EX-99.1 2 v409740_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

 
 

  

CONTENTS

 

Management Discussion & Analysis 03
   
Executive Summary 05
   
Income Statement Analysis 16
   
Managerial Financial Margin 16
   
Result from Loan Losses 21
   
Banking Service Fees, Income from Banking Charges and Result from Insurance, Pension Plan and Premium Bonds 24
   
Banking & Insurance Operations 28
   
Non-interest Expenses 36
   
Tax Expenses for ISS, PIS, Cofins and Others 38
   
Income Tax and Social Contribution on Net Income 38
   
Balance Sheet 40
   
Balance Sheet by Currency 45
   
Risk Management 46
   
Capital Ratios 47
   
Ownership Structure 49
   
Stock Market Performance 50
   
Segment Analysis 55
   
Activities Abroad 61
   
Report of Independent Auditors 67
   
Complete Financial Statements 71

 

It should be noted that the managerial financial statements relating to prior periods may have been reclassified for comparison purposes.

 

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).

 

 
 

  

 

 
 

  

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Itaú Unibanco Holding S.A.04
 

  

Management Discussion & Analysis    Executive Summary

 

Information and financial indicators of Itaú Unibanco Holding S.A. (Itaú Unibanco) are presented below.

 

Highlights

 

In R$ millions (except where indicated), end of period  1Q15   4Q14   1Q14 
Results               
Recurring Net Income   5,808    5,660    4,529 
Net Income   5,733    5,520    4,419 
Operating Revenues (1)   24,946    23,754    20,662 
Managerial Financial Margin (2)   15,963    14,705    12,488 
                
Shares               
Recurring Net Income per share (R$)(3)   1.06    1.03    0.83 
Net Income per share (R$) (3)   1.05    1.01    0.81 
Number of Outstanding Shares at the end of period – in thousands (4)   5,468,988    5,477,002    5,466,773 
Average price of non-voting share on the last trading day of the period (R$) (4)   35.23    34.72    30.70 
Book Value per Share (R$)   17.73    17.50    15.03 
Dividends/Interest on Own Capital net of taxes (5)   1,319    3,694    797 
Dividends/Interest on Own Capital net of taxes (5)  per share (R$)   0.24    0.67    0.15 
Market Capitalization (6)   192,672    190,161    167,830 
Market Capitalization (6) (US$ millions)   60,060    71,592    74,163 
                
Performance               
Recurring Return on Average Equity – Annualized (7)   24.5%   24.7%   22.6%
Return on Average Equity – Annualized (7)   24.2%   24.0%   22.0%
Recurring Return on Average Assets – Annualized (8)   1.9%   1.9%   1.6%
Return on Average Assets – Annualized (8)   1.8%   1.9%   1.6%
Solvency Ratio - Consolidated Prudential (BIS Ratio) (9)   15.3%   16.9%   15.6%
Common Equity Tier I   11.6%   12.5%   11.1%
Estimated BIS III (Common Equity Tier I) - Full Implementation of BIS III (10)   11.4%   11.9%   9.6%
Annualized Credit Margin (11)   11.1%   11.0%   10.9%
Annualized Net Interest Margin with Clients (11)   9.6%   9.7%   8.9%
Annualized Net Interest Margin of Credit after Provision for Credit Risk (11)   6.9%   7.9%   7.5%
Annualized Net Interest Margin with Clients after Provision for Credit Risk (11)   6.6%   7.3%   6.6%
Nonperforming Loans Index (NPL over 90 days)   3.0%   3.1%   3.5%
Nonperforming Loans Index (NPL 15 to 90 days)   2.9%   2.5%   3.0%
Coverage Ratio (Provision for Loan and Lease Losses/NPL over 90 days)   200%   193%   176%
Efficiency Ratio (ER) (12)   43.2%   46.5%   48.2%
Risk-Adjusted Efficiency Ratio (RAER) (12)   62.7%   61.6%   65.1%
                
Balance Sheet               
Total Assets   1,294,613    1,208,702    1,107,376 
Total Loan Portfolio, including Sureties and Endorsements   543,394    525,519    480,120 
Loan Portfolio (A)   468,105    451,760    408,291 
Sureties, Endorsements and Guarantees   75,289    73,759    71,829 
Deposits + Debentures + Securities + Borrowings and Onlending (B) (13)   584,423    573,106    542,121 
Loan Portfolio/Funding (A/B)   80.1%   78.8%   75.3%
Stockholders' Equity   96,954    95,848    82,173 
                
Other               
Assets Under Administration   694,824    668,516    626,696 
Total Number of Employees   92,757    93,175    94,909 
Brazil   85,773    86,192    88,021 
Abroad   6,984    6,983    6,888 
Branches and CSB – Client Service Branches   5,032    5,070    5,028 
ATM – Automated Teller Machines (14)   27,458    27,916    27,858 
                
Indicators               
EMBI Brazil Risk   319    259    226 
CDI rate – In the Period (%)   2.8%   2.8%   2.4%
Dollar Exchange Rate – Quotation in R$   3.2080    2.6562    2.2630 
Dollar Exchange Rate – Variation in the Period (%)   20.8%   8.4%   -3.4%
Euro Exchange Rate – Quotation in R$   3.4457    3.2270    3.1175 
Euro Exchange Rate – Variation in the Period (%)   6.8%   4.3%   -3.5%
IGP-M – In the Period (%)   2.0%   1.9%   2.5%

 

Note: (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 Premium Bonds Operations Before Retained Claims and Selling Expenses, Equity in Earnings of Affliates and Non-Operating Income; (2) Described on pages 16 to 20; (3) Calculated based on the weighted average number of outstanding shares; (4) The number of outstanding shares was adjusted to reflect the share bonus of 10% granted on June 05, 2014; (5) JCP – Interest on Capital. Declared amounts paid/ accrued; (6) 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; (7) Annualized Return was calculated by dividing Net Income by Average Stockholders’ Equity. The quotient was multiplied by the number of periods in the year to derive the annualized rate. The calculation bases of the returns were adjusted by the amount of dividends that has not yet been approved in stockholders’ or Board meetings, proposed after the balance sheet date; (8) Return was calculated by dividing Net Income by Average Assets. The quotient of this division was multiplied by the number of periods in the year to derive the annualized rate. (9) Up the fourth quarter of 2014, this ratio was calculated based on the financial conglomerate; (10) Takes into consideration mitigating actions and use of tax loss carryforwards. (11) Does not include financial margin with the market. See details on page 17; (12) For further details on the calculation methodology of both Effciency and Risk-Adjusted Effciency ratios, please refer to page 37; (13) As described on page 44; (14) Includes ESBs (electronic service branches) and service points in third parties’ establishments.

 

Itaú Unibanco Holding S.A.05
 

  

Management Discussion & Analysis    Executive Summary

 

Net Income and Recurring Net Income

 

Our recurring net income totaled R$5,808 million in the first quarter of 2015 as a result of the elimination of non-recurring events, which are presented in the table below, from net income of R$5,733 million for the period.

 

Non-Recurring Events Net of Tax Effects

 

In R$ millions  1Q15   4Q14   1Q14 
Recurring Net Income   5,808    5,660    4,529 
Non-Recurring Events   (75)   (140)   (110)
Gain from Sale of Large Risk Insurance Operations (a)   -    736    - 
IRB (b)   -    28    33 
Complementary Allowance for Loan Losses (c)   -    (668)   - 
Goodwill Amortization (d)   (60)   (54)   (42)
Provision for Contingencies (e)   (42)   (38)   (41)
Improvement of Labor Claim Provision Model (f)   -    (74)   - 
Porto Seguro (g)   -    -    (60)
Program for Settlement or Installment Payment of Taxes (h)   27    (62)   - 
Realization of Assets and Impairment (i)   -    (9)   - 
Net Income   5,733    5,520    4,419 

 

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

 

(a) Gain from Sale of Large Risk Insurance Operations: Effect of the sale of our large risk insurance operation completed on October 31, 2014.

 

(b) IRB: In 2014, effect of the favorable decision on the increase of the PIS/COFINS calculation basis of IRB Brasil Resseguros S.A.

 

(c) Complementary Allowance for Loan Losses: Recognition of an additional allowance to the minimum required by Resolution No. 2,682/99 of the National Monetary Council, due to a lower economic growth scenario that could affect specific sectors.

 

(d) Goodwill Amortization: Effect of the goodwill amortization generated by the acquisitions carried out by the Conglomerate.

 

(e) Provision for Contingencies: Recognition of provision for losses arising from economic plans that were in effect in Brazil during the 1980's.

 

(f) Improvement of Labor Claim Provision Model: Resulting from changes for the improvement of our model for the recognition of provisions for own and third parties’ labor claims.

 

(g) Porto Seguro: Effect of the favorable decision, by the Federal Supreme Court (STF), on the legality of the COFINS tax on this type of operation in proportion to our interest in the company, in addition to the provision for losses on tax losses in the first quarter of 2014.

 

(h) Program for the Settlement or Installment Payment of Taxes: Effects of our adherence to the Program for the Settlement or Installment Payment of Federal Taxes – Law No. 12,996/14 and Law No. 13,043/14 and State Taxes – Law No. 15,387/14.

 

(i) Realization of Assets and Impairment: In 2014, this item was mainly composed of the impairment of assets.

 

Managerial Income Statement

 

We apply consolidation criteria for the managerial results that affect only the breakdown of accounts and, therefore, do not affect net income. These effects are shown in the table on the following page ("Reconciliation between Accounting and Managerial Statements"). Additionally, we adjusted the tax effects of the hedges of investments abroad - which were originally accounted for as tax expenses (PIS and COFINS) and income tax and social contribution on net income and were reclassified to the financial margin - and the non-recurring effects.

 

Our strategy for the foreign exchange risk management of the capital invested abroad is aimed at mitigating, through financial instruments, the effects resulting from foreign exchange variations and takes into consideration the impact of all tax effects. In the first quarter of 2015, the Brazilian real depreciated 20.8% against the U.S. dollar and 6.8% against the Euro, compared with depreciations of 8.4% and 4.3%, respectively, in the previous quarter.

 

Highlights

 

In line with changes in our organizational structure, as of this quarter we changed the way we present our segments, in order to adjust it to our current business management structure. For further details, please see page 55 of this report.

 

Reaffrming our commitment to the Brazilian market and the creation of long-term value to our stockholders, on March 16, 2015, we entered into an agreement with Mastercard in the payment solutions market. During the 20-year term of this alliance, we, together with Mastercard, will operate a new electronic payments network under a brand with domestic and international acceptance. This alliance is subject to the satisfaction of certain precedent conditions, including the approval by appropriate regulatory authorities.

 

Itaú Unibanco Holding S.A.06
 

  

Management Discussion & Analysis    Executive Summary

 

The reconciliation of the Accounting and Managerial Income Statements for the past two quarters is presented below.

 

Reconciliation between Accounting and Managerial Statements | 1st Quarter of 2015

 

       Non-recurring   Tax Effect of   Managerial     
In R$ millions  Accounting   Effects   Hedge   Reclassifications   Managerial 
Operating Revenues   19,660    (45)   5,783    (452)   24,946 
Managerial Financial Margin   10,143    53    5,783    (15)   15,963 
Financial Margin with Clients   14,055    53    -    (15)   14,092 
Financial Margin with Market   (3,912)   -    5,783    -    1,871 
Banking Services Fees and Income from Banking Charges   7,422    -    -    (555)   6,867 
Results from Insurance, Pension Plan and Premium Bonds Operations Before Retained Claims and Selling Expenses   1,627    -    -    490    2,117 
Other Operating Income   326    (98)   -    (228)   - 
Equity in Earnings of Affiliates and Other Investments   134    -    -    (134)   - 
Non-operating Income   9    -    -    (9)   - 
Loan Losses Net of Recovery   (4,419)   -    -    (35)   (4,455)
Expenses for Allowance for Loan and Lease Losses   (5,480)   -    -    (35)   (5,515)
Income from Recovery of Loans Written Off as Losses   1,060    -    -    -    1,060 
Retained Claims   (368)   -    -    -    (368)
Other Operating Income/(Expenses)   (11,716)   81    (377)   409    (11,602)
Non-interest Expenses   (10,372)   81    -    409    (9,881)
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (1,079)   -    (377)   -    (1,455)
Selling Expenses from Insurance   (266)   -    -    -    (266)
Income before Tax and Profit Sharing   3,156    37    5,406    (78)   8,520 
Income Tax and Social Contribution   2,718    38    (5,406)   42    (2,607)
Profit Sharing   (36)   -    -    36    - 
Minority Interests   (105)   -    -    -    (105)
Net Income   5,733    75    -    -    5,808 

 

Reconciliation between Accounting and Managerial Statements | 4th Quarter of 2014

 

       Non-recurring   Tax Effect of   Managerial     
In R$ millions  Accounting   Effects   Hedge   Reclassifications   Managerial 
Operating Revenues   23,214    (1,106)   2,007    (361)   23,754 
Managerial Financial Margin   12,583    20    2,007    95    14,705 
Financial Margin with Clients   13,572    20    -    95    13,687 
Financial Margin with Market   (988)   -    2,007    -    1,018 
Banking Services Fees and Income from Banking Charges   7,362    -    -    (537)   6,825 
Results from Insurance, Pension Plan and Premium Bonds Operations Before Retained Claims and Selling Expenses   1,768    24    -    431    2,224 
Other Operating Income   145    29    -    (174)   - 
Equity in Earnings of Affiliates and Other Investments   217    (28)   -    (188)   - 
Non-operating Income   1,139    (1,151)   -    12    - 
Loan Losses Net of Recovery   (4,421)   1,113    -    24    (3,284)
Expenses for Allowance for Loan and Lease Losses   (5,750)   1,113    -    24    (4,614)
Income from Recovery of Loans Written Off as Losses   1,330    -    -    -    1,330 
Retained Claims   (497)   -    -    -    (497)
Other Operating Income/(Expenses)   (11,945)   278    (212)   245    (11,633)
Non-interest Expenses   (10,636)   278    -    245    (10,113)
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (1,027)   -    (212)   -    (1,239)
Selling Expenses from Insurance   (281)   -    -    -    (281)
Income before Tax and Profit Sharing   6,351    285    1,795    (91)   8,340 
Income Tax and Social Contribution   (674)   (144)   (1,795)   18    (2,595)
Profit Sharing   (73)   -    -    73    - 
Minority Interests   (84)   (1)   -    -    (85)
Net Income   5,520    140    -    -    5,660 

 

Itaú Unibanco Holding S.A.07
 

  

Management Discussion & Analysis    Executive Summary

 

We present below the income statement from the standpoint that highlights Operating Revenues, which are composed by the sum of the main accounts in which revenues from banking, insurance, pension plan and premium bonds operations are recorded.

 

Income Statement | Operating Revenues Perspective

 

In R$ millions  1Q15   4Q14   variation   1Q14   variation 
Operating Revenues   24,946    23,754    1,192    5.0%   20,662    4,284    20.7%
Managerial Financial Margin   15,963    14,705    1,258    8.6%   12,488    3,475    27.8%
Financial Margin with Clients   14,092    13,687    405    3.0%   11,874    2,218    18.7%
Financial Margin with Market   1,871    1,018    853    83.7%   614    1,257    204.9%
Banking Services Fees and Income from Banking Charges   6,867    6,825    42    0.6%   6,057    810    13.4%
Result from Insurance, Pension Plan and Premium Bonds Operations Before Retained Claims and Selling Expenses   2,117    2,224    (108)   -4.8%   2,118    (1)   -0.1%
Loan Losses Net of Recovery   (4,455)   (3,284)   (1,171)   35.7%   (3,164)   (1,291)   40.8%
Expenses for Allowance for Loan and Lease Losses   (5,515)   (4,614)   (901)   19.5%   (4,252)   (1,264)   29.7%
Income from Recovery of Loans Written Off as Losses   1,060    1,330    (269)   -20.3%   1,088    (27)   -2.5%
Retained Claims   (368)   (497)   129    -25.9%   (487)   119    -24.3%
Operating Margin   20,123    19,973    150    0.8%   17,011    3,111    18.3%
Other Operating Income/(Expenses)   (11,602)   (11,633)   31    -0.3%   (10,464)   (1,138)   10.9%
Non-interest Expenses   (9,881)   (10,113)   232    -2.3%   (9,039)   (842)   9.3%
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (1,455)   (1,239)   (216)   17.5%   (1,160)   (296)   25.5%
Selling Expenses From Insurance   (266)   (281)   15    -5.3%   (265)   (1)   0.4%
Income before Tax and Minority Interests   8,520    8,340    181    2.2%   6,547    1,973    30.1%
Income Tax and Social Contribution   (2,607)   (2,595)   (12)   0.5%   (1,955)   (652)   33.4%
Minority Interests in Subsidiaries   (105)   (85)   (21)   24.3%   (64)   (42)   65.1%
Recurring Net Income   5,808    5,660    148    2.6%   4,529    1,279    28.2%

 

We present below the income statement from the standpoint that highlights the Managerial Financial Margin.

 

Income Statement | Managerial Financial Margin Perspective

 

In R$ millions  1Q15   4Q14   variation   1Q14   variation 
Managerial Financial Margin   15,963    14,705    1,258    8.6%   12,488    3,475    27.8%
Financial Margin with Clients   14,092    13,687    405    3.0%   11,874    2,218    18.7%
Financial Margin with Market   1,871    1,018    853    83.7%   614    1,257    204.9%
Results from Loan and Lease Losses   (4,455)   (3,284)   (1,171)   35.7%   (3,164)   (1,291)   40.8%
Expenses for Allowance for Loan and Lease Losses   (5,515)   (4,614)   (901)   19.5%   (4,252)   (1,264)   29.7%
Income from Recovery of Loans Written Off as Losses   1,060    1,330    (269)   -20.3%   1,088    (27)   -2.5%
Net Result from Financial Operations   11,508    11,421    87    0.8%   9,324    2,185    23.4%
Other Operating Income/(Expenses)   (2,988)   (3,082)   94    -3.0%   (2,776)   (212)   7.6%
Banking Services Fees and Income from Banking Charges   6,867    6,825    42    0.6%   6,057    810    13.4%
Result from Insurance, Pension Plan and Premium Bonds Operations   1,482    1,446    36    2.5%   1,366    116    8.5%
Non-interest Expenses   (9,881)   (10,113)   232    -2.3%   (9,039)   (842)   9.3%
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (1,455)   (1,239)   (216)   17.5%   (1,160)   (296)   25.5%
Income before Tax and Minority Interests   8,520    8,340    181    2.2%   6,547    1,973    30.1%
Income Tax and Social Contribution   (2,607)   (2,595)   (12)   0.5%   (1,955)   (652)   33.4%
Minority Interests in Subsidiaries   (105)   (85)   (21)   24.3%   (64)   (42)   65.1%
Recurring Net Income   5,808    5,660    148    2.6%   4,529    1,279    28.2%

 

Itaú Unibanco Holding S.A.08
 

  

Management Discussion & Analysis    Executive Summary

 

Net Income

 

 

The recurring net income for the first quarter of 2015 amounted to R$5,808 million, representing increases of 2.6% when compared to the previous quarter and 28.2% from the same period of the previous year.

 

The increase in net income for the first quarter of 2015, when compared to the previous quarter, reflects the 5.0% growth in operating revenues, mainly due to the higher managerial financial margin, partially offset by higher expenses for allowances for loan losses and lower revenues from the recovery of loan losses (seasonally lower in first quarters). This increase was also due to lower non-interest expenses and claims expenses, which dropped 2.3% and 25.9%, respectively.

 

Return on Average Equity

 

 

Annualized recurring return on average equity reached 24.5% in the first quarter of 2015. On March 31, 2015, stockholders’ equity totaled R$97.0 billion, with increases of 1.2% when compared to the previous quarter and of 18.0% from the same period of the previous year.

 

In the first quarter of 2015, annualized recurring return on average assets reached 1.9%, unchanged when compared to the fourth quarter of 2014.

 

Operating Revenues

 

In the first quarter of 2015, operating revenues, representing revenues from banking and insurance, pension plan and premium bonds operations, totaled R$24,946 million, 5.0% and 20.7% higher than the previous quarter and the same period of the previous year, respectively.

 

The main components of operating revenues and other items of income statement are presented below.

 

 

Managerial Financial Margin

 

Managerial financial margin for the first quarter of 2015 totaled R$15,963 million, R$1,258 million higher when compared to the fourth quarter of 2014, mainly due to the increase in our financial margin with clients by R$405 million, despite fewer calendar days in the quarter, among other factors, totaling R$14,092 million, and to the increase in our financial margin with market of R$853 million (totaling R$1,871 million).

 

 

Our managerial financial margin increased R$3,475 million when compared to the same period of 2014. This growth is due to the increases of R$2,218 million in the financial margin with clients and of R$1,257 million in the financial margin with market.

 

Managerial Financial Margin of Credit, net of the Allowance from Loan Losses

 

Our financial margin of credit, net of expenses for allowance for loan losses and recovery of credits, increased 2.6% from the first quarter of 2014 and decreased 10.9% when compared to the fourth quarter of 2014. The ratio of expenses for allowance for loan losses, net of recovery, to the financial margin of credit reached 37.8% this quarter.

 

 

 

Itaú Unibanco Holding S.A.09
 

  

Management Discussion & Analysis    Executive Summary

 

Result from Loan Losses, Net of Recovery

 

 

The result from loan losses, net of recovery, increased 35.7% when compared to the previous quarter, totaling R$4,455 million in the quarter. This growth is due to the increase in expenses for the allowance for loan losses of 19.5% (R$901 million), mainly in the corporate segment and from the 20.3% (R$269 million) decrease in revenues from recovery of loans written off as losses. Compared to the first quarter of 2014, the result from loan losses, net of recovery, increased 40.8%.

 

Banking Services Fees and Income from Banking Charges

 

 

Banking service fees, including income from banking charges, increased R$42 million (0.6%) when compared to the previous quarter, totaling R$6,867 million. When compared to the same period of the previous year, these revenues increased R$810 million (13.4%).

 

Result from Insurance, Pension Plan and Premium Bonds

 

 

In the first quarter of 2015, the result from insurance, pension plan and premium bonds from core activities, which consist of mass-market products related to life, property, credit, pension and premium bonds, reached R$1,397 million, an increase of R$31 million from the previous quarter and of R$165 million from the first quarter of 2014.

 

The loss ratio from core activities reached 24.4% this quarter.

 

Non-Interest Expenses

 

 

Non-interest expenses decreased 2.3% in the first quarter of 2015 when compared to the fourth quarter of 2014. Personnel expenses increased R$88 million, whereas administrative expenses were down R$326 million in the first quarter of 2015 from the previous quarter.

 

When compared to the first quarter of 2014, non-interest expenses increased R$842 million (9.3%).

 

Efficiency Ratio and Risk-Adjusted Efficiency Ratio (*)

 

 

(*) Calculation criteria are detailed on page 37.

 

In the first quarter of 2015, the effciency ratio, in the criteria that includes all expenses except for the expenses for the allowance for loan losses, reached 43.2%, an improvement of 330 basis points compared to the previous quarter, due to increase in operating revenues (5.0%) and by the decrease in non-interest expenses (2.3%). In the 12-month period, the effciency ratio reached 45.7%, with an improvement of 130 basis points from the previous quarter and of 330 basis points from the same period of the previous year.

 

In the first quarter of 2015, the risk-adjusted effciency ratio, in the concept including all expenses and the expenses for allowance for loan losses, reached 62.7%, an increase of 110 basis points when compared to the previous quarter due the increase in expenses for allowance for loan losses (19.5%) and lower revenues from recovery of loans written off as losses (20.3%). In the 12-month period, the risk-adjusted effciency ratio reached 62.4%.

 

The calculation methodology for the effciency and risk-adjusted effciency ratios changed to better reflect the institution’s overall performance. In accordance with the previously adopted concept, the effciency ratio and the risk-adjusted effciency ratio would be 43.2% and 63.7%, respectively, in the first quarter of 2015. For further details of this change, please refer to page 37.

 

Itaú Unibanco Holding S.A.10
 

  

Management Discussion & Analysis    Executive Summary

 

Balance Sheet | Assets

 

In R$ millions, end of period  1Q15   4Q14   variation   1Q14   variation 
Current and Long-term Assets   1,274,667    1,188,779    7.2%   1,089,744    17.0%
Cash and Cash Equivalents   18,687    17,527    6.6%   16,030    16.6%
Short-term Interbank Investments   225,076    229,828    -2.1%   190,553    18.1%
Securities and Derivative Financial Instruments   324,060    299,627    8.2%   266,582    21.6%
Interbank and Interbranch Accounts   67,001    63,810    5.0%   85,687    -21.8%
Loan, Lease and Other Loan Operations   468,105    451,760    3.6%   408,291    14.6%
(Allowance for Loan Losses)   (28,354)   (26,948)   5.2%   (25,042)   13.2%
Other Assets   200,092    153,175    30.6%   147,643    35.5%
Foreign Exchange Portfolio   83,050    42,392    95.9%   41,498    100.1%
Other   117,042    110,782    5.7%   106,145    10.3%
Permanent Assets   19,947    19,923    0.1%   17,632    13.1%
Investments   3,539    3,526    0.4%   3,375    4.9%
Fixed and Operating Lease Assets   7,521    7,561    -0.5%   6,621    13.6%
Intangible Assets and Goodwill   8,887    8,836    0.6%   7,635    16.4%
Total Assets   1,294,613    1,208,702    7.1%   1,107,376    16.9%

 

At the end of the first quarter of 2015, our assets totaled R$1.29 trillion, an increase of 7.1% (R$85.9 billion) when compared to the previous quarter. The main changes are presented below:

 

 

When compared to the previous year, the increase of 16.9% (R$187.2 billion) were mainly due to the results from the growth in the loan portfolio and from securities and derivative financial instruments.

 

 

 

Balance Sheet | Liabilities and Equity

 

In R$ millions, end of period  1Q15   4Q14   variation   1Q14   variation 
Current and Long-Term Liabilities   1,194,447    1,109,017    7.7%   1,022,145    16.9%
Deposits   298,652    294,773    1.3%   278,208    7.3%
Demand Deposits   56,660    48,733    16.3%   43,217    31.1%
Savings Deposits   117,357    118,449    -0.9%   108,932    7.7%
Interbank Deposits   28,135    19,125    47.1%   5,493    412.2%
Time Deposits   96,500    108,465    -11.0%   120,567    -20.0%
Deposits Received under Securities Repurchase Agreements   330,858    325,013    1.8%   288,616    14.6%
Fund from Acceptances and Issue of Securities   50,753    47,750    6.3%   43,866    15.7%
Interbank and Interbranch Accounts   9,365    5,260    78.0%   12,766    -26.6%
Borrowings and Onlendings   96,265    88,776    8.4%   76,927    25.1%
Derivative Financial Instruments   30,997    17,394    78.2%   12,049    157.3%
Technical Provisions for Insurance, Pension Plans and Premium Bonds   116,737    112,675    3.6%   104,595    11.6%
Other Liabilities   260,819    217,374    20.0%   205,116    27.2%
Subordinated Debt   59,527    54,569    9.1%   55,534    7.2%
Foreign Exchange Portfolio   84,030    43,176    94.6%   42,150    99.4%
Other   117,262    119,629    -2.0%   107,432    9.2%
Deferred Income   1,513    1,423    6.3%   1,138    32.9%
Minority Interest in Subsidiaries   1,700    2,415    -29.6%   1,919    -11.4%
Stockholders' Equity   96,954    95,848    1.2%   82,173    18.0%
Total Liabilities and Equity   1,294,613    1,208,702    7.1%   1,107,376    16.9%

 

The main changes in liabilities at the end of the first quarter of 2015, when compared to the previous quarter, are presented in the chart below:

 

 

 

When compared to the previous year, the main changes are as follows:

 

 

Itaú Unibanco Holding S.A.11
 

  

Management Discussion & Analysis    Executive Summary

 

Loan Portfolio with Endorsements, Sureties and Private Securities

 

At the end of the first quarter of 2015, our total loan portfolio (including sureties, endorsements and private securities) reached R$578,596 million, growing 3.4% when compared to the fourth quarter of 2014 and 13.8% when compared to the same period of the previous year. Excluding the effect of the foreign exchange variation, our loan portfolio would have decreased 0.6% in the quarter and increased 6.3% in the 12-month period.

 

In the individuals segment, the highlight was the growth of the low -risk loan portfolios: payroll loans, which increased 10.1% in the quarter and 81.0% in the 12-month period, and mortgage loans, which increased 4.5% in the quarter, and 19.6% in the 12-month period, respectively, whereas the vehicles portfolio decreased 9.0% in the quarter and 29.0% in the 12-month period.

 

The companies segment, excluding private securities, grew 3.1% in the quarter and 10.7% in the 12-month period. Corporate loans increased 3.7% when compared to the previous quarter and 14.5% in the past 12 months, whereas the very small, small and middle market companies portfolio grew 1.6% in the first quarter of 2015 and 1.9% in the 12-month period. Considering private security operations, the companies segment recorded a 3.1% increase when compared to the fourth quarter of 2014 and 12.0% in the 12-month period. Excluding the effect of the foreign exchange variation, this portfolio, including private securities, would have decreased 1.4% when compared to the fourth quarter of 2014 and increased 3.0% in the 12-month period.

 

The balance of our operations in Latin America grew 17.7% in the quarter and 40.4% in the 12-month period. Excluding the effect of the foreign exchange variation, the growth of this portfolio would have been 1.1% when compared to the fourth quarter of 2014 and 11.6% in the 12-month period.

 

The balance of endorsements and sureties reached R$75,289 million at the end of the first quarter of 2015, with increases of 2.1% when compared to the fourth quarter of 2014 and of 4.8% in the past 12 months, mainly due to changes in the corporate portfolio, which increased 1.9% from the previous quarter and 5.1% in the 12-month period.

 

In R$ millions, end of period  1Q15   4Q14   variation   1Q14   variation 
Individuals   187,286    186,212    0.6%   168,214    11.3%
Credit Card Loans   56,331    59,321    -5.0%   52,966    6.4%
Personal Loans   29,822    28,541    4.5%   28,274    5.5%
Payroll Loans (1)   44,608    40,525    10.1%   24,652    81.0%
Vehicle Loans   26,331    28,927    -9.0%   37,086    -29.0%
Mortgage Loans (2)   30,194    28,898    4.5%   25,236    19.6%
Companies   304,409    295,366    3.1%   275,083    10.7%
Corporate Loans   218,970    211,241    3.7%   191,260    14.5%
Very Small, Small and Middle Market Loans (3)   85,439    84,125    1.6%   83,822    1.9%
Latin America (4)   51,699    43,942    17.7%   36,823    40.4%
Total with Endorsements and Sureties   543,394    525,519    3.4%   480,120    13.2%
Corporate - Private Securities (5)   35,202    34,175    3.0%   28,126    25.2%
Total with Endorsements, Sureties and Private Securities   578,596    559,694    3.4%   508,246    13.8%
Total with Endorsements, Sureties and Private Securities(6) (ex-foreign exchange rate variation)   578,596    582,068    -0.6%   544,316    6.3%
Endorsements and Sureties   75,289    73,759    2.1%   71,829    4.8%
Individuals   478    552    -13.5%   518    -7.8%
Corporate   67,964    66,727    1.9%   64,663    5.1%
Very Small, Small and Middle Market   4,268    4,213    1.3%   3,931    8.6%
Latin America (4)   2,580    2,267    13.8%   2,717    -5.0%

 

(1) Includes operations originated by the institution and acquired operations. (2) The table does not include co-obligation in mortgage loan assignments in the amount of R$186.3 million in the 4Q11. (3) Includes Rural Loans to Individuals. (4) Includes Argentina, Chile, Colombia, Paraguay and Uruguay. (5) Includes Debentures, CRI and Commercial Paper. (6) Calculated based on the conversion of the foreign currency portfolio (U.S. dollar and currencies of Latin America). Note: Mortgage and Rural Loan portfolios from the companies segment are allocated according to the client’s size. For more details, please refer to page 41.

 

Loan Portfolio – Currency Breakdown

 

 

On March 31, 2015, R$135.7 billion of our total credit assets were denominated in or indexed to foreign currencies and grew 16.5% in the quarter, mainly due to the depreciation of the Brazilian real in relation to the U.S. dollar and the currencies of other Latin American countries.

 

NPL Ratio (90 days overdue)

 

 

In the end of the first quarter of 2015, the NPL ratio for operations that are overdue for more than 90 days (NPL 90) decreased 10 basis points when compared to the previous quarter and 50 basis points when compared to March 2014. Excluding the effect of the foreign exchange variation, this ratio remained stable when compared to the previous quarter.

 

Itaú Unibanco Holding S.A.12
 

  

Management Discussion & Analysis    Executive Summary

 

2015 Outlook (*)

 

The expectations for 2015 previously disclosed and reviewed are presented below:

 

previous   reviewed    
         
▲ 6% to 9%   ▲ 3% to 7%   Total Loan Portfolio 1
         
▲ 10% to 14%   ▲ 14.5% to 17.5%   Managerial Financial Margin 2
         
Between   Between    
R$13 billion and   R$15 billion and   Loan Loss Provision Expenses net of Recoveries
R$15 billion   R$18 bilion    
         
▲ 9% to 11%   ▲ 9.5% to 11.5%   Services Fees and Result from Insurance 3
         
▲ 6.5% to 8.5%   ▲ 7.0% to 10.0%   Non-Interest Expenses

 

(*)Does not consider the effect of CorpBanca´s transaction, which is subject to regulatory approvals.
(1)Includes endorsements, sureties and private securities;
(2)Includes Financial Margin with Clients and Financial Margin with Market;
(3)Service Fees (+) Income from Insurance, Pension Plan and Premium Bonds Operations (-) Expenses for Claims (-) Selling Expenses for Insurance, Pension Plan and Premium Bonds.

 

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 diffcult 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 beyond our control. These risks and uncertainties include, but 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 and changes in tax legislation, among others.

 

Itaú Unibanco Holding S.A.13
 

  

Management Discussion & Analysis    Executive Summary

 

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Itaú Unibanco Holding S.A.14
 

  

 

 
 

  

Management Discussion & Analysis    Income Statement Analysis

 

Managerial Financial Margin

 

The managerial financial margin for the first quarter of 2015 totaled R$15,963 million, an increase of R$1,258 million, or 8.6%, compared to the previous quarter.

 

When compared to the same period of the previous year, our managerial financial margin increased R$3,475 million (27.8%). The main drivers of these variations are presented below:

 

In R$ millions  1Q15   4Q14   variation   1Q14   variation 
Financial Margin with Clients   14,092    13,687    405    3.0%   11,874    2,218    18.7%
Interest Rate-Sensitive   1,926    1,970    (44)   -2.2%   1,339    587    43.8%
Spread-Sensitive   12,166    11,717    449    3.8%   10,535    1,631    15.5%
Financial Margin with Market   1,871    1,018    853    83.7%   614    1,257    204.9%
Total   15,963    14,705    1,258    8.6%   12,488    3,475    27.8%

 

Managerial Financial Margin with Clients

 

The managerial financial margin with clients consists of revenues generated by the use of financial products by clients, including both account and non-account holders.

 

In the first quarter of 2015, the financial margin with clients totaled R$14,092 million, a 3.0% increase from the previous quarter. This increase, which corresponds to R$405 million, was mainly due to the mix of products and spread of the current quarter, in addition to the greater volume of spread-sensitive operations, which more than offset the negative impact of the fewer calendar days in the period.

 

For clarity purposes, we divide these operations into two different groups: financial margin of interest rate-sensitive operations, and financial margin of spread-sensitive operations.

 

Interest Rate-Sensitive Operations

 

Financial margin of interest-rate sensitive operations totaled R$1,926 million in the first quarter of 2015, 2.2% or R$44 million down from the previous period. This decrease was mainly due to a higher balance of operations in US dollars, consisting of investments in U.S. Treasury Bonds, and to a lower balance of operations in Brazilian reais, subject to the Brazilian benchmark rate (SELIC) rate.

 

When compared to the first quarter of 2014, the rise in the SELIC rate positively impacted the financial margin of these operations, which grew R$587 million or 43.8%.

 

Annualized Rate of Interest Rate-Sensitive Operations

 

In R$ millions  1Q15   4Q14   variation 
Average Balance   78,884    76,544    2,340    3.1%
Financial Margin   1,926    1,970    (44)   -2.2%
Annualized Rate   9.9%   10.2%        -30bps
Average SELIC - Annualized Rate   11.6%   10.9%        70bps

 

 

Spread-Sensitive Operations

 

The financial margin of spread-sensitive operations amounted to R$12,166 million in the first quarter of 2015, corresponding to a 3.8%, or R$449 million, increase from the previous quarter.

 

In the first quarter of 2015, the credit spread reached 11.1%, a 10 basis point increase when compared to the previous period. Excluding the effect of the foreign exchange variation, this indicator would have reached 11.3% in the period.

 

The credit spread after the allowance for loan losses reached 6.9% in the quarter, 100 basis points lower than the fourth quarter of 2014.

 

The spread of other interest-bearing assets included in this analysis reached 1.9%, 70 basis points higher than in the previous quarter. The combined spread of spread-sensitive operations reached 9.6% in this period, remaining steady when compared to the fourth quarter of 2014.

 

Annualized Rate of Spread-Sensitive Operations

 

In R$ millions  1Q15   4Q14   variation 
Average Balance   514,127    486,061    28,066    5.8%
Financial Margin   12,166    11,717    449    3.8%
Annualized Rate   9.6%   9.6%        0bps

 

 

Managerial Financial Margin with Market

 

The financial margin with the market consists of treasury transactions that include Asset and Liability Management (ALM) and proprietary trading operations.

 

The financial margin with the market in the first quarter of 2015 amounted to R$1,871 million, an increase of R$853 million from the previous quarter, primarily driven by the higher result from trading and structural positions in Brazil and abroad.

 

Financial Margin with Market

 

 

Itaú Unibanco Holding S.A.16
 

  

Management Discussion & Analysis    Income Statement Analysis

 

Managerial Financial Margin with Clients

 

As a result of the previously mentioned changes, the Net Interest Margin – NIM, the annualized rate of managerial financial margin with clients, which excludes the financial margin with market, reached 9.6% in the first quarter of 2015, 10 basis points down from the previous quarter.

 

The risk-adjusted NIM reached 6.6%, 70 basis points down from the fourth quarter of 2014.

 

The Net Interest Margin of Credit after Provisions for Credit Risk reached 6.9% in the first quarter of 2015, a 100-basis-point reduction from the previous period. Excluding the effect of the foreign exchange variation, this ratio would have reached 7.1%.

 

   1Q15   4Q14   1Q14 
           Average           Average           Average 
   Average   Financial   Rate   Average   Financial   Rate   Average   Financial   Rate 
In R$ millions  Balance   Margin   (p.y.)   Balance   Margin   (p.y.)   Balance   Margin   (p.y.) 
Demand Deposits + Floatings   57,409              51,935              51,207           
(-) Reserve Requirements   (22,887)             (20,621)             (18,288)          
Contingent Liabilities (-) Deposits in guarantee of Contingent   4,244              3,918              3,792           
Tax and Social Security obligations (-) Deposits in guarantee   7,337              11,136              14,758           
Working Capital (Equity + Minority Interests - Permanent Assets - Capital Allocated to Treasury)   71,619              67,910              57,291           
(-) Tax Credits   (38,838)             (37,734)             (40,910)          
Interest Rate-Sensitive Operations Margin with Clients - Brazil and Abroad (A)   78,884    1,926    9.9%   76,544    1,970    10.2%   67,850    1,339    8.0%
Cash and Cash Equivalents + Interbank Deposits + Securities (*)   82,643              69,854              82,375           
Interbank and Interbranch Accounts (**)   3,222              3,481              4,301           
Spread-Sensitive Margin with Clients – Other Assets   85,865    395    1.9%   73,335    225    1.2%   86,676    239    1.1%
Loans, Leasing and Other Credits   455,752              438,341              410,066           
(Allowance for Loan Losses)   (27,489)             (25,616)             (25,748)          
Spread-Sensitive Margin with Clients – Credit (B)   428,262    11,770    11.1%   412,726    11,492    11.0%   384,318    10,296    10.9%
Spread-Sensitive Margin with Clients (C)   514,127    12,166    9.6%   486,061    11,717    9.6%   470,994    10,535    9.1%
Net Interest Margin with Clients (D = A+C)   593,011    14,092    9.6%   562,604    13,687    9.7%   538,844    11,874    8.9%
Provision for Loan and Lease Losses (E)        (5,515)             (4,614)             (4,252)     
Recovery of Credits Written Off as Losses (F)        1,060              1,330              1,088      
Net Interest Margin of Credit after Provision for Credit Risk (G = B+E+F)   428,262    7,316    6.9%   412,726    8,208    7.9%   384,318    7,132    7.5%
Net Interest Margin after Provision for Credit Risk (H = D+E+F)   593,011    9,637    6.6%   562,604    10,403    7.3%   538,844    8,710    6.6%

 

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

 

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

 

 

1 After provisions and net of recovery.

 

Itaú Unibanco Holding S.A.17
 

  

Management Discussion & Analysis    Income Statement Analysis

 

Complementary Aspects in Financial Margin with Clients Analysis

 

Variation in the Composition of Financial Margin with Clients

 

In order to better demonstrate the effect of the changes in our financial margin, we segregated effects from changes in the volume of loan operations, mix of products, clients and spread, interest rate and other effects.

 

In the first quarter of 2015, the 3.0% increase in our financial margin with clients was mainly due to the products, clients, and spread mix effect in the quarter and to the higher loan balance, which more than offset the fewer calendar days of the period.

 

 

(*) Excludes the effect of foreign exchange variation in the period.

 

Loan Portfolio by Origination Period (*)

 

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

 

 

(*) Includes Credicard operations as of the third quarter of 2014.

 

The 450-basis-point reduction in the origination volume in the quarter is mainly driven by the maintenance of our policy of greater selectivity in credit origination and by the seasonally higher volume of credit card and working capital portfolios in the last quarter of the year, in addition to the higher payroll loan portfolio in the fourth quarter of 2014 when compared to the first quarter of 2015.

 

Additionally, given the term profile of our different credit products, new contract vintages have showed similar profiles over past periods.

 

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

 

Our loan portfolio mix presented below highlights its major components and their share in the past quarters.

 

Loan Portfolio Mix – Companies

 

The proportion of credits to very small and small market companies, which have higher spreads, have decreased in relation to credits to middle market and large companies in our loan portfolio mix, which can be seen in the chart below.

 

 

Loan Portfolio Mix – Individuals

 

The evolution of our loan portfolio mix for individuals in past periods shows the growth of the payroll loan and mortgage loan portfolios, which currently represent the second and third largest balances in our individuals portfolio. The lower share of the vehicle portfolio in our mix is a result of the nominal balance reduction of this portfolio.

 

 

 

We present below additional information about Payroll Loans, Mortgage Loans and Vehicle Financing.

 

Payroll Loans

 

We operate in payroll loan market through two different distribution channels: directly through our own distribution network (branches, CSBs and electronic channels) and through Banco Itaú BMG Consignado S.A., a financial institution controlled by us aimed at offering, distributing and marketing payroll loans. This operation started in December 2012 and enables us to expand our business in this segment, under our values and transparency principles, following our good management practices and policies.

 

Evolution of the Payroll Loan Portfolio and NPL

 

At the end of March 2015, total payroll loans reached R$44,608 million, an 81.0% (R$19,957 million) increase in twelve months. The highlights were the portfolio of loans to retirees and pensioners of the INSS and to public servants, which, together, grew 96.4% when compared to the end of March 2014.

 

Payroll loans originated by the branch network totaled R$14,958 million on March 31, 2015, a 24.5% increase in twelve months, whereas payroll loans originated by other channels reached R$29,650 million, a 134.7% increase when compared to March 31, 2014.

 

Itaú Unibanco Holding S.A.18
 

  

Management Discussion & Analysis    Income Statement Analysis

 

Evolution of the Payroll Loan Portfolio

 

 

Our strategy of higher growth in the INSS Beneficiaries segment, combined with the credit policies adopted, allowed the portfolio growth to be followed by a reduction in delinquency levels over the last quarters.

 

90-day NPL ratio (Mar -12 = 100) | Total Payroll Loan Portfolio

 

 

Note: Comparable to the National Financial System information disclosed by the Brazilian Central Bank.

 

Evolution of the Share of Payroll Loans in Personal Loans

 

This increase allowed for a higher share of payroll loans in personal loans, which reached 59.9% in the first quarter of 2015 from 46.6% in March 2014.

 

 

Mortgage Loans

 

Our mortgage portfolio reached R$40,531million at the end of March 2015. Our portfolio increased 3.3% in the quarter and 14.8% in the past twelve months. The individuals portfolio, totaling R$30,194 million at the end of the first quarter of 2015, increased 4.5% when compared to the previous quarter and 19.6% in twelve months. At the end of March 2015, the companies portfolio totaled R$10,337 million, remaining steady when compared to the previous quarter and with a 2.5% increase in the past twelve months.

 

Evolution of the Mortgage Portfolio

 

 

In the first quarter of 2015, the volume of new mortgage loan financing for individuals was R$2,527 million, whereas financing to companies amounted to R$614 million, totaling R$3,142 million.

 

Origination Volume

 

In R$ millions  1Q15   4Q14   variation   1Q14   variation 
Individuals   2,527    2,491    1.5%   2,270    11.4%
Companies   614    1,763    -65.1%   892    -31.1%
Total   3,142    4,253    -26.1%   3,162    -0.6%

Source: ABECIP.

 

Our individual mortgage loan portfolio collaterals are under the legal framework of fiduciary lien (alienação fiduciária) and account for 98.9% of the portfolio. Since 2007, we have been using this framework for 100% of our contracts.

 

Our new financing contracts use the Equal Amortization System, through which decreasing installments lead to faster balance amortization, reducing the loan-to-value ratio (ratio of the amount of the financing to the value of the real estate property) in a faster pace than other amortization systems.

 

The loan-to-value (LTV) of the portfolio reached 42.8% at the end of March 2015, an increase of 240 basis points when compared to March 2014.

 

The average quarterly LTV of the originated vintages reached 59.5% remaining steady when compared to the LTV of the vintages originated in the fourth quarter of 2014 and were 50 basis points up from the first quarter of 2014.

 

Loan–to-value | Vintage and Portfolio

 

 

In the current period, the 90-day NPL of the vintages originated in September 2014 reached 0.05%, a reduction of 5 basis points when compared to the vintages originated in September 2013 and of 15 basis points when compared to June 2014.

 

NPL over 90 (%) | Six months after origination

 

 

Note: Loan portfolio to individuals.

 

Itaú Unibanco Holding S.A.19
 

 

Management Discussion & Analysis    Income Statement Analysis

  

Vehicle Financing

 

On March 31, 2015, the portfolio of vehicle financing to individuals amounted to R$26,331 million and to companies, R$5,595 million, totaling R$31,926 million.

 

This quarter, the average amount of vehicle financing to individuals originated by the branch network, dealerships and car retailers was R$24,300, with an average term of 39 months and average down payment of 44%. The average financing term remained steady when compared to the previous quarter and the average down payment percentage increased 400 basis points when compared to the same period of the previous year, and 100 basis points when compared to the fourth quarter of 2014.

 

Average Term and Down Payment - Individuals (*)

 

 

(*) As of the fourth quarter of 2013, we included the operations originated at Itaú’ s branches. The historical information was reprocessed.

 

New loans granted to individuals through our branches, dealerships and car retailers totaled R$2,418 million, whereas new loans granted to companies totaled R$284 million in the first quarter of 2015.

 

The loan-to-value of our vehicle portfolio reached 72.9% at the end of March 2015, keeping the declining trend of the past few quarters.

 

Loan–to-value | Portfolio (*)

 

 

(*) Loans originated by dealerships and car retailers to individuals and companies.

 

The 90-day NPL of vintages originated in November 2014 reached 0.15%, remaining practically steady when compared to vintages orignated in September 2014.

 

NPL over 90 (%) | Four months after origination

 

 

In this quarter, we received a monthly average of 15 million visits through iCarros, a classified ads website that facilitates the purchase and sale of new and used vehicles.

 

Itaú Unibanco Holding S.A.20
 

 

 

Management Discussion & Analysis    Income Statement Analysis  

 

Result from Loan and Lease Losses

 

In R$ millions  1Q15   4Q14   variation   1Q14   variation 
Expenses for Provision for Loan and Lease Losses   (5,515)   (4,614)   (901)   19.5%   (4,252)   (1,264)   29.7%
Income from Recovery of Loans Written Off as Losses   1,060    1,330    (269)   -20.3%   1,088    (27)   -2.5%
Result from Loan and Lease Losses   (4,455)   (3,284)   (1,171)   35.7%   (3,164)   (1,291)   40.8%

 

The result from loan and lease losses (expenses for provision, net of recovery of loans written off as losses) totaled R$4,455 million in the first quarter of 2015, a 35.7% increase when compared to the previous quarter. This increase was mainly driven by higher expenses for allowance for loan and lease losses, which amounted to R$5,515 million in the period, due to the ongoing increase in the provision for economic groups of the corporate segment. Additionally, income from recovery of loans written off as losses, which are seasonally lower in the first quarter of the year, decreased 20.3% when compared to the previous period, and reached R$1,060 million in the first quarter of 2015.

 

When compared to the first quarter of 2014, the result from loan and lease losses recorded a 40.8% increase, mainly due to the higher expenses for allowance for loan losses.

 

Allowance for Loan Losses and Loan Portfolio

 

 

 

In March 2015, the balance of the credit portfolio without endorsements and sureties increased 3.6% from December 2014, totaling R$468,105 million, whereas the balance of the allowance for loan losses grew 5.2% in the quarter, totaling R$28,354 million.

 

The increased allowance for loan losses was a result of the higher balances of the specific and generic provisions that totaled together R$22,024 million at the end of March 2015, with increases of 6.8% and 11.1% when compared to December 2014 and March 2014, respectively.

 

The additional allowance balance remained at R$6,330 million at the end of the first quarter of 2015. This balance includes the provisions recognized for endorsements and sureties, which totaled R$327 million in March 2015.

 

Allowance for Loan Losses and Loan Portfolio

 

 

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

 

The ratio of expenses for allowance for loan losses to the loan portfolio reached 4.8% in the first quarter of 2015, an increase of 60 basis points when compared to the previous quarter.

 

The ratio of the result from loan losses to the loan portfolio reached 3.9% this quarter, 90 basis points higher when compared to the previous quarter.

 

Loan Loss Provision Expenses by Segment

 

 

Note: Retail Banking includes loan loss provisions expenses of Corporation segment.

 

In the first quarter of 2015, expenses for allowance for loan losses amounted to R$3,464 million in the Retail segment and R$2,051 million in the Wholesale segment.

 

This quarter, in the Wholesale segment, we recognized a provision R$1,449 million higher than in the first quarter of 2014 and R$815 million higher than in the previous quarter. The current increase in the provisions recognized is due to the continuous reinforcement of the provisions for economic groups of the large companies segment, mentioned before.

 

In the Retail segment, provisions were R$86 million higher than those in the fourth quarter of 2014 and R$185 million lower from the first quarter of the previous year.

 

Itaú Unibanco Holding S.A.21
 

 

Management Discussion & Analysis    Income Statement Analysis  

 

Non–Performing Loans

 

Delinquency Ratios and Non Performing Loans

 

  

 

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

 

The overdue loan portfolio increased 8.4% from the previous quarter. When compared to the same period of the previous year, overdue loans increased 2.0% or R$517 million.

 

The coverage ratio, the ratio of the allowance for loan losses to the total overdue loan portfolio, reached 108%, an increase of 1,100 basis points when compared to the same period of the previous year.

 

The portfolio of credits overdue for more than 90 days increased 1.5% from the previous quarter and decreased 0.2% when compared to the same period of the previous year.

 

NPL Ratio | over 90 days

 

 

 

The NPL ratio of credits overdue for more than 90 days (NPL-90) decreased 10 and 50 basis points from the previous quarter and the first quarter of 2014, respectively, reaching 3.0% of our loan portfolio in the period.

 

The improvement of the ratio was due to the decrease of 20 and 90 basis points for individuals when compared to the previous quarter and to the same period of 2014, respectively.

 

For companies this ratio remained steady when compared to the previous quarter. For large companies this ratio increased, driven by specific groups, although its effect on the NPL – 90 days of the companies portfolio was offset by the decrease in the level for very small, small and middle market companies mainly due to foreign exchange variation.

 

If we exclude the impact of the foreign exchange variation on the loan portfolio in the period, the NPL – 90 days of the total portfolio would have remained steady when compared to the fourth quarter of 2014. The foreign exchange variation had no significant impact on the ratio for individuals, whereas the ratio for companies would have had a 10 basis points increase from the previous quarter.

 

NPL Ratio | 15 to 90 days

 

 

 

Short-term delinquency, measured based on the balance of operations overdue from 15 to 90 days (NPL- 15-90), increased 40 basis points from the previous quarter. This higher delinquency ratio was due to the increases of 30 basis points for both individuals and companies ratios.

 

In the period, the impact of foreign exchange variation on the short-term delinquency ratio was 10 basis points on the total loans portfolio and on companies portfolio.

 

In the 12-month period, the short-term delinquency ratio decreased 10 basis points, mainly due to the decrease of 80 basis points in the individuals ratio.

 

NPL Ratio by Activity Sector

 

   Credit   NPL Ratio   NPL Ratio 
In R$ millions, end of period  Portfolio   15 to 90 days   90 days 
Public Sector   5,230    0.0%   0.0%
Private Sector   462,875    2.9%   3.1%
Companies   252,995    1.8%   1.8%
Industry and Commerce   124,792    1.8%   1.8%
Services   101,429    2.0%   2.1%
Primary Sector   24,410    1.1%   1.2%
Other   2,363    1.2%   0.7%
Individuals   209,880    4.1%   4.5%
Total   468,105    2.9%   3.0%

 

Regarding NPL by activity sector, the NPL 90-day for industry and commerce, services and the primary sectors reached 1.8%, 2.1%, and 1.2%, respectively. For further information on the NPL Ratios by Activity Sector, please refer to the Risk Management Report required by Circular No. 3,678 of the Brazilian Central Bank of October 31, 2013, which is available on our Investor Relations website.

 

Coverage Ratio | 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.

 

Itaú Unibanco Holding S.A.22
 

Management Discussion & Analysis    Income Statement Analysis  

 

The 90-day coverage ratio reached 200% in March 2015, an increase of 700 basis points from the previous quarter and of 2,400 basis points when compared to first quarter of 2014.

 

Loan Portfolio Write-Offs

 

 

(1) Average balance of the loan portfolio for the previous two quarters.

 

Loan portfolio write-offs totaled R$4,074 million in the first quarter of 2015, an increase of R$14 million when compared to the previous quarter. When compared to the same period of the previous year, write-offs decreased R$1,490 million due to the new vintages quality improvement.

 

The ratio of written-off operations to the average balance of the loan portfolio remained steady when compared to the fourth quarter of 2014, at 0.9%, and recorded a decrease of 50 basis points when compared to the same period of the previous year.

 

Recovery of Loans

 

 

In the first quarter of 2015, income from recovery of credits written off as losses decreased R$269 million (20.3%) from the previous quarter. This income is seasonally lower in the first quarter of the year.

 

Loan Portfolio by Risk Level

 

Our credit risk management is aimed at maintaining the quality of the loan portfolio at levels that are appropriate for each market segment in which we operate.

 

As a result of our strategy to focus on operations with lower risk and larger volume of guarantees, as of the second quarter of 2013 we improved the guarantee control system (vehicles, mortgage loans, financial investments, among others) to capture the updated market value for each of these individual operations. As a consequence, operations with guarantees, where the updated amount of which exceeds the debt balance, are now classified at better risk levels. On the other hand, operations with guarantees where the updated amount is insufficient to mitigate the entire risk are now classified at worse risk levels.

 

On March 31, 2015, the portfolios rated “A” and “AA” increased its share in relation to the total portfolio when compared to December 2014.

 

Total loans rated from "D" and "H" accounted for 7.9% of total loans, 60 basis points higher from the previous quarter, in view of the change in rating of specific economic groups in the corporate segment.

 

Evolution of Loan Portfolio by Risk Level

 

 

 

Note: Does not consider endorsements and sureties.

 

Itaú Unibanco Holding S.A.23
 

Management Discussion & Analysis    Income Statement Analysis  

 

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

 

In R$ millions  1Q15  4Q14   variation    1Q14   variation  
Asset Management   662    650    12    1.9%   653    9    1.5%
Current Account Services   1,405    1,293    112    8.6%   1,137    267    23.5%
Credit Operations and Guarantees Provided   800    799    2    0.2%   693    107    15.4%
Collection Services   365    368    (2)   -0.6%   363    3    0.8%
Credit Cards   2,884    2,996    (112)   -3.7%   2,601    283    10.9%
Other   750    719    31    4.3%   610    140    23.0%
Banking Service Fees and Income from Banking Charges   6,867    6,825    42    0.6%   6,057    810    13.4%
Result from Insurance, Pension Plan and Premium Bonds   1,482    1,446    36    2.5%   1,366    116    8.5%
Total   8,349    8,271    78    0.9%   7,423    926    12.5%
(-) Result from Other Insurance Activities (*)   85    80    5    6.4%   133    (49)   -36.6%
Total excluding Other Insurance Activities   8,264    8,191    73    0.9%   7,289    975    13.4%

 

In the first quarter of 2015, banking service fees, including income from banking charges, amounted to R$6,867 million, an increase of 0.6% from the previous quarter. When compared to the first quarter of 2014, these revenues increased 13.4% mainly due to higher revenues from credit card and current account services.

 

These revenues, together with the result from insurance, pension plan and premium bonds, totaled R$8,349 million, an increase of 0.9% from the previous quarter. When compared to the same period of the previous year, these revenues increased 12.5%.

 

Excluding the result from other insurance activities(*) our revenues reached R$8,264 million, an increase of 0.9% compared to the previous quarter and of 13.4% from the same period of the previous year.

 

(*) Other insurance activities include extended warranty, large risks, health insurance, other products and our interest in IRB.

 

Asset Management

 

Asset management revenues totaled R$662 million in the first quarter of 2015, increasing 1.9% from the previous quarter, mainly driven by higher fund management fees.

 

When compared to the same period of the previous year, these revenues increased 1.5%, mainly due to the higher balance of our consortia operations.

 

 

Asset Administration

 

Fund management fees amounted to R$508 million in the first quarter of 2015, an increase of 2.9% from the fourth quarter of 2014.

 

Total assets under administration reached R$695 billion in March 2015, recording an increase of 3.9% from the previous quarter, primarily driven by the higher balance of investment funds. When compared to the same period of the previous year, assets under administration increased 10.9%.

 

According to the ANBIMA ranking, in March 2015 we were second in the fund management and managed portfolio* ranking, with a market share of 19.6%.

 

* Includes Itaú Unibanco and Intrag.

 

 

 

Consortia Administration Fees

 

Consortia management fees totaled R$154 million in the first quarter of 2015, decreasing 1.2% from the fourth quarter of 2014. These fees recorded an increase of 6.9% when compared to the same period of the previous year.

 

In March 2015, we reached approximately 400,000 active contracts, a 0.4% decrease from the previous quarter and 4.0% higher when compared to March 2014.

 

In March 2015, the installments receivable balance reached R$11.0 billion, an increase of 0.6% from December 2014 and of 7.9% from March 2014.

 

 

 

Itaú Unibanco Holding S.A.24
 

Management Discussion & Analysis    Income Statement Analysis  

 

Current Account Services

 

Revenues from current account services totaled R$1,405 million in the first quarter of the year, representing an 8.6% growth compared to the previous quarter.

 

When compared to the same period of the previous year, these revenues recorded a 23.5% increase. These increased revenues from current account services are mainly due to the offering of differentiated products and services aimed at adding more value to the experience of our clients. These products include differentiated current account service packages for individuals and the convenience and versatility of products offered to companies.

 

 

 

Loan Operations and Guarantees Provided

 

Revenues from loan operations and guarantees provided totaled R$800 million, an increase of 0.2% when compared to the previous quarter.

 

These revenues increased 15.4% when compared to the same period of the previous year, mainly driven by a higher volume of sureties.

 

 

 

In the first quarter of 2015, the ratio of annual revenues from loan operations to the loan portfolio without endorsement and sureties reached 0.4% p.a.

 

The ratio of annual revenues from guarantees provided to the endorsements and sureties portfolio reached 1.7% p.a.

 

 

(*) Loan portfolio average balance from two previous quarters.

 

Collection Services

 

Revenues from collection services reached R$365 million, decreasing 0.6% from the fourth quarter of 2014. When compared to the same period of the previous year, these revenues grew 0.8%.

 

Credit Cards

 

Credit card revenues totaled R$2,884 million in the first quarter of 2015, a decrease of 3.7% from the previous quarter, as a result of the seasonality that benefits fourth quarters, marked by higher interchange revenues arising from year-end sales.

 

These revenues increased 10.9% when compared to the same period of the previous year, mainly impacted by the higher revenues from interchange, MDR (Merchant Discount Rate) and annual fees, and by the increase in the number of POS equipment rented in the period.

 

The proportion of credit card revenues related to card issuance corresponds to 54.5% of total revenues.

 

 

 

Transaction Volume and Card Accounts | Credit and Debit Cards

 

Through proprietary and partnership operations, we offer a wide range of credit and debit cards to more than 62.4 million current account holders and non-account holders (in number of accounts). In the first quarter of 2015, the volume of transactions amounted to R$78.6 billion, a 10.1% increase from the same period of 2014.

 

We are the leading player in the Brazilian credit card market, through Itaucard, Hipercard, Hiper, Credicard, joint ventures and commercial agreements with leading companies in sectors such as telecom, vehicles, retail and aviation at the Brazilian market, totaling 36.5 million client accounts, including both account and non-account holders.

