Itaú Unibanco Holding (ITUB) 20-F/A 2014 FY Annual report (foreign) (amended)

 

As filed with the Securities and Exchange Commission on September 21, 2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 20-F/A

(Amendment No. 1)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-15276

ITAÚ UNIBANCO HOLDING S.A.

(Exact name of Registrant as specified in its charter)

Federative Republic of Brazil

(Jurisdiction of incorporation or organization)

Praça Alfredo Egydio de Souza Aranha, 100
04344-902 São Paulo, SP, Brazil

(Address of principal executive offices)

Marcelo Kopel
Investor Relations Officer
Itaú Unibanco Holding S.A.

Praça Alfredo Egydio de Souza Aranha, 100
04344-902 São Paulo, SP, Brazil
+55 11 2794 3547
drinvest@itau-unibanco.com.br

(Name, Telephone, E-mail and/or Facsimilie number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Preferred Shares, no par value	New York Stock Exchange(*)
American Depositary Shares (as evidenced by American Depositary Receipts), each representing 1 (one) Preferred Share	New York Stock Exchange

(*) Not for trading purposes, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

2,770,034,003 Common Shares, no par value

2,706,967,586 Preferred Shares, no par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x Yes¨ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

¨ Yes  x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

x Yes  ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨ Yes  ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

x Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

¨ U.S. GAAP	x International Financial Reporting Standards	¨ Other
	as issued by the International Accounting
	Standards Board

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

¨ Item 17  ¨ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes  x No

 

EXPLANATORY NOTE

Itaú Unibanco Holding S.A. is filing this Amendment No. 1 to its annual report on Form 20-F for the fiscal year ended December 31, 2014, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 3, 2015 (the “2014 Form 20-F”), to amend and restate the section entitled “Risk and Capital Management” solely to correct figures in the “Exchange Rate Sensitivity” table on page A-75 appearing under Item 11 “Quantitative and Qualitative Disclosures About Market Risk”, in the “Distribution of our Financial Assets by Currency” table on page A-102 appearing under “Maturity profile” of Part II, “Investment Portfolio”, of Guide 3 and to include a reference in the “Indexation” text on page A-104 appearing under “Risk Elements” of Part III, “Loan Portfolio”, of Guide 3 of the 2014 Form 20-F.

Other than as expressly set forth above, this Form 20-F/A does not, and does not purport to, amend, update or restate the information in any part of the 2014 Form 20-F or reflect any events that have occurred after the 2014 Form 20-F was filed on April 3, 2015. The filing of this Form 20-F/A, and the inclusion of newly executed certifications, should not be understood to mean that any other statements contained in the 2014 Form 20-F are true and complete as of any date subsequent to April 3, 2015.

This Form 20-F/A should be read in conjunction with the 2014 Form 20-F and our other filings with the SEC.

 

FORM 20-F

Item 11. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

Market risk is the possibility of losses resulting from fluctuations in the market value of positions held by a financial institution, most typically caused by variations in foreign exchange rates, interest rates, Brazilian inflation indexes, equity and commodity prices, along with various indexes for these risk factors. Market risk management is the process by which our management monitors and controls risk of variations in the value of financial instruments due to market movements, while aiming to optimize the risk-return ratio through an adequate limit and alert structure (described below), effective risk management models and related management tools.

Our policies and general market risk management framework are consistent with the principles contained in CMN regulations and applying all business units and legal entities of the Itaú Unibanco Group.

Our 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 Itaú Unibanco Group to support operations in specific markets.

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Our market risk management framework is subject to the governance and hierarchy of committees, with specific limits assigned to different portfolios and levels (for example, Banking Portfolio, Trading Portfolio, Equities Desk), as well as classes of market risk (such as interest rate risk, foreign exchange risk, among others). Daily risk reports, used by the business and control units, are also sent to senior management. In addition, our market risk management and control process is subject to periodic reviews. The key principles underlying our market risk control are as follows:

· Provide visibility and comfort for all senior management levels that market risks assumed must be in line with our risk-return objectives;

· Provide disciplined and informed dialogue of the overall market risk profile and its evolution over time;

· There must be transparency as to how the business works to optimize results;

· The market risk control structure must provide early warning mechanisms to facilitate effective risk management, without obstructing the business objectives; and

· Concentration of risks must be monitored and avoided.

Market risk is controlled by a unit that is independent from our “risk originating” business units and is responsible for performing the daily activities of: (i) risk measurement, and assessment; (ii) monitoring of stress scenarios, limits and alerts; (iii) application of stress scenarios, analysis and tests; (iv) reporting of risk findings to responsible individuals within the relevant business unit, in accordance with our governance requirements; (v) monitoring the necessary actions to readjust positions and/or levels of risk to make them viable; and (vi) providing support for the launch of new financial products. To this end, we have a structured process of communication and information flow that provides information to our Superior Committees and monitors compliance with the requirements of Brazilian and relevant foreign regulatory agencies.

Our structure of limits and alerts follows the guidelines of the Board of Directors and is approved by the Superior Risk Policies Committee (CSRisc), that meets at least every two months, after endorsement by the Superior Institutional Treasury Committee (CSTI). This structure of limits and alerts promotes the effectiveness and coverage of control and is reviewed at least annually. The limits range from aggregated risk indicators at the portfolio level to more granular limits at the individual desk level. The market risk limits framework extends to the risk factor level, with specific limits that aim to improve the process of risk monitoring and understanding as well as prevent risk concentration. Limits and alerts are calibrated based on projections of future balance sheets, stockholders’ equity, liquidity, complexity and market volatility and our risk appetite. The process of setting these limit levels and breach reporting follows the procedures approved by our financial conglomerate´s internal policies. There is a structured process of communication and information flow, which provides information for all executive levels at our institution, including the Board of Directors members through the CGRC, that meets every two months. Market risk limits are monitored on a daily basis and breaches and potential breaches of limits are reported and discussed in appropriate committees in accordance with the following procedure:

· Within one business day, to the management of the relevant business units and to the risk control and the business unit executives; and

· On a monthly basis, to the Superior Institutional Treasury Committee (CSTI), which is chaired by our Chief Executive Officer.

We hedge transactions with clients and proprietary positions, including foreign investments, in order to mitigate risks arising from fluctuations in market risk factors (e.g., prices) and maintain the positions on the breaching limits. Derivatives are commonly used for these hedging activities. When these transactions are classified as hedges for accounting purposes, specific supporting documentation is reviewed, allowing for an ongoing follow up of the hedge effectiveness (retrospectively and prospectively) and of any changes in the accounting process. The accounting and managerial hedging procedures are governed by our internal institutional polices. Our market risk framework categorizes transactions as part of either the Banking Portfolio or the Trading Portfolio, in accordance with criteria established by specific regulation.

Our Trading Portfolio is composed of all transactions with financial and commodity instruments (including derivatives) held with the intention of trading, to benefit from arbitrage opportunities, or using such transactions to hedge risk within this portfolio, and that have no restriction on trading. Profits are based on changes in actual or expected prices in the short term.

Our Banking Portfolio is predominantly characterized by trades originated from the banking business and related to the management of our balance sheet. As a general rule, this desk’s portfolios are held without intent of trading and time horizon of medium and long term.

Market risk exposures that are inherent to many financial instruments, including derivatives, are composed of various risk factors. A risk factor refers to a market parameter whose variation impacts the evaluation of a certain position. The main risk factors measured by us are:

· Interest rates: the risk of losses from transactions that are subject to interest rate variations;

· Other foreign interest rates: the risk of losses from transactions subject to foreign interest rate variations;

· FX rates: the risk of losses from positions subject to foreign exchange rate variation (e.g., foreign currency positions);

· Brazilian inflation indexes: the risk of losses from transactions subject to variations in inflation linked indexes; and

· Equities and commodities: the risk of losses from transactions that are subject to equity and commodity price variations.

The CMN has regulations establishing the segregation of market risk exposure at a minimum into the following categories: interest rates, FX rates, equities and commodities. Brazilian inflation indexes are treated as a group of risk indicators and receive the same treatment of the others risk indicators, such as interest rates and FX rates and follows the governance and risk limits framework adopted by our management for market risk assessment.

Market risk is analyzed based on the following key metrics:

· Value at Risk (VaR): a statistical metric that quantifies potential economic losses based on normal market conditions, considering a defined holding period and confidence level;

Annual Report2014 A-72 

 

• Losses in Stress Scenarios (Stress Testing): a simulation technique to evaluate the impact on assets, liabilities and derivatives portfolios of various risk factors in extreme market situations (based on prospective and historic scenarios);

• Stop Loss: a mechanism that triggers a management review of positions, if the accumulated losses in a given period reach specified levels;

• Concentration: cumulative exposure of certain financial instrument or risk factors calculated at market value (MtM – Mark to Market); and

• Stressed VaR: a statistical metric derived from VaR, aimed at capturing the largest risk in simulations of the current portfolio, taking into consideration observable returns in historical scenarios of extreme volatility.

In addition to the risk metrics described above, sensitivity and loss control measures are also analyzed. They include:

• Gap Analysis: accumulated exposure of cash flows by risk factor, which are marked-to-market and positioned by settlement dates;

• Sensitivity (DV01 – Delta Variation Risk): impact on the market value of cash flows when a one annual basis point change is applied to current interest rates or index rates; and

• Sensitivities to Various Risk Factors (Greek): partial derivatives of a portfolio of options in connection with the prices of the underlying assets, implied volatilities, interest rates and time.

Please refer to our Consolidated Financial Statements (IFRS), Note 36 – Management of Financial Risks for further details about Market Risk.

VaR – Consolidated Itaú Unibanco Holding

We improved our internal methodology to calculate Consolidated VaR, migrating from the “parametric” approach to a “historical simulation” approach (except with respect to our Foreign Units, which are in the process of migrating to the historical simulation methodology). This new methodology carries out the full repricing of all positions, using the real historical distribution of assets.

The table below shows the Consolidated Total VaR (utilizing both approaches), comprising our Trading Portfolio and Banking Portfolio, and our subsidiaries abroad, namely Itaú BBA International, Banco Itaú Argentina, Banco Itaú Chile, Banco Itaú Uruguay, Banco Itaú Paraguay and Itaú BBA Colombia showing where there are higher concentrations of market risk. We adhered to our policy of operating within low limits in relation to capital and maintained our conservative management and portfolio diversification approach through the period.

																									(In millions of R$)
GLOBAL VAR (PARAMETRIC APPROACH)	AVERAGE		MINIMUM		MAXIMUM		DECEMBER 31, 2014			AVERAGE		MINIMUM		MAXIMUM		DECEMBER 31, 2013			AVERAGE		MINIMUM		MAXIMUM		DECEMBER 31, 2012
Group of Risk Factor
Brazilian Interest rate		89.0		37.0		193.0		127.8			172.4		65.6		416.9		69.1			191.2		71.8		427.6		348.7
Other Interest rate		43.8		21.1		149.4		90.4			26.2		8.6		76.7		45.2			20.4		7.3		49.6		11.4
FX rate		28.7		3.6		110.6		8.9			34.5		4.4		70.2		10.4			25.7		4.6		53.9		8.8
Brazilian Inflation Indexes		89.0		45.9		144.7		82.9			76.1		37.3		155.5		65.7			110.3		14.8		325.0		51.2
Equities and commodities		19.1		10.4		35.0		24.8			29.6		14.0		60.1		20.4			24.2		13.6		43.5		16.8
Foreign Units
Itaú BBA International		1.1		0.4		2.3		1.6			2.4		1.6		4.1		1.9			1.7		0.7		5.1		1.1
Banco Itaú Argentina		4.0		0.9		18.8		1.9			4.0		2.2		7.4		5.7			3.0		1.7		5.6		5.5
Banco Itaú Chile		3.3		1.3		5.5		5.3			5.6		2.1		13.6		2.1			5.5		3.2		9.6		4.4
Banco Itaú Uruguai		1.6		0.8		2.6		2.1			2.8		1.5		8.9		1.7			1.7		0.3		3.4		2.0
Banco Itaú Paraguai		1.3		0.6		3.6		3.5			0.9		0.4		1.8		0.9			0.4		0.2		1.4		1.0
Banco Itaú BBA Colombia		0.4		0.1		1.2		0.5			0.4		0.0		1.3		0.2			-		-		-		-
Diversification effect(1)								(169.3	)								(113.0	)								(77.1	)
Total		125.5		59.0		231.4		180.4			224.5		97.9		443.4		110.4			289.7		118.0		601.4		373.7

(1) Reduction of risk due to the combination of all risk factors.

GLOBAL VAR (HISTORICAL							DECEMBER
SIMULATION APPROACH)1	AVERAGE		MINIMUM		MAXIMUM		31, 2014
Group of Risk Factor
Brazilian Interest rate		92.4		37.0		161.8		124.8
Other Interest rate		60.4		21.1		93.2		83.6
FX rate		36.1		3.6		141.2		26.5
Brazilian Inflation Indexes		99.1		45.9		162.9		115.7
Equities and commodities		22.8		10.4		60.7		22.5
Foreign Units
Itaú BBA International		1.1		0.4		2.3		1.6
Banco Itaú Argentina		4.0		0.9		18.8		1.9
Banco Itaú Chile		3.3		1.3		5.5		5.3
Banco Itaú Uruguai		1.6		0.8		2.6		2.1
Banco Itaú Paraguai		1.3		0.6		3.6		3.5
Banco Itaú BBA Colombia		0.4		0.1		1.2		0.5
Diversification effect(2)								(194.9	)
Total		131.9		59.0		227.7		193.1

(1) Except for the “Foreign Units” (calculated by the parametric methodology).

(2) Reduction of risk due to the combination of all risk factors.

On December 31, 2014, our average global VaR (parametric) was R$125.5 million, or 0.12% of our consolidated stockholders’ equity on December 31, 2014, compared to our average global VaR (parametric) of R$224.5 million on December 31, 2013 or 0.27% of our consolidated stockholders’ equity on December 31, 2013, and to R$289.7 million on December 31, 2012, or 0.38% of our consolidated stockholders’ equity on December 31, 2012. On December 31, 2014, our average global VaR (historical simulation) was R$131.9 million, or 0.13% of our consolidated stockholders’ equity on December 31, 2014.

VaR – Trading Portfolio

The table below presents risks arising from all positions with the intention of trading, following the criteria defined above for our trading portfolio, or the Trading Portfolio.

Our total average Trading Portfolio VaR was R$25.7 million on December 31, 2014, compared to R$40.2 million on December 31, 2013 and to R$54.3 million on December 31, 2012.

