december 31, 2007 · 2008-04-01 · 31, 2006, therefore, the analysis of income evolution is...

FINANCIAL STATEMENTS

BANCO SANTANDER S.A.

DECEMBER 31, 2007

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Banco Santander S.A. - Consolidated Management Report

Dear Shareholders,

We present the Management Report and the Individual

and Consolidated Financial Statements of Banco

Santander S.A. for the year ended December 31, 2007,

prepared in accordance with Brazilian accounting

practices, established by Corporate Law, associated with

the standards of the National Monetary Council (CMN),

Central Bank of Brazil (Bacen), Brazilian Securities

Commission (CVM).

Economic Scenario

The year of 2007 was a very positive year for the

Brazilian economy, despite the turbulence in the

international market, stirred by the fears of recession in

the North-American economy and by the crisis in the

credit market.

The gradual reduction in the interest rate process, the

facility to obtain credit and the actual increase in salaries

were some of the factors led an upswing in the domestic

demand, boosting both retail sales, which grew by 9.6%

in 2007 (significantly higher than the 6.2% increase in

2006) and industry, which recorded an annual evolution

of approximately 6% (against 2.8% in 2006). The

increase in demand also contributed to raise the

expectations of businessmen, who expanded their

investments. As a final result, the Gross Domestic

Product (GDP) is expected to grow 5.1% in 2007,

surpassing the 3.8% in 2006.

The 4.5% inflation rate in 2007 was within the target. The

increase in relation to 2006 can be explained, mainly by

the increase in food prices. The basic interest rate ended

2007 on 11.25%, a decrease of 200 bps in relation to

December 2006.

The increase in commodities prices and the growth in

Asia played an important role to keep a positive trade

balance. In 2007, exports grew 16% and the trade

balance recorded a surplus of US$40 billion. International

reserves more than doubled, reaching the volume of

US$178.4 billion and direct investments increased from

US$18.8 billion to US$33.0 billion.

The combination of the good performance of the

external accounts, the favorable evolution of fiscal

accounts and the economic growth have contributed

to the country to keep moving towards to obtain the

Investment Grade.

This positive environment was favorable to the

continuity of credit expansion, which grew 27.3% in

2007, reaching 34.7% of GDP. In the same period,

the unrestricted volume of corporate loans registered

a 31.4% variation and individual loans accumulated

an increase of 33.1%.

Individual loans, under payroll loans, vehicle financing

and credit cards rose by 33.8%, 28.6% and 27.3%,

respectively, in 12 months. Savings also kept a good

rhythm of growth in the year with 21.9% increase. The

main highlights were in investment funds, demand

and savings deposits.

Corporate Restructuring

On August 31, 2006, Extraordinary Stockholders’

Meetings of Banco Santander Banespa S.A.

(successor of Banco Santander Meridional S.A.),

Banco Santander Brasil S.A. (BSB), Banco Santander

S.A. (BSSA) and Banco do Estado de São Paulo S.A.

- Banespa (Banespa) approved the proposed

corporate restructuring with the merger of the

aforementioned banks into Banco Santander

Banespa S.A. As a consequence, the stockholders of

BSB, BSSA and Banespa (Merged Entities) received

shares issued by Banco Santander Banespa S.A.

(Merging Entity) and the Merged Entities were wound

up, with Banco Santander Banespa becoming the

universal successor of the Merged Entities to all their

assets, rights and obligations, and becoming the lead

institution of the financial and non-financial group with

Bacen. The Extraordinary Stockholders’ Meeting held

on April 30, 2007, approved the change of the entity’s

name from Banco Santander Banespa S.A. to Banco

Santander S.A.

The Extraordinary Stockholders Meeting held on

November 30, 2006, approved the merger of

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Santander Banespa Companhia de Arrendamento

Mercantil into Santander Brasil Arrendamento Mercantil

S.A., which became the successor to all its assets, rights

and obligation.

On March 30, 2007, the Extraordinary Stockholders

Meetings of Santander Brasil Participações e

Empreendimentos S.A. and Santander Companhia

Securitizadora de Créditos Financeiros approved the

merger of Santander Brasil Participações e

Empreendimentos S.A. into Santander Companhia

Securitizadora de Créditos Financeiros. On the same

date, the change of its name from Santander

Securitizadora de Créditos Financeiros to Santander

Participações e Serviços S.A was also approved. At the

Extraordinary Stockholders Meeting held on October 10,

2007, the name change to Santander Investimentos em

Participações S.A. was approved.

The corporate restructuring implementation streamlined

the corporate structure and improved operational

efficiency on administrative and operational levels.

2007 Performance

1. Results

As a consequence of the corporate restructuring

mentioned on Note 2 to the Financial Statements, the

statement of income for the year ended December 31,

2007 of Banco Santander Consolidated is not

comparable to the income for the year ended December

31, 2006, therefore, the analysis of income evolution is

inadequate.

Santander ended 2007 with a net income of R$1,845

million. The results for the year showed a favorable

evolution in business-related revenues. The business

volume (deposits, managed funds and credit) rose by

25.3% in the last 12 months.

In 2007, the returns on the average stockholders’ equity

and on average assets represented 21.4% and 1.7%,

respectively.

2. Assets and Liabilities

Total consolidated assets grew 13.7% in relation to

2006, reaching R$116,037 million. Of this amount,

R$43,725 million are represented by the credit

portfolio, R$20,464 million by securities and

derivatives, mainly federal government securities, and

R$25,397 million by interbank investments.

Santander had R$767 million in securities classified

as “held-to-maturity securities” and has the financial

capacity and intention to hold them to maturity.

The credit portfolio increased 16.6% as compared to

2006, reaching R$43,725 million, with a 32.0%

increase in individual loans, especially credit card,

payroll loan, vehicle financing and mortgage loan

portfolios. The corporate loans portfolio grew only

7.7% in 2007, due to the weight in large companies

portfolio, which had a lower growth over the period in

view of the greater access to the capital market that

allowed companies to diversify their sources of

financing; and appreciation of the Brazilian Real that

have impacted the indexed and denominated credit

portfolio in foreign currency. This was offset by the

loan growth of small and medium companies over the

period.

The allowance for loan losses represented 4.1% of

the credit portfolio, against 4.3% in 2006. The credits

classified as AA to C represented 91.4% of the total

credit portfolio in 2007, compared to 94.0% in 2006.

The total funding, including managed funds, reached

R$136,336 million, an 18.8% growth compared to

2006. Deposits increased 22.3% against 2006,

totaling R$38,867 million. The highlight was the

28.1% growth of core deposits (demand and savings).

Managed funds increased by 35.5% compared to

2006, reaching R$55,911 million.

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Stockholders’ Equity

Stockholders’ equity reached, on December 31, 2007,

R$9,265 million, showing a 16.2% increase in relation to

December 2006, mainly as a consequence of the capital

increase of R$1,500 million in April, 2007 and the

R$1,845 million net income over the period, partially

offset by the distribution of dividends and interests on

own capital of R$2,265 million during year 2007. The

Basel Agreement Ratio, which is calculated on a

consolidated basis and takes into account the perpetual

bonds and subordinated certificates of bank deposit,

reached 14,2%, higher than the 11% minimum required

by Bacen.

The new rules to measure the regulatory capital under

Basel II Standard Method will go into effect in July 2008.

For this reason, Santander has been structuring its

processes and internal controls in order to comply with

the requirements of the New Basel Agreement, according

to the schedule established by Bacen.

Strategy

Santander added in 2007, more than 1 million new

customers, as a result of its business strategy which is

based on four majors’ levers:

1. Commercial Capacity: great commercial capacity

located in the most attractive markets of the country, the

South and Southeast.

2. Customer Focus: the increase on number of customers

is based on a clear strategy of segmentation, allowing to

successfully develop each step of the relationship with

the customer: acquisition, linkage and retention.

2.1 Acquisiton: Santander has several resources

dedicated to conquest new customers, among them is

organic growth through branch network, acquisition of

payroll and suppliers, specialized sales force and

service channels for non-customers.

2.2 Linkage: Santander considers as linked,

customers who have at least four of the products from

the basic offer. Thus, the linkage strategy is based on

the offering of basic products, complementary

products (installments loans, investment funds,

insurance and pension plans) and distribution

businesses (credit cards, payroll loans and vehicle

financing).

2.3 Retention: Santander has been investing in the

improvement of service quality and customer

relationship. For this, it relies on a customer retention

centre, information systems (SuperBase) and its

commercial force. On top of that, it successfully

added to its structure by launching, in October, the

Ombudsman, a communication channel between

Santander and the customer, which aims at

continuous search for enhancement and

improvements products, services and customer

services, in accordance with CMN 3.477 Resolution of

July 26, 2007.

3. Distribution and Mortgage Loan Businesses:

Santander is focused on distribution businesses,

represented by credit cards, payroll loans and vehicle

financing, considered the most dynamic products in

the market. In mortgages loans, Santander has used

its international know how to lever business in Brazil.

4. Innovative Bank: Santander has been investing on

innovative products like credit cards Free and Light,

Mortgage Loan with a 30-year line of credit, Prev 13

Rendas, Família Recompensa and the most recent

one, Cheque Essencial.

In Small and Medium Companies business, the aim is

to boost these segments, consolidating them as

levers of sustainable growth.

In Wholesale Banking, the strategy is to strengthen its

position as a Global Relationship Bank, in line with

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the models adopted by the Group abroad, by offering to

customers, in addition to customized solutions,

competitive products and services.

Santander is one of the leading financial institutions in

São Paulo State and has been expanding its operations

in the South and Southeast regions. Besides the Rio’s

government payroll credit rights, obtained in 2006, it

acquired in 2007 the payroll credit rights of the Curitiba

and Florianópolis Municipal Governments among others.

Santander has a portfolio of 8 million customers around

the country and a distribution network of 2,104 points of

sale (branches and banking service centers) and 7,639

ATM’s.

Commercial and Product Highlights

Santander ended 2007 with positive results and

consolidated its image as an innovative and strong Bank

in the acquisition and retention of customers, evidenced

by the increased market share in credit products. The

highlights were the business of payroll loans, individual

loans and credit cards, which, up to November 2007

showed an increase of 30 bps, 40 bps and 140 bps,

respectively, in 12 months. The growth of market share

for unrestricted total credit and individuals was 10 bps.

over a period of 12 months.

Santander has had an aggressive commercial strategy,

investing in innovative products. Santander Free is one of

the highlights (credit card, launched in June, 2007, free

from annual and other fees to the principal account

holder and up to five additional account holders as long

as the card is used at least once a month), Santander

Light (credit card with half the interest rates and up to

double the credit limit), Santander Mortgage Loans -

Super Casa, which had its line of credit extended from 20

to 30 years in the third quarter, making Santander a

pioneer among the private banks. In addition to these

products, Santander launched, in the end of September,

Santander Família Recompensa (a package of products,

the longer the money remains invested, the more

advantages and benefits the customer will have) and, in

October, Cheque Essencial, a product which allows

customer to pay the overdrafts account balance in

installments at half the usual interest rate.

In the insurance business, lenders insurance reached

a 10.3% of market share in 2007, which represents an

increase of 370 bps compared to the previous year.

The total insurance business market share increased

from 0.9% to 2.3%, according to data provided by

FENASEG (National Federation of Private insurance

and Capitalization Companies).

Employees

For Santander, its team of professionals is the most

valuable asset and its competitive differential. In

December 2007, the Bank had 22,843 professionals,

being committed to maintaining an efficient and

dedicated team. For this purpose, the Bank has

internal programs that offer opportunities for

professional growth, specific programs for interns and

Schools that promote continued education,

specifically focused on the need to qualify

professionals in the business.

Santander offers to its employees the opportunity to

obtain international experience through several

programs: Futuros Directivos (employees’ exchange

for Latin American countries and Spain), MBA abroad

and others. This year, another Program was

launched: “Embaixador Santander”. 40 professionals

from the group, including 4 from Brazil, were selected

among the Group to spend a month in one of the

countries where Santander operates in order to

develop a professional project and exchange

experiences. Santander currently has multicultural

teams working in more than 40 countries.

This people management model is in line with the

global operations which, in 2007, through the

campaign “Santander is You”, tried to reinforce the

pride in being part of the Group and show recognition

to the 135 thousand employees around the countries

where it operate. The distribution of 100 shares from

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Santander Group’s to all its employees, as a celebration

of its 150 anniversary, on August 6, 2007, associating

them to the Group’s future, was another proof of this

acknowledgement.

Subsidiaries

Santander Brasil Arrendamento Mercantil S.A. had, as of

December 31, 2007, total assets of R$4,152 million,

leasing operations of R$392 million and stockholders’

equity of R$481 million. Its net income for 2007 was

R$44 million.

Santander Brasil S.A. Corretora de Títulos e Valores

Mobiliários had, as of December 31, 2007, total assets

R$449 million and stockholders’ equity of R$174 million.

Its net income for 2007 was R$125 million.

Santander S.A. Corretora de Câmbio e Títulos had, as of

December 31, 2007, total assets of R$383 and

stockholders’ equity of R$137 million. Its net income for

2007 was R$121 million.

Santander Asset Management Distribuidora de Títulos e

Valores Mobiliários Ltda. had, as of December 31, 2007,

total assets of R$111 million, stockholders’ equity of

R$71 million and investment funds managed of R$52,673

million. Its net income for 2007 was R$19 million.

Santander S.A. Serviços Técnicos, Administrativos e de

Corretagem de Seguros had in 2007 net income of R$37

million, total assets and stockholders’ equity of R$200

million and R$48 million, respectively.

Rating Agencies

Santander is rated by international rating agencies and

the rating received reflects the operating performance

and the high quality of its management.

Long term Short

term Support 3

National Scale

AAA (BRA) F1+(BRA)

Local Currency BBB F3

Fitch Ratings

Foreign Currency

BBB- F3

National Scale brAA+ brA-1

Local Currency BB+ B

Standard & Poor’s

Foreign Currency BB+ B

Social Responsibility

The mainstay of Santander’s social responsibility

work is the investment in education, with emphasis on

higher education and academic research, since it

believes that this is the most efficient and direct way

of promoting economic and social progress in the

countries where it operates. Investments in education

are concentrated on the solid relationship network

that Santander Universidades has with more than 260

higher education institutions all over Brazil. By means

of agreements, Santander establishes a unique

alliance between the corporate world and the

academic world, involving more than 1,550,000

teachers and students. In Latin America and Europe,

Santander has entered into over 550 academic

cooperation agreements.

To fulfill its global mission, Santander has also the

Universia Network, which gathers 1,056 partnering

universities in the 11 Iberian-American countries

where it is present. The unifying element of this

Network is the portal Universia, which develops and

integrates contents and free services for the

academic community, in Portuguese and Spanish.

Launched in Brazil in March 2002, the portal

Universia (www.universia.com.br) has achieved, in

approximately five years, partnerships with 249

universities, with 1.9 million registered users and a

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monthly average of 900,000 individual users (different

people), according to data from Nielsen/NetRatings.

Another successful initiative developed by Santander is

the Program Parceiros em Ação, which semiannually

selects education projects benefiting children, teenagers,

and college students, always in partnership with

nongovernmental organizations in the South and

Southeast regions of the country. Santander also

sponsors culture, health, community development, sports

and other projects.

Operational Risks, Internal Controls and Sarbanes-Oxley Act Santander considers operational risk management and

control system a strategic and competitive factor., whose

purpose is to position itself among leading institutions in

term of the best practices and procedures in operational

risk management, as well as for the effective

management of the economic and regulatory capital.

Therefore, since 2001 it maintains a structure run by the

Vice-presidency of Operational Risks, a specific and

independent corporate area focused on the management

and control of operational risk and on the efficiency of the

internal controls system.

This Vice-presidency contributes and is responsible for

the preparation and release of policies, implementation of

tools and procedures, training and methodologies that

are part of this system and culture, allowing its

professionals to effectively identify, evaluate, monitor,

manage, control and mitigate the identified operational

risks, in their routines and business processes and daily

support, and ensure compliance with the requirements of

CMN Resolutions 2554/1998 and 3380/2006, Susep

Circular 249/2004 and Sarbanes-Oxley – SOX Act

requirements, among others.

Management, in line with its Corporate Governance

policy, recognizes, participates in and shares the

responsibility for the continued improvement of this

structure in order to ensure the fulfillment of defined

objectives and goals and provide security and quality

to Santander’s customers, stockholders and related

parties .

This structure, with its methodologies and views, and

the mains results obtained are described in our

annual and social reports for 2005 and 2006,

available on the website www.santander.com.br.

In 2007, the Operational Risks Committee was

created to ensure the implementation of rules and

policies established by the Executive Committee for

Operational Risks, and on February 28, 2007,

Santander obtained the full certification of its internal

control model, in compliance with Section 404 of

SOX, for the year ended December 31, 2006, where

no material weakness was identified. This certification

complements the certification of Santander Group in

Spain, formalized in the 20-F form filed with the SEC -

Securities and Exchange Commission, on June 29,

2007.

For the year ended on December 31, 2007,

Santander plans to complete in February 2008 the

second annual full certification of internal controls

models for Spain, in compliance with Section 404 of

SOX. By the time this reported was concluded, no

material weakness had been identified that should be

disclosed.

Market Risks Market risk is the exposure to interest rates, foreign

exchange rates, commodities prices , stock prices

and other values, according to the type of product,

volume of operations, terms and conditions of the

agreement and underlying volatility.

Santander operates in accordance with global

policies, within the Group’s risk tolerance level,

aligned with the objectives in Brazil and in the world.

With this purpose, it has developed its own Risk

Management model, according to the following

principles:

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- Functional independence;

- Executive capacity supported by knowledge of and

proximity to customers;

- Global reach of the functional (different types of risks)

and unique treatment to the customer;

- Collective decisions, in order to evaluate all possible

scenarios and do not compromise the results with

individual decisions, including the Executive Committee

of Credit, Market and Counterpart Risks, which sets the

Bank’s policies of credit and determines its inherent risks,

and the Executive Committee of Assets and Liability,

which is responsible for the capital management and

structural risks, including country-risk, liquidity and

interest and exchange rates risks;

- Management and optimizing of the risk/return equation;

and

- Advanced risk management methodologies, such as the

Value at Risk – VaR (historical 520–day simulation, with

a confidence level of 99% and timeframe of one day) and

the analysis of Liquidity (contractual and operational

liquidity gap), Scenarios, Net Interest Margin Sensitivity,

Market Value of Equity Sensitivity and Contingency Plan.

The Market Risks structure is part of the Vice-presidency

of Credit and Market Risks, an independent area that

aligns risk policies taking into account the instructions

from the Bord of Directors and the Risk Division of the

Santander Group in Spain.

Further details of the structure, methodologies and

control systems are described in the 2006 and 2005

annual reports, available on the website

www.santander.com.br.

Other Information

It is Santander’s policy to restrict the services provided by

its independent auditors, so as to preserve the auditor’s

independence and objectivity in accordance with

Brazilian and international standards. In compliance with

CVM Instruction 381/2003, the Bank informs that on the

year ended on December 31, 2007, it did not contract

non-audit services from Deloitte Touche Tohmatsu

Auditores Independentes.

Acknowledgements

The Management of Banco Santander S.A. thanks its

customers and stockholders for their trust and its

employees for their efforts and dedication that have

made the results possible.

São Paulo, February 6, 2008.

Board of Directors

Executive Board

(Approved at the Board of Directors’ Meeting held on

February 6, 2008).

***

Deloitte Touche Tohmatsu

8

(Convenience Translation into English from the Original Previously Issued in Portuguese) INDEPENDENT AUDITORS’ REPORT To the Management and Stockholders of Banco Santander S.A. (formerly Banco Santander Banespa S.A.) São Paulo - SP

1. We have audited the accompanying individual (Bank) and consolidated balance sheets of Banco Santander S.A. (formerly Banco Santander Banespa S.A.) and subsidiaries as of December 31, 2007 and 2006, and the related statements of income, changes in stockholders’ equity, and changes in financial position for the years then ended and six-month period ended December 31, 2007, 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 Santander S.A. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations, the changes in stockholders’ equity, and the changes in their financial positions for the years then ended and six-month period ended December 31, 2007 in conformity with Brazilian accounting practices.

4. Our audits were conducted for the purpose of forming an opinion on the financial statements referred to in paragraph 1 taken as a whole. The accompanying individual and consolidated statements of cash flows and value added are presented for purposes of additional analysis and are not a required part of the basic financial statements in conformity with Brazilian accounting practices as of December 31, 2007. Such information has been subjected to the auditing procedures described in paragraph 2 and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Deloitte Touche Tohmatsu

9

5. As mentioned in Note 2, Banco Santander S.A. was created from the merger of Banco Santander Brasil S.A. (BSB), Banco Santander S.A. (BSSA) and Banco do Estado de São Paulo S.A. - BANESPA (Banespa) and Banco Santander Meridional S.A., which occurred based on the account balances as of June 30, 2006, and were approved by the Central Bank of Brazil and the Brazilian Securities Commission (CVM).

6. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.

