2007 Annual Report by TheMediaGroup

2007 Annual Report

Commitment to Consistent and Sustainable Growth

Main Indicators Consolidated – R$ million

Changes 06/05 07(a)/06

2005

2006

2007

2007(a)

Financial Intermediation Income

151.5

187.8

289.0

23.9%

53.9%

Financial Intermediation Result

57.7

69.2

129.2

20.0%

86.6%

Operating Result

23.0

30.5

61.0

75.5

32.7%

147.5%

Net Profit

19.5

23.6

45.4

55.0

20.9%

132.5%

384.6

644.0

1,255.2

67.4%

94.9%

329.7

588.1

1,233.5

78.4%

109.7%

Marketable Securities and Derivatives

234.2

261.2

649.1

11.5%

148.5%

Total Assets

772.4

1,120.6

2,211.2

45.1%

97.3%

Total Deposits

331.9

526.4

810.4

58.6%

54.0%

Money Market Funding

180.9

188.7

656.6

4.3%

248.0%

72.4

164.1

229.7

126.7%

39.9%

136.3

149.7

406.7

9.9%

171.7%

14.7%

16.5%

16.3%

19.8%

1.8 p.p.

3.2 p.p.

3.2%

2.5%

2.7%

3.3%

-0.7 p.p.

0.8 p.p.

11.1.%

9.8%

9.4%

-1.3 p.p.

-0.4 p.p.

2.5%

1.2%

1.4%

-1.3 p.p.

0.2 p.p.

Basel Index

30.4%

22.5%

33.2%

-8.0 p.p.

10.7 p.p.

Efficiency Ratio (d)

59.0%

56.3%

63.0%

54.6

-2.7 p.p.

-1.6 p.p.

Results

Balance Sheet Credit Portfolio Self-Generated Loan Portfolio – Middle

Foreign Currency Borrowings Shareholders’ Equity

Performance Return on Average Equity Return on Average Assets NIM (Net Interest Margin)

(b)

NPL / Total Credit Portfolio (c)

Number of Branches

Independent Auditors: PricewaterhouseCoopers Auditores Independentes

Credits Contents, text and translation

Printing

Investor Relations Manager Global RI Consultoria de Relações com Investidores

Gráfica Braspor

Publication Date

Operating Indicators Number of Employees

Recife Av. Engenheiro Domingos Ferreira, 2.589 – sala 204 CEP: 51020-31, Recife-PE Corporate Taxpayer No.: 61.024.352/0012-24 Phone: (0xx81) 3326-7437 Rio de Janeiro Rua Lauro Muller, 116 – sala 3.403 CEP: 22290-160, Rio de Janeiro-RJ Corporate Taxpayer No.: 61.024.352/0007-67 Phone: (0xx21) 3578-3200 Fax: (0xx21) 3578-3220 Uberlândia Av. Jaime Ribeiro da Luz, 971 – sala 32 CEP: 38408-188, Uberlândia-MG Corporate Taxpayer No.: 61.024.352/0010-62 Phone: (0xx34) 2102-8300

Graphic Design 198

255

331

(a) Excluding non-recurring IPO expenses. (b) (Gross Result from Financial Operations – Expenses on Prov. for Doubt. Debtors)/ average earning assets. (c) NPL = Non-Performing Loans – more than 60 days overdue. (d) Ratio between expenses and income. Therefore, a fall in this index shows improved performance.

TheMediaGroup

Pictures Daniel Rosa Antonio Carrero Bovespa – Cover and Page 14 Flávio R. Guarnieri Arrasta Lata – Page 63 Ricardo Telles Social Projects – Page 63 e 64

April 30, 2008

2007 Annual Report Message from the President

01 A New Bank, 40 yearsâ&#x20AC;&#x2122; Experience General Overview Commitment to Corporate Governance

6 7 10

02 Growth and Evolution Credit Operations in Local Currency Foreign Trade Financing Structured Operations Treasury Operations in the Stock and Mercantile & Futures Exchanges Administrative Management Risk Management Ombudsman

16 17 21 22 24 25 27 29 32 35

03 Macroeconomic Environment and Performance Macroeconomic Environment Economic and Financial Performance Ratings Capital Markets

36 37 38 42 43

04 Strategies and Outlook Credit in Brazil and the Middle Market Segment BIMâ&#x20AC;&#x2122;s Market Position Growth Strategy New Products New Businesses Outlook for 2008

46 47 49 50 52 53 54

05 Our Beliefs People Sustainability

56 58 62

06 Financial Statements

Corporate Information

Message from the President Manoel Felix Cintra Neto President

In the year in which we celebrated our 40th anniversary, we made a great stride in the history of Banco Indusval Multistock (BIM). In 2007, we achieved a strong consolidation of and growth in our business. In addition, the Bank went public, and our shares are now listed on Bovespa, the S達o Paulo Stock Exchange. We now have a more modern and stronger structure that ensures greater efficiency and safety.

We believed that was the ideal moment to undertake our Initial Public Offering (IPO), and our shares started being traded on Bovespa on July 12. With that operation, R$227.5 million was raised, which gave us the stamina to continue growing at an increased pace in years to come. The entire preparation process for the IPO was conducted in record time, since our management has been based on the best practices in corporate governance for many years. Our goal has always been to ensure that the Bank operates with transparency and integrity, in accordance with the highest ethical standards and respect to our shareholders, customers, employees and all stakeholders.

The consistent expansion of our operations followed a clear long-term growth strategy. With the support of the entire Bank staff, we have worked to build the personnel, process and system infrastructure needed for this growth. The excellent situation of the Brazilian economy and the capital markets in 2007 offered us an invaluable opportunity to work toward our goal.

Annual Report

2007

In 2007, we achieved a strong consolidation of and growth in our business. In addition, the Bank went public, and our shares are now listed on Bovespa, the S達o Paulo Stock Exchange.

As an essential stage of the growth process, we strengthened and expanded our financing lines for foreign trade through partnerships with correspondent banks, the International Finance Corporation (IFC) and the Inter-American Development Bank (IDB). In addition, we increased the offer of domestic financing lines and became an onlending institution for the Brazilian Social and Economic Development Bank (BNDES).

Our increased capital basis enabled us to accelerate changes underway, thus setting in motion a process of evolution and modernization of our Bank in the direction previously determined. This process shows innovation both in management issues and in the greater diversification of our credit operations. In 2007, we increased our commercial team and opened six new branches, which now total eleven.The process of change also required that our work systems and procedures be reviewed and enhanced, so as to allow greater integration among the different Bank areas and branches. The purpose was to keep operations safe, with strict risk control, improving efficiency and speed. We have expanded our investments in information technology and centralized systems in São Paulo, so that the support infrastructure will completely fulfill the needs created by the business expansion, without significant impact on administrative costs. We are also concerned about the quality of our staff; therefore, we invest in professional training and development.

The year’s results show that this was a wise strategy. Our own credit portfolio rose by 110% in the last 12 months and achieved R$1.2 billion at the close of 2007. Our net income amounted to R$45.4 million. If the non-recurring effect of the IPO expenses, about R$9.6 million, is excluded, our net income is R$55.0 million, which corresponds to a 132.5% rise in relation to 2006 and return on average shareholders’ equity of 19.8%. Data show a continuous expansion of assets and customer base, alongside with strict cost control and a conservative risk management policy. Risk rating agencies raised the Bank’s long-term ratings in 2007, Standard & Poor’s to “brBBB+” and Fitch Ratings to “BBB+(bra)”. On Bovespa, our shares appreciated by 11.4% in the six months between the IPO and the close of the year.

Our business strategy includes the product diversification and the expansion of our customer base so that the Bank will grow in a sustainable manner and add value to our customers and shareholders. Throughout 2007, we expanded the credit products offered to meet and even anticipate the needs of our current and prospect customers.

Annual Report

2007

Another aspect that we have always considered essential for BIMâ&#x20AC;&#x2122;s competitiveness and continuity is to act with social responsibility. Based on sustainability in its broadest sense, we decided to extend our social initiatives to environmental issues and created the Instituto Indusval Multistock de Sustentabilidade (Indusval Multistock Sustainability Institute) in late 2007. Our activities in this area are not restricted to financial support. We actively participate in the management of the social projects and non-governmental organizations supported by the Bank to ensure that our investments will yield good results.

Full of optimism, we firmly believe that Banco Indusval Multistock is prepared for new challenges. Even though the world economic situation is less favorable and the US economy slows down in 2008, we believe economic activity in Brazil and BIM will continue to grow. The Bank is constantly evolving, in a process that combines agility, experience and seriousness in risk management. We accomplished a lot in the last few years, especially in 2007. This reinforces our optimism and certainty that BIMâ&#x20AC;&#x2122;s evolution will result in continuous generation of added value for our customers and shareholders. We thank our shareholders, customers and business partners for their trust in Banco Indusval Multistock and, above all, our employees, who have significantly contributed to the Bank in these 40 years, seriously engaged in the Bankâ&#x20AC;&#x2122;s IPO process and did such an excellent job that we exceeded all the targets set throughout the year. As the year comes to a close, we are stronger and more prepared to face the market challenges and are sure that we will achieve all our goals in 2008.

The Bank is constantly evolving, in a process that combines agility, experience and seriousness in risk management. Above all, the foundation of our business is based on ethics and sustainability.

01 A New Bank, 40 Years’ Experience

José Roberto Pires, Sales Management

In the year in which BIM celebrated its 40th anniversary, it became a publiclyheld corporation with 331 employees, 11 branches and assets totaling R$2.2 billion. General Overview Banco Indusval Multistock (BIM) is a commercial bank specializing in financial operations with companies whose yearly revenues range from R$20 million to R$500 million, a segment called middle market.

In two years, BIM evolved from a bank with one branch, 198 employees and assets of R$772 million in 2005 to a publicly-held company, with stock listed on Bovespa, eleven branches, 331 employees and assets of R$2.2 billion, R$1.2 billion of which from its credit portfolio.

It offers a broad product and service line, highlighting credit operations.With a highly diversified portfolio, BIM offer its customers high-quality assets at wide spreads. It has agreements with international institutions, such as the International Finance Corporation (IFC) and the Inter-American Development Bank (IDB), to finance foreign trade. Furthermore, it is an onlending financial institution for the Brazilian Social and Economic Development Bank (BNDES).

BIM origins date back to 1967, when Indusval Corretora, a brokerage house, was founded. In 40 years of operations in the financial market, the Bank gained not only considerable experience in its business, but also great renovation ability. Nimble management and strict risk management were important features since its beginnings. These features consolidated over the years and are now an integral part of the Bankâ&#x20AC;&#x2122;s management policy. Broad knowledge of its market segment, a close relationship with customers and an ensuing deep understanding of their needs give BIM a competitive edge that enables it to add value to its financial services.

Through its wholly-owned subsidiary, Indusval Corretora, it acts as an intermediary in operations on the SĂŁo Paulo Stock Exchange (Bovespa) and the Brazilian Mercantile & Futures Exchange (BM&F). To expand operations, it is resuming its activity in the retail sector, with direct financing for buyers of used cars, through BIM Promotora de Vendas.

In recent years, especially in 2007, the Bank expanded dramatically. This process involves the adaptation of the internal structure to expanded business, with restructured work models and support systems. The strategy concentrated on maintaining the focus on the

Bank’s expertise segment – small and medium-sized enterprises. Business growth capacity was boosted with the Initial Public Offering (IPO), which raised R$227.5 million to expand the Bank’s own capital.When it became a publicly-held financial institution on July 12, BIM shares started being traded on Bovespa.

Sound track record with consistent evolution and renovation Indusval Corretora (Brokerage House) is established

1967

Credit

1971 The owners of Ciampolini &

Indusval

1992

becomes a commercial bank

1991

Foreign Exchange operations

Ribeiro take over

Annual Report

start

operations to the middle market enterprises start

1993

2000 Joint acquisition with Banco Multistock of a

Indusval Corretora,

financing company

and start building

specializing in

the history of

direct consumer

Banco Indusval

credit

2007

Branches

São Paulo Curitiba Campinas Goiânia Belo Horizonte Recife Campo Grande Uberlândia Maringá Porto Alegre Rio de Janeiro

Financing company is sold and R$ 60

2003 Banco Indusval merges with

million increased BIM

Four branches are

paid up capital

opened in the first

Growth plan focusing

phase of branch

on credit operations to

expansion

medium-sized

The first

companies is introduced

2004

2005 Indusval Multistock diversifies its

agreement with IFC is signed

2006

2007 BIM goes public and celebrates its 40th

Multistock. Its

products by offering

anniversary

trademark changes

structured financing

Second expansion

to Banco Indusval

operations

phase: Six more

Multistock – BIM

branches are opened

Foreign trade

Product portfolio

financing

is expanded

operations start

Agreements are signed with IDB and BNDES, and credit line with IFC is expanded

Commitment to Corporate Governance The Management of Banco Indusval Multistock believes the adoption of the best practices in Corporate Governance is crucial for better business performance. Even before it became a publicly-held corporation, BIM followed the same accounting standards required from these companies. By providing more detailed and reliable information, the Bank reduces funding costs, consequently contributing to its profitability.

In the prospectus for the public distribution of shares, the Bank expressed intention to move to the Novo Mercado, and started this process in September 2007, by requesting from the Central Bank of Brazil permission for foreign investors to hold a minority interest of up to 45% of its voting stock. In February 2008, the National Monetary Council (CMN) accepted to forward the proposal to the President for approval by Executive Decree. When it is approved, all of BIM preferred shares will be converted to common shares, in compliance with the requirements for listing in the Novo Mercado.Another Novo Mercado requirement not yet fulfilled, but under development, is the adoption of international accounting standards in the preparation and release of Annual Financial Statements.

These policies ensure a good relationship among stakeholders and made it possible to fulfill all the legal requirements for the preparation of the IPO and listing of our shares on Bovespa in just three months. BIM adhered to Bovespa’s Level 1 of corporate governance and voluntarily fulfilled additional requirements, normally imposed only on companies listed in the Novo Mercado, Bovespa’s Corporate Governance top level (see chart below).

Differences among Level 1, Novo Mercado and BIM practices Requirements

Level 1

Novo Mercado

BIM

Minimum free float

Minimum 25%

33.6%

Type of shares

Common and Preferred shares

Only Common shares

Common and Preferred shares

Board of Directors

At least three members

A minimum of five members, at least 20% of whom must be independent

Seven members, three of whom (42.9%) are independent

Annual Financial Statements under International Standards

Optional

US GAAP or IFRS

Preparation to adhere to IFRS

Tag Along*

80% for Common shares

100% for Common shares

100% de Tag Along

Adoption of the Market Arbitration Chamber

Optional

Compulsory

Adopted

* Tag Along is the total or partial extension to all minority shareholders of the conditions provided to majority shareholders in the disposal of the Company’s Control. Consequently, 100 percent tag-along rights means that minority shareholders will receive 100% of the amount per share received by the controller if a company’s control is sold.

Annual Report

2007

Organizational Structure Board of Directors The Board of Directors is the Bank’s top governing body. It is responsible for outlining strategies and general policies, besides guiding and supervising the Executive Board’s activities. It also ensures that all financial information posted is accurate and, therefore, chooses independent auditors. In addition, it establishes and oversees internal audit. Regular meetings are held four times a year. It is called by the Chairman of the Board, who can also call special meetings whenever deemed necessary.

Shareholding Structure Manoel F. Cintra Neto 14.0%

Luiz Masagão Riberio 13.0%

Carlos Ciampolini 8.7%

Antonio G. da Rocha 6.5%

M. Cecília Ciampolini 5.7%

Other Shareholders* 18.5%

Free Float 33.6%

Banco Indusval 100.0%

bim Promotora de Vendas**

Indusval Corretora

Base date: Feb. 29/2008 * Members of the families Masagão Ribeiro, Ciampolini and Management ** Paid-up Capital on Dec.11/2007

Composition of the Board of Directors

Pursuant to BIM’s Bylaws, the Board of Directors must be composed by a minimum of six and a maximum of ten members.At the end of 2007, it had seven members, three shareholders, an external member who provides services for BIM and three independent members. The current composition includes a percentage of independent members higher than the minimum 20% share required by the Bank’s bylaws and the Novo Mercado rules. The other members are shareholders elected by the General Shareholders’ Meeting for a joint two-year term. Re-election is permitted.

Luiz Masagão Ribeiro – Chairman Manoel Felix Cintra Neto – Vice Chairman Maria Cecília C. Ciampolini Julio dos Santos Oliveira Júnior Adroaldo Moura da Silva – Independent Wladimir Antônio Puggina – Independent Walter Iorio – Independent

BIM’s current Board of Directors has executives widely recognized for their skills and broad experience in very important fields for the Bank’s business management. They are prominent financial market professionals specializing in different areas. In addition to each one’s expertise, the fact that their skills complemented one another, as well as each member’s professional knowledge, was taken into consideration when the Board was formed. Consequently, the discussion of strategies and goals that guide the Bank’s activity is sure to include different points of view. The contribution of the shareholders in the Board is their extensive and active experience in the financial market.The legal and regulatory perspective comes from professionals with broad knowledge and with a history in these market sectors: Mr. Julio dos Santos Oliveira Júnior, lawyer and former member of Bovespa’s Board of Directors, and Mr. Adroaldo Moura da Silva, former Chairman of the Brazilian Securities and Exchange Commission (CVM). Mr. Wladimir Antonio Puggina and Mr. Walter Iorio are prominent business management and auditing professionals.

BIM believes that the adoption of the best corporate governance practices is crucial for better business performance. BIM joined Level 1 of Bovespa and voluntarily fulfilled additional requirements for companies listed on the Novo Mercado.

Annual Report

2007

Committees

Statutory Audit Committee Banco Indusval’s Bylaws provides for the establishment of the Statutory Audit Committee by decision of the General Shareholders’ Meeting or upon shareholders’ request, in the cases and manner described in the Brazilian Corporate Law. When established, the Statutory Audit Committee will be composed by a minimum of 3 (three) and a maximum of 5 (five) elected members that can be ousted at any time by the General Shareholders’ Meeting. The Statutory Audit Committee was not established in 2007.

Four committees give support to the Executive Board as an integral part of BIM’s management structure.

Cash Committee The main purpose of this Committee is to control BIM’s liquidity, besides analyzing cash flow projections for Treasury activities, discussing new funding alternatives and transactions, as well as operating limits. It consists of the Bank’s President; the Chief Executive Officer, responsible for the market risk management toward the Central Bank of Brazil; the Treasury Officers – Proprietary Position and Cash Management; and the Officer in charge of the activities of the brokerage house and the international area.The Cash Committee meets on a weekly basis.

Board of Executive Officers Top management is exercised by the Executive Board, responsible for managing the Bank, supervising business and operating activities, and enforcing the guidelines and general policies outlined by the Board of Directors. Its duties include preparing the annual budget and monitoring compliance with it, after approval by the Board of Directors.

Credit Committee This Committee outlines credit risk management policies and approves credit limits granted to customers. It is composed of nine members – the President, the Chief Executive Officer, an Executive Officer, Credit Officer, the three Commercial Officers, a Treasury Officer and the International Area Officer. Its decisions are made by majority vote. The Credit Committee meets ordinarily on a weekly basis. It can also meet electronically at any time to assess changes or minor exceptions related to formal details and guarantee coverage in credit limits previously approved at regular meetings.

At the end of 2007, the Executive Board had nine members. It must consist of a minimum of four and a maximum of eleven members. Officers have a joint two-year term. Re-election by the Board of Directors is permitted. The Executive Board is composed of financial market professionals, each of whom with at least 25 years’ experience.Top executives’ skills and dedication ensure that business is conducted in an effective manner and solid knowledge is the basis of BIM’s expansion process.

Compliance and Internal Audit Committee

levels in line with the Bank’s growth speed.The IT and Safety Committee meets on a monthly basis and is composed of seven members – the Chief Executive Officer; the Risk, Compliance and Auditing Superintendent; the IT Superintendent; the Administrative Superintendent; the Systems Development Manager, the Network Manager and a representative of the Controlling Department.

