SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the month of September 2014
Commission File Number: 001-15276

Itaú Unibanco Holding S.A.
(Exact name of registrant as specified in its charter)
Itaú Unibanco Holding S.A.
(Translation of Registrant’s Name into English)

Praça Alfredo Egydio de Souza Aranha, 100-Torre Itaúsa
04344-902 São Paulo, SP, Brazil
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F:  x      Form 40-F:   o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes:   o      No:   x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes:   o      No:   x

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes:   o      No:   x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  
82-___________________.

 


 
 
 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
Itaú Unibanco Holding S.A.
 
    (Registrant)  
         
         
Date:  September 3, 2014 By: /s/ Alfredo Egydio Setubal  
    Name:  Alfredo Egydio Setubal   
    Title:  Investor Relations Officer    
         
 
         
  By: /s/ Caio Ibrahim David  
    Name: Caio Ibrahim David  
    Title:  Chief Financial Officer  
         

 
 

 
 
 

 

 

 
 
 

 
 
EXHIBIT INDEX
 
 
99.1
Management Report  First Half of 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
MANAGEMENT REPORT – 1st HALF OF 2014
 
Management report
 
To our stockholders:
 
We present the Management Report and the interim financial statements of ITAÚ UNIBANCO HOLDING S.A. and its subsidiaries (ITAÚ UNIBANCO HOLDING PRUDENTIAL) for the periods from January 1 to June 30, 2014, which were prepared in accordance with BACEN Resolution No. 4,280 of October 31, 2013 and Circular Letter No. 3,701 of March 13, 2014, and they achieve the specific purposes of this resolution.
 
 
Net income and stockholder’ equity
 
ITAÚ UNIBANCO HOLDING PRUDENTIAL net income totaled R$ 8,181 billion for the period and net earnings per share were R$ 1.50. Consolidated stockholders’ equity totaled R$ 91,497 billion and the book value per share reached R$ 16.73.
 
 
Assets and funds raised
 
Assets totaled R$ 1,020,371 million and were substantially composed of R$ 347,492 million of Interbank Investments, Securities and Derivative Financial Instruments, and R$ 445,223 million of Loan, Lease and Other Credit Operations and Foreign Exchange Portfolio. Raised and Managed Funds totaled R$ 1,484,831 million.
 
 
Circular letter No. 3,068/01 of BACEN
 
ITAÚ UNIBANCO HOLDING PRUDENTIAL 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$ 25.6 billion, corresponding to only 13.7% of the total securities and derivative financial instruments held.
 
 
Acknowledgements
 
We thank our stockholders and clients for their support and trust, and our employees for their determination and commitment, which have been essential to reaching differentiated results.
 

 
São Paulo, August 28, 2014.
 
Executive Board
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30,  2014
1.1
 
 

 
           
ITAÚ UNIBANCO HOLDING S.A.
   
BOARD OF DIRECTORS
EXECUTIVE BOARD
Chairman
Chief Executive Officer
Pedro Moreira Salles
Roberto Egydio Setubal
   
Vice-Chairmen
Executive Vice-Presidents
Alfredo Egydio Arruda Villela Filho
Alfredo Egydio Setubal (*)
Roberto Egydio Setubal
Candido Botelho Bracher
   
Members
Executive Directors
Alfredo Egydio Setubal
Caio Ibrahim David
Candido Botelho Bracher
Claudia Politanski
Demosthenes Madureira de Pinho Neto
Eduardo Mazzilli de Vassimon
Gustavo Jorge Laboissière Loyola
Ricardo Baldin
Henri Penchas
 
Israel Vainboim
 
Nildemar Secches
 
Pedro Luiz Bodin de Moraes
 
Ricardo Villela Marino
Directors
 
Alexsandro Broedel Lopes
 
Eduardo Hiroyuki Miyaki
 
Emerson Macedo Bortoloto
 
Marcelo Kopel
 
Matias Granata
AUDIT COMMITTEE
Rodrigo Luis Rosa Couto
President
Wagner Bettini Sanches
Geraldo Travaglia Filho
 
   
Members
 
Alkimar Ribeiro Moura
(*) Investor Relations Director
Diego Fresco Gutierrez
 
Luiz Alberto Fiore
 
Maria Helena dos Santos Fernandes de Santana
 
Sergio Darcy da Silva Alves
 
   
FISCAL COUNCIL
 
President
 
Iran Siqueira Lima
 
   
Members
 
Alberto Sozin Furuguem
Accountant
Luiz Alberto de Castro Falleiros
Reginaldo José Camilo
 
CRC-1SP – 114.497/O-9

Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
2.1
 
 

 
            
ITAÚ UNIBANCO HOLDING S.A.
Prudential Consolidated Balance Sheet (Note 2a)
           
(in thousands of Reais)
           
             
Assets
 
Note
   
06/30/2014
 
             
Current assets
          687,649,563  
Cash and cash equivalents
          20,442,104  
Interbank investments
 
4b and 6
      160,520,540  
Money market
          132,521,507  
Interbank deposits
          27,999,033  
Securities and derivative financial instruments
 
4c, 4d and 7
      111,874,152  
Own portfolio
          57,433,625  
Subject to repurchase commitments
          33,092,047  
Pledged in guarantee
          2,032,267  
Securities under resale agreements with free movement
          11,248,985  
Deposited with the Central Bank
          6,072  
Derivative financial instruments
          8,061,156  
Interbank accounts
          86,153,025  
Pending settlement
          6,032,100  
Central Bank deposits
          80,042,642  
National Housing System (SFH)
          2,706  
Correspondents
          75,577  
Interbranch accounts
          118,936  
Loan, lease and other credit operations
    8       213,304,222  
Operations with credit granting characteristics
    4e       226,396,405  
(Allowance for loan losses)
    4f       (13,092,183 )
Other receivables
            93,334,928  
Foreign exchange portfolio
    9       32,469,330  
Income receivable
            5,730,135  
Transactions with credit card issuers
    4e       20,876,733  
Negotiation and intermediation of securities
            2,659,767  
Sundry
    12a       31,598,963  
Other assets
    4g       1,901,656  
Assets held for sale
            156,060  
(Valuation allowance)
            (44,678 )
Prepaid expenses
 
4g and 12b
      1,790,274  
Long-term receivables
            287,135,513  
                 
Interbank investments
 
4b and 6
      730,008  
Securities and derivative financial instruments
 
4c, 4d and 7
      74,367,500  
Own portfolio
            51,379,829  
Subject to repurchase commitments
            18,252,454  
Pledged in guarantee
            589,907  
Derivative financial instruments
            4,145,310  
Interbank accounts - National Housing System (SFH)
            743,002  
Loan, lease and other credit operations
    8       173,579,222  
Operations with credit granting characteristics
    4e       184,609,980  
(Allowance for loan losses)
    4f       (11,030,758 )
Other receivables
            37,248,569  
Foreign exchange portfolio
    9       1,747,604  
Sundry
    12a       35,500,965  
Other assets - Prepaid expenses
    4g       467,212  
Permanent assets
            45,586,410  
                 
Investments
 
4h and 14a I
      23,862,425  
Investments in affiliates and jointly controlled entities
            23,627,014  
Other investments
            386,703  
(Allowance for losses)
            (151,292 )
Real estate in use
 
4i and 14b
      6,129,174  
Real estate in use
            3,067,283  
Other fixed assets
            10,586,438  
(Accumulated depreciation)
            (7,524,547 )
Goodwill
 
4j and 14b
      1,756,767  
Intangible assets
 
4k and 14b
      13,838,044  
Acquisition of rights to credit payroll
            1,117,447  
Other intangible assets
            17,522,674  
(Accumulated amortization)
            (4,802,077 )
                 
Total assets
            1,020,371,486  
The accompanying notes are an integral part of these financial statements.
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
3.1
 
 

 
             
ITAÚ UNIBANCO HOLDING S.A.
Prudential Consolidated Balance Sheet (Note 2a)
             
(in thousands of Reais)
             
               
     
Note
   
06/30/2014
 
               
Current liabilities
            587,720,208  
Deposits
   
4b and 10b
      231,816,976  
Demand deposits
            57,538,379  
Savings deposits
            110,840,114  
Interbank deposits
            3,729,796  
Time deposits
            59,708,687  
Deposits received under securities repurchase agreements
   
4b and 10c
      161,473,662  
Own portfolio
            77,600,158  
Third-party portfolio
            81,093,283  
Free portfolio
            2,780,221  
Funds from acceptances and issuance of securities
   
4b and 10d
      23,815,411  
Real estate, mortgage, credit and similar notes
            19,743,038  
Foreign borrowings through securities
            3,102,447  
Structured Operations Certificates
            969,926  
Interbank accounts
            7,836,943  
Pending settlement
            5,204,188  
Correspondents
            2,632,755  
Interbranch accounts
            5,586,869  
Third-party funds in transit
            5,519,319  
Internal transfer of funds
            67,550  
Borrowings and onlending
   
4b and 10e
      34,538,029  
Borrowings
            21,973,150  
Onlending
            12,564,879  
Derivative financial instruments
   
4d and 7g
      5,441,692  
Other liabilities
            117,210,626  
Collection and payment of taxes and contributions
            5,066,084  
Foreign exchange portfolio
   
9
      33,441,370  
Social and statutory
   
15b II
      3,354,358  
Tax and social security contributions
   
4m, 4n and 13c
      6,130,549  
Negotiation and intermediation of securities
            4,570,248  
Credit card operations
   
4e
      47,484,912  
Subordinated debt
   
10f
      2,770,694  
Sundry
   
12c
      14,392,411  
                 
Long-term liabilities
            338,819,353  
Deposits
   
4b and 10b
      58,614,999  
Interbank deposits
            347,151  
Time deposits
            58,267,848  
Deposits received under securities repurchase agreements
   
4b and 10c
      136,564,762  
Own portfolio
            107,166,266  
Free portfolio
            29,398,496  
Funds from acceptances and issuance of securities
   
4b and 10d
      21,483,226  
Real estate, mortgage, credit and similar notes
            10,180,339  
Foreign borrowings through securities
            10,792,745  
Structured Operations Certificates
            510,142  
Borrowings and onlending
   
4b and 10e
      42,510,144  
Borrowings
            11,556,910  
Onlending
            30,953,234  
Derivative financial instruments
   
4d and 7g
      6,476,136  
Other liabilities
            73,170,086  
Foreign exchange portfolio
   
9
      1,729,833  
Tax and social security contributions
   
4m, 4n and 13c
      9,616,829  
Subordinated debt
   
10f
      49,349,246  
Sundry
   
12c
      12,474,178  
Deferred income
   
4o
      1,139,342  
Minority interest in subsidiaries
   
15d
      1,195,215  
Stockholders’ equity
   
15
      91,497,368  
Capital
            75,000,000  
Capital reserves
            866,514  
Revenue reserves
            18,252,830  
Asset valuation adjustment
   
4c, 4d and 7d
      (1,076,937 )
(Treasury shares)
            (1,545,039 )
                 
Total liabilities and stockholders’ equity
            1,020,371,486  
The accompanying notes are an integral part of these financial statements.
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
3.2
 
 

 
              
ITAÚ UNIBANCO HOLDING S.A.
Prudential Consolidated Statement of Income (Note 2a)
             
(in thousands of Reais)
             
               
     
Note
   
01/01 to
06/30/2014
 
Income from financial operations
            51,138,522  
Loan, lease and other credit operations
            30,905,723  
Financial income from insurance, pension plan and capitalization operations
            16,887,640  
Foreign exchange operations
            154,603  
Compulsory deposits
            3,190,556  
Expenses of financial operations
            (23,857,622 )
Money market
            (23,935,635 )
Borrowings and onlending
            78,013  
Income from financial operations before loan and losses
            27,280,900  
Result of allowance for loan losses
   
8d I
      (6,194,939 )
Expenses for allowance for loan losses
            (8,455,304 )
Income from recovery of credits written off as loss
            2,260,365  
Gross income from financial operations
            21,085,961  
Other operating revenues (expenses)
            (8,406,983 )
Banking service fees
   
12d
      8,556,654  
Asset management
            1,244,955  
Current account services
            380,981  
Credit cards
            4,149,415  
Sureties and credits granted
            919,849  
Receipt services
            794,869  
Other
            1,066,585  
Income from bank charges
   
12e
      4,091,982  
Personnel expenses
   
12f
      (6,994,391 )
Other administrative expenses
   
12g
      (7,965,819 )
Tax expenses
   
4n and 13a II
      (2,423,574 )
Equity in earnings of affiliates, jointly controlled entities and other investments
   
14a II
      72,341  
Other operating revenues
   
12h
      64,812  
Other operating expenses
   
12i
      (3,808,988 )
Operating income
            12,678,978  
Non-operating income
            (21,921 )
Income before taxes on income and profit sharing
            12,657,057  
Income tax and social contribution
   
4n and 13a I
      (4,309,693 )
Due on operations for the period
            (4,010,397 )
Related to temporary differences
            (299,296 )
Profit sharing – Management Members - Statutory - Law No. 6,404 of 12/15/1976
            (136,026 )
Minority interest in subsidiaries
   
15d
      (30,478 )
Net income
            8,180,860  
Weighted average of the number of outstanding shares
   
15a
      5,464,617,720  
Net income per share – R$
            1.50  
Book value per share - R$ (outstanding at 06/30)
            16.73  
The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
3.3
 
 

 
                     
ITAÚ UNIBANCO HOLDING S.A.
Prudential Statement of Changes in Stockholders’ Equity (Note 15)
(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       29,662,972       (1,534,691 )     -       (1,854,432 )     87,144,305  
Reserve Capitalization - ESM 04/23/2014
    15,000,000       -       (15,000,000 )     -       -       -       -  
Granting of stock options
    -       (107,104 )     33,034       -       -       309,393       235,323  
Granting of options recognized
    -       103,162       -       -       -       -       103,162  
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
    -       -       -       429,370       -       -       429,370  
Remeasurements in liabilities of post-employment benefits
    -       -       -       28,384       -       -       28,384  
Net income
    -       -       -       -       8,180,860       -       8,180,860  
Appropriations:
                                                       
Legal reserve
    -       -       409,043       -       (409,043 )     -       -  
Statutory reserves
    -       -       5,544,816       -       (5,544,816 )     -       -  
Dividends and interest on capital
    -       -       200,020       -       (2,227,001 )     -       (2,026,981 )
Balance at 06/30/2014
    75,000,000       866,514       18,252,830       (1,076,937 )     -       (1,545,039 )     91,497,368  
Changes in the period
    15,000,000       (3,942 )     (11,410,142 )     457,754       -       309,393       4,353,063  
The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
3.4
 
 

 
              
ITAÚ UNIBANCO HOLDING S.A.
Prudential Consolidated Statement of Cash Flows
             
(in thousands of Reais)
             
               
     
NOTE
   
01/01 to
06/30/2014
 
Adjusted net income
            22,688,593  
Net income
            8,180,860  
Adjustments to net income:
            14,507,733  
Granted options recognized
            103,162  
Adjustment to market value of securities and derivative financial instruments (assets/liabilities)
   
7h
      (1,464,962 )
Effects of changes in exchange rates on cash and cash equivalents
            1,260,740  
Allowance for loan losses
            8,455,304  
Interest and foreign exchange expense from operations with subordinated debt
            2,064,810  
Depreciation and amortization
   
14b
      2,226,897  
Interest expense from provision for contingent and legal liabilities
   
11b
      452,993  
Provision for contingent and legal liabilities
   
11b
      1,655,661  
Interest income from escrow deposits
   
11b
      (180,131 )
Deferred taxes
            299,296  
Equity in earnings of affiliates, jointly controlled entities and other investments
   
14a II
      (72,341 )
Interest and foreign exchange income from available-for-sale securities
            (304,076 )
Interest and foreign exchange income from held-to-maturity securities
            (135,558 )
(Gain) loss from sale of available-for-sale financial assets
   
7i
      126,001  
(Gain) loss from sale of investments
            10,500  
(Gain) loss from sale of foreclosed assets
            10,435  
(Gain) loss from sale of fixed assets
            30,419  
Minority interest
            30,478  
Other
            (61,895 )
Change in assets and liabilities
            1,967,419  
(Increase) decrease in assets
            (8,431,357 )
Interbank investments
            (159,456 )
Securities and derivative financial instruments (assets/liabilities)
            9,973,012  
Compulsory deposits with the Central Bank of Brazil
            (3,032,361 )
Interbank and interbranch accounts (assets/liabilities)
            2,424,134  
Loan, lease and other credit operations
            (12,897,618 )
Other receivables and other assets
            (3,801,383 )
Foreign exchange portfolio and negotiation and intermediation of securities (assets/liabilities)
            (937,686 )
(Decrease) increase in liabilities
            10,398,776  
Deposits
            8,941,727  
Deposits received under securities repurchase agreements
            (682,467 )
Funds for issuance of securities
            (965,293 )
Borrowings and onlending
            394,871  
Credit card operations (assets/liabilities)
            (3,709,483 )
Collection and payment of taxes and contributions
            4,923,349  
Other liabilities
            1,450,524  
Deferred income
            45,548  
Payment of income tax and social contribution
            (3,938,655 )
Net cash provided by (used in) operating activities
            20,717,357  
Interest on capital / dividends received from affiliated companies
            3,177,645  
Funds received from sale of available-for-sale securities
            42,927,844  
Funds received from redemption of held-to-maturity securities
            1,120,850  
Disposal of assets not for own use
            16,081  
Disposal of investments
            100,023  
Sale of fixed assets
            5,352  
Termination of intangible asset agreements
            190,158  
Purchase of available-for-sale securities
            (28,898,530 )
Purchase of held-to-maturity securities
            (8,069,461 )
Purchase of investments
            (7,771,857 )
Purchase of fixed assets
   
14b
      (1,161,443 )
Purchase of intangible assets
   
14b
      (562,355 )
Net cash provided by (used in) investment activities
            1,074,307  
Increase in subordinated debt
            194,871  
Decrease in subordinated debt
            (5,778,803 )
Change in minority interest
   
15d
      (55,511 )
Granting of stock options
            235,323  
Dividends and interest on capital paid
            (4,053,394 )
Net cash provided by (used in) financing activities
            (9,457,514 )
                 
Net increase (decrease) in cash and cash equivalents
            12,334,149  
                 
Cash and cash equivalents at the beginning of the period
            42,322,152  
Effects of changes in exchange rates on cash and cash equivalents
            (1,260,740 )
Cash and cash equivalents at the end of the period
   
4a and 5
      53,395,561  
The accompanying notes are an integral part of these financial statements.
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
3.5
 
 

 
                   
ITAÚ UNIBANCO HOLDING S.A.
 
Notes to the Prudential Financial Statements
 
Period from January 1 to June 30, 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 and, Administration of Credit Cards, Consortia, Investment Funds and Managed Portfolios.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.1
 
 

 
               
Note 2 – Presentation of the financial statements
 
a)
Presentation of the financial statements
 
The financial statements of ITAÚ UNIBANCO HOLDING PRUDENTIAL have been prepared in accordance with BACEN Resolution No. 4,280 of October 31, 2013 and Circular Letter No. 3,701 of March 13, 2014, and they achieve the specific purposes of this resolution.
 
The definitions and criteria for valuation and recognition of assets, liabilities, income and expenses set forth in the regulation embodied in the Accounting Plan of National Financial System Institutions (COSIF) were applied. For entities not subject to the rules of COSIF, necessary adjustments were made so that the valuation and recognition of assets, liabilities, income and expenses could properly reflect the required regulation.
 
As set forth in paragraph 2 of article 10 of BACEN Circular No. 3.701, of March 13,2014, comparative information for these financial statements is not being presented.
 
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.
 
ITAU UNIBANCO HOLDING PRUDENTIAL prepares its Consolidated Financial Statements, which are available on its Investor Relations website (www.itau-unibanco.com.br/ri).
 
b)
Consolidation
 
As set forth by article 1 of CMN Resolution No. 4,280, of October 31, 2013, the financial statements of the Prudential Conglomerate of ITAÚ UNIBANCO HOLDING PRUDENTIAL include the consolidation of entities located either in Brazil or abroad, over which ITAÚ UNIBANCO HOLDING has direct or indirect control, except for the insurance group that is not governed by item 6, article 1 of Resolution No. 4,280. The ownership interests of ITAÚ UNIBANCO HOLDING PRUDENTIAL in which there is shared control are consolidated proportionally to the respective interest, pursuant to BACEN’s rules.
 
Intercompany transactions and intercompany transactions balances and intercompany results have been eliminated on consolidation. The investment funds in which ITAÚ UNIBANCO HOLDING PRUDENTIAL’s companies are the main beneficiaries or holders of principal obligations are consolidated. The investments in these fund portfolios are classified by type of transaction and were distributed by type of security, in the same categories in which these securities had been originally allocated. The effects of the foreign exchange variation on investments abroad are classified in the heading Securities and Derivative Financial Instruments in the Statement of Income.
 
 
 
 
 
 

Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.2
 
 

 
            
The consolidated financial statements comprise ITAÚ UNIBANCO HOLDING and its direct and indirect subsidiaries, among which we highlight:
 
 
   
Country of
Incorporation
Activity
Interest in voting
capital at
Interest in total
capital at
   
 
 
06/30/2014
06/30/2014
Banco Credicard S.A.
 
Brazil
Financial institution
100.00%
100.00%
Banco Dibens S.A.
 
Brazil
Financial institution
100.00%
100.00%
Banco Itaú Veículos S.A.
 
Brazil
Financial institution
100.00%
100.00%
Banco Investcred Unibanco S.A.
(1)
Brazil
Financial institution
50.00%
50.00%
Banco Itaú Argentina S.A.
 
Argentina
Financial institution
100.00%
100.00%
Banco Itaú BBA S.A.
 
Brazil
Financial institution
99.99%
99.99%
Banco Itaú Chile
 
Chile
Financial institution
99.99%
99.99%
Banco Itaú BMG Consignado S.A
 
Brazil
Financial institution
70.00%
70.00%
Itaú Europa Luxembourg S.A.
 
Luxembourg
Financial institution
100.00%
100.00%
Banco Itaú Paraguay S.A.
 
Paraguay
Financial institution
100.00%
100.00%
Banco Itaú Suisse S.A.
 
