Banco Safra S.A. and subsidiaries · Funds from acceptance and issuance of securities 10(a-IV)...

Banco Safra S.A. and subsidiaries

Consolidated financial statements under IFRS for the

periods ended December 31, 2012 and 2011

2

SUMMARY

BALANCE SHEET – ASSETS.........................................................................................................................3

BALANCE SHEET – LIABILITIES…………………................. ..................................................................4

STATEMENT OF INCOME AND COMPREHENSIVE INCOME....... ........................................…....…5

STATEMENT OF CHANGES IN EQUITY........................................................................................….......6

STATEMENT OF CASH FLOWS…………………………..........................................................…............7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNDE R IFRS.............…................8

1 OPERATIONS.........................................................................................................................................8

2 PRESENTATION OF THE FINANCIAL STATEMENTS ......... .......................................................8

3 SIGNIFICANT ACCOUNTING PRACTICES ..................................................................................11

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS ..... .............................................20

5 CASH AND CASH EQUIVALENTS...................................................................................................21

6 INTERBANK INVESTMENTS ...........................................................................................................22

7 RESERVES AT BRAZILIAN CENTRAL BANK ............... ..............................................................22

8 FINANCIAL ASSETS AND DERIVATIVE FINANCIAL INSTRUM ENTS (ASSETS/LIABILITIES)...............................................................................................................................23

9 CREDIT OPERATIONS ......................................................................................................................30

10 FINANCIAL LIABILITIES AND MANAGED FUNDS ......... ..........................................................34

11 FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE O N INITIAL RECOGNITION..39

12 INSURANCE, REINSURANCE AND SUPPLEMENTARY PENSION PLAN OPERATIONS ..41

13 OTHER FINANCIAL ASSETS AND LIABILITIES .......... ..............................................................46

14 INCOME, EXPENSES AND RESULTS FROM OPERATIONS.....................................................47

15 CONTINGENT ASSETS AND LIABILITIES ............... ....................................................................49

16 OTHER BALANCE SHEET AND STATEMENT OF INCOME ACCO UNTS .............................52

17 TAXES....................................................................................................................................................54

18 PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS .... ................................................56

19 NON-CURRENT ASSSETS HELD FOR SALE ................................................................................57

20 EQUITY .................................................................................................................................................57

21 SEGMENT REPORTING ....................................................................................................................58

22 RISKS .....................................................................................................................................................60

23 RELATED PARTY TRANSACTIONS...............................................................................................74

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

BALANCE SHEET UNDER IFRS

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

Notes 2012 2011

Cash 5 411,090 380,224

Interbank investments 6 21,918,595 21,644,800

Reserves at Brazilian Central Bank 7 1,178,292 5,389,895

Financial assets 8 33,262,565 8,176,413

Trading securities 15,528,812 4,827,695

Available-for-sale 17,615,471 2,991,870

Held-to-maturity 118,282 356,848

Derivative financial instruments 8(e) 496,240 418,195

Credit operations 9 47,949,049 47,352,725

At amortized cost 28,088,790 27,753,246

At fair value on initial recognition 19,860,259 19,599,479

Other financial assets 13 5,766,416 948,796

Property and equipment 18(a) 94,898 218,372

Intangible assets 18(a) 45,105 28,990

Tax assets 1,382,721 1,340,659

Current 17(c-I) 66,398 169,457

Deferred 17(b-I) 1,316,323 1,171,202

Non-current assets held for sale 19 21,849 8,758

Other assets 16(a) 334,028 355,757

TOTAL ASSETS 112,860,848 86,263,584

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

BCOSAFRA12IFRSMK.XLSX / BCOSAFRA12IFRSMK.DOCX 2


BALANCE SHEETS UNDER IFRS


Notes 2012 2011

Financial liabilities at amortized cost 81,793,796 62,958,743

Deposits 10(a-I) 7,596,778 12,817,832

Deposits from financial institutions and open market funding 10(a-II) 47,761,996 29,542,657

Borrowings and onlendings 10(a-III) 12,345,854 13,050,429

Funds from acceptance and issuance of securities 10(a-IV) 14,089,168 7,547,825

Financial liabilities at fair value on initial recognition 10(b) 3,546,356 3,469,692

Funds from acceptance and issuance of securities 2,717,957 2,620,705

Deposits 267,974 210,889

Deposits from financial institutions and open market funding 560,425 638,098

Derivative financial instruments 8(e) 3,925,122 3,271,392

Insurance and pension plan operations 12(c-I) 3,085,987 2,514,334

Subordinated debt 2,657,265 2,120,427

At amortized cost 10(a-V) 1,450,076 1,045,207

At fair value 10(b) 1,207,189 1,075,220

Other financial liabilities 13 5,894,700 1,205,179

Provision for contingencies 15(c) 1,470,035 1,633,357

Tax liabilities 1,523,242 1,659,268

Current 17(c-II) 680,750 723,938

Deferred 17(b-III) 842,492 935,330

Other liabilities 16(b) 409,723 285,071

Equity 20 8,554,622 7,146,121

Equity attributable to controlling interest 8,554,622 7,111,351

Equity attributable to non-controlling interests - 34,770

TOTAL LIABILITIES AND EQUITY 112,860,848 86,263,584




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

Notes 2012 2011

INTEREST AND SIMILAR INCOME 3,911,787 3,214,040

Interest and similar income 14(a) 9,481,424 10,005,330

Interest and similar expenses 14(b) (5,605,958) (6,850,610)

Dividend and similar income 8(c) 36,321 59,320

IMPAIRMENT LOSSES (NET OF RECOVERIES) ON CREDIT OPERATIONS (97,134) 972,717

Allowance for loan losses - credit operations at amortized cost 9(b-II) (218,544) (96,933)

Credit recoveries 9(c) 121,410 1,069,650

Credit risk - credit operations at fair value 9(b-II) (969,258) (452,710)

NET INTEREST INCOME AFTER IMPAIRMENT LOSSES ON FINANCIAL ASSETS 2,845,395 3,734,047

OTHER RESULTS FROM OPERATION 872,938 968,132

Net result from financial instruments held for trading 14(c) 131,481 4,595

Net result from available-for-sale financial instruments 14(d) 64,837 34,766

Net result from assets and liabilities designated at fair value through profit or loss 14(e) (53,388) (2,622)

Net result from derivative financial instruments 14(f) (164,165) 56,872

Result from foreign exchange operations 13(a) 60,849 55,683

Income from/expenses on fees and commissions 14(g) 731,172 720,425

Result from insurance and pension plan operations 12(d) 102,152 98,413

GROSS PROFIT FROM OPERATIONS 3,718,333 4,702,179

OTHER OPERATING INCOME (EXPENSES) (1,745,236) (2,325,367)

Personnel expenses 16(c) (1,143,545) (1,188,850)

Administrative expenses 16(d) (585,737) (571,874)

Tax expenses 17(a-II) (269,298) (281,633)

Equity in the results of subsidiary and associated companies - (268)

Other operating income (expenses) 16(e) 253,344 (282,742)

OPERATING PROFIT BEFORE TAXATION 1,973,097 2,376,812

Income tax and social contribution 17(a-I) (478,680) (569,039)

CONSOLIDATED PROFIT FOR THE PERIOD 1,494,417 1,807,773

Profit attributable to controlling interest 1,494,417 1,799,203

Profit attributable to non-controlling interests - 8,570

Basic earnings attributable to controlling interest per thousand shares, in R$ 3(s) 0.99 1.23

Consolidated profit for the period 1,494,417 1,807,773

Changes in unrealized gains and losses on available-for-sale securities - Note 20(d) 411,203 (76,256)

Net changes in unrealized gains and losses 450,105 (55,397)

Fair value adjustments 784,551 (92,331)

Tax effect (334,446) 36,934

Realized gains transferred to result (38,902) (20,859)

Profit on sale of securities - Notes 8(c) and 14(d) (64,837) (34,766)

Tax effect 25,935 13,907

Comprehensive income for the period 1,905,620 1,731,517

Consolidated comprehensive income for the period attributable to controlling interest 1,905,620 1,722,947

Consolidated comprehensive income for the period attributable to non-controlling interests - 8,570


STATEMENT OF INCOME AND COMPREHENSIVE INCOME FOR THE PERIODS ENDED DECEMBER 31


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5


STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED DECEMBER 31 - NOTES 3 (b) AND 5


2012 2011

Cash flows from operating activities Adjusted consolidated profit for the period 1,924,236 2,893,657

Consolidated profit for the period 1,494,417 1,807,773 Adjustments to consolidated profit for the period:

Depreciation and amortization 34,527 38,030 Impairment loss on credit operations at amortized cost - Notes 9(b-II) 218,544 96,933 Credit risk - credit operations at fair value - Notes 9(b-II) 969,258 452,710 Equity in the results of subsidiary and associated companies - 268 Foreign exchange changes on cash and cash equivalents and financing activities 8,027 65,910 Securities fair value adjustments - Unrealized gains 32,365 (151,303) Held for trading - Note 8(d) (42,929) (9,488) Designated at fair value - Note 11(c) 53,388 2,622 Derivative financial instruments - Note 8(d) 21,906 (144,437)Provision for contingencies (163,322) 539,715 Securities interest income (1,193,881) (568,118) Available-for-sale (1,156,455) (530,040) Held-to-maturity (37,426) (38,078)Subordinated debt interest expense - Note 10(a-V(2)) 45,621 42,700 Current and deferred income tax expense 478,680 569,039

Changes in operating assets and liabilities 7,275,370 (5,418,341)

(Increase) decrease in interbank investments and open market operations (3,860,781) (5,453,529)(Increase) Decrease in reserves at Brazilian Central Bank 4,211,603 (4,011,936)(Increase) Decrease in financial assets held for trading (10,658,188) 2,080,077 (Increase) Decrease in derivative financial instruments (assets and liabilities) 553,779 173,691 (Increase) Decrease in credit operations (1,784,126) (11,416,742)

At amortized cost (554,088) (6,913,352)At fair value on initial recognition (1,230,038) (4,503,390)

Increase (Decrease) in deposits (5,221,054) 1,750,325 Increase (Decrease) in deposits from financial institutions and open market funding 18,219,339 5,027,875 Own issue (4,388,785) 545,736 Third party 22,608,124 4,482,139 Increase (Decrease) in borrowings and onlendings (704,575) 3,449,978 Increase (Decrease) in funds from acceptance and issuance of securities (except funds from financing) 6,541,343 4,728,491 Increase (decrease) in financial liabilities at fair value on initial recognition 388,144 (1,490,767)Increase (Decrease) in insurance and pension plan operations 571,653 557,901 Increase (Decrease) in current taxes assets/liabilities (156,477) (149,354)Increase (Decrease) in other financial liabilities (128,099) 684,177

(Increase) Decrease in other assets and other liabilities (196,900) (718,018)

Taxes paid (500,291) (630,510)

Net cash provided by (used in) operating activities 9,199,606 (2,524,684)

Cash flows from investing activities

Available-for-sale securities - Note 8(c) (12,747,432) 284,194 Acquisitions (18,649,903) (59,928)Sales/Redemptions 5,902,471 344,122

Held-to-maturity securities - Note 8(c) 275,992 (278,354)Acquisitions (438,257) (324,813)Redemptions 714,249 46,459

Purchase of property and equipment in use - Note 18(b) (21,314) (13,805)Sale of property and equipment in use - Note 18(b) 12,799 6,262

Purchase of non-current assets held for sale - Note 19(a) (13,091) (1,130)Sale of investments - 36 Increase in intangible assets - Note 18(b) (29,528) (18,737)

Net cash provided by (used in) investing activities (12,522,574) (21,534)

Cash flows from financing activities

Capital decrease - (5,024)

Funds from acceptance and issuance of securities (329,701) 1,298,889

Financial Bills - -

Securities issued abroad (329,701) 1,298,889 Subordinated debt - Notes 10(a-V(2)) 364,965 821,272 Interest on capital and dividends paid (351,474) (765,289)

Net cash provided by (used in) financing activities (316,210) 1,349,848

Net decrease in cash and cash equivalents (3,639,178) (1,196,370)

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

Changes in foreign exchange on cash and cash equivalents 83,058 54,526

Cash and cash equivalent at the end of the period 5,855,463 9,411,583 Net decrease in cash and cash equivalents (3,639,178) (1,196,370)



8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNDER IFRS AT DECEMBER 31, 2012 AND 2011

(ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE STATED)

1 OPERATIONS

Banco Safra S.A. and its subsidiaries (collectively referred to as "Safra", "Safra Group", or "Bank"), headquartered at Avenida Paulista, 2100, São Paulo - SP, Brazil, 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

The consolidated financial statements under IFRS of Banco Safra were approved by the Board of Directors on 20.03.2013.

a) Basis of preparation

The consolidated financial statements of Banco Safra S.A. at December 31, 2012 have been prepared and are being presented in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and, for comparison purposes, present the figures for the year ended December 31, 2011.

These consolidated financial statements have been prepared under the historical cost convention, and adjusted to

reflect the fair value of available-for-sale financial assets and financial assets and liabilities measured at fair value

through profit or loss (including derivative instruments).

Their preparation requires the use of certain accounting estimates by management. The areas involving judgment or

the use of estimates, relevant for these consolidated financial statements, are shown in Note 4 - "Critical accounting

estimates and judgments".

The consolidated financial statements have been prepared considering lease operations using the financial leasing

method.

b) New and revised standards and interpretations already issued and not yet adopted

Safra has not early adopted the new IFRSs and amendments enumerated below, some at the Bank's option and others

because such early adoption was not established by the IASB:

− IFRS 9 - "Financial instruments", issued in November 2009 and amended in October 2010, which introduces new

requirements for the classification, measurement and derecognition of financial assets and liabilities. IFRS 9 is

effective for annual periods beginning on or after January 1, 2015.

IFRS 9 establishes that all recognized financial assets that are within the scope of IAS 39 "Financial instruments:

recognition and measurement" shall be subsequently measured at amortized cost or fair value. Specifically, debt

instruments that are held within a business model whose objective is to collect contractual cash flows, and which

have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding

shall be measured at amortized cost at the end of the subsequent accounting periods. All other debt instruments

shall be measured at fair value through profit or loss at the end of the subsequent accounting periods. Investments

in equity instruments shall be measured at fair value, with the recognition of any changes in "Other comprehensive

income".

The most significant effect of IFRS 9 related to the classification and measurement of financial liabilities refers to the

recognition of changes in the fair value of a financial liability (designated at fair value through profit or loss)

attributable to changes in the credit risk of that liability. Specifically, in accordance with IFRS 9, for these financial

liabilities, the amount of the change in the fair value of this financial liability attributable to changes in its credit risk

shall be recognized in "Other comprehensive income", unless the recognition of the effects of changes in the credit

risk of the liability in "Other comprehensive income" results in or increases the accounting mismatch in profit or loss.

Currently, in accordance with IAS 39, the total amount of the change in the fair value of the financial liability is

recognized in profit or loss.

Amendment to IAS 32 - "Financial instruments: presentation - clarifies the requirements for offsetting financial

instruments recognized in the balance sheet. This amendment is effective for annual periods beginning on or

afterJanuary 1, 2014, its early adoption is permitted. Safra does not expect that this implementation will have a

material effect on its financial statements.

9

− Amendment to IAS 28 - "Investments in associates and joint ventures - effective for annual periods beginning on or

after January 1, 2013, its early adoption is permitted. Safra does not expect that this implementation will have a

material effect on the consolidated financial statements.

This amendment presents guidance on the application of the equity method when accounting for investments in associates and joint ventures. It also defines the concept of significant influence and provides guidance on how to apply the impairment test for these investments.

− IFRS 10: "Consolidated financial statements" - effective for annual periods beginning on or after January 1, 2013, its

early adoption is permitted. Safra does not expect that this implementation will have a material effect on the

consolidated financial statements.

The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements. This standard incorporates a large part of the definitions previously existing in IAS 27, "Individual and consolidated financial statements". IAS 27 is now named "Individual financial statements" and addresses only issues related to this type of report. IFRS 10 defines the concept of control, establishing it as the basis for consolidation. The standard establishes how to evaluate the concept of control to identify whether an investor controls or not an entity and, therefore, whether it should or not consolidate this entity. It also establishes the accounting requirements for the preparation of consolidated financial statements.

− IFRS 11: "Joint arrangements" - effective for annual periods beginning on or after January 1, 2013, its early

adoption is permitted. Safra does not expect that this implementation will have a material effect on the consolidated

financial statements.

Under IFRS 11, the assessment of joint arrangements shall focus on the rights and obligations arising from these agreements, and not on their legal form. Joint operation is when an operator has rights to the assets and obligations relating to the agreement, accounting for its assets, liabilities, revenues and expenses. Joint venture is when the operator has rights to the net assets of the agreement, accounting for it using the equity method. The standard also prohibits the proportionate consolidation of joint ventures.

− IFRS 12: "Disclosures of interests in other entities" - effective for annual periods beginning on or after January 1,

2013, its early adoption is permitted. The potential impacts resulting from the adoption of the pronouncement are

being evaluated.

IFRS 12 establishes disclosures for all forms of interests in other entities, including joint ventures, associates, special purpose companies and other off balance entities.

− IFRS 13: "Fair value measurement - effective for annual periods beginning on or after January 1, 2013. The potential

impacts resulting from the adpoption of the pronouncement are being evaluated.

The objective of IFRS 13 is to increase the consistency and reduce the complexity of fair value measurement by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements through IFRSs. The standard also provides a detailed guidance for application of the defined concepts.

c) Basis of consolidation

Subsidiaries are those whose financial and operating policies are determined by Banco Safra S.A. since it holds the

control through a significant interest and /or preponderance in decision-making. Subsidiaries are fully consolidated

from the date on which control is obtained by Safra and de-consolidated from the date that control ceases.

Transactions between these companies, as well as balances and unrealized gains and losses on these transactions

were eliminated on consolidation. Accounting policies of subsidiaries have been adjusted to ensure consistency with

the accounting policies adopted by Banco Safra S.A. - parent entity.

The exclusive investment funds were consolidated, including those linked to PGBL and VGBL private pension plans. In

the consolidation process, the securities and investments in the portfolios of these funds were classified by type

transactions and were distributed into types of notes, in the same categories on which they were originally allocated.

Non-controlling interests shown in the accounts "Non-controlling interests" in the balance sheet and "Profit attributable

to non-controlling interests" in the statement of income represents the interests of other Safra Group companies that

are not within the ownership structure of Banco Safra S.A.

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The main entities included on consolidation and the related ownership percentages at December 31, 2012 and 2011

are as follows:

Percentage %

12.31.2012 12.31.2011

Banco Safra (Cayman Islands) Limited 100.00 100.00

J.Safra Corretora de Valores e Câmbio Ltda. 100.00 99.99

Safra Asset Management Ltda. (i) 100.00 99.99

Safra Leasing S.A. - Arrendamento Mercantil 100.00 99.99

Banco J. Safra S.A. 100.00 99.99

Sercom Comércio e Serviços Ltda. 100.00 99.99

Elong Administração e Representações Ltda. 100.00 99.99

Safra Vida e Previdência S.A. 100.00 99.98

Safra Seguros Gerais S.A. 100.00 99.99

Aratu Segurança e Vigilância S/S Ltda. 100.00 99.99

J. Safra Participações (ii) - 90.98

Taquari Representações e Participações Ltda. 100.00 99.99

Stone Fountain Investments Inc. 100.00 99.99

Kiama S.A. 100.00 99.99

Vênus Fundo de Investimento Curto Prazo (iii) 100.00 100.00

Mercúrio Fundo de Investimento Curto Prazo (iii) 100.00 99.78

Marte Fundo de Investimento Curto Prazo (iii) 96.70 82.96

Fundos de investimento Safra Vida e Previdência (iv) 100.00 100.00

(i) Formerly Safra Distribuidora de Títulos e Valores Mobiliários Ltda; (ii) Formerly Safra Cia. Securitizadora de Créditos Imobiliários. The investment was transferred to the controlling

stockholder on 4.11.2012, due to the capital decrease of Banco Safra; (iii) Exclusive investment funds of the Safra companies, managed by JS Administração de Recursos S.A. Non-

controlling interests (redeemable quotas) are presented in the balance sheet in "Other liabilities" - Note 16(b); (iv) Exclusive investment funds linked to the PGBL and VGBL private pension plans, managed by JS Administração de

Recursos S.A.

d) Foreign currency translation

I. Functional and presentation currency

Items included in the individual financial statements of subsidiaries are measured using the currency of the

primary economic environment in which the entity operates ("the functional currency"). The consolidated financial

statements are presented in Brazilian reais (R$), which is the functional and presentation currency of Banco Safra

S.A.