São Paulo, February 1, 2008 DELOITTE TOUCHE TOHMATSU Francisco A.M. Sant’Anna Auditores Independentes Engagement Partner

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

BANCO SANTANDER S.A. (formerly Banco Santander Banespa S.A.)BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais - R$, unless otherwise stated)

2007 2006 2007 2006

CURRENT ASSETS 80,628,674 66,188,689 79,709,547 65,359,913 Cash 1,641,665 1,177,725 1,641,705 1,179,015 Interbank investments (Note 5) 24,757,573 4,742,810 24,749,457 4,727,095 Money market investments 21,929,663 3,268,810 21,929,663 3,268,810 Interbank deposits 1,053,306 617,509 1,045,190 601,794 Foreign currency investments 1,774,604 856,491 1,774,604 856,491 Securities and Derivatives (Note 6) 15,300,972 29,831,271 14,024,674 28,638,803 Own portfolio 6,707,436 10,215,330 6,821,238 10,265,574 Subject to resale commitments 1,588,580 8,325,658 113,871 7,054,335 Derivatives (Note 34) 2,616,361 651,419 2,614,123 649,977 Linked to trading portfolio operations - 6,764,674 - 6,764,674 Linked to Central Bank of Brazil 2,885,974 2,406,323 2,885,974 2,406,323 Privatization certificates 49,879 20,193 49,879 20,193 Linked to guarantees 1,452,742 1,447,674 1,539,589 1,477,727 Interbank accounts (Note 7) 6,089,045 4,746,885 6,089,045 4,746,885 Payments and receipts pending settlement 4,013 2,245 4,013 2,245 Restricted deposits: Central Bank of Brazil 5,990,805 4,732,979 5,990,805 4,732,979 National Housing System 88,257 8,252 88,257 8,252 Correspondents 5,970 3,409 5,970 3,409 Interbranch accounts 984 2,009 984 2,009 Internal transfers of funds 984 2,009 984 2,009 Lending operations (Note 8) 20,259,501 17,526,528 20,251,589 17,516,283 Public sector 28,719 42,370 25,865 39,875 Private sector 20,448,734 17,722,071 20,443,442 17,712,609 Allowance for loan losses (217,952) (237,913) (217,718) (236,201) Leasing operations (Note 8) 10,374 24,995 214,355 232,512 Private sector 10,374 24,995 217,342 237,847 Allowance for doubtful lease receivables - - (2,987) (5,335) Other receivables 12,122,138 7,863,070 12,289,405 8,043,771 Receivables for guarantees honored 95 442 95 442 Foreign exchange portfolio (Note 9) 8,401,776 4,466,491 8,401,776 4,466,491 Income receivable 288,510 199,074 151,307 177,919 Trading account (Note 10) 310,460 259,970 582,551 423,797 Tax credits (Note 11) 1,045,318 1,231,019 1,064,481 1,246,830 Other (Note 12) 2,093,621 1,720,604 2,107,395 1,742,822 Allowance for losses on other receivables (Note 8) (17,642) (14,530) (18,200) (14,530) Other assets 446,422 273,396 448,333 273,540 Other assets (Note 13) 187,438 213,768 192,835 220,376 Allowance for valuation (Note 13) (155,438) (168,334) (160,835) (174,942) Prepaid expenses (Note 14) 414,422 227,962 416,333 228,106

(Continues)

Bank Consolidated

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BANCO SANTANDER S.A. (formerly Banco Santander Banespa S.A.)BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais - R$, unless otherwise stated) (Continuation)

2007 2006 2007 2006

LONG-TERM ASSETS 36,030,615 36,078,760 34,688,468 34,904,937 Interbank investments (Note 5) 647,501 582,246 647,501 582,246 Interbank deposits 647,701 582,446 647,701 582,446 Allowance for losses (200) (200) (200) (200) Securities and derivatives (Note 6) 8,344,193 12,643,210 6,439,763 10,991,875 Own portfolio 1,496,746 1,766,991 1,474,696 1,803,615 Subject to resale commitments 2,110,168 8,555,474 204,554 6,842,448 Derivatives (Note 34) 803,951 525,501 802,850 523,441 Linked to Central Bank of Brazil 1,846,997 - 1,846,997 - Privatization certificates 1,207 52,373 1,207 52,373 Linked to guarantees 2,085,124 1,742,871 2,109,459 1,769,998 Interbank accounts (Note 7) 64,236 60,365 64,236 60,365 Restricted deposits: National Housing System 64,236 60,365 64,236 60,365 Lending operations (Note 8) 17,367,178 15,076,280 17,338,251 15,043,886 Public sector 149,126 138,484 143,415 130,997 Private sector 18,751,179 16,249,189 18,727,178 16,224,282 Allowance for loan losses (1,533,127) (1,311,393) (1,532,342) (1,311,393) Leasing operations (Note 8) - 12,618 181,388 157,696 Private sector - 12,618 184,864 164,437 Allowance for doubtful lease receivables - - (3,476) (6,741) Other receivables 8,435,606 7,218,219 8,842,785 7,582,922 Receivables for guarantees honored 463 3,199 463 3,199 Foreign exchange portfolio (Note 9) 2,144,405 1,474,526 2,144,405 1,474,526 Income receivable 20,026 20,016 20,026 20,016 Tax credits (Note 11) 2,585,700 2,259,932 2,691,920 2,344,545 Other (Note 12) 3,713,713 3,503,348 4,017,121 3,788,560 Allowance for losses on other receivables (Note 8) (28,701) (42,802) (31,150) (47,924) Other assets 1,171,901 485,822 1,174,544 485,947 Temporary investments (Note 13) 10,067 12,076 10,075 12,085 Allowance for losses (Note 13) (647) (647) (655) (655) Prepaid expenses (Note 14) 1,162,481 474,393 1,165,124 474,517

PERMANENT ASSETS 2,814,584 2,703,754 1,638,921 1,762,249 Investments 1,288,833 1,063,910 110,965 120,046 Investments in affiliates and subsidiaries (Note 16) Domestic 1,268,418 1,036,149 19,287 16,336 Other investments 36,039 44,254 111,769 127,902 Allowance for losses (15,624) (16,493) (20,091) (24,192) Property and equipment in use (Note 17) 704,050 680,553 706,148 682,766 Real estate 308,662 281,535 311,585 284,458 Other 1,475,349 1,399,348 1,476,499 1,400,499 Accumulated depreciation (1,079,961) (1,000,330) (1,081,936) (1,002,191) Deferred charges (Note 18) 821,701 959,291 821,808 959,437 Organization and expansion costs 2,067,709 2,014,805 2,067,923 2,015,016 Accumulated amortization (1,246,008) (1,055,514) (1,246,115) (1,055,579) TOTAL ASSETS 119,473,873 104,971,203 116,036,936 102,027,099

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

Bank Consolidated

11


BANCO SANTANDER S.A. (formerly Banco Santander Banespa S.A.)BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais - R$, unless otherwise stated)

2007 2006 2007 2006

CURRENT LIABILITIES 79,400,360 67,904,862 76,142,723 66,419,740 Deposits (Note 19.a) 31,960,657 24,618,596 28,461,371 23,053,269 Demand deposits 6,257,913 4,737,143 6,251,442 4,730,812 Savings deposits 6,288,137 5,061,171 6,288,137 5,061,171 Interbank deposits 3,791,673 1,794,901 306,957 239,555 Time deposits 15,225,667 12,708,776 15,217,568 12,705,126 Other deposits 397,267 316,605 397,267 316,605 Money market funding (Note 19.b) 20,706,678 23,093,563 20,652,082 22,958,026 Own portfolio 1,324,407 14,328,106 1,324,407 14,312,606 Third parties 19,382,271 1,761,327 19,327,675 1,641,290 Linked to trading portfolio operations - 7,004,130 - 7,004,130 Funds from acceptance and issuance of securities (Note 19.c) 1,143,288 257,400 1,143,288 257,400 Securities issued abroad 715,645 131,113 715,645 131,113 Real estate credit notes 427,643 126,287 427,643 126,287 Interbank accounts 656 2,105 656 2,105 Correspondents 656 2,105 656 2,105 Interbranch accounts 549,172 880,801 549,172 880,801 Third-party funds in transit 548,030 877,888 548,030 877,888 Internal transfers of funds 1,142 2,913 1,142 2,913 Borrowings (Note 19.d) 6,465,748 5,220,867 6,465,748 5,220,867 Foreign borrowings 6,465,748 5,220,867 6,465,748 5,220,867 Domestic onlendings - official institutions (Note 19.d) 1,914,972 1,484,559 1,914,972 1,484,559 National Economic and Social Development Bank (BNDES) 991,912 710,448 991,912 710,448 Federal Savings and Loan Bank (CEF) 12,679 15,562 12,679 15,562 National Equipment Financing Authority (FINAME) 707,854 550,832 707,854 550,832 Other institutions 202,527 207,717 202,527 207,717 Derivatives (Note 34) 3,226,639 1,361,055 3,226,346 1,360,938 Derivatives 3,226,639 1,361,055 3,226,346 1,360,938 Other payables 13,432,550 10,985,916 13,729,088 11,201,775 Collected taxes and other 23,912 36,479 23,912 36,479 Foreign exchange portfolio (Note 9) 6,828,883 3,201,592 6,828,883 3,201,592 Social and statutory 1,527,849 1,018,512 1,528,152 1,018,684 Tax and social security (Note 20) 156,927 121,612 191,726 144,565 Trading account (Note 10) 177,881 253,669 447,327 417,722 Subordinated debts (Note 21) 2,140 2,584 2,140 2,584 Other (Note 22) 4,714,958 6,351,468 4,706,948 6,380,149

(Continues)

Bank Consolidated

12


BANCO SANTANDER S.A. (formerly Banco Santander Banespa S.A.)BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais - R$, unless otherwise stated) (Continuation)

2007 2006 2007 2006

LONG-TERM LIABILITIES 30,693,189 29,004,921 30,550,671 27,590,169 Deposits (Note 19.a) 10,973,892 10,502,974 10,405,516 8,739,115 Interbank deposits 211,639 1,608,280 2,714 11,880 Time deposits 10,762,253 8,894,694 10,402,802 8,727,235 Money market funding (Note 19.b) 2,462,758 2,516,682 2,462,758 2,516,682 Own portfolio 2,462,758 2,516,682 2,462,758 2,516,682 Funds from acceptance and issuance of securities (Note 19.c) 773,114 1,177,933 773,114 1,177,933 Securities issued abroad 773,114 1,150,634 773,114 1,150,634 Real estate credit notes - 27,299 - 27,299 Borrowings (Note 19.d) 816,788 747,781 816,788 747,781 Foreign borrowings 816,788 747,781 816,788 747,781 Domestic onlendings - official institutions (Note 19.d) 2,465,420 2,507,434 2,465,420 2,507,434 National Economic and Social Development Bank (BNDES) 1,399,071 1,486,117 1,399,071 1,486,117 Federal Savings and Loan Bank (CEF) 14,979 26,052 14,979 26,052 National Equipment Financing Authority (FINAME) 1,016,137 966,296 1,016,137 966,296 Other institutions 35,233 28,969 35,233 28,969 Derivatives (Note 34) 1,340,916 650,230 1,337,785 650,140 Derivatives 1,340,916 650,230 1,337,785 650,140 Other payables 11,860,301 10,901,887 12,289,290 11,251,084 Foreign exchange portfolio (Note 9) 2,149,532 1,408,190 2,149,532 1,408,190 Tax and social security (Note 20) 3,402,599 2,804,741 3,746,898 3,100,811 Trading account (Note 10) 41,597 162,313 41,597 162,313 Subordinated debts (Note 21) 4,217,485 4,033,455 4,217,485 4,033,455 Other (Note 22) 2,049,088 2,493,188 2,133,778 2,546,315

DEFERRED INCOME 78,892 41,522 78,892 41,522 Deferred income 78,892 41,522 78,892 41,522

MINORITY INTEREST - - 57 57

STOCKHOLDERS' EQUITY 9,301,432 8,019,898 9,264,593 7,975,611 Capital: (Note 24.a) Brazilian residents 159,848 138,184 159,848 138,184 Foreign residents 8,171,600 6,693,264 8,171,600 6,693,264 Capital reserves 22,130 24,747 22,130 24,747 Profit reserves 605,416 886,419 605,416 886,419 Adjustment to fair value - securities and derivatives 342,438 131,467 342,438 131,467 Retained earnings/accumulated deficit (Note 24.e) - 145,817 (36,839) 101,530 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 119,473,873 104,971,203 116,036,936 102,027,099


Bank Consolidated

13


BANCO SANTANDER S.A. (formerly Banco Santander Banespa S.A.)STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND SIX-MONTH PERIOD ENDED DECEMBER 31, 2007(In thousands of Brazilian reais - R$, unless otherwise stated)

2nd half Year Year2007 2007 2006 2007 2006

FINANCIAL INCOME 7,321,375 14,600,226 7,415,307 14,424,304 7,307,110 Lending operations 4,152,044 7,834,678 3,827,317 7,935,791 3,869,479 Leasing operations 759 2,065 2,150 57,375 35,976 Securities transactions 2,795,817 6,087,091 3,058,617 5,753,307 2,880,645 Derivatives 180,323 299,913 327,270 301,352 321,057 Compulsory investments 192,432 376,479 199,953 376,479 199,953

FINANCIAL EXPENSES (4,875,064) (8,994,461) (4,566,219) (8,575,234) (4,356,119) Funding operations (3,583,112) (6,559,456) (3,537,890) (6,145,942) (3,324,831) Borrowings and onlendings (250,505) (297,504) (284,173) (297,504) (284,190) Foreign exchange operations 122,597 (47,313) 55,801 (47,313) 55,801 Allowance for loan losses (Note 8.d) (1,164,044) (2,090,188) (799,957) (2,084,475) (802,899)

GROSS PROFIT FROM FINANCIAL OPERATIONS 2,446,311 5,605,765 2,849,088 5,849,070 2,950,991

OTHER OPERATING (EXPENSES) INCOME (1,578,890) (3,499,195) (1,854,385) (3,914,864) (1,919,434) Income from services rendered (Note 27) 1,792,460 3,471,595 1,508,500 3,741,419 1,618,172 Personnel expenses (Note 28) (989,132) (1,893,425) (1,051,123) (1,913,672) (1,063,293) Other administrative expenses (Note 29) (1,476,113) (2,828,378) (1,424,806) (2,871,100) (1,453,449) Tax expenses (Note 30) (400,747) (803,920) (356,331) (845,569) (376,643) Investments in affiliates and subsidiaries (Note 16) 403,251 514,107 105,828 2,950 15,290 Other operating income (Note 31) 246,381 418,417 452,340 456,148 479,818 Other operating expenses (Note 32) (1,154,990) (2,377,591) (1,088,793) (2,485,040) (1,139,329)

INCOME FROM OPERATIONS 867,421 2,106,570 994,703 1,934,206 1,031,557

NONOPERATING (EXPENSES) INCOME (Note 33) 196,697 188,756 (30,574) 495,128 (26,738)

INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING 1,064,118 2,295,326 964,129 2,429,334 1,004,819

INCOME AND SOCIAL CONTRIBUTION TAXES (Note 36) 66,904 (57,202) (54,947) (170,780) (53,498) Provision for income tax 18,098 (130,424) 18,317 (232,493) 19,671 Provision for social contribution tax (40,350) (100,782) 8,878 (137,614) 8,453 Deferred tax credits 89,156 174,004 (82,142) 199,327 (81,622)

PROFIT SHARING (251,021) (400,176) (141,871) (413,155) (147,702)

INCOME BEFORE MINORITY INTEREST 880,001 1,837,948 767,311 1,845,399 803,619

Minority Interest - - - (3) -

NET INCOME (Note 24.e) 880,001 1,837,948 767,311 1,845,396 803,619

Number of shares (thousands) 132,768,479 132,768,479 123,156,121 Earnings per thousand shares (R$) 6.63 13.84 6.23


Bank Consolidated

The statement of income for 2006 shows the results of operations for the first half of Banco Santander Meridional S.A., prior to the merger, plus results of operations for the second half (after the merger mentioned in Note 2).

14


BANCO SANTANDER S.A. (formerly Banco Santander Banespa S.A.)STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND SIX-MONTH PERIOD ENDED DECEMBER 31, 2007(In thousands of Brazilian reais - R$, unless otherwise stated)

Stock Reserve for

Capital Tax exchange Legal dividend Affiliates and Retained Capital increase incentives memberships reserve equalization Bank subsidiaries earnings Total

BALANCES AS OF DECEMBER 31, 2005 1,493,587 - 177 84 16,360 - 21,103 (7,717) 206,034 1,729,628 Merger balances 5,337,861 - 19,455 2,757 455,748 - (218,341) 13,654 145,816 5,756,950 Adjustment to fair value - securities and derivatives - - - - - - 322,860 (92) - 322,768 Stock exchange memberships - - - 545 - - - - - 545 Tax incentives - - 1,729 - - - - - - 1,729 Proposed supplementary dividends from retained earnings (Note 24.b) - - - - - - - - (206,033) (206,033) Net income - - - - - - - - 767,311 767,311 Allocations: Legal reserve - - - - 38,366 - - - (38,366) - Reserve for dividend equalization (Note 24.d) - - - - - 375,945 - - (375,945) - Proposed dividends (Note 24.b) - - - - - - - - (223,000) (223,000) Proposed interest on capital (Note 24.c) - - - - - - - - (130,000) (130,000) BALANCES AS OF DECEMBER 31, 2006 6,831,448 - 21,361 3,386 510,474 375,945 125,622 5,845 145,817 8,019,898 Capital increase (Note 24.a) 1,500,000 - - - - - - - - 1,500,000 Adjustment to fair value - securities and derivatives - - - - - - 216,818 (5,847) - 210,971 Stock exchange memberships - - - (2,617) - - - - - (2,617) Reserve for equalization of dividends from retained earnings (Note 24.d) - - - - - 145,817 - - (145,817) -

Proposed dividends based on the reserve for dividend equalization (Note 24.b) - - - - - (521,762) - - - (521,762) Net income - - - - - - - - 1,837,948 1,837,948 Allocations: Legal reserve - - - - 91,897 - - - (91,897) - Proposed dividends (Note 24.b) - - - - - - - - (1,215,406) (1,215,406) Reserve for dividend equalization (Note 24.d) - - - - - 3,045 - - (3,045) - Proposed interest on capital (Note 24.c) - - - - - - - - (527,600) (527,600) BALANCES AS OF DECEMBER 31, 2007 8,331,448 - 21,361 769 602,371 3,045 342,440 (2) - 9,301,432

BALANCES AS OF JUNE 30, 2007 6,831,448 1,500,000 21,361 4,619 558,371 - 434,492 (10) 647,050 9,997,331 Capital increase (Note 24.a) 1,500,000 (1,500,000) - - - - - - - - Adjustment to fair value - securities and derivatives - - - - - - (92,052) 8 - (92,044) Stock exchange memberships - - - (3,850) - - - - - (3,850) Proposed dividends (note 24.b) - - - - - - - - (647,050) (647,050) Net income - - - - - - - - 880,001 880,001 Allocations: Legal reserve - - - - 44,000 - - - (44,000) - Proposed dividends (note 24.b) - - - - - - - - (568,356) (568,356) Reserve for dividend equalization (Nota 24.d) - - - - - 3,045 - - (3,045) - Proposed interest on capital (note 24.c) - - - - - - - - (264,600) (264,600) BALANCES AS OF DECEMBER 31, 2007 8,331,448 - 21,361 769 602,371 3,045 342,440 (2) - 9,301,432


derivatives

Adjustment to fair value - Capital reserves Profit reserves securities and

15


BANCO SANTANDER S.A. (formerly Banco Santander Banespa S.A.)

AND SIX-MONTH PERIOD ENDED DECEMBER 31, 2007(In thousands of Brazilian reais - R$, unless otherwise stated)

Bank2nd half Year Year

2007 2007 2006 2007 2006

SOURCES OF FUNDS 14,061,135 39,004,227 21,063,589 38,997,018 19,864,817 Adjusted net income 822,257 2,021,539 948,175 2,535,856 1,073,069 Net income 880,001 1,837,948 767,311 1,845,396 803,619 Adjustment to net income:

Investments in affiliates and subsidiaries (Note 16) (403,251) (514,107) (105,828) (2,950) (15,290) Depreciation and amortization (Note 29) 210,969 416,231 205,979 416,387 206,096 Goodwill amortization (Note 32) - - 79,565 - 79,565 Recognition (reversal) of allowance for losses on other assets (Note 33) (3,623) (12,258) 1,504 (13,470) (53) Recognition of allowance for losses on other investments (859) (869) (368) (4,101) (880) Provision for adjustment to residual cost of deferred charges (Note 18) 139,003 294,551 - 294,551 - Exchange variation on foreign branches 17 43 12 43 12

Cash of acquired businesses - - 619,619 - 621,523 Change in deferred income 34,614 37,370 (1,878) 37,370 (1,878) Funds from stockholders - 1,500,000 - 1,500,000 - Capital increase (Note 24.a) - 1,500,000 - 1,500,000 - Adjustment to fair value - securities and derivatives - 216,818 322,860 210,971 322,768 Funds from third parties: 13,204,264 35,228,500 19,174,813 34,712,821 17,849,335 Increase in liabilities 5,952,466 15,953,473 17,598,412 15,372,251 16,248,065

Deposits 5,029,022 7,812,979 2,485,631 7,074,503 1,265,226 Money market funding - - 9,661,958 - 9,643,325 Funds from acceptance and issuance of securities 285,022 481,069 - 481,069 - Borrowings and onlendings - 1,702,287 2,833,350 1,702,287 2,833,350 Derivatives 638,422 2,556,270 441,005 2,553,053 441,693 Other payables - 3,400,868 2,176,468 3,561,339 2,064,471

Decrease in assets 7,022,440 18,856,555 1,431,028 19,166,241 1,501,823 Interbank investments 1,923,884 - 1,078,399 - 1,069,952 Securities and derivatives 748,624 18,829,316 - 19,166,241 - Leasing operations 10,924 27,239 18,474 - 34,955 Other receivables 4,339,008 - 334,155 - 396,916

Disposal of permanent assets 74,701 154,338 80,509 174,329 84,763 Assets not in use 28,231 85,606 68,577 86,821 72,320 Property in use 11,918 44,413 11,661 44,413 11,661 Investments 34,552 24,319 271 43,095 782

Dividends received from subsidiaries 80,007 178,124 20,801 - 13,365 Interest on capital received from subsidiaries 74,650 86,010 44,063 - 1,319 USES OF FUNDS 13,341,319 38,540,287 19,962,060 38,534,328 18,761,998 Proposed dividends (Note 24.b) 1,215,406 1,737,168 429,033 1,737,168 429,033 Proposed interest on capital (Note 24.c) 264,600 527,600 130,000 527,600 130,000 Adjustment to fair value - securities and derivatives 92,052 - - - - Additions 152,557 287,825 268,132 310,544 268,259

Assets not in use 22,022 69,656 68,853 69,659 69,241 Property and equipment in use 128,051 215,485 192,735 215,485 192,735 Investments 2,484 2,684 6,544 25,400 6,283

Deferred charges 366,864 429,352 307,667 429,354 307,667 Increase in assets 4,540,029 32,784,455 18,274,951 32,836,716 17,074,762

