Summary of Results 2Q12 Summary of the Results 2T115 - ndBanco do Brasil – Summary of Results 2...

1 - Banco do Brasil – Summary of Results 2nd

Quarter /2012

Summary of Results 2Q12

2T11 Summary of the Results

Results

BB’s Adjusted Net Income reaches R$ 5.7 billion in the 1H12

Banco do Brasil recorded an adjusted net income of R$ 5,690 million in 1H12, a figure 7.5% lower than the observed in 1H11. This performance corresponds to an annualized return on average shareholders' equity (ROAE) of 19.9%. The net income, including the one-off items, closed the 1H12 at R$ 5,510 million, corresponding to a ROAE of 19.3%.

The half-yearly result was mainly driven by: the expansion of the net interest income (NII) and fee income; and by the reduction of the amount accounted for recognizing of actuarial gains/losses of Benefit Plan 1 of Previ, which recorded R$ 1,920 million in 1H11, against R$ 781 million in 1H12.

Banco do Brasil recorded an adjusted net income of R$ 2,986 million in 2Q12, presenting an increase of 10.4% in the 2Q12/1Q12 comparison and a decrease of 7.6% over 2Q11. This result represents a ROAE of 21.2%. The net income, including the one-off items, closed 2Q12 at R$ 3,008 million, this represents a ROAE of 21.4%.

Guidance of 2012

The following table presents the 2012 Guidance. The balance sheet items were calculated from the amounts recorded in Jun/2012, against Jun/2011. On the other side, the income statement figures were calculated by dividing the amount accumulated in 1H12 against the amount accumulated in 1H11. The Guidance is prepared for the year and the half-yearly monitoring may be adversely affected by seasonality or specific events of the period in charge.

Table 1. Guidance of 2012

Items Performance 2012 2012 Guidance

Adjusted Return on Equity 19.9% 19% - 22%

Net Interest Income 14.1% 11% - 15%

Total Deposits 17.9% 14% - 18%

Domestic Loan Portfolio¹ 17.9% 17% - 21%

Individuals¹ 13.6% 19% - 23%

Companies 21.3% 18% - 22%

Agribusiness 17.7% 9% - 12%

Allow ance for Loan Losses² 3.2% 3,1% - 3,5%

Fee Income 21.3% 13% - 18%

Administrative Expenses 17.2% 8% - 12%

Tax Rate 28.0% 31% - 34%

(1) This line considers the credit acquired with recourse, according to CMN 3533/2008 resolution. (2) Allowance for loan losses expenses of the last 12 months / average portfolio in the same period.

The main reasons for deviations in the 2012 guidance are:


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a) Individual Loan Portfolio – lower demand for credit in the economy and reduction of Banco Votorantim’s auto loans;

b) Agribusiness Loan Portfolio – higher demand, mainly from medium/larges farmers and agricultural cooperatives;

c) Fee Income – increasing of the relationship with clients, reflecting the program to improve the service rendered for the retail segment and the BOMPRATODOS program;

d) Administrative Expenses – operations increase, with highlight on business with Mapfre Group, Banco Postal and Banco Patagonia, whose were not accounted for in the 1H11 result;

e) Tax Rate – tax benefit arising from interest on own capital.

Guidance Review

The following table shows new prospects for 2012 Guidance, with changes in ROAE, NII and Agribusiness Loan Portfolio, due to the reasons below:

a) Adjusted ROAE and NII – the current financial scenario, with strengthening of competition with other financial institutions and the expectation of the continuing decrease of the Selic rate, which will affect the banks results; and

b) Agribusiness Loan Portfolio – high credit demand, mainly from medium/large farmers and agricultural cooperatives, surpassed the growth expectations of 1H12.

Table 2. Guidance of 2012 – New 2012 Prospects

Items Performance 2012 2012 Guidance

Adjusted Return on Equity 19.9% 17% - 20%

Net Interest Income 14.1% 10% - 14%

Total Deposits 17.9% 14% - 18%

Domestic Loan Portfolio¹ 17.9% 17% - 21%

Individuals¹ 13.6% 19% - 23%

Companies 21.3% 18% - 22%

Agribusiness 17.7% 13% - 16%

Allow ance for Loan Losses² 3.2% 3,1% - 3,5%

Fee Income 21.3% 13% - 18%

Administrative Expenses 17.2% 8% - 12%

Tax Rate 28.0% 31% - 34%

(1) This line considers the credit acquired with recourse, according to CMN 3533/2008 resolution. (2) Allowance for loan losses expenses of the last 12 months / average portfolio in the same period.

At the end of this Summary the premises used for the Guidance of 2012 elaboration are presented.

Shareholders’ Return

Shareholders’ Remuneration reached R$ 2.2 billion in 1H12


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BB’s earning per share reached R$ 1.94 in 1H12. Banco do Brasil has maintained the 40% payout rate for its shareholders with R$ 2.2 billion remuneration, comprised by R$ 532 million of dividends and R$ 1,691 million of interest on own capital.

