Itaú Banco Itaú S.A. June 1998

Transcription

1 Itaú Banco Itaú S.A. June 1998

2 Contents 04 Introduction 04 Financial Highlights 05 Itaúsa - Investimentos Itaú S.A. 06 Companies Controlled by Itaúsa and Major Shareholders (Banco Itaú and Itaúsa) 07 Banco Itaú S.A. 08 Financial Statements and Performance 08 Banco Itaú S.A. Consolidated Balance Sheet by Currency and Location 10 Evolution, Breakdown and Market Share of Credit Operations 11 Provision for Loan Losses and Ratio of Default 12 Evolution of Stockholders Equity, Net Income, Dividends in Current Dollar and Annual Inflation 13 Statements of Income by Corporation Law 16 Statements of Income by Adjustment Inflation 17 Strategies 18 Banco Banerj S.A. 19 Itaú Seguros S.A. 20 Preferred Shares Appreciation 21 Acquisition of a Controlling Interest in Banco del Buen Ayre S.A. 22 Financial Statements of Semester Ended on June 30, 1998 and The Management s Report 36 Balance Sheets 38 Statements of Income 39 Statements of Changes in Stockholders Equity 40 Statements of Changes in Financial Position 41 Notes to the Financial Statements 65 Independent Auditor s Report 66 Organization of Banco Itaú S.A. Advanced Technology Capable Staff Aggressive Use of Marketing Total Quality Sound and Reliable Leader in Performance, Committed to Customer Satisfaction 3

3 Financial Highlights Banco Itaú S.A. Consolidated Results (Accumulated in Period) June 30, (*) Credit Operations: loans, leasing and pre-export advance (**) The guarantees given consist of various types of sureties and other guarantees. Year Ended R$ Million 1998 (2) 1997 (2) 1996 (2) 1995 (2) 1994 (1) 1993 (1) Net Interest Income 2,186 3,002 3,184 2,760 2,408 1,979 Provision for Loan Losses (412) (464) (1,031) (1,229) (213) (35) Banking Service Fees 1,000 2,202 1, Income Tax and Social Contribution Taxes (211) (108) (276) (194) (442) (338) Net Income Dividends Consolidated Balance Sheet Itens June 30, December 31, R$ Million 1998 (2) 1997 (2) 1996 (2) 1995 (2) 1994 (1) 1993 (1) Total Assets 52,392 46,390 32,068 24,445 18,259 14,934 Credit Operations (*) 13,279 13,806 12,325 10,818 8,022 5,654 Credits and Guarantees (**) 15,143 16,307 14,128 12,242 9,077 6,544 Deposits 18,778 18,278 11,556 10,547 9,907 7,986 Stockholders Equity 4,472 4,198 3,842 3,337 3,150 2,857 Funds Under Management 16,120 13,752 11,450 8,271 4,847 3,098 Shares (per Thousand) June 30, December 31, 1998 (2) 1997 (2) 1996 (2) 1995 (2) 1994 (1) 1993 (1) Dividend Net Income Book Value Market Value (Non-Voting) R$ Number of Shares (in Million) 11,946 11,939 11,974 11,935 12,043 12,067 Amounts in % Ratios June 30, December 31, 1998 (2) Risk - Based Capital Ratio (Basle Ratio) Return on Equity (ROE) 18.4 (*) Return on Assets (ROA) 1.5 (*) (*) Annualizated. In Quantity Others June 30, December 31, 1998 (2) Employees 34,603 36,263 31,368 36,636 37,119 40,830 Banco Itaú 28,782 28,217 30,315 34,933 37,119 40,830 Itauseg + Banerj + BFB (3) 5,821 8,046 1,053 1, Points of Sales (Branches + CSBs) 1,886 1,943 1,809 1,902 1,905 1,941 Automated Teller Machines (4) 8,670 8,279 7,714 7,450 6,558 4,957 Active Customers (in Million) (1) In currency of constant purchasing power as of December 31, 1995 (2) Corporation law (3) Included BFB since 1995 and Itauseg and Banerj since 1997 (4) Including the Itaú s ATMs network only. 4

4 . Banco Itaú S.A. Introduction In 1945 arose a bank determined to accomplish a challenge: to be modern, agile, provide services to its customers and participate actively in its community. Banco Central de Crédito was born. Later in 1973, after various mergers and incorporations, the name Banco Itaú S.A. was definitely adopted. Itaú was a bank of São Paulo, turned into a brazilian bank and is working to be a world bank. Maturity, experience and at the same time youth, disposition, strength and desire to revolutionize, with this spirit, Itaú is working to be a 21 st century bank. In March 1998 the Emerging Markets journal elected Itaú to receive the first Emerging Markets Latin American Bank of the Year Award. At this moment, Itaú is the second largest Private Bank of Brazil, with a stockholders equity of R$ 4,472 million and a net income of R$ 394 million, Itaú was the bank that stood the most in Banco Itaú has stood out as the bank that has best managed to combine the twin aims of capital strenght and good returns and for this reason gets the best bank in Brazil award in addition to its award as overall best domestic bank in an emerging market. Euromoney Magazine; July/98 Banco Itaú is the representative of Itaúsa - Investmentos Itaú S.A. in the financial market. Itaúsa performs in two different segments: financial (Banco Itaú, Itauprev, Itaucap, Itauseg and Itauleasing) and industrial (Itautec, Duratex e Elekeiroz). Itaúsa - Investimentos Itaú S.A. June 30, 1998 The consolidated stockholders equity of the group reached a total of R$ 5,811.7 million and the net income amounted to R$ million resulting in an annual return of 15.22% on the stockholders equity. The net income of the holding company Itaúsa, in the first half of 1998 was R$ million, resulting in an annual return of 14.59% over the stockholders equity, which amounted to R$ 2,933.8 million. 5

5 Companies Controlled by Itaúsa - Investimentos Itaú S.A. Financial Highlights Total Assets Operating Revenues (3) Net Income Stockholders Equity Return on Equity % Internal Generation of Resources (4) R$ Million Financial Area Industrial Area Insurance, Consolidated/ Period Banco Itaú S.A. Pension Plans and Duratex Itautec Philco Elekeiroz Conglomerate (2) (Consolidated) Capitalization (1) Jun 98 52,392 4,436 1, , ,390 4,038 1, ,003 Dec 96 32,068 3, ,100 Jun 98 6,531 1, , ,923 2, , ,982 Dec 96 11,241 3, , ,000 Jun (55) (136) (7) 874 Dec (8) 676 Jun 98 4,472 2, , ,198 2, ,515 Dec 96 3,842 1, ,186 Jun % 18.3% 6.5% (42.6)% 10.3% 15.2% % 7.3% 6.9% (48.8)% (6.0)% 15.8% Dec % 13.6% 5.9% 2.3% (8.9)% 13.0% Jun (22) 9 1, , (60) 0,1 1,706 Dec 96 1, ,182 (1) The data related to the Insurance, Pension and Capitalization companies consolidated in Banco Itaú S.A. are also being presented separately in order to become evident; (2) The consolidated/group data present net amounts of the consolidation suppressions and of the results not consummated from intercompany operations; (3) Following world trends, Operational Income by performance areas were obtained as folow: Banco Itaú S.A.: sum of Financial Operations Income, Services Income, Insurance Premium Income, Capitalization and Pension Plans and other Operational Income. Insurance, Pensions Plans and Capitalization: considers the Insurance Premium Income, Capitalization, Pension Plans, Financial Income and Capital Gains. Duratex, Itautec Philco e Elekeiroz: consider Services and/or Products Sales Net Income; (4) Embody the resources originated from operations:. added of expenses from provisions for credit losses; not considered variations of mathematics provisions of capitalization and pension plans and considered variations of claims payable, insurance operation credits and debits and expenses from deferred commercialization of insurance, pension plans and capitalization; Major Shareholders (%) June 30, 1998 In % Itaúsa - Investimentos Itaú S.A. Common Preferred Total Villela Group Setubal Group Fundação Itaubanco Fundação Itaúsa Camargo Corrêa Group S.A Others Number of Shares (per Thousand) 1,041,390 2,082,780 3,124,170 Number of Sharesholders 4,904 In % Banco Itaú S.A. Common Preferred Total Itaúsa - Investimentos Itaú S.A Itaucorp S.A Caixa Geral de Depósitos - Portugal Others Number of Shares (per Thousand) 6,832,972 5,112,617 11,945,589 Number of Sharesholders 59,400 6

6 Banco Itaú S.A. Itaú is an organization that is strictly concerned with the banking business and related activities. It s a multi-faceted bank, that operates commercial portfolios, investment portfolios, consumer credit facilities and real-estate financing activities. It also has an outstanding position in leasing operations, exchange, foreign trade financing, underwriting, brokerage services, mutual fund management, insurance, capitalization investmet and private pension plans. Principal Subsidiaries and Affiliated Companies June 30, 1998 These companies demonstrate Itaú s multi-focused marketing strategy, which permits an agile, efficient and flexible commercial performance, by articulating the ability of each company or unit. Overall, Itaú describes itself as an efficient and specialized organization able to attend all financial market segments. Main Subsidiaries and Affiliated Companies The table below shows the financial highlights of the main subsidiaries: : Financial Highlights Banco Francês e Brasileiro Banco Banerj Itaú Bankers Trust Banco Itaú Europa (1) Itaú Seguros (2) R$ Million Itaú Itaú Previdência Capitalização e Seguros Stockholders Equity ,673 Total Assets 4,814 3, ,072 1, ,539 Net Income Annualized Return (%) Borrowings 1, Resources under 2, , Management - Technical Reserves (1) Participation of 24.7%, note 3,controlled by Itaúsa - Investimentos Itaú S.A. (2) Itaú Seguros, Itaú-Winterthur and Banerj Seguros. 7

7 Banco Itaú S.A. Consolidated Balance Sheet by Currency and Location R$ Million Assets June 30, 1998 (2) June 30, 1998 by Currency by Location Business Local Foreign in Brazil Abroad Dec 31, 1997 Variation J 98/D 97 (%) Cash and Cash Equivalents 1, ,192 1, ,496 (21.9) Interbank Funds Applied 10,874 9, , ,000 (1.1) Money Market 9,082 9,082-9,082-9,164 (0.9) Interbank Deposits 1, ,836 (2.4) Securities 10,530 9,053 1,477 9, , Own Portfolio 8,605 7, , , Others 1,925 1, , Interbank and Interbranch Accounts 6,797 6, ,797-3, Pending Settlements 2,724 2,724-2, Compulsory Deposits 4,067 4, ,067-3, Others (72.7) (1) Loans and Leasing Operations 12,208 8,471 3,737 10,193 2,015 12,858 (5.1) Loan Operations 10,931 7,266 3,665 8,916 2,015 11,457 (4.6) Leasing Operations 1,277 1, ,277-1,401 (8.9) Foreign Exchange Portfolio 3, ,292 3, , Others Receivables 4,744 4, , , (2) Provision for Loan Losses (906) (889) (17) (889) (17) (926) (2.2) Other Assets (2.8) Permanent Assets 2,707 2, , , Investments (0.5) Fixed Assets 2,168 2, , ,169 (0.0) Deferred Total Assets 52,392 42,393 9,999 47,980 4,412 46, Guarantees by Endorsements, Sureties and Others 1,865 2,502 (25.5) The bank has a very solid financial structure, with excellent capitalization, a liquid balance sheet and strong asset quality. SBC Warburg Dilon Read Inc.; February/98 8

8 Banco Itaú S.A. Consolidated Balance Sheet by Currency and Location R$ Million Liabilities June 30, 1998 June 30, 1998 by Currency by Location Business Local Foreign in Brazil Abroad Dec 31, 1997 Variation J 98/D 97 (%) Deposits 18,778 18, , , Demand Deposits 2,912 2, , ,349 (13.0) Savings Accounts 12,670 12, , , Interbank and Time Deposits 3,196 2, , , Money Market Repurchase Commitments 7,355 6,127 1,228 6,127 1,228 5, Acceptances and Debentures 2,368 2,368-2,368-1, Interbank Accounts 2,592 2, , Interbranch Accounts (41.5) Borrowings 5, ,462 3,535 2,209 6,503 (11.7) Domestic Foreign 5,396-5,396 3,187 2,209 6,160 (12.4) On-Lending Borrowings 1,428 1, ,428-1,443 (1.0) Domestic 1,106 1, ,106-1, Foreign (20.3) Foreign Exchange Portfolio (1) 1, ,038 1, , Technical Provisions of Insurance, Pension Plans and Capitalization Operations - Not Vinculated 1,595 1,595-1,595-1, Others Liabilities 5,591 5, , , Total Liabilities 47,653 38,447 9,206 43,205 4,448 41, Deferred Income Minority Interest in Consolidated Subsidiaries (3) Stockholders Equity 4,472 4,472-4,472-4, Capital 2,000 2,000-2,000-2,000 - Capital Reserves and Revaluation Reserves (0.9) Retained Income 2,054 2,054-2,054-1, Treasury Shares (16) (16) - (16) - (16) - Total Liabilities and Stockholders Equity 52,392 43,180 9,212 47,939 4,453 46, Funds under Management 16,120 13, Portfolios under Management 4,343 3, (1) Pre-export advance included (R$ 1,247 million in June, 1998 and R$ 1,296 million in December, 1997). 9

9 (1) Evolution of Credit Operations R$ Million (*) (* ) In currency of constant purchasing power as of June 30, 1998 (1) June 30, 1998 (2) Credit Operations: loans, leasing and pre-export advance (3) Guarantees: endorsements, sureties and others guarantees. (1) Breakdown by Credit Operations (%) June 30, 1998 Others - Private Sector 11.3% Industry 36.0% Individuals 10.7% Housing 21.9% Leasing 9.6% Agricultural 4.5% Trade 4.8% Public Sector 1.2% (1) Market Share of Credit Operations (%) June 30,

10 (2) Provision for Loan Losses Since 1989, all credits receivable from customers, which have fallen due and are unpaid, in whole or in part, for more than 60 days, whatever their origin and regardless of the nature of their guarantees, whether granted in Brazil or abroad, to either a public or private entity, have been fully provided for. June 30, 1998 December 31, Present Criterion R$ Million (*) Criterion Up to Dec 31, (1) Provisions (a) ,217 1, Overdue Credits (b) (179) (396) (379) (653) (739) (261) (83) (103) General Provisions (a-b) Credit Operations (2) 13,279 13,062 14,080 13,544 12,979 9,625 6,784 4,749 Provisions/Credit Operations + Overdue Credits (%) General Provisions / Credit Operations (%) Provisions/ Overdue Credits (a)/(b) (%) (*) In currency of constant purchasing power as of June 30, 1998 (1) In the 1st quarter of 1998, in view of the requirement of proving the destination of the resourses raised in the form of savings, Itaú and it s subsidiaries, in the contracts of the Housing Financial System, started to transfer to the account of Overdue Credits the installments that had fallen due for more than 60 days. Up to December 31, 1997, Itaú and it s subsidiaries transferred the total value of such contracts to the account of Provision for Loan Losses, when one of their installments completed 61 days delay (2) Credit Operations: loans, leasing and pre-export advance. Ratio of Default (*) Amounts in% (*) Ratio of Default = Percentage of credits that are 11 to 30 days overdue in relation credits receivable that are 11 to 30 days Shortestterm operations excluded in function of the CPMF. 11

11 (3) Evolution of Stockholders Equity, Net Income, Dividends in Current Dollar (*) and Annual Inflation US$ Million (*) Currrency value divided by current dollar (1) Source: Consolidated Balance Sheet by adjustment inflation converted to respective current dollar (2) Capital Increase through cash payment (3) In June 30, 1998 annual inflation and ROE was annualizated. US$ Million Stockholders Capital Annual Year Equity (1) Net Income Increase (2) Dividends ROE (%) Inflation (%) , , , , , , , , , , , , , , June, , (3) 15.3 (3) Total 76 1,354 12

