Table 27. Income Statement with Reallocations
Quarterly Flow Chg. % Annual Flow Chg.
R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 2011 2012 On 2011
Financial Interm ediation Incom e 25,970 25,084 24,868 (4.2) (0.9) 102,849 104,525 1.6
Loan Operations (1) 16,717 16,756 17,449 4.4 4.1 64,486 69,489 7.8
Lease Operations 116 97 (22) - - 616 346 (43.8)
Securities 7,189 6,623 6,255 (13.0) (5.6) 30,849 27,982 (9.3)
Financial Derivatives (403) (206) (409) 1.3 98.8 (1,461) (1,434) (1.8) Foreign Exchange Portfolio 190 116 168 (11.9) 45.3 (374) 147 - Compulsory Investments 1,923 1,388 1,117 (41.9) (19.5) 7,231 5,925 (18.1) Sale or Transference of Financial Assets - 87 89 - 2.0 - 246 - Financ. Inc. Insur., Pension & S.Bonds Op. 212 168 207 (2.4) 23.5 803 755 (6.0) FX Gain (Loss) on Foreign Equity (2) 9 21 (9) - - 433 357 (17.5) Other Op. Inc. of a Fin. Int. Nature (3) (4) (5) (5) (1) (3) (37.7) 188.4 (75) 397 - Tax Hedge (6) (7) 20 34 25 24.8 (25.5) 341 315 (7.8) Financial Interm ediation Expenses (15,153) (13,833) (12,835) (15.3) (7.2) (62,019) (58,796) (5.2) Money Market Funds¹ (8) (9) (13,847) (12,613) (11,950) (13.7) (5.3) (54,809) (51,660) (5.7) Borrow ing, Assignments and Onlending¹ (10) (1,305) (1,220) (885) (32.2) (27.5) (7,210) (7,136) (1.0) Net Interest Incom e 10,817 11,251 12,033 11.2 6.9 40,830 45,729 12.0
Allow ance for Loan Losses (11) (12) (2,892) (3,764) (3,636) 25.7 (3.4) (11,827) (14,651) 23.9 Net Financial Margin 7,925 7,488 8,398 6.0 12.1 29,003 31,078 7.2
Fee Income 5,027 5,280 5,484 9.1 3.9 18,242 21,071 15.5
Services Income 3,374 3,591 3,784 12.1 5.4 12,213 14,486 18.6
Banking Fee Income 1,652 1,689 1,700 2.9 0.7 6,028 6,586 9.2 Inc. for Ins., Pens. Plans & Sav.Bonds Op. 515 595 629 22.1 5.7 2,265 2,349 3.7 Taxes on Revenues (6) (13) (1,071) (1,049) (1,088) 1.6 3.8 (4,081) (4,183) 2.5 Contribution Margin 12,397 12,315 13,422 8.3 9.0 45,429 50,315 10.8 Administrative Expenses (6,966) (7,123) (7,499) 7.6 5.3 (24,752) (28,194) 13.9 Personnel Expenses (14) (3,954) (4,001) (4,211) 6.5 5.2 (13,943) (15,777) 13.1 Other Administrative Expenses (15) (16) (17) (3,012) (3,122) (3,288) 9.2 5.3 (10,809) (12,417) 14.9 Other Tax Expenses (13) (61) (64) (68) 12.0 6.6 (216) (268) 24.2 Com m ercial Incom e 5,370 5,128 5,855 9.0 14.2 20,461 21,854 6.8
Legal Risk (4) (463) (219) 5,928.6 (52.7) (860) (1,539) 79.0
Legal Claims (15) (18) (24) 275 (281) (23) - (91.6) (135) (813) 501.5 Labor Law suits (14) (19) (278) (182) (196) (29.7) 7.3 (724) (726) 0.2 Other Operating Income (435) (761) (590) 35.6 (22.4) (687) (2,539) 269.3 Eq. Int. in Results of Subs. And Affil. (2) 47 (29) (67) - 128.5 22 (94) - FX Other Operating Income / Expenses (482) (731) (523) 8.6 (28.4) (709) (2,445) 244.8 Other Oper. Income (1) (3) (5) (10) (18) (19) (20) (21) 1,641 1,368 1,578 (3.8) 15.4 5,939 5,795 (2.4)
PREVI (20) 531 287 287 (45.9) (0.0) 2,981 1,355 (54.5)
Other Operating Expenses¹ (4) (9) (11) (16) (17) (21) (2,654) (2,386) (2,389) (10.0) 0.1 (9,629) (9,595) (0.4) Operating Incom e 4,931 3,904 5,046 2.3 29.2 18,914 17,776 (6.0) Non-Operating Income (22) (23) 9 60 (4) - - 56 107 89.4 Incom e Before Taxes 4,940 3,964 5,042 2.1 27.2 18,970 17,883 (5.7)
Income and Social Contrib. Taxes (7) (25) (27) (1,425) (891) (1,324) (7.1) 48.7 (5,388) (4,455) (17.3) Interest on Ow n Capital Tax Benefit 318 327 338 6.4 3.4 1,221 1,342 9.9 Statutory Profit Sharing (26) (450) (372) (500) 11.0 34.2 (1,737) (1,745) 0.4 Minority Interest Earnings (39) (44) (37) (5.0) (15.9) (93) (156) 67.3 Adjusted Net Incom e 3,025 2,657 3,180 5.1 19.7 11,751 11,528 (1.9)
One-Off Items (53) 70 787 - 1,016.7 375 678 80.9
Sale of Investments (22) - - - - - 169 - - Economic Plans (8) (24) (95) (255) (167) 76.3 (34.4) (103) (968) 843.1 Tax Efficiency (25) - 244 - - - 386 244 (36.9) Reversal of Additional Provision for Loan Losses (12) - - 476 - - - 699 - Sale of Property (23) - - 1,103 - - - 1,103 - Tax Eff. and Stat. Prof. on One-Off Items (26) (27) 42 81 (625) - - (78) (401) 413.2
Net Incom e 2,972 2,728 3,967 33.5 45.5 12,126 12,205 0.7
1 - Historical data were reviewed since 2011 first quarter due to the accounting of premium paid to clientes arising from judicial deposits and adjustment of resources released in the scope of BB Crédito Imobiliário (Banco do Brasil real state 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.
