EX-99.1 2 v333929_ex99-1.htm EARNINGS RELEASE

  financial
   
  report
   
  December 31, 2012
   
  Itaú Unibanco Holding S.A.
 
Management Discussion &
Analysis and Complete Financial
Statements

 

 
 

 

 

Contents

 

Management Discussion & Analysis   3
     
Executive Summary   5
     
Analysis of Net Income   15
     
Managerial Financial Margin   16
     
Banking Service Fees and Income from Banking Charges and Result from Insurance, Pension Plan and Capitalization   19
     
Result from Loan Losses   21
     
Non-interest Expenses   23
     
Tax Expenses for ISS, PIS, Cofins and Others   25
     
Income Tax and Social Contribution on Net Income   25
     
Balance Sheet   28
     
Balance Sheet by Currency   33
     
Risk Management   34
     
Capital Ratios   35
     
Ownership Structure   37
     
Segments, Products and Services   41
     
Analysis of Segments   43
     
Products and Services   48
     
Insurance, Pension Plan and Capitalization   51
     
Activities Abroad   59
     
Report of Independent Auditors   67
     
Complete Financial Statements   69

 

It should be noted that the financial statements relating to prior periods have been reclassified for comparison purposes (further details are presented in Note 22-I of the Financial Statements).

 

The tables in this report show the figures in millions. Variations and totals, however, are calculated in units. Therefore, there may be differences due to rounding.

 

Future expectations arising from the reading of this analysis should take into consideration the risks and uncertainties that involve any activities and that are outside the control of the companies of the conglomerate (political and economic changes, volatility in interest and foreign exchange rates, technological changes, inflation, financial disintermediation, competitive pressures on products, prices and changes in tax legislation, among others).

 

 
 

 

  management
  discussion &
  analysis
   
  Itaú Unibanco Holding S.A.
   
 
4th quarter of 2012
 

 

 
 

 

 

 

(This page was left in blank intentionally)

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 4

 

 
 

 

Executive Summary
   
Information and financial indicators of Itaú Unibanco Holding S.A. (Itaú Unibanco) are presented below:
   
Highlights R$ million (except where indicated)

 

   4Q12   3Q12   4Q11   2012   2011 
Statement of Income                         
Recurring Net Income   3,502    3,412    3,746    14,043    14,641 
Net Income   3,492    3,372    3,681    13,594    14,621 
Operating Revenues (1)   19,855    19,513    19,643    79,550    74,808 
Managerial Financial Margin (2)   12,416    12,820    12,993    52,012    49,566 
Shares (R$)                         
Recurring Net Income per share (3)   0.78    0.76    0.83    3.11    3.23 
Net Income per share (3)   0.77    0.75    0.82    3.01    3.23 
Number of Outstanding Shares at the end of period – in thousands   4,518,380    4,518,244    4,513,640    4,518,380    4,513,640 
Average price of non-voting share on the last trading day of the period   33.33    30.63    33.85    33.33    33.85 
Book Value per share   16.43    17.48    15.81    16.43    15.81 
Dividends/JCP net of taxes (4)   2,559    514    2,284    4,518    4,394 
Dividends/JCP net of taxes (4) per share   0.57    0.11    0.51    1.00    0.97 
Market Capitalization (5)   150,598    138,394    152,787    150,598    152,787 
Market Capitalization (5) (US$ Million)   73,696    68,154    81,451    73,696    81,451 
Performance Ratios (%)                         
Recurring Return on Average Equity – Annualized (6)   19.3%   18.5%   21.8%   19.4%   22.3%
Return on Average Equity – Annualized (6)   18.4%   17.5%   21.4%   18.4%   22.3%
Recurring Return on Average Assets – Annualized (7)   1.4%   1.5%   1.8%   1.5%   1.8%
Return on Average Assets – Annualized (7)   1.4%   1.5%   1.7%   1.5%   1.8%
Solvency Ratio (BIS Ratio) - Economic Financial-Consolidated   16.7%   17.5%   16.4%   16.7%   16.4%
Annualized Credit Margin   12.3%   12.8%   13.0%   13.0%   13.0%
Annualized Net Interest Margin with Clients (8)   9.5%   10.6%   11.0%   10.5%   11.4%
Annualized Net Interest Margin with Credit after Provision for Credit Risk (8)   7.0%   7.0%   8.0%   7.2%   8.1%
Nonperforming Loans Index (NPL over 90 days)   4.8%   5.1%   4.9%   4.8%   4.9%
Coverage Ratio (Provision for Loan and Lease Losses/NPL over 90 days)   158%   149%   153%   158%   153%
Efficiency Ratio (ER) (9)   46.6%   45.5%   47.0%   45.4%   47.3%
Risk Adjusted Efficiency Ratio (RAER) (9)   73.3%   74.4%   69.5%   73.3%   69.7%
                          
Balance Sheet   Dec 31,12    Sep 30,12    Dec 31,11           
Total Assets   1,014,425    960,216    851,332           
Total Loan Portfolio, including Sureties, Endorsements and Guarantees   426,595    417,603    397,012           
Loan Operations (A)   366,285    359,810    345,483           
Sureties, Endorsements and Guarantees   60,310    57,792    51,530           
Deposits + Debentures + Securities + Borrowings and Onlending (B) (10)   495,853    474,341    480,601           
Loan Operations/Funding (A/B)   73.9%   75.9%   71.9%          
Stockholders' Equity   74,220    78,979    71,347           
Relevant Data                         
Assets Under Administration   561,958    536,458    449,693           
Employees (Individuals)   96,977    97,030    104,542           
Employees in Brazil (Individuals)   90,323    90,427    98,258           
Employees Abroad (Individuals)   6,654    6,603    6,284           
Number of Points of Service   32,987    32,833    33,753           
Branches (Units)   4,121    4,115    4,072           
CSB – Client Service Branches (Units)   906    901    912           
ATM – Automated Teller Machines (Units) (11)   27,960    27,817    28,769           

 

Macroeconomic | Indicators                    
   4Q12   3Q12   4Q11   2012   2011 
EMBI Brazil Risk   146    164    224    146    224 
CDI – In the Period (%)   1.7%   1.9%   2.7%   8.4%   11.6%
Dollar Exchange Rate – Quotation in R$   2.0435    2.0306    1.8758    2.0435    1.8758 
Dollar Exchange Rate – Variation in the Period (%)   0.6%   0.5%   1.2%   8.9%   12.6%
Euro Exchange Rate – Quotation in R$   2.6954    2.6109    2.4342    2.6954    2.4342 
Euro Exchange Rate – Variation in the Period (%)   3.2%   2.0%   -2.4%   10.7%   9.3%
IGP-M – In the Period (%)   0.7%   3.8%   0.9%   7.8%   5.1%

 

(1) Operating Revenues are the sum of Managerial Financial Margin, Banking Service Fees and Income from Banking Charges, Other Operating Income and Result from Insurance, Pension Plan and Capitalization Operations Before Retained Claims and Selling Expenses, Equity in Earnings of Affiliates and Non-Operating Income; (2) Described on page 16; (3) Calculated based on the weighted average number of outstanding shares; (4) JCP – Interest on Net Equity. Recognized and declared amounts paid/ accrued and declared; (5) Total number of outstanding shares (common and non-voting shares) multiplied by the average price of the non-voting share on the last trading day in the period; (6) Annualized Return was calculated by dividing Net Income by the Average Stockholders’ Equity. The quotient was multiplied by the number of periods of the year to derive the annualized rate. The basis of calculations of the returns were adjusted by the amount of dividends which have not yet been approved in stockholder’s meetings or by the Board of Director’s, and on the 3rd Q/12, for the Recurring ROE, we have considered the acquisition of minority interests of Redecard as a capital transaction; (7) Annualized Return was computed by dividing Net Income by Average Assets. The quotient of this division was multiplied by the number of periods of the year to derive the annualized rate. (8) It does not include Margin with Market. See details on page 17; (9) For more details on the calculation methodology of both Efficiency and Risk Adjusted Efficiency ratios, please see page 24; (10) As described on page 32; (11) It includes ESBs (electronic service branches) and service points in third-parties’ establishments.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 5

 

 
 

 

Executive Summary
 
Net Income and Recurring Net Income
Our recurring net income totaled R$3,502 million in the fourth quarter of 2012. This amount was adjusted by the impact of non-recurring events, which are presented in the table below, resulting in net income of R$3,492 million in the period.
 
Non-Recurring Events Net of Tax Effects
R$ million

 

   4Q12   3Q12   4Q11   2012   2011 
Recurring Net Income   3,502    3,412    3,746    14,043    14,641 
Non Recurring Events   (10)   (40)   (65)   (449)   (20)
Realization of Assets (a)   836    -    -    836    - 
Increase in the Social Contribution Rate (b)   351    -    -    351    - 
Program for Settlement or Installment Payment of Federal Taxes - Law No. 11,941/ 09 (c)   -    -    -    -    509 
Provision for contingencies (d)   (740)   (40)   (54)   (873)   (285)
Tax and Social Security Contributions (d)   (253)   -    -    (253)   - 
Civil Lawsuits (d)   (145)   -    -    (145)   - 
Economic Plans (e)   (194)   (40)   (54)   (328)   (285)
Labor Claims (d)   (105)   -    -    (105)   - 
Other (d)   (44)   -    -    (44)   - 
Market value based on the share price – BPI (f)   -    -    (11)   (305)   (245)
Allowance for loan losses (d)   (229)   -    -    (229)   - 
Reward Program - Credit Cards (g)   (185)   -    -    (185)   - 
Other   (43)   -    -    (43)   - 
Net Income   3,492    3,372    3,681    13,594    14,621 

 

Note: Impacts of the non-recurring events, described above, are net of tax effects – further details are presented in Note 22-K of the Financial Statements.

 

Non-Recurring Events in 2012 and 2011

 

(a) Realization of Assets: In the fourth quarter of 2012, this amount is mainly composed of the sale of our total interest (601,403 shares) in Serasa to Experian, as announced to the market on October 23, 2012.

 

(b) Increase of the Social Contribution Rate: A remaining balance related to Social Contribution tax credits from periods prior to the increase of the rate from 9% to 15% was recognized at the end of the fourth quarter of 2012. From 2013 on, Social Contribution expense will reflect the effect of the increase in the rate.

 

(c) Program for the Settlement or Installment Payment of Federal Taxes - Law No. 11,941/09: Additional effects of the adherence of Itaú Unibanco Holding and its subsidiaries to the Program for the Settlement or Installment Payment of Federal Taxes in 2009. This program includes the debts managed by the Federal Revenue Service of Brazil and by the Attorney General’s Office of the National Treasury.

 

(d) Provisions for diverse risks and allowance for loan losses:

The criteria were improved and determined the recognition of these provisions.

 

(e) Provision for Contingencies – Economic Plans: Provision for losses arising from economic plans that were in effect in Brazil in the 1980's.

 

(f) Market Value based on the Share Price – BPI: On April 20, 2012, Itaú Unibanco sold its interest of 18.87% in Banco Português de Investimento to the La Caixa group and received approximately €93 million. This transaction negatively impacted our net income for the previous quarter by R$205 million, net of taxes, and positively impacted stockholder’s equity by R$106 million. This item also includes the effects of the adjustments to market value that took place in 2011 and 2012.

 

(g) Reward Program — Credit Cards: Reformulation of benefit.

 

Managerial Statement of Income

 

The tables on the next page are based on the Managerial Statement of Income, which arises from reclassifications made in the audited accounting statement of income. The tax effects of hedges of investments abroad, which were originally included in tax expenses (PIS and COFINS), and income tax and social contribution on net income, were reclassified to the financial margin. Additionally, non-recurring effects were also adjusted.

 

Our strategy for the exchange risk management of capital invested abroad is intended to avoid impacts from foreign exchange variations on net income. For this purpose, the foreign exchange risk is neutralized and the investments are remunerated in Brazilian reais through the use of derivative financial instruments. Our strategy to hedge investments abroad also considers the impact of all related tax effects. It should be noted that in the fourth quarter of 2012, the Brazilian real depreciated 0.6% in relation to the U.S. dollar and 3.2% in relation to the Euro, compared with a depreciation of 0.5% and 2.0%, respectively, in the previous quarter.

 

Acquisition of Minority Shareholders’ interest on Redecard

 

As from September 24, 2012, in one of the biggest operations of the Sao Paulo Stock Exchange (BM&FBovespa), we acquired 49.98% of the capital of Redecard through a public tender offer, totaling 100% of the shares. On October 18, 2012, the Brazilian Securities Commission (CVM) canceled the registration of Redecard as a public company.

 

We accounted this acquisition of the minority shareholders’ interest as a capital transaction, because this change in our participation in Redecard did not imply in a change in control. The difference between the value paid and the value corresponding to the minorities’ interests was recognized in our equity under "retained earnings" in the amount of R$ 11,150 million, which net of tax effects totaled R $ 7,360 million. For further details, please see note 2-C of our Financial Statements.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 6

 

 
 

 

Executive Summary

 

The reconciliations between the Accounting and Managerial Statements of Income of the last two quarters are presented below:
 
Reconciliation between the Accounting and Managerial Statements | 4th Quarter of 2012

 

R$ million

   Itaú Unibanco 
       Non-recurring   Tax Effect of     
   Accounting   Effects   Hedge   Managerial 
Operating Revenues   20,749    (1,085)   191    19,855 
Managerial Financial Margin   12,151    74    191    12,416 
Financial Margin with Clients   11,475    74    -    11,549 
Financial Margin with Market   677    -    191    868 
Banking Service Fees and Income from Banking Charges   5,198    309    -    5,507 
Results from Insurance, Pension Plan and Capitalization                    
Operations Before Retained Claims and Selling Expenses   1,642    -    -    1,642 
Other Operating Income   85    -    -    85 
Equity in Earnings of Affiliates and Other Investments   145    -    -    145 
Non-operating Income   1,527    (1,468)   -    60 
Loan and Retained Claim Losses Net of Recovery   (5,376)   381    -    (4,995)
Expenses for Allowance for Loan and Lease Losses   (6,066)   381    -    (5,685)
Income from Recovery of Loans Written Off as Losses   1,186    -    -    1,186 
Retained Claims   (496)   -    -    (496)
Other Operating Income/(Expenses)   (11,141)   1,310   (19)   (9,850)
Non-interest Expenses   (9,766)   1,310    -    (8,457)
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (1,097)   -   (19)   (1,116)
Selling Expenses from Insurance   (278)   -    -    (278)
Income before Tax and Profit Sharing   4,232    606    172    5,010 
Income Tax and Social Contribution   (693)   (596)   (172)   (1,461)
Profit Sharing   (36)   -    -    (36)
Minority Interests   (12)   -    -   (12)
Net Income   3,492    10    -    3,502 

 

Reconciliation between the Accounting and Managerial Statements | 3rd Quarter of 2012

 

R$ million 

   Itaú Unibanco 
       Non-recurring   Tax Effect of     
   Accounting   Effects   Hedge   Managerial 
Operating Revenues   19,353    -    159    19,513 
Managerial Financial Margin   12,660    -    159    12,820 
Financial Margin with Clients   11,970    -    -    11,970 
Financial Margin with Market   690    -    159    850 
Banking Service Fees and Income from Banking Charges   5,034    -    -    5,034 
Results from Insurance, Pension Plan and Capitalization                    
Operations Before Retained Claims and Selling Expenses   1,497    -    -    1,497 
Other Operating Income   52    -    -    52 
Equity in Earnings of Affiliates and Other Investments   110    -    -    110 
Non-operating Income   1    -    -    1 
Loan and Retained Claim Losses Net of Recovery   (5,344)   -    -    (5,344)
Expenses for Allowance for Loan and Lease Losses   (5,939)   -    -    (5,939)
Income from Recovery of Loans Written Off as Losses   1,159    -    -    1,159 
Retained Claims   (563)   -    -    (563)
Other Operating Income/(Expenses)   (9,488)   61   (15)   (9,443)
Non-interest Expenses   (8,209)   61    -    (8,148)
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (1,008)   -   (15)   (1,023)
Selling Expenses from Insurance   (272)   -    -    (272)
Income before Tax and Profit Sharing   4,521    61    144    4,726 
Income Tax and Social Contribution   (960)   (21)   (144)   (1,125)
Profit Sharing   (43)   -    -    (43)
Minority Interests   (145)   -    -    (145)
Net Income   3,372    40    -    3,412 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 7

 

 
 

 

Executive Summary

 

We present below a perspective of the income statement highlighting the Operating Revenues, which is composed of the sum of revenues from banking, insurance, pension plans and capitalization operations.

 

Statement of Income | Operating Revenues Perspective

 

R$ million

                       Variation 
                       4Q12-   4Q12-     
   4Q12   3Q12   4Q11   2012   2011   3Q12   4Q11   2012 - 2011 
Operating Revenues   19,855    19,513    19,643    79,550    74,808    342    1.8%   212    1.1%   4,743    6.3%
Managerial Financial Margin   12,416    12,820    12,993    52,012    49,566    (403)   -3.1%   (577)   -4.4%   2,446    4.9%
Financial Margin with Clients   11,549    11,970    11,969    48,211    45,781    (421)   -3.5%   (420)   -3.5%   2,430    5.3%
Financial Margin with Market   868    850    1,025    3,801    3,785    18    2.1%   (157)   -15.3%   16    0.4%
Banking Service Fees and Income from Banking Charges   5,507    5,034    5,088    20,622    19,048    473    9.4%   419    8.2%   1,575    8.3%
Result from Insurance, Pension Plan and Capitalization Operations Before Retained Claims and Selling Expenses  1,642    1,497    1,392    6,066    5,215    145    9.7%   249    17.9%   850    16.3%
Other Operating Income   85    52    74    278    378    32    62.1%   10    13.8%   (100)   -26.4%
Equity in Earnings of Affiliates and Other Investments   145    110    93    488    410    36    32.8%   52    55.7%   77    18.9%
Non-operating Income   60    1    2    84    191    59    -    58    -    (106)   - 
Loan and Retained Claim Losses Net of Recovery   (4,995)   (5,344)   (4,202)   (21,016)   (15,936)   349    -6.5%   (793)   18.9%   (5,080)   31.9%
Expenses for Allowance for Loan and Lease Losses   (5,685)   (5,939)   (5,453)   (23,644)   (19,912)   254    -4.3%   (232)   4.2%   (3,732)   18.7%
Income from Recovery of Loans Written Off as Losses (*)   1,186    1,159    1,574    4,663    5,488    27    2.4%   (387)   -24.6%   (825)   -15.0%
Retained Claims   (496)   (563)   (322)   (2,035)   (1,512)   68    -12.0%   (174)   53.9%   (523)   34.6%
Operating Margin   14,860    14,169    15,441    58,534    58,872    692    4.9%   (580)   -3.8%   (338)   -0.6%
Other Operating Income/(Expenses)   (9,850)   (9,443)   (9,741)   (38,439)   (37,400)   (407)   4.3%   (110)   1.1%   (1,039)   2.8%
Non-interest Expenses   (8,457)   (8,148)   (8,513)   (33,169)   (32,572)   (308)   3.8%   57    -0.7%   (597)   1.8%
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (1,116)   (1,023)   (976)   (4,230)   (3,839)   (93)   9.1%   (140)   14.3%   (390)   10.2%
Selling Expenses From Insurance   (278)   (272)   (251)   (1,040)   (989)   (6)   2.1%   (26)   10.4%   (52)   5.2%
Income before Tax and Profit Sharing   5,010    4,726    5,700    20,095    21,472    285    6.0%   (690)   -12.1%   (1,377)   -6.4%
Income Tax and Social Contribution   (1,461)   (1,125)   (1,689)   (5,340)   (5,861)   (336)   29.9%   228    -13.5%   521    -8.9%
Profit Sharing   (36)   (43)   (29)   (159)   (192)   7    -16.7%   (7)    26.2%   33    -17.1%
Minority Interests in Subsidiaries   (12)   (145)   (237)   (554)   (778)   134    -92.0%   225    -95.1%   224    -28.8%
Recurring Net Income   3,502    3,412    3,746    14,043    14,641    89    2.6%   (244)   -6.5%   (598)   -4.1%

 

We present below a perspective of the income statement highlighting the Managerial Financial Margin.

 

Statement of Income | Managerial Financial Margin Perspective

 

R$ million

                       Variation 
                       4Q12-   4Q12-     
   4Q12   3Q12   4Q11   2012   2011   3Q12   4Q11   2012 - 2011 
Managerial Financial Margin   12,416    12,820    12,993    52,012    49,566    (403)   -3.1%   (577)   -4.4%   2,446    4.9%
Financial Margin with Clients   11,549    11,970    11,969    48,211    45,781    (421)   -3.5%   (420)   -3.5%   2,430    5.3%
Financial Margin with Market   868    850    1,025    3,801    3,785    18    2.1%   (157)   -15.3%   16    0.4%
Loan and Retained Claim Losses Net of Recovery   (4,499)   (4,781)   (3,880)   (18,981)   (14,424)   282    -5.9%   (619)   16.0%   (4,557)   31.6%
Expenses for Allowance for Loan and Lease Losses   (5,685)   (5,939)   (5,453)   (23,644)   (19,912)   254    -4.3%   (232)   4.2%   (3,732)   18.7%
Income from Recovery of Loans Written Off as Losses (*)   1,186    1,159    1,574    4,663    5,488    27    2.4%   (387)   -24.6%   (825)   -15.0%
Net Result from Financial Operations   7,917    8,039    9,114    33,031    35,142    (122)   -1.5%   (1,196)   -13.1%   (2,111)   -6.0%
Other Operating Income/(Expenses)   (2,967)   (3,314)   (3,415)   (13,020)   (13,861)   347    -10.5%   448    -13.1%   841    -6.1%
Banking Service Fees and Income from Banking Charges   5,507    5,034    5,088    20,622    19,048    473    9.4%   419    8.2%   1,575    8.3%
Result from Insurance, Pension Plan and Capitalization Operations   868    661    819    2,990    2,714    207    31.3%   50    6.1%   276    10.2%
Non-interest Expenses   (8,457)   (8,148)   (8,513)   (33,169)   (32,572)   (308)   3.8%   57    -0.7%   (597)   1.8%
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (1,116)   (1,023)   (976)   (4,230)   (3,839)   (93)   9.1%   (140)   14.3%   (390)   10.2%
Equity in Earnings of Affiliates and Other Investments   145    110    93    488    410    36    32.8%   52    55.7%   77    18.9%
Other Operating Income   85    52    74    278    378    32    62.1%   10    13.8%   (100)   -26.4%
Operating Income   4,951    4,725    5,699    20,011    21,281    226    4.8%   (748)   -13.1%   (1,270)   -6.0%
Non-operating Income   60    1    2    84    191    59    -    58    -    (106)   - 
Income before Tax and Profit Sharing   5,010    4,726    5,700    20,095    21,472    285    6.0%   (690)   -12.1%   (1,377)   -6.4%
Income Tax and Social Contribution   (1,461)   (1,125)   (1,689)   (5,340)   (5,861)   (336)   29.9%   228    -13.5%   521    -8.9%
Profit Sharing   (36)   (43)   (29)   (159)   (192)   7    -16.7%   (7)   26.2%   33    -17.1%
Minority Interests in Subsidiaries   (12)   (145)   (237)   (554)   (778)   134    -92.0%   225    -95.1%   224    -28.8%
Recurring Net Income   3,502    3,412    3,746    14,043    14,641    89    2.6%   (244)   -6.5%   (598)   -4.1%

 

(*) Since the beginning of 2012, the discounts granted in the recovery of credits written off as losses are no longer deducted from the financial margin and started to be deducted from the income from the recovery of these credits. In 2011, these discounts amounted to R$609 million. If this effect were considered in 2011, the income from the recovery of credits written off as losses would have dropped 4.4% in 2012,.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 8

 

 
 

 

Executive Summary

 

Net Income

 

 

The recurring net income for the fourth quarter of 2012 amounted to R$3,502 million, representing an increase of 2.6% in relation to the previous quarter. Our income before taxes and profit sharing increased 6.0%.

 

This increase in net income in the last quarter of 2012 in relation to the previous quarter is mainly due to the increase of 1.8% in operating revenues, driven by the increase in banking service fees and income from banking charges and insurance operations, which was offset by the decrease in our financial margin with clients, and the decrease of 6.5% in loan and retained claim losses, net of recovery. In this quarter, we also recorded an increase of 3.8% in non-interest expenses.

 

In 2012, recurring net income totaled R$14,043 million, a decrease of 4.1% in relation to 2011.

 

Annualized Return on Average Equity

 

 

  

The annualized recurring return on average equity reached 19.3% in the fourth quarter of 2012 and19.4% in the year. On December 31, 2012, stockholders’ equity totaled R$74.2 billion, a 4.0% increase from the same period of the previous year.

 

(*) For comparison purposes, the calculation of recurring return on average equity for the third quarter of 2012 and the year 2012 was calculated considering the acquisition of the minority shares of Redecard as a capital transaction on September 30, 2012. For further details, see Note 2-C of the Financial Statements.

 

Net Income per Share and Recurring Net Income per Share

 

 

 

In the fourth quarter of 2012, recurring net income per share totaled R$0.78, R$0.02 higher than in the previous quarter. Net income per share totaled R$0.77, an increase of R$0.02 from the previous quarter.

 

Operating Revenues

 

 

In the fourth quarter of 2012, operating revenues, which represent revenues from banking and from insurance, pension plan and capitalization operations, totaled R$19,855 million, increasing 1.8% from the previous quarter and 6.3% from the same period of the previous year. The main components of operating revenues and other items of net income are presented below.

 

Managerial Financial Margin

 

  

The managerial financial margin for the fourth quarter of 2012 totaled R$12,416 million, a decrease of R$403 million in relation to the third quarter of 2012. Our managerial financial margin with clients totaled R$11,549 million, a decrease of R$421 million, of which approximately R$199 million arise from the reduction in cash due to the acquisition of minority shareholders’ interest of Redecard and R$ 120 million arise from the reduction of the annualized Brazilian benchmark rate (SELIC). The financial margin with the market amounted to R$868 million, an increase of R$18 million from the previous quarter. The financial margin with the market for the quarter was positively impacted by R$36 million from the sale of 2.9 million shares of BM&FBovespa.

 

In 2012, our managerial financial margin increased 4.9% in relation to 2011, as a result of the increase of 5.3% in the financial margin with clients and of 0.4% in the financial margin with the market.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 9

 

 
 

 

Executive Summary

 

Banking Services Fees and Income from Banking Charges

 

 

In the fourth quarter of 2012, banking service fees, including income from banking charges, grew 9.4% from the third quarter of 2012, totaling R$5,507 million.

 

For the year, these service fees grew 8.3% from the same period of the previous year.

 

Result from Loan Losses, Net of Recovery

 

 

The result from loan losses, net of recovery, decreased 5.9% in relation to the previous quarter, totaling R$4,499 million in the quarter. The expenses for provisions for loan losses decreased R$254 million in the quarter (a drop of 4.3%), totaling R$5,685 million. The income from the recovery of credits written off as losses increased R$27 million, to reach R$1,186 million.

 

Since the beginning of 2012, the discounts granted in the recovery of credits written off as losses have no longer been deducted from the financial margin and started to be deducted from income from the recovery of those credits. In 2011, these discounts amounted to R$609 million. If this effect were considered in 2011, the income from the recovery of credits written off as losses would have dropped 4.4% in 2012.

 

Non-Interest Expenses

 

 

In the fourth quarter of 2012, non-interest expenses increased R$308 million in relation to the previous quarter (3.8%), totaling R$8,457 million in the quarter. Personnel expenses dropped 2.2% in relation to the previous quarter despite the readjustment of 7.5% related to the Collective Bargaining Labor Agreement reached in October, which impacted expenses since September 2012. Administrative expenses increased 4.7% from the previous quarter, mainly due to higher expenses with third-party services, to the increase in depreciation and amortization expenses and to expenses for advertising, which grew in the quarter due to institutional advertising and promotional materials.

 

When compared to 2011, expenses grew only 1.8%, as a result of the dissemination of practices related to the efficiency project, responsible for the strong performance in the control of our expenses.

 

Efficiency Ratio (E.R.) and Risk-Adjusted Efficiency Ratio (R.A.E.R) (*)

 

 

(*) The criteria for calculating the ratios are detailed on page 24.

 

In the fourth quarter of 2012, the efficiency ratio, in the full concept (that includes all expenses), reached 46.6%, an increase of 110 basis points from the third quarter of 2012. In the last 12 months, the efficiency ratio reached 45.4%, an increase of 190 basis points from the same period of the previous year. This increase was due to the growth of 6.3% of our operating revenues along with a rise of 1.8% in non-interest expenses.

 

The risk-adjusted efficiency ratio for the fourth quarter of 2012 was 73.3%, a decrease of 110 basis points from the third quarter of 2012, due to the reduced expenses for the provision for loan losses and retained claims. In the last 12 months, the risk-adjusted efficiency ratio reached 73.3%.

 

Unrealized Gains

  

 

Unrealized gains dropped 11.9% from the previous quarter to R$6,120 million at the end of the fourth quarter of 2012, mainly due to the sale of the investment in Serasa, that in September 2012, totaled R$1,648 million. The balance of unrealized gains from our available for sale portfolio reached R$2,783 million in December 2012. In September 2012, the balance of this portfolio totaled R$2,431 million.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 10

 

 
 

 

Executive Summary

 

Balance Sheet | Assets   R$ million
               Variation 
               Dec 31,12 -   Dec 31,12 - 
   Dec 31,12   Sep 30,12   Dec 31,11   Sep 30,12   Dec 31,11 
Current and Long-term Assets  1,001,212   937,069   839,422   6.8%  19.3%
Cash and Cash Equivalents   13,967    13,104    10,633    6.6%   31.4%
Short-term Interbank Investments   182,034    163,342    116,082    11.4%   56.8%
Securities and Derivative Financial Instruments   276,174    234,556    187,880    17.7%   47.0%
Interbank and Interbranch Accounts   64,610    68,761    98,923    -6.0%   -34.7%
Loan, Lease and Other Loan Operations   366,285    359,810    345,483    1.8%   6.0%
(Allowance for Loan Losses)   (27,745)   (27,682)   (25,772)   0.2%   7.7%
Other Assets   125,887    125,177    106,193    0.6%   18.5%
Foreign Exchange Portfolio   30,960    40,950    26,450    -24.4%   17.1%
Other   94,928    84,227    79,743    12.7%   19.0%
Permanent Assets   13,213    23,147    11,909    -42.9%   10.9%
Investments   2,956    3,324    2,717    -11.1%   8.8%
Fixed and Operating Lease Assets   5,566    5,330    5,287    4.4%   5.3%
Intangible Assets and Goodwill   4,690    14,493    3,906    -67.6%   20.1%
TOTAL ASSETS   1,014,425    960,216    851,332    5.6%   19.2%

 

On December 31, 2012, our total assets exceeded R$1.0 trillion, corresponding to an increase of 5.6% when compared to the end of the previous quarter and of 19.2% in relation to the same period of the previous year. We highlight the growth of 11.4% in short-term interbank investments this quarter, explained by both an increase in the financed position and a growth of 17.7% in securities. These increases were partially offset by the decrease in interbank and interbranch accounts (due to the decrease in reserve requirements from the Central Bank of Brazil), the decrease in our foreign exchange portfolio and the decrease in permanent assets.

 

In summary, the increase of R$54.2 billion in our assets in the fourth quarter was a result of the increases of R$18.7 billion in short-term interbank investments, of R$41.6 billion in securities, of R$6.5 billion in loan, lease and other operations and of R$3.3 billion in transactions with credit card issuers in “other”, which were partially offset by the decreases of R$10.0 billion in the foreign exchange portfolio, R$9.9 billion in permanent assets, manily due to the capital transaction for acquisition of the minority shares of Redecard, and of R$4.2 billion in interbank and interbranch accounts.

 

Balance Sheet | Liabilities and Equity

 

R$ million

               Variation 
               Dec 31,12 -   Dec 31,12 - 
   Dec 31,12   Sep 30,12   Dec 31,11   Sep 30,12   Dec 31,11 
Current and Long-term Liabilities  938,165   879,304   777,407   6.7%  20.7%
Deposits   243,200    231,919    242,636    4.9%   0.2%
Demand Deposits   34,916    29,818    28,933    17.1%   20.7%
Savings Deposits   83,451    77,414    67,170    7.8%   24.2%
Interbank Deposits   7,600    9,516    2,066    -20.1%   267.9%
Time Deposits   117,232    115,172    144,469    1.8%   -18.9%
Deposits Received under Securities Repurchase Agreements   288,818    245,272    188,819    17.8%   53.0%
Fund from Acceptances and Issue of Securities   55,108    57,044    51,557    -3.4%   6.9%
Interbank and Interbranch Accounts   4,979    8,360    4,048    -40.4%   23.0%
Borrowings and Onlendings   59,125    56,854    56,602    4.0%   4.5%
Derivative Financial Instruments   11,128    9,125    6,807    21.9%   63.5%
Technical Provisions for Insurance, Pension Plans and Capitalization   93,210    87,281    73,754    6.8%   26.4%
Other Liabilities   182,598    183,449    153,183    -0.5%   19.2%
Subordinated Debt   54,372    48,544    38,974    12.0%   39.5%
Foreign Exchange Portfolio   31,104    41,125    26,182    -24.4%   18.8%
Other   97,121    93,780    88,027    3.6%   10.3%
Deferred Income   1,137    813    836    39.9%   36.0%
Minority Interest in Subsidiaries   903    1,121    1,741    -19.5%   -48.2%
Stockholders' Equity   74,220    78,979    71,347    -6.0%   4.0%
TOTAL LIABILITIES AND EQUITY   1,014,425    960,216    851,332    5.6%   19.2%

 

Our stockholders’ equity decrease 6.0% in the fourth quarter of 2012 due to the capital transaction for acquisition of the minority shares of Redecard and reached R$74,220 million. Liabilities increased in the fourth quarter of this year due to the increases of 17.8% in deposits received under securities repurchase agreements, of 21.9% in financial and derivative instruments, of 17.1% in demand deposits and of 12.0% in subordinated debts, which were partially offset by decreases of 40.4% in interbank and interbranch accounts and of 20.1% in interbank deposits.

 

Year-on-year, stockholders’ equity showed a growth of 4.0%, deposits received under securities repurchase agreement grew 53.0%, technical provisions for insurance, pension plan and capitalization increased 26.4% and the foreign exchange portfolio grew 18.8%.

 

The increase in liabilities and equity in the 12-month period is a result of the increases of R$100.0 billion in deposits received under securities repurchase agreements, R$15.4 billion in subordinated debts and of R$19.5 billion in technical provisions for insurance, pension plan and capitalization.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 11

 

 
 

 

 

 

Executive Summary

 

Credit Portfolio with Endorsements and Sureties

 

The credit portfolio, including endorsements and sureties, amounted to R$426,595 million on December 31, 2012, growing 2.2% quarter-on-quarter and 7.5% from the same period of the previous year. If we add the operations with private securities to this total, the total portfolio amounts to R$449,248 million and the growth in the year reaches 9.0%. Disregarding our vehicle portfolio, the credit portfolio grew 3.8% in relation to the third quarter of 2012 and 13.0% from the same period of the previous year.

 

In the individuals segment, the highlights were the credit card, mortgage loan and payroll loan portfolios, which increased 10.7%, 8.2% and 7.1% in the quarter, respectively. For the year, these products increased 4.2%, 34.2%, and 29.4%, respectively.

 

The companies segment grew 2.1% in the quarter and 8.7% in the year. The corporate portfolio increased 3.6% in relation to the previous quarter and 15.5% in the past 12 months, whereas the very small, small and middle market companies portfolio decreased 0.5% in relation to the third quarter of 2012 and 1.6% in the past 12 months. Considering the operations of private bonds, this segment reached growth of 2.9% over the third quarter of 2012 and 11.2% compared to 2011.

 

Our operations in Latin America continue to grow consistently. In the fourth quarter of 2012, this portfolio grew 6.7% and totaled R$29,293 million. Year-on-year, the growth reached 41.7%. Excluding the effect of the foreign exchange variation, the growth of this portfolio was 6.0% in relation to the third quarter of 2012 and 30.0% year-on-year.

 

The balance of endorsements and sureties totaled R$60.310 million on December 31, 2012, representing an increase of 4.4% in the fourth quarter and 17.0% in the past 12 months, mainly due to the higher volume of transactions with large companies, which grew 4.3% quarter-on-quarter and 16.2% in relation to December 31, 2011.

 

               R$ million 
               Variation 
               Dec 31,12 –   Dec 31,12 – 
   Dec 31,12   Sep 30,12   Dec 31,11   Sep 30,12   Dec 31,11 
Individuals   149,809    147,695    148,723    1.4%   0.7%
Credit Card   40,614    36,699    38,961    10.7%   4.2%
Personal Loans   39,928    40,263    36,219    -0.8%   10.2%
Vehicles   51,220    54,046    60,093    -5.2%   -14.8%
Mortgage Loans (*)   18,047    16,687    13,450    8.2%   34.2%
Companies   247,493    242,454    227,612    2.1%   8.7%
Corporate   158,534    153,005    137,234    3.6%   15.5%
Very Small, Small and Middle Market (**)   88,959    89,448    90,378    -0.5%   -1.6%
Argentina/Chile/Uruguay/Paraguay   29,293    27,454    20,678    6.7%   41.7%
Total with Endorsements and Sureties   426,595    417,603    397,012    2.2%   7.5%
Corporate - Private Securities (***)   22,652    20,030    15,220    13.1%   48.8%
Total with Endorsements, Sureties and Private Securities   449,247    437,633    412,232    2.7%   9.0%
Total with Endorsements, Sureties and Private Securities (ex-Vehicles)   398,027    383,587    352,139    3.8%   13.0%
Endorsements and Sureties   60,310    57,792    51,530    4.4%   17.0%
Individuals   201    197    267    2.2%   -24.4%
Corporate   54,184    51,967    46,630    4.3%   16.2%
Very Small, Small and Middle Market   3,774    3,730    3,214    1.2%   17.4%
Argentina/Chile/Uruguay/Paraguay   2,151    1,899    1,419    13.3%   51.6%

 

(*) The table does not include co-obligation in mortgage loan assignments made in 4Q11 in the amount of R$389.5 million. (**) Includes Rural Loans to Individuals. (***) Includes Debentures, CRI and Commercial Paper. Note: The payroll loan portfolio acquired from BMG was regarded as personal loans, and, for comparison purposes, prior periods were reclassified. The rest of the loan portfolio acquired from other banks was classified as corporate risk. Mortgage and Rural Loans portfolios from the businesses segment are allocated according to the client’s size. For more details, see page 29.

 

Credit Portfolio – Currency Disclosure

 

 

On December 31, 2012, R$81.9 billion of our total credit assets were denominated in or indexed to foreign currencies and increased 3.3% in the quarter. The growth of this portfolio reflects the increase of 6.7% in our operations in Argentina, Chile, Paraguay and Uruguay.

 

NPL Ratio (overdue 90 days)

  

  

The NPL ratio of credits more than 90 days overdue (NPL-90) dropped 30 basis points from the third quarter of 2012. This indicator fell 10 basis points in relation to December 2011.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 12

 

 
 

 

Executive Summary

 

2012 Expectations

 

The table below presents our expectations related to 2012:

 

      Expectations 2012
  Performed 2012   Revised
       
Total Credit Portfolio (without vehicles for individuals) Grew 13%   Growth of 13% to 15%
       
  Decreased to   Decreasing to
Vehicle Portfolio for Individuals R$ 51.2 billion   R$ 50 – 52 billion
       
  NPL 90: -10 bps   4Q12: between
Expenses for Provision for Loan Losses 4Q12: R$ 5.7 billion   R$ 5.5 – 6.0 billion
       
Banking Service Fees and Result of Insurance, Pension      
Plan and Capitalization(*) Grew 8.5%   Growth of 10% to 12%
       
Non-Interest Expenses Grew 1.8%   Growth of 3.5% to 6.5%
       
      Improvement
Efficiency Ratio Improved 190 bps   of 200 to 300 bps

 

(*) Banking Service Fees (+) Income from Insurance, Pension Plan and Capitalization Operations (-) Expenses for Claims (-) Selling Expenses with Insurance, Pension Plan and Capitalization.

 

2013 Expectations

 

The table below presents our current expectations related to 2013:

 

  Expectations 2013
   
Total Credit Portfolio Growth of 11% to 14%
   
  Between R$ 19 billion
Expenses for Provision for Loan Losses and R$ 22 billion
   
Banking Service Fees and Result of Insurance, Pension  
Plan and Capitalization(*) Growth of 11% to 14%
   
Non-Interest Expenses Growth of 4% to 6%
   
  Improvement of 200 to 400
 Risk-Adjusted Efficiency Ratio basis points

 

(*) Banking Service Fees (+) Income from Insurance, Pension Plan and Capitalization Operations (-) Expenses for Claims (-) Selling Expenses with Insurance, Pension Plan and Capitalization.

 

Although the growth plans and projections of results presented above are based on assumptions of management and information available in the market to date, these expectations involve inaccuracies and risks that are difficult to anticipate and there may be, therefore, results or consequences that differ from those anticipated. This information is not a guarantee of future performance. The use of these expectations should take into consideration the risks and uncertainties that involve any activities and that are out of our control. These risks and uncertainties include, and are not limited to, our ability to perceive the dimension of the synergies projected and their timing, political and economic changes, volatility in interest and foreign exchange rates, technological changes, inflation, financial disintermediation, competitive pressures over products, prices, changes in tax legislation, among others.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 13

 

 
 

 

 

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Management Discussion & Analysis Itaú Unibanco Holding S.A. 14

 

 
 

 

  analysis of net income
   
  Itaú Unibanco Holding S.A.
   
 
4th quarter of 2012
Management Discussion & Analysis

 

 
 

 

Analysis of Net Income

 

Managerial Financial Margin

 

Our managerial financial margin totaled R$12,416 million in the fourth quarter of 2012. This amount represents a decrease of R$403 million (3.1% lower) in relation to the third quarter of 2012. With respect to 2012, the managerial financial margin grew 4.9% when compared to 2011.

 

The main drivers of these variations are presented below:

 

                       R$ million 
                   Variation 
   4Q12   3Q12   2012   2011   4Q12 – 3Q12   2012 – 2011 
Financial Margin with Clients   11,549    11,970    48,211    45,781    (421)   -3.5%   2,430    5.3%
Interest Rate-Sensitive   945    1,238    4,848    7,158    (293)   -23.7%   (2,310)   -32.3%
Spread-Sensitive   10,603    10,732    43,363    38,623    (129)   -1.2%   4,740    12.3%
Financial Margin with Market   868    850    3,801    3,785    18    2.1%   16    0.4%
Total   12,416    12,820    52,012    49,566    (403)   -3.1%   2,446    4.9%

 

Financial Margin with Clients

 

The managerial financial margin with clients arises from the use of our financial products by clients, including both account and non-account holders.

 

In the fourth quarter of 2012, the financial margin with clients totaled R$11,549 million, corresponding to a decrease of 3.5% from the previous period, mainly impacted (a) by the reduction of the annualized Brazilian benchmark rate (SELIC), which was set at 7.25% at the end of the fourth quarter of 2012, (b) by the impact of the reduction in cash arising from the acquisition of minority interest in Redecard and (c) by the mix of credit origination that currently favors a larger growth of products and segments with lower spread and risk. For a better understanding of the financial margin, we divided the operations into two different groups: financial margin of operations that are sensitive to interest rate variations, and financial margin of operations that are sensitive to spread variations.

 

Interest Rate-Sensitive Operations

 

The financial margin of operations that are sensitive to interest rates totaled R$945 million in the quarter, which corresponds to a 23.7% decrease from the previous quarter, mainly impacted by a decrease in the balance of operations in Brazilian reais that are subject to the SELIC rate, due to the acquisition of Redecard minority shares, of approximately R$11.8 billion, and by an increase in the balance of operations in U.S. dollars, which consist of investments in U.S. Treasury Bonds. The decrease in the average SELIC rate for the period, which reduced our interest rate-sensitive financial margin, had an impact of R$120 million on the margin of this quarter in relation to the previous quarter and of R$1,777 million on the margin of the period from January to December 2012 compared to the same period of 2011. The detailed evolution of these margins is shown in the next page of this report.

 

Annualized Rate of Interest Rate-Sensitive Operations

 

           R$ million 
           Variation 
   4Q12   3Q12   4Q12 – 3Q12 
Average Balance   64,323    69,988    (5,664)   -8.1%
Financial Margin   945    1,238    (293)   -23.7%
Annualized Rate   5.9%   7.1%        -120 bps 
SELIC - Annualized Rate   7.1%   7.7%        -60 bps 

 

 

Spread-Sensitive Operations

 

The financial margin of spread-sensitive operations amounted to R$10,603 million in the period, corresponding to a decrease of 1.2%, or R$129 million, from the previous quarter. The credit spread dropped 50 basis points in the quarter, whereas the spread of the other interest-bearing assets considered in this analysis was practically stable and decreased by 10 basis point from the previous quarter. The combined spread of spread-sensitive operations decreased 110 basis points to 10.1% in the fourth quarter of 2012.

 

Annualized Rate of Spread-Sensitive Operations

 

           R$ million 
           Variation 
   4Q12   3Q12   4Q12 – 3Q12 
Average Balance   421,095    383,218    37,878    9.9%
Financial Margin   10,603    10,732    (129)   -1.2%
Annualized Rate   10.1%   11.2%        -110 bps 

 

 

Managerial Financial Margin with Market

 

The financial margin with the market basically arises from treasury transactions that include asset and liability management (ALM) and proprietary portfolio management. In this quarter, the financial margin with market amounted to R$868 million, an increase of R$18 million from the previous quarter. This variation was mainly due to the higher results from proprietary positions and to the positive impact of R$36 million arising from the sale of 2.9 million shares of BM&FBovespa.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 16

 

 
 

 

 

Analysis of Net Income

 

Managerial Financial Margin with Clients

 

As a result of the changes described before, the Net Interest Margin – NIM, which is the annualized rate of the managerial financial margin with clients and does not consider the financial margin with the market, reached 9.5% in the fourth quarter of 2012.

 

Taking into consideration the financial margin with clients after the expenses for provision for loan losses, net of the recovery of credits that had previously been written off as losses, the risk-adjusted NIM reached 5.8%.

 

                               R$ million 
   4Q12   3Q12   2012 
           Average           Average           Average 
   Average   Financial   Rate   Average   Financial   Rate   Average   Financial   Rate 
   Balance   Margin   (p.y.)   Balance   Margin   (p.y.)   Balance   Margin   (p.y.) 
Demand Deposits + Floatings   42,662              40,991              40,803           
(-) Compulsory Deposits   (14,089)             (13,501)             (13,039)          
Contingent Liabilities (-) Deposits in guarantee of Contingent Liabilities   1,781              1,153              1,312           
Tax and Social Security obligations (-) Deposits in guarantee   17,559              16,362              16,135           
Working Capital (Equity + Minority Interests - Permanent Assets - Capital Allocated to Treasury - Cash Equivalents Abroad)   40,660              51,270              45,111           
(-) Tax Credits   (33,140)             (31,657)             (31,029)          
Interest Rate-Sensitive Operations in Brazil   55,432    940    6.8%   64,617    1,235    7.6%   59,293    4,826    8.1%
Interest Rate-Sensitive Operations Abroad   8,891    6    0.3%   5,371    3    0.3%   9,414    22    0.3%
                                              
Interest Rate Sensitive Margin with Clients (A)   64,323    945    5.9%   69,988    1,238    7.1%   68,706    4,848    7.1%

 

   Average   Financial   Spread   Average   Financial   Spread   Average   Financial   Spread 
   Balance   Margin   (p.y.)   Balance   Margin   (p.y.)   Balance   Margin   (p.y.) 
Cash and Cash Equivalents + Interbank Deposits + Securities (*)   85,585              48,519              60,165           
Interbank and Interbranch Accounts (**)   683              3,997              3,819           
Spread-Sensitive Margin with Clients – Other Assets   86,269    273    1.3%   52,516    178    1.4%   63,984    804    1.3%
Loans, Leasing and Other Credits   362,402              358,168              354,338           
(Allowance for Loan Losses)   (27,575)             (27,467)             (26,897)          
Spread-Sensitive Margin with Clients – Credit (B)   334,827    10,331    12.3%   330,701    10,554    12.8%   327,440    42,559    13.0%
Spread-Sensitive Margin with Clients (C)   421,095    10,603    10.1%   383,218    10,732    11.2%   391,424    43,363    11.1%
Net Interest Margin with Clients (D = A+C)   485,419    11,549    9.5%   453,205    11,970    10.6%   460,131    48,211    10.5%
Provision for Loan and Lease Losses (E)        (5,685)             (5,939)             (23,644)     
Recovery of Credits Written Off as Losses (F)        1,186              1,159              4,663      
Net Interest Margin with Credit after Provision for Credit Risk (G = B+E+F)   334,827    5,832    7.0%   330,701    5,773    7.0%   327,440    23,578    7.2%
Net Interest Margin after Provision for Credit Risk (H = D+E+F)   485,419    7,050    5.8%   453,205    7,189    6.3%   460,131    29,230    6.4%

 

(*) Cash and Cash Equivalents + Interbank Deposits + Securities (-) Interbank Deposits related to Repurchase Liability (-) Derivative financial instruments (-) Assets Guaranteeing PGBL/VGBL Technical Provisions (-) Operations Sensitive to Variations in Interest Rate; (**) Net of compulsory deposits (Central Bank).

 

Net Interest Margin with Clients and Net Interest Margin of Credit before and after Provision for Credit Risk

 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 17

 

 
 

 

Analysis of Net Income

 

Complementary Aspects in Analysis of Financial Margin with Clients

 

Evolution of the Loan Portfolio Mix (excluding endorsements and sureties)

 

Our credit portfolio mix is presented below, highlighting its major components and their share in the past quarters.

 

Loan Portfolio Mix – Companies

 

The mix of our credit portfolio to companies as of December 31, 2012 in relation to 2011 shows a reduction in the proportion of very small and small market companies compared to large and middle market companies.

 

 

Loan Portfolio Mix – Individuals

 

The evolution of our credit portfolio mix for individuals in the same period shows the growth of the mortgage loan and payroll loan portfolios. The decrease of the vehicle portfolio in our mix results from a reduction of the nominal balance of this portfolio.

 

 

The variation of Financial Margin with Clients

 

To demonstrate the effect of changes in the mix of product in our net interest margin, we isolated these effects from those resulting from volume growth, mix of credit products, decrease in the SELIC rate, cash reduction as a result of the purchase of shares from Redecard minority stakeholders and changes in spreads and other effects.

 

During the fourth quarter of 2012, the main factor responsible for the decrease in net interest income was the change implemented in our mix of credit, which is less risky and therefore generates lower net interest income, but also results in lower expenses for allowance for loan and lease losses. We also highlight the effect from the reduction of cash for the purchase of shares from Redecard minority stakeholders.

 

 

(*) Reduction of cash for the purchase of shares from Redecard minority stakeholders.

 

Loan Portfolio by Origination Period

 

The chart below shows the evolution of our credit portfolio, excluding sureties and endorsements, by origination period (vintages).

 

 

In this quarter, we maintained the policy of applying greater selectivity in the origination of credit, particularly in the vehicle and personal loan segments, and we noted that the volume of originations grew slightly. Additionally, given the profile of the terms of our different credit products, the composition of new contract vintages showed a similar profile over the past periods. On December 31, 2012, 60.2% of the credit portfolio was composed of vintages of 2012, 21.3% of 2011, 12.2% of 2010, 2.8% of 2009 and 3.4% of previous years.

 

We see, therefore, that the operations originated until 2010, corresponding mostly to vehicle and mortgage loans that have longer average maturity terms, already represent a smaller portion of the portfolio.

 

Loan Portfolio by Maturity

 

We present below our performing credit portfolio, that is, composed of operations for which payments made by clients are not overdue(*) according to the maturity schedule, including the concentration on operations longer than 365 days.

 

 

(*) Overdue loans are loan operations having at least one installment more than 14 days overdue, irrespective of collateral provided.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 18

 

 
 

 

Analysis of Net Income

 

Banking Service Fees and Income from Banking Charges and Result from Insurance, Pension Plan and Capitalization

 

                   R$ million 
                   Variation 
   4Q12   3Q12   2012   2011   4Q12 - 3Q12   2012 - 2011 
Asset Management   851    785    3,084    2,608    65    8.3%   476    18.2%
Current Account Services   907    846    3,311    2,510    62    7.3%   800    31.9%
Credit Operations and Guarantees Provided   651    613    2,607    3,255    37    6.1%   (648)   -19.9%
Collection Services   388    352    1,440    1,333    36    10.4%   107    8.0%
Credit Cards   2,179    2,042    8,281    7,497    137    6.7%   784    10.5%
Data Processing Service Fees from Orbitall   24    25    198    418    (1)   -3.8%   (220)   -52.7%
Other   531    395    1,901    1,845    136    34.3%   55    3.0%
Banking Service Fees and Income from Banking Charges   5,507    5,034    20,622    19,048    473    9.4%   1,575    8.3%
Result from Insurance, Pension Plan and Capitalization (*)   868    661    2,990    2,714    207    31.3%   276    10.2%
Total   6,375    5,695    23,612    21,762    680    11.9%   1,850    8.5%

 

(*) Income from Insurance, Pension Plan and Capitalization operations (-) Expenses for Claims (-) Selling Expenses with Insurance, Pension Plan and Capitalization.

 

In the fourth quarter of 2012, banking service fees, including income from banking charges, amounted to R$5,507 million, an increase of 9.4% in relation to the previous quarter. In 2012, these revenues increased 8.3% when compared to the same period of the previous year. Additionally, if the revenues from the processing services rendered by Orbitall, which was sold in May 2012, were disregarded, service fees would have increased 9.6% in the year.

 

Taking into consideration the result of insurance, pension plan and capitalization operations, banking service fees totaled R$6,375 million, an increase of 11.9% from the previous quarter and up 8.5% from the same period of the previous year.

 

Asset Management

 

Asset management revenues totaled R$851 million in the fourth quarter of 2012, an increase of 8.3% from the third quarter of 2012, basically due to increased revenues from fund management. In the year, these revenues showed a growth of 18.2% in relation to the same period of 2011. The volume of assets under management totaled R$562.0 billion in December 2012, showing an increase of 4.8% from the previous quarter and 25.0% from the same period of the previous year.

 

 

Note: Exclusive funds from consolidated companies have been consolidated in the balances presented above.

 

Current Account Services

 

Revenues from current account services totaled R$907 million in the fourth quarter of the year, representing a 7.3% growth in relation to the previous quarter, influenced by higher service packages revenues, mainly arising from the sale of packages that convert fees paid by clients into mobile phone credit. This variation was also influenced by the increase in revenues from services related to checks and electronic banking.

 

In 2012, these revenues showed a growth of 31.9% in relation to the same period of 2011.

 

Credit Operations and Guarantees Provided

 

Revenues from credit operations and guarantees provided totaled R$651 million in the fourth quarter, an increase of 6.1% from the previous quarter. The growth of these revenues was mainly due to the increased volume of transactions, mainly influenced by the characteristic seasonality of the period.

 

Since the first quarter of 2012, these revenues have been affected by the suspension of the collection of charges on contract amendments and the decreased pace of vehicle financing and leasing transactions.

 

 

Collection Services

 

Revenues from collection services reached R$388 million, which represented a 10.4% increase in relation to the third quarter of 2012, mainly influenced by higher revenues from collection due to the seasonality of the period. In the year, these revenues showed a growth of 8.0% in relation to 2011.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 19

 

 
 

 

Analysis of Net Income

 

Credit Cards

 

Credit card revenues amounted to R$2,179 million in the fourth quarter of 2012, an increase of 6.7% from the previous quarter, mainly as a result of the higher revenues resulting from interchange and MDR (Merchant Discount Rate) arising from the increased volume of transactions due to merchants’ sales. In 2012, these revenues showed a growth of 10.5% in relation to the same period of 2011. If the revenues from credit card processing services were disregarded, as a consequence of the sale of Orbitall, credit card revenues would have increased 14.2%.

 

 

Acquiring Services

 

Acquiring service revenues, which include revenues generated by Redecard and Hipercard, totaled R$1,125million in the fourth quarter of 2012, showing an increase of 13.3% from the previous quarter, mainly influenced by the characteristic seasonality of the period. In the year, these revenues showed a growth of 9.8% in relation to the same period of 2011.

 

Credit card revenues related to acquiring services increased 15.9% from the previous quarter driven by the characteristic seasonality of the period. In 2012, these revenues showed a growth of 4.4% in relation to the same period of 2011.

 

Debit card revenues totaled R$206 million in the fourth quarter of 2012, an increase of 22.8% from the previous quarter, influenced by the the characteristic seasonality of the period. In the year, these revenues showed a growth of 18.2% in relation to the same period of 2011.

 

Revenues from the rental of equipment grew 1.6% from the previous quarter, totaling R$267 million, in line with the increase of the installed equipment base. In the year, these revenues showed a growth of 18.1% in relation to the same period of 2011.

 

Service Revenues from Acquiring

 

 

Other          R$ million 
   4Q12   3Q12   Variation 
Foreign Exchange Services   26    28    (2)
Brokerage and Securities Placement   103    68    36 
Custody Services and Management of Portfolio   61    61    0 
Economic and Financial Advisory Services   160    62    97 
Other Services   181    177    4 
Total   531    395    136 

 

Revenues from economic and financial advisory services grew R$97 million, influenced by the larger volume of investment banking services and increased revenues from brokerage and security placement services by R$36 million, due to the larger volume of public offerings and fund quotas issuances in the period.

 

Result from Insurance, Pension Plan and Capitalization

 

The result from insurance, pension plan and capitalization operations totaled R$868 million in the fourth quarter of 2012, an increase of 31.3% when compared to the previous quarter. This increase was mainly influenced by the increase in the earned premiums and lower expenses for claims. In the year, these revenues showed a growth of 10.2% in relation to 2011.

 

 

(*) Income from Insurance, Pension Plan and Capitalization operations (-) Expenses for Claims (-) Selling Expenses with Insurance, Pension Plan and Capitalization.

 

Banking Service Fees and Income from Banking Charges and Result from Insurance, Pension Plan and Capitalization

 

In the fourth quarter of 2012, the ratio between total banking service fees and income from bank charges plus the result from insurance, pension plan and capitalization operations divided by operating revenues – which includes, in addition to these revenues, the managerial financial margin and other operating revenues – reached 32.1%. In this quarter, this ratio was higher than the average ratio of the last quarters. The chart below presents the quarterly historical data of banking service fees, including the result from insurance, pension plan and capitalization operations and their relation with our operating revenues.

 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 20

 

 
 

 

Analysis of Net Income

 

Result from Loan Losses

 

                               R$ million 
                   Variation 
   4Q12   3Q12   2012   2011   4Q12 -3Q12   2012 - 2011 
Expenses for Provision for Loan and Lease Losses   (5,685)   (5,939)   (23,644)   (19,912)   254    -4.3%   (3,732)   18.7%
Income from Recovery of Loans Written Off as Losses   1,186    1,159    4,663    5,488    27    2.4%   (825)   -15.0%
Result from Loan and Lease Losses   (4,499)   (4,781)   (18,981)   (14,424)   282    -5.9%   (4,557)   31.6%

 

The result from loan and lease losses, net of recovery, improved in relation to the previous quarter, with a decrease of 5.9%, totaling R$4,499 million in the quarter. The expenses for provisions for loan losses dropped R$254 million in the quarter (less 4.3%) to R$5,685 million, and income from the recovery of credits written off as losses increased R$27 million (2.4%) to total R$1,186 million.

 

Since the beginning of 2012, the discounts granted in the recovery of credits written off as losses have no longer been deducted from the financial margin and started to deduct the income from the recovery of these credits. In 2011, these discounts amounted to R$609 million. If this effect were considered in 2011, the income from the recovery of credits written off as losses would have dropped 4.4% in 2012.

 

Allowance for Loan Losses and Credit Portfolio

 

 

In December 2012, the balance of the credit portfolio without endorsements and sureties increased R$6,475 million (1.8%) in relation to September 2012, amounting to R$366,285 million, whereas the balance of the allowance for loan losses grew R$63 million (0.2%) to reach R$27,745 million.

 

The complementary allowance for loan losses in addition to the minimum required by Resolution No. 2,682/99 of the National Monetary Council (CMN) stood at R$5,058 million at the end of the fourth quarter of 2012.

 

Expenses for Provision for Loan Losses and Loan Portfolio

 

 

(*) Average balance of the Loan Portfolio of the two previous quarters.

 

The ratio of expenses for provision for loan losses to the credit portfolio reached 1.57% in the fourth quarter of 2012, a decrease of 9 basis points when compared to the previous quarter.

 

Non–Performing Loans

 

Delinquency ratios and Non Performing Loans

 

           R$ million 
   Dec 31,12   Sep 30,12   Dec 31,11 
Non-performing Loans – 60 days (a)   20,791    22,201    20,448 
Non-performing Loans – 90 days (b)   17,563    18,528    16,847 
Credit Portfolio (c)   366,285    359,810    345,483 
NPL Ratio [(a)/(c)] x 100 over 60 days   5.7%   6.2%   5.9%
NPL Ratio [(b)/(c)] x 100 over 90 days   4.8%   5.1%   4.9%
Coverage:               
Non-performing Loans – 60 days   133%   125%   126%
Non-performing Loans – 90 days   158%   149%   153%

 

(a) Loans overdue for more than 60 days and that do not accrue revenues.

(b) Loans overdue for more than 90 days.

(c) Endorsements and sureties not included.

 

Overdue Loans

 

The overdue credit portfolio decreased 7.0% in the fourth quarter, whereas the balance of the allowance for loan losses increased, as mentioned above, 0.2% in relation to the same period of 2011.

 

           R$ million 
   Dec 31,12   Sep 30,12   Dec 31,11 
Overdue Loans   29,663    31,891    29,809 
Allowance for Loan and Lease Losses   (27,745)   (27,682)   (25,772)
Coverage   (1,918)   (4,209)   (4,037)

 

Note: overdue loans are loan operations having at least one installment more than 14 days overdue, irrespective of collateral provided.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 21

 

 
 

Analysis of Net Income

 

NPL Ratio | 90 days

 

 

Note: On the fourth quarter of 2012, sales of financial assets with affiliated companies were carried out in the amount of R$ 480 million, without effect on the consolidated net income. These assignments gave rise to a decrease of R$ 409 million in the amount of the portfolio of loans in default over 90 days in the end of the last quarter of 2012. Excluding the effects of this sale, the 90 days delinquency ratio would have been 7.1% for individuals and 4.9% in the total portfolio of Itaú Unibanco.

 

The assigned operations are composed of vehicles loans that were more than 360 days overdue on the date of the assignment. As from 2013, we intend to continue to assign assets with these characteristics.

 

The NPL ratio of credits more than 90 days overdue (NPL-90) decreased 30 and 10 basis points from the previous quarter and from the end of 2011, respectively, and represented 4.8% of our credit portfolio at the end of the fourth quarter of 2012.

 

NPL Ratio | 15 to 90 days

 

 

Short-term delinquency, measured based on the balance of operations overdue from 15 to 90 days, decreased 60 basis points from the previous quarter. The reduction was due to the decrease of 90 basis points for individuals and of 30 basis points for companies.

 

Coverage | 90 days

 

 

Note: The coverage ratio is derived from the division of the allowance for loans and lease losses balance by the balance of operations more than 90 days overdue.

 

The 90-day coverage ratio reached 158% in December 2012, impacted by the reduction of 5.2% in the portfolio of credits overdue for more than 90 days, whereas the balance of the allowance for loan losses increased 0.2% and reached R$27,745 million in December 2012.

 

Credit Portfolio Write-Offs

 

Write-offs from the credit portfolio totaled R$6,094 million in the fourth quarter of 2012, an increase of R$781 million and R$1,694 million from the prior period and the fourth quarter of 2011, respectively, due to the maturity of the higher risk portfolio originated in the past. The ratio of written-off operations to the average balance of the credit portfolio reached 1.7% in the fourth quarter of 2012, an increase of 20 basis points when compared to the previous quarter.

 

 

(1) Average balance of the two previous quarters.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 22

 

 
 

 

Analysis of Net Income

 

Non-interest Expenses

 

R$ million
                   Variation 
   4Q12   3Q12   2012   2011   4Q12 – 3Q12   2012 - 2011 
Personnel Expenses   (3,380)   (3,456)   (13,666)   (13,356)   77    -2.2%   (310)   2.3%
Administrative Expenses   (3,626)   (3,463)   (14,176)   (14,100)   (163)   4.7%   (76)   0.5%
Operating Expenses   (1,380)   (1,128)   (4,923)   (4,746)   (252)   22.3%   (177)   3.7%
Other Tax Expenses   (71)   (101)   (404)   (370)   30    -29.8%   (34)   9.2%
Total   (8,457)   (8,148)   (33,169)   (32,572)   (308)   3.8%   (597)   1.8%

(*) Does not include ISS, PIS and Cofins.

 

Non-interest expenses totaled R$8,457 million in the fourth quarter of 2012, an increase of 3.8% from the previous quarter, mainly due to the increase in administrative expenses and operating expenses resulting from the characteristic increase in operations in the last quarter of the year.

 

Personnel Expenses

 

   R$ million 
   4Q12   3Q12   Variation 
Compensation, Charges and Social Benefits   (2,086)   (2,265)   179 
Training   (64)   (54)   (10)
Profit Sharing (*)   (607)   (680)   73 
Employee Terminations and Labor Claims   (623)   (458)   (165)
Total   (3,380)   (3,456)   77 

 

(*) Includes variable compensation and stock option plans.

 

Personnel expenses totaled R$3,380 million in the fourth quarter, representing a 2.2% decrease from the previous period, despite of the 7.5% readjustment related to the Collective Bargaining Labor Agreement reached in October, which impacted the expenses as from September 2012. The changes resulted mainly from the R$179 million lower expenses with compensation, charges and social benefits. This reduction was partially offset by the increase in expenses with employee terminations and labor claims in the amount of R$165 million.

 

In 2012, personnel expenses totaled R$13,666 million, representing an 2.3% increase in relation to the same period of the previous year, mainly due to R$ 718 million higher expenses with employee terminations and labor claims in the period.

 

Number of Employees

 

The number of employees remained stable in the fourth quarter of 2012.

 

 

Note: For companies under the control of Itaú Unibanco, 100% of the number of employees is considered. No employee is considered for companies that are not under Itaú Unibanco’s control.

 

Administrative Expenses

   R$ million 
   4Q12   3Q12   Variation 
Third-Party Services   (878)   (824)   (54)
Depreciation and Amortization   (436)   (404)   (32)
Advertising, Promotions and Publications   (252)   (227)   (25)
Facilities   (554)   (531)   (23)
Financial System Services   (132)   (117)   (15)
Data Processing and Telecommunications   (882)   (873)   (9)
Materials   (87)   (82)   (6)
Security   (126)   (122)   (5)
Transportation   (123)   (121)   (3)
Travel   (49)   (49)   0 
Other   (105)   (114)   8 
Total   (3,626)   (3,463)   (163)

 

Administrative expenses increased 4.7% from the previous quarter, driven by R$54 million higher expenses with third-party services because of the larger volume of advisory services, the increase of R$32 million in depreciation and amortization expenses, and the increase of R$25 million in expenses with advertising, promotions and publications due to the new institutional campaigns.

 

Operating Expenses

 

   R$ million 
   4Q12   3Q12   Variation 
Provision for contingencies   (418)   (311)   (107)
Selling - Credit Cards   (518)   (454)   (65)
Claims   (152)   (134)   (18)
Other   (291)   (230)   (61)
Total   (1,380)   (1,128)   (252)

 

In the fourth quarter, operating expenses grew 22.3% from the previous quarter, due to the credit card selling expenses increase of R$65 million, mainly representing the increase in the volume of operations in the period, and the R$107 million increase in expenses with provisions for contingencies due to higher expenses with civil lawsuits.

 

Other Tax Expenses

 

In the fourth quarter of 2012, other tax expenses decreased R$ 30 million in relation to the previous quarter. In 2012, these expenses increased 9.2% mainly due to the effect of the increase in the levy of IOF on Foreign Exchange Operations and Exchange Rate Exposure this year.

 

(*) Does not include ISS, PIS and Cofins.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 23

 

 
 

 

Analysis of Net Income

 

Efficiency Ratio and Risk-Adjusted Efficiency Ratio

 

We present the efficiency ratio and the risk-adjusted efficiency ratio, which includes the risk portions associated with banking transactions (result of the provision for loan losses) and insurance and pension plan transactions (claims).

 

  

    Non-Interest Expenses (Personnel Expenses + Administrative Expenses + Operating Expenses + Other Tax Expenses) +Insurance Selling Expenses + Result from Loan Losses + Retained Claims

Risk Ajusted

 =  
Efficiency Ratio    
    (Managerial Financial Margin + Banking Service Fees and Banking Charges + Operating Result of Insurance, Capitalization and Pension Plan before Retained Claims and Insurance Selling Expenses + Other Operating Income + Equity in Earnings of Affiliates and Other Investments + Non-operating Income - Tax Expenses for ISS, PIS, Cofins and Other Taxes)

 

Efficiency Ratio

 

In the fourth quarter, the efficiency ratio, in the full concept (that includes all expenses), reached 46.6%, an increase of 110 basis points from the third quarter of 2012. This variation was due to the decrease in the financial margin with clients so as the evolution of the operating revenues (1.8% increase from the previous quarter) did not follow the evolution of the expenses in the quarter (3.8% increase from the previous quarter).

 

In the last 12 months, the efficiency ratio reached 45.4%, a decrease of 190 basis points from the same period of the previous year. This decline was due to the increase of operating revenues, which is composed of banking service fees and banking charges, managerial financial margin and the result of insurance, pension plan and capitalization transactions before claims and selling expenses the managerial financial margin, banking service fees and bank charges and the result of insurance, pension plan and capitalization operations before retained claims and selling expenses (6.3% compared to the previous quarter) higher than the expenses growth (1.9% in the same period).

 

Risk-Adjusted Efficiency Ratio

 

The risk-adjusted efficiency ratio for the fourth quarter of 2012 reached 73.3%, an increase of 110 basis points from the third quarter of 2012, due to the decrease in the expenses with the provision for loan losses and with claims, partially offset by the same factors that impacted the efficiency ratio. Year-on-year, the risk-adjusted efficiency ratio reached 73.3%.

 

Usage of Operating Revenues

 

The chart below shows the portions of the operating revenues that are used to cover non-interest expenses, result from loan losses and expenses with claims.

 

 

(*) Net of Tax Expenses for ISS, PIS and Cofins and Other.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 24

 

 
 

 

Analysis of Net Income

 

Points of Service

 

At the end of the fourth quarter of 2012, our network comprised 5,027 branches and Client Service Branches (CSB), including Brazil and abroad. The number of ATMs in the period totaled approximately 28 thousand, representing a 0.5% increase from the previous quarter.

 

Branches and Client Service Branches (CSB) | Brazil and Abroad

 

 

Note: Includes Banco Itaú BBA, Banco Itaú Argentina and Chile, Uruguay and Paraguay companies.

 

Automated Teller Machines (ATMs) | Brazil and Abroad

 

 

Note: (i) Includes Banco Itaú Argentina and Chile, Uruguay and Paraguay companies.
  (ii) Includes ESBs (Electronic Service Branches) and service points in third-party establishments.
  (iii) Does not include points of sale and ATMs of Banco 24h.

 

Tax Expenses for ISS, PIS, Cofins and Other

 

Tax expenses amounted to R$1,116 million in the fourth quarter of 2012, an increase of 9.1% from the previous quarter.

 

Income Tax and Social Contribution on Net Income

 

In the fourth quarter of 2012, Income Tax and Social Contribution on Net Income (CSLL) expenses totaled R$1,461 million, a R$ 336 million growth from the previous quarter.

 

At the end of the fourth quarter of 2012, the remaining balance of tax credits related to Social Contribution from periods prior to the increase of the rate from 9% to 15% was fully recognized as a non-recurring gain. As from the first quarter of 2013, Social Contribution expenses will reflect the effect of the increase in the rate.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 25

 

 
 

 

 

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Management Discussion & Analysis Itaú Unibanco Holding S.A. 26

 

 
 

 

    balance sheet,
balance sheet by
currency,
risk management
and ownership
structure
     
     
    Itaú Unibanco Holding S.A.
     