 

In the first quarter of 2015, the volume of credit card transactions amounted to R$59.0 billion, which corresponds to an 8.2% increase from the same period of the previous year.

 

In the debit card segment, which includes only current account holders, we have 25.9 million accounts. The volume of debit card transactions amounted to R$19.6 billion in the first quarter of 2015, a 16.1% increase from the same period of the previous year.

 

Itaú Unibanco Holding S.A.25
 

Management Discussion & Analysis    Income Statement Analysis  

 

Transaction Volume and Card Accounts | Credit and Debit Cards

 

 

 

Note: As of first quarter of 2014, we include Credicard card base.

 

Acquiring Services

 

Our merchant acquiring business comprises the process of capturing transactions through the affiliation, management and relationship with commercial establishments through the company REDE.

 

In the first quarter of 2015, the transaction volume totaled R$91.1 billion, a decrease of 11.5% when compared to the fourth quarter of 2014 and an increase of 11.5% from the volume recorded in the same period of the previous year.

 

Transaction Volume | Credit and Debit Cards

 

In the first quarter of 2015, the volume of credit card transactions was R$58.9 billion, representing 64.6% of the total volume of transactions generated by the acquiring services, a 11.2% decrease from the fourth quarter of 2014 and a 12.3% increase from the same period of the previous year.

 

In addition to the transaction volume mentioned above, we captured more than R$1.3 billion in transactions within our retail partners and joint ventures in the first quarter of 2015.

 

In the first quarter of 2015, the volume of debit card transactions was R$32.2 billion, representing 35.4% of the total transaction volume, a decrease of 12.0% from the fourth quarter of 2014 and an increase of 10.0% from the same period of the previous year.

 

 

 

Note: The volume of transactions includes 100% of REDE.

 

Equipment Base(*)

 

At the end of the first quarter of 2015, our base of active installed equipment reached 1,871,000 units, a 2.7% increase from the previous quarter and of 15.8% when compared to the first quarter of 2014.

 

 

 

(*) 100% of the equipment base of REDE is able to capture Hiper brand transactions.

 

Other

 

R$ millions  1Q15   4Q14   variation 
Foreign Exchange Services   22    20    3 
Brokerage and Securities Placement   85    91    (6)
Custody Services and Portfolio Management   67    70    (4)
Economic and Financial Advisory Services   160    202    (42)
Other Services   415    336    80 
Total   750    719    31 

 

Revenues from economic and financial advisory services decreased and were offset by the growth of revenues from other services.

 

Result from Insurance, Pension Plan and Premium Bonds

 

In the first quarter of 2015, the result from insurance, pension plan and premium bonds totaled R$1,482 million, an increase of 2.5% from the previous quarter and of 8.5% from the first quarter of 2014, mainly due to lower claims expenses.

 

Excluding the result from other insurance activities(*), the result from insurance, pension plan and premium bond operations was R$ 1,397 million, an increase of 2.3% from the fourth quarter and of 13.4% when compared to the same period of the previous year.

 

In the first quarter of 2015, the technical provisions for insurance, pension plans and premium bonds totaled R$116.7 billion, a 3.6% increase from the previous quarter.

 

 

 

(*) Other insurance activities include extended warranty, large risks, health insurance, other products and our interest in IRB.

 

Itaú Unibanco Holding S.A.26
 

Management Discussion & Analysis    Income Statement Analysis  

 

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

 

In the first quarter of 2015, the ratio of total banking service fees and income from bank charges added to the result from insurance, pension plan and premium bonds, divided by these total revenues added to the managerial financial margin, reached 34.3%.

 

The operational coverage ratio, which represents the extent to which non-interest expenses were covered by banking service fees and income from banking charges, added to the result from insurance, pension plans and premium bonds, reached 84.5% in this quarter, an increase of 270 basis points compared to the previous quarter.

 

 

 

(*) Insurance Operations include insurance, pension plan and premium bonds.

 

Itaú Unibanco Holding S.A.27
 

 

Management Discussion & Analysis    Banking & Insurance Operations  

 

Banking & Insurance Operations

 

We present below the financial statements and relevant financial indicators on the performance of our banking and insurance operations, which include the insurance, pension plan and premium bonds operations. This information has been prepared based on managerial information generated by internal models for the purpose of more accurately reflecting the performance of these operations.

 

As of 2015, we started calculating our allocated capital based on a new methodology, and in 2014, it was recalculated for better comparison purposes. The main impact is due to the reduction in economic capital required by our investment in Porto Seguro company from the third quarter 2014.

 

Highlights

 

We present below the main indicators of our banking and insurance operations. In this analysis, we did not include the result of excess capital in our operations, calculated as the difference between our total capital and the capital of these two activities.

 

Sales Cost Model

 

The practice in Itaú Unibanco is to allocate the selling costs to all of our products and services based on the corresponding utilization of each channel (full allocation method). For that reason, the selling costs related to insurance, pension plan and premium bonds products in our branch network and other electronic or physical distribution channels are recorded in our income statement of the insurance segment. This practice has both accounting and managerial effects.

 

Income Statement | Operating Revenues Perspective

 

The Pro Forma financial statements below were prepared based on internal information from our managerial model for the purpose of presenting the performance of our banking and insurance operations (Insurance, Pension Plan and Premium Bonds).

 

   1Q15   4Q14 
       Banking   Insurance   Excess       Banking   Insurance   Excess 
In R$ millions  Consolidated   Operations   Operations   Capital   Consolidated   Operations   Operations   Capital 
Operating Revenues   24,946    22,445    2,308    193    23,754    21,163    2,450    141 
Managerial Financial Margin   15,881    15,685    3    193    14,604    14,463    1    141 
Banking Service Fees and Income from Banking Charges (*)   6,867    6,760    107    -    6,825    6,701    124    - 
Result from Insurance, Pension Plan and Premium Bonds   2,194    -    2,194    -    2,305    -    2,305    - 
Other Components of Operating Revenues   5    -    5    -    21    -    21    - 
Result from Loan and Lease Losses   (4,455)   (4,455)   -    -    (3,284)   (3,284)   -    - 
Retained Claims   (368)   -    (368)   -    (497)   -    (497)   - 
Operating Margin   20,123    17,990    1,940    193    19,973    17,879    1,953    141 
Other Operating Expenses   (11,602)   (10,772)   (821)   (9)   (11,633)   (10,745)   (882)   (7)
Non-interest Expenses   (9,881)   (9,411)   (470)   -    (10,113)   (9,588)   (525)   - 
Selling Expenses From Insurance   (266)   -    (266)   -    (281)   -    (281)   - 
Other Results   (1,455)   (1,361)   (85)   (9)   (1,239)   (1,157)   (76)   (7)
Income before Tax and Minority Interests   8,520    7,218    1,118    184    8,340    7,135    1,071    134 
Income Tax and Social Contribution and Minority Interests   (2,712)   (2,278)   (406)   (29)   (2,680)   (2,261)   (399)   (20)
Recurring Net Income   5,808    4,940    713    155    5,660    4,874    672    114 
Recurring Return on Average Equity – Annualized   24.5%   23.4%   81.8%   7.8%   24.7%   22.9%   71.9%   6.2%
Efficiency Ratio (ER)   43.2%   44.6%   29.6%   -    46.5%   47.9%   32.9%   - 
Risk-Adjusted Efficiency Ratio (RAER)   62.7%   65.8%   29.6%   -    61.6%   64.3%   32.9%   - 

(*) We allocate commission revenues received from other insurance companies to our insurance operations.

 

Evolution of Net Income and Insurance Ratio

 

The recurring net income from Banking Operations (banking products and services) reached R$4,940 million in the first quarter of 2015, a 1.4% increase from the previous quarter, mainly due to the increase in operating revenues driven by the growth in the managerial financial margin and in banking service fees and income from banking charges, which were partially offset by higher expenses for allowance for loan and lease losses.

 

The recurring net income from Insurance Operations (Insurance, Pension Plan and Premium Bonds) reached R$713 million in the first quarter of 2015, a 6.1% increase from the previous quarter, mainly driven by lower claims expenses, in addition to lower non-interest expenses and insurance selling expenses.

 

The insurance ratio(1), which represents the ratio of recurring net income from insurance, pension plan and premium bonds operations to Itaú Unibanco’s recurring net income, excluding the result of excess capital, reached 12.6%, 50 basis points up from the previous quarter.

 

 

 

(1) Insurance Ratio (%) = Recurring net income from Insurance, Pension Plan and Premium Bonds operations/ Itaú Unibanco’s recurring net income, without excess capital.

 

Itaú Unibanco Holding S.A.28
 

Management Discussion & Analysis    Banking & Insurance Operations  

 

Evolution of Efficiency Ratio, Risk-Adjusted Efficiency Ratio and Annualized Return on Average Equity

 

The efficiency ratio of Banking Operations reached 44.6% in the first quarter of 2015, 330 basis points down from the previous quarter. This ratio improved due to the increase in operating revenues (6.1% from the previous quarter) and lower non-interest expenses (1.8% from the previous quarter).

 

The risk-adjusted efficiency ratio reached 65.8%, an increase of 150 basis points when compared to the previous quarter, driven by the 35.7% growth in the result from loan and lease losses when compared to the fourth quarter of 2014.

 

The annualized recurring return on equity of the banking operations reached 23.4% in the period, an increase of 50 basis points when compared to the previous quarter.

 

The efficiency ratio of Insurance Operations reached 29.6% in the first quarter of 2015, 330 basis points down from the previous quarter, mainly driven by the decrease in non-interest expenses and claims expenses. As a result of the change in the methodology used to calculate the efficiency ratio as of the first quarter of 2015, the risk-adjusted efficiency ratio of Insurance Operations remains equal to the efficiency ratio.

 

The annualized recurring return of the insurance operations reached 81.8% in the period, 990 basis points up from the previous quarter.

 

Banking Operations

 

 

 

Insurance Operations

 

 

Note: Impact on ROE mainly due to the change in methodology that reduced economic capital required by our investment in the company Porto Seguro from the third quarter of 2014.

 

Balance Sheet

 

   1Q15   4Q14 
       Banking   Insurance       Banking   Insurance 
In R$ millions, end of period  Consolidated(1)   Operations   Operations   Consolidated(1)   Operations   Operations 
Assets                              
Current and Long-term Assets   1,274,667    1,145,947    119,761    1,188,779    1,064,730    116,156 
Securities and Derivative Financial Instruments   324,060    197,471    117,630    299,627    177,927    113,807 
Loan, Lease and Other Loan Operations   468,105    468,105    -    451,760    451,760    - 
(Allowance for Loan Losses)   (28,354)   (28,354)   -    (26,948)   (26,948)   - 
Other Assets   510,856    508,725    2,131    464,340    461,990    2,349 
Permanent Assets   19,947    19,947    -    19,923    19,923    - 
Total Assets   1,294,613    1,165,894    119,761    1,208,702    1,084,653    116,156 
Liabilities and Equity                              
Current and Long – Term Liabilities   1,195,960    1,079,163    116,797    1,110,439    997,614    112,825 
Deposits Received under Securities Repurchase Agreements   330,858    330,858    -    325,013    325,013    - 
Borrowings and Onlendings   96,265    96,265    -    88,776    88,776    - 
Technical Provisions for Ins., Pension Plans and Premium Bonds   116,737    -    116,737    112,675    -    112,675 
Other Liabilities(2)   652,099    652,039    59    583,974    583,825    150 
Minority Interest in Subsidiaries   1,700    1,700    -    2,415    2,415    - 
Stockholders' Equity   96,954    85,031    2,964    95,848    84,624    3,331 
Total Liabilities and Equity   1,294,613    1,165,894    119,761    1,208,702    1,084,653    116,156 

(1)The Consolidated column does not represent the sum of banking and insurance operations, because the excess capital is allocated only in the consolidated column.

 

(2)Includes Deferred Income.

 

On March 31, 2015, total assets from Banking Operations, which includes securities, derivative financial instruments and loan, lease and other credit operations, reached R$1,165,894 million, a 7.5% increase from the previous quarter.

 

Stockholders’ equity from banking operations reached R$85,031 million in the period, a 0.5% increase from the fourth quarter of 2014.

 

Total assets from Insurance Operations reached R$119,761 million on March 31, 2015, a 3.1% increase from the previous period, mainly due to larger investments related to technical provisions for insurance, pension plan and premium bonds.

 

Itaú Unibanco Holding S.A.29
 

Management Discussion & Analysis   Itaú Insurance, Pension Plan and Premium Bonds  

 

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 business. As of the fourth quarter of 2014, we have adopted a new disclosure between Core Activities and Other Activities for the results from Insurance Operations (Insurance, Pension Plan and Premium Bonds).

 

Pro Forma Recurring Income Statement of Insurance Operations

 

   1Q15   4Q14         
       Core   Other       Core   Other   total   core activities 
In R$ millions  Total   Activities   Activities   Total   Activities   Activities   variation   variation 
Earned Premiums   1,416    1,035    381    1,478    1,009    469    (62)   -4.2%   26    2.5%
Revenues from Pension Plan and Premium Bonds   202    202    -    182    182    -    21    11.3%   21    11.3%
Retained Claims   (368)   (257)   (111)   (497)   (301)   (196)   129    -25.9%   44    -14.7%
Selling Expenses   (266)   (41)   (225)   (281)   (37)   (244)   15    -5.3%   (4)   11.3%
Underwriting Margin   781    737    45    700    671    29    81    11.6%   66    9.8%
Result from Insurance, Pension Plan and Premium   984    939    45    882    853    29    102    11.6%   86    10.1%
Managerial Financial Margin   230    188    42    243    199    45    (13)   -5.4%   (11)   -5.3%
Service Fees   394    393    1    440    438    2    (47)   -10.6%   (46)   -10.4%
Earnings of Affiliates   66    61    5    106    86    21    (40)   -37.9%   (25)   -28.8%
Non-interest Expenses   (470)   (428)   (42)   (525)   (453)   (72)   55    -10.4%   25    -5.5%
Tax Expenses for ISS, PIS and Cofins and other taxes   (85)   (70)   (15)   (76)   (70)   (6)   (9)   12.0%   (0)   0.5%
Income before Tax and Minority Interests   1,118    1,082    36    1,071    1,053    18    48    4.5%   30    2.8%
Income Tax/Social Contribution and Minority Interests   (406)   (395)   (11)   (399)   (402)   3    (7)   1.7%   7    -1.7%
Recurring Net Income   713    687    26    672    651    21    41    6.1%   37    5.6%
                                                   
Recurring Return on Allocated Capital   81.8%   88.3%   27.5%   71.9%   81.8%   15.4%   990bps        650bps     
Efficiency Ratio (ER)   29.6%   28.3%   53.7%   32.9%   30.1%   79.8%   -330bps        -170bps     

 

Note: Non-interest Expenses comprise Personnel Expenses, Other Administrative Expenses and Other Operating Expenses.

 

Our core activities consist of mass-market products related to Life, Property, Credit, Pension and Premium Bonds. Other insurance activities correspond to extended warranty, health insurance, our interest in IRB and other.

 

We continue to concentrate efforts on distribution through our own channels, due to greater agility and efficiency. We carried out a comprehensive review of products’ characteristics, increasing the distribution channels and investment in technology, in order to better match the products offered to clients to their needs. Additionally, as a result of more efficient processes, we significantly improved the quality of our client services, achieving a broader diversification of the distribution channels and a 11.6% increase in sales to account holders when compared to the same quarter of the previous year.

 

The focus on sales through more efficient channels as part of our distribution strategy positively impacted our profitability. Our priority channels currently represent 57.8% of sales to account holders, a 19.0% increase from the same quarter of 2014. Sales through ATMs grew 69.3% when compared to the same quarter of 2014 and accounted for 13.9% of sales to account holders. Sales through the bankline channel increased 79.7% from the same quarter of the previous year, representing a 270 basis points increase in its share. In the Virtual Insurance Store, an innovative initiative in the banking insurance market, sales grew 17.0% from the previous quarter.

 

Recurring net income from Insurance Operations reached R$713 million in the first quarter of 2015, a 6.1% increase from the previous quarter, mainly driven by lower claims expenses, in addition to lower non-interest expenses and insurance selling expenses.

 

Return on allocated capital reached 81.8% in the first quarter, a 990 basis point increase from the fourth quarter of 2014.

 

Net income from core activities was up 5.6% in the quarter, mainly due to increased earned premiums and net pension plan contributions, and to lower retained claims and non-interest expenses.

 

Recurring Net Income | Insurance Operations

 

 

 

Itaú Unibanco Holding S.A.30
 

Management Discussion & Analysis    Itaú Insurance, Pension Plan and Premium Bonds  

 

Breakdown of Recurring Net Income | Insurance Operations

 

In the first quarter of 2015, the ratio of the result of core activities to the recurring net income from Insurance Operations reached 96.4%. This quarter, the ratio of core insurance activities increased 10 basis points when compared to the previous quarter, accounting for 61.2% of net income.

 

The ratio of the pension plan segment increased 270 basis points from the fourth quarter of 2014, accounting for 27.5% of net income.

 

The ratio of the other activities sub-segment reached 3.6% in the quarter, an increase of 40 basis points from the previous quarter.

 

 

 

Balance Sheet | Insurance Operations

 

The balance sheet of our Insurance Operations is presented below. On March 31, 2015, total assets amounted to R$119.8 billion, 3.1% up from the fourth quarter of 2014 due to an increase in securities. Technical provisions, including insurance, pension plan and premium bonds, totaled R$116.7 million in the period, a 3.6% increase when compared to the previous quarter.

 

   1Q15   4Q14     
           Premium               Premium         
In R$ millions, end of period  Insurance   Pension Plan   Bonds   Total   Insurance   Pension Plan   Bonds   Total   variation  
Assets                                                  
Current and Long-Term Assets                                                  
Securities   4,940    109,570    3,119    117,630    5,513    105,174    3,120    113,807    3,823    3.4%
Other Assets (mainly receivables from insurance)   2,131    -    -    2,131    2,349    -    -    2,349    (219)   -9.3%
Total Assets   7,071    109,570    3,119    119,761    7,863    105,174    3,120    116,156    3,604    3.1%
                                                   
Liabilities and Equity                                                  
Current and Long – Term Liabilities   5,605    108,115    3,077    116,797    6,115    103,688    3,021    112,825    3,972    3.5%
Technical Provisions – Insurance   5,546    -    -    5,546    6,004    -    -    6,004    (459)   -7.6%
Technical Provisions – Pension Plans and VGBL   -    108,115    -    108,115    -    103,661    -    103,661    4,454    4.3%
Technical Provisions – Premium Bonds   -    -    3,077    3,077    -    -    3,010    3,010    67    2.2%
Other Liabilities   59    -    -    59    111    27    12    150    (90)   -60.3%
Allocated Tier I Capital   1,466    1,455    43    2,964    1,747    1,486    98    3,331    (368)   -11.0%
Total Liabilities and Equity   7,071    109,570    3,119    119,761    7,863    105,174    3,120    116,156    3,604    3.1%

 

Itaú Unibanco Holding S.A.31
 

Management Discussion & Analysis    Insurance Core Activities  

 

The figures presented in this section are part of our insurance operations.

 

Pro Forma Recurring Income Statement of the Insurance Segment | Core Activities

 

In R$ millions  1Q15   4Q14   variation  
Earned Premiums   1,035    1,009    26    2.5%
Retained Claims   (253)   (293)   40    -13.6%
Selling Expenses   (40)   (37)   (3)   7.4%
Other Operating Income/(Expenses) of Insurance Operations   -    -    -    - 
Underwriting Margin   742    680    63    9.2%
Managerial Financial Margin   52    46    7    14.9%
Service Fees   103    123    (20)   -16.3%
Earnings of Affiliates   61    86    (25)   -28.8%
Non-interest Expenses   (237)   (228)   (8)   3.7%
Tax Expenses for ISS, PIS and Cofins and other taxes   (44)   (44)   (0)   0.5%
Income before Tax and Minority Interests   678    661    16    2.5%
Income Tax/Social Contribution and Minority Interests   (242)   (251)   9    -3.7%
Recurring Net Income   436    410    26    6.2%
                     
Recurring Return on Allocated Capital   111.0%   101.4%        970bps
Efficiency Ratio (ER)   25.9%   25.7%        20bps

 

Our insurance core activities consist of mass-market products related to life, property and credit. These products are offered in synergy in the retail channels - branch network, partnership with retailers, credit card clients, real estate and vehicle financing, personal and payroll loans - and the wholesale channel. These products have characteristics such as low loss ratio, low volatility in the result and less use of capital, making this a strategic service, which is increasingly relevant in the diversification of the conglomerate’s revenues.

 

Our market share in earned premiums, considering the total insurance market, reached 11.1% (including our 30% interest in Porto Seguro) in the 2015 year-to-date(*). Considering only our insurance core activities, our market share in earned premiums reached 14.5% in the same period.

 

In the first quarter of 2015, recurring net income from insurance core activities totaled R$436 million, a 6.2% increase from the previous quarter, mainly due to the increase in premiums earned and lower retained claims.

 

(*) Most recent data available on 02/28/2015, based on information disclosed by SUSEP.

 

Quarterly Net Income | Insurance Core Activities

 

 

 

Earned Premiums Quarterly Breakdown| Insurance Core Activities

 

 

 

In the first quarter of 2015, earned premiums from insurance core activities reached R$1,035 million, a 2.5% increase from the previous quarter.

 

The consolidated underwriting margin from our insurance core activities amounted to R$742 million in the first quarter of 2015, a 9.2% increase when compared to the previous quarter, due to lower claims expenses, mainly influenced by life products, in addition to an increase in premiums earned.

 

This quarter, the ratio of underwriting margin to earned premiums reached 71.7%, an increase of 440 basis points from the previous quarter.

 

Itaú Unibanco Holding S.A.32
 

 

Management Discussion & Analysis    Insurance Core Activities  

 

Retained Claims Quarterly Breakdown | Insurance Core Activities

 

 

 

In the first quarter of 2015, retained claims from insurance core activities amounted to R$253 million, 13.6% down from the previous quarter, mainly driven by life insurance products.

 

Earned Premiums Breakdown | Life Insurance

 

 

 

Combined Ratio | Insurance - Core Activities

 

 

Note: The combined ratio is the sum of retained claims, selling expenses, administrative expenses, other operating income and expenses, tax expenses for ISS, PIS and Cofins and other taxes over earned premiums.

 

The combined ratio, which reflects the operating cost efficiency as a percentage of income from earned premiums, reached 55.4% in the period, 430 basis points down from the previous quarter, mainly driven by the reduction in the loss ratio.

 

Extended Combined Ratio | Insurance Core Activities

 

 

 

Note: The extended combined ratio is the sum of retained claims, selling expenses, administrative expenses, other operating income and expenses, tax expenses for ISS, PIS and Cofins and other taxes over the sum of earned premiums, managerial financial margin and banking service fees.

 

The extended combined ratio, which reflects the operating cost efficiency as a percentage of income from earned premiums, managerial financial margin and banking service fees, reached 48.2% in the first quarter of 2015, 290 basis points down from the previous quarter, mainly impacted by the same factors that influenced the combined ratio.

 

Efficiency Ratio | Insurance Core Activities

 

 

 

In the first quarter of 2015, the efficiency ratio was 25.9%, a 20 basis point increase from the previous quarter, mainly driven by an increase in non-interest expenses.

 

Itaú Unibanco Holding S.A.33
 

 

Management Discussion & Analysis    Pension Plan  

 

Pro Forma Recurring Income Statement of Pension Plan Segment

 

In R$ millions  1Q15   4Q14   variation  
Revenues from Pension Plan   76    33    43    129.4%
Retained Claims   (4)   (9)   4    -50.8%
Selling Expenses   (2)   (0)   (1)   - 
Result from Pension Plan   70    24    46    189.7%
Managerial Financial Margin   82    97    (16)   -16.3%
Service Fees   291    316    (24)   -7.8%
Non-interest Expenses   (110)   (150)   40    -26.7%
Tax Expenses for ISS, PIS and Cofins and other taxes   (19)   (18)   (1)   7.3%
Income before Tax and Minority Interests   314    270    44    16.3%
Income Tax/Social Contribution and Minority Interests   (117)   (103)   (15)   14.1%
Recurring Net Income   196    167    29    17.7%
                     
Recurring Return on Allocated Capital   53.4%   45.5%        790bps
Efficiency Ratio (ER)   25.9%   35.7%        -980bps

 

Product innovation has played a significant role in the sustainable growth of our pension plan operations for individuals. For companies, we offer specialized advisory services and develop customized solutions. We establish long-term partnerships with our corporate clients, keeping a close relationship with the human resources departments and adopting a communication strategy designed for the financial education of their employees.

 

According to the National Federation of Pension and Life Insurance (FENAPREVI), in February 2015 our market share in total technical provisions was 23.9% whereas the market share in plans for individuals was 24.2%, both decreasing 40 basis points when compared to the same period of the previous year.

 

The recurring net income of the Pension Plan sub-segment totaled R$196 million, a 17.7% increase from the previous quarter, mainly due to higher net pension plan contributions and to lower non-interest expenses.

 

Quarterly Total and Net Contributions to Pension Plan

 

In the quarter, total pension plan contributions totaled R$4,516 million, a 3.7% decrease from the fourth quarter of 2014, mainly impacted by lower PGBL contributions. Net contributions for the first quarter reached R$1,660 million.

 

 

 

Composition of Total Contributions

 

In the first quarter of 2015, total pension plan contributions for individuals increased 1.3% when compared to the previous quarter, totaling R$4,145 million. Total pension plan contributions for companies totaled R$371 million in the period, a 38.1% reduction when compared to the fourth quarter of 2014.

 

 

 

Pension Plan Technical Provisions and Administration Fees

 

On March 31, 2015, technical provisions for pension plans totaled R$108,115 million, an increase of 4.3% when compared to December 31, 2014, and of 18.4% from the same period of the previous year.

 

Revenues from administration fees totaled R$291 million in the first quarter of 2015, a 10.0% increase from the first quarter of 2014.

 

 

Evolution of Redemption Rate

 

The redemption rate, which represents the ratio of redemptions to the balance of technical provisions for pension plan, reached 2.6%, an increase of 10 basis points when compared to the fourth quarter of 2014.

 

 

Itaú Unibanco Holding S.A.34
 

 

Management Discussion & Analysis    Pension Plan and Premium Bonds  

 

Pro Forma Premium Bonds Recurring Income Statement

 

In R$ millions  1Q15   4Q14   variation  
Revenues from Premium Bonds   127    149    (22)   -14.8%
Managerial Financial Margin   54    56    (2)   -2.7%
Non-interest Expenses   (82)   (75)   (7)   9.3%
Tax Expenses for ISS, PIS and Cofins and other taxes   (7)   (8)   1    -15.2%
Income before Tax and Minority Interests   91    122    (31)   -25.1%
Income Tax/Social Contribution and Minority Interests   (36)   (48)   12    -25.0%
Recurring Net Income   55    73    (18)   -25.2%
                     
Recurring Return on Allocated Capital   311.2%   312.6%        -140bps
Efficiency Ratio (ER)   47.3%   38.1%        920bps 

 

The PIC Premium Bonds product is targeted to clients who are interested in competing for prizes. Such product can be purchased through a single payment or monthly payment modality, in accordance with the profile and segment of each client. At the end of the first quarter of 2015, the premium bonds business had 15.6 million certificates issued.

 

In line with our sustainability principles, we maintain a partnership with the Ayrton Senna Institute, a non-profit organization that works to improve the quality of education at public schools in Brazil. Part of the revenues from the monthly payment for premium bonds certificates is transferred to projects of this Institute.

 

We had a 8.8% sales reduction compared to the previous quarter. This decrease is mainly explained by the lower number of business days in the quarter.

 

In the first quarter of 2015, 785 clients received prizes in the aggregate amount of R$15.6 million.

 

The Premium Bonds sub-segment’s recurring net income totaled R$55 million, a 25.2% decrease from the previous quarter, mainly due to decrease in sales, as mentioned, and the higher cost allocated to the product due to review in our allocation costs model.

 

Premium Bonds Technical Provisions

 

On March 31, 2015, the technical provisions for premium bonds reached R$ 3,077 million, an increase of 2.2% when compared to December 31, 2014.

 

 

Insurance | Other Activities

 

Net income from other insurance activities, which correspond to extended warranty, health insurance, our interest in IRB and other, reached R$26 million in the first quarter of 2015, a 20.1% increase from the previous quarter, mainly impacted by the sale of the large insurance risk portfolio, which recorded losses in the previous quarter.

 

Combined Ratio | Other Insurance Activities

 

The combined ratio of other insurance activities, which reflects the operating cost efficiency as a percentage of income from earned premiums, reached 103.2% in the period, down 730 basis points from the previous quarter, mainly impacted by the reduction in loss ratio due to the sale of the large risk portfolio.

 

Combined Ratio | Other Insurance Activities

 

 

 

Note: The combined ratio is the sum of retained claims, selling expenses, administrative expenses, other operating income and expenses, tax expenses for ISS, PIS and Cofins and other taxes over earned premiums.

 

 

Itaú Unibanco Holding S.A.35
 

 

Management Discussion & Analysis    Income Statement Analysis  

 

Non-interest Expenses

 

In R$ millions  1Q15   4Q14   variation    1Q14   variation   
Personnel Expenses   (4,514)   (4,426)   (88)   2.0%   (3,859)   (655)   17.0%
Administrative Expenses   (3,927)   (4,253)   326    -7.7%   (3,726)   (201)   5.4%
Operating Expenses   (1,274)   (1,273)   (2)   0.1%   (1,326)   52    -3.9%
Other Tax Expenses (*)   (165)   (162)   (4)   2.2%   (129)   (36)   28.2%
Total   (9,881)   (10,113)   232    -2.3%   (9,039)   (841)   9.3%
( - ) Operations Abroad   (1,016)   (860)   (155)   18.1%   (804)   (212)   26.4%
Total (ex-operations abroad)   (8,865)   (9,253)   388    -4.2%   (8,236)   (629)   7.6%

 

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

 

Non-interest expenses totaled R$9,881 million in the first quarter of 2015, decreasing 2.3%, or R$232 million, from the fourth quarter of 2014. This decrease was basically driven by the reduction of 7.7% or R$326 million in administrative expenses, mainly due to higher third-party service expenses in the fourth quarter of 2014. Disregarding operations abroad, that were impacted by the depreciation of real against other currencies, our non-interest expenses would have reduced 4.2% compared to the forth quarter of 2014 and increased 7.6% over the same period of previous year.

 

Personnel Expenses

 

In R$ millions  1Q15   4Q14   Variation 
Compensation, Charges and Social Benefits   (3,196)   (3,050)   (147)
Profit Sharing (*)   (887)   (922)   35 
Employee Terminations and Labor Claims   (396)   (396)   0 
Training   (34)   (58)   24 
Total   (4,514)   (4,426)   (88)

 

(*) Includes variable compensation and stock option plans.

 

Personnel expenses totaled R$3,196 million in the first quarter of 2015, a 2.0% increase compared to the previous quarter. This increase was primarily driven by higher expenses on compensation, charges and social benefits by 4.8% or R$147 million, which were impacted by the depreciation of real. These increase were partially offset by the reduction of R$35 million in profit sharing and of R$24 million in training expenses.

 

Number of Employees

 

The total number of employees decreased to 92,757 at the end of the first quarter of 2015 from 93,175 compared to the previous quarter.

 

 

 

Note: For companies under the control of Itaú Unibanco, 100% of the total number of employees is considered. No employee is considered for companies not controlled by Itaú Unibanco.

 

Administrative Expenses

 

In R$ millions  1Q15   4Q14   Variation 
Third-Party Services   (893)   (1,242)   348 
Data Processing and Telecommunications   (923)   (974)   52 
                
Facilities   (645)   (604)   (41)
Depreciation and Amortization   (519)   (530)   11 
Advertising, Promotions and Publications   (217)   (242)   26 
Security   (165)   (161)   (4)
Financial System Services   (135)   (110)   (25)
Transportation   (101)   (113)   13 
Materials   (87)   (97)   10 
Travel   (48)   (59)   12 
Other   (197)   (121)   (76)
Total   (3,927)   (4,253)   326 

 

Administrative expenses totaled R$3,927 million, a decrease of 7.7% compared to the fourth quarter of 2014. The major reductions were due to lower third-party service expenses, mainly telemarketing, and lower data processing expenses, partially offset by higher facilities expenses.

 

Operating Expenses

 

In R$ millions  1Q15   4Q14   Variation 
Provision for Contingencies   (443)   (386)   (57)
Selling - Credit Cards   (474)   (594)   120 
Claims   (62)   (45)   (17)
Other   (296)   (249)   (48)
Total   (1,274)   (1,273)   (2)

 

Operating expenses increased R$2 million in the first quarter of 2015 compared to the fourth quarter of 2014, mainly driven by higher provision for contingencies, claims and other expenses offset by lower selling expenses, in connection with card commissions.

 

Other Tax Expenses (*)

 

Other tax expenses totaled R$165 million in the first quarter of 2015, an increase of R$4 million compared to the fourth quarter of 2014.

 

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

 

Itaú Unibanco Holding S.A.36
 

 

Management Discussion & Analysis    Income Statement Analysis  

 

Efficiency Ratio and Risk-Adjusted Efficiency Ratio

 

Due to the change in the efficiency ratio and risk-adjusted efficiency ratio calculation methodology, the historical series for these ratios were recalculated. This change is aimed at improving the presentation of our results and seeks to provide for a better comparison with the financial statements prepared by different institutions, thus contributing to a better understanding and assessment of our performance. We present below the efficiency ratio and the risk-adjusted efficiency ratio, which includes the risk portions associated with banking transactions (result of the allowance for loan losses).

 

 

 

Efficiency Ratio

 

In the first quarter of 2015, the efficiency ratio reached 43.2%, an improvement of 330 basis points when compared to the fourth quarter of 2014. This increase was mainly due to the increase in our managerial financial margin, together with lower non-interest expenses. In the 12-month period, the efficiency ratio reached 45.7%, an improvement of 130 basis points from the previous quarter. Compared with the first quarter of 2014, this ratio improved 330 basis points.

 

Risk-Adjusted Efficiency Ratio

 

The risk-adjusted efficiency ratio, in the concept including all expenses and also the result of the allowance for loan losses, reached 62.7%, an increase of 110 basis points in relation to the previous quarter, as a result of higher loan loss provision expenses (19.5%) and lower income from recovery of loans written off as losses (20.3%), which is seasonally lower in the first quarter of the year.

 

When compared to the first quarter of 2014, the risk-adjusted efficiency ratio improved 240 basis points mainly due to the 27.8% increase in our managerial financial margin and the 13.4% increase in banking service fees and income from banking charges, higher than the nominal increases in loan losses and non-interest expenses.

 

In the 12-month period, the risk-adjusted efficiency ratio reached 62.4%, an improvement of 420 basis points compared to the first quarter of 2014.

 

Use of Operating Revenues

 

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

 

 

 

(*) Net of Tax Expenses for ISS, PIS, Cofins and Other (taxes on revenues), Claims and Selling Expenses from Insurance.

 

Itaú Unibanco Holding S.A.37
 

 

Management Discussion & Analysis    Income Statement Analysis  

 

Points of Service

 

Automated Teller Machines (ATMs) | Brazil and Abroad

 

At the end of the first quarter of 2015, the number of ATMs totaled 27,458, representing a decrease of 458 units when compared to the fourth quarter of 2014.

 

 

 

Note: (i) Includes Banco Itaú Argentina and the companies in Chile, Uruguay and Paraguay.

 (ii) Includes ESBs (Electronic Service Branches) and points of service in third-parties’ establishments.

(iii) Does not include points of sale and ATMs of Banco 24h.

 

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

 

We closed the first quarter of 2015 with 5,032 branches and client service branches (CSBs), including Brazil and abroad.

 

 

 

(i) On March 31, 2015, total branches include 34 digital branches and 48 business branches, which are considered points of service by CMN Resolution No. 4,072/2012.

(ii) Points of service include only Client Service Branches (CSBs).

 

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

 

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

 

Geographical Distribution of Service Network (*)

Number of Branches and Client Service Branches (CSBs)

 

 

 

(1) Does not include branches and points of service abroad and Itaú BBA.

 

Banking Correspondents

 

Our registered banking correspondents totaled 5,641 at the end of the first quarter of 2015, a 22.7% increase from the same period of the previous year, which demonstrates our commitment with the country’s development as we increase banking penetration.

 

 

 

Tax Expenses for ISS, PIS, Cofins and Other

 

Tax expenses amounted to R$1,455 million in the first quarter of 2015, a 17.5% increase from the previous quarter and a 25.5% increase compared to the same period of 2014, mainly driven by the payment of interest on capital of affiliated companies.

 

Income Tax and Social Contribution on Net Income

 

In the fourth quarter of 2014, income tax and social contribution on net income (CSLL) expenses totaled R$2,607 million; the effective tax rate reached 30.6% in the quarter.

 

Itaú Unibanco Holding S.A.38
 

 

 

 
 

 

Management Discussion & Analysis    Balance Sheet  

 

Assets

 

On March 31, 2015, total assets amounted to R$1.3 trillion, an increase of 7.1% in relation to the end of the previous quarter and of 16.9% from the previous year.

 

The breakdown of our assets and the details on their main components are presented below:

 

Total of Assets

R$ billions

 

 

 

Asset Breakdown | March 31, 2015

 

 

 

On March 31, 2015, the balance of our short-term interbank investments and securities portfolio, including derivative financial instruments, totaled R$549.1 billion, corresponding to an increase when compared to the previous quarter. This growth was mainly due to the increase in Brazilian government securities and PGBL/VGBL fund quotas.

 

Short-term Interbank Investments and Securities Portfolio

 

In R$ millions, end of period  1Q15   %   4Q14   %   variation   1Q14   %   variation 
Short-term Interbank Investments   225,076    41.0%   229,828    43.4%   -2.1%   190,553    41.7%   18.1%
Total Public Securities   124,222    22.6%   119,658    22.6%   3.8%   111,327    24.4%   11.6%
Public Securities - Domestic   112,397    20.5%   109,426    20.7%   2.7%   100,412    22.0%   11.9%
Public Securities - Foreign   11,825    2.2%   10,232    1.9%   15.6%   10,915    2.4%   8.3%
Korea   2,953    0.5%   1,782    0.3%   65.7%   2,910    0.6%   1.5%
Denmark   2,835    0.5%   2,699    0.5%   5.0%   3,408    0.7%   -16.8%
Chile   1,300    0.2%   1,251    0.2%   4.0%   1,233    0.3%   5.4%
Spain   1,089    0.2%   783    0.1%   39.1%   -    0.0%   0.0%
Paraguay   976    0.2%   977    0.2%   -0.1%   704    0.2%   38.7%
United States   945    0.2%   1,174    0.2%   -19.5%   1,350    0.3%   -30.0%
Argentina   810    0.1%   631    0.1%   28.3%   307    0.1%   163.7%
Uruguay   339    0.1%   311    0.1%   9.1%   360    0.1%   -5.9%
Netherlands   173    0.0%   151    0.0%   14.3%   123    0.0%   40.5%
France   143    0.0%   133    0.0%   7.4%   49    0.0%   191.0%
Belgium   115    0.0%   164    0.0%   -30.1%   154    0.0%   -25.5%
Italy   75    0.0%   70    0.0%   0.0%   -    0.0%   0.0%
Colombia   48    0.0%   88    0.0%   -46.2%   237    0.1%   -79.9%
Mexico   13    0.0%   3    0.0%   280.9%   74    0.0%   -82.1%
Peru   3    0.0%   -    0.0%   0.0%   -    0.0%   0.0%
Other   8    0.0%   14    0.0%   -43.7%   6    0.0%   26.5%
Corporate Securities   72,481    13.2%   67,450    12.7%   7.5%   58,596    12.8%   23.7%
PGBL/VGBL - Fund Quotas   101,508    18.5%   97,184    18.4%   4.4%   84,665    18.5%   19.9%
Derivative Financial Instruments   25,849    4.7%   15,335    2.9%   68.6%   11,994    2.6%   115.5%
Total   549,136    100.0%   529,455    100.0%   3.7%   457,135    100.0%   20.1%

 

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: 

 

 

 

Itaú Unibanco Holding S.A.40
 

 

Management Discussion & Analysis    Balance Sheet

 

Securities and Derivative Financial Instruments 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.

 

 

Securities by Category

 

Our securities portfolio is classified into three categories: trading, available-for-sale and held-to-maturity. On March 31, 2015, the securities portfolio totaled R$298,211 million.

 

 

Loan Portfolio

 

Loan Portfolio by Product

 

In the table below, the loan 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.

 

In R$ millions, end of period  1Q15   4Q14   variation   1Q14   variation 
Individuals  205,850   201,760   2.0%  180,636   14.0%
Credit Card   56,331    59,321    -5.0%   52,966    6.4%
Personal Loans   29,344    27,988    4.8%   27,756    5.7%
Payroll Loans (1)   44,608    40,525    10.1%   24,652    81.0%
Vehicles   26,331    28,927    -9.0%   37,086    -29.0%
Mortgage Loans (2)   30,194    28,898    4.5%   25,236    19.6%
Rural Loans   275    277    -0.9%   260    5.5%
Latin America (3)   18,768    15,823    18.6%   12,680    48.0%
Companies   262,255    250,000    4.9%   227,656    15.2%
Working Capital (4)   119,898    116,785    2.7%   104,596    14.6%
BNDES/Onlending   53,490    52,018    2.8%   50,503    5.9%
Export / Import Financing   34,787    31,460    10.6%   28,523    22.0%
Vehicles   5,595    5,573    0.4%   5,239    6.8%
Mortgage Loans   10,337    10,336    0.0%   10,083    2.5%
Rural Loans   7,795    7,977    -2.3%   7,285    7.0%
Latin America (3)   30,352    25,851    17.4%   21,427    41.7%
Total without Endorsements and Securities   468,105    451,760    3.6%   408,291    14.6%
Endorsements and Securities   75,289    73,759    2.1%   71,829    4.8%
Total with Endorsements and Securities   543,394    525,519    3.4%   480,120    13.2%
Corporate Securities (5)   35,202    34,175    3.0%   28,126    25.2%
Total Risk   578,596    559,694    3.4%   508,246    13.8%

 

(1) Includes operations originated by the institution and acquired operations. (2) Does not consider co-obligation in mortgage loan assignment in the amount of R$186.3 million in the 4Q11; (3) Includes Argentina, Chile, Colombia, Paraguay and Uruguay; (4) Also includes Overdraft, Receivables, Hot Money, Leasing, and other; (5) Includes Debentures, CRI and Commercial Paper.

 

At the end of the first quarter of 2015, our loan portfolio (including corporate securities portfolio and the balance of endorsements and sureties), amounted to R$578,596 million, a growth of 3.4% when compared to the previous quarter and of 13.8% when compared to March 31, 2014.

 

Individual loan portfolio reached R$205,850 million at the end of the first quarter of 2015, an increase of 2.0% when compared to the previous quarter. In this segment, the highlight was the growth of low-risk loan portfolios: payroll loans, which increased 10.1% reaching R$44,608 million, and mortgage loans, which increased 4.5% reaching R$30,194 million. This growth is also due to the increases of 4.8% in personal loans, which reached R$29,344 million, and of 18.6% in the individuals portfolio – Latin America, totaling R$18,768 million. These increases were partially offset by the 9.0% decrease in the vehicle portfolio.

 

The companies loan portfolio grew 4.9% at the end of the first quarter of 2015, totaling R$262,255 million. The changes in this portfolio were driven by the increases in working capital of 2.7%, which reached R$119,898 million, in export/import financing of 10.6%, which reached R$34,787 million, and in the companies portfolio – Latin America of 17.4%, to R$30,352 million.

 

Excluding the effect of the foreign exchange variation, the total loan portfolio, without endorsements and sureties, would have decreased 0.9% when compared to the previous quarter.

 

Itaú Unibanco Holding S.A.41
 

  

Management Discussion & Analysis    Balance Sheet

 

Loan Portfolio by Business Sector (including endorsements and sureties)

 

The changes in the portfolio of loans to companies, including Latin America portfolios, are listed below:

 

In R$ millions, end of period  1Q15   4Q14   variation 
Public Sector   6,709    5,774    936    16.2%
Private Sector- Companies   326,225    313,679    12,546    4.0%
Vehicles and auto parts   22,662    20,849    1,813    8.7%
Food and beverage   19,872    19,258    614    3.2%
Real state   19,632    18,725    907    4.8%
Transportation   18,376    18,466    (89)   -0.5%
Agribusiness and fertilizers   16,909    15,467    1,442    9.3%
Energy and water treatment   13,601    14,582    (982)   -6.7%
Steel and metallurgy   13,247    10,909    2,338    21.4%
Sugar and Alcohol   11,195    10,860    335    3.1%
Capital Assets   10,585    11,025    (440)   -4.0%
Banks and other financial institutions   10,208    9,885    323    3.3%
Telecommunications   9,983    10,023    (40)   -0.4%
Petrochemical and chemical   9,748    8,598    1,150    13.4%
Construction Material   7,637    7,265    372    5.1%
Mining   7,488    7,310    178    2.4%
Pharmaceutical and cosmetics   7,076    7,075    0    0.0%
Infrastructure work   6,820    5,833    987    16.9%
Electronic and IT   6,672    6,641    31    0.5%
Oil and gas   6,438    5,872    566    9.6%
Clothing and footwear   5,499    5,347    152    2.8%
Other   102,579    99,690    2,889    2.9%
Total   332,935    319,452    13,482    4.2%

 

Credit Concentration

 

Our loan, lease and other credit operations, including endorsements and sureties, are spread over our loan portfolio in a way that only 22.7% of the credit risk was concentrated on the 100 largest debtors at the end of the first quarter of 2015. The credit concentration of the 100 largest debtors (group consolidated) is as follows:

 

      % of total   % of total 
In R$ millions, end of period  Risk   credits   Assets 
Largest Debtor   6,094    1.1    0.5 
10 Largest Debtors   35,185    6.5    2.7 
20 Largest Debtors   55,535    10.2    4.3 
50 Largest Debtors   90,945    16.7    7.0 
100 Largest Debtors   123,307    22.7    9.5 

 

Renegotiation of Loan Operations

 

According to the rules of CMN Resolution No. 2,682/99, balances of all contracts that have had changes to their original contractual terms should be reported as renegotiated loans. To allow better understanding, we segregate renegotiated loans into those that had changes in the original contractual terms only, but were not overdue or were overdue for less than 30 days, and those that had credits effectively renegotiated, as shown below:

 

In R$ millions, end of period  Portfolio   LLP   % 
Amended Credit Agreements   19,360    (7,098)   36.7%
Amended Operations non-overdue   (6,869)   1,107    16.1%
Renegotiated Loans Operations   12,491    (5,991)   48.0%

 

Further information on Note 8-d of our financial statements.

 

On March 31, 2015, the portfolio of renegotiated operations reached R$12,491 million, with an increase of R$920 million in the quarter, representing 2.7% of our loan portfolio due to specific economic group in the corporate segment. At the end of the first quarter of 2015, the ratio of the allowance for loan losses to the renegotiated portfolio reached 48.0%.

 

 

The portfolio of renegotiated loan operations includes all operations under renegotiation, either overdue or those that were already written off as losses. In the case of write-offs, we recognize a provision for the total amount renegotiated (not generating an immediate result) that is reversed only when there is a strong indication of recovery of this credit (after payments are received on a regular basis for a few months).

 

The balance of 90-day non-performing loans (NPL 90) in the renegotiated portfolio reached R$2,743 million, which caused the 90-day NPL ratio to reach 22.0%. The allowance for loan losses coverage ratio of this portfolio was 218% on March 31, 2015. The portfolio of over 90-day non-performing loans presented in the report also includes the NPL on renegotiated credits.

 

Other Assets and Permanent Assets

 

The “other assets” item comprises foreign exchange portfolio, tax credits, taxes and contributions for offset and escrow deposits. In the first quarter of 2015, “other assets” reached R$200.1 billion (a 30.6% increase from the previous quarter), mainly due to the increase in foreign exchange transactions as a result of the depreciation of the Brazilian real against the U.S. dollar.

 

Our permanent assets, in the amount of R$19.9 billion, are represented by non-consolidated investments in Brazil and abroad, fixed assets and deferred charges. At the end of the first quarter of 2015, this category represented 1.5% of total assets.

 

Itaú Unibanco Holding S.A.42
 

  

Management Discussion & Analysis    Balance Sheet

 

Funding

 

In R$ millions, end of period  1Q15   4Q14   variation   1Q14   variation 
Demand Deposits   56,660    48,733    16.3%   43,217    31.1%
Savings Deposits   117,357    118,449    -0.9%   108,932    7.7%
Time Deposits   96,500    108,465    -11.0%   120,567    -20.0%
Debentures (Linked to Repurchase Agreements and Third Parties’ Operations)   136,714    139,910    -2.3%   126,625    8.0%
Funds from Bills (1) and Structured Operations Certificates   32,743    31,665    3.4%   29,546    10.8%
(1) Total - Funding from Account Holders and Institutional Clients (*)   439,975    447,223    -1.6%   428,886    2.6%
Onlending   44,082    45,230    -2.5%   44,175    -0.2%
(2) Total – Funding from Clients   484,057    492,453    -1.7%   473,062    2.3%
Assets Under Administration   694,824    668,516    3.9%   626,696    10.9%
Technical Provisions for Insurance, Pension Plan and Premium Bonds   116,737    112,675    3.6%   104,595    11.6%
(3) Total – Clients   1,295,618    1,273,644    1.7%   1,204,353    7.6%
Interbank deposits   28,135    19,125    47.1%   5,493    412.2%
Funds from Acceptance and Issuance of Securities   18,010    16,085    12.0%   14,320    25.8%
Total Funds from Clients + Interbank Deposits   1,341,762    1,308,854    2.5%   1,224,166    9.6%
                          
Repurchase Agreements (2)   194,144    185,103    4.9%   161,991    19.8%
Borrowings   52,183    43,546    19.8%   32,752    59.3%
Foreign Exchange Portfolio   84,030    43,176    94.6%   42,150    99.4%
Subordinated Debt   59,527    54,569    9.1%   55,534    7.2%
Collection and Payment of Taxes and Contributions   4,661    226    1962.3%   5,602    -16.8%
Working Capital (3)   78,707    78,340    0.5%   66,461    18.4%
Working Capital and Other   473,252    404,960    16.9%   364,491    29.8%
Total Funds (Working Capital, Raised and Managed Assets)   1,815,014    1,713,815    5.9%   1,588,657    14.2%

 

(*) Funds from Institutional Clients totaled R$10,707 million, which corresponds to 2.4% of the total raised with Account Holders and Institutional Clients.

(1) Includes funds from Real Estate, Mortgage, Financial, Credit and Similar Notes. (2) Does not include own issued debentures classified as funding. (3) Equity + Non-Controlling Interest – Permanent Assets.

 

At the end of the first quarter of 2015, total funds from clients, including interbank deposits, amounted to R$1.3 trillion, corresponding to an increase of R$32,908 million from the fourth quarter of 2014. The main drivers were increases of R$26,307 million in investment funds and managed portfolios, R$9,010 million in interbank deposits, and R$7,926 million in demand deposits, which were partially offset by the reduction of R$11,965 million in time deposits.

 

The debentures issued by leasing companies of the conglomerate, after being purchased by the bank (the Conglomerate’s leading company), are traded with the same characteristics as those of CDBs and other time deposits, although they are classified as deposits received under securities repurchase agreements. Therefore, these deposits are reclassified in the table above as deposits from account holders. At the end of the first quarter of 2015, this type of funding totaled R$136,714 million, including institutional clients.

 

Total funds (working capital, raised and managed assets) amounted to R$1.8 trillion at the end of the first quarter of 2015, an increase of R$101,200 million when compared to the end of the fourth quarter of 2014, mainly driven by a combination of the increases in funds from clients, repurchase agreements, borrowings and foreign exchange portfolio.

 

In the 12-month period, we highlight the increase of R$117,596 million in funds obtained from clients, mainly due to the increase in funds obtained through investment funds and managed portfolios, debentures, interbank deposits and technical provisions for insurance, pension plans and premium bonds. Total funds (working capital, raised and managed assets) grew R$226,357 million.

 

Funds from clients (1)

 

 

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

 

Itaú Unibanco Holding S.A.43
 

 

Management Discussion & Analysis    Balance Sheet

 

Loans to Funding Ratio

 

In R$ millions, end of period  1Q15   4Q14   variation   1Q14   variation 
Funding from Clients  484,057   492,453   -1.7%  473,062   2.3%
Funds from Acceptance and Issuance of Securities Abroad   18,010    16,085    12.0%   14,320    25.8%
Borrowings   52,183    43,546    19.8%   32,752    59.3%
Other (1)   30,174    21,022    43.5%   21,987    37.2%
Total (A)   584,423    573,106    2.0%   542,121    7.8%
(-) Reserve Required by Brazilian Central Bank   (70,593)   (72,413)   -2.5%   (91,049)   -22.5%
(-) Cash (Currency) (2)   (18,687)   (17,527)   6.6%   (16,030)   16.6%
Total (B)   495,143    483,166    2.5%   435,041    13.8%
Loan Portfolio (C) (3)   468,105    451,760    3.6%   408,291    14.6%
C/A   80.1%   78.8%   130bps   75.3%   480bps
C/B   94.5%   93.5%   100bps   93.9%   70bps

 

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

 

(2) 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 loan portfolio balance does not include endorsements and sureties.

 

Loans to funding ratio before the deduction of compulsory deposits and cash equivalents reached 80.1% at the end of the first quarter of 2015 compared to 78.8% at the end of the fourth quarter of 2014.

 

Disregarding reserve requirements and cash equivalents, this ratio reached 94.5% at the end of the first quarter of 2015 compared to 93.5% at the end of the fourth quarter of 2014.

 

Loan to Funding Ratio

 

 

(*) Gross funding, ex-deductions of reserve requirements and cash and cash equivalents.

 

External Funding - Securities (1)

 

The table below highlights the main issuances of Itaú Unibanco abroad in effect on March 31, 2015.

 

     Balance at          Exchange    Balance at    Issue   Maturity   
Instrument   Issuer   Dec 31,14   Issuances   Amortization   Variation   Mar 31,15   Date  Date  Cupom % a.a. 
Fixed Rate Notes (2)  Itaú Chile   97                   97   7/24/2007  7/24/2017   UF (5) + 3.79 %
Fixed Rate Notes (3)  Itaú Chile   98                   98   10/30/2007  10/30/2017   UF(5) + 3.44 %
Floating Rate Notes  Itaubank   393         (393)        -   12/31/2002  3/30/2015   Libor (6) + 1.25% 
Medium Term Notes  Itaú Unibanco Holding S.A., Grand Cayman Branch   1,000                   1,000   4/15/2010  4/15/2020   6.20%
Medium Term Notes  Itaú Unibanco Holding S.A., Grand Cayman Branch   1,000                   1,000   9/23/2010  1/22/2021   5.75%
Medium Term Notes (4)  Itaú Unibanco Holding S.A., Grand Cayman Branch   188              (32)   156   11/23/2010  11/23/2015   10.50%
Medium Term Notes  Itaú Unibanco Holding S.A., Grand Cayman Branch   250                   250   1/24/2011  1/22/2021   5.75%
Medium Term Notes  Itaú Unibanco Holding S.A., Grand Cayman Branch   500                   500   6/15/2011  12/21/2021   6.20%
Medium Term Notes  Itaú Unibanco Holding S.A., Grand Cayman Branch   550                   550   1/24/2012  12/21/2021   6.20%
Medium Term Notes  Itaú Unibanco Holding S.A., Grand Cayman Branch   1,250                   1,250   3/19/2012  3/19/2022   5.65%
Medium Term Notes  Itaú Unibanco Holding S.A., Grand Cayman Branch   1,375                   1,375   8/6/2012  8/6/2022   5.50%
Medium Term Notes  Itaú Unibanco Holding S.A., Grand Cayman Branch   1,870                   1,870   11/13/2012  5/13/2023   5.13%
Structured Notes      3,404         (299)        3,105            
Total      11,976    -    (692)   (32)   11,251            

 

(1) The balances refer to principal amounts; (2) and (3) Amounts in US$ equivalent on the issuance dates to CHP 46.9 billion and CHP 48.5 billion, respectively; (4) Amounts in US$ equivalent on the issuance dates to R$500 million; (5) Development Financial Unit; (6) 180-day Libor.

 

On March 31, 2015, funds obtained abroad totaled US$11,251 million, a decrease of US$725 million from the fourth quarter of 2014 (presented in the “Funding” table in the previous section as Foreign Borrowings through Securities and Subordinated Debt).

 

Itaú Unibanco Holding S.A.44
 

  

Management Discussion & Analysis    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 mitigate impacts from fluctuations in foreign exchange rates on consolidated results.

 

Brazilian tax legislation determines that gains and losses from exchange rate variation on permanent foreign investments must not be included in the tax basis. On the other hand, gains and losses 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 March 31, 2015, the net exchange position was a liability of US$9,717 million.

 

Assets | March 31, 2015

 

       Business in       Foreign   Business 
In R$ millions, end of period  Consolidated   Brazil   Local Currency   Currency   Abroad 
Cash and Cash Equivalents  18,687   9,251   6,912   2,339   10,695 
Short - Term Interbank Investments   225,076    206,038    206,038    0    19,038 
Securities and Derivative Instruments   324,060    266,350    262,993    3,358    99,334 
Loans, Leases and Other Loan Operations   439,751    331,642    316,337    15,305    170,709 
Loans   468,105    356,145    340,841    15,305    174,559 
(Allowance for Loan Losses)   (28,354)   (24,504)   (24,504)   0    (3,850)
Other Assets   267,093    201,965    179,842    22,123    106,068 
Foreign Exchange Portfolio   83,050    38,364    16,654    21,710    84,177 
Other   184,043    163,602    163,188    413    21,891 
Permanent Assets   19,947    70,271    18,794    51,477    1,153 
Total Assets   1,294,613    1,085,517    990,915    94,602    406,997 
Derivatives – Purchased Positions                  135,072      
Total Assets After Adjustments (a)                  229,674      

 

Liabilities | March 31, 2015

 

       Business in       Foreign   Business 
In R$ millions, end of period  Consolidated   Brazil   Local Currency   Currency   Abroad 
Deposits  298,652   185,141   184,479   662   131,090 
Funds Received under Securities Repurchase Agreements   330,858    309,573    309,573    -    21,285 
Funds from Acceptances and Issue of Securities   50,753    59,471    34,874    24,597    15,650 
Borrowings and Onlendings   96,265    109,773    44,132    65,641    49,091 
Interbank and Interbranch Accounts   9,365    8,988    6,141    2,847    377 
Derivative Financial Instruments   30,997    19,859    19,859    -    12,075 
Other Liabilities   260,819    176,161    152,982    23,178    125,600 
Foreign Exchange Portfolio   84,030    39,044    15,945    23,099    84,476 
Other   176,790    137,116    137,037    79    41,123 
Technical Provisions of Insurance, Pension Plan and Premium Bonds   116,737    116,670    116,668    2    67 
Deferred Income   1,513    1,227    638    590    285 
Minority Interest in Subsidiaries   1,700    1,700    1,700    -    0 
Stockholders' Equity of Parent Company   96,954    96,954    96,954    -    51,477 
Capital Stock and Reserves   91,221    90,803    90,803    -    51,351 
Net Income   5,733    6,151    6,151    -    126 
Total Liabilities and Equity   1,294,613    1,085,517    967,999    117,518    406,997 
Derivatives – Sold Positions                  143,330      
Total Liabilities and Equity After Adjustments (b)                  260,848      
Net Foreign Exchange Sold Position Itaú Unibanco (c = a - b)                  (31,173)     
Net Foreign Exchange Sold Position Itaú Unibanco (c) in US$                  (9,717)     

Note: Does not include 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, which, when including the tax effects on the net balance of other assets and liabilities denominated in foreign currency, reflects the mitigation of the exposure to foreign exchange variations.

 

In R$ millions, end of period  1Q15   4Q14   variation 
Investments Abroad   51,477    43,355    8,123    18.7%
Net Foreign Exchange Position (Except Investments Abroad)   (82,651)   (70,333)   (12,318)   17.5%
Total   (31,173)   (26,978)   (4,195)   15.6%
Total in US$   (9,717)   (10,157)   440    -4.3%

 

Itaú Unibanco Holding S.A.45
 

  

Management Discussion & Analysis    Risk Management

 

Corporate Principles of Risk and Capital Management

 

We regard risk management as an essential instrument for optimizing the use of resources and selecting the best business opportunities in order to create value to our stockholders.

 

Risk management encompasses the entire institution and is in line with the guidelines of the Board of Directors and Senior Management, which, through Committees and Superior Commissions, determine the overall goals, expressed as targets and limits for the risk management business units. Meanwhile, the control and capital management units support Itaú Unibanco’s management by means of monitoring processes and risk and capital analysis.

 

We adopt a prospective approach in relation to capital management, which comprises the following phases: identification and analysis of material risks, capital planning, stress test analysis focused on the impact of severe events on our capitalization level, maintenance of a contingency plan, internal capital adequacy assessment and preparation of periodic management reports.

 

For additional information on the risk and capital management structure, please refer to the Investor Relations website at www.itau.com.br/investor-relations >> Corporate Governance >> Risk Management – Pillar III.

 

Credit Risk

 

Our credit risk management is aimed at maintaining the quality of the loan portfolio at levels consistent with our risk appetite for each market segment in which we operate.