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(In millions of R$)
TRADING PORTFOLIO VAR	AVERAGE		MINIMUM		MAXIMUM		DECEMBER 31, 2014			AVERAGE		MINIMUM		MAXIMUM		DECEMBER 31, 2013			AVERAGE		MINIMUM		MAXIMUM		DECEMBER 31, 2012
Group of Risk Factor
Brazilian Interest rate		22.2		7.8		44.8		16.6			38.2		15.7		104.9		20.1			38.3		12.8		95.4		25.2
Other Foreign Interest rate		12.1		3.6		35.0		3.6			13.7		4.5		31.7		21.7			10.7		4.2		27.2		6.4
FX rates		7.9		2.4		22.8		10.7			31.8		6.2		68.1		9.4			25.1		4.9		55.6		9.9
Brazilian Inflation Indexes		15.9		8.1		27.3		8.1			12.0		3.1		30.4		21.4			9.4		1.8		22.2		7.1
Equities and commodities		10.3		1.7		57.2		4.3			19.2		5.8		38.2		13.7			23.3		13.8		41.5		14.8
Diversification effect(1)								(26.4	)								(56.0	)								(38.6	)
Total		25.7		13.1		54.3		16.9			40.2		17.7		71.7		30.3			54.3		21.3		112.3		24.7

(1) Reduction of risk due to the combination of all risk factors.

Sensitivity Analyses (Trading and Banking Portfolios)

As required by Brazilian regulation, we conduct sensitivity analysis for market risk factors considered important. The highest resulting losses are presented below, with impact on result, by risk factor, in each such scenario and are calculated net of tax effects, providing a view of our exposure under different circumstances.

The sensitivity analyses of the Trading Portfolio and Banking Portfolio presented here are based on a static assessment of the portfolio exposure. Therefore, such analyses do not consider the dynamic response capacity of management (e.g., treasury and market risk control unit) to initiate mitigating measures and minimize the possibility of significant losses. In addition, the analysis is intended to assess risk exposure, regardless of whether or not financial instruments are accounted for on an accrual basis.

(In thousands of R$)
		TRADING PORTFOLIO(1)									TRADING AND BANKING PORTFOLIOS(1)
	EXPOSURES	DECEMBER 31, 2014									DECEMBER 31, 2014
RISK FACTORS	RISK OF CHANGE	SCENARIO I			SCENARIO II			SCENARIO III			SCENARIO I			SCENARIO II			SCENARIO III
Interest Rate	Fixed Income Interest Rates in reais		(540	)		(126,764	)		(237,705	)		(5,493	)		(1,417,835	)		(2,688,954	)
Foreign Exchange Linked	Foreign Exchange Linked Interest Rates		22			(1,729	)		(3,374	)		-			(19,266	)		(34,458	)
Foreign Exchange Rates	Prices of Foreign Currencies		610			165,600			337,463			(17,308	)		(247,730	)		(414,333	)
Price Index Linked	Prices Indexes Linked Interest Rates		(16	)		(5,703	)		(11,680	)		(1,700	)		(238,647	)		(430,973	)
TR	TR Linked Interest Rates		(20	)		(5,093	)		(9,579	)		705			(224,170	)		(473,074	)
Equities	Prices of Equities		(78	)		(11,769	)		(35,990	)		1,661			(49,699	)		(122,034	)
Total			(22	)		14,542			39,135			(22,135	)		(2,197,347	)		(4,163,826	)

(1) Amounts net of tax effects.

In order to measure these sensitivities, the following scenarios (modified on the second quarter of 2014), are used:

· Scenario I: Addition of one basis point to interest rates and associated indexes and one percentage point to currency and equity prices;

· Scenario II: Shocks of 25 percent in fixed interest 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; and

· Scenario III: Shocks of 50 percent in fixed interest 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.

Interest rate sensitivity

Interest rate sensitivity is the relationship between market interest rates and net interest income arising from the maturity or the characteristics of the renegotiation of prices of interest-bearing assets and liabilities.

Our strategy for interest rate sensitivity considers the return rates, the underlying risk level and the liquidity requirements, including our minimum regulatory cash reserves, mandatory liquidity ratios, withdrawals and maturity of deposits, capital costs and additional demand for funds.

The pricing structure is matched when equal amounts of these assets or liabilities mature or are renegotiated. Any mismatch of interest-bearing assets and liabilities is known as a gap position. A negative gap position indicates liability sensitivity and normally means that a decline in interest rates would have a positive effect on net interest income, while a positive gap position indicates asset sensitivity and normally means that an increase in interest rates would have a positive effect on net interest income. Additionally, the interest rate sensitivity may vary in the renegotiation periods presented due to the different renegotiation dates within the period. Also, variations among the different currencies in which the interest rate positions are denominated may arise.

These relationships are material for a particular date, and significant fluctuations may occur on a daily basis as a result of both the market forces and management decisions. Our Superior Institutional Treasury and Liquidity Committee (CSTIL) analyzes the Itaú Unibanco Group’s mismatch position on a monthly basis and establishes limits for market risk exposure, interest rate positions and foreign currency positions.

Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 36 – Management of Financial Risks for further details about the position of our interest-bearing assets and liabilities as of December 31, 2014. Note 36 to our audited interim consolidated financial statements provides a snapshot view, and accordingly, does not reflect the interest rate gaps that may exist at other times, due to changing asset and liability positions, and management’s actions to manage the risk in these changing positions.

Annual Report2014 A-74 

 

Exchange rate sensitivity

Most of our banking operations are denominated in or indexed to Brazilianreais. We also have assets and liabilities denominated in foreign currency, mainly in U.S. dollars, as well as assets and liabilities that, although denominated in Brazilianreais, are indexed to U.S. dollars and, therefore, expose us to exchange rate risk. The Central Bank regulates our maximum open, short and long foreign currency positions. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 36 – Management of financial risks for further details.

The gap management policy adopted by the Superior Institutional Treasury and Liquidity Committee takes into consideration the tax effects with respect to our foreign exchange positions. Since the gains from the foreign exchange rate variation on investments abroad are not taxed, we set up a hedge (a liability in foreign currency derivative instruments) in an amount sufficient so that our total foreign exchange exposure, net of tax effects, is consistent with our low risk exposure strategy.

Our foreign exchange position on the liability side is composed of various elements, including the issuance of securities in international capital markets, credit from foreign banks used to finance import and export transactions, and dollar-linked on-lendings from government financial institutions. The proceeds of these financial operations are usually invested in loans and in the purchase of dollar-linked securities.

The information set below was prepared on a consolidated basis, eliminating transactions between related parties. Our investments abroad, which are eliminated when we consolidate the accounting information, represented R$43.7 billion as of December 31, 2014, under the gap management policy adopted, as mentioned above. Note that the bank applies either economic hedges or hedge accounting to those net investments abroad.

(In millions of R$, except percentages)
AS OF DECEMBER 31, 2014	BRAZILIAN CURRENCY			DENOMINATED IN FOREIGN CURRENCY(1)			INDEXED TO FOREIGN CURRENCY(1)			TOTAL			% OF AMOUNTS DENOMINATED IN AND INDEXED TO FOREIGN CURRENCY OF TOTAL
Assets		923,281			178,292			25,630			1,127,203			18.1
Cash and deposits on demand		7,391			8,842			1,294			17,527			57.8
Central Bank compulsory deposits		58,476			4,630			-			63,106			7.3
Interbank deposits		7,874			15,207			-			23,081			65.9
Securities purchased under agreements to resell		208,752			166			-			208,918			0.1
Held-for-trading financial assets		126,404			4,350			2,190			132,944			4.9
Financial assets designated at fair value through profit or loss		626			107			-			733			14.6
Derivatives		5,519			5,689			2,948			14,156			61.0
Available-for-sale financial assets		55,152			22,637			571			78,360			29.6
Held-to-maturity financial assets		24,102			10,332			-			34,434			30.0
Loan operations and lease operations portfolio		344,785			95,295			12,351			452,431			23.8
Allowance for loan losses		(19,924	)		(2,131	)		(337	)		(22,392	)		11.0
Other financial assets		38,130			8,919			6,600			53,649			28.9
Investments in associates and joint ventures		4,090			-			-			4,090			-
Goodwill		1,748			213			-			1,961			10.9
Fixed assets, net		8,314			397			-			8,711			4.6
Intangibles assets, net		5,724			410			-			6,134			6.7
Tax assets		34,601			642			-			35,243			1.8
Assets held for sale		182			14			-			196			7.1
Other assets		11,335			2,573			13			13,921			18.6
Percentage of total assets		81.9	%		15.8	%		2.3	%		100.0	%
Liabilities and Stockholders’ Equity		889,574			209,830			27,799			1,127,203			21.1
Deposits		195,511			98,617			645			294,773			33.7
Securities sold under repurchase agreements		273,340			15,343			-			288,683			5.3
Financial liabilities held for trading		-			520			-			520			100.0
Derivatives		7,966			6,006			3,378			17,350			54.1
Interbank market debt		79,288			40,430			2,868			122,586			35.3
Institutional market debt		36,087			35,385			1,770			73,242			50.7
Other financial liabilities		46,209			8,751			16,532			71,492			35.4
Reserves for insurance and private pension		109,716			59			3			109,778			0.1
Liabilities for capitalization plans		3,010			-			-			3,010			-
Provisions		16,995			32			-			17,027			0.2
Tax liabilities		3,925			540			-			4,465			12.1
Other liabilities		16,910			4,147			2,603			23,660			28.5
Non-controlling interests		1,357			-			-			1,357			-
Stockholders’equity		99,260			-			-			99,260			-
Percentage of total liabilities and stockholders’equity		78.9	%		18.6	%		2.5	%		100.0	%

Note that the information presented in the table above is not prepared on the same basis as presented in the Consolidated Financial Statements.

(1) Predominantly U.S. dollar.

Backtesting

The effectiveness of the VaR model is validated by the use of backtesting techniques that compare hypothetical daily results with the estimated daily VaR. The number of exceptions (i.e. deviations) with respect to the pre-established VaR limits should be consistent, within an acceptable margin, with the hypothesis of 99.0% confidence intervals (i.e., there is a 1.0% probability that the financial losses are higher than the losses estimated by the model), considering a period of 250 business days (ending on December 31, 2014). The backtesting analysis presented below takes into consideration the ranges suggested on the document  

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“Supervisory Framework for the use of backtesting in conjunction with the internal models approach to market risk capital requirements”, published by the Basel Committee.

The ranges are divided into:

· Green (0 to 4 exceptions): corresponds to backtesting results that do not suggest any problems with the quality or accuracy of the models adopted;

· Yellow (5 to 9 exceptions): refers to an intermediate range group, which indicates the need to pay attention and/or monitor and may indicate the need for improvement actions and/or monitoring and may indicate the need of reviewing the model; and

· Red (10 or more exceptions): demonstrates the need for an improvement action.

The exposure graph below illustrates the reliability of risk measures generated by the models we use in the Trading Portfolio (foreign units are not included in the graph below given the immateriality of amounts involved).

The graph shows the adequacy level of the market risk models used by us, presenting the risk (absolute value) versus return pairs for the period considered. Since the diagonal line represents the threshold where risk equals return, all the dots below this line indicate exceptions to the estimated risk. For the exposure of the Trading Portfolio, the hypothetical losses exceeded the VaR estimated by the model on 2 days during the 250 day period ended on December 31, 2014.

 

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GUIDE 3

Part II Investment Portfolio

Performance

Financial Performance

Significant Accounting Policies

General Aspects

The preparation of the consolidated financial statements included in this annual report involves some assumptions that are based on our historical experience and other factors that we deem reasonable and material. Although we review these estimates and assumptions in the ordinary course of business, the presentation of our financial condition and results of operations often requires our management to make judgments regarding the effects on our financial condition and results of operations of matters that are uncertain by nature. The comments below describe those aspects that require significant judgment or involve a higher degree of complexity in the application of the accounting policies that currently affect our financial condition and results of operations. Actual results may differ from those estimated under different variables, assumptions or conditions.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenue, expenses and gains and losses during the reporting period because the actual results may differ from those determined based on such estimates and assumptions.

All estimates and assumptions made by management are in accordance with IFRS and represent our best estimates made in conformity with applicable standards. Estimates and judgments are evaluated on an ongoing basis, based on past experience and other factors.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses represents our estimate of the probable losses inherent to our loan portfolio at the end of each reporting period. In order to determine the amount of the allowance for loan and lease losses, a portfolio is classified into two categories with respect to which specific methodologies are used to estimate losses. Loans and leases are analyzed on an individual or portfolio basis.

· Loans and leases analyzed on an individual basis (corresponding to our corporate portfolio) are individually analyzed for impairment. For those considered to be impaired, we determine the amount of the allowance based on the expected cash flows of the company that will receive the loan. The loans that are not impaired are rated based on risk factors, and the inherent losses for each rating are estimated based on our historical experience, which involves judgments related to identifying risk factors and assigning a rating.

· Loans analyzed on a portfolio basis (corresponding to the following portfolios: (i) Individuals, (ii) Very Small, Small and Medium Business and (iii) Foreign Units – Latin America) are further segregated into classes, when appropriate, based on their underlying risks and characteristics. The allowance for loan and lease losses is determined by portfolio based on historical experience, which also involves judgments and assumptions.

Many factors affect the estimate of losses in each of the categories for which we estimate the allowance on a portfolio basis, such as the methodology used to measure historical delinquency and the historical period to be used. Additionally, factors affecting the specific amount of the allowances to be recorded are subjective and include economic and political conditions, credit quality trends and volume and growth observed in each portfolio. We present information on our allowance for loan and lease losses in the table below:

(In millions of R$)
ALLOWANCE FOR LOAN AND LEASES LOSSES	2014		2013		2012
Amount Recognized in the Balance Sheet		22,392		22,235		25,713
Expense Recognized in the Income Statement		18,832		17,856		23,982

Fair Value of Financial Instruments

Financial instruments recorded at fair value on our balance sheet include mainly securities classified as held-for-trading and available-for-sale as well as other trading assets, including derivatives. Securities classified as held-to-maturity are recorded at amortized historical cost on our balance sheet, and their corresponding fair values are shown in the notes to our consolidated financial statements. We present information on the fair value of our financial instruments in the table below as of December 31, 2014, 2013 and 2012.

(In millions of R$, except percentages)
FINANCIAL INSTRUMENTS	AS OF DECEMBER 31,
RECORDED AT FAIR VALUE	2014		2013		2012
Assets
Held-for-trading		132,944		148,860		145,516
Designated at fair value through profit or loss		733		371		220
Derivatives		14,156		11,366		11,597
Available-for-sale		78,360		96,626		90,869
Total		226,193		257,223		248,202
Share (derivatives/total – %)		6.3		4.4		4.7
Liabilities
Held-for-trading		520		371		642
Derivatives		17,350		11,405		11,069
Total		17,870		11,776		11,711
Share (derivatives/total – %)		97.1		96.8		94.5

We determine the fair value of our financial instruments based on International Financial Reporting Standard 13 (IFRS 13), which defines fair value as the amount for which an asset could be exchanged or a liability transferred in an orderly transaction between market participants.