This Committee’s duties are to establish operating policies and rules, as well as outline strategies to promote the practice of internal controls, risk mitigation and compliance with legal requirements. In addition, it systematically monitors the Bank’s activities to assess the effectiveness of the internal control systems in fulfilling legal requirements, and analyzes any suspected cases of money laundering. Regular meetings are held on monthly basis. The Compliance and Internal Audit Committee consists of five members – the Chief Executive Officer; the Risk, Compliance and Auditing Superintendent; the Accounting and Control Superintendent; and internal control and audit professionals. The Independent Director, Mr. Walter Iorio, is a permanent guest of this committee and has significantly contributed to improving internal control practices.

Information Technology and Safety Committee BIM’s IT and information safety policies are developed by this Committee. Its duties include setting rules for information use to ensure its protection and guaranteeing managers’, employees’, and service providers’ compliance with its policies and procedures. This Committee is also responsible for discussing and planning activities and investments to ensure the maintenance of safety and agility

Annual Report

2007

Investor Relations Disclosure of transparent information is a component of BIM’s management policy. The Investor Relations department, created in 2007 during the IPO process, reinforces this practice. Its main duty is to ensure an effective and quick communication process with shareholders and capital markets professionals by releasing data and information about the Bank’s business performance and disclosing its main strategic guidelines.

In December, Banco Indusval Multistock held its first public meeting with APIMEC (Association of Security Analysts and Capital markets Professionals), in São Paulo, with the attendance of analysts and investors.The Investor Relations Officer, Mr. Ziro Murata Júnior; BIM’s President, Mr. Manoel Felix Cintra Neto; and the Chairman, Mr. Luiz Masagão Ribeiro, attended this meeting.

This department has its own area on BIM’s website (www.indusval.com.br/ir), which is constantly updated and helps disseminate this information widely by making it available for anyone. In the second half of 2007, after the IPO, the Investor Relations department held meetings with over 100 Brazilian and foreign analysts and investors. The department seeks to provide quality and consistent information in an agile fashion. It is also concerned about satisfactorily meeting the demands of different groups of stakeholders, for example, foreign institutional investors and individuals, who obviously have different concerns.

The Investor Relations department is nimble, and discloses precise and consistent information, in compliance with the transparency policy that guides BIM’s relationship with all its stakeholders.

02 Growth and Evolution

Ă&#x2030;rica R. dos Santos, Credit Analysis

The total credit portfolio grew 95% in 2007 to R$1.2 billion, followed by an expansion in the customer base and maintenance of highquality assets.

Credit Operations

The focus of Banco Indusval Multistockâ&#x20AC;&#x2122;s business is credit operations granted to medium-sized companies, the so called middle market. Credit extension has risen the most in this segment as a result of increased economic activity in Brazil, the strengthening and growth of these companies and easier access to credit due to more reasonable interest rates.

The total credit portfolio was R$1.2 billion at the end of 2007, with a 95% rise in comparison to the previous year. The customer base increased from 661 to 908 companies in the same period. This shows that the Bankâ&#x20AC;&#x2122;s growth is mainly connected to the expansion of the customer base, with the opening of new branches.

Within this scenario, and to meet the demand of its target customers for more sophisticated financial operations, BIM has been experiencing a dramatic evolution and growth process. It is also increasing its credit and product portfolios, operating infrastructure and branch network. The growth in the Bankâ&#x20AC;&#x2122;s activities, however, is not just a response to the current opportunities in the market, but a process that has been safely conducted over the years. It includes business management planning, strict risk control and the rational utilization of resources to prevent significant cost rises.

Total Credit Portfolio 385

644 R C AG

R$ million

1.255 0%

330

589

1,234

2005

2006

2007

Own Portfolio Acquired Credits

Credit Portfolio Breakdown at the end of 2007

BIMâ&#x20AC;&#x2122;s own credit portfolio, consisting of operations originated by its own sales force, rose by 109.7% in 2007. At the same time, credit operations acquired from other banks fell by 61.4%, totaling R$22 million at the end of the year. The acquisition of these credits, with the co-obligation of transferring banks, was a temporary cash investments strategy adopted in 2006 for its attractive rates.

By Economic Activity Industry Commerce Other Services Individuals

5.1%

Banco Indusval Multistock recognizes the crucial importance of strict control over the risks inherent to credit operations for medium-sized enterprises. With this in mind, it adopts conservative policies concerning the guarantee structures and the customer, industry and maturity risk concentration. A thorough analysis of each borrower and the structure of the guarantees offered for each operation is prepared by the analysis department and submitted to the Credit Committee at its weekly meeting. Customer risk ratings are made based on a credit score mathematical model. Credit Committee members are not allowed to improve the rating classification obtained through the model. Customer performance is regularly monitored by account managers and the credit analysis department. Furthermore, guarantees are monitored by systems that track volumes, liquidity and potential shortages on a daily basis.

30.9% 52.7%

11.3%

By Customer Concentration 10 largest 11 to 60 61 to 160 Others

24.1%

As a result of the policies and controls implemented, BIM has a high-quality credit portfolio with a 95% real guarantees coverage being 68% in receivables.

23.5%

Annual Report

2007

23.5%

28.9%

By Operation Maturity Up to 180 days From 181 to 360 days Over 360 days

15.9%

22.8% 61.8%

BIMâ&#x20AC;&#x2122;s priority is to grow safely.

By Type of Guarantee Receivables

Thus, it keeps strict control

Monitored lien Lien Guarantee and Sale

over and constantly monitors

Securities Clean

guarantee structures and

3% 5% 5%

concentration of operations by customers, economic activity

19%

and maturities. 68%

Own Credit Portfolio R$ million

Non-Performing Loans*/Total Portfolio

2.5%

1.2%

1.4%

330

588 R C AG

163

2005

2006

2007

1.234

69 261

425

2005

2006

241

993 Local currency Foreign currency 2007

* Operations more than 60 days overdue

Credit Portfolio by Rating Central Bank’s Resolution 2682

BIM’s expertise in middle-market lending coupled with its proven analysis process, its ongoing customer performance monitoring and the guarantee assessment and control tools result in low credit default rates.

A B C D–H

4% 10%

6% 6% 24%

4% 24%

38% 30% 49%

65% 2005

The Bank’s credit portfolio consists of loan and financing operations in both local and foreign currency. Local currency operations are mainly addressed to the financing of their customers working capital needs, resulting from their domestic market activities. The foreign currency portfolio is totally connected to trade finance.

2006

Annual Report

A-C = 97%

43% 2007

2007

This credit portfolio consists mainly of working capital operations, discount of receivables and overdraft accounts, including several instruments such as “compror”, for inventory purchase financing, and “vendor”, sales financing. BIM also issues Bank Credit Notes (CCB), Rural Product Certificates (CPR), Agribusiness Credit Rights Certificates (CDCA) and Cattle and Farming Warrants (CDWA) to make agribusiness financing feasible.

The increase in BIM’s own credit portfolio is mainly due to loans in Reais, which amounted to R$993.0 million on December 31, 2007, a 133.4% rise in relation to the end of the previous year. In the same period, the trade finance portfolio increased by 47.9%, closing the year at R$240.6 million. In dollar terms, this portfolio totaled US$135.0 million versus US$73.0 million in December 2006, an 84.9% rise. Banco Indusval Multistock seeks to fulfill its customers’ needs. With this in mind, it offers a diverse array of operations and services that is constantly expanding and renewing so as to fulfill those needs and seize every business opportunity. In keeping with its expansion strategy, the Bank operates in several areas, in both local and foreign currency.

Additionally, to support to its customers’ commercial and expansion operations, the Bank is able to rapidly grant Letters of Guarantee and offer financing lines for development, growth and upgrading projects with onlent BNDES funds.

Local Currency Loans Following the evolution of the credit market and the expansion of Banco Indusval Multistock branch network, the loan portfolio in Reais has grown significantly in the last few years. BIM’s knowledge in business with medium-sized enterprises ensures a prompt and safe customer service. The Bank offers the best financing solutions to meet these customers’ needs through close and constant observation of their activities.

Loans in Reais

261

425 GR CA

2005

R$ million

993

2006

2007

Foreign Trade Financing Operations

The Trade Finance Portfolio had a compound annual growth rate (CAGR) of 87% p.a. between 2005 and 2007, considering the balance sheet figures, in Reais.This growth happened in spite of the sharp depreciation of the US currency toward the Real in the period, mainly last year. An analysis of this portfolio in US dollars reveals that this growth rate (CAGR) is 112%, with a portfolio of US$135 million in 2007 versus US$30 million at the end of 2005.

Since it closely monitors its customers’ activities and needs, Banco Indusval Multistock noticed, in 2003, an increasing demand for trade finance operations among medium-sized enterprises. Therefore, it sought knowledge and developed skills in this business area. One of the most distinct features of BIM in its market is its ability to offer its customers advisory services in and monitoring of international operations. It has a specialized team that combines experience, technology and a partnership with customers and Brazilian and foreign banks. These partnerships provide increasing customer trust and loyalty, with an ensuing expansion of the trade finance portfolio.

Trade Finance

2005

The main products related to trade finance for BIM’s customers are the pre- and post-shipment Export Financing (ACC and ACE), Import Financing and International Guarantees as Import or Stand-by Letters of Credit.

Annual Report

2007

163 GR CA

In addition to the “spot FX” operations focused on the purchase and sale of foreign currencies, BIM’s ForeignTrade Department conducts quick and accurate international collection operations, both in imports and exports. It also offers both individuals and legal entities fund remittance abroad for cash reserves or investments.

R$ million

241

2006

2007

IFC and IDB Lines Banco Indusval Multistock knows the benefits of and is always alert to opportunities to diversify its credit lines. After thorough analysis, the Bank was granted in June 2006 a credit line of the International Finance Corporation (IFC), connected to the World Bank. This line funds trade finance operations for small and medium-sized enterprises, with the Global Trade Finance Program (GTFP). Due to this successful partnership with IFC, this credit line was doubled in October 2007. In March 2007, BIM was granted an initial credit line of US$10 million from the Inter-American Development Bank (IDB), within the Trade Finance Facilitation Program (TFFP). Launched in 2005,TFFP is a support tool for the economic growth by means of the expansion of international trade finance, available for Latin American and Caribbean companies. BIMâ&#x20AC;&#x2122;s first operation in the Program was conducted in November, in biofuel trading. This operation involved the issue of a guarantee to cover a promissory note used to finance ethanol fuel exports from Brazil to England. The agreement contributed to the growth in the production and supply of biofuel as an alternative and sustainable energy source. The approval of the IFC and IDB credit lines allowed an increase in the trade finance business. It was also a crucial factor in negotiations with private international financial institutions and in the growth in BIMâ&#x20AC;&#x2122;s network of foreign correspondent banks, which now covers all continents.

Structured Operations Following the development of the Brazilian economy, the financial operations market for medium-sized companies in the country has been undergoing changes in the last years. Some of Banco Indusval Multistock’s traditional customers grew dramatically due to increased activity in their business areas and/or mergers and acquisitions. Alert to business opportunities, BIM noticed a demand for more sophisticated products at better rates and larger financing volumes for its customers’ activities. Consequently, BIM started setting up in 2004 a team to develop structured operations so as to meet this demand, both in trade finance and in operations with local currency. Among the banks of its size, Banco Indusval Multistock was a pioneer in structuring and offering these operations.

When it conducts structured operations backed by export or by local currency receivables, BIM always keeps a part of the operation in its own portfolio and sells the remainder to local or foreign investors. As it is responsible for structuring operations and controlling credit guarantees, Banco Indusval Multistock continuously monitors the liquidity of the guarantees and the economic and financial performance of the borrower. It regularly produces and distributes monitoring reports to the deal holders.

Volume of Structured Operations

The first structured operation, supported by future exports, was carried out in November 2004, and totaled US$70 million. The direct and close contact with the customer, a distinct feature of BIM’s work, was crucial for the success of this operation. The fact that the Bank thoroughly knew its customers’ activities, operating cycle and strategies made it easier to create this structure.

295

2005

2006

2007

R$ million

In the second half of 2007, the Structured Operations department was expanded and became strategically important to BIM’s business. New professionals were hired, which made it possible to expand the search for new business opportunities, develop new products and offer customers more attractive financing alternatives, following a model successfully adopted by the Trade Finance department.

Annual Report

2007

Treasury Total Funding R$ million

Banco Indusval Multistock’s Treasury’s main role is to control the Bank’s liquidity and to mitigate the risks of interest rates, currencies and maturity dates mismatches. It also seeks appropriate solutions to meet customers’ needs for exchange and interest rate hedging operations for a number of financial assets.

404

691 GR CA

Marketable Security positions are classified as “for trading”, as well as the financial derivative operations are all “marked to market”. Financial derivatives basically correspond to operation and position hedging.

2005

Concerning liquidity management, the Bank adopts a conservative policy, maintaining at least 20% of total deposits as free cash*, to ensure greater safety for customers. This percentage was determined in 2004, after the liquidity crisis among medium-sized banks in Brazil due to the liquidation of a bank in this sector that year. Banco Indusval Multistock had then doubled its capital with the sale of the consumer finance operation, and 100% of its total deposits consisted of liquid assets. As a result, it was able to calmly overcome that turmoil period for medium-sized banks.

1,040 0%

2006

2007

Funding Breakdown Time deposits Demand deposits Interbank deposits Foreign Loans

22.1% * Free Cash: Liquid assets (Cash + Temporary cash investments + Marketable Securities +Derivative Financial Instruments) less Funding in the Open Market and Derivative Financial Instruments.

6.6% 7.7%

63.6%

Banco Indusval Multistock has a loyal and traditional investor base that increases as the Bank expands its activities and grows. Following the growth in the credit and financing portfolios, 78% of the total funds raised by the Bank in 2007 were in local currency, mainly time deposits - Bank Certificates of Deposits (CDBs). At the end of the year, the average maturity of time deposits was 334 days.

78% of the funds raised were in local currency, mainly through time deposits acquired by a diverse

Funds raised as foreign loans in 2007 were fully pegged to trade finance operations and are managed so as to avoid mismatches in foreign currency.

investor base.

There is also a strict control on potential tenor mismatches through the daily monitoring of the flow of assets and liabilities to ensure a sound liquidity position. In 2007, besides more traditional funding operations, Banco Indusval Multistock held an Initial Public Offering and raised R$227.5 million in July. That was an alternative manner to strengthen its capital base and diversify resources to finance its credit portfolio.

Time Deposits by Type of Investor Individuals Legal entities Institutional Investors Security Brokers and Distributors

5% 22%

48% 25%

Annual Report

2007

Operations in the Stock and Mercantile & Futures Exchanges

Additionally, the Board of Directors approved registering a Global Medium Term Notes Program on the Luxemburg Stock Exchange to raise up to US$300 million in note and bond issues with maturities of up to five years. Despite the uncertainties in the international market at that moment, this decision intended to prepare all the means, including contacts with investors in this type of asset, for the Bank to act quickly when conditions are better to obtain external funding. Even though this is a more expensive funding source than the issue of CDBs in the domestic market, Banco Indusval Multistock believes that it should seek to diversify its funding sources to sustain its long-term expansion plans.

Operations in the capital markets are conducted through Indusval Corretora de Títulos e Valores Mobiliários, which operates in all the markets of the São Paulo Stock Exchange (Bovespa) and the Brazilian Mercantile and Futures Exchange (BM&F). At the end of 2007, the Brokerage House had 1,300 active customers in Bovespa operations and 300 active customers in BM&F operations. Income from financial brokerage amounted to R$2 million and from services to R$13 million, a 59% rise in comparison to 2006. In 2007, Indusval CTVM volumes came to R$ 5.3 billion on Bovespa, 665 thousand contracts on BM&F and US$371 million in foreign exchange brokerage. Indusval Corretora has a good position in the trading of agricultural products contracts on BM&F and ranks high in the trading of corn, coffee, soybean and cattle contracts. In the financial commodities market, the Brokerage House has a strong presence in Ibovespa contracts (Bovespa’s reference index), interbank deposit rate contracts and foreign exchange contracts, in this order.

Assets and Liabilities Management R$ million Assets Liabilities

575.1 482.1 208.1 163.4 192.9 114.3 279.5 209.0

90 days

180 days

360 days

Over 360 days

In 2007, the agricultural commodities area participated in BM&F’s Operating Qualification Program. The Brokerage House obtained the Agro Broker seal since it proved to fulfill BM&F’s requirements to provide excellent services in agribusiness. Individuals’ medium-sized portfolios, with monthly operations above R$200,000, are the most important segment of Indusval Corretora activity on Bovespa. It offers customized services both to these individuals and to companies seeking experienced and quick advisory services for share repurchase and participation in auctions for the concession of public services. It also acts as an agent in the distribution of Public Offers of shares and has participated in all the operations of this type conducted in 2007, when the Brazilian capital markets was very active. In 2007, Indusval CTVM successfully assisted customers in public concession auctions. Information about Indusval Corretora can be found on its website: www.indusvaltrade.com.br.

Annual Report

2007

Administrative Management

Improved Work Flows and Processes

To ensure the continuity of its expansion, Banco Indusval Multistock invested in six new branches in 2007, all of which opened in the last quarter of the year. These new branches add to the four units opened in the previous year. Therefore, in addition to its headquarters in São Paulo, BIM had ten branches at the end of the year. Consequently, new professionals had to be hired for the new positions.The number of employees had, therefore, risen to 331 from 255 at the end of 2006.The sales force grew the most, from 125 in 2006 to 179 at the end of 2007.The support and control departments received 27 new employees to ensure that the operations of the new structure are quick and safe. A considerable increase in the number of operations was already observed in 2007. That was possible due to the administrative management initiatives in several aspects described below.

In 2007, Banco Indusval Multistock reviewed and redesigned the flow of documentation related to customer records and operations, an essential process to gain efficiency and speed in support activities to keep up with the increase in the number of branches and operations. An Internal Customer Service Department was created to answer and support the Sales teams - headquarters and branches, as well as Funding, International and Treasury departments. The Internal Customer Service Department is the front door to two production environments, one of documents and other values, and is responsible for screening, distribution between these two production environments and systematic monitoring of the document flow. To increase productivity, access to the production environments is restricted, thus avoiding interference and interruptions of the work flow.

Training of the employees in the Support and Control departments

This model is based on the belief that it is essential to maximize the synergy between departments to ensure, and further accelerate, the expansion of the Bank’s activities. This innovative structure makes it possible for the business areas to be released from the responsibility for monitoring document production flow, leaving room to focus on the external customer.

BIM’s evolution and growth necessarily involve the personal and professional development of its employees. It is the Bank’s policy to offer its people training and refresher courses, both in technical and behavioral areas. Bank employees participated in several internal and external training programs focusing on different topics, such as IT applications and legacy operational systems, money laundering prevention, customer services, managerial skills, operations analysis and formalization, among others.

Another initiative to improve the Bank’s customers servicing and in the productivity of the commercial area, a commercial support cell consisting of 17 commercial assistants was created. This team is responsible for

solving operations routine administrative problems with the Bank’s corporate customers. Therefore, it gives support to the commercial managers at the head office in São Paulo and in the ten branches.

Internal Customer Service Process

Head Office and Branches

Internal Customer Service

Operating Manager

Values

Contracts Receipt of Documents and customer registration and record data update Signatures checking and validation of customer registration files Receipt of Documents for contracts formalizing

Annual Report

2007

Operational Physical or electronic Collection and discount of receivables Payment checks discount Collection instructions

Financial Expense reimbursement Receipt of clearing documentation Receipt and checking of bills, notes and invoices

Production Environment

Documents

Electronic Document Management

Investments

Always in line with its business development model, Banco Indusval Multistock was a pioneer in the adoption of the Electronic Document Management (GED) system in 2007. It involved digitizing the documents of all Bank operations. Electronic files are used in the everyday work flow and not only for filing purposes. Physical records are kept by an outsourced company, in a site apart from BIM premises, with high security standards.

Throughout 2007, BIM made several investments in information technology. The creation of a central databank was a milestone in the modernization of BIM’s activities and the improvement in security. Banco Indusval Multistock’s and Indusval Corretora’s most important servers were transferred to a Data Center located in a large telecommunications service provider, ensuring greater security and stability in lines of communication and energy.

Less paper handling results in higher productivity, quicker processes and greater safety. Everything is intended to benefit the customer since it allows quicker service. In addition, GED made communication between headquarters and branches easier, thus reducing operating costs and making it possible to open new branches at lower costs and with excellent control and security standards. All back-office activities are centralized in São Paulo.