II. Foreign currency transactions

Foreign currency transactions are accounted for, on their initial recognition, in the functional currency, applying

the spot exchange rate between the functional currency and the foreign currency at the transaction date.

Foreign exchange variations resulting from the settlement of such transactions and from the translation at year-

end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized as gain or

loss in the consolidated statement of income.

Changes in the fair value of securities denominated in foreign currency classified as available for sale are analyzed

between translation differences resulting from changes in amortized cost of the security and other changes in the

carrying amount of the security. Foreign exchange variations are recognized in profit or loss in the accounts

"Interest and similar income" and "Interest and similar expenses" and fair value adjustments are recognized in

equity, in the account "Carrying value adjustments".

Foreign exchange variations on financial assets and liabilities classified as trading securities are recognized as part

of the net result from financial instruments trading securities.

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e) Reclassification as per comparability

Aiming to improve the presentation of financial statements, certain reclassifications Safra held as follows:

I. Balance sheet: the operations of the exchange contract presented in loans were reclassified as bonds previously

purchased for exchange (liabilities) and came to be reclassified as exchange purchases pending settlement

(assets).

II. Statement of income:

- Interest expense of structured fixed income, previously presented under "Net income from derivative financial

instruments" were reclassified to the item "Interest expense";

- Gains or losses arising from changes in fair value of assets designated at fair value through profit or loss upon

initial recognition corresponding to the portion of the credit risk presented above under the caption "Net assets

and liabilities designated at fair value through profit or loss" were reclassified to "reduce losses (net of

recoveries) in impairment of loans";

- Exchange result was reclassified from "Other operational income (expenses)” to the specific line of "Other

results of the operation."

The reclassifications mentioned were also performed in the comparative figures (12.31.2011) and did not affect net

income, comprehensive income, cash flow, shareholders' equity or earnings per share.

3 SIGNIFICANT ACCOUNTING PRACTICES

The significant accounting practices applied in the preparation of the financial statements are described below:

a) Cash flow

I- Cash and cash equivalents: represented by cash and deposits held at call with financial institutions, considered

under "Cash", and investment on the open market, interbank deposits and investments in foreign currencies

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 in line with the criteria set out in IAS 7 - Cash flow statements, which foresees

the cash flow statements being made up of amounts used for operating, investing, and financing purposes.

These being:

- 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 operating 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 receipts.

b) Interbank investments and open market operations

Interbank investments are initially carried at fair value, plus transaction costs, and subsequently carried at amortized

cost using the effective interest rate (Note 3.c.VI). The changes in the result due to variations of purchase and sales

prices are recognized as "Interest and similar income (expenses)" over the term of the respective contract.

Specifically regarding money market operations, purchases of financial assets linked to resale agreements are

recognized as a financing issued, guaranteed by a financial asset. Sales of financial assets linked to repurchase

agreements are recognized as a financing received, guaranteed by a financial asset, and are presented in the balance

sheet in the account "Deposits from financial institutions and open market funding" (liabilities).

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c) Financial assets and liabilities

Safra designates its financial assets and liabilities in the following categories:

− measured at fair value through profit or loss;

− available-for-sale;

− held-to-maturity;

− loans and receivables (credit operations); and

− measured at amortized cost.

The classification depends on the purpose for which the financial assets were acquired and the financial liabilities assumed. Management determines the classification of its financial assets and liabilities on initial recognition.

I. Measured at fair value through profit or loss

− Trading securities

Financial assets (including derivative transactions) are classified as trading securities if acquired for the purpose

of selling in the short-term. In regard to financial liabilities, this category includes derivative liabilities that have

not been designated as accounting hedge instruments. Gains or losses arising from changes in the fair value of

financial assets and liabilities trading securities are presented in the consolidated statement of income in the

account "Net result from financial instruments trading securities" or "Net result from derivative financial

instruments", as applicable, in the period in which they arise. The respective transaction costs are recognized

as expense in the consolidated statement of income.

− Designated at fair value on initial recognition

Credit and leasing operations contracted at fixed rates and funding made at fixed rates, which are object of contracting of derivatives to eliminate the risk of fluctuations in interest rates since there is a mismatching of amounts and terms between the total operations at fixed rate and the total funding at fixed rate, are designated at fair value on initial recognition. The mark-to-market of the derivatives contracted to eliminate the risk of mismatching of assets and liabilities at fixed rates might cause an accounting mismatch, if the hedged assets and liabilities were not marked to market. Taking this mismatching into consideration, the form of management of the active and passive portfolios contracted at fixed rates and the strategy adopted by Safra for risk management, Management decided to designate such assets and liabilities contracted at fixed rates at fair value through profit or loss.

Gains or losses arising from changes in the fair value of financial assets and liabilities designated at fair value

through profit or loss on initial recognition are presented in the consolidated statement of income in the

account "Net result from financial instruments designated at fair value through profit or loss on initial

recognition" in the period in which they arise. The respective transaction costs are recognized as expense in

the consolidated statement of income.

II. Available-for-sale

This category includes non-derivative financial assets, acquired without the purpose of being actively and frequently

traded, to be held to maturity for an undefined period, and which can be sold for purposes of liquidity or due to a

change in interest or exchange rate or share price.

Available-for-sale financial assets are measured and carried at fair value, and gains or losses arising from changes in

the fair value are recognized directly in a specific account of equity named "Carrying value adjustments", until the

financial asset is derecognized. In this case, the accumulated gain or loss in the specific account of equity is

transferred to the profit for the year in the account "Result from available-for-sale financial assets". Interest and

exchange gains and losses on available-for-sale financial assets are recognized in profit for the year under "interest

and similar income". Dividends from equity securities recognized as available-for-sale are also recognized in profit for

the year when the right to receive them is established. Interest on available-for-sale financial assets is calculated

based on the application of the effective interest method - Note 3(c-VI).

III. Held-to-maturity

This category comprises non-derivative financial assets with fixed or determinable payments and maturities, carried

at cost, plus interest intrinsic to the assets, with defined maturities and for which there is positive intention and

financial ability to hold the assets to maturity. Subsequently, they are measured at amortized cost using the effective

interest method Note 3(c-VI).

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IV. Loans and receivables (credit operations and other financial assets)

Credit operations classified by Safra in the category "loans and receivables" include loans granted and receivables

that are non-derivative financial assets with fixed or determinable payments and that are not quoted in an active

market.

These operations and the financial assets classified in the category “Other financial assets” are initially carried at fair

value, plus transaction costs, and subsequently carried at amortized cost, except those designated at fair value on

initial recognition, and thereafter carried at amortized cost, except those designated at fair value on recognition,

using the effective interest method - Note 3(c-VI).

Gains on these transactions are recognized as "Interest and similar income" over the term of the respective contract.

V. Financial liabilities measured at amortized cost

All financial liabilities, except derivative transactions and those that, at the entity's option, were designated at fair

value on initial recognition, are classified in this category. This category comprises liabilities that are subsequently

adjusted using the effective interest method.

Interest expenses related to these financial instruments are included in the consolidated statement of income in the

account "Interest and similar expenses".

VI. Effective interest method

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the

expected life of the financial instrument (or, when appropriate, a shorter period) to the net carrying amount of the

financial asset or liability. The effective interest rate is established on the initial recognition of the financial asset or

liability. The calculation of the effective interest rate includes all commissions, transaction costs, discounts or

premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs directly

attributable to the acquisition, issue or disposal of a financial asset or financial liability.

d) Derivative financial instruments

Derivatives are initially recognized at fair value and are periodically remeasured to their fair value with any changes

recognized directly in profit or loss.

For determination of the fair value of derivatives it is necessary to evaluate whether such instrument is traded in an

active market or not. In this second case, the calculation of fair value is made through pricing techniques, including

discounted cash flow, option pricing models and other valuation techniques generally used by market participants.

Those priced based on prices quoted in active markets are classified as Level 1, according to the fair value hierarchy of

IFRS 7 - Financial instruments: disclosures. Those in which Safra uses market prices of similar assets or pricing models

based on market data are classified as Level 2. Finally, those priced through valuation techniques, whose significant

inputs are not based on market data, are classified as Level 3. Moreover, in the determination of fair value the credit

risk of the counterparty (derivative assets) and of Safra (derivative liabilities) are considered.

Derivatives are considered assets when the fair value is positive and liabilities if it is negative.

We do not have derivatives designated as accounting hedge instruments. Thus, all Safra's derivatives portfolio is

classified as financial instruments at fair value through profit or loss, in the category trading securities.

Therefore, changes in the fair value of these instruments are recognized directly in profit or loss for the period under "Net result from derivative financial instruments".

Certain derivatives embedded in other financial instruments are treated as separate derivatives when their economic

characteristics and risks are not strongly related to those of the host contract and the contract as a whole is not

accounted for at fair value through profit or loss. These embedded derivatives are measured at their fair values and

the gains or losses arising from changes in the fair value are included directly in profit or loss under the category “Net

result from derivative financial instruments”.

e) Derecognition of financial instruments

Financial assets are derecognized 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 instrument control in order to determine whether it

will maintain them or not 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

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predetermined amount or to make payments in the event of default of the original debtor of the credit operations.

Financial liabilities are derecognized if the obligation is contractually extinguished or settled.

f) Reclassification of financial assets

The reclassification of financial assets is permitted only in specific circumstances determined in IAS 39 - Financial

instruments: recognition and measurement. Reclassifications shall be made at fair value at the event date. This fair

value becomes the new cost of the asset and the reversal of gains or losses related to the fair value recognized before

the reclassification is not permitted.

g) Presentation of financial instruments based on the net position of assets and liabilities.

A financial asset can only be offset against a financial liability and reported at its net amount in the balance sheet if

Safra has a legally enforceable right to offset the recognized amounts and can do this on a net basis, realizing an asset

and settling a liability simultaneously.

h) Impairment of financial assets

I. Credit operations at amortized cost

Safra assesses at each reporting date whether there is objective evidence that a financial asset or group of

financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are

incurred only if there is objective evidence of impairment as a result of one or more events that occurred after

the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the

estimated future cash flows, as long as it can be reliably estimated.

Safra has policies, methods and rules to cover the credit risk arising from insolvency and default of the

counterparties. These objective criteria combine economic and financial information of the customer and its

economic group with the accessory guarantees offered for the operations.

To determine where there is objective evidence of impairment, Safra assesses if there was a deterioration of the

customer rating, based on internal models that take into consideration several objective factors, mainly:

− Default in interest or principal payments;

− Financial difficulties of the issuer;

− Violation of clauses or conditions of the loans;

− Beginning of bankruptcy process;

− Deterioration of the issuer's competitive position; and

− Deterioration of the guarantee amount.

The weighting of these items establishes a customer rating and a guarantee rating which, evaluated in an

internal scale, generate the operation rating that is rating basis for the classification and calculation of the

provision for impairment.

Aligned with internal policies and rules, which are used to calculate the required provision, the establishment of

the provision for impairment takes into consideration several other factors established by Safra, namely:

− Current economic environment and its trends;

− Analysis of the economic sectors;

− Cyclical factors that result in historical losses;

− Concentration of recent losses;

− Regional factors that affected specific economic sectors; and

− Historical loss experience in other circumstances known at the time of the assessment of the portfolios.

The methodology to calculate the provision for impairment is periodically assessed by the Credit Officers and the

Executive Committee.

When a loan is considered uncollectible, it is written off against a provision for impairment. Such loans are

written off when all the required procedures are completed and the amount of the impairment loss is

determined.

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If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor's

credit rating), the previously recognized loss is reversed with an adjustment in the provision account. The

amount of the reversal is recognized in the account "Impairment losses (net of recoveries) on financial assets",

in the consolidated statement of income.

II. Assets categorized as available-for-sale

Safra assesses at each reporting date whether there is objective evidence that a financial asset or group of

financial assets is impaired. A significant or prolonged decline in the fair value of a debt instrument classified as

available-for-sale below its cost is considered to determine whether the assets are impaired. If any such

evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between

the acquisition cost and the current fair value, less any impairment loss on that financial asset previously

recognized in profit or loss - is removed from equity and recognized in the consolidated statement of income.

Impairment losses recognized in profit or loss for investments in equity instruments classified as available-for-

sale are not reversed through profit or loss. Exceptionally, if the fair value of a debt instrument classified as

available-for-sale increases in a subsequent period, and the increase is related to an event occurring after the

loss was recognized, this loss is reversed through profit or loss.

III. Renegotiated loans

Renegotiated loans are treated as new loans, keeping unchanged the assessment of the debtor's credit risk for

purposes of measuring the impairment of these assets.

i) Property and equipment

Property and equipment in use and other property and equipment items in use comprise tangible assets that are

maintained in Safra's activities and that transfer the economic benefits, risks and control of such assets. Property and

equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditures that are

directly attributable to the acquisition or construction of the items.

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only

when it is probable that future economic benefits associated with the item will be generated and its cost can be

measured reliably. All other repairs and maintenance are recorded as administrative expenses during the year in which

they are incurred.

Depreciation is calculated using the straight-line method to reduce their cost to their residual values over their

estimated useful lives, as follows:

− Properties in use: twenty-five years (4% per year);

− Furniture and fixtures, equipment, communication and security systems, facilities and aircraft: ten years (10

% per year);

− Vehicles and data processing equipment: five years (20 % per year).

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount

may not be recoverable. An asset's carrying amount is written down immediately to its recoverable amount when the

asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the net amount received with the carrying amount and are

recognized within "Other operating income (expenses)" in the consolidated statement of income.

We have not recorded impairment losses on property and equipment items in the years presented in these

consolidated financial statements.

j) Intangible assets

Intangible assets are recognized initially at acquisition cost and correspond to rights in intangible assets that are

maintained or used in Safra's activities.

Intangible assets, comprising mainly software and system development expenditures, have finite useful life and are

amortized using the straight-line method over the useful life of the respective asset. These assets are reviewed for

impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

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k) Non-current assets held for sale

Non-current assets held for sale are assets that will have their carrying amount recovered through sale, not through

continuing use.

To qualify for classification as held for sale, the asset:

− must be available for immediate sale;

− its sale must be highly probable, that is, there must be a formal plan for its disposal;

− must be part of a program to locate a buyer and complete the sale;

− must be actively marketed for sale at a price that is reasonable in relation to its current fair value; and

− the sale should be expected within one year.

In certain circumstances, properties and assets are repossessed due to the execution of non-performing loans and are

measured and carried at the lower of the carrying amount of the credit operation and the fair value of properties and

assets less costs to sell.

Gains and losses arising from the sales value less costs of sales are recognized in the consolidated statement of income

under "Impairment losses (net of recovery) on financial assets".

l) Leasing operations

Safra, as the lessee in leases in which a significant portion of the risks and rewards of ownership are retained by the

lessor, classifies these operations as operating leases.

In the cases in which Safra, as the lessee, retains a significant portion of the risks and rewards of ownership of the

asset, it classifies these operations as finance lease and present them in its balance sheet.

m) Determination of results

The results are determined on the accrual basis of accounting, that is, revenues and expenses are recognized in profit

or loss for the period in which they occur, simultaneously when they are correlated, regardless of receipt or payment.

Interest income and expenses, which cover all interest-bearing financial instruments, are recognized within "Interest

and similar income" and "Interest and similar expenses" in the consolidated statement of income.

Income from and expenses on fees and commissions are recognized when services are rendered.

n) Financial guarantees

Financial guarantees are defined as contracts under which an entity undertakes to make specific payments on behalf a

third party, if the third party does not make the payment, regardless of the several legal forms that they may have,

such as guarantees, irrevocable documentary credit issued or confirmed by the entity, among others.

Financial guarantees, regardless of the guarantor or other circumstances, are periodically reviewed to determine the

credit risk to which they are exposed and, as appropriate, to consider if a provision is required. The credit risk is

determined by applying criteria similar to those established to calculate the impairment losses on financial instruments

carried at amortized cost.

Financial guarantees provided are initially recognized at fair value, which corresponds to the present value of the fees,

commissions, and interest received and receivable. Subsequently, this obligation is measured at the higher of (i) the

amount initially recognized less accumulated amortization, and (ii) the value determined in accordance with IAS 37 –

Provisions, Contingent Liabilities, and Contingent Assts, if the occurance of a loss in relation to a guarantee provided is

probable.

o) Insurance operations

I. Insurance contracts

Under IFRS 4 - Insurance contracts, an insurance contract is a contract under which the entity accepts significant

insurance risk from another party by agreeing to compensate the policyholder if a specified uncertain future event

adversely affects the policyholder is classified as an insurance contract.

A contract issued that transfers financial risk is considered as an investment contract and is recognized and

measured according to the accounting policies applicable to financial instruments - IAS 39 - Derivative financial

instruments.

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II. Receivables from insurance and reinsurance operations

− Premiums receivable - refers to financial resources flowing to the Bank as receipt of premiums related to insurance, recorded on the date of issuance of the policies. Insurance premiums are submitted to impairment test and adjusted to their recoverable amount when there is indication that the amounts will not be realized by the recorded amounts.

− Reinsurance technical provisions - comprises technical provisions referring to reinsurance operations. Reinsurance operations are carried out in the normal course of activities in order to limit their potential losses. The liabilities related to reinsurance operations are presented gross of their respective recoveries, since the existence of a contract does not exempt the Company from its obligations to the policyholders.

− Deferred acquisition costs - includes direct and indirect costs related to the origination of insurances. These costs, except for the commissions paid to the brokers and others, are recorded directly in the statement of income, when incurred. The commissions are deferred and are recognized in the statement of income in proportion to the recognition of the revenues with premiums, that is, for the term corresponding to the insurance contract.

III. Technical reserves of insurance and supplementary pension plan:

The technical provisions of insurance and supplementary pension plan reserves presented below are recorded

based on technical actuarial notes,and correspond to actual insurance contracts at 12.31.2012::

a. Insurance:

− 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;

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

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

b. Supplementary pension plan:

− 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;

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

− 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.

IV. Calculation of insurance, reinsurance and supplementary pension plan 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 in the statement of income over

the course of the policy risk period by establishing an unearned premium reserve, and deferred 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 Compulsory Automobile Insurance for Personal

Damages (DPVAT) are recognized based on the information received from Seguradora Líder dos Consórcios do

Seguro DPVAT S.A.

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V. Liability adequacy test

In compliance with IFRS 4 - Insurance contracts, Safra prepares a Liability Adequacy Test (LAT) every six

months. The purpose of such test is to verify if the recognized insurance liabilities are adequate, using current

estimates of future cash flows according to their insurance contracts.

If the carrying amount of insurance liabilities, net of deferred acquisition costs and related intangible assets, is

lower than the estimated future cash flows, all the deficiency is recognized in profit or loss.

p) Contingent assets and liabilities, provisions and legal, tax and social security obligations

The recognition, measurement and disclosure of contingent assets and liabilities and legal obligations are made as

follows:

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. Provisions and 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 as a contingent liability, it should not be recognized but 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) Employee benefits

I. Short- and long-term benefits

Short-term benefits are those payable within twelve months. The benefits included in this category are salaries,

contributions to the National Institute of Social Security, short leaves of absence, profit sharing and non-

monetary benefits.

