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2011 Annual Report Presentation Transcript

  • 1. 2011 A nnual Report .12011 ANNUAL REPORT N EW HORIZONS
  • 2. 2011 A nnual Report .02About this Report T he year 2011 marked the beginning of a new stage in BI&P – BancoIndusval & Partners’ path of progress and BI&P’s main asset, who put into practice the values they discussed, defined and assimilated, and who lead the Bank to a new NEW CULTURE NEW STRUCTURE NEW POSITIONINGdevelopment: we attracted new partners, development horizon, effectively embodying Strategic Vision Strong and experienced Deep knowledge of marketstrengthened our management, business, the concept that “partners” brings to the management and teams variables and of oursupport and control teams, expanded the new brand. customers’ businessesrange of products we offer and markets Throughout this Report, we willwe operate in, and consolidated our present BI&P in all of its aspects, and itsmeritocracy-based work culture. That is transformation in 2011: from people to Development of edge The new headquarters and Broader product offer, tailor-the first step in our path to materialize technology, from management to results – and expertise in certain investments in technology made to meet the needsour vision of “being an innovative bank, and we will emphasize the importance of our business chains and systems provide more of our customers and thewith excellence in corporate credit and in employees, who play a major role in this new safety and efficiency industries where they operatedepth knowledge of our customers and the excellence-oriented phase.industries in which they operate, as well as Constant pursuit of Solid policies and enhanced Development of effectiveone of the leaders of the growing corporate Enjoy your reading! innovation and excellence operational procedures relationships with mid-fixed income bond market in Brazil.” sized and large corporate The theme illustrated in this Annual customers (Middle MarketReport represents this scenario: people, and Corporate)
  • 3. 2011 A nnual Report .03ContentsMESSAGE FROM MANAGEMENT .........04 ADMINISTRATIVE STRUCTURE .........28VISION AND VALUES .........06 People Management .........30 Risk Management .........32MAIN INDICATORS .........07 ECONOMIC AND FINANCIAL PERFORMANCE .........34CORPORATE PROFILE .........08 Credit Portfolio .........37History .........09 Funding .........38New Brand, New Bank .........09 Capital Structure .........39Strategic Partnerships .........10 Financial Transactions .........39Corporate Structure .........12 Operating Revenues and Expenses .........40 Efficiency .........41STRATEGY .........13 Net Income .........42Customers .........15 Stock Performance .........43Products .........16People .........18 SOCIAL-ENVIRONMENTAL ACTIONS .........44 Annual Social Report .........49CORPORATE GOVERNANCE .........19Guidelines .........20 FINANCIAL STATEMENTS .........51Governance Structure .........21Governance and Capital Markets .........27 CORPORATE INFORMATION .........95
  • 4. 2011 A nnual Report .04Message fromManagementA NEW BANK WITH 45 YEARS OF EXPERIENCE A t BI&P, 2011 was a year full of changes, novelties and improvements that helped us to recover our growth pace withsolidity and profitability. Our Bank underwent a deep restructuring management, with the admission of professionals with significant experience in the financial market, and the promotion of various professionals who already worked at the Institution. This new team MANOEL FELIX CINTRA NETOof its objectives in a process of strategic repositioning, resulting in redefined the short- and long-term goals for all of our divisions–both Chairmanchanges to shareholders, management, partners, people, systems and the front office and supporting divisions–within the concept of turningcontrols, all indispensable to make our new reality come true. BI&P into a benchmark. JAIR RIBEIRO AND More than expanding the Bank’s capital structure, these changes In order to meet these goals, each division developed its own LUIZ MASAGÃO RIBEIROwere implemented to provide a qualitative improvement within our Action Plan, engaging the whole team. These Plans were combined Co-CEOsVision of becoming “an innovative bank, with excellence in and shared among everyone, and have been systematically monitoredcorporate credit and deep knowledge of our customers’ activities by our top management. The commercial, credit, international,and the industries where they operate.” operational, legal, funding, treasury and products divisions are working Our goal is very clear: returning to our historical levels of growth at a fast pace to implement their Action Plans, so as to adopt the bestand profitability, by generating high-quality assets in the Middle practices and controls, in addition to developing products that suit ourMarket and Corporate segments, more service revenues, and reducing target customers.credit risks. Finally, we gathered the Bank’s 30 most senior employees to define The first step was the Bank’s capitalization by U.S. fund Warburg which Values would be included in our DNA – Ethics, OwnershipPincus, by the controlling shareholders, and by the new Co-CEO, Jair Attitude, Excellence, Team Work, Focus on Results, Innovation andRibeiro, who then defined the organization’s new strategic Vision. Credibility. These are the Values that guide us in our everyday activities T h e s e c o n d s t e p w a s t h e re s t r u c t u r i n g o f t h e B a n k ’s t o p and help us execute our strategy.
  • 5. 2011 A nnual Report .05 In order to stand out among other mid-sized banks, we have expanded our focusand included services to companies in theCorporate segment. We strengthened oursector segmentation, with special focus onagribusiness, which is becoming increasinglymore professionalized and profitable. T h e s t r u c t u r i n g o f a s t ro n g p ro d u c t s Our results throughout the year have shown an improvementdivision was essential to the success of that should gain pace, since the teams are already assembled andour strategy. In 2011, in addition to the integrated to the new Vision and strategy, experiencing the Valuesredevelopment of traditional products, 23 determined for the business development of BI&P.new financial products were created and In 2012, the practices and controls implemented will beimplemented, including the creation of a consolidated and improved, in order to achieve excellence in all ofderivatives division. Today we offer a broad our divisions, thus ensuring the means for the solid and consistentrange of products to the market, leveraging growth we have planned. In this context, it is critical for us tothe relationships developed by the commercial develop even further our knowledge of our customers’ activitiesdivision. In addition, we have completed the and the industries where they operate, in order to leverage thecreation of the structured operations division, quality of our credit, customize our products to the needs of ourhome to our team specializing in fixed income customers and strengthen our relationship with them, materializingmarkets and M&A. recurring businesses through offers of multiple products, thus Another change worthy of mention is the improving our efficiency, margins and profitability.new stance adopted by our credit division. In The Company underwent several changes in 2011, and willaddition to segmenting it into two different continue to grow. However, Ethics and Credibility, key values thatdivisions—Corporate and Middle Market— we have carried with us throughout our 45-year history, still guidethe analysis parameters and criteria were our actions in society and in the financial market.revisited by applying many of the concepts We appreciate the trust, support and efforts of our shareholders,used to evaluate companies in the Corporate customers, business partners, and particularly our employees andsegment to mid-sized companies. As a result, collaborators, who played a key role in the implementation ofthe analysis of the customer’s operational the corporate and organizational changes developed throughoutactivities in their industry of operation and the year, making us a stronger and more dynamic and innovativetheir payment capacity became critical for bank. There is still a lot to do for us to reach the level of growth,the approval of credit facilities, serving as profitability and excellence we aim at. 2011 was just a great startaccessory guarantees to transactions. of this new cycle.
  • 6. 2011 A nnual Report .06VisionB eing an innovative bank, with excellence in corporate credit andin depth knowledge of our customersand the industries in which they operate,as well as one of the leaders of thegrowing corporate fixed income bondmarket in Brazil.ValuesE thicsO wnership AttitudeE xcellenceT eam WorkF ocus on ResultsI nnovationC redibility
  • 7. 2011 A nnual Report .07MainIndicators Branches São Paulo Campinas Rio de Janeiro BI&P is a Brazilian bank listed on Belo Horizonte UberlândiaBM&FBovespa’s Level 2 *1 (Nível 2) of Corporate GoiâniaGovernance, and it is using its 45-year Campo Grande Curitibaexperience in the financial market to position Maringáitself as an innovative financial institution, Porto Alegrefocused on corporate credit and on creatingcustomized products and services for mid-sized AGENCY RATING LAST REPORTand large companies. In order to help our customers develop Global: BB/ Stable /B Standard & Poor’s December 2011their business in Brazil and abroad, the BI&P National - Brazil: brA+/ Stable /brA-1team, made of more than 400 employees, has Global: Ba3/ Stable /Not Primeglobal expertise and deep knowledge of market Moody’s November 2011 National - Brazil: A2.br/ Stable /BR-2variables, and is always ready to evaluateeach transaction and find the best credit and FitchRatings National - Brazil: BBB/ Stable /F3 December 2011investment options for it. With this purpose, Index: 10.08we have established bonds with our customers RiskBank January 2012 Low Risk to Short Termin order to get to know their businesses andsegments of operation, which also allows us to Consolidated - R$ million 2007 2008 2009 2010 2011(d)develop and customize products that will meet Income Statementeach of their needs. Income from Financial Intermediation 289.0 641.0 407.5 453.8 631.7 Gross Income from Financial Intermediation 129.2 200.1 94.3 141.2 52.5 With assets totaling around R$4.3 billion Net Income 45.4 71.8 12.8 29.0 (31.7)at the end of 2011, BI&P operates in various Balance Sheet Free Cash (a) 255.6 422.6 695.9 732.8 887.3modalities, such as loans, financing, foreign Credit Portfolio 1,255.2 1,723.0 1,635.9 1,876.9 2,269.6trade transactions, corporate finance, corporate, Expanded Credit Portfolio (b) 1,329.0 1,793.7 1,698.7 1,941.2 2,534.4 Total Assets 2,211.2 2,225.4 2,730.5 3,276.1 4,278.3real estate and agricultural bonds, securitization Total Deposits 810.4 824.9 1,273.2 1,577.6 1,851.2o f re c e i v a b l e s , m e r g e r s a n d a c q u i s i t i o n s , Open Market 656.6 2.7 365.8 538.6 867.9structured transactions, and debt restructuring. Loans and Onlending 229.7 775.2 520.0 453.0 682.0 Shareholders Equity 406.7 448.5 432.7 426.4 577.1 Performance Indicators (a) Free Cash = Cash and Cash Equivalents and Interfinancial Marketable Return on Average Equity (ROAE) 16.3% 16.8% 2.9% 6.8% -6.3% Securities net of Funds obtained on Return on Average Assets (ROAA) 2.7% 3.2% 0.5% 1.0% -0.8% the Open Market. (b) Expanded Credit Default Ratio (c) 0.7% 1.9% 5.4% 3.3% 4.7% Portfolio includes: Sureties, Guarantees, L/Cs, CPRs and NPs. (c) Contracts more Basel Ratio 33.2% 24.0% 22.5% 17.6% 18.2% t h a n 9 0 d a y s o v e rd u e / To t a l C re d i t Operating Indicators Portfolio. (d) Under the Investment Number of Corporate Borrowers 983 699 660 709 734 Agreements established in March 2011, complementary provisions for doubtful Number of Depositors 592 571 672 628 661 accounts were created in the amount Number of Employees 331 329 333 362 421 of R$67.2 million to segregate potential credit losses as a result of deals closed in Number of Branches 11 11 12 11 11 previous years.1. Level 2 listing as of March 1, 2012.
  • 8. 2011 A nnual Report .08Corporate Profile
  • 9. 2011 A nnual Report .09 NEW BRAND, NEW BANK A dding “Partners” to our name was not a mere change in our brand. In 2011, the Bank consolidated strategic relationships—with shareholders, executives, employees and partners—in order to put into practice a business plan that seeks to turn the Bank into a reference in corporate credit throughCorporate Profile knowledge, innovation and excellence. This plan becomes feasible with the new structure and the engagement of strategic partners. This new design involved the admission of new shareholders: the controlling shareholders of foreign trade company Sertrading, and privateA HISTORY OF TRANSFORMATION AND PARTNERSHIPS equity fund Warburg Pincus, listed as one of the world’s largest funds. It also includes the admission of one of the best executive teams in the market,1967. Establishment of Indusval Corretora de Valores. leading the implementation of the new strategy. To make the development of the businesses with excellence our staff was also strengthened.1991. Creation of Banco Indusval, operating with a focus on corporate credit specializing in the Middle Market.2003. Merger with Banco Multistock, creating Banco Indusval Multistock. BI&P ATTRACTED THE FIRST PRIVATE EQUITY INVESTMENT IN A BRAZILIAN BANK, PAVING THE WAY FOR LONG-TERM RESOURCES FOR THE DOMESTIC2007. IPO on the BM&FBovespa and capitalization of R$227.5 million. FINANCIAL SECTOR.2009. Strategic partnership with experienced professionals for developing the business of Indusval Multistock Corretora de Valores.2011. New expansion phase with a capital increase of R$201 million (Tier I); attracting new investors: Warburg Pincus and the controlling shareholders of Sertrading; strengthening of the Bank’s management; and, under an innovative vision of excellence, the BI&P – Banco Indusval & Partners brand was born.
  • 10. MATERIALIZATION OF 2011 A nnual Report .10STRATEGIC PARTNERSHIPS T he first step was the Bank’s capitalization: Warburg Pincus invested R$150 million,t h e c o n t ro l l i n g s h a re h o l d e r s o f S e r t r a d i n ginvested R$30 million, and the Bank’s controllingshareholders invested another R$21 million, in a Indusvalcapital increase of R$201 million (tier I), executed Warburg Controllingin March 2011. Pincus At the same time, the Bank acquired a 17.7% Groupinterest in Sertrading’s capital, closed a 5-year R$21 millionoperating agreement with preference in the R$150 million capital capital investment. investment, 26%acquisition of its receivables from the foreign of the capital stock.trade activity, and took over its subsidiary thatgenerates agricultural bonds (CPRs). J.P. Morgan Bank also participated in thetransaction, providing BI&P with a credit facility ofUS$25 million, and obtaining subscription rightsover preferred shares corresponding to 2.5% ofthe Bank’s capital for a future minority interest. R$30 million investment, 5.5% of the capital stock, by the controlling shareholders of Sertading. Subscription rights R$25 million investment, of preferred shares 17.7% of the capital stock. (2.5% of capital stock). Operating Agreement for US$25 million, preference in receivables 2-year credit line. acquisition. Acquisition of 100% of agricultural securities originator for R$15 million. J.P. Morgan Sertrading Sale of Vastera JPM Chase (foreign trade).
  • 11. STRATEGIC PARTNERS 2011 A nnual Report .11Sertrading A   leader in foreign trade services in Brazil, with a transaction volume of R$1.6 billion in 2011, Sertradingconducts exports and imports for more than 90 countries,operating through its offices in São Paulo, Rio de Janeiro, Vitória,Itajaí, Paranaguá, Franca, Varginha and China since 2001. Our partnership with Sertrading is strategic, and providesfor various synergies. The acquisition of Serglobal transfersto BI&P the expertise in agricultural bond generation (RuralProduct Certificates - CPR) developed in the last 8 years. Thepossibility for the Bank to finance transactions of Sertrading’scustomers favors the expansion of its foreign trade activities Warburg Pincusand the growth of the Bank’s Trade Finance portfolio. It alsogives access to Sertrading’s large customers, making it easierto analyze the cycle and the operating activity of importersand exporters, mitigating the risks of transactions, enabling the F ounded in 1966, Warburg Pincus, one of the largest global private equity funds manager, has already invested more than US$40 billion in circa 650 companies, in over 30 countries. With US$30 billion in assets under management at the end of 2011 and a portfolio of more than 125structuring of an offer of multiple financial products to these companies, it is highly diversified both by state and sector, as well as geographically. Warburg Pincuscustomers, and expanding the generation basis of quality assets. has vast experience in the financial industry, with investments amounting to US$8.0 billion in more than 70 banks and companies linked to the provision of financial services. • Investment of R$150 million, corresponding to 26% of the total capital.• BI&P acquires 17.7% of their capital, with an investment • Right to elect a representative in BI&P’s Board of Directors. of R$25 million and the possibility to expand its equity interest in the next two years.• Acquisition of subsidiary Serglobal Comércio de Cereais Ltda, a generator of agricultural bonds, for R$15 million.• A 5-year Operating Agreement that guarantees BI&P’s preemptive rights to finance Sertrading’s customers J.P. Morgan through the acquisition of receivables generated in the • Long-term credit facility. foreign trade activity. • Acquisition of Subscription Rights for Preferred Shares, equivalent to 2.5% of BI&P’s capital. • Sale of J.P. Morgan Chase Vastera in Brazil and Argentina, J.P. Morgan’s foreign trade companies, to Sertrading.
  • 12. 2011 A nnual Report .12CORPORATE STRUCTURE CONTROLLING GROUP A fter the capital increase of R$201.4 million, resolved in May and approved by the Central Bank of Brazilin September 2011, BI&P’s capital stock went to R$572.4 Carlos Ciampolinimillion, and is comprised of 36,945,649 common shares Luiz Masagão(ON) and 26,160,044 preferred shares (PN), totaling Antonio G. da Rocha Jair Ribeiro ON = 56%63,105,693 shares. Manoel Cintra PN = 3% In this context, the shareholders’ agreement to determine TOTAL = 34%the control group, entered into by Messrs. Manoel Felix CintraNeto, Luiz Masagão Ribeiro, Carlos Ciampolini and Antonio FREE FLOAT J.P. MORGANG. da Rocha, now also includes Mr. Jair Ribeiro da Silva Neto. Warburg Pincus Other Subscription rights to 2.5% of the ON = 13% ON = 31% Bank’s capital stock in preferred shares PN = 43% PN = 51% TOTAL = 26% TOTAL = 39% TREASURY ON = 44% | PN = 94% | TOTAL = 65% PN = 3% | TOTAL = 1% 17.7% 23.1% 100% 100% SERTRADING BRASIL AGROSEC SERGLOBAL BI&P SECURITIZADORA CEREAIS INDUSVAL & PARTNERS CORRETORA
  • 13. 2011 A nnual Report .13Strategy
  • 14. 2011 A nnual Report .14Strategy I n 2011, with the new partnerships and the s t r e n g t h e n i n g o f i t s m a n a g e m e n t , B I & P, b a s e don the Vision of “being an innovative bank,with excellence in corporate credit and in deepknowledge of our customers and the industriesin which they operate”, with active participation ofa l l i t s d i v i s i o n s , r e d i r e c t e d i t s b u s i n e s s s t r a t e g y. T h i sstrategy, which was developed for the medium and longt e r m s , t a r g e t s g ro w t h w i t h q u a l i t y a s s e t s t h ro u g h t h eoffer of multiple products and a healthy generationof recurring revenue, keeping a focus on corporatec u s t o m e r s , a l w a y s s u p p o r t e d b y t h re e k e y p i l l a r s :
  • 15. 2011 A nnual Report .15CUSTOMERS F ollowing its expertise in corporate credit, BI&P decided to expand its operation with larger customers – Corporate segment. This segment, in addition tobeing less susceptible to cycles of economic instability, allows for an increase inproduct distribution per customer (cross-selling) and the generation of higher stabilityin the revenue flow. BI&P also promoted changes in the Middle Market segment.The Bank adopted a series of initiatives to improve the relationship of account andproduct managers with customers, and to deepen the operations support team’sknowledge on customers’ profile and needs, promoting synergies that are translatedinto operating excellence. Structuring of sales teams The Corporate customer relationship team was strengthened by new professionals,and the Middle Market team underwent renovation with the purpose of assemblinga staff that is trained to detect business opportunities, combining the offer of variousproducts. The commercial division works in partnership with the products teams,maximizing the relationship potential between the Bank and its customers. Deep knowledge of customers and industries One of the pillars in the pursuit of excellence in BI&P’s customer relationships Closer relationships with our customersis a daily exercise to deepen our knowledge of the activities developed by these BI&P is tightening its customer relationships by engaging several areas of the bank that,customers, which includes optimizing the Bank’s expertise of the industries where together, provide better support and quality to service, expanding the alternatives to meetthey operate, in order to: customer needs more efficiently. In the Commercial division: detect business opportunities that will add value and mitigate risks for both the customer and the Bank. In the Products division: develop innovative and customized products and Middle Market: companies with annual revenue between R$40 million and R$400 million. solutions to meet the demands of customers that present an increasing level of Corporate: companies with annual revenue between R$400 million and R$2.0 billion. sophistication and competitiveness in the market. In the Credit division: in addition to segmenting credit analysis into the Corporate and Middle Market teams, these teams are also being segmented for OUR PURPOSE IS TO BECOME A REFERENCE BANK IN THE MARKET AND FOR OUR a specialized analysis in economic sectors, increasing the capacity to identify risks CUSTOMERS, SUPPORTING THE CONSTRUCTION AND DEVELOPMENT OF THEIR inherent to both the industries and the activities of each customer. BUSINESS WITH EFFECTIVE SOLUTIONS, AS WELL AS CLOSE AND CUSTOMIZED SERVICE TO MEET AND EXCEED THEIR EXPECTATIONS.
  • 16. 2011 A nnual Report .16PRODUCTS I n order to help our customers develop their business in Brazil and abroad, the BI&P team has global expertise and deep knowledgeof market variables, and is always ready to evaluate each transaction andfind the best credit and investment options for it. With this purpose, weestablish close relationships with our clients in order to understand theirbusinesses and industry segments, which also allow us to develop andcustomize products that will meet each of their needs. The success of our strategy mostly depends on our capacity to offer intelligentand efficient solutions; therefore we work on the following key points: Deep knowledge of customers’ activities and industries where they operate In order to better identify and evaluate business risks and opportunities, and also to develop more efficient products and solutions to our customers without giving up on profitability, we have been seeking specialization in the most promising economic sectors and geographic regions, and, throughout time, the creation of franchise value in certain production chains. Strengthening of the products division Professionals specializing in developing financial products and services, connecting the experience in financial institutions and in companies. This combination allows for a unique experience in structuring solutions to meet the needs of corporate customers. Knowing the specific demands and characteristics of both sides at the negotiation table is an important edge in order to quickly understand the needs, detect opportunities and develop product offering. Expansion of the product and service portfolio In order to meet an increasingly sophisticated demand, and making use of the expertise of professionals in the products division, we have expanded our product and service offer with the purpose of strengthening our relationship with customers and increasing the profitability of our operations. In 2011, 23 new products were developed. Together with existing products, they cover most needs of our target customers, in addition to building the basis for structuring customized solutions. The products division, operating in close cooperation with the commercial team, has been able to identify opportunities and develop products and services which by means of customized and recurring transactions tighten mutual benefit relationships with clients.
