(Convenience Translation into English from the Original Previously Issued in Portuguese)
Banco do Estado de SãoPaulo S.A. - BANESPA
Financial Statements for the Six-month Periods Ended June 30, 2005 and 2004 and Independent Auditors’ Report
Deloitte Touche Tohmatsu Auditores Independentes (Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO DO ESTADO DE SÃO PAULO S.A. - BANESPA
BALANCE SHEETS AS OF JUNE 30, 2005 AND 2004 (In thousands of Brazilian reais - R$)
Bank Consolidated ASSETS 2005 2004 2005 2004
CURRENT ASSETS 16.218.487 16.513.926 16.431.292 16.781.818 Cash 444.983 873.157 445.591 874.015 Interbank investments 4.196.911 3.896.818 4.196.911 3.899.518 Money market investments 32.300 424.497 32.300 424.497 Interbank deposits 4.164.611 3.472.321 4.164.611 3.475.021 Securities and derivative financial instruments 2.485.549 3.231.388 2.573.050 3.463.850 Own portfolio 1.881.842 2.634.460 1.965.836 2.873.122 Subject to resale commitments 46.636 - 46.636 - Derivative financial instruments 159.521 11.636 157.285 4.680 Linked to guarantees 168.915 31.094 174.658 31.850 Linked to trading portfolio operations 228.635 554.198 228.635 554.198 Interbank accounts 2.637.213 2.412.796 2.637.213 2.412.796 Payments and receipts pending settlement 226.383 223.909 226.383 223.909 Restricted deposits: Central Bank of Brazil 2.408.271 2.186.642 2.408.271 2.186.642 National Housing System 531 204 531 204 Correspondents 2.028 2.041 2.028 2.041 Interbranch accounts 571 - 571 - Third-party funds in transit 3 - 3 - Internal transfers of funds 568 - 568 - Lending operations 5.425.652 4.905.923 5.425.652 4.905.923 Lending operations: Public sector 8.616 8.077 8.616 8.077 Private sector 5.504.747 5.044.354 5.504.747 5.044.354 Allowance for loan losses (87.711) (146.508) (87.711) (146.508) Leasing operations - - 89.595 65.721 Lease and sublease operations: Private sector - - 91.354 67.623 Allowance for doubtful lease receivables - - (1.759) (1.902) Other receivables 925.765 1.109.788 959.067 1.071.078 Foreign exchange portfolio 307.262 293.310 307.262 293.310 Income receivable 50.228 136.298 40.752 46.860 Trading account 14.748 17.260 32.248 35.053 Other 555.767 666.497 581.745 701.201 Allowance for other losses (2.240) (3.577) (2.940) (5.346) Other assets 101.843 84.056 103.642 88.917 Other assets 181.574 188.881 187.116 195.244 Allowance for valuation (146.147) (135.550) (149.892) (137.053) Prepaid expenses 66.416 30.725 66.418 30.726
(Continues) (Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO DO ESTADO DE SÃO PAULO S.A. - BANESPA
BALANCE SHEETS AS OF JUNE 30, 2005 AND 2004 (In thousands of Brazilian reais - R$) (Continuation)
Bank Consolidated ASSETS 2005 2004 2005 2004
LONG-TERM ASSETS 14.568.481 13.418.500 14.936.754 13.667.269 Securities and derivative financial instruments 7.837.366 8.533.058 7.884.381 8.534.086 Own portfolio 4.131.838 5.129.686 4.176.918 5.129.579 Subject to resale commitments 2.754.182 1.916.244 2.754.182 1.916.244 Linked to Central Bank of Brazil 494.451 414.810 494.451 414.810 Linked to guarantees 417.461 433.407 419.396 434.542 Linked to trading portfolio operations - 638.911 - 638.911 Privatization certificates 39.434 - 39.434 - Interbank accounts 30.865 28.666 30.865 28.666 National Housing System 30.865 28.666 30.865 28.666 Lending operations 3.197.653 1.957.520 3.197.653 1.957.520 Lending operations: Public sector 26.101 33.975 26.101 33.975 Private sector 3.542.035 2.241.656 3.542.035 2.241.656 Allowance for loan losses (370.483) (318.111) (370.483) (318.111) Leasing operations - - 80.498 52.705 Lease and sublease operations- Private sector - - 81.318 53.858 Allowance for doubtful lease receivables - - (820) (1.153) Other receivables 3.487.549 2.871.612 3.728.309 3.066.648 Receivables for guarantees honored 10 3.479 10 3.479 Foreign exchange portfolio 3.777 3.997 3.777 3.997 Trading account - - - 90 Other 3.489.818 2.873.642 3.734.985 3.068.844 Allowance for other losses (6.056) (9.506) (10.463) (9.762) Other assets 15.048 27.644 15.048 27.644 Temporary investments - - 9 9 Allowance for losses - - (9) (9) Other assets - - 151 - Allowance for valuation - - (151) - Prepaid expenses 15.048 27.644 15.048 27.644
PERMANENT ASSETS 1.824.696 1.660.471 1.325.439 1.191.161 Investments 525.673 492.483 26.416 23.173 Investments in subsidiaries and affiliates- Domestic 518.840 486.287 - - Other investments 13.241 12.604 38.611 35.145 Allowance for losses (6.408) (6.408) (12.195) (11.972) Property and equipment in use 457.404 457.662 457.404 457.662 Real estate 253.351 263.223 253.351 263.223 Other 834.126 728.736 834.153 728.763 Accumulated depreciation (630.073) (534.297) (630.100) (534.324) Deferred charges 841.619 710.326 841.619 710.326 Organization and expansion costs 1.225.455 934.935 1.225.455 934.935 Accumulated amortization (383.836) (224.609) (383.836) (224.609)
TOTAL ASSETS 32.611.664 31.592.897 32.693.485 31.640.248
The accompanying notes are an integral part of these financial statements. (Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO DO ESTADO DE SÃO PAULO S.A. - BANESPA
BALANCE SHEETS AS OF JUNE 30, 2005 AND 2004 (In thousands of Brazilian reais - R$)
Bank Consolidated LIABILITIES AND STOCKHOLDERS' EQUITY 2005 2004 2005 2004
CURRENT LIABILITIES 17.370.168 16.319.407 17.328.850 16.229.808 Deposits 10.091.010 9.261.927 10.005.476 9.165.076 Demand deposits 2.769.901 2.730.498 2.765.079 2.727.250 Savings deposits 3.607.007 3.346.329 3.607.007 3.346.329 Interbank deposits 80.712 138.154 - 44.551 Time deposits 3.594.961 3.046.946 3.594.961 3.046.946 Other deposits 38.429 - 38.429 - Money market funding 3.426.498 2.973.192 3.375.896 2.866.694 Own portfolio 3.192.225 2.317.818 3.141.623 2.211.320 Third parties - 100.005 - 100.005 Linked to trading portfolio operations 234.273 555.369 234.273 555.369 Funds from acceptance and issuance of securities 446.305 586.300 446.305 586.300 Securities issued abroad 446.305 586.300 446.305 586.300 Interbank accounts 218.243 206.538 218.243 206.538 Receipts and payments pending settlement 212.647 205.264 212.647 205.264 Correspondents 5.596 1.274 5.596 1.274 Interbranch accounts 150.351 121.625 150.351 121.625 Third-party funds in transit 144.942 119.464 144.942 119.464 Internal transfers of funds 5.409 2.161 5.409 2.161 Borrowings 400.784 901.626 400.784 901.626 Foreign borrowings 400.784 901.626 400.784 901.626 Domestic onlendings - official institutions 382.347 300.818 382.347 300.818 National Treasury - 816 - 816 National Economic and Social Development Bank (BNDES) 58.034 49.731 58.034 49.731 Federal Savings and Loan Bank (CEF) 15.607 14.551 15.607 14.551 National Equipment Financing Authority (FINAME) 212.913 195.344 212.913 195.344 Other institutions 95.793 40.376 95.793 40.376 Derivative financial instruments 1.326 15.386 807 13.245 Derivative financial instruments 1.326 15.386 807 13.245 Other liabilities 2.253.304 1.951.995 2.348.641 2.067.886 Collected taxes and other 97.819 97.759 97.819 97.759 Foreign exchange portfolio 63.120 106.889 63.120 106.889 Social and statutory 247.836 419.199 248.303 419.231 Taxes and social security 139.659 57.011 141.001 114.675 Trading account 1.917 654 20.863 19.889 Other 1.702.953 1.270.483 1.777.535 1.309.443
(Continues) (Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO DO ESTADO DE SÃO PAULO S.A. - BANESPA
BALANCE SHEETS AS OF JUNE 30, 2005 AND 2004 (In thousands of Brazilian reais - R$) (Continuation)
Bank Consolidated LIABILITIES AND STOCKHOLDERS' EQUITY 2005 2004 2005 2004
LONG-TERM LIABILITIES 9.275.755 9.969.771 9.398.893 10.089.086 Deposits 1.554.495 1.103.760 1.434.891 936.272 Interbank deposits 119.604 167.488 - - Time deposits 1.434.891 936.272 1.434.891 936.272 Money market funding - 646.656 - 646.656 Linked to trading portfolio operations - 646.656 - 646.656 Funds from acceptance and issuance of securities 395.857 792.683 395.857 792.683 Securities issued abroad 395.857 792.683 395.857 792.683 Borrowings 253.081 511.639 253.081 511.639 Foreign borrowings 253.081 511.639 253.081 511.639 Domestic onlendings - official institutions 589.482 566.481 589.482 566.481 National Economic and Social Development Bank (BNDES) 157.065 140.952 157.065 140.952 Federal Savings and Loan Bank (CEF) 45.893 58.824 45.893 58.824 National Equipment Financing Authority (FINAME) 386.524 344.426 386.524 344.426 Other institutions - 22.279 - 22.279 Other liabilities 6.482.840 6.348.552 6.725.582 6.635.355 Foreign exchange portfolio 494 2.598 494 2.598 Taxes and social security 1.531.143 1.317.136 1.758.938 1.497.931 Trading account - 2 - 2 Other 4.951.203 5.028.816 4.966.150 5.134.824
DEFERRED INCOME 17.111 26.166 17.111 43.800 Deferred income 17.111 26.166 17.111 43.800
MINORITY INTEREST - - 1 1
STOCKHOLDERS' EQUITY 5.948.630 5.277.553 5.948.630 5.277.553 Capital: Brazilian residents 2.536.668 2.536.668 2.536.668 2.536.668 Foreign residents 126 126 126 126 Capital reserves 157.274 156.638 157.274 156.638 Profit reserves 387.846 299.706 387.846 299.706 Adjustment to market value - securities and derivative financial instruments (202.434) (132.196) (202.434) (132.196) Retained earnings 3.069.150 2.416.611 3.069.150 2.416.611
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 32.611.664 31.592.897 32.693.485 31.640.248
The accompanying notes are an integral part of these financial statements. (Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO DO ESTADO DE SÃO PAULO S.A. - BANESPA
STATEMENTS OF INCOME FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2005 AND 2004 (In thousands of Brazilian reais - R$)
Bank Consolidated 2005 2004 2005 2004
FINANCIAL INCOME 3.302.986 2.893.766 3.335.763 2.923.054 Lending operations 1.266.821 1.221.108 1.266.840 1.223.415 Leasing operations - - 18.829 8.597 Securities transactions 2.046.080 1.598.598 2.059.892 1.616.810 Derivative financial instruments (124.415) (34.711) (124.298) (34.539) Foreign exchange operations 12.106 31.994 12.106 31.994 Compulsory investments 102.394 76.777 102.394 76.777
FINANCIAL EXPENSES (1.229.719) (1.095.736) (1.206.263) (1.069.519) Funding operations (1.041.115) (803.753) (1.016.118) (779.969) Borrowings and onlendings (23.560) (111.403) (23.560) (111.403) Provision for loan losses (165.044) (180.580) (166.585) (178.147)
GROSS PROFIT FROM FINANCIAL OPERATIONS 2.073.267 1.798.030 2.129.500 1.853.535
OTHER OPERATING (EXPENSES) INCOME (1.154.366) (927.263) (1.183.099) (936.874) Income from services rendered 693.461 540.346 777.703 704.354 Personnel expenses (739.443) (619.464) (751.289) (637.963) Other administrative expenses (802.323) (640.754) (818.386) (659.846) Tax expenses (190.486) (139.200) (203.208) (155.515) Equity in subsidiaries 60.176 151.122 - - Other operating income 278.147 230.308 299.548 296.568 Other operating expenses (453.898) (449.621) (487.467) (484.472)
INCOME FROM OPERATIONS 918.901 870.767 946.401 916.661