Figure 1. Earnings per Share, Dividends and Interest on Own Capital

0.6

0.20.4

1.0

0.5

0.7

0.8

0.9

1.5

1.7

1.3

1.01.2

2.5

2.2

1.16

0.89

1.05

2.19

1.94

2Q11 1Q12 2Q12 1H11 1H12

Dividends (R$ billion) Interest on Own Capital (R$ billion) Earnings per Share (R$)

Result driven by business growing and fee income

The performance of the income from loan and leasing operations, had an increase of 17.0% in the 1H12/1H11 comparison, and influenced the NII growth. However, the funding mix change and the time deposits increase explains the growth of the funding expenses. Additional informations about BB funding allocation are available on chapter 7 of the MD&A.

Thus, the Net Interest Income (NII), difference between the Financial Intermediation Income and the Financial Intermediation Expenses, ended 1H12 at R$ 22,865 million, an increase of 14.1% over the same period of the previous year, following up the 2012 Guidance.

Fee income ended 1H12 at R$ 10,308 million, an increase 21.3% regarding the amount observed in 1H11. The good performance of fee income was due to the high credit offer, the service render structure reformulation, the strategy to make the current client base more profitable and the BOMPRATODOS program.

The Administrative Expenses presented a growth of 17.2% in the 1H12/1H11 comparison. This was mainly due to the accounting consolidation, in 1H12, of expenses from the partnership with the Mapfre insurance group, Banco Patagonia acquisition as well as the acquisition of the right of use Banco Postal service network, whose were not accounted for in 1H11.

The following table, extracted from the income statement with reallocation, presents the main lines of the period. The reallocations’ details can be found in the section 2.3.1 of MD&A.


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Table 3. Income Statements with Reallocations – Main Lines

Quarterly Flow Half-Yearly Flow Chg. %

R$ million 2Q11 1Q12 2Q12 On 2Q11 On 1Q12 1H11 1H12 On 1H11

Financial Intermediation Income 24,094 25,934 28,639 18.9 10.4 46,608 54,573 17.1

Loan Operations + Leasing 15,713 17,343 18,212 15.9 5.0 30,462 35,555 16.7

Securities 6,952 7,004 8,100 16.5 15.7 13,085 15,104 15.4

Financial Intermediation Expenses¹ (13,905) (14,926) (16,781) 20.7 12.4 (26,572) (31,708) 19.3

Net Interest Income 10,189 11,008 11,858 16.4 7.7 20,036 22,865 14.1

Allow ance for Loan Losses (3,047) (3,576) (3,677) 20.7 2.8 (5,677) (7,252) 27.8

Net Financial Margin 7,142 7,432 8,181 14.6 10.1 14,359 15,613 8.7

Fee income 4,388 5,051 5,256 19.8 4.1 8,495 10,308 21.3

Income f/ Insur., Pension Plans and Sav. Bonds 667 516 608 (8.9) 17.7 1,180 1,124 (4.7)

Contribution Margin 11,169 11,985 13,014 16.5 8.6 22,029 24,999 13.5

Administrative Expenses (5,886) (6,626) (6,946) 18.0 4.8 (11,578) (13,572) 17.2

Personnel Expenses (3,364) (3,694) (3,871) 15.1 4.8 (6,509) (7,565) 16.2

Other Administrative Expenses (2,522) (2,932) (3,075) 21.9 4.9 (5,069) (6,007) 18.5

Commercial Income 5,236 5,297 5,995 14.5 13.2 10,364 11,291 9.0

Legal Claims (190) (250) (258) 36.1 3.2 (288) (509) 76.7

Labor Law suits 2 (238) (110) - (53.9) (77) (348) 352.4

Other Operating Income 242 (690) (919) - 33.2 112 (1,608) -

Income Before Taxes 5,295 4,139 4,738 (10.5) 14.5 10,134 8,877 (12.4)

Income and Social Contribution Taxes (1,566) (967) (1,273) (18.7) 31.6 (3,039) (2,240) (26.3)

Corporate Profit Sharing (472) (433) (440) (6.7) 1.6 (914) (873) (4.5)

Adjusted Net Income 3,230 2,704 2,986 (7.6) 10.4 6,153 5,690 (7.5)

Chg. %

(1) Historical data were reviewed since 2011 first quarter due to the accounting of premium paid to clients arising from judicial deposits and adjustment of resources released in the scope of BB Crédito Imobiliário (Banco do Brasil mortgage loans), in accordance with CMN resolution 3,706/09, in the Money Market Funds expenses, those expenses were previously accounted for in Other Operating Expenses. Additionally, the Borrowing Assignments and Onlending historical data was reviewed since the 1Q11, due to the accounting of expenses related to remuneration of resources intended to INSS (Brazilian Social Security) benefits payments and adjustment of resources to refund to Tesouro Nacional, those expenses were previously accounted for in Other Operating Expenses.

One-Off Items Impacts

The one-off items impacts were R$ 180 million negative in 1H12, value net of taxes and statutory profit sharing. The items considered as one-off in the period were: (i) reversion of additional allowance for loan losses, arising from the half-yearly review of the application model, by the comparison of provision required by CMN Resolution 2,682 and the historical data of the maximum delinquency observed for each product/credit modalities of the Bank for each level of risk, in the last seven years; and (ii) expenses arising from the provisions regarding the legal claims related to economic plans.