  • 17. PRODUCTS 2011 A nnual Report .17 CLIENTSMULTIPLE PRODUCT OFFERING AGRO BONDS LCA – Agri Letter of Credit CPR – Agri Product Certificate CPR Term CPR – Physical Settlement CPR – Financial Settlement CPR – Indexed Financial Settlement CDA/WA – Inventory Financing CDCA – Certificate of Agri Credit Rights Barter CRA – Agri Receivables Certificate LOCAL CURRENCY Credit Cession Confirming Discount of Receivables Overdraft Account Export Credit Notes Working Capital Local Guarantees FOREIGN CURRENCY Export Finance (ACC/ACE) Import Finance Law Nbr. 4,131 Import Draft Discount International Guarantees (SBLC) INVESTMENT BANKING Letter of Credit Real State Products Capital Markets Corporate Finance Investment Management BNDES ONLENDINGS Mergers & Acquisitions There are more than 50 products—23 launched or Finem Syndications remodeled in 2011—in various modalities: loans Finame and financing, foreign trade transactions, corporate BNDES-Exim DERIVATIVES finance, issuance of corporate, real estate and PROCAP-AGRO Swap agricultural bonds, securitization of receivables, BNDES Progeren NDF mergers and acquisitions, structured transactions, and BNDES Automático debt restructuring. Options
  • 18. 2011 A nnual Report .18PEOPLE P eople are the main intangible asset of any financial institution. Through theirknowledge and experience, they are capable of Attraction Besides the significant additions to the Company’s management, both in its Board of Directors and Board of Executive Officers, in order to meet Motivation Retaining teams and keeping them producing with a focus on results is just as important as attractinggenerating relationships, developing products, the Excellence and Innovation goals proposed by the Vision, it was critical them. Therefore, in addition to the initiatives taken inevaluating and managing risks and producing to hire highly qualified and experienced professionals, as well as young people management, with the purpose of becoming,growth and sustainable results in the long term. talents with excellent education and motivation. This blend guarantees in the medium term, one of the 100 best companies The progress of any successful strategy the experience and speed required to effectively make the proposed to work for in Brazil, BI&P believes that meritocracybegins with the attraction, retention and changes. The combination of experienced and young professionals with the is the path for the success of its strategy. For thatmotivation of people, who build the company’s opportunity to take part in a transformation and expansion project like BI&P purpose, in addition to the initiatives arising from theeveryday life and implement its strategy. enables the development of our strategy with limited impacts on expenses. organizational climate research, it has strengthenedTherefore, we will begin with the actions that its performance evaluation process, adopting the 360ºare related to the people that comprise the Consolidation of the New Corporate Culture evaluation method, which is further described in theBI&P team: Such a significant transformational process in an organization requires People Management item. dedicated work to consolidate the new corporate culture. Disseminating and internalizing the Company’s Values and Vision was, and still is, OUR STRATEGY FOR CUSTOMERS AND essential for the development of an organizational culture where PRODUCTS IS SUPPORTED BY PEOPLE. managers, employees and collaborators are all integrated and working in ONLY THEY ARE CAPABLE OF GENERATING line with the same values. With that in mind, each of the Values has been RELATIONSHIPS, DEVELOPING PRODUCTS, broadly disseminated throughout the organization, so as to effectively ASSESSING AND MANAGING RISKS AND become part of the routine of all employees. PRODUCING SUSTAINABLE GROWTH AND RESULTS.
  • 19. 2011 A nnual Report .19 CorporateGover nance
  • 20. 2011 A nnual Report .20Corporate Gover nance KEY STAKEHOLDERSGOVERNANCE GUIDELINES Money Bylaws Laundering BI&P’s management is guided by its values: Ethics, Ownership Management and Employees PreventionAttitude, Excellence, Team Work, Focus on Results, Innovation Shareholdersand Credibility. Its governance is defined by its bylaws andshareholders’ agreement, in addition to various policies andcodes, which establish the rights and duties of managers and Information Know yourshareholders, as well as the other audiences that maintain a Disclosure Clientrelationship with the Company. All employees are instructed Policyregarding the management policies and guidelines, which areavailable on the intranet and are presented in the chart below: Securities Code of Ethics Trading Policy Personal Shareholders’ Investment Agreement Policy* All documents presented are available on the Company’s website: www.bip.b.br/ir
  • 21. GOVERNANCE STRUCTURE 2011 A nnual Report .21Board of Directors BI&P’s Board of Directors, with tenure up to 2013, is comprised of 4 independent members MANOEL FELIX CINTRA NETO Chairman of the Board of Directorswho are highly qualified professionals in their specific activities, in addition to its controllingshareholders. Independent members represent more than 40% of all board members. Mr. Cintra is an economist and one of the leaders of the Brazilian financial community, having served in top positions at BancoMEMBERS OF THE BOARD OF DIRECTORS IN 2011 Bozano Simonsen (1970-1984), Multiplic Bank and Brokerage (1985-1999), as CEO and partner of Multistock Bank andManoel Felix Cintra Neto Chairman Brokerage and Máxima Consumer Finance (1999-2003). AfterCarlos Ciampolini Vice-Chairman the merger with Indusval, he became one of its controllingAntônio Geraldo da Rocha Member shareholders and President (2003-2011). He also served asJair Ribeiro da Silva Neto Member Chairman of ANBID (1990-1992), Executive Officer at FEBRABANLuiz Masagão Ribeiro Member (1989-1995), Vice-Chairman of CBLC (1999-2003), Chairman ofAlain Juan Pablo Belda Fernandez Independent Member BM&F (1997-2008). Since 2009, Mr. Cintra has been ChairmanAlfredo de Goeye Junior Independent Member of ANCORD and member of the Fiscal Council of FGC. He is alsoGuilherme Affonso Ferreira Independent Member Vice-President of the Organizing Committee of the Olympic andWalter Iório Independent Member Paralympics Games Rio 2016.Fiscal Council Shareholders’ Installed in 2010, the Fiscal Council remains in activity, with the extension of the tenure of Meetingits members in 2011, providing better contribution to a proper business development. Fiscal CouncilFISCAL COUNCIL MEMBERS IN 2011 Board ofFrancisco de Paulo dos Reis Sitting Member DirectorsJairo da Rocha Soares Sitting MemberLuiz Alberto de Castro Falleiros Sitting Member Compensation Committee Executive Board BI&P CONDUCTS ITS BUSINESSES UNDER THE BESTCORPORATE GOVERNANCE PRINCIPLES AND ITS COMMITMENT Human Information Watch List Internal Audit Compliance Resources Technology Committee Committee Committee TO TRANSPARENCY, FAIRNESS AND CLARITY IN REPORTING. Committee and Safety Committee Products Assets and Legal Credit Committee Liabilities Committee Committee Committee* Access detailed information at: www.bip.b.br/eng/ri/governanca/estrutura.asp
  • 22. 2011 A nnual Report .22Committees BI&P maintains 10 committees and twosub-committees not established in the bylaws,which support the company’s managementin decision-making processes and in thedevelopment of initiatives related to variousissues that are relevant to the Bank’s business.With multidisciplinary composition, thesecommittees gather experienced professionalsin many areas related to their themes in theirwork routine.Board of Directors’ Advisory Committee Periodicity Purpose Periodically review executive compensation. The Compensation and Benefits Committee is composed of Messers Manoel FelixCompensation Committee Semiannual minimum Cintra Neto, Luiz Massagão Ribeiro, Jair Ribeiro da Silva Neto and Alain Juan Pablo Belda Fernandez.Board of Executive Officers’ Advisory Committees Periodicity PurposeCredit Committee Weekly To decide on credit limits and operations. To control the Bank’s liquidity; analyze cash flow projections, funding alternatives, transactions and operating limits;Assets and Liabilities Committee Weekly and approve interbank credit limits.Watch List Committee Weekly To decide on actions to be taken for renegotiation and recovery of credits overdue from 16 to 360 days.Products Committee Bi-weekly To evaluate and resolve on all matters related to new or existing products.Internal Audit Committee Monthly To monitor accounting practices and the effectiveness of internal controls. To establish policies, operating rules and strategies to disseminate the practice of internal controls to internal controlsCompliance Committee Monthly culture diffusion for risk mitigation and legal requirements compliance. Subordinate to this committee is the Ethics sub-committee that meets weekly or extraordinarly whenever necessary.Information Technology and Safety Committee Monthly To resolve on investments’ goals, strategies and execution in technology and procedures. To analyze litigation strategies, rules and procedures related to legal matters, evaluating and defining alternativesLegal Committee Monthly to mitigate specific risks.Human Resources Committee Bi-weekly To discuss the HR strategy, as well as wages, people development and organizational climate.
  • 23. 2011 A nnual Report .23BOARD OF EXECUTIVE OFFICERS Chairman of the Board of Directors Elected for the 2011/ 2012 biennium, Manoel Felix Cintra Netothe Board of Executive Officers iscomprised of nine renowned and Chief Executive Officersexperienced market professionals, under CEO CEOthe leadership of Jair Ribeiro and LuizMasagão, who share the position of Chief 1. Jair Ribeiro 2. Luiz Masagão RibeiroExecutive Officer. Kátia Moroni Francisco Cote Gil André Mesquita Gilberto Faiwichow Credit Trade Finance Commercial Products and Treasury Local and Corporate and Investor Claudio Cusin Foreign Finance Relations Corporate Fundraising Syndications Jair Balma Eliezer R. da Silva Local Middle Market Financial Funding Institutions Accounting and Compliance and Controlling Internal Controls Risk Management Administrative Legal Information Human Resources Technology1. JAIR RIBEIRO DA SILVA NETO 2. LUIZ MASAGÃO RIBEIRO Co-CEO Co-CEO Lawyer and economist, he was one of the founders and CEO of Banco Patrimônio (1988-1999), as well as CEO of Chase Business manager, he was the CEO of Indusval Corretora Manhattan Bank and Executive Officer of J.P. Morgan Chase (1998-2008), Chairman (1986-1991) and Member (NY) (2000-2003). More recently, Mr. Silva Neto served as co- (1998-2003) of BM&F’s Board of Directors, Member founder and CEO, in addition to being a shareholder, of CPM of Bovespa’s Board of Directors (1987-1992), CEO of Braxis (2006-2010), one of the largest Brazilian companies of Banco Indusval (1988-2003), Chairman of the Board IT services, the control of which was sold to European group of Directors and Managing Director of Banco Indusval Capgemini in October 2010. Jair is also the founder and (2003-2011). He is currently a Director of the Brazilian President of Casa do Saber and NGO Parceiros da Educação, Financial and Capital Markets Association (Anbima). which “adopts” public schools.
  • 24. 2011 A nnual Report .24BOARD OF EXECUTIVE OFFICERS Chairman of the Board of Directors Manoel Felix Cintra Neto Chief Executive Officers CEO CEO Jair Ribeiro Luiz Masagão Ribeiro 3. 4. 5. 6. Kátia Moroni Francisco Cote Gil André Mesquita Gilberto Faiwichow Credit Trade Finance Commercial Products and Treasury Local and Corporate and Investor Claudio Cusin Foreign Finance Relations Corporate Fundraising3. Syndications Financial Jair Balma Local Eliezer R. da Silva Middle Market Funding Institutions Accounting and Compliance and KATIA MORONI Controlling Internal Controls Vice-President for Trade Finance, Risk Funding and Management Syndications Administrative LegalServed as a Director in institutions suchas Banco Multiplic S.A., BankBoston N.A.,Multiplic, CVM S.A. and Santander Group from Information Human Resources Technology1994 to 2003, when she took over the positionof International Officer of Banco Indusval.4. 5. 6. FRANCISCO ANDRÉ MESQUITA GILBERTO FAIWICHOW COTE GIL Vice-President for Products, Vice-President for Treasury Vice-President for Corporate Finance and and Investor Relations Officer Commercial Division Agricultural BondsRegional Director and Executive Officer of Economist, former controller of Cotia Trading, CEO and COO Engineer, served as Financial Officer and Treasury Director ofBanco Crefisul (Citibank) (1972-1990) and of Cotia Argentina (1994-2000), Co-founder and Financial Banco ING (1987-1992); co-founder and treasurer of BancoRegional Director of Banco BBA, becoming a Officer of Sertrading (2000 – 2006), and Financial Officer of Rendimento, founder of Zoom Asset Management and partner ofshareholder and Executive Officer of BBA and, CPM Braxis (2006-2011), where he was responsible for the Black River Asset Management (Cargill) (2003-2008), in additionsubsequently, of Itaú BBA (1990-2009). acquisition and integration of seven companies. to BRL Capital (2009-2011).
  • 25. 2011 A nnual Report .25BOARD OF EXECUTIVE OFFICERS Chairman of the Board of Directors Manoel Felix Cintra Neto Chief Executive Officers CEO CEO Jair Ribeiro Luiz Masagão Ribeiro Kátia Moroni Francisco Cote Gil André Mesquita Gilberto Faiwichow Credit Trade Finance Local and Commercial Products and Corporate Treasury and Investor 7. Claudio Cusin Foreign Finance Relations Corporate Fundraising Jair Balma 8.Eliezer R. da Silva Syndications7. Financial Institutions Local Funding Middle Market Accounting and Compliance and Controlling Internal Controls CLAUDIO CUSIN Risk Credit Officer – Corporate Management Administrative LegalEngineer and economist, he served as credit directorat BankBoston (1988-1997), ING (1997-2002), WestLB Information Human Resources Technology(2005-2006), Banco Standard de Investimentos (2007-2009) and KdB (2010).8. 9. JAIR BALMA ELIEZER RIBEIRO Local Currency Credit Officer – Funding Officer Middle Market Business Manager, he has worked in the funding divisions of banksAccountant, he started his career at Serasa - Centralização dos Serviços Itaú (1983-1987), Multiplic (1987-1990 e 1995-1999), BCN Barclaysde Bancos S.A. (1980-1989), and later worked in credit analysis at banks: (1995-1999), Multistock (1999-2003), and as of 2003, Banco IndusvalSudameris Brasil (1989-1992), BMG (1992-1993), and as of 1994, Banco S.A., where he was appointed as Executive Officer in 2011.Indusval S.A., being appointed as Executive Officer in 2007.
  • 26. 2011 A nnual Report .26 L ALEXANDRE ATHERINO e d b y A l e x a n d re A t h e r i n o a n d L u i z F e r n a n d o Monteiro de Gouvea since 2009, a team of experienced Alexandre Atherino has worked in the capital markets sinceprofessionals works in the intermediation of transactions in the 1983, when he started his career at Doria & Atherino S/Astock, commodities, futures exchanges and public bonds at CCVM (1983-1999), playing a major role in the company’sIndusval & Partners Corretora de Valores, in full synergy with merger with Fator Corretora (1999-2008). At Banco Fatorthe Bank’s activities. and Fator Corretora, he served as CEO and was responsible • Indusval & Partners Corretora de Valores is prepared for several divisions, including Equity Research, Products and to support the distribution of fixed income bonds, Planning & Strategy. such as Debentures, Bank Deposit Certificates (CDBs), Agribusiness Credit Certificates (LCAs), and also Agribusiness Receivables Certificates (CRAs) and Real Estate Receivables Certificates (CRIs). • The Agricultural Commodities Dealing Desk is able to fastly develop commodity prices hedge transactions, LUIS FERNANDO MONTEIRO DE GOUVEA mitigating risks of product price variation. • In line with its Stock Arbitration Desk, BI&P Corretora Luis Fernando Monteiro de Gouvea has over 40 years of is the market maker for 21 BDRs (Brazilian Depositary experience in the financial market, and built his career at the R e c e i p t s ) o f U . S . c o m p a n i e s t h a t a re t r a d e d a t brokerage firm Comercial S/A. He also served as COO and main BM&FBovespa: 3M, Abbot, Apple, Avon, Arcelor Mittal, shareholder of Comercial Asset Management Administração Bank of America, Citigroup, ConocoPhillips, DuPont, de Recursos S/A (2005-2009). Comercial S/A’s history begins in Ebay, Eli Lilly, Exxon Mobil, Goldman Sachs, Google, 1971, with the participation of Luis Fernando since 1976, when Home Depot, J.P. Morgan, McDonald’s, Pfizer, United he became the company’s partner and officer. Parcel, US Steel and Walmart. In 2011, despite the highly challenging scenario for brokerageactivities, due to high competitiveness and uncertainties arisingfrom the global macroeconomic scenario, Indusval & PartnersCorretora has maintained a solid business volume, ensuring an INDUSVAL & PARTNERS CORRETORA IS THE MARKET MAKER OF 21 BDRSoutstanding position in certain segments of BM&FBovespa: (BRAZILIAN DEPOSITARY RECEIPTS) OF U.S. COMPANIES TRADED ON BM&FBOVESPA. • In the Bovespa segment: 3 rd position in forward transactions; • In the BM&F segment: it stands out in transactions with agricultural commodities, especially live cattle and coffee, ranking 9th and 12th, respectively, in 2011.
  • 27. 2011 A nnual Report .27BI&P confir ms its commitment to the bestCorporate Gover nance practicesMIGRATION TO THE CORPORATE GOVERNANCELEVEL 2 (NÍVEL 2) LISTING SEGMENT O n March 1, 2012, BI&P voluntarily adhered to the Listing Rules of BM&FBovespa’s Corporate Governance Level 2. Despite having initially listed its shares in Corporate Governance Level 1, BI&P already providedits shareholders with the same rights as those granted by companies listed in the Novo Mercado,except for capital consisting in common shares only, making it eligible to integrate the SpecialTag Along and Special Corporate Governance Stock Indexes. By adhering to Level 2, BI&P also provides its preferred shares with the right to vote in shareholders’meetings that address certain issues of extreme relevance for the conduction of its business. Additional voting rights in shareholders’ meetings granted to preferred shareholders, limitedto the following matters: 1. Transformation, incorporation, merger or spin-off of the Company; 2. Approve agreements between the Company and related parties, directly or indirectly, whenever resolved in a General Meeting; 3. Evaluation of assets used to pay the Company’s capital increase; 4. Choosing a specialized company to determine the Company’s Economic Value, in the event of cancellation of the register as a publicly-held Company; and 5. Amendment or cancellation of provisions in the bylaws that alter or modify requirements provided in the basic clauses of the Level 2 Listing Rules. THE COMPANY’S ADHESION TO CORPORATE GOVERNANCE LEVEL 2 SHOULD CONTRIBUTE TO INCREASING THE LIQUIDITY OF BI&P’S SHARES, IDVL3 BECAUSE IT WILL ATTRACT A DIFFERENT TYPE OF INVESTOR, ONE THAT VALUES AND IS COMMITTED TO GOOD CORPORATE GOVERNANCE STANDARDS. IDVL4
  • 28. 2011 A nnual Report .28AdministrativeStr ucture
  • 29. 2011 A nnual Report .29Administrative AdministrativeStr ucture Compliance e Internal Controls Accounting and Controlling Risk ManagementTHE BASIS FOR SAFE AND EFFICIENT BUSINESS DEVELOPMENT Legal I Human Resources n order to guarantee the implementation and development of the new business strategy, and also its continuity and expansion in a safe and efficient Information Technologymanner, it is important that the support and control divisions be committed to it. The divisions that comprise the administrative structure worked hard in 2011to internalize the culture of excellence, taking over the challenge of becoming areference in processes and systems. These divisions also received additions to their teams and invested in equipmentand systems, including the installation of the new headquarters in the Faria Limaregion, to ensure higher efficiency and proximity to our business partners. Fundamental issues for the success of our strategy are: • People Management • Risk Management
  • 30. PEOPLE MANAGEMENT 2011 A nnual Report .30CHANGING DEMOGRAPHICS O ur human resources, which are critical for the success of our strategy, were the focus of muchattention in 2011. A restructuring process like the one The maintenance of an excellence team requires that BI&P be able to attract and retain the best professionals and young talents, providing for theirimplemented at BI&P this year is only possible with the development, keeping them motivated, and engaging 421development and hiring of experienced professionals them in the expansion project and business strategy. 362 331 329 333and the engagement of people. Therefore, BI&P prioritizes an open dialogue, respect and transparency in its relationships on all hierarchical 179 166 163 177 215 In order to implement the new strategy and align levels, as well as acknowledgment, compensating andthe revised Vision and Values, our teams underwent offering growth opportunities to professionals thatsignificant changes, not only to enable the creation have an outstanding performance. 152 163 170 185 206of new products, expand the customer base and seekexcellence in credit, but also to improve and optimize At the end of 2011, the BI&P companies had 421 2007 2008 2009 2010 2011all processes that support these initiatives towards professionals, including 10 trainees who started in thesustainable growth. In addition to new hires, there program in December, and 40 interns working in all Number of Employeeswas a strong focus on training, qualification and divisions, guaranteeing a combination of experienced Businessrenovation of the teams; including the expansion of professionals and young talents, and the academic Support and Controlthe internship program and the installation of the 3 rd improvement in the succession process.Trainee Program. 7% 6% 7% 10% 6% 6% 6% 6% 7% 9% 34% 31% 39% 39% 39% 26% 26% 26% 23% 18% 25% 21% 20% 21% 19% 59% 59% 60% 60% 60% 27% 26% 28% 29% 34% 66% 69% 61% 61% 61% 26% 30% 31% 31% 29% 15% 21% 19% 17% 23% 9% 5% 3% 2% 2% 2007 2008 2009 2010 2011 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 Por faixa etária By Age Range By sex Education Até 25 anos Up to 25 Female Graduate or Masters De 26 a 26 to 3535 anos Male College De 36 a 36 to 4545 anos High School De 46 a 46 to 5555 anos Primary Mais than 55 More 55 anos
  • 31. 2011 A nnual Report .31PEOPLE MANAGEMENTDEVELOPMENT, MOTIVATION AND RETENTION INITIATIVESAttracting Young Talents Training and Development BI&P also invests in academic such as: health insurance, dental plan, Trainee Program: The 3 Trainee Program rd More than five thousand training hours and language scholarship programs, subsidy to the purchase of medicines,introduced in 2011 attracted more than 3,500 were provided in 2011 in an intensive program which benefits 67 employees on credit lines at lower interest rates andcandidates, among which 10 young graduates targeting everyone’s engagement in the execution different hierarchical levels, to promote a Private Pension Plan.were hired, starting their job rotation process of the new strategy and consolidation of the professional development. The fundsamong the bank’s various divisions in December. new organizational structure, as well as the invested in training and scholarships Environment ResearchNew hires will have the opportunity to get to qualification of the teams. In terms of behavior, amounted to R$378 thousand in the In line with its excellence target,know all divisions of the Bank and Broker, and there was also a focus on the daily exercise of year, thanks to the expertise of the BI&P has the goal of becoming oneto take part in the development of projects the values that guide our actions in this new Company’s professionals, used to of the best companies to work fortargeting innovation and excellence in the many development stage at BI&P. The qualification expand the reach of the invested funds. in Brazil. In this sense, in 2011 BI&Pdivisions they work in. program comprised a series of workshops with gave its first step and promoted an the commercial, products, credit analysis and Compensation and Benefits Organizational Environment Survey, Inter nship Program: The inter nship operational divisions, and was developed by The positions and salaries plan conducted by GPTW – Great Place toprogram provides 40 university students with our experts to improve the offer, analysis and comprises a portion of variable Work, with the voluntary participationthe opportunity of exercising, in practice, the processing of new products, and other processes compensation for individual of 75% of its employees to evaluateacademic concepts they are learning, and provides and systems. These initiatives relied on the performance, based on a meritocratic their perception of the Company’sthe Bank with the possibility to more safely detect participation of 1,095 people, promoting an culture. In order to guarantee strengths and improvementprofessionals to be hired in the future, evaluating average of 12.1 training hours per employee. a n d e v i d e n c e t h i s c u l t u re , B I & P opportunities, in addition to keytheir daily performance more efficiently. strengthened its evaluation process by issues to be developed. The survey adopting the 360º degrees, in which resulted in the development of all managers are evaluated both by work plans to improve the human their superiors and by their peers resources management in four key and subordinates. The adoption of aspects: qualification, feedback, this method had positive impacts on communication and integration. the feedback process, providing the Company and its employees with the possibility to identify improvement points, focusing on BI&P’s excellence and on career opportunities. In addition to the proceeds established by the collective labor agreement, BI&P provides all of its employees with additional benefits,
  • 32. RISK MANAGEMENT 2011 A nnual Report .32THE SAFETY OF ANY FINANCIAL INSTITUTION A n efficient risk management is critical for the perpetuity of any financial institution. Its management is strategic for BI&P, and comprises the continuity of the business in adverse operating conditions,compliance, prevention against money laundering, information security, and control and mitigation of RISK MANAGEMENT IS A CONCERN THAT PERMEATES ALL OF BI&P’S ACTIVITIES, PARTICULARLY IN COMMITTEES THAT PROVIDE SUPPORTmarket and liquidity risks, in addition to the main risk to which it is exposed: credit risk. TO MANAGEMENT IN THE DISCUSSION OF EVOLUTION PROCESSES, The Bank has tools to identify and map the risks to which it is exposed, measure this exposure, adopt BOTH IN INTERNAL POLICIES AND RULES AND IN THE MONITORING ANDmitigation measures and permanently manage any variation and scenarios that may interfere with its MITIGATION OF THESE RISKS.business and results. We adopt positions that are consistent with the guidelines and limits established byManagement in its Risk Management Policies.Credit Risk Management Operational Risk Management Credit risk arises from non-compliance with contractual obligations by the Operational Risk arises from failures, deficiencies or unsuitability of internalborrower or the obligor involved in the negotiation, and its consequences are processes, systems, people, and also external factors. This definition includes legaldepreciation of the agreement due to the borrower’s higher risk exposure, with a risk, which is connected to the unsuitability or deficiency of agreements enteredreduction in gains, or losses related to the advantages granted by the Bank when into by the institution, in addition to sanctions for non-compliance with legalrenegotiating the agreement and to recovery costs. provisions and indemnities for damages to third parties arising from activities The Credit Department is responsible for the Credit Analysis process, which performed by the institution. These events may cause financial losses, in additionhas the purpose of evaluating the economic and financial condition of customer to compromising the institution’s credibility.companies and the proposals submitted by the Commercial division, in compliance In compliance with Resolution 3380/2006 from the National Monetary Council,with the rules established by Management, the Credit Committee and the BI&P relies on an operational risk management structure that defines and monitorsRegulating Agency, in line with the Institution’s risk appetite. the implementation of policies, procedures and actions, and adopts the BIA (Basic Credit Risk Management is supported by Resolution 3721/2009 from the Indicator Approach) method to calculate the capital allocation required for theNational Monetary Council, and aims at identifying and measuring risks arising operational risk level, minimizing the effect and impact of possible losses.from credit decisions taken with the use of structured processes and tools thatenable a statistic evaluation of the risks imposed, in order to monitor and mitigatefuture risks, providing information to support the credit decision making processand its guidelines.