12 Banco Itaú S.A. Consolidated Statements of Income by Corporation Law R$ Thousand 1 st Semester Variation % 98/ Income from Financial Operations 4,204,896 2,836, % Loans 1,907,819 1,657, % Leases 301, ,212 (11.3) % Securities Portfolio 1,813, , % Trade Financial and Foreign Exchange Portfolio 11,148 16,977 (34.3) % Compulsory Deposits 170, , % Expenses from Financial Operations (2,430,449) (1,601,570) 51.8 % Deposits, Money Market and Interbank Funds (1,630,837) (906,548) 79.9 % Borrowings and On-Lending (179,163) (224,622) (20.2) % Leases (208,419) (264,600) (21.2) % Provision for Loan Losses (412,030) (205,800) % Net Income from Financial Operations 1,774,447 1,234, % Other Operationg Income (Expenses) (1,158,948) (758,157) 52.9 % Banking Service Fees 1,000, , % Premiums on Capitalization, Insurance and Pension Plans 1,067, , % Expenses in Constituting Technical Provisions of Insurance, Capitalization and Pension Plan Operations (313,515) (606,476) (48.3) % Insurance Claims (465,320) (110,176) % Selling Expenses - Insurance (116,279) (45,454) % Pension Plan Benefits Expenses (37,048) (7,781) % Salaries and Employee Benefits (782,247) (709,772) 10.2 % Others Administrative Expenses (1,107,723) (803,422) 37.9 % Tax Expenses (125,968) (89,890) 40.1 % Equity Share in Income of Subsidiaries and Affiliates 11,578 10, % Other Operating Income 246, , % Other Operating Expenses (536,716) (385,516) 39.2 % Operating Income 615, , % Non Operating Income 7,671 18,166 (57.9) % Income Before Income Tax and Social Contribution, Profit Sharing and Minority Interest 623, , % Income Tax and Social Contribution (210,543) (155,050) 35.8 % Extraordinary Adjustments Profit Sharing (17,932) (13,066) 37.2 % Employees (8,680) (6,648) 30.6 % Statutory Directors (9,252) (6,418) 44.2 % Minority Interest (217) 18,067 (101.2) % Net Income 394, , % We are impressed with the bank s ability to generate profits in a very challenging environment. Merrill Lynch; February/98 13

13 Banco Itaú S.A. Consolidated Statements of Income by Corporation Law R$ Thousand Variation % 1 st Semester 2 nd Quarter 1 st Quarter Year 2 nd Semester 4 th Quarter 3 rd Quarter 1 st Semester 2 nd Quarter 1 st Quarter 1 st Semester 98/97 Income of Financial Operations 4,204,896 1,966,642 2,238,454 6,118,978 3,282,557 1,756,095 1,526,462 2,836,421 1,428,825 1,407, % 37.6 % Loans 1,907, , ,091 3,640,981 1,983,544 1,062, ,289 1,657, , , % 7.6 % Leases 301, , , , , , , , , ,412 (11.3) % (19.9) % Securities Portfolio 1,813, , ,700 1,353, , , , , , , % % Trade Finance and Foreign Exchange Porfolio 11,148 7,152 3,996 27,898 10,921 4,068 6,853 16,977 1,761 15,216 (34.3) % % Compulsory Deposits 170,699 68, , , , ,609 77, ,470 67,472 65, % 1.8 % Expenses of Financial Operations (2,430,449) (1,095,915) (1,334,534) (3,580,527) (1,978,957) (1,159,194) (819,763) (1,601,570) (774,630) (826,940) 51.8 % 41.5 % Deposits, Money Market and Interbank Funds (1,630,837) (707,986) (922,851) (2,201,744) (1,295,196) (786,910) (508,286) (906,548) (432,290) (474,258) 79.9 % 63.8 % Borrowings and On-Lending (179,163) (88,240) (90,923) (413,965) (189,343) (100,837) (88,506) (224,622) (109,811) (114,811) (20.2) % (19.6) % Leases (208,419) (99,150) (109,269) (501,024) (236,424) (117,146) (119,278) (264,600) (99,478) (165,122) (21.2) % (0.3) % Provision for Loan Losses (412,030) (200,539) (211,491) (463,794) (257,994) (154,301) (103,693) (205,800) (133,051) (72,749) % 50.7 % Net Income from Financial Operations 1,774, , ,920 2,538,451 1,303, , ,699 1,234, , , % 33.1 % Other Operating Income (Expenses) (1,158,948) (551,395) (607,553) (1,420,146) (661,989) (254,593) (407,396) (758,157) (396,521) (361,636) 52.9 % 39.1 % Banking Service Fees 1,000, , ,846 2,202,415 1,233, , , , , , % (14.5) % Capitalizations Premiuns, Insurance and Pension Plans 1,067, , ,439 1,877,779 1,059, , , , , , % 41.7 % Expenses in Constituing Technical Provisions of Insurance, Capitalization and Pension Plan Operations (313,515) (173,280) (140,235) (936,317) (329,841) (157,467) (172,374) (606,476) (205,005) (401,471) (48.3) % (15.5) % Insurance Claims (465,320) (237,649) (227,671) (547,140) (436,964) (253,263) (183,701) (110,176) (109,442) (734) % % Selling Expenses - Insurance (116,279) (44,008) (72,271) (170,452) (124,998) (68,717) (56,281) (45,454) (41,709) (3,745) % 5.5 % Pension Plan Benefits Expenses (37,048) (22,525) (14,523) (16,197) (8,416) (5,173) (3,243) (7,781) (3,882) (3,899) % % Salaries and Employee Benefits (782,247) (380,381) (401,866) (1,618,023) (908,251) (455,031) (453,220) (709,772) (376,177) (333,595) 10.2 % 1.1 % Other Administrative Expenses (1,107,723) (550,367) (557,356) (1,790,883) (987,461) (496,361) (491,100) (803,422) (433,073) (370,349) 37.9 % 27.1 % Tax Expenses (125,968) (60,208) (65,760) (218,039) (128,149) (80,291) (47,858) (89,890) (48,201) (41,689) 40.1 % 24.9 % Equity Share of Subsidiaries and Affiliates 11,578 5,143 6,435 14,547 3,895 6,117 (2,222) 10,652 7,618 3, % (32.5) % Other Operating Income 246, , , , , , , ,576 47, , % % Other Operating Expenses (536,716) (269,972) (266,744) (926,913) (541,397) (276,100) (265,297) (385,516) (190,768) (194,748) 39.2 % 41.5 % Operating Income 615, , ,367 1,118, , , , , , , % 23.9 % Non Operating Income 7,671 15,318 ( 7,647) (20,715) (38,881) (42,248) 3,367 18,166 8,154 10,012 (57.9) % 87.5 % Income Before Income Tax and Social Contribution and Profit Sharing 623, , ,720 1,097, , , , , , , % 25.8 % Income Tax and Social Contribution (210,543) (119,453) (91,090) (108,355) 46, ,249 (78,554) (155,050) (78,465) (76,585) 35.8 % 52.2 % Extraordinary Adjustments (217,810) (217,810) (217,810) Profit Sharing (17,932) (12,763) (5,169) (56,103) (43,037) (17,140) (25,897) (13,066) (6,067) (6,999) 37.2 % % Employees (8,680) (5,967) (2,713) (43,831) (37,183) (13,359) (23,824) (6,648) (2,222) (4,426) 30.6 % % Directors - Statutories (9,252) (6,796) (2,456) (12,272) (5,854) (3,781) (2,073) (6,418) (3,845) (2,573) 44.2 % 76.7 % Minority Interest (217) 4,986 (5,203) 5,458 (12,609) (5,216) (7,393) 18,067 (1,850) 19,917 (101.2) % (369.5) % Net Income 394, , , , , , , , , , % 15.5 % "Itaú has maintained the highest profitability of the three Brazilian banks we cover. Its average ROE of 15.2% over the last three years (including a very difficult 1995) puts it among the top Latin banks. More impressively, during the last two years Itaú has amortized the full amount of the good will paid in its acquisitions: in 1997 it took an extraordinary charge of R$ 218 million; without it. ROE for the year would have been 22.3%. We expect Itaú to maintain its above-average profitabilty in the coming years." Credit Suisse First Boston Corporation; Carlos Gómez-López and Helen Cho; July/98 Variation % 2 nd Quarter 98/

14 Banco Itaú S.A. Consolidated Statements of Income by Adjustment Inflation (1) 1st Semester 1998 Year Ended on December 31, R$ Million (*) Net Interest Revenue 2,108 2,839 3,508 3,634 1,861 1,448 1, Net Gain on Monetary Items ,247 1,501 1,328 1,100 Net Interest Income 2,141 3,016 3,565 3,718 3,108 2,949 2,453 1,908 Provision for Loan Losses (388) (406) (1,069) (1,255) (219) (42) (32) 45 Net Interest Income after Provision for Loan Losses 1,753 2,610 2,496 2,463 2,889 2,907 2,421 1,953 Banking Services Fees 1,001 2,257 1,516 1, Operating Income (Expenses) (2,026) (3,524) (2,792) (2,498) (2,333) (2,259) (1,896) (1,622) Non Operating Income (3) - (103) (42) (1) (4) Depreciation and Amortization (159) (393) (277) (288) (239) (316) (183) (145) Income before Income Taxes , Income Tax and Social Contribution (195) (251) (220) (253) (531) (406) (389) (253) Profit Sharing and Minority Interest (16) (41) (32) (12) (5) (7) (5) (3) Net Income (1) (1) In currency of constant purchasing power as of June 30, Net Income (Current Dollar) Well-managed: Management s conservative approach to business has resulted in strong profitability ratios. Despite a challenging economic environment, we expect profitability to remain high going forward. SBC Warburg Dillon Read Inc.; February/98 16

15 Strategies Specialization Reserves Formation Retail/Services Local IBT - Itaú Bankers Trust Corporate Customers Derivatives Underwriting Mergers and Acquisitions Itaú Seguros Synergy Market in Great Development Banco Itaú Retail, Middle and Corporate High Technology in Automation Second Largest Brazilian Private Bank BFB - Banco Francês e Brasileiro Corporate Customers High Income Customers Foreign Trade Itaú Previdência Casting of New Products of Private Pension Plan Conquest of Market Share Banco Banerj More than 1.2 Million Customers Retail Banking Itaú Capitalização Market Leader Aggressive Marketing Varied Line of Capitalization Plans Itaú Gestão de Ativos One of the Market Leader Marketing Strong Development Abroad Banco Itaú Europa Solid Base in Europe Financing to the Trade Private Banking Banco Itaú Europa Luxembourg Resources Management Financial Market International Private Banking Banco Itaú Argentina Solid Base in Mercosur High Technology Low Cost Retail Itaú also received the Greatest Transparency 1997 award in the retail bank category, given by Atlantic Rating. Itaú boasts among the best disclosure of the Brazillian banks. With detailed numbers for it s subsidiaries as well as consolidated figures. Itaú has also published financial statements for 1996 and 1997 in U.S. GAAP; thus, by the end of 1998 it will meet the disclosure requirements for a fully registered international listing (the SEC requires three years of income statements in U.S. GAAP). Credit Suisse First Corporation; Carlos Gómez-Lopez and Helen Cho; July/98 (*) The Consolidated Financial Statements are available at our site: 17

16 Banco Banerj S.A. The Financial Statements are shown in pages 42 and 43. Highlights Number Active Customers 1,196,159 Individuals 1,163,107 Companies 33,052 Branches 148 Customer - Site Branches (CSBs) 47 Automated Teller Machines (ATMs) 509 (*) Banerj is investing heavily in technology so as to provide its customers with access to new products and services and especially to the ATM network and telephone services offered by Itaú s infrastructure. The State of Rio de Janeiro s payroll remain with Banerj for the next 5 years after acquisition Evolution of Resources since Acquisition (1) 3 R$ Million (*) Referring to July 8, 1997 (1) Includes demand deposits, savings, time and legal deposits, investment funds and funding in the open market. Number of Employees (*) (*) Banco Banerj only. 18

17 Itaú Seguros S.A. Market Share - Total Premiums Earned (1) In % (*) Referring to May 1998 Premium: premium retained without exclusion of reinsurance. Ranking by Total of Premium (1) December 31, May 31, th 4 th 3 rd 3 rd 3 rd 3 rd Source: Fenaseg (1) Premium: premium retained without exclusion of reinsurance. Statements of Income - Corporation Law 1 st Semester R$ Thousand Premium Retained 691, ,544 Variation of Premiums Provisions (73,867) (23.969) Earned Premiums 617, ,575 Retained Claims (419,812) (323,847) Commercialization Expenses (126,364) (101,788) Financial and Equity Results 94,016 72,442 Operational Results 55,528 52,919 Results before Taxes and Participation 68,910 15,607 Net Income (Semester) 50,499 31,284 Number of Shares in Circulation 48,932,409 47,333,444 Net Income per Share - R$ Earned Premiums The magazine Carta Capital published a survey of entrepreneurs and executives of various sectors, in which Itaú Seguros figures as the second best insurance company, among the ten most admired in the overall ranking of insurance companies, and in 97 th place among all the companies in Brazil. 19

18 Preferred Shares Appreciation Evolution of US$ 100 Invested in August, 1988 US$ (*) The reinvestment of dividends received was not taken into consideration (1) August Itaú s International Ratings Fitch IBCA Ltd. Current Long Term Individual Legal National F1+ AAA - - International B B+ B 2T Moody s (New York) Financial Strength Rating: C Bank Deposits: B2 Long-Term Debts: B1 Thomson BankWatch (New York) Intra-Country Issuer: A 20 We are reinstating Banco Itaú with a Buy recommendation. In our opinion, Itaú is one of the best banks in Latin America for several reasons: 1. Its exclusive focus on financial services; 2. Its successful growth through complementary acquisitions; 3. Its cautions stance on credit in ; and 4. Proven earnings power, with an ROE before extraordinary items of 22% in Credit Suisse First Boston Corporation; Carlos Gómez-López and Helen Cho; July/98

19 Acquisition of a Controlling Interest in Banco del Buen Ayre S.A. Banco Itaú S.A. Press Release 1. Banco Itaú S.A. (Itaú) has entered into an agreement to acquire the controlling interest of Banco del Buen Ayre S.A. and its affiliates in Argentina; this agreement is conditional upon approval of the Argentine and Brazilian authorities. 2. With this acquisition, Itaú will add 60 new units located in the Buenos Aires and the Greater Buenos Aires area to its branch network. This will bring the total number of branches in the current Banco Itaú Argentina S.A. network to 92 and make it the fifth largest branch network in the Buenos Aires metropolitan area. Itaú will have the largest electronic teller network in Argentina. 3. Banco del Buen Ayre s operations, which are focused completely on the middle and upper income retail segment (more than 89 thousand customers), will guarantee Itaú a significantly larger share in these markets, in line with Itaú's proposed strategy in Argentina. 4. The total value of the investment could reach approximately US$ 225 million. This value is subject to adjustments as a result of final evaluations of provision levels for assets and contingencies. From the total amount to be paid, 15% will be retained to assure coverage of contingencies and understated or non-existent assets/liabilities. 5. Itaú will assume management of Banco del Buen Ayre as soon as the evaluation process and regulatory approval are finalized, which is expected to take place in approximately 90 days. 6. Banco del Buen Ayre will maintain its normal activities, serving its customers through its branch network with the usual competence and security assured by the excellence, professionalism and dedication of its staff. 7. Buen Ayre customers will soon have access to Banco Itaú Argentina's technology and products, which will immediately enable them to rely on Itaú's solid position, represented at March 31, 1998 by consolidated stockholders' equity of R$ 4.3 billion (US$ 3.8 billion), total consolidated assets of R$ 48.1 billion (US$ 42.2 billion) and market capitalization of R$ 7.3 billion (US$ 6.4 billion). 8. Banco Itaú Argentina's customers will have access to products already developed by Banco del Buen Ayre, as well as to the expanded number of service locations on the local market. 9. With this step, Itaú continues on its trajectory toward expansion in Argentina, reaffirming its confidence in the development of the country and the importance of Mercosur. São Paulo, June 19, 1998 Banco Itaú S.A. Quantity Banco Itaú Argentina Banco del Buen Ayre Total in Argentina Branches CSBs ATMs Customers 43 thousand 89 thousand 132 thousand The fifth largest branch network in Buenos Aires metropolitan area The largest electronic teller network in Argentina 21

20 The Financial Statements of Semester Ended on June 30, 1998 and 1997 The information on the yellow pages are available in English, Portuguese and Spanish at our site:

21 The Management s Report To our stockholders: We are submitting for your approval the financial statements of Banco Itaú S.A. and of its subsidiaries, covering the first half of The presentation of this report is made in accordance with the regulations laid down by Brazil's Central Bank and by the country's Securities and Exchange Commission. The Economy Economic activity increased only moderately during the half-year, still being affected by the drastic hike in interest rates introduced by the Government in October 1997, so as to face the heavy pressure on the Real, caused by the crisis in Asia. The GDP grew by approximately 0.9% during the period under review, as against 3.9% in the first half 1997, with the interbank interest rate returning to roughly the level existing before the crisis by the end of the period. The deficit on the trade balance was reduced from US$ 3.7 billion to US$ 2.0 billion as compared with the equivalent figure in 1997, thanks to the increase of 4.8% in exports and the fall of 1.9% in imports. Exports of manufactures rose by 13.5%, showing the wisdom of the foreign exchange policy in force. The fall in the unfavorable trade balance, in its turn, caused a drop in the deficit on current account from 3.8% to 3.6% of GDP during the same period. The heavy inflow of financial resources in the form of medium and long-term loans and of direct investment permitted the replacement of international reserves lost during the crisis, which, in March, already exceeded the level of September 1997 and, at the end of the half-year, amounted to US$ 70.9 billion. The privatizations scheduled for the second halfyear should provide resources sufficient to cover the disbursements forecast for the period and to enable the Government to continue with its policy of reducing interest rates. unemployment, combined with the weak recovery of the economy during the period, kept the delinquency level high in the banking system. The public deficit continued to grow due to the expenditure on social security and to the rise in interest rates, which increased from the equivalent of 6.1% of GDP in 1997 to 6.7% of GDP in June (nominal concept). The financing of the deficit and the absorbing of the liquidity arising from the substantial increase in the international reserves caused a considerable rise in the federal debt in securities, which began to amount to 32.0% of the GDP in June, as against 28.2% in December The uncertainties existing abroad led the Government to revert to issuing securities at floating rates, to increase the placement of indexed bonds in dollars and to reduce the terms of pre-fixed securities. The Treasury will be receiving a substantial volume of resources in the second half-year, coming from the privatizations, specially in the field of telecommunications, which may eventually be partially utilized for reducing the debt. The continuation of the process of lowering interest rates should also relieve pressure on the public deficit. Inflation continued to fall, dropping to 1.2% during the half-year as against 4.1% in the equivalent period of 1997 (FIPE). Unemployment, however, worsened considerably, having increased from 4.8% in December 1997 to 8.2% in June of this year. The high rates of interest and level of 23

22 The Management s Report Important Event in the Half-Year Purchase of control of Banco del Buen Ayre S.A. Banco Itaú S.A. concluded an agreement for the purchase of control of the Banco del Buen Ayre S.A. and its subsidiaries in Argentina, and will take over its management as soon as the process of auditing and approval by the Argentine and Brazilian authorities has been concluded. The value of the investment should reach a figure of approximately US$ 225 million, which is subject to adjustments based on final appraisals, levels of provisioning of assets and contingencies. Of the final amount to be paid, at least 15% will be retained to ensure the covering of eventual contingencies and instabilities. This investment confirms the confidence of Itaú in the favorable development of Argentina and in the importance of Mercosul. With this acquisition, Itaú will add 61 new units to the branch network of Banco Itaú Argentina S.A., mostly located in the Federal Capital and Greater Buenos Aires, totaling altogether 93 branches and constituting the fifth-largest branch network in the metropolitan region of Buenos Aires. Itaú also now has the largest private ATM network in Argentina. The activities of Banco del Buen Ayre are concentrated mainly on the segment of individuals in the medium-sized and higher income brackets, which will ensure Itaú of an impressive expansion of its participation in these markets in a manner consistent with its strategic intentions in Argentina. Results The Bank s consolidated net income in the half-year came to R$ 394 million (US$ 341 million), showing an increase of 14.4% on the equivalent period of The annualized return on stockholders equity amounted to 18.4%. This result, in accordance with the strategic intentions of Itaú, was totally obtained from the exploitation of banking activity or the like. The increase of 14.4% in the result for the first half of 1998 was obtained mainly from the rise in the result of the securities portfolio and from that of the income from credit operations. Each batch of one thousand shares of Banco Itaú s authorized capital earned the net income of R$ (US$ 28.54) which represents rise of 14.7% over the same period of the previous year and had a net asset value (NAV) of R$ (US$ ). Banco Itaú s shares were present in all sessions of the Stock Exchange, reaching an appreciation of 10.1% in the period as against the fall of 5.1% obtained in the Bovespa (Stock Exchange of São Paulo) Index. During the period, dividends of R$ 9.72 (US$ 8.40) per batch of one thousand shares were remarked to the stockholders in the form of interest on stockholders equity, totaling R$ 116 million (US$ 100 million), which represented a distribution of approximately 29.4% of the half-yearly net income. Buildings with administrative areas of Banco Itaú at Itaúsa Managment Center, in São Paulo. 24

23 The Management s Report Stockholders Equity By the end of the half-year, consolidated stockholders equity had risen to R$ 4,472 million (US$ 3,866 million), corresponding to an increase of 6.6% over that of December The group s own working capital amounted to R$ 2,009 million (US$ 1,736 million). The group s own capital invested in branches and subsidiaries abroad totaled US$ million. Itaú s sound financial structure is reflected in its risk-based capital ratio of 19.8%, a figure that is significantly higher than the 11% minimum laid down by the Central Bank of Brazil/Bacen and the 8% recommended by the Basel Committee. Prizes Received In its July issue, the magazine Euromoney chose Itaú as the best Brazilian bank and as the best domestic bank in emerging markets. Previously, in February, it had already praised it as the bank that best knew how to take advantage of the opportunities arising in the market. Itaú was also chosen by the analysts of investment banks and rating firms as Bank of the Year in the Emerging Markets of Latin America in an award promoted by the American periodical Emerging Markets. Created this year, the prize is also intended to recognize, in each emerging market, the bank that makes best use of market opportunities so as to strengthen its position as a sound and promising institution. Itaú and Itaucard Visa, which led to winning the Top of Marketing prize, given by the ADVB (Brazilian Association of Sales and Marketing Directors). Another success in this area was the Marketing Best prize, which this time chose the 30 best companies which received the prize in its 10 years of existence. Itaú also won the Top of RH 1998 prize, awarded by the ADVB, for the solution found for the prevention and settling of labor disputes through the Extrajudicial Conciliation Commission. The Commission, always accompanied by the Bank Employees Union, speeds up the handling of claims coming from ex-employees. Itaú also received the Greatest Transparency 1997 award in the retail bank category, given by Atlantic Rating, the largest rating agency in Brazil, which specializes in risk analysis. The award aims at impressing on financial institutions the importance of disclosure. The Open Company - Abamec-SP prize, awarded to Itaú by Abamec (the Brazilian Association of Capital Market Analysts), also drew attention to the quality of the provision of information to analysts and investors, in addition to the quality of management and corporate philosophy and of the policy of remuneration and of service to stockholders. In the area of marketing, Itaú led the field with the products MaxiConta PJ Itaú, Flexprev 25

24 The Management s Report For the overall work of Proac (Program of Community Support), Itaú received the Special Prize of the Jury of the Prêmio Eco Instituted by the American Chamber of Commerce, the prize aims at identifying effective work done by companies in support of the country s social development. Banco Itaú also received the Prêmio Felaban de Comunicação no Mercado Financeiro 1998 in the institutional campaign category, awarded by the Latin American Banking Federation for its work in programs favoring education, health and citizenship. For its campaign Welcome to the year 2000 Itaú received the Prêmio Felaban de Comunicação no Mercado Financeiro 1998 in three categories: corporate campaign, point of sale and ad in a magazine or newspaper. This variety of awards reflects the conscious effort of Banco Itaú to perform correctly in all the areas of interaction with the market and with society, strengthening in this way its integration with the social environment in which it operates. Credit Policy Itaú manages credit risk on a consolidated basis, taking into account Banco Itaú s own exposures and those undertaken for the customers of the subsidiaries BFB, BIE, BIA, IBT and Banerj. In this half-year, the consolidating of the systems that involve the credit deciding process, so that these banks follow the same procedures as those adopted by Itaú, whether in the delegating of the jurisdiction of business, consultation and approval of business proposals or in the implementing of the operations. Itaú s process of classifying customers in accordance with their level of risk was continued with, permitting, as it does, the better management of the loan portfolio and the standardizing of procedures in the various units in accordance with the customer s class of risk. This process already covers 18,000 listed companies, including the financial institutions for which the specific methodology of classification is used. With regard to the risk total, based on classifiable customers, 97% show a fully satisfactory classification and the credit referring to the remainder is totally covered by provisions. The continuous improvement in the Credit Scoring and Behavior Scoring systems for individuals permits automated decisions for a large number of customers with a low credit risk, as was the case of the Crediário Automático Itaú, which expanded greatly in the half-year. These tools, also used in the small company segment, provide the portfolio with greater homogeneity and quality. Provisions Policy Banco Itaú maintained the high quality of its loan portfolio, preserving its liquidity, as can be seen from the percentage of credits fallen due from 11 to 30 days in relation to the total of credits receivable, which came to 3.7%. The balance of renegotiated credits, always with improved guarantees, represented only R$ 142 million (US$ 123 million). The consolidated balance under the heading of Provision for Loan Losses totaled R$ 906 million (US$ 783 million) (6.7% of the credit operations). This figure exceeds by R$ 727 million (US$ 629 million), or 506.7%, the total of balances under the headings of Non-accrual Loans and Overdue Credits which, in their turn, amounted to R$ 179 million (US$ 155 million), with a reduction of 51.8% during the half-year. Since 1989, all credits receivable from customers, which have fallen due and are unpaid, in whole or in part, for more than 60 days, whatever their origin and regardless of the nature of their guarantees, whether granted in Brazil or abroad, to either a public or private entity, have been fully provided for. 26

25 The Management s Report Risk Management and Liquidity Itaú has made great efforts to improve continually the models utilized to manage the risks of the financial market. All of the risks involving mismatch and assumed positions are controlled in a consolidated manner by the Financial Executive Committee, which systematically evaluates positions, reestablishes limits and sets guidelines. In keeping with its tradition, the Bank has taken on reduced positions in comparison with its results and capital base. The progressive development of risk evaluation models in the various scenarios has been intense. Itaú continues giving great importance to the liquidity of its assets, in both domestic and foreign currencies. The volume of securities and liquidity investments reached a figure of R$ 16,154 million (US$ 13,963 million) in local currency and US$ 1,080 million in foreign currency. Funding and Resources under Management The total volume of own free resources, added to those raised from the public or managed by Itaú, amounted to a consolidated figure of R$ 62,523 million (US$ 54,044 million) at the end of the halfyear, representing an increase of 10.3% over December Brazilian Currency The consolidated volume of financial resources in Brazilian currency, raised or under management, came to R$ 52,204 million (US$ 45,124 million), a figure that was 13.1% higher than that of December Banco Itaú maintains its position as the largest private-sector manager of investment funds, according data provided for ANBID (the National Association of Investment Banks and Security Dealers) by participants in the market. The total volume of funds under management at the end of the period amounted to R$ 16,120 million (US$ 13,934 million), representing 10.7% of the market. Consolidated Resources in Brazilian Currency R$ Million June 1998 December 1997 Variation in Reais (%) R$ million US$ million R$ million US$ million Demand deposits 2,856 2,468 3,317 2,972 (13.9) Savings deposits 12,641 10,927 12,601 11, Technical provisions (Itaú Capitalização) Technical provisions (private pension and insurance) 1, Time deposits 2,655 2,295 1,771 1, BNDES onlending 1, Other resources raised (1) 10,119 8,747 7,849 7, Fixed income financial investment funds 15,170 13,113 12,463 11, Financial investment funds - stocks/other , (13.8) Portfolio management - customers 1,386 1,198 2,567 2,299 (46.0) Portfolio management - Itaú Group 2,957 2,556 1,341 1, Own working capital Total 52,204 45,124 46,155 41, (1) Includes: Interbank Deposits, Money Market Repurchase Commitments, Acceptances and Debentures, Collections of Receivables and Taxes, Borrowings and Foreign Exchange Portfolio. 27

26 The Management s Report Foreign Currency The consolidated volume of own free resources, added to those raised from the public or managed by Itaú in foreign currency amounted to US$ 6,999 million at the end of the half-year, an amount 5.4% higher than the equivalent figure for December Issues and launchings on the international market amounted to US$ 350 million during the half-year, with pride of place going to a US Commercial Paper Program of US$ 150 million, for trade finance, with an A1+P1 rating. US$ Million Main Products June/98 December/97 Variation (%) Trade and Money Market Lines 3,649 3,680 (0.8) Special Structures for Trade Domestic Interbank Funding for Res. 63 Onlending (25.3) International Capital Market Funding 1,516 1, Own Working Capital 1,153 1, Total 6,999 6, Assets and Loans Itaú s consolidated assets amounted to R$ 52,392 million (US$ 45,286 million) at the end of the period, 12,9% higher than the figure for December Out of this amount, the consolidated portfolio of loans, leasing operations, advances and guarantees reached the amount of R$ 15,143 million (US$ 13,089 million), showing a decrease of 7.1% due to a more selective credit policy. Local Currency Operations in Brazilian currency totaled R$ 29,277 million (US$ 25,307 million), a figure that was 9.9% higher than that for December Credits and Guarantees in Brazilian Currency June 1998 December 1997 Variation in Reais (%) R$ million US$ million R$ million US$ million Loans/Financings 6,186 5,347 6,376 5,711 (3.0) Leasing Operations 1,198 1,035 1,286 1,152 (6.8) BNDES Onlending (2.2) Other Receivables (1) 3,303 2,855 2,967 2, Investments in Interbank Deposits (16.2) Federal Securities and Money Market 15,355 13,273 12,945 11, Guarantees and Sureties 1,528 1,321 1,183 1, Total 29,277 25,307 26,640 23, (1) Includes bonds and securities (except for federal securities), credits on account of guarantees, sureties honored and income receivable. 28

27 The Management s Report Foreign Currency Consolidated credit operations and guarantees in foreign currency came to US$ 7,047 million at the end of the period, representing an increase of 4.7% over the equivalent figure for December The ongoing conservative policy in the granting of credit was maintained. Itaú group continued to rank among the leaders in the Brazilian foreign exchange market with an 8% participation in the trade segment (export and import), representing an amount of US$ 3,815 million during the period. The overall volume of foreign exchange transactions (commercial, financial and interbank) amounted to US$ 101,269 million. US$ Million Main Products June/98 December/97 Variation (%) Foreign Trade Financing and Guarantees 4,203 4,279 (1.8) Onlendings / Resolutions 63/2148/2312 1,186 1, Deposits in OECD Banks and OECD Securities 1, Brady Bonds (DCBs, EIBs, and IDUs) Short-term Investments Total 7,047 6, Technology, Productivity and Quality Itaú has continued investing heavily in the expansion of customer services and automation, with the result that during the period, an average of 72% of the customers transactions were handled through selfservice. The number of Itaú s ATMs came to 8,670 at the end of the period, with a growth of 12% over that of June Operations through Bankline (Home and Office Banking) - with 23% of the accesses done via Internet - and Itaufone (service of information by phone) increased by 67% and 26% respectively. In Million Services - Volumes Handled in Half-Year 1998 Variation 98/97 (%) ATM transactions Telephone transactions (Bankfone and Itaufone) Fax transactions (Itaufax) Transactions by computer (Bankline) POS/PDV transactions Automated programmed debit Total number of self-service transactions Total number of teller transactions (liable to migrate to self-service) (7) Total number of transactions Ratio of self-service transactions to total number of transactions 72% 6 29

28 The Management s Report By the end of 1998, Itaú should have concluded the necessary procedures for adapting all of the systems to the year 2000, as explained in Note nr. 16. Continuing with the process of implementing the Quality Systems, based on international standards, Itaú received from SGS ICS Certificadora Ltda. the certificates with regard to the ISO 9002 Standard for the services Disque Itaú, Itaú Bankfone, Itaufone, Itaufax and Itaú Bankline, which can now be added to the certificates for collection, self-service through equipment in the branches, international custody, automatic debiting, the supply of checkbooks and magnetic cards and the handling of returned checks. Products and Services The Crediário Automático Itaú, a line of previously approved personal credit, launched in December 1997, has already been used by 240,000 customers. By means of a single operation on an Itaú ATM or through the bank by telephone (Bankfone) or by computer (Bankline), the customer chooses the amount required, the number of installments and the best day for payment, obtaining the credit in his or her account at the same moment. The total portfolio of holders of Itaú credit cards at the end of the half-year totaled altogether 1.7 million, there having been signed up during the period 225,000 new card holders. During the half-year, the MaxiConta Card was launched, adding the advantages of the Itaucard Credit Card to the MaxiConta PF. In the 12 months that have passed since its acquisition by Itaú, mention must be made of the growth of the resources managed by Banerj of 54.6% over that of December Banerj carries on with its repositioning and restructuring, investing in technology and the training of personnel. To this end, 51 branches were reorganized and the Rio de Janeiro network rationalized, with the incorporation of 19 branches to those of Itaú. The integration between the two banks gives Banerj customers access to the highest banking technology and an increase in the choice of products and services that meet their specific requirements. During the period, the operational integration of Banerj to the applicative systems and those of the infrastructure of telecommunications and of the production on computers of Banco Itaú was concluded. Banco Banerj 30 Moreover, its management areas were also totally integrated to those of Itaú.