Table 4. One-Off Items

R$ million 2Q11 1Q12 2Q12 1H11 1H12

Adjusted Net Income 3,230 2,704 2,986 6,153 5,690

(+) One-Off Items of the Period 100 (201) 22 109 (180)

Sale of Investments 169 - - 169 -

Economic Plans 10 (362) (184) 27 (546)

Additional Allow ance for Loan Losses - - 223 - 223

Tax Eff. and Stat. Profit Sharing on One-Off Items (79) 160 (17) (87) 143

Net Income 3,330 2,502 3,008 6,262 5,510


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Table 5. Main Result’s Indicators

Indicators - % 2Q11 1Q12 2Q12 1H11 1H12

Net Interest Margin (NIM)¹ 5.6 5.4 5.5 5.6 5.4

Expenses w ith Allow ance for Loan Losses over Portfolio² 3.0 3.2 3.2 3.0 3.2

Cost-Income Ratio³ 39.7 45.2 43.4 40.3 44.3

Cost-Income Ratio³ - 12 Months 41.1 43.2 44.1 - -

Adjusted Return on Equity¹ 26.6 19.7 21.2 24.9 19.9

Effective Tax Rate 32.5 26.1 29.6 33.0 28.0

(1) Annualized indicators (2) Allowance for loan losses expenses of the last 12 months / average portfolio in the same period. (3) The one-off items impacts of the period were set aside.

Net Interest Income

The breakdown of the net interest income is presented in the following table. In this disclosure, the revenues from loans operations and the funding expenses do not consider the exchange rate changes. The treasury line comprises: (i) the interest revenue; (ii) revenues from remunerated compulsory deposits; (iii) tax hedge; derivatives and other financial instruments, whose offset the effects of exchange rate changes over the result.

Because it involves targeted resources, with specific investments in loans linked to public lending programs, for example, Finame, BNDES and FCO, the cost of these resources were separated from financial expenses of funding and allocated to the Other line. Financial expenses included mainly expenses on time deposits and savings.

Table 6. NII Breakdown

Quarterly Flow Chg. %

R$ million 2Q11 1Q12 2Q12 On 2Q11 On 1Q12

Net Interest Income¹ 10,189 11,008 11,858 16.4 7.7

Loan Operations 14,615 16,685 16,611 13.7 (0.4)

Funding Expenses (6,505) (7,170) (6,739) 3.6 (6.0)

Recovery of Write-offs Loans 953 750 1,109 16.3 47.8

Treasury 2,078 1,683 1,728 (16.9) 2.7

Other (952) (940) (851) (10.7) (9.5)

(1) The historical data was reviewed because changes in the calculation methodology

Managerial Margin and Spread

BB's managerial margin from loans and deposits is shown in the following table. Each line is calculated by the difference between financial revenue/expenses and the respective opportunity cost of each line, for example: the average Selic rate (TMS), Long-term interest rate (TJLP) or Referential Interest Rate (TR).


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Table 7. Managerial Margin

Quarterly Flow Chg. % Half-Yearly Flow Chg. %


Loan Operations 7,258 8,487 9,206 26.8 8.5 14,368 17,693 23.1

Individuals 4,278 4,711 5,215 21.9 10.7 8,375 9,925 18.5

Companies 2,021 2,479 2,602 28.8 5.0 4,041 5,081 25.7

Agribusiness 959 1,298 1,389 44.8 7.0 1,953 2,687 37.6

Deposits 1,490 1,253 1,080 (27.5) (13.8) 2,893 2,332 (19.4)

Time Deposits 905 764 682 (24.7) (10.8) 1,745 1,446 (17.1)

Demands Deposits 378 318 274 (27.6) (14.0) 756 592 (21.8)

Saving Deposits 207 170 124 (40.0) (27.0) 392 294 (24.9)

BB's Individual loan portfolio is concentrated in the credit lines of Consumer Finance Backed by Direct Deposits (CDC Salário), payroll loans, vehicle financing and mortgage loans, which together accounted for 80% of the total. Traditionally, these lines have lower spreads than other Individual credit lines.

The early settlement or amortization of loans (in accordance with CMN Resolution 3516/2007), given the scenario of reduced interest rates, increased the spread in the Individual segment in the second quarter.

"Risk-Adjusted Net Interest Margin" is calculated based on ratio between net financial margin and earning assets, that is, it considers expenses with allowance for loan losses. The table below presents the performance of the BB's spread indices.

