banco do estado de sãopaulo s.a. - banespa · total assets 31.592.897 28.534.985 31.640.248...

DELOITTE TOUCHE TOHMATSU # 34310019 3431-D4 30jun04 FS Banespa.xls 3431-D4 30jun04 FS Banespa.doc

(Convenience Translation into English from the Original Previously Issued in Portuguese)

Banco do Estado de SãoPaulo S.A. - BANESPA Financial Statements for the Six-Month Periods Ended June 30, 2004 and 2003 and Independent Auditors’ Report

Deloitte Touche Tohmatsu Auditores Independentes


INDEPENDENT AUDITORS’ REPORT

To the Management and Stockholders of Banco do Estado de São Paulo S.A. - BANESPA São Paulo – SP 1. We have audited the accompanying individual (Bank) and consolidated balance sheets of

Banco do Estado de São Paulo S.A. - BANESPA and subsidiaries as of June 30, 2004 and 2003, and the related statements of income, changes in stockholders’ equity, and changes in financial position for the six-month periods then ended, all expressed in Brazilian reais and prepared under the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements.

2. Our audits were conducted in accordance with auditing standards in Brazil and comprised:

(a) planning of the work, taking into consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the Bank and its subsidiaries, (b) checking, on a test basis, the evidence and records that support the amounts and accounting information disclosed, and (c) evaluating the significant accounting practices and estimates adopted by management, as well as the presentation of the financial statements taken as a whole.

3. In our opinion, the financial statements referred to in paragraph 1 present fairly, in all

material respects, the individual and consolidated financial positions of Banco do Estado de São Paulo S.A. - BANESPA and subsidiaries as of June 30, 2004 and 2003, and the results of their operations, the changes in stockholders’ equity, and the changes in their financial positions for the six-month periods then ended in conformity with Brazilian accounting practices.

4. The accompanying financial statements have been translated into English for the

convenience of readers outside Brazil. São Paulo, July 27, 2004 DELOITTE TOUCHE TOHMATSU José Barbosa da Silva Júnior Auditores Independentes Engagement Partner


BANCO DO ESTADO DE SÃO PAULO S.A. - BANESPA

BALANCE SHEETS AS OF JUNE 30, 2004 AND 2003 (In thousands of Brazilian Reais - R$)

ASSETS 2004 2003 2004 2003

CURRENT ASSETS 16.513.926 14.969.569 16.781.818 15.400.882 Cash 873.157 348.005 874.015 348.888 Interbank investments 4.451.016 6.024.708 4.453.716 6.024.708

Money market investments 978.695 1.521.323 978.695 1.521.323 Interbank deposits 3.472.321 4.503.385 3.475.021 4.503.385

Securities and derivative financial instruments 2.677.190 1.506.205 2.909.652 1.799.093 Own portfolio 2.634.460 1.434.480 2.873.122 1.706.211 Derivative financial instruments 11.636 13.355 4.680 34.412 Linked to Central Bank of Brazil - 11.884 - 11.884 Linked to guarantees 31.094 46.486 31.850 46.586

Interbank accounts 2.412.796 2.614.826 2.412.796 2.614.826 Payments and receipts pending settlement 223.909 303.756 223.909 303.756 Restricted deposits: Central Bank of Brazil 2.186.642 2.307.686 2.186.642 2.307.686 National Housing System 204 923 204 923 Correspondents 2.041 2.461 2.041 2.461

Interbranch accounts - 182 - 182 Third-party funds in transit - 182 - 182

Lending operations 4.905.923 3.690.603 4.905.923 3.690.603 Lending operations: Public sector 8.077 7.396 8.077 7.396 Private sector 5.044.354 3.831.207 5.044.354 3.831.207 Allowance for loan losses (146.508) (148.000) (146.508) (148.000)

Leasing operations - - 65.721 75.543 Lease and sublease operations: Private sector - - 67.623 83.470 Allowance for doubtful lease receivables - - (1.902) (7.927)

Other receivables 1.109.788 725.388 1.071.078 782.186 Foreign exchange portfolio 293.310 201.646 293.310 201.646 Income receivable 136.298 1.443 46.860 14.088 Trading account 17.260 14.155 35.053 22.814 Specific receivables - 186 - 186 Other 666.497 518.194 701.201 553.688 Allowance for other losses (3.577) (10.236) (5.346) (10.236)

Other assets 84.056 59.652 88.917 64.853 Other assets 188.881 176.608 195.244 183.256 Allowance for valuation (135.550) (153.108) (137.053) (154.558) Prepaid expenses 30.725 36.152 30.726 36.155

(Continues)

Bank Consolidated

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BALANCE SHEETS AS OF JUNE 30, 2004 AND 2003 (In thousands of Brazilian reais - R$) (Continuation)

ASSETS 2004 2003 2004 2003

LONG-TERM ASSETS 13.418.500 12.022.363 13.667.269 12.441.766 Interbank investments 638.911 - 638.911 42.519

Money market investments 638.911 - 638.911 42.519 Securities and derivative financial instruments 7.894.147 7.096.773 7.895.175 7.230.513

Own portfolio 5.129.686 4.931.829 5.129.579 5.065.526 Subject to resale commitments 1.916.244 1.276.425 1.916.244 1.276.425 Linked to Central Bank of Brazil 414.810 516.615 414.810 516.615 Linked to guarantees 433.407 371.904 434.542 371.947

Interbank accounts 28.666 26.318 28.666 26.318 National Housing System 28.666 26.318 28.666 26.318

Lending operations 1.957.520 1.394.089 1.957.520 1.394.089 Lending operations: Public sector 33.975 41.413 33.975 41.413 Private sector 2.241.656 1.712.503 2.241.656 1.712.503 Allowance for loan losses (318.111) (359.827) (318.111) (359.827)

Leasing operations - - 52.705 28.402 Lease and sublease operations: Private sector - - 53.858 30.114 Allowance for doubtful lease receivables - - (1.153) (1.712)

Other receivables 2.871.612 3.500.907 3.066.648 3.715.649 Receivables for guarantees honored 3.479 10 3.479 10 Foreign exchange portfolio 3.997 2.637 3.997 2.637 Trading account - - 90 90 Other 2.873.642 3.503.779 3.068.844 3.718.686 Allowance for other losses (9.506) (5.519) (9.762) (5.774)

Other assets 27.644 4.276 27.644 4.276 Temporary investments - - 9 9 Allowance for losses - - (9) (9) Prepaid expenses 27.644 4.276 27.644 4.276

PERMANENT ASSETS 1.660.471 1.543.053 1.191.161 858.704 Investments 492.483 705.108 23.173 20.760

Investments in subsidiaries and affiliates Domestic 486.287 699.233 - - Other investments 12.604 12.787 35.145 38.849 Allowance for losses (6.408) (6.912) (11.972) (18.089)

Property and equipment in use 457.662 417.566 457.662 417.565 Real estate 263.223 302.516 263.223 302.516 Other 728.736 571.322 728.763 571.349 Accumulated depreciation (534.297) (456.272) (534.324) (456.300)

Deferred charges 710.326 420.379 710.326 420.379 Organization and expansion costs 934.935 524.098 934.935 524.098 Accumulated amortization (224.609) (103.719) (224.609) (103.719)

TOTAL ASSETS 31.592.897 28.534.985 31.640.248 28.701.352

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

Bank Consolidated

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BALANCE SHEETS AS OF JUNE 30, 2004 AND 2003 (In thousands of Brazilian Reais - R$)

Bank ConsolidatedLIABILITIES AND STOCKHOLDERS' EQUITY 2004 2003 2004 2003

CURRENT LIABILITIES 16.319.407 15.032.263 16.229.808 14.781.371 Deposits 9.261.927 9.940.094 9.165.076 9.669.743

Demand deposits 2.730.498 2.460.098 2.727.250 2.458.174 Savings deposits 3.346.329 3.321.943 3.346.329 3.321.943 Interbank deposits 138.154 577.753 44.551 309.326 Time deposits 3.046.946 3.580.300 3.046.946 3.580.300

Money market funding 2.973.192 2.118.778 2.866.694 2.046.179 Own portfolio 2.317.818 1.359.243 2.211.320 1.286.644 Third parties 100.005 200.000 100.005 200.000 Linked to trading portfolio operations 555.369 559.535 555.369 559.535

Funds from acceptance and issuance of securities 586.300 514.763 586.300 514.763 Securities issued abroad 586.300 514.763 586.300 514.763

Interbank accounts 206.538 297.838 206.538 297.838 Receipts and payments pending settlement 205.264 292.347 205.264 292.347 Correspondents 1.274 5.491 1.274 5.491

Interbranch accounts 121.625 138.162 121.625 138.162 Third-party funds in transit 119.464 132.393 119.464 132.393 Internal transfers of funds 2.161 5.769 2.161 5.769

Borrowings 901.626 341.470 901.626 341.470 Foreign borrowings 901.626 341.470 901.626 341.470

Domestic onlendings - official institutions 300.818 247.279 300.818 247.279 National Treasury 816 - 816 - National Economic and Social Development Bank (BNDES) 49.731 43.288 49.731 43.288 Federal Savings and Loan Bank (CEF) 14.551 14.609 14.551 14.609 National Equipment Financing Authority (FINAME) 195.344 166.423 195.344 166.423 Other institutions 40.376 22.959 40.376 22.959

Derivative financial instruments 15.386 47.316 13.245 45.418 Derivative financial instruments 15.386 47.316 13.245 45.418 Other liabilities 1.951.995 1.386.563 2.067.886 1.480.519

Collected taxes and other 97.759 90.349 97.759 90.349 Foreign exchange portfolio 106.889 92.699 106.889 92.699 Social and statutory 419.199 17.210 419.231 17.225 Taxes and social security 57.011 28.967 114.675 81.237 Trading account 654 16.799 19.889 28.346 Financial and development funds - 200 - 200 Other 1.270.483 1.140.339 1.309.443 1.170.463

(Continues)

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BALANCE SHEETS AS OF JUNE 30, 2004 AND 2003 (In thousands of Brazilian reais - R$) (Continuation)

Bank ConsolidatedLIABILITIES AND STOCKHOLDERS' EQUITY 2004 2003 2004 2003

LONG-TERM LIABILITIES 9.969.771 9.232.877 10.089.086 9.637.794 Deposits 1.103.760 1.132.861 936.272 1.132.861

Interbank deposits 167.488 118.132 - 118.132 Time deposits 936.272 1.014.729 936.272 1.014.729

Money market funding 646.656 - 646.656 - Linked to trading portfolio operations 646.656 - 646.656 -

Funds from acceptance and issuance of securities 792.683 505.452 792.683 505.452 Securities issued abroad 792.683 505.452 792.683 505.452

Interbank accounts - - - 125.385 Interbank onlendings - - - 125.385 Borrowings 511.639 345.536 511.639 345.536