 

The credit risk control is centralized and carried out by an independent executive area responsible for risk control. The main responsibilities include monitoring and controlling the performance of loan portfolios, managing the process of development of institutional credit risk policies, monitoring the adequacy of the Referential Equity to the level of credit assumed. Itaú Unibanco’s centralized process for approving policies and validating models ensures the synchronization of credit actions.

 

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 search of the proper identification and evaluation of risks, the creation of value for stockholders, as well as the protection of our assets and image.

 

Liquidity Risk

 

Liquidity risk is defined as the possibility that we fail to efficiently meet expected and unexpected current and future obligations, including those arising from guarantees, without affecting our daily operations and incurring significant losses.

 

The liquidity risk measurement comprises all financial operations of our companies, as well as possible contingent or unexpected exposures, such as those arising from settlement services, provision of endorsements and sureties and lines of credit raised but not used.

 

Market Risk

 

Our market risk is controlled by a department that is independent from the business units and is responsible for carrying out, on a daily basis, risk measurement activities, assessment, analysis and reporting to the proper departments and persons, in normal and stress situations, in accordance to the established governance , as well as monitoring the necessary procedures to adjust the position and/or risk level, when applicable. To this end, Itaú Unibanco has a structured communication and information process that provides feedback for the monitoring of the Superior Committees and compliance with the requirements of Brazilian and foreign regulatory bodies.

 

VaR of Itaú Unibanco

 

Itaú Unibanco changed its methodology for calculating the Consolidated VaR by migrating from the Parametric approach to the “Historical Simulation” approach (except for the Foreign Units). This new methodology fully reprices the positions using the real historical distribution of the volatilities.

 

The market risk exposure of Itaú Unibanco portfolio and its foreign subsidiaries is presented in the VaR by Risk Factor Group table below, which shows where the main concentrations of market risk are.

 

The VaR increase in this quarter is due to the volatility increase, added to positions changes; these two factors changed the portfolio correlation effects. Also, the migration from VaR parametric approach to historial simulation for foreign units (Banco Itaú Argentina, Banco Itaú Chile and Banco Itaú BBA Colombia) contribuited to the VaR increase.

 

VaR by Risk Factor

 

In R$ millions, end of period  1Q15   4Q14 
Itaú Unibanco             
  Brazilian Interest rates   166.5    124.8 
  Other Foreign Interest rates   89.9    83.6 
  FX rates   40.4    26.5 
   Brazilian Inflation Indexes   110.0    115.7 
   Equities and Commodities   19.2    22.5 
Foreign Units             
  Banco Itaú BBA International   3.6    1.6 
   Banco Itaú Argentina   5.9    1.9 
  Banco Itaú Chile   11.1    5.3 
   Banco Itaú Uruguay   1.8    2.1 
   Banco Itaú Paraguay   3.7    3.5 
   Banco Itaú BBA Colombia   1.6    0.5 
    Diversification Effect   (231.8)   (194.9)
    Total VaR   221.7    193.1 
    Maximum VaR in the Quarter   236.6    227.7 
    Average VaR in the Quarter   203.7    176.0 
    Minimum VaR in the Quarter   179.1    131.1 

Values represented above consider 1 day as time line and 99% confidence. In March 31, 2015 the Total VaR Parametric values of Banco Itaú Argentina, Banco Itaú Chile e Banco Itaú BBA Colombia were R$3,8 million, R$4,6 million and R$0,03 million, respectively.

 

Evolução do VaR do Itaú Unibanco

 

 

Capital Sufficiency

 

Through the Internal Capital Adequacy Assessment Process (ICAAP), we aim to ensure the sufficiency of regulatory capital to cover our credit, market, operational and other risks.

 

Itaú Unibanco Holding S.A.46
 

 

Management Discussion & Analysis    Capital Ratios (BIS)

  

Solvency Ratios | Prudential Conglomerate and Financial Conglomerate

 

   Prudential   Financial     
In R$ millions, end of period  1Q15   4Q14   1Q14 
Stockholders' equity of the parent company  96,954   95,848   82,173 
Consolidated stockholders’ equity (BACEN)   102,393    103,079    89,836 
Non-voting shares excluded from Tier I   -    (1,048)   (890)
Deductions from core capital   (10,942)   (5,819)   (5,934)
Core Capital   91,451    96,212    83,013 
Additional capital   50    20    21 
Tier I   91,501    96,232    83,034 
Tier II   29,402    33,559    33,559 
Referential Equity (Tier I and Tier II)   120,903    129,790    116,593 
Required Referential Equity   86,773    84,488    81,964 
Risk-Weighted Assets (RWA)   788,844    768,075    745,131 
Credit Assets Expansion Simulation   310,273    411,839    314,807 
Excess Capital   34,130    45,302    34,629 
                
Ratios (%)               
Tier I   11.6    12.5    11.1 
Tier II   3.7    4.4    4.5 
BIS (Referential Equity / Total exposure weighted by risk)   15.3    16.9    15.6 

 

Itaú Unibanco’s minimum capital requirements are in accordance with the set of rules disclosed by the Brazilian Central Bank, which implement the Basel III global capital requirements in Brazil. These requirements are expressed as ratios between the capital available – demonstrated by the Tier I and Tier II Referential Equity, or Total Capital, and the risk-weighted assets.

 

As of the first quarter of 2015, these ratios are reported in the Prudential Conglomerate, which includes not only the financial institutions in the Financial Conglomerate (in effect through December 2014), but also similar institutions(*).

 

Referential Equity | Prudential Conglomerate

 

On March 31, 2015, our Referential Equity reached R$120,903 million, R$91,501 million equivalent to Tier I and R$29,402 million to Tier II.

 

Taking into consideration our current capital base, and fully applying Basel III rules established by the Brazilian Central Bank in full now, we estimate that our core capital (Common Equity Tier I) would be 11.4% on March 31, 2015, taking into consideration some mitigating actions that are in progress and the use of the full tax loss carry forward balance. This scenario is presented in the following chart.

 

Estimated Core Capital Ratio (Common Equity Tier I)

 

 

¹ Includes deductions of Goodwill, Intangible Assets, Tax Loss Carryforwards, Deferred Tax Assets, Equity Investments in Insurance and similar companies. ² Includes the increase of the multiplier of the market risk, operational risk and certain credit risk accounts. This multiplier, which is at 9.09 nowadays, will be to 12.5 in 2019. ³ Does not include any reversal of the complementary portion of the loan loss provisions.

 

(*) Similar institutions are consortium managers, payment institutions, companies that acquire operations or directly or indirectly assume credit risk, and investment funds in which the conglomerate substantially retains risks and benefits.

 

Solvency Ratios | Prudential Conglomerate

 

On March 31, 2015, our BIS ratio reached R$15.3%, of which 11.6% equivalent to Tier I and 3.7% to Tier II.

 

The Basel ratio reduction was mainly due to the following factors: the progress of the implementation schedule of BIS III (100 bps); the distribution of interest on capital (40 bps); the changes in risk-weighted assets (80 bps) and the increase in deferred tax asset balance related to income tax and social contribution loss carryforwards (50 bps) as part of our mitigation strategy of exchange risk of capital invested abroad. The negative effects were partially offset by the accumulation of profits and the adoption of the Prudential Conglomerate.

 

Subordinated Debt and Referential Equity Tier II

March 31, 2015

 

 

 On March 31, 2015, the account balance of the subordinated debt reached R$59,527 million, an increase of 9.1% from the previous quarter. Considering that in this period no debt was issued, the balance increase is mainly due to the 20.8% depreciation of the Brazilian real against the U.S. dollar, which impacted debts issued in foreign currency.

 

(**) According to present rules, we calculated the Referential Equity considering the December, 2012 balance of Subordinated Debt, including Debt approved by the Brazilian Central Bank as part of Tier II after the closing period.

 

Itaú Unibanco Holding S.A.47
 

 

Management Discussion & Analysis    Capital Ratios (BIS)

 

Exposure by Risk

 

   Prudential   Financial     
In R$ millions, end of period  1Q15   4Q14   1Q14 
Exposure weighted by credit risk (RWACPAD)   728,559    706,081    686,512 
FPR de 2%   136    75    53 
FPR de 20%   6,291    3,249    7,298 
FPR de 35%   8,579    8,139    7,033 
FPR de 50%   46,681    34,486    23,615 
FPR de 75%   145,250    146,705    127,691 
FPR de 85%   147,950    139,730    119,733 
FPR de 100%   305,875    307,259    314,160 
FPR de 150%   -    -    20,201 
FPR de 250%   34,294    34,838    31,130 
FPR de 300%   18,002    14,015    19,288 
FPR de 1250%   1,688    4,430    6,392 
Derivatives – potential future gain and credit quality counterparty variations   13,812    13,156    9,919 
Exposure weighted by operational risk (RWAOPAD)   35,509    36,817    36,566 
Exposure weighted by market risk (RWAMPAD)   24,776    25,176    22,054 
Gold, foreign currency and operations subject to exchange rate variation (RWACAM)   11,198    13,403    5,642 
Operations subject to interest rate variation (RWAJUR)   12,046    10,347    14,421 
Operations subject to commodity price variations (RWACOM)   921    952    939 
Operations subject to stock price variation (RWAACS)   610    474    1,052 
Risk-weighted assets (RWA) [RWACPAD+ RWAOPAD+RWAMPAD]   788,844    768,075    745,131 

 

On March 31, 2015, the total exposure weighted by risk amounted to R$788,844 million.

 

The credit risk exposure of our risk-weighted assets (RWACPAD) reached R$728,559 million on March 31, 2015.

 

The operational risk-weighted assets (RWAOPAD) reached at R$35,509 million at the end of the first quarter of 2015. The RWAOPAD are determined every six months, according to Circulars Nos. 3,640, 3,675 and 3,739 of the Brazilian Central Bank.

 

The market risk-weighted assets (RWAMPAD) reached R$24,776 million on March 31, 2015.

 

Evolution of the Composition of the Risk-Weighted Exposure

 

 

Exposure weighted by Credit Risk

 

 

Risk-Adjusted ROA

 

 

In the first quarter of 2015, the annualized recurring return on average assets remained at 1.9%, an increase of 30 basis points when compared to the first quarter of 2014.

 

The risk-adjusted ROA remained at 3.0% this quarter, a 60 basis point increase from the same period of the previous year.

 

In the first quarter of 2015, the risk-weighted leverage was 6.5, up 60 basis points from the previous quarter, mainly due to the lower Referential Equity in the current period.

 

Itaú Unibanco Holding S.A.48
 

 

Management Discussion & Analysis    Ownership Structure

 

Itaú Unibanco Holding’s capital stock is represented by common shares (ITUB3) and non-voting shares (ITUB4), both traded at the BM&FBOVESPA. The non-voting shares are also traded as depositary receipts at NYSE (New York) and BCBA (Argentina) as ADRs and CEDEARs, respectively.

 

 

Outstanding Shares | Itaú Unibanco Holding S.A.

 

In thousands  Common Shares   Non-voting Shares   Total 
Number of Shares   2,770,037    2,760,796    5,530,833 
Treasury Shares               
On 12/31/2014   2.5    53,829    53,831 
Purchase of treasury shares   -    16,597    16,597 
Exercised options - Granting of stock options   -    (2,097)   (2,097)
Disposals - Stock option plan   -    (6,486)   (6,486)
On 03/31/2015 (1)   2.5    61,842    61,845 
Total Shares (-) Treasury Shares   2,770,034    2,698,954    5,468,988 

 

(1) The average acquisition cost of the non-voting treasury shares was R$26.96 and of the common treasury shares was R$7.97. For further information, including information on the “Stock Option Plan”, see note 16 to the financial statements.

 

The management of our ownership structure aims to optimize capital allocation among the many segments that compose the conglomerate. Itaú Unibanco Holding is controlled by IUPAR, which is jointly controlled by Itaúsa and Cia. E. Johnston. Itaúsa is controlled by the members of the Egydio de Souza Aranha family while Cia. E. Johnston is controlled by the members of the Moreira Salles family.

 

The organization chart below summarizes the current ownership structure as of March 31, 2015:

 

 

10% bonus in shares approved in Stockholders’ Meeting

 

On April 29, 2015, the Stockholders’ Meeting approved an increase in the capital stock in the amount of R$10.1 billion through the capitalization of profit reserves with a share bonus of 10%. Every stockholder will be entitled, free of charge, to one new share for each ten shares of the same type they hold. The baseline date for the right to the bonus will be communicated to the market after Brazilian Central Bank approval. The share bonus will add value to our stockholders, mainly because:

 

- The unit cost of the bonus shares will be R$18.348050984612, which will impact the average price of the shares held by the stockholder;

 

- Monthly dividends will remain at R$0.015 per share, representing a 10% increase in the amounts received on a monthly basis after the share bonus.

 

Free Float - Non-voting Shares | on 03/31/2015

 

 

Itaú Unibanco Holding S.A.49
 

  

Management Discussion & Analysis    Stock Market Performance

 

Stock Market Performance | 1Q15

 

Our common and non-voting shares were traded on all BM&FBOVESPA´s sessions in the first quarter of 2015. Additionally, our non-voting shares are included in several Stock Exchange indexes in which financial institution shares may be listed.

 

   (R$)   (R$)   (US$) 
   Non-voting Shares   Common Shares   ADRs 
   ITUB4   ITUB3   ITUB 
Closing Price at 03/31/2015  35.31   32.18   11.06 
Maximum price in quarter   37.57    33.87    13.66 
Average price in quarter   34.79    31.62    12.18 
Minimum price in quarter   32.47    29.70    10.12 
Closing Price at 12/31/2014(1)   34.60    32.30    13.01 
Maximum price in 12 months(2)(3)   41.62    38.79    18.49 
Average price in 12 months (2)   34.95    31.94    14.22 
Minimum price in 12 months(2)(4)   30.13    27.10    10.12 
Closing Price at 03/31/2014(5)   30.82    29.03    13.51 
Change in 1Q15   2.1%   -0.4%   -15.0%
Change in the last 12 months   14.6%   10.9%   -18.1%
Average daily trading financial volume - in 12 months (million)   439.4    7.0    177.2 
Average daily trading financial volume in 1Q15 (million)   460.3    4.3    170.2 

(1) On 12/31/14 no trading session was held at the BM&FBOVESPA. Therefore, the amounts presented refer to 12/30/14;

(2) From 03/31/14 to 03/31/15;

(3) Prices on 09/03/14 for non-voting shares, common shares and ADRs;

(4) Prices on 03/31/14 for non-voting shares, on 10/27/14 for common shares and on 03/13/15 for ADRs.

(5) Prices adjusted by the June 2014 bonus (10%).

 

Closing price at the end of each period (1)

 

 

(1) In 2012, non-voting shares, common shares and ADRs shares prices were adjusted by the June 2014 and March 2013 bonus (10%), while in 2013 the same prices were adjusted only by the June 2014 bonus.

 

Liquidity of our shares

 

   1Q15   4Q14   1Q14 
BM&FBovespa (ITUB4)            
Total Financial Volume Traded in the spot market (in R$ million)   28,077    33,763    21,255 
Volume of Transactions (in thousands)   1,751.5    1,877.7    1,433.5 
Average volume by transaction (in R$ thousands)   16.0    18.0    14.8 
Negotiability Index(1)   4.53%   4.32%   3.79%
NYSE (ADR)               
Total Financial Volume Traded (in R$ million)   29,967    33,787    22,279 
Volume of Transactions (in thousands)   2,417    2,348    2,089 
Average volume by transaction (in R$ thousands)   12.4    14.4    10.7 
Total outstanding ADRs (in million)   911.1    913.0    892.2 
Ratio of Total Outstanding ADRs to Total Outstanding Non-Voting Shares   33.8%   33.7%   36.4%

 

(1) The negotiation index represents the percentage of share trading in relation to all shares traded in the spot market on BM&FBovespa. For calculation purposes, it was considered the trading in the three last months of each period . Source: Economática.

 

Market Capitalization vs. Ibovespa Index

 

On March 31, 2015, our market capitalization was R$192.7 billion, and the compound annual growth rate (CAGR) has increased 11.57% since 2012. Ibovespa reached 51.2 thousand points in the same period and its CAGR decreased 7.50%. According to information provided by Bloomberg, on March 31, 2015 we were the 2nd largest company by market capitalization in Brazil and the 1st among financial institutions.

 

Market Indicators

 

Price / Earnings1 – represents the total number of years for an investor to recover his/her capital invested.

 

Price / Book Value 2 – represents the ratio of market capitalization to stockholders' equity.

 

 

(1): Closing price of non-voting share at the period end/Earnings per share. For calculation purposes, the retained earnings of the last 12 months were considered. (2): Closing price of non-voting share at the period-end/Book value per share.

 

Average Daily Trading Volume (BM&FBovespa + NYSE)

 

 

Financial trading profile by investor

 

Foreign investors accounted for almost 70% of the financial volume of Itaú Unibanco shares traded on stock exchanges in the first quarter of 2015.

 

 

(1) Cooperatives, public companies, limited-liability companies, municipal/state/federal governments, financial entities, churches and charities and/or non-profit organizations, among others.

(2) Includes foreign investors trading on the BM&FBOVESPA, as well those trading on the NYSE.

 

Dividends and Interest on Capital

 

Itaú Unibanco compensates its stockholders by means of monthly and complementary payments of dividends and interest on capital. In the first quarter of 2015, we paid or recognized a provision of R$1.32 billion in dividends and interest on capital, net of taxes.

 

Dividend Yield (Dividends and Interest on Capital Distributed / Average Price1) It is the ratio of total dividends/interest on capital distributed to the share price, which indicates the return on investment to the stockholder through profit sharing in each period.

 

Payout (Net Dividends and Interest on Capital Distributed / Net Income)

 

 

(1): Average price on the first day of each period.

(2): For calculation purposes, it was considered the total Dividends/Interest on capital distributed in the last 12 months of each period.

 

Itaú Unibanco Holding S.A.50
 

  

Management Discussion & Analysis    Stock Market Performance  

  

Market Consensus

 

Major market analysts periodically issue recommendations on the shares that are the subject matter of their analyses. These recommendations help many investors choose the best option in which to invest their capital.

 

Based on information provided by Thomson Analytics and Bloomberg on March 31, 2015, we present, in the table below, a summary of the recommendations on Itaú Unibanco Holding non-voting shares.

 

   Thomson  Bloomberg
Buy  14  16
Hold  5  5
Sell  0  1
Number of Analysts  19  22

 

Based on information provided by Thomson, the average estimated target price for 2015 is R$40.50. According to Bloomberg, the average estimated target price is R$42.00.

 

Main Market Indexes

 

The weights of our common and non-voting shares in the BM&FBOVESPA’s indexes of the current portfolios from January to March 2015 are shown in the chart below.

 

   ITUB3   ITUB4
   Weights   Weights and Ranking 1
Ibovespa (Bovespa Index)   -    11.23%  1st
IBrA (Brazil Broad-Based Index)   0.84%   9.41%  1st
IBrX - 50 (Brazil Index 50)   -    11.17%  1st
IBrX - 100 (Brazil Index 100)   -    9.78%  1st
ICO2 (Carbon Efficient Index)   -    15.13%  1st
IFNC (Financial Index) 2   1.64%   18.36%  1st
IGCT (Corporate Governance Trade Index)   1.03%   11.47%  1st
IGCX (Special Corporate Governance Stock Index)   0.64%   7.13%  2nd
ISE (Corporate Sustainability Index) 3   0.51%   5.67%  5th
ITAG (Special Tag Along Stock Index)   -    12.72%  1st
MLCX (Mid-Large Cap Index)   0.93%   10.42%  1st

 

(1) Position of the ITUB4 share when the components of the index are ordered based on their weights.

(2) The weight of the companies’ shares in the index (including all types of shares) cannot exceed 20%.

(3) The weight of one economic sector in the Corporate Sustainability Index (ISE), including all types of shares, cannot exceed 15%.

 

Net Income per Share1 and Recurring Net Income per Share1

 

 

 

(1) For calculation purposes, the retained earnings of the last 12 months were considered.

(2) In 2012, the price was adjusted by the share bonus (10%) of June 2014 and March 2013, whereas the price in 2013 was adjusted by the share bonus of June 2014 only.

 

Trading of Own Shares for Treasury

 

In the first quarter of 2015, we acquired 16.6 million non-voting shares in the amount of R$568.3 million at the average price of R$34.24 per share.

 

These acquisitions refer to the share buy-back program approved by the Board of Directors that authorizes the acquisition of up to 10.0 million common shares and 50.0 million non-voting shares, which will be in effect through December 15, 2015.

 

For further information on volumes traded and prices, visit www.itau.com.br/investor-relations> Corporate Governance > Trading of Own Shares.

 

Credit Risk Assessment by Rating Agencies

 

Based on its new global methodology for banks issued in March 2015, Moody’s announced changes in the ratings of 1,021 banks from a total of 1,934 banks rated worldwide. Due to this methodology reassessment, Itaú Unibanco Holding, Itaú Unibanco S.A. and Itaú BBA ratings were placed on review for downgrade.

 

In April 2015, since Fitch Ratings downgraded the Brazilian sovereign outlook from stable to negative, the agency also reassessed the ratings of 20 Brazilian financial institutions, including Itaú Unibanco Holding, Itaú Unibanco S.A. and Itaú BBA, which had their outlooks and ratings downgraded.

 

Standard & Poor’s (S&P) disclosed, in April 2015, some changes in the ratings and outlooks of Brazilian financial institutions. Itaú Unibanco Holding and Itaú BBA ratings and outlooks were not changed.

 

To learn more about these ratings, please visit (www.itau.com.br/investor-relations) in Itaú Unibanco > Market Opinion > Ratings.

 

Non-voting Shares (ITUB4) Appreciation

 

The chart below shows the simulation of R$100 invested on March 31, 2005 through March 31, 2015, by comparing the amounts with and without the reinvestment of dividends to the performance of Ibovespa and CDI (Interbank Deposit Certificate).

 

 

 

Itaú Unibanco Holding S.A.51
 

 

Management Discussion & Analysis    Stock Market Performance  

 

Annual and Extraordinary Stockholders’ Meetings

 

On April 29, 2015 we held Annual and Extraordinary General Meetings for our stockholders to deliberate on:

 

•Approval of the Financial Statements as of the year ended December 31, 2014 and of the Allocation of Net Income for the period;
•Election of members for the Board of Directors and Fiscal Council;
•10% bonus in shares – as mentioned previously.

 

The Stockholders’ Meeting Manual, made available 30 days in advance of the meeting, and the main resolutions are available on our Investor Relations website www.itau.com.br/investor-relations and on CVM, BM&FBOVESPA, SEC and BCBA websites.

 

Digital Meeting – for the fourth consecutive year we made available to our stockholders the Electronic Voting Platform, which mainly aims at encouraging and expediting their participation in the Meeting. We were the first financial institution to provide this mechanism in Brazil, thus allowing our stockholders to exercise their right to vote from any part of the world, without having to attend the Meeting in person.

 

2014 Consolidated Annual Report and Integrated Report

 

For the second consecutive year, we prepared the Consolidated Annual Report, integrating the Annual Report (with sustainability indexes of the Global Reporting Initiative), the 20-F Form (required by SEC) and the Debt Report into a single document. The priorities this year were the conciseness of contents (reducing contents by over 45% when compared to the 2013 report) whereas maintaining the text quality, and the in-depth examination of material issues, such as the full review and thorough analysis of our Risk Factors.

 

The Integrated Report, which follows the IIRC (International Integrated Reporting Council) framework, addresses the organization’s most significant information, correlating results, operational activities, business strategies and different types of capital.

 

These documents are reviewed and assured by independent auditors and are available on our Investor Relations website www.itau.com.br/relacoes-com-investidores.

 

Corporate Events

 

Alliance with MasterCard – In March 2015 we entered into an agreement with MasterCard Brasil Soluções de Pagamento Ltda. to establish an alliance for a 20-year term, in the payment solutions market in Brazil. This alliance will operate a new electronic payments network through a company controlled by MasterCard, in which Itaú Unibanco will have certain vetoes and approval rights.

 

Our objectives with this alliance are to expand our issuing and acquiring businesses, mostly related to this new payment solutions network, to access new payment solutions technologies, to carry out significant gains of scale and efficiency, and to capitalize on MasterCard’s expertise in the management of payment solutions’ brands of international acceptance.

 

2015 Agenda

 

May      
  06 Conference Call – 1st Quarter Results  
       
    APIMEC - Belo Horizonte / MG  
  20     
    Venue: Mercure Belo Horizonte Lourdes Hotel Time: 12:00 p.m.
       
    APIMEC - Brasília / DF  
  28    
    Venue: Windsor Plaza Brasília Hotel Time: 12:00 p.m.
June      
    APIMEC - Campinas / SP  
  02    
    Venue: Hotel Vitória Concept Campinas Time: 7:00 p.m.
       
    APIMEC - Porto Alegre / RS  
  10    
    Venue: Sheraton Porto Alegre Hotel Time: 4:00 pm
       
    APIMEC - Rio de Janeiro / RJ  
  16    
    Venue: Sofitel Rio de Janeiro Copacabana Time: 8:00 a.m.
       
    APIMEC - Vitória / ES  
  17    
    Venue: Golden Tulip Porto Vitória Hotel Time: 7:00 p.m.
       
    APIMEC - Santos / SP  
  18    
    Venue: Mercure Santos Hotel Time: 7:00 p.m.
       
    APIMEC - Londrina / PR  
  22    
    Venue: Hotel Boulevard Time: 7:00 p.m.
       
    APIMEC - Curitiba / PR  
  23    
    Venue: Pestana Curitiba Hotel Time: 7:00 p.m.
       
    APIMEC - Joinville / SC  
  24    
    Venue: Bourbon Joinville Business Hotel Time: 7:00 p.m.
       
    APIMEC - Florianópolis / SC  
  25    
    Venue: Majestic Palace Hotel Time: 7:00 p.m.
       
    APIMEC - Uberlândia / MG  
  29    
    Venue: Center Convention Time: 7:00 p.m.
       
    APIMEC - Ribeirão Preto / SP  
  30    
    Venue: Stream Palace Hotel Time: 7:00 p.m.
July      
    APIMEC - Campo Grande / MS  
  02    
    Venue: Hotel Deville Prime Time: 7:00 p.m.
       
    APIMEC - João Pessoa / PB  
  07    
    Venue: Best Western Hotel Caiçara Time: 7:00 p.m.
       
    APIMEC - Goiânia / GO  
  09    
    Venue: Castro’s Park Hotel Time: 7:00 p.m.
       
    APIMEC - Manaus / AM  
  20    
    Venue: Quality Hotel Time: 7:00 p.m.
       
    APIMEC - Belém / PA  
  21    
    Venue: Crowne Plaza Time: 7:00 p.m.
       
    APIMEC - Recife / PE  
  22    
    Venue: Golden Tulip Recife Palace Time: 7:00 p.m.
       
    APIMEC - Salvador / BA  
  23    
    Venue: Sheraton da Bahia Hotel Salvador Time: 7:00 p.m.
August      
  04 2nd Quarter Results  
       
  05 Conference Call – 2nd Quarter Results  
       
    APIMEC - São Paulo / SP  
  20    
    Venue: Hotel Unique Time: 2:00 p.m.
November      
  03 3rd Quarter Results  
       
  04 Conference Call – 3rd Quarter Results  
       
    APIMEC - Fortaleza / CE  
  19    
    Venue: Hotel Gran Marquise Time: 4:00 p.m.

 

Itaú Unibanco Holding S.A.52
 

 

 

 

 
 

 

 

 

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Itaú Unibanco Holding S.A.54
 

 

Management Discussion & Analysis    Segment Analysis  

 

Pro Forma Adjustments

 

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

 

The financial statements were adjusted in order to replace the accounting stockholders’ equity with fundingat market prices. Subsequently, the financial statements were adjusted 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.

 

As of the first quarter of 2015, we changed the presentation of our segments in order to reflect them with the bank’s current organizational structure. We will report the following segments: (a) Retail Banking, (b) Wholesale Banking and (d) Activities with the Market + Corporation. Retail Banking will include the previous Commercial Banking – Retail and Consumer Credit – Retail segments, with the transfer of the Private Bank and Latam operations to the Wholesale Banking. We restated the Pro Forma Balance Sheet and Income Statement for the fourth quarter of 2014 by segment for better comparison between periods, and these are the main changes of this presentation.

 

The Activities with the Market + Corporation column presents the result from excess capital, excess subordinated debt and the net balance of tax assets and liabilities. It also shows the financial margin with the market, costs of Treasury operations, the equity pickup of companies not linked to each segment and our interest in Porto Seguro.

 

Allocated Capital

 

Impacts related to capital allocation are included in the Pro Forma financial statements. 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 and, as of 2015, we changed our calculation methodology. In addition to the Tier I allocated capital, the EAC model includes the effects of the calculated expected loan losses, supplementary to that required by the Brazilian Central Bank through CMN Circular No. 2,682/99.

 

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

 

Based on Tier I capital measure we determined the Return on Allocated Capital, which corresponds to an operational performance ratio consistently adjusted to the required capital needed to support the risks of the financial positions assumed in accordance with our risk appetite.

 

Income Tax Rate

 

We adopt the full income tax rate, net of the tax effect of payment of interest on capital, for the Retail Banking, Wholesale Banking and Activities with the Market + Corporation segments. The difference between the income tax amount determined by segment and the effective income tax amount, as stated in the consolidated financial statements, is stated in the Activities with the Market + Corporation column.

 

Itaú Unibanco Holding S.A.55
 

 

Management Discussion & Analysis    Segment Analysis  

 

The Pro Forma financial statements of the Retail Banking, Wholesale Banking and Activities with the Market + Corporation presented below, are based on managerial information derived from internal models, to more accurately reflect the business units activities. As of the first quarter of 2015, we changed our segments presentation and our Economic Allocated Capital calculation methodology.

 

Pro Forma Balance Sheet by Segment | On March 31, 2015

 

           Activities with the     
   Retail   Wholesale   Market +     
In R$ millions  Banking   Banking   Corporation   Itaú Unibanco 
Assets                    
Current and Long-Term Assets   805,946    483,738    115,906    1,274,667 
Cash and Cash Equivalents   16,424    2,264    -    18,687 
Short-term Interbank Investments   250,115    63,641    -    225,076 
Securities and Derivative Financial Instruments   180,874    145,865    35,932    324,060 
Interbank and Interbranch Accounts   62,957    4,508    -    67,001 
Loan, Lease and Other Credit Operations   233,522    234,584    -    468,105 
(Allowance for Loan Losses)   (15,140)   (6,884)   -    (22,024)
(Complementary Expected Loss Provisions)   -    -    (6,330)   (6,330)
Other Assets   77,195    39,761    86,305    200,092 
Foreign Exchange Portfolio   8,580    28,083    48,265    83,050 
Others   68,615    11,678    38,039    117,042 
Permanent Assets   16,488    1,728    1,730    19,947 
Total Assets   822,434    485,466    117,636    1,294,613 
Liabilities and Equity                    
Current and Long-Term Liabilities   784,046    447,751    93,574    1,194,447 
Deposits   260,784    115,470    -    298,652 
Deposits Received under Securities Repurchase Agreements   239,143    105,659    -    330,858 
Funds from Acceptances and Issue of Securities   56,299    30,200    -    50,753 
Interbank and Interbranch Accounts   5,121    4,247    -    9,365 
Borrowings and Onlendings   20,299    75,966    -    96,265 
Derivative Financial Instruments   36    32,341    -    30,997 
Other Liabilities   110,722    58,772    93,574    260,819 
Foreign Exchange Portfolio   9,341    27,592    48,975    84,030 
Others   101,381    31,181    44,599    176,790 
Technical Provisions for Insurance, Pension Plans and Premium Bonds   91,643    25,095    -    116,737 
Deferred Income   1,126    386    -    1,513 
Minority Interest in Subsidiaries   1,619    -    81    1,700 
Economic Allocated Capital - Tier I (*)   35,643    37,329    23,981    96,954 
Total Liabilities and Equity   822,434    485,466    117,636    1,294,613 

 

(*) 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 | 1st quarter of 2015

 

           Activities with the     
   Retail   Wholesale   Market +     
In R$ millions  Banking   Banking   Corporation   Itaú Unibanco 
Operating Revenues   17,197    5,799    1,951    24,946 
Managerial Financial Margin   10,098    3,956    1,909    15,963 
Financial Margin with Clients   10,098    3,956    39    14,092 
Financial Margin with the Market   -    -    1,871    1,871 
Banking Service Fees and Income from Banking Charges   5,105    1,735    26    6,867 
Result from Insurance, Pension Plans and Premium Bonds Operations before Retained Claims and Selling Expenses   1,994    107    16    2,117 
Loan Losses Net of Recovery   (2,519)   (1,975)   39    (4,455)
Expenses for Allowance for Loan Losses   (3,503)   (2,051)   39    (5,515)
Income from Recovery of Credits Written Off as Losses   984    76    -    1,060 
Retained Claims   (359)   (9)   -    (368)
Operating Margin   14,319    3,814    1,990    20,123 
Other Operating Income/(Expenses)   (8,465)   (2,649)   (488)   (11,602)
Non-interest Expenses   (7,171)   (2,376)   (335)   (9,881)
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (1,030)   (273)   (153)   (1,455)
Selling Expenses From Insurance   (264)   (1)   (1)   (266)
Income before Tax and Minority Interests   5,854    1,165    1,502    8,520 
Income Tax and Social Contribution   (2,051)   (256)   (300)   (2,607)
Minority Interests in Subsidiaries   (104)   -    (1)   (105)
Recurring Net Income   3,699    909    1,200    5,808 
Recurring Return on Average Allocated Capital   39.4%   9.7%   23.9%   24.5%
Risk-Adjusted Efficiency Ratio (RAER)   62.3%   78.9%   16.4%   62.7%
Efficiency Ratio (ER)   46.1%   43.1%   18.6%   43.2%

 

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

 

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.

 

Itaú Unibanco Holding S.A.56
 

 

Management Discussion & Analysis    Segment Analysis  

 

The Pro Forma financial statements of the Retail Banking, Wholesale Banking and Activities with the Market + Corporation presented below, are based on managerial information derived from internal models, to more accurately reflect the activities of the business units. As of the first quarter of 2015, we changed our segments presentation and our Economic Allocated Capital calculation methodology. We restated the Pro Forma Balance Sheet and Income Statement for the fourth quarter of 2014 by segment for better comparison between periods. .

 

Pro Forma Balance Sheet by Segment | On December 31, 2014

 

           Activities with the     
   Retail   Wholesale   Market +     
In R$ millions  Banking   Banking   Corporation   Itaú Unibanco 
Assets                    
Current and Long-Term Assets   794,745    435,045    105,519    1,188,779 
Cash and Cash Equivalents   15,196    2,364    -    17,527 
Short-term Interbank Investments   261,660    51,751    7,289    229,828 
Securities and Derivative Financial Instruments   173,750    127,459    36,440    299,627 
Interbank and Interbranch Accounts   64,706    4,377    -    63,810 
Loan, Lease and Other Credit Operations   226,239    221,950    3,572    451,760 
(Allowance for Loan Losses)   (15,625)   (4,981)   (12)   (20,618)
(Complementary Expected Loss Provisions)   -    -    (6,330)   (6,330)
Other Assets   68,821    32,125    64,560    153,175 
Foreign Exchange Portfolio   3,508    17,205    32,416    42,392 
Others   65,313    14,921    32,144    110,782 
Permanent Assets   16,440    1,827    1,656    19,923 
Total Assets   811,185    436,872    107,174    1,208,702 
Liabilities and Equity                    
Current and Long-Term Liabilities   769,505    399,144    86,897    1,109,017 
Deposits   266,295    97,837    144    294,773 
Deposits Received under Securities Repurchase Agreements   232,409    106,456    14,596    325,013 
Funds from Acceptances and Issue of Securities   51,433    32,262    -    47,750 
Interbank and Interbranch Accounts   1,251    4,012    -    5,260 
Borrowings and Onlendings   27,344    62,326    -    88,776 
Derivative Financial Instruments   54    18,349    -    17,394 
Other Liabilities   102,363    53,582    72,157    217,374 
Foreign Exchange Portfolio   3,105    17,834    32,973    43,176 
Others   99,257    35,748    39,184    174,198 
Technical Provisions for Insurance, Pension Plans and Premium Bonds   88,356    24,320    -    112,675 
Deferred Income   1,022    400    -    1,423 
Minority Interest in Subsidiaries   1,286    -    1,128    2,415 
Economic Allocated Capital - Tier I (*)   39,371    37,328    19,149    95,848 
Total Liabilities and Equity   811,185    436,872    107,174    1,208,702 

 

(*) 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 2014

 

           Activities with the     
   Retail   Wholesale   Market +     
In R$ millions  Banking   Banking   Corporation   Itaú Unibanco 
Operating Revenues   17,127    5,505    1,122    23,754 
Managerial Financial Margin   9,905    3,761    1,039    14,705 
Financial Margin with Clients   9,905    3,761    21    13,687 
Financial Margin with the Market   -    -    1,018    1,018 
Banking Service Fees and Income from Banking Charges   5,120    1,657    48    6,825 
Result from Insurance, Pension Plans and Premium Bonds Operations before Retained Claims and Selling Expenses   2,103    87    35    2,224 
Loan Losses Net of Recovery   (2,204)   (1,107)   27    (3,284)
Expenses for Allowance for Loan Losses   (3,404)   (1,236)   27    (4,614)
Income from Recovery of Credits Written Off as Losses   1,201    129    -    1,330 
Retained Claims   (487)   (10)   -    (497)
Operating Margin   14,437    4,388    1,149    19,973 
Other Operating Income/(Expenses)   (9,021)   (2,359)   (253)   (11,633)
Non-interest Expenses   (7,721)   (2,090)   (302)   (10,113)
Tax Expenses for ISS, PIS, Cofins and Other Taxes   (1,019)   (269)   49    (1,239)
Selling Expenses From Insurance   (281)   -    -    (281)
Income before Tax and Minority Interests   5,415    2,028    896    8,340 
Income Tax and Social Contribution   (1,904)   (655)   (36)   (2,595)
Minority Interests in Subsidiaries   (86)   -    1    (85)
Recurring Net Income   3,425    1,373    861    5,660 
Recurring Return on Average Allocated Capital   32.0%   12.4%   71.3%   24.7%
Risk-Adjusted Efficiency Ratio (RAER)   64.7%   61.2%   23.5%   61.6%
Efficiency Ratio (ER)   50.3%   40.0%   25.8%   46.5%

 

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

 

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.

 

Itaú Unibanco Holding S.A.57
 

 

Management Discussion & Analysis    Segment Analysis  

 

As of this quarter, we will disclose the Pro Forma managerial information on the segments in accordance with our new organizational structure: Retail Banking and Wholesale Banking. The amounts as of the fourth quarter of 2014 were restated to reflect this change for better comparison between the periods disclosed.

 

Retail Banking

 

The revenues from Retail Banking come from the offer of banking products and services to retail, high-income clients and very small and small companies, in addition to financial products and services offered to our non-account holder clients, including vehicle financing and credit cards offered outside the branch network, and the operations of Itaú BMG Consignado.

 

In the first quarter of 2015, recurring net income reached R$3,699 million, an 8.0% increase from the previous quarter.

 

This increase was mainly due to a 7.1% decrease in non-interest expenses, which totaled R$7,171 million in the quarter as a consequence of lower personnel, selling-credit card and advertising, promotions and publications expenses. In addition, the financial margin grew R$193 million, or 1.9%, when compared to the previous period.

 

The positive impacts mentioned above were partially offset by higher loan losses net of recovery, mainly driven by lower income from recovery of loans, which is seasonally higher in the last quarter of the year.

 

The Retail Banking segment’s annualized return on allocated capital reached 39.4% in the quarter. The efficiency ratio was 46.1% and the risk-adjusted efficiency ratio reached 62.3%.

 

Loan Portfolio – Retail Banking

 

The loan portfolio totaled R$233,522 million at the end of March 2015, increasing 3.2% when compared to December 31, 2014.

 

The coverage ratio for NPL over 90 days (with no additional allowance) reached 135% on March 31, 2015, remaining unchanged from December 31, 2014. If we included the additional allowance, the coverage ratio would have reached 164% at the end of the first quarter of 2015.

 

Allowance for Loan Losses and Coverage Ratio

 

 

 

Wholesale Banking

 

The revenues from the Wholesale Banking segment come from products and services offered to high-net worth clients (Private Banking), institutional clients, middle market companies and activities of Itaú BBA, the unit responsible for commercial operations with large companies and for investment banking services, in addition to results from our units abroad.

 

In the first quarter of 2015, operating revenues amounted to R$5,799 million, a 5.3% increase from the previous quarter, mainly due to the increase of 5.2% in the financial margin and of 4.7% in banking service fees and banking charges, primarily driven by better results from funds and commissions in Chile and in Argentina.

 

Loan losses net of recovery recorded growth of 78.4% and totaled R$1,975 million in the quarter, mainly due to the increase in the allowance for loan losses for specific groups.

 

Non-interest expenses increased 13.6% and totaled R$ 2,376 million in the first quarter of 2015. As a consequence, the decrease in the Wholesale Banking net income was 33.8% from the previous quarter, reaching R$909 million.

 

Return on allocated capital reached 9.7% per year. The efficiency ratio was 43.1% and the risk-adjusted efficiency ratio reached 78.9%.

 

Loan Portfolio – Wholesale Banking

 

The loan portfolio reached R$234,584 million on March 31, 2015, a 5.7% increase when compared to December 31, 2014.

 

The coverage ratio for NPL over 90 days reached 235% in the end of the first quarter of 2015, 2,800 basis points higher from the previous quarter. This increase was due to the continuous increase in the allowance for loan losses for specific economic groups.

 

Considering the additional allowance, the coverage ratio reached 318% in March 2015, an increase of 600 basis points from the previous period.

 

Allowance for Loan Losses and Coverage Ratio

 

 

 

Itaú Unibanco Holding S.A.58
 

 

Management Discussion & Analysis    Segment Analysis  

 

Middle Market

 

Aiming at a more specialized service structure, since 2013, part of the medium sized businesses subsegment became part of the Wholesale Banking. This subsegment serves approximately 30 thousand clients (economic groups) with sales between R$30 million and R$300 million.

 

Our result is well balanced between revenues from loans and services. Our risk appetite continues to focus on high-rating clients, and 78% of the loans are granted to B2 and higher rated clients.

 

Our loan portfolio (including sureties and endorsements) increased 4% from the fourth quarter of 2014 basically due to foreign exchange products.

 

Large Companies

 

Our clients are around 3,300 corporate groups, among the largest in Brazil. We also serve over 210 financial institutions. We offer them a broad portfolio of banking products and services, from cash management to structured operations and transactions in the capital markets.

 

The loan portfolio (including endorsements and sureties) increased 4.0% when compared to the fourth quarter of 2014, due to transactions in both local and foreign currency.

 

We maintained our leading position in CETIP (Clearing House for the Custody and Financial Settlement of Securities) for derivative operations. We focused on operations that hedge our clients’ exposures to foreign currencies, interest rates and commodities.

 

Investment Banking

 

Fixed Income: in the period from January to March 2015, we took part in operations with debentures, promissory notes and securitization, which totaled R$2.4 billion. In international fixed-income issues, we took part at offerings totaling US$497 million in deals with Latin American companies according to Dealogic(*).

 

Mergers and Acquisitions: in the first quarter of 2015, we ranked second in the Thomson ranking for number of operations, totaling US$102 million.

 

Project Finance: this quarter, we carried out the first Itaú BBA Project Finance operation in Mexico, a US$750 million financing operation and our part was US$80 million. The transaction with SeaMex, a joint venture between the Norwegian Seadrill and the Mexican fund Fintech, will enable the acquisition of five drilling assets that will operate for PEMEX.

 

(*) Includes only transactions in US dollars and local currency above US$50 million.

  

Private Bank

 

With a full global wealth management platform, we are market leaders in Brazil and one of the main players in Latin America. Our multidisciplinary team, which comprises private bankers, investment advisers and product experts, serves our clients from our eight offices in Brazil and in our offices located in Zurich, New York, Santiago, Montevideo, Asuncion, Grand Cayman Island and Nassau.

 

Activities Abroad

 

Our activities abroad include business with retail clients, large companies and investment banking activities in Brazil and abroad.

 

For further information, see chapter Activities Abroad in this report.

 

Itaú Unibanco Holding S.A.59
 

 

 

 

 
 

 

Management Discussion & Analysis    Activities Abroad

 

International Presence

 

 

We are present in 18 countries outside Brazil, seven of which are in Latin America.

 

In Argentina, Chile, Paraguay and Uruguay, we serve the retail banking, companies, corporate and treasury segments, having commercial banking as our main focus. In Peru, we have an Itaú BBA representation office and in Colombia we are gradually intensifying our presence through our corporate and investment banking operation. In Mexico, we are in the pre-operational phase of opening a full-service broker.

 

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

 

Information about our number of employees abroad and the international service network is presented below:

 

Employees Abroad

 

 

International Service Network

 

 

Itaú Unibanco Holding S.A.61
 

 

Management Discussion & Analysis    Activities Abroad

 

Latin America

 

Our operations in Latin America are mainly focused on commercial banking, which is concentrated in the Southern Cone (Argentina, Chile, Paraguay and Uruguay), but also include Colombia in corporate and investment banking operations, and Peru in corporate operations through a representation office. In Mexico, we are in the initial phase of opening a full-service broker.

 

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 companies. We have expanded our business in the region in a sustainable manner over the past years and our priority now is to gain economies of scale, maintain a strong presence in the local retail markets and strengthen our relationships with local companies.

 

Operations in Latin America

 

 

We present the consolidated results for Latin America1 and for its respective countries in constant currency2, including the adjustment of local hedging effects3.

 

Income Statement | Latin America (1)

 

In R$ millions  1Q15   4Q14   variation 
Operating Revenues   1,267    1,220    3.9%
Financial Margin   801    770    4.1%
Banking Service Fees and Income from Banking Charges   432    394    9.6%
Other Income   34    56    -39.3%
Loan Losses, Net of Recovery   (114)   (119)   -4.0%
Retained Claim Losses   (5)   (4)   14.0%
Other Operational Expenses   (772)   (771)   0.2%
Non-Interest Expenses   (772)   (770)   0.2%
Selling Expenses from Insurance   (1)   (1)   40.6%
Income before Tax and Profit Sharing   376    326    15.3%
Income Tax and Social Contribution   (76)   (27)   182.6%
Profit Sharing   (5)   (8)   -35.6%
Recurring Net Income   295    291    1.2%
Return on Average Equity - Annualized   12.3%   13.2%   -90bps
Return on Average Assets - Annualized   1.6%   1.7%   -10bps
Efficiency Ratio   61.2%   63.4%   -220bps

 

Net income for the first quarter of 2015 was consistent with the income recorded in the last quarter of 2014, and totaled R$295 million. The financial margin increased 4.1%, mainly due to better results from treasury operations in Argentina and to the increase in financial margin with clients (higher loan volumes), foreign exchange operations and derivatives in Uruguay.

 

Banking service fees increased 9.6% in the quarter, basically due to higher revenues from loan operations, funds and corporate commissions in Chile and to better results in corporate commissions, funds and credit cards in Argentina.

 

Loan losses decreased 4.0% in the quarter, mainly driven by lower allowances in Paraguay in the retail segment and upgrade of the rating for clients in the agribusiness industry. Non-interest expenses remained at the same levels of the previous quarter.

 

(1)Considers our operations in Argentina, Chile, Paraguay, Uruguay, Colombia and Mexico.
(2)By reporting in constant currency, we eliminate the impacts from exchange rate variations. The exchange rate applied to all periods is the average from March 2015.
(3)Excludes the effects of the investment hedge in 4Q14 and 1Q15.

 

Itaú Unibanco Holding S.A.62
 

 

Management Discussion & Analysis    Activities Abroad

 

Balance Sheet | Latin America (1)

 

In R$ millions, end of period  1Q15   4Q14 (2)   variation 
Assets               
Current and Long-Term Assets   73,651    70,607    4.3%
Cash and Cash Equivalents   5,025    4,889    2.8%
Short-Term Interbank Investments   5,042    3,499    44.1%
Securities and Derivative Financial Instruments   6,786    6,956    -2.4%
Interbank and Interbranch Accounts   5,576    5,101    9.3%
Loan, Lease and Other Credit Operations   49,120    48,502    1.3%
(Allowance for Loan Losses)   (1,018)   (1,033)   -1.5%
Other Assets   3,119    2,692    15.9%
Permanent Assets   937    929    0.8%
Total Assets   74,587    71,536    4.3%
Liabilities and Equity               
Current and Long-Term Liabilities   64,896    62,047    4.6%
Deposits   47,403    45,272    4.7%
Deposits Received under Securities Repurchase Agreements   487    501    -2.8%
Funds from Acceptances and Issue of Securities   5,188    5,210    -0.4%
Interbank and Interbranch Accounts   369    234    57.9%
Borrowings and Onlendings   3,698    3,770    -1.9%
Derivative Financial Instruments   1,636    1,401    16.7%
Foreign Exchange Portfolio   1,192    913    30.6%
Other Liabilities   4,857    4,677    3.9%
Technical Provisions for Insurance, Pension Plans and Premium Bonds   67    70    -3.8%
Deferred Income   4    4    11.3%
Minority Interests   0    2    - 
Stockholders´ Equity   9,687    9,483    2.1%
Total Liabilities and Equity   74,587    71,536    4.3%

 

Assets (1)

 

Our assets totaled R$74.6 billion in March 2015, an increase of 4.3% when compared to December 2014. Of these total assets, 56.9% are in Chile, which recorded an increase of 2.2% in the quarter.

 

 

Asset Breakdown

 

 

Loan Portfolio (1)

 

The total loan portfolio increased 1.3% when compared to December 2014, reaching R$49.1 billion. When compared to the same period of the previous year, the increase was of 14.4%.

 

Loan Portfolio

 

 

Loan Portfolio by Country and Segment │March 2015

 

 

Loan Portfolio by Country - Composition

 

 

Individual Loan Portfolio - Composition

 

 

(1)Considers our operations in Argentina, Chile, Paraguay, Uruguay, Colombia and Mexico.
(2)Current currency for 03/31/15. The elimination of the exchange rate variation impact was obtained by applying the exchange rate of 03/31/15 to all periods.

 

Itaú Unibanco Holding S.A.63
 

 

Management Discussion & Analysis    Activities Abroad

 

Argentina

 

Total assets in Argentina reached R$6.2 billion, an increase of 2.2% in the quarter and of 11.5% from March 2014. The loan portfolio reached R$4.3 billion, a 7.5% increase from December 2014, and of 12.4% when compared to the same period of 2014, and the highlight was the higher volume of loans in the corporate segment. Stockholders´ equity reached R$703.4 million, and net income was R$20 million in the quarter.

 

 

 

Income Statement | Argentina

 

In R$ millions  1Q15   4Q14   variation 
Operating Revenues   310    282    9.9%
Financial Margin   208    192    8.4%
Banking Service Fees and Income from Banking Charges   101    86    18.5%
Other Income   1    5    -85.5%
Loan Losses, Net of Recovery   (36)   (34)   4.4%
Non-Interest Expenses   (223)   (211)   5.8%
Income before Tax and Profit Sharing   51    37    37.7%
Income Tax and Social Contribution   (29)   (14)   107.7%
Profit Sharing   (2)   (6)   -58.4%
Recurring Net Income   20    17    14.9%
Return on Average Equity - Annualized   11.5%   10.3%   120bps
Return on Average Assets - Annualized   1.3%   1.2%   10bps
Efficiency Ratio   72.0%   74.7%   -270bps

 

Chile

 

Our business in Chile is mainly focused on retail and high-income clients, in addition to operations in the companies and corporate segments.

 

Total assets in Chile totaled R$42.4 billion in March 2015, which represents an increase of 2.2% in the quarter and of 10.1% in the year. The loan portfolio reached R$31.8 billion, with increases of 0.3% in the quarter and of 11.4% from March 2014, mainly driven by the growth of the mortgage loan portfolio and foreign trade. The individuals loan portfolio in Chile represents 70.6% of our operations with individuals in Latin America (ex-Brazil), and 65.2% of this portfolio involves mortgage loans. The companies loan portfolio in Chile accounts for 61.2% of the companies portfolio in Latin America (ex-Brazil). Stockholders’ equity in the period totaled R$5.6 billion.

 

Loan losses for the first quarter of 2015 were consistent with the loan losses recorded in the last quarter of 2014, while banking service fees increased 24.9% in the quarter.

 

 

Income Statement | Chile

 

In R$ millions  1Q15   4Q14   variation 
Operating Revenues   409    383    6.7%
Financial Margin   276    272    1.3%
Banking Service Fees and Income from Banking Charges   106    85    24.9%
Other Income   27    26    4.6%
Loan Losses, Net of Recovery   (52)   (52)   -0.3%
Retained Claim Losses   (5)   (4)   14.0%
Other Operational Expenses   (231)   (239)   -3.2%
Non-Interest Expenses   (230)   (238)   -3.3%
Selling Expenses from Insurance   (1)   (1)   40.6%
Income before Tax and Profit Sharing   121    88    37.5%
Income Tax and Social Contribution   (21)   17    -226.6%
Recurring Net Income   100    105    -5.0%
Return on Average Equity - Annualized   7.2%   7.8%   -60bps
Return on Average Assets - Annualized   1.0%   1.0%   -10bps
Efficiency Ratio   57.1%   63.0%   -590bps

 

(1)Current currency for 03/31/15. The elimination of the exchange rate variation impact was obtained by applying the exchange rate of 03/31/15 to all periods.

 

Itaú Unibanco Holding S.A.64
 

 

Management Discussion & Analysis    Activities Abroad

 

Paraguay

 

Our strategy for the commercial banking (retail) and companies segments during the last years resulted in a significant increase in market share in Paraguay. We hold the leading position among the banks in Paraguay in terms of results and efficiency ratio (data provided by the Central Bank of Paraguay, March 2015).

 

We have been recognized as the best bank in Paraguay by the Global Finance magazine since 2011, and in 2014 we were recognized by The Banker and Euromoney magazines.

 

Our assets in Paraguay totaled R$11.0 billion, an increase of 3.4% from December 2014, and 23.5% when compared to the same period of last year, mainly explained by a higher loan portfolio, which reached R$6.4 billion, increasing 0.4% in the quarter and 20.0% in the year. This growth was driven by the loan portfolio in local currency and credit cards.

 

Stockholders’ equity totaled R$1.4 billion, and net income in the quarter was R$112 million, in line with the previous quarter.

 

 

Income Statement | Paraguay

 

In R$ millions  1Q15   4Q14   variation 
Operating Revenues   233    235    -1.0%
Financial Margin   167    168    -0.2%
Banking Service Fees and Income from Banking Charges   66    67    -1.0%
Other Income   (0)   1    - 
Loan Losses, Net of Recovery   (10)   (17)   -37.1%
Non-Interest Expenses   (100)   (96)   4.0%
Income before Tax and Profit Sharing   122    122    -0.1%
Income Tax and Social Contribution   (10)   (13)   -24.4%
Recurring Net Income   112    109    2.9%
Return on Average Equity - Annualized   31.3%   31.0%   40bps
Return on Average Assets - Annualized   4.1%   4.3%   -20bps
Efficiency Ratio   43.0%   40.9%   210bps

 

Uruguay

 

We are the third largest private bank in Uruguay in terms of loan portfolio (data provided by the Central Bank of Uruguay - BCU, March 2015) and were recognized as the best bank in Uruguay by Euromoney magazine. We are also the leading player in the credit card segment through our credit card operator OCA.

 

Our assets totaled R$14.2 billion, a 12.8% increase when compared to December 2014, and a 22.6% increase from March 2014, mainly due to the loan portfolio, which reached R$6.2 billion, with an increase of 24.1% when compared to the same period of 2014.

 

Stockholders’ equity totaled R$1.4 billion in March 2015, and net income in the quarter was R$75 million, mainly due to better financial margin with clients (higher loan volumes), foreign exchange operations and derivatives.

 

 

Income Statement | Uruguay

 

In R$ millions  1Q15   4Q14   variation 
Operating Revenues   298    285    4.7%
Financial Margin   143    131    9.6%
Banking Service Fees and Income from Banking Charges   151    153    -1.1%
Other Income   4    1    248.5%
Loan Losses, Net of Recovery   (15)   (14)   8.4%
Non-Interest Expenses   (191)   (199)   -4.0%
Income before Tax and Profit Sharing   92    72    27.9%
Income Tax and Social Contribution   (15)   (13)   16.4%
Profit Sharing   (2)   (2)   6.3%
Recurring Net Income   75    58    31.1%
Return on Average Equity - Annualized   22.2%   16.9%   540bps
Return on Average Assets - Annualized   2.2%   1.8%   50bps
Efficiency Ratio   63.9%   69.7%   -580bps

 

(1)Current currency for 03/31/15. The elimination of the exchange rate variation impact was obtained by applying the exchange rate of 03/31/15 to all periods.

 

Itaú Unibanco Holding S.A.65
 

 

Management Discussion & Analysis     Activities Abroad

 

Colombia

 

Our presence in Colombia is growing and we aim to be one of the three main investment and wholesale banks within the next four years. The most attractive sectors are mining, energy, oil, gas, and infrastructure.

 

In March 2015, the loan portfolio totaled R$367 million, a 13.4%¹ increase when compared to December 2014.

 

Peru

 

In Peru, we have a representation office and we are considering increasing our activities in the corporate and investment banking segments, following the same strategy as in Colombia, in order to take advantage of the strong growth in this country.

 

Mexico

 

In October 2014, the Brazilian Central Bank approved the opening of a full-service broker and, in November 2014, we received the approval of the local regulatory authorities. The operation is expected to start in the second half of 2015.

 

Itaú BBA International

 

Our banking activities held under the corporate structure of Itaú BBA International are mainly focused on two business segments:

 

Corporate & Investment Banking:Headquartered in the United Kingdom and with business platforms in several cities across Europe, we serve the financial needs of companies with global operations, focusing on financing operations and investment relationships among companies in Latin America and Europe. The services offered include structured financing, hedging, trade financing and advisory services to both European companies investing in Latin America and Latin American companies investing overseas.

 

Private Banking:Under the corporate stru cture of Banco Itaú BBA International, we manage private banking activities in Miami and Switzerland, offering specialized financial products and services to high networth Latin American clients.

 

The financial information on the Itaú BBA International consolidated operation is presented below:

 

Balance Sheet | Itaú BBA International

 

In R$ millions, end of period  1Q15   4Q14 (1)   variation 
Assets               
Current and Long-Term Assets   30,480    28,480    7.0%
Cash and Cash Equivalents   714    989    -27.8%
Short-Term Interbank Investments   4,495    4,315    4.2%
Securities and Derivative Financial Instruments   3,963    4,420    -10.3%
Loan, Lease and Other Credit Operations   14,918    14,596    2.2%
(Allowance for Loan Losses)   (0)   (9)   -95.8%
Other Assets   6,389    4,169    53.2%
Permanent Assets   176    186    -5.4%
Total Assets   30,656    28,666    6.9%
Liabilities and Equity               
Current and Long-Term Liabilities   27,284    25,320    2.0%
Deposits   11,138    10,768    3.4%
Deposits Received under Securities Repurchase Agreements   163    0    - 
Funds from Acceptances and Issue of Securities   7,174    7,738    -7.3%
Interbank and Interbranch Accounts   8    5    53.2%
Borrowings and Onlendings   765    779    -1.8%
Derivative Financial Instruments   1,827    1,465    24.8%
Foreign Exchange Portfolio   5,667    3,613    56.8%
Other Liabilities   541    951    -43.1%
Deferred Income   67    64    5.4%
Stockholders´ Equity   3,305    3,283    0.7%
Total Liabilities and Equity   30,656    28,666    6.9%

 

In March 2015, the consolidated assets of Itaú BBA International totaled R$30.7 billion, an increase of 6.9% when compared to December 2014. This growth was driven by an increase in the foreign exchange portfolio in the period.

 

(1)Current currency for 03/31/15. The elimination of the exchange rate variation impact was obtained by applying the exchange rate of 03/31/15 to all periods.

 

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
Itau Unibanco Holding S.A.

 

Introduction

 

In connection with our review of the financial statements of Itaú Unibanco Holding S.A. (Bank) and Itaú Unibanco Holding S.A. and its subsidiary companies (Consolidated) as of March 31, 2015, on which we issued a report without exceptions dated May, 4, 2015, 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 three month period ended March 31, 2015.

 

Scope of the review

 

We conducted our review in accordance with Brazilian standards issued by the Federal Accountancy Council. Our review mainly 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.

 

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 at March 31, 2015, 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, May, 4, 2015

 

/s/ PricewaterhouseCoopers   /s/ Washington Luiz Pereira Cavalcanti
PricewaterhouseCoopers   Washington Luiz Pereira Cavalcanti
Auditores Independentes   Contador CRC 1SP172940/O-6
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

 

 
 

 

 

 

 

 
 

 

MANAGEMENT REPORT – 1ST QUARTER OF 2015

 

To our Stockholders:

 

We present the Management Report and the Financial Statements of Itaú Unibanco Holding S.A. (Itaú Unibanco) and its subsidiaries for the period from January to March 2015, 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 Superintendence of Private Insurance (SUSEP), the National Council of Private Insurance (CNSP) and the National Superintendence of Supplementary Pension (PREVIC).

 

The information included in this material is available on the Investor Relations’ website of Itaú Unibanco: (www.itau.com.br/investor-relations > Financial Information) and on the CVM, Securities and Exchange Commission (SEC) and the Buenos Aires Stock Exchange (BCBA) websites. Our results may also be accessed on mobile devices and tablets, and through our application “Itaú RI” (APP).

