Banco Itaú S.A. December Consolidated Financial Statements and Management s Discussion & Analysis

Transcription

1 Banco Itaú S.A. December 2001 Consolidated Financial Statements and Management s Discussion & Analysis

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4 MAIN DATA AT DECEMBER ITAÚ (1) BEG (2) SUDAMERIS (2) TOTAL (3) 31, R$ Million Assets 80,814 1,320 18, ,850 Loans 34, ,057 43,339 Own free and third-party funds 67,285 1,086 16,932 85,303 Managed funds 55, ,205 64,001 Branches and Bank 2, ,444 Service Posts (4) No. of clients 8,169, ,181 1,300,000 9,896,949 do and LAM

5 % Growth (2001/2000) Statements of Income - R$ million Consolidated net recurring income 1,518 1,918 2, Consolidated net income 1,869 1,841 2, Individual net income 1,956 1,830 2, Net income per thousand shares Consolidated net income Book value Interest on own capital Price of Registered Preferred Share (PN) (1) 142,52 170,81 174, Total interest on own capital - R$ million Market capitalization (2) - R$ million 16,804 19,664 19,499 (0.8) Balance Sheet - R$ million Total assets 51,911 69,555 81, Total loans 20,005 27,253 34, Own free, third-party and managed funds 74,881 98, , Subordinated debt (3) - - 1,433 - Individual stockholders equity 6,420 7,145 8, Consolidated stockholders equity 5,907 6,642 7, Financial ratios (%) Return on Equity (ROE) recurring Consolidated ROE Return on Assets (ROA) Risk-based capital ratio (Basle Ratio) Efficiency ratio Capitalization ratio ) Average price for the month of December. (2) Calculated based on the average preferred share trading quotation in December. With this amount Itaú became the Brazilian private company and the Latin American bank with highest market value. (3) Itaú raised US$ 343 million as subordinated debt, repayable in ten years. This debt issue was classified as Triple A by Moody s and was placed in the US, European and Asian markets, with a tranche in US dollars and another in Japanese yens. The transaction is the first subordinated debt issue overseas made by a Brazilian bank and it is the bond of a private Brazilian company with the longest maturity. In view of its characteristics, the issued amount can be added to the Bank s capital base for regulatory purposes, both for leverage and capitalization purposes, allowing the continuous growth of the Bank without using additional shareholders' funding. Itaú was awarded for this unique transaction the Deal of the Year Award Latin America by the Euromoney magazine. Besides that, it raised R$600 million in non-convertible debentures, falling due in 7 years, with no projected amortization or renegotiation and paying interest semi-annually at the CDI rate plus 0.75% p.a.

6 (In R$ million) % growth 2001/2000 Total loans 20,005 27,253 34, Local Currency 14,922 20,503 25, Individuals 6,505 9,354 11, Small businesses and middle market 1,777 2,535 3, Large companies 6,640 8,614 11, Foreign Currency 5,083 6,750 8, Trade Finance 2,852 3,732 4, Other 2,231 3,081 3, Interbank deposits 7,240 8,725 10, Securities 13,881 19,938 19,318 (3.1)

7 In R$ Million % growth 2001/2000 Total funds 74,881 98, , Own free funds 3,371 3,991 4, Third-party funds 39,516 52,887 63, Demand Deposits 4,547 6,398 7, Savings Deposits 14,829 16,099 16, Time Deposits 3,566 5,148 4,599 (10.7) Money market 5,063 11,173 12, Funds from acceptances and securities 2,952 2,967 2,906 (2.1) Interbank deposits On-lending borrowings 1,866 3,220 3, Loans 3,404 3,652 5, Collection of taxes Foreign exchange portfolio 563 1,025 5, Technical provision of insurance, pension plans and capitalization operations 2,270 2,762 3, Subordinated debt - - 1,433 - Managed funds 31,994 41,664 55, Investment funds 25,753 36,545 49, Managed portfolios 6,241 5,119 6,

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9 QUANTITIES % GROWTH 2001/2000 Service points Branches 1,671 2,029 2, PABs (Bank Service Posts) Itaú ATMs (CEIs) 11,361 11,375 13, QUANTITIES (million) % GROWTH 2001/2000 Clients (1) Current accounts (1) Savings accounts (1) (8.1) Home & office banking clients Debit cards QUANTITIES (million) % GROWTH 2001/2000 Total self-service transactions 1,224 1,322 1, Drafts in ATMs Deposits in ATMs Transfers in ATMs (3.1) Self-service consultations ATM transactions Direct debit payments Telephone transactions (1) (7.9) Transactions via Bankline Transactions in branches 1,656 1,826 1, Purchases with debit card Purchases with credit card (2)

10 (In R$ million) ITAÚ BUEN AYRE ITAÚ EUROPA + ITAÚ LUXEMBOURG % Growth 2001/ % Growth 2001/2000 Consolidated assets 1,291 1,409 1,563 10,9 2,371 3,036 4, Credit operations (4,6) 880 1,073 1, Own free and third-party funds 1,066 1,212 1,329 9,7 2,253 2,896 3, Managed funds (51,6) Stockholders equity , Net income (48) (63) 2 103, ROE % (17.2) (21.8) ROA % (3.7) (4.5) Solvency ratio %

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12 ITAÚ ITAÚ CONSOLIDATED ASSETS CURRENT ASSETS... 41,273,830 32,350,422 56,378,990 48,772,901 CASH AND CASH EQUIVALENTS (Note 20 i) 1,519,104 1,291,964 1,895,760 1,561,630 SHORT-TERM INTERBANK DEPOSITS (Note 4 b) 8,991,211 8,045,341 9,778,330 8,694,752 Money market... 6,167,455 5,791,112 5,984,456 5,503,974 Interbank deposits (Notes 5 a and 5 b)... 2,824,224 2,254,260 3,794,621 3,190,809 (Valuation allowance) (Notes 5 a and 5 c)... (468) (31) (747) (31) SECURITIES (Notes 4 c and 5)... 6,714,531 7,266,872 10,521,980 13,457,061 Own portfolio... 2,558,991 4,932,079 6,915,095 10,677,288 Subject to repurchase commitments... 3,473,527 2,338,463 3,061,238 2,608,568 Pledged in guarantee... 1,058, ,669 1,058, ,506 Subject to forward commitments: Unexercised contracts and premiums... 62,491 79,788 80, ,444 Deposited with the Central Bank... -o- -o- -o- 129,285 Privatization certificates... -o- -o (Valuation allowance) (Notes 4 c, 5 a and 5 c)... (438,756) (758,127) (593,013) (819,032) INTERBANK ACCOUNTS... 3,936,996 3,178,505 4,825,676 4,085,911 Pending settlements... 68,853 8,759 71,620 10,092 Compulsory deposits: Central Bank of Brazil... 3,858,186 3,163,178 4,740,339 4,060,908 National Housing System... 9,649 6,209 10,770 6,399 Interbank on-lending... -o o- -o- Correspondents ,947 8,512 INTERBRANCH ACCOUNTS... 1,578 9,073 34,567 22,370 Third-party funds in transit 1,578 1,179 1,658 1,562 Own funds in transit... -o- 7,894 32,909 20,808 LOAN OPERATIONS (Note 6)... 11,514,484 8,154,659 15,949,495 12,375,122 Loans: Public sector , , , ,566 Private sector... 12,485,866 8,915,268 17,216,180 13,192,164 (Allowance for loan losses) (Notes 4 d and 6 e)... (1,102,162) (925,901) (1,407,892) (1,046,608) LEASING OPERATIONS (Note 6)... 55,702 -o- 564, ,068 Lease receivables: Private sector... 57,367 -o- 621, ,524 (Allowance for leasing losses)... (1,665) -o- (57,818) (33,456) OTHER RECEIVABLES... 8,301,615 4,190,182 12,290,202 7,531,613 Foreign exchange portfolio (Note 7)... 5,857,212 2,176,455 5,999,331 2,152,372 Income receivable ,666 99, , ,615 Securities clearing accounts , , , ,702 Specific credits ,380 -o- 55, Others (Note 11 a)... 1,865,963 1,537,808 5,174,169 4,236,918 (Allowance for losses) Notes 4 d and 6 e)... (7,302) (8,241) (25,017) (9,196) OTHER ASSETS , , , ,374 Short-term investments... -o- -o- 3,640 3,640 (Allowance for losses)... -o- -o- (3,639) (3,640) Other assets , , , ,023 (Valuation allowance)... (76,753) (88,404) (144,120) (174,650) Prepaid expenses... 88,411 57, , ,001 LONG-TERM ASSETS... 16,907,848 14,465,022 22,082,999 17,585,027 LONG-TERM INTERBANK DEPOSITS (Note 4b) 296,122 30, ,686 30,543 Interbank deposits (Notes 5 a and 5 b) ,950 30, ,514 30,543 (Valuation allowance) (Notes 5 a and 5 c)... (828) -o- (828) -o- SECURITIES (Notes 4 c and 5)... 8,255,537 7,456,596 8,795,637 6,480,901 Own portfolio 2,658,249 4,322,067 5,190,065 3,372,291 Subject to repurchase commitments... 5,288,199 3,243,126 3,056,542 3,186,700 Pledged in guarantee ,237 23, ,610 75,621 Subject to forward commitments: Unexercised contracts and premiums... -o- -o- 26,646 -o- Deposited with the Central Bank ,818 -o- 520,658 -o- (Valuation allowance) (Notes 4c, 5 a and 5 c)... (211,966) (132,483) (309,884) (153,711) INTERBANK ACCOUNTS... 49,523 61, , ,569 Compulsory deposits: Central Bank of Brazil... -o- -o- 1,183 -o- National Housing System... 49,523 52, , ,569 Interbank on-lending... -o- 9,777 -o- -o- LOAN OPERATIONS (Note 6)... 7,008,633 5,730,401 8,041,306 6,642,190 Loans: Public sector , , , ,929 Private sector... 7,245,336 5,745,056 8,641,222 7,094,199 (Allowance for loan losses) (Notes 4 d and 6 e)... (533,641) (321,420) (977,547) (809,938) LEASING OPERATIONS (Note 6) ,166 -o- 687, ,307 Lease receivables: Private sector ,207 -o- 742, ,219 (Allowance for leasing losses)... (41) -o- (55,165) (57,912) OTHER RECEIVABLES... 1,122,528 1,179,315 3,872,344 3,815,617 Foreign exchange portfolio (Note 7)... 60,942 17,903 62,331 18,349 Income receivable ,001 1,585 3,001 2,022 Securities clearing accounts... 64,658 18, ,585 30,618 Specific credits o- 1,232 -o- 38,101 Others (Note 11 a)... 1,006,730 1,158,089 3,707,170 3,802,508 (Allowance for losses) (Notes 4 d and 6 e)... (12,803) (18,049) (44,743) (75,981) OTHER ASSETS... 43,339 6, ,857 6,900 Prepaid expenses... 43,339 6, ,857 6,900 PERMANENT ASSETS... 12,214,592 10,939,080 3,344,975 3,196,852 INVESTMENTS (Note 4 e)... 8,681,401 8,031, , ,896 Investments in subsidiaries and affiliates: Domestic (Notes 8, 14, 21 a, 21 d and 21 e)... 7,514,970 7,082, ,067 98,094 Foreign (Notes 8, 14 and 21 b)... 1,028, , , ,410 Other investments (Note 8) , , , ,272 (Allowance for losses)... (1,807) (1,807) (6,117) (5,880) PROPERTY AND EQUIPMENT (Note 4 f)... 1,301,346 1,222,623 2,361,198 2,335,084 Property for own use... 1,463,217 1,454,649 2,520,123 2,582,349 Other property and equipment... 1,575,714 1,412,515 2,132,106 1,918,715 (Accumulated depreciation)... (1,737,585) (1,644,541) (2,291,031) (2,165,980) DEFERRED CHARGES (Note 4 g)... 2,231,845 1,685, , ,872 Goodwill to be amortized (Notes 2 a and 12 d)... 1,911,024 1,458,075 -o- 129 Deferred installation expenses (Note 4 g) , , , ,133 (Accumulated amortization) (Note 4 g)... (212,564) (157,227) (205,319) (164,390) TOTAL ASSETS... 70,396,270 57,754,524 81,806,964 69,554,780

13 ITAÚ ITAÚ CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES... 52,888,629 41,798,264 62,159,242 52,847,874 DEPOSITS (Notes 4 b and 9 a)... 24,865,491 21,907,337 28,182,579 27,763,830 Demand deposits... 5,775,991 5,081,851 7,046,981 6,398,306 Savings deposits... 13,335,463 12,398,635 16,170,951 16,098,676 Interbank deposits... 5,138,861 3,547, , ,266 Time deposits , ,110 4,451,076 5,037,582 MONEY MARKET (Notes 4 b and 9 b)... 11,675,542 10,464,420 11,601,680 10,132,569 Own portfolio... 8,113,387 4,732,847 8,597,116 5,086,886 Third-party portfolio... 3,562,155 5,731,573 3,004,564 5,045,683 FUNDS FROM ACCEPTANCES AND ISSUANCE OF SECURITIES... 1,610,391 1,246,454 1,721,017 1,406,041 Mortgage notes ,436 20, , ,731 Debentures... -o- -o- 36,181 -o- Foreign borrowings in securities (Note 9 c)... 1,116,955 1,225,702 1,161,301 1,118,310 INTERBANK ACCOUNTS... 52,474 35,263 53,371 37,886 Pending settlement Interbank on-lending... -o- -o- -o- 560 Correspondents... 52,431 35,208 52,962 37,243 INTERBRANCH ACCOUNTS , , , ,311 Third-party funds in transit , , , ,346 Own funds in transit... 5,749 1,337 9,275 1,965 BORROWINGS (Note 20 i)... 4,233,285 2,652,922 4,434,946 3,068,361 Domestic - public institutions... -o- -o ,745 Domestic - other institutions , , , ,801 Foreign currency trade finance borrowings (Note 20 g)... 3,993,419 2,446,768 4,035,585 2,633,815 ON-LENDING BORROWINGS FROM PUBLIC INSTITUTIONS , , ,236 1,099,605 Federal Development Bank - BNDES , , , ,407 CEF... -o- -o- 6,176 10,732 Federal Capital Goods Financing Agency - FINAME , , , ,252 Other institutions... -o- -o OTHER LIABILITIES... 9,128,871 4,143,056 14,754,099 8,837,271 Collection of taxes and contributions , , , ,407 Foreign exchange portfolio (Note 7)... 4,922,780 1,054,415 5,078,600 1,019,851 Corporate and statutory liabilities , , , ,137 Taxes and social security contributions , ,656 1,071, ,231 Negotiation and intermediation of securities , , , ,301 Technical provisions for insurance, pension plan and capitalization - restricted... -o- -o- 491, ,495 Financial and Development Funds... -o- -o- 1,800 -o- Subordinated debts (Note 9 d)... 19,133 -o- 49,552 -o- Others (Note 11 b)... 1,950,950 1,906,713 6,020,899 5,042,849 LONG-TERM LIABILITIES... 8,916,119 8,793,907 8,559,742 7,044,595 DEPOSITS (Notes 4b and 9 a)... 2,597,859 4,267, , ,236 Interbank deposits... 2,473,076 4,267,580 -o- 885 Time deposits ,783 -o- 148, ,351 MONEY MARKET (Notes 4 b and 9 b) ,660 1,029, ,250 1,039,988 Own portfolio ,660 1,029, ,250 1,039,988 FUNDS FROM ACCEPTANCES AND ISSUANCE OF SECURITIES , ,355 1,184,693 1,560,619 Mortgage notes... -o- 8, ,602 Debentures... -o- -o- 147, ,408 Foreign borrowings in securities (Note 9 c) , ,720 1,036, ,609 INTERBANK ACCOUNTS o- 1 -o- Interbank on-lending o- 1 -o- BORROWINGS (Note 20 i)... 1,186, ,885 1,409, ,546 Domestic - public institutions... -o- -o- 6, Domestic - other institutions ,441 91, ,441 91,820 Foreign currency trade finance borrowings (Note 20 g)... 1,043, ,064 1,260, ,064 ON-LENDING BORROWINGS FROM PUBLIC INSTITUTIONS... 2,241,646 1,952,060 2,369,983 2,120,820 Federal Development Bank - BNDES... 1,704,903 1,470,201 1,745,146 1,514,927 CEF... -o- -o- 33, ,577 Federal Capital Goods Financing Agency - FINAME , , , ,859 Other institutions... -o- -o OTHER LIABILITIES... 1,056, ,922 2,525,408 1,628,386 Foreign exchange portfolio (Note 7)... 4,178 -o- 4,178 4,688 Taxes and social security contributions... 8,062 55, , ,911 Negotiation and intermediation of securities ,815 94, ,324 17,423 Subordinated debts (Note 9 b) ,554 -o- 1,383,279 -o- Others (Note 11 b)... 45, , ,160 1,264,364 TECHNICAL PROVISIONS FOR INSURANCE, PENSION PLAN AND CAPITALIZATION OPERATIONS - NON-RESTRICTED (Note 21 a)... -o- -o- 2,732,086 2,336,555 DEFERRED INCOME... 27,556 17, , ,879 Deferred income... 27,556 17, , ,879 MINORITY INTEREST IN SUBSIDIARIES... -o- -o- 609, ,800 STOCKHOLDERS' EQUITY (Notes 4 a and 12 d)... 8,563,966 7,145,065 7,578,222 6,642,077 Capital: Domestic... 3,038,189 2,406,347 3,038,189 2,406,347 Foreign , , , ,653 Capital reserves (Note 12 c) , , , ,218 Retained earnings (Note 12 c)... 4,974,958 4,254,220 3,989,214 3,751,232 (Treasury shares) (Note 12 a)... (243,439) (311,373) (243,439) (311,373) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... 70,396,270 57,754,524 81,806,964 69,554,780

14 ITAÚ ITAÚ CONSOLIDATED 2nd six-month to to to to period INCOME FROM FINANCIAL OPERATIONS... 5,076,212 10,244,237 7,292,174 14,218,174 9,701,427 Loans... 2,359,381 5,040,032 3,400,229 6,802,469 4,514,198 Leases... 2,520 2, , ,589 Securities portfolio... 2,579,462 4,958,618 3,669,152 6,079,773 4,267,525 Foreign exchange portfolio (Note 7 b)... 46,862 82,429 64, ,435 88,469 Compulsory deposits... 87, , , , ,646 EXPENSES FROM FINANCIAL OPERATIONS... (3,420,288) (7,441,108) (4,725,721) (8,956,095) (5,160,309) Deposits, money market and interbank funds... (2,671,562) (5,565,119) (3,657,770) (5,546,612) (3,212,857) Borrowings and assignments and on-lendings... (318,238) (1,102,078) (613,333) (1,244,296) (661,975) Leases... -o- -o- -o- (720,319) (515,230) Provision for loan losses (Notes 6 e I and 6 g)... (430,488) (773,911) (454,618) (1,444,868) (770,247) GROSS INCOME FROM FINANCIAL OPERATIONS... 1,655,924 2,803,129 2,566,453 5,262,079 4,541,118 OTHER FINANCIAL INCOME (EXPENSES)... (228,720) (180,880) (425,112) (2,275,010) (2,030,274) Banking service fees (Note 11 c)... 1,321,025 2,507,894 2,172,139 4,189,902 3,465,229 Capitalization, insurance and pension plan premiums... -o- -o- -o- 2,576,233 2,176,891 Expenses on technical provisions for insurance,... pension plan and capitalization operations... -o- -o- -o- (865,044) (683,377) Insurance claims... -o- -o- -o- (794,407) (743,253) Selling expenses... -o- -o- -o- (203,603) (198,260) Pension plan benefits expenses... -o- -o- -o- (241,195) (170,487) Salaries and employee benefits (Note 11 d)... (867,683) (1,525,546) (1,371,885) (2,750,442) (2,310,541) Other administrative expenses (Note 11 e)... (1,273,737) (2,361,689) (2,028,435) (3,429,245) (2,872,340) Tax expenses... (180,826) (326,084) (283,189) (687,662) (565,156) Equity in income of subsidiaries and affiliates (Note 14) ,146 1,683,079 1,155,534 11,668 61,218 Other operating income (Note 11 f)... 94, ,186 85, , ,211 Other operating expenses (Note 11 g)... (172,402) (334,720) (154,647) (780,549) (645,409) OPERATING INCOME... 1,427,204 2,622,249 2,141,341 2,987,069 2,510,844 NON-OPERATING INCOME... (21,119) (34,416) (186,071) 100,222 (33,457) INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION AND PROFIT SHARE 1,406,085 2,587,833 1,955,270 3,087,291 2,477,387 INCOME TAX AND SOCIAL CONTRIBUTION Due on operation for the period (Note 10 a)... (12,850) (71,071) (36,727) (499,567) (359,662) Deferred related to temporary additions (Note 10 b)... (101,876) 63,432 (18,501) 65,260 (38,595) EXTRAORDINARY RESULT (Note 17) , ,969 17,064 35,741 (77,434) PROFIT SHARING Employees (Note 20 h)... (59,401) (148,661) (65,543) (179,286) (87,158) Directors - Statutories... (15,958) (28,278) (21,227) (33,461) (25,029) MINORITY INTEREST... -o- -o- -o- (86,510) (48,941) NET INCOME (Note 12 d)... 1,488,019 2,872,224 1,830,336 2,389,468 1,840,568 NUMBER OF OUTSTANDING SHARES (Note 12 a) ,619,436, ,119,851, ,619,436, ,119,851,831 NET INCOME PER THOUSAND SHARES - R$ STOCKHOLDERS' EQUITY PER THOUSAND SHARES - R$ RECURRING NET INCOME (Note 18)... 1,216,000 2,403,255 1,813,272 2,353,727 1,918,002 CHANGES IN RECURRING NET INCOME % 22.7% EXTRAORDINARY RESULT (Note 17) , ,969 17,064 35,741 (77,434) TOTAL PARENT COMPANY... 1,488,019 2,872,224 1,830,336 2,389,468 1,840,568

15 Subscribed Capital Revaluation Income Treasury Retained Total Capital Reserves Reserves Reserves Shares Earnings BALANCES AT ,650, ,415-4,199,371 (289,639) - 7,741,268 Reserves arising from restatement of securities and fiscal incentives Donations reserves Treasury shares (257,109) - (257,109) Cancellation of treasury shares (295,742) 295, Granted stock options - exercised stock options in the period ,247 7,567-11,814 Net income for the period ,488,019 1,488,019 Destinations :... Legal reserve ,401 - (74,401) - Statutory reserves ,681 - (992,681) - Interest on own capital (420,937) (420,937) BALANCES AT ,650, ,326-4,974,958 (243,439) - 8,563,966 MOVEMENT IN THE PERIOD ,587 46, ,698 BALANCES AT ,500, ,390 12,739 3,744,960 (102,198) - 6,419,891 Capitalization of reserves ,000 (63,108) - (436,892) Reserves arising from restatement of securities and fiscal incentives Treasury shares (Note 12 a) (473,960) - (473,960) Cancellation of treasury shares (263,758) 263, Granted stock options - exercised stock options in the period (177) 1, Realization of revaluation reserve of affiliates, net of taxes (12,739) 8, (4,224) Realization of unearned income reserves (390,781) - 390,781 - Net income for the year ,830,336 1,830,336 Destinations :... Legal reserve ,517 - (91,517) - Statutory reserves ,500,836 - (1,500,836) - Interest on own capital (628,764) (628,764) BALANCES AT (Note 12 c)... 3,000, ,218-4,254,220 (311,373) - 7,145,065 MOVEMENT IN THE YEAR ,000 (62,172) (12,739) 509,260 (209,175) - 725,174 Capitalization of reserves ,000 (20,804) - (629,196) Subscribed shares Reserves arising from restatement of securities and fiscal incentives Reversal of reserves from fiscal incentives (2,582) - - (2,582) Donations reserves Treasury shares (Note 12 a) (656,304) - (656,304) Cancellation of treasury shares (Note 12 a) (716,363) 716, Granted stock options - exercised stock options in the period (Note 20 k) ,355 7,875-12,230 Net income for the year ,872,224 2,872,224 Destinations:... Legal reserve ,611 - (143,611) - Statutory reserves ,920,913 - (1,920,913) - Interest on own capital (Note 12 b II) (807,700) (807,700) BALANCES AT (Note 12 c)... 3,650, ,326-4,974,958 (243,439) - 8,563,966 MOVEMENT IN THE YEAR ,121 (19,892) - 720,738 67,934-1,418,901