Safra does not have long-term benefits for employment contract termination other those established by the

category's union or share-based compensation for its key personnel and employees. Additionally, Safra has no

stock-based compensation to its employees and key personnel.

II. Termination benefits

Termination benefits are payable when the employment contract is terminated before the normal retirement

date.

Safra provides healthcare to its employees, as established by the category's union, as a form of termination

benefit.

III. Profit sharing

Safra recognizes a provision for payment and a profit sharing expense (presented in the account "Personnel

19

expenses" in the consolidated statement of income) based on a calculation that considers the profit after certain

adjustments. Safra recognizes a provision where contractually obliged or where there is a past practice that has

created a constructive obligation.

r) Income tax and social contribution - current and deferred

Tax expenses comprise current and deferred income tax and social contribution. Income tax and social contribution

are recognized in the consolidated statement of income, except to the extent that they relate to items recognized

directly in equity.

The provision for income tax is calculated at the rate of 15% of the taxable profit, plus a 10% surcharge on amounts

exceeding certain limits, and includes tax incentives, whose option is formalized in the income tax return. The social

contribution on net income (CSLL) is calculated at the rate of 15% of the taxable profit for financial institutions and

insurance and pension plan companies and 9% for other companies.

Income tax and social contribution arising from differences between the tax basis of assets and liabilities and their

carrying amounts are deferred.

The main temporary differences arise from the fair value measurement of certain financial assets and liabilities,

including derivative contracts, provision for contingencies and provision for impairment of financial assets.

Deferred income tax and social contribution are recognized when it is probable that future taxable profits will be

available.

Income tax and social contribution related to tax losses available for offset against profits of future years are

recognized as an asset when it is probable that future taxable profits will be available.

Income tax and social contribution related to fair value adjustments of available-for-sale financial assets are recognized

against the related adjustment in equity, and are subsequently recognized in profit or loss based on the realization of

gains and losses on the respective financial assets.

s) Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to Safra's stockholders by the weighted

average number of outstanding common shares during the year, excluding common shares purchased by Safra and

held as treasury shares.

Diluted earnings per share does not differ from basic earnings per share since there are no shares with right to

dilution.

t) Equity

I. Dividends and interest on capital

The distribution of dividends to Safra's stockholders is recognized as a liability in the Bank's financial statements

at year-end based on the bylaws, for the minimum mandatory dividend established therein. Any amount that

exceeds the minimum required is only provided on the date it is approved by the stockholders at the General

Meeting. The basis of calculation of dividends is the result recorded by Brazilian standards legislated by the

Central Bank of Brazil.

Interest on capital is treated, for accounting purposes, as dividends and is presented in the consolidated

financial statements as a reduction of equity. The related tax benefit is recorded in the consolidated statement

of income.

II. Undistributed profits and realized reserves

The revenue reserve is recognized based on the undistributed profit after all legal allocations, remaining its

accumulated balance at the disposal of the stockholders for future approval at the General Meeting.

The bylaws establish the allocation of profits, at June 30 and December 31 of each year, after the deductions and legal provisions. Five percent (5%) of the profit for the year is allocated to the legal reserve, and such allocation ceases to be mandatory as soon as the reserve reaches 20% of the capital or 30% of the total capital and legal reserves.

III. Unrealized profit reserve

The unrealized profit reserve comprises the adjustments determined in the preparation of the financial statements under IFRS recognized in profit or loss, in accordance with the IFRS.

u) Managed investment funds

20

The investment funds managed by Safra, except for the consolidated exclusive funds, are not presented in the balance

sheet since the related assets are owned by third parties and Safra acts only as a management agent. The fees and

commissions earned during the year for services rendered to these funds (asset management and custody services)

are recognized under "Income from fees and commissions" in the consolidated statement of income.

v) Business reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating

decision-maker. The chief operating decision-maker, responsible for allocating resources and assessing performance of

the operating segments, is the Executive Committee that makes Safra's strategic decisions.

Income and expenses related to each segment are considered in the assessment of the business segment's

performance.

Under IFRS 8, Safra has the following business segments: (i) Commercial bank; (ii) Consumer financing; (iii)

Insurance, asset, investment bank and other and (iv) Corporation.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The consolidated financial statements are influenced by Safra's accounting policies, assumptions, estimates and judgment.

The estimates and assumptions that impact the accounting information are consistently applied over the years. Any

changes in the accounting estimates are prospectively applied.

The estimates and assumptions used are those that Safra consider the best estimates and assumptions available and are in

accordance with the applicable accounting standards. Estimates and judgments are continually evaluated by Safra, based

on past experiences, new evidences and other factors, including expectations concerning future events.

a) Impairment losses (net of recoveries) on financial assets

The preparation of financial statements requires Safra to make estimates and assumptions that, in its best judgment, affect the amounts of the provision for impairment of financial assets - Note 3 (h-l).

Safra performed a simulation of the sensitivity of the provision for impairment losses to an increase in the credit default levels. In this year, we considered that the hypothetical impact of a 10% increase in the default levels at 12.31.2012 on our loan portfolio would lead to a 0.7% increase in the amount of the required provision. This simulation involves a series of assumptions and is for merely illustrative purposes.

b) Fair value of financial instruments

The financial instruments carried at fair value in the balance sheet include mainly financial assets and liabilities trading securities, including derivatives, credit and leasing operations designated at fair value on initial recognition, other financial assets and liabilities designated at fair value and available-for-sale financial assets. Financial assets classified as held-to-maturity, credit operations and other financial assets in the category of loans and receivables and financial liabilities not measured at fair value are recorded in the balance sheet at amortized cost, and their corresponding fair value are disclosed in the notes to the consolidated financial statements.

The fair value of financial instruments is determined based on the price that would be received to sell an asset or paid to transfer a liability in an arm's length transaction conducted between independent participants at the measurement date. 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 similar assets or liabilities (Level 2), identical assets or liabilities in illiquid markets and unobservable market data that reflect Safra's premises when pricing an asset or liability (Level 3). The bank 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, Safra's decision should be considered to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the actual amount of credit, liquidity constraints and unobservable inputs 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 and/or settlement date.

21

c) Impairment loss on available-for-sale financial assets - Note 3(h-l)

Safra determines an assessment for available-for-sale financial assets so that at their subsequent measurement this results in a significant or prolonged decline in the asset's fair value.

The determination of "significant" or "prolonged" requires judgment. In order to reach this judgment Safra assesses, among other factors, the historical variation of the price of shares and securities. Additionally, the objective evidence of impairment loss can be appropriate when there is evidence of deterioration in the issuer's financial health, in the industry's and sector's performance, in technology changes, and in operating and financial cash flows.

Even if all declines in the fair value below cost had been considered significant or prolonged, there would be no material effect on the financial statements at 12.31.2012 and 2011.

d) Provision for contingencies

The provision for contingencies is recognized when, based on Safra's and the legal advisors' opinion, the risk of loss in a judicial or administrative proceeding is considerable probable, with a probable outflow of resources to settle the obligations and when the amounts involved are reliably measurable. The amount under litigation is quantified, accrued and adjusted on a monthly basis.

The amounts of the possible settlement of financial assets and liabilities may differ from those estimates; we point out that in certain cases there are judicial deposits - Note 15(b).

e) Deferred income tax and social contribution

Deferred tax assets are recognized when there is a strong expectation of using them through the generation of taxable profits, as shown in Note 17(b-III). Such expectation is based on studies that involve Management's judgment as to the projected generation of future profits and other variables.

f) Insurance and pension plan technical reserves

Technical reserves are liabilities arising from Safra's obligations to its policyholders and participants. These obligations may have a short duration (damage insurance) or medium or long duration (insurance and pension plan).

The determination of the actuarial liability depends on innumerable uncertainties inherent to the coverage of the insurance and pension plan contracts, such as assumptions of persistency, mortality, disability, longevity, morbidity, expenses, frequency of claims, severity, conversion into income, redemptions and profitability on assets.

The estimates of these assumptions are based on Safra's historical experience, benchmarks and the actuary's experience and seek convergence with the best market practices and aim at the continuous review of the actuarial liability. Adjustments resulting from these continuous improvements, when necessary, are recognized in profit or loss of the respective period - Note 12(a).

5 CASH AND CASH EQUIVALENTS

12.31.2012 12.31.2011

Cash 411,090 380,224

Interbank investments 5,444,373 9,031,359

Open market investments - own portfolio 4,313,444 8,001,218

Interbank deposits 281,144 291,404

Foreign currency investments 849,785 738,737

Total 5,855,463 9,411,583

22

6 INTERBANK INVESTMENTS

Refer to short-term investments, classified in the category of financial assets - loans and receivables and measured at amortized cost:

12.31.2012 12.31.2011

Amounts by maturity

Up to 90 days

From 91 to

365 days

Over 365

days Total Total

Open market investments 3,786,162 15,019,669 - 18,805,831 18,221,403

Own portfolio - National Treasury 399,533 3,913,911 - 4,313,444 8,001,218

Third-party portfolio - National Treasury (1) 3,386,629 8,860,328 - 12,246,957 10,220,185

Short position - National Treasury (1) - 2,245,430 - 2,245,430 -

Interbank deposits (2) 631,732 340,397 1,290,850 2,262,979 2,684,660

Foreign currency investments 849,785 - - 849,785 738,737

Total at 12.31.2012 5,267,679 15,360,066 1,290,850 21,918,595 21,644,800

Total at 12.31.2011 19,533,609 867,750 1,243,441 21,644,800

(1) Backing for open market funding – Note 10(a-II) (2) R$ 401,000 at 12.31.2012 and R$ 570,000 at 12.31.2011 of this amount relate to operations between non-related financial institutions, which are held as guarantees against certain compulsory payments-on-account.

7 RESERVES AT BRAZILIAN CENTRAL BANK

Reserves at Brazilian Central Bank refer to compulsory payments. The yields on interest-bearing funds are presented in Note 14(a).

12.31.2012 12.31.2011

Non-interest bearing 255,131 232,190

Interest-bearing 923,161 5,157,705

Total 1,178,292 5,389,895

The interest-bearing reserves at the Brazilian Central Bank suffered a reduction during 2012 to reflect Safra´s funding portfolio profile change (Note 10) and compulsory regulation changes made by the Brazilian Central Bank.

23

8 FINANCIAL ASSETS AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS/LIABILITIES)

a) Portfolio classification - Trading, available-for-sale and held-to-maturity securities

12.31.2012 12.31.2011

Cost

Mark-to-

market

Market

value

No stated

maturity

Up to 90

days

From 91 to

365 days

Over 365

days

Market

value

Trading securities 15,478,500 50,312 15,528,812 315,543 2,199,329 5,000,021 8,013,919 4,827,695

National Treasury 14,481,191 50,666 14,531,857 63,715 1,990,468 4,564,365 7,913,309 3,923,584 National Treasury Bills 10,273,498 5,618 10,279,116 - 1,989,438 3,881,863 4,407,815 488,246 National Treasury Notes 3,037,685 45,052 3,082,737 - - 678,062 2,404,675 2,500,162 Financial Treasury Bills 1,106,293 (4) 1,106,289 - 1,030 4,440 1,100,819 876,238 Quotas of investment funds - DPVAT - Government securities 63,715 - 63,715 63,715 - - - 58,938 Private securities 851,652 (354) 851,298 106,190 208,842 435,656 100,610 837,359 Debentures 57,970 57,970 55,798 2,172 104,658 Shares 99,021 (354) 98,667 98,667 - - - 108,995 Bank deposit certificate 376,044 - 376,044 - 132,154 173,422 70,468 424,297 Financial bills 304,586 - 304,586 70,180 206,436 27,970 176,313 Quotas of credit rights funds 6,286 - 6,286 6,286 - - - 17,630 Other 7,745 - 7,745 1,237 6,508 - - 5,466 Securities issued abroad 145,657 - 145,657 145,638 19 - - 66,122 Shares 145,638 - 145,638 145,638 - - - 66,122 Eurobonds 19 - 19 - 19 - - - Available-for-sale securities 16,905,661 709,810 17,615,471 208,198 28,924 297,474 17,080,876 2,991,870 National Treasury 15,074,720 738,885 15,813,605 - - 263,686 15,549,919 595,232 National Treasury Bills 7,626,027 163,689 7,789,716 - - - 7,789,716 33,047 National Treasury Notes 7,448,693 575,196 8,023,889 - - 263,686 7,760,203 562,185 Private securities 1,765,548 (29,564) 1,735,984 208,198 28,924 33,788 1,465,074 1,923,014 Debentures 817,229 - 817,229 - 24,403 13,523 779,303 1,027,564 Certificates of real estate receivables (CRI) 8,400 - 8,400 - - - 8,400 160,957 Shares 237,762 (29,564) 208,198 208,198 - - - 363,725 Bank deposit certificate 579,962 - 579,962 - 4,521 20,265 555,176 370,768 Financial bills 122,195 - 122,195 - - - 122,195 - Securities issued abroad 65,393 489 65,882 - - - 65,882 473,624 Eurobonds 65,393 489 65,882 - - - 65,882 35,889 Bank deposit certificate - - - - - - - 437,735 Held-to-maturity securities (1) 118,282 - 118,282 - 20,427 15,179 82,676 356,848 National Treasury 82,676 - 82,676 - - - 82,676 - Private securities 35,606 - 35,606 - 20,427 15,179 - 282,471 Debentures - - - - - - - 16,787

Promissory Notes 35,606 - 35,606 - 20,427 15,179 - 265,684 Securities issued abroad - Bank deposit certificate - - - - - - - 74,377

Total at 12.31.2012 32,502,443 760,122 33,262,565 523,741 2,248,680 5,312,674 25,177,470 8,176,413

Total at 12.31.2011 8,178,934 (2,521) 8,176,413 606,013 567,960 3,210,597 3,791,842

Trading securities 4,820,312 7,383 4,827,695 242,288 61,991 2,820,895 1,702,520

Available-for-sale securities 3,001,774 (9,904) 2,991,870 363,725 489,182 49,641 2,089,322

Held-to-maturity securities 356,848 - 356,848 - 16,787 340,061 -

(1) Securities classified as held-to-maturity, are valued at market values, would present a positive adjustmenton 12.31.2012 in the amount of R$ 3,379.

24

b) Breakdown of the portfolio of financial assets by associated asset

12.31.2012 12.31.2011

Own

Portfolio

Related to

repurchase

commitments –

Note 10(a-II)

Related to

Central

Bank

Related to

render of

warranties (1)

Securities pledge in

guarantee of technical

reserves – Note 12(b)

Total

Total

National Treasury 9,040,083 17,801,680 278,839 1,089,326 2,218,210 30,428,138 4,518,816 National treasury bills 5,122,225 12,497,731 69,873 211,553 250,126 18,151,508 521,293 National treasury notes 3,895,552 5,303,949 208,966 877,326 820,833 11,106,626 3,062,347 Financial treasury bills 22,306 - - 447 1,083,536 1,106,289 876,238 Quotas of investment funds – DPVAT –

Government Securities - - - - 63,715 63,715 58,938

Private securities 1,790,509 - - - 832,379 2,622,888 3,043,474 Debentures 817,229 - - - 57,970 875,199 1,149,009 Shares 227,020 - - - 79,845 306,865 472,720 Bank deposit certificate 579,962 - - - 376,044 956,006 795,695 Promissory Notes 35,606 - - - - 35,606 265,684 Financial bills 122,195 - - - 304,586 426,781 176,313 Quotas of credit right funds - - - - 6,286 6,286 17,630 Certificates of real estate receivables (CRI) 8,400 - - - - 8,400 160,957 Other 97 - - - 7,648 7,745 5,466 Securities issued abroad 211,539 - - - - 211,539 614,123 Shares 145,638 - - - - 145,638 66,122 Eurobonds 65,901 - - - - 65,901 35,889 Bank deposit certificate - - - - - - 512,112 Total at 12.31.2012 11,042,131 17,801,680 278,839 1,089,326 3,050,589 33,262,565 8,176,413

Total at 12.31.2011 4,774,027 - 188,582 707,212 2,506,592 8,176,413

(1) Refer to warranties of financial derivative instruments operations traded in the stock market in the amount of R$ 975,190 (R$ 533,365 at 12.31.2011), traded in the settlement and custodian chamber in the amount of R$ 87,904 (R$ 92,299 at 12.31.2011) and civil and labor recourses in the amount of R$ 38,303 (R$ 49,127 at 12.31.2011) – Note 15(d-I).

25

c) Changes in financial assets

AVAILABLE-FOR-SALE HELD-TO-MATURITY

1.1. to 12.31.2012 1.1. to 12.31.2011 1.1. to 12.31.2012 1.1. to 12.31.2011

Balance at the beginning of the period 2,991,870 2,873,121 356,848 40,416

Changes in non-controlling interests/Capital decrease (6,410) (6,670) 6,811 -

Acquisition in the period 18,649,903 59,928 438,257 324,813

Sales in the period (2,513,017) (64,010) - -

Interest income and redemptions, and dividends (3,383,044) (273,442) (714,249) (46,459)

Result 1,156,455 530,040 30,615 38,078

Dividends income 36,321 59,320 -

Profit on sale – Note 14(d) 64,837 34,766 - -

Interest Income – Note 14(a) 1,055,297 435,954 30,615 38,078

Adjustments in changes in fair value – Note 20(d) 719,714 (127,097) - -

Balance at the end of the period 17,615,471 2,991,870 118,282 356,848

Safra has not made reclassifications between categories of financial assets in the years presented in these financial statements.

d) Developments and market value adjustment:

1.1 to

12.31.2012

1.1 to

12.31.2011

Opening balance - Mark-to-market adjustment 5,397 (21,431)

Trading securities 7,383 (2,105)

Available-for-sale securities (9,904) 117,193

Derivative financial instruments (assets and liabilities) 7,918 (136,519)

Activity affecting: 740,737 26,828

Statement of income 21,023 153,925

Trading securities – Note 14(c) 42,929 9,488

Derivative financial instruments (assets and liabilities) – Note 14(f) (21,906) 144,437

Equity - Available-for-sale – Note 20(d) 719,714 (127,097)

Closing balance - Mark-to-market adjustment 746,134 5,397

Trading securities 50,312 7,383

Available-for-sale securities 709,810 (9,904)

Derivative financial instruments (assets and liabilities) (13,988) 7,918

26

e) Derivative financial instruments (assets/liabilities)

The use of derivative financial instruments by Banco Safra and its subsidiaries has as its main objectives:

I - to provide to its customers structured fixed income products that hedge their assets against risks, substantially, from currency and interest rate fluctuations, and

II - neutralize the risks taken by Safra for the following operations (economic hedges):

- Loans and borrowings contracted at fixed rates and other borrowings (Note 11), and

- Investment abroad - together with interbank transactions for future settlement (Note 13(a)), the foreign currency derivatives are employed to minimize the effects on income in the foreign exchange variation of investing abroad. These derivatives are contracted with superior value to include their tax effects - "over hedge."

Thus, the reference values of the contracts shown below, taken alone, does not reflect the actual risk assumed by Safra. The interest of structured fixed income were recognized in "Interest expense", depending on the nature of these operations. The other results on derivatives and foreign exchange variation of investments abroad and foreign exchange operations for interbank futures were recognized under "Net income from derivative financial instruments" in the consolidated income statement. The tax effects on the "over hedge" on investment abroad are recognized under "Deferred income and social contribution" in the consolidated income statement.