 

4th quarter of 2012

Management Discussion & Analysis

 

 

 
 

 

Balance Sheet

 

Assets

 

On December 31, 2012, total assets exceeded R$1.0 trillion, an increase of 5.6% from the end of the previous quarter and of 19.2% from the previous year. The breakdown of our assets and the details on their main components are presented below:

 

Total Assets

 

 

Assets Breakdown | December 31, 2012

 

 

Short-term Interbank Investments and Securities Portfolio

 

On December 31, 2012, the balance of our short-term interbank investments and securities portfolio, including derivative financial instruments, totaled R$458,208 million, corresponding to a 15.2% growth from the previous quarter. The mix of short-term interbank investments and securities portfolio changed during the quarter, mainly due to the increase in Brazilian government securities of R$30,998 million.

 

                               R$ million 
                           Variation 
                           Dec 31,12 –   Dec 31,12 – 
   Dec 31, 12   %   Sep 30, 12   %   Dec 31, 11   %   Sep 30, 12   Dec 31, 11 
Short-term Interbank Investments   182,034    39.7%   163,342    41.1%   116,082    38.2%   11.4%   56.8%
Total Public Securities   140,831    30.7%   109,699    27.6%   88,840    29.2%   28.4%   58.5%
Government Securities – Domestic   132,820    29.0%   101,822    25.6%   83,719    27.5%   30.4%   58.6%
Government Securities – Foreign   8,011    1.7%   7,877    2.0%   5,120    1.7%   1.7%   56.5%
Denmark   2,554    0.6%   1,721    0.4%   1,949    0.6%   48.4%   31.0%
Korea   1,662    0.4%   1,672    0.4%   295    0.1%   -0.6%   463.4%
Chile   1,641    0.4%   1,942    0.5%   1,046    0.3%   -15.5%   57.0%
United States   719    0.2%   828    0.2%   292    0.1%   -13.1%   146.1%
Paraguay   491    0.1%   287    0.1%   344    0.1%   70.9%   42.7%
Uruguay   347    0.1%   361    0.1%   295    0.1%   -3.8%   17.4%
Mexico   225    0.0%   618    0.2%   215    0.1%   -63.6%   4.4%
Argentina   88    0.0%   141    0.0%   225    0.1%   -37.4%   -60.8%
United Kingdom   83    0.0%   -    -    -    -    -    - 
France   57    0.0%   27    0.0%   -    -    111.6%   - 
Colombia   34    0.0%   170    0.0%   -    -    -79.9%   - 
Spain   -    -    -    -    418    0.1%   -    -100.0%
Other   108    0.0%   110    0.0%   40    0.0%   -1.4%   172.2%
Corporate Securities   47,684    10.4%   43,956    11.0%   31,761    10.4%   8.5%   50.1%
PGBL/VGBL Fund Quotas   75,146    16.4%   69,857    17.6%   57,734    19.0%   7.6%   30.2%
Derivative Financial Instruments   12,513    2.7%   11,045    2.8%   9,546    3.1%   13.3%   31.1%
Total   458,208    100.0%   397,899    100.0%   303,962    100.0%   15.2%   50.7%

 

Evolution of Short-term Interbank Investments and Securities Portfolio

 

The breakdown of short-term interbank investments and securities in the past few quarters is shown below:

 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 28

 

 
 

 

Balance Sheet

 

Short-term Interbank Investments and Securities Portfolio by maturity (*)

 

Our securities and derivative financial instruments are presented below in accordance with their maturity period, allowing us to see our positions by maturity date.

 

 

(*) It does not consider the securities portfolio of the PGBL and VGBL plans .

 

Securities by Categories

 

Our securities portfolio is classified into three categories: trading, available-for-sale and held-to-maturity. On December 31, 2012, the securities portfolio totaled R$263,661 million and trading securities accounted for 65.0% of it, a decrease of 520 basis points from the previous quarter. The available-for-sale securities increased their share in 530 basis points, due to an increase of R$25.5 billion, mainly of Brazilian government securities. The breakdown of the securities portfolio is presented in the chart below:

 

 

Credit Portfolio

 

Credit Portfolio by Product

 

In the table below, the credit portfolio is split into two groups: individuals and companies. For a better understanding of the performance of these portfolios, the main product groups of each segment are presented below:

 

                   R$ million 
               Variation 
               Dec 31,12–   Dec 31,12– 
   Dec 31, 12   Sep 30, 12   Dec 31, 11   Sep 30,12   Dec 31,11 
Individuals   160,234    157,471    155,151    1.8%   3.3%
Vehicles   51,220    54,046    60,093    -5.2%   -14.8%
Credit Card   40,614    36,699    38,961    10.7%   4.2%
Personal Loans   26,798    27,998    25,960    -4.3%   3.2%
Own and BMG Acquired Payroll Loans   12,929    12,068    9,992    7.1%   29.4%
Mortgage Loans (*)   18,047    16,687    13,450    8.2%   34.2%
Rural Loans   266    267    287    -0.4%   -7.3%
Argentina/Chile/Uruguay/Paraguay   10,361    9,706    6,408    6.7%   61.7%
Companies   206,051    202,339    190,332    1.8%   8.3%
Working Capital (**)   106,268    105,011    101,196    1.2%   5.0%
BNDES/Onlending   40,951    39,242    38,023    4.4%   7.7%
Export / Import Financing   21,258    22,253    18,318    -4.5%   16.1%
Vehicles   6,031    6,634    8,077    -9.1%   -25.3%
Acquired Payroll Loans   621    478    115    29.9%   441.4%
Mortgage Loans   7,790    7,344    6,100    6.1%   27.7%
Rural Loans   6,349    5,528    5,651    14.9%   12.3%
Argentina/Chile/Uruguay/Paraguay   16,782    15,849    12,852    5.9%   30.6%
Total without Endorsements and Sureties   366,285    359,810    345,483    1.8%   6.0%
Endorsements and sureties   60,310    57,792    51,530    4.4%   17.0%
Total with Endorsements and Sureties   426,595    417,603    397,012    2.2%   7.5%
Private Securities (***)   22,652    20,030    15,220    13.1%   48.8%
Adjusted Total Risk   449,247    437,633    412,232    2.7%   9.0%

(*) Does not consider co-obligation in mortgage loan assignment in the amount of R$389.5 million on the 4th Q/11.

(**) Also includes Revolving, Receivables, Hot Money, Leasing, and other; (***) Includes Debentures, CRI and Commercial Paper.

 

The portfolio of credits to individuals reached R$160,234 million on December 31, 2012. This growth is primarily attributable to the following increases: 8.2% in mortgage loans, amounting to R$18,047 million; 7.1% in the own payroll loan portfolio, amounting to R$12,929 million and 6.7% in our operations in the Southern Cone, amounting to R$10,361 million. On the other hand, our vehicle portfolio dropped 5.2% in the quarter to R$51.220 million.

 

The portfolio of credit to companies grew 1.8% in the quarter to R$206.051 million. The changes in this portfolio were driven by the increase in mortgage loans, of 6.1%, to R$7,790 million, and in onlending from BNDES, of 4.4%, to R$40,951 million, which offset the decreases seen in the vehicle portfolio and in export/import financing.

 

Taking into account our fixed income private securities portfolio and the balance of sureties and endorsements, the adjusted balance of our overall credit portfolio amounted to R$449,247 million, a growth of 2.7% from September 30, 2012 and an increase of 9.0% in the full year of 2012.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 29

 

 
 

 

Balance Sheet

 

Credit Portfolio by Risk Level

 

On December 31, 2012, the share of credits rated “AA” to “C” in the total portfolio was 91.4%, an increase of 30 basis points from the previous quarter.

 

Evolution of Loan Portfolio by Risk Level

 

 

Credit Portfolio by Business Sector (excluding endorsements and sureties)

 

The changes in the portfolio of credit to companies are listed below:

 

               R$ million 
           Variation 
Business Sector  Dec 31,12   Sep 30,12   Dec 31,12 – Sep 30,12 
Transportation   17,022    16,581    441    2.7%
Real estate agents   14,137    13,142    995    7.6%
Vehicles and autoparts   12,497    12,759    (262)   -2.1%
Agribusiness and fertilizers   11,769    11,233    536    4.8%
Food and beverage   10,303    9,980    323    3.2%
Steel and metallurgy   8,470    8,075    395    4.9%
Sugar and alcohol   7,419    7,656    (237)   -3.1%
Capital assets   7,199    7,201    (2)   0.0%
Petrochemical and chemical   5,722    5,889    (167)   -2.8%
Energy and sewage   5,677    5,517    160    2.9%
Construction material   5,328    5,073    255    5.0%
Clothing and footwear   5,322    5,167    155    3.0%
Electronic and IT   5,143    5,058    85    1.7%
Infrastructure work   4,496    4,812    (316)   -6.6%
Pharmaceuticals and cosmetics   4,142    3,908    234    6.0%
Banks and other financial institutions   3,772    4,352    (580)   -13.3%
Entertainment and tourism   3,451    3,356    94    2.8%
Oil and gas   3,261    2,963    298    10.1%
Pulp and paper   3,041    2,885    157    5.4%
Mining   2,729    2,835    (106)   -3.8%
Other   63,270    65,930    (2,660)   -4.0%
Total   204,170    204,372    (202)   -0.1%

 

Credit Concentration

 

Our loan, lease and other credit operations, including endorsements and sureties, are diversified in our credit portfolio. Around 21.0% of the credit risk was concentrated in the 100 largest debtors at the end of December 2012.

 

R$ million        
   Dec 31, 12 
       % of 
Loan, lease and other credit operations  Risk   Total 
Largest debtor   4,573    1.1 
10 largest debtors   27,130    6.4 
20 largest debtors   43,344    10.2 
50 largest debtors   67,372    15.8 
100 largest debtors   89,405    21.0 

 

Operations under Renegotiation

 

Our portfolio of credits under renegotiation, including extended, modified and deferred repayments, decreased R$40 million and amounted to R$19,483 million at the end of 2012, which represents 5.3% of the total credit portfolio, a 10 basis point decrease from the previous quarter. At the end of the fourth quarter of 2012, the ratio of the allowance for loan losses to the renegotiated portfolio was 44.6% in the period, an increase of 20 basis points from the previous quarter. The following chart presents the changes in the past quarters:

 

 

The portfolio of operations under renegotiation includes both renegotiated operations from the portfolio that had already been written off as losses and overdue and renegotiated operations, provided that at least one of their installments had been paid. At the time of the renegotiation of credits that had already been written off as losses, we recognize a provision for the total amount renegotiated, which is reversed only when there is a strong indication of the recovery of this credit, thus not generating an immediate result. Such result is accrued after payments are received on a regular basis for a few months.

 

The 90-day non-performing loans (NPL) in the renegotiated portfolio reached R$6,440 million, the coverage ratio of the corresponding allowance for loan losses was 135% on December 31, 2012, and the 90-day NPL ratio was 33.1%, a decrease of 60 basis points from the third quarter of 2012. The overall over 90 days of the bank presented in the chapter does include the NPL on renegotiated credits.

 

Other and Permanent Assets

 

In the fourth quarter of 2012, “Other Assets” increased 0.6% and reached R$125,887 million driven by the decrease in the foreign exchange portfolio, which is equivalent to 12.4% of our total assets. This item basically comprises “foreign exchange portfolio” (see Note 9 to the financial statements), “tax credits”, “taxes and contributions for offset” and “escrow deposits”.

 

The tax credit balance reached R$36.2 billion, an increase of 22.5% from the previous quarter. Of this total, R$31.6 billion refers to temporary differences between disbursed and non disbursed provisions and R$4.6 billion, or 12.7% of total tax credits, refers to tax losses and social contribution tax loss carryforwards and social contribution for offset.

 

Our permanent assets, in the amount of R$13,213 million, are represented by “non-consolidated investments in Brazil and abroad”, “fixed assets” and “deferred charges”. This quarter, this category represented 1.3% of total assets and decreased 42.9% in relation to the previous quarter, due to the accounting of the acquisition of the minorities’ shares of Redecard as a capital transaction.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 30

 

 
 

 

Balance Sheet

 

Funding                  R$ million 
               Variation 
               Dec 31,12 -   Dec 31,12 - 
   Dec 31, 12   Sep 30, 12   Dec 31, 11   Sep 30,12   Dec 31,11 
Demand Deposits   34,916    29,818    28,933    17.1%   20.7%
Savings Deposits   83,451    77,414    67,170    7.8%   24.2%
Time Deposits   117,232    115,172    144,469    1.8%   -18.9%
Debentures (Linked to Repurchase Agreements and Third Parties’ Operations)   129,222    124,394    115,194    3.9%   12.2%
Funds from Bills (1)   37,539    39,823    33,587    -5.7%   11.8%
(1) Total - Funding from Account Holders and Institutional Clients (*)   402,360    386,620    389,352    4.1%   3.3%
Onlending   36,048    34,860    35,459    3.4%   1.7%
(2) Total – Funding from Clients   438,408    421,480    424,812    4.0%   3.2%
Assets Under Administration (2)   561,958    536,458    449,693    4.8%   25.0%
Technical Provisions for Insurance, Pension Plan and Capitalization   93,210    87,281    73,754    6.8%   26.4%
(3) Total – Clients   1,093,576    1,045,219    948,259    4.6%   15.3%
Interbank deposits   7,600    9,516    2,066    -20.1%   267.9%
Funds from Acceptance and Issuance of Securities   15,999    14,604    16,931    9.6%   -5.5%
Total Funds from Clients + Interbank Deposits   1,117,175    1,069,339    967,256    4.5%   15.5%
Repurchase Agreements (3)   161,165    123,495    74,663    30.5%   115.9%
Borrowings   23,077    21,994    21,143    4.9%   9.1%
Foreign Exchange Portfolio   31,104    41,125    26,182    -24.4%   18.8%
Subordinated Debt   54,372    48,544    38,974    12.0%   39.5%
Collection and payment of Taxes and Contributions   399    4,517    856    -91.2%   -53.4%
Free Assets (4)   61,910    56,952    61,179    8.7%   1.2%
Free Assets and Other   332,027    296,627    222,997    11.9%   48.9%
Total Funds (Free, Raised and Managed Assets)   1,449,203    1,365,966    1,190,253    6.1%   21.8%

(*) Funds from Institutional Clients totaled R$26,880 million, which corresponds to 6.7% of the total raised with Account Holders and Institutional Clients.

(1) It includes funds from Real Estate, Mortgage, Financial, Credit and Similar Notes. (2) In December 2012, we began consolidating the exclusive investment funds for the implementation of consolidated subsidiaries. (3) It does not include own issued debentures, classified as funding. (4) Stockholders’ Equity + Minority Interests - Permanent Assets.

 

On December 31, 2012, total funds from clients, including interbank deposits, amounted to R$1.1 trillion, corresponding to an increase of R$47,836 million from the third quarter. The main drivers were increases of R$6,037 million in savings deposits, of R$5,099 million in demand deposits, of R$4,828 million in debentures, of R$25,500 million in funds obtained through assets under administration, and of R$5,929 million in technical provisions for insurance, pension plan and capitalization, partially offset by the decreases of R$2,284 million in funds from notes and of R$1,916 million in interbank deposits.

 

The debentures issued made by leasing companies of the conglomerate, after purchased by the bank, are traded with the same features as a time deposit or other deposits, although come they are classified as borrowings from the open market. Therefore, these deposits are reclassified in the table above as deposits from account holders. In the fourth quarter of 2012, this type of funding totaled R$127,652 million, including institutional clients.

 

Total funds (free, raised and managed assets) amounted to approximately R$1.4 trillion on December 31, 2012, an increase of R$83,237 million when compared to September 2012, mainly driven by the increase in funds from clients and repurchase agreements and subordinated debt.

 

In the last 12 months, we highlight the increase of R$149,920 million in funds obtained from clients, mainly due to the increase in funds obtained through assets under administration and savings deposits, partially offset by the decrease in time deposits. Total funds (free, raised and managed assets) grew R$258,950 million.

 

Funds from clients (1)

 

 

(1) It includes institutional clients in the proportion of each type of product invested by them.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 31

 

 
 

 

 

Balance Sheet

 

Ratio between Credit Portfolio and Funding

 

R$ million              Variation 
               Dec 31,12 -   Dec 31,12 - 
   Dec 31, 12   Sep 30, 12   Dec 31, 11   Sep 30,12   Dec 31,11 
Funding from Clients + Account Holders   438,408    421,480    424,812    4.0%   3.2%
Funds from Acceptance and Issuance of Securities Abroad   15,999    14,604    16,931    9.6%   -5.5%
Borrowings   23,077    21,994    21,143    4.9%   9.1%
Other (1)   18,369    16,263    17,716    12.9%   3.7%
Total (A)   495,853    474,341    480,601    4.5%   3.2%
(-) Reserve Required by BACEN   (75,374)   (76,951)   (108,183)   -2.0%   -30.3%
(-) Cash (Currency) (2)   (13,967)   (13,104)   (10,633)   6.6%   31.4%
Total (B)   406,512    384,287    361,785    5.8%   12.4%
Loan Portfolio (C) (3)   366,285    359,810    345,483    1.8%   6.0%
C/A   73.9%   75.9%   71.9%   -200 bps    200 bps 
C/B   90.1%   93.6%   95.5%   -350 bps    -540 bps 

 

(1) These comprise installments of subordinated debts that are not included in the Tier II Referential Equity.

(2) It includes cash, bank deposits of institutions without reserve requirements, foreign currency deposits in Brazil, foreign currency deposits abroad, and cash and cash equivalents in foreign currency. (3) The credit portfolio balance does not include endorsements and sureties.

 

The ratio of the credit portfolio to funding, before the deduction of compulsory deposits and cash and cash equivalents, reached 73.9% in December 31, 2012 compared to 75.9% in September 2012. If we consider the compulsory deposits and cash and cash equivalents, this ratio reached 90.1% in December 2012 versus 93.6% in September 2011.

 

As of May 22, 2012, part of the funds that were previously intended for compulsory deposits started to be used in vehicle and small commercial vehicle financing and leasing operations through September 14, 2012, when vehicle financing was replaced by motorcycle financing, due to the change in the criteria for the remuneration on compulsory deposits determined by Circular No. 3,569/11 and Circular No. 3,576/12 of the Central Bank of Brazil.

 

Additionally, on September 14, 2012, the rules for determining the compulsory deposits were changed by Circular No. 3,609/12, with impacts as from the fourth quarter of 2012. The changes include the reduction of the compulsory deposit remunerated by the SELIC from 64% to 50% and the decrease in the additional rates of compulsory time deposits from 12% to 11% and of demand deposits from 6% to 0%.

 

Ratio between Loan Portfolio and Funding

 

 

(*) Gross funding, disregarding the deductions of compulsory deposits and cash and cash equivalents.

 

External Funding (1)

 

The table below highlights the main issues of Itaú Unibanco abroad in effect on December 31, 2012. US$ million

 

      Balance at           Exchange   Balance at      Maturity     
Instrument  Issuer  Sep 30,12   Issuances   Amortization   Variation   Dec 31,12   Issue Date  Date   Coupon % p.y. 
Fixed Rate Notes(2)  Itaú Chile   97                   97   07/24/2007   07/24/2017    UF(6) + 3.79% 
Fixed Rate Notes(3)  Itaú Chile   98                   98   10/30/2007   10/30/2017    UF(6) + 3.44% 
Floating Rate Notes  Itaubank   393                   393   12/31/2002   03/30/2015    Libor (7) + 1.25% 
Floating Rate Notes (4)  IBBA International   69         (69)        -   12/22/2005   12/22/2015    Euribor(8) + 0.55% 
Medium Term Notes  Banco Itaú Holding Cayman   1,000                   1,000   04/15/2010   04/15/2020    6.2%
Medium Term Notes (5)  Banco Itaú Holding Cayman   1,000                   1,000   09/23/2010   01/22/2021    5.75%
Medium Term Notes  Banco Itaú Holding Cayman   246              (2)   245   11/23/2010   11/23/2015    10.5%
Medium Term Notes  Banco Itaú Holding Cayman   250                   250   01/24/2011   01/22/2021    5.75%
Medium Term Notes  Banco Itaú Holding Cayman   500                   500   06/15/2011   12/21/2021    6.2%
Medium Term Notes  Banco Itaú Holding Cayman   550                   550   01/24/2012   12/21/2021    6.2%
Medium Term Notes  Banco Itaú Holding Cayman   1,250                   1,250   03/19/2012   3/19/2022    5.65%
Medium Term Notes  Banco Itaú Holding Cayman   1,375                   1,375   6/8/2012   6/8/2022    5.5%
Medium Term Notes  Banco Itaú Holding Cayman   -    1,870              1,870   11/13/2012   05/13/2023    5.13%
Structured Notes      5,212    518    (38)   48    5,740              
Total      12,040    2,388    (107)   46    14,367              

 

(1) The balances refer to principal amounts; (2) and (3) Amounts in US$ equivalent on the issuance dates to CHP46.9 billion and CHP48.5 billion, respectively; (4) Amounts in US$ equivalent on the issuance dates to €55 million; (5) Amounts in US$ equivalent on the date to R$500 million, respectively; (6) Development Financial Unit; (7) 180-day Libor; (8) 90-day Euribor.

 

On December 31, 2012, funds obtained abroad totaled US$14,367 million, an increase of US$2,327 million from the previous quarter (presented in the “Funding” table in the previous section as Funds from Acceptance and Issuance of Securities and Subordinated Debt).

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 32

 

 
 

 

Balance Sheet by Currency

 

We adopt a management policy for foreign exchange risk associated with our asset and liability positions that is primarily intended to prevent impacts on consolidated results from fluctuations in foreign exchange rate parities.

 

Brazilian tax legislation determines that gains and losses from exchange rate variations on permanent foreign investments must not be included in the tax basis. On the other hand, gains and losses arising from financial instruments used to hedge such asset positions are impacted by tax effects. Therefore, in order not to expose net income to foreign exchange rate variations, a liability position must be built at a higher volume than the hedged assets.

 

The Balance Sheet by Currency shows our assets and liabilities denominated in local and foreign currencies. On December 31, 2012, the net foreign exchange position was a liability of US$6,817 million.

 

Assets | Dec 31, 2012                    
       Business in Brazil   R$ million 
               Foreign   Business 
   Consolidated   Total   Local Currency   Currency   Abroad 
Cash and Cash Equivalents   13,967    8,019    6,370    1,649    7,061 
Short - Term Interbank Deposits   182,034    168,830    168,717    113    14,962 
Securities   276,174    239,405    239,220    185    65,014 
Loan, Lease and Other Loan Operations   338,540    276,136    262,915    13,221    68,514 
Loans   366,285    302,667    289,446    13,221    69,728 
(Allowance for Loan Losses)   (27,745)   (26,531)   (26,531)   -    (1,214)
Other Assets   190,497    167,316    155,458    11,858    35,893 
Foreign Exchange Portfolio   30,960    14,258    4,427    9,830    28,984 
Other   159,537    153,059    151,031    2,028    6,909 
Permanent Assets   13,213    32,861    12,402    20,459    811 
Total Assets   1,014,425    892,567    845,082    47,485    192,254 
Derivatives – Purchased Positions                  69,179      
Total Assets After Adjustments (a)                  116,663      

 

Liabilities and Equity | Dec 31, 2012                    
       Business in Brazil   R$ million 
               Foreign   Business 
   Consolidated   Total   Local Currency   Currency   Abroad 
Deposits   243,200    183,769    183,494    275    61,522 
Funds Received under Securities Repurchase   288,818    271,039    271,039    -    17,778 
Funds from Acceptances and Issue of Securities   55,108    67,402    39,575    27,827    14,744 
Borrowings and On Lendings   59,125    44,496    36,724    7,771    21,975 
Interbank and Interbranch Accounts   4,979    4,858    2,593    2,265    121 
Derivative Financial Instruments   11,128    8,422    8,422    -    3,453 
Other Liabilities   182,598    144,055    134,233    9,823    51,258 
Foreign Exchange Portfolio   31,104    14,430    4,946    9,484    28,956 
Other   151,494    129,625    129,287    339    22,303 
Technical Provisions of Insurance, Pension Plan and Capitalization   93,210    93,173    91,256    1,916    37 
Deferred Income   1,137    1,039    761    278    98 
Minority Interest in Subsidiaries   903    95    95    -    807 
Stockholders' Equity of Parent Company   74,220    74,220    74,220    -    20,459 
Capital Stock and Reserves   60,626    60,626    60,626    -    19,067 
Net Income   13,594    13,594    13,594    -    1,392 
Total Liabilities and Equity   1,014,425    892,567    842,412    50,155    192,254 
Derivatives – Sold Positions                  80,439      
Total Liabilities and Equity After Adjustments (b)                  130,594      
Net Foreign Exchange Position Itaú Unibanco (c = a - b)                  (13,931)     
Net Foreign Exchange Position Itaú Unibanco (c) in US$                  (6,817)     

 

Note: It does not consider eliminations of operations between local and foreign business units.

 

Assets and liabilities denominated in foreign currencies

 

We present below the net foreign exchange position, a liability position at a higher volume than the balance of the hedged assets (overhedge), which, when considering the tax effects on the net balance of other assets and liabilities denominated in foreign currency, reflects the elimination of the exposure to foreign exchange variations.

 

R$ million

   Balance Sheet   Variation 
   Dec/12   Sep/12   Dec 12 – Sep 12 
Investments Abroad   20,459    19,342    1,117    5.8%
Net Foreign Exchange Position (Except Investments Abroad)   (34,390)   (31,370)   (3,020)   9.6%
Total   (13,931)   (12,028)   (1,903)   15.8%
Total in US$   (6,817)   (5,923)   (894)   15.1%

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 33

 

 
 

 

Risk Management

 

Corporate Principles of Risk and Capital Management

 

Itaú Unibanco regards risk management as an essential instrument for optimizing the use of resources and selecting the best business opportunities in order to create value to its stockholders.

 

The risk management processes permeate the entire institution and are in line with the guidelines of the Board of Directors and Senior Management, which, through Committees and Superior Commissions, determine the overall objectives, expressed as targets and limits for the risk management business units. The control units, in turn, support the Itaú Unibanco’s management by means of monitoring processes and risk analysis.

 

Complementing the risk management process, we concluded the implementation of the capital management structure, meeting of National Monetary Council (CMN) Resolution No. 3,988 of June 30th, 2011. The first ICAAP (Internal Capital Adequacy Assessment Process) report will be submitted to BACEN in September 2013.

 

For additional information on the risk and capital management structure, please see the Investor Relations website at www.itau-unibanco.com/ir >> Corporate Governance >> Risk Management Risk – Circular 3,477.

 

Credit Risk

 

Our credit risk management is aimed at creating value to stockholders based on the analysis of the risk-adjusted return and focused on maintaining the quality of the credit portfolio at levels that are appropriate to each market segment in which we operate.

 

The credit risk control is centralized, carried out by an independent executive area responsible for preparing institutional credit risk control policies, evaluating credit policies and new products, establishing governance in model development, including its validation, calculating and monitoring the Referential Equity, evaluating the calculation of the portfolio’s risk and return parameters, as well as their monitoring, and monitoring the allowance for loan losses. Itaú Unibanco’s centralized process for validating and approving credit policies and models ensures the timing of credit actions and the optimization of business opportunities.

 

Operational Risk

 

Our operational risk management structure is composed of operational risk management and control activities aimed at supporting the organization in decision-making processes, always in the search for the proper identification and evaluation of risks, the creation of value for stockholders, as well as the protection of the assets and image of Itaú Unibanco.

 

Liquidity Risk

 

The liquidity risk management is aimed at ensuring sufficient liquidity to withstand potential outflows of funds in times of market stress scenario, as well as the compatibility between funding and terms and liquidity of assets.

 

We have a structure that is dedicated to monitor, control and analyze liquidity risk using models for the projection of variables that impact cash flows and the level of local and foreign currency reserve.

 

Market Risk

 

Our risk management strategy is aimed at balancing corporate business goals, taking into account, among others, political, economic and market conditions; market risk portfolio of the institution and the expertise to operate in specific markets.

 

The market risk control is conducted by a group that is independent from the business areas and that is responsible for performing the daily activities of risk measurement, evaluation, analysis and reporting to people and areas responsible according to the governance defined and monitoring the necessary actions to readjust the position and/or level of risk. For this, Itaú Unibanco has a structured process of communication and information which provides information to Superior Committees and to ensure compliance with the requirements of Brazilian and foreign regulatory agencies.

 

VaR of Itaú Unibanco

 

The exposure to market risk of the portfolios of Itaú Unibanco and its foreign subsidiaries is presented in the table Global VaR by Risk Factor Group, which shows where the larger concentrations of market risk are. This quarter, we maintained our conservative management approach and diversified portfolio, keeping our policy of operating within lower limits in relation to our capital.

 

The observed increase in the Global VaR value compared to the previous quarter is due to an increase in the market volatility and an increase in our positions.

 

VaR by Risk Factor

   R$ million 
   Dec 31, 12   Sep 30, 12 
Itaú Unibanco          
Interest rate   348.7    175.4 
Foreign exchange linked interest rate   11.4    12.1 
Foreign exchange   8.8    5.4 
Prices indices   51.2    62.6 
Equities   16.8    26.3 
           
Itaú Unibanco Foreign Units          
Banco Itaú BBA International   1.1    1.4 
Banco Itaú Argentina   5.5    4.3 
Banco Itaú Chile   4.4    6.0 
Banco Itaú Uruguay   2.0    2.1 
Banco Itaú Paraguay   1.0    0.6 
Banco Itaú BBA Colombia   -    - 
           
Diversification Effect   (77.1)   (78.4)
           
Global VaR   373.7    217.8 
Maximum VaR in the Quarter   452.7    422.5 
Average VaR in the Quarter   275.9    326.7 
Minimum VaR in the Quarter   189.0    197.2 

 

Adjusted for tax effects.

VaR refers to the maximum potential loss for a day, with a 99% confidence level. Volatilities and correlations are estimated based on a methodology that attributes more weight to the most recent information.

 

Evolution of Itaú Unibanco's Value at Risk

 

 

Capital Adequacy

 

Itaú Unibanco maintains adequate levels of Referential Equity in relation to the Required Referential Equity, which is the minimum regulatory capital required. We systematically compare this minimum capital with our internal estimates of economic capital required and we concluded that it is, in total, sufficient to cover the risks incurred, including those that are not directly covered by the Required Referential Equity.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 34

 

 
 

 

Capital Ratios (BIS)

 

Solvency Ratios | Economic-Financial Consolidated

 

R$ million
               Variation 
   Dec 31, 12   Sep 30, 12   Dec 31, 11   Dec 31,12 -
Sep 30,12		   Dec 31,12 -
Dec 31, 11		 
Stockholder´s Equity of Parent Company   74,220    78,979    71,347    (4,759)   2,872 
Referential Equity Tier I   72,007    77,282    71,601    (5,275)   406 
Referential Equity Tier II   37,833    33,790    21,564    4,043    16,269 
Total exposure weighted by risk   654,872    632,186    568,693    22,686    86,179 
Ratios (%)                         
BIS (Referential Equity / Total exposure weighted by risk)   16.7    17.5    16.4    -80 bps    30 bps 
Tier I   10.9    12.2    12.6    -130 bps    -170 bps 
Tier II   5.8    5.3    3.8    50 bps    200 bps 

 

On December 31, 2012, the stockholders' equity of the parent company totaled R$74,220 million, a decrease of R$4,759 million in relation to September 30, 2012, mainly due to the accounting of the acquisition of the minorities’ shares of Redecard as a capital transaction.

 

The BIS ratio reached 16.7%, a 120 basis point decrease from September 30, 2012, mainly due to the capital transaction explained before, partially compensated by the approval, of the Central Bank of Brazil, of subordinated debt amounting to R$5,661 million to compose the Tier II of the Referential Equity. This ratio exceeds the minimum of 11% required by the Central Bank of Brazil and indicates an excess of R$37.4 billion of referential equity, allowing for the increase of up to R$339.9 billion in credit assets based on an 100% risk-weighting. Tier I ratio reduced 130 basis points.

 

If the remaining values of assets realization and the complementary allowance for loan losses were taken into consideration, our BIS Ration would have been 17.6%.

 

The evolution of the BIS ratio and Referential Equity Tier I is presented below.

 

Solvency Ratios

 

 

Note: The BIS ratio of the financial system consolidated (another criterion used by the Central Bank of Brazil) reached 18.1% on December 31, 2012. The difference between the BIS ratios of the financial system consolidated and the economic and financial consolidated (CONEF) arises from the inclusion of non-financial subsidiaries in the economic-financial consolidated, the funds of which may, when necessary, be distributed to financial companies through the payment of dividends/JCP (interest on net equity) or corporate restructuring.

 

Referential Equity | Economic-Financial Consolidated

 

   R$ million 
                           Variation 
   Dec 31, 12   Sep 30, 12   Dec 31, 11   Dec 31,12 –
Sep 30, 12		   Dec 31,12 –
Dec 31, 11		 
Referential Equity Tier I   72,007    65.8%   77,282    69.8%   71,601    76.9%   (5,275)   406 
Referential Equity Tier II (*)   37,414    34.2%   33,484    30.2%   21,510    23.1%   3,930    15,904 
Referential Equity   109,421         110,766         93,111         (1,345)   16,309 

 

(*) It takes into consideration the redeemable non-voting shares and the exclusion of credit instruments issued by financial institutions and adjustments to market value—securities and derivatives.

 

On December 31, 2012, our Referential Equity reached R$109,421 million, a decrease of R$1,345 million when compared to September 30, 2012, mainly due to the accounting of the acquisition of the minorities’ shares of Redecard as a capital transaction, partially compensated by the approval, of the Central Bank of Brazil, of subordinated debt amounting to compose the Tier II of the Referential Equity. When compared to the same period of the previous year, the Referential Equity increased R$16,309 million.

 

The ratio between Tier I and Referential Equity reached 65.8%, a drop of 400 basis points when compared to September 30, 2012.

 

Subordinated Debt and Referential Equity Tier II | Dec 31, 2012

 

   R$ million 
   Maturities 
   < 1 year   1 - 2 years   2 - 3 years   3 - 4 years   4 - 5 years   > 5 years   Total 
CDB   2,797    4,951    725    4,720    524    -    13,717 
Financial Treasury Bills   347    -    -    2,277    8,218    10,641    21,483 
Euronotes   222    -    -    -    -    15,713    15,935 
Subordinated Debt   3,366    4,951    725    6,997    8,742    26,353    51,134 
Subject to approval - Central Bank of Brazil (*) and Other   12    -    -    75    0    3,151    3,238 
Subordinated Debt - Total   3,378    4,951    725    7,072    8,742    29,504    54,372 
(*) Subordinated debt that does not make up the Tier II Referential Equity.                                   
Subordinated Debt (part of Referential Equity Tier II)   -    990    290    4,198    6,994    23,532    36,004 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 35

 

 
 

 

Capital Ratios (BIS)

 

Exposure by Risk

 

   R$ million 
               Variation 
   Dec 31, 12   Sep 30, 12   Dec 31, 11   Dec 31,12 -
Sep 30,12		   Dec 31,12 -
Dec 31, 11		 
Exposure weighted by credit risk (EPR)   587,087    566,832    523,898    20,255    63,189 
Portion required for credit risk coverage (PEPR = 0.11x(EPR))   64,580    62,351    57,629    2,228    6,951 
FPR at 20%   411    375    349    36    62 
FPR at 35%   204    194    164    9    39 
FPR at 50%   5,189    4,737    4,672    452    518 
FPR at 75%   12,329    12,750    13,587    (420)   (1,258)
FPR at 100%   42,578    40,441    35,392    2,137    7,186 
FPR at 150%   1,858    1,689    1,568    169    290 
FPR at 300%   1,535    1,803    1,467    (267)   69 
Derivatives – potential future gain   476    363    431    112    45 
Portion required for operational risk coverage (POPR)   4,356    4,356    3,851    -    505 
Portion required for market risk coverage   3,100    2,832    1,076    267    2,024 
Operations subject to interest rate variation (PJUR)   2,834    2,489    965    345    1,869 
Operations subject to commodity price variation (PCOM)   90    120    72    (30)   18 
Operations subject to stock price variation (PACS)   176    224    39    (48)   137 
Total exposure weighted by risk (Risk Weighted Assets - RWA) [EPR + (1/0.11x(Operational Risk+Market Risk)]   654,872    632,186    568,693    22,686    86,179 

 

The total exposure weighted by risk amounted to R$654,872 million on December 31, 2012. The growth of R$22,686 million in relation to September 30, 2012 is mainly due to the increase of R$2,228 million in the portion required for credit risk coverage, influenced by the increase in the volume of credit operations and repurchase agreements. In addition to this change, the portion required for market risk coverage also grew R$267 million due to the increase in the capital required for operations that are subject to interest rate variations (R$345 million).

 

In accordance with the Circular Letters No. 3,383 and No. 3,476 of the Central Bank of Brazil, the portion required to cover operational risk is recalculated every six months. In December 2012, this portion reached R$4,356 million, stable on relation to September 30, 2012.

 

Evolution of the Composition of the Risk Weighted Exposure

 

 

Composition of the Portion to Cover Credit Risk (PEPR = 0.11x(EPR))

 

 

ROA - Risk Adjusted

 

   4Q12   3Q12   4Q11   4Q12 – 3Q12   4Q12 – 4Q11 
ROA - Return on Assets (A)   1.4%   1.5%   1.8%   -10 bps    -30 bps 
Return on Average Risk Weighted Assets / Average Assets (B)   65.6%   67.0%   67.6%   -140 bps    -200 bps 
ROA Risk Adjusted (A/B)   2.2%   2.2%   2.6%   0.0 bp    -50 bps 

 

In the fourth quarter of 2012, the annualized recurring return on average assets reached 2.2%.

 

The ratio between the exposure weighted by credit, operational and market risks and the average total assets reached 65.6% in the fourth quarter of 2012 compared to 67.0% in the previous period, an increase of 160 basis points.

 

As a consequence, the risk-adjusted ROA, which considers the return and total weighted assets that require capital allocation, was 2.2% in the fourth quarter of 2012, stable in relation to the third quarter of 2012.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 36

 

 
 

 

Ownership Structure

 

The management of our ownership structure is mainly intended to optimize the capital allocation to the various segments comprising the conglomerate.

 

The average acquisition cost of treasury shares, as well as the activity of options granted to conglomerate executives under the Stock Option Plan, are set out in Note 16-f of the Complete Financial Statements.

 

The table below shows the number of shares of capital stock and treasury shares as of December 31, 2012, the average cost of the 53 million shares in Treasury was R$28.99 per share:

 

Number of Shares | Itaú Unibanco Holding S.A.

 

   In thousands 
   Common Shares   Non-Voting Shares   Total 
Balance of Shares   2,289,286    2,281,650    4,570,936 
Treasury Shares               
On 12/31/2011   2    57,294    57,296 
Purchase of treasury shares   -    4,300    4,300 
Exercised options - Granting of stock options   -    (5,784)   (5,784)
Disposals - Stock option plan   -    (3,256)   (3,256)
On 12/31/2012   2    52,554    52,556 
Total Shares (-) Treasury   2,289,284    2,229,096    4,518,380 

 

The organization chart below summarizes the current ownership structure on December 31, 2012:

 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 37

 

 
 

 

Performance in the Stock Market

 

Performance in the Stock Market | 4th Q/12

 

Our voting and non-voting shares were traded on all BM&FBOVESPA’s sessions in 2012. Additionally, our non-voting shares are included in all stock exchange indexes where financial institution shares may be listed.

 

   (R$)   (R$)   (US$) 
   Non-
voting
Shares		   Common
Shares		   ADRs 
   ITUB4   ITUB3   ITUB 
Closing Price at 12/31/2012   33.39    31.18    16.46 
Maximum price in quarter   34.47    32.44    16.57 
Average price in quarter   31.18    28.22    15.19 
Minimum price in quarter   28.19    25.72    13.93 
Closing Price at 09/30/2012   30.59    27.25    15.28 
Maximum price in 2012   38.94    33.30    22.00 
Average price in 2012   32.34    28.41    16.71 
Minimum price in 2012   26.73    24.30    12.84 
Closing Price at 12/31/2011   33.99    27.01    18.56 
Change in the last 12 months   -1.8%   15.4%   -11.3%
Change in 4th Q/12   9.2%   14.4%   7.7%
Average daily trading financial volume - in 2012 (million)   286    6    211 
Average daily trading financial volume in 4th Q/12 (million)   258    6    159 

 

* prices on 03/16/12 for non-voting shares, on 03/19/12 for common shares and 03/02/12 for ADRs.

** prices on 05/17/12 for non-voting shares and 06/28/12 for common shares and ADRs.

 

Price/Earnings *

 

 

(*) Closing price at the period-ended/Earnings per share.

 

Price/Book Value *

 

 

(*) Closing price at the period-ended/Book Value per share.

 

Market Capitalization (*) vs. Ibovespa Index

 

As of December 31, 2012, our market capitalization was R$150,598 million. When compared to the fourth quarter of 2002, our market capitalization grew the equivalent to 6.3-fold whereas the Ibovespa grew 5.4-fold.

 

According to the information provided by Bloomberg, as of December 31, 2012, we were the 16th largest bank in the ranking of banks by world market capitalization.

 

 

(*) Average price of non-voting shares (the most liquid) at the last trading day of the period x total shares outstanding.

 

Non–voting Shares (PN - ITUB4) Appreciation

 

The chart below shows the evolution of R$100 invested on December 31, 2002 through December 31, 2012, by comparing the values, with and without reinvestment of dividends, to the performance of the Ibovespa and the CDI (Interbank Deposit Certificate).

 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 38

 

 
 

 

 

Market Relations

 

We completed the Apimec 2012 meeting cycle around Brazil with the attendance of 5,017 participants, an increase of 33% in the number of attending participants in relation to 2011. We continue to be the company that sponsors the largest number of Apimec meetings (totaling 22) in Brazil. Itaú Unibanco received the best Apimec meeting awards held in the Northeast and Brasília.

 

We also participated in all 13 Expo Money fairs carried out in Brazil in 2012. During these events, professionals from the Investor Relations area, Itaú Corretora, Kinea and experts in investment products were available to talk to stockholders, investors and other stakeholders and spoke about financial education and performance in the stock market, among other subjects.

 

With respect to funds and other institutional investors, approximately 950 investors were attended in 26 national and international conferences and road shows.

 

Repurchase of Own Shares

 

Since November 2004, Itaú Unibanco has been disclosing, on a monthly basis, on its Investor Relations website, its transactions with its own shares. We believe that the spontaneous disclosure of these transactions reinforce Itaú Unibanco’s commitment and transparency in its relationship with capital markets, adopting the best Corporate Governance practices in its business.

 

In October 2012, we purchased 800,000 non-voting shares at the average price of R$29.11, totaling R$23.3 million.

 

In 2012, we purchased 4.3 million non-voting shares at the average price of R$28.45, totaling R$122.3 million. For more information on these transactions, please see: www.itau-unibanco.com/ir > Corporate Governance > Repurchase of Shares.

 

On November 5, 2012, a new program for the repurchase of shares was launched and it will be effective until November 4, 2013. In this program, the repurchase limit was increased to 100 million shares, 13.7 million of which are common and 86.3 are non-voting shares.

 

Market Consensus

 

Main market analysts periodically issue their recommendations on shares subject to their analysis. These recommendations help a number of investors to select the best option in which to invest.

 

Based on information provided by Bloomberg and Thomson Analytics, on January 16, we reproduce in the table below the recommendations on Itaú Unibanco Holding’s non-voting shares.

 

   Thomson   Bloomberg 
Buy   11    13 
Hold   7    9 
Sell   0    0 
Number of Analysts   18    22 

 

According to Bloomberg, the average target price estimated for the end of 2013 is R$39.74. Based on this average estimated by third parties, the potential appreciation for 2013 is 19.1%. Thomson does not publish the target price indicated by the analysts.

 

Corporate Sustainability Index - ISE

 

Itaú Unibanco was chosen, for the eighth consecutive year, to make up the portfolio of the Corporate Sustainability Index (ISE), with a 5.3% share. This index portfolio is made up of companies with renowned commitment to social responsibility and corporate sustainability, in addition to promoting the good practices in the Brazilian corporate environment.

 

Additionally, it is worth noting that, in September, we were selected, for the 13th consecutive time to compose the Dow Jones Sustainability Index, the main corporate sustainability index in the world.

 

ICO2

 

Itaú Unibanco also composes, for the 3rd consecutive year, the ICO2 – Carbon Efficient Index. We are the company with the largest share in this index, with 12.9%. The portfolio of this index is composed of companies of the IBRX-50 index that accepted to take part in this initiative and adopt transparent practices with respect to greenhouse gas (GHG) emissions.

 

Main Ratings

 

In 2012, Itaú Unibanco’s credit ratings changed as follows:

 

·In June, the rating agency Moody’s disclosed a new global methodology and revised Brazilian banks’ ratings. The new ratings of Itaú Unibanco and Itaú BBA are one level above Brazil’s sovereign rating.

 

·In July, the rating agency Standard & Poor's disclosed its revision of the ratings of Brazilian banks, and the ratings attributed to Itaú Unibanco in terms of capacity of payment of short-term liabilities were upgraded.

 

The ratings attributed to Itaú Unibanco by the main rating agencies are presented below:

 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 39

 

 
 

 

 

Ordinary General Meeting

 

Our Annual and Extraordinary Stockholders’ Meetings will be held on April 19, 2013.

 

As in 2012, we will make available on our Investor Relations website (www.itauunibanco.com/ir) the electronic platform for our stockholders to cast their votes remotely and in advance. The system allows the votes to be cast through online proxies by means of a digital certificate, which facilitates investors’ access.

 

Agenda

 

The Investor Relations department makes Itaú Unibanco's corporate calendar available on its website (www.itauunibanco.com/ir). Please find below the upcoming scheduled events:

 

Results  

Disclosure of Fianancial

Statements

   Teleconference
1 Q 2013   April 30   May 2
1 S 2013   July 30   July 31
3 Q 2013   October 29   October 30

 

Ordinary General Meeting and Other Activities
Ordinary General Meeting   April 19
Form 20-F   until April 30
Reference Form - CVM 480   until May 31

 

Awards

 

The awards and recognition granted to Itaú Unibanco in the fourth quarter of 2012 are presented below:

 

- We ranked first in the Best Domestic Cash Manager in Brazil ranking of Euromoney magazine. The winners are chosen by means of a survey conducted by the magazine with clients and institutions of the industry that elect the most admired companies in the provision of services;

 

- First place among financial institutions in Private Banking in Latin America and Brazil in the Global Private Banking Awards 2012 (The Banker);

 

- We were elected the best Brazilian bank in foreign exchange in the World’s Best Foreign Exchange Providers award granted by Global Finance;

 

- The Most Admired Companies in Brazil: Itaú Unibanco ranked first in the Retail Bank segment. In the general ranking, regardless of the segment, the bank ranked eighthh. The purpose of this award is to recognize the companies that contribute to the dissemination of corporate ethics and social and environmental development of Brazil.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 40

 

 
 

 

analysis of
segments,
products and
services

Itaú Unibanco Holding S.A.


4th quarter of 2012

Management Discussion & Analysis

 

 
 

 

 

 

(This page was left in blank intentionally)

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 42

 

 
 

 

Analysis of Segments

 

Pro Forma Adjustments

 

Adjustments made to the balance sheet and statement of income for the year are based on managerial information from the business units.

 

The Activities with the Market + Corporation column presents the result from excess of capital, excess of subordinated debt and the net balance of tax assets and liabilities. It also shows the financial margin on market transactions, costs of Treasury operations, equity in the earnings of companies that are not linked to any segment, as well as those adjustments relating to minority shareholdings in subsidiaries and our interest in Porto Seguro.

 

The financial statements were adjusted in order to replace the accounting stockholders’ equity with funding at market prices. Subsequently, the financial statements were adjusted in order to include revenues linked to allocated capital at each segment. The cost of subordinated debt and the respective remuneration at market prices were allocated to segments on a pro rata basis, in accordance with the economic allocated capital.

 

Allocated Capital

 

Impacts related to capital allocation are considered in the Pro Forma financial statements by segment. To this end, adjustments were made to the financial statements, using a proprietary model.

 

The economic allocated capital model (EAC) was adopted for the Pro Forma financial statements by segment, which considers, in addition to allocated capital Tier I, the allocated capital Tier II (Subordinated Debt) and the effects of the calculation of expected credit losses, in addition to that required by the Brazilian Central Bank Circular No. 2,682/99 of the CMN.

 

Accordingly, the allocated capital considers the following components: credit risk (including expected loss), operational risk, market risk, and insurance underwriting risk.

 

Based on this measure of capital, we determined the Risk Adjusted Return on Capital (RAROC), which corresponds to an operational performance ratio consistently adjusted to the required capital needed to support the risks of the financial positions assumed.

 

Income Tax Rate

 

We consider the full income tax rate, net of the tax effect of the payment of interest on net equity, for the Commercial Bank, Itaú BBA, Consumer Credit and Activities with the Market. The difference between the amount of income tax determined by segment and the amount of the effective income tax, as indicated in the consolidated financial statement, is allocated to the Activities with the Market + Corporation segment column.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 43

 

 
 

 

Analysis of Segments

 

The pro forma financial statements of the Commercial Bank, Consumer Credit, Itaú BBA and Activities with the Market + Corporation, presented below, are based on managerial information derived from internal models, so as to more accurately reflect the activities of the business units.

 

Pro Forma Balance Sheet by Segment | On December 31, 2012

 

R$ million

 

   Commercial
Bank		   Consumer
Credit		   Itaú BBA   Activities with
the Market +
Corporation		   Itaú Unibanco 
Assets                         
Current and Long-Term Assets   737,964    87,495    232,288    132,142    1,001,212 
Cash and Cash Equivalents   12,441    -    1,527    -    13,967 
Short-term Interbank Investments   267,502    -    26,411    3,769    182,034 
Short-term Interbank Deposits in the Market   218,371    -    5,281    3,769    182,034 
Short-term Interbank Deposits in Intercompany (*)   49,131    -    21,130    -    - 
Securities and Derivative Financial Instruments   159,360    -    81,492    85,172    276,174 
Interbank and Interbranch Accounts   61,679    -    2,967    -    64,610 
Loan, Lease and Other Credit Operations   166,718    85,839    109,435    4,309    366,285 
(Allowance for Loan Losses)   (14,554)   (6,751)   (1,362)   (20)   (22,687)
(Complementary Expected Loss Provisions)   -    -    -    (5,058)   (5,058)
Other Assets   84,819    8,407    11,818    43,971    125,887 
Foreign Exchange Portfolio   27,483    -    10,158    13,936    30,960 
Others   57,336    8,407    1,660    30,035    94,928 
Permanent Assets   7,068    2,601    1,142    2,402    13,213 
Total Assets   745,032    90,096    233,430    134,544    1,014,425 
Liabilities and Equity                         
Current and Long-Term Liabilities   709,566    79,982    219,954    117,418    938,165 
Deposits   205,391    8    82,793    13,305    243,200 
Deposits from Clients   197,428    8    33,662    13,305    243,200 
Intercompany deposits (*)   7,963    -    49,131    -    - 
Deposits Received under Securities Repurchase Agreements   161,888    57,910    62,825    67,188    288,818 
Securities Repurchase Agreements in the Market   148,722    57,910    16,384    67,188    288,818 
Securities Repurchase Agreements - Intercompany (*)   13,167    -    46,441    -    - 
Funds from Acceptances and Issue of Securities   90,066    -    8,264    -    55,108 
Interbank and Interbranch Accounts   1,730    18    3,267    -    4,979 
Borrowings and Onlendings   24,916    2,822    32,692    -    59,125 
Derivative Financial Instruments   5,752    -    7,842    -    11,128 
Other Liabilities   126,613    19,224    22,270    36,926    182,598 
Foreign Exchange Portfolio   27,681    -    10,104    13,936    31,104 
Subordinated Debt and Other   98,932    19,224    12,166    22,990    151,494 
Technical Provisions for Insurance, Pension Plans and Capitalization   93,210    -    -    -    93,210 
Deferred Income   955    -    182    -    1,137 
Minority Interest in Subsidiaries   -    -    -    903    903 
Economic Allocated Capital - Tier I (**)   34,511    10,114    13,293    16,223    74,220 
Total Liabilities and Equity   745,032    90,096    233,430    134,544    1,014,425 

 

(*) The Intercompany operations were eliminated in the Consolidated.

(**) The Economic Capital allocated to the Activities with the Market + Corporation column contains all the excess capital of the institution so as to arrive at the accounting net equity.

 

Pro Forma Income Statement by Segment | 4th Quarter of 2012

 

R$ million

 

   Commercial
Bank		   Consumer
Credit		   Itaú BBA   Activities with
the Market +
Corporation		   Itaú Unibanco 
Operating Revenues   12,763    3,605    1,925    1,573    19,856 
Managerial Financial Margin   7,623    2,014    1,321    1,443    12,417 
Banking Service Fees and Income from Banking Charges   3,297    1,559    640    22    5,507 
Result from Insurance, Pension Plans and Capitalization Operations before Retained Claims and Selling Expenses   1,628    1    12    1    1,642 
Other Operating Income   143    (5)   (38)   -    85 
Equity in earnings of affiliates and Other investments   -    40    0    105    145 
Non-operating Income   73    (3)   (10)   -    60 
Loan and Retained Claims/ Losses net of Recovery   (3,398)   (1,237)   (495)   135    (4,995)
Expenses for Allowance for Loan Losses   (3,715)   (1,484)   (499)   14    (5,685)
Income from Recovery of Credits Written Off as Losses   813    247    4    122    1,186 
Retained Claims   (496)   -    -    -    (496)
Operating Margin   9,365    2,368    1,430    1,708    14,861 
Other Operating Income/(Expenses)   (6,908)   (1,969)   (783)   (200)   (9,849)
Non-interest Expenses   (5,917)   (1,717)   (668)   (165)   (8,456)
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (714)   (252)   (115)   (35)   (1,116)
Selling Expenses From Insurance   (278)   -    -    -    (278)
Income before Tax and Profit Sharing   2,457    400    647    1,508    5,012 
Income Tax and Social Contribution   (883)   (110)   (179)   (289)   (1,462)
Profit Sharing   (13)   (2)   (20)   (1)   (36)
Minority Interests in Subsidiaries   -    -    -    (12)   (12)
Recurring Net Income   1,561    287    447    1,206    3,502 
(RAROC) – Return on Average Tier I Allocated Capital   19.4%   10.8%   13.4%   29.8%   19.3%
Efficiency Ratio (ER)   51.4%   51.2%   36.9%   10.7%   46.6%

 

Note: Non-interest Expenses item is made up of Personnel Expenses, Administrative Expenses, Other Tax Expenses and Operating Expenses.

The Consolidated figures do not represent the sum of the parts, because there are transactions between the companies that were eliminated only in the Consolidated figures.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 44

 

 
 

 

Analysis of Segments

 

The pro forma financial statements of the Commercial Bank, Consumer Credit, Itaú BBA and Activities with the Market + Corporation, presented below, are based on managerial information derived from internal models, so as to more accurately reflect the activities of the business units.

 

Pro Forma Balance Sheet by Segment | On September 30, 2012

 

R$ million

 

   Commercial
Bank		   Consumer
Credit		   Itaú BBA   Activities with
the Market +
Corporation		   Itaú Unibanco 
Assets                         
Current and Long-Term Assets   700,480    87,635    217,094    69,938    937,069 
Cash and Cash Equivalents   11,616    -    1,488    -    13,104 
Short-term Interbank Investments   211,020    -    19,317    3,333    163,342 
Short-term Interbank Deposits in the Market   169,670    -    (462)   3,333    163,342 
Short-term Interbank Deposits in Intercompany (*)   41,350    -    19,779    -    - 
Securities and Derivative Financial Instruments   181,081    -    73,139    25,295    234,556 
Interbank and Interbranch Accounts   65,519    -    3,274    -    68,761 
Loan, Lease and Other Credit Operations   163,516    86,357    106,166    3,772    359,810 
(Allowance for Loan Losses)   (14,986)   (6,677)   (944)   (17)   (22,624)
(Complementary Expected Loss Provisions)   -    -    -    (5,058)   (5,058)
Other Assets   82,714    7,955    14,655    42,613    125,177 
Foreign Exchange Portfolio   27,575    -    13,704    20,275    40,950 
Others   55,139    7,955    950    22,338    84,227 
Permanent Assets   7,930    2,552    1,147    11,518    23,147 
Total Assets   708,411    90,188    218,241    81,456    960,216 
Liabilities and Equity                         
Current and Long-Term Liabilities   677,735    79,051    204,724    55,912    879,304 
Deposits   195,926    26    70,076    13,890    231,919 
Deposits from Clients   187,244    26    28,726    13,890    231,919 
Intercompany deposits (*)   8,683    -    41,350    -    - 
Deposits Received under Securities Repurchase Agreements   150,716    57,807    62,668    -    245,272 
Securities Repurchase Agreements in the Market   139,620    57,807    50,255    -    245,272 
Securities Repurchase Agreements - Intercompany (*)   11,096    -    12,412    -    - 
Funds from Acceptances and Issue of Securities   87,888    -    7,713    -    57,044 
Interbank and Interbranch Accounts   5,614    18    2,759    -    8,360 
Borrowings and Onlendings   23,566    3,097    31,495    -    56,854 
Derivative Financial Instruments   4,226    -    7,467    -    9,125 
Other Liabilities   122,518    18,103    22,546    42,022    183,449 
Foreign Exchange Portfolio   27,918    -    13,536    20,275    41,125 
Subordinated Debt and Other   94,599    18,103    9,010    21,748    142,324 
Technical Provisions for Insurance, Pension Plans and Capitalization   87,281    -    -    -    87,281 
Deferred Income   654    -    159    -    813 
Minority Interest in Subsidiaries   -    -    -    1,121    1,121 
Economic Allocated Capital - Tier I (**)   30,021    11,136    13,358    24,422    78,979 
Total Liabilities and Equity   708,411    90,188    218,241    81,456    960,216 

(*) The Intercompany operations were eliminated in the Consolidated.

(**) The Economic Capital allocated to the Activities with the Market + Corporation column contains all the excess capital of the institution so as to arrive at the accounting net equity.

 

Pro Forma Income Statement by Segment | 3rd Quarter of 2012

 

R$ million

 

   Commercial
Bank		   Consumer
Credit		   Itaú BBA   Activities with
the Market +
Corporation		   Itaú Unibanco 
Operating Revenues   12,758    3,548    1,743    1,504    19,513 
Managerial Financial Margin   8,133    2,051    1,261    1,359    12,820 
Banking Service Fees and Income from Banking Charges   3,041    1,476    504    53    5,034 
Result from Insurance, Pension Plans and Capitalization Operations before Retained Claims and Selling Expenses   1,485    (2)   12    2    1,497 
Other Operating Income   96    8    (36)   -    52 
Equity in earnings of affiliates and Other investments   -    19    1    89    110 
Non-operating Income   3    (2)   0    -    1 
Loan and Retained Claims/ Losses net of Recovery   (3,962)   (1,288)   (62)   (31)   (5,344)
Expenses for Allowance for Loan Losses   (4,260)   (1,551)   (72)   (57)   (5,939)
Income from Recovery of Credits Written Off as Losses   861    263    9    25    1,159 
Retained Claims   (563)   -    -    -    (563)
Operating Margin   8,796    2,260    1,680    1,472    14,169 
Other Operating Income/(Expenses)   (6,612)   (1,890)   (856)   (125)   (9,443)
Non-interest Expenses   (5,663)   (1,645)   (754)   (126)   (8,148)
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (677)   (245)   (102)   1    (1,023)
Selling Expenses From Insurance   (272)   -    -    -    (272)
Income before Tax and Profit Sharing   2,184    370    824    1,348    4,726 
Income Tax and Social Contribution   (700)   (70)   (255)   (101)   (1,125)
Profit Sharing   (22)   (1)   (19)   (1)   (43)
Minority Interests in Subsidiaries   -    -    -    (145)   (145)
Recurring Net Income   1,462    299    551    1,100    3,412 
(RAROC) – Return on Average Tier I Allocated Capital   19.2%   10.9%   17.0%   22.6%   18.5%
Efficiency Ratio (ER)   49.1%   49.8%   46.0%   8.4%   45.5%

Note: Non-interest Expenses item is made up of Personnel Expenses, Administrative Expenses, Other Tax Expenses and Operating Expenses.

The Consolidated figures do not represent the sum of the parts, because there are transactions between the companies that were eliminated only in the Consolidated figures.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 45

 

 
 

 

Analysis of Segments

 

Commercial Banking

 

The revenues from the Commercial Banking segment arise from the offer of banking products and services to a diversified client base, including individuals and companies. The segment includes retail, high-income clients, high-net-worth clients (private banking) and very small, small and middle market companies.

 

In the fourth quarter of 2012, recurring net income from Commercial Banking totaled R$1,561 million, an increase of 6.8% from the previous quarter. This increase, which corresponds to R$99 million, is due to the combination between the stability of the operating revenues (in which the reduction of 6.3% in the financial margin was offset by the growth of other incomes, especially of service fees and income from banking charges, that grew R$256 million) and the 14.2% lower losses from loans and retained claims, net of recovery, which was partially offset by the increase in other operating expenses, mainly in non-interest expenses, that grew 4.5%.

 

The credit portfolio totaled R$166,718 million at the end of 2012, increasing 2.0% when compared to the third quarter of the previous year. The Commercial Banking segment’s return on allocated capital reached 19.4% a year, and the efficiency ratio was 51.4%.

 

Some additional Commercial Bank Highlights:

 

Branch Network (*) | Individuals

 

Our service network covers the entire Brazilian territory and adopts a segmentation strategy that includes structures, products and services that are developed to meet the specific needs of our many different clients. Our segments are: Itaú, Itaú Personnalité and Itaú Private Bank.

 

Our products are available in our branch network and through the “30 Horas” electronic channels and include: current accounts, investments, credit cards, personal loans, insurance, mortgage loans, vehicle financing and other banking products.

 

At the end of 2012, our branch network in Brazil comprised 4,731 units, including regular branches and Client-Service Branches (CSB). In 2012, 81 branches and 57 CSBs were opened.

 

Retail Points of Service in Brazil (*)

 

 

(*) It does not include branches and CSBs abroad and Itaú BBA.

 

Geographical Distribution of Service Network (*)

 

Number of Branches and Client Service Branches (CSB)

 

 

(*) Does not include branches and CSBs abroad and Itaú BBA.

 

Loan Portfolio

 

At the end of the fourth quarter, the credit portfolio of the individuals segment totaled R$81,533 million, an increase of 4.8% from the previous quarter.

 

On December 31, 2012, the credit portfolio of the companies segment (excluding endorsements and sureties), composed of very small, small and middle market companies with sales of up to R$150 million, amounted to R$85,185 million, a decrease of 0.6% both quarter-on-quarter and year-on-year.

 

Consumer Credit

 

Revenues from the Consumer Credit segment arise from financial products and services offered to our non-account holder clients. In the fourth quarter of 2012, the segment’s recurring net income totaled R$287 million.

 

The segment’s operating revenues showed a growth of 1.6% from the previous quarter, mainly due to the increase of 5.6% in service fees and income from banking charges which surpassed the decrease of 1.8% in the financial margin. Also, loan and retained claim losses, net of recovery, dropped 4.0% and there was an increase of 4.2% in other operating expenses.

 

The return on allocated capital was 10.8% a year, and the efficiency ratio reached 51.2% in the last quarter of the year. As of December 31, 2012, the balance of the credit portfolio was R$85,839 million.

 

Itaú BBA

 

Itaú BBA is the arm responsible for banking transactions with large companies and for investment banking services. Our clients are the approximately 2,600 largest Brazilian corporate groups, over 200 financial institutions and 700 institutional investors. We offer them a wide portfolio of banking products and services, from cash management to structured operations and transactions in the Capital Markets.

 

In 2012, for the third time, Itaú BBA was recognized as “the most innovative Investment Bank in Latin America”, by the English magazine The Banker, of the Financial Times group.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 46

 

 
 

 

Analysis of Segments

 

And, for the fifth consecutive year, Itaú BBA was chosen by Euromoney magazine as the best Cash Management Bank in Brazil and is ranked among the top three Best Regional Cash Management in Latam. To determine the best banks in the segment, the magazine evaluates quality of service, technical support, expertise in the area, commitment and innovation, based on the perception of clients.

 

The credit portfolio (including endorsements and sureties) in Brazil increased 3.6% from the third quarter of 2012 and 15.5% when compared to the same period of the previous year, to R$158.5 billion. This year-on-year increase is basically due to Itaú BBA’s commercial effort to strengthen its relationship with clients, in particular (i) funding operations in foreign currency, which grew 22.9% (if we disregard the effect of the foreign exchange variation, the increase would be 12.8%), and (ii) portfolio of sureties and endorsements, which increased 16.2%.

 

The financial margin totaled R$1,321 million in the fourth quarter, up 4.7% from the previous quarter. Banking service fees and income from banking charges amounted to R$640 million, an increase of 27.1% when compared to the previous quarter.

 

In the fourth quarter of 2012, a R$428 million increase in the expenses for provisions for loan losses was noticed. This increase is mainly due to the recognition of general provisions for some economic groups as a result of the revision of ratings. There was no increase in overdue balances of the corporate portfolio. We continue to distinguish ourselves for the excellent level of quality of the credit portfolio, in which 92.1% of the credits are attributed “AA”, “A” and “B” ratings in accordance with the criteria set forth in Resolution No. 2,682 of the National Monetary Council.

 

Thus, our net income totaled R$447 million in the fourth quarter of 2012, a drop of 18.8% from the previous quarter.

 

Once again in 2012, our performance in investment banking stood out:

 

Domestic Fixed Income Issues: First place in volume in the ANBIMA distribution ranking, for the participation in debenture, promissory note and securitization transactions, which totaled R$21.7 billion, corresponding to a market share of 32.5% from January to November of 2012.

 

International Fixed Income Issues: First place in the BondRadar ranking, for Issues by Brazilian Companies of December 2012 in Brazilian reais and in U.S. dollars.

 

Mergers and Acquisitions: In 2012, we provided financial advisory services for 69 transactions, reaching the top of the Thomson Reuters ranking in volume of operations, with a total of US$16.9 billion.

 

In the corporate banking segment, we highlight the following Itaú BBA’s operations:

 

Derivatives: We have maintained our leading position in CETIP (Clearing House for the Custody and Financial Settlement of Securities) in derivative instruments with companies in the over-the-counter markets. It focused on operations that hedge our clients’ exposures to foreign currencies, interest rates and commodities. The volume contracted between January and December 2012 was 36.7% higher than in the same period of the previous year.

 

Project Finance: At the end of the fourth quarter of 2012, the bank had 72 projects involving structuring and/or advisory in the period between January and December 2012. The total investments involved in these projects in many industries, such as oil and gas, energy, industrial, mining, logistics and sanitation, exceeded R$103 billion.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 47

 

 
 

 

Products and Services

 

The results of each product and each service are classified in the segments according to the characteristics of the operations. Accordingly, some of the products and services listed below may be included in more than one segment.

 

Mortgage Loans

 

At the end of the fourth quarter of 2012, the mortgage loans portfolio, including securitized loans, amounted to R$26,226 million, with a growth of 7.3% and 30.6%, in the quarter when compared to the previous quarter and to December 2011, respectively. The individuals portfolio, totaling R$18,437 million at the end of the fourth quarter, increased 7.8% when compared to the previous quarter and 31.8% in relation to December 2011, thus keeping the pace of expansion that characterized the real estate market in the past quarters. At the end of December 2012, the companies portfolio totaled R$7,790 million.

 

In the last quarter of 2012, the volume of new mortgage loan financing contracts for individuals was R$2,079 million, whereas financing for companies totaled R$1,549 million, totaling R$3,628 million.

 

Volume of Originations

 

   R$ million 
   4Q12   3Q12   4Q11 
Individuals   2,079    1,712    1,975 
Companies   1,549    1,546    3,312 
Total   3,628    3,257    5,287 

 

Payroll Loans

 

A payroll loan is a loan with fixed installments that are directly discounted from the client’s payroll.

 

We incorporated a new financial institution - Banco Itaú BMG Consignado S.A. - in partnership with Banco BMG S.A. (70% controlled by Itaú Unibanco and 30% by BMG), aiming at the offering, distribution and sale of payroll loans in Brazil. The association was approved by the Administrative Council for Economic Defense (Cade) in October and operations started in December 2012. It will enable us to expand our business in this segment and will operate under our transparency values and principles, following our good management practices and policies. This operation aims at diversifying our loan portfolio, supplementing our payroll loan strategy, and improving the risk profile of our individuals loan portfolio. The conclusion of the operation is subject to approval by the Central Bank of Brazil.

 

Evolution of the Payroll Loan Portfolio

 

 

Loans to retirees and pensioners of the INSS presented the highest growth in the payroll loan portfolio, which reached R$13,550 million in December 2012, an increase of 8.0% from September 2012. Year-on-year, the payroll loan portfolio increased 34.1% (R$3,443 million). Excluding the portfolio of acquired loans(*), the volume of the portfolio is R$12,929 million, an increase of 7.1% in the quarter and 29.4% in relation to the same period of the previous year.

 

(*) It does not include the payroll loan portfolio acquired from BMG, that from this quarter is being considered along with Own Payroll Loans. For comparability purposes, prior periods have been reclassified.

 

Vehicle Financing

 

The vehicle financing portfolio to individuals amounted to R$51,220 million at the end of the fourth quarter of 2012. New vehicle financing and leasing transactions totaled R$5,655 million, an increase of 12.7% from the previous quarter. Considering the portfolio balance, our market share was 27.5% at the end of November 2012.

 

Default Levels and Selectivity

 

The NPL over 90 days of Itaú Unibanco, measured by vintages four months after the origination, reached its peak, 1.56%, in April 2011. The negative performance led to stricter selectivity in origination from the second half of 2011, affecting the approval rates of new financing contracts and risk profile of clients. The new criteria for origination led to a decrease in the default levels in the most recent vintages.

 

Average Term and Down Payments (Itaú Unibanco)

 

 

The chart below shows that, in August 2012, little more than one year after the peak of default rate levels, the NPL over 90 days of the new origination vintages decreased 140 basis points, reaching 0.16%.

 

NPL over 90 (%) | 4 months after vehicle financing origination

 

 

Source: Brazilian Central Bank.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 48

 

 
 

 

Products and Services

 

Cards

 

Through proprietary and partnership operations, we offer a wide range of credit and debit cards to more than 57.7 million current and non-current account holders (in number of accounts). In the fourth quarter of 2012, the volume of transactions amounted to R$65,046 million, an increase of 13.0% from the same period of the previous year.

 

Credit Cards

 

We are a leading player in the Brazilian credit card market. Through Itaucard, Hipercard, joint ventures and commercial agreements with major retailers in the Brazilian market, we have reached 33.3 million client accounts, including both current and non-current account holders.

 

This quarter, we continued to reduce the number of partnerships to concentrate on business of larger scale, in line with the efficiency-gain strategy. At the same time, we kept the more conservative financing policy in order to maintain the credit quality of our card portfolio. In the fourth quarter of 2012, the volume of credit card transactions amounted to R$49,363 million, which corresponds to an increase of 12.9% from the same period of the previous year.

 

 

Note: Personal Loan and Consumer Credit products are not taken into consideration; For demonstration purposes, the volumes and results presented here include the portion corresponding to current account holders, although these clients are reported in the Pro Forma in the Commercial Bank column.

 

Debit Cards

 

In the debit card segment, which includes only current account holders, we have 24.5 million accounts. The volume of debit card transactions amounted to R$15,683 million in the last quarter of 2012, a 13.2% increase from the same period of the previous year.

 

 

Note: Data for December, 2012 are preliminary, calculated based on results obtained to date prior to the closing of the period.

 

Acquiring

 

Our acquiring business comprises the process of capture of transactions through the affiliation, management and relationship with commercial establishments through the companies Hipercard and Redecard.

 

This quarter, the transaction volume totaled R$82.0 billion, an increase of 19.8% from the third quarter of 2012 and 16.5% from the same period of the previous year.

 

Credit Card Transactions

 

In the fourth quarter of 2012, the volume of credit card transactions was R$53.0 billion, representing 64.6% of the total volume of transactions generated by the acquiring services, an increase of 17.3% from the third quarter of 2012 and of 13.1% from the same period of the previous year.