16 ITAÚ ITAÚ CONSOLIDATED DESCRIPTION 2nd six-month to to to to period A - FINANCIAL RESOURCES WERE PROVIDED BY:... 11,858,967 14,513,827 14,432,294 16,410,043 21,397,518 NET INCOME FOR THE PERIOD... 1,488,019 2,872,224 1,830,336 2,389,468 1,840,568 - Adjusted net income: Depreciation, amortization and depletion , , , , ,909 Income from participation in subsidiaries and affiliates... (850,143) (1,683,681) (1,155,534) (11,668) (61,218) Gain/loss in currencies translation (6,383) 10,577 Extraordinary result in subsidiaries... (174,962) (404,029) (48,316) - - Goodwill amortization... 87, ,451 64, ,695 1,330,970 CHANGES IN DEFERRED INCOME ,412 10, ,901 16,443 STOCKHOLDERS' RESOURCES: - Subscription of shares STOCK OPTIONS GRANTED - EXERCISED IN THE PERIOD... 11,814 12, , THIRD PARTIES' RESOURCES ARISING FROM: - Increase in liabilities: Deposits... 1,541,076 1,288,433 2,839, ,774 4,649,375 Money Market... 3,582,828 1,067,677 6,521,921 1,351,373 6,109,408 Funds from acceptances and issuance of securities , ,134-15,015 Borrowings and on-lendings ,868 2,459,305 1,114,835 2,298,979 1,602,557 Others 4,456,413 5,765,565 1,655,792 6,813,850 3,936,716 Technical provisions for insurance, pension plan and capitalization - Non-restricted , ,136 - Decrease in current and long-term assets: Securities ,345 - Interbank and interbranch accounts , ,537 Leasing operations Disposal of investments: Non-operating assets... 40,182 95, , , ,460 Property and Equipment... 33,886 73,175 20, ,895 80,827 Investments , ,886 37,370 29, ,176 - Dividends from subsidiaries and affiliates ,325 1,163, ,658-9,442 - Deferred write-off ,987 14,881 - Donations CHANGES IN MINORITY INTEREST , ,889 B - FINANCIAL RESOURCES WERE USED FOR:... 11,636,068 14,286,687 14,464,309 16,075,913 21,457,873 DIVIDENDS PROVIDED AND PAID , , , , ,764 PURCHASE OF OWN SHARES , , , , ,960 INVESTMENTS IN: - Non-operating assets... 28,025 72, , , ,279 - Property and Equipment , , , , ,750 - Investments , ,080 2,845,426 62, ,272 DEFERRED CHARGES Goodwill in the acquisition of investments 618, ,561 1,228, ,695 1,361,521 Other 155, , , , ,513 INCREASE IN ASSETS: - Interbank Deposits... 3,292,129 1,211,449 1,400,055 1,344,721 1,485,128 - Securities , ,600 3,620,275-6,056,698 - Interbank and interbranch accounts , , Loan operations... 2,685,807 4,638,057 3,033,094 4,973,489 4,998,633 - Leasing operations , , , ,076 - Other receivables... 1,783,777 4,054, ,670 4,815,316 4,459,262 - Other assets... 69,834 79,063 56, ,316 14,017 DECREASE IN LIABILITIES: - Exchange acceptances , , Interbank and interbranch accounts , INCREASE (DECREASE) IN AVAILABLE FUNDS (A - B) , ,140 (32,015) 334,130 (60,355) CHANGES IN AVAILABLE FUNDS: Cash and cash equivalents - at the beginning of the period... 1,296,205 1,291,964 1,323,979 1,561,630 1,621,985 - at the end of the period... 1,519,104 1,519,104 1,291,964 1,895,760 1,561,630 - Increase or decrease , ,140 (32,015) 334,130 (60,355)

17 Financial system Consolidated (1) Economic-Financial Consolidated (2) Referential equity (3) 11,485,949 10,585,012 Risk Based Capital Ratio 19.5% 16.9% Fixed asset ratio (4) 54.7% 36.7% Excess capital in relation to fixed assets 1,750,516 3,519,660

18 Financial System Consolidated Economic- Financial Consolidated ITAÚ Stockholders Equity 8,563,966 8,563,966 Minority interest not eliminated in the consolidation process Unrealized profits of operations with subsidiary companies Net equity of subsidiary companies held by non financial companies 42, ,594 (1,428) (5,379) 1,447,654 - Subordinated debt 1,432,831 1,432,831 Referential Equity 11,485,949 10,585,012 Adjustments: SWAP operations risk (64,783) (64,782) Foreign exchange risk (896,018) (896,018) Interest rate risk (142,866) (141,390) Other (83,388) (83,388) Adjusted referential equity 10,298,894 9,399,434

19 Financial system consolidated Adjusted Referential Equity Weighted Assets Effect Economic-financial consolidated Adjusted Referential Equity Weighted Assets Effect Ratio of December ,842,045 43,642, % 6,775,779 47,120, % Quarterly results 602, % 613, % Interest on own capital (163,369) % (163,369) % Increase in interest rate risk (252,404) % (252,404) % Increase in foreign exchange exposure 297, % 297, % Purchase of treasury shares (288,297) % (288,297) % Other increases (reductions) in referential equity (6,642) - 0.0% (22,462) - 0.0% Increase in weighted assets - 5,107, % - 4,972, % Ratio of March ,031,226 48,750, % 6,959,986 52,093, % Quarterly results 820, % 824, % Interest on own capital (223,394) % (223,394) % Increase in interest rate risk (26,086) % (26,086) % Increase in foreign exchange exposure (388,294) % (388,294) % Purchase of treasury shares (110,899) % (110,899) % Other increases (reductions) in referential equity (21,761) - 0.0% (42,785) % Reduction in weighted assets - (973,845) 0.3% - (1,176,226) 0.2% Ratio of June ,080,900 47,776, % 6,992,845 50,917, % Quarterly results 886, % 933, % Interest on own capital (241,724) % (241,724) % Decrease in interest rate risk 105, % 105, % Purchase of treasury shares (21,131) - 0.0% (21,131) - 0.0% Issue of subordinated debts 934, % 934, % Reduction in foreign exchange exposure 189, % 189, % Other increases (reductions) in referential equity 73, % (17,680) - 0.0% Increase in weighted assets - 5,941, % - 5,620, % Increase in Foreign Exposure arising from Resolution 2891 (1,275,981) % (1,275,981) % Ratio of September ,731,636 53,718, % 7,598,971 56,538, % Quarterly results 624, % 575, % Interest on own capital (179,213) % (179,213) % Decrease in interest rate risk Circular , % 181, % Purchase of treasury shares (235,977) % (235,977) % Issue of subordinated debts 498, % 498, % Reduction in foreign exchange exposure 922, % 922, % Corporate reorganization 805, % % Other increases (reductions) in referential equity (47,723) % 38, % Reduction in weighted assets - (868,076) 0.3% - (993,766) 0.3% Ratio of December ,298,894 52,850, % 9,399,434 55,544, %

20 Participation % FINANCIAL INSTITUTIONS Banco Banerj S.A. and subsidiaries % 99.99% Banco Bemge S.A. and subsidiaries 99.85% 99.85% Banco Banestado S.A. and subsidiaries (a) 97.39% 89.54% Banco do Estado de Goiás S.A. (in process of change to Banco BEG S.A.) and subsidiaries (b) 84.46% - Banco Francês e Brasileiro S.A % % Banco Itaú Buen Ayre S.A % 99.99% Banco Itaú Europa Luxembourg S.A. and subsidiaries (c) 19.52% 19.52% Banco Itaú Europa S.A. and subsidiaries (c) 19.52% 19.52% BFB Leasing S.A. Arrendamento Mercantil 99.99% 99.99% Cia. Itauleasing de Arrendamento Mercantil 99.99% 99.99% Intrag Distribuidora de Títulos e Valores Mobiliários Ltda % 99.99% Itaú Banco de Investimento S.A % 99.99% Itau Bank, Ltd % % Itauvest Banco de Investimento S.A. and subsidiaries (d) % Itaú Corretora de Valores S.A % 99.99% Itaú LAM Asset Management S.A. (e) 99.99% - NON-FINANCIAL INSTITUTIONS Afinco Americas Madeira SGPS Limitada and subsidiaries 99.66% 99.99% Armazéns Gerais Itaú Ltda % 99.98% Credicard S.A. Administradora de Cartões de Crédito and subsidiaries (f) 33.33% 33.33% Itaú Capitalização S.A % 99.99% Itaucard Administradora de Cartões de Crédito e Imobiliária Ltda 99.99% 99.99% Itaú Gráfica Ltda Itaú Group 99.99% 99.99% Itaú Previdência e Seguros S.A % 99.99% Itaú Rent Administração e Participações S.A % 99.99% Itaú Seguros S.A. and subsidiaries 95.79% 95.98% Itaúsa Export S.A. and subsidiaries (c) 22.23% 22.23% Redecard S.A. (f) 31.94% 31.94% Serasa Centralização de Serviços dos Bancos S.A. (f) 32.41% 31.64%

21

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23

24 ITAÚ ITAÚ CONSOLIDATED Balance at December 31, , ,301 Balance from institutions acquired - 97,376 Increase 33,307 47,912 Write-offs (27,940) (74,815) Reversal (3,159) (37,798) Losses on sales (24,781) (37,017) Balance at December 31, , ,774 Minimum allowance required 144, ,874 Additional allowance (*) 745, ,900 Balance at December 31, , ,774 Increase - 181,507 Write-offs (238,623) (249,809) Reversal (188,499) (199,261) Losses on sales (50,124) (50,548) Balance at December 31, , ,472 Minimum allowance required 237, ,472 Additional allowance (*) 415, ,000

25 ITAÚ Risk levels AA A B C D E F G H Total % Total % Loans operations 7,153,860 4,242,978 4,987,061 1,413, , , , , ,505 20,158, % 15,132, % Loans and discounted trade receivables 4,216,534 2,069,055 2,880, , , , ,105 72, ,579 11,506, % 7,866, % Financing 2,170,346 1,303, , , ,876 24,464 16,611 3,017 17,657 4,723, % 3,715, % Farm and agrobusiness industries 748, , ,061 30,524 4, ,293 2,959 84,580 2,440 1,699, % 1,060, % Real estate financing 18, ,681 1,053, , ,338 20,907 59,365 12,935 59,829 2,228, % 2,489, % Marketable securities % % Leasing operations - 151,368 28,164 6,562 2, , % - 0.0% Other receivables (1) 13,927 12,103 35,866 7,044 3,157 2,937 2, ,129 84, % 81, % Advances on exchange contracts (2) 645, , , ,761 9,400 4, ,133, % 1,176, % Total 7,813,132 4,577,907 5,239,627 1,539, , , , , ,575 21,566, % 16,390, % % 36.2% 21.2% 24.3% 7.1% 4.3% 2.0% 2.1% 0.8% 1.9% 100.0% ITAÚ CONSOLIDATED Risk levels AA A B C D E F G H Total % Total % Loans operations 7,521,961 5,455,368 7,951,454 1,981,545 1,281, , , , ,455 26,376, % 20,873, % Loans and discounted trade receivables 4,565,950 3,130,520 5,653,914 1,083, , , , , ,052 16,903, % 12,589, % Financing 2,188,917 1,350, , , ,581 25,331 17,943 3,483 25,622 4,841, % 3,835, % Farm and agrobusiness industries 748, , ,973 36,809 8, ,099 3,693 84,893 8,720 1,805, % 1,143, % Real estate financing 18, ,260 1,199, , ,064 34,234 77,309 24,188 97,061 2,824, % 3,305, % Marketable securities % % Leasing operations 43, , ,233 96, ,183 11,481 30,339 7,534 48,595 1,364, % 954, % Other receivables (1) 37, ,651 57,447 30,936 6,506 5,783 3,739 3,574 46, , % 661, % Advances on exchange contracts (2) 645, , , ,905 9,596 4, ,141 1,135, % 1,183, % Total 8,247,637 6,964,735 8,430,173 2,222,334 1,402, , , , ,420 29,615, % 23,673, % % 27.8% 23.5% 28.5% 7.5% 4.7% 1.9% 2.3% 0.9% 2.8% 100.0% (1) Comprises honoured endorsements and sureties, receivables from advances, commissions for co-obligation receivable, debts on the purchase of assets and receivables. (2) Recorded under other liabilities.

26 ITAÚ AA A B C D E F G H Total % ABNORMAL SITUATION Falling due installments , , ,385 74, ,416 32, , , % 01 to ,014 4,800 8,629 7,524 28,603 2,905 13,098 67, % 31 to ,494 16,029 6,928 6,988 26,251 2,736 11,804 72, % 61 to ,349 3,340 5,877 5,008 23,147 2,402 9,696 50, % 91 to ,827 9,926 16,302 14,559 63,251 6,243 22, , % 181 to ,625 18,878 21,084 21,367 77,105 5,841 27, , % More than , ,745 82,565 19,411 75,059 11,911 47, , % Overdue installments ,753 30,284 83,054 49,739 74,592 46, , , % 01 to ,944 3,495 1,836 7,554 1,342 5,464 22, % 15 to ,782 4,389 24,219 5,800 8,767 1,553 6, , % 31 to ,277 31,996 10,535 13,959 3,943 14,476 98, % 61 to ,456 11,422 14,170 5,058 16,896 70, % 91 to ,864 29,392 33,383 63, , % 181 to , , % More than ,469 11, % SUBTOTAL , , , , ,008 78, ,764 1,598, % % 0.0% 0.0% 0.8% 1.1% 1.0% 0.6% 1.7% 0.4% 1.9% 7.4% NORMAL SITUATION Falling due operations 7,755,236 4,535,365 5,017,476 1,286, , ,784 82,042 95,273 13,926 19,751, % 01 to , ,345 1,128, , ,282 26,143 14, ,813 3,561, % 31 to 60 1,240, , , ,622 81,985 75,598 8, ,121 2,562, % 61 to 90 1,062, , , ,402 31,226 5,618 4, ,058 1,798, % 91 to 180 1,162, , , ,738 67,246 36,420 11, ,906 2,632, % 181 to 360 1,122, , , ,763 84,420 58,112 16, ,632 2,893, % More than 360 2,173,856 1,653,116 1,686, , ,203 95,894 25,804 93,944 2,397 6,303, % Overdue up to 14 days 57,897 42,541 52,220 22,699 30,449 4,865 4, , % SUBTOTAL 7,813,132 4,577,907 5,069,696 1,308, , ,649 86,422 95,493 14,811 19,967, % % 36.2% 21.2% 23.5% 6.1% 3.2% 1.4% 0.4% 0.4% 0.1% 92.6% TOTAL 7,813,132 4,577,907 5,239,627 1,539, , , , , ,575 21,566, % % 36.2% 21.2% 24.3% 7.1% 4.3% 2.0% 2.1% 0.8% 1.9% ITAÚ CONSOLIDATED AA A B C D E F G H Total % ABNORMAL SITUATION Falling due installments , , , , ,296 50, ,020 1,367, % 01 to ,244 9,190 14,739 9,215 35,035 3,738 19, , % 31 to ,305 18,943 11,108 8,099 31,476 3,502 14,497 91, % 61 to ,832 6,020 9,730 5,990 27,659 3,112 11,834 68, % 91 to ,937 19,036 27,863 17,522 75,959 8,566 30, , % 181 to ,546 30,180 39,332 26,595 94,058 9,383 38, , % More than , , ,633 32, ,109 22, , , % Overdue installments ,592 81, , , , , ,257 1,319, % 01 to ,419 6,459 3,370 13,203 3,601 14,285 44, % 15 to ,033 13,796 38,884 10,146 14,580 2,388 9, , % 31 to ,862 38,984 12,403 17,384 5,120 18, , % 61 to ,422 16,658 21,199 6,636 21, , % 91 to ,535 73, ,287 87,473 83, , % 181 to ,048 1, , , % More than ,010 42, % SUBTOTAL , , , , , , ,277 2,686, % % 0.0% 0.0% 0.8% 1.2% 1.4% 0.7% 1.8% 0.5% 2.6% 9.1% NORMAL SITUATION Falling due operations 8,200,328 6,910,535 8,083,865 1,841, , , , ,769 70,347 26,621, % 01 to 30 1,106,740 1,199,531 3,137, , ,768 42,029 37,498 1,995 11,861 6,270, % 31 to 60 1,075, , , , ,995 86,751 17,797 1,175 7,865 2,979, % 61 to 90 1,086, , , ,457 41,706 7,445 6, ,057 2,527, % 91 to 180 1,196, , , ,832 96,939 41,062 18,099 1,776 11,464 3,088, % 181 to 360 1,277,167 1,130, , , ,710 63,771 26, ,711 3,704, % More than 360 2,458,283 2,272,368 2,156, , , ,423 38,712 94,492 27,389 8,049, % Overdue up to 14 days 47,309 54,200 94,644 37,275 50,028 10,038 10, , , % SUBTOTAL 8,247,637 6,964,735 8,178,509 1,878, , , , ,415 73,143 26,928, % % 27.8% 23.5% 27.6% 6.3% 3.3% 1.2% 0.5% 0.3% 0.2% 90.9% TOTAL 8,247,637 6,964,735 8,430,173 2,222,334 1,402, , , , ,420 29,615, % % 27.8% 23.5% 28.5% 7.5% 4.7% 1.9% 2.3% 0.9% 2.8%

27 ITAÚ ITAÚ CONSOLIDATED Sectors % Sectors % Sectors % Sectors % PUBLIC SECTOR 427, % 487, % 1,048, % 1,054, % Chemical and petrochemical 380, % 487, % 420, % 557, % Other 47, % % 627, % 497, % PRIVATE SECTOR 21,139, % 15,902, % 28,566, % 22,618, % INDUSTRY 7,100, % 4,912, % 8,120, % 5,687, % Food and beverages 1,222, % 943, % 1,515, % 1,123, % Steel, metallurgy and heavy industry 884, % 641, % 1,077, % 766, % Chemical and petrochemical 1,274, % 862, % 1,396, % 964, % Electrical and electronic 506, % 312, % 587, % 365, % Paper and pulp 735, % 419, % 845, % 492, % Light and heavy vehicles 423, % 350, % 455, % 419, % Textile and clothing 355, % 318, % 380, % 346, % Mechanics 182, % 89, % 188, % 95, % Tobacco 224, % 147, % 224, % 147, % Fertilizers, inseticides and crop protection 414, % 210, % 421, % 236, % Autoparts and accessories 148, % 177, % 170, % 199, % Construction material 149, % 114, % 231, % 170, % Pharmaceuticals 176, % 35, % 190, % 49, % Wood and furniture 132, % 74, % 140, % 85, % Tractors and agribusiness machinery 57, % 62, % 58, % 63, % Others 207, % 151, % 235, % 161, % COMMERCE 1,296, % 1,374, % 1,452, % 1,733, % Retailers 1,127, % 984, % 1,218, % 1,063, % Wholesale 126, % 95, % 190, % 207, % Other 42, % 294, % 43, % 462, % SERVICES 5,370, % 3,990, % 5,951, % 4,677, % Telecommunications 2,190, % 1,584, % 2,390, % 1,733, % Electrical energy generation and distribution 780, % 493, % 1,130, % 619, % Financial 996, % 588, % 719, % 485, % Holding and service companies 585, % 305, % 651, % 701, % Contractors and real estate agents 222, % 202, % 272, % 261, % Real estate financings (Company) 177, % 242, % 224, % 326, % Public services and concessionaires 125, % 36, % 216, % 97, % Transportation 169, % 103, % 186, % 146, % Other 121, % 434, % 159, % 304, % PRIMARY SECTOR 738, % 532, % 868, % 682, % Mining 197, % 152, % 251, % 250, % Farming and livestock 539, % 375, % 615, % 422, % Others 2, % 3, % 2, % 9, % INDIVIDUALS 6,588, % 5,005, % 12,035, % 9,590, % Credit cards - 0.0% - 0.0% 2,772, % 2,130, % Real estate financings 2,051, % 2,247, % 2,600, % 2,979, % Consumer loans/vehicles/overdraft 4,537, % 2,758, % 6,663, % 4,480, % OTHER - CORPORATE ENTITIES 44, % 88, % 137, % 247, % TOTAL 21,566, % 16,390, % 29,615, % 23,673, %

28 ITAÚ ITAÚ CONSOLIDATED % of % of % of % of total Risk total Risk total Risk total Risk Largest debtor 799, % 623, % 847, % 624, % 20 largest debtors 7,134, % 5,130, % 7,875, % 6,047, % 50 largest debtors 10,731, % 7,612, % 11,785, % 8,900, % 100 largest debtors 13,571, % 9,353, % 15,001, % 11,147, % ITAÚ ITAÚ CONSOLIDATED Balance at December 31, ,013,454 1,253,371 Balance from institutions acquired - 281,557 Net increase for the period 454, ,247 Net increase allocated to extraordinary results - 50,692 Write-offs (194,461) (322,776) Balance at December 31, ,273,611 2,033,091 Specific allowance (1) 393, ,374 Generic allowance (2) 376, ,101 Additional allowance (3) 503, ,616 Balance at December 31, ,273,611 2,033,091 Balance from institutions acquired - 16,402 Net increase for the period 773,911 1,444,868 Write-offs (389,908) (926,179) Balance at December 31, ,657,614 2,568,182 Specific allowance (1) 709,949 1,254,684 Generic allowance (2) 398, ,498 Additional allowance (3) (*) 549,267 (*) 715,000

29 Risk levels % minimum allowance required Falling due operations and installments Portfolio balance Total allowance Minimum required At At Abnormal situation (1) Normal situation Specific Overdue installments Subtotal Falling due operations Total ITAÚ At Falling due Overdue Subtotal Excess allowance (3) AA 0.0% ,813,132 7,813,132 5,465, A 0.5% ,577,907 4,577,907 3,545, ,889 22,889 20,751 43,640 33,956 B 1.0% 52, , ,931 5,069,696 5,239,627 4,247, ,177 1,699 50,697 52,396 95, , ,637 C 3.0% 200,718 30, ,002 1,308,952 1,539,954 1,191,846 6, ,930 39,269 46,199 99, , ,118 D 10.0% 141,385 83, , , ,248 1,071,612 14,139 8,305 22,444 69,881 92, , , ,294 E 30.0% 74,857 49, , , , ,027 22,457 14,922 37,379 90, ,174 85, ,581 93,996 F 50.0% 293,416 74, ,008 86, , , ,708 37, ,004 43, ,215 65, , ,500 G 70.0% 32,038 46,146 78,184 95, , ,050 22,427 32,302 54,729 66, , , ,818 H 100.0% 132, , ,764 14, , , , , ,764 14, , , ,292 Total 926, ,299 1,598,924 19,967,871 21,566,795 16,390, , , , ,398 1,108, ,267 1,657,614 1,273, , ,807 1,112,154 15,278,023 16,390, , , , , , ,538 1,273,611 Generic Total (2) Existing allowance Existing allowance Risk % minimum allowance required Falling due operations and installments Abnormal situation (1) Overdue installments Portfolio balance At Subtotal Normal situation Falling due operations Total ITAÚ CONSOLIDATED At Falling due Overdue Subtotal Excess allowance (3) AA 0.0% ,247,637 8,247,637 6,407, A 0.5% ,964,735 6,964,735 5,526, ,824 34,824 25,919 60,743 48,142 B 1.0% 105, , ,664 8,178,509 8,430,173 6,958,567 1,051 1,465 2,516 81,785 84, , , ,401 C 3.0% 262,403 81, ,451 1,878,883 2,222,334 1,735,759 7,872 2,431 10,303 56,366 66, , , ,387 D 10.0% 267, , , ,521 1,402,210 1,446,912 26,741 15,928 42,669 97, , , , ,046 E 30.0% 100, , , , , ,511 30,008 34,997 65, , , , , ,205 F 50.0% 365, , , , , , ,648 83, ,498 77, ,280 78, , ,627 G 70.0% 50, , , , , ,335 35,643 74, ,416 70, ,406 6, , ,122 H 100.0% 216, , ,277 73, , , , , ,277 73, , , ,161 Total 1,367,142 1,319,355 2,686,497 26,928,926 29,615,423 23,673, , ,701 1,254, ,498 1,853, ,000 2,568,182 2,033, ,303,635 1,041,487 2,345,122 21,328,755 23,673, , , , ,101 1,430, ,616 2,033,091 Specific Total allowance Minimum required At Generic Total (2) Existing allowance Existing allowance (1) Operations in abnormal situation are considered to be those with installments overdue for more than 14 days or assumed by or the responsibility of companies undergoing debt rehabilitation or in process of bankruptcy. (2) Management has maintained of not using classification "AA" for micro, small and medium companies, and, also, for individuals. Consequently, all loan operations made with customers classified in these segment have related provisions established when the loans are granted. (3) At BACEN's request, the provision was allocated to make explicit, in each risk level, the exceeding amounts quantified using the statistical models so as to evaluate the "stressed" portfolios in the market.