Table 8. Annualized NIM

% 2Q11 1Q12 2Q12 1H11 1H12

Loan Operations 8.6 8.9 9.2 8.5 9.0

Individuals 15.3 15.3 16.5 15.0 15.6

Companies 5.7 6.2 6.2 5.7 6.1

Agribusiness 4.7 5.5 5.8 4.9 5.6

Deposits 1.8 1.3 1.1 3.5 2.4

Time Deposits 1.9 1.3 1.1 3.8 2.4

Demands Deposits 3.2 3.0 2.5 6.4 5.5

Saving Deposits 0.9 0.7 0.5 1.8 1.2

Net Interest Margin (NIM) 5.6 5.4 5.5 5.6 5.4

Risk Adjusted NIM 3.9 3.6 3.8 4.2 3.6

Assets and main Balance Sheet Items

Total Assets surpass R$ 1.05 trillion

In June 2012, the total assets of Banco do Brasil reached R$ 1.05 trillion, which represented a 16.3% growth over Jun/11. The main lines of assets are loan operations, securities and short-term interbank investments that accounted for 73.0% of BB's total assets in Jun/12. Regarding liabilities, deposit funding is highlighted, representing 44.4% of total liabilities. The following table presents the main items of the Balance Sheet.


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Table 9. Main Balance Sheet Items

Chg. %

R$ million Jun/11 Mar/12 Jun/12 On Jun/11 On Mar/12

Total Assets 904,145 1,004,971 1,051,410 16.3 4.6

Loan Portfolio - Broad concept¹ 422,378 472,853 508,183 20.3 7.5

Securities 154,634 155,983 167,536 8.3 7.4

Short-Term Interbank Operations 147,565 183,015 190,507 29.1 4.1

Deposits 396,151 446,870 466,959 17.9 4.5

Demand Deposits 61,138 60,659 60,592 (0.9) (0.1)

Savings Deposits 89,217 101,815 105,586 18.3 3.7

Interbank Deposits 11,553 14,272 15,003 29.9 5.1

Time Deposits 234,243 270,123 285,779 22.0 5.8

Money Market Borrow ing 192,875 199,811 194,536 0.9 (2.6)

Shareholder’s Equity 54,619 60,051 62,308 14.1 3.8

(1) It is included guarantees provided and private securities

Strong structure of funding sources ensures expansion of business

Regarding the main sources of Banco do Brasil's funding, deposits are still the most important item, accounting for 71.7% of the total at the end of Jun/12. Bank bills (LCA, LCI, Letters of Credit and Debentures) are also highlighted, increasing to 4.1% of the total of sources in Jun/12, compared to 1.8% in Jun/11, as shown in the table below.

Table 10. Sources and Uses

Balance Chg. %

R$ million Jun/11 Share % Mar/12 Share % Jun/12 Share % On Jun/11 On Mar/12

Sources 531,242 100.0 608,460 100.0 651,081 100.0 22.6 7.0

Funding 512,809 96.5 588,015 96.6 629,734 96.7 22.8 7.1

Total Deposits 396,151 74.6 446,870 73.4 466,959 71.7 17.9 4.5

Domestic Onlending 51,353 9.7 51,565 8.5 52,396 8.0 2.0 1.6

Financial and Development Funds 3,578 0.7 4,104 0.7 4,567 0.7 27.6 11.3

Subordinated Debt 22,455 4.2 25,867 4.3 30,569 4.7 36.1 18.2

Commercial Papers¹ 9,394 1.8 18,600 3.1 26,405 4.1 181.1 42.0

Foreign Borrow ing² 29,878 5.6 41,010 6.7 48,839 7.5 63.5 19.1

Allow ance for Loan Losses 18,434 3.5 20,445 3.4 21,347 3.3 15.8 4.4

Uses 531,242 100.0 608,460 100.0 651,081 100.0 22.6 7.0

Available Funds 58,581 11.0 82,439 13.5 100,219 15.4 71.1 21.6

Loan Portfolio 383,378 72.2 431,876 71.0 459,794 70.6 19.9 6.5

Compulsory Deposits 89,283 16.8 94,146 15.5 91,068 14.0 2.0 (3.3)

Indicators - %

Loan Portfolio / Total Deposits 96.8 96.6 98.5

Loan Portfolio / Funding 74.8 73.4 73.0

(1) Includes Real Estate Receivables Certificates, Letters of Agribusiness Credit -, Letters of Credit and Debentures (Explanatory Note 19). (2) Includes Foreign Borrowings, Foreign securities obligations, Obligations for Foreign Onlendings, Overseas Subordinated Debt and Hybrid Capital and Debt Instruments.

The balance of foreign borrowings reached a record R$ 37.9 billion in Jun/12 (up 19.5% in twelve months), with a highlight on the issue of securities abroad.


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Figure 2. Foreign Borrowings (R$ billion)

9.1 9.7 9.7

10.613.8 15.2

6.7

7.77.33.1

3.13.1

2.3

3.0 2.7

31.7

37.3 37.9

Jun/11 Mar/12 Jun/12

Repos

Individuals

Companies

Bond Issues

Interbanking

In 1Q12, BB carried out two issues of capital and debt hybrid instruments, totaling US$ 1.75 billion, categorized by the Central Bank as Tier I capital. These operations were innovative because they allow their structure to be adapted to any regulatory adjustments arising from the rules of Basel III. In the 2Q12, Banco do Brasil carried out an issue of US$ 750 million of subordinated debt with a maturity of 10 years, and of these, US$ 740 million was categorized by the Central Bank as Tier II capital. Additionally, in 2Q12, subordinated letters of credit were issued in the amount of R$ 4.0 billion, already assessed by the Central Bank and authorized for categorization as Tier II capital

Basel

BIS Ratio higher than the minimum required

The pro tem BIS Ratio of Banco do Brasil ended June 2012 at 14.6%, higher than the 14.3% recorded in Mar/12. This index considers issues of subordinated financial bills in 2Q12, whose categorization as Tier II capital was authorized by the Central Bank. The Bank's index exceeds the minimum of 11% required by the Central Bank and indicates an excess of Referential Shareholders’ Equity of R$ 23.2 billion, which allows an expansion of up to R$ 210.5 billion in loan assets, considering a 100% weighing.


