for sale.

Risk-weighted assets are measured through a hierarchy of five risk weights determined according to the nature of each asset and its corresponding liability - in addition to reflecting estimated market, liquidity and credit risks and other associated risks - considering all possible guarantees. A similar treatment is adopted for the exposure that is not accounted for, with some adjustments being made to reflect the more contingent nature of potential losses.

e) Operating risk

Operating risk is the possibility of incurring losses from failure, deficiency or inadequate internal procedures, personnel and systems, or external events.

Operating risk also includes the legal risk associated with the inappropriateness or deficiency in agreements entered into by Banco Safra and its subsidiaries, as well as sanctions arising from non-compliance with legal provisions and damages to third parties arising from the activities performed by Banco Safra and its subsidiaries. The legal risk is assessed on a continuous basis by Banco Safra´s legal areas and specific Committees with that scope.

This definition excludes the risk of reputation or image as well as other risks, such as strategic or business risks.

The Operating Risk Area is an independent control unit, segregated from the internal audit. The Operating Risk Area is responsible for meeting the requirements arising from BACEN Resolution 3,380/2006 on the need for identification, evaluation, monitoring, control and mitigation of operating risk, as well as for the preparation and maintenance of the Operating Risk Policy. It is also responsible for Internal Control and Compliance activities.

f) Sensitivity analysis (Trading and Banking portfolios)

In accordance with the classification criteria for operations foreseen within CMN Resolution 3,464/2007 and BACEN Circular 3,354/2007 and the New Capital Agreement of BASEL II, financial instruments are divided into Trading portfolio (Trading) and Structural portfolio (Banking).

The Trading portfolio consists of all operations, including derivatives, held for the purposes of trading or for hedging of other instruments used for this strategy. They are held for resale, obtainment of the price movement benefits, effective, expected or as the result of arbitrage. This portfolio has rigid limits defined by the risk controllers and are monitored on a daily basis.

The Banking portfolio covers all operations that do not fall into the Trading portfolio, and are typically, structural operations for the institutions business lines and the respective hedges that may or may not be made through the use of derivatives. As a result, the derivatives in this portfolio are not used for speculative purposes.

The sensitivity analysis below is a simulation and does take into consideration management's ability to react were such circumstances to occur, which would certainly mitigate the losses that would be incurred. In addition to this, the impacts presented below do not represent accounting losses as the methodology used is not based on Safra's accounting practices.

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Trading Portfolio

9.30.2012 Scenarios

Risk factors

Risk of variation in: 1 2 3

Shares Share price variation (79) (1,978) (3,957) Coupon and currencies Foreign currency coupon rate and exchange rate

variation (1,177) (29,079) (58,029) Fixed income Variation in interest rates denominated in Real (1,065) (26,637) (53,199) Options Foreign currency coupon rate and exchange rate

variation (84) (2,106) (4,213)

Total without correlation (2,804) (59,800) (119,398)

Total with correlation (87) (1,835) (3,615)

Trading and Banking Portfolio

9.30.2012 Scenarios

Risk factors

Risk of variation in: 1 2 3

Shares Share price variation (79) (1,978) (3,957) Coupon and currencies Foreign currency coupon rate and exchange rate

variation (1,325) (32,574) (64,583) Fixed income Variation in interest rates denominated in Real (32,223) (779,127) (1,506,337) Options Foreign currency coupon rate and exchange rate

variation (84) (2,106) (4,213)

Total without correlation (33,711) (815,785) (1,579,090)

Total with correlation (30,937) (747,519) (1,443,637)

The sensitivity analysis was carried out using the following scenarios:

• Scenario 1: Application of movements of one basis point in the interest rates, and 1% in price variations based on market information (BM&FBovespa, Anbima etc.). Example: the Real/Dollar rate used was R$ 2.0480 and the 1 year pre-fixed rate was 7.56% per year.

• Scenario 2: Application of a movement of 25% in the respective curves or prices, based on the market. Example: the Real/Dollar rate used was R$ 2.5346 and the 1 year pre-fixed rate was 9.36% per year.