 

In relation to the third quarter of 2012, service revenues from credit cards grew R$89.3 million, or 15.9%, due to the increase in the amount of transactions, as mentioned above.

 

 

Debit Card Transactions

 

In the last quarter of 2012, the volume of debit card transactions was R$29.0 billion, representing 35.4% of the total transaction volume, an increase of 24.5% from the third quarter of 2012 and of 23.4% from the same period of the previous year.

 

In relation to the third quarter of 2012, service revenues from debit cards grew R$38.3 million, or 22.8%, due to the increase in the amount of transactions, as mentioned above.

 

 

Equipment Base(*)

 

At the end of the fourth quarter of 2012, our base of active installed equipment reached 1,429 thousand units, showing a growth of 7.3% from the previous quarter.

 

 

(*) 100% of the equipment base of Redecard is able to capture Hipercard cards transactions.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 49

 

 
 

 

Products and Services

 

Wealth Management & Services (WMS)

 

Asset Management(*)

 

In November 2012, we had R$343.2 billion(*) in managed assets, representing 15.2% of the market. In the year, our growth totaled 14.5%, and the main highlights were the fixed-income and pension funds. In addition to the strong local presence, we are expanding internationally with professionals who are strategically allocated, searching for investment opportunities and solutions that are appropriate for global clients.

 

(*) Source: ANBIMA (Brazilian Financial and Capital Markets Association) Management Ranking – December/12 – Includes Itaú Unibanco and Intrag.

 

Asset Administration

 

We administer Privatization, Fixed Income and Equity Funds, Investment Clubs and Client Portfolios both in Brazil and abroad.

 

 

At the end of the fourth quarter of 2012, assets under administration totaled R$562.0 billion, a 4.8% increase from the previous quarter and 25.0% when compared to the end of 2011.

 

This quarter, we began to consider exclusive application funds of consolidated companies in the balance of administered assets, in order to demonstrate our total fund position using a disclosure criterion that is closer to ANBIMA’s. Accordingly, the historical data disclosed were reprocessed.

 

According to ANBIMA, in December 2012 we ranked second in the global ranking of fund management and managed portfolios, with a market share of 19.7%.

 

Solutions for Capital Markets

 

With four lines of business, the area of Solutions for Capital Markets serves both publicly and closely-held companies, pension funds, asset management and international investors, totaling 1,600 clients in 21 countries. We ended December 2012 with a market share of 24.8% and a total of R$939.7 billion in assets under custody, representing an increase of 14% from the same period of 2011. Our business lines are:

 

Local Custody and Trust Administration: we offer custody and controllership solutions for portfolios, investment, mutual and pension funds, services of investment fund management, legal representation, localization and contracting of service providers. At the end of December, we had a total of R$725.3 billion under custody, representing a growth of 23% from the same period of 2011.

 

International Custody: we offer services of custody and representation to investors outside Brazil, custody of ADR programs and also depositary services for Brazilian Depositary Receipts (BDR) programs. At the end of December, we had a total of R$214.4 billion under custody, representing a reduction of 7% from the same period of 2011.

 

Solutions for Corporations: we offer many solutions for capital markets, such as the control of stock option programs, bookkeeping, debentures , settlement and custody of promissory notes and bank credit notes. We also work as guarantee agent in operations of project finance, escrow accounts, and loan and financing contracts. We are leaders in the bookkeeping of shares, providing services to 229 companies listed at the BM&F Bovespa, representing 62.9% of the total, and we also led the bookkeeping of debentures issued in 2012.

 

In December 2012, we reached R$3.2 trillion in assets under services. The quality of our service provision was once again recognized by renowned institutions. We were elected by the Global Custodian magazine as the Best Custody Service Provider in Brazil for domestic clients (5th consecutive time) and international clients (4th consecutive time). In 2012, we were also recognized by the Global Finance magazine as the Best Custody Service Provider in Brazil for international clients. Our management model was evaluated by the Paulista Management Excellence Institute and we were awarded the Gold Medal in the Paulista Quality Management Award.

 

Source: Internal Financial Planning, ANBIMA (Brazilian Financial and Capital Markets Association) and Bovespa - December/12.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 50

 

 

 
 

   

  

insurance,

life and pension

plan &

capitalization

 

Itaú Unibanco Holding S.A.

 

 

4th quarter of 2012

Management Discussion & Analysis

 

 
 

 

 

 

Insurance, Life and Pension Plan & Capitalization

 

The Pro Forma financial statements below were prepared based on Itaú Unibanco’s managerial information and are intended to explain the performance of the insurance-related businesses.

 

The numbers presented in this chapter are part of the Commercial Bank segment and do not include the results of the association with Porto Seguro (1), which are in the Activities with the Market and Corporation segment.

 

Pro Forma Statement of Recurring Income of the Insurance, Life and Pension Plan and Capitalization Segment

 

           R$ million 
           Variation 
   4Q12   3Q12   4Q12 - 3Q12 
Earned Premiums (a)   1,437    1,359    77    5.7%
Result of Pension Plan and Capitalization (b)   181    138    43    31.3%
Retained Claims (c)   (491)   (558)   67    -12.0%
Selling Expenses (d)   (425)   (413)   (13)   3.1%
Other Operating Income/(Expenses) of Insurance Operations (e)   3    (15)   18    - 
Underwriting Margin (f=a+c+d+e)   523    373    150    40.1%
Result from Insurance, Pension Plan and Capitalization (g=b+f)   704    511    193    37.7%
Managerial Financial Margin   246    269    (23)   -8.6%
Service Fees   236    229    7    2.9%
Non-Interest Expenses   (369)   (290)   (79)   27.3%
Tax Expenses for ISS, PIS and Cofins and Other Taxes   (60)   (57)   (3)   5.8%
Other Operating Income/(Expenses)   (0)   (11)   11    - 
Operating Income   757    652    105    16.1%
Non-operating Income   10    11    (1)   -10.4%
Income Before Income Tax and Social Contribution   766    662    104    15.7%
Income Tax/Social Contribution   (275)   (234)   (41)   17.6%
Recurring Net Income   491    428    63    14.7%
(RAROC) — Return on Average Tier I Allocated Capital   34.4%   31.4%        300bps
Efficiency Ratio (ER)   38.8%   37.2%        160bps

 

Note: Retained Claims are different from Consolidated Retained Claims, because they do not consider the operations of the Activities Abroad.

The Underwriting Margin refers to Insurance and Life and Pension Plan.

Non-Interest Expenses comprise Personnel Expenses, Administrative Expenses, Tax Expenses, and Other Operating Expenses.

(1) Except for the calculation of the insurance ratio that includes the 30% interest in Porto Seguro.

 

Recurring Net Income and Insurance Ratio

 

R$ million

 

 

Insurance Ratio (%) = Insurance, Life and Pension Plan and Capitalization segment’s Recurring Net Income/ Itaú Unibanco’s Recurring Net Income.

 

Note: The insurance ratio considers the 30% interest in Porto Seguro. For the fourth quarter of 2012 we consider the equity in earnings of affiliates of the third quarter of 2012, due to the differences in the timing of disclosure of companies.

 

In the fourth quarter of 2012, the Insurance, Life and Pension Plan and Capitalization segment recurring net income totaled R$491 million, a 14.7% growth from the previous quarter. The return on allocated capital reached 34.4% in the period, a 300 basis point increase from the previous quarter.

 

Compared to the previous quarter, the main factor that impacted net income was the increase in the underwriting margin, mainly influenced by the increase in earned premiums and the decrease in expenses with retained claims in the period. These changes were partially offset by the increase in non-interest expenses.

 

The insurance ratio represents the share of recurring net income from Insurance, Life and Pension Plan and Capitalization in Itaú Unibanco Holding’s recurring net income. In the fourth quarter of 2012, the insurance ratio reached 15.2%, an increase of 150 basis points from the previous quarter.

 

Composition of Recurring Net Income of Insurance, Life and Pension Plan and Capitalization

 

 

In this quarter, in the composition of recurring net income, the Insurance subsegment increased 790 basis points in relation to the previous quarter.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 52

 

 
 

 

Insurance, Life and Pension Plan & Capitalization

 

Efficiency Ratio

 

In the fourth quarter, the efficiency ratio, in the full concept (that includes all expenses), was 38.8%, corresponding to a 160 basis point increase from the previous period, mainly as a result of the increase in non-interest expenses and the decrease in the managerial financial margin.

 

The risk-adjusted efficiency ratio adds to the formula the impacts of risk portions associated with Insurance and Life and Pension Plan (claims). In the fourth quarter, the index was 62.9%, a decrease of 330 basis points from the third quarter of 2012.

 

 

(*) Net of Tax Expenses for ISS, PIS and Cofins and Other.

(**) Does not include Equity in Earnings of Affiliates and Other Investments and Non-Operating Income.

 

Pro Forma Insurance, Pension Plan and Capitalization Balance Sheet

 

The Balance Sheet of the Insurance, Pension Plan and Capitalization segments is presented below. On December 31, 2012, total assets amounted to R$105.0 billion, an increase of R$6.6 billion from the end of the third quarter of 2012. Technical provisions added up to R$93.2 billion, a 6.8% increase from the previous quarter, mainly due to the increase in the technical provisions of the VGBL product. We note that these numbers do not include the operations of the Activities Abroad and the 30% interest in Porto Seguro.

 

R$ million

 

                                   Variation 
                                   Dec 31,12 - 
   Dec 31,12   Sep 30,12   Sep 30,12 
   Insurance   Life and
Pension Plan		   Capitalization   Total   Insurance   Life and
Pension Plan		   Capitalization   Total   Total 
Assets                                                  
Current and Long-Term Assets   11,865    88,095    3,303    104,553    12,151    82,485    3,299    97,897    6,656    6.8%
Cash and Cash Equivalents   137    47    14    199    154    4    4    162    37    22.5%
Securities   3,876    87,058    3,214    94,142    3,428    81,502    3,219    88,147    5,996    6.8%
Other Assets (mainly receivables from insurance)   7,852    991    75    10,212    8,569    979    76    9,588    624    6.5%
Permanent Assets   382    56    37    467    391    81    37    502    (35)   -6.9%
Total Assets   12,247    88,151    3,340    105,020    12,542    82,566    3,336    98,399    6,621    6.7%
                                                   
Liabilities and Equity                                                  
Current and Long – Term Liabilities   11,071    83,679    3,136    99,169    11,373    78,376    3,131    92,835    6,333    6.8%
Technical Provisions – Insurance   6,842    978    -    9,130    7,553    1,020    -    8,573    557    6.5%
Technical Provisions – Pension Plan and VGBL   507    80,644    -    81,151    496    75,278    -    75,773    5,378    7.1%
Technical Provisions – Capitalization   -    -    2,910    2,892    -    -    2,915    2,900    (9)   -0.3%
Other Liabilities   3,722    2,057    226    5,996    3,324    2,078    217    5,588    408    7.3%
Allocated Tier I Capital   1,175    4,472    204    5,852    1,169    4,190    205    5,564    288    5.2%
Total Liabilities and Equity   12,247    88,151    3,340    105,020    12,542    82,566    3,336    98,399    6,621    6.7%

 

Note: The Insurance, Pension Plan and Capitalization technical provisions are different from the consolidated technical provisions because they do not consider the operations of the Activities Abroad and the 30% interest in Porto Seguro.

 

The Consolidated does not represent the sum of the parts because there are transactions between companies that were eliminated.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 53

 

 
 

 

Insurance

 

The numbers presented in this chapter are part of the Commercial Bank segment and do not include the results of the association with Porto Seguro, which were included in the Activities with the Market Corporation segment.

 

Pro Forma Recurring Income Statement of Insurance Segment

 

               R$ million 
           Variation 
   4Q12   3Q12   4Q12 - 3Q12 
Earned Premiums (a)   1,211    1,105    106    9.6%
Retained Claims (b)   (409)   (445)   36    -8.1%
Selling Expenses (c)   (397)   (384)   (13)   3.5%
Other Operating Income/(Expenses) of Insurance Operations (d)   (21)   (15)   (5)   34.2%
Underwriting Margin (e=a+b+c+d)   384    261    123    47.4%
Result from Insurance   385    261    125    47.8%
Managerial Financial Margin   79    73    6    8.3%
Non-Interest Expenses   (201)   (166)   (35)   21.4%
Tax Expenses for ISS, PIS and Cofins and Other Taxes   (26)   (22)   (3)   13.8%
Other Operating Income/(Expenses)   (3)   0    (3)   - 
Operating Income   235    146    89    61.2%
Non-operating Income   7    7    (0)   -4.3%
Income Before Income Tax and Social Contribution   242    153    89    58.1%
Income Tax/Social Contribution   (90)   (55)   (36)   65.6%
Recurring Net Income   151    98    53    54.4%
(RAROC) — Return on Average Tier I Allocated Capital   33.5%   33.8%        -30bps
Efficiency Ratio (ER)   49.0%   48.9%        10bps

 

We carry out significant business with large industrial and commercial clients. Our Corporate Solution area provides dedicated service and specific products for the civil construction, chemicals and petrochemicals, energy generation, infrastructure, transportation, aviation and other industries. For individuals, and small and middle market companies, our focus is to simplify the product portfolio and use electronic policies to better meet the clients’ needs with products that are straightforward and easy to understand.

 

The customer relationship management area has implemented a number of projects, tailoring specific products to each customer’s profile, which enables the more efficient use of different relationship channels. This department also seeks to continuously improve its operational efficiency by managing costs, investing in new technologies and optimizing processes.

 

Additionally, we also work to simplify and improve the efficiency of the processes for contracting our products, bringing more agility to our client service.

 

In the individuals segment, the highlights were the products in the Life line for which we carried out a sales campaign advertised in the major media vehicles in Brazil.

 

Products to be highlighted in the companies segment include Group Life and Corporate Solutions.

 

In relation to the accumulated total from January to November (*) 2012, our market share reached 13.3%, based on information disclosed by SUSEP (Superintendency of Private Insurance, which regulates all insurance lines, except Health Insurance, which is regulated by ANS, the National Health Agency), and earned premiums reached R$6,995 million, considering our 30% interest in Porto Seguro.

 

In this quarter, the Insurance segment’s recurring net income reached R$151 million, a 54.4% increase from the previous quarter, mainly driven by the increase in the underwriting margin, which was influenced by the increase in earned premiums and the decrease in expenses with retained claims.

 

(*) November data is the most recent available.

 

Earned Premiums

 

R$ million

 

 

In the fourth quarter of 2012, earned premiums added up to R$1,211 million in the Insurance subsegment, a 9.6% increase when compared to the previous quarter as a result of the good performance of the extended warranty, life and personal accidents and property risk products. Earned premiums in the Life and Pension Plan subsegment added up to R$231 million, a 9.4% decrease when compared to the previous quarter.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 54

 

 
 

 

Insurance

 

Composition of Earned Premiums

 

 

Note: The charts do not include the Itauseg Saúde company and include the Life product of Itaú Vida e Previdência S.A.

 

Combined Ratio and Underwriting Margin

 

 

Note: The combined ratio is the sum of the following ratios: retained claims/ earned premiums, selling expenses/ earned premiums and administrative expenses and other operating income and expenses /earned premiums.

 

The underwriting margin is the sum of: earned premiums, retained claims, selling expenses and other operating income (expenses) of insurance operations.

 

Note: The charts do not include the Itauseg Saúde company and include the Life product of Itaú Vida e Previdência S.A.

 

The consolidated underwriting margin (which includes Insurance and Life of Itaú Vida e Previdência S.A.) amounted to R$523 million in the fourth quarter of 2012, an increase of 40.1% when compared to the previous quarter. If the health insurance line (in process of discontinuation due to a strategic decision) is disregarded, the underwriting margin totaled R$548 million. The ratio of underwriting margin to earned premiums reached 39.0%, a 900 basis point growth from the previous period.

 

The combined ratio, which reflects the efficiency of the operating expenses in relation to income from earned premiums, was 79.6%, a 550 basis point decrease from the previous quarter, mainly influenced by the increase in earned premiums and the decrease in expenses with retained claims, partially offset by the increase in selling expenses.

 

Composition of Retained Claims

 

 

Note: The charts do not include the Itauseg Saúde company and include the Life product of Itaú Vida e Previdência S.A.

 

Insurance Technical Provisions

 

On December 31, 2012, insurance technical provisions totaled R$9,130 million, a 6.5% increase from the previous quarter and 19.6% from the same period of the previous year.

 

R$ million

 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 55

 

 
 

 

Life and Pension Plan

 

Pro Forma Recurring Income Statement of Life and Pension Plan Segment

 

           R$ million 
           Variation 
   4Q12   3Q12   4Q12 - 3Q12 
Earned Premiums (a)   231    255    (24)   -9.4%
Result of Pension Plan (b)   51    19    32    - 
Retained Claims (c)   (82)   (113)   31    -27.5%
Selling Expenses (d)   (23)   (23)   (0)   0.8%
Other Operating Income/(Expenses) of Insurance Operations (e)   1    (2)   3    - 
Underwriting Margin (f=a+c+d+e)   127    117    10    8.9%
Result from Insurance, Pension Plan (g=b+f)   178    136    42    31.0%
Managerial Financial Margin   138    162    (24)   -15.0%
Service Fees   236    230    7    2.9%
Non-Interest Expenses   (115)   (93)   (22)   24.1%
Tax Expenses for ISS, PIS and Cofins and Other Taxes   (27)   (29)   2    -5.8%
Other Operating Income/(Expenses)   1    0    1    - 
Operating Income   411    407    4    1.1%
Non-operating Income   (0)   1    (1)   - 
Income Before Income Tax and Social Contribution   411    407    4    0.9%
Income Tax/Social Contribution   (141)   (140)   (1)   0.6%
Recurring Net Income   270    267    3    1.0%
(RAROC) — Return on Average Tier I Allocated Capital   25.0%   26.2%        -120bps
Efficiency Ratio (ER)   21.7%   18.5%        320bps

 

Product innovation has played a significant role in the sustainable growth of our pension plan operations. For individuals, multi-market and multi-strategy products are to be highlighted, as they allow for the investment of funds on a long-term basis, seeking the best short-term investment strategies. In pension plan for companies, we offer specialized advisory services and develop customized solutions for each company. We establish long-term partnerships with our corporate customers, keeping a close relationship with the human resources departments and adopting a communication strategy designed for the financial education of their employees.

 

The Life and Pension Plan subsegment’s recurring net income totaled R$270 million, a 1.0% increase from the previous quarter, driven by the growth in the result of pension plan of R$32 million.

 

Evolution of Contributions and Net Contributions

 

R$ million

 

 

Total contributions to pension plan in the quarter reached R$5,871 million, an increase of 23.0% when compared to the third quarter. In relation to the same period of the previous year, contributions increased 57.6%, chiefly on account of the 63.6% growth in contributions to the VGBL product. Net contributions, which comprise total contributions less redemptions and external portabilities, increased 32.8% from the previous quarter and 79.7% when compared to the same period of the previous year.

 

Taking into consideration net contributions from January to November (according to data provided by SUSEP), our market share reached 30.5% in the period.

 

Pension Plan Technical Provisions and Administration Fees

 

Pension plan technical provisions totaled R$81,151 million on December 31, 2012, representing an increase of 7.1% and of 28.3% when compared to the previous quarter and the same period of the previous year, respectively.

 

Revenues from administration fees totaled R$236 million in the fourth quarter of 2012, a 2.9% increase from the previous quarter and a 32.1% increase from the same period of 2011.

 

R$ million

 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 56

 

 
 

 

Capitalization

 

Pro Forma Capitalization Recurring Income Statement

 

           R$ million 
           Variation 
   4Q12   3Q12   4Q12 - 3Q12 
Result of Capitalization (a)   129    119    10    8.6%
Selling Expenses (b)   (5)   (6)   1    -12.4%
Result from Capitalization Operations (c=a+b)   124    113    11    9.7%
Managerial Financial Margin   28    33    (5)   -14.7%
Non-Interest Expenses   (53)   (35)   (17)   48.5%
Tax Expenses for ISS, PIS and Cofins and Other Taxes   (7)   (6)   (2)   33.8%
Other Operating Income/(Expenses)   18    (7)   25    - 
Operating Income   110    97    12    12.8%
Non-operating Income   3    3    (0)   -0.7%
Income Before Income Tax and Social Contribution   113    100    12    12.4%
Income Tax/Social Contribution   (44)   (39)   (5)   12.8%
Recurring Net Income   69    61    7    12.1%
(RAROC) — Return on Average Tier I Allocated Capital   134.7%   119.9%        1480bps
Efficiency Ratio (ER)   34.4%   29.7%        470bps

 

The Capitalization Certificate (PIC) product is targeted at clients that like to compete for prizes. It can be purchased through a single or monthly payment, in accordance with the profile and segment of each customer.

 

PIC was remodeled in mid 2011 and increased the chances of rewarding its customers. Now, the product is effective for shorter terms, more customers win and prizes are higher. The product was also launched for companies as PIC Empresas.

 

In the period between January and December 2012, 4,177 customers received prizes in the aggregate amount of R$36.6 million.

 

The capitalization segment’s net income reached R$69 million, or a 12.1% increase from the third quarter, influenced by the increase in the result of capitalization and operating income.

 

Capitalization Subsegment’s Net Income

 

R$ million

 

 

Capitalization Technical Provisions

 

On December 31, 2012, capitalization technical provisions reached R$2,892 million, representing a slight decrease of 0.3% from the third quarter of 2012 and an increase of 1.6% when compared to the same period of the previous year.

 

R$ million

 

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 57

 

 
 

 

 

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Management Discussion & Analysis Itaú Unibanco Holding S.A. 58

 

 
 

 

 

activities

abroad

 

Itaú Unibanco Holding S.A.

 

 

4thquarter of 2012

Management Discussion & Analysis

 

 

 
 

 

Activities Abroad

 

International Presence

 

 

In the Brazilian market, our position is well consolidated and our strong international footprint confirms our recognition abroad, where we are focused on the expansion of our regional and global objectives, providing high-quality services to our local clients and to Brazilians clients operating abroad.

 

We have presence in 19 countries outside Brazil, seven of which are in Latin America. In Argentina, Chile, Paraguay and Uruguay, we focus on the banking retail, companies, corporate and treasury segments, with a focus on commercial banking. In Mexico, we operate in the credit card segment. We also have an Itaú BBA representation office in Peru and, in October, the Superintendencia Financiera de Colombia (Financial Services Superintendency of Colombia) issued the operating license for Itaú BBA Colombia S.A. - Corporación Financiera, which has a total capitalization of approximately US$ 200 million. The unit’s operations will be gradually increased in 2013.

 

Additionally, we have operations in Europe (Portugal, the United Kingdom, Luxembourg, Spain, France, Germany and Switzerland), in the United States (Miami and New York), in the Caribbean (the Cayman Islands and the Bahamas), in the Middle East (Dubai), and in Asia (Hong Kong, Shanghai and Tokyo). These are operations that mainly serve institutional, investment, corporate and private banking clients.

 

Information about our international operations (including results and assets and liabilities of our foreign branches) is presented below:

 

Highlights of International Units

Statement of Income  R$ million (except where indicated) 
            4Q12-   4Q12-         
   4Q12   3Q12   4Q11   3Q12   4Q11   2012   2011 
Recurring Net Income   304    474    714    -35.9%   -57.5%   1,855    2,559 
Operating Revenues   1,354    1,208    1,301    12.2%   4.1%   5,112    4,454 
Financial Margin   988    877    991    12.7%   -0.3%   3,709    3,217 

 

Balance Sheet

   Dec 31,12   Sep 30,12   Dec 31,11   Dec/12 -
Sep/12		   Dec/12 -
Dec/11		 
Total Assets   192,254    189,207    162,143    1.6%   18.6%
Loans, Leases and Other Credit Operations   69,728    66,547    61,764    4.8%   12.9%
Deposits   61,522    63,271    58,883    -2.8%   4.5%
Stockholders' Equity   20,459    19,342    26,678    5.8%   -23.3%

 

International Service Network

   Dec 31,12   Sep 30,12   Dec 31,11   Dec/12 -
Sep/12		   Dec/12 -
Dec/11		 
Employees (Individuals)   6,654    6,603    6,284    0.8%   5.9%
Number of Points of Service (Units)   837    840    779    -0.4%   7.4%
Branches (*)   256    257    243    -0.4%   5.3%
Client Service Branches   30    30    31    0.0%   -3.2%
Automated Teller Machines   551    553    505    -0.4%   9.1%

 

(*) It does not include Itaú BBA.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 60

 

 
 

 

Activities Abroad

 

Main Commercial Banking Operations in Latin America (¹)

 

Our main operations in Latin America are concentrated in Argentina, Chile, Paraguay and Uruguay, originated from investments made by Itaú and Unibanco before the merger. We are also present in the Mexican credit card market through Itaucard México. In Colombia and Peru, our activities are only related to corporate and investment banking.

 

In addition to showing a growth faster than the world’s average, Latin America is a priority in our international expansion due to the geographic and cultural proximity to Brazil. Our purpose is to be recognized as the “Latin American Bank”, becoming a reference in the region for all financial services provided to individuals or legal entities.

 

We have expanded our businesses in the region in a sustainable way over the past years and our priority now is to gain economies of scale, maintain a strong relationship with the local retail market and strengthen our footprint with local companies. The increasing expansion of Brazilian companies in the region favors our strategy by setting up a client base for us to start or expand our operations.

 

In 2013 we begin a new stage of this strategy. Continuing the efforts made last year, we will continue to invest in the communication and marketing of our brand, in the expansion of our portfolio of products and services supported by a strong risk analysis, financial education initiatives for clients and the consolidation of our corporate culture with our employees.

 

In terms of management, we are consistently investing in technological infrastructure and processes, so that we can keep growing with quality and security.

 

Below we present some highlights of our regional operations:

 

Latin America Statement of Income (1)

                   R$ million 
   Argentina   Chile   Paraguay   Uruguay 
   4Q12   3Q12   4Q12   3Q12   4Q12   3Q12   4Q12   3Q12 
Operating Revenues   174    168    259    244    116    110    126    118 
Financial Margin   123    120    186    172    78    77    32    35 
Banking Service Fees and Income from Banking Charges   52    45    48    51    36    34    94    83 
Operations                                        
Before Retained Claims and Selling Expenses   -    -    16    14    -    -    -    - 
Other Operating Income   (1)   2    7    7    0    0    0    0 
Non-operating Income   1    1    1    1    2    (1)   0    0 
Loans and Retained Claims Losses net of Recovery   (13)   (7)   (34)   (49)   (9)   (21)   (8)   0 
Operational Margin   161    161    224    196    107    89    118    118 
Other Operating Expenses   (140)   (119)   (161)   (140)   (51)   (47)   (114)   (101)
Non-interest Expenses   (140)   (119)   (161)   (141)   (51)   (47)   (114)   (101)
Selling Expenses from Insurance   -    -    (0)   1    -    -    -    - 
Income before Tax and Profit Sharing   21    41    63    56    56    42    3    18 
Income Tax and Social Contribution   (10)   (15)   (13)   (10)   (1)   (6)   (2)   (14)
Minority Interest in Subsidiaries   (0)   (0)   (0)   (0)   -    -    -    (0)
Recurring Net Income   11    26    50    46    55    36    1    3 
Return on Average Equity – Annualized   9.5%   22.3%   7.7%   7.9%   33.1%   24.1%   1.1%   2.8%
Return on Average Assets – Annualized   1.0%   2.5%   0.9%   0.8%   4.8%   3.4%   0.1%   0.2%
Efficiency Ratio   80.2%   71.0%   62.3%   57.2%   44.0%   42.8%   91.1%   85.2%

 

Net income from our main operations in Latin America increased by R$7 million when compared to the third quarter of 2012. The highlight was the increase in the financial margin in Chile, mainly due to the growth of the credit portfolio and the favorable impact of inflation on the result of inflation-linked assets.

 

Regarding Banking Services revenues, we recorded an increase in Uruguay, due to revenues from credit cards and exchange rate operations, and in Argentina, mainly from operations with credit cards and current accounts.

 

The provisions for loan losses also impacted positively the fourth quarter net income, as they fell in Paraguay, due to the implementation of a new provisioning model, and Chile, as a result of ratings upgrades of borrowers in the corporate segment. Meanwhile, provisions in Uruguay increased due to higher provisions for credit losses stemming from the change in criteria used by our credit card operator (OCA) in accordance with local legislation. In Argentina, there was an increase in provisions (larger volume of credit portfolio).

 

 Administrative expenses increased in the fourth quarter, mainly in Chile, as a result of higher expenses related to telecommunications (data transmission) and commissions paid for the use of ATMs, and in Argentina, due to higher fees paid and advertising expenditures. In Paraguay and Uruguay it is worth to mention the increase in marketing expenditures and the growth of the operational structure.

 

(1) The information refers to our main operations in Latin America (Argentina, Chile, Paraguay and Uruguay).

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 61

 

 
 

 

 

Activities Abroad

 

Latin America Statement of Income (1)

 

R$ million

   Argentina   Chile   Paraguay   Uruguay 
   2012   2011   2012   2011   2012   2011   2012   2011 
Operating Revenues   608    424    894    631    422    324    550    408 
Financial Margin   425    244    629    444    296    233    227    166 
Banking Service Fees and Income from Banking Charges   180    132    188    148    126    92    322    241 
Operations                                        
Before Retained Claims and Selling Expenses   -    -    48    22    -    -    -    - 
Other Operating Income   2    8    25    13    0    (0)   1    1 
Non-operating Income   1    40    4    3    (0)   (1)   0    0 
Loans and Retained Claims Losses net of Recovery   (37)   (18)   (145)   (48)   (30)   (31)   1    (25)
Operational Margin   572    406    750    583    391    292    551    382 
Other Operating Expenses   (486)   (364)   (539)   (410)   (187)   (131)   (383)   (287)
Non-interest Expenses   (486)   (364)   (538)   (409)   (187)   (131)   (383)   (287)
Selling Expenses from Insurance   -    -    (1)   (1)   -    -    -    - 
Income before Tax and Profit Sharing   85    42    211    173    205    161    168    95 
Income Tax and Social Contribution   (39)   (8)   (43)   (24)   (16)   (15)   (42)   (34)
Minority Interest in Subsidiaries   (1)   (8)   (0)   (0)   -    -    (0)   - 
Recurring Net Income   46    26    168    149    189    147    126    62 
Return on Average Equity – Annualized   11.9%   11.5%   7.1%   8.8%   32.5%   37.8%   27.3%   18.2%
Return on Average Assets – Annualized   1.2%   0.9%   0.8%   1.0%   4.4%   4.9%   2.2%   1.5%
Efficiency Ratio   80.0%   85.8%   60.3%   65.0%   44.3%   40.5%   69.6%   70.4%

 

Net income in 2012 was R$145 million higher than in 2011, because of the increase in the financial margin in Chile due to the the larger volume of loans in the retail and corporate segments in 2012 and the loss in foreign exchange and derivatives in 2011. In Argentina, there were better results with derivatives and an increase in corporate loans, personal loans and credit card financing portfolios in 2012.

 

Banking services fees increased mainly in Uruguay and Argentina, due to credit cards fees (higher in both countries), commissions from loans and current accounts in Argentina and foreign exchange transactions and transfers in Uruguay. In Chile, there was an increase in fees in the corporate and in credit cards segments. In Paraguay we highlight the growth in customer base.

 

Costs have increased, to support the growth of structures (points of service, employees, technology, etc.), variable compensation packages, marketing needs, data processing, outsourcing and others.

 

Service Network (1)

 

 

To support services to our client base of more than 1.4 million customers, we have a network of 282 branches and Client Service Branches (CSBs) in Latin America. In 2012 we opened 3 branches in Chile and 1 in Uruguay. In Argentina, 6 branches were closed due to a strategic decision, while expansion plans in the country are being reassessed. In 2013, we expect to open 14 new branches in the region, 10 of which would be in Chile, 2 in Paraguay and the remaining 2 in Uruguay.

 

The service network of OCA, our credit card operator in Uruguay and the country’s market leader, had 15 new points of service in 2012 and is expected to grow even further in 2013, with 3 additional points of service planned.

 

Service Network | Geographical Distribution (1)

 

 

Latin America Employees (1)

 

The number of employees in our major units in Latin America grew 0.7% in the fourth quarter and 5,0% year over year. The chart below presents the distribution in the main operations:

 

 

(1) The information refers to our main operations in Latin America (Argentina, Chile, Paraguay and Uruguay).

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 62

 

 
 

 

Activities Abroad

 

Latin America Balance Sheet (1)

 

   R$ million 
   Argentina   Chile   Paraguay   Uruguay 
   Dec 31,12   Sep 30,12   Dec 31,11   Dec 31,12   Sep 30,12   Dec 31,11   Dec 31,12   Sep 30,12   Dec 31,11   Dec 31,12   Sep 30,12   Dec 31,11 
Assets                                                            
Current and Long-term Assets   4,023    4,239    3,308    23,198    22,389    16,378    4,844    4,305    3,692    6,363    6,036    4,788 
Cash and Cash Equivalents   176    174    162    622    857    893    557    407    369    836    869    828 
Short-term Interbank Investments   182    405    249    1,010    335    57    21    56    33    804    666    817 
Securities and Derivative Financial Instruments   104    151    228    2,816    3,335    1,891    491    287    344    615    827    309 
Interbank and Interbranch Accounts   549    595    439    323    207    657    573    572    463    1,177    1,166    640 
Loans, Lease and Other Credit Operations   2,955    2,784    2,162    18,213    17,469    12,537    3,056    2,827    2,364    2,919    2,479    2,201 
(Allowance for Loan Losses)   (66)   (60)   (45)   (329)   (321)   (230)   (60)   (55)   (60)   (109)   (97)   (108)
Other Assets   123    192    112    544    508    573    206    211    178    121    126    101 
Foreign Exchange Portfolio   27    103    20    152    165    306    144    147    128    -    5    21 
Other   95    88    92    392    343    266    62    64    51    121    121    80 
Permanent Assets   104    109    108    357    353    291    47    34    33    34    28    27 
Total Assets   4,127    4,348    3,416    23,555    22,742    16,669    4,891    4,339    3,725    6,397    6,064    4,815 
Liabilities and Equity                                                            
Current and Long-term Liabilities   3,654    3,867    3,105    20,752    20,303    14,712    4,184    3,716    3,268    5,854    5,572    4,433 
Deposits   3,102    3,048    2,599    14,522    14,918    10,655    3,648    3,111    2,665    4,930    4,747    3,691 
Deposits Received under Securities Repurchase Agreements   16    253    71    606    162    106    -    -    -    -    -    - 
Fund from Acceptances and Issue of Securities   149    97    -    2,302    2,021    1,321    -    -    -    -    -    - 
Interbank and Interbranch Accounts   -    -    -    11    8    18    18    74    11    89    93    100 
Borrowings and Onlendings   68    107    96    1,771    1,690    1,304    256    288    322    50    44    30 
Derivative Financial Instruments   0    0    0    277    293    184    -    -    -    4    (0)   1 
Foreign Exchange Portfolio   27    103    20    152    165    306    137    147    132    -    5    21 
Other Liabilities   291    258    318    1,073    1,011    804    125    95    138    781    683    590 
Technical Provisions for Insurance, Pension Plans and Capitalization   -    -    -    37    34    16    -    -    -    -    -    - 
Deferred Income   -    -    -    1    2    6    1    1    0    2    3    4 
Minority Interest in Subsidiaries   9    9    9    0    0    0    -    -    -    -    -    - 
Stockholders' Equity   465    472    303    2,802    2,436    1,951    706    623    457    541    490    378 
Total Liabilities and Equity   4,127    4,348    3,416    23,555    22,742    16,669    4,891    4,339    3,725    6,397    6,064    4,815 

 

Assets (1)

 

As of December 31, 2012, the total assets of our main operations in Latin America reached R$39.0 billion, an increase of 3.9% (2.4% in current currency2) compared to September 2012, and 36.1% (19.5% in current currency2) when compared to December 2011. 60.4% of the total Latin American assets are in Chile, which grew 3.6% in the quarter (4.0% in current currency2) and 41.3% in 2012 (19.6% in current currency2), basically due to the increase in credit operations.

 

In Paraguay, the increase in volume of credit operations in the fourth quarter of 2012 when compared to September 2012, is the main reason for the 12.7% increase in total assets (7.3% in current currency2). Considering the annual comparison, in 2012, the increase was 31.3% (16.3% in current currency2), with a significant impact from larger positions in securities and short-term interbank investments.

 

In Uruguay, total assets expanded 5.5% in December 2012 when compared to September 2012 (-4.5% in current currency2), a result positively impacted by the exchange rate variation. In 2012, total assets grew 32.9% (17.3% in current currency2) due to the increase of credit operations, short-term interbank investments and securities.

 

In Argentina, the increase in the credit portfolio was offset mainly by a decrease in short-term interbank investments and securities, resulting in a fourth quarter total assests contraction of 5.1% (1.3% in current currency2). During the year, the exchange rate variation had a negative impact, with total assets growing 20.8% (26.6% in current currency2).

 

Assets Devolopment (1)

 

 

Assets Breakdown (1)

 

 

Credit Portfolio (1)

 

The total credit portfolio increased 6.2% (5.3% in current currency2) when compared to September 2012, and 40.9% (23.2% in current currency2) over the December 2011 balance, reaching R$ 27.1 billion.

 

This performance is mainly explained by a 4.3% growth of the credit portfolio in Chile (4.7% in current currency2) in the quarter and 45.3% in 2012 (23.0% in current currency2) due to the increase in commercial loans and consumer credit. The weight of Chile in the Latin American credit portfolio grew from 65.1% to 67.1% in the year.

 

In Uruguay, the credit portfolio increased 17.7% in the quarter (6.6% in current currency2), particularly as a result of larger volumes of loans in foreign currency and credit cards. In 2012, the credit portfolio grew 32.6% (17.1% in current currency2).

 

The credit portfolio in Argentina was negatively impacted by the foreign exchange rate variation, increasing 6.2% in the quarter (10.4% in current currency2) and 36.7% in the year (43.3% in current currency2), due to the increase in personal loans, credit cards and factoring operations.

 

The credit portfolio in Paraguay grew 8.1% (2.9% in current currency2), due to higher personal loans and credit cards. In 2012, it expanded 29.3% (14.5% in current currency2).

 

(1) The information refers to our main operations in Latin America (Argentina, Chile, Paraguay and Uruguay).

(2) Current Currency for December 31, 2012

Note: The elimination of the exchange rate variation impact was obtained by applying the closing rate of December 31, 2012 to all periods.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 63

 

 
 

 

Activities Abroad

 

Credit Portfolio Devolopment (1)

 

 

Credit Portfolio| Geographical Distribution (1)

 

 

 

Europe, Caribbean Islands and Miami

 

Our banking activities are carried out in Europe (Portugal, United Kingdom, Switzerland and Luxembourg) and outside Europe (Miami, the Cayman Islands and The Bahamas), mainly in two business segments:

 

· Corporate & Investment Banking: we meet the financial needs of companies with international presence and operations, with a focus on operations related to financing and investment relationships between companies in Latin America and Europe. Services offered include origination of structured financing, hedging transactions, trade financing and advisory to both European companies investing in Latin America and Latin American companies investing overseas.

 

· Private Banking: under the corporate structure of Banco Itaú BBA International, we manage private banking activities in Luxembourg, Miami, Bahamas and Switzerland, offering specialized financial products and services to high net-worth Latin American customers.

 

It is important to point out that, due to the strategic and geographic importance of the London financial market and for purposes of consolidation and expansion of the Itaú Unibanco Group operations in Europe, Banco Itaú BBA International is currently undergoing an internal reorganization that will result in the transfer of its headquarters from Portugal to the United Kingdom on February of 2013. These initiatives will allow IBBA International to improve its performance, expand its client base, strengthen its position as the international platform of the Group, improve and optimize its financing sources, enhance risk diversification and achieve higher profitability levels.

 

Information on our operations consolidated in Banco Itaú BBA International is presented:

 

Itaú BBA International Statement of Income

 

   R$ million 
   Itaú BBA International 
   4Q12   3Q12   2012   2011 
                 
Operating Revenues   109    84    396    420 
Financial Margin   31    31    125    158 
Banking Service Fees and Income from Banking Charges   73    54    232    229 
Other Operating Income   6    (0)   12    18 
Equity in Earnings of Affiliates and Other Investments   0    (0)   25    14 
Non-operating Income   (1)   (1)   3    1 
Loans and Retained Claims Losses net of Recovery   0    1    3    3 
Operational Margin   109    86    398    422 
Other Operating Expenses   (111)   (86)   (352)   (304)
Income before Tax and Profit Sharing   (2)   (0)   46    119 
Income Tax and Social Contribution   31    (7)   15    (34)
Profit Sharing   (2)   (3)   (5)   (7)
Recurring Net Income   27    (10)   56    77 
Return on Average Equity – Annualized   6.5%   -2.9%   3.4%   5.7%

 

Net income in the quarter amounted to R$27 million, basically due to an increase in service revenues generated by the good performance of commissions in the corporate banking and capital markets segments. Net income was negatively impacted by the increase in non-interest expenses, especially related to advisory services and personnel expenses.

 

In 2012 the consolidated net income was lower than the previous year, due to the decrease in the financial margin, mainly because of the impact from the European market fluctuations on our trading, and higher operational expenses due to the reorganization of our structure in Europe.

 

Itaú BBA International Balance Sheet

 

   R$ million 
   Itaú BBA International 
   Dec 31,12   Sep 30,12   Dec 31,11 
Assets               
Current and Long-term Assets   17,163    16,052    14,606 
Cash and Cash Equivalents   332    313    399 
Short-term Interbank Investments   2,562    2,298    2,691 
Securities and Derivative Financial Instruments   1,947    2,036    1,730 
Interbank and Interbranch Accounts   0    0    13 
Loans, Lease and Other Credit Operations   7,934    7,492    7,419 
(Allowance for Loan Losses)   (10)   (10)   (12)
Other Assets   4,398    3,923    2,367 
Foreign Exchange Portfolio   4,020    3,636    2,220 
Other   378    286    147 
Permanent Assets   176    180    288 
Total Assets   17,339    16,233    14,895 
Liabilities and Equity               
Current and Long-term Liabilities   15,407    14,782    13,542 
Deposits   6,669    5,885    6,193 
Fund from Acceptances and Issue of Securities   3,785    3,993    3,387 
Interbank and Interbranch Accounts   2    1    1 
Borrowings and Onlendings   1    2    561 
Derivative Financial Instruments   571    660    700 
Foreign Exchange Portfolio   4,028    3,668    2,224 
Other Liabilities   351    574    478 
Deferred Income   18    20    23 
Stockholders' Equity   1,915    1,431    1,329 
Total Liabilities and Equity   17,339    16,233    14,895 

 

(1) The information refers to our main operations in Latin America (Argentina, Chile, Paraguay and Uruguay).

(2) Current Currency for December 31, 2012

Note: The elimination of the exchange rate variation impact was obtained by applying the closing rate of December 31, 2012 to all periods.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 64

 

 
 

 

Activities Abroad

 

As of December 31, 2012, the consolidated assets of Banco Itaú BBA International amounted to R$17.3 billion, 6.8% (3.5% in current currency2) higher compared to the previous quarter. Credit operations increased 5.9% (2.6% in current currency2), while volumes of operations in the foreign exchange assets and liabilities portfolios also were higher. Another important event was the capital increase of R$409 million (US$200 million) in December 2012 in our European structure, as a result of the corporate restructuring process.

 

Comparing December 2012 against December 2011, total assets increased 16.4% (5.1% in current currency2), due to the growth of the loan portfolio in the private banking segment, the higher positions in the foreign exchange assets and liabilities portfolios -due to larger volumes of operations-, and the abovementioned capital increase.

 

Itaú Private Bank International

 

Itaú Private Bank International is the unit responsible for our wealth management services within our offshore platforms. It focus on individual clients with at least US$ 1 million in assets available for investments. We offer our customers a complete portfolio of banking and investment solutions from our operations in Miami (Banco Itaú Europa International), Luxembourg (Banco Itau Europa Luxembourg) and Zurich (Banco Itaú Suisse S.A.). All banks were created exclusively to deal with private banking activities. We provide a wide range of specialized financial and asset management services for high net-worth Latin American clients, including the negotiation and management of securities and other financial instruments, trusts and investment vehicles on behalf of clients.

 

In addition to our platforms established in Europe and in the United States under the structure of Banco Itaú BBA International, we have operations in other countries. In Chile, we are positioned among the local market leaders through a joint venture with Munita, Cruzat & Claro (MCC), recognized for its expertise in managing global fixed income. In addition, we have dedicated relationship management teams in Asunción, Miami, Montevideo and Zurich.

 

We also have offices in Nassau (Itaú Bank & Trust Bahamas Ltd.) and George Town (Itaú Bank & Trust Cayman Ltd.), incorporated under robust legal systems based on Common Law, which enable us to offer Trusts and Offshore Companies to our clients.

 

Assets under management (including customer deposits) and loans to clients of our Private Banking segment reached R$ 38.6 billion, increasing 3.2% when compared to the third quarter of 2012. Excluding the effect of the real depreciation against the dollar during the period, the increase was 2.6% in the quarter. Compared to December 2011, growth in 2012 was 28.0%. Excluding the effect of the exchange rate variation in the period, the annual growth was 17.5%, mainly due to net new clients’ assets and the increase of loans granted to customers.

 

Assets under management and credits to clients (1)

 

 

As of December 2012, our team was composed of 301 employees representing 27 nationalities, serving approximately 6.9 thousand Latin American clients.

 

Products and services for Foreign Institutional Clients

 

We also provide our international institutional clients with a broad range of products and services, such as asset management, custody, alternative investment products, equities, fixed-income and treasury. Our clients are served by professionals based in New York, London, Hong Kong, Tokyo and Dubai, as well as by our specialized product teams in Latin America.

 

(1) Includes 50% stake we have in MCC.

(2) Current Currency for December 31, 2012

Note: The elimination of the exchange rate variation impact was obtained by applying the closing rate of December 31, 2012 to all periods.

 

Management Discussion & Analysis Itaú Unibanco Holding S.A. 65

 

 
 

 

 

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Management Discussion & Analysis Itaú Unibanco Holding S.A. 66

 

 
 

 

 

(A free translation of the original in Portuguese)

 

Report of independent auditors on

supplementary information

 

To the Board of Directors and Stockholders

Itaú Unibanco Holding S.A.

 

Introduction

 

In connection with our audit of the financial statements of Itaú Unibanco Holding S.A. (Bank) and Itaú Unibanco Holding S.A. and its subsidiary companies (Consolidated) as of December 31, 2012, on which we issued an unqualified opinion dated February 4, 2013, we performed a review of the accounting information contained in the supplementary information included in the Management Discussion and Analysis Report of Itaú Unibanco Holding S.A. and its subsidiaries for the year ended December 31, 2012.

 

Scope of the Review

 

We conducted our review in accordance with NBC TA 720 - “The auditor’s responsibility relating to other information in documents containing audited financial statements” which establishes procedures to be applied in those circumstances. Our procedures comprised: (a) inquiry of, and discussion with, management responsible for the accounting, financial and operational areas of the Bank and its subsidiaries with regard to the main criteria adopted for the preparation of the accounting information presented in the supplementary information and (b) review of the significant information and of the subsequent events which have, or could have, significant effects on the financial position and the operations of the Bank and its subsidiaries. The supplementary information included in the Management Discussion and Analysis Report is presented to permit additional analysis. Notwithstanding, this information should not be considered an integral part of the financial statements, reviewed by us.

 

Conclusion

 

Based on our review, we are not aware of any material modifications that should be made to the accounting information contained in this supplementary information, in order for it to be adequately presented, in all material respects, in relation to the financial statements as of December 31, 2012, taken as a whole, prepared in accordance with the accounting practices adopted in Brazil applicable to institutions authorized to operate by the Brazilian Central Bank (BACEN).

 

São Paulo, February 4, 2013

 

/s/ PricewaterhouseCoopers   /s/ Paulo Sergio Miron
PricewaterhouseCoopers   Paulo Sergio Miron
Auditores Independents   Contador CRC 1SP173647/O-5
CRC 2SP000160/O-5    

 

PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil 05001-903, Caixa Postal 61005

T: (11) 3674-2000, F: (11) 3674-2000, www.pwc.com/br

 

 
 

 

 

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Management Discussion & Analysis Itaú Unibanco Holding S.A. 68

 

 
 

 

 

complete

financial

statements

 

Itaú Unibanco Holding S.A.

 

 

December 31, 2012

 

 
 

 

 

  1.1

 

MANAGEMENT REPORT– 2012

 

To our Stockholders:

 

We present the Management Report and the Financial Statements of Itaú Unibanco Holding S.A. (Itaú Holding) and its subsidiaries for 2012, in accordance with the regulations established by the Brazilian Corporate Law, the National Monetary Council (CMN), the Central Bank of Brazil (BACEN), the Brazilian Securities and Exchange Commission (CVM), the Superintendency of Private Insurance (SUSEP) and the National Council of Private Insurance (CNSP).

 

The information included in this material is available in Itaú Unibanco’s website: www.itau-unibanco.com.br/ri > Financial Information > Financial Statements > BRGAAP > 2012.

 

1)ECONOMIC ENVIRONMENT

 

2012 was highlighted by the world’s low growth, with high volatility arising from fears of a crisis in the international scenario. There was no rupture in the Euro Zone. The European Central Bank (ECB) has announced that it is ready to use the new plan for purchase of securities. The European countries started to implement the required adjustments, even though there is still a long way to go. The main challenges are the fiscal consolidation and the progress towards the monetary union. The US Congress has approved a new legislation and prevented the so-called “fiscal cliff”; however there are pending issues to be sorted out in 2013, such as the decision on the “debt ceiling”. There was no sudden stop in China’s growth. The outlook for 2013 is a little better, with a more steady growth and smaller risks.

 

In the local scenario, growth was lower than expected. Gross domestic product (GDP) should close 2012 at approximately 1.0%. In particular, there was a drop in industrial production and investments, which decreased in September for the fifth consecutive quarter, restrained by the uncertainty as to the development in the local and foreign scenarios. In view of the monetary and fiscal incentives in force and the steady foreign scenario, Brazil should pose a higher growth in 2013, at approximately 3.2%.

 

Inflation measured by IPCA was 5.8% at the end of 2012. In spite of the weak economic growth, the labor market continues booming. Unemployment, which is close to its historical minimum levels, has kept the inflation rate for services in high levels (8.7% in December). Inflation for industrialized products increased due to a more devalued foreign exchange rate. Furthermore, supply shocks, such as that caused by the crop failure in the United States, have put pressure in the inflation rates for food over the year. Our projected IPCA remains high due to the labor market conditions, the inertial inflation rates and the ongoing expectations for high levels, closing 2013 at 5.6% or above.

 

In October the Central Bank stopped the interest rate decrease cycle started in August 2011. The Selic rate reached 7.25% per month. The Central Bank has signalized this shall continue for a long period. The Real has depreciated against the US dollar and foreign exchange rate ended 2012 at R$ 2.05/US$.

 

Based on Central Bank data, credit assignments for individuals between January and November 2012 recorded, in actual terms (deflated by IPCA), an increase of only 1.9% as compared to the same period of 2011. Likewise, the increase for corporate customers was 1.5%. Credit reserves as a proportion of the GDP increased from 49.0% in December 2011 to 52.6% in November 2012. Regarding default, both for individual and corporate customers, the rate for companies of loans overdue 90 days remained relatively steady in a high level, whereas the default rate for individuals of loans overdue 90 days continued to rise during most of the year, only showing clears signs of slowing down in the last months.

 

Following the decrease in the Selic rate, the banking interest and spread rates also decreased throughout 2012, and reached the lowest levels in history, except for the spread rates for individuals.

 

 
1.2

 

2)HIGHLIGHTS

 

2.1)Corporate Events

 

Redecard S.A.– in one of the largest transactions in the São Paulo stock exchange, we acquired 49.98 % of Redecard’s capital by way of a public tender offer, reaching 100% of stock, and cancelled this company’s registration as a publicly-held company. Redecard is one of the major players in the acquiring market in Brazil, accounting for the accreditation, capture, transmission, processing and financial settlement of transactions with credit and debit cards. This operation, carried out according to good corporate governance practices, will enable us offering products and services integrated into the bank’s clients and expanding our business to a number of Brazilian municipalities in which we today have no physical structure (branches and/or PABs). The total invested in the acquisition of Redecard’s outstanding shares was R$ 11.75 billion.

 

Serasa S.A. – in October 2012 we sold to Experian the remaining interest of 16.14% in Serasa, a leading company in services and products for analysis and information for credit and support to business for all segments in the market. Income before taxes arising from this sale was approximately R$ 1.5 billion in the fourth quarter of 2012.

 

Banco Itaú BMG Consignado S.A. – we constituted a new financial institution in partnership with Banco BMG S.A. (70% controlled by Itaú Unibanco and 30% by BMG), aiming at the offering, distribution and sale of payroll loans in the Brazil. The association was approved by the Administrative Council for Economic Defense (CADE) in October and operations started in December 2012. It will enable us to expand our business in this segment and will operate under our values and transparency principles, following our good management practices and policies. This operation aims at diversifying our loan portfolio, supplementing our payroll loan strategy and improving the risk profile of our individuals loan portfolio.

 

Banco CSF S.A. – we acquired shares representing 49% of capital of Banco Carrefour, responsible for the offer and distribution, on an exclusive basis, of financial, insurance and social security products and services in the distribution channels operated under the “Carrefour” brand in Brazil, an operation authorized by the Central Bank of Brazil in April 23, 2012.

 

Financeira Americanas Itaú S.A.– we ended the partnership with Lojas Americanas S.A. for the offer, distribution and commercialization, on an exclusive basis, of financial, insurance and social security products and services to customers of LASA and its affiliated companies in August 2012. The completion of this operation was approved by the Central Bank of Brazil in December 27, 2012.

 

Banco BPI – we carried out the sale of our full interest to La Caixa Group, BPI’s largest stockholder. The sale was authorized by Banco de Portugal in April 2012. The association between Itaú Unibanco and BPI was particularly significant for the Itaú Unibanco to build, from Portugal, the base required to launch the European operation dedicated to the Itaú BBA segment (wholesale and investment banking), focused on supporting the international activities of European and Latin-American companies, which is nowadays consolidated and has representatives in London, Madrid, Frankfurt and Paris.

 

Orbitall – we carried out the sale of this card processor to the Stefanini Group, completed in May 2012. The completion of the merger of processes resulting from the Itaú Unibanco merger made the operation feasible, since we gained scale enough to process only our own cards with competitive edge and cost efficiency. The provision of this type of service to other financial institutions is unrelated to the main activity of the Itaú Unibanco group, and it was the reason for the sale.

 

Repurchase of shares – In 2012, we acquired 4.3 million preferred shares of own issue in the total amount of R$ 122.3 million at the average price of R$ 28.45 per share. The repurchase program was renewed in November 2012, and the limit for acquisitions was increased to up to 86.3 million preferred shares and 13.7 million common shares up to November 4, 2013.

 

Dividends/Interest on capital – In February 2012 the Board of Directors approved the increase by 25% (from R$ 0.012 to R$ 0.015 per share) of dividends monthly paid to stockholders (from April 2, 2012 on). Additionally, on March 14, 2013 stockholders will receive R$ 0.3250 per share as supplementary interest on capital, and R$ 0.2652 as interest on capital, both related to the 2012 fiscal year.

 

 
1.3

 

2.2)Investments in Technology

 

In late September, we announced the investment of R$ 10.4 billion in technology, innovation and service to be made in the 2012 to 2015 period, one of the largest private investments to favor the growth of the Brazilian economy, aiming at increasing efficiency, continuously improving the quality of services provided and customer satisfaction.

 

In addition to the construction of the new Data Center in Mogi Mirim, one of the largest technological centers in the world, with capacity to support the expansion of operations in the next three decades, which is expected to generate approximately 700 direct jobs, and significantly contributing to the development of the economy, trade and qualification of labor in the region, the aforementioned amount also comprises the development of systems, and the acquisition of data processing systems and computer programs (software).

 

A portion of this investment will be intended for the improvement and design of new tools for expanding digital channels, such as internet banking and mobile banking:

 

-Easiness to use, safety and convenience have caused internet banking to be the bank’s most used channel, with a growth of 159% in the monthly operations average for the last four years;

 

-In mobile banking, total downloads and updates of our applications increased over 18 times this year, from 366 thousand in January to a total of 6.7 million in December in the year-to-date of 2012.

 

2.3)New Concept of Branch and Service

 

We ended 2012 with 450 branches operating in different working hours, located in 22 Brazilian States and 100 Brazilian cities, offering more convenient and extending services in branches opening earlier or closing later. Additionally, we have over 1.3 thousand branches with exclusive ATMs for clients of Itaú Uniclass and Personnalité, providing expedited and efficient service. The new working hours were disclosed through the hotsite www.itau.com.br/horariodiferenciado, warnings in ATMs and internet, in addition to material displayed in the branches themselves.

 

On an innovative way and making use of cutting-edge technology resources, in August we opened the concept branch in Villa Lobos mall (São Paulo – Capital city), with a differentiated layout inspired in the visual concept of a store, proving more interaction between our managers and clients, in a more appealing, comfortable and safe environment. Itaú’s concept branch also operates in different working hours like our branches in malls, i.e., from noon to 8 p.m.

 

2.4)Launch of New Credit Card Itaucard 2.0

 

Aware that the Brazilian credit market is growing at a fast pace and becoming increasingly more important as a banking instrument, we are constantly studying methods to improve our products and finding ways to reduce interest rates. In view of this challenge, we analyzed a number of credit card models in the international market and have conducted, since 2010, a number of surveys and tests to get to this new credit card model, with charge of interest from the date of each purchase rather than from its maturity date.

 

We launched the Itaucard 2.0 credit card in August, with the lowest interest rates in the market, between 3.99% and 5.99%, in accordance with the client segment and we reached over 500 thousand cards by the end of 2012.

 

Clients holding the conventional card may exchange it for the Itaucard 2.0 card without any cost, with the benefit of having the lowest rate in the market. In case of not adapting to the new product, the client will have up to 90 days to be back to the conventional card model back.

 

 
1.4

 

2.5)Other Highlights

 

New Website – In October 2012 the new website www.itau.com.br was aired. With a new layout, it is simpler and intuitive, with the purpose of increasing easiness in navigation. This change had count on the suggestions from the clients themselves and will be carried out in steps. The innovation does not change the manner with which the client accesses information on his/her account, products and services.

 

100% Transparency Program – Aiming at rendering all communications with our clients simpler, more accessible and objective, we have streamlined the use of our products and services, assessed the provision of information in agreements and invoices, improved our service channels, and invested in technology to seek even more transparency in our relationships. The new current account opening agreement, reassessed to facilitate the understanding of information and clarify the rules on collection of fees, warnings forwarded to clients with debit balance in the overdraft with inactive accounts (without activity for over 60 days), so that they may settle the debit and thus prevent the debt to unnecessarily increase, and the new layout of credit card invoices, adjusted after a series of surveys conducted with clients, were some of the initiatives carried out over 2012.

 

Social Networks – Leadership in the social media as the bank with the largest fan base in the whole world: 4.1 million fans. We closed 2012 among the 10 brands with the highest level of involvement according to Socialbakers.

 

In partnership with Google, on an unprecedented move in the world we launched the most viewed video tool, a kind of trendtopics that captures the viral videos most watched on the YouTube platform. With only 2 months in the air we have impacted over 3 million single users with over 5 million interactions in this channel.

 

Also on YouTube, the tutorial videos on financial education and responsible use of credit, contents on investments, the “Itaú sem papel” (Itaú paperless) campaign, which contributed to the migration of 700 thousand statements and invoices in paper to a digital format, and other contents developed have totaled approximately 60 million views in this channel in 2012.

 

Brazil’s most valuable brand – Valued at R$ 22.2 billion by Interbrand consulting company, Itaú brand was recognized as the most valuable in Brazil. We are the leaders of this ranking for the ninth consecutive time.

 

3)PERFORMANCE

 

3.1)Indices

 

We present below the performance of the main financial indicators:

 

%
Performance Indices  12/31/2012   12/31/2011   Change
p.p.		 
Recurring return on average equity - annualized   19.4    22.3    -2.9 
Return on average equity - annualized   18.4    22.3    -3.9 
Efficiency ratio(1)   45.4    47.3    -1.9 
Recurring return on average assets - annualized   1.5    1.8    -0.3 
Return on average assets - annualized   1.5    1.8    -0.3 
Basel ratio - economic-financial consolidated   16.7    16.4    0.3 
Fixed assets ratio - financial conglomerate   43.4    48.6    -5.2 

 

(1) Calculated based on criteria defined in the Management's Discussion & Analysis Report.

 

 
1.5

 

3.2)Income

 

           R$ billion 
Statement of Income for the Period(1)  2012   2011   Change (%) 
Gross income from financial operations   31.1    32.8    -5.1 
Expenses for allowance for loan losses   (24.0)   (19.9)   20.7 
Income from recovery of credits written off as loss (2)   4.7    5.5    -15.0 
Income from services and income from bank charges   20.3    19.0    6.6 
Income from insurance, pension plan and capitalization operations   3.0    2.7    10.2 
Personnel, administrative and other operating expenses   (34.3)   (32.6)   5.0 
Tax expenses   (4.5)   (4.1)   9.6 
Income tax and social contribution   (3.2)   (2.9)   12.9 
Recurring net income   14.0    14.6    -4.1 
Net income   13.6    14.6    -7.0 
Dividends and interest on capital (net of taxes)   4.5    4.4    2.8 

 

(1) Excludes the non-recurring effects of each period.

(2) Since early 2012, the discounts granted in the recovery of credits written off as loss are no longer deducted from the financial margin, but rather are now deducted from the income from recovery of these credits. In 2011, these discounts amounted to R$ 609 million. Should this effect be taken into account in 2011, income from recovery of credits written off as loss would have recorded a decrease of 4.4% in 2012.

 

Net income for the period from January to December 2012 amounted to R$ 13.6 billion, with annualized return of 18.4% on average equity (22.3% in the same period of the previous year). Recurring net income was R$ 14.0 billion, with annualized return of 19.4%. The decrease of 5.1% in income from financial operations (before allowance for loan losses), the increase of 6.6% in income from services and bank charges and of 10.2% in income from insurance, pension plan and capitalization operations, as compared to the same period of 2011, added to the control over personnel, administrative and other operating expenses, which increased only 5.0% in the period, contributed to the result.

 

The efficiency ratio reached 45.4% accumulated in 2012, as compared to 47.3% achieved in the same period of 2011. The reduction of 1.9 p.p. is the result of the efforts of our Efficiency Project started in 2011. In this context, the lower this figure, calculated based on income generated and operating costs, the more prepared we are to compete in a scenario with lower interest rates.

 

3.3)Balance Sheet

 

R$ billion
Balance Sheet  Dec 31, 2012   Dec 31, 2011   Change (%) 
Total assets   1,014.4    851.3    19.2 
Loan portfolio with endorsements and sureties   426.6    397.0    7.5 
Free, raised and managed own assets   1,449.2    1,190.3    21.8 
Subordinated debt   54.4    39.0    39.5 
Stockholders’ equity   74.2    71.3    4.0 
Referential equity (Financial Conglomerate)   119.9    92.6    29.5 

 

3.3.1)Assets

 

Total consolidated assets surpassed R$ 1.0 trillion, free, raised and managed own assets amounted to over R$ 1.4 trillion at December 31, 2012, with growth of 19.2%, and 21.8% in the last 12 months, respectively.

 

The diversification of our business is reflected in the composition of our funding and loan portfolio, reducing risks to specific segments, which may be more impacted by the volatility in economy, as follows:

 

 
1.6

 

Loan Portfolio

 

At December 31, 2012, the balance of loan portfolio, including endorsements and sureties, reached R$ 426.6 billion, an increase of 7.5% as compared to December 31, 2011, in conformity with the table below. Should we also take into account the credit risks that we assume in the private securities modality, this increase will reach 9.0%.

 

R$ million
Loan Portfolio  Dec 31, 2012   Dec 31, 2011   Change (%) 
Individuals   149,809    148,723    0.7 
Credit Card   40,614    38,961    4.2 
Personal Loans   39,928    36,219    10.2 
Vehicles   51,220    60,093    -14.8 
Mortgage Loans   18,047    13,450    34.2 
Companies   247,493    227,612    8.7 
Corporate   158,534    137,234    15.5 
Very small, Small and Middle Market   88,959    90,378    -1.6 
Argentina/Chile/Paraguay/Uruguay   29,293    20,678    41.7 
Total with endorsements and sureties   426,595    397,012    7.5 
Corporate - Private Securities   22,652    15,220    48.8 
Total with endorsements, sureties and private securities   449,247    412,232    9.0 
Total with endorsements, sureties and private securities (ex-Vehicles)   398,027    352,139    13.0 

 

Individuals – In Brazil, our loan portfolio to individuals reached R$ 149.8 billion at December 31, 2012, relatively steady as compared to that posted at December 31, 2011. Highlights:

 

·Mortgage loan reached a growth of 34.2% as compared to December 2011. The offer of mortgage loan is promoted by the network of branches, development companies and real estate agencies, as well as partnerships with Lopes (LPS Brasil – Consultoria de Imóveis S.A.) and Coelho da Fonseca Empreendimentos Ltda., among others.

 

·Products such as Personal Loans and Payroll Advance Loans posted a significant growth of 10.2%.

 

·We are leaders in the Vehicle Financing and Credit Card segments, with balances at December 31, 2012 of R$ 51.2 billion and R$ 40.6 billion, respectively, with a reduction of 14.8% and a increase of 4.2%, resulting from our strategy to prioritize lower risks.

 

Companies – In Brazil, our portfolio of Loan Operations to Companies, including private securities acquired, reached R$ 270.1 billion at December 31, 2012, posting a growth of 11.2% in relation to December 31, 2011. In the Very Small, Small and Middle Market segment, we serve, which are supported by a dedicated structure, with specific products and services. Through Itaú BBA, we serve approximately 2,500 of the largest corporate groups in Brazil, with a loan portfolio composed of loans in national and foreign currency, mandatory loans (BNDES onlending, Rural Credit and Mortgage Loans) and guarantees.

 

In other countries, our loan portfolio for Mercosur operations (Argentina, Chile, Paraguay and Uruguay) posted a significant growth in the individual and companies segment, and noteworthy were the increase of 43.6% for individuals and 46.6% for companies in Chile.

 

 
1.7

 

Default

 

At December 31, 2012, total default rate, considering the balance of transactions overdue for over 90 days reached 4.8%, posting a decrease of 10 bps as compared to December 31, 2011. This ratio reached 6.9% for the portfolio of credit to individuals and 3.2% for the portfolio of credit to companies at the end of December 2012. The default rate from 15 to 90 days posted an improvement with a sharp decrease between June and December 2012, showing signs of turning cycles of high delinquency from 6.9% to 6.3% for individuals and from 2.3% to 1.5% for companies. In total, from 4.4% to 3.6%.

 

3.3.2)Funding

 

Free, raised and managed assets totaled R$ 1.4 trillion at December 31, 2012, a 21.8% growth as compared to December 31, 2011. Of this total, 45.3% refer to investment funds, managed portfolios and technical provisions for insurance, pension plan and capitalization, 27.8% to deposits, debentures, and funds from bills, and 26.9% to own assets and other funding.

 

The increase in funding (net of Compulsory Deposits and Cash and Cash Equivalents) enabled the improved Loan portfolio and funding ratio, reaching 90.7% at December 31, 2012.

 

3.3.3)Capital Strength

 

Basel Ratio – At the end of December 2012, the ratio reached 16.7%, posting an increase of 30 bps as compared to the same period of 2011, an event that evidences our strength in the capital base.

 

Subordinate Notes – In 2012, we issued Subordinated Debt Level II, which significantly increased our capital base. In the domestic market, the bank issued a total of R$ 13.7 billion in Subordinated Financial Bills, which represented 44% of total issues carried out in Brazil. In the foreign market four placements, which totaled US$ 5.05 billion, were carried out, and noteworthy was the transaction conducted in November, which represented the largest volume funded at the lowest rate to investor (yield) among the Subordinated Debt Level II transactions in foreign currency by Latin-American banks in 2012. This amount accounts for approximately 31% of total foreign issues in US dollar by Brazilian financial institutions for the year. We obtained the leadership in the subordinated debt issue ranking in the local and foreign markets in the aforementioned period.

 

Stockholders’ Equity – At the end of December 2012, it reached R$ 74.2 billion, a growth of 4.0% as compared to the same period of 2011. Capital is represented by 4,571 million shares, of which 2,289 million are common and 2,289 million are preferred shares, which have a 80% tag along. Dividends paid to stockholders are equal to both types of shares. Treasury shares amount to R$ 1,523 million at December 31, 2012, which is deducted from stockholders’ equity.

 

Rating Agencies – Over this year, Moody’s rating agency reassessed the risk ratings for banks on a worldwide basis, and Itaú Unibanco and Itaú BBA remained one level above Brazil's sovereign rating, with Itaú Unibanco Holding posing the same rating as the country’s. Meanwhile, Standard & Poor’s rating agency also disclosed a reassessment, improving the risk ratings attributed to Itaú Unibanco regarding our capacity to pay short-term liabilities.

 

3.4)Stock Market

 

Market Value in Stock Exchange – At December 31, 2012, we ranked were the 16th largest bank of the world under the market value criterion (R$ 150.6 billion), according to the Bloomberg ranking, despite of the Real depreciation, since the ranking is calculated in US dollars.

 

Traded volume - In 2012 we traded R$ 719.4 billion on BM&FBOVESPA and NYSE (New York Stock Exchange), with a daily average volume of R$ 284.8 million (ITUB3 and ITUB4) and R$ 434.6 million (ITUB), respectively.

 

 
1.8

 

Dividends/Interest on Capital - In 2012, we paid or provided for R$ 4.5 billion in dividends and interest on capital, net of taxes. Since July 1980, Itaú Unibanco has been compensating stockholders with monthly supplementary payments, with the latter historically been paid twice a year, and with both equally distributed to common and preferred stockholders.

 

Dow Jones Sustainability World Index (DJSI) - Itaú Unibanco was selected for the 13th consecutive year to make up the Dow Jones Sustainability World Index (DJSI) portfolio, the main sustainability index in the world, in its 2012/2013 edition. Accordingly, it is the only Latin American bank to be part of the index since its creation. In this edition, we reached the maximum rate (100%) of the banking sector in the criteria “Development of Human Capital”, “Engagement with Strategic Audiences” and “Policies / Anti-crime and fraud actions”, in addition to being assigned a score higher than the sector average in all assessment items.

 

Corporate Sustainability Index (ISE) – Itaú Unibanco was chosen one more time to make up the portfolio of the Corporate Sustainability Index of BM&FBOVESPA in its 2013 edition. Similar to the Dow Jones Sustainability Stock Index, the components of the ISE portfolio are reviewed annually based on the results using a careful and specific evaluation methodology, which aims at evaluating, on an integrated basis, different aspects of sustainability, such as environmental, social and economic-financial elements.

 

The participation in these two indices reflects our long-term commitment to ethical business conduct, transparency, corporate governance and social, cultural and environmental responsibility. We believe that this commitment is critical to maintaining sustained and directed growth for creating value both for our shareholders, clients, employees and also society over the next few years.

 

We present below some data related to the performance of shares:

 

R$
Shares  2012   2011   Change
(%)		 
Recurring net income per share(1)   3.11    3.23    -3.8 
Net income per share(1)   3.01    3.23    -6.9 
Book value per share(1)   16.43    15.81    3.9 
Number of outstanding shares (in thousands)   4,518,380    4,513,640    0.1 
Dividends/Interest on capital, net per share   1.00    0.97    3.1 
Price of preferred share (ITUB4)(2)   33.33    33.85    -1.5 
Price of common share (ITUB3)(2)   31.02    27.27    13.8 
Price of preferred share (PN)/Net income   11.09    10.52    5.4 
Price of preferred share (PN)/Stockholders’ equity   2.03    2.15    -5.6 
Market value (in billions)(3)(4)   150.6    152.8    -1.4 

 

(1) Calculated based on the weighted average of the number of shares.

(2) Based on the average quotation on the last day of the period.

(3) Calculated based on the average quotation of preferred shares on the last day of the period (quotation of average PN multiplied by the number of outstanding shares at the end of the period).

(4) R$ 145.8 billion considering the closing quotation of common and preferred (ON and PN shares) multiplied by total outstanding shares of each class of share.