NONOPERATING (EXPENSES) INCOME (52.085) (5.373) (54.173) (1.371)
INCOME BEFORE TAXES ON INCOME 866.816 865.394 892.228 915.290
INCOME AND SOCIAL CONTRIBUTION TAXES 11.211 - (14.201) (49.895) Provision for income tax 8.590 - (10.433) (35.019) Provision for social contribution tax 3.531 - (3.452) (11.697) Deferred tax credits (910) - (316) (3.179)
MINORITY INTEREST - - - (1)
NET INCOME 878.027 865.394 878.027 865.394
Number of shares (thousands) 38.747.842 38.747.842
Earnings per thousand shares (R$) 22,66 22,33
The accompanying notes are an integral part of these financial statements. (Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO DO ESTADO DE SÃO PAULO S.A. - BANESPA
STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2005 AND 2004 (In thousands of Brazilian reais - R$)
Bank Consolidated 2005 2004 2005 2004
SOURCES OF FUNDS 5.163.714 3.349.586 5.242.803 3.240.422 Adjusted net income 999.864 872.182 1.060.108 1.023.098 NET INCOME 878.027 865.394 878.027 865.394 Adjustments to net income: 121.837 6.788 182.081 157.704 Equity in subsidiaries (60.176) (151.122) - - Exchange variation on foreign branches 67 (221) 67 (221) Recognition of (reversal of) provision for valuation of assets not in use 18.588 21.744 18.656 21.538 Depreciation and amortization 163.358 136.387 163.358 136.387 Change in deferred income (6.889) 2.353 (26.183) 3.940 Minority interest - - 1 - Adjustment to market value - securities and derivatives financial instruments - 54.387 - 54.387 Updating of stock exchange memberships 427 1.096 427 1.096 Funds from third parties: 4.170.312 2.419.568 4.208.450 2.157.901 Increase in liabilities 590.224 1.133.090 641.998 1.051.791 Deposits 246.005 - 297.779 - Money market funding - 179.258 - 97.959 Securities issued abroad 149.996 239.770 149.996 239.770 Interbank and interbranch accounts 194.223 160.084 194.223 160.084 Borrowings and onlendings - 553.978 - 553.978 Decrease in assets 3.436.488 1.066.903 3.504.540 1.089.756 Interbank investments 767.931 459.669 768.318 467.113 Secutiries and derivative financial instruments 2.668.557 607.234 2.736.222 622.643 Disposal of permanent assets 62.248 15.776 61.912 16.354 Assets not in use 22.876 5.909 23.717 6.477 Property in use 38.195 9.867 38.195 9.867 Investments 1.177 - - 10 Dividends and interest on capital receivable 81.352 203.799 - -
USES OF FUNDS 5.260.454 3.055.195 5.339.279 2.945.561 Proposed dividends and interest on capital 200.000 400.000 200.000 400.000 Adjustment to market value - securities and derivatives financial instruments 422.025 - 422.025 - Additions 109.033 71.378 106.672 64.484 Assets not in use 19.864 25.412 20.063 25.944 Property in use 84.447 35.796 84.447 35.797 Investments 4.722 10.170 2.162 2.743 Deferred charges 89.440 135.767 89.440 135.767 Increase in assets 984.834 1.577.577 1.092.77 5 1.488.767 Interbank and interbranch accounts 37.373 44.294 37.373 44.294 Lending operations 896.761 1.387.974 896.761 1.387.974 Leasing operations - - 31.852 14.986 Other receivables 25.559 138.432 101.648 34.637 Other assets 25.141 6.877 25.141 6.876 Decrease in liabilities 3.455.122 870.473 3.428.367 856.543 Deposits - 763.133 - 752.836 Money market funding 2.908.657 - 2.868.235 - Derivative financial instruments 26.787 - 25.938 - Borrowings and onlendings 344.799 - 344.799 - Other liabilities 174.879 107.340 189.395 103.707
(DECREASE) INCREASE IN CASH (96.740) 294.391 (96.476) 294.861
REPRESENTED BY Cash Beginning of period 541.723 578.766 542.067 579.154 End of period 444.983 873.157 445.591 874.015
(DECREASE) INCREASE IN CASH (96.740) 294.391 (96.476) 294.861
The accompanying notes are an integral part of these financial statements. (Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO DO ESTADO DE SÃO PAULO S.A. - BANESPA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2005 AND 2004 (In thousands of Brazilian reais - R$)
Profit Adjustment to market value - Capital reserves reservessecurities and derivative Tax Stock exchange Legalfinancial instruments Retained Capital incentives memberships reserve Bank Subsidiaries earnings Total
BALANCES AS OF DECEMBER 31, 2003 2.536.794 155.542 - 256.436 (189.321) 2.738 1.994.487 4.756.676 Adjustment to market value - securities and derivative financial instruments - - - - 54.387 - - 54.387 Updating of stock exchange memberships - - 1.096 - - - - 1.096 Proposed dividends: R$ 9.83 per thousand common shares - R$ 10.81 per thousand preferred shares ------(400.000) (400.000) Net income ------865.394 865.394 Legal reserve - - - 43.270 - - (43.270) -
BALANCES AS OF JUNE 30, 2004 2.536.794 155.542 1.096 299.706 (134.934) 2.738 2.416.611 5.277.553
BALANCES AS OF DECEMBER 31, 2004 2.536.794 155.542 1.305 343.945 215.174 4.417 2.435.024 5.692.201 Adjustment to market value - securities and derivative financial instruments - - - - (420.848) (1.177) - (422.025) Updating of stock exchange memberships - - 427 - - - - 427 Net income ------878.027 878.027 Legal reserve - - - 43.901 - - (43.901) - Interest on capital: R$ 4.92 per thousand common shares - R$ 5.41 per thousand preferred shares ------(200.000) (200.000)
BALANCES AS OF JUNE 30, 2005 2.536.794 155.542 1.732 387.846 (205.674) 3.240 3.069.150 5.948.630
The accompanying notes are an integral part of these financial statements. (Convenience Translation into English from the Original Previously Issued in Portuguese)
BANCO DO ESTADO DE SÃO PAULO S.A. - BANESPA
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2005 AND 2004 (Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
1. OPERATIONS
Banco do Estado de São Paulo S.A. - BANESPA (the “Bank”), a financial institution linked to the Santander Banespa Group, is a multiple service bank; its operations include commercial, foreign exchange, investment, credit and financing, mortgage loan and leasing portfolios. Transactions are conducted within the context of a group of financial institutions which operate on an integrated basis in the financial markets.
2. PRESENTATION OF FINANCIAL STATEMENTS
The individual financial statements of Banco do Estado de São Paulo S.A. - BANESPA, including its foreign branches (“Bank”), and the consolidated financial statements of the Bank and its subsidiaries (“Consolidated”), have been prepared in accordance with Brazilian corporate law, standards and instructions of the Central Bank of Brazil (BACEN), and standards established by the CVM (Brazilian Securities Commission).
For comparability purposes, securities linked to trading portfolio operations have been reclassified from interbank investments to securities in the balance sheet as of June 30, 2004.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting periods. Since management’s judgment involves making estimates concerning the likelihood of future events, actual amounts could differ from those estimates.
3. PRINCIPAL ACCOUNTING PRACTICES
a) Results of operations
Determined on the accrual basis of accounting.
9 Banco do Estado de São Paulo S.A. - BANESPA
b) Current and long-term assets and liabilities Stated at their realizable or settlement amounts, respectively, and include income, charges and monetary or exchange variations earned or incurred to the balance sheet date, determined on a daily “pro rata” basis. When applicable, allowances for valuation are recorded to reflect market or realizable values. The allowance for loan losses is based on analyses of outstanding lending operations (past due and current), past experience, future expectations, and specific portfolio risks, as well as on the risk assessment policy of the Bank’s management for recognition of allowances, including requirements under BACEN standards and instructions.
Receivables and payables due within 12 months are recorded in current assets and liabilities, respectively, except for trading securities which are totally classified in current assets, in conformity with BACEN Circular No. 3,068/01.
Securities
Securities are presented in accordance with the following recognition and accounting valuation criteria:
I - Trading securities.
II - Securities available for sale.
III - Held to maturity.
The “Trading securities” category includes securities acquired for the purpose of being actively and frequently traded. The “Securities available for sale” category includes those which cannot be classified in categories I and III. The “Held to maturity” category includes those which the Bank intends to maintain in its portfolio to maturity. Securities classified in categories I and II are stated at cost plus income earned to the balance sheet date, calculated on a daily “pro rata” basis, and adjusted to market value, reflecting the increase or decrease arising from this adjustment in:
(1) The related income or expense account, in income for the period, net of tax effects, when related to securities classified in the “Trading securities” category. (2) Separate caption in stockholders’ equity, net of tax effects, when related to securities classified in the “Securities available for sale” category. Adjustments to market value on the sale of these securities are transferred to income for the period. Securities classified in the “Held to maturity” category are stated at cost, plus income earned to the balance sheet date, calculated on a daily “pro rata” basis, and recorded in income for the period; provisions for losses are recognized whenever there are permanent losses on the realizable value of these securities.
Derivative financial instruments
Derivative instruments considered as hedge transactions may be classified as:
I - Market risk hedge.
II - Cash flow hedge. 10 Banco do Estado de São Paulo S.A. - BANESPA
Derivative financial instruments for hedge transactions and the respective items subject to hedge are adjusted to market value, considering the following:
(1) For those classified in category I, the increase or decrease is recorded in income or expense for the period, net of tax effects.
(2) For those classified in category II, the increase or decrease is recorded in a separate caption in stockholders’ equity, net of tax effects.
c) Permanent assets
Stated at cost and include:
c.1) Investments
Adjustments to investments in subsidiaries are determined under the equity method of accounting and recorded as equity in subsidiaries. Other investments are stated at cost, reduced to market value, when applicable.
c.2) Property and equipment
Depreciation of property and equipment is determined under the straight-line method at the following annual rates: buildings - 4%, installations, furniture, equipment in use, communication and security systems - 10%, and data processing systems and vehicles - 20%.
c.3) Deferred charges
Costs classified under deferred charges are amortized over a maximum period of 5 years when applicable to the acquisition and development of software, and 10 years for other costs, considering the benefit period of the expense and the terms of rental contracts.