30

31

32 Maturity in days Over 365 Total % Total % Demand deposits 7,016,971 30, ,046, % 6,398, % Savings accounts 16,134,540 36, ,170, % 16,098, % Interbank 235, , , , % 230, % Time deposits 2,275,379 1,854, , ,261 4,599, % 5,147, % TOTAL 25,661,943 2,082, , ,261 28,330, % 27,875, % % by maturity date % 7.4% 1.5% 0.5% % 4.9% 5.4% 0.4% Maturity in days Over 365 Total % Total % Financial institutions 1,686, ,475 10, ,178, % 3,661, % Non financial companies 5,428,163 2,199,150 1,472, ,140 9,640, % 7,476, % Individuals 11,634 29, , , , % 34, % TOTAL 7,126,247 2,709,255 1,766, ,250 12,523, % 11,172, % % by maturity date % 21.6% 14.1% 7.4% % 22.4% 7.7% 9.3%

33 Maturity in days Over 365 Total % Total % Trade Related ITAÚ 67, , ,123-1,009, % 1,225, % Issued abroad 67, , ,123-1,009, % 1,225, % Euronotes - 243, , , % 1,096, % Bankers Acceptance 67, ,740 22, , % 129, % ITAÚ CONSOLIDATED 119, , ,186-1,054, % 1,180, % Issued abroad 119, , ,186-1,054, % 1,180, % Euronotes - 243, , , % 1,050, % Bankers Acceptance 67, ,740 22, , % 129, % Brazil Risk Note Programme 52,327 46, , % - 0.0% Non-Trade Related ITAÚ 21,683 67,135 18, ,265 1,055, % 676, % Issued in Brazil 21,683 67,135 18, ,265 1,055, % 676, % Commercial Paper 21,683 53,494 18,642 96, , % 324, % Fixed Rate Notes - 13, , , % 352, % ITAÚ CONSOLIDATED 21,683 65,388 19,937 1,036,534 1,143, % 771, % Issued in Brazil 21,683 65,388 18, , , % 771, % Commercial Paper 21,683 53,494 18,642 96, , % 478, % Fixed Rate Notes - 11, , , % 292, % Issued abroad - - 1, , , % - 0.0% Fixed Rate Notes - - 1, , , % - 0.0% TOTAL ITAÚ 88, , , ,265 2,065, % 1,902,422 % by maturity date % 22.4% 27.4% 45.9% % 51.8% 9.8% 35.6% ITAÚ CONSOLIDATED 141, , ,123 1,036,534 2,197,835 1,951,919 % by maturity date % 23.1% 23.3% 47.2% % 46.6% 7.9% 42.7%

34 ITAÚ Year 2001 Year 2000 ITAÚ CONSOLIDATED Year 2001 Year 2000 Net income before tax and social contribution 2,587,833 1,955,270 3,087,291 2,477,387 Taxes payable (income tax and social contribution) at rates of 25% and 9% (*) respectively (879,863) (664,792) (1,049,679) (842,312) Increases/Decreases in income tax and social contribution payable as the result of: Permanent (Inclusions) Exclusions 828, , , ,913 Equity in income of subsidiaries and affiliates 572, ,882 3,967 20,814 Non-deductible expenses and provisions 60,328 25, , ,973 Interest on own capital 195, , , ,126 Temporary (Inclusions) Exclusions (37,071) 54,290 58,457 (178,252) Allowance for loan losses (65,922) 22,607 (113,032) 17,918 Labor provisions, tax contingencies and other expenses 28,851 31, ,489 (196,170) Other adjustments: 17,414 (57,252) 27,776 (64,011) Income tax of foreign branches and other expenses 17,414 (57,252) 27,776 (64,011) Income tax and social contribution from operations of the period (71,071) (36,727) (499,567) (359,662) Withholding tax on distribution of interest on own capital (121,155) (94,315) (121,155) (94,315) Total income tax and social contribution due (192,226) (131,042) (620,722) (453,977) (*) In accordance with Note 4 h. ITAÚ Year 2001 Income tax and social contribution to offset related to temporary adjustments 63,432 (18,501) 65,260 (38,595) Tax credits: Increase (reversal) over temporary inclusions/exclusions 37,071 (68,881) (58,457) 161,917 Increase (reversal) over tax loss and negative social contribution 6,808 80,899 56,083 74,100 Increase (reversal) over others 19,553 (30,519) 67,634 (274,612) Year 2000 ITAÚ CONSOLIDATED Year 2001 Year 2000

35 ITAÚ CONSOLIDATED PROVISIONS TAX CREDITS Net Movement Tax credits (*) 2,668, ,132 2,853,903 Related to tax losses 719,800 76, ,529 Related to provision disbursed 825, , ,309 Allowances for losses 553,421 64, ,376 Securities/Interbank deposits devaluation 22,487 35,728 58,215 Allowance for real estate 51,542 (6,644) 44,898 Other 198,520 7, ,820 Related to provisions not yet disbursed (1) 3,851,277 3,796,968 1,123,001 24,064 1,130,065 Related to the operation 2,176,564 2,155, ,970 2, ,612 Interest on own capital 76, ,044 26,086 62,669 88,755 Tax contingencies 469, , ,016 2, ,882 Labor contingencies 553, , ,987 20, ,406 Civil contingencies 219, ,139 62,932 10,982 73,914 Other 856, , ,949 (94,294) 195,655 Related to excess provisions in relation to minimum required not yet disbursed (1) 1,674,713 1,641, ,031 4, ,453 Allowance for loan losses 602, , ,020 42, ,910 Securities devaluation allowance 745, , ,889 (62,898) 182,991 Tax contingencies 326, ,340 46,122 24,430 70,552 (*) Average term estimate for realization is 4 years. (1) From a financial point of view, rather than recording the provisions of R$ 1,888,670 (R$ 1,959,643 at December 31, 2000) in ITAÚ and R$ 3,796,968 (R$ 3,851,277 at December, 31, 2000) in ITAÚ CONSOLIDATED and tax credits of R$ 488,110 (R$ 462,493 at December, ) in ITAÚ and R$ 1,130,065 (R$ 1,123,001 at December, 31, 2000) in ITAÚ CONSOLIDATED. In ITAÚ CONSOLIDATED the requirement should only be considered by the difference, because tax credits would only materialize when the requirement is disbursed. PROVISIONS ITAÚ TAX CREDITS Net Movement Tax credits 872,676 71, ,962 Related to tax losses 93,383 6, ,191 Related to provision disbursed 316,800 38, ,661 Allowances for losses 265,464 37, ,508 Securities/Interbank deposits devaluation 7,999 16,316 24,315 Allowance for real estate 29,292 (3,422) 25,870 Other 14,045 (11,077) 2,968 Related to provisions not yet disbursed (1) 1,959,643 1,888, ,493 25, ,110 Related to the operation 528, , ,139 70, ,592 Interest on own capital 76, ,044 26,086 62,669 88,755 Tax contingencies 38,738 42,323 10,106 1,248 11,354 Labor contingencies 182, ,180 50,879 (9,433) 41,446 Civil contingencies 111, ,995 31,182 1,031 32,213 Other 118, ,188 39,886 14,938 54,824 Related to excess provisions in relation to minimum obligations not disbursed (1) 1,430,993 1,151, ,354 (44,836) 259,518 Allowance for loan losses 503, , ,885 28, ,764 Securities devaluation 745, , ,326 (73,684) 73,642 Tax contingencies 181, ,673 31,143 (31) 31,112 ITAÚ ITAÚ CONSOLIDATED Net Movement Net Movement Deferred Tax Liabilities 17,414 (17,414) - 204,913 42, ,605 Excess depreciation - Leasing ,719 38, ,107 Taxation on results of foreign branches and subsidiaries 17,414 (17,414) - 33,534 (27,775) 5,759 Taxation on foreign results - Capital gains ,221 38,221 Revaluation reserve ,755 (2,528) 18,227 Other ,905 (3,614) 291

36 317 1,017,500 52

37

38 s

39

40

41 CAPITAL RESERVES 182, ,218 Special reserve (Art. 2 - Law 8.200/1991) 181, ,282 Reserve for updating membership certificates 59 - Other REVALUATION RESERVES 4,974,958 4,254,220 Legal 579, ,129 Statutory (*): 4,395,218 3,818,091 Equalization of dividends 2,492,310 - Reinforcement of working capital 1,329,663 - Capital increase of investees 573,245 - Special Itaubanco - 3,818,091

42

43 I - SUBSIDIARY COMPANIES Companies Number of Shares/Quotas Adjusted Investment Owned by Number of Banco Itaú S.A. Capital Stockholders' Accounting Voting Percentage of Adjusted Net Income/(Loss) Equity Value Common Preferred Quotas Shares (%) Ownership (%) for the Period (12) (12) Balances with Banco Itaú S.A and Subsidiaries/Associated Companies A) BANKS 4,028, , , ,126 Banco Banerj S.A. and subsidiaries 97, , ,847 Banco Banerj S.A. (1) 382, , ,198 3,311,855, ,970 (1,080,097) (13 a) (210,201) (14 a) 97, , ,847 Banco Banestado S.A. and subsidiaries 33,520 52,734 16,585 Banco Banestado S.A. (1)(2) 418, , , ,024, ,796, , ,581 (13 b) (86,606) (14 b) 38,375 59,948 (15a) 24,213 Banco delparanás.a (8,886) - - (4,855) (7,214) (7,628) Banco do Estado de Goias S.A. (1)(3) 338, , ,031 1,476,779,183 1,563,845, (64,470) (925) (13 c) 3 (14 c) (10,024) (10,024) - Banco Bemge S.A. and subsidiaries 125, ,392 (10,709) Banco Bemge S.A. (1) 924,000 1,811,151 1,785,175 1,531,948,753,468 1,111,507,153, ,830 (1,694,328) (13 b) (175,440) (14 d) 116, ,283 (15b) (17,002) IFE - Banco Bemge (Uruguay)S.A ,094 (17,310) (13 d) (1,055) (14 e) 9,223 14,109 6,293 Banco Francês e Brasileiro S.A. (1) 451, , ,750 2,348,882, ,333 (59,423) (13 b) (8,503) (14 f) 26,076 19,322 37,421 Banco Itaú Buen Ayre S.A. (1) 343, ,301 17,561 92,810,998 25,585, , (11,729) 2,361 (63,186) Banco Itaú Europa S.A , (13 e) - 3,295 7,283 5,727 Banco ItaúEuropa LuxembourgS.A , ,335 1,441 B) INSURANCES 722, , , ,221 Banerj Seguros S.A ,389 (443) (13 f) 121 (14 g) 5,597 10,712 16,059 Cia. de Seguros Gralha Azul ,589 (1,235) (13 f) 58 (14 g) 612 1,801 (16,914) Itaú Capitalização S.A. and subsidiaries 65, ,800 55,108 Itaú Capitalização S.A ,412 (10) (13 g) (4,513) (14 h) 56,087 83,417 28,356 Itaú Previdência e Seguros S.A. (1) 457, , ,746 (247) (13 h) 3,560 (14 i) 9,885 22,383 26,752 ItaúSeguros S.A. (1)(4) 176, , ,317 35,344,039 11,620, ,098 (9,505) (13 f) (1,747) (14 h) 68, ,746 96,988 Itausaga Corretora de Seguros Ltda ,566 1,035 (13 i) 18,170 (14 j) 30,808 48,731 40,439 Other Subsidiaries (2,372) (13 f) (251) (14 h) 18,757 25,395 11,541 C) CREDIT CARDS 1,805, , , ,954 Itaucard Adm. de Cartões de Crédito e Imobiliária Ltda. and subsidiaries 138, , ,503 Itaucard Adm. de Cartões de Crédito e Imobiliária Ltda. (1) 1,325,855 1,808,506 1,805, ,683, , ,735 (13 j) 33,758 (14 j) 40,102 (15c) 77,880 (15c) 90,186 Credicard S.A. - Administradora de Cartões de Crédito , ,601 (13 k) - 81, , ,398 RedecardS.A , ,091 31,152 21,919 Other Subsidiaries ,476 (13 k) 78 (14 i) (516) 3,181 7,451 D) OTHER FINANCIAL COMPANIES 902, , , ,903 Banestado Corretora de Valores Mobiliários S.A. (1) 47,473 68, , ,103 (93,067) (13 l) (4,331) (14 k) 8,181 22,660 5,209 Banestado Leasing S.A. - Arrendamento Mercantil (1) 54,474 62, , ,158 (9,277) (13 b) (224) (14 f) 9,006 8,523 1,224 BFB Leasing S.A. Arrendamento Mercantil (1) 11,000 19,892 19, , (1,039) (164,617) (13 m) (69,392) (14 l) (458) (900) 593 Cia. Itauleasing de Arrendamento Mercantil (1) 681,000 1,424, ,819 1,673, , ,811 (1,064,484) (13 m) (343,016) (14 l) 206, , ,811 Itaú Banco de Investimento S.A. (1) 58,915 72,313 72,313 10,583,681 4,971, ,536 (55,871) (13 n) (4,547) (14 k) 3,149 3,644 5,190 Itau Bank Ltd ,256 (117,753) (13 o) (4,183) (14 m) (8,630) 20,693 49,984 ItaúCorretora de Valores S.A. (1) 100, , ,023 6,250,000 6,249, ,558 (206,673) (13 l) (19,287) (14 n) 15,947 29,628 32,933 Itaucard Financeira S.A. Crédito, Financiamento e Investimento ,612 (46,116) (13 n) (5,698) (14 n) 4,299 6,631 6,794 Itauvest Banco de Investimento S.A. (5) ,769 5,313 Itauvest Distribuidora de Títulos e Valores Mobiliários S.A ,083 (8,277) (13 p) (1,241) (14 n) 814 1,122 1,410 Other Subsidiaries - - 2, (6,859) (13 l) (998) (14 n) 2,480 3,704 2,442 E) COMPANIES WITH COMPLEMENTARY ACTIVITIES TO FINANCIAL COMPANIES 5,695 ( ) 8,311 90,418 Afinco Américas Madeira, SGPS Limitada , ,079 14,500 Focom TotalFactoringLtda ,448 (3) (13 q) ,448 (1,946) Investimentos Bemge S.A. (6) ,791 (22) (13 h) (2,857) (14 f) ,201 11,516 Itaú Gestão de Ativos S.A. (1) 163, ,024 4,054 4,874,160 5,250, (4) (13 q) ,464 Itau Lam Asset Management S.A. (7) 600 1,467 1, , , (2,696) - - ( ) (2,696) - Itaú Rent Administração e Participações S.A ,984 (28) (13 q) (26,013) (14 o) ( ) (102,605) 63,511 Other Subsidiaries (24) (13 q) (242) (14 o) F) OTHER COMPANIES 1,078, ,051 36,485 Agate S.à.R.L. (8) 843, , ,856 4,010, (4,833) - - ( ) (7,740) - Asban Participações Ltda ,637 (9) (13 r) Cia. Itaú de Capitalização (1) 289, ,167 8,543 5, ,181 (11) (13 r) 1 (14 p) (4911) Figueira Administração e Participações S.A. (9) ItaúGráfica Ltda. - Grupo Itaú ,041 (13) (13 r) (776) (14 o) ( ) (3111) 7870 Itaú Planejamento e Engenharia Ltda ,231 (1) (13 r) 4 (14 q) ItbHoldingLtd. (10) 796, , , ,233, , (2.00) (2) 0 Serasa - Centralização de Serviços dos Bancos S.A. (11) 123, ,099 48, , , , Other Subsidiaries , (13 r) (4,393) (14 o) G) CURRENCY TRANSLATION GAINS ( ) (16) (16) (16) Exchange variation on investments abroad ( ) TOTAL SUBSIDIARIES 8,543, II - ASSOCIATED COMPANIES AGF Brasil Seguros S.A. (1) , (1913) BPI - Sociedade Gestora de Participações Sociais, S.A. (11) , ( ) Other AssociatedCompanies TOTAL ASSOCIATED COMPANIES (17) (17) (17) TOTAL 8,543, ,146 1,683,681 1,155,534 (*) The adjustments arising from indirect participations are reallocated to the origin companies. (1) Information relating to ; (2) New corporate name of Banco do Estado do Paraná S.A.; (3) Investment acquired on (4) Investment acquired on ;(5) Investment sold to third parties on ;(6) New corporate name of Financeira Bemge S.A. Crédito, Financiamento e Investimento; (7) New corporate name of LLoyds TSB Asset Management S. A., investment acquired in September 2001; (8) Company formed on ; (9) Company closed and incorporated by Banco Itau S.A. on ;(10) IInvestment acquired on ; (11) Information relating to ; (12) It refers to direct and indirect ownership;(13) a) Interbank investments and Treasury Notes; b) Interbank investments; c) Interbank for prompt settlement; d) Amounts receivable, Liabilities for intermediation of securities and foreign exchange pending settlement; e) Private bank deposit account; f) Insurance market and private pension deposits; g) Convention for management of portfolio and corporate deposits; h) Corporate deposits and deposits authorized by Brazilian Central Bank; i) Convention for rendering services; j) Loans in the country and corporate deposits; k) Loans in the country; l) Financial Treasury Bills and National Treassury Bills; m) Fixed income securities, Differential Swap payable / Receivable and interbank investments; n) National Treasury Bills; o) Liabilities for securities issued overseas; p) Financial Treasury Bills; q) Corporate deposits; r) Corporate deposits, Dividends receivable and deposits authorized by Brazilian Central Bank; ( 14) a) Expenses with interbank deposits, expenses with committed operations and interbank fees; b) Expenses with interbank deposits, expenses with committed operations and income from interbank deposits; c) Income from change and differences of rates; d) Income from Swap operations and expenses with interbank deposits; e) Expenses with change and difference of rates; f) Expenses with interbank deposits; g) Income from shareholding management ; h) Expenses with operating leases and income from shareholding management; i) Income from shareholding management and services rendered; j) Income from services rendered; k) Expenses with committed operations; l) Income from debenture operations and expenses with interbank deposits, m) Expenses with overseas loans; n) Expenses with interbank deposits and committed operations; o) Expenses with operating leases; p) Income from shareholding management; q) Income from shareholding management and custody services; (15) Includes non-operating adjustments arising from shareholding variation, being: a) R$ 603 thousand and b) R$ 2 thousand and c) R$ (3) thousand ; (16) Exchange variation of overseas investments, arising from interest in subsidiary companies, for the effect of consolidation, was allocated to income accounts relating to origin asset/liability. The one arising from investments in associated companies, not eliminated in the consolidation is shown in Note 14b; (17) Amounts not eliminated in the consolidated. Assets/Liabilities Revenues/Expenses 2nd Half of 2001 (*) Ajustments from evaluation Year 2001 (*) Year 2000 (*)

44 2 nd half year Foreign exchange variation on investments in subsidiaries (*) (4,467) (6,384) 10,577 (4,467) (6,384) 10,577 Share of equity in affiliates (*) 2,093 11,559 51,180 Share of equity in affiliates Minority parties (7,233) 6,493 (539) (5,140) 18,052 50,641 Equity in income of Subsidiaries and Affiliates (9,607) 11,668 61,218

45 ITAÚ CONSOLIDATED MEMORANDUM ACCOUNT NOTIONAL VALUE BALANCE SHEET ACCOUNT RECEIVABLE/RECEIVED (PAYABLE/PAID) Future contracts 40,054,207 15,231,359 (9,990) 38,874 Purchase commitments 19,550,827 4,515,275 (129,956) (8,911) Foreign currency 1,465, ,766 (109,099) (2,966) Interbank market 15,952,350 3,193,106 (5,481) (3,682) Indices 1,672, ,154 (13,417) (3,378) Others 460, ,249 (1,959) 1,115 Commitments to sell 20,503,380 10,716, ,966 47,785 Foreign currency 478,969 2,520,004 60, Interbank market 17,492,714 5,901,466 36,660 37,255 Indices 2,446,143 2,282,375 20,996 10,528 Shares 82,364 3,469 1, Others 3,190 8,770 4 (72) Swap contracts (109,283) 1,508 Asset position 12,781,106 11,613, , ,345 Foreign currency 4,104, ,306 25,659 42,424 Interbank market 4,608,538 4,752, ,293 11,066 Prefixed 1,475,702 4,987,583 65,420 64,467 Indices 821, , Others 1,771, ,614 50,231 32,756 Liability position 12,890,389 11,612,061 (539,266) (149,837) Foreign currency 4,424,677 3,745,317 (116,658) (97,218) Interbank market 4,928,624 4,808,200 (386,322) (10,969) Prefixed 1,240,553 1,848,900 (12,114) (28,698) Indices 674, ,006 (6,193) (5,540) Others 1,622, ,638 (17,979) (7,412) Options contracts 5,040,474 2,344,693 (45,383) (71,374) Purchase commitments - purchased position 1,498, ,826 (49,724) (39,528) Foreign currency 347,329 87,150 (4,943) (940) Interbank market 10, Prefixed 230, , Indices 261,275 - (1,043) - Shares 585, ,712 (43,693) (38,013) Others 63,979 25,955 (45) (575) Commitments to sell - purchased position 1,987, ,554 (56,862) (78,629) Foreign currency 1,885, ,750 (54,761) (1,045) Interbank market 10, Indices 15,144 18,383 (1,172) (1,048) Shares 10, ,444 (882) (13,225) Others 65, ,977 (47) (63,311) Purchase commitments - sold position 272, ,648 3,445 8,659 Foreign currency 141,432 67,250 1,091 1,219 Interbank market 20, Indices 95,151 67,506 1,553 1,270 Shares 13, , ,056 Others 1,528 5, Commitments to sell - sold position 1,282, ,665 57,758 38,124 Foreign currency 419,559 26,250 15, Interbank market 10, Prefixed 230, , Indices 47, Shares 574, ,052 42,118 37,889 Others - 1, Contracts of futures, swaps and options mature as follows: Over Futures 3,329,076 17,522,007 8,210,052 10,993,072 40,054,207 15,231,359 Swaps 1,171,648 4,336,256 3,409,440 3,433,779 12,351,123 11,462,224 Options 1,614,746 2,017, , ,166 5,040,474 2,344,693

46 ITAÚ MEMORANDUM ACCOUNT NOTIONAL VALUE BALANCE SHEET ACCOUNT RECEIVABLE/RECEIVED (PAYABLE/PAID) Future contracts 14,542,775 10,791,810 (11,178) 36,698 Purchase commitments 7,048,568 2,767,606 (165,878) (9,074) Foreign currency 1,811, ,897 (145,111) (3,129) Interbank market 3,115,539 1,447,306 (5,481) (3,682) Indices 1,661, ,154 (13,327) (3,378) Others 460, ,249 (1,959) 1,115 Commitments to sell 7,494,207 8,024, ,700 45,772 Foreign currency 868,712 2,142,098 94,793 (2,739) Interbank market 4,104,915 3,587,492 37,056 38,045 Indices 2,435,026 2,282,375 20,902 10,528 Shares 82,364 3,469 1, Others 3,190 8,770 4 (72) Swap contracts (267,213) (78,725) Asset position 16,393,588 14,968, , ,211 Foreign currency 3,671,712 1,090,926 18,924 49,502 Interbank market 7,506,107 7,227, ,293 11,066 Prefixed 3,467,066 6,307,611 95,134 74,053 Indices 789, , Others 958, ,962 3,918 1,961 Liability position 16,660,801 15,046,848 (673,861) (215,936) Foreign currency 3,869,017 3,697,648 (111,952) (96,953) Interbank market 7,118,112 6,107,001 (452,119) (50,256) Prefixed 3,647,271 4,210,723 (85,618) (55,775) Indices 674, ,006 (6,193) (5,540) Others 1,351, ,470 (17,979) (7,412) Options contracts 4,872,606 2,037,099 (44,003) (71,293) Purchase commitments - purchased position 1,330, ,167 (6,416) (1,921) Foreign currency 347,329 87,150 (4,943) (940) Prefixed 230, ,009 - o - - o - Indices 261,275 - o - (1,043) - o - Shares 451, ,577 (385) (406) Others 40,284 18,431 (45) (575) Commitments to sell - purchased position 1,899, ,646 (55,690) (77,581) Foreign currency 1,885, ,750 (54,761) (1,045) Shares 10, ,444 (882) (13,225) Others 2, ,452 (47) (63,311) Purchase commitments - sold position 351, ,756 2,463 7,693 Foreign currency 141,432 67,250 1,091 1,219 Indices 79,550 47, Shares 13, , ,056 Others 116,845 5, Commitments to sell - sold position 1,291, ,530 15, Foreign currency 419,559 26,250 15, Prefixed 230, ,009 - o - - o - Indices 47,100 - o o - Shares 440, ,917 - o Others 153,747 1,354 - o Contracts of futures, swaps and options mature as follows: TOTAL Over Futures 2,927,300 5,468,837 4,684,272 1,462,366 14,542,775 10,791,810 Swaps 980,505 3,631,697 6,519,492 4,855,246 15,986,940 14,830,912 Options 1,614,746 2,085, , ,066 4,872,606 2,037,099

47 ITAÚ RECORDED VALUE MARKET VALUE Unrealized income/(loss) Interbank investments 3,119,878 2,284,772 3,144,962 2,290,066 25,084 5,294 Securities and derivatives 14,612,905 14,658,345 15,178,067 15,593, , ,536 Loan operations 18,613,068 13,871,369 18,551,425 13,873,996 (61,643) 2,627 Other investments 137, , , ,757 (397) (1,215) Time and interbank deposits and funds from acceptances and issuance of securities 10,910,552 10,626,151 10,904,849 10,625,040 5,703 1,111 Treasury shares 243, , , , , ,202 Affiliated companies and subsidiaries results Investment in BPI 164, , , , , ,013 Time and interbank deposits and funds from acceptances and issuance of securities 376,757 1,406, ,843 1,300,034 43, ,145 Total unrealized gain/(loss) 855,757 1,456,713 ITAÚ CONSOLIDATED RECORDED VALUE MARKET VALUE Unrealized income/(loss) (1) Interbank investments 4,085,560 3,221,321 4,110,647 3,226,616 25,087 5,295 Securities and derivatives 19,118,382 19,953,072 19,884,557 20,934, , ,379 Loan operations 24,080,752 19,003,621 24,004,561 19,006,255 (76,191) 2,634 Investment in BPI 280, , , , , ,552 Other investments 341, , , ,264 1,694 4,872 Time and interbank deposits and funds from acceptances and issuance of securities 8,018,618 8,344,655 7,968,978 8,237,142 49, ,513 Treasury shares 243, , , , , ,202 Total unrealized gain/(loss) 1,114,839 1,647,447 (1) Includes unrealized gains relating to minority interests amounting to R$ 97,568 (R$ 148,018 at December 31, 2000).

48

49 Previously disclosed ITAÚ Reclassifications Reclassified balances INCOME FROM FINANCIAL OPERATIONS Loans 3,209, ,768 3,400,229 Securities portfolio 3,292, ,887 3,669,152 Foreign exchange portfolio 64, ,597 EXPENSES ON FINANCIAL OPERATIONS Deposits, money market and interbank funds (3,424,571) (233,199) (3,657,770) Borrowings and assignments and on-lendings (443,752) (169,581) (613,333) Provision for loan losses (454,545) (73) (454,618) GROSS PROFIT FROM FINANCIAL OPERATIONS 2,401, ,890 2,566,453 OTHER FINANCIAL INCOME (EXPENSES) (260,492) (164,620) (425,112) Other administrative expenses (2,028,084) (351) (2,028,435) Equity in income of subsidiaries and affiliates 1,319,256 (163,722) 1,155,534 Other operating income 84, ,371 Other operating expenses (153,578) (1,069) (154,647) OPERATING INCOME 2,141, ,141,341 NON-OPERATING INCOME (185,801) (270) (186,071) NET INCOME 1,830,336-1,830,336

50 ITAÚ ITAÚ CONSOLIDATED Provision for restructuring (23,100) (23,100) Itaú Seguros Transfer of the Data Processing Center to the Technical Operational Center installations (3,300) (3,300) Move of the Operating areas from Boa Vista to Itaú Business Center (19,800) (19,800) BEG 43,312 (378,256) Revenue/profit with CVS (1) 71,167 71,817 Tax credits (2) 42,231 50,000 Provision for restructuring (43,463) (51,460) Labor provision adjustment (3) (6,555) (7,761) PREBEG provision (4) (20,068) (23,760) Amortization of goodwill - (417,092) Amortization of goodwill - (148,455) Lloyds TSB Asset Management S.A. - (145,556) Other (5) - (2,899) Telefónica Transaction (6) 448, ,756 Gain on variation of equity interest 457, ,773 Transaction administrative expenses (9,017) (9,017) Other - 136,796 Adjustments of the acquisition of Banco Francês e Brasileiro S.A. (7) - 68,529 Reinforcement of the Provision for Itaú Buen Ayre Investments Devaluation (50,000) (50,000) Partial Reversion of the Additional Provision for Securities Devaluation 50,000 50,000 FUNBEP adjustments (8) - 81,050 Labor provisions BEMGE (9) - (12,783) Extraordinary result 468,969 35,741 (1) Securities denominated CVS, issued by the National Treasury Secretariat, used to pay for the acquisition of BEG. (2) Formation of tax credits not recorded by BEG. (3) BEG criteria adjustments applied by ITAÚ (4) Provision to cover the technical deficit presented by the employees social security savings of BEG PREBEG. (5) Corresponds to the full amortization of goodwill relating to the acquisition of can interest in Capitaliza - Empresa de Capitalização S.A. by Banestado S.A. - Participações, Administração e Serviços, and the goodwill relating to the capital increase of Banco de Paraná S.A. (6) Resulting from the agreement signed on June 12, 2001, with Telefónica Group, aiming at the creation of a partnership regarding the operation of the ITAÚ telecommunications corporate network, through investments of that group in companies of ITAÚ Group, owners of the assets necessary to operate the network, which allows ITAÚ to rende quality services at competitive prices. (7) Basically corresponds to the payment made by Crédit Lyonnais, based on an agreement related labor contingencies, which previously had been recorded. (8) Basically refers to the reversal of the provision for actuarial liabilities surplus. (9) Corresponds to an adjustment in the basis for providing against labor proceedings of BEMGE.