Interbank investments - 20,080,018 - 20,087,617 - Securities and derivatives - - 11,510,360 - 10,307,419 Interbank and interbranch accounts 644,940 1,345,006 64,675 1,345,006 64,675 Lending operations 3,190,570 5,023,871 6,286,058 5,029,671 6,288,808 Leasing operations - - - 5,535 - Other receivables - 5,476,455 - 5,505,497 - Other assets 704,519 859,105 413,858 863,390 413,860

Decrease in liabilities 6,709,811 2,773,887 552,277 2,692,946 552,277 Money market funding 2,625,430 2,440,809 - 2,359,868 - Funds from acceptance and issuance of securities - - 439,517 - 439,517 Interbank and interbranch accounts 652,296 333,078 112,760 333,078 112,760 Borrowings and onlendings 168,573 - - - - Other payables 3,263,512 - - - -

INCREASE IN CASH 719,816 463,940 1,101,529 462,690 1,102,819 REPRESENTED BY:Cash

Beginning of period 921,849 1,177,725 76,196 1,179,015 76,196 End of period 1,641,665 1,641,665 1,177,725 1,641,705 1,179,015

INCREASE IN CASH 719,816 463,940 1,101,529 462,690 1,102,819


STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

Consolidated

16


BANCO SANTANDER S.A. (formerly Banco Santander Banespa S.A.)SUPPLEMENTAL INFORMATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais - R$, unless otherwise stated)

2007 2006 2007 2006CASH FLOWS FROM OPERATING ACTIVITIES:

NET INCOME 1,837,948 767,311 1,845,396 803,619 ADJUSTMENTS TO NET INCOME 1,982,146 1,033,021 2,151,823 1,122,027 Allowance for loan losses (Note 8.d) 2,090,188 799,957 2,084,475 802,899 Deferred income and social contribution taxes (Note 36) (7,247) 23,122 (33,508) 21,244 Investments in affiliates and subsidiaries (Note 16) (514,107) (105,828) (2,950) (15,290) Depreciation and amortization (Note 29) 416,231 205,979 416,387 206,096 Goodwill amortization (Note 32) - 79,565 - 79,565 provision for residual costs of deferred charges (Note 18) 294,551 - 294,551 - Amortization of expenses on banking service exclusivity contracts (Note 32) 203,477 34,878 203,477 34,878 Allowance for losses on other assets (Note 33) (12,258) 1,504 (13,470) (53) Gain/loss on disposal of other assets (Note 33) (13,116) (4,127) (19,361) (4,771) Gain/loss on disposal of investments (Note 33) (474,747) (1,673) (773,720) (1,673) Others (826) (356) (4,058) (868) CHANGE IN ASSETS AND LIABILITIES (3,699,262) (2,325,969) (3,915,991) (2,406,876) Decrease (increase) in interbank investments (20,137,031) 1,078,399 (20,144,630) 1,069,952 Decrease (increase) in securities and derivatives 21,726,261 (10,610,591) 22,051,104 (9,406,937) Increase in lending operations and leasing operation (7,293,634) (7,175,968) (7,327,698) (7,164,046) Increase in restricted deposits in Central Bank of Brazil (1,257,826) (437,642) (1,257,826) (437,642) Decrease (increase) in other receivables (5,318,786) 112,652 (5,321,308) 174,413 Increase in other assets (1,062,582) (448,994) (1,066,867) (448,996) Net change in other interbank and interbranch accounts (420,258) 260,207 (420,258) 260,207 Increase in deposits 7,812,979 2,528,660 7,074,503 1,308,255 Increase (decrease) in money market funding (2,440,809) 9,661,958 (2,359,868) 9,643,325 Increase (decrease) in funds from acceptance and issuance of securities 481,069 (439,517) 481,069 (439,517) Increase in borrowings and onlendings 1,702,287 2,833,350 1,702,287 2,833,350 Increase in other payables 2,471,698 313,395 2,636,131 202,638 Increase (decrease) in deferred income 37,370 (1,878) 37,370 (1,878)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 120,832 (525,637) 81,228 (481,230) CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of investments (2,684) (6,544) (25,400) (6,283) Purchase of property and equipment in use (215,485) (192,735) (215,485) (192,735) Addition to deferred charges (429,352) (307,671) (429,354) (307,671) Cash of acquired businesses - 619,619 - 621,523 Net cash received from disposal of equity interests 692,741 12,927 1,010,490 13,438 Dividends and interest on capital received 264,134 64,864 - 14,684 Disposal of assets not in use 98,472 64,784 105,929 69,171 Disposal of property and equipment in use 44,663 19,716 44,663 19,716

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 452,489 274,960 490,843 231,843 CASH FLOWS FROM FINANCING ACTIVITIES:

Capital increase 607,043 - 607,043 - Increase in subordinated debts 183,586 1,445,095 183,586 1,445,095 Dividends and interest on capital paid (900,010) (92,889) (900,010) (92,889)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (109,381) 1,352,206 (109,381) 1,352,206 NET INCREASE IN CASH 463,940 1,101,529 462,690 1,102,819

Cash at beginning of period/year 1,177,725 76,196 1,179,015 76,196 Cash at end of period/year 1,641,665 1,177,725 1,641,705 1,179,015


Bank Consolidated

17


BANCO SANTANDER S.A. (formerly Banco Santander Banespa S.A.)SUPPLEMENTAL INFORMATION STATEMENTS OF VALUE ADDED FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais - R$, unless otherwise stated)

2007 2006 2007 2006

Gross profit from financial operations 5,605,765 2,849,088 5,849,070 2,950,991 Income from services rendered (Note 27) 3,471,595 1,508,500 3,741,419 1,618,172 Other income and expenses (4,084,689) (1,986,005) (4,401,917) (2,124,408) TOTAL 4,992,671 2,371,583 5,188,572 2,444,755 DISTRIBUTION OF VALUE ADDEDEmployees 2,029,161 40.7% 1,049,215 44.2% 2,059,575 39.7% 1,065,089 43.6%

Compensation (Note 28) 1,114,920 601,442 1,125,880 606,502 Charges 161,907 128,758 163,398 132,270 Benefits and other 752,334 319,015 770,297 326,317

Government 1,125,562 22.5% 555,057 23.4% 1,283,601 24.7% 576,047 23.6%Tax expenses (Note 30) 803,920 356,331 845,569 376,643 Income and social contribution taxes (Note 36) 57,202 54,947 170,780 53,498 INSS (social security contribution) 264,440 143,779 267,252 145,906

Stockholders 1,743,006 34.9% 353,000 14.9% 1,743,006 33.6% 353,000 14.4%Dividends and interest on capital 1,743,006 353,000 1,743,006 353,000

Reinvestment of profits 94,942 1.9% 414,311 17.5% 102,390 2.0% 450,619 18.4%TOTAL 4,992,671 100% 2,371,583 100% 5,188,572 100% 2,444,755 100%


Bank Consolidated

18

(Convenience Translation into English from the Original Previously Issued in Portuguese) BANCO SANTANDER S.A. (formerly Banco Santander Banespa S.A.) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (Amounts in thousands of Brazilian reais - R$, unless otherwise stated)

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1. Operations

Banco Santander S.A. (formerly Banco Santander Banespa S.A.), controlled by Banco Santander S.A. (formerly Banco Santander Central Hispano S.A.), with headquarters in Spain, is the lead institution of the financial and non-financial group with the Central Bank of Brazil, established as a corporation, with main offices at Rua Amador Bueno, 474, Santo Amaro, São Paulo, and operates as a multiple service bank, conducting operations such as commercial, foreign exchange, investment, credit and financing and mortgage loan portfolios and, through related entities, insurance, pension plan, capitalization, leasing, asset management, and securities and insurance brokerage operations. Transactions are conducted within the context of a group of financial institutions that operate on an integrated basis in the financial markets.

2. Corporate Restructuring

On August 31, 2006, the Extraordinary Stockholders’ Meetings of Banco Santander Banespa S.A. (successor of Banco Santander Meridional S.A.), Banco Santander Brasil S.A. (BSB), Banco Santander S.A. (BSSA) and Banco do Estado de São Paulo S.A. - Banespa (Banespa) approved a corporate restructuring proposal with the merger of the aforementioned banks into Banco Santander Banespa S.A. As a result, the stockholders of BSB, BSSA and Banespa (Merged Entities) received shares of Banco Santander Banespa S.A. (Merging Entity) and the Merged Entities ceased to exist, with Banco Santander Banespa S.A. becoming the universal successor of the Merged Entities to all their assets, rights and obligations, and becoming the lead institution of the financial and non-financial group with the Central Bank of Brazil.

The Extraordinary Stockholders’ Meeting held on April 30, 2007 approved the change of the entity’s name from Banco Santander Banespa S.A to Banco Santander S.A.

The Extraordinary Stockholders' Meting held on November 30, 2006 approved the merger of Santander Banespa Companhia de Arrendamento Mercantil into Santander Brasil Arrendamento Mercantil S.A. The Merged Entity ceased to exist and Santander Brasil Arrendamento Mercantil S.A. became the successor to all its assets, rights and obligations.

On March 30, 2007, the Extraordinary Stockholders’ Meetings of Santander Brasil Participações e Empreendimentos S.A. and Santander Companhia Securitizadora de Créditos Financeiros approved the merger of Santander Brasil Participações e Empreendimentos S.A. into Santander Companhia Securitizadora de Créditos Financeiros. On the same date the change of the name Santander Securitizadora de Créditos Financeiros to Santander Participações e Serviços S.A. was also approved. On October 10, 2007, the Extraordinary Stockholders’ Meeting approved the change of the entity’s name to Santander Investimentos em Participações S.A.


20

The corporate restructuring implemented has resulted in a simplified corporate structure and improved administrative and operating efficiencies.

3. Presentation of Financial Statements

The financial statements of Banco Santander S.A., which include its foreign branches (Bank) and the consolidated financial statements of the Bank and its subsidiaries (Consolidated) indicated in Note 16 have been prepared in accordance with accounting practices established by Brazilian Corporate Law and standards established by the National Monetary Council (CMN) and the Brazilian Securities Commission (CVM).

In the preparation of the consolidated financial statements, equity in subsidiaries, significant balances arising from transactions among domestic branches, foreign branches and subsidiaries, and unrealized profits between these entities have been eliminated. Minority interest is recorded in a separate caption in stockholders’ equity and in the statements of income. The balances stated in the jointly-owned subsidiaries’ balance sheets and statements of income were consolidated in proportion to the interest in the subsidiary.

The information of the leasing company has been reclassified, in order to reflect its financial position in the consolidated financial statements in conformity with the financial method of accounting for leasing operations.

The preparation of financial statements requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting periods. Since Management’s judgment involves making estimates concerning the likelihood of future events, actual amounts could differ from those estimates.

Presented herewith as supplemental information are the statement of cash flows under the indirect method and the statement of value added, which are not required by Brazilian accounting practices as of December 31, 2007. Those statements have been prepared in accordance with the Standard Chart of Accounts for Financial Institutions (Cosif).


21

4. Significant Accounting Practices

a) Results of operations

Determined on the accrual basis of accounting and includes income, charges and monetary or exchange variations earned or incurred through the balance sheet date, on a daily pro rata basis.

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 through 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 of the Central Bank of Brazil.

Receivables and payables due within 12 months are recorded in current assets and liabilities, respectively, except for trading securities that, regardless of their maturity, are classified in current assets, in conformity with Central Bank of Brazil Circular No. 3,068/01.

c) Securities

Securities are presented in accordance with the following recognition and accounting valuation criteria:

I - Trading securities.

II - Available-for-sale securities.

III - Held-to-maturity securities.

“Trading securities” include securities acquired for the purpose of being actively and frequently traded and “Held-to-maturity securities” include those which the Bank intends to maintain in its portfolio to maturity. “Available-for-sale securities” include those which cannot be classified in categories I and III. Securities classified in categories I and II are stated at cost plus income earned through the balance sheet date, calculated on a daily pro rata basis, and adjusted to fair value, reflecting the increase or decrease arising from this adjustment in:


22

(1) The related income or expense account, in income for the period, when related to securities classified as “Trading securities”, net of tax effects.

(2) Separate caption in stockholders’ equity, when related to securities classified as “Available-for-sale securities”, net of tax effects. The adjustments to fair value on sale of these securities are transferred to income for the period.

Securities classified as “Held-to-maturity securities” are stated at cost, plus income earned through 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.

d) Derivatives

Derivatives designated as hedge may be classified as:

I - Market risk hedge.

II - Cash flow hedge.

Derivatives designated as hedge and the respective hedged items are adjusted to fair value, considering the following:

(1) For those classified in category I, the increase or decrease is recorded in income or expense for the period, net of tax effects.

(2) For those classified in category II, the increase or decrease is recorded in a separate caption in stockholders’ equity, net of tax effects.

e) Prepaid expenses

Funds used in advance payments, whose benefits or provision of services will occur in future years, are recorded as “prepaid expenses” and allocated to income over the term of the respective agreements.

f) Permanent assets

Stated at acquisition cost and include:

f.1) Investments

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


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f.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%.

f.3) Deferred charges

Costs classified under deferred charges are amortized over a maximum period of 5 years when related 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 integrity of the merging entity’s stockholders’ equity, are amortized over a period of up to 10 years, based on expected future earnings.

g) Pension plan

The actuarial liabilities related to pension plans are recorded based on an actuarial study made by independent actuaries in accordance with CVM Resolution No. 371/2000.

Expenses related to sponsors’ contributions to the plans are recognized on the accrual basis.

h) Contingent assets and liabilities and legal obligations

h.1) Contingent assets

Contingent assets are not recorded, except when there are real guarantees or unappealable court decisions, for which a favorable outcome is practically certain. Contingent assets whose likelihood of favorable outcome is probable, if any, are only disclosed in the financial statements.

h.2) Contingent liabilities

Contingent liabilities are recorded based on the nature, complexity and history of lawsuits, and on the opinion of the in-house and outside legal counsel when the risk of loss on the administrative or judicial proceeding is considered as probable and the amounts can be reasonably determined.


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h.3) Legal obligations - tax and social security

Refer to lawsuits challenging the legality or constitutionality of tax obligations that, irrespective of the evaluation of their likelihood of favorable outcome, are fully recognized in the financial statements, except for cases that Management considers, based on experts’ evaluation and the status of the lawsuit, will not produce effects on the balance sheet.

i) Deferred income

Refers to income received before the completion of the term of the obligation that gave rise to it, including non-refundable income, mainly related to guarantees and collaterals provided and credit card annual fees. Deferred income is recorded in income over the term of the respective agreements.

j) Income and social contribution taxes

Income tax is calculated at the rate of 15% plus a 10% surtax; social contribution tax is calculated at the rate of 9%, after adjustments determined by tax legislation. Deferred tax assets and liabilities are computed basically on certain temporary differences between the book and tax basis of assets and liabilities, tax losses, and adjustments to fair value of securities and derivatives.

According to Central Bank of Brazil Circular No. 3,171/2002, CVM Resolution No. 273/1998, and CVM Instruction No. 371/2002, the expected realization of the Bank’s tax credits, as shown in Note 11, is based on the projection of future income and a technical study.


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5. Interbank Investments

Bank Up to From 3 to Over 3 months 12 months 12 months 12/31/2007 12/31/2006 Money market investments 21,929,663 - - 21,929,663 3,268,810Own portfolio 2,484,862 - - 2,484,862 1,242,134Treasury bills 417,315 - - 417,315 83National Treasury bills 1,005,216 - - 1,005,216 1,167,955National Treasury notes 966,696 - - 966,696 387Securities issued abroad by the Brazilian government 95,635 - - 95,635 73,709Third-party portfolio 19,444,801 - - 19,444,801 2,026,676Treasury bills 11,654,363 - - 11,654,363 1,922National Treasury bills 7,790,438 - - 7,790,438 2,024,754Interbank deposits 303,000 750,306 647,701 1,701,007 1,199,955Foreign currency investments 1,774,604 - - 1,774,604 856,491Provision for losses - - (200) (200) (200)Total 24,007,267 750,306 647,501 25,405,074 5,325,056Current 24,757,573 4,742,810Long-term 647,501 582,246

Consolidated Up to From 3 to Over 3 months 12 months 12 months 12/31/2007 12/31/2006 Money market investments 21,929,663 - - 21,929,663 3,268,810Own portfolio 2,539,458 - - 2,539,458 1,362,171Treasury bills 417,315 - - 417,315 83National Treasury bills 1,059,812 - - 1,059,812 1,287,992National Treasury notes 966,696 - - 966,696 387Securities issued abroad by the Brazilian government 95,635 - - 95,635 73,709

Third-party portfolio 19,390,205 - - 19,390,205 1,906,639Treasury bills 11,654,363 - - 11,654,363 1,922National Treasury bills 7,735,842 - - 7,735,842 1,904,717Interbank deposits 303,000 742,190 647,701 1,692,891 1,184,240Foreign currency investments 1,774,604 - - 1,774,604 856,491Provision for losses - - (200) (200) (200)Total 24,007,267 742,190 647,501 25,396,958 5,309,341Current 24,749,457 4,727,095Long-term 647,501 582,246


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6. Securities

Bank 12/31/2007 12/31/2006 Effect of adjustment to

fair value on Carrying Carrying Categories Cost Income Equity amount Amount Trading securities 10,614,717 (18,804) - 10,595,913 23,383,675Government Securities 8,410,829 (107,984) - 8,302,845 20,646,343Private Securities 2,203,888 89,180 - 2,293,068 2,737,332Available-for-sale securities 8,361,418 - 500,957 8,862,375 12,940,556Government Securities 4,589,303 - 161,361 4,750,664 9,119,927Private Securities 3,772,115 - 339,596 4,111,711 3,820,629Held-to-maturity securities 766,565 - - 766,565 4,973,330Government Securities 766,565 - - 766,565 4,973,330Subtotal 19,742,700 (18,804) 500,957 20,224,853 41,297,561Derivatives (Assets) (Note 34) 3,094,393 325,919 - 3,420,312 1,176,920Total 22,837,093 307,115 500,957 23,645,165 42,474,481Current 15,300,972 29,831,271Long-term 8,344,193 12,643,210Derivatives (Liabilities) (Note 34) (4,340,216) (227,339) - (4,567,555) (2,011,285)Current (3,226,639) (1,361,055)Long-term (1,340,916) (650,230)

Bank 12/31/2007 12/31/2006

Trading securities Cost

Adjustment to fair value -

income Carrying amount

Carrying amount

Government Securities 8,410,829 (107,984) 8,302,845 20,646,343Brady bonds 16,371 (2) 16,369 48,963Treasury certificates 42,858 (1,982) 40,876 6,224Securitized credit - - - 1,196National Treasury bills 3,177,833 (17,751) 3,160,082 16,122,470Treasury bills 637,606 93 637,699 404,699National Treasury notes - NTN B 2,824,070 (46,961) 2,777,109 2,364,309National Treasury notes - NTN C 679,340 600 679,940 226,119National Treasury notes - NTN D 17,255 23 17,278 21,884National Treasury notes - NTN F 708,847 (29,929) 678,918 761,210Agricultural debt securities 204,365 (12,921) 191,444 347,771Global 40 102,284 846 103,130 341,498Private Securities 2,203,888 89,180 2,293,068 2,737,332Shares 219,603 81,553 301,156 740,769Receivables Investment Fund (4) 280,812 - 280,812 550,586Investment fund shares 10 - 10 -Debentures 1,658,771 6,386 1,665,157 1,417,124Eurobonds 22,645 1,260 23,905 28,853Certificates of real estate receivables - CRI 22,047 (19) 22,028 -Total 10,614,717 (18,804) 10,595,913 23,383,675


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Bank 12/31/2007

Trading securities by maturity

Without maturity

Up to 3 months

From 3 to 12 months

From 1 to 3 years

Government Securities - 831,621 1,912,496 2,781,924Brady bonds - 350 - -Treasury certificates - - - -National Treasury bills - 681,235 1,068,376 1,410,471Treasury bills - 35,972 116,900 330,596National Treasury notes - NTN B - 25,289 8,779 974,988National Treasury notes - NTN C - 362 658,787 -National Treasury notes - NTN D - 883 16,395 -National Treasury notes - NTN F - 35,655 - 7,194Agricultural debt securities - 47,977 43,076 58,658Global 40 - 3,898 183 17Private Securities 301,166 114 81,865 227,949Shares 301,156 - - -Receivables Investment Fund (4) - - 49,680 187,430Investment fund shares 10 - - -Debentures - - 2,999 40,519Eurobonds - 114 23,791 -Certificates of real estate receivables - CRI - - 5,395 -

Total 301,166 831,735 1,994,361 3,009,873

Bank 12/31/2007

Trading securities by maturity From 3 to

5 years From 5 to 15 years Over

15 years Government Securities 1,758,938 899,958 117,908Brady bonds - 16,019 -Treasury certificates 40,876 - -National Treasury bills - - -Treasury bills 142,694 11,537 -National Treasury notes - NTN B 1,316,120 402,433 49,500National Treasury notes - NTN C - - 20,791National Treasury notes - NTN D - - -National Treasury notes - NTN F 221,474 414,595 -Agricultural debt securities 37,774 3,959 -Global 40 - 51,415 47,617Private Securities 122,178 1,548,163 11,633Shares - - -Receivables Investment Fund (4) - 32,069 11,633Investment fund shares - - -Debentures 122,178 1,499,461 -Eurobonds - - -Certificates of real estate receivables - CRI - 16,633 -Total 1,881,116 2,448,121 129,541


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Bank 12/31/2007 12/31/2006

Available-for-sale securities Cost


equity Carrying amount

Carrying amount

Government Securities 4,589,303 161,361 4,750,664 9,119,927National Treasury bonds 1,945 (125) 1,820 4,318Treasury certificates (1) 58,392 4,609 63,001 74,433Securitized credit 50,916 170 51,086 71,370National Treasury bills 284,303 (1,162) 283,141 780,981Treasury bills 1,217 2 1,219 22,954National Treasury notes - NTN A 116,581 (2,612) 113,969 121,323National Treasury notes - NTN B 1,245,401 (46,762) 1,198,639 2,865,304National Treasury notes - NTN C (2) 511,904 235,651 747,555 581,411National Treasury notes - NTN F 2,314,446 (28,283) 2,286,163 4,281,867National Treasury notes - NTN P 91 (19) 72 67Agricultural debt securities 4,107 (108) 3,999 110,493Global 40 - - - 205,406Private Securities 3,772,115 339,596 4,111,711 3,820,629Shares (3) 784,274 311,063 1,095,337 746,326Debentures 2,537,116 18,333 2,555,449 2,546,386Eurobonds 2,032 - 2,032 -Promissory notes 221,129 - 221,129 257,062Certificates of real estate receivables - CRI 227,564 10,200 237,764 270,855Total 8,361,418 500,957 8,862,375 12,940,556