 

3.5)Statement of Added Value

 

The total value added of Itaú Unibanco, which shows the wealth generated for the community, reached R$ 37.0 billion in 2012, and is distributed as follows: 34.0% to employees, 28.9% in reinvestment of profits, 25.2% in taxes, fees and contributions, 9.3% in compensation to stockholders, and 2.6% in return on third parties’ assets.

 

 
1.9

 

4)BUSINESS

 

units
Bank points of service  Dec 31, 2012   Dec 31, 2011   Change (%) 
Brazil   32,149    32,973    -2.5 
Branches   3,864    3,828    0.9 
Service centers (PABs)   876    881    -0.6 
ATMs   27,409    28,264    -3.0 
Abroad   838    780    7.4 
Branches   257    244    5.3 
Service centers (PABs)   30    31    -3.2 
ATMs   551    505    9.1 
Total   32,987    33,753    -2.3 

 

Commercial Bank – At the end of December 2012, we had 5,027 bank points of service, among regular branches and service centers (PAB) throughout Brazil and abroad. One of our main innovations in 2012 was the implementation of a biometric system in ATMs, which enables the carrying out of all transactions with just the fingerprint identification, without the need to type in a password, providing more security to this channel. Additionally, clients who have already registered their biometrics may carry out withdraws in ATMs up to a certain amount without the use of the account card, i.e., just by using the biometric identification.

 

Itaú Uniclass services are present in all branches, and it is an innovative operation we carry out in the banking sector. With exclusive services and dedicated managers, we reached 2.6 million clients served by the end of 2012.

 

In the Itaú Personnalité segment, every year we expanded the network every year and keep the service quality. In 2012 we opened 30 new network branches, which offer a complete portfolio of credit products and advisory services for making investments. In this segment we are leaders in client satisfaction and have gained market share on a consistent and sustained basis.

 

In the Private Bank segment, we are the largest bank in Latin America and remain the leader in the Brazilian market, with over 25.0% of market share, according to the Brazilian Financial and Capital markets Association (ANBIMA).

 

In the Assets Under Administration segment, in which Privatization Funds, Fixed Income, Equities Funds, Investment Clubs and Clients’ and the Group’s Portfolios are managed in Brazil and abroad, we reached R$ 562.0 billion in managed assets, with 19.7% market share according to ANBIMA in December 2012. In the year we recorded an overall increase of 25.0%, and noteworthy were the fixed-income and social security funds.

 

We ended December 2012 with 24.8% of market share, according to ANBIMA, totaled R$ 939.7 billion in assets under custody, which represents an increase of 14.0% as compared to the same period of 2011. We provide bookkeeping of share services and represent 62.9% of the total companies listed on BM&FBOVESPA, being the leaders in bookkeeping of debentures issued in 2012.

 

Kinea – independent asset, controlled by Itaú Unibanco, has R$ 4.3 billion managed assets, ranking among the largest independent managers in Brazil.

 

Insurance, Life, Pension Funds and Capitalization – These business operations in volume of income from premiums, pension funds contributions and capitalization certificates reached R$ 25.6 billion from January to December 2012, and technical provisions totaled R$ 93.2 billion at the end of December 2012, not including foreign operations. Noteworthy is the Life and Pension Plans sub-segment, which recorded an increase of R$ 112 million in net income for 2012. In these businesses, our focus is on streamlining the portfolio of products and the efficiency in the taking out processes, and noteworthy were the products in the Individual Life and Accidents and Extended Guarantee lines for individuals, and Group Life and Corporate Solutions for companies, in addition to products in the Pension Funds and Capitalization operations.

 

 
1.10

 

Porto Seguro – We hold 30% of capital of the insurance company Porto Seguro, the leading company in residence and automobile insurance segment in Brazil. According to SUSEP, in the year to date, Porto Seguro held a market share of 26.3% in the automobile insurance segment and 27.5% in the residence insurance segment.

 

Credit and Debit Cards – We are leaders in the consumer credit segment in Brazil, by means of Itaucard, Hipercard, and partnerships, offering a diversified range of products to accountholders and non-accountholder clients, originated in proprietary channels and through partnerships with companies that have outstanding performance in the markets they are engaged. From January to December 2012, the traded amount in credit cards reached R$ 227.4 billion, which represents a 13.9% increase as compared to the same period of 2011.

 

Acquiring business – Our acquiring business comprises the accreditation, capture, transmission, processing and financial settlement of transactions involving credit and debit cards, benefit cards (voucher) and store cards (private label). Additionally, we offer factoring of receivables, availability of ATMS, consultation of information on checks, purchase and withdrawals, non-financial services and virtual bank statements. In 2012, Redecard recorded net income of R$ 1,619.0 million, with an increase of 15.3% as compared to the same period of 2011.

Redecard funded R$ 256.6 billion in transactions with credit and debit cards in 2012, which represented an increase of 11.3% as compared to that posted in the same period of 2011. The financial volume of the transactions involving credit cards was R$ 162.4 billion. Meanwhile, the financial volume of transactions involving debit cards reached R$ 94.2 billion.

 

Itaú BBA – In charge of our banking operations in the corporate and investment segment and our institutional treasury management, Itaú BBA operates by way of a multidisciplinary team and with agility to carry out both operations that are traditional for a commercial bank and transactions in capital markets, mergers and acquisitions, offering full services to over 3 thousand of the largest business groups of Brazil, Argentina, Chile, Colombia and Peru. It also serves approximately 700 institutional investors and ensures full coverage for the parent companies of international clients by way of its Europe, New York and Shanghai units.

 

In the Wholesale banking activity, we highlight the following operations:

 

-The loan portfolio and joint obligations of Itaú BBA reached the amount of R$ 158.5 billion, an increase of 15.5% as compared to December 2011. Financing positions in foreign trade posted a growth of 22.9%, as compared to December 2011.

 

-Derivatives – Itaú BBA maintained its leadership in CETIP (Clearing House for the Custody and Financial Settlement of Securities). The focus was on operations hedging the exposures to foreign currencies, interest rates and commodities with clients. The volume of contracted operations from January to December 2012 was 36.7% higher than in the same period of prior year.

 

-Project Finance – In the period from January to December 2012, the bank was contracted to work in 72 structuring and/or advisory projects which exceeded R$ 103 billion in investments.

 

In the Investment banking area, we highlight as follows:

 

-Fixed income – in the period from January to November 2012, we took part in operations of debentures, promissory notes and securitization, which totaled R$ 21.7 billion. In the ANBIMA ranking of distribution of fixed income from January to April 2012, we reached the 1st place in volume, with 32.5% market share. In international issues of fixed income, Itaú BBA acted as the joint bookrunner of offerings, with a total volume of US$ 19.1 billion, reaching the 1st place in number of operations in the Issues of Brazilian Companies ranking of December 2012 of BondRadar in Reais and US dollars.

 

-Mergers and Acquisitions – we provide financial advisory on 69 transactions by December 2012 and achieved the leadership of the Thomson Reuters ranking in volume of operations. The amount totaled US$ 16.9 billion.

 

-Itaú Corretora – by December 2012 we were ranked 5th among the brokerage companies, with a 5.6% market share. In the Futures Market, we ended the same period ranked 4th among the brokerage companies, with a 9.3% market share.

 

Activities Abroad – we operate in Latin America, Europe, North America, Middle East, and Asia, totaling 20 countries, in addition to Brazil, mainly in commercial banking and institutional client operations, investment, wholesale and private banking activities. In the period from January to December, our business abroad reached a recurring net income of R$ 1.4 billion, with total assets of R$ 192.3 billion at December 31, 2012.

 

 
1.11

 

We present below the main information on our Retail operation in Latin America:

 

               Dec 31, 2012 
Highlights – Latin America  Argentina   Chile   Paraguay   Uruguay 
Branches and Service centers (PABs) - units   95    91    36    60 
Employees - individuals   1,650    2,451    701    1,127 
Assets – R$ billion   4.1    23.6    4.9    6.4 
Loan portfolio - Individuals - R$ million   537.2    7,560.6    1,191.3    1,071.0 
Loan portfolio - Companies - R$ million   2,418.0    10,652.0    1,865.0    1,847.7 

 

With capital of US$ 200 million, the Bank started our operations in Colombia, a country offering good growth opportunities and steady political conditions and economic scenario. The purpose is to gradually develop one operation scope similar to the one we have in Brazil.

 

5)PEOPLE

 

Itaú Unibanco had the support of approximately 97,000 people at the end of December 2012, including approximately 7,000 employees in foreign units. The employee’s fixed compensation plus charges and benefits totaled R$ 9.2 billion for the year.

 

Employees of Conglomerate  Dec 31, 2012   Dec 31, 2011   Change (%) 
Total   96,977    104,542    -7.2 
Brazil   90,323    98,258    -8.1 
Abroad   6,654    6,284    5.9 

 

·Welfare benefits granted to employees and their dependants totaled R$ 1.1 billion;
·Over R$ 241.5 million in training programs, totaling 2.2 million hours;
·3,242 employees recruited to the 2012 Itaú Unibanco Intern Program;
·25,567 enrolled in the 2012 Itaú Unibanco Trainee Program and 63 hired;
·1,614 employees hired in diversity programs, including the “Aprendiz” (apprentice), “Inclusão de Pessoas com Deficiência” (inclusion of people with disabilities) and “Estágio Diversidade” (diversity internship) programs.

 

Held by the third consecutive year, the Meeting of Leaders, which gathered together approximately 14,000 managers from Brazil and abroad in a two-day event, had as its theme “Mude. Simplifique. Transforme” (change, streamline, transform), encouraging our employees to have an owner's attitude in the day-to-day office life to search for leaderships in sustainable performance and client satisfaction.

 

The annual organizational climate survey conducted by Itaú Unibanco named “Fale Francamente” (speak up) based on the Great Place to Work methodology with employees had the record voluntary adherence of 90% of the employees. This survey pointed out to a satisfaction rate of 72% for the company and of 81% for managers. This survey is essential to get to know the employees’ opinion on the work environment climate and people’s management.

 

6)SUSTAINABILITY

 

Our sustainability management is focused on three strategic areas: Financial Education, Social and Environmental Risks and Opportunities, and Dialogue and Transparency. More than just creating new products, we work to adjust our operations, find competitive differentials, mitigate risks and generate income in the context of the higher demand for a social and environmental impact management. This strategy is systematically monitored by a Sustainability Management Panel.

 

 
1.12

 

We have been successful in developing initiatives that add value to our products and services. The adoption of social and environmental criteria for granting credit, financing projects, insurance and investments, in addition to expanding microfinance, are examples recognized by the market.

 

We instruct our employees, clients and other stockholders to have a healthy relationship with money and make good use of financial products. In 2012 noteworthy is Itaú Unibanco’s new portal of responsible use of money (www.itau.com.br/usoconsciente), an innovative financial education tool aiming at helping people to better use money in the different moments of their lives. The Bank’s clients and non-clients have access to themes that address, on a streamlined basis, day-to-day situations, such as: tips on how to get out of the red, saving money without sacrificing consumption, and talking about money with your family, among others, in addition to forward doubts which will be responded by the Institution’s experts.

 

7)CORPORATE GOVERNANCE

 

Good corporate governance practices contribute to add value to Itaú Unibanco, facilitate our access to capital and ensure the company’s continuity. Accordingly, we continually improve our management tools and policies to ensure the company’s sustainable growth. Our main purpose is to reach excellence in the relationship among the company, the Board of Directors and any Committees related thereto, stockholders and the market.

 

In 2012, we launched the Related-Party Transactions Policy, which reassesses and defines the rules and procedures to be adhered to ensure the equality and transparency in carrying out related-party transactions, thus ensuring to stockholders, investors and other stakeholders that we are in conformity with the best Corporate Governance practices.

 

This year we also disclosed our Corporate Policy on Donations to Electoral Campaigns, which sets forth the guidelines and rules to be adhered to in the Itaú Unibanco group for donations of funds to electoral campaigns, taking into account the Group’s ethics and transparency values and principles and the laws and rules in force to strengthen the Brazilian democratic process. Noteworthy in this policy of the Political Assessment Committee, which, in addition to approving the policy itself, will define the total budget for donations, strictly assess the track record and résumés of candidates and carry out the final approval for the contribution to each candidate. Donations to political parties or any type of financial committee are barred, except if otherwise exceptionally approved by the Political Assessment Committee.

 

Additionally, we updated the following: our Corporate Governance Policy, the Securities Trading Policy, the Compensation Committee’s Bylaws, the Personnel Committee’s Bylaws and our Bylaws.

 

Reinforcing our commitments to transparency and communication with the market, during 2012:

 

·we took part in 26 conferences and road shows in Brazil and abroad, which contributed to strengthen our relationship with stockholders, analysts and investors in the Brazilian and international markets;

 

·We held 22 Apimec meetings for all regions of Brazil with over 5,000 attendees. With an innovative language, the presentation of these meetings involves economic aspects of the country and the main information of our institution, such as financial performance, business areas and outlook for the sector;

 

·We were present at 13 financial education events (Expo Money) all over Brazil, which is the largest investment and financial education event in Latin America.

 

The 2013 corporate events calendar, as well as the presentations held in 2012, are available in Itaú Unibanco’s Investor Relations website www.itau-unibanco.com.br/ri > Agenda.

 

In June 2012 we engaged Company Reporting (CR), an independent company specialized in appraising the quality of financial statements, to appraise our financial statements under IFRS. CR compared Itaú Unibanco’s financial statements under IFRS with other 35 global financial institutions and our global ranking was number 2 (second).

 

 
1.13

 

8)SOCIAL AND CULTURAL INVESTMENTS

 

The ongoing improvement of public education, the appreciation and disclosure of the Brazilian arts and the support to sports in modalities representing traces of the Brazilian cultural identity represent opportunities for us to apply our best technologies and competencies developed as one of the largest financial market institutions. These are the causes we believe in.

 

Aware of our responsibility, in 2012 we invested the amount of R$ 197.5 million in social and cultural actions. The amount of R$ 71.3 million was invested in educational and cultural areas. Another R$ 15.9 million were invested by way of the Rouanet law, in 11 Brazilian States, and another R$ 4.5 million were employed in conformity with the guidelines of the Incentive to Sports Law. Our main initiatives were as follows:

 

Education

 

·Fundação Itaú Social seeks to promote the development and improve the quality of Brazilian elementary education. Accordingly, since its incorporation, it defined four large operational axes: Full-time Education, Education Management, Economic Assessment of Social Projects, and Social Mobilization. In 2012, the Itaú Criança (Itaú child) program was noteworthy with the nationwide campaign of incentive to reading, by way of a free distribution of children books and the mobilization of employees and the society in general. In 2012, over 7.0 million books were distributed;

 

·Instituto Unibanco works to improve high-school education. It acts by developing education technologies and methodologies to improve the effectiveness of public policies in High Schools, in partnership with the Ministry of Education and state education offices. In 2012, this initiative benefitted high school students from 791 schools in Brazil;

 

·Itaú Viver Mais, an initiative launched in 2012 based on a new brand concept based on three pillars – Living, Living Together and Reliving – is a non-profit association, which offers social and cultural activities to people over 55 years of age. In 2012, 2,500 people took part in the activities.

 

Culture

 

·Instituto Itaú Cultural is the main institution that manages the investments we make in the culture area, aiming at divulging the memory of the country and ensuring the continuity and the heritage of Brazilian artistic productions. In 2012, single accesses to the website reached 12.3 million;

 

·Espaço Itaú de Cinema, which rooms are intended to screen quality films that have little opportunity of being exhibited in the commercial movie circuit. Present in six Brazilian cities, the 56 screening rooms (divided in eight centers) contribute to the democratization of culture in Brazil. In 2012, 3.8 million people visited those screening rooms;

 

·Instituto Moreira Salles holds exhibitions, lectures, concerts, events, and movie cycles in its cultural centers located in the cities of Poços de Caldas, São Paulo, and Rio de Janeiro;

 

·The Ibirapuera Auditorium is a product of São Paulo city council and is under management of Itaú Cultural and since 2011 - inaugurating in a new model of public-private partnership. With this the Auditorium has earned an even more diversified program, offering music, dance, theater plays and movies at attractive prices. The Auditorium School operates in this space, educating youths from public schools. There is a total of 170 students. In 2012, we invested R$ 12 million, without using Rouanet Law, and in this period the Auditorium has received a record of 180 thousands people;

 

·Additionally, we sponsor events such as the Curitiba Drama Festival, the Joinville Dance Festival, and the International Literary Festival in Paraty, among others.

 

Sports

 

·In 2012 we carried out a series of actions to get our clients closer to soccer through our sponsoring of the Brazilian men and women soccer team in all categories. As we are the Official Bank for the FIFA 2014 World Soccer Cup and the FIFA 2013 Confederations Cup, we started the “Você mais Digital” (you, more digital) promotion, encouraging our clients to use the bank through a more digital format and raffling tickets and themed gifts.

 

 
1.14

 

·Our sports sponsorship actions also include incentives to develop the Brazilian tennis by way of a series of initiatives. Among them we highlight the support to the Instituto Tênis, which grants sports scholarships to 12-18 year-old-athletes with talent and high potential, the Itaú Women Tennis Circuit, and the Itaú School and University Tennis Cup, among others. In the international arena, we sponsor the ATP 1000 Miami, one of the most traditional competitions in the professional tennis circuit.

 

9)AWARDS AND RECOGNITION IN 2012

 

·The Banker (Financial Times) – 1st place among Latin America financial institutions in the Top 1000 World Banks 2012, winner of the Innovation in Banking Technology award, in the Innovation in Banking Technology Awards 2012, and Itaú BBA was acknowledged, for the 3rd time, as the Most Innovative Investment Bank in LatAm;

 

·Ranked 1st in the “As Empresas mais Admiradas no Brasil 2012” in the list of the most admired companies in Brazil (Carta Capital magazine) in the Retail Banking segment, award that acknowledges the companies that contribute to divulging Brazil’s business ethics and social and economical development;

 

·Ranked 1st in the Maiores e Melhores (Best and Largest) 2012 (Exame magazine) in the list of the 50 largest Brazilian Banks by equity;

 

·Since 2007, it holds the 1st place in the Banks category of Top of Mind Internet Award (Datafolha-UOL), a survey that acknowledges professionals and brands that value the online media;

 

·Global Private Banking Awards 2012 (Excellence in Wealth Management) – Itaú Private Bank was acknowledged as the Best Private Bank in Latin America and Best Private Bank in Brazil;

 

·Global Finance Magazine – acknowledged as the Best Trade Finance Bank in Brazil, World’s Best Foreign Exchange Providers in Brazil, World’s Best Sub-Custodian Banks in Brazil, World’s Best Banks in Brazil and Paraguay, Best Investment Bank in Latin America, Best Emerging Market Banks in Latin America and the Brazilian bank best ranked in the Safest Emerging Market Banks in Latin America;

 

·Euromoney Best Managed Companies in Latin America – 1st place in the Banking and financial and Best Corporate Governance in Brazil categories;

 

·World Business and Development Awards 2012 – winner in the Brazil’s special category with the Itaú Microfinance case, it acknowledges contributions from the private sector to the millennium goals (objectives defined by the UNO to promote poverty reduction, gender equality, health care, fight against children mortality, AIDS, and other diseases;

 

·Institutional Investor Magazine – out of eight awards, we were number one in six of them: Best Relations with Investors by Sell and Buy Sides; Best CEO by Sell and Buy Sides; Best CFO by Buy Side and Best Investor Relations Professional by Buy Side;

 

·Service – acknowledge as one of the 10 best ombudsman services in Brazil, in the Ouvidorias Brasil 2012 (Ombudsman Services Brazil 2012) Award, as benchmark in Call Center by the 2012 NICE Customer Excellence Awards in the Enterprise Implementation Excellence category;

 

·People – acknowledged as one of the Great Places to Work at (in partnership with Época magazine), Empresa dos Sonhos dos Jovens (the Youngsters’ Dream Company to Work at) (Cia. de Talentos), and the Best Companies to Work at and the Best Companies to Start your Career (Você S.A. Guide), Company of the Year of the VAGAS 10+ Award (Vagas.com);

 

·Sustainability – granted for the 4th consecutive year with the 2012 FT/IFC Sustainable Finance Awards – Americas, one of the most significant world awards in the sustainability area, which elects the financial institutions focused on the sustainable development; one of the benchmark companies of the Guia Exame de Sustentabilidade 2012.

 

 
1.15

 

10)INDEPENDENT AUDITORS - CVM Instruction No. 381

 

Procedures adopted by the Company

 

The policy adopted by Itaú Unibanco Holding S.A., its subsidiaries, and parent company to engage in non-audit related services from our independent auditors is based on the applicable regulations and internationally accepted principles that preserve the auditor’s independence. These principles include the following: (a) an auditor cannot audit his or her own work, (b) an auditor cannot function in the role of management in companies where he or she provides external audit services; and (c) an auditor cannot promote the interests of his or her client.

 

During the period from January to December 2012, the independent auditors and related parties did not provide non-audit related services in excess of 5% of total external audit fees.

 

According to CVM Instruction No. 381, we list below the engaged services and related dates:

 

·January 24, 2012 and December 5, 2012 – vulnerability analysis and application intrusion tests on the internet perimeter;

 

·February 17 and August 2, 2012 – review of aspects related to the business continuity program;

 

·February 23, March 29, July 4, July 31, and October 3, 2012 – acquisition of technical material;

 

·March 6, June 12, August 10 and November 8, 2012 – attendance at courses open to the public, related to finance and accounting;

 

·April 27 and August 7, 2012 – consulting services in the authorization request to the regulatory body for opening a subsidiary abroad;

 

·October 1, 2012 – tax advisory services;

 

·October 22, 2012 – mapping and identification of opportunities of the Prime Services market.

 

Summary of the Independent Auditors’ justification - PricewaterhouseCoopers

 

The provision of the above described non-audit related professional services do not affect the independence or the objectivity of the external audit of Itaú Unibanco, its parent and subsidiary/affiliated companies. The policy adopted for providing non-audit related services to Itaú Unibanco is based on principles that preserve the independence of Independent Auditors, all of which were considered in the provision of the referred services.

 

11)Circular No. 3.068/01 – BACEN

 

Itaú Unibanco hereby represents to have the financial capacity and the intention to hold to maturity securities classified under the line “held-to-maturity securities” in the balance sheet, in the amount of R$ 3.2 billion, corresponding to 1.2% of total securities held.

 

Acknowledgements

 

We thank our employees for their determination and skills which have been essential to reaching consistent and differentiated results, and our stockholders and clients for their trust.

 

(Approved at the Board of Directors' Meeting of February 4, 2013).

 

 
2.1

 

ITAÚ UNIBANCO HOLDING S.A.  
   
BOARD OF DIRECTORS EXECUTIVE BOARD
Chairman Chief Executive Officer
PEDRO MOREIRA SALLES ROBERTO EGYDIO SETUBAL
   
Vice-Chairmen Executive Vice-Presidents
ALFREDO EGYDIO ARRUDA VILLELA FILHO ALFREDO EGYDIO SETUBAL (*)
ROBERTO EGYDIO SETUBAL CANDIDO BOTELHO BRACHER
   
Members Executive Directors
ALFREDO EGYDIO SETUBAL CAIO IBRAHIM DAVID
CANDIDO BOTELHO BRACHER CLAUDIA POLITANSKI
DEMOSTHENES MADUREIRA DE PINHO NETO MARCOS DE BARROS LISBOA
GUSTAVO JORGE LABOISSIÈRE LOYOLA RICARDO BALDIN
HENRI PENCHAS SÉRGIO RIBEIRO DA COSTA WERLANG
ISRAEL VAINBOIM  
NILDEMAR SECCHES  
PEDRO LUIZ BODIN DE MORAES Directors
RICARDO VILLELA MARINO ALEXSANDRO BROEDEL LOPES
  ANA TEREZA DE LIMA E SILVA PRANDINI
  EDUARDO HIROYUKI MIYAKI
  EMERSON MACEDO BORTOLOTO
AUDIT COMMITTEE ROBERT GEORGE STRIBLING
President RODRIGO LUÍS ROSA COUTO
GUSTAVO JORGE LABOISSIÈRE LOYOLA ROGÉRIO PAULO CALDERÓN PERES
   
Members  
ALKIMAR RIBEIRO MOURA (*) Investor Relations Director
EDUARDO AUGUSTO DE ALMEIDA GUIMARÃES  
GUY ALMEIDA ANDRADE  
LUIZ ALBERTO FIORE  
   
FISCAL COUNCIL  
President  
IRAN SIQUEIRA LIMA  
   
Members  
ALBERTO SOZIN FURUGUEM Accountant
LUIZ ALBERTO DE CASTRO FALLEIROS CARLOS ANDRÉ HERMESINDO DA SILVA
  CRC - 1SP281528/O-1

 

 
2.2

 

ITAÚ UNIBANCO S.A.  
   
Chief Executive Officer and General Manager Directors (continued)
ROBERTO EGYDIO SETUBAL FERNANDO JOSÉ COSTA TELES
  FLAVIO AUGUSTO AGUIAR DE SOUZA
Executive Vice-Presidents FRANCISCO VIEIRA CORDEIRO NETO
ALEXANDRE DE BARROS GUILHERME MARTINS VASCONCELOS
ALFREDO EGYDIO SETUBAL HENRIQUE PINTO ECHENIQUE
JOSÉ CASTRO ARAÚJO RUDGE IBRAHIM JOSÉ JAMHOUR
JOSÉ ROBERTO HAYM JOÃO ANTONIO DANTAS BEZERRA LEITE
LUÍS OTAVIO MATIAS JOÃO LUIZ DE MEDEIROS
MÁRCIO DE ANDRADE SCHETTINI JORGE LUIZ VIEGAS RAMALHO
MARCO AMBROGIO CRESPI BONOMI JOSÉ FÉLIX VALENCIA RÍOS
MARCOS DE BARROS LISBOA JOSÉ ISERN
RICARDO VILLELA MARINO JOSÉ VIRGILIO VITA NETO
SÉRGIO RIBEIRO DA COSTA WERLANG LEILA CRISTIANE BARBOZA BRAGA DE MELO
  LUÍS EDUARDO GROSS SIQUEIRA CUNHA
Executive Directors LUIS TADEU MANTOVANI SASSI
ANDRÉ SAPOZNIK LUIZ ANTONIO NOGUEIRA DE FRANÇA
CAIO IBRAHIM DAVID LUIZ EDUARDO LOUREIRO VELOSO
CARLOS EDUARDO MONICO LUIZ FERNANDO BUTORI REIS SANTOS
CELSO SCARAMUZZA LUIZ SEVERIANO RIBEIRO
CLAUDIA POLITANSKI MARCELO BOOCK
FERNANDO MARSELLA CHACON RUIZ MARCELO DA COSTA LOURENÇO
GUSTAVO ADOLFO FUNCIA MURGEL MARCELO LUIS ORTICELLI
LUIS ANTONIO RODRIGUES MARCO ANTONIO SUDANO
OSVALDO DO NASCIMENTO MARCOS ANTÔNIO VAZ DE MAGALHÃES
  MARCOS AUGUSTO CAETANO DA SILVA FILHO
Directors MARCOS SILVA MASSUKADO
ADILSO MARTINS DE LIMA MARCOS VANDERLEI BELINI FERREIRA
ADRIANO BRITO DA COSTA LIMA MARIA IRENE GARCETE DE GAVILAN
ADRIANO CABRAL VOLPINI MARIO LUIZ AMABILE
ALBERTO FERNANDES MESSIAS DOS SANTOS ESTEVES
ALEXANDRE JADALLAH AOUDE MILTON MALUHY FILHO
ALEXSANDRO BROEDEL LOPES NATACHA LITVINOV
ANA CARLA ABRÃO COSTA OSVALDO JOSÉ DAL FABBRO
ANA TEREZA DE LIMA E SILVA PRANDINI PAULO EIKIEVICIUS CORCHAKI
ANDRÉA MATTEUCCI PINOTTI CORDEIRO PAULO MEIRELLES DE OLIVEIRA SANTOS
CARLOS EDUARDO DE CASTRO RENATA HELENA DE OLIVEIRA TUBINI
CARLOS EDUARDO MACCARIELLO RENÊ MARCELO GONÇALVES
CARLOS HENRIQUE DONEGÁ AIDAR RICARDO LIMA SOARES
CARLOS ORESTES VANZO RICARDO ORLANDO
CESAR PADOVAN RICARDO RIBEIRO MANDACARU GUERRA
CÍCERO MARCUS DE ARAÚJO RICARDO URQUIJO LAZCANO
CINTIA CARBONIERI ARAÚJO ROBERTO FERNANDO VICENTE
CLAUDIO CÉSAR SANCHES ROBERTO MASSARU NISHIKAWA
CLAUDIO JOSÉ COUTINHO ARROMATTE RODRIGO LUIS ROSA COUTO
COSMO FALCO ROGERIO CARVALHO BRAGA
CRISTIANE MAGALHÃES TEIXEIRA PORTELLA ROGÉRIO PAULO CALDERÓN PERES
CRISTINA CESTARI SPADA ROMILDO GONÇALVES VALENTE
DANIEL LUIZ GLEIZER ROONEY SILVA
EDILSON PEREIRA JARDIM SERGIO GUILLINET FAJERMAN
ERNESTO ANTUNES DE CARVALHO SERGIO SOUZA FERNANDES JÚNIOR
FABIO DI PACE MENEZES VILMAR LIMA CARREIRO
FERNANDO DELLA TORRE CHAGAS WAGNER BETTINI SANCHES

 

 
2.3

 

BANCO ITAÚ BBA S.A.  
   
BOARD OF DIRECTORS  
   
Chairman Directors
ROBERTO EGYDIO SETUBAL ALBERTO ZOFFMANN DO ESPÍRITO SANTO
  ALEXANDRE ENRICO SILVA FIGLIOLINO
Vice-Chairmen ANDRÉ CARVALHO WHYTE GAILEY
ALFREDO EGYDIO SETUBAL ANDRÉ DEL BEL CURY
FERNÃO CARLOS BOTELHO BRACHER ANDRÉ FERRARI
  ANTONIO JOSÉ CALHEIROS RIBEIRO FERREIRA
Members ANTONIO SANCHEZ JUNIOR
ANTONIO CARLOS BARBOSA DE OLIVEIRA EDUARDO CARDOSO ARMONIA
CANDIDO BOTELHO BRACHER EDUARDO CORSETTI
EDUARDO MAZZILLI DE VASSIMON EMERSON SAVI JUNQUEIRA
HENRI PENCHAS FABIO MASSASHI OKUMURA
JOÃO DIONÍSIO FILGUEIRA BARRETO AMOÊDO FERNANDO HENRIQUE MEIRA DE CASTRO
JOSÉ ROBERTO HAYM FLÁVIO DELFINO JUNIOR
SÉRGIO RIBEIRO DA COSTA WERLANG GILBERTO FRUSSA
  GUSTAVO HENRIQUE PENHA TAVARES
EXECUTIVE BOARD ILAN GOLDFAJN
Chief Executive Officer JOÃO CARLOS DE GÊNOVA
CANDIDO BOTELHO BRACHER JOÃO MARCOS PEQUENO DE BIASE
  JORGE BEDRAN JETTAR
Managing Vice-Presidents LUIZ FELIPE MONTEIRO ARCURI TREVISAN
ALBERTO FERNANDES MARCELLO PECCININI DE CHIARO
DANIEL LUIZ GLEIZER MARCELO ARIEL ROSENHEK
JEAN-MARC ROBERT NOGUEIRA BAPTISTA ETLIN MARCO ANTONIO SUDANO
  MARCOS AUGUSTO CAETANO DA SILVA FILHO
  MÁRIO LÚCIO GURGEL PIRES
Executive Directors MÁRIO LUÍS BRUGNETTI
ALEXANDRE JADALLAH AOUDE PAULO DE PAULA ABREU
ÁLVARO DE ALVARENGA FREIRE PIMENTEL RODERICK SINCLAIR GREENLEES
ANDRÉ LUÍS TEIXEIRA RODRIGUES RODRIGO PASTOR FACEIRO LIMA
ELAINE CRISTINA ZANATTA RODRIGUES VASQUINHO THALES FERREIRA SILVA
FERNANDO FONTES IUNES VANESSA LOPES REISNER
JOSÉ AUGUSTO DURAND  
MARCELO TREVISAN MARANGON  
MILTON MALUHY FILHO  

 

BANCO ITAUCRED FINANCIAMENTOS S.A. ITAÚ SEGUROS S.A.
   
Chief Executive Officer Chief Executive Officer
LUÍS OTÁVIO MATIAS ROBERTO EGYDIO SETUBAL
   
Executive Vice-President Superintendent Director
MÁRCIO DE ANDRADE SCHETTINI MARCOS DE BARROS LISBOA
   
Directors Executive Directors
ADRIANO CABRAL VOLPINI ANDRÉ HORTA RUTOWITSCH
ALEXSANDRO BROEDEL LOPES ANTONIO EDUARDO MÁRQUEZ DE FIGUEIREDO TRINDADE
ANA TEREZA DE LIMA E SILVA PRANDINI JOSÉ CASTRO ARAÚJO RUDGE
CLÁUDIO JOSÉ COUTINHO ARROMATTE  
EVANIR COUTINHO USSIER Directors
FÁBIO MASSASHI OKUMURA ADRIANO CABRAL VOLPINI
FERNANDO JOSÉ COSTA TELES ALINE FERREIRA COROPOS
HENRIQUE PINTO ECHENIQUE ALEXSANDRO BROEDEL LOPES
LUÍS FERNANDO STAUB HENRIQUE PINTO ECHENIQUE
MARCOS ANTÔNIO VAZ DE MAGALHÃES MARIO LUIZ AMABILE
MARCOS VANDERLEI BELINI FERREIRA  
MARIO LUIZ AMABILE  

 

 
3.1

 

ITAÚ UNIBANCO HOLDING S.A.

Consolidated Balance Sheet (Note 2a)

(In thousands of Reais)

 

ASSETS  NOTE   12/31/2012   12/31/2011 
CURRENT ASSETS        742,223,042    622,747,887 
CASH AND CASH EQUIVALENTS       13,967,096    10,633,082 
INTERBANK INVESTMENTS   4b and 6    181,636,483    113,645,149 
Money market        155,456,244    85,445,536 
Money market – Assets Guaranteeing Technical Provisions - SUSEP   11b    2,750,763    2,816,013 
Interbank deposits        23,429,476    25,383,600 
SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS   4c, 4d and 7    203,186,230    147,704,470 
Own portfolio        77,843,120    46,765,192 
Subject to repurchase commitments        19,937,168    12,947,833 
Pledged in guarantee       4,879,713    8,838,992 
Securities under resale agreements with free movement       636,370    - 
Deposited with the Central Bank       11,672,854    9,781,464 
Derivative financial instruments       6,893,500    5,961,548 
Assets guaranteeing technical provisions - PGBL/VGBL fund quotas   11b    75,146,080    57,733,857 
Assets guaranteeing technical provisions – other securities   11b    6,177,425    5,675,584 
INTERBANK ACCOUNTS        63,917,021    98,224,030 
Pending settlement        95,963    104,574 
Central Bank deposits        63,701,372    98,052,554 
National Housing System (SFH)        1,808    1,166 
Correspondents        102,185    35,047 
Interbank onlending        15,693    30,689 
INTERBRANCH ACCOUNTS        4,859    28,879 
LOAN, LEASE AND OTHER CREDIT OPERATIONS   8    193,306,500    180,492,549 
Operations with credit granting characteristics   4e    208,823,816    195,769,313 
(Allowance for loan losses)   4f    (15,517,316)   (15,276,764)
OTHER RECEIVABLES        82,776,403    68,547,960 
Foreign exchange portfolio   9    29,760,887    26,038,027 
Income receivable        1,402,580    1,266,414 
Transactions with credit card issuers   4e    20,780,666    18,408,662 
Receivables from insurance and reinsurance operations   4m I and 11b    4,407,167    3,589,696 
Negotiation and intermediation of securities        2,641,614    1,728,168 
Sundry   13a    23,783,489    17,516,993 
OTHER ASSETS   4g    3,428,450    3,471,768 
Assets held for sale        161,834    138,389 
(Valuation allowance)        (44,455)   (49,011)
Unearned premiums of reinsurance   4m I    589,585    552,950 
Prepaid expenses   4g and 13b    2,721,486    2,829,440 
LONG-TERM RECEIVABLES        258,988,972    216,674,506 
INTERBANK INVESTMENTS   4b and 6    397,453    2,436,840 
Money market        1,336    6 
Interbank deposits        396,117    2,436,834 
SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS   4c, 4d and 7    72,987,628    40,175,954 
Own portfolio        44,074,674    22,040,083 
Subject to repurchase commitments        16,075,672    8,211,080 
Pledged in guarantee        2,696,950    1,889,009 
Deposited with the Central Bank        -    349,291 
Derivative financial instruments        5,619,759    3,584,698 
Assets guaranteeing technical provisions – other securities   11b    4,520,573    4,101,793 
INTERBANK ACCOUNTS - National Housing System (SFH)        687,757    669,734 
LOAN, LEASE AND OTHER CREDIT OPERATIONS   8    145,233,501    139,218,506 
Operations with credit granting characteristics   4e    157,461,123    149,713,469 
(Allowance for loan losses)   4f    (12,227,622)   (10,494,963)
OTHER RECEIVABLES        37,949,650    32,688,824 
Foreign exchange portfolio   9    1,198,809    411,772 
Sundry   13a    36,750,841    32,277,052 
OTHER ASSETS   4g    1,732,983    1,484,648 
Unearned premiums of reinsurance   4m I    117,838    - 
Prepaid expenses   4g and 13b    1,615,145    1,484,648 
PERMANENT ASSETS        13,212,662    11,909,142 
INVESTMENTS   4h and 15a Il    2,956,473    2,716,641 
Investments in affiliates        2,144,095    1,684,423 
Other investments        1,080,893    1,235,566 
(Allowance for losses)        (268,515)   (203,348)
REAL ESTATE IN USE   4i and 15b    5,565,701    5,286,998 
Real estate in use        3,431,010    3,453,180 
Other fixed assets        9,141,039    8,561,880 
(Accumulated depreciation)        (7,006,348)   (6,728,062)
GOODWILL   4j and 15b    101,424    95,691 
INTANGIBLE ASSETS   4k and 15b    4,589,064    3,809,812 
Acquisition of rights to credit payroll        1,479,325    1,647,548 
Other intangible assets        4,999,422    3,876,786 
(Accumulated amortization)        (1,889,683)   (1,714,522)
TOTAL ASSETS        1,014,424,676    851,331,535 

 

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

 

 
3.2

 

ITAÚ UNIBANCO HOLDING S.A.

Consolidated Balance Sheet (Note 2a)

(In thousands of Reais)

 

LIABILITIES  NOTE   12/31/2012   12/31/2011 
CURRENT LIABILITIES        545,122,293    422,015,989 
DEPOSITS   4b and 10b    175,658,059    159,455,538 
Demand deposits       34,916,237    28,932,523 
Savings deposits       83,451,406    67,169,544 
Interbank deposits       7,393,566    1,793,508 
Time deposits       49,896,850    61,559,963 
DEPOSITS RECEIVED UNDER SECURITIES REPURCHASE AGREEMENTS   4b and 10c    178,532,280    81,813,398 
Own portfolio       70,690,482    43,471,088 
Third-party portfolio       106,528,933    36,537,645 
Free portfolio       1,312,865    1,804,665 
FUNDS FROM ACCEPTANCES AND ISSUANCE OF SECURITIES   4b and 10d    31,571,699    29,459,349 
Real estate, mortgage, credit and similar notes       22,804,423    18,474,079 
Debentures       1,569,053    1,038,733 
Foreign borrowings through securities       7,198,223    9,946,537 
INTERBANK ACCOUNTS       288,334    120,726 
Pending settlement       108,326    67,554 
Correspondents       180,008    53,172 
INTERBRANCH ACCOUNTS       4,690,600    3,927,461 
Third-party funds in transit       4,467,247    3,857,437 
Internal transfer of funds       223,353    70,024 
BORROWINGS AND ONLENDING   4b and 10e    30,762,634    29,009,787 
Borrowings       18,902,188    17,972,358 
Onlending       11,860,446    11,037,429 
DERIVATIVE FINANCIAL INSTRUMENTS   4d and 7h    5,538,292    4,139,099 
TECHNICAL PROVISION FOR INSURANCE, PENSION PLAN AND CAPITALIZATION   4m II and 11a    11,544,418    10,470,320 
OTHER LIABILITIES       106,535,977    103,620,311 
Collection and payment of taxes and contributions       399,009    855,975 
Foreign exchange portfolio   9    29,898,547    25,751,044 
Social and statutory   16b II    3,058,887    2,976,200 
Tax and social security contributions   4n 4o and 14c    8,684,089    7,051,103 
Negotiation and intermediation of securities       4,252,959    2,503,701 
Credit card operations   4e    45,109,552    41,178,016 
Subordinated debt   10f    3,378,594    10,715,074 
Sundry   13c    11,754,340    12,589,198 
LONG-TERM LIABILITIES       393,042,637    355,390,776 
DEPOSITS   4b and 10b    67,541,530    83,180,884 
Interbank deposits       206,700    272,115 
Time deposits       67,334,830    82,908,769 
DEPOSITS RECEIVED UNDER SECURITIES REPURCHASE AGREEMENTS   4b and 10c    110,285,541    107,005,139 
Own portfolio       93,078,835    92,576,432 
Free portfolio       17,206,706    14,428,707 
FUNDS FROM ACCEPTANCES AND ISSUANCE OF SECURITIES   4b and 10d    23,535,880    22,097,865 
Real estate, mortgage, credit and similar notes       14,734,730    15,113,364 
Debentures       -    63 
Foreign borrowings through securities       8,801,150    6,984,438 
BORROWINGS AND ONLENDING   4b and 10e    28,362,573    27,592,273 
Borrowings       4,175,006    3,170,360 
Onlending       24,187,567    24,421,913 
DERIVATIVE FINANCIAL INSTRUMENTS   4d and 7h    5,590,025    2,668,217 
TECHNICAL PROVISION FOR INSURANCE, PENSION PLAN AND CAPITALIZATION   4m II and 11a    81,665,475    63,284,144 
OTHER LIABILITIES       76,061,613    49,562,254 
Foreign exchange portfolio   9    1,205,499    430,526 
Tax and social security contributions   4n, 4o and 14c    12,927,665    12,973,003 
Subordinated debt   10f    50,993,531    28,259,410 
Sundry   13c    10,934,918    7,899,315 
DEFERRED INCOME   4p    1,137,364    836,211 
MINORITY INTEREST IN SUBSIDIARIES   16e    902,773    1,741,226 
STOCKHOLDERS’ EQUITY   16    74,219,609    71,347,333 
Capital       45,000,000    45,000,000 
Capital reserves       843,694    763,413 
Revenue reserves       28,392,526    27,386,624 
Asset valuation adjustment   4c, 4d and 7d    1,506,889    (139,142)
(Treasury shares)       (1,523,500)   (1,663,562)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY        1,014,424,676    851,331,535 

 

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

 

 
3.3

 

 

ITAÚ UNIBANCO HOLDING S.A.

Consolidated Statement of Income (Note 2a)

(In thousands of Reais)

 

   NOTE  2nd Half of
2012		   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
INCOME FROM FINANCIAL OPERATIONS      47,754,602    99,878,400    101,366,445 
Loan, lease and other credit operations      29,006,204    60,164,320    59,102,824 
Securities and derivative financial instruments      12,547,545    25,802,821    26,060,595 
Financial income from insurance, pension plan and capitalization operations  11c   3,810,865    7,144,322    5,929,625 
Foreign exchange operations      272,824    1,282,510    914,047 
Compulsory deposits      2,117,164    5,484,427    9,359,354 
EXPENSES OF FINANCIAL OPERATIONS      (22,942,760)   (49,382,303)   (54,142,780)
Money market      (17,891,499)   (40,426,110)   (46,285,203)
Financial expenses on technical provisions for pension plan and capitalization  11c   (3,540,919)   (6,513,361)   (5,239,459)
Borrowings and onlending      (1,510,342)   (2,442,832)   (2,618,118)
INCOME FROM FINANCIAL OPERATIONS BEFORE LOAN LOSSES      24,811,842    50,496,097    47,223,665 
RESULT OF ALLOWANCE FOR LOAN LOSSES  8d I   (9,660,454)   (19,361,924)   (14,423,754)
Expenses for allowance for loan losses      (12,005,324)   (24,025,146)   (19,911,948)
Income from recovery of credits written off as loss      2,344,870    4,663,222    5,488,194 
GROSS INCOME FROM FINANCIAL OPERATIONS      15,151,388    31,134,173    32,799,911 
OTHER OPERATING REVENUES (EXPENSES)      (7,926,170)   (14,844,755)   (14,545,258)
Banking service fees  13d   7,282,485    14,488,226    13,912,326 
Asset management      1,636,155    3,083,627    2,607,734 
Current account services      333,946    670,076    675,646 
Credit cards      2,999,414    6,157,299    6,111,133 
Sureties and credits granted      818,483    1,594,746    1,761,944 
Receipt services      739,559    1,439,626    1,332,789 
Other      754,928    1,542,852    1,423,080 
Income from bank charges  13e   2,949,117    5,825,110    5,135,371 
Result from insurance, pension plan and capitalization operations  11c   1,529,990    2,990,015    2,714,409 
Personnel expenses  13f   (7,196,387)   (14,026,524)   (13,356,038)
Other administrative expenses  13g   (7,104,871)   (14,192,242)   (14,099,747)
Tax expenses  4o and 14a II   (2,276,860)   (4,485,391)   (4,091,978)
Equity in earnings of affiliates and other investments  15a lll   255,022    335,375    39,497 
Other operating revenues  13h   136,936    278,319    392,528 
Other operating expenses  13i   (3,501,602)   (6,057,643)   (5,191,626)
OPERATING INCOME      7,225,218    16,289,418    18,254,653 
NON-OPERATING INCOME  13j   1,528,275    1,241,506    190,794 
INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING      8,753,493    17,530,924    18,445,447 
INCOME TAX AND SOCIAL CONTRIBUTION  4o and 14a I   (1,653,396)   (3,223,966)   (2,855,428)
Due on operations for the period      (3,323,625)   (8,075,972)   (6,779,316)
Related to temporary differences      1,670,229    4,852,006    3,923,888 
PROFIT SHARING – Management members - Statutory - Law No. 6,404 of 12/15/1976      (79,325)   (159,026)   (191,923)
MINORITY INTEREST IN SUBSIDIARIES  16e   (156,689)   (553,992)   (777,475)
NET INCOME      6,864,083    13,593,940    14,620,621 
WEIGHTED AVERAGE OF THE NUMBER OF OUTSTANDING SHARES           4,517,959,807    4,529,310,833 
NET INCOME PER SHARE – R$           3.01    3.23 
BOOK VALUE PER SHARE - R$ (OUTSTANDING AT 12/31)           16.43    15.81 
                   
Supplementary Information                  
                   
EXCLUSION OF NONRECURRING EFFECTS  2a and 22k        448,761    20,369 
NET INCOME WITHOUT NONRECURRING EFFECTS           14,042,701    14,640,990 
NET INCOME PER SHARE – R$           3.11    3.23 

 

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

 

 
3.4

 

ITAÚ UNIBANCO HOLDING S.A.

Consolidated Statement of Cash Flows

(In thousands of Reais)

 

   NOTE  2nd Half of
2012		   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
ADJUSTED NET INCOME      19,169,115    38,462,009    38,075,518 
Net income      6,864,083    13,593,940    14,620,621 
Adjustments to net income:      12,305,032    24,868,069    23,454,897 
Granted options recognized      103,923    202,903    162,663 
Adjustment to market value of securities and derivative financial instruments (assets/liabilities)  7i   (88,059)   510,793    1,605,804 
Effects of changes in exchange rates on cash and cash equivalents      (1,164,963)   (1,546,322)   (2,167,626)
Allowance for loan losses      12,005,324    24,025,146    19,911,948 
Interest and foreign exchange expense from operations with subordinated debt      1,942,043    4,292,776    4,345,353 
Interest expense from operations with debentures      57,618    138,213    165,306 
Financial expenses on technical provisions for pension plan and capitalization      3,540,919    6,513,361    5,239,459 
Depreciation and amortization  15b   1,107,562    2,212,352    2,166,563 
Adjustment to legal liabilities – tax and social security      831,033    1,122,958    866,756 
Adjustment to provision for contingent liabilities      1,811,784    1,824,228    228,499 
Deferred taxes      (1,670,229)   (4,852,006)   (3,923,888)
Equity in earnings of affiliates and other investments  15a lll   (255,022)   (335,375)   (39,497)
Interest and foreign exchange income from available-for-sale securities      (2,161,837)   (4,724,666)   (3,744,181)
Interest and foreign exchange income from held-to-maturity securities      (254,958)   (494,548)   (407,973)
(Gain) loss from sale of available-for-sale financial assets  7f   (1,977,050)   (2,570,928)   (301,358)
(Gain) loss from sale of investments      (1,638,172)   (1,876,222)   (521,932)
(Gain) loss from sale of foreclosed assets      (42,248)   (54,676)   (42,507)
(Gain) loss from sale of fixed assets      17,450    20,182    (44,074)
(Reversion) loss from rescission of operations of intangible assets      1,957    2,561    (44,418)
Minority interest      156,689    553,992    777,475 
Other      (18,731)   (96,652)   (80,366)
CHANGE IN ASSETS AND LIABILITIES      (4,408,097)   9,429,622    (28,974,958)
(Increase) Decrease in Assets      (121,506,513)   (116,767,564)   (107,564,458)
Interbank investments      (78,073,730)   (67,800,614)   (31,657,183)
Securities and derivative financial instruments      (29,737,343)   (40,944,621)   1,792,629 
Compulsory deposits with the Central Bank of Brazil      10,207,741    34,351,182    (12,276,084)
Interbank and interbranch accounts (assets/liabilities)      (1,904)   892,571    257,096 
Loan, lease and other credit operations      (20,867,994)   (42,936,247)   (66,630,980)
Other receivables and other assets      (1,713,287)   (1,578,227)   904,958 
Foreign exchange portfolio and negotiation and intermediation of securities (assets/liabilities)      (1,319,997)   1,248,391    45,106 
(Decrease) Increase in Liabilities      117,098,416    126,197,186    74,580,523 
Deposits      8,224,469    563,167    39,948,365 
Deposits received under securities repurchase agreements      93,718,005    99,999,284    (10,837,816)
Funds for issuance of securities      1,808,104    3,020,108    26,310,792 
Borrowings and onlending      3,546,265    2,523,147    9,264,096 
Credit card operations (assets/liabilities)      2,785,846    1,559,532    3,955,445 
Technical provision for insurance, pension plan and capitalization      6,683,189    11,970,124    7,281,789 
Collection and payment of taxes and contributions      (3,839,030)   (456,966)   161,616 
Other liabilities      3,855,177    6,717,637    2,434,867 
Deferred income      316,391    301,153    70,346 
Payment of income tax and social contribution      (2,124,198)   (6,642,631)   (4,008,977)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES      12,636,820    41,249,000    5,788,692 
Interest on capital / dividends received from affiliated companies      196,570    203,815    70,321 
Funds received from sale of available-for-sale securities      6,353,866    17,771,413    34,221,963 
Funds received from redemption of held-to-maturity securities      168,128    397,375    814,258 
Disposal of assets not for own use      80,051    138,629    146,044 
Disposal of investments      1,527,261    1,909,821    696,630 
Sale of fixed assets      24,005    226,355    184,471 
Termination of intangible asset agreements      183,483    183,546    184,048 
Purchase of available-for-sale securities      (30,930,991)   (51,879,179)   (33,599,564)
Purchase of held-to-maturity securities      603    (103)   (341,300)
Purchase of investments      -    (852,519)   (20,994)
Purchase of fixed assets  15b   (1,037,427)   (1,913,062)   (1,902,929)
Purchase of intangible assets  15b   (991,393)   (1,794,384)   (2,008,056)
NET CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES      (24,425,843)   (35,608,292)   (1,555,108)
Increase in subordinated debt      13,292,690    23,998,330    8,850,750 
Decrease in subordinated debt      (3,810,493)   (12,893,465)   (8,051,490)
Increase in debentures      -    1,500,000    - 
Decrease in debentures      (1,053,718)   (1,107,956)   (510,603)
Change in minority interest  16e   (3,583)   51,590    (1,884,680)
Acquisition of minority interest in Redecard S.A.  2c   (11,752,193)   (11,752,193)   - 
Granting of stock options      14,930    208,603    353,036 
Purchase of treasury shares      (23,288)   (122,333)   (1,302,638)
Dividends and interest on capital paid to minority interests      (1,385)   (377,789)   (664,472)
Dividends and interest on capital paid      (1,659,807)   (5,206,470)   (4,588,486)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES      (4,996,847)   (5,701,683)   (7,798,583)
                   
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      (16,785,870)   (60,975)   (3,564,999)
                   
Cash and cash equivalents at the beginning of the period      54,723,149    37,616,895    39,014,268 
Effects of changes in exchange rates on cash and cash equivalents      1,164,963    1,546,322    2,167,626 
Cash and cash equivalents at the end of the period  4a and 5   39,102,242    39,102,242    37,616,895 

 

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

 

 
3.5

 

ITAÚ UNIBANCO HOLDING S.A.

Consolidated Statement of Added Value

(In thousands of Reais)

 

   NOTE  2nd Half of
2012		   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
INCOME      51,520,951    105,339,652         109,288,119      
Financial operations      47,754,602    99,878,400         101,366,445      
Banking services      10,231,602    20,313,336         19,047,697      
Result from insurance, pension plan and capitalization operations      1,529,990    2,990,015         2,714,409      
Result of loan losses  8d   (9,660,454)   (19,361,924)        (14,423,754)     
Other      1,665,211    1,519,825         583,322      
EXPENSES      (26,444,362)   (55,439,946)        (59,334,406)     
Financial operations      (22,942,760)   (49,382,303)        (54,142,780)     
Other      (3,501,602)   (6,057,643)        (5,191,626)     
INPUTS PURCHASED FROM THIRD PARTIES      (5,766,937)   (11,564,430)        (11,764,138)     
Materials, energy and others  13g   (168,993)   (385,785)        (459,891)     
Third-party services  13g   (1,702,516)   (3,301,855)        (3,265,955)     
Other      (3,895,428)   (7,876,790)        (8,038,292)     
Data processing and telecommunications  13g   (1,771,565)   (3,524,268)        (3,494,837)     
Advertising, promotions and publication  13g   (478,801)   (926,005)        (956,725)     
Installations      (587,407)   (1,253,570)        (1,432,045)     
Transportation  13g   (244,004)   (499,697)        (583,074)     
Security  13g   (247,776)   (510,974)        (482,164)     
Travel expenses  13g   (97,512)   (187,722)        (188,915)     
Other      (468,363)   (974,554)        (900,532)     
GROSS ADDED VALUE      19,309,652    38,335,276         38,189,575      
DEPRECIATION AND AMORTIZATION  13g   (839,602)   (1,653,696)        (1,419,141)     
NET ADDED VALUE PRODUCED BY THE COMPANY      18,470,050    36,681,580         36,770,434      
ADDED VALUE RECEIVED FROM TRANSFER  15a lll   255,022    335,375         39,497      
TOTAL ADDED VALUE TO BE DISTRIBUTED      18,725,072    37,016,955         36,809,931      
DISTRIBUTION OF ADDED VALUE      18,725,072    37,016,955         36,809,931      
Personnel      6,453,080    12,570,570    34.0%   11,997,198    32.6%
Compensation      5,639,179    10,583,111    28.6%   9,484,542    25.8%
Benefits      492,198    1,294,717    3.5%   1,865,882    5.1%
FGTS – government severance pay fund      321,703    692,742    1.9%   646,774    1.8%
Taxes, fees and contributions      4,752,887    9,324,337    25.2%   8,498,169    23.1%
Federal      4,350,815    8,551,437    23.1%   7,776,266    21.1%
State      4,075    21,889    0.1%   8,508    0.0%
Municipal      397,997    751,011    2.0%   713,395    1.9%
Return on third parties’ assets - Rent      498,331    974,116    2.6%   916,468    2.5%
Return on own assets      7,020,774    14,147,932    38.2%   15,398,096    41.8%
Dividends and interest on capital      1,986,960    3,448,944    9.3%   3,207,100    8.7%
Retained earnings (loss) for the period      4,877,125    10,144,996    27.4%   11,413,521    31.0%
Minority interest in retained earnings      156,689    553,992    1.5%   777,475    2.1%

 

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

 

 
3.6

 

ITAÚ UNIBANCO HOLDING S.A.

Balance Sheet

(In thousands of Reais)

 

   NOTE  12/31/2012   12/31/2011 
ASSETS             
              
CURRENT ASSETS      13,705,257    28,646,456 
CASH AND CASH EQUIVALENTS      15,883    7,833 
INTERBANK INVESTMENTS  4b and 6   1,009,894    26,302,382 
Money market      125,631    454,176 
Interbank deposits      884,263    25,848,206 
SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS  4c, 4d and 7   10,414,705    13,631 
Own portfolio      10,414,705    7,837 
Pledged in guarantee      -    5,794 
OTHER RECEIVABLES      2,264,677    2,318,501 
Income receivable  15a I   1,912,525    1,959,278 
Sundry  13a   352,152    359,223 
OTHER ASSETS – Prepaid expenses  4g   98    4,109 
LONG-TERM RECEIVABLES      32,972,061    6,097,851 
INTERBANK INVESTMENTS – Interbank deposits  4b and 6   32,519,737    5,794,144 
OTHER RECEIVABLES - Sundry  13a   452,324    303,707 
PERMANENT ASSETS      58,231,645    56,308,737 
INVESTMENTS      58,231,446    56,308,494 
Investments in subsidiaries  4h and 15a I   58,231,446    56,308,494 
REAL ESTATE IN USE  4i   199    243 
TOTAL ASSETS      104,908,963    91,053,044 
LIABILITIES             
              
CURRENT LIABILITIES      1,629,845    6,226,283 
DEPOSITS - Interbank deposits  4b and 10b   -    4,832,444 
FUNDS FROM ACCEPTANCE AND ISSUANCE OF SECURITIES  4b and 10d   5,542    5,542 
OTHER LIABILITIES      1,624,303    1,388,297 
Social and statutory  16b II   1,361,735    1,288,091 
Tax and social security contributions  4n, 4o and 14c   1,836    4,996 
Subordinated debt  10f   225,042    85,715 
Sundry  13c   35,690    9,495 
LONG-TERM LIABILITIES      17,458,540    6,443,608 
FUNDS FROM ACCEPTANCE AND ISSUANCE OF SECURITIES  4b and 10d   500,000    500,000 
OTHER LIABILITIES      16,958,540    5,943,608 
Tax and social security contributions  4n, 4o and 14c   1,079,500    816,111 
Subordinated debt  10f   15,861,842    5,111,734 
Sundry  13c   17,198    15,763 
STOCKHOLDERS’ EQUITY  16   85,820,578    78,383,153 
Capital      45,000,000    45,000,000 
Capital reserves      843,694    763,413 
Revenue reserves      39,993,495    34,422,444 
Asset valuation adjustment  4c, 4d and 7d   1,506,889    (139,142)
(Treasury shares)      (1,523,500)   (1,663,562)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY      104,908,963    91,053,044 

 

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

 

 
3.7

 

ITAÚ UNIBANCO HOLDING S.A.

Statement of Income

(In thousands of Reais)

 

   NOTE  2nd Half of
2012		   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
INCOME FROM FINANCIAL OPERATIONS      1,525,853    3,088,498    2,608,483 
Securities and derivative financial instruments      1,525,853    3,088,498    2,608,483 
EXPENSES OF FINANCIAL OPERATIONS      (564,127)   (1,038,396)   (753,200)
Money market      (564,127)   (1,038,396)   (753,200)
GROSS INCOME FROM FINANCIAL OPERATIONS      961,726    2,050,102    1,855,283 
OTHER OPERATING REVENUES (EXPENSES)      4,632,241    8,525,408    9,830,784 
Personnel expenses      (106,576)   (208,521)   (190,128)
Other administrative expenses      (22,133)   (41,365)   (43,523)
Tax expenses  14a II   (92,807)   (201,843)   (185,652)
Equity in earnings of subsidiaries  15a I   4,881,480    9,040,708    10,293,030 
Other operating revenues (expenses)      (27,723)   (63,571)   (42,943)
OPERATING INCOME      5,593,967    10,575,510    11,686,067 
NON-OPERATING INCOME      11,261    24,549    28,868 
INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING      5,605,228    10,600,059    11,714,935 
INCOME TAX AND SOCIAL CONTRIBUTION  4p   (277,082)   201,937    178,218 
Due on operations for the period      35,836    70,770    73,198 
Related to temporary differences      (312,918)   131,167    105,020 
PROFIT SHARING – Management members - Statutory - Law No. 6,404 of 12/15/1976      (644)   (2,458)   (2,957)
NET INCOME      5,327,502    10,799,538    11,890,196 
WEIGHTED AVERAGE OF THE NUMBER OF OUTSTANDING SHARES           4,517,959,807    4,529,310,833 
NET INCOME PER SHARE – R$           2.39    2.63 
BOOK VALUE PER SHARE - R$ (OUTSTANDING AT 12/31)           18.99    17.37 
                   
Supplementary Information                  
                   
EXCLUSION OF NONRECURRING EFFECTS  2a and 22k        448,761    20,369 
NET INCOME WITHOUT NONRECURRING EFFECTS           11,248,299    11,910,565 
NET INCOME PER SHARE – R$           2.49    2.63 

 

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

 

 
3.8

 

ITAÚ UNIBANCO HOLDING S.A.

Statement of Changes in Stockholders’ Equity (Note 16)

(In thousands of Reais)

 

   Capital   Capital
reserves		   Revenue reserves   Asset valuation
adjustment (Note
7d)		   Retained
earnings		   (Treasury
shares)		   Total 
BALANCES AT 07/01/2012   45,000,000    775,402    36,647,057    536,004    -    (1,544,877)   81,413,586 
Purchase of treasury shares   -    -    -    -    -    (23,288)   (23,288)
Granting of stock options   -    (35,631)   5,896    -    -    44,665    14,930 
Granting of options recognized   -    103,923    -    -    -    -    103,923 
Change in adjustment to market value   -    -    -    970,885    -    -    970,885 
Net income   -    -    -    -    5,327,502    -    5,327,502 
Appropriations:                                   
Legal reserve   -    -    266,375    -    (266,375)   -    - 
Statutory reserves   -    -    1,517,243    -    (1,517,243)   -    - 
Dividends and interest on capital   -    -    1,556,924    -    (3,543,884)   -    (1,986,960)
BALANCES AT 12/31/2012   45,000,000    843,694    39,993,495    1,506,889    -    (1,523,500)   85,820,578 
CHANGES IN THE PERIOD   -    68,292    3,346,438    970,885    -    21,377    4,406,992 
BALANCES AT 01/01/2011   45,000,000    594,734    25,661,505    17,128    -    (628,577)   70,644,790 
Purchase of treasury shares   -    -    -    -    -    (1,302,638)   (1,302,638)
Granting of stock options   -    6,016    79,367    -    -    267,653    353,036 
Granting of options recognized   -    162,663    -    -    -    -    162,663 
Change in adjustment to market value   -    -    -    (156,270)   -    -    (156,270)
Addition to interest on capital paid on 03/17/2011 - Year 2010   -    -    (1,524)   -    -    -    (1,524)
Net income   -    -    -    -    11,890,196    -    11,890,196 
Appropriations:                                   
Legal reserve   -    -    594,510    -    (594,510)   -    - 
Statutory reserves   -    -    6,241,663    -    (6,241,663)   -    - 
Dividends and interest on capital   -    -    1,846,923    -    (5,054,023)   -    (3,207,100)
BALANCES AT 12/31/2011   45,000,000    763,413    34,422,444    (139,142)   -    (1,663,562)   78,383,153 
CHANGES IN THE PERIOD   -    168,679    8,760,939    (156,270)   -    (1,034,985)   7,738,363 
BALANCES AT 01/01/2012   45,000,000    763,413    34,422,444    (139,142)   -    (1,663,562)   78,383,153 
Purchase of treasury shares   -    -    -    -    -    (122,333)   (122,333)
Granting of stock options   -    (122,622)   68,830    -    -    262,395    208,603 
Granting of options recognized   -    202,903    -    -    -    -    202,903 
Change in adjustment to market value   -    -    -    1,646,031    -    -    1,646,031 
Addition to interest on capital paid on 03/13/2012 - Year 2011   -    -    (1,450)   -    -    -    (1,450)
Payment of interest on capital on 03/13/2012 – Declared after 12/31/2011   -    -    (1,846,923)   -    -    -    (1,846,923)
Net income   -    -    -    -    10,799,538    -    10,799,538 
Appropriations:                                   
Legal reserve   -    -    539,977    -    (539,977)   -    - 
Statutory reserves   -    -    5,083,013    -    (5,083,013)   -    - 
Dividends and interest on capital   -    -    1,727,604    -    (5,176,548)   -    (3,448,944)
BALANCES AT 12/31/2012   45,000,000    843,694    39,993,495    1,506,889    -    (1,523,500)   85,820,578 
CHANGES IN THE PERIOD   -    80,281    5,571,051    1,646,031    -    140,062    7,437,425 

 

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

 

 
3.9

 

Itaú Unibanco Holding S.A.

Statement of Cash Flows

(In thousands of Reais)

 

   NOTE  2nd Half of
2012		   01/01 a 
12/31/2012		   01/01 a 
12/31/2011		 
ADJUSTED NET INCOME      1,290,985    2,938,452    2,384,283 
Net income      5,327,502    10,799,538    11,890,196 
Adjustments to net income:      (4,036,517)   (7,861,086)   (9,505,913)
Granting of options recognized      103,923    202,903    162,663 
Interest and foreign exchange expense from operations with subordinated debt      399,433    1,052,355    685,666 
Deferred taxes      312,918    (131,167)   (105,020)
Equity in earnings of subsidiaries  15a I   (4,881,480)   (9,040,708)   (10,293,030)
Amortization of goodwill      28,872    57,745    57,745 
(Income) loss from sale of investments      -    -    (12,456)
Effects of changes in exchange rates on cash and cash equivalents      (228)   (2,291)   (1,574)
Other      45    77    93 
CHANGE IN ASSETS AND LIABILITIES      (240,720)   266,533    291,899 
(Increase) decrease in other receivables and other assets      (69,387)   (4,123)   179,044 
(Decrease) increase in other liabilities      (171,333)   270,656    113,084 
Payment of income tax and social contribution      -    -    (229)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES      1,050,265    3,204,985    2,676,182 
Interest on capital/Dividends received      901,308    9,261,061    14,047,324 
(Increase) decrease in interbank investments      5,693,265    (1,761,650)   (17,465,508)
(Increase) decrease in securities and derivative financial instruments (assets/liabilities)      (6,718,688)   (10,401,074)   23,944 
(Purchase) sale of investments      (510,511)   (510,511)   3,874,270 
(Purchase) sale of fixed assets      (13)   (13)   (28)
(Purchase) sale of intangible assets      (20)   (20)   - 
NET CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES      (634,659)   (3,412,207)   480,002 
Increase (decrease) in deposits      (5,056,765)   (4,832,444)   1,488,436 
Increase in subordinated debt      6,671,118    10,309,458    1,406,850 
Decrease in subordinated debt      (271,282)   (472,378)   (247,846)
Granting of stock options      14,930    208,603    353,036 
Purchase of treasury shares      (23,288)   (122,333)   (1,302,638)
Dividends and interest on capital paid      (1,659,807)   (5,206,470)   (4,588,486)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES      (325,094)   (115,564)   (2,890,648)
                   
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      90,512    (322,786)   265,536 
                   
Cash and cash equivalents at the beginning of the period      50,774    462,009    194,899 
Effects of changes in exchange rates on cash and cash equivalents      228    2,291    1,574 
Cash and cash equivalents at the end of the period  4a and 5   141,514    141,514    462,009 

 

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

 

 
3.10

 

ITAÚ UNIBANCO HOLDING S.A.

Statement of Added Value

(In thousands of Reais)

 

   NOTE  2nd Half of
2012		   01/01 a
12/31/2012		   01/01 a
12/31/2011		 
INCOME      1,251,290    3,270,754    2,775,774 
Financial operations      1,525,853    3,088,498    2,608,483 
Other      (274,563)   182,256    167,291 
EXPENSES      (564,127)   (1,038,396)   (753,200)
Financial operations      (564,127)   (1,038,396)   (753,200)
INPUTS PURCHASED FROM THIRD PARTIES      (21,902)   (40,912)   (43,047)
Third-party services      (11,216)   (19,488)   (21,438)
Advertising, promotions and publication      (453)   (1,816)   (634)
Expenses for financial system services      (1,985)   (4,079)   (6,593)
Insurance      (1,845)   (4,054)   (4,850)
Other      (6,403)   (11,475)   (9,532)
GROSS ADDED VALUE      665,261    2,191,446    1,979,527 
DEPRECIATION AND AMORTIZATION      (39)   (77)   (93)
NET ADDED VALUE PRODUCED BY THE COMPANY      665,222    2,191,369    1,979,434 
ADDED VALUE RECEIVED FROM TRANSFER  15a I   4,881,480    9,040,708    10,293,030 
Equity Income      4,881,480    9,040,708    10,293,030 
TOTAL ADDED VALUE TO BE DISTRIBUTED      5,546,702    11,232,077    12,272,464 
DISTRIBUTION OF ADDED VALUE      5,546,702    11,232,077    12,272,464 
Personnel      104,955    206,953    189,230 
Compensation      103,547    204,300    186,088 
Benefits      1,040    2,007    1,920 
FGTS – government severance pay fund      368    646    1,222 
Taxes, fees and contributions      114,055    225,210    192,656 
Federal      114,053    225,194    192,630 
Municipal      2    16    26 
Return on third parties’ assets - Rent      190    376    382 
Return on own assets      5,327,502    10,799,538    11,890,196 
Dividends and interest on capital      1,986,960    3,448,944    3,207,100 
Retained earnings (loss) for the period      3,340,542    7,350,594    8,683,096 

 

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

 

 
4.1

 

ITAÚ UNIBANCO HOLDING S.A.

NOTES TO THE FINANCIAL STATEMENTS

FROM JANUARY 1 TO DECEMBER 31, 2012 AND 2011

 

(In thousands of Reais)

 

NOTE 1 - OPERATIONS

 

Itaú Unibanco Holding S.A. (ITAÚ UNIBANCO HOLDING) is a publicly-held company which, together with its subsidiaries and affiliated companies, operates in Brazil and abroad, with all types of banking activities, through its commercial, investment, real estate loan, finance and investment credit, and lease portfolios, including foreign exchange operations, and other complementary activities, with emphasis on Insurance, Private Pension Plans, Capitalization, Securities Brokerage and Administration of Credit Cards, Consortia, Investment Funds and Managed Portfolios.

 

 
4.2

 

NOTE 2 – PRESENTATION OF THE FINANCIAL STATEMENTS

 

a)Presentation of the Financial Statements

 

The financial statements of ITAÚ UNIBANCO HOLDING and of its subsidiaries (ITAÚ UNIBANCO HOLDING CONSOLIDATED) have been prepared in accordance with accounting principles established by the Brazilian Corporate Law, including the amendments introduced by Laws No. 11,638, of December 28, 2007, and No. 11,941, of May 27, 2009, in conformity, when applicable, with instructions issued by the Central Bank of Brazil (BACEN), the National Monetary Council (CMN), the Brazilian Securities and Exchange Commission (CVM), the Superintendence of Private Insurance (SUSEP), and the National Council of Private Insurance (CNSP), which include the use of estimates necessary to calculate accounting provisions.

 

In order to enable the analysis of the net income, the heading “Net income without nonrecurring effects” is presented below the Consolidated Statement of Income, and this effect is highlighted in a heading called “Exclusion of nonrecurring effects” (Note 22k).

 

As set forth in the sole paragraph of article 7 of BACEN Circular No. 3,068, of November 8, 2001, securities classified as trading securities (Note 4c) are presented in the Balance Sheet under Current Assets regardless of their maturity dates.