51 R$ million Net Income for the year 2,389 (-) Net Income up to 3 rd quarter... 2,156 Net Income up to 4 th quarter (-) Extraordinary income for the 4 th quarter... (257) BEG acquisition effects... (378) FUNBEP provision reversal Other effects Fourth quarter recurring net income Main eventswhich influenced income in the 4 th quarter, net of tax effects Effects on foreign investments of the appreciation of the Real in relation to the US dollar from Reais ( ) to R$ ( ) (*)... (599) Reversal of provision for exchange rate fluctuations set up in the 3 rd quarter, considering a floating rate in relation to the US dollar of R$ Realization of gains on marketable securities Revarsal of excess provision for actual liability Other evets, mainly reversals / allocation of provisions Recurring income from aforementioned events (*) Does not take into consideration the opportunity cost loss related to the investment in Interbak Deposits Certificates (CDI) totalling approximately R$ 221 million, which corresponds to R$ 146 million, net of tax effects.

52 Net assets of the plans 4,858,498 Actuarial liabilities (4,674,431) Surplus 184,067 Discount rate 10.24% a.a. Return rate expected for the assets 12.32% a.a. Future Salary Growth 8.16% a.a. Growth of the Pension Fund Benefits and of Limits 4.00% a.a. Inflation 4.00% a.a. Unit Credit Projected Actuarial method (1)

53 ITAÚ ITAÚ CONSOLIDATED NUMBER OF MANAGED FUNDS AND PORTFOLIOS AT Investment Funds 47,964,907 34,504,107 49,710,700 36,545, Fixed income 46,204,510 32,664,904 47,706,994 34,578, Shares and other funds 1,760,397 1,839,203 2,003,706 1,967, Managed portfolios 15,928,591 12,108,929 16,627,107 12,108,929 3,381 Customers 8,435,554 5,989,658 9,134,070 5,989,658 3,334 Itaú Group 7,493,037 6,119,271 7,493,037 6,119, TOTAL 63,893,498 46,613,036 66,337,807 48,654,395 4,020 ITAÚ ITAÚ CONSOLIDATED AMOUNT OF MANAGED FUNDS AND PORTFOLIOS AT Investment Funds 47,964,907 34,504,107 49,710,700 36,545, Fixed income 46,204,510 32,664,904 47,706,994 34,578, Shares and other funds 1,760,397 1,839,203 2,003,706 1,967, Managed portfolios 5,824,969 5,119,352 6,085,142 5,119,352 3,381 Customers 1,941,879 1,526,100 2,202,052 1,526,100 3,334 Itaú Group 3,883,090 3,593,252 3,883,090 3,593, TOTAL 53,789,876 39,623,459 55,795,842 41,664,818 4, Permanent foreign investments 4,527,559 3,708,040 Net amount of assets and liabilities in foreign currency, including derivatives and future investments (*) (1,920,247) (1,251,638) Net foreign exchange position 2,607,312 2,456,402

54

55 Issuance Vesting period until Exercise period until Exercise Price adjusted December 31, 2001 No. Date (R$ 1) Lots of thousand shares Granted Exercised Cancelled Not exercised 1 st , ,000 11, ,000 3, nd , ,000 10,000 14,000 3 rd ,000 49,000 7, , , , , , , , th ,500 13,500-30, ,000 44,500 4, , , , , , th ,000 7,500-26, ,100 33, , , , , , , , th ,200 11,900 5, , , , , , th ,000 2,000 2, , , , , ,000 Total 3,621,300 1,009,300 39,500 2,572,500

56 Credit card companies Insurance, capitalization and pension funds companies (1) (2) Assets Current and long-term assets Cash and cash equivalents 22,964 19,269 22,328 16,936 Securities 347, ,573 3,512,165 3,001,465 Insurance receivable , ,853 Card holder purchases 2,349,386 1,913, Other receivables 570, , , ,882 Deposits for tax incentives 34,002 26, Other assets 18,126 12, , ,320 Permanent assets Investments 1,809, ,786 1,439,264 1,329,145 Property and equipment 47,507 41, , ,609 Deferred charges 21,817 16,181 4,506 6,861 Total 5,221,499 3,096,310 5,944,750 5,388,071 Liabilities and stockholders' equity Current and long-term liabilities Technical provisions - restricted , ,495 Insurance operations payable ,244 71,801 Borrowings 148, , Taxes and social security contributions 135, , , ,560 Payable amounts - stores 1,671,704 1,331, Banking financing - card holders 703, , Credit card - annuity revenues 129, , Other 602, , , ,074 Technical provisions - not restricted - - 2,732,086 2,336,555 Deferred Income Minority interest in subsidiaries - - 1,594 2,158 Stockholders' equity Capital and reserves 1,387, ,179 1,871,943 1,907,370 Income for the period 443, , , ,058 Total 5,221,499 3,096,310 5,944,750 5,388,071 (1) (2) Includes Banerjcard Administradora de Cartões de Crédito Ltda. (at December 31, 2001, and including income only up to July 31, 2001), Itaú Personnalité Administradora de Cartões de Crédito e Serviços Ltda., Itaucard Administradora de Cartões de Crédito e Imobiliária Ltda., Bemge Administradora de Cartões de Crédito Ltda., Banestado Administradora de Cartões de Crédito Ltda., SISPLAN - Sistema de Processamento de Dados, Planejamento e Administração de Cartões de Crédito Ltda.(only at ) and proportionally Credicard Comercial e Importadora Ltda., Credicard S.A. Administradora de Cartões de Crédito, Redecard S.A. and Orbitall Serviços e Processamento de Informações Comerciais Ltda. Includes Banerj Seguros S.A., Itaú Capitalização S.A., Itaú Previdência e Seguros S.A., Itaú Seguros S.A., Bemge Seguradora S.A., Investprev Seguros e Previdência S.A. (consolidated proportionally up to February 28, 2001), Capitaliza - Empresa de Capitalização S.A., Gralha Azul Serviços de Saúde Comercial S/C Ltda., Cia de Seguros Gralha Azul, Paraná Cia de Seguros e Itauseg Saúde S.A. (only at ) - companies regulated by the Insurance Company Regulatory Agency (Susep).

57 and d

58 Rules in force at (1) With estimate of "conversion into pesos" effects (2) Net change Assets Current and long-term assets Cash and cash equivalents 159, ,554 (40,822) Short-term interbank deposits 16,303 13,426 (2,877) Securities 290,336 (3) 321,170 30,834 Interbank and interbranch accounts 93,745 69,819 (23,926) Credit operations 655, ,036 (242,951) Loan and leasing operations 732, ,899 (274,355) (-) Allowance for loan losses (76,267) (44,863) 31,404 Other assets 192, ,885 (55,553) Permanent assets Investments 4,235 2,491 (1,744) Property and equipment 145,237 85,433 (59,804) Deferred charges 5,109 3,005 (2,104) Total 1,562,766 1,163,819 (398,947) Liabilities and stockholders' equity Current and long-term liabilities Deposits 998, ,877 (235,457) demand deposits 210, ,174 (62,709) savings deposits 476, ,301 (112,360) interbank deposits 12,848 12,360 (488) time deposits 297, ,042 (59,900) Borrowings 22,957 22,957 - Other liabilities 195, ,972 (41,202) Stockholders' equity 346, ,013 (122,288) (4) Total 1,562,766 1,163,819 (398,947) (1) Statements prepared according to standards effective at are converted taking into consideration the parity 1/1 between Argentine peso and USD and already reflect the reinforcement of Provisions on Loan Operations in the amount of P$ 15,000. (2) Statements with effects of mandatory conversion of dollar into pesos ( pesificação) take into consideration: a) conversion of operations contracted into unregulated USD (free float) at the rate of P$ 1.70 of US$1.00. b) conversion of operations contracted into commercial USD (duty float) at the rate of P$ 1,40 of US$1.00 c) the record of the bonus estimated by Argentine authorities to offset losses with mandatory conversion of dollar into pesos (pesificação) in loan operations which estimated amount is R$ 116,043, by 30% of its face value (R$ 34,813). d) conversion into R$ also considers the devaluation of all operations, after above mentioned conversions, at the rate of P$ 1.70 per US$ (3) Includes R$ 22,435 in securities of the Argentine government (compulsory desposits) and R$ 267,901 in private securities, issued by companies headquartered outside Argentina, classified as Investment Grade. (4) The effects arising from the process of mandatory conversion of dollar into pesos ("pesificação") (R$ 122,288) on Itaú - Brazil are fully covered by provision in the amount of R$ 200,000, exceeding in R$

59 Portfolio Balance Total Provision Individuals Businesses Risk level Individuals Businesses Total Minimum Minimum Total Exceeding Total required required AA - 133, , A - 57,785 57, B 131,962 57, ,933 1, , ,832 C 5,258 31,701 36, ,100 5, ,209 D 11,044 2,255 13,299 1,104 9,940 11, ,269 E 4, ,444 1,319 3,079 4, ,412 F 1,619 4,150 5, ,619 2,075 3,694 G 2, ,487 1, , ,469 H 13, ,689 13,563-13, ,689 TOTAL 170, , ,899 19,974 20,588 40,562 4,301 44,863 It is important to emphasize that the Corporate Loan Portfolio, R$ 200,034 correspond to operations contracted with Corporate companies, subsidiaries of multinational companies operating in Argentina. Portfolio balance Minimum risk Maximum risk Individuals 170,272 42, ,190 Subsidiaries of multinational companies operating in Argentina 200,034 5,001 30,005 Business entities - Other 87,593 17,519 35,037 Total 457,899 65, ,232 Total provision (44,863) (44,863) Excess provision after effects of mandatory currency conversion ("pesificação") (77,712) (77,712) Deficit (surplus) (57,487) 61,657 From the surplus of available provisions of ITAÚ CONSOLIDATED that were set up due to market volatility, and which total R$ 1,265,000, management may allocate any amount that might be necessary to cover the above-mentioned deficit, which is evaluated to be at maximum R$ 61,657.

60 BANERJ (1) BEG (2) BEMGE (3) BANESTADO (4) Assets Current and long-term assets Cash and cash equivalents 210,593 92,628 35,660 8,981 8,419 32, ,866 Interbank deposits 1,447,518 1,724,318 32,513 1,771,593 1,436, ,633 1,126,673 Securities 722, , , , , ,975 1,547,898 Interbank accounts 506, ,912 79, ,322 96, , ,569 Interbranch accounts 32,151 10, ,695 Loans and leasing operations 1,139,103 1,028, ,399 35, , ,100 1,148,634 Other receivables 374, , , , ,746 1,855,363 1,826,989 Other assets 193,547 7,493 7,075 6,208 21,884 95,236 76,280 Permanent assets Investments 15,549 13,059 1,305 13,491 13,555 30,816 20,212 Property and equipment 163, ,419 22,435 13,075 18,217 75, ,545 Deferred charges 81, , ,351 2,087 8,675 8,567 Total 4,886,756 4,261,456 1,320,141 2,845,251 3,362,932 3,638,798 6,503,928 Liabilities and stockholders' equity Current and long-term liabilities Deposits 3,193,138 3,041, , , ,175 1,538,064 3,494,917 Money market 205,877 37, , ,689 50, ,405 Funds from acceptance and issuance of securities , ,946 Interbank accounts ,709 Interbranch accounts 13,504 11, ,892 3,646 4,212 40,551 Borrowings 22,957 45,480 1, ,138 50,803 On-lending borrowings from public institutions , , ,417 Technical provisions for insurance operations - restricted ,616 61,499 Other liabilities 503, , , , ,974 1,167,277 1,410,489 Technical provisions for insurance operations - not restricted ,568 97,375 Deferred income , ,114 5,988 Minority interest in subsidiaries 192, ,850-11,879 11,541 4,544 7,870 Stockholders' equity Capital and reserves 578, , ,421 1,624,321 1,634, , ,561 Net income for the period 175,970 68,439 (64,470) 186, , ,437 1,398 Total 4,886,756 4,261,456 1,320,141 2,845,251 3,362,932 3,638,798 6,503,928 (1) Includes Banco Banerj S.A., Banerjcard Administradora de Cartões de Crédito Ltda.(at December 31, 2001 and including income only up to July 31, 2001), Banco Itaú Buen Ayre S.A., Externalizacion Global S.A., Inversora del Buen Ayre S.A., Figueira Administração e Participações Ltda (only at December 31, 2001, including income only up to April 30, 2001), and Itaú Sociedad Gerente de Fondos Comunes de Inversion S.A. (only at December 31, 2000). (2) Includes Banco do Estado de Goiás S.A.(in process of change to Banco BEG S.A.), BEG - Distribuidora de Títulos e Valores Mobiliários S.A. and SISPLAN - Sistema de Processamento de Dados, Planejamento e Administração de Cartões de Crédito Ltda. (3) Includes Banco Bemge S.A., Bemge Administradora de Cartões de Crédito Ltda., Itaucard Financeira S.A. Crédito, Financiamento e Investimento, Investimentos Bemge S.A., IFE Banco Bemge (Uruguay) S.A. (at December 31, 2001, including income up to December 28, 2001 and Guaxinim Administração e Participação Ltda. (4) Includes Banco Banestado S.A., Asban S.A. Participações, Banco Del Paraná S.A., Banestado Administradora de Cartões de Crédito Ltda., Banestado Leasing S.A. - Arrendamento Mercantil, Banestado Corretora de Valores Mobiliários S.A., Banestado S.A. - Participações, Administração e Serviços, Capitaliza - Empresa Gralho Azul Serviços e Saúde S/C Ltda and Paraná Cia de Seguros.

61 ITAÚ CONSOLIDATED ELIMINATIONS ITAÚ Balance Sheet CONSOLIDATED BEG CONSOLIDATED WITHOUT BEG Assets Current and long-term assets Cash and cash equivalents 1,860,100 35,660-1,895,760 Interbank deposits and securities 28,843, ,043 (195,998) 29,387,633 Interbank and interbranch accounts 4,976,721 79,881-5,056,602 Loans, leasing and other operations 40,972, ,432 (925) 41,405,220 Other assets 709,699 7, ,774 Permanent assets 3,450,955 24,050 (130,030) 3,344,975 Total 80,813,776 1,320,141 (326,953) 81,806,964 Liabilities and stockholders' equity Current and long-term liabilities Deposits and money market 40,105, ,996 (195,998) 40,854,770 Funds from acceptance and issuance of securities 2,905, ,905,710 Interbank and interbranch accounts 506, ,686 Borrowings and onlendings and other 25,741, ,078 (925) 25,959,218 Technical provisions for insurance operations - not restricted 3,223, ,223,686 Deferred income 166,654 1, ,780 Minority interest in subsidiaries 585,971-23, ,892 Stockholders' equity Capital and reserves 5,188, ,421 (218,421) 5,188,754 Net income for the period 2,389,468 (64,470) 64,470 2,389,468 Total 80,813,776 1,320,141 (326,953) 81,806,964 ITAÚ CONSOLIDATED ELIMINATIONS ITAÚ Statement of Income CONSOLIDATED BEG CONSOLIDATED WITHOUT BEG Gross income from financial operations Other operating income (expenses) Operating Income Non-operating income Income before income tax and social contribution and profit sharing Income tax and social contribution Extraordinary result Profit Sharing Minority Interest 5,257,625 4,454-5,262,079 (2,295,863) (33,600) 54,453 (2,275,010) 2,961,762 (29,146) 54,453 2,987, ,148 (2,926) - 100,222 3,064,910 (32,072) 54,453 3,087,291 (434,890) (434,307) 68,722 (32,981) - 35,741 (212,747) - - (212,747) (96,527) - 10,017 (86,510) Net income (loss) 2,389,468 (64,470) 64,470 2,389,468

62 1.1 to ITAÚ 1.1 to ITAÚ CONSOLIDATED 1.1 to to Operating activities Net income 2,872,224 1,830,336 2,389,468 1,840,568 Provision for devaluation of securities (188,499) 30,148 ( 17,754) 10,114 Provision for Loan Losses 773, ,618 1,444, ,247 Change in technical provision for insurance, pension plan and capitalization , ,377 Assets deferred income tax (70,818) 20,855 (190,223) (1,715,523) Reversal of provisions for losses and other assets (7,651) (44,919) (30,530) 35,486 Deficit on the disposal of assets 30,821 45,697 68,222 53,021 Amortization of goodwill 165,451 64, ,695 1,330,970 Equity in the results of subsidiaries and associated companies (1,683,681) (1,155,534) (11,668) (61,218) Gain/loss on currency translation - - (6,383) 10,577 Extraordinary income of affiliated companies (404,029) (48,316) - - Gain on the disposal of investments (3,437) 2,322 (2,265) (3,208) Provision for losses in other investments - (1) 237 1,360 Depreciation and amortization 405, , , ,909 Minority interest results ,510 48,941 Changes in assets and liabilities (Increase) Decrease in Interbank investments (1,212,714) (1,400,086) (1,346,265) (1,485,159) (Increase) Decrease in securities (56,836) (3,650,392) 639,643 (6,066,781) (Increase) Decrease in Brazilian Central Bank compulsory deposits (695,008) 764,792 (680,614) 307,794 (Increase) Decrease in interbank and interbranch accounts (38,776) 72,322 (42,649) (169,257) (Increase) in Loans operations (5,416,447) (3,472,824) (6,412,159) (5,644,028) (Increase) Decrease in leasing operations (189,574) 202 (410,113) (420,925) (Increase) in other credits and other assets (4,079,876) (719,479) (4,854,684) (2,910,266) (Decrease) Increase in technical provisions for insurance, pension plan and capitalization - - (403,408) (191,278) Increase in other liabilities 4,941,878 1,655,792 5,314,914 3,835,753 (Decrease) Increase in deferred income 10, ,901 16,443 Net cash provided by (invested in) operating activities (4,846,815) (5,202,059) (2,458,515) (9,291,083) Investment activities Interest on own capital/dividends received 1,163, ,658-9,442 Sale of non-operating assets 95, , , ,460 Disposal of investments 599,323 35,049 31, ,024 Disposal of assets in use 73,175 20, ,895 80,827 Decrease in deferred charges - - 5,987 14,881 Purchase of non-operating assets (72,815) (111,977) (588,180) (619,279) Purchase of Investments (323,080) (2,845,426) (62,176) (299,272) Goodwill in investments (618,561) (1,228,920) (621,695) (1,361,521) Purchase of assets in use (477,618) (331,467) (672,053) (577,750) Investment in deferred charges (179,142) (107,413) (154,252) (123,513) Change in minority interest - - (22,418) 92,948 Net cash provided by (invested in) investment activities 259,627 (4,344,895) (1,233,741) (2,043,753) Financing activities Increase (decrease) in deposits 1,288,433 2,839, ,774 4,649,375 Increase (decrease) in funds obtained in the open market 1,067,677 6,521,921 1,351,373 6,109,408 Increase (decrease) in funds from issue of securities 626, ,134 (60,950) 15,015 Increase in borrowings and onlendings 2,459,305 1,114,835 2,298,979 1,602,557 Increase in liabilities for subordinated debts 823,687-1,432,831 - Granting for exercised equity options 12, , Receipt of donation of assets Share subscription Purchase of own shares (656,304) (473,960) (656,304) (473,960) Interest on own capital paid and/or provisioned (807,700) (628,764) (807,700) (628,764) Net cash provided by (invested in) financing activities 4,814,328 9,514,939 4,026,386 11,274,481 Increase in cash and cash equivalents, net 227,140 (32,015) 334,130 (60,355) At the beginning of the year 1,291,964 1,323,979 1,561,630 1,621,985 At the end of the year 1,519,104 1,291,964 1,895,760 1,561,630 Increase in cash and cash equivalents, net 227,140 (32,015) 334,130 (60,355)

63

64 December 31, 2001 Management Discussion and Analysis Management Discussion and Analysis 70 Banco Itaú

65 Indice Executive Summary 72 Analysis of the Consolidated Performance 78 Introduction 79 Foreign Exchange and Interest in Performance in the Stock Market 82 ADR II 84 New Acquisitions 85 Analysis of the Consolidated Net Income of Fourth Quarter Analysis of Financial Margin 89 Provision for Loan and Lease Losses 90 Banking Service Fees 95 Administrative Expenses 97 Analysis by Segment 101 Banking 106 Credit Cards 110 Insurance, Capitalization and Pension Plan Operations 111 Fund Management 116 Analysis of the Consolidated Balance Sheet 117 Cash and Cash Equivalents, Short-term Interbank Deposits and Securities 118 Credit Operations 120 Deposits and Funding 124 Stockholder s Equity 127 Balance Sheet by Currency 129 Activities Abroad and Foreign Exchange Transactions 130 Activities Abroad 131 Banco Itaú Buen Ayre 134 Risk Management 137 Independent Auditors Report 148 The effects of exchange variation on foreign investments are distributed in the Statement of Income according to the nature of the corresponding accounts. The tables of this report have the numbers expressed in millions. However, the variations and totals were calculated based on numbers expressed in whole units. Future expectations resulting from this analysis should take into consideration the risks and uncertainties surrounding any activity and which are beyond the control of the companies in the group (political and economic changes, volatility of interest and exchange rates, technological change, inflation, financial desintermediation, competitive pressures on products and prices, and changes in tax legislation). Banco Itaú 71 Management Discussion and Analysis

66 Executive Summary Banco Itaú S.A. Recurring Income Consolidated - 4th Quarter 2001 Fourth quarter recurring income was influenced by several events, but mainly by the appreciation of the Real in relation to the U.S. dollar. The table below was prepared to facilitate the analysis of fourth quarter recurring income, as follows: (*) Does not take into consideration the opportunity cost loss related to investment in Interbank Deposit Certificates (CDI) totaling approximately R$ 221 million, which corresponds to R$ 146 million, net of tax effects. Management Discussion and Analysis 72 Banco Itaú

67 Executive Summary Banco Itaú S.A. Highlights Ratings +(bra) +(bra) * JCP ( Interests on Capital ). * * Efficiency Ratio was calculated using the recurring net income. Banco Itaú 73 Management Discussion and Analysis

68 Executive Summary Banco Itaú S.A. Net Income Return on Equity ( %) Net Income per Thousand Shares (R$) Credit Operations (2) Consolidated Net Income Recurring Consolidated Net Income (2) Endorsements and Sureties included. Assets under Management Consolidated Net Income Recurring Consolidated Net Income Consolidated Net Income Recurring Consolidated Net Income R$ Million 1 st Q nd Q rd Q th Q st Q nd Q rd Q th Q st Q nd Q rd Q th Q st Q nd Q rd Q th Q st Q nd Q rd Q th Q st Q nd Q rd Q th Q. 01 R$ Billion Mar.00 Jun.00 Sep.00 Dec.00 Mar.01 Jun.01 Sep.01 Dec.01 R$ Billion In 2001, Banco Itaú achieved the best performance in its history with a net income of R$ 2,389 million, equivalent to an increase of 29.8% in relation to net income in The parent company stockholders equity reached R$ 7,578 million, increasing 14.1% in relation to Recurring income from operations totaled R$ 2,354 million in 2001, representing an increase of 22.7% on the prior year, and a Return on Stockholders Equity (ROE) of 31.0%. - The gross loan balance, including sureties and guarantees, totaled R$ 34,282 million, increasing 25.8% in relation to 2000 (See Note 6), which have positive effects to increase financial margin. - The net income of Banco Itaú in the fourth quarter of 2001 totaled R$ 234 million, a reduction of 66.6% in relation to the third quarter. The main reason for this reduction was the amortization of goodwill paid on the acquisition of Banco do Estado de Goiás - BEG, which amounted to R$ 417 million net of taxes and is recorded at Extraordinary Result (See Note 17). - Itaú strengthened in R$ 50 million the Provision for Investment Devaluation in Banco Itaú Buen Ayre, reverting an equal value from the Additional Provision for Exchange Rate Fluctuations, previously constituted in order to face risks in high volatility environment or adverse economical situations.- The recurring income from operations reached R$ 491 million in the quarter, falling 22.1% in relation to the prior period, due to the effects of exchange rate variation between the two periods - Annualized ROE reached 12.9% in the fourth quarter. However, if we only consider Recurring Income, the Return on Stockholders Equity (ROE) for the quarter reached 28.6% in the period. - The BIS Ratio reached 16.9%, above the 11% required by the Central Bank; 86.4% in Tier I, and 13.6% in Tier II (See Note 2.b). - Itaú issued subordinated debt in the amount of R$ 600 million, comprising Debentures of Itauleasing. - Itaú acquired 84.46% of the share capital of Banco do Estado de Goiás S.A. (BEG) for R$ 665 million in a public auction. - On December 22, Itaú made a firm offer, accepted by Banca IntesaBci, to acquire % of Banque Sudameris S.A. shares, headquartered in France. The offer involves Banque Sudameris Paris and its branches in France, Monaco, Grand Cayman, Uruguay, Panama, Chile, and the United States, as well as Banco Sudameris Brasil, which represents the most important por- Mar.00 Jun.00 Sep.00 Dec.00 Mar.01 Jun.01 Sep.01 Dec.01 (1) Administrative Expenses/ Average Assets. Management Discussion and Analysis 74 Banco Itaú