Foreign borrowings 511.639 345.536 511.639 345.536 Domestic onlendings - official institutions 566.481 544.721 566.481 544.721

National Economic and Social Development Bank (BNDES) 140.952 128.946 140.952 128.946 Federal Savings and Loan Bank (CEF) 58.824 70.058 58.824 70.058 National Equipment Financing Authority (FINAME) 344.426 323.735 344.426 323.735 Other institutions 22.279 21.982 22.279 21.982

Derivative financial instruments - 11.424 - 11.423 Derivative financial instruments - 11.424 - 11.423 Other liabilities 6.348.552 6.692.883 6.635.355 6.972.416

Foreign exchange portfolio 2.598 2.178 2.598 2.178 Taxes and social security 1.317.136 1.200.113 1.497.931 1.382.988 Trading account 2 - 2 - Other 5.028.816 5.490.592 5.134.824 5.587.250

DEFERRED INCOME 26.166 16.624 43.800 28.966 Deferred income 26.166 16.624 43.800 28.966 MINORITY INTEREST - - 1 - STOCKHOLDERS' EQUITY 5.277.553 4.253.221 5.277.553 4.253.221 Capital: Brazilian residents 2.536.668 2.535.613 2.536.668 2.535.613 Foreign residents 126 1.181 126 1.181 Capital reserves 156.638 155.542 156.638 155.542 Profit reserves 299.706 222.474 299.706 222.474 Adjustment to market value - securities and derivative financialinstruments (132.196) (425.710) (132.196) (425.710) Retained earnings 2.416.611 1.764.121 2.416.611 1.764.121

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 31.592.897 28.534.985 31.640.248 28.701.352


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STATEMENTS OF INCOME FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003(In thousands of Brazilian reais - R$)

Bank Consolidated2004 2003 2004 2003

FINANCIAL INCOME 2.893.766 2.365.851 2.923.054 2.405.205 Lending operations 1.221.108 1.136.158 1.223.415 1.139.663 Leasing operations - - 8.597 3.563 Securities transactions 1.598.598 1.124.621 1.616.810 1.176.739 Derivative financial instruments (34.711) (48.146) (34.539) (67.978) Foreign exchange operations 31.994 32.821 31.994 32.821 Compulsory investments 76.777 120.397 76.777 120.397

FINANCIAL EXPENSES (1.095.736) (1.018.355) (1.069.519) (990.048) Funding operations (803.753) (933.403) (779.969) (914.725) Borrowings and onlendings (111.403) 75.892 (111.403) 85.153 Provision for loan losses (180.580) (160.844) (178.147) (160.476)

GROSS PROFIT FROM FINANCIAL OPERATIONS 1.798.030 1.347.496 1.853.535 1.415.157

OTHER OPERATING (EXPENSES) INCOME (927.263) (311.218) (936.874) (290.523) Income from services rendered 540.346 387.121 704.354 528.441 Personnel expenses (619.464) (580.578) (637.963) (595.697) Other administrative expenses (640.754) (402.596) (659.846) (415.227) Tax expenses (139.200) (112.284) (155.515) (125.720) Equity in subsidiaries 151.122 266.219 - - Other operating income 230.308 622.339 296.568 823.374 Other operating expenses (449.621) (491.439) (484.472) (505.694)

INCOME FROM OPERATIONS 870.767 1.036.278 916.661 1.124.634

NONOPERATING (EXPENSES) INCOME (5.373) 34.632 (1.371) 28.179

INCOME BEFORE TAXES ON INCOME 865.394 1.070.910 915.290 1.152.813

INCOME AND SOCIAL CONTRIBUTION TAXES - (3.152) (49.895) (85.055) Provision for income tax - (72) (35.019) (34.249) Provision for social contribution tax - - (11.697) (13.708) Deferred tax credits - (3.080) (3.179) (37.098)

MINORITY INTEREST (1) -

NET INCOME 865.394 1.067.758 865.394 1.067.758

Number of shares (thousands) 38.747.842 38.747.842 38.747.842 38.747.842

Earnings per thousand shares (R$) 22,33 27,56 22,33 27,56


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STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003(In thousands of Brazilian reais - R$)

Profit Adjustment to market value-reserves securities and derivative

Capital Legal financial instruments RetainedCapital reserves reserve Bank Subsidiaries earnings Total

BALANCES AS OF DECEMBER 31, 2002 2.536.794 153.704 169.086 (800.922) (1.166) 2.248.156 4.305.652 Adjustment to market value - securities and derivative financial instruments - - - 373.908 2.470 - 376.378 Updating of stock exchange memberships - 1.838 - - - - 1.838 Dividends: R$ 36.83 per thousand common shares -

R$ 40.51 per thousand preferred shares (1.498.405) (1.498.405) Net income - - - - - 1.067.758 1.067.758 Legal reserve - - 53.388 - - (53.388) -

BALANCES AS OF JUNE 30, 2003 2.536.794 155.542 222.474 (427.014) 1.304 1.764.121 4.253.221

BALANCES AS OF DECEMBER 31, 2003 2.536.794 155.542 256.436 (189.321) 2.738 1.994.487 4.756.676 Adjustment to market value - securities and derivative financial instruments - - - 54.387 - 54.387 Updating of stock exchange memberships - 1.096 - - - - 1.096 Dividends: R$ 9.83 per thousand common shares -

R$ 10.81 per thousand preferred shares - - - - - (400.000) (400.000) Net income - - - - - 865.394 865.394 Legal reserve - 43.270 - - (43.270) -

BALANCES AS OF JUNE 30, 2004 2.536.794 156.638 299.706 (134.934) 2.738 2.416.611 5.277.553


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(Convenience Translation into English from the Original Previously Issued in Portuguese


STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003(In thousands of Brazilian reais - R$)

Bank Consolidated2004 2003 2004 2003

SOURCES OF FUNDS 3.349.586 3.736.552 3.240.422 4.090.728 Adjusted net income 872.182 865.935 1.023.098 1.132.186 NET INCOME 865.394 1.067.758 865.394 1.067.758 Adjustments to net income: 6.788 (201.823) 157.704 64.428

Equity in subsidiaries (151.122) (266.219) - - Exchange variation on foreign branches (221) 710 (221) 710 Provision for/(Reversal of) valuation of assets not in use 21.744 (16.574) 21.538 (16.633) Depreciation, amortization and excess depreciation 136.387 80.260 136.387 80.351

Change in deferred income 2.353 1.243 3.940 3.064 Adjustment to market value - securities and derivatives financial instruments 54.387 376.378 54.387 376.378 Updating of stock exchange memberships 1.096 1.838 1.096 1.838 Funds from third parties: 2.419.568 2.491.158 2.157.901 2.577.262

Increase in liabilities 1.133.090 1.391.859 1.051.791 1.502.581 Money market funding 179.258 92.660 97.959 77.997 Securities issued abroad 239.770 1.020.215 239.770 1.020.215 Interbank and interbranch accounts 160.084 278.984 160.084 404.369 Borrowings and onlendings 553.978 - 553.978 -

Decrease in assets 1.066.903 959.416 1.089.756 932.090 Interbank investments 459.669 - 467.113 - Secutiries and derivative financial instruments 607.234 869.500 622.643 905.234 Leasing operations - - - 8.325 Other receivables - 71.421 - - Other assets - 18.495 - 18.531

Disposal of permanent assets 15.776 139.883 16.354 142.591 Assets not in use 5.909 45.047 6.477 46.582 Property in use 9.867 94.836 9.867 96.009 Investments - - 10

Dividends and interest on capital receivable 203.799 - - - USES OF FUNDS 3.055.195 3.992.507 2.945.561 4.346.050 Proposed dividends 400.000 1.498.405 400.000 1.498.405 Additions 71.378 92.411 64.484 96.242

Assets not in use 25.412 12.884 25.944 16.936 Property in use 35.796 78.324 35.797 78.324 Investments 10.170 1.203 2.743 982

Deferred charges 135.767 185.840 135.767 185.799 Increase in assets 1.577.577 1.165.552 1.488.767 1.300.886

Interbank investments - 531.538 - 574.057 Interbank and interbranch accounts 44.294 428.434 44.294 428.434 Lending operations 1.387.974 205.580 1.387.974 205.580 Leasing operations - - 14.986 - Other receivables 138.432 - 34.637 92.815 Other assets 6.877 - 6.876 -

Decrease in liabilities 870.473 1.050.299 856.543 1.264.718 Deposits 763.133 204.575 752.836 238.212 Borrowings and onlendings - 516.609 - 516.609 Other liabilities 107.340 329.115 103.707 509.897

INCREASE (DECREASE) IN CASH 294.391 (255.955) 294.861 (255.322) REPRESENTED BY:Cash

Beginning of period 578.766 603.960 579.154 604.210 End of period 873.157 348.005 874.015 348.888

INCREASE (DECREASE) IN CASH 294.391 (255.955) 294.861 (255.322)

The accompanying notes are an integral part of these financial statements

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9

(Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO DO ESTADO DE SÃO PAULO S.A. - BANESPA NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND 2003 (Amounts in thousands of Brazilian reais – R$, unless otherwise indicated) 1. OPERATIONS

Banco do Estado de São Paulo S.A. - BANESPA (the “Bank”), a financial institution linked to the Santander Banespa Group, is a multiple service bank; its operations include commercial, foreign exchange, investment, credit and financing, mortgage loan and leasing portfolios. Transactions are conducted within the context of a group of financial institutions which operate on an integrated basis in the financial markets.

2. PRESENTATION OF FINANCIAL STATEMENTS

The individual financial statements of Banco do Estado de São Paulo S.A. - BANESPA, including its foreign branches (“Bank”), and the consolidated financial statements of the Bank and its subsidiaries (“Consolidated”), have been prepared in accordance with Brazilian corporate law, standards and instructions of the Central Bank of Brazil (BACEN), and standards established by the CVM (Brazilian Securities Commission). For comparative purposes, the amounts related to leasing operations have been reclassified.

3. PRINCIPAL ACCOUNTING PRACTICES

a) Results of operations

Determined on the accrual basis of accounting.

b) Current and long-term assets and liabilities

Stated at their realizable or settlement amounts, respectively, and include income, charges and monetary or exchange variations earned or incurred to the balance sheet date, determined on a daily “pro rata” basis. When applicable, allowances for valuation are recorded to reflect market or realizable values. The allowance for loan losses is based on analyses of outstanding lending operations (past due and current), past experience, future expectations, and specific portfolio risks, as well as on the risk assessment policy of the Bank’s management for recognition of allowances, including requirements under BACEN standards and instructions. Receivables and payables due within 12 months are recorded in current assets and liabilities, respectively, except for trading securities which are totally classified in current assets, in conformity with BACEN Circular No. 3,068/01.

