Banco Indusval & Partners – Annual Report 2010 by TheMediaGroup

Annual Report

about this report

Redesigning the Future

The theme chosen for the Annual Report 2010 – “Redesigning the Future” – clearly reflects the experience of Banco Indusval throughout this year. Such process started at the end of 2009 with the Project “To see Beyond one must be able to View”. With the opportunities observed, together with our strategic partners, we started to redesign the future of the Bank and that is what we aim at translating through the images illustrated in this report. We used the photographic material produced by the young students from Projeto Arrastão

(Arrastão Project) who, during the 2010 summer vacation, attended to creativity workshops sponsored by the Indusval Sustainability Institute. The project, named “To See Beyond”, proposed the obtaining of images from the city of São Paulo – its nature, architecture and people – through photographs that, developed in black and white, were the basis for the performance of colored interferences with

techniques of drawing, painting, graphite and DIY by the Project’s students. The result of this work illustrated our 2009 Annual Report. To illustrate the new phase of the Bank, the graphics designer Márcia Godoy, supporter of the Project “To See Beyond”, used the photos taken by the Project students to compose images combining the elements from nature, architecture and people and graphics drawn by her which translated, in a sensitive manner, the message of the “Redesigning the Future” Project.

This redesigned future proposes a new Bank: stronger, more dynamics, innovative, searching for excellence in every activity, valuing the team work, fostering the owner attitude in every employee, focusing on results, and maintaining the ethics and credibility that are the permanent values in more than 40 years of history of the Indusval brand.

index

Message from the Chairman

pg. 04

New stage on company's evolution

Banco Indusval & Partners

pg. 06

The Bank Redesign

Corporate Profile Innovative Bank with excellence in Corporate Credit

Main Indicators

02 03 04 05 06 07

pg. 24

pg. 26

Financial-Economic Socioenvironmental

Corporate Governance

pg. 35

Governance: the basis for business sustainability

Economic Environment and Credit in Brazil

pg. 39

Significant GDP growth, credit and salaries expansion

Economic and Financial Performance

pg. 42

Economic recovery, high liquidity maintained

Capital Markets

pg. 55

People Management

pg. 60

Listed in Level 1 of Corporate Governance with Novo Mercado practices

Growth opportunities for high performance professionals

Sustainability

pg. 64

Aligned to the Companyâ&#x20AC;&#x2122;s principles and guidelines

Financial Statements Corporate Information

pg. 70 pg. 132

Message from the Chairman

Dear Shareholders and Stakeholders, In the 2009 Annual Report, we exposed our decision of making a detailed examination on our businesses, processes and capabilities to effectively see the best opportunities we could embrace for the future development of our businesses.

In March 2011, as a result of the aforementioned work, developed in 2010, in March 2011, we closed investment agreements with Warburg Pincus, one of the largest private equity funds of the world; and with Sertrading, a leading foreign trade service providers in Brazil; reinforced our management team; acquired Serglobal Comércio de Cereais Ltda., an agricultural securities originator; and, signed agreements with J.P.Morgan for a credit line and for a future minority interest in the Bank’s capital. To highlight this new phase, and the incorporation of the new partnerships, the new values, the new vision and strategy, we adopted a new brand: Banco Indusval & Partners (BI&P).

During 2010, we maintained the course of our businesses and worked hard in reassessing and redefining of our strategy. By the end of the year we amounted 362 employees who produced total assets of R$3.3 billion, a credit portfolio of R$1.9 billion, with shareholders’ equity of R$426.4 million and Capital Adequacy (Basel) Ratio of 17.6%. At the same time, we assessed new markets and new products; tested expansion opportunities; in the second half of the year, we started the commercial platform of larger companies; discussed and formed new alliances to redesign the future of a stronger and more dynamics Bank. Therefore, the theme for the Annual Report 2010 could only b: “Redesigning the Future”.

These agreements, beyond expanding the capital structure to support the growth of our operations, provide grounds for a quality leap towards an “innovative bank, with excellence in corporate credit and in depth knowledge of our clients’ activities and industry sectors” – our Vision. It is also part of this vision, the achievement, in the medium and long term, of a leadership position in corporate fixed income bond market in Brazil.

This Vision was developed in partnership with our new partners and managers, which add their entrepreneurship, expertise in the companiesâ&#x20AC;&#x2122; and financial institutions development, their history in foreign trade and agribusiness know-how. We have a clear target: to return to our historic level of growth, with a high quality asset origination with middle and upper middle market companies, reducing credit risk through an in depth knowledge of the clientsâ&#x20AC;&#x2122; operating activities. In order to reach this target we are expanding the range of financial products and strengthening the generation of recurring services revenues. This transformation is already in progress and our management was consolidated with the joining of experienced professionals in key management positions that have drawn our strategic plan for short, medium and long term. Therefore, before reporting our activities for the year 2010, I would like to invite the readers to learn a little more about the new Banco Indusval & Partners. Manoel Felix Cintra Neto Chairman of the Board of Directors

banco indusval & partners

The Bank Redesign

Scenario and Opportunity The Opportunity Such scenario combined to the high concentration of the Brazilian banking sector and to the projection of descending interest rates creates, in the medium and long terms, create a healthy and sustainable opportunity of growth for a Bank focused on corporate

The Scenario

Brazil presents a sustainable growth perspective of the economy for the next five years around 4 to 5% per annum which will certainly demand an important volume of resources to be invested, and working capital for the Brazilian companiesâ&#x20AC;&#x2122; operations. Therefore, there is the projection that the corporate credit will grow something close to 20% per annum in this period. In addition, the perspective that the 18% Foreign Trade share in the Gross Domestic Product expands to 25% in the next decade opens a good range of business opportunities.

credit and on the corporate fixed income bond market.

banco indusval & partners

Capital Increase Aiming at the growth of its assets with a more robust capital structure, a capital increase of R$201 million was carried out, with the admission of new partners through a private subscription of new shares. The approval of the Central Bank of Brazil for this capital increase is foreseen for the second half of 2011.

part in the Bank capital stock, through WP X Fund of Investment in Participations, Warburg Pincus executed a Shareholders’ agreement that includes the right of appointing a member to the Board of Directors. For this reason, the American fund appointed Mr. Alain Belda, its chairman in Brazil, former global CEO of Alcoa and member of the Board of Directors of Citigroup (USA).

With a subscription of R$150 million, Warburg Pincus became an important strategic partner. Warburg Pincus is one of the largest private equity funds of the world and in its more than 40 years’ of history has invested approximately US$35 billion in more than 650 companies, in more than 30 countries. One of Warburg Pincus’ specialties is to invest in companies of the financial sector, with investments of approximately US$8 billion in 70 institutions related to financial services all over the world. It is, currently, shareholder of more than 5 banking institutions in the United States, Asia and Europe. After subscribing and paying its

The controlling shareholders of Sertrading subscribed R$30 million and the controlling shareholders of Indusval transferred additional R$21 million.

Investment in Sertrading and Operating Agreement Banco Indusval carried out a capital subscription of R$25 million in Sertrading, ac-

volume of foreign trade transacted by Sertrading in 2010 was R$1.6 billion generating net revenues of R$500 million and a net income of R$12.8 million.

quiring a minority interest of 17.7% from its capital, and executed an Operating Agreement, with five years term, that guarantees to the Bank the preemptive right for acquisition of receivables generated in the foreign trade activity of Sertrading.

The Bank intends to extract various synergies with Sertrading businesses, particularly (i) to expand its performance in foreign trade, with access to larger clients, expanding the basis of quality assets; (ii) to enhance clients’ operating chain visibility, understanding and mitigating the risks of these operations and expanding the offer of related financial products; and (iii) to cross sell the bank’s financial products to Sertrading’s clients.

Sertrading, created in 2001 by former controllers of Cotia Trading, is one of the leading companies in foreign trade services in Brazil, exporting and importing for more than 90 countries, and operating through its offices in São Paulo, Rio de Janeiro, Vitória, Itajaí, Paranaguá, Varginha, Franca and in China. The

banco indusval & partners

Acquisition of the Agricultural Securities Originator The Bank also acquired, for R$15 million, Serglobal ComĂŠrcio de Cereais Ltda, originator of agricultural securities, transferring to BI&P the expertise generated in the last eight years operating in this business of financial nature. This acquisition further transfers the portfolio and the team that invests in Rural Product Certificates with the purpose of expanding the bank activities in certain segments of the agricultural sector widely known by the team absorbed from Sertrading.

Agreement with J. P. Morgan By means of agreements entered into in the restructuring process, J.P. Morgan granted in May, a credit line for the Bank that amounted US$25 million, and committed to, in the future, subscribe, warranty bonuses of preferred shares of Banco Indusval representing 2.5% of the Bank capital stock. J.P. Morgan will not be part of the controlling group or have any participation in the management of Banco Indusval.

anoel F. Cintra

Carlos ampolini

banco indusval & partners

New Corporate Structure

After the due approvals of the Central Bank of Brazil, of the subscription receipts conversion into shares and the formalization of the new shareholders’ agreement:

Controlling Group

Treasury

33%

GRUPO DE CONTROLE

Luiz Masagão Ribeiro Manoel F.

Cintrada Antonio Rocha Carlos Ciampolini

GRUPO DE CONTROLE Jair Ribeiro PN = 3% Luiz Masagão Total = 1% Ribeiro GRUPO DE CONTROLE ON = 55% Manoel F. Luiz MasagãoPN = 3% Cintra Antonio da Ribeiro Total = 33% Rocha

ON Jair Ribeiro

= 55% PN = 3% GRUPO DE CONTROLE Antonio da Total = 33% Luiz Masagão Ribeiro

Rocha

Carlos Ciampolini

17,7%

Antonio da Rocha

17,7%

82,3%

Alfredo de Goeye, Jair Ribeiro MSE Ind. e Com. + Outros

Tesouraria

Warburg Pincus

ON = 13% PN = 44% Total = 26%

Total = 1%

ON = 55% PN = 3% Total = 33%

Outros

ON = 32% PN = 50% Total = 40%

PN = 44% Total = 26% Warburg

ON=FREE 45%FLOAT ONPincus = 13% PN= 94% PN = 44% Warburg Total = 26% Total= 66% Pincus

PN = 3% = 1% FREETotal FLOAT

ON= 45% PN= 94% Total= 66%

ON = 13% PN = 44% Total = 26%

Outros

ON = 32% PN = 50% Total = 40%

Outros

ON = 32% PN = 50% Total = 40%

ON= 45% PN=Outros 94% ON = 32% Total= PN 66% = 50%

Total = 40%

ON= 45% PN= 94% Total= 66%

100,0% 100,0% 100,0% 100,0%

100,0%

S e r g SlCeoSregrebleoarbSaigsaelllrogbl oabla l Cereais C e r e aCiesr e a i s

17,7% 82,3%

PN = 3% Total = 1%

ON = 55% Tesouraria PN = 3% Total 33% PN ==3%

Jair Ribeiro

66%

Warburg Pincus

FREE FLOAT ON = 13%

Tesouraria

Jair Ribeiro

Carlos

82,3%

FREE FLOAT

Tesouraria

Manoel F. Ciampolini Cintra

17,7%

Free Float

100%

100,0% 100,0%

100,0%

100%

redo de Goeye, Jair Ribeiro MSE Ind. e Com. + Outros

100,0%

100%

Strengthened Management Board of Directors

Manoel Felix Cintra Neto, economist, one of the national financial market leaders, was Chief Executive Officers of Banco Multiplic, Chairman of BM&F and former member of BM&FBOVESPA Board of Directors. He also had a relevant participation in the management of various associations for the development of the Brazilian financial market as President of Anbid, Executive Officer of Febraban, ViceChairman of CBLC, of Adeval, of the Superior Economic Council of Institute Roberto Simonsen (Cosec), and of the Businessmen Council of the Latin America (CEAL). Currently, Manoel is a Board member of the “Fundo Garantidor de Crédito” (FGC) and Chairman of the Board of Directors of the National Association of Brokerage Firms and Dealers (Ancord).

After obtaining the necessary approvals by the Central Bank, Mr. Manoel Felix Cintra Neto takes office as Chairman of the Board of Directors and Mr. Luiz Masagão Ribeiro and Mr. Jair Ribeiro da Silva Neto, also Co-Chief Executive Officers, Mr. Carlos Ciampolini and Mr. Antonio Geraldo da Rocha have remained as part of the Board of Directors. Along with the continuous improvement of our governance, Mr. Alain Belda, Mr. Alfredo de Goeye Junior, Mr. Guilherme Affonso Ferreira and Mr. Walter Iorio have joined our Board of Directors as Independent Members.

banco indusval & partners

Board of Directors Antonio Geraldo da Rocha, has been operating in the financial market since 1972, was partner of Vetor Corretora; cofounder, majority shareholder and CEO of Stock S.A. Corretora de Câmbio e Valores and of Banco Stock S.A. He carried out the merger with Corretoras Máxima and Multiplic forming Banco Multistock S.A., later merging to Indusval, of which he serves as a controllers and member of the Board of Directors. He is a director of Stock Asset Management e Gestão de Recursos Ltda, which he founded in 2006.

Carlos Ciampolini, economist, built his career at Indusval S.A. Corretora de Títulos e Valores Mobiliários where he acquired a solid experience as its Executive Officer (1980 – 2008), serving, moreover, as well as the Executive Officer of Banco Indusval (1991 – 2011). Mr. Ciampolini is currently a member of the controlling group of the Bank and a member of its Board of Directors since 2008.

Jair Ribeiro da Silva Neto, lawyer and economist, was one of the founders and CEO of Banco Patrimônio (19881999), as well as CEO of Banco Chase Manhattan S.A. and Executive Officer of JP Morgan Chase (NY) (2000-2003). More recently, Mr. Silva Neto became a shareholder, CEO and President of the Executive Committee of the Board of CPM Braxis S.A. (2005-2010), one of the largest Brazilian companies of IT services, the control of which was sold, in October 2010, to the European company Cap Gemini, a giant in the sector.

Luiz Masagão Ribeiro, business manager, was CEO of Indusval Corretora (1998 – 2008), former Chairman (1986 – 1991) and member (1998 – 2003) of the Board of Directors of BM&F, member of Bovespa Board of Directors (1987 – 1992), CEO of Banco Indusval (1988 – 2003) and Chairman of the Board of Directors of Banco Indusval (2003 – 2011). Currently he is the director of the Brazilian Financial and Capital Markets Association (Anbima). Alain Belda, business manager, served as Chairman and CEO of Alcoa (USA) (1999 – 2008), where he worked for four decades. Currently, he is an independent member of the Board of Directors of Renault S.A., of Citigroup, Inc. (USA) and of the International Business Machines Corp. (IBM) (USA), in addition to participating and conducting various associations and councils of foreign and national institutions related to education and philanthropy. Mr. Belda is the CEO of Warburg Pincus LLC and leads the investments of this private equity fund in Latin America since 2009.

Alfredo de Goeye Junior, business manager, worked in the financial market and in the machinery and equipment industry in the beginning of his career, and was commercial vice-president of Cotia Trading (1994 – 2000), and founder of Sertrading S/A and of Serlac Trading S/A. He was also co-founder of Braxis S/A (2006), currently named CPM Braxis S/A, besides having being part of its controlling group and a member of its Board of Directors. Currently, he is the CEO of Sertrading companies, member of the Private Sector Council (Conex), of the Chamber of Foreign Trade and director of the China-Brazil Business Council.