69 Executive Summary Banco Itaú S.A. Evolution of Active Customer (million) x Quantity of Products by Active Customer (unit) Mar.00 Jun.00 Sep.00 Dec.00 Mar.01 Jun.01 Sep.01 Dec % 4.21% 4.25% 4.39% 193% 190% 189% 186% 5.01% 173% Dec.00 Mar.01 Jun.01 Sep.01 Dec.01 Coverage Ratio Non Accrual Loans Ratio Active Customer Products by Customer Non Accrual Loans Ratio (1) and Coverage Ratio (2) Efficiency Ratio (%) Total Assets Mar.00 Jun.00 Sep.00 Dec.00 Mar.01 Jun.01 Sep.01 Dec.01 R$ Billion tion of the operation. The total amount to be paid to Banca Intesa is not expected to exceed US$ 1.5 billion, half of which would be paid in subordinated debt that will be issued abroad and acquired by Banca Intesa. Subsequent events: - On February 21, 2002, American Depositary Receipts Level II (ADRs) of Itaú shares began to be traded on the New York Stock Exchange. - The Board of Governors of the Federal Reserve System assigned Financial Holding Company status to Banco Itaú, thus allowing it to operate in the U.S. under the same conditions as local banks. We present the main components of income in the period, as follows: - The Net Interest Margin reached 12.5% in the fourth quarter of 2001, reflecting the negative impact of the exchange rate variation on our financial intermediation activity, together with the arising gains from the resources routed to operations that allow the Bank to obtain greater spreads. - Expenses with the Allowance for Loan and Lease increased 9.6%, totaling R$ 435 million for the fourth quarter of The Bank has sustained its strategic focus on growing the credit portfolio by investing funds in transactions that allow higher financial margins to be achieved (in particular, by increasing the number of transactions with credit cards). This has been done, even if this means assuming higher risks, since the adoption of such a strategy has generated a positive contribution to the institution s performance. Over the period, we suffered the negative impact from operations in Argentina, which led the Bank to provide for an additional provision of R$ 35 million. - The Non Accrual Loan Ratio increased slightly, due to the impact of the unfavorable scenario for the Brazilian economy that arose in the second half of Service revenues totaled R$ 1,148 million in the fourth quarter of 2001, increasing 9.1% in relation to the prior quarter. During the period, revenues from savings/checking accounts increased. Revenues from service fees on tax collection services also rose, due to the collection of prior year INSS fees and credit cards fees attributable to the expansion and maturation of the credit card portfolio. - The Efficiency Ratio remained practically stable in the fourth quarter of 2001, reaching 54.4% compared to 54.2% in the prior quarter. Mar.00 Jun.00 Sep.00 Dec.00 Mar.01 Jun.01 Sep.01 Dec.01 Exchange Rate (R$) and Selic Rate (%) (3) % 19.00% 18.25% 19.00% 17.50% 16.50% % 15.75% Mar.00 Jun.00 Sep.00 Dec.00 Mar.01 Jun.01 Sep.01 Dec.01 Exchange Rate Selic Rate (1) Non accrual: Loans Overdue for more than 60 days. (2) Coverage Ratio: Provision for Loan and Lease Losses / Non Accrual. (3) Without scale. Selic Rate is based on last day of quarter. The effects of exchange variation on foreign investments are distributed in the Statement of Income according to the nature of the corresponding accounts. The tables of this report have the numbers expressed in millions. However, the variations and totals were calculated based on numbers expressed in whole units. Future expectations resulting from this analysis should take into consideration the risks and uncertainties surrounding any activity and which are beyond the control of the companies in the group (political and economic changes, volatility of interest and exchange rates, technological change, inflation, financial desintermediation, competitive pressures on products and prices, and changes in tax legislation). Banco Itaú 75 Management Discussion and Analysis

70 Management Discussion and Analysis 76 Banco Itaú Consolidated Balance Sheet Executive Summary Banco Itaú S.A. R$ Million

71 Executive Summary Banco Itaú S.A. Consolidated Statement of Income R$ Million (*) Redution by the repurchase of share program. Banco Itaú 77 Management Discussion and Analysis

72 Analysis of the Consolidated Performance Analysis of the Consolidated Performance Management Discussion and Analysis 78 Banco Itaú

73 Analysis of the Consolidated Performance Introduction During 2001, Banco Itaú achieved the best performance of its history with a consolidated Net Income of R$ 2,389 million, an increase of 29.8% compared to In recent years, Itaú has consistently increased its capacity to generate significant returns, thus complying with one of the main aspects of its mission, which is to create value for tens of thousands of its shareholders. The performance of Itaú was especially influenced by a significant increase in the financial margin, which reached R$ 6,707 million in 2001, representing growth of 26.3% compared to the R$ 5,311 million in The increase observed in the financial margin is basically due to the expansion of the loan portfolio and the focusing of resources on a mix of products that allowed the Bank to achieve higher margins. As of December 31, 2001, the total balance of the loan portfolio amounted to R$ 29,615 million, corresponding to an increase of 25.1% compared to balance in the prior year. Income obtained from the securities portfolio also contributed to the increase in the financial margin. The acquisition of Banestado in the fourth quarter of 2000 increased the average balance of the securities portfolio, which positively contributed to the growth in income in Itaú also realized a gain related to the foreign exchange variation on permanent investments abroad that mainly comprise securities, and which contributed to an increase in the financial margin. Due to the interaction of the factors described above, the Net Interest Margin reached 12.3% in 2001, while the same rate was 11.9% in The adoption of a growth strategy for the loan portfolio, together with the change in the mix of products and the formation of a provision to cover Argentine risk, produced impacts on the Allowance for Loan and Lease Losses, increasing expenses to R$ 1,445 million, which was 87.6% higher than the prior year amount. The Bank was also able to improve its operational efficiency in 2001, which resulted in an improvement in the efficiency ratio from 57.8% in 2000 to 54.7% for the year. This improvement in efficiency becomes more relevant when the process of integration and operational restructuring arising from the acquisition of Banestado is taken into consideration. The impact of these costs occurred during the whole of 2001, compared to only one quarter in Service revenues reached R$ 4,190 million in 2001, an increase of 20.9% compared to the prior year. Significant events for the year included an increase, in absolute terms, of the income associated with Credit card operations, which increased R$ 217 million during the year and reflect the strong growth that occurred in the segment in In relative terms, Collection Service revenues increased 87.6%, reaching R$ 232 million. The expansion of pre-approved loans and overdraft banking also contributed to an increase of 62.3% in revenues from loan fees, which reached R$ 326 million in The increase in the number of current accounts contributed to the growth of 23.8% in income from Checking Account Services, which increased by R$ 141 million. On the other hand, administrative expenses (personnel and other administrative expenses) increased 19.2% when both periods are compared, totaling R$ 6,180 million in Part of this increase in costs relates to the merger of Banestado operations that began to be accrued in the last quarter of Another significant part of this increase is the result of the expansion and modernization of the branch network, Customer Site Branches (PAB s) and the automated teller machine network. Comparing equal periods, Advertising, Promotional, and Publication Expenses increased 30.2%, reaching R$ 309 million in The same contributed to reinforce the value of the Itaú trademark, which is considered the most valuable trademark in the Brazilian market by the English consulting firm Interbrand, which appraised placed its value at US$ 970 million. Consolidated Net Income (R$ Million) Consolidated Net Income Recurring Consolidated Net Income Stockholder s Equity (R$ Million) Banco Itaú 79 Management Discussion and Analysis

74 Analysis of the Consolidated Performance Tax expenses amounted to R$ 688 million in 2001, growing 21.7% compared to Stockholders equity of the parent company reached R$ 7,578 million, an increase of 14.1% in relation to This increase is basically associated with the retention of part of the income for the year. Return on Equity (ROE) reached 31.5% in 2001, demonstrating positive growth in relation to the 27.7% obtained in Total assets amounted to R$ 81,807 million as of December 31, 2001, increasing 17.6% compared to the total on the same date in the prior year. Return on Assets (ROA) reached 2.9% in 2001 compared to 2.6% in Disregarding the contribution of Extraordinary Results to Net Profit, the Bank obtained recurrent income from operations of R$ 2,354 million in 2001, which corresponds to an increase of 22.7% over recurrent income in This is equivalent to a Return on Equity of 31.0%. In 2001, the Extraordinary Result net of taxes contributed to a consolidated gain of R$ 36 million for the institution. In general terms, this result was formed by the following events (See Explanatory Note 17): income of R$ 449 million arising from the agreement signed with Telefónica group for the development of a partnership using the corporate telecommunications network of Itaú; the expense of R$ 378 million associated with the acquisition of Banco do Estado de Goiás (highlighting the complete amortization of goodwill totaling R$ 417 million); the expense of R$ 148 million, basically arising from the amortization of goodwill paid on the acquisition of Lloyds TSB Asset Management; the expense of R$ 23 million related to the provision for the transfer of Boa Vista s Operational areas to Itaú Business Center, as well as the transfer of the Data Processing Area of Itaú Seguros to the Technical Operations Center; and, finally, the income of R$ 136 million associated related to various other events, among which is the income of R$ 89 million for the reversal of an actuarial liability, and income of R$ 69 million corresponding to the payment made by Credit Lyonnais relating to labor contingencies. In the last quarter, Itaú strengthened in R$ 50 million the Provision for Investment Devaluation in Banco Itaú Buen Ayre, reverting an equal value from the Additional Provision for Exchange Rate Fluctuations, previously constituted in order to face risks in high volatility environment or adverse economical situations. Return on Equity (ROE) Return on Assets (ROA) Consolidated Net Income Recurring Consolidated Net Income Management Discussion and Analysis 80 Banco Itaú

75 Analysis of the Consolidated Performance Foreign exchange and interest rates in 2001 During 2001, the Brazilian economy suffered various shocks that decisively influenced the trajectory of exchange and interest rates. The year began signaling a strong retraction in the North- American economy, negatively influencing perspectives for the world economy over subsequent months. This process was further heightened by the stagnation of the Japanese economy and reached its peak with the terrorist attack in the U.S. in September. The political and economic situation of Argentina in particular deteriorated during this period, resulting in a worsening of the economic recession that had affected this country since the Russian crisis in The failure to implement reforms that would make the maintenance of the currency board model feasible was also added to existing difficulties. The end result was the end of the currency system of parity with the U.S. dollar, in January The negative evaluation of economic agents in relation to Argentina greatly influenced the Brazilian market, due to the doubts raised with respect to the capacity of the country to resist a possible process of contamination associated with the Argentine default. In May, Brazil began to live with the new threat presented by the risk of an electrical energy shortage. The increase in demand, in conjunction with unfavorable hydrological conditions, made the implementation of the rationing of electricity necessary, increasing the pessimistic perspectives for economic performance. The foreign exchange rate was the macroeconomic variable that most reflected the uncertainties of the market during On September 21, an uncommon set of adverse factors resulted in the devaluation of the Real in relation to the U.S. dollar reaching its peak. The exchange rate for the U.S. dollar reached R$ for sale, an amount 43.2% higher than the closing exchange rate at the end of In order to combat the deterioration in expectations and avoid a possible increase in inflation rates, Brazilian monetary authorities increased the basic interest rate (SELIC), from 15.25% in January to 19.00% in July; the rate remained at this level up to the end of the year. However, beginning in the fourth quarter of 2001, the Brazilian economy started to show signs of recovery in the face of these adverse factors. Imports remained stable and exports grew, contributing to a trade balance surplus of US$ 2,643 million that was the first in seven years. According to preliminary data, the inflow of direct foreign investments into the Brazilian economy ended the year with a positive balance of US$ 21,272 million. This performance surpassed analysts expectations. The primary surplus of the Brazilian public sector reached R$ 43,655 billion, exceeding by 7.9% the target determined in the agreement signed between the Brazilian monetary authorities and the International Monetary Fund. Climatic conditions improved, partially favoring a reduction in the risk of insufficient availability of electrical energy. Finally, despite all of the difficulties in the period, the gross domestic product of Brazil grew by 1.51% in These factors contributed to the appreciation of the Real in relation to the U.S. dollar, which ended 2001 quoted at R$ for each U.S. dollar. Notwithstanding this was still 18.7% above the rate quoted as of December 31, Macroeconomics Ratios Refers to the rate at each month s last day Refers to the rate at each month s last day Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec CDI (Interbank Deposit Certificates) Exchange Rate Banco Itaú 81 Management Discussion and Analysis

76 Analysis of the Consolidated Performance Performance of the Stock Market Market Capitalization The Brazilian stock market started to appreciate once again after the strong drop that occurred in the third quarter of The Bovespa Index ended 2001 at 13,577 points, representing appreciation of 27.7% in relation to the 10,635 points reported in September (R$ Million)* Banco Itaú shares increased in value during the fourth quarter of Preferred shares were quoted at R$ per thousand shares at the end of December, which represented an increase of 3.5% in the quarter. On the other hand, one thousand common shares were traded at R$ at the end of the period, an increase of 9.4% compared to the closing price in September. Market capitalization reached R$ 19,582 million as of December 31, 2001, representing an increase in value of 5.6% compared to the prior quarter's price. (*) The value refers to the rate at each year s last day. Evolutions of Itaú Preferred Shares x Ibovespa Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Itaú Preferred Shares Itaú Preferred Shares Ibovespa Ibovespa Preferred Shares - Appreciation (*) Evolution of US$ 100 invested in December 1991 ANNUAL APPRECIATION 1,800 1,600 1,400 1,200 Itaú IBovespa 10 YEARS (Average) % 5 YEARS (Average) % 2001 (17.34) % US$ 1,411 1, US$ US$ DEC-91 DEC-92 DEC-93 DEC-94 DEC-95 DEC-96 DEC-97 DEC-98 DEC-99 DEC-00 DEC-01 (*) Without reinvestment. Management Discussion and Analysis 82 Banco Itaú

77 Analysis of the Consolidated Performance Dividends and Interest on Capital Amounting - Year Dividends and Interest on Capital Amounting - Quarter (R$ Million) (R$ Million) Consolidated Net Income per Thousand Shares - Year Consolidated Net Income per Thousand Shares - Quarter (R$ ) (R$ ) Banco Itaú 83 Management Discussion and Analysis

78 Analysis of the Consolidated Performance Itaú awarded Financial Holding Company status by the Federal Reserve ADR Level II Itaú was authorized by the Federal Reserve (U.S. Central Bank) to operate in the financial market of the United States developing commercial banking activities and operating in capital markets subject to the same conditions as local financial institutions. Only 27 foreign banks have obtained this type of authorization from the Federal Reserve and Itaú is the first Latin-American Bank to be included in this group. After receiving this authorization, Itaú can issue securities, and operate with insurance and in the secondary market, as well as exercise other financial activities aimed at U.S. investors. It also made possible, the finalization of the process underway with the National Association of Security Dealers (NASD) to establish Itaú Corretora de Valores in New York. On February 21, 2002, American Depositary Receipts (ADR level II) of Banco Itaú shares began to be negotiated on the New York Stock Exchange (NYSE), thus contributing to increase the liquidity of its securities and recognition of the institution in international markets. Each ADR level II represents 500 preferred shares of the Bank and is negotiated on the New York Stock Exchange under the symbol ITU. The American Depositary Receipt level II program made it necessary to adjust Banco Itaú financial statements to U.S. Generally Accepted Accounting Principles (US-GAAP); this was a broad effort that involved several areas of the organization over the past few years. From left to right: Bernardo Parnes (Managing Director - MERRILL LYNCH), Paulo Roberto Soares (Senior Manager Director -ITAÚ), Alfredo Egydio Setubal (Executive Vice-President and Investor Relation Director -ITAÚ), Robert G. Britz (President, Co-Chief Operating Officer and Executive Vice Chairman - NYSE), Marcelo Sanchez (General Manager - NY Branch ITAÚ), Silvio A. de Carvalho (Executive Director -ITAÚ) Georges L. Ugeux (Group Executive Vice President -NYSE), Marli Bacci (Manager -ITAÚ) and Geraldo Soares (General Manager -ITAÚ). Management Discussion and Analysis 84 Banco Itaú

79 Analysis of the Consolidated Performance Economic growth resulting from new acquisitions The year 2001 was marked by a number of strategic initiatives for which results will only be fully perceived over the next several years. In particular, some important steps were taken to improve the Bank's presence in domestic and international financial markets. Itaú was once again able to reaffirm its strategy of growth through the acquisition of other financial institutions and the establishing of strategic partnerships. Telefónica Data Corp S.A. In June, an agreement to form a partnership using the Bank's corporate telecommunications network was entered into between Telefónica Data Corp S.A. and Itaú. This resulted in a positive impact of R$ 449 million income in State Street Corporation An agreement was also signed between Itaú and the U.S. company, State Street Corporation, in June. The purpose of the agreement is to identify and exploit opportunities to improve services rendered to institutional investors of the two companies. Bank Lloyds TSB Group BEG As a result of its offer of R$ 665 million for 84.46% of this bank's stock, Itaú also acquired Banco do Estado de Goiás (BEG) in December. Part of the payment involved a transfer of securities from the Salary Variations Compensation Fund (FCVS) that comprised part of the portfolio of Itaú. This resulted in the recognition of R$ 72 million in revenue, because these securities that were recorded at market value were accepted at their face value. The Goiás state government is required to maintain the payroll of the state's 135 thousand public workers at BEG over the next five years, which satisfies the strategic goal of Itaú to consolidate its position in the retail banking sector. The Bank has planned investments of R$ 30 million through December 2002, in order to adapt equipment and operational infrastructure. As a consequence of this acquisition, Itaú added 149 new bank branches in the state of Goiás, thus extending its network in one of the regions of Brazil with the most potential for economic growth and becoming the leader in this market. The market share of Itaú rose from 3.7% to 32.4% in Goiás. Itaú presently has a national network strategically centered in the Southern and Southeastern regions of Brazil. They are the wealthiest regions of the country, accounting for over 60% of Brazil's gross domestic product in At the end of September, the transfer to Itaú of the Asset Management and Private Bank portfolio of Lloyds TSB Group in Brazil was announced. This resulted in the inclusion of R$ 4.6 billion in assets managed by the Bank. Banco Itaú 85 Management Discussion and Analysis

80 Analysis of the Consolidated Performance Banco do Estado de Goiás Consolidated - BEG Balance Sheet at December 31, 2001 R$ Million 632 Relevant Data - Consolidated BEG December 31, 2001 (*) Eletronic Customer-Site Branches included. Sudameris On December 22, 2001, Banco Itaú S.A. made a firm offer that was accepted by Banca IntesaBci (Italy) to acquire % of its stockholding in Banque Sudameris S.A., headquartered in France. The offer involves Banque Sudameris Paris and its branches in France, Monaco, Grand Cayman, Uruguay, Panama, Chile and the United States, as well as Banco Sudameris Brasil, which currently represents the most important part of the operation. The acquisition is expected to be concluded by the end of the first half of 2002 and it is an important step in the consolidation of the position of Itaú in Brazil, as well as the expansion of its international operations. The acquisition will reinforce the presence of Itaú in international markets, especially Europe, as well as its private banking area. The acquisition price corresponds to Banque Sudameris' adjusted net equity as of December 31, 2001, plus goodwill of US$ 800 million relating to the operations of Banco Sudameris Brasil. The total amount to be paid to Banca Intesa is not expected to exceed US$ 1.5 billion, half of which will be paid as subordinated debt that will be issued abroad and purchased by Banca Intesa. Relevant Data - Sudameris Consolidated Brazil At December 31, 2001 Management Discussion and Analysis 86 Banco Itaú

81 Analysis of the Consolidated Performance Analysis of Consolidated Net Income for the Fourth Quarter of 2001 Consolidated Net Income - Quarter (R$ Million) The net income of Banco Itaú in the fourth quarter of 2001 amounted to R$ 234 million, corresponding to a 66.6% decrease compared to the third quarter. The main reason for this decrease was the full amortization of the goodwill paid on the acquisition of Banco do Estado de Goiás (BEG). Goodwill totaled R$ 417 million and it was recorded in Extraordinary Result. In addition to the full amortization of the premium, the purchase of BEG generated the following revenues and expenses shown in the Extraordinary Result: the recognition of R$ 72 million in revenue from the acceptance of "CVS" securities applied to payment at their face value; R$ 50 million in revenue for the formation of a tax credit not recorded; a provision of R$ 51 million for restructuring purposes; an adjustment to laborrelated provisions of R$ 8 million to meet criteria adopted by Itaú; and finally, a provision of R$ 24 million to cover unfunded liabilities relating to BEG Employees' Pension Fund (PREBEG). Return on Equity (ROE) reached 12.9% in the fourth quarter of 2001, a significant decrease in relation to the 41.3% obtained in the previous quarter. However, if the Extraordinary Result for the quarter is disregarded, recurring income from operations totals R$ 491 million in the quarter, equivalent to a Return on Equity of 28.6%. Return on Equity - ROE (*) (Trimestrial Net Income) (*) Annualized. Consolidated Net Income Recurring Consolidated Net Income Banco Itaú 87 Management Discussion and Analysis

82 Analysis of the Consolidated Performance Analisys of the Consolidated Perfor formance Statement of Reallocated Income Reclassifications included in Statement of Income aim at allowing a better comprehension of the factors that interacted to produce the results of analyzed periods. Exchange Income (expenses), were reclassified into Income from Loan Operations and Funding Expenses, respectively. Income from commissions and banking fees, related to Foreign Exchange Operations was reclassified into the Service Revenues group. Expenses on commissions paid to foreign bankers were reclassified into Other Operating Income/Expenses. Only foreign exchange income and expenses, foreign exchange portfolio rate differentials, foreign trade financing portfolio exchange variation expenses and the respective funding remain recorded in Foreign Exchange Income (Expenses). Reclassifications made in the Statement of Income 1) Income from Loan Operations We combined the income and expenses from Lease Operations and the result was added to Loan Operations. We added financial income from Foreign Trade Financing to income from Loan Operations. The portion of income from Recoveries of Written off Loans was offset against the Provision for Loan Losses, which was included in Credit Operations, was reclassified and added to expenses for Allowance for Loan Losses. 4) Funding Expenses Funding expenses were added to expenses for borrowing, assignments and on-lendings. Repurchase commitment expenses were deducted from Funding expenses. Compulsory deposits income (expenses) was added to Funding operations. Foreign exchange income on the Assumption of Foreign Trade Financing Debts, accounted for in Income from Securities, was reclassified into this item. Financial expenses arising from Foreign Trade Financing, originally accounted for in Foreign Exchange income (expenses), were added to Funding expenses. 5) Provision for Loan Losses Written off loan recoveries recorded against the Provision for loan losses were reclassified and added to expenses on the Provision for loan losses. 2) Securities Income (Expenses) We added the expenses on Repurchase Commitments, accounted for as Market Funding Expenses, to Income from Securities. Securities Income (Expenses) also includes exchange variation income and expenses tied to derivativerelated strategies. Income and expenses relating to the net foreign exchange long position were reclassified into Foreign Exchange Income. Exchange variation on the Assumption of Foreign Trade Financing Debts is accounted for in Income from Securities, and for this analysis is being reclassified into Funding Expenses. 3) Foreign Exchange Income (Expenses) Financial income and expenses relating to Foreign Trade Financing, originally accounted for as Foreign Management Discussion and Analysis 88 Banco Itaú

83 Analysis of the Consolidated Performance Analysis of Financial Margin In the fourth quarter of 2001, the Adjusted Financial Margin amounted to R$ 1,648 million, representing a decrease of 13.4% compared to the previous quarter. Despite the reversal of an additional provision of R$ 310 million formed in the third quarter to cover possible risks arising from foreign exchange variations (considering a drop in the exchange rate from R$ 2.67 to R$ 2.50), the financial margin was especially affected by the significant depreciation of the dollar in relation to the Real, which went from R$ 2.67 to R$ 2.32 per U.S. dollar in the quarter, exceeding even the most optimistic expectations. If the effects of the exchange fluctuation on the period's income are not considered, we find an increase in the financial margin, which will become evident in the analysis of the factors presented below. Income on securities was markedly affected by the significant appreciation of the Real in relation to the U.S. dollar, which led to a worse performance by the securities portfolio that is linked to exchange rate variation and which is held by Banco Itaú, compared to the previous quarter. On the other hand, income from foreign exchange derivative contracts entered into to hedge these operations, partially offset this impact. The Result from Securities was afected by the Allowance for Security Losses reversal as follow: - The performance of the exchange rate significantly influenced the balance of the Allowance for Security Losses, through the reversal of R$ 310 million from the additional allowance set up in the third quarter to minimize the effects of the exchange rate fluctuations on the institution's net income. - The last quarter of 2001 showed a significant recovery of prices for Brazilian securities abroad, leading to the reversal of provisions set up in the third quarter, of which R$ 86 million was attributable to Brady bonds and R$ 15 million to Eurobonds. - The liquidation and/or maturity of part of the stocks and dollar options portfolio resulted in losses that generated an R$ 61 million reverse at stock's allowance and an R$ 62 million reverse at dollar options allowance. Fourth quarter Foreign Exchange Income was influenced by increased volatility and the decrease value of the U.S. dollar. Notwithstanding, forward transactions between the Euro and the dollar reversed part of the gains obtained in the third quarter. In the fourth quarter of 2001, the Net Interest Margin reached 12.5%, compared to the 14.6% registered in the previous quarter, due to the impact of exchange rate fluctuations. Analysis of Reallocated Financial Margin - Total R$ Million Average Deposits Average Funds from Acceptances and Issue of Securities Average Interbank and Interbranch Accounts Average Borrowing Average Onlending Borrowings (*) Arithmetic average between the balance of the last day of quarter and previous quarter. The annual average was calculated using the last five quarters (dec + sep + jun + mar + dec) / 5. (**) Includes honored endorsements and sureties, receivable for advances, commissions, debtors on purchase of assets and receivables. Banco Itaú 89 Management Discussion and Analysis