  • 33. 2011 A nnual Report .33RISK MANAGEMENTMarket Risk Management Capital Management This risk originates from variations in asset and liability values, caused by changes in In compliance with Resolution 3988/2011 from the National Monetary Council, and inmarket prices and rates (such as interest, shares, currency, and commodities) and by changes line with the best market practices, the Indusval & Partners conglomerate is implementingin the interaction among these values and their volatility. Such changes may have a negative a capital management structure that is consistent with its activities, in order to support theimpact on asset and liability values and affect results. Company’s management in defining its strategic planning and maintaining its capacity to Supported by Resolution 3464/2007 from the National Monetary Council, the Risks respond to adverse scenarios, strengthening business safety and allowing the Bank to getdivision is separate from Treasury or any other division that may influence its results and ahead of any capital need due to possible market conditions. This activity faces the followinganalysis, and the main measures used to manage this risk on a daily basis are: challenges to be adopted within the schedule established in the regulation: • VaR (Value at Risk): a statistical measure that estimates the maximum potential value • Implementing mechanisms that enable the identification and evaluation of relevant loss of the Bank’s portfolios in normal market conditions; and risks incurred by the institution, including those not covered by the Required • VaR Stress, a calculation of losses in a stress scenario that determines the effects of Reference Equity (PRE); extreme market conditions (both positive and negative) in the Bank’s portfolio value • Establishing capital management policies and strategies that are clearly documented (Sensitivity Analysis). and determine mechanisms and procedures to maintain capital adequate to risks incurred by the institution;Liquidity Risk Management • Proposing a capital plan that covers a minimum term of three years; Liquidity Risk arises from possible mismatches between payments and receipts, and from • Generating simulations of severe events and extreme market conditions (stress tests)the inability to raise enough funds to meet obligations, impacting the capacity to comply and evaluating their impacts on capital; andwith financial obligations. • Issuing periodical management reports on capital adequacy for the board of executive Supported by Resolution 2804/2000 from the National Monetary Council, BI&P uses the officers and the board of directors.following mechanisms to manage liquidity: • Control of the limits established in the Liquidity Risk Management Policy; More details on risk management are available on our website, at: • Monitoring of Term Mismatch Analyses; http://www.bip.b.br/eng/ri/governanca/gestao.asp • Cash Flow Monitoring; • Analyses of scenarios and periodical stress tests in risk positions; • Development of alternatives to reverse positions that are extremely severe; • Communication of Cash positions and forecasts to the Top Management; and • Contingency Plans established by the Risk Office. These mechanisms generate appropriate information to the monitoring of liquidity riskand support the Board of Executive Officers in the decision making process at weeklymeetings of the Cash Committee – Asset and Liability Management (ALCO). In addition,in order to maintain appropriate liquidity levels, in a normal market scenario BI&P adoptsthe practice of maintaining in cash minimum percentages of Time Deposits received bycontracted liquidity ranges.
  • 34. 2011 A nnual Report .34Economic and Financial Development
  • 35. 2011 A nnual Report .35Economic andFinancial DevelopmentMACROECONOMIC ENVIRONMENT T ˜he Brazilian economy has experienced uneven growth throughout 2011. It began the first quarter with an annualized growth of 2.5%, and during the last quarter, it hasnot exceeded a 1.3% growth. Throughout the year, this growth reached only 2.7%, due to In terms of interest rates, as a response to the foreign scenario debacle, the Central Bank of Brazil reverted a process of increase to a new cycle of cuts in its August meeting. The minutes of the Copom meeting held in March 2012 indicate that the Monetary Policyinternal and external factors. In Brazil, during the first half of the year, the highlights were Committee will cut the Selic rate to 9%, keeping it at this level throughout 2012.the measures adopted by the government to contain growth, such as the increase in interest Credit in the national financial system increased by 18.4% in the year, lower than therates and macro-prudential measures in bank credit. In the foreign scenario, the escalation 20.6% increase recorded in 2010, but higher than the 17.5% expected by the government.of the European crisis stood out. Both factors ended up having a stronger influence on The Credit/GDP ratio ended the year at 48.8%, versus 45.2% in the previous year. TheBrazilian economy as of the second half of the year. greatest contributions came from earmarked credit, through BNDES loans; consumer credit; The industry continued to detract expansion, growing by mere 0.25% throughout the credit to agribusiness, mining and petrochemicals; and housing credit.year. On the other hand, retail sales were a surprise once again, increasing by approximately The credit expansion in 2011 was followed by an increase in default rate. This increase6.7% in volume and 11.5% in nominal revenue, boosted by the record decrease in was higher in the individuals segment, going from 5.7% at the end of 2010 to 7.4% inunemployment rates and by salary gains. Consumer electronics stood out in retail once December 2011, according to data from the Central Bank of Brazil. Also in corporate credit,again, as well as computers and goods for personal and domestic use. there was an increase in the percentage of transactions overdue for more than 90 days, In the foreign exchange scenario, the Brazilian currency closed the year with 13% though it was less significant, starting the year at 3.5% and ending it at 3.7%.depreciation, a trend that got worse after the escalation of the European crisis in September.
  • 36. 2011 A nnual Report .36Financial Statements The financial statements of Banco Indusval S.A. (Indusval & Partners)and the consolidated financial statements (Indusval & PartnersConsolidated) attached to this Annual Report were developed accordingto the Brazilian Corporate Law (Law no. 6,404 of 12.15.1976), asamended by Laws no. 9,457 of 1997, 10,303 of 2001, and 11,638 of2007, to the regulations from the Central Bank of Brazil – BACEN andthe Brazilian Securities and Exchange Commission – CVM. The consolidated financial statements commented below comprise thegroup of activities performed by Banco Indusval S.A. and its subsidiaries:Indusval S.A. Corretora de Títulos e Valores Mobiliários (Indusval &Partners Corretora de Valores), Serglobal Comércio de Cereais Ltda(Títulos Agrícolas), Bim Promotora de Vendas Ltda (with no relevantactivity during the year).Statement of Cash Flows The Statement of Cash Flows, found on page 58, shows an increasein cash and cash equivalents of R$175.4 million in 2011. This amountwas generated by operating activities (R$57.2 million) and financingactivities (R$183.4 million), after covering cash investments of R$65.2million (particularly the acquisition of tangible assets and acquisition ofinvestments).Value-added Statement As shown on page 59, the operations of BI&P and its subsidiariesamounted to a net value of R$25.5 million which, together with theValue Added received from affiliated companies, in the amount of R$0.9million, comprised a total Value Added to Distribute of R$26.5 million.This amount was distributed to employees of BI&P companies (264.1%)and third-party rental beneficiaries (13.6%) with reduction in Taxes andContributions (-57.8%) and equity Compensation (-119.9%), due to thenegative net result recorded in the year.
  • 37. ECONOMIC AND FINANCIAL PERFORMANCE 2011 A nnual Report .37Loan Portfolio The loan portfolio totaled R$2.3 billion, whereas the expanded loan portfolio—which includes 2,534.4guarantees, sureties and letters of credit issued by the Bank and private bonds (agricultural bonds 30.6%– CPRs and promissory notes – PNs)—reached R$2.5 billion as at December 31, 2011, an increaseof 30.6% year-over-year. 1,941.2 The Bank’s expansion focuses on companies with better credit quality levels. This has led the 1,793.7 1,698.7best-rated transactions in terms of risk (AA to C) to reach 90% of the loan portfolio, wheretransactions rated A and B prevailed in the period. This movement also includes the expansion of 1,329.7the Corporate segment, to 28% of the loan portfolio, up from 14% by the end of 2010. MiddleMarket transactions accounted for 69% of the loan portfolio, totaling R$1.6 billion, unchangedin spite of the significant exit of loans BI&P considered to be below its appetite for risk. This strategy was adopted by the end of the first half and its effects have already been seen:the delinquency rate dropped by 1.3 pp in the fourth quarter of 2011. Loans past due 90 days Expanded Loan Portfolioor more (nonperforming loans - NPL) represented 4.7% of the loan portfolio as at December Loans in reais31, 2011. One key factor for the continued reduction in delinquency rates is the change in Trade Finance R$ millioncredit analysis criteria. The credit analysis division has worked closer with the sales area and has Guarantees 2007 2008 2009 2010 2011 Agriculture Bonds (CPRs)redefined analysis parameters and criteria, and started applying several concepts used in the Promissory Notes (NPs)analysis of Corporate customers also to Middle Market customers. 3% 5% 89.7% 69% 6% 89.7% 1% 2011 2011 85.8% 8% 85.8% 2010 2010 28% 18% 62% 88.9% 88.9% 2009 2009 95.5% 95.5% 2008 2008 Credit portfolio by segment Credit portfolio by product 96.5% 96.5% Middle Market Loans and Discounts in Reais 2007 Corporate 2007 CPRs and NPs Loan Portifolio by risk rating Other Guarantees issued Loan Portifolio by risk rating Other AA A B C D-H BNDES Onlendings AA A B C D-H Trade Finance
  • 38. Funding 2011 A nnual Report .38 BI&P’s funding capacity has also become stronger. The Development Bank) resources. Foreign currency resources,strategy implemented in the first half of the year and new equivalent to 18% of the total funding, increased by 43%funding alternatives have already reflected positively on in the year and refer mainly to Trade Finance facilities fromfunding costs. The three-level upgrade in our risk rating correspondent banks.by Standard & Poors in December 2011 proves we are on The amount of funds we raised was enough to ensurethe right path. This upgrade will also contribute to reduce the growth of our loan portfolio and resulted in cash ofthe funding cost, allowing for the continued recovery of R$1,755.2 million as at December 31, 2011. Net of openmargins in the upcoming periods. market funding (R$867.9 million), these funds resulted in Total funding reached R$2.5 billion in December 31, free cash in the amount of R$887.3 million, equivalent to2011, an increase of 25% year-over-year. Time deposits 48% of deposits and 1.5x the shareholders’ equity.in Brazilian real represented 64% of overall time deposits.This is the Company’s key funding source. It is importantto mention that transactions with agricultural bonds—especially Rural Product Notes (CPRs) – implemented afterthe acquisition of Serglobal Cereais, created a basis forfunding through Agribusiness Credit Certificates (LCAs) atmore attractive costs without compromising the profitability OUR CAPACITY TO RAISE FUNDS HAS BEEN STRENGTHENED BY THEof the investor. These transactions already represent IMPLEMENTATION OF THE STRATEGY DEFINED IN THE FIRST HALF AND9% of our funding. Also representing 9% of the total DEVELOPMENT OF NEW FUNDRAISING ALTERNATIVES. STANDARD &funding, funds used in domestic onlending transactions POOR’S RAISING OF OUR RISK RATING BY THREE DEGREES IN DECEMBERreflect the increment in transactions with BNDES (Brazilian OF 2011 WILL CONTRIBUTE TO THE REDUCTION OF FUNDRAISING COSTS. 24.7% 2,533.2 9% 2,030.6 48% 1,793.2 18% 29% 1,600.1 887 6% 733 696 1,040.1 423 3% R$ million 13% 2% 2007 256 8% R$ million 2007 2008 2009 2010 2011 3% 2008 2009 2010 2011 22% 9% 30% Total funding Free Cash Deposits by investor Funding by type In foreign currency Individuals Time deposits (CDBs) In reais Companies DPGE CTVM / DTVM LCA/LF Financial Institutions Demand deposits Institutional Interbank deposits Other Foreign Borrowings Onlending in Brazil
  • 39. 2011 A nnual Report .39Capital Structure 577.1 Our shareholders’ equity consists basically of Tier I Capital, with Reference 33.2%Equity of R$574.7 million (R$569.1 million – Tier I). By the end of 2011, our 4.6 x 4.4 x 448.5Required Reference Equity was R$347.5 million, resulting in a capital adequacy 4.0 x 432.7 3.9 x 426.4 406.7ratio of 18.2%. That ratio, combined with low leverage of 4.4 times, allows for 23.3% 3.3 x 22.5%us to keep our growth strategy. 18.2% 17.6% R$ million 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Leverage Shareholders Equity Basel Ratio Credit Portfolio/ Shareholders EquityGross Income from Financial Intermediation Our interest income before the allowance for loan losses reached R$170.6 million, a result of the Financial Intermediation Income before Expenses with Provisions for Doubtful Accountsmaintenance of an average balance of R$1.9 billion in the loan portfolio and an average funding balanceof R$2.3 billion. Therefore, during the whole year, we managed to keep a significant amount of free 252.5cash, with an average of R$915 million as compared to R$700 million in 2010, which had an impact on 49.3 45.0 204.3our net interest income. 190.2 38.8 170.6 After the allowance for loan losses (R$118.1 million; R$49.0 million in 2010), our net interest income 37.4 146.9 R$ millionreached R$52.5 million in 2011. Accumulated provision expenses derive mainly from the constitution of R$ millionadditional allowances for loan losses made in the first half of the year in the amount of R$67.2 million 1Q11 2Q11 3Q11 4Q11under the investment agreement signed in March with the new shareholders. 2007 2008 2009 2010 2011 The corporate and organizational restructuring process started at the end of the first quarter, the Quarterly Evolution in 2011business strategy was set with the new management team at the end of the first half of the year and Financial Intermediation Financial Intermediation Income before Expenses Income before Expensesimplemented during the second half; therefore, we will illustrate the evolution of the strategy adopted with Provisions for with Provisions forin 2011 through the quarterly results. Doubtful Accounts Doubtful Accounts
  • 40. 2011 A nnual Report .40Net Interest Margin Our net interest margin (NIM) reflects the effects of the high Net Interest Margin NIM NIM(a)liquidity carried over during the year, with a more significant increasein the loan portfolio in the second half of the year. 9.3% 9.5% 9.3% O u r f u n d i n g c a p a c i t y w a s s t re n g t h e n e d b y t h e s t r a t e g y 8.2% 7.9%implemented in the first half and new funding alternatives. The three- 6.6% 5.9%level upgrade in our risk rating by Standard & Poors in December 2011will contribute to reduce the funding costs. 4.3% The growth of our loan portfolio with quality assets, the reductionin our free cash position and the effects of lower costs on funding 2007 2008 2009 2010 2011inventories will cause our NIM to recover, as demonstrated in thegraph of the four quarters of 2011: Quarterly Evolution in 2011 NIM NIM(a) Net Interest Margin (NIM) 6.3% 6.6% 5.9% 5.2% 4.6% 4.8% 4.4% 3.7% NIM(a) net interest margin adjusted by the average interest-bearing assets so as to eliminateaverage asset balances with a reduction item with the same amount, rate and maturity under 1Q11 2Q11 3Q11 4Q11repurchase agreements in liabilities and, therefore, bearing no interest. Operating Revenues and Expenses Reflecting our strategy of turning BI&P into a multi-product bank, our revenues • the increase in personnel expenses following the new additions to our management teamfrom fees totaled R$20.8 million, an increase of 51.3% year-over-year. Despite and staff with the purpose of strengthening our business and support & control areas; andbeing modest, these revenues contributed to make our net operating expenses • the increase in other administrative expenses due to (i) the moving of our headquarters toraise by only 12.0% in the year to R$111.6 million. It is important to mention that a region that is closer to our key business partners, which has improved the quality of ourour operating expenses grew, especially in the second half of the year, due to the relations and also granted us more modern and functional facilities; (ii) the improvementinflation in the period and our restructuring process. These expenses are not fully of our systems and the increased data processing volume; and (iii) publishing and printingreflected on our generation of revenues—interest income or revenue from fees— expenses to ensure greater transparency to the market and our employees, aligning ourwhich will happen during the upcoming months. The major changes are: vision, values, and business strategy.
  • 41. Efficiency Ratio 2011 A nnual Report .41 We are not satisfied with our efficiency ratio, but we understand it is in line with expectationsin our strategic plan and change cycle, because these changes involve an increase in administrativeand personnel expenses that has not fully reflected on our revenues. Our administrative and personnel expenses tend to stabilize in 2012, though. We do notexpect a major expansion in our staff, which is structured to enable the growth we expect forthe upcoming years. Because of our low leverage index and reduced revenue from fees, weunderstand our current administrative expenses will be consistently diluted, which will improveour efficiency ratio. To enable comparability of our efficiency ratio, we disclose not only the standard ratio but alsothe adjusted ratio, so as to eliminate: • non-recurring events resulting from the corporate and/or organizational restructuring process, including expenses with employment termination, strategic consulting, legal counselors, auditing firms, and legal publicity; and, specifically in 2007, arising from the IPO; and • agricultural commodities sales revenues and costs deriving from the activities of Serglobal, which started being consolidated into the Bank’s results after its acquisition in the second quarter of 2011. Such revenues and expenses are not related to the efficiency of the Bank’s financial activities and, therefore, have been adjusted for purposes of comparability. Efficiency Ratio 2007 2008 2009 2010 2011 Personnel Expenses Including Profit Sharing 54,733 71,533 56,910 64,621 80,195 Administrative Expenses 41,013 40,937 41,913 39,399 50,394 Tax Expenses 9,867 15,306 11,171 15,319 13,191 Other Operating Expenses 4,135 2,737 5,748 5,103 15,458 A. Total expenses 109,748 130,513 115,742 124,442 159,238 (-) Non-recurring expenses from corporate and/or organizational restructuring (14,525) 0 0 (731) (4,141) (-) Expenses with purchase and inventory of agricultural commodities 0 0 0 0 (12,175) A.a Total adjusted expenses 95,223 130,513 115,742 123,711 142,922 Interest income before the allowance for loan losses 146,927 252,450 204,295 190,217 170,582 Revenue from services 18,910 22,950 11,503 12,754 19,927 Revenue from fees 0 1,489 737 982 851 Other operating revenues 8,448 2,448 5,924 2,970 17,397 B. Total revenues 174,285 279,337 222,459 206,923 208,757 (-) Revenue from the sale of agricultural commodities 0 0 0 0 (11,892) B.a Total adjusted revenues 174,285 279,337 222,459 206,923 196,885 Efficiency Ratio (A/B) 63.0% 46.7% 52.0% 60.1% 76.3% Adjusted Efficiency Ratio (A.a/B.b) 54.6% 46.7% 52.0% 59.8% 72.6%
  • 42. Net Income 2011 A nnual Report .42 In 2011, we recorded a negative net resultof R$31.7 million, mainly due to expenses with 16.6 16.3the allowance for loan losses in the amount 3.2 70.8of R$118.1 million. This amount results 2.7from the creation of additional provisions of 45.4R$67.2 million in March 2011 to safeguard the 29.0 6.8profitability of the Bank’s future operations by 1.0 12.8 R$ million 2.9 R$ million R$ million 0.5 2011 -31.7separating possible credit problems resulting 2011 -6.3 2011 -0.8from loans granted during the economic crisis 2007 2008 2009 2010 2007 2008 2009 2010 2007 2008 2009 2010and prior to the Investment Agreement signedby the end of March. We believe the evolution of the businesses Net Income Return on Average Return on Averageunder the new strategy developed by the Equity (ROAE) % Assets (ROAA) %end of the first half of 2011 might generateeven more consistent results during 2012.This strategy already showed very strongsigns during the last quarters of the year, as Quarterly Evolution in 2011demonstrated in the quarterly comparison. 7.3 5.2 0.9 4o tri 10.3 1o tri -54.5 3.6 0.7 3o tri 7.3 2o tri 5.1 0.5 R$ million R$ million R$ million 1o tri 2o tri 3o tri 4o tri 1o tri 2o tri 3o tri 4o tri Net Income Return on Average Return on Average Equity (ROAE) % Assets (ROAA) %
  • 43. 2011 A nnual Report .43BI&P STOCK PERFORMANCE ON BM&FBOVESPAShareholder Remuneration 120 20% IDVL4 Ibovespa 34% 110 Closing Price on 12/30/2010 R$7.95 69,304 Closing Price on 12/29/2011 R$6.75 56,754 27.8 100 Change in the period -15.1% -18.1% 27.0 24.5 25.1 Highest Price in the period (03/22/2011) R$9.15 67,578 1% 90 Lowest Price in the Period (12/22/2011) R$6.40 57,347 30% 1% 15.9 14% 80 Distribution of Shareholder Base R$ million 70 Controlling Group Individuals 10 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 2007 2008 2009 2010 2011 Foreign Investors /30 /19 /08 /28 /20 /09 /29 /19 /08 /28 /18 /07 /27 /16 /06 /26 /15 /05 /25 12 02 02 02 03 04 04 05 06 06 07 08 08 08 10 10 11 12 12 Institutional Investors Treasury IBOVESPA Shareholder Remuneration Stock Price Evolution – 2011 Management IDVL4 BI&P’s shares have been listed on BM&FBovespa since 2007, under tickers IDVL3 (common Liquidity and Trading Volumeshares) and IDVL4 (preferred shares). Since March 1, 2012, BI&P has been listed on Corporate Our preferred shares (IDVL4) were traded in 94% of the sessions in 2011. In the sameGovernance Level 2 (Nível 2), which may contribute to increase its liquidity by attracting a broader period, the financial volume traded on the spot market was R$73.8 million, totaling 8.7 millionrange of investors that value and are committed to good corporate governance standards. preferred shares in 3,408 transactions.Shareholder Remuneration Stock Buyback Program Interest on equity amounting to R$27.8 million was paid in advance as minimum mandatory The 4th buyback program for our preferred shares was closed at maturity, on August 9, 2011,dividend for the year, representing earnings per share of R$0.52920 and dividend yield of 6.66%. with the repurchase of 775,453 shares. On October 19, 2011, the 5th stock buyback program was approved, in effect up to October 18, 2012, with a balance of 1,720,734 preferred sharesStock Performance to be repurchased. BI&P’s preferred shares (IDVL4) closed the year at R$6.75, down 15.09% year-over-year(down 7.65% adjusted for earnings). In 2011, the Ibovespa fell 18.1%, closing the year at Preferred Share Warrants Subscription56,754 points. As at December 31, 2011 our market cap was R$420.9 million, with a stock In February 2012 we closed the private distribution of preferred share subscription warrants.price/book value ratio of 0.73. A total of 19,779 warrants were issued for R$14.39 each, to be exercised in five years with the right to subscribe to 100 preferred shares per warrant, at the book value of the share at the time.