Goodwill on investment acquisition and its respective reduction account, reserve for maintenance of the merging company’s stockholders’ equity, are amortized over a period of up to 10 years.
d) Income and social contribution taxes
Income tax is calculated at the rate of 15% plus a 10% surcharge; social contribution tax is calculated at the rate of 9%, after adjustments determined by legislation. Deferred tax assets and liabilities are computed basically on certain temporary differences between book and taxable income, tax losses, and adjustments to market value of securities and derivative financial instruments.
As provided for by BACEN Circular No. 3,171 of December 31, 2002, CVM Resolution No. 273 of August 20, 1998, and CVM Instruction No. 371 of June 27, 2002, the Bank’s expected realization of tax credits, as shown in note 9, is based on the projection of future results and is supported by a technical study.
11 Banco do Estado de São Paulo S.A. - BANESPA
e) Consolidated financial statements
The consolidated financial statements include the accounts of domestic and foreign branches and of the subsidiaries listed in note 18. In consolidation, intercompany balances and transactions have been eliminated.
4. INTERBANK INVESTMENTS
Bank Up to 3 From 3 to months 12 months 2005 2004
Money market investments 32,300 - 32,300 424,497 Own portfolio 32,300 - 32,300 324,492 Treasury bills 32,300 - 32,300 124,492 National Treasury bills - - - 200,000 Third-party portfolio - - - 100,005 Treasury bills - - - 100,005 Interbank deposits 3,960,888 5,745 3,966,633 2,118,672 Foreign-currency investments 197,978 - 197,978 1,353,649 Interbank investments 4,191,166 5,745 4,196,911 3,896,818
Consolidated Up to 3 From 3 to months 12 months 2005 2004
Money market investments 32,300 - 32,300 424,497 Own portfolio 32,300 - 32,300 324,492 Treasury bills 32,300 - 32,300 124,492 National Treasury bills - - - 200,000 Third-party portfolio - - - 100,005 Treasury bills - - - 100,005 Interbank deposits 3,960,888 5,745 3,966,633 2,113,668 Foreign-currency investments 197,978 - 197,978 1,361,353 Interbank investments 4,191,166 5,745 4,196,911 3,899,518
12 Banco do Estado de São Paulo S.A. - BANESPA
5. SECURITIES
Bank Adjustment Effect of adjustment to 2005 2004 to market market value on Book Book Categories Cost value Income Equity value value
Government Securities 8,971,649 281,094 - 281,094 9,252,743 10,518,496 Treasury certificates (1) 1,384,387 29,601 - 29,601 1,413,988 1,685,788 Securitized credit 39,434 - - - 39,434 39,502 National Treasury bills 966,424 (5,097) - (5,097) 961,327 2,072,422 Treasury bills 60,219 123 - 123 60,342 83,627 Central Bank notes 829,978 (16,585) - (16,585) 813,393 529,740 National Treasury notes NTN B 36,021 (46) - (46) 35,975 - National Treasury notes NTN C (2) 5,437,007 278,556 - 278,556 5,715,563 5,883,809 National Treasury notes NTN D - - - - - 18,763 National Treasury notes NTN F 202,173 (5,783) - (5,783) 196,390 184,926 Samurai bonds 16,006 325 - 325 16,331 19,919 Private Securities 1,346,209 (435,558) 121,999 (557,557) 910,651 1,234,314 Shares (3) 789,216 (435,747) 121,999 (557,746) 353,469 744,743 Rural product notes 255,901 189 - 189 256,090 154,184 Eurobonds - related parties 169,223 - - - 169,223 - Real estate bonds 75,832 - - - 75,832 70,703 Mortgage notes 56,037 - - - 56,037 264,684
Total 10,317,858 (154,464) 121,999 (276,463) 10,163,394 11,752,810
Derivatives (Assets) 132,935 26,586 26,586 - 159,521 11,636 Swap differentials receivable 28,581 26,651 26,651 - 55,232 11,636 Option premiums 2,173 (134) (134) - 2,039 - Forward sales receivable 101,777 - - - 101,777 - Forward purchases receivable 404 69 69 - 473 -
Total 10,450,793 (127,878) 148,585 (276,463) 10,322,915 11,764,446
Derivatives (Liabilities) (2,344) 1,018 1,018 - (1,326) (15,386) Swap differentials payable (1,347) 828 828 - (519) (15,322) Option premiums (934) 190 190 - (744) - Forward purchases payable (63) - - - (63) (64)
Without Up to From 3 to From 12 to Over Composition by maturity maturity 3 months 12 months 36 months 36 months Total
Government Securities - 803,775 795,533 1,515,818 6,137,617 9,252,743 Treasury certificates (1) - 125,385 339,215 573,515 375,873 1,413,988 Securitized credit - - - - 39,434 39,434 National Treasury bills - 659,528 301,799 - - 961,327 Treasury bills - - 60,195 147 - 60,342 Central Bank notes - - 67,627 745,766 - 813,393 National Treasury notes NTN B - - - - 35,975 35,975 National Treasury notes NTN C (2) - 18,862 26,697 - 5,670,004 5,715,563 National Treasury notes NTN F - - - 196,390 - 196,390 Samurai bonds - - - - 16,331 16,331 Private Securities 353,469 100,763 272,488 14,708 169,223 910,651 Shares (3) 353,469 - - - - 353,469 Rural product notes - 100,763 155,327 - - 256,090 Eurobonds - related parties - - - - 169,223 169,223 Real estate bonds - - 75,832 - - 75,832 Mortgage notes - - 41,329 14,708 - 56,037 Total 353,469 904,538 1,068,021 1,530,526 6,306,840 10,163,394
13 Banco do Estado de São Paulo S.A. - BANESPA
Adjustment Effect of adjustment to 2005 2004 to market market value on Book Book Categories Cost value Income Equity value value
Trading securities 58,271 121,999 121,999 - 180,270 161,469 Securities available for sale 5,929,905 (276,463) - (276,463) 5,653,442 4,962,205 Held to maturity 4,329,682 - - - 4,329,682 6,629,136 Total 10,317,858 (154,464) 121,999 (276,463) 10,163,394 11,752,810
Adjustment to market value Book Without Up to Trading securities Cost (income) value maturity 3 months
Private Securities 58,271 121,999 180,270 166,747 13,523 Shares (3) 44,748 121,999 166,747 166,747 - Rural product notes 13,523 - 13,523 - 13,523 Total 58,271 121,999 180,270 166,747 13,523
Adjustment to market From From value Book Without Up to 3 to 12 12 to36 Over Securities available for sale Cost (equity) value maturity 3 months months months 36 months
Government Securities 4,641,967 281,094 4,923,061 - 800,772 696,084 1,346,226 2,079,979 Treasury certificates (1) 892,815 29,601 922,416 - 122,382 239,766 403,923 156,345 Securitized credit 39,434 - 39,434 - - - - 39,434 National Treasury bills 966,424 (5,097) 961,327 - 659,528 301,799 - - Treasury bills 60,219 123 60,342 - - 60,195 147 - Central Bank notes 829,978 (16,585) 813,393 - - 67,627 745,766 - National Treasury notes NTN B 36,021 (46) 35,975 - - - - 35,975 National Treasury notes NTN C (2) 1,598,897 278,556 1,877,453 - 18,862 26,697 - 1,831,894 National Treasury notes NTN F 202,173 (5,783) 196,390 - - - 196,390 - Samurai bonds 16,006 325 16,331 - - - - 16,331 Private Securities 1,287,938 (557,557) 730,381 186,722 87,240 272,488 14,708 169,223 Shares (3) 744,468 (557,746) 186,722 186,722 - - - - Rural product notes 242,378 189 242,567 - 87,240 155,327 - - Eurobonds - related parties 169,223 - 169,223 - - - - 169,223 Real estate bonds 75,832 - 75,832 - - 75,832 - - Mortgage notes 56,037 - 56,037 - - 41,329 14,708 - Total 5,929,905 (276,463) 5,653,442 186,722 888,012 968,572 1,360,934 2,249,202
Book Up to From 3 to From 12 to Over Held to maturity (4) value 3 months 12 months 36 months 36 months
Government Securities 4,329,682 3,003 99,449 169,592 4,057,638 Treasury certificates (1) 491,572 3,003 99,449 169,592 219,528 National Treasury notes NTN C (2) 3,838,110 - - - 3,838,110 Total 4,329,682 3,003 99,449 169,592 4,057,638
14 Banco do Estado de São Paulo S.A. - BANESPA
Consolidated Adjustment Effect of adjustment to 2005 2004 to market market value on Book Book Categories Cost Value Income Equity value Value
Government Securities 9,026,680 281,103 12 281,091 9,307,783 10,575,897 Treasury certificates (1) 1,384,387 29,601 - 29,601 1,413,988 1,685,788 Securitized credit 39,434 - - - 39,434 39,502 National Treasury bills 966,424 (5,097) - (5,097) 961,327 2,072,422 Treasury bills 115,250 132 12 120 115,382 141,028 Central Bank notes 829,978 (16,585) - (16,585) 813,393 529,740 National Treasury notes NTN B 36,021 (46) - (46) 35,975 - National Treasury notes NTN C (2) 5,437,007 278,556 - 278,556 5,715,563 5,883,809 National Treasury notes NTN D - - - - - 18,763 National Treasury notes NTN F 202,173 (5,783) - (5,783) 196,390 184,926 Samurai bonds 16,006 325 - 325 16,331 19,919 Private Securities 1,423,009 (430,646) 121,999 (552,645) 992,363 1,417,359 Shares (3) 790,320 (430,835) 121,999 (552,834) 359,485 749,671 Rural product notes 255,901 189 - 189 256,090 154,184 Bank deposit rates - - - - - 3,175 Investment fund quotas 75,696 - - - 75,696 174,942 Eurobonds - related parties 169,223 - - - 169,223 - Real estate bonds 75,832 - - - 75,832 70,703 Mortgage notes 56,037 - - - 56,037 264,684
Total 10,449,689 (149,543)122,011 (271,554) 10,300,146 11,993,256
Derivatives (Assets) 130,088 27,197 27,197 - 157,285 4,680 Swap differentials receivable 25,734 27,262 27,262 - 52,996 4,680 Option premiums 2,173 (134) (134) - 2,039 - Forward sales receivable 101,777 - - - 101,777 - Forward purchases receivable 404 69 69 - 473 -
Total 10,579,777 (122,346) 149,208 (271,554) 10,457,431 11,997,936
Derivatives (Liabilities) (997) 190 190 - (807) (13,245) Swap differentials payable - - - - - (13,181) Option premiums (934) 190 190 - (744) - Forward purchases payable (63) - - - (63) (64)
Without Up to From 3 to From 12 to Over Composition by maturity maturity 3 months 12 months 36 months 36 months Total