• Scenario 3: Application of a movement of 50% in the respective curves or prices, based on the market. Example: the Real/Dollar rate used was R$ 3.0416 and the 1 year pre-fixed rate was 11.24% per year.

g) Fair value of financial assets and liabilities

I. Methodology of calculating market value:

The fair value of financial instruments are determined based on the price that would be received to sell an asset or paid to transfer a liability in a transaction conducted between independent participants at the measurement date, without favoritism, There are different levels of data that must be used to measure the fair value of financial instruments: the observable data that reflect quoted prices for identical assets or liabilities in active markets (Level 1), the data that are directly or indirectly observable as assets or similar liabilities (level 2), identical assets or liabilities in illiquid markets and unobservable market data that reflect the very premises of the Safra when pricing an asset or liability (Level 3), This maximizes the use of observable inputs and minimizes the use of unobservable inputs to determine fair value.

To arrive at an estimate of fair value of a financial instrument measured based on unobservable market, Safra first determines the appropriate model to be adopted and the lack of monitoring of significant data, evaluates all data based on relevant experience in lead data evaluation, including but not limited to, yield curves, interest rates, volatilities, prices on equity or debt, exchange rates and credit curves, Also, with respect to products that are not exchange traded, the decision of Safra should be considered to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the actual amount of credit, liquidity constraints and parameters unobservable when relevant, Although it is believed that the valuation methods are appropriate and consistent with those prevailing in the market, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date and / or settlement.

35

II. Rating level of financial assets and liabilities at fair value:

9.30.2012 9.30.2011

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Trading securities 10,227,675 892,456 - 11,120,131 4,579,837 1,236,436 - 5,816,273

National Treasury 8,386,008 - - 8,386,008 2,939,940 - - 2,939,940

Corporate bonds 10,263 - - 10,263 5,538 564,713 - 570,251

Securities issued abroad 7,595 808 - 8,403 12,561 - - 12,561

Subject to Technical Reserve – Note 11(b) 1,823,809 891,648 - 2,715,457 1,621,798 671,723 - 2,293,521 National Treasury

1,643,901 - - 1,643,901 1,388,349 - - 1,388,349

Corporate bonds 179,908 891,648 - 1,071,556 233,449 671,723 - 905,172

Available-for-sale securities 15,829,380 1,195,989 - 17,025,369 1,722,985 1,097,655 - 2,820,640

National Treasury 14,728,293 - - 14,728,293 602,641 - - 602,641 Subject to Technical Reserve – National Treasury - Note 11(b) 90,005 - - 90,005 76,318 - - 76,318

Corporate bonds 1,011,082 676,314 - 1,687,396 1,044,026 517,079 - 1,561,105

Securities issued abroad - 519,675 - 519,675 - 580,576 - 580,576

Derivative financial instruments - Assets 1,352,878 538,217 - 1,891,095 823 424,351 - 425,174

Non-deliverable forwards - NDF - 74,694 - 74,694 - 45,894 - 45,894

Option premiums - 2,854 - 2,854 - 3,708 - 3,708

Forward contracts 1,351,229 - - 1,351,229 - 39,076 - 39,076

Swaps - amounts receivable - 442,342 - 442,342 - 316,092 - 316,092

Credit default swaps - CDS - 18,327 - 18,327 - 19,581 - 19,581

Futures 1,649 - - 1,649 823 - - 823

Derivative financial instruments - Liabilities (1,351,520) (3,890,850) - (5,242,370) (38,261) (3,213,298) - (3,251,559)

Non-deliverable forwards - NDF - (1,800) - (1,800) - (1,484) - (1,484)

Option premiums - (2,955,237) - (2,955,237) - (2,459,970) - (2,459,970)

Forward contracts (1,349,262) - - (1,349,262) (37,827) - - (37,827)

Swaps - amounts payable - (928,341) - (928,341) - (741,004) - (741,004)

Credit default swaps - CDS - (5,472) - (5,472) - (10,840) - (10,840)

Futures (2,258) - - (2,258) (434) - - (434)

Strategy – Fair value hedge - (Note 7(d)) - (3,042,999) 12,868,909 9,825,910 - (2,757,909) 13,512,079 10,754,170

Fixed rate portfolio - - 12,868,909 12,868,909 - - 13,512,079 13,512,079

Fixed rate funding, 08.08.2011 – R$ 800,000 - (892,423) - (892,423) - (844,156) - (844,156)

Fixed rate funding, 27.01.2011 – US$ 500,000 - (1,187,718) - (1,187,718) - (1,044,484) - (1,044,484)