Guilherme Affonso Ferreira, engineer, worked in several areas of Bahema S/A since 1976, and currently serves as the CEO of Bahema Participações S/A. He was a member of the Board of Directors of diverse companies as Unibanco, Unibanco Holding, Submarino, B2W, Santista Têxtil and Avipal from 1998 to 2010. He is a member of the Board of Directors of Sul América, of Pão de Açúcar, of Tavex, of Eternit and of Arezzo. He is also a member of the Advisory Council of Signatura Lazard and of Rio Bravo Investimentos, since 2006.

Walter Iorio, accountant, with extensive experience in financial institutions and insurance companies in the audit of financial statements, mergers and acquisitions and preparation of appraisal reports as KPMG Brazil partner (1966 – 2005). He is a member of the financial institutions specialists group of the Institute of Independent Auditors of Brazil (Ibracon) in which he participates in the preparation of audit and accounting rules, jointly with the Central Bank of Brazil; and a member of the Regional Council of Accounting of São Paulo (CRC-SP) (2006 – 2007) and coordinator of the Internal Controls Chamber. He is a member of the Audit Committee of Sul América Seguros and of Sul América Vida e Previdência and serves as a President of the Audit Committee of Tokio Marine and CEO of KPMG PREV Previdência Privada.

banco indusval & partners

Board of Executive Officers The company executive management, headed by the Co-CEOs Jair Ribeiro da Silva Neto and Luiz Masagão Ribeiro, has been strengthened aggregating experienced professionals that became partners of the project and executives already developing their activities in the Bank. Jair Ribeiro will conduct the commercial, fund raising, treasury, products, corporate finance and Investor Relations activities, whereas Luiz Masagão will focus on the credit, risk, compliance, accounting, IT, legal and administrative areas. This distribution of power between two shareholders and extremely experienced executives, aims at achieving excellence in all the Bank’s corporate credit and financial services activities.

André Mesquita, economist, is the former CEO and COO of Cotia Trading (Argentina) (1996 – 2000), Co-founder and Director of Sertrading (2000 – 2011), as well as former CFO of CPM Braxis (2006-2011), in which he was responsible for the acquisition and integration of five companies that resulted in CPM Braxis. André Mesquita takes over the Products and Corporate Finance Vice-Presidency.

Cláudio Roberto Cusin, graduated in engineering and economics, is the former Credit Officer of BankBoston (1988 – 1997), ING (1997 – 2002), WestLB (2005 – 2006), Banco Standard de Investimentos (2007 – 2009) and KdB (2010), will be appointed to take over the Corporate Credit Office.

Eliezer L. Ribeiro da Silva, graduated in accounting, has worked at Serasa, Sudameris and Banco BMG and, for 17 years, at Banco Indusval having served as an Executive Officer since 2007, takes over the Middle Market Credit Office.

Francisco Cote Gil, who has more than 40 years of experience in the financial market, served as a partner and Executive Officer of BBA and ItaĂş BBA (1990 â&#x20AC;&#x201C; 2009) and as Executive Officer of Banco Crefisul de Investimento (Citibank) in which he performed for 18 years, takes over the Commercial Vice-Presidency.

Gilberto Faiwichow, engineer, post graduated in business administration with more than 25 years of experience in the financial market, is the former Treasurer of Banco ING (Brazil) (1989 - 1992) and Co-founder, Shareholder and Treasurer of Banco Rendimento (1992 -2000). In 2003, he founded Zoom Asset Management that was merged in 2005, when he became a partner of Black River Asset Management (Cargill Group) (2005 - 2008), takes over the Treasury Vice-Presidency.

Gilmar Melo de Azevedo, graduated in law, was the Regional Manager of Banco Real, Auditor of Banco Mercantil do Brasil, Executive Officer of Banco Sofisa and Banco Pine, and is has served as an Executive Officer of Indusval since 2007; takes over the Vice-Presidency of Special Credits, reporting directly to Mr. Manoel Cintra, with the responsibility of managing the recovery and renegotiation of non-performing loans.

banco indusval & partners

Jair Balma, business manager, is a professional in the financial market since 1980. He worked for FundaĂ§ĂŁo Cosipa de Seguridade, at Banco Itau and in the management of local fund raising areas at Banco Multiplic, BCN Barclays, Multistock, and from 2003, at Banco Indusval.

Katia Moroni, performing in the international area of financial institutions since 1982, is former Executive Officer of Banco Santander, Banco Multiplic and BankBoston, having served as an Executive Officer of Banco Indusval since 2004. Ms. Moroni takes over the Trade Finance, Syndications, Funding and Investors Relations Vice-Presidency.

Chairman Manoel Felix Cintra Neto

Special Credits Gilmar Melo de Azevedo

Chief Executive Officers Luiz Masagão Ribeiro

Jair Ribeiro

Middle Market Eliezer L. Ribeiro da Silva

Commercial Francisco Cote Gil

Corporate Cláudio Roberto Cusin

Treasury Gilberto Faiwichow

Accounting & Controlling Products & Structured Finane André Mesquita

Legal

Administrative Trade Finance

Information Technology

Local Funding Jair Balma

Risk Management

Syndications

Human Resources

Investor Relations Compliance & Internal Controls

Katia Moroni

banco indusval & partners

New Vision

Our Goals

Being an innovative bank, with excellence in corporate credit and in depth knowledge of our clients and the industries in which they operate, as well as one of the leaders of the growing corporate fixed income bond market in Brazil.

To retake the sustainable Credit Portfolio growth by daily practicing our Vision which means to expand our businesses with excellence in credit granting through deep knowledge of our clients, their operations and the industries in which they operate. This target will be achieved with the training of the Commercial team for a multi products offer, attraction of new talents, focus on more promising economic industries and regions, and specialized credit analysis focused also on industries and client segments, in addition to more interaction with the commercial area. To meet these targets, the support areas â&#x20AC;&#x201C; IT, Administrative, Compliance, Risk management, Accounting & Controlling, Legal and HR areas â&#x20AC;&#x201C; actively participate and are perfectly aligned with the business plan that guides the Bankâ&#x20AC;&#x2122;s economic and financial targets and action plans.

Enduring Values that Guide the Activities of the New Bank The new Indusval & Partners carries a legacy of ethics and credibility, which are enduring values achieved throughout more than four decades operating in the financial market. This new phase incorporates and reinforces critical values for its success to be being built with team work in the search for excellence in all areas and businesses, with innovation in processes and products, encouraging the ownership attitude in all its employeesâ&#x20AC;&#x2122; actions, without missing the focus on results.

corporate profile

Innovative bank with excellence in corporate credit Banco Indusval & Partners (BI&P) is a commercial bank that concentrates its businesses in corporate credit products, local and foreign currencies. Its story began in 1967 with the founding of Indusval S.A. Corretora de TĂtulos e Valores. Indusval focuses on middle-markets lending since 1991. In 2003, it merged with Multistock, having started a branch network expansion and experienced a growth leap.

become an innovative Bank, with excellence in the corporate credit through deep knowledge of its clientsâ&#x20AC;&#x2122; activities and the industries in which they operate, as well as towards becoming, one of the leaders in the growing corporate fixed income bond Brazilian market in the future. As a publicly held financial institution, BI&P is listed under level 1 of Corporate Governance of the Brazilian Futures and 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.

In 2011, a new stage in the Companyâ&#x20AC;&#x2122;s evolution was initiated: With new shareholders and partners, a capital increase and the management strengthened, the Bank paves its path towards the sustainable growth in the upcoming years, pursuing the objective to

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

Brokerage São Paulo Campinas Rio de Janeiro

main indicators

Economic-financial Results Financial Intermediation Results Operating results Net Profit Balance Sheet Credit Portfolio Credit Portfolio including issued Guarantees and L/Cs Cash and Financial Investments Total Assets Total Deposits Loans and Onlendings Shareholders’ Equity Performance Return on Average Shareholders’ Equity – ROAE Return on Average Assets – ROAA Net Interest Margin (NIM) Default Ratio Basel Index Efficiency Ratio Shares Number of Outstanding Shares Number of Shares in free float % Free float Market Capitalization (in R$ million) Average Price per Share (IDVL4) (in Reais) Book Value per Share (in Reais) Net Profit per Share (in Reais) Dividend per Share (in Reais)

2006

2007

2008

2009

2010

69.2 30.5 23.6

129.2 61.0 45.4

200.1 110.9 71.8

94.3 1.1 12.8

141.9 41.6 29.0

644.0

1,255.2

1,723.0

1,635.9

1,876.9

691.0

1,329.0

1,793.7

1,698.7

1,941.2

422.3 1,120.6 526.4 164.1 149.7

913.1 2,211.2 810.4 229.7 406.7

442.4 2,225.4 824.9 775.2 448.5

1,082.2 2,730.5 1,273.2 520.0 432.7

1,313.0 3,276.1 1,577.6 453.0 426.4

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%

6.8% 1.0% 6.7% 3.8% 17.6% 60.9%

29,704,468 43,000,001 42,489,501 42,048,101 40,466,187 - 22,620,381 21,753,273 21,145,842 19,589,522 52.60% 50.60% 49.80% 47.53% 838.5 169.5 348.6 321.7 19.41 12.72 6.82 8.18 5.04 9.46 10.56 10.29 10.54 0.75516 1.05523 1.68919 0.30389 0.71687 0.32486 0.36879 0.59943 0.64234 0.60983

Social-environmental Internal Social Indicators Number of Employees Investments in Meals, Health and Education Social Charges Profit sharing Total of Internal Social Indicators External Social Indicators Investments in Education Culture and Sports Taxes Total of External Social Indicators Environmental Indicators Investments related to the operations of the company Investments in programs and/or external projects Total of Environmental Indicators Distribution of the Added Value Added Value Government Shareholders Retained Third Parties Terceiros

2006

2007

2008

2009

2010

255 -

331 6.6 13.5 9.7 29.8

329 8.0 27.5 9.9 45.4

333 7.7 17.5 5.6 30.8

362 8.7 11.3 7.1 27.1

1.4 23.7 25.1

1.6 37.6 39.2

0.9 23.1 24.0

0.4 30.3 30.7

0.1 0.0 0.1

0.5 0.1 0.6

0.6 0.1 0.8

0.6 0.0 0.7

63.0 38.2% 24.3% 16.2% 21.4% 0.0%

126.3 38.3% 25.2% 12.6% 23.4% 0.5%

185.0 34.0% 26.7% 13.8% 25.0% 0.5%

72.7 67.4% 13.3% 37.2% -19.5% 1.6%

115.8 48.2% 25.2% 21.7% 3.4% 1.5%

(a) NIM = Net Interest Margin = Gross Result of Financial Intermediation (except loan loss allowances)/average interest bearing assets (b ) NPL/Total of Credit Portfolio, in which NPL (Non-Performing Loans) corresponds to the total balance of contracts with any installment due for more than (c) Upon excluding the nonrecurring expenses from the IPO, which net of the tax effects amounted to R$0.7 million, the net profit for the year would be R$55.1with ROAE of 19.8%, ROAA of 3.3%, NIM of 9.3% and Efficiency Index of R$54.6%. (d) Ratio between Operating expenses and operating revenue. Drop in this ratio shows better performance (e) All the shares comprised in the companyâ&#x20AC;&#x2122;s capital stock, except those held in treasury (f) Outstanding shares less the shares held by the Controlling Group and Management â&#x20AC;&#x201C; "Free Float" (g) Percentage of Free floating shares on total outstanding shares (h) Interest on Equity (IoE) paid in advance to the Shareholder on account of annual dividend

corporate governance

Governance: the basis for business sustainability

With shares listed in Level 1 of Corporate Governance practices of BM&FBOVESPA, Banco Indusval adopts additional procedures required only for the companies listed in the highest level of requirementsâ&#x20AC;&#x201C; â&#x20AC;&#x153;Novo Mercadoâ&#x20AC;?. Such practices include the use of the Arbitration Chamber to solve matters related to the capital markets, 100% of tag along, percentage of independent members in the Board of Directors superior to 20% and maintenance of a free float above 25% of total shares. In addition, BI&P maintains the same dividend practices for the common (ON) and preferred shares (PN).

Banco Indusval & Partners believes that good governance is the basis for the sustainability of its businesses and the support for its credibility. Therefore, it values the ethics in its businesses, the transparence in the disclosure of its information, the corporate management accountability, constantly seeking the improvement in its decision process, in its internal controls and in its risk management.

corporate governance

Corporate Governance Structure

Board of Executive Officers

The Board of Executive Officers responds for the Bank’s management, for the execution of the guidelines and policies and for the business operating activities supervision.

Board of Directors

The Board of Directors is responsible for outlining strategic guidelines and general policies, besides guiding and supervising the Executive Board’s activities, the accuracy of the financial information disclosed, the choice of the independent auditors and the monitoring of the internal audit activities. In 2010, the Board of Directors had nine members, two of which were independent. The Board members ordinarily meets four times a year, and extraordinarily, whenever necessary.

In 2010, the Board of Executive Officers was composed of nine members with a two year term, which will be effective until the empowerment of the member of the Executive Office elected on May 6, 2011. All the Board members have a broad experience in the financial market and evidenced efficiency in business management.

Fiscal Board

Committees

According to its Bylaws, the Fiscal Board of Banco Indusval & Partners is not permanent and may be installed by resolution of the Shareholders’ Meeting. When installed, the Fiscal Board should have at least three members and five at most, elected to a one year term of office and dismissible by the Shareholders’ Meeting.During 2010, by resolution of the Annual General Shareholders’ Meeting of held on April 15, 2010, the Fiscal Board was installed with three effective members, who will remain in their positions for another year according to the resolution of the Annual General Shareholders’ Meeting held on April 29, 2011.

The management of Banco Indusval counts on non statutory committees to discuss and monitor the relevant matters for the development of its businesses. The main function of these committees is to support the Board of Executive Officers in the Company’s business management: Compensation and Benefits Committee

Composed by at least three members of the Board of Directors, independent or not, annually elected. The Compensation and Benefits Committee meets regularly twice a year, at the end of each semester, and extraordinarily, whenever necessary. Its

mission is to support the Board of Directors in matters related to people management in order to attract, retain and reward the Management and the employees, as much as to generate shareholder value in the long term. This Committee also accounts for the management of incentive plans, as Profit Sharing Programs, Stock Option Programs and Retirement Plans.

Credit Committee

The Credit Committee is vital for the management of one the main risks of the Bank and accounts for the definition of the credit risk management and, collegially, by the approval of credit limits granted to the clients. It is composed of six officers comprising the Co-CEOs and the heads of the Commercial, Treasury, International and Credit areas. 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 collateral coverage in pre-approved credit limits.

Cash Committee

In weekly meetings, the five members of the executive office that comprise the Cash Committee discuss and assure the Bankâ&#x20AC;&#x2122;s liquidity control, by analyzing cash flow projections to determine the Treasury strategy towards funding alternatives, by discussing deals conditions, operating limits and the approval of interbank credit limits. This committee also analyses the international and national economic scenarios and the strategies to mitigate market and liquidity risks arising from the potential macro scenario.