 

Lease Operations are presented, at present value, in the Balance Sheet, and the related income and expenses, which represent the financial result of these operations, are presented, grouped together, under loan, lease and other loan operations in the Statement of Income. Advances on exchange contracts are reclassified from Other Liabilities – Foreign Exchange Portfolio to loan operations. The foreign exchange result is presented on an adjusted basis, with the reclassification of expenses and income, in order to represent exclusively the impact of variations and differences of rates on the balance sheet accounts denominated in foreign currencies.

 

b)Consolidation

 

As set forth in paragraph 1, article 2, of BACEN Circular Letter No. 2,804, of February 11, 1998, the financial statements of ITAÚ UNIBANCO HOLDING comprise the consolidation of its foreign branches and subsidiaries.

 

Intercompany transactions and balances and results have been eliminated on consolidation. The investment funds in which ITAÚ UNIBANCO HOLDING’s companies are the main beneficiaries or holders of principal obligations are consolidated. The investments in these fund portfolios are classified by type of transaction and were distributed by type of security, in the same categories in which these securities had been originally allocated. The effects of the Foreign exchange variation on investments abroad are classified in the heading Securities and Derivative Financial Instruments in the Statement of Income.

 

The difference of Net Income and Stockholders’ Equity between ITAÚ UNIBANCO HOLDING and ITAÚ UNIBANCO HOLDING CONSOLIDATED (Note 16d) results from the adoption of different criteria for the amortization of goodwill originated on purchase of investments and in the record of transactions with minority stockholders where there is no change of control (Note 4q), net of the respective deferred tax assets.

 

In ITAÚ UNIBANCO HOLDING, the goodwill recorded in subsidiaries, mainly originated from the ITAÚ UNIBANCO merger, is being amortized based on the expected future profitability and appraisal reports or upon realization of the investment, according to the rules and guidance of CMN and BACEN.

 

 
4.3

 

In ITAÚ UNIBANCO HOLDING CONSOLIDATED, from January 1, 2010, the goodwill originated from the purchase of investments is no longer fully amortized in the consolidated financial statements (Note 4j). By 12/31/2009, goodwill generated had been fully amortized in the periods investments were made.

 

The consolidated financial statements comprise ITAÚ UNIBANCO HOLDING and its direct and indirect subsidiaries, among which we highlight:

 

      Incorporation     Interest in voting 
capital at		   Interest in voting 
capital at		 
      country  Activity  12/31/2012   12/31/2011   12/31/2012   12/31/2011 
Banco Dibens S.A.     Brazil  Financial institution   100.00%   100.00%   100.00%   100.00%
Banco Fiat S.A.     Brazil  Financial institution   100.00%   100.00%   99.99%   99.99%
Banco Itaú Argentina S.A.     Argentina  Financial institution   100.00%   100.00%   99.99%   99.99%
Banco Itaú BBA S.A.     Brazil  Financial institution   99.99%   99.99%   99.99%   99.99%
Banco Itaú Chile     Chile  Financial institution   99.99%   99.99%   99.99%   99.99%
Banco Itaú Consignado S.A.  (1) (Note 2c)  Brazil  Financial institution   100.00%   100.00%   100.00%   100.00%
Banco Itaú Europa Luxembourg S.A.     Luxembourg  Financial institution   99.99%   99.99%   99.99%   99.99%
Banco Itaú BBA International, S.A.  (2)  Portugal  Financial institution   99.99%   99.99%   99.99%   99.99%
Banco Itaú Paraguay S.A.     Paraguay  Financial institution   99.99%   99.99%   99.99%   99.99%
Banco Itaú Uruguay S.A.     Uruguay  Financial institution   100.00%   100.00%   100.00%   100.00%
Banco Itaucard S.A.     Brazil  Financial institution   100.00%   100.00%   100.00%   100.00%
Banco Itaucred Financiamentos S.A.     Brazil  Financial institution   100.00%   100.00%   100.00%   100.00%
Banco Itauleasing S.A.     Brazil  Financial institution   100.00%   100.00%   100.00%   100.00%
BIU Participações S.A.  (Note 13j)  Brazil  Holding company   -    66.15%   -    66.15%
Cia. Itaú de Capitalização     Brazil  Capitalization   99.99%   99.99%   99.99%   99.99%
Dibens Leasing S.A. - Arrendamento Mercantil     Brazil  Leasing   100.00%   100.00%   100.00%   100.00%
FAI - Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento  (Note 2c)  Brazil  Consumer finance credit   100.00%   50.00%   100.00%   50.00%
Fiat Administradora de Consórcios Ltda.     Brazil  Consortia administrator   99.99%   99.99%   99.99%   99.99%
Hipercard Banco Múltiplo S.A.     Brazil  Financial institution   100.00%   100.00%   100.00%   100.00%
Itaú Administradora de Consórcios Ltda.     Brazil  Consortia administrator   99.99%   99.99%   99.99%   99.99%
Itaú Ásia Securities Ltd     Hong Kong  Broker   100.00%   100.00%   100.00%   100.00%
Itau Bank, Ltd.  (3)  Cayman Islands  Financial institution   100.00%   100.00%   100.00%   100.00%
Itaú Companhia Securitizadora de Créditos Financeiros     Brazil  Securitization   99.99%   99.99%   99.98%   99.99%
Itaú Corretora de Valores S.A.     Brazil  Broker   100.00%   100.00%   100.00%   100.00%
Itaú Distribuidora de Títulos e Valores Mobiliários Ltda.     Brazil  Dealer   100.00%   100.00%   99.99%   99.99%
Itaú Japan Asset Management Limited     Japan  Asset management   100.00%   100.00%   100.00%   100.00%
Itaú Middle East Limited     Arab Emirates  Broker   100.00%   100.00%   100.00%   100.00%
Itaú Seguros S.A.     Brazil  Insurance   100.00%   100.00%   100.00%   100.00%
Itaú Unibanco S.A.     Brazil  Financial institution   100.00%   100.00%   100.00%   100.00%
Itaú USA, INC.     United States  Broker   100.00%   100.00%   100.00%   100.00%
Itaú Vida e Previdência S.A.     Brazil  Pension plan   100.00%   100.00%   100.00%   100.00%
Itaú Unibanco Serviços e Processamento de Informações Comerciais S.A.  (4)  Brazil  Technology services   100.00%   100.00%   100.00%   100.00%
Redecard S.A.  (Note 2c)  Brazil  Acquirer   100.00%   50.01%   100.00%   50.01%
Unibanco Participações Societárias S.A.  (Note 16e) Brazil  Holding company   -    99.99%   -    99.99%
                             
Joint ventures                             
Banco Investcred Unibanco S.A.     Brazil  Financial institution   50.00%   50.00%   50.00%   50.00%
Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento     Brazil  Consumer finance credit   50.00%   50.00%   50.00%   50.00%
Luizacred S.A. Soc. Cred. Financiamento Investimento     Brazil  Consumer finance credit   50.00%   50.00%   50.00%   50.00%

(1) New company name of Banco Banerj S.A.;

(2) New company name of Banco Itaú Europa S.A.;

(3) Does not include Redeemable Preferred Shares (Note 10f);

(4) New company name of Orbitall Serviços e Processamento de Informações Comerciais S.A.

 

 
4.4

 

c)Business Development

 

BSF Holding S.A. (“Banco Carrefour”)

 

On April 23, 2012 the Central Bank of Brazil approved the Agreement for Purchase and Sale of Sharer entered into on April 14, 2011 by ITAÚ UNIBANCO HOLDING and Carrefour Comércio e Indústria Ltda (Carrefou Brasil) in order to acquire 49% of BSF Holding S.A. ( Banco Carrefour”), for the amount of R$ 816,255 million, giving rise to a goodwill of R$ 583,081, through the transfer of shares on May 31, 2012.

 

FAI - Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento (“FAI”)

 

On August 9, 2012, ITAÚ UNIBANCO HOLDING S.A. informed that it would terminate its partnership with LOJAS AMERICANAS S.A. (“LASA”), entered into in 2005, for the offering, distribution and sale, on an exclusive basis by FAI (entity jointly controlled by ITAÚ UNIBANCO HOLDING S.A. and LASA), of financial, insurance and pension plan products and services to customers of LASA and its affiliated companies.

 

As a consequence of said termination, ITAÚ UNIBANCO HOLDING S.A. and LASA entered into, on this date, a purchase agreement and other covenants under which LASA has agreed (i) to sell to ITAÚ UNIBANCO HOLDING S.A. the total interest it held in the capital of FAI for the approximate amount of R$ 83 million; and (ii) to acquire the operating rights held by FAI with respect to the offering, distribution and sale, on an exclusive basis, of financial products and services through the distribution channels of LASA and/or its affiliates, at the approximate amount of R$ 112 million. The completion of the transaction was subject to approval of the Central Bank of Brazil, which was obtained on December 27, 2012.

 

As a result of this transaction, FAI is no longer an entity controlled jointly by ITAÚ UNIBANCO HOLDING S.A. and LASA, becoming a whole-owned subsidiary of ITAÚ UNIBANCO HOLDING S.A.. At December 31, 2012 the balance of FAI’s balance sheet accounts were fully consolidated; the net income for 2012, however, was partially consolidated.

 

 
4.5

 

Redecard

 

On September 24, 2012, ITAÚ UNIBANCO HOLDING S.A. completed the auction of the Tender Public Offer (OPA) to cancel Redecard’s listed company register, pursuant to the OPA call notice published on August 23, 2012.

 

As a result of the auction and acquisition private, ITAÚ UNIBANCO HOLDING S.A. purchased, up to September 30, 2012, through its subsidiary Banestado Participações, Administração e Serviços Ltda., 298,989,237 common shares issued by Redecard, representing 44.4% of its capital, and as of now it holds 635,474,593 common shares, representing 94.4% of its capital. The shares were purchased for the unit price of R$ 35.00, totaling R$ 10,469,234 (including charges and brokerage).

 

With the purpose of completing the purchase of the remaining minority interest, ITAÚ UNIBANCO HOLDING acquired, by way of its subsidiary Banestado Participações, Administração e Serviços Ltda., 36,423,856 common shares (24,207,582 in October 2012; 9,893,659 in November 2012; and 2,322,615 in December 2012) for the amount, offered at the OPA of September 24, 2012, of R$ 35.00, plus SELIC variation for the period, redeemed 999,884 common shares and canceled 72,372 treasury shares, thus increasing its interest in the capital, from 94.4% to 100.0%, totaling the amount of R$ 1,282,959 (including fees and brokerage).

 

On October 18, 2012, the Securities and Exchange Commission (CVM) cancelled Redecard’s register as a publicly-held company.

 

Changes in ownership interest in a subsidiary, which do not result in loss of control, are accounted for as capital transactions and any difference between the amount paid and the amount corresponding to minority stockholders should be recognized directly in consolidated stockholders' equity - caption Revenue Reserve. The main impacts arising from the change in the accounting criteria in relation to the adopted at 09/30/2012 are stated below:

 

   30/09/2012   31/12/2012 
   Disclosed   Adjustments   Current criteria   Current criteria 
Total assets   960,216,229    (6,585,811)   953,630,418    1,014,424,676 
Other sundry receivables - Deferred tax assets   31,462,518    3,392,691    34,855,209    35,507,358 
Permanent assets - Goodwill   10,068,929    (9,978,502)   90,427    101,424 
Stockholder's equity   78,978,511    (6,585,811)   72,392,700    74,219,609 
Return on average equity – annualized   18.2%   0.4%   18.6%   18.4%
Basel ratio - Economic-financial consolidated   17.5%   -0.8%   16.7%   16.7%

 

Association Agreement with Banco BMG S.A.

 

On July 9, 2012 ITAÚ UNIBANCO HOLDING entered into an Association Agreement with Banco BMG S.A. ("BMG"), aiming at the offering, distribution and commercialization of payroll debit loans through the incorporation of a financial institution, the Banco Itaú BMG Consignado S.A. (“Itaú BMG Consignado”). After obtaining the previous approval required for starting operations, issued by the Administrative Council for Economic Defense (CADE) on October 17, 2012, the final documents were signed on December 13, 2012 and Banco BMG has been a stockholder of Itaú BMG Consignado since January 7, 2013. The association is subject to the approval of the Central Bank of Brazil.

 

 
4.6

 

NOTE 3 – REQUIREMENTS OF CAPITAL AND FIXED ASSET LIMITS

 

a) Basel and Fixed Asset Ratios

 

The main indicators at December 31, 2012, according to present regulation, are as follows:

 

   Financial   Economic-financial 
   conglomerate (1)   consolidated (2) 
Referential equity (3)   119,945,380    109,420,835 
Basel ratio   18.1%   16.7%
Tier I   12.0%   10.9%
Tier II   6.1%   5.8%
Fixed assets ratio (4)   43.4%   14.1%
Excess capital in relation to fixed assets   7,910,425    39,246,806 
(1)Consolidated financial statements including financial companies only;

 

(2)Consolidated financial statements comprising all direct and indirect subsidiary companies, including insurance, pension plan, capitalization companies and other non-financial companies, as provided for in CMN Resolution No. 2,723 of June 1, 2000, amended by CMN Resolution No. 2,743, of June 28, 2000;

 

(3)The CMN, through Resolution No. 3,444, of February 28, 2007, determined the Referential Equity (PR), for purposes of calculating operating limits, as being the sum of both Tier I and Tier II levels, following the international experience, each of them comprising items from stockholders' equity, as well as subordinated debt and hybrid capital and debt instruments;

 

(4)The difference between the fixed asset ratio of the financial conglomerate and the economic-financial consolidated arises from the inclusion of non-financial subsidiary companies, which provide high liquidity and low level of fixed asset ratio, with a consequent decrease in the fixed asset ratio of the economic-financial consolidated amounts, enabling, when necessary, the distribution of funds to the financial companies.

 

As approved by the Central Bank of Brazil on January 23, 2013, issues of subordinated debt were included in Referential Equity for Tier II, which total R$ 1,628,300.

 

In addition, issues of subordinated debt, in the amount of R$ 1,158,000 as of December 31, 2012, are pending approval in order to be included in the Tier II.

 

Should we consider these issues, the Basel ratio based on Financial conglomerate would be affected by 0.2%. The Basel ratio based on Economic-financial consolidated would not be affected.

 

Management considers the current Basel ratio (16.7%, based on Economic-financial consolidated) to be adequate, taking into account the following:

 

a)It exceeds by 5.7 percent the minimum required by the authorities (11.0%); and

 

b)In view of the realizable values of assets (Note 18) and the additional provision (exceeding the minimum required) (Note 8c) the ratio would increase to 17.6%.

 

CMN Resolution No. 3,490, of August 29, 2007, provides for the criteria for computation of the Required Referential Equity (PRE). For calculation of the risk portions, the procedures of Circular No. 3,360, of September 12, 2007 for credit risk, of Circulars Nos. 3,361, 3,362, 3,363, 3,364, 3,366 and 3,368, of September 12, 2007, 3,388, of June 4, 2008, and 3,389, of June 25, 2008, 3,498, of June 28, 2010 and 3,568, of December 21, 2011, and Circular Letters Nos. 3,310, of April 15, 2008 and 3,498, of April, 2011 for market risk, and Circulars Nos. 3,383, of April 30, 2008 and 3,476, of December 28, 2009 and Circular Letters Nos. 3,315 and 3,316, of April 30, 2008, for operational risk were followed. For the operational risk portion, ITAÚ UNIBANCO HOLDING opted for the use of the Alternative Standardized Approach.

 

Circular No. 3,568, of December 21, 2011, changes the provisions of Circulars Nos. 3,361, of September 12, 2007, 3,388, of June 4, 2008, 3,389, of June 25, 2008, 3,478 of December 24, 2009 and 3,498, of June 28, 2010, which set forth the procedures for calculation of the portion related to market risk. The new calculation method will be adopted gradually from January 1, 2012, taking into account that it shall be fully employed from December 31, 2013. Should the new rules already be applicable, the ratios would be reduced by about 0.1%.

 

 
4.7

 

The Referential Equity used for calculation of ratios and composition of risk exposures at December 31, 2012, are as follows:

 

   Financial
conglomerate		       Economic-financial
consolidated		 
Stockholders' Equity ITAÚ UNIBANCO HOLDING S.A. (Consolidated)   74,219,609        74,219,609     
Minority interest in subsidiaries   1,246,061         902,774      
Changes in ownership interest in a subsidiary in capital transactions   7,359,551         -      
Consolidated stockholders’ equity (BACEN)   82,825,221         75,122,383      
Deferred tax assets excluded from Tier I   (585,952)        (586,506)     
Deferred permanent assets excluded from Tier I   (214,558)        (214,733)     
Adjustments to market value – securities and derivative financial instruments excluded from Tier I   (1,506,889)        (1,506,889)     
Preferred shares with clause of redemption excluded from Tier I   (807,189)        (807,189)     
Tier I   79,710,633         72,007,066      
Subordinated debt   38,824,511         36,003,533      
Preferred shares with clause of redemption   322,876         322,876      
Adjustments to market value -securities and derivative financial instruments   1,506,889         1,506,889      
Tier II   40,654,276         37,833,298      
Tier I + Tier II   120,364,909         109,840,364      
Exclusions:                    
Funding instruments issued by financial institutions   (419,529)        (419,529)     
Referential equity   119,945,380         109,420,835      
Risk exposure:                    
Exposure weighted by credit risk (EPR)   599,670,173         587,087,273      
Portion required for credit risk coverage (PEPR)   65,963,719    90.6%   64,579,600    89.6%
a) Per weighting factor (FPR):                    
FPR at 20%   282,204    0.4%   410,686    0.6%
FPR at 35%   203,721    0.3%   203,721    0.3%
FPR at 50%   3,988,014    5.5%   5,189,362    7.2%
FPR at 75%   12,688,641    17.4%   12,329,219    17.1%
FPR at 100%   45,151,330    62.0%   42,577,800    59.1%
FPR at 150%   1,863,865    2.6%   1,857,637    2.6%
FPR at 300%   1,310,267    1.8%   1,535,498    2.1%
Derivatives – potential future gain   475,677    0.7%   475,677    0.7%
b) Per type:                    
Securities   3,798,470    5.2%   3,853,662    5.3%
Loan operations - Retail   9,971,842    13.7%   9,714,958    13.5%
Loan operations – Non-retail   24,491,385    33.6%   24,503,671    34.0%
Joint obligations - Retail   36,748    0.1%   36,748    0.1%
Joint obligations – Non-Retail   6,555,379    9.0%   6,517,885    9.0%
Loan commitments - Retail   2,680,051    3.7%   2,577,512    3.6%
Loan commitments – Non-retail   2,148,161    3.0%   2,148,740    3.0%
Other exposures   16,281,683    22.4%   15,226,424    21.1%
Portion required for operational risk coverage (POPR)   3,807,170    5.2%   4,356,477    6.0%
Retail   647,884    0.9%   647,884    0.9%
Commercial   1,033,097    1.4%   1,033,097    1.4%
Corporate finance   102,751    0.1%   102,751    0.1%
Negotiation and sales   1,383,436    1.9%   1,383,436    1.9%
Payments and settlements   279,503    0.4%   279,503    0.4%
Financial agent services   147,923    0.2%   147,923    0.2%
Asset management   199,581    0.3%   199,581    0.3%
Retail brokerage   12,995    0.0%   12,995    0.0%
Business plans   -    0.0%   -    0.0%
Conef additional   -    0.0%   549,307    0.8%
Portion required for market risk coverage:   3,026,730    4.2%   3,099,855    4.3%
Gold, foreign currency and operations subject to foreign exchange variation (PCAM)   -    0.0%   -    0.0%
Operations subject to interest rate variation (PJUR)   2,760,710    3.8%   2,833,835    3.9%
Fixed rate denominated in Real (PJUR1)   670,691    0.9%   705,834    1.0%
Foreign currency coupon (PJUR2)   1,157,471    1.6%   1,160,552    1.6%
Price index coupon (PJUR3)   669,931    0.9%   704,832    1.0%
Interest rate coupon (PJUR 4)   262,617    0.4%   262,617    0.4%
Operations subject to commodity price variation (PCOM)   90,269    0.1%   90,269    0.1%
Operations subject to stock price variation (PACS)   175,751    0.2%   175,751    0.2%
Required Referential Equity   72,797,619    100.0%   72,035,932    100.0%
                     
Excess capital in relation to Required Referential Equity   47,147,761    64.8%   37,384,903    51.9%
                     
Total exposure weighted by risk [EPR + (1/0.11 X (POPR + PCAM + PJUR + PCOM + PACS)   661,796,536         654,872,105      
Ratio (%)   18.1         16.7      
Referential equity calculated for covering the interest rate risk of operations not classified into the trading portfolio (RBAN)   4,680,075         5,076,457      

 

 
4.8

 

During this period, the effects of the changes in legislation and balances were as follows:

 

   Financial conglomerate   Economic-financial consolidated 
Changes in the Basel Ratio  Referential
equity		   Weighted
exposure		   Effect   Referential
equity		   Weighted
exposure		   Effect 
Ratio at 12/31/2011   92,560,637    579,338,319    16.0%   93,111,393    568,693,094    16.4%
Net income for the period   13,662,759    -    2.4%   14,147,933    -    2.5%
Interest on capital and dividends   (3,450,394)   -    -0.6%   (3,450,394)   -    -0.6%
Payment of interest on capital and dividends on 03/13/2012 - Declared after 12/31/2011   (1,846,923)   -    -0.3%   (1,846,923)   -    -0.3%
Granting of options recognized   202,903    -    0.0%   202,903    -    0.0%
                               
Changes in ownership interest in a subsidiary in capital transactions   -    -    0.0%   (7,359,553)   -    -1.3%
                               
Granting of stock options – exercised options in the period   208,603    -    0.0%   208,603    -    0.0%
Asset valuation adjustment   1,646,031    -    0.3%   1,646,031    -    0.3%
Subordinated debt and redeemable preferred shares   17,444,327    -    3.0%   14,623,349    -    2.6%
Treasury shares   (122,333)   -    0.0%   (122,333)   -    0.0%
                               
Deferred assets excluded from Tier I of referential equity   (79,735)   (79,735)   0.0%   (80,680)   (80,680)   0.0%
Other changes in referential equity   (280,495)   -    -0.1%   (1,659,494)   -    -0.3%
Changes in risk exposure   -    82,537,952    -2.6%   -    86,259,691    -2.6%
Ratio at 12/31/2012   119,945,380    661,796,536    18.1%   109,420,835    654,872,105    16.7%

 

b)Capital for Insurance Activity

 

CNSP – Conselho Nacional de Seguros Privados (National Consel of Private Insurance), following the worldwide trend towards the strengthening of the insurance market, published Resolution No. 227 of December 6, 2010 (which revoked Resolutions No. 178 of December 28, 2007, and No. 200 of December 16, 2008), and Circular No. 411 of December 22, 2010. The regulations provide for the rules on regulatory capital required for authorization and operation of insurance and pension plan companies and rules for the allocation of capital from subscription risk for several insurance lines. In January 2011, CNSP Resolution No. 228 of December 6, 2010 came into effect, providing for the criteria for establishment of additional capital based on the credit risk of the supervised companies.

 

The individual adjusted stockholders’ equity of ITAÚ UNIBANCO HOLDING companies exclusively engaged in insurance and pension plan activities is higher than the required regulatory capital. The insurance companies of ITAÚ UNIBANCO HOLDING have capital exceeding the minimum regulatory by R$ 1,361,597 (R$ 1,774,567 at December 31, 2011) in Itaú Seguros S.A. and R$ 553,105 (R$ 1,498,723 at December 31, 2011) in Itaú Vida e Previdência S.A.

 

 
4.9

 

NOTE 4 – SUMMARY OF THE MAIN ACCOUNTING PRACTICES

 

a)Cash and cash equivalents - For purposes of Consolidated Statement of Cash Flows, this item includes cash and current accounts in banks (considered in the heading cash and cash equivalents), interbank deposits and securities purchased under agreements to resell – funded position that have original maturities of up to 90 days or less.

 

b)Interbank investments, remunerated restricted credits – Brazilian Central Bank, remunerated deposits, deposits received under securities repurchase agreements, funds from acceptance and issuance of securities, borrowings and onlending, subordinated debt and other receivables and payables – Transactions subject to monetary correction and foreign exchange variation and operations with fixed charges are recorded at present value, net of the transaction costs incurred, calculated “pro rata die” based on the effective rate of transactions, according to CVM Resolution No. 649 of December 16, 2010.

 

c)Securities - Recorded at cost of acquisition restated by the index and/or effective interest rate and presented in the Balance Sheet, according to BACEN Circular No. 3,068, of November 8, 2001. Securities are classified into the following categories:

 

·Trading securities – acquired to be actively and frequently traded, and adjusted to market value, with a contra-entry to the results for the period;

 

·Available-for-sale securities – securities that can be negotiated but are not acquired to be actively and frequently traded. They are adjusted to their market value with a contra-entry to an account disclosed in stockholders’ equity;

 

·Held-to-maturity securities – securities, except for non-redeemable shares, for which the bank has the financial condition and intends or is required to hold them in the portfolio up to their maturity, are recorded at cost of acquisition, or market value, whenever these are transferred from another category. The securities are adjusted using the accrual method through their maturity date, not being adjusted to market value.

 

Gains and losses on available-for-sale securities, when realized, are recognized at the trading date in the statement of income, with a contra-entry to a specific stockholders’ equity account.

 

Decreases in the market value of available-for-sale and held-to-maturity securities below their related costs, resulting from non-temporary reasons, are recorded in results as realized losses.

 

d)Derivative financial instruments - these are classified on the date of their acquisition, according to management's intention of using them either as a hedge or not, according to BACEN Circular No. 3,082, of January 30, 2002. Transactions involving financial instruments, carried out upon the client’s request, for their own account, or which do not comply with the hedging criteria (mainly derivatives used to manage the overall risk exposure), are stated at market value, including realized and unrealized gains and losses, which are recorded directly in the statement of income.

 

The derivatives used for protection against risk exposure or to modify the characteristics of financial assets and liabilities, which have changes in market value highly associated with those of the items being protected at the beginning and throughout the duration of the contract, and which are found effective to reduce the risk related to the exposure being protected, are classified as a hedge, in accordance with their nature:

 

·Market Risk Hedge – financial assets and liabilities, as well as their related financial instruments, are accounted for at their market value plus realized and unrealized gains and losses, which are recorded directly in the statement of income.

 

 
4.10

 

·Cash Flow Hedge - the effective amount of the hedge of financial assets and liabilities, as well as their related financial instruments, are accounted for at their market value plus realized and unrealized gains and losses, net of tax effects, when applicable, and recorded in a specific account in stockholders’ equity. The ineffective portion of the hedge is recorded directly in the statement of income.

 

e)Loan, Lease and Other Credit Operations (Operations with Credit Granting Characteristics) – These transactions are recorded at present value and calculated “pro rata die” based on the variation of the contracted index and interest rate, and are recorded on the accrual basis until the 60th day overdue in financial companies, according to the estimate of receipt. After the 60th day, income is recognized upon the effective receipt of installments. Credit card operations include receivables arising from the purchases made by cardholders. The funds related to these amounts are recorded in Other Liabilities – Credit Card Operations, which also include funds arising from other credits related to transactions with credit card issuers.

 

f)Allowance for loan losses - the balance of the allowance for loan losses was recorded based on a credit risk analysis, at an amount considered sufficient to cover loan losses according to the rules determined by CMN Resolution No. 2,682 of December 21, 1999, among which are:

 

·Provisions are recorded from the date loans are granted, based on the client’s risk rating and on the periodic quality evaluation of clients and industries, and not only in the event of default;

 

·Taking into account default exclusively, the write-off as losses occur after 360 days of credits have matured or after 540 days for operations that mature after a period of 36 months.

 

g)Other assets - these assets are mainly comprised of assets held for sale relating to real estate available for sale, own real estate not in use and real estate received as payment in kind, which are adjusted to market value through the set-up of a provision, according to current regulations, reinsurance unearned premiums (Note 4m I); and prepaid expenses, corresponding to disbursements, the benefit of which will occur in future periods.

 

h)Investments – investments in subsidiary and affiliated companies are accounted for under the equity method. The consolidated financial statements of foreign branches and subsidiaries are adapted to comply with Brazilian accounting practices and converted into Reais. Other investments are recorded at cost and adjusted to market value by setting up a provision in accordance with current standards.

 

i)Fixed assets - These assets are stated at cost of acquisition or construction, less accumulated depreciation, adjusted to market value until December 31, 2007, when applicable. For insurance, pension plan and capitalization operations, property and equipment are adjusted to market value supported by appraisal reports. They correspond to rights related to tangible assets intended for maintenance of the company’s operations or exercised for such purpose, including assets arising from transactions that transfer to the company their benefits, risks and controls. The items acquired through Lease contracts are recorded according to CVM Resolution No. 554, of November 12, 2008, as contra-entry to Lease obligations. Depreciation is calculated using the straight-line method, based on monetarily restated cost.

 

j)Goodwill – corresponds to the amount paid in excess for the purchase of investments and is amortized based on expected future profitability or as realized. It is annually tested for impairment.

 

 
4.11

 

k)Intangible assets – correspond to rights acquired whose subjects are intangible assets intended for maintenance of the company or which are exercised for such purpose, according to the CMN Resolution No. 3,642, of November 26, 2008. They are composed of (i) the goodwill amount paid on acquisition of the company, transferred to intangible assets in view of the transfer of the adquirer’s equity by the acquired, as set forth by Law No. 9532/97, to be amortized based on the period defined in appraisal reports; (ii) rights acquired to credit payrolls and partnership agreements, amortized over the agreement terms, and (iii) software and customer portfolios, amortized over a term varying from five to ten years.

 

l)Impairment of assets – a loss is recognized when there is clear evidence that assets are stated at a non-recoverable value. This procedure is adopted semiannually.

 

m)Insurance, pension plan and capitalization operations - Insurance premiums, acceptance coinsurance and selling expenses are accounted for in accordance with the insurance effectiveness term, through the recognition and reversal of the provision for unearned premiums and deferred selling expenses. Interest arising from fractioning of insurance premiums is accounted for as incurred. Revenues from social security contributions, gross revenue from capitalization certificates and respective technical provisions are recognized upon receipt.

 

I -Credits from operations and other assets related to insurance and reinsurance operations:

 

·Insurance premiums receivable - Refer to installments of insurance premiums receivable, current and past due, in accordance with insurance policies issued;

 

·Reinsurance recoverable amounts – Refer to claims paid to the insured party pending recovery from Reinsurer, installments of unsettled claims and incurred but not reported claims - Reinsurance (IBNR), classified in assets in accordance with the criteria established by CNSP Resolution No. 162, of December 26, 2006, as amended by CNSP Resolution No. 195, of December 16, 2008, and SUSEP Circular No. 379, of December 19, 2008;

 

·Reinsurance unearned premiums – Recognized to determine the portion of reinsurance unearned premiums, calculated “pro rata die”, and for risks of policies not issued computed based on estimates, based on the actuarial technical study and in compliance with the criteria established by CNSP Resolution No. 162, of December 26, 2006, as amended by CNSP Resolution No. 195, of December 16, 2008, and SUSEP Circular No. 379, of December 19, 2008.

 

II -Technical provisions of insurance, pension plan and capitalization – technical provisions are recognized according to the technical notes approved by SUSEP and criteria established by CNSP Resolution No. 162 of December 26, 2006 and the subsequent amendments.

 

II.I-Insurance:

 

·Provision for Unearned Premiums – recognized based on premiums issued, calculated “pro rata die”, and represents the portion of premium corresponding to the policy period not yet elapsed; Provision for Unearned Premiums for Risks in Force but Not Yet Issued is recognized based on technical actuarial note, and has the objective of estimating a portion of unearned premiums related to risks assumed by insurance companies and that are in issue process;

 

·Provision for Premium Deficiency – recognized according to the Technical Actuarial Note if a premium deficiency is found;

 

·Provision for unsettled claims - recognized based on claims of loss in an amount sufficient to cover future commitments. To determine the value of accrued claims under awaiting judicial decision, the experts and legal advisors appointed assessments based on the insured amounts and technical regulations, taking into consideration the likelihood of unfavorable outcome to the insurance company.

 

·Provision for claims incurred but not reported (IBNR) – recognized for the estimated amount of claims occurred for risks assumed in the portfolio but not reported.

 

·Other provisions – recognized based on the technical provision for extension of warranty in the extended warranty line, and the calculation is made over the period from the date the insurance contract becomes effective and the risk initial coverage date, the amount to be recognized being equal to the retained commercial premium.

 

 
4.12

 

II.II - Pension Plan and Longevity Insurance - The mathematical provisions represent amounts of obligations assumed as longevity insurance, retirement plans, disability, pension and annuity, and are calculated according to the method of accounting provided for in the contract.

 

·Mathematical provisions for benefits to be granted and benefits granted – correspond to commitments assumed with participants, but for which benefits are not yet due, and to those receiving the benefits, respectively;

 

·Provision for insufficient contribution – recognized in case of insufficient premiums or contributions;

 

·Provision for unexpired risks – recognized to include the estimate of outstanding risks which have not expired;

 

·Provision for events incurred but not reported (IBNR) – recognized based on the expected amounts of events occurred but not reported;

 

·Provision for financial surplus – recognized by the difference between the contributions adjusted daily by the Investment Portfolio and the accumulated fund set up;

 

·Other provisions - basically refer to the provision for administrative expenses recognized according to the Actuarial Technical Note to cover expenses arising from the payment of benefits provided for in the plan, in view of the events occurred and to be occurred. It also includes the heading redemptions and/or other unsettled amounts that refer to amounts not yet paid through the balance sheet date.

 

II.III - Capitalization:

 

·Mathematical provision for redemptions – represents capitalization certificates received to be redeemed;

 

·Provision for Raffles – Comprises Provision for raffles unrealized and payable. The unrealized provision for raffles is calculated according to the methodology established in the Technical Actuarial Note. The provision for raffles payable relates to certificates winners in raffles and not paid yet.

 

·Other provisions – Comprises Provision for raffle contingencies and administrative provision. The provision for raffle contingencies is recognized according to the methodology established in the Technical Actuarial Note to cover the provision for raffles in the event of insufficient funds and also for distribution of bonus. The administrative provision is recognized to cover administrative expenses of the plan, and it is calculated under the method described in the Technical Actuarial Note.

 

n)Contingent assets and liabilities and legal liabilities – tax and social security - assessed, recognized and disclosed according to the provisions set forth in CMN Resolution No. 3,823 of December 16, 2009, and BACEN Circular Letter No. 3,429 of February 11, 2010.

 

I -Contingent assets and liabilities

 

Refer to potential rights and obligations arising from past events, the occurrence of which is dependent upon future events.

 

·Contingent assets - not recognized, except upon evidence ensuring a high reliability level of realization, usually represented by claims awarded a final and unappealable judgment and confirmation of the recoverability of the claim through receipt of amounts or offset against another liability;

 

·Contingent liabilities - basically arise from administrative proceedings and lawsuits, inherent in the normal course of business, filed by third parties, former employees and governmental bodies, in connection with civil, labor, tax and social security lawsuits and other risks. These contingencies are calculated based on conservative practices, being usually recorded based on the opinion of legal advisors and considering the probability that financial resources shall be required for settling the obligation, the amount of which may be estimated with sufficient certainty. Contingencies are classified either as probable, for which provisions are recognized; possible, which are disclosed but not recognized; and remote, for which recognition or disclosure are not required. Any contingent amounts are measured through the use of models and criteria which allow their adequate measurement, in spite of the uncertainty of their term and amounts.

 

Escrow deposits are restated in accordance with the current legislation.

 

Contingencies guaranteed by indemnity clauses in privatization processes and with liquidity are only recognized upon judicial notification with simultaneous recognition of receivables, without any effect on results.

 

 
4.13

 

II - Legal liabilities – tax and social security

 

Represented by amounts payable related to tax liabilities, the legality or constitutionality of which are subject to judicial defense, recognized at the full amount under discussion.

 

Liabilities and related escrow deposits are adjusted in accordance with the current legislation.

 

o)Taxes - these provisions are calculated according to current legislation at the rates shown below, using the related calculation bases.

 

Income tax   15.00%
Additional income tax   10.00%
Social contribution (1)   15.00%
PIS (2)   0.65%
COFINS (2)   4.00%
ISS up to   5.00%

 

(1)For ITAÚ UNIBANCO HOLDING and its financial subsidiaries and equivalent companies, the rate corresponds to 15%. For non-financial and pension plan subsidiaries, the rate is 9%.
(2)For non-financial subsidiaries that fall into the non-cumulative calculation system, the PIS rate is 1.65% and COFINS rate is 7.6%.

 

The changes introduced by Laws No. 11,638 and No. 11,941 (articles 37 and 38), which modified the criterion for recognizing revenues, costs and expenses, computed to determine the net income for the year, did not produce effects for purposes of determining the taxable income of companies that opt for the Transition Tax Regime (RTT), so for tax purposes the rules effective on December 31, 2007 were followed. The tax effect arising from the adoption of such rules is recorded, for accounting purposes, in the corresponding deferred assets and liabilities.

 

p)Deferred income – this refers to: (i) unexpired interest received in advance that is recognized in income as earned, and (ii) the negative goodwill on acquisition of investments arising from expected future losses, which has not been absorbed in the consolidation process.

 

q)Transactions with minority stockholders - Changes in ownership interest in a subsidiary, which do not result in loss of control, are accounted for as capital transactions and any difference between the amount paid and the amount corresponding to minority stockholders is recognized directly in consolidated stockholders' equity.

 

 
4.14

 

NOTE 5 - CASH AND CASH EQUIVALENTS

 

For purposes of Statement of Cash Flows, cash and cash equivalents of ITAÚ UNIBANCO HOLDING CONSOLIDATED are composed of the following:

  

   12/31/2012   12/31/2011 
Cash and cash equivalents   13,967,096    10,633,082 
Interbank deposits   14,346,893    18,921,241 
Securities purchased under agreements to resell – Funded position   10,788,253    8,062,572 
TOTAL   39,102,242    37,616,895 

 

In ITAÚ UNIBANCO HOLDING it is composed of the following:

 

   12/31/2012   12/31/2011 
Cash and cash equivalents   15,883    7,833 
Securities purchased under agreements to resell – Funded position   125,631    454,176 
TOTAL   141,514    462,009 
 
4.15

 

NOTE 6 - INTERBANK INVESTMENTS

 

   12/31/2012   12/31/2011 
   0 - 30   31 - 180   181 - 365   Over 365   Total   %   Total   % 
Money market   84,924,797    70,531,447    -    1,336    155,457,580    85.4    85,445,542    73.6 
Funded position (*)   14,021,113    17,979,323    -    1,336    32,001,772    17.6    32,664,596    28.1 
Financed position   70,742,812    35,069,864    -    -    105,812,676    58.1    36,864,100    31.8 
With free movement   22,501,183    35,069,864    -    -    57,571,047    31.6    15,404,123    13.3 
Without free movement   48,241,629    -    -    -    48,241,629    26.5    21,459,977    18.5 
Short position   160,872    17,482,260    -    -    17,643,132    9.7    15,916,846    13.7 
                                         
Money market – Assets Guaranteeing Technical Provisions - SUSEP   2,750,763    -    -    -    2,750,763    1.5    2,816,013    2.4 
Interbank deposits   15,320,504    3,274,348    4,834,624    396,117    23,825,593    13.1    27,820,434    24.0 
TOTAL   102,996,064    73,805,795    4,834,624    397,453    182,033,936         116,081,989      
% per maturity term   56.6    40.5    2.7    0.2                     
TOTAL – 12/31/2011   67,438,711    42,761,201    3,445,237    2,436,840    116,081,989                
% per maturity term   58.1    36.8    3.0    2.1                     

 

(*)Includes R$ 9,105,623 (R$ 8,075,940 at 12/31/2011) related to money market with free movement, in which securities are basically restricted to guarantee transactions at the BM&FBovespa S.A. - Bolsa de Valores, Mercadorias e Futuros (Securities, Commodities and Futures Exchange) and the Central Bank of Brazil (BACEN).

 

In ITAÚ UNIBANCO HOLDING the portfolio is composed of Money market – Funded position falling due in up to 30 days amounting to R$ 125,631 (R$ 454,176 at 12/31/2011) and Interbank deposits with maturity of 0 to 30 days amounting to R$ 364,519, 31 to 180 days amounting to R$ 242,987, 181 to 365 days amounting to R$ 276,757 (R$ 25,848,206 at 12/31/2011), and over 365 days amounting to R$ 32,519,737 (R$ 5,794,144 at 12/31/2011).

 

 
4.16

 

NOTE 7 – SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS AND LIABILITIES)

 

See below the composition by Securities and Derivatives type, maturity and portfolio already adjusted to their respective market values.

 

a)Summary per maturity

 

   12/31/2012   12/31/2011 
       Provision for adjustment to market
value reflected in:		                                     
   Cost   Results   Stockholders’
equity		   Market value   %   0 - 30   31 - 90   91 - 180   181 - 365   366 - 720   Over 720
days		   Market value 
GOVERNMENT SECURITIES - DOMESTIC   130,969,653    245,582    1,604,818    132,820,053    48.1    15,547,049    349,851    3,244,337    3,899,505    27,391,636    82,387,675    83,719,499 
Financial Treasury Bills   30,173,169    (3,516)   105    30,169,758    10.9    -    337,060    90,360    2,662,219    8,654,512    18,425,607    31,125,650 
National Treasury Bills   48,044,057    47,301    (10,274)   48,081,084    17.4    12,203,375    -    112,697    1,150,045    17,342,240    17,272,727    17,487,223 
National Treasury Notes   33,483,748    162,091    750,567    34,396,406    12.5    3,165,781    8,569    2,918,268    63,923    1,094,372    27,145,493    27,540,593 
National Treasury/Securitization   302,789    621    16,071    319,481    0.1    -    91    2,988    2,611    2,932    310,859    294,891 
Brazilian External Debt Bonds   18,800,782    39,085    848,270    19,688,137    7.1    13,211    4,131    120,024    20,202    297,580    19,232,989    7,196,278 
Investments in non-exclusive funds   164,682    -    -    164,682    0.1    164,682    -    -    -    -    -    74,129 
National Treasury Notes   93,226    -    -    93,226    0.0    93,226    -    -    -    -    -    69,950 
Financial Treasury Bills   71,444    -    -    71,444    0.0    71,444    -    -    -    -    -    4,158 
National Treasury Bills   12    -    -    12    0.0    12    -    -    -    -    -    21 
Other   426    -    79    505    0.0    -    -    -    505    -    -    735 
GOVERNMENT SECURITIES - ABROAD   8,036,184    12,172    (37,646)   8,010,710    2.9    835,825    3,458,027    1,254,783    1,184,021    161,076    1,116,978    5,120,107 
Argentina   86,981    1,223    -    88,204    0.0    18,520    29,274    2,123    1,687    3,148    33,452    224,908 
Denmark   2,553,833    -    -    2,553,833    0.9    -    1,445,668    -    1,108,165    -    -    1,949,129 
Spain   -    -    -    -    -    -    -    -    -    -    -    418,365 
Korea   1,661,993    -    -    1,661,993    0.6    -    1,242,438    419,555    -    -    -    295,012 
Chile   1,645,912    (140)   (4,297)   1,641,475    0.6    352,108    534,229    678,900    10,128    27,422    38,688    1,045,709 
Paraguay   528,362    -    (37,342)   491,020    0.2    240,100    105,562    27,101    9,304    25,587    83,366    344,029 
Uruguay   344,829    65    2,030    346,924    0.1    48,110    12,819    127,104    12,921    103,960    42,010    295,437 
United States   709,354    9,809    (52)   719,111    0.3    176,934    87,843    -    -    206    454,128    292,243 
Mexico   224,019    978    -    224,997    0.1    53    -    -    -    753    224,191    215,481 
Colombia   34,015    277    -    34,292    0.0    -    -    -    -    -    34,292    3,031 
Belgium   69,884    -    1,426    71,310    0.0    -    -    -    28,076    -    43,234    - 
France   56,414    -    778    57,192    0.0    -    -    -    13,740    -    43,452    36,514 
United Kingdom   83,496    -    (142)   83,354    0.0    -    -    -    -    -    83,354    - 
Peru   20,298    (44)   -    20,254    0.0    -    -    -    -    -    20,254    - 
Other   16,794    4    (47)   16,751    0.0    -    194    -    -    -    16,557    249 
CORPORATE SECURITIES   46,350,609    117,177    1,215,970    47,683,756    17.3    5,522,754    1,538,433    1,641,120    3,416,774    8,164,944    27,399,731    31,760,715 
Eurobonds and others   6,948,353    24,718    285,796    7,258,867    2.6    265,215    228,712    671,125    297,646    305,017    5,491,152    5,134,976 
Bank deposit certificates   781,470    (1)   38    781,507    0.3    17,964    254,456    149,932    176,571    174,305    8,279    1,360,061 
Shares   3,263,724    38,078    (49,559)   3,252,243    1.2    3,252,243    -    -    -    -    -    2,842,820 
Debentures   15,270,443    6,389    308,138    15,584,970    5.6    7,290    452,190    250,452    1,111,792    1,734,752    12,028,494    8,673,228 
Promissory notes   797,244    -    236    797,480    0.3    114,494    355,019    207,130    100,708    -    20,129    936,120 
Rural Product Note   770,304    -    7,792    778,096    0.3    58,554    75,944    176,820    79,644    21,750    365,384    108,134 
Fund quotas   1,169,013    46,049    4,886    1,219,948    0.4    1,215,703    -    -    -    -    4,245    2,021,337 
Fixed income   713,898    2,995    (8)   716,885    0.3    712,640    -    -    -    -    4,245    806,045 
Credit rights   297,909    -    -    297,909    0.1    297,909    -    -    -    -    -    971,739 
Variable income   157,206    43,054    4,894    205,154    0.1    205,154    -    -    -    -    -    243,553 
Securitized real estate loans   7,935,748    1,442    651,862    8,589,052    3.1    37,511    57,209    141,307    558,585    720,289    7,074,151    8,045,952 
Financial bills   9,077,350    502    105    9,077,957    3.3    553,780    109,727    37,823    1,091,828    5,208,831    2,075,968    2,475,123 
Other   336,960    -    6,676    343,636    0.1    -    5,176    6,531    -    -    331,929    162,964 
PGBL/VGBL FUND QUOTAS (1)   75,146,080    -    -    75,146,080    27.2    75,146,080    -    -    -    -    -    57,733,857 
SUBTOTAL - SECURITIES   260,502,526    374,931    2,783,142    263,660,599    95.5    97,051,708    5,346,311    6,140,240    8,500,300    35,717,656    110,904,384    178,334,178 
Trading securities   171,112,042    374,931    -    171,486,973    62.1    85,829,226    617,372    2,836,633    2,949,571    19,809,359    59,444,812    129,699,157 
Available-for-sale securities   86,188,237    -    2,783,142    88,971,379    32.2    11,222,482    4,728,835    3,185,528    5,481,117    15,908,297    48,445,120    45,530,051 
Held-to-maturity securities (2)   3,202,247    -    -    3,202,247    1.2    -    104    118,079    69,612    -    3,014,452    3,104,970 
DERIVATIVE FINANCIAL INSTRUMENTS   10,356,213    2,157,046    -    12,513,259    4.5    1,925,928    2,574,231    1,003,813    1,389,528    1,787,421    3,832,338    9,546,246 
TOTAL SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS)   270,858,739    2,531,977    2,783,142    276,173,858    100.0    98,977,636    7,920,542    7,144,053    9,889,828    37,505,077    114,736,722    187,880,424 
                             35.8    2.9    2.6    3.6    13.6    41.5      
DERIVATIVE FINANCIAL INSTRUMENTS (LIABILITIES)   (8,495,957)   (2,622,597)   (9,763)   (11,128,317)   100.0    (1,722,084)   (1,368,480)   (1,215,479)   (1,232,249)   (2,184,070)   (3,405,955)   (6,807,316)

 

(1)The PGBL and VGBL plans securities portfolios, the ownership and embedded risks of which are the customer’s responsibility, are recorded as securities – trading securities, with a contra-entry to long-term liabilities in Pension Plan Technical Provisions account, as determined by SUSEP.
(2)Unrecorded positive adjustment to market value in the amount of R$ 1,305,667 (R$ 596,846 at 12/31/2011), according to Note 7e.
 
4.17

 

b)Summary by portfolio

 

   12/31/2012 
       Restricted to   Derivative   Assets guaranteeing     
   Own portfolio   Repurchase
agreements		   Pledging of
guarantees (*)		   Free portfolio   Central Bank   financial
instruments		   technical provisions
(Note 11b)		   Total 
GOVERNMENT SECURITIES - DOMESTIC   78,478,749    31,187,623    5,168,531    636,370    11,672,854    -    5,675,926    132,820,053 
Financial Treasury Bills   15,377,991    1,201,681    3,012,477    -    9,953,616    -    623,993    30,169,758 
National Treasury Bills   32,652,515    13,263,931    2,052,878    -    -    -    111,760    48,081,084 
National Treasury Notes   21,997,380    5,000,069    103,176    636,370    1,719,238    -    4,940,173    34,396,406 
National Treasury/Securitization   319,481    -    -    -    -    -    -    319,481 
Brazilian External Debt Bonds   7,966,195    11,721,942    -    -    -    -    -    19,688,137 
Investments in non-exclusive funds   164,682    -    -    -    -    -    -    164,682 
National Treasury Notes   93,226    -    -    -    -    -    -    93,226 
Financial Treasury Bills   71,444    -    -    -    -    -    -    71,444 
National Treasury Bills   12    -    -    -    -    -    -    12 
Other   505    -    -    -    -    -    -    505 
GOVERNMENT SECURITIES - ABROAD   5,500,965    450,473    2,042,898    -    -    -    16,374    8,010,710 
Argentina   88,204    -    -    -    -    -    -    88,204 
Denmark   1,594,750    -    959,083    -    -    -    -    2,553,833 
Korea   666,478    -    995,515    -    -    -    -    1,661,993 
Chile   1,172,702    450,473    1,926    -    -    -    16,374    1,641,475 
Paraguay   491,020    -    -    -    -    -    -    491,020 
Uruguay   346,144    -    780    -    -    -    -    346,924 
United States   633,621    -    85,490    -    -    -    -    719,111 
Mexico   224,997    -    -    -    -    -    -    224,997 
Colombia   34,292    -    -    -    -    -    -    34,292 
Belgium   71,310    -    -    -    -    -    -    71,310 
France   57,192    -    -    -    -    -    -    57,192 
United Kingdom   83,354    -    -    -    -    -    -    83,354 
Peru   20,254    -    -    -    -    -    -    20,254 
Other   16,647    -    104    -    -    -    -    16,751 
CORPORATE SECURITIES   37,938,080    4,374,744    365,234    -    -    -    5,005,698    47,683,756 
Eurobonds and other   3,014,853    4,238,713    5,301    -    -    -    -    7,258,867 
Bank deposit certificates   280,986    134,337    -    -    -    -    366,184    781,507 
Shares   3,240,709    -    11,534    -    -    -    -    3,252,243 
Debentures   14,154,927    1,694    348,226    -    -    -    1,080,123    15,584,970 
Promissory notes   797,480    -    -    -    -    -    -    797,480 
Rural Product Note   778,096    -    -    -    -    -    -    778,096 
Fund quotas   601,029    -    173    -    -    -    618,746    1,219,948 
Fixed income   195,575    -    173    -    -    -    521,137    716,885 
Credit rights   200,300    -    -    -    -    -    97,609    297,909 
Variable income   205,154    -    -    -    -    -    -    205,154 
Securitized real estate loans   8,580,743    -    -    -    -    -    8,309    8,589,052 
Financial bills   6,145,621    -    -    -    -    -    2,932,336    9,077,957 
Other   343,636    -    -    -    -    -    -    343,636 
PGBL/VGBL FUND QUOTAS   -    -    -    -    -    -    75,146,080    75,146,080 
SUBTOTAL - SECURITIES   121,917,794    36,012,840    7,576,663    636,370    11,672,854    -    85,844,078    263,660,599 
Trading securities   66,477,734    9,963,755    1,601,859    636,370    11,601,591    -    81,205,664    171,486,973 
Available-for-sale securities   55,356,638    25,929,361    5,960,712    -    71,263    -    1,653,405    88,971,379 
Held-to-maturity securities   83,422    119,724    14,092    -    -    -    2,985,009    3,202,247 
DERIVATIVE FINANCIAL INSTRUMENTS   -    -    -    -    -    12,513,259    -    12,513,259 
TOTAL SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS)   121,917,794    36,012,840    7,576,663    636,370    11,672,854    12,513,259    85,844,078    276,173,858 
TOTAL SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS) – 12/31/2011   68,805,275    21,158,913    10,728,001    -    10,130,755    9,546,246    67,511,234    187,880,424 

 

(*)Represent securities deposited with Contingent Liabilities (Note 12b), Stock Exchanges and the Clearing House for the Custody and Financial Settlement of Securities.
 
4.18

 

c)Trading securities

 

See below the composition of the portfolio of trading securities by type, stated at cost and market value and by maturity term.

 

   12/31/2012   12/31/2011 
   Cost   Adjustment to
market value (in
results)		   Market value   %   0 - 30   31 - 90   91 - 180   181 - 365   366 - 720   Over 720
days		   Market value 
GOVERNMENT SECURITIES - DOMESTIC   85,915,739    245,582    86,161,321    50.3    7,672,887    214,684    2,680,419    1,551,986    18,778,385    55,262,960    62,383,222 
Financial Treasury Bills   26,935,528    (3,516)   26,932,012    15.7    -    204,574    89,990    987,891    7,904,032    17,745,525    28,086,846 
National Treasury Bills   32,385,110    47,301    32,432,411    18.9    4,965,358    -    112,697    521,576    9,560,053    17,272,727    13,471,549 
National Treasury Notes   24,950,760    162,091    25,112,851    14.6    2,536,636    8,226    2,472,050    21,446    1,085,931    18,988,562    19,618,739 
National Treasury/Securitization   13,231    621    13,852    0.0    -    91    2,988    2,611    2,932    5,230    36,184 
Brazilian External Debt Bonds   1,466,428    39,085    1,505,513    0.9    6,211    1,793    2,694    18,462    225,437    1,250,916    1,095,775 
Investments in non-exclusive funds   164,682    -    164,682    0.1    164,682    -    -    -    -    -    74,129 
National Treasury Notes   93,226    -    93,226    0.1    93,226    -    -    -    -    -    69,950 
Financial Treasury Bills   71,444    -    71,444    0.0    71,444    -    -    -    -    -    4,158 
National Treasury Bills   12    -    12    0.0    12    -    -    -    -    -    21 
GOVERNMENT SECURITIES - ABROAD   841,729    12,172    853,901    0.5    24,232    36,900    115,217    12,008    8,384    657,160    802,768 
Argentina   86,981    1,223    88,204    0.1    18,520    29,274    2,123    1,687    3,148    33,452    224,908 
Chile   108,440    (140)   108,300    0.1    4,588    -    101,427    -    -    2,285    50,573 
Uruguay   32,897    65    32,962    0.0    1,071    5,273    11,667    10,321    4,483    147    27,446 
United States   334,523    9,809    344,332    0.2    -    2,353    -    -    -    341,979    292,243 
Mexico   224,019    978    224,997    0.1    53    -    -    -    753    224,191    204,567 
Colombia   34,015    277    34,292    0.0    -    -    -    -    -    34,292    3,031 
Peru   20,298    (44)   20,254    0.0    -    -    -    -    -    20,254    - 
Other   556    4    560    0.0    -    -    -    -    -    560    - 
CORPORATE SECURITIES   9,208,494    117,177    9,325,671    5.4    2,986,027    365,788    40,997    1,385,577    1,022,590    3,524,692    8,779,310 
Eurobonds and other   1,586,926    24,718    1,611,644    0.9    116,294    22,870    3,130    85,473    34,481    1,349,396    1,431,431 
Bank deposit certificates   390,145    (1)   390,144    0.2    -    185,074    44    30,126    174,305    595    1,085,299 
Shares   1,305,429    38,078    1,343,507    0.8    1,343,507    -    -    -    -    -    853,024 
Debentures   1,614,102    6,389    1,620,491    0.9    7,290    48,117    -    178,150    394,715    992,219    1,406,750 
Promissory notes   20,129    -    20,129    0.0    -    -    -    -    -    20,129    290,295 
Fund quotas   919,107    46,049    965,156    0.6    965,156    -    -    -    -    -    1,215,257 
Fixed income   683,838    2,995    686,833    0.4    686,833    -    -    -    -    -    789,067 
Credit rights   109,472    -    109,472    0.1    109,472    -    -    -    -    -    216,439 
Variable income   125,797    43,054    168,851    0.1    168,851    -    -    -    -    -    209,751 
Securitized real estate loans   15,570    1,442    17,012    0.0    -    -    -    -    17,012    -    22,131 
Financial bills   3,357,086    502    3,357,588    2.0    553,780    109,727    37,823    1,091,828    402,077    1,162,353    2,475,123 
PGBL/VGBL FUND QUOTAS   75,146,080    -    75,146,080    43.8    75,146,080    -    -    -    -    -    57,733,857 
Total   171,112,042    374,931    171,486,973    100.0    85,829,226    617,372    2,836,633    2,949,571    19,809,359    59,444,812    129,699,157 
% per maturity term                       50.0    0.4    1.7    1.7    11.6    34.6      
Total 12/31/2011   129,672,459    26,698    129,699,157    100.0    61,964,079    1,494,000    729,747    13,106,274    9,167,851    43,237,206      
% per maturity term                       47.7    1.2    0.6    10.1    7.1    33.3      

 

At December 31, 2012, ITAÚ UNIBANCO HOLDING’s portfolio is composed of Corporate Securities – Bank deposit certificates amounting to R$ 10,414,705, which R$ 6,671,899 with maturity of 31 to 180 days and R$ 3,742,806 with maturity over 720 days (R$ 6,502 at 12/31/2011 of Government Securities).

 
4.19

 

d)Available-for-sale securities

 

See below the composition of the portfolio of available-for-sale securities by type, stated at cost and market value and by maturity term.

 

   12/31/2012   12/31/2011 
   Cost   Adjustments to
market value (in
stockholders'
equity)		   Market value   %   0 - 30   31 - 90   91 - 180   181 - 365   366 - 720   Over 720
days		   Market value 
GOVERNMENT SECURITIES - DOMESTIC   41,922,419    1,604,818    43,527,237    48.9    7,874,162    135,167    446,588    2,327,963    8,613,251    24,130,106    18,329,195 
Financial Treasury Bills   3,237,641    105    3,237,746    3.6    -    132,486    370    1,674,328    750,480    680,082    3,038,804 
National Treasury Bills   15,658,947    (10,274)   15,648,673    17.6    7,238,017    -    -    628,469    7,782,187    -    4,015,674 
National Treasury Notes   5,519,092    750,567    6,269,659    7.1    629,145    343    446,218    23,190    8,441    5,162,322    5,109,625 
National Treasury/Securitization   289,558    16,071    305,629    0.3    -    -    -    -    -    305,629    258,707 
Brazilian External Debt Bonds   17,216,755    848,270    18,065,025    20.3    7,000    2,338    -    1,471    72,143    17,982,073    5,905,650 
Other   426    79    505    0.0    -    -    -    505    -    -    735 
GOVERNMENT SECURITIES - ABROAD   7,174,508    (37,646)   7,136,862    8.0    811,593    3,421,023    1,139,566    1,172,013    152,692    439,975    4,317,330 
Denmark   2,553,833    -    2,553,833    2.9    -    1,445,668    -    1,108,165    -    -    1,949,129 
Spain   -    -    -    -    -    -    -    -    -    -    418,365 
Korea   1,661,993    -    1,661,993    1.9    -    1,242,438    419,555    -    -    -    295,012 
Chile   1,537,472    (4,297)   1,533,175    1.7    347,520    534,229    577,473    10,128    27,422    36,403    995,136 
Paraguay   528,362    (37,342)   491,020    0.6    240,100    105,562    27,101    9,304    25,587    83,366    344,029 
Uruguay   292,099    2,030    294,129    0.3    47,039    7,546    115,437    2,600    99,477    22,030    267,991 
United States   374,831    (52)   374,779    0.4    176,934    85,490    -    -    206    112,149    - 
Mexico   -    -    -    0.0    -    -    -    -    -    -    10,914 
Belgium   69,884    1,426    71,310    0.1    -    -    -    28,076    -    43,234    - 
France   56,414    778    57,192    0.1    -    -    -    13,740    -    43,452    36,514 
United kingdom   83,496    (142)   83,354    0.1    -    -    -    -    -    83,354    - 
Other   16,124    (47)   16,077    0.0    -    90    -    -    -    15,987    240 
CORPORATE SECURITIES   37,091,310    1,215,970    38,307,280    43.1    2,536,727    1,172,645    1,599,374    1,981,141    7,142,354    23,875,039    22,883,526 
Eurobonds and other   5,310,622    285,796    5,596,418    6.3    148,921    205,842    667,246    162,117    270,536    4,141,756    3,638,418 
Bank deposit certificate   391,325    38    391,363    0.4    17,964    69,382    149,888    146,445    -    7,684    274,762 
Shares   1,958,295    (49,559)   1,908,736    2.2    1,908,736    -    -    -    -    -    1,989,796 
Debentures   13,656,341    308,138    13,964,479    15.7    -    404,073    250,452    933,642    1,340,037    11,036,275    7,236,044 
Promissory notes   777,115    236    777,351    0.9    114,494    355,019    207,130    100,708    -    -    645,825 
Rural Product Note   770,304    7,792    778,096    0.9    58,554    75,944    176,820    79,644    21,750    365,384    108,134 
Fund quotas   249,906    4,886    254,792    0.3    250,547    -    -    -    -    4,245    806,080 
Fixed income   30,060    (8)   30,052    0.0    25,807    -    -    -    -    4,245    16,978 
Credit rights   188,437    -    188,437    0.2    188,437    -    -    -    -    -    755,300 
Variable income   31,409    4,894    36,303    0.0    36,303    -    -    -    -    -    33,802 
Securitized real estate loans   7,920,178    651,862    8,572,040    9.6    37,511    57,209    141,307    558,585    703,277    7,074,151    8,021,503 
Financial Bills   5,720,264    105    5,720,369    6.4    -    -    -    -    4,806,754    913,615    - 
Other   336,960    6,676    343,636    0.4    -    5,176    6,531    -    -    331,929    162,964 
TOTAL   86,188,237    2,783,142    88,971,379    100.0    11,222,482    4,728,835    3,185,528    5,481,117    15,908,297    48,445,120    45,530,051 
Adjustments of securities reclassified in prior years to the held-to-maturity category        9,788              12.6    5.3    3.6    6.2    17.9    54.4      
Accounting adjustment - Hedge - Circular No. 3,082        (286,443)                                             
Deferred taxes        (1,001,726)                                             
Adjustments of securities of unconsolidated affiliates        2,128                                              
ADJUSTMENT TO MARKET VALUE – SECURITIES – 12/31/2012        1,506,889                                              
TOTAL 12/31/2011   44,811,452    718,599    45,530,051    100.0    4,158,361    2,520,007    1,477,419    3,768,370    8,926,463    24,679,431      
Adjustments of securities reclassified in prior years to the held-to-maturity category        10,771              9.1    5.5    3.2    8.3    19.6    54.3      
Accounting adjustment - Hedge - Circular No. 3,082        (277,529)                                             
Deferred taxes        (149,026)                                             
Minority interest in subsidiaries        (28,870)                                             
Adjustments of securities of unconsolidated affiliates        (413,087)                                             
ADJUSTMENT TO MARKET VALUE – SECURITIES – 12/31/2011        (139,142)                                             

 

At December 31, 2011, ITAÚ UNIBANCO HOLDING’s portfolio was composed of Government Securities in the amount of R$ 7,129 and at December 31, 2012 there are no outstanding operations.

 
4.20

 

e)Held-to-maturity securities

 

See below the composition of the portfolio of held-to-maturity securities by type, stated at cost and by maturity term. Included in the carrying value at December 31, 2012, not considered in results, are the amounts of R$ 9,788 (R$ 10,771 at 12/31/2011) relating to the market adjustment of the reclassified securities at December 31, 2003. Securities classified under this type, if stated at market value, would present a positive adjustment of R$ 1,305,667 (R$ 596,846 at 12/31/2011).

 

   12/31/2012   12/31/2011 
   Carrying value   %   0 - 30   31 - 90   91 - 180   181 - 365   366 - 720   Over 720 days   Carrying value 
GOVERNMENT SECURITIES - DOMESTIC   3,131,495    97.8    -    -    117,330    19,556    -    2,994,609    3,007,082 
National Treasury Notes (*)   3,013,896    94.1    -    -    -    19,287    -    2,994,609    2,812,229 
Brazilian External Debt Bonds   117,599    3.7    -    -    117,330    269    -    -    194,853 
GOVERNMENT SECURITIES - ABROAD   19,947    0.6    -    104    -    -    -    19,843    9 
Uruguay   19,833    0.6    -    -    -    -    -    19,833    - 
Other   114    0.0    -    104    -    -    -    10    9 
CORPORATE SECURITIES   50,805    1.6    -    -    749    50,056    -    -    97,879 
Eurobonds and other   50,805    1.6    -    -    749    50,056    -    -    65,127 
Debentures (*)   -    0.0    -    -    -    -    -    -    30,434 
Securitized real estate loans (*)   -    0.0    -    -    -    -    -    -    2,318 
Total   3,202,247    100.0    -    104    118,079    69,612    -    3,014,452    3,104,970 
% per maturity term             0.0    0.00    3.7    2.2    0.0    94.1      
Total 12/31/2011   3,104,970    100.0    86,620    236    0    32,752    193,970    2,791,392      
% per maturity term             2.8    0.0    0.0    1.1    6.2    89.9      

 

(*)Includes investments of Itaú Vida e Previdência S.A. in the amount of R$ 2,153,433 (R$ 1,999,105 at 12/31/2011).

 

f)Realized and unrealized gain of securities portfolio

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Gain (loss) - Trading securities   1,012,381    (1,884,911)
Gain (loss) – Available-for-sale securities   2,570,928    301,358 
Total realized gain   3,583,309    (1,583,553)
Adjustment to market value of trading securities   348,233    (225,647)
Total   3,931,542    (1,809,200)

 

g)Reclassification of securities (article 5 of BACEN Circular No. 3,068, of 11/08/2001)

 

Management sets forth guidelines to classify securities. The classification of the current portfolio of securities, as well as the securities purchased in the period, is periodically and systematically evaluated based on such guidelines.

 

As set forth in Article 5 of BACEN Circular No. 3,068, of November 8, 2008, the revaluation regarding the classification of securities can only be made upon preparation of trial balances for six-month periods. In addition, the transfer from “held-to-maturity” to the other categories can only occur in view of an isolated, unusual, nonrecurring and unexpected event, which has occurred after the classification date.

 

No reclassifications or changes to the existing guidelines have been made in the period.

 

 
4.21

 

h) Derivative Financial Instruments

 

The globalization of the markets in recent years has resulted in a high level of sophistication in the financial products used. As a result of this process, there has been an increasing demand for derivative financial instruments to manage market risks, mainly arising from fluctuations in interest and exchange rates, commodities and other asset prices. Accordingly, ITAU UNIBANCO HOLDING and its subsidiaries operate in the derivative markets for meeting the growing needs of their clients, as well as carrying out their risk management policy. Such policy is based on the use of derivative instruments to minimize the risks resulting from commercial and financial operations.

 

The derivative financial instruments’ business with clients is carried out after the approval of credit limits. The process of limit approval takes into consideration potential stress scenarios.

 

Knowing the client, the sector in which it operates and its risk appetite profile, in addition to providing information on the risks involved in the transaction and the negotiated conditions, ensures transparency in the relationship between the parties and the supply of a product that better meets the needs of the client.

 

The derivative transactions carried out by ITAÚ UNIBANCO HOLDING and its subsidiaries with clients are neutralized in order to eliminate market risks.

 

Most derivative contracts traded by the institution with clients in Brazil are swap, forward, option and futures contracts, which are registered at the BM&FBOVESPA or at the CETIP S.A. OTC Clearing House (CETIP). Overseas transactions are carried out with futures, forwards (onshore), options and swaps with registration mainly in the Chicago, New York and London Exchanges. It should be emphasized that there are over-the-counter operations, but their risks are low as compared to the institutions’ total. Noteworthy is also the fact that there are no structured operations based on subprime assets and all operations are based on risk factors traded at stock exchanges.

 

The main risk factors of the derivatives, assumed at December 31, 2012, were related to the foreign exchange rate, interest rate, commodities, U.S. dollar coupon, Reference Rate coupon, Libor and variable income. The management of these and other market risk factors is supported by sophisticated statistical and deterministic models. Based on this management model, the institution, with the use of transactions involving derivatives, has been able to optimize the risk-return ratios, even under highly volatile situations.

 

Most derivatives included in the institution’s portfolio are traded at stock exchanges. The prices disclosed by stock exchanges are used for these derivatives, except in cases in which the low representativeness of price due to liquidity of a specific contract is identified. Derivatives typically precified like this are futures contracts. Likewise, there are other instruments whose quotations (fair prices) are directly disclosed by independent institutions and which are precified based on this direct information. A great part of the Brazilian government securities, highly-liquid international (public and private) securities and shares fit into this situation.

 

For derivatives whose prices are not directly disclosed by stock exchanges, fair prices are obtained by pricing models which use market information, deducted based on prices disclosed for higher liquidity assets. Interest and market volatility curves which provide entry data for the models are extracted from those prices. Over- the-counter derivatives, forward contracts and securities without much liquidity are in this situation.

 

The total value of margins pledged in guarantee was R$ 4,423,655 (R$ 8,535,106 at December 31, 2011) and was basically composed of government securities.