According to IFRS 13, there are different levels of inputs that may be used to measure the fair value of financial instruments classified as levels 1, 2 and 3.

• Level 1: observable inputs reflect the quoted prices (unadjusted) of identical assets or liabilities in active markets;

• Level 2: observable inputs reflect the information on assets and liabilities that are either directly (such as prices) or indirectly (derived from prices) observable, except for the quoted prices included in Level 1; and

• Level 3: information on assets and liabilities that are not based on observable market data due to little market activity on the

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measurement date. We present information on our level 3 financial instruments in the table below as of December 31, 2014, 2013 and 2012.

(In millions of R$, except percentages)
	AS OF DECEMBER 31,
LEVEL 3	2014		2013		2012
Held-for-trading		790		27		20
Available-for-sale securities		5,404		6,489		2,489
Net position of derivatives		77		119		144
Total		6,271		6,635		2,653
(Held-for-trading + Available-for-sale securities)/Total Level 3 (%)		98.8		98.2		94.6

Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 31 – Fair Value of Financial Instruments for further details.

Judgments are also required to determine whether there is objective evidence that a financial asset or a group of financial assets is impaired. If there is any evidence of impairment for available-for-sale or held-to-maturity financial assets, the cumulative loss, measured as the difference between the acquisition cost and current fair value, is recognized in the statement of income. The primary factors that are used by management to determine whether there is objective evidence that a financial asset is impaired include the observed period of the loss, the level of the loss, whether we were required to sell the securities before the recovery and the expectation, on the date of analysis, of the possibility of realization of the security. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 2 – Significant Accounting Policies for further details about other significant accounting policies.

Contingent Liabilities

Contingent liabilities arise mainly from judicial and administrative proceedings inherent to the ordinary course of our business and that are filed by third parties, including former employees and public bodies related to civil, labor, tax and social security claims.

These contingencies are assessed based on the best estimates of our management, taking into consideration the opinion of legal advisors when there is a probability that financial resources will be required to settle obligations and the amount of such obligations can be reliably measured.

Contingencies are classified as follows, based on likelihood of loss:

· Probable: liabilities are recognized under “provisions” on our consolidated balance sheet.

· Possible: liabilities are disclosed on our financial statements but no provisions are recorded.

· Remote: liabilities do not require provision or disclosure.

Contingent liabilities for which provisions are recorded and those classified as having a “possible” likelihood of loss are evaluated based on our best estimates, using models and criteria that allow for their proper evaluation despite the uncertainty that is inherent to terms and amounts.

Significant Changes in Accounting Standards

Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 2.2 – New Pronouncements; Changes to and Interpretations of Existing Pronouncements for further details about information on significant changes in accounting standards.

Accounting Practices Adopted in Brazil

Our books and records are maintained in Brazilianreais, the official currency in Brazil, and our consolidated financial statements, for statutory and regulatory purposes, are prepared in accordance with accounting practices adopted in Brazil, or Brazilian GAAP, which are applicable to institutions authorized to operate by the Central Bank. The accounting principles and standards generally applicable under Brazilian GAAP include those established under Brazilian Corporate Law, by the Accounting Pronouncements Committee, or CPC, which started issuing standards in 2007, and by the Federal Accounting Council. In the case of companies subject to regulation by the Central Bank, such as Itaú Unibanco Holding, the effectiveness of the accounting pronouncements issued by entities such as the CPC depends on approval of the pronouncement by the CMN, which also establishes the date of effectiveness of any pronouncements with respect to financial institutions. Additionally, the CVM and other regulatory bodies, such as the SUSEP and the Central Bank, provide additional industry-specific guidelines.

Regulation Applicable to the Presentation of the Financial Statements

Brazilian regulations establish specific rules for the consolidation of financial statements by financial institutions. Under current Central Bank regulations, financial institutions, except for credit cooperatives, are required to prepare consolidated financial statements including investments directly or indirectly held in other companies, individually or jointly controlled, and with respect to which such financial institutions have (i) the right to appoint or designate the majority of the company’s board of directors; (ii) the right to appoint or remove the majority of the company’s executives and directors; and/or (iii) operational or shareholding control. These regulations apply to the entire group to which a financial institution belongs.

Assets

Portfolio of Securities and Derivative Financial Instruments

General information

We present below our portfolio of held-for-trading financial assets, available-for-sale financial assets, held-to-maturity financial assets and derivative financial instruments as of December 31, 2014, 2013 and 2012.

The amounts exclude our investments in securities of unconsolidated companies. For further information on our investments in unconsolidated companies, see section Performance, item consolidated financial statement (IFRS), Note 13 – Investments in associates and joint ventures. Held-for-trading and available-for-sale financial assets are stated at fair value and held-to-maturity financial assets are stated at amortized cost. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 2 – Significant Accounting Policies for further details.

As of December 31, 2014, we held securities issued by the Brazilian federal government classified as “Government Securities – Domestic” with an aggregate book value and an aggregate market value of R$134,791 million and R$135,587 million, respectively, which represented 134.0% of our consolidated stockholders’ equity  

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as of that date. As of December 31, 2014, we did not hold securities of any other issuer the book value of which in the aggregate represented more than 10.0% of our consolidated stockholders’ equity. This is due to our conservative assets and liabilities management and our liquidity in local currency maintained in securities issued by the Brazilian federal government. Additionally, securities issued by the Brazilian federal government are accepted as deposits in our operations in the market on BM&FBovespa.

Held-for-trading

Listed below are the assets acquired and accrued mainly for the purpose of selling in the short term or when they are part of a portfolio of financial instruments that are managed as a whole and for which there is a recent history of sales in the short term. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 7 – Financial Assets Held for Trading and Designated at Fair Value Through Profit or Loss, for further details.

	(In millions of R$, except percentages)
	AS OF DECEMBER 31,
	2014		% OF TOTAL		2013		% OF TOTAL		2012		% OF TOTAL
Held-for-trading financial assets		132,944		100.0		148,860		100.0		145,516		100.0
Investment funds		870		0.7		1,062		0.7		1,468		1.0
Government securities – domestic		88,307		66.4		113,039		75.9		112,492		77.3
Brazilian government securities		86,393		65.0		111,135		74.7		111,206		76.4
Brazilian external debt bonds		1,914		1.4		1,904		1.3		1,286		0.9
Government securities – abroad		1,540		1.2		679		0.5		872		0.6
Argentina		628		0.5		99		0.1		106		0.1
United States		448		0.3		18		0.0		345		0.2
Mexico		3		0.0		182		0.1		225		0.2
Chile		132		0.1		6		0.0		108		0.1
Paraguay		128		0.1		-		-		-		-
Uruguay		41		0.0		41		0.0		33		0.0
Colombia		88		0.1		226		0.2		34		0.0
Belgium		-		-		107		0.1		-		-
Peru		-		-		-		-		21		0.0
Other		72		0.1		-		-		-		-
Corporate securities		42,227		31.8		34,080		22.9		30,684		21.1
Shares		2,351		1.8		2,896		1.9		2,815		1.9
Securitized real estate loans		3,281		2.5		3,006		2.0		21		0.0
Bank deposit certificates		1		0.0		12		0.0		2,933		2.0
Debentures		4,243		3.2		5,097		3.4		4,636		3.2
Eurobonds and other		1,061		0.8		1,278		0.9		1,612		1.1
Financial credit bills		30,711		23.1		21,566		14.5		18,441		12.7
Promissory Notes		577		0.4		27		0.0		20		0.0
Other		2		0.0		198		0.1		206		0.1
Held-for-trading financial assets as a percentage of total assets (%)		11.8				14.5				15.2

We note that Brazilian government bonds represented over 65.0% of our portfolio of held-for-trading securities in 2014. Brazilian government bonds represented 7.7% of total assets in the same period.

Available-for-sale

Listed below are financial assets that, according to management’s understanding, may be sold in response to, or before changes in, market conditions and are not classified as financial assets at fair value through profit or loss, loans and receivables or held to maturity. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 10 – Available for Sale Financial Assets, for further details.

	(In millions of R$, except percentages)
	AS OF DECEMBER 31,
	2014		% OF TOTAL		2013		% OF TOTAL		2012		% OF TOTAL
Available-for-sale financial assets		78,360		100.0		96,626		100.0		90,869		100.0
Investment funds		141		0.2		211		0.2		255		0.3
Government securities – domestic		25,625		32.7		39,648		41.0		43,527		47.9
Brazilian government securities		14,391		18.4		27,939		28.9		25,462		28.0
Brazilian external debt bonds		11,234		14.3		11,709		12.1		18,065		19.9
Government securities – abroad		8,619		11.0		8,658		9.0		7,137		7.9
United States		726		0.9		1,101		1.1		375		0.4
Italy		70		0.1		94		0.1		-		-
Denmark		2,699		3.4		2,631		2.7		2,554		2.8
Spain		783		1.0		-		-		-		-
Korea		1,782		2.3		2,455		2.5		1,662		1.8
Chile		1,119		1.4		1,047		1.1		1,534		1.7
Paraguay		849		1.1		638		0.7		491		0.5

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	(In millions of R$, except percentages)
	AS OF DECEMBER 31,
	2014		% OF TOTAL		2013		% OF TOTAL		2012		% OF TOTAL
Uruguay		243		0.3		420		0.4		294		0.3
Belgium		57		0.1		51		0.1		71		0.1
France		133		0.2		88		0.1		57		0.1
United Kingdon		-		-		-		-		83		0.1
Netherlands		151		0.2		126		0.1		-		-
Other		7		0.0		7		0.0		16		0.0
Corporate securities		43,975		56.1		48,109		49.8		39,950		44.0
Shares		1,999		2.6		2,025		2.1		3,812		4.2
Securitized real estate loans		2,522		3.2		12,275		12.7		8,568		9.4
Bank deposit certificates		1,281		1.6		2,181		2.3		391		0.4
Debentures		20,245		25.8		15,507		16.0		13,964		15.4
Eurobonds and others		6,707		8.6		4,896		5.1		5,596		6.2
Promissory notes		1,397		1.8		1,227		1.3		777		0.9
Rural Product Note		1,408		1.8		625		0.6		778		0.9
Financial credit bills		8,005		10.2		8,804		9.1		5,720		6.3
Other		411		0.5		569		0.6		344		0.4
Available-for-sale financial assets as a percentage of total assets (%)		7.0				9.4				9.5

Brazilian government bonds and debt securities of companies represented 18.4% and 56.1%, respectively, of our portfolio of available-for-sale securities in 2014. Brazilian government bonds and debt securities of companies classified as available-for-sale securities, which are used a hedge for our subordinated debt portfolio, represented 1.3% and 3.9%, respectively, of total assets in the same period.

Held-to-maturity

Listed below are non-derivative financial assets that with respect to which we have the intention and financial ability to held to maturity. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 11 – Held to Maturity Financial Assets, for further details.

	(In millions of R$, except percentages)
	AS OF DECEMBER 31,
	2014		% OF TOTAL		2013		% OF TOTAL		2012		% OF TOTAL
Held-to-maturity financial assets		34,434		100.0		10,116		100.0		3,202		100.0
Government securities – domestic		20,859		60.6		10,092		99.8		3,131		97.8
Brazilian government securities		10,555		30.7		3,778		37.4		3,013		94.1
Brazilian external debt bonds		10,304		29.9		6,314		62.4		118		3.7
Government securities – abroad – Uruguay		26		0.1		23		0.2		20		0.6
Corporate securities		13,549		39.3		1		0.0		51		1.6
Debentures		-		-		-		-		-		-
Eurobonds and others		2		0.0		1		0.0		51		1.6
Securitized real estate loans		13,547		39.3		-		-		-		-
Held-to-maturity financial assets as a percentage of total assets (%)		3.1				1.0				0.3

Derivatives

Derivatives are classified on the date of their acquisition in accordance with management’s intention to use them as a hedging instrument, as determined by Brazilian regulations. Our derivatives portfolio (assets and liabilities) is composed of futures, forward, swaps, options and credit derivatives, as stated in the table below (Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 8 – Derivatives for further details):

	(In millions of R$, except percentages)
	AS OF DECEMBER 31,
DERIVATIVE FINANCIAL INSTRUMENTS	2014		% OF TOTAL		2013		% OF TOTAL		2012		% OF TOTAL
Assets
Futures		-		-		-		-		-		-
Options premiums		2,872		20.3		1,717		15.1		1,906		16.4
Forwards (Brazil)		2,394		16.9		3,315		29.2		3,530		30.4
Swaps – difference receivable		4,816		34.0		4,442		39.1		3,686		31.8
Credit derivative		122		0.9		686		6.0		728		6.3
Forwards (offshore)		2,106		14.9		555		4.9		379		3.3
Check of swap – companies		93		0.7		88		0.8		35		0.3
Others		1,753		12.4		563		5.0		1,333		11.5
Total derivative financial instruments assets		14,156		100.0		11,366		100.0		11,597		100.0
Derivative financial instruments as percentage of total assets (%)		1.3				1.1				1.2

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	(In millions of R$, except percentages)
	AS OF DECEMBER 31,
DERIVATIVE FINANCIAL INSTRUMENTS	2014			% OF TOTAL		2013			% OF TOTAL		2012			% OF TOTAL
Liabilities
Futures		(354	)		2.0		(33	)		0.3		(23	)		0.2
Options premiums		(3,057	)		17.6		(1,921	)		16.8		(2,281	)		20.6
Forwards (Brazil)		(682	)		3.9		(1,862	)		16.3		(2,293	)		20.7
Swaps – difference payable		(9,534	)		55.0		(6,111	)		53.6		(5,068	)		45.8
Credit derivative		(179	)		1.0		(391	)		3.4		(90	)		0.8
Forwards (offshore)		(1,693	)		9.8		(560	)		4.9		(346	)		3.1
Swaps with USD check – companies		(229	)		1.3		(145	)		1.3		(42	)		0.4
Others		(1,622	)		9.3		(382	)		3.3		(926	)		8.4
Total derivative financial instruments liabilities		(17,350	)		100.0		(11,405	)		100.0		(11,069	)		100.0
Derivative financial instruments as percentage of total liabilities and stockholder’s equity (%)		1.5					1.1					1.2