29 The Management s Report Banco Francês e Brasileiro Banco Francês e Brasileiro (BFB) continued with its important task of expanding its volumes of business. The volume of thirdparty resources under management reached the figure of R$ 2,045 million (US$ 1,768 million) while the assets rose to that of R$ 4,814 million (US$ 4,161 million), with increases of 30.4% and of 6.0% respectively over December In the Personnalité branches, work proceeded on the reforms for the introduction of the new and sophisticated concept in terms of layout and architecture of the branches destined for its select segment of customers. Itaú Bankers Trust Itaú Bankers Trust - IBT coordinated six underwriting operations with a total value of R$ 2,084 million (US$ 1,801 million). In the international market, it took part in four operations, involving syndicated loans and Eurobonds to a total amount of US$ 3,296 million. IBT was managing resources of R$ 1,457 million (US$ 1,259 million) of foreign investment and R$ 215 million (US$ 186 million) on behalf of institutional, corporate and individual clients in highincome brackets, to a total of R$ 1,672 million (US$ 1,445 million) at the end of the period. 31

30 The Management s Report Banco Itaú Argentina (BIA) continued with its expansion, opening 5 more branches in the half-year, thus bringing up to 32 the number of branches in the metropolitan region of Buenos Aires. The number of customers continued growing to reach a total of 53,000 by the end of June. Assets reached a figure of US$ 407 million, while the volume of loans to companies came to US$ 171 million. Banco Itaú Argentina BIA was the first institution authorized to issue Argentine Certificates of Deposit (Cedear), thus initiating the integration of the capital markets of Brazil and Argentina. Authorization has been given to issue Cedear of companies Petrobrás, Telebrás, Eletrobrás and Banco Itaú, the first two of which are already operating. Florida Branch of Banco Itaú Argentina in Buen Aire. Banco Itaú Europa Banco Itaú Europa (BIE) closed the half-year with total assets of US$ 927 million, representing a growth of 10.7% over December 1997 and of 20.4% during the last 12 months. Own resources totaled US$ 109 million with a Basel ratio of 25.2%. The trade and money market lines disbursed, reached a figure of US$ 663 million. Besides this, BIE maintained its program of issuing Euro CDs and CPs to an amount of US$ 50 million, enjoying the best possible rating in Portugal - A1. BIE, as a part of the Itaú group, with a status of its own of a bank incorporated under the system of the European Common Market, represents an important vehicle of the group abroad, operating in syndications, the securitizing of exports, special import lines, trading of commercial receivables, supplementing the structure of the Bank in support to the clientele which operates in foreign trade and international business. Building where the Banco Itaú Europa office is located in Lisboa. 32

31 The Management s Report Insurance, Private Pension Plans and Capitalization the customers of Banerj Seguros obtained access to the Rapid Service Centers CAR of Itauseg, which opened two more units (in Curitiba-PR and Belo Horizonte-MG). The brokers/agents now have at their disposal up-to-date information about their clients via Internet. The Agent On Line system provides the updated position of the policy, issue, collection and claim, besides supplying details of the Itaú Seguros Authorized Workshops and news published by the Jornal do Agente among other information. Rapid Service Center of Itauseg in São Paulo. Itaú Seguros S.A. (Itauseg) showed a profit of R$ 50 million (US$ 43 million), representing an annualized return of 20.1% on stockholders equity. The company has approximately 700,000 vehicles insured. The increase in sales by the brokers/agents, in all types of insurance, came to approximately 30%. The company continues to rank first among the major insurers with regard to sales of Property Insurance policies. Premiums earned by Itauseg and its associates, during the half-year, amounted to R$ 794 million (US$ 686 million), showing a nominal growth of 36.6% over the first half of 1997, while the insurance industry as a whole was only able to put up a more modest performance during the period. The combined index, which represents the ratio between claims and selling expenses on premiums earned and administrative expenses and other expenses on premiums retained, remained stable as compared with December The operational integration between Banerj Seguros and Itauseg was concluded during the period, providing the two companies with greater synergy. As part of this integration, The telephone service to the clientele about all of the insurance products and services was centralized in only one telephone number. Since the beginning of the year, the Itaú Seguros Resolve service has been functioning. It is prepared to clear up any doubt and to provide all of the necessary support in connection with any product or service. In the area of private pension plans, Itaú Previdência e Seguros S.A. (Itauprev) obtained a significant increase in the sale of FAPI (Individual Programmed Pension Fund), with 71,000 plans sold, ranking Itaú in first place in the market of this product. This performance contributed to the consolidation of the family of products. The accumulated revenue from the plans in the period was 97.1% higher than that of the equivalent period in 1997, while technical reserves totaled R$ 223 million (US$ 193 million), which represents a growth of 166.5% over the first half of With this increase, Itauprev now ranks in 4th place in the market with regard to the revenue from plans. At the end of the half-year, Itaú Capitalização S.A. (Itaucap) maintained a total of R$ 787 million (US$ 680 million) in technical provisions and 1.6 million active plans, with 1.1% growth over December During the period, the PIC da Páscoa and the Super PIC da Copa series were launched. 33

32 The Management s Report Results of the Companies Below there can be seen the principal figures of the main subsidiaries: In Millions BFB Banerj IBT BIE (1) R$ US$ R$ US$ R$ US$ R$ US$ Stockholders equity Total assets 4,814 4,161 3,962 3, , Net income Annualized return (%) Loans 1,945 1, Resources under management 2,045 1, ,672 1, (1) Participation of 24.37%, note 3, controlled by Itaúsa-Investimentos Itaú S.A. (2) Itauseg, Itaú-Winterthur e Banerj Seguros. Itauseg (2) Itauprev Itaucap In Millions R$ US$ R$ US$ R$ US$ Stockholders equity ,673 1,446 Total assets 1,713 1, ,539 2,195 Net income Annualized return (%) Technical reserves Human Resources At the end of the half-year, Banco Itaú and the consolidated companies employed altogether 34,603 people. Wages and salaries totaled R$ 782 million (US$ 676 million). Of this amount, R$ 68 million (US$ 59 million) was earmarked spontaneously for the Bank s employee benefit program, notably the Supplementary Pension Plan offered by the Itaubanco Foundation. During the period, R$ 10 million (US$ 9 million) were invested in development and training programs, involving 36,000 employees. As part of the commitment to respect for the consumer, assumed publicly by Itaú through the campaign Welcome to the year 2000, launched in April, the training program How to act at the moments of truth was inaugurated. The program emphasizes the improvement in service to the customers and involved, in a first stage, the employees of the branches in Greater São Paulo, Greater Rio and Recife, spreading subsequently to other cities. The program treats service in a universal manner, regardless of who attends and of the position held, and aims at showing the strong and weak points in situations of service, drawing attention to rules of behavior, which should be accepted by all and which start with the organization of the surroundings and cover such attitudes as attention, courtesy, respect and punctuality. 34

33 The Management s Report Socially - Oriented Activities Proac the Program of Community Support of Banco Itaú, which concentrates on social needs, primarily in the areas of basic education and public health, invested during the period approximately R$ 3 million (US$ 3 million) in various projects, outstanding among which was the collaboration in the construction of the Instituto de Oncologia Pediátrica (Childrens Oncological Institute). Based on a solid concept of partnership, Proac, also in the area of health, in conjunction with the Institute for the Development of Health IDS and with the Núcleo de Assistência Médico- Hospitalar of the Faculty of Public Health of the University of São Paulo, developed a project aimed at the managerial training of health agents in the organization of activities and services developed in the various municipalities. In partnership with Unicef United Nations International Children s Emergency Fund and with Cenpec Center of Studies and Researches on Education, Culture and Community Action, significant support was given to the work undertaken by various nongovernmental entities in programs of actions that supplement school. Itaú also contributed financially to the Programa Alfabetização Solidária, which supports the mobilizing of efforts to teach people to read and write, besides encouraging families hit by the drought to keep their children at school. In the cultural field, special mention should be made of the performance of Itaú Cultural, whose purpose is to publicize Brazilian culture and also to provide the population with access to all of the artistic activities in the most varied areas, such as visual arts, scenic arts, literature and music. During the period, more than 129,000 people visited the units of Itaú Cultural in various cities of Brazil. Among the varied activities of Itaú Cultural in the half-year were the events entitled Crônicas Urbanas, Viagens and Amazônicas ( Urban Stories, Journeys and Amazonics ). Acknowledgement We wish to thank our stockholders for the confidence and support with which they have honored us. We would also like to express our appreciation of the devoted work of our employees and collaborators. (Approved at the Meeting of the Administrative Council on August 3, 1998). 35

34 Consolidated Balance Sheets 36 Corporate Law R$ Thousand Assets Itaú Itaú Consolidated Current and Long-term Assets 36,708,353 25,949,431 49,684,041 35,191,928 Cash and Cash Equivalents (Note 15l) 1,603,861 1,085,454 1,950,161 1,392,331 Interbank Funds Applied 10,449,875 4,856,065 10,873,759 5,363,997 Money Market 9,172,672 3,763,151 9,082,144 3,990,891 Interbank Deposits (Note 6) 1,288,633 1,093,395 1,803,284 1,373,650 Valuation Allowance (Note 6b) (11,430) (481) (11,669) (544) Securities (Note 6) 6,150,709 2,628,944 10,529,626 4,587,049 Own Portfolio (Note 15h) 5,363,614 2,651,151 8,694,849 4,146,228 Subject to Repurchase Commitments 680, ,241, ,951 Subject to Forward Commitments: Open Contracts and Premiums 7,766 3, ,264 4,305 Deposited With the Central Bank 140,346 6, , ,307 Privatization Certificates 0 18, ,647 Valuation Allowance (Note 6b) (41,958) (51,507) (96,868) (70,389) Interbank Accounts 6,268,097 4,818,683 6,793,495 4,977,629 Pending Settlements 2,449,831 2,622,531 2,724,205 2,757,481 Compulsory Deposits: Central Bank Deposits 3,644,826 2,013,322 4,003,855 2,152,882 National Housing System 63,166 60,665 63,196 60,698 Interbank Repasses 109, , Correspondents ,236 6,508 Interbranch Accounts 806 1,731 3,389 2,569 Third Party Funds in Transit , Own Funds in Transit ,810 Loan Operations (Note 5) 7,793,446 8,319,236 10,436,772 10,578,099 Loans: Public Sector 36,511 3,378 76,526 6,477 Private Sector 8,044,568 8,405,186 10,684,375 10,681,748 Overdue Loans: Public Sector Private Sector 15, ,960 0 Non-accrual Loans: Private Sector 91, , , ,754 Allowance For Loan Losses (Note 5b) (395,083) (356,991) (494,034) (394,880) Leasing Operations 2,243 3, , ,581 Lease Receivables: Public Sector 2,243 3,197 2,243 3,197 Private Sector 0 0 1,558,563 1,811,631 Non-accrual Lease Receivables: Private Sector 0 0 6,972 21,953 Unearned Lease Income 0 0 (290,353) (523,401) Allowance For Lease Losses (Note 5b) 0 0 (410,088) (455,799) Other Receivables 4,333,960 4,172,164 7,918,770 7,199,712 Guarantees Honored Foreign Exchange Portfolio (Note 9) 2,556,182 2,450,589 3,177,508 3,290,144 Income Receivable 136,637 64, , ,543 Securities Clearing Accounts 210, , , ,253 Specific Credits 1,799 3,259 4,181 3,259 Other (Note 15i) 1,428,947 1,260,137 3,759,116 2,887,513 Doubtful Receivables: Private Sector 1,504 21,588 1,950 25,932 Allowance for Losses (Note 5b) (1,504) (21,588) (1,950 ) (25,932 ) Other Assets 105,356 63, , ,961 Short-term Investments Assets Received In Settlement Of Debt 103,956 70, , ,428 Valuation Allowance (38,819) (27,254) (42,844) (30,903) Prepaid Expenses 40,219 20, , ,872 Permanent Assets 4,718,194 4,824,981 2,707,485 2,683,614 Investments 3,538,181 3,395, , ,294 Subsidiaries and Affiliates (Note 17): Domestic (Notes 7, 18a) 3,052,344 3,027, , ,187 Foreign (Notes 7, 18b) 364, ,036 66,331 81,249 Other Investments (Note 7) 123,249 65, , ,953 Allowance for Losses (1,779) (32) (2,640) (95) Fixed Assets 1,129,005 1,382,419 2,168,089 2,061,990 Property for Own Use 1,370,617 1,694,832 2,364,335 2,385,412 Other Fixed Assets for Own Use 1,013, ,937 1,316,479 1,219,155 Accumulated Depreciation (1,255,232) (1,304,350) (1,512,725) (1,542,577) Deferred Expenses 51,008 46, ,593 79,330 Deferred Installation Expenses 129, , , ,400 Accumulated Amortization (78,533) (59,485) (104,116) (73,070) Total Assets 41,426,547 30,774,412 52,391,526 37,875,542

35 Consolidated Balance Sheets Corporate Law R$ Thousand Liabilities Itaú Itaú Consolidated Current and Long-term Liabilities 36,933,252 26,655,173 46,056,857 32,322,103 Deposits 18,550,318 12,727,746 18,777,897 12,607,688 Demand Deposits 2,338,341 2,113,756 2,912,064 2,192,441 Savings Accounts 11,561,254 9,345,909 12,670,186 9,567,336 Interbank Deposits 3,512, , , ,566 Time Deposits 1,138, ,839 3,010, ,345 Money Market Repurchase Commitments (Note 11) 7,673,762 3,717,328 7,355,300 4,412,664 Own Portfolio 870, ,784 2,174,093 1,196,340 Third Party Portfolio 6,803,290 3,403,544 5,181,207 3,216,324 Acceptances and Debentures 0 0 2,367, ,319 Foreign Exchange Acceptance Resources Debentures 0 0 2,367, ,319 Interbank Accounts 2,334,826 2,498,535 2,591,974 2,647,128 Pending Settlements 2,233,512 2,292,189 2,490,557 2,435,564 Interbank On-lending 24,089 74,392 24,192 79,588 Correspondents 77, ,954 77, ,976 Interbranch Accounts 202, , , ,055 Third Party Funds in Transit 196, , , ,036 Own Funds in Transit 6, , Borrowing 3,842,575 3,234,298 5,744,254 4,784,686 Borrowings From Domestic - Public Institutions Borrowings From Domestic - Other Institutions , ,948 Foreign Currency Trade Finance Borrowings (Note 15k) 3,842,575 3,233,529 5,395,781 4,442,873 On-lending Borrowings from Public Institutions 598, ,809 1,105, ,620 Federal Development Bank (BNDES) 154,895 99, , ,725 Federal Capital Goods Financing Agency (FINAME) 444, , , ,895 CEF Other Institutions Foreign Currency On-lending Borrowings 0 15, , ,467 Foreign Currency On-lending Borrowings 0 15, , ,467 Other Liabilities 3,730,078 3,480,018 7,569,389 5,933,476 Collection of Taxes and Contributions 198, , , ,628 Foreign Exchange Portfolio (Note 9) 1,624,314 1,313,071 1,979,114 1,760,002 Corporate and Statutory Contributions 106,210 80, ,520 82,704 Taxes and Social Security Contributions 360, , , ,054 Due in Connection With Securities Dealing 286, , , ,455 Technical Provision Of Insurance, Pension Plans and Capitalization Operations - Vinculated (Note 18a) , ,891 Financial and Development Funds Others (Note 15i) 1,153,700 1,354,590 3,043,291 2,352,742 Technical Provisions of Insurance, Pension Plans and Capitalization Operations - Not Vinculated 0 0 1,595,435 1,252,555 Deferred Income 14,708 14,985 22,844 23,582 Deferred Income 14,708 14,985 22,844 23,582 Minority Interest in Consolidated Subsidiaries , ,124 Stockholders Equity 4,478,587 4,104,254 4,472,474 4,098,178 Capital (Note 10a) Domestic 1,575,413 1,615,589 1,575,413 1,615,589 Foreign 424, , , ,411 Capital Reserves (Note 10c) 421, , , ,890 Revaluation Reserves (Note 10c) 12,792 12,831 12,792 12,831 Retained Income (Note 10c) 2,060,030 1,666,533 2,053,917 1,660,457 (Treasury Shares) (Note 10a) (15,618) 0 (15,618) 0 Total Liabilities 41,426,547 30,774,412 52,391,526 37,875,542 See the accompanying notes to the Financial Statements. 37