 
4.22

 

I - Derivatives by index

 

   Memorandum account
Notional amount		   Balance sheet
account receivable /
(received) (payable)
paid		   Adjustment to market
value (in results /
stockholders' equity)		   Market value 
   12/31/2012   12/31/2011   12/31/2012   12/31/2012   12/31/2012   12/31/2011 
Futures contracts   537,449,744    268,806,691    46,557    (68,664)   (22,107)   26,102 
Purchase commitments   349,872,691    251,093,457    47,318    (149)   47,169    94,103 
Foreign currency   15,013,088    59,086,805    29,063    (43)   29,020    10,944 
Interbank market   289,816,366    144,153,604    11,491    28    11,519    907 
Indexes   38,011,906    41,365,378    6,073    (195)   5,878    82,139 
Securities   6,730,549    6,337,726    -    61    61    2 
Commodities   294,448    121,604    691    -    691    111 
Other   6,334    28,340    -    -    -    - 
Commitments to sell   187,577,053    17,713,234    (761)   (68,515)   (69,276)   (68,001)
Foreign currency   58,847,763    15,796,309    2,476    (67,538)   (65,062)   (62,767)
Interbank market   107,854,126    52,335    (4,859)   (318)   (5,177)   (362)
Indexes   13,429,358    1,106,099    1,631    (659)   972    213 
Fixed rates   7,196,072    230,226    -    -    -    (3,008)
Commodities   249,734    513,005    (9)   -    (9)   (2,077)
Other   -    15,260    -    -    -    - 
Swap contracts             (906,529)   (476,799)   (1,383,328)   (46,443)
Asset position   130,948,904    94,805,857    2,131,635    1,555,372    3,687,007    2,750,031 
Foreign currency   12,850,558    9,882,748    518,454    139,909    658,363    612,998 
Interbank market   44,778,463    39,935,611    366,248    (6,681)   359,567    594,716 
Fixed rates   35,526,789    16,808,431    443,903    379,203    823,106    468,343 
Floating rate   4,742,027    3,808,922    12,737    4,348    17,085    2,547 
Indexes   32,491,890    23,994,782    741,285    1,010,528    1,751,813    1,050,861 
Securities   559,052    27,711    48,883    24,780    73,663    (3,210)
Commodities   -    3,000    -    -    -    - 
Other   125    344,652    125    3,285    3,410    23,776 
Liability position   131,855,433    94,733,497    (3,038,164)   (2,032,171)   (5,070,335)   (2,796,474)
Foreign currency   14,899,047    11,171,268    (860,105)   (227,374)   (1,087,479)   (585,997)
Interbank market   28,080,701    24,957,617    (88,896)   23,754    (65,142)   (89,378)
Fixed rates   45,070,136    21,732,526    (735,485)   (444,195)   (1,179,680)   (624,817)
Floating rate   6,651,770    6,144,340    (53,802)   (3,600)   (57,402)   (131,253)
Indexes   36,526,673    29,224,854    (1,184,419)   (1,410,466)   (2,594,885)   (1,292,374)
Securities   568,633    111,595    (115,279)   29,774    (85,505)   (51,293)
Commodities   27,987    108,461    (178)   (64)   (242)   (5,043)
Other   30,486    1,282,836    -    -    -    (16,319)
Option contracts   2,027,098,677    1,108,515,671    595,387    (153,057)   442,330    538,889 
Purchase commitments - long position   525,475,883    237,863,509    422,091    (200,926)   221,165    749,055 
Foreign currency   15,633,696    17,481,380    227,089    (108,620)   118,469    597,383 
Interbank market   80,332,450    36,910,843    56,638    (55,024)   1,614    28,630 
Floating rate   174,168    278,388    1,312    (1,296)   16    244 
Indexes   428,462,725    181,516,985    119,362    (46,054)   73,308    66,660 
Securities   632,413    1,161,948    6,656    13,353    20,009    42,030 
Commodities   199,700    501,299    10,700    (3,533)   7,167    13,863 
Other   40,731    12,666    334    248    582    245 
Commitments to sell - long position   578,536,229    354,696,072    1,825,768    674,597    2,500,365    2,396,132 
Foreign currency   12,098,360    7,635,296    129,726    (15,662)   114,064    108,405 
Interbank market   20,343,136    27,211,517    124,271    99,689    223,960    244,040 
Fixed rates   -    1,881    -    -    -    1,478 
Floating rate   922,865    218,024    1,411    (323)   1,088    346 
Indexes   541,676,035    315,902,581    613,737    477,782    1,091,519    911,744 
Securities   3,054,261    2,821,099    934,233    89,834    1,024,067    1,102,539 
Commodities   109,168    767,655    10,582    (2,634)   7,948    13,851 
Other   332,404    138,019    11,808    25,911    37,719    13,729 
Purchase commitments - short position   296,684,801    174,396,804    (472,243)   262,791    (209,452)   (732,301)
Foreign currency   11,990,247    10,324,753    (211,894)   90,946    (120,948)   (550,981)
Interbank market   45,296,444    23,953,704    (46,534)   46,119    (415)   (36,812)
Indexes   238,695,006    139,247,706    (194,973)   138,653    (56,320)   (114,163)
Securities   592,342    794,762    (7,185)   (17,030)   (24,215)   (28,386)
Commodities   84,460    64,920    (11,657)   4,685    (6,972)   (1,753)
Other   26,302    10,959    -    (582)   (582)   (206)
Commitments to sell - short position   626,401,764    341,559,286    (1,180,229)   (889,519)   (2,069,748)   (1,873,997)
Foreign currency   9,379,103    10,757,287    (178,318)   5,949    (172,369)   (195,563)
Interbank market   117,429,473    35,433,232    (142,624)   (322,157)   (464,781)   (416,353)
Fixed rates   -    1,881    -    -    -    (1,478)
Floating rate   -    -    -    -    -    181 
Indexes   497,633,444    293,394,454    (667,883)   (513,244)   (1,181,127)   (843,414)
Securities   1,454,824    1,635,568    (167,599)   (37,736)   (205,335)   (395,421)
Commodities   172,612    197,195    (11,663)   3,173    (8,490)   (8,158)
Other   332,308    139,669    (12,142)   (25,504)   (37,646)   (13,791)
Forward contracts   23,641,124    17,248,256    1,190,492    10,555    1,201,047    1,026,578 
Purchases receivable   4,102,639    8,702,057    1,169,447    (3,234)   1,166,213    824,280 
Foreign currency   3,115,723    7,883,317    184,729    (3,267)   181,462    561,817 
Interbank market   -    519,792    -    -    -    - 
Fixed rates   726,708    -    726,623    (1)   726,622    - 
Floating rate   258,172    262,117    258,062    -    258,062    261,918 
Commodities   2,036    36,831    33    34    67    545 
Purchases payable   5,894,165    1,351,234    (1,076,440)   12,861    (1,063,579)   (332,654)
Foreign currency   5,759,261    1,218,300    (81,771)   12,687    (69,084)   (50,826)
Fixed rates   -    -    (726,639)   7    (726,632)   - 
Floating rate   -    -    (258,062)   -    (258,062)   (261,918)
Commodities   134,904    130,857    (9,968)   167    (9,801)   (19,712)
Other   -    2,077    -    -    -    (198)
Sales receivable   12,054,200    2,230,047    2,330,897    (3,481)   2,327,416    1,019,616 
Foreign currency   6,787,891    1,181,390    106,617    (2,591)   104,026    33,419 
Interbank market   2,908,425    47,699    6,564    27    6,591    525 
Fixed rates   867,901    147,953    854,280    (810)   853,470    147,148 
Floating rate   395,274    110,134    395,828    (747)   395,081    110,002 
Indexes   4,782    189    4,731    20    4,751    188 
Securities   961,037    731,176    951,453    (1,568)   949,885    724,347 
Commodities   128,781    11,506    11,315    2,189    13,504    3,987 
Other   109    -    109    (1)   108    - 
Sales deliverable   1,590,120    4,964,918    (1,233,412)   4,409    (1,229,003)   (484,664)
Foreign currency   1,558,344    4,905,297    (58,211)   3,536    (54,675)   (309,557)
Interbank market   -    -    -    -    -    (8)
Fixed rates   -    -    (778,736)   296    (778,440)   (53,919)
Floating rate   -    -    (395,828)   747    (395,081)   (110,002)
Securities   -    -    (7)   -    (7)   - 
Commodities   31,776    -    (630)   (170)   (800)   (11,178)
Other   -    59,621    -    -    -    - 

 

 
4.23

 

   Memorandum account /
Notional amount		   Balance sheet
account receivable /
(received) (payable) /
paid		   Adjustments to market
value (in results /
stockholders' equity)		   Market value 
   12/31/2012   12/31/2011   12/31/2012   12/31/2012   12/31/2012   12/31/2011 
Credit derivatives   6,198,026    6,598,110    630,405    8,178    638,583    504,598 
Asset position   3,150,898    3,405,765    734,113    (5,875)   728,238    611,200 
Foreign currency   -    117,308    -    -    -    1,537 
Fixed rate   2,307,316    1,856,954    733,660    (11,794)   721,866    580,753 
Floating rate   -    -    -    -    -    16,233 
Indexes   -    -    -    -    -    9,698 
Securities   650,331    1,430,374    274    4,637    4,911    2,968 
Other   193,251    1,129    179    1,282    1,461    11 
Liability position   3,047,128    3,192,345    (103,708)   14,053    (89,655)   (106,602)
Foreign currency   -    565    -    -    -    (4)
Fixed rate   2,809,813    2,899,987    (103,761)   19,830    (83,931)   (96,956)
Securities   231,563    291,793    55    (5,632)   (5,577)   (9,642)
Other   5,752    -    (2)   (145)   (147)   - 
Forwards operations   39,874,822    31,284,974    (47,515)   79,782    32,267    124,965 
Asset position   18,968,230    16,256,768    314,477    64,195    378,672    451,715 
Foreign currency   18,521,510    15,862,100    305,087    63,984    369,071    445,108 
Interbank market   -    18,570    -    -    -    283 
Floating rate   409,722    376,098    7,628    -    7,628    6,324 
Indexes   25,328    -    1,513    211    1,724    - 
Securities   11,670    -    249    -    249    - 
Liability position   20,906,592    15,028,206    (361,992)   15,587    (346,405)   (326,750)
Foreign currency   20,889,895    14,945,815    (361,723)   15,587    (346,136)   (322,153)
Interbank market   14,271    12,986    (254)   -    (254)   (486)
Fixed rate   -    69,405    -    -    -    (1,199)
Floating rate   -    -    -    -    -    (858)
Indexes   2,426    -    (15)   -    (15)   (2,054)
Swap with target flow   1,087,222    50,873    (1,050)   (41,303)   (42,353)   (2,480)
Asset position - Interbank market   543,086    50,873    78    (78)   -    - 
Liability position - Interbank market   544,136    -    (1,128)   (41,225)   (42,353)   (2,480)
Foreign currency   479,035    -    (976)   (39,915)   (40,891)   - 
Interbank market   65,101    -    (152)   (1,310)   (1,462)   (2,480)
Target flow of swap - Asset position - Foreign currency   546,972    53,488    -    35,010    35,010    4,441 
Other derivative financial instruments   6,677,468    5,491,296    352,509    130,984    483,493    562,280 
Asset position   5,493,306    4,893,584    1,427,707    41,466    1,469,173    713,674 
Foreign currency   484,807    607,810    103,935    5,078    109,013    85,906 
Fixed rate   1,633,063    936,306    775,665    39,901    815,566    300,168 
Floating rate   285,384    -    261,810    -    261,810    - 
Securities   2,993,891    3,344,635    286,411    (4,023)   282,388    327,143 
Other   96,161    4,833    (114)   510    396    457 
Liability position   1,184,162    597,712    (1,075,198)   89,518    (985,680)   (151,394)
Foreign currency   179,220    235,107    (92,247)   94,360    2,113    (87,226)
Fixed rate   -    -    (636,861)   2,359    (634,502)   - 
Floating rate   -    -    (285,991)   (1,295)   (287,286)   - 
Securities   818,881    300,184    (59,931)   (4,634)   (64,565)   (62,719)
Other   186,061    62,421    (168)   (1,272)   (1,440)   (1,449)
         ASSET    10,356,213    2,157,046    12,513,259    9,546,246 
         LIABILITIES    (8,495,957)   (2,632,360)   (11,128,317)   (6,807,316)
         TOTAL    1,860,256    (475,314)   1,384,942    2,738,930 

  

Derivative contracts mature as follows (in days):
Memorandum account/notional amount  0 - 30   31 - 180   181 - 365   Over 365   12/31/2012   12/31/2011 
Futures   107,856,313    116,709,478    147,543,257    165,340,696    537,449,744    268,806,691 
Swaps   14,158,747    29,218,119    21,018,891    64,421,512    128,817,269    92,650,955 
Options   1,000,056,127    97,772,741    420,582,016    508,687,793    2,027,098,677    1,108,515,671 
Forwards (onshore)   7,056,613    9,140,563    3,511,681    3,932,267    23,641,124    17,248,256 
Credit derivatives   223,763    1,806,442    154,461    4,013,360    6,198,026    6,598,110 
Forwards (offshore)   11,036,516    22,537,613    4,185,765    2,114,928    39,874,822    31,284,974 
Swaps with target flow   -    -    -    543,008    543,008    50,873 
Target flow of swap   -    -    -    546,972    546,972    53,488 
Other derivative financial instruments   132,308    1,498,370    710,156    4,336,634    6,677,468    5,491,296 
 
4.24

 

II -Derivatives by counterparty

 

See below the composition of the Derivative Financial Instruments portfolio (assets and liabilities) by type of instrument, stated at cost, market value, and maturity term.

 

   12/31/2012   12/31/2011 
   Cost   Adjustments to
market value (in
results /
stockholders' equity)		   Market value   %   0 - 30   31 - 90   91 - 180   181 - 365   366 - 720   Over 720 days   Market value 
ASSET                                                       
Futures   -    -    -    -    -    -    -    -    -    -    26,102 
BM&F Bovespa   -    -    -    -    -    -    -    -    -    -    26,096 
Individuals   -    -    -    -    -    -    -    -    -    -    6 
Swaps - Adjustment receivable   2,131,635    1,555,372    3,687,007    29.5    274,890    215,608    171,111    519,218    568,321    1,937,859    2,750,031 
BM&F Bovespa   228,661    243,289    471,950    3.8    5,285    10,045    13,159    17,095    144,975    281,391    332,392 
Financial institutions   216,922    203,556    420,478    3.4    86,380    136,612    18,933    27,475    31,989    119,089    258,958 
Companies   1,649,779    1,095,772    2,745,551    21.9    179,560    68,491    136,341    462,240    389,351    1,509,568    2,154,082 
Individuals   36,273    12,755    49,028    0.4    3,665    460    2,678    12,408    2,006    27,811    4,599 
Option premiums   2,247,859    473,671    2,721,530    21.8    931,514    173,611    83,472    294,884    358,235    879,814    3,145,187 
BM&F Bovespa   971,647    423,741    1,395,388    11.2    852,017    31,405    13,682    219,882    278,402    -    1,688,538 
Financial institutions   94,735    23,155    117,890    0.9    25,605    32,068    20,345    16,569    15,838    7,465    285,600 
Companies   1,181,477    26,775    1,208,252    9.7    53,892    110,138    49,445    58,433    63,995    872,349    1,171,049 
Forwards (onshore)   3,500,344    (6,715)   3,493,629    27.8    533,147    635,010    672,310    426,122    717,774    509,266    1,843,896 
BM&F Bovespa   963,273    (1,524)   961,749    7.7    285,041    502,238    149,316    24,737    85    332    726,180 
Financial institutions   174,717    (1,795)   172,922    1.4    171,414    1,337    90    81    -    -    81,122 
Companies   2,361,718    (3,680)   2,358,038    18.7    76,692    131,426    522,904    401,304    717,405    508,307    1,036,594 
Individuals   636    284    920    0.0    -    9    -    -    284    627    - 
Credit derivatives   734,113    (5,875)   728,238    5.8    118,702    564,924    626    1,273    1,772    40,941    611,200 
Financial institutions   734,113    (5,875)   728,238    5.8    118,702    564,924    626    1,273    1,772    40,941    611,068 
Companies   -    -    -    -    -    -    -    -    -    -    132 
Forwards (offshore)   314,477    64,195    378,672    3.0    66,012    86,511    55,757    58,104    49,726    62,562    451,715 
BM&F Bovespa   -    212    212    0.0    -    196    16    -    -    -    - 
Financial institutions   126,184    (273)   125,911    1.0    37,847    45,119    25,915    14,153    2,361    516    278,731 
Companies   188,340    63,923    252,263    2.0    28,152    40,968    29,781    43,951    47,365    62,046    172,693 
Individuals   (47)   333    286    0.0    13    228    45    -    -    -    291 
Swaps with target flow - Companies   78    (78)   -    0.0    -    -    -    -    -    -    - 
Target flow of swap - Companies   -    35,010    35,010    0.3    -    -    -    -    1,384    33,626    4,441 
Other derivative financial instruments   1,427,707    41,466    1,469,173    11.8    1,663    898,567    20,537    89,927    90,209    368,270    713,674 
Financial institutions   794,179    (9,297)   784,882    6.3    268    574,686    127    70,985    6,277    132,539    261,162 
Companies   633,528    50,763    684,291    5.5    1,395    323,881    20,410    18,942    83,932    235,731    452,512 
Total   10,356,213    2,157,046    12,513,259    100.0    1,925,928    2,574,231    1,003,813    1,389,528    1,787,421    3,832,338    9,546,246 
% per maturity term                       15.4    20.6    8.0    11.1    14.3    30.6      
Total at 12/31/2011   8,901,667    644,579    9,546,246    100.0    2,265,686    1,571,716    645,290    1,478,856    982,578    2,602,120      
% per maturity term                       23.7    16.5    6.8    15.5    10.2    27.3      
 
4.25

 

   12/31/2012   12/31/2011 
   Cost   Adjustments to market
value (in results /
stockholders' equity)		   Market value   %   0 - 30   31 - 90   91 - 180   181 - 365   366 - 720   Over 720 days   Market value 
LIABILITIES                                                       
Futures - BM&F Bovespa   46,557    (68,664)   (22,107)   0.2    -    -    -    (14,418)   (4,208)   (3,481)   - 
Swaps - difference payable   (3,038,164)   (2,032,171)   (5,070,335)   45.6    (351,707)   (186,068)   (536,711)   (404,742)   (902,445)   (2,688,662)   (2,796,474)
BM&F Bovespa   (416,679)   (402,964)   (819,643)   7.4    (2,908)   (10,346)   (169,480)   (13,027)   (169,879)   (454,003)   (517,134)
Financial institutions   (690,188)   (420,810)   (1,110,998)   10.0    (238,235)   (77,508)   (65,538)   (184,345)   (100,193)   (445,179)   (681,809)
Companies   (1,696,049)   (1,187,331)   (2,883,380)   25.9    (102,416)   (87,295)   (294,398)   (195,280)   (623,830)   (1,580,161)   (1,556,411)
Individuals   (235,248)   (21,066)   (256,314)   2.3    (8,148)   (10,919)   (7,295)   (12,090)   (8,543)   (209,319)   (41,120)
Option premiums   (1,652,472)   (626,728)   (2,279,200)   20.4    (1,141,798)   (152,171)   (144,791)   (274,986)   (508,805)   (56,649)   (2,606,298)
BM&F Bovespa   (1,088,917)   (628,236)   (1,717,153)   15.4    (1,101,248)   (33,952)   (30,819)   (130,703)   (420,431)   -    (1,768,033)
Financial institutions   (316,946)   (19,377)   (336,323)   3.0    (23,975)   (91,374)   (54,049)   (52,106)   (64,477)   (50,342)   (687,541)
Companies   (246,589)   20,893    (225,696)   2.0    (16,575)   (26,845)   (59,895)   (92,177)   (23,897)   (6,307)   (150,700)
Individuals   (20)   (8)   (28)   0.0    -    -    (28)   -    -    -    (24)
Forwards (onshore)   (2,309,852)   17,270    (2,292,582)   20.7    (151,331)   (50,054)   (491,994)   (380,548)   (710,563)   (508,092)   (817,318)
BM&F Bovespa   -    -    -    0.0    -    -    -    -    -    -    (8)
Financial institutions   (146,168)   8,144    (138,024)   1.2    (130,569)   (197)   (1,250)   (748)   (5,175)   (85)   (66,930)
Companies   (2,163,684)   9,126    (2,154,558)   19.5    (20,762)   (49,857)   (490,744)   (379,800)   (705,388)   (508,007)   (750,380)
Credit derivatives   (103,708)   14,053    (89,655)   0.8    (4,474)   (1,174)   (1)   (77)   (6,772)   (77,157)   (106,602)
Financial institutions   (103,708)   14,053    (89,655)   0.8    (4,474)   (1,174)   (1)   (77)   (6,772)   (77,157)   (102,333)
Companies   -    -    -    0.0    -    -    -    -    -    -    (4,269)
Forwards (offshore)   (361,992)   15,587    (346,405)   3.1    (72,772)   (152,975)   (39,939)   (58,282)   (17,229)   (5,208)   (326,750)
Financial institutions   (186,301)   1,169    (185,132)   1.7    (48,393)   (77,032)   (26,020)   (32,818)   (610)   (259)   (247,122)
Companies   (175,455)   14,407    (161,048)   1.4    (24,379)   (75,943)   (13,739)   (25,464)   (16,574)   (4,949)   (79,326)
Individuals   (236)   11    (225)   0.0    -    -    (180)   -    (45)   -    (302)
Swaps with target flow - Companies   (1,128)   (41,225)   (42,353)   0.4    -    -    -    -    (1,462)   (40,891)   (2,480)
Other derivative financial instruments   (1,075,198)   89,518    (985,680)   8.8    (2)   (826,038)   (2,043)   (99,196)   (32,586)   (25,815)   (151,394)
Financial institutions   (701,891)   95,750    (606,141)   5.4    -    (512,539)   -    (84,045)   -    (9,557)   (84,175)
Companies   (373,307)   (6,232)   (379,539)   3.4    (2)   (313,499)   (2,043)   (15,151)   (32,586)   (16,258)   (67,219)
Total   (8,495,957)   (2,632,360)   (11,128,317)   100.0    (1,722,084)   (1,368,480)   (1,215,479)   (1,232,249)   (2,184,070)   (3,405,955)   (6,807,316)
% per maturity term                       15.5    12.3    10.9    11.1    19.6    30.6      
Total at 12/31/2011   (5,504,488)   (1,302,828)   (6,807,316)   100.0    (1,526,453)   (631,313)   (619,382)   (1,361,951)   (916,353)   (1,751,864)     
% per maturity term                       22.4    9.3    9.1    20.0    13.5    25.7      
 
4.26

 

III - Derivatives by notional amount

 

See below the composition of the Derivative Financial Instruments portfolio by type of instrument, stated at their notional amounts, per trading location (organized or over-the-counter market) and counterparties.

 

   12/31/2012 
   Futures   Swaps   Options   Forwards
(onshore)		   Credit
derivatives		   Forwards
(offshore)		   Swap with
target flow		   Target flow
of swap		   Other derivative
financial
instruments		 
BM&F/Bovespa   446,995,946    8,394,195    1,979,712,783    3,874,770    -    -    -    -    - 
Overt-the-counter market   90,453,798    120,423,074    47,385,894    19,766,354    6,198,026    39,874,822    543,008    546,972    6,677,468 
Financial institutions   44,665,845    51,693,107    20,064,858    2,191,526    6,198,026    24,291,585    -    -    3,161,288 
Companies   45,787,953    57,580,713    27,319,987    17,560,244    -    15,538,280    543,008    546,972    3,516,180 
Individuals   -    11,149,254    1,049    14,584    -    44,957    -    -    - 
Total   537,449,744    128,817,269    2,027,098,677    23,641,124    6,198,026    39,874,822    543,008    546,972    6,677,468 
Total 12/31/2011   268,806,691    92,650,955    1,108,515,671    17,248,256    6,598,110    31,284,974    50,873    53,488    5,491,296 
 
4.27

 

IV -Credit derivatives

 

See below the composition of Credit Derivatives (assets and liabilities) portfolio stated at notional amount, and effect on calculation of Required Referential Equity.

 

   Notional amount 
   12/31/2012   12/31/2011 
Transferred   1,066,401    2,188,966 
Credit swaps whose underlying assets are:          
Securities   1,066,401    1,001,267 
Total return rate swaps whose underlying assets are:          
Securities   -    1,187,699 
Received   (5,131,625)   (4,409,144)
Credit swaps whose underlying assets are:          
Securities   (3,846,405)   (3,426,917)
Total return rate swaps whose underlying assets are:          
Securities   (1,285,220)   (982,227)
Total (*)   (4,065,224)   (2,220,178)
Effect on the Referential Equity (Note 3)   (85,641)   (91,751)

 

(*)In the period we aligned the procedures for disclosing credit derivative information in order to state the position in the same disclosure standard as that of the Risk Management (Circular No. 3,477).

 

During the period, there was no occurrence of credit event related to those set forth in agreements.

 

 
4.28

 

V -Accounting hedge

 

The effectiveness computed for hedge portfolio was in conformity with the provisions of BACEN Circular No. 3,082 of January 30, 2002.

 

a)Cash flow - the purpose of the hedge relationship of ITAÚ UNIBANCO HOLDING is to protect the cash flows of payment of debt interest (CDB / Redeemable preferred shares) related to its variable interest rate risk (CDI / LIBOR), making the cash flow constant (fixed rate) and regardless of the variations of DI Cetip Over and LIBOR.

 

   12/31/2012   12/31/2011 
   Hedge Instrument   Hedge assets   Hedge Instruments   Hedge assets 
Strategies  Nominal Value   Adjustment to
Market Value *		   Book Value   Nominal Value   Adjustment to
Market Value*		   Book Value 
Hedge of Deposits and Securities Purchased under Agreements to Resell   92,197,131    (166,008)   93,663,453    30,815,573    (151,727)   30,816,291 
Hedge of Preferred Shares   803,243    (6,443)   803,243    737,324    (16,681)   737,324 
Hedge of Subordinated CDB   151,080    -    128,896    132,619    (47)   118,470 
Total   93,151,454    (172,451)   94,595,592    31,685,516    (168,455)   31,672,085 

 

(*)Market Value net of tax effects recorded in stockholders’ equity

 

The gains or losses related to the accounting hedge of cash flows that we expect to recognize in Results in the following 12 months amount to R$ (569,434) (R$ (179,954) at December 31, 2011).

 

To protect the future cash flows of debt against exposure to variable interest rate (CDI), at December 31, 2012, ITAÚ UNIBANCO HOLDING negotiated DI Futures agreements at BM&FBOVESPA with maturity between 2013 and 2017.

 

To protect the future cash flows of debt against exposure to variable interest rate (LIBOR), ITAÚ UNIBANCO HOLDING negotiated swap contracts with maturity in 2015.

 

Market Risk – The hedging strategy against market risk of ITAÚ UNIBANCO HOLDING consists in hedging the exposure to variation in market risk, receipt of interest, which are attributable to changes in interest rates related to recognized assets.

 

  12/31/2012   12/31/2011 
   Instrument de Hedge   Instrumentos de Hedge 
Strategies  Nominal Value   Adjustment to
Market Value *		   Nominal Value   Adjustment to
Market Value *		 
Hedge of Mortgages    469,620    3,797    469,620    (3,757)
Total      469,620    3,797    469,620    (3,757)

 

(*)Market Value net of tax effects recorded in stockholders’ equity

 

ITAÚ UNIBANCO HOLDING uses the market risk hedge to hedge against market risk variation in the receipt of interest resulting from variations in the fair value of ICPR rate (Real Promédio Camera Index). Hedge relationships were designated in 2012.

 

To hedge the variation in market risk in the receipt of interest, ITAÚ UNIBANCO HOLDING uses interest rate swap contracts Hedge assets are prefixed items, expressed in UF (Chilean Unit of Account - CLF), issued in Chile, with maturities between 2020 and 2027.

 

Receipts (payments) of interest flows are expected to occur and will affect the statement of income in monthly periods.

 

 
4.29

 

c)We present below the maturity terms of Cash Flow Hedge and Market Risk Hedg strategies:

 

12/31/2012  12/31/2011 
Maturity Term  Hedge of Deposits and
Securities Purchased under
Agreements to Resell		   Hedge of Preferred
Shares		   Hedge of
Subordinated CDB		   Market of
Mortgage		   Total   Total 
2012   -    -    -    -    -    15,675,982 
2013   82,763,408    -    -    -    82,763,408    9,001,434 
2014   7,989,984    -    151,080    -    8,141,064    5,508,989 
2015   516,568    803,243    -    -    1,319,811    737,324 
2017   927,171    -    -    -    927,171    761,787 
2020   -    -    -    46,160    46,160    - 
2022   -    -    -    209,677    209,677    - 
2025   -    -    -    47,135    47,135    - 
2027   -    -    -    166,648    166,648    - 
TOTAL   92,197,131    803,243    151,080    469,620    93,621,074    31,685,516 

 

d)Related operations - the swap operations contracted in a negotiation associated with the funding and/or investment in the amount of R$ 30,701 (R$ 40,545 at December 31, 2011) are recorded at amounts restated in accordance with variations occurred in respective ratios (“curve”) and are not valued at their market value, as permitted by BACEN Circular No. 3,150.
 
4.30

 

VI -Realized and unrealized gain of the derivative financial instruments portfolio

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Swap   (910,515)   (475,822)
Forwards (onshore)   71,162    (139,496)
Futures   (1,196,079)   (872,682)
Options   310,311    311,738 
Credit derivatives   190,808    184,836 
Other   (63,009)   791,322 
Foreign exchange variation on investments abroad   1,696,755    2,776,810 
Total   99,433    2,576,706 
 
4.31

 

i)Changes in adjustment to market value for the period

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Opening balance   (160,343)   1,407,096 
Adjustments with impact on:          
Results   510,793    (1,605,804)
Trading securities   348,233    (225,647)
Derivative financial instruments   162,560    (1,380,157)
Stockholders’ equity   2,055,629    38,365 
Available-for-sale   2,064,543    264,850 
Accounting Hedge – Derivative Financial Instruments   (8,914)   (226,485)
Futures   (29,289)   (216,530)
Swap   20,375    (9,955)
           
Closing balance   2,406,079    (160,343)
Adjustment to market value   2,406,079    (160,343)
Trading securities   374,931    26,698 
Available-for-sale securities   2,783,142    718,599 
Derivative financial instruments   (751,994)   (905,640)
Trading securities   (465,551)   (628,111)
Accounting hedge   (286,443)   (277,529)
Futures   (276,680)   (247,391)
Swap   (9,763)   (30,138)

 

For better understanding, the following table shows the unrealized gains of available-for-sale securities and held-to-maturity securities:

 

   12/31/2012   12/31/2011 
Adjustment of available-for-sale securities – stockholders’ equity   2,783,142    718,599 
Adjustment to held-to-maturity securities (*)   1,315,455    607,617 
Total unrealized gain   4,098,597    1,326,216 

 

(*)Includes the amount of R$ 9,788 (R$ 10,771 at 12/31/2011) regarding the adjustment to market value of securities reclassified up to December 31, 2003, not recognized in net income.
 
4.32
j)Sensitivity analysis (TRADING AND BANKING PORTFOLIOS)

 

In compliance with CVM Instruction No. 475 of December 17, 2008, ITAÚ UNIBANCO HOLDING carried out a sensitivity analysis by market risk factors considered relevant to which it was exposed. Each market risk factor was subject to a sensitivity level, with shock applications of 25% and 50%, both for growth and fall. The biggest losses arising, by risk factor, in each scenario, were stated with impact on result, net of tax effects, by providing a vision of the ITAÚ UNIBANCO HOLDING exposure under exceptional scenarios.

 

Measurement of market risk segregates operations in trading portfolio and banking portfolio, pursuant to the criteria set forth in the New Capital Accord – Basel II and in the regulations: BACEN Circular No. 3,354 of June 27, 2007 and Resolution No. 3,464.

 

The trading portfolio consists of all transactions, including derivatives, which are held with the intention of trading in the short term or of hedging other financial instruments of this portfolio, and that are not subject to limitations on their marketability. These are transactions designated for obtaining benefits from price movements, actual or expected in the short term or arbitration opportunities.

 

The banking portfolio comprises transactions that do not fit into the trading portfolio. Treasury operations in the Banking portfolio are carried out jointly with the active management of financial risks inherent in the global balance of ITAÚ UNIBANCO HOLDING and held not for trading in the short term. Its composition may include derivatives.

  

The sensitivity analyses shown in this report are an evaluation of an instant position of the portfolio exposure and, therefore, do not consider the management’s quick response capacity (treasury and control areas), which triggers risk mitigating measures, whenever a situation of high loss or risk is identified by minimizing the sensitivity towards significant losses. In addition, we point out that the presented results do not necessarily translate into accounting results, because the study's sole purpose is to disclose the exposure to risks and the respective protective actions, taking into account the fair value of financial instruments, irrespective of the accounting practices adopted by the ITAÚ UNIBANCO HOLDING.

  

Trading portfolio  Exposures  12/31/2012 (*) 
      Scenarios 
Risk factors  Risk of variation in:  I   II   III 
Fixed rate  Fixed rates in reais   (1,125)   (27,972)   (55,628)
Foreign exchange  Rates of foreign currency coupon   (119)   (2,947)   (5,850)
Foreign currency  Exchange variation   (407)   (10,184)   (20,369)
Price indices  Rates of price index coupon   (515)   (12,674)   (24,966)
Reference rate  Rate of TR coupon   355    (8,943)   (18,041)
Shares  Share price   4,497    (112,417)   (224,834)
   Total without correlation   2,686    (175,137)   (349,688)
   Total with correlation   1,879    (122,545)   (244,679)

 

(*)Amounts net of tax effects.

 

Trading and Banking portfolios  Exposures  12/31/2012 (*) 
      Scenarios 
Risk factors  Risk of variation in:  I   II   III 
Fixed rate  Fixed rates in reais   (3,823)   (95,225)   (189,727)
Foreign exchange  Rates of foreign currency coupon   (1,494)   (36,754)   (72,318)
Foreign currency  Exchange variation   4,212    (105,306)   (210,611)
Price indices  Rates of price index coupon   (2,695)   (65,562)   (127,546)
Reference rate  Rate of TR coupon   (5,173)   (126,114)   (245,750)
Shares  Share price   6,644    (166,106)   (332,212)
   Total without correlation   (2,328)   (595,067)   (1,178,164)
   Total with correlation   (1,629)   (416,373)   (824,370)

 

(*)Amounts net of tax effects.


The following scenarios are used to measure the sensitivity:

 

Scenario I: Addition of 1 base point to the fixed-rate curve, currency coupon, inflation and commodities and interest rate indices, and 1 percentage point in currency and share prices, which is based on market information (BM&FBOVESPA, Andima, etc);

 

Scenario II: Shocks at 25 base points in fixed-rate curves, currency coupon, inflation and interest rate indices, and 25 percentage points in currency and share prices, both for growth and fall, considering the largest resulting losses per risk factor;

 

Scenario III: Shocks at 50 base points in fixed-rate curves, currency coupon, inflation and interest rate indices, and 50 percentage points in currency and share prices, both for growth and fall, considering the largest resulting losses per risk factor.

 

Derivative financial instruments engaged by ITAÚ UNIBANCO HOLDING are shown in the item Derivative Financial Instruments in this note.

 

 
4.33

 

 

NOTE 8 - LOAN, LEASE AND OTHER CREDIT OPERATIONS

 

a) Composition of the portfolio with credit granting characteristics

 

I – By type of operations and risk level

 

   12/31/2012   12/31/2011 
Risk levels  AA   A   B   C   D   E   F   G   H   Total   Total 
Loan operations   120,534,081    93,665,300    32,741,100    22,063,679    9,943,781    3,434,024    2,681,761    2,656,770    11,101,311    298,821,807    274,536,614 
Loans and discounted trade receivables   48,501,986    46,547,813    22,593,679    16,207,706    8,312,715    2,559,624    2,126,979    2,180,736    9,458,093    158,489,331    147,707,760 
Financing   44,440,813    39,639,934    8,275,745    5,175,790    1,488,283    781,201    527,261    454,400    1,589,544    102,372,971    97,550,648 
Farming and agribusiness financing   4,753,324    913,216    601,408    228,559    42,771    53,453    1,149    122    21,511    6,615,513    5,938,830 
Real estate financing   22,837,958    6,564,337    1,270,268    451,624    100,012    39,746    26,372    21,512    32,163    31,343,992    23,339,376 
                                                        
Lease operations   4,151,338    7,053,706    2,570,855    1,111,049    683,352    305,868    227,006    195,665    718,418    17,017,257    26,721,591 
                                                        
Credit card operations   -    35,108,479    1,828,848    1,105,972    659,136    411,308    374,701    337,493    2,676,316    42,502,253    40,180,251 
                                                        
Advance on exchange contracts (1)   3,115,222    769,459    307,025    590,724    82,962    25,593    6,857    5,076    494    4,903,412    3,935,386 
                                                        
Other sundry receivables (2)   37,250    2,867,078    4,145    22,291    3,803    4,185    1,208    9,273    90,977    3,040,210    108,940 
                                                        
Total operations with credit granting characteristics   127,837,891    139,464,022    37,451,973    24,893,715    11,373,034    4,180,978    3,291,533    3,204,277    14,587,516    366,284,939    345,482,782 
Endorsements and sureties (3)                                                60,310,468    51,529,592 
                                                        
Total with endorsements and sureties   127,837,891    139,464,022    37,451,973    24,893,715    11,373,034    4,180,978    3,291,533    3,204,277    14,587,516    426,595,407    397,012,374 
TOTAL – 12/31/2011   111,275,494    146,416,520    31,426,558    18,672,274    15,064,529    3,830,329    3,217,843    2,456,374    13,122,861    345,482,782      

(1) Includes Advances on Exchange Contracts and Income Receivable from Advances Granted, reclassified from Liabilities – Foreign Exchange Portfolio/Other Receivables (Note 2a);

(2) Includes Securities and Credits Receivable, Debtors for Purchase of Assets and Endorsements and Sureties paid;

(3) Recorded in Memorandum Accounts.

 

 
4.34

 

II – By maturity and risk level

 

   12/31/2012   12/31/2011 
   AA   A   B   C   D   E   F   G   H   Total   Total 
   OVERDUE OPERATIONS (1) (2)     
Falling due installments   -    -    2,907,873    3,164,554    2,648,580    1,696,272    1,367,868    1,241,618    5,490,725    18,517,490    17,688,870 
01 to 30   -    -    190,404    199,669    138,646    75,626    58,206    52,012    444,515    1,159,078    1,172,886 
31 to 60   -    -    113,122    120,087    95,222    64,818    51,667    48,636    240,524    734,076    706,200 
61 to 90   -    -    99,205    113,874    89,931    59,786    49,350    45,468    217,924    675,538    679,901 
91 to 180   -    -    288,934    326,705    266,215    176,096    143,777    135,109    642,915    1,979,751    1,939,367 
181 to 365   -    -    545,334    601,552    494,920    321,634    267,863    251,763    1,159,068    3,642,134    3,430,498 
Over 365   -    -    1,670,874    1,802,667    1,563,646    998,312    797,005    708,630    2,785,779    10,326,913    9,760,018 
Overdue installments   -    -    606,816    708,113    871,150    819,697    970,633    909,984    6,259,353    11,145,746    12,119,976 
01 to 14   -    -    19,665    84,390    61,637    36,731    28,463    24,984    130,845    386,715    352,826 
15 to 30   -    -    553,974    108,978    126,015    56,899    35,185    28,964    139,851    1,049,866    1,058,373 
31 to 60   -    -    33,177    475,492    230,601    141,548    217,280    73,018    361,127    1,532,243    1,471,039 
61 to 90   -    -    -    27,984    404,313    143,145    125,361    103,073    340,733    1,144,609    1,401,263 
91 to 180   -    -    -    11,269    48,584    417,370    525,503    632,178    1,334,592    2,969,496    3,243,772 
181 to 365   -    -    -    -    -    24,004    38,841    47,767    3,856,270    3,966,882    4,386,596 
Over 365   -    -    -    -    -    -    -    -    95,935    95,935    206,107 
SUBTOTAL   -    -    3,514,689    3,872,667    3,519,730    2,515,969    2,338,501    2,151,602    11,750,078    29,663,236    29,808,846 
SPECIFIC ALLOWANCE   -    -    (35,147)   (116,180)   (351,973)   (754,791)   (1,169,251)   (1,506,121)   (11,750,078)   (15,683,541)   (14,802,053)
SUBTOTAL – 12/31/2011   -    -    3,964,077    3,968,599    4,033,146    2,619,718    2,359,425    1,964,898    10,898,983    29,808,846      
    NON-OVERDUE OPERATIONS      
Falling due installments   127,458,428    138,671,963    33,595,592    20,851,847    7,719,971    1,554,415    936,486    1,042,410    2,702,197    334,533,309    312,892,492 
01 to 30   12,130,049    25,752,771    6,414,268    3,813,685    1,840,222    235,208    107,798    67,128    586,040    50,947,169    48,234,324 
31 to 60   10,497,868    12,406,373    3,560,068    2,769,165    525,053    69,232    40,018    112,142    238,791    30,218,710    26,921,162 
61 to 90   5,396,349    8,049,754    2,052,632    1,449,998    346,591    42,985    31,516    19,653    140,722    17,530,200    17,705,055 
91 to 180   14,755,613    17,223,931    4,711,299    2,668,780    787,122    108,751    118,437    58,938    285,926    40,718,797    34,925,253 
181 to 365   16,776,651    20,796,119    4,991,451    3,261,775    1,254,947    320,632    133,861    104,271    344,516    47,984,223    45,153,247 
Over 365   67,901,898    54,443,015    11,865,874    6,888,444    2,966,036    777,607    504,856    680,278    1,106,202    147,134,210    139,953,451 
Overdue up to 14 days   379,463    792,059    341,692    169,201    133,333    110,594    16,546    10,265    135,241    2,088,394    2,781,444 
SUBTOTAL   127,837,891    139,464,022    33,937,284    21,021,048    7,853,304    1,665,009    953,032    1,052,675    2,837,438    336,621,703    315,673,936 
GENERIC ALLOWANCE   -    (697,320)   (339,372)   (630,631)   (785,329)   (499,503)   (476,516)   (736,873)   (2,837,438)   (7,002,982)   (5,911,259)
SUBTOTAL – 12/31/2011   111,275,494    146,416,520    27,462,481    14,703,675    11,031,383    1,210,611    858,418    491,476    2,223,878    315,673,936      
GRAND TOTAL   127,837,891    139,464,022    37,451,973    24,893,715    11,373,034    4,180,978    3,291,533    3,204,277    14,587,516    366,284,939    345,482,782 
EXISTING ALLOWANCE   -    (697,320)   (374,519)   (1,077,039)   (3,410,771)   (2,090,072)   (2,303,744)   (3,203,957)   (14,587,516)   (27,744,938)   (25,771,727)
Minimum allowance required   -    (697,320)   (374,519)   (746,811)   (1,137,302)   (1,254,294)   (1,645,767)   (2,242,994)   (14,587,516)   (22,686,523)   (20,713,312)
Additional allowance (3)   -    -    -    (330,228)   (2,273,469)   (835,778)   (657,977)   (960,963)   -    (5,058,415)   (5,058,415)
GRAND TOTAL 12/31/2011   111,275,494    146,416,520    31,426,558    18,672,274    15,064,529    3,830,329    3,217,843    2,456,374    13,122,861    345,482,782      
EXISTING ALLOWANCE   -    (732,082)   (314,265)   (560,169)   (4,419,271)   (1,914,781)   (2,252,169)   (2,456,129)   (13,122,861)   (25,771,727)     
Minimum allowance required   -    (732,082)   (314,265)   (560,169)   (1,506,453)   (1,149,098)   (1,608,922)   (1,719,462)   (13,122,861)   (20,713,312)     
Additional allowance (3)   -    -    -    -    (2,912,818)   (765,683)   (643,247)   (736,667)   -    (5,058,415)     

(1)Operations with overdue installments for more than 14 days or under responsibility of bankruptcy or in process of bankruptcy companies;
(2)The balance of non-accrual operations amounts to R$ 20,791,326 (R$ 20,448,398 at 12/31/2011);
(3)According to BACEN’s request, it is classified into risk level to show the additional amounts calculated to maintain the strength necessary for absorbing possible increases in default expected in history of scenarios of losses incurred.

 

 
4.35

 

III – By business sector

 

   12/31/2012   %   12/31/2011   % 
PUBLIC SECTOR   877,396    0.2%   2,010,353    0.6%
ENERGY   235,822    0.1%   411,774    0.1%
PETROCHEMICAL AND CHEMICAL   440,759    0.1%   613,367    0.2%
SUNDRY   200,815    0.1%   985,212    0.3%
PRIVATE SECTOR   365,407,543    99.8%   343,472,429    99.4%
COMPANIES   204,170,166    55.7%   188,118,136    54.5%
SUGAR AND ALCOHOL   7,418,754    2.0%   6,808,284    2.0%
AGRIBUSINESS AND FERTILIZERS   11,769,348    3.2%   11,697,705    3.4%
FOOD AND BEVERAGE   10,303,378    2.8%   9,569,230    2.8%
BANKS AND OTHER FINANCIAL INSTITUTIONS   3,772,131    1.0%   5,269,834    1.5%
CAPITAL ASSETS   7,198,861    2.0%   6,902,650    2.0%
PULP AND PAPER   3,041,487    0.8%   2,009,603    0.6%
PUBLISHING AND PRINTING   1,618,428    0.4%   1,634,336    0.5%
ELECTRONIC AND IT   5,142,703    1.4%   4,721,512    1.4%
PACKAGING   2,006,390    0.5%   1,797,309    0.5%
ENERGY AND SEWAGE   5,676,996    1.5%   5,905,246    1.7%
EDUCATION   1,164,790    0.3%   1,140,666    0.3%
PHARMACEUTICALS AND COSMETICS   4,142,250    1.1%   3,803,877    1.1%
REAL ESTATE AGENTS   14,136,796    3.9%   11,367,739    3.3%
ENTERTAINMENT AND TOURISM   3,450,613    0.9%   3,283,584    1.0%
WOOD AND FURNITURE   3,046,600    0.8%   3,060,849    0.9%
CONSTRUCTION MATERIAL   5,328,499    1.5%   5,299,718    1.5%
STEEL AND METALLURGY   8,469,930    2.3%   7,534,425    2.2%
MEDIA   719,885    0.2%   1,000,077    0.3%
MINING   2,729,081    0.7%   2,379,936    0.7%
INFRASTRUCTURE WORK   4,495,643    1.2%   4,653,738    1.3%
OIL AND GAS   3,260,525    0.9%   2,861,982    0.8%
PETROCHEMICAL AND CHEMICAL   5,721,923    1.6%   6,384,479    1.8%
HEALTH CARE   1,839,231    0.5%   1,730,067    0.5%
INSURANCE AND REINSURANCE AND PENSION PLANS   5,009    0.0%   5,102    0.0%
TELECOMMUNICATIONS   1,216,081    0.3%   1,175,256    0.3%
THIRD SECTOR   109,330    0.0%   109,500    0.0%
TRADING   2,084,545    0.6%   1,894,570    0.5%
TRANSPORTATION   17,022,141    4.6%   15,740,271    4.6%
DOMESTIC APPLIANCES   2,780,259    0.8%   2,102,856    0.6%
VEHICLES AND AUTOPARTS   12,496,985    3.4%   12,429,425    3.6%
CLOTHING AND SHOES   5,322,013    1.5%   5,471,133    1.6%
COMMERCE - SUNDRY   14,209,107    3.9%   13,856,819    4.0%
INDUSTRY - SUNDRY   4,781,077    1.3%   3,051,909    0.9%
SUNDRY SERVICES   16,909,752    4.6%   14,106,586    4.1%
SUNDRY   10,779,625    2.9%   7,357,863    2.1%
INDIVIDUALS   161,237,377    44.0%   155,354,293    45.0%
CREDIT CARDS   42,143,621    11.5%   39,801,064    11.5%
REAL ESTATE FINANCING   23,000,967    6.3%   16,819,163    4.9%
CONSUMER LOANS/OVERDRAFT   44,872,851    12.3%   38,640,707    11.2%
VEHICLES   51,219,938    14.0%   60,093,359    17.4%
GRAND TOTAL   366,284,939    100.0%   345,482,782    100.0%

 

 
4.36

 

The balances as of December 31, 2011 were reclassified in order to align the sector exposure criteria for disclosure purposes on internal and publicly-available reports. The main impacts are highlighted below:

 

Prior disclosure  Current disclosure  12/31/2011 
Agribusiness  Sugar and alcohol   7,544,465 
Agribusiness  Sundry   2,568,617 
Agribusiness  Agribusiness and fertilizers   4,728,434 
Heavy construction (constructors)  Infrastructure work   5,433,874 
Distribution of fuels  Oil and gas   3,307,245 
Electrical and electronic  Domestic appliances   3,091,875 
Fertilizers and insecticides  Agribusiness and fertilizers   1,916,677 
Holding company  Sundry   4,345,549 
Import and export  Tradings   1,953,869 
Hospital care materials and equipment  Pharmaceuticals and cosmetics   1,117,016 
Media  Publishing and printing   1,750,101 
Other - Industry  Packaging   2,015,664 
Other services  Education   1,366,024 
Service companies  Entertainment and tourism   3,493,146 
Service companies  Sundry services   1,591,853 
Chemical and petrochemical  Oil and gas   1,135,275 
Supermarkets  Commerce - Sundry   2,513,221 

 

 
4.37

 

b) Credit concentration

 

   12/31/2012   12/31/2011 
Loan, lease and other credit operations (*)  Risk   % of
Total		   Risk   % of
Total		 
Largest debtor   4,573,362    1.1    3,099,722    0.8 
10 largest debtors   27,129,686    6.4    21,999,582    5.5 
20 largest debtors   43,344,179    10.2    36,715,537    9.3 
50 largest debtors   67,371,741    15.8    59,376,674    15.0 
100 largest debtors   89,405,245    21.0    77,454,351    19.5 

 

   12/31/2012   12/31/2011 
Loan, lease and other credit operations and securities of companies and
financial institutions (*)		  Risk   % of
Total		   Risk   % of
Total		 
Largest debtor   5,219,312    1.1    4,516,385    1.0 
10 largest debtors   37,367,735    7.7    30,722,398    7.0 
20 largest debtors   60,238,587    12.4    49,679,952    11.3 
50 largest debtors   95,629,286    19.6    80,560,182    18.4 
100 largest debtors   124,043,442    25.5    104,000,316    23.7 

(*) The amounts include endorsements and sureties.

 

c) Changes in allowance for loan losses

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Opening balance   (25,771,727)   (22,018,218)
Balance arising from the aquisition of full control of FAI (Note 2c)   (90,203)   - 
Net increase for the period   (24,025,146)   (19,911,948)
Required by Resolution No. 2,682/99   (24,025,146)   (19,384,928)
Additional allowance (3)   -    (527,020)
Write-Off   22,142,138    16,158,439
Closing balance (1)   (27,744,938)   (25,771,727)
Required by Resolution No. 2,682/99   (22,686,523)   (20,713,312)
Specific allowance (2)   (15,683,541)   (14,802,053)
Generic allowance (3)   (7,002,982)   (5,911,259)
Additional allowance (4)   (5,058,415)   (5,058,415)

(1)The allowance for loan losses related to the lease portfolio amounts to: R$ (1,438,822) (R$ (1,803,033) at December 31, 2011).
(2)Operations with overdue installments for more than 14 days or under responsibility of bankruptcy or in process of bankruptcy companies.
(3)For operations not covered in the previous item due to the classification of the client or operation.
(4)As from the first quarter of 2011, refers to the provision in excess of the minimum required percentage by CMN Resolution No. 2,682 of December 21, 1999, based on the expected loss methodology adopted in the institution’s credit risk management, which also considers the potential losses in revolving credit.

 

At December 31, 2012, the balance of the allowance in relation to the loan portfolio is equivalent to 7.6% (7.5% at 12/31/2011).

 

 
4.38

 

d)Recovery and renegotiation of credits

 

I -Composition of the result of allowance for loan losses

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Expenses for allowance for loan losses   (24,025,146)   (19,911,948)
Income from recovery of credits written off as loss   4,663,222    5,488,194 
Result of allowance for loan losses (*)   (19,361,924)   (14,423,754)

(*) The amounts related to the lease portfolio from 01/01 to 12/31/2012 are: Expenses for allowance for loan losses R$ (1,125,194) (R$ (1,069,346) de 01/01 a 12/31/011) and Income from recovery of credits written off as loss R$ 810,853 (R$ 1,264,646 de 01/01 a 12/31/2011).

 

II -Renegotiated loan operations

 

   12/31/2012   12/31/2011 
Renegotiated loan operations (*)   19,483,298    14,570,189 
Allowance for loan losses   (8,711,606)   (6,105,115)
(%)   44.7    41.9 

(*) The amounts related to the lease portfolio are R$ 1,193,580 (R$ 1,290,993 at December,31 2011).

 

 
4.39

 

e) Restricted operations on assets

 

We present below information related to the restricted operations on assets, in accordance with CMN Resolution No. 2,921, of January 17, 2002.

 

   12/31/2012   01/01 to
12/31/2012		 
   31 - 180   Over 365
days		   Total   Income
(expenses)		 
Restricted operations on assets                    
Loan operations   1,420    119,545    120,965    17,769 
Liabilities - restricted operations on assets                    
Foreign borrowings through securities   1,420    119,545    120,965    (17,769)
Net revenue from restricted operations                  - 

At December 31, 2012, there were no balances in default.

 

 
4.40

 

f) Operations of sale or transfers and acquisitions of financial assets

 

I.Credit assignments (transfers of receivables) carried out through December 2011 were recorded in accordance with current regulation together with income recognition at the time of the assignment, regardless of the risks and benefits being retained or not.

 

In compliance with CMN Resolution No. 3,809, of October 28, 2009, the amount of operations assigned with joint obligation, at December 31, 2012 where the entity significantly retained the related risks and benefits is R$ 415,193 (R$ 554,290 at 12/31/2011), composed of real estate financing of R$ 397,704 (R$ 534,193 at 12/31/2011) and farming financing of R$ 17,489 (R$ 20,097 at 12/31/2011).

 

II.Beginning January 2012, as provided for by CMN Resolution No. 3,533/08 and supplementary regulation, accounting records take into consideration the retention or non-retention of risks and benefits on sale or transfers of financial assets.

 

Sales or transfers of financial assets without risk and benefit retention totaling R$ 1,348,301 with effect on results of R$ (73,370).

 

In the period, loan portfolios with assignor’s risk retention, in the amount of R$ 2,840,288, totaling R$ 3,998,482 at December 31, 2012, were also purchased.

 

 
4.41

 

NOTE 9 - FOREIGN EXCHANGE PORTFOLIO

 

   12/31/2012   12/31/2011 
ASSETS - OTHER RECEIVABLES   30,959,696    26,449,799 
Exchange purchase pending settlement – foreign currency   18,208,437    15,486,311 
Exchange sale rights – local currency   13,074,420    11,277,757 
(Advances received) – local currency   (323,231)   (314,269)
LIABILITIES – OTHER LIABILITIES (Note 2a)   31,104,046    26,181,570 
Exchange sales pending settlement – foreign currency   13,058,558    11,130,675 
Liabilities from purchase of foreign currency – local currency   18,040,379    15,046,806 
Other   5,109    4,089 
MEMORANDUM ACCOUNTS   1,256,834    1,143,965 
Outstanding import credits – foreign currency   1,211,674    1,129,766 
Confirmed export credits – foreign currency   45,160    14,199 

 

 
4.42

 

NOTE 10 – FUNDING AND BORROWINGS AND ONLENDING

 

a) Summary

 

   12/31/2012   12/31/2011 
   0-30   31-180   181-365   Over 365 days   Total   %   Total   % 
Deposits   133,377,485    24,411,803    17,868,771    67,541,530    243,199,589    34.7    242,636,422    41.9 
Deposits received under securities repurchase agreements   144,412,955    17,838,431    16,280,894    110,285,541    288,817,821    41.1    188,818,537    32.6 
Funds from acceptance and issuance of securities   3,862,934    15,665,299    12,043,466    23,535,880    55,107,579    7.9    51,557,214    8.9 
Borrowings and onlending   3,275,775    15,792,990    11,693,869    28,362,573    59,125,207    8.4    56,602,060    9.7 
Subordinated debt (*)   797,250    2,453,258    132,032    51,796,774    55,179,314    7.9    39,715,187    6.9 
TOTAL   285,726,399    76,161,781    58,019,032    281,522,298    701,429,510         579,329,420      
% per maturity term   40.7    10.9    8.3    40.1                     
TOTAL – 12/31/2011   195,912,613    67,931,333    46,612,579    268,872,895    579,329,420                
% per maturity term   33.9    11.7    8.0    46.4                     

(*) Includes R$ 807,189 (R$ 740,703 at 12/31/2011) of Redeemable Preferred Shares classified under Minority Interest in Balance Sheet.

 

b) Deposits

 

   12/31/2012   12/31/2011 
   0-30   31-180   181-365   Over 365 days   Total   %   Total   % 
Demand deposits   34,916,237    -    -    -    34,916,237    14.4    28,932,523    11.9 
Savings accounts   83,451,406    -    -    -    83,451,406    34.3    67,169,544    27.7 
Interbank   2,641,780    3,550,451    1,201,335    206,700    7,600,266    3.1    2,065,623    0.9 
Time deposits   12,368,062    20,861,352    16,667,436    67,334,830    117,231,680    48.2    144,468,732    59.5 
TOTAL   133,377,485    24,411,803    17,868,771    67,541,530    243,199,589         242,636,422      
% per maturity term   54.8    10.0    7.3    27.9                     
TOTAL – 12/31/2011   127,685,624    19,849,754    11,920,160    83,180,884    242,636,422                
% per maturity term   52.6    8.2    4.9    34.3                     

 

ITAÚ UNIBANCO HOLDING’s portfolio is composed of interbank deposits in the amount of R$ 4,832,444 at 12/31/2011 with maturity of 181 to 365 days.

 

 
4.43

 

c) Deposits received under securities repurchase agreements

 

   12/31/2012   12/31/2011 
   0 - 30   31 - 180   181 - 365   Over 365 days   Total   %   Total   % 
Own portfolio   37,209,115    17,345,504    16,135,863    93,078,835    163,769,317    56.7    136,047,520    72.0 
Government securities   18,449,169    369,274    10,960    9,122    18,838,525    6.5    14,544,812    7.7 
Own issue   3,393,602    15,064,280    16,124,903    93,069,713    127,652,498    44.2    114,155,406    60.4 
Foreign   15,366,344    1,911,950    -    -    17,278,294    6.0    7,347,302    3.9 
Third-party portfolio   106,527,843    1,090    -    -    106,528,933    36.9    36,537,645    19.4 
Free portfolio   675,997    491,837    145,031    17,206,706    18,519,571    6.4    16,233,372    8.6 
TOTAL   144,412,955    17,838,431    16,280,894    110,285,541    288,817,821         188,818,537      
% per maturity term   50.0    6.2    5.6    38.2                     
TOTAL – 12/31/2011   59,279,439    11,396,283    11,137,676    107,005,139    188,818,537                
% per maturity term   31.4    6.0    5.9    56.7                     

 

 
4.44

 

d) Funds from acceptance and issuance of securities

 

   12/31/2012   12/31/2011 
   0-30   31-180   181-365   Over 365 days   Total   %   Total   % 
FUNDS FROM BILLS:   2,354,441    11,078,070    9,371,912    14,734,730    37,539,153    68.2    33,587,443    65.2 
of real estate loans   443,364    1,932,667    5,217,025    11,101,871    18,694,927    34.0    14,307,711    27.8 
Financial   1,689,558    7,837,241    2,905,185    864,240    13,296,224    24.1    15,751,207    30.6 
Bill of credit related to agribusiness   212,189    1,297,511    1,226,127    2,585,607    5,321,434    9.7    3,284,515    6.4 
Mortgage notes   9,330    10,651    23,575    183,012    226,568    0.4    244,010    0.5 
DEBENTURES   530,241    530,257    508,555    -    1,569,053    2.8    1,038,796    2.0 
FOREIGN SECURITIES   978,252    4,056,972    2,162,999    8,801,150    15,999,373    29.0    16,930,975    32.8 
Non-Trade Related – Issued abroad   978,252    4,056,972    2,162,999    8,801,150    15,999,373    29.0    16,930,975    32.8 
Brazil Risk Note Programme   927,726    2,736,844    1,482,554    3,210,113    8,357,237    15.2    3,213,047    6.2 
Structure Note Issued   41,772    995,389    554,074    2,041,502    3,632,737    6.6    4,895,214    9.5 
Bonds   7,416    30,385    32,984    2,004,494    2,075,279    3.8    1,076,726    2.1 
Fixed Rate Notes   28    9,222    7,431    1,468,437    1,485,118    2.7    548,287    1.1 
Euro Medium Term Note Programme   -    -    -    -    -    -    277,198    0.5 
Euro Certificates of Deposits   -    -    -    -    -    -    6,796,960    13.2 
Medium Term Note   -    -    -    -    -    -    112,388    0.2 
Eurobonds   1,298    285,082    7,896    12,728    307,004    0.6    10,349    - 
Other   12    50    78,060    63,876    141,998    0.3    806    - 
TOTAL   3,862,934    15,665,299    12,043,466    23,535,880    55,107,579         51,557,214      
% per maturity term   7.0    28.4    21.9    42.7                     
TOTAL – 12/31/2011   4,862,330    15,756,393    8,840,626    22,097,865    51,557,214                
% per maturity term   9.4    30.6    17.1    42.9                     

 

ITAÚ UNIBANCO HOLDING’s portfolio is composed of Brazil Risk Note Programme with maturity of 31 days to 180 days in the amount of R$ 5,542 (R$ 5,542 at 12/31/2011) and over 365 days in the amount of R$ 500,000 (R$ 500,000 at 12/31/2011), totaling R$ 505,542 (R$ 505,542 at 12/31/2011).

 

 
4.45

 

e) Borrowings and onlending

 

   12/31/2012   12/31/2011 
   0-30   31-180   181-365   Over 365 days   Total   %   Total   % 
BORROWINGS   2,111,146    9,973,615    6,817,427    4,175,006    23,077,194    39.0    21,142,718    37.3 
Domestic   64,006    106,464    40,685    152,984    364,139    0.6    2,898,621    5.1 
Foreign (*)   2,047,140    9,867,151    6,776,742    4,022,022    22,713,055    38.4    18,244,097    32.2 
ONLENDING   1,164,629    5,819,375    4,876,442    24,187,567    36,048,013    61.0    35,459,342    62.7 
Domestic – official institutions   741,624    5,815,040    4,853,602    24,034,366    35,444,632    60.0    34,877,812    61.6 
BNDES   190,192    1,055,200    1,245,373    8,468,687    10,959,452    18.5    10,129,047    17.9 
FINAME   526,438    4,585,995    3,471,724    15,410,914    23,995,071    40.6    24,254,701    42.9 
Other   24,994    173,845    136,505    154,765    490,109    0.8    494,064    0.9 
Foreign   423,005    4,335    22,840    153,201    603,381    1.0    581,530    1.0 
TOTAL   3,275,775    15,792,990    11,693,869    28,362,573    59,125,207         56,602,060      
% per maturity term   5.5    26.7    19.8    48.0                     
TOTAL- 12/31/2011   4,025,673    12,771,562    12,212,552    27,592,273    56,602,060                
% per maturity term   7.1    22.6    21.6    48.7                     

(*)Foreign borrowings are basically represented by foreign exchange transactions related to export pre-financing and import financing.

 

 
4.46

 

f) Subordinated debt

 

   12/31/2012   12/31/2011 
   0-30   31-180   181-365   Over 365 days   Total   %   Total   % 
CDB   673,486    2,002,254    120,900    10,994,586    13,791,226    25.0    23,223,543    58.5 
Financial Treasury bills   59,301    282,665    5,047    23,960,463    24,307,476    44.1    10,254,003    25.8 
Euronotes   64,463    160,580    -    15,922,638    16,147,681    29.2    5,221,952    13.1 
Bonds   -    3,813    6,085    176,641    186,539    0.3    299,324    0.8 
(-) Transaction costs incurred (Note 4b)   -    -    -    (60,797)   (60,797)   (0.1)   (24,338)   (0.1)
TOTAL OTHER LIABILITIES   797,250    2,449,312    132,032    50,993,531    54,372,125         38,974,484      
Redeemable preferred shares   -    3,946    -    803,243    807,189    1.5    740,703    1.9 
GRAND TOTAL (*)   797,250    2,453,258    132,032    51,796,774    55,179,314         39,715,187      
% per maturity term   1.4    4.5    0.2    93.9                     
TOTAL- 12/31/2011   59,547    8,157,341    2,501,565    28,996,734    39,715,187                
% per maturity term   0.1    20.6    6.3    73.0                     

(*)The amount of R$ 51,134,447 (R$ 38,257,136 at 12/31/2011) is included in the Referential Equity, using the proportionalities set forth in CMN Resolution No. 3,444 of February 28, 2007 and changes made by CMN Resolution No. 3,532 of January 31, 2008.

 

 
4.47

  

Description
Name of security / Currency  Principal Amount
(Original Currency)		   Issue   Maturity   Return p.a.   Account balance 
Subordinated CDB - BRL                         
    1,558,200    2008    2013    100% of CDI + 0,5% to 0,6%    2,596,902 
    48,401              106% to 107% of CDI    78,838 
    40,000    2003    2013    102% of CDI    120,900 
    1,864,500    2007    2014    100% of CDI + 0,35% to 0,6%    3,328,996 
    33,200              IGPM + 7,22%    67,644 
    1,000,000    2008    2014    112% of CDI    1,554,254 
    400,000    2008    2015    119,8% of CDI    656,819 
    50,000    2010    2015    113% of CDI    68,571 
    465,835    2006    2016    100% of CDI + 0,7% (*)    892,070 
    2,719,268    2010    2016    110% to 114% of CDI    3,728,057 
    122,500              IPCA + 7,21%    174,363 
    366,830    2010    2017    IPCA + 7,33%    523,812 
                   TOTAL    13,791,226 
                          
Subordinated financial bills - BRL                    
    365,000    2010    2016    100% of CDI + 1,35% to 1,36%    375,687 
    1,874,000              112% to 112,5% of CDI    1,924,041 
    30,000              IPCA + 7%    38,765 
    206,000    2010    2017    IPCA + 6,95% to 7,2%    244,006 
    3,223,500    2011    2017    108% to 112% of CDI    3,308,443 
    352,400              IPCA + 6,15% to 7,8%    408,009 
    138,000              IGPM + 6,55% to 7,6%    162,971 
    3,650,000              100% of CDI + 1,29% to 1,52%    3,716,282 
    500,000    2012    2017    100% of CDI + 1,12%    503,294 
    42,000    2011    2018    IGPM + 7%    49,811 
    30,000              IPCA + 7,53% to 7,7%    34,090 
    460,645    2012    2018    IPCA + 4,40% to 6,58%    508,227 
    3,782,100              100% of CDI + 1,01% to 1,32%    3,840,248 
    6,373,127              108% to 113% of CDI    6,519,982 
    112,000              PRE + 9,95 to 11,95%    117,503 
    2,000    2011    2019    109% to 109,7% of CDI    2,229 
    12,000    2012    2019    PRE + 11,96%    13,185 
    100,500              IPCA + 4,70% to 6,30%    108,075 
    1,000              110% of CDI    1,092 
    20,000    2012    2020    IPCA + 6,00% to 6,17%    21,861 
    1,000              111% of CDI    1,093 
    6,000    2011    2021    109,25 to 110,5% of CDI    6,843 
    2,306,500    2012    2022    IPCA + 5,15% to 5,83%    2,381,248 
    20,000              IGPM + 4,63%    20,491 
                   TOTAL    24,307,476 
                          
Subordinated euronotes - USD                         
    1,000,000    2010    2020    6.2%   2,063,220 
    1,000,000    2010    2021    5.75%   2,095,141 
    750,000    2011    2021    5,75% to 6,2%    1,533,877 
    550,000    2012    2021    6.2%   1,140,175 
    2,625,000    2012    2022    5,50% to 5,65%    5,406,475 
    1,870,000    2012    2023    5.13%   3,847,996 
                   TOTAL    16,086,884 
                          
Subordinated bonds - CLP   41,528,200    2008    2033    3,5% to 4,5%    186,539 
                   TOTAL    186,539 
                          
Preferred shares - USD   393,072    2002    2015    3.04%   807,189 
                          
TOTAL                       55,179,314 

(*)Subordinated CDBs may be redeemed as from November 2011.

 

ITAÚ UNIBANCO HOLDING’s portfolio is composed of Subordinated Euronotes with maturity of up to 30 days in the amount of R$ 64,462 (R$ 59,547 at 12/31/2011), with maturity of 31 to 180 days in the amount of R$ 160,580 (R$ 26,167 12/31/2011) and over 365 days in the amount of R$ 15,861,842 (R$ 5,111,734 at 12/31/2011), totaling R$ 16,086,884 (R$ 5,197,449 at 12/31/2011).

 

 
4.48

 

NOTE 11 - INSURANCE, PENSION PLAN AND CAPITALIZATION OPERATIONS

 

a) Composition of the technical provisions per segment

 

   INSURANCE   PENSION PLAN   CAPITALIZATION   TOTAL 
   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011 
Unearned premiums   3,370,543    3,025,552    -    -    -    -    3,370,543    3,025,552 
Mathematical provision of benefits to be granted and benefits granted   19,103    27,913    79,733,327    61,953,126    -    -    79,752,430    61,981,039 
Premium deficiency / Insufficient contribution   336,224    312,950    749,712    691,816    -    -    1,085,936    1,004,766 
Financial surplus   1,450    1,528    513,874    475,297    -    -    515,324    476,825 
Mathematical provision for redemptions   -    -    -    -    2,834,557    2,783,686    2,834,557    2,783,686 
Provision for raffles   -    -    -    -    19,504    16,269    19,504    16,269 
Unsettled claims   3,222,143    2,297,299    -    -    -    -    3,222,143    2,297,299 
Claims / Events incurred but not reported (IBNR)   820,875    712,416    12,286    10,083    -    -    833,161    722,499 
Other provisions (Note 4m II.I)   1,349,815    1,242,735    188,815    165,579    37,665    38,215    1,576,295    1,446,529 
TOTAL   9,120,153    7,620,393    81,198,014    63,295,901    2,891,726    2,838,170    93,209,893    73,754,464 

The Liability Adequacy Test did not show any deficiency in this period.

 

 
4.49

 

b) Assets Guaranteeing Technical Provisions - SUSEP

 

   INSURANCE   PENSION PLAN   CAPITALIZATION   TOTAL 
   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011 
Interbank investments – money market   845,460    968,945    902,921    793,227    1,002,382    1,053,841    2,750,763    2,816,013 
Securities and derivative financial instruments   3,266,740    2,905,087    80,583,219    62,811,907    1,994,119    1,794,240    85,844,078    67,511,234 
PGBL/VGBL FUND QUOTAS (1)   -    -    75,146,080    57,733,857    -    -    75,146,080    57,733,857 
Government securities - Domestic   -    -    52,587,258    37,539,235    -    -    52,587,258    37,539,235 
National Treasury Bills   -    -    20,776,745    20,107,159    -    -    20,776,745    20,107,159 
National Treasury Notes   -    -    28,864,164    14,627,549    -    -    28,864,164    14,627,549 
Financial Treasury Bills   -    -    2,946,349    2,804,527    -    -    2,946,349    2,804,527 
Corporate securities   -    -    22,434,368    20,131,251    -    -    22,434,368    20,131,251 
Bank deposit certificates   -    -    2,542,603    6,734,938    -    -    2,542,603    6,734,938 
Debentures   -    -    3,101,048    4,671,648    -    -    3,101,048    4,671,648 
Shares   -    -    1,496,170    1,661,648    -    -    1,496,170    1,661,648 
Credit note   -    -    205,692    562,403    -    -    205,692    562,403 
Financial Treasury bills   -    -    15,083,232    6,498,043    -    -    15,083,232    6,498,043 
Securitized real estate loans   -    -    5,298    2,571    -    -    5,298    2,571 
Others   -    -    325    -    -    -    325    - 
PGBL/VGBL fund quotas   -    -    338,445    49,544    -    -    338,445    49,544 
Derivative financial instruments   -    -    41,965    34,796    -    -    41,965    34,796 
Accounts receivable / (payable)   -    -    (255,956)   (20,969)   -    -    (255,956)   (20,969)
Other assets   3,266,740    2,905,087    5,437,139    5,078,050    1,994,119    1,794,240    10,697,998    9,777,377 
Government   1,114,940    877,820    4,305,677    3,799,809    271,683    143,922    5,692,300    4,821,551 
Private   2,151,800    2,027,267    1,131,462    1,278,241    1,722,436    1,650,318    5,005,698    4,955,826 
                                         
Receivables from insurance and reinsurance operations (2)   5,090,296    4,019,679    -    -    -    -    5,090,296    4,019,679 
Credit rights   1,014,112    891,600    -    -    -    -    1,014,112    891,600 
Commercial – Extended guarantee   1,323,025    1,256,753    -    -    -    -    1,323,025    1,256,753 
Reinsurance   2,753,159    1,871,326    -    -    -    -    2,753,159    1,871,326 
Escrow deposits for loss   1,607    25,364    -    -    -    -    1,607    25,364 
TOTAL   9,204,103    7,919,075    81,486,140    63,605,134    2,996,501    2,848,081    93,686,744    74,372,290 

(1)The PGBL and VGBL plans securities portfolios, the ownership and embedded risks of which are the customer’s responsibility, are recorded as securities – trading securities, with a contra-entry to long-term liabilities in Pension Plan Technical Provisions account, as determined by SUSEP.
(2)Recorded under Other receivables and Other assets.