Banco do Estado de São Paulo S.A. - BANESPA

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Securities Securities are presented in accordance with the following recognition and accounting valuation criteria: I - Trading securities; II - Securities available for sale; III - Held to maturity. The “Trading securities” category includes securities acquired for the purpose of being actively and frequently traded. The “Securities available for sale” category includes those which cannot be classified in categories I and III. The “Held to maturity” category includes those which the Bank intends to maintain in its portfolio to maturity. Securities classified in categories I and II are stated at cost plus income earned to the balance sheet date, calculated on a daily “pro rata” basis, and, when applicable, adjusted to market value, reflecting the increase or decrease arising from this adjustment in: (1) the related income or expense account, in income for the period, when related to

securities classified in the “Trading securities” category;

(2) separate caption in stockholders’ equity when related to securities classified in the “Securities available for sale” category.

Securities classified in the “Held to maturity” category are stated at cost, plus income earned to the balance sheet date, calculated on a daily “pro rata” basis, and recorded in income for the period; provisions for losses are recognized whenever there are permanent losses on the realizable value of these securities. Derivative financial instruments Derivative instruments considered as hedge transactions may be classified as: I - Market risk hedge. II - Cash flow hedge. Derivative financial instruments for hedge transactions and the respective items subject to hedge are adjusted to market value, considering the following: (1) for those classified in category I, the increase or decrease is recorded in income or

expense for the period;

(2) for those classified in category II, the increase or decrease is recorded in a separate caption in stockholders’ equity.


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c) Permanent assets

Stated at cost and include: c.1) Investments

Adjustments to investments in subsidiaries are determined under the equity method of accounting and recorded as equity in subsidiaries. Other investments are stated at cost, reduced to market value, when applicable.

c.2) Property and equipment Depreciation of property and equipment is determined under the straight-line method at the following annual rates: buildings - 4%, installations, furniture, equipment in use, communication and security systems - 10%, and data processing systems and vehicles - 20%.

c.3) Deferred charges Costs classified under deferred charges are amortized over a maximum period of 5 years when applicable to the acquisition and development of software, and 10 years for other costs, considering the benefit period of the expense and the terms of rental contracts. Goodwill on investment acquisition and its respective reduction account, reserve for maintenance of the merging company’s stockholders’ equity, are amortized over a period of up to 10 years.

As of June 30, 2004, goodwill from the merger and the reserve for maintenance of the merging company’s stockholders’ equity amounted to R$ 3,776,902 (R$ 4,672,844 as of June 30, 2003). The amount realized in the six-month period was R$ 746,207 (R$ 746,207 as of June 30, 2003).

d) Income and social contribution taxes

Income tax is calculated at the rate of 15% plus a 10% surcharge; social contribution tax is calculated at the rate of 9%, after adjustments determined by legislation. The Bank did not recognize net tax credits arising from mark-to-market adjustments of securities and derivative financial instruments, as stated in notes 5 and 23. As provided for by BACEN Circular No. 3,171 of December 31, 2002, CVM Resolution No. 273 of August 20, 1998, and CVM Instruction No. 371 of June 27, 2002, the Bank’s expected realization of tax credits, as shown in note 9, is based on the projection of future results and is supported by a technical study made on December 31, 2003.


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e) Consolidated financial statements

The consolidated financial statements include the accounts of domestic and foreign branches and of the subsidiaries listed in note 17. In consolidation, intercompany balances and transactions have been eliminated. Minority interest in subsidiaries’ net equity and results is presented separately.

4. INTERBANK INVESTMENTS

Bank

Up to 3 months

From 3 to 12 months

Over 12 months

2004

2003

Money market investments 424,496 554,199 638,911 1,617,606 1,521,323Own portfolio 324,491 - - 324,491 765,109Treasury bills 124,491 - - 124,491 97,160National Treasury bills 200,000 - - 200,000 -National Treasury notes - - - - 206,872Central Bank notes 461,077Third-party portfolio 100,005 - - 100,005 199,999Treasury bills 100,005 - - 100,005 199,999Linked to trading portfolio operations - 554,199 638,911 1,193,110

556,215

Government securities - National Treasury - 554,199 638,911 1,193,110

-

Central Bank notes 556,215Interbank deposits 2,118,672 - - 2,118,672 4,493,497Foreign-currency investments 1,353,649 - - 1,353,649 9,888Interbank investments 3,896,817 554,199 638,911 5,089,927 6,024,708

Consolidated

Up to 3 months

From 3 to 12 months

Over 12 months

2004

2003

Money market investments 424,496 554,199 638,911 1,617,606 1,521,323Own portfolio 324,491 - - 324,491 765,109Treasury bills 124,491 - - 124,491 97,160National Treasury bills 200,000 - - 200,000 -National Treasury notes - - - - 206,872Central Bank notes - - - - 461,077Third-party portfolio 100,005 - - 100,005 199,999Treasury bills 100,005 - - 100,005 199,999Linked to trading portfolio operations - 554,199 638,911 1,193,110

556,215

Government securities - National Treasury - 554,199 638,911 1,193,110

556,215

Interbank deposits 2,111,745 1,923 - 2,113,668 4,536,016Foreign-currency investments 1,361,353 - - 1,361,353 9,888Interbank investments 3,897,594 556,122 638,911 5,092,627 6,067,227


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5. SECURITIES Bank Adjustment Effect of adjustment to 2004 2003 to market market value on: Book Book

Categories Cost value Income Equity value value Government Securities 9,265,178 60,208 - 60,208 9,325,386 7,728,738Treasury certificates (1) 1,634,863 50,925 - 50,925 1,685,788 1,860,872Securitized credit 39,633 (131) - (131) 39,502 48,809National Treasury bills 876,825 2,487 - 2,487 879,312 -Treasury bills 83,051 576 - 576 83,627 52,108Central Bank notes 514,531 15,209 - 15,209 529,740 428,476National Treasury

notes NTN C (2) 5,882,554 1,255 - 1,255

5,883,809 5,305,456National Treasury

notes NTN D 18,174 589 - 589

18,763 17,681National Treasury

notes NTN F 194,843 (9,917) - (9,917)

184,926 -Samurai bonds 20,704 (785) - (785) 19,919 15,336Private Securities 1,317,284 (82,969) 99,531 (182,500) 1,234,315 860,885Shares (3) 828,023 (83,279) 99,531 (182,810) 744,744 459,529Debentures - - - - - 7,480Rural product notes 153,874 310 - 310 154,184 -Real estate bonds 70,703 - - - 70,703 65,535Mortgage notes 264,684 - - - 264,684 328,341 Total 10,582,462 (22,761) 99,531 (122,292) 10,559,701 8,589,623 Derivatives (Assets) 9,110 2,526 2,526 11,636 13,356Swap - differentials receivable 9,110 2,526 2,526 11,636 13,332Forward purchases receivable - - - - 24Total 10,591,572 (20,235) 102,057 (122,292) 10,571,337 8,602,979 Derivatives (Liabilities) (7,382) (8,004) (1,444) (6,560) (15,386) (58,740)Swap - differentials payable (7,318) (8,004) (1,444) (6,560) (15,322) (58,327)Forward purchases payable (64) - - - (64) (413)

Without Up to From 3 to From 12 to Over

Composition by maturity maturity 3 months 12 months 36 months 36 months Total Government Securities - 464,904 1,089,971 1,231,811 6,538,700 9,325,386Treasury certificates (1) - 134,087 358,877 715,087 477,737 1,685,788Securitized credit - - 2,260 2,304 34,938 39,502National Treasury bills - - 697,367 181,945 - 879,312Treasury bills - - 12,704 70,923 - 83,627Central Bank notes - 330,817 - 198,923 - 529,740National Treasury notes NTN C (2) - - - 42,710 5,841,099 5,883,809National Treasury notes NTN D - - 18,763 - - 18,763National Treasury notes NTN F - - - - 184,926 184,926Samurai bonds - - - 19,919 - 19,919Private Securities 744,744 47,011 318,924 123,636 - 1,234,315Shares (3) 744,744 - - - - 744,744Rural product notes - 47,011 107,173 - - 154,184Real estate bonds - - - 70,703 - 70,703Mortgage notes - - 211,751 52,933 - 264,684Total 744,744 511,915 1,408,895 1,355,447 6,538,700 10,559,701


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Adjustment Effect of adjustment to 2004 2003 to market market value on: Book Book

Categories Cost value Income Equity value value Trading securities 61,939 99,531 99,531 - 161,470 79,037Securities available for sale 3,891,387 (122,292) - (122,292) 3,769,095 2,385,717Held to maturity 6,629,136 - - - 6,629,136 6,124,869Total 10,582,462 (22,761) 99,531 (122,292) 10,559,701 8,589,623

Adjustment to market value Book Without Trading Securities Cost (Income) value maturity Private Securities 61,939 99,531 161,470 161,470Shares (3) 61,939 99,531 161,470 161,470Total 61,939 99,531 161,470 161,470

Adjustment to market From From value Book Without Up to 3 to 12 12 to36 Over Securities available for sale Cost (Equity) value Maturity 3 months months months 36 months Government Securities 2,636,042 60,208 2,696,250 - 464,346 932,523 973,795 325,586Treasury certificates (1) 815,447 50,925 866,372 - 133,529 201,429 457,071 74,343Securitized credit 39,633 (131) 39,502 - - 2,260 2,304 34,938National Treasury bills 876,825 2,487 879,312 - - 697,367 181,945 -Treasury bills 83,051 576 83,627 - - 12,704 70,923 -Central Bank notes 514,531 15,209 529,740 - 330,817 - 198,923 -National Treasury

notes NTN C (2) 72,834 1,255 74,089 - - - 42,710 31,379National Treasury

notes NTN D 18,174 589 18,763 - - 18,763 - -National Treasury

notes NTN F 194,843 (9,917) 184,926 - - - - 184,926Samurai bonds 20,704 (785) 19,919 - - - 19,919 -Private Securities 1,255,345 (182,500) 1,072,845 583,274 47,011 318,924 123,636 -Shares (3) 766,084 (182,810) 583,274 583,274 - - - -Rural product notes 153,874 310 154,184 - 47,011 107,173 - -Real estate bonds 70,703 - 70,703 - - - 70,703 -Mortgage notes 264,684 - 264,684 - - 211,751 52,933 -Total 3,891,387 (122,292) 3,769,095 583,274 511,357 1,251,447 1,097,431 325,586

Book Without Up to From 3 to From 12 to Over Held to maturity (4) value maturity 3 months 12 months 36 months 36 months Government Securities 6,629,136 - 558 157,448 258,016 6,213,114Treasury certificates 819,416 - 558 157,448 258,016 403,394National Treasury notes

NTN C (2) 5,809,720 - - - - 5,809,720Total 6,629,136 - 558 157,448 258,016 6,213,114


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Consolidated Adjustment Effect of adjustment to 2004 2003 to market market value on: Book Book