Government Securities - 803,775 803,558 1,562,833 6,137,617 9,307,783 Treasury certificates (1) - 125,385 339,215 573,515 375,873 1,413,988 Securitized credit - - -- 39,434 39,434 National Treasury bills - 659,528 301,799 - - 961,327 Treasury bills - - 68,220 47,162 - 115,382 Central Bank notes - - 67,627 745,766 - 813,393 National Treasury notes NTN B - - -- 35,975 35,975 National Treasury notes NTN C (2) - 18,862 26,697 - 5,670,004 5,715,563 National Treasury notes NTN F - - - 196,390 - 196,390 Samurai bonds - - -- 16,331 16,331 Private Securities 435,181 100,763 272,488 14,708 169,223 992,363 Shares (3) 359,485 - -- - 359,485 Rural product notes - 100,763 155,327 - - 256,090 Investment fund quotas 75,696 - -- - 75,696 Eurobonds - related parties - - -- 169,223 169,223 Real estate bonds - - 75,832 - - 75,832 Mortgage notes - - 41,329 14,708 - 56,037 Total 435,181 904,538 1,076,046 1,577,541 6,306,840 10,300,146
15 Banco do Estado de São Paulo S.A. - BANESPA
Adjustment Effect of adjustment to 2004 2003 to market market value on Book Book Categories Cost value Income Equity value value
Trading securities 138,050 122,011 122,011 - 260,061 339,884 Securities available for sale 5,981,957 (271,554) - (271,554) 5,710,403 5,021,061 Held to maturity 4,329,682 - - - 4,329,682 6,632,311 Total 10,449,689 (149,543) 122,011 (271,554) 10,300,146 11,993,256
Adjustment to market From Value Book Without Up to 3 to 12 Trading securities Cost (income) value maturity 3 months months
Government Securities 4,083 12 4,095 - - 4,095 Treasury bills 4,083 12 4,095 - - 4,095 Private Securities 133,967 121,999 255,966 242,443 13,523 - Shares (3) 44,748 121,999 166,747 166,747 - - Rural product notes 13,523 - 13,523 - 13,523 - Investment fund quotas 75,696 - 75,696 75,696 - - Total 138,050 122,011 260,061 242,443 13,5234,095
Adjustment to market From From value Book Without Up to 3 to 12 12 to36 Over Securities available for sale Cost (equity) value maturity 3 months months months 36 months
Government Securities 4,692,915 281,091 4,974,006 - 800,772 700,014 1,393,241 2,079,979 Treasury certificates (1) 892,815 29,601 922,416 - 122,382 239,766 403,923 156,345 Securitized credit 39,434 - 39,434 - - - - 39,434 National Treasury bills 966,424 (5,097) 961,327 - 659,528 301,799 - - Treasury bills 111,167 120 111,287 - - 64,125 47,162 - Central Bank notes 829,978 (16,585) 813,393 - - 67,627 745,766 - National Treasury notes NTN B 36,021 (46) 35,975 - - - - 35,975 National Treasury notes NTN C (2) 1,598,897 278,556 1,877,453 - 18,862 26,697 - 1,831,894 National Treasury notes NTN F 202,173 (5,783) 196,390 - - - 196,390 - Samurai bonds 16,006 325 16,331 - - - - 16,331 Private Securities 1,289,042 (552,645) 736,397 192,738 87,240 272,488 14,708 169,223 Shares (3) 745,572 (552,834) 192,738 192,738 - - - - Rural product notes 242,378 189 242,567 - 87,240 155,327 - - Eurobonds - related parties 169,223 - 169,223 - - - - 169,223 Real estate bonds 75,832 - 75,832 - - 75,832 - - Mortgage notes 56,037 - 56,037 - - 41,329 14,708 - Total 5,981,957 (271,554)5,710,403 192,738 888,012 972,502 1,407,949 2,249,202
Book Up to From 3 to From 12 to Over Held to maturity (4) value 3 months 12 months 36 months 36 months
Government Securities 4,329,682 3,003 99,449 169,592 4,057,638 Treasury certificates (1) 491,572 3,003 99,449 169,592 219,528 National Treasury notes NTN C (2) 3,838,110 - - - 3,838,110 Total 4,329,682 3,003 99,449 169,592 4,057,638
(1) The treasury certificates are held in custody of the Clearinghouse for the Custody and Financial Settlement of Securities (CETIP) and are restated based on the domestic general price index (IGP-DI) plus interest of 12% per year.
16 Banco do Estado de São Paulo S.A. - BANESPA
(2) Restated based on the general market price index (IGP-M) plus interest of 12% per year, paid semiannually, maturing to January 1, 2031.
(3) Refers principally to shares of CESP - Cia. Energética de São Paulo in the amount of R$ 186,722. In June 2005 the shares issued by AES Tietê were sold and generated proceeds of R$ 626 million.
(4) The market value of Held to Maturiy securities as of June 30, 2005 is R$ 5,056,004 - Consolidated R$ 5,056,004 (2004 - R$ 9,078,261 - Consolidated R$ 9,081,436). Due to a new evaluation as to the classification of securities, the amount of R$ 1,557,239 (cost) (R$ 1,424,142 in December 2004) of National Treasury notes - NTN C, and R$ 303,829 (cost) of Treasury Certificates were transferred from the category “Held to Maturity” to the category “Available for Sale”, with the recognition of unrealized gains in the amount of R$ 200,261 (R$ 281,522 in December 2004) in a separation caption of stockholders’ equity.
In accordance with BACEN Circular No. 3,068, article 8, of November 8, 2001, Banespa declares to have financial capacity and intention to hold to maturity the securities classified in the held to maturity category.
The market value of securities is computed based on the average quotation on organized markets and their estimated cash flows, discounted to present value using the applicable interest rate curves which are considered representative of the market conditions at the balance sheet date.
The principal interest rate curves are obtained from futures and swap contracts traded on the Commodities and Futures Exchange (BM&F). Adjustments to these curves are made whenever certain points are considered illiquid or when due to unusual reasons they do not fairly represent market conditions.
6. INTERBANK ACCOUNTS
Composed of “Payments and receipts pending settlement”, represented basically by checks and other documents sent to clearinghouses (assets and liabilities) and by restricted deposits with BACEN to cover compulsory obligations for demand deposits, savings deposits, time deposits and foreign exchange transactions.
17 Banco do Estado de São Paulo S.A. - BANESPA
7. CREDIT PORTFOLIO AND ALLOWANCE FOR LOSSES
a) Composition of credit portfolio
Bank Consolidated 2005 2004 2005 2004
Composition of credit portfolio 9,740,864 7,839,805 9,917,403 7,963,379 Lending operations 9,081,499 7,328,062 9,081,499 7,328,062 Loans and discounted receivables 4,337,085 3,275,331 4,337,085 3,275,331 Financing 2,848,552 2,270,442 2,848,552 2,270,442 Rural, agricultural and industrial financing 1,445,439 1,357,873 1,445,439 1,357,873 Real estate financing 415,727 382,408 415,727 382,408 Infrastructure and development financing 34,696 42,008 34,696 42,008 Leasing operations - - 172,672 121,481 Advances on foreign exchange contracts (1) 276,855 212,745 276,855 212,745 Other receivables (2) 382,510 298,998 386,377 301,091
(1) Advances on foreign exchange contracts are classified as a reduction of “Other liabilities”.
(2) Include receivables for guarantees honored, debtors for purchase of assets, notes and credits receivable, and income receivable from advances on foreign exchange contracts.
b) Composition of credit portfolio by business sector
Bank Consolidated 2005 2004 2005 2004
Composition of credit portfolio by business sector 9,740,864 7,839,805 9,917,403 7,963,379 Private sector 9,706,147 7,797,753 9,882,686 7,921,327 Industrial 1,115,988 815,125 1,189,096 855,443 Commercial 525,237 346,842 553,595 367,789 Financial institutions 453,473 552,530 453,473 552,530 Services and other 1,182,077 565,199 1,253,710 623,812 Individuals 4,568,208 3,777,776 4,571,648 3,781,472 Housing 415,727 382,408 415,727 382,408 Rural 1,445,437 1,357,873 1,445,437 1,357,873 Public sector 34,717 42,052 34,717 42,052 State 2 - 2 - Municipal 34,715 42,052 34,715 42,052
c) Changes in allowance for loan losses
Bank Consolidated 2005 2004 2005 2004
Balances as of January 1 475,865 447,167 482,113 455,465 Allowances recognized 165,044 180,580 166,585 178,147 Write-offs (174,041) (150,045) (174,144) (150,830) Exchange variation/Other changes (378) - (378) - Balances as of June 30 466,490 477,702 474,176 482,782 Recoveries (1) 66,940 104,799 69,920 107,106
(1) Recoveries are recorded in Income from Lending and Leasing Operations.
18 Banco do Estado de São Paulo S.A. - BANESPA
d) Classification of credit portfolio by risk level and respective allowance for loan losses (CMN - National Monetary Council Resolution No. 2,682/99)
Bank Minimum Balance Risk allowance 2005 2004 Allowance required level required (%) Current Past Due (1) Total Total 2005 2004
AA - 2,607,830 - 2,607,830 1,517,499 - - A 0.50% 5,862,524 - 5,862,524 4,946,534 29,313 24,733 B 1% 201,523 200,341 401,864 444,506 4,019 4,445 C 3% 36,190 97,418 133,608 123,857 4,008 3,716 D 10% 117,100 131,132 248,232 263,084 24,823 26,308 E 30% 8,405 52,173 60,578 118,609 18,173 35,583 F 50% 3,196 48,607 51,803 62,541 25,902 31,271 G 70% 3,080 44,162 47,242 38,429 33,069 26,900 H 100% 27,746 299,437 327,183 324,746 327,183 324,746 Total 8,867,594 873,270 9,740,864 7,839,805 466,490 477,702
Minimum Consolidated allowance Balance Risk required 2005 2004 Allowance required level (%) Current Past Due (1) Total Total 2005 2004
AA - 2,675,328 - 2,675,328 1,562,868 - - A 0.50% 5,933,315 - 5,933,315 5,004,036 29,667 25,020 B 1% 228,894 200,505 429,399 459,375 4,294 4,594 C 3% 36,889 97,572 134,461 124,943 4,034 3,748 D 10% 122,551 131,307 253,858 264,708 25,386 26,471 E 30% 8,795 52,302 61,097 119,018 18,329 35,705 F 50% 3,320 48,654 51,974 62,695 25,987 31,348 G 70% 3,191 44,179 47,370 38,992 33,159 27,294 H 100% 30,461 300,140 330,601 326,744 330,601 326,744 Total 9,042,744 874,659 9,917,403 7,963,379 471,457 480,924 Additional allowance 2,719 1,858 Allowance 474,176 482,782
(1) Includes current and past-due operations.