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Figure 3. BIS Ratio

11.1 10.9 10.6

3.3 3.3 4.0

14.4 14.314.6

Jun/11 Mar/12 Jun/12¹

Tier I Tier II

(1) Includes issues of subordinated financial bills in 2Q12, whose categorization as Tier II capital was authorized by the Central Bank of Brazil.

Loan Portfolio

Loan Portfolio grows with quality

The loan portfolio in the broad concept reached R$ 508,183 million in Jun/2012, an expansion of 20.3% in twelve months and 7.5% regarding the last march. Banco do Brasil’s market share in the domestic credit market was 19.5% in the end of Jun/2012, indicating the stability in relation to the observed in Jun/2011 and an increase over the 19.1% recorded in Mar/2012.


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Table 11. Loan Portfolio – Classified and Broad Concepts

Balance Chg. %

R$ million Jun/11 Share % Mar/12¹ Share % Jun/12 Share % On Jun/11On Mar/12

Loan Portfolio (a) 383,378 100.0 431,876 100.0 459,794 100.0 19.9 6.5

Brazil 358,568 93.5 398,322 92.2 422,606 91.9 17.9 6.1

Individuals 122,561 32.0 132,716 30.7 139,282 30.3 13.6 4.9

Payroll Loan 47,910 12.5 52,410 12.1 54,900 11.9 14.6 4.8

Consumer Loan Backed by Direct Dep. 14,577 3.8 16,121 3.7 17,024 3.7 16.8 5.6

Vehicle Loans 30,535 8.0 30,708 7.1 31,845 6.9 4.3 3.7

Mortgage 4,200 1.1 6,828 1.6 7,690 1.7 83.1 12.6

Credit Card 11,481 3.0 13,039 3.0 13,703 3.0 19.4 5.1

Overdraft Accounts 3,141 0.8 3,081 0.7 2,918 0.6 (7.1) (5.3)

Other 10,717 2.8 10,528 2.4 11,203 2.4 4.5 6.4

Companies 155,456 40.5 173,948 40.3 188,495 41.0 21.3 8.4

SME 59,900 15.6 70,242 16.3 75,359 16.4 25.8 7.3

Middle and Large 95,556 24.9 103,706 24.0 113,136 24.6 18.4 9.1

Agribusiness 80,551 21.0 91,658 21.2 94,828 20.6 17.7 3.5

Individuals 51,649 13.5 59,485 13.8 63,507 13.8 23.0 6.8

Companies 28,903 7.5 32,174 7.4 31,321 6.8 8.4 (2.7)

Abroad 24,810 6.5 33,553 7.8 37,189 8.1 49.9 10.8

Private Securities (b) 39,001 40,977 48,389 24.1 18.1

Loan Portfolio - Broad concept (a + b) 422,378 100.0 472,853 100.0 508,183 100.0 20.3 7.5

Individuals 122,562 29.0 132,750 28.1 139,335 27.4 13.7 5.0

Companies 191,197 45.3 211,380 44.7 233,958 46.0 22.4 10.7

Agribusiness 81,489 19.3 92,448 19.6 95,672 18.8 17.4 3.5

Abroad 27,131 6.4 36,274 7.7 39,217 7.7 44.6 8.1

(1) In order to maintain comparability between the periods, the loan portfolio balance disclosed in March 2012 was revised according to managerial criteria to consolidate the acquired portfolios with recourse, in compliance with CMN Resolution 3,533/08.

Individual Loan Portfolio backed by lower-risk lines of credit

The individual loan portfolio in the broad concept closed June at R$ 139,335 million, an increase of 5.0% in the quarter, performance favored the development of the BOMPRATODOS program. In twelve months, loans to individuals increased by 13.7% and account for 27.4% of the Bank's loan portfolio in the broad concept.

Considering only the BB portfolio, i.e., excluding the acquired portfolios and 50% of the operations of Banco Votorantim, the individual loan portfolio grew 8.0% in the quarter and 20.7% over the same period of the prior year. This performance was favored by the development of the BOMPRATODOS strategy.

In the vehicle financing segment, there was significant growth in its own portfolio, which totaled R$ 6,717 million in Jun/12 (up 45.4% over Mar/12), and the profile of these new operations is still within the strict criteria of credit analysis adopted by BB.

Payroll loans totaled R$ 54,900 million in Jun/12, an increase of 14.6% over the same period in 2011. BB's market share in this segment was 31.3% in Jun/12.