Categories Cost value Income Equity value value Government Securities 9,322,384 60,403 (8) 60,411 9,382,787 7,871,105Treasury certificates (1) 1,634,863 50,925 - 50,925 1,685,788 1,860,871Securitized credit 39,633 (131) - (131) 39,502 48,809National Treasury bills 876,825 2,487 - 2,487 879,312 -Treasury bills 140,257 771 (8) 779 141,028 194,477Central Bank notes 514,531 15,209 - 15,209 529,740 428,476National Treasury notes NTN C (2) 5,882,554 1,255 - 1,255 5,883,809 5,305,455National Treasury notes NTN D 18,174 589 - 589 18,763 17,681National Treasury notes NTN F 194,843 (9,917) - (9,917) 184,926 -Samurai bonds 20,704 (785) - (785) 19,919 15,336Private Securities 1,496,504 (79,144) 99,531 (178,675) 1,417,360 1,124,089Shares (3) 829,126 (79,454) 99,531 (178,985) 749,672 461,821Rural product notes 153,874 310 - 310 154,184 -Bank deposit rates 3,175 - - - 3,175 51,592Investment fund quotas 174,942 - - - 174,942 209,319Debentures - - - - - 7,480Real estate bonds 70,703 - - - 70,703 65,535Mortgage notes 264,684 - - - 264,684 328,342 Total 10,818,888 (18,741) 99,523 (118,264) 10,800,147 8,995,194 Derivatives (Assets) 4,745 (65) (65) - 4,680 34,412Swap – differentials receivable 4,745 (65) (65) - 4,680 34,388Forward purchases receivable - - - - - 24 Total 10,823,633 (18,806) 99,458 (118,264) 10,804,827 9,029,606 Derivatives (Liabilities) (5,964) (7,281) (721) (6,560) (13,245) (56,842)Swap - differentials payable (5,900) (7,281) (721) (6,560) (13,181) (56,429)Forward purchases payable (64) - - - (64) (413)

Without Up to From 3 to From 12 to Over

Composition by maturity maturity 3 months 12 months 36 months 36 months Total Government Securities - 464,904 1,142,871 1,236,312 6,538,700 9,382,787Treasury certificates (1) - 134,087 358,877 715,087 477,737 1,685,788Securitized credit - - 2,260 2,304 34,938 39,502National Treasury bills - - 697,367 181,945 - 879,312Treasury bills - - 65,604 75,424 - 141,028Central Bank notes - 330,817 - 198,923 - 529,740National Treasury notes NTN C (2) - - - 42,710 5,841,099 5,883,809National Treasury notes NTN D - - 18,763 - - 18,763National Treasury notes NTN F - - - - 184,926 184,926Samurai bonds - - - 19,919 - 19,919Private Securities 924,614 49,024 320,086 123,636 - 1,417,360Shares (3) 749,672 - - - - 749,672Rural product notes - 47,011 107,173 - 154,184Bank deposit rates - 2,013 1,162 - - 3,175Investment fund quotas 174,942 - - - - 174,942Real estate bonds - - - 70,703 - 70,703Mortgage notes - - 211,751 52,933 - 264,684Total 924,614 513,928 1,462,957 1,359,948 6,538,700 10,800,147


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Adjustment Effect of adjustment to 2004 2003 to market market value on: Book Book

Categories Cost value Income Equity value value

Trading securities 240,362 99,523 99,523 - 339,885 79,204Securities avaiable for sale 3,946,215 (118,264) - (118,264) 3,827,951 2,530,379Held to maturity 6,632,311 - - - 6,632,311 6,385,611Total 10,818,888 (18,741) 99,523 (118,264) 10,800,147 8,995,194

Adjustment to market From From value Book Without Up to 3 to 12 12 to36 Over Trading securities Cost (Income) value maturity 3 months months months 36 months Government Securities 3,481 (8) 3,473 - - - 3,473 -Treasury bills 3,481 (8) 3,473 - - - 3,473 -Private Securities 236,881 99,531 336,412 336,412 - - - -Shares (3) 61,939 99,531 161,470 161,470 - - - -Investment fund quotas 174,942 - 174,942 174,942 - - - -Total 240,362 99,523 339,885 336,412 - - 3,473 -

Adjustment to market From From value Book Without Up to 3 to 12 12 to36 Over Securities avaiable for sale Cost (Equity) value maturity 3 months months months 36 months Government Securities 2,689,767 60,411 2,750,178 - 464,346 985,423 974,823 325,586Treasury certificates (1) 815,447 50,925 866,372 - 133,529 201,429 457,071 74,343Securitized credit 39,633 (131) 39,502 - - 2,260 2,304 34,938National Treasury bills 876,825 2,487 879,312 - - 697,367 181,945 -Treasury bills 136,776 779 137,555 - - 65,604 71,951 -Central Bank notes 514,531 15,209 529,740 - 330,817 - 198,923 -National Treasury

notes NTN C (2) 72,834 1,255 74,089 - - - 42,710 31,379National Treasury

notes NTN D 18,174 589 18,763 - - 18,763 - -National Treasury

notes NTN F 194,843 (9,917) 184,926 - - - - 184,926Samurai bonds 20,704 (785) 19,919 - - - 19,919 -Private Securities 1,256,448 (178,675) 1,077,773 588,202 47,011 318,924 123,636 -Shares (3) 767,187 (178,985) 588,202 588,202 - - - -Rural product notes 153,874 310 154,184 - 47,011 107,173 - -Real estate bonds 70,703 - 70,703 - - - 70,703 -Mortgage notes 264,684 - 264,684 - - 211,751 52,933 -Total 3,946,215 (118,264) 3,827,951 588,202 511,357 1,304,347 1,098,459 325,586

Book Without Up to From 3 to From 12 to Over Held to maturity (4) value maturity 3 months 12 months 36 months 36 months Government Securities 6,629,136 - 558 157,448 258,016 6,213,114Treasury certificates (1) 819,416 - 558 157,448 258,016 403,394National Treasury notes NTN C (2) 5,809,720 - - - - 5,809,720Private Securities 3,175 - 2,013 1,162 - -Bank deposit rates 3,175 - 2,013 1,162 - -Total 6,632,311 - 2,571 158,610 258,016 6,213,114

(1) The Treasury certificates are held in custody of the Clearinghouse for the Custody and

Financial Settlement of Securities (CETIP) and are restated based on the domestic general price index (IGP-DI) plus interest of 12% per year.

(2) Restated based on the general market price index (IGP-M) plus interest of 12% per year, paid semiannually, maturing to January 1, 2031.


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(3) Refers principally to shares of CESP - Cia Energética de São Paulo - R$ 173,009 (R$ 129,181 as of June 30, 203) and AES Tietê S.A. - R$ 410,265 (R$ 251,374 as of June 30, 2003).

(4) The market value of held to maturity securities as of June 30, 2004 is R$ 9,078,261 – Consolidated R$ 9,081,436 (R$ 8,451,883 – Consolidated R$ 8,457,353 as of June 30, 2003).

In accordance with BACEN Circular No. 3,068, of November 8, 2001, Santander Banespa declares to have financial capacity and intention to hold to maturity the securities classified in the held to maturity category. The market value of securities is computed based on the average quotation on organized markets and their estimated cash flows, discounted to present value using the applicable interest rate curves which are considered representative of the market conditions at the balance sheet date. The principal interest rate curves are obtained from futures and swap contracts traded on the Commodities and Futures Exchange (BM&F). Adjustments to these curves are made whenever certain points are considered illiquid or when due to unusual reasons they do not fairly represent market conditions.

6. INTERBANK ACCOUNTS

Composed of “Payments and receipts pending settlement”, represented basically by checks and other documents sent to clearinghouses (assets and liabilities) and by restricted deposits with BACEN to cover compulsory obligations for demand deposits, savings deposits, time deposits and foreign exchange transactions.

7. CREDIT PORTFOLIO AND ALLOWANCE FOR LOSSES

a) Composition of credit portfolio

Bank Consolidated 2004 2003 2004 2003

Composition of credit portfolio 7,839,805 5,979,588 7,963,379 6,095,253Lending operations 7,328,062 5,592,519 7,328,062 5,592,519Loans and discounted receivables 3,275,331 2,685,076 3,275,331 2,685,076Financing 2,270,442 1,185,182 2,270,442 1,185,182Rural, agricultural and industrial financing 1,357,873 1,148,650 1,357,873 1,148,650Real estate financing 382,408 524,986 382,408 524,986Infrastructure and development financing 42,008 48,625 42,008 48,625Leasing operations - - 121,481 113,584Advances on foreign exchange contracts (1) 212,745 143,543 212,745 143,543Other receivables (2) 298,998 243,526 301,091 245,607

(1) Advances on foreign exchange contracts are classified as a reduction of “Other

liabilities”

(2) Include receivables for guarantees honored, debtors for purchase of assets, notes and credits receivable, and income receivable from advances on foreign exchange contracts.


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b) Composition of credit portfolio by business sector

Bank Consolidated 2004 2003 2004 2003 Composition of credit portfolio by business sector 7,839,805 5,979,588 7,963,379 6,095,253Private sector 7,797,753 5,902,967 7,921,327 6,018,632Industrial 815,125 582,766 855,443 613,666Commercial 346,842 233,599 367,789 252,232Financial institutions 552,530 206,213 552,530 206,230Services and other 565,199 404,382 623,812 451,570Individuals 3,777,776 2,802,371 3,781,472 2,821,298Housing 382,408 524,986 382,408 524,986Rural 1,357,873 1,148,650 1,357,873 1,148,650Public sector 42,052 76,621 42,052 76,621State - 27,812 - 27,812Municipal 42,052 48,809 42,052 48,809

c) Changes in allowance for loan losses

Bank Consolidated 2004 2003 2004 2003

Balances January 1 447,167 621,611 455,465 633,243Allowances recognized 180,580 160,844 178,147 160,476Transfer due to merger of Santander Banespa Cia. de Arrendamento Mercantil - - - (617)Write-offs (150,045) (254,051) (150,830) (254,968)Exchange variations/Other changes - (4,822) - (4,658)Balances December 31 477,702 523,582 482,782 533,476Recoveries 104,799 128,377 107,106 131,882

d) Classification of credit portfolio by risk level and respective allowance for loan losses (CMN – National Monetary Council Resolution No. 2,682/99)

Bank Minimum Balance

Risk allowance 2004 2003 Allowance required level required (%) Current Past Due Total Total 2004 2003

AA - 1,517,499 - 1,517,499 818,654 - -A 0.50% 4,946,534 - 4,946,534 3,605,992 24,733 18,030B 1% 335,064 109,442 444,506 472,410 4,445 4,724C 3% 59,671 64,186 123,857 171,361 3,716 5,141D 10% 193,375 69,709 263,084 351,939 26,308 35,194E 30% 37,747 80,862 118,609 102,358 35,583 30,707F 50% 14,955 47,586 62,541 53,086 31,271 26,543G 70% 8,268 30,161 38,429 38,113 26,900 26,679H 100% 64,387 260,359 324,746 365,675 324,746 365,675