Switzerland
Financial institution
100.00%
100.00%
Banco Itaú Uruguay S.A.
 
Uruguay
Financial institution
100.00%
100.00%
Banco Itaucard S.A.
 
Brazil
Financial institution
100.00%
100.00%
Banco Itauleasing S.A.
 
Brazil
Financial institution
100.00%
100.00%
Dibens Leasing S.A. - Arrendamento Mercantil
 
Brazil
Leasing
100.00%
100.00%
Itaú Unibanco Veículos Administradora de Consórcios Ltda.
 
Brazil
Consortia administrator
100.00%
100.00%
Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento
(1)
Brazil
Consumer Finance Credit
50.00%
50.00%
Hipercard Banco Múltiplo S.A.
 
Brazil
Financial institution
100.00%
100.00%
Itaú Administradora de Consórcios Ltda.
 
Brazil
Consortia administrator
100.00%
100.00%
Itaú Ásia Securities Ltd
 
Hong Kong
Broker
100.00%
100.00%
Itau Bank, Ltd.
(2)
Cayman Islands
Financial institution
100.00%
100.00%
Itau BBA Colombia S.A. Corporación Financiera
 
Colombia
Financial institution
100.00%
100.00%
Itaú BBA International PLC
 
United Kingdom
Financial institution
100.00%
100.00%
Itaú BBA USA Securities Inc.
 
United States
Broker
100.00%
100.00%
Itaú Companhia Securitizadora de Créditos Financeiros
 
Brazil
Securitization
100.00%
100.00%
Itaú Corretora de Valores S.A.
 
Brazil
Broker
100.00%
100.00%
Itaú Distribuidora de Títulos e Valores Mobiliários S.A.
 
Brazil
Dealer
100.00%
99.99%
Itaú Unibanco Financeira S.A. - Crédito, Financiamento e Investimento
(1)
Brazil
Consumer Finance Credit
100.00%
100.00%
Itaú Unibanco S.A.
 
Brazil
Financial institution
100.00%
100.00%
Luizacred S.A. Soc. Cred. Financiamento Investimento
(1)
Brazil
Consumer Finance Credit
50.00%
50.00%
Redecard S.A. - REDE
 
Brazil
Acquirer
100.00%
100.00%
Tarjetas Unisoluciones S. A. de Capital Variable
 
Mexico
Credit Card administrator
100.00%
100.00%
(1)
proportionally consolidated companies (Note 2b).
(2)
Does not include Redeemable Preferred Shares (Note 10f).

 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.3
 
 

 
              
c)
Business development
 
REDE
 
On September 24, 2012, ITAÚ UNIBANCO HOLDING and its subsidiaries (ITAÚ UNIBANCO HOLDING CONSOLIDATED) completed the auction of the Tender Public Offer (OPA) to cancel REDE’s listed company register, which occurred on October 18, 2012, pursuant to the OPA call notice published on August 23, 2012. As a result of the auction, ITAÚ UNIBANCO HOLDING CONSOLIDATED started to hold 100.0% of REDE’s capital, with the acquisition of 335,413,093 common shares for R$ 11,752,183.
 
Association agreement with Banco BMG S.A.
 
On July 9, 2012, ITAÚ UNIBANCO HOLDING CONSOLIDATED 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 will be 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 CONSOLIDATED will hold a sixty per cent (60%) interest in the total and voting capital of Itaú BMG Consignado and BMG will hold the remaining forty per cent (40%).
 
Accordingly, as from July 25, 2014 and throughout the period of the Association, Itaú BMG Consignado will be 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 CONSOLIDATED, which will continue to consolidate Itaú BMG Consignado in its financial statements.
 
 
Credicard
 
On May 14, 2013, ITAÚ UNIBANCO HOLDING CONSOLIDATED, 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 restated). The transaction has given rise to goodwill of R$ 1,878,840, which 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. 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 now fully consolidates Banco Credicard and Credicard Promotora de Vendas in the consolidated financial statements from December, 2013.
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.4
 
 

 
        
BMG Seguradora S.A.
 
On June 25, 2013, ITAÚ UNIBANCO HOLDING CONSOLIDATED, through Banco Itaú BMG Consignado S.A. (“JV”), which is an entity indirectly controlled by ITAÚ UNIBANCO HOLDING CONSOLIDATED signed a Share Purchase Agreement with controlling shareholders of Banco BMG S.A. (“Sellers”) whereby JV 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 JV 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$ 88,138. This acquisition has not had any significant accounting impact on the results of ITAÚ UNIBANCO HOLDING CONSOLIDATED, which has consolidated the transaction in its financial statements since January, 2014.
 
Citibank N.A. Uruguay Branch
 
On June 28, 2013, ITAU UNIBANCO HOLDING CONSOLIDATED, 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 will assume 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.
 
The amount involved in the transaction is not material for ITAU UNIBANCO HOLDING CONSOLIDATED and, therefore, will not cause any material accounting effect in its results.
 
The closing of the transaction was subject to the fulfillment of certain conditions precedent, including the approval by competent regulatory authorities, which was obtained on December 10, 2013.
 
Partnership with Fiat
 
On August 20, 2013, ITAÚ UNIBANCO HOLDING CONSOLIDATED 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 CONSOLIDATED and, therefore, will not cause any material accounting effect in its results.
 
Itaú CorpBanca
 
On January 29, 2014, ITAÚ UNIBANCO HOLDING CONSOLIDATED, 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.
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.5
 
 

 
          
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 CONSOLIDATED 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 CONSOLIDATED and 32.92% for Corp Group, and (iii) subsequent integration of Itaú BBA Colombia, S.A. into the operations of Itaú CorpBanca or its subsidiaries.
 
Itaú CorpBanca will be controlled by ITAÚ UNIBANCO HOLDING CONSOLIDATED, which will enter into a stockholders’ agreement with Corp Group when the operation is concluded. This agreement will entitle ITAU UNIBANCO HOLDING CONSOLIDATED 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 CONSOLIDATED will be entitled to elect the majority of these members. The chairmen of the Boards of Directors of Itaú CorpBanca and its subsidiaries will be appointed by Corp Group, and their vice-chairmen by ITAÚ UNIBANCO HOLDING CONSOLIDATED. The executives of Itaú CorpBanca and its subsidiaries will be proposed by ITAÚ UNIBANCO HOLDING CONSOLIDATED 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 CONSOLIDATED, certain strategic matters of Itaú CorpBanca, and it will include provisions on the transfer of shares between ITAU UNIBANCO HOLDING CONSOLIDATED 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 CONSOLIDATED, 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 approvals in Brazil, Chile and Colombia, as well as in other applicable jurisdictions in which CorpBanca carries out activities.
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.6
 
 

 
             
Note 3 – Requirements of capital and fixed asset limits
 
Basel and fixed asset ratios
 
Represented below are the main indicators at June 30, 2014 of ITAÚ UNIBANCO HOLDING CONSOLIDATED, according to present regulation which defines the Financial Conglomerate as the calculation basis:
 
   
Financial
conglomerate(1)
 
Referential equity (2)
    120,033,921  
Basel ratio
    16.0 %
Tier I
    11.5 %
Common Equity
    11.5 %
Additional Capital
    0.0 %
Tier II
    4.5 %
Fixed assets ratio
    48.4 %
Excess capital in relation to fixed assets
    1,910,563  
(1)
Consolidated financial statements including financial companies only. From October, 2013, according to Resolutions No. 4,278, this is the calculation 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 (16.0%, based on Financial consolidated, of which 11.5% of Common Equity and Tier I and 4.5% of Tier II) to be adequate, taking into account that this current Basel ratio exceeds the minimum required by the authorities (11.0%) by 5.0 percent.
 
CMN Resolutions No. 4,192, of March 1st, 2013, No. 4,278 of October 21, 2013 and No. 4,311 of February 20, 2014, provide for the criteria for computation of the Regulatory Capital Minimum Requirements Referential Equity (PRE), Tier I, Capital Principal and Resolution No. 4,193, of March 1st, 2013, which introduces the Additional Capital Principal. In order to calculate the risk portions, the procedures from Circular No 3,644, of March 04, 2013, No. 3,652 of March 26, 2013, No. 3,679, of October 31, 2013 and No. 3,696 of January 3rd, 2014, were followed for credit risk; of the procedures from Circulars Nos. 3,634, 3,635, 3,636, 3,637, 3,638, 3,639, 3,641 and 3,645, of March 04, 2013 and 3,677, of October 31, 2013 and Circular Letters Nos. 3,498 and 3,499, of April 8, 2011 were followed for market risk; and the procedures from Circulars No. 3,640, of March 04, 2013 and No. 3,675, October 31, 2013 and Circular Letters No. 3,625, of December 27, 2013 were followed for operational risk. For the operational risk portion, ITAÚ UNIBANCO HOLDING CONSOLIDATED opted to use the Alternative Standardized Approach.
 
 
 
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.7
 
 

 
            
The referential equity used for the calculation of ratios and the risk-weighted assets at June 30, 2014, are as follows:
 
   
Financial
conglomerate
       
Stockholders’ equity ITAÚ UNIBANCO HOLDING S.A. (Consolidated)
    85,986,770          
Minority interest in subsidiaries
    1,907,583          
Changes in ownership interest in a subsidiary from capital transaction
    5,510,597          
Consolidated stockholders’ equity (BACEN)
    93,404,950          
Preferred shares with clause of redemption excluded from Tier I
    (869,235 )        
Common Equity deductions
    (6,070,260 )        
Common Equity Tier I
    86,465,455          
Instruments eligible to comprise Additional Tier I
    -          
Additional Tier I deductions
    12,554          
Additional Tier I Capital
    12,554          
Tier I (Common Equity + Additional Capital)
    86,478,009          
Instruments eligible to comprise Tier II
    33,546,949          
Tier II deductions
    8,963          
Tier II
    33,555,912          
Regulatory Capital (Tier I + Tier II)
    120,033,921          
Risk-weighted assets
    749,409,292          
Risk-weighted assets of credit risk (RWACPAD)
    687,125,656       91.7 %
(a) Per weighting factor (FPR):
               
FPR at 2%
    53,726       0.0 %
FPR at 20%
    7,168,444       1.0 %
FPR at 35%
    7,333,183       1.0 %
FPR at 50%
    19,749,398       2.6 %
FPR at 75%
    132,446,151       17.7 %
FPR at 85%
    133,408,131       17.8 %
FPR at 100%
    298,906,706       39.9 %
FPR at 150%
    19,188,250       2.6 %
FPR at 250%
    32,424,546       4.3 %
FPR at 300%
    19,731,464       2.6 %
FPR at 1250%
    6,957,848       0.9 %
Derivatives – Future potential gain and Variation of the counterparty credit quality Minimum Required Regulatory Capital
    9,757,809       1.3 %
(b) Per type:
               
Securities
    44,173,705       5.9 %
Loan operations - retail
    108,544,698       14.5 %
Loan operations – non-retail
    233,113,610       31.1 %
Joint obligations - retail
    168,744       0.0 %
Joint obligations – non-retail
    64,006,423       8.5 %
Loan commitments - retail
    23,729,054       3.2 %
Loan commitments – non-retail
    26,474,370       3.5 %
Other exposures
    186,915,052       24.9 %
Risk-weighted assets of operational risk (RWAOPAD)
    36,565,736       4.9 %
Retail
    6,896,618       0.9 %
Commercial
    12,502,173       1.7 %
Corporate finance
    1,126,530       0.2 %
Negotiation and sales
    9,429,660       1.3 %
Payments and settlements
    2,785,068       0.4 %
Financial agent services
    1,813,556       0.2 %
Asset management
    1,993,148       0.3 %
Retail brokerage
    18,983       0.0 %
Business plans
    -       0.0 %
Risk-weighted assets of market risk:
    25,717,900       3.4 %
Gold, foreign currency and operations subject to foreign exchange variation (RWACAM)
    7,059,127       0.9 %
Operations subject to interest rate variation
    16,205,519       2.2 %
Fixed rate denominated in Real (RWAJUR1)
    4,383,155       0.6 %
Foreign currency coupon (RWAJUR2)
    6,378,545       0.9 %
Price index coupon (RWAJUR3)
    5,209,919       0.7 %
Interest rate coupon (RWAJUR4)
    233,900       0.0 %
Operations subject to commodity price variation (RWACOM)
    1,396,809       0.2 %
Operations subject to stock price variation (RWAACS)
    1,056,445       0.1 %
RWA
    749,409,292       100.0 %
Minimum Required Regulatory Capital
    82,435,022          
Excess capital in relation to Minimum Required Regulatory Capital
    37,598,899       45.6 %
Ratio (%)
    16.0 %        
Regulatory Capital calculated for covering the interest rate risk of operations not classified into the trading portfolio (RBAN)
    1,108,104          
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.8
 
 

 
             
During this period, the effects of the changes in legislation and balances were as follows:
 
   
Financial conglomerate
 
Changes in the Basel Ratio
 
Referential equity
   
Weighted exposure
   
Effect
 
Ratio at 12/31/2013
    125,143,549       755,441,023       16.6 %
Net income for the period
    8,317,680       -       1.1 %
Interest on capital and dividends
    (4,624,036 )     -       -0.6 %
Benefits to employees - CVM Resolution No. 695, December 13, 2012
    28,384       -       0.0 %
Granting of options recognized
    235,323       -       0.0 %
Granting of stock options – exercised options in the period
    103,162       -       0.0 %
Asset valuation adjustment
    429,370       -       0.1 %
Deductions in referential equity
    (5,410,379 )     -       -0.7 %
Deferred assets excluded from Tier I of referential equity
    (4,193,369 )     -       -0.6 %
Other changes in referential equity
    4,237       -       0.0 %
Changes in risk exposure
    -       (6,031,731 )     0.1 %
Ratio at 06/30/2014
    120,033,921       749,409,292       16.0 %

 
 
 
 
 
 
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.9
 
 

 
         
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 Hedgefinancial 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. – Prudencial Financial Statements – June 30, 2014
4.10
 
 

 
            
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; and prepaid expenses, corresponding to disbursements, the benefit of which will occur in future periods.
 
h)
Investments – investments in subsidiary and affiliated companies are accounted for under the equity method. The consolidated financial statements of foreign branches and subsidiaries are adapted to comply with Brazilian accounting practices and converted into Reais. Other investments are recorded at cost and adjusted to market value by setting up a provision in accordance with current standards.
 
i)
Fixed assets - Corresponds to the amount paid in excess for the purchase of investments. Up to December 31, 2009, goodwill was fully amortized in the periods when the investments were made. Starting January 1, 2010, this goodwill is amortized based on expected future profitability and appraisal reports, or on investments made, in accordance with standards and guidelines issued by CMN and BACEN.
 
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) rights acquired to credit payrolls and partnership agreements, amortized over the agreement terms, and (iii) software and customer portfolios, amortized over a term varying from five to ten years.
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.11
 
 

 
         
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)
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.
 
 
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.
 
n)
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%.
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.12
 
 

 

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.
 
o)
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.
 
p)
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 – 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.
 
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 and 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.
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.13
 
 

 
          
Note 5 – Cash and cash equivalents
 
For purposes of Statement of Cash Flows, cash and cash equivalents of ITAÚ UNIBANCO HOLDING PRUDENTIAL are composed of the following:
 
   
06/30/2014
 
Cash and cash equivalents
    20,442,104  
Interbank deposits
    20,632,787  
Securities purchased under agreements to resell – Funded position
    12,320,670  
Total
    53,395,561  
 
 
 
 
 
 
 
 
 
 

Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.14
 
 

 
               
Note 6 - Interbank Investments
 
   
06/30/2014
 
      0 - 30       31 - 180       181 - 365    
Over 365
   
Total
   
%
 
Money market
    61,757,574       70,763,933       -       -       132,521,507       82.2  
Funded position (*)
    12,987,730       6,711,509       -       -       19,699,239       12.2  
Financed position
    45,734,014       36,287,803       -       -       82,021,817       50.9  
With free movement
    11,869,713       36,287,803       -       -       48,157,516       29.9  
Without free movement
    33,864,301       -       -       -       33,864,301       21.0  
Short position
    3,035,830       27,764,621       -       -       30,800,451       19.1  
Interbank deposits
    21,423,777       3,882,651       2,692,605       730,008       28,729,041       17.8  
Total
    83,181,351       74,646,584       2,692,605       730,008       161,250,548          
% per maturity term
    51.6       46.3       1.7       0.5                  
(*)
Includes R$ 7,401,772 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).
 
 
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.15
 
 

 
 
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
 
   
06/30/2014
 
   
Cost
   
Adjustment to market value
reflected in:
   
Market value
   
%
      0 - 30       31 - 90       91 - 180       181 - 365       366 - 720    
Over 720 days
 
 
Results
   
Stockholders’ equity
 
Government securities - domestic
    110,315,475       219,703       (593,995 )     109,941,183       59.0       5,226,917       10,007,269       1,881,634       9,137,653       10,796,730       72,890,980  
Financial treasury bills
    24,939,963       (882 )     3       24,939,084       13.4       -       5,070,735       -       6,701,501       8,529,132       4,637,716  
National treasury bills
    28,624,221       98,393       20,523       28,743,137       15.4       5,023,390       -       1,844,731       1,654,609       2,243,696       17,976,711  
National treasury notes
    37,594,870       79,810       (469,025 )     37,205,655       20.0       3,272       4,935,018       8,337       353,145       20,209       31,885,674  
National treasury/securitization
    268,249       (140 )     (2,378 )     265,731       0.1       120       1,516       1,189       259       2,751       259,896  
Brazilian external debt bonds
    18,888,172       42,522       (143,118 )     18,787,576       10.1       200,135       -       27,377       428,139       942       18,130,983  
Government securities - abroad
    11,344,679       37,036       (73,992 )     11,307,723       6.0       666,821       697,643       2,108,102       5,081,040       1,712,258       1,041,859  
Germany
    159,456       221       -       159,677       0.1       -       -       -       -       -       159,677  
Argentina
    238,623       32,001       -       270,624       0.1       109,486       128,627       46       18,551       374       13,540  
Belgium
    147,567       (1,085 )     247       146,729       0.1       -       -       -       47,445       -       99,284  
Chile
    1,082,722       418       2,338       1,085,478       0.6       332,739       511,533       198,583       20,546       20,479       1,598  
Colombia
    213,899       (502 )     -       213,397       0.1       216       -       -       51       211,362       1,768  
Korea
    2,910,110       -       -       2,910,110       1.5       -       -       1,129,001       1,327,139       453,970       -  
Denmark
    3,408,690       -       -       3,408,690       1.8       -       -       526,635       2,398,284       483,771       -  
Spain
    783,780       -       -       783,780       0.4       -       -       -       783,780       -       -  
United States
    637,482       (2,189 )     (2,966 )     632,327       0.3       -       -       148,019       114,104       116,932       253,272  
France
    123,710       -       1,314       125,024       0.1       -       -       -       -       47,612       77,412  
Netherlands
    119,612       -       1,480       121,092       0.1       -       -       -       -       -       121,092  
Italy
    101,953       -       126       102,079       0.1       -       -       -       102,079       -       -  
Mexico
    108,353       8,165       -       116,518       0.1       -       -       -       -       -       116,518  
Paraguay
    947,733       -       (66,609 )     881,124       0.5       103,233       48,706       102,555       249,147       259,204       118,279  
Uruguay
    354,776       8       (9,536 )     345,248       0.1       121,147       8,777       3,263       19,896       118,554       73,611  
Other
    6,213       (1 )     (386 )     5,826       0.0       -       -       -       18       -       5,808  
Corporate securities
    52,522,415       48,196       215,669       52,786,280       28.4       4,366,691       1,641,972       3,999,315       4,919,208       6,200,757       31,658,337  
Shares
    3,016,021       1,415       (70,348 )     2,947,088       1.6       2,947,088       -       -       -       -       -  
Rural product note
    1,072,820       -       (9,199 )     1,063,621       0.6       22,366       337,011       183,469       139,250       68,826       312,699  
Bank deposit certificates
    437,869       74       40       437,983       0.2       110,891       93,911       139,163       93,363       -       655  
Securitized real estate loans
    13,430,663       52       32,870       13,463,585       7.2       51,775       383,297       187,664       260,906       564,925       12,015,018  
Fund quotas
    436,401       16,335       4,368       457,104       0.3       452,752       -       -       4,352       -       -  
Credit rights
    93,949       -       -       93,949       0.1       93,949       -       -       -       -       -  
Fixed income
    146,424       -       (2 )     146,422       0.1       142,070       -       -       4,352       -       -  
Variable income
    196,028       16,335       4,370       216,733       0.1       216,733       -       -       -       -       -  
Debentures
    18,853,505       (5,368 )     171,918       19,020,055       10.2       13,003       134,594       205,347       780,833       2,322,178       15,564,100  
Eurobonds and others
    6,128,728       40,514       98,433       6,267,675       3.4       47,572       152,735       207,183       732,160       1,892,547       3,235,478  
Financial bills
    7,069,092       -       (6,736 )     7,062,356       3.8       642,695       248,955       2,101,092       2,768,138       1,299,340       2,136  
Promissory notes
    1,387,645       -       (1,934 )     1,385,711       0.7       78,549       291,469       975,397       40,296       -       -  
Other
    689,671       (4,826 )     (3,743 )     681,102       0.4       -       -       -       99,910       52,941       528,251  
Subtotal - securities
    174,182,569       304,935       (452,318 )     174,035,186       93.4       10,260,429       12,346,884       7,989,051       19,137,901       18,709,745       105,591,176  
Trading securities
    79,892,746       304,935       -       80,197,681       43.0       4,757,480       9,990,512       1,860,611       9,510,347       11,117,641       42,961,090  
Available-for-sale securities
    68,721,830       -       (452,318 )     68,269,512       36.7       5,404,021       1,975,401       5,916,602       9,359,292       7,035,782       38,578,414  
Held-to-maturity securities (*)
    25,567,993       -       -       25,567,993       13.7       98,928       380,971       211,838       268,262       556,322       24,051,672  
Derivative financial instruments
    10,334,805       1,871,661       -       12,206,466       6.6       2,768,664       1,670,110       1,011,645       2,610,737       762,048       3,383,262  
Total securities and derivative financial instruments (assets)
    184,517,374       2,176,596       (452,318 )     186,241,652       100.0       13,029,093       14,016,994       9,000,696       21,748,638       19,471,793       108,974,438  
                                                                                         