Individual mortgage loans have grown steadily since the beginning of operations in 2Q08. This portfolio reached R$ 7,690 million in Jun/12, an increase of 12.6% over the Mar/12 and 83.1% over Jun/11. The market share in this segment reached 3.3% in Jun/12, compared to 2.5% in Jun/11. The volume disbursed in the Individual mortgage loans was R$ 2,075 million in 1H12, compared to R$ 1,449 billion in 1H11. In 1H12 the disbursement for companies was R$ 903 million and the portfolio balance reached R$ 2,128 million in Jun/2012. In the total, the BB's mortgage portfolio (Individuals + companies) reached R$ 9,818 million in Jun/2012.


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2T11 Companies Loan Portfolio driven by SME

The companies loan portfolio in the broad concept also reflected the impacts of BOMPRATODOS program. This portfolio reached R$ 233,958 million, with a growth of 22.4% in the annual comparison and 10.0% over Mar/2012, representing 46.0% of the total loan portfolio. In the companies portfolio it is worth to emphasize the expansion of the working capital lines, with an increase of 21.1% over Jun/2011.

The credit operations for micro and small companies reached R$ 75,359 million in Jun/2012 (up 25.8% in twelve months comparison). The working capital credit lines were favored by BOMPRATODOS program. BB has been using the Operations Guarantee Fund (FGO) and the Endorsement for Micro and Small Companies Fund (Fampe) to allow a greater access to the credit for SME and to reduce the operating costs for the final borrower.

Thus, the working capital credit lines for SME increased R$ 3,351 million in the quarter, totaling R$ 51,513 million in Jun/2012.

The investment credit lines presented a growth in Jun/2012 as well, ending the period at R$ 21,898 million, a growth of 8.7% in the QoQ comparison and 36.1% over Jun/2011.

The Bank's Abroad Loan Portfolio reached R$ 37,189 million in June/11, a balance 49.9% higher than the one verified in June/11. The balance of ACC/ACE operations reached R$ 12,462 million in Jun/12, an increase of 34.7% in twelve months, guaranteeing BB a market share of 32.0%.

The Agribusiness Loan Portfolio surpasses R$ 95 billion

Banco do Brasil is the leader in agribusiness lending, with a 63.8% market share. The agribusiness portfolio in the broad concept, including agricultural loan and agroindustrial transactions, reached R$ 95,672 million in Jun/12 (up 17.4% in relation to Jun/11).

It is worth to highlight the Pronaf / Pronamp lines, which reached R$ 30,255 million, an increase of 26.6% over Jun/11 and 5.5% over Mar/12, driven by adjustments in credit conditions which expanded the target public of this credit line. Loans to individuals reached R$ 63,507 million, up 23.0% compared to Jun/11. The agribusiness companies portfolio balance reached R$ 31,321 million.

The use of mitigators to support 2011/2012 harvest working capital for input purchase was 48.8% at the end of Jun/12, .i.e., R$ 9,028 million. The NPL + 90 days indicator for the agribusiness portfolio remains at a low level: 0.5% in Jun/12, compared to 0.9% in Jun/11.

Please note that BB disbursed R$ 48.2 billion to agribusiness for the 2011/212 harvest. For the 2012/2013 harvest, the Bank will allocate approximately R$ 55 billion, indicating a 14% expansion of credit volume.

The consolidated delinquency ratios are still stable

The delinquency ratio of Banco do Brasil remained under control in 2Q12. The indicator that measures non-performing loan for more than 90 days was 2.1% at the end of Jun/12, a level well below that recorded in the Brazilian Banking Industry (BII), which reached 3.8% in the same period.


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In relation to the operations classified by risk level, BB also presents a better loan structure than the Banking Industry. The transactions rated at risk levels AA-C ended Jun/12 at 93.9% of the total portfolio, against the 92.1% verified in the Banking Industry. The following table presents quality indexes of loan portfolio.

Table 12. Loan Portfolio Quality Indicators

% Jun/11 Mar/12 Jun/12

NPL + 15 days/Total Portfolio (%) 3.8 3.9 3.6

NPL 15-59 days/Total Portfolio (%) 1.3 1.3 1.1


NPL 15-89 days/Total Portfolio (%) 1.7 1.8 1.5


AA - C Loans / Total Portfolio (%) 93.6 93.9 93.9

Allow ance/Loan Portfolio 4.6 4.5 4.4

Individuals Allow ance/Loan Portfolio 6.8 6.8 6.5

Companies Allow ance/Loan Portfolio 3.1 3.2 3.2

Allow ance/NPL + 60 days 186.1 171.6 172.6

Allow ance/NPL + 90 days 226.5 210.6 205.9

Average Risk BB 4.2 4.1 4.1

Average Risk – Banking Industry 5.6 5.7 5.7

NPL + 90 days/Total Portfolio – BI 3.4 3.7 3.8

Allowance for loan losses expenses increased 20.7% in 2Q12/2Q11 comparison, change aligned with the classified loan portfolio increase in the period (19.9%)

If the operations of Banco Votorantim would not considered, BB's classified loan portfolio would grew 22.0% compared to that recorded in Jun/11, a percentage higher than the increase in the respective expenses of allowance for loan losses in the period (12.6%).