84 Analisys of the Consolidated Performance Provision for Loan and Lease Losses Movements of Provision for Loan and Lease Losses by Risk Level R$ Million Provision for Loan and Lease Losses expenses totaled R$ 435 million in the fourth quarter of 2001, a 9.6% increase compared to the prior quarter. In the fourth quarter, criteria for voluntary renegotiations of loans past due less than 60 days using electronic teller machines were reviewed. These transactions began to be classified with a minimum risk level equivalent to the E category, thus increasing the provision related expense. Special attention continued to be given to clients highly dependent on foreign currency funds. Additionally, continuous monitoring of Banco Itaú Buen Ayre s credit portfolio and customers highly dependent on Argentine business was implemented. This resulted in R$ 35 million increase in the allowance available to cover this risk. Developments in national and international economic scenarios continued to decisively influence the overall quality of the credit portfolio and, as a consequence, the balance of the allowance. The Bank has sustained its strategic focus on growing the credit portfolio by investing funds in transactions that allow higher financial margins to be achieved (in particular, by increasing the balance of credit cards operations). This has been done, even if this means assuming higher credit risks, since the adoption of such a strategy has generated a positive contribution to the institution's performance. It is important to note that Banco Itaú does not take advantage of the prerogative granted by Article 5 of Resolution 2682 of the Brazilian Central Bank which allows that loans entered into by clients involving risks of up to R$ 50 thousand be classified solely based on actual late payment levels, thus creating a generic allowance for all transactions of this type. If this prerogative was accepted, the generic/specific allowance would reduce in the amount of R$ 141 million and the excess of provision would increase. Banco Itaú has a comfortable coverage index of 173% for loans past due over 60 days that do not generate income on the accrual basis. Management Discussion and Analisys 90 Banco Itaú

85 Analisys of the Consolidated Performance Movements of the Credit Portfolio by Risk Level R$ Million At the end of 2001, 87.3% of the credit portfolio balance was classified in AA to C risk categories, a proportion that practically remained unaltered in relation to the third quarter. With respect to new contracts, 94.8% of the balance of which refers to risks classified between levels AA and C increased by 8.0%, reaching R$ 8,395 million and resulting in a ratio which approximates that of the prior quarter. The balance of the allowance for loan losses totaled R$ 2,568 million as of December 31, 2001, an 8.3% increase compared to the balance at the end of the third quarter. Write-offs made against the allowance for loan losses totaled R$ 255 million in the fourth quarter of 2001, which is equivalent to an 18.1% increase compared to credits writtenoff in the prior quarter. The loans write-off of R$ 33 million granted in Argentina contributed to this increase. In the fourth quarter of 2001, Itaú recovered R$ 65 million of loans that was previously written-off against the allowance for loan losses, corresponding to a 12.1% increase in relation to prior quarter recoveries. Banco Itaú 91 Management Discussion and Analisys

86 Analisys of the Consolidated Performance Movements of Credit Portfolio - 4th Quarter 2001 R$ Million We presented a table above that demonstrates changes in the credit portfolio during the fourth quarter of The new contracts balance of the period, as well as the composition of debts balance, comprised the heading "New entries". Increases and decreases in debit balances arising from the appropriation of interest, exchange variation, and payment of installments, excluding settlements, are presented under the heading "Restatements and amortization". Transfers made between different risk levels during the quarter are recorded in "Transfers between risk categories" under the heading "Current risk". A balance classified under a certain risk that was transferred to other risks is presented under the heading "Transfers to other risk categories". The balance of operations settled in the quarter is presented under the heading "Total settlements". Operations that were reclassified and whose risk category was changed totaled R$ 6,500 million in the fourth quarter; 34.0% of these operations improved their risk level rating. Movements of Provision for Loan and Lease Losses Expenses R$ Million The analysis of the table above shows the changes in expenses for the allowance for loan losses. In the fourth quarter, a reversal of expenses totaling R$ 132 million was accounted for, simultaneously with the recording of new allowances of R$ 458 million, which together with total settlements, new entries made, restatements and amortization, and the excess allowance comprise expenses with the allowance for loan losses. Management Discussion and Analisys 92 Banco Itaú

87 Analisys of the Consolidated Performance Risk Rates of the Credit Portfolio Below are presented information related to the quality of the credit portfolio, which highlights the comfortable situation of the bank in relation to credit risk management. R$ Million Banco Itaú 93 Management Discussion and Analisys

88 Analisys of the Consolidated Performance Non Accrual Ratio on the Credit Portfolio - Conglomerate The ratio obtained by dividing the loan operations overdue for more than 60 days and without income on the accrual basis, by the total portfolio (Non Accrual Loans Ratio) showed a slight increase in the quarter, because the reflects of recession in the economy. Non Accrual R$ Million (a) Loans Overdue for more than 60 days and without generation of revenues on the accrual method. (b) Endorsements and Sureties Not Included. Non Accrual Loans Ratio* ( % ) Non Accrual Loans Ratio - Global Non Accrual Loans Ratio - Individuals Non Accrual Loans Ratio - Businesses (*) Loans Overdue for more than 60 days and without generation of revenues on the accrual method / Credit Operations of Conglomerated. Provision for Loan and Lease Losses / Non Accrual ( % ) Dec 31, 00 Mar 31, 01 Jun 30, 01 Sep 30, 01 Dec 31, 01 Management Discussion and Analisys 94 Banco Itaú

89 Analysis of the Consolidated Performance Banking Service Fees R$ Million 1 0 At the end of the fourth quarter 2001, Banking Service Fees totaled R$ 1,148 million, representing a R$95 million increase over the R$ 1,053 million of the previous quarter. This increase was basically due tothe fees related to tax collection services (R$ 42 million), credit cards (R$ 32 million) and bill collection services (R$ 8 million). Quantity of Active Clients (*) (million) The coverage ratio, obtained by dividing Banking Service Fees by Total Administrative Expenses (Personnel + Other), reached 72% in fourth quarter 2001, representing the best performance ever, according to the next chart. Taking just Personnel Expenses this index rises to 166%. Coverage Index of Banking Service Fees over Administrative Expenses (*) Conceptually a client (represented by a CPF/CNPJ taxpayer number) is considered active when performing one or more transactions in current account per month or has a non-zero average 3-month cash deposit balance. Products per Active Client Mar/00 Jun/00 Sep/00 Dec/00 Mar/01 Jun/01 Sep/01 Dec/01 Mutual Funds and Managed Portfolio The consolidated active client portfolio totaled 8.8 million clients in December At Itaú, the customer s level of relationship with the institution may be measured through the ratio of products per active client ratio, which corresponded to 5.1 products in December. In the fourth quarter of 2001, Assets and Investment Funds under Management Fees amounted to R$ 214 million, a 2.7% decrease compared to the R$ 220 million of previous quarter. Such effect results from the market s higher competition level. Banco Itaú 95 M a n a g e m e n t D i s c u s s i o n a n d A n a l y s i s

90 Analysis of the Consolidated Performance Collection Collection Fees grew 14.0% in the period under analysis, from R$ 57 million to R$ 65 million. The settlement volume of securities in the fourth quarter of 2001 totaled R$ 30.6 billion, a 5.0% increase compared to the volume in the previous quarter. Such variation is associated with the 5.4% higher amount of securities processed in the period. Credit Cards Current / Saving Accounts Current Account Service Fees totaled R$ 187 million in the fourth quarter of 2001, representing a 1.6% increase compared to the previous quarter, basically related to the 4.3% growth in quantity of current accounts. The total number ofcurrent accounts increased from 11.7 million to 12.2 million, in the fourth quarter of Tax Collection The variation of R$ 42 million in Tax Collection Service Fees derives from the receiving of Social Security fees related to previous periods, amounting to R$ 46 million. It is important to stress that there was a remainder receivable balance undue of R$ 40 million at The following chart presents Tax Collection Fees breakdown showing that the largest part of such fees come from Utility Companies Agreements and Taxes. Tax Collection Fees - 4th. Q./01 Between the periods under analysis, the credit card revenues showed a R$ 32 million increase, comments on which will be provided later, in the Analysis of Segments. Internet The number of clients registered with Home & Office Banking grew from 1.8 milion in the third quarter of 2001 to 2.0 million in the fourth quarter of this year, representing an 11.1% increase. As compared to the fourth quarter of 2000, the number of clients grew 42.9%. Such increase in the number o registered clients also was reflected in the volume of transactions, which totaled 65 million in the fourth quarter of 2001, 10.1% higher than in the previous quarter and 47.7% higher if compared to the same period of the previous year. It is also worth stressing that, together with the strong and positive growth of Home & Office Banking transactions, it is possible to notice an increasingly higher number of transactions via Internet, including the migration of users of the direct connection applications. Volume of Home & Office Banking Transactions (million) Credit Operation Credit Operation fees amounted to R$87 million in the fourth quarter of 2001, R$ 5 million above than the previous quarter. Such increase is mainly related to loans in current accounts for individual clients. The following chart shows credit operations portfolio in the fourth quarter of Insurance, Capitalization and Pension Plan Operations The Partial Income from Insurance, Capitalization and Pension Plan Operations totaled R$ 114 million in the fourth quarter of 2001, showing an increase of 9.6% compared to the R$ 103 million of the previous quarter. It is important to highlight that these amounts do not reflect the companies net income, which will be presented later, in the Analysis of the Segments. M a n a g e m e n t D i s c u s s i o n a n d A n a l y s i s 96 Banco Itaú

91 Analysis of the Consolidated Performance Administrative Expenses Personnel Expenses Personnel expenses reduced R$116 million from the third quarter to the fourth quarter of In the third quarter, there was the impact of provisioning for the 5.5% adjustment on salaries, social security amounts and provision balances (vacations and 13th. month salary), due to the 2001/2002 labor agreement. Besides, in the third quarter there was further R$ 70 million incurred in personnel expenses, due to labor provisions constitution. It is important to highlight Itaú s effort on the rearrangement and review of its processes, with the consequent improvement of productivity. The acquisition of BEG, in December 2001, added 1,702 new workers. Apart from such fact, the number of employees showed a decrease of 4% in the th. Quarter. Number of Employees Human Resources Development Programs During year 2001, Itaú invested R$ 54 million in training and capacitating of its employees. In the fourth quarter, 29,135 training actions were taken, with emphasis on professional development and courses on quality policies. Banco Itaú has a training program (International Development Program), directed to the formation of highly skilled leaders, providing the opportunity to study in renowned universities abroad. Social Benefits and Training The benefits offered to Itaú employees, including spontaneous benefits of medical assistance, supplementary retirement plans and training activities, totaled R$ 112 million in the fourth quarter and, in the total of year 2001, R$ 460 million, representing an increase of 13.8% compared with the previous year. Personnel Profile R$ Million The personnel profile of Itaú is demonstrated in the table below, in relation to age, gender, time within the group and wage. Characteristic Dec Sep Dec Age Up to 30 years 33.0% 33.0% 35.3% From 30 to 45 years 57.2% 57.5% 55.7% From 45 to 50 years 6.9% 6.8% 6.2% More than 50 years 2.9% 2.7% 2.8% Gender Male 46.9% 47.3% 47.2% Female 53.1% 52.7% 52.8% Years in Institution Up to 5 years 28.8% 28.2% 27.2% From 5 to 10 years 12.7% 13.3% 16.2% From 10 to 20 years 45.2% 45.4% 43.6% More than 20 years 13.2% 13.1% 13.0% Wage Comissioned 55.0% 53.2% 54.1% Non-Comissioned 45.0% 46.8% 45.9% Banco Itaú 97 Management s Discussion and Analisys

92 Analysis of the Consolidated Performance Other Administrative Expenses Other administrative expenses increased R$ 37 million from the third quarter to the fourth quarter of Expenses associated with Premises, with an increase of R$ 19 million in the period, had the impacts of reforms for adaptation and lay-out changes, which are associated to the resizing of the self-service network, as well as to the modernization of branches and administrative areas. The R$ 30 million increase verified in expenses with Data Processing and Telecommunications refers to the management of the data net of Itaú by Galáxia, amounting to R$ 4 million in the fourth quarter. Furthermore, there were expenses of R$ 6 million for IBM software rental, R$ 5 million with information systems development and R$ 6 million with the installation of financial terminals, due to the modernization of equipments. Expenses with Third Party services increased R$ 13 million, basically due to the expenses with resale commissions (R$ 3 million) and with Assistance and Consulting (R$ 10 million) in projects for restructuring and strategic positioning in the market. The Marketing expenses in the period totaled R$ 88 million, an increase of R$ 14 million in relation to the expenditure in the prior quarter. This variation results from the intensification of advertisement related to the new investment site (Investa), funding and new customers attraction. The R$ 14 million increase in expenses with Depreciation and Amortization arises from the acquisition of various equipments of hardware and software, mainly for the modernization of the financial terminals net and improvements in mainframe systems. Efficiency Ratio (1) The efficiency ratio remained practically stable throughout the analysed periods, as shown on the graphic below. (1) Efficiency Ratio = (Personnel Expenses + Other Administrative Expenses) (Net Income from Financial Operations + Provision for Loan Losses + Banking Service Fees + Capitalization, Insurance and Pension Plan Premiums - Variations in Technical Provisions of Capitalization, Insurance and Pension Plans - Insurance Claims - Selling Expenses - Pension Plan Benefit Expenses - Other Operating Expenses + Other Operating Income) Management s Discussion and Analisys 98 Banco Itaú

93 Analysis of the Consolidated Performance Volume of Self-Service Transactions (*) (Quantity - Million) (*)Only Itaú until As from 1999, it considers Itaú, Banerj and Bemge, and, as from 2001, also Banestado. Automation and Expansion of the Service Network Network Evolution (**) Transactions through the internet increased 134.9% from year 2000 to 2001, totaling R$ 50 million in this year s last quarter. In relation to the private banking network, Itaú had 2,259 branches, 925 CSB s (Customer Site Branches) and 13,777 ATMs in December 2001, including the network of Banco do Estado de Goiás - BEG. 15,059 15,030 15,219 14,264 14,148 14,036 15,765 16, ,777 (**) These figures include Banco Itaú Buen Ayre. Geographic Distribution of Points of Service The breakdown of Itaú s points of service by geographic region in Brazil, at the end of December 2001, is as follows. In comparison to the National Financial System position, Itaú has 13% of the branches included in the Central Bank survey. With the acquisition of Banco BEG, Itaú is the leader in terms of market share also in Centre West region, with 17% of the market. (*) Source: BACEN - CADINF-DEORF/COPEC - Banking Services in Brazil - December/2001 Banco Itaú 99 Management s Discussion and Analisys

94 Analysis of the Consolidated Performance Social Responsibility The following graphic depicts the evolution of social projects investments made by Itaú, mainly through Itaú Social Program. Social Projects Investiments (R$ Thousands) Average Ammount Invested per Project Social Investments Management s Discussion and Analisys 100 Banco Itaú

95 Analysis by Segment Banco Itaú 101 Management Discussion and Analisys

96 Análise do Resultado Consolidado por Segmento Forth Quarter 2001 Reallocated results per Segment 2001 Results per Segment Over a decade ago, Banco Itaú implemented a segmentation model of operations by several specific markets which permitted it to focus its marketing and new product development strategy on the specific needs of the different segments. This strategy permitted focusing the Bank s efforts on each class of clients, thus enhancing product and services quality and, consequently, increasing client satisfaction. Currently Banco Itaú operations are divided into the following segments: Banking, Credit Cards, Insurance, Capitalization and Pension Plans, Mutual Funds and Portfolio Under Management, and Corporation. We present below the basic characteristics of each segment. Banking The Banking segment comprises six different areas, each one specialized in a different type of client, as follows: Retail Bank (Individuals and very small businesses) Retail bank activities are a crucial source of funds capable of generating large financial revenues. This area s operations, in view of the related risks, permit higher financial intermediation margins. In addition, retail clients are also potential consumers of a large range of bank products and services, thus making them essential for obtaining service revenues. Itaú Corporate Unit (small businesses) The small businesses area serves chiefly businesses with annual revenues of R$ 500,000 to R$ 10 million. This area was created at the beginning of 2001 to offer products and services focusing on small business needs (such as cash flow management and credit facilities), which previously had been served by the Bank s retail area. The loan portfolio to Small Business clients consists mainly of guaranteed loans, overdraft facilities and working capital loans. Itaú Empresas (middle market businesses) This area focuses on middle market businesses (companies with annual revenues of R$10 million to R$100 million). Itaú has a large range of financial products and services aimed at middle market corporate clients: investment capital loans, working capital loans, inventory financing, trade financing, exchange services, equipment leasing, stand-by letters of credit and guarantees, and so on. In addition, Itaú carries out some financial transactions for middle market corporate clients, such as, interbank transactions in the money market and forward market, swaps, hedges and arbitration. Itaucorp (large corporations) The area responsible for corporate clients is known as Itaucorp and includes local and multinational companies with annual revenues higher than R$100 million. Most of the loans and financing granted by Banco Itaú are made to corporate clients. In general, products and services offered to corporate clients are especially developed to meet their specific needs. Itaú Personnalité (High-income Individuals) Itaú Personnalité was created in 1999 and serves Individuals requiring financial guidance and tailor-made service through an exclusive 48-branch chain. Last year business volume and the number of clients increased 81% and 50%, respectively. The market image of Itaú Personnalité has also improved, and a large number of clients were conquered by referrals from existing clients. Itaú Private Bank (Very wealthy Individuals) The Private Banking area provides several tailor-made bank services to clients with investments of at least R$ 500,000. The main service provided is asset management, based on guidelines designed by the client himself, pursuant to his inclination to risk. Fees charged by the Private Banking area vary according to the volume of invested assets and are negotiated according to the products sold and services provided. Funds managed by this area reached R$ 6.2 billion in December 2001, and during this period they posted significant growth as a result of the merger of Lloyds TSB Private Banking activities in Brazil. Credit Cards Banco Itaú is a major issuer of credit cards in the Brazilian market. The credit card segment should maintain a significant growth rate in the coming months in view of consumers increasing purchasing power and demand for credit of recent years. Thus, the Bank has been offering credit cards to new account holders and increasing the range of products offered to clients, strengthening the relationship between clients and the institution. Marketing strategies focused on offering credit cards to current clients, as well as people which do not have an account, in view of their income, but need a credit card to have access to credit. These strategies have proven to be appropriate for the objectives proposed by senior management. Credit Cards operations are basically divided into Itaucard, of which Itaú holds 100% of interest, and Credicard S.A., where Itaú s interest is 33.3%. Management Discussion and Analisys 102 Banco Itaú

97 Análise do Resultado Consolidado por Segmento Insurance, Capitalization and Pension Plans The Insurance, Capitalization and Pension Plans segment is an important profit center of Banco Itaú. The main features of the areas forming this segment are as follows: Insurance Currently insurance companies of the Itaú conglomerate are increasing their market penetration through small independent brokers, such as independent agents and brokerage companies. The sale of insurance policies is increasingly based on technology-intensive electronic distribution channels. Investments in technology aim not only at the improvement of operating efficiency, but also cost reductions and adequate claim management. Banco Itaú plays a strategic role in the development of the Mutual Funds and Portfolio Under Management segment, a major source of revenues for the conglomerate. Itaú holds an important position in the mutual fund industry and has teams of highly qualified professionals constantly in tune with the financial market to obtain superior performance as regards the management of funds raised by this segment. According to ANBID data, in December 2001 Itaú held a 13.2% share of the Brazilian market of mutual funds. Corporation The results of the Corporation segment include the revenues and expenses of each segment which is not intrinsic to its operations. Pension Plans The private pension plan industry in Brazil is still in its first steps, and a new regulatory framework has restructured the social security system in Brazil and created new rules rendering pension funds more attractive. Banco Itaú holds an important position in the pension funds administration market. Sales of products have been increasing consistently throughout recent years and attracting an increasingly larger number of interested people. Pension funds are thus becoming one of the most promising activities. Currently, Itaú is using its strong brand awareness to operate more aggressively in this market, winning clients because it is often viewed as a sound and conservative institution. In addition, the vast branch network has contributed decisively to expanding pension fund business. New products are being developed to compete more aggressively for corporate clients. Capitalization Capitalization plans serve as long-term investment instruments for the low-income population, through which the client deposits a fixed amount and becomes entitled to participate in cash drawings and to redeem the invested amount plus financial charges upon maturity. Itaú offers to its clients capitalization plans through its subsidiary Itaú Capitalização S.A. Mutual Funds and Portfolio Under Management In recent years mutual funds have been increasing their share of the Brazilian financial market with a growing volume of managed funds. Banco Itaú 103 Management Discussion and Analisys

98 Third Quarter 2001 Reallocated results per Segment The analysis in this schedule will be made based on the reallocation of revenues and expenses pursuant to the criteria described in the "Statement of Reallocated Income " Table above. R$ Million The breakdown of reallocated income per segment shows each Conglomerate operational area's contribution to income for the third quarter of The elimination of revenues and expenses resulting from inter-segment operations was made at corporate level. Equity pick-up of companies not related to the segment was reallocated to the appropriate segment. Taxes levied on income were calculated at the rate of 34% for each segment, while the tax increase or decrease as a result of temporary differences and other tax effects was allocated to Corporation. Management results computed in each segment differ from accounting results stated in the notes to the financial statements as a result of the effects above. We changed the figures published in the Management Operational Analysis Report of September 2001 because of the taxes levied on the opportunity cost of funds invested abroad. Management Discussion and Analisys 104 Banco Itaú

99 Forth Quarter 2001 Reallocated results per Segment The analysis in this schedule will be made based on the reallocation of revenues and expenses pursuant to the criteria described in the "Statement of Reallocated Income " Table above. R$ Million INSURANCE CAPITALIZATION PORTFOLIO UNDER CORPORATION CONSOLIDATED MANAGEMENT PENSION PLANS AND MUTUAL FUNDS (0) (852) (13) 0 (0) 1,860 0 (0) 1,648 (0) 0 (0) 0 0 (435) (362) 90 (3) (115) (0) 1, (21) (576) 218 (36) 1,153 (84) (0) 114 (68) 16 (1,798) 0 0 (3) 0 0 (42) 87 (0) 66 (20) (6) (8) 87 (29) 0 (4) (0) 66 (27) 702 (22) 142 (242) 0 (258) (258) (3) 0 (35) (77) 234 The breakdown of reallocated income per segment shows each Conglomerate operational area's contribution to income for the third quarter of The elimination of revenues and expenses resulting from inter-segment operations was made at corporate level. Equity pick-up of companies not related to the segment was reallocated to the appropriate segment. Taxes levied on income were calculated at the rate of 34% for each segment, while the tax increase or decrease as a result of temporary differences and other tax effects was allocated to Corporation. Management results computed in each segment differ from accounting results stated in the notes to the financial statements as a result of the effects above. We changed the figures published in the Management Operational Analysis Report of September 2001 because of the taxes levied on the opportunity cost of funds invested abroad. Banco Itaú 105 Management Discussion and Analisys

100 Banking Segmented Financial Margin The breakdown of income per segment permits a better analysis and understanding of Banco Itaú performance. Segments have different types of risks, growth prospects, capital allocation requirements and return rates. Banking segment results were broken down into three columns, separating operations based on their level of dependence of the exchange variable, thus evidencing each sub-segment's contribution to net income for each period. Income not affected by exchange differences corresponds to the first column of the schedule. Revenues and expenses affected by exchange differences go into the second column, while the third column shows the effects of exchange differences on permanent investments held by the Bank overseas. R$ Million Income not Affected by Exchange Differences The financial margin of transactions not affected by exchange differences grew 27.8% in the fourth quarter of Basically the 5.3% increase in the volume of credit operations in local currency was responsible for the 8.8% increase in Revenues from Credit Operations. We remind you that the Bank has been directing its funds to products that generate higher spreads, a major contribution to the financial margin. Securities Income was affected by derivative-related revenues. The highlight in the fourth quarter of 2001 was the gains on forward interest rate transactions, as a result of an asset position held by our institution in this specific market, generating a positive contribution to income as from the drop in the forward interest rates after September The decrease in Funding Expenses in the fourth quarter of 2001 relates in part to the repurchase of securities previously issued and placed in the market below market price. In addition withdrawals from savings accounts not on anniversary dates, which do not generate funding expenses, helped to reduce this expense in the period. However, Itaú does not expect that this effect will repeat itself in the coming months. As a result of all the factors above, in the fourth quarter of 2001 Banco Itaú recorded a Financial Margin rate of 22.5%, against 18.3% in the prior quarter. Management Discussion and Analisys 106 Banco Itaú

101 Banking Analisys of Financial Margin Not Affected by Exchange Variation R$ Million (*) Include Banking, Credit Cards, Insurance and Mutual Funds segments (**) Arithmetic average between the balance of the last day of quarter and previous quarter. The annual average was calculated with the last five quarters (dec+sep+jun+mar+dec) / 5 (***) Includes honored endorsements and sureties, receivable for advances, commissions, debtors on purchase of assets and receivables. Banco Itaú 107 Management Discussion and Analisys

102 Banking Results Affected by Foreign Exchange Variation R$ Million The devaluation of the US dollar in relation to the real was so strong in the period that it reversed the trend of revenues and expenses affected by exchange differences in the fourth quarter of During the third quarter, the US dollar appreciated 15.9% in relation to the real. But in the fourth quarter this trend was reversed and dollar dropped 13.1%. The Financial Margin affected by exchange differences amounted to R$ 361 million in the fourth quarter of 2001, 10.7% higher than in the prior quarter. As regards Securities Income in the fourth quarter of 2001, expenses on government securities should be highlighted as compared to income earned in the prior quarter. The adverse effect would have been worse if there had not been a slight change in the portfolio composition, with the realization of profits by selling part of the securities held. This quarter there was a recovery in the prices of Brazilian government bonds traded overseas (Bradies and Eurobonds), and provisions previously set up, totaling R$ 101 million, were reversed. Finally the Bank reduced its foreign exchange exposure in the period to avoid higher losses on the US dollar position. Results of Foreign Exchange Variation on Investments Abroad R$ Million (*) Additional provision for future exchange rates fluctuation. The Result of Exchange Differences on Permanent Foreign Investments generated a negative Financial Margin of R$ 496,000 in the last quarter of 2001, and was impacted by the decrease in the US dollar quotation from R$ 2.67 to R$ The reversal of the additional provision for possible future risks arising from exchange rate fluctuations, totaling R$ 310 million, was sufficient to cover these losses. We show below the reclassification made to highlight the opportunity costs of the funds invested overseas, using CDI as the benchmark. Foreign Exchange Variation on Investments Abroad R$ Million Management Discussion and Analisys 108 Banco Itaú

103 Banking Analisys of Financial Margin Affected by Foreign Exchange Variation R$ Million (*) Arithmetic average between the balance of the last day of quarter and previous quarter. The annual average was calculated with the last five quarters (dec+sep+jun+mar+dec) / 5 (**) Includes honored endorsements and sureties, receivable for advances, commissions, debtors on purchase of assets and receivables. Banco Itaú 109 Management Discussion and Analisys

