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Banco Cruzeiro do Sul S.A.

Notes to the financial statements June 30, 2008 and 2007 (A free translation of the original report in Portuguese as disclosed in Brazil containing financial statements prepared in accordance with accounting practices adopted in Brazil)

ABCD

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Notes to the financial statements June 30, 2008 and 2007

Contents

Management report 3 - 7

Independent auditors’ report 8 - 9

Balance sheets 10

Statements of income 11

Statements of changes in shareholders’ equity 12

Statements of changes in financial position 13

Statements of cash flow - Supplementary Information 14

Statements of added value - Supplementary Information 15

Notes to the financial statements 16 - 59

ABCD

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Management report Dear Shareholders, we hereby submit to your examination the financial statements of Banco Cruzeiro do Sul S.A. (Bank), and of Banco Cruzeiro do Sul S.A. and its subsidiaries (Consolidated), for the period ended June 30, 2008, elaborated based on accounting guidelines set by Corporate Law for the accounting of operations, associated with the rules and instructions of the National Monetary Council (CMN), of the Central Bank of Brazil (BACEN), of the Brazilian Securities Commission (CVM) and of the Superintendency of Private Insurance (SUSEP). The Macroeconomic Scenario During this semester in 2008, Brazil displayed a business and macroeconomic trend of increasing inflation and, as a result of interest rates, in spite of the stable pace of domestic consumer activity. Our credit portfolio according to our books rose to R$ 3.8 billion, divided into: R$ 3.2 billion in payroll-based loans, R$ 205.6 million in transactions based on credit card advances, and R$ 413.4 million in loans to small and medium-sized companies. Growth over the period was of 6.3% as compared to the first quarter of 2008 (R$ 3.6 billion), and of 87.0% as compared to the same period in 2007 (R$ 2.0 billion). Relevant Facts On March 5, 2008 Banco Cruzeiro do Sul S/A was authorized by Banco Central do Brasil to begin operating its foreign exchange portfolio, as published in the Federal Official Gazette dated March 10, 2008. On April 4, 2008 Banco Cruzeiro do Sul S/A and Banco UBS Pactual S/A entered into agreements for the exchange of future financial flows (swaps) equal to, on the one hand, the change in price of the preferred shares issued by the Company (CZRS4), and on the other hand the change in the CDI rate plus a pre-defined spread. During a General and Special Shareholders’ Meeting (under ratification by Banco Central do Brasil) held on April 23, 2008, an Audit Committee was created with the purpose of advising the Board of Directors on the performance of its attributions in connection with monitoring the accounting and taxation practices adopted when preparing the Company’s financial statements and those of its Subsidiaries. On May 15 and on June 3, 2008 the payment of interest on capital was approved by means of a Board of Directors Meeting, pursuant to Law 9249/95 and in the amount of R$ 31,385 million, benefiting those shareholders duly registered in the Company’s books on those dates and to be paid on August 15, 2008. During a ceremony held on June 18, 2008 in the city of São Paulo, Banco Cruzeiro do Sul S/A represented by its CEO Dr. Luis Felippe Indio da Costa received an award for the “Financial conglomerate which experienced greater growth of its Shareholders’ Equity, among the country’s small and medium-sized financial groups over the last three years”, an award granted by FGV - Fundação Getúlio Vargas, and handed over by Dr. Yoshiaki Nakano, director of Escola de Economia de São Paulo in FGV - Fundação Getúlio Vargas.

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During a ceremony held on June 30, 2008 in the city of São Paulo, Corretora Cruzeiro do Sul represented by its executive director Flávio Rietmann, was elected the best securities and commodities brokerage firm for 2007, by Balanço Financeiro magazine, edited by the well-known newspaper Gazeta Mercantil. Credit Policies Loans that are scattered, diversified, and covered by adequate guarantees are conducted fast, safely and with good profitability, representing quality and liquidity in the investment of assets, and are the basic requirements in the Bank’s credit policy. Payroll-deduction loan operations The loan portfolio, including co-obligations and bank guarantees, securities and accounts receivable, and FIDC subordinated quotas recorded under the TVM title, rose to R$ 3.8 billion during the second quarter of 2008, an increase of 6.3% as compared to the first quarter of 2008 (R$ 3.6 billion), and of 87.0% as compared to the same period in 2007 (R$ 2.0 billion). The proportion of loans in favor of public employees and of social welfare beneficiaries was of 90.4% and 9.6% of the total respectively, and within the strategic policy of Banco Cruzeiro do Sul of maintaining payroll-based loans in favor of social welfare beneficiaries below 25% of total loans. Payroll-deduction credit card Payroll-based credit card advances rose to R$ 797,400 cards issued, a 46.6% growth when compared to the same period in the previous year (544,100). Loans rose to R$ 205.6 million, a 22.8% increase as compared to the first quarter of 2008 (R$ 167.4 million) while growth compared to the second quarter of 2007 (R$ 102.7 million) was of (100.4%). Banco Cruzeiro do Sul’s investment in the consigned card setting up since 2005 ratifies the Bank’s pro-activity in the search of new instruments for distribution of consigned credit in the existing business segments, evidenced by the new INSS consignation structure, dividing the consignable amount in 20% throught direct loans and 10% throught the consigned credit card. Loans to medium-sized companies During the second quarter of 2008, the credit porfolio for legal entity clients in the segment of small and medium-sized companies (middle market) reached the amount of R$ 413.4 million, presenting an increase of 72.6%, compared to the same period of 2007 (R$ 239.6 million). If compared to the first quarter of 2008, the increase was 8.1% (R$ 382.6 million).

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Funding Funding by Banco Cruzeiro do Sul in the domestic market takes place by means of time deposits and inter-bank deposits, through the assignment of loans to other financial institutions, and Credit Rights Investment Funds (FIDC’s), and is directed at institutional investors, individuals, and legal entities in the domestic market. Funding by Banco Cruzeiro do Sul in the international market takes place by means of a program for issuing short- and medium-term notes. As an example, there is the overseas floating of two-year notes totaling US$ 110 million, during April 2008 at 7.5% per annum. Our international funding during the semester rose to US$ 210 million. Banco Cruzeiro do Sul’s funding sources in the second quarter of 2008 remained diversified among: • Time deposits by individuals and legal entities 30.7% (22.2% - 2Q07), and also with terms

adequate to our business lines; • Credit assignments to other financial institutions 17.6% (28.8% - 2Q07); • Overseas funding (STN & MTN) - 19.0% (23.9% - 2Q07); • Credit assignments to FIDC senior quotas 17.0% (19.4% - 2Q07); • Inter-bank deposits - 15.7% (5.6% - 2Q07).

Total funding during the second quarter of 2008 totaled R$ 4,563.2 million, with a 35.2% increase as compared to the second quarter of 2007, and of 8.9% as compared to the first quarter of 2008. The increase in time deposits should be pointed out, of 87.1% as compared to the second quarter of 2007, and the 276.3% rise in inter-bank deposits as compared to the same period in 2007. The time deposit portfolio’s average tenor is of roughly 334 days, while that of our portfolio of overseas note issues is of 570 days. Capital and reserves Shareholders’ equity rose to R$ 1,136.0 million in 2Q07. A 2.2% increase as compared to the first quarter of 2008 and of 32.9% when compared to the second quarter of 2007. Shareholders’ equity for the second quarter of 2008 was of R$ 1,130.7 million. Income for the period In the first half of 2008 the net income reached the amount of R$ 150.2 million, which represented an increase of 397.4% in comparison with the same period in the prior year (R$ 30.2 million). The return of Shareholders’Equity was of 27.4% and the increase in the income from financial intermediation was 34.2% (R$ 399.7 million) in the first half of 2008 if compared to the same period in 2007 (R$ 297.9 million).

Management of operating risk In order to comply with the provisions of CMN Resolution no. 3380/06, Banco Cruzeiro do Sul S.A. implemented a specific structure to manage operating activity risks. In addition, the Executive Officers approved an Operating Risk Management Policy.

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The methodology for calculating the capital allocation portion (Popr) selected by the Bank was the “Basic Indicator Approach - BIA”, and the Conglomerate has a sufficiently robust capital structure which supports without great difficulties the adoption of this methodology. Market risk management In order to comply with the provisions of CMN Resolution no. 3.464/07, Banco Cruzeiro do Sul S.A. implemented a specific structure to manage market risks for its transactions. In addition, the Executive Officers approved a Market Risk Management Policy. Ombudsman’s office Banco Cruzeiro do Sul S.A. created an Ombudsman’s unit. The Ombudsman’s Office is in charge of representing customers who avail themselves of Banco Cruzeiro do Sul’s goods and services, and in this respect the Bank’s Executive Officers ensure every condition so that the activities of the Ombudsman’s Office is based on transparency, independence, and impartiality when dealing with customers and when accessing the required information. Investor relations Mr. Luis Felippe Indio da Costa is the Bank’s director in charge of Investor Relations and is also the chairman of the Board of Directors. Investor relations are conducted through the website www.bcsul.com.br, or e-mail address [email protected], or through telephone (55) (11) 3848-2704. Professional team In the Human Resources area, professional improvement of the personnel was continued, aiming at increasing the qualification of our employees in order to provide an excellent service to our customers. Banco Cruzeiro do Sul continued sponsoring courses, seminars and conferences for its employees on their respective areas of operation, including specialized courses on operating risks and on fighting money laundering. Social policies In the social field, Cruzeiro do Sul continued incorporating in its practical activities the principles of ethics and social responsibility, and supporting social inclusion programs for underprivileged youngsters and senior citizens, by offering courses and cultural activities. In addition, it sponsored sports events and made donations to cultural organizations. Relationship with auditors In compliance with Brazilian Securities Commission (CVM) Instruction No. 381, of January 14, 2003, we inform that the independent auditors, in the period from January to December 2007, have provided other services not related to external audit that were equivalent to more than 5% of the total fees charged for external audit services with regard to a diagnosis of the differences between Brazilian accounting practices and international accounting practices (IFRS), in the amount of R$ 187 million.

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The hired services did not represent any conflicts of interest in relation to audit work and did not interfere in the independence and objectivity of such work, since they adhered to the Bank’s policies and internationally accepted criteria, i.e.: The auditor should not audit its own work, nor exercise managerial functions in its client or defend the client’s interests. Final considerations of the Board of Directors and Executive Officers We intend to continue focusing on our activity’s growth objectives in connection with payroll-based personal loans and credit card advances, in addition to limiting the development of loans to medium-sized companies. We have begun to adapt Brazilian accounting practices and international practices (IFRS), not only with a mind on legal compliance, but also on greater transparency in the financial statements made available to the public and to investors. We have also begun re-ordering our conglomerate structure in accordance with the strictest Corporate Governance standards (Project Constellation), with a view to achieving high-quality management in all the organization’s management levels, a solid path to become competitive in the current scenario. Acknowledgement Before closing, considering our accomplishments and improvements achieved, we would like to thank our customers for their support and trust, and our employees and other collaborators for their dedication and effort. The Management

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Independent auditors’ report To The Board of Directors and Shareholders Banco Cruzeiro do Sul S.A. São Paulo - SP We have examined the balance sheet of Banco Cruzeiro do Sul S.A. (Bank) and the consolidated balance sheet of Banco Cruzeiro do Sul S.A., its subsidiaries and special purpose entities (Consolidated) as of June 30, 2008 and 2007 and the related statements of income, changes in shareholders’ equity and changes in financial position for the semesters then ended, which are the responsibility of its Management. Our responsibility is to express an opinion on these financial statements. Our examinations were conducted in accordance with auditing standards generally applicable in Brazil and included: (a) planning of the audit work, considering the materiality of the balances, the volume of transactions and the accounting systems and internal accounting controls of the Bank, its subsidiaries and special purpose entities; (b) verification, on a test basis, of the evidence and records which support the amounts and accounting information disclosed; and (c) evaluation of the most significant accounting policies and estimates adopted by the Bank, its subsidiaries and special purpose entities management, as well as the presentation of the financial statements taken as a whole. In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Banco Cruzeiro do Sul S.A. and the consolidated financial position of Banco Cruzeiro do Sul S.A., its subsidiaries and special purpose entities at June 30, 2008 and 2007, and the results of their operations, changes in their shareholders’ equity and changes in their financial position for the semesters then ended, in conformity with the accounting practices adopted in Brazil prior to the enactment of Law 11638/07. As mentioned in Note 23g, Law 11638/07 was enacted on December 28, 2007, in force as from January 1, 2008. This Law amended, revoked and introduced new provisions into Law 6404/76 (Brazilian Corporation Law), and changed the accounting practices adopted in Brazil. Although the aforementioned Law had already been in force, some amendments introduced depend on regulation by the National Monetary Council and the Central Bank of Brazil, in order to be wholly applied by the institutions that they regulate. Therefore, during this transition phase, the Central Bank of Brazil, through Communiqué 16669, as of March 20, 2008, authorized the non-application of the provisions of Law 11638/07 in the preparation, in 2008, of the interim financial statements. Therefore, the financial statements were prepared in accordance with the specific instructions of the of the Central Bank of Brazil, and do not consider the changes in the accounting practices introduced by Law 11638/07.