 

1)OVERVIEW

 

   March 31,   March 31, 
   2015   2014 
Branches and CSB – Client Service Branches (units)   5,032    5,028 
ATM – Automated Teller Machines (units)   27,458    27,858 
Employees   92,757    94,909 
Activities Abroad (1)   18 countries 
Total Assets (R$ billion)   1,294.6    1,107.4 
Total Loan Portfolio (including Sureties, Endorsements and Guarantees) (R$ billion)   543.4    480.1 
Stockholders' Equity (R$ billion)   97.0    82.2 
Net Income (R$ billion) (2)   5.7    4.4 

 

(1) Does not include Brazil.

(2) Net income from January to March 2015 and from January to March 2014.

 

2)OUR HIGHLIGHTS

 

2.1) A new management structure for Itaú Unibanco

 

In February, 2015, we announced changes in the structure of Itaú Unibanco’s management, chaired by Mr. Roberto Setubal, with the introduction of a new executive committee composed of two general- managers and two vice-presidents.

 

The new structure is as follows:

 

 

The purpose of this change is bringing about ongoing reinvigoration aimed at sustainable performance for our employees, stockholders and society, as well as offering products of consistent quality and convenience to our clients. Focus on clients, efficiency and simplification remain as our major priorities.

 

2.2) New Data Center Opened

 

In March 2015 we opened our new Data Center, in which R$3.3 billion were invested. This technology center will increase 25 times the processing and storage capacity of our operations, in addition to providing for a 43% reduction in the use of energy, as compared to our current consumption. The new Data Center will support our growth up to 2050, ensuring the high performance and availability of our operations.

 

The migration of our systems and services is scheduled to be completed in the second half of 2016.

 

2.3) Corporate Events/Partnerships

 

Repurchase of shares – In the first quarter of 2015, we acquired 16.6 million preferred shares of own issue, in the total amount of R$568.3 million, at the average price of R$34.24 per share(1).

 

Alliance with MasterCard – In March 2015 we entered into an agreement with MasterCard Brasil Soluções de Pagamento Ltda. to establish an alliance for a 20-year term, in the payment solutions market in Brazil. This alliance will operate a new electronic payments network through a company controlled by MasterCard, in which Itaú Unibanco will have certain vetoes and approval rights.

 

Our objectives with this alliance are to expand our issuing and acquiring businesses, mostly related to this new payment solutions network, to access new payment solutions technologies, to carry out significant gains of scale and efficiency, and to capitalize on MasterCard’s expertise in the management of payment solutions’ brands of international acceptance.

 

Share Bonus of 10% – on April 29, 2014 the Extraordinary Stockholders’ Meeting approved the proposal to increase our capital by R$10.15 billion through the capitalization of the statutory revenue reserves, with a share bonus of 10%. Capital will be increased with the issue of new book-entry shares, with no par value, assigned to stockholders as share bonus, free of charge, in the proportion of one new share for ten shares of the same type held. The base date of the right to the share bonus will be communicated to the market after authorization by BACEN. This share bonus will add value to our stockholders, as follows:

·Average cost of the shares held in the portfolio by the stockholder - the unit cost assigned to these shares will be R$18.348050984612.

 

(1)For more information on trading volumes and prices in these negotiations, www.itau.com.br/relacoes-com-investidores> Corporate Governance> Repurchase of shares.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201569
 

  

·Payment of dividends – monthly dividends will remain at R$0.015 per share. Therefore, the amounts monthly paid to our stockholders will be increased by ten percent (10%) after the inclusion of the share bonus in the stock position.

 

2.4) Annual and Extraordinary General Meetings

 

On April 29, 2015, we held Annual and Extraordinary General Meetings for our stockholders primarily to resolve on relevant matters, such as:

·Approval of the financial statements for the year ended December 31, 2014 and the allocation of net income for this period.

·Election of members for the Board of Directors and Fiscal Council.

·Share Bonus of 10% – as aforementioned.

The Meetings Manual, made available 30 days in advance to the actual meeting, and related major resolutions can be accessed on our investor relations’ website at www.itau.com.br/investor-relations, and on the CVM, BM&FBOVESPA, SEC, and BCBA websites. Electronic Meeting – for the fourth consecutive year we made available to our stockholders the Electronic Voting Platform, which mainly aims at encouraging and expediting their participation in the Meeting.

 

2.5) Approval by Regulatory Bodies

 

Merger between Itaú Chile and CorpBanca – In the first quarter of 2015 we obtained the previously pending approvals from the regulatory bodies of Panama and Colombia.

The effectiveness of this operation is subject to the satisfaction of certain conditions precedent, including the aforementioned approval by the stockholders’ meetings of Banco Itaú Chile and of CorpBanca, and the subsequent authorization from regulatory bodies in Chile.

 

2.6) 2014 Consolidated Annual Report and Integrated Report

 

For the second consecutive year, we prepared the Consolidated Annual Report, integrating the Annual Report (with sustainability indexes of the Global Reporting Initiative), the 20-F Form (required by SEC) and the Debt Report into a single document. The priorities this year were the conciseness of contents (reducing contents by over 45% when compared to the 2013 report) maintaining the text quality, and the in-depth examination of material issues, such as the full review and thorough analysis of our Risk Factors.

 

The Integrated Report, which follows the IIRC (International Integrated Reporting Council) framework, addresses the organization’s most significant information, correlating results, operational activities, business strategies and different types of capital.

 

These documents are reviewed and assured by independent auditors and are available on our Investor Relations website at www.itau.com.br/investor-relations.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201570
 

  

3)OUR PERFORMANCE

 

3.1) Returns

 

   %   bps 
ROE / ROA  Jan to
Mar/15		   Jan to
Mar/14		   Change 
Recurring return on average equity - annualized   24.5    22.6    190 
Return on average equity - annualized   24.2    22.0    220 
Recurring return on average assets - annualized   1.9    1.6    30 
Return on average assets - annualized   1.8    1.6    20 

 

3.2) Income

 

   R$ billion   % 
Statement of Income for the Period  Jan to
Mar/15		   Jan to
Mar/14		   Change (3) 
Income from financial operations before loan and losses   10.1    13.2    (23.2)
Expenses for allowance for loan losses   (5.5)   (4.2)   29.4 
Income from recovery of credits written off as loss   1.1    1.1    (2.5)
Banking service fees and income from bank charges   7.4    6.5    14.4 
Result from insurance, pension plan and capitalization operations   1.0    0.9    6.5 
Personnel, other administrative and operating expenses   (10.2)   (9.2)   11.2 
Tax expenses   (1.2)   (1.4)   (9.1)
Equity in earnings of affiliates, jointly controlled entities and other investments, and Other operating revenues (2)   0.5    0.2    185.6 
Income tax and social contribution, and Minority interest in subsidiaries   2.6    (2.7)   (196.4)
Net income   5.7    4.4    29.7 
Recurring net income(1)   5.8    4.5    28.2 
Dividends and interest on capital (net of taxes)   1.3    0.8    65.5 

 

(1)Excludes the non-recurring effects of each period.
(2)Equity in earnings of affiliates, jointly controlled entities and other investments, Other operating revenues and Non-operating income.
(3)Change is calculated based on actual figures in units

 

The following contributed to the increase in net income for the first quarter of 2015:

 

Banking service fees and income from bank charges: a 14.4% growth in relation to the same period of 2014, particularly due to the higher income from credit cards, mainly from annual fees and other services, current account services and loan operations and guarantees provided.

 

Income from insurance, pension plan and capitalization operations: a 6.5% growth in relation to the same period of 2014 – additional information in item 3.5 Itaú Insurance, Pension Plan and Capitalization.

 

Income from Financial Operations Before Loan Losses, Income Tax and Social Contribution and Tax Expenses: the decrease in income from financial operations before loan losses is mainly due to the tax effects of hedging foreign investments, which are recorded under Income Tax, Social Contribution on Net Income and Tax Expenses. If we reclassified this income, the financial margin would have reached R$15.9 billion, an 27.4% increase as compared to the same period of the previous year. This same reclassification to the Income Tax and Social Contribution on Net Income line would have brought this figure to an expense of R$2.7 billion, with a 39.3% increase as compared to the same period of the previous year; if we brought this reclassification to the Tax Expenses line we would have recorded an expense of R$1.6 billion, representing a 25.8% increase as compared to the first quarter of 2014.

 

Risk-adjusted efficiency ratio: up 240 basis points, reaching 62.7% in the first quarter of 2015, from 65.1% in the same period of 2014.

 

The ratio of service banking fees and income from bank charges to personnel, other administrative and operational expenses was 72.7%, 200 basis points above that reached in the first quarter of 2014.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201571
 

  

3.3) Asset Data

 

       R$ billion   % 
Balance Sheet 

March 31,

2015

  

March 31,

2014

   Change 
Total assets   1,294.6    1,107.4    16.9 
Loan portfolio with endorsements and sureties   543.4    480.1    13.2 
Free, raised and managed own assets   1,815.0    1,588.7    14.2 
Subordinated debt   59.5    55.5    7.2 
Stockholders’ equity   97.0    82.2    18.0 
Referential equity (PR) - financial conglomerate (2)   120.9    116.6    3.7 

 

(1)Change is calculated based on actual figures.

(2)On M arch 31,2014, the criteria to calculate the PR was the financial conglomerate.

 

The highlights for the growth in the loan portfolio were payroll and mortgage loans, reflecting our strategy aimed at prioritizing lower risk portfolios.

 

3.3.1) Assets

 

Total consolidated assets reached R$ 1.29 trillion at the end of March 2015, which represented a 16.9% increase when compared to the same period of the previous year.

 

The diversification of our business is reflected in the changed composition of our loan portfolio in the last few years, focusing on origination in segments of lower risks and with increased guarantees.

 

Loan Portfolio

At March 31, 2015 the balance of the loan portfolio, including endorsements and sureties, reached R$543.4 billion, a 13.2% increase as compared to March 31, 2014. If we also consider the risks associated to the credits we borrow in the private securities modality, this increase would reach 13.8%.

 

The breakdown of the portfolio, including endorsements and sureties, is as follows at March 31, 2015 and 2014:

 

 

       R$ billion   % 
   March 31,   March 31,     
Credit Portfolio  2015   2014   Change 
Total with endorsements and sureties   543.4    480.1    13.2 
Corporate – Private securities   35.2    28.1    25.2 
Total with endorsements, sureties and private securities   578.6    508.2    13.8 
Total with endorsements, sureties and private securities (former exchange rate variation)   578.6    544.3    6.3 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201572
 

  

Brazil – Individuals

 

Credit Card (Itaucard, Hipercard, Credicard and partnerships)

 

We are leaders in the credit card segment in Brazil in terms of revenue.

 

At March 31, 2015 the balance of our loan portfolio reached R$56.3 billion, a 6.4% increase as compared to the same period of the previous year.

 

From January to March 2015, the transacted amount in debit and credit cards reached R$ 78.6 billion, which represented a 10.1% increase as compared to the same period of 2014.

 

Since its launch, less than three years ago, more than 5.8 million "Itaucard 2.0" cards have been issued. This is a pioneer credit card in the Brazilian market, and that introduced the international practice of interest calculation in the market.

 

Payroll Loans

 

We are leaders in payroll loans among Brazilian private banks.

 

The balance of the loan portfolio reached R$44.6 billion (R$15.0 billion in our branch network and R$29.7 billion in other trading channels), a 81.0% increase as compared to March 31, 2014, reaching 8.2% of our total loans.

 

Noteworthy are the portfolios of retirees and pensioners from the INSS, and employees from the public sector, which in overall increased 96.4% compared to the end of March 2014.

 

Personal Credit

 

The balance of the loan portfolio reached R$29.8 billion, 5.5% higher than in the same period of the previous year.

 

Mortgage Loans

 

We are leaders, among Brazilian private banks, in mortgage loans to individuals.

 

Our offer is made by the network of branches, development companies, and real estate agencies. The balance of the loan portfolio reached R$30.2 billion, a 19.6% increase in 12 months, with loan to value (ratio of a loan to the value of an asset purchased) of approximately 42.8%.

 

In the first quarter of 2015, we carried out approximately 7.9 thousand financing operations to borrowers, in the amount of R$2.5 billion. For entrepreneurs, the volume of financing operations contracted generated 3.5 thousand new units, in the amount of R$614 million.

 

Vehicles

 

The balance of the loan portfolio reached R$26.3 billion. From January to March 2015, vehicle financing reached R$2.4 billion, with average term of 39 months, wherein half of the transactions were carried out with maximum terms of up to 36 months.

 

The average ratio of the loan amounted to the asset value portfolio was 72.9%, following a downward trend over the last quarters.

 

We strengthened the use of the iCarros website, as a business generator for our Corporate (car dealers and resellers) and Individual clients. We reached the volume of 45.6 million hits in the first quarter of 2015, a 15.7% increase compared to the same period of the prior year.

 

Brazil - Companies

 

Large Companies

 

The balance of the loan portfolio reached R$219.0 billion at March 31, 2015.

 

In the period from January to March, noteworthy are the transactions in foreign currency that posted a 25.0% growth when compared to the first quarter of 2014, and transactions in local currency, which showed an increase 4.3% compared to the same quarter of the previous year. In derivatives, we maintained our outstanding position in CETIP. The focus was on operations hedging the exposures to foreign currencies, interest rates and commodities with clients.

 

We were awarded by IFR in the following categories: “Latin America Equity House of the Year” and “Latin America Equity Issue of the Year”.

 

In the first quarter of 2015 Itaú BBA carried out the first Project Finance operation in Mexico, a joint venture financing in which we engaged with US$80 million.

 

Very Small, Small and Medium Market Companies

 

The balance of the loan portfolio reached R$85.4 billion at March 31, 2015.

 

We kept the focus on reviewing and streamlining our product offering to very small, small and medium-market companies. As an example, the “Conta Certa” (right account), in addition to including more services, enables the clients to customize the number of payment forms, wire and electronic transfers (DOCs and TEDs), custody of cheques, among others, in accordance with their needs. The offering of Redecard products is also being expanded.

 

Latin America

 

Our loan portfolio in Latin America posted a 40.4% increase in relation to March 2014. Excluding the foreign exchange effect of the respective local currencies against the Real, the growth of the loan portfolio in Latin America was 11.6% in the period. The individuals segment posted a 48.2% increase (17.7% in legal tender), and noteworthy is the growth of 45.9% (16.6% in legal tender) in Chile’s portfolio compared to the same period of the previous year.

 

The loan portfolio of the companies segment increased 36.3% (8.3% in legal tender), and noteworthy is the increase in the portfolios of Uruguay and Paraguay, which posted increases of 61.1% (30.1% in legal tender) and 55.9% (18.8% in legal tender), respectively.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201573
 

  

Default

 

3.0%: the lowest default rate over 90 days since the Itaú and Unibanco merger in 2008.

 

Our policy for mitigating risk in credit granting, started in 2011, impacted the default rate mainly due to the change in the credit profile of our portfolio:

 

·total default rate (transactions overdue for over 90 days), reached 3.0% at March 31, 2015, posting a decrease of 50 basis points as compared to March 31, 2014.
·in the individuals portfolio it reached 4.5% at the end of March 2015, dropping 90 basis points as compared to the same period of the previous year, and
·in the companies portfolio it reached 1.8% at the end of March 2015, dropping 10 basis points as compared to the same period of the previous year.

 

 

3.3.2) Funding

 

Total free, raised and managed own assets amounted to R$1.8 trillion at March 31, 2015.

 

As compared to March 2014, we recorded a 14.4% increase in demand deposits added to savings deposits. The loan portfolio to funding ratio reached 80.1% at March 31, 2015.

 

US$400 million funding – In January 2015, we raised US$400 million with a group of banks to finance sustainable projects in Brazil. This operation was broken down into two stages, the first of which amounting to US$100 million granted by the International Finance Corporation (IFC) and the remaining granted by Mizuho, Bank of America Merrill Lynch, and Commerzbank, which contributed with equal amounts of US$100 million each. These funds will be used to finance renewable energy, water collection and treatment, energy efficiency and other projects to reduce greenhouse gas emission in Brazil.

 

3.3.3) Capital Strength

 

In order to ensure our strength and capital availability to support our business growth, the regulatory capital levels were kept above the requirements to cover the risks, as evidenced by the Basel ratio and Tier I Capital and Tier II Capital (see to the Risk Management – Pillar 3 report in the Corporate Governance section on the IR website).

 

At the end of March 2015, the Basel ratio reached 15.3%, of which 11.6% of Tier I Capital and 3.7% of Tier II Capital, mainly composed of shares, quotas, reserves and retained earnings, and subordinated debt. These indicators evidence the effective capacity of absorbing losses.

 

Our subordinated debt, which is part of our Tier II regulatory capital, reached R$29.1 billion at March 31, 2015.

 

3.3.3.1) Credit Assessment by Rating

 

Due the publication of its new global methodology for banks, in March 2015, Moody’s announced changes in the ratings of 1,021 banks, out of a total of 1,934 rated in the world. Due to this methodological reassessment, the ratings of Itaú Unibanco Holding, Itaú Unibanco S.A. and Itaú BBA were placed on review for downgrade.

 

In April 2015, as a consequence of Fitch Ratings’ revising the outlook of Brazil (sovereign) rating from steady to negative, the agency also revised the ratings of 20 Brazilian financial institutions, including Itaú Unibanco Holding, Itaú Unibanco S.A. and Itaú BBA, which were downgraded in their outlooks and ratings.

 

In April 2015, Standard & Poor’s (S&P) disclosed certain changes in ratings and outlooks of Brazilian financial institutions. Itaú Unibanco Holding and Itaú BBA did not undergo any changes in their ratings and outlooks.

 

See to our ratings on the IR website (www.itau.com.br/investor-relations) in the section Itaú Unibanco > Market Opinion > Ratings.

 

3.4) Services

 

We are constantly seeking to implement and focus on the sale of new products and services that add value to our clients and diversify our sources of income, allowing for the growth of our non-financial income arising mainly from banking service fees, income from bank charges and from insurance, pension plan and capitalization operations.

 

Asset Management

 

In February 2015, we reached R$405.8(1) billion in assets under management, according to the ANBIMA management ranking, accounting for 14.7% of the market. We posted a 8.1% growth in relation to the same period of the previous year, and noteworthy were fixed income and pension plan funds. In addition to the strong performance in the domestic market, we are present in the main global financial centers, with strategically allocated professionals who are in search for investment opportunities and adequate solutions to different clients' profiles.

 

Kinea, the investments management company controlled by Itaú Unibanco, holds R$6.2 billion in managed assets.

 

Custody and Bookkeeping Services

 

In the custody market, we hold R$ 1,007.1 billion in assets, according to the ANBIMA ranking in March 2015, which represents a 12.6% increase as compared to the same period of the previous year.

 

We provided services to 225 companies listed on the BM&FBovespa, accounting for 62.8% of the bookkeeping market; in debenture bookkeeping, we operated as the bookkeeper of 491 issues in March 2015, accounting for 52.3% of the market.

 

(1) Source: ANBIMA Management Ranking - February / 2015. Considers Itaú companies Unibanco and Intrag.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201574
 

  

Private Banking

 

With a full global wealth management platform, we are market leaders in Brazil and one of the main players in Latin America. Our multidisciplinary team, which comprises private bankers, investment advisers and product experts, serves our clients from offices in eight cities of Brazil and also in our foreign offices located in Zurich, Miami, New York, Santiago, Montevideo, Asuncion, and Nassau.

 

In February 2015, we were elected the best Private Banking in Brazil by the British magazine Euromoney (Euromoney’s Private Banking and Wealth Management Survey 2015). Winners are chosen by the market itself. The publication conducts a voting for the best private banking services by region and operation area among institutions from over 60 countries.

 

Consortium (Vehicles and Properties)

 

In March 2015, the balance of installments receivable reached R$11.0 billion, a 7.9% increase as compared to March 2014.

 

Income from administration from January to March 2015 reached R$153.9 million.

 

We reached approximately 400 thousand agreements in force in March 2015, a 4.0% increase as compared to the same period of the previous year.

 

Investment Banking

 

From January to March 2015, we highlight our Merger and Acquisition operation in Brazil, which provided financial advisory for five transactions, having achieved the second position in the Thomson Reuters ranking. In fixed income, we took part in debentures, promissory notes and securitization transactions, which totaled R$ 2.4 billion in the period from January to March 2015. In international issues of fixed income of Latin American companies, we acted in the origination in the total volume of US$497 million in the period.

 

Electronic Payment Means

 

In the first quarter of 2015, we reached 968.1 million debit and credit card transactions, a 7.6% increase as compared to the same period of the previous year. In the first quarter of 2015, total debit and credit revenue reached R$91.1 billion, an 11.5% increase as compared to the same period of the previous year. We closed the period with 1.9 million equipment items, a 15.8% growth in relation to the previous year.

 

We focused on the consolidation of REDE as a platform of electronic and physical payment means, offering high quality service, and more safety and convenience to our clients.

 

3.5) Itaú Insurance, Pension Plan and Capitalization

 

Insurance

 

Our strategy is to operate under the bancassurance model, focused on the sale of massive personal and property insurance, typically related to banking retail with our clients.

 

Net income for the first quarter of 2015 grew 3.0% in relation to the same period of the previous year. Technical provisions for insurance reached R$5.5 billion at March 31, 2015. Earned premiums posted a 1.7% reduction in relation to the first quarter of 2014, reaching R$1.4 billion (not including our share in Porto Seguro, in which we hold 30% of capital). Retained claims reached R$364 million in the first quarter of 2015, 24.5% reduction in relation to the same period of 2014.

 

The growth of sales of insurance policies in digital channels was 76% in the first quarter of 2015 in relation to the same period of the previous year, reaching 22.0% of total new policies.

 

Aiming at meeting our clients’ needs, we continuously review the characteristics of products, expanded the offer channels and implemented sales strategies in line with the client's moment. As a result, sales to account holders grew 18.6%, whereas credit life and protected card increased 12.6% and 24.1% respectively, in relation to the previous year.

 

Pension Plan

 

Total funding from pension plans amounted to R$ 4.5 billion in the first quarter of 2015, a 24.8% growth as compared to the same period of the previous year.

 

Income from management fees increased 10.0% in relation to the first quarter of 2014, reaching R$291 million. Technical provisions increased 18.4% in relation to the same period of the previous year, totaling R$108.1 billion at the end of March 2015.

 

In February 2015, according to the National Federation of Private Pension Funds and Life Insurance (FENAPREVI), the market share of total technical provisions was 23.9%, whereas individual plans accounted for 24.2%.

 

Capitalization

 

In capitalization, we reached 15.6 million certificates in force, posting a 1.7% increase as compared to the same period of the previous year. The technical provisions for capitalization reached R$3.1 billion at March 31, 2015, and the collection with capitalization certificates reached R$652.4 million from January to March 2015.

 

The growth of sales of capitalization certificates to accountholders in digital channels was 13.8% in 2015 in relation to the same period of the previous year, and noteworthy was the 33.3% increase in sales in ATMs.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201575
 

  

3.6) Stock Market

 

Market value – at March 31, 2015, we ranked as the second largest company in Brazil based on the market value criterion (R$ 192.7 billion), and the first among financial institutions, according to the Bloomberg ranking.

 

Volume of transactions - the daily average volume of transactions of our shares on BM&FBOVESPA from January to March 2015 was 29.1 thousand per session, 21.8% higher than the volume recorded in the previous year, with an average volume of R$16.0 thousand per transaction. Comparatively, on Ibovespa the daily average volume of transactions increased 5.5% and the average volume per transaction was R$ 7.3 thousand. On NYSE, the daily average volume of transactions of ITUB was 39.6 thousand per session, 15.7 higher than the total from January to March 2014, with an average volume of R$12.4 thousand per transaction.

 

 

From January to March 2015, the total financial volume of stocks traded on BM&FBOVESPA was R$30.4 billion, 31.7% higher than in the same period of 2014. Of this total, 93.8% was traded in the spot market.

 

Considering all companies on BM&FBOVESPA, the growth of total financial volume was 3.0% in the period. On NYSE, total financial volume traded was R$30.1 billion,34.9% higher than the total for the first quarter of 2014.

 

In Ibovespa, the most widely followed index in Brazil, we are the most actively traded company, represented by our preferred share (ITUB4).

 

Presence in Market Indexes

 

In the beginning of 2015, BMF&FBOVESPA disclosed the composition of the stock portfolios that make up market indexes, effective for the January to April 2015 period.

 

In the table below, we point out the presence in the following indexes:

 

Indexes  Itaú Unibanco
% Presence (1)		   Ranking
Ibovespa   11.231   1st
IBrX50 - Brazil 50 Index   11.172   1st
IFNC - BM&FBOVESPA Financials Index (2)   20.000   1st
ISE – Corporate Sustainability Index (3)   6.175   4th
IGCX - Special Corporate Governance Stock Index   7.763   2nd

(1) The sum of all classes of shares of each company included in the indexes has been considered.

(2) The participation of companies’ shares in the index (considering all classes of shares) cannot exceed 20%.

(3) The participation of an economic sector in ISE (considering all classes of shares) cannot exceed 15%.

 

Relations with the market

 

Itaú Unibanco has already scheduled its 22 APIMEC Presentations in Brazil, and the schedule is available on the Investor Relations website (www.itau.com.br/investor-relations). We highlight the following meetings:

 

Event   Date
APIMEC MG – Belo Horizonte   5/20/2015
APIMEC DF – Brasília   5/28/2015
APIMEC SUL – Porto Alegre   6/10/2015
APIMEC RIO – Rio de Janeiro   6/16/2015
APIMEC SP – São Paulo   8/20/2015
APIMEC NE – Fortaleza   11/19/2015

 

The table below shows the main market indicators at March 31, 2015:

 

       R$   % 
Shares  March 31, 2015   March 31, 2014   Change 
Recurring net income per share(1)   1.06    0.83    27.7 
Net income per share(1)   1.05    0.81    29.6 
Book value per share(1)   17.73    15.03    18.0 
Number of outstanding shares (in millions)(2)   5,469.0    5,466.8    - 
Dividends/Interest on capital, net per share (2)   0,2412    0,1605    50.3 
Price of preferred share (ITUB4)(2)(3)   35.23    30.70    14.8 
Price of common share (ITUB3)(2)(3)   32.37    28.78    12.5 
Price of preferred share (PN)(3)/Net income per share (annualized)   8.39    9.48    (11.5)
Price of preferred share (PN)(3)/Stockholders’ equity per share   1.99    2.04    (2.5)
Market value (in billions) (4)(5)   192.7    167.8    14.8 

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

(2) The number of outstanding shares and the price of share were adjusted to reflect the 10% bonus ocurred on June 5, 2014;

(3) Based on the closing quotation on the last day of the period;

(4) 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);

(5) Considering the closing quotation of common and preferred (ON and PN) shares multiplied by total outstanding shares of each type of shares, the market value reached R$ 184.4 billion on March 31, 2015 and R$ 163.5 billion on March 31, 2014, resulting a variation of 12.8%.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201576
 

  

4)PEOPLE

 

We had 92.8 thousand employees at the end of the first quarter of 2015, including about 7.0 thousand employees in foreign units. The employees’ fixed compensation plus charges and benefits totaled R$3.2 billion in the first quarter of the year.

 

5)PRIVATE SOCIAL INVESTMENT

 

Guga agora é Itaú (Now Guga is Itaú) – In February 2015, we announced an unprecedented partnership with Gustavo Kuerten, one of the most important Brazilian athletes of all times. We will support the Guga Kuerten’s Week, Guga’s School and Guga Kuerten’s Institute, strengthening our actions in the sport base and contributing to the sport initiation and development of future athletes.

 

6)AWARDS AND RECOGNITION

 

In the first quarter of 2015, we received significant recognition that contributed to strengthen our reputation. Below is the list of awards received by the bank in the period:

 

Latin American 9th Excellence in Best Practices Awards (Frost & Sullivan)   In January 2015, Frost & Sullivan, an international market intelligence consulting company, elect us as the winners in the “Brazilian Competitive Strategy Innovation and Leadership Award The Future of Mobility” category. In its ninth edition, this award acknowledges the most outstanding companies in the Latin American market for their performance and excellence in areas such as leadership, technology innovation, client service and products development.
Brill Awards for Efficient IT (Uptime Institute )   In February 2015, our Transforming Data Center – Virtualization project was elected as the winner in the “IT Efficiency – Latin America” category in the second edition of the Brill Awards for Efficient IT. This award is granted by the Uptime Institute, a pool of companies focused on the fields of education, advisory, conferences, seminars and issue of certificates related to the data center industry.
BeyondBanking Awards (Inter-American Investment Corporation (IIC))   In March 2015, our 2013 Integrated Report was one of the winners in the fifth edition of the beyondBanking Awards, organized by the Inter-American Investment Bank (IDB). We were acknowledged in the “clearBanking” category, which envisages successful practices adopted by Latin American and Caribbean financial institutions in the risk management, transparency and corporate governance areas.

 

7)REGULATION

 

7.1) INDEPENDENT AUDITORS – CVM Instruction No. 381

 

Procedures adopted by the Company

 

The policy adopted by us, including our subsidiaries and parent company, to engage 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 March 2015, 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 21, February 11 and March 23 – acquisition of research and technical materials.

 

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, including the approval by the Audit Committee.

 

7.2) BACEN – Circular No. 3,068/01

 

We 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$37.7 billion, corresponding to 11.6% of total securities held.

 

7.3) International Financial Reporting Standards (IFRS)

 

We disclosed the consolidated financial statements in accordance with the international financial reporting standards (IFRS) at the same date of this publication, pursuant to CVM/SEP Circular Letter No. 01/13. The complete financial statements are available on the Investor Relations website of Itaú Unibanco (www.itau.com.br/investor-relations > Financial Information).

 

8)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 May 4, 2015).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201577
 

  

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 Candido Botelho Bracher
Roberto Egydio Setubal Claudia Politanski
  Eduardo Mazzilli de Vassimon
   
Members Executive Directors
Alfredo Egydio Setubal Alexsandro Broedel Lopes
Candido Botelho Bracher Caio Ibrahim David
Demosthenes Madureira de Pinho Neto Leila Cristiane Barboza Braga de Melo (***)
Gustavo Jorge Laboissière Loyola Ricardo Baldin
Henri Penchas  
Israel Vainboim  
Nildemar Secches  
Pedro Luiz Bodin de Moraes Directors
Ricardo Villela Marino Adriano Cabral Volpini (**)
  Álvaro Felipe Rizzi Rodrigues (***)
  Cláudio José Coutinho Arromatte (**)
  Eduardo Hiroyuki Miyaki
AUDIT COMMITTEE Emerson Macedo Bortoloto
Chairman José Virgilio Vita Neto (***)
Geraldo Travaglia Filho Marcelo Kopel (*)
  Matias Granata
Members Rodrigo Luis Rosa Couto
Alkimar Ribeiro Moura Wagner Bettini Sanches
Diego Fresco Gutierrez  
Luiz Alberto Fiore  
Maria Helena dos Santos Fernandes de Santana  
Sergio Darcy da Silva Alves (*) Investor Relations Director
  (**) Elected in Meeting Board of Directors of February 2, 2015, approved by the Central Bank on February 11, 2015.
  (***) Elected in Meeting Board of Directors of March 26,2015, approved by the Central Bank on April 13, 2015.
   
FISCAL COUNCIL  
President  
Iran Siqueira Lima  
   
Members  
Alberto Sozin Furuguem  
Luiz Alberto de Castro Falleiros  
   
Accountant  
Reginaldo José Camilo  
CRC-1SP – 114.497/O-9  

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201578
 

  

ITAÚ UNIBANCO S.A.

 

Chief Executive Officer and Retail General Manager Directors (continued)
Candido Botelho Bracher Fernando Julião de Souza Amaral (*)
Márcio de Andrade Schettini Fernando Mattar Beyruti
Marco Ambrogio Crespi Bonomi Flávio Delfino Júnior
  Francisco Vieira Cordeiro Neto
  Gabriel Amado de Moura
Executive Vice-Presidents Gilberto Frussa
Alberto Fernandes Henrique Pinto Echenique
Caio Ibrahim David Ilan Goldfajn
Claudia Politanski João Antonio Dantas Bezerra Leite
Eduardo Mazzilli de Vassimon João Carlos de Gênova
Jean-Marc Robert Nogueira Baptista Etlin Jorge Luiz Viegas Ramalho
Ricardo Villela Marino José Félix Valencia Ríos
  José Virgilio Vita Neto
  Laila Regina de Oliveira Pena de Antonio
Executive Directors Leon Gottlieb
Alexsandro Broedel Lopes Lineu Carlos Ferraz de Andrade
Álvaro de Alvarenga Freire Pimentel Luís Eduardo Gross Siqueira Cunha
André Luis Texeira Rodrigues Luís Tadeu Mantovani Sassi
André Sapoznik Luiz Felipe Monteiro Arcuri Trevisan
Carlos Eduardo Monico Luiz Fernando Butori Reis Santos
Christian George Egan Luiz Severiano Ribeiro
Fernando Barçante Tostes Malta Marcello Peccinini de Chiaro
Fernando Marsella Chacon Ruiz Marcello Siniscalchi
Flávio Augusto Aguiar de Souza Marcelo Ariel Rosenhek
Gustavo Adolfo Funcia Murgel Marcelo Kopel
João Marcos Pequeno de Biase Marcelo Luis Orticelli
José Augusto Durand Marcio Luis Domingues da Silva
Leila Cristiane Barboza Braga de Melo Marco Antonio Sudano
Luís Antonio Rodrigues Marcos Antônio Vaz de Magalhães
Luís Fernando Staub Marcos Vanderlei Belini Ferreira
Luiz Eduardo Loureiro Veloso Mário Lúcio Gurgel Pires
Milton Maluhy Filho Matias Granata
Ricardo Ribeiro Mandacaru Guerra Messias dos Santos Esteves
  Osvaldo José Dal Fabbro
  Paulo Meirelles de Oliveira Santos
Directors Pedro Barros Barreto Fernandes
Adilso Martins de Lima Pedro Constantino Campos Donati Jorge
Adriano Cabral Volpini Renata Helena de Oliveira Tubini
Adriano Maciel Pedroti Ricardo Lima Soares
Alberto Zoffmann do Espirito Santo Ricardo Nuno Delgado Gonçalves
Alexandre Enrico Silva Figliolino Ricardo Orlando
Álvaro Felipe Rizzi Rodrigues Ricardo Urquijo Lazcano
André Carvalho Whyte Gailey Roberto Fernando Vicente
André Ferrari Rodrigo Luís Rosa Couto
Andréa Matteucci Pinotti Cordeiro Rogério Carvalho Braga
Antonio Carlos Barbosa Ortiz Romildo Gonçalves Valente
Carlos Eduardo de Castro Rooney Silva
Carlos Henrique Donegá Aidar Sergio Guillinet Fajerman
Carlos Orestes Vanzo Thales Ferreira Silva
Cesar Ming Pereira da Silva Thiago Luiz Charnet Ellero
Cesar Padovan Vanessa Lopes Reisner
Cícero Marcus de Araújo Wagner Bettini Sanches
Cintia Carbonieri Araújo  
Claudio César Sanches  
Cláudio José Coutinho Arromatte  
Cristiane Magalhães Teixeira Portella  
Cristiano Rogério Cagne  
Cristina Cestari Spada  
Edilson Pereira Jardim  
Eduardo Cardoso Armonia  
Eduardo Corsetti  
Elaine Cristina Zanatta Rodrigues Vasquinho  
Emerson Savi Junqueira  
Fabiana Pascon Bastos  
Fernando Della Torre Chagas  

 

(*) Elected at the ESM of March 31, 2015 , awaiting approval from BACEN

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201579
 

  

BANCO ITAÚ BBA S.A.

 

BOARD OF DIRECTORS  
   
Chairman Directors
Roberto Egydio Setubal Alexsandro Broedel Lopes
  André Carvalho Whyte Gailey
Vice-Chairmen Caio Ibrahim David
Alfredo Egydio Setubal Cristiano Rogério Cagne
Candido Botelho Bracher Flávio Delfino Júnior
  Gilberto Frussa
Members João Carlos de Gênova
Antonio Carlos Barbosa de Oliveira Marcello Peccinini de Chiaro
Caio Ibrahim David Marcelo Ariel Rosenhek
Eduardo Mazzilli de Vassimon Marco Antônio Sudano
Henri Penchas Mário Luís Brugnetti
João Dionísio Filgueira Barreto Amoêdo Vanessa Lopes Reisner
   
EXECUTIVE BOARD  
Chief Executive Officer  
Candido Botelho Bracher  
   
Managing Vice-Presidents  
Alberto Fernandes  
Jean-Marc Robert Nogueira Baptista Etlin  
   
Executive Directors  
Álvaro de Alvarenga Freire Pimentel  
Christian George Egan  
Fernando Fontes Iunes  
José Augusto Durand  
Roderick Sinclair Greenlees  
   
ITAÚ  SEGUROS S.A.  
   
Chief Executive Officer  
Luiz Eduardo Loureiro Veloso (*)  
   
Directors  
Adriano Cabral Volpini  
Alexsandro Broedel Lopes  
Carlos Henrique Donegá Aidar  
Cláudio José Coutinho Arromatte  
Fernando Barçante Tostes Malta  
Henrique Pinto Echenique  
Leon Gottlieb (*)  

 

(*) Elected at the Meeting of the Board of Directors of March 30, 2015, awaiting approval from BACEN.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201580
 

  

ITAÚ UNIBANCO HOLDING S.A.

Consolidated Balance Sheet (Note 2a)

(In thousands of Reais)

 

Assets  Note  03/31/2015   03/31/2014 
Current assets      915,911,592    799,659,468 
Cash and cash equivalents      18,687,140    16,030,078 
Interbank investments  4b and 6   224,290,296    189,341,650 
Money market      196,905,253    157,652,070 
Money market – Assets Guaranteeing Technical Provisions - SUSEP  11b   2,275,733    2,509,181 
Interbank deposits      25,109,310    29,180,399 
Securities and derivative financial instruments  4c, 4d and 7   218,540,284    191,720,690 
Own portfolio      69,044,257    48,725,584 
Subject to repurchase commitments      13,039,633    27,254,390 
Pledged in guarantee      3,175,964    5,995,395 
Securities under resale agreements with free movement      -    59,664 
Deposited with the Central Bank      7,357,796    11,768,776 
Derivative financial instruments      17,654,758    6,494,705 
Assets guaranteeing technical provisions - PGBL / VGBL fund quotas  11b   101,507,939    84,664,815 
Assets guaranteeing technical provisions – other securities  11b   6,759,937    6,757,361 
Interbank accounts      66,374,367    84,835,784 
Pending settlement      3,099,780    5,467,033 
Central Bank deposits      63,235,378    79,280,704 
National Housing System (SFH)      2,568    4,306 
Correspondents      36,641    83,741 
Interbranch accounts      146,329    119,438 
Loan, lease and other credit operations  8   242,291,190    214,189,967 
Operations with credit granting characteristics  4e   258,615,375    228,032,124 
(Allowance for loan losses)  4f   (16,324,185)   (13,842,157)
Other receivables      142,462,016    99,399,629 
Foreign exchange portfolio  9   80,630,554    39,718,564 
Income receivable      2,275,309    1,727,729 
Transactions with credit card issuers  4e   22,931,658    21,664,364 
Receivables from insurance and reinsurance operations  4m I and 11b   1,343,130    4,952,969 
Negotiation and intermediation of securities      5,136,983    2,078,356 
Sundry  13a   30,144,382    29,257,647 
Other assets  4g   3,119,970    4,022,232 
Assets held for sale      380,718    169,936 
(Valuation allowance)      (74,642)   (53,554)
Unearned premiums of reinsurance  4m I   8,309    807,530 
Prepaid expenses  4g and 13b   2,805,585    3,098,320 
Long-term receivables      358,754,928    290,084,386 
Interbank investments  4b and 6   785,489    1,211,370 
Money market      -    9,980 
Interbank deposits      785,489    1,201,390 
Securities and derivative financial instruments  4c, 4d and 7   105,519,478    74,861,219 
Own portfolio      70,482,877    50,332,816 
Subject to repurchase commitments      19,769,880    13,179,530 
Pledged in guarantee      749,208    649,766 
Deposited with the Central Bank      1,358,937    - 
Derivative financial instruments      8,194,020    5,499,629 
Assets guaranteeing technical provisions – other securities  11b   4,964,556    5,199,478 
Interbank accounts - National Housing System (SFH)      480,330    731,653 
Loan, lease and other credit operations  8   197,459,999    169,059,004 
Operations with credit granting characteristics  4e   209,489,677    180,259,204 
(Allowance for loan losses)  4f   (12,029,678)   (11,200,200)
Other receivables      53,288,608    42,809,193 
Foreign exchange portfolio  9   2,419,067    1,779,824 
Receivables from insurance and reinsurance operations  4m I and 11b   19,182    - 
Sundry  13a   50,850,359    41,029,369 
Other assets  4g   1,221,024    1,411,947 
Unearned premiums of reinsurance  4m I   -    155,599 
Prepaid expenses  4g and 13b   1,221,024    1,256,348 
Permanent assets      19,946,712    17,631,705 
Investments  4h and 15a Il   3,539,233    3,375,467 
Investments in affiliates and jointly controlled entities      3,105,770    3,046,523 
Other investments      642,365    532,066 
(Allowance for losses)      (208,902)   (203,122)
Real estate in use  4i and 15b l   7,520,563    6,621,379 
Real estate in use      4,168,129    4,055,260 
Other fixed assets      12,101,172    10,549,532 
(Accumulated depreciation)      (8,748,738)   (7,983,413)
Goodwill  4j and 15b ll   224,903    1,893,235 
Intangible assets  4k and 15b lll   8,662,013    5,741,624 
Acquisition of rights to credit payroll      1,050,568    1,143,734 
Other intangible assets      10,260,654    6,654,008 
(Accumulated amortization)      (2,649,209)   (2,056,118)
Total assets      1,294,613,232    1,107,375,559 

 

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

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201581
 

  

ITAÚ UNIBANCO HOLDING S.A.

Consolidated Balance Sheet (Note 2a)

(In thousands of Reais)

 

Liabilities  Note  03/31/2015   03/31/2014 
Current liabilities      731,306,025    595,506,247 
Deposits  4b and 10b   238,856,770    207,303,641 
Demand deposits      56,659,732    43,216,760 
Savings deposits      117,357,236    108,931,513 
Interbank deposits      27,745,533    5,166,053 
Time deposits      37,094,269    49,989,315 
Deposits received under securities repurchase agreements  4b and 10c   199,615,680    166,462,218 
Own portfolio      59,134,641    67,823,275 
Third-party portfolio      135,253,796    97,552,849 
Free portfolio      5,227,243    1,086,094 
Funds from acceptances and issuance of securities  4b and 10d   28,085,371    20,819,041 
Real estate, mortgage, credit and similar notes      22,299,959    15,357,183 
Debentures      -    111 
Foreign borrowings through securities      4,696,338    4,786,283 
Structured Operations Certificates      1,089,074    675,464 
Interbank accounts      4,219,647    7,428,241 
Pending settlement      2,714,384    4,701,340 
Correspondents      1,505,263    2,726,901 
Interbranch accounts      5,145,747    5,338,153 
Third-party funds in transit      5,078,886    5,301,285 
Internal transfer of funds      66,861    36,868 
Borrowings and onlending  4b and 10e   45,911,991    37,208,186 
Borrowings      32,495,456    24,777,664 
Onlending      13,416,535    12,430,522 
Derivative financial instruments  4d and 7g   17,312,084    5,136,087 
Technical provision for insurance, pension plan and capitalization  4m II and 11a   8,402,258    12,383,919 
Other liabilities      183,756,477    133,426,761 
Collection and payment of taxes and contributions      4,661,070    5,602,479 
Foreign exchange portfolio  9   81,572,747    40,370,448 
Social and statutory  16b II   2,482,515    1,685,723 
Tax and social security contributions  4n, 4o and 14c   5,070,268    5,973,901 
Negotiation and intermediation of securities      8,439,057    4,769,956 
Credit card operations  4e   52,746,806    49,011,101 
Subordinated debt  10f   6,844,074    6,278,337 
Sundry  13c   21,939,940    19,734,816 
Long-term liabilities      463,141,045    426,638,704 
Deposits  4b and 10b   59,795,418    70,904,539 
Interbank deposits      389,333    327,157 
Time deposits      59,406,085    70,577,382 
Deposits received under securities repurchase agreements  4b and 10c   131,242,753    122,153,951 
Own portfolio      109,340,517    98,554,001 
Free portfolio      21,902,236    23,599,950 
Funds from acceptances and issuance of securities  4b and 10d   22,667,260    23,047,443 
Real estate, mortgage, credit and similar notes      7,683,800    13,349,987 
Foreign borrowings through securities      13,313,426    9,533,782 
Structured Operations Certificates      1,670,034    163,674 
Borrowings and onlending  4b and 10e   50,353,140    39,719,036 
Borrowings      19,687,475    7,974,089 
Onlending      30,665,665    31,744,947 
Derivative financial instruments  4d and 7g   13,684,462    6,912,943 
Technical provision for insurance, pension plan and capitalization  4m II and 11a   108,335,194    92,211,266 
Other liabilities      77,062,818    71,689,526 
Foreign exchange portfolio  9   2,456,835    1,779,824 
Tax and social security contributions  4n, 4o and 14c   6,885,013    11,132,921 
Subordinated debt  10f   52,683,405    49,256,102 
Sundry  13c   15,037,565    9,520,679 
Deferred income  4p   1,512,670    1,138,251 
Minority interest in subsidiaries  16e   1,699,991    1,919,152 
Stockholders' equity  16   96,953,501    82,173,205 
Capital      75,000,000    60,000,000 
Capital reserves      1,217,048    827,314 
Revenue reserves      22,348,972    24,317,152 
Asset valuation adjustment  4c, 4d and 7d   54,574    (1,403,164)
(Treasury shares)      (1,667,093)   (1,568,097)
Total liabilities and stockholders' equity      1,294,613,232    1,107,375,559 

 

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

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201582
 

 

ITAÚ UNIBANCO HOLDING S.A.

Consolidated Statement of Income (Note 2a)

(In thousands of Reais)

 

   Note  01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Income from financial operations     42,453,676  

26,169,090

 
Loan, lease and other credit operations      19,910,907    15,367,613 
Securities and derivative financial instruments      20,573,601    6,622,431 
Financial income from insurance, pension plan and capitalization operations  11c   3,004,956    2,025,684 
Foreign exchange operations      (2,339,169)   598,443 
Compulsory deposits      1,303,381    1,554,919 
Expenses of financial operations      (32,310,728)   (12,966,578)
Money market      (17,219,250)   (11,217,669)
Financial expenses on technical provisions for insurance, pension plan and capitalization  11c   (2,793,431)   (1,849,908)
Borrowings and onlending      (12,298,047)   100,999 
Income from financial operations before loan and losses      10,142,948    13,202,512 
Result of allowance for loan losses  8d I   (4,419,393)   (3,147,995)
Expenses for allowance for loan losses      (5,479,680)   (4,235,655)
Income from recovery of credits written off as loss      1,060,287    1,087,660 
Gross income from financial operations      5,723,555    10,054,517 
Other operating revenues (expenses)      (2,576,908)   (2,985,720)
Banking service fees  13d   5,053,428    4,507,384 
Asset management      955,110    915,619 
Current account services      199,713    190,803 
Credit cards      2,372,176    2,131,947 
Sureties and credits granted      566,327    451,532 
Receipt services      365,451    362,591 
Other      594,651    454,892 
Income from bank charges  13e   2,368,184    1,982,430 
Result from insurance, pension plan and capitalization operations  11c   992,424    931,510 
Personnel expenses  13f   (4,435,963)   (3,787,588)
Other administrative expenses  13g   (3,927,255)   (3,725,881)
Tax expenses  4o and 14a II   (1,243,845)   (1,368,654)
Equity in earnings of affiliates, jointly controlled entities and other investments  15a lll   133,666    89,622 
Other operating revenues  13h   325,640    49,841 
Other operating expenses  13i   (1,843,187)   (1,664,384)
Operating income      3,146,647    7,068,797 
Non-operating income  2c   9,172    24,597 
Income before taxes on income and profit sharing      3,155,819    7,093,394 
Income tax and social contribution  4o and 14a I   2,718,335    (2,549,046)
Due on operations for the period      (3,303,131)   (2,690,151)
Related to temporary differences      6,021,466    141,105 
Profit sharing – Management Members - Statutory - Law No. 6,404 of 12/15/1976      (35,786)   (61,414)
Minority interest in subsidiaries  16e   (105,415)   (63,855)
Net income      5,732,953    4,419,079 
Weighted average of the number of outstanding shares  16a   5,468,697,251    5,461,804,279 
Net income per share – R$      1.05    0.81 
Book value per share - R$ (outstanding at 03/31)      17.73    15.03 
              
Supplementary information             
              
Exclusion of nonrecurring effects  2a and 22k   74,985    109,882 
Net income without nonrecurring effects      5,807,938    4,528,961 
Net income per share – R$      1.06    0.83 

 

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

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201583
 

  

ITAÚ UNIBANCO HOLDING S.A.

Consolidated Statement of Cash Flows

(In thousands of Reais)

 

   Note  01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Adjusted net income      8,870,709    13,036,096 
Net income      5,732,953    4,419,079 
Adjustments to net income:      3,137,756    8,617,017 
Granted options recognized and share-based payment – variable compensation      (138,282)   51,594 
Adjustment to market value of securities and derivative financial instruments (assets / liabilities)  7h   182,169    (1,071,502)
Effects of changes in exchange rates on cash and cash equivalents      (4,386,871)   1,286,738 
Allowance for loan losses      5,479,680    4,235,655 
Interest and foreign exchange expense from operations with subordinated debt      5,903,900    1,255,250 
Interest expense from operations with debentures      -    111 
Financial expenses on technical provisions for pension plan and capitalization      2,793,431    1,849,908 
Depreciation and amortization  15b   668,866    666,227 
Interest expense from provision for contingent and legal liabilities  12b   342,830    257,630 
Provision for contingent and legal liabilities  12b   832,797    949,699 
Interest income from escrow deposits  12b   (82,427)   (101,840)
Deferred taxes      673,301    (141,105)
Equity in earnings of affiliates, jointly controlled entities and other investments  15a lll   (133,666)   (89,622)
Interest and foreign exchange income from available-for-sale securities      (6,634,087)   (666,792)
Interest and foreign exchange income from held-to-maturity securities      (2,985,338)   (106,211)
(Gain) loss from sale of available-for-sale financial assets  7i   653,835    92,839 
(Gain) loss from sale of investments      1,850    1,123 
(Gain) loss from sale of foreclosed assets      13,908    6,233 
(Gain) loss from sale of fixed assets      3,984    8,197 
Minority interest      105,415    63,855 
Other      (157,538)   69,030 
Change in assets and liabilities      (46,031,549)   3,957,743 
(Increase) decrease in assets      (65,414,110)   7,947,961 
Interbank investments      (35,670,123)   (10,779,778)
Securities and derivative financial instruments (assets/liabilities)      (2,638,426)   24,417,988 
Compulsory deposits with the Central Bank of Brazil      (129,064)   (2,270,423)
Interbank and interbranch accounts (assets / liabilities)      1,042,860    2,332,414 
Loan, lease and other credit operations      (20,569,135)   (1,636,892)
Other receivables and other assets      (7,724,462)   (3,669,282)
Foreign exchange portfolio and negotiation and intermediation of securities (assets / liabilities)      274,240    (446,066)
(Decrease) increase in liabilities      19,382,561    (3,990,218)
Deposits      3,878,940    3,824,718 
Deposits received under securities repurchase agreements      5,845,326    (3,563,008)
Funds for issuance of securities      3,002,927    (2,390,017)
Borrowings and onlending      7,488,663    273,920 
Credit card operations (assets / liabilities)      (4,501,357)   (4,267,508)
Technical provision for insurance, pension plan and capitalization      1,294,452    916,657 
Collection and payment of taxes and contributions      4,435,061    5,397,499 
Other liabilities      986,542    (892,451)
Deferred income      89,953    12,797 
Payment of income tax and social contribution      (3,137,946)   (3,302,825)
Net cash provided by (used in) operating activities      (37,160,839)   16,993,838 
Interest on capital / dividends received from affiliated companies      105,684    13,893 
Funds received from sale of available-for-sale securities      3,230,139    37,522,079 
Funds received from redemption of held-to-maturity securities      625,756    202,966 
Disposal of assets not for own use      21,114    5,322 
Disposal of investments      (392)   157,983 
Cash and cash equivalents net assets and liabilities due from BMG Seguradora acquisition  2c   -    (88,138)
Sale of fixed assets      13,168    5,428 
Termination of intangible asset agreements      7,507    (128)
Purchase of available-for-sale securities      (2,508,863)   (28,040,743)
Purchase of held-to-maturity securities      (909,459)   (21,299)
Purchase of investments      (6,938)   (39,037)
Purchase of fixed assets  15b   (339,860)   (567,424)
Purchase of intangible assets  15b   (207,603)   (256,371)
Net cash provided by (used in) invesment activities      30,254    8,894,532 
Decrease in subordinated debt      (945,356)   (1,359,873)
Change in minority interest  16e   (772,290)   (46,721)
Granting of stock options      271,291    210,765 
Purchase of treasury shares      (568,270)   - 
Dividends and interest on capital paid to minority interests      (47,861)   (1,437)
Dividends and interest on capital paid      (4,456,587)   (3,829,795)
Net cash provided by (used in) financing activities      (6,519,073)   (5,027,061)
              
Net increase (decrease) in cash and cash equivalents      (43,649,658)   20,861,309 
              
Cash and cash equivalents at the beginning of the period      87,831,981    45,802,194 
Effects of changes in exchange rates on cash and cash equivalents      4,386,871    (1,286,738)
Cash and cash equivalents at the end of the period  4a and 5   48,569,194    65,376,765 

 

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

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201584
 

 

ITAÚ UNIBANCO HOLDING S.A.

Consolidated Statement of Added Value

(In thousands of Reais)

 

   Note  01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Income      46,783,131         31,835,424      
Financial operations      42,453,676         26,169,090      
Banking services      7,421,612         6,489,814      
Result from insurance, pension plan and capitalization operations      992,424         931,510      
Result of loan losses  8d   (4,419,393)        (3,147,995)     
Other      334,812         1,393,005      
Expenses      (34,153,915)        (14,630,962)     
Financial operations      (32,310,728)        (12,966,578)     
Other      (1,843,187)        (1,664,384)     
Inputs purchased from third parties      (3,083,678)        (2,937,112)     
Materials, energy and others  13g   (86,907)        (71,416)     
Third-party services  13g   (893,213)        (891,610)     
Other      (2,103,558)        (1,974,086)     
Data processing and telecommunications  13g   (922,743)        (915,528)     
Advertising, promotions and publication  13g   (216,645)        (193,291)     
Installations      (319,915)        (289,032)     
Transportation  13g   (100,588)        (105,688)     
Security  13g   (164,918)        (152,781)     
Travel expenses  13g   (47,668)        (42,121)     
Other      (331,081)        (275,645)     
Gross added value      9,545,538         14,267,350      
Depreciation and amortization  13g   (518,939)        (506,982)     
Net added value produced by the company      9,026,599         13,760,368      
Added value received from transfer  15a lll   133,666         89,622      
Total added value to be distributed      9,160,265         13,849,990      
Distribution of added value      9,160,265         13,849,990      
Personnel     3,969,658    43.3%   3,430,575    24.8%
Compensation      3,164,652    34.5%   2,756,104    19.9%
Benefits      612,913    6.7%   508,551    3.7%
FGTS – government severance pay fund      192,093    2.1%   165,920    1.2%
Taxes, fees and contributions      (972,399)   -10.6%   5,654,694    40.8%
Federal      (1,230,871)   -13.4%   5,429,922    39.2%
State      10,544    0.1%   1,862    0.0%
Municipal      247,928    2.7%   222,910    1.6%
Return on third parties’ assets - Rent      324,638    3.5%   281,787    2.0%
Return on own assets      5,838,368    63.7%   4,482,934    32.4%
Dividends and interest on capital      1,508,642    16.5%   898,690    6.5%
Retained earnings (loss) for the period      4,224,311    46.1%   3,520,389    25.4%
Minority interest in retained earnings      105,415    1.2%   63,855    0.5%

 

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

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201585
 

 

ITAÚ UNIBANCO HOLDING S.A.

Balance Sheet

(In thousands of Reais)

 

Assets  Note  03/31/2015   03/31/2014 
Current assets      21,814,341    14,326,720 
Cash and cash equivalents      140,762    166,653 
Interbank investments  4b and 6   2,622,311    153,882 
Money market      39,767    92,710 
Interbank deposits      2,582,544    61,172 
Securities and derivative financial instruments  4c, 4d and 7   16,350,128    11,528,233 
Own portfolio      16,346,169    11,528,233 
Pledged in guarantee      3,959    - 
Other receivables      2,696,342    2,473,996 
Income receivable  15a I   2,037,392    2,370,679 
Sundry  13a   658,950    103,317 
Other assets – prepaid expenses  4g   4,798    3,956 
Long-term receivables      38,424,283    35,702,519 
Interbank invesments – interbank deposits  4b and 6   38,079,257    35,329,197 
Other receivables - sundry  13a   345,026    373,322 
Permanent assets      70,021,192    58,944,125 
Investments - Investments in subsidiaries      70,021,135    58,944,019 
Real estate in use  4i   57    106 
Total assets      130,259,816    108,973,364 
Liabilities             
Current liabilities      2,115,267    1,224,885 
Funds from acceptance and issuance of securities  4b and 10d   18,667    18,667 
Other liabilities      2,096,600    1,206,218 
Social and statutory  16b II   1,436,304    831,831 
Tax and social security contributions  4n, 4o and 14c   242,949    87,652 
Subordinated debt  10f   355,546    251,405 
Sundry      61,801    35,330 
Long-term liabilities      25,594,241    18,100,992 
Funds from acceptance and issuance of securities  4b and 10d   500,000    500,000 
Other liabilities      25,094,241    17,600,992 
Tax and social security contributions  4n, 4o and 14c   1,145    4,796 
Subordinated debt  10f   24,930,548    17,576,521 
Sundry      162,548    19,675 
Stockholders' equity  16   102,550,308    89,647,487 
Capital      75,000,000    60,000,000 
Capital reserves      1,217,048    827,314 
Revenue reserves      28,333,556    31,629,212 
Asset valuation adjustment  4c and 4d   (333,203)   (1,240,942)
(Treasury shares)      (1,667,093)   (1,568,097)
Total liabilities and stockholders' equity      130,259,816    108,973,364 

 

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

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201586
 

 

 

ITAÚ UNIBANCO HOLDING S.A.

Statement of Income

(In thousands of Reais)

 

   Note  01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Income from financial operations      1,255,936    1,011,854 
Securities and derivative financial instruments      1,255,936    1,011,854 
Expenses of financial operations      (332,020)   (279,233)
Money market      (332,020)   (279,233)
Gross income from financial operations      923,916    732,621 
Other operating revenues (expenses)      4,810,116    2,464,182 
Personnel expenses      (45,741)   (57,528)
Other administrative expenses      (14,792)   (12,686)
Tax expenses  14a II   (88,056)   (63,333)
Equity in earnings of subsidiaries  15a I   4,989,691    2,612,806 
Other operating revenues (expenses)      (30,986)   (15,077)
Operating income      5,734,032    3,196,803 
Non-operating income      14,323    15,290 
Income before taxes on income and profit sharing      5,748,355    3,212,093 
Income tax and social contribution  4o   (203,013)   147,832 
Due on operations for the period      (205,839)   (13,579)
Related to temporary differences      2,826    161,411 
Profit sharing – Management Members - Statutory - Law No. 6,404 of 12/15/1976      9,509    (2,545)
Net income      5,554,851    3,357,380 
Weighted average of the number of outstanding shares  16a   5,468,697,251    5,461,804,279 
Net income per share – R$      1.02    0.61 
Book value per share - R$ (outstanding at 03/31)      18.75    16.40 
              
Supplementary information             
              
Exclusion of nonrecurring effects  2a and 22k   74,985    109,882 
Net income without nonrecurring effects      5,629,836    3,467,262 
Net income per share – R$      1.03    0.63 

 

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

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201587
 

 

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 
Balance at 01/01/2014   60,000,000    870,456    31,748,411    (1,534,691)   -    (1,854,432)   89,229,744 
Granting of stock options   -    (94,736)   19,166    -    -    286,335    210,765 
Granting of options recognized   -    51,594    -    -    -    -    51,594 
Payment of interest on capital on 02/28/2014 – declared after 12/31/2013 - R$ 0.5236 per share   -    -    (2,597,055)   -    -    -    (2,597,055)
Asset valuation adjustments:                  -                
Change in adjustment to market value   -    -    -    274,962    -    -    274,962 
Remeasurements in liabilities of post-employment benefits   -    -    -    18,787    -    -    18,787 
Net income   -    -    -    -    3,357,380    -    3,357,380 
Appropriations:                                   
Legal reserve   -    -    167,869    -    (167,869)   -    - 
Statutory reserves   -    -    2,290,821    -    (2,290,821)   -    - 
Dividends and interest on capital   -    -    -    -    (898,690)   -    (898,690)
Balance at 03/31/2014   60,000,000    827,314    31,629,212    (1,240,942)   -    (1,568,097)   89,647,487 
Changes in the period   -    (43,142)   (119,199)   293,749    -    286,335    417,743 
Balance at 01/01/2015   75,000,000    1,315,744    27,224,331    (322,359)   -    (1,327,880)   101,889,836 
Purchase of treasury shares   -    -    -    -    -    (568,270)   (568,270)
Granting of stock options   -    39,586    2,648    -    -    229,057    271,291 
Granting of options recognized   -    (5,570)   -    -    -    -    (5,570)
Share-based payment – variable compensation   -    (132,712)   -    -    -    -    (132,712)
Payment of interest on capital on 02/26/2015 – declared after 12/31/2014 - R$ 0.5380 per share   -    -    (2,939,632)   -    -    -    (2,939,632)
Asset valuation adjustments:                                   
Change in adjustment to market value   -    -    -    (20,294)   -    -    (20,294)
Remeasurements in liabilities of post-employment benefits   -    -    -    9,450    -    -    9,450 
Net income   -    -    -    -    5,554,851    -    5,554,851 
Appropriations:                                   
Legal reserve   -    -    277,742    -    (277,742)   -    - 
Statutory reserves   -    -    3,768,467    -    (3,768,467)   -    - 
Dividends and interest on capital   -    -    -    -    (1,508,642)   -    (1,508,642)
Balance at 03/31/2015   75,000,000    1,217,048    28,333,556    (333,203)   -    (1,667,093)   102,550,308 
Changes in the period   -    (98,696)   1,109,225    (10,844)   -    (339,213)   660,472 

 

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

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201588
 

 

ITAÚ UNIBANCO HOLDING S.A.