Internal Audit Committee

With monthly meetings this Committee is composed of six members involving senior executive management, the Superintendent for Compliance and Information Safety, the Superintendent for Accounting and Controlling, the Compliance Manager and the representative of the Internal Audit. Among other responsibilities, this Committee supports and advises the Board of Directors in the monitoring of the accounting practices adopted in the preparation of the financial statements as well as the assessment and effectiveness of the Internal controls.

242,0 mil

Ugit est, sunto inctia de num que laceatet ad que remqui odit,

corporate governance

Compliance Committee

Special Credits Committee

This committee meets on a monthly basis, with the purpose of establishing operating policies and rules, as well as to define and assess the strategies and effectiveness of the internal controls culture diffusion, for risk mitigation and adequacy to legal rules. The Committee is composed of nine members, including senior executives, the Commercial Officer responsible for Money Laundering Prevention, the Superintendents for the Administrative, the Compliance and Information Safety, the Accounting and Controlling and the Legal areas, the Compliance manager and the Internal Audit representative. Derived from this committee, the sub-Committee of Ethics, coordinated by the head of Human Resources, focuses on ethical behavior in the performance of professional duties. The periodical review of the Code of Ethics, the monitoring and the timely communication of eventual violations to the Management are part of this sub-committeeâ&#x20AC;&#x2122;s duty.

The Special Credits Committee was created to better manage the credit operations overdue from 16 (sixteen) to 360 (three hundred and sixty) days and develop actions that provide their reduction and better recovery. This Committee discusses and establishes the action plans to be adopted by: the Commercial Area, upon attempts in the friendly scope; the Credit Recovery unit, upon discussions for debt renegotiation; or Legal, upon judicial action. This Committee meets on a weekly basis and is composed of the Chairman and Co-CEOs, the Special Credits Vice President, the Commercial Vice President and the Credit Recovery manager. Legal Committee

Composed by the Chief Executive Officers, the Legal Superintendent, the in-house lawyers responsible for litigation and lawyers from hired law firms, the Committee meets every month, with the purpose of analyzing and discussing legal matters related to the Bankâ&#x20AC;&#x2122;s deals. It is the Committeeâ&#x20AC;&#x2122;s responsibility to analyze the legal dispute cases in progress and, as from the observation of these cases, to recommend actions to mitigate risks and assure the perfect formalization of operations.

Risk management

Technology and Information Safety Committee

The mission of this committee is to discuss and plan the activities and investments in technological and systems infra structure to assure the development of operations in a sustainable and safe manner, and to define the IT policies and rules for the information use and protection. The policies and rules have to be followed by all officers, employees and service providers irrespective of their hierarchical position. The Committee meets on a monthly basis and is composed by: the Chief Executive Officers, the Administrative Superintendent, the Superintendent for Compliance and Information Safety, the IT Superintendent, the Systems Development Manager (IT), the OSM Project Manager, the IT infra structure Manager (IT) and the Controller.

The efficient risk management is critical for any financial institution and it became even more relevant after the financial crisis that shook the world markets. Risk management is strategic for Banco Indusval and encompasses business continuity even in adverse operating conditions, compliance, money laundering prevention, information safety, as well as in the control and mitigation of market and liquidity risks, in addition to the main risk to which it is exposed, the credit risk. The Bank has tools to identify and map the risks to which it is exposed, to measure such exposure, to adopt mitigation measures and to permanently monitor eventual variances and scenarios that may interfere in its businesses and results. Conservative policies are adopted in terms of risks exposure, following guidelines and limits defined by Management. The Risk management concern is present in all activities, mainly in the above described committees which support management in the discussion of improvement alternatives both in the internal policies and rules as well as for the monitoring and mitigation of these risks.

corporate governance

In this sense, in 2010, the Bank kept its investments in the improvement of its risks control both through the hiring of experienced professionals and through the training of its teams.

and technology aspects. BI&P invests in the dissemination of the culture for prevention of these risks among its employees, by availing tools, disclosing policies and adopting corporate methodologies as the management of the operating risks is critical for the generation of added value.

Operating Risk

Operating risk is defined as the possibility of losses arising from failures in processes, human failures, contractual problems, improper or faulty systems, or as a result from external events. BI&P counts on policies and control mechanisms to provide proper operating risk assessment, consistently monitoring these risks, what assures their permanent and emergency mitigation.

BI&P is adherent to the determinations of the Capital Adequacy (Basel) Ratio known as Basel II, according to schedule established by the Central Bank of Brazil (BACEN) and utilizes the Basic Indicator Approach â&#x20AC;&#x201C; BIA for the calculation of capital allocation of the Operating risk portion (POpr).

To control the operating risks, the Operating Risk Management System (GRO) is used, with its structure aligned to the main existing models, as the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the Control Objectives for Information and Related Technology (COBIT), which comprise business

The operating risk management structure is integrated to the Compliance area, with a specific team, and monthly reports to the Compliance Committee, or, extraordinarily, whenever any relevant inconsistence or non conformity is detected.

To assure the integrity of the information and the business continuity, the Business Continuity Plan (BCP) of BI&P comprises a fully prepared environment, in another address, able to support its operations, with work stations, systems, telephony, among others, for any contingency event (interdiction of any nature) in the headquarter office.

BI&P has methods, systems and processes available for the full assessment of each borrower, of the guarantee structures comprised in each operation and of the economic conditions of the country and abroad. The clientsâ&#x20AC;&#x2122; ratings, supported by Resolution 2,682 of the National Monetary Council are attributed by mathematic model.

During the year, the Bank kept its Compliance agents mobilized to prevent and minimize the possibility of occurrence of losses arising from fault, deficiency or inadequacy of internal processes, persons and systems, or from external events, according to Resolution 3380 of the National Monetary Council (CMN).

The clientâ&#x20AC;&#x2122;s economic financial performance is periodically monitored and the collaterals are daily monitored by means of systems that control the volumes, liquidity and potential shortages, particularly in the event of loans guaranteed by receivables. In 2010, a new guarantees management system was implemented to improve the pricing, measurement of value and availability mainly of guarantees such as: agricultural products, real estate and vehicles, to provide more agility in the assessment of guarantees coverage and to grant more accuracy and safety to the credit concession process.

Credit Risk

This risk arises from the possibility of non compliance of the financial obligations by the borrower. The Credit Risk management of a financial institution should be a continuous and developmental process of diagnosis, measurement, mitigation, assessment and reporting through the disciplined use of models, instruments and procedures for the analysis of the proposed and closed deals.

corporate governance

The approved credit lines are revised every six months to allow a constant follow-up on clients’ performance and submitted to the Credit Committee.

Market Risk

The Market Risk refers to possible losses due to oscillations in economic financial variables, as interest rates, foreign exchange rates and shares and commodities prices.

Liquidity Risk

The Liquidity Risk results from mismatches in the cash flow of a financial institution, which may cause the incapacity of settling commitments with its reserves and available funds, even if momentarily. To avoid this risk, BI&P counts on systems for the monitoring and constant analysis of its liquidity, within proper reserve guidelines and limits. This monitoring utilizes statistical models and economic financial projections of assets and liabilities variables that affect its cash flow and the reserve levels in local and foreign currencies.

The market related risks are monitored, assessed and managed through software supported on the rules and recommendations of the regulatory agencies. The Bank adopts as methodology, particularly, the calculation of the Value at Risk (VaR), a statistical measure that estimates the maximum potential loss of the Bank’s portfolio value in normal market conditions, considering a certain period of time. Indusval also uses monitoring and control tools as: • the calculation of Losses in Stress Scenarios (VaR Stress), which determines the risks of potential losses in extreme market conditions; • the Analysis of gaps, graphics representation by risk factor of the cash flows expressed in market value, allocated at the maturity dates, and used to assess the risk exposure in a certain period; • the Results Analysis, monitoring of the results compared to a benchmark; and

â&#x20AC;˘ the Capital Allocation, so as to assure that

the Institution is able to absorb the impact from unexpected losses, enabling the continuity of activities in adverse scenarios which is also the basis to measure the return of the operations in relation to the risk. The Market Risk monitoring system is able and adequate for calculation of the foreign exchange, interest, commodities and shares portions and calculation of these portfolios risk, within Basel II Accord. At the end of 2010, the Bankâ&#x20AC;&#x2122;s global VaR was R$1.9 million calculated by the parametric model, with confidence interval of 95.0%.

economic conditions and credit in brazil

Significant GDP growth, credit and salaries expansion 2010 was marked by the strong recovery of the economy after suffering the effects from 2008 crisis. The weak comparison basis accounted for the GDP closing with an expressive growth of 7.5%. In sector basis, the highlights were the industry +10%, commerce +11% and civil construction +12%.

These robust numbers are explained by the credit growth, which in 2010 reached 46.4% of the GDP, and by the expansion in the salaries, influenced both by the salaries increase and the jobs increase. It was an exceptionally good year, consolidating the recovery capacity of the Brazilian economy before a serious international crisis. Merit for the national business community, which faced the risk again before a series of uncertainties in the international environment.

PIB â&#x20AC;&#x201C; % annual 7.5% 6.1%

5.2%

3.9%

-0.6%

2006

2007

2008

2009

2010

Source: IBGE and Central Bank; prepared by Banco Indusval & Partners

economic conditions and credit in brazil

On the external sector, we had a recovery in exports, mainly due to increased exchange of products with China. However, even with an annual growth in external sales of 32%, the trade balance dropped about US$5 billion, to US$20 billion, due to the growth of 42% in imports, fostered by the strong internal consumption.

Credit as % of GDP 47.0% 46.5% 46.0% 45.5% 45.0% 44.5% 44.0% 43.5%

Despite the lower trade flow, the US dollar has marginally devaluated. This is due to the strong financial flow, about US$26 billion, influenced both by the investment in fixed income (carry trade operations, with a higher interest differential) and by the flow of investments in stock (mainly, Petrobras capitalization).

43.0% 42.5%

dec jan feb dec apr mai jun jul aug sep oct nov dec 09 10 10 10 10 10 10 10 10 10 10 10 10

Source: IBGE and Central Bank; prepared by Banco Indusval & Partners

But not everything was positive for the country. A growth of this proportion creates traditionally known distortions. The greatest of them was the return of inflation given that the economy grew well above its potential product. One of the most relevant pressures came from the services accounts. A heated domestic demand ends by pressing this sector that has relative strictness of offer. These circumstances, in an environment of rising international commodities prices, especially food, have forced the Central Bank to start, even with some delay, a process of monetary adjustment.

Credit Growth

The total volume of credit in the national financial system grew 21% in 2010, with highlights to the disbursements via BNDES, housing loans and automotive sector financing. The growth in this latter segment was so expressive that made the Central Bank to adopt macro prudential measures. The adoption of these measures aimed to provide more stability and safety both to the financing agent as well as to vehicle purchaser.

Corporate credit volume by size

The credit for legal entities increased 19% in 2010. The loans with earmarked resources increased by 26.5% whereas those with free resources increased by 15%.

up to R$100 thou

dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sep-10 oct-10 nov-10 dec-10

The Central Bank does not disclose credit information segmented by company size, but by contract value, as it can be seen in the table on the right. The loans with contractual amount in the range of R$100 thousand to R$10 million, the most correlated with mid-sized companies, increased 23%, above the 19% of growth in total corporate credit. As regards to the legal entities credit default, after a sharp deterioration during 2009, under the effect of the crisis started in the prior year, a marginal drop in payments delays was observed, although still high at 3.6% at the end of 2010.

from R$100 thou to R$10 million

above R$10 million

126,725

297,219

364,048

127,769

297,021

366,191

128,074

299,571

368,440

128,757

303,405

368,637

129,874

307,605

368,500

132,162

314,595

378,193

135,570

321,785

391,613

136,860

325,748

397,719

137,927

332,588

409,098

137,578

342,084

417,484

139,738

349,522

425,925

140,766

359,562

431,909

140,937

366,179

430,518

Legal Entities Credit Default Ratios 4.0 3.5 3.0 2.5 2.0 1.5 1.0

In short, there has been an expansion in the outstanding volume of credit operations for legal entities at the same time that we noticed a marginal drop in payment delays, which may indicate a good perspective for the sector in 2011ยบ.

0.5

mar jun sep dec mar jun sep dec mar jun sep dec mar jun sep dec mar jun sep dec

0.0

2006

2007

2008

2009

2010

Delays in payment from 15 to 90 days Delays above 90 days Source: IBGE and Central Bank; prepared by Banco Indusval & Partners

financial and economic performance

Economic recovery, high liquidity maintained Credit Portfolio

The Credit Portfolio, with total volume above R$1.9 billion, presented a growth of 14.3% in the year reflecting the recovery of the economic activity. The compound average growth rate was close to 30% per annum in the last five years. In the same period, the loans to legal entities with contracts in the range from R$100 thousand to R$10 million, the most correlated to operations with midsized companies, according to the Central Bank data presented an average compound growth of 25% per annum.

Total Credit Portfolio in R$ million

1,793.7

1,941.2 1,698.7

1,329.0

691.0

2006

2007

2008

2009

2010

Guarantees and Letters of Credit issued Foreign Trade Financing Loans and Financing in Local Currency

financial and economic performance

In 2010, the credit portfolio of Banco Indusval comprised loans and financing in local currency, representing 78% of total operations, and foreign trade financing, with 19%. The exposure to credit risk also comprises the guarantees issued both in national currency and in foreign currency equivalent to only 3% of total portfolio.

The Bank adopts conservative criteria for the credit risk classification of its operations and, therefore 86% of the credit portfolio was classified among the best ratings (AA-C) and 77% of the operations had real guarantees. With the resilience of the Brazilian economy in 2010, before the international crisis that affected significantly the world's economies in 2009, there was a decrease of 2.1 percentage points in the Bankâ&#x20AC;&#x2122;s credit portfolio default ratio, although there are still many uncertainties in relation to the speed of recovery of the American and European economies, in addition to the concerns with the deceleration of Asia and the inflation in the domestic environment. The outstanding balance of contracts with installments overdue for more than 90 days, standard used by the Central Bank of Brazil, was R$61.2 million equivalent to 3.3% of the credit portfolio (NPL 90 days), before a default ratio of 3.6% estimated by BACEN for corporate credit in the same period.

The operations with mid-sized companies accounted for 82% of total loans, whereas the operations with larger companies, which relationship platform started activities in July 2010, accounted for 14% of this total.

The Allowance for Loan Losses on December 31, 2010, in the amount of R$119.6 million, corresponds to 6.4% of the credit portfolio and provides a coverage of 196% of the contracts with some installment due for more than 90 days.