19 Banco do Estado de São Paulo S.A. - BANESPA
8. FOREIGN EXCHANGE PORTFOLIO
Bank/Consolidated 2005 2004
Assets 311,039 297,307 Exchange purchased pending settlement 273,611 273,648 Advances in foreign currency - (15,534) Advances in local currency (12,408) (19,749) Rights to foreign exchange sold 42,576 54,692 Income receivable from advances 3,133 2,965 Term bills in foreign currency 4,127 1,285
Liabilities 63,614 109,487 Exchange sold pending settlement 41,289 55,114 Foreign exchange purchased 297,009 264,671 Advances on foreign exchange contracts (276,855) (212,745) Liabilities for sales made 1,130 1,473 Payables in foreign currencies 1,041 934 Income receivable from advances - 40
Memorandum accounts: Open import credits 17,742 7,985 Confirmed export credits 6,158 -
9. OTHER RECEIVABLES
Bank Consolidated 2005 2004 2005 2004
Other receivables - other 4,045,585 3,540,139 4,316,730 3,770,045 Deferred tax credits 2,426,104 2,152,685 2,515,245 2,248,670 Debtors for purchase of assets 46,697 41,474 51,436 47,539 Escrow deposits for 1,090,161 844,463 1,187,990 913,332 Pension plan 189,738 162,766 189,738 162,766 Deductibility of social contribution tax 309,979 283,336 322,746 283,336 Other tax and civil-related deposits 129,660 108,032 188,771 159,247 Labor claims 460,784 290,329 486,735 307,983 Recoverable taxes 34,618 121,767 97,502 168,986 Tax incentive options 62,249 63,458 71,472 72,345 Credit cards 331,421 247,332 331,421 247,332 Notes and credits receivable 1,277 3,789 3,592 3,789 Receivables from affiliates 5,589 1,920 7,121 2,387 Other 47,469 63,251 50,951 65,665
20 Banco do Estado de São Paulo S.A. - BANESPA
Detailed information on tax credits:
I - Nature and origin of deferred tax credits
Bank Balances Balances as of as of 12/31/2004 Recognition Realization 06/30/2005
Allowance for loan losses 197,431 23,629 (43,843) 177,217 Reserve for civil contingencies 90,111 - (4,801) 85,310 Reserve for tax contingencies 297,158 19,108 (8,818) 307,448 Reserve for labor contingencies 384,738 - (51,244) 333,494 Reserve for maintenance of stockholders' equity 1,052,701 - (253,710) 798,991 Adjustment to market value of trading securities and derivative financial instruments 1,223 - (910) 313 Accrual for supplementary pension plan 908,245 78,153 (97,391) 889,007 Other temporary provisions 138,357 78,744 (50,320) 166,781 Total deferred tax credits on temporary differences 3,069,964 199,634 (511,037) 2,758,561 Tax loss carryforwards 27,458 41,568 - 69,026 Social contribution tax - Executive Act No. 2,158-35 (08/24/2001) 595,202 - (534) 594,668 Total deferred tax credits 3,692,624 241,202 (511,571) 3,422,255 Deferred tax credits not recorded (1,441,853) - 268,925 (1,172,928) Deferred tax credits, net 2,250,771 241,202 (242,646) 2,249,327
Adjustment to market value of securities available for sale and derivative financial instruments classified as hedge 169,498 7,279 - 176,777 Total recorded deferred tax credits 2,420,269 248,481 (242,646) 2,426,104
Consolidated Balances Balances as of as of 12/31/2004 Recognition Realization 06/30/2005
Allowance for loan losses 198,174 23,916 (43,994) 178,096 Reserve for civil contingencies 93,453 35 (5,989) 87,499 Reserve for tax contingencies 334,580 23,789 (9,476) 348,893 Reserve for labor contingencies 402,060 447 (51,899) 350,608 Reserve for maintenance of stockholders' equity 1,052,701 - (253,710) 798,991 Adjustment to market value of trading securities and derivative financial instruments 1,497 - (1,046) 451 Accrual for supplementary pension plan 908,245 78,153 (97,392) 889,006 Other temporary provisions 151,603 81,707 (51,543) 181,767 Total deferred tax credits on temporary differences 3,142,313 208,047 (515,049) 2,835,311 Tax loss carryforwards 42,262 41,568 (2,385) 81,445 Social contribution tax - Executive Act No. 2,158-35 (08/24/2001) 610,630 - (534) 610,096 Total deferred tax credits 3,795,205 249,615 (517,968) 3,526,852 Deferred tax credits not recorded (1,455,888) (3,656) 271,159 (1,188,385) Deferred tax credits, net 2,339,317 245,959 (246,809) 2,338,467
Adjustment to market value of securities available for sale and derivative financial instruments classified as hedge 169,498 7,280 - 176,778 Total recorded deferred tax credits 2,508,815 253,239 (246,809) 2,515,245
21 Banco do Estado de São Paulo S.A. - BANESPA
Tax credits are recorded in accordance with standards of the Central Bank of Brazil and adjusted according to their expected realization and present value, as follows:
II - Expected realization of deferred tax credits
Bank Temporary Temporary differences differences Tax loss CSLL Year IRPJ CSLL carryforwards 18% Total Recorded
2005 309,298 105,136 18,256 12,779 445,469 162,049 2006 378,434 120,304 30,982 8,201 537,921 215,369 2007 276,987 87,182 19,788 48,777 432,734 159,237 2008 257,349 83,640 - 16,155 357,144 216,906 2009 131,599 36,251 - 31,368 199,218 156,644 2010 to 2012 63,217 20,156 - 141,048 224,421 146,535 2013 to 2014 - - - 107,988 107,988 107,988 2015 to 2017 118,134 15,217 - 168,864 302,215 302,215 2018 to 2019 78,756 10,145 - 59,488 148,389 148,389 After 2019 590,670 76,086 - - 666,756 633,995 Total 2,204,444 554,117 69,026 594,668 3,422,255 2,249,327
Consolidated Temporary Temporary differences differences Tax loss CSLL Year IRPJ CSLL carryforwards 18% Total Recorded
2005 312,213 107,619 21,870 14,012 455,714 170,390 2006 383,440 124,974 37,443 9,595 555,452 227,535 2007 280,702 91,388 22,132 50,628 444,850 169,007 2008 290,777 95,674 - 17,886 404,337 258,874 2009 136,471 39,672 - 33,192 209,335 166,144 2010 to 2012 63,217 20,156 - 147,147 230,520 152,633 2013 to 2014 - - - 109,284 109,284 109,284 2015 to 2017 118,134 15,217 - 168,864 302,215 302,215 2018 to 2019 78,756 10,145 - 59,488 148,389 148,389 After 2019 590,669 76,087 - - 666,756 633,996 Total 2,254,379 580,932 81,445 610,096 3,526,852 2,338,467
IRPJ – Corporate income tax CSLL – Social contribution tax
Due to differences between accounting, tax and corporate criteria, expected realization of tax credits should not be taken as indicative of future net income.
The expected realization does not consider the tax credit of the adjustment to market value of securities available for sale.
22 Banco do Estado de São Paulo S.A. - BANESPA
III - Present value of deferred tax credits
The present value of total tax credits is R$ 2,277,814 – Consolidated R$ 2,360,412 (2004 – R$ 2,496,733 – Consolidated R$ 2,572,190) and the present value of recorded tax credits is R$ 1,301,552 – Consolidated R$ 1,371,124 (2004 – R$ 1,010,786 – Consolidated R$ 1,081,398). The present value was calculated taking into account the expected realization of temporary differences, tax loss carryforwards, social contribution tax at the rate of 18% (Executive Act No. 2,158/01), and the average funding rate projected for the corresponding periods.
IV - Nature and origin of deferred tax liabilities
Bank Balances Balances as of as of 12/31/2004 Recognition Realization 06/30/2005
Adjustment to market value of trading securities 64,516 - (13,338) 51,178 Adjustment to market value of securities available for sale 315,749 - (209,763) 105,986 Total deferred tax liabilities 380,265 - (223,101) 157,164
Consolidated Balances Balances as of as of 12/31/2004 Recognition Realization 06/30/2005
Adjustment to market value of trading securities 64,516 69 (13,338) 51,247 Adjustment to market value of securities available for sale 318,024 - (210,368) 107,656 Excess depreciation of leased assets 2,468 1,004 - 3,472 Total deferred tax liabilities 385,008 1,073 (223,706) 162,375
10. OTHER ASSETS
Refers principally to assets not in use, basically composed of real estate and vehicles received in settlement of debts in the amount of R$ 32,000 – consolidated R$ 33,797 (2004 – R$ 50,552 – consolidated R$ 55,412), net of allowance for valuation and prepaid expenses of R$ 81,464 – consolidated R$ 81,466 (2004 – R$ 58,370 – consolidated R$ 58,371).
11. DEFERRED CHARGES
a) Goodwill on acquisition of investments
As of June 30, 2005, goodwill from the merger and the reserve for maintenance of the merging company’s stockholders’ equity amounted to R$ 2,349,972 (2004 – R$ 3,776,902). The amount realized in the six-month period was R$ 746,207 (2004 – R$ 746,207).
23 Banco do Estado de São Paulo S.A. - BANESPA
b) Other deferred charges
Bank/Consolidated 2005 2004 Cost Amortization Net Net
Leasehold improvements 217,150 (56,375) 160,775 119,644 Acquisition and development of software 972,921 (323,183) 649,738 574,426 Other deferred charges 35,384 (4,278) 31,106 16,256 Total 1,225,455 (383,836) 841,619 710,326
12. FOREIGN BRANCHES
A summary of the financial position of foreign branches (Tokyo, Grand Cayman and Asunción), translated at the exchange rate in effect on the balance sheet date and included in the financial statements of the Bank, is as follows:
2004 2003
Assets 2,086,717 2,435,139 Current and long-term assets 2,086,416 2,434,710 Interbank investments 177,324 1,347,037 Securities and derivative financial instruments 1,058,895 300,242 Lending operations 783,956 723,965 Other assets 66,241 63,466 Permanent assets 301 429 Liabilities and equity 2,086,717 2,435,139 Current and long-term liabilities 1,835,279 2,092,211 Funding 310,070 381,111 Securities issued abroad 840,485 1,378,008 Borrowings 358,856 321,625 Other liabilities 325,868 11,467 Stockholders' equity 251,438 342,928 Net loss (7,718) (27,103)
13. FUNDING AND BORROWINGS AND ONLENDINGS
Bank 2005 2004 Without Up to From 3 to Over maturity 3 months 12 months 12 months Total Total
Deposits 7,306,468 2,000,435 784,107 1,554,495 11,645,505 10,365,687 Money market funding - 3,192,225 234,273 - 3,426,498 3,619,848 Securities issued abroad - 445,939 366 395,857 842,162 1,378,983 Borrowings and onlendings - 323,778 459,353 842,563 1,625,694 2,280,564 Total 7,306,468 5,962,377 1,478,099 2,792,915 17,539,859 17,645,082
24 Banco do Estado de São Paulo S.A. - BANESPA
a) Deposits
2005 2004 Without Up to From 3 to Over maturity 3 months 12 months 12 months Total Total
Demand deposits 2,769,901 - - - 2,769,901 2,730,498 Savings deposits 3,607,007 - - - 3,607,007 3,346,329 Interbank deposits - 10,628 70,084 119,604 200,316 305,642 Time deposits 891,131 1,989,807 714,023 1,434,891 5,029,852 3,983,218 Other deposits 38,429 - - - 38,429 - Total 7,306,468 2,000,435 784,107 1,554,495 11,645,505 10,365,687
b) Money market funding
2005 2004 Up to From 3 to Over 3 months 12 months 12 months Total Total
Own portfolio 3,192,225 - - 3,192,225 2,317,818 Third parties - - - - 100,005 Linked to trading portfolio operations - 234,273 - 234,273 1,202,025 Total 3,192,225 234,273 - 3,426,498 3,619,848
c) Securities issued abroad
Represented by funds obtained from the placement of securities (Eurobonds) abroad, for local investment, in the amount of R$ 829,406 (June 30, 2004 - R$ 1,346,700), with maturities through 2008 and subject to financial charges ranging from 4.10% to 4.68% per year for securities issued in dollar, and charges of 17.66% per year for securities issued in Brazilian reais (June 30, 2004 - 3.88% to 7.25% per year), and certificates of deposits, for local investment, in the amount of R$ 12,756 (June 30, 2004 - R$ 32,283), with maturities through October 2005 and subject to financial charges from 2.70% to 2.72% per year (June 30, 2004 - 1.50% to 4.33% per year).
d) Borrowings and onlendings
Bank/Consolidated 2005 2004 Up to From 3 to Over 3 months 12 months 12 months Total Total
Borrowings 201,322 199,462 253,081 653,865 1,413,265 Foreign borrowings 201,322 199,462 253,081 653,865 1,413,265 Domestic onlendings 122,456 259,891 589,482 971,829 867,299 Total 323,778 459,353 842,563 1,625,694 2,280,564
25 Banco do Estado de São Paulo S.A. - BANESPA
Bank/Consolidated 2004 2003
Foreign borrowings 653,865 1,413,265 Export 225,138 218,520 Import 18,285 27,427 Other credit lines 51,586 251,941 Other liabilities - floating rates - 219,509 Foreign loans (1) 358,856 695,868
(1) Includes R$ 33,614 (June 30, 2004 - R$ 374,236) referring to loans from an institution related to the parent company, at rates ranging from 3.5% to 3.7% per year.
Foreign borrowings are represented by funds obtained from foreign banks for application in foreign exchange operations for the purchase and sale of foreign currencies, related to the discount of export invoices, prefinancing of exports and imports, and other loans, maturing up to May 6, 2008 and subject to financial charges, equivalent to exchange variation plus interest ranging from 1.18 % to 7.50% per year (2004 - 1.30% to 3.55% per year).
Consolidated 2005 2004 Without Up to From 3 to Over maturity 3 months 12 months 12 months Total Total
Deposits 7,301,646 1,989,807 714,023 1,434,891 11,440,367 10,101,348 Money market funding - 3,141,623 234,273 - 3,375,896 3,513,350 Securities issued abroad - 445,939 366 395,857 842,162 1,378,983 Borrowings and onlendings - 323,778 459,353 842,563 1,625,694 2,280,564 Total 7,301,646 5,901,147 1,408,015 2,673,311 17,284,119 17,274,245
a) Deposits
2005 2004 Without Up to From 3 to Over maturity 3 months 12 months 12 months Total Total
Demand deposits 2,765,079 - - - 2,765,079 2,727,250 Savings deposits 3,607,007 - - - 3,607,007 3,346,329 Interbank deposits - - - - - 44,551 Time deposits 891,131 1,989,807 714,023 1,434,891 5,029,852 3,983,218 Other deposits 38,429 - - - 38,429 - Total 7,301,646 1,989,807 714,023 1,434,891 11,440,367 10,101,348
b) Money market funding
2005 2004 Up to From 3 to Over 3 months 12 months 12 months Total Total
Own portfolio 3,141,623 - - 3,141,623 2,211,320 Third parties - - - - 100,005 Linked to trading portfolio operations - 234,273 - 234,273 1,202,025 Total 3,141,623 234,273 - 3,375,896 3,513,350
26 Banco do Estado de São Paulo S.A. - BANESPA
14. OTHER LIABILITIES
Taxes and social security liabilities comprise taxes payable and amounts being challenged in the courts.
Reserves for tax, civil and labor contingencies are determined based on an analysis of each pending issue and on the opinion of legal counsel and specialized technical advisors; the reserves are considered sufficient to cover possible losses arising from judicial decisions.
a) Taxes and social security
Bank Consolidated 2005 2004 2005 2004
Taxes and social security 1,670,802 1,374,147 1,899,939 1,612,606 Taxes payable 112,884 56,684 115,049 62,948 Accrued taxes on income 1,090 327 25,952 51,727 Reserve for tax contingencies (1) 1,399,664 1,317,136 1,596,563 1,493,649 Deferred income tax 157,164 - 162,375 4,282
b) Other liabilities - other
Other liabilities - other 6,654,156 6,299,299 6,743,685 6,444,267 Cashiers’ checks 706 166 706 166 Creditors for unreleased funds 7,824 7,504 7,824 7,504 Sale of right to receipt of future flow of payment orders from abroad (2) 321,708 - 321,708 - Payables for acquisition of assets and rights 4,959 4,959 4,959 4,959 Liabilities under government agreements 1,491 1,713 1,491 1,713 Accrued liabilities 469,962 315,912 473,287 318,751 Personnel expenses 259,726 179,643 261,392 181,960 Administrative expenses 187,220 129,276 188,682 129,798 Other payments 23,016 6,993 23,213 6,993 Reserve for labor contingencies (3) 1,011,473 1,192,461 1,061,809 1,284,530 Reserve for civil contingencies (4) 285,156 304,456 291,586 314,735 FGTS for amortization 4,937 2,463 4,937 2,463 Payables to affiliates - - 11 78 Pension plan (note 26.b) 4,033,441 4,038,742 4,033,441 4,038,742 CABESP (employee assistance) 100,836 100,969 100,836 100,969 Other liabilities 411,663 329,954 441,090 369,657
(1) Refers mainly to the deductibility of social contribution tax in the corporate income tax basis, and difference in the social contribution tax rate,
(2) Liability for sale of right to receipt of future flow of payment orders receivable from foreign correspondent banks, in the amount of US$ 137 million, with charges equivalent to 5.5% p.a., payable semiannually starting March 2005. Principal will be paid in 9 semiannual installments from September 2007 to September 2011.
27 Banco do Estado de São Paulo S.A. - BANESPA
(3) The most recurring claims refer to overtime and the respective effects, and differences in supplementary pension benefits.
(4) Most lawsuits in which the Bank is a defendant refer to the review of contracts involving bank transactions and indemnities for property damages and pain and suffering.
15. STOCKHOLDERS’ EQUITY
a) Capital
Capital is represented by 38,747,842,000 registered shares, without par value, as follows:
Shares in thousands Common Preferred Total
Brazilian residents 19,372,698 19,373,220 38,745,918 Foreign residents 1,223 701 1,924 Total 19,373,921 19,373,921 38,747,842
b) Dividends
In accordance with the Bank’s bylaws, stockholders are entitled to a minimum dividend equivalent to 25% of annual net income, adjusted as provided for by legislation. Preferred shares are nonvoting and nonconvertible, but otherwise have the same rights and advantages granted to common shares, in addition to priority in payment of dividends 10% higher than those paid on common shares.
c) Interest on capital
The Directors’ Meeting held on June 30, 2005 approved the payment, beginning July 29, 2005, of interest on capital in the amount of R$ 200,000 (R$ 4.92 per thousand common shares and R$ 5.41 per thousand preferred shares, and R$ 4.18 per thousand common shares and R$ 4.60 per thousand preferred shares, net of income tax), which will be attributable to mandatory minimum dividends, which generated a tax benefit of R$ 68,000.
28 Banco do Estado de São Paulo S.A. - BANESPA
16. OPERATING RATIOS a) Basel Agreement (Operating Limit) Brazilian financial institutions are required to maintain stockholders’ equity commensurate with their asset exposure risk, weighted by factors varying from 0 to 300%, and an equity-weighted asset ratio of at least 11%, in accordance with CMN Resolution No. 2,099/94 and supplementary instructions. This ratio is determined on a consolidated basis. As of June 30, 2005, Santander Banespa in Brazil, represented by Banco Santander S.A. as the lead institution, is in compliance with the aforementioned limit, with an equity-weighted asset ratio of 15.60 % (16.26% in 2004). b) Fixed Assets to Equity Ratio Brazilian financial institutions are required to maintain stockholders’ equity commensurate with their investments in permanent assets. The fixed assets to equity ratio cannot exceed 50% of stockholders’ equity, adjusted pursuant to prevailing regulations. As of June 30, 2005, Santander Banespa in Brazil is in compliance with the aforementioned ratio, with a fixed assets to equity ratio of 27.21% (2004 - 26.94%).
17. RELATED-PARTY TRANSACTIONS Transactions among the entities of Santander Banespa are carried out under usual market rates and terms, comparable to those applied in transactions with unrelated parties. The principal transactions and balances are as follows:
Assets (Liabilities) Income (Expenses) 2005 2004 2005 2004
Cash 1,333 7,468 - - Santander Central Hispano 1,333 7,468 - - Interbank investments 4,077,324 5,050,947 446,412 201,386 Banco Santander Brasil S.A. 3,000,000 3,100,942 360,360 160,593 Banco Santander S.A. 650,000 150,784 34,439 1,998 Banco Santander Meridional S.A. 250,000 452,350 45,177 33,009 Banespa S.A. Corretora de Câmbio e Títulos - - - 14 Cayman Branch of Brasil Santander Brasil S.A. - - - 1 Santander Central Hispano 177,324 1,346,871 6,436 5,771 Securities and derivative financial instruments 428,474 7,369 48,330 46,717 Banco Santander Brasil S.A. 255,445 - 37,242 3,391 Banco Santander S.A. 169,223 413 7,631 3,294 Banco Santander Meridional S.A. 1,535 - 1,535 37,727 Cayman Branch of Brasil Santander Brasil S.A. - - 439 - Santander Banespa Cia. de Arrendamento Mercantil 2,271 6,956 1,483 2,305 Correspondents 74 41 - - Banco Santander Brasil S.A. 19 9 - - Banco Santander Meridional S.A. 55 32 - - Lending operations 449,930 549,545 4,480 4,321 Banco Santander Brasil S.A. 404,968 472,361 3,784 3,380 Cayman Branch of Brasil Santander Brasil S.A. 44,962 77,184 696 941 Dividends receivable 12,479 65,058 - - Banespa S.A. Corretora de Câmbio e Títulos 1,701 - - - Santander Banespa Cia. de Arrendamento Mercantil 8,255 12,750 - - Banespa S.A. Serviços Técnicos, Administrativos e de
Corretagem de Seguros 2,523 52,308 - -
29 Banco do Estado de São Paulo S.A. - BANESPA
Assets (Liabilities) Income (Expenses) 2005 2004 2005 2004
Foreign exchange portfolio 39,189 35,680 - - Banco Santander Brasil S.A. 39,189 35,680 - - Receivables from affiliates 5,589 1,914 10,115 - Santander Seguros S.A. 3,513 - 4,419 - Santander Capitalização S.A. 932 - 5,696 - Santander Central Hispano 1,089 1,874 - - Santander Banespa Cia. de Arrendamento Mercantil - 40 - - Banco Santander Brasil S.A. 55 - - - Income from services rendered - - 19,247 - Santander Seguros S.A. - - 19,247 - Recovery of charges and expenses - - 281 242 Santander Banespa Cia. de Arrendamento Mercantil - - 281 242 Other receivables - 467 - - Santander Central Hispano - 467 - - Other assets - 7,859 - - Santander Central Hispano - 7,859 - - Deposits (211,026) (315,521) (34,034) (31,707) Banco Santander Brasil S.A. - (9,049) (6,625) (1,348) Banco Santander S.A. - - - (9,017) Banco Santander Meridional S.A. - (10) (7,380) - Banespa S.A. Corretora de Câmbio e Títulos (459) (214) - - Santander Banespa Cia. de Arrendamento Mercantil (200,911) (295,696) (20,029) (21,342) Santander Seguros S.A, (4,367) (5,757) - - Santander Capitalização S.A. (1,521) (1,844) - - Santander Banespa Seguros S.A. (1) - - - Banespa S.A. Serviços Técnicos, Administrativos e de
Corretagem de Seguros (3,767) (2,951) - - Money market funding (2,412,867) (1,471,021) (329,807) (162,660) Banco Santander Brasil S.A. (2,340,267) (1,302,024) (320,354) (141,746) Banco Santander S.A. - - (2) (7,211) Banco Santander Meridional S.A. (21,998) (62,498) (4,484) (8,821) Banespa S.A. Corretora de Câmbio e Títulos (50,602) (106,499) (4,967) (4,882) Securities issued abroad (13,161) (12,497) (641) (469) Cayman Branch of Brasil Santander Brasil S.A. (13,161) (12,497) (641) (469) Borrowings and onlendings (35,972) (374,236) (10,483) (48,476) Santander Central Hispano (33,614) (374,236) (10,440) (48,476) Cayman Branch of Brasil Santander Brasil S.A. (2,358) - (43) - Derivative financial instruments (522) (6,707) (4,118) (48,800) Banco Santander Brasil S.A. 80 (4,566) (2,347) (3,740) Banco Santander S.A. - - - (3,030) Banco Santander Meridional S.A. (83) - (83) (39,533) Santander Banespa Cia. de Arrendamento Mercantil (519) (2,141) (1,688) (2,497) Foreign exchange portfolio (39,025) (51,200) - - Banco Santander Brasil S.A. (39,025) (51,200) - - Trading account (6) (15) - - Santander Brasil S.A. Corretora de Títulos e Valores Mobiliários (6) (10) - - Banespa S.A. Corretora de Câmbio e Títulos - (5) - - Other liabilities - other - (126) - - Santander Central Hispano - (126) - - Dividends payable (166,849) (392,329) - - Banco Santander Brasil S.A. (1,355) (3,188) - - Banco Santander S.A. (165,494) (389,141) - - Other operating expenses -- (14,247) - Banco Santander Brasil S.A. - - (14,247) -
30 Banco do Estado de São Paulo S.A. - BANESPA
18. INVESTMENTS IN SUBSIDIARIES
2005 Number of shares Stockholders’ Net (in thousands) Capital equity income Common Preferred
Financial sector Banespa S.A. Corretora de Câmbio e Títulos 23,000 62,292 21,010 6,718,398 6,718,298 Santander Banespa Cia. de Arrendamento Mercantil 350,000 401,207 28,162 243,581 243,581 Insurance and services sector Banespa S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros 15,498 55,341 11,005 50,425,310 -
2005 2004 Equity- Book Equity- Book Ownership method value of method value of (%) pick-up investments pick-up investments
Financial sector 49,171 463,499 98,395 439,853 Banespa S.A. Corretora de Câmbio e Títulos 99.99% 21,009 62,292 70,155 58,080 Santander Banespa Cia. de Arrendamento Mercantil 99.99% 28,162 401,207 28,240 381,773 Insurance and services sector Banespa S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros 99.99% 11,005 55,341 52,727 46,434 Total 60,176 518,840 151,122 486,287
19. INCOME FROM SERVICES RENDERED
Bank Consolidated 2005 2004 2005 2004
Income from services rendered 693,461 540,346 777,703 704,354 Income from fund management 137,976 61,322 154,170 133,920 Income from collection 32,949 30,285 32,949 30,285 Checking account services 186,235 173,731 186,235 173,731 Agreements 38,500 40,796 38,500 40,796 Lending operations 118,889 120,115 118,890 120,116 Insurance 83,175 36,011 126,435 106,723 Credit cards 44,835 41,360 44,835 41,360 Interbank fees 24,140 9,336 24,140 9,336 Stock exchange brokerage fees - - 16,041 13,303 Income from guarantees provided 2,398 2,802 2,398 2,802 Other 24,364 24,588 33,110 31,982
20. PERSONNEL EXPENSES
Bank Consolidated 2005 2004 2005 2004
Personnel expenses 739,443 619,464 751,289 637,963 Compensation 526,739 369,574 533,732 383,148 Charges 133,294 166,167 136,287 168,579 Benefits 72,244 71,818 73,264 73,129 Training 4,765 10,334 4,781 10,334 Other 2,401 1,571 3,225 2,773
31 Banco do Estado de São Paulo S.A. - BANESPA
21. OTHER ADMINISTRATIVE EXPENSES
Bank Consolidated 2005 2004 2005 2004
Other administrative expenses 802,323 640,754 818,386 659,846 Depreciation and amortization 163,358 136,387 163,358 136,387 Utilities 22,075 19,592 22,080 19,598 Financial system services 25,683 17,031 25,777 17,178 Outside and specialized services 154,277 138,883 168,254 156,004 Advertising and publicity 116,974 72,190 117,234 72,431 Rentals 44,814 37,961 44,897 38,020 Communications 69,619 72,931 70,139 73,101 Transportation and travel 32,501 29,498 32,717 29,843 Data processing 90,529 43,679 90,542 43,692 Security services 28,751 25,239 28,751 25,239 Asset maintenance 32,809 26,582 32,809 26,582 Other 20,933 20,781 21,828 21,771
22. OTHER OPERATING INCOME
Bank Consolidated 2005 2004 2005 2004
Other operating income 278,147 230,308 299,548 296,568 Recovery of charges and expenses 10,372 14,453 11,154 15,215 Reversal of operating accruals (1) 199,777 121,961 210,204 164,875 Tax contingencies 30,740 8,848 31,686 40,345 Civil contingencies 5,143 100,937 8,640 101,891 Labor contingencies 93,053 - 98,626 3,740 Other 70,841 12,176 71,252 18,899 Exchange variation - foreign branch - 25,642 - 25,642 Restatement of escrow deposits 42,251 34,146 45,920 51,389 Restatement of recoverable taxes 676 16,113 5,053 17,306 Other 25,071 17,993 27,217 22,141
(1) The Bank’s management changed the estimates of reserves for labor, civil and tax contingencies, based on events occurred during the period and technical evaluations made by legal counsel.
23. OTHER OPERATING EXPENSES
Bank Consolidated 2005 2004 2005 2004
Other operating expenses 453,898 449,621 487,467 484,472 Updating of pension plan (note 26.b) 224,254 340,073 224,254 340,073 Updating of taxes, recognition/updating of civil, tax and labor contingencies 52,118 51,459 72,395 79,323 Discounts granted 13,015 7,306 13,015 7,306 Exchange variation - foreign branch 35,274 - 35,274 - Charges on sale of right to receipt of future flow of payment orders from abroad 8,968 - 8,968 - Commissions 28,918 - 28,918 - Production of booklets and others 5,818 4,093 5,818 4,093 Operating accruals 24,837 1,658 25,778 1,658 Other 60,696 45,032 73,047 52,019
32 Banco do Estado de São Paulo S.A. - BANESPA
24. NONOPERATING (EXPENSES) INCOME
Bank Consolidated 2005 2004 2005 2004
Nonoperating (expenses) income (52,085) (5,373) (54,173) (1,371) Losses on sale of investments - (1,996) (317) (2,150) Gain (loss) on sale of assets (2,939) (1,798) (640) 1,491 Capital loss (27,601) (18,270) (27,610) (18,270) Income from rentals 64 58 64 61 Recognition of provision for losses on other assets (18,588) (21,744) (18,656) (21,538) Reversal of (recognition of) provision for losses on tax incentive investments - 33,243 (2,785) 33,989 Losses on other investments - (21) - (300) Other income (expenses) (3,021) 5,155 (4,229) 5,346
25. DERIVATIVE FINANCIAL INSTRUMENTS The Bank follows the policy of reducing market risks arising from its operations through derivative financial instruments. Market risk management is performed by an independent area, whose practices include the measurement and monitoring of limits formally established by internal committees, portfolio risks, sensitivity to interest rate fluctuations, exchange risk exposure and liquidity gaps, among other practices, providing for the monitoring of risks related to fluctuations in asset prices and interest rates and other factors which may affect the Bank’s portfolio position in the different markets in which it operates. Derivative financial instruments used as hedges have credit risks equal to or less than the related financial instrument risk.
Market value for swaps is computed based on the estimated cash flow, discounted to present value according to the applicable interest rate curves, representative of the market conditions at the balance sheet date.
The principal interest rate curves are obtained from futures and swap contracts traded on the BM&F. Adjustments to these curves are made whenever certain points are considered illiquid or when due to unusual reasons, they do not fairly represent market conditions.
As of June 30, derivative financial instruments were as follows:
Bank 2005 Trades Swaps Asset Liability Net
CDI (interbank deposit rates) 272,099 1,152,500 (880,401) Fixed interest rate - R$ 1,156,946 3,864 1,153,082 Indexed to dollar - PTAX 2,999 248,173 (245,174) Indexed to Ibovespa - 273 (273) Cost 1,432,044 1,404,810 27,234 Market value 54,713
Composition by counterparty Customers 84,264 61,916 22,348 Related parties 1,347,780 1,342,894 4,886 Total 1,432,044 1,404,810 27,234 33 Banco do Estado de São Paulo S.A. - BANESPA
Composition by maturity Up to 3 months 12,997 12,762 235 From 3 to 12 months 29,132 27,469 1,663 Over 12 months 1,389,915 1,364,579 25,336 Total 1,432,044 1,404,810 27,234
Composition by market Over the counter 1,432,044 1,404,810 27,234 Total 1,432,044 1,404,810 27,234
Bank 2004
Trades Cash flow hedge (a)/(b)
Swaps Asset Liability Net Asset Liability Net
CDI (interbank deposit rates) 73,020 1,061,103 (988,083) - - - Fixed interest rate - R$ 130,017 77,447 52,570 - - - Fixed interest rate - foreign currency - - - - 374,255 (374,255) Indexed to dollar - PTAX 938,301 712 937,589 - - - Indexed to Ibovespa - 250 (250) - - - Indexed to LIBOR - - - 374,221 - 374,221 Cost 1,141,338 1,139,512 1,826 374,221 374,255 (34) Market value 2,908 (6,594)
Composition by counterparty Customers 932,372 934,678 (2,306) Related parties 187,745 187,818 (73) Financial institutions 21,221 17,016 4,205 Total 1,141,338 1,139,512 1,826
Composition by maturity Up to 3 months 99,868 95,797 4,071 From 3 to 12 months 176,090 176,988 (898) Over 12 months 865,380 866,727 (1,347) Total 1,141,338 1,139,512 1,826
Composition by market BMF 21,222 17,017 4,205 Over the counter 1,120,116 1,122,495 (2,379) Total 1,141,338 1,139,512 1,826
(a) Swap operations classified as cash flow hedges refer to operations over the counter.
(b) Financial instruments designated for cash flow hedges consist of:
Borrowing Payment Book Market amount in advance value value Maturity Counterparty
Foreign borrowings 374,236 (7,859) 366,377 374,243 Through June 2007 Affiliated financial institutions
34 Banco do Estado de São Paulo S.A. - BANESPA
Bank/Consolidated 2005 2004 Notional Notional Futures contracts amount amount
Exchange coupon (DDI) Asset position 364,856 94,263 Liability position (68,414) (802,023) Interest rates (DI1 and DIA) Asset position 4,559,397 2,748,472 Dollar (Dol) Liability position (689,358) (352,199) Total 4,166,481 1,688,513
Composition by maturity Up to 3 months (355,178) (922,786) From 3 to 12 months 1,519,838 1,276,961 Over 12 months 3,001,821 1,334,338 Total 4,166,481 1,688,513
Consolidated 2005 Trades Swaps Asset Liability Net
CDI (interbank deposit rates) 271,049 1,105,730 (834,681) Fixed interest rate - R$ 1,108,343 2,483 1,105,860 Indexed to dollar - PTAX 3,000 248,172 (245,172) Indexed to Ibovespa - 273 (273) Cost 1,382,392 1,356,658 25,734 Market value 52,996
Composition by counterparty Customers 84,264 61,916 22,348 Related parties 1,298,128 1,294,742 3,386 Total 1,382,392 1,356,658 25,734
Composition by maturity Up to 3 months 1,256 1,283 (27) From 3 to 12 months 5,457 4,838 619 Over 12 months 1,375,679 1,350,537 25,142 Total 1,382,392 1,356,658 25,734
Composition by market Over the counter 1,382,392 1,356,658 25,734 Total 1,382,392 1,356,658 25,734
35 Banco do Estado de São Paulo S.A. - BANESPA
Consolidated 2004
Trades Cash flow hedge (a)/(b)
Swaps Asset Liability Net Asset Liability Net
CDI (interbank deposit rates) 57,604 957,063 (899,459) - - - Fixed interest rate - R$ 21,621 60,622 (39,001) - - - Fixed interest rate - foreign currency - - - - 374,255 (374,255) Indexed to dollar - PTAX 938,301 712 937,589 - - - Indexed to Ibovespa - 250 (250) - - - Indexed to LIBOR - - - 374,221 - 374,221 Cost 1,017,526 1,018,647 (1,121) 374,221 374,255 (34) Market value (1,907) (6,594)
Composition by counterparty Customers 932,372 934,678 (2,306) Related parties 63,933 66,953 (3,020) Financial institutions 21,221 17,016 4,205 Total 1,017,526 1,018,647 (1,121)
Composition by maturity Up to 3 months 65,679 62,614 3,065 From 3 to 12 months 121,114 123,247 (2,133) Over 12 months 830,733 832,786 (2,053) Total 1,017,526 1,018,647 (1,121)
Composition by market BMF 21,221 17,017 4,204 Over the counter 996,305 1,001,630 (5,325) Total 1,017,526 1,018,647 (1,121)
(a) Swap operations classified as cash flow hedges refer to operations over the counter.
(b) Financial instruments designated for cash flow hedges consist of:
Borrowing Payment Book Market amount in advance value value Maturity Counterparty
Foreign borrowings 374,236 (7,859) 366,377 374,243 Through June 2007 Affiliated financial institutions
Bank Consolidated 2005 2004 2005 2004
Assets 159,521 11,636 157,285 4,680 Swap differentials receivable 55,232 11,636 52,996 4,680 Forward purchases receivable 473 - 473 - Forward sales receivable 101,777 - 101,777 - Option premiums 2,039 - 2,039 - Liabilities 1,326 15,386 807 13,245 Swap differentials payable 519 15,322 - 13,181 Forward purchases payable 63 64 63 64 Option premiums 744 - 744 -
26. SUPPLEMENTARY PENSION PLAN
a) Since 1962, the Bank has maintained a supplementary pension plan, granted to employees hired through May 22, 1975. For recognition of the accounting effects, the charges arising from this plan are calculated based on an actuarial valuation performed by an independent actuary, in accordance with the provisions set forth in CVM Resolution No. 371.
36 Banco do Estado de São Paulo S.A. - BANESPA
b) For employees hired starting May 23, 1975, the Bank and its subsidiaries sponsor other plans through BANESPREV - Fundo Banespa de Seguridade Social, for the purpose of granting pension benefits supplementary to those granted by Social Security, as defined in the basic regulations of each plan.
b.1) Defined benefit plan
Plan I, fully defrayed by the Bank, covers employees hired after May 22, 1975, and those hired up to May 22, 1975 who are also entitled to death benefits.
Effective July 27, 1994, when the new text of the Statutes and Basic Regulations of Plan II came into effect, Plan I participants who opted for the new plan began contributing 44.94% of the funding rate established by the actuary for each year.
Due to the privatization process, the Banespa Pension Plan was created. This plan is managed by BANESPREV and offered only to employees hired up to May 22, 1975, and obtained the enrollment of 825 employees that were previously covered by the in-house pension fund.
b.2) Defined contribution plan
Banespa also sponsors Plan III, a defined contribution plan, offered to employees of the BANESPA Group hired after May 23, 1975, previously enrolled in Plans I and II. In this plan, the contributions are made both by the sponsor and the participants.
Results of the independent actuary’s valuation in accordance with CVM Resolution No. 371 are as follows:
Actuarial assumptions adopted in the calculations BANESPA BANESPREV 2005 2004 2005 and 2004
Nominal discount rate for 17.6% (12% actual and 5% for actuarial liabilities (1) 12% inflation) 15.5% (10% + 5% for inflation) Estimated nominal rate of return on assets - - 15.5% (10% + 5% for inflation) Estimated long-term inflation rate 5% 5% 5% Estimated nominal salary increase (1) 0% 5% 5% Estimated nominal benefit increase (1) 0% 5% 5%
General mortality table UP84 rated up one year UP84 rated up one year Disability entry table Mercer disability entry table Mercer disability entry table 0.15/(Employment time + 1) up to Estimated turnover rate 50 years old 2% Retirement entry probability 100% when first eligible for a plan benefit 100% when first eligible
(1) In 2005 the benefit adjustments provided for in Banespa’s collective labor agreement were not estimated.
37 Banco do Estado de São Paulo S.A. - BANESPA
Reconciliation of assets and liabilities Banespa 2004 2003
Present value of actuarial liabilities 3,972,798 4,101,560 Adjustments for allowed deferrals - - Unrecognized actuarial gains (losses) 133,092 (132,749) Net actuarial liability accrued at the beginning of the six-month period 4,105,890 3,968,811 Payments made in the six-month period (296,703) (270,142) Expenses recognized in the six-month period 224,254 340,073 Balances as of June 30 4,033,441 4,038,742
BANESPREV 2005 2004
Present value of actuarial liabilities including coverage (2,375,060) (1,929,474) Fair value of plan assets 3,175,756 2,554,588 Difference between present value of liabilities and fair value of assets 800,696 625,114 Adjustments for allowed deferrals: Unrecognized actuarial gains (422,663) (425,538) Net actuarial asset at the beginning of the six-month period (1) 378,033 199,576 Contributions for the six-month period 16,759 60,940 Consolidated contributions for the six-month period 18,155 61,271
(1) Pursuant to article 49, item “g”, of CVM Resolution No. 371, the aforementioned asset was not recorded in the financial statements of BANESPA.
27. INCOME AND SOCIAL CONTRIBUTION TAXES
Bank 2005 2004 IRPJ CSLL IRPJ CSLL
Income before taxes on income (corporate income tax - IRPJ and social contribution tax - CSLL) 866,816 866,816 865,394 865,394 Interest on capital 200,000 200,000 - - Income before taxes on income 666,816 666,816 865,394 865,394 Total IRPJ and CSLL at the rates of 25% and 9%, respectively (166,704) (60,013) (216,348) (77,885) Additions to and deductions from CSLL and IRPJ 166,704 60,013 216,348 77,885 Equity in subsidiaries 15,044 5,416 37,781 13,601 Temporarily nondeductible provisions 30,546 9,255 7,415 (2,646) Reserve for maintenance of stockholders’ equity 186,551 67,159 186,552 67,158 Nondeductible expenses and provisions (24,891) (8,999) (7,459) (5,456) Interest on capital (received/paid) (3,670) (1,321) (4,943) (1,779) Tax loss carryforwards (31,934) (9,634) (32,232) (7,548) Other additions/deductions (4,942) (1,863) 29,234 14,555 Tax expense - current - - - - IRPJ/CSLL expense - deferred asset - MTM (669) (241) - - IRPJ/CSLL expense - deferred liability - MTM 9,807 3,531 - - Income tax expense - foreign countries (1,217) - - - Total tax recognized 7,921 3,290 - -
38 Banco do Estado de São Paulo S.A. - BANESPA
Consolidated 2005 2004 IRPJ CSLL IRPJ CSLL
Income before taxes on income (corporate income tax - IRPJ and social contribution tax - CSLL) 892,228 892,228 915,290 915,290 Interest on capital 200,000 200,000 - - Income before taxes on income 692,228 692,228 915,290 915,290 Total IRPJ and CSLL at the rates of 25% and 9%, respectively (173,057) (62,301) (228,823) (82,376) Additions to and deductions from CSLL and IRPJ 155,089 55,337 189,120 70,679 Temporarily nondeductible provisions 25,365 7,391 10,215 (1,666) Reserve for maintenance of stockholders’ equity 186,551 67,159 186,552 67,158 Nondeductible expenses and provisions (21,880) (8,453) (12,535) (5,547) Tax loss carryforwards (30,260) (8,923) (32,233) (7,548) Other additions/deductions (4,687) (1,837) 37,121 18,282 Tax expense - current (17,968) (6,964) (39,703) (11,697) Excess depreciation of leased assets - - 4,684 - Deferred tax credits - IRPJ/CSLL - - 4,684 -
IRPJ/CSLL expense - deferred asset 379 351 (1,773) (1,406) IRPJ/CSLL expense - deferred asset - MTM (769) (277) - - IRPJ/CSLL expense - deferred liability (1,004) - - - IRPJ/CSLL expense - deferred liability - MTM 9,757 3,512 - - Income tax expense - foreign countries (1,218) - - - Total tax recognized (10,823) (3,378) (36,792) (13,103)
28. INSURANCE
The Bank’s insurance coverage in effect as of June 30, 2005 covering global bank risk, fire, vehicle and other risks, amounts to R$ 545,284 - consolidated R$ 549,634 (2004 - R$ 493,588 - consolidated - R$ 497,875).
An insurance of the “Global Bank Risk” type was contracted for Santander Banespa with coverage of R$ 191,956 (2004 - R$ 142,215), which can be used separately or jointly, provided that it does not exceed the contracted amount.
29. OTHER INFORMATION
a) Co-responsibility and risks on guarantees provided on behalf of customers, recorded in memorandum accounts, amounted to R$ 514,926 (Bank and consolidated) - (2004 - R$ 523,514 - Bank and consolidated).
b) The total net book value of managed investment funds in the Consolidated is R$ 16,163,154 (2004 - R$ 13,514,704).
c) In compliance with National Monetary Council Resolution No. 3,198 of May 27, 2004, Santander Banespa joined the Single Audit Committee, by means of the lead institution Banco Santander S.A.
The summary of this committee’s report is being disclosed together with the combined financial statements of Santander Banespa.
RB0140*.* 39
(Convenience Translation into English from the Original Previously Issued in Portuguese)
INDEPENDENT AUDITORS’ REPORT
To the Management and Stockholders of Banco do Estado de São Paulo S.A. - BANESPA São Paulo - SP
1. We have audited the accompanying individual (Bank) and consolidated balance sheets of Banco do Estado de São Paulo S.A. - BANESPA and subsidiaries (Consolidated) as of June 30, 2005 and 2004, and the related statements of income, changes in stockholders’ equity, and changes in financial position for the six-month periods then ended, all expressed in Brazilian reais and prepared under the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements.
2. Our audits were conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the Bank and its subsidiaries, (b) checking, on a test basis, the evidence and records that support the amounts and accounting information disclosed, and (c) evaluating the significant accounting practices and estimates adopted by management, as well as the presentation of the financial statements taken as a whole.
3. In our opinion, the financial statements referred to in paragraph 1 present fairly, in all material respects, the individual and consolidated financial positions of Banco do Estado de São Paulo S.A. - BANESPA and subsidiaries as of June 30, 2005 and 2004, and the results of their operations, the changes in stockholders’ equity, and the changes in their financial positions for the six-month periods then ended in conformity with Brazilian accounting practices.
4. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.
São Paulo, August 5, 2005
DELOITTE TOUCHE TOHMATSU José Barbosa da Silva Júnior Auditores Independentes Engagement Partner