Bank 12/31/2007

Available-for-sale securities by maturity

Without maturity

Up to 3 months

From 3 to 12 months

From 1 to 3 years

Government Securities - 591,896 82,058 676,332National Treasury bonds - 936 884 -Treasury certificates (1) - - - -Securitized credit - - 49,879 -National Treasury bills - 200,000 19,482 63,659Treasury bills - - 1,219 -National Treasury notes - NTN A - - 875 -National Treasury notes - NTN B - 1,163 7,879 93,399National Treasury notes - NTN C (2) - 12,744 472 -National Treasury notes - NTN F - 376,408 - 518,037National Treasury notes - NTN P - - - -Agricultural debt securities - 645 1,368 1,237Private Securities 1,095,337 32,974 266,558 266,322Shares (3) 1,095,337 - - -Debentures - 7,958 27,075 266,322Eurobonds - 1,066 966 -Promissory notes - - 221,129 -Certificates of real estate receivables - CRI - 23,950 17,388 -Total 1,095,337 624,870 348,616 942,654


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Bank 12/31/2007


From 3 to 5 years

From 5 to 15 years

Over 15 years

Government Securities 891,616 1,593,872 914,890National Treasury bonds - - -Treasury certificates (1) 62,759 242 -Securitized credit - 1,207 -National Treasury bills - - -Treasury bills - - -National Treasury notes -NTN A - - 113,094National Treasury notes - NTN B 45,029 973,906 77,263National Treasury notes - NTN C (2) - 9,806 724,533National Treasury notes - NTN F 783,174 608,544 -National Treasury notes - NTN P 72 - -Agricultural debt securities 582 167 -Private Securities 275,675 2,174,845 -Shares (3) - - -Debentures 275,675 1,978,419 -Eurobonds - - -Promissory notes - - -Certificates of real estate receivables - CRI - 196,426 -Total 1,167,291 3,768,717 914,890

Bank 12/31/2007 12/31/2007 12/31/2006 by maturity

Held-to-maturity securities (5)

Cost/ carrying amount


Up to 3 months

Over 15 years

Government Securities 766,565 4,973,330 19,875 746,690Treasury certificates - 443,916 - -National Treasury notes - NTN B - 4,483 - -National Treasury notes - NTN C (2) 766,565 4,524,931 19,875 746,690Total 766,565 4,973,330 19,875 746,690


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Consolidated

Effect of adjustment to fair

value on 12/31/2007 12/31/2006

Categories Cost Income Equity Carrying amount

Carrying amount

Trading securities 9,264,684 (18,816) - 9,245,868 22,119,535Government Securities 8,476,812 (107,996) - 8,368,816 20,652,023Private Securities 787,872 89,180 - 877,052 1,467,512Available-for-sale securities 6,534,078 - 500,953 7,035,031 11,324,779Government Securities 4,689,886 - 161,357 4,851,243 9,217,170Private Securities 1,844,192 - 339,596 2,183,788 2,107,609Held-to-maturity securities 766,565 - - 766,565 5,012,946Government Securities 766,565 - - 766,565 4,973,330Private Securities - - - - 39,616Subtotal 16,565,327 (18,816) 500,953 17,047,464 38,457,260Derivatives (Assets) (Note 34) 3,093,069 323,904 - 3,416,973 1,173,418Total 19,658,396 305,088 500,953 20,464,437 39,630,678Current 14,024,674 28,638,803Long-term 6,439,763 10,991,875Derivatives (Liabilities) (Note 34) (4,340,703) (223,428) - (4,564,131) (2,011,078)Current (3,226,346) (1,360,938)Long-term (1,337,785) (650,140)

Consolidated 12/31/2007 12/31/2006

Trading securities Cost


income Carrying amount

Carrying amount

Government Securities 8,476,812 (107,996) 8,368,816 20,652,023Brady bonds 16,371 (2) 16,369 48,963Treasury certificates 42,858 (1,982) 40,876 6,224Securitized credit - - - 1,196National Treasury bills 3,177,833 (17,751) 3,160,082 16,122,470Treasury bills 703,589 81 703,670 410,379National Treasury notes - NTN B 2,824,070 (46,961) 2,777,109 2,364,309National Treasury notes - NTN C 679,340 600 679,940 226,119National Treasury notes - NTN D 17,255 23 17,278 21,884National Treasury notes - NTN F 708,847 (29,929) 678,918 761,210Agricultural debt securities 204,365 (12,921) 191,444 347,771Global 40 102,284 846 103,130 341,498Private Securities 787,872 89,180 877,052 1,467,512Shares 219,603 81,553 301,156 740,769Receivables Investment Fund (4) 280,812 - 280,812 550,586Investment fund shares 83,455 - 83,455 71,422Debentures 159,310 6,386 165,696 75,882Eurobonds 22,645 1,260 23,905 28,853Certificates of real estate receivables – CRI 22,047 (19) 22,028 -Total 9,264,684 (18,816) 9,245,868 22,119,535


31

Consolidated 12/31/2007


Without maturity

Up to 3 months

From 3 to 12 months

From 1 to 3 years

Government Securities - 831,621 1,912,496 2,845,708Brady bonds - 350 - -Treasury certificates - - - -National Treasury bills - 681,235 1,068,376 1,410,471Treasury bills - 35,972 116,900 394,380National Treasury notes - NTN B - 25,289 8,779 974,988National Treasury notes - NTN C - 362 658,787 -National Treasury notes - NTN D - 883 16,395 -National Treasury notes - NTN F - 35,655 - 7,194Agricultural debt securities - 47,977 43,076 58,658Global 40 - 3,898 183 17Private Securities 384,611 114 81,865 227,949Shares 301,156 - - -Receivables Investment Fund (4) - - 49,680 187,430Investment fund shares 83,455 - - -Debentures - - 2,999 40,519Eurobonds - 114 23,791 -Certificates of real estate receivables - CRI - - 5,395 -Total 384,611 831,735 1,994,361 3,073,657



From 3 to 5 years

From 5 to 15 years

Over 15 years

Government Securities 1,761,006 900,077 117,908Brady bonds - 16,019 -Treasury certificates 40,876 - -National Treasury bills - - -Treasury bills 144,762 11,656 -National Treasury notes - NTN B 1,316,120 402,433 49,500National Treasury notes - NTN C - - 20,791National Treasury notes - NTN D - - -National Treasury notes - NTN F 221,474 414,595 -Agricultural debt securities 37,774 3,959 -Global 40 - 51,415 47,617Private Securities 122,178 48,702 11,633Shares - - -Receivables Investment Fund (4) - 32,069 11,633Investment fund shares - - -Debentures 122,178 - -Eurobonds - - -Certificates of real estate receivables - CRI - 16,633 -Total 1,883,184 948,779 129,541


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Consolidated 12/31/2007 12/31/2006

Available-for-sale securities Cost


equity Carrying amount

Carrying amount

Government Securities 4,689,886 161,357 4,851,243 9,217,170National Treasury bonds 1,945 (125) 1,820 4,318Treasury certificates (1) 58,392 4,609 63,001 74,433Securitized credit 50,916 170 51,086 71,370National Treasury bills 284,303 (1,162) 283,141 780,981Treasury bills 101,800 (2) 101,798 120,197National Treasury notes - NTN A 116,581 (2,612) 113,969 121,323National Treasury notes - NTN B 1,245,401 (46,762) 1,198,639 2,865,304National Treasury notes - NTN C (2) 511,904 235,651 747,555 581,411National Treasury notes - NTN F 2,314,446 (28,283) 2,286,163 4,281,867National Treasury notes - NTN P 91 (19) 72 67Agricultural debt securities 4,107 (108) 3,999 110,493Global 40 - - - 205,406Private Securities 1,844,192 339,596 2,183,788 2,107,609Shares (3) 784,274 311,063 1,095,337 756,337Investment fund shares - - - 1,462Debentures 609,193 18,333 627,526 821,893Eurobonds 2,032 - 2,032 -Promissory notes 221,129 - 221,129 257,062Certificates of real estate receivables - CRI 227,564 10,200 237,764 270,855Total 6,534,078 500,953 7,035,031 11,324,779



Without maturity

Up to 3 months

From 3 to 12 months

From 1 to 3 years

Government Securities - 621,804 128,135 690,240National Treasury bonds - 936 884 -Treasury certificates (1) - - - -Securitized credit - - 49,879 -National Treasury bills - 200,000 19,482 63,659Treasury bills - 29,908 47,296 13,908National Treasury notes - NTN A - - 875 -National Treasury notes - NTN B - 1,163 7,879 93,399National Treasury notes - NTN C (2) - 12,744 472 -National Treasury notes - NTN F - 376,408 - 518,037National Treasury notes - NTN P - - - -Agricultural debt securities - 645 1,368 1,237Private Securities 1,095,337 32,974 266,558 266,322Shares (3) 1,095,337 - - -Debentures - 7,958 27,075 266,322Eurobonds - 1,066 966 -Promissory notes - - 221,129 -Certificates of real estate receivables - CRI - 23,950 17,388 -Total 1,095,337 654,778 394,693 956,562


33

Consolidated

12/31/2007Available-for-sale securities by maturity

From 3 to5 years

From 5 to 15 years

Over 15 years

Government Securities 895,476 1,600,698 914,890National Treasury bonds - - -Treasury certificates (1) 62,759 242 -Securitized credit - 1,207 -National Treasury bills - - -Treasury bills 3,860 6,826 -National Treasury notes -NTN A - - 113,094National Treasury notes - NTN B 45,029 973,906 77,263National Treasury notes - NTN C (2) - 9,806 724,533National Treasury notes - NTN F 783,174 608,544 -National Treasury notes - NTN P 72 - -Agricultural debt securities 582 167 -Private Securities 275,675 246,922 -Shares (3) - - -Debentures 275,675 50,496 -Eurobonds - - -Promissory notes - - -Certificates of real estate receivables - CRI - 196,426 -Total 1,171,151 1,847,620 914,890

Consolidated 12/31/2007 12/31/2007 12/31/2006 by maturity

Held-to-maturity securities (5)



Up to 3 months

Over 15 years

Government Securities 766,565 4,973,330 19,875 746,690Treasury certificates (1) - 443,916 - -National Treasury notes - NTN B - 4,483 - -National Treasury notes - NTN C (2) 766,565 4,524,931 19,875 746,690Private Securities - 39,616 - -Bank certificates of deposit - 39,616 - -Total 766,565 5,012,946 19,875 746,690

(1) The treasury certificates are held in custody of the Clearinghouse for the Custody and Financial Settlement of Securities (Cetip) and are monetarily adjusted based on the domestic general price index (IGP-DI) plus interest of 12% per year.

(2) Monetary adjusted based on the general market price index (IGP-M) plus interest of 12% per year, payable semiannually through January 1, 2031.

(3) Refers principally to shares of CESP - Cia. Energética de São Paulo - R$1,070,309 (12/31/2006 - R$743,793). (4) Receivables Investment Fund (FIDC) shares are calculated based on the value of the receivables and other financial

assets in the respective portfolios, less respective provisions that take into consideration aspects related to the debtors, their guarantors and the corresponding transaction’s characteristics, according to accounting standards and practices for evaluating credits, and are not adjusted to fair value.

(5) The fair value of Held-to-Maturity Securities, Bank and Consolidated, as of December 31, 2007 is R$1,163,274 (12/31/2006 - R$6,333,947).


34

In accordance with Central Bank of Brazil Circular No. 3068, article 8, of November 8, 2001, Santander has the positive intent and ability to hold to maturity the securities classified as Held-to-Maturity Securities. In January 2007, due to the transfer of pension benefit obligations, R$3,478,816 of securities classified as held-to maturity securities were transferred to Banesprev - Fundo Banespa de Seguridade Social (Banesprev), and R$573,191 was reclassified to available-for-sale securities (Note 35.a). The total amount of held-to-maturity securities transferred to Banesprev was classified in current assets as of December 31, 2006.

The fair 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, which are considered representative of the market conditions at the balance sheet date.

The principal interest rates 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, for unusual reasons, they do not fairly represent market conditions.

7. Interbank Accounts

Composed of restricted deposits with the Central Bank of Brazil to meet compulsory obligations for demand deposits, savings deposits and time deposits, and payments and receipts pending settlement, represented by checks and other documents sent to clearinghouses (assets and liabilities).

8. Credit Portfolio and Allowance for Losses

a) Credit portfolio

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006

Lending operations 39,377,758 34,152,114 39,339,900 34,107,763Loans and discounted receivables 19,206,584 16,917,802 19,168,726 16,873,451Financing 15,294,808 13,322,894 15,294,808 13,322,894Rural, agricultural and industrial financing 2,842,223 2,595,640 2,842,223 2,595,640Real estate financing 1,996,278 1,232,424 1,996,278 1,232,424Securities financing 23,145 60,694 23,145 60,694Infrastructure and development financing 14,720 22,660 14,720 22,660Leasing operations 10,374 37,613 402,206 402,284Advances on foreign exchange contracts (1) 1,773,786 1,525,914 1,773,786 1,525,914Other receivables (2) 2,204,239 1,465,891 2,208,745 1,472,855Total 43,366,157 37,181,532 43,724,637 37,508,816Current 24,268,561 20,574,909 24,468,279 20,778,126Long-term 19,097,596 16,606,623 19,256,358 16,730,690


35

(1) Classified as a reduction of “Other payables”. (2) Include receivables for guarantees honored, debtors for purchase of assets, notes and credits receivable

(basically credit cards and rural product notes - CPR), income receivable from advances on foreign exchange contracts, and receivables from export contracts.

b) Credit portfolio by business sector


Private sector 43,188,312 37,000,678 43,555,357 37,337,944Industrial 10,843,805 10,328,396 10,949,547 10,424,303Commercial 3,500,931 3,559,720 3,571,602 3,624,999Financial institutions 86,409 115,708 86,409 115,708Services and other 8,058,781 6,872,182 8,244,312 7,043,614Individuals 15,862,826 12,298,307 15,867,927 12,302,955Housing 1,993,337 1,230,725 1,993,337 1,230,725Rural 2,842,223 2,595,640 2,842,223 2,595,640Public sector 177,845 180,854 169,280 170,872Federal 104,250 137,994 104,250 137,994State 47,763 4,977 47,763 4,977Municipal 25,832 37,883 17,267 27,901Total 43,366,157 37,181,532 43,724,637 37,508,816

c) Classification of credit portfolio by risk level and respective allowance for loan losses

Bank Balance

Minimum allowance 12/31/2007 12/31/2006

Allowance required

Risk level

required (%) Current Past due (1) Total Total 12/31/2007 12/31/2006

AA - 24,628,397 - 24,628,397 21,945,811 - -A 0,5% 13,507,121 - 13,507,121 11,392,875 67,536 56,964B 1% 218,687 310,532 529,219 703,271 5,292 7,033C 3% 504,239 406,084 910,323 870,144 27,310 26,105D 10% 1,228,280 642,285 1,870,565 494,121 187,056 49,412E 30% 24,605 240,682 265,287 213,376 79,586 64,013F 50% 22,859 300,427 323,286 205,888 161,643 102,944G 70% 4,852 205,016 209,868 186,265 146,908 130,386H 100% 32,213 1,089,878 1,122,091 1,169,781 1,122,091 1,169,781Total 40,171,253 3,194,904 43,366,157 37,181,532 1,797,422 1,606,638


36

Consolidated Balance

Minimum allowance 12/31/2007 12/31/2006

Allowance required

Risk level

required (%) Current Past due (1) Total Total 12/31/2007 12/31/2006

AA - 24,954,190 - 24,954,190 22,209,452 - -A 0,5% 13,543,167 - 13,543,167 11,454,383 67,716 57,272B 1% 219,755 314,312 534,067 717,474 5,340 7,175C 3% 505,366 409,398 914,764 877,240 27,443 26,317D 10% 1,201,640 644,454 1,846,094 454,377 184,609 45,438E 30% 24,711 241,655 266,366 214,048 79,910 64,214F 50% 22,908 301,350 324,258 207,843 162,129 103,922G 70% 4,852 205,165 210,017 187,376 147,012 131,163H 100% 34,882 1,096,832 1,131,714 1,186,623 1,131,714 1,186,623Total 40,511,471 3,213,166 43,724,637 37,508,816 1,805,873 1,622,124

(1) Includes current and past-due operations.

d) Changes in allowance for loan losses


Balances as of December 31 1,606,638 106,258 1,622,124 106,258Balances absorbed - 1,294,762 - 1,309,556Allowances recognized 2,090,188 799,957 2,084,475 802,899Write-offs (1,899,005) (594,178) (1,900,327) (596,428)Other changes (399) (161) (399) (161)Balances as of December 31 1,797,422 1,606,638 1,805,873 1,622,124Current 235,594 252,443 238,905 256,066Long-term 1,561,828 1,354,195 1,566,968 1,366,058Recoveries (1) 382,273 180,114 494,578 228,315

(1) Recoveries are recorded in Income from Lending and Leasing Operations. Recoveries (Bank and Consolidated) include a credit assignment without co-obligation, related to operations previously written off to loss, in the amount of R$ 100,320 (2006 - R$28,198 Bank and Consolidated)


37

9. Foreign Exchange Portfolio

Bank/Consolidated 12/31/2007 12/31/2006

Assets Rights to foreign exchange sold 5,088,677 2,900,291Exchange purchased pending settlement 5,487,310 3,214,229Advances in local currency (73,296) (206,095)Income receivable from advances 39,511 29,749Term bills in foreign currency 3,979 2,843Total 10,546,181 5,941,017Current 8,401,776 4,466,491Long-term 2,144,405 1,474,526Liabilities Exchange sold pending settlement 4,810,724 2,788,026Foreign exchange purchased 5,907,613 3,344,623Advances on foreign exchange contracts (1,773,786) (1,525,914)Liabilities for sales made 33,555 2,027Payables in foreign currencies 309 1,020Total 8,978,415 4,609,782Current 6,828,883 3,201,592Long-term 2,149,532 1,408,190Memorandum accounts Open import credits 463,529 292,355Confirmed export credits 103,269 163,208

10. Trading Account


Assets Stock exchanges - guarantee deposits 76,264 214,773 77,663 214,773Debtors pending settlement 55,474 36,261 306,893 175,450Clearinghouse transactions - - 7,045 19,047Transactions pending settlement 178,639 8,525 190,867 14,116Other 83 411 83 411Total 310,460 259,970 582,551 423,797Current 310,460 259,970 582,551 423,797Liabilities Creditors for loan of shares 97,303 306,587 97,303 306,587Creditors pending settlement 9,201 70,461 128,592 190,358Transactions pending settlement 112,288 38,135 117,637 42,862Clearinghouse transactions - - 142,749 36,088Commissions and brokerage fees payable 686 799 2,643 4,140Total 219,478 415,982 488,924 580,035Current 177,881 253,669 447,327 417,722Long-term 41,597 162,313 41,597 162,313


38

11. Tax Credits

a) Nature and origin of recorded tax credits

Bank 12/31/2006 Recognition Realization 12/31/2007

Allowance for loan losses 684,131 275,345 (258,360) 701,116Reserve for civil contingencies 67,644 39,373 (40,291) 66,726Reserve for tax contingencies 422,665 102,605 (9,887) 515,383Reserve for labor contingencies 295,513 342,008 (297,092) 340,429Reserve for maintenance of stockholders’ equity integrity 667,456 - (300,407) 367,049Adjustment to fair value of trading securities and derivatives 136,893 266,569 - 403,462Accrual for pension plan 887,141 22,047 (847,020) 62,168Other temporary provisions 273,641 440,349 (74,277) 639,713Total tax credits on temporary differences 3,435,084 1,488,296 (1,827,334) 3,096,046Tax loss carryforwards 247,438 193,922 - 441,360Social contribution tax - Executive Act No. 2158/2001 703,478 - (17,106) 686,372Total tax credits 4,386,000 1,682,218 (1,844,440) 4,223,778Unrecorded tax credits (954,310) - 319,120 (635,190)Subtotal - recorded tax credits 3,431,690 1,682,218 (1,525,320) 3,588,588Adjustment to fair value of available-for-sale securities 59,261 - (16,831) 42,430Total recorded tax credits, net 3,490,951 1,682,218 (1,542,151) 3,631,018Current 1,231,019 1,045,318Long-term 2,259,932 2,585,700

Bank

12/31/2005 Balancesabsorbed Recognition Realization

12/31/2006

Allowance for loan losses 181,458 456,436 93,070 (46,833) 684,131Reserve for civil contingencies 25,837 46,362 - (4,555) 67,644Reserve for tax contingencies 7,952 397,991 39,617 (22,895) 422,665Reserve for labor contingencies 41,202 275,482 - (21,171) 295,513Reserve for maintenance of stockholders’ equity integrity 131,782 672,135 - (136,461) 667,456Adjustment to fair value of trading securities and derivatives 8,647 155,860 - (27,614) 136,893Accrual for pension plan - 895,940 115,752 (124,551) 887,141Other temporary provisions 50,088 189,939 89,318 (55,704) 273,641Total tax credits on temporary differences 446,966 3,090,145 337,757 (439,784) 3,435,084Tax loss carryforwards 247,113 145,820 - (145,495) 247,438Social contribution tax - Executive Act No. 2158/2001 38,530 667,848 18 (2,918) 703,478Total tax credits 732,609 3,903,813 337,775 (588,197) 4,386,000Unrecorded tax credits (318,442) (802,465) - 166,597 (954,310)Subtotal - recorded tax credits 414,167 3,101,348 337,775 (421,600) 3,431,690Adjustment to fair value of available-for-sale securities 1,362 195,916 - (138,017) 59,261Deferred income from derivatives - 1,376 826 (2,202) -Total recorded tax credits, net 415,529 3,298,640 338,601 (561,819) 3,490,951