104 Credit Cards Mil 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 R$ Million The financial margin including credit cards totaled R$ 99 million in the fourth quarter of 2001, a slight decrease of R$ 8 million compared to the third quarter. This variation occurred in the Result from Marketable Securities basically due to the drop in Income from Investment Funds. We highlight that Collateral Income and Financial Management of Itaucard is considered Banking Service Fees and not Income from Loan Operations. This practice is being reviewed since Itaucard shall be transformed into a Financial Institution. Expenses for Allowance for possible losses totaled R$ 103 million in the fourth quarter of 2001, a decrease of 8.8% compared to the prior quarter. During the fourth quarter of 2001, Banking Service Fees totaled R$ 311 million, representing an increase of R$ 32 million compared the third quarter of 2001, R$ 9 million for Collateral Income and Financial Management and R$ 4 million for Annual Fees. 500 Quantity of Credit Cards and Market Share 0 14% 12% 10% 8% 6% 4% 2% 0% Such increase in income is basically due to the increase of 342 thousand cards compared to the prior quarter, and maturity of the current card basis. In the fourth quarter of 2001, Itaucard held a market share of 13.0%, based on the number of cards, and 11.9%, based on the amount of transactions. According to research made by e-bit (Research, Marketing and On-line technology company), the credit card is the most used means of payment of purchases by Internet, and the cards from Itaucard are in first place, with 13.6% market share. In December 2001, Itaucard had a rate of active accounts (accounts which received invoice) of 82%, of which 75.7% of these accounts had transactions in the prior month, with an average movement in the quarter of R$ per account. Itaú holds 33.3% of Credicard, a leader in the sector of credit card management, with a total of 8.1 million cards. From the total of Income from Credit Card Services earned by Itaú in the fourth quarter, 28.5% refers to Credicard. Taking into consideration the holding and special dividends received portion of income which is distributed in terms of the performance of the partners cards bases in the fourth quarter Itaú obtained 38.8% of the income of Credicard. Quantity of Credit Cards by Brand Thousand Dec/01 Other Operating Income and Expenses had an increase of R$ 36 million compared to the prior quarter, due to the increase on the number of cards, causing an increase in expenses for processing, bank services, personnel and other. M a n a g e m e n t D i s c u s s i o n a n d A n a l y s i s 110 Banco Itaú

105 Insurance, Capitalization and Pension Plans Banco Itaú 111 Analysis of the Consolidated Performance Statements of Income of the Segment R$ Million

106 Insurance, Capitalization and Pension Plans Insurance, Capitalization and Pension Plans The statements of income of this segment comprise the following companies: - Insurance Companies: Itaú Seguros S.A. and its subsidiaries Banerj Seguros S.A., Bemge Seguradora S.A., Cia. de Seguros Gralha Azul, Paraná Cia. de Seguros, Itauseg Saúde S.A. and Gralha Azul Saúde S.A.; - Capitalization Companies: Itaú Capitalização S.A. and Capitaliza - Empresa de Capitalização S.A.; - Pension Plan Company: Itaú Previdência e Seguros S.A. During the fourth quarter of 2001, Insurance, Capitalization, and Pension Plan Revenues totaled R$ 704 million, an increase of 17.5% as compared to the third quarter, which was a result of pension plan and capitalization campaigns. Retained Claims decreased R$ 4 million, while Administrative and Selling Expenses remained stable. The Consolidated Income for the segment in the quarter reached R$ 53 million, decreasing R$ 12 million compared to the prior quarter. Insurance Earned Premiums of the insurance companies totaled R$ 333 million in the fourth quarter of 2001, an increase of R$ 13 million compared to the third quarter. The composition of the products that contributed to these Earned Premiums remained almost unchanged during the last two quarters, which reflected the continuation of the strategy of focusing on the sale of Automobile and Life Insurance lines, as shown in the graphs below. Retained Claims were reduced to R$ 191 million in the quarter, which is owed to the restructuring of the Auto insurance portfolios of the insurance companies Gralha Azul and Paraná. Moreover, Property Risks, Transportation, and Others lines also presented a decrease in claims. Administrative and Personnel Expenses presented an increase due to labor indemnities related to the merger of the companies, which sought to increase the synergy of operations with Itaú Seguros. The increase was also influenced by the costs for development of distribution channel management projects and improvement of processes for the settlement of claims, which stimulated growth in insurance written and decrease in claims costs. Composition of Earned Premiums - Itaú Seguros and subsidiaries 4th Quarter/2001 3rd Quarter/2001 Vehicle Life Property Transportation Others Analysis of the Consolidated Performance 112 Banco Itaú

107 Insurance, Capitalization and Pension Plans Combined Ratio (1) 100.8% 98.5% 96.6% 99.9% 97.7% The combined ratio improved, falling from 99.9% in the third quarter of 2001 to 97.7% in the fourth quarter of This was the result of a decrease in Insurance Claims and of an increase in Premiums Earned. Insurance Claims / Earned Premiums Selling Expenses / Earned Premiums Administrative Expenses / Earned Premiums Claim Ratio 72% 69% 50% 40% 62% 51% 68% 72% 65% 59% In recent years, the claims ratio has improved as a result of the review and continuous improvement of the policies for acceptance of risks and settlement of claims. Claims ratios were lower than those in the market Number of Insurance Policies - Mass Products In Thousand 1,361 1,427 1,445 1,516 1, Vehicles Life Property As of December 31, 2001, the portfolio of mass-market-product policies of the insurance companies included a total of 1,529 thousand policies, growing 12% in The solid growth of the Automobile line (27% in 2001) should also be pointed out. During the fourth quarter of 2001, the number of Auto insurance policies increased 7.4%, reaching 686 thousand policies. Note: The insurance charts do not include health insurance companies (Itauseg Saúde and Gralha Azul Saúde). (1) Combined Ratio = (Retained Claims + Selling Expenses + Administrative Expenses + Other Operating Income / Expenses) Earned Premiums Banco Itaú 113 Analysis of the Consolidated Performance

108 Insurance, Capitalization and Pension Plans Capitalization Capitalization Revenues amounted to R$ 166 million in the fourth quarter of 2001, an increase of 30.7% as compared to the third quarter of During the last quarter, more than 115 thousand PICs (monthly installment bond) were sold. In November and December 2001, Itaú Capitalização implemented a campaign to obtain deposits during which more than 48 thousand bonds of "Super PIC Natal" were sold. This product called for a single installment of R$1,000.00, while cash premiums distributed were expected to exceed R$ 5 million. Over the past 12 months, Itaú Capitalização distributed more than R$ 18 million in cash premiums to 531 winning customers. Number of Capitalization Plans - Itaucap (*) In Thousand 1,594 1,620 1,640 1,575 1,572 Number of sold Capitalization Plans - Itaucap (*) In Thousand Super PIC - Single Installment Bond PIC - Monthly Installment Bond (*) The charts above only include capitalization plans of Itaú Capitalização. Analysis of the Consolidated Performance 114 Banco Itaú

109 Insurance, Capitalization and Pension Plans Pension Plans Premium Revenues of Itaú Previdência totaled R$ 215 million in the fourth quarter of 2001, exceeding the prior quarter (R$ 123 million) by 74.8%. The Flexprev PGBL (Free Benefit Generating Plan) family is still the most widely sought product. It contributed significantly to the development of Itaú Previdência. The product family presented growth of 187% in assets during the last twelve months, which is well above growth for the market. Accordingly, product family assets totaled R$ 483 million, widening the gap in relation to the third-ranked company in the PGBL market. The launch of two products for companies (both of which were fixed income plans) in the last quarter was also a contributing factor. One of them is intended for large and medium-sized companies and the other is directed toward small companies. Expenses with Redemptions and Benefits amounted to R$ 62 million in the fourth quarter, showing the same volume as in the third quarter. Net Income in the fourth quarter of 2001 was affected by the constituting of Provision for Financial Surplus in a higher amount as compared to the third quarter of Part of the collected resources was invested in a variable income fund. Despite the variable income fund gains were being accrued to the consumers, they will only be accounted in the company s financial statements at the moment of their effective realization, through redemption of the fund s quotas. At the same time, Itaú Previdência has been preparing to offer new and exclusive products to various segments, in order to increase its customer portfolio. Among them are Flexprev VGBL (Free Benefit Generating Life), which is intended for customers who would like to invest in a Private Pension, but do not use the income tax deferral benefit, and new versions of FAPI, a product that became competitive after the disclosure of Provisional Measure 2222, which exempts FAPI from Income Tax on gains in financial investments. Composition of Pension Plan Revenues - Itauprev 4th Quarter/2001 3rd Quarter/2001 Flexprev Itaú PGBL PF PGBL PJ Itauprev Invest Others Number of Pension Plans - Itauprev Number of sold Pension Plans - Itauprev In Thousand In Thousand Dec Mar Jun Sep Dec th Q./00 1st Q./01 2nd Q./01 3rd Q./01 4th Q./01 PGBL Flexprev Itaú Others FAPI Banco Itaú 115 Analysis of the Consolidated Performance

110 Investment Funds and Managed Portfolio In the fourth quarter of 2001, investment funds management fees totaled R$ 214 million, a 2.7% decrease compared to R$ 220 million in the prior quarter. This effect is due to the market s higher competiion level. Investment Funds Client Segmentation Assets Under Management (R$ billion) With the objective of providing customized services to institutional clients, Itaú created the Institutional Client Superintendency. Funds obtained from institutional investors in 2001 amounted to R$ 2.5 billion and allowed Itaú to maintain its leading position in the ranking of ANBID for private administrators of Closed Private Pension Entities. After the purchase of Lloyds TSB Group and Banco BEG, Itaú increased the volume of managed third party funds, which contributed to raise the market share to 13.2% of assets management in December. At the end of 2001, Itaú Private Bank had a total managed volume of R$ 6.2 billion, including the amount of R$ 1.3 billion of investments made by individuals from Lloyds. M a n a g e m e n t D i s c u s s i o n a n d A n a l y s i s 116 Banco Itaú

111 Analisys of the Consolidated Balance Sheet Analisys of the Consolidated Balance Sheet Banco Itaú 117 Management Discussion and Analisys

112 Analisys of the Consolidated Balance Sheet Balance Sheet Asset by Maturity Date R$ Million Cash and Cash Equivalents, Short-Term Interbank Deposits and Securities In December 2001, Itaú Conglomerate total assets reached R$ 81,807 million. Balances of cash and cash equivalents, interbank investments and securities, which represent 28.2% of the total assets in the same period, except for Repurchase Commitments, increased 3.9% in liquidity as compared to the prior quarter. The increase of 7.9% in the balance of Cash and cash equivalents and Interbank Investments during the period is the result of the investment of additional resources arising from funds obtained from demand deposits and the issue of debentures by Itauleasing. With regard to Securities, a migration from the investments in private securities to overnight public securities is noted, however, it does not impact the total portfolio balance. The exclusion of Repurchase Commitments from the table below aims at emphasizing the liquidity level of Banco Itaú. Accordingly, investments in the Money Market and Government Securities are shown net of commitments for repurchase agreements. It is very important to stress that the balance of R$ 22 million in Securities of the Republic of Argentina corresponds to compulsory deposits determined by its monetary authority. The Financial Executive Committee determines the policy for asset and liability management of Banco Itaú, attempting to maintain a balance among maturities, interest rates and exposures to foreign currencies of the asset and liability positions. The limits of exposure for each market segment are taken into consideration, as well as the volatility and correlation existing between the different markets. When determining the operating needs of Banco Itaú, managers consider the operating commitments, the protection of the capital of Itaú and the exploration of the various business opportunities that are constantly renewed. Management Discussion and Analisys 118 Banco Itaú

113 Banco Itaú 119 Management Discussion and Analisys Analisys of the Consolidated Balance Sheet R$ Million Reconciliation R$ Million R$ Million Liquidity (Not Including Repurchase Commitments) Liquidity (Not Including Repurchase Commitments)

114 Analisys of the Consolidated Balance Sheet Credit Operations The credit portfolio of Banco Itaú grew 25.8% during The first half of the year was characterized by an increased emphasis on the credit activity as a result of the favorable economic environment. The situation reversed itself in the second half, when the macroeconomic environment worsened, which resulted in the adoption by Banco Itaú of a more restrictive posture in the management of its portfolio. With regard to Banco Itaú Buen Ayre (IBA) operations, during 2001 many reevaluations were made as well as downgrades of companies classifications, which was evidenced by the decrease of 18.0% in the portfolio, with a balance of US$ 316 million in December 2001 as compared to the balance of US$ 386 million in the prior year. The composition of the 100 largest debtors continues to be of good quality, as 82.2% have a classification which is equal to or better than A (Good), even after the change in composition, since 23% of the clients were not included in the December 2000 list. Credit Operations R$ Million(*) 34,282 27,253 19,596 16,916 12,206 11,798 9,057 6,366 7,353 4,634 Credit Operations (1) Credit Operations and Guarantees (2) (*) In constant currency of December 31, 1995 up to this date; nominal values thereafter. (1) Credit operations: Loans, Leases, Others Receivables and Advances on ExchangeContracts (AEC). (2) Guarantees: Endorsements, Sureties and Others guarantees. Credit Operations Management Discussion and Analisys 120 Banco Itaú

115 Analisys of the Consolidated Balance Sheet In December 2001, 96.7% of the total credit portfolio was focused on the private sector and only 3.3% in the public sector. Retail credits to individuals, including credit card and housing loans, represented 35.1% of the portfolio at that date, with the remaining amount formed by loans to corporate entities. With the energy crisis, the macroeconomic instability and its impacts on certain segments of the economic activity, Banco Itaú started to monitor its credit activity, based on the evaluation of impacts on the different lines of activity of the economy. The classifications of clients were reviewed, especially those pertaining to the Energy and Telecommunications lines of business, and more strict credit criteria were applied for the portfolios of the segments that suffered greater impacts. Comparation of the Portifolio by Business Sector(*) R$ Million (*) Endorsements and sureties included. Banco Itaú 121 Management Discussion and Analisys

116 Analisys of the Consolidated Balance Sheet Credit Portfolio Development Consolidated by Client Type(*) R$ Million (*)Endorsements and sureties included During 2001, Banco Itaú made important investments aiming at improving the granting of credit. The basic objective of these investments was to improve the quality of information, trying to optimize the internal routines with the review of the maximum risk exposure limits to obtain more efficiency in the decision making process for granting credits to large companies. In 2001 a process to review the models for classification of credit risk started, together with the realization of investments. It aimed at improving the management systems of the credit portfolio and of the credit scoring and behavior scoring systems. Credit Operations(*) R$ Million (*) Endorsements and sureties included We present below the Credit Portfolio by Currency. Credit Portfolio by Currency(*) (*) Endorsements and sureties included Management Discussion and Analisys 122 Banco Itaú

117 Analisys of the Consolidated Balance Sheet We present below the Composition of the Credit Portfolio by Individuals, Type of Operation and Range of Due Dates. Composition by Type of Operation and Range of due Dates (*) R$ Million (*) Endorsements and sureties included Banco Itaú 123 Management Discussion and Analisys

118 Analisys of the Consolidated Balance Sheet Liabilities by Maturity R$ Million Deposits and Funding The balance of Deposits reached R$ 28,331 million at the end of the fourth quarter of 2001, growing 4.5% in the quarter, basically due to the acquisition of Banco do Estado de Goiás. During the fourth quarter, Banco Itaú maintained the strategy of promoting the obtaining of resources for investment funds, which generate income from services rendered, since funds obtained from demand deposits, saving deposits and time deposits have part of their balances directed to the Central Bank of Brazil, due to the regulations of obligatory percentage reserve requirements, which increase the effective cost of these fundings. The balance of investment funds and administered portfolios grew 4.3% in the quarter, reaching R$ 55,796 million. Management Discussion and Analisys 124 Banco Itaú

119 Analisys of the Consolidated Balance Sheet Breakdown of Deposits by Maturity - Brazil R$ Million Breakdown of Deposits by Maturity - Foreign R$ Million Subordinated Debt The expansion of the Subordinated Debt balance was an addition to the capital basis of Itaú, allowing the leverage of the bank operations and increased growth, without being necessary to resort to calls for capital from the stockholders. million at December 31, 2001, increasing 53.3% as compared to the balance of R$ 935 million in the third quarter. This increase relates to the funding of R$ 600 million through the issue of subordinated debentures by Itauleasing. The total balance of the Subordinated Debt reached R$ 1,433 Banco Itaú 125 Management Discussion and Analisys

120 Analisys of the Consolidated Balance Sheet We present below the trend of the insurance, capitalization and pension plan technical provisions, which increased from R$ 2,762 million at December 31, 2000 to R$ 3,224 million at December 31, 2001, a growth of 16.7%. The most significant event has been the increase in pension plan technical provisions, which reached R$ 1,356 million, increasing more than 50% during the last twelve months. Itauprev was the company that presented the highest growth in reserves among the 10 largest companies in the sectors. Technical Provisions of Insurance, Capitalization and Pension Plans - Unrestricted R$ Million Technical Provisions of Insurance, Capitalization and Pension Plans - Restricted R$ Million Technical Provisions of Insurance, Capitalization and Pension Plans R$ Million 2,762 2,789 2,865 3,006 3,224 Technical Provisions - Unrestricted Technical Provisions - Restricted Management Discussion and Analisys 126 Banco Itaú

121 Analisys of the Consolidated Balance Sheet Stockholders Equity Stockholders Equity of Banco Itaú totaled R$ 7,578 million at December 31, 2001, a 14.1% increase as compared to the balance of December 2000, due to excellent net income for the period. The Basel Index in December 2001 was 16.9%, with the minimum required by the Brazilian Central Bank being 11%. The index had a significant improvement in 2001, when compared to the 14.4% in December 2000, mainly due to the issuance of subordinated debt and the net income for the period. Capital Tier I corresponds to 86.4%, and Tier II to 13.6% of the Reference Equity. The fixed asset ratio, calculated based on the economic and financial consolidated balance sheet, reached 36.7%, highlighting the increased liquidity and low level of fixed assets of the non-financial subsidiary companies. The same index, calculated based on the operating consolidated balance sheet, reached 54.7%. Own working capital totaled R$ 4,843 million, decreasing 5.7% as compared to September BIS Ratio Evolution BIS RATIO Banco Itaú 127 Management Discussion and Analisys

122 Analisys of the Consolidated Balance Sheet Calculation of the BIS Solvency Ratio December 31, 2001 R$ Million Stockholders Equity Banco Itaú 8,564 Minority stockholders not excluded from consolidated 594 Unrealized profit from transactions with subsidiary companies (5) Subordinate Debt 1,433 Referential Equity 10,585 Swap Operations risk (65) Foreign Exchange risk (896) Interest rate risk (141) Others (83) Adjusted referential equity 9,399 We present below the summary of the calculation of the solvency ratio, based on the economic and financial consolidated. R$ Milion Management Discussion and Analisys 128 Banco Itaú

123 Analisys of the Consolidated Balance Sheet Balance Sheet by Currency(*) The Balance Sheet by Currency highlights the asset and liability balances linked to the local currency and foreign currencies. At December 31, 2001, Banco Itaú presented a net foreign exchange position of R$ 2,607 million, which includes investments abroad. R$ Million (*)It does not exclude transactions between local and foreign business. Banco Itaú 129 Management Discussion and Analisys

124 Activities Abroad And Foreign Exchange Management Discussion and Analysis 130 Banco Itaú

125 Activities Abroad And Foreign Exchange Activities Abroad Itaú Group is one of the largest Brazilian-owned private economic groups in terms of international presence with respect to both the geographical coverage of its service centers, or the capitalization of its foreign branches. Such remarkable presence is reflected by the soundness of our New York and Cayman Island branches, Banco Itaú Buen Ayre, agency offices in Frankfurt and Miami, the subsidiary Itaubank and, also, Banco Itaú Europa and Banco Itaú Europa Luxembourg (both controlled by the holding Itaúsa). The consolidated foreign investments totaled US$ 1,951 million at December 31, 2001(including non-financial activities). Banco Itaú Europa has focused its operations on the increasing commercial and investment relationship between European countries and Brazil, as well as on the restructuring of financings to support the international activity of Brazilian companies. The bank had its ratings from Moody s, Fitch IBCA and Companhia Portuguesa de Rating reviewed and confirmed, mantaining its qualification as an investment grade European bank. The consolidated assets of Itaú Europa reached Eur 1,777 million at the end of this quarter, 23.6% higher than in December, Net income of Eur 18.1 million represented an annualized profitability of 8.7 % on the stockholders equity of Eur 207 million. US$ Million Geographical Distribution of Trade Lines The distribution of funding of Itaú Trade Lines has maintained a broad and practically constant position with respect to the funding sources and the number of correspondent banks, in spite of the natural decrease in the total number of banks, resulting from the effects of merger and acquisitions. US$ ,00 3-year Amended and Restated Credit Agreement Lead Manager US$ 100,000,000 5-year Amortizing Credit Facility US$ 100,000,000 3-year Structured Offshore Finance Arranger Arranger Banco Itaú 131 Management Discussion and Analysis

126 Activities Abroad And Foreign Exchange Foreign Exchange and Foreign Trade Financing Highlights US$ Million Credits and Guarantees in Foreign Currency US$ Million Management Discussion and Analysis 132 Banco Itaú

127 Activities Abroad And Foreign Exchange Main Programmes and Funding in Foreign Currency US$ Million Among International Structured and Financial Funding we can highlight the Issues and Programmes bellow: EXTERNAL FUNDING OF BANCO ITAÚ (Operations with Parties) Outstanding in December 31,01 Outstanding in December 31,01 Banco Itaú 133 Management Discussion and Analysis

128 Activities Abroad And Foreign Exchange Banco Itaú Buen Ayre Directed to the retail segment, Banco Itaú Buen Ayre comprises a network of 80 branches, 24 Service Centers and 308 Automated Teller Machines, providing superior customer services to 228 thousand clients. The Financial Statements bellow were prepared according to the vigorous rules until , in which the exchange rate parity of Peso/US$ was 1,00. The negative result of (US$ 8 million) in the fourth quarter reflects a reinforcement of Allowance for Loan Losses of (US$ 15 million). US$ Million US$ Million Management Discussion and Analysis 134 Banco Itaú

129 Activities Abroad And Foreign Exchange Banco Itaú Buen Ayre Argentina has been going through a huge crisis, that will certainly affect the economic and financial activities of that country, from that is unknown the final solution. It is important to mention that Itaú has been anticipating this crisis for several months, and has been taking measures capable to place Banco Itaú Buen Ayre in exceptional solid level due to the actual scenario. To exemplify those measures we can quote the Securities Portfolio, which are formed by securities of investment grade financial companies, deposited out of Argentina, and the fact of Itaú does not hold any loan operation or securities of the Federal Government or even the Province Government, except for the balance of R$ 22 million in securities obligatory maintained in the Central Bank of Argentina. In this manner, Itaú distanced from questions related to default and public debt renegotiation, and started to be indirectly affected by the crisis, due to the strong economic retraction lived by this country and also to the arbitrary measures adopted in the conversion of deposits and credit operations contracted in dolar. In order to guide the market of these impacts in the activities of Banco Itaú Buen Ayre, Banco Itaú decided to prepare a simulation, on a conservative way, taking into consideration the economic measures adopted and known until this moment, based on the Balance Sheet of December 31,2001. We highlight that the estimated effects to Banco Itaú are inferior to its allowance for loan losses, which totaled R$ 200 million in December 31,2001. To elaborate the simulation we adopted the following premises: a) conversion of the contracted operations at the USD at the exchange rate parity of P$ 1.00 (except for Foreign Trade); b) conversion of the contracted operations at the free USD at the exchange rate parity of P$ 1.70; c) conversion of the contracted operations at the oficial (1) USD at the exchange rate parity of P$ 1.40; d) register of the Bonus promised by argentine authorities to offset the losses with the pesification of the credit operations.in addition to this, the referred Bonus were valued at a 30% of their face value through a constitution of an allowance for loan losses; e) taxable effects on the income of Argentina are not being considered due to the existence of accumulated tax losses in an amount superior to the estimated result in the simulation; f) after carrying out the adjusts mentioned above, we used the exchange rate parity of P$ 1.70 for each US$ 1.00, for the conversion of the Financial Statements, according to the recommendation of Ibracon (Institute of Independent Auditors of Brazil). In addition, considering the uncertainness in relation to the real economic situation of Argentina and an eventual increase in default, we had the minimum and maximum risks of the Credit Portfolio quantified. (1) exchange rate parity used for the deposits conversion Banco Itaú 135 Management Discussion and Analysis

130 Activities Abroad And Foreign Exchange Banco Itaú Buen Ayre Simulation of Pesification and Depreciation in the Balance Sheet of Banco Itaú Buen Ayre US$ Million CURRENT BALANCE SHEET - RULES IN VIGOUR BALANCE SHEET AFTER DEPRECIATION AND "PESIFICATION" TOTAL EXCHANGE RATE PARITY: PESO / DOLLAR: 1,00 EXCHANGE RATE PARITY: PESO / DOLLAR: 1,70 EFFECT Dec,31 01 Dec,31 01 ASSETS Pesos US$ Total Pesos US$ Total Total "Pesified" Official Free "Pesified" Official Free Current and Long Term Assets (144) Cash and cash equivalents (18) Interbank Funds Applied (1) Securities Interbank and Interbranch Accounts (10) Loan and Leasing Operations (118) Allowance for loan losses (20) (13) - - (33) (12) (8) - - (19) 14 Prepaid Expenses (0) Other Assets 50 (0) (0) (23) Permanent Assets (28) Total Assets (172) Dec,31 01 Dec,31 01 LIABILITIES Pesos US$ Total Pesos US$ Total Total "Pesified" Official Free "Pesified" Official Free Current and Long Term Liabilities (120) Deposits (101) Borrowing Other Liabilities (18) Stockholders' Equity (52) Total Liabilities (172) Estimated Effects in Itaú Consolidated R$ Million Exchange Rate Parity: Reais / Dollar Stockholders' equity of Itaú Buen Ayre 346 in Dec 31,01 Stockholders' equity of Itaú Buen Ayre after Depreciation and "Pesification" Estimated effect to the consolidated result in Brazil (A) Allowance for Capital Loss - Booked in Brazil (B) Excess allowance for loan losses after the "Pesification" effect (A+B) 224 (122) Sensitivity to Risk in the Credit Portfolio After the Pesification and Depreciation, supplementary we had the minimum and maximum risks of the Credit Portfolio quantified, taking into consideration an eventual increase in default. R$ Million Risk Level of Credit Portfolio Portfolio Minimum Maximum Risk Risk Individual Company - Subsidiaries of multinational companies with performance in Argentina Company - Others Total Total of allowance for loan losses (45) (45) Excess allowance for loan losses after the "Pesification" effect (78) (78) Shortage (surplus) (57) 62 From the excess of free allowance for loan losses of Itaú Consolidated due to the market volatilities, in the amount of R$ 1,265 million, the Management will be able to allocate any amount eventually necessary to the coverage of the shortage above, in the maximum amount of R$ 62 million. Management Discussion and Analysis 136 Banco Itaú