Information

Technology

In addition to being stored in headquarters and branches, all the information about BIM’s activities is sent to this Data Center. As a result, data integrity and branch operations are guaranteed in spite of any incidents that might occur in head office facilities. The IT department was also instrumental in determining the acquisition of legacy systems for operating and market risk management. With the help of specialized companies, it also participated in the development of and improvement in operations control systems and management information systems, customized to fulfill BIM’s needs and ensure the required agility for the Bank to remain competitive and keep up with the pace of business growth.

It is worth noting that document digitization provides more physical space in the Bank’s facilities, and this allowed redesigning internal layouts. Consequently, it was possible to accommodate more employees with more comfort, in a healthier environment designed in line with work flows.

Reevaluation of contracts with suppliers of materials, services and maintenance

Risk Management

Part of BIM’s evolution process comprises its management constant awareness to firm cost control in the development of its activities. Therefore, the Administration Department has reevaluated all contracts to reduce costs and improve the quality of products and services. The purpose was to reduce the number of suppliers to obtain scale gains and greater quality control. These actions were taken with the due care to avoid the Bank’s dependence on determined supplier and ensure the continuity and speed of operations.

With investments in people and systems, the practices adopted by BIM concerning risk management are being improved. However, conservative standards have always been kept. The Bank’s governing bodies and Committees outline strategies and policies that are based on the best market practices and comply with effective legislation. The careful mapping of potential risks, accurate assessment of occasional losses, adoption of measures to practically and consciously mitigate them and the constant monitoring of this process make it possible for Banco Indusval Multistock to develop in a balanced and sustainable manner. The assessment and monitoring of the main risks are done through specialized systems using mathematical and statistical models. This is an essential issue for a good business management and is the focus of special attention. Banco Indusval Multistock minimizes the possibility of losses by adopting an integrated system of risk management control and processes. Albeit systematic and conservative, these guidelines and practices are developed so as not to affect the pace of business. The control and monitoring procedures implemented should not be a barrier to the Bank’s expansion process. On the contrary, risk management should contribute to the consistent and healthy growth of the Bank through the ongoing improvement in internal processes and systems. As a result, procedures are conducted more safely and quickly, key factors in the development and maintenance of business profitability, especially in the financial sector.

The risk management controls and processes adopted minimize the possibility of losses, contribute to a consistent and sound expansion of the Bank to no detriment of business agility.

Annual Report

2007

Market Risk

Credit Risk

Market Risk is related to the fluctuation of the value of assets and liabilities. This fluctuation may result from changes in market prices and rates and in their co-relation and volatility. BIM manages this risk with systems and professionals trained by a specialized consulting service, according to the best practices in the domestic and international markets.

Credit Risk is connected to the possibility of customer insolvency. Its management involves the use of different assessment and control tools. A thorough analysis of each borrower and the structure of the guarantees offered in each operation is prepared by the credit analysis department and submitted to the Credit Committee at its weekly meeting. Customer risk ratings, based on Resolution 2682 of the National Monetary Council, are made on the basis of a credit score mathematical model. The Credit Committee can make them more restrictive. Customer economic and financial performance is regularly monitored by account managers and the credit analysis department. Furthermore, guarantees are monitored by systems that track volumes, liquidity and potential shortages on a daily basis, in the case of operations guaranteed by receivables.

In compliance with market practices and Resolution 3464 of the National Monetary Council, Banco Indusval Multistock adopted a new market risk management model in 2007, improving its assessment and management methodology. This model is mainly based on the VaR (Value at Risk) methodology. VaR is a statistical measure for the probability of a maximum loss of the value of the Bank’s portfolio in normal market conditions, within a given time frame. VaR Stress is also used. It calculates these potential losses in a stress scenario due to extreme market conditions. Another tool used by BIM is Capital Allocation so as to ensure the ability to absorb the impact of unexpected losses and continue operating in adverse scenarios. Capital Allocation is also the calculation basis for the return of operations in relation to the risks incurred.

The quality of BIM’s credit portfolio reflects the efficiency of these controls. At the end of 2007, 96.5% of the credits in the Bank’s portfolio were rated between A and C, while the percentage of nonperforming loans (NPL), those overdue above 60 days, was 1.4% of the total portfolio.

Due to Banco Indusval Multistock’s conservative policy, the Bank’s VaR is traditionally very low in comparison to the total volume of its operations.The primary mission of BIM’s Treasury is to eliminate mismatches between assets and liabilities. At the close of 2007, the Bank’s VaR was R$363 thousand, with 99% confidence interval.

Liquidity Risk

Operating Risks

There is a Liquidity Risk when an organization’s reserves and cash do not suffice to settle its obligations, albeit temporarily. Banco Indusval Multistock has a system to continuously monitor and analyze customers’ liquidity. Statistical and financial projection models for the assets and liabilities influencing cash flow and local or foreign currency reserves are used. The main tools are:

Operating Risks are the probability of losses resulting from internal processes; inadequate or faulty people or systems, problems with contracts or due to external events. The operating risk management model used by BIM is in line with the main risk and control frameworks, such as the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and Control Objectives of Information and Related Technology (COBIT), which include business and technology aspects.

Gap Analysis – a graphic representation, by risk factor, of cash flows shown in market values on maturity dates; Results Analysis – monitoring of the Bank’s results compared to a benchmark.

The Bank’s control structure was mobilized in 2007 with the objective to achieve total adherence to Resolution 3380 of the National Monetary Council (CMN) by the end of the year. This Resolution defines operating risk and sets minimum criteria for effective operating risk management to be adopted by Brazilian financial institutions. This process includes the development of tests for the Business Continuity Plan (BCP), which secures the continuity of operations in cases of minimum or total contingencies.

BIM adopts a conservative cash management policy, emphasizing asset liquidity and quality. A minimum of 20% of total deposits is kept in the form of free cash to mitigate risks from a sudden market liquidity loss. The current liquidity level is monitored on a daily basis by the Treasury and Risk Management department. At weekly meetings, the Cash Committee assesses scenarios and validates the risk parameters and projected cash flow. In addition, it sets measures for managing the Bank’s current assets and liabilities.

Annual Report

2007

BCP involved the transfer of BIM’s main servers to the Data Center of a large telecommunications service provider, as mentioned in the Information Technology section of this Report. The information and data needed for the continuity of operations started being processed, replicated and kept in a secure environment, with greater protection against fire, weathering and breach. The system also ensures data transfer among headquarters and branches.

With an ongoing effort to adopt the best market practices in operating risk management, the Bank is prepared to adhere to the guidelines of the New Basel Capital Accord, in compliance with the schedule set by the Central Bank of Brazil. Further action was taken by BIM to strengthen and disseminate the risk management culture in the Bank, such as: 25 employees were appointed and trained to act as “compliance agents” in all the Bank’s and Brokerage House’s departments. These agents are responsible for monitoring procedures and disseminating the risk control culture in their respective departments; 60 employees and key managers were trained in information security; and 75% of the employees were trained in money laundering prevention.

Ombudsman Pursuant to Resolution 3477 of the National Monetary Council, of 07.26.2007, intended to ensure strict compliance with legal rules and regulations as concerns consumer rights, Banco Indusval Multistock created an Ombudsman’s Office, which is also a communication channel between the Bank and its customers. Moreover, this cell will be crucial to improve processes and the communication flow by means of the faults detected. BIM’s business partners can contact its Ombudsman’s Office at 0800-704-0418.

03 Macroeconomic Environment and Performance

Silvia Y. Nakamassu, Accounting

As a result of the Bank’s growth strategy, income from credit operations rose by 63.7% and net income by 132.5% in 2007. Macroeconomic Environment since March 2002. Alongside with this drop, purchasing power continued to rise. In 2007, the real average annual earnings of the workforce was estimated at R$1,143.72, the highest since 2003, which allowed the recovery in purchasing power.

The Brazilian economy performed well in 2007; all sectors grew and the GDP rose by 5.4%. This growth rate surpassed the first expectations and was the highest since 2004. Increased and strengthened activity was observed in several sectors: the industry grew by 4.9%, farming by 5.3% and the services sector by 4.7%.

Inflation measured by IGP-M (General Market Price Index) and IPCA-IBGE (IBGE’s Broad Consumer Price Index) closed the year at accumulated rates of 7.75% and 4.46% respectively. Concerning exchange rates, the local currency rate to the US dollar kept its upward trend and rose by 17.15% during the year. In this context, part of the industry is taking advantage of the favorable dollar rate and renewing equipment with imports. In spite of increased imports, made cheaper by this trend in exchange rates, the negative impact on production and the income of the country’s production sectors was greatly offset by the booming domestic market and investments.

In 2004 and 2005, the Brazilian economic growth was driven by exports. In the last two years, however, the increased economic activity has mainly resulted from the domestic demand. National Accounts data show that family consumption rose for the fourth consecutive year. A contributing factor in the 6.5% rise in 2007 was the 3.6% increase in the total wage bill.The labor market has been gradually recovering, according to the Monthly Employment Survey - PME, posted by the Brazilian Institute of Geography and Statistics (IBGE). The 7.4% unemployment rate in December 2007 was the lowest

Economic and Financial Performance

In keeping with the expanding economy, the increased pace of the growth in industrial production has been positively affecting investments, which rose the most since 1996, according to IBGE data.

Banco Indusval Multistock’s results in 2007 reflect the soundness of its economic basis and enabled the Bank to take advantage of the positive market momentum. BIM is prepared to anticipate and fulfill the needs of the middle market segment, and meet its customers’ expectations, mainly by providing specialized services, as has happened in the last year.

A crucial factor in the performance of the Brazilian economy is the international situation. Since late July 2007, this situation has deteriorated due to the credit crisis in the US, sparked off by delinquency in high-risk mortgages and widespread fears of a US recession with an impact on the world economy. The worsened external scenario has had modest effects on the Brazilian economy so far. Nevertheless, the possibility of a modest slowdown in the world economy or even a bleaker scenario cannot be dismissed, even though the latter is less probable and there is as yet no evidence of it.

Selic1 Exchange rate (R$ vs. US$)1 Appreciation of the Real against the US dollar IPCA (IBGE)2 IGP-M2 1 2

2005

2006

2007

18.05%

13.25%

11.25%

2.34

2.14

1.77

11.82%

8.66%

17.15%

5.69%

3.14%

4.46%

1.20%

3.85%

7.75%

Income from Financial Intermediation Income from financial operations totaled R$289.0 million in 2007, a 53.9% rise in comparison to those of the previous year (R$187.8 million). This rise mainly resulted from the expansion of credit operations. Income from Credit Operations: BIM’s main line of business, credit operations in local currency, accounted for 62.7% of total income from financial operations in the year. As a result of the Bank’s growth strategy, which included opening new branches to further increase its customer base, and the favorable situation, income from these operations amounted to R$181.3 million, a 63.7% rise as compared to the previous year.

Interest Base Rate – End of year Inflation indices – Accumulated over the year

Annual Report

2007

Income from Exchange Operations: BIMâ&#x20AC;&#x2122;s income from foreign exchange operations followed the growth in the other activities of the Bank and increased by 17.15% in the year, even though the appreciation trend of the local currency against the US dollar continued and grew in 2007. Income from these operations totaled R$33.1 million in the year, with a 32.4% increase when compared with 2006. Income from Operations with Marketable Securities: The volume of operations with securities rose from R$259.0 million in 2006 to R$648.2 million in 2007, also impacted by the cash increase due to inflow of the IPO funds in July. Consequently, income from these operations increased by 43.2% in the year and amounted to R$74.6 million in 2007, in spite of the drop in interest rates.

Loan Expenses: These expenses, which support the growth in the trade finance portfolio, totaled R$23.3 million in 2007, 20.0% more than in 2006 but were offset by corresponding income and led to the better result in foreign exchange operations. The outstanding balance of foreign borrowings was R$229.7 million at the end of 2007, versus R$164.1 million in the previous year. Result From Derivative Financial Instruments: These expenses fell by R$0.4 million and amounted to R$2.8 million in 2007.These are not significant results due to the Bankâ&#x20AC;&#x2122;s Treasuryâ&#x20AC;&#x2122;s passive strategy.

Expenses on Financial Intermediation With increased activity, expenses on financial operations rose by 34.7% in the year, less than the 53.9% rise in income from financial operations. The main reasons for this increase were: Money Market Funding The main item in expenses on financial operations came to R$115.9 million in the year, 39.9% more than in 2006.These expenses are directly related to credit operations in Reais and operations with marketable securities, which grew dramatically in 2007.

Income from credit operations in local currency increased by 63.7% and accounted for 62.7% of total income from financial intermediation in 2007.

Expenses On Allowance For Bad Debts: 2007â&#x20AC;&#x2122;s expenses on allowance for bad debts amounted to R$17.7 million, 35.3% more than in the previous year.This performance was considerably influenced by the credit portfolio growth. Risk ratings according to Resolution 2682 of the Central Bank were also impacted by the extension of maturities and the combination of guarantees for longer-term operations.

Other Administrative Expenses: 2007â&#x20AC;&#x2122;s other administrative expenses amounted to R$26.5 million, 40.1% more than in the previous year.These include expenses on third-party services, specialized technical services, utility bills, rent, materials, among others. It is worth noting that, for the sake of comparison, the amount above does not include the non-recurring IPO expenses of R$14.9 million. Total administrative expenses including those on the IPO totaled R$41.0 million.

Gross Result from Financial Intermediation

Operating Income

Gross Income from Financial Operations totaled R$129.2 million in 2007, 86.6% more than in the previous year, which shows that the Bank adopted a wise strategy in the expansion of its operations.

Operating income was R$75.5 million, excluding the IPO expenses, and R$61.0 million including them. These amounts were respectively 147.5% and 99.9% higher than the R$30.5 million recorded in 2006.

Other Operating Income (Expenses)

Non-Operating Income

Net Operating Expenses totaled R$53.7 million in the year, a 38.7% increase when compared with the previous year, the IPO impact not included. Considering the gross expenses of R$14.9 million on the IPO, net operating expenses amounted to R$68.2 million in the year.

The non-operating income of 2007 amounted to R$14.2 million, mainly due to the R$13.4 million proceeds from the sale of a portion of Indusval S.A. CTVM stake at Bovespa Holding S.A. in its IPO.

Income Tax and Social Contribution Expenses on Income Tax and Social Contribution came to R$15.7 million in 2007, since the taxable income amounted to R$75.2 million. If the non-recurring expenses on the process of going public had not been included, this amount would have been R$89.7 million and, consequently, expenses on these taxes would have been R$20.6 million.

The main changes were observed in: Income from Services Rendered: This income amounted to R$18.9 million, a 62.9% increase in the year, mainly due to the rise in income from collection and brokerage in stock exchange operations, 14.4% and 64.4% respectively of the total income from services in 2007. Personnel Expenses: These expenses rose by 48.5% and totaled R$40.6 million due to increased activity and the ensuing growth in personnel.

Annual Report

2007

Contributions and Profit Sharing

Net Profit for the Year

The amounts provisioned for employees’ and managers’ profit sharing programs, which are paid on a semi-annual basis, are reported apart from personnel expenses under the heading “contributions and profit sharing”. Profit sharing amounted to R$14.2 million in 2007 versus R$0.9 million in 2006. This R$14.2 million includes the R$2.3 million corresponding to the 2006 results and paid in the first quarter of 2007.

Net income rose by 132.5% in 2007 and closed the year at R$55.0 million, or R$45.4 million including the IPO expenses.This performance was positively impacted by the sharp increase in operations throughout the year and resulted in a Return on Average Equity (ROAE) of 19.8%, 3.3 p.p. more than in the previous year. Including the IPO expenses, this return was 16.3%.

Efficiency Ratio With the IPO expenses excluded, BIM’s Efficiency Ratio remained stable (a 0.3 p.p. rise) in spite of the above described additional R$2.3 million in profit sharing.

2005

2006

2007

2007*

58.8%

56.3%

63.0%

56.6%

25.0

27.3

40.6

0.9

14.2

16.5

18.9

41.0

26.5

Tax Expenses

4.6

5.7

9.9

Other Operating Expenses

1.1

2.1

4.1

Sub Total Expenses (R$ MM)

47.2

54.9

110.0

95.2

Gross Income from Financial Operations (not incl. Prov. for Doubtful Debtors)

67.8

82.3

147.0

Income from Provision of Services

9.3

11.6

18.9

Other Operating Income

3.2

3.7

8.4

80.3

97.6

174.3

Efficiency Ratio Personnel Expenses Contributions and Profit Sharing Other Administrative Expenses

Sub Total Income (R$ MM) (*) Excluding non-recurring IPO expenses.

Ratings Banco Indusval Multistock is currently rated by three ratings agencies: Standard & Poor’s and Fitch – two of the most important international agencies – and the Brazilian agency Riskbank. Ratings reflect the sound quality of the Bank’s assets.

Agency

Rating

Latest Report

Standard & Poor’s

Global Scale: B+ / stable / B Local Scale: brBBB+ /Stable/brA-3 National Scale: BBB+/F2

December 2007

Fitch Ratings RISKbanck

Value Added Statement With these results, added value to society generated by BIM totaled R$125.6 million in 2007.This shows an added value index of 97.2% of the gross income from financial operations. In other words, R$0.97 out of every R$1.00 of the income from its operations was distributed among the government (taxes and contributions), employees (wages, salaries and social charges) and shareholders (reinvestment and dividends).

The Statement of Cash Flows is part of our Financial Statements. It is included in Explanatory Note 17 (e) and can be found on page 88 of this Report.

2007

Low January 2008 short-term risk RISKbank index: 10.78

S tandard & Poor’s – raised BIM’s long-term ratings from ‘brBBB’ to ‘brBBB+’ in June. On the same occasion, it reaffirmed its Brazil national scale shortterm rating (‘brA-3’) and global scale short- and long–term rating (‘B+/B’). Prospects for these two scales are stable.The agency explained BIM’s ratings by highlighting its strong liquidity, good profitability, credit quality, quick decision-making and good knowledge of its business. Fitch Ratings – BIM’s national short- and longterm ratings rose from ‘BBB+(bra)’ and ‘F2(bra)’, in October 2007. It also reaffirmed the stable prospect of its national long-term rating. The positive change in BIM’s risk ratings was due to the Bank’s increase in paid-up capital with the IPO in the second semester. According to the agency, the increase in shareholders’ equity make it possible to develop the Bank’s operations in the medium run and, consequently, gain competitiveness.

Cash Flow

Annual Report

October 2007

iskbank – maintained Banco Indusval Multistock R ‘low short-term risk’ in January 2008. By the Riskbank index, the Bank was given 10.78 rating, above the average Riskbank index of 10.00 for the sector. The agency highlighted the improvement in BIM financial bases coupled with the growth in its financing operations.

The total amount of the issue was R$252.5 million, R$227.5 million of which corresponds to the primary offering and was fully used to strengthen the Bank’s capital base. By the end of the placement, 87.5% of BIM’s marketed shares, or 12.6 million shares, had been purchased by qualified foreign investors. Individuals were the second largest group, with 283 investors, who purchased 7.2% of the preferred shares offered.

Capital Markets Banco Indusval Multistock became a publicly-held corporation with the Initial Public Offering (IPO) held in the second half of 2007. As of July 12, BIM shares started being traded on Bovespa, under ticker symbol IDVL4. Since BIM has a good relationship with all its stakeholders and its policy includes practices such as providing transparent information, the Bank adhered to Bovespa‘s Level 1 of best practices in Corporate Governance. In addition, it voluntarily fulfilled additional Novo Mercado requirements, as described in the section “Commitment to Governance” in this report.

On December 31, the free float totaled 14.4 million shares, 33.6% of Banco Indusval Multistock’s 43.0 million total shares.

Final IPO Placement Data Type of Investor Investment clubs

0.7

12,645

87.5

Investment funds

529

3.7

Individuals

283

1,034

7.2

Other Financial Institutions

0.5

Other Legal Entities

0.4

347

14,432

100.0

Foreign qualified Investors

The Public Offering ended on August 13, with a total distribution of 14.4 million preferred shares, 13.0 million of which were new shares and 1.4 million were held by selling shareholders traded in the stabilizing period (green shoe). The issuing price was R$17.50 per share – within the proposed range between R$16.00 and R$19.00.

Total Offering

Total Number of preferred shares equity Investors (in thousands) interest (%)

Stock Performance

Exchange. Nonetheless, there was in the last sessions of the year a sharper rise in this index, which rose by 13.36% in the period and 43.65% in the year.