Derivative financial instruments (liabilities)
    (10,956,037 )     (998,767 )     36,976       (11,917,828 )     100.0       (2,280,087 )     (1,011,716 )     (618,141 )     (1,531,748 )     (680,246 )     (5,795,890 )
(*)
Unrecorded positive adjustment to market value in the amount of R$ 311,181 according to Note 7e.
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.16
 
 

 
 
b)
Summary by portfolio
 
   
06/30/2014
 
               
Restricted to
         
Derivative
financial
instruments
   
Total
 
 
Own portfolio
   
Repurchase
agreements
   
Pledged
guarantees (*)
   
Free portfolio
   
Central Bank
 
Government securities - domestic
    46,867,140       49,836,033       1,989,025       -       11,248,985       -       109,941,183  
Financial treasury bills
    1,002,862       10,959,045       1,732,181       -       11,244,996       -       24,939,084  
National treasury bills
    22,754,143       5,972,679       16,315       -       -       -       28,743,137  
National treasury notes
    14,674,657       22,327,103       199,906       -       3,989       -       37,205,655  
National treasury/securitization
    265,731       -       -       -       -       -       265,731  
Brazilian external debt bonds
    8,169,747       10,577,206       40,623       -       -       -       18,787,576  
Government securities - abroad
    10,855,479       249,396       196,776       6,072       -       -       11,307,723  
Germany
    159,677       -       -       -       -       -       159,677  
Argentina
    168,096       89,125       13,403       -       -       -       270,624  
Belgium
    146,729       -       -       -       -       -       146,729  
Chile
    989,609       82,448       13,421       -       -       -       1,085,478  
Colombia
    207,325       -       -       6,072       -       -       213,397  
Korea
    2,910,110       -       -       -       -       -       2,910,110  
Denmark
    3,408,690       -       -       -       -       -       3,408,690  
Spain
    783,780       -       -       -       -       -       783,780  
United States
    484,308       -       148,019       -       -       -       632,327  
France
    125,024       -       -       -       -       -       125,024  
Italy
    121,092       -       -       -       -       -       121,092  
Netherlands
    102,079       -       -       -       -       -       102,079  
Mexico
    116,518       -       -       -       -       -       116,518  
Paraguay
    803,301       77,823       -       -       -       -       881,124  
Uruguay
    323,315       -       21,933       -       -       -       345,248  
Other
    5,826       -       -       -       -       -       5,826  
Corporate securities
    51,090,835       1,259,072       436,373       -       -       -       52,786,280  
Shares
    2,917,491       2,187       27,410       -       -       -       2,947,088  
Rural product note
    1,063,621       -       -       -       -       -       1,063,621  
Bank deposit certificates
    102,202       331,039       4,742       -       -       -       437,983  
Securitized real estate loans
    13,463,585       -       -       -       -       -       13,463,585  
Fund quotas
    450,765       -       6,339       -       -       -       457,104  
Credit rights
    93,949       -       -       -       -       -       93,949  
Fixed income
    140,083       -       6,339       -       -       -       146,422  
Variable income
    216,733       -       -       -       -       -       216,733  
Debentures
    18,687,106       -       332,949       -       -       -       19,020,055  
Eurobonds and other
    5,341,269       925,846       560       -       -       -       6,267,675  
Financial bills
    7,062,356       -       -       -       -       -       7,062,356  
Promissory notes
    1,385,711       -       -       -       -       -       1,385,711  
Other
    616,729       -       64,373       -       -       -       681,102  
Subtotal - securities
    108,813,454       51,344,501       2,622,174       6,072       11,248,985       -       174,035,186  
Trading securities
    37,782,054       29,530,937       1,629,633       6,072       11,248,985       -       80,197,681  
Available-for-sale securities
    50,404,476       16,872,497       992,539       -       -       -       68,269,512  
Held-to-maturity securities
    20,626,924       4,941,067       2       -       -       -       25,567,993  
Derivative financial instruments
    -       -       -       -       -       12,206,466       12,206,466  
Total securities and derivative financial instruments (assets)
    108,813,454       51,344,501       2,622,174       6,072       11,248,985       12,206,466       186,241,652  
(*)
Represent securities deposited with Contingent Liabilities (Note 11b), Stock Exchanges and the Clearing House for the Custody and Financial Settlement of Securities.
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.17
 
 

 
 
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.
 
   
06/30/2014
 
   
Cost
   
Adjustment to
market value
(in results)
   
Market
value
   
%
      0 - 30       31 - 90       91 - 180       181 - 365       366 - 720    
Over
720 days
 
Government securities - domestic
    74,153,598       219,703       74,373,301       92.8       1,998,597       9,786,098       1,854,136       9,099,357       10,796,413       40,838,700  
Financial treasury bills
    24,485,947       (882 )     24,485,065       30.5       -       4,850,272       -       6,701,501       8,529,132       4,404,160  
National treasury bills
    18,333,477       98,393       18,431,870       23.0       1,914,667       -       1,844,731       1,654,609       2,243,696       10,774,167  
National treasury notes
    30,142,286       79,810       30,222,096       37.8       3,175       4,934,310       8,216       349,170       19,892       24,907,333  
National treasury/securitization
    -       -       -       -       -       -       -       -       -       -  
Brazilian external debt bonds
    8,403       (140 )     8,263       0.0       120       1,516       1,189       259       2,751       2,428  
Government securities - abroad
    1,149,330       37,036       1,186,366       1.4       261,717       186,670       456       133,374       211,758       392,391  
Germany
    159,456       221       159,677       0.2       -       -       -       -       -       159,677  
Argentina
    238,623       32,001       270,624       0.3       109,486       128,627       46       18,551       374       13,540  
Belgium
    100,369       (1,085 )     99,284       0.1       -       -       -       -       -       99,284  
Chile
    133,825       418       134,243       0.2       74,192       58,043       410       -       -       1,598  
Colombia
    213,899       (502 )     213,397       0.3       216       -       -       51       211,362       1,768  
United States
    116,315       (2,189 )     114,126       0.1       -       -       -       114,104       22       -  
Mexico
    108,353       8,165       116,518       0.1       -       -       -       -       -       116,518  
Paraguay
    77,823       -       77,823       0.1       77,823       -       -       -       -       -  
Uruguay
    660       8       668       0.0       -       -       -       668       -       -  
Other
    7       (1 )     6       0.0       -       -       -       -       -       6  
Corporate securities
    4,589,818       48,196       4,638,014       5.8       2,497,166       17,744       6,019       277,616       109,470       1,729,999  
Shares
    2,184,415       1,415       2,185,830       2.8       2,185,830       -       -       -       -       -  
Bank deposit certificates
    5,930       74       6,004       0.0       870       193       4,286       -       -       655  
Securitized real estate loans
    1,251       52       1,303       0.0       -       -       -       -       -       1,303  
Fund quotas
    277,823       16,335       294,158       0.4       294,158       -       -       -       -       -  
Fixed income
    131,406       -       131,406       0.2       131,406       -       -       -       -       -  
Variable income
    146,417       16,335       162,752       0.2       162,752       -       -       -       -       -  
Debentures
    708,960       (5,368 )     703,592       0.9       11,866       6,176       -       11,005       1,631       672,914  
Eurobonds and other
    1,111,389       40,514       1,151,903       1.4       -       11,375       1,733       250,965       107,839       779,991  
Financial bills
    20,088       -       20,088       0.0       4,442       -       -       15,646       -       -  
Others
    279,962       (4,826 )     275,136       0.3       -       -       -       -       -       275,136  
Total
    79,892,746       304,935       80,197,681       100.0       4,757,480       9,990,512       1,860,611       9,510,347       11,117,641       42,961,090  
% per maturity term
                                    5.8       12.5       2.3       11.9       13.9       53.6  

 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.18
 
 

 
 
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.
 
   
06/30/2014
 
   
Cost
   
Adjustments to market value (in stockholders’ equity)
   
Market value
   
%
      0 - 30       31 - 90       91 - 180       181 - 365       366 - 720    
Over 720 days
 
Government securities - domestic
    21,292,912       (593,995 )     20,698,917       30.4       3,179,949       221,171       121       38,296       317       17,259,063  
Financial treasury bills
    454,016       3       454,019       0.7       -       220,463       -       -       -       233,556  
National treasury bills
    4,066,669       20,523       4,087,192       6.0       3,108,723       -       -       -       -       978,469  
National treasury notes
    7,452,584       (469,025 )     6,983,559       10.2       97       708       121       3,975       317       6,978,341  
National treasury/securitization
    259,846       (2,378 )     257,468       0.4       -       -       -       -       -       257,468  
Brazilian external debt bonds
    9,059,797       (143,118 )     8,916,679       13.1       71,129       -       -       34,321       -       8,811,229  
Government securities - abroad
    10,173,992       (73,992 )     10,100,000       14.9       405,104       510,973       2,107,646       4,934,661       1,500,500       641,116  
Belgium
    47,198       247       47,445       0.1       -       -       -       47,445       -       -  
Chile
    948,897       2,338       951,235       1.4       258,547       453,490       198,173       20,546       20,479       -  
Korea
    2,910,110       -       2,910,110       4.3       -       -       1,129,001       1,327,139       453,970       -  
Denmark
    3,408,690       -       3,408,690       5.0       -       -       526,635       2,398,284       483,771       -  
Spain
    783,780       -       783,780       1.1       -       -       -       783,780       -       -  
United States
    521,167       (2,966 )     518,201       0.8       -       -       148,019       -       116,910       253,272  
France
    123,710       1,314       125,024       0.2       -       -       -       -       47,612       77,412  
Netherlands
    119,612       1,480       121,092       0.2       -       -       -       -       -       121,092  
Italy
    101,953       126       102,079       0.1       -       -       -       102,079       -       -  
Paraguay
    869,910       (66,609 )     803,301       1.2       25,410       48,706       102,555       249,147       259,204       118,279  
Uruguay
    332,770       (9,536 )     323,234       0.5       121,147       8,777       3,263       6,223       118,554       65,270  
Other
    6,195       (386 )     5,809       0.0       -       -       -       18       -       5,791  
Corporate securities
    37,254,925       215,670       37,470,595       54.7       1,818,968       1,243,257       3,808,835       4,386,335       5,534,965       20,678,235  
Shares
    831,606       (70,348 )     761,258       1.1       761,258       -       -       -       -       -  
Rural product note
    1,072,820       (9,199 )     1,063,621       1.5       22,366       337,011       183,469       139,250       68,826       312,699  
Bank deposit certificate
    431,937       40       431,977       0.6       110,019       93,718       134,877       93,363       -       -  
Securitized real estate loans
    2,752,201       32,870       2,785,071       4.1       1,220       2,326       3,203       5,649       8,603       2,764,070  
Fund quotas
    158,578       4,368       162,946       0.2       158,594       -       -       4,352       -       -  
Credit rights
    15,018       (2 )     15,016       0.0       10,664       -       -       4,352       -       -  
Fixed income
    93,949       -       93,949       0.1       93,949       -       -       -       -       -  
Variable income
    49,611       4,370       53,981       0.1       53,981       -       -       -       -       -  
Debentures
    18,144,544       171,919       18,316,463       26.8       1,137       128,418       205,347       769,828       2,320,547       14,891,186  
Eurobonds and other
    5,016,881       98,433       5,115,314       7.5       47,572       141,360       205,450       481,195       1,784,708       2,455,029  
Financial bills
    7,049,004       (6,736 )     7,042,268       10.3       638,253       248,955       2,101,092       2,752,492       1,299,340       2,136  
Promissory notes
    1,387,645       (1,934 )     1,385,711       2.0       78,549       291,469       975,397       40,296       -       -  
Other
    409,709       (3,743 )     405,966       0.6       -       -       -       99,910       52,941       253,115  
Total
    68,721,829       (452,317 )     68,269,512       100.0       5,404,021       1,975,401       5,916,602       9,359,292       7,035,782       38,578,414  
                                                                                 
Adjustments of securities reclassified to the held-to-maturity category
            (660,908 )                     7.9       2.9       8.7       13.7       10.3       56.5  
                                                                                 
Minority interest in subsidiaries
            33,782                                                                  
Accounting adjustment - hedge - Circular No. 3,082
            (181,764 )                                                                
Deferred taxes
            534,245                                                                  
Adjustment to market value
            (726,962 )                                                                
Liabilities of post-employment benefits
            (349,975 )                                                                
Asset valuation adjustments
            (1,076,937 )                                                                
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.19
 
 

 
 
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 June 30, 2014, not considered in results, is an impairment loss of R$ 660,908 relating to the market adjustment of the reclassified securities. Securities classified under this type, if stated at market value, would present a positive adjustment of R$ 311,181.
 
   
06/30/2014
 
   
Carrying value
   
%
      0 - 30       31 - 90       91 - 180       181 - 365       366 - 720    
Over 720 days
 
Government securities - domestic
    14,868,965       58.1       48,371       -       27,377       -       -       14,793,217  
National treasury notes
    6,224,075       24.3       -       -       -       -       -       6,224,075  
Brazilian external debt bonds
    8,644,890       33.8       48,371       -       27,377       -       -       8,569,142  
Government securities - abroad
    21,357       0.1       -       -       -       13,005       -       8,352  
Uruguay
    21,346       0.1       -       -       -       13,005       -       8,341  
Other
    11       0.0       -       -       -       -       -       11  
Corporate securities
    10,677,671       41.8       50,557       380,971       184,461       255,257       556,322       9,250,103  
Bank deposit certificate
    2       -       2       -       -       -       -       -  
Securitized real estate loans
    10,677,211       41.8       50,555       380,971       184,461       255,257       556,322       9,249,645  
Eurobonds and other
    458       -       -       -       -       -       -       458  
Total
    25,567,993       100.0       98,928       380,971       211,838       268,262       556,322       24,051,672  
% per maturity term
                    0.4       1.5       0.8       1.0       2.2       94.1  

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.
 
During the preparation of the consolidated financial statements for the period, Management decided to reclassify Securities from Available-for-Sale to Held-to-Maturity category, in the amount of R$ 12,157,013 related to the Brazilian Debt Bonds held in Subsidiaries Abroad and Securitized Real Estate Loans, without effects on income, since the unrealized loss (impairment loss) of R$ 498,653 will be deferred over the maturity period of the instruments, as established in Paragraph 1, item II (b) of said Circular. This reclassification was determined as a result of the risk management strategy and the Institution noted that it has the financial condition and the intention to hold these securities to maturity.
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.20
 
 

 
 
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 PRUDENTIAL 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 PRUDENTIAL 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 June 30, 2014, 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$ 1,622,125 and was basically composed of government securities.
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.21
 
 

 
 
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
 
   
06/30/2014
   
06/30/2014
   
06/30/2014
   
06/30/2014
 
Futures contracts
    428,820,179       60,903       152,760       213,663  
Purchase commitments
    146,769,450       125,935       190,010       315,945  
Foreign currency
    12,613,707       25,929       189,583       215,512  
Interbank market
    110,523,597       (13,650 )     432       (13,218 )
Indexes
    21,449,583       114,334       (5 )     114,329  
Securities
    2,152,269       (34 )     -       (34 )
Commodities
    30,294       (644 )     -       (644 )
Commitments to sell
    282,050,729       (65,032 )     (37,250 )     (102,282 )
Foreign currency
    108,959,189       (7,643 )     (35,219 )     (42,862 )
Interbank market
    126,107,607       33,950       (1,817 )     32,133  
Fixed rates
    74,445       -       372       372  
Indexes
    35,973,641       (92,147 )     (586 )     (92,733 )
Securities
    10,451,076       836       -       836  
Commodities
    484,771       (28 )     -       (28 )
Swap contracts
            (2,984,382 )     573,899       (2,410,483 )
Asset position
    347,576,178       2,909,477       1,533,596       4,443,073  
Foreign currency
    11,881,596       409,647       242,992       652,639  
Interbank market
    71,206,733       745,728       451,796       1,197,524  
Fixed rates
    63,326,307       842,062       701,547       1,543,609  
Floating rate
    117,928,643       45,553       29,766       75,319  
Indexes
    83,214,883       866,120       105,871       971,991  
Securities
    12,885       (23 )     1,485       1,462  
Other
    5,131       390       139       529  
Liability position
    350,560,558       (5,893,859 )     (959,697 )     (6,853,556 )
Foreign currency
    21,924,300       (592,601 )     (135,056 )     (727,657 )
Interbank market
    50,047,640       (26,157 )     (427,694 )     (453,851 )
Fixed rates
    93,689,745       (2,491,748 )     (390,013 )     (2,881,761 )
Floating rate
    5,156,492       (39,579 )     (12,501 )     (52,080 )
Indexes
    179,433,336       (2,675,261 )     (12,109 )     (2,687,370 )
Securities
    90,983       (65,674 )     17,163       (48,511 )
Commodities
    28,438       (934 )     (108 )     (1,042 )
Other
    189,624       (1,905 )     621       (1,284 )
Option contracts
    812,956,666       767,716       120,692       888,408  
Purchase commitments - long position
    202,002,129       800,987       (203,536 )     597,451  
Foreign currency
    27,231,786       555,938       (313,569 )     242,369  
Interbank market
    16,507,819       51,457       (35,185 )     16,272  
Floating rate
    48,499       1,110       (1,110 )     -  
Indexes
    154,555,336       127,417       (29,996 )     97,421  
Securities
    3,006,465       48,919       172,068       220,987  
Commodities
    598,360       11,176       3,712       14,888  
Other
    53,864       4,970       544       5,514  
Commitments to sell - long position
    200,940,173       1,627,445       302,128       1,929,573  
Foreign currency
    20,634,594       375,570       236,104       611,674  
Interbank market
    16,649,003       28,423       12,587       41,010  
Fixed rates
    25,560       619       (106 )     513  
Floating rate
    283,066       809       (428 )     381  
Indexes
    157,719,672       69,812       (15,646 )     54,166  
Securities
    5,299,330       1,143,411       66,559       1,209,970  
Commodities
    320,843       8,595       2,927       11,522  
Other
    8,105       206       131       337  
Purchase commitments - short position
    134,281,190       (968,814 )     255,054       (713,760 )
Foreign currency
    28,507,611       (810,229 )     419,932       (390,297 )
Interbank market
    9,578,651       (30,999 )     20,922       (10,077 )
Fixed rates
    4,846       -       (12 )     (12 )
Indexes
    93,344,609       (82,851 )     (10,012 )     (92,863 )
Securities
    2,503,089       (30,740 )     (165,770 )     (196,510 )
Commodities
    292,925       (9,025 )     (9,462 )     (18,487 )
Other
    49,459       (4,970 )     (544 )     (5,514 )
Commitments to sell - short position
    275,733,174       (691,902 )     (232,954 )     (924,856 )
Foreign currency
    17,424,913       (382,011 )     (170,945 )     (552,956 )
Interbank market
    15,470,507       (27,297 )     (26,913 )     (54,210 )
Fixed rates
    5,506       (94 )     16       (78 )
Floating rate
    -       -       118       118  
Indexes
    239,339,101       (114,584 )     4,620       (109,964 )
Securities
    3,114,060       (158,078 )     (39,116 )     (197,194 )
Commodities
    370,982       (9,632 )     (603 )     (10,235 )
Other
    8,105       (206 )     (131 )     (337 )
Forward contracts
    35,710,704       1,150,253       60,865       1,211,118  
Purchases receivable
    1,681,362       643,305       47,088       690,393  
Foreign currency
    920,617       18,297       46,892       65,189  
Fixed rates
    273,683       273,565       -       273,565  
Floating rate
    260,695       261,057       -       261,057  
Securities
    71,902       71,902       1,920       73,822  
Commodities
    154,465       18,484       (1,724 )     16,760  
Purchases payable
    9,698,787       (1,026,556 )     92,642       (933,914 )
Foreign currency
    9,656,571       (415,968 )     93,446       (322,522 )
Fixed rates
    -       (273,565 )     -       (273,565 )
Floating rate
    -       (261,057 )     -       (261,057 )
Securities
    -       (71,902 )     -       (71,902 )
Commodities
    42,216       (4,064 )     (804 )     (4,868 )
Sales receivable
    22,649,213       2,825,545       (49,931 )     2,775,614  
Foreign currency
    11,405,680       502,756       (58,493 )     444,263  
Interbank market
    8,760,864       1,302       2,203       3,505  
Fixed rates
    709,232       715,124       -       715,124  
Floating rate
    263,788       264,283       -       264,283  
Indexes
    689       675       1       676  
Securities
    1,361,295       1,336,870       345       1,337,215  
Commodities
    147,665       4,535       6,013       10,548  
Sales deliverable
    1,681,342       (1,292,041 )     (28,934 )     (1,320,975 )
Foreign currency
    1,100,029       (31,015 )     (34,170 )     (65,185 )
Interbank market
    552,904       -       (7 )     (7 )
Fixed rates
    -       (715,123 )     -       (715,123 )
Floating rate
    -       (264,283 )     -       (264,283 )
Securities
    (2,434 )     (278,751 )     4,851       (273,900 )
Commodities
    30,843       (2,869 )     392       (2,477 )
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.22
 
 

 
 
   
Memorandum account/
Notional amount
   
Balance sheet account receivable / (received)
(payable) / paid
   
Adjustment to market value
(in results / stockholders’
equity)
   
Market value
 
   
06/30/2014
   
06/30/2014
   
06/30/2014
   
06/30/2014
 
Credit derivatives
    7,955,162       (29,617 )     25,236       (4,381 )
Asset position
    3,630,914       85,974       47,257       133,231  
Fixed rate
    2,720,307       85,521       29,887       115,408  
Securities
    676,931       295       11,946       12,241  
Other
    233,676       158       5,424       5,582  
Liability position
    4,324,248       (115,591 )     (22,021 )     (137,612 )
Fixed rate
    3,090,108       (105,240 )     (9,893 )     (115,133 )
Securities
    1,213,084       (10,353 )     (11,563 )     (21,916 )
Other
    21,056       2       (565 )     (563 )
Forwards operations
    67,960,290       124,241       29,505       153,746  
Asset position
    34,873,906       682,712       20,553       703,265  
Foreign currency
    34,822,871       681,985       20,553       702,538  
Indexes
    29,845       90       -       90  
Securities
    21,190       637       -       637  
Liability position
    33,086,384       (558,471 )     8,952       (549,519 )
Foreign currency
    33,085,482       (558,471 )     8,952       (549,519 )
Securities
    902       -       -       -  
Swap with target flow
    1,571,046       (54,352 )     (42,840 )     (97,192 )
Asset position - Interbank market
    758,347       -       -       -  
Liability position
    812,699       (54,352 )     (42,840 )     (97,192 )
Foreign currency
    761,735       (54,192 )     (42,523 )     (96,715 )
Interbank market
    50,964       (160 )     (317 )     (477 )
Target flow of swap - asset position - foreign currency
    815,305       -       45,702       45,702  
Other derivative financial instruments
    6,437,877       344,005       (55,948 )     288,057  
Asset position
    4,620,315       698,459       (23,958 )     674,501  
Foreign currency
    646,955       8,207       933       9,140  
Fixed rate
    1,198,996       367,638       (6,561 )     361,077  
Securities
    2,747,912       322,633       (19,193 )     303,440  
Other
    26,452       (19 )     863       844  
Liability position
    1,817,562       (354,454 )     (31,990 )     (386,444 )
Foreign currency
    227,859       (8,494 )     (12,133 )     (20,627 )
Fixed rate
    -       (326,059 )     -       (326,059 )
Securities
    1,363,625       (19,787 )     (15,736 )     (35,523 )
Other
    226,078       (114 )     (4,121 )     (4,235 )
                                 
              10,334,807       1,871,659       12,206,466  
              (10,956,040 )     (961,788 )     (11,917,828 )
              (621,233 )     909,871       288,638  

 
 
Derivative contracts mature as follows (in days):
 
                             
Memorandum account/notional amount
    0 - 30       31 - 180       181 - 365    
Over 365
   
06/30/2014
 
Futures
    124,762,221       96,240,972       63,804,121       144,012,865       428,820,179  
Swaps
    4,843,710       44,199,396       64,687,135       230,936,460       344,666,701  
Options
    490,698,225       98,788,336       212,976,538       10,493,567       812,956,666  
Forwards (onshore)
    11,182,077       13,017,416       7,965,053       3,546,158       35,710,704  
Credit derivatives
    241,172       1,699,204       1,093,905       4,920,881       7,955,162  
Forwards (offshore)
    26,354,493       30,190,019       9,529,796       1,885,982       67,960,290  
Swaps with target flow
    -       50,804       -       707,543       758,347  
Target flow of swap
    -       62,804       -       752,501       815,305  
Other derivative financial instruments
    81,297       1,279,045       1,112,478       3,965,057       6,437,877  
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.23
 
 

 
 
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.
 