Total 7,177,500 662,305 7,839,805 5,979,588 477,702 512,693Additional allowance 10,889 Allowance 523,582


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Consolidated Minimum Balance

Risk allowance 2004 2003 Allowance required level required (%) Current Past Due Total Total 2004 2003

AA - 1,562,868 - 1,562,868 859,053 - -A 0.50% 5,004,036 - 5,004,036 3,647,126 25,020 18,236B 1% 349,584 109,791 459,375 488,115 4,594 4,881C 3% 60,345 64,598 124,943 175,798 3,748 5,274D 10% 194,603 70,105 264,708 355,067 26,471 35,507E 30% 38,024 80,994 119,018 103,706 35,705 31,112F 50% 15,039 47,656 62,695 54,212 31,348 27,106G 70% 8,711 30,281 38,992 39,310 27,294 27,517H 100% 64,798 261,946 326,744 372,866 326,744 372,866

Total 7,298,008 665,371 7,963,379 6,095,253 480,924 522,499Additional allowance 1,858 10,977Allowance 482,782 533,476

8. FOREIGN EXCHANGE PORTFOLIO

Bank/Consolidated 2004 2003 Assets 297,307 204,283 Exchange purchased pending settlement 273,648 169,170 Advances in foreign currencies (15,534) (8,614)Advances in local currency (19,749) (14,076)Rights to foreign exchange sold 54,692 54,627 Income receivable from advances 2,965 2,362 Term bills in foreign currency 1,285 814 Liabilities 109,487 94,877 Exchange sold pending settlement 55,114 53,550 Foreign exchange purchased 264,671 181,308 Advances on foreign exchange contracts (212,745) (143,543)Liabilities for sales made 1,473 1,446 Payables in foreign currencies 934 2,116 Income receivable from advances 40 - Memorandum accounts Open import credits 7,985 34,604Confirmed export credits - 518


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9. OTHER RECEIVABLES

Bank Consolidated 2004 2003 2004 2003 Other Receivables - Other 3,540,139 4,021,973 3,770,045 4,272,374Deferred tax credits 2,152,685 2,152,686 2,248,670 2,247,412Salary advances/other 46,748 40,847 47,034 41,307Debtors for purchase of assets 41,474 70,557 47,539 76,587Escrow deposits for: 844,463 1,321,544 913,332 1,364,899Pension plan 162,766 119,431 162,766 119,431Deductibility of social contribution tax in the calculation of income tax 283,336 253,637 283,336 278,325Other tax and civil-related deposits 108,032 728,852 159,247 730,060Laber claim appeals 290,329 219,624 307,983 237,083Recoverable taxes 121,767 203,959 168,986 306,833Tax incentive options 63,458 32,947 72,345 34,708Reimbursable payments 8 63 2,015 892Notes and credits receivable 251,121 170,597 251,121 170,597Receivables from affiliates 1,920 82 2,387 354Other 16,495 28,691 16,616 28,785 Detailed information on tax credits: I - Nature and origin of deferred tax credits

Bank

Balances as of

12/31/2003 Recognition Realization

Balances as of

06/30/2004 Allowance for loan losses 190.647 913 - 191.560 Reserve for civil contingencies 119.032 - (28.896) 90.136 Reserve for tax contingencies 263.834 15.556 - 279.390 Reserve for labor contingencies 403.852 - (8.823) 395.029 Reserve for maintenance of stockholder's equity 1.537.857 - (253.710) 1.284.147 Adjustment to market value of trading

securities and derivative financial instruments 14.446 - (11.182) 3.264 Accrual for suplementary pension plan 859.465 24.762 - 884.227 Other temporary differences 138.648 21.090 (29.372) 130.366 Total deferred tax credits on temporary differences 3.527.781 62.321 (331.983) 3.258.119 Tax loss carryforwards 12.647 50.632 - 63.279 Social contribution tax - Executive.

Act No. 2158-35 (08/24/2001) 595.202 - - 595.202 Subtotal deferred tax credits 4.135.630 112.953 (331.983) 3.916.600 Reserve for realization (1.982.945) - 219.030 (1.763.915)Deferred tax credits, net 2.152.685 112.953 (112.953) 2.152.685


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Consolidated

Balances as of

12/31/2003 Recognition Realization

Balances as of

06/30/2004 Allowance for loan losses 193,020 913 (1,303) 192,630 Reserve for civil contingencies 122,478 180 (29,028) 93,630 Reserve for tax contingencies 300,663 21,733 (8,258) 314,138 Reserve for labor contingencies 435,032 163 (8,862) 426,333 Reserve for maintenance of stockholders' equity 1,537,857 - (253,710) 1,284,147 Adjustment to market value of trading

securities and derivative financial instruments 16,115 - (12,213) 3,902 Accrual for suplementary pension plan 859,465 24,762 - 884,227 Other temporary differences 150,967 21,332 (30,184) 142,115 Total deferred tax credits on temporary differences 3,615,597 69,083 (343,558) 3,341,122 Tax loss carryforwards 16,344 50,804 - 67,148 Social contribution tax - Executive

Act No. 2158-35 (08/24/2001) 610,739 408 - 611,147 Subtotal deferred tax credits 4,242,680 120,295 (343,558) 4,019,417 Reserve for realization (1,991,240) (1,849) 222,342 (1,770,747)Deferred tax credits, net 2,251,440 118,446 (121,216) 2,248,670 The reserve for realization is recognized and adjusted based on the expected realization of these credits and their respective total present value, as shown below.

II - Expected realization of deferred tax credits Bank Temporary Temporary differences differences Tax loss CSLL Year IRPJ CSLL carryforwards 18% Total 2004 188,837 59,125 4,252 2,976 255,1902005 305,244 95,730 4,248 2,973 408,1952006 380,533 124,346 3,794 2,656 511,3292007 382,271 127,885 208 2,857 513,2212008 409,276 148,426 50,777 2,534 611,0132009 to 2011 114,898 32,269 - 170,002 317,1692012 to 2013 55,610 4,854 - 142,779 203,2432014 to 2016 116,307 14,559 - 201,318 332,1842017 to 2018 77,537 9,707 - 67,107 154,351After 2018 542,761 67,944 - - 610,705Total 2,573,274 684,845 63,279 595,202 3,916,600 IRPJ - Corportate income tax CSLL - Social contribution tax


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Consolidated Temporary Temporary differences differences Tax loss CSLL Year IRPJ CSLL carryforwards 18% Total 2004 193,409 60,785 4,906 3,309 262,4092005 311,087 97,926 6,159 4,311 419,4832006 386,593 126,509 5,099 4,380 522,5812007 414,091 142,591 208 5,130 562,0202008 415,562 156,123 50,776 5,124 627,5852009 to 2011 114,898 32,269 - 177,689 324,8562012 to 2013 55,610 4,854 - 142,779 203,2432014 to 2016 116,307 14,559 - 201,318 332,1842017 to 2018 77,537 9,707 - 67,107 154,351After 2018 542,761 67,944 - - 610,705Total 2,627,855 713,267 67,148 611,147 4,019,417

III - Present value of deferred tax credits

The present value of the deferred tax credits is R$ 2,496,733 - consolidated R$ 2,572,190 (R$ 2,360,406 - consolidated R$ 2,420,897 as of June 30, 2003). Present value was calculated taking into account the expected realization of temporary differences, tax loss carryforwards, and social contribution tax at the rate of 18% (Executive Act No. 2,158/01), based on the Interbank Deposit (CDI) average rate projected for the corresponding periods.

10. OTHER ASSETS

Refers principally to assets not in use, basically comprising real estate and vehicles received in settlement of debts in the amount of R$ 50,552 - consolidated R$ 55,412 (R$ 20,453 - consolidated R$ 26,218 as of June 30, 2003), net of allowance for valuation, and prepaid expenses of R$ 58,370 - consolidated R$ 58,371 (R$ 40,428 - consolidated R$ 40,431 as of June 30, 2003).

11. FOREIGN BRANCHES

A summary of the financial position of foreign branches (Tokyo, Grand Cayman, Asunción and Buenos Aires), translated at the exchange rate in effect on the balance sheet date and included in the financial statements of the Bank, is as follows: 2004 2003 Assets 2,435,139 1,801,782 Current and long-term assets 2,434,710 1,800,378 Permanent assets 429 1,404 Liabilities and equity 2,435,139 1,801,782 Current and long-term liabilities 2,092,211 1,413,449 Deferred income - 25 Stockholders' equity 342,928 388,308 Net loss for the period (27,103) (9,861)


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12. FUNDING AND BORROWINGS AND ONLENDINGS

Bank 2004 2003 Without Up to From 3 to Over

maturity 3 months 12 months 12 months Total Total Deposits 7,016,593 1,154,257 1,091,077 1,103,760 10,365,687 11,072,955Money market funding - 2,417,823 555,369 646,656 3,619,848 2,118,778Securities issued abroad - 20,763 565,537 792,683 1,378,983 1,020,215Borrowings and onlendings - 802,604 399,840 1,078,120 2,280,564 1,479,006Total 7,016,593 4,395,447 2,611,823 3,621,219 17,645,082 15,690,954 a) Deposits

2004 2003 Without Up to From 3 to Over

maturity 3 months 12 months 12 months Total Total Demand deposits 2,730,498 - - - 2,730,498 2,460,098Savings deposits 3,346,329 - - - 3,346,329 3,321,943Interbank deposits - 42,394 95,760 167,488 305,642 695,885Time deposits 939,766 1,111,863 995,317 936,272 3,983,218 4,595,029Total 7,016,593 1,154,257 1,091,077 1,103,760 10,365,687 11,072,955

b) Money market funding

2004 2003 Up to From 3 to Over

3 months 12 months 12 months Total Total Own portfolio 2,317,818 - - 2,317,818 1,359,243 Third parties 100,005 - - 100,005 200,000 Linked to trading portfolio operations - 555,369 646,656 1,202,025 559,535 Total 2,417,823 555,369 646,656 3,619,848 2,118,778

c) Securities issued abroad

Represented by funds obtained from the placement of securities (Eurobonds) abroad, for local investment, with maturities through 2006, and subject to financial charges ranging from 3.88% to 7.25% per year (6.25% to 7.25% per year as of June 30, 2003) and certificates of deposits, for local investment, with maturities through December 2004 and subject to financial charges ranging from 1.50% to 4.33% per year (1.50% to 4.33% per year as of June 30, 2003).