27

I. Asset and liability accounts

12.31.2012 12.31.2011

Cost Mark-to-market Market value Up to 90 From 91 to 365 Over 365 days Market value

Non Deliverable Forward - NDF 71,834 - 71,834 25,186 46,648 - 61,788

Option premiums 1,358 155 1,513 1,372 7 134 3,883

Forward - Purchases receivable - Shares 2,506 35 2,541 2,541 - - 1,292

Swap - amounts receivable 376,912 20,561 397,473 181,059 22,733 193,681 335,152

Interest rate 20,255 2,955 23,210 1,624 2,603 18,983 39,920 Foreign currency 336,870 29,912 366,782 176,892 18,274 171,616 295,232 Commodities 11,943 (6021) 5,922 2,474 1,470 1,978 - Shares 7,844 (6,285) 1,559 69 386 1,104 - Credit default swaps - CDS 19,684 - 19,684 10,843 8,841 - 16,080

Futures 3,195 - 3,195 3,195 - - -

Total assets at 12.31.2012 475,489 20,751 496,240 224,196 78,229 193,815 418,195

Total assets at 12.31.2011 378,579 39,616 418,195 40,125 21,002 357,068 418,195

Non Deliverable Forward - NDF (4,523) - (4,523) (1,813) (2,710) - (1,065) Option premiums (1) (3,005,764) 46,142 (2,959,622) (729,339) (1,577,583) (652,700) (2,493,167)

Bovespa Index (137) (20) (157) (143) (14) - 144 Foreign currency (3,004,670) 46,162 (2,958,508) (728,239) (1,577,569) (652,700) (2,493,311) Shares (957) - (957) (957) - - -

Swap - amounts payable (1) (846,965) (80,881) (927,846) (201,462) (499,245) (227,139) (767,302)

Interest rate (206,877) (67,504) (274,381) (68,884) (129,737) (75,760) (77,256) Foreign currency (380,860) (23,053) (403,913) (18,178) (289,684) (96,051) (307,510) Bovespa Index (8,788) (16) (8,804) (8,654) (150) - (40,252) Commodities (148,130) 1,313 (146,817) (95,575) (49,329) (1,913) (308,430) Shares (82,909) 3,928 (78,981) (10,171) (30,345) (38,465) (33,854) Other (19,401) 4,451 (14,950) - - (14,950) -

Credit default swaps (CDS) (11,711) - (11,711) (6,334) - (5,377) (7,618)

Futures (21,420) - (21,420) (3,612) (17,808) - (2,240)

Total liabilities at 12.31.2012 (3,890,383) (34,739) (3,925,122) (942,560) (2,097,346) (885,216) (3,271,392)

Total liabilities at 12.31.2011 (3,239,694) (31,698) (3,271,392) (880,142) (1,951,703) (439,547) (3,271,392)

(1) Includes premiums of structured fixed income transactions in the amount of R$ 3,489,278 (R$ 2,901,330 at 12.31.2011), and the interest related to these operations is recorded under "Interest

expenses" in the statement of income – Note 14(b).

28

II. Composition by notional value:

Locations 12.31.2012 12.31.2011

Non Deliverable Forward - NDF 1,784,424 1,026,236

Bought CETIP 1,230,093 1,017,845

Sold CETIP 554,331 8,391

Option premiums (1) 30,372,038 23,731,793

Bought 107,907 386,487

Interbank deposit - DI CETIP 19,401 -

Foreign currency BM&FBOVESPA 2,089 375,160

Other BM&FBOVESPA 86,417 11,327

Sold 30,264,131 23,345,306

Foreign currency CETIP 30,166,941 23,333,478

Shares BM&FBOVESPA 88,911

Index BM&FBOVESPA 8,279 11,828

Forward 2,547 446,425

Sale receivables - Shares BM&FBOVESPA 2,547 1,413

Liability for shares to deliver BM&FBOVESPA - 445,012

Swaps (1) 11,635,312 9,044,558

Interest rate BM&FBOVESPA 527,013 478,500

Asset 165,500 151,000

Liability 361,513 327,500

Interest rate CETIP 3,652,241 4,156,079

Asset 351,028 766,701

Liability 3,301,213 3,389,378

Foreign currency CETIP 5,765,030 2,206,065

Asset 3,140,988 1,390,562

Liability 2,624,042 815,503

Commodities CETIP 1,035,802 1,763,148

Asset 246,539 276,084

Liability 789,263 1,487,064

Shares CETIP 528,842 241,065

Asset 99,992 59,599

Liability 428,850 181,466

Other - Liability CETIP 126,384 199,701

Futures 32,037,218 25,431,288

Long positions 7,146,289 2,766,698

Interest rate BM&FBOVESPA 4,797,132 684,380

Currency coupon BM&FBOVESPA 1,995,939 2,009,304

Shares BM&FBOVESPA 18,573


Index BM&FBOVESPA 59,177 -

Commodities BM&FBOVESPA 39,509

Short positions 24,890,929 22,664,590

Interest rate BM&FBOVESPA 21,080,988 19,054,912


Currency coupon BM&FBOVESPA 3,425,613 3,492,670

Index BM&FBOVESPA 62,819 50,272

Commodities BM&FBOVESPA 38,498 -

Credit default swaps (CDS) Over-the-counter 423,587 232,205

Total 76,255,126 59,912,505

(1) R$ 33,284,197 (R$ 25,221,027 at 12.31.2011) refers to structured fixed income operations.

III. Locations:

12.31.2012 12.31.2011

Locations

Up to 90

days

From 91 to 365

days Over 365 days Notional amount Notional amount

CETIP 11,592,237 21,621,961 9,864,867 43,079,065 32,925,772 BM&FBOVESPA 4,252,482 8,806,266 19,693,726 32,752,474 26,754,528

Over-the-counter 423,587 - - 423,587 232,205

TOTAL 16,268,306 30,428,227 29,558,593 76,255,126 59,912,505

29

IV. Credit default 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:

12.31.2012 12.31.2011

Risks transferred (1) (423,587) (232,205)

Credit swap whose underlying assets are:

Securities (423,587) (232,205)

Risks received (1) 423,587 232,205

Credit swap whose underlying assets are:

Securities 423,587 232,205

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.

30

9 CREDIT OPERATIONS

a) Breakdown of the portfolio

12.31.2012 12.31.2011

Designated at Designated at

Amortized cost

Fair value (Note 11)

Total

Amortized cost

Fair value (Note 11)

Total

Borrowings, discounted receivables and portfolios acquired 10,483,374 12,196,008 22,679,382 10,491,626 9,982,782 20,474,408 Financing 7,053,222 363,469 7,416,691 7,063,758 284,425 7,348,183 Rural and agro-industrial financing 56,329 698,556 754,885 131,602 642,262 773,864 Housing loans 702,097 27,741 729,838 565,598 30,814 596,412 Advances on foreign exchange contracts 1,446,508 - 1,446,508 1,226,189 - 1,226,189 Onlendings BNDES/FINAME 8,547,218 - 8,547,218 8,172,582 - 8,172,582 Direct consumer credit and leases 75,579 7,336,365 7,411,944 214,881 8,665,671 8,880,552

Direct consumer credit - 7,031,486 7,031,486 - 7,639,237 7,639,237 Leasing operations 75,579 304,879 380,458 214,881 1,026,434 1,241,315

Other receivables 133,720 946 134,666 179,334 491,403 670,737

Total transactions with credit characteristics 28,498,047 20,623,085 49,121,132 28,045,570 20,097,357 48,142,927

Past due 441,886 1,248,959 1,690,845 379,211 1,031,340 1,410,551 Normal course 28,056,161 19,374,126 47,430,287 27,666,359 19,066,017 46,732,376 Garanties and sureties - - 8,410,541 - - 8,767,100 Total with guaranties and sureties 28,498,047 20,623,085 57,531,673 28,045,570 20,097,357 56,910,027

Impairment (409,257) - (409,257) (292,324) - (292,324) Fair value adjustment (Note 11.a) - (762,826) (762,826) - (497,878) (497,878)

Credit risk - (998,494) (998,494) - (656,353) (656,353) Market risk - 235,668 235,668 - 158,475 158,475

Total 28,088,790 19,860,259 47,949,049 27,753,246 19,599,479 47,352,725

The changes in market conditions, which originate the fair value adjustment, include changes in observable interest rates, commodity prices, exchange rates or price indexes, as

described in Note 22(a).

31

b) Impairment losses on credit operations I) Portfolio breakdown

12.31.2012 12.31.2011

Credit Portfolio

Past due Normal Total Impairment

Fair value adjustments

Total

Borrowings, discounted receivables and portfolios acquired 781,468 21,897,914 22,679,382 224,715 684,617 909,332

Loans 5,843 7,410,848 7,416,691 956 960 1,916

Rural and agro-industrial financing 877 754,008 754,885 33 1,251 1,284

Housing loans 5,554 724,284 729,838 4,166 96 4,262

Advances on foreign exchange contracts 6,340 1,440,168 1,446,508 2,405 - 2,405

Onlendings BNDES/FINAME 239,979 8,307,239 8,547,218 175,050 - 175,050

Direct credit consumer and leases 649,839 6,762,105 7,411,944 1,932 311,023 312,955

Direct consumer credit 589,191 6,442,295 7,031,486 - 274,256 274,256

Leasing operations 60,648 319,810 380,458 1,932 36,767 38,699

Other Credits 946 133,720 134,666 - 547 547

Total at 12.31.2012 1,690,845 47,430,286 49,121,132 409,257 998,494 1,407,751

Total at 12.31.2011 1,410,551 46,732,376 48,142,927 292,324 656,353 948,677

II) Changes

01.01 to 12.31.2012

Total

Establishment/ (Reversion)

Write-Off

Total

Borrowings, discounted receivables and portfolios acquired 160.508 118.822 (54.615) 224.715

Rural and agro-industrial financing and housing loans 3.683 6.056 (4.584) 5.155

Advances on foreign exchange contracts 1.718 687 - 2.405

Onlendings BNDES/FINAME 125.035 90.499 (40.484) 175.050

Leasing Operations 1.380 2.480 (1.928) 1.932

Amortized cost subtotal 292.324 218.544 (101.611) 409.257 Borrowings, discounted receivables and portfólios acquired 450.028 580.011 (345.422) 684.617

Rural and agro-industrial financing and housing loans 1.517 1.438 (648) 2.307

Direct consumer credit and leases 204.449 385.787 (279.213) 311.023

Direct consumer credit 180.280 309.376 (215.400) 274.256

Leasing operations 24.169 76.411 (63.813) 36.767

Other credits 359 2.022 (1.834) 547

Fair value subtotal 656.353 969.258 (627.117) 998.494

Total 948.677 1.187.802 (728.728) 1.407.751

01.01 to 12.31.2011

Amortized cost 294.449 96.933 (99.058) 292.324

Fair value 507.601 452.710 (303.958) 656.353

Total 802.050 549.643 (403.016) 948.677

c) Renegociated loans

The balance of renegotiated loans in the year amounted to R$ 513,933 (R$ 290,371 in 2011), of which the provision

amounted to R$ 372,439 (R$ 172,770 in 2011).

Loans recoveries in the year amounted to R$ 121,412 (R$ 1,069,650 at 2011). The balance of 2011 refers

substancially to court approval of the agreement signed between Banco Safra S.A. and Whirlpool S.A. at 07.08.2011

to end the lawsuit filed against Banco Safra since 2001, in the amount of R$ 958,534.

32

d) Distribution of operations by maturity

12.31.2012 12.31.2011

Designated at Designated at

Amortized cost

Fair value

Total

Amortized cost

Fair value

Total

PAST DUE 441,886 1,248,959 1,690,845 379,211 1,031,340 1,410,551

Past due operations in days

15 to 30 35,803 264,842 300,645 200,223 232,434 432,657

31 to 60 113,163 288,296 401,459 72,940 229,920 302,860

61 to 90 67,134 154,720 221,854 56,925 117,534 174,459

91 to 180 98,503 268,552 367,055 41,931 212,132 254,063

181 to 365 127,283 272,549 399,832 7,192 239,320 246,512

NORMAL COURSE 28,056,161 19,374,126 47,430,287 27,666,359 19,066,017 46,732,376

Installments overdue in days:

Overdue up to 14 31,707 126,093 157,800 15,360 113,932 129,292

Outstanding installments in days:

01 to 30 2,716,849 4,092,619 6,809,468 3,251,790 3,990,810 7,242,600

31 to 60 2,584,601 2,421,557 5,006,158 2,783,442 2,450,823 5,234,265

61 to 90 1,917,716 1,615,735 3,533,451 1,962,043 1,661,706 3,623,749

91 to 180 4,396,233 3,244,159 7,640,392 3,831,526 2,754,689 6,586,215

181 to 365 3,844,145 3,180,593 7,024,738 4,099,398 2,991,074 7,090,472

Over 365 12,564,910 4,693,370 17,258,280 11,722,800 5,102,983 16,825,783

TOTAL 28,498,047 20,623,085 49,121,132 28,045,570 20,097,357 48,142,927

The balance of operations that are over 90 days past due R$ 766,886 (R$ 500,575 at 12.31.2011), include non-current operations (“Non-Accrual”).

e) Credit portfolio by activity

12.31.2012 12.31.2011

Total Total

Private sector

Industry 12,628,164 13,064,383

Commerce 13,100,059 11,999,889

Financial institutions 1,118,713 781,050

Other services 15,462,505 14,801,900

Individuals 5,613,466 6,413,888

Rural/Housing 1,198,225 1,081,817

Total 49,121,132 48,142,927

33

f) Concentration of credit

12.31.2012 12.31.2011

10 major customers 4,599,212 4,752,186

40 major customers 6,225,456 6,637,776

50 major customers 3,574,037 5,138,775

Subtotal 100 major customers 14,398,705 16,528,737

Other customers 34,722,427 31,614,190

Total 49,121,132 48,142,927

g) Credit commitments (off-balance)

The off-balance amounts referring to financial guarantee contracts are as follows:

12.31.2012 12.31.2011 Guarantees, sureties and other guarantees provided (1) 8,410,541 8,767,100

Credit limits committed (2) 5,327,261 5,259,254

Total 13,737,802 14,026,354

Contractual term:

Falling due in up to 90 days 5,816,984 6,096,861

Falling due from 91 to 365 days 1,511,101 2,543,445

Falling due after 365 days 6,409,717 5,386,048

(1) Refer to liabilities for guarantees, sureties and other guarantees provided.

(2) Refer to credit limits granted and not used, characterized by the cancellation option by Safra, with the average term of

90 days.

h) Present value of finance lease operations

The table below shows the analysis of the present value of future minimum payments receivable from finance leases:

12.31.2012

Future minimum

payments Unearned income

Present value

Current 224,173 (8,428) 215,745 Non-current 346,286 (42,289) 303,997

Total 570,459 (50,717) 519,742

12.31.2011

Future minimum

payments Unearned income

Present value

Current 523,914 (79,604) 444,310 Non-current 1,437,282 (317,515) 1,119,767

Total 1,961,196 (397,119) 1,564,077

34

10 FINANCIAL LIABILITIES AND MANAGED FUNDS

12.31.2012 12.31.2011

Amortized cost Fair value (1) Total Amortized cost Fair value (1) Total

Deposits 7,596,778 267,974 7,864,752 12,817,832 210,889 13,028,721

Open market funding - own securities 12,302,820 - 12,302,820 16,134,094 557,514 16,691,608

Funds from acceptance and issuance of securities 13,149,987 833,851 13,983,838 6,277,202 890,088 7,167,290

Structured fixed income transactions - Note 8(e-I) 3,489,278 - 3,489,278 2,901,330 - 2,901,330

Supplementary pension plans – Note 12(c-I) 2,893,777 - 2,893,777 2,367,208 - 2,367,208

Resources from customers 39,432,640 1,101,825 40,534,465 40,497,666 1,658,491 42,156,157

Interbank deposits 3,533,600 560,425 4,094,025 3,391,394 80,584 3,471,978

Open market funding 31,925,576 - 31,925,576 10,017,169 10,017,169

Funds from acceptance and issuance of securities abroad 939,181 107 2,823,288 1,270,623 1,730,617 3,001,240

Subordinated debt 1,450,076 1,207,189 2,657,265 1,045,207 1,075,220 2,120,427

Market resources 37,848,433 3,651,721 41,500,154 15,724,393 2,886,421 18,610,814

Borrowings and onlendings 12,345,854 - 12,345,854 13,050,429 13,050,429

Total funds raised 86,626,927 4,753,546 94,380,473 69,272,488 4,544,912 73,817,400

Managed funds – Note 10(c) 32,287,568 42,718,420

Total funds under management 126,668,041 116,535,820

(1) The adjustment to market value of transactions designated at fair value segregated by maturity is shown in Note 10(b).

35

a) Financial liabilities at amortized cost

I. Deposits

12.31.2012 12.31.2011

No maturity date

Up to 90 days

From 91 to 365 days

Over 365 days

Total

Total

Demand deposits 936,365 - - - 936,365 809,666

Savings deposits 1,346,916 - - - 1,346,916 1,207,831

Time deposits - 1,751,433 2,713,581 848,483 5,313,497 10,800,335

Total at 12.31.2012 2,283,281 1,751,433 2,713,581 848,483 7,596,778 12,817,832

Total at 12.31.2011 2,017,497 2,518,773 7,192,659 1,088,903 12,817,822

II. Deposits from financial institutions and open market funding

12.31.2011 12.31.2011

Up to

90 days

From 91 to 365 days

Over 365

days Total Total

Open market funding 33,526,011 8,655,084 2,037,302 44,228,397 26,151,263 Own issue 3,848,853 6,416,665 2,037,302 12,302,820 16,134,094

Open market operations 29,677,158 2,248,419 - 31,925,577 10,017,169

Own portfolio – Note 8(b) 17,600,223 - - 17,600,223 -

Third-party portfolio and unrestricted portfolio – Note 6 12,076,935 2,248,418 - 14,325,353 10,017,169

Interbank deposits 1,351,044 2,003,667 178,888 3,533,599 3,391,394

Total at 12.31.2012 34,877,055 10,668,751 2,216,190 47,761,996 29,542,657

Total at 12.31.2011 14,743,148 11,017,262 3,782,247 29,542,657

36

III. Borrowings and onlendings

12.31.2012 12.31.2011

Up to 90 days From 91 to 365 days

Over 365

days Total Total

Foreign borrowings 1,871,301 1,700,944 37,120 3,609,365 4,756,690 Transfer of financial assets 530 390 - 920 18,484 Lending of shares 138,478 - - 138,478 - Domestic onlendings 1,056,440 2,378,913 5,161,738 8,597,091 8,275,255

National Treasury 9,511 32,599 56,145 98,255 124,435

BNDES 137,398 320,188 762,347 1,219,933 1,373,372

FINAME 909,531 2,026,126 4,343,246 7,278,903 6,777,448

Total at 12.31.2012 3,066,749 4,080,247 5,198,858 12,345,854 13,050,429

Total at 12.31.2011 3,803,099 4,354,609 4,892,721 13,050,429

IV. Funds from acceptance and issuance of securities

12.31.2012 12.31.2011

Up to 90

days

From 91 to 365 days

Over 365 days Total Total

Funds from financial bills, bills of credit and similar notes 2,645,740 3,852,699 6,651,548 13,149,987 6,710,598

Financial bills 1,585,186 2,353,759 6,471,519 10,410,464 4,971,334

Agribusiness credit notes 931,887 1,036,029 64,950 2,032,866 1,436,985

Mortgage bills 64,678 68,714 797 134,189 168,571

House Loan Bills 63,989 394,197 43,173 501,359 41,351

Debentures - - 71,109 71,109 92,357

Funds from acceptance and issuance of securities abroad

-

409,043

530,138

939,181 1,270,623

Total at 12.31.2012 2,645,740 4,261,742 7,181,686 14,089,168 7,547,825

Total at 12.31.2011 726,469 2,307,373 4,513,983 7,547,825

37

V. Subordinated debt

(1) Breakdown of balance

Issue Maturity 12.31.2012 12.31.2011 Index

Bank Deposit Certificates (CDB) (1) (3) 2006 2016 698,767 699,278 106% of CDI

Financial bills (LF)

757,153 345,929

2010 2016 144,576 128,015

IPCA +interest of

7.19% to 7.7%

2010 (1) 2016 203,736 206,241 114% of CDI

2010 (2) 2020 13,244 11,673 IPCA + 7.27%

2012 2019 195,579 -

IPCA +interest of

4.99% to 6.28%

2012 2019 128,173 - 114% of CDI

2012 (4) 2019 51,699 - 114% of CDI

2012 (5) 2022 8,098 -

IPCA +interest of

3.89% to 10.92%

2012 (5) 2022 3,618 - 113% of CDI

2012 (5) 2022 2,586 -

IPCA +interest of

4.41% to 10.92%

Total 1,450,076 1,045,207

Fair Value Subtotal – Note 10(b) 1,207,189 1,075,220

Total 2,657,265 2,120,427

(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$ 1,430 (R$ 1,430 at 12.31.2011) 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.

