2009 Annual Report by TheMediaGroup

2009 Annual Report To see beyond, one must be able to view

About this Annual Report To see beyond, one must be able to view To see beyond, it is not enough to look. One must be able to view. To see beyond the next step, one must often retreat and attentively look around to view the right opportunity to move on. To see beyond, it is not enough to look. One must have keen eyesight and eagerness to discover, and boldness to explore all possibilities. The Arrastão Project students have once more been our source of inspiration to prepare this report. The young participants in the photography workshops of Arrastão have been gradually developing a keener perception of the world and their work has been teaching us to see beyond. Our own perception is also sharpened with each project that they undertake. They show us new possibilities and teach us not to feel satisfied with just looking. They prompt us to step back, look again, reconsider and view from different angles, so that we can glimpse through a new perspective and see it as a unique scene. They entice us to see the manifold possibilities in a new image, from a new angle... In 2009, we faced challenges that led us to the same reflection on our business. The economic situation also prompted us to step back, challenged us to enhance our processes and controls and is enabling us to see the various possibilities to improve the scene and to assure the progress of BIM’s business in the long term. Those considerations led us to propose a new task to the youths of the Arrastão Project. Sponsored by the Indusval Multistock Sustainability Institute, during their summer vacation, those students and their teachers were invited to attend creativity workshops. The purpose was to take pictures of São Paulo City − its nature, architecture and people − to be printed in black and white receiving a colored interference by utilizing drawing, painting, recycling, graffiti and DIY techniques, they currently use in Arrastão Project’s Fashion and Design, Communication and Youth Education groups. In addition to promoting greater involvement of all Project groups, this challenge was intended to show that creativity and intelligence allow us to see beyond. We just have to be able to view from new angles, to identify opportunities, and to transform the reality shown in the pictures. This project, involving 33 young students and seven teachers, was made possible by the designers from TheMediaGroup, our partner in the development of this report. These professionals volunteered their time and expertise to develop the idea and to structure and lead the creativity workshops, with a view to sharpening their perception more and more and making those youths to see the opportunities that life offers us. We thank all youths, educators and volunteers that took part in this project for their effort and inspiration. They confirmed our belief that one must be able to view to move beyond.

CORPORATE PROFILE

Banco Indusval Multistock (BIM) is a commercial bank based in São Paulo, with 42 years’ experience in the financial market. It focuses on credit products both in Brazilian and foreign currencies, oriented to medium-sized companies with annual revenues chiefly between R$20 million and R$500 million. BIM has 333 employees who provide prompt and quality services. The Bank holds a credit portfolio composed of over 660 companies and offers a wide range of products designed to meet the specific needs of this market niche. Among other distinct features, the Bank develops financing structures suitable for medium-sized companies, including the involvement of international bodies such as the IFC (International Finance Corporation) and IDB (InterAmerican Development Bank). In order to offer competitive services and customized products, BIM has 11 branches strategically located in areas with a larger number of medium-sized companies in Brazil, plus one branch located abroad and the subsidiary Indusval Corretora de Valores, which acts as an intermediary in operations on the Securities, Commodities and Futures Exchange (BM&FBOVESPA). BIM closed 2009 with R$2.7 billion total assets, a R$1.7 billion credit portfolio, R$432.7 million shareholders’ equity and a 22.53% Basel Index. A publicly-traded financial institution, the Bank has been listed on Level 1 of Corporate Governance at the São Paulo Stock Exchange since July 2007, and has voluntarily adhered to the additional practices included in the rules for companies listed on the Novo Mercado segment.

MAIN INDICATORS Consolidated – R$ Million

2005

2006

2007c

2008

2009

Results

57.7 23.0 19.5

69.2 30.5 23.6

129.2 61.0 45.4

200.1 110.9 71.8

94.3 1.1 12.8

Credit Portfolio Credit Portfolio incl. Guarantees and Letters of Credit Cash and short-term interbank Investments Marketable Securities and Derivatives Total Assets Total Deposits

384.6 417.0 105.1 234.2 772.4 331.9

644.0 691.0 161.1 261.2 1,120.6 526.4

1,255.2 1,329.0 264.0 649.1 2,211.2 810.4

1,723.0 1,793.7 110.9 331.5 2,225.4 824.9

1,635.9 1,698.7 357.2 725.0 2,730.5 1.273.2

Foreign Currency Borrowings Local Currency Borrowings Local Onlending Shareholders’ Equity

72.4 0.0 0.0 136.3

164.1 0.0 0.0 149.7

229.7 0.0 0.0 406.7

487.4 128.2 159.6 448.5

377.4 0.0 142.6 432.7

14.9% 2.6% 11.1% 2.5% 30.4% 59.0%

16.5% 2.5% 9.8% 1.2% 22.5% 56.3%

16.3% 2.7% 9.3% 1.4% 33.2% 63.0%

16.8% 3.2% 9.5% 2.7% 24.0% 46.4%

2.9% 0.5% 7.9% 5.9% 22.5% 52.3%

198 1

255 5

331 11

329 11

333 12

31,296,247 16,948,594 14,347,653 1,591,879 29,704,368 0.63 4.59 11.446 0.36573 n/a

31,296,247 16,948,594 14,347,653 1,591,779 29,704,468 0.76 5.04 10.167 0.32486 n/a

43,000,001 27,000,000 16,000,001 0 43,000,001 22,620,381 52.6% 1.05 9.46 15.858 0.36879 838.500

43,000,001 27,000,000 16,000,001 510,500 42,489,501 21,753,273 50.6% 1.71 10.56 25.470 0.59943 169.533

42,475,101 27,000,000 15,475,101 427,000 42,048,101 21,145,842 49.8% 0.30 10.29 27.009 0.64234 348.579

Financial Intermediation Result Operating Result Net Profit Balance sheet

Performance

Return on Average Equity Return on Average Assets Net Interest Margin (NIM) (a) NPL / Total Credit Portfolio(b) Basel Index Efficiency Ratio(d) Operating Indicators

Number of Employees Number of Branches Capital Market

Total Number of Shares Common Shares (IDVL3) Preferred Shares (IDVL4) Treasury Shares Outstanding Shares (e) Shares in Free Float (f) Free Float (%) (g) Net Earnings per share (R$) Book Value per Share (R$) Shareholder Remuneration (R$ `000) (h) Remuneration per Share (R$) Market Value (R$ `000)

(a) NIM = Net Interest Margin = (Gross Result from Financial Intermediation – Prov. for Doubt. Debtors)/average interest earning assets. (b) NPL (Non-Performing Loans) – Total outstanding of contracts with one of the installments overdue for more than 60 days. (c) Excluding the non-recurring IPO expenses of R$9.7 million (net of taxes) net profit in the period would total R$55.1 million, leading to a 19.8% ROAE, 3.3% ROAA, 9.3% NIM and 54.6% Efficiency Ratio. (d) Ratio between Operating Expenses and Operating Income. A fall in this index shows improved performance. (e) All the shares in the Company’s capital stock minus treasury shares. (f) Outstanding Shares minus those held by Controlling Group and Management. (g) Free Float over total shares. (h) Interest on Equity + dividends, when applicable.

Credits Content, text and translation: Investor Relations Department Global RI Consultoria de Relações com Investidores

Graphic design: TheMediaGroup

Pictures: Cover and Inner Pictures: all the pictures came from the “Ver Além” project, developed by the Projeto Arrastão young participants, as described on the back cover of this Annual Report.

Management (page 5): Daniel Rosa, professional photographer

Printing: Gráfica Braspor Publication Date: April 15, 2010.

2009 annual report to see beyond, one must be able to view

Message from the President Adjustment to the new economic reality, with focus on enhancement of internal controls and risk management

Corporate Governance Agility, transparency and ethics permeate the decision-making process

Strategic Management An ongoing search for efficiency, quality and safety

Economic Environment Recovery of economic activity in 2010

Markets Predominance of medium-sized companies in regions with greater economic activity

Products and Services Closeness to customers brings a better understanding of their needs

Economic and Financial Performance Results in line with the situation and aiming at business perpetuity

Capital Markets A commitment to the highest Governance standards and respect for shareholders

People Management Commitment and competence reflected in its main asset

Intangible Assets Experience and knowledge under a powerful brand

Sustainability Commitment to improvement in each of the pillars of sustainability

70 72 111

Annual Social Report Financial Statements Corporate Information

Message from the President Adjustment to the new economic reality, with focus on enhancement of internal controls and risk management Manoel Felix Cintra Neto President of the Executive Board In 2009, we faced great challenges but that helped us to learn many lessons, to become stronger and more resilient. The economic crisis that was triggered in the USA, in late 2008 spread worldwide and quickly deteriorated both the international and the domestic economic situation. As a result, we had to forgo short-term profitability to ensure the sustainability of our operations in the long run. Our 16-years’ experience in middle market and in particular our Executive Officers’ and Board of Directors’ vision of the future were both essential for this process. This learning experience and the maintenance of the decision to privilege longetivity in detriment of immediate return was only possible due to the Bank’s corporate governance structure. Aware of the need to adapt to the new situation, we decided to introduce conservative measures to preserve our assets and liquidity from further deterioration. We strengthened our operation guarantee system, diversified our customer base and funding sources and adopted stricter lending and risk management policies.

The adverse economic situation impacted in particular our target business segment of medium-sized companies, more directly affected by flagging economic activity and lower credit supply. Consequently, delinquency rates rose, and we decided to increase our provisions for loan losses above the usual requirements. We were fully aware that this decision would impact our 2009 results; nevertheless, this measure is entirely consistent with the economic situation, our conservative management and, above all, our goal to ensure business perpetuity. Thus, credit operations stood at about R$1.7 billion throughout the year. There was an ensuing drop in income from financial intermediation, which fell to R$407.5 million and, as a consequence, our net profit amounted to R$12.8 million.

While we slowed down business growth, we started focusing on strengthening the Bank. As an athlete crouching to concentrate his strength before a leap, we stepped back and prepared for the economic recovery. In spite of the challenging environment, we invested in new technological platforms which will provide greater security and more efficient controls, enhanced our risk management system and automated internal controls to make our operations swifter, safer and more efficient. We also increased our cash liquidity and extended the maturity profile of our liabilities through funding operations with longer maturities, thus ensuring soundness and stability. Furthermore, we established a strategic partnership at Indusval Corretora, which will allow that subsidiary to increase its operations consistently. With those measures, we are prepared to seize new market opportunities based on the ethics, responsibility and transparency principles which have always served as guidelines for our business. We believe that the economic recovery and lower delinquency/default rates will naturally lead to a growth in our credit portfolio composed of medium-sized companies and to improving operating results.

04 That is the reason why we chose “To see beyond, one must be able to view” as the theme for our 2009 Annual Report. In a year marked by instability, we seek to “see beyond” the short-term results and draft the outline of a new BIM − with a better structure and a quicker decision-making process, as well as more modern and stricter in terms of credit extension and risk control. We challenge our readers to sharpen their perception and not focus on the 2009 financial results only, but to view the possibilities going forward. We were only able to overcome the difficulties and challenges experienced in 2009 and maintain business sustainability with the support of our shareholders, customers, partners and especially our employees, who proved resilience, commitment and competence throughout the year and whom we sincerely thank.

01 Manoel Felix Cintra Neto President of the Executive Board

02 Luiz Masagão Ribeiro Superintendent Officer

03 Carlos Ciampolini Executive Officer

04 Ziro Murata Junior CFO and Investor Relations Officer

05 Gilberto L. dos Santos Lima Filho Treasury Officer – SPB

06 Roberto Carlos de C. Almeida Commercial Officer

07 Gilmar Melo de Azevedo Commercial Officer

08 Katia Aparecida Rocha Moroni International Department Officer

09 Eliezer Lizardo Ribeiro da Silva Credit Officer

07 09

â&#x20AC;&#x153;The best use of capital is not to make money, but to make money in order to improve life.â&#x20AC;? Henry Ford

Seen by (photo) Gisele Eduardo dos Santos, 17 years old and Vamires Santana dos Santos, 16 years old Viewed by (colored interference) Paula Gonzalez, 26 years old

Corporate Governance Agility, transparency and ethics permeate the decisionmaking process

BIM believes that an appropriate corporate governance model helps make its business sustainable, increases its credibility and adds value to the Bank and all its stakeholders. The Bank greatly values the disclosure of transparent information, business ethics, responsible corporate management, as well as fair and open communication. Moreover, the Bank constantly seeks to improve its decision-making process and risk management, as well as its operational strategies and internal controls. Banco Indusval Multistock has a Code of Ethics aligned with its internal culture and beliefs. It includes guidelines and practices to be followed by all employees while performing their duties. The ethical issues in the Code include professional confidentiality, personal responsibility, and conflicts of interest, among other aspects. This Code was revised in 2009 to ensure even stricter ethical principles in conducting the Bank’s activities. Throughout the year, all employees were trained so that they would incorporate into their day-to-day routine the principles in Indusval Multistock companies’ Code of Ethics and be fully committed to its guidelines.

Even though BIM shares are listed on BM&FBOVESPA’s Level 1 of Corporate Governance, the Bank adopts additional practices, such as the use of the Arbitrage Chamber for issues related to the capital markets; 100% tag along rights, which is a guarantee that minority shareholders may choose to sell their shares at the same price per share as the controlling shareholder if the Bank’s control is sold; over 20% of independent members in its Board of Directors; and over 25% of free float. Moreover, BIM offers the same remuneration for common and preferred shares. The only reason why Indusval Multistock is not listed on BM&FBOVESPA’s highest corporate governance segment – the Novo Mercado – is that its capital stock does not consist of common shares in its entirety. BIM’s corporate management is based on the synergy among its Board of Directors, Executive Board and the Committees assisting them.

Governance Structure

Board of Directors The Board of Directors is the top governing body. It is responsible for outlining strategic guidelines and general policies, besides guiding and supervising the Executive Board’s activities. It also ensures that all financial information posted is accurate, chooses independent auditors and oversees internal audit. The Board is composed of renowned executives with vast professional experience in different strategic fields for the Bank’s management, so that decisions are based on different points of view. At year-end 2009, the Board of Directors consisted of nine members, two of whom − over 20% − were independent. Board members meet four times a year as a rule. Special meetings are held whenever required. Each Director has joint two-year term, and re-election is permitted.

Members of the Board of Directors Term running until the 2011 Annual General Meeting Luiz Masagão Ribeiro – Chairman Manoel Felix Cintra Neto – Vice Chairman Antonio Geraldo da Rocha – Director Carlos Ciampolini – Director Maria Cecília C. Ciampolini – Director Júlio dos Santos Oliveira Júnior – External Director Mário Fukumitsu – External Director Adroaldo Moura da Silva – Independent Director Wladimir Antônio Puggina – Independent Director

Fiscal Board The Fiscal Board was not established in 2009. The Bank’s Bylaws provide for the establishment of the Fiscal Board by decision of the Annual General Meeting or upon shareholders’ request. When established, it must be composed of a minimum of three and a maximum of five members who are elected by the Annual General Meeting and can be ousted by the same body.

10 Executive Board At the close of 2009, BIM’s Executive Board consisted of nine members with a joint two-year term. Re-election by the Board of Directors is permitted. All officers of the Executive Board are highly experienced in the financial market, so as to ensure efficient management of operations. The Executive Board is responsible for managing the Bank, enforcing the guidelines and policies outlined by the Board of Directors, and overseeing all business activities and overall operations.

Committees Banco Indusval Multistock’s management includes six committees:

Remuneration and Benefit Committee The Remuneration and Benefit Committee consists of at least three members, independent or not, elected annually by the Board of Directors. It meets twice a year, at the end of each semester. Special meetings are held whenever needed. It exists to support the Board of Directors in issues related to officer remuneration. Among other duties, it regularly revises the remuneration and benefits offered to the Executive Board to attract, retain, motivate and remunerate those executives appropriately. It also recommends changes in remuneration and benefit amounts to the Board of Directors and manages incentive plans, such as the Stock Options Programs and Pension Plans.

Cash Committee The Cash Committee controls the Bank’s liquidity and meets on a weekly basis. It also analyzes cash flow projections for Treasury activities, and discusses new funding alternatives, transactions and operating limits. It is composed of five members: the Bank’s President, the Chief Executive Officer, the Treasury Officers (Proprietary Position and Cash Management) and the Officer in charge of the activities of the brokerage house and the international area.

Credit Committee Vital for the Bank’s everyday activities, the Credit Committee outlines credit risk management policies and approves credit limits extended to customers. It is composed of seven members as follows: President, CEO, Commercial (2), Treasury, International and Credit Officers. The Credit Committee meets regularly on a weekly basis, but it can meet at any time − also electronically − to assess changes or exceptions related to formal details and guarantee coverage in pre-approved credit limits.

Compliance and Internal Audit Committee This Committee meets on a monthly basis and consists of six members: Chief Executive Officer; the Brokerage House Officer; the Risk, Compliance and Information Safety Superintendent; the Accounting and Control Superintendent; and the coordinators for the internal control and audit areas. This Committee’s duties include, among others, establishing operating policies and rules; outlining strategies to promote the practice of internal controls, risk mitigation and compliance with legal requirements; systematically monitoring the Bank’s activities to assess the effectiveness of the internal control systems in fulfilling legal requirements; and analyzing any suspected cases of money laundering. It also helps the Board of Directors monitor the accounting practices adopted in preparing the financial statements.

11 Information Technology and Safety Committee It is responsible for the information technology and information safety policies. It is also responsible for discussing and planning activities and investments to ensure sustainable and safe operation development and establishing rules for information use to ensure its protection and guaranteeing managers’, employees’, and service providers’ compliance with policies and procedures, among other duties. This Committee also outlines the procedures for the Business Continuity Plan (BCP). It meets on a monthly basis and consists of nine members: the Chief Executive Officer; the Brokerage House Officer; the Risk, Compliance and Information Safety Superintendent; the IT Superintendent; the Administrative Superintendent; the IT Systems Development Manager, the IT Project Manager, the IT Infrastructure Manager and the Controlling Department Manager.

Legal Committee This Committee consists of the Chief Executive Officer, the Legal Superintendent, the Loan Recovery Manager and the external Legal Advisor, and meets on a monthly basis to analyze and discuss legal and regulatory rules for the Bank’s operations and any legal issues related to its institutional aspects. It is responsible for analyzing and recommending legal structures that ensure products and operations are formally perfect. In addition, it sets collection and loan recovery policies and strategies.