Fixed rate funding, 16.05.2011 – US$ 300,000 - (627,254) - (627,254) - (563,698) - (563,698)

Fixed rate funding – R$ 300,000 - (335,604) - (335,604) - (305,571) - (305,571)

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h) Exchange rate exposure

The value of exposures to gold, foreign currency and assets and liabilities subject to exchange differences, including derivatives financial instruments and permanent foreign investments, as presented to the legal authorities, are:

9.30.2012 9.30.2011 Net national exposure 144,207 (20,258)

Bought 9,217,829 7,527,669

Sold (9,073,622) (7,547,927) Net foreign exposure (89,358) (234,812)

Bought 8,595,115 7,763,568

Sold (8,684,473) (7,998,380) Total net exposure 54,849 (255,070)

The risk management structures in relation to market, credit and operating risk are on the Banco Safra website (www.safra.com.br). The risk management report will be available at this address within the time period established by BACEN Circular 3,477/2009.

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19. RELATED-PARTY TRANSACTIONS

a) Management remuneration:

At the Remuneration Committee Meeting held in 3.15.2012 and subsequent General Meetings of Stockholders, the maximum Director's and Board members remuneration was established at R$ 136,000. Remuneration received by management came to R$ 56,330 (R$ 53,590 in 2011).

The Group does not possess any long-term benefits, contract termination benefits, or share-based payment arrangements for any key management personnel.

b) Ownership interest:

Integral interest from Joseph Yacoub Safra.

c) Related-party transactions

Transactions between related parties are disclosed in accordance with CMN Resolution 3,750/2009. These are arms length transactions, in the sense that their value, period of execution, and rates involved are the market average at the time of the transaction.

Transactions between consolidated companies were eliminated for the purposes of the consolidated financial statements and continue to be considered void of risk.

Assets/(Liabilities) Income/(Expenses) 9.30.2012 9.30.2011 2012 2011 Cash 44,490 88,662 34 19 Banco Safra Luxemburgo 32,468 84,735 34 19 Safra National Bank of New York 12,022 3,927 - - Foreign currency investments 684,075 686,627 1,774 659 Banco Safra Luxemburgo 324,900 - 198 - Safra National Bank of New York 359,175 686,627 1,576 659 Marketable securities and derivative financial instruments - Banco Safra Luxemburgo 480,297 447,079 1,958 872 Demand deposits (1,886) (219) - - Interbank deposits (1,263,545) (244,708) (22,348) (5,047) Banco Safra Luxemburgo (506,469) (189,988) (10,445) (4,495) Safra National Bank of New York (458,323) (54,720) (6,470) (479) Other companies (298,753) - (5,433) (73) Funds obtained in the open market – Managed investment funds (4,349,908) (9.827.786) - - Securities issued abroad - Banco Safra Luxemburgo (63,937) (57,346) - - Funds from acceptance and issue of securities - Debentures (90,784) (118,253) (6,067) (5,506)

Emerald Gestão de Investimentos Ltda. (9,987) (3,547) (468) (514)

Fundação Filantrópica Vicky e Joseph Safra (60,754) (57,697) (3,936) (2,694)

Irati Imóveis e Representações Ltda. (2,421) (10,610) (318) (51)

Other companies (17,622) (46,399) (1,345) (2,247)

Derivative financial instruments - Assets/(Liabilities) - Banco Safra Luxemburgo (5,419) (9,895) 19,875 16,366

Insurance commissions – Canárias Corretora de Seguros - - (23.385) (15.198)

Rental expenses - - (33,166) (3,192) J. Safra Participações Ltda. (1) - - (16,995) - Acauã Construtora Ltda. - - (2,154) (1,872) Exton Participações Ltda - - (8,364) - Other companies - - (5,653) (1,320)

(1) In March 2012, this company held subsidiary interest in Consolidated, as from April 2012 it was classified as related party – Note 2(b).