(2) Changes

01.01 to 01.01 to

12.31.2012 12.31.2011

Total Total

Balance at the beginning of the period 2,120,428 1,027,905

Changes in foreign currency 91,084 129,451

Funding 364,965 821,272

Interest paid (147,133) (146,348)

Recorded in result 227,921 288,147

Interest – Note 14(b) 192,754 180,033

Fair value adjustments – Note 11(c) 35,167 108,114

Balance at the end of the period 2,657,265 2,120,427

b) Financial liabilities at fair value on initial recognition

12.31.2012 12.31.2011

Up to 90 days From 91 to 365 days

Over 365

days Total Total

Funds from acceptance and issuance of securities abroad

38,646 3,141 1,842,320 1,884,107 1,730,617

Subordinated term - Medium term notes (1) - - 1,207,189 1,207,189 1,075,220

Fixed rate operations 351,362 893,829 417,058 1,662,249 1,739,075

Deposits 72,723 148,316 46,935 267,974 210,889

Deposits from financial institutions and open market funding

48,510 494,903 17,012 560,425 638,098

Funds from acceptance and issuance of securities 230,129 250,610 353,111 833,850 890,088

Total at 12.31.2012 390,008 896,970 3,466,567 4,753,545 4,544,912

Total at 12.31.2011 240,775 819,595 3,484,542 4,544,912

(1) Debt issued in 2011, with maturity in 2021. Rate of US$ 6.75% with half yearly interest payments – Note 10(a-V(I)).

38

c) Managed funds The Safra Group is responsible for the management, administration and distribution of shares of investment funds,

including funds managed by JS Administração de Recursos S.A. (related party), as follows:

12.31.2012 12.31.2011 Financial investment funds 23,721,372 36,822,896

Other financial investment funds 8,566,196 5,895,524

Total funds under management (1) 32,287,568 42,718,420

Funds of Funds 19,103,437 16,790,952

Exclusive funds 3,669,672 595,294

Pension funds 2,890,088 2,367,270

Total shareholders' funds 57,950,765 62,471,936

(1) Includes financial investments in Banco Safra S.A. of R$ 4,090,314 (R$ 4,937,359 at 12.31.2011), basically represented by open market funding backed by government bonds.

Income from fund management, administration and share distribution fees, recorded in 'Income from services rendered',

totals R$ 212,436 (R$ 201,809 in 2011) - Note 14(g). When included revenue from related party the amount is R$ 409,260

(R$ 393,729 in 2011) - Note 23(c).

39

11 FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE ON INITIAL RECOGNITION

The market risk of credit operations and funding at fixed rates, which is the possibility of a financial loss arising from fluctuations in market interest rates, is measured using market

interest rates prevailing at the calculation base date, in order to discount the cash flows from operations to present value.

The credit risk of credit operations was measured based on management's best estimates to determine the portfolio value based on its credit loss level. For this, Safra used a

methodology that considers the default rates and the recovery of receivables.

Safra's credit risk was considered immaterial for purposes of calculating the credit risk of its funding at fixed rates (liabilities).

a) Breakdown of assets and liabilities

12.31.2012 12.31.2011

Fair value adjustment Fair value adjustment

Cost Credit Risk Market Risk Fair value Cost Credit Risk Market Risk Fair value

Net fixed rate portfolio 18,960,835 (998,494) 235,668 18,198,009 18,358,282 (656,353) 158,475 17,860,404

Credit operations 20,623,085 - - 20,623,085 20,097,357 - - 20,097,357

Funding operations – Note 10(b) (1,662,250) - - (1,662,250) (1,739,075) - - (1,739,075)

Deposits (267,974) - - (267,974) (210,889) - - (210,889)

Deposits from financial institutes and open market funding (560,425) - - (560,425) (638,098) - - (638,098)

Funds from acceptance and issuance of securities (833,851) - - (833,851) (890,088) - - (890,088)

Risk adjustment – Note 9(a) - (998,494) 235,668 (762,826) - (656,353) 158,475 (497,878)

Securities issued abroad – Note 10(b) (1,749,674) - (134,433) (1,884,107) (1,693,183) - (37,434) (1,730,617)

Medium Term Note (Reais) (833,445) - (90,426) (923,871) (827,818) - (35,562) (863,380)

Medium Term Note (U.S. dollar) (611,651) - (15,856) (627,507) (560,787) - 949 (559,838)

Medium Term Note (Reais) (304,578) - (28,151) (332,729) (304,578) - (2,821) (307,399)

Subordinated debt (Note 10(b-V)) (1,048,282) - (158,907) (1,207,189) (961,937) - (113,283) (1,075,220)

Total 16,162,879 (998,494) (57,672) 15,106,713 15,703,162 (656,353) 7,758 15,054,567

40

b) Fixed rate portfolio strategy

2012 2011

Credit operations designated at fair value

Opening balance 19,599,479 15,548,799

(+) Releases 35,695,829 29,932,725

(-) Amortization (37,369,649) (28,179,259)

(+) Interest income – Note 14(a) 2,735,062 2,903,547

(+/-) Fair value adjustment (892,067) (302,374)

Credit risk – Note 9(b-II) (969,258) (452,710)

Market risk – Note 11(c) 77,193 150,336

(-) Write-off in the period (627,118) (303,959)

(=) Closing balance 19,860,259 19,599,479

Funding operations designated at fair value

Opening balance (1,739,075) (2,219,974)

(+/-) Funding and redemptions 398,878 912,774

(+) Interest expenses – Note 14(b) (322,053) (431,875)

(=) Closing balance (1,662,250) (1,739,075)

c) Fair value adjustment development (Market risk)

12.31.2012 31.12.2011

Opening

balance

Fair value

adjustment (1)

Foreign

Exchange

Closing

balance

Opening

balance

Fair value

adjustment (1)

Foreign

exchange

Closing

balance

Net fixed rate portfolio 158.475 77.193 - 235.668 8.139 150.336 - 158.475

Securities issued abroad (37.434) (95.414) (1.585) (134.433) 8.793 (44.844) (1.383) (37.434)

Medium Term Note (Reais) (35.562) (54.864) - (90.426) - (35.562) - (35.562)

Medium Term Note (U.S. Dollar) 949 (16.805) - (15.856) - 949 - 949

Medium Term Note (Reais) (2.821) (23.745) (1.585) (28.151) 8.793 (10.231) (1.383) (2.821)

Subordinated debt – Note 10(a-V(2)) (113.283) (35.167) (10.457) (158.907) - (108.114) (5.169) (113.283)

TOTAL 7.758 (53.388) (12.042) (57.672) 16.932 (2.622) (6.552) 7.758

(1) Note 14(e)

The handling of credit risk is shown in Note 9(b-11).

41

12 INSURANCE, REINSURANCE AND SUPPLEMENTARY PENSION PLAN OPERATIONS

a) Receivables from insurance and reinsurance operations

12.31.2012 12.31.2011 Premiums receivable 27,683 18,415

Reinsurance technical allowances – Note 12(b) 17,501 18,124

Deferred acquisition costs 15,017 13,737

Other insurance operating receivables 3,649 4,847

Total - Note 13 63,850 55,123

b) Securities pledge in guarantee of technical reserves

12.31.2012 12.31.2011

Financial assets and derivative financial instruments –

Note 8(b)

3,050,589 2,506,592

Quotas of investment funds - PGBL/VGBL 2,894,364 2,367,270

Subject to repurchase agreement - Debentures/NTN-B - 33,364

Private securities 824,953 812,764

Bank Deposit Certificates (CDB) (1) 376,044 424,927

Financial bills 304,586 176,313

Debentures 57,970 104,658

Shares 79,845 92,003

Promissory notes 6,508 14,863

National Treasury 2,061,986 1,502,831

National Treasury Bills 157,617 -

Financial Treasury Bills 1,083,536 852,193

National Treasury Notes 820,833 650,638

Other 7,425 18,311

Other securities 156,225 139,322

Government securities - National Treasury Bills 92,510 80,384

Quotas of investment funds - DPVAT agreement 63,715 58,938

Receivables from reinsurance operations – Note 12(a) 17,501 18,124

Total 3,068,090 2,524,716

(1) Includes R$ 27,737 (R$ 100,103 at 12.31.2011) in subordinated CDB operations.

42

c) Technical reserves

I. Analysis

INSURANCE PENSION PLAN TOTAL

12.31.2012 12.31.2011 12.31.2012 12.31.2011 12.31.2012 12.31.2011

Reserve for unvested and vested benefits - - 2,893,777 2,367,208 2,893,777 2,367,208

Provision for unearned premiums 62,003 51,188 - - 62,003 51,188

Provision for unsettled claims 19,559 17,312 - - 19,559 17,312

DPVAT agreement 63,757 58,983 - - 63,757 58,983

Incurred but not reported losses (IBNR) 1,791 2,275 - - 1,791 2,275

Premium and contributions insufficiency - - 16,422 15,866 16,422 15,866

Contribution deficiency reserve - Benefits to be

granted

- - 13,631 15,866 13,631 15,866

Liability adequacy test (LAT) - - 2,791 - 2,791 -

Administrative expenses - - 608 751 608 751

Other Insurance Liabilities 18,242 736 9,714 - 27,956 736

Other - - 114 15 114 15 Total 165,352 130,494 2,920,635 2,383,840 3,085,987 2,514,334

II. Changes in the reserve for supplementary pension plans

1.1. to

12.31.2012

1.1. to

12.31.2011

Opening balance 2,367,208 1,823,389

Contributions 475,884 400,551

Net transfers accepted 97,726 257,711

Redemptions (269,540) (288,660)

Benefits paid (194) (186)

Financial expenses - Note 14(b) 222,693 174,403

Closing balance 2,893,777 2,367,208

43

d) Result from insurance and pension plan operations

12.31.2012 12.31.2011

Financial income (expenses) 13,338 14,984

Interest income 236,031 189,387 Interest expenses (222,693) (174,403) Result from insurance, reinsurance and pension plan operations 102,152 98,413

Premium income 151,926 130,009 Changes in technical reserves (13,495) (13,087) Changes in technical reserves (10,704) (13,087) Changes in allowances for Liability Adequacy Test (LAT) (2,791) - Claims expenses (1,328) (2,395) Selling expenses (37,582) (21,142) Other income and expenses (1) 2,631 5,028 Income from rendering of services with pension funds management - Note 14(g) 25,325 21,526

Total 140,815 134,923

(1) Includes the net result of the DPVAT agreement.

e) Liability adequacy test

The calculation of the Liability Adequacy Test (LAT) carried out at 12.31.2012 resulted in the establishment of an additional allowance of R$ 2,791.

44

f) Claims development table The purpose of the claims development table is to illustrate the inherent insurance risk, comparing the claims paid with

their respective provisions, from the year in which the claim was reported. The upper part of the table shows the change in

the provision over the years. The provision varies as more precise information on frequency and severity of claims is

obtained. The lower part of the table shows the reconciliation of the amounts with the account balances.

The provision for unsettled claims gross of reinsurance is comprised as follows:

Provision for unsettled claims: R$ 52,802

(-) DPVAT operations: R$ 33,243

(-) Retrocession: R$ 567

Provision for unsettled claims gross of reinsurance: R$ 18,992

2005 2006 2007 2008 2009 2010 2011 2012 Total

Estimated amount for claims

In the year the claim is reported 8,885 5,374 5,237 4,759 5,566 6,885 6,296 5,454 -

After one year 7,361 5,339 4,709 4,323 4,978 6,829 4,970 - -

After two years 7,237 5,054 4,465 4,220 3,498 6,116 - - -

After three years 7,158 4,973 4,465 4,216 3,858 - - - -

After four years 7,507 5,028 4,473 4,176 - - - - -

After five years 7,442 4,821 4,483 - - - - - -

After six years 7,500 6,075 - - - - - - -

After seven years 7,937 - - - - - - - -

Estimate at 12.31.2012 7,937 6,075 4,483 4,176 3,858 6,116 4,970 5,454 43,069

Payments 5,536 4,233 4,459 4,016 3,391 5,483 4,552 1,917 33,587

PSL at 12.31.2012 2,401 1,842 24 160 467 633 418 3,537 9,482

Claims liabilities prior to 2005 9,510

Total liabilities 2,401 1,842 24 160 467 633 418 3,537 18,992

The provision for unsettled claims net of reinsurance is comprised as follows:


(-) DPVAT operations: R$ 33,243

(-) Reinsurance assets: R$ 1,904

(-) Retrocession: R$ 567

(-) Reinsurance claims: R$ 11,141


2005 2006 2007 2008 2009 2010 2011 2012 Total

Estimated amount for claims

In the year the claim is reported 3,646 2,187 1,486 1,279 1,650 2,344 2,463 1,939 -

After one year 3,445 2,552 1,358 1,175 1,531 2,343 1,844 - -

After two years 3,326 2,521 1,227 1,155 1,346 2,109 - - -

After three years 3,247 2,435 1,227 1,151 1,758 - - - -

After four years 3,215 2,460 1,212 1,164 - - - - -

After five years 3,169 2,444 1,212 - - - - - -

After six years 2,989 2,403 - - - - - - -

After seven years 3,300 - - - - - - - -

Estimate at 12.31.2012 3,300 2,403 1,212 1,164 1,758 2,109 1,844 1,939 15,729

Payments 2,929 2,353 1,188 1,125 1,508 1,924 1,534 846 13,407

PSL at 12.31.2012 371 50 24 39 250 185 310 1,093 2,322

Claims liabilities prior to 2005 3,625

Total liabilities 371 50 24 39 250 185 310 1,093 5,947

45

g) Insurance risk

Safra has a risk underwriting policy in which all procedures and rules for risk acceptance are described. This policy is

prepared by the technical department and describes all rules for the analysis and acceptance of risks and contains a

guideline for the analysis of risks subject to previous analysis as well as excluded risks.

The risk assessment is made by Safra's Technical Officers and involves the activities described below:

I - Monitoring and assessment of the conditions of co-insurance;

II - Creation of new products;

III - Discussion / definition of acceptance policies with the Actuary;

IV - Negotiation of reinsurance agreements and conditions and rate for separate policies;

V - Preparation of insurance proposals;

VI - Studies for new policies;

VII - Recovery of reinsurance amounts; and

VIII - Technical support to customers and representatives.

The Technical Officers, responsible for assessing underwriting risks, are also responsible for coordinating the development

or for any changes in products, including the acceptance policies, calculation methodology for premiums and provisions,

and negotiations involving coinsurance and reinsurance.

Safra adopts a risk transfer policy in reinsurance and coinsurance operations, avoiding that the claims with low frequency

and high amount affect the stability of the results of its operations. The changes in the expected life or mortality, which

affect directly the assumed risk, are controlled through a periodic monitoring of Safra's actuarial area and its result is

reflected, if necessary, in the adjustments of technical reserves.

The main segments operated by Safra are: comprehensive, moneylender, personal accidents, life, transportation and

sundry risks.

Insurance operations present as main business risk the change in the claims ratio, while pension plan operations present as

main business risk the change in the technical reserves. Sensitivity analyses were prepared for these risks, and the results

obtained are immaterial.

The net premiums issued by geographical region are distributed as follows:

12.31.2012

Lines Southeast South Center-

West Northeast North Total

Comprehensive 22,988 5,543 2,116 3,133 2,277 36,057

Moneylender 8,811 1,731 1,136 1,269 1,341 14,288

Personnel accidents 50,095 12,198 6,267 3,351 4,490 76,401

Life 16,375 4,088 2,157 1,140 1,682 25,442

Other risks 1,603 399 153 227 165 2,547

Total (1) 99,872 23,959 11,829 9,120 9,955 154,735

12.31.2011

Lines Southeast South Center-

West Northeast North Total

Comprehensive 19,163 5,235 1,460 2,502 2,181 30,541

Moneylender 6,731 1,305 474 754 504 9,768

Personnel accidents 55,544 12,860 6,694 3,044 3,065 81,207

Life 13,344 2,490 1,144 691 886 18,555

Other risks 1,851 758 - - - 2,609

Total (1) 96,633 22,648 9,772 6,991 6,636 142,680

(1) The concentration of risks does not include DPVAT and risks in force and not written that total R$ 72,003 (R$ 70,759 at

12.31.2011).