Ombudsman Responding directly to the Board of Directors, the Ombudsman serves as a direct communication channel between the Bank and its customers and ensures strict compliance with legal and regulatory requirements concerning consumer rights. It can be accessed by Internet at www.indusval.com.br > “Ombudsman”, or by phone at 0800-704-0418 (option 2).

The Internal Committees support and assist corporate management, aiming at enhancing internal controls, risk management and strategies

â&#x20AC;&#x153;The sustainable leader must be connected to changes, sensitive to the environment, able to interpret the market signals and anticipate them, thus finding opportunities and outlining his own business strategy.â&#x20AC;? Cledorvino Belini

Seen by (photo) Roseane Rodrigues Carvalho, 17 years old and Thamella Ferreira dos Santos, 16 years old Viewed by (colored interference) Thais Crisitina Bispo de Lima, 16 years old

STRATEGIC MANAGEMENT An ongoing search for efficiency, quality and safety

Above all, Banco Indusval Multistock’s management seeks to ensure the sustainability of the Bank’s operations. Consequently, BIM, in view of the 2009 turbulence, introduced measures to preserve its liquidity and risk management and continued developing the areas that will serve as the basis for the expansion of activities going forward. During the year, financial, material and human resources were used with a view to improving risk control models and internal processes, as well as expanding and upgrading our technological infrastructure. Thus, the Bank reviewed its internal processes and controls and invested in IT systems and infrastructure whereas it maintained its credit operations at stable levels. The decision to maintain credit portfolio volumes stable may seem a regression at first sight. Nevertheless, the Bank’s Management considered it a strategic retreat in order to adapt to the macroeconomic scene and the industry situation and prepare for renewed growth later, based on the belief that Brazilian economic activity would recover at some point.

Banco Indusval Multistock also sought for other financing sources, extended its funding operation terms and worked in the management of the maturity matching of its assets and liabilities to allow Management to plan the next steps and reassure investors about the Bank’s solid condition. After a period of uncertainty, medium-sized companies, those which were most severely affected by the credit crunch, clearly show that they will play a prominent role in the economic rebound, with lower delinquency/default ratios. Business, however, is expected to recover slowly, mainly for exporting companies, which had to change their focus to the Brazilian market or seek new untapped markets. Since BIM focuses on the middle market, its strategy is to diversify its credit portfolio in industries with great potential for expansion and low current exposure. However, it pursues a conservative approach toward new operations. As a result, professionals with solid relationships with customers from the industries in which the Bank plans to have a stronger presence have been hired to implement this strategy. The Bank is also considering increasing its product portfolio to enhance its customer service and seek new market niches.

Administrative Management The administrative management initiatives in 2009 focused on improving internal processes and controls as a result of a review of work flows that had started in the previous year. Several stages in administrative routines were redesigned, duties were reassigned and methods were reorganized to enhance internal controls. In addition, training was given to speed up the adoption of new methods. This improvement was based on the expansion of the workflow system, considered the pillar of administrative management since it aligns administrative routines and processes with control systems. This program allows mapping these processes, automating tasks and optimizing the organization of work stages. As a result, security is improved, and the leaner, nimbler structure brings efficiency, productivity and quality gains. This tool allowed for the development of specific “intelligent processes” for the credit area, thus helping improve internal controls and speeding up credit analysis.

Based on this idea of intelligent processes, there was a major improvement in 2009 in the access to information, systems and processes to make business management − including credit risk, market and operating management − nimbler and more accurate. Our Intranet became, therefore, a real Business Portal with organized applications to be used by managers. Throughout the year, a new and innovative Operations and Payments System (OPS) was also designed and introduced for the treasury and financial departments. It reduces failure risk and provides more information about operations and financial flows, thus bringing efficiency to the decision-making process. All those enhanced processes provide better structured and more strategic business management. Thus, the Bank became nimbler and safer since the business departments now work in greater harmony with the support and control teams.

16 Another major improvement was that the Supplies department now manages material resources. In addition to being in charge of purchases and maintenance, it now manages all the changes in the Bank’s physical structure. During the course of the year, it focused mainly on sustainability, both in economic terms, resulting in cost reduction, and environmental terms, with lower consumption and recycling. In 2009, BIM also built the new facilities for Indusval Corretora and consolidated its ten branches, located in areas with a larger number of medium-sized businesses, in addition to its headquarters and a branch outside Brazil. Besides its ombudsman, the Bank has two other areas to support external relationships: commercial customer service, responsible for solving problems with contracts, money orders and collection, among others, and providing support for the commercial operations in the São Paulo headquarters and the whole branch network; and Customer Service, whose teams are trained to respond to customers’ requests and contribute to improving BIM’s processes and services. Customer service can be accessed by Internet at www.indusval.com.br > “Contact us”, or by phone at 0800-704-0418 (option 1).

IT Infrastructure and Management In order to lay the groundwork for growth in coming years and continuously improve its safety and management systems, the Bank made significant investments in its IT structure. After a thorough evaluation of suppliers and products, the Bank established new partnerships in very favorable terms, which allowed for upgrading, expanding and standardizing the IT infrastructure, including information and telecommunication systems. The new technological solutions, which required investments of about R$1.7 million in the year, resulted in greater voice and data transmission capacity at lower costs and substantially better quality, safety and performance. Consequently, the Bank was able to offer new services, highlighting Indusval Corretora, which is now able to operate 24 hours, seven days a week. In the first quarter of 2010, it will be able to transmit operation orders automatically with new high-frequency resources.

Technological restructuring will allow Indusval Corretora to increase its operations, tap into new markets and receive the Execution Broker Qualification Seal, which attests to the qualification of its professionals, processes and systems. In addition, these upgraded systems are compatible with the new communications network being introduced by BM&FBOVESPA to supplement the existing technology. IT management is essential for the Bank to find new systems which can enhance its management quality and make it possible to implement these new methods in different strategic areas. Jointly with other departments, the IT department introduced and consolidated important systems in 2009, which provided stricter control over operations, speedier processes and a safer information flow. The highlights of these systems include the Operations and Payments System (OPS), the Guarantee Management System (GMS) and the Verisign Identity Protection (VIP) project. The Operations and Payments System records and processes operations from the issue to the settlement of an order. In turn, the Guarantee Management System was developed internally so that the Bank can verify the formal details, availability and valuation of the assets given as guarantee in credit operations more efficiently. In addition to these major advances, the IT and Information Safety departments worked hard on the VIP project, which increased our computer network safety and reduced operating risks with better random individual passwords. The Bank also invested in state-ofthe-art email and information recording safety systems that make information access and data transmission faster. The technological advance included data virtualization. All the systems are based on cutting-edge remote connectivity platforms; therefore, it is possible to access information from different hardware installed in different places in a safer manner. A global trend, virtualization offers total flexibility and perfectly safe connections since users (employees) can access all data from any terminal with virtual authentication. As a result, no data are transferred to the computer in use so that no one else can have access to confidential information. The system also allows for the reduction in costs and consumption, in addition to preventing data loss in case of a failure.

17 Accounting and Control The Accounting and Control Department made great progress in 2009. The investments in professional training and development of new methods and processes resulted in major improvements regarding the preparation of financial statements, as well as maintenance and organization of the Bank’s managerial data. As a result, Accounting and Controls now produces even more reliable historical data and can collect the information made available for BIM’s departments, the market, shareholders, business partners and rating agencies more quickly. New accounting rules – Throughout the year, the professionals from Accounting and Controls also worked hard to put into practice the accounting principles required for the Bank to start introducing the IFRS (International Financial Reporting Standard), pursuant to Law No. 11,638. The IFRS principles include a number of international accounting concepts published and reviewed by the IASB (International Accounting Standards Board). They have been followed in the European Union since 2005 and will be introduced in Brazil as of 2010. To that end, the Bank has certified professionals and trained managers to adopt these principles in preparing its financial statements.

Risk Management Efficient risk management is essential for the sustainable growth of any financial institution and even more relevant after the global financial crisis. Banco Indusval Multistock considers risk management a strategic matter, since it involves issues such as business continuity even under adverse operational conditions, compliance, money laundering prevention, information safety and financial system safety, all essential for business continuity.

The Bank has tools to identify and map all the risks to which it is exposed, assess them accurately, adopt mitigating measures and manage any changes and situations that may affect its business and results. It pursues conservative policies in terms of risk exposure, in compliance with the guidelines and limits established by Senior Management. Risk management is a concern involving all activities and is not only restricted to one department or process. It is based on a holistic view aiming at the Bank’s perpetuity. As a result, all employees are trained, attend lectures and have all the means to identify any possible risks. Both training programs and systems are continuously monitored for flaws, in a constant search for perfection. Accordingly, the Bank in 2009 improved risk controls, hired experienced professionals, reviewed training programs, developed new tools to make information safer and adopted specialized systems that make its structure increasingly nimbler and safer.

18 Operational Risk Operational risks are the probability of losses resulting from internal processes; inadequate or faulty people or systems, problems with contracts or due to external events. BIM has policies and control mechanisms to promote accurate operating risk assessment and monitors those risks continuously, which ensures that they are mitigated on a permanent basis and in emergency situations. BIM adopts an Operational Risk Management System (ORMS), which follows the main current standards, 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. Since BIM considers operating risk management a key factor in the value-adding process, it fosters a risk prevention culture among its staff by providing tools, disseminating policies and introducing corporate methods. In an ongoing effort to employ the best practices in the market, BIM follows the guidelines of the New Basel Capital Accord, known as Basel II, in compliance with the schedule set by the Central Bank of Brazil (BACEN). In 2010, a more sophisticated operating risk management tool will be introduced, the Alternative Standardized Approach (ASA), which improves the Allocation of Capital for Operating Risk. To ensure information integrity and business continuity, BIM’s Business Continuity Plan (BCP) includes fully-equipped facilities based in a different address, with workstations, as well as telephone and other systems, so that operations can continue in spite of any type of contingencies in the Bank’s headquarters. In addition, all servers are hosted at a telephone company, and data are replicated by other servers hosted at BIM’s headquarters. The Bank also has redundant links (double connections), an additional resource to ensure business continuity in the event of contingencies.

Throughout the year, BIM’s Compliance Agents remained alert to prevent and minimize likely losses due to flawed, defective or inadequate internal processes and systems, as well as inappropriate people or external events, pursuant to Resolution No. 3,380 of the National Monetary Council. In addition, BCP was also tested to ensure that operations would continue in cases of minimal or total contingency. Moreover, an innovative technology in Latin America, the VIP (Verisign Identity Protection) project, was introduced in 2009 to improve passwords to access the Bank’s computer network, which is significantly safer. Employees must now type, in addition to the usual network password, a random code shown in display cards or smartphones to access their computers. In 2010, the VIP technology will be extended to Internet Banking and Home Broker customers.

Credit Risk Managing this risk, connected to the possibility of customer insolvency, requires different assessment and control tools. BIM uses methods, systems and processes to rate each borrower and evaluate the structure of the guarantees involved in each operation in a thorough manner. Customer risk ratings, based on Resolution No. 2,682 of the National Monetary Council, are based on a mathematical model. The Credit Committee can only make them more restrictive. Customer economic and financial performance, as well as guarantees, is regularly monitored. Special systems track volumes, liquidity and potential shortages on a daily basis, in the case of guarantees in the form of receivables. These systems have been reviewed since 2009 to improve and accelerate the process of pricing, valuation and availability mainly of guarantees other than receivables so that they can be formally accepted of refused.

19 The approved credit lines are revised every six months. As a result, customer performance is continuously monitored, also by the Credit Committee. The international crisis affected the global economic activity and especially medium-sized companies. However, the Bank gained considerable knowledge from it, mainly in terms of credit analysis methods, stricter controls and formal details of operations. In 2010, a new credit risk calculation model will be introduced. It will be an additional tool to determine appropriate capital allocation, in compliance with the Basel II Capital Accord.

Liquidity Risk The Liquidity Risk results from mismatches in the cash flows of a financial institution, which, as a result, may not be able to settle its obligations with its cash and cash equivalents, albeit temporarily. To avoid this risk, BIM continuously monitors and analyzes its liquidity, in accordance with the established guidelines and adequate reserve requirement levels. This procedure is based on statistical, economic and financial projection models for the assets and liabilities that have an impact on cash flow and on both local and foreign currency reserves. The Bank adopts a conservative liquidity risk management policy and seeks to maintain a minimum cash reserve − monitored on a daily basis − corresponding to 20% of its total deposits. Throughout 2009, cash reserves remained over 50% of total deposits due to the turbulence in the economy. Our liquidity risk management practices improved considerably, which proved particularly important during the crisis.

Market Risk Market Risk is related to the possibility of losses due to fluctuations in economic and financial variables, such as interest, forex rates, and stock and commodity prices. The aspects connected to the market and liquidity are managed with the use of software, and risks are carefully monitored and assessed in compliance with the regulatory bodies’ rules and recommendations. The main model adopted by the Bank is the calculation of VaR (Value at Risk), 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. BIM also uses other tools, such as: 1) VaR Stress, which calculates the risk of potential losses under worst-case market scenarios; 2) Gap Analysis, a graphic representation by risk factor of cash flows shown in market values recorded on maturity dates, and used to determine risk exposure at a certain point in time; 3) Results Analysis, monitoring of the Bank’s results compared to a benchmark; and 4) Capital Allocation, to ensure that the Bank is able to withstand the impact of unexpected losses, which allows business continuity in adverse situations and serves as a basis to measure operation yields vis-a-vis risks. Our Market Risk monitoring system is able to perform calculations for Basel II, as well as the portion of currency exchange, interest, commodity and stock portfolios and the risk involved in them. At the close of 2009, the Bank’s overall VaR stood at R$1.06 million, as calculated by the parameter model, with a confidence interval of 95.0%.

“Out of confusion, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.” Albert Einstein

Seen by (photo) Lílian Rosa dos Santos, 17 years old and André Guilherme, 16 years old Viewed by (colored interference) Paula Gonzalez, 26 years old

ECONOMIC ENVIRONMENT Recovery in economic activity in 2010

Expectations for the economy in 2009 were impacted by the unfolding of the economic crisis that had been triggered in 2008. The year began with great uncertainty, which eventually made the economic downturn even more severe. Even though a recovery started in the last two quarters of 2009, economic activity did not return to the pre-crisis levels. Thus, Brazil’s Gross Domestic Product (GDP) fell by 0.2% in 2009, the sharpest drop since 1992, when it had decreased by 0.5%. That poor performance was mainly impacted by a 5.5% decline in industrial activity and of 5.2% in agriculture. That impact would have been even worse had it not been for higher public spending, which rose by 3.7%, and higher employment rates as of the second quarter of the year, which led to a 4.1% increase in family consumption.

It was a bad year for the economy; however, the Brazilian economy proved stronger and more resilient. On a quarterly basis, a downturn was observed in the first three quarters of 2009. In the fourth quarter, however, that trend reversed, in which economic activity rose by a surprising 4.3%. Those data heighten the expectation of a rebound in economic activity throughout 2010, mainly in the services and industry sectors, which increased by 4.6% and 4.0% respectively in the last quarter of 2009. On the other hand, agriculture has not yet recovered, and a 4.6% drop was recorded in the period.

Economic Indicators

GDP variation – measured by IBGE IPCA – inflation rate measured by IBGE Exchange Rate (US$/R$) Selic – interest basic rate

2008

2009

Change

5.1%

(0.2%)

(5.3) p.p.

5.90%

4.26%

(1.64) p.p.

33.1%

(25.3)

(58.4) p.p.

12.5%

9.9%

(2.6) p.p.

GDP Evolution â&#x20AC;&#x201C; Quarter on Quarter Percentage Change 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0%

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

Source: Brazilian Institute for Geography and Statistics (IBGE)

The 25.3% appreciation of the real over the US dollar made Brazilian exports less competitive, which, coupled with the credit crunch and the downturn in the major economies worldwide, affected the Brazilian trade balance. For the first time since 2002, the trade flow was lower in relation to the previous year. Nevertheless, the trade balance was positive by

US$ 24.6 billion at the close of 2009, 1.4% less than in 2008. According to the Ministry of Development, Industry and Foreign Trade, Brazilian exports totaled US$153.0 billion, down 22.7% year-over-year. That was the sharpest drop since those data started being recorded in 1950.

24 Although the appreciation of the real benefits imports, the decrease in economic activity and investments led to a drop in Brazilian imports which, in line with the trend observed in many countries, fell by 25.3% in relation to 2008 and totaled US$127.6 billion. Throughout the year, the Brazilian Federal Government introduced tax incentives and increased liquidity aimed at expanding credit supply and boosting consumption and production. The basic interest rate was repeatedly reduced and closed 2009 at 8.75%, the lowest historic level ever. White goods, construction materials and vehicles were granted an excise tax (IPI) exemption or reduction. Even though these measures had a positive effect on the economy as a whole, they focused on domestic consumption. With the unfavorable exchange rate, exporters and agricultural producers received no incentives to counteract the impact of the crisis.

As a result, companies manufacturing goods for exports, mainly agricultural and mineral commodities, experienced some of their most difficult challenges in the last few years. In addition to declining prices and an unfavorable exchange rate, the demand and credit supply fell, which severely affected the ability of companies in these two industries to settle their obligations.

CREDIT IN BRAZIL The demand for credit from individuals was distinct from that of corporations in Brazil in 2009. That is largely explained by the Brazilian Federal Governmentâ&#x20AC;&#x2122;s measures to boost consumption, such as tax incentives, which led to a stable demand for credit from individuals, mainly for mortgages and car financing.