	(In millions of R$, except percentages)
	AS OF DECEMBER 31, 2014
	NO STATED				DUE IN 1 YEAR					DUE AFTER 1 YEAR					DUE AFTER 5 YEARS				DUE AFTER
	MATURITY				OR LESS					TO 5 YEARS					TO 10 YEARS				10 YEARS				TOTAL
DISTRIBUTION OF OUR FINANCIAL			AVERAGE					AVERAGE					AVERAGE				AVERAGE				AVERAGE				AVERAGE
ASSETS BY MATURITY	R$		YIELD (%)		R$			YIELD (%)		R$			YIELD (%)		R$		YIELD (%)		R$		YIELD (%)		R$		YIELD (%)
Held-for-trading financial assets, at fair value		3,220		-		50,231			-		57,074			-		16,279		-		6,140		-		132,944		-
Investment funds(1)		870		0.0		-			-		-			-		-		-		-		-		870		0.0
Government securities – domestic		-				35,863					31,002					15,410				6,032				88,307
Brazilian government securities		-		0.0		35,167			0.2		29,985			3.9		15,393		5.9		5,848		3.3		86,393		2.7
Brazilian external debt bonds		-		0.0		696			7.8		1,017			5.9		17		0.6		184		4.3		1,914		6.4
Government securities – abroad		-				1,279					245					13				4				1,540
Argentina		-		0.0		553			23.5		71			21.0		4		25.2		0		1.6		628		23.2
United States		-		0.0		390			2.4		58			0.1		-		0.0		-		0.0		448		2.1
Mexico		-		0.0		-			-		2			6.0		1		4.8		0		5.9		3		6.6
Chile		-		0.0		132			3.9		-			0.0		-		0.0		-		0.0		132		3.9
Paraguay		-		0.0		128			5.9		0			0.0		-		0.0		-		0.0		128		5.9
Uruguay		-		0.0		34			12.3		4			12.8		1		6.5		2		7.2		41		12.0
Colombia		-		0.0		27			0.0		55			0.2		7		0.6		0		6.1		88		0.2
Other		-		0.0		16			0.2		54			1.0		-		0.0		2		7.4		72		1.0
Corporate securities		2,351				13,088					25,829					855				104				42,227
Shares		2,351		0.0		-			-		-			-		-		-		-		-		2,351		0.0
Securitized real estate loans		-		0.0		-			0.0		-			-		1		0.0		-		0.0		1		0.0
Bank deposit certificates		-		0.0		1,198			0.0		2,083			0.0		-		-		-		0.0		3,281		0.0
Debentures		-		0.0		794			0.0		2,521			0.1		832		0.2		96		0.5		4,243		0.1
Eurobonds and other		-		0.0		390			6.9		641			7.7		21		6.4		8		5.6		1,061		7.3
Financial credit bills		-		0.0		10,128			0.0		20,583			0.0		-		0.0		-		0.0		30,711		0.0
Promissory notes		-		0.0		577			0.0		-			0.0		-		-		-		0.0		577		0.0
Other		-		0.0		-			0.0		-			0.0		2		-		-		0.0		2		0.0
Financial assets designated at fair value through profit or loss – Government securities – domestic – Brazilian external debt bonds		733				-					-					-				-				733
Derivatives		2,408				6,311					3,682					1,755								14,156
Available-for-sale financial assets, at fair value		2,141		-		20,079			-		29,743			-		12,650		-		13,747		-		78,360
Investment funds(1)		142		0.0		(1	)		0.0		-			-		-		-		-		-		141
Government securities – domestic		-				300					8,693					5,007				11,625				25,625
Brazilian government securities		-		-		260			0.1		6,358			1.7		2,415		5.0		5,358		4.2		14,391		3.2
Brazilian external debt bonds		-		-		40			0.1		2,335			2.1		2,592		5.9		6,266		8.3		11,234		6.3
Government securities – abroad		-				6,679					1,891					50				0				8,619
United States		-		0.0		181			0.0		545			0.6		-		0.0		-		0.0		726		0.5
Italy		-		0.0		-			-		70			0.0		-		0.0		-		0.0		70		0.0
Denmark		-		0.0		2,459			8.4		241			9.5		-		0.0		-		0.0		2,699		8.5
Spain		-		0.0		783			0.0		-	��		0.0		-		0.0		-		0.0		783		0.0
Korea		-		0.0		1,328			0.0		454			0.0		-		0.0		-		0.0		1,782		0.0

Annual Report2014 A-101 

 

	(In millions of R$, except percentages)
	AS OF DECEMBER 31, 2014
	NO STATED				DUE IN 1 YEAR				DUE AFTER 1 YEAR				DUE AFTER 5 YEARS				DUE AFTER
	MATURITY				OR LESS				TO 5 YEARS				TO 10 YEARS				10 YEARS				TOTAL
DISTRIBUTION OF OUR FINANCIAL			AVERAGE				AVERAGE				AVERAGE				AVERAGE				AVERAGE				AVERAGE
ASSETS BY MATURITY	R$		YIELD (%)		R$		YIELD (%)		R$		YIELD (%)		R$		YIELD (%)		R$		YIELD (%)		R$		YIELD (%)
Chile		-		0.0		1,103		2.9		16		1.4		-		0.0		-		0.0		1,119		2.9
Paraguay		-		0.0		566		7.1		283		8.4		-		0.0		-		0.0		849		7.5
Uruguay		-		0.0		152		0.1		41		0.1		50		0.1		0		0.1		243		0.1
Belgium		-		0.0		57		2.8		-		0.0		-		0.0		-		0.0		57		2.7
France		-		0.0		49		2.7		84		1.0		-		0.0		-		0.0		133		1.6
Netherlands		-		0.0		-		0.0		151		0.0		-		0.0		-		0.0		151		0.0
Other		-		0.0		0		1.2		7		1.1		-		0.0		0		1.2		7		1.0
Corporate securities		1,999				13,101				19,160				7,594				2,122				43,975
Shares		1,999		0.0		-		0.0		-		-		-		-		-		0.0		1,999		0.0
Securitized real estate loans		-		0.0		30		0.0		500		0.0		668		0.0		1,324		0.0		2,522		0.0
Bank deposit certificates		-		0.0		1,262		0.3		20		3.6		-		-		-		0.0		1,281		0.4
Debentures		-		0.0		3,478		3.2		9,761		2.1		6,238		2.6		767		5.1		20,245		2.6
Eurobonds and others		-		0.0		2,560		0.1		3,558		0.1		589		0.1		-		0.0		6,707		0.1
Promissory notes		-		0.0		1,397		0.0		-		0.0		-		0.0		-		0.0		1,397		0.0
Rural product note		-		0.0		779		9.9		531		9.8		99		11.7		-		0.0		1,408		9.9
Financial credit bills		-		0.0		3,500		1.7		4,505		0.8		-		-		-		0.0		8,005		1.2
Other		-		0.0		95		0.0		286		0.0		0		0.0		30		0.0		411		0.0
Held-to-maturity financial assets, at amortized cost		-		-		980		-		13,609		-		11,582		-		8,263		-		34,434		-
Government securities – domestic		-				50				10,089				6,789				3,931				20,859
Brazilian government securities		-		-		50		-		6,700		0.0		1,307		0.0		2,498		0.0		10,555		0.0
Brazilian external debt bonds		-		-		-		0.0		3,389		4.4		5,481		5.4		1,434		8.8		10,304		5.5
Government securities – abroad		-				16				-				-				10				26
Uruguay		-		-		16		0.1		-		-		-		-		10		0.1		26		0.1
Corporate securities		-				913				3,520				4,794				4,322				13,549
Debentures		-		0.0		-		0.0		-		0.0		-		0.0		-		0.0		-		0.0
Eurobonds and others		-		0.0		-		0.0		-		0.0		-		0.1		-		0.0		-		0.0
Securitized real estate loans		-		-		913		0.0		3,520		0.0		4,794		0.0		4,322		0.0		13,549		0.0

(1) Average yields are not shown for these securities, as such yields are not meaningful because future yields are not quantifiable. These securities have been excluded from the calculation of the total yield.

(In millions of R$)
	FAIR VALUE						AMORTIZED COST
DISTRIBUTION OF OUR FINANCIAL ASSETS BY CURRENCY	HELD-FOR- TRADING FINANCIAL ASSETS		FINANCIAL ASSETS DESIGNATED AT FAIR VALUE		DERIVATIVES		AVAILABLE-FOR- SALE FINANCIAL ASSETS		HELD-TO- MATURITY FINANCIAL ASSETS		TOTAL
As of December 31, 2014		132,944		733		14,156		78,360		34,434		260,627
Denominated in Brazilian currency		126,404		626		5,519		55,152		24,102		211,803
Denominated in Brazilian currency and indexed by foreign currency(1)		2,190		-		2,948		571		-		5,709
Denominated in foreign currency(1)		4,350		107		5,689		22,637		10,332		43,115
As of December 31, 2013		148,860		371		11,366		96,626		10,116		267,339
Denominated in Brazilian currency		141,958		263		5,682		73,799		3,779		225,481
Denominated in Brazilian currency and indexed by foreign currency(1)		2,114		-		2,627		484		-		5,225
Denominated in foreign currency(1)		4,788		108		3,057		22,343		6,337		36,633
As of December 31, 2012		145,516		220		11,597		90,869		3,202		251,404
Denominated in Brazilian currency		140,987		220		7,029		63,101		2 ,995		214,332
Denominated in Brazilian currency and indexed by foreign currency(1)		142		-		1,227		301		19		1,689
Denominated in foreign currency(1)		4,387		-		3,341		27,467		188		35,383

(1) Predominantly U.S. dollars.

For the purpose of analyzing the exposure of variations in foreign exchange rates, the table below presents the composition of our derivative financial instruments on December 31, 2014 inreais and in foreign currency, including the instruments denominated in foreign currencies. For the fair value of derivative financial instruments, please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 7 – Financial Assets Held for Trading and Designated at Fair Value Through Profit or Loss and Note 36 – Management of Financial Risks.

Annual Report2014 A-102 

 

(In millions of R$)
DERIVATIVE FINANCIAL INSTRUMENTS (NOTIONAL AMOUNTS)	BRAZILIAN CURRENCY			DENOMINATED IN OR LINKED TO FOREIGN CURRENCY			TOTAL
Swap contracts
Buy (Sale) commitments, net		7,607			(12,739	)		(5,132	)
Forward contracts
Buy (Sale) commitments, net		(7,547	)		6,922			(625	)
Future contracts
Buy (Sale) commitments, net		(29,889	)		(105,271	)		(135,160	)
Option contracts
Buy (Sale) commitments, net		(44,853	)		2,417			(42,436	)
Others
Buy (Sale) commitments, net		4,536			968			5,504

Exposure to GIIPS

Our gross exposure to the sovereign bonds of the GIIPS (Greece, Ireland, Italy, Portugal and Spain) countries as well as to financial institutions and other corporations and small businesses and individuals domiciled in those countries as of December 31, 2014, is set forth in the table below:

	(In millions of R$)
	AS OF DECEMBER 31, 2014
SEGMENT	CREDIT		CO-OBLIGATION		SOVEREIGN		BOND		DERIVATIVE		TOTAL EXPOSURE
Italy		57		-		70		-		-		127
Corporate		57		-		70		-		-		127
Financial		-		-		-		-		-		-
Portugal		97		1		-		8		-		106
Corporate		97		-		-		-		-		97
Financial		-		1		-		8		-		9
Spain		1,207		1,152		-		783		8		3,150
Corporate		1,207		1,075		-		-		1		2,283
Financial		-		77		-		783		7		867
Total		1,361		1,153		70		791		8		3,383

The gross exposure presented above, primarily related to our exposure to corporate credits, amounted R$3,383 million as of December 31, 2014, with co-obligations in the amount of R$1,153 million. The exposure presented above has been calculated based on our estimated realizable value, which is updated depending on its nature (such as pledged amounts in current accounts used to collect customer receivables, financial investments, real estate, machinery and equipment or others), except for guarantees provided by third parties, in which case the amount corresponds to the outstanding debt. Our derivatives related to GIIPS countries amounted to R$8.0 million as of December 31, 2014.

Compulsory Deposits with the Central Bank

The Central Bank requires compulsory deposits from Brazilian financial institutions. The compulsory deposits are mechanisms to control the liquidity of the Brazilian financial system as well as a monetary policy resource of the Brazilian government. These requirements are applied to banking transactions, such as demand deposits, savings account deposits and time deposits. See below the compulsory deposit rates required for each type of investment:

COMPULSORY DEPOSITS	REGULATION(1)	YIELD	2014 (%)		2013 (%)		2012(%)
Demand Deposits
Compulsory	Circular No. 3,632	Zero		45		44		45
Additional Compulsory	Circular No. 3,655	SELIC		0		0		5
Rural(2)	Resolution No. 4,096	Zero		34		34		30
Microcredit(2)	Resolution No. 4,000	Zero		2		2		2
Savings Accounts(3)
Compulsory	Circular No. 3,093	TR + 6.17 p.a.		20		20		20
Additional Compulsory	Circular No. 3,655	SELIC		10		10		10
Real estate financing(2)	Resolution No. 3,932	Zero		65		65		65
Time and Interbank Deposits Received from Leasing Companies
Compulsory	Circular No. 3,569	SELIC		20		20		14
Additional Compulsory	Circular No. 3,655	SELIC		11		11		4

(1) Most recent regulation on the matter.

(2) This is a compulsory investment of resources that is made in eligible transactions, that is, the funds are granted to other economic entities.

(3) Remuneration on funds in savings deposits:

For deposits made until March 5, 2012, inclusive: TR + 6.17 per annum.

For deposits made after March 5, 2012: (a) If the target of the Selic rate is higher than 8.5 per annum: TR + 6.17 per annum; (b) If the target of the Selic rate is lower than 8.5 per annum: TR + 70 of the target of the Selic rate per annum.

The most recent changes to the compulsory deposit rates were:

· The additional requirement on demand deposits was reduced from 6% to 0% in November 2012;

· The additional requirement on time deposits was reduced from 12% to 11% in November 2012;

· The compulsory on demand deposits were increased from 44% to 45% in July 2014; and

Annual Report2014 A-103 

 

· Adjustment of the non-interest-bearing portion of time deposits in August 2014.

The regulations that govern the compulsory deposit rates are frequently changed by the Central Bank in accordance with the economic scenario and in response to its views on Brazilian monetary policy. On December 31, 2014, we recorded the amount of R$63,106 million in compulsory deposits in cash compared with R$77,010 million on December 31, 2013, R$59,714 million and R$71,877 million, respectively, of which are interest-bearing. Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 5 – Central Bank Compulsory Deposits for further details.

(In millions of R$, except percentages)
	2014				2013				2012
			% OF TOTAL				% OF TOTAL				% OF TOTAL
			COMPULSORY				COMPULSORY				COMPULSORY
	R$		DEPOSITS		R$		DEPOSITS		R$		DEPOSITS
Non-interest bearing deposits(1)		3,392		5.4		5,133		6.7		6,448		10.1
Interest-bearing deposits(2)		59,714		94.6		71,877		93.3		57,253		89.9
Total		63,106		100.0		77,010		100.0		63,701		100.0

(1) Mainly related to demand deposits.

(2) Mainly related to time and savings deposits.

GUIDE 3 

Part III Loan Portfolio

Loan and lease operations

Substantially all of our loans are granted to clients domiciled in Brazil and are denominated in Brazilianreais. Additionally, 59.0% of our credit portfolio consists of transactions with fixed interest rates and 41.0% of transactions with variable interest rates.