Statement of Cash Flows

(In thousands of Reais)

 

   Note  01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Adjusted net income      5,160,528    872,312 
Net income      5,554,851    3,357,380 
Adjustments to net income:      (394,323)   (2,485,068)
Granting of options recognized      (138,282)   51,594 
Interest and foreign exchange expense from operations with subordinated debt      4,701,894    228,394 
Deferred taxes      (2,826)   (161,411)
Equity in earnings of subsidiaries  15a I   (4,989,691)   (2,612,806)
Amortization of goodwill      14,435    14,435 
Effects of changes in exchange rates on cash and cash equivalents      20,140    (5,293)
Other      7    19 
Change in assets and liabilities      (52,512)   452,802 
(Increase) decrease in other receivables and other assets      196,685    435,793 
(Decrease) increase in other liabilities      (249,197)   17,009 
Net cash provided by (used in) operating activities      5,108,016    1,325,114 
Interest on capital / dividends received      1,835,180    147,435 
(Increase) decrease in interbank investments      741,269    2,677,174 
(Increase) decrease in securities and derivative financial instruments (assets / liabilities)      (2,805,601)   414,349 
(Purchase) sale of investments      424,176    1 
(Purchase) sale of fixed assets      (2)   - 
(Purchase) sale of intangible assets      -    (23)
Net cash provided by (used in) investment activities      195,022    3,238,936 
Increase (decrease) in deposits      -    (106,540)
Decrease in subordinated debt      (346,549)   (850,416)
(Increase) decrease in funds for issuance of securities      13,125    13,125 
Granting of stock options      271,291    210,765 
Purchase of treasury shares      (568,270)   - 
Dividends and interest on capital paid      (4,456,587)   (3,829,795)
Net cash provided by (used in) financing activities      (5,086,990)   (4,562,861)
              
Net increase (decrease) in cash and cash equivalents      216,048    1,189 
              
Cash and cash equivalents at the beginning of the period      144,772    252,881 
Effects of changes in exchange rates on cash and cash equivalents      (20,140)   5,293 
Cash and cash equivalents at the end of the period  4a and 5   340,680    259,363 

 

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

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201589
 

  

ITAÚ UNIBANCO HOLDING S.A.

Statement of Added Value

(In thousands of Reais)

 

   Note  01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Income      1,284,844    1,212,212 
Financial operations      1,255,936    1,011,854 
Other      28,908    200,358 
Expenses of financial operations      (363,767)   (294,793)
Financial operations      (332,020)   (279,233)
Other      (31,747)   (15,560)
Inputs purchased from third parties      (14,679)   (12,562)
Third-party services      (10,289)   (7,237)
Advertising, promotions and publication      (732)   (732)
Expenses for financial system services      (1,190)   (1,191)
Other      (2,468)   (3,402)
Gross added value      906,398    904,857 
Deprecitation and amortization      (14,443)   (14,455)
Net added value produced by the company      891,955    890,402 
Added value received from transfer  15a I   4,989,691    2,612,806 
Total added value to be distributed      5,881,646    3,503,208 
Distribution of added value      5,881,646    3,503,208 
Personnel      32,026    58,908 
Compensation      31,721    58,453 
Benefits      211    386 
FGTS – government severance pay fund      94    69 
Taxes, fees and contributions      294,656    86,796 
Federal      294,648    86,788 
Municipal      8    8 
Return on third parties’ assets - rent      113    124 
Return on own assets      5,554,851    3,357,380 
Dividends and interest on capital      1,508,642    898,690 
Retained earnings (loss) for the period      4,046,209    2,458,690 

 

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

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201590
 

  

ITAÚ UNIBANCO HOLDING S.A.

Notes to the Financial Statements

Exercise from January 1 to March 31, 2015 and 2014

(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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201591
 

  

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), the National Council of Private Insurance (CNSP) and the National Superintendence of Supplementary Pension – (PREVIC), which include the use of estimates necessary to calculate accounting provisions and valuation of financial assets.

 

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 CONSOLIDATED comprise the consolidation of its foreign branches and subsidiaries.

 

Intercompany transactions and intercompany balances and intercompany results have been eliminated on consolidation. The investment funds in which ITAÚ UNIBANCO HOLDING CONSOLIDATED 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 and for subsidiaries which functional currency is equal to that of the parent company and in Asset Valuation Adjustment for subsidiaries which functional currency is different from that of the parent company (Note 4s).

 

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 the purchase of investments and from the recording 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 and acquisition by minority stockholders of REDE, 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.

 

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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201592
 

  

The consolidated financial statements comprise ITAÚ UNIBANCO HOLDING and its direct and indirect subsidiaries. We present below the main companies with total assets over R$ 150 million:

 

      Country of    Interest in voting
capital at		   Interest in total
capital at		 
      Incorporation  Activity  03/31/2015   03/31/2014   03/31/2015   03/31/2014 
Banco Credicard S.A.  (1)  Brazil  Financial institution   -    100.00%   -    100.00%
Banco Itaú Argentina S.A.     Argentina  Financial institution   100.00%   100.00%   100.00%   100.00%
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 BMG Consignado S.A  (Note 2c)  Brazil  Financial institution   60.00%   70.00%   60.00%   70.00%
Banco Itaú Paraguay S.A.     Paraguay  Financial institution   100.00%   99.99%   100.00%   99.99%
Banco Itaú Suisse S.A.     Switzerland  Financial institution   100.00%   100.00%   100.00%   100.00%
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 Itauleasing S.A.     Brazil  Financial institution   100.00%   100.00%   100.00%   100.00%
Cia. Itaú de Capitalização     Brazil  Capitalization   100.00%   100.00%   100.00%   100.00%
Dibens Leasing S.A. - Arrendamento Mercantil     Brazil  Leasing   100.00%   100.00%   100.00%   100.00%
Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento     Brazil  Consumer Finance Credit   50.00%   50.00%   50.00%   50.00%
Hipercard Banco Múltiplo S.A.     Brazil  Financial institution   100.00%   100.00%   100.00%   100.00%
Itau Bank, Ltd.     Cayman Islands  Financial institution   100.00%   100.00%   100.00%   100.00%
Itau BBA Colombia S.A. Corporación Financiera     Colombia  Financial institution   100.00%   100.00%   100.00%   100.00%
Itaú BBA International PLC     United Kingdom  Financial institution   100.00%   100.00%   100.00%   100.00%
Itaú BBA USA Securities Inc.     United States  Broker   100.00%   100.00%   100.00%   100.00%
Itaú BMG Seguradora S.A.  (Note 2c)  Brazil  Insurance   60.00%   70.00%   60.00%   70.00%
Itaú Corretora de Valores S.A.     Brazil  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 Financeira S.A. - Crédito, Financiamento e Investimento  (2)  Brazil  Consumer Finance Credit   -    100.00%   -    100.00%
Itaú Unibanco S.A.     Brazil  Financial institution   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%
Luizacred S.A. Soc. Cred. Financiamento Investimento     Brazil  Consumer Finance Credit   50.00%   50.00%   50.00%   50.00%
Redecard S.A. - REDE     Brazil  Acquirer   100.00%   100.00%   100.00%   100.00%

(1) Company merged in 08/31/2014 by Banco Itaucard S.A.

(2) Company merged in 01/31/2015 into Itaú Unibanco S.A. and Itaú BBA Participações S.A.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201593
 

 

c)Business development

 

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 completion of the operation was subject to the approval of the Central Bank of Brazil, which was obtained on April 18, 2013.

 

As a result of this transaction stockholders’ equity attributed to non-controlling stockholders increased by R$ 303,177 at the base date of 2013.

 

On April 29, 2014, an agreement was entered into to establish the combination of payroll loan business of BMG and Itaú BMG Consignado, which was concentrated in Itaú BMG Consignado. In reciprocity for this business combination, on July 25, 2014, a capital increase of Itaú BMG Consignado was carried out, fully subscribed and paid in by BMG in the amount of R$ 181,086. The possibility of this combination was already set forth in the investment agreement of December 13, 2012, which governs the association. After this capital increase, ITAÚ UNIBANCO HOLDING will hold a sixty per cent (60.0%) interest in the total and voting capital of Itaú BMG Consignado and BMG will hold the remaining forty per cent (40.0%).

 

Accordingly, as from July 25, 2014 and throughout the period of the Association, Itaú BMG Consignado is the exclusive vehicle of BMG and its controlling shareholders for the offer, in the Brazilian territory, of payroll loans, provided that certain exceptions are observed for a maximum period of six (6) months counted from the date on which the capital of Itaú BMG Consignado is increased.

 

It is estimated that this transaction will not have significant accounting effects on the results of ITAÚ UNIBANCO HOLDING, which will continue to consolidate Itaú BMG Consignado in its financial statements.

 

Credicard

 

On May 14, 2013, Itaú Unibanco Holding, signed with Banco Citibank, a Share and Quotas Purchase Agreement for the acquisition of Banco Credicard and Credicard Promotora de Vendas, including “Credicard” brand, for the amount of R$ 2,948,410 (monetarily adjusted). The completion of this transaction was pending approval by the Central Bank of Brazil, which was obtained on December 12, 2013 and settled on December 20, 2013.

 

Banco Credicard and Credicard Promotora de Vendas are the entities responsible for the supply and distribution of financial products and services under the “Credicard” brand, principally personal loans and credit cards. In view of this transaction, ITAÚ UNIBANCO HOLDING consolidated Banco Credicard and Credicard Promotora de Vendas in the consolidated financial statements from December, 2013 to August 31, 2014. Banco Credicard merged with Banco Itaucard S.A. on August 31,2014.

 

The allocation of the difference between the amount paid and the allocation of net assets at fair value led to the recognition of goodwill based on expected future profitability, in the amount of R$ 1,863 million, and other intangible assets.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201594
 

  

BMG Seguradora S.A.

 

On June 25, 2013, ITAÚ UNIBANCO HOLDING, through Banco Itaú BMG Consignado S.A. (“Itaú BMG Consignado”), which is an entity indirectly controlled by ITAÚ UNIBANCO HOLDING signed a Share Purchase Agreement with controlling shareholders of Banco BMG S.A. (“Sellers”) whereby Itaú BMG Consignado agreed to acquire 99.996% of the shares issued by BMG Seguradora S.A.

 

BMG Seguradora generated R$ 62.6 million in retained premiums during 2012 and, from January to May 2013, a retained premiums’ volume of R$ 42.4 million, 77% higher than the volume generated during the same period of 2012.

 

BMG Seguradora signed exclusivity agreements with Banco BMG S.A and with the Itaú BMG Consignado for the purpose of distributing insurance products to be offered jointly with the products distributed by these financial institutions.

 

The approval by the Central Bank of Brazil was obtained on December 19, 2013 and the transaction was settled on January 27, 2014 in the amount of R$ 88,1 million. This acquisition has not had any significant accounting impact on the results of ITAÚ UNIBANCO HOLDING, which has consolidated the transaction in its financial statements since January, 2014.

 

As a result of the study of Purchase Price Allocation - PPA, the allocation of difference between the amount paid and the share in net assets at fair value, resulted in the recognition of a goodwill due to expected future profitability in the amount of R$ 22.7 million.

 

Citibank N.A. Uruguay Branch

 

On June 28, 2013, ITAU UNIBANCO HOLDING, through its subsidiary Banco Itaú Uruguay S.A. (“BIU”) executed a binding agreement with Citibank N.A. Uruguay Branch (“Citi”) establishing the rules for the acquisition by BIU of the retail business conducted by Citi in Uruguay.

 

As a result of this transaction, BIU assumed a portfolio of more than 15,000 clients in Uruguay related to the retail business (bank accounts, saving and term deposits). The acquired assets include mainly the credit card operations conducted by Citi in Uruguay under the Visa, Mastercard and Diners brand, which in 2012 represented slightly more than 6% of the Uruguayan market share.

 

Approval was obtained from applicable regulatory authorities on December 10, 2013.

 

The allocation of the difference between the amount paid and the allocation of assets and liabilities related to the operation, net at fair value, led to the recognition of goodwill based on expected future profitability and other intangible assets.

 

Partnership with Fiat

 

On August 20, 2013, ITAÚ UNIBANCO HOLDING announced that it renewed for another 10 years, by means of its subsidiary Itaú Unibanco S.A., the commercial cooperation agreement entered into with Fiat Group Automobiles S.p.A. and Fiat Automóveis S.A. (“Fiat”). This agreement sets forth: (i) exclusive financing offer in promotional campaigns held by car maker Fiat for the sale of new automobiles; and (ii) the exclusive use of Fiat brand in vehicle-financing related activities.

 

The amount involved in the transaction is not material for ITAÚ UNIBANCO HOLDING and, therefore, will not cause any material accounting effect in its results.

 

Itaú CorpBanca

 

On January 29, 2014, ITAÚ UNIBANCO HOLDING, together with its subsidiary Banco Itaú Chile S.A. (“BIC”) entered into an agreement (Transaction Agreement) with CorpBanca (“CorpBanca”) and its controlling stockholders (“Corp Group”) establishing the terms and conditions to merge the operations of BIC and CorpBanca Chile in Chile and in the other jurisdictions in which CorpBanca operates.

 

The operation will be realized by means of (i) capital increase of BIC in the amount of US$ 652 million to be carried out by ITAÚ UNIBANCO HOLDING or one of its subsidiaries, (ii) merger of BIC into CorpBanca, with the cancellation of BIC shares and the issuance of new shares, at the estimated rate of 85,420.07 shares of CorpBanca for each 1 share of BIC, to be approved at the stockholders' meeting of CorpBanca upon the affirmative vote of two thirds (2/3) of shares issued by CorpBanca, so that the interests in the bank resulting from the merger (to be named “Itaú CorpBanca”) are 33.58% for ITAÚ UNIBANCO HOLDING and 33.13% for Corp Group, and (iii) subsequent integration of Itaú BBA Colombia S.A. into the operations of Itaú CorpBanca or its subsidiaries.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201595
 

  

Itaú CorpBanca will be controlled by ITAÚ UNIBANCO HOLDING, which will enter into a stockholders’ agreement with Corp Group when the operation is concluded. This agreement will entitle ITAU UNIBANCO HOLDING and Corp Group to appoint members for the Board of Directors of Itaú CorpBanca in accordance to their interests in capital stock, and this group of stockholders will have the privilege of electing the majority of members of the Board of Directors, and ITAÚ UNIBANCO HOLDING will be entitled to elect the majority of these members. The chairman of the Boards of Directors of Itaú CorpBanca and its subsidiaries will be appointed by Corp Group, and their vice-chairman by ITAÚ UNIBANCO HOLDING. The executives of Itaú CorpBanca and its subsidiaries will be proposed by ITAÚ UNIBANCO HOLDING and ratified by the Board of Directors of Itaú CorpBanca. The stockholders’ agreement will also set forth that Corp Group will be entitled to approve, together with ITAÚ UNIBANCO HOLDING, certain strategic matters of Itaú CorpBanca, and it will include provisions on the transfer of shares between ITAU UNIBANCO HOLDING and Corp Group, and also to third parties.

 

It is estimated that this operation will not have significant accounting effects on the results of ITAÚ UNIBANCO HOLDING, which will consolidate Itaú CorpBanca in its financial statements.

 

The effectiveness of this operation is subject to the satisfaction of certain conditions precedent, including the aforementioned approval by the stockholders’ meeting of CorpBanca and regulatory approval in Chile. The operation has already received the approval in Panama, Colombia and Brazil.

 

Major Risk Insurance Operation

 

ITAÚ UNIBANCO HOLDING, whereby its subsidiary Itaú Unibanco S.A., signed on July 4th, 2014 a “Share Purchase Agreement” with ACE Ina International Holdings, Ltd. (“ACE”) whereby Itaú Unibanco and some of its subsidiaries have undertaken to sell their total stakes in Itaú Seguros Soluções Corporativas S.A. (“ISSC”).

 

ISSC had the ITAÚ UNIBANCO HOLDING’s major risk insurance operations, the clients of which were middle market and large corporations with policies representing high insured values. The necessary measures for completion of spinoff process are already in progress. This operation was approved by the Administrative Council for Economic Defense (CADE) on September 15, 2014 and by SUSEP on October 09, 2014.

 

Based on pro-forma data for December 31, 2013, the major risk insurance operation comprises the following: net equity value of R$ 364 million, assets of R$ 5.8 billion and technical reserves of R$ 4.6 billion.

 

After certain conditions established in the agreement are fulfilled, ACE paid R$ 1.515 billion to ITAÚ UNIBANCO HOLDING and its subsidiaries. The transfer of these shares and the financial settlement of the operation were carried out on October 31, 2014, in which the amount paid by ACE is subject to price adjustment according to the difference in the positions of Stockholders’ Equity between the pro forma balance sheet date and the closing balance sheet date.

 

The operation produced an accounting effect, before tax, of R$ 1.1 billion on fourth quarter ITAÚ UNIBANCO HOLDING's results.

 

The sale of this operation reflects ITAÚ UNIBANCO HOLDING’s strategy of commercializing the mass-market insurance products typically related to retail banking.

 

Tecnologia Bancária S.A. (TECBAN) – New Shareholders’ Agreement

 

The subsidiaries of ITAÚ UNIBANCO HOLDING, in conjunction with other financial institutions, on July 17, 2014 signed a new Shareholders Agreement of TecBan that will revoke and substitute the current shareholders agreement as soon as it comes into effect.

 

In addition to the usual provisions in shareholders agreements such as rules on governance and the transfer of shares, the Shareholders Agreement provides that within approximately 4 (four) years as from the date it comes into effect, the Parties shall have substituted part of their external network of Automatic Teller Machines (“ATM”) for Banco24Horas Network ATMs, which are and shall continue to being managed by TecBan. As a general rule, the external ATM network can be considered those ATMs located outside the branch banking environment or where access is not restricted, exclusive or controlled such as for example such equipment installed in shopping centers, gasoline service stations, supermarkets etc.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201596
 

  

In line with the worldwide tendency towards best practice in the industry, the Parties constituting Brazil’s leading retail banks will consolidate their external ATM networks on the Banco24Horas Network terminals, generating increased efficiency, greater quality and capillarity of customer service. It should also be pointed out that in addition to the Parties, approximately 40 (forty) other banks are clients of TecBan. Consequently, this growth in the Banco24Horas Network will also significantly benefit these institutions and their respective customers.

 

The operation was approved by the Administrative Council for Economic Defense (CADE) on October 22, 2014, with no restrictions. The effective date of sale and settlement was November 14, 2014.

 

This operation had no significant accounting effects on the results of ITAÚ UNIBANCO HOLDING.

 

Maxi Pago

 

In September 2014 ITAU UNIBANCO HOLDING, through its subsidiary Rede (Redecard S.A.), entered into a share purchase agreement with the controlling parties of MaxiPago Serviços de Internet S.A., a payments gateway company featuring network interconnection for mobile electronic payments.

 

Approval was obtained from the Central Bank on December 15, 2014, and preconditions were fulfilled on January 8, 2015. This agreement provides for the acquisition of 35,261 common shares of MaxiPago, which represents 75% of total stock and voting capital.

 

This operation is not expected to have significant effects on the results of ITAU UNIBANCO HOLDING.

 

MCC Securities and MCC Corredora de Bolsa

 

In July 2011 ITAÚ UNIBANCO HOLDING, through its subsidiary in Chile, entered into a share purchase agreement with MCC Inversiones Globales (MCC Inversiones) and MCC Beneficial Owners (Chilean Individuals), by which it agreed to gradually acquire the total shares of MCC Secutires.

 

In June 2012 ITAÚ UNIBANCO HOLDING, through its subsidiary in Chile, entered into a share purchase agreement with MCC Inversiones Globales (MCC Inversiones) and MCC Beneficial Owners (Chilean Individuals), by which it agreed to gradually acquire the total shares of MCC Corredora de Bolsa.

 

August 2014, the aforementioned parties entered into a new agreement for acquiring in advance the remaining shares of MCC Securities and MCC Corredora de Bolsa for amounts US$ 32.7 million and US$ 6.7 million respectively.

 

Accordingly, with this operation ITAÚ UNIBANCO HOLDING validates its relevant share in the Chilean private banking market, as it now fully consolidates MCC Securities and MCC Corredora de Bolsa in its financial statements beginning in August 2014.

 

Via Varejo

 

On October 1, 2014 ITAU UNIBANCO HOLDING informed that, in view of the early termination by Via Varejo of the operating agreements for the offer of extended warranty insurance in the “Ponto Frio” and “Casas Bahia” stores, its subsidiary Itaú Seguros S.A. received from Via Varejo the cash amount of R$ 584 million, mainly related to the refund of amounts disbursed pursuant to these agreements, duly restated.

 

This operation had no significant effects on the results of ITAU UNIBANCO HOLDING.

 

MasterCard Brasil Soluções de Pagamento Ltda.

 

Itaú Unibanco S.A., entered into an agreement with MasterCard Brasil Soluções de Pagamento Ltda. (“MasterCard”) to create an alliance in the payment solutions market in Brazil (“Strategic Alliance”).

 

Itaú Unibanco’s purposes with the creation of the Strategic Alliance are (a) to focus on the expansion of its issue and acquisition business, particularly related to the new payment solutions network, (b) to have access to new payment solutions technologies, (c) to obtain significant scale and efficiency gains, and (d) to benefit from MasterCard’s expertise in the management of payment solution brands.

 

The effectiveness of the Strategic Alliance is subject to the satisfaction of certain conditions precedent and approval by proper regulatory authorities.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201597
 

 

Note 3 – Requirements of capital and fixed asset limits

 

a) Basel and fixed asset ratios

 

Represented below are the main indicators at March 31, 2015, according to present regulation which defines the Prudential Consolidated as the calculation basis:

 

   Consolidated 
   Prudential (1) 
Referential equity (2)   120,902,847 
Basel ratio   15.3%
Tier I   11.6%
Common Equity   11.6%
Additional Capital   0.0%
Tier II   3.7%
Fixed assets ratio   47.5%
Excess capital in relation to fixed assets   3,054,429 
(1)Consolidated financial statements including financial companies and the like: As from the base date January 2015, in accordance with Circular 4.278, this is the calculation consolidated basis;
(2)According to CMN Resolutions No. 4,192, of March 1, 2013, No. 4,278, of October 31, 2013 and No. 4,311, of February 20, 2014, CMN defines Regulatory Capital, for the purpose of operational limit calculation, as the sum of two tiers, Tiers I and II, in which Tier I is comprised of Common Equity Tier 1 and Additional Tier 1 Capital. The calculation is composed of items that are an integral part of the Stockholders’ Equity plus prudential adjustments and deductions, in addition to eligible instruments, particularly subordinated debt.

 

Management considers the current Basel ratio (15.3%, based on Prudential consolidated, of which 11.6% of Common Equity and Tier I and 3.7% of Tier II) to be adequate, taking into account that exceeds by 4.3 percent the minimum required by the authorities (11.0%).

 

The Operating Consolidated is no longer calculated for capital purposes in accordance with regulation in force, and will be replaced by the Prudential Consolidated.

 

CMN Resolution No. 4,192, of March 1, 2013, as amended, address the Referential Equity calculation methodology, and CMN Resolution No. 4,193, of March 1, 2013, as amended, address the minimum requirements for Referential Equity, Tier I, and Common Equity Tier I, and introduces the Additional Common Equity Tier 1. ITAÚ UNIBANCO HOLDING CONSOLIDATED opted for using the Standardized Approach to calculate credit and market risk-weighted assets, and the Alternative Standardized Approach to calculate operational risk-weighted assets, based on the regulation in force accordingly.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201598
 

 

The referential equity used for the calculation of ratios and the risk-weighted assets at March 31, 2015, are as follows:

 

   Consolidated
Prudential		     
Stockholders' equity ITAÚ UNIBANCO HOLDING S.A. (consolidated)   96,953,501      
Minority interest in subsidiaries   860,256      
Changes in ownership interest in a subsidiary from capital transaction   4,579,278      
Consolidated stockholders’ equity (BACEN)   102,393,035      
Common Equity deductions   (10,942,142)     
Common Equity Tier I   91,450,893      
Additional Tier I deductions   50,269      
Additional Tier I Capital   50,269      
Tier I (Common Equity + Additional Capital)   91,501,162      
Instruments eligible to comprise Tier II   29,353,581      
Tier II deductions   48,104      
Tier II   29,401,685      
Regulatory Capital (Tier I + Tier II)   120,902,847      
Risk-weighted assets   788,843,915      
Risk-weighted assets of credit risk (RWACPAD)   728,559,123    92.4%
a) Per weighting factor (FPR):          
FPR at 2%   136,017    0.0%
FPR at 20%   6,291,412    0.8%
FPR at 35%   8,579,499    1.1%
FPR at 50%   46,681,056    5.9%
FPR at 75%   145,249,722    18.4%
FPR at 85%   147,949,702    18.8%
FPR at 100%   305,874,640    38.8%
FPR at 250%   34,294,085    4.3%
FPR at 300%   18,002,416    2.3%
FPR at 1250%   1,688,205    0.2%
Derivatives – Future potential gain and Variation of the counterparty credit quality Minimum Required Regulatory Capital   13,812,369    1.8%
b) Per type:          
Securities   55,102,239    7.0%
Loan operations - retail   119,256,858    15.1%
Loan operations – non-retail   232,034,892    29.4%
Joint obligations - retail   323,912    0.0%
Joint obligations – non-retail   65,498,691    8.3%
Loan commitments - retail   25,650,856    3.3%
Loan commitments – non-retail   17,629,014    2.2%
Other exposures   213,062,661    27.0%
Risk-weighted assets of operational risk (RWAOPAD)   35,508,837    4.5%
Retail   6,946,095    0.9%
Commercial   16,653,093    2.1%
Corporate finance   1,369,527    0.2%
Negotiation and sales   2,581,428    0.3%
Payments and settlements   3,069,695    0.4%
Financial agent services   2,756,069    0.3%
Asset management   2,131,708    0.3%
Retail brokerage   1,222    0.0%
Business plans   -    0.0%
Risk-weighted assets of market risk:   24,775,955    3.1%
Gold, foreign currency and operations subject to foreign exchange variation (RWACAM)   11,198,182    1.4%
Operations subject to interest rate variation   12,046,436    1.5%
Fixed rate denominated in Real (RWAJUR1)   3,994,836    0.5%
Foreign currency coupon (RWAJUR2)   4,857,773    0.6%
Price index coupon (RWAJUR3)   3,193,700    0.4%
Interest rate coupon (RWAJUR4)   127    0.0%
Operations subject to commodity price variation (RWACOM)   921,455    0.1%
Operations subject to stock price variation (RWAACS)   609,882    0.1%
RWA   788,843,915    100.0%
Minimum Required Regulatory Capital   86,772,831      
Excess capital in relation to Minimum Required Regulatory Capital   34,130,016    39.3%
Ratio (%)   15.3%     
Regulatory Capital calculated for covering the interest rate risk of operations not classified into the trading portfolio (RBAN)   1,215,972      

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 201599
 

 

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

 

Changes in the Basel Ratio  Referential
equity		   Weighted
exposure		   Effect 
Ratio at 12/31/2014 - Operating Consolidated   129,790,456    768,074,569    16.9%
Change - prudential consolidated (*)   570,344    (17,234,271)   0.5%
Net income for the period   5,726,837    -    0.8%
Interest on capital and dividends   (4,448,274)   -    -0.6%
Benefits to employees - CVM Resolution No. 695, December 13, 2012   9,450    -    0.0%
Granting of options recognized   271,290    -    0.0%
Granting of stock options – exercised options in the period   (5,570)   -    0.0%
Asset valuation adjustment   (20,294)   -    0.0%
Deductions in referential equity   (6,415,333)   -    -0.9%
Purchase of treasury shares   (568,270)   -    -0.1%
Deferred assets excluded from Tier I of referential equity   (4,193,368)   -    -0.6%
Other changes in referential equity   185,579    -    0.0%
Changes in risk exposure   -    38,003,617    -0.8%
Ratio at 03/31/2015 - Prudential Consolidated   120,902,847    788,843,915    15.3%

(*) Effect due to the change of the consolidated for calculation.

 

b) Capital for insurance activity

 

CNSP – Conselho Nacional de Seguros Privados (National Council for Private Insurance) published on February 18, 2013 Rules No. 280 (revoked Rule No. 411 of December 22, 2010), No. 283 and No. 284. On September 25, 2014, CNSP modified capital requirements publishing Rule No. 316 (revoked Rules No. 263, of September 25, 2012, No. 269, of December 19, 2012 and No. 302 of December 16, 2013).These Rules establish general guidelines for the operation of insurance companies and capital requirements for underwriting and operational risk. In January 2011, CNSP Rule No. 228 of December 6, 2010 provided criteria for additional credit risk capital requirements for insurance companies. In December 2014, CNSP published Rule No. 317, which establishes market risk capital requirements.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015100
 

 

Note 4 – Summary of the main accounting practices

 

a)Cash and cash equivalents - For the purpose of the 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 positions that have original maturities of up to 90 days.

 

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 trade 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 that are 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.

 

·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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015101
 

 

·Net Investment Hedge in Foreign Operations - It is accounted for similarly to a cash flow hedge, i.e., the portion of gains or losses on the hedging instrument that is determined to be an effective hedge is recognized in stockholders’ equity, and reclassified to income for the period in the case of a disposal of the foreign operation. The ineffective portion is recognized in income for the period.

 

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.

 

As from January 1, 2015, Itaú Unibanco adopts the option provided for in Circular No. 3,693/13, which establishes accounting procedures for the compensation of local correspondents in connection with credit origination.These compensation amounts for local correspondents in connection with transactions originated as from January 1, 2017 will be fully recorded as expenses for the period.

 

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, and are adjusted to market value until December 31, 2007, when applicable, for insurance, pension plan and capitalization operations the adjustments to market value are 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.

 

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. 9,532/97, to be amortized based on the period defined in appraisal reports; (ii) use rights and rights acquired to credit payrolls and partnership agreements, amortized over the terms of the contracts or to the extent that the economic benefits flow to the company and (iii) software and customer portfolios, amortized over a term varying from five to ten years.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015102
 

 

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, accepted coinsurances and selling expenses are accounted by issuing an insurance policy or 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 while recovery of these paid amounts is pending 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. 281, of January 30, 2013, as amended by CNSP Resolution No. 319, of December 12, 2014, and SUSEP Circular No. 483, of January 06, 2014;

 

·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 current legislation as amended by CNSP Resolution No. 319, of December 12, 2014, and SUSEP Circular No. 483, of January 06, 2014.

 

II -The technical provisions of insurance, pension plan and capitalization are recognized according to the technical notes approved by SUSEP and criteria established by current legislation.

 

II.I-Insurance and pension plan:

 

·Provision for unearned premiums – it is recognized, based on insurance premiums, for the coverage of amounts payable related to claims and expenses to be incurred, throughout the terms to be elapsed, in connection with the risks assumed at the calculation base date. The calculation is performed on the level of policies or endorsement of agreements in force, under the pro rata-die criterion. The provision includes an estimate for effective and not issued risks (PPNG-RVNE).

 

·Provision for unsettled claims – it is recognized for the coverage of amounts payable related to lump-sum payments and income overdue of claims reported up to the calculation base date, but not paid yet. The provision covers administrative and legal claims, gross of accepted coinsurance operations and reinsurance operations and net of ceded coinsurance operations. The provision should include, whenever required, IBNER (claims incurred but not sufficiently reported) for the aggregate development of claims reported but not paid, which amounts may be changed throughout the process up to the final settlement.

 

·Provision for claims incurred and not reported - IBNR – it is recognized for the coverage of expected unsettled amounts related to claims incurred but not reported up to the calculation base date, gross of accepted coinsurance operations and reinsurance operations, and net of ceded coinsurance operations.

 

·Mathematical provisions for benefits to be granted - recognized for the coverage of commitments assumed to participants or policyholders, based on the assumptions set forth in the contract, while the event that gave rise to the benefit and/or indemnity has not occurred. The provision is calculated in accordance with the methodology approved in the actuarial technical note of the product.

 

·Mathematical provisions for granted benefits - it is recognized after the event triggering the benefit occurs, for coverage of the commitments assumed with the participants or insured, based on the assumptions established in the agreement. The provision is calculated in accordance with methodologies approved in the technical actuarial note of the product.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015103
 

 

·Provision for financial surplus – it is recognized to ensure the amounts intended for distribution of financial surplus, in accordance with regulation in force, in the event it is stated in the agreement. Corresponds to the financial income exceeding the minimum return guaranteed in the product.

 

·Supplemental Coverage Provision – recognized whenever technical provisions are found to be insufficient, as determined by the Liability Adequacy Test, in accordance with the provisions specified in regulation in force.

 

·Provision for redemptions and other amounts to regularize – it comprises the amounts related to redemptions to regularize, returns of premiums or funds, portability requested but, for any reason, not yet transferred to the insurance company or open private pension entity beneficiary, and premiums received but not quoted.

 

·Provision for related expenses - It is recognized for the coverage of expected amounts related to expenses with benefits and indemnities, due to events incurred and to be incurred.

 

II.II - Capitalization:

 

·Mathematical provision for capitalization – recognized until the event triggering the benefit occurs, and comprises the portion of the amounts collected for capitalization. It includes monetary restatement and interest, as from the beginning of the validity date.

 

·Provision for redemption – recognized as from the date of the event triggering the redemption of the certificate and/or the event triggering the distribution of the bonus until the date of the financial settlement or the date the evidence of payment of the obligation is received

 

·Provision for raffles unrealized – comprises the portion of the amounts collected for raffles for each certificate, which raffles have been funded, but that, at the recognition date, have not yet been realized.

 

·Provision for raffles payable – recognized as from the date the raffle is drawn until the date of the financial settlement or the date the evidence of payment of the obligation is received, or in conformity with other cases provided by law.

 

·Supplementary provision for raffles – recognized to supplement the Provision for raffles unrealized, and is used for coverage of possible insufficient amounts related to the expected amount of raffles to be drawn.

 

·Provision for administrative expenses - recognized for the coverage of expected amounts related to the administrative expenses for the capitalization plans.

 

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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015104
 

 

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 in 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 15.00%. For non-financial and pension plan subsidiaries, the rate is 9.00%.
(2)For non-financial subsidiaries that fall into the non-cumulative calculation system, the PIS rate is 1.65% and COFINS rate is 7.60%.

 

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.

 

r)Post-employments benefits

 

Pension plans - defined benefit plans

 

The liability (or asset, as the case may be) recognized in the consolidated balance sheet with respect to the defined benefit plan corresponds to the present value of the defined benefit obligations on the balance sheet date less the fair value of the plan assets. The defined benefit obligation is annually calculated by an independent actuarial consulting company using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated amount of future cash flows of benefit payments based on the Brazilian treasury long term securities denominated in Reais and with maturity periods similar to the term of the pension plan liabilities.

 

The following amounts are recognized in the consolidated statement of income:

 

·current service cost is defined as the increase in the present value of obligations resulting from employee service in the current period;

 

·interest on the net amount of assets (liabilities) of defined benefit plans is the change, during the period, in the net amount recognized in assets and liabilities, due to the time elapsed, which comprises the interest income on plan assets, interest expense on the obligations of the defined benefit plan and interest on the asset ceiling effects.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015105
 

 

Actuarial gains and losses arise from the non-realization of the actuarial assumptions established in the latest actuarial evaluation as compared to those effectively carried out, as well as the effects from changes in such assumptions. Gains and losses are fully recognized in asset valuation adjustments.

 

Pension plans - defined contribution

 

For defined contribution plans, contributions to plans made by ITAÚ UNIBANCO HOLDING CONSOLIDATED, through pension plan funds, are recognized as an expense when due.

 

Other post-employment benefit obligations

 

Certain companies that merged into ITAÚ UNIBANCO HOLDING CONSOLIDATED over the past few years were sponsors of post-employment healthcare benefit plans. ITAÚ UNIBANCO HOLDING CONSOLIDATED is contractually committed to maintaining such benefits over specific periods, as well as in relation to the benefits granted due to a judicial ruling.

 

Similarly to the defined benefit pension plans, these obligations are assessed annually by independent and qualified actuaries, and the costs expected from these benefits are accrued during the length of service. Gains and losses arising from adjustments and changes in actuarial assumptions are debited from or credited to stockholders’ equity in asset valuation adjustments in the period in which they occur.

 

s)Foreign currency translation

 

I- Functional and presentation currency

 

The financial statements of ITAÚ UNIBANCO HOLDING CONSOLIDATED are presented in Reais, which is its functional and presentation currency. For each subsidiary and investment in associates and joint ventures, ITAÚ UNIBANCO HOLDING CONSOLIDATED defined the functional currency, as provided for in CVM deliberation CVM Nº 640/10.

 

The assets and liabilities of subsidiaries with a functional currency other than the Brazilian real are translated as follows:

 

·assets and liabilities are translated at the closing rate at the balance sheet date;
·income and expenses are translated at monthly average exchange rates;
·exchange differences arising from currency translation are recorded in asset valuation adjustments.

 

II - Foreign currency transactions

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statement of income as part of securities and derivative financial instruments.

 

In the case of monetary assets classified as available-for-sale, the exchange differences resulting from a change in the amortized cost of the instrument are recognized in the income statement, while those resulting from other changes in the carrying amount, except impairment losses, are recognized in asset valuation adjustments until derecognition or impairment.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015106
 

 

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:

 

   03/31/2015   03/31/2014 
Cash and cash equivalents   18,687,140    16,030,078 
Interbank deposits   16,404,129    22,898,993 
Securities purchased under agreements to resell – Funded position   13,477,925    26,447,694 
Total   48,569,194    65,376,765 

 

In ITAÚ UNIBANCO HOLDING it is composed of the following:

 

   03/31/2015   03/31/2014 
Cash and cash equivalents   140,762    166,653 
Interbank deposits   160,151    - 
Securities purchased under agreements to resell – Funded position   39,767    92,710 
Total   340,680    259,363 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015107
 

 

Note 6 - Interbank investments

 

   03/31/2015   03/31/2014 
   0 - 30   31 - 180   181 - 365   Over 365   Total   %   Total   % 
Money market   118,710,207    74,220,951    3,974,095    -    196,905,253    87.5    157,662,050    82.7 
Funded position (*)   14,652,279    21,734,637    1,034,525    -    37,421,441    16.6    35,460,940    18.6 
Financed position   104,057,928    28,040,972    1,759,257    -    133,858,157    59.5    97,841,822    51.3 
With free movement   5,216,790    27,873,274    1,759,257    -    34,849,321    15.5    27,075,174    14.2 
Without free movement   98,841,138    167,698    -    -    99,008,836    44.0    70,766,648    37.1 
Short position   -    24,445,342    1,180,313    -    25,625,655    11.4    24,359,288    12.8 
Money market – Assets Guaranteeing Technical Provisions - SUSEP   2,275,733    -    -    -    2,275,733    1.0    2,509,181    1.3 
Interbank deposits   16,668,733    5,697,983    2,742,594    785,489    25,894,799    11.5    30,381,789    16.0 
Total   137,654,673    79,918,934    6,716,689    785,489    225,075,785    100.0    190,553,020      
% per maturity term   61.2    35.5    3.0    0.3    100.0                
Total – 03/31/2014   131,574,244    50,789,029    6,978,377    1,211,370    190,553,020                
% per maturity term   69.0    26.7    3.7    0.6                     
(*)Includes R$ 8,503,047 (R$ 5,613,174 at 03/31/2014) related to money market with free movement, in which securities are 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$ 39,767 (R$ 92,710 at 03/31/2014), Interbank deposits with maturity of 31 to 180 days to R$ 160,151, with maturity of 181 to 365 days amounting to R$ 2,422,393 (R$ 61,172 at 03/31/2014 and over 365 days amounting to R$ 38,079,257 (R$ 35,329,197 at 03/31/2014).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015108
 

 

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

 

   03/31/2015   03/31/2014 
       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   113,254,591    (209,704)   (647,394)   112,397,493    34.7    5,409,039    423,032    10,906,135    3,115,453    16,986,325    75,557,509    100,411,854 
Financial treasury bills   19,866,102    549    (136)   19,866,515    6.1    -    -    9,353,621    -    3,465,266    7,047,628    24,670,410 
National treasury bills   21,509,531    (11,605)   (12,764)   21,485,162    6.6    5,404,439    -    700,390    2,896,417    3,898,474    8,585,442    21,977,660 
National treasury notes   42,895,211    (216,479)   (341,052)   42,337,680    13.1    4,493    417,797    568,995    14,353    7,225,375    34,106,667    33,759,529 
National treasury/securitization   251,790    (250)   (5,273)   246,267    0.1    107    80    1,548    1,132    1,725    241,675    264,901 
Brazilian external debt bonds   28,731,957    18,081    (288,169)   28,461,869    8.8    -    5,155    281,581    203,551    2,395,485    25,576,097    19,739,354 
Government securities - abroad   11,846,939    21,247    (43,391)   11,824,795    3.6    1,367,820    2,343,563    2,048,080    1,935,737    3,405,160    724,435    10,915,248 
Argentina   787,379    22,567    -    809,946    0.2    100,356    405,214    229,575    1,346    71,500    1,955    307,105 
Belgium   117,348    (2,786)   -    114,562    0.0    -    -    -    -    -    114,562    153,700 
Chile   1,290,424    (8)   9,587    1,300,003    0.4    330,284    16,212    933,017    14,553    4,876    1,061    1,233,215 
Colombia   46,269    1,245    -    47,514    0.0    5    -    -    93    26,785    20,631    236,796 
Korea   2,953,333    -    (1)   2,953,332    0.9    446,593    882,104    -    454,535    1,170,100    -    2,909,931 
Denmark   2,835,247    -    -    2,835,247    0.9    396,420    100,617    415,102    483,595    1,439,513    -    3,408,042 
Spain   1,088,903    -    -    1,088,903    0.3    -    782,373    -    306,530    -    -    - 
United States   943,356    7    1,298    944,661    0.3    -    -    214,076    134,851    419,138    176,596    1,349,725 
France   140,659    -    2,283    142,942    0.0    -    -    17,570    35,500    -    89,872    49,125 
Netherlands   170,232    -    2,899    173,131    0.1    -    -    -    -    100,134    72,997    123,251 
Italy   73,887    -    1,063    74,950    0.0    -    -    -    -    -    74,950    - 
Mexico   13,059    184    -    13,243    0.0    -    -    -    -    1,844    11,399    73,784 
Paraguay   1,033,409    -    (57,024)   976,385    0.3    94,074    151,294    62,626    489,614    106,920    71,857    704,203 
Peru   3,295    66    -    3,361    0.0    -    -    -    -    -    3,361    - 
Uruguay   341,670    (27)   (2,902)   338,741    0.1    88    5,749    176,114    15,120    64,350    77,320    360,148 
Other   8,469    (1)   (594)   7,874    0.0    -    -    -    -    -    7,874    6,223 
Corporate securities   72,402,013    77,950    794    72,480,757    22.4    6,723,736    3,256,076    4,391,201    7,078,041    13,028,185    38,003,518    58,595,658 
Shares   2,943,628    (16,216)   (100,006)   2,827,406    0.9    2,827,406    -    -    -    -    -    1,782,371 
Rural product note   1,263,422    -    (24,022)   1,239,400    0.4    71,940    362,084    56,136    54,514    286,296    408,430    963,076 
Bank deposit certificates   1,633,473    177    4,600    1,638,250    0.5    657,254    59,839    172,135    744,719    4,161    142    1,724,018 
Securitized real estate loans   16,947,043    1    32,426    16,979,470    5.2    156,814    37,783    585,191    205,343    1,358,254    14,636,085    12,355,183 
Fund quotas   537,065    (386)   7,867    544,546    0.2    544,546    -    -    -    -    -    922,587 
Credit rights   69,862    -    -    69,862    0.0    69,862    -    -    -    -    -    215,837 
Fixed income   376,653    (215)   (6)   376,432    0.1    376,432    -    -    -    -    -    518,647 
Variable income   90,550    (171)   7,873    98,252    0.0    98,252    -    -    -    -    -    188,103 
Debentures   22,494,539    84,538    104,045    22,683,122    7.0    1,724,987    148,760    1,020,425    2,364,214    1,269,722    16,155,014    18,465,234 
Eurobonds and others   11,271,700    10,006    45,497    11,327,203    3.5    69,715    317,771    935,625    1,885,590    2,461,952    5,656,550    6,225,204 
Financial bills   14,019,606    -    (66,964)   13,952,642    4.3    355,265    1,892,785    1,445,509    1,789,210    7,632,141    837,732    14,055,528 
Promissory notes   899,617    -    (264)   899,353    0.3    308,866    412,886    162,095    15,506    -    -    1,288,895 
Other   391,920    (170)   (2,385)   389,365    0.1    6,943    24,168    14,085    18,945    15,659    309,565    813,562 
PGBL / VGBL fund quotas (1)   101,507,939    -    -    101,507,939    31.3    101,507,939    -    -    -    -    -    84,664,815 
Subtotal - securities   299,011,482    (110,507)   (689,991)   298,210,984    92.0    115,008,534    6,022,671    17,345,416    12,129,231    33,419,670    114,285,462    254,587,575 
Trading securities   178,367,291    (110,507)   -    178,256,784    55.0    109,789,725    2,008,225    11,559,350    4,519,810    14,440,101    35,939,573    157,291,381 
Available-for-sale securities   82,942,056    -    (689,991)   82,252,065    25.4    5,082,162    3,925,540    5,203,535    7,408,676    16,716,878    43,915,274    75,108,545 
Held-to-maturity securities (2)   37,702,135    -    -    37,702,135    11.6    136,647    88,906    582,531    200,745    2,262,691    34,430,615    22,187,649 
Derivative financial instruments   20,914,394    4,934,384    -    25,848,778    8.0    5,501,371    4,323,849    3,633,517    4,196,021    1,977,719    6,216,301    11,994,334 
Total securities and derivative financial instruments (assets)   319,925,876    4,823,877    (689,991)   324,059,762    100.0    120,509,905    10,346,520    20,978,933    16,325,252    35,397,389    120,501,763    266,581,909 
                                                             
Derivative financial instruments (liabilities)   (26,053,899)   (4,942,647)   -    (30,996,546)   100.0    (5,685,730)   (3,191,393)   (3,900,516)   (4,534,445)   (2,283,090)   (11,401,372)   (12,049,030)
(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$ 218,844 (R$ 579,140 at 03/31/2014), according to Note 7e.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015109
 

 

b) Summary by portfolio

 

   03/31/2015 
       Restricted to             
   Own portfolio   Repurchase
agreements		   Free portfolio   Pledged
guarantees (*)		   Central Bank   Derivative
financial
instruments		   Assets guaranteeing
technical provisions
(Note 11b)		   Total 
Government securities - domestic   62,413,159    32,328,672    -    3,289,863    8,716,733    -    5,649,066    112,397,493 
Financial treasury bills   4,827,156    2,656,083    -    3,141,107    8,716,733    -    525,436    19,866,515 
National treasury bills   13,679,310    7,805,852    -    -    -    -         21,485,162 
National treasury notes   35,937,742    1,231,123    -    45,185    -    -    5,123,630    42,337,680 
National treasury / Securitization   246,267    -    -    -    -    -    -    246,267 
Brazilian external debt bonds   7,722,684    20,635,614    -    103,571    -    -    -    28,461,869 
Government securities - abroad   11,049,608    480,841    -    288,042    -    -    6,304    11,824,795 
Argentina   525,114    233,019    -    51,813    -    -    -    809,946 
Belgium   114,562    -    -    -    -    -    -    114,562 
Chile   1,282,870    -    -    10,829    -    -    6,304    1,300,003 
Colombia   47,514    -    -    -    -    -    -    47,514 
Korea   2,953,332    -    -    -    -    -    -    2,953,332 
Denmark   2,835,247    -    -    -    -    -    -    2,835,247 
Spain   1,088,903    -    -    -    -    -    -    1,088,903 
United States   730,585    -    -    214,076    -    -    -    944,661 
France   53,070    89,872    -    -    -    -    -    142,942 
Netherlands   173,131    -    -    -    -    -    -    173,131 
Italy   -    74,950    -    -    -    -    -    74,950 
Mexico   13,243    -    -    -    -    -    -    13,243 
Paraguay   883,392    83,000    -    9,993    -    -    -    976,385 
Peru   3,361    -    -    -    -    -    -    3,361 
Uruguay   337,410    -    -    1,331    -    -    -    338,741 
Other   7,874    -    -    -    -    -    -    7,874 
Corporate securities   66,064,367    -    -    347,267    -    -    6,069,123    72,480,757 
Shares   2,798,170    -    -    29,236    -    -    -    2,827,406 
Rural product note   1,239,400    -    -    -    -    -    -    1,239,400 
Bank deposit certificates   1,547,798    -    -    14,133    -    -    76,319    1,638,250 
Securitized real estate loans   16,979,470    -    -    -    -    -    -    16,979,470 
Fund quotas   446,220    -    -    58    -    -    98,268    544,546 
Credit rights   31,423    -    -    -    -    -    38,439    69,862 
Fixed income   316,545    -    -    58    -    -    59,829    376,432 
Variable income   98,252    -    -    -    -    -    -    98,252 
Debentures   21,737,967    -    -    296,897    -    -    648,258    22,683,122 
Eurobonds and other   11,327,203    -    -    -    -    -    -    11,327,203 
Financial bills   8,706,364    -    -    -    -    -    5,246,278    13,952,642 
Promissory notes   899,353    -    -    -    -    -    -    899,353 
Other   382,422    -    -    6,943    -    -    -    389,365 
PGBL / VGBL fund quotas   -    -    -    -    -    -    101,507,939    101,507,939 
Subtotal - securities   139,527,134    32,809,513    -    3,925,172    8,716,733    -    113,232,432    298,210,984 
Trading securities   47,487,596    12,327,159    -    2,934,747    7,357,796    -    108,149,486    178,256,784 
Available-for-sale securities   65,311,711    12,340,368    -    990,421    1,358,937    -    2,250,628    82,252,065 
Held-to-maturity securities   26,727,827    8,141,986    -    4    -    -    2,832,318    37,702,135 
Derivative financial instruments   -    -    -    -    -    25,848,778    -    25,848,778 
Total securities and derivative financial instruments (assets)   139,527,134    32,809,513    -    3,925,172    8,716,733    25,848,778    113,232,432    324,059,762 
Total securities and derivative financial instruments (assets) – 03/31/2014   99,058,400    40,433,920    59,664    6,645,161    11,768,776    11,994,334    96,621,654    266,581,909 

(*) Represent securities deposited with Contingent Liabilities (Note 12b), Stock Exchanges and the Clearing House for the Custody and Financial Settlement of Securities.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015110
 

 

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.

 

   03/31/2015   03/31/2014 
   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   64,693,447    (209,703)   64,483,744    36.1    5,409,037    306,332    10,189,746    3,115,244    12,076,107    33,387,278    60,801,138 
Financial treasury bills   17,584,523    549    17,585,072    9.9    -    -    9,197,869    -    1,787,526    6,599,677    24,056,122 
National treasury bills   13,822,240    (11,605)   13,810,635    7.7    5,404,439    -    700,390    2,896,417    3,618,061    1,191,328    12,748,965 
National treasury notes   30,239,343    (216,479)   30,022,864    16.8    4,491    301,097    8,358    14,144    6,596,709    23,098,065    21,688,884 
National treasury / Securitization   5,746    (250)   5,496    0.0    107    80    1,548    1,132    1,725    904    8,235 
Brazilian external debt bonds   3,041,595    18,082    3,059,677    1.7    -    5,155    281,581    203,551    72,086    2,497,304    2,298,932 
Government securities - abroad   1,170,761    21,247    1,192,008    0.6    183,148    405,381    240,810    85,380    120,984    156,305    1,477,518 
Argentina   784,217    22,567    806,784    0.5    100,199    402,689    229,095    1,346    71,500    1,955    307,105 
Belgium   117,348    (2,786)   114,562    0.1    -    -    -    -    -    114,562    105,016 
Chile   1,548    (8)   1,540    0.0    -    -    1,091    -    -    449    93,083 
Colombia   46,269    1,245    47,514    0.0    5    -    -    93    26,785    20,631    236,796 
United States   70,571    7    70,578    0.0    -    -    -    70,578    -    -    625,922 
Mexico   13,059    184    13,243    0.0    -    -    -    -    1,844    11,399    73,784 
Paraguay   82,944    -    82,944    0.0    82,944    -    -    -    -    -    - 
Peru   3,295    66    3,361    0.0    -    -    -    -    -    3,361    - 
Uruguay   51,500    (27)   51,473    0.0    -    2,692    10,624    13,363    20,855    3,939    35,806 
Other   10    (1)   9    0.0    -    -    -    -    -    9    6 
Corporate securities   10,995,144    77,949    11,073,093    6.4    2,689,601    1,296,512    1,128,794    1,319,186    2,243,010    2,395,990    10,347,910 
Shares   2,063,562    (16,216)   2,047,346    1.1    2,047,346    -    -    -    -    -    1,023,755 
Bank deposit certificates   107,062    177    107,239    0.1    1,024    5,098    5,295    95,680    -    142    100,808 
Securitized real estate loans   -    -    -    0.0    -    -    -    -    -    -    5,567 
Fund quotas   407,192    (386)   406,806    0.4    406,806    -    -    -    -    -    627,381 
Credit rights   45,453    -    45,453    0.3    45,453    -    -    -    -    -    96,777 
Fixed income   320,581    (215)   320,366    0.0    320,366    -    -    -    -    -    381,662 
Variable income   41,158    (171)   40,987    0.0    40,987    -    -    -    -    -    148,942 
Debentures   1,146,580    84,538    1,231,118    0.7    -    47,988    36    74,696    101,766    1,006,632    1,681,095 
Eurobonds and other   1,054,359    10,006    1,064,365    0.6    20,486    30,424    51,507    76,307    280,618    605,023    1,238,312 
Financial bills   6,202,142    -    6,202,142    3.5    213,939    1,213,002    1,071,956    1,072,503    1,860,626    770,116    5,313,312 
Others   14,247    (170)   14,077    0.0    -    -    -    -    -    14,077    357,680 
PGBL / VGBL fund quotas   101,507,939    -    101,507,939    56.9    101,507,939    -    -    -    -    -    84,664,815 
Total   178,367,291    (110,507)   178,256,784    100.0    109,789,725    2,008,225    11,559,350    4,519,810    14,440,101    35,939,573    157,291,381 
% per maturity term                       61.5    1.1    6.5    2.5    8.1    20.2      
Total – 03/31/2014   157,534,323    (242,942)   157,291,381    100.0    88,037,422    432,505    10,716,016    11,583,650    18,600,936    27,920,852      
% per maturity term                       56.0    0.2    6.8    7.4    11.8    17.8      

 

At March 31, 2015, ITAÚ UNIBANCO HOLDING’s portfolio is composed of Corporate Securities – Bank deposit certificates amounting to R$ 16,346,155 with maturity over 720 days (R$ 11,528,233 of 03/31/2014) and Fund quotas fixed income R$ 3,973 without maturity.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015111
 

 

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.

 

   03/31/2015   03/31/2014 
   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   25,422,568    (647,394)   24,775,174    33.6    2    63,657    716,389    209    3,957,877    20,037,040    26,835,726 
Financial treasury bills   2,281,579    (136)   2,281,443    1.9    -    -    155,752    -    1,677,740    447,951    614,288 
National treasury bills   901,063    (12,764)   888,299    4.5    -    -    -    -    198,399    689,900    9,228,695 
National treasury notes   8,635,829    (341,052)   8,294,777    12.2    2    63,657    560,637    209    628,666    7,041,606    8,203,312 
National treasury / Securitization   246,044    (5,273)   240,771    0.2    -    -    -    -    -    240,771    256,666 
Brazilian external debt bonds   13,358,053    (288,169)   13,069,884    14.8    -    -    -    -    1,453,072    11,616,812    8,532,765 
Government securities - abroad   10,664,218    (43,391)   10,620,827    10.7    1,184,672    1,938,182    1,807,270    1,850,357    3,284,176    556,170    9,416,201 
Argentina   3,162    -    3,162    0.0    157    2,525    480    -    -    -    - 
Belgium   -    -    -    0.0    -    -    -    -    -    -    48,684 
Chile   1,288,876    9,587    1,298,463    1.4    330,284    16,212    931,926    14,553    4,876    612    1,140,132 
Korea   2,953,333    (1)   2,953,332    2.3    446,593    882,104    -    454,535    1,170,100    -    2,909,931 
Denmark   2,835,247    -    2,835,247    3.5    396,420    100,617    415,102    483,595    1,439,513    -    3,408,042 
Spain   1,088,903    -    1,088,903    1.0    -    782,373    -    306,530    -    -    - 
United States   872,785    1,298    874,083    1.0    -    -    214,076    64,273    419,138    176,596    723,803 
France   140,659    2,283    142,942    0.1    -    -    17,570    35,500    -    89,872    49,125 
Netherlands   170,232    2,899    173,131    0.1    -    -    -    -    100,134    72,997    123,251 
Italy   73,887    1,063    74,950    0.0    -    -    -    -    -    74,950    - 
Paraguay   950,465    (57,024)   893,441    1.1    11,130    151,294    62,626    489,614    106,920    71,857    704,203 
Uruguay   278,226    (2,902)   275,324    0.2    88    3,057    165,490    1,757    43,495    61,437    302,824 
Other   8,443    (594)   7,849         -    -    -    -    -    7,849    6,206 
Corporate securities   46,855,270    794    46,856,064    55.7    3,897,488    1,923,701    2,679,876    5,558,110    9,474,825    23,322,064    38,856,618 
Shares   880,066    (100,006)   780,060    1.0    780,060    -    -    -    -    -    758,616 
Rural product note   1,263,422    (24,022)   1,239,400    1.8    71,940    362,084    56,136    54,514    286,296    408,430    963,076 
Bank deposit certificate   1,526,407    4,600    1,531,007    1.7    656,226    54,741    166,840    649,039    4,161    -    1,623,210 
Securitized real estate loans   2,399,477    32,426    2,431,903    3.3    20,171    1,920    2,660    4,598    47,904    2,354,650    2,958,917 
Fund quotas   129,873    7,867    137,740    0.0    137,740    -    -    -    -    -    295,206 
Credit rights   24,409    -    24,409    0.0    24,409    -    -    -    -    -    119,060 
Fixed income   56,072    (6)   56,066    0.0    56,066    -    -    -    -    -    136,985 
Variable income   49,392    7,873    57,265    0.0    57,265    -    -    -    -    -    39,161 
Debentures   21,347,959    104,045    21,452,004    26.6    1,724,987    100,772    1,020,389    2,289,518    1,167,956    15,148,382    16,784,139 
Eurobonds and other   10,213,312    45,497    10,258,809    8.7    49,229    287,347    884,118    1,809,283    2,181,334    5,047,498    4,986,461 
Financial bills   7,817,464    (66,964)   7,750,500    10.5    141,326    679,783    373,553    716,707    5,771,515    67,616    8,742,216 
Promissory notes   899,617    (264)   899,353    1.8    308,866    412,886    162,095    15,506    -    -    1,288,895 
Other   377,673    (2,385)   375,288    0.3    6,943    24,168    14,085    18,945    15,659    295,488    455,882 
Total   82,942,056    (689,991)   82,252,065    100.0    5,082,162    3,925,540    5,203,535    7,408,676    16,716,878    43,915,274    75,108,545 
% per maturity term                       6.2    4.8    6.3    9.0    20.3    53.4      
Total – 03/31/2014   76,201,904    (1,093,359)   75,108,545    100.0    7,545,310    4,489,125    6,280,823    8,730,319    9,535,316    38,527,652      
% per maturity term                       10.0    6.0    8.4    11.6    12.7    51.3      

 

   03/31/2015   03/31/2014 
Adjustments to market value (in stockholders' equity) of available-for-sale securities   (689,991)   (1,093,359)
Adjustments of securities reclassified to the held-to-maturity category   (712,855)   (681,510)
Minority interest in subsidiaries   (2,353)   (2,319)
Accounting adjustment - hedge - Circular No. 3,082   1,238,665    324,537 
Foreign exchange variation on investments / Net Investment Hedge in Foreign Operations   306,425    (162,222)
Liabilities of post-employment benefits   (166,830)   (359,571)
Deferred taxes   111,319    571,280 
Asset valuation adjustments   84,380    (1,403,164)

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015112
 

 

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 March 31, 2015, not considered in results, is an impairment loss of R$ 712,855 (R$ 681,510 at 03/31/2014) relating to the market adjustment of the reclassified securities. Securities classified under this type, if stated at market value, would present a negative adjustment of R$ 264,553 (would present a positive R$ 579,140 at 03/31/2014).