Default Ratio (operations due over 90 days) 5.4%

3.3% 1.9% 1.0%

2006

0.7%

2007

2008

2009

2010

financial and economic performance

Distribution of Credit Portfolio at the end of 2010 By Economic Activity 23% Other services

3% Financial Interm

By Segment 7% Individuals

14% Large Companies

56% Industry

82% Middle Market

11%

4% Retail and others

Commerce

By Geographic Region 21.2% South

1.3%

By Risk Rating 32% 14%

21.8% Southeast

Northeast

22%

2% North

13%

40.8%

26% B

By Product

Other

35% A

São Paulo

Center West

D–H

By Client Concentration 70% Loans and Discounts

24%

25%

61 – 160

Other

3% Guarantees Provided

19% Trade Finance

31% 11 – 60

20% 10 Largest

BNDES Onlendings

By Maturity

13% From 181 to 360 days

By Industry 29% Over 360 days

Vehicles

4% Pledge Disposal

9% Real Estate

8% Monitored Pledge

Farming and cattle raising

16.6% 9.4%

Financial institutions

5.6%

Chemical and pharmaceutical

5.3%

Transportation and logistics

4.6%

Automotive

4.5%

Textiles, clothing and leather

4.0%

Education

3.3%

Generation and Power Trading

3.2%

Metallurgical

2.9%

Other

Petroleum byproducts and bio fuel

2.6%

23%

Financial services

2.3%

Commerce â&#x20AC;&#x201C; wholesale and retail

2.3%

Individuals

2.2%

Pulp and paper

1.8%

Other industries

11.0%

40% Up to 90 days

By Collateral 3%

18.3%

Construction

18% F rom 91 to 180 days

Food and beverage

Aval on PN

46% Receivables

Total

TVM/CDBs

100.0%

* Individual participation lower than 1.2% of the Credit Portfolio

financial and economic performance

Treasury and Funding The Treasury activity is responsible for the Bank’s liquidity control and execution of the fund raising and investment strategies derived from discussions in the Cash Committee, which determines the guidelines for funding and operating limits under the liquidity and market risk policies established by the Board. Treasury is also responsible for managing the interest rates, currencies and tenor mismatch risks, as well as for offering personalized solutions for clients’ hedging needs.

Funding by Source 6% Local currency Onlendings

16% Foreign Loans

2% Cash Deposits

70%

Time Deposits

Interbank

Total funding increased by 13% in relation to the previous year, totaling R$2.0 billion with a compounded average growth rate of 31.5% per annum in the comparison of the last five years. The funds raised in Reais represented 84% of the total funding.

Loan Volume in R$ million 2,030.6 1,793.2 1,600.1

The deposits accounted for 78% of total funds raised, mainly via issuance of Certificate of Deposit (CDB) and Time Deposits with Special Guarantee (DPGE) that increased the institutional investors’ participation in the distribution of depositors.

1,040.1 690.5

2006

2007

Foreign currency Local currency

2008

2009

2010

Deposits

The average term of deposits, weighted by volume, was of 757 days from issuance and 496 days from year end to maturity.

By Type 5% 37%

The funds raised originally in foreign currency in the amount of R$325.3 million represented 16% of total funding, with a drop in the volume converted to Reais of 14% in comparison to December 2009. This drop is basically related to the payment of a significant portion of the IFC syndicated loan. The resources to finance the Trade Finance portfolio raised with foreign correspondent banks increased 15% in the same period, even with an appreciation of Real of 3% in the year.

LCA

DPGE

7% Interbank

48%

CDBs

Demand

By Type of Investor 4% Other

50% Inst. Investor

15%

Another funding source was the BNDES onlending line to finance the client companies. This line accounted for 7% of total funding at the end of 2010.

Individuals

22%

Financial Instituions

Companies

This funding volume, besides supporting the credit portfolio, permitted the maintenance of a cash position of R$1.3 billion, which deducting the funds raised in the open market, resulted in free cash of R$732.8 million equivalent to 46% of the deposits and 172% of shareholdersâ&#x20AC;&#x2122; equity.

By Time 25% Up to 90 days

38% Over 360 days

26%

From 91 to 180 days

11% From 181 to 360 days

desempenho econ么mico financeiro

The maintenance of free cash at this level ensures peace of mind to our investors and avoided funding pressures in any temporary turmoil.

before R$407.5 million in 2009, reflecting the improvement in the economic activity in the year on the average volume of the credit operations and exchange rate, the higher volume of cash invested and the result of operations with derivative financial instruments mainly related to hedge transactions.

The assets and liabilities are managed to guarantee a comfortable liquidity and grant solidity to the Bank, maintaining an extended funding maturity profile towards predominance in the maturities of the credit portfolio up to 360 days.

The Financial intermediation expenses were virtually maintained in the level of R$313 million, reducing their participation in total financial intermediation revenues to 69%, before 77% in 2009, by the reduction of expenses of allowance for loan losses, even maintaining the balance of provisions at R$119.6 million, since in the prior year supplementary provisions had been set up which were consumed during the year.

Results Gross Income from Financial Intermediation

The Financial intermediation revenues presented an increase of 12% in the comparison with the prior year, amounting to R$454.5 million

Gross Income from Financial Intermediation

2006 187.8 110.7 52.1 25.0 118.6 82.9 19.4 3.2 13.1 69.2

Income from financial intermediation Credit operations Securities Derivative Financial Instruments Exchange operations Expenses from financial intermediation Money market funding Borrowings and on-lendings Derivative Financial Instruments Allowance for doubtful loans Gross Income from Financial Intermediation

2007 289.0 181.2 74.6 33.1 159.8 115.9 23.3 2.8 17.7 129.2

2008 641.0 350.2 108.2 15.7 166.9 440.9 202.2 185.5 53.2 200.1

2009 407.5 264.4 101.4 41.7 313.2 142.6 23.0 36.3 111.3 94.3

2010 454.5 267.5 112.3 13.0 61.7 312.6 200.0 63.5 49.0 141.9

Gross Income from Financial Intermediation

Operating Income (Expenses)

The gross income from financial intermediation totaled R$141.9 million in 2010, which represents an increase of 50% when compared to the result obtained in 2009. The net financial margin (NFM), adjusted the gross income from financial intermediation by the exchange effects on marketable securities, which in the balance sheet are recorded in other operating expenses and revenues, and upon adjusting the basis of average compensatory assets eliminating the balances from committed operations with equal amount, rate and term in liabilities therefore with nil result, the adjusted net financial margin of 8.1%, is obtained compared to 9.3% in 2009. The reduction is explained by the impact of operations overdue for more than 60 days in the lower accumulation of revenues in credit operations and by the carrying of higher average cash position.

The Net operating expenses totaled R$100.3 million, before R$93.2 million in 2009, with slight increase of 8%, mainly due to personnel expenses and contributions and participations in results that increased 13% in 12 months. The contributions and participations are part of the collective bargaining agreement of Banco Indusval S/A filed in the Bank Employees Union. They comprise the variable compensation to which all the employees and officers are eligible within the Profit Sharing and Results Program. In 2010, the amounts paid and accrued in the amount of R$8.1 million, were 42% higher than those for 2009 of R$5.7 million. Even with the strict control of Operating expenses, the Efficiency Ratio in 2010 reflects the decrease of Gross income from financial intermediation before the expenses for provision of allowance for loan losses and the increase in expenses with compensation of personnel and management, as previously detailed.

Gross Result from Financial Intermediation R$ Million 200.1

141.9

129.2 94.3 69.2

2006

2007

2008

2009

2010 51

desempenho econômico financeiro

Efficiency Ratio Personnel expenses Contributions and Participations Other Administrative Expenses Tax expenses Other operating expenses A - Total Operating expenses Gross Income from Financial Intermediation before allowance for loan losses Revenue from services rendered and tariffs Other operating revenues B - Total Operating revenues Efficiency Ratio (A/B)

2006

2007

2008

2009

2010

27.3 0.9 18.9 5.7 2.1 54.9

40.6 14.2 41.0 9.9 4.1 109.7

57.1 14.4 40.9 15.3 2.7 130.5

51.2 5.7 41.9 11.2 7.0 117.0

56.5 8.1 39.4 15.3 9.4 128.7

82.3

147.0

253.4

205.6

190.9

11.6 3.7 97.6 56.3%

18.9 8.4 174.3 63.0%

24.4 2.4 208.3 46.6%

12.2 5.9 223.7 52.3%

13.8 6.6 211.2 60.9%

Added Value Statements

Net Profit

The net profit for the year was R$29.0 million with an increase of 127.0% in relation to R$12.8 million obtained in the prior year, with highlight to the recurring results in the comparison of both periods. The net income for 2009 comprised non-operating revenues, net of taxes, resulting from the sale of shares BM&FBOVESPA and CETIP of R$5.0 million.

Banco Indusval operations in 2010 added a net amount of R$115.8 million to the Brazilian economy, divided in the following proportion: 48.2% (56.4% in 2009) to the employees, although in lower proportion, in order to maintain the financial capacity and motivation for the work; 21.7% (31.1%), to the shareholders, paid as interest on own capital anticipating the mandatory minimum dividend for the year; 25.2% (11.1%) to the government as taxes, fees and contributions in the federal, state and municipal spheres; 1.5% (1.4%), to third parties and the remaining 3.4% held in the company’s net equity. In this Report, the Added Value Statement is found in page 86.

Statement of Cash flows Banco Indusval S.A. and the group companies to comply with the provisions of Law 11,638/07 and BACEN Resolution 3,604/08 prepare the Cash Flow Statements in accordance with the Pronouncement CPC 03. In this Report, the Cash Flow Statement is found in page 84. 52

Risk Ratings

• Moody’s – in November 2010, Moody’s

attributed short and long term ratings of Ba3/ Not prime and A2.br and BR-2 respectively in global and national Brazil scale, with classification of financial force of D- and stable perspective. • Fitch Ratings – in January 2011, the national short and long term ratings attributed, respectively, ‘BBB(bra)’ and ‘F3(bra)’, were reaffirmed with stable perspective, and reflect the proper capital structure and satisfactory liquidity indicators, even in time of crisis. • Riskbank – in January 2011, the classification of ‘low risk for short term’ was maintained supported by the good regularity of the indicators, proper liquidity and leverage.

Banco Indusval is analyzed by three international risk rating agencies: Standard & Poor’s, Moody’s and Fitch; and the Brazilian Riskbank. • Standard & Poor’s – in December the short

and long term ratings in national and global scale, brBBB+/ br-A-3 and B+/ B respectively, were reaffirmed with positive perspective due to good liquidity and capitalization and the expectation of profitability recovery and quality of assets.

Agency Standard & Poors

Rating

Note:

B+/Positive/B

Global Scale

brBBB+/ Positive/ brA-3

National Brazil Scale

Last Report 12/28/2010

Financial Force: D- Stable Moody's FitchRatings RiskBank

Ba3/Stable/ Not Prime

Global Scale

A2.br/ Stable/ BR-2

National Brazil Scale

BBB/ Stable / F3

National Brazil Scale

9,93

Riskbank Index

Ranking: 57

Low risk for short term

11/25/2010 01/21/2011 01/13/2011

capital markets

Listed in Level 1 of Corporate Governance with Novo Mercado practices Since 2007, Banco Indusval shares are traded in BM&FBOVESPA under the codes IDVL3 (common shares – ON) and IDVL4 (preferred shares – PN). The Bank’s shares are listed in Level 1 of differentiated practices of Corporate Governance, especial trading segment of BM&FBOVESPA, with voluntary adhesion to the additional practices required for the companies traded in the Novo Mercado segment, as: (i) more than 25% of outstanding shares; (ii) minimum of 20% of independent members of the Board of Directors; (iii) 100% of tag along; and (iv) adoption of the Market Arbitration Chamber.

Capital Distribution

By December 31, 2010 the Capital Stock of Banco comprised a total of 41,212,984 shares, of which 27,000,000 common shares (IDVL3) and 14,212,984 preferred shares (IDVL4), of which 746,797 preferred shares were held in treasury. At the end of the year, the preferred shares (IDVL4) in free outstanding, deducting the shares owned by controllers and other management members and those held in treasury, totaled 19,589.22, representing 47.5% of the Company total capital stock.

capital markets

Number of shares at 12/31/2010

Class Shares Preferred Total

Capital Controlling Stock Group 27,000,000 (17,116,173) 14,212,984 (1,026,653) 41,212,984 (18,142,826)

Management (2,574,269) (159,570) (2,733,839)

Program for the Repurchase of Shares, Treasury Shares and Cancellation of Shares

Treasury (746,797) (746,797)

Free Market Float 7,309,558 27.1% 12,279,964 86.4% 19,589,522 47.5%

Stock Option Plan

On March 26, 2008, the Extraordinary Shareholdersâ&#x20AC;&#x2122; Meeting approved the Stock Option Plan for the officers of Banco Indusval S/A and its subsidiaries, with the purpose of recognition of the services rendered and at the same time, maintain the motivation and commitment of the officers in the long term. The distribution of purchase options is carried out semi annually based on the Bankâ&#x20AC;&#x2122;s consolidated results and on the assessment of individual performance of the officers.

On September 17, 2009, the Board of Directors instituted the 3rd. program for repurchase of preferred shares for the acquisition of up to 1,458,925 shares of the Company. 1,262,117 preferred shares were acquired under this program and held in treasury until their cancellation and extinguishment of this program on 08.10.2010. At the same date, the 4th. Program for repurchase of shares was instituted for up to 1,301,536 preferred shares in force until 08/09/2011. The repurchase of shares under this program is intermediated by Indusval S.A. CTVM. Up to 12/31/2010, 772,397 preferred shares (IDVL4) were repurchased under this program, remaining 746,797 shares in treasury at 12/31/2010, after the exercise of 25,600 options evidenced above.

The Stock Option Plan of Banco Indusval S.A. created on March 26th 2008 with the purpose of motivation and alignment of interest of officers and employees at managerial level presents the following position:

Quantities Grace Term for Exercise period exercise Price R$ Three years Five years 10.07 Three years Five years 5.06 Three years Five years 8.56 Three years Five years 7.72

Shares Performance

Granted Exercised 161,896 229,067 25,600 525,585 261,960 1,178,508 25,600

Extinguished

Not exercised 161,896 203,457 510,322 259,436 1,135,111

10 15,263 2,524 17,797

Share Performance

The shares of Banco Indusval (IDVL4) ended 2010 priced at R$7.95 totaling a market value to the company of R$327.6 million, before a Shareholders’ equity of R$426.4 million – a relation Market Value/Equity Value of 0.77. The price of IDVL4 shares varied -4.10% in 12 months. However, when adjusted to the amounts paid the valuation of the IDVL4 shares was R$3.52% in 2010 before a Ibovespa high of 1.04% in the year.

IBOV IDVL4 ,00 ,00 ,00 ,00 ,00 ,00

Closing price Price on* 12/30/2009 Price on* 12/30/2010 Variation in the period Maximum price Minimum price

IDVL4 R$7.48 R$7.74 3.48% R$9.25 R$7.00

* Price adjusted by amounts – Source: Enfoque

23 - nov 10

13 - oct 10

03 - sep 10

24 - jul 10

14 - jun 10

23 - oct 10

The IDVL4 shares were presented at 243 of 247 trading floors conducted in the Bovespa market in 2010 (98%). The financial volume traded in the spot market was R$78.8 million moving about 9.7 million of preferred shares in 5,029 tradings.

04 - may 10

,00

12 - feb 10

,00

03 - jan 10

Date granted 07/22/08 02/10/09 02/22/10 08/06/10

Ibovespa (points) 68,588 69,304 1.04% 73,103 58,192

capital markets

Shareholder distribution At December 31, 2010, Banco Indusval shares were distributed as follows: Number 4 10 12 59 47 12 9 514 0 608

Type of Shareholder

Common

Control Group Management Families Institutional Investors National Foreign Legal Entity Individuals Treasury Total

17,116,173 2,574,269 7,309,558 27,000,000

Pref 63.39 9.53 27.07 0.00 0.00 0.00 0.00 0.00 0.00 100.00

Shareholder Compensation

1,026,653 159,570 515,931 10,175,292 7,332,667 2,842,625 17,400 1,571,341 746,797 14,212,984

Total

7.22 1.12 3.63 71.59 51.59 20.00 0.12 11.06 5.25 100.00

18,142,826 2,733,839 7,825,489 10,175,292 7,332,667 2,842,625 17,400 1,571,341 746,797 41,212,984

44.02 6.63 18.99 24.69 17.79 6.90 0.04 3.81 1.81 100.00

Interest on Equity Paid

In line with the effective legislation, the Bylaws of Banco Indusval S.A. sets forth the minimum distribution of 25% of the adjusted net income for each year. However, the Bank adopted the practice of paying in advance Interest on Own Capital at the end of each quarter.