Corporate Loans by Contract Amount . R$ billion Up to R$ 100,000 From R$ 100,000 to R$ 10 million Over R$ 10 million

608 582 591 552 567 539 517 508 508

770 788 737 748 757 726 686 696 693 694 699 697 696 706 639 665 46.2% 44.1%

402 339

Dec Dec Dec 05 06 07

Jan

Feb Mar Apr May Jun

Source: Central Bank of Brazil (BACEN)

Jul 08

39.6%

37.7%

16.3%

16.1%

Aug Sep Oct Nov Dec

Jan

Feb Mar Apr May Jun Jul 09

Aug Sep Oct Nov Dec

25 Lower industrial production led to a decrease in corporate credit, which fell by 4.4% in 2009, according to the Serasa Experian Indicator, which measures this type of demand in Brazil. That drop came to 6.7% in the first half of 2009 alone, since that was when the impact of the crisis was most strongly felt in Brazil. The same survey also shows that the sharpest drop was recorded in the industrial sector, with a 5.4% decline in relation to 2008. The negative effect of the appreciation of the real against the US dollar was particularly strong in the Brazilian regions where exports-oriented agribusiness accounts for a large share of economic activity. In the South Region, economic activity decreased by 6.9% in 2009 whereas it dropped by 4.8% in the Center-West Region. When corporation size is considered, the survey shows that demand for credit decreased by 4.5% among very small and small businesses and by 4.8% among mediumsized companies, BIM’s target market. On the other hand, demand for bank credit from large corporations rose by 5.2% in 2009. The Central Bank of Brazil (BACEN)’s data shows a similar situation. BACEN does not disclose credit volumes by borrower size, but only by single contract amounts. Large companies usually borrow higher amounts per contract and, in contrast, small businesses borrow lower volumes. As a consequence, contracts between R$100 thousand and R$10 million, which is the medium range disclosed by BACEN, are correlated to middle market operations. Thus, BACEN’s data are in line with those contained in the Serasa Experian report, showing that the demand for credit increased among large corporations and decreased among medium-sized companies.

The increased difficulty for large companies to raise funds abroad and in the stock market during economic crises explains such move. They, as a result, resort to Brazilian banks, mainly development banks, and have an edge over other companies due to their lower credit risk. Consequently, medium-sized companies were faced with a flagging demand, less liquid receivables and tighter credit standards; therefore, many of them had problems settling their obligations in 2009.

Delinquency/Default Middle-market companies have fewer funding options and depend on credit to finance their activities. They are, consequently, quite vulnerable to fluctuations in economic activity and credit crunches because their paying capacity is quickly affected during economic downturn periods, leading to higher default rates. BACEN’s data shows that corporate default rates leveled off in October and started falling, albeit slightly, as of November. The industries that recovered more quickly were trade, services and manufacturing of goods for the domestic market. Domestic consumption was mainly driven by stable wages, consumer credit supply and the anti-crisis measures introduced by the Brazilian Federal Government, which increased the share of state-run banks in the granting of credit, also in special terms, and created tax incentives for certain industries, mainly durable goods manufacturing.

â&#x20AC;&#x153;One must wish to move forward, but, to that end, he must view new horizons, remain true to his principles and be full of energy, confidence, daring and creativity.â&#x20AC;? Viviane Duarte

Seen by (photo) Erick Henrique Angelo, 16 years old and Felipe Trindade, 16 years old Viewed by (colored interference) Roberta Silva de Souza, 17 years old

markets Predominance of medium-sized companies in regions with greater economic activity

Banco Indusval Multistock focuses its activities on granting credit to medium-sized companies (middle market), mainly those which post annual sales chiefly between R$20 million and R$500 million, employ over 200 people on average, and require bank financing to fund their activities. About 60% of the Brazilian middle market companies are located in the Southeastern Region, 20% in the Southern Region and the remainder in the Northern, Northeastern and Mid-Western Regions. These companies typically resort to several banks for the funds that they need for their activities since they only have access to lower credit lines and shorter maturities than large corporations. Although comparatively less heavily leveraged than their counterparts in other countries, Brazilian medium-

sized companies depend on bank loans mainly to meet their cash flow requirements. As they have more pressing needs, middle market companies have a high demand for products such as working capital, discount of trade notes and receivables, as well as services for payment and receipts. A large number of these companies have been exporting part of their production over the last few years in view of the economic stability, falling interest rates and exports incentives. As a result, there has been a growing demand for foreign exchange products, especially for trade finance, among them.

Banco Indusval Multistock has a wide range of products and services especially designed for this market niche. It offers, in addition, products for larger companies that can also meet their growing businesses’ needs. Of the customers in its loan portfolio, 55.6% are in the manufacturing industry, 22.8% in the service segment, 11.6% in commerce and only 9.8% are individuals. 93.5% of BIM’s credit operations were oriented to the middle market in 2009, and 67.0% of its funds were allocated to loan operations and discounts of receivables. With an agile structure and prompt customer service provided by skilled professionals, the Bank is able to offer customized products and services adapted to each company’s particular features and catering to its specific needs. Consequently, BIM stands out for its efficient and quick credit approval process. The largest share of operations (39.0%) is currently geared to customers’ very short term needs (up to 90 days) and 73.8% of all contracts mature in no more than 360 days.

Business focus on medium-sized companies, which have specific needs and require credit products mainly geared to their business turnover

PRODUCTS AND SERVICES Closeness to customers brings a better understanding of their needs

Credit Operations

in local and foreign currency, also comprise the Bank’s credit risk exposure although to a lesser extent. Banco Indusval Multistock’s credit portfolio totaled approximately R$1.7 billion at the close of 2009, having remained stable throughout the year in spite of the deductions, write-offs and renegotiations carried out during that period. It consists of about 660 customers.

Credit Operations . in R$ million Guarantees and Letters of Credit Trade Finance Loans and Financing in Local Currency 1,793.7

CAGR 42.1%

1,698.7 1,329.0

691.0 417.0

2005

2006

2007

2008

2009

BIM’s credit portfolio includes mainly loans and financing in local currency − basically, financing for routine operational activities of medium-sized companies in the domestic market − and in foreign currency for trade finance. Guarantees or Letters of Credit, both

The Bank adopts conservative policies for credit granting and the risks posed by these operations. At year-end 2009, 86.5% of the credit portfolio was among the highest ratings (AA-C) and 83.0% of the operations involving medium-sized companies were supported by real guarantees. The global economic downturn and the severe credit crunch led to higher default rates, mainly among medium-sized companies. According to BACEN data, the corporate default rate started falling slightly only as of November and closed 2009 at 2.0 percentage points above that recorded at year-end 2008. The following chart shows the 60 and 90-day default rate curves for Banco Indusval Multistock’s credit portfolio versus the default rates estimated for small and medium-sized companies (SMEs) in loans overdue over 90 days. Those estimates were based on BACEN’s data for corporate default rates, weighted by the volume of credit granted to large companies and the historical default rates of small and medium-sized companies.

Delinquency Rate . % NPL 60 days – BIM NPL 90 days – BIM Delinquency Rate SME – 90 days

8% 7% 6% 5% 4% 3% 2% 1% 0%

Dec

2006

2007

Mar

Jun

Sep 2008

Dec

Mar

Jun

Sep

Dec

2009

Source: BIM

In compliance with its policy to revise all credit lines every 180 days, the Bank reviewed its whole customer base during the year and re-rated each customer’s risk in view of the new macroeconomic situation. That procedure had an impact on Allowance for Loan Losses and resulted in the creation of

supplementary provisions, in addition to those determined by the regulatory body. Provisions increased from R$70.3 million as at December 31, 2008 to R$133.4 million at the close of 2009, an 89.8% rise. That amount corresponds to 8.2% of the total credit portfolio, above the 4.1% recorded in the previous year.

32 Credit Portfolio Breakdown at the end of 2009 By Segment

Retail 2.1%

4.4% Other

93.5% Middle Market

By Economic Activity

Individuals 10% Services 22%

56% Industry

Commerce 12%

By Industry

2.8% Financial Services Oil Byproducts and Biofuels 2.8% Chemical and Pharmaceutical 3.0% Education 3.4% Textile and Leather 3.6% Individuals 3.8% Financial Institutions 4.4% Transport and Logistics 4.9%

By Region

Mid-West 13.1%

16.7% Other 20.8% Food, beverage and tobacco 13.9% Agribusiness 9.7% Civil Construction 5.1% Metallurgy 5.0% Automotive

2.6% North 2.9% Northeast 19.2% South

62.3% Southeast

33 Credit Portfolio Breakdown at the end of 2009 By Customer Concentration Other 26.8%

61to160 23.8%

By Type of Operation

18.9% 10 largest

30.6% 11to 60

5% Other Guarantees 4% Trade Finance 17% BNDES Onleding 7%

67% Loans and Discounts

By Maturity Over 360 days 26.1%

39.1% Up to 90 days

From 181 to 360 days 15% 19.8% From 91 to 180 days

By Collateral

Vehicles 2% Property 9% Monitored Pledge 12% Securities and Times Deposits 4%

By Risk Rating

17% Aval on Promissory Notes 6% Pledge

51% Receivables

D â&#x20AC;&#x201C; H 11% 30% A C 30% 29% B

34 Loans and Financing in Local Currency

Guarantees: the Bank rapidly grants Letters of Guarantee for its customers to support them in their operations.

As at December 31, 2009, loans and financing in local currency amounted to R$1.3 billion, equivalent to 82.1% of the credit portfolio, a 7.6% drop compared with the previous year. Considering the credit recovery process, which includes renegotiations, discounts and write-offs, the slight change in the portfolio reflects our teams’ effort, which generated enough operations to maintain volumes practically stable, mainly in the second half. The Credit Portfolio in local currency recorded a Compound Annual Growth Rate (CAGR) of about 43.6% between 2005 and 2009, with a sharp rise since 2007.

BNDES (Brazilian Social and Economic Development Bank) onlending financing lines: Finame – Financing for the production and sale of new equipment and machinery. BNDES Exim – Financing for the production and exports of goods and services, as well as for selling them abroad. Special Credit Program (PEC) – This working capital financing program was designed to boost companies’ competitiveness in the segments of manufacturing, trading and services, except those related to civil construction.

Main Products:

Other services: Checking Accounts, Collection and Internet Banking.

Working Capital: Loans – Loan Agreements, with funds available for use by corporate customers in their operational activities. Discount of receivables − Funds released quickly through discounts of trade notes, credit instruments and receivables. O verdraft accounts − Funds promptly made available through lines and contracts previously approved and signed. Compror – For inventory purchases. Credit to Production Chains: these credit operations are designed to benefit our customers’ production chains through agreements with large companies maintaining sustainable relationships with their suppliers and to offer funding support by confirming our customers’ receivables. Besides providing access to a type of credit on which these companies would individually be subject to volume and maturity restrictions, these operations offer great potential to develop prospective relationship with new small and medium-sized customers.

35 Foreign Trade Financing Operations

Funding for Foreign Trade Financing

BIM’s Trade Finance Portfolio, according to its accounting records in reais, amounted to R$293.3 million at the close of 2009 and recorded a CAGR of 43.5% p.a. between 2005 and 2009. The CAGR in US Dollar terms is 44.8%, with a US$174 million portfolio in 2009, which exceeded the amount of US$30 million at the close of 2005.

The Bank has partnerships with multilateral bodies and Correspondent Banks to expand its credit lines and loan portfolio. The first partnership, established with the International Finance Corporation (IFC) in 2006, has allowed the Bank to offer foreign trade finance to small and medium-sized companies within the Global Trade Finance Program (GTFP), and greatly benefited the relationship with correspondent banks.

Despite weak international markets, export financing accounted for the largest share of the Trade Finance portfolio in 2009 and accounted for 90% of overall operations. The Bank has a highly skilled, experienced team able to provide prompt and customized advisory services and monitor all international operations.

Main Products and Services: CC/ACE – Pre- (ACC) and Post-shipment (ACE) A Exports Financing. I mport Financing − These financing lines for raw materials, products and equipment purchased abroad allow access to alternatives, in terms of variety, quality and prices, to those found in the domestic market. I nternational Guarantees − In the form of Import or Stand-by Letters of Credit. Spot FX − Purchase and sale of different foreign currencies. I nternational Collection Operations − Both in imports and exports. F und remittance abroad − Investments or cash reserves for individuals and legal entities.

The Bank’s responsible and transparent operations with IFC led BIM to form a new partnership with the Interamerican Development Bank (IDB) in 2007, within the Trade Finance Facilitation Program (TFFP). Geared to Latin American and Caribbean companies, TFFP promotes their growth as a means to boost foreign trade. This partnership proved particularly important during the period of turbulence in international markets, when IFC and IDB maintained their credit lines. The Bank expanded its international relations and established partnerships with over 40 correspondent banks in Europe; Asia, and North, Central and South Americas, all crucial for foreign trade finance. Credit lines granted by international correspondent banks are currently the main funding source for BIM’s exports and imports financing portfolio.

Structured Operations The Bank has been developing structured operations since 2004, based on the combination of two factors. First, new market opportunities were identified. Besides, the Bank’s customer base included companies with high enough credit rating and the right profile to attract investors. Tapping into its market expertise, the Bank started structuring financing operations for medium-sized customers, both in local and foreign currency, thus allowing them to raise larger amounts of funds at lower rates.

36 Before the crisis worsened in late 2008, there was a steady demand for operations backed by corporate debts, an alternative that lost its appeal for investors when they began resorting to safer government bonds for capital protection. In view of the liquidity crunch late in the year, investors started showing interest mainly in assets backed by exports receivables. Although still incipient, this is a promising activity that can start growing in 2010, mainly among banks with BIM’s profile: structured, nimble and able to find good business opportunities.

Agribusiness Credit Rights Certificates (ACRC): securities issued to finance agribusiness. Issuers are exempt from the Tax on Financial Transactions (IOF). In view of that specific purpose, guarantees must be based on agribusiness receivables.

BIM’s branch on the Cayman Islands was opened in 2009. It will conduct the structured operations in foreign currency, thus providing a direct channel between the Bank and foreign investors. Another distinct feature that attracts prospective investors is that BIM takes a share of the risk involved in all its structured operations. This shows that it firmly believes that the business is safely structured. As it is responsible for structuring operations and controlling credit guarantees, BIM continuously monitors the liquidity of the guarantees and the economic and financial performance of the borrowers. It regularly produces and distributes monitoring reports to deal holders.

Export Credit Note (ECN): local currency funding instruments to finance exports. Issuers are IOF-exempt, but must prove that the export operation was duly performed.

The Bank is presently prepared to structure the following financial operations among others: Bank Credit Note (BCN): credit securities issued to a financial institution and easily traded on the secondary market. They can be backed by different types of guarantees, such as: pledge of goods, sale of property and assignment of receivables among others.

Export Prepayment Operations (EPO): foreign currency funding instruments for longer-term export financing, with more significant guarantees, including pledge of goods and export receivables among others.

BIM also structures operations in specific niches, such as advisory services for customers seeking strategic or financial investors for their companies through operations of shareholding nature; and debt instrument issues structured with receivables from the real estate industry (Real Estate Credit Note – RECN), which has been expanding significantly in Brazil.

An agile Bank structured to understand and meet the customers’ needs

37 Treasury and Funding Operations The Treasury’s main role is to control the Bank’s liquidity and execute its funding and fund allocation strategy, devised by the Cash Committee, which sets the guidelines for funding, performance and operating limits, always in compliance with the market risk and liquidity management policies. As a result, it is also responsible for mitigating the risks of mismatching interest rates, currencies and maturities. It also offers appropriate solutions to meet customers’ needs for hedging operations to protect against fluctuations in forex and interest rates, among other financial assets. In accordance with its liquidity management policy, the Bank maintains at least 20% of total deposits as free cash to ensure greater safety for itself and its investors. That percentage remained above 50% throughout 2009 and stood at about 55% at year-end, in line with BIM’s conservative policy and in view of the economic turbulence.

Loan Volume . in R$ million Foreign currency Local currency

1.793,2 1.600,0

1.040,1 690,5 404,3

2005

2006

2007

2008

2009

At the close of 2009, total funding recorded a 12.1% increase in comparison to the close of the previous year and amounted to R$1.8 billion, 79.0% of which in local currency. Funding in local currency corresponds mainly to Deposits, accounting for 71.0% of the Bank’s total funding. Worth of note are Time Deposits, involving the issue of Bank Certificates of Deposits (CDBs), which accounted for 37.1% of total funding as at December 31, 2009. On the same date, Time Deposits with Special Guarantee (DPGEs) comprised 28.2% of total funding. Introduced in April 2009 by the National Monetary Council, DPGEs were essential to maintain medium-sized banks’ liquidity since an increased risk perception among investors due the international crisis led to a “fly to quality” migration of funds, mainly to government bonds and larger financial groups. Since DPGEs are guaranteed by the Credit Guarantor Fund up to

Funding . in %

Foreign Currency Borrowings 21.1%

Interbank Deposits 2.8% Demand deposits 2.2%

8.0% Local Onlending 37.1% Time deposits 28.2% Time Deposits with Special Guarantee (DPGE) 0.6% Agribusiness Credit Bills

38 R$20 million, they allowed small and medium-sized banks to raise funds, especially from institutional investors, at a cost compatible with their operations, for terms of two, three or even five years, with pre-determined maturities. In addition to ensuring stable liquidity levels, this alternative allowed the Bank to extend funding maturities − as yet only possible in external funding − and better plan its cash liquidity due to the need to maintain financial investments until their final maturities. Foreign sources accounted for 21.0% of total funding in 2009. Trade Finance comprised 14.9% of this amount. The remaining 6.1% corresponds to the balance of the October 2008 syndicated loan, jointly with IFC (International Finance Corporation), and is allocated directly to financing working capital in local currency. The exposure of this loan to forex and interest rate fluctuations is covered through hedging operations. Another funding source that complements BIM’s product portfolio is onlending of BNDES funds to corporate customers. It accounted for 8% of total funding at the close of 2009.

Brokerage House In 2009, Banco Indusval Multistock started restructuring and modernizing its subsidiary, the brokerage firm Indusval S.A. Corretora de Títulos e Valores Mobiliários (Indusval Corretora), which operates in all markets of the Securities, Commodities and Futures Exchange (BM&FBOVESPA). The mark in this process was the strategic partnership established on June 1st, 2009 between BIM and Serendipity Holding Financeira Ltda., which now holds 48.84% of Indusval Corretora’s total capital stock. Serendipity is controlled by Luis Fernando Monteiro de Gouvêa, the majority shareholder of Comercial Asset Management, and by Alexandre Atherino, a former partner and, up to 2008, the Planning and Strategy Officer of Fator Corretora. The Bank’s goal with this partnership is to increase the profitability of Indusval Corretora’s activity in a sustainable manner in the long term, based on the new partner’s sound, business-oriented management. The ongoing restructuring process has already produced its first results, such as a wider range of products and services and a higher BM&FBOVESPA ranking. The Brokerage Firm ranked 52nd on BM&F’s general ranking at the close of 2008 and moved up to 44th at the close of 2009. The new strategic management is seeking to increase Indusval Corretora’s customer base among institutional and qualified individual investors, and target the small investor market. With that in mind, the Firm is hiring new teams with market expertise; in addition, it is introducing business management tools and operating platforms for trading in the Stock and Derivatives markets geared to institutional and qualified individual investors, as well as a new homebroker system, which will be accessed through the Brokerage House’s new website. The new site, still in the design phase, will offer resources that allow performing transactions through the Internet, and bring more information and tools to help users make investment decisions.