39

Consolidated

12/31/2006 Recognition Realization 12/31/2007 Allowance for loan losses 739,091 278,337 (304,202) 713,226Reserve for civil contingencies 71,118 39,783 (40,738) 70,163Reserve for tax contingencies 489,444 112,095 (12,708) 588,831Reserve for labor contingencies 310,946 342,052 (299,826) 353,172Reserve for maintenance of stockholders’ equity integrity 667,456 - (300,407) 367,049Adjustment to fair value of trading securities and derivatives 137,798 267,275 (1,154) 403,919Accrual for pension plan 887,141 22,047 (847,020) 62,168Other temporary provisions 294,142 449,611 (77,775) 665,978Total tax credits on temporary differences 3,597,136 1,511,200 (1,883,830) 3,224,506Tax loss carryforwards 255,179 202,925 (11,426) 446,678Social contribution tax - Executive Act No. 2158/2001 719,040 - (17,460) 701,580Total tax credits 4,571,355 1,714,125 (1,912,716) 4,372,764Unrecorded tax credits (1,039,293) (13,437) 393,916 (658,814)Subtotal - recorded tax credits 3,532,062 1,700,688 (1,518,800) 3,713,950Adjustment to fair value of available-for-sale securities 59,270 - (16,837) 42,433Deferred income from derivatives 43 - (25) 18Total recorded tax credits, net 3,591,375 1,700,688 (1,535,662) 3,756,401Current 1,246,830 1,064,481Long-term 2,344,545 2,691,920


Balancesabsorbed Recognition Realization

12/31/2006

Allowance for loan losses 181,458 519,813 92,922 (55,102) 739,091Reserve for civil contingencies 25,837 49,695 173 (4,587) 71,118Reserve for tax contingencies 7,952 463,404 45,069 (26,981) 489,444Reserve for labor contingencies 41,202 290,824 910 (21,990) 310,946Reserve for maintenance of stockholders’ equity integrity 131,782 672,135 - (136,461) 667,456Adjustment to fair value of trading securities and derivatives 8,647 156,960 581 (28,390) 137,798Accrual for pension plan - 895,940 115,752 (124,551) 887,141Other temporary provisions 50,088 211,002 91,583 (58,531) 294,142Total tax credits on temporary differences 446,966 3,259,773 346,990 (456,593) 3,597,136Tax loss carryforwards 247,113 159,921 1,955 (153,810) 255,179Social contribution tax - Executive Act No. 2158/2001 38,530 683,671 18 (3,179) 719,040Total tax credits 732,609 4,103,365 348,963 (613,582) 4,571,355Unrecorded tax credits (318,442) (904,470) (2,471) 186,090 (1,039,293)Subtotal - recorded tax credits 414,167 3,198,895 346,492 (427,492) 3,532,062Insufficient depreciation of leased

assets - 1,922 83 (2,005) -Adjustment to fair value of available-for-sale securities 1,362 195,921 3 (138,016) 59,270Deferred income from derivatives - 1,684 827 (2,468) 43Total recorded tax credits, net 415,529 3,398,422 347,405 (569,981) 3,591,375


40

Tax credits are recorded in accordance with the rules of the Central Bank of Brazil and adjusted according to their expected realization and present value, as shown below:

b) Expected realization of recorded tax credits

Bank

Year

Temporary differences

IRPJ

Temporarydifferences

CSLL Tax loss

carryforwards CSLL 18% Total Recorded 2008 874,076 299,123 141,296 34,734 1,349,229 1,045,3182009 473,188 154,803 300,064 120,959 1,049,014 1,001,3482010 692,050 226,481 - 46,759 965,290 807,1422011 121,866 36,309 - 94,816 252,991 250,0062012 75,108 10,688 - 90,678 176,474 137,9352013 to 2015 73,743 20,316 - 258,502 352,561 306,9152016 to 2017 5,968 - - 39,924 45,892 39,9242018 to 2020 8,952 - - - 8,952 -2021 to 2022 5,968 - - - 5,968 -After 2022 17,407 - - - 17,407 -Total 2,348,326 747,720 441,360 686,372 4,223,778 3,588,588

Consolidated

Year


IRPJ


CSLL Tax loss

carryforwards CSLL 18% Total Recorded 2008 888,566 307,632 142,325 35,886 1,374,409 1,064,4812009 480,283 160,651 302,157 122,376 1,065,467 1,013,8672010 752,603 251,608 1,184 47,540 1,052,935 881,2512011 124,547 37,240 944 96,690 259,421 256,3682012 77,480 11,542 68 92,785 181,875 143,2672013 to 2015 73,743 20,316 - 264,878 358,937 313,2912016 to 2017 5,968 - - 41,425 47,393 41,4252018 to 2020 8,952 - - - 8,952 -2021 to 2022 5,968 - - - 5,968 -After 2022 17,407 - - - 17,407 -Total 2,435,517 788,989 446,678 701,580 4,372,764 3,713,950

IRPJ - Corporate income tax CSLL - Social contribution tax

Due to differences between accounting, tax and corporate criteria, expected realization of tax credits should not be taken as indicative of future net income.

The expected realization does not consider the tax credit of the adjustment to fair value of available-for-sale securities and deferred income from derivatives.

c) Present value of deferred tax credits

The total present value of tax credits is R$ 3,705,644 (12/31/2006 - R$3,641,571) - Consolidated R$3,831,917 (12/31/2006 - R$3,792,938) and the present value of recorded


41

tax credits is R$3,116,568 (12/31/2006 - R$2,879,475) - Consolidated R$3,221,415 (12/31/2006 - R$2,960,384). The 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. 2158/2001) and the average funding rate projected for the corresponding periods.

12. Other Receivables - Other


Receivables from export contracts 156,820 88,865 156,820 88,865Debtors for purchase of assets 49,504 88,845 51,353 92,038Salary advances/other 33,921 23,318 34,219 23,624Escrow deposits for: Labor claims 1,043,559 1,127,153 1,077,531 1,158,374 Tax claims 1,093,003 979,653 1,244,299 1,105,033 Other 266,115 181,006 274,418 188,851Recoverable taxes 90,383 353,388 201,330 478,963Reimbursable payments 172,045 161,905 179,041 167,556Tax incentive options 1,013 10,348 1,028 11,004Credit cards 1,535,054 1,041,176 1,535,054 1,041,176Rural product notes 191,749 195,083 191,749 195,083Receivables 231,043 18,532 233,700 22,303Contract guarantees - former controlling stockholders (Note 23.h) 880,238 892,536 880,238 892,536

Receivables from affiliates 48,330 9,627 46,565 9,766Other debtors 14,557 52,517 17,171 56,210Total 5,807,334 5,223,952 6,124,516 5,531,382Current 2,093,621 1,720,604 2,107,395 1,742,822Long-term 3,713,713 3,503,348 4,017,121 3,788,560

13. Other Assets

This balance (Bank and Consolidated) refers principally to assets not in use, composed of real estate and vehicles received in settlement of liabilities in the amount of R$32,000 (2006 - R$32,000 Bank and Consolidated), net of allowance for valuation, and temporary investments in the amount of R$9,420 (2006 - R$11,429 Bank and R$11,430 Consolidated), net of allowance for investment losses.


42

14. Prepaid Expenses

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Exclusivity contracts for provision of banking services (1) 1,407,604 578,686 1,407,604 578,686Commissions 49,085 79,183 49,085 79,183Other 120,214 44,486 124,768 44,754Total 1,576,903 702,355 1,581,457 702,623Current 414,422 227,962 416,333 228,106Long-term 1,162,481 474,393 1,165,124 474,517

(1) Refers to commercial partnership contracts with the private and public sectors to assure exclusivity for banking services of payroll credit processing and payroll loans, maintenance of collection portfolio, supplier payment services and other banking services. These contracts are usually effective for 3 to 5 years.

15. Foreign Branches

The financial position of the Foreign Branches (Grand Cayman and Tokyo), converted at the exchange rate prevailing at the balance sheet date and included in the individual (Bank) and consolidated financial statements can be summarized as follows:

12/31/2007 12/31/2006 Assets 11,587,644 10,175,151Current and long-term assets 11,587,462 10,174,889Cash 74,698 43,516Interbank investments 1,468,764 466,978Securities and derivatives 5,052,120 3,972,755Lending operations 3,020,976 4,419,545Leasing operations 10,374 37,613Other assets 1,960,530 1,234,482Permanent assets 182 262Liabilities and stockholders’ equity 11,587,644 10,175,151Current and long-term liabilities 11,435,389 9,681,930Money market funding 595,528 820,300Funds from acceptance and issuance of securities 1,511,492 1,319,003Borrowings 4,632,031 4,018,774Subordinated debt 887,790 1,071,583Other payables 3,808,548 2,452,270Deferred income 128 63Stockholders' equity 152,127 493,158Net loss (44,712) Net income for the second half of 2006 31,932

In November 2007, Banco Santander S.A. sold the Banespa Grand Cayman branch, with a gain of R$59,052, net of taxes.


43

16. Investments in Affiliates and Subsidiaries

12/31/2007

Number of shares (in

thousands)

Common (*) Preferred

Ownership

(%)

Adjusted stockholder’

equity Net income

Financial Sector Santander Brasil Arrendamento Mercantil S.A. (3) 86,984 - 99.99% 480,531 43,601Santander S.A. Corretora de Câmbio e Títulos (3 and 9) 6,718,398 6,718,398 99.99% 137,003 120,837Santander Brasil S.A. Corretora de Títulos e Valores Mobiliários (3) 9,201 4,400 99.99% 173,969 124,876Santander Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda. (3, 6 and 7)

64,000 (*) - 99.99% 71,295 19,200

Other Sectors Produban Serviços de Informática S.A. (3 e 11) 11,250 - 99.99% 11,460 46Santander S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros (3 and 8) 50,425,310 - 99.99% 47,967 36,798Norchem Participações e Consultoria S.A. (3) 1,900 - 50.00% 49,149 7,830Norchem Holding e Negócios S.A. (3) 5,789 1,930 21.75% 88,677 13,567Santander Investimentos em Participações S.A. (3,4 and 5) 507,709 - 97.69% 300,392 162,869Santander Administradora de Consórcios Ltda. (3 and 10) 3,000 (*) - 99.99% 3,602 110Agropecuária Tapirapé S.A. (3) 199,729 384,697 87.54% 6,015 219

Carrying amount of investments

Equity in affiliates andsubsidiaries

12/31/2007 12/31/2006 12/31/2007 12/31/2006 Financial Sector 862,798 770,743 308,514 77,061Banco Santander S.A. (1) - - - 13,965Banco Santander Brasil S.A. (1) - - - (752)Santander Banespa Companhia de Arrendamento Mercantil S.A. (2 and 3) - - - 12,410

Santander Brasil Arrendamento Mercantil S.A. (3) 480,531 498,595 43,601 19,489

Santander S.A. Corretora de Câmbio e Títulos (3 and 9) 137,003 79,942 120,837 13,405

Santander Brasil S.A. Corretora de Títulos e Valores Mobiliários (3) 173,969 112,527 124,876 10,574

Santander Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda. (3,6 and 7)

71,295 79,679 19,200 7,970


44

Carrying amount of

investmentsEquity in affiliates and

subsidiaries 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Other Sectors 405,620 265,406 205,593 28,767Produban Serviços de Informática S.A. (3 and 11) 11,460 11,529 46 717

Santander S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros (3 and 8)

47,967 68,407 36,798 10,802

Norchem Participações e Consultoria S.A. (3) 24,574 20,660 3,915 1,227

Norchem Holding e Negócios S.A. (3) 19,287 16,336 2,950 2,077Santander Investimentos em Participações S.A. (3,4 and 5) 293,465 139,883 161,582 13,964

Santander Administradora de Consórcios Ltda. (3 and 10) 3,602 3,518 110 48

Agropecuária Tapirapé S.A. (3) 5,265 5,073 192 (68)Total 1,268,418 1,036,149 514,107 105,828

(1) Entities merged into Banco Santander S.A. (Note 2). (2) Entity merged into Santander Brasil Arrendamento Mercantil S.A. (Note 2). (3) Entities that started being controlled by Banco Santander S.A. on June 30, 2006, due to the merger mentioned in Note

2, except for Norchem Holding e Negócios S.A. that became an affiliate of the Bank on the same date. (4) Formerly Santander Companhia Securitizadora de Créditos Financeiros, which merged Santander Brasil

Participações e Empreendimentos S.A. (Note 2). (5) At the Extraordinary Stockholders’ Meeting held on October 30, 2007, the stockholders approved a capital increase

in the company, with the issue of 11,709 thousand shares and the entry of a new partner Santander S.A. Corretora de Câmbio e Títulos, through which Banco Santander S.A. holds an indirect interest of 2.31%.

(6) On October 23, 2006, Santander Banespa Asset Management Ltda. was authorized by the Central Bank of Brazil to operate as a securities dealer and its name was changed to Santander Banespa Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda.

(7) Formerly Santander Banespa Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda. (8) Formerly Banespa S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros. (9) Formerly Banespa S.A. Corretora de Câmbio e Títulos. (10) Formerly Santander Banespa Administradora de Consórcios Ltda. (11) Formerly Santander Distribuidora de Títulos e Valores Mobiliários Ltda. The resolutions passed by the Stockholders’

Meeting on August 31, 2007 were the conversion from limited liability company to corporation and changes to main activities and company’s name to Produban Serviços de Informática S.A.

17. Property and Equipment

Bank 12/31/2007 12/31/2006 Cost Depreciation Net Net

Real estate 308,662 (176,788) 131,874 108,862

Buildings 226,958 (176,788) 50,170 37,446Land 81,704 - 81,704 71,416

Other 1,475,349 (903,173) 572,176 571,691Installations, furniture and equipment 413,966 (199,405) 214,561 216,780Security and communication equipment 159,719 (88,554) 71,165 72,588Data processing equipment 881,677 (613,900) 267,777 279,012Other 19,987 (1,314) 18,673 3,311

Total 1,784,011 (1,079,961) 704,050 680,553


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Consolidated 12/31/2007 12/31/2006

Cost Depreciation Net Net Real estate 311,585 (177,645) 133,940 111,008

Buildings 228,957 (177,645) 51,312 38,669Land 82,628 - 82,628 72,339

Other 1,476,499 (904,291) 572,208 571,758Installations, furniture and equipment 415,041 (200,480) 214,561 216,809Security and communication equipment 159,767 (88,569) 71,198 72,625Data processing equipment 881,677 (613,900) 267,777 279,012Other 20,014 (1,342) 18,672 3,312

Total 1,788,084 (1,081,936) 706,148 682,766

18. Deferred Charges

Bank 12/31/2007 12/31/2006 Cost Amortization Net Net

Goodwill from merger 488,864 (488,864) - -Leasehold improvements (1) 556,774 (219,785) 336,989 325,441Acquisition and development of software (1) 884,561 (500,930) 383,631 552,045Other 137,510 (36,429) 101,081 81,805Total 2,067,709 (1,246,008) 821,701 959,291

Consolidated 12/31/2007 12/31/2006 Cost Amortization Net Net

Goodwill from merger 488,864 (488,864) - -Leasehold improvements (1) 556,774 (219,785) 336,989 325,441Acquisition and development of software (1) 884,775 (501,037) 383,738 552,191Other 137,510 (36,429) 101,081 81,805Total 2,067,923 (1,246,115) 821,808 959,437

(1) As a result of the conclusion of the legal merger process and the adoption of the global brand Santander, Management recorded in 2007 a provision for residual costs of deferred charges in the amount of R$294,551, recorded in Nonoperating (Expenses) Incone.

The goodwill resulting from mergers and other events was R$1,079,556 (12/31/2006 - R$1,962,529), which was fully offset against the reserve for maintenance of integrity of the merging entity’s stockholders’ equity, and R$882,973 (12/31/2006 - R$439,727) of amortization expense and the same amount of revenue from reversal of reserve were recorded in income.


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19. Money Market Funding and Borrowings and Onlendings Bank

Without maturity

Up to 3 months

From 3 to 12 months

Over 12months 12/31/2007 12/31/2006

Deposits 13,717,573 6,309,589 11,933,495 10,973,892 42,934,549 35,121,570Money market funding - 19,754,986 951,692 2,462,758 23,169,436 25,610,245Funds from acceptance and issuance of securities - 537,806 605,482 773,114 1,916,402 1,435,333Borrowings and onlendings - 3,847,347 4,533,373 3,282,208 11,662,928 9,960,641Total 13,717,573 30,449,728 18,024,042 17,491,972 79,683,315 72,127,789Current 62,191,343 54,674,985Long-term 17,491,972 17,452,804

Consolidated

Without maturity

Up to 3 months

From 3 to 12 months

Over 12 months 12/31/2007 12/31/2006

Deposits 13,711,102 6,267,751 8,482,518 10,405,516 38,866,887 31,792,384Money market funding - 19,700,390 951,692 2,462,758 23,114,840 25,474,708Funds from acceptance and issuance of securities - 537,806 605,482 773,114 1,916,402 1,435,333

Borrowings and onlendings - 3,847,347 4,533,373 3,282,208 11,662,928 9,960,641

Total 13,711,102 30,353,294 14,573,065 16,923,596 75,561,057 68,663,066Current 58,637,461 52,974,121Long-term 16,923,596 15,688,945 a) Deposits

Bank

Without maturity

Up to 3 months

From 3 to 12 months

Over 12 months 12/31/2007 12/31/2006

Demand deposits 6,257,913 - - - 6,257,913 4,737,143Savings deposits 6,288,137 - - - 6,288,137 5,061,171Interbank deposits - 219,204 3,572,469 211,639 4,003,312 3,403,181Time deposits 774,256 6,090,385 8,361,026 10,762,253 25,987,920 21,603,470Other deposits 397,267 - - - 397,267 316,605Total 13,717,573 6,309,589 11,933,495 10,973,892 42,934,549 35,121,570Current 31,960,657 24,618,596Long-term 10,973,892 10,502,974


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Consolidated

Without maturity

Up to 3 months

From 3 to 12 months

Over 12 months 12/31/2007 12/31/2006

Demand deposits 6,251,442 - - - 6,251,442 4,730,812Savings deposits 6,288,137 - - - 6,288,137 5,061,171Interbank deposits - 179,471 127,486 2,714 309,671 251,435Time deposits 774,256 6,088,280 8,355,032 10,402,802 25,620,370 21,432,361Other deposits 397,267 - - - 397,267 316,605Total 13,711,102 6,267,751 8,482,518 10,405,516 38,866,887 31,792,384Current 28,461,371 23,053,269Long-term 10,405,516 8,739,115

b) Money market funding

Bank

Up to 3 months

From 3 to 12 months

Over 12 months 12/31/2007 12/31/2006

Own portfolio 372,715 951,692 2,462,758 3,787,165 16,844,788Third parties 19,382,271 - - 19,382,271 1,761,327Linked to trading portfolio operations - - - - 7,004,130

Total 19,754,986 951,692 2,462,758 23,169,436 25,610,245Current 20,706,678 23,093,563Long-term 2,462,758 2,516,682 Consolidated

Up to 3 months

From 3 to 12 months

Over 12 months 12/31/2007 12/31/2006

Own portfolio 372,715 951,692 2,462,758 3,787,165 16,829,288Third parties 19,327,675 - - 19,327,675 1,641,290Linked to trading portfolio operations - - - - 7,004,130

Total 19,700,390 951,692 2,462,758 23,114,840 25,474,708Current 20,652,082 22,958,026Long-term 2,462,758 2,516,682


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c) Funds from acceptance and issuance of securities

Bank/Consolidated

Issuance Maturity Currency Interest rate 12/31/2007 12/31/2006 Eurobonds July-05 July-08 US$ 5.00% 101,120 119,634Eurobonds April-05 April-08 R$ 17.65% 168,456 164,378Eurobonds November-07 March-08 US$ 4.95% 41,139 -Eurobonds March-07 January-14 R$ 10.00% 112,919 -Eurobonds (1) November-05 May-09 R$ IPCA+6.00% 189,423 174,199Eurobonds (1) April-06 August-10 R$ IPCA+6.00% 136,369 126,362Eurobonds (1) December-05 May-09 R$ IPCA+6.00% 80,699 74,287Eurobonds (1) February-06 August-24 R$ IPCA+6.00% 73,404 68,982Eurobonds (1) January-06 May-09 R$ IPCA+6.00% 56,734 52,350Eurobonds (1) May-06 August-10 R$ IPCA+6.00% 47,460 43,962Structured Notes December-07 January-08 R$ 71.00%CDI 57,096 -Structured Notes December-07 January-08 R$ 67.00%CDI 103,266 -Structured Notes December-07 January-08 R$ 70.80%CDI 79,082 -Structured Notes December-06 January-07 R$ 90.50%CDI - 51,469Others 241,592 406,124Securities issued abroad 1,488,759 1,281,747Real estate credit notes 427,643 153,586Total 1,916,402 1,435,333Current 1,143,288 257,400Long-term 773,114 1,177,933

(1) Indexed Linked Sovereign Notes d) Borrowings and onlendings

Bank/Consolidated

Up to 3 months

From 3 to12 months

Over 12 months 12/31/2007 12/31/2006

Foreign borrowings 3,176,339 3,289,409 816,788 7,282,536 5,968,648

Import and export financing lines 2,836,499 2,697,451 698,695 6,232,645 5,552,783Other credit lines 339,840 591,958 118,093 1,049,891 415,865

Domestic onlendings 671,008 1,243,964 2,465,420 4,380,392 3,991,993Total 3,847,347 4,533,373 3,282,208 11,662,928 9,960,641Current 8,380,720 6,705,426Long-term 3,282,208 3,255,215

Export and import financing lines are funds raised from foreign banks, for use in commercial foreign exchange transactions, related to the discounting of export bills and export and import pre-financing, falling due through 2014 and subject to financial charges corresponding to exchange variation plus interest ranging from 0.25% to 7.40% p.a. (12/31/2006 - from 0.15% to 10.95% p.a.).

Domestic onlendings - official institutions are subject to financial charges corresponding to the Long-Term Interest Rate (TJLP), exchange variation of the BNDES basket of currencies, or US dollar exchange variation, plus interest rate in accordance with the operating policies of the BNDES System.


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20. Tax and Social Security

Tax and social security payables comprise taxes payable and amounts being challenged in the courts.