25,470

27,009

25,114

6,693 6,369

15,857 6,512

2006

1Q 2Q 3Q 4Q

6,622

6,319

6,082

10,167

During 2010, the total resources paid to shareholders in advance of the dividend was R$25.1 million, or R$0.60983 (R$0.51836 net of IR) per share, resulting in a dividend yield of 7.36% with payout of 85%.

6,249

2,220 2,426

5,134

2,730

2,320

2,791

2.322

2007

6,550

6,876

6,289

6,039

6,817

6,258

2008

2009

2010

Investor Relations The Investors Relations team acts in the effective application of the transparency policy in the disclosure of information, concept that is a critical commitment of the Bankâ&#x20AC;&#x2122;s management. Its main function is to assure a process of agile and effective communication with its shareholders and other participants of the capital markets, disclosing data and information on the business performance and presenting the basic strategic guidelines of BI&P. In 2010, the professionals involved in the Investors Relations activity of Banco Indusval received more than 100 analysts and Brazilian and foreign professional managers in private meetings and participated of public meetings and national and international events presenting the Bank and its performance for about 150 analysts and investors. Personalized services have been made to shareholders and investment analysts via telephone and e-mails.

people management

Growth opportunities for high performance professionals In more than four decades of existence in the financial market, Banco Indusval accumulated assets that became of difficult financial or economic measurement. The deep knowledge of the market and its peculiarities, the respect achieved, throughout its history, among its peers, regulators and the society and the experience of its professionals are important assets for the business sustainability.

Practically all the intangible assets are directly related to the brand and the people and their experience, commitment, corporate responsibility, ethics and credibility. Due to its horizontal policy that cherish for the open dialogue, the respect and transparency in the relationships of all the hierarchical levels, and the willingness to offer opportunity of growth to the high performance professionals, the human patrimony of the Bank has become its greatest intangible asset.

people management

Profile of Indusval Employees Number of Employees 362

333

329

331 255

2006

2007

2008

2009

At the end of 2010, the Indusval companies had a team of 362 employees distributed at the head office, 9 branches and at the Brokerage firm.

2010

Support and Control Business

By Area of Activity

51%

54%

49%

2006

46%

2007

50%

2008

48%

51%

2009

2010

Back Office Middle Office Front Office

By Time with the Company 1%

15%

14%

13%

10%

31%

25%

1% 11%

By Age 1% 11%

10%

52%

56%

1% 10%

10%

27%

26%

23%

51%

22%

25%

21%

20%

21%

26%

28%

29%

20%

19%

17%

25%

40%

26%

2007

51%

2006

2008

30%

22%

2009

27%

19%

2010

2006

Up to 1 year 1 to 5 years 5 to 10 years 10 to 20 years More than 20 years

15%

2007

2008

2009

2010

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

By Gender

By Educational Background 4%

66%

74%

69%

67%

59%

60%

26%

30%

31%

46%

61%

59%

60%

29%

34%

26%

2006

2007

31%

2008

33%

39% 21%

2009

2010

2006

2007

2008

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

Female Male

2009

2010

sustainability

Aligned to the Company’s principles and guidelines For Banco Indusval the sustainability should be aligned, before any external action, to the principles and guidelines adopted by the Company itself – among them, to prioritize the credibility, ethics, and transparency, responsibility in the businesses and respect in the relationship with all its partners.

The research carries out its assessments as from ethics principles, social environmental responsibility, corporate governance, financial performance, with emphasis on the transparency in the information disclosure. As active agent of the economic development, the Bank seeks to be fair, balanced and coherent with its values in the credit concession, as a manner of sharing growth opportunities and continuously improve its contribution to sustainability:

This attitude has contributed for the election of Indusval in 2010, as the “3rd Most Sustainable Midsized Bank in Latin America” – and second in Brazil –, in an independent study coordinated by Management and Excellence (M&E), a Spanish advisory company leader in sustainability studies and ratings.

sustainability

The Bank does not provide loans for companies that use children or slavery work, carry out activities that directly or indirectly stimulate gambling and prostitution or act in the manufacture of hazardous substances to the safety and health of people, fauna and flora.

The Businesses

The Policy of Social Environmental Responsibility of BI&P prioritizes the commitment with ethics in businesses and with the sustainable development, in addition to stimulating suppliers, partners and clients to adopt these responsible attitudes, which promote the social growth citizenship and respect to the environment. In order to assure that the loan and financing operations are aligned with the legislation in the social environmental area and with the list of exclusions of the World Bank, the Bank has a System of Social environmental Management that contributes in the analysis and credit concession process.

The Internal Audience

To constantly motivate its employees and search for their professional growth, Banco Indusval invests in the capability and training of its team and has a policy of fair wages and benefits, consistent with the job position and aligned with the market. BI&P also provides several benefits, to improve the life quality of its employees and dependants, in addition to retaining and attracting talented individuals to the Institution. BI&P understands that undertaking actions of inclusion and providing opportunities to young people who want to be included in the labor market, is part of its mission. Thus, it consolidated the already implemented programs such as the Apprentices, Interns, Trainees and Persons with Disabilities.

In 2010, Institute Indusval supported eight projects, developed by nongovernmental organizations that looked after 4,284 children, young people and adults, and have indirectly benefitted 17,246 people related to the projects and to the communities. The social investment in 2010 amounted R$425.5 thousand, and was distributed in initiatives related to Education, Sports, Culture, Entrepreneurship, Communitarian Development and Environment.

The Communities

Through the Indusval Sustainability Institute, the Bank has projects guided to education, culture and grassroots development, with emphasis on children, young people and adultsâ&#x20AC;&#x2122; capacity building. Acting by means of organizations that have structured projects available, or aiding organizations that need support in the structuring of projects, these initiatives aim at preparing the public for citizenship and provide tools with permanent effects to transform the communities served.

Social Organizations Supported

Institutional Partners

annual balance sheet Banco Indusval S.A. CNPJ 61.024.352/0001-71 2010 Amount (Thousand Reais)

1 – Calculation Basis

141.893 41.616 29.009 46.333

Gross Financial Intermediation Result (RBIF) Operating Income (RO) Net Profit (LL) Gross Payroll (FPB)

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) 94.276 1.105 12.778 40.977

Amount (thousand)

% GP

% GFIR

Amount (thousand)

% GP

% GFIR

3.197 11.333 569 3.896 25 193 176 124 91 7.054 394 27.052

6,90% 24,46% 1,23% 8,41% 0,05% 0,42% 0,38% 0,27% 0,20% 15,22% 0,85% 58,39%

2,25% 7,99% 0,40% 2,75% 0,02% 0,14% 0,12% 0,09% 0,06% 4,97% 0,28% 19,07%

2.830 17.452 515 3.455 30 199 117 85 119 5.621 356 30.779

6,91% 42,59% 1,26% 8,43% 0,07% 0,49% 0,29% 0,21% 0,29% 13,72% 0,87% 75,11%

3,00% 18,51% 0,55% 3,66% 0,03% 0,21% 0,12% 0,09% 0,13% 5,96% 0,38% 32,65%

Amount (thousand)

% GP

% GFIR

Amount (thousand)

% GP

% GFIR

70 36 0 0 0 283 389 30.273 30.662

0,17% 0,09% 0,00% 0,00% 0,00% 0,68% 0,93% 72,74% 73,68%

0,05% 0,03% 0,00% 0,00% 0,00% 0,20% 0,27% 21,34% 21,61%

255 212 0 85 0 364 916 23.069 23.985

23,08% 19,19% 0,00% 7,69% 0,00% 32,94% 82,90% 2087,69% 2170,59%

0,27% 0,22% 0,00% 0,09% 0,00% 0,39% 0,97% 24,47% 25,44%

Amount (thousand)

% GP

% GFIR

Amount (thousand)

% GP

% GFIR

635

1,53%

0,45%

643

58,19%

0,68%

0,09%

0,03%

125

11,31%

0,13%

672

1,61%

0,47%

768

69,50%

0,81%

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

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 wereconceived by:

2010

2009

362 140 114 20 126 141 20,00% 11

333 68 57 14 116 111 12,00% 11

0,00% 8

0,00% 9

2010

2011 targets

10 0

9 0

( x ) officers and managers

( ) all employees

( x ) officers and managers

( ) all employees

( ) officers and managers

( ) all employees

( x ) all + Internal Accident Prevention Committee

( ) officers and managers

( ) all employees

( x ) all + Internal Accident Prevention Committee

( ) does not become involved

( x ) follows ILO rules

( ) encourages and follows ILO

( ) will not become involved

( x ) will follow ILO rules

( ) will encourage and follow ILO

The private pension fund is extended to:

( ) officers

( ) officers and managers

( x ) all employees

( ) officers

( ) officers and managers

( x ) all employees

Profit sharing is extended to:

( ) officers

( ) officers and managers

( x ) all employees

( ) officers

( ) officers and managers

( x ) all employees

In selecting suppliers, the company’s ethical, environmental and socialresponsibility standards:

( ) are not taken into consideration

( x ) are suggested

( ) are required

( ) will not be taken into consideration

( x ) will be suggested

( ) will be required

Concerning employee participation in volunteering programs, the company:

( ) does not become involved

( ) supports

( x ) organizes and ( ) will not encourages become involved

( ) will support

( x ) will organize and encourage

"at the company 20"

"at the Consumer Protection Agency (PROCON) 0"

"at courts 47"

"at the Consumer "at the Protection Agency company 20 (PROCON) 0"

"at courts 47"

"at the company 100%"

"at the Consumer Protection Agency (PROCON) 0%"

"at courts 50%"

"at the Consumer "at the company Protection Agency 100%" (PROCON) 0%"

"at courts 50%"

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:

Total number of consumer complaints and criticisms: % of complaints and criticisms dealt with or solved: Added value to distribute (in thousand R$): Added Value Distribution:

( ) officers

in 2010:

R$115.760

25,2% government 48,2% employees 21,7% shareholders 1,5% third parties 3,4% retained

( ) officers

in 2009:

R$72.686

13,3% government 67,4% employees 37,2% shareholders 1,6% third parties –19,5 % 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.

Financial Statements

index Management report fiscal year 2010

pg. 72

Report of independent auditors on financial statements

pg. 76

Balance sheets

pg. 78

Statements of operations

pg. 82

Statement of changes in stockholdersâ&#x20AC;&#x2122; equity

pg. 83

Statements of cash flows

pg. 84

Statements of value added

pg. 86

Notes to the financial statements

pg. 87

Executive board statement

pg. 124

Fiscal board opinion

pg. 125

management report

Management report Fiscal year 2010

Since the end of 2009, we have been looking for opportunities arising from the paradigm shift in the global economy for a bank focused on midsized companies. We analyzed our strengths and weaknesses and, in the first half of 2010, decided to diversify our revenue sources by creating a client platform targeted at the specific needs of our corporate clients with revenue of over R$400 million (‘Upper Middle’ companies), whom we refer to internally as ‘Large Companies’. We also strengthened our Structured Finance Operations department to increase revenues from operations in the debt market and provide customized solutions for loan operations of large companies and debt restructuring for midsized companies. These initiatives were concluded in the second half of the year and have already started contributing to volumes and results. The year 2010 was more positive than 2009. However, the recovery and growth of midsized companies were slower than expected and corporate loan default rates, which seemed to start declining at the end of 2009 following the trend in individual loans, stagnated during the year. One of the positive aspects was the continuation of medium- and long-term funding sources, which enabled an increasing volume of funding at stable costs throughout the year. However, since the beginning of 2011, these costs were pressured by both macroprudential measures to curb consumer credit and the consequent inflation, as well as the greater competition for funding due to the lower availability of loan assignments for banks operating in the consumer financing segment. Thanks to the characteristics intrinsic to our business, Banco Indusval ’s capital structure was not impacted by the increase in reserve requirements and capital allocation to long-term consumer financing. We consider competition from large banks in the middle market segment healthy, particularly after the credit contraction period, given that midsized companies borrow from several banks in view of the limited volume of credit lines granted. The presence of strong partners may guarantee higher liquidity in this segment.

Financial and operating performance At the close of 2010, our total assets amounted to R$3.3 billion and we had 362 employees to serve our 709 corporate clients through our ten branches in Brazil and one abroad, in addition to Indusval S.A. Corretora de Títulos e Valores Mobiliários. The combined result of the operations, investments and activities in 2010 produced a net profit of R$29 million and a return on average equity of 6.8%. Loan Operations: The loan portfolio balance at the close of 2010 was R$1.9 billion, up 14.3% on the previous year. The Trade Finance portfolio, contributed to this increase with an expansion of 25.5% and represents around 20% of the total portfolio. Midsized companies account for 82% of total loans, while the ‘upper middle’ companies account for 14%. We closed the year with a default rate of 3.3% for loans overdue more than 90 days, compared to the industry average of 3.6% reported by the Central Bank of Brazil. The Management deems the Bank’s allowance for loan losses of R$119.6 million adequate as it allows 196% coverage on loans overdue more than 90 days.

Funding: Funding volume amounted to R$2.0 billion on December 31, 2010, up 13% on 2009, with average deposit term of 496 days as of the closing of the balance sheet. Of the total funding, 84% was in Reais, bulk of it deposits totaling R$1.5 billion, 20% up on December 31, 2009. Bank Deposit Certificates (CDBs) totaled R$740 million, while Time Deposits with Special Guarantee (DPGE), which are guaranteed by the Credit Guarantee Fund, amounted to R$591 million. These two time deposit products account for 65% of total funding. Foreign borrowings, mainly from correspondent banks focused on Trade Finance, totaled R$325 million.

Indusval Corretora de Títulos e Valores Mobiliários The stock broking market was quite challenging in 2010, with unstable volumes and margins. The modernizing and restructuring process of the brokerage involved a significant amount of investments for its size, but it allowed its repositioning in the market, also enabling it to handle large volumes with the achievement of the Execution Broker seal at the beginning of the year. The combination of the business scenario and investments resulted in a modest net profit of R$232,000 in 2010. However, the broker’s ranking in the BM&FBovespa rose to 39 in December. Another highlight was that Indusval Corretora de Valores was hired as the market maker for 10 of the 20 BDRs launched on the BM&FBovespa. Risk Management Banco Indusval maintains a set of rules and procedures to ensure compliance with legal provisions, regulations, best market practices and its own internal policies. The areas responsible for risk management are autonomous and segregated from the operational departments. The Bank is capable of identifying, monitoring, controlling and mitigating the operational and market risks according to the rules established by the Central Bank of Brazil. Credit and liquidity risks are monitored and managed in a conservative manner with the participation of the Board of Directors in the weekly meetings of the committees, in which strategies and practices are also discussed. Further details on risk management are available in the Investor Relations section of Banco Indusval’s website (www.indusval.com.br).