   
06/30/2014
 
   
Cost
   
Adjustments to
market value (in
results /
stockholders’ equity)
   
Market value
   
%
      0 - 30       31 - 90       91 - 180       181 - 365       366 - 720    
Over 720
days
 
Asset
                                                                     
Futures - BM&F Bovespa
    60,902       152,761       213,663       1.8       186,606       14,252       (5,192 )     18,356       7,308       (7,667 )
Swaps - adjustment receivable
    2,909,478       1,533,595       4,443,073       36.5       125,496       237,671       212,092       829,710       451,106       2,586,998  
BM&F Bovespa
    211,375       43,351       254,726       2.1       3,207       9,000       7,441       34,245       22,721       178,112  
Financial institutions
    617,771       453,396       1,071,167       8.8       27,673       22,370       23,453       136,388       148,800       712,483  
Companies
    2,019,187       771,443       2,790,630       22.9       94,548       196,936       180,033       510,539       262,848       1,545,726  
Individuals
    61,145       265,405       326,550       2.7       68       9,365       1,165       148,538       16,737       150,677  
Option premiums
    2,428,428       98,596       2,527,024       20.8       268,472       260,458       247,602       1,404,539       152,774       193,179  
BM&FBOVESPA
    1,547,078       (147,397 )     1,399,681       11.5       157,420       49,608       79,584       1,112,066       1,003    
­
 
Financial institutions
    634,670       216,724       851,394       7.0       99,639       183,224       143,950       222,692       85,251       116,638  
Companies
    246,383       29,493       275,876       2.3       11,413       27,626       23,995       69,781       66,520       76,541  
Individuals
    297       (224 )     73       0.0       -       -       73       -       -       -  
Forwards (onshore)
    3,468,850       (2,843 )     3,466,007       28.4       2,072,377       644,459       441,455       142,748       34,412       130,556  
BM&FBOVESPA
    1,060,428       2,553       1,062,981       8.7       179,763       521,814       319,902       41,473       29    
­
 
Financial institutions
    176,424       (3,388 )     173,036       1.4       135,266       4,311       21,577       11,728       65       89  
Companies
    2,231,495       (2,302 )     2,229,193       18.3       1,757,348       118,334       99,976       88,750       34,318       130,467  
Individuals
    503       294       797       0.0       -       -       -       797       -       -  
Credit derivatives - Financial institutions
    85,973       47,258       133,231       1.1       -       78       489       3,019       2,185       127,460  
Forwards (offshore)
    682,713       20,552       703,265       5.8       114,548       196,362       94,752       184,741       75,113       37,749  
Financial institutions
    398,174       398       398,572       3.3       88,061       97,420       56,353       121,183       26,413       9,142  
Companies
    270,995       20,658       291,653       2.4       23,176       91,521       38,324       61,819       48,206       28,607  
Individuals
    13,544       (504 )     13,040       0.1       3,311       7,421       75       1,739       494       -  
Target flow of swap - Companies
    -       45,702       45,702       0.4       -       -       5       -       2,839       42,858  
Other derivative financial instruments
    698,460       (23,959 )     674,501       5.5       1,165       316,830       20,442       27,624       36,311       272,129  
Financial institutions
    455,207       (29,741 )     425,466       3.5       3       292,986       6,040       2,618       27,512       96,307  
Companies
    243,253       5,782       249,035       2.0       1,162       23,844       14,402       25,006       8,799       175,822  
Total
    10,334,804       1,871,662       12,206,466       100.3       2,768,664       1,670,110       1,011,645       2,610,737       762,048       3,383,262  
% per maturity term
                                    22.7       13.7       8.3       21.4       6.2       27.7  

 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.24
 
 

 
 
   
06/30/2014
 
   
Cost
   
Adjustments to market
value (in results /
stockholders’ equity)
   
Market value
   
%
      0 - 30       31 - 90       91 - 180       181 - 365       366 - 720    
Over 720 days
 
Liabilities
                                                                     
Swaps - difference payable
    (5,893,858 )     (959,698 )     (6,853,556 )     57.5       (93,420 )     (287,301 )     (151,283 )     (715,301 )     (402,171 )     (5,204,080 )
BM&FBovespa
    (405,539 )     (43,193 )     (448,732 )     3.8       (8,900 )     (47,996 )     (19,321 )     (159,990 )     (11,605 )     (200,920 )
Financial institutions
    (690,804 )     (319,547 )     (1,010,351 )     8.5       (7,992 )     (9,279 )     (35,852 )     (156,707 )     (146,260 )     (654,261 )
Companies
    (2,012,407 )     (447,812 )     (2,460,219 )     20.6       (76,511 )     (226,799 )     (94,115 )     (272,110 )     (202,816 )     (1,587,868 )
Individuals
    (2,785,108 )     (149,146 )     (2,934,254 )     24.6       (17 )     (3,227 )     (1,995 )     (126,494 )     (41,490 )     (2,761,031 )
Option premiums
    (1,660,716 )     22,100       (1,638,616 )     13.8       (247,722 )     (166,761 )     (276,091 )     (545,588 )     (169,837 )     (232,617 )
BM&FBovespa
    (589,352 )     148,845       (440,507 )     3.7       (160,351 )     (31,538 )     (95,939 )     (151,980 )     (693 )     (6 )
Financial institutions
    (977,401 )     74,019       (903,382 )     7.6       (76,359 )     (108,390 )     (151,001 )     (338,215 )     (105,375 )     (124,042 )
Companies
    (93,320 )     (201,112 )     (294,432 )     2.5       (11,011 )     (26,833 )     (29,085 )     (55,165 )     (63,769 )     (108,569 )
Individuals
    (643 )     348       (295 )     0.0       (1 )     -       (66 )     (228 )     -       -  
Forwards (onshore)
    (2,318,596 )     63,707       (2,254,889 )     19.0       (1,822,208 )     (54,049 )     (51,321 )     (179,937 )     (58,159 )     (89,215 )
BM&FBovespa
    -       (7 )     (7 )     0.0       -       (7 )     -       -       -       -  
Financial institutions
    (291,524 )     35,175       (256,349 )     2.2       (119,510 )     (648 )     (2,134 )     (133,902 )     (155 )     -  
Companies
    (2,027,072 )     28,539       (1,998,533 )     16.8       (1,702,698 )     (53,394 )     (49,187 )     (46,035 )     (58,004 )     (89,215 )
Credit derivatives
    (115,591 )     (22,021 )     (137,612 )     1.2       -       (12 )     (646 )     (2,942 )     (11,774 )     (122,238 )
Financial institutions
    (104,951 )     (22,063 )     (127,014 )     1.1       -       (12 )     (646 )     (2,942 )     (1,176 )     (122,238 )
Companies
    (10,640 )     42       (10,598 )     0.1       -       -       -       -       (10,598 )     -  
Forwards (offshore)
    (558,468 )     8,949       (549,519 )     4.6       (116,391 )     (184,006 )     (137,665 )     (83,752 )     (18,957 )     (8,748 )
Financial institutions
    (458,509 )     3,960       (454,549 )     3.8       (107,119 )     (149,276 )     (116,761 )     (67,636 )     (13,631 )     (126 )
Companies
    (100,086 )     5,228       (94,858 )     0.8       (9,272 )     (34,723 )     (20,903 )     (16,020 )     (5,318 )     (8,622 )
Individuals
    127       (239 )     (112 )     0.0       -       (7 )     (1 )     (96 )     (8 )     -  
Swaps with target flow - Companies
    (54,353 )     (42,839 )     (97,192 )     0.8       -       -       (477 )     -       (13,363 )     (83,352 )
Other derivative financial instruments
    (354,454 )     (31,990 )     (386,444 )     3.2       (348 )     (319,588 )     (658 )     (4,228 )     (5,984 )     (55,638 )
Financial institutions
    (326,060 )     -       (326,060 )     2.7       -       (308,226 )     -       -       -       (17,834 )
Companies
    (28,394 )     (31,990 )     (60,384 )     0.5       (348 )     (11,362 )     (658 )     (4,228 )     (5,984 )     (37,804 )
Total
    (10,956,036 )     (961,792 )     (11,917,828 )     100.1       (2,280,089 )     (1,011,717 )     (618,141 )     (1,531,748 )     (680,245 )     (5,795,888 )
% per maturity term
                                    19.1       8.5       5.2       12.9       5.7       48.6  

 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.25
 
 

 
 
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.
 
   
06/30/2014
 
   
Futures
   
Swaps
   
Options
   
Forwards
(onshore)
   
Credit derivatives
   
Forwards
(offshore)
   
Swap with
target flow
   
Target flow of swap
   
Other derivative
financial
instruments
 
BM&FBOVESPA
    300,860,278       6,493,525       730,063,316       10,398,387       -       -       -       -       -  
Over-the-counter market
    127,959,901       338,173,176       82,893,350       25,312,317       7,955,162       67,960,290       758,347       815,305       6,437,877  
Financial institutions
    101,263,127       183,618,220       66,330,291       5,124,272       7,944,521       58,415,392       -       -       2,897,186  
Companies
    26,696,774       88,262,273       16,441,307       20,181,783       10,641       9,363,391       758,347       815,305       3,540,691  
Individuals
    -       66,292,683       121,752       6,262       -       181,507       -       -       -  
Total
    428,820,179       344,666,701       812,956,666       35,710,704       7,955,162       67,960,290       758,347       815,305       6,437,877  


IV - Credit derivatives
 
See below the composition of the Credit Derivatives (assets and liabilities) portfolio, stated at notional amounts, and their effect on calculation of Required Referential Equity.
 
   
06/30/2014
 
   
Notional amount of credit
protection sold
   
Notional amount of credit protection purchased with identical underlying amount
   
Net position
 
Credit swaps
    (5,141,156 )     1,428,786       (3,712,370 )
Total return rate swaps
    (1,385,220 )     -       (1,385,220 )
Total
    (6,526,376 )     1,428,786       (5,097,590 )

The effect on the referential equity (Note 3) was R$ 233,723.
 
During the period, there was no occurrence of a credit event as defined in the agreements.
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.26
 
 

 
 
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 PRUDENTIAL is to protect the cash flows of the payment of debt interest (CDB / Redeemable preferred shares) 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.
 
   
06/30/2014
 
Strategies
 
Hedge Instrument
         
Hedge assets
 
 
Nominal value
   
Adjustment to market value (*)
   
Book value
 
Hedge of deposits and securities purchased under agreements to resell
    84,605,351       (123,067 )     86,497,846  
Hedge of preferred shares
    865,741       24,404       865,741  
Hedge of highly probable anticipated transaction
    68,086       (8,177 )     69,407  
Total
    85,539,178       (106,840 )     87,432,994  
(*)
Net amount of tax effects recorded under heading Results from Securities and Derivative Financial Investments.

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$ (120,365).
 
The amount of R$ 2,624 related to Foreign Exchange Rates Futures for the period was reclassified from Asset Valuation Adjustments and included in the initial cost of assets.
 
ITAÚ UNIBANCO HOLDING entered into Futures DDI contracts on BM&F Bovespa maturing during 2015 to protect the future cash flows of highly probable anticipated transactions, with financial effects during 2014, 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), ITAÚ UNIBANCO HOLDING PRUDENTIAL negotiated DI Futures agreements on BM&FBOVESPA with maturities between 2014 and 2018.
 
II)
Market risk – The hedging strategy against market risk of ITAÚ UNIBANCO HOLDING PRUDENTIAL 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.
 
   
06/30/2014
 
   
Hedge instrument
 
   
Nominal value
   
Adjustment to market
value (*)
   
Book value
   
Adjustment to market
value (*)
 
Hedge of loans
    1,910,249       (57,432 )     1,910,249       56,797  
Hedge of structured funding
    440,500       183       440,500       (170 )
Total
    2,350,749       (57,249 )     2,350,749       56,627  
(*)
Net amount of tax effects recorded in under heading Results from Securities and Derivative Financial Investments.

To hedge the variation in market risk in interest receipt, ITAÚ UNIBANCO HOLDING PRUDENTIAL uses interest rate swap contracts. Hedge assets are related to fixed-rate assets expressed in unidad de fomento (CLF) and denominated in euros, 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. – Prudencial Financial Statements – June 30, 2014
4.27
 
 

 
 
III)
We present below the maturity terms of cash flow hedge and market risk hedge strategies
 
06/30/2014
 
Maturity term
 
Hedge of deposits and
securities purchased under
agreements to resell
   
Hedge of preferred shares
   
Hedge of highly
probable anticipated
transaction
   
Hedge of loans
   
Hedge of
structured
funding
   
Total
 
2014
    41,079,727       -       -       -       -       41,079,727  
2015
    13,551,176       865,741       68,086       -       -       14,485,003  
2016
    7,903,920       -       -       241,245       440,500       8,585,665  
2017
    11,225,979       -       -       120,622       -       11,346,601  
2018
    10,844,549       -       -       150,778       -       10,995,327  
2019
    -       -       -       341,677       -       341,677  
2020
    -       -       -       35,260       -       35,260  
2022
    -       -       -       167,694       -       167,694  
2023
    -       -       -       159,079       -       159,079  
2025
    -       -       -       39,376       -       39,376  
2027
    -       -       -       140,317       -       140,317  
2028
    -       -       -       424,330       -       424,330  
2029
    -       -       -       89,871       -       89,871  
Total
    84,605,351       865,741       68,086       1,910,249       440,500       87,889,927  

 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.28
 
 

 
 
h)
Changes in adjustment to unrealized (*) market value for the period
 
   
01/01 to
06/30/2014
 
Opening balance
    (1,969,702 )
Adjustments with impact on:
       
         
Results
    1,464,962  
Trading securities
    1,152,785  
Derivative financial instruments
    312,177  
Stockholders’ equity
    1,048,488  
Available-for-sale
    1,462,942  
Accounting hedge – derivative financial instruments
    (414,454 )
Futures
    (429,588 )
Swap
    15,134  
         
Closing balance
    543,748  
Adjustment to market value
    543,748  
Trading securities
    304,935  
Available-for-sale securities
    (452,317 )
Derivative financial instruments
    691,130  
Trading securities
    872,894  
Accounting hedge
    (181,764 )
Futures
    (218,740 )
Swap
    36,976  
(*)
The term unrealized in the context of Circular n° 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
06/30/2014
 
Gain (loss) – trading securities
    (230,444 )
Gain (loss) – available-for-sale securities
    (126,001 )
Gain (loss) – derivatives
    (240,443 )
Gain (loss) – foreign exchange variation on investments abroad
    (1,786,326 )
Total
    (2,383,214 )

 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.29
 
 

 
 
j)
Sensitivity analysis (trading and banking portfolios)
 
In compliance with CVM Instruction No. 475 of December 17, 2008, ITAÚ UNIBANCO HOLDING PRUDENTIAL 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 PRUDENTIAL 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, we point out that the presented results do not necessarily translate into accounting results, because the study’s sole purpose is to disclose the exposure to risks and the respective protective actions, taking into account the fair value of financial instruments, irrespective of the accounting practices adopted by the ITAÚ UNIBANCO HOLDING PRUDENTIAL.
 
Trading portfolio
Exposures
 
06/30/2014 (*)
 
Risk factors
Risk of variation in:
 
Scenarios
 
    I    
II
   
III
 
Interest Rate
Fixed Income Interest Rates in reais
    (416 )     (227,732 )     (437,120 )
Foreign Exchange Linked
Foreign Exchange Linked Interest
    192       (29,211 )     (59,971 )
Foreign Exchange Rates
Prices of Foreign Currencies
    3,709       115,877       277,643  
Price Index Linked
Interest of Inflation coupon
    (5 )     7,157       26,541  
TR
TR Linked Interest Rates
    2       (932 )     (1,568 )
Equities
Prices of Equities
    982       (314 )     61,748  
TOTAL
      4,463       (135,155 )     (132,727 )
(*)
Amounts net of tax effects.


Trading and Banking portfolios
Exposures
 
06/30/2014 (*)
 
Risk factors
Risk of variation in:
 
Scenarios
 
    I    
II
   
III
 
Interest Rate
Fixed Income Interest Rates in reais
    (4,359 )     (1,308,419 )     (2,530,585 )
Foreign Exchange Linked
Foreign Exchange Linked Interest
    771       (40,017 )     (75,223 )
Foreign Exchange Rates
Prices of Foreign Currencies
    4,551       213,116       751,253  
Price Index Linked
Interest of Inflation coupon
    (2,371 )     (298,948 )     (500,072 )
TR
TR Linked Interest Rates
    548       (153,981 )     (329,456 )
Equities
Prices of Equities
    2,866       (47,423 )     (32,470 )
TOTAL
      2,006       (1,635,672 )     (2,716,553 )
(*)
Amounts net of tax effects.