  • 44. 2011 A nnual Report .44Social-Environmental Actions
  • 45. 2011 A nnual Report .45Social-EnvironmentalActionsSUSTAINABLE DEVELOPMENT-ORIENTED MANAGEMENT F   or BI&P, sustainability is part of its governing principles–such as ethics, transparency, responsibility, respect in doing business and in the relations with all its partners–and it is at the core of its business strategy. We believe sustainability-oriented p r a c t i c e s a n d p re c e p t s a p p l i e d t o o u r economic, social and environmental management, together with corporate governance principles, minimize our exposure to risk, maximize our efficiency, and add value to our activities, contributing to our perpetuity.
  • 46. 2011 A nnual Report .46RESPONSIBLE CREDIT ENVIRONMENT BI&P, as an active agent of the economic Our business direct impact on the environment derives from the routine of consumptiondevelopment for being a corporate credit supplier, and disposal in our offices. In order to mitigate this impact, we constantly monitoris responsible, before the society, for conducting its quantitative data on the consumption of power, water and supplies (paper, plastic cupsbusinesses in a fair and balanced manner, in line with and other) and on the disposal and possible reuse of our residues so that we can developits values, always seeking the business’s sustainability initiatives that promote a more efficient consumption.in all its aspects, as a means to contribute to an In addition to observing these aspects in our business, we act as a replicator of good practicesenvironmentally viable and socially fair society. for the conservation of the environment by promoting educational and awareness actions. With that in mind, the Bank follows strict creditgranting criteria, aligned with international socialand environmental standards and the principlesof global organizations such as the International OUR SOCIAL AND ENVIRONMENTAL RESPONSIBILITY POLICY PRIORITIZES OURFinance Corporation (IFC) and the Inter-American COMMITMENT WITH ETHICS IN DOING BUSINESS AND WITH SUSTAINABLEDevelopment Bank (IDB), branches of the World Bank. DEVELOPMENT, IN ADDITION TO ENCOURAGING OUR SUPPLIERS, PARTNERS AND These principles and parameters can be seen in CUSTOMERS TO ADOPT A RESPONSIBLE STANCE, ONE THAT PROMOTES SOCIALour Social and Environmental Management System, GROWTH, REDEMPTION OF CITIZENSHIP, AND RESPECT FOR THE ENVIRONMENT.which includes, in the credit granting analysisprocess, the analysis of the presence of factorsthat prevent the transaction from being executed,such as: the business’s environmental risks ordamages, the use of slave and/or child labor, trafficin illegal substances or weapon, direct or indirectpromotion of gambling and prostitution, productionof hazardous substances that put at risk the healthand safety of people, fauna and flora.
  • 47. SOCIAL INITIATIVES 2011 A nnual Report .47Sound Relationships and Open Dialogue In 45 years of operations in the financial market, we have conquered our major intangible assets—credibility and partnerships—by developing a profound knowledge of themarket, expertise and relationships, including with our employees, acting with ethics and commitment. Therefore, in all these years, we have consolidated a relationship of respectand trust with our business partners, regulators, professionals and the society in general, all of them key to the sustainable development of our business. Our relationship withdifferent audiences is at the core of our business: our major goal is to be a Bank that offers solutions built for each of these audiences and that meets their demands with excellence. To get there, we have developed relationship management practices to get to know our customers even better and meet their needs, allow for the development of ourprofessionals and generate opportunities, maintain good business relations with other institutions in the market and add value, in addition to gaining and keeping the trustof our shareholders. In 2011, a period of significant changes in our culture and operations, we did our best to build rich dialogues with these audiences, learning what theirexpectations are and adapting the business’s day-to-day operations to exceed them.SOCIAL DEVELOPMENT INITIATIVESINDUSVAL SUSTAINABILITY INSTITUTE The Indusval Sustainability Institute, created in 2008, governs our relationship with the In 2011, the Institute invested R$423,000 in culture, education, basic communitycommunities and the initiatives and projects for its basic, educational and cultural development, development and income generation projects.focusing on the multidisciplinary and integral education of children, teenagers and adults. • Total Number of Non-Governmental Organizations Served: 10 organizations. Therefore, we seek to fulfill our role of sharing the benefits of our businesses with the • Direct beneficiaries: 8,741 children, teenagers and adults.communities, bringing social development to the regions where we operate, by supporting • Indirect beneficiaries: 32,847 (household members and community).organizations that structure and manage social projects that generate permanent andtransforming benefits to the communities served.Supported Social Organizations: Institutional Partners:P R O J E T O
  • 48. 2011 A nnual Report .48WE BELIEVE EDUCATION IS THE MOST PROMISING PATH TO THE DEVELOPMENT OF A COUNTRY AND OF A SOCIETYTHAT IS BETTER PREPARED TO FACE THE CHALLENGES OF THE FUTURE. With that purpose, we will continue to support initiatives that promote and value education in 2012, especially the following: Projeto Arrastão , a nonprofit organization founded in 1968, whose guiding principle is “teach a man to fish”. Arrastão iscommitted with people’s education and growth, especially children and teenagers from communities located in the southern regionof the city of São Paulo. More than assisting these communities, this organization promotes cultural changes, minimizing social risksand striving to contribute to the sustainable development of the region. Projeto Arrastão is a large network of citizenship based in three aspects: Pedagogical: Socially-vulnerable children and teenagers participate in social-educational programs at public schools, supported byProjeto Arrastão in a partnership with the Municipal Secretariat of Social Assistance and Development, with the purpose of developingopinionated citizens who have a critical view of the reality and the capacity to change their lives. Social: It seeks to promote and facilitate the local development in four areas: Social Development and Citizenship, Quality of Lifeand Sports, Entrepreneurism and Income Generation, and Social Housing. Cultural: Promotion of article and culture as a means to generate self-knowledge and social inclusion, showing the ways to sharpenthe knowledge and critical opinion through Dance, Drama and Music classes. Parceiros da Educação (Education Partners) is a nonprofit association founded in 2006 and promotes and monitors partnershipsbetween companies/executives and public schools focused on improving the quality of education and the students’ performance at school. It currently has more than 45 active partners (companies and executives) and operates in 80 state and municipal schools in the stateof São Paulo. Parceiros da Educação brings to the public education system the executives’ expertise in administration and businessmanagement to make the Brazilian public school a benchmark in efficiency and results. In the beginning of 2011, it led an ambitious project, “Educação: Compromisso de SP” (Education: São Paulo State Commitment),together with the Secretariat of Education of the State of São Paulo and supported by the largest education NGOs, experts andinternational consulting firm McKinsey. “Educação: Compromisso de SP” is a project whose purpose is to make the state educationsystem one of the 25 best in the world and the teaching career one of the 10 most wanted in the State before 2030.P R O J E T O
  • 49. 2011 A nnual Report .49ANNUAL SOCIAL BALANCE SHEET - 2011BANCO INDUSVAL S/A - CNPJ N.61.024.352/0001-711 - Calculation Basis 2011 Amount (R$ thousand) 2010 amount (R$ thousand)Gross Income from Financial Mediation (RBIF) 52,477 141,893Operating Income (RO) - 59,096 41,616Net Income (LL) - 31,745 29,009Gross Wages (FPB) 57,325 46,333 Amount Amount2 - Internal Social Indicators % FPB % RBIF % FPB % RBIF (R$ thousand) (R$ thousand)Food 3,792 6.61% 7.23% 3,197 6.90% 2.25%Mandatory social taxes 10,214 17.82% 19.46% 11,333 24.46% 7.99%Private pension plan 561 0.98% 1.07% 569 1.23% 0.40%Healthcare 3,654 6.37% 6.96% 3,896 8.41% 2.75%Occupational health and safety 46 0.08% 0.09% 25 0.05% 0.02%Education 196 0.34% 0.37% 193 0.42% 0.14%Culture 134 0.23% 0.26% 176 0.38% 0.12%Professional training and development 182 0.32% 0.35% 124 0.27% 0.09%Daycare and daycare stipends 100 0.17% 0.19% 91 0.20% 0.06%Profit sharing 6,562 11.45% 12.50% 7,054 15.22% 4.97%Other benefits 484 0.84% 0.92% 394 0.85% 0.28%Total - Internal social indicators 25,925 45.22% 49.40% 27,052 58.39% 19.07% Amount Amount3 - External Social Indicators % RO % RBIF % RO % RBIF (R$ thousand) (R$ thousand)Education 259 -0.44% 0.49% 70 0.17% 0.05%Culture 74 -0.13% 0.14% 36 0.09% 0.03%Health and sanitation 0 0.00% 0.00% 0 0.00% 0.00%Sports 0 0.00% 0.00% 0 0.00% 0.00%Combating hunger and food security 0 0.00% 0.00% 0 0.00% 0.00%Other 89 -0.15% 0.17% 283 0.68% 0.20%Total contributions to society 422 -0.71% 0.80% 389 0.93% 0.27%Taxes (except social charges) 78,759 -133.27% 150.08% 30,273 72.74% 21.34%Total - External social indicators 79,181 -133.99% 150.89% 30,662 73.68% 21.61% Amount Amount4 - Environmental Indicators % RO % RBIF % RO % RBIF (R$ thousand) (R$ thousand)Investments related to the companys operations 525 -0.89% 1.00% 635 1.53% 0.45%Investments related to external programs and/or projects 0 0.00% 0.00% 37 0.09% 0.03%Total environmental investments 525 -0.89% 1.00% 672 1.61% 0.47%Regarding the establishment of “annual targets” to minimize waste, ( ) does not have targets ( ) does not have targetsgeneral consumption in production and operation and efficient resource use ( ) fulfills 0 to 50% ( ) fulfills 0 to 50% ( x ) fulfills 51 to 75% ( x ) fulfills 51 to 75% ( ) fulfills 76 to 100% ( ) fulfills 76 to 100%
  • 50. 2011 A nnual Report .505 - Workforce Indicators 2011 2010Number of employees at the end of the year 421 362Number of employees admitted over the year 273 140Number of outsourced employees 67 114Number of interns 36 20Number of employees over 45 100 126Number of female employees 162 141% of female executive officers and managers 21% 20%Number of African-Brazilian employees 11 11% of African-Brazilian executive officers and managers 0% 0%Number of disabled persons or persons with special needs 10 86 - Relevant Information Related to Corporate Citizenship 2011 2012 GoalsLargest compensation over smallest compensation ratio in the Company 17 10Total number of work related accidents 0 0Social and environmental projects undertaken by the Company were determined by: ( ) executive officers ( ) executive officers (•) executive officers and managers + (•) executive officers and managers + Sustainability Committee Sustainability Committee ( ) all employees ( ) all employeesOccupational health and safety standards were determined by: ( ) executive officers and managers ( ) executive officers and managers ( ) all employees ( ) all employees (•) all employees + Cipa (•) all employees + CipaRegarding freedom of association, right to collective bargaining ( ) has no involvement ( ) has no involvementand internal representation of employees, the Company: (•) follows ILO rules (•) follows ILO rules ( ) fosters and follows ILO rules ( ) fosters and follows ILO rulesPrivate pension plan includes: ( ) executive officers ( ) executive officers ( ) executive officers and managers ( ) executive officers and managers (•) all employees (•) all employeesProfit sharing plan includes: ( ) executive officers ( ) executive officers ( ) executive officers and managers ( ) executive officers and managers (•) all employees (•) all employeesFor supplier selection, they should follow the same ethical, social responsibility and environmental protection ( ) this is not a relevant consideration ( ) this is not a relevant considerationstandards adopted by the Company: (•) they are suggested (•) they are suggested ( ) they are required ( ) they are requiredRegarding employee participation in volunteer work, the Company: ( ) has no involvement ( ) has no involvement ( ) supports initiatives ( ) supports initiatives (•) organizes and provides incentives (•) organizes and provides incentivesTotal number of consumer complaints and criticisms: at the company at Procon Legally at the company at Procon Legally 8 0 15 20 0 47% of complaints and criticisms addressed or resolved at the company at Procon Legally at the company at Procon Legally 100% 0% 50% 100% 0% 50%Total added value distribution (R$ thousand): In 2011 R$26.461 In 2010 R$115.760Distribution of Added Value (DAV): -57.8% government 25.2% government 264.2% employees 48.2% employees 105.2% shareholders 21.7% shareholders 13.6% third parties 1.5% third parties -225.2% retained 3.4% retained7 - Other InformationBanco Indusval S/A does not make loans to companies that use child labor, slave or similar labor or that exercise activities that directly or indirectly support gambling and prostitution, nor those that produce substances thatrepresent risks to health, plant or animal life.
  • 51. 2011 A nnual Report .51 FinancialStatements
  • 52. 2011 A nnual Report .52FinancialStatementsIndependent auditor’s report on thefinancial statements and fiscal concil’s report(A free translation of the original in Portuguese) December 31, 2011 To the consolidated statements of operations, Board of Directors and Stockholders changes in equity and cash flows for Banco Indusval S.A. the year then ended, and a summary of significant accounting policies and other explanatory information. W e have audited the accompanying financial statements of BancoIndusval S.A. (“Indusval & Partners” Management’s responsibility for the consolidated financial statementsor the “Institution”) standing alone, Management is responsible for thewhich comprise the balance sheet as at preparation and fair presentation of theseDecember 31, 2011 and the statements financial statements in accordance withof operations, changes in equity and cash accounting practices adopted in Brazil,flows for the year and six-month period applicable to institutions authorized tothen ended, as well as the accompanying operate by the Brazilian Central Bankconsolidated financial statements of (BACEN), and for such internal controlBanco Indusval S.A. and its subsidiaries as management determines is necessary(“Indusval & Partners Consolidated”), to enable the preparation of financialwhich comprise the consolidated balance statements that are free from materialsheet as at December 31, 2011, and the misstatement, whether due to fraud or error.
  • 53. 2011 A nnual Report .53 Auditor’s responsibility includes evaluating the appropriateness of accounting policies used and the Our responsibility is to express an reasonableness of accounting estimatesopinion on these financial statements made by management, as well asbased on our audit. We conducted our evaluating the overall presentation of theaudit in accordance with Brazilian and financial statements.International Standards on Auditing. Thosestandards require that we comply with We believe that the audit evidenceethical requirements and plan and perform w e h a v e o b t a i n e d i s s u ff i c i e n t a n dthe audit to obtain reasonable assurance appropriate to provide a basis for ourabout whether the financial statements are audit opinion.free from material misstatement. Opinion An audit involves performingprocedures to obtain audit evidence In our opinion, the financialabout the amounts and disclosures in statements present fairly, in all materialthe financial statements. The procedures respects, the financial position of Bancos e l e c t e d d e p e n d o n t h e a u d i t o r ’s Indusval S.A. (Indusval & Partners)judgment, including the assessment standing alone and of Banco Indusvalof the risks of material misstatement S.A. and its subsidiaries (Indusval &of the financial statements, whether Partners Consolidated) as at December Other mattersd u e t o f r a u d o r e r r o r. I n m a k i n g 31, 2011, and the Institution’s financial Statement of value addedthose risk assessments, the auditor performance and cash flows, for theconsiders internal control relevant to year and six-month period then ended, We have also audited the Institution’s and the consolidated statements of valuethe Institution’s preparation and fair as well as the consolidated financial added for the year ended December 31, 2011, as well as the consolidated statementspresentation of the financial statements performance and cash flows for the of value added for the six-month period ended December 31,2011, prepared underin order to design audit procedures that year then ended, in accordance with management’s responsibility, the presentation of which is required by Brazilianare appropriate in the circumstances, accounting practices adopted in Brazil, corporate legislation for listed companies. These statements were subjected to thebut not for the purpose of expressing applicable to institutions authorized to same audit procedures described above and, in our opinion, are fairly presented, inan opinion on the effectiveness of the operate by BACEN. all material respects, in relation to the financial statements taken as a whole.Institution’s internal control. An audit also São Paulo, February 15, 2012 Sérgio Antonio Dias da Silva PricewaterhouseCoopers CRC 1RJ062926/O-9 “S” SP Independent Auditors CRC 2SP000160/O-5
  • 54. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .54and Subsidiaries (Indusval & Partners Consolidated)Balance Sheets at December 31 In thousands of reais Indusval & Partners Indusval & Partners Indusval & Partners Consolidated Indusval & Partners ConsolidatedAssets 2011 2010 2011 2010 Liabilities and equity 2011 2010 2011 2010Current assets 3,192,647 2,657,329 3,226,561 2,672,676 Current liabilities 2,654,606 2,069,174 2,665,276 2,074,519 Cash (Note 4) 45,451 7,081 45,455 7,081 Deposits (Note 10 (a)) 806,509 823,675 791,158 820,679 Demand deposits 55,971 47,798 53,435 47,682 Short-term interbank investments (Note 4 (b)) 305,833 44,648 305,833 44,648 Interbank deposits 98,490 108,688 85,675 105,393 Open market investments 229,694 22,507 229,694 22,507 Time deposits 652,048 667,133 652,048 667,133 Interbank deposits 76,139 22,141 76,139 22,141 Other deposits 56 471 Marketable securities and derivative Funds obtained in the open market (Note 10 (c)) 867,896 538,580 867,896 538,580 financial instruments (Note 5) 1,093,210 1,245,171 1,111,272 1,255,106 Own portfolio 747,830 538,580 747,830 538,580 Own portfolio 363,027 586,517 364,656 586,517 Unrestricted portfolio 120,066 120,066 Subject to repurchase agreements 544,740 540,385 544,740 540,385 Subject to guarantees 168,433 82,816 184,866 92,751 Funds from acceptance and issuance of securities (Note 10 (a)) 218,217 74,648 218,217 74,648 Derivative financial instruments 17,010 35,453 17,010 35,453 Agribusiness and financial letters of credit 218,217 74,648 218,217 74,648 Interbank accounts 1,600 1,553 1,600 1,553 Interdepartmental accounts 24,963 5,898 24,963 5,898 Restricted deposits Third-party funds in transit 24,963 5,898 24,963 5,898 Brazilian Central Bank deposits 1,600 1,553 1,600 1,553 Borrowings (Note 10 (a)) 417,275 324,800 417,275 324,800 Loan operations (Note 6) 1,234,820 920,861 1,234,820 920,861 Foreign borrowings 417,275 324,800 417,275 324,800 Loan operations - private sector 1,255,136 933,827 1,255,136 933,827 Loan operations - public sector 9,137 9,137 Local onlendings (Note 10 (a)) 81,411 43,297 81,411 43,297 Allowance for loan losses (20,316) (22,103) (20,316) (22,103) National Bank for Economic & Social Development (BNDES) 46,221 18,087 46,221 18,087 Fund for Financing the Acquisition of Industrial 35,190 25,210 35,190 25,210 Other receivables 449,368 395,427 464,465 400,319 Machinery and Equipment (FINAME) Foreign exchange portfolio (Note 7) 442,822 325,586 442,822 325,586 Income receivable 45 85 Other liabilities 238,335 258,276 264,356 266,617 Negotiation and intermediation of securities 5,591 70,520 20,238 75,341 Foreign exchange portfolio (Note 7) 61,744 22,002 61,744 22,002 Sundry (Note 8 (a)) 7,795 4,770 8,200 4,756 Negotiation and intermediation of securities (Note 12 (a)) 126,282 187,288 150,978 195,316 Provision for loan losses (Note 6 (a)) (6,840) (5,449) (6,840) (5,449) Derivative financial instruments (Note 5 (c)) 24,611 34,184 24,611 34,184 Taxes and social security contributions (Note 12 (c)) 4,401 4,283 4,895 4,474 Other assets (Note 8 (b)) 62,365 42,588 63,116 43,108 Social and statutory payables 14,988 3,630 15,038 3,661 Non-operating assets 65,772 43,538 66,049 43,538 Collection and payment of taxes and similar 244 571 244 571 Provision for loss (4,748) (1,915) (4,748) (1,915) Sundry 6,065 6,318 6,846 6,409 Prepaid expenses 1,341 965 1,815 1,485 The accompanying notes are an integral part of these financial statements.