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d) Borrowings and onlendings

Bank/Consolidated 2004 2003 Up to From 3 Over

3 months to 12

months 12 months Total Total Borrowings 717,176 184,450 511,639 1,413,265 687,006 Foreign borrowings 717,176 184,450 511,639 1,413,265 687,006 Domestic onlendings 85,428 215,390 566,481 867,299 792,000 Total 802,604 399,840 1,078,120 2,280,564 1,479,006 Bank/Consolidated 2004 2003 Foreign borrowings 1,413,265 687,006Export 218,520 115,599Import 27,427 28,092Other credit lines 251,941 38,064Other liabilities - floating rates 219,509 38,917Foreign loans (1) 695,868 466,334

Foreign borrowings are represented by funds obtained from foreign banks for application in foreign exchange operations for the purchase and sale of foreign currencies, related to the discount of export invoices, prefinancing of exports and imports, and other loans, maturing up to October 20, 2005 and subject to financial charges, equivalent to exchange variation plus interest ranging from 1.30 % to 3.55% per year (2.24% to 5.56% per year as of June 30, 2003). (1) Most of the long-term loans were obtained from institutions related to the parent company at the rate of 1.5% per year plus LIBOR and are guaranteed by insurance.

Consolidated 2004 2003 Without Up to From 3 to Over

maturity 3 months 12 months 12 months Total Total Deposits 7,013,345 1,152,432 999,299 936,272 10,101,348 10,802,604 Money market funding - 2,311,325 555,369 646,656 3,513,350 2,046,179 Securities issued abroad - 20,763 565,537 792,683 1,378,983 1,020,215 Borrowings and onlendings - 802,604 399,840 1,078,120 2,280,564 1,479,006 Total 7,013,345 4,287,124 2,520,045 3,453,731 17,274,245 15,348,004 a) Deposits

2004 2003 Without Up to From 3 to Over

maturity 3 months 12 months 12 months Total Total Demond deposits 2,727,250 - - - 2,727,250 2,458,174 Savings deposits 3,346,329 - - - 3,346,329 3,321,943 Interbank deposits - 40,569 3,982 - 44,551 427,458 Time deposits 939,766 1,111,863 995,317 936,272 3,983,218 4,595,029 Total 7,013,345 1,152,432 999,299 936,272 10,101,348 10,802,604


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b) Money market funding

2004 2003

Up to From 3

to 12 Over 3 months months 12 months Total Total Own portfolio 2,211,320 - - 2,211,320 1,286,644 Third parties 100,005 - - 100,005 200,000 Linked to trading portfolio operations - 555,369 646,656 1,202,025 559,535 Total 2,311,325 555,369 646,656 3,513,350 2,046,179

13. OTHER LIABILITIES

Taxes and social security liabilities comprise taxes payable and amounts being challenged in the courts. Reserves for tax, civil and labor contingencies are determined based on an analysis of each pending issue and on the opinion of legal counsel and specialized technical advisors; the reserves are considered sufficient to cover possible losses arising from judicial decisions.

a) Taxes and social security Bank Consolidated 2004 2003 2004 2003 Taxes and social security 1,374,147 1,229,080 1,612,606 1,464,225Taxes payable 56,684 28,673 62,948 31,937Reserve for tax contingencies (1) 1,317,136 1,200,113 1,493,649 1,370,670Deferred income tax - - 4,282 12,318Accrued taxes on income 327 294 51,727 49,300

b) Other liabilities - other Other liabilities – other 6,299,299 6,630,931 6,444,267 6,757,713Cashiers' checks 166 298 166 298Creditors for unreleased funds 7,504 3,355 7,504 3,355Payables for acquisition of assets and rights 4,959 4,959 4,959 4,959Liabilities under government agreements 1,713 22,984 1,713 22,984Accrued liabilities 315,912 324.,766 318,751 327,443Reserve for labor contingencies (2) 1,192,461 1,298,961 1,284,530 1,383,607Reserve for civil contingencies (3) 304,456 595,540 314,735 603,538FGTS for amortization 2,463 546 2,463 546Payables to affiliates - - 78 19Pension plan (note 24b) 4,038,742 4,035,738 4,038,742 4,035,738CABESP (employee assistance) 100,969 98,817 100,969 98,817Other liabilities 329,954 244,967 369,657 276,409 (1) Refers basically to taxes not paid due to preliminary injunctions obtained.

(2) The most recurring claims refer to overtime and the respective effects, and differences in supplementary pension benefits.

(3) Most lawsuits refer to the review of contracts involving bank transactions and indemnities for property damages and pain and suffering.


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14. STOCKHOLDERS’ EQUITY

a) Capital

Capital is represented by 38,747,842,000 registered shares, without par value, as follows:

Shares in thousands Common Preferred Total Brazilian residents 19,372,698 19,373,220 38,745,918 Foreign residents 1,223 701 1,924 Total 19,373,921 19,373,921 38,747,842

b) Dividends

In accordance with the Bank’s bylaws, stockholders are entitled to a minimum dividend equivalent to 25% of annual net income, adjusted as provided for by legislation. Preferred shares are nonvoting and nonconvertible, but otherwise have the same rights and advantages granted to common shares, in addition to priority in the distribution of dividends 10% higher than those paid to common shares. As approved by the Extraordinary and Annual Shareholders’ Meeting held on April 30, 2004, dividends in the amount of R$ 400 million were paid from the retained earnings balance as of December 31, 2003. Of this amount, common shares received R$ 9.83 (in Brazilian reais) per thousand shares, and preferred shares R$ 10.81 (in Brazilian reais) per thousand shares.

15. OPERATING RATIOS

a) Basel Agreement (Operating Limit)

Brazilian financial institutions are required to maintain stockholders’ equity commensurate with their asset exposure risk, weighted by factors varying from 0 to 300%, and an equity-weighted assets ratio of at least 11%, in accordance with CMN Resolution No. 2,099/94 and supplementary instructions. This ratio is determined on a consolidated basis. As of June 30, 2004, the Santander Banespa Group in Brazil, represented by Banco Santander S.A. as the lead institution, is in compliance with the aforementioned limit, with an equity-weigthed assets ratio of 16.26% (16.39% as of June 30, 2003).

b) Fixed Assets to Equity Ratio

Brazilian financial institutions are required to maintain stockholders’ equity commensurate with their investments in permanent assets. The fixed assets to equity ratio cannot exceed 50% of stockholders’ equity, adjusted pursuant to prevailing regulations. As of June 30, 2004, the Santander Banespa Group in Brazil is in compliance with the aforementioned ratio, with a fixed assets to equity ratio of 26.94% (28.14% as of June 30, 2003).


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16. RELATED-PARTY TRANSACTIONS

Transactions among the entities of the Santander Banespa Group are carried out under usual market rates and terms, comparable to those applied in transactions with unrelated parties. The principal transactions and balances are as follows:

Assets (Liabilities) Income (Expenses) 2004 2003 2004 2003

Foreign currencies 7,468 7,929 - - Banco Santander Central Hispano – Madri 1,493 349 - - Banco Santander Central Hispano – Miami 12 28 - - Banco Santander Central Hispano – Frankfurt 15 552 - - Banco Santander Central Hispano – NY 5,948 7,000 - - Interbank deposits 2,118,506 3,818,586 181,054 342,879 Banco Santander Brasil S.A. 1,507,834 3,364,228 146,591 218,645 Cayman Branch of Banco Santander Brasil S.A. - - 1 - Banco Santander Meridional S.A. 452,350 454,358 32,895 48,138 Banco Santander S.A. 150,783 - 1,567 76,096 Banco Santander Central Hispano – NY 7,539 - - - Money market investments 1,593,108 851,214 14,562 49,349 Banespa S.A. Corretora de Câmbio e Títulos - - 14 - Banco Santander Brasil S.A. 1,593,108 851,214 14,002 45,779 Banco Santander Meridional S.A. - - 114 1 Banco Santander S.A. - - 432 3,569 Foreign-currency investments 1,339,333 595,653 5,771 3,246 Banco Santander Central Hispano – NY 1,339,333 595,653 5,771 3,246 Securities - own portfolio - - - 501 Banco Santander Brasil S.A. - - - 16 Cayman Branch of Banco Santander Brasil S.A. - - - 485 Financing 549,545 201,854 4,321 3,046 Banco Santander Brasil S.A. 472,361 201,724 3,380 3,046 Banco Santander Central Hispano – NY - 130 - - Cayman Branch of Banco Santander Brasil S.A. 77,184 - 941 - Dividends and cash bonuses receivable 65,058 - 19,771 - Banespa S.A. Corretora de Câmbio e Títulos - - 1,979 - Santander Banespa Cia de Arrendamento Mercantil S.A 12,750 - 15,000 - Banespa S.A. Serviços Técnicos, Administrativos e

de Corretagem de Seguros 52,308 - 2,792 - Swap operations – differentials receivable 7,369 10,155 46,718 867 Santander Banespa Cia de Arrendamento Mercantil S.A 6,956 7,547 2,305 5,576 Banco Santander Meridional S.A. - - 37,728 - Banco Santander S.A. 413 - 3,294 - Banco Santander Brasil S.A. - 2,608 3,391 (4,709)Local correspondents 40 - - - Banco Santander Brasil S.A. 8 - - - Banco Santander Meridional S.A. 32 - - - Exchange purchased pending settlement 27,910 22,467 - - Banco Santander Brasil S.A. 27,910 22,467 - - Advances in foreign currencies (15,533) - - - Banco Santander Brasil S.A. (15,533) - - - Rights to foreign exchange sold 23,303 - - - Banco Santander Brasil S.A. 23,303 - - -


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Assets (Liabilities) Income (Expenses)