39 Based on the Bank’s tradition and the power of the Indusval brand, Indusval Corretora’s goal is to become a source of liquidity for institutional customers. In this regard, it introduced fixed income investments with government bonds, targeted mainly at Financial Institutions’ Treasuries, in 2009. This type of investment grew sharply due to higher risk aversion during the economic crisis, which shows the new strategic management’s remarkable skills and great sense of opportunity. By the end of 2010, the Brokerage Firm, with a reorganized and upgraded infrastructure, will be dealing mainly with: BM&F market products: focused on market intelligence, it will offer structured operations that add value to institutional clients and deal with large volumes in an agile and safe manner. BOVESPA market products: Strategic reports – Its strategic research team will produce reports, including an economic and flow overview, with analyses by the Brokerage Firm’s experts, to be sent to Indusval Corretora’s customers. Asset Management – Equity investment funds. Arbitrage operations – Applying the Firm’s expertise to seize opportunities for gains in the arbitrage between stock markets and the ADR market. Qualified investors – Operators and a self-service platform are available for both individual and institutional customers. I ndividuals – A structure is being developed to provide top-quality services for individual customers, dealing with lower volumes and operating by themselves through the homebroker. Information and courses specially designed for non-professional investors will be offered.

ixed Income Products – Indusval Corretora is prepared to F deal with large volumes of government bonds and was one of the largest intermediaries in transactions with National Treasury bonds pegged to inflation indices during the second half of 2009. Indusval Multistock Corretora de Valores’ competitive advantages include its experience and focus on business, unique customer service and, above all, prompt operations and strict risk controls, in accordance with the standards established by BM&FBOVESPA’s Operating Qualification Program (PQO). As a result, Indusval Corretora was awarded in early 2010 the Execution Broker Seal, which attests to its ability to operate promptly and efficiently with large volumes in the BM&F market. The challenges that the capital and derivatives market was faced with due to the economic crisis led to a drop in income from financial intermediation during the first months of the year, but Indusval Corretora’s restructuring and upgrading process resulted in an increase in business that reversed this situation. At the close of 2009, the Brokerage House’s operations brought in income from financial intermediation of R$9.4 million and income from services fees of R$11.8 million. Excluding the investments and expenses to conduct Indusval Corretora’s operations and including the income from the sale of financial assets (BM&FBOVESPA’s shares), those amounts would have produced net income of R$5.3 million in 2009. Total volumes traded on the stock exchange amounted to R$4.3 billion in BOVESPA shares and derivatives and to R$47.8 billion involving 686,000 derivative and commodity contracts on BM&F. Information about Indusval Corretora can be found on its website: www.indusvaltrade.com.br.

â&#x20AC;&#x153;Once in a while you have to take a break and visit yourself.â&#x20AC;? Audrey Giorgi

Seen by (photo) Jeniffer Soares Paes, 15 years old and Felipe Trindade, 16 years old Viewed by (colored interference) Rodrigo de Souza, 24 years old

ECONOMIC AND FINANCIAL PERFORMANCE Results in line with the situation and aiming at business perpetuity

2009 was a challenging year in terms of strategic management, and the 2009 results, even though below expected levels, are compatible with the difficult situation for the banking industry. Credit supply was limited due to decreased economic activity. In view of greater uncertainty arising from the adverse situation and higher delinquency/default levels, the Bank stuck to its traditional conservative policy and focused on the perpetuity of its activities to the detriment of short-term results. Consequently, BIM increased provisions, made credit analysis more stringent, tightened credit standards and reviewed its guarantee system. Like an athlete who steps back to gather way before jumping, the Bank focused on internal controls, risk mitigation and investments in infrastructure throughout the year. The Bank emerging from this period of turbulence is stronger and better prepared to seize market opportunities, based on the principles of ethics, responsibility and safety which have always served as guidelines for its business.

As a result of the dramatic change in the economic environment, the appreciation of the real and higher risk aversion, all described in the economic situation section, the credit portfolio remained stable at approximately R$1.7 billion throughout 2009.

Income from Financial Intermediation Income from Financial Intermediation fell from R$641.0 million in 2008 to R$407.5 million in 2009, as a result of the different economic situation in each year. Medium-sized companies are the most vulnerable to an economic downturn and a credit crunch, which affects their ability to settle their obligations and increases the default risk. These conditions had a negative impact on BIMâ&#x20AC;&#x2122;s income from financial intermediation in 2009, mainly because operations overdue over 60 days yield no additional income and the operations renegotiated with customers that the Bank believes are able to recover following increased economic activities present lower spreads.

Income from Financial Intermediation . R$ million

Credit Operations Exchange/Trade Finance Securities Derivative Financial Instruments Result Total

2005

2006

2007

2008

2009

Change 2008 / 2009

94.3

110.7

181.2

350.2

264.4

-24.5%

9.0

33.1

166.9

41.7

-75.0%

52.2

52.1

74.6

108.2

101.4

-6.2%

(4.0)

(3.2)

15.7

0.0

-100.0%

151.5

184.6

288.9

641.0

407.5

-36.4%

Income from Credit Operations

Income from Foreign Exchange Operations

Credit operations in local currency are BIMâ&#x20AC;&#x2122;s main line of business. In 2009, income from credit operations fell by 24.5% in relation to 2008 and totaled R$264.4 million.

The sources of that income are mainly export operations and spot FX contracts, both impacted by decreased competitiveness of Brazilian exports due to the appreciation of the real, besides the drop in global demand owing to the recessive situation. The trade balance data in the economic environment section confirms that performance. The income from foreign exchange operations in 2008 reflects the positive situation up to September and a 33% exchange variation. In contrast, forex rates depreciated by 25.3% in 2009 and had an impact on financial intermediation income and expenses. As a result, BIMâ&#x20AC;&#x2122;s Income from Foreign Exchange Operations was directly affected and fell from R$166.9 million in 2008 to R$41.7 million in 2009.

The average monthly balance of credit operations in reais stood at R$1.4 billion over the last two years, despite the distinct situations in terms of interest rates, spreads and delinquency/ default rates, as described above. In addition, the repurchase of assigned receivables led to a reversal of income totaling about R$3.5 million in 2009.

44 A slight recovery was observed in late 2009, with new advances on foreign exchange contracts (ACC) which have not yet impacted income.

Income from Operations with Marketable Securities Income from Operations with Marketable Securities came to R$101.4 million in 2009, a 6.2% drop in relation to the R$108.2 million recorded in 2008. The slight decrease was due to the basic interest rate (SELIC) since the average investment balance remained virtually stable: R$989.2 million in 2008 versus R$1.0 billion in 2009. The balance of those investments was reduced in the last quarter of 2008 owing to the liquidity crunch and in order to decrease risk exposure. Liquidity levels started recovering gradually in the second quarter of 2009. With funding from DPGEs, the Bank began operating with excess funds from June 2009, onward and increased its average balance of investments in federal government securities and in the open market.

Besides the economic and financial situation, the impact of the forex variation on income and expenses from financial intermediation must be considered in the comparison between 2008 and 2009

Expenses on Financial Intermediation Financial Intermediation Expenses dropped by 29.0% in 2009 to R$313.2 million. Nonetheless, total expenses corresponded to 76.8% of the Income from Financial Intermediation in 2009, versus 68.6% in 2008. Higher Expenses in percentage terms were due to both lower income from financial intermediation, as described above, and to the larger share of open market funding costs, allowances for loan losses and expenses on derivative financial instruments. Market funding costs accounted for 45.5% of total financial intermediation expenses, whereas expenses on allowances for loan losses accounted for 35.5% due to higher delinquency/default rates. Expenses on derivative financial instruments corresponded to 11.6% of expenses on financial intermediation, and loans, assignments and onlending to 7.3%. It is worth noting that the foreign exchange variation had different impacts on the 2008 and on the 2009 figures.

Expenses on Money Market Funding Operations Those expenses are connected to time deposits, repurchase operations and interbank deposits. Even though they fell by 26.0% in comparison to the previous year, their share of total Expenses on Intermediation declined from 45.9% to 45.5%, as mentioned above, year-over-year. This change was due to the higher average balance of funding for the credit portfolio and the increase in liquid temporary cash investments in the periods under comparison.

45 Financial Intermediation Expenses . R$ million 2005

2006

2007

2008

2009

Change 2008 / 2009

Money Market Funding Loans, Assigments and Onlending Derivative Financial Instruments Result Allowance for Loan Losses

76.3

82.9

115.9

202.2

142.6

-26.0%

7.4

19.4

23.3

185.5

23.0

-87.6%

4.0

3.2

2.8

36.3

10.1

13.1

17.7

53.2

111.3

109.2%

Total

97.8

118.6

159.7

440.9

313.2

-29.0%

Expenses on Loans, Assignments and Onlending

Expenses on Allowance for Loan Losses

The sharp drop in expenses on Loans, Assignments and Onlending in relation to 2008 was mainly observed in the loans in foreign currency account (IFC A/B Loan and trade finance lines) due to the appreciation of the real throughout 2009 (25.3%). Worth of note is that the foreign exchange variation had the opposite effect on both the lower income from foreign exchange operations, as shown above, and the Result from Derivative Financial Instruments since, among others, the risks of interest and exchange rate variations in the IFC loans are covered by hedging operations.

Higher delinquency/default rates throughout 2009, coupled with a situation that led to a drop in production and sales in general, considerably affected allowances for loan losses. Such expenses were increased by 109.2% in 2009 to R$111.3 million from R$53.2 million in 2008.

Result From Derivative Financial Instruments Those instruments are used for protection against currency, index and arbitration mismatches, with a balancing item in the commercial portfolio, funding or to meet a specific demand for a product. The result from Derivative Financial Instruments was a net expense of R$36.3 million in 2009 versus a net income of R$15.7 million in 2008, basically due to forex rate hedging operations.

Lower delinquency/default rates from November 2009 onward and the recovery/renegotiation of some loans made it possible to reduce provisions in the last quarter of the year. However, BIM decided to make supplementary provisions once more â&#x2C6;&#x2019; despite a decrease in nonperforming loans â&#x2C6;&#x2019; since there may be further turbulence along the recovery process.

46 Gross Result from Financial Intermediation

Operating Income (Expenses)

The Gross Result from Financial Intermediation totaled R$94.3 million in 2009, a 53.1% fall in relation to 2008. The Net Interest Margin (NIM) stood at 7.9%, a 1.7 percentage point decrease versus the 9.6% recorded in 2008. That drop is explained by both lower income from credit and trade finance operations and higher expenses on allowances for loan losses. The maintenance of higher cash reserves also impacted this Result although to a lesser extent.

R$ million

2006

57.7

Income from Services Rendered and Bank Fees – this income fell by 50.2% year-over-year due to a lower volume of collection operations. Besides, the Bank has been consolidating just 51.1% of the income from brokerage operations on the stock market since the sale of 48.9% of the Brokerage House’s capital on June 1st, 2009. That income will rise again as the brokerage firm’s business increases with the new investments and products.

69.2

2007

ther Administrative Expenses – these totaled R$41.9 O million in the year, a 2.4% rise in relation to 2008, when they totaled R$40.9 million. These expenses correspond to third-party services, specialized technical services connected to legal matters, auditing, consulting, financial system services, IT system acquisition, utilities and costs related to everyday

129.2

2008 2009

The main changes were observed in:

ersonnel Expenses – these include Remuneration, Benefits, P Social Charges and Employee and Intern Training and totaled R$51.2 million in 2009, 10.3% less than the R$57.1 million recorded in 2008. The number of employees in the three operational companies changed slightly and stood at 333 employees at the close of 2009, versus 329 in December 2008.

Gross Result from Financial Intermediation . 2005

Net Operating Expenses totaled R$93.2 million, a 4.5% rise in comparison to the R$89.2 million recorded in 2008.

200.1 94.3

Operating Income (Expenses) . R$ million

Income from Services and Tariffs Personnel Expenses Other Administrative Expenses Tax Expenses Other Operating Income (Expenses) Total

2005

2006

2007

2008

2009

Change 2008 / 2009

9.3

11.6

18.9

24.4

12.2

(50.2%)

(25.0)

(27.3)

(40.6)

(57.1)

(51.2)

(10.3%)

(16.5)

(18.9)

(41.0)

(40.9)

(41.9)

2.4%

(4.6)

(5.7)

(9.9)

(15.3)

(11.2)

(27.0%)

2.1

1.6

4.3

(0.3)

(1.1)

266.7%

(34.7)

(38.7)

(68.3)

(89.2)

(93.2)

4.5%

47 Efficiency Ratio . R$ million

Personnel Expenses Contributions and Profit Sharing Other Administrative Expenses Tax Expenses Other Operating Expenses A – Total Operating Expenses Gross Income from Financial Intermediation (not incl. Allowance for Loan Losses) Income from Services and Tariffs Other Operating Income B – Total Operating Income Efficiency Ratio (A/B)

activities, such as rents and supplies, among others. Despite the adverse situation, the Bank invested more in IT and infrastructure to increase internal controls and traffic capacity, in line with the strategy to improve the structure and prepare for renewed growth following the economic upturn. ax Expenses – mainly PIS and COFINS, which fell by T 27.0% year-over-year to 2008 and totaled R$11.2 million, as a result of the decline in the Bank’s operations.

Efficiency Ratio In spite of strict control over Operating Expenses, which fell by 10.3% in 2009 in consolidated terms, the Efficiency Ratio reflects the drop in the Gross Result from Financial Intermediation and Income from Fees and Services, discussed above.

2005

2006

2007

2008

2009

25.0

27.3

40.6

57.1

51.2

0.9

14.2

14.4

5.7

16.5

18.9

41.0

40.9

41.9

4.6

5.7

9.9

15.3

11.2

1.1

2.1

4.1

2.7

7.0

47.2

54.9

109.8

130.5

117.0

67.8 9.3 3.2

82.3 11.6 3.7

147.0 18.9 8.4

253.4 24.4 2.4

205.6 12.2 5.9

80.3

97.6

174.3

280.2

223.7

58.8%

56.3%

63.0%

46.6%

52.3%

Non-operating income (expenses) The R$8.0 million non-operating income in 2009 basically corresponds to the sale of BM&FBOVESPA and CETIP shares remaining from the IPO of these companies. The sale of those shares, net of tax, contributed R$4.5 million to 2009 earnings.

Income Tax and Social Contribution The 136.7% drop in income tax and social contribution results from the decrease in results in 2009 and the increase in the deferred tax asset related to the allowances for loan losses, whose balance rose by 89.8% due to higher default rates that resulted from the deteriorating corporate economic and financial situation stemming from the global crisis.

48 Contributions and Profit Sharing

Cash Flow Statement

Contributions and profit sharing are an integral part of Banco Indusval S.A.’s collective labor agreement, approved by the Banking Employees’ Union. They include variable remuneration for which the whole staff and officers are eligible within the Profit Sharing Program. The amounts paid and provisioned in 2009 benefited the Bank’s employees basically and amounted to R$5.7 million, 60.4% less than in 2008, R$14.4 million, whereas officers only received stock options in February 2010.

Banco Indusval S.A. and the group companies, pursuant to Law No. 11,638/07 and BACEN’s Resolution No. 3,604/08, prepare their Cash Flow Statements in compliance with Technical Note CPC No. 03. The Cash Flow Statement can be found on page 78 of this Report.

Net Profit

Banco Indusval Multistock’s operations in 2009 generated a net value added of R$72.5 million to the Brazilian economy. This amount added to the R$14.2 million portion of retained earnings distributed in the period came to R$86.7 million broken down as follows: 56.4% for employees to maintain their financial ability and motivation to do their challenging job, especially in a difficult situation; 31.1% for shareholders, paid in the form of interest on equity, in advance of the mandatory minimum dividend in the year; 11.1% for taxes and contributions for the federal, state and local governments; and the remaining 1.4% for third parties.

In 2009, BIM’s net profit totaled R$12.8 million versus R$72.7 million in 2008, which represents an 82.4% decrease. This drop resulted from the macroeconomic conditions throughout 2009, which led to higher delinquency/default rates with a negative impact on both income from credit operations and expenses on allowances for loan losses. Additionally, the Bank decided to maintain higher liquidity levels in spite of the costs of this strategy, in addition to coping with a lower volume of other operating income with the sale of 48.9% of the Brokerage House’s capital stock.

Value Added Statement

49 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. Standard & Poor’s – the Brazil national scale and global scale long and short-term ratings, brBBB+/br-A-3 and B+/B respectively, were reaffirmed in October, and the outlook was changed to positive owing to high liquidity and market capitalization and the expectation of renewed economic growth.

Fitch Ratings – the national short and long-term ratings, respectively ‘BBB+(bra)’ and ‘F2(bra)’, assigned in October 2007, were reaffirmed in November 2009. Fitch also maintained the stable outlook in spite of the change in the economic situation. Riskbank – maintained the ‘low short-term risk’ rating in January 2010, based on the stability of BIM’s indicators and middle market expertise.