131 Risk Management Risk Management Banco Itaú 137 Management Discussion and Analysis

132 Risk Management Introdução In order to establish a minimum level of capital adequacy for coverage of credit risks throughout world financial markets, the Basel Committee, which is part of the Bank for International Settlements (BIS), introduced a broad body of principles essential for efficient bank supervision; these items became the Basel Treaty. The principles basically take into account stability and confidence in the financial system, market transparency, and the adequate management of risks assumed by banks. Notwithstanding, the management of risks should not simply be limited to the minimization of risks, because the control of the degree and volume of the various types of risks within appropriate limits is also essential to assure the proper exercise of banking activities. Adequate control allows income to be maximized and results in added value for the organization as a whole. The New Basel Agreement In order to deal with the significant transformations to which banking activities, risk management practices, and management methods have been subjected a review of the Basel Treaty became necessary. The Committee presented a proposal to substitute the Treaty, a final version of which is expected to publish later in 2002 and implemented in The new proposal revolutionizes the methodology for calculating the capital requirements of banks, making them more sensitive in relation to the actual risk assumed by these institutions. Itaú has always based its controls on sophisticated management models, as well as actively contributed to the development of BIS s new proposal through international entities and the Central Bank of Brasil (BACEN). We believe that the implementation of this new methodology will convey great benefits to the bank, since its management practices will be acknowledged in banking regulations. The new Basel Agreement is based on three pillars, as follows: 1) Pillar I The first institutes minimum capital requirements, encouraging the proprietary models of institutions. The revised agreement presents three options to measure credit risk (standard method and methods based on basic and advanced internal classifications) and assimilates assessment of operational risks. The allocation of capital for market risk remains unchanged and is based in on value at risk (VaR), in accordance with a risk coefficient. The allocation of capital for credit risk depends on the primary category of the borrower (meaning sovereign, banking, or business). In the new agreement, criteria for allocation will be a function of the internal and or external risk classification of the counterpart. Itaú has used an internal system for evaluation of the credit risk of clients and counterparts; the Bank possesses historical data that allows precise statistical evaluation of the potential for loss by client and or counterpart. The existence of this technology permits the rapid adjustment of the risk systems currently used to the methodology that has been proposed by BIS, making it possible to utilize the internal model for compliance with capital requirements immediately after the new regulations are introduced. In order to evaluate capital allocated to cover operational risks, the New Agreement proposes three levels of sophistication, basic and standard indicators, and internal mensuration. The basic indicator method uses an operating risk gauge for the overall activities of a bank. The standard method stipulates the use of different indicators for distinct business areas. The internal measurement requires that a bank use internal data on losses to estimate the capital needed. The management processes for the main operating losses that the Bank has experienced over the years are being restructured so that they can serve as a data source for the operational risk model proposed by BIS. The databases that currently exist serve as a basis for statistical models that allow over 80% of the operational risks to which the Bank is exposed to be estimated. 2) Pillar II The second pillar deals with the supervisory review process. The new structure requires that the Central Bank of each country certify that each institution possesses reliable internal procedures to evaluate the adequacy of its capital through a complete assessment of its risks and the adequacy of the models used, in accordance with the models proposed by the New Agreement. Itaú has actively participated in studies and research coordinated by BACEN, in order to identify the requirements for adaptation of the Brazilian Financial System to the BIS proposal, as well as for adjustment of the parameters used in the models under discussion. The use of proprietary models, as proposed by the Basel Committee, will depend on joint work between the Central Bank and Brazilian financial institutions. 3) Pillar III The third is intended to reinforce market discipline by establishing recommendations and requirements for disclosure in various areas, including the way in which the Bank calculates capital adequacy, as well as its risk evaluation methods. Accordingly, it is worth mentioning that Itaú has stood out among Brazilian financial institutions in its pursuit of greater transparency in relation to the information disclosed to the market. These efforts have been repeatedly recognized by market entities that defend the interests of investors, as well as the specialized business press. Management Discussion and Analysis 138 Banco Itaú

133 Risk Management Risk Management Process Allocation of Risk and Profitability The risk management process of Banco Itaú is a process that: o Identifies existing and potential risk of a transaction, o Establishes risk limits that are compatible with all the strategies and businesses of the Bank; o Approves policies, procedures, and methodologies that are congruent with previously established risk limits; o Manages the risk portfolio of the Bank; and Risk Information Overall Goals and Risk Limits Consolidation Business Units Transactions Risk-Return Control and Measurement o Coherently allocates capital in accordance with risk exposure. This process is bi-directional in nature: top down, comprehensive objectives are transmitted to the business units that manage the respective risks in the form of goals and limits. Bottom up, the controlling area performs the risk monitoring independently. The organizational structure for the management of the risks of Banco Itaú complies with recommendations suggested by the Basel Committee. It is divided into three broad committees - the Executive Financial Committee, which evaluates market and liquidity risks; the Senior Credit Committee, which assesses credit risks; and the Committee for Auditing and Monitoring of Operational Risks, which is responsible for operational risks and compliance. Risk Management System Executive Financial Committee Senior Credit Committee Committee for Auditing and Monitoring of Operational Risks Definition of Policies and Limits Measurement Management and Control Market Risk Liquidity Risk Credit Risk Compliance Operational risk Banco Itaú 139 Management Discussion and Analysis

134 Risk Management Executive Financial Committee This committee meets weekly. Executive Financial Committee Responsibilities Members Analyze and proffer macroeconomic and political scenarios Set maximum levels for mismatching of terms and currencies and minimum domestic and foreign currency reserves, as well as define borrowing policy for domestic and international markets Analyze and define market risk exposure levels, values at risk (VaR), and capital allocation, as well as yields and prices used for marking to market of positions Analyze and approve internal fund pricing criteria and rules Analyze the consolidated results of market risk management Stipulate limits for different types of risks, as well as their duration and maximum value at risk (VaR) limits, including under stress scenarios Chairman: Itaubanco CEO Secretary: Executive Director for the Financial Area Members: Senior Vice President for Economic Control Senior Vice President of Itaucorp Executive Vice President for the International Area Executive Vice President for Capital Markets Executive Director of Operations Executive Director for Controllership Executive Director for Treasury Executive Director for Client Relations Managing Director of Risk Control and Operational Support Managing Director for Operations and Investment Managing Director for "AINT" Funds and Products Managing Director for Investment Products and Institutional Clients Senior Credit Committee Like the Executive Financial Committee, this committee also meets to make decisions weekly. Senior Credit Committee Responsibilities Members Define credit policies Classify risks Establish loan and financing limits Monitor and analyze changes in clients' business and financial position Assessment of transaction guarantees Chairman: Itaubanco CEO Members: Senior Vice President of Itaucorp Executive Vice President for the International Area Executive Vice President for Capital Markets Executive Director for Finance Executive Director for the Corporate Area Itaucorp Commercial Directors Managing Director for Credit Coordination Managing Director for Credit Secretary: Executive Vice President for the Audit and Credit Area Management Discussion and Analysis 140 Banco Itaú

135 Risk Management Committee for Auditing and Monitoring of Operational Risks The purpose of this committee is to establish policies for the Internal Auditors and directives for management of operational risks, as well as to evaluate the functional results of the Bank's System of Internal Controls and Compliance. This committee meets quarterly. Committee for Auditing and Monitoring of Operational Risks Responsibilities Members Define Internal Audit policies and guidelines Define priorities and the scope of the Internal Audit for each year and area Analyze audit results and stipulate corrective actions Define operational risk management guidelines Analyze the results of Internal Control and Compliance activities Assess and send possible organization-wide suggestions and issues for consideration by the Ethics Committee Define the engagement and measure the results of the work of Independent Auditors Chairman: Itaubanco CEO Secretary: Executive Vice President for the Audit and Credit Area Members: Senior Vice President for Economic Control Managing Director for Internal Audit and Control Managing Director for Risk Control and Operational Support Other members are summoned in accordance with a meeting's scope Market risk This type of risk is the result of uncertainties with respect to fluctuations in market prices and rates, as well as their correlations and levels of volatility. This risk is directly proportional to market volatility. Notwithstanding, the identification and measurement of the same demands the monitoring of financial markets. Transactions are broken down into the risk factors that can affect their market price and grouped in accordance with business strategies. Potential losses are quantified for each risk factor (Value at Risk or VaR). The VaR for a specific portfolio quantifies potential maximum future losses (in terms of market value) that should not be exceeded in a particular period of time under normal market conditions and considering a specific level of confidence. Potential future losses are also quantified for situations involving extremely unfavorable market conditions (VaR-stress). The measurement of market risk at Banco Itaú is accomplished applying parametrical methods to Value at Risk using Riskmetrics. For the control of transaction limits, in addition to parametrical methods, stress scenarios and Monte Carlo simulations are also used. All risk estimates use a confidence interval of 99%. Market analysis The fourth quarter of 2001 was marked by the worsening of the Argentine crisis, the end of the over appreciation of the US dollar in relation to the Real, and the maintaining of the market interest rate at the same level by the Monetary Policy Committee (COPOM), despite the successive reductions in U.S. and European markets. The situation further deteriorated in Argentina after the introduction of unpopular measures, such as the individual limit for bank withdrawals. This culminated in the resignation of the president and his ministerial team, which was the result of a loss of political and public support. The country was left near chaos in a serious political and economic crisis that was reflected in the long bank holiday implemented to avoid the collapse of its banking sector. Nevertheless, the Brazilian market reacted well - the volatility in various markets increased slightly, but was much lower than that observed when the Argentine situation began to deteriorate. Although this signals the fact Brazil is now perceived separately from its neighbor, there are still ways in which these events could affect our market (uncertainties in relation to foreign trade, impact on direct foreign investment, etc.) The appreciation of Brazil's currency in relation to the US dollar is basically attributable to daily sale of US$ 5 million in the spot market and an increase in the number of long-term debt placements by the Brazilian Central Bank. Banco Itaú 141 Management Discussion and Analysis

136 Risk Management Additionally, the maintaining of the level of interest rates in the Brazilian market by COPOM reflected a preoccupation with the crisis in Argentina and, even more importantly, alignment with inflation target policy. Domestic market The table below presents an analysis of the risk positions attributable to commercial operations and those linked to the management of risk for the same (Structural Gap), which are calculated using proprietary models. Estrutural Gap VaR (*) R$ Million (*) VaR refers to the maximum potential loss of 1 day, with a 99% confidence level In the table above, it can be noted that the VaR for fixed rate liabilities fell considerably. This was due to the improvement in balance between fixed rate assets and liabilities. In the case of the benchmark interest rate (TR) and the portfolio linked to exchange rate fluctuations, the change in VaR can be explained by the low level of market volatility that occurred in the last quarter of The third quarter was marked by the terrorist attacks in the United States, which elevated market volatility. Furthermore, greater certainty with respect to the future of the economy (conservation of interest rate levels, appreciation of the currency, and decrease in Brazil's sovereign risk) also contributed to the decrease in volatility over the last months of the year. The trading area for the Bank's own portfolio (illustrated below) operates in both domestic and international markets and has the mission of seeking the best business alternatives from among the opportunities available in the market. Accordingly, the area is more vulnerable to market conditions and the expectations of its managers, which can result in significant changes in the portfolio from one day to the next. This more dynamic portfolio management permits quicker reversal of positions, resulting in a reduction in exposure to market risk under unstable economic conditions. Own Portfolio Trading Desk VaR (*) International market The market risk of foreign subsidiaries presented in the tables below showed no significant changes in relation to the previous quarter. This was a consequence of the increased stability that occurred in the world market in the last quarter of The decrease in the structural portfolio risk for the Grand Cayman and New York branches, as well as Itaú Bank that occurred in the fourth quarter was attributable to the stabilization of the international market, and consequent reduction in sovereign risk for our portfolios. The "Overseas" portfolio comprises borrowing by Itaú in the international market, in October, through the issue of subordinated securities totaling US$ 80 million. Overseas VaR (*) (*) VaR refers to the maximum potential loss of 1 day, with a 99% confidence level With respect to risk for European positions, we point out the conservative management of the portfolio of Banco Itaú Europe permitted risk levels to be maintained, as can be seen in the table below. BIE (Banco Itaú Europa) VaR (*) R$ Million (*) VaR refers to the maximum potential loss of 1 day, with a 99% confidence level US$ Million US$ Million (*) VaR refers to the maximum potential loss of 1 day, with a 99% confidence level Management Discussion and Analysis 142 Banco Itaú

137 Risk Management For Banco Itaú Buen Ayre, the table below demonstrates that, despite the instability that occurred in the Argentine market, the VaR of positions remained unchanged and immaterial. This result can be ascribed to the adoption of a conservative risk management policy, which has resulted in adequate matching of terms and currencies for its assets and liabilities. It is important to emphasize that, although it is the institution's policy to link its foreign investments to the US dollar, rules for currency conversion (pesificação) introduced by the Argentine government after December 31, 2001 had an impact on the income from operations in this country (see Notes to the Financial Statements n. 20.C). Banco Itaú Buen Ayre VaR (*) US$ Million (*) VaR refers to the maximum potential loss of 1 day, with a 99% confidence level Back-Testing The efficiency of the Value at Risk model can be assessed using back-testing techniques, which compare actual daily gains and losses to the percentage of cases in which results fell outside pre-established possible maximum loss limits. The number of breaches of established VaR limits should be compatible with pre-established safety margins applying a level of confidence of 99%. To demonstrate the quality of the models used by Banco Itaú, we present back-testing graphs for risk and the respective results in relation to the following markets - fixed rate, US dollar, benchmark interest rate (TR), and total in These amounts include only structural positions. R$ Milion Risk Level The graphs demonstrate a conservative risk management policy, because most spots are concentrated in low risk levels and the number of breaches is within statistically acceptable parameters. Banco Itaú 143 Management Discussion and Analysis

138 Risk Management Credit Risk The credit decision process of the Itaú conglomerate is centralized and decisions are made in peer committees that make use of the most diverse instruments available. Credit policy is formulated on the basis of internal factors established by the Bank, as well as external factors relating to outlooks for the domestic and international economy. Included among internal factors, we highlight customer rating, default ratios, rates of return, and portfolio quality. The currently methodology used to manage the credit portfolio follows a traditional approach, including the monitoring of exposure and portfolio quality at various levels of consolidation, which allows the Bank to identify possible impacts (internal and external), trends, and perspectives for the portfolio's development. Following the market trend and seeking to develop quantitative management instruments for the portfolio, statistical models for active management of the credit portfolio are presently being improved. The decision process comprises the following phases: formalization, monitoring, and collections, which are adapted to customer profiles. The process is implemented and controlled by systems that permit the continuous monitoring of the credit portfolio's quality. Classification Processes In accordance with customer profile Large Companies Revenues over R$ 100 million Proprietary rating model (classification) and timely analysis of transactions, as well as the business and financial situation of companies, considering macroeconomic and business sector environments. Middle Market Companies Revenues from R$ 10 to R$ 100 million Similar to large companies, also includes the combination of statistical models for assignment of classifications that optimize the credit decision process. Micro-Sized and Small Companies Revenues of up to R$ 10 million Behavior Scoring proprietaries models allow pre-approved limits definition to short term operation by statistic analysis process. Individuals Credit and Behavior Scoring models that permit optimization of the credit process through the assignment of classifications according to scoring categories. Credit risk is based on consolidated and centralized analysis of the credit portfolio which is supported by utilization of Credit Scoring, Behavior Scoring, and Proprietary Rating models (internal classification), as well as intense use of IT technology in the credit decision process. All phases of the decision process are fully integrated and no disbursements are made without the proper approval of transactions. Transaction approvals follow credit policy rules and a system of authorized approval limits which are stipulated by the top executive credit authority - the Senior Credit Committee. Management Discussion and Analysis 144 Banco Itaú

139 Risk Management The focus of the bank has been to grow assets taking risk in relation to return into consideration. Furthermore, the main concern is credit portfolio quality, which is evaluated in accordance with the proprietary rating model. The same is continuously refined and includes the following attributes: Classification of Itaú Customer Description Central Bank (BACEN) Classification % Prov. AAA (Excellent) Customer/group with a solid business and financial situation AA 0.00% in recent years, and excellent operating characteristics and management capacity. AA(Very Good) Customer/group with very good business and financial AA 0.00% situation, operating characteristics, and management capacity over the past several years. A (Good) Customer/group with good business and financial situation, A 0.50% operating characteristics, and management capacity over the past several years. Middle Market, Small and Micro- Sized Companies and individuals with good financial behavior and low credit risk. B (Satisfactory) Customer/group with satisfactory business and financial B 1.00% situation in recent years, showing a certain degree of dependency in relation to its market. Middle Market, Small, and Micro-Sized companies and individuals with satisfactory financial behavior and little or few bad and or negative references. C (Requires Customer/group with a deficient operational flow and whose C 3.00% Monitoring) business and financial situation requires constant monitoring. Middle Market, Small, and Micro-Sized companies and individuals with satisfactory financial performance that requires periodic monitoring and which present some bad and or negative references. B (Special) Customer/group whose nature or business presents B 1.00% peculiarities and for which transactions are analyzed by Specialized Credit Committees (e.g. Public Sector, Financial Institutions, Insurance Companies, Non-Profit Entities, etc.). D (Do not do Customer/group with unstable management and deficient D 10.00% business/reduce business and financial position. Accordingly, exposure should Risks) be reduced. Middle Market, Small, and Micro-Sized companies and individuals with bad financial behavior and bad and or negative references. F (Specific Customer/group with inadequate management and business F 50.00% Provision) and financial position, for which provisions were being made even before the introduction of BACEN Resolution 2682, and which probably represent a credit problem. (Name being Middle Market, Small, and Micro-Sized companies and reviewed after individuals with very poor financial behavior and bad and or Res. 2682) negative references, and which probably represents a serious credit problem. The ratings on levels E, G and H, according to Central Bank criteria, are only executed as function of delay in operation. Banco Itaú 145 Management Discussion and Analysis

140 Risk Management Liquidity risk This risk is considered the greatest risk that a bank can be exposed to. It is the risk that the obligations of a bank will not be met within their respective terms. It also involves the potential for losses on borrowing at high rates or investments with below market returns. An extreme lack of liquidity can result in the involvement of a bank in a financial crisis. Therefore, its recognition and the capacity to measure the same are of fundamental importance. After the introduction of Resolution 2804 in June of 2001, the Brazilian Central Bank stipulated and implemented concepts for the control of liquidity risk in financial institutions. Using the above-mentioned resolution, the Central Bank informed the practices that should be adopted by institutions, such as financial and business analyses that allow the assessment of the impacts of different scenarios on the liquidity of an institution; periodic reevaluations; impact on an institution's payment capacity; studies that identify alternatives available to cover any liquidity lost, including a contingency plan for crisis situations; and reports that allow the monitoring of risks. The management of liquidity risk by Banco Itaú is in full compliance with these concepts. Additionally, the level of liquidity practically doubled in the second half of 2001, due to the reduction in the portfolio of long-term government securities and consequent increase in money market investments. The Brazilian Central Bank is responsible for a profound change in the Brazilian Clearing System (SPB), which is basically responsible for funds transfers, as well as processing and settling payments to individuals, businesses, government, the Central Bank, and financial institutions. The majority of payments are presently made through the traditional clearing system without guarantees and final results available only at the end of the following business day. The new system (SPB) will allow immediate transfers of funds that will be made available on the day of the transfer. By implementing a standard that is similar to the best in the world, Brazil will join the group of countries that monitor bank reserves in real-time, its objective is to increase efficiency, security, soundness, and confidence in the system, as well as to minimize system and credit risks that are currently assumed by the Central Bank. With the SPB structure, the management and control of liquidity will be automated and few problems are expected with the management of intra-day reserves. Since the portfolio of eligible securities is several times the size of expected daily volume, any temporary cash requirements can be covered through rediscounts. resulting from internal processes, inadequate people or systems, or errors, and external events. The complexity of the control and management of operational risks in financial institutions is attributable to the large number of products offered, systems employed, people involved, and the virtually infinite number of processes used, all of which create possibilities for errors that can involve any of a bank's activities to occur. Notwithstanding, various improvements were implemented over the course of 2001, and Banco Itaú has been accompanying international and domestic trends - more specifically, BIS requirements, International Institute of Finance (IIF) studies, discussions promoted by Febraban, and regulations of the Brazilian Central Bank. The new Basel Agreement requires that financial institutions allocate capital for operational risks and that they stipulate and implement a body of qualitative rules for the control and management of these risks, in addition to implementing quantitative directives for their identification and mensuration. Banco Itaú has been making material investments in technology, as well as integrating risk control and management efforts throughout the institution to be prepared to comply with requirements of the New Capital Agreement. Accordingly, a system was recently developed to register standardized information on significant operational errors (Those that cause material losses or negatively affect the image of the bank). This tool, which is used in conjunction with the Control Self-Assessment (CSA) system, allows the managers responsible for each line of business to identify risk exposure and review processes together with Compliance Officers, in order to focus actions on the causes of these risks. Furthermore, a system focused on identifying information with respect to operational loss events is being implemented for purposes of control. This system serves as a basis for statistical models for the control and mensuration of operational risk, permitting provisioning for expected losses and allocations for unexpected losses (for each business unit and nature of event). It is the intent of Banco Itaú, when developing these mechanisms for control and management of operational risks, to comply with the requirements of supervisory organs, and even more importantly to perpetuate its image as a solid and trustworthy financial institution that is able to quickly adapt to changes and anticipate future trends. Operational Risk Operating risk comprises the risk of direct or indirect loss Management Discussion and Analysis 146 Banco Itaú

141 Risk Management New Brazilian Clearing System In conformity with BACEM Circular 3060 of September 29, 2001, the implementation of the new Brazilian Clearing System (SPB) is scheduled for April 22, This change is highly positive since it aims to reduce systemic risks of the National Financial System by streamlining and rendering it more secure to meet international best practices. It will be the deployment stage of a long process which was started with the studies of the Bank for International Settlements (BIS) work committees in the late eighties, which had the participation of Brazilian representatives, and underwent several definitions by monetary authorities to define and detail the model through legal changes to support the new structure, the development and technology upgrading of participants, the approval of financial institutions, the creation of clearing houses and network integration tests for real time clearing. All this work is being carried out in a transparent and shared way by the different members involved in the project, namely the Central Bank and financial institutions, either individually or through the Brazilian Bank Federation (Febraban). The creation of the Interbank Clearing House (CIP) to clear payments made is yet another example of joint works, with the participation of 44 financial institutions as shareholders. The changes to the clearing system, which comprises the procedures, rules, instruments and operating systems used for fund transfers between payers and receivers to close an obligation, have different impacts on different players, either as regards the scope of its effect (strategic, technical and operational, and financial), or the level of influence (requiring a higher or less attention and planning). On the one hand we have the normal citizen who uses checks in amounts lower than R$ 5,000 and for whom banking routines will change little or nothing. On the other hand, we have the Central Bank, the financial institutions and the clearing houses as the main parties involved in the process, and which will result in the creation of a new professional: the bank reserve pilot. Banco Itaú has been monitoring and actively participating in project development and has not limited its work to adapting its modus operandi to the new system. This is a unique opportunity to develop new services and get closer to clients by offering a more transparent and smother transactions in the several segments. For individuals the big novelty will be the creation of the Available Electronic Transfer (TED), which will allow fund transfer between accounts in different banks on the same day, irreversibly and without the risk of return due to nonsufficient funds. It is enough that the funds are available in the current account or within the credit limit. Other transfer forms such as checks and bank transfers (DOCs) will still be normally cleared within current periods. As regards businesses, we emphasize the speed, security and practicality as the main aspects of the new system, which permit a more efficient and integrated cash management. The estimated financial and economic impacts of our financial position, after the deployment of the SPB, will also be sooth. Throughout project development large investments have been made, required both for the technical and operational adaptation and as regards the purchase of equipment and systems development, as well as the training of capable teams. Note also that the decrease in system liquidity, arising from the transfer of credit risk from Central Bank to financial institutions, values the type of fund raising through our branch chain. Banco Itaú 147 Management Discussion and Analysis

142 PricewaterhouseCoopers Av. Francisco Matarazzo, 1700 Torre Torino Caixa Postal São Paulo, SP - Brasil Telefone (0xx11) Report of Independent Accountants on Supplementary Information February 28, 2002 To the Board of Directors and Stockholders Banco Itaú S.A. 1 In connection with our examination of the financial statements of Banco Itaú S.A. and Banco Itaú S.A. and subsidiary companies (Banco Itaú Consolidated) as of December 31, 2001, on which we issued an unqualified opinion dated February 28, 2002, we also performed a review of the supplementary information included in Management's report on the consolidated operations of Banco Itaú S.A. and subsidiary companies (Banco Itaú Consolidated). 2 Our work was performed in accordance with specific rules set forth by the Institute of Independent Auditors of Brazil (IBRACON) in conjunction with the Federal Accountancy Council for the purpose of reviewing the accounting information contained in the supplementary information of Management's report on consolidated operations on Banco Itaú S.A. and subsidiary companies. The supplementary information included in Management's report on consolidated operations is presented to permit additional analysis. Notwithstanding, this information should not be considered an integral part of the financial statements. 3 On the basis of our review, we are not aware of any material modifications that should be made to this supplementary information, in order for it to be adequately presented, in all material respects, in relation to the financial statements taken as a whole. 4 The review of the supplementary information included in Management's report on consolidated operations for the year ended December 31, 2000, which is presented for purposes of comparison, was performed by other independent accountants who issued their report without exceptions dated February 19, PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Contador Ricardo Baldin Partner CRC 1SP110374/O-0 148