46

13 OTHER FINANCIAL ASSETS AND LIABILITIES

2012 2011

Assets Liabilities Assets Liabilities

Foreign exchange portfolio – Note 13(a) 5,211,354 5,162,728 504,567 373,449

Negotiation and intermediation of securities – Note 13(b) 333,703 325,646 62,810 181,113

Interbank and interbranch accounts 71,163 236,024 58,836 280,503

Onlendings to process 85,538 85,835 267,460 269,535

Receivables from insurance and reinsurance operations

- Note 12(a)

63,850 - 55,123 -

Credit card administrative liabilities - 84,467 - 100,186

Other 808 - - 393

Total 5,766,416 5,894,700 948,796 1,205,179

a) Foreign exchange portfolio

12.31.2012 12.31.2011

Assets Liabilities Assets Liabilities

Exchange purchases pending settlement (M.E.) and

Obligations for exchange purchase (M.N) 2,102,209 2,018,596

271,031 131,168

Foreign exchange variation 65,010 - 140,206

-

Interbank for timely settlement 1,992,373 1,992,373 4,515 4,515

Other 44,826 26,223 126,310 126,653

Receivables for exchange sales (M.N) and Exchange

sales pending settlement (M.E.) 3,109,145 3,144,132 233,536 242,281

Foreign exchange variation 5,043 219

Interbank for future settlement 1,121,758 1,121,758 187,839 187,839

Interbank for timely settlement – Note 8(e) 1,982,095 1,982,095 9,754 9,754

(-) Advances received (30,320) - (8,382) -

Other 35,612 35,236 44,325 44,469

Total 5,211,354 5,162,728 504,567 373,449

Foreign exchange transactions 60,849 55,683 -

b) Negotiation and intermediation of securities

12.31.2012 12.31.2011

ASSETS 333,703 62,810

Debtors pending settlement (1) 77,090

40,991

Settlement and clearinghouse (1) 184,565 21,304

Stock exchanges - margin deposits 51,424 32

Financial assets and commodities pending settlement 20,624 483

LIABILITIES 325,646 181,113

Creditors pending settlement (1) 129,010 26,169

Settlement and clearinghouse (1) 117,621 30,435

Financial assets and commodities pending settlement 25,496 24,979

Other 53,519 99,530

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

47

14 INCOME, EXPENSES AND RESULTS FROM OPERATIONS

a) Interest income

2012 2011

Interbank investments 1,075,036

2,533,494

Reserves at Brazilian Central Bank – Note 7 229,956 314,721

Financial assets 1,771,409 1,230,425

Trading securities 685,498 756,393

Available-for-sale – Note 8(c) 1,055,296 435,954

Held-to-maturity – Note 8(c) 30,615 38,078

Credit operations 6,405,023 5,926,690


At fair value on initial recognition – Note 11(b) 3,453,785 2,903,547

Total 9,481,424 10,005,330

b) Interest expenses

2012 2011

Deposits (675,085) (1,126,624)

Deposits from financial institutions and open market funding (2,326,316) (3,332,437)

Deposits from financial institutions (200,604) (328,277)

Open market funding (2,125,712) (3,004,160)

Own issue (1,273,317) (1,851,674)

Own portfolio (368,470) (3,311)

Third-party portfolio and associated free to trade securities (483,925) (1,149,175)

Borrowings and onlendings (581,923) (497,437)

Proceeds from securities issuance and acceptance (1,304,520) (1,254,210)

Funds from acceptance and issuance of securities (909,123) (531,492)

Securities issued abroad (395,397) (722,718)

Structured fixed income transactions – Note 8(e) (209,962) (202,401)

Subordinated debt – Note 10(a-V(2)) (192,754) (180,033)

Financial expenses on pension plan operations (Note 12(c-II) (222,693) (174,403)

Other (92,705) (17,511)

Total (5,605,958) (6,785,056)

The breakdown of this account, by category of financial instrument, is shown below:

2012 2011

Financial liabilities designated at fair value – Note 11(b) (322,053) (444,407) Financial liabilities at amortized cost (5,283,905) (6,340,649)

Total (5,605,958) (6,785,056)

c) Net result from financial assets - trading securities

2012 2011

Unrealized gains on fair value adjustments – Note 8(d) 42,929 9,488

Fixed-income securities 88,552 (4,893)

Total 131,481 4,595

48

d) Net result from available-for-sale financial assets

2012 2011

Profit on sale 64,837 34,766

Total 64,837 34,766

e) Net result from assets and liabilities designated at fair value through profit or loss – Note 11(c)

2012 2011

Assets and liabilities - Net fixed rate portfolio (market risk) 77,193 150,336

Securities issued abroad (95,414) (44,844)

Subordinated debt (35,167) (108,114)

Total (53,388) (2,622)

f) Net result from derivative financial instruments

2012 2011

Swaps (66,025) (27,823)

Futures (328,377) (46,339)

Options (1,137) (172,433)

Foreign exchange variation on investments abroad 193,077 156,155

Other 60,203 (62,679)

Subtotal (142,259) (153,119)

Unrealized fair value adjustments – Note 8(d) (21,906) 144,437

Total (164,165) (8,682)

g) Income from fees and commissions

2012 2011

Custody and investment management fee - Note 10(c) 212,436 201,809

Broker fees 37,963 32,377

Collections 69,742 67,765

Guarantees provided 142,234 140,562

Credit card operations 114,701 103,754

Exchange services 19,192 13,317

Charges on DOC/TED transfers 13,465 14,185

Packages of services and registrations 58,742 106,716

Other 62,697 39,940

Total 731,172 720,425

49

15 CONTINGENT ASSETS AND LIABILITIES

a) Contingent assets Safra Leasing S.A. Arrendamento Mercantil requested to the Federal Revenue Secretariat (SRF) the authorization of tax

credits of R$ 84,218, originated with the decision of the legal proceeding, which claimed the recovery of the amounts from

undue payments arising from CPMF on fundraising transactions and investment of Company's funds - in the period from

2002 to 2007. The income for offset was recorded in December 2011 and is disclosed in the Statement of income as a

reduction factor of expenses for tax and pension plan contingencies - Note 16(e).

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 are classified as a mass, when related to similar

causes with insignificant amount, or as special, when there is a special characteristic in the lawsuit received, arising from

the significance of the amount involved, or from matter with corporate importance or different from ordinary lawsuits.

The allowance recorded for mass lawsuits received is calculated on a monthly basis at the average historical cost of

payments of lawsuits terminated in the last 12 months, also considering the average of the fees paid in the same period.

This average cost is updated quarterly and multiplied by the amount of outstanding lawsuits in the portfolio on the last

business day of the month.

The special lawsuits are evaluated individually concerning the likelihood of loss, and are periodically reviewed and

quantified based on the judicial stage, on the proof presented and on the jurisprudence in accordance with the evaluation

of management and internal lawyers. The provision is recorded at the full amount for proceedings classified as a probable

loss.

Unrecognized contingent liabilities amount to R$ 232,784, referring to the amounts involved in the lawsuits whose loss is

classified as possible.

II - Labor lawsuits Lawsuits filed to claim alleged labor rights derived from the labor legislation specifically relating to financial institutions,

especially overtime.

These labor lawsuits are evaluated when a court notification is received, and are classified as mass, when related to similar

causes and usual, or as special, when there is a special characteristic in the lawsuit received, arising from the significance

of the amount involved, or from matter with corporate importance or different from ordinary lawsuits.

The allowance recorded for mass lawsuits received is calculated on a monthly basis at the average historical cost of

payments of lawsuits terminated in the last 12 months. This average cost is updated quarterly and multiplied by the

amount of outstanding lawsuits in the portfolio on the last business day of the month.

The special lawsuits are evaluated individually concerning the likelihood of loss, and are periodically reviewed and

quantified based on the judicial stage, on the proof presented and on the jurisprudence in accordance with the evaluation

of management and internal lawyers. The provision is recorded at the full amount for proceedings classified as a probable

loss.

At 12.31.2012 and 2011, there are no unrecognized contingent liabilities referring to the amounts involved in the lawsuits

whose loss is classified as possible.

50

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) Provision for contingencies

12.31.2012 12.31.2011

Tax and social security contingencies and legal obligations 1,006,424 1,229,043

Civil lawsuits 219,408 222,786

Labor lawsuits 203,941 165,749

Other risks 40,262 15,779

Total 1,470,035 1,633,357

d) Change in provisions I. Civil, labor and other

1.1 to 12.31.2012 1.1 to

12.31.2011

Civil Labor Other Total Total

Opening balance 222,786 165,749 15,779 404,314 270,793

Monetary adjustment / Charges (2) 15,377 - 776 16,153 - Changes in the period reflected in income (3) 3,828 97,950 23,707 125,485 240,427 Amount recorded 15,054 105,511 23,707 144,272 258,043 Reversal (11,226) (7,560) - (18,786) (17,616) Payments (22,583) (59,759) - (82,342) (106,906) Closing balance at 12.31.12 219,408 203,941 40,262 463,611 404,314

Closing balance at 12.31.11 222,786 165,749 15,779 404,314

Guarantee deposits (4) 29,665 50,020 - 79,685

Guarantee securities (1) 1,251 37,052 - 38,303

Total amounts guaranteed at 12.31.2012 30,915 87,072 - 117,988

Guarantee deposits (4) 32,207 32,263 - 64,470

Guarantee securities (1) 2,382 46,745 - 49,127

Total amounts guaranteed at 12.31.2011 34,589 79,008 - 113,597

(1) Note 8(b) (2) Recorded in Income expenses – Note 14(b) (3) Note 16(e) – Civil contingencies and others and Note 16 (c) – Labor lawsuits (4) Note 16(a)

51

II. Tax and social security contingencies and legal obligations

1.1 to 12.31.2012

1.1 to 12.31.2011

Tax and social security

contingencies

Legal obligations

Total Total

Opening balance 586,760 642,282 1,229,042 838,628 Monetary adjustment / Charges (1) 24,213 42,298 66,511 70,246 Changes in the period reflected in income (2) (291,751) 363 (291,388) 372,063 Amount recorded 94,311 363 94,674 372,779 Reversal (3) (386,062) - (386,062) (716) Payments - - - (53,038) Other changes 2,259 - 2,259 1,143 Closing balance at 12.31.12 321,481 684,943 1,006,424 1,229,043 Closing balance at 12.31.11 586,760 642,282 1,229,042

Guarantee deposits at 12.31.2012 (4) 59,498 17,360 76,858 Guarantee deposits at 12.31.2011 (4) 32,858 10,244 43,102

(1) Recorded in Income Expenses – Note 14(b)

(2) Note 16(e) – Tax and social security contingencies and legal contingencies

(3) Mainly comprising: (i) (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 changed to remote subsequent to the decision handed down by the

Regional Federal Court on July 20, 2012; and (ii) R$ 260,670, consisting of the reversal of the ISS contingency related to Leasing

operations, on 12.31.2012, the classification of which was changed following the judgment of the matter by the Superior Court of Justice

(STJ).

III. Main lawsuits involving tax and social security contingencies

- Tax and social security contingencies:

• 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$ 100,166 (R$ 96,050 at 12.31.2011).

- Legal obligations:

• Calculation basis of PIS and COFINS, amounting to R$ 669,463 (R$ 627,462 at 12.31.2011), concerning the

calculation and payment of taxes on revenue, considered as sales and services revenue. Fully collateralized by bank guarantees.

52

16 OTHER BALANCE SHEET AND STATEMENT OF INCOME ACCOUNTS

a) Other assets

12.31.2012 12.31.2011

Debtors for deposits in guarantee of contingencies (1) 211,175 234,517

Active operations to be processed 22,469 52,974

Other 100,384 68,266

Total 334,028 355,757

Current 122,853 121,240 Non-current 211,175 234,517

(1) Payments linked to the provision for contingencies are disclosed in Note 15(d).

b) Other liabilities

12.31.2012 12.31.2011

Provision for payments to be made 227,345 111,350

Portfolio amounts to be processed 29,134 17,565

Operations with non-controlling quotaholders – Note

2(c)

115,003 76,417

Other 38,241 79,739

Total 409,723 285,071

Refer basically to current liabilities.

c) Personnel expenses

2012 2011

Remuneration and profit sharing (748,835) (762,610)

Benefits (78,750) (77,819)

Social charges (189,868) (195,057)

Sub-total (1,017,453) (1,035,486)

Labor contingencies - Note 15(d-I) (97,950) (141,236)

Dismissal of employees (28,142) (12,128)

Sub-total (126,092) (153,364)

Total (1,143,545) (1,188,850)

d) Administrative expenses

2012 2011

Facilities (31,659) (27,513)

Rent (89,984) (45,684)

Publicity and advertising (14,648) (11,224)

Data processing and telecommunications (40,021) (52,539)

Third party services (77,037) (88,911)

Travel (34,641) (17,839)

Financial system services (40,658) (37,500)

Security and surveillance services (14,137) (11,939)

Transport (20,239) (22,266)

Protection of information (75,564) (81,809)

Depreciation and amortization – Note 18(b) (34,527) (38,030)

Legal and notary fees (96,582) (113,042)

Other (16,040) (23,578)

Total (585,737) (571,874)

53

e) Other operating income (expenses)

2012 2011

Tax and social security contingencies (Note 15(d)) 291,751 33,003

Recovery of charges and expenses 3,977 3,432

Other 15,086 24,488

Total other operating income 310,814 60,923

Civil and other contingencies - Note 15(d-I) (27,535) (99,191)

Tax and social security contingencies - provisions and adjustment - Note 15(a) and (d-II)

-

(217,287)

Other (29,935) (27,187)

Total other operating expenses (57,470) (343,665)

Other operating income (expenses) 253,344 (282,742)

54

17 TAXES

a) Analysis of expenses for income tax and social contribution

I. Reconciliation of income tax and social contribution charges

12.31.2012 12.31.2011

Profit before taxation 1,973,097 2,376,812 Charges (income tax and social contribution) at standard rates – Note 3(r) (789,239)

(950,725)

Permanent (additions) deductions 310,558 381,686

Equity in the results of domestic subsidiary and affiliated companies - (114)

Exchange gain (loss) on investments abroad – Note 8(e) 77,231 62,465

Interest on capital - paid 138,703 267,436

Dividends and interest on foreign debt bonds 13,860 24,860

Non-deductible expenses, net of non-taxable income 72,694 26,905

Difference in social contribution rate in non-finance companies 8,070

134

TOTAL (478,681) (569,039)

II. Tax expenses

2012 2011

PIS / COFINS (207,415) (234,673)

Service tax (ISS) (38,027) (29,539)

Municipal real estate tax (IPTU) (4,768) (4,665)

Tax on financial transactions (IOF) (8,471) (8,598)

Other tax expenses (10,617) (4,158)

Total (269,298) (281,633)

b) Deferred taxes

I. Deferred tax assets:

Ammount At

12.31.2011

Amount

Recorded

Amount

Realized

Ammount At

12.31.2012

Contingencies 603,149 (4,744) (32,937) 565,468

Civil lawsuits provisions 89,065 7,678 (9,033) 87,710

Labor lawsuits provisions 63,164 40,451 (23,904) 79,711

Tax and social security provisions 450,920 (61,913) - 389,007

Other - 9,040 - 9,040

Impairment losses on credit operations 383,870 449,220 (188,374) 644,716

Adjustment to market value designated at fair value (3,104) 26,173 - 23,069

Deferred commissions 66,554 - (66,554) -

Adjustment to market value of avaiable for sale securities 11,091 (11,091) - -

Other 23,830 16,502 (15,998) 24,334

Total deferred tax assets on temporary differences 1,085,390 476,060 (303,863) 1,257,587

Income tax and social contribution losses 85,812 10,587 (37,663) 58,736

Total deferred tax assets 1,171,202 486,647 (341,526) 1,316,323

55

II. Deferred tax liabilities

At

12.31.2011

Amount

recorded

Amount

realized

At

12.31.2012

Excess depreciation 893,019 - (379,138) 513,881

Adjustment to market value of available-for-sale

securities – Note 20(d)

6,790 297,757 - 304,547

Monetary adjustment of judicial deposits 8,781 - (334) 8,460

Financial derivative instruments fair value adjustment 26,740 - (11,123) 15,617

Total 935,330 297,757 (390,582) 842,492

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

and deferred taxes on excess depreciation.

Tax credits on

Period

Temporary

differences

Income tax and

social contribution

losses

Total

Provision for

deferred taxes and

contributions

Net

deferred

taxes

2013 549,290 25,428 574,718 (436,036) 138,682

2014 303,307 31,754 335,061 (165,742) 169,319

2015 254,561 1,554 256,115 (87,389) 168,726

2016 41,502 - 41,502 (38,814) 2,688

2017 35,916 - 35,916 (31,854) 4,062

Over 2017 73,011 - 73,011 (82,657) (9,646)

Total 1,257,587 58,736 1,316,323 (842,492) 473,831

c) Current taxes

I. Current tax assets

12.31.2012 12.31.2011

Taxes to be offset withheld at source 19,158 23,437

Taxes to be offset from the return 44,048 47,871

Other 3,192 98,149

Total 66,398 169,457

II. Current tax liabilities

12.31.2012 12.31.2011

Current tax payable (net of prepayment) - income tax and social contribution

607,554 531,701

Taxes payable 73,196 192,237

Total 680,750 723,938

56

18 PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

a) Analysis

12.31.2012 12.31.2011

Cost

Accumulated

depreciation /

amortization

Property and

equipment,

net

Cost

Accumulated

depreciation /

amortization

Property and

equipment,

net

Permanent assets 280,645 (185,747) 94,898 522,219 (303,847) 218,372

Properties for use - - - 243,696 (123,369) 120,327 Rental properties - - - 12,481 (10,130) 2,351

Facilities, furniture and equipment in use: 66,896 (37,540) 29,356 66,156 (34,341) 31,815

IT and data processing equipment 76,995 (57,810) 19,185 78,587 (58,149) 20,438

Construction in progress 11,254 - 11,254 7,646 - 7,646

Transportation system 120,044 (87,812) 32,232 110,201 (75,533) 34,668

Other 5,456 (2,585) 2,871 3,452 (2,325) 1,127

Intangible assets - Software 80,067 (34,962) 45,105 52,500 (23,510) 28,990

b) Changes

Property and equipment Intangible assets

2012 2011 2012 2011

Opening balance 218,372 279,513 28,990 17,820

Acquisitions 18,407 13,805 29,104 18,737

Capital decrease - Note 20(a) (109,277) (38,221) (32) -

Capital decrease of non-controlling quotaholders

– Note 20(a)

(10,991) - (3) -

Disposals (1,808) (6,262) (192) -

Exchange variation and transfers 1,309 - 651 -

Depreciation/amortization expenses – Note

16(d)

(21,114) (30,463) (13,413) (7,567)

Closing balance 94,898 218,372 45,105 28,990

57

19 NON-CURRENT ASSSETS HELD FOR SALE

Comprising mainly assets received in payment of debts, represented by vehicles, properties and machinery and equipment.

Assets and properties received in accord and satisfaction are held for sale and the proceeds obtained are used to reduce outstanding debts. a) Changes

2012 2011

Opening balance 8,758 38,058 Transfer of property and equipment in use - 1,130 Acquisitions (disposals) in the period 13,091 (30,430)

Closing balance 21,849 8,758

20 EQUITY

a) Shares

The capital of Banco Safra S.A. is represented by 1,513,299,608 shares (1,459,485,718 at 12.31.2011), with no par value,

consisting of 757,637,598 common shares (730,695,526 at 12.31.2011) and 755,662,010 preferred shares (728,790,192 at

12.31.2011), related to stockholders domiciled in Brazil.

At the Extraordinary General Stockholders Meeting held on 4.11.2012, a capital reduction of Banco Safra S.A. was approved

in the amount of R$ 110,875, with the extinction of 25,917,737 shares by transferring the investment in J. Safra

Participações Ltda. to the controlling stockholder. This process was approved by the BACEN on 6.21.2012. This transaction

resulted in a reduction of R$ 109,277 in investment and net permanent assets.

Changes in capital were as follows:

Number of shares

Common

Preferred

Total

Capital

management

At 12.31.2011 730,695,526 728,790,192 1,459,485,718 3,980,315 Capital decrease - EGM 4.11.2012 (12,975,786) (12,941,951) (25,917,737) (110,875) Capital increase - EGM 6.15.2012 (1) 39,917,858 39,813,769 79,731,627 350,000

At 12.31.2012 757,637,598 755,662,010 1,513,299,608 4,219,440

(1) With Revenue reserves and approved by Central Bank of Brazil at 7.23.2012.

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 12.21.2012, the stockholders approved interest on capital on 12.28.2012

totaling R$ 346,756, which, net of income tax represents R$ 294,743. The amount of R$ 5,608 was calculated based on the

TJLP variation of 2008 and R$ 341,148 calculated based on the TJLP variation of 2012.

At the Extraordinary General Meeting held on 12.28.2012, the stockholders approved and paid the dividend of R$ 4,718,

referring to the profit for 2012.

In line item "Other financial liabilities" is included the amount of R$ 10,463 (R$ 9,712 at 12.31.2011), which relates to

dividends and interest on capital payable from previous periods.

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c) Reserves

I. Realized reserves

12.31.2012 12.31.2011

Revenue reserves 2,604,150 2,024,647

Legal 168,647 104,599

Special (1) 2,435,503 1,920,048

(1) Reserve set up to allow the formation of resources for future incorporation of these resources to capital, payment of

interim dividends, maintaining operating margin compatible with the development of the company and / or expansion

of its activities.

II. Unrealized reserves

Refers to adjustments recorded for conformity with international financial reporting standards, not recorded in Safra's

accounting books.

d) Changes in the carrying value adjustment of

available-for-sale financial assets

Available-for-

sale

Deferred income tax and social contribution

Total

At 12.31.2010 117,193 (46,877) 70,316

Reversal due to delivery of shares in capital decrease (79,760) 31,905 (47,855)

Changes in fair value (47,337) 18,936 (28,401)

At 12.31.2011 (9,904) 3,964 (5,940)

Changes in fair value 719,714 (308,511) 411,203

At 12.31.2012 709,810 (304,547) 405,263

e) Non-controlling interests

Non-controlling interests refer to interests of the Safra group companies, which do not belong to the same consolidated

group of Banco Safra S.A. ("Safra"), in J. Safra Participações (formerly known as Safra Cia. Securitizadora de Créditos

Imobiliários), amounting to R$ 34,770 at 12.31.2011.

21 SEGMENT REPORTING

At Safra, operations are conducted and decisions are made according to the internal segmentation of its businesses. The

chief decision-maker is the Executive Committee.