 

 
4.50

 

c) Financial and operating income per segment

 

   INSURANCE   PENSION PLAN   CAPITALIZATION   TOTAL 
   01/01 to 31/12/2012   01/01 to 31/12/2011   01/01 to 31/12/2012   01/01 to 31/12/2011   01/01 to   01/01 to   01/01 to   01/01 to 
   Direct   Reinsurance   Withheld   Direct   Reinsurance   Withheld   Direct   Reinsurance   Withheld   Direct   Reinsurance   Withheld   31/12/2012   31/12/2011   31/12/2012   31/12/2011 
Financial income from insurance, pension plan and capitalization operations   301,198    -    301,198    315,472    -    315,472    205,393    -    205,393    227,307    -    227,307    124,370    147,387    630,961    690,166 
Financial income   336,331    -    336,331    372,237    -    372,237    6,530,511    -    6,530,511    5,224,135    -    5,224,135    277,480    333,253    7,144,322    5,929,625 
Financial expenses   (35,133)   -    (35,133)   (56,765)   -    (56,765)   (6,325,118)   -    (6,325,118)   (4,996,828)   -    (4,996,828)   (153,110)   (185,866)   (6,513,361)   (5,239,459)
Operating income from insurance, pension plan and capitalization operations   1,970,791    364,477    2,335,268    2,344,236    (167,182)   2,177,054    132,813    83    132,896    35,199    -    35,199    521,851    502,156    2,990,015    2,714,409 
Premiums and contributions   6,921,474    (1,159,148)   5,762,326    6,355,239    (988,917)   5,366,322    17,826,100    (7,039)   17,819,061    11,802,283    -    11,802,283    2,045,436    1,891,485    25,626,823    19,060,090 
Changes in technical provisions   (467,860)   172,125    (295,735)   (764,051)   148,327    (615,724)   (17,660,880)   -    (17,660,880)   (11,748,552)   -    (11,748,552)   (4,827)   610    (17,961,442)   (12,363,666)
Expenses for claims, benefits, redemptions and raffles   (3,323,434)   1,288,170    (2,035,264)   (2,120,067)   607,794    (1,512,273)   (25,069)   4,420    (20,649)   (17,661)   -    (17,661)   (1,539,883)   (1,400,081)   (3,595,796)   (2,930,015)
Selling expenses   (1,099,926)   63,330    (1,036,596)   (1,047,290)   65,614    (981,676)   (3,002)   -    (3,002)   (2,246)   -    (2,246)   (783)   (4,624)   (1,040,381)   (988,546)
Other operating revenues and expenses   (59,463)   -    (59,463)   (79,595)   -    (79,595)   (4,336)   2,702    (1,634)   1,375    -    1,375    21,908    14,766    (39,189)   (63,454)
Total result from insurance, pension plan and capitalization operations   2,271,989    364,477    2,636,466    2,659,708    (167,182)   2,492,526    338,206    83    338,289    262,506    -    262,506    646,221    649,543    3,620,976    3,404,575 

 

 
4.51

 

NOTE 12 - CONTINGENT ASSETS AND LIABILITIES AND LEGAL LIABILITIES – TAX AND SOCIAL SECURITY

 

In the ordinary course of its businesses, ITAÚ UNIBANCO HOLDING CONSOLIDATED is involved in contingencies that may be classified as follows.

 

a) Contingent Assets: there are no contingent assets recorded.

 

b) Provisions and Contingencies: The criteria to quantify contingencies are adequate in relation to the specific characteristics of civil, labor and tax lawsuits portfolios, as well as other risks.

 

-Civil lawsuits:

 

Collective lawsuits (related to claims considered similar and which each individual amount is not considered significant): contingencies are determined on a monthly basis and the expected amount of losses is accrued according to statistical references that take into account the type of lawsuit and the characteristics of the legal body (Small Claims Court or Regular Court).

 

Individual lawsuits (related to claims with unusual characteristics or involving significant amounts): determined from time to time, based on the amount claimed and the likelihood of loss, which, in turn, is estimated according to the “de facto” and “de jure” characteristics related to such lawsuit. The amounts of losses which likelihood of loss is considered probable are accrued.

 

Contingencies usually arise from revision of contracts and compensation for property damage and pain and suffering; most of these lawsuits are filed in the Small Claims Court and therefore limited to 40 minimum monthly wages. ITAÚ UNIBANCO CONSOLIDATED is also party to specific lawsuits over the charging of understated inflation adjustment to savings accounts in connection with economic plans.

 

The case law at the Federal Supreme Court is favorable to banks in relation to an economic phenomenon similar to savings, as in the case of adjustment to time deposits and contracts in general. Additionally, the Superior Court of Justice has decided that the term for filing public civil actions over understated inflation is five years. In view of such decision, some of the lawsuits may be dismissed because they were filed after the five-year period.

 

In the accounting books no amount is recognized in relation to Civil Lawsuits which likelihood of loss is considered possible, which total estimated risk is R$ 1,659,612 (R$ 602,601 at December 31, 2011) and main natures of these lawsuits refer to claims form compensation or collections, the individual amounts of which are not significant.

 

-Labor claims

 

Collective lawsuits (related to claims considered similar and which each individual amount is not considered significant): The expected amount of loss is determined and accrued monthly according to the statistical share pricing model, plus the average cost of fees. These are adjusted to the amounts deposited as guarantee for their execution when realized.

 

Individual lawsuits (related to claims with unusual characteristics or involving significant amounts): determined from time to time, based on the amount claimed and the likelihood of loss, which, in turn, is estimated according to the “de facto” and “de jure” characteristics related to such lawsuit. The amounts of losses which likelihood of loss is considered probable are accrued.

 

Contingencies are related to lawsuits in which alleged labor rights based on labor legislation specific to the related profession, such as overtime, salary equalization, reinstatement, transfer allowance, pension plan supplement and other, are discussed;

 

There are no labor claims falling under the category of possible loss.

 

-Other Risks

 

These are quantified and accrued mainly based on the evaluation of rural credit transactions with joint liability and FCVS (salary variations compensation fund) credits assigned to Banco Nacional.

 

 
4.52

 

The table below shows the changes in the respective provisions for contingent liabilities and the respective escrow deposits balances:

 

   01/01 to 12/31/2012   01/01 to
12/31/2011		 
   Civil   Labor   Other   Total   Total 
Opening balance   3,165,594    4,013,915    165,303    7,344,812    7,132,647 
(-) Contingencies guaranteed by indemnity clauses (Note 4n I)   (136,688)   (929,875)   -    (1,066,563)   (1,421,626)
Subtotal   3,028,906    3,084,040    165,303    6,278,249    5,711,021 
Restatement/Charges   146,197    126,470    -    272,667    223,524 
Changes in the period reflected in results (Notes 13f and 13i)   2,182,766    1,609,390    27,000    3,819,156    2,279,285 
Increase (*)   3,159,505    1,671,731    28,841    4,860,077    2,972,912 
Reversal   (976,739)   (62,341)   (1,841)   (1,040,921)   (693,627)
Payment   (1,744,457)   (915,891)   -    (2,660,348)   (1,935,581)
Subtotal   3,613,412    3,904,009    192,303    7,709,724    6,278,249 
(+) Contingencies guaranteed by indemnity clauses (Note 4n I)   118,176    948,237    -    1,066,413    1,066,563 
Closing balance (Note 13c)   3,731,588    4,852,246    192,303    8,776,137    7,344,812 
Closing balance at 12/31/2011 (Note 13c)   3,165,594    4,013,915    165,303    7,344,812      
Escrow deposits at 12/31/2012 (Note 13a)   2,048,348    2,470,624    -    4,518,972      
Escrow deposits at 12/31/2011 (Note 13a)   2,022,939    2,409,270    -    4,432,209      

(*) Civil provisions include the provision for economic plans amounting to R$ 525,729 (R$ 431,068 from January 1 to December 31, 2011) (Note 22k).

 

 
4.53

 

 

-Tax and social security lawsuits

 

Contingencies are equivalent to the principal amount of taxes involved in tax, administrative or judicial challenges, subject to tax assessment notices, plus interest and, when applicable, fines and charges. The amount is accrued when it involves legal obligation, regardless of the likelihood of loss, that is, a favorable outcome to the institution is dependent upon the recognition of the unconstitutionality of the applicable law in force. In other cases, the Bank recognizes a provision whenever the likelihood of loss is probable.

 

The table below shows the changes in the provisions and respective escrow deposits for Tax and Social Security lawsuits balances:

 

   01/01 to 12/31/2012   01/01 to
12/31/2011		 
Provisions  Legal
obligation		   Contingencies   Total   Total 
Opening balance   6,273,013    2,371,539    8,644,552    7,323,656 
(-) Contingencies guaranteed by indemnity clauses   -    (57,438)   (57,438)   (44,474)
Subtotal   6,273,013    2,314,101    8,587,114    7,279,182 
Restatement/Charges   606,029    299,489    905,518    547,947 
Changes in the period reflected in results   744,615    228,928    973,543    917,464 
Increase   755,199    460,219    1,215,418    1,046,485 
Reversal   (10,584)   (231,291)   (241,875)   (129,021)
Payment   (11,043)   (83,406)   (94,449)   (157,479)
Subtotal   7,612,614    2,759,112    10,371,726    8,587,114 
(+) Contingencies guaranteed by indemnity clauses   -    61,199    61,199    57,438 
Closing balance (Note 13c and 14c)   7,612,614    2,820,311    10,432,925    8,644,552 
Closing balance at 12/31/2011 (Notes 13c and 14c)   6,273,013    2,371,539    8,644,552      

 

 
4.54

 

   01/01 to 12/31/2012   01/01 to
12/31/2011		 
Escrow deposits  Legal
obligation		   Contingencies   Total   Total 
Opening balance   3,979,486    1,198,827    5,178,313    4,676,128 
Appropriation of income   248,737    53,706    302,443    364,972 
Changes in the period   (32,094)   6,375    (25,719)   137,213 
Deposited   220,110    18,866    238,976    265,458 
Withdrawals   (234,415)   (11,794)   (246,209)   (114,515)
Conversion into income   (17,789)   (697)   (18,486)   (13,730)
Closing balance   4,196,129    1,258,908    5,455,037    5,178,313 
Relocated to assets pledged in guarantee of contingencies (Note 12d)   -    (898,198)   (898,198)   - 
Closing balance after relocated (Note 13a)   4,196,129    360,710    4,556,839    5,178,313 
Closing balance at 12/31/2011 (Note 13a)   3,979,486    1,198,827    5,178,313      

 

 
4.55

 

The main discussions related to Legal Obligations are described as follows:

 

·PIS and COFINS – Calculation basis – R$ 3,493,249: we defend the levy of contributions on revenue, understood as the revenue from sales of assets and services. The escrow deposit balance totals R$ 938,458.

 

·CSLL – Isonomy – R$ 1,974,055: as the law increased the CSLL rate for financial and insurance companies to 15%, we discuss the lack of constitutional support for this measure and, due to the principle of isonomy, we defend the levy at the regular rate of 9%. The escrow deposit balance totals R$ 378,652.

 

·IRPJ and CSLL –Taxation of profits earned abroad – R$ 515,616: We discuss the calculation basis for levy of these taxes on profits earned abroad and the non-applicability of Regulatory Instruction SRF No. 213-02 in which it exceeds the suitability of the legal text. The escrow deposit balance totals R$ 475,672.

 

·PIS – Principles of anteriority over 90 days and non-retroactivity - R$ 382,801: we request the rejection of Constitutional Amendments No. 10/96 and 17/97 in view of the principle of anteriority and non-retroactivity, aiming at making payments based on Supplementary Law No. 07/70. The corresponding escrow deposit totals R$ 109,872.

 

 
4.56

 

Off-balance sheet contingencies - The amounts related to Tax and Social Security Lawsuits considered to be as possible loss, which total estimated risk is R$ 8,395,270, are the following:

 

·INSS – Non-compensatory amounts – R$ 1,400,633: we defend the non-taxation of these amounts, mainly profit sharing, transportation vouchers and sole bonus.

 

·IRPJ, CSLL, PIS and COFINS – request for offset dismissed - R$ 1,355,310: cases in which the liquidity and the offset credit certainty are discussed.

 

·IRPJ and CSLL - Interest on capital - R$ 902,731: we defend the deductibility of interest on capital declared to stockholders based on the Brazilian long-term interest rate (TJLP) on the stockholders’ equity for the year and for prior years.

 

·IRPJ and CSLL - Losses and discounts on receipt of credits – R$ 454,270: deductibility of effective losses as operating expense – credit assignment and renegotiation.

 

·ISS – Banking Institutions – R$ 391,538: these are banking operations, which revenue may not be interpreted as price per service rendered and/or arises from activities not listed under a Supplementary Law.

 

·IRPJ and CSLL – Goodwill – Deduction – R$ 370.311: deductibility of goodwill on acquisition of investments with future expected profitability.

 

·IRPJ and CSLL – Profit made available abroad R$ 328,973: Application of the Brazilian tax rule (taxable income) – IN 213/2002 and non availability of profit with the simple transfer of capital between the Holding’s investees.

 

 
4.57

 

c)Receivables - Reimbursement of contingencies

 

The Receivables balance arising from reimbursements of contingencies totals R$ 789,838 (R$ 626,309 at 12/31/2011) (Note 13a), basically represented by the guarantee in the Banco Banerj S.A. privatization process occurred in 1997, in which the State of Rio de Janeiro created a fund to guarantee the equity recomposition of Civil, Labor and Tax Contingencies.

 

d)Assets pledged as Contingencies

 

Assets pledged in guarantee for contingencies are related to liability contingencies and restricted or deposited as presented below:

 

   12/31/2012   12/31/2011 
Securities (basically Financial Treasury Bills – Note 7b)   1,525,744    1,511,535 
Deposits in guarantee (Note 13a)   4,040,091    3,232,718 


Escrow deposits are generally required to be made with the court in connection with lawsuits in Brazil and they are held by the court until a decision is made by the relevant court. In case of a decision against ITAÚ UNIBANCO HOLDING, the deposited amount is released from escrow and transferred to the counterparty in the lawsuit. In case of a decision in favor of ITAÚ UNIBANCO HOLDING, the deposited amount is released at the full amount deposited updated.

 

In general, provisions related to lawsuits of ITAÚ UNIBANCO HOLDING are long term, considering the time required for the termination of these lawsuits in the Brazilian judicial system, reason why estimate for specific year in which these lawsuits will be terminated have not been disclosed.

 

According to the opinion of its legal advisors, ITAÚ UNIBANCO HOLDING and its subsidiaries are not involved in any other administrative or judicial proceedings that may significantly impact the results of their operations. The combined evaluation of all existing provisions for all contingent liabilities and legal obligations, which are recognized based on statistical models for claims involving small amounts and on individual evaluation by internal and external legal advisors of other cases, showed that the accrued amounts are sufficient, as provided for by CMN Resolution No. 3,823, of December 16, 2009, and BACEN Circular Letter No. 3,429, of February 11, 2010.

 

 
4.58

 

NOTE 13 - BREAKDOWN OF ACCOUNTS

a) Other sundry receivables

 

   12/31/2012   12/31/2011 
Deferred tax assets (Note 14b I)   35,507,358    28,282,922 
Social contribution for offset (Note 14b I)   658,941    714,602 
Taxes and contributions for offset   4,165,570    3,411,936 
Escrow deposits for legal liabilities and tax and social security contingencies (Note 12b)   8,596,930    8,411,031 
Escrow deposits for legal liabilities – civil and labor (Note 12b)   4,518,972    4,432,209 
Escrow deposits for foreign fund raising program   722,182    573,465 
Receivables from reimbursement of contingent liabilities (Note 12c)   789,838    626,309 
Sundry domestic debtors   1,344,638    861,292 
Sundry foreign debtors   349,334    113,142 
Retirement plan assets (Note 19)   2,814,860    1,785,427 
Recoverable payments   37,734    34,076 
Salary advances   50,462    47,072 
Amounts receivable from related companies   16,497    16,088 
Operations without credit granting characteristics   307,279    344,913 
Securities and credits receivable   618,550    654,913 
(Allowance for loan losses)   (311,271)   (310,000)
Other   653,735    139,561 
Total   60,534,330    49,794,045 

 

At ITAÚ UNIBANCO HOLDING, Other Sundry Receivables are basically composed of Taxes and Contributions for Offset of R$ 307,170 (R$ 291,271 at 12/31/2011) and Deferred Tax Assets of R$ 463,739 (R$ 332,572 at 12/31/2011) (Note 14b I).

 

 
4.59

 

b) Prepaid expenses

 

   12/31/2012   12/31/2011 
Commissions   3,228,906    3,283,177 
Related to vehicle financing   847,381    1,047,336 
Related to insurance and pension plan   1,383,444    1,340,063 
Restricted to commissions/partnership agreements   695,682    571,863 
Other   302,399    323,915 
Brazilian deposit guarantee fund (*)   152,352    339,536 
Advertising   606,611    490,593 
Other   348,762    200,782 
Total   4,336,631    4,314,088 

 

(*) Refers to spontaneous payment, equivalent to the prepayment of installments of the contribution to the Brazilian deposit guarantee fund (Fundo Garantidor de Crédito - FGC), according to BACEN Circular No. 3,416, of 10/24/2008.

 

 
4.60

 

c) Other sundry liabilities

 

   12/31/2012   12/31/2011 
Provisions for contingent liabilities (Note 12b)   11,596,448    9,716,351 
Provisions for sundry payments   2,031,660    2,122,805 
Personnel provision   1,225,351    1,113,025 
Sundry creditors - local   1,924,802    1,312,455 
Sundry creditors - foreign   1,295,659    617,854 
Liabilities for official agreements and rendering of payment services   370,051    1,506,856 
Related to insurance operations   922,026    914,384 
Liabilities for purchase of assets and rights   3,281    217,638 
Creditors of funds to be released   1,220,021    1,100,942 
Funds from consortia participants   85,542    80,819 
Provision for Retirement Plan Benefits (Note 19)   606,287    365,526 
Provision for health insurance (*)   634,591    622,930 
Expenses for lease interests (Note 4i)   248,041    338,989 
Other   525,498    457,939 
Total   22,689,258    20,488,513 

 

  (*) Provision set up to cover possible future deficits up to the total discontinuance of the portfolio, arising from the difference of adjustments to monthly installments, authorized annually by the regulatory body, and the actual variation of hospital costs that affect the compensation of claims (Note 13i).

 

 
4.61

 

d) Banking service fees

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Asset management   3,083,627    2,607,734 
Funds management fees   2,865,221    2,505,919 
Consortia management fee   218,406    101,815 
Current account services   670,076    675,646 
Credit cards   6,157,299    6,111,133 
Relationship with stores   5,959,586    5,693,572 
Credit card processing   197,713    417,561 
Sureties and credits granted   1,594,746    1,761,944 
Loan operations   732,137    1,028,504 
Guarantees provided   862,609    733,440 
Receipt services   1,439,626    1,332,789 
Collection fees   1,175,883    1,053,162 
Collection services   263,743    279,627 
Other   1,542,852    1,423,080 
Custody services and management of portfolio   234,601    214,307 
Economic and financial advisory   442,022    352,873 
Foreign exchange services   103,054    83,117 
Other services   763,175    772,783 
Total   14,488,226    13,912,326 

 

 
4.62

 

e) Income from bank charges

 

   01/01 to 12/31/2012   01/01 to 12/31/2011 
Loan operations/registration   1,012,281    1,526,972 
Credit cards – annual fees and other services (*)   1,814,318    1,385,556 
Deposit account   145,751    147,546 
Transfer of funds   157,700    132,721 
Income from securities brokerage (*)   357,947    422,249 
Service package fees and other   2,337,113    1,520,327 
Total   5,825,110    5,135,371 

 

(*) In compliance with BACEN Circular Letter No. 3,490.

 
4.63

 

f) Personnel expenses

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Compensation   (5,989,635)   (5,960,020)
Charges   (2,108,408)   (2,035,402)
Welfare benefits (Note 19)   (1,053,179)   (1,607,445)
Training   (241,538)   (258,437)
Labor claims and termination of employees (Note 12b)   (2,071,351)   (1,181,516)
Stock Option Plan   (176,749)   (162,663)
Total   (11,640,860)   (11,205,483)
Employees’ profit sharing   (2,385,664)   (2,150,555)
Total with Employees’ profit sharing   (14,026,524)   (13,356,038)

 

g) Other administrative expenses

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Data processing and telecommunications   (3,524,268)   (3,494,837)
Depreciation and amortization   (1,653,696)   (1,419,141)
Installations   (2,227,686)   (2,348,513)
Third-party services   (3,301,855)   (3,265,955)
Financial system services   (489,359)   (415,978)
Advertising, promotions and publication   (926,005)   (956,725)
Transportation   (499,697)   (583,074)
Materials   (385,785)   (459,891)
Security   (510,974)   (482,164)
Travel expenses   (187,722)   (188,915)
Other   (485,195)   (484,554)
Total   (14,192,242)   (14,099,747)

 

 
4.64

 

h) Other operating revenue

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Reversal of operating provisions   30,252    91,766 
Recovery of charges and expenses   66,669    73,743 
Other   181,398    227,019 
Total   278,319    392,528 

 

i) Other operating expenses

 

   01/01 to
12/31/2012		   01/01 to 12/31/2011 
Provision for contingencies (Note 12b)   (2,472,915)   (1,677,868)
Civil lawsuits   (2,182,766)   (1,503,150)
Tax and social security contributions   (263,149)   (182,555)
Other   (27,000)   7,837 
Selling - Credit cards   (1,775,734)   (1,652,723)
Claims   (601,790)   (662,372)
Amortization of goodwill on investments and acquisition   -    - 
Provision for health insurance (Note 13c)   (11,662)   (16,565)
Refund of interbank costs   (236,899)   (212,371)
Other   (958,643)   (969,727)
Total   (6,057,643)   (5,191,626)

 

j)Non operating income – Basically composed of the result of the full disposal of investment in Banco BPI S.A. in the amount of R$ (302,921) and full disposal of investment in Serasa S.A. in the amount of R$ 1,542,329.

 

 
4.65

 

NOTE 14 - TAXES    

 

a) Composition of expenses for taxes and contributions

 

  I - Statement of calculation with Income Tax and Social Contribution:

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Income before income tax and social contribution   17,530,924    18,445,447 
Charges (income tax and social contribution) at the rates in effect (Note 4o)   (7,012,370)   (7,378,179)
           
Increase/decrease to income tax and social contribution charges arising from:          
Investments in affiliates   93,287    58,204 
Foreign exchange variation on investments abroad   616,865    1,096,927 
Interest on capital   1,788,672    1,662,326 
Dividends and interest on external debt bonds   188,455    280,055 
Other nondeductible expenses net of non taxable income   363,201    1,033,380 
Deferred tax asset recognized from prior periods (*)   737,924    391,859 
Total income tax and social contribution   (3,223,966)   (2,855,428)

 

(*) Recognition of the Deferred Tax Assets for increase in Social Contribution rate introduced by Law No. 11,727/08.

 

  II - Composition of tax expenses:

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
PIS and COFINS   (3,436,168)   (3,103,082)
ISS   (676,201)   (640,970)
Other   (373,022)   (347,926)
Total (Note 4o)   (4,485,391)   (4,091,978)

 

At ITAÚ UNIBANCO HOLDING tax expenses are basically composed of PIS and COFINS in the amount of R$ 201,843 (R$ 185,652 from 01/01 to 12/31/2011).

 

 
4.66

 

III-Tax effects on foreign exchange management of investments abroad

 

In order to minimize the effects on income in connection with the foreign exchange variation on investments abroad, net of respective tax effects, ITAÚ UNIBANCO HOLDING carries out derivative transactions in foreign currency (hedge), as mentioned in Note 22b.

 

Results of these transactions are considered in the calculation base of income tax and social contribution, according to their nature, while the foreign exchange variation on investments abroad is not included therein, pursuant to tax legislation in force.

 

 
4.67

 

b) Deferred taxes

 

  I - The deferred tax asset balance and its changes, segregated based on its origin and disbursements incurred, are represented as follows:

 

   PROVISIONS   DEFERRED TAX ASSETS 
   12/31/2011   12/31/2012   12/31/2011   Realization /
Reversal		   Increase   12/31/2012 
Reflected in income and expense accounts             28,159,487    (11,008,494)   14,417,071    31,568,064 
Related to income tax and social contribution loss carryforwards             4,203,850    (1,480,107)   1,220,119    3,943,862 
Related to disbursed provisions             15,837,257    (6,704,179)   9,000,223    18,133,301 
Allowance for loan losses             11,490,145    (4,837,209)   8,310,267    14,963,203 
Adjustment to market value of securities and derivative financial instruments (assets/liabilities)             527,127    (527,127)   277,873    277,873 
Allowance for real estate             75,130    (12,996)   -    62,134 
Goodwill on purchase of investments             3,602,265    (1,286,434)   379,910    2,695,741 
Other             142,590    (40,413)   32,173    134,350 
Related to non-disbursed provisions (*)   22,212,855    25,573,536    8,118,380    (2,824,208)   4,196,729    9,490,901 
Related to the operation   17,154,440    20,515,121    6,398,519    (2,824,208)   3,893,225    7,467,536 
Legal liabilities – tax and social security   2,583,708    3,187,027    1,319,269    (3,950)   329,945    1,645,264 
Provision for contingent liabilities   7,220,399    9,299,309    2,863,876    (1,584,403)   2,211,394    3,490,867 
Civil lawsuits   2,996,792    3,597,303    1,184,829    (632,731)   869,505    1,421,603 
Labor claims   2,607,421    3,237,304    984,208    (843,772)   1,088,693    1,229,129 
Tax and social security contributions   1,565,401    2,416,175    675,302    (106,997)   253,196    821,500 
Other   50,785    48,527    19,537    (903)   -    18,634 
Adjustments of operations carried out in futures settlement market   30,051    25,119    11,618    (4,380)   1,745    8,983 
Provision related to health insurance operations   622,930    634,591    249,172    -    4,665    253,837 
Other non-deductible provisions   6,697,352    7,369,075    1,954,584    (1,231,475)   1,345,475    2,068,584 
                               
Related to provisions exceeding the minimum required not disbursed – allowance for loan losses   5,058,415    5,058,415    1,719,861    -    303,504    2,023,365 
                               
Reflected in stockholders’ equity accounts                              
Purchase of additional interest from minority stockholders – Redecard (Note 2c)   -    11,150,836    -    -    3,791,284    3,791,284 
Adjustment to market value of available-for-sale securities (Note 2b)   345,745    370,027    123,435    (434)   25,009    148,010 
Total     22,558,600    37,094,399    28,282,922    (11,008,928)   18,233,364    35,507,358 
Social contribution for offset arising from Option established in article 8 of Provisional Measure No. 2,158-35 of 08/24/2001             714,602    (55,661)   -    658,941 

 

  (*) From a financial point of view, rather than recording the provision of R$ 25,573,536 (R$ 22,212,855 at 12/31/2011) and deferred tax assets of R$ 9,490,901 (R$ 8,118,380 at 12/31/2011), only the net provisions of the corresponding tax effects should be considered, which would reduce the total deferred tax assets from R$ 35,507,358 (R$ 28,282,922 at 12/31/2011) to R$ 26,016,457 (R$ 20,164,542 at 12/31/2011).

 

At ITAÚ UNIBANCO HOLDING, the deferred tax assets totaled R$ 463,739 (R$ 332,572 at 12/31/2011) and are basically represented by legal liabilities – tax and social security of R$ 436,487 (R$ 300,674 at 12/31/2011), which expected realization is dependent upon the progress of the lawsuit, and tax loss of R$ 25,062 (R$ 37,636 at 12/31/2011).

 

 
4.68

 

II - Provision for Deferred Income Tax and Social Contribution balance and its changes are shown as follows:

 

   12/31/2011   Realization /
Reversal		   Increase   12/31/2012 
Reflected in income and expense accounts   9,583,023    (3,191,602)   1,601,607    7,993,028 
Depreciation in excess – leasing   7,560,086    (2,785,202)   677,645    5,452,529 
Restatement of escrow deposits and contingent liabilities   935,240    (224,555)   334,017    1,044,702 
Provision for Pension Plan Benefits   593,803    -    321,449    915,252 
Adjustment to market value of securities and derivative financial instruments   178,124    (178,124)   186,037    186,037 
Adjustments of operations carried out in future settlement market   101,510    (1,735)   17,143    116,918 
Taxation of results abroad – capital gains   63,451    -    32,975    96,426 
Other   150,809    (1,986)   32,341    181,164 
Reflected in stockholders’ equity accounts – adjustment to market value of available-for-sale securities (Note 2b)   295,897    (70,904)   917,828    1,142,821 
Total   9,878,920    (3,262,506)   2,519,435    9,135,849 

 

  At ITAÚ UNIBANCO HOLDING, the Provision for deferred income tax and social contribution totals R$ 3,772 (R$ 3,896 at 12/31/2011), basically represented by Restatement of escrow deposits and contingent liabilities.

 

 
4.69

 

III - The estimate of realization and present value of deferred tax assets and social contribution for offset, arising from Provisional Measure No. 2,158-35 of August 24, 2001 and from the Provision for Deferred Income Tax and Social Contribution existing at December 31, 2012, in accordance with the expected generation of future taxable income, based on the history of profitability and technical feasibility studies, are:

 

   Deferred tax assets           Provision for
deferred 		             
   Temporary
differences		   %   Tax loss/social
contribution loss
carryforwards		   %   Total   %   Social
contribution for
offset		   %   income tax
and social
contribution		   %   Net deferred
taxes		   % 
2013   11,988,147    38%   570,292    14%   12,558,439    35%   9,552    1%   (1,931,297)   21%   10,636,694    39%
2014   4,377,942    14%   573,570    15%   4,951,512    14%   56,299    9%   (1,595,030)   17%   3,412,781    13%
2015   6,085,347    19%   405,270    10%   6,490,617    18%   62,873    10%   (2,142,382)   23%   4,411,108    16%
2016   3,107,937    10%   1,163,212    29%   4,271,149    12%   237,820    36%   (989,183)   11%   3,519,786    13%
2017   2,104,049    7%   1,133,068    29%   3,237,117    9%   290,365    44%   (620,246)   7%   2,907,236    11%
after 2017   3,900,074    12%   98,450    3%   3,998,524    12%   2,032    0%   (1,857,711)   21%   2,142,845    8%
Total   31,563,496    100%   3,943,862    100%   35,507,358    100%   658,941    100%   (9,135,849)   100%   27,030,450    100%
Present value (*)   28,438,552         3,505,199         31,943,751         572,306         (8,022,501)        24,493,556      

 

  (*) The average funding rate, net of tax effects, was used to determine the present value.  

 

The projections of future taxable income include estimates related to macroeconomic variables, exchange rates, interest rates, volume of financial operations and services fees and others which can vary in relation to actual data and amounts.

 

Net income in the financial statements is not directly related to taxable income for income tax and social contribution, due to differences existing between accounting criteria and tax legislation, besides corporate aspects. Accordingly, we recommend that the trend of the realization of deferred tax assets arising from temporary differences, income tax and social contribution loss carryforwards be not used as an indication of future net income.

 

IV-In view of the unconstitutionality lawsuit related to the increase in the social contribution rate, established by Articles 17 and 41 of Law No. 11,727 of June 24, 2008, filed on June 26, 2008 by the National Confederation of the Financial System (CONSIF), at 12/31/2011 deferred tax assets were recorded up to the amount added to the Tax Liabilities, while the amount of R$ 991,823 at 12/31/2011. At 12/31/2012 there are none deferred tax assets unrecorded.

 

 
4.70

 

c) Tax and social security contributions

 

   12/31/2012   12/31/2011 
Taxes and contributions on income payable   3,352,981    2,654,966 
Taxes and contributions payable   1,510,310    1,217,207 
Provision for deferred income tax and social contribution (Note 14b II)   9,135,849    9,878,920 
Legal liabilities – tax and social security (Note 12b)   7,612,614    6,273,013 
Total   21,611,754    20,024,106 

 

At ITAÚ UNIBANCO HOLDING, the balance of Tax and Social Security Contributions totals R$ 1,081,336 (R$ 821,107 at 12/31/2011) and is basically comprised of Legal Liabilities - Tax and Social Security of R$ 1,077,049 (R$ 816,213 at 12/31/2011), whose nature refers to PIS and COFINS – Revenue x Gross Revenue. We request either the levy of taxes only on the revenue understood as income from sale of assets and services or the levy of PIS Repique (calculated on income tax payable) (at 5% of income tax due), in lieu of the levy on total revenues recorded, by alleging the unconstitutionality of paragraph 1 of article 3 of Law No. 9,718/98.

 

 
4.71

 

d) Taxes paid or provided for and withheld from third parties

 

The amount of taxes paid or provided for is basically levied on income, revenue and payroll. In relation to the amounts withheld and collected from third parties, the Company takes into consideration the interest on capital and on the service provision, in addition to that levied on financial operation.

 

   12/31/2012   12/31/2011 
Taxes paid or provided for   16,146,723    14,542,246 
Taxes withheld and collected from third parties   11,940,043    12,071,088 
Total   28,086,766    26,613,334 

 

 
4.72

 

NOTE 15 – PERMANENT ASSETS

 

a) Investments

 

  I - Change of investments

 

Companies     Balances at 12/31/2011   Amortization of
goodwill		   Subscriptions /
Acquisitions / Sales		   Dividends
paid/provided for (1)		   Equity in earnings of
subsidiaries (2)		   Adjustments in
marketable securities
of subsidiaries and
Other		   Balances at
12/31/2012		   Equity in earnings of
subsidiaries from
01/01 to 12/31/2011		 
Domestic       53,724,893    (6,336)   (42)   (9,190,109)   8,506,329    1,648,344    54,683,079    9,819,233 
Itaú Unibanco S.A.   (3 a)(4a)
(5a)(6a)		   45,004,168    (6,336)   -    (5,178,886)   3,829,953    1,409,918    45,058,817    5,845,294 
Banco Itaú BBA S.A.   (5b)   6,768,322    -    -    (1,975,160)   1,204,884    237,545    6,235,591    1,970,623 
Banco Itaucard S.A.   (4b)
(5c)(7)		   1,211,086    -    -    (1,928,386)   3,179,666    875    2,463,241    1,336,358 
Itaú Corretora de Valores S. A.   (7)   693,193    -    -    (102,204)   288,326    6    879,321    313,303 
Itaú-BBA Participações S.A.       48,124    -    -    (5,473)   3,456    -    46,107    266,001 
Redecard S.A.   (8)   -    -    (44)   -    44    -    -    - 
Itauseg Participações S.A.   (9)   -    -    -    -    -    -    -    87,654 
Previtec - Previdência e Tecnologia Ltda   (10)   -    -    2    -    -    -    2    - 
Foreign        2,583,601    (51,409)   510,553    (24,198)   534,379    (4,559)   3,548,367    473,797 
Itaú Chile Holding, INC.   (3b)   2,175,208    (45,242)   510,553    -    347,790    (5,667)   2,982,642    372,167 
Banco Itaú Uruguay S.A.   (3c(6b)   269,922    (4,712)   -    -    124,303    1,108    390,621    48,792 
OCA S.A.   (3d)   98,484    (1,252)   -    (24,198)   54,623    -    127,657    47,116 
OCA Casa Financiera S.A.   (3e)   37,343    (182)   -    -    7,208    -    44,369    5,357 
ACO Ltda.   (3f)   2,644    (21)   -    -    455    -    3,078    365 
GRAND TOTAL       56,308,494    (57,745)   510,511    (9,214,307)   9,040,708    1,643,785    58,231,446    10,293,030 

 

(1) Dividends approved and not paid are recorded as Dividends receivable;

(2) At December 31, 2012, includes foreign exchange variation in the amount of R$ 241,188;

(3) At December 31, 2012, includes goodwill in the amounts of (a) R$ 36,958; (b) R$ 180,966, (c) R$ 18,848; (d) R$ 5,009; (e) R$ 727; (f) R$ 85;

(4) At December 31, 2012, includes Adjustments of unrealized results in the results of operations and in investments, respectively, in the amounts of: (a) R$ (649,168) and R$ (655,613); (b) R$ 28,724 and R$ (24,584);

(5) At September 30, 2012, includes adjustments to standardize procedures under the scope of the investor in the results of operations and investments, respectively, in the amounts of: (a) R$ (17,983) and R$ (20,474); (b) R$ 15,876 and R$ (47,593); and (c) R$ (142,138) and R$ (29);

(6) At September 30, 2012, equity in earnings of subsidiaries reflects equity in other variations of the stockholders’ equity of the subsidiary in the amount of: (a) R$ 1,584 and (b) R$ (4);

(7) The investment and the equity in earnings reflect the different interest in preferred shares, profit sharing and dividends;

(8) Investment purchased on August 31, 2012 from Banco Itaucard S.A. and sold to Banestado Participações Administração e Serviços Ltda. on September 27, 2012;

(9) Investment sold to Banco Itaucard S.A. on April 11, 2011;

(10) Investment sold at November 23, 2012.

 

               Number of shares/quotas owned by
ITAÚ UNIBANCO		   Equity share   Equity share in 
Companies  Capital   Stockholders’ equity   Net income
for the period		   Common   Preferred   Quotas  in
voting capital (%)		  capital
(%)		 
Domestic                                        
Itaú Unibanco S.A.   39,676,320    45,697,946    4,495,520    2,081,169,523    2,014,258,290    -    100.00    100.00 
Banco Itaú BBA S.A.   4,224,086    6,283,184    1,189,008    5,284,526    5,284,526    -    99.99    99.99 
Banco Itaucard S.A.   15,553,776    18,897,594    3,641,836    3,592,433,657    1,277,933,118    -    1.51    2.04 
Itaú Corretora de Valores S. A.   1,046,841    2,069,882    319,132    -    811,503    -    -    1.94 
Itaú-BBA Participações S.A.   25,196    46,107    3,456    12,953    25,906    -    100.00    100.00 
Previtec - Previdência e Tecnologia Ltda   306,880    326,862    3,370    -    -    22    0.01    0.01 
                                         
Foreign                                        
Itaú Chile Holding, INC.   2,447,539    2,801,676    167,610    100    -    -    100.00    100.00 
Banco Itaú Uruguay S.A.   175,911    371,773    82,012    1,639,430,739    -    -    100.00    100.00 
OCA S.A.   16,118    122,648    41,319    1,502,176,740    -    -    100.00    100.00 
OCA Casa Financiera S.A.   20,801    43,642    2,146    646    -    -    100.00    100.00 
ACO Ltda.   14    3,015    109    -    -    131    99.24    99.24 

 

 
4.73

 

 

 

II - Composition of investments

 

   12/31/2012   12/31/2011 
Investment in affiliates   2,144,095    1,684,423 
Domestic   2,143,208    1,464,935 
Serasa S.A.   -    271,636 
Porto Seguro Itaú Unibanco Participações S.A. (1)   1,248,446    1,155,677 
Tecnologia Bancária S.A.(1)   48,152    37,534 
BSF Holding S.A . (Note 2a)   846,534    - 
Other   76    88 
Foreign   887    219,488 
Banco BPI, S.A. (BPI) (Note 13j)   -    218,763 
Other   887    725 
Other investments   1,080,893    1,235,566 
Investments through tax incentives   171,615    166,946 
Equity securities   12,854    11,800 
Shares and quotas   235,937    310,735 
Interest in Instituto de Resseguros do Brasil - IRB   227,170    227,170 
Other   433,317    518,915 
(Allowance for loan losses)   (268,515)   (203,348)
Total   2,956,473    2,716,641 

(1) For the purpose of accounting for participation in earnings, the position at 11/30/2012 was used, as provided in Circular Letter nº 1,963 of 05/23/1991, of BACEN;

 

III -  Equity in earnings of affiliates and other investments

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Investment in affiliates – Domestic   332,130    275,875 
Investment in affiliates – Foreign (Note 15a II)   (101,660)   (342,744)
Dividends received from other investments   97,335    119,363 
Other   7,570    (12,997)
Total   335,375    39,497 

 

 
4.74

 

b) Fixed assets, goodwill and intangible assets

 

I) Fixed assets

 

           CHANGES     
   Annual
depreciation/
amortization
rates (%)		   Balance at
12/31/2011		   Acquisitions   Depreciation
and
amortization
expenses		   Disposals   Exchange
variation		   Other   Balance at
12/31/2012		 
REAL ESTATE IN USE (1)                                        
REAL ESTATE IN USE (2)(3)        1,869,778    278,438    (78,428)   (181,399)   4,034    (68,707)   1,823,716 
Land        1,113,371    53,028    -    (171,857)   1,457    (36,839)   959,160 
Buildings        756,407    225,410    (78,428)   (9,542)   2,577    (31,868)   864,556 
Cost        2,339,809    225,410    -    (15,267)   3,474    (81,576)   2,471,850 
Accumulated depreciation   4    (1,583,402)   -    (78,428)   5,725    (897)   49,708    (1,607,294)
OTHER FIXED ASSETS (3)        3,417,220    1,634,624    (1,267,877)   (65,138)   25,432    (2,276)   3,741,985 
Improvements        637,610    225,590    (263,426)   -    13,997    25,334    639,105 
Cost        1,238,789    225,590    -    (244,632)   9,921    22,522    1,252,190 
Accumulated depreciation   10    (601,179)   -    (263,426)   244,632    4,076    2,812    (613,085)
Installations        390,904    201,701    (67,889)   (259)   9,754    (20,477)   513,734 
Cost        937,332    201,701    -    (9,992)   6,472    (264,002)   871,511 
Accumulated depreciation   10 to 20    (546,428)   -    (67,889)   9,733    3,282    243,525    (357,777)
Furniture and equipment        487,065    138,863    (76,624)   (23,157)   (9,847)   (13,222)   503,078 
Cost        848,022    138,863    -    (38,327)   (13,467)   (15,471)   919,620 
Accumulated depreciation   10 to 20    (360,957)   -    (76,624)   15,170    3,620    2,249    (416,542)
EDP systems (4)        1,644,858    1,007,609    (800,890)   (38,173)   10,334    2,431    1,826,169 
Cost        4,988,233    1,007,609    -    (504,157)   1,605    (3,227)   5,490,063 
Accumulated depreciation   20 to 50    (3,343,375)   -    (800,890)   465,984    8,729    5,658    (3,663,894)
Other (communication, security and transportation)        256,783    60,861    (59,048)   (3,549)   1,194    3,658    259,899 
Cost        549,504    60,861    -    (7,460)   1,219    3,531    607,655 
Accumulated depreciation   10 to 20    (292,721)   -    (59,048)   3,911    (25)   127    (347,756)
TOTAL REAL ESTATE IN USE        5,286,998    1,913,062    (1,346,305)   (246,537)   29,466    (70,983)   5,565,701 
Cost        12,015,060    1,913,062    -    (991,692)   10,681    (375,062)   12,572,049 
Accumulated depreciation        (6,728,062)   -    (1,346,305)   745,155    18,785    304,079    (7,006,348)

 (1) There are no contractual commitments for purchase of new fixed assets;

(2) Includes amounts pledged in guarantee of voluntary deposits (Nota 12b);

(3) Includes the amount of R$ 2,043 related to attached real estate; fixed assets under construction in the amount of R$ 352,993, consisting of R$ 235,216 in real estate in use; R$ 65,779 in improvements, and R$ 51,998 in equipment;

(4) Includes lease contracts, mainly related to data processing equipment, which are accounted for as finance leases. Pursuant to this method, assets and liabilities are accounted for in the financial statements, and assets are depreciated consistently with the depreciation criteria usually adopted for own assets. These contracts amount to R$ 232,602 at 12/31/2012.

 

 
4.75

 

II) Goodwill

 

           CHANGES     
   Amortization
period		   Balance at
12/31/2011		   Acquisitions   Amortization
expenses		   Exchange
Variation		   Balance at
12/31/2012		 
GOODWILL (Notes 2b and 4j) (*)   10 years    95,691    19,511    (18,248)   4,470    101,424 

 (*) At August 1, 2011, ITAÚ UNIBANCO HOLDING acquired 50% plus 1 share of capital of MCC Securities Inc (Cayman Islands) for R$ 50,748, of which R$ 48,415 for the equity interest and R$ 2,333 for the exclusivity right to act on the sale of MCC Securities business. The transaction gave rise to a goodwill of R$ 52,169 and this interest was proportionally consolidated in the financial statements of ITAÚ UNIBANCO HOLDING.

 

 
4.76

 

III) Intangible assets

 

          CHANGES     
   Annual
depreciation/
amortization
rates (%)		  Balance at
12/31/2011		   Acquisitions   Depreciation
and
amortization
expenses (2)		   Impairment (4)   Disposals   Exchange
variation		   Other   Balance at
12/31/2012		 
INTANGIBLE ASSETS (1)                                           
RIGHTS FOR ACQUISITION OF PAYROLL (3)      751,448    319,607    (368,737)   (3,276)   (638)   -    (201)   698,203 
Cost      1,647,548    319,607    -    (3,276)   (498,583)   -    14,029    1,479,325 
Accumulated amortization  Up to 9   (896,100)   -    (368,737)   -    497,945    -    (14,230)   (781,122)
OTHER INTANGIBLE ASSETS      3,058,364    1,455,266    (479,062)   (3,731)   (185,469)   25,279    20,214    3,890,861 
Association for the promotion and offer of financial products and services      1,280,818    12,000    (134,171)   (3,731)   (24,073)   5,298    3,300    1,139,441 
Cost      1,391,335    12,000    -    (3,731)   (94,673)   5,713    5,220    1,315,864 
Accumulated amortization  Up to 5   (110,517)   -    (134,171)   -    70,600    (415)   (1,920)   (176,423)
Acquisition/Development of software      1,338,634    1,443,266    (267,030)   -    (161,391)   9,138    16,914    2,379,531 
Cost      1,871,619    1,443,266    -    -    (355,178)   8,488    80,597    3,048,792 
Accumulated amortization  20   (532,985)   -    (267,030)   -    193,787    650    (63,683)   (669,261)
Goodwill on Acquisition (Note 4k)      24,699    -    (9,211)   -    -    -    -    15,488 
Cost      24,699    -    -    -    -    -    -    24,699 
Accumulated amortization  Up to 6   -    -    (9,211)   -    -    -    -    (9,211)
Other intangible assets      414,213    -    (68,650)   -    (5)   10,843    -    356,401 
Cost      589,133    -    -    -    (726)   21,660    -    610,067 
Accumulated amortization  10 to 20   (174,920)   -    (68,650)   -    721    (10,817)   -    (253,666)
TOTAL INTANGIBLE ASSETS      3,809,812    1,774,873    (847,799)   (7,007)   (186,107)   25,279    20,013    4,589,064 
Cost      5,524,334    1,774,873    -    (7,007)   (949,160)   35,861    99,846    6,478,747 
Accumulated amortization      (1,714,522)   -    (847,799)   -    763,053    (10,582)   (79,833)   (1,889,683)

 (1) There are no contractual commitments for purchase of new intangible assets;

(2) Amortization expenses of the rights for acquisition of payrolls and associations are disclosed in the expenses on financial operations.

(3) Represents the recording of amounts paid for acquisition of rights to provide services of payment of salaries, proceeds, retirement and pension benefits, and similar benefits;

(4) Pursuant to BACEN Resolution No. 3,566, of May 29, 2001 (Note 13i).

 

 
4.77

 

NOTE 16 – STOCKHOLDERS’ EQUITY

 

a)Shares

 

Capital comprises 4,570,936,100 book-entry shares with no par value, of which 2,289,286,400 are common and 2,281,649,700 are preferred shares without voting rights, but with tag-along rights, in the event of the public offer of common shares, at a price equal to 80% of the amount paid per share with voting rights in the controlling stake, as well as a dividend at least equal to that of the common shares. Capital stock amounts to R$ 45,000,000 (R$ 45,000,000 at 12/31/2011), of which R$ 31,159,313 (R$ 31,551.752 at 12/31/2011) refers to stockholders domiciled in the country and R$ 13,840,687 (R$ 13,448,248 at 12/31/2011) refers to stockholders domiciled abroad.

 

The table below shows the change in shares of capital stock and treasury shares during the period:

 

   NUMBER     
   Common   Preferred   Total   Amount 
Residents in Brazil at 12/31/2010   2,286,135,621    918,287,035    3,204,422,656      
Residents abroad at 12/31/2010   3,150,854    1,363,362,709    1,366,513,563      
Shares of capital stock at 12/31/2010   2,289,286,475    2,281,649,744    4,570,936,219      
Cancellation of Shares – ESM of 04/25/2011 – Approved at 08/22/2011   (75)   (44)   (119)     
Shares of capital stock at 12/31/2011 and 12/31/2012   2,289,286,400    2,281,649,700    4,570,936,100      
Residents in Brazil at 12/31/2012   2,280,400,056    884,649,441    3,165,049,497      
Residents abroad at 12/31/2012   8,886,344    1,397,000,259    1,405,886,603      
Treasury shares at 12/31/2011 (*)   2,100    57,293,971    57,296,071    (1,663,562)
Purchase of treasury shares   -    4,300,000    4,300,000    (122,333)
Exercised – Granting of stock options   -    (5,783,920)   (5,783,920)   126,241 
Disposals – Stock option plan   -    (3,255,812)   (3,255,812)   136,154 
Treasury shares at 12/31/2012 (*)   2,100    52,554,239    52,556,339    (1,523,500)
Outstanding shares at 12/31/2012   2,289,284,300    2,229,095,461    4,518,379,761      
Outstanding shares at 12/31/2011   2,289,284,300    2,224,355,729    4,513,640,029      

 

(*) Own shares, purchased based on authorization of the Board of Directors, to be held in Treasury for subsequent cancellation or replacement in the market.

 

We detail below the average cost of treasury shares and their market price at December 31, 2012:

 

Cost/Market value  Common   Preferred 
Minimum   -    27.25 
Weighted average   -    28.45 
Maximum   -    28.98 
Treasury shares          
Average cost   9.65    28.99 
Market value   31.18    33.39 

 

 
4.78

 

b)Dividends

 

Stockholders are entitled to a mandatory dividend of not less than 25% of annual net income, which is adjusted according to the rules set forth in Brazilian Corporate Law. Both types of shares participate equally, after common shares have received dividends equal to the annual minimum priority dividend of R$ 0.022 per share to be paid to preferred shares.

 

The calculation of the monthly advance of mandatory minimum dividend is based on the share position on the last day of the prior month, taking into consideration that the payment is made on the first business day of the subsequent month, in the amount of R$ 0.012 per share, and beginning with the payment made in April 2012, it was increased by 25% to R$ 0.015 per share, in accordance with the Board of Directors’ meeting of February 6, 2012.

 

I - Calculation

 

Net income   10,799,538      
Adjustments:          
(-) Legal reserve   (539,977)     
Dividend calculation basis   10,259,561      
Mandatory dividend   2,564,890      
Dividend – paid/provided for   4,517,978    44.0%

 

II – Payments/Provision of interest on capital and dividends

 

   Gross   WTS   Net 
Paid / Prepaid   1,971,513    (187,980)   1,783,533 
Dividends - 2 monthly installments of R$ 0.012 per share paid in February and March 2012   108,332    -    108,332 
Dividends - 9 monthly installments of R$ 0.015 per share paid from April to December 2012   609,978    -    609,978 
Interest on capital - R$ 0.2774 per share, paid on 08/15/2012   1,253,203    (187,980)   1,065,223 
                
Declared up to December 31, 2012 (Recorded in Other Liabilities – Social and Statutory)   1,477,431    (211,449)   1,265,982 
Dividends - 1 monthly installment of R$ 0.015 per share paid on 01/02/2013   67,768    -    67,768 
Interest on capital - R$ 0.3120 per share, credited on December 28, 2012 to be paid until April 30, 2013   1,409,663    (211,449)   1,198,214 
                
Declared after December 31, 2012 (Recorded in Revenue Reserves – Unrealized profits)   1,727,604    (259,141)   1,468,463 
Interest on capital - R$ 0.3824 per share, to be paid until April 30, 2013   1,727,604    (259,141)   1,468,463 
                
Total from 01/01 to 12/31/2012 - R$ 1.0000 net per share   5,176,548    (658,570)   4,517,978 
Total from 01/01 to 12/31/2011 - R$ 0.9727 net per share   5,054,023    (660,216)   4,393,807 

 

 
4.79

 

c)Capital and revenue reserves

 

   12/31/2012   12/31/2011 
CAPITAL RESERVES   843,694    763,413 
Premium on subscription of shares   283,512    283,512 
Granted options recognized – Law No. 11,638 and Share-based instruments    559,077    478,796 
Reserves from tax incentives and restatement of equity securities and other   1,105    1,105 
REVENUE RESERVES   39,993,495    34,422,444 
Legal   4,388,003    3,848,025 
Statutory:   33,877,888    28,727,496 
Dividends equalization (1)   11,116,729    8,576,671 
Working capital increase (2)   9,834,620    8,749,186 
Increase in capital of investees (3)   12,926,539    11,401,639 
Unrealized profits (4)   1,727,604    1,846,923 

(1)Reserve for Dividends Equalization – its purpose is to guarantee funds for the payment of advances of dividends, including interest on capital, to maintain the flow of the stockholders’ compensation;
(2)Reserve for Working Capital Increase – its purpose is to guarantee funds for the company’s operations;
(3)Reserve for Increase in Capital of Investees – its purpose is to guarantee the preferred subscription right in the capital increases of investees;
(4)Refers to Interest on Capital declared after December 31, 2012, in compliance with BACEN Circular Letter nº 3.516, of july 21, 2011.

 

d)Conciliation of net income and stockholders’ equity (Note 2b)

 

   Net income   Stockholders’ equity 
   01/01 to
12/31/2012		   01/01 to
12/31/2011		   12/31/2012   12/31/2011 
ITAÚ UNIBANCO HOLDING   10,799,538    11,890,196    85,820,578    78,383,153 
Amortization of goodwill   2,794,402    2,730,425    (4,241,418)   (7,035,820)
Purchase of additional interest from minority stockholders – Redecard (Note 2c)   -    -    (7,359,551)   - 
ITAÚ UNIBANCO HOLDING CONSOLIDATED   13,593,940    14,620,621    74,219,609    71,347,333 

 

 
4.80

 

e)Minority interest in subsidiaries

 

   Stockholders’ equity   Results 
   12/31/2012   12/31/2011   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Unibanco Participações Societárias S.A. (1)   -    -    -    (36,476)
Itau Bank, Ltd. (2)   807,189    740,703    -    - 
Redecard S.A. (Note 2c)   -    793,779    (520,838)   (705,252)
Biu Participações S.A. (Note 13j)   -    103,659    (23,314)   (34,510)
Itaú Gestão de Ativos S.A.   55,515    62,390    (1,996)   (3,034)
Biogeração de Energia S.A.   11,425    11,440    (1,935)   9,083 
Investimentos Bemge S.A.   19,756    18,738    (1,028)   (1,266)
Other   8,888    10,517    (4,881)   (6,020)
Total   902,773    1,741,226    (553,992)   (777,475)

(1)On July 28, 2011, Dibens Leasing S.A. Arrendamento Mercantil, subsidiary of ITAÚ UNIBANCO HOLDING acquired minority interest in subsidiaries of Unibanco Participações Societárias for the amount of R$ 1,226,847.
(2)Represented by redeemable preferred shares issued on December 31, 2002 by Itau Bank Ltd., in the amount of US$ 393,072, with maturity on March 31, 2015 and semiannual dividends calculated based on LIBOR plus 1.25% p.a..

 

 
4.81

 

f)Stock Option Plan

 

I – Purpose and Guidelines of the Plan

 

The ITAÚ UNIBANCO HOLDING has a stock option plan for its executives. This program aims at involving the management members in the medium and long-term corporate development process, by granting simple stock options or partner options, personal, not pledgeable or transferable, which entitle to the subscription of one authorized capital share or, at the discretion of the management, one treasury share which has been acquired for replacement purposes.

 

Such options may only be granted in years in which there are sufficient profits to enable the distribution of mandatory dividends to stockholders and at a quantity that does not exceed the limit of 0.5% of the total shares held by the stockholders at the base date of the year-end balance sheet. The ITAÚ UNIBANCO HOLDING’s Personnel Committee is responsible for defining the total quantity, the beneficiaries, the type of option, the life of the option under each series, which may range from a minimum of 5 and a maximum of 10 years, and the vesting period for exercising the options and the period the acquired shares are unavailable due to the exercise of the options. The executive officers and Board of Directors members of ITAÚ UNIBANCO HOLDING and of its subsidiaries and employees may participate in this program, based on assessment of potential and performance.

 

Currently, ITAÚ UNIBANCO HOLDING settles the benefits under this PLAN only by delivering its own shares, which are held in treasury until the effective exercise of the options by the beneficiaries.

 

II - Characteristics of the Programs

 

II.I – Simple Options

 

Prior Programs

 

Before the merger, Itaú and Unibanco each had Stock Option Plans (Prior Programs). The eligible beneficiaries of the program were granted simple options, depending upon the individual employee performance. The exercise price is calculated based on the average prices of preferred shares at the BM&FBOVESPA trading sessions over the period of at least one (1) and at the most three (3) months prior to the option issue date; alternatively, subject to the positive or negative adjustment of up to 20%, and restated until the last business day of the month prior to the option exercise date based either on the IGP-M or IPCA, in its absence, based on the index determined by the committee. Options are no longer granted under this model.

 

Post-Merger Program

 

The eligible beneficiaries of the program are granted simple options, dependent upon the individual employee performance. The exercise price is calculated based on the average prices of preferred shares at the BM&FBOVESPA in the last three months of the year prior to the granting date or, alternatively, subject to the positive or negative adjustment of up to 20%. The exercise price is adjusted based on the IGPM or, in its absence, based on the index determined by the committee.

 

The vesting period is from one (1) to seven (7) years, counted from the issue date.

 

II.II – Partners Plan

 

Executives selected to participate in the program may invest a percentage of their bonus to acquire shares or they have the right to receive shares (“Share-Based Instrument”). Title to the shares acquired, as well as the share-based instruments, should be held by the executives for a period of 3 to 5 years and they are subject to market fluctuation. At the time they acquire own shares and/or share-based instruments, Partner Options are granted in accordance with the classification of executives. Vesting period of Partners Options or share-based instruments is from 1 to 7 years. Share-based instruments and Partner options are converted into own shares of ITAÚ UNIBANCO HOLDING in the ratio of one preferred share for each instrument after the respective vesting period, with no payment of amounts in legal tender during the exercise.

 

The acquisition price of own shares and Share-Based Instruments is established every six months and it is equivalent to the average preferred share quotation at the BM&FBOVESPA trading sessions in the 30 days prior to the determination of said price.

 

 
4.82

 

Title to the shares received after the vesting period of the Partners Options should be held, without any liens or encumbrances, for periods from 5 to 8 years, counted from the date of acquisition of own shares.

 

The weighted average fair value of the Share-Based Instruments at the granting date was estimated for the shares purchased in the period ended December 31, 2012 – R$ 36.00 per share (at December 31, 2011 - R$ 37.00 per share).

 

The fair value of the Share-Based Instruments is the market price quoted at the granting date for preferred shares of ITAÚ UNIBANCO HOLDING less the cash price paid by the beneficiaries. Amount received for the purchase of Share-Based Instruments for the period ended December 31, 2012 - R$ 50,361 (at December 31, 2011 - R$ 48,489).

 

Summary of Changes in the Plan

 

               Restated   Exercised options   Number of shares 
Granting   Vesting period   Exercise   exercise   Weighted average   Weighted average   Prior balance           Forfeited (*) /   To be exercised 
No.  Date   until   until   price (R$ 1)   exercise price   market price   12/31/2011   Granted   Exercised  

Cancelled

   at 12/31/2012 
                                             
Simple Options                                         
11th   2/21/2005    12/31/2009    12/31/2012    20.27    19.79    33.68    937,275    -    (937,275)   -    - 
11th   8/6/2007    12/31/2009    12/31/2012    20.27    19.79    33.68    11,357    -    (11,357)   -    - 
12th   2/21/2006    12/31/2010    12/31/2013    30.15    28.25    37.00    6,854,365    -    (1,946,485)   -    4,907,880 
12th   8/6/2007    12/31/2010    12/31/2013    30.15    -    -    15,867    -    -    -    15,867 
16th   8/10/2009    12/31/2010    12/31/2014    34.28    -    -    874,167    -    -    -    874,167 
34th   3/21/2007    3/21/2011    3/20/2012    37.27    -    -    75,901    -    -    (75,901)   - 
35th   3/22/2007    3/22/2011    3/21/2012    38.95    -    -    29,518    -    -    (29,518)   - 
36th   5/14/2008    5/14/2011    5/13/2012    46.72    -    -    25,301    -    -    (25,301)   - 
30th   7/4/2006    7/4/2011    7/3/2012    29.90    -    -    52,707    -    -    (52,707)   - 
33rd   8/30/2006    8/30/2011    8/29/2012    33.36    32.70    38.42    21,083    -    (21,083)   -    - 
13th   2/14/2007    12/31/2011    12/31/2014    38.39    35.91    38.32    7,732,975    -    (344,650)   (1,145,825)   6,242,500 
13th   8/6/2007    12/31/2011    12/31/2014    38.39    -    -    30,649    -    -    -    30,649 
13th   10/28/2009    12/31/2011    12/31/2014    38.39    -    -    45,954    -    -    -    45,954 
34th   3/21/2007    3/21/2012    3/20/2013    39.00    -    -    75,901    -    -    -    75,901 
35th   3/22/2007    3/22/2012    3/21/2013    38.95    -    -    29,514    -    -    -    29,514 
36th   5/14/2008    5/14/2012    5/13/2013    48.46    -    -    25,300    -    -    -    25,300 
17th   9/23/2009    9/23/2012    12/31/2014    39.61    -    -    29,551    -    -    -    29,551 
14th   2/11/2008    12/31/2012    12/31/2015    44.27    -    -    9,266,066    -    -    (2,097,144)   7,168,922 
14th   5/5/2008    12/31/2012    12/31/2015    44.27    -    -    20,625    -    -    -    20,625 
14th   10/28/2009    12/31/2012    12/31/2015    44.27    -    -    45,954    -    -    -    45,954 
Total options to be exercised         26.63    36.18    26,200,030    -    (3,260,850)   (3,426,396)   19,512,784 
36th   5/14/2008    5/14/2013    5/13/2014    48.46    -    -    25,300    -    -    -    25,300 
15th   3/3/2009    12/31/2013    12/31/2016    28.95    27.12    35.16    14,114,940    -    (1,452,840)   (21,340)   12,640,760 
15th   10/28/2009    12/31/2013    12/31/2016    28.95    -    -    45,954    -    -    -    45,954 
18th   4/17/2010    12/31/2014    12/31/2017    47.02    -    -    6,052,223    -    -    (119,229)   5,932,994 
18th   5/11/2010    12/31/2014    12/31/2017    47.02    -    -    1,163,919    -    -    (49,928)   1,113,991 
37th   4/19/2011    12/31/2015    12/31/2018    45.93    -    -    9,769,432    -    -    (167,211)   9,602,221 
37th   1/13/2012    12/31/2015    12/31/2018    45.93    -    -    -    15,383    -    -    15,383 
38th   1/13/2012    12/31/2016    12/31/2019    34.35    -    -    -    15,097    -    -    15,097 
38th   4/27/2012    12/31/2016    12/31/2019    34.35    -    -    -    10,373,657    -    (40,264)   10,333,393 
Total options outstanding         27.12    35.16    31,171,768    10,404,137    (1,452,840)   (397,972)   39,725,093 
Total simple options         26.78    35.87    57,371,798    10,404,137    (4,713,690)   (3,824,368)   59,237,877 
                                                        
Partners Options                                         
4th   3/3/2008    3/3/2011    -    -    -    -    39,906    -    -    (39,906)   - 
5th   9/3/2008    9/3/2011    -    -    -    -    46,710    -    -    (46,710)   - 
6th   3/6/2009    3/6/2012    -    -    -    35.90    719,023    -    (681,490)   (37,533)   - 
7th   6/19/2009    3/6/2012    -    -    -    35.90    79,446    -    (79,446)   -    - 
1st   9/3/2007    9/3/2012    -    -    -    32.05    309,508    -    (309,294)   (214)   - 
3rd   2/29/2008    9/3/2012    -    -    -    -    33,474    -    -    -    33,474 
Total options to be exercised              34.79    1,228,067    -    (1,070,230)   (124,363)   33,474 
4th   3/3/2008    3/3/2013    -    -    -    -    388,432    -    -    (15,488)   372,944 
8th   8/17/2010    8/16/2013    -    -    -    -    339,632    -    -    (11,120)   328,512 
9th   8/30/2010    8/16/2013    -    -    -    -    329,711    -    -    (7,750)   321,961 
11th   9/30/2010    8/16/2013    -    -    -    -    17,717    -    -    -    17,717 
5th   9/3/2008    9/3/2013    -    -    -    -    449,442    -    -    (26,875)   422,567 
10th   9/30/2010    9/29/2013    -    -    -    -    1,862,409    -    -    (48,015)   1,814,394 
17th   6/14/2012    2/27/2014    -    -    -    -    -    7,791    -    -    7,791 
12th   2/28/2011    2/28/2014    -    -    -    -    1,558,584    -    -    (28,176)   1,530,408 
6th   3/6/2009    3/6/2014    -    -    -    -    704,604    -    -    (45,197)   659,407 
7th   6/19/2009    3/6/2014    -    -    -    -    79,445    -    -    -    79,445 
14th   11/4/2011    8/18/2014    -    -    -    -    509    -    -    -    509 
17th   6/14/2012    8/18/2014    -    -    -    -    -    2,527    -    -    2,527 
13th   8/19/2011    8/19/2014    -    -    -    -    706,397    -    -    (19,628)   686,769 
17th   6/14/2012    2/23/2015    -    -    -    -    -    8,187    -    -    8,187 
15th   2/24/2012    2/24/2015    -    -    -    -    -    1,583,044    -    (10,952)   1,572,092 
16th   2/24/2012    2/24/2015    -    -    -    -    -    69,156    -    -    69,156 
8th   8/17/2010    8/16/2015    -    -    -    -    338,923    -    -    (11,508)   327,415 
9th   8/30/2010    8/16/2015    -    -    -    -    329,152    -    -    (7,928)   321,224 
11th   9/30/2010    8/16/2015    -    -    -    -    17,712    -    -    -    17,712 
10th   9/30/2010    9/29/2015    -    -    -    -    1,858,518    -    -    (50,048)   1,808,470 
17th   6/14/2012    2/27/2016    -    -    -    -    -    7,790    -    -    7,790 
12th   2/28/2011    2/28/2016    -    -    -    -    1,557,215    -    -    (29,532)   1,527,683 
14th   11/4/2011    8/18/2016    -    -    -    -    508    -    -    -    508 
17th   6/14/2012    8/18/2016    -    -    -    -    -    2,527    -    -    2,527 
13th   8/19/2011    8/19/2016    -    -    -    -    706,338    -    -    (20,011)   686,327 
17th   6/14/2012    2/23/2017    -    -    -    -    -    8,186    -    -    8,186 
15th   2/24/2012    2/24/2017    -    -    -    -    -    1,582,979    -    (11,248)   1,571,731 
16th   2/24/2012    2/24/2017    -    -    -    -    -    69,151    -    -    69,151 
Total options outstanding         -    -    11,245,248    3,341,338    -    (343,476)   14,243,110 
Total Partners Options         -    34.79    12,473,315    3,341,338    (1,070,230)   (467,839)   14,276,584 
                                          
TOTAL SIMPLE/PARTNERS OPTIONS         26.78    35.67    69,845,113    13,745,475    (5,783,920)   (4,292,207)   73,514,461 

 (*) Refers to the non exercise due to the beneficiary’s option.

 

 
4.83

 

Summary of Changes in the Share-Based Instruments

 

No.  Vesting period   Prior balance
12/31/2011		   New   Converted
into shares		   Cancelled   Balance at
12/31/2012		 
1st   8/17/2010    8/16/2012    110,588    -    (109,069)   (1,519)   - 
1st   8/17/2010    8/16/2013    110,577    -    -    (3,206)   107,371 
1st   8/30/2010    8/16/2012    10,216    -    (10,216)   -    - 
1st   8/30/2010    8/16/2013    10,212    -    -    -    10,212 
1st   9/30/2010    8/16/2012    3,971    -    (3,971)   -    - 
1st   9/30/2010    8/16/2013    3,970    -    -    -    3,970 
2nd   9/30/2010    9/29/2012    424,163    -    (412,329)   (11,834)   - 
2nd   9/30/2010    9/29/2013    424,154    -    -    (11,834)   412,320 
3rd   2/28/2011    2/27/2011    444,040    -    (444,040)   -    - 
3rd   2/28/2011    2/27/2012    444,030    -    -    (8,679)   435,351 
3rd   2/28/2011    2/27/2013    444,020    -    -    (8,678)   435,342 
4th   2/24/2012    2/24/2013    -    468,852    -    (4,671)   464,181 
4th   2/24/2012    2/24/2014    -    468,836    -    (4,671)   464,165 
4th   2/24/2012    2/24/2015    -    468,821    -    (4,671)   464,150 
Total            2,429,941    1,406,509    (979,625)   (59,763)   2,797,062 

 

No.  Vesting period   Balance at
12/31/2010		   New   Converted
into shares		   Cancelled   Balance at
12/31/2011		 
1st   8/17/2010    8/16/2011    114,980    -    (110,598)   (4,382)   - 
1st   8/17/2010    8/16/2012    114,969    -    -    (4,381)   110,588 
1st   8/17/2010    8/16/2013    114,958    -    -    (4,381)   110,577 
1st   8/30/2010    8/16/2011    10,221    -    (10,221)   -    - 
1st   8/30/2010    8/16/2012    10,216    -    -    -    10,216 
1st   8/30/2010    8/16/2013    10,212    -    -    -    10,212 
1st   9/30/2010    8/16/2011    3,972    -    (3,972)   -    - 
1st   9/30/2010    8/16/2012    3,971    -    -    -    3,971 
1st   9/30/2010    8/16/2013    3,970    -    -    -    3,970 
2nd   9/30/2010    9/29/2011    424,172    -    (424,172)   -    - 
2nd   9/30/2010    9/29/2012    424,163    -    -    -    424,163 
2nd   9/30/2010    9/29/2013    424,154    -    -    -    424,154 
3rd   2/28/2011    2/27/2011    -    444,040    -    -    444,040 
3rd   2/28/2011    2/27/2012    -    444,030    -    -    444,030 
3rd   2/28/2011    2/27/2013    -    444,020    -    -    444,020 
Total             1,659,958    1,332,090    (548,963)   (13,144)   2,429,941 

 

 
4.84

 

III – Fair Value and Economic Assumptions for Cost Recognition

 

ITAÚ UNIBANCO HOLDING recognizes, at the granting date, the fair value of options through the Binomial method for Simple Options and the Black & Scholes method for Partners Options. Economic assumptions used are as follows:

 

Exercise price: for the option exercise price, the exercise price previously agreed upon at the option issue is adopted, adjusted by the IGP-M variation;

 

Price of the underlying asset: the share price of ITAÚ UNIBANCO HOLDING (ITUB4) used for calculation is the closing price at BM&FBOVESPA on the calculation base date;

 

Expected dividends: the average annual return rate for the last three years of the dividends paid, plus interest on capital of the ITUB4 share;

 

Risk-free interest rate: the applied risk-free rate is the IGP-M coupon rate at the expiration date of the option plan;

 

Expected volatility: calculated based on the standard deviation from the history of the last 84 monthly returns of closing prices of the ITUB4 share, released by BM&FBOVESPA, adjusted by the IGP-M variation.

 

Granting  Vesting
period		   Exercise   Price of
underlying		   Fair   Expected   Risk-free   Expected 
No.  Date   until   period until   asset   value   dividends   interest rate   volatility 
                                 
Simple Options                               
37th   1/13/2012    12/31/2015    12/31/2018    35.50    8.85    2.97%   5.25%   30.32%
38th   1/13/2012    12/31/2016    12/31/2019    35.50    12.45    2.97%   5.25%   30.32%
38th   4/27/2012    12/31/2016    12/31/2019    29.70    7.82    3.02%   3.91%   29.93%
                                         
Partners Options (*)                               
15th   2/24/2012    2/24/2015    -    36.00    32.94    2.97%   -    - 
15th   2/24/2012    2/24/2017    -    36.00    31.04    2.97%   -    - 
16th   2/24/2012    2/24/2015    -    36.00    32.94    2.97%   -    - 
16th   2/24/2012    2/24/2017    -    36.00    31.04    2.97%   -    - 
17th   6/14/2012    8/18/2014    -    29.57    27.69    3.02%   -    - 
17th   6/14/2012    2/27/2014    -    29.57    28.08    3.02%   -    - 
17th   6/14/2012    2/23/2015    -    29.57    27.26    3.02%   -    - 
17th   6/14/2012    8/18/2016    -    29.57    26.06    3.02%   -    - 
17th   6/14/2012    2/27/2016    -    29.57    26.44    3.02%   -    - 
17th   6/14/2012    2/23/2017    -    29.57    25.65    3.02%   -    - 

 (*) The fair value of option is measured based on the fair value of Itaú Unibanco share at the granting date.

 

IV - Accounting Effects Arising from Options

 

The exercise of stock options, pursuant to the Plan’s regulation, resulted in the sale of preferred shares held in treasury thus far. The accounting entries related to the plan are recorded during the vesting period, at the deferral of the fair value of options granted with effect on Income, and during the exercise of options, at the amount received from the option exercise price, reflected in Stockholders’ Equity.