Indexation

Most of our portfolio is denominated in Brazilianreais. However, a portion of our portfolio is indexed to foreign currencies, primarily the U.S. dollar. The foreign currency portion of our portfolio consists of loans and financing for foreign trade and onlending operations. Our loan and lease operations abroad represented 24.7%, 28.7% and 23.9% of our loan portfolio as of December 31, 2014, 2013 and 2012, respectively, according to section Performance, item Consolidated Financial Statements (IFRS), Note 36 – Management of financial risks – 5. Credit risk exposure.

Loan and lease operations by type

The following table sets out the distribution of our credit portfolio according to the type of loan and lease operations, as follows:

· The Individuals portfolio consists primarily of credit cards, personal loans (primarily including consumer finance and overdrafts), vehicle financing and residential mortgage loans;

· The Corporate portfolio consists primarily of loans made to large corporate clients;

· The Small and Medium Businesses portfolio consists primarily of loans to small and medium-sized companies; and

· The Foreign Loans – Latin America portfolio consists primarily of loans granted primarily to individuals by our operations in Argentina, Chile, Paraguay and Uruguay.

																	(In millions of R$)
LOAN AND LEASE OPERATIONS,	2014				2013				2012				2011				2010
BY TYPE(1)	LOAN		ALLOWANCE		LOAN		ALLOWANCE		LOAN		ALLOWANCE		LOAN		ALLOWANCE		LOAN		ALLOWANCE
Individuals		185,953		13,385		167,431		13,853		150,921		14,844		149,391		13,684		126,805		11,146
Credit card		59,321		3,740		53,149		2,952		40,531		2,863		38,961		3,825		33,041		3,306
Personal loans		27,953		7,024		26,635		6,488		26,749		6,841		25,876		4,842		17,144		3,590
Payroll Loans		40,525		1,107		22,571		1,133		13,550		867		10,107		556		8,402		429
Vehicles		29,047		1,469		40,584		3,245		51,646		4,227		60,463		4,415		60,151		3,709
Mortgage loans		29,107		45		24,492		35		18,445		46		13,984		46		8,067		112
Corporate		144,910		2,926		126,413		1,783		103,729		1,362		91,965		703		74,565		544
Small and Medium Businesses		79,912		5,373		81,601		6,085		85,185		9,091		85,649		9,197		79,950		8,041
Foreign Loans Latin America		41,656		708		36,257		514		27,149		416		19,259		289		13,517		263
Total loans and advances to clients		452,431		22,392		411,702		22,235		366,984		25,713		346,264		23,873		294,837		19,994

(1) We classify all loans and leases more than 60 days overdue as non-accrual loans and we discontinue accruing financial income related to them. The contractual amount of non-accrual loans were R$16,514 million, R$18,065 million, R$20,791 million, R$20,439 million and R$14,736 million as of December 31, 2014, 2013, 2012, 2011 and 2010, respectively. The total of renegotiated loans in the balance of non-accrual loans reflected herein was R$3,346 million, R$4,627 million, R$5,734 million, R$4,365 million and R$3,147 million as of December 31, 2014, 2013, 2012, 2011 and 2010, respectively. Non-accrual loans are presented herein in the appropriate category of loan and lease operations. The interest income foregone on our non-accrual loans net of allowance for loan losses for 2014, 2013, 2012, 2011 and 2010 was R$1,623 million, R$1,681 million, R$1,852 million, R$1,914 million and R$1,548 million, respectively.

Loan and lease operations by maturity

The following table sets out the distribution of our credit portfolio by maturity, including non-overdue and overdue, according to the type of loan and lease:

	(In millions of R$)
NON-OVERDUE INSTALLMENTS	12/31/2014
TYPE OF LOAN AND LEASE	DUE IN 30 DAYS OR LESS		DUE IN 31-90 DAYS		DUE IN 91-180 DAYS		DUE IN 181-360 DAYS		DUE IN ONE YEAR TO FIVE YEARS		DUE AFTER FIVE YEARS		TOTAL NON-OVERDUE INSTALLMENTS
Individuals		29,985		25,941		20,510		23,392		54,906		22,651		177,385
Credit card		21,658		17,658		9,841		4,740		217		-		54,114
Personal loans		5,137		3,074		3,488		5,346		8,749		18		25,812
Payroll loans		1,259		2,328		3,290		6,082		25,614		1,744		40,317
Vehicles		1,482		2,516		3,496		6,348		14,267		1		28,110

Annual Report2014 A-104 

	(In millions of R$)
NON-OVERDUE INSTALLMENTS	12/31/2014
TYPE OF LOAN AND LEASE	DUE IN 30 DAYS OR LESS		DUE IN 31-90 DAYS		DUE IN 91-180 DAYS		DUE IN 181-360 DAYS		DUE IN ONE YEAR TO FIVE YEARS		DUE AFTER FIVE YEARS		TOTAL NON-OVERDUE INSTALLMENTS
Mortgage loans		449		365		395		876		6,059		20,888		29,032
Corporate		13,551		18,756		14,560		19,907		61,163		15,676		143,613
Small and Medium Businesses		11,018		16,891		9,835		13,802		25,564		440		77,550
Foreign Loans Latin America		7,340		5,344		4,438		4,648		10,337		8,701		40,808
Total(1)		61,894		66,932		49,343		61,749		151,970		47,468		439,356

(1) Includes R$7,533 million related to non-overdue installments of the non-accrual loans.

	(In millions of R$)
NON-OVERDUE INSTALLMENTS	12/31/2013
TYPE OF LOAN AND LEASE	DUE IN 30 DAYS OR LESS		DUE IN 31-90 DAYS		DUE IN 91-180 DAYS		DUE IN 181-360 DAYS		DUE IN ONE YEAR TO FIVE YEARS		DUE AFTER FIVE YEARS		TOTAL NON-OVERDUE INSTALLMENTS
Individuals		27,605		22,520		17,913		21,482		52,209		17,294		159,023
Credit card		20,182		15,184		8,625		4,357		159		-		48,507
Personal loans		4,553		2,760		2,757		4,565		10,032		12		24,679
Payroll loans		730		1,203		1,725		3,266		15,486		24		22,434
Vehicles		1,942		3,098		4,389		8,333		21,266		2		39,030
Mortgage loans		198		275		417		961		5,266		17,256		24,373
Corporate		11,572		16,420		12,525		20,453		50,146		14,346		125,462
Small and Medium Businesses		12,705		15,235		9,470		14,091		26,808		431		78,740
Foreign Loans Latin America		5,139		4,325		3,722		3,613		7,687		11,000		35,486
Total(1)		57,021		58,500		43,630		59,639		136,850		43,071		398,711

(1) Includes R$9,045 million related to non-overdue installments of the non-accrual loans.

	(In millions of R$)
NON-OVERDUE INSTALLMENTS	12/31/2012
TYPE OF LOAN AND LEASE	DUE IN 30 DAYS OR LESS		DUE IN 31-90 DAYS		DUE IN 91-180 DAYS		DUE IN 181-360 DAYS		DUE IN ONE YEAR TO FIVE YEARS		DUE AFTER FIVE YEARS		TOTAL NON-OVERDUE INSTALLMENTS
Individuals		23,323		18,434		15,188		19,356		54,228		12,568		143,097
Credit card		15,791		11,861		6,340		3,032		95		-		37,119
Personal loans		4,117		2,124		2,484		4,162		11,144		261		24,292
Payroll loans		465		692		983		1,931		9,340		9		13,420
Vehicles		2,350		3,524		4,962		9,509		29,531		5		49,881
Mortgage loans		600		233		419		722		4,118		12,293		18,385
Corporate		10,212		13,194		14,524		16,103		39,169		9,663		102,865
Small and Medium Businesses		14,305		14,383		10,163		14,100		27,987		323		81,261
Foreign Loans Latin America		4,570		3,153		2,832		2,084		5,508		8,380		26,527
Total(1)		52,410		49,164		42,707		51,643		126,892		30,934		353,750

(1) Includes R$11,611 million related to non-overdue installments of the non-accrual loans.

	(In millions of R$)
OVERDUE INSTALLMENTS(1)	12/31/2014
TYPE OF LOAN AND LEASE	01-30 DAYS		31-60 DAYS		61-90 DAYS		91-180 DAYS		181-360 DAYS		ONE YEAR OR MORE		TOTAL OVERDUE INSTALLMENTS		TOTAL GROSS LOANS		ALLOWANCE FOR LOAN LOSSES			TOTAL NET
Individuals		1,843		910		791		1,980		2,973		71		8,568		185,953		(13,385	)		172,568
Credit card		990		467		422		1,166		2,114		48		5,207		59,321		(3,740	)		55,581
Personal loans		433		240		243		574		645		6		2,141		27,953		(7,024	)		20,929
Payroll loans		56		30		24		50		42		6		208		40,525		(1,107	)		39,418
Vehicles		333		161		95		179		161		8		937		29,047		(1,469	)		27,578
Mortgage loans		31		12		7		11		11		3		75		29,107		(45	)		29,062
Corporate		673		48		78		245		253		-		1,297		144,910		(2,926	)		141,984
Small and Medium Businesses		522		256		264		575		702		43		2,362		79,912		(5,373	)		74,539
Foreign Loans Latin America		440		82		56		126		103		41		848		41,656		(708	)		40,948
Total(2)		3,478		1,296		1,189		2,926		4,031		155		13,075		452,431		(22,392	)		430,039

(1) Defined as loans and leases contractually past due as to payment of interest or principal.

(2) Includes R$8,981 million related to overdue installments of the non-accrual loans.

Annual Report2014 A-105 

 

	(In millions of R$)
OVERDUE INSTALLMENTS(1)	12/31/2013
TYPE OF LOAN AND LEASE	01-30 DAYS		31-60 DAYS		61-90 DAYS		91-180 DAYS		181-360 DAYS		ONE YEAR OR MORE		TOTAL OVERDUE INSTALLMENTS		TOTAL GROSS LOANS		ALLOWANCE FOR LOAN LOSSES			TOTAL NET
Individuals		1,875		849		781		1,993		2,820		91		8,409		167,431		(13,853	)		153,578
Credit card		932		344		375		1,114		1,840		36		4,641		53,149		(2,952	)		50,197
Personal loans		353		223		226		534		616		3		1,955		26,635		(6,488	)		20,147
Payroll loans		34		17		14		32		40		2		139		22,571		(1,133	)		21,438
Vehicles		481		252		159		302		314		47		1,555		40,584		(3,245	)		37,339
Mortgage loans		75		13		7		11		10		3		119		24,492		(35	)		24,457
Corporate		341		204		135		173		97		2		952		126,413		(1,783	)		124,630
Small and Medium Businesses		610		292		285		658		981		35		2,861		81,601		(6,085	)		75,516
Foreign Loans Latin America		537		76		40		51		59		6		769		36,257		(514	)		35,743
Total(2)		3,363		1,421		1,241		2,875		3,957		134		12,991		411,702		(22,235	)		389,467

(1) Defined as loans and leases contractually past due as to payment of interest or principal.

(2) Includes R$9,020 million related to overdue installments of the non-accrual loans.

	(In millions of R$)
OVERDUE INSTALLMENTS(1)	12/31/2012
TYPE OF LOAN AND LEASE	01-30 DAYS		31-60 DAYS		61-90 DAYS		91-180 DAYS		181-360 DAYS		ONE YEAR OR MORE		TOTAL OVERDUE INSTALLMENTS		TOTAL GROSS LOANS		ALLOWANCE FOR LOAN LOSSES			TOTAL NET
Individuals		1,791		818		711		1,827		2,605		72		7,824		150,921		(14,844	)		136,077
Credit card		634		231		261		848		1,430		8		3,412		40,531		(2,863	)		37,668
Personal loans		500		277		259		615		802		4		2,457		26,749		(6,841	)		19,908
Payroll loans		34		17		15		37		26		1		130		13,550		(867	)		12,683
Vehicles		597		280		171		319		340		58		1,765		51,646		(4,227	)		47,419
Mortgage loans		26		13		5		8		7		1		60		18,445		(46	)		18,399
Corporate		476		203		7		84		94		-		864		103,729		(1,362	)		102,367
Small and Medium Businesses		801		447		406		1,027		1,222		21		3,924		85,185		(9,091	)		76,094
Foreign Loans Latin America		457		64		21		31		46		3		622		27,149		(416	)		26,733
Total(2)		3,525		1,532		1,145		2,969		3,967		96		13,234		366,984		(25,713	)		341,271

(1) Defined as loans and leases contractually past due as to payment of interest or principal.

(2) Includes R$9,180 million related to overdue installments of the non-accrual loans.

Loan and Lease Operations by interest rate

The following table sets out the classification of our credit portfolio into fixed and variables rates, including non-overdue and overdue installments:

	(In millions of R$)
	12/31/2014
NON-OVERDUE INSTALLMENTS	DUE IN 30 DAYS OR LESS		DUE IN 31-90 DAYS		DUE IN 91-180 DAYS		DUE IN 181-360 DAYS		DUE IN ONE YEAR TO FIVE YEARS		DUE AFTER FIVE YEARS		TOTAL NON-OVERDUE INSTALLMENTS
Interest rate of loans to customers by maturity
Variable rates		13,506		23,137		15,346		21,499		66,894		42,765		183,147
Fixed rates		48,388		43,795		33,997		40,250		85,076		4,703		256,209
Total(1)		61,894		66,932		49,343		61,749		151,970		47,468		439,356

(1) Includes R$7,533 million related to non-overdue installments of the non-accrual loans.

	(In millions of R$)
	12/31/2013
NON-OVERDUE INSTALLMENTS	DUE IN 30 DAYS OR LESS		DUE IN 31-90 DAYS		DUE IN 91-180 DAYS		DUE IN 181-360 DAYS		DUE IN ONE YEAR TO FIVE YEARS		DUE AFTER FIVE YEARS		TOTAL NON-OVERDUE INSTALLMENTS
Interest rate of loans to customers by maturity
Variable rates		11,263		19,553		12,867		22,402		55,621		40,443		162,149
Fixed rates		45,758		38,947		30,763		37,237		81,229		2,628		236,562
Total(1)		57,021		58,500		43,630		59,639		136,850		43,071		398,711

(1) Includes R$9,045 million related to non-overdue installments of the non-accrual loans.

Annual Report2014 A-106 

 

	(In millions of R$)
	12/31/2012
NON-OVERDUE INSTALLMENTS	DUE IN 30 DAYS OR LESS		DUE IN 31-90 DAYS		DUE IN 91-180 DAYS		DUE IN 181-360 DAYS		DUE IN ONE YEAR TO FIVE YEARS		DUE AFTER FIVE YEARS		TOTAL NON-OVERDUE INSTALLMENTS
Interest rate of loans to customers by maturity
Variable rates		10,007		16,207		12,713		16,379		48,581		29,569		133,456
Fixed rates		42,403		32,957		29,994		35,264		78,311		1,365		220,294
Total(1)		52,410		49,164		42,707		51,643		126,892		30,934		353,750

(1) Includes R$11,611 million related to non-overdue installments of the non-accrual loans.