Based on these guidelines, we list below the following business segments:

• Commercial bank;

• Consumer financing;

• Insurance, asset, investment bank and others; and

• Corporation.

The Commercial Bank segment comprises the funding of the branches network, credit operations, leasing of production

assets and foreign exchange. The Consumer Financing segment focuses on consumption-related credit operations,

including direct consumer credit and leasing operations for individuals. The Insurance, Asset, Investment Bank and Others

segment includes insurance and private pension plan operations, management, administration and custody of investment

funds, and rendering of non-financial services. The Corporation segment represents the management of own working

capital (equity - property and equipment).

Below Safra presents its result by business segments reconciled to the accounting information. In this context, the

segments' revenues and expenses were allocated considering the same criteria used by the managerial analysis area that

reports to the Executive Committee.

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12.31.2012 12.31.2011

Commercial Bank

Consumer financing

Insurance, asset, investment bank and others

Corporate

Total

Total

Net interest and similar income 2,494,515 570,257 13,338 833,677 3,911,787 3,214,040

Interest and similar income 7,155,428 1,256,288 236,031 833,677 9,481,424 10,005,330

Interest and similar expense (4,697,234) (686,031) (222,693) - (5,605,958) (6,850,610)

Dividends income 36,321 - - - 36,321 59,320

Impairment losses (offset of recoveries) on credit operations (751,256) (315,136) - - (1,066,392) 520,007

Net Income after impaiment losses 1,743,259 255,121 13,338 833,677 2,845,395 3,734,047

Other operational results 439,051 81,336 352,551 - 872,938 968,132

Net gain/(loss) with trading securities 131,481 - - - 131,481 4,595

Net gain/(loss) with available for sale securities 64,837 - - - 64,837 34,766

Net gain/(loss) with assets and liabilities designed at fair value (53,388) - - - (53,388) (2,622)

Net gain/(loss) with derivatives (164,165) - - - (164,165) 56,872

Net Exchange gain/(loss) 60,849 - - - 60,849 55,683

Comissions and fees gain 399,437 81,336 250,399 - 731,172 720,425

Net gain/(loss) with insurance and pension plans - - 102,152 - 102,152 98,413

Gross profit/(loss) 2,182,310 336,457 365,889 833,677 3,718,333 4,702,179

Other operational income/(expenses) (1,336,228) 64,608 (150,272) (323,344) (1,745,236) (2,325,367)

Administrative expenses (1) (1,162,936) (161,533) (120,235) (284,578) (1,729,282) (1,760,992)

Tax expenses (165,966) (34,529) (30,037) (38,766) (269,298) (281,633)

Other operational income/(expenses) (7,326) 260,670 - - 253,344 (282,742)

Operational profit before tax 846,083 401,065 215,617 510,333 1,973,097 2,376,812

Income tax and Social Contribution (88,776) (150,556) (71,090) (168,258) (478,680) (569,039)

Consolidated Profit 757,307 250,509 144,527 342,075 1,494,417 1,807,773

TOTAL ASSETS at 12.31.2012 93,466,764 7,411,944 3,427,518 8,554,622 112,860,848

Consolidated Profit at 12.31.2011 1,359,139 67,593 111,384 269,656 1,807,773

TOTAL ASSETS at 12.31.2011 67,612,869 8,880,552 2,624,042 7,146,121 86,263,584

(1) Includes Personnel expenses and results of equity equivalence. Safra does not have customers that individually account for 10% or more of its revenues. Safra's operations are mainly based in Brazil.

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22 RISKS

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 and business management.

a) Credit risk

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 Safra can result in losses that differ from those provided for in the balance sheet date. Therefore, 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.

I. Credit risk measurement

− Credit operations and other financial assets with credit characteristic

When measuring the credit risk of credit operations, Safra classifies the risk of operations, based on internal models. For the credit granting process, Safra seeks to obtain the largest volume of information on the customer and its business, and to know its legal capacity and the compliance with obligations through an assessment of the sufficiency of generation of funds, capital structure and liquidity. This information, aligned with the compliance with criteria and credit policies, is used as a basis for making the final decision.

As from the release of the operation, the credit risk starts to exist and, therefore, Safra has the policy of adopting an ongoing monitoring to ensure the return of the funds and the maintenance of the profitability of each operation, with the consequent retention of customers in their respective segments.

This phase of monitoring of the customers' situation and the operations' guarantees ensures the portfolio quality, which has a periodic monitoring, assessing the credit evolution and quality, the concentration levels, the default rates and the management of the accrual and capital levels.

The risks of the operations are classified on an individual basis. The classification of the operation takes into account variables such as the customer's size, customer rating, guarantee quality, late payments and customer's situation with the bank.

Classification tools are maintained under analysis and updated, when necessary. Safra regularly validates the classification performance in relation to default events.

These credit risk measurements, which reflect the likelihood of losses, are incorporated into the operating management. Operating measurements can be compared with the provision for impairment losses, which is based on losses that have been incurred at the reporting date ("incurred loss model"), as mentioned in item 3.h. I.

The exposure to default is based on the amounts that can be due to Safra at the time of the default. For example, in the case of a credit operation, it is the nominal value, where all amounts withdrawn are included.

− Government securities, interbank investments and other debt securities

The Financial Institution Limit Committee, which meets quarterly, approves, defines and monitors the credit limits by counterparty for Financial Institutions in treasury, foreign exchange and third-party fund management operations and monitors the credit quality.

Government securities are treated in the general limits of the Treasury Market Risk, and there are no limits for repurchase agreements with government securities and specific limits are defined for securities of other countries.

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II. Risk limit control and mitigation policies

Safra manages, limits and controls credit risk concentrations for counterparties whenever inconsistencies between the ratings calculated by the system and the economic and financial situation of this customer and/or economic group are identified. Safra structures the risk levels it assumes, establishing limits on the acceptable risk extent related to a specific debtor, groups of debtors and industry segments. These risks are periodically monitored and subject to annual or more frequent reviews, when necessary. The limits on the credit risk level by product and industry are approved by Credit Officers.

The exposure to credit risk is also managed through a regular analysis of borrowers and actual and potential advances, as regards principal and interest payments and change of limits when appropriate.

The exposure to the 300 major groups/customers is monitored every two months by the"300 major risks committee" with the participation of two Executive Credit Officers, where items such as generation of funds, need for working capital, capital structure, seasonable aspects and specific aspects of some industries, as well as customer service level, relationship with Safra, restrictions, guarantees and stockholding control, credit monitoring areas, size, parent company or headquarters data and master file data are weighted. The assessment of this committee may result in a change in the customer rating.

There are various other credit committees, which meet periodically, for individual assessment of the risks, segregated by products and approval levels, according to the customers' size

Other specific control and mitigation measures are described below:

− Guarantees

Safra uses a variety of policies and practices to mitigate the credit risk. The most traditional of these measures is to take guarantees on the release of funds. Safra implemented guidelines on the acceptance of specific classes of guarantees or mitigation of the credit risk. The main types of direct and indirect guarantees for loans and advances are:

� Financial guarantees;

� Receivables;

� Statutory lien on assets; and

� Guarantees and sureties.

In order that a guarantee may be a credit risk mitigation factor, Safra needs to ensure that all guarantees required upon the approvals are correctly analyzed and formalized so as to minimize the credit risks.

The minimum guarantees required by credit type/product are defined in the product approval process and their application is always confirmed through the system (matching the proposal approval with the contract signed).

The requirement of guarantees arises from the credit risk level, so that customers with more fragile economic and financial situation may be supported by guarantees capable of covering the operation payment. Regardless of the setting of minimum limits for guarantees in each type, in the analysis of an operation additional guarantees may be required, always seeking the operation security.

All guarantees accepted in operations are strictly analyzed to eliminate the possibilities of fraud, observing the prevailing rules, especially as regards the guarantee quality in the event of execution.

The guarantee liquidity control instruments ensure that the risk coverage level in relation to the guarantee is compatible with Safra's risk limits and current market conditions.

The periodicity of this monitoring varies according to the type of guarantee:

� In the case of collectible notes - daily monitoring of the receivables liquidity and risk coverage in relation to the guarantee;

� In the case of vehicles - constant monitoring of the asset's market value;

� Other cases, such as properties and machinery - are assessed when the transaction is closed, or when there is indication of impairment of the customer or operation.

The efficiency of this process permits the control and monitoring of the "guarantee surplus/shortage" and, consequently, the turnover of the customer's operations with Safra.

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− Derivatives

Safra maintains controls over the utilization of credit limits in derivative transactions, which may be impacted by operation or on an aggregate basis when there is a net position contract. Both the granting of limits and the monitoring of their utilization are made based on a fraction of the nominal value of the operation, that is, by the Fractional Credit Risk, when the limit is granted this fraction is an estimate of the potential future gain and when the limit is used the fraction is the fair settlement value. This concept is used because a derivative contract will always be settled by the difference between the credit and debit amounts.

− Credit commitments (off-balance)

Credit commitments represent unused portions of authorizations for credit granting in the form of loans and advances, guarantees or letters of credit. As regard the credit risk in credit commitments, Safra is potentially exposed to losses in amounts equivalent to the total unused commitments. However, the probable loss amount is lower than the total unused commitments since most commitments depend on the maintenance, by customers, of specific credit standards. Safra monitors the maturity of credit commitments because long-term commitments in general offer a higher credit risk level than short-term comments.

III. Impairment policies

The internal classification system described in 22.a.I gives more emphasis to the mapping of the credit quality than the initial activities of loans and investment. On the other hand, provisions for impairment losses are recognized for purposes of preparing the financial reports only for losses that have been incurred at the reporting date based on objective evidence of impairment losses.

To set up a provision for impairment losses, Safra uses criteria that combine the customer's economic and financial information with the accessory guarantees and the late payment observed in operations. The weighing of these items establishes the minimum provision for impairment losses required to cover the risks assumed.

The operating policy requires the frequent review of the individual financial assets. Provisions for impairment losses on accounts assessed individually are determined through a case-by-case assessment of the losses incurred at the reporting date. This assessment normally includes the guarantees (including reconfirmation of the enforceability) and the advance receipts.

IV. Maximum exposure to credit risk before guarantees or other credit improvements

The exposure to credit risk related to assets recorded in the consolidated statement of the financial position is as follows:

Maximum exposure

12.31.2012 12.31.2011

Interbank investments 21,918,595 21,644,800

Reserves in Brazilian Central Bank 1,178,292 5,389,895

Financial assets 33,262,565 8,176,413

Trading securities 15,528,812 4,827,695

Available-for-sale 17,615,471 2,991,870

Held-to-maturity 118,282 356,848

Derivative financial instruments 496,240 418,195

Subtotal 56,855,692 35,629,303

Credit operations 47,949,049 47,352,725


At fair value on initial recognition 19,860,259 19,599,479

Credit commitments (off balance) 13,737,802 14,026,354

Guarantees, sureties and other guarantees provided 8,410,541 8,767,100

Limits granted 5,327,261 5,259,254

Subtotal 61,686,851 61,379,079

Total 118,542,543 97,008,382

The above table represents the maximum exposure to credit risk without considering any guarantee or other credit improvements. For assets recorded in the balance sheet, the exposures described above are based on gross carrying amounts.

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V. Quality of the financial assets subject to credit risk

Safra assesses the quality of its credit operations according to an internal methodology, whose main judgment parameters are described in Note 3(h-I).

To assess the quality of its credit operations, Safra uses objective criteria that combine the customer's economic and

financial information (Customer rating) with the accessory guarantees offered for operations (Guarantee rating), according

to a rating model prepared by the Credit Officers, as described below.

� Customer Rating: This is calculated by an own methodology, specific by type of customer (individual or company) and the company's size (with and without balance sheet data / trial balance / analysis for assignment of rating through the 300 major risks committee), which consists in assigning ratings according to customer information such as: balance sheet data (if any), external restriction, BACEN and master file data. The customer rating varies between 3 and 9, with 3 being the worst rating and 9 the best rating.

� Guarantee Rating: The guarantee is classified according to its liquidity and sufficiency. The guarantee rating varies between 3 and 9, with 3 being the worst rating and 9 the best rating.

By combining the customer rating with the guarantee rating, an operation rating is assigned, in a scale that varies from AA to H (internal rating), and the classifications AA and A are reserved to low-risk financial assets, B and C for medium-risk financial assets, and D to H for high-risk financial assets.

Interbank investments, securities and derivative financial instruments are classified according to an internal rating model, based on the ratings of risk rating agencies. Safra adopts the worst rating among the counterparties ratings assigned by Moody's, Fitch Ratings and Standard and Poor's, and classifies them as "investment grade" and "non investment grade".

Open market operations are considered as low risk since the internal rating considers the guarantees received in operations, and in this case these guarantees refer basically to Brazilian government securities.

In order to determine the amount of the impairment loss on credit operations, Safra performs an individual analysis of those credits considered individually significant, where such credits are analyzed by the credit committee and those considered as impaired are analyzed also by the Bank's legal area, which assesses whether the credit is recoverable or not.

Credits not considered individually significant are assessed collectively, based on the loss history of the portfolios, taking into account also the economic scenario and default indicators, thus capturing the incurred losses of the credit operations.

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− Interbank investments, financial assets and derivative financial instruments

The table below presents an analysis of the financial assets according to the risk rating designation at 12.31.2012 and 12.31.2011, based on internal rating models.

12.31.2012 12.31.2011

Investment Grade Non Investment

Grade (*) Total Investment Grade

Non Investment Grade (*)

Total

Interbank investments 21,645,483 273,112 21,918,595 21,100,827 543,973 21,644,800

Reserves in Brazilian Central Bank 1,178,292 - 1,178,292 5,389,895 - 5,389,895

Financial assets 32,768,441 494,124 33,262,565 6,627,194 1,549,219 8,176,413

Trading securities 15,524,224 4,588 15,528,812 4,603,988 223,707 4,827,695

Available-for-sale 17,161,541 453,930 17,615,471 1,666,358 1,325,512 2,991,870

Held-to-maturity 82,676 35,606 118,282 356,848 - 356,848

496,240 - 496,240 398,694 19,501 418,195

Derivative financial instruments

Total 56,088,456 767,236 56,855,692 33,516,610 2,112,693 35,629,303

(*) In the portfolios considered as "Non Investment Grade" there are no financial instruments impaired.

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− Credit operations

At fair value

The quality of the credit operations designated at fair value on initial recognition is as follows.

Risk 12.31.2012 12.31.2011

Low (AA and A) 16,724,589 16,637,707

Medium (B and C) 2,226,473 2,345,974

High (D to H) 909,197 615,798

Total 19,860,259 19,599,479

At amortized cost

Safra classifies as credits past due with evidence of impairment those credits past due for over 90 days or that present another strong indication of impairment. Credits past due for less than 90 days, except for a strong evidence to the contrary, are classified as past due but without evidence of impairment. The other credits are classified as not past due and without evidence of impairment. The classification of credits based on this criterion is as follows:

Analysis 12.31.2012 12.31.2011

Not past due and without evidence of impairment 27,740,025 27,403,650

Past due but without evidence of impairment 404,953 463,685

Past due with evidence of impairment 353,069 178,235

Total 28,498,047 28,045,570

Impairment loss (409,257) (292,324)

Net value 28,088,790 27,753,246

(1) All operations classified in this category are past due for less than 90 days.

The classification of the quality of Safra's credits not past due and without evidence of impairment is as follows:

Risk 12.31.2012 12.31.2011

Low (rating AA and A) 26,501,151 26,028,393

Medium (rating B and C) 956,275 1,278,302

High (rating D to H) 282,599 96,955

Total 27,740,025 27,403,650

The breakdown of the main guarantees of credit operations measured at amortized cost is as follows:

12.31.2012 12.31.2011

Financial guarantee (1) 2,455,488 2,708,296

Machinery and vehicles 9,436,154 3,907,561

Guarantees and sureties 15,500,632 13,512,256

Promissory notes 5,996,741 5,684,915

Other guarantees (2) 12,919,588 13,249,374

TotalTotal 46,308,603 39,062,402

(1) Comprising mainly trade notes and receivable.

(2) Comprising mainly mortgage, statutory lien on assets, credit rights, rights or receivables for credit card sales and pledge.

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− Credit operations and renegotiated financial instruments.

Renegotiation activities include agreements for payment extension, plans approved by Safra, modification and deferral of payments. After renegotiation, the customer bill previously past due returns to the normal condition and is managed together with other similar bills. Renegotiation policies and practices are based on indicators and criteria that indicate a high probability of continuity of the payments. These policies are submitted to continuous review. Renegotiations are most commonly applied to installment loans.

VI. Resumption of guarantees

Properties repossessed in accord and satisfaction are sold within the terms established by BACEN and the proceeds obtained are used to reduce outstanding debts. The repossessed asset is classified in the balance sheet in a specific account of non-current assets held for sale.

VII. Concentration of risks of financial assets with credit risk exposure by economic activity

To avoid that credit risks are increased due to the excess concentration on the same economic risk factors, credit limits are established both for customers individually and for the economic groups of which customers are part. The limits established for groups are equal to the sum of the individual limits for customers.

The definition of credit limits specifies amounts for operations that avoid the excessive concentration on one single customer, a same economic group, a certain business or economic segment, specific geographic regions, loans vulnerable to the same economic factors and a same business line.

The definition of operating rules for contracting of credit provides specific treatment of term and guarantee for each business line.

The monitoring of the excessive concentration and specific treatment for business lines and specific geographic regions is made by the credit committees on a non-system basis and also through monthly managerial controls over the credit portfolio, shared with Top Management.

The tables below show the main exposures to credit risk based on the carrying amounts and categorized by economic activity of the counterparties.

12.31.2012 12.31.2011

Financial institutions 25,066,905 24,323,694 Governments 30,364,424 4,459,875 Industry and Commerce 30,169,310 27,630,293 Services 18,345,310 22,097,175 Individuals 6,440,663 7,691,840 Other customers 6,977,640 5,548,035

Total 117,364,252 91,750,912

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

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 3% of its regulatory capital. To be able to comply with this regulation, the Bank sets targets for Treasury that are compatible with this risk exposure.

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 through the corporate intranet, in addition to the disclosure of the Market Risk management framework to the public.

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I. Market risk measurement techniques

− Value at Risk - VaR

Safra uses the parametric VaR model with a 99% confidence level and one-day horizon, with adjustments for effects of non-normality. The calculations of volatilities and correlations are made under the EWMA (Exponentially Weighted Moving Average) method for linear assets, interest rate, exchange and shares, with a temporal decay parameter (λ) equal to 0.94. For non-linear assets specific models are prepared, such as Monte Carlo simulations.

− Backtests

The Market Risk area is responsible for processing and analyzing actual and hypothetical backtests.

If there are flaws in the backtest, the Market Risk and Market Risk Validation area managers are informed and the process of assessment of the elements involved starts (market movements, positions movement and model results). The reasons for the flaws are recorded in a specific form, with explanations and analyses to support the justification.

The backtest analysis process is effectively used to assess and improve the models used.

− Stress tests

Safra uses stress scenarios based on crises of historical periods, as well as on prospective scenarios.

The scenarios based on historical periods seek extreme returns in holding periods of 1 and 10 days for the main risk factors and their preparation is the responsibility of the Market Risk area.

The prospective scenarios are prepared considering both possible favorable conditions for variations in the risk factors (optimistic scenario) and possible unfavorable conditions for variations in the risk factors (pessimistic scenario). Their preparation is the joint responsibility of the Market Risk area and Economic Area

Non-diversified scenarios are also prepared, obtained from the worst combinations among risk factor families (which means to stress correlations, considering the most adverse combinations for the portfolio). Their preparation is the responsibility of the Market Risk area.

− Stop loss

Safra establishes monthly limits of losses for the closing of treasury exposures.

II. Sensitivity analysis (Trading and Banking portfolios)

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.