Corporate governance Banco Indusval’s shares (IDVL3 and IDVL4) are listed on Corporate Governance Level 1 of BM&FBovespa, but the bank has voluntarily adopted the practices required by the Novo Mercado segment, which include: (a) 100% tag along rights; (b) at least 20% of the Board of Directors are independent members; (c) resorting to the Market Arbitration Chamber to resolve any shareholder issues; and (d) minimum free float of 25%. With the installation of the Fiscal Council on April 15, 2010, our governance structure has become stronger as, in addition to the Board of Directors, the Executive Board and the committees that aid in the Management’s discussions and decisions, the Fiscal Council members elected at the Shareholders’ Meetings have contributed to the development of business with their experience.

management report

Capital markets Capital Distribution: on December 31, 2010, Banco Indusval S.A. had a total of 41,212,984 shares, of which 27,000,000 were common shares (IDVL3) and 14,212,984 were preferred shares (IDVL4). A total of 746,797 shares, acquired under the 4th share buyback program, are held in treasury. Outstanding Shares: excluding the shares held in treasury, the 18,142,826 shares owned by the controlling group, the 2,733,939 shares owned by the management, free float came to 19,589,622 shares (7,309,558 common shares and 12,280,064 preferred shares), equivalent to 47.5% of the capital stock. Shareholder Remuneration: in 2010, the Bank paid Interest on Equity in the amount of R$25.1 million as advance payment of the minimum mandatory dividend for 2010. This amount corresponds to R$0.60983 per share or R$0.51836, net of withholding income tax. Investor Relations: the Investor Relations department of Banco Indusval operates with transparency in the disclosure of information, in line with its Managementâ&#x20AC;&#x2122;s commitment. Its website, www.indusval.com.br/ir, provides updated information that is easily accessible to all stakeholders. This tool complements the broad disclosure of information to the public through the Securities and Exchange Commission of Brazil (CVM), BM&FBovespa, newspapers, and electronic messages to those registered in its website.

Human resources On December 31, 2010, the Indusval companies had 362 employees, whose earnings, fees and benefits in the year totaled R$55.8 million. The front office team, which includes the sales force and is responsible for customer relations, had 177 employees, equivalent to 49% of the workforce of the bank and the brokerage. We continue to conduct employee training programs and grant scholarships for graduate and post-graduate programs, as well as foreign language courses. Our professionals use their experience to give lectures and hold internal training workshops, which have generated positive results at low cost. The ongoing Leadership Development Program, the Jovem Aprendiz (Youth Apprentice) and Internships programs are fundamental instruments for motivating and training employees to prepare them for the increasing challenges presented by the financial markets.

Sustainability Banco Indusval believes that the improvement of its corporate governance structure, disciplined risk management, adoption of a social and environmental responsibility policy in the conduction of its core business, partnerships with non-governmental organizations focused on the education of youth, as well as community development and income generation initiatives contribute to the sustainable development of its employees, the community and the environment.

The Social and Environmental Responsibility Policy is implemented in the Bankâ&#x20AC;&#x2122;s daily operations and is part of the credit analysis and approval process. Our Policy forbids credit to companies that use slave or child labor, carry out activities that encourage gambling or prostitution, or produce substances that endanger the safety of people, flora and fauna, and the environment. The Bank has also adopted initiatives to encourage employees to help reduce greenhouse gas emissions through better planning of the use of energy sources, supplies and means of transport.

Statement by the executive board Pursuant to Article 25, Paragraph 1, Items V and VI of CVM Rule 480 of December 7, 2009, the Executive Board of Banco Indusval S/A declares that it has reviewed and discussed, and agrees with the financial statements for the year ended December 31, 2010, disclosed herein, as well as the opinion expressed in the independent auditorsâ&#x20AC;&#x2122; report. Acknowledgements We once again thank our shareholders, clients, business partners and, especially our employees, for their confidence and support.

SĂŁo Paulo, February 23, 2011.

The Management Banco Indusval S.A.

report of independent auditors on financial statements

Report of independent auditors on financial statements To the Board of Directors and Stockholders Banco Indusval S.A. We have audited the individual financial statements of Banco Indusval S.A. (“Indusval ” or the “Institution”), comprising the balance sheet as of December 31, 2010 and the related statements of operations, of changes in stockholders’ equity and of cash flows for the year and six-month period then ended, as well as the consolidated financial statements of Banco Indusval S.A. and its subsidiaries (“Indusval Consolidated”) comprising the consolidated balance sheet as of December 31, 2010, and the related consolidated statements of operations, of changes in stockholders’ equity and of cash flows for the year and six-month period then ended, as well as the summary of significant accounting policies and other explanatory notes.

Management’s responsibility for the financial statements The Institution’s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank (BACEN), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved Brazilian auditing standards and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Institution’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Institution’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Banco Indusval S.A. (Indusval ) and Banco Indusval S.A. and its subsidiaries (Indusval Consolidated) at December 31, 2010, its financial performance and cash flows, as well as their consolidated financial performance of their operations and their consolidated cash flows for the year and six-month period then ended, in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Brazilian Central Bank.

Other matters Additional Information – Statement of Value Added We have also audited the individual and consolidated statements of value added (DVA) for the year ended December 31, 2010, the presentation of which is required by the Brazilian corporate legislation for publicly held companies. These statements were subject to the same audit procedures described above and, in our opinion, are fairly presented in all material respects, in relation to the financial statements taken as a whole.

São Paulo, February 23, 2011

PricewaterhouseCoopers Independent Auditors CRC 2SP000160/O-5

Sérgio Antonio Dias da Silva Accountant CRC 1RJ062926/O-9 “S” SP

notes to the financial statements

Balance sheets at december 31 In thousands of Reais

Indusval

Indusval Consolidated

Assets Current assets

2010

2009

2010

2009

2,657,329

2,231,359

2,672,676

2,243,031

Cash (Note 4)

7,081

4,049

7,081

4,051

44,648 22,507 22,141

353,143 292,897 60,246

44,648 22,507 22,141

353,143 292,897 60,246

1,245,171 586,517 540,385 82,816 35,453

717,265 553,585 108,200 35,030 20,450

1,255,106 586,517 540,385 92,751 35,453

724,906 553,778 108,200 42,478 20,450

1,553

1,818

1,553

1,818

1,553

1,818

1,553

1,818

Loan operations (Note 6) Loan operations â&#x20AC;&#x201C; Private sector Loan operations â&#x20AC;&#x201C; Public sector Allowance for loan losses

920,861 933,827 9,137 (22,103)

809,685 817,661 24,559 (32,535)

920,861 933,827 9,137 (22,103)

809,685 817,661 24,559 (32,535)

Other receivables Foreign exchange portfolio (Note 7) Income receivable Negotiation and intermediation of securities Sundry (Note 8) Allowance for loan losses (Note 6)

395,427 325,586

296,440 294,273

70,520 4,770 (5,449)

946 14,440 (13,219)

400,319 325,586 85 75,341 4,756 (5,449)

300,286 294,273 90 4,401 14,741 (13,219)

42,588 43,538 (1,915) 965

48,959 49,318 (998) 639

43,108 43,538 (1,915) 1,485

49,142 49,318 (998) 822

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

Other assets Non-operating assets Provision for loss Prepaid expenses

Indusval Assets 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 assets Prepaid expenses

Permanent assets

Indusval Consolidated

2010

2009

2010

2009

589,998

473,154

590,638

473,952

6,120

6,151 31 6,120

69 34 35

7,352 7,352 503,536 595,564

(92,028)

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

(92,028)

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

72,458

64,397

72,502 (44)

68,667 (4,270)

72,703 244 72,503 (44)

64,437 40 68,667 (4,270)

532 532 23,359

898 898 23,646

896 896 12,828

1,622 1,622 13,219

Investments (Note 9) Subsidiaries Local Other investments

12,919

12,761

1,686

11,233 1,686

11,075 1,686

1,686

Property and equipment in use Properties in use Revaluation of properties in use Other fixed assets in use Accumulated depreciation

10,440 2,192 3,538 11,636 (6,926)

10,885 2,173 3,538 11,826 (6,652)

11,142 2,192 3,538 12,515 (7,103)

11,533 2,173 3,538 12,590 (6,768)

3,270,686

2,728,159

3,276,142

2,730,202

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

notes to the financial statements

Balance sheets at December 31 In thousands of Reais

Indusval Liabilities and stockholdersâ&#x20AC;&#x2122; equity Current liabilities

Indusval Consolidated

2010

2009

2010

2009

2,069,174

1,640,017

2,074,519

1,642,127

Deposits (Note 10(a); (b)) Demand deposits Interbank deposits Time deposits Other deposits

823,675 47,798 108,688 667,133 56

714,079 39,518 56,043 618,395 123

820,679 47,682 105,393 667,133 471

709,240 39,409 51,101 618,395 335

Funds obtained in the open market (Note 10 (c)) Own portfolio Third-party portfolio

538,580 538,580

365,804 107,885 257,919

538,580 538,580

365,804 107,885 257,919

74,648 74,648

10,559 10,559

74,648 74,648

10,559 10,559

5,898 5,898

15,906 15,906

5,898 5,898

15,906 15,906

324,800 324,800

356,879 356,879

324,800 324,800

356,879 356,879

43,297 18,087 25,210

65,248 43,127 22,121

43,297 18,087 25,210

65,248 43,127 22,121

258,276 22,002 187,288 34,184 4,283 3,630 571 6,318

111,542 25,671 22,975 34,946 18,593 3,048 391 5,918

266,617 22,002 195,316 34,184 4,474 3,661 571 6,409

118,491 25,671 29,073 34,946 19,174 3,070 391 6,166

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)) Foreign borrowings Local onlendings (Note 10(a)) BNDES FINAME Other liabilities Foreign exchange portfĂłlio (Note 7) Negotiation and intermediation of securities (Note 12(a)) Derivative financial instruments (Note 5 (c)) Taxes and social security contributions (Note 12 (c)) Social and statutory payables Collection and payment of taxes and similar Sundry

Indusval Liabilities and stockholders’ equity Long-term liabilities Deposits (Note 10 (a); (b)) Interbank deposits Time deposits

2010

2009

2010

2009

774,625

655,164

774,736

655,097

675,015 11,088 663,927

553,459

674,941 11,088 663,853

553,392

553,459

7,345 7,345

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 Derivative financial instruments (Note 5(c)) Taxes and social security contributions (Note 12(c)) Sundry

Deferred income Stockholders’ equity (Note 13) Capital Local residents Capital reserve Revaluation reserve Revenue reserves Carrying value adjustment Treasury stock

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

Indusval Consolidated

553,392

7,345 7,345

549 549

20,546 20,546

549 549

20,546 20,546

84,354 28,154 39,856 16,344

77,328 6,911 44,101 26,316

84,354 28,154 39,856 16,344

77,328 6,911 44,101 26,316

7,362

7,547

5,462 1,900 462 426,425

3,831 745 2,904 182 284 432,694

5,647 1,900 462 426,425

3,831 745 2,904 182 284 432,694

370,983 2,212 1,928 55,812 1,447 (5,957)

370,983 779 1,995 62,217 100 (3,380)

370,983 2,212 1,928 55,812 1,447 (5,957)

370,983 779 1,995 62,217 100 (3,380)

3,270,686

2,728,159

3,276,142

2,730,202

notes to the financial statements

Statements of operations In thousands of Reais, except share data

Indusval

Years ended December 31

Income from financial intermediation (Note 15(a)) Loan operations Marketable securities Derivative financial instruments Foreign exchange

Expenses for financial intermediation (Note 15(b)) Funds obtained in the market Loans, assignments and onlendings Derivative financial instruments Provision for loan losses (Note 6(a)) Gross profit from financial intermediation

2010

2009

2010

2009

451,307 267,535 110,070 12,017 61,685 (312,917) (200,367) (63,542)

403,118 264,392 97,004

454,460 267,535 112,273 12,967 61,685 (312,567) (200,017) (63,542)

407,523 264,392 101,409

(49,008) 138,390 (96,931) 4,583 982 158 (53,124) (32,376) (14,321) 6,511 (9,344) 41,459 577 42,036 (4,937) 511 390 (5,838) (8,090) (6,990) (1,100) 29,009 40,466,187 0.72

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 Non-operating income 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 for the six-month period/year Number of outstanding shares (units) Net income per share â&#x20AC;&#x201C; in Reais The accompanying notes are an integral part of these financial statements.

Indusval Consolidated

41,722 (314,921) (143,548) (23,045) (37,051) (111,277) 88,197 (84,779) 3,734 737 4,497 (47,655) (34,869) (10,068) 5,812 (6,967) 3,418 2,577 5,995 12,407 (9,911) (6,090) 28,408 (5,624) (5,550) (74) 12,778 42,048,101 0.30

(49,008) 141,893 (100,277) 12,754 982

41,722 (313,247) (142,645) (23,045) (36,280) (111,277) 94,276 (93,171) 11,503 737

(56,478) (39,399) (15,319) 6,554 (9,371) 41,616 577 42,193 (5,041) 441 355 (5,837) (8,143) (7,024) (1,119) 29,009

(51,245) (41,913) (11,171) 5,924 (7,006) 1,105 8,032 9,137 9,306 (11,835) (7,267) 28,408 (5,665) (5,585) (80) 12,778

Statement of changes in stockholders’ equity In thousands of Reais

Revenue reserves Capital At January 1, 2009 Carrying value adjustment

370,983

Appropriation of benefits – stock options (Note 13(b))

Capital Revaluation reserve reserve 175

2,062

Legal

Statutory

9,765

70,105

(1,163) 1,263

Treasury stock

(3,403) 448,524 1,263

(3,466) 3,489

(3,489) 638 1,660 (67) (16,462)

Interest on own capital (R$0,64 per share)

12,778 (638) (1,660) 67

370,983

Appropriation of benefits – stock options (Note 13(b))

779 604 779

1,995 (67) 1,995

10,403 638 10,403

16,462

51,814 (18,291) 51,814

(27,009) 100 1,263 100 1,347

1,433

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

1,450 2,513 (67)

Interest on own capital (R$0,62 per share)

(13,051) (13,051) 10,269 (99) 205 205 29,009

29,009 (1,450) (2,513) 67 (25,113)

2,212 1,433

(3,380) 432,694 23 (15,830) (3,380) 432,694 1,347 1,433

(10,368)

370,983

(3,466) 12,778

(27,009) 370,983

Total

604

Realization of reserve for equalization of dividends

At December 31, 2010 Changes for the year

Carrying value adjustment

604

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

At December 31, 2009 Changes for the year At January 1, 2010 Carrying value adjustment

Retained earnings

1,928 (67)

11,853 1,450

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

43,959 (7,855)

(25,113) 1,447 1,347

(5,957) 426,425 (2,577) (6,269)

notes to the financial statements

Statements of cash flows In thousands of Reais

Indusval

Years ended December 31

Adjusted net income Income before taxes and after profit sharing Income tax and social contribution Depreciation and amortization Equity in the results of investees Adjustment of stock options Results on sale of treasury stock Provision for loan losses Provision for devaluation of assets Provision for contingencies Deferred tax assets Results on sale of tangible assets Results on disposal of investments Mark-to-market adjustment â&#x20AC;&#x201C; securities and derivatives

2010

2009

2010

2009

92,559 33,946

95,957 371 12,407 1,645 (4,497) 604

92,873 34,050

98,732 3,472 9,306 1,670

1,696 (158) 1,433 (99) 49,008 917 3,375 (4,937) (1,341)

Variation in assets and liabilities (Increase)decrease in short-term interbank investments (Increase) in securities and derivative financial instruments (Increase) decrease in interbank and interdepartmental accounts (Increase)decrease in loan operations (Increase) decrease in other receivables and other assets Increase in deposits Increase (decrease) in funds obtained in the open market Increase (decrease) in funds from acceptance and issuance of securities (Decrease) in borrowings and onlendings Change in deferred income (Increase) decrease in other liabilities The accompanying notes are an integral part of these financial statements.