  • 55. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .55and Subsidiaries (Indusval & Partners Consolidated)Balance Sheets at December 31 (Continuation) In thousands of reais Indusval & Partners Indusval & Partners Indusval & Partners Consolidated Indusval & Partners ConsolidatedAssets 2011 2010 2011 2010 Liabilities and equity 2011 2010 2011 2010Long-term receivables 996,540 589,998 999,609 590,638 Long-term liabilities 1,046,251 774,625 1,034,363 774,736 Marketable securities and derivative financial instruments Deposits (Note 10 (a)) 853,835 675,015 841,794 674,941 (Note 5) 331,820 6,120 331,872 6,151 Interbank deposits 2,804 11,088 2,804 11,088 Own portfolio 97,344 97,396 Time deposits 851,031 663,927 838,990 663,853 Subject to repurchase agreements 212,240 212,240 Subject to guarantees 31 Funds from acceptance and issuance of securities Derivative financial instruments 22,236 6,120 22,236 6,120 (Note 10 (a)) 7,345 7,345 Agribusiness and financial letters of credit 7,345 7,345 Interbank accounts 5,564 7,352 5,564 7,352 Restricted deposits – other institutions 5,564 7,352 5,564 7,352 Borrowings (Note 10 (a)) 46,504 549 46,504 549 Foreign borrowings 46,504 549 46,504 549 Loan operations (Note 6) 533,949 503,536 533,949 503,536 Loan operations - private sector 649,164 595,564 649,164 595,564 Local onlendings (Note 10 (a)) 136,816 84,354 136,816 84,354 Allowance for loan losses (115,215) (92,028) (115,215) (92,028) National Treasury 10,766 10,766 BNDES 57,320 28,154 57,320 28,154 Other receivables 124,984 72,458 127,636 72,703 FINAME 66,785 39,856 66,785 39,856 Negotiation and intermediation of securities 504 244 Other institutions 1,945 16,344 1,945 16,344 Sundry (Note 8 (a)) 125,366 72,502 127,514 72,503 Allowance for loan losses (Note 6 (a)) (382) (44) (382) (44) Other liabilities 9,096 7,362 9,249 7,547 Derivative financial instruments (Note 5 (c)) 15 15 Other assets (Note 8 (b)) 223 532 588 896 Taxes and social security contributions (Note 12 (c)) 7,510 5,462 7,663 5,647 Prepaid expenses 223 532 588 896 Sundry 1,571 1,900 1,571 1,900Permanent assets 90,308 23,359 52,107 12,828 Deferred income 1,503 462 1,503 462 Investments (Note 9 (a)) 66,334 12,919 24,528 1,686 Equity (Note 13) 577,135 426,425 577,135 426,425 Subsidiary and associated companies - local 64,648 11,233 22,842 Capital Other investments 1,686 1,686 1,686 1,686 Local residents 572,396 370,983 572,396 370,983 Capital reserve 5,899 2,212 5,899 2,212 Property and equipment in use 11,857 10,440 13,071 11,142 Revaluation reserve 1,389 1,928 1,389 1,928 Properties in use 1,210 2,192 1,210 2,192 Revenue reserves 55,812 55,812 Revaluation of properties in use 2,634 3,538 2,634 3,538 Carrying value adjustment 6,642 1,447 6,642 1,447 Other fixed assets in use 15,599 11,636 17,333 12,515 Accumulated deficit (3,233) (3,233) Accumulated depreciation (7,586) (6,926) (8,106) (7,103) Treasury stock (5,958) (5,957) (5,958) (5,957) Intangible assets (Note 9 (b)) 12,117 14,508 Goodwill 2,391 Other intangible assets 13,100 13,100 Accumulated amortization (983) (983)Total assets 4,279,495 3,270,686 4,278,277 3,276,142 Total liabilities and equity 4,279,495 3,270,686 4,278,277 3,276,142 The accompanying notes are an integral part of these financial statements.
  • 56. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .56and Subsidiaries (Indusval & Partners Consolidated)Statement of Operations In thousands of reais Indusval & Partners Indusval & Partners Consolidated Years ended Years ended December 31 December 31 2011 2010 2011 2010Income from financial intermediation (Note 15(a)) 628,262 450,621 631,658 453,774 Loan operations 283,461 267,535 283,461 267,535 Marketable securities 255,463 110,805 258,182 113,008 Derivative financial instruments (38,923) 10,596 (38,246) 11,546 Foreign exchange 128,261 61,685 128,261 61,685Expenses for financial intermediation (Note 15(b)) (580,223) (312,917) (579,181) (312,567) Funds obtained in the market (325,111) (200,367) (324,069) (200,017) Loans, assignments and onlendings (137,007) (63,542) (137,007) (63,542) Provision for loan losses (Note 6(a)) (118,105) (49,008) (118,105) (49,008)Gross profit from financial intermediation 48,039 137,704 52,477 141,207Other operating income (expenses) (106,803) (96,245) (111,573) (99,591) Income from services rendered (Note 15(c)) 5,347 4,583 19,927 12,754 Income from bank fees (Note 15(c)) 851 982 851 982 Personnel expenses (Note 15(d)) (65,981) (53,124) (71,694) (56,478) Equity in the results of investees (Note 9 (a)) 664 158 989 Other administrative expenses (Note 15(e)) (37,926) (32,376) (50,394) (39,399) Taxes (Note 15(f)) (11,323) (14,321) (13,191) (15,319) Other operating income 4,741 2,928 17,397 2,969 Other operating expenses (3,176) (5,075) (15,458) (5,100)Operating profit (loss) (58,764) 41,459 (59,096) 41,616Non-operating income (expense), net (2,968) 577 (2,977) 577Profit (loss) before taxation (61,732) 42,036 (62,073) 42,193Income tax and social contribution 38,384 (4,937) 38,829 (5,041) Income tax (Note 11) (1,022) 511 (804) 441 Social contribution (Note 11) (613) 390 (507) 355 Deferred tax assets (Note 11) 40,019 (5,838) 40,140 (5,837)Profit sharing and contributions (Note 14(c)) (8,397) (8,090) (8,501) (8,143) Employees (6,797) (6,990) (6,849) (7,024) Directors (1,600) (1,100) (1,652) (1,119)Net income (loss) for the year (31,745) 29,009 (31,745) 29,009Number of outstanding shares 62,358,840 40,466,187Net income (loss) per share – in reais (0.51) 0.72 The accompanying notes are an integral part of these financial statements.
  • 57. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .57and Subsidiaries (Indusval & Partners Consolidated)Statement of Changes in Equity In thousands of reais Revenue reserves Retained earnings Capital Capital Revaluation (accumulated Carrying value Treasury Capital increase reserve reserve Legal Statutory deficit) adjustments stock TotalAt January 1, 2010 370,983 779 1,995 10,403 51,814 100 (3,380) 432,694 Realization of revaluation reserve (Note 13 (c)) (67) 67 Legal reserve 1,450 (1,450) Statutory reserve 2,513 (2,513) Carrying value adjustments 1,347 1,347 Net income for the year 29,009 29,009 Interest on own capital (Note 13 (e)) (25,113) (25,113) Appropriation of benefits - stock options (Note 13(b)) 1,433 1,433 Stock options exercised 205 205 Purchase of own shares (Note 13(a)) (13,051) (13,051) Cancellation of own shares (10,368) 10,269 (99)At December 31, 2010 370,983 2,212 1,928 11,853 43,959 1,447 (5,957) 426,425 Changes for the year 1,433 (67) 1,450 (7,855) 1,347 (2,577) (6,269)At January 1, 2011 370,983 2,212 1,928 11,853 43,959 1,447 (5,957) 426,425 Realization of revaluation reserve (Note 13 (c)) (539) 539 Realization of legal reserve (11,853) 11,853 Realization of statutory reserve (43,959) 43,959 Carrying value adjustments 5,195 5,195 Loss for the year (31,745) (31,745) Interest on own capital (Note 13(e)) (27,839) (27,839) Appropriation of benefits - stock options (Note 13(b)) 3,405 3,405 Sale of subscription bonus (Note 13(b)) 282 282 Purchase of own shares (Note 13 (a)) (1) (1) Capital increase (Note 13 (a)) 201,413 201,413At December 31, 2011 572,396 5,899 1,389 (3,233) 6,642 (5,958) 577,135 Changes for the year 201,413 3,687 (539) (11,853) (43,959) (3,233) 5,195 (1) 150,710 The accompanying notes are an integral part of these financial statements.
  • 58. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .58and Subsidiaries (Indusval & Partners Consolidated)Statements of Cash Flows In thousands of reais Indusval & Partners Indusval & Partners Consolidated Years ended Years ended December 31 December 31 2011 2010 2011 2010Adjusted net income 100,226 92,559 100,098 92,873 Net income (loss) (31,745) 29,009 (31,745) 29,009 Depreciation and amortization 4,317 1,696 4,546 1,828 Equity in the results of investees (664) (158) (989) Accrual of stock options 3,405 1,433 3,405 1,433 Results on sale of treasury stock (99) (99) Allowance for doubtful accounts 118,105 49,008 118,105 49,008 Provision for devaluation of assets 2,833 917 2,833 917 Provision for contingencies 1,261 3,375 1,265 3,375 Results on disposal of tangible assets 133 (1,341) 133 (1,339) Mark-to-market adjustment – securities and derivatives 2,581 8,719 2,545 8,741Variation in assets and liabilities (15,270) (109,756) (42,904) (109,885) (Increase) decrease in short-term interbank investments (124,125) 256,177 (124,125) 256,177 (Increase) decrease in securities and derivative financial instruments (177,762) (544,465) (185,873) (546,781) (Increase) decrease in interbank and interdepartmental accounts 20,806 (5,888) 20,806 (5,888) (Increase) in loan operations (454,757) (267,102) (454,757) (267,102) Decrease in other receivables and other assets (114,255) (107,007) (127,099) (108,235) Increase in deposits 161,655 231,152 137,334 232,987 Increase (decrease) in funds obtained in the open market 329,316 172,776 329,316 172,776 Increase in funds from acceptance and issuance of securities 136,224 71,434 136,224 71,434 Increase (decrease) in borrowings and onlendings 229,008 (67,003) 229,008 (67,003) Change in deferred income 1,041 178 1,041 178 Increase (decrease) in other liabilities (22,421) 149,992 (4,779) 151,572Net cash provided by (used in) operating activities 84,956 (17,197) 57,194 (17,012) Disposal of tangible assets 17,609 26,409 17,609 26,436 Acquisition of tangible assets (43,175) (20,540) (43,918) (20,754) Acquisition of intangible assets (13,100) (15,491) Acquisition of investments (56,413) (25,513) Dividends received 2,110 2,110Net cash provided by (used in) investing activities (92,969) 5,869 (65,203) 5,682 Capital increase 201,413 201,413 Purchase of own shares (1) (13,051) (1) (13,051) Stock options exercised 205 205 Sale of bonus shares 282 282 Interest on own capital paid and / or accrued (18,251) (25,113) (18,251) (25,113)Net cash provided by (used in) financing activities 183,443 (37,959) 183,443 (37,959)Net increase (decrease) in cash and cash equivalents 175,430 (49,287) 175,434 (49,289) Cash and cash equivalents at the beginning of the year / period 38,899 88,186 38,899 88,188 Cash and cash equivalents at the end of the year / period 214,329 38,899 214,333 38,899Increase (decrease) in cash and cash equivalents (Note 4(a)) 175,430 (49,287) 175,434 (49,289) The accompanying notes are an integral part of these financial statements.
  • 59. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .59and Subsidiaries (Indusval & Partners Consolidated)Statements of Value Added In thousands of reais Indusval & Partners Indusval & Partners Consolidated Years ended Years ended December 31 December 31 2011 2010 2011 2010Revenues 518,202 410,808 548,765 422,109 Financial intermediation 628,262 450,621 631,658 453,774 Services rendered and bank fees 6,198 5,565 20,778 13,736 Provision for loan losses (118,105) (49,008) (118,105) (49,008) Other 1,847 3,630 14,434 3,607Expenses for financial intermediation (462,118) (263,909) (461,076) (263,559)Goods and services acquired from third parties (33,817) (34,434) (57,675) (40,964) Materials, electricity and other (16,920) (13,994) (20,556) (15,782) Third-party services (15,316) (15,407) (23,255) (20,121) Other (1,581) (5,033) (13,864) (5,061)Gross value added 22,267 112,465 30,014 117,586Depreciation and amortization (4,317) (1,696) (4,546) (1,828)Net value added produced by the Institution 17,950 110,769 25,468 115,758Value added transferred from others 668 160 993 2 Equity in the results of investees 664 158 989 Other 4 2 4 2Total value added to be distributed 18,618 110,929 26,461 115,760Distribution of value added 18,618 110,929 26,461 115,760 Personnel 64,970 52,910 69,893 55,803 Direct remuneration 49,902 41,459 53,721 43,662 Benefits 11,846 8,902 12,764 9,470 Employee Severance Indemnity Fund (FGTS) 3,222 2,549 3,408 2,671 Taxes, charges and contributions (17,608) 27,606 (15,290) 29,221 Federal (18,228) 26,746 (16,640) 27,947 State 7 281 7 281 Municipal 613 579 1,343 993 Remuneration of third-party capital 3,001 1,404 3,603 1,727 Rents 3,001 1,404 3,603 1,727 Remuneration of own capital (31,745) 29,009 (31,745) 29,009 Interest on own capital 27,839 25,113 27,839 25,113 Retained earnings (loss) for the year / period (59,584) 3,896 (59,584) 3,896 The accompanying notes are an integral part of these financial statements.
  • 60. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .60and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 In thousands of reais1. Operations accounting practices adopted in Brazil with those issued by the International Accounting Standards Board (IASB). Banco Indusval S.A. and its subsidiaries operate mainly with commercial and As part of the process of convergence with international accounting standards,foreign exchange portfolios and other transactions related to securities brokers. certain rules and interpretations were issued by the Brazilian Accounting Pronouncements Committee (CPC), which will be applicable to financial institutions2. Presentation of Financial Statements only after approval by BACEN. The accounting standards which have been approved by BACEN include the following: • Resolution 3566/08 – Impairment of Assets (a) Basis of presentation • Resolution 3604/08 – Statement of Cash Flows The financial statements of Banco Indusval S.A. (Indusval & Partners) and the • Resolution 3750/09 – Related-Party Disclosuresconsolidated financial statements of Banco Indusval S.A. and its subsidiaries • Resolution 3823/09 – Provisions, Contingent Liabilities and Contingent Assets(Indusval & Partners Consolidated) were prepared in accordance with Brazilian • Resolution 3973/11 – Subsequent EventsCorporation Law, with the regulations of the Brazilian Central Bank (BACEN) and • Resolution 3989/11 – Share-Based Compensationthe Brazilian Securities Commission (CVM). • Resolution 4007/11 – Accounting Policies, Change in Estimates and Correction of Errors The financial statements of Banco Indusval S.A. and its subsidiaries (Indusval &Partners Consolidated) were approved by the Board of Directors on February 15, 2012. 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 In preparing the financial statements, estimates and assumptions were used financial statements will be retrospective or effective for future periods.to determine the amounts of certain assets, liabilities, revenues and expenses,in accordance with accounting practices effective in Brazil. These estimates and (b) onsolidated financial statements Cassumptions were considered in the measurement of provisions for losses on The consolidated financial statements comprise the financial statements of Bancoloans and for contingencies, in the determination of the market value of financial Indusval S.A., its branch abroad and the other subsidiaries: Indusval S.A. Corretora deinstruments and in the selection of the economic useful lives of certain assets. Títulos e Valores Mobiliários (Indusval & Partners Corretora), BIM Promotora de VendasActual results may differ from the estimates and assumptions adopted. Ltda. and Serglobal Comércio Cereais Ltda. Law 11.638 was enacted on December 28, 2007 for the purpose of adjustingBrazilian corporate legislation to facilitate the process of convergence of the
  • 61. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .61and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (d) arketable securities and derivative financial instruments M The Institution’s investments in the subsidiaries, as well as the assets and liabilities, Marketable securities are classified and valued as follows:income and expenses and the unrealized results of intercompany transactions, were • Trading securities - securities acquired to be traded on a frequent and activeeliminated upon consolidation. basis, adjusted to market value against results for the year. • Securities available for sale - securities which are neither trading securities nor The Cayman Branch was authorized to operate by BACEN on March 5, 2008, and securities held to maturity, adjusted to market value against a specific equityat December 31, 2011, its total assets amounted to R$200,775, equity was R$39,472 account, net of tax effects.and loss was R$(284) for 2011. • 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.3. Summary of Significant Accounting Practices Derivative financial instruments are classified at the inception of the transaction, (a) Determination of the results of operations considering management’s intention to use them as hedge instruments or not. Income and expenses are recorded on the accrual basis of accounting. The derivative financial instruments used for protection against risk exposure (b) Cash and cash equivalents or for modifying the characteristics of financial assets and liabilities, and which Cash and cash equivalents comprise cash in local and foreign currency, are: (i) highly correlated, as regards the changes in their market value in relationinvestments in the open market (except for financed positions) and investments to the market value of the item being protected, at both the inception and overin interbank deposits (except for rural Interbank Deposit Certificates (CDI)), with the contract duration; and (ii) considered effective in mitigating the risk associatedmaturities at the original investment date equal to or less than 90 days and which with the exposure in question, are classified as hedges according to their nature:present an immaterial risk of change in fair value. These are used by the Institution • Fair value hedge - the financial assets and liabilities subject to hedge and theirto manage its short-term commitments. respective derivative financial instruments are recorded at market value, with the corresponding valuations or devaluations recognized in results for the year. (c) Short-term interbank investments • Cash flow hedge – the financial assets and liabilities subject to hedge and their Short-term interbank investments are recorded at cost plus related earnings up respective derivative financial instruments are recorded at market value, withto the balance sheet date, less a provision for losses, where applicable. the corresponding valuations or devaluations, net of tax effects, recognized in a specific equity account called “Carrying value adjustment”. The non-effective hedge portion is recognized directly in results for the year.
  • 62. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .62and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais Derivative financial instruments which do not meet the hedging criteria overall portfolio risks, as well as the rules established by BACEN Resolution 2682/99established by BACEN, particularly derivatives used to manage overall risk exposure, and in accordance with the provisions of BACEN Circular 2.974/00. The customerare recorded at market value, and valuations or devaluations are recognized directly risk ratings are established based on a credit score model, with no possibility thatin results for the year. the credit committee can interfere to improve the rating assigned. (e) Loan operations The positive or negative results of loan assignments are appropriated as an The loans, in their various modes, are recorded at present value, including increase in income on loan operations or as a reversal thereof, in compliance withincome accrued up to the balance sheet date when at floating interest rates, and the provisions of BACEN Circular 3.213/03.net of unearned income, calculated based on the terms of the transactions, whenat fixed interest rates. In accordance with BACEN Resolution 3533/08, the information on each of the categories used to classify financial asset sales must be disclosed in the notes to The restatement of overdue loans is recorded as income from loans up to the the financial statements (Note 6(j)). These categories include the following:60th day, and as unearned income as from the 61 st day. • Transactions with substantial transfer of risks and rewards • Transactions with neither substantial transfer nor retention of risks and rewards Loans in arrears classified as level “H” are held in this classification for six • Transactions with substantial retention of risks and rewardsmonths, after which they are written off against the existing allowance and • Transactions with neither substantial transfer nor retention of risks and rewards,controlled, for up to five years, in memorandum accounts and no longer presented and for which control was retainedin the balance sheet. (f) Prepaid expenses Renegotiated loans are held at the same level at which they were previously Include the investment of resources, the benefits of which will occur in future periods.classified. Renegotiations of loans that had already been written off against theallowance and which were recorded in memorandum accounts, are classified as level (g) Investments“H”, and any gains on renegotiation are only recognized when actually received. The investments in subsidiaries are evaluated based on the equity method of accounting. The other investments are stated at cost. The allowance for loan losses is calculated case by case based on management’sanalysis of the loans in order to determine the amount necessary and takes into The goodwill on acquisition of subsidiary and associated companies, based onconsideration the economic environment, past experience and the specific and expected future profits, was determined by the difference between the amount paid and the carrying amount on that date and is being amortized over 10 years.
  • 63. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .63and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (h) Property and equipment intermediation of securities”, in current liabilities, are stated at their contractual Property and equipment are stated at cost plus price-level restatements up amounts, which are adjusted monthly based on the market value of the shares andto December 31, 1995 plus revaluation of properties for own use (Note 13(c)). by the respective adjustments of the related derivatives (hedges).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 (l) Income tax and social contribution (asset and liability)items. The fixed assets are tested for impairment at least annually or when there Deferred income tax and social contribution, calculated on temporaryis objective evidence of loss (Note 3(n)). differences, are recorded in the “Other receivables – sundry” account. Deferred tax assets on temporary additions are realized upon the use and / or reversal of Intangible assets are recorded at cost of acquisition and are amortized over 10 the corresponding provisions on which they were recorded.years. When there is objective evidence of loss an impairment test is performed(Note 3(n)). 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 was calculated (i) Interbank and time deposits, funds obtained in the open market and at the rate of 15%.from financial and agribusiness letters of credit These deposits and the funds obtained in the open market and from agribusiness In accordance with Law 11.941/09, the changes in the criteria used to recognizeand financial letters of credit are stated at their corresponding contractual amounts revenue, costs and expenses for the year, as introduced by Law 11.638/07 and byplus accrued charges, in proportion to the time elapsed from the day on which Articles 36 and 37 of the former, may be ignored for purposes of calculating thethey were contracted. 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 (j) Borrowings and onlendings 31, 2007 shall be followed. For accounting purposes, the tax effects of adopting Borrowings and onlendings are stated at present value, including the charges Law 11.638/07 are recorded in the corresponding deferred tax assets and liabilities.incurred up to the balance sheet date, and restated at the rates in effect on thereporting dates. (m) Contingent assets and liabilities and legal obligations - taxes and social security contributions (k) Share loan contract liabilities These are measured, recognized and disclosed in accordance with the criteria Share loan contract liabilities, recorded under “Other liabilities - negotiation and established by CVM Deliberation 594/09 and ratified by BACEN Resolution 3823/09.