36 Statements of Income Corporate Law First Semester See the accompanying notes to the Financial Statements. Itaú Itaú Consolidated R$ Thousand Income of Financial Operations 3,089,381 1,935,522 4,204,896 2,845,687 Loans 1,380,828 1,257,981 1,907,819 1,641,017 Leases , ,212 Securities Portfolio 1,552, ,932 1,813, ,645 Trade Finance and Foreign Exchange Portfolio 16,069 13,733 11,148 17,343 Compulsory Deposits 140, , , ,470 Expenses of Financial Operations 2,188,622 1,287,987 2,430,449 1,621,108 Deposits, Money Market and Interbank Funds 1,743, ,483 1,630, ,086 Borrowing and On-lending 105, , , ,622 Leases , ,600 Provision for Loan Losses 339, , , ,800 Net Income from Financial Operations 900, ,535 1,774,447 1,224,579 Other Operating Income (Expenses) (456,539) (240,003) (1,158,948) (708,558) Banking Service Fees 672, ,598 1,000, ,584 Capitalization Premiums, Insurance and Pension Plans 0 0 1,067, ,518 Expenses in Constituing Technical Provisions of Insurance, Capitalization and Pension Plan Operations 0 0 (313,515) (606,476) Insurance Claims 0 0 (465,320) (110,176) Selling Expenses - Insurance 0 0 (116,279) (45,454) Pension Plan Benefits Expenses 0 0 (37,048) (7,781) Salaries and Employee Benefits (520,464) (581,488) (782,247) (709,772) Other Administrative Expenses (775,078) (626,471) (1,107,723) (803,422) Tax Expenses (56,496) (47,994) (125,968) (89,890) Equity Share in Income of Subsidiaries and Affiliates (Note 17) 280, ,483 11,578 10,652 Other Operating Income (Note 15j) 67, , , ,320 Other Operating Expenses (Note 15j) (125,781) (95,210) (536,716) (325,661) Operating Income 444, , , ,021 Non Operating Income (19,134) (36,679) 7,671 (21,161) Income before Income Tax anf Social Contribution 425, , , ,860 Income Tax and Social Contribution (Note 8) Due on Operations for the Semester (42,436) (84,194) (270,534) (206,351) Deferred Related to Temporary Additions 25,351 68,140 59,991 51,301 Profit Sharing (13,358) (10,148) (17,932) (13,066) Employees (6,339) (5,173) (8,680) (6,648) Directors - Statutories (7,019) (4,975) (9,252) (6,418) Minority Interest 0 0 (217) 18,067 Net Income 394, , , ,811 Number of Shares Outstanding (Note 10a) 11,945,589,398 11,973,512,660 11,945,589,398 11,973,512,660 Net Income per Thousand Shares - R$ Stockholders Equity per Thousand Shares - R$

37 Statements of Changes in Stockholders Equity R$ Thousand Corporate Law Capital Stock Capital Reserves Realizaded Capital Updated Revaluation Reserves Revenue Reserves (Treasury Shares) Retained Income Total Balances at January 1, ,997, ,577 12,827 1,793,063 (439,960) 0 3,847,897 Capital Increase 2, (2,610) Tax Incentive Investment Credits 0 13, ,456 Reserves for Donations of Assets Treasury Shares (392) 0 (392) Cancellations of Shares 0 (73,153) 0 (367,199) 440, Realization of the Revaluation Reserves of Affiliates (4) Advance of Interest on Capital (36,039) 0 0 (36,039) Net Income , ,651 Appropriations from Income: Legal Reserve ,233 0 (17,233) 0 Statutory Reserves ,418 0 (327,418) 0 Interest on Capital (65,329) 0 0 (65,329) Balances at June 30, ,000, ,890 12,831 1,666, ,104,254 Changes for the Period 2,610 (59,687) 4 (126,530) 439, ,357 Balances at January 1, ,000, ,903 12,823 1,781,461 (15,717) 0 4,203,470 Tax Incentive Investment Credits 0 (204) (204) Reserves for Donations of Assets Treasury Shares (10,900) 0 (10,900) Stock Options Plan - Option Exercized in the Period 0 (3,349) , ,650 Realization of the Revaluation Reserves of Affiliates 0 0 (31) Net Income , ,643 Appropriations from Income: Legal Reserve ,732 0 (19,732) 0 Statutory Reserves ,806 0 (258,806) 0 Interest on Capital (116,105) (116,105) Balances at June 30, ,000, ,383 12,792 2,060,030 (15,618) 0 4,478,587 Changes for the Period 0 (3,520) (31) 278, ,117 See the accompanying notes to the Financial Statements. 39

38 Statements of Changes in Financial Position Corporate Law First Semester Itaú Itaú Consolidated R$ Thousand 1 st Semester st Semester st Semester st Semester 1997 A - Source of Funds 5,074,280 4,002,908 5,652,473 6,036,572 Net Income 394, , , ,811 - Adjusted Net Income: Depreciation, Amortization e Exhaustion 108,147 85, , ,923 Equity in Net Earning of Investees (280,757) (258,483) (11,578) (10,652) Unrealized (794) Net Change in Deferred Income (1,185) (993) (110) (1,361) Approvement of Equity Options - Exercized Options In the Period 7, ,650 0 Third Party Funds: - Increase in Current and Long-Term Liabilities: Deposits 155,656 1,484, ,206 1,051,276 Money Market Repurchase Commitments 3,227, ,981 1,829, ,710 Acceptances and Debentures ,381 0 Borrowings and On-lending Borrowings 0 8, ,431 Other Liabilities 326, , ,382 1,751,068 Technical Provision of Insurance, Capitalization and Pension Plan Operations - Not Vinculated , Decrease in Current and Long-Term Assets: Interbank Funds Applied 0 1,101, ,211 1,823,339 Loans 595, ,195 0 Leasing Operations 517 4,100 14,096 77,860 Other Assets 58, ,638 38, Disposal of Fixed Assets and Investments: Assets not for Own Use 13,669 50,899 92,514 80,424 Property for Own Use 3,771 2,846 16,430 9,889 Investments 405,140 1,351 38,361 59,452 - Dividends Received from Subsidiaries and Affiliates 58,649 13,230 1,396 10,487 - Decrease in Deferred Expenses , Donations of Assets Net Change in Minority Stockholding 0 0 8,389 1,295 B - Aplications of Funds 5,594,514 4,079,237 6,197,937 5,929,083 Dividends Paid and Proposed 116, , , ,368 Purchase of Own Shares 10, , Investments in: - Assets not for Own Use 45,767 18, ,970 60,828 - Property for Own Use 88,881 83, , ,147 - Investments 244,997 98,064 27, ,388 Increase in Deferred Expenses 24,819 5,473 37,660 17,675 Increase in Current and Long-Term Assets: - Interbank Funds Applied 1,281, Securities 1,667,525 1,237,544 3,226, ,091 - Interbank and Interbranch Accounts 1,020, ,686 1,116, ,508 - Loan Operations 0 855, ,045,043 - Other Receivables 234, , ,991 2,033,163 - Other Assets ,198 Decrease in Current and Long-Term Liabilities: - Acceptances and Debentures 0 148, ,206 - Borrowing and On-lending Borrowings 858, , Technical Provisions of Insurance, Capitalization and Pension Plan Operations - Not Vinculated ,076 Decrease in Cash and Cash Equivalents (A-B) (520,234) (76,329) (545,464) 107,489 Changes in Financial Positions: -Cash and Cash Equivalents: - Beggining of the Period 2,124,095 1,161,783 2,495,625 1,284,842 - End the Period 1,603,861 1,085,454 1,950,161 1,392,331 - Decrease in Cash and Cash Equivalents (520,234) (76,329) (545,464) 107,489 40

39 Notes to the Financial Statements In Thousands of Reais Semesters ended June 30, 1998 and 1997 Note 1 Operations Banco Itaú S.A. operates in the financial market as a multiple service bank, in the commercial, investment, consumer credit and real estate credit portfolios. Note 2 Presentation of the Financial Statements The financial statements of Banco Itaú S.A. (Itaú) and the consolidated financial statements of Itaú (ITAÚ CONSOLIDATED) have been prepared in accordance with instructions issued by the Brazilian Securities and Exchange Commission (CVM), and the Central Bank of Brazil (BACEN), and in accordance with accounting principles derived from the Brazilian Corporation Law. Note 3 Consolidated Companies The consolidated financial statements include Itaú and its direct and indirect subsidiaries, including those listed below: Participation % Financial Institutions: Banco Banerj S.A. and Subsidiaries (a) Banco Francês e Brasileiro S.A. and Subsidiaries Banco Itaú Argentina S.A Banco Itaú Europa Luxembourg S.A Banco Itaú Europa, S.A. and Subsidiaries (b) BFB Financeira S.A. Crédito, Financiamento e Investimento (c) BFB Leasing S.A. Arrendamento Mercantil Cia. Itauleasing de Arrendamento Mercantil Itaú Banco de Investimento S.A Itau Bank, Ltd Itaú Bankers Trust - Banco de Investimento S.A. - IBT and Subsidiaries (d) Itaú Corretora de Valores S.A Non-Financial Institutions: Afinco - Americas Madeira SGPS Ltda. and Subsidiaries Armazéns Gerais Itaú Ltda Credicard S.A. Administradora de Cartões de Crédito and Subsidiaries (d) Itaú Capitalização S.A. and Subsidiaries Itaucard Administradora de Cartões de Crédito e Imobiliária Ltda Itaú Gráfica Ltda Itaú Previdência e Seguros S.A Itaú Rent Administração e Participações S. A. (e) Itaú Seguros S.A. and Subsidiaries Itaúsa Export S.A. and Subsidiaries (b)

40 Notes to the Financial Statements In Thousands of Reais Banerj Consolidated Assets June 30, 1998 Current and long-term assets Cash and cash equivalents 20,813 Interbank funds applied 2,343,312 Securities 501,015 Interbank accounts 344,309 Interbranch accounts 2,584 Loans and lease operations 163,127 Other receivables 271,981 Other assets 14,016 Permanent assets Investment 244,586 Fixed assets 48,376 Others 8,059 Total assets 3,962,178 Liabilities June 30, 1998 Current and long-term liabilities Deposits 3,024,149 Money market repurchase commitments 1,939 Interbank accounts 67,920 Interbranch accounts 9,087 Borrowings 800 Technical provisions of insurance operations - vinculated 17,823 Other liabilities 420,739 Technical provisions of insurance operations - not vinculated 34,558 Deferred income 1,124 Minority interest in subsidiaries 80 Stockholders equity 383,959 Total Liabilities and Stockholders Equity 3,962, ATMs at Banerj branch; investment in technology to improve service to customers.

41 Notes to the Financial Statements In Thousands of Reais Banerj Consolidated Statements of Income Income from financial operations 413,353 Expenses of financial operations 224,302 Net income from financial operations 189,051 Other operating income (expense) (173,155) Banking service fees 58,568 Insurance premiums 50,746 Expenses in constituting technical provisions of insurance operations (5,770) Insurance claims 41,433 Selling expenses - insurance 9,308 Salaries and employee benefits 99,726 Other administrative expenses 157,650 Others 19,878 Operating income 15,896 Non operating income 7,639 Income tax and social contribution 6,327 Due on operations for the semester 19,090 Deferred related to temporary additions (12,763) Profit sharing - directors 3 Net income 17,205 (a)this investment was acquired on July 9, On June 30, 1998, main consolidated account balances were as follows: (b)subsidiaries included in the consolidation were authorized by the Brazilian Securities and Exchange Commission (CVM) to better present the business of the group. (c)this investment was disposed of on March 30, 1998 (d)this affiliated bank is proportionally included in the consolidated financial statements. (e)this company was incorporated (established) on September 02,

42 Notes to the Financial Statements In Thousands of Reais Note 4 Summary of Significant Accounting Practices a. Basis of consolidation - All material intercompany profits, transactions and balances have been eliminated on consolidation. Unrealized income resulting from business between these companies, which basically generate the differences in net income and stockholders equity between ITAÚ and ITAÚ CONSOLIDATED, were eliminated, and the corresponding taxes, deferred. b. Loan operations, interbank funds applied, remunerated deposits, money market repurchase commitments and other receivables and payables - Transactions subject to monetary correction or foreign exchange rates are recorded at present value calculated pro rata die based on the variation of the contracted index. Real estate loans are adjusted to present value based on the discounted cash flow of future installments. Transactions with predetermined remuneration rates are recorded at their redemption value, adjusted for any unearned income/ expenses. c. Allowance for loan losses - The balance of the allowance for loan losses was constituted based on an analysis of the risks of realization of the loan portfolio in amounts considered sufficient to cover possible losses. d. Securities - Securities are recorded at price-level restarted cost and marked to market by establishing a provision. e. Investments - Investments in subsidiaries, and affiliates are accounted for by using the equity method. The financial statements of foreign branches and subsidiaries were respectively consolidated in ITAÚ and ITAÚ CONSOLIDATED, adapted to comply with Brazilian accounting standards, and translated into reais. Other investments are stated at monetarily corrected cost at December 31, f. Fixed assets - Fixed assets are stated at cost of acquisition or construction less accumulated depreciation, monetarily corrected at December 31, Depreciation and amortization are recorded using the straight line method, based on monetarily corrected cost over the useful lives of depreciable assets at the following annual rates: In % Buildings used in operations 4 Installations, furnishings, equipment and security and communications systems 10 to 25 EDP systems 20 to 50 Transportation system 20 to 33 g. Deferred expenses - Deferred organization and expansion expenses correspond basically to improvements in third party properties and are amortized linearly based on the rental periods. 44

43 Notes to the Financial Statements h. Income tax, social contribution, PIS and COFINS - In order to arrive at their respective calculation basis, provisions In Thousands of Reais are calculated considering pertinent legislation for each tax at the rates shown below. Financial Institutions, Insurance and Equivalents Other Institutions Income tax 15.00% 15.00% Additional income tax 10.00% 10.00% Social contribution 18.00% 8.00% PIS 0.75% 0.65% COFINS % Deferred income and social contribution taxes were calculated on the basis of amounts which were expected to be realized, by using current tax rates and taking into consideration temporary tax inclusions or exclusions. Amounts subject to litigation have been fully provided for. Note 5 Loan and Leasing Portfolio a. Composition: Itaú Itaú Consolidated Loan operations 8,081,079 8,408,564 10,760,901 10,688,225 Loans and trade receivables discounted 3,697,767 4,076,178 5,215,414 5,306,680 Financing 1,056,225 1,444,829 2,089,711 2,371,296 Farm and agribusiness financing 510, , , ,070 Real estate financing 2,816,497 2,397,706 2,895,815 2,502,179 Leasing operations 2,243 3,197 1,270,453 1,291,427 Advances on exchange contracts (*) 964,843 1,188,803 1,247,265 1,611,323 Total 9,048,165 9,600,564 13,278,619 13,590,975 (*) Advances on Exchange contracts are recorded in other liabilities. 45

44 Notes to the Financial Statements In Thousands of Reais b. Changes in the Provision for Loan Losses: Itaú Itaú Consolidated Balances as of December 31, ,333 1,107,832 Provisioned 266, ,800 Write-off (372,076) (437,021) Balances as of June 30, , ,611 (-) Non-accrual loans (289,251) (332,639) Excess provision for loan losses on June 30, , ,972 Balances as of December 31, , ,975 Provisioned 339, ,030 Write-off (277,798) (431,933) Balances as of June 30, , ,072 (-) Non-accrual loans (92,973) (160,867) (-) Overdue loans (15,981) (17,960) Excess provision for loan losses on June 30, , ,245 As a result of the requirement to prove the destination of savings account deposits, in the first quarter of 1998, Itaú and its subsidiaries began transferring payments over 60 days past due on National Housing System Contracts to the Overdue loans account. Until December 31, 1997, Itaú and its subsidiaries had been transferring the total amount of these contracts to the Nonaccrual loans account after a payment became 61 days past due. Using previous criteria, the balance of the non-accrual loan account, as of June 30, 1998, would be as follows: Itaú Itaú Consolidated Balance using present criteria: 92, ,867 (+) Balances not yet due with payments recorded in overdue loans 209, ,393 (+) Overdue loans 15,981 (17,960) Balance using previous criteria: 318, ,220 Provision for loan losses 396, ,072 Excess provision for loan losses 78, ,852 c. Credit recoveries offset against the provision for loan losses: Itaú Itaú Consolidated As of June 30, ,870 60,913 As of June 30, ,177 34,776 46