Indusval Consolidated

1,828 1,433 (99) 49,008 917 3,375 (5,041) (1,339)

604

8,719 (109,756) 256,177

111,277 997 2,504 (28,408) (39) (2,866) 1,962 (63,539) (250,050)

8,741 (109,885) 256,177

111,277 997 2,504 (28,408) (39) (4,613) 1,962 (46,837) (250,050)

(544,465) (5,888) (267,102) (107,007) 231,152 172,776 71,434 (67,003) 178 149,992

(377,213) 6,020 (80,983) 53,957 440,726 363,061 (11,962) (169,458) 127 (37,764)

(546,781) (5,888) (267,102) (108,235) 232,987 172,776 71,434 (67,003) 178 151,572

(394,130) 6,020 25,243 59,966 460,219 363,061 (11,962) (255,136) 127 (50,195)

Notes to the Financial Statements

Statements of cash flows In thousands of Reais

Indusval

Years ended December 31

Operating activities – net cash provided (used) Disposal of tangible assets Disposal of investments Acquisition of tangible assets Acquisition of investments

2010

2009

2010

2009

(17,197) 26,409

32,418 13,149 27,841 (43,637) (3,018) (5,665) (3,466)

(17,012) 26,436

51,895 13,167 10,633 (40,476) (8,474) (25,150) (3,466)

(20,540) 5,869 (13,051) 205 (25,113) (37,959) (49,287) 88,186 38,899 (49,287)

Investing activities – net cash provided (used) Purchase of own shares Stock options exercised Interest on own capital paid and/or accrued

Financing activities – net cash provided (used) Net 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 Net decrease in cash and cash equivalents (Note 4) The accompanying notes are an integral part of these financial statements.

Indusval Consolidated

(27,009) (30,475) (3,722) 91,908 88,186 (3,722)

(20,754) 5,682 (13,051) 205 (25,113) (37,959) (49,289) 88,188 38,899 (49,289)

(27,009) (30,475) (3,730) 91,918 88,188 (3,730)

notes to the financial statements

Statements of value added In thousands of Reais

Indusval

Years ended December 31

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 Institution 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 (accumulated deficit) for the year/period The accompanying notes are an integral part of these financial statements.

Indusval Consolidated

2010

2009

2010

2009

415,077 451,307 5,565 (49,008) 7,213 (263,909) (38,703) (13,994) (15,407) (9,302) 112,465 (1,696) 110,769 160 158 2 110,929 110,929 52,910 41,459 8,902 2,549 27,606 26,746 281 579 1,404 1,404 29,009 25,113 3,896

304,394 403,118 4,471 (111,277) 8,082 (203,644) (38,758) (13,792) (18,347) (6,619) 61,992 (1,645) 60,347 4,609 4,497 112 64,956 64,956 45,963 36,407 7,379 2,177 5,021 4,641 23 357 1,194 1,194 12,778 27,009 (14,231)

426,378 454,460 13,736 (49,008) 7,190 (263,559) (45,233) (15,782) (20,121) (9,330) 117,586 (1,828) 115,758 2

321,992 407,523 12,240 (111,277) 13,506 (201,970) (45,806) (15,661) (23,436) (6,709) 74,216 (1,670) 72,546 140

2 115,760 115,760 55,803 43,662 9,470 2,671 29,221 27,947 281 993 1,727 1,727 29,009 25,113 3,896

140 72,686 72,686 49,027 38,649 8,050 2,328 9,684 8,943 23 718 1,197 1,197 12,778 27,009 (14,231)

Notes to the financial statements at december 31, 2010 and 2009 In thousands of Reais, unless otherwise indicated

1. Operations Banco Indusval S.A. and its subsidiaries operate mainly with commercial and foreign exchange portfolios and other transactions related to securities brokers.

2. Presentation of financial statements (a) Basis of presentation The financial information of Banco Indusval S.A. (Indusval ) and the consolidated financial statements of Banco Indusval S.A. and its subsidiaries (Indusval 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 consolidated financial statements of Banco Indusval S.A. and its subsidiaries (Indusval Consolidated) were approved by the Board of Directors on February 23, 2011. 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. Law 11,638 was enacted on December 28, 2007 for the purpose of adjusting 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). As part of the process of convergence with international accounting standards, certain rules and interpretations were issued by the Brazilian Accounting Pronouncements Committee (CPC), which will be applicable to financial institutions only after approval by BACEN. The accounting standards which have been approved by BACEN include the following: • Resolution 3566/08 – Impairment of Assets • Resolution 3604/08 – Statement of Cash Flows • Resolution 3750/09 – Related-Party Disclosures • Resolution 3823/09 – Provisions, Contingent Liabilities and Contingent Assets . At present, it is not practicable to estimate when BACEN will approve the other CPC accounting standards or whether their application to the parent company’s financial statements will be retroactive or effective for future periods.

notes to the financial statements BACEN Resolution 3786/09 and Circulars 3472/09 and 3516/10 established that financial and other institutions which are authorized to operate by BACEN, constituted as publicly held companies, or obliged to form an audit committee shall, as from December 31, 2010, prepare annually and publish in up to 120 days from the base date of December 31, their consolidated financial statements, prepared in accordance with the international financial reporting standards (IFRS) issued by IASB. Accordingly, Indusval is currently analyzing the accounting effects of the transition to IFRS and will conclude this process within the deadlines established by BACEN. The main differences identified between the accounting practices in BR GAAP, described in Note 3, and in IFRS are as follows: • Impairment loss on loans and advances In accordance with IAS 39 – Financial Instruments: Recognition and Measurement, the impairment loss of a financial asset should be recognized when its carrying amount exceeds its estimated recoverable value. The entity must assess at each balance sheet date whether there is any objective evidence that a financial asset is impaired. Impairment loss may only be recognized when incurred, i.e. when there is objective evidence of impairment (for example: default) generated by loss events subsequent to the initial recognition of the asset with an impact on the estimated future cash flows which may be reliably measured. Impairment loss should be calculated based on the difference between the carrying amount and the amount of the future cash flow discounted by the effective interest rate determined when the asset was initially recorded (discounted cash flow). • Credit assignment with co-obligation In accordance with the accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank (BR GAAP), the assigned asset is written off and the result is determined on the date of the assignment. IAS 39 – Financial Instruments: Recognition and Measurement, establishes that when there is a substantial retention of risks and benefits, the assets should not be written off, although a contra entry should be recorded in liabilities for the amount received at the time the credit was assigned. • Effective interest method on loans and advances In accordance with BR GAAP, the direct costs related to the origination of the transactions are recorded at the full amount on the date of the disbursement. IAS 39 – Financial Instruments: Recognition and Measurement, establishes that financial assets measured at amortized cost should be recorded using the effective interest method, which consists in allocating the revenue (expense) over the contractual period of the original transaction. The effective interest rate is that which discounts the estimated future cash flow over the life of the instrument, or a shorter period, if necessary. • Reversal of unearned income on the balance of loans and advances Pursuant to BR GAAP, 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.

Pursuant to IAS 39 – Financial Instruments: Recognition and Measurement, if a loan becomes impaired, the interest income will be the result of the appropriation of the effective interest used to discount the estimated cash flow of the balance of the transaction net of the impairment loss. • Derivatives in foreign exchange transactions and fair value In accordance with Brazilian accounting practices (BR GAAP), foreign currency transactions are adjusted based on the amount at which the currency is quoted on the balance sheet closing date. Pursuant to IFRS, future exchange contracts (in currency other than the functional currency) should be measured at fair value, considering that the effect of the transaction on results is equivalent to that of a foreign currency forward (derivative financial instrument) transaction. Foreign exchange purchases pending settlement with no advance (ACC) are considered derivatives (forward foreign currency transactions) pursuant to IFRS and as a result should be stated at fair value. • Fair value measurement of securities recorded at cost Securities and quota units not traded in the market and recorded in the Other investments account, in accordance with BR GAAP, are measured at cost. Pursuant to IAS 39 – Financial Instruments: Recognition and Measurement, these items should be measured at fair value. • Write off of the provision for devaluation of non-current assets held for sale (Non-operating assets) In accordance with BR GAAP, the recording of provisions for the devaluation of non-operating assets is permitted. These provisions may be calculated based on internal estimates. Pursuant to IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations, the assets should be measured at the lower of the carrying amount and fair value less costs to sell. (b) Consolidated financial information The consolidated financial statements comprise the financial statements of Banco Indusval S.A. (Banco Indusval ), its branch abroad and its subsidiaries: Indusval S.A. Corretora de Títulos e Valores Mobiliários (Indusval 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, 2010, its total assets amounted to R$79,807, stockholders’ equity was R$33,883 and net income was R$555 for 2010.

notes to the financial statements

3. Summary of significant accounting practices (a) Determination of the results of operations Income and expenses are recorded on the accrual basis of accounting. (b) Cash and cash equivalents Cash and cash equivalents comprise cash in local and foreign currency, investments in the open market (except for financed positions) 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 Instituion to manage its short-term commitments. (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, where 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 year; • 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; • 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 with a contra-entry to results for the year. 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, and which 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 year. • 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 year.

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 year. (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 61 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 calculated 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 2682, of December 21, 1999 and in accordance with the provisions of BACEN Circular 2974, 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 loan assignments are appropriated as an increase in income on loan operations or as a reversal thereof, in compliance with the provisions of BACEN Circular 3213 of December 10, 2003. In accordance with BACEN Resolution 3533, of January 31, 2008, the information on each of the categories used to classify financial asset sales must be disclosed in the notes to the financial statements (Note 6(j)). These categories include the following: • Transactions with substantial transfer of risks and benefits; • Transactions with neither substantial transfer nor retention of risks and benefits; • Transactions with substantial retention of risks and benefits; • Transactions with neither substantial transfer nor 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.

notes to the financial statements (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(c)). 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. (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 (asset and liability) Deferred income tax and social contribution, calculated on temporary differences, are recorded in the Other receivables – sundry account. 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 (IRPJ) was calculated at the rate of 15% of taxable income, plus a 10% surcharge. The provision for social contribution (CSLL) was calculated at the rate of 15%. In accordance with Law 11941/09, the changes in the criteria used to recognize revenue, costs and expenses for the year, as introduced by Law 11638/07 and by Articles 36 and 37 of the former, 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 shall be followed. For accounting purposes, the tax effects of adopting Law 11638/07 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 594/09 and ratified by BACEN Resolution 3823. 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 through a final and unappealable court decision, and the confirmation of recoverability through receipt or offset against another liability.

â&#x20AC;˘C ontingent 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 from other risks. The evaluation of these contingencies is carried out by legal advisors on a basis which is consistent with adopted conservative practices and considers the 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; possible, which are disclosed but for which no provisions are recorded; and remote, which require neither provisions nor disclosure. The contingency amounts are measured using models and criteria which permit adequate estimates, despite the inherent uncertainty regarding terms and amounts. Legal obligations â&#x20AC;&#x201C; tax 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 deferred tax assets, 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 and Consolidated 2010

2009

22,507

292,897

22,507 1,502 15,005 6,000

35,079 26,999 7,930 150

Interbank deposits

22,141

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

Interbank Unrelated CDI Rural CDI

21,901 9,071 12,830

60,092 48,904 11,188

Foreign currency investments

240 44,648

154 353,143

Open market investments Own portfolio position Financial Treasury Bills (LFT) National Treasury Bills (LTN) Federal Treasury Notes (NTN) Third-party portfolio position LFT LTN

notes to the financial statements The balances of cash and cash equivalents as presented in the Statement of Cash Flows are comprised as follows: Indusval

Indusval Consolidated

2010

2009

2010

2009

Cash Short-term interbank investments (cash equivalents)

7,081 31,818

4,049 84,137

7,081 31,818

4,051 84,137

Cash and cash equivalents

38,899

88,186

38,899

88,188

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 through interpolation and extrapolation of the terms. The portfolio of share loan contracts (Note 3(k)) is almost entirely 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. The risk management structure, as well as the methodology adopted for calculating capital are available for consultation on the Institutionâ&#x20AC;&#x2122;s website at the following address: http://www.indusval.com.br/port/institucional/indusval/gestao.asp (b) Marketable securities (i) Indusval

Cost

Market/ book value

Financial Treasury Bills (LFT) Financial Treasury Bills (LFT) National Treasury Bills (LTN) National Treasury Bills (LTN) Federal Treasury Notes (NTN) Bank Deposit Certificates (CDB)

53.574 306.025 929 133.409 583.826

53.574 306.021 929 133.509 583.273

Variable income securities

130.297

130.284

Up to 360 More than 360 Up to 360 More than 360 More than 360 Up to 360 Undetermined maturity

2.128

Undetermined maturity

1.210.188

1.209.718

Maturity (days)

2010

2009

Mark-tomarket adjustment

Market/ book value

Trading Securities

Investment fund quotas

(4) 100 (553)

36.990 82.435 315.998 221.790 8.761

(13)

26.559 4.282

(470)

696.815

(ii) Indusval Consolidated

Cost

Market/ book value

Financial Treasury Bills (LFT) Financial Treasury Bills (LFT) National Treasury Bills (LTN) National Treasury Bills (LTN) Federal Treasury Notes (NTN) Debentures Bank Deposit Certificates (CDB)

53,574 315,951 929 133,409 583,826

53,574 315,951 929 133,509 583,273

Variable income securities Investment fund quotas

130,297 2,128

Maturity (days)

2010

2009

Mark-tomarket adjustment

Market/ book value

Trading Securities Up to 360 More than 360 Up to 360 More than 360 More than 360 Up to 360 Up to 360

130,284 Undetermined maturity 2,128 Undetermined maturity

100 (553)

44,433 82,435 315,998 221,790 193 8,761

(13)

26,559 4,282

Securities held to maturity Agricultural Debt Securities (TDA) Agricultural Debt Securities (TDA)

5 31 1,220,150

5 Up to 360 31 More than 360 1,219,684

(466)

5 34 704,490

(c) Derivative financial instruments and hedge accounting Banco Indusval uses derivative financial instruments, according to its risk management policy, with the objective of hedging risks and mitigating exposure mainly resulting from the fluctuation of interest and foreign exchange rates. The derivative instruments used are designed to meet its needs for managing its overall exposure and to meet its customersâ&#x20AC;&#x2122; needs for hedging their exposure. The 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 consolidated balance sheet at market value, usually based on price quotations or market price quotations for assets or liabilities with similar characteristics. 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). The transaction amounts are determined based on available information disclosed by BM&FBovespa or by external providers (brokerage firms, banks and others). 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.

notes to the financial statements (i) Position 2010 Indusval and Consolidated Long position