  • 64. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .64and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (i) Contingent assets and liabilities which is recognized in results for the period if the carrying amount of the asset or These comprise potential rights and obligations arising from past events, the its cash generating unit exceeds its recoverable amount. occurrence of which depends on future events.• Contingent assets are not recorded except when there is evidence which assures (o) Share-based compensation a high degree of confidence that they will be realized, normally through a final Banco Indusval & Partners operates share-based compensation plans, under and unappealable court decision, and the confirmation of recoverability through which the Institution awards stock options (equity instruments) as consideration for receipt or offset against another liability. employee services. The fair value of the employee services received is recognized• Contingent liabilities arise mainly from civil, labor, and tax lawsuits, which are as an expense, and the corresponding grant of shares in a specific equity account, inherent to the normal course of business, filed at the judicial and administrative based on the fair value of the options granted, excluding the effects of any vesting levels by third parties, former employees and public bodies, as well as from other conditions based on the service and performance which are not market variables. risks. The evaluation of these contingencies is carried out by legal advisors on These are included in the assumptions regarding the number of options expected a basis which is consistent with adopted conservative practices and considers to vest. the probability that financial resources will be required to settle the obligations and that their amounts can be reliably estimated. Contingencies are classified as The total amount of the expense is recognized during the vesting period (the probable, for which provisions are recorded; possible, which are disclosed but for period over which the specific vesting conditions should be met). At the reporting which no provisions are recorded; and remote, which require neither provisions date, the entity reviews the estimated number of options expected to vest based on nor disclosure. The contingency amounts are measured using models and criteria the vesting conditions which are not market variables. which permit adequate estimates, despite the inherent uncertainty regarding terms and amounts. 4. Cash and Cash Equivalents and Short-Term Interbank Investments (ii) Legal obligations - tax and social security These are tax liabilities, the legality or constitutionality of which is being contested (a) Cash and cash equivalents Indusval & Partners in court, and which are recorded at the full amount in dispute. Indusval & Partners Consolidated 2011 2010 2011 2010 (n) Impairment of non-financial assets Cash 45,451 7,081 45,455 7,081 Short-term interbank investments (cash The amounts of non-financial assets, except other assets and deferred tax assets, equivalents) 168,878 31,818 168,878 31,818are tested, at least annually, to determine whether there is any impairment loss, Cash and cash equivalents 214,329 38,899 214,333 38,899
  • 65. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .65and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (b) Short-term interbank investments (b) Marketable securities Indusval & Partners Consolidated (i) Indusval & Partners 2011 2010 2011 2010 Mark-to-Open market investments 229,694 22,507 Market / Maturity market Market / Cost book value (days) adjustment book value Own portfolio position 107,040 22,507 Trading securities Financial Treasury Bills (LFT) 6,001 1,502 Financial Treasury Bills (LFT) 12,488 12,486 Up to 360 (2) 53,574 National Treasury Bills (LTN) 4,801 15,005 Financial Treasury Bills (LFT) 104,243 104,236 More than 360 (7) 306,021 Federal Treasury Notes (NTN) 96,238 6,000 National Treasury Bills (LTN) 8,725 8,731 Up to 360 6 929 National Treasury Bills (LTN) 599,122 597,023 More than 360 (2,099) 133,509 Federal Treasury Notes (NTN) 367 367 Up to 360 Third-party portfolio position 122,654 Federal Treasury Notes (NTN) 160,864 160,603 More than 360 (261) 583,273 NTN 122,654 Agricultural Product Bonds (CPR) 112,983 112,692 Up to 360 (291) Agricultural Product Bonds (CPR) 1,208 1,232 More than 360 24Interbank deposits 76,139 22,141 Variable income securities 69,899 69,493 No stated maturity (406) 130,284 Investment fund quotas 126 126 No stated maturity 2,128 Interbank 76,139 21,901 Promissory Notes 10,443 10,443 Up to 360 Unrelated CDI 61,838 9,071 Available-for-sale securities Rural CDI 14,301 12,830 Federal Treasury Notes (NTN) 309,172 308,352 More than 360 (820) 1,389,640 1,385,784 (3,856) 1,209,718 Foreign currency investments 240 305,833 44,648 (ii) Indusval & Partners Consolidated 2011 20105. Mark-to- Market / Maturity market Market / Marketable Securities and Derivative Financial Instruments Cost book value (days) adjustment book value Trading securities Financial Treasury Bills (LFT) 28,293 28,291 Up to 360 (2) 53,574 (a) Valuation, classification and risk management Financial Treasury Bills (LFT) 105,900 105,893 More than 360 (7) 315,951 National Treasury Bills (LTN) 8,725 8,731 Up to 360 6 929 The valuations of the positions of fixed income securities and derivative financial National Treasury Bills (LTN) 599,122 597,023 More than 360 (2,099) 133,509 Federal Treasury Notes (NTN) 367 367 Up to 360instruments are obtained from the markets with greatest liquidity or, in their Federal Treasury Notes (NTN) 160,864 160,603 More than 360 (261) 583,273absence, from related markets, including through interpolation and extrapolation Agricultural Product Bonds (CPR) 113,748 113,276 Up to 360 (472) Agricultural Product Bonds (CPR) 1,208 1,232 More than 360 24of the terms. The portfolio of share loan contracts (Note 3(k)) is sold in the spot Variable income securities 69,905 69,498 No stated maturity (407) 130,284 Investment fund quotas 126 126 No stated maturity 2,128market, with simultaneous purchase of call options and sale of put options, Promissory notes 10,443 10,443 Up to 360 Available-for-sale securitiesresulting in a funding transaction at fixed rates, the results of which are recognized Federal Treasury Notes (NTN) 309,172 308,352 More than 360 (820)over the term of the transactions. Securities held to maturity Agricultural Debt Securities (TDA) 11 11 Up to 360 5 Agricultural Debt Securities (TDA) 52 52 More than 360 31 1,407,936 1,403,898 (4,038) 1,219,684 The risk management structure, as well as the methodology adopted forcalculating capital are available for consultation on the Institution’s website atthe following address: http://www.bip.b.br/eng/ri/governanca/gestao.asp
  • 66. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .66and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais c) Derivative financial instruments and hedge accounting Banco Indusval uses derivative financial instruments, according to its risk management (i) Position 2011policy, with the objective of hedging risks and mitigating exposure mainly resulting Indusval & Partners Consolidatedfrom the fluctuation of interest and foreign exchange rates. The derivative instruments Long Short Maturity position position (days)used are designed to meet its needs for managing its overall exposure and to meet Swap Interest rate 1,280 Up to 360its customers’ needs for hedging their exposure. The treasury department adopts an Interest rate 15,030 More than 360 Currencies 2,423 11,999 Up to 360essentially passive attitude and generally does not enter into speculative transactions. Currencies 7,140 More than 360The derivatives include interest rate swaps, currency swaps, cash flow swaps, futures, Indices 7 Up to 360 Indices 66 15 More than 360forwards and options. Forward Shares 8,890 8,416 Up to 360 Currencies 1,962 326 Up to 360 Derivative financial instruments are presented in the consolidated balance sheet at Financial assets and commodities (5) Up to 360 Futuresmarket value, usually based on price quotations or market price quotations for assets Interest rate 1,981,382 318,489 Up to 360or liabilities with similar characteristics. When these are not available, the market values Interest rate 7,368 725,004 More than 360 Currencies 61,562 91,817 Up to 360are based on pricing models, discounted cash flow and market operators’ quotations. Currencies 9,980 More than 360 Indices 22,840 Up to 360 Financial assets and commodities 21,703 Up to 360 The contracts of traded derivatives are registered at the São Paulo Stock, Commodities Options Shares 1,724 3,317 Up to 360and Futures Exchange (BM&FBOVESPA) or at the Central System for Custody and Currencies 724 558 Up to 360Financial Settlement of Securities (CETIP). The transaction amounts are determined based 2010on available information disclosed by BM&FBOVESPA or by external providers (brokerage Indusval & Partners Consolidated Long Short Maturityfirms, banks and others). position position (days) Swap Currencies 3,694 2,744 Up to 360 The Risk Management Area is responsible for the pricing of all derivative financial Indices 6,120 More than 360 Forwardinstruments, using both the mark-to-market (MtM) parameters and the original (curve Shares 28,281 27,907 Up to 360value) parameters. The market parameters are updated daily in the process of pricing Currencies 53 Up to 360 Futuresthe instruments to market value, including the forward structures of interest rates for all Interest rate 40,476 Up to 360 Interest rate 30,077 635,652 More than 360the Brazilian indices. The mark-to-market models determine the values of the derivative Currencies 3,783 78,435 Up to 360instruments based on the current market conditions for all the indices, as well as for Options Shares 3,292 3,391 Up to 360the sovereign debt securities and Eurobonds of Brazilian companies, and the duration Indices 186 89 Up to 360(average term) of the portfolio and of the groups of analysis.
  • 67. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .67and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (ii) Position of contracts (iii) Guarantees 2011 2011 Indusval & Partners Consolidated Indusval & Partners Amount of Clearing of Clearing of Assets Liabilities contracts recorded Results derivatives shares TotalSwap 25,946 12,014 482,704 2,134 Marketable securities 107,473 72,082 179,555 DI vs. US$ 8,401 65,493 Sureties 19,859 13,594 33,453 DI vs. Fixed rate 73 9,500 127,332 85,676 213,008 US$ vs. DI 260 13,685 US$ vs. Fixed rate 3,701 43,080 2010 Fixed rate vs. US$ 3,598 43,086 Indusval & Partners Cash flow swaps (*) (**) 21,912 15 307,860 Clearing of Clearing ofForward 10,852 8,737 107,901 3,894 derivatives shares Total Shares 8,890 8,416 8,930 Marketable securities 46,611 32,778 79,389 Currencies 1,962 326 98,867 Sureties 3,000 11,500 14,500 Financial assets and commodities (5) 104 49,611 44,278 93,889Futures 3,240,145 (40,239) Interest rate 3,032,243 Currencies 163,359 (iv) Cash flow hedge accounting Indices 22,840 Financial assets and commodities 21,703 The loans and funds obtained by the Institution are exposed to market risk includingOptions 2,448 3,875 26,570,160 (4,035) changes in market indices of products, fixed interest rates, foreign currency coupons, Shares 1,724 3,317 56,905 Index 26,496,500 long-term interest rate (TJLP), reference rate (TR), share prices, commodity price indices Currencies 724 558 16,755 and foreign exchange rates. 39,246 24,626 30,400,910 (38,246)((*) US$ (+) LIBOR vs. DI (**) Extended Consumer Price Index (IPCA) and General Market Price Index (IGPM) vs. DI The treasury department, with its conservative profile, is responsible for hedging all 2010 flows originated by the area responsible for granting credit and obtaining funds using Indusval & Partners Consolidated Amount of derivative financial instruments, such as swaps and options, contracted as from the time Assets Liabilities contracts recorded ResultsSwap 9,814 2,744 253,625 791 these transactions are effective. DI vs. US$ 3,694 52,886 US$ vs. DI 2,744 26,339 Cash flow swaps (**) 6,120 174,400 Banco Indusval carries out cash flow hedging of CDBs and DPGEs indexed toForward 28,281 27,960 31,056 3,399 the IPCA and IGPM indexes using swaps as the hedge instruments. In addition, the Shares 28,281 27,907 28,489 Currencies 53 2,567 Institution carries out cash flow hedging of foreign loans, designed to protect itselfFutures 788,423 9,114 from the variations in LIBOR and exchange coupon. The relationship between the hedge CDI 706,205 US$ 77,841 instrument and the underlying object, as well as the risk management and policies Mini-US$ 4,377Options 3,478 3,480 4,376,020 (337) and objectives, were documented at the inception of the transaction. The initial and Shares 3,292 3,391 74,250 prospective effectiveness tests were also documented, and it was confirmed that the Index 186 89 4,301,770 designated derivatives would be highly effective for offsetting the changes in the cash 41,573 34,184 5,449,124 12,967(**) IPCA (IGPM) vs. DI flows of the funding transaction and the time deposits indexed to IPCA and IGPM.
  • 68. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .68and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais In 2011, an amount of R$6,015 (2010 – R$1,347) was recorded in equity, Scenario I considers the variations expected by the Institution in relation toarising from the marking to market of hedge instruments (swaps) in cash flow the market reference curves used for marking these products to market. Seniorhedge accounting transactions, which at December 31, 2011, were valued at management attributes to Scenario I the variations expected for each risk factor,R$21,912 (asset) and R$15 (liability) (2010 – R$6,120 (asset)). 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 (v) Sensitivity analysis scenarios should consider variations of +25% and +50% and the low risk scenarios Probable Deterioration DeteriorationFactors Risk position of 25% of 50% variations of -25% and -50%. As a result, scenarios II are defined by the variationTrading portfolio of +/- 25% in relation to the market value of the products comprising each risk Fixed rate Fixed interest rates in reais (1,498) (46,976) (90,728) factor and scenarios III by the variation of +/- 50% in relation to the market value Exchange coupon Foreign currency coupon rates (339) (8,077) (16,220) Foreign currency Exchange variation 522 (11,463) (22,610) of the products of each risk factor. Price indices Price index coupon rates (529) (12,901) (25,131) TR and TJLP TR and TJLP coupon rates (8) (16) Variable income Share prices 1,840 (455) (952) We stress that the variations in the scenarios are based on the expectation ofTrading and banking portfolio an immediate settlement of all of the Institution’s assets and liabilities, and may Fixed rate Fixed interest rates in reais 27 (10,190) (20,049) Exchange coupon Foreign currency coupon rates 131 (4,241) (9,139) not necessarily represent a loss or gain since it is a hypothetical situation. Foreign currency Exchange variation (553) (1,965) (3,577) Price indices Price index coupon rates 2,444 (4,269) (8,810) TR and TJLP TR and TJLP coupon rates (7) (177) (340) Variable income Share prices 1,840 (455) (952) In compliance with the classification criteria of the transactions addressed inBACEN Resolution 3464/07 and Circular 3.354/074 and in the Basel II Accord, thefinancial instruments of Banco Indusval & Partners are segregated between theTrading Portfolio (for trade) and the Banking Portfolio (structural). The sensitivity analysis considered the risk factor stress scenarios in all of theInstitution’s transactions. The high stress reference curve scenarios are generallyused when the Institution has a net debt exposure in a particular risk factor. Onthe other hand, the low risk reference curve scenarios are used when there is anet credit exposure in each risk factor considered for the analysis.
  • 69. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .69and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais6. Loan Operations - Indusval & Partners and Indusval & Partners Consolidated (a) Analysis of the loan portfolio by type of operation and allowance for loan losses December 31, 2011 LevelsTransactions AA A B C D E F G H TotalLoans and discounted bills 48,279 742,940 300,485 282,694 36,282 77,677 12,133 13,928 69,601 1,584,019Foreign currency financing 30,704 54,806 24,570 379 655 111,114BNDES / FINAME 58,290 101,868 42,882 1,065 1,448 1,417 206,970Consumer lending (CDC) - vehicles 463 107 159 123 204 107 66 592 1,821Other financing 376 376Total loan operations 48,279 832,397 457,266 350,681 37,849 77,881 13,688 13,994 72,265 1,904,300Advances on foreign exchange contracts 52,272 177,856 99,205 16,191 994 346,518Sales financing for non-operating assets 15,011 1,258 16,269Total credit 48,279 899,680 636,380 449,886 54,040 77,881 14,682 13,994 72,265 2,267,087Assignments with co-obligation 1,843 124 213 73 39 32 22 157 2,503CDC - Vehicles 1,843 124 213 73 39 32 22 157 2,503Total credit including assignments with co-obligation 48,279 901,523 636,504 450,099 54,113 77,920 14,714 14,016 72,422 2,269,590Guarantees provided (Note 19(a)) 79,702 49,458 10,662 139,822Total portfolio 48,279 981,225 685,962 460,761 54,113 77,920 14,714 14,016 72,422 2,409,412Allowance for loan losses 4,498 6,364 13,497 5,404 23,364 7,341 9,797 72,265 142,530Provision for credits assigned with co-obligation 9 1 6 7 12 16 15 157 223Total provision 4,507 6,365 13,503 5,411 23,376 7,357 9,812 72,422 142,753
  • 70. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .70and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais December 31, 2010 LevelsTransactions AA A B C D E F G H TotalLoans and discounted bills 47,803 483,849 264,431 324,255 83,153 61,840 37,517 18,649 32,042 1,353,539Foreign currency financing 7,208 25,881 18,852 51,941BNDES / FINAME 26,502 48,266 34,186 3,284 387 112,625Consumer lending (CDC) - vehicles 1,398 596 514 362 218 224 290 2,623 6,225Other financing 12,859 533 806 14,198Total loan operations 47,803 531,816 339,174 378,340 84,321 65,342 37,741 19,326 34,665 1,538,528Advances on foreign exchange contracts 117,509 137,228 38,199 23,301 316,237Sales financing of non-operating assets 8,300 1,486 9,786Total credit 47,803 657,625 477,888 416,539 107,622 65,342 37,741 19,326 34,665 1,864,551Assignments with co-obligation 6,781 2,814 598 238 153 101 849 837 12,371Loans 252 2,369 132 637 3,390CDC - vehicles 6,529 445 466 238 153 101 212 837 8,981Total credit including assignments with co-obligation 47,803 664,406 480,702 417,137 107,860 65,495 37,842 20,175 35,502 1,876,922Guarantees provided (Note 19(a)) 44,523 19,739 64,262Total portfolio 47,803 708,929 500,441 417,137 107,860 65,495 37,842 20,175 35,502 1,941,184Allowance for loan losses 3,288 4,779 12,496 10,762 19,603 18,870 13,528 34,665 117,991Provision for credits assigned with co-obligation 34 28 18 24 46 51 595 837 1,633Total provision 3,322 4,807 12,514 10,786 19,649 18,921 14,123 35,502 119,624 The allowance for loan losses recorded for the year was R$118,105 (2010 - R$49,008). The amount of loans written off against the allowance for loan losses was R$94,976 (2010 – R$62,778), and the amount of loans recovered was R$11,444 (2010 – R$7,921). At December 31, 2011, the portfolio of renegotiated loans amounted to R$228,708 (2010 - R$241,354).
  • 71. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .71and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (b) Analysis of loan operations by business sector 2011 2010 (e) Concentration of loansManufacturing 1,261,652 1,044,225 2011 2010Commercial 334,721 209,857Financial intermediaries 9,352 61,763 % %Other services 545,712 423,609 Customers Amount % accumulated Amount % accumulatedIndividuals (*) 118,153 137,468 10 largest customers 380,743 16.78 16.78 382,420 20.37 20.37 2,269,590 1,876,922 11th to 60th largest customers 725,924 31.98 48.76 590,790 31.48 51.85 61st to 160th largest customers 608,984 26.83 75.59 442,032 23.55 75.40 (*) Of the total balance of individuals, R$77,759 (December 31, 2010 - R$64,635) comprises middle market Other 553,939 24.41 100.00 461,680 24.60 100.00loans and R$40,394 (December 31, 2010 - R$72,883) retail loans. 2,269,590 1,876,922 (c) Analysis of loan operations by index (f) Analysis of loans classified from D to H 2011 2010 Only a portion of the total transactions rated from D to H in the following tableFixed rate 830,429 640,044Floating rate (Interbank Deposit Certificate (CDI)) 1,273,139 1,160,577 is past due for more than 60 days and is accordingly classified as non-performing.Reference rate (TR) / Basic financial rate (TBF) 3,154 3,035Other 162,868 73,266 The other transactions are performing normally but remain classified at these levels as a result of the criteria used for credit analysis. 2,269,590 1,876,922 2011 Level D E F G H Total (d) Analysis of loan operations by installment maturity Performing 31,715 69,518 11,909 2,773 2,981 118,896 2011 2010 Non- performing 22,398 8,402 2,805 11,243 69,441 114,289Overdue 54,113 77,920 14,714 14,016 72,422 233,185 From 15 to 60 days 22,902 14,928 From 61 to 180 days 19,789 27,823 More than 180 days 27,524 4,439 2010 70,215 47,190 Level D E F G H TotalMaturing Performing 97,314 59,231 10,288 10,969 16,831 194,633 Up to 90 days 831,155 686,944 Non- performing 10,546 6,264 27,554 9,206 18,671 72,241 From 91 to 180 days 433,714 343,438 From 181 to 360 days 338,460 248,493 107,860 65,495 37,842 20,175 35,502 266,874 More than 360 days 596,046 550,857 2,199,375 1,829,732 2,269,590 1,876,922
  • 72. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .72and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (g) Loan operations by segment (h) Loans – average balances and terms 2011 % % 2011 of portfolio 2010 of portfolio Average Average Total Number of Number of balance per balance per AverageMiddle market 1,571,841 69.25 1,538,538 81.97 amount customers contracts customer contract term In reais Loans and discounts 1,136,929 50.08 1,139,337 60.70 Loans, financing and Financing 376 0.02 14,198 0.76 discounted bills 1,548,526 BNDES / FINAME 155,201 6.84 99,933 5.32 Overdraft accounts 178,311 181 191 985 934 106 In foreign currency Loans 1,324,463 595 908 2,226 1,459 576 ACC / ACE / FINIMP 279,335 12.31 285,070 15.19 Discounted bills 45,752 1,081 1,265 42 36 126Corporate (*) 641,287 28.26 256,501 13.67 BNDES / FINAME 206,970 121 521 1,710 397 796 In reais Loans and discounts 411,221 18.12 160,701 8.56 ACC / ACE / FINIMP 457,632 98 332 4,670 1,378 201 BNDES / FINAME 51,769 2.28 12,692 0.68 In foreign currency ACC / ACE / FINIMP 178,297 7.86 83,108 4.43 Other 56,462 Loans and financing -Other 56,462 2.49 81,883 4.36 acquired 35,869 Loans and financing - acquired 35,869 1.58 56,891 3.03 CDC - vehicles 4,324 CDC - vehicles 4,324 0.19 15,206 0.81 Sales financing for non- Sales financing for non-operating assets 16,269 0.72 9,786 0.52 operating assets 16,269 2,269,590 1,876,922 2,269,590 (*) The segment referred to as “Corporate” by the Institution corresponds to transactions carried out with 2010corporate customers whose annual billings are predominantly in excess of R$400 million. This expansion ofthe Institution’s business platform commenced in July 2010 as a complement to its operations which have Average Average Total Number of Number of balance per balance per Averagetraditionally focused on middle market companies. amount customers contracts customer contract term Loans, financing and discounted bills 1,314,236 Overdraft accounts 145,064 274 288 529 504 110 Loans 1,124,975 579 1,079 1,943 1,043 589 Discounted bills 44,197 1,397 1,867 32 24 95 BNDES / FINAME 112,625 72 228 1,564 494 810 ACC / ACE / FINIMP 368,178 123 431 2,993 854 216 Other 81,883 Loans and financing - acquired 56,891 CDC - vehicles 15,206 Sales financing for non- operating assets 9,786 1,876,922
  • 73. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .73and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (i) Corporate customer guarantees 2011 Other Securities / Total Guaranteed by Monitored lien / types of Liens on Liens on shares / TotalTransactions transactions receivables warrants and CPRs lien properties vehicles CDB guaranteesLoans, financing and discounted bills Overdraft accounts 178,311 130,771 102 358 27,410 1,866 120 160,627 Loans 1,324,463 560,068 25,756 39,577 151,442 16,852 30,242 823,937 Discounted bills 45,752 45,752 45,752BNDES / FINAME 206,970 27,746 10,922 55,638 12,848 51,698 158,852ACC / ACE / FINIMP 457,632 56,503 73,962 47,433 16,996 194,894Other Loans and financing - acquired 35,869 35,869 35,869 CDC - vehicles 4,324 4,324 4,324 Sales financing of non-operating assets 16,269 16,268 16,268 2,269,590 856,709 110,742 159,274 191,700 74,740 47,358 1,440,523Percentage (%) 100.00 37.75 4.88 7.02 8.45 3.29 2.09 63.47 2010 Other Securities / Total Guaranteed by Monitored lien / types of Liens on Liens on shares / TotalTransactions transactions receivables warrants and CPRs lien properties vehicles CDB guaranteesLoans, financing and discounted bills Overdraft accounts 145,064 118,559 1,644 38 15,587 2,064 338 138,230 Loans 1,124,975 604,318 92,999 22,736 143,390 23,988 10,490 897,921 Discounted bills 44,197 44,197 44,197BNDES / FINAME 112,625 27,191 31,667 2,978 28,518 90,354ACC / ACE / FINIMP 368,178 74,840 49,534 20,542 41,889 186,805Other Loans and financing - acquired 56,891 56,891 56,891 CDC - vehicles 15,206 15,206 15,206 Sales financing for non-operating assets 9,786 9,786 9,786 1,876,922 925,996 144,177 84,769 161,955 69,776 52,717 1,439,390Percentage (%) 100.00 49.34 7.68 4.52 8.63 3.72 2.81 76.69
  • 74. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .74and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (j) Composition of assigned loans by type of loan and nature of risk 2011 7. Foreign Exchange Portfolio Indusval & Partners and Consolidated Amount of 2011 2010 Result of Asset the liabilityCategory Type assignment amount assumed Assets Exchange purchases pending settlement 405,483 313,537Loans with substantial retention of risks Loans Rights on sales of exchange 29,783 7,425and rewards CDC - vehicles 2,503 3,334 Advances in local currency (297) (1,246) Other 7,853 5,870 2,503 3,334 442,822 325,586 2010 Liabilities Exchange sales pending settlement 30,713 7,390 Amount of Liabilities for purchases of exchange 369,696 324,977 Result of Asset the liability Advances on foreign exchange contracts (338,665) (310,372)Category Type assignment amount assumed Other 7Loans with substantial transfer of risks 61,744 22,002and rewards Loans 107Loans with substantial retention of risks Loans 3,390 3,462and rewards CDC - vehicles 8,981 10,751 107 12,371 14,213 8. Other Receivables and Other Assets There were no new assignments with co-obligation for 2011, only the loading of (a) Other receivables - Sundry Indusval & Partnersloans assigned in prior years, accordingly no income was earned on these assignments. Indusval & Partners Consolidated 2011 2010 2011 2010 Deferred tax assets (Note 11(b)) 94,550 54,532 96,683 54,532 Debtors for purchase of assets (Note 6) 16,269 9,786 16,269 9,786 Credit instruments receivable 7,103 7,103 Deposits in guarantee 10,687 10,387 10,719 10,387 Taxes and contributions available for offset 1,415 1,099 1,499 1,139 Sundry debtors – local and other 3,137 1,468 3,441 1,415 133,161 77,272 135,714 77,259 Current assets 7,795 4,770 8,200 4,756 Long-term receivables 125,366 72,502 127,514 72,503
  • 75. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .75and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (b) Other assets – Indusval & Partners Consolidated 2011 2010 9. Permanent AssetsProperty 50,750 38,272Vehicles 10,131 4,991 (a) Investments in subsidiary and associated companies - Indusval & PartnersMachinery and equipment 1,367 275Other 3,801 Subsidiaries Associated companiesAllowance for losses (4,748) (1,915) BIM Serglobal Brasil Indusval Promotora Comércio Agrosec 61,301 41,623 S.A. CTVM de Vendas Cereais Sertrading Securitizadora (1) Ltda. Ltda. (2) S.A. (3) (4) TotalPrepaid expenses 2,403 2,381 Capital 13,838 500 20,788 41,351 2,097 63,704 44,004 Shares / quotas owned (number) 520 500 20,788 506,575 4,037 Equity 21,241 88 18,086 45,087 1,622Current assets 63,116 43,108Long-term receivables 588 896 Net income (loss) 2011 (553) 4 (30) 15,635 (475) Holding at December 31, 2011 (%) 100 100 100 17.73 23.07 Holding at December 31, 2010 (%) 51.15 100 Equity in the results 2011 (515) 4 186 1,056 (67) 664 Investment December 31, 2011 23,633 88 18,086 22,467 374 64,648 December 31, 2010 11,149 84 11,233
  • 76. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .76and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (1) Indusval S.A. Corretora de Títulos e Valores Mobiliários (Indusval & Partners Corretora) Sertrading’s capital comprised 2,857,104 shares, of which Banco Indusval S.A. On June 1, 2009, Serendipity acquired 254 common shares comprising 97.69% acquired 506,575. This investment represents a non-controlling interest of 17.73%of the voting capital and 48.85% of the total capital of the “Corretora”. The in the capital of Sertrading. Banco Indusval signed a shareholders’ agreementInstitution had 6 common shares and 260 preferred shares, corresponding to 2.31% with the current stockholders of Sertrading, regulating the rights related to (i) theof voting capital and 51.15% of the total capital of this brokerage company. Institution’s option to acquire the remaining capital of Sertrading within the next two years, (ii) the indication by the Institution of two members of Sertrading’s On June 15, 2011, Banco Indusval S.A. repurchased the shares owned by Serendipity Board of Directors and (iii) the power to veto specific decisions relating to certainfor R$13,000, and recorded goodwill of R$2,391 on the date of the acquisition. matters such as mergers and acquisitions and significant indebtedness, among others usual in this type of investment. (2) Serglobal Comércio Cereais Ltda. In April 2011, Banco Indusval S.A. acquired all of the quotas of Serglobal Banco Indusval also entered into an operating agreement with Sertrading, with aComércio Cereais Ltda., a company specialized in investments in agricultural five-year term, through which the Institution will have the right of first refusal in thesecurities with capital comprising 4,788,074 quotas, for the amount of R$1,900 acquisition of receivables of Sertrading, arising from their foreign trade operations.corresponding to that company’s equity on April 5, 2011, in line with its objectiveof competing in the Rural Product Note (CPR) market (Note 5 (b)). The financial statements considered for calculating equity in results of investees were those prepared as at November 30, 2011. In 2011, Serglobal’s capital was increased by an amount of R$16,000, through theissue of 16,000,000 new quotas, all of which were subscribed by Banco Indusval. (4) Brasil Agrosec Securitizadora On September 5, 2011, Banco Indusval acquired a stake in Brasil Agrosec (3) Sertrading S.A. Companhia Securitizadora through the subscription of 4,037 nominative common In the first half of 2011, Banco Indusval made an investment of R$25,000 shares in the amount of R$513. The financial statements considered for calculatingthrough the subscription of common shares as a capital increase in Sertrading, equity in results of investees were those prepared as at November 30, 2011.one of the largest foreign trade logistics and service companies in Brazil. Thecompany’s equity on the acquisition date was R$7,616 and goodwill for future (b) Intangible assetsprofitability on acquisition was determined in the amount of R$17,384. Goodwillis amortized based on a technical study and recognized in the “Other operating (i) Goodwill on acquisition of subsidiary and associated companiesexpenses” account in the statement of operations. The Institution acquired the shares of the brokerage company in June 2011 and once again became the sole holder of this company’s shares. This purchase
  • 77. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .77and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reaisgenerated goodwill of R$2,391 on the date of the acquisition and was classified in 2010the Investments account in the parent company’s balance sheet and transferred to Term (in days)Intangible assets account on a consolidated basis. This goodwill is not amortized Deposits, funds obtained No stated From 91 to From 181 More thanbut is tested for impairment at least annually. and onlendings maturity Up to 90 180 to 360 360 Total Demand 47,682 47,682 (ii) Other intangible assets Interbank 29,894 65,187 10,312 11,088 116,481 Time (*) 248,088 280,407 138,638 663,853 1,330,986 Refers to the purchase of the Rural Credit Notes (CPR) business activity for the Other 471 471amount of R$13,100 and the seller’s commitment not to compete over a period Total deposits 48,153 277,982 345,594 148,950 674,941 1,495,620of 10 years, which is also the period over which the amount will be amortized. In Agribusiness and financial2011, an amount of R$983 was recorded as amortization in income. letters of credit 37,540 8,204 28,904 7,345 81,99310. Local onlendings 10,819 11,594 20,884 84,354 127,651 Deposits, Funds Obtained and Onlendings Foreign borrowings 138,681 154,282 31,837 549 325,349 (a) Analysis of deposits, funds obtained abroad and onlendings by 48,153 465,022 519,674 230,575 767,189 2,030,613maturity - Indusval & Partners Consolidated (*) Of total time deposits at December 31, 2011, R$748,055 (2010 - R$591,037) comprises time deposits (CDB) with special guarantee (DPGE). 2011 Term (in days) (b) Analysis of major customers – time depositsDeposits, funds obtained No stated From 91 to From 181 More thanand onlendings maturity Up to 90 180 to 360 360 Total 2011 2010Demand 53,435 53,435 % %Interbank 14,645 33,166 37,864 2,804 88,479 Customers Amount % Accumulate Amount % AccumulateTime (*) 271,145 233,370 147,533 838,990 1,491,038 10 largest customers 264,421 17.73 17.73 274,550 20.63 20.63Total deposits 53,435 285,790 266,536 185,397 841,794 1,632,952 11th to 60th largest customers 593,399 39.79 57.52 538,301 40.44 61.07 61st to 160th largestAgribusiness and financial customers 445,966 29.91 87.43 373,548 28.07 89.13letters of credit 133,013 61,656 23,548 218,217 Other 187,252 12.57 100.00 144,587 10.87 100.00Local onlendings 14,057 18,617 48,737 136,816 218,227 1,491,038 1,330,986Foreign borrowings 164,914 165,674 86,687 46,504 463,779 53,435 597,774 512,483 344,369 1,025,114 2,533,175
  • 78. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .78and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (c) Funds obtained in the market (b) Changes in deferred tax assets Indusval & Partners and Consolidated 2011 2010 2011 2010 Opening balance 54,532 60,286Own portfolio 747,830 538,580 Financial Treasury Bills (LFT) 10,609 234,607 Additions (reductions) 40,018 (5,754) National Treasury Bills (LTN) 487,084 123,900 Federal Treasury Notes (NTN) 250,137 180,073 Total deferred tax assets (Note 8) 94,550 54,532Unrestricted portfolio 120,066 Deferred tax liabilities (Note 12 (c)) (2,779) (1,143) LTN 120,066 Deferred tax assets, net of deferred tax liabilities 91,771 53,389 867,896 538,580 Percentage of equity 15.90 12.5211. Income Tax and Social Contribution – Indusval & Partners (c) Projected realization of deferred tax assets Balance at (a) Calculation of benefit (expense) December 31, Up to From 361 From 721 More than 2011 360 days to 720 days to 1800 days 1800 days 2011 2010 Allowance for loan losses 60,798 47,792 4,902 6,756 1,348Profit (loss) before income tax and social contribution and after Tax losses (IRPJ and CSLL) 27,660 4,200 5,460 18,000profit sharing and contributions (70,129) 33,946 Adjustment to market value 2,149 2,149Provision for income tax and social contribution at the Other 3,943 2,373 1,570statutory rates (40%) (28,052) 13,578Effect of additions and deductions in the calculation of taxes 94,550 56,514 11,932 24,756 1,348Investments in subsidiary and associated companies (266) (63)Interest on own capital paid (Note 13(e)) (11,136) (10,045)Other 1,070 1,467Income tax and social contribution benefit (expense) (d) Estimates of realizationfor the period (38,384) 4,937 The Institution’s management, based on a technical study which considersAllowance for loan losses 9,948 (7,292) the continuation of the history of profitability and the generation of future taxProvision for tax risks and contingencies 1,166 1,986Mark-to-market adjustment – securities and derivatives (174) 461 liabilities, estimates the realization of the deferred tax assets within a maximumIncome tax and social contribution losses 27,660Amortization of goodwill 620 period of five years. The present value of the deferred tax assets, based on theShare-based compensation 1,362 Long-term Interest Rate (TJLP), is R$84,854.Other (2,198) (92)Total 38,384 (4,937)
  • 79. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .79and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais12. Other Liabilities •• Corporate Income Tax (IRPJ) credit compensation in the amount of R$3,774, arising from overpayments resulting from the recalculation of the effects of discontinuing the suit related to Law 8.200. (a) Negotiation and intermediation of securities Indusval & Partners •• Services Tax (ISS) levied on income from the trading of marketable securities in Indusval & Partners Consolidated the Commodities Exchange, in the amount of R$3,826 (case distributed in 1988) 2011 2010 2011 2010 •• Voluntary disclosure involving interest on arrears of IRPJ, Social ContributionCreditors – pending settlement account 45,759 123,856 24,637 107,188Clearing house account 44,308 23,736 on Net Income (CSLL), Social Integration Program (PIS) and Social ContributionCreditors for share loans 80,012 63,432 80,012 63,432 on Revenues (COFINS), in the amount of R$2,950.Transactions with financial assets to be settled 178Other liabilities – negotiation and •• Challenging the levying of IRPJ and CSLL on the indexation, in the reserve account,intermediation of securities 511 510Other 1,511 782 of exchange membership certificates of BMF S.A. and Bovespa S.A., arising from 126,282 187,288 150,978 195,316 demutualization, in the amount of R$16,526 in Indusval S.A. – CTVM. •• Challenging the levying of PIS and COFINS on the sale of shares of BMFBovespa S.A., arising from the conversion of shares of CBLC, in the amount of R$1,503 (b) Provision for contingent assets and liabilities in Indusval S.A. – CTVM. In the normal course of its activities, the Institution is involved in thefollowing contingencies: (c) Taxes and social security – legal obligations 2011 2010 Indusval & Indusval & (i) Contingent assets Partners Consolidated Partners Consolidated No contingent assets were recognized, and there are no significant lawsuits Taxes and contributions on profits 1 18classified as of probable realization. Taxes and contributions payable 4,401 4,894 4,283 4,456 Deferred taxes and contributions (Note 11(b)) 2,779 2,932 1,143 1,328 Legal obligations 4,731 4,731 4,319 4,319 (ii) Contingent liabilities 11,911 12,558 9,745 10,121 Contingencies classified as probable are generally recorded as a provision and Current liabilities 4,401 4,895 4,283 4,474amount to R$1,570 at December 31, 2011. The most significant are as follows: Long-term liabilities 7,510 7,663 5,462 5,647•• Sundry labor claim sentences in the amount of R$1,184•• Sundry civil suit sentences in the amount of R$386 Contingencies classified as possible do not need to be recorded as a provisionpursuant to legislation. The Institution and its subsidiaries are parties to thefollowing lawsuits presenting risk of possible loss:
  • 80. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .80and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais Changes in legal obligations for the year may be summarized as follows: On March 23, 2011, approval was given by the Board of Directors for a capital increase in Banco Indusval, through the private subscription of shares, up to theOpening balance at December 31, 2010 4,319 limit of authorized capital, in the total amount of up to R$289,215 with the possibility of partial ratification in the event of a subscription of at least R$200,999.Activity for the period reflected in resultsAmount recorded 412 This increase will consist of the issuance of up to 9,945,649 new common sharesClosing balance at December 31, 2011 4,731 and of up to 21,490,821 new preferred shares, identical to the current shares, at an issuance price of R$9.20 per share, through the partial assignment of the preemptive right of the Institution’s controlling stockholders and that of other The balance comprises the following: related stockholders. Up to December 31, 2011, the amount of R$201,413 was•• ISS - Complementary Law 116/03 - R$1,189: challenging the levying of this subscribed and paid up as follows: (i) Warburg Pincus, through WP X Fundo de tax on the means, instruments and stages of the financial transactions carried Investimento em Participações, subscribed common and preferred shares of the out by the Institution. Institution in the total amount of R$150,000, (ii) the stockholders of Sertrading•• PIS – R$1,688: declaration of the non-existence of a legal-tax relationship subscribed and paid up common and preferred shares of the Institution in the between the parties, regarding the application of Constitutional Amendment amount of R$30,000 and (iii) the Institution’s controlling stockholders subscribed 1/94 and Provisional Measure 636/94 (and successive republications), permitting and paid up common shares of the Institution in the total amount of R$21,413. the Institution to pay PIS contributions in accordance with the provisions of This capital increase was ratified by BACEN on September 2, 2011 and published Complementary Law 7/70. in the Official Gazette on September 8, 2011.•• INSS – SAT / FAP – R$1,853: challenging the increase in the Work Accident Insurance (SAT) rate and the accident prevention factor (FAP). In 2011, 56 preferred shares were repurchased for the amount of R$1 (2010 – 970,276 for the amount of R$13,051).13. Equity (b) Capital reserve (a) Capital Fully subscribed and paid-up capital comprises 63,105,693 shares, of which (i) Premium Warrants36,945,649 are common and 26,160,044 are preferred shares with no par value. As a result of the capital increase in the Institution, 19,779 preferred share warrants were issued and 19,622 were subscribed (at a unit price of R$14.39), At December 31, 2011, 746,853 preferred shares (December 31, 2010 – whereby each one will entitle holders with a share position at November 8, 2011,746,797 shares) were held in treasury. to subscribe one hundred preferred (PN) shares. The Institution’s stockholders are
  • 81. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .81and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reaisentitled to subscribe 0.00031717 of a warrant for each share held; accordingly, Alignment of interests: from this perspective, these shares and stock optionsa holder of 3,152 shares may subscribe one share warrant. The exercise price will serve to align interests, discourage speculative behavior, maximize good conductcorrespond to the net asset value of the PN share reported in the quarterly balance and achieve short, medium and long-term high-performance levels.sheet published prior to the date of exercise. These may be exercised at any time, Maximum number of shares covered and options granted:as from the date of acquisition up to their expiry on November 8, 2016. In theyear ended December 31, 2011, 19,622 warrants were subscribed, totaling R$282. Plan I: limited to a maximum number of options which result in a dilution of up to 1.25% of the Institution’s capital for each year of the Plan’s duration, observing (ii) Share-based compensation a maximum limit at any time of 5% of this capital. The dilution corresponds to the The following Stock Option Plans were approved for the Institution’s Directors percentage comprising the number of shares underlying the options, consideringand management-level employees, as well as individuals who provide services to all of the options granted in the Plan, already exercisable or not, by the totalthe Institution or the companies under its control: number of shares of the Institution.• • Stock Option Plan I approved at the Extraordinary General Meeting on March 26, 2008. Plan II: limited to the number of options which result in a maximum dilution• • Stock Option Plan II approved at the Extraordinary General Meeting of April 29, of up to 5% of the Institution’s capital, after BACEN’s ratification of the capital 2011 and amended at the Extraordinary General Meeting of December 22, 2011. increase approved by the Institution’s Board of Directors on March 23, 2011.• • Stock Option Plan III approved at the Extraordinary General Meeting of April 29, The dilution corresponds to the percentage comprising the number of shares 2011 and amended at the Extraordinary General Meeting of December 22, 2011. underlying the options considering all of the options granted in the Plan, already The Board of Directors, based on the recommendation of the Compensation exercisable or not, by the total number of shares of the Institution.Committee, establishes the Stock Option Plans and approves the half yearlyoption programs. Plan III: limited to the number of options comprising the subscription of 1,850,786 common shares and 1,850,786 preferred shares of the Institution. Main Objectives of the Stock Option Plans: (i) drive expansion andcompliance with the Institution’s established business goals, through the creation Exercise price: the exercise price of the options to be paid by the participantsof incentives that promote integration between plan participants and stockholders; shall be established in accordance with the following guidelines:(ii) enable the Institution to attract and retain participants, offering them, as anadditional benefit, the opportunity to become stockholders of the Institution; (iii)promote the achievement of good performance by the Institution and the interestsof the stockholders through a long-term commitment by the participants; and(iv) enable employees to take part in the Institution’s development, aligning theirinterests with those of the stockholders.
  • 82. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .82and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais subsequent anniversaries. At its own discretion, the Committee may in exceptional Plan I: circumstances shorten the vesting period of the options granted.Plan duration Exercise price Carrying amount of the Institution sharesFirst year (first program) awarded as options on grant date Plan I: the options may be exercised by the participant over the term established by the Committee for each Program and the maximum exercise term shall beFirst year (second program)Second year (third and fourth programs) Market value, as defined below five years, in Plan I, from the grant date of the options of each Program. TheThird year (fifth and sixth programs) Market value, as defined below Compensation and Benefits Committee may establish and communicate the termsAs from fourth year (as from seventh program) Market value, as defined below for the exercise of the options by the participants, so that Banco Indusval S.A. will have enough time to issue the new shares. The Investor Relations Officer may establish, at any time, additional restrictions on the exercise of the options on dates The Compensation and Benefits Committee may, at its own discretion, establish which precede the disclosure of any material facts by the Institution, including,an adjustment of up to 10% (either up or down) to the average price calculated but not limited to dates preceding the fiscal year-end closing and the publicationas established in the following paragraph, as well as determine that the exercise of the Institution’s financial statements, dates between decisions related to capitalprice should be adjusted for inflation, as from the date of its calculation, based increases, dividend payments, share bonuses or stock splits and the publicationon a price index to be defined by the Committee under each Program or even of the corresponding notices or announcements and other dates on which theestablish an exercise price with a pre-defined inflation adjustment. suspension of the exercise of the options is advisable. For purposes of the above rules, market value is considered as the average price, Plan II: the options may be exercised by the Participant over a maximum five-yearweighted by the number of trades, of the closing quotes of the Institution’s shares, term from May 1, 2011. The option term may be automatically extended for a furtherawarded as options, in BOVESPA, over the last fifteen trading sessions prior to the two years, to a total of seven years, provided that at no time during the five year periodgrant date of the option. counted from May 1, 2011, the average daily volume of trades of common shares of the Institution, in 180 days, is seen to exceed R$2,000 (ON Liquidity Criteria) at the trading Plan II: the option exercise price shall be R$4.60 for each share, subscribed sessions of the São Paulo Stock, Commodities and Futures Exchange (BM&FBOVESPA),and paid-up. excluding, for purposes of this calculation, any sales by stockholders participating in the control block in transactions considered as block trades. Plan III: the option exercise price shall be R$0.92 for each share subscribedand paid up. Plan III: provided that the vesting rules above are observed, the options may be exercised by the participant over a seven-year term from May 1, 2011. The exercise Vesting: the Committee will establish the inception of vesting which will occur in of the options, within the exercise period, may occur from May 1 to May 5 and fromthree annual, equal and consecutive installments of 33.33%, the first of which to be November 1 to November 5 of each year, unless otherwise established by decision ofdefined in the minutes of the Committee Meeting and the remaining two as from the the Committee.
  • 83. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .83and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais Term: Transfer restrictions: the Plan options will be granted to the beneficiaries on Plan I: four years from its approval at the Institution’s General Meeting held a strictly personal basis and may not be pledged, assigned or transferred to thirdon March 26, 2008. parties, except (i) in the event of death, as explicitly established in the Plan and (ii) if the Committee at its own discretion, authorizes the transfer of vest or unvested Plan II: the Plan comes into force immediately after its approval by the options between the participants of an options Program.Institution’s Extraordinary General Meeting and will have a five-year term countedfrom its approval at the Institution’s General Meeting held on April 29, 2011. Westress however that the Plan’s term may be automatically extended to seven years,under the terms of Clause 10.2 of this plan. Plan III: the Plan comes into force immediately after its approval by theInstitution’s Extraordinary General Meeting and will have a five-year term countedfrom its approval at the Institution’s General Meeting held on April 29, 2011. Expiry of Options: the options which remain unexercised during the exerciseperiod shall automatically and lawfully expire, irrespective of any prior notice orindemnification. Should the final authorized exercise date established during theoption period coincide with a period during which the trading of securities of theInstitution is prohibited, pursuant to its Policy for Disclosure of Material Eventsor Facts or applicable legislation, the option period shall be extended until thefollowing date established by the Committee for exercise of the options. Effects of withdrawal: options whose holders resign or who are terminatedfrom Banco Indusval S.A. and / or its subsidiaries and cease to hold executivefunctions in any member company of this Group will be lawfully cancelled inadvance. The options of officers will be cancelled on the date on which they ceaseto hold office, either by resignation or at the initiative of the body that electedthem. In the case of an employee, the options will be cancelled on the date theemployment agreement is terminated.
  • 84. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .84and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais Eight stock option grants were made as described below: Number Vesting Fair value at grant date Exercise Grant date Plan (*) - in reais price (in reais) Number granted Exercised Expired Un-exercised % exercisable From: 33.33% 07/22/2009 07/22/2008 I 7.293 10.07 161,896 161,896 66.66% 07/22/2010 100.00% 07/22/2011 33.33% 02/10/2010 02/10/2009 I 3.08 5.06 229,067 25,600 10 203,457 66.66% 02/10/2011 100.00% 02/10/2012 33.33% 02/22/2011 02/22/2010 I 4.62 8.56 525,585 69,482 456,103 66.66% 02/22/2012 100.00% 02/22/2013 33.33% 08/06/2011 08/06/2010 I 3.94 7.72 261,960 25,639 236,321 66.66% 08/06/2012 100.00% 08/06/2013 33.33% 02/09/2012 02/09/2011 I 3.79 8.01 243,241 32,023 211,218 66.66% 02/09/2013 100.00% 02/09/2014 33.33% 05/01/2012 07/01/2011 II 4.72 4.6 1,167,463 126,212 1,041,251 66.66% 05/01/2013 100.00% 05/01/2014 33.33% 05/01/2012 12/23/2011 II 2.55 4.6 435,322 435,322 66.66% 05/01/2013 100.00% 05/01/2014 33.33% 05/01/2012 12/23/2011 III 5.48 0.92 1,850,786 1,850,786 66.66% 05/01/2013 100.00% 05/01/2014 4,875,320 25,600 253,366 4,596,354 (*) Plans I and II have a vesting period of three years and maximum exercise term of five years, and Plan III has a vesting period of three years and a maximum exercise term of seven years.