Reserve for tax contingencies (Note 23) 2,076,861 1,798,275 2,395,446 2,086,111Reserve for tax contingencies - responsibility of

former controlling stockholders (Note 23.h) 609,613 558,627 609,613 558,627Provision for deferred taxes 716,125 447,839 741,839 456,073Taxes payable 151,090 119,997 179,579 142,888Accrued taxes on income 5,837 1,615 12,147 1,677Total 3,559,526 2,926,353 3,938,624 3,245,376Current 156,927 121,612 191,726 144,565Long-term 3,402,599 2,804,741 3,746,898 3,100,811

Nature and origin of deferred tax liabilities

Bank 12/31/2006 Recognition Realization 12/31/2007

Adjustment to fair value of trading securities and

derivatives 223,354 211,311 - 434,665Adjustment to fair value of available-for-sale securities 141,556 107,792 (766) 248,582Deferred income from derivatives (1) 82,929 - (50,843) 32,086Other - 792 - 792Total 447,839 319,895 (51,609) 716,125Long-term 447,839 716,125 Bank Balances 12/31/2005 absorbed Recognition Realization 12/31/2006 Adjustment to fair value of trading

securities and derivatives 6,490 228,317 - (11,453) 223,354Adjustment to fair value of available-

for-sale securities 12,233 116,928 12,885 (490) 141,556Deferred income from derivatives (1) - 137,476 87 (54,634) 82,929Total 18,723 482,721 12,972 (66,577) 447,839

Consolidated 12/31/2006 Recognition Realization 12/31/2007

Adjustment to fair value of trading securities and

derivatives 223,394 212,373 - 435,767Adjustment to fair value of available-for-sale

securities 144,581 107,792 (3,790) 248,583Deferred income from derivatives (1) 82,929 - (50,843) 32,086Excess depreciation of leased assets 5,169 - (2,000) 3,169Others - 22,234 - 22,234Total 456,073 342,399 (56,633) 741,839Long-term 456,073 741,839


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Consolidated Balances 12/31/2005 absorbed Recognition Realization 12/31/2006 Adjustment to fair value of trading

securities and derivatives 6,490 228,443 - (11,539) 223,394Adjustment to fair value of available-

for-sale securities 12,233 119,835 13,331 (818) 144,581 Deferred income from

derivatives (1) - 137,480 87 (54,638) 82,929Excess depreciation of leased assets - 6,166 539 (1,536) 5,169Total 18,723 491,924 13,957 (68,531) 456,073

(1) Income from derivatives to be taxed on a cash basis, according to Law No. 11,051/04, regulated by Federal Revenue Service (SRF) Regulatory Instruction No. 575/05.

21. Subordinated Debts

Consist of securities issued according to the rules of the Central Bank of Brazil, which are used as Level II Reference Equity for calculating the operating limits.

Bank/Consolidated Issuance Maturity Amount Interest rate 12/31/2007 12/31/2006

Perpetual Bonds (1) September-05 Indeterminate US$500 million 8.70%

887,790 1,071,583

Subordinated Certificates of Deposit (2) June-06 July-16 R$1,500 million 105.00% CDI

1,813,986 1,613,559Subordinated

Certificates of Deposit (2) October-06 September-16 R$850 million 104.50% CDI

983,802 875,590Subordinated

Certificates of Deposit (2)

July-06 to October-06 July-16 R$447 million 104.50% CDI

534,047 475,307Total 4,219,625 4,036,039Current 2,140 2,584Long-term 4,217,485 4,033,455

(1) Perpetual bonds issued by the Grand Cayman branch with quarterly interest payments. These bonds do not have a maturity date or mandatory redemption, although they may, at the discretion of Banco Santander S.A. and with prior authorization by the Central Bank of Brazil, be redeemed in full in December 2010 or on any subsequent interest payment date.

(2) Subordinated certificates of deposit issued by Banco Santander S.A. with yield paid at the end of the term together with the principal.


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22. Other Payables - Other

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Reserve for labor and civil contingencies

(Note 23) 1,254,590 1,127,232 1,302,177 1,182,844Reserve for contingencies - Responsibility

of former controlling stockholders (Note 23.h) 270,625 333,909 270,625 333,909

Pension plan (Note 35) 495,170 4,109,294 495,170 4,109,968Credit cards 1,565,455 1,012,821 1,565,455 1,012,821Sale of right to receipt of future flow of

payment orders from abroad (1) 644,160 862,653 644,160 862,653Payables for acquisition of assets and rights

(2) 461,796 236,473 461,796 236,473Accrued liabilities Personnel expenses 449,391 372,661 461,583 381,575 Administrative expenses 280,057 275,754 282,096 279,353 Other payments 155,936 5,885 158,748 5,982Payables to suppliers 209,431 128,162 210,238 129,337Agribusiness credit notes - LCA 244,855 - 244,855 -Creditors for unreleased funds 90,940 38,637 90,940 38,637FGTS (severance pay fund) for amortization 12,433 11,183 12,433 11,183Other 629,207 329,992 640,450 341,729Total 6,764,046 8,844,656 6,840,726 8,926,464Current 4,714,958 6,351,468 4,706,948 6,380,149Long-term 2,049,088 2,493,188 2,133,778 2,546,315

(1) Payable for sale of right to receipt of future flow of payment orders receivable from foreign correspondent banks, in the amount of US$360 million, with charges equivalent to 5.5% p.a., payable semiannually until September 2011.

(2) Refers basically to export note loan operations in the amount of R$419,540 (12/31/2006 - R$184,629).

23. Contingent Assets and Liabilities and Legal Obligations - Tax and Social Security

Banco Santander S.A. and its subsidiaries are parties to judicial and administrative proceedings involving tax, civil and labor matters arising in the normal course of their business.

Reserves were recognized based on the nature, complexity and history of the lawsuits, and the opinion of the in-house and outside legal counsel. Santander’s policy is to accrue the full amount of lawsuits whose likelihood of unfavorable outcome is probable.

Legal obligations - tax and social security were fully recognized in the financial statements, except for the cases which, in Management’s opinion, based on experts’ evaluation and the status of the lawsuit, will not produce effects on the balance sheet for Santander entities.

Management understands that the recognized reserves are sufficient to cover possible losses on the lawsuits.


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a) Contingent assets

In 2007 no contingent assets were accounted for.

b) Contingent liabilities and legal obligations by nature

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Reserve for tax contingencies (1) (Note 20) 2,076,861 1,798,275 2,395,446 2,086,111

Reserve for labor and civil contingencies (Note 22) 1,254,590 1,127,232 1,302,177 1,182,844

Reserve for labor contingencies 1,036,653 906,595 1,074,131 951,988Reserve for civil contingencies 217,937 220,637 228,046 230,856

Total 3,331,451 2,925,507 3,697,623 3,268,955Current 449,913 349,703 469,550 353,993Long-term 2,881,538 2,575,804 3,228,073 2,914,962

(1) Includes, mainly, legal obligations.

c) Changes in contingent liabilities and legal obligations

Bank 2007 2006 Tax Labor Civil Tax Labor Civil Balance as of

December 31 1,798,275 906,595 220,637 23,373 121,181 75,992Balances absorbed - - - 1,725,704 845,635 158,046Recognition (1) 322,454 818,936 113,903 60,675 132,681 42,268Reversal of reserve (14,979) - - (7,596) (63) -Write-offs due to

payment (28,889) (688,878) (116,603) (3,881) (192,839) (55,669)Balance as of

December 31 2,076,861 1,036,653 217,937 1,798,275 906,595 220,637Escrow deposits - other

receivables (2) 572,260 213,421 31,374 561,561 338,465 28,229Escrow deposits -

securities (2) 14,168 17,838 6,207 16,398 32,661 19,477


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Consolidated

2007 2006 Tax Labor Civil Tax Labor Civil Balance as of

December 31 2,086,111 951,988 230,856 23,373 121,181 75,992Balances absorbed - - - 2,007,829 890,760 167,845Recognition (1) 360,260 833,363 118,542 79,622 137,194 43,673Reversal of reserve (20,557) (415) (1,101) (16,336) (151) (69)Write-offs due to

payment (30,368) (710,805) (120,251) (8,377) (196,996) (56,585)Balance as of

December 31 2,395,446 1,074,131 228,046 2,086,111 951,988 230,856Escrow deposits -

other receivables (2) 681,413 221,563 32,884 651,810 339,282 29,493Escrow deposits -

securities (2) 26,553 17,869 6,281 31,478 32,957 19,879

(1) Includes the accrual for tax contingencies for the period, recorded under "Tax Expenses". (2) Do not include escrow deposits for possible and/or remote contingencies and appeal deposits.

d) Legal obligations - tax and social security

Refer to judicial and administrative proceedings involving tax and social security obligations, as described below:

Difference in CSLL (social contribution tax) rate - R$1,177,845 - Consolidated R$1,250,652 (12/31/2006 - R$1,127,756 - Consolidated - R$1,196,991): challenges the payment of the difference in CSLL rate from 8% to 18% applied to financial institutions, in disagreement with the constitutional principle of equal treatment. A court injunction was obtained. On June 15, 2005, the former Banespa received an unfavorable decision from the lower court. The Bank filed an appeal with the Federal Regional Court, which was accepted for supersedeas and remanding effects. On January 14, 2008, the Court denied the appeal filed by the Bank. This decision is appealable to higher courts.

Deductibility of CSLL from IRPJ (corporate income tax) - R$333,398 - Consolidated R$392,786 (12/31/2006 - R$318,040 - Consolidated - R$370,886): seeks deduction of CSLL expense from income tax calculation. A court injunction was obtained. Concurrently, the Bank filed for suspension of the alleged debt and, on March 29, 2000, the judge authorized the escrow deposit. Subsequently, the former Banespa received an unfavorable decision and filed an appeal with the Federal Regional Court, which was accepted for remanding and supersedeas effects. The appeal was denied and appeals were filed requesting clarification of the decision. The case is awaiting judgment.


54

Summer Plan (economic stabilization plan) IRPJ/CSLL - R$30,203 - Consolidated - R$81,657 (12/31/2006 - R$29,288 - Consolidated - R$78,099): Lawsuit seeking elimination of inflation effects resulting from the Summer Plan in the income and social contribution tax basis. The lower court issued a decision unfavorable to the Bank and, after an appeal was filed, the Federal Regional Court rendered a decision acknowledging the application of the rate of 42.72%. Appeals filed are awaiting judgment.

FGTS (severance pay fund) - R$52,412 - Consolidated R$55,434 (12/31/2006 - R$49,783 - Consolidated - R$50,381): Lawsuit claiming the unconstitutionality of charges created by Supplementary Law No. 110/01 equivalent to 10% on the balance of FGTS accounts in the event of dismissal without cause and 0.5% on compensation to employees. The companies were successful in this lawsuit relating to 2001 and, with respect to the other years, are awaiting the conversion into cash of the escrow deposits made.

PIS and Cofins - R$208,249 - Consolidated R$210,883: lawsuit filed by several companies of the conglomerate against the provisions of article 3, paragraph 1 of Law No. 9,718/98, pursuant to which PIS and COFINS must be levied on all revenues of legal entities. Previously, PIS and Cofins were levied only revenues from services and sale of goods. The injunction filed by Banco Santander S.A. received an unfavorable judgment in the federal court. In September 13, 2007 the Federal Regional Court accepted the Bank appeal that began to pay PIS and COFINS only on revenue from services. The federal government filed appeals requesting clarification of the decision and is awaiting judgment.

e) Tax and social security contingencies

Refer to judicial and administrative proceedings related to taxes and social security classified, based on the legal counsel’s opinion, as probable loss, for which reserves were recorded. The matters in dispute refer to the following:

ISS (service tax) - Financial Institutions - refers to administrative and judicial proceedings with several municipalities that require the payment of ISS on several revenues from operations that usually do not qualify as service provision. The updated amount involved is R$62,875 - Consolidated R$87,994 (12/31/2006 - R$51,216 - Consolidated - R$69,512).

INSS (social security contribution) - refers to administrative and judicial proceedings seeking collection of social security contribution and salary premium for education on amounts that normally are not of a salary nature. The updated amount involved is R$93,042 - Consolidated R$120,498 (12/31/2006 - R$109,170 - Consolidated - R$140,702).


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f) Labor contingencies

These are lawsuits brought by labor unions and former employees claiming labor rights they understand are due, especially payment for overtime and other labor rights, including retirement benefit lawsuits.

For labor claims considered to be similar and usual, the reserve is recorded based on the history of payments made. Other labor claims are controlled individually and the reserves are recognized based on previous court decisions and the stage of each lawsuit.

g) Civil contingencies

Refer to lawsuits for indemnity and review of lending agreements.

Lawsuits for indemnity seek indemnity for property damage and/or pain and suffering, relating to the consumer relationship, principally with undue protest, return of checks, inclusion of debtors’ information into the credit restriction master file, elimination of inflation effects in escrow deposit accounts and other matters.

Lawsuits for review refer to challenges of lending agreement clauses by customers.

There are also lawsuits filed by minority stockholders of the former Banco Noroeste against corporate acts in 1998 and 1999. Although there are unfavorable decisions from the lower court, experts believe that the Bank has good chances to overturn such decisions through the appeals filed with the São Paulo State Court of Justice.

For civil lawsuits considered to be similar and usual, the reserve is recorded based on the history of payments made, based on the legal counsel’s evaluation of success and classification. Other lawsuits are controlled individually and the reserves are recognized based on the status of each lawsuits, law and previous court decisions.

h) Other lawsuits under the responsibility of former controlling stockholders

Refer to tax, labor and civil lawsuits in the amounts of R$609,613, R$177,791 and R$92,834 - Bank and Consolidated (12/31/2006 - R$558,627, R$219,313 and R$114,596), respectively, recorded under “Other payables - tax and social security” (Note 20) and “Other payables - other” (Note 22) which are the responsibility of the former controlling stockholders of the acquired entities. The lawsuits have guarantees under the agreements signed at the time of the acquisitions in the amount of R$880,238 (12/31/2006 - R$892,536), recorded under “Other receivables - other” (Note 12). These lawsuits have no effects on the balance sheet for the Bank and Consolidated.


56

i) Contingent liabilities classified as possible loss risk

Refer to judicial and administrative proceedings involving tax, civil and labor matters assessed by the legal counsel as possible loss, which were not accounted for. The main lawsuits are:

Deductibility of Expenses on Allowance for Doubtful Receivables- Administrative collection by the Federal Revenue Service in view of the deduction from the IRPJ and CSLL basis of losses on lending operations performed in 1998 and 2000. The Bank is awaiting judgment and understands that the collection is undue since the expenses met the deductibility conditions of Law No. 9430/96 as they referred to definitive losses. The updated amount involved is approximately R$190 million (Bank and Consolidated).

CPMF (tax on banking transactions) on Customer Operations - in May 2003, the Federal Revenue Service issued an Infraction Notice against Santander Distribuidora de Títulos e Valores Mobiliários Ltda. (Santander DTVM) and another Infraction Notice against the former Banco Santander Brasil S.A., both in the amount of R$290 million. The notices refer to the collection of a CPMF tax credit on transactions conducted by Santander DTVM in the management of its customers’ funds and clearance services provided by the Bank to Santander DTVM, according to the agreement between these two companies, in 2000, 2001 and the first two months of 2002. Both companies consider that the tax treatment adopted was adequate since said transactions were subject to CPMF at zero rate. The Board of Tax Appeals judged the administrative proceedings, annulling the infraction notice of Santander DTVM and confirming the infraction notice of the Bank. In both cases, an administrative appeal can be filed with the Higher Board of Tax Appeals (CSRF). The updated amount of each proceeding is approximately R$ 500 million.

IRPJ and CSLL on Reimbursement arising from Contractual Guarantees – in December 2007, the Federal Revenue Service issued an Infraction Notice in the amount of R$307 million against Banco Santander S.A. The notice refers to the collection of IRPJ and CSLL for tax year 2002 on amounts reimbursed by the former controlling stockholder of Banco Santander S.A. for payments made by the Bank that were the responsibility of the controlling stockholder. The Federal Revenue Service understood that the amount deposited in favor of Santander S.A. is not a reimbursement but a taxable income. The Bank has filed an administrative defense.

Addition to the Price on the Purchase of Shares of Banco do Estado de São Paulo S.A. - Banespa - the former Banco Santander S.A. (former controlling stockholder of Banespa) filed an ordinary action claiming the inexistence of legal relationship before the National Treasury in relation to item 3.1 of the Banespa’s Share Purchase and Sale Agreement. Such item provided for the payment of an addition to the minimum price should Banespa be released from the tax contingency recognized at the time of the


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privatization upon the setting of the minimum price. The updated amount involved is approximately R$263 million. After an unfavorable lower court decision, the Bank is awaiting a decision on the appeal at the court and understands that the collection is undue since the payment of the tax contingency by Banespa did not qualify under the hypotheses included in the agreement that could generate addition to the price paid.

Semiannual Bonus or Profit Sharing - labor lawsuit relating to the payment of a semiannual bonus or, successively, profit sharing to retired employees from the former Banco do Estado de São Paulo S.A. - Banespa, hired by May 22, 1975. This lawsuit was filed by Banespa’s Retirees Association. The involved amount is not disclosed due to the current stage of the lawsuit and the possibility of affecting its progress.

24. Stockholders’ Equity

a) Capital

Fully paid-up capital is composed of 132,768,479 thousand registered shares without par value, of which 9,612,358 thousand refer to the capital increase approved at the Extraordinary Stockholders’ meeting on June 25, 2007, consisting of 5,142,958 thousand common shares and 4,469,400 thousand preferred shares, in the amount of R$ 1,500,000, subscribed with interest on capital and dividends of R$ 892,957 and in cash of R$ 607,043, held as follows:

Shares in thousands Common Preferred Total Brazilian residents 498,688 2,048,621 2,547,309Foreign residents 70,537,235 59,683,935 130,221,170Total 71,035,923 61,732,556 132,768,479

b) Dividends

In accordance with the Bank’s bylaws, stockholders are entitled to a minimum dividend equivalent to 25% of net income for the year, adjusted according to legislation. Preferred shares are nonvoting and nonconvertible, but have the same rights and advantages granted to common shares, in addition to priority in the payment of dividends 10% higher than those paid on common shares, and in the capital reimbursement, without premium, in the event of liquidation of the Bank.

The Executive Board’s and Board of Directors’ meeting held on June 29, 2007 approved the payment of dividends, based on the reserve for dividend equalization in the amount of R$521,762 (R$3.7553 - common shares and R$4.1308 - preferred shares, in reais per thousand shares).


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The Executive Board’s and Board of Directors’ meeting on December 21, 2007 approved the payment of dividends, based on the income reported in the balance sheet as of June 30, 2007, in the amount of R$647,050 (R$4.6570 - common shares and R$5.1227 - preferred shares, in reais per thousand shares) and on income for the 3rd quarter of 2007, in the amount of R$327,628 (common shares R$2.3580 - preferred shares PN R$2.5938, in reais per thousand shares). The dividends will be attributable to mandatory minimum dividends for fiscal 2007.

The Executive Board’s and Board of Directors’ meeting on December 26, 2007 approved the payment of dividends, based on the income reported in the balance sheet for this specific purpose as of October 31, 2007, in the amount of R$240,728 (R$1.7326 - common shares and R$1.9058 - preferred shares, in reais per thousand shares). The dividends will be attributable to mandatory minimum dividends for fiscal 2007.

In 2006, interim dividends were approved for payment based on retained earnings for 2002, 2003 and 2005, in the amount of R$ 206,033 (common and preferred shares – R$ 7.7686 per thousand shares) and on income reported in the balance sheet as of November 30, 2006 for this specific purpose, in the amount of R$ 223,000 (common shares – R$ 1.7303 and preferred shares – R$ 1.9033 per thousand shares).

c) Interest on capital

The Executive Board’s and Board of Directors’ meeting held on June 29, 2007 approved the payment of interest on capital, calculated in the first half of 2007, in the amount of R$263,000 (R$1.8929 - common shares and R$2.0822 - preferred shares, in reais per thousand shares and R$1.6089 - common shares and R$1.7698 - preferred shares, net of income tax, in reais per thousand shares), which will be included in the Bank’s calculation of mandatory minimum dividends for 2007 and generated a tax benefit of R$89,420.

The Executive Board’s and Board of Directors’ Meeting on December 26, 2007 approve the payment of interest on capital, based on the income for the 2nd half of 2007, in the amount of R$264,600 (R$1.9044 - common shares and R$2.0948 - preferred shares, in reais per thousand shares and R$1.6187 - common shares and R$1.7806 - preferred shares, net of income tax, in reais per thousand shares), which will be included in the calculation of mandatory minimum dividends for 2007 and generated a tax benefit of R$89,964.

In 2006, interest on capital was approved for payment based on income for the first three quarters of 2006, in the amount of R$ 130,000 (common shares – R$ 1.01 – preferred shares – R$ 1.11 per thousand shares and common shares – R$ 0.86 and preferred shares – R$ 0.94, net of income tax, per thousand shares), which generated a tax benefit of R$ 44,200.


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d) Reserve for dividend equalization

Limited to 50% of capital, this reserve is intended to provide funds for the payment of dividends, including dividends in the form of interest on capital, or advance payments, for purposes of compensation to stockholders.

e) Consolidated stockholders’ equity

The Consolidated Stockholders’ Equity is decreased by R$36,839 (12/31/2006 - R$44,287) of unrealized results and the realization of these results affected net income for the year by R$7,448 (12/31/2006 - R$36,308).

25. Operating Ratios

a) Basel Accord (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 ratio of equity to risk-weighted assets of at least 11%. This ratio is determined on a consolidated basis and, as of December 31, 2007 and 2006, Santander was in compliance with the aforementioned limit, as shown below:

Operating assets (1) 12/31/2007 12/31/2006 Risk-weighted assets Reduced risk: 20% 573,750 335,909Reduced risk: 50% 4,387,959 2,565,399Normal risk: 100% 66,313,143 55,153,129Risk: 300% 10,292,586 9,980,637Total risk-weighted assets 81,567,438 68,035,074Basel Accord rate 11% 11%Required stockholders' equity to assets 8,972,418 7,483,858Swap credit risk 530,926 349,557Interest rate risk 275,794 484,473Required stockholders’ equity 9,779,138 8,317,888Adjusted stockholders’ equity 9,264,593 7,975,611Tax credit reduction - National Monetary Council Resolution No. 3059/2002 (283,773) (225,883)Decrease in deferred charges (415,259) -Adjustment to fair value of available-for-sale securities (342,438) -Adjusted stockholders’ equity - TIER I 8,223,123 7,749,728Subordinated debt 4,111,562 3,874,864Adjustment to fair value of available-for-sale securities 342,438 -Reduction of financial institutions’ instruments for funding (16,717) -Reduction in foreign branches or investments in foreign financial institutions (70) -Adjusted stockholders’ equity - TIER I and TIER II 12,660,336 11,624,592Margin 2,881,198 3,306,704Ratio - TIER I 9.25% 10.25%Ratio – Total 14.24% 15.37%

(1) Index calculated based on the consolidated financial statements of the financial institutions.