ABCD KPMG Auditores Independentes R. Dr. Renato Paes de Barros, 33 04530-904 - São Paulo, SP - Brasil Caixa Postal 2467 01060-970 - São Paulo, SP - Brasil

Central Tel 55 (11) 2183-3000 Fax Nacional 55 (11) 2183-3001 Internacional 55 (11) 2183-3034 Internet www.kpmg.com.br

KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International, uma cooperativa suíça.

KPMG Auditores Independentes is a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

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Central Bank of Brazil, and do not consider the changes in the accounting practices introduced by Law 11638/07. Our examinations were conducted with the purpose of issuing an opinion on the basic financial statements referred to in the first paragraph, taken as a whole. The statements of cash flow and of added value for the semesters ended June 30, 2008 and 2007, which are being submitted to spawn supplementary information about Banco Cruzeiro do Sul S.A., its subsidiaries and special purpose entities were not required up to June 30, 2008 as an integral part of the financial statements, according to accounting practices adopted in Brazil prior to the enactment of Law 11638/07. These statements were submitted to the same audit procedures described in paragraph 2 and, in our opinion, these supplementary statements are adequately presented, in all material respects, in relation to the basic financial statements taken as a whole. August 4, 2008 KPMG Auditores Independentes CRC 2SP014428/O-6 Original in Portuguese signed by Ricardo Anhesini Souza Silbert Christo Sasdelli Júnior Accountant CRC 1SP152233/O-6 Accountant CRC 1SP230685/O-0

ABCD


Balance sheets

June 30, 2008 and 2007

(In thousand of Reais)

Assets 2008 2007 2008 2007 2008 2007 2008 2007

Current assets 4,422,337 2,733,126 2,390,636 1,695,965 Liabilities 2,383,255 1,274,601 2,566,392 1,417,675

Bank and cash 573 1,087 896 1,833 Current liabilities 1,612,209 770,382 1,358,500 604,645

Interbank funds applied 40,434 474,648 65,554 492,216 Demand deposits 17,484 24,541 12,731 21,880 Interbank deposits 692,474 164,137 506,703 119,248

Money market - 455,068 22,020 472,636 Time deposits 900,669 580,136 837,588 461,949 Interbank deposits 40,434 19,580 43,534 19,580 Other deposits 1,582 1,568 1,478 1,568

Money market repurchase commitments 145,363 37,738 145,363 37,738 Securities and derivative financial instruments 3,622,871 1,861,623 585,347 328,148

Own portfolio 145,363 - 145,363 - Own portfolio 3,417,944 1,777,537 353,340 241,327 Third-party portfolio - 37,738 - 37,738 Subject to repurchase commitments 147,087 - 147,087 - Derivative financial instruments 18,769 17,617 19,687 17,617 Acceptances and endorsements 206,321 242,176 206,321 242,176 Related to Central Bank of Brazil - - 3,304 - Subject to guarantees provided 39,071 66,469 61,929 69,204 Securities issued abroad 206,321 242,176 206,321 242,176

Interbank accounts 28,941 3,105 28,941 3,105 Interbank accounts 1,872 1,941 1,872 1,941

Restricted credits:Brazilian Central Bank deposits 21,690 436 21,690 436 Payables and reveivables pending settlement 1,872 1,941 1,872 1,941

Correspondents 3,605 526 3,605 526 Receivables and payables pending settlement 3,646 2,143 3,646 2,143 Derivative financial instruments 96,927 42,676 96,927 42,676

Loans 540,566 311,666 1,418,963 654,585 Other liabilities 320,563 179,688 757,409 488,499

Loans - Private sector 560,102 318,313 1,440,327 661,682 Collection of taxes 2,325 1,342 2,444 1,367 (-) Allowance for doubtful loans (19,536) (6,647) (21,364) (7,097) Foreign exchange portfolio 1,321 - 1,321 -

Due to shareholders 36,834 7,183 36,835 7,183 Other receivable 180,353 69,834 203,313 158,157 Taxes payable 32,680 7,662 80,985 10,244

Due in connection with securities dealings 429 251 17,808 11,712 Foreign exchange portfolio 1,321 - 1,321 - Other 246,974 163,250 618,016 457,993 Income receivable 1 23 357 304 Securities clearing accounts 14,173 - 19,315 7,247 Non current liabilities 1,469,308 937,397 1,869,628 1,308,314 Notes and credits receivable 1,964 4,879 5,921 8,172 Other 164,835 68,439 182,298 146,270 Deposits 506,268 169,699 506,268 169,699 (-) Allowance for doubtful receivable (1,941) (3,507) (5,899) (3,836)

Interbank deposits 4,356 - 4,356 - Other assets 8,599 11,163 87,622 57,921 Time deposits 501,912 169,699 501,912 169,699

Prepayments 8,599 11,163 87,622 57,921 Acceptances and endorsements 659,551 564,449 659,551 564,449

Non current assets 334,489 196,240 2,904,244 1,721,577 Securities issued abroad 659,551 564,449 659,551 564,449

Interbank funds applied 169,972 69,050 169,972 69,050 Derivative financial instruments 142,432 80,663 142,432 80,663

Interbank deposits 169,972 69,050 169,972 69,050 Other liabilities 161,057 122,586 561,377 493,503

Taxes payable 158,204 122,049 160,530 123,690 Securities and derivative financial instruments 11 1,326 11 1,326 Others 2,853 537 400,847 369,813

Privatization certificates 11 11 11 11 Deferred income 70 92 2,327 2,301 Derivative financial instruments - 1,315 - 1,315

Minority interest in subsidiaries - - 6,454 4,530 Loans 81,868 57,012 2,290,876 1,459,490

Shareholders' equity 1,136,048 854,864 898,765 750,106 Loans - Private sector 83,344 58,222 2,308,424 1,468,714 (-) Allowance for doubtful loans (1,476) (1,210) (17,548) (9,224) Capital:

Domestic 769,196 758,965 769,196 758,965 Other receivable 72,681 57,235 236,726 62,151 Capital reserve 10,110 8,318 10,110 8,318

Revaluation reserve 13,318 13,318 13,318 13,318 Securities clearing accounts - - 859 4 Revenue reserve 232,182 53,962 232,289 53,962 Notes and credits receivable 136 1,307 136 1,307 Adjustment to market value - Securities and derivatives (38) 92 (38) 92 Other 72,681 56,867 235,867 61,779 Retained earnings/accumulated losses 111,280 20,209 (126,110) (84,549) (-) Allowance for doubtful receivable (136) (939) (136) (939) - 20,209 - 20,209

- - (107) (104,758) Other assets 9,957 11,617 206,659 129,560 - - - -

Non-operating assets - - 88 88 Prepayments 9,957 11,617 206,571 129,472

Permanent assets 231,855 137,588 48,686 65,384

Investments 209,290 117,975 5,741 27,266

Investments in subsidiaries - Domestic 208,702 107,852 - - Other investments 588 10,123 5,741 27,266

Premises and equipment 11,275 11,488 29,701 29,044

Other fixed assets 23,100 18,220 41,894 35,937 (-) Accumulated depreciation (11,825) (6,732) (12,193) (6,893)

Deferred charges 11,290 8,125 13,244 9,074

Deferred charges 14,772 9,397 17,071 10,417 Accumulated amortization (3,482) (1,272) (3,827) (1,343)

Total assets 4,988,681 3,066,954 5,343,566 3,482,926 4,988,681 3,066,954 5,343,566 3,482,926

See the accompanying notes to the financial statements.

Bank Consolidated Bank Consolidated

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Statements of income

Semesters ended June 30, 2008 and 2007


2008 2007 2008 2007

Financial operations income 466,714 319,060 333,221 291,823

Loans 450,460 313,751 404,330 360,773 Securities income 142,720 141,507 55,335 67,364 Derivative financial instruments (127,367) (136,198) (127,345) (136,314) Compulsory investments 901 - 901 -

Financial operations expenses (66,967) (21,135) (87,364) (64,695)

Deposits, money market and interbank funds (57,983) (15,750) (75,090) (57,310) Borrowings and repass (7) - (7) - Allowance for doubtful loans (8,977) (5,385) (12,267) (7,385)

Gross income on financial operations 399,747 297,925 245,857 227,128

Other operating income/(expenses) (164,085) (251,828) (190,275) (202,031)

Retained premiums - - 10,630 8,720 Retained claims - - (8,682) (7,029) Service income 5,262 6,305 14,505 12,395 Earnings from bank fees 2,692 2,276 2,768 2,280 Personnel expenses (41,619) (21,541) (46,026) (23,197) Other administrative expenses (68,129) (95,018) (88,536) (107,985) Tax expenses (11,559) (9,360) (13,490) (11,388) Equity in income of subsidiaries 13,505 2,598 - - Other operating income 48,790 972 51,790 1,930 Other operating expenses (113,027) (138,060) (113,234) (77,757)

Operating results 235,662 46,097 55,582 25,097

Non operating results (1) (8) (1) 499

Results before income taxes 235,661 46,089 55,581 25,596

Income tax and social contributions (76,787) (15,365) (8,992) (9,168)

Provision for income tax (39,117) (16,342) 2,635 (11,938) Provision for social contribution (36,456) (5,883) (10,682) (4,311) Deferred tax assets (1,214) 6,860 (945) 7,081

Profit sharing (8,700) (557) (10,229) (558)

Minority interest in subsidiaries - - (270) 42

Net profit for the period 150,174 30,167 36,090 15,912

Number of shares (thousand) 145,218 144,558 - -

Net profit per share - R$ 1.03 0.21 - -

Interest on own capital 31,385 8,450 31,385 8,450


Bank Consolidated

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Statements of changes in shareholders' equity



Adjustment tomarket-value-

Realized Capital Capital Revaluation Revenue securities and Retainedcapital increase reserve reserve reserve derivatives earnings Total

Balances at December 31, 2006 145,000 37,500 5,942 13,318 5,469 165 47,138 254,532

Capital increase 613,965 (37,500) - - - - - 576,465

Adjustment to maket-value-Securities ans derivatives - - - - - (73) - (73)

Other events:Revaluation of membership certificates - - 2,376 - - - - 2,376 Real estate revaluation - Subsidiaries - - - - 45,736 - (45,736) -

Net profit for the semester - - - - - - 30,167 30,167

Distributions:Legal Reserve - - - - 2,757 - (2,757) - Interest on own capital - - - - - - (8,450) (8,450) Dividends - - - - - - (153) (153)

Balances at June 30, 2007 758,965 - 8,318 13,318 53,962 92 20,209 854,864

Balances at December 31, 2007 769,196 - 9,791 13,318 224,673 30,659 - 1,047,637

Adjustment to maket-value-Securities ans derivatives - - - - - (30,697) - (30,697)

Other events:Revaluation of membership certificates - - 319 - - - - 319

Net profit for the semester - - - - - - 150,174 150,174

Distributions:Legal reserve - - - - 7,509 - (7,509) - Interest on own capital - - - - - - (31,385) (31,385)

Balances at June 30, 2008 769,196 - 10,110 13,318 232,182 (38) 111,280 1,136,048


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Statements for changes in financial position