45 Notes to the Financial Statements In Thousands of Reais Note 6 Securities and Interbank Deposits a. Portfolio Composition Itaú Consolidated % % Interbank deposits 1,803, ,373, Securities 10,626, ,657, Money market funds 255, , Fixed income securities 9,427, ,988, Financial Treasury Bill 1,535, National Treasury Bills 1,572, ,372, National Treasury Notes 1,373, , Central Bank Notes 774, Central Bank Bond 686, , Central Bank Bills 1,724, Debentures 53, , Bank certificates of deposit /mortgages 1,336, ,036, Public institutions 931, , Private institutions 405, , Others fixed income securities 370, , Foreign investments in securities 394, , DCB - Debt conversion bond and others 295, , Bond s Argentina 7, , Subordinated credit 35, , Euro Bond s and others 56, , Social development funds 2, , Mutual fund quotas 81, , Floating rate securities 201, , Shares in publicly traded companies 126, , Quotas of variable income funds 73, , Others 1, , Securities subject to forward commitments 263, , Others Total 12,429, ,031, Securities which comprise mutual fund portfolios in which Itaú and its subsidiaries hold quotas are included in the table above. Investments in other funds remain classified in mutual funds. b. Changes in the valuation allowance for securities Itaú Itaú Consolidated Balance as of December 31, , ,956 Write-offs: (98,228) (113,719) Reversal (72,422) (87,261) Loss on sale (25,806) (26,458) Additional provision (*) 21,000 31,300 Balance as of June 30, , ,537 (*) An additional provision was kept for the first half of the year, in order to cover the increased risk of the future fluctuations resulting from increased market volatility. 47

46 Notes to the Financial Statements In Thousands of Reais c. Summary Itaú Consolidated Securities and interbank deposits 12,429,778 6,031,088 Valuation allowance (108,537) (70,933) Net book value 12,321,241 5,960,155 Note 7 Investments Other investments included in ITAÚ CONSOLIDATED are composed of the following: (1) Investments arising from tax incentives (2) Investment resulting from use of privatization currencies (3) Acquisition goodwill Investments in subsidiaries and affiliates - Domestic 117, ,187 Duraflora S.A. (1) 32,114 31,728 Union Carbide do Brasil S.A. (2) 30,921 38,446 AGF Brasil Seguros S.A. 42,443 38,184 Itauseg Investimentos S.A. (3) 0 194,821 Others 12,212 14,008 Foreign 66,331 81,249 BPI - SGPS S.A. 66,331 80,154 Others 0 1,095 Other investments 248, ,953 Tax incentive investments 190,954 86,124 Equity securities 15,296 17,352 Shares and quotas 26,835 22,874 Others 15,337 17,603 48

47 Notes to the Financial Statements In Thousands of Reais Note 8 Income Tax and Social Contribution Income tax and social contribution due on operations for the half years are shown below: Itaú Itaú Consolidated Net income before income tax and social contribution 425, , , ,860 Taxes payable (income tax and social contribution) at rates of 25% and 18% respectively 182, , , ,790 Increases/Decreases in income tax and social contribution payable as the result of: Permanent inclusions/(exclusions) (157,144) (147,736) (22,035) (26,255) Equity share in income of subsidiaries and affiliates (146,812) (132,254) (2,532) (2,025) Non-deductible expenses and provisions 39,388 28,106 28,742 18,168 Interest on capital (49,720) (43,588) (48,245) (42,398) Temporary inclusions/(exclusions) 6,829 63,982 50,500 34,085 Allowance for loan losses (1,604) 20,029 34,269 (10,379) Labor provisions, tax contingencies and other expenses 8,433 43,953 16,231 44,464 Other adjustments 9,965 8,481 (25,895) (14,269) Adjustment for taxation of affiliated companies whose social contribution tax rate is 8% 0 0 (35,860) (22,750) Income tax of foreign branches and subsidiaries 9,965 8,481 9,965 8,481 Income tax and social contribution due on operations for the half year 42,436 84, , ,351 Withholding tax on distribution of interest on capital 17,415 15,205 17,415 15,205 Total income tax and social contribution 59,851 99, , ,556 The composition of accounting adjustments which refer to temporary additions to deferred income tax and social contribution is shown below: Itaú Itaú Consolidated Deferred income tax and social contribution related to temporary additions (25,351) (68,140) (59,991) (51,301) Tax credits: Recognition of the period (6,829) (63,982) (50,500) (34,085) Reversal of initial balance of temporary additions 20,604 17,573 30,715 17,564 Recognition of initial balance of tax loss carry/write off and others (39,126) (21,731) (40,206) (34,780) 49

48 Notes to the Financial Statements In Thousands of Reais Note 9 Foreign Exchange Operations Assets Itaú Itaú Consolidated Other receivables 2,556,182 2,450,589 3,177,508 3,290,144 Exchange purchases pending settlement 1,767,673 1,819,380 2,247,237 2,445,787 Foreign currency bills exchange and term documents 18,760 24,346 21,703 26,145 Exchange sale rights 838, , , ,173 (-) Local currency advances received (89,321) (142,081) (112,977) (194,903) Income receivable on advances granted 21,050 25,571 28,614 35,799 Others 0 0 (5,270) 143 Liabilities Other liabilities 1,624,314 1,313,071 1,979,114 1,760,002 Exchange sales pending settlement 838, , , ,526 (-) Foreign currency advances granted 0 (26,903) (1,280) (26,903) Exchange purchases obligations 1,749,229 1,798,383 2,224,872 2,412,272 (-) Advances on exchange contract (964,843) (1,188,803) (1,247,265) (1,611,323) Others 1,679 7,520 4,357 9,430 Memorandum accounts Import credits outstanding 43,210 99,188 74, ,648 Note 10 Stockholders Equity - Itaú a. Shares Share capital comprises 11,973,512,660 nominal shares, of which 6,837,570,493 are common shares and 5,135,942,167 are preferred shares. On the basis of decisions made by the board of directors on November 3, 1997; February 9, 1998; and May 15, 1998; the bank repurchased its own shares to hold in treasury, cancel, or resell at a later date. The shares were purchased at their minimum cost, weighted average cost and maximum cost in thousand share lots of common shares for R$ , R$ and R$ respectively, and R$ , R$ and R$ respectively for preferred shares. As of June 30, 1998, the market values of these shares were R$ (common shares) and R$ (preferred shares) per thousand share lot. 50

49 Notes to the Financial Statements In Thousands of Reais Treasury Shares as of December 31, 1997 Common 820,000 Preferred 33,700,000 34,520,000 Purchases During the Period Common 3,778,468 Preferred 13,690,000 17,468,468 (-) Shares Sold During the Period (Note 15 g) Preferred (24,065,206) (24,065,206) Treasury Shares as of June 30, 1998 Common 4,598,468 Preferred 23,324,794 27,923,262 b. Dividends Stockholders are assured the right to receive a minimum mandatory dividend equal to 25% of net income which is adjusted according to rules set forth in the Corporation Law. Both types of shares will participate equally after common shares have been guaranteed payments equal to the minimum preferential payments to preferred shares. The system of monthly advances against the minimum mandatory dividend was substituted; in 1997, the monthly antecipation of the payment of interest on capital amounting to R$ 0.65 per thousand share lot was introduced. I - Calculation Net income for the semester 394,643 Adjustments: Legal reserve (19,732) Dividend calculation basis 374,911 Minimum obligatory dividends 93,728 II - Interest on Capital - payments/provided for Before Income Tax Income Taxes with Held After Income Tax Paid/prepaid Monthly - 5 payments of R$ 0,65 per thousand share lot paid between February and June ,812 5,822 32,990 Provided for Monthly - 1 payment of R$ 0,65 per thousand share lot to be paid on July 1, ,770 1,165 6,605 Supplementary adjustment of R$ 5,82 per thousand share lot 69,523 10,428 59,095 Total 116,105 17,415 98,690 51

50 Notes to the Financial Statements In Thousands of Reais c. Capital Reserves, Revenue Reserves and Revaluation Reserves: Capital reserves 421, ,890 Special Reserve (2 nd article - Law 8200/91) 411, ,282 Tax incentive options 9,903 13,456 Others Revaluation reserves 12,792 12,831 Properties of affiliates 12,792 12,831 Revenue reserves 2,060,030 1,666,533 Legal 201, ,993 Statutory - Itaubanco (*) 1,858,514 1,503,540 (*) This reserve was established for the purpose of funding the exercise of stockholder subscription rights in capital increases of affiliated companies, future capital increases, and the payment of interim dividends. Note 11 Repurchase Commitments Resolution 1.088/86 of the Brazilian Central Bank Limit Calculation Basis - R$ a. Maturity of Repurchase Commitments (redemption value) Repurchase Commitments With From 2nd On 1st Business Day Business Day to the 10th Day of Subsequent of the Month subsequent Month After the 11th Day of Subsequent Month Financial institutions 5,219, ,245 5,685,589 Non financial companies 1,589,006 7, ,331 1,719,729 Individuals ,219 1,671 Total 6,808,802 7, ,795 7,406,989 Total b. Maturity of Securities Linked to Repurchase Commitments: Securities Up to 30 Days From 31 to 60 DaysFrom 61 to 90 Days More than 90 Days Total BBC 0 0 1,551, ,551,152 NTN , ,553 LBC 67, ,928 LTN 18, , ,203,861 5,376,473 NBC-E 18,580 45, , ,883 Total 104, ,538 1,551,152 5,550,781 7,406,989 52

51 Notes to the Financial Statements In Thousands of Reais Note 12 Related Parties Transactions among related parties were performed under normal market conditions and on an arms-length. Transactions with consolidated companies (stated in Note 17) were eliminated in the consolidated statements, whereas operations with non-consolidated companies are not relevant in the overall context of the operations of Itaú. Note 13 Financial Instruments a. Derivatives With the stabilizing of the Brazilian economy and the consequent lengthening of maturities of financial operations, there was a significant increase in the demand for derivative instruments to manage market risks, resulting basically from fluctuations in interest and exchange rates. Itaú has sought to meet the principal needs of its corporate clients related to these instruments, and has also invested in the development of internal control systems for the purpose of monitoring these risks in a timely manner. It is Itaú s policy to minimize market risks resulting from derivative operations. The bank avoids assuming positions which are subject to fluctuations due to market factors and it only employs instruments that permit risk control, which is the responsibility of an independent area. Most of the derivative contracts negotiated with clients are swap operations and flexible options operations, which are all registered at the BM&F or CETIP, and involve fixed rates, interbank deposits rates, exchange variations or price indices. BM&F futures contracts, involving interbank rates, and dollars are mainly used as instruments to hedge in financing rates offered to clients for maturities or in currencies which are mismatched with the resources used to fund these operations. The notional values of these financial instruments are recorded in memorandum accounts, and the adjustments/premiums are recorded in balance sheet accounts. The amounts related to positions in future, swap and options operations were as follows: 53

52 Notes to the Financial Statements In Thousands of Reais Memorandum Account Global Value Balance Sheet Account Amount Receivable/Received (Payable/Paid) Itaú Itaú Consolidated Itaú Itaú Consolidated Future contracts 2,058, ,973 2,512, ,293 (500) 36 (736) 54 Purchase commitments: 1,053,832 71,095 1,117, ,286 (104) 36 (165) (110) Foreign currency 41,255 71,095 41, ,290 (78) 36 (78) 31 Interbank market 971, ,000, ,053 (4) 0 18 (19) Prefixed , (122) Indices 41, ,322 0 (22) 0 (105) 0 Commitments to sell: 1,004, ,878 1,395, ,007 (396) 0 (571) 164 Foreign currency 338, , , , (39) (10) Interbank market 587, ,439 87, (6) (8) Prefixed , Indices 78, ,833 0 (460) 0 (526) 0 Swap contracts (48,612) 291 (56,821) (799) Assets position 7,428,357 2,988,632 11,935,128 3,807,226 59,545 4, ,499 5,801 Foreign currency 405, ,714 1,025,356 1,043, , ,294 Interbank market 2,689,466 1,082,738 4,818,480 1,547,207 46,573 1,603 86,330 2,604 Prefixed 3,860, ,341 5,427, ,257 12,910 1,271 25,450 1,903 Indices ,092 1, Others 471, , , , Liability position 7,476,969 2,988,341 11,991,949 3,808,025 (108,157) (3,875) (169,320) (6,600) Foreign currency 1,086, ,435 1,877,226 1,293,925 (24,016) (1,209) (24,485) (1,795) Interbank market 4,106,486 1,354,884 6,222,319 1,684,519 (61,706) (2,124) (110,843) (3,014) Prefixed 1,903, ,762 3,378, ,321 (22,366) (348) (33,923) (1,597) Indices 7,276 10,366 23,291 10,366 (6) (138) (6) (138) Others 373, , , ,894 (63) (56) (63) (56) Options contracts 3,301, ,478 4,848, , ,796 (3,062) 264,616 50,069 Purchase commitments call 485, , , ,975 (3,085) (7,418) (10,691) (8,263) position: Foreign currency 105,300 40, ,300 40,962 (182) (3,110) (182) (3,113) Interbank market 234, ,504 0 (20) 0 (62) 0 Prefixed , Indices ,686 2,129 (11) 0 (6,311) (92) Shares 39, ,710 5,964 (2,872) 0 (4,136) (750) Others 106, , , ,920 0 (4,308) 0 (4,308) Sell commitment call position 97, , (4,680) 0 (4,680) (312) Foreign currency 94, , (4,495) 0 (4,495) (312) Indices (23) 0 (23) 0 Shares 2, ,890 0 (162) 0 (162) 0 Purchase commitments put 1,801,962 58,078 3,012, ,911 22, ,537 31,895 position: Foreign currency 205,881 58,078 1,306, ,341 4, ,884 31,765 Interbank market 854, , Indices 670, , , ,747 0 Shares 57, , , , Others 14, , Sell commitments put position: 916, ,917 1,102, ,563 99,577 4, ,450 26,749 Foreign currency , , ,645 20,402 Prefixed , Indices 780, ,195 23,827 83, ,238 1,550 Shares 35, ,946 2,540 16, , Others 99, ,920 99, , , ,308 54

53 Notes to the Financial Statements In Thousands of Reais Contracts on futures, options and swaps mature as follows: Itaú Up to 90 Days 91 to 180 Days 181 to 360 Days More than 360 Days Total Futures 1,925,046 93,230 21,226 18,606 2,058, ,973 Swaps 2,540,122 2,838,495 1,644, ,681 7,368,812 2,984,466 Options 1,409,223 35,232 1,332, ,847 3,301, ,478 Itaú Consolidated Futures 2,355, ,071 37,156 18,606 2,512, ,293 Swaps 4,291,283 4,503,059 2,675, ,192 11,822,629 3,801,425 Options 1,528,416 92,609 1,465,831 1,761,761 4,848, ,847 b. Market value The financial statements were prepared based on accounting criteria which assume the normal continuity of the operations of Itaú and its controlled companies. The recorded values of each financial instrument whether included or not in the balance sheet, when compared with the values that might be obtained in an active market, or in the absence of same, using the net present value of adjusted discounted future cash flows based on the prevailing market interest rate, are close to the corresponding market value, or its value is not available, except for the amounts included in Itaú: Itaú Recorded Value Market Value Income/(loss) Not Realized Interbank funds applied 1,277,203 1,092,914 1,288,721 1,093,720 11, Securities and Derivatives 6,127,227 2,629,605 6,147,984 2,656,034 20,757 26,429 Securities 6,150,710 2,628,944 6,200,446 2,652,115 49,736 23,171 Derivatives - Differential receivable/payable (23,483) 661 (52,462) 3,919 (28,979) 3,258 Loan operations 7,769,193 8,319,225 7,763,924 8,321,983 (5,269) 2,758 Investment in Banco Português de Investimentos - SGPS S.A. 16,102 19,457 71,725 40,269 55,623 20,812 Other investments 121,470 65, ,369 93,558 11,899 27,727 Time and interbank deposits 4,651,599 1,268,441 4,650,232 1,269,407 1,367 (966) Treasury Shares 15, , ,116 0 Total 98,011 77,566 55