Ratings Agency

Rating

Observations

Latest Report

B+ / Stable / B B+ / Stable / B brBBB+/ Stable /brA-3

Foreign Currency Local Currency Brazil National Scale

October/2009

BBB+/ Stable / F2

Brazil National Scale

November/2009

10.43 Ranking: 43

Riskbank Index September/2009

January/2010

“The people and circumstances around me do not make me what I am, they reveal who I am.” Dr. Laura Schlessinger

Seen by (photo) Sergia Ferreira de Moraes, 17 years old and Fabricio Silva Brito, 16 years old Viewed by (colored interference) Thaís Cristina Bispo de Lima, 17 years old

CAPITAL MARKETS A commitment to the highest Governance standards and respect for shareholders

Since 2007, Banco Indusval Multistock’s shares have been traded on BM&FBOVESPA under the ticker symbols IDVL3 (common shares) and IDVL4 (preferred shares). The Bank’s shares are listed on Level 1 of Special Corporate Governance practices, a special BM&FBOVESPA segment. BIM voluntarily adhered to additional practices required from companies listed on the Novo Mercado segment, such as: (i) a minimum of 25% of outstanding shares; (ii) a minimum of 20% of independent members on the Board of Directors; (iii) 100% tag along; and (iv) adoption of the Market Arbitration Chamber.

Capital Breakdown Banco Indusval Multistock’s Capital Stock consisted of 42,475,101 shares as at December 31, 2009, 27,000,000 of which were common shares (IDVL3) and 15,475,101 preferred shares (IDVL4). At the close of the year, outstanding shares, not including shares belonging to controllers and other management members, and treasury shares, totaled 21.1 million, or 49.8% of the Company’s total capital stock.

Capital Stock Breakdown Number of Shares

Common Preferred Total

Issued

Total

Control Group and Management

% Class

27,000,000

63.6%

19,690,542

72.9%

15,475,101

36.4%

1,211,717

7.8%

427,000

42,475,101

100%

20,902,259

49.2%

427,000

1.0%

Treasury

*These common shares belong to the members of the families not included in the Shareholders’ Agreement.

% Class

Outstanding

% Class

7,309,458*

27.1%

2.8%

13,836,384

89.4%

21,145,842

50.5%

7.3 million of those outstanding shares are common shares belonging to members of MasagĂŁo Ribeiro and Ciampolini families, not participating in the controlling group. If the common shares belonging to familiesâ&#x20AC;&#x2122; members not in the controlling group are deducted, the number of shares routinely traded on BM&FBOVESPA was 13.8 million, which corresponds to 32.6% of the total capital and 89.4% of preferred shares.

Treasury Shares and Cancellation of Shares The Board of Directors approved on September 17, 2009 the cancellation of the 2nd Share Buyback Program, which started on October 3, 2008 and in which 362,900 preferred shares were acquired. On the same date, the Board approved the cancellation of 524,900 preferred shares held in Treasury acquired during the 1st and 2nd programs, and the implementation

of the 3rd buyback program. This program will be effective until September 16, 2010 and involves the acquisition of up to 1,458,925 shares. As a result, treasury shares totaled 427,000 as at December 31, 2009.

54 Stock Options Plan The March 26, 2008 Special Shareholders’ Meeting approved the Stock Options Plan for executives of Banco Indusval S.A. and its controlled companies in order to show recognition for their services while fostering motivation and commitment in the long term. The distribution of call options is made each semester based on the Bank’s consolidated results and on the individual performance of these executives. No call options related to the first half of 2009 results were distributed to Banco Indusval Multistock’s executives. Consequently, the 3rd Stock Options Plan corresponds to the results achieved in the whole of the fiscal of year 2009. In addition to the Officers of the Executive Board, it will benefit the Superintendents from Administrative areas. It is worth noting that the Executive Board received no bonuses in the form of cash for the 2009 results.

Stock Options Program

1st 2nd 3nd

Granting date

Grace period1

Expiration date

Strike price – R$

# Options Granted

# Not Exercised

1st semester 2008 2nd semester 2008

07.22.2008

Three years

Five years

10.07

161,869

02.10.2009

Three years

Five years

5.06

229,067

20092

02.22.2010

Three years

Five years

8.56

525,585

Period

he grantee may exercise 1/3 of his/her options as of the date of each option granting anniversary and may exercise 100% between the third and fifth year T after the option granting date. 2 The 3rd Stock Options Program corresponds to the whole of 2009 and includes, in addition to officers, superintendents, who did not use to be eligible in previous programs. 1

55 Stock Performance In 2009, the stock market in Brazil − and in most of the world − showed the first signs of recovery from the 2008 losses. BIM’s shares followed that trend and appreciated by 107.8% in 2009, versus an 82.7% rise in Ibovespa. The average daily trading volume came to R$605,900 versus R$416,300 in 2008, totaling R$152.4 million in the year, versus R$87.0 million in 2008. There were 15,645 transactions involving 20.2 million shares in 2009, with a daily average of 60 transactions and 81,300 shares.

Value added for shareholders: shares appreciated by 107.8% in 2009, surpassing Ibovespa, plus a 7.7% dividend yield

Share Performance . (Basis 100 = 12/31/2008) Volume R$ IDVL4 Ibovespa

9,000.00 8,000.00

250.00

7,000.00

200.00

6,000.00 5,000.00

150.00

4,000.00

100.00

3,000.00 2,000.00

50.00

1,000.00

Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09

Jul-09

Aug-09 Sep-09 Oct-09 Nov-09 Dec-09

Average Trading Volume (R$)

Share Price Evolution (basis 100)

300.00

56 Closing price 12/30/2008 price 12/30/2009 price Change in the period Highest price Lowest price

IDVL4

Ibovespa (points)

R$3.99

37,550

R$8.29

68,588

107.8%

82.7%

R$9.67

69,349

R$3.99

36,624

Shareholding Base The breakdown of BIMâ&#x20AC;&#x2122;s shares as at December 31, 2009 was as follows:

Shareholder Position, 12/31/2009 Common

Preferred

TOTAL

17,116,173

63.39%

1,052,147

6.80%

18,168,320

42.77%

2,574,369

9.53%

159,570

1.03%

2,733,939

6.44%

2,320,609

8.59%

135,892

0.88%

2,456,501

5.78%

253,760

0.94%

23,678

0.15%

277,438

0.65%

7,309,458

27.07%

747,131

4.83%

8,056,589

18.97%

0.00%

10,536,364

68.09%

10,536,364

68.09%

Brazilian

0.00%

5,985,639

38.68%

5,985,639

14.09%

Foreign

0.00%

4,550,725

29.41%

4,550,725

10.71%

Legal Entities

0.00%

115,509

0.75%

115,509

0.27%

Individuals

0.00%

2,437,380

15.75%

2,437,380

5.74%

Treasury

0.00%

427,000

2.76%

427,000

1.01%

27,000,000

100.00%

15,475,101

100.00%

42,475,101

100.00%

Type of Shareholder

4 10 5 5 12 70 56 14 16 971 0 1.083

Controlling Group Management

Board of Directors Executive Board Families Institutional Investors

TOTAL

57 Shareholder Remuneration

Investor Relations

Pursuant to current legislation, Banco Indusval S.A.’s Bylaws entails a minimum distribution of 25% of the adjusted net income each year. Nevertheless, the Bank pays Interest on Equity in advance at each quarter-end.

The Investor Relations team acts in the effective execution of the information disclosure transparency policy, a major commitment of the Bank’s management. Its main duty is to ensure an effective and quick communication process with shareholders and capital market professionals by releasing data and information about the Bank’s business performance and disclosing its main strategic guidelines.

In 2009, BIM paid to its shareholders a gross amount of R$27.0 million, or R$23.0 million net of Income Tax, which corresponded to a 7.7% dividend yield. Earnings per share stood at R$0.64234, or R$0.54599 net of Income Tax.

Interest on Equity Paid . R$ 000’s

In the Investor Relations area on Banco Indusval Multistock’s website (www.indusval.com.br/ir), investors and market participants in general can find up-to-date information conveniently accessible to all the Bank’s stakeholders. This is an important tool that complements the wide dissemination of information to the public through CVM, BM&FBOVESPA, newspapers and email messages, among others.

1Q 2Q 3Q 4Q 25,470

27,008

15,858 11,446

10,167

7,181

2004

2005

2006

2007

2008

2009

Besides facing great challenges due to the adverse economic situation, Banco Indusval Multistock’s Investor Relations professionals started providing services to a larger number of individuals in 2009, due to the diversification of the Bank’s shareholding base. The BIM Investor Relations professionals assisted over 100 Brazilian and foreign analysts and managers at private meetings, and attended public meetings and Brazilian and foreign events at which they presented the Bank and its performance to about 190 analysts and investors in 2009. Shareholders and security analysts were also assisted by phone and email.

“Management means to substitute muscle by thought, folkways and superstition by knowledge, and force by cooperation.” Peter Drucker

Seen by (photo) Rafael Ambrósio, 20 years old and Lilian Rosa dos Santos, 17 years old Viewed by (colored interference) Karoline de Oliveira, 15 years old

PEOPLE MANAGEMENT Commitment and competence reflected in its main asset

Banco Indusval Multistock believes that its people give it a competitive edge and all its achievements are directly connected to the commitment, dedication and competence of its team. Therefore, the Bank maintains with its staff a relationship based on respect for differences and individual features, transparent initiatives, ethics and fairness as a matter of principle. It is, in addition, fully aware of the need to value its professionals and invest in them in return for their effort. In its people management policy, BIM seeks to offer all its employees opportunities for personal and professional growth, and promote a better quality of life. To that end, all activities have been mapped, work flows have been reorganized and people have been trained as part of a far-reaching project. Improved people management was crucial to consolidate an internal culture and keep the team united, even at times of economic turbulence, such as late 2008 and 2009, which require everyone’s effort.

All these initiatives allowed for the Bank to have a lean, agile and highly-skilled team now, in line with its strategic goals and focusing on excellent customer service. At the close of 2009, the Indusval Multistock companies had 333 employees distributed among Indusval Multistock Corretora de Valores, the Bank’s headquarters and the ten branches in Brazil. Indusval Multistock Employees’ Profile Creating a harmonious and pleasant work environment is an integral part of BIM’s culture. The Bank encourages team work, commitment, flexibility and cooperation in its relationship with employees and seeks to promote a sense of initiative, integration and respect for the fellow people.

By Educational Background

Grade School Certificate High School Certificate College Degree MBA or Graduate Studies 2%

44%

46%

28%

29%

27%

21%

2005

2006

59%

60%

26%

30%

31%

2007

2008

2009

By Age

By Time with the Company

Up to 25 years From 26 to 35 years From 36 to 45 years From 46 to 55 years Over 55 years

Up to 1 year From 1 to 5 years From 5 to 10 years From 10 to 20 years Over 20 years

10%

26%

27%

26%

22%

25%

21%

20%

25%

27%

26%

28%

17%

19%

15%

20%

19%

2005

2006

2007

2008

2009

By Gender

1% 15%

22%

13%

16%

30%

1% 11% 10%

52%

40% 2006

1% 11% 10%

25%

32%

2005

1% 14% 10%

52% 2007

56%

26% 2008

24% 2009

By Area of Activity

Female Male

Business Support and Control

79%

74%

66%

69%

67%

62%

51%

54%

50%

51%

21%

26%

34%

31%

33%

38%

49%

46%

50%

49%

2005

2006

2007

2008

2009

2005

2006

2007

2008

2009

62 Training BIM has an incentive and education policy that offers its employees real opportunities for professional growth, especially through training programs. In 2009, training programs focusing on skills building and staff integration were geared mainly to internal employees, both to reduce costs and to minimize the impact of employeesâ&#x20AC;&#x2122; being away from their routine activities. As a result, the total investment fell to R$284,200. Investments in undergraduate and graduate courses amounted to R$123,100 and rose by 12.3% in the same period. Investments in language courses remained flat at R$76,000. Professional training, integration for new employees and trainee and internship programs tapped more deeply into internal resources and expertise, since there was a sharp decrease in short duration courses. In 2009, these training and integration courses totaled 1,402 training hours attended by 1,580 employees, corresponding to a total of 12,514 training hours coordinated by the Human Resources Department throughout the year.

BIM promotes continued education for its employees through its Education and Development policies, which cover up to 50% of monthly tuitions for undergraduate, graduate and MBA programs and up to 80% of language courses. Employees with good professional performance are eligible to take courses related to their professional activities. 97 employees, 51% of whom enrolled in undergraduate and graduate courses and 49% in language courses, were benefited in the year. In line with its policy to provide opportunities for low-income young people wanting to enter the job market, the Indusval Multistock companies continued their Apprentice Program, introduced in 2008 with a group of six. Three of the apprentices were hired for the administrative area through an outsourcing company after the two-year program was concluded at the end of the year. In 2010, the Bank selected another five young apprentices to start its two-year training program. The Bank also offered its Internship Program in 2009. It now has 14 college students from different fields. Within the second Trainee Program started in August 2008, eight recent college graduates started developing projects in their specific fields in January 2009, after six months of job rotation training in different Bank areas. At the end of the year, these professionals were evaluated and hired in the Bankâ&#x20AC;&#x2122;s and in the Brokerage Firmâ&#x20AC;&#x2122;s administrative and commercial areas.

63 BIM hired four hearing-impaired and physically-disabled people in 2009, within the Professional Training for People with Disabilities Program, a partnership with the Brazilian Federation of Banks (FEBRABAN). This Program is designed to promote the inclusion of these professionals in the banking industry by offering them specific education for this market. After being hired, these employees attend external training for up to six months, with special courses to enable them to perform different duties in financial institutions. As a result, the Bank gives opportunities for people with disabilities and trains them, in addition to fulfilling the quota of employees with disabilities required by law.

BIM recognizes its employeesâ&#x20AC;&#x2122; commitment and competence by offering them opportunities for personal and professional development, investing in training and having a competitive remuneration and benefit plan

Remuneration and Benefits Both BIM and Indusval Multistock Corretora de Valores have a Career and Remuneration Plan determining that employees receive a fixed salary, compatible with the market, and a variable portion corresponding to the Profit Sharing Program. Profit sharing, based on the companiesâ&#x20AC;&#x2122; results and each employeeâ&#x20AC;&#x2122;s team and individual performance, is paid on a semi-annual basis. All employees have qualitative and quantitative targets for their performance. They are assessed individually and in teams every six months, with the use of widely recognized processes and tools. In addition, these assessments allow identifying and recognizing talents, finding competency development needs and priorities for education and training investments, and developing incentive projects for underperforming employees. The Bank offers several high-quality benefits to attract and retain its employees, including health and dental plan, discounts for medicine purchase, education assistance and credit lines at lower interest rates. In 2008, BIM also introduced the Private Pension Fund for all employees. The Bank provides 50% of the basic monthly payments.

INTANGIBLE ASSETS Experience and knowledge under a powerful brand

Banco Indusval Multistock has amassed assets in over four decades of operations in the financial market, which cannot be easily measured in financial or economic terms. Expertise in the market and its peculiarities, respect among its peers, regulatory bodies and society, and the experience of its professionals are important assets for the sustainability of BIM’s business. Almost all intangible assets are directly connected to the brand, people and their experience, knowledge, commitment, corporate responsibility, sense of ethics and competence. BIM’s human resources became its most valuable intangible asset as a result of the Bank’s horizontal management policy, based on open communication, respect and transparent relationships in all hierarchical levels, in addition to the opportunities for growth offered to top-performing professionals.

The Bank is fully aware of the importance of its employee’s skills and self-fulfillment. Consequently, it has been focusing its efforts on consolidating a modern remuneration and benefit policy and investing in continued education and training, as means to motivate and prepare these professionals for the excellence in service rendering. To that end, BIM has a highly skilled team, with vast knowledge of the Bank, the financial market and its customers’ demands, in addition to the senior management executives’ expertise. BIM’s great knowledge of its market niche also gives it a competitive edge. Its strategy to be always close to its customers so that it can offer customized solutions, monitor these companies’ performances and provide top-quality credit services has allowed it to acquire vast know-how and, therefore, become a valuable asset.

Banco Indusval Multistock has added technological know-how to its assets with the recent investments in infrastructure, despite the challenges posed by the global economic crisis over the last two years. In order to offer a safe, reliable environment especially designed for its business model, new methods and process have been developed and also become intangible assets. Likewise, the need to increase funding sources led the Bank to establish international partnerships. BIMâ&#x20AC;&#x2122;s responsibility toward all its commitments, coupled with its ethical and transparent attitude in business, earned the Bank great recognition and helped it consolidate its relationship with major institutions in the international market, such as correspondent banks based abroad, IFC and IDB. This is undeniably another intangible asset for the Bank.

SUSTAINABILITY Commitment to improvement in each of the pillars of sustainability

Banco Indusval Multistock believes that, before any external action, sustainability must be incorporated into the Bankâ&#x20AC;&#x2122;s own principles and guidelines, which should include prioritizing seriousness, ethics, transparency, responsible business practices and respect for all stakeholders. This belief in 2009 contributed to BIMâ&#x20AC;&#x2122;s being ranked the 4th Most Sustainable Medium-Sized Bank in Latin America and the second in Brazil, in an independent study by Management and Excellence (M&E), a Spanish consulting firm that is the leader in sustainability studies and ratings. These studies are based on assessments of items such as ethics, social and environmental responsibility, corporate governance and financial performance. The 2009 edition included new criteria emphasizing transparent disclosure of information.

Playing an active role in economic development, the Bank seeks to be fair, balanced and consistent with its values when granting credit so that it can share growth opportunities and constantly increase its contribution to each of the pillars of sustainability:

Of Business The main point of BIMâ&#x20AC;&#x2122;s Social/Environmental Responsibility Policy is its commitment to ethical business practices and sustainable development, in addition to encouraging suppliers, partners and customers to adopt responsible practices that lead to social development and promote citizenship and respect for the environment. Among other initiatives, in 2009 BIM started mapping its portfolio to identify customers interested in environmental credit. The purpose is to combine its effort to promote economic development with a willingness to adopt measures contributing to environmental issues.

BIM’s Social Environmental Management System (SEMS) for credit granting, which introduced in 2008, was designed to ensure that all loan and financing operations comply with the social/environmental legislation and observe the exclusion list of the World Bank. BIM does not grant loans to companies that use child or slave labor, whose activities directly or indirectly promote gambling or prostitution, and those that produce substances that may threaten the health and safety of people, animals or plants.

Of Internal Stakeholders Banco Indusval Multistock invests in staff training and adopts a fair salary and benefit policy, compatible with the duties performed and the market, to foster motivation and willingness to grow professionally among its employees. The Bank also offers several benefits to improve its employees’ and their dependents’ quality of life, as well as attracts and retains talents. Remuneration and benefits totaled R$49.0 million in 2009, which corresponds to 67% of the total value added by BIM’s business to society.