2004 2003 2004 2003 Receivables from affiliates 1,920 82 - - Banespa S.A. Corretora de Câmbio e Títulos 5 - - - Banco Santander Central Hispano – Espanha 1,875 82 - - Santander Banespa Cia de Arrendamento Mercantil S.A 40 - - - Other 467 - - - Banco Santander Central Hispano – NY 467 - - - Other assets 7,859 9,434 - - Banco Santander Central Hispano – NY 7,859 9,434 - - Sundry debtors – domestic - - - 265 Banespa S.A. Serviços Técnicos, Administrativos e

de Corretagem de Seguros - - - 265 Demand deposits (10,881) (4,331) - - Banespa S.A. Corretora de Câmbio e Títulos (214) (202) - - Banco Santander Brasil S.A. (21) - - - Banco Santander Meridional S.A. (10) - - - Santander Banespa Cia. Arrendamento Mercantil S.A (84) (171) - - Santander Seguros S.A. (5,757) (831) - - Santander Capitalização S.A. (1,844) (1,576) - - Banespa S.A. Serviços Técnicos, Administrativos e

de Corretagem de Seguros (2,951) (1,551) - - Interbank deposits (304,640) (695,377) (31,707) (11,179)Santander Banespa Cia. Arrendamento Mercantil S.A (295,612) (268,426) (21,342) (9,899)Banco Santander Brasil S.A. (9,028) (26,588) (1,348) (481)Banco Santander S.A. - (400,363) (9,017) (799)Money market funding (1,471,020) (1,063,834) (162,660) (80,044)Banespa S.A. Corretora de Câmbio e Títulos (106,498) (72,599) (4,882) 4,996 Banco Santander Brasil S.A. (1,302,024) (559,535) (141,746) (67,328)Banco Santander Meridional S.A. (62,498) (181,000) (8,821) (9,764)Banco Santander S.A. - (250,700) (7,211) (7,948) Securities issued abroad (12,497) (1,096) (469) (211)Agência Cayman do Banco Santander Brasil S.A. (12,497) (1,096) (469) (211)Swap operations – differentials payable (6,707) (47,845) (48,800) (51,003)Santander Banespa Cia. Arrendamento Mercantil S.A (2,141) (1,898) (2,497) (4,785)Banco Santander Meridional S.A. - (42,634) (39,533) (42,636)Banco Santander S.A. - - (3,030) - Banco Santander Brasil S.A. (4,566) (3,313) (3,740) (3,582)Exchange sold pending settlement (23,252) (31,032) - - Banco Santander Brasil S.A. (23,252) (31,032) - - Foreign exchange purchased (27,948) - - - Banco Santander Brasil S.A. (27,948) - - - Foreign borrowings (374,236) (460,992) (48,767) (14,382)Banco Santander Central Hispano - NY (374,236) (460,992) (48,767) (14,382)Dividends and cash bonuses payable (392,329) - - - Banco Santander S.A. (389,141) - - - Banco Santander Brasil S.A. (3,188) - - - Trading account (14) - - - Santander Brasil S.A. Corretora de

Câmbio e Valores Mobiliários (9) - - - Banespa S.A. Corretora de Câmbio e Títulos (5) - - - Other liabilities – other (126) - - - Banco Santander Central Hispano - NY (126) - - - Recovery of charge and expenses - - 242 23,227 Banespa S.A. Corretora de Câmbio e Títulos - - - 23,227 Santander Banespa Cia. Arrendamento Mercantil S.A - - 242 - Outside services - - - (2,862)Banespa S.A. Serviços Técnicos, Administrativos e

de Corretagem de Seguros - - - (2,862)


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17. INVESTMENTS IN SUBSIDIARIES 2004

Stockholders’

Net Number of shares

(in thousands) Capital equity income Common Preferred Financial sector Banespa S.A. Corretora de Câmbio e Títulos 23,000 58,080 70,155 6,718,398 6,718,298Santander Banespa Cia. de Arrendamento

Mercantil (1) 350,000 381,773 28,240 243,581 243,581Insurance and services sector Banespa S.A. Serviços Técnicos, Administrativos e

de Corretagem de Seguros 15,498 46,434 52,727 50,425,267 - 2004 2003 Equity- Book Equity- Book Ownership method value of method value of (%) pick-up investments pick-up investments Financial sector 98,395 439,853 85,491 482,828 Banespa S.A. Corretora de Câmbio e Títulos 99.99% 70,155 58,080 55,306 108,854 Santander Banespa Cia. de Arrendamento Mercantil 99.99% 28,240 381,773 30,185 373,974 Insurance and services sector Banespa S.A. Serviços Técnicos, Administrativos e

de Corretagem de Seguros 99.99% 52,727 46,434 180,728 216,405 Total 151,122 486,287 266,219 699,233

18. INCOME FROM SERVICES RENDERED Bank Consolidated 2004 2003 2004 2003 Income from services rendered 540,346 387,121 704,354 528,441Income from fund management 61,322 31,764 133,920 74,115Income from collection 30,285 28,957 30,285 28,957Checking account services 173,731 131,310 173,731 131,310Agreements 40,796 37,915 40,796 37,915Lending operations 120,115 99,811 120,116 99,824Insurance 36,011 1,148 106,723 87,841Credit cards 41,360 30,097 41,360 30,097Interbank fees 9,336 3,259 9,336 3,259Stock exchange brokerage fees - - 13,303 7,551Income from guarantees provided 2,802 4,043 2,802 4,043Other 24,588 18,817 31,982 23,529

19. OTHER ADMINISTRATIVE EXPENSES Bank Consolidated 2004 2003 2004 2003 Other administrative expenses 640,754 402,596 659,846 415,227Depreciation and amortization 136,387 80,260 136,387 80,351Utilities 19,592 14,719 19,598 14,734Financial system services 17,031 16,996 17,178 18,622Outside and specialized services 138,883 91,515 156,004 100,188Advertising and publicity 72,190 13,255 72,431 13,770Rentals 37,961 28,181 38,020 28,213Communications 72,931 45,947 73,101 46,937Transportation and travel 29,498 23,598 29,843 23,806Data processing 43,679 37,091 43,692 37,127Security services 25,239 20,444 25,239 20,444Asset maintenance 26,582 13,140 26,582 13,140Other 20,781 17,450 21,771 17,895


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20. OTHER OPERATING INCOME Bank Consolidated 2004 2003 2004 2003 Other operating income 230,308 622,339 296,568 823,374 Recovery of charges and expenses 14,453 69,750 15,215 46,069 Reversal of operating accruals 121,961 444,862 164,875 629,440 Tax contingencies 8,848 52,094 40,345 122,038 Civil contingencies 100,937 170,421 101,891 170,421 Labor contingencies - 98,437 3,740 206,344 Other 12,176 123,910 18,899 130,637 Exchange variation on foreign branch 25,642 - 25,642 - Restatement of escrow deposits 34,146 83,782 51,389 83,782 Other 34,106 23,945 39,447 64,083

21. OTHER OPERATING EXPENSES Bank Consolidated 2004 2003 2004 2003 Other operating expenses 449,621 491,439 484,472 505,694 Updating of pension plan (note 24b) 340,073 231,964 340,073 231,964Updating of taxes, recognition/updating of civil,

tax and labor contingencies 55,925 91,772 85,551 97,869Discounts granted 7,306 12,214 7,306 12,214Exchange variation on foreign branch - 98,647 - 98,647Business formalization expenses 7,225 20,350 7,355 20,369Other 30,092 36,492 44,187 44,631

22. NONOPERATING EXPENSES (INCOME) Bank Consolidated 2004 2003 2004 2003 Nonoperating expenses (income) (5,373) 34,632 (1,371) 28,179Loss on sale of investments (1,996) (12,659) (2,150) (13,029)Gain (loss) on sale of assets (1,798) 18,780 1,491 21,355Capital losses (18,270) (8,326) (18,270) (9,470)Income from rentals 58 1,162 61 1,161Reversal of/(Recognition of) allowance for

losses on other assets (21,744) 16,574 (21,538) 16,633Reversal of tax incentive investments 33,243 12,110 33,989 3,183Losses on other investments (21) - (300) (4)Other 5,155 6,991 5,346 8,350


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23. DERIVATIVE FINANCIAL INSTRUMENTS

The Bank follows the policy of reducing market risks arising from its operations through derivative financial instruments. Market risk management is performed by an independent area, whose practices include the measurement and monitoring of limits formally established by internal committees, portfolio risks, sensitivity to interest rate fluctuations, exchange risk exposure and liquidity gaps, among other practices, providing for the monitoring of risks related to fluctuations in asset prices and interest rates and other factors which may affect the Bank’s portfolio position in the different markets in which it operates. Derivative financial instruments used as hedges have credit risks equal to or less than the related financial instrument risk. Market value for swaps is computed based on the estimated cash flow, discounted to present value according to the applicable interest rate curves, representative of the market conditions at the balance sheet date. The principal interest rate curves are obtained from futures and swap contracts traded on the BM&F. Adjustments to these curves are made whenever certain points are considered illiquid or when due to unusual reasons they do not fairly represent market conditions. As of June 30, derivative financial instruments were as follows: Bank 2004 Trades Cash flow hedge (a)/(b) Swaps Asset Liability Net Asset Liability Net CDI (interbank deposit rates) 73.020 1.061.103 (988.083) - - - Fixed interest rate - R$ 130.017 77.447 52.570 - - - Fixed interest rate - foreign currency - - - - 374.255 (374.255) Indexed to dollar - PTAX 938.301 712 937.589 - - - Indexed to IBOVESPA - 250 (250) - - - Indexed to LIBOR - - - 374.221 - 374.221 Total 1.141.338 1.139.512 1.826 374.221 374.255 (34)Market value 2.908 (6.594) Composition by counterparty: Customers 932.372 934.678 (2.306) Related parties 187.745 187.818 (73) Financial institutions 21.221 17.016 4.205 Total 1.141.338 1.139.512 1.826 Composition by maturity: Up to 3 months 99.868 95.797 4.071 From 3 to 12 months 176.090 176.988 (898) Over 12 months 865.380 866.727 (1.347) Total 1.141.338 1.139.512 1.826 Composition by market BM&F 21.222 17.017 4.205 Over the counter 1.120.116 1.122.495 (2.379) Total 1.141.338 1.139.512 1.826 (a) Swap operations classified as cash flow hedges refer to operations over the counter. (b) Financial instruments designated for cash flow hedges consist of:

Book Market value value Maturity Counterparty Foreign borrowings 374.221 374.243 Throught June 2007 Affiliated financial institutions


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2003 Trades Cash flow hedge (a)/(b) Swaps Asset Liability Net Asset Liability Net CDI (interbank deposit rates) 2,493,282 637,725 1,855,557 - - - Fixed interest rate - R$ 218,559 1,876,206 (1,657,647) 317 345 (28)Fixed interest rate - foreign currency - - - - 464,927 (464,927)Indexed to dollar – PTAX 428,377 631,265 (202,888) - - - Indexed to LIBOR - - - 464,927 - 464,927 Total 3,140,218 3,145,196 (4,978) 465,244 465,272 (28)Market value (29,738) (15,258)Composition by counterparty: Customers 1,082,577 1,089,774 (7,197) Related parties 2,041,278 2,041,079 199 Financial institutions 16,363 14,343 2,020 Total 3,140,218 3,145,196 (4,978) Composition by maturity: Up to 3 months 142,142 140,954 1,188 From 3 to 12 months 2,480,474 2,485,926 (5,452) Over 12 months 517,602 518,316 (714) Total 3,140,218 3,145,196 (4,978) Composition by market BM&F 637,672 640,748 (3,076) Over the counter 2,502,546 2,504,448 (1,902) Total 3,140,218 3,145,196 (4,978) (a) Swap operations classified as cash flow hedges refer to operations over the counter. (b) Financial instruments designated for cash flow hedges consist of:

Book Market value value Maturity Counterparty Foreign borrowings 464,927 459,229 Through June 2007 Affiliated financial institutions Time deposits - issuance 317 315 Through August 2003 Customers


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2004 2003 Notional Notional Futures contracts amount Amount Exchange coupon (DDI) Asset position 94,263 2,008,304 Liability position (802,023) (924,641)Interest rates (DI1 and DIA) Asset position 2,748,472 186,849 Liability position - (1,302,754)Dollar (Dol) Liability position (352,199) (117,373)Total 1,688,513 (149,615) 2004 2003 Composition by maturity: Up to 3 months (922,786) (898,884)From 3 to 12 months 1,276,961 750,509 Over 12 months 1,334,338 (1,240)Total 1,688,513 (149,615)

Consolidated 2004 Trades Cash flow hedge (a)/(b) Swaps Asset Liability Net Asset Liability Net CDI (interbank deposit rates) 57,604 957,063 (899,459) - - - Fixed interest rate - R$ 21,621 60,622 (39,001) - - - Fixed interest rate - foreign currency - - - - 374,255 (374,255)Indexed to dollar - PTAX 938,301 712 937,589 - - - Indexed to Bovespa - 250 (250) - - - Indexed to LIBOR - - - 374,221 - 374,221 Total 1,017,526 1,018,647 (1,121) 374,221 374,255 (34)Market value (1,907) (6,594) Composition by counterparty: Customers 932,372 934,678 (2,306) Related parties 63,933 66,953 (3,020) Financial institutions 21,221 17,016 4,205 Total 1,017,526 1,018,647 (1,121) Composition by maturity: Up to 3 months 65,679 62,614 3,065 From 3 to 12 months 121,114 123,247 (2,133) Over 12 months 830,733 832,786 (2,053) Total 1,017,526 1,018,647 (1,121) Composition by market: BM&F 21,221 17,017 4,204 Over the counter 996,305 1,001,630 (5,325) Total 1,017,526 1,018,647 (1,121) (a) Swap operations classified as cash flow hedges refer to operations over the counter.