Short position

Maturity (days)

Futures market Interest rate

40,476

Up to 360

Interest rate

30,077

635,652

More than 360

Currencies

3,783

78,435

Up to 360

28,281

27,907

Up to 360

Forward market Shares Currencies

Option Market Shares

3,292

3,391

Up to 360

Indices

186

Up to 360

Currencies

3,694

2,744

Indices

6,120

Swap Up to 360 More than 360

2010 Indusval and Consolidated Long position

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

20,836

Up to 360

Futures market Interest rate Interest rate Currencies

Forward market Shares Currencies

Option Market 8,918

Swap Currencies Indices

353

328

Up to 360

Indices

745

More than 360

(ii) Position of contracts 2010 Indusval and Consolidated

Swap DI x US$ US$ x DI Cash flow swaps (**)

Assets

Liabilities

9,814 3,694

2,744

3,478 3,292 186

3,480 3,391 89

253,625 52,886 26,339 174,400 31,056 28,489 2,567 788,423 706,205 77,841 4,377 4,376,020 74,250 4,301,770

41,573

34,184

5,449,124

2,744 6,120 28,281 28,281

Forward Shares Currencies

27,960 27,907 53

Futures CDI US$ Mini-US$

Options Shares Indices

Amount of contracts recorded

Result 791

3,399

9,114

(337)

12,967

notes to the financial statements (ii) Position of contracts 2009 Indusval and Consolidated Assets

Liabilities

Amount of contracts recorded

Result

388

21,909

221,356

(29,202)

Swap

246

DI x US$

1,706

US$ x DI 23

IPCA x DI IGPM x DI

1,706

745

95,600

2,000

2,207

17,631

18,552

73,264

269

21,558

119

Fixed DI x Variable DI

7,891

Euro x DI Cash flow swaps (*) (**) Euribor

Forward

11,179

11,708

11,611

11,179

11,701

11,255

Currencies

(188)

356

Futures

644,625

CDI

624,669

US$

19,386

(4,634)

570

Mini-US$

Options

8,918

2,074

70,879

8,918

2,074

70,879

20,485

35,691

948,471

(2,256)

(36,280)

(*)US$ (+) LIBOR x DI and (**) IPCA (IGPM) x DI

(iii) Guarantees Indusval 2010

Marketable securities Sureties

2009

Clearing of derivatives

Clearing of shares

Total

Clearing of derivatives

Clearing of shares

Total

46,611 3,000

32,778 11,500

79,389 14,500

24,620 8,000

3,259 11,500

27,879 19,500

49,611

44,278

93,889

32,620

14,759

47,379

(iv) Cash flow hedge accounting The loans and funds obtained by the Institution are exposed to market risk including changes in market indices of products, fixed interest rates, foreign currency coupons, long-term interest rate (TJLP), reference rate (TR), share prices, commodity price indices and foreign exchange rates. The treasury department, with its conservative profile, is responsible for hedging all flows originated by the area responsible for granting credit and obtaining funds using derivative financial instruments, such as swaps and options, contracted as from the time these transactions are effective. Banco Indusval carries out cash flow hedging of CDBs and DPGEs indexed to the IPCA and IGPM indexes using swaps as the hedge instruments The relationship between the hedge instrument and the underlying object, as well as the risk management and policies and objectives, were documented at the inception of the transaction. The initial and prospective effectiveness tests were also documented, and it was confirmed that the designated derivatives would be highly effective for offsetting the variation in the cash flows of the funds obtained and the time deposits indexed to IPCA and IGPM. During 2010, an amount of R$1,347 (2009 â&#x20AC;&#x201C; a negative amount of R$1,263) was recorded in equity, resulting from the marking to market of hedge instruments (swaps) in cash flow hedge accounting transactions, which at December 31, 2010, were valued at R$6,120 (asset). (v) Sensitivity analysis

Factors

Probable Deterioration Deterioration situation of 25% of 50%

Risk

Trading portfolio Fixed rate Exchange coupon Foreign currency TR and TJLP Variable income

Fixed interest rates in Reais Foreign currency coupon rates Exchange variation TR and TJLP coupon rates Share prices

(1,032) 2,197 518 (7) (287)

(1,960) (3,661) (1,295) (10) (627)

(3,693) (7,323) (2,590) (19) (1,273)

Fixed interest rates in Reais Foreign currency coupon rates Exchange variation Price index coupon rates TR and TJLP coupon rates Share prices

(3,022) 5,721 496 95 (70) (287)

(6,796) (9,530) (1,240) (81) (137) (627)

(12,935) (19,065) (2,479) (628) (262) (1,273)

Trading and banking portfolio Fixed rate Exchange coupon Foreign currency Price indices TR and TJLP Variable income

In compliance with the classification criteria of the transactions addressed in BACEN Resolution 3464/07 and Circular 3354 and in the Basel II Accord, the financial instruments of Banco Indusval are categorized in the Trading Portfolio (for trade) and the Banking Portfolio (structural).

notes to the financial statements The sensitivity analysis considered the risk factor stress scenarios in all of the Institution’s transactions. High stress scenarios were considered for fixed, exchange coupon, price index, TJLP, TR and variable income rate risk factors, while low stress scenarios were considered for the exchange rate risk factor. These differences are necessary for recording the scenarios which represent an effective loss from stress for the Institution. The high stress reference curve scenarios are generally used when the Institution has a net debt exposure in a particular risk factor. On the other hand, the low risk reference curve scenarios are used when there is a net credit exposure in each risk factor considered for the analysis. We stress that the variations in the scenarios are based on the expectation of an immediate settlement of all of the Institution’s assets and liabilities, and may not necessarily represent a loss or gain since it is a hypothetical situation. Scenario I considers the variations expected by the Institution in relation to the market reference curves used for marking these products to market. Senior management attributes to Scenario I the variations expected for each risk factor, either above or below the reference factors. Scenarios II and III are defined in accordance with CVM Instruction 475, which establishes that the high risk scenarios should consider variations of +25% and +50% and the low risk scenarios variations of -25% and -50%. As a result, scenarios II are defined by the variation of +/- 25% in relation to the market value of the products comprising each risk factor and scenarios III by the variation of +/- 50% in relation to the market value of the products of each risk factor.

6. Loan operations - Indusval and Indusval Consolidated (a) Analysis of the loan portfolio by type of operation and allowance for loan losses December 31, 2010 Operations

Total

264,431 324,255 83,153 25,881 18,852 48,266 34,186 596 514 362 533 806 339,174 378,340 84,321 137,228 38,199 23,301 1,486 477,888 416,539 107,622 2,814 598 238 2,369 132 445 466 238

61,840

37,517

18,649

3,284 218

224

387 290

65,342

37,741

19,326

65,342 153

37,741 101

153

101

19,326 849 637 212

32,042 1,353,539 51,941 112,625 2,623 6,225 14,198 34,665 1,538,528 316,237 9,786 34,665 1,864,551 837 12,371 3,390 837 8,981

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 Loans CDC – Vehicles Total credit including assignments with co-obligation

47,803 483,849 7,208 26,502 1,398 12,859 47,803 531,816 117,509 8,300 47,803 657,625 6,781 252 6,529

47,803 664,406 480,702 417,137 107,860

65,495

37,842

20,175

35,502 1,876,922

Guarantees provided (Note 19 (a)) Total portfolio Allowance for loan losses Provision for credits assigned with co-obligation

44,523 19,739 47,803 708,929 500,441 417,137 107,860 3,288 4,779 12,496 10,762

65,495 19,603

37,842 18,870

20,175 13,528

64,262 35,502 1,941,184 34,665 117,991

Total provision

595

837

1,633

3,322

4,807

12,514

10,786

19,649

18,921

14,123

35,502

119,624

100

December 31, 2009 Operations Loans and discounted bills Foreign currency financing BNDES/FINAME CDC – Vehicles Other financing Total loan operations Advances on foreign exchange contracts Other receivables – sundry (Note 8) Total credit Assignments with co-obligation Loans CDC – Vehicles 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 Provision required Additional provision Total provision

A 310,675 16,069 28,869 3,030 25,462 384,105 83,228 17 467,350 21,406 6,323 15,083 488,756 54,429 543,185 2,337 107 2,444 2,444

307,566 378,967 4,423 2,603 41,015 44,801 1,509 1,703

45,955

24,637

17,726

5,072

1,472 1,414

1,299

895

998

354,513 428,074 107,767 54,187

48,841 14,414

25,936

18,621 1,372

6,070

462,280 482,261 8,902 12,049 8,252 11,259 650 790 471,182 494,310 7,368 1,075 478,550 495,385 4,623 14,468 89 361 4,712 14,829

63,255 324

25,936 314

19,993 167

6,070 157

324 63,579

314 26,250

167 20,160

157 6,227

63,579 6,325 32 6,357

26,250 7,781 94 7,875

20,160 9,997 83 10,080

6,227 4,249 110 4,359

6,357

7,875

10,080

4,359

4,712

14,829

Total

50,657 1,141,255 23,095 116,157 5,390 16,238 25,462 56,047 1,322,207 9,270 270,238 17 65,317 1,592,462 83 43,402 25,834 83 17,568 65,400 1,635,864 62,872 65,400 1,698,736 65,316 115,096 83 959 65,399 116,055 17,339 65,399 133,394

During the year, the total allowance for loan losses was R$49,008 (2009 – R$111,277). The amount of loans written off against the allowance for loan losses was R$62,778 (2009 – R$48,201), and the amount of loans recovered was R$7,921 (2009 – R$4,221). At December 31, 2010, the portfolio of renegotiated loans amounted to R$241,354 (2009 – R$165,186). (b) Analysis of loan operations by business sector

Manufacturing Commerce Financial intermediaries Other services Individuals (*)

(*) Of the total balance of individuals, R$64,635 (2009 – R$53,598) comprises middle market loans.

101

2010

2009

1,044,225 209,857 61,763 423,609 137,468

913,918 189,436 12,844 359,893 159,773

1,876,922

1,635,864

notes to the financial statements (c) Analysis of loan operations by index

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

2010

2009

640,044 1,160,577 3,035 73,266

491,186 1,058,418 108 86,152

1,876,922

1,635,864

2010

2009

14,928 27,823 4,439 47,190

31,518 15,606 29,397 76,521

686,944 343,438 248,493 550,857 1,829,732 1,876,922

561,655 330,117 240,296 427,275 1,559,343 1,635,864

(d) Analysis of loan operations by installment 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

(e) Concentration of loans 2010

2009

Customers

Amount

Accumulated percentage

Amount

Accumulated percentage

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

382,420 590,790 442,032 461,680

20.37 31.48 23.55 24.60

20.37 51.85 75.40 100.00

308,388 500,445 388,883 438,148

18.85 30.59 23.78 26.78

18.85 49.44 73.22 100.00

1,876,922

1,635,864

102

(f) Analysis of loans classified from D to H Only a portion of the transactions rated from 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. 2010 Level Performing Non- performing

Total

2009 D

Total

97,314 59,231 10,288 10,969 16,831 194,633 57,042 1,088 13,716 10,546 6,264 27,554 9,206 18,671 72,241 6,537 25,162 6,444

2,617 10,286 84,749 3,610 55,114 96,867

107,860 65,495 37,842 20,175 35,502 266,874 63,579 26,250 20,160

6,227 65,400 181,616

(g) Loan operations by segment

Middle Market In Reais – loans and discounts In Reais – financing In Reais – BNDES/FINAME In foreign currency Major companies (*) In Reais – loans and discounts In Reais – BNDES/FINAME In foreign currency Other Loans and financing – acquired Consumer lending (CDC) – Vehicles Other receivables

2010

Portfolio %

2009

Portfolio %

1,538,538 1,139,337 14,198 99,933 285,070 256,501 160,701 12,692 83,108 81,883 56,891 15,206 9,786

81.97 60.70 0.76 5.32 15.19 13.67 8.56 0.68 4.43 4.36 3.03 0.81 0.52

1,529,691 1,120,201

93.51 68.48

116,157 293,333

7.10 17.93

106,173 72,350 33,806 17

6.49 4.42 2.07

1,876,922

1,635,864

(*) T he Major Companies segment referred to by the Institution corresponds to transactions carried out with corporate customers whose annual billings are in excess of R$400 million. This extension to the Institution’s business platform was set up in July 2010 as a complement to its operations, which have traditionally focused on middle market companies.

103

notes to the financial statements (h) Loans – average balances and term 2010

Loans, financing and discounted bills Overdraft accounts Loans Discounted bills BNDES/FINAME ACC/ACE/FINIMP

Other Loans and financing – acquired CDC – Vehicles Other receivables

Total amount

Number of customers

Number of contracts

Average balance per customer

1,314,236 145,064 1,124,975 44,197

274 579 1,397

288 1,079 1,867

529 1,943 32

504 1,043 24

110 589 95

72 123

228 431

1,564 2,993

494 854

810 216

112,625 368,178 81,883 56,891 15,206 9,786

Average Average term balance per (*) contract

1,876,922

2010

Loans, financing and discounted bills Overdraft accounts Loans Discounted bills BNDES/FINAME ACC/ACE/FINIMP

Other Loans and financing – acquired CDC – Vehicles Other receivables

Total amount

Number of customers

Number of contracts

Average balance per customer

1,120,201 70,102 1,019,725 30,374

165 605 105

172 1,191 545

425 1,685 289

408 856 56

122 510 72

54 101

191 313

2,151 2,904

608 937

649 220

116,157 293,333 106,173 72,351 33,805 17 1,635,864

104

Average Average term balance per (*) contract

(i) Corporate customer guarantees 2010

Transactions Overdraft accounts Loans Discounted bills BNDES/FINAME ACC/ACE/FINIMP

Percentage (%)

Monitored lien/ warrants and CPRS

Other types of lien

Lien on properties

Lien on vehicles

1,644 92,999

38 22,736

15,587 143,390

2,064 23,988

31,667 20,542

2,978

28,518

49,534

869,105

144,177

74,983

161,955

48.42

8.03

4.18

9.02

Total transactions

Guaranteed by receivables

145,064 1,124,975 44,197 112,625 368,178

118,559 604,318 44,197 27,191 74,840

1,795,039 100.00

Securities/ Total shares/ guarantees CDB 338 10,490

41,889

138,230 897,921 44,197 90,354 186,805

54,570

52,717

1,357,507

3.04

2.94

75.63

2009

Transactions Overdraft accounts Loans Discounted bills BNDES/FINAME ACC/ACE/FINIMP

Monitored lien/ warrants and CPRS

Other types of lien

124,158

21,393

3,144 52,520

775,286 50.68

Total transactions

Guaranteed by receivables

70,102 1,019,725 30,374 116,157 293,333

60,008 596,746 30,374 32,658 55,500

1,529,691 Percentage (%)

Lien on properties

Lien on vehicles

2,019 125,668

2,316 21,883

56,846 8,433

10,943

10,606

179,822

86,672

138,630

11.76

5.67

9.06

Securities/ Total shares/ guarantees CDB 2,469 28,121

23,477

66,812 917,969 30,374 114,197 139,930

34,805

54,067

1,269,282

2.28

3.53

82.98

(j) Composition of assigned loans by type of loan and nature of risk 2010

2009

Amount of Amount of Result of Asset Result of Asset the liability the liability assignment amount assignment amount assumed assumed