 

   03/31/2015   03/31/2014 
   Carrying value   %   0 - 30   31 – 90   91 - 180   181 - 365   366 - 720   Over 720 days   Carrying value 
Government securities - domestic (*)   23,138,576    60.6    -    53,043    -    -    952,341    22,133,192    12,774,990 
National treasury bills   6,786,228    19.2    -    -    -    -    82,014    6,704,214    - 
National treasury notes   4,020,039    11.5    -    53,043    -    -    -    3,966,996    3,867,333 
Brazilian external debt bonds   12,332,309    29.9    -    -    -    -    870,327    11,461,982    8,907,657 
Government securities - abroad   11,960    0.1    -    -    -    -    -    11,960    21,529 
Uruguay   11,944    0.1    -    -    -    -    -    11,944    21,518 
Other   16    0.0    -    -    -    -    -    16    11 
Corporate securities   14,551,599    39.4    136,647    35,863    582,531    200,745    1,310,350    12,285,463    9,391,130 
Bank deposit certificate   4    0.0    4    -    -    -    -    -    - 
Securitized real estate loans   14,547,566    39.3    136,643    35,863    582,531    200,745    1,310,350    12,281,434    9,390,699 
Eurobonds and other   4,029    0.01    -    -    -    -    -    4,029    431 
Total   37,702,135    100.0    136,647    88,906    582,531    200,745    2,262,691    34,430,615    22,187,649 
% per maturity term             0.4    0.2    1.5    0.5    6.0    91.3      
Total – 03/31/2014   22,187,649    100.0    111,015    48,428    445,531    284,052    597,677    20,700,946      
% per maturity term             0.5    0.2    2.0    1.3    2.7    93.3      

(*) Includes investments of Itaú Vida e Previdência S.A. in the amount of R$ 2,417,307 (R$ 2,322,454 at 03/31/2014).

 

f)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, 2001, 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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015113
 

 

g) 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.

 

The 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 March 31, 2015, 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 valued like this are futures contracts. Likewise, there are other instruments whose quotations (fair prices) are directly disclosed by independent institutions and which are valued 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$ 4,609,418 (R$ 5,779,177 at March 31, 2014) and was basically composed of government securities.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015114
 

 

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 
   03/31/2015   03/31/2014   03/31/2015   03/31/2015   03/31/2015   03/31/2014 
Futures contracts   417,429,012    500,229,153    (150,124)   109,768    (40,356)   67,493 
Purchase commitments   98,529,580    175,842,349    (155,993)   147,935    (8,058)   145,966 
Commodities   106,202    215,394    (2)   -    (2)   228 
Indexes   57,376,953    34,064,609    (193,138)   674    (192,464)   34,111 
Interbank market   19,764,338    121,257,551    47,123    (56)   47,067    (30,684)
Foreign currency   19,473,470    14,490,733    (10,000)   145,436    135,436    141,795 
Fixed rates   131,528    104,098    -    1,931    1,931    73 
Securities   1,675,787    5,709,964    29    -    29    443 
Other   1,302    -    (5)   (50)   (55)   - 
Commitments to sell   318,899,432    324,386,804    5,869    (38,167)   (32,298)   (78,473)
Commodities   245,707    209,210    327    -    327    332 
Indexes   32,229,047    54,522,169    124,807    1,674    126,481    (53,744)
Interbank market   135,219,543    150,316,140    (135,659)   122    (135,537)   19,011 
Foreign currency   148,582,126    113,508,138    16,394    (39,575)   (23,181)   (44,709)
Fixed rates   49,724    76,489    -    (388)   (388)   598 
Securities   2,573,285    5,754,658    -    -    -    39 
Swap contracts             (7,766,795)   282,168    (7,484,627)   (2,449,595)
Asset position   302,770,221    520,290,480    4,556,814    1,634,431    6,191,245    4,335,025 
Commodities   -    3,337    -    -    -    14 
Indexes   118,978,952    360,872,595    320,477    572,726    893,203    898,071 
Interbank market   68,758,306    64,595,032    301,902    432,080    733,982    1,345,720 
Foreign currency   12,296,069    14,338,035    2,192,588    100,030    2,292,618    837,129 
Fixed rates   98,052,023    77,548,941    1,433,344    467,567    1,900,911    1,113,989 
Floating rate   4,646,504    2,909,579    307,893    61,796    369,689    138,336 
Securities   20,547    13,250    -    -    -    743 
Other   17,820    9,711    610    232    842    1,023 
Liability position   310,537,016    523,401,084    (12,323,609)   (1,352,263)   (13,675,872)   (6,784,620)
Commodities   23,316    19,652    -    -    -    (1)
Indexes   88,049,551    59,053,806    (2,643,710)   (485,305)   (3,129,015)   (2,214,223)
Interbank market   50,544,915    45,378,289    (6,493)   (666,686)   (673,179)   (658,531)
Foreign currency   28,226,079    22,691,236    (5,179,130)   57,539    (5,121,591)   (1,135,548)
Fixed rates   136,540,122    106,903,259    (4,246,983)   (106,747)   (4,353,730)   (2,631,023)
Floating rate   6,931,765    289,047,627    (202,291)   (162,657)   (364,948)   (85,301)
Securities   86,804    127,135    (44,993)   11,584    (33,409)   (57,256)
Other   134,464    180,080    (9)   9    -    (2,737)
Option contracts   509,322,577    753,594,079    1,674,397    (649,933)   1,024,464    946,047 
Purchase commitments - long position   89,533,345    251,711,432    2,342,590    2,252,182    4,594,772    832,385 
Commodities   613,808    444,335    30,041    (2,054)   27,987    17,417 
Indexes   31,986,130    207,095,179    64,485    19,826    84,311    178,596 
Interbank market   4,290,648    16,312,919    5,070    (584)   4,486    72,071 
Foreign currency   48,139,522    25,050,798    2,160,252    1,784,880    3,945,132    358,768 
Fixed rates   2,727    -    -    14    14    - 
Floating rate   9,945    49,831    268    (268)   -    - 
Securities   4,406,827    2,708,005    76,224    438,957    515,181    199,198 
Other   83,738    50,365    6,250    11,411    17,661    6,335 
Commitments to sell - long position   178,492,282    159,384,090    2,513,706    50,973    2,564,679    1,819,860 
Commodities   347,960    590,140    9,244    10,965    20,209    9,208 
Indexes   105,844,528    111,565,116    144,324    (42,397)   101,927    37,581 
Interbank market   17,035,167    24,638,747    9,205    (5,648)   3,557    37,182 
Foreign currency   46,862,328    16,824,685    989,815    (358,778)   631,037    518,694 
Fixed rates   147,455    27,394    5,669    276    5,945    378 
Floating rate   98,518    383,578    1,143    (1,020)   123    487 
Securities   8,116,290    5,347,460    1,354,007    447,227    1,801,234    1,215,954 
Other   40,036    6,970    299    348    647    376 
Purchase commitments - short position   74,530,679    151,821,061    (1,729,667)   (3,008,935)   (4,738,602)   (938,329)
Commodities   431,048    263,080    (11,407)   1,993    (9,414)   (16,346)
Indexes   22,929,558    112,314,073    (72,929)   (49,354)   (122,283)   (122,472)
Interbank market   4,207,160    10,490,048    (5,676)   845    (4,831)   (61,979)
Foreign currency   43,149,642    26,413,819    (1,591,293)   (2,546,720)   (4,138,013)   (551,198)
Fixed rates   92,102    1,584    -    (415)   (415)   (17)
Securities   3,637,431    2,288,092    (42,112)   (403,873)   (445,985)   (179,982)
Other   83,738    50,365    (6,250)   (11,411)   (17,661)   (6,335)
Commitments to sell - short position   166,766,271    190,677,496    (1,452,232)   55,847    (1,396,385)   (767,869)
Commodities   487,584    399,933    (29,782)   (12,161)   (41,943)   (8,607)
Indexes   106,972,996    149,674,185    (75,159)   14,176    (60,983)   (36,798)
Interbank market   12,231,843    21,753,780    (11,425)   7,468    (3,957)   (44,675)
Foreign currency   41,288,144    15,427,691    (1,103,868)   481,550    (622,318)   (444,447)
Fixed rates   8,340    2,263    (363)   25    (338)   (15)
Floating rate   -    -    -    -    -    165 
Securities   5,737,328    3,412,674    (231,336)   (434,863)   (666,199)   (233,116)
Other   40,036    6,970    (299)   (348)   (647)   (376)
Forward contracts   17,441,740    48,150,021    1,878,620    13,625    1,892,245    1,027,732 
Purchases receivable   1,154,665    4,093,380    1,138,072    2,624    1,140,696    691,008 
Commodities   -    145,623    -    -    -    13,884 
Foreign currency   -    3,451,777    -    -    -    179,662 
Fixed rates   824,014    97,150    822,746    1,800    824,546    97,075 
Floating rate   330,651    369,399    315,326    824    316,150    369,397 
Securities   -    29,431    -    -    -    30,990 
Purchases payable   -    9,298,001    (1,138,072)   -    (1,138,072)   (883,361)
Commodities   -    99,713    -    -    -    (3,573)
Foreign currency   -    9,198,288    -    -    -    (383,885)
Fixed rates   -    -    (822,746)   -    (822,746)   (97,075)
Floating rate   -    -    (315,326)   -    (315,326)   (369,397)
Securities   -    -    -    -    -    (29,431)
Sales receivable   16,054,265    18,445,864    3,773,231    17,364    3,790,595    2,282,760 
Commodities   174    29,325    173    -    173    3,013 
Indexes   72    499    69    -    69    491 
Interbank market   12,227,339    7,169,080    134    16,323    16,457    5,517 
Foreign currency   -    9,292,876    -    -    -    340,188 
Fixed rates   1,046,885    411,184    1,045,865    -    1,045,865    410,906 
Floating rate   849,695    235,844    848,292    -    848,292    235,972 
Securities   1,930,100    1,307,056    1,878,698    1,041    1,879,739    1,286,673 
Sales deliverable   232,810    16,312,776    (1,894,611)   (6,363)   (1,900,974)   (1,062,675)
Commodities   -    48,249    -    -    -    (2,695)
Interbank market   232,810    13,829,057    -    (359)   (359)   (1,195)
Foreign currency   -    2,435,470    -    -    -    (147,168)
Fixed rates   -    -    (1,045,865)   (3,823)   (1,049,688)   (410,868)
Floating rate   -    -    (848,292)   (2,192)   (850,484)   (235,972)
Securities   -    -    (454)   11    (443)   (264,777)

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015115
 

 

   Memorandum account /
Notional amount		   Balance sheet
account receivable /
(received) (payable) /
paid		   Adjustments to market
value (in results /
stockholders' equity)		   Market value 
   03/31/2015   03/31/2014   03/31/2015   03/31/2015   03/31/2015   03/31/2014 
Credit derivatives   12,774,574    9,001,475    (74,048)   (97,418)   (171,466)   57,542 
Asset position   5,771,229    4,060,637    198,416    21,515    219,931    255,661 
Foreign currency   2,517,733    -    196,137    (36,798)   159,339    - 
Fixed rate   1,905,873    3,152,585    1,370    2,535    3,905    238,849 
Securities   1,074,579    695,633    677    48,804    49,481    11,768 
Other   273,044    212,419    232    6,974    7,206    5,044 
Liability position   7,003,345    4,940,838    (272,464)   (118,933)   (391,397)   (198,119)
Foreign currency   2,916,072    -    (214,359)   26,221    (188,138)   - 
Fixed rate   1,764,400    3,779,210    (43,178)   14,602    (28,576)   (166,545)
Securities   2,216,656    1,130,082    (14,936)   (155,705)   (170,641)   (30,639)
Other   106,217    31,546    9    (4,051)   (4,042)   (935)
Forwards operations   127,651,846    62,537,877    (428,006)   65,391    (362,615)   12,442 
Asset position   56,100,577    29,650,970    3,841,054    26,258    3,867,312    915,946 
Commodities   254,786    -    25,234    (1,420)   23,814    - 
Indexes   9,824    162,853    129    -    129    4,711 
Foreign currency   55,781,471    29,470,253    3,808,785    27,678    3,836,463    911,074 
Securities   54,496    17,864    6,906    -    6,906    161 
Liability position   71,551,269    32,886,907    (4,269,060)   39,133    (4,229,927)   (903,504)
Commodities   152,061    -    (37,717)   915    (36,802)   - 
Indexes   59,682    34,891    (5,052)   -    (5,052)   (2,082)
Foreign currency   71,338,398    32,852,016    (4,225,174)   38,218    (4,186,956)   (901,422)
Securities   1,128    -    (1,117)   -    (1,117)   - 
Swap with target flow   1,808,173    1,584,425    (401,173)   (22,698)   (423,871)   (122,124)
Asset position - Interbank market   703,500    752,933    -    -    -    - 
Liability position   1,104,673    831,492    (401,173)   (22,698)   (423,871)   (122,124)
Interbank market   -    52,207    -    -    -    (915)
Foreign currency   1,104,673    779,285    (401,173)   (22,698)   (423,871)   (121,209)
Target flow of swap - asset position - foreign currency   1,096,038    837,701    42,353    185,166    227,519    68,277 
Other derivative financial instruments   14,270,250    7,169,920    85,271    105,668    190,939    337,490 
Asset position   12,583,335    5,319,817    2,508,158    743,871    3,252,029    725,919 
Foreign currency   7,627,403    725,035    2,195,774    531,898    2,727,672    34,821 
Fixed rate   708,808    1,213,702    40,841    58,707    99,548    373,877 
Securities   4,120,055    3,353,902    271,589    149,579    421,168    316,795 
Other   127,069    27,178    (46)   3,687    3,641    426 
Liability position   1,686,915    1,850,103    (2,422,887)   (638,203)   (3,061,090)   (388,429)
Foreign currency   251,346    437,850    (2,342,499)   (607,262)   (2,949,761)   (34,635)
Fixed rate   -    -    -    -    -    (317,052)
Securities   1,186,585    1,195,466    (80,235)   (26,378)   (106,613)   (32,932)
Other   248,984    216,787    (153)   (4,563)   (4,716)   (3,810)
                               
         Asset    20,914,394    4,934,384    25,848,778    11,994,334 
         Liability    (26,053,899)   (4,942,647)   (30,996,546)   (12,049,030)
         TOTAL    (5,139,505)   (8,263)   (5,147,768)   (54,696)

 

Derivative contracts mature as follows (in days):

 

Memorandum account / notional amount  0 - 30   31 - 180   181 - 365   Over 365   03/31/2015   03/31/2014 
Futures   45,895,112    148,264,044    68,175,991    155,093,865    417,429,012    500,229,153 
Swaps   10,815,776    68,684,304    34,241,192    184,472,135    298,213,407    517,704,276 
Options   186,639,251    265,255,864    38,212,199    19,215,263    509,322,577    753,594,079 
Forwards (onshore)   7,012,690    2,574,917    5,600,190    2,253,943    17,441,740    48,150,021 
Credit derivatives   351,276    2,344,900    951,384    9,127,014    12,774,574    9,001,475 
Forwards (offshore)   54,363,694    40,037,523    26,946,209    6,304,420    127,651,846    62,537,877 
Swaps with target flow   -    113,879    5,163    584,458    703,500    752,933 
Target flow of swap   -    179,327    7,731    908,980    1,096,038    837,701 
Other derivative financial instruments   18,744    1,469,863    2,708,559    10,073,084    14,270,250    7,169,920 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015116
 

 

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.

 

   03/31/2015   03/31/2014 
   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 - BM&FBOVESPA   -    -    -    -    -    -    -    -    -    -    67,493 
Swaps - adjustment receivable   4,556,814    1,634,431    6,191,245    24.0    160,313    497,175    138,466    378,178    1,277,916    3,739,197    4,335,025 
BM&FBOVESPA   115,034    8,269    123,303    0.5    3,456    10,328    3,332    6,198    18,468    81,521    288,816 
Companies   3,629,336    520,955    4,150,291    16.1    130,642    255,090    63,341    255,176    809,945    2,636,097    2,681,550 
Financial institutions   620,825    964,931    1,585,756    6.1    22,948    42,138    50,438    109,418    413,813    947,001    1,025,868 
Individuals   191,619    140,276    331,895    1.3    3,267    189,619    21,355    7,386    35,690    74,578    338,791 
Option premiums   4,856,296    2,303,155    7,159,451    27.7    1,238,442    2,288,533    1,380,201    1,318,660    361,261    572,354    2,652,245 
BM&FBOVESPA   3,055,344    (85,475)   2,969,869    11.5    399,336    1,385,005    509,218    661,236    5,632    9,442    1,631,968 
Companies   338,102    698,433    1,036,535    4.0    44,482    106,572    175,890    244,646    160,103    304,842    294,938 
Financial institutions   1,461,689    1,684,617    3,146,306    12.2    794,624    790,562    695,093    412,431    195,526    258,070    725,224 
Individuals   1,161    5,580    6,741    0.0    -    6,394    -    347    -    -    115 
Forwards (onshore)   4,911,303    19,988    4,931,291    19.0    3,314,479    922,599    602,876    90,184    1,153    -    2,973,768 
BM&FBOVESPA   1,878,621    17,364    1,895,985    7.3    279,173    922,599    602,876    90,184    1,153    -    1,016,307 
Companies   183,745    -    183,745    0.7    183,745    -    -    -    -    -    1,833,859 
Financial institutions   2,848,937    2,624    2,851,561    11.0    2,851,561    -    -    -    -    -    122,505 
Individuals   -    -    -    0.0    -    -    -    -    -    -    1,097 
Credit derivatives - Financial institutions   198,416    21,515    219,931    0.9    -    505    1,099    1,524    9,005    207,798    255,661 
Forwards (offshore)   3,841,054    26,258    3,867,312    14.9    785,726    609,634    789,007    1,276,067    168,636    238,242    915,946 
Companies   1,784,943    10,811    1,795,754    6.9    360,056    298,047    331,564    498,848    139,164    168,075    422,249 
Financial institutions   2,055,449    15,608    2,071,057    8.0    425,476    311,503    457,222    777,217    29,472    70,167    484,551 
Individuals   662    (161)   501    0.0    194    84    221    2    -    -    9,146 
Target flow of swap - Companies   42,353    185,166    227,519    0.9    -    -    27,298    1,178    -    199,043    68,277 
Other derivative financial instruments   2,508,158    743,871    3,252,029    12.6    2,411    5,403    694,570    1,130,230    159,748    1,259,667    725,919 
Companies   314,806    171,911    486,717    1.9    2,411    5,403    4,963    51,763    147,345    274,832    271,142 
Financial institutions   2,193,352    571,960    2,765,312    10.7    -    -    689,607    1,078,467    12,403    984,835    454,777 
Total   20,914,394    4,934,384    25,848,778    100.0    5,501,371    4,323,849    3,633,517    4,196,021    1,977,719    6,216,301    11,994,334 
% per maturity term                       21.3    16.7    14.1    16.2    7.7    24.0      
Total - 03/31/2014   9,778,866    2,215,468    11,994,334    100.0    2,613,305    967,104    1,571,333    1,342,963    1,965,446    3,534,183      
% per maturity term                       21.8    8.1    13.1    11.2    16.4    29.5      

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015117
 

 

   03/31/2015   03/31/2014 
   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&FBOVESPA   (150,124)   109,768    (40,356)   0.1    157,235    (71,309)   (19,461)   2,211    (13,233)   (95,799)   - 
Swaps - difference payable   (12,323,609)   (1,352,263)   (13,675,872)   44.0    (325,940)   (936,459)   (792,893)   (1,258,278)   (1,579,032)   (8,783,270)   (6,784,620)
BM&FBOVESPA   (349,581)   (34,165)   (383,746)   1.2    (2,787)   (165,756)   (6,245)   (4,078)   (140,475)   (64,405)   (434,302)
Companies   (6,090,615)   (303,442)   (6,394,057)   20.6    (288,179)   (572,977)   (692,544)   (1,009,184)   (1,087,898)   (2,743,275)   (2,654,885)
Financial institutions   (1,391,505)   (1,038,416)   (2,429,921)   7.8    (25,875)   (41,834)   (80,871)   (204,141)   (260,887)   (1,816,313)   (938,819)
Individuals   (4,491,908)   23,760    (4,468,148)   14.4    (9,099)   (155,892)   (13,233)   (40,875)   (89,772)   (4,159,277)   (2,756,614)
Option premiums   (3,181,899)   (2,953,088)   (6,134,987)   19.8    (1,259,200)   (1,313,631)   (1,335,998)   (1,179,502)   (415,664)   (630,992)   (1,706,198)
BM&FBOVESPA   (1,036,957)   (442,854)   (1,479,811)   4.8    (312,583)   (438,981)   (291,493)   (421,749)   (7,744)   (7,261)   (617,981)
Companies   (129,994)   (518,010)   (648,004)   2.1    (16,362)   (45,663)   (100,283)   (104,805)   (126,790)   (254,101)   (264,462)
Financial institutions   (2,011,651)   (1,993,030)   (4,004,681)   12.9    (930,255)   (828,526)   (944,222)   (651,244)   (280,804)   (369,630)   (823,445)
Individuals   (3,297)   806    (2,491)   -    -    (461)   -    (1,704)   (326)   -    (310)
Forwards (onshore)   (3,032,683)   (6,363)   (3,039,046)   9.8    (3,039,046)   -    -    -    -    -    (1,946,036)
BM&FBOVESPA   -    (359)   (359)   -    (359)   -    -    -    -    -    (1,195)
Companies   (183,745)   (1,950)   (185,695)   0.6    (185,695)   -    -    -    -    -    (1,820,557)
Financial institutions   (2,848,938)   (4,054)   (2,852,992)   9.2    (2,852,992)   -    -    -    -    -    (124,284)
Credit derivatives   (272,464)   (118,933)   (391,397)   1.2    -    (784)   (16,701)   (42,399)   (24,433)   (307,080)   (198,119)
Companies   (15,498)   21    (15,477)   -    -    -    (15,477)   -    -    -    (10,876)
Financial institutions   (256,966)   (118,954)   (375,920)   1.2    -    (784)   (1,224)   (42,399)   (24,433)   (307,080)   (187,243)
Forwards (offshore)   (4,269,060)   39,133    (4,229,927)   13.6    (1,218,760)   (868,345)   (949,366)   (840,420)   (228,244)   (124,792)   (903,504)
Companies   (2,335,727)   36,742    (2,298,985)   7.4    (440,653)   (403,072)   (559,968)   (599,809)   (197,527)   (97,956)   (193,201)
Financial institutions   (1,919,228)   1,769    (1,917,459)   6.2    (776,973)   (457,946)   (384,461)   (240,526)   (30,717)   (26,836)   (710,041)
Individuals   (14,105)   622    (13,483)   -    (1,134)   (7,327)   (4,937)   (85)   -    -    (262)
Swaps with target flow - Companies   (401,173)   (22,698)   (423,871)   1.4    -    -    (67,291)   (2,666)   -    (353,914)   (122,124)
Other derivative financial instruments   (2,422,887)   (638,203)   (3,061,090)   9.9    (19)   (865)   (718,806)   (1,213,391)   (22,484)   (1,105,525)   (388,429)
Companies   (132,486)   (630,944)   (763,430)   2.5    (19)   (865)   (1,423)   (3,926)   (9,934)   (747,263)   (69,033)
Financial institutions   (2,290,401)   (7,259)   (2,297,660)   7.4    -    -    (717,383)   (1,209,465)   (12,550)   (358,262)   (319,396)
Total   (26,053,899)   (4,942,647)   (30,996,546)   99.8    (5,685,730)   (3,191,393)   (3,900,516)   (4,534,445)   (2,283,090)   (11,401,372)   (12,049,030)
% per maturity term                       18.3    10.3    12.6    14.6    7.4    36.8      
Total - 03/31/2014   (10,851,896)   (1,197,134)   (12,049,030)   100.0    (2,066,371)   (612,575)   (1,341,439)   (1,115,702)   (1,279,494)   (5,633,449)     
% per maturity term                       17.1    5.1    11.1    9.3    10.6    46.8      

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015118
 

 

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.

 

   03/31/2015 
   Futures   Swaps   Options   Forwards
(onshore)		   Credit derivatives   Forwards
(offshore)		   Swap with
target flow		   Target flow of
swap		   Other derivative
financial
instruments		 
BM&FBOVESPA   257,824,951    4,487,630    362,964,326    14,390,043    -    -    -    -    - 
Over-the-counter market   159,604,061    293,725,777    146,358,251    3,051,697    12,774,574    127,651,846    703,500    1,096,038    14,270,250 
Financial institutions   143,296,158    120,683,927    127,087,960    2,868,005    12,759,076    88,460,962    -    -    5,343,072 
Companies   16,307,903    87,945,932    19,101,249    183,692    15,498    39,036,816    703,500    1,096,038    8,927,178 
Individuals   -    85,095,918    169,042    -    -    154,068    -    -    - 
Total   417,429,012    298,213,407    509,322,577    17,441,740    12,774,574    127,651,846    703,500    1,096,038    14,270,250 
Total – 03/31/2014   500,229,153    517,704,276    753,594,079    48,150,021    9,001,475    62,537,877    752,933    837,701    7,169,920 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015119
 

 

IV - Credit derivatives

 

See below the composition of the Credit Derivatives (assets and liabilities) portfolio stated at notional amount, and their effect on calculation of Required Referential Equity.

 

   03/31/2015   03/31/2014 
   Notional amount
of credit
protection sold		   Notional amount of credit
protection purchased with
identical underlying amount		   Net position   Notional amount
of credit
protection sold		   Notional amount of credit
protection purchased with
identical underlying amount		   Net position 
Credit swaps   (8,404,654)   2,833,510    (5,571,144)   (5,767,468)   1,810,736    (3,956,732)
Total return rate swaps   (1,536,410)   -    (1,536,410)   (1,423,271)   -    (1,423,271)
Total   (9,941,064)   2,833,510    (7,107,554)   (7,190,739)   1,810,736    (5,380,003)

 

The effect on the referential equity (Note 3) was R$ 428,216 (R$ 248,453 at 03/31/2014).

 

During the period, there was no occurrence of a credit event as defined in the agreements.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015120
 

 

V - Accounting hedge

 

The effectiveness computed for the hedge portfolio was in conformity with the provisions of BACEN Circular No. 3,082 of January 30, 2002, and the following accounting hedge structures are established:

 

I)Cash flow - the purpose of the hedge relationship of ITAÚ UNIBANCO HOLDING CONSOLIDATED is to protect the cash flows of the payment of debt interest (CDB / Redeemable preferred shares/ Syndicated Loan) and the future foreign exchange rate, (anticipated transactions) related to its variable interest rate risk (CDI / LIBOR), and foreign exchange rate risk, making the cash flow constant (fixed rate) and regardless of the variations of DI Cetip Over and LIBOR and foreign exchange rate.

 

   03/31/2015   03/31/2014 
  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   54,686,554    1,289,577    56,177,189    81,683,811    313,814    84,051,755 
Hedge of preferred shares   -    -    -    889,522    19,473    889,522 
Hedge of syndicated loan   6,736,800    (67,626)   6,736,800    -    -    - 
Hedge of highly probable anticipated transaction   99,401    16,715    101,334    300,270    (8,750)   277,466 
Total   61,522,755    1,238,666    63,015,323    82,873,603    324,537    85,218,743 

(*) Recorded in Stockholders’ Equity under heading Asset Valuation Adjustments.

 

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$ (225,136) (R$ (440,541) at March 31, 2014).

 

Related to Foreign Exchange Rates Futures for the period there was no reclassification from Asset Valuation Adjustments and inclusion in the initial cost of assets.

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED entered into Futures DDI contracts on BM&FBOVESPA maturing during 2014 to protect the future cash flows of highly probable anticipated transactions, with financial effects during 2015, arising from future contractual agreements in foreign currency against the exposure to future foreign exchange rates.

 

To protect the future cash flows of debt against exposure to variable interest rates (CDI / LIBOR), ITAÚ UNIBANCO HOLDING CONSOLIDATED negotiated DI Futures agreements on BM&FBOVESPA with maturities between 2014 and 2018, Interest rate swap maturing in 2015 and Euro Dollar Futures on the Chicago Stock Exchange maturing between 2015 and 2017.

 

II)Market risk – The hedging strategy against market risk of ITAÚ UNIBANCO HOLDING CONSOLIDATED consists of hedging the exposure to variation in market risk, in interest receipt, which are attributable to changes in interest rates related to recognized assets and liabilities.

 

   03/31/2015 
   Hedge instrument   Hedge assets 
Strategies  Nominal value   Adjustment to market value (*)   Nominal value   Adjustment to market value (*) 
Hedge of loans   3,398,369    106,515    3,398,369    103,053 
Hedge of structured funding   641,600    288    641,600    383 
Total   4,039,969    106,803    4,039,969    103,436 

 

   03/31/2014 
   Hedge instrument   Hedge assets 
Strategies  Nominal value   Adjustment to market value (*)   Nominal value   Adjustment to market value (*) 
Hedge of loans   1,660,759    (41,937)   1,660,759    41,197 
Total   1,660,759    (41,937)   1,660,759    41,197 

 (*) Recorded under heading Results from Securities and Derivative Financial Instruments.

 

To hedge the variation in market risk in interest receipt, ITAÚ UNIBANCO HOLDING uses interest rate swap contracts. Hedge assets and liabilities are related to fixed-rate expressed in unidad de fomento (CLF) and denominated in euros and U.S. dolar, issued by subsidiaries in Chile and London, respectively and with maturities between 2016 and 2029.

 

Receipts (payments) of interest flows are expected to occur and will affect the statement of income in monthly periods.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015121
 

 

III)Hedge of net investment in foreign operations – ITAÚ UNIBANCO HOLDING CONSOLIDATED strategy of net investments in foreign operations consist of a hedge of the exposure in foreign currency arising from the functional currency of foreign operations, compared to the functional currency of the head office.

 

   03/31/2015   03/31/2014 
  Hedge instrument   Hedge assets   Hedge instrument   Hedge assets 
Strategies  Nominal value   Adjustment to market value (*)   Nominal value   Nominal value   Adjustment to market value (*)   Nominal value 
Hedge of net investment in foreign operations   18,195,450    (2,390,488)   10,917,052    11,305,120    346,943    6,782,936 
Total   18,195,450    (2,390,488)   10,917,052    11,305,120    346,943    6,782,936 

(*) Recorded in Stockholders’ Equity under heading Asset Valuation Adjustments.

 

To hedge the changes of future cash flows of exchange variation of net investments in foreign operations, ITAÚ UNIBANCO HOLDING CONSOLIDATED uses DDI Futures contracts traded on BM&FBOVESPA, Financial Assets and Forward contracts or NDF contracts entered into by our subsidiaries abroad.

 

Receipts (payments) of interest flows are expected to occur and will affect the statement of income upon the total or partial disposal of investments.

 

IV)We present below the maturity terms of cash flow hedge and market risk hedge strategies:

 

03/31/2015  03/31/2014 
Maturity term  Hedge of deposits and
securities purchased under
agreements to resell		   Hedge of highly
probable anticipated
transaction		   Hedge of loans   Hedge of
structured funding		   Hedge of net
investment in
foreign operations		   Hedge of
syndicated loan		   Total   Total 
2014   -    -    -    -    -    -    -    65,117,003 
2015   4,414,865    99,401    -    -    18,195,450    -    22,709,716    14,058,644 
2016   9,063,646    -    275,529    641,600    -    -    9,980,775    5,874,095 
2017   18,348,986    -    223,867    -    -    6,736,800    25,309,653    7,959,088 
2018   20,826,518    -    459,642    -    -    -    21,286,160    1,700,081 
2019   1,888,137    -    737,840    -    -    -    2,625,977    23,079 
2020   -    -    79,922    -    -    -    79,922    37,171 
2021   144,402    -    -    -    -    -    144,402    - 
2022   -    -    197,705    -    -    -    197,705    175,737 
2023   -    -    189,047    -    -    -    189,047    166,698 
2025   -    -    47,699    -    -    -    47,699    41,253 
2027   -    -    171,730    -    -    -    171,730    147,104 
2028   -    -    521,113    -    -    -    521,113    445,192 
2029   -    -    419,407    -    -    -    419,407    94,337 
2030   -    -    74,868    -    -    -    74,868    - 
Total   54,686,554    99,401    3,398,369    641,600    18,195,450    6,736,800    83,758,174    95,839,482 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015122
 

 

h) Changes in adjustment to unrealized (*) market value for the period

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Opening balance   489,912    (2,016,483)
Adjustments with impact on:          
Results   (182,169)   1,071,502 
Trading securities   193,518    588,204 
Derivative financial instruments   (375,687)   483,298 
Stockholders’ equity   (2,268,327)   1,510,316 
Available-for-sale   (161,504)   840,231 
Accounting hedge – derivative financial instruments   (2,106,823)   670,085 
Futures   (2,040,949)   672,454 
Swap   (65,874)   (2,369)
           
Closing balance   (1,960,584)   565,335 
Adjustment to market value   (1,960,584)   565,335 
Trading securities   (110,507)   (242,942)
Available-for-sale securities   (689,991)   (1,093,359)
Derivative financial instruments   (1,160,086)   1,901,636 
Trading securities   (8,263)   998,861 
Accounting hedge   (1,151,823)   902,775 
Futures   (1,151,823)   883,302 
Swap   -    19,473 

 (*) The term unrealized in the context of Circular nº. 3.068 of 11/08/2001, of the Central Bank means not converted into cash.

 

i)Realized gain of securities portfolio and derivatives financial instruments

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Gain (loss) – trading securities   (348,829)   (374,053)
Gain (loss) – available-for-sale securities   (653,835)   (92,839)
Gain (loss) – derivatives   3,134,794    (2,217,337)
Gain (loss) – foreign exchange variation on investments abroad   7,959,638    (1,050,118)
Total   10,091,768    (3,734,347)

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015123
 

 

j)Sensitivity analysis (trading and banking portfolios)

 

In compliance with CVM Instruction No. 475, ITAÚ UNIBANCO HOLDING CONSOLIDATED carried out a sensitivity analysis by market risk factors considered relevant to which it was exposed. 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 CONSOLIDATED exposure under exceptional scenarios.

 

The sensitivity analyses of the non-trading and the trading portfolio shown in this report are an evaluation of a static 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, 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 CONSOLIDATED.

 

Trading portfolio  Exposures  03/31/2015 (*) 
      Scenarios 
Risk factors  Risk of variation in:  I   II   III 
Interest Rate  Fixed Income Interest Rates in reais   (737)   (213,635)   (421,564)
Foreign Exchange Linked  Foreign Exchange Linked Interest Rates   150    (9,651)   (18,225)
Foreign Exchange Rates  Prices of Foreign Currencies   (6,281)   (30,761)   99,303 
Price Index Linked  Interest of Inflation coupon   164    (29,172)   (62,722)
TR  TR Linked Interest Rates   -    (6)   (12)
Equities  Prices of Equities   222    (17,783)   (71,592)
Total      (6,482)   (301,008)   (474,812)

(*) Amounts net of tax effects.

 

Trading and Banking portfolios  Exposures  03/31/2015 (*) 
      Scenarios 
Risk factors  Risk of variation in:  I   II   III 
Interest Rate  Fixed Income Interest Rates in reais   (4,643)   (1,498,796)   (2,869,741)
Foreign Exchange Linked  Foreign Exchange Linked Interest Rates   38    (38,641)   (70,058)
Foreign Exchange Rates  Prices of Foreign Currencies   12,549    (13,855)   318,331 
Price Index Linked  Interest of Inflation coupon   (2,523)   (292,608)   (536,976)
TR  TR Linked Interest Rates   714    (189,293)   (422,774)
Equities  Prices of Equities   4,888    (64,765)   (165,536)
Total      11,023    (2,097,958)   (3,746,754)

(*) Amounts net of tax effects.

 

As from the second quarter of 2014, alterations were made in the shock scenarios (II and III) used for sensitivity analysis, which are now:

 

·Scenario I: Shocks of 1 base point in interest rates and associated indexes, and 1 percentage point in currency and share prices;

 

·Scenario II: Shocks of 25 percent in interest fixed rates, currency coupon, inflation, interest rate indexes and currency and share prices, both for growth and fall, considering the largest resulting losses per risk factor;

 

·Scenario III: Shocks of 50 percent in interest fixed rates, currency coupon, inflation, interest rate indexes and 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 CONSOLIDATED are shown in the item Derivative financial instruments in this note.

 

Until 03/31/2014, scenario II and III considered shocks of 25 basis points and 50 basis points, respectively.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015124
 

 

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

 

   03/31/2015   03/31/2014 
Risk levels  AA   A   B   C   D   E   F   G   H   Total   Total 
Loan operations   230,006,137    86,312,278    31,436,459    13,435,232    10,965,286    2,906,595    2,244,107    4,805,700    9,603,305    391,715,099    336,601,074 
Loans and discounted trade receivables   85,305,044    73,783,744    24,377,259    9,755,807    8,111,558    2,382,820    1,934,397    4,529,706    8,210,515    218,390,850    178,405,336 
Financing   90,624,874    11,129,129    5,242,618    2,985,109    2,533,451    384,549    258,972    234,253    1,307,017    114,699,972    108,636,208 
Farming and agribusiness financing   6,362,925    895,220    499,350    194,120    26,389    56,529    715    10,729    23,429    8,069,406    7,544,940 
Real estate financing   47,713,294    504,185    1,317,232    500,196    293,888    82,697    50,023    31,012    62,344    50,554,871    42,014,590 
Lease operations   3,200,570    583,974    1,488,653    351,295    110,859    36,740    40,102    33,288    158,419    6,003,900    8,909,116 
Credit card operations   -    49,083,124    4,515,556    1,840,856    895,884    511,105    572,713    438,926    2,914,212    60,772,376    56,157,973 
Advance on exchange contracts (1)   3,003,520    306,123    284,660    201,464    25,231    21,185    16,369    10,721    81,511    3,950,784    4,294,881 
Other sundry receivables (2)   1,583,658    3,533,537    816    7,457    9,289    21    382,487    14,005    131,623    5,662,893    2,328,284 
Total operations with credit granting characteristics   237,793,885    139,819,036    37,726,144    15,836,304    12,006,549    3,475,646    3,255,778    5,302,640    12,889,070    468,105,052    408,291,328 
Endorsements and sureties (3)   -    -    -    -    -    -    -    -    -    75,289,371    71,828,705 
Total with endorsements and sureties   237,793,885    139,819,036    37,726,144    15,836,304    12,006,549    3,475,646    3,255,778    5,302,640    12,889,070    543,394,423    480,120,033 
Total – 03/31/2014   195,159,355    127,885,482    36,691,797    17,154,208    9,137,307    3,551,851    2,891,482    3,485,427    12,334,419    408,291,328      

 (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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015125
 

 

II – By maturity and risk level

 

   03/31/2015   03/31/2014 
   AA   A   B   C   D   E   F   G   H   Total   Total 
   Overdue Operations (1) (2)     
Falling due installments   -    -    2,637,580    2,186,613    1,681,148    1,217,083    964,352    959,162    3,962,479    13,608,417    15,012,270 
01 to 30   -    -    132,293    127,451    83,551    53,442    42,052    45,610    201,221    685,620    1,009,196 
31 to 60   -    -    105,464    107,860    75,120    50,479    40,995    43,869    171,151    594,938    713,196 
61 to 90   -    -    108,744    102,276    91,938    56,423    40,509    44,015    167,597    611,502    628,041 
91 to 180   -    -    297,008    295,434    200,820    153,694    119,908    121,741    471,917    1,660,522    1,839,094 
181 to 365   -    -    531,500    485,010    345,242    268,971    205,368    216,584    854,671    2,907,346    3,182,122 
Over 365   -    -    1,462,571    1,068,582    884,477    634,074    515,520    487,343    2,095,922    7,148,489    7,640,621 
Overdue installments   -    -    831,565    994,579    1,075,600    794,093    1,059,996    1,676,037    6,258,803    12,690,673    10,769,582 
01 to 14   -    -    10,475    66,353    35,627    23,893    17,884    19,908    76,033    250,173    324,922 
15 to 30   -    -    799,061    155,332    145,292    59,610    89,253    61,035    146,893    1,456,476    1,145,656 
31 to 60   -    -    22,029    742,739    192,999    101,028    156,627    101,782    631,941    1,949,145    1,519,121 
61 to 90   -    -    -    17,552    668,448    125,130    123,229    348,572    328,241    1,611,172    1,215,491 
91 to 180   -    -    -    12,603    33,234    470,977    652,000    1,132,646    1,000,725    3,302,185    2,880,092 
181 to 365   -    -    -    -    -    13,455    21,003    12,094    3,945,499    3,992,051    3,574,240 
Over 365   -    -    -    -    -    -    -    -    129,471    129,471    110,060 
Subtotal   -    -    3,469,145    3,181,192    2,756,748    2,011,176    2,024,348    2,635,199    10,221,282    26,299,090    25,781,852 
Specific allowance   -    -    (34,691)   (95,436)   (275,675)   (603,353)   (1,012,174)   (1,844,639)   (10,221,282)   (14,087,250)   (14,063,078)
Subtotal - 03/31/2014   -    -    2,899,218    3,530,401    2,492,800    2,080,026    2,077,178    2,286,440    10,415,789    25,781,852      
                                                        
    Non-overdue operations
Falling due installments   237,323,829    138,808,593    33,931,480    12,522,271    9,158,042    1,420,024    1,118,406    1,547,181    2,628,914    438,458,740    380,783,704 
01 to 30   23,372,302    31,452,810    6,438,599    3,521,789    1,396,402    289,451    299,399    119,616    517,445    67,407,813    60,659,950 
31 to 60   11,143,263    15,154,357    2,446,573    1,052,698    433,183    68,049    130,433    29,262    185,297    30,643,115    27,769,786 
61 to 90   10,520,953    10,932,038    2,438,561    944,053    2,812,132    60,883    33,382    22,912    118,180    27,883,094    21,535,771 
91 to 180   21,743,616    19,056,653    4,245,191    1,224,421    620,311    108,798    103,093    832,043    249,796    48,183,922    43,737,839 
181 to 365   32,880,127    19,417,508    5,570,698    2,374,351    971,027    181,060    125,810    188,262    290,765    61,999,608    54,461,775 
Over 365   137,663,568    42,795,227    12,791,858    3,404,959    2,924,987    711,783    426,289    355,086    1,267,431    202,341,188    172,618,583 
Overdue up to 14 days   470,056    1,010,443    325,519    132,841    91,759    44,446    113,024    1,120,260    38,874    3,347,222    1,725,772 
Subtotal   237,793,885    139,819,036    34,256,999    12,655,112    9,249,801    1,464,470    1,231,430    2,667,441    2,667,788    441,805,962    382,509,476 
Generic allowance   -    (699,095)   (342,570)   (379,653)   (924,981)   (439,341)   (615,715)   (1,867,209)   (2,667,788)   (7,936,352)   (5,762,312)
Subtotal - 03/31/2014   195,159,355    127,885,482    33,792,580    13,623,807    6,644,507    1,471,825    814,304    1,198,987    1,918,630    382,509,476      
Grand total   237,793,885    139,819,036    37,726,144    15,836,304    12,006,549    3,475,646    3,255,778    5,302,640    12,889,070    468,105,052    408,291,328 
Existing allowance   -    (699,095)   (377,261)   (1,469,368)   (3,600,765)   (1,737,475)   (2,278,719)   (5,302,110)   (12,889,070)   (28,353,863)   (25,042,357)
Minimum allowance required   -    (699,095)   (377,261)   (475,089)   (1,200,655)   (1,042,694)   (1,627,889)   (3,711,848)   (12,889,070)   (22,023,602)   (19,825,390)
Additional allowance (3)   -    -    -    (994,279)   (2,400,109)   (694,781)   (650,830)   (1,590,262)   -    (6,330,261)   (5,216,967)
Grand total - 03/31/2014   195,159,355    127,885,482    36,691,797    17,154,208    9,137,307    3,551,851    2,891,482    3,485,427    12,334,419    408,291,328      
Existing allowance   -    (639,427)   (366,918)   (1,571,744)   (2,845,446)   (1,775,571)   (2,023,748)   (3,485,084)   (12,334,419)   (25,042,357)     
Minimum allowance required   -    (639,427)   (366,918)   (514,626)   (1,018,898)   (1,065,556)   (1,445,741)   (2,439,805)   (12,334,419)   (19,825,390)     
Additional allowance (3)   -    -    -    (1,057,118)   (1,826,548)   (710,015)   (578,007)   (1,045,279)   -    (5,216,967)     

(1)Operations with overdue installments for more than 14 days or under control of administrators or in bankruptcy processcompanies.
(2)The balance of non-accrual operations amounts to R$ 17,473,072 (R$ 17,127,050 at 03/31/2014).
(3)Allocated to each level of risk in order to explain the additional volume required for alignment to the amount of the expected loss.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015126
 

 

III – By business sector

 

   03/31/2015   %   03/31/2014   % 
Public Sector   5,229,808    1.1%   3,919,634    1.0%
Energy   153,657    0.0%   51,061    0.0%
Petrochemical and chemical   4,726,496    1.0%   3,647,553    0.9%
Sundry   349,655    0.1%   221,020    0.1%
Private sector   462,875,244    98.9%   404,371,694    99.0%
Companies   252,995,006    54.0%   221,195,702    54.1%
Sugar and alcohol   10,417,198    2.2%   8,708,778    2.1%
Agribusiness and fertilizers   15,080,185    3.2%   12,325,493    3.0%
Food and beverage   11,987,502    2.6%   10,788,247    2.6%
Banks and other financial institutions   6,137,930    1.3%   4,167,478    1.0%
Capital assets   8,285,564    1.8%   8,701,489    2.1%
Pulp and paper   2,895,554    0.6%   3,174,479    0.8%
Publishing and printing   1,035,686    0.2%   1,088,203    0.3%
Electronic and IT   4,116,865    0.9%   4,775,573    1.2%
Packaging   2,390,304    0.5%   2,239,188    0.6%
Energy and sewage   7,366,043    1.6%   6,739,321    1.7%
Education   1,533,960    0.3%   1,405,735    0.3%
Pharmaceuticals and cosmetics   4,389,644    0.9%   4,149,159    1.0%
Real estate agents   18,028,765    3.9%   17,292,291    4.2%
Entertainment and tourism   3,818,399    0.8%   3,360,137    0.8%
Wood and furniture   3,024,658    0.6%   2,936,993    0.7%
Construction material   5,825,914    1.2%   5,614,238    1.4%
Steel and metallurgy   10,908,536    2.3%   9,120,232    2.2%
Media   1,365,522    0.3%   939,784    0.2%
Mining   4,862,795    1.0%   3,621,084    0.9%
Infrastructure work   4,693,005    1.0%   5,048,404    1.2%
Oil and gas (*)   4,962,476    1.1%   3,953,958    1.0%
Petrochemical and chemical   7,258,497    1.6%   6,563,137    1.6%
Health care   2,036,813    0.4%   1,699,348    0.4%
Insurance and reinsurance and pension plans   1,761    0.0%   2,987    0.0%
Telecommucations   1,319,792    0.3%   1,246,009    0.3%
Third sector   3,566,811    0.8%   187,509    0.0%
Trading   1,898,966    0.4%   1,893,299    0.5%
Transportation   16,281,378    3.5%   17,545,589    4.3%
Domestic appliances   2,281,143    0.5%   3,110,976    0.8%
Vehicles and autoparts   16,593,171    3.5%   13,947,254    3.4%
Clothing and shoes   4,992,155    1.1%   5,095,720    1.3%
Commerce - sundry   14,364,147    3.1%   13,762,669    3.4%
Industry - sundry   9,051,297    1.9%   5,128,372    1.3%
Sundry services   27,042,029    5.8%   20,159,232    4.9%
Sundry   13,180,541    2.8%   10,703,337    2.6%
Individuals   209,880,238    44.9%   183,175,992    44.9%
Credit cards   59,869,004    12.9%   55,317,505    13.5%
Real estate financing   39,240,622    8.4%   31,266,708    7.7%
Consumer loans / overdraft   81,110,398    17.3%   57,568,825    14.1%
Vehicles   29,660,214    6.3%   39,022,954    9.6%
Grand total   468,105,052    100.0%   408,291,328    100.0%

(*) Comprises trade of fuel.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015127
 

 

b) Credit concentration

 

   03/31/2015   03/31/2014 
Loan, lease and other credit operations (*)  Risk   % of
total		   Risk   % of
total		 
Largest debtor   6,094,068    1.1    4,879,224    1.0 
10 largest debtors   35,185,277    6.5    30,166,213    6.3 
20 largest debtors   55,535,196    10.2    47,668,134    9.9 
50 largest debtors   90,945,038    16.7    78,943,684    16.4 
100 largest debtors   123,307,402    22.7    106,621,528    22.2 

(*) The amounts include endorsements and sureties.

 

   03/31/2015   03/31/2014 
Loan, lease and other credit operations and securities of companies and
financial institutions (*)		  Risk   % of
total		   Risk   % of
total		 
Largest debtor   6,244,240    1.0    5,048,272    0.9 
10 largest debtors   45,366,596    7.1    39,242,050    7.1 
20 largest debtors   75,807,085    11.8    63,694,246    11.6 
50 largest debtors   128,732,265    20.1    106,757,825    19.4 
100 largest debtors   173,826,287    27.1    142,866,667    26.0 

(*) The amounts include endorsements and sureties.

 

c)Changes in allowance for loan losses

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Opening balance   (26,947,986)   (26,371,185)
Net increase for the period   (5,479,680)   (4,235,655)
Write-Off   4,073,803    5,564,483 
Closing balance (1)   (28,353,863)   (25,042,357)
Required by Resolution No. 2,682/99   (22,023,602)   (19,825,390)
Specific allowance (2)   (14,087,250)   (14,063,078)
Generic allowance (3)   (7,936,352)   (5,762,312)
Additional allowance (4)   (6,330,261)   (5,216,967)

 

(1)The allowance for loan losses related to the lease portfolio amounts to: R$ (253,770) (R$ (621,340) at March 31, 2014).
(2)Operations with overdue installments for more than 14 days or under responsibility of administrators or in bankruptcy process companies.
(3)For operations not covered in the previous item due to the classification of the client or operation.
(4)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 March 31, 2015, the balance of the allowance in relation to the loan portfolio is equivalent to 6.1% (6.1% at March 31, 2014).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015128
 

 

d)Recovery and renegotiation of credits

 

I- Composition of the result of allowance for loan losses

 

   01/01 to 03/31/2015   01/01 to
03/31/2014		 
Expenses for allowance for loan losses   (5,479,680)   (4,235,655)
Income from recovery of credits written off as loss   1,060,287    1,087,660 
Result of allowance for loan losses (*)   (4,419,393)   (3,147,995)

 (*) The amounts related to the lease portfolio from 01/01 to 03/31/2015 are: Expenses for allowance for loan losses R$ (34,513) (R$ (74,043) from 01/01 to 03/31/2014) and Income from recovery of credits written off as loss R$ 38,445 (R$ 52,738 from 01/01 to 03/31/2014).

 

II - Renegotiated loan operations

 

   03/31/2015   03/31/2014 
   Portfolio (1)   Allowance for
Loan Losses		   %   Portfolio (1)   Allowance for
Loan Losses		   % 
Amended Credit Agreements   19,360,139    (7,097,992)   36.7%   17,131,111    (7,262,757)   42.4%
(-) Amended Operations non-overdue (2)   (6,868,837)   1,107,261    16.1%   (4,764,995)   1,064,903    22.3%
Renegotiated loan operations   12,491,302    (5,990,731)   48.0%   12,366,116    (6,197,854)   50.1%

(1) The amounts related to the lease portfolio are R$ 180,984 (R$ 576,301 at March 31, 2014).

(2) Resulting from non-overdue transations or with a delay of less than 30 days, reflex of changes in the original contractual terms.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015129
 

 

e) Restricted operations on assets

 

See below the information related to the restricted operations on assets, in accordance with CMN Resolution No. 2,921, of January 17, 2002.

 

   03/31/2015   01/01 to
03/31/2015		   03/31/2014   01/01 to
03/31/2014		 
   0 - 30   31 - 180   181 - 365   Over 365
days		   Total   Income
(expenses)		   Total   Income
(expenses)		 
Restricted operations on assets Loan operations  10,534   50,265   34,197   140,079    235,075    37,526    238,214    (228)
Liabilities - restricted operations on assets Foreign borrowings through securities   1,162    26,919    125,112    81,446    234,639    (36,513)   238,137    240 
Net revenue from restricted operations                            1,013         12 

 

At March 31, 2015, and March 31, 2014 there were no balances in default.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015130
 

 

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 March 31, 2015 where the entity significantly retained the related risks and benefits is R$ 208,097 (R$ 277,569 at 03/31/2014), composed of real estate financing of R$ 194,501 (R$ 262,069 at 03/31/2014) and farming financing of R$ 13,596 (R$ 15,500 at 03/31/2014).

 

II-Beginning January 2012, as provided for by CMN Resolution No. 3,533, of January 31, 2008 and supplementary regulation, accounting records take into consideration the retention or non-retention of risks and benefits on sale or transfers of financial assets.

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED carried out operations for sale or transfer of financial assets in which there was retention of credit risks of financial assets transferred. Therefore, such credits continue to be recorded as credit operations totaling R$ 4,798,682 at March 31, 2015. The operations are composed of: real estate financing in which the amount recorded as assets R$ 3,052,403 and a fair value of R$ 3,044,110 and the amount recorded as liabilities in the line Other sundry liabilities of R$ 3,051,306 and a fair value of R$ 3,043,013 and working capital operations, which amount recorded in assets is R$ 1,746,279 with fair value of R$ 1,746,279, and the amount recorded in liabilities under Other Liabilities – Sundry of R$ 1,746,580 with fair value of R$ 1,746,580.

 

Sales or transfers of financial assets without risk and benefit retention totaling R$ 205,805 with effect on results of R$ 5,749, net of Allowance for Loan Losses.

 

Acquisitions of loan portfolios with the retention of assignor’s risks carried out as from January 2012 to March 31, 2015 total R$ 5,115,896, and the total amount of acquired portfolios is R$ 5,124,360, at 03/31/2015.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015131
 

 

Note 9 - Foreign exchange portfolio

 

   03/31/2015   03/31/2014 
Assets  - other receivables   83,049,621    41,498,388 
Exchange purchase pending settlement – foreign currency   43,198,123    21,897,661 
Bills of exchange and term documents – foreign currency   1,545    4,678 
Exchange sale rights – local currency   40,604,140    20,240,115 
(Advances received) – local currency   (754,187)   (644,066)
Liabilities – other liabilities (Note 2a)   84,029,582    42,150,272 
Exchange sales pending settlement – foreign currency   40,811,008    20,118,580 
Liabilities from purchase of foreign currency – local currency   43,047,385    21,986,644 
Other   171,189    45,048 
Memorandum accounts   1,756,092    1,151,226 
Outstanding import credits – foreign currency   1,677,545    1,105,384 
Confirmed export credits – foreign currency   78,547    45,842 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015132
 

 

Note 10 – Funding and borrowings and onlending

 

a) Summary

 

   03/31/2015   03/31/2014 
   0-30   31-180   181-365   Over 365 days   Total   %   Total   % 
Deposits   194,059,711    36,427,431    8,369,628    59,795,418    298,652,188    35.7    278,208,180    37.4 
Deposits received under securities repurchase agreements   169,480,596    12,835,160    17,299,924    131,242,753    330,858,433    39.6    288,616,169    38.8 
Funds from acceptance and issuance of securities   2,317,053    18,297,027    7,471,291    22,667,260    50,752,631    6.1    43,866,484    5.9 
Borrowings and onlending   4,342,077    20,888,709    20,681,205    50,353,140    96,265,131    11.5    76,927,222    10.3 
Subordinated debt (*)   320,470    1,461,915    5,061,689    52,683,405    59,527,479    7.1    56,424,000    7.6 
Total   370,519,907    89,910,242    58,883,737    316,741,976    836,055,862         744,042,055      
% per maturity term   44.3    10.8    7.0    37.9                     
Total – 03/31/2014   310,019,663    78,269,093    50,672,228    305,081,071    744,042,055                
% per maturity term   41.7    10.5    6.8    41.0                     

(*) At 03/31/2014 includes R$ 889,561 of Redeemable Preferred Shares classified under Minority Interest in Balance Sheet.

 

b) Deposits

 

   03/31/2015   03/31/2014 
   0-30   31-180   181-365   Over 365 days   Total   %   Total   % 
Demand deposits   56,659,732    -    -    -    56,659,732    19.0    43,216,760    15.5 
Savings accounts   117,357,236    -    -    -    117,357,236    39.3    108,931,513    39.2 
Interbank   9,688,810    17,468,329    588,394    389,333    28,134,866    9.4    5,493,210    2.0 
Time deposits   10,353,933    18,959,102    7,781,234    59,406,085    96,500,354    32.3    120,566,697    43.3 
Total   194,059,711    36,427,431    8,369,628    59,795,418    298,652,188         278,208,180      
% per maturity term   65.0    12.2    2.8    20.0                     
Total – 03/31/2014   163,584,133    31,863,577    11,855,931    70,904,539    278,208,180                
% per maturity term   58.8    11.5    4.3    25.5                     

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015133
 

 

c) Deposits received under securities repurchase agreements

 

   03/31/2015   03/31/2014 
   0 - 30   31 - 180   181 - 365   Over 365
days		   Total   %   Total   % 
Own portfolio   34,228,157    10,752,837    14,153,647    109,340,517    168,475,158    50.9    166,377,276    57.6 
Government securities   11,578,244    192    792    3,271    11,582,499    3.5    26,713,828    9.3 
Own issue   2,471,680    10,752,645    14,152,855    109,337,246    136,714,426    41.3    126,624,771    43.9 
Foreign   20,178,233    -    -    -    20,178,233    6.1    13,038,677    4.5 
Third-party portfolio   135,252,439    1,357    -    -    135,253,796    40.9    97,552,849    33.8 
Free portfolio   -    2,080,966    3,146,277    21,902,236    27,129,479    8.2    24,686,044    8.6 
Total   169,480,596    12,835,160    17,299,924    131,242,753    330,858,433         288,616,169      
% per maturity term   51.2    3.9    5.2    39.7                     
Total – 03/31/2014   139,887,779    12,157,776    14,416,663    122,153,951    288,616,169                
% per maturity term   48.5    4.2    5.0    42.3                     

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015134
 

 

d) Funds from acceptance and issuance of securities

 

   03/31/2015   03/31/2014 
   0-30   31-180   181-365   Over 365 days   Total   %   Total   % 
Funds from bills:   1,817,198    15,513,690    4,969,071    7,683,800    29,983,759    59.1    28,707,170    65.4 
Financial   80,797    5,001,297    1,875,811    3,974,797    10,932,702    21.5    12,604,229    28.7 
Off real estate loans   1,159,023    8,355,865    782,424    596,647    10,893,959    21.5    8,588,669    19.6 
Bill of credit related to agribusiness   569,290    2,148,352    2,296,068    2,985,646    7,999,356    15.8    7,355,187    16.8 
Mortgage notes   8,088    8,176    14,768    126,710    157,742    0.3    159,085    0.4 
Foreign securities   212,341    2,151,935    2,332,062    13,313,426    18,009,764    35.5    14,320,065    32.7 
Non-trade related – issued abroad   212,341    2,151,935    2,332,062    13,313,426    18,009,764    35.5    14,320,065    32.7 
Brazil risk note programme   72,451    215,370    120,629    2,059,821    2,468,271    4.9    4,205,756    9.6 
Structure note issued   93,235    801,567    1,256,439    5,073,639    7,224,880    14.2    4,863,232    11.1 
Bonds   13,813    194,568    84,377    4,445,880    4,738,638    9.3    2,946,113    6.8 
Fixed rate notes   -    382,155    142,872    1,263,457    1,788,484    3.5    1,946,606    4.4 
Eurobonds   17,721    490,003    580,975    409,115    1,497,814    3.0    104,651    0.2 
Other   15,121    68,272    146,770    61,514    291,677    0.6    253,707    0.6 
Structured Operations Certificates (*)   287,514    631,402    170,158    1,670,034    2,759,108    5.4    839,138    1.9 
Total   2,317,053    18,297,027    7,471,291    22,667,260    50,752,631         43,866,484      
% per maturity term   4.6    36.1    14.7    44.6                     
Total – 03/31/2014   2,369,697    10,996,598    7,452,746    23,047,443    43,866,484                
% per maturity term   5.4    25.1    17.0    52.5                     

(*) As of March 31, 2015, the market value of the funding from Structured Operations Certificates issued is R$ 3,109,976 according to BACEN Circular Letter No. 3,623.