2008 2007 2008 2007

Sources of funds 823,187 1,026,843 923,792 1,307,313

Adjusted net profit 139,326 29,061 38,989 17,401

Net income for the period 150,174 30,167 36,090 15,912 Depreciation and amortizations 2,657 1,492 2,899 1,516 Equity in income of subsidiaries (13,505) (2,598) - - Others - - - (27)

Minority interest subsidiaries - - 1,788 (3,445)

Variation in deferred income 36 (7) 65 2,201

Adjustment to market value - Securities and derivatives (30,697) (73) (30,697) (73)

Revaluation of membership certificates 319 2,376 319 2,376

Resources from shareholders - 576,465 - 576,465 Capital increase - 576,465 - 576,465

Funds from third parties: 714,203 419,021 913,328 712,388

Increase in liabilities 712,489 414,924 842,897 463,534

Deposits 496,209 240,580 548,925 159,516 Acceptances and endorsements 141,343 - 141,343 - Derivative financial instruments 73,065 91,485 73,065 91,485 Interbank accounts 1,872 1,940 1,872 1,940

Other liabilities - 80,919 77,692 210,593

Decrease in assets 1,699 4,058 70,393 248,815

Securities and derivative financial instruments - - 70,393 248,815 Other assets 1,699 4,058 - -

Disposal of assets and investments 15 39 38 39

Premises and equipment 1 39 1 39 Investments 14 - 37 -

Applications of funds 825,419 1,026,749 926,082 1,306,601

Dividends - 153 - 153 Interest on own capital 31,385 8,450 31,385 8,450

Acquisition of assets and investments 4,521 11,689 4,022 6,051

Premises and equipment 2,754 2,000 3,556 2,748 Investments 1,767 9,689 466 3,303

Investments in deferred charges 1,761 298 2,836 631

Increase in assets 664,863 926,140 877,048 1,211,298

Interbank funds applied 34,556 513,253 13,183 508,091 Securities and derivative financial instruments 418,785 247,708 - - Interbank accounts 12,008 2,722 12,008 2,721 Loans 122,778 152,375 675,318 629,580 Other receivable 76,736 10,082 169,904 10,797 Other assets - - 6,635 60,109

Decrease in liabilities 122,889 80,019 10,791 80,018

Money market repurchase commitments 10,791 1,562 10,791 1,562 Acceptances and endorsements - 78,457 - 78,456 Other liabilities 112,098 - - -

Changes in financial position (2,232) 94 (2,290) 712

Bank and cash:Start of period 2,805 993 3,186 1,121 End of period 573 1,087 896 1,833

Changes in bank and cash (2,232) 94 (2,290) 712


ConsolidatedBank

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Demonstrações dos fluxos de caixa - Informações suplementares



2008 2007 2008 2007

Operational activitiesNet income 150,174 30,167 36,090 15,912 Record of allowance for doubtful accounts 8,977 5,385 12,267 7,385 Prior- year adjustments (13,505) (2,598) - - Equity in income of associated companies and subsidiaries 2,657 1,492 2,899 1,516 Depreciation and amortization - - - (27)

Adjusted net income 148,303 34,446 51,256 24,786

Increase (decrease) in interbank funds applied (34,556) (513,253) (13,183) (508,091) Increase (decrease) in securities and derivative financial instruments (418,785) (247,708) 70,393 248,815 Increase (decrease) in interbank accounts (10,136) (782) (10,136) (781) Increase (decrease) in loans (129,152) (154,576) (684,979) (633,451) Increase (decrease) in other credits (77,270) (12,332) (170,427) (13,376) Increase (decrease) in other assets 1,699 4,058 (6,635) (60,109) Write-off of allowance for doubtful accounts (2,069) (934) (2,083) (935) Increase (decrease) in other liabilities (112,098) 80,919 77,692 210,593 Increase (decrease) in deferred income 36 (7) 65 2,201 Adjustment of securities available for sale to market value (30,697) (73) (30,697) (73) Revaluation of membership certificates 319 2,376 319 2,376

Net cash generated (consumed) in operational activities (664,406) (807,866) (718,415) (728,045)

InvestmentsSales of investments 14 - 37 - Sale of fixed assets for use 1 39 1 39 Investment acquisition (1,767) (9,689) (466) (3,303) Acquistion of fixed assets for use (2,754) (2,000) (3,556) (2,748) Deferred charges (1,761) (298) (2,836) (631) Change in minority interest - - 1,788 (3,445)

Net cash generated/used in investment activities (6,267) (11,948) (5,032) (10,088)

FinancingCapital increase - 576,465 - 576,465 Increase (decrease) in deposits 496,209 240,580 548,925 159,516 Increase (decrease) in purchase and sale commitments (money-market funding) (10,791) (1,562) (10,791) (1,562) Increase (decrease) in acceptances and endorsements 141,343 (78,457) 141,343 (78,456) Increase (decrease) in derivative financial instruments 73,065 91,485 73,065 91,485 Interest on own capital paid/accrued (31,385) (8,603) (31,385) (8,603)

Net cash generated (consumed) in financing activities 668,441 819,908 721,157 738,845

Net Increase (decrease) in cash and cash equivalents (2,232) 94 (2,290) 712

Changes in cash and cash equivalents Beginning of the period 2,805 993 3,186 1,121 End of the period 573 1,087 896 1,833

Net Increase (decrease) in cash and cash equivalents (2,232) 94 (2,290) 712

See the accompanying notes to financial statements.

ConsolidatedBank

14


Demonstrações do valor adicionado - Informações suplementares



2008 2007 2008 2007Composition of Added Value

Gross income from financial operations 399,747 297,925 245,857 227,128 Income from services rendered 5,262 6,305 14,505 12,395 Earnings from bank fees 2,692 2,276 2,768 2,280 Other income and expenses (118,862) (229,516) (148,032) (181,622)

Total 288,839 76,990 115,098 60,181

Distribution of added valueEmployees 40,902 18,571 46,124 19,967

Remuneration 28,443 11,386 32,127 12,316 Charges 1,887 1,038 2,090 1,130 Benefits and others 10,572 6,147 11,907 6,521

Government 97,763 28,252 32,614 24,344

Tax expenses 11,559 9,360 13,490 11,388 Income and social contribution taxes 76,787 15,365 8,992 9,168 INSS 9,417 3,527 10,132 3,788

Interest on own capital and dividends 31,385 8,450 31,385 8,450 Minority interest in subsidiaries 118,789 21,717 4,975 7,420

Total 288,839 76,990 115,098 60,181

See the accompanying notes to financial statements.

ConsolidatedBank

15

16


Notes to the financial statements Semesters ended June 30, 2008 and 2007 (In thousands of Reais)

1 Operations Banco Cruzeiro do Sul S.A. (Bank) is a Multiple Bank which operates with commercial, investment and foreign exchange portfolios and is the head of the Cruzeiro do Sul Group, which also includes the following entities: Cruzeiro do Sul S.A. Corretora de Valores e Mercadorias; Cruzeiro do Sul S.A. Distribuidora de Títulos e Valores Mobiliários; Bancred S.A. Crédito; Financiamento e Investimento; BCS Seguros S.A., Cruzeiro do Sul S.A. Cia, Securitizadora de Créditos Financeiros; Cruzeiro do Sul Imobiliária, Comercial, Importadora e Exportadora Ltda, and Companhia Promotora de Vendas - Proveban. The operations are undertaken within the context of a Group of associated institutions, members of the Cruzeiro do Sul Group, The benefits of the services provided between these institutions and the costs of the operational and administrative structure, are absorbed based on the practicality and reasonableness of the allocation of benefits and costs, jointly or individually. By means of an Initial Public Offering held on June 22, 2007, 27,707,432 preferred shares were underwritten and paid in full at R$ 15.50 per share, totaling R$ 429,465, totally directed at reinforcing the Bank’s capital base. On March 5, 2008 Banco Cruzeiro do Sul S/A was authorized by Banco Central do Brasil (BACEN) to begin operating its foreign exchange portfolio, as published in the Federal Official Gazette dated March 10, 2008.

2 Presentation of financial statements The individual financial statements of Banco Cruzeiro do Sul S.A. are prepared in accordance with accounting practices derived from the Brazilian Corpporation Law, associated with the rules and guidelines defined by the Central Bank of Brazil (BACEN), by means of the Accounting Chart for Institutions of the National Financial System (COSIF), and do not include the changes in accounting practices brought about under Law 11638/07.


Notes to the financial statements (In thousands of Reais)

17

The consolidated financial statements of Banco Cruzeiro do Sul S.A. encompass the financial statements of Banco Cruzeiro do Sul S.A., subsidiary companies, and Receivables Investment Funds (FIDC’s), which for the preparation of these financial statements were considered Special Purpose Entities (SPE), in the terms of Securities Comission (CVM) Instruction 408 of August 18, 2004, They were prepared based on accounting guidelines set by Corporate Law for the accounting of operations, associated with the rules and instructions of the National Monetary Council (CMN), of the Central Bank of Brazil (BACEN), of the Securities Commission (CVM) and of the Superintendency of Private Insurance (SUSEP). Accordingly, for the preparation of these consolidated financial statements, were eliminated the interests of one company in another, the balances of assets and liabilities, revenues, expenses, unearned income among subsidiaries, and the results of the Bank’s transactions with the FIDC’s. Minority interest in shareholders´ equity and interest in the income of subsidiaries were presented separately in the balance sheet and in consolidated income for the semesters ended, respectively. The financial statements include estimates and assumptions, including the allowance for doubtful loans, estimates of fair values of certain financial instruments, provisions for contingencies and other provisions, whose actual results could be different from the estimates. We present below the main companies included in the consolidation and the interest held by Banco Cruzeiro do Sul S.A. (direct and indirect):

% of interest

2008 2007Subsidiaries

Bancred S.A. Crédito. Financiamento e Investimento 50.00 50.00BCS Seguros S.A. 99.93 99.93Cruzeiro do Sul S.A. Cia. Securitizadora de Créditos Financeiros 100.00 100.00Cruzeiro do Sul Imobiliária, Comercial. Importadora e Exportadora Ltda. 97.51 97.51Cruzeiro do Sul S.A. Corretora de Valores 100.00 100.00Cruzeiro do Sul S.A.D.T.V.M 100.00 100.00Companhia Promotora de Vendas - Proveban 99.99 99.96

Special Purpose Entities (i) FIDC BCS 60 94.71 98.65FIDC BCS 120 81.91 95.41FIDC BCS 180 68.37 67.21FIDC BCS 360 32.79 49.05FIDC BCS CC2 38.76 27.73FIDC BCS VERAX Multicred 96.63 94.20FIDC BCS Maxcred 20.62 24.41



18

(i) Holdings represented by subordinated shares in the FIDC’s, held directly by the Bank and indirectly through the FIDC BCS Verax Multicred, which, for the purposes of presentation of these financial statements, were consolidated in accordance with CVM Instruction 408 and the interpretation contained in Official Circular Letter 01/2007.

The summarized balance sheet and net income for the period of the special purpose entities are as follows:

2008 FIDC

BCS 60 FIDC

BCS 120FIDC

BCS 180FIDC

BCS 360FIDC BCS

MaxcredFIDC BCS Multicred

FIDC BCS CC2

Assets 26,555 24,002 231,294 208,462 168,907 3,006,204 545,512Liabilities 33 30 278 235 793 1,232 534Shareholders’ equity 26,522 23,972 231,016 208,227 168,114 3,004,972 544,978Net income for the period 1,261 937 3,590 7,237 5,258 113,067 26,639

2007 FIDC

BCS 60 FIDC

BCS 120FIDC

BCS 180FIDC

BCS 360FIDC BCS

MAXCREDFIDC BCS Multicred

FIDC BCS CC2

Assets 23,281 19,073 71,106 123,011 110,224 1,540,075 548,856Liabilities 39 32 115 198 330 602 957Shareholders’ equity 23,242 19,041 70,991 122,813 109,894 1,539,473 547,899Net income for the period 1,453 1,128 4,428 7,385 7,275 82,190 31,417 In the consolidation process of the FIDC’s, the balance of the portfolio of credit right receivables was incorporated into our loan portfolio with the corresponding recording of the financing (senior quotas), under “Other liabilities - other”, net of the balance of investments in quotas of investment funds, represented by the subordinated quotas held in these funds, The profit arising from the sales of loans made to the FIDC’s was fully eliminated as an unrealized adjustment to profit, so that the revenues from sales might be recognized on a pro rata basis. The reconciliation of shareholders’ equity on June 30, 2008 and 2007 and of net income for the period ended presented in the individual and consolidated financial statements of the Bank is presented as follows:



19

2008 2007

Shareholders’ Net income/ Shareholders’ Net income/

equity (loss) equity (loss)

Bank 1,136,048 150,174 854,864

30,167 Effects of the elimination of the results arising from sales of loans to the consolidated FIDC

Profit gained on the sales of loans net of discounts granted owing to advance settlement and appropriation of profits ( 683,702) (203,572) (346,369) (86,364)

Adjustment to the provision for doubtful loans 8,196 2,759 3,415 635 Reversal of the commission expenses on loans sold net of the period’s appropriation. 274,421 7,510 164,154 63,804

Tax impacts (Income tax, Social contribution and Employee’s profit participation program) 163,802 79,219 74,042 7,670

Consolidated 898,765 36,090 750,106 (15,912)

3 Significant accounting policies The main accounting policies adopted to record the operations and prepare the consolidated financial statements are as follows: a. Results

Calculated on an accrual basis and considering the following: • Income, charges and monetary or foreign exchange variations, at official rates or indices,

on a pro rata basis, due on current and non current assets and liabilities; • The effects of provisions to adjust assets to market or realizable values, when applicable; • The results from adjusting investments in subsidiary companies using the equity method;

• The part attributable to income tax, calculated at the rate of 15% of taxable profit, plus a

surtax of 10%, due on the taxable income in excess of the established tax limits;



20

• The part corresponding to social contribution, calculated at the rate of 15% (9% up to April 2008) of adjusted profit before income tax;

• The tax credits and deferred liabilities recorded on the temporary differences between the

accounting and tax results, calculated at the income tax and social contribution rates described above; and

• In addition to these, the reversal in the consolidated financial statements of the income

gained in the sale of loans to the consolidated FIDC’s, with their recognition by the pro-rata temporis criterium.

b. Current and non current assets

Securities In accordance with the ruling in Central Bank of Brazil (BACEN) Circular 3,068, securities included in the portfolio are classified in three separate categories, depending on management’s intentions, complying with the following accounting criteria: • Securities for trading - Acquired for the purpose of being actively and frequently

negotiated. Stated at cost of acquisition plus income earned and adjusted to market value, with unrealized gains and losses recognized to the results for the period.

• Securities available for sale - Stated at cost of acquisition, plus income earned, which is

recognized to the results for the period, and adjusted to market value. Unrealized gains and losses, net of tax effects, arising from variations in the market value are recognized to a separate shareholders’ equity account, under the heading “Adjustment to market value - Securities and derivative financial instruments”.

• Securities held to maturity - Acquired with the intention and financial ability to be held until maturity. Stated at cost of acquisition, plus income earned, which is recognized to the results for the period.



21

Derivative financial instruments The derivative financial instruments used for hedging purposes can be classified as: • Market risk hedge - Financial assets and liabilities which are the subject of hedging

transactions and the related derivative financial instruments are stated at market value, with any valuations or devaluations recognized to the results for the period.

• Cash flow hedge - The financial assets and liabilities which are the subject of hedging transactions and the related derivative financial instruments are stated at market value, with any valuations or devaluations included in a separate shareholders’ equity account, less tax effects.

Financial derivate transactions traded, which do not comply with the criteria for hedge accounting established in Central Bank of Brazil (BACEN) Circular 3,082, mainly derivatives used to manage exposure to overall risk, are stated at market value, with any valuations and devaluations recognized directly to the results for the period. Derivative financial instruments maintained as hedge and whose terms and rates are the same as the hedge transactions are not taken to the market, in compliance with Circular No 3,150 of the Central Bank of Brazil. Loans and allowance for doubtful loans Loans are classified based on management’s judgment of the level of risk, taking into consideration the economic situation, past experience and the specific risks in relation to operations, debtors, guarantors, observing the parameters established under BACEN Resolution 2,682/99, which requires that the portfolio be periodically analyzed and classified into nine levels, from AA (minimum risk) to H (loss). Income from the loans overdue for more than 60 days, irrespective of the risk level, is only recognized as income when actually received.



22

Operations classified as level H remain classified as such for six months, when they are then written off against the existing provision and are controlled, for five years, in memorandum accounts and are no longer recorded in balance sheet accounts. The renegotiated operations are retained, at a minimum, at the same level at which they were classified. The renegotiations of loans that had been written off against the provision and which were included in memorandum accounts are classified as H and any gains arising from the renegotiations are only recognized as income when actually received. The allowance for doubtful loans, considered sufficient by management, meets the minimum requirements established by the aforementioned resolution, as presented in Note 7a.

Other current and non current assets Stated at cost, plus income and any monetary and foreign exchange variations incurred, less deferred income and/or provisions for losses.

c. Permanent assets Results derived from investments in subsidiary companies are recognized based on the equity method, on the basis of the proportion of the investment interest in the shareholders’ equity of the investee companies, as presented in note 12. Other investments are represented mainly by membership certificates, which are recorded at cost value, adjusted according to the valuation reported by the respective institutions. Fixed assets, stated at acquisition cost, revalued when applicable, are depreciated using the straight line method, based on the following annual rates: fixtures, fittings, communication systems and facilities - 10% ; data processing systems and vehicles - 20%. Deferred charges are represented mainly by improvements, acquisitions and logistic developments, amortized at the rates of 10% and 20% p,a., respectively, using the straight-line method.



23

d. Current and non current liabilities The amounts stated include, when applicable, the charges and monetary and foreign exchange variations incurred, except the amounts that refer to derivative financial instruments and liabilities which are the subject of hedge transactions, which are stated in accordance with item (b).

e. Statements of cash flows The Bank is presenting as supplementary information the statements of cash flows prepared in accordance with NPC 20 - Statements of cash flows, issued by IBRACON - Brazilian Institute of Independent Auditors.

f. Statements of added value Management is divulging the value-added statement as provided in Circular Official Letter /CVM/SNC/SEP 01/06 and Resolution CFC 1,010/05, the purpose of this statement is to demonstrate the amount of wealth generated by the Bank and the distribution to the elements that contributed towards its generation. All the information presented has been obtained from the accounting records of the Bank and its subsidiaries. Reclassifications of specific information contained in the traditional statement of income have been performed, due to the fact that, in the statement of added value they were considered as distribution of the added value generated.



24

4 Interbank funds applied a. Interbank deposits and purchase and sale commitments

Bank Consolidated 2008 2007 2008 2007

Money market - Own portfolio position National Treasury Bills - 417,330 - 434,733National Treasury Notes - - 22,020 165

Money Market - Third parties position National Treasury Bills - 37,738 - 37,738

Interbank deposits 210,406 88,630 213,506 88,630

Total 210,406 543,698 235,526 561,266 Current 40,434 474,648 65,554 492,216Non current 169,972 69,050 169,972 69,050

b. Income from short-term interbank investments

Bank Consolidated

2008 2007 2008 2007

Income from investments in committed operations Own portfolio 5,419 2,283 7,143 2,283

Funded position 3 43 3 43

Subtotal 5,422 2,326 7,146 2,326

Income from interbank deposits 7,914 3,223 8,025 3,210

Total 13,336 5,549 15,171 5,536



25

5 Securities a. Composition of securities portfolio

Bank

Total

Own

portfolio

Subject to repurchase

commit

Derivative financial

instrumentsPrivatization

certificates

Subject to guarantees

provided 2008 2007 Financial Treasury Bills 21 - - - 1,625 1,646 4,909National Treasury Bills - - - - - - 4,377National Treasury Notes 148,070 147,087 - - 37,446 332,603 166,135Bank deposit certificates 4,030 - - - - 4,030 2,027Shares in public stock

corporations 111,094 - - - - 111,094 17,423Privatization certificates - - - 11 - 11 11Investment fund quotas (note 5d) 3,154,729 - - - - 3,154,729 1,649,135Derivative financial instruments

(note 6) - - 18,769 - - 18,769 18,932

Total 2008 3,417,944 147,087 18,769 11 39,071 3,622,882 Total 2007 1,777,537 - 18,932 11 66,469 1,862,949

Consolidated

Total

Own

portfolio

Subject to repurchase

commit

Derivative financial

instrumentsPrivatization

certificates

Subject to guarantees

provided

Vinculado ao Banco

Central 2008 2007 Financial Treasury Bills 23,070 - - - 6,271 3,304 32,645 51,346National Treasury Bills - - - - - - - 4,377National Treasury Notes 174,545 147,087 - - 52,670 - 374,302 192,955Bank deposit certificates 4,030 - - - - - 4,030 2,027Shares in public stock

corporations 111,510 - - - 2,988 - 114,498 17,832Privatization certificates - - - 11 - - 11 11Investment fund quotas 40,185 - - - - - 40,185 41,993Derivative financial instruments

(note 6) - - 19,687 - - - 19,687 18,932Others - - - - - - - 1

Total 2008 353,340 147,087 19,687 11 61,929 3,304 585,358 Total 2007 241,327 - 18,932 11 69,204 - 329,474



26

b. Composition by maturity date Bank

Total

No due

dateUp to

3 monthsFrom 3 to 12 months

Above 12 months 2008 2007

Financial Treasury Bills - - 1,646 - 1,646 4,909National Treasury Bills - - - - - 4,377National Treasury Notes - - - 332,603 332,603 166,135Bank deposit certificates 4,030 - - 4,030 2,027Shares in public stock corporations 111,094 - - - 111,094 17,423Privatization certificates 11 - - - 11 11Investment fund quotas (note 5d) 3,154,729 - - - 3,154,729 1,649,135Derivative financial instruments (note 6) _______- 7,750 __11,019 _______- 18,769 _ 18,932

Total 2008 3,265,834 11,780 __12,665 _332,603 3,622,882 Total 2007 1,666,569 12,206 _16,359 167,815 _1,862,949

Consolidated Total No due Up to From 3 to Above date 3 months 12 months 12 months 2008 2007 Financial Treasury Bills - 496 3,360 28,789 32,645 51,346National Treasury Bills - - - - - 4,377National Treasury Notes - - - 374,302 374,302 192,955Bank deposit certificates 4,030 - - 4,030 2,027Shares in public stock corporations 114,498 - - - 114,498 17,832Privatization certificates 11 - - - 11 11Investment fund quotas 40,185 - - - 40,185 41,993Derivative financial instruments (note 6) - 7,750 11,937 - 19,687 18,932Others - - - - - 1

Total 2008 154,694 12,276 15,297 403,091 585,358 Total 2007 59,836 12,206 17,449 239,983 329,474

The distribution of due dates, demonstrated previously, takes into consideration the maturity dates of the securities, irrespective of their accounting classification.



27

c. Composition by category

Bank 2008 2007

Updated

cost

Market/book

value (i)

Mark-to-market

adjustment value

Updated Cost

Market/ book

value (i)

Mark-to-market

adjustment value

Trading securities 3,629,131 3,604,102 ( 25,029) 1,827,667 1,844,006 16,339 Financial Treasury Bills 1,644 1,646 2 4,900 4,909 9National Treasury Bills - - - 4,376 4,377 1National Treasury Notes 357,081 332,603 ( 24,478) 151,625 166,135 14,510Bank deposit certificates 4,030 4,030 - 2,027 2,027 -Shares in public stock corporations 111,647 111,094 ( 553) 15,604 17,423 1,819Investment fund quotas (note 5d) 3,154,729 3,154,729 - 1,649,135 1,649,135 - Securities available for sale 11 11 - 11 11 - Privatization certificates 11 11 - 11 11 - Derivative financial instruments (note 6) 17,994 18,769 775 21,142 18,932 ( 2,210)

Total 3,647,136 3,622,882 ( 24,254) 1,848,820 1,862,949 14,129

Consolidated

2008 2007

Updated

cost

Market/book

value (i)

Mark-to-market

adjustment value

Updated Cost

Market/ book

value (i)

Mark-to-market

adjustment value

Trading securities 591,550 565,460 ( 26,090) 293,637 310,122 16,485 Financial Treasury Bills 32,642 32,645 3 51,337 51,346 9National Treasury Bills - - - 4,376 4,377 1National Treasury Notes 402,684 374,302 ( 28,382) 178,299 192,955 14,656Bank deposit certificates 4,030 4,030 - 2,027 2,027 -Shares in public stock corporations 112,009 114,298 2,289 15,604 17,423 1,819Investment fund quotas 40,185 40,185 - 41,993 41,993 -Others - - - 1 1 - Securities available for sale 29 211 182 56 420 364 Shares in public stock corporations 18 200 182 45 409 364Privatization certificates 11 11 - 11 11 - Derivative financial instruments (note 6) 18,912 19,687 775 21,142 18,932 ( 2,210)

Total 610,491 585,358 ( 25,133) 314,835 329,474 14,639



28

(i) In compliance with Central Bank of Brazil (BACEN) Resolution No, 3068 (article 2, paragraph 1), the market value of assets is calculated based on prices disclosed by external sources such as the National Association of Financial Market Institutions (Andima) and stock exchanges, when there is an organized market and adequate liquidity for the assets.

d. Investment fund quotas - Bank

The investment fund quotas refer to subordinated quotas of investment funds in credit receivables in the amount of R$ 3,154,729 (2007 - R$ 1,649,135), was composed as follow: 2008 2007 Subordinated Subordinated Shareholders’ quotas of Banco Shareholders’ quotas of Banco Fund equity of Fund Cruzeiro do Sul equity of Fund Cruzeiro do Sul FIDC BCS 60 26,522 16,702 23,242 15,069FIDC BCS 120 23,972 5,557 19,041 5,016FIDC BCS 180 231,016 3,097 70,991 85FIDC BCS 360 208,227 5,089 122,813 -FIDC BCS CC2 544,978 185,784 547,899 151,921FIDC BCS Verax Multicred 3,004,972 2,903,841 1,539,473 1,450,215FIDC BCS Maxcred 168,114 34,659 109,894 26,829

Total 4,207,801 3,154,729 2,433,353 1,649,135

e. Securities income

Bank Consolidated

2008 2007 2008 2007

Interbank funds applied 13,336 5,549 15,171 5,536Government Bonds 2,821 43,192 4,699 49,593Bank deposit certificates 244 127 244 127Investment fund quotas 113,367 90,339 2,113 9,789Variable income securities 12,941 2,297 33,093 2,319Other 11 3 15 -

Total 142,720 141,507 55,335 67,364



29

6 Derivative financial instruments The Cruzeiro do Sul Group operates with derivative financial instruments in order to maximize the results of its operations and manage exposure to market, foreign exchange and interest rate risks to avoid matching of terms and financial volume. The derivative contracts involving swap, option, futures and NDF operations were registered in the Futures and Commodities Exchange (BM&F) and with the Clearing House for the Custody and Financial Settlement of Securities (CETIP), depending on the case, and involve interbank market rates, foreign exchange variation and other price indices. Risk management control is carried out using systems and analyses such as: VAR, profitability and liquidity risk. Based on this information the financial operations desk provides the derivative financial instruments needed in accordance with the policy defined previously by management. The derivative contracts involving Swap intended to hedge transactions with securities abroad, as a result of the matching of terms and rates, are not taken to market, pursuant to BACEN Circular 3,150. As the other contracts do not meet these conditions they are valued at market price. The market value of derivative financial instruments is determined using available market information, mainly prices and rates published by the Futures and Commodities Exchange (BM&F) or mathematical models are used to interpolate rates for intermediary periods and to extrapolate rates for longer periods. a. Statement of operations with derivative financial instruments

The value of the contracts arising from these operations are recorded to memorandum accounts and the amounts that refer to the differential receivable and payable for swap and non delivery forward operations, premiums to pay and to receive related to purchases or sales of call options and purchases or sales of put options, and other derivative financial instrument operations are registered to the derivative financial instrument accounts, as assets and liabilities, as presented below:



30

Bank 2008 2007 Assets Notional Assets Notional (liabilities) amount (liabilities) Amount Swap contracts

Differential receivable 152 30,152 627 10,071Differential payable ( 219,983) 907,833 ( 108,144) 725,782

Option contracts Option premiums to exercise

Purchase of call options 9,819 225,211 9,995 1,068,727Purchase of put options 8,798 634,290 6,389 153,880

Option premiums launched Sale of call options ( 37) 40,625 ( 682) 927,000Sale of put options ( 2,177) 398,125 ( 27) 577

Futures market Dollar ( 115) 95,003 ( 84) 22,633DI 544 474,161 ( 85) 354,442Índex - - ( 82) 5,463

NDF contracts Forward purchases to settle - - 1,921 -Obligations for forward purchases ( 17,162) 63,635 ( 14,486) 153,030

Consolidated 2008 2007 Assets Notional Assets Notional (liabilities) amount (liabilities) Amount

Swap contracts Differential receivable 152 ( 30,152) 627 10,071Differential payable ( 219,983) 907,833 ( 108,144) 725,782

Option contracts Option premiums to exercise

Purchase of call options 10,340 225,211 9,995 1,068,727Purchase of put options 9,195 634,290 6,389 153,880



31

Consolidated 2008 2007 Assets Notional Assets Notional (liabilities) amount (liabilities) AmountOption premiums launched

Sale of call options ( 37) 40,625 ( 682) 927,000Sale of put options ( 2,177) 398,125 ( 27) 577

Futures market Índex - - ( 222) 620,755

NDF contracts Forward purchases to settle - - 1,921 -Obligations for forward purchases ( 17,162) 63,635 ( 14,486) 153,030

The amounts presented above for the position for the futures market have been classified to the heading “Due in Connection with Securities Dealings”, since they represent daily adjustments to settle.

b. Income from derivative financial instruments Bank Consolidated

2008 2007 2008 2007

Swap (105,085) ( 98,749) (105,083) ( 98,747)NDF ( 11,316) ( 26,949) ( 11,316) ( 26,949)Option 5,052 1,074 5,093 1,074 Futures ( 16,018) ( 11,574) ( 16,039) ( 11,692)

Total (127,367) (136,198) (127,345) (136,314)



32

7 Loans We present the information on the loans that include notes and credits receivable: Bank Consolidated 2008 2007 2008 2007 Loans 643,446 376,535 3,748,751 2,130,396Notes and credits receivable 2,100 6,186 6,057 9,479

Total 645,546 382,721 3,754,808 2,139,875 Current 562,066 323,192 1,446,248 669,854Non current 83,480 59,529 2,308,560 1,470,021 a. Composition of the loan portfolio and notes and credits receivable in the

corresponding risk levels as established in Central Bank of Brazil Resolution 2,682 and composition of the allowance for doubtful loans by risk level: Bank - 2008

Risk level

Provision %

Loans to come due

Loans overdue

Total loans

Distribution %

Allowance Thousands

of R$

AA - 5,377 - 5,377 0.8 -A 0.5 246,659 - 246,659 38.2 1,233B 1.0 214,401 3,460 217,861 33.7 2,178C 3.0 133,747 5,793 139,540 21.6 4,186D 10.0 13,887 2,456 16,343 2.5 1,634E 30.0 2,050 4,827 6,877 1.1 2,063F 50.0 - 1,216 1,216 0.2 608G 70.0 - 1,621 1,621 0.3 1,135H 100.0 1,032 9,020 10,052 1.6 10,052

Total 617,153 28,393 645,546 100.0 23,089



33

Bank - 2007

Risk level

Provision %

Loans to come due

Loans overdue

Total loans

Distribution %

Allowance Thousands

of R$

AA - 400 - 400 0.1 -A 0.5 160,784 - 160,784 42.0 804B 1.0 142,961 7,055 150,016 39.2 1,500C 3.0 57,092 2,041 59,133 15.4 1,774D 10.0 1,038 2,251 3,289 0.9 329E 30.0 429 685 1,114 0.3 334F 50.0 - 436 436 0.1 218G 70.0 - 684 684 0.2 479H 100.0 - 6,865 6,865 1.8 6,865

Total 362,704 20,017 382,721 100.00 12,303 Consolidated - 2008

Risk level

Provision %

Loans to come due

Loans overdue

Total loans

Distribution %

Allowance Thousands

of R$

AA - 5,377 - 5,377 0.1 -A 0.5 3,237,141 - 3,237,141 86.2 16,185B 1.0 222,844 4,263 227,107 6.0 2,271C 3.0 233,806 14,781 248,587 6.6 7,458D 10.0 11,802 2,093 13,895 0.4 1,390E 30.0 1,797 4,102 5,899 0.2 1,769F 50.0 3 1,029 1,032 - 516G 70.0 1 1,372 1,373 0.1 961H 100.0 1,301 13,096 14,397 0.4 14,397

Total 3,714,072 40,736 3,754,808 100.00 44,947



34

Consolidated - 2007

Risk level

Provision %

Loans to come due

Loans overdue

Total loans

Distribution %

Allowance Thousands

of R$

AA - 7,945 - 7,945 0.4 -A 0.5 1,903,517 225 1,903,742 89.0 9,519B 1.0 148,327 13,394 161,721 7.5 1,617C 3.0 49,138 1,767 50,905 2.4 1,527D 10.0 3,727 1,955 5,682 0.3 568E 30.0 373 592 965 0.0 290F 50.0 40 2,286 2,326 0.1 1,163G 70.0 - 589 589 0.0 412H 100.0 52 5,948 6,000 0.3 6,000

Total 2,113,119 26,756 2,139,875 100.00 21,096 The allowance for doubtful loans presented the following changes in the period: Bank Consolidated 2008 2007 2008 2007 Opening balance 16,181 7,852 34,763 14,646Provisions 8,977 5,385 12,267 7,385Write-offs to loss ( 2,069) ( 934) (2,083) (935) Current balance 23,089 12,303 44,947 21,096



35

b. Composition of loans by type and economic activity

Bank 2008 2007

Type Portfolio Provision Net Portfolio Provision Net Advances to deposit holders 9,701 ( 3,425) 6,276 2,837 ( 253) 2,584Guaranteed accounts 75,146 ( 2,151) 72,995 85,500 ( 1,400) 84,100Overdraft accounts 4,325 ( 109) 4,216 1,234 ( 53) 1,181Working capital 299,160 ( 9,648) 289,512 130,702 ( 3,387) 127,315Personal loans 26,547 ( 133) 26,414 40,439 ( 214) 40,225Other loans 2,973 ( 29) 2,944 71 ( 2) 69Financing - - - 34 ( 34) -Discounted trade notes 20,030 ( 1,779) 18,251 13,032 ( 368) 12,664Consigned credit cards (i) 205,564 ( 3,738) 201,826 102,686 ( 2,146) 100,540Other receivable - Notes and credits receivable 2,100 ( 2,077) 23 6,186 ( 4,446) 1,740

Gross balance 645,546 (23,089) 622,457 382,721 (12,303) 370,418

Consolidated 2008 2007

Type Portfolio Provision Net Portfolio Provision Net Advances to deposit holders 9,701 ( 3,425) 6,276 2,837 ( 253) 2,584Guaranteed accounts 75,146 ( 2,151) 72,995 85,500 ( 1,400) 84,100Overdraft accounts 4,325 ( 109) 4,216 1,234 ( 53) 1,181Working capital 299,160 ( 9,648) 289,512 130,702 ( 3,387) 127,315Personal loans 3,131,852 (18,033) 3,113,819 1,794,300 ( 8,678) 1,785,622Other loans 2,973 ( 29) 2,944 71 ( 2) 69Financing - - - 34 ( 34) -Discounted trade notes 20,030 ( 1,779) 18,251 13,032 ( 368) 12,664Consigned credit cards (i) 205,564 ( 3,738) 201,826 102,686 ( 2,146) 100,540Other receivable - Notes and credits receivable 6,057 ( 6,035) 22 9,479 ( 4,775) 4,704

Gross balance 3,754,808 (44,947) 3,709,861 2,139,875 ( 21,096) 2,118,779 (i) Value used for credit limit for the rotational credit format.



36

Bank Consolidated Economic activity 2008 2007 2008 2007 Private sector

Industry 109,396 71,315 109,396 71,315Trade 37,921 35,198 37,921 35,198Financial intermediary 1,013 951 1,013 951Other services 255,593 129,509 255,593 132,802Individuals 241,623 145,748 3,350,885 1,899,609

Total 645,546 382,721 3,754,808 2,139,875

c. Composition of credit operations by maturity dates

Bank Consolidated 2008 2007 2008 2007 Private sector

Overdue 28,393 4.4% 20,017 5.2% 40,736 1.1% 26,756 1.3%Up to 3 months 363,406 56.3% 199,347 52.1% 536,364 14.3% 262,544 12.3%From 3 months to 1 year 170,267 26.4% 103,828 27.1% 869,148 23.1% 380,554 17.8%More than 1 year 83,480 12.9% 59,529 15.6% 2,308,560 61.5% 1,470,021 68.7%

Total 645,546 100.0% 382,721 100.0% 3,754,808 100.0% 2,139,875 100.0%

d. Levels of concentration Bank Consolidated 2008 2007 2008 2007 Largest individual debtor 30,508 4.7% 19,200 5.0% 30,508 0.8% 19,200 0.9%10 largest debtors 179,765 27.8% 99,130 25.9% 179,765 4.8% 99,130 4.6%20 largest debtors 231,268 35.8% 145,718 38.1% 231,268 6.2% 145,718 6.7%50 largest debtors 325,527 50.4% 202,243 52.8% 325,527 8.7% 202,243 9.3%100 largest debtors 390,889 60.6% 234,846 61.4% 390,889 10.4% 234,846 10.8%



37

e. Credit assignments Credit assignments in the period refer to Personal loans as follows: Bank Consolidated

2008 2007 2008 2007

With co-obligation 102,875 461,724 188,220 461,724Without co-obligation 2,171,433 1,533,506 2,225,484 1,533,506

Total 2,274,308 1,995,230 2,413,704 1,995,230 Income from loans sold (i) 365,020 262,095 ( 6,351) 67,188 (i) Result of credit assignments, net of discounts for advance liquidation of contracts. A provision was recorded for the credits assigned with co-obligation for the amount of R$ 3,527 (2007 - R$ 4,234) in the Bank and R$ 4,260 (2007 - R$ 4,234) in the Consolidated, recorded to the heading other receivables. In Consolidated the portfolio of loans sold in the period to the FIDC’s without co-obligation in the amount of R$ 2,195,462 (2007 - R$ 1,533,506), remains recorded in loans, The result of the sales of loans made to the FIDC’s in the amount of R$ 378,588 (2007 - R$ 195,521) were eliminated in the consolidation process and are being recognized on a daily pro rata basis, in accordance with the term of loan contract. Cooperation agreements were signed with Banco GE Capital S.A. in 2001, for a period of ten years, for a minimum monthly amount of R$ 2,000; with Cetelem Brasil S.A. in 2003, for a period of five years, for a minimum monthly amount of R$ 7,000; and a contract with Unibanco - União de Bancos Brasileiros S.A. in October 2006, for a period of ten years, for an amount of up to R$ 2,000,000.



38

f. Income for credit operations Bank Consolidated

2008 2007 2008 2007 Loans

Advances to deposit holders 1,470 424 1,470 424Guaranteed accounts 6,639 6,937 6,639 6,937Overdraft accounts 307 181 307 181Working capital 23,860 11,396 23,860 11,396Personal loans 9,479 11,335 334,706 253,264Other loans 402 127 402 127Discounted trade notes 3,492 3,107 3,492 3,107Consigned credit cards 39,756 18,141 39,756 18,141

Profit from sale of loans

Fidc’s 535,111 330,689 - -Other banks 48,708 84,657 57,248 85,276

Discounts granted owing to advance settlement.

Fidc’s (156,523) (135,168) - -Other banks (62,276) (18,083) (63,599) (18,088)

Recovery of loans written off as loss 35 8 49 8

Total 450,460 313,751 404,330 360,773

8 Foreign exchange portfolio Bank Consolidated

2008 2007 2008 2007

Asstes - Other receivable Foreign exchange purchased to be settled 660 - 660 -Rights on the sale of foreign exchange 661 - 661 -

Total 1,321 - 1,321 -

Liabilities - Other liabilities Foreign exchange sold to be settled 661 - 661 -Liabilities due to purchase of foreign exchange 660 - 660 -

Total 1,321 - 1,321 -



39

9 Due in connection with securities dealings Bank Consolidated 2008 2007 2008 2007

Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Registration and settlement in cash - - - - 15,962 ( 284) 3,716 ( 238)Debtors/creditors - Accounts pending Settlement - - - - 3,353 (17,521) 3,531 (10,752)Operations with financial commodities - (429) - (251) - - - ( 222)Other credits from securities transactions and intermediation 14,173 - - - - ( 3) - -Others - - - - 859 - 4 ( 500)

Total 14,173 (429) - (251) 20,174 (17,808) 7,251 (11,712)

10 Other receivable - Other Bank Consolidated

2008 2007 2008 2007

Salary advances 1,217 898 1,341 953Advances for payment in our account 32,590 3,951 33,454 4,100Tax credits (Note 16b) 40,879 35,236 45,487 38,996Taxes recoverable (i) - - 162,480 74,042Debtors from deposits in guarantee 2,156 539 2,412 666Income tax to compensate 29,196 15,272 39,068 17,762Payments to reimburse 925 794 1,022 798Repasses to assignees (ii) 10,298 18,507 11,479 19,668Residual value guaranteed - Leasing 253 72 253 72Consigned credit card (iii) 89,026 49,737 89,026 49,737PDD on co-obligation ( 3,527) ( 4,234) ( 4,260) ( 4,234)Various domestic debtors 34,503 4,534 36,403 5,489 237,516 125,306 418,165 208,049

Total 164,835 68,439 182,298 146,270 Current 72,681 56,867 235,867 61,779 Non current (i) Refers to recoverable income tax and social contribution due to the elimination of the income

from sale of loans to credit right investment funds (FIDCs).



40

(ii) Refers to paycheck-deductible balances pending repass by federal, state and municipal government agencies for credits sold to assignees.

(iii) Refers to amounts receivable, from bills issued to credit card holders. This value represents

the sum of bills for the month, and the balance can either be settled in full or at the minimum value, and in this case, financed as rotational credit.

11 Other assets - Prepaid expenses Bank Consolidated 2008 2007 2008 2007 Commission expenses from foreign securities allocation (i) 12,301 15,367 12,301 15,367Commission expenses from loans (ii) 1,742 6,059 277,223 170,613Commissions and Premiums 1,884 - 1,884 -Others 2,629 1,354 2,785 1,413

Total 18,556 22,780 294,193 187,393 Current 8,599 11,163 87,622 57,921Non current 9,957 11,617 206,571 129,472 (i) The expenses from commissions, premiums and income tax paid in advance for placing the

securities abroad are recognized according to the terms of the respective securities issued. (ii) The expenses from commissions for the intermediation of loans paid in advance to the

correspondents are recognized according to the duration of the contracts, with allocation of the part associated to the recognition of the respective loan income. When the loans are assigned, the amounts not amortized are immediately recognized in the statement of income.



41

12 Investments in subsidiaries - Bank Number of shares held Interest % Shareholders’ equity Net profit/(loss)

Subsidiaries 2008 2007 2008 2007 2008 2007 2008 2007

BCS Seguros S.A. 84,344,860 84,344,860 99,93 99,93 30,944 30,546 653 2,088Cruzeiro do Sul S.A. Cia.

Securitizadora de Créditos Financeiros 3,100,000 3,100,000 100,00 100,00 1,580 3,991 ( 6) ( 211)

Cruzeiro do Sul Imobiliária, Comercial, Importadora e Exportadora Ltda. 3,799,999 3,799,999 97,51 97,51 16,638 16,683 ( 24) ( 24)

Cruzeiro do Sul S.A. Corretora de Valores e Mercadorias 3,106,808 3,106,808 100,00 100,00 135,388 38,438 10,508 ( 462)

Cruzeiro do Sul S.A. - Distribuidora de Títulos e Valores Mobiliários 49,045,454 49,045,454 100,00 100,00 20,810 16,753 2,139 1,642

Bancred S.A. Credito, Financ. E Inv. (1) 4,864,812,581 3,580,555,556 50,00 50,00 12,036 8,168 506 ( 520)

Cia. Promotora de Vendas - PROVEBAN 1,000 - 0,03 - 4,838 - 952 -

Value of the

investment (2) Equity adjustment

Subsidiaries 2008 2007 2008 2007 BCS Seguros S.A. 30,922 30,524 652 2,086Cruzeiro do Sul S.A. Cia. Securitizadora de Créditos Financeiros 1,580 3,991 ( 6) ( 211)Cruzeiro do Sul Imobiliária, Comercial, Importadora e

Exportadora Ltda. 16,222 16,268 ( 23) ( 24)Cruzeiro do Sul S.A. Corretora de Valores e Mercadorias 135,389 38,438 10,508 ( 462)Cruzeiro do Sul S.A. Distribuidora de Títulos e Valores Mobiliários 18,436 14,379 2,139 1,442Bancred S.A. Credito, Financiamento e Investimento 6,150 4,252 235 ( 233)Cia. Promotora de Vendas - PROVEBAN 3 - - -

Total 208,702 107,852 13,505 2,598 (1) On March 12, 2008, a capital increase in the amount of R$ 3,000 was approved, through the

private issue of 2,568,514,052 registered common shares without par value, in the proportion of 50% each shareholder.

(2) Investment balances include negative goodwill of R$ 2,374 (2007 - R$ 2,374) on purchase

of Cruzeiro do Sul S.A. D.T.V.M. and goodwill of R$ 132 (2007 - R$ 168) on the purchase of Bancred S.A. Crédito, Financiamento e Investimento.



42

13 Funding a. Deposits

Presented below are the deposits by maturity dates: Bank Demand Interbank Time deposits (i) Others

Due 2008 2007 2008 2007 2008 2007 2008 2007

No due date 17,484 24,541 - - - - 1,582 1,568Up to 90 days - - 348,671 155,976 371,695 284,970 - -From 91 to 180 - - 94,242 5,271 262,494 187,788 - -From 181 to 270 - - 126,881 - 127,901 39,580 - -From 271 to 360 days - - 122,680 2,890 96,932 58,861 - -More than 360 days - - 4,356 - 543,559 178,636 - - Total 17,484 24,541 696,830 164,137 1,402,581 749,835 1,582 1,568 Consolidated Demand Interbank Time deposits (i) Others

Due 2008 2007 2008 2007 2008 2007 2008 2007

No due date 12,731 21,880 - - - - 1,478 1,568Up to 90 days - - 162,900 111,087 328,089 277,912 - -From 91 to 180 - - 94,242 5,271 248,830 76,889 - -From 181 to 270 - - 126,881 - 122,090 36,884 - -From 271 to 360 days - - 122,680 2,890 96,932 61,327 - -More than 360 days - - 4,356 - 543,559 178,636 - - Total 12,731 21,880 511,059 119,248 1,339,500 631,648 1,478 1,568 (i) On June 30, 2008, R$ 299,612 (2007 - R$ 30,384) represent CDB (Bank Deposit

Certificate) with anticipated redemption clause. On account of this clause, R$ 41,647 (2007 - R$ 8,937) are recorded in current liabilities, notwithstanding their maturity above 360 days.



43

b. Money market repurchase commitments Refer to repurchase operations to settle, tied to federal government bonds, in the amount of R$ 145,363 (2007 - R$ 37,738) in the Bank and Consolidated, maturing by January 1, 2012.

c. Foreign borrowings in securities We describe below the corresponding values issued abroad based on our Short Term Notes and Medium Term Notes programs: Bank and Consolidated

Tranche - US$ thousand Maturity Interest rate 2008 2007

5,000 02/08/2007 8.00 - 9,982

20,000 31/10/2007 8.00 - 39,10111,500 31/10/2007 8.00 - 22,482

3,000 31/10/2007 8.00 - 5,86541,000 19/03/2008 7.75 - 80,58317,000 19/03/2008 7.75 - 33,41420,000 08/05/2008 7.75 - 38,85031,000 07/08/2008 8.13 51,142 61,46853,000 19/12/2008 7.75 84,356 101,56335,000 30/03/2009 6.75 56,628 68,281

100,000 20/08/2009 7.25 163,527 -41,600 28/09/2009 9.38 71,908 -

110,000 30/04/2010 7.38 177,218 -30,000 26/05/2010 7.50 47,810 -41,600 27/09/2010 9.38 66,223 -41,800 26/09/2011 9.38 66,541 -

125,000 26/09/2011 9.38 - 247,55150,000 25/11/2016 10.75 80,519 97,485

Total 865,872 806,625

Current 206,321 242,176 Non current 659,551 564,449



44

d. Expenses on funding from the market Bank Consolidated 2008 2007 2008 2007 Interbank deposits (23,468) ( 8,653) (18,739) ( 5,481)Time deposits (82,395) (45,895) (70,196) (44,260)Purchase and sale commitments ( 7,943) (10,660) ( 7,944) (10,660)Other funding expenses - Credit Guarantee Fund (FGC) ( 1,105) ( 563) ( 1,105) ( 563)Funding expenses - FIDCs - - (34,034) (46,367)Securities issued abroad 56,928 50,021 56,928 50,021

Total (57,983) (15,750) (75,090) (57,310)

14 Other liabilities a. Tax and social security

Bank Consolidated 2008 2007 2008 2007 Provision for taxes due and social contribution payable 17,957 - 66,822 1,694Taxes and contributions due on outsourced services 556 618 689 678Taxes and contributions due on salaries 2,176 1,517 2,450 1,702Deferred taxes and contributions (i) 150,825 62,078 152,034 62,149Refis Law N° 10,684 15,559 18,783 16,721 20,151Provision for tax risks (ii) 673 44,318 673 44,606Others 3,138 2,397 2,126 2,954

Total 190,884 129,711 241,515 133,934

Current 32,680 7,662 80,985 10,244Non current 158,204 122,049 160,530 123,690

(i) It is substantially related to taxes and contributions on the non-realized mark to market of securities.



45

(ii) On February 25, 2008, the Federal Supreme Court rendered a favorable judgment as regards an action pleading the non-enforceability of the Social Security Financing Contribution (COFINS) in the terms of Law 9,718/98. Thus, the provision for tax risks in the amount of R$ 44,318 was reverted in the item other operating revenues.

The Bank is judicially questioning taxation of BOVESPA e BM&F equity security updating accounted for in net equity’s reserve account. The total impact of such actions is of R$ 1,942 on the Bank and R$ 5,107 on consolidated. According to its legal advisors, the chance of success in such actions is possible, however, a provision has not been constituted. There are no other actions of tax nature which may generate significant losses.

b. Other Bank Consolidated 2008 2007 2008 2007 Repasses to assignees (i) 167,262 110,769 147,402 119,870Credit cards assigned (ii) 67,212 38,872 67,212 38,872Other creditors - domestic 959 1,056 3,654 4,207Provision for payments outstanding 11,335 12,177 17,649 7,668Administrative checks 206 376 206 376Amounts payable to administrative companies - - 1,695 935Participation of third parties in FIDC’s (iii) - - 777,806 655,341Provision for contingent liabilities (iv) 2,853 537 3,239 537

Total 249,827 163,787 1,018,863 827,806 Current 246,974 163,250 618,016 457,993Non current 2,853 537 400,847 369,813 (i) Refers to amounts to be sold to assignees, for credits assigned, which are received by the

Bank. (ii) Refers to amounts payable to shopkeepers and VISA. (iii) Refers to third party interest (senior quotas) in the FIDC’s that are consolidated in the

financial statements.



46

(iv) Refers to civil proceedings in the amount of R$ 1,517 (2007 - R$ 512) in the Bank and R$ 1,671 (2007 - R$ 512) in the Consolidated and labor proceedings in the amount of R$ 1,336 (2007 - R$ 25) in the Bank and R$ 1,568 (2007 - R$ 25) in the Consolidated, which are provisioned for in accordance with the evaluation of the legal advisors.

15 Shareholders’ equity a. Capital

Capital is represented by 145,217,905 shares, divided into 99,897,555 common and 45,320,350 preference shares (2007 - 144,557,867 shares, divided into 99,897,555 common and 44,660,312 preference shares). In the first semester of 2007, the following capital increases were deliberated, as follows:

Date EGM/BDM Subject Approval by BACEN Capital

IncreaseNumber of

common shares

Number of preference

shares

Totalcapitalsocial

December 27, 2006 EGM

Approval of equity capital increase

Ratified on January 10, 2007 37,500 2,238,568 - 182,500

March 12, 2007 EGM


Ratified on April 28, 2007 147,000 8,471,667 - 329,500

June 21, 2007 BDM


Ratified on June 25, 2007 429,465 - 27,707,432 758,965

b. Revenue reserve

Legal reserve - Refers to the legal reserve constituted at the rate of 5% of net profit for the year, limited to 20% of capital.



47

16 Income tax and social contribution a. Statement of calculation of income tax and social contribution charges

Bank 2008 2007

Result Income

tax Social

contribution Income

tax Social

contribution Result before tax on income 235,661 235,661 46,089 46,089 ( - ) Interest on own capital ( 31,385) ( 31,385) ( 8,450) ( 8,450)( - ) Profit sharing ( 8,700) ( 8,700) ( 557) ( 557) Result before taxes on income 195,576 195,576 37,082 37,082 Temporary additions 63,616 63,616 59,471 59,471 Mark-to-market of securities and derivatives 42,699 42,699 46,529 46,529 Allowance for doubtful accounts 10,663 10,663 6,222 6,222 Other permanent additions 10,254 10,254 6,720 6,720 Permanent additions 7,867 7,867 26,961 26,961 Losses with non-deductible credits 1,656 1,656 4,358 4,358 Equity in income of subsidiaries 1,819 1,819 1,295 1,295 Other mark-to-market of securities and derivatives - - 16,164 16,164 Other permanent additions 4,392 4,392 5,144 5,144 Temporary exclusions (Realization of tax credits) ( 194,930) ( 194,930) (115,119) (115,119) Mark-to-market of securities and derivatives ( 140,785) ( 140,785) (115,119) (115,119) Allowance for doubtful accounts ( 4,284) ( 4,284) - - Other permanent additions ( 49,861) ( 49,861) - - Permanent exclusions ( 18,746) ( 18,746) ( 12,019) ( 12,019) Equity in income of subsidiaries ( 15,324) ( 15,324) ( 3,893) ( 3,893) Other permanent exclusions ( 3,422) ( 3,422) ( 8,126) ( 8,126) Calculation basis before offsetting of tax loss and negative basis of CSLL 53,383 53,383 ( 3,624) ( 3,624)



48

Bank 2008 2007

Result Income

tax Social

contribution Income

tax Social

contribution Calculation basis of income tax and social contribution charges 53,383 53,383 ( 3,624) ( 3,624) Charges at the rates of 15% and 9% for Income Tax and Social Contribution, respectively (i) ( 8,007) ( 4,804) - -10% Surtax ( 5,327) - - -Increase in the CSLL rate from 9% to 15% (article 17 - Law 11,727/2008) (ii) - ( 140) Provision for income and social contribution taxes ( 13,334) ( 4,944) - - Tax deductions (tax incentives) 320 - - -Adjustment in the income tax and social contribution provision 2,002 725 - -Recording/reversion of tax credits ( 4,334) ( 1,560) 5,044 1,816Recording/reversal of tax credits - Difference in CSLL rate (from 9% to 15%) (ii) - 4,680 Recording/reversal of deferred liabilities ( 28,106) ( 10,118) ( 16,342) ( 5,883)Recording/reversal of deferred liabilities - Difference in CSLL rate (from 9% to 15%) (ii) - ( 22,119) Expense with income and social contribution taxes ( 43,452) ( 33,336) ( 11,298) ( 4,067) Consolidated 2008 2007

Result Income

taxSocial

contribution Income

tax Social

Contribution Result before tax on income 55,581 55,581 25,596 25,596 ( - ) Interest on own capital ( 31,385) ( 31,385) ( 8,450) ( 8,450)( - ) Profit sharing ( 10,229) ( 10,229) ( 558) ( 558) Result before taxes on income 13,967 13,967 16,588 16,588 Temporary additions 176,607 176,607 59,309 59,309 Mark-to-market of securities and derivatives 157,513 157,513 46,651 46,651 Allowance for doubtful loans 8,132 8,132 5,935 5,935 Other permanent additions 10,962 10,962 6,723 6,723



49


Result Income

taxSocial

contribution Income

tax Social

Contribution Permanent additions 11,090 11,090 27,546 27,546 Losses with non-deductible credits 1,658 1,658 4,358 4,358 Income from equity accounting adjustment - - 1,528 1,528 Other mark-to-market of securities and derivatives 2,630 2,630 16,164 16,164 Other permanent additions 6,802 6,802 5,496 5,496 Temporary exclusions (Realization of tax credits) ( 195,374) ( 195,374) (115,234) (115,234) Mark-to-market of securities and derivatives ( 141,060) ( 141,060) (115,234) (115,234) Allowance for doubtful loans (4,453) (4,453) - - Other permanent additions (49,861) (49,861) - - Permanent exclusions ( 6,297) ( 6,297) ( 12,625) ( 12,625) Income from equity accounting adjustment (1,819) (1,819) (4,478) (4,478) Other permanent exclusions (4,478) (4,478) (8,147) (8,147) Calculation basis before offsetting of tax loss and negative basis of CSLL 1,812 1,812 ( 24,416) ( 24,416) ( - ) 30% Offset - Tax losses and negative base of Social contribution ( 1,504) ( 1,504) ( 814) ( 814) Calculation basis of income tax and social contribution charges 308 308 ( 25,230) ( 25,230) Charges at the rates of 15% and 9% for Income Tax and Social Contribution, respectively (i) ( 50) ( 31) ( 764) ( 458)10% Surtax 38 - ( 472) -Increase in the CSLL rate from 9% to 15% (article 17 - Law 11,727/2008) (ii) - 10,796 - - Provision for income and social contribution taxes ( 12) 10,765 ( 1,236) ( 458) Tax deductions (tax incentives) 320 - - -Adjustment in the income tax and social contribution provision 2,002 725 - -Recording/reversal of tax credits ( 4,277) ( 1,539) 5,640 2,030Recording/reversal of tax credits - Difference in CSLL rate (from 9% to 15%) (ii) - 4,871 - -Recording/reversal of deferred liabilities 325 117 ( 11,139) ( 4,005)



50


Result Income

taxSocial

contribution Income

tax Social

Contribution Recording/reversal of deferred liabilities - Difference in CSLL rate (from 9% to 15%) (ii) - (22,289) - - Expense with income and social contribution taxes ( 1,642) ( 7,350) ( 6,735) ( 2,433) (i) 9% CSLL rate applicable for the calculation base for the period from January to June

2008. (ii) Applied on the CSLL calculation base’s proportion as of May 2008 (Article 4 of

Normative Ruling 810/2008). b. Movement of tax credits and deferred liabilities

Bank

Dec, 2007 FormationRealization/

reversal Jun, 2008 Jun, 2007 Tax losses and negative base - - - - 5,568Allowance for doubtful loans 7,440 7,147 ( 2,745) 11,842 5,740Securities and derivatives - Adjustment to market value 7,651 8,544 ( 1,459) 14,736 2,807Operations undertaken on markets for future settlement 9,680 - - 9,680 4,216Provision for labor contingencies 11 523 - 534 9Provision for tax contingencies 15,068 - ( 15,068) - 15,068Provision for expenses 1,870 2,001 ( 391) 3,480 1,654Other liabilities 373 234 - 607 174

Total Tax Credit 42,093 18,449 ( 19,663) 40,879 35,236 Adjustment to market value 87,115 60,342 - 147,457 61,458Adjustment at Market value of titles available for trading 15,734 - ( 15,734) - Operations undertaken on markets for future settlement 3,368 - - 3,368 620

Total deferred liabilities 106,217 60,342 ( 15,734) 150,825 62,078



51

Consolidated

Dec, 2007 FormationRealization/

reversal Jun, 2006 Jun, 2007 Tax losses and negative base 2,899 589 ( 970) 2,519 9,210Allowance for doubtful loans 8,880 7,456 ( 2,823) 13,512 5,857Securities and derivatives - Adjustment to market value 7,651 8,870 ( 1,459) 15,062 2,807Operations undertaken on markets for future settlement 9,680 - - 9,680 4,216Provision for labor contingencies 11 616 - 627 10Provision for tax contingencies 15,068 - ( 15,068) - 15,068Provision for expenses 1,870 2,001 ( 391) 3,480 1,654Other liabilities 373 234 - 607 174 Sub Total tax credit 46,432 19,766 ( 20,711) 45,487 38,996

Taxes on unearned income with FIDC 84,584 77,896 - 162,480 74,042 Total Tax Credit 131,016 97,662 ( 20,711) 207,967 113,038 Securities and derivatives - Adjustment to market value 126,883 61,862 ( 40,080) 148,665 61,529Adjustment at Market value of titles available for trading 15,734 - ( 15,734) - -Operations undertaken on markets for future settlement 3,368 - - 3,368 620

Total deferred liabilities 145,985 61,862 ( 55,814) 152,033 62,149

c. Realization of tax credits

Bank

Income tax Social contribution Total

Period Book

value Present

valueBook

valuePresent

valueBook

value Present

value

2008 14,574 13,677 7,892 7,407 22,466 21,0842009 4,636 3,499 1,926 1,454 6,562 4,9532010 551 361 331 217 882 5782011 147 85 88 51 235 1362012 6,673 3,358 4,003 2,015 10,676 5,3732013 23 10 14 6 37 162014 13 5 8 3 21 8

Total 26,617 20,995 14,262 11,153 40,879 32,148



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Consolidated

Income tax Social contribution Total

Period Book

value Present

valueBook

valuePresent

valueBook value

Presentvalue

2008 14,682 13,779 7,952 7,463 22,634 21,2422009 5,073 3,828 2,174 1,643 7,247 5,4712010 778 509 453 296 1,231 8052011 424 245 237 137 661 3822012 7,763 4,010 4,400 2,252 12,163 6,2622013 192 84 80 35 272 1192014 182 70 69 26 251 962015 195 66 70 24 265 902016 224 66 81 24 305 902017 326 84 132 34 458 118

Total 29,839 22,741 15,648 11,934 45,487 34,675 The projected realization of tax credits is estimated and not directly related to expected book income. The present value of the tax credits was calculated based on the future interbank deposit rate.

17 Related party transactions Transactions with subsidiaries and special purpose entities, which were eliminated, were undertaken at rates practiced on the market, in force on the dates of the transactions, considering the absence of risk:

Bank 2008 2007Assets

Bank and Cash 4,857 2,661Interbank funds applied 185,771 44,890Securities - Bank deposits certificates 63,081 118,187Securities clearing accounts 14,602 251Sums receivable from related companies 7 7Other receivable - Other 39,481 3



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Bank 2008 2007Liabilities

Demand deposits 4,753 2,661Interbank deposits 185,771 44,890Tme deposits 63,081 118,187Other deposits 104 -Securities clearing accounts 14,598 -Other liabilities - Others 39,492 261

Income Income from inter-bank marketable securities 4,753 4,738Securities income 12,200 126Service income 3,938 -

Expenses Funding 16,953 4,864Outsourced services 3,938 -

18 Service income

Bank Consolidated 2008 2007 2008 2007

Fund management 18 20 212 49Collection 142 85 142 85Income from guarantees given 104 96 104 96Credit card 4,842 3,356 4,842 3,356Stock exchange brokerage - - 5,522 5,259Other services 156 2,748 3,683 3,550

Total 5,262 6,305 14,505 12,395



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19 Other administrative expenses Bank Consolidated 2008 2007 2008 2007 Rent 1,852 1,822 2,339 2,056Leasing of assets 1,014 1,190 1,014 1,190Communications 10,251 4,972 11,210 5,215Material 1,636 1,629 1,718 1,690Data processing 6,266 2,480 7,677 2,953Promotions and Public Relations 1,294 - 1,401 -Advertising and publicity 5,582 12,990 6,481 13,294Financial system services 3,677 1,361 4,843 2,419Outsourced services 5,165 3,678 5,504 4,047Specialized technical services 16,587 22,742 20,169 27,004Initial Public Offer - IPO - 27,150 - 27,150Transport 1,120 1,043 1,203 1,080Travel in the country 2,033 1,140 2,311 1,271Administration fee/management of funds - - 8,886 5,012Processing consig card 132 4,177 132 4,177Depreciation and amortization 2,657 1,117 2,899 1,166Other administrative expenses 8,863 7,527 10,749 8,261

Total 68,129 95,018 88,536 107,985



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20 Other operating expenses Bank Consolidated 2008 2007 2008 2007 Restatement of Special Tax Installment Plan 369 - 397 -Commercial funding 89,797 114,697 86,420 52,124Losses with CPP 8,272 7,199 8,576 7,211Losses with Consig Card 660 155 660 155Productivity incentive premium 5,387 5,445 5,506 5,445Other agent commission cost 3,623 2,737 3,722 2,775Tax fines and interest 1,058 975 1,058 975PDD on co-obligation - - 489 -Other operating expenses 3,861 6,852 6,406 9,072

Total 113,027 138,060 113,234 77,757

21 Financial instruments The book value of financial instruments is recorded in accordance with accounting practices in Brazil and assume the continuity of the operations of the Bank and its subsidiaries. Shown below for each financial instrument is the estimated value that could be obtained by negotiating in an active market or, if none, the estimated market value based on pricing methods described below:



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2008 Bank Consolidated

Book

valueMarket

valuePotential gain/loss

Book value

Market value

Potential gain/loss

Assets Interbank funds applied 210,406 211,225 819 235,526 236,345 819Securities and derivative financial instruments (i) 3,622,882 3,622,882 - 585,358 585,358 -Loan operations 645,546 656,238 10,692 3,754,808 4,028,367 273,559

Liabilities Deposits 2,118,477 2,108,736 9,741 1,864,768 1,855,053 9,715Securities issued abroad 865,872 874,266 (8,394) 865,873 874,266 (8,394)

Total 12,858 275,699

(i) Amounts already recorded at market value and presented in Note 5. Determination of the market value of financial instruments: • Interbank funds applied, securities and derivative financial instruments: The market value is

determined based on prices disclosed by outside sources such as the National Association of Financial Market Institutions (Andima) and stock exchanges, when there is an organized market. In case there are no market quotations, the amounts are estimated based on the estimated present value of cash flows adjusted by the interest rate prevailing in the market.

• Loan operations: The market value is determined by discounting estimated cash flows,

adopting interest rates charged by the Group in new contracts of similar characteristics. Rates are compatible with those prevailing in the market on the balance sheet date.

Deposits and securities issued abroad: The market value is determined by discounting the difference between cash flows under contractual conditions and rates charged on the balance sheet date.



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22 Operational limits 2008 2007 Limit Status Margin Limit Status Margin Shareholders’ Equity required is compatible with the degree of risk in its structure of assets, liabilities and memorandum accounts - Resolution No. 2099/94 555,112 1,137,682 582,570 249,201 827,718 578,517

Fixed asset to equity ratio - Resolution No. 2283/96 50.0% 6.2% 43.8% 50.0% 8.9% 41.1%

23 Other information a. The shareholders’ equity for the investment funds managed by the Financial Conglomerate is

R$ 4,459,740 (2007 - R$ 2,433,353). b. The additions to deferred charges refer mainly to costs from developing new projects to

improve controls and processes which are deferred over a period of five years, as from the time of being finally accepted by the users, and costs from improvements to leasehold properties, which are deferred over the period of the rental contract (10 years).

c. The guarantees provided to third parties include sureties for the amount of R$ 24,506 (2007 -

R$ 20,508), maturing on July 14, 2008 to april 24, 2013, covered by guarantees. Losses are not expected to be incurred from these operations.

d. On October 16, 2006, 50% of the shares in Bancred S.A. Crédito, Financiamento e

Investimento was sold by Banco Cruzeiro do Sul S.A., the leading institution from the Cruzeiro do Sul Financial Group, to Unibanco - União de Bancos Brasileiros, This operation has still not been approved by the Central Bank of Brazil (BACEN).

e. In accordance with Securities Comission (CVM) Resolution 371, we hereby inform that Banco Cruzeiro do Sul S.A. and its subsidiaries do not maintain stock option plans and other benefits for their employees.

f. The Bank has insurance contracts for coverage of risks for assets of premises and equipment,

basically vehicles, Management considers that the amount of coverage is sufficient to meet eventual losses.



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g. On December 28, 2007 Law 11,638/07 was passed, to become effective as of January 1,

2008. This law changed, revoked, and introduced new provisions in Law 6404/76 (the Brazilian Corporate Law), and gave rise to changes in accounting practices adopted in Brazil. Though this law had already become effective, some of the changes it brought about depend on their regulation by Conselho Monetário Nacional (CMN) and Banco Central do Brasil (BACEN), before being fully applied by the institutions which the latter supervise. Hence, in this transitional stage Banco Central do Brasil (BACEN), by means of notice no. 16,669 dated March 20, 2008 authorized non-enforcement on the interim financial statements of the provisions of Law 11,638/07. Therefore the financial statements were prepared in accordance with specific instructions by Banco Central do Brasil (BACEN) and do not include the changes in accounting practices brought about by Law 11,638/07.

Among the major changes introduced, we highlight the following issues that in our assessment may change the presentation of our financial statements and the criteria for determination of our financial position and earnings as from the year ending 2008 • Intangible assets and rights were segregated from tangible items, and permanent assets

were stated in investments, fixed assets, intangible, and deferred items.

• The caption “Equity valuation adjustments” was created under Shareholders’ Equity. Any counterparties to increases or decreases in the amount assigned to asset and liabilities items, arising from its market price valuation, will be considered as adjustments to equity while not computed in the income statement for the year in accordance with the accrual basis.

• Pre-operating expenses and restructuring costs effectively contributing to increase in

earnings for the year for more than one fiscal year and not representing just a decrease in costs or addition to the operating efficiency will be classified as Deferred Charges.

• Additionally, the criteria for valuation of assets and liabilities were changed, with the

following issues worth mentioning:

⎯ Asset and liabilities items arising from long-term operations, as well as significant short-term operations, will be adjusted at present value, in accordance with international accounting standards;



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⎯ The recovery amount of property, plant and equipment, intangible assets and deferred

charges assets and rights shall be periodically evaluated so that the company may record potential losses or carry out a review of the depreciation rates, amortization, and depletion criteria;

⎯ Rights classified under intangible assets shall be evaluated based on the cost incurred upon purchase deducted from the balance of the respective amortization account.

• Elimination of the possibility to record revaluation reserves for corporations. The new

Law granted an option to companies to either maintain any existing balances and recognize these balances under the current rules or reverse these balances until the end of the year 2008.

The adoption and effects of changes in the Law may only be measured after regulation by the financial institutions Central Bank of Brazil (BACEN) or insurance companies The Superintendency of Private Insurance (SUSEP) regulatory bodies, since some of the changes introduced have already been carried out, such as the adjustments at market value of assets represented by marketable securities and financial instruments. The Company’s Management is analyzing the effects that the aforementioned changes will have on its shareholders’ equity and earnings for 2008, and it will also consider the guidance and definitions to be issued by the regulatory bodies.

* * *

A Diretoria

Antonio Kanô Neto Accountant CRC 1SP095423/O-6

banco cruzeiro do sul s.a. - mzweb.com.br · cruzeiro do sul s.a. (bank), and of banco cruzeiro do...

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