	(In millions of R$)
	12/31/2014
	01-30		31-60		61-90		91-180		181-360		ONE YEAR		TOTAL OVERDUE		TOTAL GROSS
OVERDUE INSTALLMENTS(1)	DAYS		DAYS		DAYS		DAYS		DAYS		OR MORE		INSTALLMENTS		LOANS
Interest rate of loans to customers by maturity
Variable rates		972		146		164		375		324		44		2,025		185,172
Fixed rates		2,506		1,150		1,025		2,551		3,707		111		11,050		267,259
Total(2)		3,478		1,296		1,189		2,926		4,031		155		13,075		452,431

(1) Defined as loans and leases contractually past due as to payment of interest or principal.

(2) Includes R$8,981 million related to overdue installments of the non-accrual loans.

	(In millions of R$)
	12/31/2013
	01-30		31-60		61-90		91-180		181-360		ONE YEAR		TOTAL OVERDUE		TOTAL GROSS
OVERDUE INSTALLMENTS(1)	DAYS		DAYS		DAYS		DAYS		DAYS		OR MORE		INSTALLMENTS		LOANS
Interest rate of loans to customers by maturity
Variable rates		755		195		165		258		185		12		1,570		163,717
Fixed rates		2,608		1,226		1,076		2,617		3,772		122		11,421		247,985
Total(2)		3,363		1,421		1,241		2,875		3,957		134		12,991		411,702

(1) Defined as loans and leases contractually past due as to payment of interest or principal.

(2) Includes R$9,020 million related to overdue installments of the non-accrual loans.

	(In millions of R$)
	12/31/2012
	01-30		31-60		61-90		91-180		181-360		ONE YEAR		TOTAL OVERDUE		TOTAL GROSS
OVERDUE INSTALLMENTS(1)	DAYS		DAYS		DAYS		DAYS		DAYS		OR MORE		INSTALLMENTS		LOANS
Interest rate of loans to customers by maturity
Variable rates		714		263		39		119		153		7		1,295		134,751
Fixed rates		2,811		1,269		1,106		2,850		3,814		89		11,939		232,233
Total(2)		3,525		1,532		1,145		2,969		3,967		96		13,234		366,984

(1) Defined as loans and leases contractually past due as to payment of interest or principal.

(2) Includes R$9,180 million related to overdue installments of the non-accrual loans.

Loan and Lease Operations by economic activity

The following table sets out the composition of our credit portfolio, including non-accrual loan operations, by economic activity of the borrower:

(In millions of R$, except percentages)
	12/31/2014				12/31/2013				12/31/2012
	LOAN		% OF LOAN		LOAN		% OF LOAN		LOAN		% OF LOAN
ECONOMIC ACTIVITIES	PORTFOLIO		PORTFOLIO		PORTFOLIO		PORTFOLIO		PORTFOLIO		PORTFOLIO
Public sector		4,389		1.0		3,981		1.0		877		0.2
Industry and commerce		116,506		25.7		115,025		27.8		107,405		29.3
Services		99,855		22.1		87,103		21.2		77,922		21.2
Primary sector		23,345		5.2		20,492		5.0		16,649		4.5
Individuals		206,094		45.5		183,548		44.6		161,937		44.2
Other sectors		2,242		0.5		1,553		0.4		2,194		0.6
Total		452,431		100.0		411,702		100.0		366,984		100.0

Annual Report2014 A-107 

 

On December 31, 2014, there was no concentration of loan and lease operations exceeding 10% of the total portfolio that had not been disclosed in a category of loan and losses.

Rating of the Loan and Lease Portfolio

The following table presents the rating of our loan and lease portfolio based on the probability of default for the periods indicated below.

(In millions of R$, except percentages)
	12/31/2014
INTERNAL RATING	LOANS NEITHER OVERDUE NOR IMPAIRED		LOANS OVERDUE NOT IMPAIRED(1)		LOANS IMPAIRED		TOTAL LOANS
Lower Risk		324,908		4,042		-		328,950
Satisfactory		81,994		6,989		-		88,983
Higher Risk		11,439		5,853		-		17,292
Impaired(2)		-		-		17,206		17,206
Total		418,341		16,884		17,206		452,431
%		92.5		3.7		3.8		100.0

(In millions of R$, except percentages)
	12/31/2013
INTERNAL RATING	LOANS NEITHER OVERDUE NOR IMPAIRED		LOANS OVERDUE NOT IMPAIRED(1)		LOANS IMPAIRED		TOTAL LOANS
Lower Risk		300,816		4,354		-		305,170
Satisfactory		64,722		7,676		-		72,398
Higher Risk		11,273		6,556		-		17,829
Impaired(2)		-		-		16,305		16,305
Total		376,811		18,586		16,305		411,702
%		91.5		4.5		4.0		100.0

(In millions of R$, except percentages)
	12/31/2012
INTERNAL RATING	LOANS NEITHER OVERDUE NOR IMPAIRED		LOANS OVERDUE NOT IMPAIRED(1)		LOANS IMPAIRED		TOTAL LOANS
Lower Risk		249,282		5,438		-		254,720
Satisfactory		61,075		9,436		-		70,511
Higher Risk		14,190		8,052		-		22,242
Impaired(2)		-		-		19,511		19,511
Total		324,547		22,926		19,511		366,984
%		88.5		6.2		5.3		100.0

(1) The operations classified as Loans Overdue Not Impaired are past due between 1 day and 90 days and the balance is the total of outstanding principal amount (Overdue and Non-Overdue).

(2) We consider loans as impaired when (i) corporate transactions have a probability of default higher than 31.84%; (ii) transactions are overdue for more than 90 days; or (iii) renegotiated transactions are overdue for more than 60 days.

The credit rating in corporate transactions is based on information such as the economic and financial condition of the counterparty, its cash-generating capabilities, the economic group to which it belongs, the current and prospective situation of the economic sector in which it operates, the collateral offered and the use of proceeds. The credit proposals are analyzed on a case by case basis, through an approval-level mechanism reporting to the Superior Credit Committee.

Regarding retail transactions (individuals, small and middle-market companies) the rating is assigned based on application and behavior score statistical models. Decisions are made based on scoring models that are continuously updated by an independent unit. In limited instances, there may also be an individualized analysis of specific cases where approval is subject to competent credit approval levels. The risk ratings are grouped in four categories: (i) lower risk, (ii) satisfactory, (iii) higher risk and (iv) impaired. Please refer to section Performance, item Financial Performance – Allowance for Loan and Lease Losses, for further details on the individual and collective analyses.

Non-accrual Loans

We consider all loans overdue for 60 days or more as non-accrual loans and, accordingly, cease the accrual of financial charges on such loans. In 2014, we did not have any material non-accrual loans.

Write-offs

Loans and leases are written off against the allowance for loan and lease losses when the loan is not collected or is considered permanently impaired. We typically write off loans when they are overdue for 360 days, except for loans having an original maturity in excess of 36 months, which are written off when they are overdue for 540 days. However, write-offs may be recognized earlier than 360 days if we conclude that the loan is not recoverable.

Please refer to section Performance, item Assets – Loan and Lease Operations – Renegotiated Loans for further details.

Information on the Quality of Loans and Leases

The table below shows our non-accrual loans together with certain asset quality ratios.

(In millions of R$, except percentages)
	12/31/2014		12/31/2013		12/31/2012		12/31/2011		12/31/2010
Non-accrual loans		16,514		18,065		20,791		20,439		14,736
Allowance for loan losses		22,392		22,235		25,713		23,873		19,994
Total loans and leases operations portfolio		452,431		411,702		366,984		346,264		294,837
Non-accrual loans as a percentage of total loans (%)		3.7		4.4		5.7		5.9		5.0
Allowance for loan losses as a percentage of total loans (%)		4.9		5.4		7.0		6.9		6.8
Allowance for loan losses as a percentage of non-accrual loans (%)		135.6		123.1		123.7		116.8		135.7

Annual Report2014 A-108 

 

Allowance for Loan and Lease Losses

(In millions of R$, except percentages)
	12/31/2014			12/31/2013			12/31/2012			12/31/2011			12/31/2010
Balance at the beginning of period		22,235			25,713			23,873			19,994			20,245
Write-offs		(18,675	)		(21,769	)		(22,142	)		(16,159	)		(15,798	)
Individuals		(12,668	)		(13,541	)		(12,317	)		(8,655	)		(9,407	)
Credit card		(3,784	)		(3,513	)		(4,073	)		(3,038	)		(2,731	)
Personal loans		(5,150	)		(6,247	)		(4,895	)		(3,222	)		(3,908	)
Payroll loans		(429	)		(480	)		(472	)		(308	)		(316	)
Vehicles		(3,254	)		(3,263	)		(2,840	)		(2,013	)		(2,377	)
Mortgage loans		(51	)		(38	)		(37	)		(74	)		(75	)
Corporate		(672	)		(478	)		(556	)		(122	)		(150	)
Small and Medium Businesses		(4,992	)		(7,573	)		(9,209	)		(7,118	)		(5,793	)
Foreign Loans Latin America		(343	)		(177	)		(60	)		(264	)		(448	)
Increase Allowance for loan and lease losses		18,832			17,856			23,982			20,038			15,547
Balance at the end of period		22,392			22,235			25,713			23,873			19,994
Recoveries from Loans Writen Off		5,054			5,061			4,664			5,477			4,195
Individuals		2,077			2,058			1,918			2,362			1,804
Credit card		663			653			515			616			470
Personal loans		577			525			427			446			184
Payroll loans		453			278			173			160			120
Vehicles		324			499			656			956			856
Mortgage loans		60			103			147			184			174
Corporate		1,619			1,554			1,318			1,455			1,061
Small and Medium Businesses		893			1,003			1,083			1,355			1,138
Foreign Loans Latin America		465			446			345			305			192
Net Write-offs		(13,621	)		(16,708	)		(17,478	)		(10,682	)		(11,603	)
Ratio of Write-offs during the period to average loans outstanding during the period (%)		4.4			5.7			6.2			5.1			5.9
Ratio of net write-offs during the period to average loans outstanding during the period (%)		3.2			4.4			4.9			3.3			4.3
Ratio of allowance for loan losses to total loans and leases (%)		4.9			5.4			7.0			6.9			6.8

During the year ended December 31, 2014, we wrote off a total amount of R$18,675 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 4.9%. The decrease in loans written off is a result of the adoption of a policy of stricter selectivity in origination, which gave rise to lower default levels compared to the previous year.

During the year ended December 31, 2013, we wrote off a total amount of R$21,769 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 5.4%. The decrease in loans written off is a result of the adoption of a policy of stricter selectivity in origination, which gave rise to lower default levels compared to the previous year.

During the year ended December 31, 2012, we wrote off a total amount of R$22,142 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 7.0%. The increase in loans written off is due to the increase in defaults in 2011 and beginning of 2012, associated with the increase in the volume of our portfolio of credit card, personal loans, small and medium businesses.

During the year ended December 31, 2011, we wrote off a total amount of R$16,159 million from our loan portfolio and our ratio of the allowance for loan and lease losses to total loans and leases was 6.9%. Our ratio of allowance for loan and lease losses to total loans increased by 10 basis points when compared to the previous year, since the volume of loans and leases written off was maintained at the same level in 2011. This level was maintained as a result of the increase in default rates in 2009 and 2010, together with a strong growth of the loan and lease portfolio in 2011.

During the year ended December 31, 2010, we wrote off a total amount of R$15,798 million from our loan portfolio and, on December 31, 2010, our ratio of the allowance for loan and lease losses to total loans and leases was 6.8%.

Assessment

We first assess whether there is objective evidence of loss individually allocated to individually significant loans or collectively allocated to loans that are not individually significant.

To determine the amount of the allowance for individually significant loans with objective evidence of impairment, we use methodologies that consider both the client quality and the nature of the financing, including its collateral, to estimate the cash flow expected from these loans.

If there is no objective evidence of loss for an individually assessed loan, whether significant or not, the loan is included in a group of loans with similar credit risk characteristics which are then collectively tested for impairment. Individually assessed loans for which an impairment loss is recognized are not included in the collective assessment. The amount of loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows (excluding future loan losses that have not been incurred), discounted at the financial asset’s effective interest rate.

For collectively assessed loans, the calculation of the present value of the estimated future cash flows, for which collateral is received, reflects the historical performance and recovery of the fair value,

Annual Report2014 A-109 

 

considering the cash flows that may arise from the performances less costs for obtaining and selling that collateral.

For the purpose of collectively assessing impairment, loans are aggregated based on similar credit risk characteristics. These characteristics are relevant to estimate the future cash flows of these loans since they may be an indicator of the difficulty of the debtor in paying the amounts due, in accordance with the contractual conditions of the loan that is being assessed. The future cash flows of a group of loans that are collectively assessed in order to identify the need for recognizing an impairment are estimated based on the contractual cash flows of the group of loans and the historical experience of loss for loans with similar credit risk characteristics. The historical loss experience is adjusted, based on current observable data, to reflect the effects of current conditions that have not impacted the period on which the historical loss experience is based and to exclude the effects of conditions in the historical period that are not currently in place.

For individually significant loans with no objective evidence of impairment, such loans are classified into certain credit ratings based on several qualitative and quantitative factors applied to internally developed models. Considering the size and the different risk characteristics of each credit agreement, the ratings determined under internal models may be reviewed and modified by our Credit Committee, the members of which are executives and experts in corporate credit risk. We estimate the losses inherent in every rating, using the approach internally developed to low-default portfolios, which uses our historical experience to design internal models that are used to estimate the probability of default and the potential for recovery of non-performing loans.

To determine the amount of the allowance for items that are not individually significant, loans are segregated into classes based on the underlying risks and the characteristics of each group. The allowance for loan and lease losses is determined for each of these classes through a process that considers the historical delinquency and the loan loss experience in the last years.

Allocation of the Allowance for Loan and Lease Losses

The table below presents the details, by segment and class, as defined in the segmentation of our portfolio, of the allowance for loan and lease losses, of this allowance as a percentage of the total loan and lease losses for the corresponding segment or class, and the percentage of the total loan and leases in each segment and class in relation to the total loans and leases.