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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 December 31, 2007 and 2006, Santander is in compliance with the aforementioned ratio, with fixed assets to equity ratio of 12.18% and 16.50%, respectively.

26. Related-Party Transactions

Transactions among the entities of Santander 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:

Bank 12/31/2007 12/31/2006 Assets Income Assets Income (Liabilities) (Expenses) (Liabilities) (Expenses)

Cash 36,509 - 16,054 - Banco Santander, S.A. - Spain 36,498 - 16,029 - Other 11 - 25 - Interbank investments 1,596,363 61,123 667,182 19,472 Banco Santander, S.A. - Spain 1,588,247 57,273 651,467 14,411 Santander Brasil Arrendamento Mercantil S.A. 8,116 3,850 15,715 1,361 Other - - - 3,700 Securities and derivatives 3,606,295 1,064,110 3,115,515 298,471 Santander Brasil Arrendamento Mercantil S.A. 3,430,722 364,096 3,069,237 198,397 Banco Santander, S.A. – Spain 14,929 15,316 753 15,767 Santander Benelux, S.A., N.V. 159,925 683,398 43,728 81,915 Other 719 1,300 1,797 2,392 Lending operations - - 73,387 2,394 Santander Overseas Bank, Inc - Puerto Rico - - 73,387 2,394 Dividends and bonuses receivable 143,458 - 24,652 - Santander Brasil Arrendamento Mercantil S.A. 30,941 - 4,845 - Santander Brasil S.A. Corretora de Títulos e Valores Mobiliários 26,947 - 6,222 - Santander S.A. Corretora de Câmbio e Títulos 25,809 - 6,462 - Santander S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros 36,331 - 1,708 - Santander Investimentos em Participações S.A. 6,800 - - - Santander Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda. 16,604 - 4,709 - Other 26 - 706 - Trading account 2,535 - - - Banco Santander, S.A. – Spain 2,535 - - - Foreign exchange portfolio – assets 1,248,462 - 360,828 - Banco Santander, S.A. – Spain 1,085,359 - 360,828 - Santander Benelux, S.A., N.V. 163,103 - - - Receivables from affiliates 48,330 229,568 9,627 72,416 Banco Santander, S.A. – Spain 5,673 4,718 - - Santander Brasil S.A. Corretora de Títulos e Valores Mobiliários 1,594 12,772 5 31 Santander Brasil Arrendamento Mercantil S.A. 169 1,901 100 710


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Santander Seguros S.A. 32,878 170,339 6,944 61,975 Santander Banespa Seguros S.A. 3,370 19,030 - - Santander Capitalização S.A. 1,973 20,711 1,478 9,619 Other 2,673 97 1,100 81 Deposits (4,124,146) (409,260) (3,376,005) (215,915) Santander Brasil Arrendamento Mercantil S.A. (3,487,168) (376,402) (3,152,635) (186,523) Santander Investimentos em Participações S.A. (304,089) (17,489) (15,082) (917) Santander Companhia Securitizadora de Créditos Financeiros - - (109,165) (6,953) Santander Brasil S.A. Corretora de Títulos e Valores Mobiliários (91,757) (2,081) (1,327) - Santander S.A. Corretora de Câmbio e Títulos (118,156) (3,122) (663) - Produban Serviços de Informática S.A. (11,865) (323) - - Altec Brasil S.A. (47,082) (5,049) (43,826) (2,743) Santander Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda. (45,652) (3,908) (41,621) (2,673)

Other (18,377) (886) (11,686) (16,106) Money market operations (54,596) (9,488) (135,537) (48,141) Santander Brasil S.A. Corretora de Títulos e Valores Mobiliários (35,017) (4,472) (64,797) (3,643) Santander S.A. Corretora de Câmbio e Títulos (19,579) (3,807) (55,240) (3,293) Produban Serviços de Informática S.A. - (1,209) (15,500) (1,003) Banco Santander Brasil S.A. - - - (36,743) Other - - - (3,459) Securities issued abroad - (325) - - Banco Santander, S.A. – Spain - (325) - - Borrowings and onlendings (1,323,936) (57,456) (961,796) (10,657) Santander Overseas Bank, Inc - Puerto Rico (969,762) (57,456) (568,180) (10,657) Banco Santander Puerto Rico (330,514) - (388,212) - Santander Trade Services, Ltd. (3,195) - (1,813) - Banco Santander Brasil Intl Limited - - (485) - Banco Santander, S.A. - Spain (19,507) - (3,106) - Banco Santander, S.A. - Uruguay (958) - - - Derivatives (126,864) (554,546) (21,696) (74,283) Banco Santander, S.A. - Spain (5,051) (25,831) (6,811) (11,684) Santander Benelux, S.A., N.V. (115,070) (519,196) (14,678) (40,279) Santander Overseas Bank, Inc - Puerto Rico (3,320) (5,284) - - Santander Brasil Arrendamento Mercantil S.A. (3,423) (4,235) (207) - Other - - - (22.320) Foreign exchange portfolio - liabilities (1,251,108) - (355,432) - Banco Santander, S.A. - Spain (1,093,493) - (355,432) - Santander Benelux, S.A., N.V. (157,615) - - - Dividends and bonuses payable (1,411,725) - (963,005) - Grupo Empresarial Santander, S.L (1,411,683) - (963,005) - Santander Seguros S.A. (42) - - - Trading account (15) - (37) - Santander Brasil S.A. Corretora de Títulos e Valores Mobiliários (15) - (37) - Payables to affiliates (6,653) (3,228) (1,747) (1,556) Banco Santander, S.A. - Spain (6,371) - (10) - Other (282) (3,228) (1,737) (1,556) Other payables - other (5,112) (31,917) (403) (17,178) Produban Serviços Informáticos Generales, S.L. (665) (4,001) - - Aquanima Brasil Ltda. - (16,946) - (16,533) Altec, S.A. – Chile (4,395) (5,717) - -


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Universia Brasil S.A (52) (5,253) - (578) Other - - (403) (67)

27. Income from Services Rendered

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Income from fund management 583,355 318,061 622,105 339,273Checking account services 619,585 331,383 619,567 331,384Lending operations 1,017,917 329,147 1,017,917 329,147Insurance 369,940 123,399 446,220 158,465Credit cards 345,906 118,772 345,906 118,772Receiving services

Collection 133,451 71,717 133,451 71,717Bills, taxes and fees 72,595 41,674 72,595 41,674

Securities brokerage and placement services 83,769 18,157 227,904 63,173Guarantees provided 76,905 31,021 76,905 31,021Other 168,172 125,169 178,849 133,546Total 3,471,595 1,508,500 3,741,419 1,618,172

28. Personnel Expenses

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Compensation 1,114,920 601,442 1,125,880 606,502Charges 426,347 272,537 430,650 278,176Benefits 317,044 154,602 320,834 155,950Training 30,550 19,140 30,559 19,263Other 4,564 3,402 5,749 3,402Total 1,893,425 1,051,123 1,913,672 1,063,293


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29. Other Administrative Expenses

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Outside and specialized services 994,773 472,968 1,016,188 494,600Depreciation and amortization 416,231 205,979 416,387 206,096Advertising, promotions and publicity 266,617 120,851 267,632 121,122Data processing 211,797 115,332 212,133 115,518Communications 234,563 112,367 240,980 114,587Rentals 164,886 93,395 164,706 93,183Transportation and travel 135,423 78,028 136,135 78,380Security services 102,467 55,429 102,467 55,429Asset maintenance and upkeep 76,445 43,064 76,447 43,068Utilities 64,025 33,343 64,069 33,349Financial system services 58,521 29,492 66,484 32,085Materials 34,141 20,507 34,144 20,511Other 68,489 44,051 73,328 45,521Total 2,828,378 1,424,806 2,871,100 1,453,449

30. Tax Expenses

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 COFINS (tax on revenue) 489,233 221,963 506,005 230,229ISS (service tax) 152,673 66,664 166,995 73,002PIS/PASEP (tax on revenue) 79,500 36,069 82,243 37,358Other 82,514 31,635 90,326 36,054Total 803,920 356,331 845,569 376,643

31. Other Operating Income

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Monetary gain 10,435 56,929 10,556 57,013Monetary adjustment of escrow deposits 133,960 54,168 149,396 60,178Recovery of charges and expenses 99,961 29,233 88,994 32,793Monetary adjustment of recoverable taxes 7,025 96,528 13,223 99,435Interest received 22,759 11,847 26,131 11,906Dividends and bonuses 17,001 9,706 22,589 10,239Reversal of operating accruals

Tax (Note 23.c) 14,979 7,596 20,557 16,336Labor (Note 23.c) - 63 415 151Civil (Note 23.c) - - 1,101 69Other 60,595 131,233 65,006 131,918

Other 51,702 55,037 58,180 59,780Total 418,417 452,340 456,148 479,818


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32. Other Operating Expenses

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Interest and updating of actuarial liability (Note 35) 99,314 368,414 99,314 368,414Amortization of unrecognized actuarial losses (Note

35) - 34,909 - 35,583Operating accruals

Tax (Note 23.c) 92,563 46,186 111,255 61,573Labor (Note 23.c) 818,936 132,681 833,363 137,194Civil (Note 23.c) 113,903 42,268 118,542 43,673Other 217,431 82,709 226,011 89,109

Goodwill amortization - 79,565 - 79,565Commissions 13,490 674 40,710 7,290Legal fees and costs 45,087 25,003 46,658 25,070Amortization of expenses on exclusivity contracts

for provision of banking services (1) 203,477 34,878 203,477 34,878Credit cards 114,119 28,400 114,119 28,400Serasa/SPC (credit reporting agency) 42,121 24,991 42,139 24,994Interest on sale of right to receipt of future flow of

payment orders from abroad 38,455 23,063 38,455 23,063Monetary losses 55,030 15,658 55,227 17,899CPMF/IOF (taxes on banking transactions) 65,325 8,204 67,125 15,182Brokerage fees 22,505 7,323 22,513 7,327Exchange variation - foreign branch 96,865 7,091 96,865 7,091Provision for employees’ shares – 150 years (2) 76,663 - 77,240 -Other 262,307 126,776 292,027 133,024Total 2,377,591 1,088,793 2,485,040 1,139,329

(1) Refers mainly to the amortization of the expenses on the acquisition of payroll credit rights (Note 14). (2) In June 2007, the Stockholders’ Meeting of Banco Santander, in Spain, approved the distribution of 100 shares to each

employee as part of the celebration of its 150 years.

33. Nonoperating (Expenses) Income

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Gain on sale of Investments (1) 474,747 1,673 772,720 1,673(Recognition) reversal of allowance for losses on other assets 12,258 (1,504) 13,470 53

Gain on sale of other assets 13,116 4,127 19,361 4,771Capital losses (42,699) (22,417) (42,821) (22,419)Expense on assets not in use (31,092) (21,099) (31,300) (21,396)Other (expenses) income (Note 18) (237,574) 8,646 (237,302) 10,580Total 188,756 (30,574) 495,128 (26,738)

(1) In 2007, Santander sold investments and reported nonrecurring gains of R$771million from the partial sale of shares of Serasa, Bovespa and BM&F, and full sale of the Banespa Grand Cayman branch, recorded in “gain on sale of investments”. The amount, net of taxes, is R$513 million.


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34. Derivatives

Santander uses derivatives to reduce market risks arising from its operations. 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 for monitoring risks of fluctuations in asset prices, interest rates and other factors which may affect Santander’s portfolio position in the different markets in which it operates.

Market risk is the exposure to interest rates, exchange rates, price of goods, price of shares and other according to the type of product, volume of operations, term and conditions of the agreement and underlying volatility.

Credit risk is the exposure to losses in the event of default by a counterparty. The exposure to credit risk in futures contracts is minimized by daily payment in cash. Swap agreements are subject to credit risks in the event the counterparty is unable or unwilling to fulfill its contractual obligations.

Operating risk is the probability of financial losses resulting from inadequate or failed people, processes and systems or any other adverse market conditions.

The fair value of 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. For options, Santander adopts statistical models that consider the volatility of the asset price and interest rates representative of the market conditions at the balance sheet date.

The principal interest rates are obtained from futures and swap agreements 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.


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As of December 31, derivatives were as follows:

Bank 12/31/2007 12/31/2006 Trades Trades

Swap Asset Liability Net Asset Liability Net CDI (interbank deposit

rates) 27,362,370 17,934,203 9,428,167 20,985,000 10,773,168 10,211,832Fixed interest rate - R$ 4,536,786 1,559,034 2,977,752 5,200,389 1,592,173 3,608,216Fixed interest rate -

foreign currency 635,893 1,116,117 (480,224) 416,247 736,013 (319,766)Indexed to price and

interest rates 11,172,838 12,516,102 (1,343,264) 6,057,723 7,503,912 (1,446,189)Indexed to foreign

currency 6,751,463 16,847,199 (10,095,736) 5,049,707 16,569,090 (11,519,383)Other indexes 23,834 193,329 (169,495) 77,788 200,248 (122,460)Total 50,483,184 50,165,984 317,200 37,786,854 37,374,604 412,250Fair value 329,683 436,279Counterparty Customers 26,311,515 25,932,767 378,748 25,725,839 25,314,944 410,895Related parties 1,619,003 1,611,603 7,400 2,334,786 2,325,741 9,045Financial institutions 22,552,666 22,621,614 (68,948) 9,726,229 9,733,919 (7,690)Total 50,483,184 50,165,984 317,200 37,786,854 37,374,604 412,250 Maturity Up to 3 months 19,101,340 18,834,141 267,199 10,396,606 10,329,947 66,659From 3 to 12 months 11,996,818 11,913,827 82,991 9,646,587 9,603,065 43,522Over 12 months 19,385,026 19,418,016 (32,990) 17,743,661 17,441,592 302,069Total 50,483,184 50,165,984 317,200 37,786,854 37,374,604 412,250 Market BM&F 29,541,531 29,596,908 (55,377) 15,793,074 15,759,999 33,075Over the counter 20,941,653 20,569,076 372,577 21,993,780 21,614,605 379,175Total 50,483,184 50,165,984 317,200 37,786,854 37,374,604 412,250

Consolidated 12/31/2007 12/31/2006 Trades Trades

Swap Asset Liability Net Asset Liability Net CDI (interbank deposit

rates) 27,340,649 17,535,630 9,805,019 20,980,544 10,429,191 10,551,353Fixed interest rate - R$ 4,136,333 1,537,245 2,599,088 4,860,359 1,587,681 3,272,678Fixed interest rate -

foreign currency 635,893 1,116,117 (480,224) 416,247 736,013 (319,766)Indexed to price and

interest rates 11,172,838 12,516,102 (1,343,264) 6,057,723 7,503,912 (1,446,189)Indexed to foreign

currency 6,751,463 16,847,199 (10,095,736) 5,044,973 16,569,090 (11,524,117)Other indexes 23,834 193,329 (169,495) 77,788 200,248 (122,460)Total 50,061,010 49,745,622 315,388 37,437,634 37,026,135 411,499Fair value 329,768 432,984


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Consolidated 12/31/2007 12/31/2006 Trades Trades Counterparty Asset Liability Net Asset Liability Net Customers 26,311,515 25,932,767 378,748 25,725,839 25,314,944 410,895Related parties 1,196,829 1,191,241 5,588 1,985,566 1,977,272 8,294Financial institutions 22,552,666 22,621,614 (68,948) 9,726,229 9,733,919 (7,690)Total 50,061,010 49,745,622 315,388 37,437,634 37,026,135 411,499 Maturity Up to 3 months 19,028,746 18,762,005 266,741 10,337,141 10,270,717 66,424From 3 to 12 months 11,828,605 11,746,605 82,000 9,490,070 9,446,865 43,205Over 12 months 19,203,659 19,237,012 (33,353) 17,610,423 17,308,553 301,870Total 50,061,010 49,745,622 315,388 37,437,634 37,026,135 411,499 Market BM&F 29,541,531 29,596,908 (55,377) 15,793,074 15,759,999 33,075Over the counter 20,519,479 20,148,714 370,765 21,644,560 21,266,136 378,424Total 50,061,010 49,745,622 315,388 37,437,634 37,026,135 411,499

Bank/Consolidated 12/31/2007 12/31/2006 Premium Premium

Options Notional Cost Fair value Notional Cost Fair value Options - Dollar Call option purchased

position 20,803,174 40,527 24,011 2,529,603 32,738 9,816Put option purchased

position 2,300,670 29,053 26,508 1,334,012 26,796 30,736Call option sold position (30,966,641) (803,998) (620,886) (20,336,293) (504,019) (440,390)Put option sold position (21,013,420) (1,092,604) (1,120,631) (15,634,847) (825,162) (831,070) (28,876,217) (1,827,022) (1,690,998) (32,107,525) (1,269,647) (1,230,908) Options – other (1) Call option purchased position 30,808,317 136,302 127,903 19,676,933 121,743 122,777Put option purchased position 34,523,290 52,906 62,500 5,161,337 42,565 45,536Call option sold position (57,199,347) (191,859) 75,935 (29,773,615) (134,252) (93,041)Put option sold position (32,332,587) (123,691) (458,957) (13,782,049) (71,331) (122,258) (24,200,327) (126,342) (192,619) (18,717,394) (41,275) (46,986) Total (53,076,544) (1,953,364) (1,883,617) (50,824,919) (1,310,922) (1,277,894)

(1) Includes share options and indexes.

Bank/Consolidated 12/31/2007 12/31/2006maturity Notional Notional Up to 3 months (23,500,178) (15,130,427)From 3 to 12 months (15,628,797) (16,964,103)Over 12 months (13,947,569) (18,730,389)Total (53,076,544) (50,824,919)


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Bank/Consolidated 12/31/2007 12/31/2006Future Contracts Notional Notional Exchange coupon - DDI Asset position 3,417,298 7,479,303Liability position (2,395,124) (2,463,929)Interest rates (DI1 and DIA) Asset position 8,038,348 12,209,205Liability position (8,201,301) (5,242,252)Dollar (Dol) Asset position 5,115,296 2,202,047Liability position (38,523) (40,955)Index Asset position 978 134,285Liability position (111,666) (258,509)Treasury Bonds Liability position (184,178) (508,783)Treasury Notes 10 Asset position 143,354 -Others Asset position 15,382 19,567Liability position (76,647) (59,764)Total 5,723,217 13,470,215 Maturity Up to 3 months 7,782,308 23,228From 3 to 12 months 3,566,246 (1,756,551)Over 12 months (5,625,337) 15,203,538Total 5,723,217 13,470,215

The amounts pledged to guarantee BM&F derivative transactions are comprised of federal government securities in the amount of R$2,722,245 (12/31/2006 - R$2,357,496) - Consolidated R$2,801,041 (12/31/2006 - R$2,388,449).

Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Assets Swap differentials receivable 1,778,808 729,960 1,775,469 726,458Forward purchases receivable 751,113 66,580 751,113 66,580Forward sales receivable 535,774 82,471 535,774 82,471Exercisable option premiums - shares 5,370 71,122 5,370 71,122Exercisable option premiums - financial

assets and commodities 235,552 137,743 235,552 137,743Other derivatives 113,695 89,044 113,695 89,044Total 3,420,312 1,176,920 3,416,973 1,173,418Current 2,616,361 651,419 2,614,123 649,977Long-term 803,951 525,501 802,850 523,441


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Bank Consolidated 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Liabilities Swap differentials payable 1,449,125 293,681 1,445,701 293,474Forward purchases payable 764,965 63,512 764,965 63,512Option premiums - shares 1,075 32,132 1,075 32,132Option premiums - financial assets and

commodities 2,123,464 1,454,627 2,123,464 1,454,627Other derivatives 228,926 167,333 228,926 167,333Total 4,567,555 2,011,285 4,564,131 2,011,078Current 3,226,639 1,361,055 3,226,346 1,360,938Long-term 1,340,916 650,230 1,337,785 650,140

35. Pension Plan

a) Benefit Plan - Banesprev

I) The Bank and its subsidiaries sponsor Banesprev - Fundo Banespa de Seguridade Social, a private pension fund intended to provide retirement and pension benefits that supplement those provided by government, as defined in the basic regulations of each plan.

Plan I

Plan I, fully defrayed by the Bank, covers employees hired on or after May 22, 1975, and those hired by May 22, 1975 who are also entitled to death benefits. As of December 31, 2007, the beneficiaries of this plan are 286 active participants and 10,579 retirees/pensioners.

Plan II

Effective July 27, 1994, when the new text of the Statutes and Basic Regulations of Plan II came into effect, Plan I participants who opted for the new plan began contributing 44.94% of the funding rate established by the actuary for each year. As of December 31, 2007, the beneficiaries of this plan are 5,418 active participants and 6,388 retirees/ pensioners.

Supplemental Pension Plan

The Supplemental Pension Plan was created in view of the privatization of Banespa and is managed by Banesprev. This Plan, effective January 1, 2000, is provided only to employees hired until May 22, 1975. As of December 31, 2007, the beneficiaries of this plan are 14 active participants.


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Plan V

Banco Santander S.A. had a pension plan for the employees transferred from Banco do Estado de São Paulo S.A. - Banespa, who were hired until May 22, 1975.