In the quarter, there was a reversal of additional allowance for loan losses in the amount of R$ 223 million, treated as an one-off item. This reversal is due to the application of the half-yearly review model, by comparing the level of regulatory allowance existing by CMN Resolution 2682 and historical observation, in the last seven years, of the maximal defaults verified for all of the Bank's credit products/modalities, at each level of risk.

Table 13. Allowance for Loan Losses Expenses over Loan Portfolio

R$ million 2Q11 1Q12¹ 2Q12

(A) Allow ance for Loan Losses - Quarterly (3,047) (3,576) (3,677)

(B) Allow ance for Loan Losses - 12 Months (10,454) (12,773) (13,403)

(C) Loan Portfolio 383,378 431,876 459,794

(D) Average Portfolio – 3 Months 375,447 425,257 448,148

(E) Average Portfolio – 12 Months 353,906 398,498 416,715

Expenses over Portfolio (A/D) - % 0.8 0.8 0.8

Expenses over Portfolio (B/E) - % 3.0 3.2 3.2

(1) In order to maintain comparability between the periods, the loan portfolio balance disclosed in March 2012 was revised according to managerial criteria to consolidate the acquired portfolios with recourse, in compliance with CMN Resolution 3,533/08.

The balance of provisions ended the quarter at R$ 20,340 million, which provides coverage of 205.9% of non-performing loans for more than 90 days, a percentage higher than the observed in the Banking Industry that reached 150.9% in June/12.


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BOMPRATODOS

BOMPRATODOS boosts credit operations

BOMPRATODOS program was launched on 4th April, 2012. The program reflects the new strategic

positioning of Banco do Brasil and includes a range of actions whose comprise financial advisory, main credit lines for individual and SME interest rates reduction and improvement of the relationship with clients. Thus, BB aim to encourage the aware use of credit and to contribute for the maintenance of delinquency ratios at a level lower than the Banking Industry, allowing the good quality credit expansion.

The following graphics show the improvement of the main credit products offered for individuals in the scope of BOMPRATODOS. In the traditional products, such as payroll loans and consumer credit, the program allowed BB to maintain the growing track, strengthening Banco do Brasil positioning in those segments.

BB Crediário portfolio, a line designed as a consumer finance for the purchase of goods, presented a reversion of a fall trend, closing Jun/12 with a R$ 325 million balance.

Figure 4. BOMPRATODOS – Main Individuals Credit Lines

R$ million

4,5994,626

4,691

4,786

4,985

Jun/11 Sep/11 Dec/11 Mar/12 Jun/12

INSS Payroll Loan

5,654

5,285

5,6925,603

6,061


Consumer Finance

14,577

14,946

15,327

16,121

17,024


Auto Loans

329

302

274

247

325


Crediário

The growth of BB owns portfolio of vehicles, which achieved a balance of R $ 6.7 billion, an evolution of 45.4% over Mar/12 and 35.1% over Jun/11 is an important highlight. It is noteworthy that the profile


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of these new operations continued within the strict criteria for credit analysis adopted by Banco do Brasil, ensuring the sustenance of the portfolio quality.

The charts below show that the vehicles non-performing loans for more than 90 days (NPL + 90 days) of Banco do Brasil is lower than that recorded by the Brazilian Banking Industry. Moreover, the breakdown of this portfolio by risk level indicates that over 93% of these operations are concentrated among the AA-C levels, with an improvement of 270 bps in the quarter.Figure 5. Auto Loans – NPL + 90 days and Risk Level

NPL + 90 days – BB vs. BI Auto Loans Portfolio by RL

2.1 2.0 2.2 2.11.4

3.84.4

5.0

5.7 6.0


BB Banking Industry

89.2 90.4 93.1

10.8 9.6 6.9

Jun/11 Mar/12 Jun/12

AA-C D-H

The evolution of the working capital for SME can be seen in the chart below. These operations grew 7.0% in the quarter, amounting to R$ 51.5 billion balance in June/12, positively impacted by the BOMPRATODOS program that added volume and improved the SME customer relationship.

Figure 6. Working Capital for SME

R$ million

42,571 43,61347,867 48,162

51,513


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Figure 5.

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Auto Loans - NPL + 90 days and Risk Level - %

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Fee Income

Diversified growth of Fee Income

The expansion of credit offer, the restructuring of the Bank's performance in the retail segment, with a focus on customer service and maximizing earnings from the customer base, and the BOMPRATODOS program favored the expansion of business volume, contributing to the growth and diversification of fee income. These revenues reached R$ 10,308 million in 1H12, with an increase of 21.3% over 1H11.

In the 1H12/1H11 comparison, we may emphasize: (i) the revenues from card fees, with an increase of 23.1%; (ii) income from capital markets, up 31.6%, largely from the management of resources from the BB-BI, related to commissions on economic-financial consultancy on funds and placement of securities; and (iii) the "Others" line, with an increase of 54.8% driven by revenues from foreign exchange operations and business of entities abroad. In terms of absolute growth, contributions of revenue from checking accounts, fund management and loan operations are noteworthy.