(In millions of R$, except percentages)
	12/31/2014						12/31/2013						12/31/2012						12/31/2011						12/31/2010
	ALLOCATED ALLOWANCE		ALLOCATED ALLOWANCE AS A % OF TOTAL LOANS AND LEASES		LOANS CATEGORY AS A % OF TOTAL LOANS		ALLOCATED ALLOWANCE		ALLOCATED ALLOWANCE AS A % OF TOTAL LOANS AND LEASES		LOANS CATEGORY AS A % OF TOTAL LOANS		ALLOCATED ALLOWANCE		ALLOCATED ALLOWANCE AS A % OF TOTAL LOANS AND LEASES		LOANS CATEGORY AS A % OF TOTAL LOANS		ALLOCATED ALLOWANCE		ALLOCATED ALLOWANCE AS A % OF TOTAL LOANS AND LEASES		LOANS CATEGORY AS A % OF TOTAL LOANS		ALLOCATED ALLOWANCE		ALLOCATED ALLOWANCE AS A % OF TOTAL LOANS AND LEASES		LOANS CATEGORY AS A % OF TOTAL LOANS
Individuals		13,385		3.0		41.1		13,853		3.4		40.7		14,844		4.0		41.1		13,684		4.0		43.1		11,146		3.8		43.0
Credit card		3,740		0.8		13.1		2,952		0.7		12.9		2,863		0.8		11.0		3,825		1.1		11.3		3,306		1.1		11.2
Personal loans		7,024		1.6		6.2		6,488		1.6		6.5		6,841		1.9		7.3		4,842		1.4		7.5		3,590		1.2		5.8
Payroll loans		1,107		0.2		9.0		1,133		0.3		5.5		867		0.2		3.7		556		0.2		2.9		429		0.1		2.8
Vehicles		1,469		0.3		6.4		3,245		0.8		9.9		4,227		1.2		14.1		4,415		1.3		17.5		3,709		1.3		20.4
Mortgage loans		45		-		6.4		35		-		5.9		46		-		5.0		46		-		4.0		112		-		2.7
Corporate		2,926		0.6		32.0		1,783		0.4		30.7		1,362		0.4		28.3		703		0.2		26.6		544		0.2		25.3
Small and Medium Businesses		5,373		1.2		17.7		6,085		1.5		19.8		9,091		2.5		23.2		9,197		2.7		24.7		8,041		2.7		27.1
Foreign Loans Latin America		708		0.2		9.2		514		0.1		8.8		416		0.1		7.4		289		0.1		5.6		263		0.1		4.6
Total		22,392		4.9		100.0		22,235		5.4		100.0		25,713		7.0		100.0		23,873		6.9		100.0		19,994		6.8		100.0

Renegotiated Loans

(In millions of R$, except percentages)
	YEAR ENDED DECEMBER 31,
	2014		2013		2012		2011
Renegotiated loans(1)		11,572		12,880		14,519		11,844
Allowance for loan and lease losses		5,459		6,284		6,767		5,355
Allowance for loan and lease losses/ renegotiated loans (%)		47.2		48.8		46.6		45.2

(1) Includes debt consolidation, deferment or any other arrangement that modifies the periods or conditions, of operations originally overdue.

Renegotiated loans include both loans for which the credit agreement’s original terms were amended (agreements) and new loans originated in order to settle contracts or transactions with the same client (restructured loans), which were originally past due.

Amendments and restructured loans usually reflect changes in contract terms, rates or payment conditions.

In almost all cases for loan products, renegotiated loans require that at least one payment be made under the renegotiated terms in order for it to be removed from non-performing and non-accrual status. Renegotiated loans return to non-performing and non-accrual status when they reach 60 days past due under the renegotiated terms, which typically corresponds to the borrower missing two or more payments.

The fact that a loan or lease has been renegotiated is also taken into consideration when determining the allowance for loan and lease losses after the renegotiation. The past performance and the payment history of the client and the transaction, including the probability

Annual Report2014 A-110 

 

of another default for renegotiated transactions, are considered in our risk models in order to determine the probability of default. This probability of default is generally higher than the probability assigned to similar transactions that have never been renegotiated. Another factor considered in determining the appropriate level of the allowance for loan and lease losses is the additional collateral to be offered by the debtor. The resulting allowance levels are compatible with the risk profile of each transaction.

Our renegotiated loan portfolio decreased to 2.56% of our total loan portfolio as of December 31, 2014, compared to 3.13% as of December 31, 2013. At the end of 2014, the ratio of the renegotiated portfolio to the allowance for loan and lease losses was 47.2% compared to 48.8% as of December 31, 2013. Throughout 2014, the allowance for loan and lease losses followed the evolution of the “mix” of portfolio credit risk in the renegotiated loan portfolio.

Our renegotiated loan portfolio decreased to 3.13% of our total loan portfolio as of December 31, 2013, compared to 3.96% as of December 31, 2012. At the end of 2013, the ratio of the renegotiated portfolio to the allowance for loan and lease losses was 48.8% compared to 46.6% as of December 31, 2012. Throughout the year 2013, the allowance for loan and lease losses followed the evolution of the “mix” of portfolio credit risk in the renegotiated loan portfolio.

Our renegotiated loan portfolio increased to 3.96% of our total loan portfolio as of December 31, 2012, compared to 3.42% as of December 31, 2011. At the end of 2012, the ratio of the renegotiated portfolio to the allowance for loan and lease losses was 46.6% compared to 45.2% as of December 31, 2011. This ratio increased in 2012 mainly because of an increase in the redefaulted renegotiated loans to total renegotiated loans ratio, from 29.8% as of December 31, 2011 compared to 35.4% as of December 31, 2012.

During 2014, we maintained our policy for the recovery of overdue loans, including loans already written off as losses, and to reduce losses, we enhanced our collection and recovery initiatives. However, we still require that at least one installment is paid to consider the renegotiation to be valid and to treat it as a renegotiated agreement. We also adopted a policy of stricter selectivity in origination of loans, which led to lower levels of delinquency and a decreased volume of renegotiated loans.

During 2013, our policy for recovery of overdue loans was maintained, including loans already written off as losses, and to reduce losses, we enhanced our collection and recovery initiatives. However, we still require that at least one installment is paid to consider the renegotiation to be valid and to treat it as a renegotiated agreement. We also adopted a policy of stricter selectivity in origination of loans, which led to lower levels of delinquency and decreased volume of renegotiated loans.

During 2012, the Brazilian economy experienced an increase in the default levels for individuals, mainly with respect to vehicle financing and personal loan portfolios. As one of the largest banks in Brazil, our loan portfolio was impacted by this increase in defaults. In order to increase the recovery of overdue loans, including loans already written off as losses, and to reduce losses, we enhanced our collection and recovery initiatives. However, we require that at least one installment is paid to consider the renegotiation to be valid and to treat it as a renegotiated agreement.

The total amount of each type of renegotiated loan as of December 31, 2014, 2013 and 2012 is shown in the tables below.

(In millions of R$, except percentages)
	AS OF DECEMBER 31, 2014
TYPE OF LOAN	TOTAL RENEGOTIATED LOANS		TOTAL ALLOWANCE FOR LOAN LOSSES		ALLOWANCE FOR LOAN LOSSES/ RENEGOTIATED LOANS (%)		TOTAL REDEFAULTED RENEGOTIATED LOANS(1)		REDEFAULTED RENEGOTIATED LOANS (%)
Restructured Loans		10,284		5,051		49.1		2,744		26.7
Agreements		1,288		408		31.7		602		46.7
Total		11,572		5,459		47.2		3,346		28.9

(1) Our redefaulted renegotiated loans are renegotiated transactions 60 days or more overdue.

(In millions of R$, except percentages)
	AS OF DECEMBER 31, 2013
TYPE OF LOAN	TOTAL RENEGOTIATED LOANS		TOTAL ALLOWANCE FOR LOAN LOSSES		ALLOWANCE FOR LOAN LOSSES/ RENEGOTIATED LOANS (%)		TOTAL REDEFAULTED RENEGOTIATED LOANS(1)		REDEFAULTED RENEGOTIATED LOANS (%)
Restructured Loans		10,325		5,064		49.0		3,072		29.8
Agreements		2,555		1,220		47.7		1,555		60.9
Total		12,880		6,284		48.8		4,627		35.9

(1) Our redefaulted renegotiated loans are renegotiated transactions 60 days or more overdue.

(In millions of R$, except percentages)
	AS OF DECEMBER 31, 2012
TYPE OF LOAN	TOTAL RENEGOTIATED LOANS		TOTAL ALLOWANCE FOR LOAN LOSSES		ALLOWANCE FOR LOAN LOSSES/ RENEGOTIATED LOANS (%)		TOTAL REDEFAULTED RENEGOTIATED LOANS(1)		REDEFAULTED RENEGOTIATED LOANS (%)
Restructured Loans		11,343		5,287		46.6		4,012		35.4
Agreements		3,176		1,480		46.6		1,722		54.2
Total		14,519		6,767		46.6		5,734		39.5

(1) Our redefaulted renegotiated loans are renegotiated transactions 60 days or more overdue.

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The tables below present an additional breakdown of renegotiated loans by portfolio, in segments and types, based on the type of modification, as of December 31, 2014, 2013 and 2012:

	(In millions of R$)
	AS OF DECEMBER 31, 2014
	PAYMENT		MULTIPLE		MULTIPLE
RENEGOTIATED LOAN AND LEASE OPERATIONS	EXTENSION(1)		CONCESSIONS(2)		MODIFICATIONS(3)		TOTAL
Individuals		649		2,352		4,330		7,331
Credit card		-		403		-		403
Personal loans		-		1,906		4,330		6,236
Payroll loans		-		43		-		43
Vehicles		578		-		-		578
Mortgage loans		71		-		-		71
Corporate		-		-		870		870
Small and medium businesses		55		2,610		620		3,285
Foreign loans – Latin America		-		86		-		86
Total renegotiated loan and lease operations		704		5,048		5,820		11,572

(1) Represents loan and lease transactions subject to an amendment of contractual terms relating exclusively to payment due dates. 

(2) Represents multiple loan and lease transactions which have been restructured, i.e., all such outstanding transactions are terminated and a single new transaction consolidating the terminated loan and lease transactions is entered into. 

(3) Represents individual loan and lease transactions entered into with a customer that are renegotiated for an amendment of the original contractual terms, which may include amendment of interest rates, discounts of outstanding amounts due and payment extensions.

	(In millions of R$)
	AS OF DECEMBER 31, 2013
	PAYMENT		MULTIPLE		MULTIPLE
RENEGOTIATED LOAN AND LEASE OPERATIONS	EXTENSION(1)		CONCESSIONS(2)		MODIFICATIONS(3)		TOTAL
Individuals		1,979		2,046		4,513		8,538
Credit card		-		335		-		335
Personal loans		1		1,710		4,513		6,224
Payroll loans		-		1		-		1
Vehicles		1,907		-		-		1,907
Mortgage loans		71		-		-		71
Corporate		-		-		476		476
Small and medium businesses		102		3,247		481		3,830
Foreign loans – Latin America		-		36		-		36
Total renegotiated loan and lease operations		2,081		5,329		5,470		12,880

(1) Represents loan and lease transactions subject to an amendment of contractual terms relating exclusively to payment due dates. 

(2) Represents multiple loan and lease transactions which have been restructured, i.e., all such outstanding transactions are terminated and a single new transaction consolidating the terminated loan and lease transactions is entered into. 

(3) Represents individual loan and lease transactions entered into with a customer that are renegotiated for an amendment of the original contractual terms, which may include amendment of interest rates, discounts of outstanding amounts due and payment extensions.

	(In millions of R$)
	AS OF DECEMBER 31, 2012
	PAYMENT		MULTIPLE		MULTIPLE
RENEGOTIATED LOAN AND LEASE OPERATIONS	EXTENSION(1)		CONCESSIONS(2)		MODIFICATIONS(3)		TOTAL
Individuals		2,095		1,743		4,625		8,463
Credit card		-		460		-		460
Personal loans		14		1,283		4,625		5,922
Payroll loans		-		-		-		-
Vehicles		2,025		-		-		2,025
Mortgage loans		56		-		-		56
Corporate		-		-		495		495
Small and medium businesses		136		5,137		259		5,532
Foreign loans – Latin America		-		29		-		29
Total renegotiated loan and lease operations		2,231		6,909		5,379		14,519

(1) Represents loan and lease transactions subject to an amendment of contractual terms relating exclusively to payment due dates. 

(2) Represents multiple loan and lease transactions which have been restructured, i.e., all such outstanding transactions are terminated and a single new transaction consolidating the terminated loan and lease transactions is entered into. 

(3) Represents individual loan and lease transactions entered into with a customer that are renegotiated for an amendment of the original contractual terms, which may include amendment of interest rates, discounts of outstanding amounts due and payment extensions.

The following tables present an additional breakdown of renegotiated loans and leases by segment and class, as of December 31, 2014, 2013 and 2012:

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	(In millions of R$)
	AS OF DECEMBER 31, 2014
	IMPAIRED		NON-IMPAIRED		IMPAIRED		NON-IMPAIRED
RENEGOTIATED LOAN AND LEASE OPERATIONS	PERFORMING		PERFORMING		NON-PERFORMING		NON-PERFORMING		TOTAL
Individuals		-		3,921		2,019		1,390		7,330
Credit card		-		403		-		-		403
Personal loans		-		3,445		1,486		1,306		6,237
Payroll loans		-		22		17		3		42
Vehicles		-		37		478		62		577
Mortgage loans		-		14		38		19		71
Corporate		236		408		227		-		871
Small and medium businesses		-		1,406		1,116		763		3,285
Foreign loans – Latin America		-		55		12		19		86
Total renegotiated loan and lease operations		236		5,790		3,374		2,172		11,572

	(In millions of R$)
	AS OF DECEMBER 31, 2013
	IMPAIRED		NON-IMPAIRED		IMPAIRED		NON-IMPAIRED
RENEGOTIATED LOAN AND LEASE OPERATIONS	PERFORMING		PERFORMING		NON-PERFORMING		NON-PERFORMING		TOTAL
Individuals		-		3,832		3,097		1,609		8,538
Credit card		-		335		-		-		335
Personal loans		-		3,324		1,642		1,258		6,224
Payroll loans		-		1		-		-		1
Vehicles		-		162		1,417		328		1,907
Mortgage loans		-		10		38		23		71
Corporate		111		261		51		54		477
Small and medium businesses		-		1,515		1,486		828		3,829
Foreign loans – Latin America		-		20		6		10		36
Total renegotiated loan and lease operations		111		5,628		4,640		2,501		12,880

	(In millions of R$)
	AS OF DECEMBER 31, 2012
	IMPAIRED		NON-IMPAIRED		IMPAIRED		NON-IMPAIRED
RENEGOTIATED LOAN AND LEASE OPERATIONS	PERFORMING		PERFORMING		NON-PERFORMING		NON-PERFORMING		TOTAL
Individuals		-		3,995		2,966		1,502		8,463
Credit card		-		460		-		-		460
Personal loans		-		3,142		1,654		1,126		5,922
Payroll loans		-		-		-		-		-
Vehicles		-		379		1,284		362		2,025
Mortgage loans		-		14		28		14		56
Corporate		87		247		161		-		495
Small and medium businesses		-		1,792		2,659		1,081		5,532
Foreign loans – Latin America		-		15		4		10		29
Total renegotiated loan and lease operations		87		6,049		5,790		2,593		14,519

The table below presents the changes in our loan and lease portfolio with loss event, including the changes of the renegotiated loans and leases with loss event related to each year as of December 31, 2014, 2013 and 2012:

	(In millions of R$)
IMPAIRED LOANS	2014			2013			2012
Balance at the beginning of the period		16,305			19,511			18,385
(+) Loan operations added		12,521			9,882			11,441
(+) Loan operations added due to redefault		3,915			5,029			6,873
(-) Loans removed due to write-off		(10,006	)		(12,460	)		(12,867	)
(-) Loans removed due to renegotiation (including amendments)		(4,506	)		(4,595	)		(622	)
(-) Loans removed due to total or partial pay-off		(1,024	)		(1,062	)		(3,699	)
Balance at the end of the period		17,205			16,305			19,511

Please refer to section Performance, item Consolidated Financial Statements (IFRS), Note 12 – Loan operations and lease operations portfolio for further details.