Banco do Brasil – MD&A 4Q12
33
2.3.1 Reallocations Details
In this chapter, the adjustments made in the Corporate Law Income Statement to get the Income Statement with Reallocations are detailed. Such adjustments aim to:
a) Separate the one-off items and show the adjusted net income for the period;
b) Change the manner that income and expenses are shown, in order to provide a better understanding of the business and the Company's performance;
c) Allow the Net Interest Income (NII) recorded in the period to reflect, effectively, the gain from all the earning assets, seeking to inform the market what is the spread achieved from the division of this margin by average balance of earning assets. For this, it was necessary to:
I - Include in the NII the income recorded in other operating income that had financial intermediation characteristics and which was derived from earning assets recorded in the other receivables in the Balance Sheet;
II - Identify the foreign exchange gain/(loss) on assets and liabilities abroad in the period in a specific NII item;
III – To keep in NII, amounts related to negative foreign exchange adjustments and expenses reversal that were recorded in other operating income/expenses to avoid inverting the balance of accounts which have a financial intermediation nature;
IV - Detect and cancel the effects of tax hedge transactions entered into as of 4Q08, on the effective tax rate and NII;
V – Include, in the NII, all of the expenses related to Subordinated Debt and Perpetual Securities Follows below the statement of the reallocations performed in the period:
34 Table 28. Statement of Reallocations and One-Off Items
R$ millio n
IT E M F R O M T O E V E N T 4 Q 11 3 Q 12 4 Q 12 2 0 11 2 0 12
1 Other Operating Inco me Lo an Operatio ns Equaliz. Rev. o f Charges o ver Lo an Oper. - Harvest 773.6 804.8 1,009.0 2,487.7 3,389.0
2 Eq. Int. in Results o f Subs. A nd A ffil FX Gain (Lo ss) o n Fo reign Investments FX Gain (Lo ss) o n Fo reign Equity 9.2 21.4 (9.3) 433.3 357.5
3 Other Operating Inco me Other Op. Inc. o f a Fin. Intermed. Nature FX Readjustment 9.3 5.4 7.2 957.4 500.9
4 Other Operating Expenses Other Op. Inc. o f a Fin. Intermed. Nature FX Readjustment (14.6) (6.6) (10.5) (1,075.1) (104.2)
5 Other Operating Inco me Other Op. Inc. o f a Fin. Intermed. Nature Other Op. Inc. o f a Fin. Intermediatio n Nature - - - 42.6 -
6 Tax o n Revenues Tax Hedge Tax Hedge 2.2 3.7 2.8 37.1 34.2
7 Inco me and So cial Co ntributio n Taxes Tax Hedge Tax Hedge 18.2 30.4 22.7 304.2 280.6
8 M o ney M arket Funds Eco no mic P lans Eco no mic P lans - (125.6) (96.9) - (493.2)
9 Other Operating Expenses M o ney M arket Funds Funding Expenses - Subo rd. Debt and Hybrid Cap. Inst. (138.4) (257.2) (362.8) (439.2) (1,040.9)
10 Other Operating Inco me B o rro wing, A ssignments and Onlending Reversal with P ro naf Expenses - - 240.1 - 240.1
11 A llo wance fo r Lo an Lo sses Other Operating Expenses A llo w. fo r Lo an Lo sses (Cred. w/o Char. o f Fin. Int.) (319.8) 148.5 (163.4) (147.9) 80.3
12 A llo wance fo r Lo an Lo sses Reversal o f A dditio nal P ro visio n fo r Lo an Lo sses Reversal o f A dditio nal P ro visio n fo r Lo an Lo sses - - 476.3 - 699.1
13 Other Tax Expenses Tax o n Revenues Taxes o n Revenues (1,068.5) (1,044.9) (1,085.5) (4,043.6) (4,148.4)
14 P erso nnel Expenses Labo r Lawsuits P ro visio n fo r Labo r Lawsuits (306.2) (182.3) (195.5) (969.1) (726.7)
15 Other A dministrative Expenses Legal Claims Expenses o f Legal Claims (127.8) (410.0) (93.9) (562.7) (1,357.3)
16 Other A dministrative Expenses Other Operating Expenses B anco P o stal A mo rtizatio n Expenses - (60.0) (60.0) - (180.0)
17 Other A dministrative Expenses Other Operating Expenses P remiums P aid to Co stumers (523.5) (470.4) (575.9) (2,051.1) (2,058.6)
18 Other Operating Inco me Legal Claims Reversal o f Co ntingent Liabilities 307.5 0.0 - 324.9 69.7
19 Other Operating Inco me Labo r Lawsuits Reversal o f Labo r Liabilities 28.0 - - 244.6 0.9