 

ITAÚ UNIBANCO HOLDING’s portfolio is composed of Brazil Risk Note Programme with maturities of 31 days to 180 days in the amount of R$ 18,667 (R$ 18,667 at 03/31/2014) and over 365 days in the amount of R$ 500,000 (R$ 500,000 at 03/31/2014), totaling R$ 518,667 (R$ 518,667 at 03/31/2014).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015135
 

 

e)Borrowings and onlending

 

   03/31/2015   03/31/2014 
   0-30   31-180   181-365   Over 365 days   Total   %   Total   % 
Borrowings   3,220,617    15,158,381    14,116,458    19,687,475    52,182,931    54.2    32,751,753    42.6 
Domestic   900,736    120,569    100,884    105,069    1,227,258    1.3    747,029    1.0 
Foreign (*)   2,319,881    15,037,812    14,015,574    19,582,406    50,955,673    52.9    32,004,724    41.6 
Onlending   1,121,460    5,730,328    6,564,747    30,665,665    44,082,200    45.8    44,175,469    57.4 
Domestic – official institutions   1,118,876    5,730,328    6,564,742    30,665,665    44,079,611    45.8    44,007,506    57.2 
BNDES   372,992    1,934,290    2,353,049    12,206,808    16,867,139    17.5    16,534,413    21.5 
FINAME   739,608    3,754,925    4,159,709    18,070,060    26,724,302    27.8    26,992,682    35.1 
Other   6,276    41,113    51,984    388,797    488,170    0.5    480,411    0.6 
Foreign   2,584    -    5    -    2,589    0.0    167,963    0.2 
Total   4,342,077    20,888,709    20,681,205    50,353,140    96,265,131         76,927,222      
% per maturity term   4.5    21.7    21.5    52.3                     
Total – 03/31/2014   3,919,808    19,075,725    14,212,653    39,719,036    76,927,222                
% per maturity term   5.1    24.8    18.5    51.6                     

(*) Foreign borrowings are basically represented by foreign exchange transactions related to export pre-financing and import financing.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015136
 

 

f) Subordinated debt

 

   03/31/2015   03/31/2014 
   0-30   31-180   181-365   Over 365 days   Total   %   Total   % 
CDB   -    842,421    5,038,957    1,829,691    7,711,069    13.0    12,337,510    21.9 
Financial treasury bills   218,286    350,392    7,454    25,468,148    26,044,280    43.7    25,182,905    44.6 
Euronotes   91,161    264,386    -    25,000,732    25,356,279    42.6    17,885,755    31.7 
Bonds   11,023    4,716    15,278    455,018    486,035    0.8    186,098    0.3 
(-) Transaction costs incurred (Note 4b)   -    -    -    (70,184)   (70,184)   (0.1)   (57,829)   (0.1)
Total Other Liabilities   320,470    1,461,915    5,061,689    52,683,405    59,527,479         55,534,439      
Redeemable preferred shares   -    -    -    -    -    -    889,561    1.6 
Grand total (*)   320,470    1,461,915    5,061,689    52,683,405    59,527,479         56,424,000      
% per maturity term   0.5    2.5    8.5    88.5                     
Total – 03/31/2014   258,246    4,175,417    2,734,235    49,256,102    56,424,000                
% per maturity term   0.5    7.4    4.8    87.3                     

 (*) According to current legislation, the accounting balance of subordinated debt as of March 2015 was used for the calculation of referential equity as of December, 2012, considering instruments approved after the closing date to compose Tier II, totaling R$ 53,920,747.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015137
 

 

Description
Name of security / currency  Principal amount
(original currency)		   Issue   Maturity   Return p.a.  Account balance 
                        
Subordinated CDB - BRL                       
    400,000    2008    2015   119.8% of CDI   842,420 
    50,000    2010    2015   113% of CDI   86,714 
    465,835    2006    2016   100% of CDI + 0.7% (*)   1,115,628 
    2,719,268    2010    2016   110% to 114% of CDI   4,715,157 
    122,500             IPCA + 7.21%   237,086 
    366,830    2010    2017   IPCA + 7.33%   714,064 
                  Total   7,711,069 
                        
Subordinated financial bills - BRL                       
    365,000    2010    2016   100% of CDI + 1.35% to 1.36%   370,277 
    1,874,000             112% to 112.5% of CDI   1,900,938 
    30,000             IPCA + 7%   52,863 
    206,000    2010    2017   IPCA + 6.95% to 7.2%   294,491 
    3,223,500    2011    2017   108% to 112% of CDI   3,392,696 
    352,400             IPCA + 6.15% to 7.8%   520,459 
    138,000             IGPM + 6.55% to 7.6%   210,851 
    3,650,000             100% of CDI + 1.29% to 1.52%   3,742,311 
    500,000    2012    2017   100% of CDI + 1.12%   520,581 
    42,000    2011    2018   IGPM + 7%   52,802 
    30,000             IPCA + 7.53% to 7.7%   41,675 
    460,645    2012    2018   IPCA + 4.4% to 6.58%   616,613 
    3,782,100             100% of CDI + 1.01% to 1.32%   3,933,497 
    6,373,127             108% to 113% of CDI   6,916,006 
    112,000             9.95% to 11.95%   146,628 
    2,000    2011    2019   109% to 109.7% of CDI   2,798 
    12,000    2012    2019   11.96%   17,054 
    100,500             IPCA + 4.7% to 6.3%   135,936 
    1,000             110% of CDI   1,372 
    20,000    2012    2020   IPCA + 6% to 6.17%   29,162 
    1,000             111% of CDI   1,376 
    6,000    2011    2021   109.25% to 110.5% of CDI   8,605 
    2,306,500    2012    2022   IPCA + 5.15% to 5.83%   3,112,208 
    20,000             IGPM + 4.63%   23,081 
                  Total   26,044,280 
                        
Subordinated euronotes - USD                       
    1,000,000    2010    2020   6.2%   3,291,915 
    1,000,000    2010    2021   5.75%   3,193,579 
    750,000    2011    2021   5.75% to 6.2%   2,524,034 
    550,000    2012    2021   6.2%   1,764,400 
    2,625,000    2012    2022   5.5% to 5.65%   8,395,352 
    1,870,000    2012    2023   5.13%   6,116,815 
                  Total   25,286,095 
                        
Subordinated bonds - CLP   41,528,200    2008    2033   3,5% to 4,5%   230,920 
    47,831,440    2014    2034   3.8%   255,115 
                  Total   486,035 
                        
Total                     59,527,479 

(*) 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$ 91,161 (R$ 64,307 at 03/31/2014), with maturities of 31 to 180 days in the amount of R$ 264,386 (R$ 187,099 03/31/2014) and over 365 days in the amount of R$ 24,930,547 (R$ 17,576,520 at 03/31/2014), totaling R$ 25,286,094 (R$ 17,827,926 at 03/31/2014).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015138
 

 

Note 11 - Insurance, pension plan and capitalization operations

 

a)Composition of the technical provisions

 

   Insurance   Pension plan   Capitalization   Total 
   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014 
Unearned premiums   3,792,229    5,348,197    12,471    9,697    -    -    3,804,700    5,357,895 
Mathematical provision of benefits to be granted and benefits granted   12,865    19,439    106,740,111    89,782,218    -    -    106,752,976    89,801,657 
Redemptions and Other Unsettled Amounts   20,738    19,404    181,127    162,635    -    -    201,865    182,039 
Financial surplus   1,397    1,366    527,128    491,071    -    -    528,525    492,437 
Unsettled claims   692,401    3,474,549    15,413    15,077    -    -    707,814    3,489,626 
Claims / events incurred but not reported (IBNR)   468,689    794,061    19,413    12,444    -    -    488,102    806,505 
Administrative and Related Expenses   40,007    192,565    71,841    46,659    13,758    36,970    125,606    276,194 
Mathematics for Capitalization and Redemptions   -    -    -    -    3,032,687    2,995,558    3,032,687    2,995,558 
Raffles Payable and To Be Held   -    -    -    -    27,286    25,658    27,286    25,658 
Complementary Raffles   -    -    -    -    2,720    4,504    2,720    4,504 
Other provisions(1)   517,309    351,080    547,513    808,470    349    3,562    1,065,171    1,163,112 
Total (2)   5,545,635    10,200,662    108,115,017    91,328,271    3,076,800    3,066,252    116,737,452    104,595,185 

(1) It considers mostly the Supplemental Coverage Provision, regulated by SUSEP Circular No. 462, of March 1, 2013.

(2) This table covers the amendments established by Susep Circular No. 462, of of March 1, 2013, also for comparison purposes.

 

The total of Technical Provisions represents the amount of obligations after the Liability Adequacy Test is carried out.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015139
 

 

b)Assets guaranteeing technical provisions - SUSEP

 

   Insurance   Pension plan   Capitalization   Total 
   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014 
Interbank investments – money market   810,602    1,034,147    689,246    552,320    775,885    922,714    2,275,733    2,509,181 
Securities and derivative financial instruments   2,875,879    3,664,875    107,870,599    90,712,876    2,485,954    2,243,903    113,232,432    96,621,654 
PGBL / VGBL fund quotas (1)   -    -    101,507,939    84,664,815    -    -    101,507,939    84,664,815 
Government securities - domestic   -    -    67,876,117    56,233,348    -    -    67,876,117    56,233,348 
National treasury bills   -    -    18,752,683    22,314,489    -    -    18,752,683    22,314,489 
National treasury notes   -    -    44,171,711    23,997,003    -    -    44,171,711    23,997,003 
Financial treasury bills   -    -    4,951,723    9,921,856    -    -    4,951,723    9,921,856 
Corporate securities   -    -    33,132,116    27,676,138    -    -    33,132,116    27,676,138 
Bank deposit certificates   -    -    3,269,318    3,505,093    -    -    3,269,318    3,505,093 
Debentures   -    -    3,146,741    4,419,288    -    -    3,146,741    4,419,288 
Shares   -    -    560,107    694,279    -    -    560,107    694,279 
Credit note   -    -    640,648    196,541    -    -    640,648    196,541 
Financial treasury bills   -    -    25,444,173    18,856,781    -    -    25,444,173    18,856,781 
Securitized real estate loans   -    -    -    4,156    -    -    -    4,156 
Others   -    -    71,129    -    -    -    71,129    - 
PGBL / VGBL fund quotas   -    -    204,806    375,637    -    -    204,806    375,637 
Derivative financial instruments   -    -    91,416    62,173    -    -    91,416    62,173 
Loans for shares   -    -    379,399    344,319    -    -    379,399    344,319 
Accounts receivable / (payable)   -    -    (175,915)   (26,800)   -    -    (175,915)   (26,800)
Other assets   2,875,879    3,664,875    6,362,660    6,048,061    2,485,954    2,243,903    11,724,493    11,956,839 
Government   967,119    1,121,140    4,499,178    4,665,898    189,073    39,388    5,655,370    5,826,426 
Private   1,908,760    2,543,735    1,863,482    1,382,163    2,296,881    2,204,515    6,069,123    6,130,413 
Receivables from insurance and reinsurance operations (2)   2,130,899    5,632,107    -    -    -    -    2,130,899    5,632,107 
Credit rights   841,143    753,276    -    -    -    -    841,143    753,276 
Commercial – extended guarantee   1,231,584    1,333,143    -    -    -    -    1,231,584    1,333,143 
Reinsurance   58,172    3,545,688    -    -    -    -    58,172    3,545,688 
Total   5,817,380    10,331,129    108,559,845    91,265,196    3,261,839    3,166,617    117,639,064    104,762,942 

(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 lliabilities in Pension plan technical provisions account.

(2) Recorded under Other receivables and Other assets.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015140
 

 

c)Financial and operating income

 

   Insurance   Pension plan   Capitalization   Total 
   01/01 to 03/31/2015   01/01 to 03/31/2014   01/01 to 03/31/2015   01/01 to 03/31/2014   01/01 to   01/01 to   01/01 to   01/01 to 
   Direct   Reinsurance   Withheld   Direct   Reinsurance   Withheld   Direct   Reinsurance   Withheld   Direct   Reinsurance   Withheld   03/31/2015   03/31/2014   03/31/2015   03/31/2014 
Financial income from insurance, pension plan and capitalization operations   88,636    -    88,636    59,438    -    59,438    73,418    -    73,418    82,041    -    82,041    49,471    34,297    211,525    175,776 
Financial income   100,418    -    100,418    100,426    -    100,426    2,806,890    -    2,806,890    1,845,769    -    1,845,769    97,648    79,489    3,004,956    2,025,684 
Financial expenses   (11,782)   -    (11,782)   (40,988)   -    (40,988)   (2,733,472)   -    (2,733,472)   (1,763,728)   -    (1,763,728)   (48,177)   (45,192)   (2,793,431)   (1,849,908)
Operating income from insurance, pension plan and capitalization operations   800,665    (14,553)   786,112    905,964    (167,752)   738,212    69,658    (189)   69,469    49,784    (894)   48,890    136,843    144,408    992,424    931,510 
Premiums and contributions   1,225,118    (17,530)   1,207,588    1,881,646    (310,621)   1,571,025    4,118,347    (1,719)   4,116,628    3,159,654    (894)   3,158,760    636,779    566,053    5,960,995    5,295,838 
Changes in technical provisions   229,147    236    229,383    (56,710)   (34,113)   (90,823)   (4,040,978)   -    (4,040,978)   (3,102,106)   -    (3,102,106)   1,447    613    (3,810,148)   (3,192,316)
Expenses for claims, benefits, redemptions and raffles   (369,208)   772    (368,436)   (647,436)   160,457    (486,979)   (5,817)   1,530    (4,287)   (6,627)   -    (6,627)   (502,828)   (435,715)   (875,551)   (929,321)
Selling expenses   (266,498)   1,969    (264,529)   (281,017)   16,525    (264,492)   (1,530)   -    (1,530)   (507)   -    (507)   -    -    (266,059)   (264,999)
Other operating revenues and expenses   (17,894)   -    (17,894)   9,481    -    9,481    (364)   -    (364)   (630)   -    (630)   1,445    13,457    (16,813)   22,308 
Total result from insurance, pension plan and capitalization operations   889,301    (14,553)   874,748    965,402    (167,752)   797,650    143,076    (189)   142,887    131,825    (894)   130,931    186,314    178,705    1,203,949    1,107,286 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015141
 

 

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 of a similar nature and with individual amounts 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 court (Small Claims Court or Regular Court).

 

Individual lawsuits (related to claims with unusual characteristics or involving significant amounts): calculation is carried out on a periodical basis, as from the calculation of the claimed amount which, in turn, is estimated based on de jure or de facto characteristics related to that lawsuit. The amounts considered as probable losses are recorded as provisions.

 

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 are therefore limited to 40 minimum monthly wages. ITAÚ UNIBANCO HOLDING is also party to specific lawsuits over the charging of understated inflation adjustment to savings accounts in connection with economic plans.

 

From 1986 to 1994, the Brazilian federal government implemented several consecutive monetary stabilization plans (MSP) to combat hyperinflation. In order to implement these plans, the Brazilian federal government enacted several laws based on its power to regulate the monetary and financial systems, as granted by the Brazilian federal constitution.

 

Savings account holders at the time these MSPs were implemented challenged the constitutionality of the laws in connection with such plans, claiming, from the banks in which they held savings accounts, additional interest amounts based on the inflation rates applied to the deposit accounts according to the MSPs.

 

We are defendants in numerous standardized lawsuits filed by individuals in respect of the MSP, and we record provisions for such claims upon service of process for a claim. In addition, we are defendants in class actions, similar to the lawsuits by individuals, filed by either (i) consumer protection associations or (ii) the Public Prosecution Office on behalf of savings account holders. Holders of savings accounts may claim any amount due based on such a decision. We record provisions when individual plaintiffs apply to enforce such decisions, using the same criteria adopted to determine provisions for individual lawsuits.

 

The Federal Supreme Court (STF) has issued some decisions favorable to savings account holders, but has not issued a final ruling with respect to the constitutionality of the MSPs as applicable to savings accounts. In relation to a similar dispute with respect to the constitutionality of the MSPs as applicable to time deposits and other private agreements, the STF has decided that the bills were constitutional. As a response to this discrepancy, the National Confederation of the Financial System (CONSIF) an association of Brazilian financial institutions, filed a special proceeding with the STF (Action against the violation of a constitutional fundamental right - “ADPF” No. 165), in which the Central Bank filed an amicus brief, arguing that savings account holders did not incur actual damages and that the MSPs as applicable to savings accounts were in accordance with the federal constitution. Accordingly, the STF suspended the ruling of all appeals involving this matter until it pronounces a final decision. In addition, the Superior Court of Justice (STJ), responsible for decisions about federal legislation, should come forward with a position on several aspects that will directly determine the amount due, should the STF sentence be contrary to the constitutionality of MSPs.

 

The most important rulings will address the following issues: (i) the accrual of compensatory interest on the amount due to the plaintiff, in filings that carry no specific claim to such interest; (ii) the initial date of default interest, in regard to class actions; and (iii) the possibility of compensating the negative difference arising in the month of the MSP implementation, between the interests actually paid on saving accounts and the inflation rate of the same period, with the positive difference arising in the months subsequent to the MSP implementation, between the interests actually paid on saving accounts and the inflation rate of the same period. The STJ also ruled that the term for filing class actions expired 5 years from the date of the MSP implementation. As a consequence, a number of class actions were dismissed by the Judiciary as a result of such ruling.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015142
 

 

No amount is recorded as provision in relation to Civil lawsuits which likelihood of loss is considered possible, which total estimated risk is R$ 1,930,969 (R$ 2,030,328 at March 31, 2014) and the main nature of which refers 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 and is reassessed taking into account court rulings. 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.

 

No amount is recorded as provision in relation to labor claims which likelihood of loss is considered possible, and which total estimated risk is R$ 488,988.

 

-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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015143
 

 

The table below shows the changes in the respective provisions for contingent liabilities and the respective escrow deposits balances:

 

   01/01 to 03/31/2015   01/01 to
03/31/2014		 
   Civil   Labor   Other   Total   Total 
Opening balance   4,643,356    5,597,552    158,831    10,399,739    9,888,019 
(-) Contingencies guaranteed by indemnity clauses (Note 4n I)   (132,284)   (1,028,517)   -    (1,160,801)   (945,077)
Subtotal   4,511,072    4,569,035    158,831    9,238,938    8,942,942 
Monetary restatement/charges   98,209    149,235    -    247,444    120,681 
Changes in the period reflected in results (Notes 13f and 13i)   420,197    331,435    6,468    758,100    651,920 
Increase (*)   532,619    365,560    6,503    904,682    910,680 
Reversal   (112,422)   (34,125)   (35)   (146,582)   (258,760)
Payment   (318,980)   (317,687)   -    (636,667)   (556,699)
Subtotal   4,710,498    4,732,018    165,299    9,607,815    9,158,844 
(+) Contingencies guaranteed by indemnity clauses (Note 4n I)   134,453    1,070,275    -    1,204,728    938,857 
Closing balance (Note 13c)   4,844,951    5,802,293    165,299    10,812,543    10,097,701 
Closing balance at 03/31/2014 (Note 13c)   4,593,491    5,278,129    226,081    10,097,701      
Escrow deposits at 03/31/2015 (Note 13a)   2,015,783    2,585,555    -    4,601,338      
Escrow deposits at 03/31/2014 (Note 13a)   2,105,726    2,485,465    -    4,591,191      

(*) Civil provisions include the provision for economic plans amounting to R$ 70,129 (R$ 68,865 from January 1 to March 31, 2014) (Note 22k).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015144
 

 

-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 03/31/2015   01/01 to 03/31/2014 
Provisions  Legal
obligation		   Contingencies   Total   Total 
Opening balance   3,703,721    2,923,211    6,626,932    8,973,897 
(-) Contingencies guaranteed by indemnity clauses (Note 4n II)   -    (60,645)   (60,645)   (57,028)
Subtotal   3,703,721    2,862,566    6,566,287    8,916,869 
Monetary restatement / charges   54,186    41,200    95,386    136,949 
Changes in the period reflected in results   3,246    71,451    74,697    297,779 
Increase   3,246    81,913    85,159    616,837 
Reversal   -    (10,462)   (10,462)   (319,058)
Payment   (71,232)   (14,286)   (85,518)   (24,273)
Subtotal   3,689,921    2,960,931    6,650,852    9,327,324 
(+) Contingencies guaranteed by indemnity clauses (Note 4n II)   -    61,506    61,506    57,962 
Closing balance (Notes 13c and 14c)   3,689,921    3,022,437    6,712,358    9,385,286 
Closing balance at 03/31/2014 (Notes 13c and 14c)   6,743,833    2,641,453    9,385,286      

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015145
 

 

   01/01 to 03/31/2015   01/01 to
03/31/2014		 
Escrow deposits  Legal
obligation		   Contingencies   Total   Total 
Opening balance   4,324,134    412,301    4,736,435    5,658,098 
Appropriation of income   69,357    13,070    82,427    101,840 
Changes in the period   (87,708)   145,557    57,849    255,325 
Deposited   5,800    145,557    151,357    265,047 
Withdrawals   (9,293)   -    (9,293)   (745)
Reversals to income   (84,215)   -    (84,215)   (8,977)
Closing balance   4,305,783    570,928    4,876,711    6,015,263 
Relocated to assets pledged in guarantee of contingencies (Note 12d)   -    -    -    1,002 
Closing balance after relocated (Note 13a)   4,305,783    570,928    4,876,711    6,016,265 
Closing balance at 03/31/2014 (Note 13a)   5,626,253    390,012    6,016,265      

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015146
 

 

The main discussions related to legal obligations are described as follows:

 

·CSLL – Isonomy – R$ 1,022,557: 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 corresponding escrow deposit balance totals R$ 1,005,325;

 

·PIS and COFINS – Calculation basis – R$ 579,224: we defend the levy of contributions on revenue, understood as the revenue from sales of assets and services. The corresponding escrow deposit balance totals R$ 497,636;

 

·IRPJ and CSLL – Taxation of profits earned abroad – R$ 534,666: 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 corresponding escrow deposit balance totals R$ 498,494.

 

Off-balance sheet contingencies - The amounts involved in the main tax and social security lawsuits with likelihood of loss possible, which total an estimated risk of R$ 14,186,446, are described below:

 

·INSS – Non-compensatory amounts – R$ 4,333,565: we defend the non-taxation of these amounts, mainly profit sharing, stock option, transportation vouchers and sole bonus;

 

·IRPJ and CSLL – Goodwill – Deduction – R$ 1,960,096: deductibility of goodwill on acquisition of investments with future expected profitability, and R$ 568,077 of this amount is guaranteed in company purchase agreements;

 

·IRPJ, CSLL, PIS and COFINS – Request for offset dismissed – R$ 1,271,546: cases in which the liquidity and the offset credit certainty are discussed;

 

·IRPJ and CSLL – Interest on capital – R$ 1,223,931: 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;

 

·ISS – Banking Institutions – R$ 798,169: these are banking operations, of which revenue may not be interpreted as price per service rendered and/or arises from activities not listed under Supplementary Law No. 116/03 or Law No. 406/68.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015147
 

c)Receivables - reimbursement of contingencies

 

The receivables balance arising from reimbursements of contingencies totals R$ 705,594 (R$ 723,526 at 03/31/2014) (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:

 

   03/31/2015   03/31/2014 
Securities (basically financial treasury bills – Note 7b)   780,831    879,826 
Deposits in guarantee (Note 13a)   4,299,023    3,768,386 

 

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 CONSOLIDATED, 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 CONSOLIDATED, the deposited amount is released at the full deposited and updates amount.

 

In general, provisions related to lawsuits of ITAÚ UNIBANCO HOLDING CONSOLIDATED 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 CONSOLIDATED 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.

 

e)Program for Cash or Installment Payment of Taxes

 

ITAÚ UNIBANCO HOLDING and its subsidiaries adhered to the Program for Cash or Installment Payment of Taxes, substantially related to the Federal area, established by Law No. 13,097, of January 19, 2015 and Law No. 13,043/2014. The program included debits managed by the Federal Reserve Service of Brazil and was established in accordance with the following main articles:

 

·Refis of Capital Gain Earned in the Merger of Shares from Nova Bolsa - Law 13,097/15 article 145 – Arising from capital gain earned until December 31, 2008 due to the sale of shares resulting from the conversion of equity securities from nonprofit associations.

 

The net effect of the program in the result was R$ 27,309, recorded under Other Operating Income, Income Tax and Social Contribution.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015148
 

 

Note 13 - Breakdown of accounts

 

a)Other sundry receivables

 

   03/31/2015   03/31/2014 
Deferred tax assets (Note 14b I)   43,920,733    39,451,648 
Social contribution for offset (Note 14b I)   621,864    617,133 
Taxes and contributions for offset   3,830,773    3,063,155 
Escrow deposits for legal liabilities and tax and social security contingencies (Note 12b)   9,175,734    9,784,651 
Escrow deposits for legal liabilities – civil and labor (Note 12b)   4,601,338    4,591,191 
Escrow deposits for foreign fund raising program   879,135    627,518 
Receivables from reimbursement of contingent liabilities (Note 12c)   705,594    723,526 
Rights receivable from financial assets sold or transferred   6,919,037    3,248,613 
Sundry domestic debtors   2,111,124    2,114,464 
Premiums from loan operations   2,374,091    1,115,724 
Sundry foreign debtors   2,124,622    774,308 
Retirement plan assets (Note 19)   2,495,577    2,371,368 
Recoverable payments   52,621    322,878 
Salary advances   96,477    98,379 
Amounts receivable from related companies   77,708    39,670 
Operations without credit granting characteristics   545,402    368,652 
Securities and credits receivable   1,105,592    781,226 
(Allowance for loan losses)   (560,190)   (412,574)
Other   462,911    974,138 
Total   80,994,741    70,287,016 

 

In ITAÚ UNIBANCO HOLDING, Other Sundry Receivables is mainly composed of Taxes and Contributions for Offset of R$ 458,093 (R$ 241,138 at 03/31/2014) and Deferred Tax Assets of R$ 13,319 (R$ 184,631 at 03/31/2014 (Note 14b I).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015149
 

 

b)Prepaid expenses

 

   03/31/2015   03/31/2014 
Commissions (1)   2,830,025    3,405,927 
Related to vehicle financing   236,867    434,267 
Related to insurance and pension plan   1,134,886    1,416,194 
Restricted to commissions / partnership agreements (2)   156,109    614,465 
Related to Payroll Loans   1,141,362    718,784 
Other   160,801    222,217 
Advertising   456,293    349,369 
Other   740,291    599,372 
Total   4,026,609    4,354,668 

(1) In the first quarter of 2015, the impact on income from commissions from local correspondents, as described in Note 4g, was R$ 50,482.

(2) In December 2014 the balance was reduced in view of the early termination of the agreement between Itaú Seguros and Via Varejo.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015150
 

 

c)Other sundry liabilities

 

   03/31/2015   03/31/2014 
Provisions for contingent liabilities (Note 12b)   13,834,980    12,739,154 
Provisions for sundry payments   2,184,948    2,028,487 
Personnel provision   1,488,810    1,326,127 
Sundry creditors - local   2,418,536    2,039,005 
Sundry creditors - foreign   2,467,765    1,569,196 
Liabilities for official agreements and rendering of payment services   1,022,714    402,029 
Related to insurance operations   225,560    1,056,255 
Liabilities for purchase of assets and rights   692    3,991 
Creditors of funds to be released   1,338,851    1,523,683 
Funds from consortia participants   42,153    32,050 
Provision for Retirement Plan Benefits (Note 19)   520,892    757,189 
Provision for health insurance (*)   692,178    661,448 
Expenses for lease interests (Note 4i)   657,768    363,723 
Liabilities from transactions related to credit assignments (Note 8f)   4,797,886    3,918,355 
Liabilities from sales operations or transfer of financial assets   4,430,221    37,097 
Other   853,551    797,706 
Total   36,977,505    29,255,495 

(*) 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).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015151
 

 

d)Banking service fees

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Asset management   955,110    915,619 
Funds management fees   801,208    771,608 
Consortia management fee Consortia management fee   153,902    144,011 
Current account services   199,713    190,803 
Credit cards   2,372,176    2,131,947 
Relationship with stores   2,355,373    2,108,798 
Credit card processing   16,803    23,149 
Sureties and credits granted   566,327    451,532 
Loan operations   258,764    190,212 
Guarantees provided   307,563    261,320 
Receipt services   365,451    362,591 
Collection fees   296,647    301,329 
Collection services   68,804    61,262 
Other   594,651    454,892 
Custody services and management of portfolio   66,844    73,598 
Economic and financial advisory   160,248    86,632 
Foreign exchange services   22,249    31,687 
Other services   345,310    262,975 
Total   5,053,428    4,507,384 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015152
 

 

e)Income from bank charges

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Loan operations / registration   263,900    242,314 
Credit cards – annual fees and other services   795,066    680,180 
Deposit account   28,030    28,716 
Transfer of funds   46,684    45,261 
Income from securities brokerage   85,252    77,691 
Service package fees and other   1,149,252    908,268 
Total   2,368,184    1,982,430 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015153
 

 

f)Personnel expenses

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Compensation   (1,947,229)   (1,682,226)
Charges   (670,635)   (556,937)
Welfare benefits (Note 19)   (578,446)   (473,945)
Training   (34,467)   (34,606)
Labor claims and termination of employees (Note 12b)   (396,031)   (344,272)
Stock Option Plan   (69,012)   (46,489)
Total   (3,695,820)   (3,138,475)
Employees’ profit sharing   (740,143)   (649,113)
Total including employees’ profit sharing   (4,435,963)   (3,787,588)

 

g)Other administrative expenses

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Data processing and telecommunications   (922,743)   (915,528)
Depreciation and amortization   (518,939)   (506,982)
Installations   (644,553)   (570,819)
Third-party services   (893,213)   (891,610)
Financial system services   (134,533)   (135,506)
Advertising, promotions and publication   (216,645)   (193,291)
Transportation   (100,588)   (105,688)
Materials   (86,907)   (71,416)
Security   (164,918)   (152,781)
Travel expenses   (47,668)   (42,121)
Other   (196,548)   (140,139)
Total   (3,927,255)   (3,725,881)

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015154
 

 

h)Other operating revenue

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Reversal of operating provisions   123,077    7,599 
Recovery of charges and expenses   13,210    15,029 
Program for Settlement or Installment Payment of Federal (Note 12e)   97,559    - 
Other   91,794    27,213 
Total   325,640    49,841 

 

i)Other operating expenses

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Provision for contingencies (Note 12b)   (504,765)   (478,053)
Civil lawsuits   (420,197)   (390,337)
Tax and social security contributions   (78,100)   (84,870)
Other   (6,468)   (2,846)
Selling - credit cards   (756,955)   (594,135)
Claims   (61,517)   (85,782)
Provision for health insurance (Note 13c)   (7,588)   (6,520)
Refund of interbank costs   (64,867)   (54,554)
Other   (447,495)   (445,340)
Total   (1,843,187)   (1,664,384)

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015155
 

 

Note 14 - Taxes

 

a)Composition of expenses for taxes and contributions

 

I -Statement of calculation with income tax and social contribution:

 

Due on operations for the period  01/01 to
03/31/2015		   01/01 to
03/31/2014		 
         
Income before income tax and social contribution   3,155,819    7,093,394 
Charges (income tax and social contribution) at the rates in effect (Note 4o)   (1,262,328)   (2,837,358)
Increase/decrease to income tax and social contribution charges arising from:          
Investments in affiliates and jointly controlled entities   52,720    30,981 
Foreign exchange variation on investments abroad   3,187,102    (413,191)
Interest on capital   510,425    428,024 
Corporate reorganizations (Note 2c)   159,662    156,963 
Dividends and interest on external debt bonds   53,997    40,558 
Other nondeductible expenses net of non taxable income (*)   (6,004,709)   (96,128)
Income tax and social contribution expenses     (3,303,131)   (2,690,151)
Related to temporary differences          
Increase (reversal) for the period   5,779,617    148,295 
Increase (reversal) of prior periods   241,849    (7,190)
(Expenses)/Income from deferred taxes   6,021,466    141,105 
Total income tax and social contribution expenses   2,718,335    (2,549,046)

(*) Includes temporary (additions) and exclusions.

 

II -Composition of tax expenses:

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
PIS and COFINS   (853,610)   (1,041,995)
ISS   (226,896)   (201,697)
Other   (163,339)   (124,962)
Total (Note 4o)   (1,243,845)   (1,368,654)

 

In ITAÚ UNIBANCO HOLDING tax expenses amount to R$ 87,816 (R$ 63,333 at 03/31/2014) and are mainly composed of PIS and COFINS.

 

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 CONSOLIDATED 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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015156
 

 

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     
   03/31/2014   03/31/2015   12/31/2014   Realization /
Reversal		   Increase   03/31/2015   03/31/2014 
                             
Reflected in income and expense accounts             34,999,143    (3,293,861)   9,221,136    40,926,418    35,718,078 
Related to income tax and social contribution loss carryforwards             5,364,024    (31,509)   5,303,240    10,635,755    6,248,862 
Related to disbursed provisions             19,542,545    (1,293,027)   1,384,933    19,634,451    18,989,992 
Allowance for loan losses             18,087,004    (873,860)   1,131,228    18,344,372    17,392,238 
Adjustment to market value of securities and derivative financial instruments (assets/liabilities)             195,583    (195,583)   220,778    220,778    43,161 
Allowance for real estate             264,711    (131,616)   30,636    163,731    175,616 
Goodwill on purchase of investments             901,179    (85,121)   -    816,058    1,271,630 
Other             94,068    (6,847)   2,291    89,512    107,347 
Related to non-disbursed provisions (*)   32,215,881    27,676,461    10,092,574    (1,969,325)   2,532,963    10,656,212    10,479,224 
Related to the operation   26,998,914    21,346,200    7,560,470    (1,969,325)   2,532,963    8,124,108    8,392,437 
Provision for contingent liabilities   13,628,720    11,413,409    4,299,579    (184,203)   413,108    4,528,484    5,274,927 
Civil lawsuits   4,244,298    4,630,511    1,817,990    (95,010)   170,429    1,893,409    1,753,498 
Labor claims   3,572,110    4,005,545    1,460,030    (79,294)   142,968    1,523,704    1,418,932 
Tax and social security contributions   5,765,521    2,747,817    1,010,522    (9,899)   99,710    1,100,333    2,084,557 
Other   46,791    29,536    11,037    -    1    11,038    17,940 
Adjustments of operations carried out in futures settlement market   1,766,344    1,829,511    3,196    -    679,308    682,504    686,239 
Legal obligation - tax and social security contributions   2,175,870    1,610,394    392,510    (307,315)   282,304    367,499    326,800 
Provision related to health insurance operations   661,448    692,178    273,827    -    3,044    276,871    264,579 
Other non-deductible provisions   8,766,532    5,800,708    2,591,358    (1,477,807)   1,155,199    2,268,750    1,839,892 
Related to provisions exceeding the minimum required not disbursed – allowance for loan losses   5,216,967    6,330,261    2,532,104    -    -    2,532,104    2,086,787 
                                    
Reflected in stockholders’ equity accounts             3,082,986    (162,035)   73,364    2,994,315    3,733,570 
Corporate reorganizations (Note 2c)   8,802,858    6,924,476    2,513,984    (159,662)   -    2,354,322    2,992,972 
Adjustment to market value of available-for-sale securities   1,851,495    1,599,983    569,002    (2,373)   73,364    639,993    740,598 
Total   42,870,234    36,200,920    38,082,129    (3,455,896)   9,294,500    43,920,733    39,451,648 
Social contribution for offset arising from Option established in article 8 of Provisional Measure No. 2,158-35 of August 24, 2001             644,891    (23,027)   -    621,864    617,133 

(*) From a financial point of view, rather than recording the provision of R$ 27.676.461 (R$ 32,215,881 at 03/31/2014) and deferred tax assets of R$ 10,656,212 (R$ 10,479,224 at 03/31/2014), only the net provisions of the corresponding tax effects should be considered, which would reduce the total deferred tax assets from R$ 43,920,733 (R$ 39,451,648 at 03/31/2014) to R$ 33,264,521 (R$ 28,972,424 at 03/31/2014).

 

At ITAÚ UNIBANCO HOLDING, the deferred tax assets totaled R$ 13,319 (R$ 184,631 at 03/31/2014) and are basically represented by legal liabilities – tax and social security of R$ 5,594 (R$ 16,162 at 03/31/2014), provision administrative of R$ 5,372 (R$ 4,429 at 03/31/2014) and social contribution loss carryforwards of R$ 2,235 (R$ 163,944 at 03/31/2014), which expected realization is dependent upon the progress of the lawsuit.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015157
 

 

II -Provision for Deferred Income Tax and Social Contribution balance and its changes are shown as follows:

 

   12/31/2014   Realization /
Reversal		   Increase   03/31/2015   03/31/2014 
Reflected in income and expense accounts   4,056,830    (400,832)   112,826    3,768,824    6,195,148 
Depreciation in excess – leasing   2,507,980    (281,827)   -    2,226,153    3,806,908 
Restatement of escrow deposits and contingent liabilities   986,004    (102,548)   -    883,456    1,164,330 
Provision for pension plan benefits   336,799    -    75,968    412,767    356,878 
Adjustment to market value of securities and derivative financial instruments   5,621    (5,621)   16,036    16,036    206,478 
Adjustments of operations carried out in future settlement market   5,907    (5,907)   -    -    364,037 
Taxation of results abroad – capital gains   164,651    (4,452)   -    160,199    134,033 
Other   49,868    (477)   20,822    70,213    162,484 
Reflected in stockholders’ equity accounts   937,308    (16,175)   158,269    1,079,402    467,880 
Adjustment to market value of available-for-sale securities   122,170    (16,175)   -    105,995    19,056 
Cash flow hedge   373,592    -    148,925    522,517    122,025 
Provision for pension plan benefits (*)   441,546    -    9,344    450,890    326,799 
Total   4,994,138    (417,007)   271,095    4,848,226    6,663,028 

(*) Reflected in stockholders' equity, pursuant to CVM Resolution nº 695/12 (Note 19).

 

At ITAÚ UNIBANCO HOLDING, the provision for deferred income tax and social contribution totals R$ 3,298 (R$ 3,727 at 03/31/2014), mainly represented by restatement of escrow deposits and contingent liabilities.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015158
 

  

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 March 31, 2015, 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		    % 
 2015    8,610,646    26%   786,640    8%   9,397,286    21%   200,268    32%   (1,061,200)   22%   8,536,354    21%
 2016    5,758,668    17%   1,116,373    10%   6,875,041    16%   299,328    48%   (1,039,723)   22%   6,134,646    15%
 2017    5,845,131    18%   1,058,270    10%   6,903,401    16%   122,268    20%   (1,057,813)   22%   5,967,856    15%
 2018    3,153,230    9%   1,730,276    16%   4,883,506    11%   -    0%   (291,172)   6%   4,592,334    12%
 2019    2,864,595    9%   964,093    9%   3,828,688    9%   -    0%   (311,057)   6%   3,517,631    9%
 after 2019    7,052,708    21%   4,980,103    47%   12,032,811    27%   -    0%   (1,087,261)   22%   10,945,550    28%
 Total    33,284,978    100%   10,635,755    100%   43,920,733    100%   621,864    100%   (4,848,226)   100%   39,694,371    100%
 Present value (*)    28,483,447         8,699,702         37,183,149         578,134         (4,153,203)        33,608,080      

(*) 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 carry forwards are not used as an indication of future net income.

 

IV-There are no unrecorded deferred tax assets at 03/31/2015 and 03/31/2014.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015159
 

  

c)Tax and social security contributions

 

   03/31/2015   03/31/2014 
Taxes and contributions on income payable   1,995,932    2,268,449 
Taxes and contributions payable   1,421,202    1,431,512 
Provision for deferred income tax and social contribution (Note 14b II)   4,848,226    6,663,028 
Legal liabilities – tax and social security (Note 12b)   3,689,921    6,743,833 
Total   11,955,281    17,106,822 

 

At ITAÚ UNIBANCO HOLDING, the balance of Tax and Social Security Contributions totals R$ 244,094 (R$ 92,448 at 03/31/2014) and is mainly comprised of Taxes and contributions on income payable of R$ 239,651 (R$ 87,652 at 03/31/2014).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015160
 

  

d)Taxes paid or provided for and withheld from third parties

 

The amount of taxes paid or provided for is mainly from those 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.

 

   03/31/2015   03/31/2014 
Taxes paid or provided for   5,834,892    5,211,765 
Taxes withheld and collected from third parties   3,814,102    2,607,666 
Total   9,648,994    7,819,431 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015161
 

  

Note 15 – Permanent Assets

 

a)Investment

 

I - Change of investments - ITAÚ UNIBANCO HOLDING

   Balance at 12/31/2014   Changes             
   Book value                       Equity in earnings of subisidiaries                     
Companies  Stockholders'
equity		   Adjustments under
investor criteria (1)		   Unrealized
results		   Goodwill   Balance at
12/31/2014		   Amortization
of goodwill		   Dividends / interest
on capital
paid/provided for (2)		   Earnings/
(loss)		   Changes in
exchange rates		   Adjustments under
investor criteria (1)		   Unrealized
results		   Total   Adjustments in
marketable securities of
subsidiaries and other		   Corporate
Events (3)		   Balance at
03/31/2015		   Balance at
03/31/2014		   Equity in earnings
of subsidiaries
from 01/01 to
03/31/2014		 
Domestic   61,095,712    27,405    (495,139)   24,287    60,652,265    (1,584)   (980,162)   3,703,439    -    (36,172)   32,987    3,700,254    (65,538)   (399,424)   62,905,811    54,272,144    2,706,783 
Itaú Unibanco S.A.   49,772,836    6,470    (437,129)   24,287    49,366,464    (1,584)   -    1,949,991    -    (15,546)   27,313    1,961,758    (56,095)   -    51,270,543    46,193,265    2,342,617 
Banco Itaú BBA S.A.   5,685,182    23,400    (57,048)   -    5,651,534    -    -    211,429    -    (19,259)   4,712    196,882    (7,708)   -    5,840,708    5,052,740    70,511 
Banco Itaucard S.A. (4)   2,609,183    (4,228)   (962)   -    2,603,993    -    (893,710)   1,213,090    -    (668)   962    1,213,384    (637)   -    2,923,030    1,918,501    309,775 
Itaú-BBA Participações S.A.   1,268,626    1,763    -    -    1,270,389    -    (86,450)   293,228    -    (699)   -    292,529    (1,067)   -    1,475,401    1,068,054    (16,903)
Itaú Corretora de Valores S. A. (4)   1,759,868    -    -    -    1,759,868    -    -    35,700    -    -    -    35,700    (29)   (399,424)   1,396,115    39,566    782 
Itau Seguros S.A.   16    -    -    -    16    -    (2)   1    -    -    -    1    (1)   -    14    17    1 
Itaú Administração Previdenciaria Ltda.   1    -    -    -    1    -    -    -    -    -    -    -    (1)        -    -    - 
Itaú Soluções Previd, Ltda. (5)   -    -    -    -    -    -    -    -    -    -    -    -    -    -    -    1    - 
                                                           -                          
Foreign   5,806,993    -    -    102,817    5,909,810    (12,851)   (63,110)   177,598    1,111,839    -    -    1,289,437    16,790    (24,752)   7,115,324    4,671,875    (93,977)
Itaú Chile Holdings, INC.   4,618,932    -    -    90,483    4,709,415    (11,310)   -    47,596    961,692    -    -    1,009,288    15,769    -    5,723,162    3,673,222    (101,800)
Banco Itaú Uruguay S.A.   893,805    -    -    9,424    903,229    (1,178)   -    87,871    111,649    -    -    199,520    1,020    -    1,102,591    756,815    2,478 
OCA S.A.   229,168    -    -    2,504    231,672    (313)   (14,328)   39,964    28,567    -    -    68,531    1    -    285,563    189,084    7,710 
OCA Casa Financiera S.A. (6)   61,584    -    -    364    61,948    (45)   (48,782)   2,130    9,501    -    -    11,631    -    (24,752)   -    49,735    (2,062)
ACO Ltda.   3,504    -    -    42    3,546    (5)   -    37    430    -    -    467    -    -    4,008    3,019    (303)
Grand total   66,902,705    27,405    (495,139)   127,104    66,562,075    (14,435)   (1,043,272)   3,881,037    1,111,839    (36,172)   32,987    4,989,691    (48,748)   (424,176)   70,021,135    58,944,019    2,612,806 

(1) Adjustment arising from the standardization of the investee’s financial statements according to the investor’s accounting policies;

(2) Dividends approved and not paid are recorded as Dividends receivable.

(3) Corporate Events arising from acquisitions, spin-offs, merges, takeovers, and increases or decreases of capital.

(4) The investment and the equity in earnings reflect the different interest in preferred shares, profit sharing and dividends.

(5) Company merged on 08/31/2014 by Itaú Administração Previdencíaria Ltda

(6) Company merged on 03/30/2015.

           Net income
for the		   Number of shares/quotas owned by
 ITAÚ UNIBANCO HOLDING		   Equity share in   Equity share in 
Companies  Capital   Stockholders’ equity   Period   Common   Preferred   Quotas   voting capital (%)   capital (%) 
Domestic                                        
Itaú Unibanco S.A.   40,325,563    51,699,287    1,949,990    2,124,156,731    2,057,245,497    -    100.00    100.00 
Banco Itaú BBA S.A.   3,574,844    5,893,045    211,428    4,474,436    4,474,436    -    100.00    100.00 
Banco Itaucard S.A. (4)   15,564,076    19,664,392    1,341,562    3,596,744,163    1,277,933,118    -    1.51    2.04 
Itaú Corretora de Valores S. A. (4)   1,140,172    2,745,314    324,558    -    1,097,907    -    -    1.94 
Itaú-BBA Participações S.A.   1,328,562    1,396,115    35,700    548,954    811,503    -    100.00    100.00 
Itau Seguros S.A.   5,065,415    5,817,019    567,197    -    1    450    0.00    0.00 
Itaú Administração Previdenciária Ltda.   59,251    100,016    8,938    -    -    1,299    0.00    0.00 
Foreign                                        
Itaú Chile Holdings, INC.   4,480,710    5,643,988    47,595    100    -    -    100.00    100.00 
Banco Itaú Uruguay S.A.   555,016    1,094,345    87,871    4,465,133,954    -    -    100.00    100.00 
OCA S.A.   18,672    283,053    39,964    1,502,176,740    -    -    100.00    100.00 
ACO Ltda.   16    4,001    38    -         131    99.24    99.24 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015162
 

 

II - Composition of investments

 

a) The table below shows the major investments of ITAÚ UNIBANCO HOLDING CONSOLIDATED:

 

   % participation
at 03/31/2015		   03/31/2015 
   Total   Voting   Stockholders’
equity		   Net income   Investment   Equity in
earnings		 
                         
Domestic             7,758,436    288,084    3,103,604    131,799 
BSF Holding S.A (1) (2)   49.00%   49.00%   1,229,021    114,603    960,700    56,156 
IRB-Brasil Resseguros S.A. (2) (3)   15.01%   15.01%   2,739,817    31,645    404,072    5,045 
Porto Seguro Itaú Unibanco Participações S.A.(2)   42.93%   42.93%   3,789,598    141,836    1,627,045    60,895 
Others (5a) (6)                       111,787    9,703 
Foreign (7a)                       2,166    755 
Total             7,758,436    288,084    3,105,770    132,554 

 

   % participation
at 03/31/2014		   03/31/2014 
   Total   Voting   Stockholders’
equity		   Net income   Investment   Equity in
earnings		 
                         
Domestic             7,377,291    336,860    2,972,189    77,500 
BSF Holding S.A.(1)    49.00%   49.00%   907,358    88,196    882,357    43,216 
IRB-Brasil Resseguros S.A. (2) (3)   15.00%   15.00%   2,711,001    287,826    400,981    43,221 
Porto Seguro Itaú Unibanco Participações S.A.(2) (3)   42.93%   42.93%   3,758,932    (39,162)   1,613,837    (16,860)
Others (5b) (6)                       75,014    7,923 
Foreign             41,107    2,835    74,334    1,490 
MCC Corredora de Bolsa (4)    50.05%   50.05%   19,253    858    15,158    429 
MCC Securities Inc. (4)   50.00%   50.00%   21,854    1,977    57,614    1,006 
Others (7b)                       1,562    55 
Total             7,418,398    339,695    3,046,523    78,990 
(1)Includes goodwill in the amount of R$ 358,480 at 03/31/2015 (R$ 437,751 at 03/31/2014);
(2)For the purpose of accounting for participation in earnings, the position at 02/28/2015 and 02/28/2014, as provided for in Circular Letter nº 1,963 of August 23, 1991, from BACEN;
(3)Adjustments resulting from standardization of the financial statements of the investee to the financial policies of invetidora;
(4)Consolidated companies from 08/01/2014.
(5)a) At 03/31/2015, includes Latosol Empreendimentos e Participações LTDA, Kinea Private Equity, Olímpia Promoção e Serviços S.A. and Tecnologia Bancária S.A. b) At 03/31/2014 Latosol Empreendimentos e Participações LTDA, Olímpia Promoção e Serviços S.A. and Tecnologia Bancária S.A.
(6)Includes equity income not arising from profit.
(7)a) At 03/31/2015, includes Compãnia Uruguaya de Medios de Processamiento e rias Redbanc S.A.. b) At 03/31/2014, includes, Compãnia Uruguaya de Medios de Processamiento e rias Redbanc S.A. and Rosefield Finance Ltda.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015163
 

 

III) Other investments

 

   03/31/2015   03/31/2014 
Other investments   642,365    532,066 
Shares and quotas   50,936    145,107 
Investments through tax incentives   201,625    193,447 
Equity securities   15,430    12,898 
Other   374,374    180,614 
(Allowance for loan losses)   (208,902)   (203,122)
Total   433,463    328,944 
Equity - Other investments   1,112    10,632 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015164
 

 

b) Fixed assets, goodwill and intangible assets

 

I) Fixed assets

 

   Real Estate in Use (2) (3)   Other Fixed Assets (3)     
Real estate in use (1)  Land   Buildings   Improvements   Installations   Furniture and
equipment		   EDP Systems   Other
(communication,
security and
transportation)		   Total 
Annual depreciation rates        4%   10%   10 to 20%   10 to 20%   20 to 50%   10 to 20%     
                                         
Cost                                        
Balance at 12/31/2014   942,571    3,578,226    1,510,346    1,116,719    1,789,039    6,336,816    773,153    16,046,870 
Acquisitions   -    24,364    41,885    16,857    109,450    134,491    12,813    339,860 
Disposals   (75)   (90)   (49,031)   (462)   (20,744)   (140,508)   (2,302)   (213,212)
Exchange variation   1,973    26,679    48,563    5,175    20,567    42,185    3,198    148,340 
Other   -    (405,519)   1,686    403,743    (90,164)   37,209    488    (52,557)
Balance at 03/31/2015   944,469    3,223,660    1,553,449    1,542,032    1,808,148    6,410,193    787,350    16,269,301 
                                         
Depreciation                                        
Balance at 12/31/2014   -    (1,695,460)   (753,421)   (519,761)   (503,692)   (4,534,893)   (478,822)   (8,486,049)
Depreciation expenses   -    (15,133)   (61,901)   (26,325)   (22,309)   (246,333)   (18,932)   (390,933)
Disposals   -    73    49,030    52    7,754    137,371    1,780    196,060 
Exchange variation   -    (5,181)   (23,308)   (1,868)   (10,133)   (31,475)   (2,021)   (73,986)
Other   -    (78)   167    -    1,236    4,811    34    6,170 
Balance at 03/31/2015   -    (1,715,779)   (789,433)   (547,902)   (527,144)   (4,670,519)   (497,961)   (8,748,738)
                                         
Impairment                                        
Balance at 12/31/2014   -    -    -    -    -    -    -    - 
Additions/ assumptions   -    -    -    -    -    -    -    - 
Reversals   -    -    -    -    -    -    -    - 
Balance at 03/31/2015   -    -    -    -    -    -    -    - 
                                         
Book value                                        
Balance at 03/31/2015   944,469    1,507,881    764,016    994,130    1,281,004    1,739,674    289,389    7,520,563 
Balance at 03/31/2014   949,430    1,443,354    598,869    551,359    665,192    2,114,442    298,733    6,621,379 

(1) The contractual commitments for the purchase of the fixed assets totaled R$ 63,700 achievable by 2016.

(2) Includes amounts pledged in guarantee of voluntary deposits (Note 12d).

(3) Includes the amount of R$ 4,626 (R$ 3,423 at 03/31/2014) related to attached real estate; fixed assets under construction in the amount of R$ 1,115,189 (R$ 1,158,675 at 03/31/2014) consisting of R$ 195,193 (R$ 885,390 at 03/31/2014) in real estate in use; R$ 36,491 (R$ 11,921 at 03/31/2014) in improvements, and R$ 883,505 (R$ 261,364 at 03/31/2014) in equipment.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015165
 

 

II) Goodwill

 

          Changes         
   Amortization
period 		  Balance at
12/31/2014		   Acquisitions   Amortization
expenses		   Impairment    Disposals (*)   Exchange
variation		   Balance at
03/31/2015		   Balance at
03/31/2014		 
Goodwill (Notes 2b and 4j)  10 years   203,919    10,506    (1,136)   -    (12,133)   23,747    224,903    1,893,235 

(*) Goodwill transferred to Intangible resulting from the merger of Itaú Unibanco Financeira (Note 2c)

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015166
 

 

III) Intangible assets

 

       Other intangible assets     
Intangible (1)  Rights for
acquisition of
payroll (2)		   Association for the
promotion and offer
of financial products
and services		   Acquisition of
software		   Development of
software		   Goodwill on
Acquisition
(Note 4k)		   Other Intangible
Assets		   Total 
Annual amortization rates   20%   8%   20%   20%   20%   10% to 20%      
                                    
Cost                                   
Balance at 12/31/2014   1,066,922    1,561,377    1,891,898    2,836,712    1,483,340    2,122,547    10,962,796 
Acquisitions   15,975    -    65,335    112,753    15,167    -    209,230 
Disposals   (18,433)   (12,725)   (9,272)   -    (5,763)   (1,953)   (48,146)
Exchange variation   -    3,940    74,785    -    4,523    80,755    164,003 
Other   (6,582)   640    39,906    -    310,258    (301,835)   42,387 
Balance at 03/31/2015   1,057,882    1,553,232    2,062,652    2,949,465    1,807,525    1,899,514    11,330,270 
                                    
Amortization                                   
Balance at 12/31/2014   (555,311)   (330,524)   (887,177)   (111,981)   (106,044)   (305,685)   (2,296,722)
Amortization expenses (3)   (51,438)   (38,080)   (83,764)   (24,250)   (61,426)   (17,839)   (276,797)
Disposals   18,433    12,725    9,272    -    -    201    40,631 
Exchange variation   -    (1,475)   (34,029)   -    (874)   (63,514)   (99,892)
Other   -    -    190    (509)   (4,891)   3,509    (1,701)
Balance at 03/31/2015   (588,316)   (357,354)   (995,508)   (136,740)   (173,235)   (383,328)   (2,634,481)
                                    
Impairment (4)                                   
Balance at 12/31/2014   (18,251)   (1,792)   -    (13,733)   -    -    (33,776)
Additions/ assumptions   -    -    -    -    -    -    - 
Disposals   -    -    -    -    -    -    - 
Balance at 03/31/2015   (18,251)   (1,792)   -    (13,733)   -    -    (33,776)
                                    
Book value                                   
Balance at 03/31/2015   451,315    1,194,086    1,067,144    2,798,992    1,634,290    1,516,186    8,662,013 
Balance at 03/31/2014   584,903    1,356,241    907,132    2,301,079    10,085    582,184    5,741,624 

(1) The contractual commitments for purchase of the new intangible assets totaled R$ 444,036 achievable by 2016.

(2) 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.

(3) Amortization expenses of the rights for acquisition of payrolls and associations are disclosed in the expenses on financial operations.

(4) Pursuant to BACEN Resolution No. 3,566, of May 29, 2001 (Note 13i).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015167
 

 

Note 16 – Stockholders' equity

 

a)Shares

 

The Extraordinary Stockholders’ Meeting held on April 23, 2014 approved the increase of subscribed and paid-up capital by R$ 15,000,000, with the capitalization of the amounts recorded in Revenue Reserve – Statutory Reserve, with a 10% bonus shares. Bonus shares started being traded on June 6, 2014 and the process was approved by the Central Bank on May 19, 2014. Accordingly, capital stock was increased by 502,802,971 shares.

 

Capital comprises 5,530,832,681 book-entry shares with no par value, of which 2,770,036,544 are common and 2,760,796,137 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$ 75,000,000 (R$ 60,000,000 at 03/31/2014), of which R$ 51,139,257 (R$ 41,256,449 at 03/31/2014) refers to stockholders domiciled in the country and R$ 23,860,743 (R$ 18,743,551 at 03/31/2014) 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 12/31/2014   2,758,685,730    1,043,799,342    3,802,485,072      
Residents abroad at 12/31/2014   11,350,814    1,716,996,795    1,728,347,609      
Shares of capital stock at 12/31/2014   2,770,036,544    2,760,796,137    5,530,832,681      
Shares of capital stock at 03/31/2015   2,770,036,544    2,760,796,137    5,530,832,681      
Residents in Brazil at 03/31/2015   2,758,916,866    1,012,318,787    3,771,235,653      
Residents abroad at 03/31/2015   11,119,678    1,748,477,350    1,759,597,028      
Treasury shares at 12/31/2014   2,541    53,828,551    53,831,092    (1,327,880)
Purchase of treasury shares   -    16,596,600    16,596,600    (568,270)
Exercised – granting of stock options   -    (2,096,703)   (2,096,703)   1,330 
Disposals – stock option plan   -    (6,485,989)   (6,485,989)   227,727 
Treasury shares at 03/31/2015 (1)   2,541    61,842,459    61,845,000    (1,667,093)
Outstanding shares at 03/31/2015   2,770,034,003    2,698,953,678    5,468,987,681      
Outstanding shares at 03/31/2014 (2)   2,770,034,003    2,696,739,374    5,466,773,377      

(1)Own shares, purchased based on authorization of the Board of Directors, to be held in Treasury for subsequent cancellation or replacement in the market.
(2)For better comparability, outstanding shares for the period ending March 31, 2014 were adjusted for the bonus of June 6, 2014.

 

We detail below of the cost of shares purchased in the period, as well the average cost of treasury shares and their market price (in Brazilian reais per share) at 03/31/2015:

 

Cost / Market value  Common   Preferred 
Minimum   -    33.12 
Weighted average   -    34.24 
Maximum   -    35.07 
Treasury shares          
Average cost   7.97    26.96 
Market value   32.18    35.31 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015168
 

  

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 non-cumulative 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$ 0.015 per share.

 

I - Calculation

 

Net income   5,554,851      
Adjustments:          
 (-) Legal reserve   (277,742)     
Dividend calculation basis   5,277,109      
Mandatory dividend   1,319,277      
Dividend – paid/provided for   1,319,277    25.0%

 

II – Payments / provision of interest on capital and dividends

 

   Gross   WTS   Net 
Paid / Prepaid   164,147    -    164,147 
Dividends - 2 monthly installments of R$ 0.015 per share paid in February and March 2015   164,147    -    164,147 
                
Declared (recorded in other liabilities – Social and Statutory)   1,344,495    (189,365)   1,155,130 
Dividends - 1 monthly installment of R$ 0.015 per share paid on 04/01/2015   82,064    -    82,064 
Interest on capital - R$ 0.2308 per share   1,262,431    (189,365)   1,073,066 
                
Total from 01/01 to 03/31/2015 - R$ 0.2412 net per share   1,508,642    (189,365)   1,319,277 
Total from 01/01 to 03/31/2014 - R$ 0.1605 net per share   898,690    (101,312)   797,378 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015169
 

  

c)Capital and revenue reserves

 

   03/31/2015   03/31/2014 
Capital reserves   1,217,048    827,314 
Premium on subscription of shares   283,512    283,512 
Granted options recognized – Law No. 11,638, Share-based instruments and Share-based payment   932,431    542,697 
Reserves from tax incentives and restatement of equity securities and other   1,105    1,105 
Revenue reserves   28,333,556    31,629,212 
Legal   6,118,392    5,138,941 
Statutory:   22,215,164    26,490,271 
Dividends equalization (1)   8,303,179    8,574,464 
Working capital increase (2)   6,060,247    7,543,379 
Increase in capital of investees (3)   7,851,738    10,372,428 

(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.

 

d)Conciliation of net income and stockholders’ equity (Note 2b)

 

  Net income   Stockholders’ equity 
   01/01 to
03/31/2015		   01/01 to
03/31/2014		   03/31/2015   03/31/2014 
ITAÚ UNIBANCO HOLDING   5,554,851    3,357,380    102,550,308    89,647,487 
Amortization of goodwill   126,091    429,883    (1,026,653)   (1,664,396)
Corporate reorganizations (Note 2c)   469,595    469,594    (4,570,154)   (5,809,886)
Foreign exchange variation on investments / Net investment hedge in foreign operations (Note 4s)   (417,584)   162,222    -    - 
ITAÚ UNIBANCO HOLDING CONSOLIDATED   5,732,953    4,419,079    96,953,501    82,173,205 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015170
 

 

e)Minority interest in subsidiaries

 

   Stockholders’ equity   Net Income 
   03/31/2015   03/31/2014   01/01 to
03/31/2015		   01/01 to
 03/31/2014		 
Itau Bank, Ltd. (*)   -    889,561    -    - 
Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento   468,345    378,907    (31,661)   (24,800)
Banco Itaú BMG Consignado S.A. (Note 2c)   860,229    299,262    (45,896)   (3,784)
Luizacred S.A. Soc. Cred. Financiamento Investimento   269,621    247,631    (26,248)   (29,044)
IGA Participações S.A.   53,369    51,515    (666)   (521)
Investimentos Bemge S.A.   22,548    21,052    (401)   (314)
Banco Investcred Unibanco S.A.   18,276    19,342    1,582    (255)
Others   7,603    11,882    (2,125)   (5,137)
Total   1,699,991    1,919,152    (105,415)   (63,855)

(*) Represented by Preferred Shares issued on December 31, 2002 and redeemed on March 31, 2015 by Itau Bank Ltd., in the amount of US$ 393,072 thousand, with dividends calculated based on LIBOR plus 1.25% p.a., payable on a monthly basis.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015171
 

 

f) Share-based payment

 

ITAÚ UNIBANCO HOLDING and its subsidiaries have share-based payment programs aimed at involving its management members and employees in the medium and long-term corporate development process.

 

These payments are only made in years in which there are sufficient profits to enable the distribution of mandatory dividends, in order to limit the maximum dilution to which stockholders are subject, and at a quantity that does not exceed the limit of 0.5% of the total shares held by the controlling and minority stockholders at the balance sheet date.

 

These programs are settled by the delivery of ITUB4 treasury shares to stockholders.

 

From January 1 to March 31, 2015, the accounting effect of the share-based payment in income was R$ (291,526) (R$ (86,425) from January 1 to March 31, 2014).

 

I – Stock Option Plan (Simple Options)

 

ITAÚ UNIBANCO HOLDING has a Stock Option Plan (“Simple Options”) aimed at involving management members and employees in the medium and long-term corporate development program of ITAÚ UNIBANCO HOLDING and its subsidiaries, offering them the opportunity to take part in the appreciation that their work and dedication bring to the shares.

 

In addition to the grants provided under the Plan, ITAÚ UNIBANCO HOLDING also maintains control over the rights and obligations in connection with the options granted under the plans assumed at the Extraordinary Stockholders’ Meetings held on April 24, 2009 and April 19, 2013 related to the Unibanco – União de Bancos Brasileiros S.A. and to Unibanco Holdings S.A., and to Redecard S.A. (“Rede”) stock option plans, respectively. The exchange of shares for ITUB4 did not have relevant financial impact accordingly.

 

Simple options have the following characteristics:

 

a)Exercise price: calculated based on the average prices of shares in the three (3) months of the year prior to the grant date. The prices determined will be restated until the last business day of the month prior to the option exercise date based on IGP-M or, in its absence, on the index to be internally determined, and they should be paid within a period equal to that in force for settlement of operations on BM&FBOVESPA.

 

b)Vesting period: determined upon the issue, from one (1) to seven (7) years, counted from the grant date. The vesting period is normally determined at five (5) years.

 

c)Fair value and economic assumptions for cost recognition: the fair value of Simple Options is calculated on the grant date based on the Binominal model. Economic assumptions used are as follows:

 

(i)Exercise price: exercise price previously agreed upon the option issue, adjusted by the IGP-M variation;

 

(ii)Price of the underlying asset (ITUB4 shares): closing price on BM&FBOVESPA on the calculation base date.

 

(iii)Expected dividends: the average annual return rate for the last three (3) years of dividends paid plus interest on capital of the ITUB4 share;

 

(iv)Risk-free interest rate: IGP-M coupon rate at the expiration date of the Simple Option.

 

(v)Expected volatility: calculated based on the standard deviation from the history of the last 84 monthly returns of the ITUB4 share closing prices, disclosed by BM&FBOVESPA, adjusted by the IGP-M variation.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015172
 

 

   Simple options 
   Quantity   Weighted
average
Exercise price		   Weighted
average
Market value		 
Opening balance at 12/31/2014   50,147,374    35.67      
Options exercisable at the end of the period   26,247,536    35.37      
Options outstanding not exercisable   23,899,838    36.00      
Options:               
Granted   -    -      
Canceled/Forfeited (*)   (364,058)   36.59      
Exercised   (50,084)   26.55    36.73 
Closing balance at 03/31/2015   49,733,232    36.34      
Options exercisable at the end of the period   26,230,994    35.93      
Options outstanding not exercisable   23,502,238    36.80      
Range of exercise prices               
Granting 2008-2009        26,61 - 40,70      
Granting 2010-2012        26,27 - 43,23      
Weighted average of the remaining contractual life (in years)   2.58           

(*) Refers to non-exercise due to the beneficiary’s option.

 

   Simple options 
   Quantity   Weighted
average
Exercise price		   Weighted
average
Market value		 
Opening balance at 12/31/2013   65,316,846    32.85      
Options exercisable at the end of the period   32,734,794    30.42      
Options outstanding not exercisable   32,582,052    36.25      
Options:               
Granted   -    -      
Canceled/Forfeited (*)   (27,465)   35.21      
Exercised   (3,404,265)   26.22    29.29 
Closing balance at 03/31/2014   61,885,116    34.15      
Options exercisable at the end of the period   29,633,388    31.18      
Options outstanding not exercisable   32,251,728    36.88      
Range of exercise prices               
Granting 2006-2009        25,63 - 43,34      
Granting 2010-2012        26,27 - 41,63      
Weighted average of the remaining contractual life (in years)   3.29           

(*) Refers to non-exercise due to the beneficiary’s option.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015173
 

 

ll – Partner Plan

 

The employees and management members of ITAÚ UNIBANCO HOLDING and its subsidiaries may be selected to participate in the program that invests a percentage of their bonus to acquire ITUB4 shares and share-based instruments; accordingly, the ownership of these shares should be held by the beneficiaries for a period from three (3) to five (5) years, counted from the initial investment, and are thus subject to market price variation. After complying with the suspension conditions set forth in the program, beneficiaries will be entitled to receive ITUB4 as consideration, in accordance with the numbers of shares provided for in the program regulation.

 

The acquisition price of own shares and Share-Based Instruments is established every six months and is equivalent to the average of the ITUB4 quotation in the 30 days prior to the determination of the acquisition price.

 

The fair value of the ITUB4 as consideration is the market price at the grant date, less expected dividends.

 

The weighted average of the fair value of the ITUB4 as consideration was estimated at R$ 36.62 per share at March 31, 2015 (R$ 28.42 per share at March 31, 2014).

 

Law No. 12,973/14, which adjusted tax legislation to the international accounting standards and terminated the Transition Tax Regime (RTT), set up a new legal framework for payments made in shares. We made changes to the Partner Plan, and adjusted its tax effects, to conform with this new legislation.

 

Changes in the Partner Program

 

   Quantity 
Balance at 12/31/2014   24,304,025 
New granted   9,456,891 
Cancelled   (251,905)
Exercised   (2,046,619)
Balance at 03/31/2015   31,462,392 
Weighted average of remaining contractual life (years)   2.55 

 

   Quantity 
Balance at 12/31/2013   18,351,820 
New granted   7,341,061 
Cancelled   (1,619)
Exercised   (2,687,433)
Balance at 03/31/2014   23,003,829 
Weighted average of remaining contractual life (years)   2.70 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015174
 

 

II-Variable Compensation

 

The policy established in compliance with CMN Resolution No. 3,921/10 sets forth that fifty percent (50%) of the management’s variable compensation should be paid in cash and fifty percent (50%) should be paid in shares for a period of three (3) years. Shares are delivered on a deferred basis, of which one-third (1/3) per year, subject to the executive’s remaining with the institution. The deferred unpaid portions may be reversed proportionally to the significant reduction of the recurring income realized or the negative income for the period.

 

The fair value of the ITUB4 share is the market price at its grant date.

 

The weighted average of the fair value of ITUB4 shares was estimated at R$ 34.36 per share at March 31, 2015 (R$ 27.86 per share at March 31, 2014).

 

Change in variable compensation in shares  2015 
    Quantity 
Balance at 12/31/2014   9,770,192 
New   6,262,332 
Delivered   (3,877,685)
Cancelled   (236,103)
Balance at 03/31/2015   11,918,736 

 

Change in variable compensation in shares  2014 
    Quantity 
Balance at 12/31/2013   5,214,388 
New   5,266,861 
Delivered   (1,702,585)
Cancelled   (28,885)
Balance at 03/31/2014   8,749,779 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015175
 

 

Note 17 – Related parties

 

a)Transactions between related parties are disclosed in compliance with CVM Resolution n° 642, of October 7, 2010, and CMN Resolution n° 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 the lack of risk is taken into consideration.

 

The unconsolidated related parties are the following:

 

·Itaú Unibanco Participações S.A. (IUPAR), the Companhia E.Johnston de Participações S.A. (shareholder of IUPAR) e a ITAÚSA, direct and indirect shareholders do ITAÚ UNIBANCO HOLDING;

 

·The non-financial subsidiaries of ITAÚSA, specially: Itautec S.A., Duratex S.A., Elekeiroz S.A., ITH Zux Cayman Company Ltd and Itaúsa Empreendimentos S.A.;

 

·Fundação Itaú Unibanco - Previdência Complementar, FUNBEP – Fundo de Pensão Multipatrocinado, Fundação Bemgeprev, UBB Prev - Previdência Complementar, and Fundação Banorte Manuel Baptista da Silva de Seguridade Social, closed-end supplementary pension entities that administer retirement plans sponsored by ITAÚ UNIBANCO HOLDING and / or its subsidiaries;

 

·Fundação Itaú Social, Instituto Itaú Cultural, Instituto Unibanco, Instituto Assistencial Pedro Di Perna, Instituto Unibanco de Cinema and Associação Itaú Viver Mais, entities sponsored by ITAÚ UNIBANCO and subsidiaries to act in their respective areas of interest, as described in Notes 22e and 22j; and

 

·Investments in Porto Seguro Itaú Unibanco Participações S.A. and BSF Holding S.A.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015176
 

 

The transactions with these related parties are basically characterized by:

 

   ITAÚ UNIBANCO HOLDING  ITAÚ UNIBANCO HOLDING CONSOLIDATED  
      Assets / (liabilities)   Revenue / (expense)      Assets / (liabilities)   Revenue / (expense)  
   Annual rate  03/31/2015   03/31/2014   01/01 to
03/31/2015		   01/01 to
03/31/2014		   Annual rate  03/31/2015   03/31/2014   01/01 to
03/31/2015		   01/01 to
03/31/2014		  
Interbank investments      40,701,568    35,483,079    1,015,796    842,730       21,385    -    641   -  
Itaú Unibanco S.A.  12.65% pre fixed or 100% of Selic   31,174,355    28,684,060    881,824    730,141       21,385    -    641   -  
Grand Cayman Branch  2,14% to 6.36% pre fixed   9,008,251    6,799,019    120,355    112,589       -    -    -   -  
Itaú Unibanco S.A. Nassau Branch  10.75% pre fixed   518,962    -    13,617    -       -    -    -   -  
Securities and derivative financial instruments      16,346,155    11,528,233    198,976    164,273       -    -    -   -  
Grand Cayman Branch  5.13% to 6.20% pre fixed   16,346,155    11,528,233    198,976    164,273       -    -    -   -  
Deposits      -    -    -    (2,274)      -    -    -   -  
Itaú Unibanco S.A.      -    -    -    (2,274)      -    -    -   -  
Securities sold under repurchase agreements      (327)   -    (891)   -       (196,296)   (201,573)   (5,765)  (3,848 )
Itaú Bank, Ltd.      (327)   -    (891)   -       -    -    -   -  
Duratex S.A.      -    -    -    -   100% to 101,5% of Selic   (99,350)   (104,359)   (3,038)  (3,061 )
Elekeiroz S.A.      -    -    -    -   100% of Selic   -    (20,358)   -   (592 )
Itautec S.A.           -    -    -   100% of Selic   (1,581)   (4,293)   (43)  (54 )
Itaúsa Empreendimentos S.A.      -    -    -    -   100% of Selic   (95,364)   (67,577)   (2,684)  -  
Olimpia Promoção e Serviços S.A.      -    -    -    -   100% of Selic   -    (4,986)   -   (141 )
Amounts receivable from (payable to) related companies / Banking service fees (expenses)      (320)   (274)   (930)   (868)      (107,274)   (112,795)   15,608   (120 )
Itaú Unibanco S.A.      (13)   -    -    -       3,407    -    6,924   -  
Itaú Corretora de Valores S. A.      (307)   (274)   (930)   (868)      -    -    -   -  
Itaúsa Investimentos Itaú S.A.      -    -    -    -       -    139    -   335  
Itaúsa Empreendimentos S.A.      -    -    -    -       -    -    (1,792)  -  
Fundação Itaú Unibanco - Previdência Complementar      -    -    -    -       (10,911)   (15,271)   8,488   8,160  
FUNBEP - Fundo de Pensão Multipatrocinado      -    -    -    -       280    237    1,257   1,227  
Fundação BEMGEPREV      -    -    -    -       24    21    150   157  
Fundação Banorte Manuel Baptista da Silva de Seguridade Social      -    -    -    -       (100,262)   (93,229)   75   72  
Other      -    -    -    -       188    (4,692)   506   (10,071 )
Rent revenues (expenses)      -    -    (62)   (62)      -    -    (13,598)  (13,295 )
Itaúsa Investimentos Itaú S.A.      -    -    -    (4)      -    -    (425)  (388 )
Itaú Seguros S.A.      -    -    (47)   (44)      -    -    -   -  
Fundação Itaú Unibanco - Previdência Complementar      -    -    -    -       -    -    (9,832)  (9,523 )
FUNBEP - Fundo de Pensão Multipatrocinado      -    -    -    -       -    -    (3,255)  (3,384 )
Other      -    -    (15)   (14)      -    -    (86)  -  
Donation expenses      -    -    -    -       -    -    (27,000)  (21,000 )
Instituto Itaú Cultural      -    -    -    -       -    -    (27,000)  (21,000 )
Data processing expenses      -    -    -    (7)      -    -    -   (61,973 )
Itautec S.A.      -    -    -    (7)      -    -    -   (61,973 )

 

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$ 974 (R$ 1,943 from 01/01 to 03/31/2014) in view of the use of the 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 S.A. – Complete Financial Statements – March 31, 2015177
 

 

b)Compensation of Management Key Personnel

 

The fees attributed in the period to ITAÚ UNIBANCO HOLDING CONSOLIDATED management members are as follows:

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Compensation   155,259    97,540 
Board of Directors   8,121    3,338 
Management members   147,138    94,202 
Profit sharing   35,787    61,414 
Board of Directors   288    1,371 
Management members   35,499    60,043 
Contributions to pension plans   3,572    1,875 
Board of Directors   1    1 
Management members   3,571    1,874 
Stock option plan – Management members   54,512    40,547 
Total   249,130    201,376 

 

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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015178
 

 

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 CONSOLIDATED.

 

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:

 

           Effects (1) 
   Book value   Market   Results   Stockholders’ equity 
   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014 
Interbank deposits   25,894,799    30,381,789    25,894,886    30,383,364    87    1,575    87    1,575 
Securities and derivative financial instruments   324,059,762    266,581,909    323,795,209    267,161,049    (1,667,399)   (1,195,729)   (264,553)   579,140 
Adjustment of available-for-sale securities                       (689,991)   (1,093,359)   -    - 
Adjustment of held-to-maturity securities                       (977,408)   (102,370)   (264,553)   579,140 
Loan, lease and other credit operations   439,751,189    383,248,971    441,439,861    384,603,868    1,688,672    1,354,897    1,688,672    1,354,897 
Investments                                        
BM&FBOVESPA   14,610    14,610    122,333    123,319    107,723    108,709    107,723    108,709 
Porto Seguro Itaú Unibanco Participações S.A. (2)   1,627,045    1,613,837    3,513,957    3,130,617    1,886,912    1,516,780    1,886,912    1,516,780 
Fundings and borrowings (3)   227,570,782    202,678,144    228,482,147    202,891,478    (911,365)   (213,334)   (911,365)   (213,334)
Subordinated debt (Note 10f)   59,527,479    56,424,000    59,898,714    56,773,555    (371,235)   (349,555)   (371,235)   (349,555)
Treasury shares   1,667,093    1,568,097    2,183,739    1,974,187    -    -    516,646    406,090 

(1) This does not consider the corresponding tax effects.

(2) Parent company of Porto Seguro S.A.

(3) Funding is represented by interbank and time deposits, funds from acceptance and issuance of securities and borrowings.

 

Fair value is a measurement based, whenever possible, on information observable in the market. It is the price estimated at which a non-mandatory transaction to sell an asset or to transfer a liability would occur between market players, on the measurement date, under current market conditions. It does not represent unrealized results of ITAÚ UNIBANCO HOLDING CONSOLIDATED.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015179
 

 

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 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 maturities 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;

 

·Investments - in companies BM&FBOVESPA and Porto Seguro at the share value in stock exchanges.

 

·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 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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015180
 

 

Note 19 – Post-Employments Benefits

 

Pursuant to CVM Resolution No. 695, dated December 13, 2012, we present the policies adopted by ITAÚ UNIBANCO HOLDING CONSOLIDATED and its subsidiaries regarding benefits to employees, as well as the accounting procedures adopted.

 

The total amounts recognized in Income for the Period and Stockholders’ Equity – Asset valuation adjustment were as follows:

 

Total amounts recognized in Income for the period

 

   Defined benefit   Defined contribution   Other benefits   Total 
   01/01 to
03/31/2015		   01/01 to
03/31/2014		   01/01 to
03/31/2015		   01/01 to
03/31/2014		   01/01 to
03/31/2015		   01/01 to
03/31/2014		   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Cost of current service   (15,440)   (17,648)   -    -    -    -    (15,440)   (17,648)
Net interest   (1,498)   (7,005)   54,701    49,008    (4,248)   (3,540)   48,955    38,463 
Contribution   -    -    (39,242)   (37,261)   -    -    (39,242)   (37,261)
Benefits paid   -    -    -    -    3,425    2,253    3,425    2,253 
Total Amounts Recognized   (16,938)   (24,653)   15,459    11,747    (823)   (1,287)   (2,302)   (14,193)

 

Total amounts recognized in Stockholders’ Equity – Asset valuation adjustment

 

   Defined benefit   Defined contribution   Other benefits   Total 
   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014 
At the beginning of the period   (75,206)   (354,467)   (220,808)   (285,565)   (8,436)   6,744    (304,450)   (633,288)
Effects on asset ceiling   7,644    5,193    (11,727)   3,506    -    -    (4,083)   8,699 
Remeasurements   5,362    (3,340)   21,173    27,164    -    (1,582)   26,535    22,242 
Total Amounts Recognized   (62,200)   (352,614)   (211,362)   (254,895)   (8,436)   5,162    (281,998)   (602,347)

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015181
 

 

a) Retirement plans

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED and some of its subsidiaries sponsor defined benefit and variable contribution plans, whose basic purpose is to grant 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, except as described in Note 19c.

 

Employees hired up to July 31, 2002, whom came from Itaú, and until February 27, 2009, whom came from Unibanco, are beneficiaries of the above-mentioned plans. With regards the employees hired after these dates, they have the option to voluntarily participate in a variable contribution plan (PGBL), managed by Itaú Vida e Previdência S.A..

 

Supplementary plans are managed 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)
    Prebeg benefit plan (1)
    UBB PREV defined benefit plan (1)
    Benefit Plan II (1)
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)
Múltipla - Multiempresas de Previdência Complementar   REDECARD Basic Retirement Plan (1)
    REDECARD Supplementary Retirement Plan (2)
    REDECARD Supplementary Plan (3)

(1) Defined benefit plan;

(2) Variable contribution plan;

(3) Defined contribution plan.

 

b) Governance

 

The closed-end private pension entities (EFPC) and benefit plans they manage are regulated in conformity with the related specific legislation. The EFPC are managed by the Executive Board, Advisory Council and Fiscal Council, with some members appointed by the sponsors and others appointed as representatives of active and other participants, pursuant to the respective Entity’s bylaws. The main purpose of the EFPC is to pay benefits to eligible participants, pursuant to the Plan Regulation, maintaining the plans assets invested separately and independently from ITAÚ UNIBANCO HOLDING CONSOLIDATED.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015182
 

 

c) Defined benefit plan

 

I - Main assumptions used in actuarial valuation of Retirement Plans

 

   03/31/2015  03/31/2014
Discount rate (1)  10.24% p.a.  9.72% p.a.
Mortality table (2)  AT-2000  AT-2000
Turnover (3)  Itaú Experience 2008/2010  Itaú Experience 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 adoption of this assumption is based on interest rates obtained from the actual interest curve in IPCA, for medium-term liabilities of retirement plans sponsored by ITAÚ UNIBANCO HOLDING CONSOLIDATED. At 12/31/2014 was adopted a consistent with the economic scenario at the balance sheet date rate, considering the volatility of the interest markets and the models adopted.

(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 compared to the respective basic tables.

The life expectancy in years per 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 CONSOLIDATED, 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.

 

Biometric/demographic assumptions adopted are consistent with the group of participants of each benefit plan, pursuant to the studies carried out by an independent external actuarial consulting company.

 

The main differences 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 (EFPCs) that manage them, are the discount rate and the actuarial method. Regarding the discount rate assumption, EFPCs adopt a rate adherent to the flow of receipts/payments, in accordance with the study conducted by an independent, external consulting company. Regarding the actuarial method, the aggregate method is adopted, 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- Risk Exposure

 

Due to its defined benefit plans, ITAÚ UNIBANCO HOLDING CONSOLIDATED is exposed to a number of risks, the most significant ones are:

 

- Volatility of assets

 

The actuarial liability is calculated by adopting a discount rate defined based on the income from securities issued by the Brazilian treasury (government securities). If the actual income from plan investments is lower than expected, this may give rise to a deficit. The plans have a significant percentage of fixed-income securities pegged to the plan commitments, aiming at minimizing volatility and the short and medium-term risk.

 

- Changes in investment income

 

A decrease in income from public securities will imply a decrease in discount rate and, therefore, will increase the plan actuarial liability. The effect will be partially offset by the recognition of these securities at market value.

 

- Inflation risk

 

Most of plan benefits are pegged to the inflation rates, and a higher inflation will lead to higher obligations. The effect will also be partially offset because a significant portion of the plan assets is pegged to government securities restated by the inflation rate.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015183
 

 

- Life expectancy

 

Most of the plan obligations are to provide life benefits and therefore a increase in life expectancy will result in increased plan liabilities.

 

III –Management of defined benefit plan assets

 

The general purpose of managing EFPC funds is to search for a long-term balance between assets and obligations with payment of retirement benefits, by exceeding the actuarial targets (discount rate plus benefit adjustment index, established in the plan regulations).

 

Regarding the assets guaranteeing the actuarial liability reserves, management should ensure the payment capacity of retirement benefits in the long-term by avoiding the risk of mismatching assets and liabilities in each pension plan.

 

At March 31, 2015 and 2014 the allocation of plan assets and the allocation target for 2015, by type of asset, are as follows:

 

   Fair value   % Allocation
Types  03/31/2015   03/31/2014   03/31/2015   03/31/2014   2015 Target
Fixed income securities   12,382,270    11,496,977    91.10%   91.17%  53% to 100%
Variable income securities   658,639    597,741    4.85%   4.74%  0% to 20%
Structured investments   21,930    17,004    0.16%   0.14%  0% to 10%
Real estate   482,854    472,266    3.55%   3.74%  0% to 7%
Loans to participants   46,847    26,958    0.34%   0.21%  0% to 5%
Total   13,592,540    12,610,946    100.00%   100.00%   

 

The defined benefit plan assets include shares of ITAÚ UNIBANCO HOLDING CONSOLIDATED, its main parent company (ITAÚSA) and of subsidiaries of the latter, with a fair value of R$ 572,436 (R$ 519,045 at 03/31/2014), and real estate rented to Group companies, with a fair value of R$ 451,460 (R$ 469,501 at 03/31/2014).

 

Fair value - the fair value of the plan assets is adjusted up to the report date, as follows:

 

Fixed-Income Securities and Structured Investments – accounted for at market value, considering the average trading price on the calculation date, net realizable value obtained upon the technical addition of pricing, considering, at least, the payment terms and maturity, credit risk and the indexing unit.

 

Variable income securities – accounted for at market value, being so understood the share average quotation at the last day of the month or at the closest date on the stock exchange on which the share has posted the highest liquidity rate.

 

Real Estate – stated at acquisition or construction cost, adjusted to market value upon reappraisals made in 2012, supported by technical appraisal reports. Depreciation is calculated under the straight line method, considering the useful life of the real estate.

 

Loans to participants – adjusted up to the report date, in compliance with the respective agreements.

 

Fund Allocation Target - the fund allocation target is based on Investment Policies that are currently revised and approved by the Advisory Council of each EFPC, considering a five-year period, which establishes guidelines for investing funds guaranteeing Actuarial Liability and for classifying securities.

 

IV- Net amount recognized in the balance sheet

 

Following is the calculation of the net amount recognized in the balance sheet, corresponding to the defined benefit plan:

 

   03/31/2015   03/31/2014 
1 - Net assets of the plans   13,592,540    12,610,946 
2 - Actuarial liabilities   (11,804,081)   (11,677,370)
3- Surplus (1-2)   1,788,459    933,576 
4- Asset restriction (*)   (1,881,919)   (1,296,963)
5 - Net amount recognized in the balance sheet (3-4)   (93,460)   (363,387)
Amount recognized in Assets (Note 13a)   256,016    242,459 
Amount recognized in Liabilities (Note 13c)   (349,476)   (605,846)

(*) Corresponds to the excess of the present value of the available economic benefit, in conformity with item 64 of CVM Resolution nº 695.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015184
 

 

V- Change in the net amount recognized in the balance sheet:

 

   03/31/2015 
   Plan net assets   Actuarial
liabilities		   Surplus   Asset Ceiling   Recognized
amount		 
Value at beginning of the period   13,437,757    (11,694,678)   1,743,079    (1,847,316)   (104,237)
Cost of current service   -    (15,440)   (15,440)   -    (15,440)
Net interest (1)   333,615    (287,935)   45,680    (47,178)   (1,498)
Benefits paid   (201,857)   201,857    -    -    - 
Contributions of sponsor   14,709    -    14,709    -    14,709 
Contributions of participants   3,257    -    3,257    -    3,257 
Effects on asset ceiling   -    -    -    7,644    7,644 
Remeasurements (2) (3)   5,059    (7,885)   (2,826)   4,931    2,105 
Value at end of the period   13,592,540    (11,804,081)   1,788,459    (1,881,919)   (93,460)

 

   03/31/2014 
   Plan net assets   Actuarial
liabilities		   Surplus   Asset Ceiling   Recognized
amount		 
Value at beginning of the period   12,512,070    (11,576,853)   935,217    (1,292,637)   (357,420)
Cost of current service   -    (17,648)   (17,648)   -    (17,648)
Net interest (1)    295,575    (271,615)   23,960    (30,965)   (7,005)
Benefits paid   (188,565)   188,565    -    -    - 
Contributions of sponsor   16,833    -    16,833    -    16,833 
Contributions of participants   3,248    -    3,248    -    3,248 
Effects on asset ceiling   -    -    -    5,193    5,193 
Remeasurements (2) (3)   (28,215)   181    (28,034)   21,446    (6,588)
Value at end of the period   12,610,946    (11,677,370)   933,576    (1,296,963)   (363,387)

(1) Corresponds to the amount calculated on 01/01/2015 based on the beginning amount (Net Assets, Actuarial Liabilities and Restriction of Assets), taking into account the estimated amount of payments/ receipts of benefits/ contributions, multiplied by the discount rate of 10.24% p.a..(On 01/01/2014 the rate used was 9.72% a.a.).

(2) Remeasurements recorded in net assets and asset ceiling correspond to the income earned above/below the expected return rate.

(3) The actual return on assets amounted to R$ 338,674 (R$ 267,360) at March 31, 2014).

 

During the period, contributions made totaled R$ 14,709 (R$ 16,833 from January 1 to March 31, 2014). The contribution rate increases based on the beneficiary’s salary.

 

In 2015, the expected contribution to retirement plans sponsored by ITAÚ UNIBANCO HOLDING CONSOLIDATED is R$ 58,566.

 

The estimate for payment of benefits for the next 10 years is as follows:

 

Period  Estimated
payment		 
2015   845,132 
2016   867,539 
2017   889,038 
2018   915,188 
2019   942,362 
2020 a 2024   4,812,447 

 

VI- Sensitivity of defined benefit obligation

 

The impact, due to the change in the assumption – discount rate by 0.5%, which would be recognized in Actuarial liabilities of the plans, as well as in Stockholders’ Equity – Asset valuation adjustment of the sponsor (before taxes) would amount to:

 

   Effect in actuarial liabilities of
the plans		   Effect which would be
recognized in Stockholders’
Equity (*)		 
Change in Assumption  Value   Percentage of
actuarial
liabilities		   Value 
- Decrease by 0.5%   667,851    5.73%   (314,667)
- Increase by 0.5%   (578,228)   (5.22)%   331,546 

(*) Net of effects of asset ceiling.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015185
 

 

d) 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.

 

I - Change in the net amount recognized in the balance sheet:

 

   03/31/2015   03/31/2014 
   Pension Plan
Fund		   Asset Ceiling   Recognized
Amount		   Pension Plan
Fund		   Asset Ceiling   Recognized
Amount		 
Amount - beginning of the period   2,438,272    (223,616)   2,214,656    2,361,025    (274,533)   2,086,492 
Net interest   59,813    (5,112)   54,701    55,665    (6,657)   49,008 
Contribution   (39,242)   -    (39,242)   (37,261)   -    (37,261)
Effects on asset ceiling   -    (11,727)   (11,727)   -    3,506    3,506 
Remeasurements   9,020    12,153    21,173    26,571    593    27,164 
Amount - end of the period (Note 13a)   2,467,863    (228,302)   2,239,561    2,406,000    (277,091)  2,128,909 

 

In the period, contributions to the defined contribution plans, including PGBL, totaled R$ 54,477 (R$ 52,227 from January 1 to March 31, 2014), of which R$ 39,242 (R$ 37,261 from January 1 to March 31, 2014) arises from pension funds.

 

e)Other post-employment benefits

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED and its subsidiaries do not offer other post-employment benefits, except in those cases arising from obligations under acquisition agreements signed by ITAÚ UNIBANCO HOLDING CONSOLIDATED, as well as in relation to the benefits granted due to a judicial sentence, in accordance with the terms and conditions established, in which health plans are totally or partially sponsored for specific groups of former workers and beneficiaries.

 

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:

 

I - Change in the net amount recognized in the balance sheet:

 

   03/31/2015   03/31/2014 
At the beginning of the period   (170,593)   (146,818)
Cost of interest   (4,248)   (3,540)
Benefits paid   3,425    2,253 
Remeasurements   -    (3,238)
At the end of the period (Note 13c)   (171,416)   (151,343)

 

The estimate for payment of benefits for the next 10 years is as follows:

 

Period  Estimated
payment		 
2015   9,344 
2016   10,034 
2017   10,743 
2018   11,473 
2019   12,174 
2020 a 2024   73,039 

 

II - Sensitivity Analyses - Cost of Healthcare

 

For calculation of benefits obligations projected beyond the assumptions used for the defined benefit plans (Note 19c l), the 9.72% 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:

 

   Recognition  1% increase   1% decrease 
Service cost and cost of interest  Income   2,174    (1,815)
Present value of obligation  Asset valuation adjustment    21,234    (17,723)

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015186
 

 

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) 
   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014 
Assets                                                            
Current assets and long-term receivables                                                            
Cash and cash equivalents   4,929,215    3,445,965    5,025,324    3,509,022    714,228    534,663    543,983    572,136    743,026    706,197    10,695,085    7,788,655 
Interbank investments   26,149,779    21,370,554    5,042,034    3,044,945    4,495,367    3,728,128    9,385,463    15,267,078    457,952    263,472    19,038,137    26,837,044 
Securities   58,476,314    54,111,745    6,786,304    5,548,262    3,963,141    2,402,026    31,208,360    4,817,501    40,450    31,524    99,333,807    66,225,667 
Loan, lease and other credit operations   107,637,151    61,204,397    48,102,024    33,423,092    14,918,072    8,354,578    146,912    105,218    1,236    706    170,709,145    103,020,094 
Foreign exchange portfolio   77,682,732    35,475,384    1,192,560    1,311,597    5,744,073    3,837,451    -    50,675    -    -    84,177,255    40,208,125 
Other assets   6,216,059    1,991,129    7,502,446    4,429,801    644,727    283,109    635,679    950,683    7,042,567    3,376,392    21,891,034    10,982,342 
Permanent assets                                                            
Investments   -    -    8,894    57,778    14,640    7,423    200,589    144,864    703,315    487,212    23,793    65,385 
Fixed and intangible assets   19,593    12,747    927,882    557,978    161,392    153,846    130    327    20,061    17,258    1,129,060    742,155 
Total   281,110,843    177,611,921    74,587,468    51,882,475    30,655,640    19,301,224    42,121,116    21,908,482    9,008,607    4,882,761    406,997,316    255,869,467 
                                                             
Liabilities                                                            
Current and long-term liabilities                                                            
Deposits   80,031,736    65,283,151    47,402,618    33,291,884    11,137,941    6,902,210    4,931,332    944,448    732,256    2,662,286    131,089,723    93,857,763 
Demand deposits   17,676,987    9,866,813    13,549,371    9,037,985    8,278,855    5,459,052    1,164,966    775,640    732,256    2,662,286    40,137,210    26,822,448 
Savings deposits   -    -    8,875,777    5,322,182    -    -    -    -    -    -    8,875,777    5,322,182 
Interbank deposits   48,193,791    16,339,680    207,261    92,027    2,044,790    764,566    3,766,366    168,808    -    -    43,033,599    5,004,096 
Time deposits   14,160,958    39,076,658    24,770,209    18,839,690    814,296    678,592    -    -    -    -    39,043,137    56,709,037 
Deposits received under securities repurchase agreements   20,995,077    13,378,351    486,836    444,468    -    -    13,714,851    2,101,451    1,081,407    9,980    21,285,464    13,115,795 
Funds from acceptance and issuance of securities   1,786,346    2,186,459    5,188,057    3,358,905    7,174,180    4,778,802    1,501,264    2,220,126    -    -    15,649,520    12,532,544 
Borrowings   44,591,154    27,587,858    3,697,502    2,933,142    765,156    624,732    37,532    1    -    -    49,091,345    31,145,733 
Derivative financial instruments   8,809,657    2,150,528    1,635,618    923,227    1,827,498    572,434    509,885    644,196    -    -    12,074,679    3,853,809 
Foreign exchange portfolio   78,059,173    35,415,570    1,192,174    1,310,953    5,667,081    3,835,732    -    50,871    -    -    84,476,318    40,146,145 
Other liabilities   29,490,223    19,749,000    5,293,481    3,267,704    712,049    299,102    1,870,351    1,486,239    4,494,705    93,688    41,567,376    24,770,203 
Deferred income   212,196    151,567    3,951    3,061    67,183    27,435    -    -    1,840    1,352    285,171    183,416 
Minority interest in subsidiaries   -    -    342    244    -    -    -    889,561    -    -    342    889,806 
Stockholders’ equity                                                            
Capital and reserves   17,914,795    11,292,886    9,396,979    6,076,988    2,941,384    2,281,906    19,173,584    13,594,530    2,750,671    2,142,695    51,351,009    34,751,936 
Net income for the period   (779,514)   416,551    289,910    271,899    363,168    (21,129)   382,317    (22,941)   (52,272)   (27,240)   126,369    622,317 
Total   281,110,843    177,611,921    74,587,468    51,882,475    30,655,640    19,301,224    42,121,116    21,908,482    9,008,607    4,882,761    406,997,316    255,869,467 
Statement of Income                                                            
Income from financial operations   1,264,274    1,229,454    1,206,989    1,208,421    461,267    81,397    392,190    58,949    (12,918)   1,151    2,056,063    2,523,278 
Expenses of financial operations   (990,060)   (663,677)   (414,116)   (510,236)   (54,522)   (29,912)   27,159    (54,972)   (2,671)   (751)   (252,225)   (1,203,815)
Result of loan losses   (921,001)   (114,691)   (102,526)   (86,421)   8,793    (25,278)   -    -    (136)   (66)   (1,014,870)   (226,457)
Gross income from financial operations   (646,787)   451,086    690,347    611,764    415,538    26,207    419,349    3,977    (15,725)   334    788,968    1,093,006 
Other operating revenues (expenses)   (132,727)   (34,186)   (311,978)   (258,349)   (26,509)   (40,701)   (37,032)   (26,918)   (32,757)   (24,626)   (544,392)   (378,929)
Operating income   (779,514)   416,900    378,369    353,415    389,029    (14,494)   382,317    (22,941)   (48,482)   (24,292)   244,576    714,077 
Non-operating income   -    -    (1,626)   23,184    -    -    -    -    593    397    (1,130)   23,270 
Income before taxes on income and profit sharing   (779,514)   416,900    376,743    376,599    389,029    (14,494)   382,317    (22,941)   (47,889)   (23,895)   243,446    737,347 
Income tax   -    (349)   (81,874)   (93,794)   (21,419)   (458)   -    -    (2,984)   (3,345)   (106,277)   (97,947)
Statutory participation in income   -    -    (4,950)   (10,895)   (4,442)   (6,177)   -    -    (1,399)   -    (10,791)   (17,072)
Minority interest in subsidiaries   -    -    (9)   (11)   -    -    -    -    -    -    (9)   (11)
Net income (loss)   (779,514)   416,551    289,910    271,899    363,168    (21,129)   382,317    (22,941)   (52,272)   (27,240)   126,369    622,317 
(1)Itaú Unibanco S.A. - Agências Grand Cayman, New York, Tokyo and Nassau Branch, ITAÚ UNIBANCO HOLDING S.A - Agência Grand Cayman.
(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 Valores S.A., Itaú Chile Holdings Inc., BICSA Holdings LTD., Banco Itaú Chile S.A., Itaú Chile Inversiones, Servicios Y Administración S.A., Itaú BBA Corredor de Bolsa Limitada, 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 S.A., Unión Capital AFAP S.A., Banco Itau Paraguay,Itaú BBA México S.A (new company name of Tarjetas Unisoluciones S. A. de Capital Variable), Proserv - Promociones Y Servicios S.A. de C. V., MCC Asesorias Limitada (Note 2c), MCC Securities INC. (Note 2c), Itaú BBA SAS, MCC Corredora de Bolsa (Note 2c) and Itaú BBA Colômbia; only at 03/31/2014, Fundo ETF IPSA e Oca Casa Financeira S.A.; only at 03/31/2015, Itau BBA Mexico Casa de Bolsa S.A. de C.V.
(3)IPI - Itaúsa Portugal Investimentos, SGPS Lda. (49%), Itaúsa Europa - Investimentos, SGPS, Lda., Itaúsa Portugal - SGPS S.A.,Itau BBA International (Cayman) Ltd., Itaú Europa Luxemburgo S.A (new company name of Banco Itaú Europa Luxembourg S.A.), Banco Itaú International (new company name of Banco Itaú Europa International), Itaú Bank & Trust Bahamas Ltd., Itaú International Securities Inc., Itaú Bahamas Directors Ltd., Itaú Bahamas Nominees Ltd., Banco Itau Suisse S.A. and Itaú BBA International PLC; only at 03/31/2014, Itaú Europa SGPS Lda.
(4)Itau Bank Ltd., ITB Holding Ltd., Jasper International Investment LLC, Itaú Bank & Trust Cayman Ltd., Uni-Investments Inter. Corp., Itaú Cayman Directors Ltd., UBT Finance S.A., Itaú Cayman Nominees Ltd., BIE Cayman Ltd.; only at 03/31/2014, Rosefield Finance Ltd. (50%).
(5)Afinco Americas Madeira, SGPS Soc. Unipessoal Ltda, IPI - Itaúsa Portugal Investimentos, SGPS Lda. (51%), Banco Del Paraná S.A.,Topaz Holding Ltd., Itaú USA Inc., Itaú BBA USA Securities Inc., Itaú International Investment LLC, Mundostar S.A., Karen International Ltd., Nevada Woods S.A., Albarus S.A., Garnet Corporation, Itau Global Asset Management, Itaú Asia Securities Ltd., Itaú Middle East Limited, Itaú USA Asset Management Inc., Itau BBA UK Securities Limited, Itaú Japan Asset Management Ltd., Itaú UK Asset Management Limited, Itaú Singapore Securities Pte. Ltd; only at 03/31/2014, Itaú Asia Limited, Unipart B2B Investments S.L and Itaú (Beijing) Investment Consultancy Limited .
(6)Foreign consolidated information presents balances net of consolidation eliminations.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015187
 

  

Note 21 – Risk and capital management

 

Risk management is considered by ITAÚ UNIBANCO HOLDING CONSOLIDATED 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 CONSOLIDATED, risk and capital management is the process in which:

 

·The existing and potential risks in ITAÚ UNIBANCO HOLDING CONSOLIDATED’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 CONSOLIDATED’s strategies are approved;
·The ITAÚ UNIBANCO HOLDING CONSOLIDATED’s risk portfolio is managed considering the best risk-return ratio.

 

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 a possible impact on ITAÚ UNIBANCO HOLDING CONSOLIDATED’s income, capital, liquidity and reputation.

 

Risk management processes are spread throughout the whole institution, aligned with the guidelines of the Board of Directors and Executives that, through panels, define the global objectives that are measured as goals and limits to the risk management units. Control and capital management units, in turn, support the ITAÚ UNIBANCO HOLDING CONSOLIDATED’s management by monitoring and analyzing risk and capital.

 

In compliance with CMN Resolution No. 3,988, BACEN Circular No. 3,547 and BACEN Circular Letter No. 3,565, ITAÚ UNIBANCO HOLDING CONSOLIDATED implemented its capital management structure and its Internal Capital Adequacy Assessment Process (ICAAP), having submitted its first ICAAP report to BACEN in September 2013, related to the June 2013 reporting date.

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED adopts a prospective approach to its capital management, which comprises the following phases:

 

·Identification and analysis of material risks to which ITAÚ UNIBANCO HOLDING CONSOLIDATED is or could be exposed and assessment of capital requirements to cover material risks;
·Capital planning considering the strategic guidelines, economic environment and the guidelines of the Board of Directors;
·Stress test exercises, aimed at analyzing the impact of serious events on the capitalization level of ITAÚ UNIBANCO HOLDING CONSOLIDATED;
·Maintenance of a capital contingency plan for cases in which the capital sources turn out to be unfeasible or insufficient;
·Internal capital adequacy assessment, which consists of comparing the Regulatory Capital with the required capital, according to internal evaluation, to cover any risks incurred;
·Preparation of periodic management reports on capital adequacy for top management and the Board of Directors.

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED’s risk management organizational structure is compliant with the regulations in Brazil and abroad and in line with best market practices. The Market, Credit, Liquidity, Operational and Underwriting risks control is performed in a centralized way by an independent unit, aiming at assuring that ITAÚ UNIBANCO HOLDING CONSOLIDATED’s risks are being managed in accordance with established risk appetite policies, norms and procedures. This independent structure is also responsible for centralizing ITAÚ UNIBANCO HOLDING’s capital management. The purpose of centralizing control is to provide the Executives and the Board of Directors with an overview of ITAÚ UNIBANCO HOLDING CONSOLIDATED’s risk exposure, as well as a prospective view on the adequacy of its capital so as to optimize and speed up corporate decision-making.

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED manages proprietary IT systems to fully meet the applicable rules on capital reserve, and also for risk measurement, in compliance with the models issued by the regulatory models in force. 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 and risk monitoring.

 

Further information on risk management can be found on the website www.itau-unibanco.com.br/ri, under section Corporate Governance / Risk Management – Pillar 3, which is not part of the financial statements.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015188
 

  

I – Market risk

 

Market risk is the possibility of losses arising from variations in the market values of positions held by a financial institution, including the risk of transactions subject to the variations in foreign exchange and interest rates, equities, of price indexes and commodity prices among other indexes on these risk factors.

 

Market risk management is the process through which the ITAÚ UNIBANCO HOLDING CONSOLIDATED plans, monitors and controls the risks of variations in financial instruments market values due to market changes, aimed at optimizing the risk-return ratio, by using an appropriate structure, alerts, models and adequate tools for management limits.

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED’s Market Risk Management Policy is in line with the principles of Resolution No. 3,464, issued by the National Monetary Council (CMN) (as amended), being a set of principles that drive the ITAÚ UNIBANCO HOLDING CONSOLIDATED strategy towards control and management of market risk of all business units and legal entities.

 

The document that details the guidelines set out by the corporate guidelines on market risk control, which is not part of the financial statements, 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.

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED’s market risk management strategy is aimed at balancing corporate business goals, taking into account, among other things:

 

·Political, economic and market conditions;
·The market risk profile of the portfolio and ITAÚ UNIBANCO HOLDING CONSOLIDATED;
·Expertise within the group to support operations in specific markets.

 

The process for managing market risk of ITAÚ UNIBANCO HOLDING occurs within the governance and hierarchy of corporate bodies and limits approved specifically for this purpose, sensitizing different levels and classes of market risk. This market risk framework includes limits that involve the monitoring of aggregate risk indicators (at the portfolio level) and extends its coverage to more granular levels (the individual desk level) with specific limits aiming to improve the process of risk monitoring and understanding and also to prevent risk concentration. These limits are dimensioned considering the projected results of the balance sheet, size of equity, liquidity, complexity and volatility of the market and risk appetite of the institution. Limits are monitored and controlled daily and excesses are reported and discussed in the corresponding corporate bodies. Additionally, daily risk reports used by the business and control areas are issued to the executives. The process of setting these limits levels and breach reporting follows the governance approved by our financial conglomerate’s internal policies.

 

The structure of limits and alerts follows the Board of Directors' guidelines and is approved by corporate bodies composed of members of top management. This structure of limits and alerts enhances effectiveness, and the control coverage is reviewed at least annually.

 

The purpose of market risk of ITAÚ UNIBANCO HOLDING structure is:

 

·Providing visibility and assurance to all executive levels that the assumption of market risks is in line with ITAÚ UNIBANCO HOLDING CONSOLIDATED and the risk-return objective;
·Promoting a disciplined and educated discussion on the global risk profile and its evolution over time;
·Increasing transparency on the way the business seeks to optimize results;
·Providing early warning mechanisms in order to make the effective risk management easier, without jeopardizing the business purposes; and
·Monitoring 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 of processes at ITAÚ UNIBANCO HOLDING CONSOLIDATED.

 

The control of market risk is carried out by an area independent from the business units, and is responsible for carrying out daily measurement, assessment, monitoring of stress scenarios, limits and alerts, applying stress scenarios, analysis and testing, reporting risk results to those accountable for in the business units, in accordance with the governance established and monitoring the actions required adjust positions and/or risk level to make them feasible. In addition, the area provides support to launch new financial products. For this purpose, ITAÚ UNIBANCO HOLDING CONSOLIDATED relies on a structured communication and information flow, aiming at providing feedback for the follow-up of the panels and compliance with the regulatory bodies in Brazil and regulatory agents abroad.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015189
 

  

ITAÚ UNIBANCO HOLDING CONSOLIDATED hedges transactions with clients and proprietary positions, including its foreign investments, in order to mitigate risk arising from fluctuations in relevant market risk factors and maintaining the classification the transactions into the current exposure limits. Derivatives are commonly used for these hedging activities. When these transactions are classified as hedges for accounting purposes, specific supporting documentation is provided, including ongoing follow-up of hedge effectiveness (retrospective and prospective) and other changes in the accounting process. The accounting and managerial hedging procedures are governed by the institutional polices of ITAÚ UNIBANCO HOLDING.

 

Hedge accounting is treated in detail in the financial statement notes.

 

The market risk structure categorizes transactions as part of either the banking portfolio or the trading portfolio, in accordance with general criteria established by CMN Resolution No. 3.464 and BACEN Circular No. 3.354.

 

The trading portfolio consists of all transactions involving financial instruments and goods, including derivatives, which are carried out with the intention of trading.

 

The banking portfolio is basically characterized by transactions from the banking business, and transactions related to the management of the balance sheet of the institution. It has the no-intention of resale and medium- and long-term time horizons as general guidelines.

 

The inherent exposures to market risk in various financial instruments, including derivatives, are composed of various risk factors. A risk factor refers to a market parameter whose variation impacts a position’s valuation. The main risk factors measured by ITAÚ UNIBANCO HOLDING CONSOLIDATED are as follows:

 

·Interest rates: the risk of losses from transactions subject to interest rates variations;
·Foreign exchange-linked interest rate: the risk of losses arising from positions in transactions which are subject to a foreign exchange-linked interest rate;
·Foreign exchange rates: the risk of losses from positions subject to foreign exchange rate variation;
·Price index-linked: the risk of losses from transactions subject to the variations in the price of index-linked interest rates;
·Variable income: risk of loss subject to variation in prices of shares and commodities;

 

CMN has specific rules establishing that the exposure to market risk must be segregated at the least into the following categories: Interest rates, foreign exchange rates, shares and commodities. Price indexes are treated as a risk factor group and are granted the same treatment given to other risk factors, such as interest rates, and foreign exchange rates, among others, and follow the same limit and risk governance structure adopted by ITAÚ UNIBANCO HOLDING CONSOLIDATED for market risk management purposes.

 

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 and historical scenarios);
·Stop loss: metrics which purpose is to review positions, should losses accumulated in a certain period reach a certain amount;
·Concentration: cumulative exposure of a certain financial instrument or risk factor calculated at market value (“MtM – Mark to Market”);
·Stressed VaR: statistical metric arising from VaR calculation, which purpose is to capture higher risk in simulations for the current portfolio, considering returns that can be seen in historical scenarios of extreme volatility.

 

In addition to the aforementioned risk measures, sensitivity and loss control measures are also analyzed. They comprise:

 

·Mismatching analysis (GAPS): graphic representation by risk factor of cash flows expressed at market value, allocated at the maturity dates;

 

·Sensitivity (DV01- 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;

 

·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.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015190
 

  

ITAÚ UNIBANCO HOLDING CONSOLIDATED uses proprietary systems to measure the consolidated market risk. The processing of these systems principally takes place in São Paulo, in an access-controlled environment, being highly available, which has data safekeeping and recovery processes, and counts on such an infrastructure to ensure the continuity of business in contingency (disaster recovery) situations.

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED, maintaining its conservative management and portfolio diversification, continued with its policy of operating within low limits in relation to its capital during the period.

 

At March 31, 2015, ITAÚ UNIBANCO HOLDING CONSOLIDATED recorded total VaR (Historical Simulation) of R$ 221.7 million (R$ 80.6 million at March 31, 2014 Total VaR Parametric).

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015191
 

  

II – Credit risk

 

Credit risk is the possibility of losses arising from the breach by the borrower, issuer or counterparty of the respective agreed-upon financial obligations, the devaluation of loan agreement due to downgrading of the borrower’s, the issuer’s, the counterparty’s risk rating, the reduction in gains or compensation, the advantages given upon posterior renegotiation and the recovery costs.

 

The credit risk management of ITAÚ UNIBANCO HOLDING CONSOLIDATED’s is the primary responsibility of all business units and aims to keep the quality of loan portfolios in levels consistent with the institution’s risk appetite for each market segment in which it operates.

 

ITAÚ UNIBANCO HOLDING CONSOLIDATED 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 CONSOLIDATED’s centralized process for making decisions and establishing a credit policy guarantees the synchrony of credit actions.

 

To protect the institution against losses arising from loan operations, ITAÚ UNIBANCO HOLDING CONSOLIDATED considers all aspects that determine the client’s credit risk to define a provision level that is adequate 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 CONSOLIDATED 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 of measurement of credit risk. This allowance is usually quantified in view of the past performance of loan portfolios, based on exposure, probabilities of default and expected recovery, in case of transactions default.

 

In line with the principles of CMN Resolution No. 3,721 of April 30, 2009, ITAÚ UNIBANCO HOLDING CONSOLIDATED 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, which is not part of the financial statements, can be read on the website www.itau-unibanco.com.br/ri, in the section Corporate Governance, Rules and Policies, Public Access Report – Credit Risk.

 

III – Operational risk

 

For ITAÚ UNIBANCO HOLDING CONSOLIDATED operational risk is defined as the possibility of losses from failure of, insufficient or inadequate internal processes, people and systems, or from external events impacting the realization of strategic, tactical or operational objectives. 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 CONSOLIDATED.

 

The management structure seeks to identify, evaluate, mitigate, monitor and report the operational risk for the purpose of assuring that the quality of the control environment is compliant with the internal guidelines and regulation currently in force.

 

The managers of executive areas use corporate methodologies that are built and made available by the internal control, compliance and operational risk area.

 

Within the governance of the management process there are specific forums to address operational risk, internal control and compliance where periodically there are consolidated reports on risk monitoring, controls, action plans and operational losses presented to the executives of the business areas.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015192
 

  

A summarized version of such policy, which is not part of the financial statements, is available on the website www.itau-unibanco.com.br/ri in the section Corporate Governance, Rules and Policies, Public Access Report – Operational risk.

 

IV – Liquidity risk

 

Liquidity risk is defined as the institution’s possibility of not being able to efficiently meet its expected and unexpected obligations, both current and future, including those arising from the pledged guarantees, without affecting its daily operations and without incurring significant losses.

 

Liquidity risk control is carried out by an area independent from the business areas, and which is responsible for defining the constitution of a reserve, proposing assumptions for behavior of cash flow, identifying, assessing, monitoring, controlling and reporting, on a daily basis, the exposure to liquidity risks in different time horizons, proposing limits for liquidity risk and monitoring the established limits consistent with the risk appetite of the institution, informing on possible noncompliance, considering the liquidity risks individually in countries where ITAÚ UNIBANCO HOLDING CONSOLIDATED operates, simulating the behavior of cash flow under stress conditions, assessing and reporting risks inherent in new products and transactions in a timely fashion, and reporting information required by regulatory bodies. Every activity is subject to analysis by independent areas of validation, internal controls and audit.

 

The measurement of liquidity risk covers all financial transactions of ITAÚ UNIBANCO HOLDING CONSOLIDATED companies, as well as possible contingent or unexpected exposures, such as those arising from settlement services, pledge of endorsements and sureties and credit facilities contracted and not used.

 

The document that expresses the guidelines set forth by the internal policy on liquidity risk, that is not part of the financial statements, may be viewed on the website www.itau-unibanco.com.br/ri, in the section Corporate Governance, Rules and Policies, Public Access Report - Liquidity Risk.

 

V - Insurance, Pension Plan and Capitalization Risks

 

The products that make up the portfolios of ITAÚ UNIBANCO HOLDING’s insurance companies are related to the life insurance and elementary, pension plan and capitalization lines. Therefore, we understand that the major risks inherent in these products are as follows:

 

·Subscription risk is the possibility of losses arising from operations of insurance, pension plan and capitalization that go against the organization’s expectations, directly or indirectly associated with the technical and actuarial bases adopted to calculate premiums, contributions and provisions.

·Market risk is the possibility of incurring losses due to fluctuations in the market values of assets and liabilities comprising the actuarial technical reserves,

·Credit risk is the possibility of a certain debtor failing to meet any obligations in connection with the settlement of operations involving the trade of financial assets or reinsurance;

·Operational risk is the possibility of incurring losses arising from the failure, deficiency or inadequacy or internal processes, personnel and systems, or external events impacting the achievement of strategic, tactical or operational purposes of the insurance, pension plan and capitalization operations;

·Liquidity risk in insurance operations is the possibility of the institution’s failure to timely meet its obligations with insured and pension plan beneficiaries in view of lack of liquidity of the assets comprising the actuarial technical reserves.

 

The management process of insurance, pension plan and capitalization risks is based on responsibilities defined and communicated between the control and business areas, assuring independence between them.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015193
 

  

Note 22 –Supplementary information

 

a)Insurance policy - ITAÚ UNIBANCO HOLDING CONSOLIDATED 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 currencies were:

 

   03/31/2015   03/31/2014 
Permanent foreign investments   51,477,378    35,374,253 
Net amount of other assets and liabilities indexed to foreign currency, including derivatives   (82,650,877)   (56,008,139)
Net foreign exchange position   (31,173,499)   (20,633,886)

 

The net foreign exchange position, considering the tax effects on the net balance of other assets and liabilities indexed to foreign currencies, reflects the low exposure to exchange variations.

 

c)Investment funds and managed portfolios - ITAÚ UNIBANCO HOLDING CONSOLIDATED, 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 
   03/31/2015   03/31/2014   03/31/2015   03/31/2014   03/31/2015   03/31/2014 
Investment funds   499,720,570    454,188,782    499,720,570    454,188,782    2,196    2,236 
Fixed income   464,000,730    416,372,237    464,000,730    416,372,237    1,816    1,848 
Shares   35,719,840    37,816,545    35,719,840    37,816,545    380    388 
Managed portfolios   270,846,044    239,270,615    195,102,993    172,507,508    15,455    15,717 
Customers   136,073,461    238,665,557    96,068,208    82,725,041    15,388    15,658 
Itaú Group   134,772,583    605,058    99,034,785    89,782,467    67    59 
Total   770,566,614    693,459,397    694,823,563    626,696,290    17,651    17,953 

(*) It refers to the distribution after elimination of double-counting of managed portfolios in investment funds.

 

d)Consortia funds

 

   03/31/2015   03/31/2014 
Monthly estimate of installments receivable from participants    149,728     125,739 
Group liabilities by installments   10,980,868    10,177,231 
Participants – assets to be delivered   9,950,560    9,395,349 
Funds available for participants   1,278,609    983,526 
(In units)          
Number of managed groups   799    847 
Number of current participants   400,000    384,493 
Number of assets to be delivered to participants   199,111    220,305 

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015194
 

  

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).

 

During the period from January 1 to March 31, 2015 and 2014 the consolidated companies made no donations and the Foundation’s social net assets totaled R$ 3,056,338 (R$ 2,659,819 at March 31, 2014). 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$ 27,000 (R$ 21,000 from January 1 to March 31, 2014).

 

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 supplementary, 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 Itaú Viver Mais - ITAÚ UNIBANCO HOLDING and is subsidiaries sponsor Associação Itaú Viver Mais, 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.

 

j)Instituto Assistencial Pedro di Perna - ITAÚ UNIBANCO HOLDING and its subsidiaries sponsor Instituto Assistencial Pedro di Perna, an entity whose objective is to provide 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 – ITAÚ UNIBANCO HOLDING and ITAÚ UNIBANCO HOLDING CONSOLIDATED

 

   01/01 to
03/31/2015		   01/01 to
03/31/2014		 
Goodwill on acquisition (Note 15b ll)   (60,215)   (42,498)
COFINS / Provision for loss carryforwards - Porto Seguro (Note 15a II)   -    (59,515)
Favorable decision on thesis of broadening the  PIS / COFINS calculation base from IRB (Note 15a II)   -    33,451 
Program for Cash or Installment Payment of Taxes (Notes 12e and 12f)   27,309    - 
Provision for contingencies - Economic Plans   (42,079)   (41,320)
Total   (74,985)   (109,882)

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015195
 

  

l)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 offsetting 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.

 

m)Law No. 12,973: on May 14, 2014, Law No. 12,973 was published as a conversion of Provisional Measure No. 627 to amend the federal tax legislation on IRPJ, CSLL, PIS and COFINS. Law No. 12,973 provides for the following, among other matters:

 

·revocation of the Transition Tax Regime - RTT, established by Law No. 11,941, of May 27, 2009;
·taxation of legal entities domiciled in Brazil, regarding the equity increase arising from interest on income earned abroad by subsidiaries and affiliates, and income earned by individuals resident in Brazil by means of a legal entity controlled abroad.

 

ITAÚ UNIBANCO HOLDING estimates that said Law No. 12,973 does not have any significant accounting effect on the consolidated financial statements of ITAÚ UNIBANCO HOLDING.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015196
 

  

Report on review of interim financial statements

 

To the Board of Directors and Stockholders

Itaú Unibanco Holding S.A.

 

Introduction

 

We have reviewed the accompanying interim financial statements of Itaú Unibanco Holding S.A. stand alone, which comprise the balance sheet as at March 31, 2015 and the related statements of income, changes in stockholders equity’s and cash flows for the three-month period then ended, as well as the accompanying consolidated interim financial statements of Itaú Unibanco Holding S.A. and its subsidiaries (“Consolidated”), which comprise the consolidated balance sheet as at March 31, 2015 and the related consolidated statements of income and cash flows for the three-month period then ended, and a summary of significant accounting policies and other explanatory information.

 

Management is responsible for the preparation and fair presentation of the stand alone and consolidated interim financial statements in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank (BACEN). Our responsibility is to express a conclusion on these interim financial statements based on our review.

 

Scope of review

 

We conducted our review in accordance with Brazilian and International Standards on Review Engagements (ISRE 2410- Review of Interim Financial Information Performed by the Independent Auditor of the Entity). A review of interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion on the stand alone and Consolidated interim Financial Statements

 

Based on our review, nothing has come to our attention that causes us to believe that the stand alone and the Consolidated interim financial statements referred to above do not present fairly, in all material respects, the financial position of Itaú Unibanco Holding S.A. and Itaú Unibanco Holding S.A. and its subsidiaries as at March 31, 2015 and the parent financial performance and cash flows, as well as the Consolidated financial performance and the Consolidated cash flows, for the three-month period then ended, in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank.

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015197
 

  

Other matters

 

Statement of value added

 

We also have reviewed the interim statements of value added of Itaú Unibanco Holding S.A. and Itaú Unibanco Holding S.A. and its subsidiaries for the three-month period ended March 31, 2015, presented as supplementary information. These statements have been submitted to the same review procedures described in the second paragraph above and, based on our review, nothing has come to our attention that causes us to believe that these statements are not prepared consistently, in all material respects, with the interim financial statements taken as a whole.

 

São Paulo, May 4, 2015

 

PricewaterhouseCoopers

Auditores Independentes

CRC 2SP000160/O-5

 

Washington Luiz Pereira Cavalcanti

Contador CRC 1SP172940/O-6

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015198
 

  

ITAÚ UNIBANCO HOLDING S.A.

 

CNPJ. 60.872.504/0001-23 Listed Company NIRE. 35300010230

 

OPINION OF THE FISCAL COUNCIL

 

The members of the Fiscal Council of ITAÚ UNIBANCO HOLDING S.A., after having examined the financial statements for the period from January to March 2015 and verified the accuracy of all items examined, and in view of the unqualified opinion of PricewaterhouseCoopers Auditores Independentes, understand that these documents adequately reflect the company’s capital structure, financial position and the activities conducted during the period.

 

São Paulo (SP), May 4, 2015.

 

ALBERTO SOZIN FURUGUEM

Member

 

LUIZ ALBERTO DE CASTRO FALLEIROS JOSÉ CARUSO CRUZ HENRIQUES
Member Member

 

Itaú Unibanco Holding S.A. – Complete Financial Statements – March 31, 2015199