The following scenarios are used to measure the sensitivity:
 
·  
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 PRUDENTIAL are shown in the item Derivative financial instruments in this note.
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.30
 
 

 
 
Note 8Loan, Lease and other credit operations
 
a)
Composition of the portfolio with credit granting characteristics
 
 
I
By type of operation and risk level
 
Risk levels
 
06/30/2014
 
 
 
AA
      A       B       C       D       E       F       G       H    
Total
 
Loan operations
    204,811,400       71,084,138       28,738,541       13,745,994       7,842,041       3,099,156       2,184,024       2,917,329       8,480,544       342,903,167  
Loans and discounted trade receivables
    74,733,227       59,069,480       22,234,505       9,716,815       6,680,099       2,515,297       1,752,726       2,551,727       6,671,524       185,925,400  
Financing
    83,569,778       10,459,077       5,287,993       3,331,382       1,032,933       469,585       387,586       339,918       1,735,199       106,613,451  
Farming and agribusiness financing
    5,694,584       821,932       313,684       197,894       29,650       55,608       334       3,682       25,519       7,142,887  
Real estate financing
    40,813,811       733,649       902,359       499,903       99,359       58,666       43,378       22,002       48,302       43,221,429  
Lease operations
    4,554,553       853,902       1,274,197       493,619       204,329       94,837       62,159       67,387       342,668       7,947,651  
Credit card operations
          41,700,186       4,731,238       1,678,201       1,053,760       619,563       683,067       481,483       2,525,070       53,472,568  
Advance on exchange contracts (1)
    2,819,774       863,699       202,109       270,211       47,742       82,952             260       209       4,286,956  
Other sundry receivables (2)
    426       2,048,948       2,670       281,737       6,218       2,379       19,432       3,724       30,508       2,396,042  
Total operations with credit granting characteristics
    212,186,153       116,550,874       34,948,755       16,469,762       9,154,090       3,898,887       2,948,682       3,470,183       11,378,999       411,006,385  
Endorsements and sureties (3)
                                                          72,737,996  
Total with endorsements and sureties
    212,186,153       116,550,874       34,948,755       16,469,762       9,154,090       3,898,887       2,948,682       3,470,183       11,378,999       483,744,381  
(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. – Prudencial Financial Statements – June 30, 2014
4.31
 
 

 
 
 
II  By maturity and risk level
 
   
06/30/2014
 
   
AA
      A       B       C       D       E       F       G       H    
Total
 
   
Overdue Operations (1)(2)
 
Falling due installments
    -       -       2,081,921       2,448,038       1,788,164       1,157,212       1,057,371       1,056,333       4,122,868       13,711,907  
01 to 30
    -       -       122,418       139,615       92,503       58,018       47,546       54,496       197,620       712,216  
31 to 60
    -       -       94,105       107,323       68,205       53,330       43,730       47,652       182,759       597,104  
61 to 90
    -       -       92,236       104,839       66,018       45,110       39,437       45,132       174,166       566,938  
91 to 180
    -       -       238,738       303,325       202,600       144,100       130,195       139,340       516,589       1,674,887  
181 to 365
    -       -       452,588       615,243       364,452       257,185       224,100       249,219       932,119       3,094,906  
Over 365
    -       -       1,081,836       1,177,693       994,386       599,469       572,363       520,494       2,119,615       7,065,856  
Overdue installments
    -       -       622,793       838,039       848,579       686,148       1,030,924       1,112,110       5,040,866       10,179,459  
01 to 14
    -       -       6,113       76,932       42,946       27,532       21,214       25,206       90,843       290,786  
15 to 30
    -       -       601,624       120,390       79,938       46,521       40,014       45,014       155,953       1,089,454  
31 to 60
    -       -       15,056       604,285       162,826       106,357       88,921       97,218       254,754       1,329,417  
61 to 90
    -       -       -       9,441       540,090       119,152       193,454       122,415       282,754       1,267,306  
91 to 180
    -       -       -       26,991       22,779       379,596       671,421       808,160       997,337       2,906,284  
181 to 365
    -       -       -       -       -       6,990       15,900       14,097       3,166,315       3,203,302  
Over 365
    -       -       -       -       -       -       -       -       92,910       92,910  
Subtotal
    -       -       2,704,714       3,286,077       2,636,743       1,843,360       2,088,295       2,168,443       9,163,734       23,891,366  
Specific allowance
    -       -       (27,047 )     (98,582 )     (263,674 )     (553,008 )     (1,044,148 )     (1,517,910 )     (9,163,734 )     (12,668,103 )
   
Non-overdue operations
 
Falling due installments
    211,867,778       115,260,578       31,975,285       13,078,255       6,416,232       2,025,864       840,233       1,279,144       2,163,304       384,906,673  
01 to 30
    17,124,509       28,403,626       5,984,993       2,916,015       1,298,571       433,885       143,535       227,469       489,655       57,022,257  
31 to 60
    15,562,259       12,386,669       3,017,910       1,087,333       428,341       241,053       37,781       66,915       153,598       32,981,859  
61 to 90
    9,290,285       8,896,794       1,894,716       713,156       205,904       55,370       26,560       22,540       77,747       21,183,072  
91 to 180
    19,137,409       16,246,313       3,865,807       2,040,369       420,703       119,320       69,424       64,373       223,408       42,187,126  
181 to 365
    28,120,741       16,097,913       5,021,141       1,749,332       2,031,919       472,968       121,521       102,706       269,994       53,988,235  
Over 365
    122,632,575       33,229,263       12,190,718       4,572,050       2,030,794       703,268       441,412       795,141       948,903       177,544,124  
Overdue up to 14 days
    318,375       1,290,296       268,756       105,430       101,115       29,663       20,154       22,596       51,961       2,208,346  
Subtotal
    212,186,153       116,550,874       32,244,041       13,183,685       6,517,347       2,055,527       860,387       1,301,740       2,215,265       387,115,019  
Generic allowance
    -       (582,754 )     (322,440 )     (395,511 )     (763,831 )     (616,658 )     (430,194 )     (911,218 )     (2,215,265 )     (6,237,871 )
Grand total
    212,186,153       116,550,874       34,948,755       16,469,762       9,154,090       3,898,887       2,948,682       3,470,183       11,378,999       411,006,385  
Existing allowance
    -       (582,754 )     (349,488 )     (1,471,620 )     (2,857,408 )     (1,949,054 )     (2,063,782 )     (3,469,836 )     (11,378,999 )     (24,122,941 )
Minimum allowance required
    -       (582,754 )     (349,488 )     (494,093 )     (1,027,505 )     (1,169,666 )     (1,474,341 )     (2,429,128 )     (11,378,999 )     (18,905,974 )
Additional allowance (3)
    -       -       -       (977,527 )     (1,829,903 )     (779,388 )     (589,441 )     (1,040,708 )     -       (5,216,967 )
(1)
Operations with overdue installments for more than 14 days or under control of administrators or in bankruptcy process companies.
(2)
The balance of non-accrual operations amounts to R$ 16,713,065.
(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. – Prudencial Financial Statements – June 30, 2014
4.32
 
 

 
 
III - By business sector
 
   
06/30/2014
   
%
 
Public Sector
    3,803,478       0.9 %
Private sector
    407,202,907       99.1 %
Companies
    223,115,807       54.2 %
Individuals
    184,087,100       44.8 %
Grand total
    411,006,385       100.0 %


b)
Credit concentration
 
   
06/30/2014
 
Loan, lease and other credit operations(*)
 
Risk
   
% of
total
 
Largest debtor
    4,827,213       1.0  
10 largest debtors
    30,752,300       6.4  
20 largest debtors
    49,910,989       10.3  
50 largest debtors
    82,538,984       17.1  
100 largest debtors
    110,951,856       22.9  
(*)
The amounts include endorsements and sureties.


   
06/30/2014
 
Loan, lease and other credit operations and securities of companies and financial institutions(*)
 
Risk
   
% of
total
 
Largest debtor
    5,002,519       0.9  
10 largest debtors
    38,709,498       7.0  
20 largest debtors
    63,405,041       11.4  
50 largest debtors
    109,240,452       19.7  
100 largest debtors
    146,682,411       26.4  
(*)
The amounts include endorsements and sureties.


c)
Changes in allowance for loan losses
 
   
01/01 to
06/30/2014
 
Opening balance
    (25,928,013 )
Net increase for the period
    (8,455,304 )
Write-Off
    10,260,376  
Closing balance (1)
    (24,122,941 )
Required by Resolution No. 2,682/99
    (18,905,974 )
Specific allowance (2)
    (12,668,103 )
Generic allowance (3)
    (6,237,871 )
Additional allowance (4)
    (5,216,967 )
(1)
The allowance for loan losses related to the lease portfolio amounts to: R$ (502,186).
(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 June 30, 2014, the balance of the allowance in relation to the loan portfolio is equivalent to 5.9%.
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.33
 
 

 
 
d)
Recovery and renegotiation of credits
 
I - Composition of the result of allowance for loan losses
 
   
01/01 to
06/30/2014
 
Expenses for allowance for loan losses
    (8,455,304 )
Income from recovery of credits written off as loss
    2,260,365  
Result of allowance for loan losses (*)
    (6,194,939 )
(*)
The amounts related to the lease portfolio from 01/01 to 06/30/2014 are: Expenses for allowance for loan losses R$ (151,013) and Income from recovery of credits written off as loss R$ 112,552.


II - Renegotiated loan operations
 
   
06/30/2014
 
   
Portfolio(1)
   
Allowance
for Loan
   
%
 
Amended Credit Agreements
    16,773,632       (6,944,734 )     41.4 %
(-) Amended Operations non-overdue (2)
    (4,783,204 )     993,331       20.8 %
Renegotiated loan operations
    11,990,428       (5,951,403 )     49.6 %
(1)
The amounts related to the lease portfolio are R$ 373,132.
(2)
Resulting from non-overdue transactions or with a delay of less than 30 days, reflex of changes in the original contractual terms.


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.

   
06/30/2014
   
01/01 to
06/30/2014
 
      0 – 30       31 – 180       181 -365    
Over 365
days
   
Total
   
Income
(expenses)
 
Restricted operations on assets
Loan operations
    -       84,428       -       153,846       238,274       796  
Liabilities - restricted operations on assets
Foreign borrowings through securities
    -       84,338       -       153,846       238,184       (770 )
Net revenue from restricted operations
                                            26  

At June 30, 2014 there were no balances in default.
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.34
 
 

 
 
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 June 30, 2014 where the entity significantly retained the related risks and benefits is R$ 256,713, composed of real estate financing of R$ 240,978 and farming financing of R$ 15,735.
 
 
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 PRUDENTIAL carried out operations for sale or transfer of financial assets in which there was retention of credit risks of financial assets transferred, through the acquisition of securitized real estate loans. Therefore, such credits continue to be recorded as credit operations, in which the amount recorded as assets at 06/30/2014 was R$ 3,667,737, composed of real estate financing and a fair value of R$ 3,663,800 and the amount recorded as liabilities in the line Other sundry liabilities of R$ 3,666,767 and a fair value of R$ 3,662,830.
 
Sales or transfers of financial assets without risk and benefit retention totaling R$ 1,609,771 with effect on results of R$ 63,801, net of Allowance for Loan Losses.
 
Acquisitions of loan portfolios with the retention of assignor’s risks carried out as from January 2012 to June 30, 2014 total R$ 2,313,046, and the total amount of acquired portfolios is R$ 2,419,232, at June 30, 2014. On 31/12/2013 the balance of acquired portfolios with risk retention of assignor’s totaled R$ 5,584,878. The decrease in the quarter is influenced by the exclusion of the retention clause of the acquired volume.
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.35
 
 

 
 
Note 9 - Foreign exchange portfolio
 
   
06/30/2014
 
Assets - other receivables
    34,216,934  
Exchange purchase pending settlement – foreign currency
    18,993,207  
Bills of exchange and term documents – foreign currency
    1,987  
Exchange sale rights – local currency
    15,951,218  
(Advances received) – local currency
    (729,478 )
Liabilities – other liabilities (Note 2a)
    35,171,203  
Exchange sales pending settlement – foreign currency
    16,032,028  
Liabilities from purchase of foreign currency – local currency
    19,052,366  
Other
    86,809  
Memorandum accounts
    1,090,627  
Outstanding import credits – foreign currency
    1,071,833  
Confirmed export credits – foreign currency
    18,794  

 
 
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.36
 
 

 
 
Note 10Funding and borrowings and onlending
 
a)
Summary
 
   
06/30/2014
 
      0-30       31-180       181-365    
Over 365 days
   
Total
   
%
 
Deposits
    185,651,257       34,506,492       11,659,227       58,614,999       290,431,975       38.0  
Deposits received under securities repurchase agreements
    134,389,241       13,157,237       13,927,184       136,564,762       298,038,424       39.0  
Funds from acceptance and issuance of securities
    2,277,198       12,658,531       8,879,682       21,483,226       45,298,637       5.9  
Borrowings and onlending
    3,699,737       15,691,578       15,146,714       42,510,144       77,048,173       10.1  
Subordinated debt
    139,288       2,602,059       898,581       49,349,246       52,989,174       6.9  
Total
    326,156,721       78,615,897       50,511,388       308,522,377       763,806,383          
% per maturity term
    42.7       10.3       6.6       40.4                  
(*) Includes R$ 869,234 of Redeemable Preferred Shares classified under Minority Interest in Balance Sheet.


b)
Deposits
 
   
06/30/2014
 
      0-30       31-180       181-365    
Over 365 days
   
Total
   
%
 
Demand deposits
    57,538,379       -       -       -       57,538,379       19.8  
Savings accounts
    110,840,114       -       -       -       110,840,114       38.2  
Interbank
    1,351,817       1,425,109       952,870       347,151       4,076,947       1.4  
Time deposits
    15,920,947       33,081,383       10,706,357       58,267,848       117,976,535       40.6  
Total
    185,651,257       34,506,492       11,659,227       58,614,999       290,431,975          
% per maturity term
    63.9       11.9       4.0       20.2                  


c)
Deposits received under securities repurchase agreements
 
   
06/30/2014
 
      0 - 30       31 - 180       181 - 365    
Over 365 days
   
Total
   
%
 
Own portfolio
    53,308,423       12,289,441       12,002,294       107,166,266       184,766,424       62.0  
Government securities
    38,162,715       345,422       639       3,841       38,512,617       12.9  
Own issue
    3,341,268       11,616,189       12,001,655       107,162,425       134,121,537       45.0  
Foreign
    11,804,440       327,830       -       -       12,132,270       4.1  
Third-party portfolio
    81,059,042       34,241       -       -       81,093,283       27.2  
Free portfolio
    21,776       833,555       1,924,890       29,398,496       32,178,717       10.8  
Total
    134,389,241       13,157,237       13,927,184       136,564,762       298,038,424          
% per maturity term
    45.1       4.4       4.7       45.8                  

 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.37
 
 

 
 
d)
Funds from acceptance and issuance of securities
 
   
06/30/2014
 
      0-30       31-180       181-365    
Over 365 days
   
Total
   
%
 
Funds from bills:
    1,942,620       10,821,699       6,978,719       10,180,339       29,923,377       66.1  
Financial
    464,090       3,515,145       4,112,774       5,779,064       13,871,073       30.6  
Of real estate loans
    1,145,658       5,063,121       1,193,040       1,268,430       8,670,249       19.1  
Bill of credit related to agribusiness
    326,153       2,235,118       1,655,396       3,018,180       7,234,847       16.0  
Mortgage notes
    6,719       8,315       17,509       114,665       147,208       0.3  
Foreign securities
    176,303       1,340,890       1,585,254       10,792,745       13,895,192       30.7  
Non-trade related – issued abroad
    176,303       1,340,890       1,585,254       10,792,745       13,895,192       30.7  
Brazil risk note programme
    102,775       776,643       381,790       2,164,818       3,426,026       7.6  
Structure note issued
    41,874       426,687       953,060       3,463,234       4,884,855       10.8  
Bonds
    7,286       55,597       61,714       3,255,538       3,380,135       7.5  
Fixed rate notes
    23,422       10,455       140,210       1,708,243       1,882,330       4.2  
Eurobonds
    946       16,129       909       59,872       77,856       0.2  
Other
    -       55,379       47,571       141,040       243,990       0.5  
Structured Operations Certificates (*)
    158,275       495,942       315,709       510,142       1,480,068       3.3  
Total
    2,277,198       12,658,531       8,879,682       21,483,226       45,298,637          
% per maturity term
    5.0       27.9       19.6       47.4                  
(*)
As of June 30, 2014, the market value of the funding from Structured Operations Certificates issued is R$ 1,700,047, according to BACEN Circular Letter No. 3,623.


e)
Borrowings and onlending
 
   
06/30/2014
 
      0-30       31-180       181-365    
Over 365 days
   
Total
   
%
 
Borrowings
    2,562,976       10,319,513       9,090,661       11,556,910       33,530,060       43.5  
Domestic
    388,261       85,775       113,252       135,877       723,165       0.9  
Foreign (*)
    2,174,715       10,233,738       8,977,409       11,421,033       32,806,895       42.6  
Onlending
    1,136,761       5,372,065       6,056,053       30,953,234       43,518,113       56.5  
Domestic – official institutions
    1,136,761       5,372,065       6,056,053       30,790,199       43,355,078       56.3  
BNDES
    366,340       1,535,183       2,218,074       12,245,264       16,364,861       21.2  
FINAME
    745,904       3,692,668       3,819,372       18,287,215       26,545,159       34.5  
Other
    24,517       144,214       18,607       257,720       445,058       0.6  
Foreign
    -       -       -       163,035       163,035       0.2  
Total
    3,699,737       15,691,578       15,146,714       42,510,144       77,048,173          
% per maturity term
    4.8       20.4       19.7       55.2                  
(*)
Foreign borrowings are basically represented by foreign exchange transactions related to export pre-financing and import financing.

 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.38
 
 

 
 
f)
Subordinated debt
 
   
06/30/2014
 
      0-30       31-180       181-365    
Over 365 days
   
Total
   
%
 
CDB
    -       1,990,925       -       7,020,005       9,010,930       21.1  
Financial treasury bills
    60,190       431,510       13,146       24,881,131       25,385,977       48.0  
Euronotes
    70,750       171,284       -       17,163,190       17,405,224       32.0  
Bonds
    8,348       8,340       16,201       339,184       372,073       0.4  
(-) Transaction costs incurred (Note 4b)
    -       -       -       (54,264 )     (54,264 )     (0.1 )
Total Other Liabilities
    139,288       2,602,059       29,347       49,349,246       52,119,940          
Redeemable preferred shares
    -       -       869,234       -       869,234       1.6  
Grand total (*)
    139,288       2,602,059       898,581       49,349,246       52,989,174          
% per maturity term
    0.3       4.9       1.7       93.1                  
(*)
According to current legislation, the accounting balance of subordinated debt as of December 2012 was used for the calculation of referential equity as of June, 2014, considering instruments approved after the closing date to compose Tier II, totaling R$ 53,920,747.

 

 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.39
 
 

 
 
Description
Name of security / currency
 
Principal amount
(original currency)
   
Issue
   
Maturity
 
Return p.a.
 
Account balance
 
Subordinated CDB - BRL
                         
      60,000       2007       2014  
100% of CDI + 0,35% to 0,6%
    119,616  
      33,200                  
IGPM + 7,22%
    81,582  
      1,000,000       2008       2014  
112% of CDI
    1,789,726  
      400,000       2008       2015  
119,8% of CDI
    763,794  
      50,000       2010       2015  
113% of CDI
    79,059  
      465,835       2006       2016  
100% of CDI + 0,7% (*)
    1,022,570  
      2,719,268       2010       2016  
110% to 114% of CDI
    4,298,657  
      122,500                  
IPCA + 7,21%
    213,487  
      366,830       2010       2017  
IPCA + 7,33%
    642,439  
                         
Total
    9,010,930  
Subordinated financial bills - BRL
                                 
      365,000       2010       2016  
100% of CDI + 1,35% to 1,36%
    379,774  
      1,874,000                  
112% to 112,5% of CDI
    1,946,183  
      30,000                  
IPCA + 7%
    47,374  
      206,000       2010       2017  
IPCA + 6,95% to 7,2%
    281,083  
      3,223,500       2011       2017  
108% a 112% of CDI
    3,382,415  
      352,400                  
IPCA + 6,15% to 7,8%
    473,688  
      138,000                  
IGPM + 6,55% to 7,6%
    196,327  
      3,650,000                  
100% of CDI + 1,29% to 1,52%
    3,750,252  
      500,000       2012       2017  
100% of CDI + 1,12%
    504,795  
      42,000       2011       2018  
IGPM + 7%
    52,532  
      30,000                  
IPCA + 7,53% to 7,7%
    37,395  
      460,645       2012       2018  
IPCA + 4,4% to 6,58%
    575,697  
      3,782,100                  
100% of CDI + 1,01% to 1,32%
    3,867,561  
      6,373,127                  
108% to 113% of CDI
    6,718,207  
      112,000                  
9,95% to 11,95%
    136,168  
      2,000       2011       2019  
109% to 109,7% of CDI
    2,559  
      12,000       2012       2019  
11.96%
    15,649  
      100,500                  
IPCA + 4,7% to 6,3%
    123,468  
      1,000                  
110% of CDI
    1,254  
      20,000       2012       2020  
IPCA + 6% to 6,17%
    26,424  
      1,000                  
111% of CDI
    1,257  
      6,000       2011       2021  
109,25% to 110,5% of CDI
    7,863  
      2,306,500       2012       2022  
IPCA + 5,15% to 5,83%
    2,835,178  
      20,000                  
IGPM + 4,63%
    22,874  
                         
Total
    25,385,977  
Subordinated euronotes - USD
                                 
      1,000,000       2010       2020  
6.2%
    2,225,234  
      1,000,000       2010       2021  
5.75%
    2,260,627  
      750,000       2011       2021  
5,75% to 6,2%
    1,668,501  
      550,000       2012       2021  
6.2%
    1,211,375  
      2,625,000       2012       2022  
5,5% to 5,65%
    5,838,404  
      1,870,000       2012       2023  
5.13%
    4,146,819  
                         
Total
    17,350,960  
Subordinated bonds - CLP
    41,528,200       2008       2033  
3,5% to 4,5%
    166,951  
      47,831,440       2014       2034  
3.80%
    205,122  
                         
Total
    372,073  
Preferred shares - USD
    393,072       2002       2015  
3.04%
    869,234  
Total
                              52,989,174  
(*)
Subordinated CDBs may be redeemed as from November 2011.

 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.40
 
 

 
 
Note 11 – Contingent assets and liabilities and legal liabilities – tax and social security
 
In the ordinary course of its businesses, ITAÚ UNIBANCO HOLDING PRUDENTIAL is involved in contingencies that may be classified as follows.
 
a)
Contingent Assets: there are no contingent assets recorded.
 
b)
Provisions and contingencies: The criteria to quantify contingencies are adequate in relation to the specific characteristics of civil, labor and tax lawsuits portfolios, as well as other risks.
 
-  
Civil lawsuits:
 
Collective lawsuits (related to claims considered similar and which each individual amount is not considered significant): contingencies are determined on a monthly basis and the expected amount of losses is accrued according to statistical references that take into account the type of lawsuit and the characteristics of the legal body (Small Claims Court or Regular Court).
 
Individual lawsuits (related to claims with unusual characteristics or involving significant amounts): determined from time to time, based on the amount claimed and the likelihood of loss, which, in turn, is estimated according to the “de facto” and “de jure” characteristics related to such lawsuit. The amounts of losses which likelihood of loss is considered probable are accrued.
 
Contingencies usually arise from revision of contracts and compensation for property damage and pain and suffering; most of these lawsuits are filed in the Small Claims Court 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.
 
The case law at the Federal Supreme Court is favorable to banks in relation to an economic phenomenon similar to savings, as in the case of adjustment to time deposits and contracts in general. Additionally, the Superior Court of Justice has decided that the term for filing public civil actions over understated inflation is five years. In view of such decision, some of the lawsuits may be dismissed because they were filed after the five-year period.
 
No amount is recorded as provision in relation to Civil lawsuits which likelihood of loss is considered possible, which total estimated risk is R$ 1,646,404 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. 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$ 311,035.
 
-  
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. – Prudencial Financial Statements – June 30, 2014
4.41
 
 

 
 
The table below shows the changes in the respective provisions for contingent liabilities and the respective escrow deposits balances
   
01/01 to 06/30/2014
 
   
Civil
   
Labor
   
Other
   
Total
 
Opening balance
    4,413,179       4,448,859       219,720       9,081,758  
(-) Contingencies guaranteed by indemnity clauses (Note 4n I)
    (133,792 )     (754,295 )     -       (888,087 )
Subtotal
    4,279,387       3,694,564       219,720       8,193,671  
Monetary restatement/charges
    123,704       100,114       -       223,818  
Changes in the period reflected in results (Notes 13f and 13i)
    694,717       482,481       7,511       1,184,709  
Increase (*)
    918,011       695,492       9,035       1,622,538  
Reversal
    (223,294 )     (213,011 )     (1,524 )     (437,829 )
Payment
    (655,329 )     (447,831 )     -       (1,103,160 )
Subtotal
    4,442,479       3,829,328       227,231       8,499,038  
(+) Contingencies guaranteed by indemnity clauses (Note 4m I)
    129,910       742,202       -       872,112  
Closing balance (Note 12c)
    4,572,389       4,571,530       227,231       9,371,150  
Escrow deposits at 06/30/2014 (Note 12a)
    1,978,328       2,129,345       -       4,107,673  
(*)
Civil provisions include the provision for economic plans amounting to R$ 121,260.


-  
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 06/30/2014
 
Provisions
 
Legal
obligation
   
Contingencies
   
Total
 
Opening balance
    5,623,200       2,262,656       7,885,856  
(-) Contingencies guaranteed by indemnity clauses (Note 4m II)
    -       (51,989 )     (51,989 )
Subtotal
    5,623,200       2,210,667       7,833,867  
Monetary restatement/charges
    201,063       28,112       229,175  
Changes in the period reflected in results
    302,720       168,232       470,952  
Increase
    309,476       474,988       784,464  
Reversal
    (6,756 )     (306,756 )     (313,512 )
Payment
    (817 )     (1,655 )     (2,472 )
Subtotal
    6,126,166       2,405,356       8,531,522  
(+) Contingencies guaranteed by indemnity clauses
    -       53,563       53,563  
Closing balance (Notes 12c and 13c)
    6,126,166       2,458,919       8,585,085  
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.42
 
 

 
 
   
01/01 to 06/30/2014
 
Escrow deposits
 
Legal
obligation
   
Contingencies
   
Total
 
Opening balance
    4,328,462       375,267       4,703,729  
Appropriation of income
    158,460       21,671       180,131  
Changes in the period
    291,516       13,719       305,235  
Deposited
    296,764       15,709       312,473  
Withdrawals
    -       (1,228 )     (1,228 )
Reversals to income
    (5,248 )     (762 )     (6,010 )
Closing balance
    4,778,438       410,657       5,189,095  
Relocated to assets pledged in guarantee of contingencies
                       
(Note 11d)
    -       (22,099 )     (22,099 )
Closing balance after relocated (Note 12a)
    4,778,438       388,558       5,166,996  

The main discussions related to legal obligations are described as follows:
 
·  
CSLL – Isonomy – R$ 2,858,949: 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$ 949,553;
 
·  
PIS and COFINS – Calculation basis – R$ 1,784,087: 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$ 1,751,451;
 
·  
PIS – Principles of anteriority over 90 days and non-retroactivity – R$ 282,682: we request the rejection of Constitutional Amendments No. 10/96 and 17/97 in view of the principle of anteriority and non-retroactivity, aiming at making payments based on Supplementary Law No. 07/70. The corresponding escrow deposit totals R$ 68,300.
 
Off-balance sheet contingencies - The amounts related to Tax and Social Security Lawsuits considered to be as possible loss, which total estimated risk is R$ 11,426,604, are the following:
 
·  
INSS – Non-compensatory amounts – R$ 3,578,394: we defend the non-taxation of these amounts, mainly profit sharing, stock option, transportation vouchers and sole bonus;
 
·  
IRPJ and CSLL – Interest on capital – R$ 1,144,187: we defend the deductibility of interest on capital declared to stockholders based on the Brazilian long-term interest rate (TJLP) on the stockholders’ equity for the year and for prior years;
 
·  
IRPJ and CSLL – Goodwill – Deduction – R$ 1,021,379: deductibility of goodwill on acquisition of investments with future expected profitability;
 
·  
IRPJ, CSLL, PIS and COFINS – Request for offset dismissed – R$ 997,808: cases in which the liquidity and the offset credit certainty are discussed;
 
·  
ISS – Banking Institutions – R$ 755,241: 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. – Prudencial Financial Statements – June 30, 2014
4.43
 
 

 
 
c)
Receivables - reimbursement of contingencies
 
The receivables balance arising from reimbursements of contingencies totals R$ 753,679 (Note 12a), 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:
 
   
06/30/2014
 
Securities (basically financial treasury bills – Note 7b)
    706,084  
Deposits in guarantee (Note 12a)
    3,782,722  

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 PRUDENTIAL, 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 PRUDENTIAL, the deposited amount is released at the full amount deposited updated.
 
In general, provisions related to lawsuits of ITAÚ UNIBANCO HOLDING PRUDENTIAL 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 PRUDENTIAL 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.
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.44
 
 

 
 
Note 12 - Breakdown of accounts
 
a)
Other sundry receivables
 
   
06/30/2014
 
Deferred tax assets (Note 13b I)
    34,214,498  
Social contribution for offset (Note 13b I)
    604,567  
Taxes and contributions for offset
    2,442,666  
Escrow deposits for legal liabilities and tax and social security contingencies (Note 11b)
    8,949,718  
Escrow deposits for legal liabilities – civil and labor (Note 11b)
    4,107,673  
Escrow deposits for foreign fund raising program
    374,769  
Receivables from reimbursement of contingent liabilities (Note 11c)
    753,679  
Rights receivable from financial assets sold or transferred
    4,071,830  
Sundry domestic debtors
    6,442,298  
Sundry foreign debtors
    957,685  
Retirement plan assets (Note 18)
    2,400,515  
Recoverable payments
    78,696  
Salary advances
    218,348  
Amounts receivable from related companies
    117,148  
Operations without credit granting characteristics
    329,397  
Securities and credits receivable
    779,459  
(Allowance for loan losses)
    (450,062 )
Other
    1,036,441  
Total
    67,099,928  

b)
Prepaid expenses
 
   
06/30/2014
 
Commissions
    1,377,463  
Related to vehicle financing
    370,152  
Linked to Payroll Advance Loans
    777,461  
Other
    229,850  
Advertising
    276,046  
Other
    603,977  
Total
    2,257,486  

c)
Other sundry liabilities
 
   
06/30/2014
 
Provisions for contingent liabilities (Note 11b)
    11,830,069  
Provisions for sundry payments
    1,984,226  
Personnel provision
    1,515,605  
Sundry creditors - local
    1,949,978  
Sundry creditors - foreign
    2,046,057  
Liabilities for official agreements and rendering of payment services
    440,545  
Creditors of funds to be released
    1,389,974  
Funds from consortia participants
    68,503  
Provision for Retirement Plan Benefits (Note 18)
    768,496  
Expenses for lease interests (Note 4i)
    346,179  
Liabilities from transactions related to credit assignments (Note 8f)
    3,666,767  
Minority interest of investment funds (*)
    643,219  
Other
    216,971  
Total
    26,866,589  
(*)
Represents the interest of the other quotaholders of consolidated investment funds (Note 2b).

Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.45
 
 

 

d)
Banking service fees
 
   
01/01 to
06/30/2014
 
Asset management
    1,244,955  
Funds management fees
    948,950  
Consortia management fee
    296,005  
Current account services
    380,981  
Credit cards - Relationship with stores
    4,149,415  
Sureties and credits granted
    919,849  
Loan operations
    388,195  
Guarantees provided
    531,654  
Receipt services
    794,869  
Collection fees
    644,330  
Collection services
    150,539  
Other
    1,066,585  
Custody services and management of portfolio
    146,271  
Economic and financial advisory
    233,426  
Foreign exchange services
    38,481  
Other services
    648,407  
Total
    8,556,654  

e)
Income from bank charges
 
   
01/01 to
06/30/2014
 
Loan operations/registration
    544,956  
Credit cards – annual fees and other services
    1,303,803  
Deposit account
    57,094  
Transfer of funds
    88,972  
Income from securities brokerage
    186,778  
Service package fees and other
    1,910,379  
Total
    4,091,982  
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.46
 
 

 
 
f)
Personnel expenses
 
   
01/01 to
06/30/2014
 
Compensation
    (2,746,604 )
Charges
    (1,075,961 )
Welfare benefits (Note 18)
    (982,773 )
Training
    (79,653 )
Labor claims and termination of employees (Note 11b)
    (656,467 )
Stock Option Plan
    (95,090 )
Total
    (5,636,548 )
Employees’ profit sharing
    (1,357,843 )
Total including employees’ profit sharing
    (6,994,391 )

g)
Other administrative expenses
 
   
01/01 to
06/30/2014
 
Data processing and telecommunications
    (1,852,315 )
Depreciation and amortization
    (1,002,145 )
Installations
    (1,277,256 )
Third-party services
    (2,129,920 )
Financial system services
    (249,593 )
Advertising, promotions and publication
    (446,713 )
Transportation
    (205,836 )
Materials
    (155,684 )
Security
    (309,103 )
Travel expenses
    (84,189 )
Other
    (253,065 )
Total
    (7,965,819 )

h)
Other operating revenue
 
   
01/01 to
06/30/2014
 
Reversal of operating provisions
    5,939  
Recovery of charges and expenses
    23,930  
Other
    34,943  
Total
    64,812  

i)
Other operating expenses
 
   
01/01 to
06/30/2014
 
Provision for contingencies (Note 11b)
    (892,730 )
Civil lawsuits
    (694,717 )
Tax and social security contributions
    (190,502 )
Other
    (7,511 )
Selling - credit cards
    (1,045,171 )
Claims
    (168,934 )
Refund of interbank costs
    (112,138 )
Amortization of goodwill on investments and acquisition
    (1,063,458 )
Other
    (526,557 )
Total
    (3,808,988 )

 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.47
 
 

 

Note 13 - Taxes
 
a)
Composition of expenses for taxes and contributions
 
I - Statement of calculation with income tax and social contribution:
 
   
01/01 to
06/30/2014
 
Income before income tax and social contribution
    12,657,057  
Charges (income tax and social contribution) at the rates in effect (Note 4n)
    (5,062,823 )
Increase/decrease to income tax and social contribution charges arising from:
       
Investments in affiliates
    352,642  
Foreign exchange variation on investments abroad
    (402,084 )
Interest on capital
    864,251  
Dividends and interest on external debt bonds
    124,043  
Other nondeductible expenses net of non taxable income
    (185,722 )
Total income tax and social contribution
    (4,309,693 )

II - Composition of tax expenses:
 
   
01/01 to
06/30/2014
 
PIS and COFINS
    (1,856,149 )
ISS
    (378,350 )
Other
    (189,075 )
Total (Note 4n)
    (2,423,574 )

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 PRUDENTIAL carries out derivative transactions in foreign currency (hedge), as mentioned in Note 21b.
 
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. – Prudencial Financial Statements – June 30, 2014
4.48
 
 

 
 
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
 
   
06/30/2014
   
12/31/2013
   
Realization / Reversal
   
Increase
   
06/30/2014
 
Reflected in income and expense accounts
          34,547,951       (6,574,323 )     5,698,068       33,671,696  
Related to income tax and social contribution loss carryforwards
          5,600,699       (557,418 )     498,578       5,541,859  
Related to disbursed provisions
          19,093,351       (3,393,766 )     2,477,091       18,176,676  
Allowance for loan losses
          16,808,367       (2,464,193 )     2,358,091       16,702,265  
Adjustment to market value of securities and derivative financial instruments (assets/liabilities)
          474,237       (474,237 )     45,277       45,277  
Allowance for real estate
          156,968       (2,806 )     8,830       162,992  
Goodwill on purchase of investments
          1,585,730       (392,367 )     -       1,193,363  
Other
          68,049       (60,163 )     64,893       72,779  
Related to non-disbursed provisions (*)
    29,969,328       9,853,901       (2,623,139 )     2,722,399       9,953,161  
Related to the operation
    24,752,361       7,767,114       (2,623,139 )     2,722,399       7,866,374  
Provision for contingent liabilities
    12,543,776       4,015,364       (1,334,164 )     1,574,202       4,255,402  
Civil lawsuits
    4,380,155       1,723,830       (149,771 )     176,677       1,750,736  
Labor claims
    3,158,367       1,232,647       (115,345 )     160,600       1,277,902  
Tax and social security contributions
    4,959,017       1,041,078       (1,068,956 )     1,236,925       1,209,047  
Other
    46,237       17,809       (92 )     -       17,717  
Adjustments of operations carried out in futures settlement market
    1,684,406       691,746       (37,635 )     1,359       655,470  
Legal obligation - tax and social security contributions
    2,147,352       911,725       (4 )     63,933       975,654  
Other non-deductible provisions
    8,376,827       2,148,279       (1,251,336 )     1,082,905       1,979,848  
Related to provisions exceeding the minimum required not disbursed – allowance for loan losses
    5,216,967       2,086,787       -       -       2,086,787  
                                         
Reflected in stockholders’ equity accounts
                                       
                                         
Adjustment to market value of available-for-sale securities
    1,138,265       797,386       (342,875 )     795       455,306  
Cash flow hedge
    218,740       -       -       87,496       87,496  
Total
    31,326,333       35,345,337       (6,917,198 )     5,786,359       34,214,498  
Social contribution for offset arising from Option established in article 8 of Provisional Measure No. 2,158-35 of August 24, 2001
            646,821       (42,254 )     -       604,567  
(*)
From a financial point of view, rather than recording the provision of R$ 29,969,328 and deferred tax assets of R$ 9,953,161, only the net provisions of the corresponding tax effects should be considered, which would reduce the total deferred tax assets from R$ 34,214,498 to R$ 24,261,337.

 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.49
 
 

 
 
II - Provision for Deferred Income Tax and Social Contribution balance and its changes are shown as follows:
 
   
12/31/2013
   
Realization / Reversal
   
Increase
   
06/30/2014
 
Reflected in income and expense accounts
    6,235,320       (1,355,754 )     852,474       5,732,040  
Depreciation in excess – leasing
    4,164,743       (1,116,045 )     282,175       3,330,873  
Restatement of escrow deposits and contingent liabilities
    985,533       (43,198 )     128,023       1,070,358  
Provision for pension plan benefits
    355,873       -       5,505       361,378  
Adjustment to market value of securities and derivative financial instruments
    176,783       (176,783 )     377,924       377,924  
Adjustments of operations carried out in future settlement market
    368,519       (4,482 )     -       364,037  
Taxation of results abroad – capital gains
    118,272       (696 )     -       117,576  
Other
    65,597       (14,550 )     58,847       109,894  
Reflected in stockholders’ equity accounts
    402,159       (84,339 )     28,053       345,873  
Adjustment to market value of available-for-sale securities
    6,914       -       7,447       14,361  
Cash flow hedge
    84,339       (84,339 )     -       -  
Provision for pension plan benefits (*)
    310,906       -       20,606       331,512  
Total
    6,637,479       (1,440,093 )     880,527       6,077,913  
(*)
Reflected in stockholders’ equity, pursuant to CVM Resolution nº 695/12 (Note 18).

 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.50
 
 

 
 
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 June 30, 2014, 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                  
   
Temporary differences
   
%
   
Tax loss/social contribution loss carryforwards
   
%
   
Total
   
%
   
Social contribution for offset
   
%
   
deferred income tax and social contribution
   
%
   
Net deferred taxes
   
%
 
2014
    8,774,188       31 %     549,086       10 %     9,323,274       27 %     62,223       11 %     (1,851,712 )     30 %     7,533,785       27 %
2015
    6,278,350       22 %     4,217,137       76 %     10,495,487       31 %     497,404       82 %     (1,767,328 )     29 %     9,225,563       32 %
2016
    4,284,019       15 %     775,636       14 %     5,059,655       15 %     33,224       5 %     (976,975 )     16 %     4,115,904       14 %
2017
    1,803,494       6 %     -       0 %     1,803,494       5 %     11,716       2 %     (334,615 )     6 %     1,480,595       5 %
2018
    2,987,034       10 %     -       0 %     2,987,034       9 %     -       0 %     (289,811 )     5 %     2,697,223       9 %
after 2018
    4,545,554       16 %     -       0 %     4,545,554       13 %     -       0 %     (857,472 )     14 %     3,688,082       13 %
Total
    28,672,639       100 %     5,541,859       100 %     34,214,498       100 %     604,567       100 %     (6,077,913 )     100 %     28,741,152       100 %
Present value (*)
    25,373,770               5,177,628               30,551,398               566,064               (5,464,530 )             25,652,932          
(*)
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 06/30/2014.
 
c)
Tax and social security contributions
 
   
06/30/2014
 
Legal liabilities – tax and social security (Note 11b)
    6,126,166  
Provision for deferred income tax and social contribution (Note 13b II)
    6,077,913  
Taxes and contributions on income payable
    2,357,050  
Taxes and contributions payable
    1,186,249  
Total
    15,747,378  

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.

   
06/30/2014
 
Taxes paid or provided for
    8,270,453  
Taxes withheld and collected from third parties
    5,562,989  
Total
    13,833,443  

 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.51
 
 

 
 
Note 14 – Permanent Assets
 
a)
Investment
 
I - Composition of investments
 
   
06/30/2014
 
Investment in affiliates and jointly controlled entities (1)
    23,627,014  
Domestic
    13,730,254  
ITB Holding Brasil Participações Ltda.
    4,756,088  
Itauseg Participações S.A.
    2,584,900  
Itaú Vida e Previdência S. A.
    1,062,106  
Cia. Itaú de Capitalização
    1,046,708  
BSF Holding S/A (2a)
    910,721  
Intrag-Part Administração e Participações Ltda.
    824,816  
BSF Holding S/A (2a)
    474,410  
Unibanco Negócios Imobiliários Ltda
    456,080  
Credicard Promotora de Vendas Ltda. (2b)
    201,737  
Fináustria Ass., Adm., Serv. Crédito e Partic. Ltda
    101,856  
Others
    1,310,832  
Foreign
    9,896,760  
ITB Holding Ltd
    6,639,337  
Jasper International Investiment LLC
    1,786,428  
Itaú Chile Holding, INC.
    845,079  
Others
    625,916  
Other investments
    386,703  
Investimentos por Incentivos Fiscais
    144,530  
Títulos Patrimoniais
    14,503  
Ações e Cotas
    50,517  
Others
    177,153  
(Allowance for loan losses)
    (151,292 )
Total
    23,862,425  
(1)
Net investment amount of the consolidated entity’s interest, as set forth in Bacen Circular No. 3.701, of March 13, 2014.
(2)
At 06/30/2014 includes goodwill in the amount of a) R$ 417,933 and b) 34,964.

II - Equity in earnings of affiliates and controlled entities
 
   
01/01 to
06/30/2014
 
Investment in affiliates – domestic
    880,736  
Investment in affiliates – foreign
    (908,474 )
Dividends received from other investments
    99,210  
Result not arising from income of controlled companies
    869  
Total
    72,341  

 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.52
 
 

 
 
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 (4)
   
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 12/31/2013
    552,424       2,333,949       1,260,406       980,198       1,009,459       6,247,345       719,286       13,103,067  
Acquisitions
    -       160,869       91,474       42,336       295,490       538,237       33,037       1,161,443  
Disposals
    -       -       (75,574 )     (1,225 )     (6,709 )     (422,532 )     (4,027 )     (510,067 )
Exchange variation
    (904 )     (18,251 )     (27,544 )     (1,467 )     (24,249 )     (18,509 )     (6,244 )     (97,168 )
Other
    (536 )     39,732       129,879       (24,638 )     (159,710 )     8,942       2,777       (3,554 )
Balance at 06/30/2014
    550,984       2,516,299       1,378,641       995,204       1,114,281       6,353,483       744,829       13,653,721  
                                                                 
Depreciation
                                                               
Balance at 12/31/2013
    -       (1,178,909 )     (643,681 )     (407,048 )     (437,253 )     (4,192,625 )     (406,739 )     (7,266,255 )
Depreciation expenses
    -       (15,720 )     (113,147 )     (38,550 )     (35,184 )     (547,938 )     (36,773 )     (787,312 )
Disposals
    -       -       75,520       1,048       4,418       390,852       2,458       474,296  
Exchange variation
    -       4,038       13,981       2,207       20,231       13,219       2,083       55,759  
Other
    -       503       (20,892 )     541       4,025       13,805       983       (1,035 )
Balance at 06/30/2014
    -       (1,190,088 )     (688,219 )     (441,802 )     (443,763 )     (4,322,687 )     (437,988 )     (7,524,547 )
                                                                 
Impairment
                                                               
Balance at 12/31/2013
    -       -       -       -       -       -       -       -  
Additions/ assumptions
    -       -       -       -       -       -       -    
¬
 
Reversals
    -       -       -       -       -       -       -    
¬
 
Balance at 06/30/2014
    -       -       -       -       -       -       -       -  
                                                                 
Book value
                                                               
Balance at 06/30/2014
    550,984       1,326,211       690,422       553,402       670,518       2,030,796       306,841       6,129,174  

(1)
The contractual commitments for the purchase of the fixed assets totaled R$ 629,536, achievable by 2016.
(2)
Includes amounts pledged in guarantee of voluntary deposits (Note 11d).
(3)
Includes the amount of R$ 3,343 related to attached real estate; fixed assets under construction in the amount of R$ 1,244,817 consisting of R$ 961,624 in real estate in use; R$ 11,486 in improvements, and R$ 271,707 in equipment.
(4)
Includes lease contracts, mainly related to data processing equipment, which are accounted for as finance leases. Pursuant to this method, assets and liabilities are accounted for in the financial statements, and assets are depreciated consistently with the depreciation criteria usually adopted for own assets. These contracts amount to R$ 290,568 at 06/30/2014.

 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.53
 
 

 
 
II)           Goodwill
 
           
Changes
       
 
Amortization period
 
Balance at 12/31/2013
   
Acquisitions
   
Amortization expenses
   
Impairment
   
Disposals
   
Balance at 06/30/2014
 
Goodwill (Notes 2b and 4j)
10 years
    1,857,525       -       (100,758 )     -       -       1,756,767  

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 12/31/2013
    1,164,996       1,541,255       1,714,228       2,185,519       11,376,082       719,024       18,701,104  
Acquisitions
    50,429       -       188,615       323,311       -       -       562,355  
Disposals
    (86,780 )     (24,022 )     (83,719 )     (9,094 )     -       (300,143 )     (503,758 )
Exchange variation
    -       (12,863 )     (45,469 )     -       -       (19,955 )     (78,287 )
Other
    (459 )     1,279       2,698       -       -       -       3,518  
Balance at 06/30/2014
    1,128,186       1,505,649       1,776,353       2,499,736       11,376,082       398,926       18,684,932  
                                                         
Amortization
                                                       
Balance at 12/31/2013
    (535,455 )     (236,348 )     (770,057 )     (42,792 )     (1,846,541 )     (374,590 )     (3,805,783 )
Amortization expenses (3)
    (114,703 )     (73,644 )     (154,453 )     (28,600 )     (923,146 )     (44,281 )     (1,338,827 )
Disposals
    86,748       24,022       83,719       -       -       118,893       313,382  
Exchange variation
    -       2,629       21,077       -       -       13,998       37,704  
Other
    -       -       -       -       248       -       248  
Balance at 06/30/2014
    (563,410 )     (283,341 )     (819,714 )     (71,392 )     (2,769,439 )     (285,980 )     (4,793,276 )
                                                         
Impairment (4)
                                                       
Balance at 12/31/2013
    (18,251 )     (26,810 )     -       (5,784 )     -       -       (50,845 )
Additions/ assumptions
    -       -       -       (2,767 )     -       -       (2,767 )
Disposals
    -       -       -       -       -       -       -  
Balance at 06/30/2014
    (18,251 )     (26,810 )     -       (8,551 )     -       -       (53,612 )
                                                         
Book value
                                                       
Balance at 06/30/2014
    546,525       1,195,498       956,639       2,419,793       8,606,643       112,946       13,838,044  

(1)
The contractual commitments for purchase of the new intangible assets totaled R$ 634,615, 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 12i).

 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.54
 
 

 
 
Note 15 – 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, of which R$ 51,388,515 refers to stockholders domiciled in the country and R$ 23,611,485 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 12/31/2013
    2,502,311,972       983,934,784       3,486,246,756        
Residents abroad at 12/31/2013
    15,903,068       1,525,879,886       1,541,782,954        
Shares of capital stock at 12/31/2013
    2,518,215,040       2,509,814,670       5,028,029,710        
Bonus shares - Extraordinary Stockholders’ Meeting of April 23, 2014 – Made effective on June 06, 2014
    251,821,504       250,981,467       502,802,971        
Shares of capital stock at 06/30/2014
    2,770,036,544       2,760,796,137       5,530,832,681        
Residents in Brazil at 06/30/2014
    2,752,807,138       1,036,809,918       3,789,617,056        
Residents abroad at 06/30/2014
    17,229,406       1,723,986,219       1,741,215,625        
Treasury shares at 12/31/2013
    2,310       68,867,010       68,869,320       (1,854,432 )
Exercised – granting of stock options
    -       (6,989,531 )     (6,989,531 )     110,756  
Disposals – stock option plan
    -       (4,525,952 )     (4,525,952 )     198,637  
Bonus shares - Extraordinary Stockholders’ Meeting of April 23, 2014 – Made effective on June 06, 2014
    231       5,763,327       5,763,558       -  
Treasury shares at 06/30/2014 (*)
    2,541       63,114,854       63,117,395       (1,545,039 )
Outstanding shares at 06/30/2014
    2,770,034,003       2,697,681,283       5,467,715,286          
(*) Own shares, purchased based on authorization of the Board of Directors, to be held in Treasury for subsequent cancellation or replacement in the market.

We detail below the average cost of treasury shares and their market price at June 30, 2014:

Cost / Market value
 
Common
   
Preferred
 
Treasury shares
           
Average cost
    7.97       24.48  
Market value
    30.30       31.97  
 
 
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 - Itaú Unibanco Holding Individual (BR GAAP)
    7,536,736    
Adjustments:
         
(-) Legal reserve
    (376,837 )  
Dividend calculation basis
    7,159,899    
Mandatory dividend
    1,789,975    
Dividend – paid/provided for
    1,959,992  
27.4%
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.55
 
 

 
 
II – Payments / provision of interest on capital and dividends

   
Gross
   
WTS
   
Net
 
Paid / Prepaid
    372,377       -       372,377  
Dividends - 5 monthly installments of R$ 0.015 per share paid in February to June 2014
    372,377       -       372,377  
                         
Declared until June 30, 2014 (recorded in other liabilities – Social and Statutory)
    1,654,604       (237,006 )     1,417,598  
Dividends - 1 monthly installment of R$ 0.015 per share paid on 07/01/2014
    74,555       -       74,555  
Interest on capital - R$ 0.2890 per share
    1,580,049       (237,006 )     1,343,043  
                         
Declared after June 30, 2014 (recorded in Revenue Reserves – Unrealized profits)
    200,020       (30,003 )     170,017  
Interest on capital - R$ 0.0366 per share
    200,020       (30,003 )     170,017  
                         
Total from 01/01 to 06/30/2014 - R$ 0.3667 net per share
    2,227,001       (267,009 )     1,959,992  
 
 
c)
Capital and revenue reserves
 
   
06/30/2014
 
Capital reserves
    866,514  
Premium on subscription of shares
    283,512  
Granted options recognized – Law No. 11,638 and Share-based instruments
    581,897  
Reserves from tax incentives and restatement of equity securities and other
    1,105  
Revenue reserves
    18,252,830  
Legal
    5,275,843  
Statutory:
    12,776,967  
Dividends equalization (1)
    3,604,879  
Working capital increase (2)
    4,135,133  
Increase in capital of investees (3)
    5,036,955  
Unrealized profits (4)
    200,020  
(1)
Reserve for Dividends Equalization – its purpose is to guarantee funds for the payment of advances of dividends, including interest on capital, to maintain the flow of the stockholders’ compensation.
(2)
Reserve for Working Capital Increase – its purpose is to guarantee funds for the company’s operations.
(3)
Reserve for Increase in Capital of Investees – its purpose is to guarantee the preferred subscription right in the capital increases of investees.
(4)
Refers to Interest on Capital declared after June 30, in compliance with BACEN Circular Letter nº 3,516, of July 21, 2011.
 
 
d)
Conciliation of net income and stockholders’ equity (Note 2b)
 
   
Net income
   
Stockholders’ equity
 
   
01/01 to
06/30/2014
   
06/30/2014
 
ITAÚ UNIBANCO HOLDING
    7,536,736       92,938,683  
Amortization of goodwill
    644,124       (1,451,959 )
ITAÚ UNIBANCO HOLDING PRUDENTIAL
    8,180,860       91,486,724  

e)
Minority interest in subsidiaries
 
   
Stockholders’ equity
   
Net Income
 
   
06/30/2014
   
01/01 to
06/30/2014
 
Itau Bank, Ltd. (*)
    869,235       -  
Banco Itaú BMG Consignado S.A.
    325,953       (30,478 )
Other
    27       -  
Total
    1,195,215       (30,478 )
(*)
Represented by redeemable preferred shares issued on December 31, 2002 by Itau Bank Ltd., in the amount of US$ 393,072 thousands, with maturity on March 31, 2015 and semiannual dividends calculated based on LIBOR plus 1.25% p.a.
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.56
 
 

 
 
f)
Stock option plan
 
I – Purpose and guidelines of the plan
 
ITAÚ UNIBANCO HOLDING has a stock option plan for its executives. This program aims at involving the management members in the medium and long-term corporate development process, by granting simple stock options or options which are partner options (these are personal, not pledgeable and nontransferable), which entitle to the subscription of one authorized capital share or, at the discretion of the management, one treasury share which has been acquired for replacement purposes.
 
Such options may only be granted in years in which there are sufficient profits to enable the distribution of mandatory dividends to stockholders and at a quantity that does not exceed the limit of 0.5% of the total shares held by the stockholders at the base date of the year-end balance sheet. ITAÚ UNIBANCO HOLDING’s Personnel Committee is responsible for defining the total quantity, the beneficiaries, the type of option, the life of the option under each series, which may range from a minimum of 5 and a maximum of 10 years, and the vesting period for exercising the options and the period the acquired shares are unavailable due to the exercise of the options. The executive officers and Board of Directors members of ITAÚ UNIBANCO HOLDING and of its subsidiaries and employees may participate in this program, based on assessment of potential and performance.
 
Currently, ITAÚ UNIBANCO HOLDING settles the benefits under this PLAN only by delivering its own shares, which are held in treasury until the effective exercise of the options by the beneficiaries.
 
II - Characteristics of the programs
 
II.I – Simple options
 
Prior programs
 
Before the merger, Itaú and Unibanco each had Stock Option Plans (Prior Programs). The eligible beneficiaries of the program were granted simple options, depending upon the individual employee performance. The exercise price is calculated based on the average prices of preferred shares at the BM&FBOVESPA trading sessions over the period of at least one (1) and at the most three (3) months prior to the option issue date; alternatively, subject to the positive or negative adjustment of up to 20.0%, and restated until the last business day of the month prior to the option exercise date based either on the IGP-M or IPCA, in its absence, based on the index determined by the committee. Options are no longer granted under this model.
 
Post-merger program
 
The eligible beneficiaries of the program are granted simple options, dependent upon the individual employee performance. The exercise price is calculated based on the average prices of preferred shares at the BM&FBOVESPA in the last three months of the year prior to the granting date or, alternatively, subject to the positive or negative adjustment of up to 20.0%. The exercise price is adjusted based on the IGPM or, in its absence, based on the index determined by the committee.
 
The vesting period is from one (1) to seven (7) years, counted from the issue date.
 
The ESM of April 19, 2013 approved the conversion of the Stock Option Plan of REDE by ITAÚ UNIBANCO HOLDING, with the exchange of RDCD3 shares to ITUB4 shares with no significant financial impacts.
 
II.II – Partners plan
 
Executives selected to participate in the program may invest a percentage of their bonus to acquire shares or they have the right to receive shares (“Share-Based Instrument”). Title to the shares acquired, as well as the share-based instruments, should be held by the executives for a period of 3 to 5 years and they are subject to market fluctuation. At the time they acquire own shares and/or share-based instruments, Partner Options are granted in accordance with the classification of executives. Vesting period of Partners Options or share-based instruments is from (1) one to (7) seven years. Share-based instruments and Partner options are converted into own shares of ITAÚ UNIBANCO HOLDING in the ratio of one preferred share for each instrument after the respective vesting period, with no payment of amounts in legal tender during the exercise.
 
The acquisition price of own shares and Share-Based Instruments is established every six months and it is equivalent to the average preferred share quotation at the BM&FBOVESPA trading sessions in the 30 days prior to the determination of the acquisition price.
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.57
 
 

 
 
Title to the shares received after the vesting period of the Partners Options should be held, without any liens or encumbrances, for periods from 5 to 8 years, counted from the date of acquisition of own shares.
 
The weighted average fair value of the Share-Based Instruments at the granting date was estimated for the shares purchased in the period ended June 30, 2014 – R$ 31.43 per share.
 
The fair value of the Share-Based Instruments is the market price quoted at the granting date for preferred shares of ITAÚ UNIBANCO HOLDING less the cash price paid by the beneficiaries. Amount received for the purchase of Share-Based Instruments for the period ended June 30, 2014 - R$ 7,982.
 
Summary of changes in the plan
 
   
Simple options
   
Partner options
       
   
Quantity
   
Weighted average Exercise price
   
Weighted average Market value
   
Quantity
   
Weighted average Market value
   
Total
 
Opening balance at 12/31/2013
    65,316,846       32.85             18,351,820             83,668,666  
Options exercisable at the end of the period
    32,734,794       30.42             -             32,734,794  
Options outstanding not exercisable
    32,582,052       36.25             18,351,820             50,933,872  
Options:
                                           
Granted (1)
    -       -             7,467,437             7,467,437  
Canceled/Forfeited (2)
    (118,505 )     35.78             (693,874 )           (812,379 )
Exercised
    (4,292,672 )     15.43       18.90       (2,696,860 )     25.83       (6,989,532 )
Closing balance at 06/30/2014
    60,905,669       35.14               22,428,523               83,334,192  
Options exercisable at the end of the period
    28,714,096       32.22               -               28,714,096  
Options outstanding not exercisable
    32,191,573       37.74               22,428,523               54,620,096  
Range of exercise prices
                                               
Granting 2006-2009
            26,22 - 43,85                                  
Granting 2010-2012
            26,27 - 42,60                                  
Weighted average of the remaining contractual life (in years)
    3.05                       2.45                  
(1)
It refers to the conversion of the REDE Plan.
(2)
Refers to non-exercise due to the beneficiary’s option.

Summary of changes in Share-Based Instruments (SBI)
 
   
Quantity
 
Balance at 12/31/2013
    2,183,769  
Instruments
       
New SBI’s
    286,466  
Converted into shares
    (1,266,324 )
Canceled
    (326,362 )
Balance at 06/30/2014
    877,549  
Weighted average of the remaining contractual life (in years)
    0.97  
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.58
 
 

 
 
III - Fair value and economic assumptions for cost recognition

ITAÚ UNIBANCO HOLDING recognizes, at the granting date, the fair value of options through the Binomial method for Simple Options and the Black & Scholes method for Partners Options. Economic assumptions used are as follows:
 
Exercise price: for the option exercise price, the exercise price previously agreed upon at the option issue is adopted, adjusted by the IGP-M variation;
 
Price of the underlying asset: the share price of ITAÚ UNIBANCO HOLDING (ITUB4) used for calculation is the closing price at BM&FBOVESPA on the calculation base date;
 
Expected dividends: the average annual return rate for the last three years of the dividends paid, plus interest on capital of the ITUB4 share;
 
Risk-free interest rate: the applied risk-free rate is the IGP-M coupon rate at the expiration date of the option plan;
 
Expected volatility: calculated based on the standard deviation from the history of the last 84 monthly returns of closing prices of the ITUB4 share, released by BM&FBOVESPA, adjusted by the IGP-M variation.
 
Granting
Vesting period until
Exercise period until
Price of underlying asset
Fair Value
Expected dividends
Risk-free interest rate
Expected volatility
No.
Date
Partners options (*)
             
19th
02/27/2014
02/27/2017
-
28.57
25.85
3.35%
-
-
19th
02/27/2014
02/27/2019
-
28.57
24.18
3.35%
-
-
(*)
The fair value of option is measured based on the fair value of ITAÚ UNIBANCO HOLDING share at the granting date.

IV - Accounting effects arising from options

The exercise of stock options, pursuant to the Plan’s regulation, resulted in the sale of preferred shares held in treasury thus far. The accounting entries related to the plan are recorded during the vesting period, at the deferral of the fair value of options granted with effect on Income, and during the exercise of options, at the amount received from the option exercise price, reflected in Stockholders’ Equity.
 
The effect of Income for the period from January 1 to June 30, 2014 was R$ (95,090) as a contra-entry to Capital Reserve – Granted Options Recognized – Law No. 11,638 (Note 15c).
 
In the Stockholders’ Equity, the effect was as follows:
 
   
06/30/2014
 
Amount received for the sale of shares – exercised options
    235,323  
(-) Cost of treasury shares sold
    (309,393 )
(+) Write-off of cost recognized of exercised options
    107,104  
Effect on sale (*)
    33,034  
(*)
Recorded in Revenue Reserves.
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.59
 
 

 
 
Note 16 – 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) and ITAÚSA, parent companies of ITAÚ UNIBANCO HOLDING;
 
 
·  
The non-financial subsidiaries of ITAÚSA, specially: Itautec S.A., Duratex S.A., Elekeiroz S.A. and Itaúsa Empreendimentos S.A.;
 
 
·  
Fundação 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 Clube A, entities sponsored by ITAÚ UNIBANCO and subsidiaries to act in their respective areas of interest, as described in Notes 21d and 21i; and
 
 
·  
Domestic investments, specially: Itauseg Participações S.A., ITB Holding Brasil Participações, Intrag-Part Administração e Participações Ltda., Unibanco Negócios Imobiliários, Itaú Vida e Previdência, Cia. Itaú de Capitalização, BSF Holding S.A., Marcep Corretagem de Seguros S.A., Itaú Unibanco Servs. E Proc, de Inf. Comerciais Ltda. and Fináustria Ass., Adm., Serv. Crédito e Participações Ltda., and foreign investments ITB Holding Ltd., Jasper International Investment LLC and Itaú Chile Holding, INC.
 

 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.60
 
 

 
 
The transactions with these related parties are basically characterized by:
 
   
ITAÚ UNIBANCO HOLDING PRUDENTIAL
 
   
Assets / (liabilities)
   
Revenue / (expense)
 
   
06/30/2014
   
01/01 to 06/30/2014
 
Money market
    331,720       363  
Jasper International Investment LLC
    331,720       363  
Negotiation and intermediation of securities - assets
    402       -  
BICSA Holdings Ltd
    360       -  
Jasper International Investment LLC
    42       -  
Securities and derivative financial instruments - assets
    57,325       240,602  
Jasper International Investment LLC
    46,505       54,836  
BICSA Holdings Ltd
    10,820       185,766  
Deposits received under securities repurchase agreements
    (4,530,065 )     (290,666 )
Itauseg Participagões Ltda.
    (2,939,345 )     (114,965 )
Fináustria Assessoria, Administragão, Servigos de Crédito e Participagões
    (183,206 )     (11,891 )
Marcep Corretagem de Seguros S.A.
    (181,292 )     (11,484 )
Intrag-Part Administragão e Participagões Ltda.
    (157,771 )     (65,249 )
Other (*)
    (1,068,451 )     (87,077 )
Time deposits
    (372,190 )     (3,190 )
IPI - Itaúsa Portugal Investimentos, SGPS Lda.
    (143,431 )     (188 )
Afinco Americas Madeira, SGPS, Soc. Unipessoal Ltda.
    (128,236 )     (168 )
Other
    (100,523 )     (2,834 )
Derivative financial instruments - liabilities
    (9,518 )     (297,797 )
BICSA Holdings Ltd
    (5,182 )     (283,597 )
Jasper International Investment LLC
    (4,336 )     (14,200 )
Amounts receivable from (payable to) related companies / Banking service fees (expenses)
    (251,966 )     46,950  
Itaú USA. Inc.
    8,599       -  
Fundagão Itaú Unibanco - Previdência Complementar
    (15,122 )     16,584  
Itaú Unibanco Servigos e Processamento de Informagões Comerciais
    (16,797 )     -  
Itaú BBA SAS
    (18,136 )     -  
Fináustria Assessoria, Administragão, Servigos de Crédito e Participagões
    (29,046 )     (186,297 )
Itaú Vida e Previdência S.A.
    (70,392 )     17,945  
Fundagão Banorte Manuel Baptista da Silva de Seguridade Social
    (96,751 )     142  
Other
    (14,321 )     198,576  
Negotiation and intermediation of securities - liabilities
    (7,094 )     -  
Jasper International Investment LLC
    (7,094 )     -  
Rent revenues (expenses)
    -       (129,337 )
Itaú Rent Administragão e Participagões Ltda.
    -       (67,622 )
Fundagão Itaú Unibanco - Previdência Complementar
    -       (18,916 )
Itaú Seguros S.A.
    -       (14,856 )
Other
    -       (27,943 )
Donation expenses
    -       (43,300 )
Instituto Itaú Cultural
    -       (42,500 )
Associagão Clube A
    -       (800 )
Data processing expenses
    -       (129,040 )
Itautec S.A.
    -       (129,040 )
(*)
Corresponds to related parties with 29 directly-controlled subsidiaries, not included in Prudential Consolidated.

 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.61
 
 

 
 
b)
Compensation of Management Key Personnel
 
Resolution CMN n° 3,921, of November 25, 2010, sets forth that the management’s variable compensation should be consistent with the institution’s risk management policies, and at least fifty percent (50.0%) should be mandatorily paid in shares and be deferred for payment in at least three (3) years.
 
To comply with the Resolution on compensation, Itaú Unibanco Holding was authorized by CVM to transfer, on a private basis, shares of its own issue held in treasury to its management members and the management members of its subsidiaries.
 
In the period from January 1 to June 30, 2014, the accounting effect of the compensation is recorded in Compensation of Key Management Members in Compensation and Profit Sharing, in compliance with statutory limits.
 
The fees attributed in the period to ITAÚ UNIBANCO HOLDING PRUDENTIAL management members are as follows:
 
   
01/01 to
06/30/2014
 
Compensation
    177,325  
Board of Directors
    9,108  
Management members
    168,217  
Profit sharing
    136,026  
Board of Directors
    6,169  
Management members
    129,857  
Contributions to pension plans
    3,424  
Board of Directors
    2  
Management members
    3,422  
Stock option plan – Management members
    86,762  
Total
    403,537  

Information related to the granting of the stock option plan, benefits to employees and post-employment is detailed in Notes 15f IV and 18, respectively.
 
 
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.62
 
 

 

Note 17 - Market value
 
The financial statements are prepared in accordance with accounting principles which assume the normal continuity of the operations of ITAÚ UNIBANCO HOLDING PRUDENTIAL and its subsidiaries.
 
The book value of each financial instrument, whether included or not in the balance sheet (comprises investments in affiliates and other investments), when compared to the value that might be obtained in an active market, or in the absence of such market, using the net present value of future cash flows adjusted based on the current market interest, is approximately equal to the market value, or does not have a market quotation available, except for the instruments in the table below:
 
               
Unrealized income (loss) (1)
 
   
Book value
   
Market
   
Results
   
Stockholders’ equity
 
   
06/30/2014
   
06/30/2014
   
06/30/2014
   
06/30/2014
 
Interbank deposits
    28,729,041       28,731,417       2,376       2,376  
Securities and derivative financial instruments
    186,241,652       186,241,652       (141,137 )     -  
Adjustment of available-for-sale securities
                    (452,318 )     -  
Adjustment of held-to-maturity securities
                    311,181       -  
Loan, lease and other credit operations
    386,883,444       388,364,702       1,481,258       1,481,258  
Investments
    378,500       1,642,046       1,263,546       1,263,546  
BM&FBOVESPA
    14,610       127,046       112,436       112,436  
Itaú Seguros Soluções Corporativas S.A. (Note 21m)
    363,890       1,515,000       1,151,110       1,151,110  
Fundings and borrowings (2)
    200,882,179       201,286,817       (404,638 )     (404,638 )
Subordinated debt (Note 10f)
    52,989,174       53,665,450       (676,276 )     (676,276 )
Treasury shares
    1,545,039       2,017,859       -       472,820  
Total unrealized
                    1,525,129       2,139,086  
(1)
This does not consider the corresponding tax effects.
(2)
Funding is represented by interbank and time deposits, funds from acceptance and issuance of securities and borrowings.