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20. OPERATIONAL LIMITS

The institutions authorized to operate by the Brazilian Central Bank (BACEN) are required to maintain a regulatory capital above the minimum of 11% of the Required regulatory capital, in accordance with their operational risks. In addition, the National Monetary Council and the Brazilian Central Bank issued several regulations that establish the guidelines to calculate regulatory capital, which went into effect in July 2008, for implementation of the criteria of the New Basel Accord (Basel II). Based on the regulations mentioned in the paragraph above, Regulatory Capital (PR) on September 30 is as follows:

CONSOLIDATED FINANCIAL CONSOLIDATED 9.30.2012 9.30.2011 9.30.2012 9.30.2011

Regulatory Capital (PR) 9,111,282 7,607,531 9,111,282 7,510,201 Tier I 6,571,844 5,551,968 6,571,844 5,551,968

Equity 6,853,061 5,585,893 6,853,061 5,585,893

Intangible assets excluded from tier I (39,193) (21,954) (39,193) (21,954)

Carrying value adjustment excluded from tier I (242,024) (11,971) (242,024) (11,971)

Tier II 2,539,438 2,055,563 2,539,438 2,055,563

Subordinated debt 2,297,414 2,043,592 2,297,414 2,043,592

Carrying value adjustments 242,024 11,971 242,024 11,971

Deductions - Quotas of investment fund - - - (97,329)

Required Regulatory Capital (PRE) 7,487,957 6,591,645 7,325,366 6,500,326 Credit risk - Exposures weighted by risk factors

(PEPR)

6,824,486 6,229,223 6,641,517 6,123,045 PCAM – – Exchange variation exposure 141,314 - 141,314 - Market risk 226,711 180,648 226,711 180,648 Trading portfolio interest rate exposure (PJUR) 207,479 173,622 207,479 173,622 Fixed rate denominated in Real (PJUR1) 52,025 16,990 52,025 16,990 Foreign currency coupon (PJUR2) 105,666 82,050 105,666 82,050 Price index coupon (PJUR3) 49,788 74,582 49,788 74,582

Operations subject to commodity price variation (PCOM) 3,403 151 3,403 151

Operations subject to stock price variation (PACS) 15,829 6,875 15,829 6,875

Operating risk (POPR) 295,446 181,774 315,824 196,633

Basel Index [PR*100/(PRE/0,11)] 13.38% 12.70% 13.68% 12.71% Amount of PR calculated for covering the interest rate

risk of operations not classified in the trading portfolio (RBAN)

274,041 34,012 274,041 34,012 Capital margin (PR-PRE-RBAN) 1,349,284 981,875 1,511,875 975,864

21. OTHER INFORMATION

a) Insurance policy

Despite Banco Safra and its subsidiaries having a reduced risk from the non-concentration of assets in one place, the Bank nonetheless has the policy of insuring these assets to a level necessary to cover any eventual claims.

b) Audit committee

The Audit Committee is made up of five members nominated by the Board. Four of these are directors of the Bank, with the other being independent. The Committee's aim is to monitor and accompany: the effectiveness of internal controls, the quality and integrity of the financial statements, and the work of the internal and independent auditors.

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Report on review of consolidated interim financial statements To the Board of Directors and Stockholders Banco Safra S.A. Introduction We have reviewed the accompanying consolidated balance sheet of Banco Safra S.A. ("Bank") and subsidiaries ("Consolidated") as at September 30, 2012, and the consolidated interim statements of income and comprehensive income, changes in equity and cash flows for the nine-month period then ended, and a summary of significant accounting policies and other explanatory information. Management is responsible for the preparation and fair presentation of these consolidated interim financial statements in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank, as well as for the presentation of this information as required by the Brazilian Central Bank. Our responsibility is to express a conclusion on these consolidated interim financial statements based on our review. Scope of review We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial statements referred to above do not present fairly, in all material respects, the financial position of Banco Safra S.A. and subsidiaries as at September 30, 2012, and its consolidated financial performance and consolidated cash flows for the nine-month period then ended, in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Brazilian Central Bank.

Banco Safra S.A.

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Other matters Consolidated statement of value added We have also reviewed the consolidated interim statement of value added for the nine-month period ended September 30, 2012. This statement is the responsibility of the Bank's management and is presented as supplementary information. This statement has been submitted to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that it has not been prepared, in all material respects, in a manner consistent with the consolidated interim financial statements taken as a whole. São Paulo, October 29, 2012 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Luiz Antonio Fossa Contador CRC 1SP196161/O-8

Banco Safra S.A. and subsidiaries · Deposits 3(n) and 10(a) 896,296 1,521,127 Interbank deposits...

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Transcript of Banco Safra S.A. and subsidiaries · Deposits 3(n) and 10(a) 896,296 1,521,127 Interbank deposits...