Table 14. Fee Income and Income from Insurance Operations



Fee Income 4,388 5,051 5,256 19.8 4.1 8,495 10,308 21.3

Account Fees 1,017 1,101 1,102 8.4 0.1 1,887 2,203 16.8

Credit / Debit Cards 938 1,075 1,196 27.6 11.3 1,845 2,271 23.1

Investment Fund Management Fees 794 883 897 13.1 1.6 1,524 1,781 16.8

Loan Fees 454 479 534 17.6 11.4 841 1,012 20.3

Collections 315 324 331 5.0 2.1 606 654 7.9

Insurance, P. Plans and Savings Bonds 131 150 165 26.0 10.6 262 315 20.4

Billings 174 204 204 16.9 (0.0) 347 408 17.4

Interbank 160 169 174 9.2 3.0 304 344 13.3

Capital Market Fees 83 107 127 52.9 18.7 178 234 31.6

Other 322 560 526 63.0 (6.2) 701 1,086 54.8

Insurance P. Plans and Sav. Bonds Income 667 516 608 (8.9) 17.7 1,180 1,124 (4.7)

The ratio between commercial revenues (sum of the NII, fee income and income from insurance operations) and the average customers base, which shows an average business value generated per customer, reached R$ 309.85 in 2Q12 (17.1% over 2Q11).


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Figure 7. Commercial Revenues/Customers – R$

55.256.9 57.5

276.70

293.58

309.85

2Q11 1Q12 2Q12

Customers (million) Commercial Income¹ /Customers²

(1) Commercial revenues = Net Interest Income + Fee Income + Income from insurance operations (2) Customers average base for the last two quarters

Administrative Expenses

Administrative Expenses under control

The increase in administrative expenses for 1H12 compared to 1H11 (up 17.2%) was influenced by expenses arising from: (i) partnership with Mapfre insurance group; (ii) acquisition of Banco Patagonia; and (iii) acquisition of right to use the Banco Postal service network. These combined items increased by approximately R$ 599 million in the administrative expenses of 1H12, of which R$ 195 million refer to personnel expenses.

Excluding these three factors, the increase in administrative expenses was 12.3% for the half-yearly view, justified by the pay raise granted on the base-date of Sept/11, the increase in the number of employees in the period, the contractual pay adjustments made, and the growth in the distribution network.

Table 15. Administrative Expenses



Administrative Expenses (5,886) (6,626) (6,946) 18.0 4.8 (11,578) (13,572) 17.2

Personnel Expenses (3,364) (3,694) (3,871) 15.1 4.8 (6,509) (7,565) 16.2

Other Administrative Expenses (2,522) (2,932) (3,075) 21.9 4.9 (5,069) (6,007) 18.5

Cost Income Ratio

Cost Income ratio, a ratio between administrative expenses and operating income, ended the 2Q12 by 43.4%. This performance is explained: by the reduction of the carrying amount referring to the recognition of actuarial gains and losses from Previ Benefit Plan I; and by the factors that impacted administrative expenses as mentioned above


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Figure 8. Cost Income Ratio – without One-Off Items - %

41.143.2

44.1

39.7

45.243.4

2Q11 1Q12 2Q12

Cost-Income Ratio (last 12 months) Cost-Income Ratio

Assumptions of the Guidance

The estimates for 2012 were prepared with the consideration of the following assumptions:

Assumptions influenced by management:

1. Increase in profitability of the client portfolio as a way to leverage revenues;

2. Expansion of the service network, base of new clients, and profitability of the current client portfolio, based on the partnership with Banco Postal;

3. Maintenance of the current business model, without considering new acquisitions and/or partnerships that might be entered into to exploit specific segments;

4. Alignment of the cost structure to business volume growth;

5. Adjustments in contracts to suppliers and collective bargaining agreement aligned with the market;

6. Recognition of actuarial gains and losses in the Previ Benefit Plan I, as established by the CVM Resolution 600/2009.

Assumptions that are not under management control:

1. Low growth of developed economies in 2012;

2. Greater resistance, but not immunity, of the Brazilian economy to foreign shocks;

3. A political environment without institutional rupture;

4. Maintenance of sovereign credit rating as investment grade;

5. Maintenance of the current domestic macroeconomic policy structure: floating exchange rate, inflation targets (nominal anchor) and fiscal discipline, entailing a gradual and consistent reduction of the relationship between Public Sector Net Debt (PSND) and the Gross Domestic Product (GDP);

6. Increase of the Brazilian Trade Balance and its effects in the Foreign Trade Portfolio;


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7. A gradual increase in the Brazilian economy's potential for growth (potential GDP);

8. Evolution of interest rates, foreign exchange, inflation rate and GDP according to the market's consensus;

9. An advancement of the regulatory mark / microeconomic agenda with stimulus to public and private investments;

10. Regulatory stability, also in what concerns the rates of taxes levied on the Bank's activities, labor legislation, and social security legislation;

11. Change in capital consumption rules and rates of the compulsory payment - macroprudential measures;

12. Implementation of Basel III recommendations;

13. Guidelines of the 2012/2013 Harvest Plan.

Summary of Results 2Q12 Summary of the Results 2T115 - ndBanco do Brasil – Summary of Results 2...

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