 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.63
 
 

 
 
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, taking into account the effects of hedges as well (swap contracts);
 
·  
Investments – in BM&FBOVESPA 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. – Prudencial Financial Statements – June 30, 2014
4.64
 
 

 

Note 18 – 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.
 
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 18d.
 
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. As 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.
 
a)
Description of the Plans
 
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)
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)
UBB-PREV - Previdência Complementar
UBB PREV Defined Benefit Plan (1)
Banorte Fundação Manoel Baptista da Silva de Seguridade Social
Benefit Plan II (1)
(1) Defined benefit plan;
   
(2) Variable contribution plan;
   
(3) Defined contribution plan;
   
 
 
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. – Prudencial Financial Statements – June 30, 2014
4.65
 
 

 
 
c)
Defined benefit plan
 
I - Main assumptions used in actuarial valuation of Retirement Plans
 
 
06/30/2014
Discount rate (1)
9.72% p.a.
Mortality table (2)
AT-2000
Turnover (3)
Itaú Exp. 2008/2010
Future salary growth
7.12 % p.a.
Growth of the pension fund and social security benefits
4.00 % p.a.
Inflation
4.00 % p.a.
Actuarial method (4)
Projected Unit Credit
(1)
The adoption of this assumption is based on a study that adopts the methodology of updating the interest rate of long-term securities issued by Brazilian Treasury, indexed to inflation rates, and on the analysis of changes in the interest curves up to the actuarial valuation base date. The Discount Rate assumption was changed on 12/31/2013 so as to be consistent with the economic scenario at the balance sheet date, 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, 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.

 
Actuarial 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, for biometric/demographic assumptions.
 
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 under the coordination of the EFPC Investment Officer. 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. – Prudencial Financial Statements – June 30, 2014
4.66
 
 

 
 
- 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 June 30, 2014 the allocation of plan assets and the allocation target for 2014, by type of asset, are as follows:

   
Fair value
   
% Allocation
Types
 
06/30/2014
   
06/30/2014
 
2014 Target
Fixed income securities
    11,595,471       91.08 %
53% to 100%
Variable income securities
    586,123       4.60 %
0% to 20%
Structured investments
    22,660       0.18 %
0% to 10%
Real estate
    499,441       3.92 %
0% to 7%
Loans to participants
    27,234       0.21 %
0% to 5%
Total
    12,730,929       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$ 505,501, and real estate rented to Group companies, with a fair value of R$ 466,144.

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:
 
   
06/30/2014
 
1 - Net assets of the plans
    12,730,929  
2 - Actuarial liabilities
    (11,774,940 )
3- Surplus (1-2)
    955,989  
4- Asset restriction (*)
    (1,322,113 )
5 - Net amount recognized in the balance sheet (3-4)
    (366,124 )
Amount recognized in Assets (Note 12a)
    249,416  
Amount recognized in Liabilities (Note 12c)
    (615,540 )
(*) 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. – Prudencial Financial Statements – June 30, 2014
4.67
 
 

 
 
V- Change in the net amount recognized in the balance sheet:
 
    06/30/2014  
   
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
    -       (35,296 )     (35,296 )     -       (35,296 )
Net interest (1)
    588,983       (543,230 )     45,753       (61,780 )     (16,027 )
Benefits paid
    (379,722 )     379,722       -       -       -  
Contributions of sponsor
    31,970       -       31,970       -       31,970  
Contributions of participants
    6,430       -       6,430       -       6,430  
Effects on asset ceiling
    -       -       -       10,857       10,857  
Remeasurements (2) (3)
    (28,802 )     717       (28,085 )     21,447       (6,638 )
Value at end of the period
    12,730,929       (11,774,940 )     955,989       (1,322,113 )     (366,124 )
(1)
Corresponds to the amount calculated on 01/01/2014 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 9.72% p.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$ 560,181.

VI - Total amounts recognized in Income for the Period and Stockholders’ Equity – Asset valuation adjustment:
 
   
Income
   
Stockholders’ Equity
 
   
01/01 to 06/30/2014
   
06/30/2014
 
At the beginning of the period
    -       (354,467 )
Cost of current service
    (35,296 )     -  
Net interest
    (16,027 )  
-
 
Effects on asset ceiling
    -       10,857  
Remeasurements
    -       (208 )
Total Amounts Recognized
    (51,323 )     (343,818 )

During the period, contributions made totaled R$ 31,970. The contribution rate increases based on the beneficiary’s salary.
 
In 2014, the expected contribution to retirement plans sponsored by ITAÚ UNIBANCO HOLDING CONSOLIDATED is R$ 56,897.
 
The estimate for payment of benefits for the next 10 years is as follows:
Period
 
Estimated payment
 
2014
    762,981  
2015
    794,751  
2016
    818,334  
2017
    842,178  
2018
    866,341  
2019 to 2023
    4,727,227  

VII- 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%
    671,581       5.82 %     (392,083 )
- Increase by 0.5%
    (608,944 )     (5.57 %)     316,346  
 
(*) Net of effects of asset ceiling
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.68
 
 

 
 
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:
 
   
06/30/2014
 
   
Pension Plan Fund
   
Asset Ceiling
   
Recognized Amount
 
Amount - beginning of the period
    2,359,512       (274,533 )     2,084,979  
Net interest
    111,329       (13,314 )     98,015  
Contribution
    (65,595 )     -       (65,595 )
Effects on asset ceiling
    -       6,557       6,557  
Remeasurements
    26,551       592       27,143  
Amount - end of the period (Note 12a)
    2,431,797       (280,698 )     2,151,099  

II - Total amounts recognized in Income for the Period and Stockholders’ Equity – Asset valuation adjustment:
 
   
Income
   
Stockholders’ Equity
 
   
01/01 to 06/30/2014
   
06/30/2014
 
Amount - beginning of the period
    -       (285,691 )
Contributions
    (65,595 )     -  
Net interest
    98,015       -  
Remeasurements
    -       27,143  
Effects on asset ceiling
    -       6,557  
Total Amounts Recognized
    32,420       (251,991 )

In the period, contributions to the defined contribution plans, including PGBL, totaled R$ 90,053, of which R$ 65,595 arises from pension funds.
 
e)
Other post-employment benefits
 
ITAÚ UNIBANCO HOLDING 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 CONSOLIDATED are as follows:
 
I - Change in the net amount recognized in the balance sheet:
 
   
06/30/2014
 
At the beginning of the period
    (146,818 )
Cost of interest
    (7,139 )
Inclusion of Credicard
    (3,189 )
Benefits paid
    4,190  
Remeasurements
    -  
At the end of the period (Note 12c)
    (152,956 )

II - Total amounts recognized in Income for the Period and Stockholders’ Equity – Asset valuation adjustment:
 
   
Income
   
Stockholders’ Equity
 
   
01/01 to 06/30/2014
   
06/30/2014
 
At the beginning of the period
    -       6,744  
Net interest
    (7,139 )     -  
Inclusion of Credicard
    -       (1,560 )
Benefits paid
    4,190       -  
Remeasurements
    -       -  
Total Amounts Recognized
    (2,949 )     5,184  

The estimate for payment of benefits for the next 10 years is as follows:
 
Period
 
Estimated payment
 
2014
    7,427  
2015
    7,996  
2016
    8,596  
2017
    9,206  
2018
    9,820  
2019 a 2023
    59,045  

III - Sensitivity Analyses - Cost of Healthcare
 
For calculation of benefits obligations projected beyond the assumptions used for the defined benefit plans (Note 18c 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
    1,855       (1,540 )
Present value of obligation
Asset valuation adjustment
    19,085       (15,844 )

Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.69
 
 

 
 
Note 19 – Information on foreign subsidiaries
 
   
Foreign consolidated (*)
 
   
06/30/2014
 
Assets
     
Current assets and long-term receivables
     
Cash and cash equivalents
    8,740,873  
Interbank investments
    18,800,410  
Securities
    60,922,785  
Loan, lease and other credit operations
    109,034,912  
Foreign exchange portfolio
    33,659,395  
Other assets
    11,964,537  
Permanent assets
       
Investments
    2,214,326  
Fixed and intangible assets
    699,023  
Total
    246,036,261  
         
Liabilities
       
Current and long-term liabilities
       
Deposits
    104,702,585  
Demand deposits
    39,109,332  
Savings deposits
    5,536,957  
Interbank deposits
    3,880,796  
Time deposits
    56,175,500  
Deposits received under securities repurchase agreements
    12,154,047  
Funds from acceptance and issuance of securities
    12,160,071  
Borrowings
    31,815,405  
Derivative financial instruments
    3,430,602  
Foreign exchange portfolio
    33,655,087  
Other liabilities
    25,205,003  
Deferred income
    206,025  
Minority interest in subsidiaries
    16  
Stockholders’ equity
       
Capital and reserves
    21,385,449  
Net income for the period
    1,321,971  
Total
    246,036,261  
Statement of Income
       
Income from financial operations
    4,913,172  
Expenses of financial operations
    (2,388,749 )
Result of loan losses
    (388,153 )
Gross income from financial operations
    2,136,270  
Other operating revenues (expenses)
    (644,523 )
Operating income
    1,491,747  
Non-operating income
    1,030  
Income before taxes on income and profit sharing
    1,492,777  
Income tax
    (139,322 )
Statutory participation in income
    (31,483 )
Minority interest in subsidiaries
    (1 )
Net income (loss)
    1,321,971  
(*) Itaú Bank Ltd., Agência Grand Cayman, Agência New York, Itaú BBA International (Cayman) Ltd., Itaú Europa Luxemburgo S.A., Banco Itaú Argentina S.A., Itaú BBA USA Securities Inc., Itaú Unibanco S.A. Nassau Branch, Agência Tokyo, Itaú Valores S.A., Banco Itaú Holding Cayman, Itaú Ásia Securities Ltd., Banco Itaú Uruguay S.A., OCA S.A., OCA Casa Financeira S.A., Itaú BBA Corredor de Bolsa Limitada, Banco Itaú Chile S.A., Itaú Bank & Trust Bahamas Ltd., Banco Itaú International, Itaú International Securities Inc., Banco Itaú Paraguay S.A., Itaú Bank & Trust Cayman Ltd., Uni-Investments Inter. Corp., Itaú BBA UK Securities Limited, Banco Itaú Suisse S.A., MCC Securities Inc., Itaú BBA International PLC, Itaú BBA Colômbia S.A., MCC Corredora de Bolsa and Itaú Singapore Securities Pte. Ltd.

 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.70
 
 

 
 
Note 20 – 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 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 Committees of the Board of Directors and Senior Commissions, define the global objectives that are measured as goals and limits to the risk management units. Control 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. – Prudencial Financial Statements – June 30, 2014
4.71
 
 

 
 
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 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 institution 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 of Adequate management limits, models and tools.
 
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 of ITAÚ UNIBANCO HOLDING CONSOLIDATED.
 
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
 
·  
Expertise within the group to support operations in specific markets.
 
The process for managing market risk of ITAÚ UNIBANCO HOLDING CONSOLIDATED occurs within the governance and hierarchy of committees and limits approved specifically for this purpose, sensitizing different levels and classes of market risk. This framework of limits covers the process from the monitoring of aggregate indicators of risk (portfolio level) to the monitoring of granular limits (individual desks level), assuring effectiveness and coverage of control. These limits are designed considering the projected results of the balance sheet, expected performance and risk appetite of the institution, the level of equity and the profile of risk of each organization unit, which are defined in terms of risk measures used by management. Limits are monitored and controlled daily and excesses are reported and discussed in the corresponding committees. Additionally, daily risk reports used by the business and control areas, are shared with the top management.
 
The structure of limits and alerts follows the guidelines of the Board of Directors and is designed and approved by the Superior Risk Committee (CSRisc), after discussions and deliberations by the Superior Institutional Treasury Committee (CSTI). The review of this structure of limits is performed at least annually.
 
The purpose of this structure is:
 
·  
Providing more assurance to all executive levels that the assumption of market risks is in line with 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
 
·  
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, analysis and report activities to the areas and relevant people, pursuant to governance established and monitoring the actions required to adjust the position and/or risk level, when necessary. 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 superior committees and compliance with the regulatory bodies in Brazil and regulatory agents abroad.
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
4.72
 
 

 
 
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 to prevent positions from breaching relevant 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 CONSOLIDATED.
 
Hedge accounting is treated in detail in the financial statement notes.
 
The market risk framework 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 qualifying transactions (including derivatives) held with intent to trade or to hedge risk within this portfolio, and that have no restriction.
 
The banking portfolio is basically characterized by transactions from the banking business, such as funding and loans, and also includes derivatives with eligible clients and transactions related to the management of the balance sheet of the institution, including by way of derivatives. 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;
 
The market risk analyses are conducted based on the following metrics:
 
·  
Value at risk (VaR): statistical measure that estimates the expected maximum potential economic loss under normal market conditions, considering a certain time horizon and confidence level;
 
·  
Losses in stress scenarios: simulation technique to assess the behavior of assets and liabilities and derivatives of a portfolio when several risk factors are taken to extreme market situations (based on prospective scenarios);
 
·  
Stop loss: metrics which purpose is to review positions, should losses accumulated in a certain period reach a certain amount;
 
·  
Concentration: cumulative exposure of a certain asset 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.
 
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. – Prudencial Financial Statements – June 30, 2014
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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 June 30, 2014, ITAÚ UNIBANCO HOLDING CONSOLIDATED recorded a Total VaR (Parametric) of R$ 86 million.
 
 
 
 
 
 
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
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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 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. – Prudencial Financial Statements – June 30, 2014
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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 meeting 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.
 
 
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
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Note 21 - Supplementary information
 
a)
Insurance policy - ITAÚ UNIBANCO HOLDING PRUDENTIAL 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:
 

   
06/30/2014
 
Permanent foreign investments
    27,650,857  
Net amount of other assets and liabilities indexed to foreign currency, including derivatives
    (56,358,137 )
Net foreign exchange position
    (28,707,280 )

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 PRUDENTIAL, 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
 
   
06/30/2014
   
06/30/2014
   
06/30/2014
 
Investment funds
    457,923,656       457,923,656       2,240  
Fixed income
    418,577,891       418,577,891       1,855  
Shares
    39,345,765       39,345,765       385  
Managed portfolios
    254,633,771       176,626,492       20,526  
Customers
    127,960,961       82,990,039       20,460  
Itaú Group
    126,672,810       93,636,453       66  
Total
    712,557,427       634,550,148       22,766  

(*) It refers to the distribution after elimination of double-counting of managed portfolios in investment funds.

d)
Consortia funds

   
06/30/2014
 
Monthly estimate of installments receivable from participants
    135,901  
Group liabilities by installments
    10,988,763  
Participants – assets to be delivered
    10,128,004  
Funds available for participants
    1,065,804  
(In units)
       
Number of managed groups
    853  
Number of current participants
    398,092  
Number of assets to be delivered to participants
    223,452  

e)
Fundação Itaú Social - ITAÚ UNIBANCO HOLDING CONSOLIDATED 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 June 30, 2014 the consolidated companies made no donations and the Foundation’s social net assets totaled R$ 2,633,488. The income arising from its investments will be used to achieve the Foundation’s social purposes.
 
f)
Instituto Itaú Cultural – IIC - ITAÚ UNIBANCO HOLDING CONSOLIDATED 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$ 19,000.
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
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g)
Instituto Unibanco - ITAÚ UNIBANCO HOLDING CONSOLIDATED 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 CONSOLIDATED and its subsidiaries sponsor Instituto Unibanco de Cinema, an entity whose objective is (i) the fostering of culture in general; and (ii) providing access of low-income population to cinematography, videography and similar productions, for which it shall maintain movie theaters owned or managed by itself, and theaters to screen films, videos, video-laser discs and other related activities, as well as to screen and divulge films of great importance, especially those produced in Brazil.
 
i)
Associação Clube “A” - ITAÚ UNIBANCO HOLDING CONSOLIDATED and is subsidiaries sponsor Associação Clube “A”, an entity whose objective is the provision of social services for the welfare of beneficiaries, in the way and conditions established by its Internal Rules, and according to the funds available. These services may include, among others, the promotion of cultural, educational, sports, entertainment and health care activities. During the period from January 1 to June 30, 2014, the consolidated companies have made donations to Clube “A” in the amount of R$ 800.
 
j)
Instituto Assistencial Pedro di Perna - ITAÚ UNIBANCO HOLDING CONSOLIDATED 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)
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.
 
l)
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 in 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.
 
m)
Subsequent Event
 
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 undertake to sell their total stakes in Itaú Seguros Soluções Corporativas S.A. (“ISSC”).
 
ISSC will hold the ITAÚ UNIBANCO HOLDING’s major risk insurance operations following the finalization of the process of spinoff from Itaú Seguros S.A., which clients are middle market and large corporations with policies representing high insured values. The necessary measures for completion of the spinoff process are already in progress.
 
Based on pro-forma data for December 31, 2013, the major risk insurance operation to be transferred to ISSC and subsequently sold off to ACE comprises the following: net equity value of R$ 364 million, assets of R$ 5.8 billion and technical reserves of R$ 4.6 billion.
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
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ACE will pay R$ 1.515 billion in cash to ITAÚ UNIBANCO HOLDINGand its subsidiaries which shall sell the shares of ISSC. The transfer of these shares and the financial settlement of the operation will take place after certain conditions established in the agreement are fulfilled and confirmation of the necessary regulatory authorizations is obtained.
 
It is estimated that the operation will have an accounting effect, before tax, of R$ 1.1 billion on 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
 
Certain subsidiaries of ITAÚ UNIBANCO HOLDING (Itaú Unibanco S.A., Unibanco Negócios Imobiliários S.A., Banco Itauleasing S.A., Banco Itaucard S.A. and Intrag – Part. Administração e Participações Ltda.), in conjunction with the Banco do Brasil Group (through Banco do Brasil and BB Banco de Investimentos S.A.), the Santander Group (through Santander S.A. – Serviços Técnicos, Administrativos e de Corretagem de Seguros), the Bradesco Group (through Banco Bradesco S.A., Banco Alvorada S.A. and Alvorada Cartões, Crédito, Financiamento e Investimentos S.A.), the HSBC Group (through HSBC Bank Brasil S.A. – Banco Múltiplo), the Caixa Group (through Caixa Participações S.A.) and the Citibank Group (through Citibank N.A. – Brazilian Branch and Banco Citibank S.A.) (together denominated “Parties”), with the intervention and agreement of Tecnologia Bancária S.A. (“TecBan”), Itaú Unibanco, Banco Santander (Brasil) S.A. and Caixa Econômica Federal, on July 17, 2014 signed a new Shareholders Agreement of TecBan (“Shareholders Agreement”), 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 as 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.
 
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 a further 40 (forty) banks are clients of TecBan. Consequently, this growth in the Banco24Horas Network will also significantly benefit these institutions and their respective customers.
 
The entry into effect of the Shareholders Agreement is subject to certain suspensive conditions, among which, approval by the appropriate regulatory authorities.
 
 
 
 
 
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Independent auditor’s report
 
To the Board of Directors and Stockholders
Itaú Unibanco Holding S.A.
 
We have audited the accompanying consolidated financial statements of the Prudential Conglomerate of Itaú Unibanco Holding S.A.(the “Bank”), which comprise the consolidated balance sheet as at June 30, 2014 and the consolidated statements of income, changes in equity and cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory information. These financial statements were prepared in accordance with specified procedures as established in Resolution 4,280, from October 31, 2013, issued by National Monetary Council (CMN), and supplementary regulations of the Brazilian Central Bank (BACEN), described in note 2 – Presentation of the Financial Statements.
 
Management’s responsibility for the financial statements
 
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Resolution 4,280 of the National Monetary Council (CMN), and supplementary regulations of the Brazilian Central Bank (BACEN), whose main criteria and accounting policies are disclosed in the Notes 2 - Presentation of the financial statements and 4 – Summary of the main accounting practices, and for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements of the Prudential Conglomerate that are free from material misstatement, whether due to fraud or error.
 
Auditor’s responsibility
 
Our responsibility is to express an opinion on these financial statements, prepared by management in accordance with Resolution 4,280 of the National Monetary Council (CMN), and supplementary regulations of the Brazilian Central Bank (BACEN), based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing, taking into consideration NBC TA 800 - Special Considerations - Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
 
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
 
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
 
 
 
 
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
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Opinion
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Itaú Unibanco Holding S.A. as at June 30, 2014, and its financial performance and cash flows for the six-month period then ended, in accordance with the provisions for the preparation of financial statements of prudential conglomerates established by Resolution 4,280 of the CMN and supplementary regulations of BACEN, for the preparation of these special purpose consolidated financial statements, as described in the Notes 2 - Presentation of the financial statements and 4 – Summary of the main accounting practices to the financial statements.
 
Emphasis of matter
 
Basis of preparation of the consolidated financial statements of the Prudential Conglomerate
 
Without modifying our opinion, we draw attention to the Note 2 - Presentation of the financial statements, which discloses the following information:
 
(a) The consolidated financial statements of the Prudential Conglomerate were prepared by management to comply with the requirements of Resolution 4,280 of the CMN, and supplementary regulations of BACEN. Consequently, our report on these consolidated financial statements was prepared exclusively for the compliance with these specific requirements and, accordingly, may not be suitable for another purpose.
 
(b) Since this is the first presentation of the consolidated financial statements of the prudential conglomerate, the Bank’s management decided to adopt the provisions established in paragraph 2 of article 10, of BCB Circular 3,701, of March 13, 2014 and, therefore, the financial statements referring to the base dates prior to June 30, 2014 are not being presented for comparison purposes.
 
Other matters
 
Itaú Unibanco Holding S.A. prepared a set of parent company and consolidated financial statements for general purposes referring to the six-month period ended June 30, 2014, in accordance with accounting practices adopted in Brazil, applicable to institutions authorized to operate by the Brazilian Central Bank (BACEN). Our independent auditor’s report on those statements, dated August 4, 2014, was unmodified.
 
São Paulo, August 28, 2014
 

 
PricewaterhouseCoopers
Auditores Independentes
CRC 2SP000160/O-5
 
Washington Luiz Pereira Cavalcanti
Contador CRC 1SP172940/O-6
 
 
 
Itaú Unibanco Holding S.A. – Prudencial Financial Statements – June 30, 2014
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