  • 85. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .85and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais The Black-Scholes method was used for option pricing. The data and In 2011, an amount of R$3,405 (2010 – R$1,433) was recorded as expenseassumptions used under this model were as follows: for benefits against the capital reserve related to the incentive stock option plan. (a) option calculation date; (c) Revaluation reserve (b) option expiry date; The Institution carried out a revaluation of properties in the first half of 2005 (c) fixed rate projected by BMF DI futures for the term of the option = risk-free rate; (properties in use), based on an appraisal report issued by qualified experts, (d) average price weighted by the trading volume of shares over the prior 15 days; approved by the stockholders at an Extraordinary General Meeting. (e) option exercise price corresponds to the price of the share at its net asset value; (f) volatility is that disclosed by BM&FBOVESPA for a one-year period. When this In 2011, a portion of the revalued property was sold for the amount of R$3,040information is unavailable, the EWMA method is used with a lambda of 0.94 and and a gain was determined in the amount of R$1,536.252 samples for calculating the expected volatility; (g) under this model, expected dividends are not considered, as the dividends The revaluation reserve, for own assets and those of the associated companies,paid will be subtracted from the exercise price over the option term. is realized based on the depreciation, disposal or sale of the corresponding revalued assets, through transfers to retained earnings, net of the tax effects. The realized The Black-Scholes model does not account for the early exercise of a stock reserve for 2011 was R$539. The balance of the reserve is R$1,389.option, since over the life of the option it will be more favorable to sell rather thanexercise the option. Accordingly, when the binomial model is used, which takes (d) Revenue reserves and accumulated deficitinto account the early exercise dates, the fair value of the option is the same as The Institution’s by-laws provide for the appropriation of annual net income tothat determined using the Black-Scholes model. the following reserves: (a) reserve for equalization of dividends for the purpose of ensuring the regular payment of dividends to stockholders, and (b) the reserve We present below the fair values of the options at December 31: for working capital reinforcement to ensure that the Institution has the financial means for its continued operation.Grants 2011 2010July 22, 2008 4.96 2.67 The loss reported for 2011 was absorbed by the revenue reserves (legal reserve -February 10, 2009 5.31 5.56February 22, 2010 5.92 3.25 R$11,853 and statutory reserve - R$43,959), and accordingly there are no balancesAugust 6, 2010 6.17 3.72February 9, 2011 6.40 recorded in these accounts and the additional balance of loss was recorded in theJuly 1, 2011 6.48 accumulated deficit account in the amount of R$3,233.December 23, 2011 6.65December 23, 2011 6.65
  • 86. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .86and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (e) Dividends and interest on own capital (b) Private pension plan The Institution’s by-laws provide for the distribution of a minimum annual Banco Indusval S.A. and its subsidiaries offer their employees a supplementarydividend of 25% of net income adjusted in accordance with Article 202 of Law pension plan with a defined contribution, managed by a private entity. The6404/76 and subsequent amendments. program commenced in September 2008, and is sponsored by the Institution and its subsidiaries and employees. During the year ended December 31, 2011, During the year ended December 31, 2011, interest on own capital was contributions totaled R$499 (2010 - R$526) in Banco Indusval and R$550 (2010approved and paid in the total amount of R$27,839 (2010 – R$25,113), calculated - R$550) on a consolidated basis.based on the Long-term Interest Rate (TJLP), pursuant to Article 9 of Law 9.249/95and recognized for tax purposes as a financial expense. The tax benefit arising (c) Contributions and profit sharingfrom this distribution was R$11,136 (2010 - R$10,045). Since 2006, the Institution has adopted its own model for the payment of profit sharing using criteria and parameters established in accordance with the agreement approved by the Ministry of Labor. It has also established the payment14. Employee Benefits of profit sharing to the officers. (a) Personnel 2011 Banco Indusval & Serglobal Indusval & Partners ComércioEmployees Partners Corretora Cereais TotalOperational 200 13 2 215Support and control 188 18 206 388 31 2 421 2010 Banco Indusval Indusval & PartnersEmployees & Partners Corretora TotalOperational 165 12 177Support and control 169 16 185 334 28 362
  • 87. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .87and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais15. Analysis of the accounts in the Statement of Operations (a) Income from financial intermediation (b) Expenses for financial intermediation Years ended December 31 Years ended December 31 2011 2010 2011 2010 Indusval & Indusval & Indusval & Indusval & Partners Consolidated Partners Consolidated Partners Consolidated Partners ConsolidatedLoan operations 283,461 283,461 267,535 267,535 Funds obtained in the open market (325,111) (324,069) (200,367) (200,017) Advance to depositors 291 291 104 104 Interbank deposits (11,504) (10,971) (6,307) (5,939) Loans 239,927 239,927 225,735 225,735 Time deposits (181,240) (180,696) (140,308) (140,301) Discounted bills 7,586 7,586 10,493 10,493 Purchase and sale commitments (117,262) (117,297) (50,762) (50,787) Financing 23,835 23,835 23,282 23,282 Agribusiness letters of credit (14,158) (14,158) (2,845) (2,845) Recovery of receivables 11,822 11,822 7,921 7,921 Financial notes (947) (947) (145) (145)Results of securities 255,463 258,182 110,805 113,008 Loans, assignments and onlendings (137,007) (137,007) (63,542) (63,542) Short-term interbank investments 50,014 50,014 23,940 23,940 Local borrowings (346) (346) (60) (60) Fixed income securities 122,645 124,066 61,674 61,714 Foreign borrowings (126,859) (126,859) (50,426) (50,426) Variable income securities 84,931 86,235 24,977 27,164 Local onlendings (PSH) (850) (850) (1,182) (1,182) Investment funds 40 40 308 308 Local onlendings (BNDES) (3,573) (3,573) (6,869) (6,869) Mark-to-market adjustment - securities (2,171) (2,177) (96) (120) Local onlendings (FINAME) (5,379) (5,379) (5,005) (5,005) Foreign investments 4 4 2 2 Allowance for loan losses (118,105) (118,105) (49,008) (49,008)Results of derivative financial instruments (38,923) (38,246) 10,596 11,546 Loan operations and other receivables (118,105) (118,105) (49,008) (49,008) Swap 2,063 2,134 49 791 Futures (40,847) (40,239) 7,473 7,693 (580,223) (579,181) (312,917) (312,567) Options (4,033) (4,035) (325) (337) Forward 3,894 3,894 3,399 3,399Results of foreign exchange 128,261 128,261 61,685 61,685 Export 24,451 24,451 24,383 24,383 Import 1,216 1,216 1,242 1,242 Financial (88) (88) (180) (180) Rate variations 100,719 100,719 33,350 33,350 Funds available in foreign currency 1,963 1,963 2,890 2,890 628,262 631,658 450,621 453,774
  • 88. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .88and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (c) Revenues from services rendered and bank charges (e) Other administrative expenses Years ended December 31 Years ended December 31 2011 2010 2011 2010 Indusval & Indusval & Indusval & Indusval & Partners Consolidated Partners Consolidated Partners Consolidated Partners ConsolidatedManagement of funds 59 510 98 524 Water, electricity and gas (352) (366) (335) (345)Collection 2,632 2,632 2,847 2,847 Rents (3,001) (3,603) (1,404) (1,727)Transfer of funds 31 31 30 30 Communications (2,382) (3,287) (2,560) (2,854)Guarantees provided 1,280 1,280 1,271 1,271 Social responsibility (348) (348) (345) (345)Custody services 8 1 68 Maintenance and repair of assets (535) (607) (589) (674)Stock exchange brokerage services 11,621 6,187 Material (258) (284) (226) (239)Other services 1,345 3,845 336 1,827 Data processing (2,220) (3,323) (1,480) (2,174) Promotions and public relations (1,060) (1,125) (379) (407) 5,347 19,927 4,583 12,754 Advertising and publicity (96) (101) (1) Publications (573) (641) (521) (558)Bank charges 851 851 982 982 Insurance (234) (248) (141) (146) Financial system services (3,044) (4,155) (2,628) (3,042) 6,198 20,778 5,565 13,736 Third-party services (10,743) (18,414) (10,986) (15,554) Surveillance and security (88) (91) (252) (258) Specialized technical services (4,486) (4,750) (4,169) (4,309) (d) Personnel expenses Transportation (859) (886) (487) (502) Travel (1,539) (1,588) (1,282) (1,319) Years ended December 31 Other (6,108) (6,577) (4,592) (4,945) 2011 2010 (37,926) (50,394) (32,376) (39,399) Indusval & Indusval & Partners Consolidated Partners ConsolidatedSalaries (33,760) (36,216) (26,295) (27,714) (f) Tax expensesFees (7,350) (8,579) (6,926) (7,628)Benefits (10,562) (11,419) (8,011) (8,550) Years ended December 31Social charges (13,128) (14,260) (11,379) (12,040) 2011 2010Training (785) (796) (365) (371)Interns (396) (424) (148) (175) Indusval & Indusval & Partners Consolidated Partners Consolidated (65,981) (71,694) (53,124) (56,478) Service tax (ISS) (319) (989) (290) (681) Social integration program (PIS) (1,023) (1,142) (1,207) (1,288) Social contribution on revenues (COFINS) (6,297) (7,031) (7,432) (7,916) Other (3,684) (4,029) (5,392) (5,434) (11,323) (13,191) (14,321) (15,319)
  • 89. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .89and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais16. Operating Limits – Indusval & Partners Consolidated Assets (liabilities) 2011 Income (expenses) Assets (liabilities) 2010 Income (expenses) At December 31, 2011, the Institution’s Basel ratio was 18.20% (2010 – Demand deposits (2,536) (116) Time deposits (12,041) (418) (74) (4)17.59%), calculated based on the consolidated financial information. Interbank deposits (12,815) (311) (3,295) (180) Negotiation and intermediation of securities (31,137) (25,263) (60) Intangible assets 13,100 2011 2010Reference equity (PR) 574,744 426,425 (b) Compensation of key management personnelTier I 569,104 423,050 2011 2010 Equity 577,135 426,425 Revaluation reserves (1,389) (1,928) Short-term benefits 8,458 7,259 Mark-to-market adjustments (6,642) (1,447) Long-term benefits 56 101 Share-based compensation 2,784 1,121Tier II 8,031 3,375 Revaluation reserves 1,389 1,928 11,298 8,481 Mark-to-market adjustments 6,642 1,447Deduction PR 2,391 (c) Other transactions with related parties - intergroup contract balancesRequired regulatory capital (PRE) 347,466 266,649 Credit risk 303,898 245,411 Market risk 34,279 5,289 Contract objective and Operational risk 9,289 15,949 Link with company characteristics 2011 2010Surplus PR 227,278 159,776 Directors Demand deposits 156 454 Time deposits: 14% p.a. fixed rateBasel ratio 18.20 17.59 and from 105% to 115% of CDI after grace period 30,817 27,187 LCA: from 100% to 103% of CDI at maturity 12,522 19,04717. Related Parties Companies linked to directors Demand deposits Time deposits: from 104% to 115% 2,630 202 of CDI after grace period 19,416 23,747 (a) Subsidiaries People linked to directors Demand deposits 474 648 The transactions between the parent company and its subsidiaries were carried out Time deposits: from 104% to 115%at normal market rates and terms on a commutative basis, and comprise the following: of CDI after grace period 32,125 22,408 LCA: 103% of CDI at maturity 8,786 10,837 Associated companies Demand deposits 2 106.928 104.530
  • 90. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .90and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais (c) Free cash - Indusval & Partners Consolidated18. Management of Investment Funds 2011 2010 2011 2010 Cash 45,455 7,081 Short-term interbank investments 305,833 44,648Valeu FIM, Crédito Privado, Investimento no Exterior Marketable securities 1,403,898 1,219,684e Longo Prazo 10,048 21,161 Funds obtained in the open market (867,896) (538,580)Comercial Master FIA 4,611 7,600Agrisus FIA Investimentos no Exterior 5,616 5,484 Free cash 887,290 732,833GSS FIM, Crédito Privado, Investimento no Exteriore Longo Prazo 6,426 4,988Stock FIM, Credito Privado, Investimento no Exterior (d) Financial instruments - Indusval & Partners Consolidatede Longo Prazo 4,863Multi FI Renda Fixa Indusval Crédito Privado 3,675 3,765 2011 2010 Carrying Market Carrying Market 35,239 42,998 amount value amount value Assets19. Interbank deposits 76,139 76,139 21,901 21,901 Investments in foreign currency 240 240 Supplementary Information Marketable securities 1,403,898 1,403,898 1,219,684 1,219,684 Loan operations (a) Guarantees and sureties Originated loans 1,771,765 1,762,557 1,433,257 1,410,838 2011 2010 Trade finance 457,632 463,084 368,178 367,113 Purchased credits 35,869 36,140 56,891 56,383Sureties – financial institutions 41,067 29,705 CDC - vehicles 1,821 2,099 6,225 7,636Sureties – individuals and non-financial companies 85,339 33,706Loans for imports 13,416 851 Derivatives 139,822 64,262 Interest rate 1,988,750 1,988,750 70,553 70,553 Currencies (futures) 71,542 71,542 1,691 1,691 Indices 22,840 22,840 Swaps 25,946 25,946 9,814 9,814 (b) Indusval & Partners Corretora Forward 10,852 10,852 28,281 28,281 The subsidiary Indusval & Partners Corretora operates as an intermediary in Options 2,448 2,448 3,478 3,478the trading of contracts in the forward, futures and options markets totaling Liabilities Interbank deposits 88,479 88,708 116,481 116,618R$9,120,494 in 2011 (2010 - R$9,002,468). It is also responsible for the custody of Time deposits 1,491,038 1,495,279 1,330,986 1,329,780 Agribusiness and financial letters of credit 218,217 174,478 81,993 81,993customers’ securities totaling R$844,692 in 2011 (2010 - R$1,020,985), deposited Onlendings 218,227 218,227 127,651 127,637with the Brazilian Clearing and Depositary Corporation (CBLC). Foreign liabilities 463,779 464,266 325,349 326,257 Share loans 80,012 80,012 63,432 63,432 Equity securities (short sales) 5,499 5,499 73,928 73,928 Derivatives Interest rate 1,043,493 1,043,493 635,652 635,652 Currencies (futures) 91,817 91,817 75,899 75,899 Financial assets and merchandise 21,703 21,703 Swaps 12,014 12,014 2,744 2,744 Forward 8,737 8,737 27,960 27,960 Options 3,875 3,875 3,480 3,480
  • 91. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .91and Subsidiaries (Indusval & Partners Consolidated)Notes to the Financial Statementsat December 31, 2011 and 2010 (Continuation) In thousands of reais The market value of the financial instruments was calculated based on the (f) Insurance coveragefollowing parameters: Banco Indusval has insurance contracts to cover risks related to property and equipment. Management considers the amount sufficient to cover potential losses.•• Interbank deposits: calculated in accordance with the investment curve•• Marketable securities: determined based on the prices disclosed by ANBIMA for (g) New name of the Institution the established date The Institution has adopted the trade name of Banco Indusval & Partners, while•• Loan operations, interbank deposits, time deposits, foreign liabilities, onlendings maintaining Banco Indusval S.A. as its company name. and agribusiness and financial letters of credit: calculated based on the monthly average rate of the last month of the year for each type of transaction•• Derivatives, purchased credits and funds obtained through options: market value was determined based on the internal pricing model, using data supplied by BM&FBovespa as parameters. (e) Service agreement – CVM Instruction 381 The policy of the Institution and its subsidiaries for contracting services unrelated tothe external audit from the independent auditors is based on the applicable regulationsand on internationally accepted principles which safeguard the independence of theauditors. These principles establish that the auditors: (i) should not audit their ownwork; (ii) should not perform managerial functions for their clients; and (iii) shouldnot promote the interests of their clients. During 2011 and 2010, the independent auditors and related parties did not renderservices unrelated to the external audit at a level higher than 5% of the total feesrelated to external audit services.
  • 92. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .92and Subsidiaries (Indusval & Partners Consolidated)(A free translation of the original in Portuguese) São Paulo (SP), February 15, 2012STATEMENT T . he undersigned members of the Executive Board of Banco Indusval S.A., under the terms of Article 25 paragraph 1 item V of CVM Instruction 480 dated December 7, 2009, STATE that to the best of their knowledge and based on the work plan presentedby the independent auditors and the discussions held on the results of the auditing process, they agree with the opinion issued byPricewaterhouseCoopers Auditores Independentes.JAIR RIBEIRO DA SILVA NETO LUIZ MASAGÃO RIBEIROCPF / MF 022.718-058-56 CPF / MF 525.253.688-00CLAUDIO ROBERTO CUSIN ELIEZER LIZARDO R. DA SILVACPF / MF 051.156.318-30 CPF / MF 054.523.998-28GILBERTO BARSHAD FAIWICHOW JAIR DA COSTA BALMACPF / MF 014.509.978-48 CPF / MF 783.929.188-00ANDRE JACINTHO MESQUITA FRANCISCO PAULO COTE GILCPF / MF 071.767.968-31 CPF / MF 364.203.608-20KATIA AP. ROCHA MORONICPF / MF 049.415.308-37
  • 93. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .93and Subsidiaries (Indusval & Partners Consolidated)(A free translation of the original in Portuguese) São Paulo (SP), February 15, 2012STATEMENT T . he undersigned members of the Executive Board of Banco Indusval S.A., under the terms of Article 25 paragraph 1 item VI of CVM Instruction 480 dated December 7, 2009, STATE that they revised the Financial Statements of Banco Indusval S.A. for thesecond half and fiscal year ended December 31, 2011 and based on the discussions held, they agree that the Financial Statementsadequately reflect the relevant aspects and the financial position of the Bank for the period reported.JAIR RIBEIRO DA SILVA NETO LUIZ MASAGÃO RIBEIROCPF / MF 022.718-058-56 CPF / MF 525.253.688-00CLAUDIO ROBERTO CUSIN ELIEZER LIZARDO R. DA SILVACPF / MF 051.156.318-30 CPF / MF 054.523.998-28GILBERTO BARSHAD FAIWICHOW JAIR DA COSTA BALMACPF / MF 014.509.978-48 CPF / MF 783.929.188-00ANDRE JACINTHO MESQUITA FRANCISCO PAULO COTE GILCPF / MF 071.767.968-31 CPF / MF 364.203.608-20KATIA AP. ROCHA MORONICPF / MF 049.415.308-37
  • 94. Banco Indusval S.A . (Indusval & Partners) and Banco Indusval S.A . 2011 A nnual Report .94and Subsidiaries (Indusval & Partners Consolidated)(A free translation of the original in Portuguese) São Paulo (SP), February 15, 2012FISCAL BOARD OPINION T .  he Fiscal Board of Banco Indusval S.A., in compliance with legal and statutory provisions, reviewed the Management Report and Financial Statements for the year ended December 31, 2011. Based on the examinations performed, also considering the report ofthe independent auditors, PricewaterhouseCoopers Auditores Independentes, dated February 15, 2012, as well as the information andexplanations received during the year, believes that these documents are adequate to be submitted to the Annual Shareholders Meeting.FRANCISCO DE PAULA DOS REIS JUNIORMEMBERJAIRO DA ROCHA SOARESMEMBERLUIZ ALBERTO DE CASTRO FALLEIROSMEMBER
  • 95. 2011 A nnual Report .95CORPORATE INFORMATIONInvestor RelationsEmail: ri.indusval@indusval.com.brwebsite: www.bip.b.br/irStock and Securities Trading MarketBM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros(São Paulo Stock, Commodities and Futures Exchange).Level 2 Corporate GovernanceTickers: IDVL3 and IDVL4Independent AuditorsPricewaterhouseCoopers Auditores IndependentesDisclosure of InformationDiário Oficial do Estado de São PauloFolha de São Paulowww.bip.b.br/irBanco Indusval S/AHeadquartersRua Iguatemi, 151 – 6º floorPostal Code: 01451-011 – São Paulo – SPPhone: (55 11) 3315-6777Fax: (55 11) 3315-6911Customer Service/ Ombudsman: 0800 7040418OfficesRua Boa Vista, 356 – 5º to 12º floorPostal Code: 01014-000 – São Paulo – SPPhone: (55 11) 3315-6777Fax: (55 11) 3315-2894
  • 96. 2011 A nnual Report .96BRANCHES Indusval S.A. Corretora de Tîtulos e Valores ImobiliáriosCampinas Campo Grande MatrizAv. José Bonifácio Coutinho Nogueira, 150 Rua Alberto Néder, 328 – room 91 Rua Boa Vista, 356 – 7º floor6º floor – room 603 Postal Code: 79002-160 – Campo Grande – MS Postal Code: 01014-000 – São Paulo – SPPostal Code: 13091-611 – Campinas – SP Phone: (55 67) 2106-3950 Phone: (55 11) 3315-6777Phone: (55 19) 3306-1900 Fax: (55 67) 2106-3966 Fax: (55 11) 3315-2894Fax: (55 19) 3207-3654 Porto Alegre FiliaisGoiânia Rua Furriel Luiz Antonio Vargas, 250 – room 802 São PauloAv. República do Líbano, 1551 Postal Code: 90470-130 – Porto Alegre – RS Rua das Olimpíadas, 205 – conjuntos 11 a 147º floor – room 702 Phone: (55 51) 3406-9100 Postal Code: 04551-000 – São Paulo – SPPostal Code: 74115-030 – Goiânia – GO Fax: (55 51) 3406-9116 Phone: (55 11) 3576-6770Phone: (55 62) 3878-0888 Fax: (55 11) 3576-6990Fax: (55 62) 3878-0860 Rio de Janeiro Rua Lauro Muller, 116 – room 3403 Rio de JaneiroCuritiba Postal Code: 22290-160 – Rio de Janeiro – RJ Rua Lauro Muller, 116 – room 3403Rua Marechal Deodoro, 950 – 9º floor Phone: (55 21) 3578-3200 Postal Code: 22290-160 – Rio de Janeiro – RJPostal Code: 80060-010 – Curitiba – PR Fax: (55 21) 3578-3220 Phone: (55 21) 3578-3200Phone: (55 41) 3303-6700 Fax: (55 21) 3578-3220Fax: (55 41) 3303-6716 Uberlândia Avenida Jaime Ribeiro da Luz, 971 – room 32Belo Horizonte Postal Code: 38408-188 – Uberlândia – MGAv. Olegário Maciel, 2.144 Phone: (55 34) 2102-830011º floor – rooms 1101 e 1102 Fax: (55 34) 2102-8320Postal Code: 30180-112 – Belo Horizonte – MGPhone: (55 31) 2111-0888Fax: (55 31) 2111-0861MaringáAv. Duque de Caxias, 882 – room 303Postal Code: 87020-025 – Maringá – PRPhone: (55 44) 3302-4000Fax: (55 44) 3303-4016 CREDITS Content and text: Production Support: Investor Relations Department Marketing Photography: Paulo Bareta Graphic Design: Printing: Gráfica Mais RICCA