20 Other Operating Inco me P REVI Revisio n in the A ctuarial A ssets and Liab. o f P revi 530.6 287.3 287.3 2,981.3 1,355.2
21 Other Operating Inco me Other Operating Expenses Reversal o f P ro visio n - P ensio n P lan Liabilitie - - 384.1 - 384.1
22 No n-Operating Inco me Sale o f Investments Sale o f Investments - - - 168.9 -
23 No n-Operating Inco me Sale o f P ro perties Sale o f P ro perties - - 1,103.0 - 1,103.0
24 Legal Claims Eco no mic P lans Eco no mic P lans (94.9) (129.3) (70.4) (102.6) (474.8)
25 Inco me and So cial Co ntributio n Taxes Tax Efficiency Tax Efficiency - 243.9 - 386.4 243.9
26 Statuto ry P ro fit Sharing Tax Eff. and Stat. P ro fits o ver One-Off Items Tax Effects and Statuto ry P ro fits o ver One-Off Items 6.9 (13.2) (100.4) (53.3) (90.4)
Banco do Brasil – MD&A 4Q12
35
2.3.2 Glossary of Reallocations
(1) Refers to the equalization revenues of charges on rural credit operations. The calculations for equalization of the interest rates are based on the administrative rulings of the Ministry of Finance, which determine the calculation formulas, according to the source of funds.
(2) Corresponds to the result of the changes of rights and obligations relating to foreign exchange variations incurred due to the periodic restatement of loans and financings payable in foreign currency. (3) to (5) Includes financial income and expenses from foreign exchange besides other operating income with characteristics of financial intermediation.
(6) and (7) Mechanism that reduces the effects of exchange variation on the result. (8) and (24) Expense with provision arising from lawsuits relating to the economic plans.
(9) Expenses related to restatement of Subordinated Debt and Hybrid Capital Instruments accounted for in other operating expenses.
(10) Restatement expenses reversal of Pronaf funding accounted for in other operating income. (11) Allowance for loan losses expenses for credits without characteristics of financial intermediation. (12) Partial reversal of additional allowance for loan losses recognized in previous fiscal years. (13) Tax expenses reallocated to form the contribution margin.
(14) Expenses arising from labor law suits. (15) Expenses arising from legal claims.
(16) Banco Postal intangible amortization expenses.
(17) Portion of the premium paid to costumers accounted for in other administrative expenses.
(18) Reversal of balances that, due to the Chart of Accounts of the Central Bank of Brazil (COSIF), could not be accounted for in other administrative expenses in the corporate law income statement. (19) Reversal of balances that, due to the Chart of Accounts of the Central Bank of Brazil (COSIF), could not be accounted for in personnel expenses in the corporate law income statement.
(20) Revenues arising from the review of the actuarial assets and liabilities of Previ.
(21) Reversal of provision expense related to Pension Plan Liabilities of Banco do Brasil, accounted for in other operating income.
(22) Partial sale of investments of BB Group. On 2Q11, sale of Visa International and Mastercard share.
(23) Sale of Properties for launch the Real State Fund BB Progressivo II.
(25) Revenue related to tax efficiency generated by the Banco do Brasil in the periodic review of the fiscal base.
(26) e (27) Segregation of effects of one-off items of the period on the payment of statutory profit sharing (PLR), and unification of effects of these items on taxes (IR and CSLL). The table below shows separately the effect of each extraordinary item on taxes and on PLR.
Table 29. Tax Impacts and Statutory Profit Sharing on One-Off Items
Quarterly Flow Chg. % Annual Flow Chg. %
R$ million 4Q11 3Q12 4Q12 On 4Q11 On 3Q12 2011 2012 On 2011
Sale of Investments - - - - - (75) - - Economic Plans 42 113 74 75.9 (34.4) 46 429 841.5 Tax Efficiency - (32) - - - (49) (32) (35.4) Reversal of Additional Provision for Loan Losses - - (211) - - - (309) - Property Fund - - (488) - - - (488) - Total 42 81 (625) - - (78) (401) 413.2
36