54 Notes to the Financial Statements In Thousands of Reais Itaú Consolidated Recorded Value Market Value Income/(loss) Not Realized Interbank funds applied 1,791,615 1,373,107 1,803,980 1,374,282 12,365 1,175 Securities and Derivatives 10,497,437 4,587,408 10,711,800 4,782, , ,810 Securities 10,529,626 4,587,049 10,767,821 4,777, , ,041 Derivatives - Differential receivable/payable (32,189) 359 (56,021) 5,128 (23,832) 4,769 Loan operations 10,412,527 10,578,090 10,407,276 10,579,358 (5,251) 1,268 Investment in Banco Português de Investimentos - SGPS S.A. 66,331 80, , , ,141 85,736 Other investments 245, , , ,336 12,325 29,478 Time and interbank deposits and debentures 5,563,585 1,090,383 5,446,720 1,085, ,865 5,156 Treasury Shares 15, , ,116 0 Total 581, ,623 Since they do not represent actual losses, no provisions were established for securities which are required to be linked to specific liabilities (Resolution 63 - R$ 585 in ITAÚ and R$ 835 in ITAÚ CONSOLIDATED and saving accounts - R$ 17,349 in ITAÚ and R$ 18,715 in ITAÚ CONSOLIDATED), nor for those securities protected by swap transactions - R$ 1,231 in ITAÚ CONSOLIDATED. However, the evaluation of these positions is included in the table above. To obtain the market values of these financial instruments, the following criteria were adopted: Interbank deposits, certificates of bank deposit and mortgage securities, the latter two included in Securities were determined on the basis of their nominal values, monetarily corrected to maturity and discounted to present value using interest futures market rates, 363-day swap market rates for pre-fixed securities, and fixed interest securities market rates for post-fixed securities published in the Gazeta Mercantil on July 01, 1998; Public securities, included in Securities were determined on the basis of actual trades registered with BACEN (the Brazilian Central Bank)/DICEL/SELIC (Special System for Settlement and Custody), in accordance with lists held by ANDIMA (the National Association of Open Market Institutions); Investment fund quotas, and variable income fund quotas included in Securities were determined on the basis of value per quota on the balance sheet date; Publicly traded shares when included in Securities were valued using the average price quota of the last trading day of the month if available, or on the basis of the most recent quotations for the companies shares published in the daily bulletin of each Stock Exchange; Loans with maturities of over 90 days were calculated on the basis of their net present value, determined by means of future cash flows discounted using market interest rates on the balance sheet date, when available; the effects of hedges (swap contracts) are also taken into account; Other investments and equity share in subsidiaries and affiliates-foreign are determined on the basis of stock market quotations, book value per share and auction quotation; Deposits and debentures, when available, were calculated on the basis of their present value, determined by means of future cash flows discounted using interest futures market rates, 363-day swap market for prefixed securities, and fixed income securities market rates for post-fixed securities published in the Gazeta Mercantil on July 01, 1998; the effects of hedges (swap contracts) are also taken into account. 56

55 Notes to the Financial Statements In Thousands of Reais Derivatives related to swaps contracted to hedge other assets and liabilities are determined on the basis of reference values for each parameter set forth in the contracts (both parties), monetarily corrected through maturity and discounted to present value using interest futures market rates, according to the characteristics of each contract. Treasury shares are valued according to the average quotation available on the last trading day of the month, or if this is not available, according to the most recent quotation on prior trading days, published in the daily bulletin of each Stock Exchange. Note 14 Reclassification In order to improve the comparability of the financial statements, as well as to better present financial revenues and expenses of various asset accounts which are subject to up-dating, 1997 balances were reclassified in order to adjust the present period accounting procedures classifications. These adjustments basically resulted from adaptations made to harmonize non-financial subsidiaries accounting with that of the parent company in order to better express financial income and expenses associated with some balance sheet accounts subject monetary adjustments. Previously Reported Itaú Consolidated Reclassifications 1997 Reclassified Assets Loans Allowance for loan losses (392,823) (2,057) (394,880) Other receivables Allowance for losses (27,989) 2,057 (25,932) Income statement Income from financial operations 2,836,421 9,266 2,845,687 Loans 1,657,437 (16,420) 1,641,017 Securities portfolio 688,325 25, ,645 Trade finance and foreign exchange portfolio 16, ,343 Expenses of financial operations 1,601,570 19,538 1,621,108 Deposits, money market and interbank funds 906,548 19, ,086 Net income from financial operations 1,234,851 (10,272) 1,224,579 Other operating income (expenses) (758,157) 49,599 (708,558) Other operating income 202,576 (10,256) 192,320 Other operating expenses 385,516 (59,855) 325,661 Operating income 476,694 39, ,021 Non operating income 18,166 (39,327) (21,161) Note 15 Supplementary Information a. Despite the reduced degree of risk, which is due to the fact that it does not physically concentrate its assets, Itaú adopts the policy of insuring its assets at amounts considered adequate to cover possible risks (against fire, and theft, as applicable). b. In accordance with guidelines established for financial institutions, guarantees are represented by endorsements, sureties and other guarantees, amounting to R$ 728,825 (R$ 1,613,061 at June 30, 1997) in ITAÚ and R$ 1,864,516 in ITAÚ CONSOLIDATED (R$ 2,813,412 at June 30, 1997). 57

56 Notes to the Financial Statements c. Itaú manages the following types of investment funds: privatization, fixed income-domestic and foreign, shares, mutual funds shares open portfolio, investment clubs and clients and own In Thousands of Reais portfolios. The funds net equity as R$ 16,093,746 (R$ 13,795,972 at June 30, 1997) in ITAÚ and R$ 20,782,753 (R$ 18,130,020 at June 30,1997) in ITAÚ CONSOLIDATED were as follows: Itaú Itaú Consolidated Investment Funds Assets and Portfolio Managed as of June 30, Itaú Consolidated Mutual funds 12,161,223 11,345,751 16,368,674 14,604, Fixed income 11,829,304 9,991,014 15,334,454 11,975, Stock and other funds 331,919 1,354,737 1,034,220 2,629, Managed portfolios 3,932,523 2,450,221 4,414,079 3,525,039 2,183 Customers 1,008,856 1,512,052 1,456,824 2,553,930 2,128 Itaú Group 2,923, ,169 2,957, , d. The Itaúsa and Itaúclube Foundations ensure employees of Banco ITAÚ S.A. and other companies of the conglomerate, educational development, food and material assistance to improve health and welfare conditions of the beneficiaries. Donations to these entities which were destined to maintain foundation assets totaled R$ 4,047 (R$ 3,543 at June 30, 1997). e. ITAÚ is the founding partner and patron of the Instituto Itaú Cultural - IIC, an entity whose purpose is the promotion and preservation of Brazilian cultural heritage. During the first half of the year, IIC received a donations amounting to R$ 6,212 (R$ 3,930 at June 30, 1997) from Itaú. f. Itaú and subsidiaries sponsor complementary pension plans managed by the closed private pension fund, Fundação Itaubanco, for the purpose of granting lifetime income to complement the retirement pension paid by social security. Itaú s contribution amounted to R$ 13,726 (R$ 22,491 at June 30, 1997) and R$ 15,511 in ITAÚ CONSOLIDATED (R$ 23,648 at June 30, 1997). The actuarial liabilities are calculated in accordance with the actuarial models established in the plans Technical Notes, which call for compound capitalization and defined benefits, and are fully covered by the technical provisions for expired and unexpired risks. The contribution rate increases in accordance with the participant s salary. g. Itaú also established and Employee Stock Options Plan in order to integrate executives into the process of the institution development over the medium and long terms. Up to June 30, 1998, the Bank had granted purchase options for 199,050,000 preferred shares. These options may be exercised as follows: 28,200,000 as of in 1998, 24,065,206 which have been exercised these semester, 59,700,000 shares as of 1999, 53,300,000 shares as of 2002 and 57,850,000 shares as of h. Itaú s own securities portfolio, as stated in BACEN s Consolidated Operating Financial Statements (financial institutions), and in accordance with joint Brazilian Central Bank and Securities Commission rule 28/90, amounts to R$ 110,141 ( R$ 101,013 at June 30,1997) Itaú s operational limit totaled R$ 172,734 (R$ 374,628 as of June 30, 1997). The portfolio comprises R$ 86,250 (R$ 53,361 as of June 30, 1997) in the stock of publicly traded companies, R$ 19,254 (R$ 6,742 as of June 31, 1997) in debentures, R$ 254 (R$ 40,719 as of June 30, 1997) in investment funds and R$ 4,383 (R$ 191 as of June 30, 1997) in other securities.

57 Notes to the Financial Statements In Thousands of Reais The shares are held in custody by the São Paulo Stock Exchange and the debentures are held by CETIP. i. Other receivables and Other liabilities are composed mainly of Tax Credits R$ 903,587 (R$ 609,687 at June 30, 1997) in ITAÚ and R$ 1,574,773 (R$ 1,037,738 at June 30, 1997) in ITAÚ CONSOLIDATED, Other Debtors for Other Asset Purchases R$ 13,892 (R$ 14,531 at June 30, 1997) in ITAÚ and R$ 793,495 (R$ 593,384 at June 30, 1997) in ITAÚ CONSOLIDATED, Other Debtors for Deposits in Guarantee R$ (R$ at June 30, 1997) in ITAÚ and R$ 398,914 (335,221 at June 30, 1997) in ITAÚ CONSOLIDATED, Other Domestic Debtors R$ 161,128 (R$ 170,760 at June 30, 1997) in ITAÚ and R$ 274,243 (R$ 254,638 at June 30, 1997) in ITAÚ CONSOLIDATED, Recoverable Taxes R$ 87,801 (R$ 167,400 at June 30, 1997) in ITAÚ and R$ 210,373 (R$ 280,756 at June 30, 1997) in ITAÚ CONSOLIDATED, Other Domestic Creditors R$ 258,797 (R$ 470,929 at June 30, 1997) in ITAÚ and R$ 993,174 (R$ 868,536 at June 30, 1997) in ITAÚ CONSOLIDATED, Provisions for Contingent Liabilities R$ 441,855 (R$ 440,520 at June 30, 1997) in ITAÚ and R$ 815,863 ( R$ 748,120 at June 30, 1997) in ITAÚ CONSOLIDATED, Creditors for Residual Values Anticipation R$ 495,195 (R$ 317,026 at June 30, 1997) in ITAÚ CONSOLIDATED and Provision for Payments to be Made R$ 213,953 (R$ 219,198 at June 30, 1997) in ITAÚ and R$ 313,469 (R$ 273,560 at June 30, 1997) in ITAÚ CONSOLIDATED. j. Other Operating Income/Expense in ITAÚ and ITAÚ CONSOLIDATED include income from a Reversal of Operational Provisions R$ 34,899 (R$ 69,698 at June 30, 1997) in ITAÚ and R$ 53,157 (R$ 109,129 at June 30, 1997) in ITAÚ CONSOLIDATED, Recovery of Charges and Expenses - R$ 16,936 (R$ 19,624 in June 30, 1997) in ITAÚ and R$ 35,046 (R$ 24,275 at June 30, 1997) in ITAÚ CONSOLIDATED, Dividends Income R$ 1,988 in ITAÚ and R$ 27,249 in ITAÚ CONSOLIDATED, Operating Income from Insurance R$ 27,019 (R$ 2,820 at June 30, 1997) in ITAÚ CONSOLIDATED, Credit Card Company Income R$ 8,220 in ITAÚ CONSOLIDATED, Credit Card Company Provisions and expenses R$ 222,469 (R$ 140,320 at June 30, 1997) in ITAÚ CONSOLIDATED, Other Tax Expenses R$ 66,682 (65,041 at June 30, 1997) in ITAÚ and R$ 104,676 (R$ 97,820 at June 30, 1997) in ITAÚ CONSOLIDATED, Other Provision Expenses R$ 15,304 (R$ 446 at June 30, 1997) in ITAÚ and R$ 66,014 (R$ 12,282 at June 30, 1997) in ITAÚ CONSOLIDATED and Insurance Operations Expenses R$ 27,633 (R$ 7,264 at June 30, 1997) in ITAÚ CONSOLIDATED. k. Foreign loans represent foreign exchange operations which are basically related to export financing. l. In accordance with the Brazilian Central Bank instructions, the balances of floating exchange rate and free exchange rate transaction excesses are disclosed separately as assets and liabilities, without considering the possibility of offsetting. m. On May 19, 1998, Itaú signed an agreement to purchase control of Banco del Buen Ayre S.A. and its affiliates Externalización Global S.A. and Inversora del Buen Ayre S.A. Sociedad Gerente de Fundos de Inversión, for approximately US$ 225 million. As soon as the evaluation process is finished and approval has been obtained from the Argentine and Brazilian authorities, ITAÚ will take over management of the bank. n. As of June 30, 1998, the solvency coefficient was 19,8% (18,4% as of June 30, 1997), which is above the minimum coefficient established by the Brazilian Central Bank. 59

58 Notes to the Financial Statements In Thousands of Reais Note 16 Modification of IT Systems Processing of dates after 1999 Aware of the serious impact that the system inadequacy could have caused on its own business and customer s business, Itaú has been implementing the necessary procedures since 1996, to adapt all the systems to year We have named this set of procedures Project Year The technical infrastructure for systems development and maintenance has been modified in order to simplify the compliance process. A specific methodology for the conversion which comprises the inventory of processes and applications that are affected by the millennium bug; the analysis of the impact of the changes to be made; the planning of the conversion; and the development of tests for establishing their adequacy was developed. The utilization of this methodology covers the analysis of the hardware involved, basic administrative software, management information, communications and building infrastructure technology, as well as interfaces with customers, partners and suppliers. Given the characteristics of the systems development process at Itaú and with the use of the internal technical structure which has been adapted to include the Project Year 2000, the activities involved in the compliance process are being developed internally as a natural extension of systems maintenance activities. Approximately R$ 87.8 million was budgeted for investment in this project, as follows: Direct labor Implemented up to June 1998 Estimated up to December 1998 Programming Tests Third-party services Basic software Processing costs As of June 1998, 58% of the necessary modifications had already been completed. Approximately, 13% are already being tested and the remaining modifications are in various stages of implementation. The complete process is expected to be concluded by the end of the year, thus guaranteeing the continuity of business, as well as good service and the relationship with our customers. 60