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

12.31.2012

Scenarios Risk factors

Risk of variation in:

1 2 3

Shares Share price variation (745) (18,623) (37,245)

Commodities Operations subject to commodity price variation (71) (1,784) (3,569)

Coupon and currencies Foreign currency coupon rate and exchange rate variation (3,178) (100,272) (198,673)

Fixed income Variation in interest rates denominated in Real (7,457) (866,294) (1,673,956)

Options Foreign exchange coupon rate and exchange rate variation (46) (1,147) (2,295)

Total without correlation (11,497) (988,120) (1,915,738)

Total with correlation (7,905) (856,662) (1,656,565)

Trading and Banking Portfolio

12.31.2012

Scenarios Risk factors

Risk of variation in:

1 2 3

Shares Share price variation (745) (18,623) (37,245)

Commodities Operations subject to price variation (71) (1,784) (3,569)

Coupon and currencies Foreign currency coupon rate and exchange rate variation (2,998) (86,621) (172,145)

Fixed income Variation in interest rates denominated in Real (138) (18,386) (35,382)

Options Foreign currency coupon rate and exchange rate variation (46) (1,147) (2,295)

Total without correlation (3,998) (126,561) (250,636)

Total with correlation (1,037) (29,167) (58,043)

Taking as examples the starting quotations for Real/U.S. dollar of R$ 2.0439 and the 1 year pre-fixed of 7.14% per year, the sensitivity analysis was prepared based on 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$ 2.0643 and the 1 year pre-fixed rate was 7.15% 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$ 2.5549 and the 1 year pre-fixed rate was 8.92% 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$ 3.0659 and the 1 year pre-fixed rate was 10.71% per year.

III. Foreign exchange risk

Safra is exposed to the effects of fluctuations in exchange rates on its exposures and cash flows denominated in foreign currencies or linked to exchange variations. The foreign exchange risk is monitored daily through the determination of the foreign exchange exposure in foreign currency.

Safra's exposure by currency is shown below and includes positions in reais (BR), U.S. dollar (USD) and other currencies.

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12.31.2012

Asset BRL US$

Other

currencies Total Liabilities BRL US$

Other

currencies Total

Cash 208,614 186,501 15,975 411,090 Financial liabilities at amortized cost and at fair value 80,094,762 5,237,796 7,594 85,340,152

Interbank investments 21,068,810 849,785 - 21,918,595 Deposits 7,759,306 105,446 - 7,864,752

Reserves at Brazilian Central Bank 1,178,292 - - 1,178,292

Deposits from financial institutions and open market

funding 46,897,206 864,790 - 47,761,996

Financial assets 33,051,045 211,520 - 33,262,565 Borrowings and onlendings 9,285,299 3,052,961 7,594 12,345,854

Trading securities 15,383,174 145,638 - 15,528,812 Funds from acceptance and issuance of securities 16,152,951 1,214,599 - 17,367,550

Available-for-sale 17,549,589 65,882 - 17,615,471 Derivative financial instruments 3,895,035 30,087 - 3,925,122

Held-to-maturity 118,282 - - 118,282 Insurance and pension plan operations 3,085,987 - - 3,085,987

Derivative financial instruments 232,666 263,574 - 496,240 Subordinated debt 1,450,076 1,207,189 - 2,657,265

Credit operations 40,159,958 7,759,217 29,874 47,949,049 Other financial liabilities 2,593,363 3,294,132 7,205 5,894,700

Other financial assets 3,720,701 2,039,226 6,489 5,766,416 Foreign exchange portfolio 2,057,178 3,103,853 1,697 5,162,728

Foreign exchange portfolio 3,212,492 1,992,373 6,489 5,211,354 Interbank and interbranch accounts 148,709 81,808 5,508 236,025

Negociation and intermediation of securities 286,850 46,853 - 333,703 Negociation and intermediation of securities 217,175 108,471 - 325,646

Interbank and interbranch accounts 71,163 - - 71,163 Values to Liquidate – Credit Cards 84,466 - - 84,466

Onlendings to process 85,538 - - 85,538 Onlendings to process - BNDES 85,835 - - 85,835

Receivables from insurance and reinsurance operations 64,658 - - 64,658

Property and equipment 70,541 24,357 - 94,898 Provision for contingencies 1,470,035 - - 1,470,035

Intangible assets 45,105 - - 45,105 Tax liabilities 1,523,242 - - 1,523,242

Tax assets 1,382,721 - - 1,382,721 Current 680,750 - - 680,750

Current 66,398 - - 66,398 Deferred 842,492 - - 842,492

Deferred 1,316,323 - - 1,316,323 Other liabilities 409,723 - - 409,723

Non-current assets held for sale 21,849 - - 21,849

Other assets 334,028 - - 334,028

Total assets 101,474,330 11,334,180 52,338 112,860,848 Total liabilities 94,522,223 9,769,204 14,799 104,306,226

Off-balance - Asset Off-balance - Liabilities

Short - Currency Coupon Future - note 8 (d.II) 3,425,613 Foreign investment hedge - Future (DDI and DOL) 3,425,613

Total Asset 31.12.2012 104,899,943 11,334,180 52,338 Total Liabilities 31.12.2012 94,522,223 13,194,817 14,799

Total Asset 31.12.2011 77,456,871 8,725,388 81,325 Total Liabilities 31.12.2011 71,443,170 7,550,254 124,039

- Net Exposure – Equity:

12.31.2012

BRL US$ Other Currency Total

Asset 104,899,943 11,334,180 52,338 116,286,461

Liability (94,522,223) (13,194,817) (14,799) (107,731,839)

Net Position - Equity 10,377,720 (1,860,637) 37,539 8,554,622

"Fiscal Over Hedge" (1) 1,480,637 1,480,637

Net Position - "Over Hedge" 10,377,720 (380,000) 37,539 10,035,259

(1) Centralizes the tax impact of Exchange results of foreign investments - note 8(d)

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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.

I. Liquidity risk management process

To manage liquidity risk, there are committees for the management of assets and liabilities, convened every 2 months, 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.

Safra has a specific structure for monitoring and control of liquidity risks, in conformity with Resolution 4,090 of 2012, effective as from 1/1/2013. These activities are carried out by the Liquidity and Cash Flow management, an integral part of the Investment Risk area.

Statistics and projections on the behavior of payments and receipts are used to assess impacts on cash 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.

II. Funding approach

The sources of liquidity are regularly reviewed by the Assets and Liabilities Committee in order to maintain the diversification of the funding with respect to segments, providers, products and terms.

III. Cash flows for non-derivatives

The table below presents the projected cash flows (undiscounted), taking into account the run off of the passive portfolios at 12.31.2012:

Liabilities 60 90 180 360 720 After 720 TOTAL

Deposits from customers 3,484,879 850,404 1,359,871 1,430,707 564,014 220,383 7,910,258

Deposits from financial institutions and open market funding 11,644,660 6,223,924 13,512,046 10,110,066 6,510,847 940,157 48,941,699

Borrowings and onlendings 256,216 622,448 453,097 2,036,078 3,792,492 5,640,855 12,801,185

Funds from acceptance and issuance of securities 2,818,684 607,139 1,729,492 3,358,352 7,226,857 2,155,166 17,895,691

Subordinated debt - - - - - 3,974,394 3,974,394

Other 1,258,768 890,865 1,424,571 1,498,778 590,849 230,868 5,894,700

Total 19,463,208 9,194,780 18,479,077 18,433,982 18,685,058 13,161,822 97,417,927

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IV. Cash flows for derivatives

60 90 180 360 720 After 720 Total

Derivative financial instruments - Assets 200,058 24,139 26,119 52,109 18,586 175,229 496,240

Non Deliverable Forward - NDF 15,071 10,115 822 45,826 - - 71,834

Option premiums 1,372 - 7 - 134 - 1,513

Forward 2,541 - - - - - 2,541

Swap – amounts receivable 173,547 7,512 17,240 5,493 18,452 175,229 397,473

Credit derivative 5,871 4,973 8,050 790 - - 19,684

Futures 1,655 1,539 - - - - 3,195

Derivative financial instruments - Liabilities (648,679) (311,689) (1,090,685) (988,853) (792,767) (92,449) (3,925,122)

Non Deliverable Forward - NDF (1,775) (38) (1,956) (754) - - (4,523)

Option premiums (498,969) (230,370) (718,162) (859,421) (643,453) (9,247) (2,959,622)

Forward - - - - - -

Swap - amounts payable (147,685) (53,777) (370,567) (128,678) (149,314) (77,825) (927,846)

Credit derivative - (6,334) - - - (5,377) (11,711)

Futures (250) (21,170) - - - - (21,420)

V. Items not recorded in the balance sheet

As described in Note 9(g), the off balance items are: 1) guarantees and sureties have very low history of losses, there are no honored positions and 2) for the credit limits granted and not utilized there is a contractual maturity term (total of 90 days) for utilization, and Safra can suspend the limit at any time. Thus, Safra understands that the positions do not present material impacts for the liquidity.

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d) Fair value of financial assets and liabilities

I. Classification of the fair value measurement methodology

The table below presents the breakdown of financial assets and liabilities measured at fair value through profit or loss, classified by hierarchical level:

12.31.2012

Level 1 Level 2 Level 3 Total

Trading securities 14,841,674 687,138 - 15,528,812

National Treasury 14,531,857 - - 14,531,857

Private securities 164,160 687,138 - 851,298

Securities issued abroad 145,657 - - 145,657

Available-for-sale securities 16,696,801 918,670 - 17,615,471

National Treasury 15,813,605 - - 15,813,605

Private securities 817,314 918,670 - 1,735,984

Securities issued abroad 65,882 - - 65,882

Derivative financial instruments - Assets 5,736 490,504 - 496,240

Non Deliverable Forward - NDF - 71,834 - 71,834

Option premiums - 1,513 - 1,513

Forward 2,541 - - 2,541

Swap - amounts receivable - 397,473 - 397,473

Credit default swaps (CDS) - 19,684 - 19,684

Futures 3,195 - - 3,195

Derivative financial instruments - Liabilities (21,420) (3,903,702) - (3,925,122)

Non Deliverable Forward - NDF - (4,523) - (4,523)

Option premiums - (2,959,622) - (2,959,622)

Swap - amounts payable - (927,846) - (927,846)

Credit default swaps (CDS) - (11,711) - (11,711)

Futures (21,420) - - (21,420)

At fair value on initial recognition – Note 11 - 15,106,713 - 15,106,713

Fixed rate portfolio - 18,198,009 - 18,198,009

Funds from acceptance and issuance of securities abroad - (1,884,107) - (1,884,107)

Medium Term Notes (Reais) - (923,871) - (923,871)

Medium Term Notes (USD) - (627,507) - (627,507)

Medium Term Notes (Reais) - (332,729) - (332,729)

Subordinated debt - (1,207,189) - (1,207,189)

31.12.2011

Trading securities 4,203,422 624,273 - 4,827,695

Avaiable-for-sale 2,060,553 931,317 - 2,991,870

Derivatives financial instruments – Assets 47 418,148 - 418,195

Derivatives financial instruments - Liabilities (1,000) (3,270,392) - (3,271,392)

At fair value on initial recognition – Nota 11(1) - (2,805,837) 17,860,404 15,054,567

(1) By the means of the new valuation method adopted from 2012, which adopts observable market data, securities classified as Level 3 on 2011, have been classified as Level 2. There was no impacts on profits and loss as result from the aforementioned changes.

Level 1 - prices quoted in active markets for the same instrument, without modification (Stock Exchange and ANBIMA -

Brazilian Association of Financial and Capital Market Entities).

Level 2 - prices quoted in active markets for similar instruments or valuation techniques, for which all significant inputs are

based on observable market data (Stock Exchange and ANBIMA - Brazilian Association of Financial and Capital Market

Entities).

Level 3 - valuation techniques, for which any significant input is not based on observable market data.

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II. Financial instruments not measured at fair value

The table below summarizes the carrying amounts and fair values of financial assets and liabilities that were not presented in the balance sheet at their fair value.

12.31.2012 12.31.2011

Carrying amount

Fair value Carrying amount

Fair value

Cash and cash equivalents 411,090 411,090 380,224 380,224

Interbank investments and open market operations 21,918,595 21,918,595 21,644,800 21,644,800

Reserves at Brazilian Central Bank 1,178,292 1,178,292 5,389,895 5,389,895

Held-to-maturity 118,282 121,661 356,848 356,848

Credit and leasing operations 28,088,790 28,305,548 27,753,246 27,830,984

Total financial assets 51,715,049 51,935,186 55,525,013 55,602,751

Financial liabilities at amortized cost 81,793,796 81,899,540 62,958,743 62,958,743

Deposits 7,596,778 7,596,778 12,817,832 12,817,832

Deposits from financial institutions and open market funding 47,761,996 47,763,199 29,542,657 29,542,657

Borrowings and onlendings 12,345,854 12,345,854 13,050,429 13,050,429

Funds from acceptance and issuance of securities 14,089,168 14,193,709 7,547,825 7,547,825

Subordinated debt 1,450,076 1,519,726 1,045,207 1,060,968

Total financial liabilities 83,243,872 83,419,266 64,003,950 64,019,711

The fair value adjustments of assets and liabilities not measured at fair value, where assets and liabilities with floating rate index are concentrated (excluding assets and liabilities with the index "Interbank Deposit Certificate" - CDI), comprising credit operations and subordinated debt, amount to R$ 181,750 and R$ 68,321 (R$ 77,738 and R$ 15,761 at 12.31.2011), respectively.

The carrying amount of cash and cash equivalents, interbank investments and open market operations and reserves at Brazilian Central Bank approximates their fair value.

The carrying amount of other items are contracted at floating rate indexes, mostly CDI, and for this reason it approximates their fair value.

The fair value of onlending operations is not shown because the variations of the carrying amount approximates the variations of the fair value since they are restated by the same index and, therefore, are considered immaterial.

e) Capital management

Capital management at Safra comprises 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 through techniques based on guidelines established by

the Basel Committee, as implemented by the Brazilian Central Bank, 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%.

Safra's regulatory capital is divided into two tiers:

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

- Tier II capital - qualified subordinated debt and unearned income arising from the fair value measurement of shares

available for sale.

The investments in affiliated companies are deducted from tier 1 and tier 2 capitals to reach the regulatory capital.

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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.

23 RELATED PARTY TRANSACTIONS

a) Management remuneration

At the Remuneration Committee Meeting held on 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$ 73,911 (R$ 72,688 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 IAS 24 - Related Party Disclosures. 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.

These transactions are mostly based on interest rates in the international market (fed funds and labor) with wide disclosure of their values.

They represent transactions between companies of the Safra consolidated group with other companies of the Safra group not consolidated into the Bank, and the transactions between the companies included in the Bank's consolidation were eliminated in the consolidated statements and consider also the lack of risk.

Assets/(Liabilities) Income/(Expenses)

12.31.2012 12.31.2011 2012 2011

Cash 43,994 94,085 45 31

Banco Safra Luxemburgo 35,164 72,396 45 31

Safra National Bank of New York 8,830 21,689 - -

Foreign currency investments 835,792 721,055 2,178 985

Banco Safra Luxemburgo 547,658 - 368 -

Safra National Bank of New York 288,134 721,055 1,810 985

Securities - Banco Safra Luxemburgo - 437,735 - 1,339

Demand deposits (5,174) (452) - -

Interbank deposits (1,216,949) (582,572) (29,299) (8,207)

Banco Safra Luxemburgo (446,919) (176,582) (13,808) (6,192)

Safra National Bank of New York (416,914) (371,306) (8,127) (1,896)

Other companies (353,116) (34,684) (7,364) (119)

Securities issued abroad - Banco Safra Luxemburgo (64,327) (59,078) 5,433 4,497

Funds from acceptance and issuance of securities -

Debentures (71,109) (102,327) (7,309) (8,431)

Emerald Gestão de Investimentos Ltda (9,744) - (638) -

Fundação Filantrópica Vick e Joseph Safra - (62,719) (3,936) (4,338)

Escola Beit Yaacov (41,446) - (731) -

Irati Imóveis e Representações Ltda (2,461) (10,896) (359) (336)

Other companies (17,458) (28,712) (1,645) (3,757)

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Assets/(Liabilities) Income/(Expenses)

12.31.2012 12.31.2011 2012 2011

Derivative financial instruments - Assets/(Liabilities)

- Banco Safra Luxemburgo - (1,423) 30,380 32,147

Negotiation and intermediation of securities (37) (8) - -

Insurance commissions - Canárias Corretora de

Seguros S.A. - - (33,977) (24,582)

Rental expenses - - (53,316) (3,391)

J. Safra Participações Ltda. (2) - - (22,703) -

Exton Participações Ltda - - (16,993) -

Other companies - - (13,620) (3,391)

Funds managed - Note 10(f)

Financial investments (4,090,314) (4,937,359) - -

Revenue from management fees and fund management -

JS Administração de Recursos S.A. - - 196,824 191,920

(1) Over investment of one day (fed funds).

(2) Active operation with a three-month term, renegotiated at market rate.

***

2

(A free translation of the original in Portuguese)

Independent auditor's report on theconsolidated financial statements

To th e Managemen t ofBancoSafra S.A.

We have au dited th e accom panying consolidated financial statements of Banco Safra S.A. an d i tssu bsidiaries (the "In stitution "),which compriseth e con solidated balance sheet as at Decem ber 31, 2012an d the con solidated statem ents of income, compreh ensive income, changes in equity and cash fl ows forth e y ear th en en ded, and a summary of significant accoun ting policies an d oth er explanatory information.

Management's respon sibility forth econ soli datedfinan cial statements

Managem ent isresponsibl e for th e preparation and fair presen tation of th ese consolidated financialstatements in accordance with the In ternation al Financial Reporting Stan dards (IFRS), and for su chinternal con trol as managem ent determin es is necessary to en abl e the preparation of consolidatedfinan cial statements that are free from material misstatem ent, whether due to frau d or error.

Au ditor's respon sibility

Our responsibility is toexpress an opinion on these consolidated financial statemen ts based on our audi t.We conducted ou r au dit in accordance with Brazilian and international stan dards on audi ting. Thosestandards require that we com ply with ethical requirements an d plan and perform th e audit to obtainreasonabl e assurance abou t whether the con solidated finan cial statem ents are free from materialmisstatem ent.

An au dit involves performing procedures to obtain au dit evidence abou t the am ounts and discl osures inth e consolidated finan cial statem ents. Th e procedures selected depen d on the audi tor 's judgm ent,inclu ding the assessmen t of the risks ofmaterial misstatem ent of the consolidated financial statem ents,wh eth er du e tofrau d or error.

In making th ose risk assessm ents, th e au ditor considersin ternal control rel evant to th e Institution 'spreparation and fair presen tation of th e consolidated financial statements in order to design audi tprocedures that are appropriate in th e circumstances, but n ot for the purpose of expressing an opinion onth e effectiven ess of the Insti tution 's internal control . An au dit also includes evaluating the appropriatenessof accoun ting policies used an d the reasonabl eness of accounting estimates made by managem ent, as wellas evaluating the overall presentation of the consolidated financial statements.

We believe that th e au dit evidence we have obtain ed is sufficient and appropriate to provide a basis for ourau dit opinion .

BancoSafra S.A.

3

Opinion

In our opinion, the consolidated finan cial statements present fairly, in all material respects, th e financialposi tion of Banco Safra S.A. and its su bsidiariesas at December 31, 2012, an d their financial performancean d their cash fl ows for th e y ear then ended, in accordance with the International Financial ReportingStan dards (IFRS) issu ed by th e In ternational A ccounting Stan dards Board (IA SB).

São Paul o, March 20, 2013

Pricewaterh ouseCoopersAudi tores In dependentesCRC 2SP000160/O-5

Luiz Antonio FossaCon tador CRC1SP196161/O-8

Banco Safra S.A. and subsidiaries · Funds from acceptance and issuance of securities 10(a-IV)...

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