 

The effect of Income for the period from January 1 to December 31, 2012 was R$ (176,749) (R$ (162,663) from January 1 to December 31, 2011), as contra-entry to Capital Reserve – Granted Options Recognized – Law No. 11,638 (Note 16 c).

 

In the Stockholders’ Equity, the effect was as follows:

 

   12/31/2012   12/31/2011 
Amount received for the sale of shares – exercised options   208,603    353,036 
(-) Cost of treasury shares sold   (262,395)   (267,653)
(+) Write-off of cost recognized of exercised options   122,622    (6,016)
Effect on sale (*)   68,830    79,367 

 

(*) Recorded in revenue reserves.

 

 
4.85

 

NOTE 17 – RELATED PARTIES

 

a)Transactions between related parties are disclosed in compliance with CVM Resolution No. 642, of October 7, 2010, and CMN Resolution No. 3,750 of June 30, 2009. These transactions are carried out at amounts, terms and average rates in accordance with normal market practices during the period, as well as under reciprocal conditions.

 

Transactions between companies included in consolidation were eliminated from the consolidated financial statements and take into consideration the lack of risk.

 

The unconsolidated related parties are the following:

 

·Itaú Unibanco Participações S.A. (IUPAR) and ITAÚSA, parent companies of ITAÚ UNIBANCO HOLDING;.

 

·The non-financial subsidiaries of ITAÚSA, specially: Itautec S.A., Duratex S.A., Elekeiroz S.A. and Itaúsa Empreendimentos S.A.;

 

·Fundação Itaubanco, FUNBEP – Fundo de Pensão Multipatrocinado, Caixa de Previdência dos Funcionários do BEG (PREBEG), Fundação Bemgeprev, Itaubank Sociedade de Previdência Privada, UBB – Prev Previdência Complementar, and Fundação Banorte Manuel Baptista da Silva de Seguridade Social, closed-end private pension entities that administer supplementary retirement plans sponsored by ITAÚ UNIBANCO HOLDING and/or its subsidiaries; and

 

·Fundação Itaú Social, Instituto Itaú Cultural, Instituto Unibanco, Instituto Assistencial Pedro Di Perna, Instituto Unibanco de Cinema, and Associação Clube A, entities sponsored by ITAÚ UNIBANCO and subsidiaries to act in their respective areas of interest, as described in Notes 22e and 22j.

 

·Investments in Porto Seguro Itaú Unibanco Participações S.A., SERASA S.A. and BSF Holding S.A..

 

Additionally, there are operations with jointly controlled entities, particularly Banco Investcred Unibanco S.A., Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento, Luizacred S.A. Soc. Créd. Financiamento Investimento, FAI Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento (Note 2c), FIC Promotora de Vendas Ltda. and Ponto Frio Leasing S.A. Arrendamento Mercantil.

 

 
4.86

 

The transactions with these related parties are basically characterized by:

 

   ITAÚ UNIBANCO HOLDING   ITAÚ UNIBANCO HOLDING CONSOLIDATED
   ASSETS/(LIABILITIES)   REVENUE/(EXPENSE)      ASSETS/(LIABILITIES)   REVENUE/(EXPENSES) 
   12/31/2012   12/31/2011   01/01 to
12/31/2012		   01/01 to
12/31/2011		   Annual rate  12/31/2012   12/31/2011   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Interbank investments   33,506,163    32,083,528    2,862,306    2,621,324       1,604,146    1,836,298    144,241    189,841 
Itaú Unibanco S.A.   27,236,575    26,289,384    2,479,676    2,310,797       -    -    -    - 
Grand Cayman Branch   6,269,588    5,794,144    382,630    310,527       -    -    -    - 
Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento   -    -    -    -   103% of CDI
7,25% to 13,79% pre-fixed
average 7,95% pre-fixed		   614,125    618,853    47,561    56,483 
FAI - Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento   -    -    -    -       -    235,967    14,249    31,097 
Luizacred S.A. Sociedade de Crédito, Financiamento e Investimento   -    -    -    -   103% of CDI   990,021    981,478    82,431    102,261 
Securities and Derivative financial instruments   10,414,705    -    264,311    (183)      -    -    -    - 
Grand Cayman Branch   10,414,705    -    264,311    -       -    -    -    - 
Itaú Unibanco S.A.   -    -    -    (183)      -    -    -    - 
Deposits   -    (4,832,444)   (392,436)   (445,936)      (3,319)   (76,573)   (1,958)   - 
Itaú Unibanco S.A.   -    (4,832,444)   (392,436)   (445,936)      -    -    -    - 
Duratex S.A.   -    -    -    -       (2,182)   (1,596)   (1,333)   - 
Elekeiroz S.A.   -    -    -    -       -    -    (317)   - 
Porto Seguro S.A.   -    -    -    -       (1,053)   -    (14)   - 
Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento   -    -    -    -       (73)   (56,804)   (186)   - 
FAI - Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento   -    -    -    -       -    (18,055)   (92)   - 
Banco Investcred Unibanco S.A.   -    -    -    -       -    (15)   (1)   - 
Other   -    -    -    -       (11)   (103)   (15)   - 
Securities sold under repurchase agreements   -    -    -    -       (53,216)   (100,494)   (6,522)   (20,865)
Duratex S.A.   -    -    -    -   100% of SELIC   (10,784)   -    (2,200)   (4,031)
Elekeiroz S.A.   -    -    -    -       -    -    (832)   (3,214)
Itautec S.A.   -    -    -    -   100% of SELIC   (2,051)   -    -    - 
FIC Promotora de Venda Ltda.   -    -    -    -   100% of SELIC   (18,198)   (6,078)   (923)   (782)
Facilita Promotora S.A.   -    -    -    -   100% of SELIC   (1,586)   (7,373)   (175)   (717)
Olimpia Promoção e Serviços S.A.   -    -    -    -   100% of SELIC   (1,929)   (2,319)   (118)   (450)
Banco Investcred Unibanco S.A.   -    -    -    -   100% of SELIC   (18,622)   (14,271)   (1,569)   (1,421)
Maxfácil Participações S.A   -    -    -    -       -    (63,753)   -    (6,662)
Porto Seguro S.A.   -    -    -    -       -    -    -    (32)
Other   -    -    -    -       (46)   (6,700)   (705)   (3,556)
Amounts receivable from (payable to) related companies   (339)   (3,939)   -    -       (116,172)   (95,680)   -    - 
Itaú Unibanco S.A.   -    (3,557)   -    -       -    -    -    - 
Itaú Corretora de Valores S. A.   (339)   (382)   -    -       -    -    -    - 
Itaúsa Investimentos Itaú S.A.   -    -    -    -       -    82    -    - 
Porto Seguro S.A.   -    -    -    -       11,865    10,925    -    - 
Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento   -    -    -    -       (3,937)   (4)   -    - 
FAI - Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento   -    -    -    -       -    (1,098)   -    - 
Olimpia Promoção e Serviços S.A.   -    -    -    -       (1,001)   (173)   -    - 
Luizacred S.A. Sociedade de Crédito, Financiamento e Investimento   -    -    -    -       (4,751)   (520)   -    - 
Fundação Itaubanco   -    -    -    -       1,422    1,254    -    - 
FUNBEP - Fundo de Pensão Multipatrocinado   -    -    -    -       273    279    -    - 
Caixa de Prev.dos Func. do Banco Beg - PREBEG   -    -    -    -       (6,422)   (8,688)   -    - 
Fundação BEMGEPREV   -    -    -    -       (8,556)   (3,193)   -    - 
UBB Prev Previdência Complementar   -    -    -    -       (25,468)   (18,712)   -    - 
Fundação Banorte Manuel Baptista da Silva de Seguridade Social   -    -    -    -       (80,602)   (76,110)   -    - 
Other   -    -    -    -       1,005    278    -    - 
Banking service fees (expenses)   -    -    (3,235)   (4,824)      -    -    57,057    (15,673)
Itaú Corretora de Valores S. A.   -    -    (3,235)   (4,782)      -    -    -    - 
Fundação Itaubanco   -    -    -    -       -    -    25,086    21,160 
FUNBEP - Fundo de Pensão Multipatrocinado   -    -    -    -       -    -    5,056    4,863 
UBB Prev Previdência Complementar   -    -    -    -       -    -    -    1,358 
Itaúsa Investimentos S.A.   -    -    -    -       -    -    1,051    1,141 
Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento   -    -    -    -       -    -    920    (20,133)
FAI - Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento   -    -    -    -       -    -    200    (2,292)
Luizacred S.A. Sociedade de Crédito, Financiamento e Investimento   -    -    -    -       -    -    5    - 
Olimpia Promoção e Serviços S.A.   -    -    -    -       -    -    (12,341)   - 
Porto Seguro S.A.   -    -    -    -       -    -    32,265    (25,889)
Other   -    -    -    (42)      -    -    4,815    4,119 
Rent revenues (expenses)   -    -    (248)   (226)      -    -    (37,317)   (37,422)
Itaúsa Investimentos S.A.   -    -    (49)   (16)      -    -    -    - 
Itaú Seguros S.A.   -    -    (152)   (161)      -    -    -    - 
Fundação Itaubanco   -    -    -    -       -    -    (27,108)   (26,536)
FUNBEP - Fundo de Pensão Multipatrocinado   -    -    -    -       -    -    (10,004)   (9,566)
Other   -    -    (47)   (49)      -    -    (205)   (1,320)
Donation expenses   -    -    -    -       -    -    (71,523)   (57,110)
Instituto Itaú Cultural   -    -    -    -       -    -    (68,700)   (56,400)
Associação Clube A   -    -    -    -       -    -    (2,823)   (430)
Fundação Itaú Social   -    -    -    -       -    -    -    (280)
Data processing expenses   -    -    -    -       -    -    (270,433)   (314,651)
Itautec S.A.   -    -    -    -       -    -    (270,433)   (314,651)
Non-Operating Income   -    -    -    -       -    -    -    48,088 
Itaúsa Investimentos S.A.   -    -    -    -       -    -    -    48,088 

 

In addition to the aforementioned operations, ITAÚ UNIBANCO HOLDING and non-consolidated related parties, as an integral part of the Agreement for Apportionment of Common Costs of Itaú Unibanco, recorded in Other Administrative Expenses in the amount of R$ 7.838 (R$ 7,983 from 01/01 to 12/31/2011) in view of the use of common structure.

 

In accordance with the rules in effect, the financial institutions cannot grant loans or advances to the following:

 

a)any individual or company that control the Institution or any entity under common control with the institution, or any officer, director, fiscal council member or direct relative of such individuals;
b)any entity controlled by the Institution; or
c)any entity of which the bank directly or indirectly holds at least 10% of capital stock.

 

Therefore, no loans or advances are made to any subsidiaries, executive officers, Board of Directors members or their relatives.

 

Itaú Unibanco Holding made regular donations to Fundação Itaú Social, a philanthropic foundation which objectives are: to create "Programa Itaú Social", aimed at coordinating activities that are of the community’s interest, support and develop social, scientific and cultural projects, mainly in the elementary education and health areas; support projects or initiatives in progress, maintained or sponsored by entities qualifying to work, according to "Programa Itaú Social". In addition, Itaú Unibanco is the founding partner and sponsor of Instituto Itaú Cultural - IIC, an entity which objective is to promote and preserve the Brazilian cultural heritage.

 

 
4.87

 

b)Compensation of Management Key Personnel

 

The fees attributed in the period to ITAÚ UNIBANCO HOLDING management members are as follows:

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Compensation   243,708    270,993 
Board of Directors   8,028    4,798 
Management members   235,680    266,195 
Profit sharing   159,026    191,923 
Board of Directors   1,500    1,000 
Management members   157,526    190,923 
Contributions to pension plans   7,738    5,018 
Board of Directors   4    163 
Management members   7,734    4,855 
Stock option plan – Management members   163,384    149,629 
Total   573,856    617,563 

 

Information related to the granting of the stock option plan, benefits to employees and post-employment is detailed in Notes 16f IV and 19, respectively.

 

 
4.88

 

NOTE 18 - MARKET VALUE

 

The financial statements are prepared in accordance with accounting principles which assume the normal continuity of the operations of ITAÚ UNIBANCO HOLDING and its subsidiaries.

 

The book value of each financial instrument, whether included or not in the balance sheet (comprises investments in affiliates and other investments), when compared to the value that might be obtained in an active market, or in the absence of such market, using the net present value of future cash flows adjusted based on the current market interest, is approximately equal to the market value, or does not have a market quotation available, except for the instruments in the table below:

 

           Unrealized income (loss) (1) 
   BOOK VALUE   MARKET   Results   Stockholders’ equity 
   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011 
Interbank deposits   23,825,593    27,820,434    23,852,897    27,848,688    27,304    28,254    27,304    28,254 
Securities and derivative financial instruments   276,173,858    187,880,424    277,479,525    188,477,270    4,098,597    1,326,216    1,305,667    596,846 
Adjustment of available-for-sale securities                       2,783,142    718,599    -    - 
Adjustment of held-to-maturity securities                       1,315,455    607,617    1,305,667    596,846 
Loan, lease and other credit operations   338,540,001    319,711,055    340,643,977    320,341,022    2,103,976    629,967    2,103,976    629,967 
Investments (2)                                        
BM&FBovespa   20,900    58,107    219,543    441,205    198,643    383,098    198,643    383,098 
BPI (3)   -    218,763    -    218,763    -    (413,087)   -    - 
Cetip S.A.   291    291    11,527    12,235    11,236    11,944    11,236    11,944 
Porto Seguro Itaú Unibanco Participações S.A. (4)   1,248,446    1,155,677    2,308,891    2,093,631    1,060,445    937,954    1,060,445    937,954 
Serasa S.A.   -    271,636    -    1,252,447    -    980,811    -    980,811 
Parent company   -    179,701    -    1,160,512    -    980,811    -    980,811 
Minority stockholders (5)   -    91,935    -    91,935    -    -    -    - 
Fundings and borrowings (6)   203,016,719    219,234,287    203,338,573    219,425,572    (321,854)   (191,285)   (321,854)   (191,285)
Subordinated debt (Note 10f)   55,179,314    39,715,187    56,237,389    39,879,597    (1,058,075)   (164,410)   (1,058,075)   (164,410)
Treasury shares   1,523,500    1,663,562    1,754,852    1,947,479    -    -    231,352    283,917 
Total unrealized                       6,120,272    3,529,462    3,558,694    3,497,096 

(1) This does not consider the corresponding tax effects.

(2) Starting December 2011, Redecard is no longer disclosed since it is an investment in subsidiary.

(3) Unrealized result, considers adjustments to market value of available-for-sale securities.

(4) Parent company of Porto Seguro S.A.

(5) The investment held by minority stockholders does not affect the result of ITAÚ UNIBANCO HOLDING.

(6) Funding is represented by interbank and time deposits, funds from acceptance and issuance of securities and borrowings.

 

 
4.89

 

To obtain the market values for these financial instruments, the following criteria were adopted:

 

·Interbank investments were determined based on their nominal amounts, monetarily restated to maturity dates and discounted to present value using future market interest rates and swap market rates for fixed-rate securities and using market interest rates for fixed-rate securities, achieved at the closing of BM&FBOVESPA at the balance sheet date, for floating-rate securities;

 

·Securities and derivative financial instruments, according to the rules established by Circulars No. 3,068 and 3,082 of November 8, 2001 and January 30, 2002, respectively, issued by the Central Bank of Brazil (BACEN), are recorded at their market value, except for those classified as Held to Maturity. Government securities allocated in this category have their market value calculated based on the rates obtained in the market, and validated through the comparison with information provided by the National Association of Financial Market Institutions (ANBIMA). Private securities included in this category have their market value calculated using a criterion similar to the one adopted for Investments in Interbank Deposits, as described above;

 

·Loans with maturity over 90 days, when available, were calculated based on the net present value of future cash flows discounted at market interest rates effective on the balance sheet date, taking into account the effects of hedges as well (swap contracts);

 

·Investments - in companies BPI, BM&FBOVESPA, CETIP and Porto Seguro at the share value in stock exchanges and Serasa S.A. based on the historical average of Price/Income ratio of its parent company.

 

·Time and interbank deposits and funds from acceptance and issuance of securities and foreign borrowings through securities, when available, were calculated based on their present value determined by future cash flows discounted at market rates obtained at the closing of BM&FBOVESPA on the balance sheet date;

 

·Subordinated debt, based on the net present value of future fixed or floating cash flows in foreign currency, net of the market interest rates effective on the balance sheet date and considering the credit risk of the issuer. The floating cash flows are estimated as from the interest curves of the indexation market places;

 

·Treasury shares are valued according to the average quotation available on the last trading day of the month or, if this is not available, according to the most recent quotation on prior trading days, published in the daily bulletin of each Stock Exchange.

 

 
4.90

 

NOTE 19 – BENEFITS TO EMPLOYEES

 

Pursuant to CVM Resolution No. 600, dated October 7, 2009, we present the policies adopted by ITAÚ UNIBANCO HOLDING and its subsidiaries regarding benefits to employees, as well as the accounting procedures adopted:

 

ITAÚ UNIBANCO HOLDING and some of its subsidiaries sponsor defined benefit and variable contribution plans, which basic purpose is granting benefits that, in general, provide a life annuity benefit, and may be converted into survivorship annuities, according to the plan's regulation. They also sponsor defined contribution plans, the benefit of which is calculated based on the accumulated balance at the eligibility date, according to the plan's regulation, which does not require actuarial calculation.

 

Employees hired until July 31, 2002, who come from Itaú, and until February 27, 2009, who come from Unibanco, are beneficiaries of the above-mentioned plans. As regards the employees hired after these dates, they have the option to voluntarily participate in a defined contribution plan (PGBL), managed by Itaú Vida e Previdência S.A..

 

a) Description of the Plans

 

The plans’ assets are invested in separate funds, with the exclusive purpose of providing benefits to eligible employees, and they are maintained independently from ITAÚ UNIBANCO HOLDING. These funds are maintained by closed-end private pension entities with independent legal structures, as detailed below:

 

Entity   Benefit plan
Fundação Itaubanco - Previdência Complementar   Supplementary retirement plan – PAC (1)
    Franprev benefit plan - PBF (1)
    002 benefit plan - PB002 (1)
    Itaulam basic plan - PBI (1)
    Itaulam Supplementary Plan - PSI (2)
    Itaubanco Defined Contribution Plan (3)
    Itaubank Retirement Plan (3)
    Itaú Defined Benefit Plan (1)
    Itaú Defined Contribution Plan (2)
    Unibanco Pension Plan (3)
Fundação Bemgeprev   Supplementary Retirement Plan – Flexible Premium Annuity (ACMV) (1)
Funbep Fundo de Pensão Multipatrocinado   Funbep I Benefit Plan (1)
    Funbep II Benefit Plan (2)
Caixa de Previdência dos Funcionários do Banco Beg - Prebeg   Prebeg Benefit Plan (1)
Múltipla - Multiempresas de Previdência Complementar   Redecard Basic Retirement Plan (1)
    Redecard Supplementary Retirement Plan (2)
    Redecard Supplementary Plan (3) (4)
UBB-PREV - Previdência Complementar   UBB PREV Defined Benefit Plan (1) (5)
Banorte Fundação Manoel Baptista da Silva de Seguridade Social   Benefit Plan II (1)

(1) Defined benefit plan;

(2) Variable contribution plan;

(3) Defined contribution plan;

(4) Redecard Pension Plan was changed in January 2011 from Defined Benefit - BD to Defined Contribution - CD, with adhesion of 95% of employees. This plan enables the employee to contribute monthly with a defined percentage to be deducted from the monthly compensation and, additionally, the company contributes with 100% of the option chosen by the employees, limited to 9% of their income.

(5) Plan arising from the process of merging the IJMS Plan by the Basic Plan, both managed by UBB Prev, approved by the Superintendency of Supplementary Social Security(PREVIC) on December 28, 2012.

 

 
4.91

 

b) Defined benefit plan

 

I - Main assumptions used in actuarial valuation of Retirement Plans

 

    2012   2011
Discount rate (1)   8.16% p.a.   9.72% p.a.
Expected return rate on assets (1)   8.16 % p.a.   11.32% p.a.
Mortality table (2)   AT-2000   AT-2000
Turnover (3)   Itaú Exp. 2008/2010   Itaú Exp. 2008/2010
Future salary growth   7.12 % p.a.   7.12% p.a.
Growth of the pension fund and social security benefits   4.00 % p.a.   4.00% p.a.
Inflation   4.00 % p.a.   4.00% p.a.
Actuarial method (4)   Projected Unit Credit   Projected Unit Credit

(1) The Discount Rate and Expected Return Rate on Assets assumptions were changed in order to be consistent with the economic scenario observed at the balance sheet date.

(2) The mortality tables adopted correspond to those disclosed by SOA – Society of Actuaries, the North-American Entity which corresponds to IBA – Brazilian Institute of Actuarial Science, which reflects a 10% increase in the probabilities of survival as compared to the respective basic tables. The life expectancy in years by the AT-2000 mortality table for participants of 55 years of age is 27 and 31 years for men and women, respectively.

(3) The turnover assumption is based on the effective experience of ITAÚ UNIBANCO HOLDING, resulting in the average of 2.4% p.a. based on the 2008/2010 experience.

(4) Using the Projected Unit Credit, the mathematical reserve is determined by the current projected benefit amount multiplied by the ratio between the length of service in the company at the assessment date and the length of service that will be reached at the date when the benefit is granted. The cost is determined taking into account the current projected benefit amount distributed over the years that each participant is employed.

 

The basic difference between the assumptions above and those adopted upon determination of the actuarial liability of defined benefit plans, for purposes of recording in the balance sheet of the closed-end private pension entities that manage them, is the actuarial method. For this purpose, the Bank adopts the aggregate method, by which the mathematical reserve is defined based on the difference between the present value of the projected benefit and the present value of future contributions, subject to the methodology defined in the respective actuarial technical note.

 

II –Management of defined benefit plan assets

 

The purpose of the management of the funds from the closed-end private pension entities is the long-term balance between social security assets and liabilities by exceeding the actuarial goals.

 

As regards the assets guaranteeing mathematical reserves, management should ensure the payment capacity of benefits in the long-term by preventing the risk of mismatching assets and liabilities by pension plan.

 

 
4.92

 

At December 31, 2012 the allocation of plan assets and the allocation target for 2013, by type of asset, are as follows:

 

           % Allocation 
Types  At 12/31/2012   At 12/31/2011   12/31/2012   12/31/2011   2013 Target 
Fixed income securities   13,736,179    10,341,420    91.14%   87.84%   53% a 100% 
Variable income securities   763,373    1,051,130    5.07%   8.93%   0% a 20% 
Structured investments   15,708    13,511    0.10%   0.12%   0% a 10% 
Foreign Investments   -    -    0.00%   0.00%   0% a 5% 
Real estate   531,445    344,012    3.53%   2.92%   0% a 7% 
Loans to participants   25,497    22,854    0.17%   0.19%   0% a 5% 
Total   15,072,202    11,772,927    100.00%   100.00%     

 

The defined benefit plan assets include shares of ITAÚ UNIBANCO HOLDING, its main parent company (ITAÚSA) and of subsidiaries of the latter, with a fair value of R$ 589,463 (R$ 530,721 at 12/31/2011), and real estate rented to Group companies, with a fair value of R$ 497,884 (R$ 298,169 at 12/31/2011).

 

The expected income from defined benefit plan assets is based on projections of returns for each of the segments detailed above. For the fixed-income segment, the adopted interest rates were taken from long-term securities included in the portfolios, and the interest rates practiced in the market at the closing of the balance sheet. For the variable-income segment, conservative expectations of annual returns were adopted. For the real estate segment, the cash inflows of expected rental payments for the following 12 months were adopted. For all segments, the basis adopted was the portfolio positions at the balance sheet date.

 

III- Net amount recognized in the balance sheet

 

We present below the calculation of the net amount recognized in the balance sheet:

 

   12/31/2012   12/31/2011 
1 - Net assets of the plans  15,072,202   11,772,927 
2 - Actuarial liabilities   (12,905,894)   (10,413,448)
3- Surplus (1-2)   2,166,308    1,359,479 
4- Asset restriction (*)   (2,137,207)   (1,262,610)
5 - Net amount recognized in the balance sheet (3-4)   29,101    96,869 
Amount recognized in Assets   486,865    342,241 
Amount recognized in Liabilities   (457,764)   (245,372)

(*) Corresponds to the excess of present value of the available economic benefit, in conformity with item 58 of CVM Resolution No. 600.

 

In conformity with the exemption set forth in CVM Resolution No. 647, of December, 02, 2010, gains and losses accumulated to 01/01/2010 were recognized in Stockholders’ equity, net of tax effects and, taking into account the subsidiary company’s adjustments. The actuarial gains and losses for the period from 01/01 to 12/31/2012 were recognized in Results under Personnel expenses.

 

 
4.93

 

 

IV - Change in net assets, actuarial liabilities, and surplus

 

   12/31/2012   12/31/2011 
   Net assets   Actuarial
liabilities		   Surplus   Net assets   Actuarial
liabilities		   Surplus 
Present value – beginning of the period   11,772,927    (10,413,448)   1,359,479    11,167,828    (9,815,180)   1,352,648 
Inclusion of Redecard Plan   -    -    -    60,817    (55,897)   4,920 
Inclusion of Itaú Plan   -    -    -    11,748    (13,181)   (1,433)
Effects of partial spin-off of Redecard (1)   -    -    -    (43,595)   42,357    (1,238)
Expected return on assets (2)   1,302,486    -    1,302,486    1,341,662    -    1,341,662 
Cost of current service   -    (84,427)   (84,427)   -    (91,529)   (91,529)
Cost of interest   -    (984,956)   (984,956)   -    (929,862)   (929,862)
Benefits paid   (670,890)   670,890    -    (600,493)   600,493    - 
Contributions of sponsor   57,384    -    57,384    41,920    -    41,920 
Contributions of participants   15,277    -    15,277    9,300    -    9,300 
Actuarial gain/(loss) (2) (3) (4)   2,595,018    (2,093,953)   501,065    (216,260)   (150,649)   (366,909)
Present value – end of the period   15,072,202    (12,905,894)   2,166,308    11,772,927    (10,413,448)   1,359,479 

(1) During 2011, ITAÚ UNIBANCO HOLDING carried out the process of migrating participants of the Redecard Retirement Plan, structured as a defined benefit plan and subject to this disclosure of results, to the Redecard Pension Plan, structured as a defined contribution plan. For those participants migrating to the Redecard Pension Plan, the future benefits started to be accumulated under he defined contribution model and, therefore, there was no replacement by a benefit of a similar nature.

(2) Gains/losses recorded in Net Assets correspond to the income earned above/below the expected return rate of assets.

(3) At December 31, 2012 losses in Actuarial Liabilities basically correspond to the effects arising from the change in the Interest Rate assumption (from 9.72% to 8.16%).

(4) The actual return on assets amounted to R$ 3,897,504 (R$ 1,125,402 at 12/31/2011).

 

The history of actuarial gains and losses is as follows:

 

   12/31/2012   12/31/2011 
Net assets of the plans   15,072,202    11,772,927 
Actuarial liabilities   (12,905,894)   (10,413,448)
Surplus   2,166,308    1,359,479 
Experience adjustments in net assets   2,595,018    (216,260)
Experience adjustments in actuarial liabilities   (2,093,953)   (150,649)

 

V- Total revenue (expenses) recognized in income for the period

 

Total expenses recognized in defined benefit plans include components, as follows:

 

   12/31/2012   12/31/2011 
Cost of current service   (84,427)   (91,529)
Cost of interest   (984,956)   (929,862)
Expected return on the plan assets   1,302,486    1,341,662 
Effects of partial spin-off of Redecard   -    (1,238)
Effect on asset restriction   (874,597)   (153,931)
Gain/(loss) for the period   501,065    (366,909)
Contributions of participants   15,277    9,300 
Total revenue (expenses) recognized in income for the period   (125,152)   (192,507)

 

During the period, contributions made totaled R$ 57,384 (R$ 41,920 at December 31, 2011). The contribution rate increases based on the beneficiary’s salary.

 

In 2013, the expected contribution to retirement plans sponsored by ITAÚ UNIBANCO HOLDING is R$ 35,494.

 

We present below the estimated benefit payments for the next 10 years:

 

Period  Estimated
payment		 
2013   708,111 
2014   740,621 
2015   761,722 
2016   783,866 
2017   806,162 
2018 to 2022   4,399,475 

 

c)Defined contribution plans

 

The defined contribution plans have pension funds set up by the portion of sponsors’ contributions not included in the participant’s accounts balance and by the loss of eligibility to a plan benefit, as well as by resources from the migration from the defined benefit plans. The fund will be used for future contributions to the individual participants' accounts, according to the rules of the respective benefit plan regulation.

 

At December 31, 2012 the amount recognized in assets is R$ 2,327,995 (R$ 1,443,186 at 12/31/2011).

 

 
4.94

 

Total revenue recognized in defined contribution plans includes the following components:

 

   12/31/2012   12/31/2011 
Contributions   (145,852)   (143,553)
Gain/(Loss) in Plan Assets   1,035,119    149,850 
Effect on asset restriction   (4,458)   267,722 
Total revenue recognized in income for the period   884,809    274,019 

 

In conformity with the exemption set forth in CVM Resolution No. 647, gains and losses accumulated until 01/01/2010 were recognized in Stockholders’ equity, net of tax effects and, taking into account the subsidiary company’s adjustments. The actuarial gains and losses for the period from 01/01 to 12/31/2012 were recognized in Results under Personnel expenses.

 

In the period, contributions to the defined contribution plans, including PGBL, totaled R$ 195,904 (R$ 192,631 at 12/31/2011), of which R$ 145,852 (R$ 143,553 at 12/31/2011) arises from pension funds.

 

d)Other post-employment benefits

 

ITAÚ UNIBANCO HOLDING and its subsidiaries do not offer other post-employment benefits, except in those cases arising from maintenance obligations according to the acquisition agreements signed by Itaú Unibanco Holding, under the terms and conditions established, in which health plans are totally or partially sponsored for retired workers and beneficiaries.

 

I-Changes

 

Based on the reported prepared by an independent actuary, the changes in obligations for these other projected benefits and the amounts recognized in the balance sheet, under liabilities, of Itaú Unibanco Holding are as follows:

 

   12/31/2012   12/31/2011 
At the beginning of the period   (120,154)   (105,335)
Cost of interest   (11,377)   (9,968)
Benefits paid   5,785    5,892 
Actuarial loss   (22,777)   (10,743)
At the end of the period   (148,523)   (120,154)

 

In conformity with the exemption set forth in CVM Resolution No. 647, gains and losses accumulated until 01/01/2010 were recognized in Stockholders’ equity, net of tax effects and, taking into account the subsidiary company’s adjustments. The actuarial gains and losses for the period from 01/01 to 12/31/2012 were recognized in Results under Personnel expenses.

 

We present below the estimated benefit payments for the next 10 years:

 

Period  Estimated
payment		 
2013   6,136 
2014   6,671 
2015   7,233 
2016   7,796 
2017   8,409 
2018 to 2022   52,171 

 

II-Assumptions and sensitivities 1%

 

For calculation of benefits obligations projected beyond the assumptions used for the defined benefit plans (Note 19b l), the 8.16% p.a. increase in medical costs assumption is adopted.

 

Assumptions for rates related to medical assistance costs have a significant impact on the amounts recognized in income. A change of one percentage point in the medical assistance cost rates would have the effects as follows:

 

   1.0% increase   1.0% decrease 
Effects on service cost and cost of interest   2,161    (1,699)
Effects on present value of obligation   26,486    (20,819)

 

 
4.95

 

NOTE 20 – INFORMATION ON FOREIGN SUBSIDIARIES

 

   Foreign branches (1)   Latin America
Consolidated (2)		   Itaú Europe Consolidated
(3)		   Cayman Consolidated (4)   Other foreign companies
(5)		   Foreign consolidated (6) 
   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011 
Assets                                                            
Current assets and long-term receivables                                                            
Cash and cash equivalents   3,088,596    1,742,219    2,617,018    2,289,152    332,379    399,289    282,772    3,732,507    1,065,027    1,472,131    7,060,841    4,595,382 
Interbank investments   15,964,017    16,006,563    2,017,088    1,155,520    2,561,808    2,690,641    7,181,402    6,357,842    383,865    252,388    14,961,942    17,684,723 
Securities   54,242,205    40,283,158    4,026,707    2,771,653    1,947,030    1,729,838    5,427,801    4,711,182    27,091    6,973    65,013,513    48,913,877 
Loan, lease and other credit operations   33,965,800    34,637,723    26,588,258    18,823,139    7,923,518    7,407,031    97,682    296,104    516    6,407    68,514,304    61,077,226 
Foreign exchange portfolio   25,187,165    21,503,413    323,295    476,131    4,020,274    2,220,248    790,039    554,360    -    -    28,983,965    24,097,405 
Other assets   2,132,791    1,129,576    3,338,334    2,726,392    377,840    159,266    1,082,907    767,173    144,390    137,672    6,908,896    4,822,472 
Permanent assets                                                            
Investments   14,369    21,984    4,884    6,658    4,285    111,023    57,054    46,317    436,396    116,467    26,806    256,132 
BPI (Note 13h)   -    -    -    -    -    107,194    -    -    -    111,569    -    218,763 
Other investments   14,369    21,984    4,884    6,658    4,285    3,829    57,054    46,317    436,396    4,898    26,806    37,369 
Fixed and intangible assets   21,278    24,280    571,371    477,762    171,984    177,411    1,127    2,678    18,260    38,788    784,019    695,796 
Total   134,616,221    115,348,916    39,486,955    28,726,407    17,339,118    14,894,747    14,920,784    16,468,163    2,075,545    2,030,826    192,254,286    162,143,013 
                                                             
LIABILITIES                                                            
Current and long-term liabilities                                                            
Deposits   34,806,497    43,356,785    26,202,586    19,609,686    6,669,246    6,192,719    3,800,355    2,416,346    -    -    61,521,846    58,883,455 
Demand deposits   6,548,922    8,298,986    7,325,099    5,375,309    3,441,383    2,480,885    298,927    1,093,902    -    -    17,289,379    12,245,652 
Savings deposits   -    -    3,907,103    2,996,310    -    -    -    -    -    -    3,907,103    2,996,310 
Interbank deposits   11,330,751    1,573,226    133,558    72,055    1,378,488    1,503,552    634,382    -    -    -    7,261,946    2,520,833 
Time deposits   16,926,824    33,484,573    14,836,826    11,166,012    1,849,375    2,208,282    2,867,046    1,322,444    -    -    33,063,418    41,120,660 
Deposits received under securities repurchase agreements   18,001,257    6,538,738    621,865    176,476    -    -    2,756,763    1,844,753    -    -    17,778,335    7,404,766 
Funds from acceptance and issuance of securities   6,020,694    8,909,700    2,451,308    1,320,737    3,785,070    3,386,604    2,505,952    2,895,861    -    -    14,743,650    16,508,555 
Borrowings   19,816,986    14,343,973    2,144,545    1,752,452    805    561,044    10,667    39,590    2,059    31,058    21,975,062    16,697,060 
Derivative financial instruments   2,532,758    1,435,218    280,825    185,681    570,940    699,537    619,532    620,175    -    -    3,453,306    2,421,775 
Foreign exchange portfolio   25,143,957    21,492,533    316,489    479,252    4,027,869    2,223,737    804,277    547,446    -    -    28,955,784    24,086,221 
Other liabilities   18,320,636    6,035,232    2,471,043    2,017,985    352,732    478,248    1,404,332    864,520    141,380    127,189    22,461,289    9,378,919 
Deferred income   75,511    48,222    3,837    9,424    17,835    23,410    -    99    1,230    3,108    98,413    84,262 
Minority interest in subsidiaries   -    -    9,159    8,889    66    63    807,189    -    1    4    807,499    272 
Stockholders’ equity                                                            
Capital and reserves   8,667,184    11,163,788    4,501,577    2,802,837    2,085,428    1,433,568    2,132,390    7,177,436    2,156,465    2,052,613    19,066,785    24,489,444 
Net income for the period   1,230,741    2,024,727    483,721    362,988    (170,873)   (104,183)   79,327    61,937    (225,590)   (183,146)   1,392,317    2,188,284 
Total   134,616,221    115,348,916    39,486,955    28,726,407    17,339,118    14,894,747    14,920,784    16,468,163    2,075,545    2,030,826    192,254,286    162,143,013 
Statement of Income                                                            
Income from financial operations   3,640,094    2,630,283    2,691,130    1,747,458    269,345    264,674    472,282    353,217    12,814    13,202    6,842,396    4,878,691 
Expenses of financial operations   (1,849,610)   (810,930)   (1,113,120)   (658,732)   (144,573)   (106,974)   (258,793)   (197,766)   (244)   (3,417)   (3,133,370)   (1,661,723)
Result of loan losses   (444,941)   188,798    (195,989)   (134,036)   2,638    2,606    -    -    (165)   (3,333)   (638,457)   56,265 
Gross income from financial operations   1,345,543    2,008,151    1,382,021    954,690    127,410    160,306    213,489    155,451    12,405    6,452    3,070,569    3,273,233 
Other operating revenues (expenses)   (104,704)   24,182    (764,171)   (545,151)   (159,023)   (224,648)   (134,162)   (92,243)   (70,525)   (166,456)   (1,226,676)   (972,266)
Operating income   1,240,839    2,032,333    617,850    409,539    (31,613)   (64,342)   79,327    63,208    (58,120)   (160,004)   1,843,893    2,300,967 
Non-operating income   (9,893)   (7,499)   6,692    42,337    (149,031)   1,360    -    297    (154,705)   1,705    (308,152)   35,438 
Income before taxes on income and profit sharing   1,230,946    2,024,834    624,542    451,876    (180,644)   (62,982)   79,327    63,505    (212,825)   (158,299)   1,535,741    2,336,405 
Income tax   (205)   (108)   (140,184)   (80,530)   14,940    (34,276)   -    -    (12,768)   (24,849)   (138,216)   (139,584)
Statutory participation in income   -    -    -    (14)   (5,172)   (6,925)   -    (1,568)   -    -    (5,172)   (8,507)
Minority interest in subsidiaries   -    -    (637)   (8,344)   3    -    -    -    3    2    (36)   (30)
Net income (loss)   1,230,741    2,024,727    483,721    362,988    (170,873)   (104,183)   79,327    61,937    (225,590)   (183,146)   1,392,317    2,188,284 

 

(1)Itaú Unibanco S.A. - Grand Cayman, New York and Tokyo, ITAÚ UNIBANCO HOLDING S.A. - Grand Cayman Branch, Banco Itaú-BBA S.A. - Nassau Banch, only 12/31/2011, Unibanco Grand Cayman Branch and Itaú Unibanco S.A. - Nassau Branch.

 

(2)Banco Itaú Argentina S.A, Itaú Asset Management S.A. Sociedad Gerente de Fondos Comunes de Inversión, Itrust Servicios Inmobiliarios S.A.C.I, Itaú Sociedad de Bolsa S.A., Itaú Chile Holdings Inc., BICSA Holdings LTD., Banco Itaú Chile S.A., Itaú Chile Inversiones, Servicios Y Administración S.A., Itaú Chile Corredor de Bolsa Ltda., Itaú Chile Corredora de Seguros Ltda., Itaú Chile Administradora General de Fondos S.A., Recuperadora de Créditos Ltda, Itaú Chile Compañia de Seguros de Vida S.A., ACO Ltda., Banco Itaú Uruguay S.A., OCA Casa Financiera S.A., OCA S.A., Unión Capital AFAP S.A., Banco Itau Paraguay, Tarjetas Unisoluciones S. A. de Capital Variable, Proserv - Promociones Y Servicios S.A. de C. V ., MCC Asesorias LImitada (50%), MCC Securites INC. (50%) and Itaú BBA SAS; only at 12/31/2011, EF Securities S.A.; only 12/31/2012, Itaú BBA Colômbia and MCC Corredora de Bolsa (50,0489%).

 

(3)IPI - Itaúsa Portugal Investimentos, SGPS Lda. (49%), Itaúsa Europa - Investimentos, SGPS, Lda., Itaú Europa, SGPS, Lda., Itaúsa Portugal - SGPS, S.A., Banco Itau BBA International, S.A , Itau BBA International (Cayman) Ltd., Banco Itaú Europa Luxembourg S.A., BIE Cayman, Ltd., Banco Itaú Europa International, Itaú Bank & Trust Bahamas Ltd., Itaú Europa Securities Inc., Itaú Bahamas Directors Ltd (new company name of Federal Director International Services, S.A.), Itaú Bahamas Nominees Ltd. (new company name of Bay State Corporation Limited) and Banco Itau Suisse S.A; only at 12/31/2011, BIE Directors Ltd and BIE Nominees Lda; only at 12/31/2012, Itaú BBA International Limited.

 

(4)Itau Bank Ltd., ITB Holding Ltd., Jasper International Investiment LLC, Itaú Bank & Trust Cayman Ltd., Uni-Investments Inter. Corp., Rosefield Finance Ltd. (50%), UBT Finance S.A., Itaú Cayman Directors Ltd. and Itaú Cayman Nominees Ltd.: only at 12/31/2011, Itau USA Asset Management, Unibanco Cayman Bank Ltd. and Unipart Partic. Internac. Ltd.

 

(5)Afinco Americas Madeira, SGPS, Soc. Unipessoal Ltda., Topaz Holding Ltd., Itaú USA Inc, Itaú International Investment LLC, Albarus S.A., Banco Del Paraná S.A., Garnet Corporation, Itau Global Asset Management, Mundostar S.A., Karen International Ltd., Nevada Woods S.A., Itaú Asia Securities Ltd., Líbero Trading International Ltd., IPI - Itaúsa Portugal Investimentos, SGPS Lda. (51%), Itaú BBA USA Securities Inc., Itaú Middle East Limited, Unipart B2B Investments, S.L., Itau BBA UK Securities Limited, Itaú Japan Asset Management Ltd., Itaú (Beijing) Investment Consultancy Limited, Itaú UK Asset Management LImited and Itaú Asia Asset Management Limited; only at 12/31/2011: Zux Cayman Company Ltd; only 12/31/2012, Itaú USA Asset Management.

 

(6)Foreign consolidated information presents balances net of eliminations from consolidation.

 

 
4.96

 

NOTE 21 – RISK MANAGEMENT

 

The purpose of risk identification is to map the risk events of internal and external nature that may affect the strategies of support and business units and the fulfillment of their objectives, with possibility of impact on ITAÚ UNIBANCO HOLDING’s income, capital and liquidity.

 

Risk management is considered by ITAÚ UNIBANCO HOLDING an essential tool for optimizing the use of resources and selecting the best business opportunities, in order to maximize shareholder value.

 

At ITAÚ UNIBANCO HOLDING, Risk Management is the process in which:

 

·The existing and potential risks in ITAÚ UNIBANCO HOLDING's operations are identified and measured;
·Norms, procedures and methodologies for risk management and control consistent with the Board of Directors’ guidelines and ITAÚ UNIBANCO HOLDING’s strategies are approved;
·The ITAÚ UNIBANCO HOLDING’s risk portfolio is managed considering the best risk-return ratio;

 

Risk management processes are spread throughout the whole institution, aligned with the guidelines of the Board of Directors and Executives that, through Committees of the Board of Directors and Senior Commissions, define the global objectives that are measured as goals and limits to the risk management units. Control units, in turn, support the ITAÚ UNIBANCO HOLDING’s management by monitoring and analyzing risk.

 

ITAÚ UNIBANCO HOLDING’s risk management organizational structure is compliant with the regulations in Brazil and abroad and in line with market best practices. The Market, Credit, Liquidity, Operational and Underwriting risks control is performed in a centralized way by an independent unit, aiming at assuring that the ITAÚ UNIBANCO HOLDING’s risks are being managed in accordance with established policies, norms and procedures. The purpose of centralizing control is to provide the Executives and the Board of Directors with an overview of ITAÚ UNIBANCO HOLDING’s risk exposure, so as to optimize and speed up corporate decision-making.

 

ITAÚ UNIBANCO HOLDING manages proprietary IT systems to fully meet the applicable rules on capital reserve, pursuant to determinations and models issued by the Central Bank (BACEN). It also coordinates actions to check for adherence to qualitative and quantitative requirements established by the relevant authorities for compliance with the minimum mandatory capital requirement.

 

In compliance with Resolution No. 3,988 of June 30, 2011 of the National Monetary Council (CMN), ITAÚ UNIBANCO HOLDING completed the implementation of its capital management structure. The first report of ICAAP (Internal Capital Adequacy Assessment Process) will be submitted in September 2013 at the July 2013 base date.

 

Further information on risk management can be found on the website www.itau-unibanco.com.br/ri, under section Corporate Governance/Risk Management – Circular 3.477.

 

I – Market Risk

 

Market risk is the possibility of incurring losses arising from the variations in the market values of positions held by a financial institution, including the risks of transactions subject to the variations in foreign exchange and interest rates, and equities, of price indexes and commodity prices among other indexes on these risk factors.

 

The market risk management is the process through which the institution plans, monitors and controls the risks of variations in financial instruments market values, aiming at optimizing the risk-return ratio, by using an appropriate structure of Adequate management limits, models and tools.

 

The scope of the market risk control carried out by ITAÚ UNIBANCO HOLDING is extended to all the financial instruments included in the portfolios of companies under its responsibility. In this sense, the corporate guidelines the ITAÚ UNIBANCO HOLDING’s Market Risk Management Policy is in line with the principles of Resolution No. 3,464 of June 26, 2007, issued by the National Monetary Council (CMN) (as amended), being a set of principles that drive the ITAÚ UNIBANCO HOLDING strategy towards control and management of market risk of all business units and legal entities of the ITAÚ UNIBANCO HOLDING.

 

 
4.97

 

The document that details the guidelines set out by the corporate guidelines on market risk control can be read on the website www.itau-unibanco.com.br/ri, in the section Corporate Governance, Rules and Policies, Public Access Report – Market Risk.

 

The process for managing market risks of ITAÚ UNIBANCO HOLDING occurs within the governance and hierarchy of committees and limits approved specifically for this purpose, and that covers from the monitoring of aggregate indicators of risk (portfolio level) to granular limits (individual desks level), assuring effectiveness and coverage of control. These limits are dimensioned considering the projected results of the balance sheet, the level of equity and the profile of risk of each organization unit, which are defined in terms of risk measures used by management. Limits are monitored and controlled daily and excesses are reported and discussed in the corresponding committees.

 

The structure of limits and alerts follows the guidelines of the Board of Directors and is designed and approved by the Superior Risk Committee (CSRisc), after discussions and deliberations by the Superior Institutional Treasury Committee (CSTI) about metrics and market risk limits. The review of this structure of limits is performed at least annually.

 

The purpose of this structure is:

 

·providing more assurance to all executive levels that the assumption of market risks is in line with the ITAÚ UNIBANCO HOLDING and the risk-return objective

 

·promoting the disciplined and educated discussion on the global risk profile and its evolution over time;

 

·increasing transparency on the way the business seeks the optimization of results;

 

·providing early warning mechanisms in order to make the effective risk management easier, without jeopardizing the business purposes; and

 

·avoiding risk concentration.

 

The market risk control and management process is submitted to periodic reviews aimed at keeping it aligned with the best market practices and adhering to the continuous improvement processes at ITAÚ UNIBANCO HOLDING.

 

The control of market risk is carried out by an area independent from the business ones, and is responsible for carrying out daily measurement, assessment, analysis and report activities to the areas and people in charge, pursuant to governance establishedand monitoring the actions required to adjust the position and/or risk level. For this purpose, the ITAÚ UNIBANCO HOLDING relies on a structured communication and information flow, aiming at providing feedback for the follow-up of the superior committees and compliance with the regulatory bodies in Brazil and regulatory agents abroad.

 

The market risk analyses are conducted based on the following metrics:

 

·Value at Risk (VaR): statistical measure that estimates the expected maximum potential economic loss under normal market conditions, considering a certain time horizon and confidence level;

 

·Losses in Stress Scenarios: simulation technique to assess the behavior of assets and liabilities and derivatives of a portfolio when several risk factors are taken to extreme market situations (based on prospective scenarios);

 

·Stop Loss: additional stress scenario in which losses are added to the maximum potential loss in bullish and bearish scenarios;

 

·Concentration: cumulative exposure of a certain asset or risk factor calculated at market value (“MtM – Mark to Market”);

 

 
4.98

 

In addition to the aforementioned risk measures, sensitivity and loss control measures are also analyzed. They comprise:

 

·Mismatching (gap) analysis (GAPS): graphic representation by risk factor of cash flows expressed at market value, allocated at the maturity dates;

 

·Sensitivity (DV1- Delta Variation): impact on the market value of cash flows, when submitted to an one annual basis point increase in the current interest rates or index rate and 1 percentage point in the share price and currency;

 

·Sensitivity to Several Risk Factors (Greeks): partial derivatives of an option portfolio in relation to the prices of underlying assets, implied volatilities, interest rates and time;

 

·Stop Loss: maximum loss that a certain portfolio classified in the trading portfolio is authorized to reach.

 

The consolidated ITAÚ UNIBANCO HOLDING S.A., maintaining its conservative management and portfolio diversification, continued with its policy of operating within low limits in relation to its capital.

 

In December 2012, Itaú Unibanco recorded a Total Global VaR of R$ 374 million (R$ 151 million in December/2011).

 

 
4.99

 

II – Credit Risk

 

Credit risk is the possibility of incurring losses in connection with: (i) the breach by the borrower or counterparty of the respective agreed-upon financial obligations, (ii) the devaluation of loan agreement due to downgrading of the borrower’s risk rating, (iii) the reduction in gains or compensation, (iv) the advantages given upon renegotiation and (v) the recovery costs.

 

In line with the principles of CMN Resolution No. 3,721 of April 30, 2009, ITAÚ UNIBANCO HOLDING has a structure for and institutional norm on credit risk management, approved by its Board of Directors, applicable to the companies and subsidiaries in Brazil and abroad.

 

The document that outlines the guidelines set out by this internal policy on credit risk control can be read on the websitewww.itau-unibanco.com.br/ri, in the section Corporate Governance, Rules and Policies, Public Access Report – Credit Risk.

 

The objective of ITAÚ UNIBANCO HOLDING’s credit risk management aims at creating value to stockholders, through the analysis of the risk-adjusted return, focusing on maintaining the quality of credit portfolio in levels adequate to each market segment in which it operates.

 

ITAÚ UNIBANCO HOLDING establishes its credit policy based on internal factors, such as the client rating criteria and portfolio development analysis, the registered default levels, the incurred return rates, and the allocated economic capital; and external factors, related to the economic environment in Brazil and abroad, including market share, interest rates, market default indicators, inflation, and consumption increase/decrease. ITAÚ UNIBANCO HOLDING’s centralized process for making decisions and establishing a credit policy guarantees the synchrony of credit actions and optimization of business opportunities.

 

To protect the institution against losses arising from loan operations, ITAÚ UNIBANCO HOLDING considers all aspects that determine the client’s credit risk to define the provision level commensurate with the risk incurred in each operation. For each operation, the assessment and rating of the client or economic group, the operation rating, and the possible existence of past-due amounts are taken into account and the volume of the regulatory provision is determined.

 

ITAÚ UNIBANCO HOLDING recognizes a provision additional to that required by BACEN, aiming at ensuring a provision level compatible with the expected loss model adopted by the institution's credit risk management, based on internal models. This allowance is usually quantified in view of the past performance of loan portfolios, based on exposure, probabilities of default and expected recovery of transactions.

 

III – Operational Risk

 

The operational risk is the possibility of incurring losses arising from failure, deficiency or inadequacy of internal processes, personnel and systems, or external events. It includes the legal risk, associated with the inadequacy or deficiency in agreements signed by the institution, as well as sanctions for failing to meet legal provisions and compensation for damages to third parties arising from activities performed by ITAÚ UNIBANCO HOLDING.

 

The purposes of operational risk management is to identify, evaluate, measure and respond to the ITAÚ UNIBANCO HOLDING’s operational risks and monitor them for the purpose of maintaining losses and risks within the limits established by ITAÚ UNIBANCO HODLING and to ensure adherence to the internal guidelines and current regulation. The managers of the business and support areas use corporate methodologies that are built and made available by the operational risk and internal control areas to support the management process.

 

The operational risk control is the process of measurement, monitoring and reporting of the organization’s risk aimed at ensuring that ITAÚ UNIBANCO HODLING’s risk profile is within the limits established by Senior Management and that Senior Management is informed of the main risks of the institution in a timely manner. This control is carried out by the operational risk and internal control areas, which, in turn, use control methodologies and risk information generated by the business areas. Within the governance of the operational risk management process, there are specific operational risk and control forums conducted by the control areas where the consolidated reports on risk monitoring, controls, action plans and operational losses are presented to the business areas executives.

 

 
4.100

 

The set of principles, governance, roles and responsibilities, methodologies and procedures that support the operational risk management process applied to products, services, activities, processes and systems is described and published in an operational risk management institutional norm. A summarized version of such policy is available on the website www.itau-unibanco.com.br/ri in the section Corporate Governance, Rules and Policies, Public Access Report – Operational Risk.

 

On April 30, 2008, BACEN published Circular No. 3.383 and Circular Letters Nos. 3,315 and No. 3,316, which establish the criteria for calculation of PRE related to the operational risk (POPR), addressed by Resolution No. 3,490. Therefore, since July 1, 2008, ITAÚ UNIBANCO HOLDING has allocated capital to Operational Risk using the Alternative Standardized Approach.

 

IV – Liquidity Risk

 

Liquidity risk is the occurrence of imbalances between tradable assets and falling due liabilities - mismatching between payments and receipts - which may affect the ITAÚ UNIBANCO HOLDNIG’s payment capacity, taking into consideration the different currencies and payment terms and their rights and obligations.

 

Management of liquidity risk seeks to guarantee liquidity sufficient to support possible outflows in market stress situations, as well as the compatibility between funding, and terms and liquidity of assets.

 

ITAÚ UNIBANCO HOLDING has a structure dedicated to monitoring, controlling and analyzing liquidity risk, through models of variables projections that affect cash flows and the level of reserves in local and foreign currencies.

 

Additionally, ITAÚ UNIBANCO HOLDNIG establishes guidelines and limits whose compliance is periodically analyzed in technical committees and whose purpose is providing safety margin in addition to the minimum projected needs. Liquidity management policies and associated limits are established based on prospective scenarios that are regularly reviewed and on top management definitions.

 

V - Underwriting Risk

 

Underwriting risk is the possibility of incurring losses arising from insurance, pension plan and capitalization operations that are contrary to the organization’s expectations and that are directly or indirectly associated with the technical and actuarial bases used to calculate premiums, contributions and technical reserves.

 

The insurance risk management process is supported by roles and responsibilities determined by the business and risk control areas so as to reinforce the separation of the management and control activities and, therefore, ensure the independence between the areas. Additionally, there is a governance process that ensures an independent validation of the products and negotiations in question, ensuring compliance with the many internal and regulatory demands.

 

In accordance with the Resolution No. 228 of December 6, 2010 of National Council of Private Insurance (CNSP), ITAÚ UNIBANCO HOLDING establishes limits for borderline risks between underwriting and credit. Itaú Unibanco defines the credit risk quality of reinsurance companies and the concentration limits in accordance with CNSP Resolution No. 168, of December 17, 2007, following the same credit governance of Itaú Unibanco.

 

 
4.101

 

NOTE 22 –SUPPLEMENTARY INFORMATION

 

a)Insurance policy - ITAÚ UNIBANCO HOLDING and its subsidiaries, despite the low risk exposure due to a physical non-concentration of their assets, have the policy to guarantee their valuables and assets at amounts considered sufficient to cover possible claims.

 

b)Foreign currency – The balances in Reais linked to the foreign currency were:

 

   12/31/2012   12/31/2011 
Permanent foreign investments   20,459,102    26,677,728 
Net amount of other assets and liabilities indexed to foreign currency, including derivatives   (34,389,696)   (42,093,627)
Net foreign exchange position   (13,930,594)   (15,415,899)

 

The net foreign exchange position, considering the tax effects on the net balance of other assets and liabilities indexed to foreign currency, reflects the low exposure to exchange variations.

 

c)Investment funds and managed portfolios - ITAÚ UNIBANCO HOLDING, through its subsidiaries, manages the following types of funds: privatization, fixed income, shares, open portfolio shares, investment clubs, customer portfolios and group portfolios, domestic and foreign, classified in memorandum accounts, distributed as follows:

 

   Amount   Amount (*)   Number of funds 
   12/31/2012   12/31/2011   12/31/2012   12/31/2011   12/31/2012   12/31/2011 
Investment funds   402,694,194    335,975,293    402,694,194    335,975,293    2,046    1,891 
Fixed income   364,952,273    321,037,644    364,952,273    321,037,644    1,675    1,749 
Shares   37,741,921    14,937,649    37,741,921    14,937,649    371    142 
Managed portfolios   224,266,414    161,077,902    159,263,381    113,717,430    15,421    15,225 
Customers   113,018,032    89,886,443    77,904,260    72,478,230    15,351    15,128 
Itaú Group   111,248,382    71,191,459    81,359,121    41,239,200    70    97 
TOTAL   626,960,608    497,053,195    561,957,575    449,692,723    17,467    17,116 
(*)It refers to the distribution after elimination of double-counting of managed portfolios in investment funds.

 

d)Funds of consortia

 

   12/31/2012   12/31/2011 
Monthly estimate of installments receivable from participants   88,910    77,097 
Group liabilities by installments   6,490,497    6,206,775 
Participants – assets to be delivered   6,001,898    5,830,775 
Funds available for participants   650,192    492,514 
(In units)          
Number of managed groups   812    784 
Number of current participants   275,340    241,996 
Number of assets to be delivered to participants   154,917    139,016 

 

 
4.102

 

e)Fundação Itaú Social - ITAÚ UNIBANCO HOLDING and its subsidiaries are the main sponsors of Fundação Itaú Social, the objectives of which are: 1) managing the “Itaú Social Program”, which aims at coordinating the organization’s role in projects of interest to the community by supporting or developing social, scientific and cultural projects, mainly in the elementary education and health areas; 2) supporting projects or initiatives in progress, supported or sponsored by entities qualified to work in the ”Programa Itaú Social” (Itaú Social Program); and 3) providing food and other similar benefits to the employees of ITAÚ UNIBANCO HOLDING and other companies of the group.

 

During the period from January 1 to December 31, 2012 the consolidated companies made no donations (R$ 280 at December 31, 2011) and the Foundation’s social net assets totaled R$ 3,390,106 (R$ 3,052,977 at December 31, 2011). The income arising from its investments will be used to achieve the Foundation’s social purposes.

 

f)Instituto Itaú Cultural – IIC - ITAÚ UNIBANCO HOLDING and its subsidiaries are supporters of Instituto Itaú Cultural - IIC, an entity formed to grant incentives, promote and preserve Brazil’s cultural heritage. During the period, the consolidated companies donated the amount of R$ 68,700 (R$ 56,400 from January 1 to December 31, 2011).

 

g)Instituto Unibanco - ITAÚ UNIBANCO HOLDING and its subsidiaries sponsor Instituto Unibanco, an entity whose objective is to support projects on social assistance, particularly education, culture, promotion of integration to labor market, and environmental protection, directly and/or supplementarily, through the civil society’s institutions.

 

h)Instituto Unibanco de Cinema - ITAÚ UNIBANCO HOLDING and its subsidiaries sponsor Instituto Unibanco de Cinema, an entity whose objective is (i) the fostering of culture in general; and (ii) providing access of low-income population to cinematography, videography and similar productions, for which it shall maintain movie theaters owned or managed by itself, and theaters to screen films, videos, video-laser discs and other related activities, as well as to screen and divulge films of great importance, especially those produced in Brazil.

 

i)Associação Clube “A” - ITAÚ UNIBANCO HOLDING and is subsidiaries sponsor Associação Clube “A”, an entity whose objective is the provision of social services for the welfare of beneficiaries, in the way and conditions established by its Internal Rules, and according to the funds available. These services may include, among others, the promotion of cultural, educational, sports, entertainment and health care activities. During the period from January 1 to December 31, 2012, the consolidated companies made donations to Clube “A” in the amount of R$ 2.823 (R$ 430 from January 1 to December 31, 2011).

 

j)Instituto Assistencial Pedro di Perna - ITAÚ UNIBANCO HOLDING and its subsidiaries sponsor Instituto Assistencial Pedro di Perna, an entity whose objective is the provision of social services, stimulate sport activities, and promote recreation, aimed at the welfare of its members, in the way and conditions established by its Internal Rules, and according to the funds available.

 

k)Exclusions of nonrecurring effects net of tax effects – Holding and Holding Consolidated

 

   01/01 to
12/31/2012		   01/01 to
12/31/2011		 
Realization of assets (1)   835,851    - 
Increase in the Social Contribution Rate (Note 14b IV)   350,932    - 
Program for Settlement or Installment Payment of Federal - Law No. 11,941/09 (Notes 12b and 14)   -    508,993 
Provision for contingencies (2)   (873,361)   (284,665)
Tax and Social Security Contributions   (252,544)   - 
Civil Lawsuits   (144,876)   - 
Economic Plans   (327,564)   (284,665)
Labor Claims   (104,769)   - 
Others   (43,608)   - 
Market value based on the share price – BPI (Note 15a II)   (305,446)   (244,697)
Allowance for loan losses (2)   (228,516)   - 
Reward Program - Credit cards (3)   (185,398)   - 
Others   (42,823)   - 
Total   (448,761)   (20,369)

(1) Basically composed of gains from sale of Serasa (Note 13j).

(2) Refer to improving the calculation methodology of such provisions.

(3) Reformulation of benefit.

 

 
4.103

 

 

 

l)Reclassifications for comparison purposes – The Company carried out reclassifications in the balances of December 31, 2011, for financial statements comparison purposes, in view of the regrouping of the following headings: In the Balance Sheet, the reclassification related to Investment Funds from Minority Interest in Subsidiaries to Other Liabilities – Sundry. In Statement of Income, the reclassification from Non-Operating Income to Personnel Expenses and the reclassification from Minority Interest in Subsidiaries to Expenses of Financial Operations.

 

   Prior
disclosure		   Reclassification/
deconsolidation		   Adjusted
balances		 
CURRENT AND LONG-TERM LIABILITIES  777,009,087   397,678   777,406,765 
OTHER LIABILITIES   152,784,887    397,678    153,182,565 
Sundry   20,090,835    397,678    20,488,513 
MINORITY INTEREST IN SUBSIDIARIES   2,138,904    (397,678)   1,741,226 
TOTAL LIABILITIES   851,331,535    -    851,331,535 
EXPENSES OF FINANCIAL OPERATIONS   (54,107,439)   (35,341)   (54,142,780)
Money market   (46,249,862)   (35,341)   (46,285,203)
INCOME FROM FINANCIAL OPERATIONS BEFORE LOAN LOSSES   47,259,006    (35,341)   47,223,665 
GROSS INCOME FROM FINANCIAL OPERATIONS   32,835,252    (35,341)   32,799,911 
OTHER OPERATING REVENUES (EXPENSES)   (14,545,854)   596    (14,545,258)
Personnel expenses   (13,356,634)   596    (13,356,038)
OPERATING INCOME   18,289,398    (34,745)   18,254,653 
NON-OPERATING INCOME   191,390    (596)   190,794 
INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING   18,480,788    (35,341)   18,445,447 
Due on operations for the period   (7,029,598)   250,282    (6,779,316)
Related to temporary differences   4,174,170    (250,282)   3,923,888 
MINORITY INTEREST IN SUBSIDIARIES   (812,816)   35,341    (777,475)
NET INCOME   14,620,621    -    14,620,621 

 

m)Agreements for offset and settlement of liabilities in the scope of the National Financial System – Offset agreements were entered into in the scope of derivative contracts, as well as agreements for offset and settlement of receivables and payables pursuant to CMN Resolution No. 3.263, of February 24, 2005, which purpose is to enable the offset of credits and debits maintained with the same counterparty, and in which the maturity dates of receivables and payables can be advanced to the date an event of default by one of the parties occurs or in case of the bankruptcy of the debtor.

 

 
5.1

 

 

Independent Auditor’s Report

 

To the Board of Directors and Stockholders
Itaú Unibanco Holding S.A.

 

We have audited the accompanying financial statements of Itaú Unibanco Holding S.A. (the “Bank”) standing alone, which comprise the balance sheet as at December 31, 2012 and the statements of income, changes in equity and cash flows for the six-month period and year then ended, as well as the accompanying consolidated financial statements of Itaú Unibanco Holding S.A. and its subsidiaries (“Consolidated”), which comprise the consolidated balance sheet as at December 31, 2012 and the consolidated statements of income and cash flows for the six-month period and year then ended, and a summary of significant accounting policies and other explanatory information.

 

Management’s responsibility for the financial statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank (BACEN), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Independent Auditor’s responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

 
5.2

 

 

Opinion

 

In our opinion, the financial statements present fairly, in all material respects, the financial position of Itaú Unibanco Holding S.A. and of Itaú Unibanco Holding S.A. and its subsidiaries as at December 31, 2012, and the financial performance and cash flows, as well as the consolidated financial performance and cash flows, for the six-month period and year then ended December 31, 2012, in accordance with the accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank (BACEN).

 

Other matters

 

Supplementary information - Statement of value added

 

We also have audited the Bank’s and the consolidated statements of value added for the six-month period and year ended December 31, 2012, the presentation of which is required by the Brazilian corporate legislation for listed companies. These statements were subject to the same audit procedures described above and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole.

 

São Paulo, February 4, 2013

 

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5

 

Paulo Sergio Miron

Contador CRC 1SP173647/O-5

 

 
6.1

 

 

ITAÚ UNIBANCO HOLDING S.A.

 

CNPJ. 60.872.504/0001-23 A Listed Company NIRE. 35300010230

 

SUMMARY OF THE AUDIT COMMITTEE REPORT

 

According to its Charter (available on website www.itau-unibanco.com.br/ir), the Committee is responsible for the quality and integrity of the financial statements of the Itaú Unibanco Financial Conglomerate, for the compliance with legal and regulatory requirements, for the activities, independence and quality of the services rendered by the independent and the internal auditors, and for the quality and effectiveness of the internal controls and risk management systems of the Conglomerate. The assessments made by the Committee are based on information received from management, external auditors, internal auditors, those responsible for risk management and internal controls, and on its own analysis based on direct observation.

 

Management is responsible for preparing the financial statements of Itaú Unibanco Holding S.A. and its subsidiary and affiliated companies and for establishing the necessary procedures to ensure the quality of the processes that generate the information used to prepare the financial statements and the financial reports. Management is also responsible for risk control and monitoring and for the supervision of the corporate activities of internal controls and compliance.

 

PricewaterhouseCoopers Auditores Independentes is responsible for auditing the financial statements and for ensuring that they fairly represent, in all material aspects, the financial position of the Conglomerate, in conformity with the accounting practices adopted in Brazil arising from the Brazilian corporate law and the requirements of the Conselho Monetário Nacional, Comissão de Valores Mobiliários, Banco Central do Brasil, Conselho Nacional de Seguros Privados, and Superintendência de Seguros Privados, as well as in conformity with the International Financial Reporting Standards (IFRS).

 

Internal Audit focuses on issues which present the highest risk potential, on the assessment of internal controls and risk management systems, on the evaluation of the quality of processes and on by remote monitoring of risks.

 

Committee Activities

 

The Committee met thirteen times in the period from August 2012 to January 2013, a total of 21 days. In addition, in a session held on February 4th, the Committee analyzed the financial statements as of December 31, 2012 as well as examined and approved the Audit Committee Report and this Summary on the activities performed in the semester up to that baseline date.

 

During the period, the Audit Committee undertook its annual self-evaluation. This procedure was designed to measure its adherence to the directives issued by the Brazilian and American regulators as well as to the best international practices on structure and functioning of audit committees. Discussed and approved at a meeting in December 2012, the self-evaluation was submitted to the Board of Directors for ratification at its of January meeting.

 

Risk Management and Internal Controls

 

In 2012, during meetings with Officers responsible for Risk Control and Finance, the Committee examined the aspects related to risk management and control in the Conglomerate, with emphasis on credit, liquidity, market operational and subscription risks. Through meetings with the Officer in charge of the internal control and compliance, the Committee also monitored the implementation and application of the framework for operational risk management.

 

Based on the information brought to its attention, the Audit Committee considers to be positive the efforts that have been made to ensure the effectiveness of the existing internal controls and risk management systems.

 

The Committee has also been monitoring the efforts of Itaú Unibanco to converge to Basel II recommendations in relation to the development of the Company’s internal risk management models, which should result in better controls in the integrated management of the businesses.

 

 
6.2

 

 

It also considers that the approach that the Organization has adopted to prepare itself for the use of internal models as required by Basel II is firmly established and properly focused.

 

Compliance with the Legislation, Regulatory Requirements and the Internal Policies and Procedures

 

The Audit Committee considers that the duties and responsibilities, as well as the procedures for assessing and monitoring legal risks are established and continue to be adopted in accordance with the corporate guidelines.Based on the information brought to its attention from the areas in charge, on the work carried out by the Internal Audit and on the reports prepared by the external auditors, the Audit Committee concludes that no deficiencies were identified in the compliance with the legislation, regulatory requirements and internal policies and procedures that might pose risks to the continuity of the Organization.

 

External Audit

 

The Committee has a regular channel of communication with the external auditors to extensively discuss the results of their work and relevant accounting aspects, thus enabling the Committee’s members to form a well-based opinion as to the integrity of the financial accounting statements and of the financial reports.

 

The Committee assesses as fully satisfactory the amount and the quality of the information provided by PricewaterhouseCoopers, which supports its opinion on the integrity of the financial statements. The Committee did not identify situations that could affect the objectivity and independence of the external auditors.

 

Internal Audit

 

The Audit Committee approves the annual working plan of the Internal Audit and the revised version of this plan for the second half of the year and, on a quarterly basis, monitors its compliance, making itself aware of work performed that was not planned and providing an opinion on the cancellation of works envisaged in the plan.

 

The Committee evaluates positively the coverage and quality of the work performed by the internal auditors. The results presented monthly during the Committee’s meetings did not bring to its attention the existence of residual risks that could affect the soundness and the continuity of the Organization.

 

Consolidated Financial Statements

 

The Committee analyzed the processes for preparing individual and consolidated balance sheets, notes to the financial statements and financial reports published with the consolidated financial statements. It discussed this subject with PricewaterhouseCoopers and with Senior Management of the Conglomerate. An evaluation was also made of the relevant accounting practices used by the Itaú Unibanco Financial Conglomerate in the preparation of its financial statements. The Committee verified that they are in conformity with the generally accepted accounting principles applicable to institutions that have authorization to carry out operations from the Banco Central do Brasil or subject to regulation by the Superintendência de Seguros Privados.

 

Recommendations

 

Regular meetings were held with the Chairman of the Board of Directors and with the Chief Executive Officer of Itaú Unibanco. During those meetings, the Committee had the opportunity to present its opinions and points of view concerning different aspects of its activities.

 

 
6.3

 

 

Conclusion

 

This Audit Committee, with due consideration to its responsibilities and to the natural limitations due to the scope of its activities, recommends to the Board of Directors the approval of the consolidated financial statements of Itaú Unibanco Holding S.A., for the semester ended on December 31, 2012.

 

São Paulo, February 4th, 2013.

 

The Audit Committee

 

Gustavo Jorge Laboissière Loyola – President

 

Alkimar Ribeiro Moura

 

Eduardo Augusto de Almeida Guimarães

 

Guy Almeida Andrade – Financial Expert

 

Luiz Alberto Fiore

 

 
7.1

ITAÚ UNIBANCO HOLDING S.A.

 

CNPJ. 60.872.504/0001-23 Listed Company NIRE. 35300010230

 

OPINION OF THE FISCAL COUNCIL

 

The effective members of the Fiscal Council of ITAÚ UNIBANCO HOLDING S.A., by exercising the legal and statutory powers conferred to them, have reviewed the management report and the financial statements of the Company for the fiscal year ended December 31, 2012. Based on the analysis carried out and in view of the unqualified opinion of PricewaterhouseCoopers Auditores Independentes, they understand that these documents fairly reflect the Company’s financial and equity position and are eligible to the submitted to the appreciation and approval of the Stockholders.

 

São Paulo, February 04, 2013.

 

IRAN SIQUEIRA LIMA

President

 

ALBERTO SOZIN FURUGUEM   LUIZ ALBERTO DE CASTRO FALLEIROS
Member   Member