The Bank believes that its mission includes undertaking inclusion initiatives and providing opportunities for young people who want to enter the job market. As a result, it consolidated its existing Apprentice, Intern, Trainee and Professional Training for People with Disabilities programs. Meanwhile, BIM promotes awareness of measures such as reducing consumption and avoiding waste to help diminish society’s impact on the environment. Moreover, it encourages its professionals to become spontaneously engaged in social projects. In 2009, the Bank mapped all the communities and NGOs to which it has been contributing to identify needs and assign more assertive initiatives to its employees. This survey showed that NGOs mainly need expert professionals or technicians to train community members in activities such as funding, human resources management, technological management, and administrative and accounting management. Based on these data, the Social/Environmental Responsibility department is developing a project to be introduced in 2010.

68 Of Communities All Banco Indusval Multistock’s community development initiatives focus on education, culture and basic development. Emphasis is given to comprehensive education of children, youth and adults. The Bank develops these initiatives through organizations that have structured projects or helps organizations needing support in project development. The purpose is to prepare participants for full-fledged citizenship and bring about a long-lasting change in the communities involved. With this in mind, the Bank invested in 15 projects developed by Non-Governmental Organizations through the Indusval Multistock Sustainability Institute. These projects benefited 5,627 children, youth and adults directly and 23,675 people connected to the projects and communities indirectly. Social investment came to R$ 900,000 in 2009, in initiatives focusing on:

Education: student counseling, reading skills and education improvement for children and youths; Sports: promoting citizenship and skills building in communities, with an educational and social focus; Culture: bringing youth and educators in contact with different forms of art and artist’s professional lives, coupled with encouraging artistic expression; Entrepreneurship: support for the Fashion and Design Group, an income generation project about to become emancipated; Community Development: development of collective skills and critical thinking through improvements in local communities. To finance the community development entrepreneurship projects, a partnership was formally established in 2009 between the Indusval Multistock Sustainability Institute, the Inter American Foundation (a US governmental organization for social investment in Latin America) and RedEAmérica (InterAmerican Network for Corporate Foundations and Entrepreneurial Actions in Grassroots Development). Projeto Arrastão, a NGO serving the Parque dos Pinheiros community, which is in Taboão da Serra (Greater São Paulo) and has 1,200 families, will be in charge of implementing the project. The same partnership also made it possible to introduce The Projeto Cor Arrastão, which involves improving housing conditions in the community. The goal early in the year was to improve 100 homes, but BIM negotiated with construction material suppliers, so the project will be extended in 2010.

69 Environment: a proposal was designed in 2009 for an environmental education project for children and youths living in the Parque dos Pinheiros community, in Taboão da Serra (Greater São Paulo) and areas in the vicinity of the Pirajuçara Creek, which include damaged land and areas which are constantly flooded. This project will be developed in 2010, jointly with RedEAmérica and Projeto Arrastão, and aims at raising awareness of issues such as flood risks, personal hygiene and waste disposal.

Supported organizations:

Institutional Partners:

Based on Indusval Multistock’s first Greenhouse Gas Emission Inventory, an environmental initiatives plan was designed in 2009 to offset and reduce those emissions. This initiative involves various departments of the Bank and Brokerage House, chiefly the Supplies Department that introduced a consumption monitoring and substitution program. It was designed to lower the use of energy, paper, fuel and other resources, thus decreasing emissions.

ANNUAL SOCIAL REPORT 2009 Banco Indusval S.A. – CNPJ nº 61.024.352/0001-71

1 – Calculation Basis Gross Financial Intermediation Result (GFIR) Operating Income (OI) Net Profit (NP) Gross Payroll (GP) 2 – Internal Social Indicators Food Compulsory social charges Private pension fund Health care Occupational health and safety Education Culture Professional Training and Development Day-care or day-care allowance Profit sharing Others Total – Internal social indicators 3 – External Social Indicators Education Culture Health and sanitation Sports Fight against hunger and food safety Others Total contribution to society Taxes (not including social charges) Total – External social indicators 4 – Environmental Indicators Investments in company

production/operation Investments in external programs and/or projects Total environmental investments Concerning the establishment of “annual targets” to minimize waste and overall consumption in production/ operation, and boost efficiency in the use of natural resource, the Company

2009 Amount (Thousand reais)

2008 Amount (Thousand reais)

94,276

200,140

1,105

110,926

12,778

71,773

40,977

54,313

Amount (thousand)

% GP

% GFIR

Amount (thousand)

% GP

2,830

6.91%

3.00%

3,177

5.85%

1.59%

17,452

42.59%

18.51%

27,503

50.64%

13.74%

% GFIR

515

1.26%

0.55%

180

0.33%

0.09%

3,455

8.43%

3.66%

3,517

6.48%

1.76%

0.07%

0.03%

0.06%

0.02%

199

0.49%

0.21%

254

0.47%

0.13%

117

0.29%

0.12%

114

0.21%

0.06%

0.21%

0.09%

234

0.43%

0.12%

119

0.29%

0.13%

0.17%

0.05%

5,621

13.72%

5.96%

9,876

18.18%

4.93%

356

0.87%

0.38%

432

0.80%

0.22%

30,779

75.11%

32.65%

45,412

83.61%

22.69%

Amount (thousand)

% GP

% GFIR

Amount (thousand)

% GP

% GFIR

255

23.08%

0.27%

355

0.32%

0.18%

212

19.19%

0.22%

527

0.48%

0.26%

0.00%

0.02%

0.01%

7.69%

0.09%

160

0.14%

0.08%

0.00%

364

32.94%

0.39%

504

0.45%

0.25%

916

82.90%

0.97%

1,566

1.41%

0.78%

23,069

2,087.69%

24.47%

37,614

33.91%

18.79%

23,985

2,170.59%

25.44%

39,180

35.32%

19.58%

% GP

% GFIR

0.43%

0.24%

Amount (thousand)

% GP

% GFIR

Amount (thousand)

643

58.19%

0.68%

481

125

11.31%

0.13%

114

0.10%

0.06%

768

69.50%

0.81%

595

0.54%

0.30%

( ) has no targets ( ) reaches 0 to 50% ( x ) reaches 51 to 75% ( ) reaches 76 to 100%

71 5 – Staff Indicators Nbr of employees at the close of the period Nbr of hirings in the year Nbr of collaborators Nbr of interns Nbr of employees over age 45 Nbr of women employees % of management positions occupied by women Nbr of employees of African descent % of management positions occupied by people of African descent Nbr of people with disabilities or special needs 6 – Relevant information concerning corporate citizenship Ratio between the highest and lowest remuneration Total number of occupational accidents The social and environmental projects developed by the company were conceived by: The occupational health and safety standards were set by: Concerning the freedom to join trade unions and right to collective bargaining and employee representation, the Company:

( ) officers ( ) officers and managers

(x) officers and managers

2009

2008

333

329

175

116

117

111

103

12.00%

15.87%

0.00%

2009

2010 Targets

( ) all employees

( ) officers

(x) all + Internal ( ) all Accident Prevention employees Committee

( ) officers and managers

( ) does not become involved

(x) follows ILO rules

The private pension fund is extended to:

( ) officers

( ) officers and managers

(x) all employees

Profit sharing is extended to:

( ) officers

( ) officers and managers

(x) all employees

( ) are not taken into consideration

(x) are suggested

( ) does not become involved

(x) supports

Total number of consumer complaints and criticisms:

at The Company 56

% of complaints and criticisms dealt with or solved:

at The Company 100%

In selecting suppliers, the company’s ethical, environmental and social responsibility standards: Concerning employee participation in volunteering programs, the Company:

Added value to distribute (in thousand R$):

Added Value Distribution:

( ) encourages and ( ) will not become follows ILO involved

(x) officers and managers

( ) all employees

(x) all + Internal ( ) all Accident Prevention employees Committee ( ) will follow ILO rules

(x) will encourage and follow ILO

( ) officers

( ) officers and managers

(x) all employees

( ) officers

( ) officers and managers

(x) all employees

( ) are ( ) will not be taken required into consideration

(x) will be suggested

( ) will be required

( ) organizes and encourages

( ) will not become involved

( ) will support

(x) will organize and encourage

at the Consumer Protection Agency (PROCON) 05

at courts 180

at The Company 56

at the Consumer Protection Agency (PROCON) 05

at courts 180

at the Consumer Protection Agency (PROCON) 100%

at courts 13%

at The Company 100%

no Procon 100%

at courts 13%

Em 2009: R$72.686

Em 2008: R$185.010

13.3% government 67.4% employees 37.2% shareholders 1.6% third parties -19.5 % retained

26.7% government 34.0% employees 13.8% shareholders 0.5 % third parties 25.0% retained

7 – Further Information

As a matter of principle and as stated in its social/environmental policy, Banco Indusval S.A. does not grant loans to companies using child or slave labor or the like; whose activity directly or indirectly encourages gambling or sexual exploitation; or are in asbestos extraction or asbestos product manufacturing.

2009 Financial Statements

(A free translation of the original in Portuguese)

Report of Independent Auditors

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

1 We have audited the balance sheets of Banco Indusval S.A. (Indusval Multistock) and the consolidated balance sheets of Banco Indusval S.A. and its subsidiaries (Indusval Multistock Consolidated) as of December 31, 2009 and 2008 and the related statements of operations, of changes in stockholders’ equity, of cash flows and of value added of Banco Indusval S.A. (Indusval Multistock) for the years then ended and for the six-month period ended December 31, 2009, as well as the consolidated statements of operations, of cash flows and of value added for the same years. 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 audits 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 audits 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 In 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, 2009 and 2008 and the results of its operations, the changes in stockholders’ equity, the cash flows and value added of Banco Indusval S.A. (Indusval Multistock) for the years then ended and the six-month period ended December 31, 2009, and the consolidated results of their operations, consolidated cash flows and consolidated value added for the same years, in accordance with accounting practices adopted in Brazil. São Paulo, February 24, 2010.

PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Sérgio Antonio Dias da Silva Accountant CRC 1RJ062926/O-9 “S” SP

74 Balance Sheets at December 31 (In thousands of reais)

Assets

Current assets Cash Short-term interbank investments (Note 4) Open market investments Interbank deposits Marketable securities and derivative financial instruments (Note 5) Own portfolio Subject to repurchase agreements Subject to guarantees Derivative financial instruments Interbank accounts Restricted deposits – Brazilian Central Bank deposits Loan operations (Note 6) Loan operations – Private sector Loan operations – Public sector Allowance for loan losses Other receivables Foreign exchange portfolio (Note 7) Income receivable Negotiation and intermediation of securities Sundry (Note 8) Allowance for loan losses (Note 6) Other assets Non-operating assets Provision for loss Prepaid expenses Long-term receivables Marketable securities and derivative financial instruments (Note 5) Subject to guarantees Derivative financial instruments Interbank accounts Restricted deposits – other institutions Loan operations (Note 6) Loan operations – Private sector Loan operations – Public sector Allowance for loan losses Other receivables Negotiation and intermediation of securities Sundry (Note 8) Allowance for loan losses (Note 6) Other receivables Prepaid expenses Permanent assets Investments (Note 9) Subsidiaries Local Other investments Property and equipment in use Properties in use Revaluation of properties in use Other fixed assets in use Accumulated depreciation Leasehold improvements Total assets The accompanying notes are an integral part of these financial statements.

Indusval Multistock 2009 2008

2,231,359 4,049 353,143 292,897 60,246 717,265 553,585 108,200 35,030 20,450 1,818 1,818 809,685 817,661 24,559 (32,535) 296,440 294,273

1,721,048 40,101 70,763 19,802 50,961 337,331 294,251 2,743 26,760 13,577 7,027 7,027 893,401 903,709 23,656 (33,964) 351,569 346,504

946 14,440 (13,219) 48,959 49,318 (998) 639 473,154 35

14,320 (9,255) 20,856 20,066 (493) 1,283 382,213 3,455

35 11,207 11,207 396,617 472,449 7,538 (83,370) 64,397

3,455 335,043 334,054 27,975 (26,986) 41,069

68,667 (4,270) 898 898 23,646 12,761 11,075 1,686 10,885 2,173 3,538 11,826 (6,652)

41,182 (113) 2,646 2,646 41,476 30,221 28,513 1,708 11,255 1,591 3,538 11,527 (5,401)

2,728,159

2,144,737

Indusval Multistock Consolidated 2009 2008

2,243,031 4,051 353,143 292,897 60,246 724,906 553,778 108,200 42,478 20,450 1,818 1,818 809,685 817,661 24,559 (32,535) 300,286 294,273 90 4,401 14,741 (13,219) 49,142 49,318 (998) 822 473,952 69 34 35 11,207 11,207 396,617 472,449 7,538 (83,370) 64,437 40 68,667 (4,270) 1,622 1,622 13,219 1,686

1,734,867 40,111 70,763 19,802 50,961 328,020 273,796 2,743 37,888 13,593 7,027 7,027 907,287 917,595 23,656 (33,964) 360,803 346,504 18 8,152 15,384 (9,255) 20,856 20,066 (493) 1,283 476,189 3,524 69 3,455

1,686 11,533 2,173 3,538 12,290 (6,768) 300 2,730,202

2,946 11,395 1,591 3,538 11,836 (5,570)

427,383 426,394 27,975 (26,986) 42,636 42,749 (113) 2,646 2,646 14,341 2,946

2,225,397

Liabilities and Stockholdersâ&#x20AC;&#x2122; Equity

Indusval Multistock 2009 2008

Current liabilities Deposits (Note 10 (a); (b)) Demand deposits Interbank deposits Time deposits Other Funds obtained in the open market (Note 10 (c)) Own portfolio Third-party portfolio Funds from acceptance and issuance of securities (Note 10 (a)) Agribusiness letters of credit Interdepartmental accounts Third-party funds in transit Borrowings (Note 10 (a)) Local borrowings Foreign borrowings Local onlendings (Note 10 (a)) BNDES Finame Other liabilities Collection and payment of taxes and similar Foreign exchange portfolio (Note 7) Taxes and social security contributions (Note 12 (c)) Social and statutory payables Negotiation and intermediation of securities (Note 12 (a)) Derivative financial instruments (Note 5 (c)) Sundry Long-term liabilities Deposits (Note 10 (a); (b)) Time deposits Funds from acceptance and issuance of securities (Note 10 (a)) Agribusiness letters of credit Borrowings (Note 10 (a)) Foreign borrowings Local onlendings (Note 10 (a)) BNDES Finame Other institutions Other liabilities Taxes and social security contributions (Note 12 (c)) Derivative financial instruments (Note 5 (c)) Sundry Deferred income Stockholdersâ&#x20AC;&#x2122; equity (Note 13) Capital local residents Capital reserve Revaluation reserve Revenue reserves Carrying value adjustments Treasury stock

1,640,017 714,079 39,518 56,043 618,395 123 365,804 107,885 257,919 10,559 10,559 15,906 15,906 356,879

Total liabilities and stockholdersâ&#x20AC;&#x2122; equity

2,728,159

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

356,879 65,248 43,127 22,121 111,542 391 25,671 18,593 3,048 22,975 34,946 5,918 655,164 553,459 553,459 20,546 20,546 77,328 6,911 44,101 26,316 3,831 2,904 745 182 284 432,694 370,983 779 1,995 62,217 100 (3,380)

1,220,980 557,496 44,707 183,143 329,218 428 2,742 2,742 19,255 19,255 3,889 3,889 397,285 42,483 354,802 102,059 76,960 25,099 138,254 1,004 19,288 48,365 6,818 38,073 15,822 8,884 475,076 269,316 269,316 3,266 3,266 132,551 132,551 57,564 4,383 53,181

Indusval Multistock Consolidated 2009 2008

1,642,127 709,240 39,409 51,101 618,395 335 365,804 107,885 257,919 10,559 10,559 15,906 15,906 356,879 356,879 65,248 43,127 22,121 118,491 391 25,671 19,174 3,070 29,073 34,946 6,166 655,097 553,392 553,392

12,379 11,067 1,307 5 157 448,524 370,983 175 2,062 79,870 (1,163) (3,403)

20,546 20,546 77,328 6,911 44,101 26,316 3,831 2,904 745 182 284 432,694 370,983 779 1,995 62,217 100 (3,380)

2,144,737

2,730,202

1,300,920 533,372 44,187 158,727 329,218 1,240 2,742 2,742 19,255 19,255 3,889 3,889 482,963 128,161 354,802 102,059 76,960 25,099 156,640 1,004 19,288 50,957 6,854 50,338 19,045 9,154 475,796 269,042 269,042 3,266 3,266 132,551 132,551 57,564 4,383 53,181 13,373 12,061 1,307 5 157 448,524 370,983 175 2,062 79,870 (1,163) (3,403) 2,225,397

76 Income Statement (In thousands of reais, except share data)

Indusval Multistock Indusval Multistock Consolidated Six-month period ended December 31

Income from financial intermediation (Note 15 (a)) Loan operations Marketable securities Foreign exchange Expenses for financial intermediation (Note 15 (b)) Funds obtained in the market Loans, assignments and onlendings Results with derivative financial instruments Provision for loan losses (Note 6 (a)) Gross profit from financial intermediation Other operating income (expenses) Income from services rendered (Note 15 (c)) Income from bank fees (Note 15 (c)) Equity in the results of investees (Note 9) Personnel expenses (Note 15 (d)) Other administrative expenses (Note 15 (e)) Taxes (Note 15 (f)) Other operating income Other operating expenses Operating profit (loss) Non-operating income (expenses) Profit before taxation Income tax and social contribution Income tax (Note 11(a)) Social contribution (Note 11(a)) Deferred tax assets Profit sharing and contributions (Note 14 (c)) Employees Directors Net income (loss) for the six-month period/year Number of outstanding shares Net income (loss) per share â&#x20AC;&#x201C; in reais

Years ended December 31

2009

2008

2009

2008

185,957

403,118

623,971

407,523

625,292

119,147

264,392

350,249

264,392

350,249

52,417

97,004

106,846

101,409

108,167

14,393

41,722

166,876

41,722

166,876

(154,887)

(314,921)

(427,719)

(313,247)

(425,152)

(78,839)

(143,548)

(205,114)

(142,645)

(202,186)

(10,888)

(23,045)

(185,466)

(23,045)

(185,466)

(13,756)

(37,051)

16,097

(36,280)

15,736

(51,404)

(111,277)

(53,236)

(111,277)

(53,236)

31,070

88,197

196,252

94,276

200,140

(43,372)

(84,779)

(86,850)

(93,171)

(89,214)

1,733

3,734

7,591

11,503

22,950

417

737

1,489

737

1,489

583

4,497

4,113

(24,465)

(47,655)

(52,072)

(51,245)

(57,121)

(15,778)

(34,869)

(34,099)

(41,913)

(40,937)

(4,239)

(10,068)

(13,372)

(11,171)

(15,306)

4,651

5,812

2,092

5,924

2,448

(6,275)

(6,967)

(2,592)

(7,006)

(2,737)

(12,303)

3,418

109,402

1,105

110,926

797

2,577

(425)

8,032

625

(11,506)

5,995

108,977

9,137

111,551

11,296

12,407

(22,937)

9,306

(25,366)

2,563

(9,911)

(28,352)

(11,835)

(29,949)

1,368

(6,090)

(15,054)

(7,267)

(15,886)

7,365

28,408

20,469

28,408

20,469

(3,137)

(5,624)

(14,267)

(5,665)

(14,412)

(3,137)

(5,550)

(9,796)

(5,585)

(9,876)

(74)

(4,471)

(80)

(4,536)

12,778

71,773

(3,347)

12,778

71,773

42,048,101

42,489,501

(0.08)

0.30

1.69

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

Years ended December 31

Statement of Changes in Stockholders’ Equity

(In thousands of reais)

Capital

At January 1 , 2008 Carrying value adjustments Deferred taxes – revaluation st

370,983

2,268

6,176

(1,163) (137) 175 (3,403)

71,773 3,589 (69)

71,773

(42,784) 69 (25,469)

370,983

175

(25,469)

2,062

9,765

70,105

(1,163)

(3,403) 448,524

175

(206)

3,589

42,784

(1,163)

(3,403)

175

2,062

9,765

70,105

(1,163)

(3,403) 448,524

1,263

604 (3,489) 638

12,778

(638) 1,660

(67)

(1,660) 67

Realization of reserve for equalization of dividends

(16,462)

16,462 (27,009)

604 370,983

461

1,995 10,403

(27,009)

51,814

100

(3,380) 432,694

638

(18,291)

1,263

23 (15,830)

2,029 10,571

71,765

(12)

(3,427) 452,370

112

(67)

(168)

Appropriation of benefits – stock options (Note 17 (b))

168

318

Purchase of own shares Cancellation of own shares Loss for the six-month period Realization of revaluation reserve

318 (3,442) (3,489) (34)

(3,347)

Realization of reserve for equalization of dividends

(16,462)

16,462 (13,317)

779 318

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

1,995 10,403 (34)

(3,442)

3,489 (3,347)

370,983

(3,466)

3,489 12,778

779

41,776

604 (3,466)

370,983

(3,403)

(3,589) 42,784

370,983

Total 406,748

175

Purchase of own shares Cancellation of own shares Net income for the year Legal reserve Statutory reserve Realization of revaluation reserve

Interest on own capital (R$ 0.32 per share) At December 31, 2009 Changes for the six-month period

27,321

(137)

Appropriation of benefits – stock options (Note 17 (b))

Interest on own capital (R$ 0.64 per share) At December 31, 2009 Changes for the year At July 1st, 2009 Reversal of legal reserve Carrying value adjustments

Carrying value Retained Treasury earnings adjustments stock (1,163)

Appropriation of benefits – stock options (Note 17 (b)) Purchase of own shares Net income for the year Legal reserve Statutory reserve Realization of revaluation reserve Interest on own capital (R$ 0.59 per share) At December 31, 2008 Changes for the year At January 1st, 2009 Carrying value adjustments

Revenue Capital Revaluation reserves Statutory Legal reserve reserve

(168)

(13,317)

51,814

100

(3,380) 432,694

(19,951)

112

47 (19,676)

78 Statements of Cash Flows (In thousands of reais)

Six-month period ended December 31 2009

Adjusted net income Net income (loss) Depreciation and amortization Equity in the results of investees Adjustment of stock options Allowance for doubtful accounts Provision for devaluation of assets Provision for contingencies Deferred tax assets Taxes on revaluation reserve Results on sale of tangible assets Results on disposal of investments Mark-to-market adjustment – securities and derivatives Carrying value adjustments Variation in assets and liabilities (Increase) decrease in short-term interbank investments (Increase) decrease in securities and derivative financial instruments (Increase) in interbank and interdepartmental accounts (Increase) decrease in loan operations (Increase) in other receivables and other assets Change in deferred income (Increase) decrease in other liabilities Operating activities – net cash provided (used) Disposal of tangible assets Disposal of investments Acquisition of tangible assets Acquisition of investments Investing activities – net cash provided (used) Increase (decrease) in deposits Increase (decrease) in funds obtained in the open market Increase in funds from acceptance and issuance of securities Increase (decrease) in borrowings and onlendings Purchase of own shares Interest on own capital paid and/or accrued Financing activities – net cash provided (used) Decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year/period Cash and cash equivalents at the end of the year/period Decrease in cash and cash equivalents (Notes 3 (b) and 19 (d)) The accompanying notes are an integral part of these financial statements.

Indusval Multistock

Indusval Multistock Consolidated

Years ended December 31

2009

2008

2009

2008

43,280

97,219 103,677

99,994 107,519

(3,347)

12,778

71,773

12,778

71,773

1,670

1,651

816

1,645

1,600

(583)

(4,497)

(4,113)

318

604

51,404 111,277

604

175

53,236 111,277

175

53,236

150

997

1,269

2,504

2,597

2,504

2,630

(7,365) (28,408) (20,469) (28,408) (20,469) (137) (65)

(137)

(4)

(39)

(851)

(2,866)

(39)

(56)

1,362

1,962

222

1,962

(142)

111

1,262

(1,163)

1,262

(1,163)

10,340 (687,168) 111,966 (604,281)

33,814

(4,613)

(36,521) (250,050) 202,951 (250,050) 202,951 104,142 (378,475) 231,670 (395,392) 267,689 (13,725)

6,020

(3,623)

(8,415) (80,983) (278,581) (10,117) 20

53,957 (115,480) 127

(25,044) (37,764)

(40)

6,020

(3,623)

25,243 (384,807) 59,966 (119,124) 127

(40)

75,069 (50,195)

70,768

53,620 (589,949) 215,643 (504,287) 141,333 3,581

13,149

899

27,841

4,240

13,167

4,275

10,633

(22,106) (43,637) (22,947) (40,476) (23,049) (3,018) (17,626)

(10)

(8,474)

(10)

(5,665) (18,717) (25,150) (18,712)

58,790 440,726

3,392 460,219

(7,980)

(196,018) 363,061 (653,870) 363,061 (653,870) (2,025) (11,962)

22,521 (11,962)

22,521

(36,311) (169,458) 459,729 (255,136) 545,407 (3,442)

(3,466)

(3,403)

(3,466)

(3,403)

(13,317) (27,009) (25,469) (27,009) (25,469) (192,323) 591,892 (197,100) 525,707 (122,794) (156,329)

(3,722)

(174)

(3,730)

(173)

244,515

91,908

92,082

91,918

92,091

88,186

91,908

88,188

91,918

(156,329)

(3,722)

(174)

(3,730)

(173)

Value Added Statement

(In thousands of reais)

Six-month period ended December 31 2009

Revenues Financial intermediation Services rendered and bank fees Provision for loan losses Other Expenses for financial intermediation Goods and services acquired from third parties Materials, electricity and other Third-party services Other Gross value added Depreciation Net value added produced by the Bank Value added transferred from others Equity in the results of investees Other Total value added to be distributed Distribution of value added Personnel Direct remuneration Benefits Employee Severance Indemnity Fund (FGTS) Taxes, charges and contributions Federal State Municipal Remuneration of third-party capital Rents Remuneration of own capital Interest on own capital Retained earnings The accompanying notes are an integral part of these financial statements.

Indusval Multistock

Indusval Multistock Consolidated

Years ended December 31

2009

2008

2009

2008

142,184 304,394 597,498 321,992 614,995 185,957 403,118 640,068 407,523 641,028 2,150

4,471

9,080

12,240

24,439

(51,404) (111,277) (53,236) (111,277) (53,236) 5,481

8,082

1,586

13,506

2,764

(103,483) (203,644) (390,580) (201,970) (387,652) (20,693) (38,758) (34,007) (45,806) (41,989) (7,182) (13,792) (14,267) (15,661) (16,735) (7,258) (18,347) (17,223) (23,436) (21,538) (6,253) 18,008 (816) 17,192

(6,619)

(2,517)

(2,716)

61,992 172,911

74,216 186,354

(1,645)

(1,670)

(1,600)

60,347 171,311

657

4,609

4,192

583

4,497

4,113

112

(6,709)

(1,651)

72,546 184,703 140

307

140

307

17,849

64,956 175,503

72,686 185,010

17,849

64,956 175,503

72,686 185,010

23,836

45,963

58,336

49,027

62,824

18,874

36,407

48,166

38,649

51,405

3,844

7,379

7,573

8,050

8,511

1,118

2,177

2,597

2,328

2,908

(3,271)

5,021

44,384

9,684

49,400

(3,443)

4,641

43,591

8,943

47,836

153

357

776

718

1,547

631

1,194

1,010

1,197

1,013

631

1,194

1,010

1,197

1,013

(3,347)

12,778

71,773

12,778

71,773

13,317

27,009

25,469

27,009

25,469

46,304 (14,231)

46,304

(16,664) (14,231)

80 Notes to the Financial Statements at December 31, 2009 and 2008 In thousands of reais, unless otherwise stated

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.

2 Presentation of 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) were prepared in accordance with Brazilian Corporation Law and the regulations of the Brazilian Central Bank (BACEN) and of the Brazilian Securities Commission (CVM). The Law No. 11,638, which was enacted on December 28, 2007 and amended by Provisional Measure (MP) No. 449 as of December 4, 2008, changed and introduced new provisions to Brazilian Corporation Law. The main purpose of this law and MP was to adjust Brazilian corporate legislation to facilitate the process of convergence of the accounting practices adopted in Brazil with those issued by the International Accounting Standards Board (IASB). The adoption of the law and MP is mandatory for annual financial statements for years commencing on or after January 1st, 2008. The changes in Brazilian Corporation Law had no effect on the financial statements. In preparing the financial statements, estimates and assumptions were used to determine the amounts of certain assets, liabilities, revenues and expenses, in accordance with accounting practices effective in Brazil. These estimates and assumptions were considered in the measurement of provisions for losses on loans and for contingencies, in the determination of the market value of financial instruments and in the selection of the economic useful lives of certain assets. Actual results may differ from the estimates and assumptions adopted. The consolidated financial statements comprise the financial statements of Banco Indusval S.A. (Banco Indusval Multistock), its branch abroad and its subsidiaries Indusval S.A. Corretora de Títulos e Valores Mobiliários (Indusval Multistock Corretora), BIM Promotora de Vendas Ltda. and Fundo de Investimentos em Direitos Creditórios (FIDC) Multisegmentos (wound up on June 12, 2009). The Bank’s investments in the subsidiaries, as well as the assets, liabilities, income, expenses and the unrealized results of intercompany transactions, were eliminated upon consolidation. The Cayman Branch was authorized to operate by BACEN on March 5, 2008, and at December 31, 2009 total assets amounted to R$17,699, stockholders’ equity was R$17,424 and net income was R$289 for the year.

3 Summary of Significant Accounting Practices

(a) Determination of the results of operations Income and expenses are recorded on the accrual basis of accounting.

81 (b) Cash and cash equivalents Cash and cash equivalents comprise cash in local currency, foreign currency, investments in the open market (except for financed position) and investments in interbank deposits (except for rural Interbank Deposit Certificates (CDI)), with maturities at the original investment date equal to or less than 90 days and which present an immaterial risk of change in fair value. These are used by the Bank to manage its short-term commitments.

Indusval Multistock

Cash Short-term interbank investments (cash equivalents) Cash and cash equivalents

Indusval Multistock Consolidated

2009

2008

2009

2008

4.049

40.101

4.051

40.111

84.137

51.807

84.137

51.807

88.186

91.908

88.188

91.918

(c) Short-term interbank investments Short-term interbank investments are recorded at cost plus related earnings up to the balance sheet date, less 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 which are neither trading securities nor securities held to maturity, adjusted to market value against a specific stockholders’ equity account, net of tax effects; and • Securities held to maturity – securities which management acquires with the intention and financial ability to hold up to maturity, recorded at acquisition cost plus related earnings as a contra entry to results for the period. Derivative financial instruments are classified at the inception of the transaction, considering management’s intention to use them as hedge instruments or not. The derivative financial instruments used for protection against risk exposure or for modifying the characteristics of financial assets and liabilities, are: (i) highly correlated, as regards the changes in their market value in relation to the market value of the item being protected, at both the inception and over the contract duration; and (ii) considered effective in mitigating the risk associated with the exposure in question, are classified as hedges according to their nature: • Fair value hedge – the financial assets and liabilities subject to hedge and their respective derivative financial instruments are recorded at market value, with the corresponding valuations or devaluations recognized in results for the period; and • Cash flow hedge – the financial assets and liabilities subject to hedge and their respective derivative financial instruments are recorded at market value, with the corresponding valuations or devaluations, net of tax effects, recognized in a specific net equity account called Carrying value adjustment – marketable securities and derivatives. The non-effective hedge portion is recognized directly in results for the period.

82 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 or devaluations are recognized directly in results for the period.

(e) Loan operations The loans, in their various modes, are recorded at present value, including income accrued up to the balance sheet date when at floating interest rates, and net of unearned income, calculated based on the terms of the transactions when at fixed interest rates. The restatement of overdue loans 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 and no longer presented in the balance sheet. Renegotiated loans are held at 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. The allowance for loan losses is based on management’s analysis of the loans in order to determine the amount necessary, case by case, and takes into consideration the economic environment, past experience and the specific and overall portfolio risks, as well as the rules established by BACEN Resolution No. 2,682 of December 21, 1999 and in accordance with the provisions of BACEN Circular No. 2,974 of March 24, 2000. The customer risk ratings are established based on a credit score model, with no possibility that the credit committee can interfere to improve the rating assigned. The positive or negative results of the loans are appropriated as an increase in income on loan operations or as a reversal of there, in compliance with the provisions of BACEN Circular No. 3,213. Pursuant to BACEN Resolution No. 3,533, of January 31, 2008, information on each of the categories used to classify financial asset sales must be disclosed in the notes to the financial statements (Nota 6 (j)). These categories include the following: • Loans with substantial transfer of risks and benefits; • Loans with no substantial transfer or retention of risks and benefits; • Loans with substantial retention of risks and benefits; and • Loans with no substantial transfer or retention of risks and benefits and for which control was retained.

(f) Prepaid expenses Include the investment of resources, the benefits of which will occur in future periods.

(g) Investments The investments in subsidiaries are evaluated based on the equity method of accounting. 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 plus revaluation of properties for own use (Note 13 (d)). Depreciation is computed on the straight-line method at the annual rates of 4% for buildings, 20% for vehicles and data processing systems and 10% for other items.

83 (i) Interbank and time deposits, funds obtained in the open market and from agribusiness letters of credit These deposits and the funds obtained in the open market and from agribusiness letters of credit are stated at their corresponding contractual amounts plus accrued charges, in proportion to the time elapsed from the day on which they were contracted.

(j) Borrowings and onlendings Borrowings and onlendings are stated at present value, including the charges incurred up to the balance sheet date and restated at the rates in effect on the balance sheet dates.

(k) Share loan contract liabilities Share loan contract liabilities, recorded under Other liabilities – negotiation and intermediation of securities in current liabilities, are stated at their contractual amounts which are adjusted monthly according to the market value of the shares and by the respective adjustments of the related derivatives (hedges).

(l) Income tax and social contribution (assets and liabilities) Deferred income tax and social contribution on net income, calculated on temporary differences, are recorded in Other receivables – sundry. Deferred tax assets on temporary additions are realized upon the use and/or reversal of the corresponding provisions on which they were recorded. The provision for income tax was calculated at the rate of 15% of taxable income, plus a 10% surcharge. The provision for social contribution was calculated at the rate of 9% up to April 2008 and 15% as from May 2008 of adjusted accounting profit, pursuant to the legislation in force. In accordance with Provisional Measure (MP) No. 449/08, the changes in the criteria used to recognize revenue, costs and expenses computed in the calculation of net income for the period, as introduced by Law No. 1,1638/07 and by Articles 36 and 37 of this MP, may be ignored for purposes of calculating the taxable income if companies elect to use the Transitional Tax System (RTT). In this case, for tax purposes, the accounting methods and criteria in force at December 31, 2007 will be followed. For accounting purposes, the tax effects of adopting Law No. 1,1638/07 are recorded in the corresponding deferred tax assets and liabilities.

(m) Contingent assets and liabilities and legal obligations – taxes and social security contributions These are measured, recognized and disclosed in accordance with the criteria established by CVM Deliberation No. 489, of October 3, 2005.

(i) Contingent assets and liabilities These comprise potential rights and obligations arising from past events, the occurrence of which depends on future events. • Contingent assets – are not recorded except when there is evidence which assures a high degree of confidence that they will be realized, normally a final and unappealable court decision, and the confirmation of recoverability through receipt or offset against another liability. • Contingent liabilities – arise mainly 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, as well as other risks. The evaluation of these contingencies is carried out by legal advisors on a basis which is consistent with the adopted conservative practices and considers the

84 probability that financial resources will be required to settle the obligations and that their amounts can be reliably estimated. Contingencies are classified as probable, for which provisions are recorded; as possible, which are disclosed but for which no provisions are recorded; and as remote, which do not require provisions or disclosure. The amounts related to these contingencies are measured using adequate models and criteria which permit adequate estimates, despite the inherent uncertainty regarding terms and amounts.

(ii) Legal obligations â&#x20AC;&#x201C; taxes and social security These are tax liabilities, the legality or constitutionality of which is being contested in court and which are recorded at the full amount under dispute.