Beginning on January 12, 2007, the payment of pension benefits, as set forth in the Personnel Regulation of Banco do Estado de São Paulo S.A. - Banespa that was merged into Banco Santander S.A. on August 31, 2006, and in Clause 44 of the Collective Labor Agreement - ACT 2004/2006 (Adhesion to the Voluntary Migration to the New Pension Plan Regime) is being made by Banesprev, a private pension entity. For such purpose, the Bank created Pension Plan V, which was approved by the Secretariat for Pension Plans (SPC) according to Administrative Rule No. 879 of January 11, 2007. The Bank transferred to Banesprev the actuarial obligations at the present value of R$4,019,160 and assets in the amount of R$3,598,816, of which R$3,478,816 refers to securities and R$120,000 refers to cash. The obligation recorded in Other Payables, in the amount of R$336,661, is being paid by the Bank in 250 months.

As of December 31, 2007, the beneficiaries of this plan are 75 active participants and 12,589 retirees/pensioners.

Based on the independent actuary’s report, the position of the benefit plans is as follows:

Actuarial Assumptions Adopted in the Calculations 2007 2006 Plan V Other Plans Plan V Other Plans Nominal discount rate for actuarial obligations 16.7% 14.6% (1) 16.5% 14.4% (1) Expected nominal rate of return on plan assets 16.7% 14.6% (1) 16.5% 14.4% (1) Estimated long-term inflation rate 4.2% (2) 4.0% Estimated nominal salary increase 4.2% (2) 4.0% Estimated nominal benefit increase 4.2% (2) 4.0% General mortality table AT-2000 AT-2000 Disability table Mercer disability table Mercer disability table Expected turnover rate * 2.0%(2) * 2.0%(2) Retirement probability 100% when first eligible 100% when first eligible (1) Except for the Pension Plan, for which the nominal rate of 14.7% (2006 - 15.4%) was used. (2) Except for the Pension Plan, for which the estimated rate of 3.8% was used. (3) Except for the Pension Plan, for which the expected turnover rate of 0% was used (*) 0.1/(Length of service + 1) up to the age of 50 years.


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2007 2007 Reconciliation of assets and liabilities Plan V Other Plans Plan V Other plans Fair value of plan assets 3,811,161 4,143,415 - 3,612,495Present value of actuarial obligations 4,150,799 3,459,338 4,019,160 3,083,562Adjustments for allowed deferrals:

Unrecognized actuarial losses (24,195) (68,237) (83,683) (46,143)Unrecognized actuarial gains - 502,007 - 433,564

Net actuarial asset (liability) (1) 315,443 (250,307) 3,935,477 (141,512)Payments in the period (520,765) - (680,005) -Expenses recognized in the period 64,842 8,526 680,892 -Recognized actuarial losses - - - 17,714Contributions made in the period (2) 3,684,876 23,949 - 27,043Estimated contributions from sponsor in 2008 51,995 18,240

(1) As provided for in article 49, item “g” of CVM Resolution 371/2000, the above surplus was not recorded in the financial statements of Banco Santander S.A.

(2) In 2007 this balance includes the initial transfer and the monthly amounts paid to Banesprev for Plan V.

I.b) Defined Contribution Plans

Plan III

Plan III covers employees hired on or after May 22, 1975, previously enrolled in Plans I and II. In this plan, contributions are made by both the sponsor and participants.

Plan IV

Plan IV covers employees hired on or after November 27, 2000, in which the sponsor contributes only to risk benefits and administrative costs.

Contributions made to Plans III and IV amounted to R$1,239 (12/31/2006 - R$511).

b) Benefit Plans - Sanprev

Banco Santander S.A. sponsors Sanprev - Santander Associação de Previdência, a private pension entity intended to provide benefits that supplement those provided by government, in accordance with Supplementary Law No. 109/2001. The benefit plans have the following characteristics:

Sponsors: Banco Santander S.A., Sanprev - Santander Associação de Previdência, Santander Brasil Arrendamento Mercantil S.A., Santander Brasil S.A. - Corretora de Títulos e Valores Mobiliários, Santander Seguros S.A., Santander Investimentos em Participações S.A., Santander Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda., Universia Brasil S.A. and Altec Brasil S.A.


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Types of Plans:

• Plan I was established on September 27, 1979 as a defined benefit plan for employees of plan sponsors, and has been in the process of discontinuance since July 1, 1996. As of December 31, 2007, the beneficiaries of this plan are 9 active participants and 129 retirees/pensioners.

• Plan II provides a risk coverage for employees of plan sponsors and is funded exclusively by the sponsors through monthly contributions corresponding to 1.16% (0.77% in 2006) of the total payroll, structured as a defined benefit plan. Monthly contributions are apportioned as follows: 0.28% (0.27% in 2006) for risk benefits and 0.88% (0.50% in 2006) for the administrative program. As of December 31, 2007, the beneficiaries of this plan are 5,903 active participants and 26 retirees/pensioners.

• Plan III provides period-certain annuity and monthly life annuity for employees of contributing sponsors and is structured as a defined contribution plan, whereby contributions are freely made by participants starting at 2% of the contribution salary. As of December 31, 2007, the beneficiaries of this plan are 5,984 active participants and 196 retirees/pensioners.

Financial and Actuarial Methods:

• Plan I - capitalization (supplementary benefits for length of service, supplementary benefits for disability, supplementary benefits for temporary pension and death) and simple coverage method (supplementary benefits for sickness and birth allowance).

• Plan II - capitalization (supplementary benefits for temporary pension, supplementary benefits for disability and death) and simple coverage method (supplementary benefits for sickness and birth allowance).

• Plan III - capitalization (monthly life annuity).

The result of the independent actuary’s valuation is as follows:

2007 2006 Actuarial assumptions adopted in the calculations

Nominal discount rate for actuarial obligations 10.4% 10.2% Expected nominal rate of return on plan assets 10.4% 10.2% Estimated long-term inflation rate 4.2% 4.0% Estimated nominal salary increase 4.2% 4.0% Estimated benefit increase rate 4.2% 4.0% General mortality table AT-2000 AT-2000 Disability table Mercer disability table (1) Mercer disability table (1) Expected turnover rate Null (1) Null (1) Retirement probability 100% when first eligible (1) 100% when first eligible (1) (1) Except for Plan III - N/A.


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2007 2006 Reconciliation of assets and liabilities Fair value of plan assets 130,306 124,600

Present value of actuarial obligations, by plan: 72,496 70,943 Plan I 62,426 60,972 Plan II 10,070 9,971

Adjustments for allowed deferrals Unrecognized acturial gains (22,102) (23,900)

Net assets (1) 35,708 29,757 Contributions for the period - Plans II and III (defined

contribution) 2,772 2,361 Estimated contributions from sponsor in 2008 746

(1) Pursuant to article 49, item “g”, of CVM Resolution No. 371/2000, the above surplus was not recorded in the financial statements of Banco Santander S.A.

c) Other

I) Banco Santander S.A. is the sponsor of pension plans for associated employees, structured as defined benefit plans. As of December 31, 2007, the beneficiaries of this plan are 1 active participant and 1,348 retirees/pensioners.

Result of the independent actuary’s valuation: 2007 2006 Actuarial assumptions adopted in the calculations Nominal discount rate for actuarial obligations 16.7% 16.5% Expected nominal rate of return on plan assets 16.7% 16.5% Estimated long-term inflation rate 4.2% 4.0% Estimated nominal salary increase 4.2% 4.0% Estimated benefit increase rate 4.2% 4.0% General mortality table AT - 2000 AT - 2000 Disability table Not applicable Not applicable Expected turnover rate 0.0% 0.0% Retirement probability 0.0% 0.0% Reconciliation of liabilities 2007 2006 Present value of actuarial obligations 186,550 169,906 Adjustments for allowed deferrals:

Unrecognized actuarial gains (32,613) (13,129) Accrued net actuarial liability 153,937 156,777 Payments in the period (28,787) (27,363) Expenses recognized for the period - Interest on actuarial obligations 25,946 27,968 Amortization of unrecognized actuarial losses - 17,869 Expense to be recognized in 2008 27,291 II) The Bank contributes to Cabesp - Caixa Beneficente dos Funcionários do Banco do Estado de São Paulo S.A., an entity that covers health and dental care expenses of employees hired until Banespa privatization in 2000.


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2007 2006 Reconciliation of assets and liabilities Fair value of plan assets 2,782,114 2,430,500 Present value of obligations 2,786,206 2,028,008 Adjustments for allowed deferrals: Unrecognized actuarial gains 148,346 - Net assets 144,254 402,492 Contributions for the period 36,184 30,643

d) Variable Compensation Program

Santander established a variable compensation program for its executives based on the controlling stockholder’s shares appreciation. The conditions set for receiving the compensation were met and the variable compensation can be paid between January 15, 2008 and January 15, 2009.

In 2007, a new Variable Compensation Program was approved as an incentive to the executives’ long-term commitment to the Group’s objectives, according to the policy established by the controlling stockholder. The program consists of annual grants and exercise right periods of 2 and 3 years, provided that preestablished conditions related to total return to stockholders and earnings per controlling stockholder’s share are met.

Santander recorded daily pro rata expenses of R$10,134 (2006 - R$2,058) - Consolidated R$10,311 (2006 - R$2,107), relating to the above-mentioned plans.


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36. Income and Social Contribution Taxes

Bank 12/31/2007 12/31/2006

Income tax

Social contribution

tax Income

tax

Social contribution

tax Income before taxes, net of profit sharing 1,895,150 1,895,150 822,258 822,258 Interest on capital (527,600) (527,600) (130,000) (130,000) Income before taxes 1,367,550 1,367,550 692,258 692,258 Total income and social contribution tax charges at the rates of 25% and 9%, respectively (341,888) (123,080) (173,064) (62,303) Additions (deductions) 557,040 41,624 166,395 62,694 Equity in subsidiaries 128,527 46,270 26,457 9,525 Temporarily nondeductible provisions 383,042 (19,766) 19,831 7,011 Reserve for maintenance of integrity of stockholders’ equity 220,888 79,519 100,338 36,123 Adjustment to market value (40,631) (14,627) 11,884 4,277 Nondeductible expenses and provisions (60,636) (22,907) (27,016) (9,586) Merged companies’ income - - 45,068 16,225 Other additions (deductions) (74,150) (26,865) (10,167) (881) Tax loss carryforwards (215,152) 24,437 2,042 (391) Income and social contribution tax expense - current - (57,019) (4,627) - Provision for income and social contribution taxes - merged companies - - (18,720) (7,662) Provision for income and social contribution taxes – prior year (203) - - - Income tax expense - foreign countries (7,227) - (816) - Provision for income and social contribution taxes - deferred (122,994) (43,763) 42,480 16,540 Adjustment to market value (155,376) (55,935) 8,421 3,032 Income and social contribution tax credits 32,382 12,172 34,059 13,508 Income tax (130,424) (100,782) 18,317 8,878 Deferred tax assets 71,780 102,224 (68,028) (14,114) Adjustment to market value 196,007 70,562 (20,305) (7,309) Adjustments and temporary differences (124,227) 31,662 (47,723) (6,805) Recorded income and social contribution taxes (58,644) 1,442 (49,711) (5,236)


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Consolidated 12/31/2007 12/31/2006

Income tax

Social contribution

tax Income

tax

Social contribution

tax Income before taxes, net of profit sharing 2,016,179 2,016,179 857,117 857,117 Interest on capital (527,600) (527,600) (130,000) (130,000) Unrealized gains (losses) 7,448 7,448 (36,308) (36,308) Income before taxes 1,496,027 1,496,027 690,809 690,809 Total income and social contribution tax charges at the rates of 25% and 9%, respectively (374,006) (134,642) (172,702) (62,173) Additions (deductions) 484,450 15,632 160,422 60,095 Equity in subsidiaries 737 265 3,823 1,376 Temporarily nondeductible provisions 374,952 (22,726) 15,448 5,356 Reserve for maintenance of integrity of stockholders’ equity 220,888 79,519 100,338 36,123 Adjustment to market value (39,520) (14,228) 11,963 4,307 Nondeductible expenses and provisions (60,872) (21,729) (26,903) (9,545) Merged companies’ income - - 45,068 16,225 Other additions (deductions) (11,736) (5,469) 10,685 6,253 Tax loss carryforwards (213,732) 25,440 7,672 1,630 Income and social contribution tax expense - current (103,288) (93,570) (4,608) (448) Provision for income and social contribution taxes - merged companies - - (18,720) (7,662) Income and social contribution tax expense - prior year (203) - - - Income tax expense - foreign countries (7,227) - (816) - Provision for income and social contribution taxes - deferred (121,775) (44,044) 43,815 16,563 Adjustment to market value (156,157) (56,216) 8,484 3,055 Tax credit - Insufficient depreciation 2,000 - 997 - Income and social contribution tax credits 32,382 12,172 34,334 13,508 Income and social contribution tax expense (232,493) (137,614) 19,671 8,453 Deferred tax assets 90,098 109,229 (68,989) (12,633) Adjustment to market value 195,677 70,444 (20,447) (7,362) Tax credit - Insufficient depreciation - - (1,922) - Income and social contribution tax credits (105,579) 38,785 (46,620) (5,271) Recorded income and social contribution taxes (142,395) (28,385) (49,318) (4,180)

37. Combined Financial Information

With the legal merger occurred on August 31, 2006, as mentioned in Note 2, the individual and consolidated financial statements for 2007, including all merged operations of Banco do Estado de São Paulo S.A - Banespa, Banco Santander Brasil S.A. and Banco Santander S.A, are not comparable with the individual and consolidated financial statements for 2006, since the merged entities were not subsidiaries and, consequently, consolidated by the merging entity.

The statement of income for 2006 shows the results of operations for the first half of Banco Santander Meridional, prior to the merger, plus results of operations for the second half (after the merger).


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For adequate comparison, we are presenting the Bank’s combined income statements and the consolidated combined statements (including the subsidiaries of the merged entities) for 2006, considering the consolidation of all merged entities, as if the merger had occurred in January 2006. The statement of income for 2006 includes the income earned by Banco Santander Meridional and the merged banks in the first half of 2006, plus the results of operations of Banco Santander Banespa S.A. for the second half of 2006, after the merger, assuring comparability between 2006 and 2007.

Such information is presented only for purposes of additional analysis arising from the comparison of balances and transactions and is not intended to represent what might have occurred had the entities been merged into Banco Santander Meridional in January 2006. The information is not intended to present the financial statements of a legal entity separately and is not necessarily indicative of future results.

Individual and Consolidated Statement of Income for the year Ended December 31, 2007 and Individual and Consolidated Combined Statement of Income for the year Ended December 31, 2006.

Bank Bank Consolidated Bank Combined Consolidated Combined 2007 2006 2007 2006

FINANCIAL INCOME 14,600,226 13,749,669 14,424,304 13,570,858Lending operations 7,834,678 6,831,010 7,935,791 6,884,653Leasing operations 2,065 5,093 57,375 82,812Securities transactions 6,087,091 5,695,457 5,753,307 5,393,257Derivatives 299,913 835,854 301,352 827,881Compulsory investments 376,479 382,255 376,479 382,255 FINANCIAL EXPENSES (8,994,461) (8,912,944) (8,575,234) (8,538,266)Funding operations (6,559,456) (6,994,512) (6,145,942) (6,613,908)Borrowings and onlendings (297,504) (484,699) (297,504) (484,716)Foreign exchange operations (47,313) 82,898 (47,313) 82,898Allowance for loan losses (2,090,188) (1,516,631) (2,084,475) (1,522,540) GROSS PROFIT FROM FINANCIAL

OPERATIONS 5,605,765 4,836,725 5,849,070 5,032,592 OTHER OPERATING (EXPENSES) INCOME (3,499,195) (3,434,637) (3,914,864) (3,537,154)Income from services rendered 3,471,595 2,715,966 3,741,419 2,964,281Personnel expenses (1,893,425) (1,920,197) (1,913,672) (1,941,528)Other administrative expenses (2,828,378) (2,535,238) (2,871,100) (2,591,423)Tax expenses (803,920) (661,297) (845,569) (706,348)Investments in affiliates and subsidiaries 514,107 190,268 2,950 3,873Other operating income 418,417 673,156 456,148 726,948Other operating expenses (2,377,591) (1,897,295) (2,485,040) (1,992,957) INCOME FROM OPERATIONS 2,106,570 1,402,088 1,934,206 1,495,438


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Bank Bank Consolidated Bank Combined Consolidated Combined 2007 2006 2007 2006

NONOPERATING (EXPENSES) INCOME 188,756 (50,173) 495,128 (45,139) INCOME BEFORE TAXES ON INCOME AND

PROFIT SHARING 2,295,326 1,351,915 2,429,334 1,450,299 INCOME AND SOCIAL CONTRIBUTION TAXES (57,202) 100,183 (170,780) 50,360Provision for income tax (130,424) (41,372) (232,493) (80,779)Provision for social contribution tax (100,782) (11,173) (137,614) (25,321)Deferred tax credits 174,004 152,728 199,327 156,460 PROFIT SHARING (400,176) (290,067) (413,155) (299,445) INCOME BEFORE MINORITY INTEREST 1,837,948 1,162,031 1,845,399 1,201,214 Minority Interest - - (3) (2) NET INCOME (1) 1,837,948 1,162,031 1,845,396 1,201,212

(1) The realization of unrealized results affected income for the years by R$7,448 (2006 - R$39,181).

38. Other Information

a) In Bank and Consolidated, co-obligations and risks on guarantees provided on behalf of customers, recorded in memorandum accounts, amounted to R$15,299,229 (12/31/2006 - R$10,480,793).

b) The total net book value of investment funds managed by Santander Group is R$55,911,429 (12/31/2006 - R$41,260,951) and the total net book value of managed investment funds is R$60,887,770 (12/31/2006 - R$46,005,087).

c) The insurance coverage in effect as of December 31, 2007 covering global bank risks, fire, vehicle and other risks, amounts to R$1,922,107 (12/31/2006 - R$1,913,359) - Consolidated R$1,930,827 (12/31/2006 - R$1,919,159).

Bankers’ blanket insurance was contracted for Banco Santander S.A. with coverage of R$163,923 - Consolidated R$172,643 (12/31/2006 - R$220,227 - Bank and Consolidated), which can be used separately or jointly, provided that it does not exceed the contracted amount.


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d) Restricted operations were as follows:

Bank/Consolidated Assets (Liabilities) Income (Expense) 12/31/2007 12/31/2006 12/31/2007 12/31/2006 Restricted operations on assets Lending operations 8,140 266,020 9,749 6,604Liabilities - restricted operations on assets Deposits (8,140) (265,937) (9,689) (6,513)Net income 60 91

There are no default operations or court challenges regarding restricted operations on assets or funds raised to be used in these operations.

e) In compliance with National Monetary Council Resolution No. 3198 of May 27, 2004, Santander Banespa joined the Single Audit Committee through the lead institution Banco Santander Banespa S.A. A summary of this committee’s report is being provided together with the combined financial statements of Santander.

39. SUBSEQUENT EVENTS

a) Changes in tax legislation

On January 3, 2008, Executive Act No. 413 was enacted to, among other provisions, determine an increase in CSLL rate from 9% to 15% for financial institutions and private insurance and capitalization companies. This Executive Act is subject to the approval of the National Congress, which has not yet occurred. The deferred tax assets and liabilities were recorded in the balance sheet according to the tax rate in effect as of December 31, 2007. This Executive Act is effective beginning May 1, 2008 and, if the Executive Act is signed into law, there will be an increase in CSLL expense and an increase in CSLL tax assets and liabilities.

On the same date, Decrees No. 6339 and No. 6345 were enacted, changing the rates of IOF (tax on financial transactions) on several financial transactions, including lending operations, effective January 4, 2008. Since it refers to a tax substitution, the Bank is responsible for withholding and paying said tax at the new rates.

The CPMF (tax on banking transactions) was discontinued on December 31, 2007 by decision of the Brazilian Senate. Thus, beginning January 1, 2008 financial transactions will not be subject to the payment of the CPMF, which previously was levied at the rate of 0.38%.

b) On December 28, 2007, Law No. 11,638 was enacted that alters, revokes and adds new provisions to the Brazilian Corporate Law (Law No. 6404, of December 15, 1976), primarily to enable the convergence of Brazilian accounting practices with accounting


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standards generally accepted in the international capital markets and increase the transparency of the financial statements in general.

The changes and requirements introduced by the Law are effective for fiscal years beginning on or after January 1, 2008, in line with international accounting practices; however certain of these changes will be, subject to additional interpretation and regulation by applicable regulatory agencies. Management is evaluating the effects of the application of this new law on the financial statements.

The following summarizes certain of the significant changes introduced by the Law:

- Change from the Statement of Changes in Financial Position to the Statement of Cash Flows.

- A new requirement for the presentation of a Statement of Value Added.

- The ability to maintain separate or auxiliary accounting ledgers and records in accordance to tax regulations, since as follow it calculates the base income to taxation, be prepared the necessary adjustments in order to prepare the required financial statements in conformity with the Brazilian Corporate Law.

- Creation of two new account groups: intangible assets in permanent assets and valuation adjustments to shareholders’ equity, to be used to record the fair value adjustments for certain assets and liabilities, specially for certain qualifying financial instruments, and additionally the foreign currency exchange rate variations on foreign investments.

- Modification of the definition of those assets to be recorded under the caption Property, Plant and Equipment in the balance sheet, to be those rights in tangible assets that are maintained or used in the operations of the company’s business, including those rights received as a result of transactions that transfer the benefits, risks and control of such assets to the company.

- Requirement that periodic review and analysis of the recoverability of amounts recorded in property, plant and equipment, intangible assets and deferred charges be performed.

- Requirement that for transactions involving the merger or spin-off between unrelated parties that result in the effective transfer of control, the related assets and liabilities of the entity being merged or spun-off should be recorded at fair market value.

- Elimination of the parameter in determining the applicability of the equity method of accounting for investments in affiliates and subsidiaries and a new requirement that the equity method of accounting for such investments is required when management has significant influence over the investee.


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- Creation of the tax incentive reserve - so as to enable public companies, based on CVM regulation, to record donations and investment grants as part of earnings in the income statement (immediately or on a deferred basis) in accordance with international standards and no longer as capital reserve.

- Elimination of the revaluation reserves.

***

INVESTOR RELATIONS Rua Amador Bueno, 474 – 4th floor 04752-005 – São Paulo – SP – Brazil Tel.: (55 11) 5538 – 8654 Fax.: (55 11) 5538 – 8361 E-mail: [email protected]

december 31, 2007 · 2008-04-01 · 31, 2006, therefore, the analysis of income evolution is...

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