Cross border outstanding

Cross border outstanding are monetary assets which are denominated in non-local currency and exceeded 1% of our total assets in the case of transactions with foreign clients entered into by our subsidiaries in the United Kingdom (our former subsidiary in Portugal), Cayman and Bahamas. The aggregate cross border outstanding breakdown of these subsidiaries for the period indicated below is as follows:

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	(In millions of R$, except percentages)
	12/31/2014		%		12/31/2013(1)		%		12/31/2012		%
Cash and deposits on demand		4,187		0.3		4,897		0.4		3,349		0.3
Interbank deposits		64,491		5.3		33,630		3.0		23,684		2.3
Securities purchased under agreements to resell		24,606		2.0		2,877		0.3		4,302		0.4
Central Bank compulsory deposits		3		0.0		3		0.0		-		0.0
Financial assets held for trading		5,978		0.5		5,854		0.5		5,689		0.6
Derivatives		9,321		0.8		8,008		0.7		9,450		0.9
Available for sale financial assets		39,850		3.3		38,290		3.5		40,512		4.0
Financial assets held to maturity		10,767		0.9		6,723		0.6		527		0.1
Loan and lease operations		97,740		8.1		57,834		5.2		34,933		3.4
Total outstanding		256,943		21.3		158,116		14.3		122,446		12.1

(1) On February 1, 2013, Banco Itaú BBA International S.A., headquartered in Portugal, was merged into Itau BBA International Limited, headquartered in the United Kingdom. On May 17, 2013, the entity was registered as a public limited company under the trade name Itau BBA International plc. The purpose of this restructuring process is to allow Itaú BBA International to improve its performance and sources of funding, expand its client base, strengthen its position as an international platform for Itaú Unibanco Group, achieve greater diversification of risk and increase profitability indicators. 2011 and 2012 data reflects cross-border outstandings (non-euro) for former Portuguese subsidiary and 2013 data reflects non-British pound sterling cross-border outstandings.

Short-term borrowings

Short-term borrowings are included in our balance sheet under the “Securities sold under repurchase agreement” line item. The main category for short-term borrowings is “Deposits Received under Securities Repurchase Agreements with Own and Third-Party Financial Assets.” The table below shows our short-term borrowings as of December 31, 2014, 2013 and 2012:

(In millions of R$, except percentages)
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS	2014		2013		2012
Amount outstanding (as of December 31)		288,683		266,682		267,405
Maximum amount outstanding during the period		288,683		271,621		267,405
Weighted average interest rate at period-end (%)		9.9		9.4		9.0
Average amount outstanding during period		266,527		256,025		204,358
Weighted average interest rate (%)		9.5		9.2		9.4

Liabilities

Funding

Main sources

Our current funding strategy is to continue to use all of our sources of funds in accordance with their costs and availability and our general asset and liability management strategy. In order to fund our operations, we intensified the use of the liquidity generated by savings deposits, interbank deposits, debt in the interbank market and debt in the institutional market during 2014, 2013 and 2012.

We also used Brazilian debentures subject to repurchase as a source of funding, reported as deposits received under securities repurchase agreements and offered to institutional clients as well as private banking, corporate banking and retail clients. This funding is designed to provide increased profitability through higher spreads in our savings deposits and higher fees earned on market funds.

Our ability to obtain funding depends on several factors, including credit ratings, general economic conditions and investors’ perception of emerging markets in general and of Brazil (particularly, current political and economic conditions in Brazil and government regulations for foreign currency funding).

Part of our long-term debt provides for the advance payment of the outstanding principal balance upon the occurrence of certain facts, as is customary for long-term financing agreements. As of December 31, 2014, none of these events, including default events and non-compliance with any financial covenant, had occurred, and we have no reason to believe that any of these events are likely to occur in 2015.

Our main sources of funding are our deposits, which are split into demand deposits, savings deposits, time deposits and interbank deposits. As of December 31, 2014, total deposits were R$294,773 million, which represented 37.8% of total funding. As of December 31, 2013, total deposits amounted to R$274,383 million, representing 37.9% of total funding. As of December 31, 2012, total deposits amounted to R$243,200 million, representing 35.8% of our total funding. Our time deposits represent one of our major sources of funding which, as of December 31, 2014, 2013 and 2012 accounted for 13.9%, 16.2% and 17.2% of total funding, respectively.

The table below shows the breakdown of our main sources of funds as of December 31, 2014, 2013 and 2012:

	(In millions of R$, except percentages)
BREAKDOWN OF THE MAIN SOURCES OF FUNDS	2014		% OF TOTAL FUNDING		2013		% OF TOTAL FUNDING		2012		% OF TOTAL FUNDING
Deposits		294,773		37.8		274,383		37.9		243,200		35.8
Demand deposits		48,733		6.3		42,892		5.9		34,916		5.1
Savings deposits		118,449		15.1		106,166		14.7		83,451		12.3
Time deposits		108,466		13.9		117,131		16.2		117,232		17.2
Interbank deposits		19,125		2.5		8,194		1.1		7,601		1.1
Securities sold under repurchase agreements		288,683		37.0		266,682		36.8		267,405		39.3
Interbank market debt		122,586		15.8		111,376		15.4		97,073		14.3
Mortgage notes		143		-		181		0.0		227		0.0
Real estate credit bills		10,832		1.4		8,919		1.2		13,296		2.0
Agribusiness credit bills		7,811		1.0		7,273		1.0		5,321		0.8
Financial credit bills		10,645		1.4		13,823		1.9		18,695		2.8
Import and export Financing		43,381		5.6		33,614		4.6		23,053		3.4
Onlending-domestic		45,230		5.8		43,015		5.9		36,048		5.3

Annual Report2014 A-114 

Selected Statistical Information

The following information is included for analytical purposes and should be read in together with our section Performance, item Financial Performance, Significant Accounting Policies, Assets and Liabilities and Item Consolidated Financial Statements (IFRS).

The data included or referenced in this section are presented in accordance with IFRS, unless otherwise indicated.

Average Balance Sheet and Interest Rate Data

The following table presents the average balances of our interest-earning assets and interest-bearing liabilities, other assets and liabilities accounts, the related interest income and expense amounts and the average real yield/rate for each period.

We calculated the average balances using monthly book balances as we believe such balances are representative of our operations and it would be too costly to produce average balances using daily book balances in IFRS.

The majority of our business is composed of retail banking operations, which have grown organically and without significant fluctuations over short periods. Non-accrual loans and leases are disclosed as a non-interest earning asset for the periods indicated in the table below:

	(In millions of R$, except percentages)
	2014							2013							2012
	AVERAGE					AVERAGE		AVERAGE					AVERAGE		AVERAGE					AVERAGE
ASSETS	BALANCE			INTEREST		YIELD/RATE (%)		BALANCE			INTEREST		YIELD/RATE (%)		BALANCE			INTEREST		YIELD/RATE (%)
Interest-earning assets(1)		955,416			120,115		12.6		882,472			94,127		10.7		784,686			96,364		12.3
Interbank deposits		24,019			1,286		5.4		19,880			583		2.9		24,873			1,042		4.2
Securities purchased under agreements to resell		170,327			17,929		10.5		162,865			12,630		7.8		122,546			10,096		8.2
Central Bank compulsory deposits		69,882			5,904		8.4		62,492			4,314		6.9		70,416			5,334		7.6
Financial assets held for trading		134,695			15,128		11.2		138,667			10,860		7.8		126,160			13,324		10.6
Available-for-sale financial assets		78,559			7,272		9.3		86,571			5,067		5.9		62,527			3,771		6.0
Held-to-maturity financial assets		24,317			2,347		9.7		4,473			486		10.9		3,094			471		15.2
Loan operations and lease operations (accrual)		403,447			69,248		17.2		362,330			59,546		16.4		335,127			61,139		18.2
Other Financial Assets		50,170			1,001		2.0		45,193			641		1.4		39,943			1,187		3.0
Non-interest-earning assets		97,526							83,025							70,758
Cash and deposits on demand		17,038							13,806							12,814
Central Bank compulsory deposits		4,025							3,850							4,141
Derivatives		12,647							11,224							9,502
Non-accrual loans		17,040							19,216							20,055
Allowance for loan and lease losses		(21,655	)						(24,103	)						(24,962	)
Fixed assets, net		7,145							5,958							5,360
Investments in unconsolidated companies		3,964							3,233							3,032
Goodwill		1,798							147							-
Intangible assets, net		6,019							5,110							4,243
Tax assets		35,000							33,155							28,151
Assets held for sale		137							119							100
Other assets		14,369							11,311							8,423
Total		1,052,942							965,497							855,444

(1) For the net yield on total average interest-earning assets, see “Net Interest Margin and Spread”.

	(In millions of R$, except percentages)
	2014							2013							2012
	AVERAGE				AVERAGE			AVERAGE				AVERAGE			AVERAGE				AVERAGE
LIABILITIES	BALANCE		INTEREST		YIELD/RATE (%)			BALANCE		INTEREST		YIELD/RATE (%)			BALANCE		INTEREST		YIELD/RATE (%)
Interest-bearing liabilities		793,069		72,977		9.2	%		738,535		46,361		6.3	%		649,026		48,067		7.4	%
Interest-bearing deposits		234,000		12,064		5.2	%		209,347		9,802		4.7	%		206,652		10,544		5.1	%
Savings deposits		111,473		6,905		6.2	%		92,964		5,014		5.4	%		73,404		4,069		5.5	%
Interbank Deposits		6,131		692		11.3	%		7,446		300		4.0	%		8,661		286		3.3	%
Time deposits		116,395		4,467		3.8	%		108,937		4,488		4.1	%		124,587		6,188		5.0	%
Securities sold under repurchase agreements		266,527		26,771		10.0	%		256,025		16,865		6.6	%		204,358		17,539		8.6	%
Interbank market debt and Institutional market debt		183,981		25,099		13.6	%		174,834		16,216		9.3	%		154,852		13,440		8.7	%
Interbank market debt		113,522		14,404		12.7	%		104,002		6,245		6.0	%		94,555		5,747		6.1	%
Institutional market debt		70,459		10,695		15.2	%		70,832		9,971		14.1	%		60,297		7,693		12.8	%
Reserves for insurance and private pension and Liabilities for capitalization plans		107,880		8,987		8.3	%		97,818		3,436		3.5	%		82,820		6,513		7.9	%
Other interest-bearing liabilities		682		56		8.2	%		511		42		8.2	%		344		30		8.9	%
Non-interest bearing liabilities		169,247							148,215							130,293
Non-interest bearing deposits		43,840							36,726							30,324
Derivatives		13,107							10,355							8,251
Other non-interest-bearing liabilities		112,300							101,134							91,718
Total stockholders’ equity attributed to the owners of the parent company		89,458							78,747							76,125
Non-controlling interests		1,168							878							880
Total		1,052,942							965,497							855,444

Annual Report2014 A-138 

 

ITEM 19. EXHIBITS

Number	Description
1	Bylaws of Itaú Unibanco Holding S.A. (unofficial English translation)(1).
2.(a)	Amended and Restated Deposit Agreement among the Registrant, The Bank of New York, as depositary, and the Holders from time to time of American Depositary Shares issued thereunder, including the form of American Depositary Receipts(2).
4.(a)1	Share Purchase and Sale Agreement, dated November 4, 2002, among Fernão Carlos Botelho Bracher, Antonio Beltran Martinez and Banco Itaú S.A.(3).
4.(a)2	Shareholders’ Agreement, dated as of January 27, 2009, between Itaúsa - Investimentos Itaú S.A. and the Moreira Salles family (unofficial English translation)(4).
6	Statement explaining calculation of earnings per share(5).
8.1	List of subsidiaries(6).
11.1	Code of Ethics (unofficial English translation)(7).
12.1	Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(8).
12.2	Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(8).
13	Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as Enacted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(8).

(1)	Incorporated herein by reference to our Report on Form 6-K filed with the Commission on May 1, 2014 (Commission File No. 001-15276).
(2)	Incorporated herein by reference to the Registration Statement on Form F-6 filed with the Commission on October 16, 2013 (Commission File No. 333-191758).
(3)	Incorporated herein by reference to our Annual Report on Form 20-F filed with the Commission on June 30, 2003 (Commission File No. 001-15276).
(4)	Incorporated herein by reference to our Annual Report on Form 20-F/A filed with the Commission on May 17, 2010 (Commission File No. 001-15276).
(5)	Incorporated by reference herein to “Note 2.4 – Summary of main accounting policies, item x) Earnings per share” to Consolidated Financial Statements included in this Annual Report on Form 20-F.
(6)	Incorporated by reference herein to “Note 2.4 – Summary of main accounting policies, item a) Consolidation, 1. Subsidiaries” to Consolidated Financial Statements included in this Annual Report on Form 20-F.
(7)	Incorporated herein by reference to our Annual Report on Form 20-F filed with the Commission on April 29, 2013 (Commission File No. 001-15276).
(8)	Filed herewith.

Pursuant to Instruction 2(b)(i) of Instructions as to Exhibits to Form 20-F, copies of instruments defining the rights of certain holders of long-term debt are not filed. We agree to furnish copies of such instruments to the Securities and Exchange Commission upon request.

Form 20-F/A2014 B-1 

 

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Amendment No. 1 to the annual report on its behalf.

	ITAÚ UNIBANCO HOLDING S.A.
	By:	/s/ Roberto Egydio Setubal
		Name: Roberto Egydio Setubal
		Title: Chief Executive Officer
	By:	/s/ Eduardo Mazzilli de Vassimon
		Name: Eduardo Mazzilli de Vassimon
		Title: Chief Financial Officer
Dated: September 21, 2015

Form 20-F/A2014 B-2