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(b) Financial instruments designated for cash flow hedges consist of: Book Market value value Maturity Counterparty Foreign borrowings 374,221 374,243 Throught June 2007 Affiliated financial institutions

2003 Trades Cash flow hedge (a)/(b) Swaps Asset Liability Net Asset Liability Net CDI (interbank deposit rates) 2,467,710 640,615 1,827,095 - - - Fixed interest rate - R$ 132,588 1,849,837 (1,717,249) 347 375 (28)Fixed interest rate - foreign currency - - - - 464,927 (464,927)Indexed to dollar - PTAX 522,252 726,146 (203,894) - - - Indexed to Euro 113,245 113,245 Indexed to LIBOR - - - 464,927 - 464,927 Total 3,235,795 3,216,598 19,197 465,274 465,302 (28)Market value (6,783) (15,258)Composition by counterparty: Customers 1,082,578 1,089,774 (7,196) Related parties 2,136,854 2,112,481 24,373 Financial institutions 16,363 14,343 2,020 Total 3,235,795 3,216,598 19,197 Composition by maturity: Up to 3 months 122,669 122,124 545 From 3 to 12 months 1,798,308 1,800,448 (2,140) Over 12 months 1,314,818 1,294,026 20,792 Total 3,235,795 3,216,598 19,197 Composition by market: BM&F 637,673 640,747 (3,074) Over the counter 2,598,122 2,575,851 22,271 Total 3,235,795 3,216,598 19,197 (a) Swap operations classified as cash flow hedges refer to operations over the counter. (b) Financial instruments designated for cash flow hedges consist of:

Book Market value value Maturity Counterparty Foreign borrowings 464,927 459,229 Through June 2007 Affiliated financial institutions Time deposits - issuance 317 315 Through August 2003 Customers


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2004 2003 Notional Notional Futures contracts amount amount Exchange coupon (DDI) Asset position 94,263 2.008.304 Liability position (802,023) (924.641)Interest rates (DI1 e DIA) Asset position 2,748,472 186.849 Liability position - (1.302.754)Dollar (Dol) Liability position (352,199) (117.373) Total 1,688,513 (149.615) 2004 2003 Composition by maturity: Up to 3 months (922,786) (898,884)From 3 to 12 months 1,276,961 750,509 Over 12 months 1,334,338 (1,240)Total 1,688,513 (149,615)

Bank Consolidated 2004 2003 2004 2003 Composition by balance Asset 11,636 13,355 4,680 34,412Swap - differentials receivable 11,636 13,331 4,680 34,388Forward purchases receivable - 24 - 24Liabilities 15,386 58,740 13,245 56,841Swap - differentials payable 15,322 58,327 13,181 56,429Forward purchases payable 64 413 64 412

22. SUPPLEMENTARY PENSION PLAN

a) Since 1962, the Bank has maintained a supplementary pension plan, granted to employees hired through May 22, 1975. For recognition of the accounting effects, the charges arising from this plan are calculated based on an actuarial valuation performed by an independent actuary, in accordance with the provisions set forth in CVM Resolution No. 371.


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b) For employees hired starting May 23, 1975, the Bank and its subsidiaries sponsor other plans through BANESPREV - Fundo Banespa de Seguridade Social, for the purpose of granting pension benefits supplementary to those granted by Social Security, as defined in the basic regulations of each plan. b1) Defined benefit plan

Plan I, fully defrayed by the Bank, covers employees hired after May 22, 1975, named “Primary Participants”, and those hired up to May 22, 1975, named “Aggregate Participants”, who are also entitled to death benefits.

Effective July 27, 1994, when the new text of the Statutes and Basic Regulations of Plan II came into effect, Plan I participants who opted for the new plan began contributing 44.94% of the costing rate established by the actuary for each year.

Due to the privatization process, the Banespa Pension Plan was created. This plan is managed by BANESPREV and granted only to employees hired up to May 22, 1975, with the participation of employees previously covered by the in-house pension fund.

b2) Defined contribution plan

Banespa also sponsors Plan III, a defined contribution plan, offered to employees of the BANESPA Group hired after May 23, 1975, previously enrolled in Plans I and II. In this plan, the contributions are made both by the sponsor and the participants.

Results of the independent actuary’s valuation in accordance with CVM Resolution No. 371 are as follows:

Actuarial assumptions adopted in the calculations BANESPA BANESPREVNominal discount rate for actuarial liabilities

17.6% (12% actual and 5% for inflation) 15.5% (10% + 5% for inflation)

Estimated nominal rate of return on assets

17.6% (12% actual and 5% for inflation) 15.5% (10% + 5% for inflation)

Estimated long-term inflation rate 5% 5% Estimated nominal salary increase 5% 5% Estimated nominal benefit increase 5% 5% General mortality biometric table UP84 rated up one year UP84 rated up one year Invalidity entrance biometric table Mercer invalidity entrance table Mercer invalidity entrance table Estimated turnover rate 0.10/(Employment time + 1) up to

50 years old 2% Retirement probability 100% when first eligible for a plan

benefit 100% when first eligible


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Reconciliation of assets and liabilities Banespa 2004 2003 Values at beginning of period Present value of actuarial liabilities 4,101,560 4,026,737Adjustments for allowed deferrals - - Unrecognized actuarial gain (loss) (132,749) 47,978

Actuarial liabilities reserved 3,968,811 4,074,715Payments made in the period (270,142) (270,941)Expenses recognized in the period 340,073 231,964Value accrued as of June 30 4,038,742 4,035,738 Banesprev Values at beginning of period 2004 2003 Present value of actuarial liabilities including coverage (1,929,474) (1,641,302)Fair value of plan assets 2,554,588 2,040,718Difference between present value of liabilities and fair value of assets 625,114 399,416Adjustments for allowed deferrals: - -- Unrecognized actuarial gain (425,538) (339,103)Net actuarial assets 199,576 60,313Sponsor’s contributions for the period 60,940 50,249 (1) Pursuant to article 49, item “g”, of CVM Resolution No. 371, the

aforementioned asset was not recorded in the financial statements of BANESPA.

23. INCOME AND SOCIAL CONTRIBUTION TAXES

Bank 2004 2003 IRPJ CSLL IRPJ CSLL Income before taxes on income (corporate income

tax - IRPJ and social contribution tax - CSLL) 865,394 865,394 1,070,910 1,070,910Total IRPJ and CSLL at the rates of

25% and 9%, respectively (216,348) (77,885) (267,727) (96,382)Additions to and exclusions from CSLL and IRPJ 216,348 77,885 267,727 96,382Equity in subsidiaries 37,781 13,601 66,555 23,960Temporarily nondeductible provisions 7,415 (2,646) 38,907 13,992Reserve for maintenance of stockholders’ equity 186,552 67,158 186,552 67,158Nondeductible expenses and provisions (7,459) (5,456) (5,105) (1,823)Interest on capital (4,943) (1,779) - -Tax loss carryforwards (32,232) (7,548) - -Other additions/(exclusions) 29,234 14,555 (19,182) (6,905)IRPJ/CSLL expense - current - - - -Deferred tax credits – IRPJ/CSLL - - - 3,080Income tax expense - foreign countries - - 72 -Total IRPJ/CSLL recognized - - 72 3,080


38

Consolidated 2004 2003 IRPJ CSLL IRPJ CSLL Income before taxes on income (corporate income

tax - IRPJ and social contribution tax - CSLL) 915,290 915,290 1,152,813 1,152,813Total IRPJ and CSLL at the rates of

25% and 9%, respectively (228,823) (82,376) (288,204) (103,753)Additions to and exclusions from CSLL and IRPJ 189,120 70,679 246,301 90,045Temporarily nondeductible provisions 10,215 (1,666) 81,636 29,552Reserve for maintenance of stockholders’ equity 186,552 67,158 186,552 67,158Nondeductible expenses and provisions (12,535) (5,547) (6,826) (2,423)Tax loss carryforwards (32,233) (7,548) - -Other additions/(exclusions) 37,121 18,282 (15,061) (4,242)CSLL / IRPJ expense - current (39,703) (11,697) (41,903) (13,708)Provision for deferred income tax – excess depreciation 4,684 - 7,726 -Provision for deferred IRPJ/CSLL 4,684 - 7,726 -Deferred tax credits – IRPJ/CSLL (1,773) (1,406) (25,498) (11,600)Income tax expense - foreign countries - - (72) -Total IRPJ/ CSLL recognized (36,792) (13,103) (59,747) (25,308)

24. INSURANCE

The Bank’s insurance coverage in effect as of June 30, 2004 covering global bank risks, fire, vehicle and other risks, amounts to R$ 493,588 - consolidated R$ 497,875 (R$ 169,909 - consolidated R$ 174,533 as of June 30, 2003).

25. OTHER INFORMATION

a) Co-responsibility and risks on guarantees provided on behalf of customers, recorded in memorandum accounts, amounted to R$ 523,514 - consolidated R$ 523,514 (R$ 617,989 - consolidated R$ 617,989 as of June 30, 2003).

b) The total net book value of managed investment funds in the Consolidated is R$ 13,514,704 (R$ 1,271,411 as of June 30, 2003)

.

banco do estado de sãopaulo s.a. - banespa · total assets 31.592.897 28.534.985 31.640.248...

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