(n) Impairment of non-financial assets The carrying values of non-financial assets, except other assets and tax credits, are tested at least annually to determine whether there is any impairment loss, which is recognized in results for the period if the carrying value of the asset or its cash generating unit exceeds its recoverable amount.

4 Short-term Interbank Investments

Indusval Multistock e Consolidated

Open market investments Own portfolio position Financial Treasury Bills (LFT) National Treasury Bills (LTN) Federal Treasury Notes (NTN) Third-party portfolio position Financial Treasury Bills (LFT) National Treasury Bills (LTN) Interbank deposits Interbank Unrelated CDI Rural CDI Foreign currency investments

2009

2008

292,897

19,802

35,079

19,802

26,999

17,802

7,930

2,000

150 257,818 57,011 200,807 60,246

50,961

60,092

48,792

48,904

29,837

11,188

18,955

154

2,169

353,143

70,763

Short-term interbank investments mature in less than 90 days (except Rural CDI).

5 Marketable Securities and Derivative Financial Instruments

(a) Valuation, classification and risk management The valuations of the positions of fixed income securities and derivative financial instruments are obtained from the markets with greatest liquidity or, in their absence, from related markets, including interpolation and extrapolation of the terms. The portfolio of share loan contracts (Note 3 (k)) is sold in the spot market, with simultaneous purchase of call options and sale of put options, resulting in a funding transaction at fixed rates, the results of which are recognized over the term of the transaction.

85 (b) Marketable securities (i) Indusval Multistock

Cost value

Trading Securities Financial Treasury Bills (LFT) Financial Treasury Bills (LFT) National Treasury Bills (LTN) National Treasury Bills (LTN) Bank Deposit Certificates (CDB) Variable income securities Quotas in investment funds

Market/ book value Maturity (days)

36,990

36,990 Up to 360

82,436

82,435 More than 360

315,898 221,799 8,540

2008

Mark-to-market adjustment

Market/ book value 20,830

315,998 Up to 360 221,790 More than 360 26,559 Undetermined maturity

4,282

4,282 Undetermined maturity

(1)

96,106

100

184,086

(9)

8,761 Up to 360

26,644 696,589

2009

221 (85)

1 22,731

696,815

226

323,754

(ii) Indusval Multistock Consolidated

Cost value

Trading Securities Financial Treasury Bills (LFT) Financial Treasury Bills (LFT) National Treasury Bonds (LTN) National Treasury Bonds (LTN) Debentures Bank Deposit Certificates (CDB) Variable income securities Quotas in investment funds Securities held to maturity Agricultural Debt Securities (TDA) Agricultural Debt Securities (TDA)

Market/ book value Maturity (days)

2009

2008

Mark-to-market adjustment

Market/ book value

44,434

44,433 Up to 360

(1)

26,804

82,436

82,435 More than 360

(1)

101,223

100

184,086

315,898

315,998 Up to 360

221,799

221,790 More than 360

(9)

165

193 Up to 360

8,540

8,761 Up to 360

221

26,644

26,559 Undetermined maturity

4,282

4,282 Undetermined maturity

5 34 704,237

(85)

5 Up to 360

34 More than 360 704,490

1 2,276

69 253

314,496

(c) Derivative financial instruments Banco Indusval utilizes derivative financial instruments, according to its risk management policy, with the objective of hedging market risks and cash flow risks, mitigating the risks mainly resulting from the fluctuation of interest and foreign exchange rates. The derivative instruments used by the Bank are designed to meet its needs for managing its global exposure and to meet its customersâ&#x20AC;&#x2122; needs for hedging their exposure. The Bankâ&#x20AC;&#x2122;s treasury adopts an essentially passive attitude and generally does not enter into speculative transactions. The derivatives include interest rate swaps, currency swaps, cash flow swaps, futures, forwards and options. Derivative financial instruments are presented in the balance sheet at market value, usually based on price quotations or market price quotations for assets or liabilities with similar characteristics.

86 When these are not available, the market values are based on pricing models, discounted cash flow and market operatorsâ&#x20AC;&#x2122; quotations The contracts of traded derivatives are registered at the SĂŁo Paulo Stock, Commodities and Futures Exchange (BM&FBovespa) or at the Central System for Custody and Financial Settlement of Securities (Cetip). These transaction amounts are determined based on available information disclosed by BM&FBovespa or by external providers (brokerage firms, banks and other). The Risk Management Area is responsible for the pricing of all derivative financial instruments, using both the mark-to-market (MtM) parameters and the original (curve value) parameters. The market parameters are updated daily in the process of pricing the instruments to market value, including the forward structures of interest rates for all the Brazilian indices. The mark-to-market models determine the values of the derivative instruments based on the current market conditions for all the indices, as well as for the sovereign debt securities and Eurobonds of Brazilian companies, and the duration (average term) of the portfolio and of the groups of analysis.

(i) Position

2009 Indusval Multistock and Consolidated Long position

Futures market Interest rate Interest rate Currencies Forward market Shares Currencies Option Market Shares Swap Currencies Indices Indices

Short position

Maturity (days)

467,326

Up to 360

33,568

123,775

More than 360

521

19,435

Up to 360

11,179

11,701

Up to 360

2,074

Up to 360

8,918

20,836

Up to 360

353

328

Up to 360

745

More than 360

2008 Indusval Multistock and Consolidated

Futures market Interest rate Interest rate Forward market Shares Option Market Shares Swap Currencies Currencies

Long position

Short position

Maturity (days)

1,977

136,058

Up to 360

1,301

47,574

More than 360

11,011

8,832

Up to 360

1,967

9,748

Up to 360

615

465

Up to 360

3,455

1,307

More than 360

87 (ii) Position of contracts

2009 Indusval Multistock and Consolidated

Swap DI x US$ US$ x DI IPCA x DI IGPM x DI DI Fixed x DI floating Euro x DI Cash flow swaps (*) Euribor Forward Shares Currencies Futures CDI US$ Mini-US$ Options Shares

Assets

Liabilities

Value of contracts recorded

Result

388

21,909

221,356

(29,202)

246

1,706 77

1,706

745

95,600

2,000

2,207

17,631

18,552

73,264

269

21,558

11,179

11,708

11,611

11,179

11,701

11,255

23 119

7,891

(188)

356 644,625

(4,634)

624,669 19,386 570 8,918

2,074

70,879

8,918

2,074

70,879

20,485

35,691

948,471

(2,256) (36,280)

2008 Indusval Multistock and Consolidated

Swap US$ x DI DI x US$ IPCA x DI DI Fixed x DI floating Euro x DI Cash flow swap (*) Forward Shares Futures CDI Options Shares (*) US$ (+) LIBOR X DI

Assets

Liabilities

Value of contracts recorded

Result

4,070

1,772

149,951

5,211

1,256

3,500 894

3,636

50,920

6 46

1,000

2,762

17,631 868

73,264

11,011

8,832

11,011

8,832

2,352

11,011 186,910

13,245

186,910 1,967

9,748

66,265

1,967

9,748

66,265

17,048

20,352

414,137

(5,072) 15,736

88 (iii) Guarantees

2009 Indusval Multistock and Consolidated Clearing of derivatives

Marketable securities Sureties

Clearing of shares

Total

24,620

3,259

27,879

8,000

11,500

19,500

32,620

14,759

47,379

Probable situation

Deterioration of 25%

Deterioration of 50%

(575)

(927)

(161)

(322)

(iv) Sensitivity analysis

Factors

Trading portfolio Fixed rate Foreign currencies Trading and banking portfolio Fixed rate Exchange coupon Foreign currencies Price indices Long-term interest rate (TJLP) Reference rate (TR)

Risk

Fixed interest rates in reais Exchange variation Fixed interest rates in reais Price index coupon rates Exchange variation Price index coupon rates TJLP coupon rates TR coupon rates

(16)

(11,106)

(17,732)

(230)

(4,537)

(8,954)

(4,637)

(9,281)

(679)

(1,478) (1)

(7)

(11)

The sensitivity analysis considered the risk factor stress scenarios in all of the Bankâ&#x20AC;&#x2122;s transactions as well as the net position of exposure in each type of factor. Scenario I: the variation in the risk scenario informed by BM&FBovespa in relation to the marked-to-market value of the products. Scenario II: a 25% increase in the risk factors related to the fixed, foreign currency, reference (TR) and variable income rates and a 25% decrease in the risk factors related to the exchange coupon rate, price index and Long-term interest rate (TJLP) in relation to their market price. Scenario III: a 50% increase in the risk factors related to the fixed, foreign currency, TR and variable income rates and a 50% decrease in the risk factors related to the exchange coupon rate, price index and TJLP factors in relation to their market price. The criterion used to determine the increase or decrease in each risk factor was the allocation of the net position of each contract. The risk positions in the fixed, foreign currency, TR and variable income rates represent a higher risk through the increase in the stress curves for these factors. The long position of these contracts is greater than the short position. As a result, the increase in the discount factor decreases the value of these products and constitutes a scenario more susceptible to financial loss, given the considered stress scenario. The positions in the exchange coupon rate, price index and TJLP represent a higher risk through the decrease in the stress curves for these factors. The short position of these contracts is greater than the long position. As a result, the decrease in the discount factor increases the value of these products and constitutes a scenario more susceptible to financial loss given the considered stress scenario.

89 6 Loan Operations – Indusval Multistock and Indusval Multistock Consolidated

(a) Analysis of the loan portfolio by type of operation and allowance for loan losses 2009 Risks Classification Operations

Loans and discounted bills Foreign currency financing BNDES/Finame Consumer lending (CDC) – vehicles Other financing Total loan operations Advances on foreign exchange contracts Other receivables – sundry (Note 8) Total credit Assignments with co-obligation Total credit including assignments with co-obligation Guarantees provided (Note 19 (a)) Total portfolio Allowance for loan losses Provision for credits assigned with co-obligation Additional provision (others) Total provision

310,675

307,566

378,967

45,955

24,637

17,726

5,072

16,069

4,423

2,603

28,869

41,015

44,801

1,472

3,030

1,509

1,703

1,414

Total

50,657 1,141,255 23,095 116,157

1,299

895

998

5,390

25,462

16,238 25,462

384,105

354,513

428,074

48,841

83,228

107,767

54,187

14,414

25,936

18,621

6,070

56,047 1,322,207

1,372

9,270

270,238 17

467,350

462,280

482,261

63,255

25,936

19,993

6,070

21,406

8,902

12,049

324

314

167

157

65,317 1,592,462

488,756

471,182

494,310

63,579

26,250

20,160

6,227

65,400 1,635,864

43,402

54,429

7,368

1,075

543,185

478,550

495,385

63,579

26,250

20,160

6,227

65,400 1,698,736

62,872

2,337

4,623

14,468

6,325

7,781

9,997

4,249

65,316

115,096

107

361

110

959

2,444

4,712

14,829

6,357

7,875

10,080

4,359

65,399

133,394

17,339

2008 Risks Classification Operations

Loans and discounted bills Foreign currency financing BNDES/Finame Consumer lending (CDC) – vehicles Other financing Total loan operations Advances on foreign exchange contracts Other receivables – sundry (Note 8) Total credit Assignments with co-obligation FIDC Total credit including assignments with co-obligation Guarantees provided (Note 19 (a)) Total portfolio Allowance for loan losses Provision for credits assigned with co-obligation Additional provision (vehicles) Additional provision (other) Total provision

295,474 298,404 400,890 18,443 19,752

3,885

5,100 17,927

3,359 11,429 1,051,636

201

23,228

42,265 50,640 52,378 14,639 37,629

4,288

5,219

159,922 3,024

1,822

1,025

642

220

739 88,174 101,888 42,897

3,128

4,910

9,098

4,001 11,649 1,289,394 464

74 42,265 477,830 474,885 463,846 24,595 30,672

4,910

677

246,326

112

186

4,465 12,438 1,535,906

12,892 13,118 54,892 84,340 17,224

4,060

80,902 602

106,226

42,265 575,062 505,227 522,798 25,197 30,672 8,065

9,170

485

4,749 13,915 303

1,769

4,910

4,465 12,438 1,723,034

4,910

4,465 12,438 1,793,740

2,455

3,125 12,438

70,706

42,265 628,529 513,292 531,968 25,201 30,672 2,389

53,869 739

42,265 389,582 372,997 420,949 21,467 21,574

53,467

Total

2,460

9,203

50,734 2,618 275 16,691

2,874

5,052 15,684

2,521

9,203

2,455

3,125 12,438

70,318

90 During the year, the establishment of the allowance for loan losses amounted to R$111,277 (2008 – R$53,236). The amount of loans written off against the allowance for loan losses was R$48,201 (2008 – R$11,947), and the amount of loans recovered was R$4,221 (2008 – R$2,692). At December 31, 2009, the portfolio of renegotiated loans amounts to R$165,186 (2008 – R$9,013).

(b) Analysis of loan operations by business sector

Manufacturing Commerce Financial intermediaries Other services Individuals (*)

2009

2008

913,918

900,161

189,436

209,318

12,844

4,908

359,893

490,918

159,773

117,729

1,635,864

1,723,034

(*) Of the total balance of individuals, R$53,598 (2008 – R$36,785) comprises middle market loans and R$106,175 (2008 – R$80,944) retail loans.

Fixed rate Floating rate (Interbank Deposit Certificate (CDI)) Reference rate (TR)/Basic Financial Rate (TBF) Other

2008

491,186

355,361

1,058,418

1,213,310

108

110

86,152

154,253

1,635,864

1,723,034

2009

2008

31,518

81,476

15,606

19,314

29,397 76,521

4,875 105,665

561,655

631,689

330,117

257,768

(d) Analysis of loan operations by maturity

Overdue From 15 to 60 days From 61 to 180 days More than 180 days Maturing Up to 90 days From 91 to 180 days From 181 to 360 days More than 360 days

240,296

292,220

427,275 1,559,343

435,692 1,617,369

1,635,864

1,723,034

91 (e) Concentration of loans 2009 Customers

Amount

Accumulated percentage

10 largest customers 11th to 60th largest customers 61st to 160th largest customers Other

308,388

18.85

500,445

30.59

49.44

388,883

23.78

73.22

438,148

26.78

100.00

1,635,864

2008 %

Accumulated percentage

375,575

21.80

529,526

30.73

52.53

393,209

22.82

75.35

424,724

24.65

100.00

Customers

Amount

10 largest customers 11th to 60th largest customers 61st to 160th largest customers Other

1,723,034

(f) Analysis of loans classified as D atĂŠ H Only a portion of the transactions rated D to H in the following table is past due for more than 60 days and is accordingly classified as non-performing. The other transactions are performing normally but remain classified at these levels as a result of the criteria used for credit analysis. These transactions are segregated in the following table:

2009 Level

Performing Non-performing

Total

57,042

1,088

13,716

2,617

10,286

84,749

6,537

25,162

6,444

3,610

55,114

96,867

63,579

26,250

20,160

6,227

65,400

181,616

2008 Level

Performing Non-performing

Total

16,254

11,687

108

2,472

30,521

8,943

18,985

4,910

4,357

9,966

47,161

25,197

30,672

4,910

4,465

12,438

77,682

92 (g) Loan operations by segment Indusval Multistock and Consolidated

Middle Market In reais – loans and discounts In reais – BNDES/Finame In foreign currency Retail Credits acquired Other

2009

Portfolio %

2008

Portfolio %

1,529,691

93.51

1,642,090

95.30

1,120,201

68.48

1,212,614

70.38

116,157

7.10

159,922

9.28

293,333

17.93

269,554

15.64

33,805

2.07

53,868

3.13

72,351

4.42

26,890

1.56

0.00

186

0.01

1,635,864

1,723,034

(h) Loans – average balances and term 2009 Middle Market

Loans and discounted bills Overdraft accounts Loans Discounted bills BNDES/Finame ACC/ACE/Finimp

Total amount

Number of customers

Number Average balance Average balance of contracts per customer per contract

Average term (*)

70,102

165

172

425

408

122

1,019,725

605

1,191

1,685

856

510

30,374

105

545

289

116,157

191

2,151

608

649

293,333

101

313

2,904

937

220

5,021

451

1,529,691

Retail CDC – vehicles

33,805

(*) Based on the days of the contracted transaction term.

2008 Middle Market

Loans and discounted bills Overdraft accounts Loans Discounted bills BNDES/Finame ACC/ACE/Finimp

Total amount

Number of customers

Number Average balance Average balance of contracts per customer per contract

Average term (*)

59,541

226

243

263

245

138

1,135,101

666

1,211

1,686

927

412

17,972

332

272

103

159,922

168

3,719

952

607

269,554

112

342

2,407

788

199

5,433

620

1,642,090

Retail CDC – vehicles (*) Based on the days of the contracted transaction term.

53,869

93 (i) Middle market transactions – guarantees 2009

Transactions

Overdraft accounts Loans Discounts BNDES/Finame ACC/ACE/Finimp

Guaranteed by Total transactions receivables 70,102

60,008

1,019,725

596,746

Monitored lien/warrants and CPRS

Other types of Lien on lien properties

Lien on vehicles

2,019

2,316

2,469

66,812

124,158

21,393

125,668

21,883

28,121

917,969

10,943

10,606

30,374

116,157

32,658

3,144

56,846

293,333

55,500

52,520

8,433

1,529,691

775,286

179,822

86,672

138,630

34,805

50.68

11.76

5.67

9.06

2.28

Percentage – %

Securities/ shares/ Total CDB guarantees

30,374 114,197

23,477

139,930

54,067 1,269,282 3.53

82.98

2008

Transactions

Overdraft accounts Loans Discounts BNDES/Finame ACC/ACE/Finimp

Guaranteed Total by transactions receivables

Monitored lien/warrants and CPRS

Other types of Lien on lien properties

Lien on vehicles

Securities/ shares/ Total CDB guarantees

59,541

29,372

8,254

2,403

610

2,446

602

43,687

1,135,101

624,314

109,167

51,434

83,982

25,126

104,111

998,134

17,972

159,922

34,365

269,554

68,045

61,692

1,642,090

774,068

179,113

107,965

84,592

93,835

47.14

10.91

6.57

5.15

5.71

Percentage – %

54,128

66,263

154,756

33,464

163,201

138,177 1,377,750 8.41

83.90

(j) Composition of loans assigned by type of loan and nature of risk 2009