On October 15, BIM hired Credit Suisse Corretora de Títulos e Valores Mobiliários as the market maker for its stock for a one year renewable period. With an authorization granted by Bovespa, market makers maintain stock bid and ask prices on a daily and continuous basis, thus contributing to increasing liquidity and improving price formation process. BIM’s stock, between the IPO and the close of the year, appreciated by 11.43%, more than the average of other banks first listed on Bovespa in the same period. In most trading sessions in the semester, IDVL4 stock performed above Ibovespa (Bovespa’s index), the main reference for stock performance on the São Paulo Stock

IDVL4

Ibovespa (points)

IPO price on 07.11.2007

R$17.50

56,356

Price on 12.28.2007 (Closing)

R$19.50

63,886

11.43%

13.36%

Maximum price (on 10.31.2007)

R$25.30

65,317

Minimum price (on 08.16.2007)

R$14.91

48,015

Change in the period (since IPO)

Stock Performance IDVL4 X Ibovespa 2007 IDVL4 IBOV R$ 26.00 R$ 24.00 R$ 22.00 R$ 20.00 R$18.00 R$16.00

Annual Report

2007

27 DEC

17 DEC

7 DEC

29 NOV

21 NOV

9 NOV

31 OCT

23 OCT

15 OCT

04 OCT

26 SEP

18 SEP

10 SEP

30 AUG

22 AUG

14 AUG

06 AUG

27 JUL

19 JUL

11 JUL

R$14.00

Dividend and Interest on Equity Policy Banco Indusval Multistock‘s shareholder remuneration policy provides for the minimum distribution of 25% of the adjusted net income of each year, according to Brazilian Corporate Law. In line with its soundness and conservativeness, profit distribution in this phase of quick growth will remain close to its minimum required levels. Payments to shareholders are traditionally made on a quarterly basis as Interest on Equity. In 2007, BIM paid to its shareholders a gross amount of R$15.9 million, or R$13.5 million net of Income Tax, which corresponded to 31.3% of the adjusted net profit in the year and dividends per share of R$0.313.

The Bank’s growth, followed by

Remuneration to Shareholders R$’ 000 1Q

a rise in net profit, resulted in the

2Q 3Q

remuneration of R$15.9 million

to shareholders in 2007, versus 7,181

11,446

10,167

15,858

R$10.2 million in 2006.

6,082 2,646 2,697 1,499 1,499 1,486 2004

3,000

2,220 2,426

2,900

2,730

2,900

2,791

2,320 2,322

2005

2006

2007

5,134

04 Strategies and Outlook

Jo達o Carlos Tierno, Administrative Cashier

BIMâ&#x20AC;&#x2122;s strategy focuses on granting credit to middle-market enterprises. The Bank constantly seeks to expand and innovate the array of products and services offered to its customers. Credit in Brazil and the Middle Market Segment Since early 2004, credit operations have grown sharply in Brazil due to the consolidation of the macroeconomic stability in the country. Increased economic activity led to a greater demand for credit by companies seeking to fund their growth. The increase in Gross Domestic Product (GDP), drop in interest rates, one-digit inflation rate under control and rise in total wage bill are some of the contributing factors in the credit expansion. The Central Bank of Brazil expects these operations to amount to 37 or 38% of the national GDP by December 2008.

R$10 million are those that best characterize middle market operations. In 2007, this range accounted for 44% of loans to Legal Entities, or R$223.9 billion, with a 28% rise in relation to 2006. It is worth noting that small and medium-sized enterprises account for 21% of all sales in the country and about 44% of all corporate loans. This situation greatly benefits banks financing the middle market segment. Medium-sized banks took advantage of their size and nimbleness to take a larger share of this market. The positive scenario for the sector and the favorable conditions in the Brazilian capital markets encouraged these banks to obtain funding through IPOs, in order to increase their net worth and, therefore, expand credit operations. By December 2007, 9 banks from this segment had their stock listed on Bovespa.

In December 2007, credit operations in the national financial system totaled R$932,311 million, 45.7% of which for individuals and 54.3% for legal entities. There are no precise figures on lending amounts in the Brazilian financial system by enterprise sales revenues ranges. However, the Central Bankâ&#x20AC;&#x2122;s statistics break lending by size of contracts. Loans between R$100 thousand and

The credit portfolio of these nine banks grew by 102% on average last year. 96.3% of their credit operations were classified from AA to C, which shows that this growth was not achieved to the detriment of asset quality. Banco Indusval Multistock performed above average. The good performance in 2007, coupled with the increase in the institutions’ capital base through their IPOs, created the conditions for further expansion of banking operations in this segment.

On the one hand, the capital rise provides better foundations for the expansion of banks in this segment; on the other hand, it will lead to fiercer competition. Fitch Ratings scenario for the sector in 2008 estimates that loans to small and medium-sized enterprises will continue to increase at a quicker pace than those for large corporations. Fitch warns that the growth in this portfolio will lead to a drop in credit margins in this niche in the long run.

Standard & Poor’s estimates that these nine banks that went public will be able to expand their operations eightfold while complying with the Central Bank’s minimum capital requirements. This means a rise of about R$40 billion in the credit portfolio of these nine institutions.

Brazil – Total Credit as Percentage of GDP

40.0

34.7

35.0

27.9

30.0 25.0

28.1

26.4

24.0

24.7

24.9

20.0

30.8

24.5 22.0

15.0 10.0 5.0

Annual Report

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

0.0

BIM’s market position

Strict control over credit granting The growth in BIM’s credit portfolio did not affect the quality of the Bank’s assets. This performance results from a strict model for both credit analysis and later monitoring of guarantees.

Banco Indusval Multistock’s focuses on financial operations to medium-sized companies since 1993.The Bank offers a diverse array of products and services and always seeks to meet its customers’ needs with customized solutions. Its strong growth in the last few years, based on sound economic and financial foundations, shows the success of its business model. With broad experience in the segment and distinct features that add value to its business, BIM is prepared to face fiercer competition.

Diverse products As the Brazilian economy started to grow continuously, small and medium-sized enterprises had new financial needs. BIM was able to innovate and has a wide array of products and services to meet this demand.The expansion of trade finance and structured credit operations are the highlights of this portfolio. In December, the Bank started offering BNDES (National Bank of Social and Economic Development) lines.

Differentials Agile and efficient management Based on the expertise of its staff and technological support, BIM can efficiently fulfill its customers’ needs. The lean personnel, easy access to top Management and broad experience contribute to quick decisions.The Bank’s business growth did not change the goal to make decisions about credit extension in up to 15 days.

Strong participation in trade finance The growth in the exports of medium-sized enterprises led BIM to create a trade finance department. After that, the Bank started offering a top-quality advisory service about financing lines and structured operations whenever needed.

In-depth knowledge of the customer Direct contact with the customer is essential in the middle market segment. With this in mind, BIM has a close relationship with its customers and acquires thorough knowledge of their economic activity and operating cycle. The Bank’s policy includes having employees from the vicinities of its branches who are familiar with local needs.

Fast growth In search for new business opportunities, BIM decentralized its activities in the last two years, with six new branches in 2007, in addition to the four ones that were opened in the previous year.The chosen cities are located in areas where the Bank has stronger activity, such as those with greater agribusiness development. In addition to the São Paulo headquarters, the Bank has branches in Belo Horizonte, Campinas, Campo Grande, Curitiba, Goiânia, Maringá, Porto Alegre, Recife, Rio de Janeiro and Uberlândia.

Growth Strategy In 2005, Banco Indusval Multistock outlined the long-term strategy for its business growth, with the expansion of its geographical coverage and product diversification so as to consolidate its relationship with customers. With the capital rise resulting from the July 2007 IPO, it was possible to accelerate this expansion plan. The main line of business remains focused on the middle market segment, which has been the expertise area of BIM since 1993. Banco Indusval Multistockâ&#x20AC;&#x2122;s business strategy aims at the profitable and sustainable growth of its activities, based on the balance between good spreads and operation expansion, without softening credit risk control. This growth results in an optimized operating structure to seek efficiency and produce better returns to shareholders. As the middle market financing segment has presented the highest growth rates and best business opportunities in recent years, BIM chose to remain focused on it and seek growth opportunities by expanding its branch network. The ten branches opened in the last two years primarily serve corporate customers. Support and operating control activities are all concentrated in the SĂŁo Paulo headquarters and made viable with investments in technology and communications. This is the only manner in which it is possible to increase geographical coverage safely and quickly without overburdening costs.

Annual Report

2007

Foundation for Long Term Success

Growth Opportunities

Sustainable Growth and Profitability

Growth Strategy

Focus on Spreads while Delivering Superior Growth

Operational and Cost Efficiency

Optmize Capital Structure to Deliver Superior Return on Equity

Geographic Expansion

“One-Stop-Shop”

Products Diversification

Other Lines of Business

Deep Middle Market and Client Knowledge

Strong Capital Base

Adequate Risk Controls and Compliance

Agility and Stronge Credit Risk Mangement

Solid IT Plataform

Diversified Funding Sources

Another growth oppor tunity pursued by Banco Indusval Multistock is the diversification of its financial product line. This effor t has been made through not only the expansion of its par ticipation in working capital operations and trade finance, but also the development of new structures to fulfill the specific needs of its customers and their production chain. The Bank is also an onlending institution for BNDES funds.

The increase in the offer of financial products, whether it be in fund investments or loans and financing, includes the development of other lines of business. Consumer finance will be resumed through BIM Promotora de Vendas in 2008. In the first phase, activities will be focused on loans for used vehicles – cars, motorcycles and trucks. Later, other consumer financing lines will be offered.

New Products

The whole strategy of BIM is based on its in-depth knowledge of the middle market, acquired throughout the last 15 years; nimble and extremely efficient credit extension management; and strengthened structures of administrative management, risk control, compliance and technology. The Bank’s sound capital base and access to bank deposits and lines, achieved over its 40 years of activities based on committed management and respect for customers and partners, complete these foundations. These are the basis for the longterm success of BIM’s strategy.

BNDES lines In December 2007, the BIM became an onlending institution of BNDES financing lines. The BNDES line complemented BIM’s product line to fulfill its customers’ needs for financing with more favorable maturities and better interest rates. The Bank, therefore, contributes to the development of investment projects in the country. The main product lines involving onlending of BNDES funds to be offered in the first phase are FINAME, BNDES Automático and pre- and post-shipment Exim financing line. Banco Indusval Multistock’s competitive edge in this new product line is its supplementary role and, above all, quick decision making and service, key factors in an investment process. Credit to Production Chains In the second half of 2007, the commercial department of the Bank focused on structuring credit operations that benefit the production chains of its customers. The purpose is to offer financing options that help not only the corporate customer, but also its suppliers and customers. The first agreement was signed in late 2007 and benefited the buyers of a large multinational IT corporation.

The diversification and frequent innovation of financial product lines is one of the pillars of BIM’s growth strategy.

Annual Report

2007

Agreement with SUS (Unified Health Care System) BIM signed in late 2007 an agreement with the Ministry of Health to extend credit to health care service providers accredited at SUS. Financing will be guaranteed by fiduciary assignment of the service provider’s SUS receivables. There is a great business potential in this field.

Export Credit Notes (ECN) Since early 2008, BIM has been offering this financing alternative to exporters. This is a local currency credit instrument based on future exports. The issue of this credit instrument represents a commitment by the borrower to pay local currency but based on the budgeted future exports of goods or services.

Carbon Credit One of BIM’s challenges in 2008 will be structuring some operations involving small and medium-sized Brazilian enterprises, in a possible partnership with the International Finance Corporation (IFC) – connected to the World Bank – and the Brazilian Mercantile and Futures Exchange (BM&F) to finance projects that generate carbon credits.

New Businesses Consumer Finance – Vehicles The Non-Competition Agreement signed in 2004 between Banco Indusval Multistock’s controlling shareholders and HSBC, when Valeu Promotora de Vendas was sold, expired in October 2007. With the end of this commitment, Banco Indusval Multistock’s Board of Directors decided to resume retail lending operations.Behind this strategic decision is Management’s long experience in retail lending, which guarantees the Bank’s ability to provide quick and excellent services for consumers.

Operations involving Export Credit Agencies (ECAs) to finance Machinery and Equipment In late 2007, BIM concluded its first operation to finance equipment imports from Switzerland with ERG – the Swiss export credit agency. The goal is to expand these operations in 2008 to meet the financing needs of BIM’s customers which are growing or refurbishing their plants. The Bank intends to conduct operations with other agencies, such as: Eximbank (USA), Hermes (Germany), Coface (France) and Sace (Italy).

In the second quarter of 2008, the Bank expects to start the first phase of the business plan of BIM Promotora de Vendas with financing for used vehicles – cars, motorcycles and trucks.

Outlook for 2008

At first, operations will concentrate on the whole of São Paulo State with a team of sales representatives. In the future, this operation may be extended to other parts of the country and to other types of retail lending, by tapping synergies with BIM’s branch network. This expansion will mainly depend on the continuation of credit expansion in the context of the Brazilian economy. This product is expected to contribute to the growth of Banco Indusval Multistock in 2009.

The continuation of an economic scenario marked by stability and growth, with a steady supply of credit, will determine the growth of small and medium-sized enterprises. If this scenario prevails, a rising demand for more sophisticated financial products and services from these enterprises is expected. Aware of this changing scenario, BIM operates in line with its customers’ needs and seeks to anticipate their demands and propose solutions. The increase in the Bank’s service network, with new branches, and product line is a response to these changes. BIM believes that the maintenance of financial margins will be a key factor in financing operations. In this regard, it seeks to diversify its funding sources, with the possibility of external funding and a branch on the Cayman Islands. The Cayman branch has been approved by the Central Bank of Brazil and will provide greater speed and competitiveness in financing operations in foreign currency for our customers. In addition, it will offer the best alternatives for funding from abroad. Keeping business management nimble and efficient is a crucial factor in BIM’s success.The Bank is fully aware of the need to have a highly-skilled, specialized team to maintain its competitive edge. With this in mind, it will continue to invest in employee development. As a support to the Bank’s growth, it will make further investments in administrative management, in a search for last generation processes and state-of-the-art IT technology.

Indusval Corretora’s Executive Board

Annual Report

2007

Brokerage House In keeping with the Bank’s business plan, Indusval Multistock Corretora’s challenge is to strengthen synergies with BIM’s branches and its relationship with customers.The purpose is to increase operations both on BM&F and Bovespa, thus improving relationships with individuals and legal entities in Brazil.

BIM’s goals for 2008 include: Operations in local currency The plans for these operations include keeping the pace of growth in the credit portfolio within the parameters for profitability and asset quality that have always guided Banco Indusval Multistock’s business. The growth projected for 2008 is based on the consolidation of the activities of the branches opened in 2007 and the increase in the product line.

To support this growth and improve customer services, we invest in technology and the increase in the teams working with financial and agricultural commodities.

Operations in foreign currency The opening of the Cayman Islands branch, as early as in the first half of 2008, will allow greater speed in external funding and structured operations. The Cayman branch has been approved by the Central Bank of Brazil and is now only dependent on the pending authorization of the Cayman Islands authorities. BIM’s goal includes the increase in lines from correspondent banks and multilateral branches to sustain the growth in the trade finance portfolio.

To strengthen and expand Indusval CVTM’s operations and make them dynamic, a new officer coming from prominent institutions in retail brokerage was hired in the first quarter of 2008 to structure the expansion of this activity. Management and Infrastructure The strengthening process of the management and control tools and policies, which started in 2007, will be continued and intensified in 2008 to support the sound growth of the Bank and keep its operations and results sustainable in the long run.

Treasury Besides preserving liquidity and mitigating risks from interest rates, indices and currencies, BIM’s Treasury will take the fundamental role to promote funding and diversify funding sources to support the growth in credit portfolios in 2008. Additionally, it has the challenge to develop risk mitigation devices at reasonable prices to meet the needs of customers and the Bank’s structured operations.

The planned initiatives include continued investments in information technology with the improvement and increase in the ability to transmit voice and data, safety and connectivity among branches, in order to ensure the continuity of business even in adverse conditions.

05 Our Beliefs

Marisa M. de Carvalho, Sales Division Assistant

BIM’s business policy, which supports the Bank’s growth and continuity, is based on ethical attitudes, respect and transparency in its relationships with all its stakeholders and a positive work environment.

Banco Indusval Multistock adopts an organizational culture based on ethical attitudes, transparency and a positive and healthy work environment.These premises allowed the sustained development of the Bank over the last 40 years, besides securing its continuity. Based on these references, BIM developed its organizational culture, whose main pillar is transparency toward all its stakeholders, which is one of its major distinct features.

e fficient operations; high-quality customer services; ethical attitudes at work; transparent relationships with all stakeholders; professionalism, expertise and experience; high corporate governance standards; commitment to risk management; management geared to social and environmental responsibility; and being a business that permanently fosters citizenship.

Banco Indusval Multistock believes that ethics, transparency and a positive work environment significantly contribute to sound business growth and bring important gains not only for the Bank, but also for its shareholders, customers, employees and other stakeholders. Promoting this culture is a daily effort that requires more than just fund raising. It requires being constantly alert to maintaining and disseminating the values that compose the Bank’s intangible assets:

With this in mind, Banco Indusval Multistock has been guiding its everyday initiatives not only by the technical, business and legal aspects of its activity, but also by the Bank’s two main beliefs: People and Sustainability.

People Banco Indusval Multistock’s Human Resources department works strategically and seeks to anticipated the needs created by the business. The department uses the most modern techniques in its field for people management, recruitment and selection, training and development, remuneration policy and internal communication. Moreover, it develops initiatives on social and environmental responsibility.

reflected in the quality of its personnel, which includes experienced professionals. In late 2007, Banco Indusval Multistock had 331 employees distributed in headquarters, 10 branches and Indusval Corretora. The Bank’s human capital kept up with the business growth. The Support and Control departments were able to absorb the considerable increase in the number of operations with an increase in the number of employees much lower than the growth in those business areas.The largest increase in personnel was observed in the commercial department, with the hiring of the sales force of the new branches. There is also more diversity and an improvement in the skills and qualifications of employees.

The first results of this model, adopted in 2006, were observed as early as in 2007, when it made it possible to expand the Bank’s personnel in different regions and promote the full integration of the new employees to BIM’s culture. The main initiatives undertaken throughout the year included the expansion of professional training, integration of the new employees into the Bank, introduction of the new career and remuneration plan and review in the benefit package. Furthermore, the payroll preparation was outsourced to allow the department to remain focused on tactic and strategic aspects. BIM hires professionals from different organizational cultures in order to combine different experiences and visions. Nevertheless, all professionals must be in line with the Bank’s culture, whose main values are ethics and transparent relationships with its partners. It also seeks individuals with a cooperative profile who, therefore, work well in teams and are flexible and committed. Based on these values, it was and is still possible to create a positive, healthy and safe work environment in which professionals remain motivated.The low turnover rate proves the efficiency of the Bank’s motivation and retention policy. It is also

Annual Report

2007

Number of Employees

198

255

331

2005

2006

2007

Profile of BIM employees Employees by area of activity

62%

38%

49%

51%

Employees by educational background

46%

54%

2% 27%

4% 21%

28%

29%

44%

46%

6% 9% 26%

Business

2006

graduate studies Grade School

59%

Support and Control 2005

Masterâ&#x20AC;&#x2122;s degree, post-

Certificate High school certificate Primary School

2007

2005

Employees by Age

2006

2007

Employees by length of service

10%

26%

27%

22%

25%

27%

17%

19%

15%

2005

2006

2007

22% Up to 25 year

16%

From 26 to 35 year

32%

From 36 to 45 year From 46 to 55 year Over 55 year

Employees by Gender

15% 13% 32%

14% 10% 25%

Up to 1 year From 1 to 5 years From 5 to 10 years

30%

40%

52%

2005

2006

2007

From 10 to 20 years

Women at BIM 42

111 1 24

79%

74%

66%

21%

26%

34%

2005

2006

2007

1 5 36

Female

1 12 Executive officers

Male

Managers Other levels

2005

2006

2007

Training and Development

To promote ongoing education, the Bank adopts Education and Development policies, with coverage of up to 50% of monthly tuition for graduation, postgraduation and MBA programs, and up to 80% for language courses, with regular monitoring of the benefited employees’ performances. Employees with good professional performance in courses related to their activities are eligible for this benefit. In late 2007, Banco Indusval Multistock supported graduation and post-graduation studies of 42 employees and language courses for 28 employees, and allocated about R$163,000 to this program in the year. The amount invested in employee development and technical training totaled R$289,000 throughout the year.

Banco Indusval Multistock is continuously committed to the development of its employees. Therefore, it invested 13,615 man-hours in the training and development of its employees last year. Corporate, internal and external training programs were offered in order to align teams with the values and goals of the Bank, besides increasing their technical skills and behavioral development. The main programs included training in IT and money laundering prevention, as well as courses in behavioral aspects and technical aspects, such as: financial mathematics, customer listing, credit analysis, risk management and foreign exchange among others. Training all the employees in the new branches to obtain the Capacity Certificate granted by ANBID – CPA10 was also part of the program. The goal for 2008 is to continue the basic training programs of 2007 and make progress in professional training. Consequently, leadership development courses will be offered in all Bank departments, focusing on operating and management issues. Plans for the introduction of online courses (e-learning), mainly for branch employees, are underway. Besides employees to whom the certification is compulsory, the Bank will support those interested in voluntarily obtain Anbid’s CPA-20 certification, which is for professionals in the marketing and distribution of products and services for qualified investors.

In keeping with the Bank’s commitment to continuously developing its employees, training programs aimed at service diversification and excellence are offered.

Annual Report

2007

The number of interns in the Internship Program, which started in 2006, rose from 17 to 28 in the year. The program is designed to promote experience sharing between the academic and business environments, thus providing a balance between theory and practice. At the end of the process, many recently graduated students join BIMâ&#x20AC;&#x2122;s personnel, while the remainder are prepared for the labor market when they leave.

Besides the benefits in the collective bargaining agreement, BIM grants benefits such as: health and dental plan, medicine discounts, education assistance and credit lines at lower interest rates for employees with over one year of service. The additional benefit plan is expected to grow in 2008 with the introduction of a private pension fund.

The first class of the Trainee Program, also introduced in 2006, finished its 18-month training at the end of 2007. There were seven thousand applicants for five openings. BIM considered the experience extremely valuable and will start a new selection process in the first half of 2008. The number of openings will be increased to seven.

Total Amount Paid in Benefits to Employees 21.4

24.0

R$ million

43.4 Salaries

In the last five years, Banco Indusval Multistock has hired 20 young people from social projects supported by the Bank.

Benefits FGTS (Employeesâ&#x20AC;&#x2122; Guarantee Fund) Other

Remuneration and Benefits In the remuneration model adopted, employees receive a fixed salary, based on market surveys, and a variable portion â&#x20AC;&#x201C; Profit Sharing, directly connected to their professional performance. Employees are assessed individually and in teams, and the achievement of preestablished qualitative and quantitative targets is observed. This model is extensible to all employees.

2005

These semiannual assessments are also a management tool to guide training, promotions and education assistance. In addition, they make it possible to improve the performance of under-performing employees.

2006

2007

Sustainability

Social Investment in 2007

R$ thousand

Donations to Social Entities

Banco Indusval Multistock has always believed in social responsibility. It believes that acting with social responsibility means, above all, acting in an ethical manner on all levels and contributing to the community’s economic and social development through its business. The history of BIM’s social action is based on long-term partnerships with widely recognized organizations. These organizations focus on education, culture and development of the local community, with an emphasis on the education of children and young people in a holistic sense. The goal is to prepare them to be full-fledged citizens and give them the means to rise socially.

Sponsorship – Projects under Fiscal Incentive Laws Childhood and Teenagers’ Funds Socially Responsible Business Networks

338

870

In 2007, R$1.3 million was allocated to social and grass roots development projects, sponsored with the Bank’s own funds, incentive laws (Rouanet and Audiovisual Laws) and the Children’s and Teenagers’ Fund. Project sponsorship with the Bank’s own funds accounted for 67% of the total amount invested.

Supported organizations Projeto Arrastão Established in 1968, this not-for-profit organization operates in underprivileged districts in the southern part of São Paulo City and has educational, cultural and community development projects. It serves 1,200 people every day, including children, teenagers and adults, and indirectly benefits 5,000 people. The organization runs 24 projects: seven in the educational area, twelve in the cultural area and five in the social area. BIM’s participation: In Management: Representation in the Advisory Committee and Executive Board. Financial Support: Monthly support in current expenses; Occasional donations for expansion and infrastructure projects; Sponsorship for projects under Rouanet Law and the Children’s and Teenagers’ Fund: Projeto Maré Alta (High Tide Project), Arrastão em Coro (Arrastão Choir) and Brincar para Ler e Crescer (Playing to Read and Grow Up).

More than being a company that fosters citizenship, Banco Indusval Multistock effectively contributes with its top executives’ experience and knowledge to the management of four organizations regularly receiving Bank funds: Projeto Arrastão, Associação Criança Brasil, Associação Obra do Berço and Projeto Casulo. This contribution shows the Bank’s deep involvement, which goes far beyond fund allocation. It is a tool to develop and monitor projects and activities, thus ensuring that the benefited organizations will effectively achieve results.

Annual Report

2007

Associação Criança Brasil (Brazil Children Association) This association has day care centers and social and educational centers that serve over 600 children in needy communities in Jardim Panorama and Vila Dalva, both districts in the southern and western sections respectively of São Paulo City. Day care children participate in activities based on the curriculum for Child Education suggested by the Ministry of Education. Social and educational center focus on after-school help. BIM’s participation: In Management: Chairmanship of the Board of Directors. Financial Support: In addition to monthly donations to cover the Project’s everyday expenses, the Bank contributes to expansion and infrastructure projects. Associação Obra do Berço (Cradle Work Association) Since the 1930s, this association has been operating in São Paulo City in projects in formal and supplementary education, social inclusion and insertion into the labor market. About 3,000 people are benefited, among children, teenagers and adults, in projects such as PróJovem (Pro-Youth), Escritório Escola (School Office) and Núcleo de Atendimento às Famílias (Family Service Center). BIM’s participation: In Management: Representation in the Board of Directors until 2007. Financial Support: Regular donations to cover everyday expenses.

Number of people benefited by the supported social projects

Projeto Casulo (Cocoon Project) A joint initiative of the Instituto de Cidadania Empresarial (Business Citizenship Institute) with a group of 40 companies, the project was created in 2003 and benefits communities in Real Parque and Jardim Panorama (São Paulo districts). Education and culture, in their broadest sense of social inclusion, are the main focuses of the program, which is geared to teenagers and young adults. BIM’s participation: In Management: Representation in ICE’s Board. Financial Support: Monthly contributions to ICE; Sponsorship for the Oficinas de Informática (IT Workshops) project through the Children’s and Teenagers’ Fund.

Youngsters

1,724

Adults

426

Total

3,903

Entrepreneurial Networks In 2007, BIM participated in three entrepreneurial networks geared to social, environment and grass roots development: Instituto de Cidadania Empresarial (ICE), Rede América (America Network) and the Social Responsibility and Sustainability Committee of Federação Brasileira de Bancos (Brazilian Federation of Banks).

Instituto Indusval Multistock de Sustentabilidade (Indusval Multistock Sustainability Institute)

“Multiplicando Arte” – Projeto de Vida (Multiplying Art – A Project for Life) – FUMCAD Project managed by Associação Arte Despertar, a notfor-profit organization that has held visual and scenic arts, literature and music workshops since 1997. It directly benefits almost 10 thousand people in the Paraisópolis and Jardim Colombo communities, in the southern section of São Paulo.

These days, the social responsibility effort necessarily involves a concern about sustainability. Besides continuing its work, BIM decided to expand its activities by undertaking environmental initiatives. Therefore, it created Instituto Indusval Multistock de Sustentabilidade. The Institute will restructure the Bank’s initiatives supporting non-governmental organizations that receive its financial support and diversify its array of activities.

Projeto “Captação de Imagem” (Image Capturing Project) – Rouanet Law This project is aimed at developing sensitivity and build skills through photography, for educators and young people in Projeto Arrastão. It is conducted by Instituto Tomie Ohtake, through its Educational Action department, it develops programs to teach arts based on the appreciation of works of art, reflection and practice of art techniques.

2007

1,753

Indirectly benefited: 24,100 people

Fiscal Incentive bearing Projects Sponsorships

Annual Report

Children

Projeto Jovem Aprendiz

Social responsibility has always

To increase the Bank’s sustainability-oriented initiatives, Instituto Indusval Multistock’s current activities include:

been a commitment for BIM,

doption of the Corporate Volunteering Program, A which encourages employees to participate in projects and organizations; Support to development projects in communities in the vicinity of the new branches; Awareness-raising project of the consumption, recycling and adoption of the use of recycled paper by the Bank; Project for the neutralization of CO2 emissions with the planting of trees corresponding to BIM’s activity throughout the year.

which adopts values based on ethics and sustainability. The creation of Instituto Indusval Multistock de Sustentabilidade consolidates the Bank’s social initiatives, besides widening the scope of its activities to environmental issues.

06 Financial Statements

Ronaldo Souza, Internal Customer Service

Report of Independent Auditors To the Board of Directors and Stockholders Banco Indusval S.A.

1 We have audited the accompanying balance sheet of Banco Indusval S.A. (Indusval Multistock) and the consolidated balance sheet of Banco Indusval S.A. and its subsidiaries (Indusval Multistock Consolidated) as of December 31, 2007 and 2006, and the related statements of income, of changes in stockholders’ equity and of changes in financial position of Banco Indusval S.A. (Indusval Multistock) for the years and six-month periods then ended, as well as the consolidated statements of income and of changes in financial position for the years then ended.These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements. 2 We conducted our audits in accordance with approved Brazilian auditing standards, which require that we perform the audit to obtain reasonable assurance about whether the financial statements are fairly presented in all material respects. Accordingly, our work included, among other procedures: (a) planning our audit taking into consideration the significance of balances, the volume of transactions and the accounting and internal control systems of the Bank and its subsidiaries, (b) examining, on a test basis, evidence and records supporting the amounts and disclosures in the financial statements, and (c) assessing the accounting practices used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 3 I n our opinion, the financial statements audited by us present fairly, in all material respects, the financial position of Banco Indusval S.A. (Indusval Multistock) and of Banco Indusval S.A. and its subsidiaries (Indusval Multistock Consolidated) at December 31, 2007 and 2006, and the results of operations, the changes in stockholders’ equity and the changes in financial position of Banco Indusval S.A. (Indusval Multistock) for the years and six-month periods then ended, as well as the consolidated results of operations and changes in financial position for the years then ended, in accordance with accounting practices adopted in Brazil. 4 Our audits were conducted for the purpose of issuing a report on the financial statements referred to in the first paragraph, taken as a whole. The statement of added value and of cash flow, presented to provide supplementary information about Banco Indusval S.A. (Indusval Multistock) and its subsidiaries, is not required by the Brazilian Central Bank as part of the financial statements. This information has been subjected to the audit procedures described in paragraph 2 and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole.

São Paulo, February 25, 2008.

Auditores Independentes CRC 2SP000160/O-5

Ricardo Baldin Accountant CRC 1SP110374/O-0

Balance Sheet at December 31 In thousands of reais Indusval Multistock Assets Current assets Cash (Note 17(e)) Short-term interbank investments Open market investments Interbank deposits

Indusval Multistock Consolidated 2007 2006 1,897,130 986,831 3,809 10,074 260,210 151,008 212,941 143,352 47,269 7,656

2007 1,864,256 3,800 260,210 212,941 47,269

2006 976,210 10,010 151,008 143,352 7,656

622,370 164,850 452,184 4,714 622

260,705 166,685 86,558 5,259 2,203

648,651 180,772 452,184 15,073 622

261,119 166,690 86,558 5,668 2,203

10,438

446 2

10,438

446 2

10,438

444

10,438

444

Loans (Note 5) Loans – private sector Loans – public sector Allowance for loan losses

722,616 719,567 16,134 (13,085)

387,227 377,575 15,816 (6,164)

722,616 719,567 16,134 (13,085)

387,227 377,575 15,816 (6,164)

Other receivables Foreign exchange portfolio (Note 6) Income receivable Negotiation and intermediation of securities Sundry (Note 7) Allowance for loan losses

241,664 235,980

162,549 159,123

480 7,858 (2,654)

548 4,480 (1,602)

248,248 235,980 3 5,811 9,108 (2,654)

172,692 159,123 34 10,192 4,945 (1,602)

3,158 3,591 (433)

4,265 3,996

3,158 3,591 (433)

4,265 3,996

Marketable securities and derivative financial Instruments (Note 4) Own portfolio Subject to repurchase agreements Linked to guarantees Derivative financial instruments Interbank accounts Payments and receipts pending settlement Restricted credits Deposits with the Brazilian Central Bank

Other assets Other assets Provision for loss Prepaid expenses

269

Long-term receivables Marketable securities and derivative financial Instruments (Note 4) Linked to guarantees Derivative financial instruments

299,607 287

269

104,930

300,312 419 132 287

105,621 118 118

280,483 280,602 12,852 (12,971)

90,687 72,997 25,865 (8,175)

280,483 280,602 12,852 (12,971)

90,687 72,997 25,865 (8,175)

Other receivables Foreign exchange portfolio (Note 6) Sundry (Note 7) Allowance for losses

18,837

19,410

18,842 (5)

14,243 375 14,279 (411)

19,415 (5)

14,816 375 14,852 (411)

Permanent assets Investments (Note 8) Subsidiary and associated companies: In Brazil Membership certificates Other investments

36,734 26,097

38,145 29,290

13,777 3,007

28,197 19,135

24,400

27,110

1,697

2,180

3,007

16,149 2,986

10,637 1,585 3,538 9,470 (3,956)

8,855 1,508 3,538 6,866 (3,057)

10,770 1,585 3,538 9,793 (4,146)

9,062 1,508 3,538 7,318 (3,302)

2,200,597

1,119,285

2,211,219

1,120,649

287

Loans (Note 5) Loans – private sector Loans – public sector Allowance for loan losses

Property and equipment Properties in use Revaluation of properties in use Other Accumulated depreciation Total assets The accompanying notes are an integral part of these financial statements.

Annual Report

2007

Indusval Multistock Liabilities and stockholders’ equity Current liabilities Deposits (Note 11(a)(b)) Demand deposits Interbank deposits Time deposits Other Funds obtained in the open market (Note 11(c)) Own portfolio Third party portfolio Interbank accounts Receipts and payments pending settlement Correspondent

2007 1,575,724 613,875 78,527 81,713 452,370 1,265

2006 816,700 388,963 31,385 65,001 292,526 51

656,612 451,526 205,086

188,669 86,430 102,239

656,612 451,526 205,086

188,669 86,430 102,239

18 18

Interdepartmental accounts Third party funds in transit Borrowings (Note 11(a)) Foreign borrowings Other liabilities Collection and payment of taxes and similar charges Foreign exchange portfolio (Note 6) Taxes and social security contributions (Note 10(c)) Social and statutory Negotiation and intermediation of securities (Note 10(a)) Derivative financial instruments (Note 4) Sundry

Long-term liabilities Deposits (Note 11(a)(b)) Time deposits Other liabilities Taxes and social security contributions (Note 10(c)) Derivative financial instruments (Note 4) Sundry Deferred income

10,885 10,885

27,549 27,549

10,885 10,885

27,549 27,549

229,730 229,730

164,144 164,144

229,730 229,730

164,144 164,144

64,584 813 22,708 17,756 8,171 29 9,488 5,619

47,357 363 9,977 8,282

57,488 363 9,977 9,016

15,155 11,420 2,160

87,271 813 22,708 24,200 8,293 15,992 9,488 5,777

217,928 209,545 209,545

152,876 146,852 146,852

218,394 209,050 209,050

153,528 146,852 146,852

8,383 8,375 3 5

6,024 6,019

9,344 9,336 3 5

6,676 6,671

197

Stockholders’ equity (Note 12) Capital Brazilian residents Revaluation reserve Revenue reserve Adjustment to market value – Securities and derivatives Treasury shares

Total liabilities and stockholders’ equity The accompanying notes are an integral part of these financial statements.

Indusval Multistock Consolidated 2007 2006 1,585,880 817,412 601,344 379,544 78,021 31,035 68,608 52,922 452,370 292,040 2,345 3,547

24,396 11,420 2,316

197

406,748

149,709

406,748

149,709

370,983 2,268 33,497

106,611 2,343 44,588 2 (3,835)

370,983 2,268 33,497

106,611 2,343 44,588 2 (3,835)

2,200,597

1,119,285

2,211,219

1,120,649

Statement of Income In thousands of reais

Indusval Multistock

Indusval Multistock Consolidated

Years ended December 31

Six-month Period ended December 31

Income from financial intermediation Loans

2007

2006

2007

2006

173,930

288,197

187,715

288,960

187,810

106,338

181,226

110,746

181,226

110,746

Marketable securities

44,877

73,853

52,005

74,616

52,100

Foreign exchange

22,715

33,118

24,964

33,118

24,964

98,175

161,197

119,985

159,755

118,578

Money market funding

68,154

117,472

84,307

115,926

82,852

Loans, assignments and onlendings

17,751

23,331

19,443

23,331

19,443

Expenses on financial intermediation

Result with derivative financial instruments

190

2,672

3,139

2,776

3,187

12,080

17,722

13,096

17,722

13,096

75,755

127,000

67,730

129,205

69,232

(19,695)

(57,253)

(37,862)

(68,224)

(38,723)

3,762

5,723

3,429

18,910

11,605

12,165

14,154

3,699

Personnel expenses (Note 13(c))

(22,550)

(37,887)

(23,964)

(40,567)

(27,316)

Other administrative expenses (Note 13(b))

(12,379)

(34,213)

(14,867)

(41,013)

(18,911)

(5,085)

(8,418)

(4,736)

(9,867)

(5,690)

5,740

5,876

279

8,448

3,701

(1,348)

(2,488)

(1,702)

(4,135)

(2,112)

Operating profit

56,060

69,747

29,868

60,981

30,509

Non-operating income (expenses) (Note 8(a))

(1,038)

(1,055)

(495)

14,226

(528)

Profit before taxation

55,022

68,692

29,373

75,207

29,981

Income tax and social contribution

Allowance for loan losses (Note 5) Gross profit from financial intermediation Other operating income (expenses) Income from services rendered (Note 13(a)) Equity in the earnings of subsidiary and associated Companies (Note 8(a))

Taxes (Note 13(d)) Other operating income (Note 13(e)) Other operating expenses

(8,689)

(9,438)

(4,853)

(15,667)

(5,428)

Income tax (Note 9(a))

(9,472)

(10,940)

(4,924)

(15,487)

(5,337)

Social contribution (Note 9(a))

(3,127)

(3,639)

(1,920)

(5,321)

(2,082)

3,910

5,141

1,991

5,141

1,991

Deferred tax asset Profit sharing and Contributions (Note 17(h))

(8,804)

(13,880)

(886)

(14,166)

(919)

Employees

(4,596)

(9,558)

(886)

(9,735)

(904)

Managers

(4,208)

(4,322)

(4,431)

(15)

37,529

45,374

23,634

45,374

23,634

43,000,001

31,296,247

0.87

1.05

0.76

Net income for the six-month period/year Number of outstanding shares Net income per share â&#x20AC;&#x201C; R$ The accompanying notes are an integral part of these financial statements.

Annual Report

2007

Statement of Changes in Stockholdersâ&#x20AC;&#x2122; Equity In thousands of reais

Capital

Revaluation reserve

Adjustment to market value

Revenue reserves Legal 2,725

Statutory

Other 28,325

Retained arnings

Treasury shares

Total

(3,835)

136,275

At December 31, 2005 106,611 Realization of revaluation reserve Adjustment to market value Net income for the year Appropriation to legal reserve Appropriation to revenue reserves Interest on own capital

2,417

At December 31, 2006 106,611 Changes in the year

2,343 (74)

3,907 1,182

40,681 12,356

2 (30)

(3,835)

149,709 13,434

At December 31, 2006 106,611 Realization of revaluation reserve Capital increase 281,146 Capital decrease (16,774) Adjustment to market value Net income for the year Appropriation to legal reserve Appropriation to statutory reserve Interest on own capital Cancellation of treasury shares

2,343

3,907

40,681

(3,835)

149,709

At December 31, 2007 370,983 Changes in the year 264,372

2,268 (75)

6,176 2,269

27,321 27,321

At June 30, 2007 143,483 Realization of revaluation reserve Capital increase 227,500 Net income for the year Appropriation to legal reserve Appropriation to statutory reserve Interest on own capital

2,305

4,300

2,848

At December 31, 2007 370,983 Changes in the six-month period 227,500

2,268

6,176

27,321

(37)

1,876

27,321

(74)

74 (30)

(30) 23,634

23,634 1,182

(1,182) 12,356

(12,356) (10,170)

(75)

(10,170)

75 (36,846)

244,300 (16,774) (2)

(2) 45,374

45,374 2,269

(2,269) 27,321

(27,321) (15,859) (3,835)

(37)

(40,681)

(15,859) 3,835

(2)

3,835

406,748 257,039 152,936

37 37,529 1,876

227,500 37,529

(1,876) 24,473

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

(24,473) (11,217)

(11,217) 406,748

(2,848)

253,812

Statement of Changes in Financial Position In thousands of reais Indusval Multistock

Financial resources were provided by Adjusted net income for the six-month period/year Net income for the six-month period/year Depreciation and amortization Equity in the earnings of subsidiary and associated companies Restatement of membership certificates Adjustment to market value â&#x20AC;&#x201C; securities and derivatives Shareholders Capital increase

Six-month period ended Years ended December 31 December 31 2007 2007 2006 715,533 1,139,728 365,279 26,024 32,400 20,819 37,529 45,374 23,634 660 1,182 914 (12,165)

(14,154)

(3,699)

(2)

(30)

Indusval Multistock Consolidated Years ended December 31 2007 1,162,987 45,762 45,374 1,236

2006 360,203 21,747 23,634 985

(846) (2)

(2,842) (30)

227,500

244,300

197

461,812

862,831

344,460

872,728

338,456

Increase in liabilities Deposits Funds obtained in the open market Interbank and interdepartmental accounts Borrowings and onlendings Other liabilities

458,658 140,707 286,699

840,720 287,605 467,943

849,978 283,998 467,943

31,252

65,586 19,586

340,868 194,946 7,813 26,217 91,725 20,167

334,810 194,542 7,813 26,217 91,725 14,513

Decrease in assets Other assets (except assets not for own use)

205 205

702 702

2,949 2,202

21,409 3,199

3,592 3,496

3,646 3,496

610 137

613 17,364 233

22,048 3,199 18,559

290

150

714,244

1,145,938

357,120

1,169,252

351,987

11,217

15,859

10,170

15,859

10,170

Change in deferred income Resources from third parties

Disposal of assets and investments Assets not for own use Investments Other investments Equity in the investments Property and equipment in use Financial resources were used for Interest on own capital

702 702

16,774

Capital reduction

16,774 4,952 1,915

2,007

6,621 2,794 500 130 3,197

Increase in assets Short-term interbank investments Marketable securities Interbank and interdepartmental accounts Loans Other receivables Other assets (except assets not for own use)

684,254 28,784 320,058 8,647 289,613 37,152

1,090,040 109,202 361,952 9,992 525,185 83,709

341,998 47,758 26,979 140 160,790 106,020 311

Decrease in liabilities Interbank and interdepartmental accounts Other liabilities

16,266 1,941 14,325

16,644 16,644

Increase (decrease) in cash

1,289

(6,210)

8,159

(6,265)

8,216

Changes in financial position Cash At the beginning of the six-month period/year At the end of the six-month period/year

2,511 3,800

10,010 3,800

1,851 10,010

10,074 3,809

1,858 10,074

Increase (decrease) in cash

1,289

(6,210)

8,159

(6,265)

8,216

Investments Assets not for own use Investments Other investments Property and equipment in use Equity investments

2,507

65,586 32,451

500

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

Annual Report

2007

3 2,689 345

7,613 2,794 1,455 130 3,234

4,755 1,915

1,112,362 109,202 387,833 9,992 525,185 80,150

337,062 47,758 27,015 140 160,790 101,048 311

38 2,802

16,644 16,644

Notes to the Financial Statements at December 31, 2007 and 2006

All amounts in thousands of reais, unless otherwise indicated 1. Operations Banco Indusval S.A. (commercial bank) and its subsidiaries operate mainly with commercial and foreign exchange portfolios and other transactions related to securities brokers. Indusval Financeira, Crédito Financiamento e Investimento S.A. was merged into Banco Indusval S.A. on October 24, 2005, based on its net asset position at September 30, 2005. This transaction was approved by the Extraordinary General Meeting held on October 24, 2005, and has been approved by the Brazilian Central Bank (BACEN) on August 6, 2007.

2. Presentation of the Financial Statements The financial statements of Banco Indusval S.A. (Indusval Multistock) and the consolidated financial statements of Banco Indusval S.A. and its subsidiaries (Indusval Multistock Consolidated) have been prepared in accordance with accounting practices adopted in Brazil and the regulations of the Brazilian Central Bank (BACEN).

3. Summary of Significant Accounting Practices (a) Consolidation The consolidated financial statements comprise the financial statements of Banco Indusval S.A. (Banco Indusval Multistock) and its subsidiaries Indusval S.A. Corretora de Títulos e Valores Mobiliários (Indusval Multistock Corretora), BIM Promotora de Vendas Ltda., CredRealiza Promotora de Vendas Ltda. (sold on January 31, 2007) and Multistock Companhia Securitizadora de Créditos (merged into CredRealiza Promotora de Vendas Ltda. on August 31, 2006). The Bank’s investments in these subsidiaries, as well as the assets and liabilities, income and expenses, and the unrealized results of intercompany transactions, were eliminated upon consolidation. (b) Determination of the results of operations Income and expenses are recorded on the accrual basis of accounting. (c) Short-term interbank investments Short-term interbank investments are recorded at cost plus income accrued up to the balance sheet date, net of a provision for losses, when applicable. (d) Marketable securities and derivative financial instruments Marketable securities are classified and valued as follows: • Trading securities – securities acquired to be traded on a frequent and active basis, adjusted to market value against results for the period. • Securities available for sale – securities that are neither trading securities nor securities held to maturity, adjusted to market value against a stockholders’ equity account, net of tax effects. • Securities held to maturity – securities which management acquires with the intention and financial capacity to hold up to maturity, recorded at acquisition cost plus accrued income with contra entry to results for the period. Derivative financial instruments are classified at the inception of the transaction, taking into consideration the intention of management to use them as hedge instruments or not. They are recorded at market value and realized and unrealized gains and losses are recognized directly in results for the period. Derivative financial instruments which do not meet the hedging criteria established by BACEN, particularly derivatives used to manage overall risk exposure, are recorded at market value and valuations and devaluations are recognized directly in results for the period. (e) Loans The loans, in their different categories, are recorded at present value, including income accrued up to the balance sheet date when post fixed, and net of unearned income, calculated based on the terms of the transactions, when prefixed. The restatement of loans overdue is recorded as income from loans up to the 60th day and as unearned income as from the 61st day. Loans in arrears classified as level “H” are held in this classification for six months, after which they are written off against the existing allowance and controlled, for up to five years, in memorandum accounts, no longer being recognized in the balance sheet. Renegotiated loans are held in the same level at which they were previously classified. Renegotiations of loans that had already been written off against the allowance and which were recorded in memorandum accounts, are classified as level “H” and any gains on renegotiation are only recognized when actually received.

(f) Allowance for loan losses The allowance for loan losses is based on management’s analysis of the operations in order to determine the amount required, case by case, and takes into consideration the economic environment, past experience and the specific and overall risks of the portfolios, as well as the rules established by Resolution 2682/99, of December 21, 1999, and in accordance with Circular 2974/00, of March 24, 2000, both of the Brazilian Central Bank.The customer risk ratings are established based on a “credit score” model, with no possibility that the credit committee interferes to improve the rating attributed. (g) Investments The investments in subsidiaries are evaluated based on the equity method of accounting. The investments in membership certificates are carried at acquisition cost, adjusted by the valuation reported by the respective entities. The other investments are stated at cost. (h) Property and equipment Property and equipment are stated at cost plus price-level restatements up to December 31, 1995 and revaluation of properties for own use (Note 12(d)). Depreciation is computed on the straight-line method at the annual rates of 5% for buildings, 20% for vehicles and data processing systems and 10% for other items. (i) Interbank and time deposits and funds obtained in the open market These deposits and the funds obtained in the open market are stated at their contractual amount plus accrued charges, in proportion to the time elapsed from the day on which the operation was contracted. (j) Borrowings Foreign currency borrowings are stated at present value, including the charges incurred up to the balance sheet date and restated at the official exchange rates ruling on the balance sheet date. (k) Share loan contract liabilities Share loan agreement liabilities, recorded under “Other liabilities – Negotiation and intermediation of securities”, in current liabilities, are stated at their contractual values, which are adjusted monthly according to the market value of the shares and by the respective adjustments of the derivatives (hedge). (l) Income tax and social contribution (assets and liabilities) Deferred income tax and social contribution on net income credits, calculated on tax losses and temporary additions, are recorded in “Other receivables – Sundry”. Tax credits on temporary additions are realized upon the use and/or reversal of the provisions on which they were recorded. The provision for income tax was calculated at the rate of 15% plus an additional 10% on taxable income that exceeds R$240 thousand per annum, and includes the tax incentives. The provision for social contribution was calculated at the rate of 9% of adjusted taxable income, in accordance with current legislation. (m) Contingent assets and liabilities and legal obligations – taxes and social security contributions The recognition and estimation of contingent assets and liabilities and legal obligations are carried out in accordance with the criteria established by Deliberation 489/05 of the Brazilian Securities Commission (CVM). (i) Contingent assets and liabilities Refer to potential rights and obligations arising from past events the occurrence of which depends on future events. • Contingent assets – are not recognized except when there are evidences which assure a high degree of confidence on realization, normally a final and unappealable court decision and the confirmation of recovery capacity through receipt or offset with other liability. • Contingent liabilities – arise basically from civil, labor, and tax lawsuits, which are inherent to the normal course of business, filed at the judicial and administrative levels by third parties, former employees and public bodies and other risks.The evaluation of these contingencies is carried out by legal advisors in a way which is consistent with the conservative practices adopted and takes into consideration the probability that financial resources are required to settle the liabilities and that their amount may be estimated with sufficient safety. Contingencies are classified as probable, for which provisions are recorded; possible, which are disclosed but no provisions are recorded for them; and remote, which do not require provisions or disclosure.The amounts related to these contingencies are measured with the use of adequate models and criteria, despite the inherent uncertainty regarding terms and values.

Annual Report

2007

(ii) Legal liabilities – tax and social security These liabilities are represented by tax and social security liabilities, whose legality or constitutionality is being discussed in court, and which are recorded at the full amount under discussion.

4. Marketable Securities and Derivative Financial Instruments (a) Valuation, classification and risk management The valuations of fixed income securities, as well as of derivative financial instruments, are obtained from the markets with greatest liquidity or, in the absence of such, from related markets, including interpolation and extrapolation of the terms. All transactions with financial derivatives are “marked to market” and aim to hedge interest rate risks, which are controlled and managed together with other exposures to such risk factors; these mechanisms have proven to be effective in relation to the proposed objectives. The portfolio of share loan contracts (Note 3(k)) is almost entirely sold in the spot market, with simultaneous purchase of purchase options and sale of sale options, resulting in a funding transaction at prefixed rates, whose results are recognized over the term of the transaction. (b) Marketable securities The cost of marketable securities plus accrued income, compared to market values are: (i) Indusval Multistock:

Trading securities Financial Treasury Bills – LFTs Financial Treasury Bills – LFTs National Treasury Bills – LTNs National Treasury Bills – LTNs Quotas in investment funds Securities available for sale National Treasury Bills – LTNs Securities held to maturity Private securities – Bank Deposit Certificates – CDBs Total securities portfolio

Cost

Market/ book value

12,158 215,612 394,052

12,158 215,613 393,877

100

621,922

621,748

Cost

Market/ book value

12,158 227,993 394,052

12,158 227,995 393,877

105 2,785 11,248

105 2,758 11,136

Maturity (days)

Up to 360 Over 360 Up to 360 Over 360 At sight

Total securities portfolio

132

648,473

648,161

2006

Adjustment to market

Market/ book value

1 (175)

50,762 8,888 149,975 44,505

Up to 360

1,359

Up to 360

3,013 (174)

(ii) Indusval Multistock Consolidated

Trading securities Financial Treasury Bills – LFTs Financial Treasury Bills – LFTs National Treasury Bills – LTNs National Treasury Bills – LTNs Quotas in investment funds Bank Credit Notes – CCBs Bank Credit Notes – CCBs Securities available for sale National Treasury Bills – LTNs Securities held to maturity Private securities – Bank Deposit Certificates – CDBs Other

2007

Maturity (days)

Up to 360 Over 360 Up to 360 Over 360 At sight Up to 360 Over 360

258,502

2007

2006

Adjustment to market

Market/ book value

2 (175)

51,171 8,888 149,975 44,505 5

(27) (112)

Up to 360

1,359

Up to 360

3,013 118 (312)

259,034

(c) Derivative financial instruments The derivatives are used by Banco Indusval to hedge against the risks inherent to its activity, such as: currencies mismatch, indices and arbitrations. Treasury has essentially a passive posture and does not usually assume speculative positions. The operations have a contra-entry which is generated by the Commercial Portfolio, by the Funding Area or by a specific demand for some product. We operate in high liquidity markets: interest, U.S. dollar, options (interest, U.S. dollar) future markets, and swaps. The traded derivative contracts are registered in the Futures and Commodities Exchange (BM&F) or in the Clearing House for the Custody and Financial Settlement of Securities (CETIP).These operations are calculated according to information available and disclosed by BM&F or by external providers (Brokerages, Banks and other). The pricing or the calculation of derivatives market value is carried out by an independent area of the Trading Desk, considering own models (VAR, Stress Test, Options Models, Swaps). (i) Position

Indusval Multistock and Consolidated 2006

2007

Futures market Interest rate Currencies Forward market Currencies Swap Currencies

Asset Position

Liability Position

Maturity

Asset Position

Liability Position

Maturity

42,991 490

223,299 7,829

Up to 360 days Up to 360 days

36,974 2,818

32,927 2,685

Up to 360 days Up to 360 days

3,759

Up to 360 days

3,649

Up to 360 days

15,010

Up to 360 days

9,754

Up to 360 days

62,250

231,128

53,195

(ii) Position of contracts

Indusval Multistock and Consolidated 2006

2007 Value of contracts recorded

Result for the year

9,412

15,010 3,759 274,609 92,900

402 739 (1,524) (2,289)

2,203

9,491

386,278

(2,672)

2,203

Assets

Liabilities

429 67

21 58

413 909

Swap Forward Futures Options

35,612

Assets

Value of contracts recorded

Result for the year

11,330

9,754 3,649 75,404 317,752

(19) (90) (450) (2,628)

11,420

406,559

(3,187)

Liabilities

5. Loans â&#x20AC;&#x201C; Indusval Multistock and Indusval Multistock Consolidated (a) Analysis of the loan portfolio by type of operation and allowance for loan losses

Operations Loans and discounted bills Foreign currency financing Other financing

Total loan operations Advances on foreign exchange contracts Other credits Total credits Allowance for loan losses

Annual Report

2007

A 452,258 8,589 4,693

B 232,564 6,116

C 284,845 225

D 24,916

E 4,952

F 1,757

G 1,021

H 7,219

2007 Levels Total 1,009,532 14,930 4,693

465,540

238,680

285,070

24,916

4,952

1,757

1,021

7,219

1,029,155

69,433 288

133,182 35

19,056

3,987

535,261

371,897

304,126

28,903

4,967

1,757

1,026

7,219

1,255,156

2,676

3,719

9,124

2,890

1,490

879

718

7,219

28,715

225,658 343

Operations Loans and discounted bills Foreign currency financing Other financing

Total loan operations

A 232,659 7,957 21,057

B 156,269 3,841

C 48,649

D 7,706

E 6,187

F 1,141

G 48

H 6,739

2006 Levels Total 459,398 11,798 21,057

261,673

160,110

48,649

7,706

6,187

1,141

6,739

492,253

649

375

150,889 894

Advances on foreign exchange contracts Other credits

53,082 101

81,682 283

15,101

461

Total credits

461

314,856

242,075

63,750

8,355

6,187

1,141

7,114

644,036

1,574

2,421

1,913

836

1,856

570

7,114

16,352

Allowance for loan losses

During the year, the change for the allowance for loan losses amounted to R$17,722 (R$13,096 in 2006), the amount of loans written off against the allowance for loan losses was R$5,359 (R$8,308 in 2006) and the amount of loans recovered was R$1,454 (R$2,525 in 2006). At December 31, 2007, the portfolio of renegotiated credits amounted to R$11,790 (R$25,777 in 2006). (b) Analysis of loan operations by business sector

Industry Commerce Financial intermediaries Other services Individuals

2007 661,132 142,149 3,600 384,435 63,840

2006 367,838 154,679 1,515 47,817 72,187

1,255,156

644,036

2007 338,132 916,624 146 254

2006 288,170 352,861 309 2,696

1,255,156

644,036

2007

2006

16,554 8,505 2,097 27,156

2,746 2,367 1,860 6,973

752,923 195,635 279,442 1,228,000 1,255,156

462,722 82,035 92,306 637,063 644,036

(c) Analysis of loan operations by index Fixed rate Floating rate (Interbank Deposit Certificate (CDI)) Referential rate (TR)/Basic Financial Rate (TBF) Other

(d) Analysis of loan operations by maturity Overdue From 15 to 60 days From 61 to 180 days Over 180 days Not yet due Up to 180 days From 181 to 360 days Over 360 days

(e) Concentration of loans

Clients 10 largest clients 11 to 60 largest clients 61 to 160 largest clients Other Total operations

2007

2006 Amount

Percentage

Accumulated percentage

139,296 253,725 170,182 80,833

21.63 39.40 26.42 12.55

21.63 61.03 87.45 100.00

Amount

Percentage

Accumulated percentage

295,142 363,166 294,870 301,978

23.52 28.93 23.49 24.06

23.52 52.45 75.94 100.00

1,255,156

644,036

(f) Analysis of loans classified as “D to H” Among the transactions classified as “D to H”, only a portion would also be classified as abnormal course credit (overdue for over 60 days). The other transactions received these classifications due to criteria of credit analysis, despite the fact that they are performing normally. The table below segregates these transactions: normal course and abnormal course.

Level Normal course Abnormal course

D 20,103 8,800

E 4,461 506

F 48 1,709

G 45 981

H 1,807 5,412

2007 Total 26,464 17,408

28,903

4,967

1,757

1,026

7,219

43,872

D 7,441 914

E 4,720 1,468

F 365 776

G 40 57

H 2,598 4,516

2006 Total 15,164 7,731

8,355

6,188

1,141

7,114

22,895

(g) Middle market transactions Middle market transactions refer to a commercial portfolio comprised essentially of credit to small and middle-sized companies. 2007 Type of transaction

Total amount

Number of clients

Number of contracts

Average balance per client

Average balance per contract

Average term (*)

Current accounts Loans Discounts ACC/ACE/FINIMP

229,292 709,251 54,066 240,588

440 463 90 133

519 746 709 467

521 1,532 601 1,809

442 951 76 515

141 516 71 161

Type of transaction

Total amount

Number of clients

Number of contracts

Average balance per client

Average balance per contract

Average term (*)

Current accounts Loans Discounts ACC/ACE/FINIMP

96,371 285,559 35,829 162,687

288 299 74 80

308 548 627 398

334 955 484 2,079

312 512 57 205

140 332 33 135

Total

580,446

Total

1,233,197 2006

(*) Considers the contracted term of the transactions.

Annual Report

2007

(h) Middle market transactions – classified as “guaranteed by receivables” and “guaranteed by real guarantees” 2007 Real guaranteed

Transactions Current accounts Loans Discounts ACC/ACE/FINIMP

Total of the transactions

Guaranteed by receivables

Monitored lien/Warrants and CPRs

Other types of lien

Lien on properties

Lien on vehicles

Securities/ shares CDBs

Other

229,292 709,251 54,066 240,588

157,957 560,462 54,066 67,622

48,470 57,834

2,700

1,000 41,827

15,601

1,693 2,190

350

133,384

1,233,197

840,107

239,688

2,700

42,827

15,601

34,605

350

1,175,878

68.12

19.44

0.22

3.47

1.27

2.81

0.03

95.36

Percentage – %

30,722

Total guarantees 209,120 680,964 54,066 231,728

2006 Real guaranteed

Transactions Current accounts Loans Discounts ACC/ACE/FINIMP

Total of the transactions

Guaranteed by receivables

Monitored lien/Warrants and CPRs

Other types of lien

Lien on properties

Lien on vehicles

Securities/ shares CDBs

Other

96,371 285,559 35,829 162,687

86,711 219,039 35,829 58,216

5,375

20,211

10,214

1,353

3,259

19,346

12,672

580,446

399,795

24,721

32,883

10,214

1,353

12,427

68.88

4.26

5.67

1.76

0.23

2.14

Percentage – %

9,168

6. Foreign Exchange Portfolio

Total guarantees 86,711 259,482 35,829 99,402 481,424 82.94

Indusval Multistock and Consolidated 2007 2006

Assets Exchange purchases pending settlement Rights on sales of exchange Advances in local currency Other

Liabilities Exchange sales pending settlement Liabilities for purchases of exchange Advances on foreign exchange contracts Other

7. Other Receivables – Sundry

Indusval Multistock 2006 7,170 894 6,737 3,706 26 699 226

2007 11,731 343 6,915 7,012

Tax credits (Note 9(b)) Debtors for purchase of assets Debtors for deposits in guarantee (*) Taxes and contributions for offset Notes and credits receivable Sundry debtors – local and other

26,700 7,858 18,842

Current Long-term

226,425 6,478 (2,481) 5,558

150,559 7,410 (965) 2,494

235,980

159,498

6,490 236,203 (220,100) 115

7,037 151,332 (149,098) 706

22,708

9,977

Indusval Multistock and Consolidated 2007 2006 11,731 7,170 343 894 7,487 7,310 8,249 4,149 26 713 248

18,759 4,480 14,279

(*) Refer to judicial deposits in guarantee to several suits, the most significant amount of which is related to Claim on Equality of the Social Contribution – R$5,530.

28,523 9,108 19,415

19,797 4,945 14,852

8. Investments (a) Investments in subsidiaries – Indusval Multistock Indusval Multistock Corretora

2007

CredRealiza Promotora de Vendas

BIM Promotora de Vendas

Multistock Securitizadora

Capital Shares owned (number) Stockholders’ equity

5,818 832 23,902

500 500 500

Net income for the period 2nd half of 2007 2007 2006

13,372 13,310 838

(2) (2) 7

100 100

100

Interest at December 31, 2007 – % Interest at December 31, 2006 – %

Total

12 100

Equity in the earnings (loss) 2nd half of 2007 2007 (iii) 2006 (iii)

12,167 14,156 3,680

Investment December 31, 2007 December 31, 2006

23,902 26,522

588

(2) (2)

12,165 14,154 3,699

498

24,400 27,110

The difference between net income and equity in the result refers to the restatement of membership certificates of the Brokerage in the amount of R$846 (R$2,842 in 2006). On August 31, 2006, Multistock Companhia Securitizadora de Créditos Financeiros was merged into CredRealiza Promotora de Vendas Ltda., which absorbed the total shares that comprise the capital of Multistock Companhia Securitizadora de Créditos Financeiros. The total assets merged amount to R$238. On January 31, 2007, the Bank sold 100% of the quotas that comprise the capital of CredRealiza Promotora de Vendas Ltda. for R$988, obtaining a gain of R$400. On October 26, 2007, Indusval S.A. C.T.V.M. sold part of its shareholding in BOVESPA Holding S.A., with a profit of R$9,095, recorded in other non operating income in Consolidated. On December 11, 2007, the Bank paid up the Capital of BIM Promotora de Vendas Ltda., in the amount of R$500. (b) Other investments – Indusval Multistock Consolidated 2007 Membership certificates São Paulo Stock Exchange – BOVESPA Brazilian Commodities and Futures Exchange – BM&F Other

7,191 8,768 190 16,149

Other investments Shares of BOVESPA Holding S.A. (former CBLC) Shares of Brazilian Commodities and Futures Exchange – BM&F Other (*)

1,103 6 1,898 3,007

(*) Refer substantially to works of art and sundry securities.

Annual Report

2007

2006

771 2,215 2,986

9. Income Tax and Social Contribution – Indusval Multistock (a) Calculation of the expense for the period Profit before income tax and social contribution and after profit sharing Income tax and social contribution at the rates of 25% and 9%, respectively Effect of additions and deductions in the calculation of the taxes Equity in the earnings of subsidiaries Interest on own capital paid Effect of temporary additions and deductions (*) Offset of tax losses Other amounts Income tax and social contribution expense for the period

2007 54,812

2006 28,487

(18,636)

(9,686)

4,812 5,392 (5,141) (1,006)

1,258 3,458 (1,956) 274 (192)

(14,579)

(6,844)

2007 7,170 4,561 11,731 (789) 10,942 2,69

2006 6,678 492 7,170 (828) 6,342 4,23

(*) Refers, basically to temporary additions of expenses with allowance for doubtful accounts.

(b) Changes in tax credit Opening balance Appropriation/(write-off) Total tax credits Deferred tax liabilities Tax credits net of deferred tax liabilities Percentage of stockholders’ equity

2008

2009

2011

9,750 322 1,659 11,731

9,750 322 99 10,171

964 964

596 596

Allowance for loan losses Provision for contingencies Other

(d) Estimates of realization The Bank’s management, based on a technical study which considers the maintenance of the historic profitability and the generation of future tax liabilities, estimates the realization of tax credits within a maximum period of three years. The present value of the tax credits, using the Long-term Interest Rate (TJLP), is R$11,313.

10. Other Liabilities (a) Negotiation and intermediation of securities – Indusval Multistock Negotiation and intermediation of securities are represented as follows: Indusval Multistock 2007 2006 Creditors – pending settlement account Clearing houses for the custody and settlement of securities Creditors for share loans (*) Transactions with financial assets to be settled Other

15,155 29 29

(*) Refers to the liability for share loan contracts (Note 3(k)).

15,155

Indusval Multistock Consolidado 2007 2006 9,015 7,027 6,520 1,691 15,155 457 308 215 15,992 24,396

(b) Provision for contingent liabilities In the normal course of its activities, the Bank is involved in the following contingencies: (i) Contingent assets: No contingent assets were recognized and there are no relevant lawsuits classified as of probable realization. (ii) Contingent liabilities • Contingencies classified as probable: there were no relevant contingencies classified as probable on December 31, 2007. • Contingencies classified as possible: management maintains a monitoring system for all judicial and administrative lawsuits in which the Bank is a party as “plaintiff ” or “defendant” and, supported by the opinion of its legal advisors, classifies the lawsuits in accordance with loss estimates. Therefore, the contingent lawsuits classified as of possible risk of loss are not recognized in the books and comprise, mainly, the following matters: • Statement of Corporate Income Tax (IRPJ) credit compensation in the amount of R$3,059, arising from overpayments resulting from the effects of the recalculation of the waiver of action on Law 8.200. • Services Tax (ISS) levied on income from the trading of marketable securities in the Commodity Exchange, in the amount of R$2,527 (action distributed in 1988). • Voluntary disclosure involving interest on arrears of IRPJ, Social Contribution on Net Income (CSLL), Social Integration Program (PIS) and Social Contribution on Revenues (COFINS), in the amount of R$1,431. (c) Tax and social security – legal liabilities

Taxes and contrib. on profits Taxes and contrib. payable Deferred taxes and contributions Legal liabilities (*) Current Long-term receivables

2007 Indusval Multistock 14,617 3,139 788 7,587 26,131 17,756 8,375

2006

Consolidated

Indusval Multistock

Consolidated

20,847 3,353 788 8,548 33,536 24,200 9,336

6,883 1,399 827 5,192 14,301 8,282 6,019

7,442 1,574 827 5,844 15,687 9,016 6,671

The change for the year may be summarized as follows – Indusval Multistock Consolidated: 2007 Indusval Multistock and Consolidated 5,844

Opening balance at December 31, 2006 Change in the period reflected in the result Restatement/charges Increase

2,615 89

Closing balance at December 31, 2007

8,548

The main matters are as follows: • CSLL – R$5,258: questioning of CSLL required from financial institutions in the base years from 1995 to 1998 at rates above those applied to corporate entities in general, in violation of the constitutional principle of equality a portion of the amounts involved was judicially deposited. • Plano Verão (Summer Plan) – R$2,592: questioning of the index applied for the Balance Sheet Monetary Restatement related to the Consumer Price Index of 1989. • ISS – Complementary Law 116/03 – R$698: questioning of the incidence of the mentioned tax on the means, instruments and stages of financial transactions carried out by the Bank.

Annual Report

2007

11. Deposits and Fund Raising (a) Deposits and funds obtained abroad by maturity – Indusval Multistock Consolidated are as follows: 2007 Maturities Up to From 91 to More than 90 days 365 days 365 days

Deposits

At sight

Demand Interbank Time Other

78,021

Total in reais

80,366

355,661

165,317

80,366

116,475 472,136

113,255 278,572

45,159 310,502

23,449 141,868

Total

At sight

78,021 68,608 661,420 2,345

31,035

209,050

810,394

209,050

229,730 1,040,124

209,050

2,345

Foreign borrowings

2006 Maturities Up to 90 From 91 to More than days 365 days 365 days

Total 31,035 52,922 438,892 3,547

52,549 232,893

373 59,621

146,378

34,582

285,442

59,994

146,378

526,396

34,582

112,279 397,721

51,865 111,859

146,378

164,144 690,540

3,547

(b) Analysis by largest time depositants:

Clients 10 largest clients 11 to 60 largest clients 61 to 160 largest clients Other Total operations

Amount

Percentage

2007 Accumulated percentage

185,474 252,859 142,554 80,533 661,420

28.04 38.23 21.55 12.18

28.04 66.27 87.82 100.00

Amount

Percentage

2006 Accumulated percentage

140,103 179,733 90,630 28,426 438,892

31.92 40.95 20.65 6.48

31.92 72.87 93.52 100.00

2007 Indusval Multistock and Consolidated Up to 90 days Total

Own portfolio Financial Treasury Bills – LFT National Treasury Bills – LTN Third party portfolio National Treasury Bills – LTN

2006 Indusval Multistock and Consolidated Up to 90 days Total

161,932 289,594

41,828 44,602

205,086 656,612

102,239 188,669

12. Stockholders’ Equity (a) Capital Fully subscribed and paid-up capital comprises 43,000,001 shares of which 27,000,000 are common shares and 16,000,001 preferred shares with no par value. On March 30, 2007, Banco Indusval increased the capital of Indusval Corretora by R$11,093 through the capitalization of reserves (membership certificate restatement reserve and tax incentive reserve). Still on the same date, the Bank decreased the capital of Indusval Corretora with the reversal of membership certificates, in the amount of R$16,774, to its only shareholder, the Bank, which also had its capital decreased by the same amount, with reversal of membership certificates of BOVESPA and BMF (received due to the decrease in capital of Indusval Corretora) to its individual shareholders. Considering that the possession of membership certificates is necessary for the continuity of the business and operations of Indusval Corretora, the individuals who received such certificates due to the Bank’s decrease in capital, delivered the mentioned certificates to the Corretora through an installment purchase and sale transaction of the same amount of the capital decrease, with a resolutive clause, i.e., in case of demutualization of the exchanges, the transaction would be terminated and, consequently, the membership certificates would be returned to the individuals. These changes were approved by the Brazilian Central Bank on July 5, 2007. Due to the demutualization of the São Paulo Stock Exchange (BOVESPA) on August 28, 2007 and of the Futures and Commodities Exchange (BM&F) on September 20, 2007, the operation of purchase and sale of membership certificates carried out on March 30, 2007, in the amount of R$16,775 was terminated, with the consequent return of the membership certificates to the individuals. Such fact generated the reversal of the membership certificates restatement, allocated to capital reserves, as well as the restatement expense of the Liabilities for acquisition of assets and rights, in the amount of R$1,025 in Indusval Corretora.

The Extraordinary General Meeting (AGE), held on April 30, 2007, approved: (i) the cancellation of 1,591,779 preferred shares held in treasury (total shares held in treasury); (ii) t he company capital increase with no issue of new shares through the capitalization of the special revenue reserve in the amount of R$36,846, with the company capital increased to R$143,483. The Extraordinary General Meeting (AGE) held on May 3, 2007, approved: (i) t he conversion of 12,306,517 preferred shares of the company into common shares, in the proportion of a new common share to each preferred share existent; (ii) t he split of total common shares, in the proportion of 1,0468423936 new shares for each common share presently existent, so that the capital is divided into 30,000,000 common nominative shares, with no par value; (iii) c onvert 3,000,000 common shares into preferred shares, so that the capital is divided into 27,000,000 common shares and 3,000,000 preferred, nominative shares, with no par value. The Extraordinary General Meeting (AGE), held on June 22, 2007, approved: (i) a public offer of primary and secondary distribution of preferred shares of the Bank; (ii) t he Bank capital increase, through the issue of nominative preferred book shares, in the context of the public offer; (iii) t he listing of the Bank and negotiation of preferred shares issued in level 1 of differentiated practices of Corporate Governance of the S達o Paulo Stock Exchange (BOVESPA). The Board of Directors Meeting held on July 10, 2007, approved: (i) The Bank issue of 13,000,001 nominative preferred shares with no par value, in the capital increase within the context of the Public offer; (ii) The issue price of the shares at R$17.50, per preferred share, and the capital increase in the amount of R$227,500. On July 16, 2007, all the 13,000,001 nominative preferred shares issued in the Bank capital increase were fully subscribed and paid-up in local currency, in the scope of the Public Offer of primary distribution of shares. This capital increase was approved by the Brazilian Central Bank (BACEN) on July 20, 2007. Due to this capital increase, the Bank capital is R$370,983, divided into 27,000,000 common shares and 16,000,001 preferred shares. (b) Dividends and interest on own capital The by-laws provide for the distribution of a minimum annual dividend of 25% of net income adjusted in accordance with article 202 of Law 6404/76. During the year, a distribution of interest on own capital of R$15,859 (R$10,170 in 2006) was approved, calculated based on the Long-term Interest Rate (TJLP), under the terms of article 9 of Law 9249/95, and recorded for tax purposes as a financial expense.The tax benefit arising from this distribution was R$5,392 (R$3,458 in 2006). (c) Revenue reserves At the Extraordinary General meeting held on September 12, 2007, the shareholders approved the new writing of the Institution By-Laws, permitting the destination of part of annual Net Income for the following reserves: Reserve for Working Capital Reinforce and Reserve for Equalization of Dividends. The Reserve for Equalization of Dividends will be limited to 40% of the capital amount with the purpose of guaranteeing resources for the payment of dividends, including as interest on own capital or its anticipation, aiming at maintaining the flow of remuneration to the shareholders, with resources: (i) e quivalent to up to 50% of net income for the year, adjusted as set forth article 202 of Corporate Law; (ii) equivalent to up to 100% of the realized portion of Revaluation Reserve, recorded as retained earnings; (iii) equivalent to up to 100% of prior year adjustments, recorded as retained earnings; (iv) arising from the credit corresponding to anticipation of dividends. The Reserve for Working Capital Reinforce will be limited to 30% of the capital with the purpose of guaranteeing the financial means for the company operation, formed with resources equivalent to up to 20% of net income for the year, adjusted as set forth article 202 of Corporate Law. (d) Revaluation reserve The Bank carried out a revaluation of properties in use in the first half of 2005 (properties in use), based on an appraisal report issued by qualified experts, approved by the stockholders in an Extraordinary General Meeting.

Annual Report

2007

The results of this revaluation were recorded as required by Circular 2824/98 of the Brazilian Central Bank (BACEN) and may be summarized as follows: Book value of land and buildings at June 30, 2005

2,160

Market value of land and buildings in accordance with the appraisal reports Recording of the difference represented by the appreciation Appropriation to revaluation reserve Income tax and social contribution on net income on the revaluation of land and buildings Revaluation reserve recorded, net of income tax and social contribution

3,986 1,826 (522) 1,304

The revaluation reserve, own and of associated companies, based on depreciation and disposal or sale of the respective revalued assets, is transferred to retained earnings, also taking into consideration the tax effects of the provisions constituted. The realized reserve for the quarter was R$75. (e) Retained revenue reserve The Extraordinary General Meeting of June 12, 2007 approved the rectification of the prior deliberation of the Ordinary General Meeting of April 30, 2007 which approved the appropriation of the results for the year ended December 31, 2006, of which R$12,356 were transferred to the profit reserve. This balance should have been transferred to the retained revenue reserve. This appropriation was approved by BACEN on July 5, 2007 (Note 12(a)).

13. Analysis of the Statement of Income Accounts (a) Revenues from services rendered

2007 Indusval Multistock

Management of funds Collection Transfer of funds Guarantees provided Custody services Stock exchange brokerage services Foreign exchange brokerage services Other services

37 2,722 519 595 10

1,840 5,723

(b) Other administrative expenses

Water, electricity and gas Rent Communications Philanthropic contributions Maintenance and conservation of assets Materials Data processing Promotions and public relations Advertising and publicity Publications Insurance Services of the financial system Third party services (*) Surveillance and security Specialized technical services (*) Transport Travel Other administrative expenses

Consolidated 461 2,722 519 595 21 12,171 108 2,313 18,910

2006 Indusval Multistock 34 1,854 332 944

265 3,429

2007 Indusval Multistock

Consolidated

318 637 1,634 1,058 548 281 789 855 6 1,098 115 1,781 14,122 72 6,208 339 1,841 2,511 34,213

318 641 2,052 1,212 710 347 940 880 6 1,157 115 2,109 19,092 72 6,424 367 1,909 2,662 41,013

Consolidated 339 1,854 332 944 16 7,451 271 398 11,605

2006 Indusval Multistock

Consolidated

179 119 1,064 462 362 267 695 240

264 140 1,460 500 553 359 856 282

222 87 1,283 4,029 60 2,609 292 427 2,470 14,867

274 87 1,538 6,088 60 2,863 396 496 2,695 18,911

(*) Refer mainly to non recurring expenses, incurred and provided, related to the placement of shares in the market via Initial Public Offer – IPO. The expenses with IPO totaled R$14,974, of which R$10,056 recorded in “Third party services”, R$3,175 in “Specialized technical services” and R$1,743 in other.

Payroll Fees Benefits Social charges Training Interns

Indusval Multistock 20,239 4,279 5,121 7,687 311 250 37,887

2006

Consolidated

Indusval Multistock

Consolidated

21,321 4,771 5,736 8,165 324 250 40,567

11,166 3,836 3,829 4,789 199 145 23,964

12,559 4,358 4,641 5,409 204 145 27,316

(d) Tax expenses 2007 Indusval Multistock 373 305 1,001 6,162 577 8,418

Tax on Bank Account Outflows (CPMF) Service Tax (ISS) Social Integration Program (PIS) Social Contribution on Revenues (COFINS) Other

2006

Consolidated

Indusval Multistock

Consolidated

424 934 1,106 6,807 596 9,867

225 238 536 3,301 436 4,736

264 629 606 3,734 457 5,690

(e) Other operating income 2007 Indusval Multistock 1,156 4,720 5,876

Recovery of charges and expenses Other operating income

2006

Consolidated

Indusval Multistock

Consolidated

2,410 6,038 8,448

30 249 279

61 3,640 3,701

14. Operating Limits – Indusval Multistock Consolidated In compliance with Resolution 2099/94 of BACEN, a minimum stockholders’ equity has to be maintained equivalent to 11% of the asset transactions weighted by risk levels that range from 0% to 300%. At December 31, 2007, the Bank’s index was 33.16% (22.45% in 2006), calculated based on the consolidated financial statements. (a) Basel index calculation Percentage

Balance

No risk Reduced risk Reduced risk Normal risk Tax credits

0 20 50 100 300

Swap credit risk Market risk – interest

20 100

866,454 8,963 294,340 1,042,557 11,474 2,223,788 664 916 1,580

2007

2006

Weighted risk

Balance 380,544 35,592 180,576 539,166 6,937 1,142,815 74 927 1,001

1,792 147,170 1,042,557 34,422 1,225,941 133 916 1,049 33.16

Basel index – %

7,118 90,288 539,166 20,811 657,383 15 927 942 22.45

(b) Operating limits 2007

Stockholders’ equity required Minimum capital Property and equipment

Annual Report

2007

Requirement (limit)

Situation

24,000 24,000 203,145

405,941 370,983 14,075

2006

Margin

Requirement (limit)

Situation

Margin

381,941 346,983 189,070

24,000 24,000 66,273

141,926 106,611 11,792

117,926 82,611 54,481

15. Related Parties Related party transactions are carried out at normal market amounts, terms and payment conditions, and are represented by:

Assets (liabilities) Demand deposits Time deposits Interbank deposits Other Other non-consolidated related parties Foreign borrowings (*)

2007 Income (expenses)

(506) (495) (13,105) (30)

(751)

(33,110)

2006 Income (expenses)

Assets (liabilities)

(2,587)

(350) (486) (12,079) (44)

(17) (1,438)

(30,784)

(1,861)

(*) Refers to Indusval International Ltd.

16. Management of Investment Funds The Bank manages the funds listed below, whose net assets at December 31 are as follows: Valeu – Fundo de Aplicação em Quotas de Fundos de Investimento Multi Fundo de Investimento Financeiro Indusval Agri-Sus Fundo de Investimento em Quotas de Fundos Multimercado GSS Fundo de Investimento Multimercado

2007 43,273 2,494 207 3,088

2006 10,433 1,898 15,757

2007 21,515 25,625 26,735 73,875

2006 20,165 23,571 3,270 47,006

17. Supplementary Information (a) Guarantees and sureties The Bank’s responsibility for guarantees and sureties provided to third parties is as follows: Guarantees – financial institutions Guarantees – individuals and non-financial corporate entities Credits opened for imports

(b) Indusval Multistock Corretora (Brokerage Firm) The subsidiary Indusval Multistock Corretora acts as an intermediary in the trading of contracts on the forward, futures and options markets totaling R$831,012 at December 31, 2007 (R$994,717 at December 31, 2006). It is also responsible for the custody of clients’ securities totaling R$788,530 at December 31, 2007 (R$552,639 at December 31, 2006), deposited with the Brazilian Custody and Settlement Company (CBLC). (c) Personnel 2007

Employees Support and control Operational Total

2006

Banco Indusval Multistock

Indusval Multistock Corretora

Total

Banco Indusval Multistock

Indusval Multistock Corretora

Total

124 167 291

28 12 40

152 179 331

98 115 213

27 15 42

125 130 255

(d) Statement of added value

Analysis of added value Gross profit from financial intermediation Revenues from services rendered Other operating income/expenses Distribution of added value Employee compensation Payroll Benefits Employment security fund Other charges Government remuneration Tax expenses National Institute of Social Security (INSS) Income tax and social contribution Interest on own capital Reinvestment of profits

2007 Indusval Multistock

Consolidated

127,000 5,723 (17,726) 114,997

129,205 18,910 (22,474) 125,641

67,730 3,429 (13,086) 58,073

69,232 11,605 (17,850) 62,987

41,294 34,119 5,121 1,743 311 23,800 8,418 5,944 9,438 15,859 34,044 114,997

43,411 35,487 5,736 1,864 324 31,655 9,867 6,301 15,487 15,859 34,716 125,641

21,105 16,034 3,829 1,044 198 13,334 4,736 3,745 4,853 10,170 13,464 58,073

24,038 17,981 4,641 1,212 204 15,315 5,690 4,197 5,428 10,170 13,464 62,987

(e) Statement of Cash Flow

2007 Indusval Multistock 32,400 45,374 1,182 (14,154)

Adjusted net income Net income/(loss) Depreciation and amortization Equity in the results Restatement of membership certificates Adjustment to market value – securities and derivatives Variation of assets and liabilities (Increase) in short-term investments (Increase) in marketable securities and derivative financial instruments (Increase) decrease in interbank and interdepartmental accounts (Increase) in loans and other credits (Increase) in other credits and assets (except for assets not for own use) Decrease in other liabilities Operating activities – net cash from (applied) Sale (Purchase) of equity investments Sale of properties in use Sale of assets not for own use Purchase of investments Sale of Investments Purchase of other investments Purchase of assets not for own use Purchase of properties in use Investing activities – net cash from (applied) Increase in deposits Increase in open market funding Increase in loans and onlendings Decrease of capital Increase of capital Changes in deferred income Interest on own capital paid and/or provided Financing activities – net cash from (applied) Net increase (decrease) in cash Cash at the beginning of the period Cash at the end of the period Net decrease in cash

Annual Report

2007

2006 Indusval Multistock

(2) (1,086,396) (109,202) (361,952) (26,636) (525,185) (83,007) 19,586 (1,053,996) 17,364 233 3,199 (500) 613 (130) (2,794) (3,197) 14,788 287,605 467,943 65,586 (16,774) 244,300 197 (15,859) 1,032,998 (6,210) 10,010 3,800 (6,210)

Consolidated 45,762 45,374 1,236 (846) (2) (1,095,853) (109,202) (387,833) (26,636) (525,185) (79,448) 32,451 (1,050,091) 290 3,199 (1,455) 18,559 (130) (2,794) (3,234) 14,435 283,998 467,943 65,586 (16,774) 244,300 197 (15,859) 1,029,391 (6,265) 10,074 3,809 (6,265)

2006 Indusval Multistock 20,819 23,634 914 (3,699) (30) (295,614) (47,758) (26,979) 26,077 (160,790) (106,331) 20,167 (274,795) (345) 96 3,496

Consolidated 21,747 23,634 985 (2,842) (30) (296,332) (47,758) (27,015) 26,077 (160,790) (101,359) 14,513 (274,585) 150 3,496

(3) (1,915) (2,689) (1,360) 194,946 7,813 91,725

(38) (1,915) (2,802) (1,109) 194,542 7,813 91,725

(10,170) 284,314 8,159 1,851 10,010 8,159

(10,170) 283,910 8,216 1,858 10,074 8,216

(f) Financial Instruments â&#x20AC;&#x201C; Indusval Multistock Consolidated 2007

Assets Investment in interbank deposits Investments in foreign currency Marketable securities Credit operations Credits Trade finance Purchased credits Derivatives Pre Currencies Swap Liabilities Interbank deposits Time deposits Funds obtained via options Foreign liabilities Derivatives Pre Currencies Swap

2006

Book value

Market value

Book value

Market value

45,840 1,429 648,161

7,656 24,036 259,034

992,610 240,588 21,614

989,519 239,193 22,285

424,529 162,687 55,926

423,130 162,494 53,812

42,991 4,292 15,010

42,991 1,739 15,521

36,974 6,467 10,262

36,974 6,319 10,262

68,608 661,420 9,043 229,730

68,615 660,787 9,039 230,924

52,922 438,892 24,287 164,144

52,929 438,030 24,398 164,126

223,299 7,829 15,021

223,299 9,576 15,112

32,927 2,685 10,262

The amount of interbank deposits was determined in accordance with the investment curve. The amount of marketable securities was established through the prices disclosed by Andima for the date established. The amount of loans, interbank deposits, time deposits, foreign liabilities was determined by the monthly average rate of the last month of the year for each type of transaction. The market value of derivatives, purchased credit, funds obtained via options, was determined in accordance with internal pricing model the parameter of which are data supplied by BMF. (g) Service agreements â&#x20AC;&#x201C; CVM Instruction No. 381 The policy of the Bank, subsidiaries and parent company, for contracting services not related to the external audit of independent auditors, is based on the regulations applicable and on internationally accepted principles which safeguard the independence of the auditor. These principles are: (i) the auditor should not audit his own work; (ii) the auditor should not perform managerial functions for his client; and (iii) the auditor should not promote the interest of his client. In the years ended December 31, 2007 and 2006 the independent auditors and related parties did not render services unrelated to the external audit in an amount higher than 5% of total fees related to external audit services. (h) Benefits to Employees As from 2006, the Bank adopted its own model for the payment of Profit Sharing using criteria and parameters established in accordance with the agreement approved by the Ministry of Labor. It has also been established the payment of profit sharing to the directors. The amounts paid and provided are as follows: 2007

Employees Directors

Banco Indusval Multistock

Consolidated

9,558 4,322 13,880

9,735 4,431 14,166

2006 Banco Indusval Multistock 886 886

Consolidated 904 15 919

(i) Management compensation The Bank’s administrators are compensated with fees or salaries when they are registered under the Consolidation of Labor Laws (CLT). These amounts are recorded under “Personnel Expenses” in the Bank the amount of R$4,279 (R$3,836 in 2006) and the amount of R$4,771 in Indusval Consolidated (R$4,359 in 2006). (j) Insurance Coverage Banco Indusval has insurance contracts to cover risks related to property and equipment. On December 31, 2007, the amount of risks coverage represented R$14,506 (R$13,000 in 2006). Management considers this amount sufficient to cover eventual losses.

18. Subsequent Events (a) Changes made to the Brazilian Corporation Law for 2008: On December 28, 2007, Law 11,638/07, that changes the Brazilian Corporation Law on the accounting practices adopted in Brazil, as from 2008, was issued. According to the new law, the issue of accounting standards by CVM for the listed companies regulated by it shall be made in compliance with the international standards. In a communication to the market, in which it highlights its preliminary understanding, CVM informs that the standards adopted by IASB – International Accounting Standard Board are presently considered as the international reference for the accounting standards. A significant part of the main alterations made by the law are already adopted by the bank and its subsidiaries: (i) voluntarily, as in the case of presentation of the Statements of Cash Flow (DFC) and the Statement of Added-Value (DVA); (ii) as a result of the Brazilian Central Bank requirements, by the adoption of the criterion for classification and mark to market of the financial instruments. It is expected that other changes or legal determinations are object of regulation by the Brazilian Central Bank and the Brazilian Securities Commission during 2008, considering the scope of each regulator. At the moment, the company is promoting studies and evaluations of the impacts of this new law, with the support of Febraban and Abrasca to then measure the possible effects of the changes in the accounting practices. Accordingly it is not practicable yet to measure with a reasonable accuracy the effects for the full adoption of the new law in terms of result and net equity. Prospective changes that may affect future transactions refer to the accounting treatment in the mergers, amalgamation or split-off in which the assets and liabilities of the merged or split-off entity will be recorded at their market value. (b) Changes in tax legislation: The Provisional Measure 413, of January 3, 2008 sets forth on the tax measures and increased the Social Contribution on Net Income (CSLL) of the financial institutions, insurance and capitalization companies from 9% to 15% of taxable income, as from the first day of the fourth month subsequent to the MP publication. The impacts introduced by the Provisional Measure will not cause significant impacts. Through decrees, the Federal Government raised as from January 2008 the rates of the Tax on Financial Operations (IOF). IOF is not charge of the financial institution, it is an accessory obligation of withholding and paying it to the tax authorities on behalf of clients.

Annual Report

2007

Corporate Information Gilmar Melo de Azevedo Commercial Officer - Branches Katia Aparecida Rocha Moroni International Department Officer Eliezer Lizardo Ribeiro da Silva Credit Officer

Board of Directors Chairman Luiz Masagão Ribeiro Vice Chairman Manoel Felix Cintra Neto

Banco Indusval Multistock

Directors Maria Cecilia Cavalcante Ciampolini Júlio dos Santos Oliveira Júnior Adroaldo Moura da Silva (independent) Wladimir Antonio Puggina (independent) Walter Iorio (independent)

Headquarters Rua Boa Vista, 356 - 5º/12º andares CEP: 01014-000, São Paulo-SP – Brasil Phone: (0xx11) 3315-6777 Fax: (0xx11) 3315-0130 Website: www.indusval.com.br Corporate Taxpayer No. 61.024.352/0001-71

Executive Board Manoel Felix Cintra Neto President Luiz Masagão Ribeiro Chief Executive Officer Carlos Ciampolini Executive Officer Ziro Murata Junior Investor Relations and Executive Officer Gilberto L. dos Santos Lima Filho Treasury Officer - SPB Roberto Carlos de C. Almeida Commercial Officer Mário Fukumitsu Commercial Officer - Branches

Indusval Multistock Corretora de Títulos e Valores Mobiliários Rua Boa Vista, 356 - 8º andar CEP: 01014-000, São Paulo-SP – Brasil Phone: (0xx11) 3315-6777 Fax: (0xx11) 3315-0130 Website: www.indusvaltrade.com.br E-mail: induscor@indusval.com.br Corporate Taxpayer No. 65.913.436/0001-17

Campinas Av. José Bonifácio Coutinho Nogueira , 150 6º andar – sala 603 CEP: 13091-611, Campinas-SP Corporate Taxpayer No.: 61.024.352/0004-14 Phone: (0xx19) 3206-0788 Fax: (0xx19) 3207-3654 Campo Grande Rua Alberto Néder, 328 – sala 91 CEP: 79002-160, Campo Grande-MS Corporate Taxpayer No.: 61.024.352/0008-48 Phone: (0xx67) 2106-3950 Fax: (0xx67) 2106-3966 Curitiba Rua Marechal Deodoro, 950 – 9º andar CEP: 80060-010, Curitiba-PR Corporate Taxpayer No.: 61.024.352/0003-33 Phone: (0xx41) 3303-6700 Fax: (0xx41) 3303-6716 Goiânia Av. República do Líbano, 1.551 – 7 ° andar – sala 702 CEP: 74115-030, Goiânia-GO Corporate Taxpayer No.: 61.024.352/0005-23 Phone: (0xx62) 3225-677 Fax: (0xx62) 3224-2052 Maringá Av. Duque de Caxias, 882 sala 303 CEP: 87020-025, Maringá-PR Corporate Taxpayer No.: 61.024.352/0009-29 Phone: (0xx44) 3302-4000 Fax: (0xx44) 3303-4016 Porto Alegre Rua Furriel Luiz Antonio Vargas, 250 – sala 802 CEP: 90470-130, Porto Alegre-RS Corporate Taxpayer No.: 61.024.352/0011-43 Phone: (0xx51) 3406-9100 Fax: (0xx51) 3406-9116

Investor Relations: Ziro Murata Junior Investor Relations Officer Maria Angela Valente IR Manager Rua Boa Vista, 356 – 7º andar CEP: 01014-000, São Paulo-SP – Brasil Phone: (0xx11) 3315-6821 Website: www.indusval.com.br/ri E-mail: ri@indusval.com.br

Stock Trading Markets São Paulo Stock Exchange (BOVESPA) Ticker symbol: IDVL4 (PN shares)

Branches Diário Oficial do Estado de São Paulo Folha de São Paulo www.indusval.com.br/ir São Paulo – Headquarters Rua Boa Vista, 356 – 5 º/12º andar CEP: 01014-000, São Paulo-SP – Brasil Corporate Taxpayer No.: 61.024.352/0001-71 Phone: (0xx11) 3315-6777 Fax: (0xx11) 3315-0166 E-mail: banco@indusval.com.br Belo Horizonte Av. Olegário Maciel, 2.144 – 11º andar – sala 1101 e 1102 CEP: 30180-112, Belo Horizonte-MG Corporate Taxpayer No.: 61.024.352/0006-86 Phone: (0xx31) 2111-088 Fax: (0xx31) 2111-0861

Annual Report

2007

Main Indicators Consolidated – R$ million

Changes 06/05 07(a)/06

2005

2006

2007

2007(a)

Financial Intermediation Income

151.5

187.8

289.0

23.9%

53.9%

Financial Intermediation Result

57.7

69.2

129.2

20.0%

86.6%

Operating Result

23.0

30.5

61.0

75.5

32.7%

147.5%

Net Profit

19.5

23.6

45.4

55.0

20.9%

132.5%

384.6

644.0

1,255.2

67.4%

94.9%

329.7

588.1

1,233.5

78.4%

109.7%

Marketable Securities and Derivatives

234.2

261.2

649.1

11.5%

148.5%

Total Assets

772.4

1,120.6

2,211.2

45.1%

97.3%

Total Deposits

331.9

526.4

810.4

58.6%

54.0%

Money Market Funding

180.9

188.7

656.6

4.3%

248.0%

72.4

164.1

229.7

126.7%

39.9%

136.3

149.7

406.7

9.9%

171.7%

14.7%

16.5%

16.3%

19.8%

1.8 p.p.

3.2 p.p.

3.2%

2.5%

2.7%

3.3%

-0.7 p.p.

0.8 p.p.

11.1.%

9.8%

9.4%

-1.3 p.p.

-0.4 p.p.

2.5%

1.2%

1.4%

-1.3 p.p.

0.2 p.p.

Basel Index

30.4%

22.5%

33.2%

-8.0 p.p.

10.7 p.p.

Efficiency Ratio (d)

59.0%

56.3%

63.0%

54.6

-2.7 p.p.

-1.6 p.p.

Results

Balance Sheet Credit Portfolio Self-Generated Loan Portfolio – Middle

Foreign Currency Borrowings Shareholders’ Equity

Performance Return on Average Equity Return on Average Assets NIM (Net Interest Margin)

(b)

NPL / Total Credit Portfolio (c)

Number of Branches

Independent Auditors: PricewaterhouseCoopers Auditores Independentes

Credits Contents, text and translation

Printing

Investor Relations Manager Global RI Consultoria de Relações com Investidores

Gráfica Braspor

Publication Date

Operating Indicators Number of Employees

Graphic Design 198

255

331

TheMediaGroup

Pictures Daniel Rosa Antonio Carrero Bovespa – Cover and Page 14 Flávio R. Guarnieri Arrasta Lata – Page 63 Ricardo Telles Social Projects – Page 63 e 64

April 30, 2008

2007 Relat贸rio Anual

Relat贸rio Anual

2007

Compromisso com o Crescimento S贸lido e Sustent谩vel

Main Indicators Consolidated – R$ million

Changes 06/05 07(a)/06

2005

2006

2007

2007(a)

Financial Intermediation Income

151.5

187.8

289.0

23.9%

53.9%

Financial Intermediation Result

57.7

69.2

129.2

20.0%

86.6%

Operating Result

23.0

30.5

61.0

75.5

32.7%

147.5%

Net Profit

19.5

23.6

45.4

55.0

20.9%

132.5%

384.6

644.0

1,255.2

67.4%

94.9%

329.7

588.1

1,233.5

78.4%

109.7%

Marketable Securities and Derivatives

234.2

261.2

649.1

11.5%

148.5%

Total Assets

772.4

1,120.6

2,211.2

45.1%

97.3%

Total Deposits

331.9

526.4

810.4

58.6%

54.0%

Money Market Funding

180.9

188.7

656.6

4.3%

248.0%

72.4

164.1

229.7

126.7%

39.9%

136.3

149.7

406.7

9.9%

171.7%

14.7%

16.5%

16.3%

19.8%

1.8 p.p.

3.2 p.p.

3.2%

2.5%

2.7%

3.3%

-0.7 p.p.

0.8 p.p.

11.1.%

9.8%

9.4%

-1.3 p.p.

-0.4 p.p.

2.5%

1.2%

1.4%

-1.3 p.p.

0.2 p.p.

Basel Index

30.4%

22.5%

33.2%

-8.0 p.p.

10.7 p.p.

Efficiency Ratio (d)

59.0%

56.3%

63.0%

54.6

-2.7 p.p.

-1.6 p.p.

Results

Balance Sheet Credit Portfolio Self-Generated Loan Portfolio – Middle

Foreign Currency Borrowings Shareholders’ Equity

Performance Return on Average Equity Return on Average Assets NIM (Net Interest Margin)

(b)

NPL / Total Credit Portfolio (c)

Number of Branches

Independent Auditors: PricewaterhouseCoopers Auditores Independentes

Credits Contents, text and translation

Printing

Investor Relations Manager Global RI Consultoria de Relações com Investidores

Gráfica Braspor

Publication Date

Operating Indicators Number of Employees

Graphic Design 198

255

331

TheMediaGroup

Pictures Daniel Rosa Antonio Carrero Bovespa – Cover and Page 14 Flávio R. Guarnieri Arrasta Lata – Page 63 Ricardo Telles Social Projects – Page 63 e 64

April 30, 2008

2007 Relat贸rio Anual

Relat贸rio Anual

2007

Compromisso com o Crescimento S贸lido e Sustent谩vel