59 Notes to Financial Statements In Thousands of Reais Note 17 Relevant Investments in Subsidiaries and Affiliates Companies Capital Adjusted Stockholders Equity Book Value of Investment Balances of Operations Between Banco Itaú Number of Shares Quotas Owed by Banco Itaú S.A. Participation in Participation in Adjustments Resulting from Valuation Net Income for Period S.A. and Subsidiaries and Affiliates Voting Capital % Capital % Ordinary Nominative Preferred Nominative Quotas Assets/Liabilities Income/Expenses 1 st Semester st Semester 1997 I - Consolidated A) Financial Activities and Similar Activities 3,327, , ,502 AESA Administração e Participações Ltda (1)(2) 230, , , ,149, , (17a) 3,998 0 Afinco - Américas Madeira, SGPS, Ltda (1) 43, ,907 67, ,932,915, , ,139 (18) 9,140 (18) Banco Banerj S.A. (1)(3) 381, ,959 (15a) 383,843 3,310,391, ,205 (2,259,366) (16a) (279,560) (1,103) 0 Banco Francês e Brasileiro S.A. (1) 472, ,576 (15b) 521,576 2,459,495, , ,478 (16b) 57,134 17,967 17,517 Banco Itaú Argentina S.A. (1) 144,613 84,230 84,230 89,999,997 35,000, (18,617) 0 0 (15,920) (18) (8,719) (18) Itaú Banco de Investimento S.A. (1) 26,600 32,930 (15c) 32,930 7,197,594 1,585, ,609 (66,360) (16c) (8,787) (17d) 2,670 3,319 BFB Consultoria Empresarial Ltda (1)(4) 16,785 45,720 12, ,572, , (17e) 1, (19) BFB Corretora de Mercadorias Ltda (1)(5) 933 1, (32) 0 35 (17a) 0 0 BFB Financeira S.A. Créd.Financ. e Investimento (6) BFB Leasing S.A. Arrendamento Mercantil (1) 61,226 74,054 (15d) 74, , ,788 (448,263) (16d) (8,162) (17f) 6,580 1,545 Banco Itaú Europa Luxembourg S.A (1) 10,991 11,030 11,022 1, (18) 27 (18) Cia. Itauleasing de Arrendamento Mercantil (1) 209, ,869 (15e) 108, , ,376 (1,925,527) (16e) (38,945) (17g) 6,,117 37,034 Itau Bank Ltd (1) 138, , , ,000, , (16f) 0 13,783 (18) 12,542 (18) Itau Bankers Trust - Banco de Invest. S.A. - I.B.T. (1) 51,293 57,591 30,955 49,440,118 56,856, , ,160 (16g) 2,360 (17h) (431) 1,526 Itaú Capitalização S.A. (7) ,119 Itaú Previdência e Seguros S.A. (7) Itaú Corretora de Valores S.A. (1) 87, ,147 (15f) 48,213 3,136, ,447 (200,267) (16c) (20,438) (17i) 4,892 17,146 Intrag-Part Administração e Participações Ltda (*) (1)(8) 1,476,770 1,907,908 1,035, ,105, , (17a) 0 0 Financial Income 15,292 0 Equity Interest in Financial Subsidiaries Banerj Corretora de Seguros e Administradora de Bens S.A. 10,913 0 Itaú Capitalização S.A. 58,032 0 Itaú Previdência e Seguros S.A. 8,588 0 Itaú Seguros S.A. 48,939 0 Itausaga Corretora de Seguros Ltda 15,454 0 Equity Interest in Financial Income of Companies Similar to Financial Subsidiaries Focom Total Factoring Ltda 5,477 0 Itaú Gráfica Ltda. (*) (1) 418, ,809 85, ,396, , (17e) 0 0 Financial Income ,747 Itaú Participações Ltda : (*) (1) 156, ,601 (15g) 286, ,175, ,677 50,000 (16h) 38 (17a) 0 0 Financial Income 48,428 (4,620) Equity Interest in Financial Subsidiaries Banco Itaú Europa, S.A. 2,077 (1,545) BPI - SGPS, S.A. (4,830) (1,268) Equity Interest in Financial Income of Companies Similar to Financial Subsidiaries Focom - Fomento Comercial Ltda 0 12,349 Itaú Promotora de Vendas Ltda 11,318 3,154 Credicard S.A. - Adm. de Cartões de Crédito 3,739 42,823 Redecard S.A. 8,225 4,128 Itaucard Adm. Cartões de Créd.e Imob.Ltda 1,234 13,070 Itaú Adm. de Consórcios S/C Ltda Franseg Corretora de Seguros Ltda. (1) 8 6,287 6, , (17a) Itauseg Investimentos S.A. (9) ,168 Itaú Seguros S.A ,615 Itaú Asset Management Ltda (1) , ,337 3,855 (16i) (49,031) (17j) Itaú Promotora de Vendas Ltda. (1) 128, , , , (17a) 1 2 Itaucard Adm. de Cartões de Crédito e Imobiliária Ltda. (1) 224, , , (17a) 4 7 B) Non Financial Activities - Operating Income 14, ,081 Armazéns Gerais Itaú Ltda. (1) 5,153 12,354 12, ,836, (17a) Cia. Bancredit - Serviços de Vigilância (10) ,507 Itaú Gestão de Ativos S.A. (1)(11)(12) 107, ,676 1,897 4,874,160 4,420, (17a) 42 0 Itautec Comp. da Amazônia S.A.-Itaucam (1)(11) 1,230 1, ,806, ,344, (2) Vest-Part S.A. (1) 1,145 1, (11) II - Non Consolidated 74,768 3,510 1,902 Duraflora S.A. (1) 90, ,148 (15h) 32,114 5,645 17, , (264) Itaú Planejamento e Engenharia Ltda. (1) 772 3, , (1,866) (17k) 155 (166) Itautec Comp. da Amazônia S.A.-Itaucam (11) (1) Serasa Centr. de Servs. dos Bancos S.A. (13) 45,400 57,592 10, , , , ,811 2,502 Union Carbide do Brasil S.A. (14) 130, ,118 30,921 58,825, , (169) Operating Results 280, ,483 Total Appropriated to Results (+) Income from Subsidiaries and Affiliates 303, ,235 (-) Expenses form Subsidiaries and Affilates (22,284) (16,752) Non Operating Results 0 2 (1) Information as of June 30, 1998; (2) Company established on October 22, 1997; (3) Investment acquired on July 9, 1997; (4) Investment acquired on April 30, 1997; (5) Investment became indirectly controlled during 1997; (6) Investment disposed of on March 30, 1998; (7) Indirect control as of the second half of 1997; (8) Investment acquired on December 10, 1997; (9) Company merged with Banco Itaú on December 31, 1997; (10) Company merged with Banco Itaú on October 31, 1997; (11) Investment became a controlled subsidiary during the second half of 1997; (12) New name of Philco da Amazonia S.A.; (13) Data as of May 31, 1998; (14) Data as of April 30, 1998; (15) Dividends provided for in the amounts of: a) R$ 251, b) R$ 4,268, c) R$ 620, d) R$ 1,613, e) R$ 232, f) R$ 175, g) R$ 50,000, h) R$ 11; (16) a) Third-party fixed income securities, dividends receivable, interbank deposits and repurchases in transit; b) Third-party interbank deposits, swap differential receivable, dividends receivable and repurchase agreements for settlement; c) Third-party dividends receivable and repurchases for settlement; d) Interbank deposits, swap differential receivable, dividends receivable and debentures; e) Interbank repasses, dividends receivable, debentures, interbank deposits and swaps payable, f) Overseas deposits - foreign currency; g) Swap receivable, own position repurchase for settlement, and interbank deposits; h) dividends receivable; i) revenue from services rendered; (17) a) Revenues from existing agreements; b) revenue from standing agreements, interest on fixed income securities, other operating income, expenses with interbank deposits and expenses with repurchase commitments; c) revenues from standing agreements, income from interbank funds applied, income from fixed income securities, income from repurchase agreements, income from services rendered and income from interbank repasses; d) revenue from existing agreements, interest on fixed income securities, expenses with interbank deposits and expenses with repurchase operations; e) revenues from standing agreements and rental expenses; f) revenues from standing agreements, interest on private sector fixed income securities, interest on fixed income securities - debentures and expenses with investments in fixed income securities; g) revenues from standing agreements, income from private sector fixed income securities, interest from fixed income securities - debentures, interest from interbank repasses and expenses with interbank deposits; h) income from repurchase commitments operations, interest from interbank deposits and losses from operations with financial assets; i) revenue from standing agreements, expenses with interbank deposits and expenses with repurchase commitments operations; j) revenues from standing agreements and expenses with third-party services; k) expenses with specialized technical services; (18) Includes the total adjustment of price-level restatement/monetary variation, as follows: R$ 15,443 of 1998 first half revenues and R$ 6,317 of 1997 first half revenues; (19) Includes non-operating income due to changes in ownership amounting to R$ 2. (*) The financial results of Itaú Participações Ltda., Itaú Gráfica Ltda. and their subsidiaries, as well as Intrag - Part. Administração e Participações Ltda. and its subsidiaries are being allocated to Itaú's financial institutions and other companies income, in order to better demonstrate the results of these activities

60 Notes to the Financial Statements In Thousands of Reais Nota 18 Additional Information on Affiliates and Subsidiaries In order to permit a better analysis of the financial situation of the group, we present a summary of accounting information which has been consolidated according to the activities of the respective companies, as well as branches and financial institutions which are located overseas. a. Consolidated Credit Card Companies Information Insurance and Capitalization Companies Pension Funds Information Assets Credit Card Companies (1) Insurance and Capitalization Companies and Pension Funds (2) Current and long-term assets Cash and cash equivalents 0 0 5,169 5,033 Interbank funds applied 0 0 2,037,164 1,638,729 Insurance receivable , ,168 Notes and credtis receivable , ,521 Card holder purchase 666, , Other receivables 257, , Deposits for tax incentive 35,095 30, Other assets 227, , Permanent assets Investments 5,621 8,241 1,449,281 21,577 Property and equipment 39,799 35, , ,424 Deferred 13,481 2,373 5,843 3,793 Total 1,246, ,510 4,436,132 2,313,245 Liabilities Credit Cards Companies (1) Insurance and Capitalization Companies and Pension Funds (2) Current and long-term liabilities Technical provisions of insurance, pension plans, and capitalization - vinculated , ,891 Insurance operations payable ,369 63,673 Borrowings 254, , Taxes and social security contribution 20,590 28, , ,598 Technical provisions of insurance, pension plans, and capitalization - not vinculated 0 0 1,595,435 1,252,555 Other liabilities 651, , ,483 66,058 Net income Stockholders equity 308, ,188 2,056, ,712 First half income 12,034 45, ,347 41,758 Total 1,246, ,510 4,436,132 2,313,245 b. Foreign Branches/Financial Institutions Assets Current and long -term assets Foreign Branches (1) (1) Includes Grand Cayman and New York Branches (2) Data relative to May 31, converted to the rate of June 30. Banco Itaú Argentina S.A. Banco Itaú Europa S.A. Consolidated (2) Banco Itaú Europa Luxembourg S.A. Itau Bank, Ltd Cash an cash equivalents 6, ,240 36,574 3,660 1,952 16,877 1,601 2, Interbank funds applied 510, ,525 9,,573 29, , , ,757 69,439 Securities 938, ,190 14,458 12, , ,553 2, , ,201 Loans 1,914,021 1,533, , , , ,719 21,053 11, , ,387 Prepaid expenses 2,673 1, ,579 13, , Other receivables 56,029 5,457 38,972 20, Other assets Other receivables - other Permanent assets Investments Property and equipment ,470 16,375 3,391 4, Deferred ,121 21, Total 3,429,769 2,649, , ,187 1,019, ,783 41,663 15, , ,891 Liabilities Current and long-term liabilities Foreign Branches (1) Banco Itaú Argentina Banco Itaú Europa S.A. Consolidado (2) Banco Itaú Europa Luxembourg S.A. Itau Bank, Ltd Deposits Money market Borrowings Other liabilities Others Net income Stockholders equity First half income (18.617) (10.992) (166) Total (1) Includes Banerjcard Administradora de Cartão de Crédito Ltda. (company founded on June 29, 1998 and not included in the consolidation until June 30, 1998), BFB Administradora de Cartões de Crédito e Serviços Ltda, Credicard Comercial e Importadora Ltda., Credicard S.A. Administradora de Cartões de Crédito, Itaucard Administradora de Cartões de Crédito e Imobiliária Ltda. and Redecard S.A. (2) Includes Banerj Seguros S.A. (acquired on July 9, 1997 and therefore, only included in the consolidation of June 30, 1998), Itaú Capitalização S.A., Itaú Previdência e Seguros S.A. and Itaú Seguros S.A. and its subsidiaries - companies regulated by the Insurance Company Regulatory Agency (SUSEP)

61 Independent Auditor s Report (A translation of the original report in Portuguese as published in Brazil, containing financial statements prepared in accordance with accounting practices derived from the Brazilian Corporation Law) To the Stockholders and Administrative Council of Banco Itaú S.A. São Paulo, SP We have examined the balance sheets of Banco Itaú S.A. and the consolidated balance sheets of Banco Itaú S.A. and its subsidiaries as of June 30, 1998 and 1997, and the related statements of income, changes in stockholders' equity and changes in financial position for the semesters then ended, which are the responsibility of its management. Our responsibility is to express an opinion on these financial statements. Our examinations were conducted in accordance with auditing standards and included: a) planning of the audit work, considering the materiality of the balances, the volume of transactions and the accounting systems and internal accounting controls of the Bank and its subsidiaries; b) verification, on a test basis, of the evidence and records which support the amounts and accounting information disclosed; and c) evaluation of the most significant accounting policies and estimates adopted by Bank and its subsidiaries management, as well as the presentation of the financial statements taken as a whole. In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Banco Itaú S.A. and the consolidated financial position of Banco Itaú S.A. and its subsidiaries as of June 30, 1998 and 1997, and the results of its operations, changes in its stockholders' equity and changes in its financial position for the semesters then ended, in conformity with accounting practices derived from the Brazilian Corporation Law. August 3, 1998 KPMG Peat Marwick CRC 2SP014428/O-6 Member Firm of Klynweld Peat Marwick Goerdeler José Marcelo Bessan Accountant CRC1SP129705/O-0 65

62 Organization of Banco Itaú Executive Banking Committee (CEB) Commercial Strategy Chairman of the Board Olavo Egydio Setubal Process and Costs Committee (CRPC) Executive Financial Committee President and CEO Roberto Egydio Setubal Community - Oriented Program Executive Committee (CEAC) Operational Committee Data Processing Human Resources Executive Committee Human Resources Policy Credit Committee Audit Committee Investment Committee Financial Area Investment Area Retail Banking Operations Middle Market Banking Operations Corporate Banking Operations Olavo Franco Bueno Jr. Alfredo Egydio Setubal João Jacó Hazarabedian Ronald Anton de Jongh Sérgio Silva de Freitas EDP & Back Office Accounting & Control Area Marketing Human Resources & Administrative Area Products Area Renato Roberto Cuoco Henri Penchas Antonio Jacinto Matias Luiz Cristiano de Lima Alves Milton Luís Ubach Monteiro Legal Consultant Luciano da Silva Amaro International Area Alberto Dias de Mattos Barretto Audit & Credit Area Humberto Fábio Fischer Pinotti Banco Itaú Argentina Antonio Carlos Barbosa de Oliveira Personnalité (BFB) & Direct Channels Ruy Villela Moraes Abreu Board of Directors Aloysio Ramalho Foz Ana Lúcia de Mattos Barretto Villela Antonio Gomes da Costa António Tomás Correia Carlos da Câmara Pestana Henri Penchas Jairo Cupertino Luiz Assumpção Queiroz Guimarães Luiz de Moraes Barros Maria de Lourdes Egydio Villela Maurício Villela Olavo Franco Bueno Júnior Roberto Egydio Setubal Sergio Silva de Freitas Managing Directors Aldous Albuquerque Galletti Alexandre de Barros Aluísio Paulino da Costa Antonio Carlos Morelli Antonio Pedro da Costa Artur José Fonseca Pinto Carlos Henrique Mussolini Cláudio Rudge Ortenblad Edelver Carnovali Fernando Antonio Neves Lima Gunter Hans Adolf Hierneis Hélio Ramos Domingues Hitoshi Suzuki João Antonio Dantas Bezerra Leite João Antonio Oliveira Lima João Batista Videira Martins João Costa José Antonio Lopes José Caruso Cruz Henriques José Cláudio Arouca José Geraldo Borges Ferreira Luiz Antonio Fernandes Valente Luiz Antonio Ribeiro Luiz Antonio Rodrigues Luiz Fernando de Assumpção Faria Manoel Antonio Granado Marco Antonio Monteiro Sampaio Marcus Aurélio Mangini Maria Cristina Lass Osvaldo do Nascimento Paulo Roberto Soares Pedro de Alcântara Nabuco de Abreu Rodolfo Henrique Fischer Silvio Aparecido de Carvalho Vilson Gomes de Brito Advisory Board Américo Oswaldo Campíglia Daniel Machado de Campos Fernando de Almeida Nobre Filho Joaquim Francisco Monteiro de Carvalho José Bonifácio Coutinho Nogueira Lício Meirelles Ferreira Luiz Eduardo Campello Olavo de Queiroz Guimarães Filho International Advisory Committee Olavo Egydio Setubal Roberto Egydio Setubal Alberto Dias de Mattos Barretto Antonio Carlos Barbosa de Oliveira António Tomás Correia Carlos da Câmara Pestana Dieter Rampl Henri Penchas Hiroshi Hagihara José Carlos Moraes Abreu Maria de Lourdes Egydio Villela Olavo Franco Bueno Júnior Renato Roberto Cuoco Sergio Silva de Freitas Thomas E. Krayenbühl 66

63 Banco Itaú S.A. FOR FURTHER INFORMATION PLEASE GET IN TOUCH WITH: INVESTOR RELATIONS DIRECTOR Alfredo Egydio Setubal Rua Boa Vista, 185-8º andar São Paulo - Brazil - CEP Phone: Fax: Internet: