Management Discussion and Analisys

Transcription

1 Management Discussion and Analisys Third Quarter of 2001 Banco Itaú S.A.

2 Indice Banco Itaú S.A. Highlights 02 Executive Summary 03 Analysis of the Consolidated Performance 07 Result 07 Performance in the Stock Market 10 Ownership Structure 12 Analysis of the Consolidated Net Income of Third Quarter Analysis of Financial Margin 15 Net Income for the Third Quarter of 2001 by Segment 19 Provision for Loan and Lease Losses 21 Banking Service Fees 26 Insurance, Capitalization and Pension Plan Operations 29 Administrative Expenses 38 Analysis of the Consolidated Balance Sheet 42 Balance Sheet 43 Credit Operations 45 Deposits and Funding 51 Stockholder`s Equity 53 Balance Sheet by Currency 56 Activities Abroad and Foreign Exchange Transactions 57 Activities Abroad 58 Banco Itaú Buen Ayre 61 Risk Management 62 Internet 66 Independent Auditors` Report 74 1

3 Third Quarter of 2001 Banco Itaú S.A. Highlights (except where indicated) Consolidated Balance Sheet Sep 30, 01 Jun 30, 01 Dec 31, 00 Sep 30, 00 Total Assets 81,749 74,815 69,555 57,233 Credit Operations 29,069 27,046 23,674 19,151 Securities,Endorsements and Guarantees 4,416 4,052 3,579 3,064 Securities + Interbank Accounts 27,594 23,306 24,132 19,650 Stockholder's Equity of Itaú Consolidated 7,747 7,311 6,642 6,678 Statements of Income 3 rd Q./01 2 nd Q./01 Jan-Sep rd Q./00 Jan-Sep 2000 Recurring Net Income , ,298 Extraordinary Net Income (36) (36) Net Income , ,262 Financial Margin 1,955 1,571 4,990 1,329 3,679 Net Income from Financial Operations 1,558 1,193 3,981 1,168 3,202 Bank Service Fees 1,053 1,007 3, ,508 Income per Shares ( R$ ) Consolidated Net Income ( per thousand shares) Number of Outstanding Shares ( in million) 112, , , , ,665 Book Value ( per thousand shares) Dividends / JCP * ( ) Dividends / JCP * per thousand shares Market Capitalization ( - period end ) 18,535 21,914 18,535 18,006 18,006 Market Capitalization ( US$ Million - period end ) 6,939 9,507 6,939 9,766 9,766 Performance Ratio ( % ) Recurring ROE Annualized 36.7% 35.8% 33.3% 33.3% 26.7% Extraordinary ROE Annualized 3.6% 14.4% 5.1% -2.2% -0.7% ROE Annualized 41.3% 53.9% 38.7% 30.7% 26.0% ROA Annualized 3.5% 4.5% 3.5% 3.3% 3.0% Risk - Based Capital Ratio 13.4% 13.7% 13.4% 18.3% 18.3% Efficiency Ratio * * 54.2% 55.7% 54.9% 56.3% 57.1% Relevant Data Sep 30, 01 Jun 30, 01 Dec 31, 00 Sep 30, 00 Assets Under Management 53,478 47,545 41,665 39,876 Employees (units) 45,547 45,604 47,524 39,101 Active Customers ( Million ) Branches (units) 2,109 2,114 2,118 1,754 CSBs (units) Automated Teller Machines (units) 12,799 12,242 11,714 11,570 Ratings Fitch ( London ) National International Short Term F1+ B Long Term AA+ BB- Individual B/C Legal 2T Moody's ( New York ) Financial Strength C+ Long Term Bank Deposits B2 Short Term Local Currency P2 Long Term Local Currency A2 Long Term Deposit Aaa.br Short Term Deposit BR-1 Standard & Poor's ( New York ) BBpi Atlantic Rating ( Rio de Janeiro ) AAA * JCP ( Interests on Capital ). * * Efficiency Ratio was calculated using the recurring net income. 2

4 Executive Summary Banco Itaú S.A. Net Income ( ) Relevant Data () 3 rd Q./ 01 2 nd Q./ 01 3 rd Q./ Return on Equity ( % ) Assets under Management Net Income per Thousand Shares ( R$ ) st Q./00 2 nd Q./00 3 rd Q./00 4 th Q./00 1 st Q./01 2 nd Q./01 3 rd Q./01 Consolidated Net Income 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% Recurring Consolidated Net Income Consolidated Net Income without additional provisions 60.3% 53.9% 42.9% 44.0% 41.3% 33.3% 30.3% 26.1% 42.1% 39.7% 35.8% 36.7% 30.3% 30.7% 26.1% 0.0% 1 st Q./00 2 nd Q./003 rd Q./00 4 th Q./00 1 st Q./01 2 nd Q./01 3 rd Q./01 Consolidated Net Income 34.0 Recurring Consolidated Net Income Consolidated Net Income without additional provisions st Q./00 2 nd Q./00 3 rd Q./00 4 th Q./00 1 st Q./01 2 nd Q./01 3 rd Q./01 Consolidated Net Income Recurring Consolidated Net Income Consolidated Net Income without additional provisions Credit Operations (2) ( R$ Billion ) R$ Billion Mar.00 Jun.00 Sep.00 Dec.00 Mar.01 Jun.01 Sep Mar.00 Jun.00 Sep.00 Dec.00 Mar.01 Jun.01 Sep.01 (2) Endorsements and Sureties included. Lloyds TSB Asset Management Banco Itaú Consolidated Recurring Consolidated Net Income Consolidated Net Income Consolidated Net Income per Thousand Shares (R$) Stockholder's Equity 7,747 7,311 6,678 ROE Annualized 41.3% 53.9% 30.7% ROA Annualized 3.5% 4.5% 3.3% Total Assets 81,749 74,815 57,233 Bis Ratio 13.4% 13.7% 18.3% Efficiency Ratio 54.2% 55.7% 56.3% Cost Asset Ratio Annualized (1) 8.9% 8.2% 9.3% - The consolidated net income of Banco Itaú in the third quarter of 2001 was R$ 699 million, a 15.9% decrease as compared to the prior quarter. The recurring net income reached R$ 630 million, increasing 8.4%. This quarter, the additional provision for future exchange rate fluctuations was increased by R$ 310 million, considering that the US dollar quotation may decrease from R$ 2.67 to R$ 2.50 (See Note 4.c). - The extraordinary result totaled R$ 69 million, R$ 229 million of which result from the recognition of revenues generated by the second stage of the agreement signed with Telefónica Data Corp S.A. for the formation of a telecommunications partnership with Itaú, and the R$ 160 million expense relating to the full amortization of the goodwill on the acquisition of the Asset Management and Private Bank portfolio of Lloyds TSB Group in Brazil in September 2001 (See Note 15). - The Consolidated stockholder s equity totaled R$ 7,747 million, resulting in an annualized ROE of 41.3%. By using solely the recurring result, the annualized ROE reached 36.7%. The 60.3% highlighted in the next Return of Equity graph shows how much our ROE would be if the additional provision of R$ 310 million had not been set up. The total assets reached R$ 81,749 million, resulting in an annualized ROA of 3.5% (See Note 11.a). - The solvency ratio reached 13.4%, above the 11% required by the Central Bank of Brazil (See Note 1). - The balance of credit operations, including guarantees and sureties, reached R$ 33,485 million, an increase of 7.7% as compared to the prior year (See Note 5), mainly due to the effect of foreign exchange rate in the foreign trade and foreign currency. - Banco Itaú successfully concluded the issue abroad of subordinated debt to raise US$ 343 million. The transaction is the first subordinated debt issue overseas made by a Brazilian bank and it has the longest maturity of any bond of a private Brazilian company in foreign markets. The cost at which this transaction was carried out was lower than Brazil s sovereign risk rating, and it had a positive impact on the Bank s solvency ratio (See Note 10.b). - Banco Itaú acquired Lloyds TSB Asset Management (LAM), a financial asset management company specialized in offering managed portfolios and fixed-income, derivatives and stock mutual funds. In September 2001, LAM s portfolio exceeded R$ 4.6 billion. (1) Administrative Expenses/ Average Assets 3

5 Executive Summary Banco Itaú S.A. 4.8 Evolution of Ative Customer (million) x Quantity of Products by Active Customer(unit) Mar.00 Jun.00Sep.00 Dec.00 Mar.01 Jun.01 Sep.01 Active Customer Products by Customer Non accrual Loans Ratio (1) (%) The main events responsible for the net income for the quarter are as follows: - The 24.4% increase in the financial margin in the third quarter of 2001 reflects the change in the asset mix, now offering better spreads, and the impact of foreign exchange variation on the Bank financial intermediation activity, partially reduced by the increase in the additional provision. In the third quarter the annualized financial margin increased to 14.6% from 12.2% in the second quarter. - The R$ 19 million increase in the expense for the provision for loan losses is basically associated with a more conservative risk classification of credit card clients The Non Accrual Loans Ratio posted a small increase in the quarter as a result of the strategy adopted by the Bank to focus its resources on mass credit transactions, with a higher contribution margin. 0.0 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep Without Banestado Efficiency Ratio ( % ) With Banestado 58.4% 56.6% 59.7% 56.3% 54.7% 55.7% Total Assets ( R$ Billion ) Exchange Rate (R$) x Selic Rate(%) (2) 19.00% 19.00% % % % 15.75% % Mar.00 Jun.00 Sep.00 Dec.00 Mar.01 Jun.01 Sep.01 Selic Rate Dólar (1) Non accrual: Loans Overdue for more than 60 days. (2) Without scale. Selic rate is based on last day of quarter. 54.2% 4.9% 49.3% 1 st Q./00 2 nd Q./00 3 rd Q./00 4 th Q./00 1 st Q./01 2 nd Q./013 rd Q./01 Effect of provision for exchange rate fluctuations Mar.00 Jun.00 Sep.00 Dec.00 Mar.01 Jun.01 Sep.01 - The Banking Service Fees totaled R$ 1,053 million in the third quarter of 2001, a R$ 46 million increase as compared to the prior year. This growth results mainly from the higher volume of managed assets and the 9.8% increase in the credit card base. - The Bank s performance in the quarter had a positive impact on the Efficiency Ratio, evidencing this institution s capacity to leverage its results without increasing its administrative expenses. While the financial margin grew R$ 383 million in the third quarter, administrative expenses increased R$ 190 million, mainly due to the R$ 82 million provision for salary increases granted to the employees. We emphasize that, if the additional provision for exchange rate fluctuations of R$ 310 million had not been recorded, the efficiency ratio would have reached 49.3%. - Banco Itaú Buen Ayre has been continuously improving its results, and this quarter it reached a net income of R$ 24 million, against R$ 3 million in the prior quarter. -The number of clients reached 7.9 million, an increase of 200,000 clients in the third quarter of 2001 alone,and of 1 million as compared to September 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). 4

6 Third Quarter of 2001 Banco Itaú S.A. Consolidated Balance Sheet ASSETS Sep 30, 01 Jun 30, 01 Sep 30, 00 Variation Sep01/Jun01 Variation Sep01/Sep00 Current and Long Term Assets 78,479 71,589 54,245 6,890 24,233 Cash And Cash Equivalents 1,797 1,597 1, Short-term Interbank Deposits 7,181 7,374 5,473 (193) 1,707 Securities 20,234 18,706 16,224 1,528 4,010 Own Portifolio 12,516 12,389 12, Others 7,718 6,317 4,191 1,401 3,527 Interbank and Interbranch Accounts 8,828 7,495 6,636 1,333 2,192 Loans 25,629 23,164 17,076 2,465 8,552 Leasing Operations 1,352 1, (Allowance for Loan Losses) (2,372) (2,190) (1,516) (182) (856) Other Assets 15,831 14,151 8,187 1,679 7,643 Foreign Exchange Portfolio 5,611 3,820 2,287 1,791 3,324 Outros 10,219 10,331 5,900 (112) 4,319 Permanent Assets 3,270 3,226 2, Investiments in Fixed Assets 2,313 2,338 2,214 (25) 99 Deferred Changes TOTAL ASSETS 81,749 74,815 57,233 6,935 24,517 LIABILITIES Sep 30, 01 Jun 30, 01 Sep 30, 00 Variation Sep01/Jun01 Variation Sep01/Sep00 Current and Long Term Assets 70,664 64,386 47,832 6,278 22,832 Deposits 27,121 27,163 22,106 (42) 5,015 Demand Deposits 6,094 6,056 4, ,618 Saving Accounts 15,550 15,552 14,387 (2) 1,164 Interbank Deposits (46) 98 Time Deposits 5,099 5,131 2,963 (32) 2,136 Deposits Received under Securities Repurchase Agreements 10,019 9,448 6, ,100 Funds from Acceptances and Issue of Securities 4,272 3,879 2, ,561 Interbank and Interbranch Accounts 3,359 3,302 2, Borrowings 6,691 5,567 3,332 1,124 3,359 On-lending Borrowings 3,412 3,312 2, ,359 Other liabilities 15,790 11,714 8,284 4,076 7,506 Technical Provisions for Insurance, Pension Plans and Cap. 2,532 2,412 2, Deferred Income Minority interest in subsidiaries Stockholder's Equity 7,747 7,311 6, ,069 TOTAL LIABILITIES 81,749 74,815 57,233 6,935 24,517 DEPOSITS 27,121 27,163 22,106 (42) 5,015 ASSETS UNDER MANAGEMENT 53,478 47,545 39,876 5,932 13,602 TOTAL 80,599 74,708 61,982 5,890 18,617 5

7 Third Quarter of 2001 Banco Itaú S.A. Consolidated Statement of Income 3 rd Q./01 2 nd Q./01 3 rd Q./00 Variation 3 rd Q.01/2 nd Q.01 Variation 3 rd Q.01/ 3 rd Q.00 Income from Financial Operations 6,047 3,651 2,275 2,396 3,772 Loans 2,817 1,844 1, ,779 Leases Securities 2,807 1,458 1,006 1,348 1,800 Trade Finance and Foreign Exchange Portfolio Compulsory Deposits Expenses from Financial Operations (4,489) (2,458) (1,107) (2,031) (3,383) Deposits, Money Market and Interbank Funds (3,097) (1,505) (661) (1,593) (2,437) Borrowings, Assignments and On-lending (798) (392) (155) (405) (643) Leases (197) (183) (131) (14) (66) Provision for Loan and Lease Losses (397) (378) (161) (19) (236) Net Income from Financial Operations 1,558 1,193 1, Other Operating Income (Expenses) (723) (532) (475) (191) (248) Banking Service Fees 1,053 1, Insurance, Capitalization and Pension Plans Premiums (38) 58 Expenses on Techical Provisions for Insurance, Capitalization and Pension Plans (183) (217) (200) Insurance Claims (201) (201) (169) 0 (32) Selling Expenses - Insurance (49) (47) (47) (2) (2) Pension Plan Benefit Expenses (62) (61) (43) (1) (20) Personnel Expenses (806) (642) (542) (164) (264) Other administrative expenses (876) (851) (712) (25) (164) Tax Expenses (183) (157) (132) (26) (52) Equity in Income (Losses) of Unconsolidated Investments (7) (18) (19) Other Operating Income Other Operating Expenses (263) (171) (101) (92) (162) Operating Income Non-operating Income (16) (2) 51 Income before Income Tax and Social Contribution Income Tax and Social Contribution (92) (24) (152) (69) 60 Extraordinary Results (36) (182) 105 Profit Sharing (59) (59) (31) 0 (28) Minority Interests (88) (34) 4 (54) (92) Net Income (133) 237 Number of shares outstanding (*) 112,773, ,896, ,665,207 (122,553) (4,891,265) Book value per thousand shares - R$ Net income per thousand shares - R$ (1.17) 2.27 (*) Redution by the repurchase of share program. 6

8 Analysis of the Consolidated Performance Result The accumulated net income of Banco Itaú from January to September 2001 reached R$ 2,156 million. Total Assets managed by Itaú amounted to R$ 81,749 million, and Stockholders Equity totaled R$ 7,747 million on September 30, Therefore, during the first nine months of 2001, Banco Itaú reached an annualized Return on Equity (ROE) of 38.7%, as well as an annualized Return on Assets (ROA) of 3.5%. This result is 70.8% higher than the one obtained in the same period of the prior year and basically reflects the adequate strategic positioning of the Bank before the volatile business environment which has characterized The Net Income of Banco Itaú in the third quarter of 2001 was R$ 699 million, a decrease of 15.9% as compared to the prior quarter. This result corresponds to an annualized ROE of 41.3% and an annualized ROA of 3.5%. In this quarter, the additional provision for exchange rate fluctuations was increased by R$ 310 million (see Note 4.c). Banco Itaú understands that the devaluation of the real against the U.S. dollar was excessive and does not reflect the Fundamentals of the Brazilian ecomomy, as well its capacity to adjust and react to a new scenario. Accordingly, in the near future there may be a reversal of this unusual conjunction of adverse factors, resulting in a revaluation of the real. Due to these uncertainties, the Bank adopted a conservative position and increased this provision, considering that the U.S.dollar rate may decrease from R$ 2.67 to R$ 2.50, affecting the balance of permanent foreign Consolidated Net Income () Consolidated Net Income - Quarter () 3,000 2,500 2,000 1,500 1, ,466 1,869 1,918 2,156 1,841 1,862 1, , (*) 1, stQ./00 2ndQ./00 3rdQ./00 4thQ./00 1stQ./01 2ndQ./01 3rdQ./01 Consolidated Stockholders Equity () 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000-3,337 3,842 4,198 4,651 5,907 8,057 7,747 6, (*) 7 Return on Equity (ROE) 45.0% 42.8% 40.0% 38.7% 35.0% 31.6% 28.9% 33.3% 30.0% 24.3% 25.0% 22.4% 25.7% 20.0% 15.9% 27.7% 15.0% 10.3% 17.2% 18.9% 15.4% 10.0% 5.0% 10.3% 0.0% (*) (*) Accumulated until September 30, 2001 Return on Equity (Net Income- Quarter) (ROE) (**) 60,3% 42.9% 44.0% 33.3% 35.8% 36.7% 30.3% 26.1% 26.1% 30.3% 30.7% 39.7% 42.0% 53.9% 41.3% 1stQ./00 2ndQ./00 3rdQ./00 4thQ./00 1stQ./01 2ndQ./01 3rdQ./01 (**) Annualized Consolidated Net Income Recurring Consolidated Net Income Consolidated Net Income without Additional Provision 7

9 Analysis of the Consolidated Performance investments, whose corresponding assets are basically invested in Securities. If we do not take into consideration the effect of this provision on the net income, the Return on Equity would reach 60.3%, and net income would have increased 21.3% as compared to the prior quarter. During this period, Itaú recorded an extraordinary result of R$ 69 million, basically comprised of the recognition of income and expenses related to two events that will produce significant impacts on the future evolution of the Bank s activities. On the one hand, Telefónica Data Corp S.A. exercised the option of increasing its percentage holding in the companies that operate the corporate network of the bank and hold the authorizations for rendering telecommunication services, as prescribed in the heads of agreement formalized in June 2001 between Banco Itaú and Telefónica S.A. This agreement corresponds to a net gain of R$ 229 million for the quarter, which, together with the gain obtained in the prior quarter, totals R$ 458 million from this arrangement. On the other hand, we fully amortized the goodwill relating to the acquisition of the Asset Management and Private Bank portfolio of Lloyds TSB Group in Brazil, totaling R$ 160 million. The Lloyds Asset Management portfolio, of which Itaú became the manager, exceeded R$ 4.6 billion in September 2001, and this acquisition reinforced the position of the bank in the asset management market, strengthening its performance among private managers of resources from institutional, corporate investors and Private Bank clients. If the Extraordinary Result is not considered, we obtain the recurring result from the Bank s operations, which totaled R$ 630 million in the third quarter of This result is 8.4% higher than the one obtained in the prior quarter. The Return on Equity of the recurring portion reached an annualized rate of 36.7%. During the third quarter, important changes were introduced in the banking regulatory environment in Brazil. The Central Bank started to intervene more actively in the foreign exchange market and increased the Basic Interest Rate (SELIC) from 18.25% in June to 19.00% in September. It also adopted a series of measures to reduce the market liquidity without making use of an increase in the basic interest rates. To this end, it altered the compulsory collection rate on time deposits, increasing it to 10%; increased from 60% to 80% the minimum compulsory payment on demand accounts at the end of each day, without causing a significant impact in the liquidity volume of Itaú for the compulsory movement period; altered the criterion for calculating the Required Stockholders Equity used in the calculation of the solvency ratio, increasing the weighting factor for the exposure limit for the foreign exchange and gold positions from 0.33 to 0.50; and eliminated the 20.0% decrease from the reference equity on the foreign exchange exposure in those cases in which such exposure exceeds its own equity by 5.0%. The adoption of these measures caused the following impacts on Itaú. In relation to demand and time deposits, the Bank preferably uses other funding instruments, and directing a greater portion of resources to the Central Bank will not affect its comfortable liquidity condition, which will have a marginal effect on the result. On the other hand, the change in the weighting factor of the foreign exchange position produced significant results, requiring the allocation of a greater portion of capital to meet the same equity condition.. It is important to mention that Itaú has a long-term foreign exchange position, mainly composed of foreign investments. Nevertheless, in August, Banco Itaú had obtained in the foreign market US$ 343 million through the issue of Subordinated Debt. Such operation, made simultaneously in the American, European and Asian markets, is considered by the Brazilian legislation as a part of the capital basis and increased the margin of the BIS Ratio (solvency ratio) of the bank in relation to the minimum required by the Central Bank, allowing compliance with the abrupt changes determined by the monetary authority, without the need to make a quick adjustment in the strategies outlined. Accordingly, the BIS Ratio reached 13.4% in September, which represents a margin of 2.3% over the minimum required by the Central Bank. Had the changes discussed above not occurred, the BIS Ratio would have been 15.7%. 3 rd Q./01 2 nd Q./01 3 rd Q./00 CDI 4.5% 3.8% 4.0% Dollar 15.9% 6.6% 2.4% IGPM 3.2% 2.9% 5.2% Savings 2.3% 2.0% 2.0% 8

10 Analysis of the Consolidated Performance The Subordinated Debt has a 10-year term and is divided into two parts. The first corresponds to an amount of US$ 100 million, with a coupon of 10% per annum and earnings of 10.12%. The second reached an amount of YEN 30 billion (US$ 243 Million), with a coupon of 4.25% per annum and the same earnings of the previous operation. The average coupon was 9.95% per annum, which is lower than the one corresponding to the funds obtained by the Brazilian Government for an equivalent period. It was the first issue of Subordinated Debt made by a Brazilian bank and represented the longest term obtained until then by a local private company in the foreign market, without being impacted by the turbulent and unstable world economic scenario. This issue was classified as Risk A3 by Moody s agency. The resources obtained from the issue of Subordinated Debt were maintained abroad and applied in a fixed-income financial instruments portfolio negotiated in the foreign market, which is basically comprised of first-level financial Funding US$ million Subordinated Debt 343 Investments Bonds 153 Brazilian Issuer 101 Foreign Issuer 52 Credit Operations 50 Interbank Deposits 140 instruments from Brazilian issuers, as well as other sundry financial instruments from issuers classified as investment grade. A portion of the resources obtained has been held as liquidity abroad, and has been invested in first-line American and European banks. Accordingly, Itaú created a potential to leverage its operations in local currency and increase the positive contribution to the result. Besides the issue of the Subordinated Debt, Itaú was successful in operating in the foreign capital market through other structured operations carried out during the quarter. In September, the bank started the restructuring of a securitization of foreign payment orders, amounting to US$ 250 million, which will be the underwritten by the Bank of America. This is the first issue of this type in Brazil, and it will be issued by the Itaú branch in Grand Cayman for a 5- year term. The strong external flow of the payment orders should make the securitization eligible for an investment grade rating. It should also have a guarantee for the principal and interest, granted by a first line international insurance company, which will elevate this issue of Itaú to the AAA category, with a significant impact on the final cost of the funds. Itaú will use anticipated funds that will allow the immediate onlending to its clients in Brazil and abroad, and which will be replaced by the final funds of the market issue, as soon as it is concluded. This shows Itaú s capacity of maintaining access to the international capital market during periods of great volatility and uncertainties. Still in the third quarter of 2001, Itaú received various awards, and was recognized, by several entities, which we summarize below. Awards Received during the Third Quarter 2001 Delivery Award / Recognition Entity Subject Jul-01 Best National Bank in Brazil Euromoney Performance and Efficiency Aug-01 2 nd Company in the ranking of the 100 More innovative in IT InformatioWeek Magazine of Brazil Information Technology Aug-01 More innovative company in IT in the finance and insurance sectors InformatioWeek Magazine of Brazil Information Technology Aug-01 Best Shares Income Funds Manager Exame Magazine Mutual Funds Aug-01 Best Fixed Income Funds Manager Exame Magazine Mutual Funds Aug-01 Best Mutual Funds Manager of Brazil Exame Magazine Mutual Funds Aug-01 Best Bank Online Services Opinia Internet Aug-01 Best Bank at the Internet in Brazil Global Finance Internet Aug-01 Valor Social Award Newspaper Valor Econômico Social Activity Sep-01 3 rd Abrasca Award - Annual Report nd Position Abrasca Investor Relations Sep-01 Bank of the Year in Brazil The Banker Performance and Efficiency Sep-01 Company Highlight in the Pension Plans Group ANSP Pension Plans Sep-01 Best Family's Financial Sites Meu Dinheiro Magazine and Web Magazine Internet Sep-01 Folha Ibrands Award Newspaper Folha de São Paulo Internet Sep-01 Itaú Bank Line - Best Internet Banking Info Exame Magazine Internet 9

11 Analysis of the Consolidated Performance Performance in the Stock Market Market Capitalization () The Brazilian stock market was strongly affected by the international turmoil, and the Bovespa Index decreased from 14,559 points in June 2001 to 10,635 points in September, a loss of approximately 27%. Banco Itaú shares resisted that decrease, and their devaluation was lower than the Bovespa Index. 17,834 21,297 18,535 The quotation of Preferred shares at the end of September was R$ per thousand shares, corresponding to a devaluation of 15.8% during the quarter. A lot of one thousand common shares was negotiated at R$ at the end of the period, which is equivalent to a devaluation of 14.9%. Therefore, the market capitalization amounted to R$ 18,535 million on September 30, 2001, corresponding to a devaluation of 15.4% in relation to the closing balance of the prior quarter. 6,275 6,786 4,978 3, (*) (*) At September 30, Preferred Shares - Appreciation (*) Evolution of US$ 100 invested in September 1991 US$ 3,500 3,000 2,500 2,000 1,500 1, ANNUAL APPRECIATION. 10 Years (Average) %. 5 Years (Average) %. 12 Months (Average) (26.13) % (31.86) % Itaú IBovespa US$ 2,041 0 US$ 100 US$ 314 Se p- Se p- Se p- Se p- Se p- Se p- Se p- Se p- Se p- Se p- Se p- SEP-91 DEC DEC DEC DEC DEC DEC-96 97DEC-97 DEC-98 DEC-99 DEC-00 SEP-01 (*) Without reinvestment 10

12 Analysis of the Consolidated Performance As from July 2, 2001, Banco Itaú shares started to be negotiated in the U.S. over-the-counter market due to its level I American Depositary Receipt (ADR) program. Each ADR represents 100 preferred shares of the Bank and is negotiated under the BITPY symbol. The Bank of New York is the depositary of the ADR program, and Itaú is its own custodian. Still during the third quarter, Banco Itaú was chosen, for the second time in a row, as part of the Dow Jones Sustainability World Index (DJSI World). DJSI awards companies capable of creating value for the shareholders in the long term, not only taking into consideration the financial performance, but also the quality of the company management. Dividends and Interest on Capital Amounting - Year () Dividends and Interest on Capital Amounting - Quarter () (*) st Q./00 2nd Q./00 3rd Q./00 4th Q./00 1st Q./01 2nd Q./01 3rd Q./01 (*) Accumulated until September 30, Consolidated Net Income per Thousand Shares - Year (R$) Consolidated Net Income per Thousand Shares - Quarter (R$) (*) (*) Accumulated until September 30, st Q./00 2nd Q./00 3rd Q./00 4th Q./00 1st Q./01 2nd Q./01 3rd Q./01 11

13 Analysis of the Consolidated Performance Ownership Structure Banco Itaú directs its performance strategy to balance growth with profitability, aiming at creating value for the shareholder in the long term. According to the table below, it should be noted that the total number of outstanding shares dropped 0.1% in the third quarter of 2001, and 4.2% as compared to September 30, This result is the impact of the active program for repurchase of Itaú shares. It is important to stress that Itaú did not call for a capital increase during the past ten years, preserving therefore the shareholders investment. Shareholders Outstanding Preferred Shares (in thousand): Outstanding Common Shares (in thousand): Outstanding Shares (in thousand): Preferred Shares in Treasury (in thousand): Common Shares in Treasury (in thousand): Sep 30, 01 Jun 30, 01 Sep 30, 00 57,422 56,793 56,884 49,136,752 49,214,982 49,726,995 63,637,190 63,681,512 67,938, ,773, ,896, ,665,207 2,222,765 2,144,535 1,632, , ,636 39,022 Itaúsa Free Float 83.7% Common Shares 16.3% Common Shares 47.2% TOTAL 99.9% Preferred Shares Banco Itaú Banco Banerj % Common Shares 99.88% Common Shares 98.99% Common Shares 19.53% Common Shares % Common Shares % Common Shares % TOTAL 99.85% TOTAL 97.14% TOTAL 19.53% TOTAL % TOTAL % TOTAL Banco Bemge Banco Banestado Banco Itaú Europa Itaú Bank Banco Itaú Buen Ayre Itaú Corretora de Valores % Common Shares % Common Shares 99.99% Common Shares 99.99% Common Shares % Common Shares 33.33% Common Shares 99.99% TOTAL 99.99% TOTAL 99.99% TOTAL 99.99% TOTAL % TOTAL 33.33% TOTAL Cia. Itauleasing BFB Leasing Itaú Banco de Investimentos Itaucard Credicard Itaú Capitalização 99.99% Common Shares 96.03% Common Shares 99.99% Common Shares 99.99% TOTAL 95.79% TOTAL 99.99% TOTAL Itaú Seguros Itaú Previdência e Seguros Obs: The percentage above refers to the total of direct and indirect participation. 12

14 Analysis of the Consolidated Performance Analysis of the Consolidated Net Income of the Third Quarter 2001 The consolidated net income of Banco Itaú for the third quarter of 2001 was segregated in four distinct columns, to enable a more detailed and in-depth analysis of the contributions of the operations in Brazil and overseas to the net income. The first column represents domestic net income, including income and expenses not affected by exchange variation. The second one represents income and expenses affected by exchange variation but recorded locally. The third column segregates net income from foreign companies. The last column discloses the effects of exchange variation effects on the Bank s foreign investments, less the provision for exchange rate fluctuations (see Note 4 c) and funding costs equivalent to the restatement of the balance of foreign investments based on the Selic interest rate. These amounts were recorded as a contra entry to domestic net income not affected by exchange variation. The table Reclassifications carried out in the Statement of Income represents a series of reclassifications which we believe permit a better analysis of net income. 13

15 Statement of Reallocated Income 3 rd Q./01 Results Abroad Results Abroad Results in Brazil Foreign Exchange Variation on Investments Results Abroad With Foreign Exchange Variation Without Foreign Exchange Variation Reallocated Result Published Reallocations Foreign Exchange Variation on Investments Results Abroad - 2 nd Q./01 Results in Brazil With Foreign Exchange Variation Without Foreign Exchange Variation Reallocated Result Published Reallocations 1,901 (6) 1,895 1, ,458 (405) 1, (31) (1,831) 386 (1,445) (353) (395) (170) (528) Income from Loan Operations 2, ,887 1, Securities 3,117 (541) 2, ,266 Provision for Exchange Rate Fluctuations (310) - (310) (310) Trade Finance and Foreign Exchange Portfolio 63 (18) (2) - Funding Expenses (3,801) 506 (3,295) (454) (871) (212) (1,758) 1,571 (55) 1,516 1, FINANCIAL MARGIN 1,955 (52) 1,903 1, (378) - (378) (345) (20) (7) (6) (378) 75 (303) (269) (20) (7) (6) Provision for Loan and Lease Losses (397) - (397) (358) (7) (15) (17) Credits Recoveries and Renegociated Total Provision for Loan and Lease Losses (397) 58 (339) (300) (7) (15) (17) 1, ,213 1, NET INCOME FROM FINANCIAL OPERATIONS 1, ,563 1, (531) (20) (551) (518) (6) (39) 21 1, , (4) (1,651) 4 (1,647) (1,561) (3) (73) (11) (11) (16) (22) (38) (57) (6) (20) 43 OTHER OPERATING INCOME (EXPENSES) (723) (6) (729) (600) (44) (40) (45) Banking Service Fees 1, ,056 1, Partial Result of Insurance, Capitalization and Pension Plans 110 (6) Administrative Expenses (1,866) 6 (1,860) (1,716) (14) (102) (28) Equity in Income (Losses) of Unconsolidated Investments (7) - (7) 1 (30) 46 (24) Other Operating Income / Expenses (14) (9) (23) 1 (4) (28) OPERATING INCOME 834 (0) Non-Operating Income (24) - (24) (73) (59) - (59) (59) (34) - (34) (32) - (2) - INCOME BEFORE TAX 869 (0) Income Tax and Social Contribution (92) - (92) (23) (71) 2 - Extraordinary Results Profit Sharing (59) - (59) (59) Minority Interests (88) - (88) (86) - (2) NET INCOME 699 (0) ) 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. 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. 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 derivative-related 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. 6) Partial Result of Insurance, Capitalization and Pension Plans Commission and charge expenses related to insurance, capitalization and pension plan products, originally accouted for Administrative Expenses, were reclassified into Partial Result of Insurance, Capitalization and Pension Plans. 3) Foreign Exchange Income (Expenses) Financial income and expenses relating to Foreign Trade Financing, originally accounted for as Foreign 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). 14

16 Analysis of the Consolidated Performance Analysis of Financial Margin The reallocated financial margin for the third quarter of 2001 reached R$ 1,903 million and presented a positive trend in relation to the prior quarter, increasing 25.5%. The exchange variation for the period was material and caused a significant impact in the indexed in or denominated in foreign currency positions maintained by the Bank. Particularly the exchange variation of foreign investments contributed significantly to the margin increase, even considering the expense for the constitution of the provision for exchange rate fluctuations (see Note 4.c). However, if the effects of the exchange variation are isolated, we notice that the portion of the financial margin associated with the operations which are not affected by the exchange variation had a significant increase, resulting from changes in the mix of assets, increasing the global spread of the institution during the quarter. The table Analysis of the Reallocated Financial Margin shows the increase in the Annual Ratio of Financial Margine in the third quarter of 2001, reaching 14.6% compared to 12.2% for the prior quarter. As already mentioned, this increase is associated with a better mix of assets in spite of the increase in the costs of obtaining of funds. Next, we will analyze in details the contribution to the domestic net income and for overseas operations. Analysis of Reallocated Financial Margin - Total FINANCIAL MARGIN 3 rd Q./01 2 nd Q./01 A) Income from Loans and Leases 2,887 1,895 B) Securities + Trade Finance and Foreign Exchange Portfolio 2,311 1,066 C) Income from Financial Operations 5,198 2,961 D) Expenses from Financial Operations (3,295) (1,445) E) Financial Margin 1,903 1,516 AVERAGE BALANCE FROM OPERATIONS (*) Average Loans and Leases 27,365 25,594 Average Other Receivables (**) F) Average Credit Operations 28,058 26,277 Average Cash and Cash Equivalents + Short-Term Interbank Deposits + Securities - Money Market Funding 18,711 18,147 Average Interbank and Interbranch Accounts 8,162 7,667 Average Credit Operations 28,058 26,277 G) Average Earning Assets 54,930 52,091 Average Deposits 27,141 27,160 Average Funds from Acceptances and Issue of Securities 4,075 3,497 Average Interbank and Interbranch Accounts 3,331 3,528 Average Borrowing 6,129 5,426 Average Onlending Borrowings 3,362 3,294 H) Average Funding Resources 44,038 42,905 AVERAGE RATES Annual Ratio of Income from Loan Operations =A/F 48.0% 32.1% Annual Ratio of Income from Financial Operations =C/G 43.6% 24.7% Annual Ratio of Interest Expense =D/H 33.5% 14.2% Annual Ratio of Financial Margin =E/G 14.6% 12.2% (*) Arithmetic average between the balance of the last day of quarter and previous quarter. For the semester we used an average with the months of december, march and june, divided by three. (**) Includes honored endorsements and sureties, receivable for advances, commissions, debtors on purchase of assets and receivables. 15

17 Analysis of the Consolidated Performance Domestic Income not Affected by Exchange Variation The increase of 7.8% in the financial margin of domestic operations which are not being affected by the exchange variation results fundamentally from the growth of 10.7% in the Income from Loans and Leases Operations, together with the increase of 16.1% in the treasury earnings, when comparing the periods. The increase in the balances of credit operations has a positive contribution to the Bank s net income, since these operations permit higher spreads, especially the mass credit products. Therefore, despite the intensification of the uncertainties, we continue to explore the business opportunities associated with the granting of loans and financings, while controlling the risks assumed. Moreover, we had an increase in the interest rates in this period in the various credit products, contributing to the increase in income. The increase in Securities arises from the effect of higher stability in the future interest rates on the assets positions of Itaú in the futures market. The future rates are the calculation basis of the portfolio market value, producing effects in the net income. Itaú maintains current positions in the futures market because of the mismatch of rates arising from the volume of deposits in Savings Accounts. In the prior quarter the increase in the future interest rates resulted in losses in the assets positions, which did not occur in this quarter. Not taking into consideration the contribution of this derivative operation,the Securities would remain in line, with two simultaneous impacts: on one side, we noticed an increase in the global spread, subject to changes in the asset mix; on the other side, we had a small reduction in the balance of our securities portfolio, with the resources directed to new credit operations with a higher contribution to the net income. The Expenses from Financial Operations increased 28.6% compared to the prior quarter, mainly due to the increase in the funding cost, which was affected by the development of the economic situation of the country. Analysis of Financial Margin not Affected by Exchange Variation FINANCIAL MARGIN 3 rd Q./01 2 nd Q./01 A) Income from Loans and Leases 1,382 1,248 B) Securities + Trade Finance and Foreign Exchange Portfolio C) Income from Financial Operations 1,917 1,710 D) Expenses from Financial Operations (454) (353) E) Financial Margin 1,463 1,357 AVERAGE BALANCE FROM OPERATIONS (*) Average Loans and Leases 20,178 19,130 Average Other Receivables (**) F) Average Credit Operations 20,868 19,810 Average Cash and Cash Equivalents + Short-Term Interbank Deposits + Securities - Money Market Funding 5,268 6,947 Average Interbank and Interbranch Accounts 8,035 7,501 Average Credit Operations 20,868 19,810 G) Average Earning Assets 34,172 34,258 Average Deposits 22,404 22,499 Average Funds from Acceptances and Issue of Securities 1,208 1,156 Average Interbank and Interbranch Accounts 3,155 3,366 Average Borrowing Average Onlending Borrowings 2,742 2,746 H) Average Funding Resources 29,717 29,971 AVERAGE RATES Annual Ratio of Income from Loan Operations =A/F 29.2% 27.7% Annual Ratio of Income from Financial Operations =C/G 24.4% 21.5% Annual Ratio of Interest Expense =D/H 6.2% 4.8% Annual Ratio of Financial Margin =E/G 18.3% 16.8% (*) Arithmetic average between the balance of the last day of quarter and previous quarter. For the semester we used an average with the months of december, march and june, divided by three. (**) Includes honored endorsements and sureties, receivable for advances, commissions, debtors on purchase of assets and receivables. 16

18 Analysis of the Consolidated Performance Domestic Income Affected by Exchange Variation 3 rd Q./01 2 nd Q./01 Income from Loan Operations Securities Trade Finance and foreign Exchange Portfolio 47 5 Funding Expenses (871) (395) Financial Margin Foreign Exchange Variation on Investments Abroad 3 rd Q./01 2 nd Q./01 Income from Loan Operations Securities 1, Provision for Exchange Rate Fluctuations (*) (310) - Trade Finance and foreign Exchange Portfolio - - Funding Expenses (1,758) (528) Financial Margin The financial margin of domestic Income affected by exchange variation was impacted by the significant devaluation of the Real in the period. As a result, the Bank s positions in assets indexed to foreign currency, basically comprising securities connected to the U.S. dollar variation and which are issued by the Brazilian government, contributed significantly to this margin. The strong movement in the currency market also created opportunities of gains from foreign exchange which were well used by the Bank. Accordingly, the ETrade Finance and Foreign Exchange Portfolio in the third quarter reached R$ 47 million,while in the second quarter the gain was of R$ 5 million. The expenses for financial funding are basically subject to the onlending operations (Resolution 63), Fixed Rate Notes and Commercial Papers, which are indexed to foreign currency. The financial margin associated with the Exchange Variation of Investments Abroad was influenced by the increase in the additional provision for exchange rate fluctuations (See Note 4.c), totaling R$ 310 million, considering a possible revaluation of the real from R$ 2.67 to R$ 2.50 per U.S. dollar. We show below the reclassification so that the resources obtained abroad reflect their opportunity costs, adopting the CDI rate as a benchmark. 3 rd Q./01 2 nd Q./01 Foreign Exchange Variation on Investments Abroad Additional Provision (*) (310) Effect Foreign Exchange Risk Management on Inv. Abroad (64) (82) Results Abroad Funding Expenses (CDI) (199) (157) Management Margin - Investments Abroad Results Abroad (*) Additional provision for future exchange rates fluctuation. 3 rd Q./01 2 nd Q./01 Income from Loan Operations Securities Trade Finance and foreign Exchange Portfolio (2) 7 Funding Expenses (212) (170) Financial Margin The financial margin related to activities of financial intermediation increased 127% in the third quarter as compared to the prior quarter. This variation is a result of the growth in the credit and securities portfolio, as well as the devaluation of the real in the quarter. Furthermore, the increase in the securities portfolio was impacted by the funds obtained by the issuance of subordinated debt, the cost of which is reflected in the funding expenses. 17

19 Analysis of the Consolidated Performance Analysis of Financial Margin Affected by Exchange Variation FINANCIAL MARGIN 3 rd Q./01 2 nd Q./01 A) Income from Loans and Leases 1, B) Securities + Trade Finance and Foreign Exchange Portfolio 1, C) Income from Financial Operations 3,281 1,253 D) Expenses from Financial Operations (2,841) (1,093) E) Financial Margin AVERAGE BALANCE FROM OPERATIONS (*) Average Loans and Leases 7,187 6,465 Average Other Receivables (**) 2 2 F) Average Credit Operations 7,189 6,467 Average Cash and Cash Equivalents + Short-Term Interbank Deposits + Securities - Money Market Funding 13,442 11,200 Average Interbank and Interbranch Accounts Average Credit Operations 7,189 6,467 G) Average Earning Assets 20,758 17,833 Average Deposits 4,736 4,661 Average Funds from Acceptances and Issue of Securities 2,867 2,341 Average Interbank and Interbranch Accounts Average Borrowing 5,922 5,222 Average Onlending Borrowings H) Average Funding Resources 14,321 12,934 AVERAGE RATES Annual Ratio of Income from Loan Operations =A/F 113.8% 46.4% Annual Ratio of Income from Financial Operations =C/G 79.8% 31.2% Annual Ratio of Interest Expense =D/H 106.2% 38.3% Annual Ratio of Financial Margin =E/G 8.7% 3.6% (*) Arithmetic average between the balance of the last day of quarter and previous quarter. For the semester we used an average with the months of december, march and june, divided by three. (**) Includes honored endorsements and sureties, receivable for advances, commissions, debtors on purchase of assets and receivables. 18

20 Analysis of the Consolidated Performance Net income for the Third Quarter of 2001 by Segment The results broken down by segment show the contributions to net income of the different areas of activity of the conglomerate. The Bank has eliminated revenue and expenses arising from operations between segments. Equity in the income of companies not relating to the segment was reallocated to the proper segment. Taxes on income were calculated at the rate of 34% in each segment, while the increase or decrease in tax arising from temporary differences and other tax effects was reallocated to the Bank. The results in each segment differ from the accounting results presented in other notes, due to the effects mentioned above. Portfolio Under Management and Mutual Funds 6% Insurance, Capitalization and Pension Plans 9% Credit Cards 5% Corporation 16% Extraordinary Results 10% Banking 54% 3 rd Q./01 Banking Credit Cards Insurance, Capitalization and Pension Plans Portfolio under Management and Mutual Funds Corporation CONSOLIDATED INCOME FROM FINANCIAL OPERATIONS 5, ,047 Loans 2, ,817 Leases Securities 2, ,807 Trade Finance and Foreign Exchange Portfolio Compulsory Deposits EXPENSES FROM FINANCIAL OPERATIONS (4,091) (1) (4,092) Deposits, Money Market and Interbank Funds (3,097) (3,097) Borrowings, Assignments and On-Lending (797) (1) (798) Leases (197) (197) FINANCIAL MARGIN 1, ,955 Provision for Loan and Lease Losses (266) (131) (397) NET INCOME FROM FINANCIAL OPERATIONS 1,454 (6) ,558 OTHER OPERATING INCOME (EXPENSES) (833) 66 (14) 65 (8) (723) Banking Service Fees (30) 1,053 Transference for Banking (99) - - Partial Result of Insurance, Capitalization and Pension Plans Administrative Expenses (1,417) (126) (103) (49) 14 (1,682) Tax Expenses (131) (33) (13) (7) - (183) Equity in Income (Losses) of Unconsolidated Investments (7) (7) Other Operating Income/ Expenses 22 (54) 9-9 (14) OPERATING INCOME (8) 834 NON-OPERATING INCOME (3) 35 INCOME BEFORE INCOME TAX (10) 869 INCOME TAX AND SOCIAL CONTRIBUTION (225) (21) (33) (22) 209 (92) EXTRAORDINARY RESULTS PROFIT SHARING (51) (3) - (4) - (59) MINORITY INTERESTS (88) (88) NET INCOME

21 Analysis of the Consolidated Performance Banking The increase in the result of the Banking segment results from the change in the mix of assets, providing higher spreads, and from the effect of the exchange variance in the period on the institution s operations, partially reduced by the increase of R$ 310 million of additional provision, which move than offset the increase in personnel expenses resulting from the collective labor agreement. 3 rd Q./01 2 nd Q./01 Financial Margin 1,720 1,365 Provision for Loan and Lease Losses (266) (287) Other Operating Income / Expenses (833) (634) Non-Operating Income Income Tax and Social Contribution (225) (160) Profit Sharing (51) (49) Credit Cards NET INCOME The decrease in the operating results of credit cards is mainly due to an increase in the allowance for loan losses, in view of a more conservative position and also an increase in personnel, marketing and card processing expenses, as a result of the increase in the client base. The credit card market has increased, creating a high potential for income for Itaú, which may be noted by the increase in the Services Revenue from Credit Card Management and Processing. 3 rd Q./01 2 nd Q./01 Financial Margin Provision for Loan and Lease Losses (131) (92) Banking Service Fees Other Operating Income / Expenses (213) (183) Non-Operating Income - - Income Tax and Social Contribution (21) (36) Profit Sharing (3) (2) NET INCOME Insurance, Capitalization and Pension Plans Net income in the third quarter was higher than the prior quarter, chiefly because of the better financial intermediation results in view of the increase in investment rates, partially offset by the increase in administrative expenses, resulting from the capitalization campaign in the prior quarter. 3 rd Q./01 2 nd Q./01 Financial Margin Provision for Loan and Lease Losses - - Other Operating Income / Expenses (14) 5 Non-Operating Income 3 3 Income Tax and Social Contribution (33) (32) Profit Sharing - (2) NET INCOME Fund Management The increase in the results of fund and portfolio management arises basically from the increase in service revenues in the third quarter of 2001, due to the increase in the volume of managed funds. 3 rd Q./01 2 nd Q./01 Banking Service Fees Operating Expenses (155) (142) Income Tax and Social Contribution (22) (21) Profit Sharing (4) (5) NET INCOME

22 Analysis of the Consolidated Performance Provision for Loan and Lease Losses The expenses for the Provision for Loan and Lease Losses in the third quarter totaled R$ 397 million, an increase of 4.9% compared to the prior quarter. Movements of Provision for Loan and Lease Losses by Risk Level RISK LEVEL BALANCE Jun 30, 01 Risk Level Transfer New Contracts PROVISION FOR LOAN AND LEASE LOSSES Debt Renegociation Accrual/ Movements Settlement TOTAL WRITE-OFF BALANCE Sep 30, 01 AA (1) - (1) - - A (25) (8) (22) - 36 B (50) (11) (42) - 83 C (12) 2-69 D 129 (43) (24) E 79 (34) 5-46 (9) F 269 (69) (29) G 161 (49) (5) H (38) 195 (216) 798 Additional TOTAL 2, (137) 397 (216) 2,372 RISK LEVEL BALANCE Mar 31, 01 Risk Level Transfer New Contracts PROVISION FOR LOAN AND LEASE LOSSES Debt Renegociation Accrual/ Movements Settlement TOTAL WRITE-OFF BALANCE Jun 30, 01 AA (7) - (7) - - A (25) (10) (21) - 36 B (30) (10) (23) - 77 C (8) (9) (5) - 56 D 123 (49) (19) E 77 (88) 2-93 (6) F 234 (53) (19) G (10) (5) (13) H (29) 166 (224) 704 Additional TOTAL 2, (107) 378 (224) 2,190 In view of the macro economic scenario which characterized the third quarter of 2001, Banco Itaú intensified its carefulness in the assignment of pre-approved credits to individuals and micro and small companies. It also increased the rigor in the granting of credits for customers in activities affected by the energy crisis and strongly depending on imports. Reviews of the risk classification have been made for customers with higher dependence on resources arising from financial institutions, especially in foreign currency. In short, the change in the global portfolio quality is connected to the economic situation of the country. The increase in expenses for the Provision for Loan and Lease Losses in the quarter arises from the change of the portfolio itself especially in the credit cards segment together with the increase in the balance of credit operations. During the quarter the Bank kept the strategic option of widening its credit portfolio by directing its resources to operations that permit higher profitability, assuming more risks. In order to counteract this exposure Itaú, uses its models and systems to identify and control the risks assumed. The adoption of this strategy has brought a positive contribution to the institution s results. It is important to point out that Itaú adopts a very conservative policy of setting up the allowance for loan losses, classifying and setting up provisions for all its credits among the various risk levels. Resolution 2697, which establishes the criteria of classification of credit operations, determines that institutions may opt to classify balances 21

23 Analysis of the Consolidated Performance Movements of Credit Portfolio by Risk Level RISK LEVEL BALANCE Jun 30, 01 Risk Level Transfer New Contracts Debt Renegociation Accrual/ Movements Settlement TOTAL WRITE-OFF BALANCE Sep 30, 01 AA 7,269 (125) 2, (2,322) 865-8,009 A 7,143 (604) 2,260 - (150) (1,534) 577-7,116 B 7, ,854 - (267) (1,110) 477-8,291 C 1, (417) 159-2,298 D 1, (243) 5-1,399 E (29) (5) F (56) (59) G 230 (4) (8) H (35) 104 (216) 798 TOTAL 27,046-7, (5,757) 2,238 (216) 29,069 RISK LEVEL BALANCE Mar 31, 01 Risk Level Transfer New Contracts Debt Renegociation Accrual/ Movements Settlement TOTAL WRITE-OFF BALANCE Jun 30, 01 AA 7, ,211 - (10) (2,058) 143-7,269 A 6,548 (192) 2,822 - (115) (1,920) 787-7,143 B 7,242 (156) 1,746 - (54) (1,049) 644-7,730 C 1, (25) (314) 89-1,881 D 1, (188) 16-1,291 E 257 (56) 7-73 (20) F (85) (38) (1) G (61) (7) (66) H (26) 90 (224) 704 TOTAL 25,507-7, (174) (5,620) 1,762 (224) 27,045 with clients with total responsibility lower than R$ 50, only if they become overdue. Should we adopt this criterion today on our portfolio, we would have an excess of provision of R$ 153 million (note 5e), which confirms the comfortable situation that the Bank has in relation to credit risk management. At September 30, 2001, 88.5% of the credit portfolio was classified between the risk levels AA and C, and 96.1% of the new contracts in the quarter received risk classifications between these levels. These percentages have changed little in relation to the prior quarter. operations indexed or denominated in foreign currency was responsible for R$ 17 million of the increase of the provisions. Still in the third quarter, R$ 216 million of credits have been written-off against the Provision for Loan and Lease Losses, decreasing 3.6% in relation to the prior quarter. The recovery of credits written off against the provision for loan losses totaled R$ 58 million in the third quarter, corresponding to a reduction of 22.5% in relation to the prior period. The balance of the Provision for Loan and Lease Losses reached R$ 2,372 million at the end of September, increasing 8.3% in the quarter. The exchange variation on the credit 22

24 Analysis of the Consolidated Performance Movements of Credit Portfolio - 3rd Quarter 2001 Risk Level Transfer Actual Risk New Contracts Accrual/ Amortization Prior Risk Total AA A B C D E F G H Total AA (0,0%) 2, ,238 A (0,5%) 2,260 (150) ,043 3,153 B (1,0%) 1,854 (267) 103 1, ,931 3,518 C (3,0%) ,278 1,853 D (10%) ,002 1,250 E (30%) F (50%) 166 (56) G (70%) H (100%) Transfers to Other Levels - - (175) (1,647) (1,847) (1,020) (899) (208) (286) (220) (43) - (6,345) Total Settlement - - (2,322) (1,534) (1,110) (417) (243) (29) (59) (8) (35) (5,757) TOTAL 7, (2,322) (1,534) (1,110) (417) (243) (29) (59) (8) (35) - 2,238 The table above presents the movement of the credit portfolio during the third quarter of The column of New Contracts is composed of the balances of the new contracts in the period, as well as the balance of the composition of debts. The column Accrual and Amortization represent the increases and decreases in the debtor balance, resulting from the allocation of interest, exchange variation and payment of installments, not including the settlement of balances. The columns of Risk Level Transfer, together with the lines of Actual Risk, indicate the movements (changes) in the various risk levels during the period. The line of Transfers to Other Levels includes the balances classified in a certain risk level and which were transferred to other levels. The line of Total Settlement represents the balances settled in the period. From the balance of R$ 6,345 million of operations movemented in the risk category, 33.1% improved their classification. Movements of Provision for Loan and Lease Losses Expenses Risk Level Transfer Actual Risk New Contracts Accrual/ Amortization Prior Risk Total AA A B C D E F G H Total AA (0,0%) (0) (0) (0) (0) (0) (0) A (0,5%) 11 (1) 0 - (4) (4) (9) (1) (3) (0) (4) (24) (14) B (1,0%) 19 (3) (9) (24) (1) (4) (1) (13) (47) (31) C (3,0%) (13) (1) (3) (1) (8) (2) 15 D (10%) (3) (13) (1) (9) E (30%) (1) (2) (0) F (50%) 83 (28) (2) (3) G (70%) (0) H (100%) SubTotal (38) Total Settlement (8) (11) (12) (24) (9) (29) (5) (38) (137) (137) TOTAL (1) 50 (75) The table above presents the movement of expenses for provision for loan and lease losses, and its structure is very similar to the prior table. Taking into consideration only the movements of the credit portfolio between the various risk levels, we had the reversal of R$ 136 million of expenses, together with the constitution of R$ 390 million in new provisions. The balance of R$ 83 million of new entries in risk level F corresponds basically to the composition of debts. 23

25 Analysis of the Consolidated Performance Risk Rates of the Credit Portfolio We present below information related to the quality of the credit portfolio, which highlights the comfortable situation of the Bank in relation to credit risk management. Risk Sep 30, 01 Jun 30, 01 Sep 30, 00 AA 8,009 7,269 5,483 A 7,116 7,143 7,100 B 8,291 7,730 3,307 C 2,298 1,881 1,598 Total AA - C 25,714 24,023 17,488 D 1,399 1, E F G H Total D - H 3,355 3,024 1,663 Total Credit Operations 29,069 27,046 19,151 Minimum Provision 1,692 1, Existing Provision 2,372 2,190 1,516 Existing Provision / Minimum Prov % 145.0% 168.6% Minimum Prov./ Credit Operations 5.8% 5.6% 4.7% D - H / Credit Operations 11.5% 11.2% 8.7% E - H / Credit Operations 6.7% 6.4% 5.8% D - G / Credit Operations 8.8% 8.6% 6.5% E - G / Credit Operations 4.0% 3.8% 3.6% Overdue D - H / Credit Operations 3.3% 3.2% 2.7% Overdue E - H / Credit Operations 2.8% 2.5% 2.3% Overdue D - G / Credit Operations 1.6% 1.7% 1.4% Overdue E - G / Credit Operations 1.1% 1.0% 0.9% Existing Provision / D - H 70.7% 72.4% 91.2% Existing Provision / E - H 121.3% 126.4% 135.8% Existing Provision / D - G 92.8% 94.4% 122.0% Existing Provision / E - G 204.8% 212.9% 217.8% Credit Operations ( D - G ) 2,557 2,320 1,243 Provision ( D - G ) Provision / Credit Operations 27.6% 27.5% 29.2% Credit Operations ( E - G ) 1,158 1, Provision ( E - G ) Provision / Credit Operations 48.9% 49.4% 44.3% Credit Operations ( D - H ) 3,355 3,024 1,663 Provision ( D - H ) 1,505 1, Provision / Credit Operations 44.8% 44.4% 47.1% Credit Operations ( E - H ) 1,956 1,733 1,116 Provision ( E - H ) 1,365 1, Provision / Credit Operations 69.8% 69.9% 65.3% 24

26 Analysis 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 of the strategy adopted by the Bank of directing its resources to mass credit operations, which have a higher contribution margin, but also have higher risks. Non Accrual Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Total Non Accrual (a) ,054 1,074 1,161 1,277 Provision for Loan and Lease Losses (b) (1,443) (1,516) (2,033) (2,036) (2,190) (2,372) Credit Portfolio 18,233 19,151 23,674 25,507 27,046 29,069 (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 (1) ( % ) Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Without Banestado With Banestado (1) 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 ( % ) 212% 210% 193% 190% 189% 186% Jun 30, 00 Sep 30, 00 Dec 31, 00 Mar 31, 01 Jun 30, 01 Sep 30, 01 At September 30, the allowance for loan losses covered 186% of credits overdue for more than 60 days. The decrease as from March 2000 may be explained by the implementation of Resolution 2682, which amended the write-off policy, postponing the write-offs and reducing the coverage level of this rate. 25

27 Analysis of the Consolidated Results Banking Service Fees 3rd Q./01 2nd Q./01 3rd Q./00 Variation 3rd Q.01/2nd Q.01 Variation 3rd Q.01/3rd Q.00 Fund Management Fees Collection Fees Current Account Fees (2) 38 Tax Collection Fees (2) 42 Interbank Fees (Bills, Checks and Documents) Credit Operations (2) 32 Credit Cards Other Services Total 1,053 1, Banking Service Fees totaled, in the third quarter of 2001, R$ 1,053 million, a R$ 46 million increase as compared to the R$ 1,007 million earned in the second quarter and R$ 218 million as compared to the same period of The coverage ratio, calculated by dividing Banking Service Fees by the Total Administrative Expenses (Salaries and Employee Benefits + Other), reached 64% in the third quarter of 2001, as shown in the chart below. Considering only the Salaries and Employee Benefits this ratio represents 135%. If the effect of the labor agreement is considered, whose impact amounted to R$ 82 million, this ratio would reach 67% of Total Administrative Expenses and 151% on Salaries and Employee Benefits. Banking Service Fees Coverage Index over Administrative Expenses Total Banking Service Fees 155% 165% 154% Products and Services 132% 70% 70% 67% 70% 62% 160% 157% Special mention should be made of Itaú s main actions, whose objectives are both to leverage the Bank-related income and to meet its clients needs. Examples of these are the positive outcomes from products and service advertising campaigns, among which we highlight those relating to Itaucard, Insurance, the expansion of the client portfolio and current account loans. 67% 64% 135% 1st Q/00 2nd Q/00 3rd Q/00 4th Q/00 1st Q/01 2nd Q/01 3rd Q/01 Total Administrative Expenses Salaries and Employee Benefits 100% In addition, we highlight the release of new bank services, such as the automatic debit for Social Security individual taxpayers and payments to Telefonica without the need of presenting the telephone bill, both implemented during the third quarter. The consolidated active client portfolio at September 2001 corresponds to 7.9 million, with an average of 5.1 products per Individual client, 4.8 products per Corporation client, and 5.1 products per active customer. Quantity of Products by Type of Active Customer ( * ) (*) 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 a non-zero average 3-month cash deposit balance. Investment Fund Management st Q./00 2nd Q./00 3rd Q./00 4th Q/00 1st Q./01 2nd Q./01 3rd Q./01 Individuals Investment Fund Management revenues totaled R$ 220 million in the third quarter of 2001, an increase of 8.4% in comparison with the R$ 203 million in the prior quarter. This income results from an increase of 12.6% in the volume of assets under management, which reached R$ 53.5 billion in the third quarter Companies

28 Analysis of the Consolidated Results Assets under Management (*) (In R$ billion) Collection In the period under analysis, Collection revenues remained practically the same, increasing from R$ 56 million to R$ 57 million. The settlement volume in the third quarter of 2001 totaled R$ 29.1 million, a 2.8% increase in relation to the volume of the previous quarter. The number of processed documents also increased 1.4% in the period under analysis. Dec/98 Dec/99 Mar/00 Jun/00 Sep/00 Dec/00 Mar/01 Jun/01 Sep/01 (*) Includes LAM Investment Funds Managed Portofolios The 12.9% market share in assets under management, achieved by Itaú in September, results from the position assumed by the Bank as one of the largest investment fund managers in the market, with outstanding performance in all segments involved. Current and Savings Accounts Current account revenues totaled R$ 178 million in the third quarter of 2001, a slight 1.1% decrease as compared to the R$ 180 million earned during the previous quarter. This decrease is mainly due to the drop in the revenues derived from number of returned checks. Investment Funds Client Segmentation Private 10% Institutional 20% Others 11% Corp/Companies 14% Retail 39% Personnalité 6% Tax Collections Tax Collection Service Revenues decreased by R$ 2 million when comparing the third and second quarters of This variation results from the 5.1% decrease in the quantity of documents collected in the third quarter of 2001, 56 million, due to the seasonality of State Tax collections, mainly in Rio de Janeiro. Credit Operations Itaú assumed the Asset Management and Private Bank activities formerly carried out by Lloyds TSB Asset Management (LAM) in Brazil. LAM is specialized in personalized portfolio management and comprises a wide range of mutual funds in fixed-income investments, derivatives and shares. LAM s portfolio, which is now under the management of Bank Itaú, totaled more than R$ 4.6 billion in September As regards Individual clients, these are now being serviced by Itaú Private Bank. Itaú was the winner in the tender sponsored by the pension plan of Companhia Siderúrgica Nacional and has been contracted to be in charge of the custody, consolidation of information and financial management of the entity s resources, which amount to approximately R$ 650 million. In the third quarter of 2001, Credit Operation Services Fees totaled R$ 82 million, a R$ 2 million decrease as compared to the R$ 84 million earned in the second quarter. This effect results from the intensification in the sale of personal loans, mainly pre-approved loans, in the previous quarter. Banking Service Fees from Credit Operations September 30, 2001 Working Capital 8% Leasing 4% Personal Credit 22% Loans in Current Account 66% 27

29 Analysis of the Consolidated Results Credit Cards 3rd Q nd Q Nom. Var. Collateral Income and Financial Management Annual Fees Other Services Total In the third quarter of 2001, Service Fees related to Credit Card Management and Processing totaled R$ 279 million, generating an increase of R$ 15 million as compared to the previous quarter, of which R$ 7 million refers to Financial Management and Collateral Income and R$ 4 million to Annual Fee Income. The increase was mainly due to the increase of 379 thousand cards as compared to the previous quarter. Thousand Mastercard Visa Diners Total Itaucard 2,527 1, ,662 Banerj Bemge Personnalité Banestado Total 2,863 1, ,248 Considering the Bank s stake in this company and the payment of special dividends a portion of net income distributed based on the performance of each partner s credit card base during the third quarter, Itaú was entitled to 36% of Credicard s net income. Internet Mil 4,500 4,000 Quantity of Credit Cards and Market Share 11.9% 11.6% 12.5% 10.7% 9.7% 10.0% 10.3% 3, % 3,000 2,500 2,000 3,869 3,321 3,521 1,500 2,039 2,279 2,407 2,556 2,811 1, % 4,248 The number of clients registered with Home & Office Banking increased from 1.58 million in the second quarter of 2001 to 1.79 million in the third quarter, representing a 13.3% increase. As compared to the third quarter of 2000, the number of registered clients represents a 31.6% increase. Such increase in the number of registered clients has also impacted the volume of transactions carried out, which, in the third quarter of 2001, totaled 43 million, 26.5% higher than the volume of the prior quarter, and 138.9% higher than the volume of the same period in % 12% 10% 8% 6% 4% 2% 0 Sep/99 Dec/99 Mar/00 Jun/00 Sep/00 Dec/00 Mar/01 Jun/01 Sep/01 Quantity of Cards (Thousands) Market Share (%) Market Data - source: In September, Itaucard reached a market share of 13.2% in relation to the number of credit cards. The volume of transactions also increased by R$ 1.8 billion in the third quarter, representing a 6.0% increase as compared to the second quarter and an 11.3% market share. In September 2001, Itaucard s active account index (i.e., proportion of accounts which receive a bill) was 81%, and 70.5% of these accounts had transactions in the previous month, with an average transaction volume in the quarter of R$ per account. Itaucard holds a 33.3% stake in Credicard, a leading company in the credit card management sector, which accounted for 7.8 million of the total credit cards and a 24.5% market share. Of the total Credit Card Services Revenue recorded by Itaú, 29.1% refers to Credicard. 0% Volume of Home & Office Banking Transactions Home & Office Banking Transactions per Type of Customer (milllion) Customers registered in Home & Office Banking (Million) st Q./00 2nd Q./00 3rd Q./00 4th Q./00 1st. Q/01 2nd Q./01 3rd Q./01 Direct Connection Internet Banking Individuals 24 Companies 1 st Q./0 0 2 nd Q./0 0 3 rd Q./0 0 4 th Q./0 0 1 st Q./0 1 2 nd Q./0 1 3 rd Q./0 1 28

30 Analysis of the Consolidated Performance Insurance, Capitalization and Pension Plan Operations 3 RD Q/01 2 ND Q/01 3 RD Q/00 3 RD Q/01 x 2 ND Q/01 3 RD Q/01 x 3 RD Q/00 Revenues from Insurance, Capitalization and Pension Plans (38) 58 Revenues from Insurance Revenues from Capitalization (56) 2 Revenues from Pension Plans Changes in Technical Provisions (183) (217) (200) Retained Claims (201) (201) (169) 0 (32) Selling Expenses (55) (52) (53) (3) (3) Pension Plan Benefits Expenses (62) (61) (43) (1) (20) Partial Result of Insurance, Capitalization and Pension Plans (8) 21 The table above shows the trend of the Partial Result of Insurance, Capitalization and Pension Plans from R$ 111 Million in the second quarter of 2001 to R$ 103 Million in the third quarter of 2001, a decrease of R$ 8 Million. Such reduction arises from the decrease in the Partial Result of Capitalization of R$ 4 Million and the decrease in the Partial Result of Pension Plans of R$ 4 Million. We emphasize that these amounts do not reflect the companies' net income, since financial income arising from the investment of reserves is allocated to the financial margin, and administrative expenses are consolidated with those of the other companies of the conglomerate. We present below the trend of the insurance, capitalization and pension plan technical provisions, increasing 5,0% in the third quarter of 2001; and, where we highlight the 9.1% increase in pension plan technical provisions at the same period. Technical Provisions of Insurance, Capitalization and Pension Plans - Unrestricted Technical Provisions of Insurance, Capitalization and Pension Plans - Restricted 30-Sep Jun Sep-00 Insurance Capitalization Pension Plans 1, Total 2,532 2,412 2, Sep Jun Sep-00 Insurance Capitalization Pension Plans Total Technical Provisions of Insurance, Capitalization and Pension Plans ,142 2,337 2,344 2,412 2,532 Sep/00 Dec/00 Mar/01 Jun/01 Sep/01 Technical Provisions - Unrestricted Technical Provisions - Restricted 29

31 Analysis of the Consolidated Performance Insurance Operations 3 RD Q/01 2 ND Q/01 3 RD Q/00 3 RD Q/01 x 2 ND Q/01 3 RD Q/01 x 3 RD Q/00 Revenues from Insurance Changes in Technical Provisions (28) (12) (32) (16) 4 Earned Premiums Retained Claims (201) (201) (169) 0 (32) Selling Expenses (52) (50) (50) (2) (3) Partial Result of Insurance (0) 19 The Partial Result of Insurance totaled R$ 74 million during the third quarter of 2001, in line with the second quarter of Revenues from Insurance showed an increase of 5.4% in the third quarter of 2001, from R$ 337 million in the second quarter of 2001 to R$ 355 million in the third quarter of 2001, with emphasis on the life insurance activities. During the third quarter, Earned Premiums showed an increase of 0.6% as compared to the second quarter of Retained Claims during the third quarter of 2001 were level with the second quarter of 2001, even with an increase in the production. This effect may be explained by the drop in the claims ratio of the Life and Personal Accident activities, from 43.3% in the second quarter of 2001 to 35.0% in the third quarter of Selling expenses increased R$ 2 million because of the increase in production in the quarter. Composition of Earned Premiums - Itaú Group 3rd Quarter/ % 2nd Quarter/ % 6% 8% 40% 8% 5% 42% 31% 30% Vehicle Life Property Transportation Others The proportion of the vehicle portfolio in the Itaú Group insurance companies total Earned Premiums decreased from 42% in the second quarter of 2001 to 40% in the third quarter of Such decrease in the participation of Vehicles in the mix of products is a reflection of the review of the vehicles portfolio of Gralha Azul and Paraná Seguros insurance companies, besides the growth in the Individual Life portfolios sold by the branches of the Bank. Number of Insurance Policies - Mass Products In Thousand Products 30-Sep Jun Sep-00 Vehicles Life Property Total 1,516 1,445 1,369 30

32 Analysis of the Consolidated Performance Insurance Companies Consolidated (*) Assets 30-Sep Jun Sep-00 Variation Sep01/Jun01 Variation Sep01/Sep00 Current and Long Term Assets 1,886 1,816 1, Cash Equivalents and Securities 1,194 1, Insurance Operations Credit Other Assets (2) (41) Permanent Assets (12) (9) Total Assets 2,070 2,012 1, Liabilities 30-Sep Jun Sep-00 Variation Sep01/Jun01 Variation Sep01/Sep00 Technical Provisions Current and Long Term Liabilities (8) 91 Insurance Operations Debt (19) 22 Other Liabilities Stockholders' Equity Total Liabilities 2,070 2,012 1, Statement of Income 3 RD Q/01 2 ND Q/01 3 RD Q/00 3 RD Q/01 x 2 ND Q/01 3 RD Q/01 x 3 RD Q/00 Retained Premiums Changes in Technical Provision (28) (12) (31) (16) 3 Earned Premiums Retained Claims (200) (200) (168) 0 (32) Selling Expenses (61) (59) (55) (2) (6) Administrative Expenses (57) (67) (53) 10 (4) Other Operating Income (Expenses) (1) 3 0 (4) (2) Result of Insurance Operations 6 1 (3) 6 9 Financial and Equity Income and Taxes (3) Operating Income Other Non Operating Income (Expenses) (0) 2 (5) (2) 5 Income Tax and Social Contribution (19) (12) (15) (7) (4) Manegement and Employees' Profit Sharing (0) (3) (2) 3 2 Net Income ROE (Annualized) - Calculated with Accumulated Results 18.3% 18.6% 20.0% -0.3% -1.7% Insurance Claims/Earned Premiums 61.3% 61.7% 61.5% -0.4% -0.2% Selling Expenses/Earned Premiums 18.8% 18.3% 20.2% 0.5% -1.4% Administrative Expenses and Other Expenses/Earned Premiums 17.9% 19.7% 19.4% -1.8% -1.5% Combined Ratio (**) 98.0% 99.7% 101.1% -1.7% -3.1% The amounts of Earned Premiums, Retained Claims and Selling Expenses kept the same level as the prior quarter, with small oscillations in the claims and sales ratios. There was a decrease in Administrative Expenses, mainly due to the concentration of expenses in the second quarter of 2001, the more significant of which are: - Viw Project (Internet points for the Agents channel); - Itauvida Campaign; and - DPVAT Agreement Process State of Minas Gerais. (*) Insurance Companies Consolidated includes the following companies: Itaú Seguros, Banerj Seguros, Bemge Seguradora, Gralha Azul, Paraná Seguros, Itauseg Saúde and Gralha Saúde. Therefore, insurance operations of Itaú Previdência e Seguros S.A. are not presented in this statement of income. Insurance Companies Consolidated includes Gralha Azul and Paraná Seguros as from February In the insurance operations of Itaú conglomerate, these companies have been consolidated since October (**) Combined Ratio = Retained Claims + Selling Expenses + Administrative Expenses + Other Operating Income (Expenses) Earned Premiums 31

33 Analysis of the Consolidated Performance Combined Ratio 100.0% 18.0% 97.0% 18.3% 101.1% 99.7% 98.0% 19.4% 19.7% 17.9% 19.6% 17.8% 20.2% 18.3% 18.8% 62.4% 60.9% 61.5% 61.7% 61.3% JAN-SEP / 00 JAN-SEP / 01 3rd Q./00 2nd Q./01 3rd Q./01 The combined ratio showed an improvement from 99.7% in the second quarter of 2001 to 98.0% in the third quarter of 2001, due to the reduction in Administrative Expenses and increase in Earned Premiums. Insurance Claims / Earned Premiums Selling Expenses / Earned Premiums Administrative Expenses / Earned Premiums Claim Ratio 72% 71% 69% 50% 43% 39% 62% 47% 52% 64% 65% 59% 61% 61% 53% During recent years, the claims ratio has improved due to the review and ongoing improvement of the risk acceptance and claims settlement policies. Vehicles Life Property Others Total Selling Channels - Accrued Premiums 33% 36% 30% 31% 38% 28% 20% 19% 10% 9% 23% 23% The sale of insurance through Banco Itaú branches has increased as compared to the other channels, reaching 38% of the Accrued Premiums during the period from January to September Agents Itaubanco Brokers Others Mix of Products - Bank Channel - Accrued Premiums 49% 31% 19% 13% 43% 44% 20% 22% 29% 0% 16% 14% The sale of insurance products in Banco Itaú branches has been focused on the Life and Personal Accident products which, in turn, have presented lower claims ratios in relation to the other products. Vehicles Life Property Others Jan-Sep/

34 Analysis of the Consolidated Performance Capitalization Operations 3 RD Q/01 2 ND Q/01 3 RD Q/00 3 RD Q/01 x 2 ND Q/01 3 RD Q/01 x 3 RD Q/00 Revenues from Capitalization (56) 2 Changes in Technical Provisions (97) (150) (99) 53 2 Selling Expenses (3) (1) (3) (1) (0) Partial Result of Capitalization (4) 4 Partial Result of Capitalization in the third quarter of 2001 reached R$ 29 million, with revenue of R$ 128 million. The decrease in Revenues from capitalization in the third quarter of 2001 may be explained by the Super PIC campaign in the second quarter of 2001, that affected the revenues in the second quarter of 2001 in R$ 56 Million. Redemption volume in the third quarter of 2001 was reduced in relation to the second quarter (from 156 thousand bonds to 127 thousand bonds in the third quarter). In August 2001, PIC began to be sold in Telemarketing and Bankfone channels. There have been sold more than 3 thousand bonds until September 30, Itaú Capitalização awarded R$ 17.8 million in cash premiums to 542 awarded clients in the last 12 months. Technical Provisions - Itaucap (*) 1, Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Number of Capitalization Plans - Itaucap (*) In Thousand 1,800 1,600 1,400 1,347 1,562 1,603 1,594 1,640 1,575 1,200 1, Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 (*) The charts above only include technical provisions and number of plans from capitalization plans of Itaú Capitalização. 33

35 Analysis of the Consolidated Performance Capitalization Companies Consolidated (*) Assets 30-Sep Jun Sep-00 Variation Sep01/Jun01 Variation Sep01/Sep00 Current and Long Term Assets 1,146 1, Cash Equivalents and Securities 1,129 1, Other Assets (3) (20) Permanent Assets 1,394 1,309 1, (583) Subsidiaries and Affiliates 1,324 1,239 1, (584) Others (0) 0 Total Assets 2,540 2,411 2, (388) Liabilities 30-Sep Jun Sep-00 Variation Sep01/Jun01 Variation Sep01/Sep00 Technical Provisions Current and Long Term Liabilities Stockholders' Equity 1,549 1,444 2, (472) Total Liabilities 2,540 2,411 2, (388) Statement of Income 3 RD Q/01 2 ND Q/01 3 RD Q/00 3 RD Q/01 x 2 ND Q/01 3 RD Q/01 x 3 RD Q/00 Revenues from Capitalization Plans (57) 1 Changes in Technical Provision (7) (31) (8) 24 1 Redemptions / Awarded Plans (91) (118) (91) 28 0 Selling Expenses (5) (6) (8) 1 3 Result of Capitalizaton Operations (5) 5 Financial and Equity Income and Taxes (9) 59 Administrative Expenses and Oher Operating Income (34) (16) (33) (18) (1) Operating Income (32) 63 Other Non Operating Income (Expenses) (0) 1 Income Before Income Tax and Social Contribution (32) 63 Income Tax and Social Contribution (10) (15) (3) 5 (7) Net Income (27) 56 ROE (Annualized) - Calculated with Accumulated Results 26.5% 28.7% 11.2% -2.1% 15.3% (*) Capitalization Companies Consolidated includes the following companies: Itaú Capitalização and Capitaliza. Capitalization companies technical provisions increased 1,7% in the third quarter of 2001, as compared to the second quarter of The net income decreased in the third quarter of 2001, mainly due to the increase in administrative expenses resulted from the campaign occurred in june 2001, which costs were repassed to the next month. 34

36 Analysis of the Consolidated Performance Pension Plan Operations 3 RD Q/01 2 ND Q/01 3 RD Q/00 3 RD Q/01 x 2 ND Q/01 3 RD Q/01 x 3 RD Q/00 Revenues from Pension Plans Changes in Technical Provisions (58) (55) (69) (3) 11 Selling Expenses (1) (1) (1) 0 0 Pension Plan Benefits Expenses (62) (61) (43) (1) (20) Partial Result of Pension Plans (4) (2) The Partial Results for Pension Plan Operations in the third quarter of 2001 were R$ 1 million. Pension Plan Revenues in the third quarter of 2001 kept in line with the prior quarter. Itauprev, accompanying the market trends towards the sale of PGBL (Free Benefit Generating Plan) products, offers the Flexprev PGBL products family, which presented a growth of 259% during the last twelve months and reached the net asset level of R$ 344 million, increasing its advantage over the third-place player in the market of PGBL products. The Partial Results for the Pension Plan Operations consider the effect of the sale of PGBL products, which have increased their share of the pension plan portfolio and which, because of lower load charges than the products sold before, presented a slight reduction. Below, we can note the growth in the participation of the PGBL products in the Revenues from Pension Plans of Itaú Previdência during the third quarter of 2001, both in the Individual and in the Corporation segments. Composition of Pension Plan Revenues - Itauprev 3rd Quarter/ % 4.5% 3.8% 39.1% 2nd Quarter/ % 6.8% 3.6% 39.3% 48.6% 46.2% Flexprev Itaú PGBL PF PGBL PJ Itauprev Invest Others 35

37 Analysis of the Consolidated Performance Itaú Previdência Assets 30-Sep Jun Sep-00 Variation Sep01/Jun01 Variation Sep01/Sep00 Current and Long Term Assets 1,239 1, Cash Equivalents and Securities 1,230 1, Insurance Operations Credit and Other Credit Permanent Assets Total Assets 1,747 1, Liabilities 30-Sep Jun Sep-00 Variation Sep01/Jun01 Variation Sep01/Sep00 Technical Provisions 1,158 1, Current and Long Term Liabilities Stockholders' Equity Total Liabilities 1,747 1, Statement of Income 3 RD Q/01 2 ND Q/01 3 RD Q/00 3 RD Q/01 x 2 ND Q/01 3 RD Q/01 x 3 RD Q/00 Pension Plan Premiums Changes in Technical Provision (59) (56) (69) (2) 10 Redemptions / Benefits (62) (60) (42) (2) (19) Selling Expenses - Pension Plans (1) (1) (1) (0) 1 Result of Pension Plan Operations (0) 4 2 (4) (2) Earned Premiums Retained Claims (1) (1) (1) (0) (0) Selling Expenses - Insurance (0) (0) (0) 0 0 Other Operating Income (Expenses) (0) (0) (0) 0 0 Result of Insurance Operations (0) (0) Financial and Equity Income and Taxes Administrative Expenses (12) (8) (7) (4) (5) Operating Income Other Non Operating Income (Expenses) Income Before Income Tax and Social Contribution Income Tax and Social Contribution (4) (3) (1) (0) (2) Net Income ROE (Annualized) - Calculated with Accumulated Results 19.5% 16.1% 27.9% 3.4% -8.4% Itaú Previdência presented a growth of 9.1% in Technical Provisions in the third quarter of 2001 and 49.0% in the last twelve months. During the third quarter of 2001, the main variation in the results of Itaú Previdência arose from the increase in the Financial, Equity and Tax Results. The Financial Result was R$ 23 million in the third quarter of 2001, compared to R$ 15 million in the second quarter of 2001; while the Equity in the Results was R$ 33 million in the third quarter of 2001, compared to R$ 29 million in the prior quarter. 36

38 Analysis of the Consolidated Performance Technical Provisions - Itauprev (*) 1,200 1,057 1,154 1, In September 2001 Itaú Previdência reached R$ 1,154 million in technical provisions, a 49 % increase as compared to September 2000 (R$ 774 million) Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Number of Pension Plans - Itauprev (*) In Thousand In September 2001, the Itaú Previdência portfolio comprised 281 thousand plans, a 4% increase as compared to September Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Technical Provisions - Average per plan - Itauprev (*) R$ 4, ,000 1,117 1,190 1,326 1,623 1,688 1,829 2,202 2,520 2,506 2,861 3,187 3,528 3,670 The average of technical provisions per plan reached R$ 4,110 at September 30, 2001 as compared to R$ 2,861 at September 30, Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 (*) Only includes Itaú Previdência. 37

39 Analysis of the Consolidated Results Administrative Expenses 3rd Q./01 2nd Q./01 3rd Q./00 Variation 3rd Q.01/2nd Q.01 Variation 3rd Q.01/3rd Q.00 Personnel Other Administrative Expenses Materials Data Processing and Telecommunications Transportation Third party services (7) 20 Travel Security Advertising, promotions and publications (6) 19 Legal, Notarial, Judicial and Procedural Actions (16) 1 Contributions and donations (2) Depreciation and amortization Financial system services Other Total 1,682 1,492 1, Salaries and Employee Benefits Salaries and Employee Benefits increased by R$ 164 million, from R$ 642 million in the second quarter to R$ 806 million in the third quarter of In September, a provision for amounts related to an adjustment of 5.5% on salaries, social security amounts and provision balances (vacation pay and 13 th month salary) was set up, as well as on the proposal for payment of bonus in the amount of R$ 1,100 per employee, due to the 2001/2002 labor agreement. The total effect amounted to R$ 82 million. In addition, salaries and benefits also increased by R$ 76 million due to an improvement in labor provisions during the third quarter. Itaú s personnel count decreased by 57 employees during the period, from 45,604 to 45,547. Such decrease is also a result of the effects of the restructuring process of Banestado. When comparing the third quarters of 2000 and 2001, a R$ 264 million increase may be observed, mainly due to the inclusion of Banestado in the Consolidated financial statements as from October Human Resources Development Programs The training expenses increased from R$ 14 million in the second quarter to R$ 20 million in the third quarter, representing an increase of 42%. During this period, 23,165 training courses were conducted, with special emphasis on the training of the Commercial Area personnel regarding the utilization of Itaú/AOL services and the incorporation and integration of Banestado employees. As regards the policy for improving Itaú s personnel, the International Development Program is noteworthy. Its objective is the formation of highly skilled leaders through attendance of courses at known international universities. In 2001, 11 employees were sent abroad to attend postgraduate courses. In view of its social commitment, Itaú has maintained a Handicapped Personnel Hiring Program, which, up to September 2001, enabled the hiring of 63 employees on an equal opportunity basis. Number of Employees 47,524 46,694 45,604 45,547 39,072 39,230 39,101 Mar/00 Jun/00 Sep/00 Dec/00 Mar/01 Jun/01 Sep/01 38

40 Analisys of the Consolidated Results Personnel Profile As shown in the table below, approximately 33.0% of the employees are less than 30 years old, 57.5% are between 30 and 45 years old, and approximately 9.54% are over 45 years old. Of the above employees, 28.2% have worked for the Bank for less than five years, and 13.3% have worked for the Bank for between 5 and 10 years. Special emphasis should be given to employees who joined the Bank between 10 and 20 years ago (approximately 45.4%). To conclude, the number of employees who joined the Bank more than 20 years ago represents 13.1% of the Bank s total personnel. Benefits In the third quarter of 2001, benefits offered to the Bank s employees totaled R$ 120 million, including medical assistance, supplementary retirement plan and training activities, as previously mentioned. In the second quarter, the benefits offered totaled R$ 118 million. Features Sep Jun Sep Age Up to 30 years 33.0% 32.2% 34.9% Between 30 & 45 years 57.5% 58.2% 56.3% Between 45 & 50 years 6.8% 6.8% 6.1% Older than 50 years 2.7% 2.8% 2.7% Gender Male 47.3% 47.5% 47.6% Female 52.7% 52.5% 52.4% Time within the Group Up to 5 years 28.2% 26.6% 25.5% Between 5 & 10 years 13.3% 13.5% 18.2% Between 10 & 20 years 45.4% 46.9% 43.4% More than 20 years 13.1% 13.0% 12.9% Wage Commissioned 53.1% 52.8% 54.0% Non-Commissioned 46.9% 47.2% 46.0% 39

41 Analysis of the Consolidated Results Other Administrative Expenses Other Administrative Expenses increased R$ 25 million in the period under analysis. The increase in Data Processing and Telecommunications expenses results both from a higher volume of direct mailings sent to clients as well as the July 2001 postage rate adjustment, which totaled R$ 7 million. Of the remainder, R$ 6 million refers to software maintenance, development and licensing, and R$ 5 million to ordinary telephone lines and Bankfone expenses, as well as to the rental of private lines and high-speed Internet circuits. Material expenses increased by R$ 7 million, mainly regarding microfilming and visual communication material supplies, with part of this consumption being associated with the migration process of Banestado branches, which covered 123 branches in the third quarter of During the period, travel expenses increased by R$ 4 million, as the result of a greater volume in trips made by the administrative staff, together with an increase in costs of several services used (for example, air and road transportation, lodging, among others). A R$ 16 million decrease in the provision for Lawsuits and Judicial Collection expenses occurred. Such effect relates to the adjustment in expenses on Lawsuits provisions, because of the minimum salary increase, and the execution of agreements on judicial collection proceedings, both of which occurred in the second quarter of Advertising, Promotion and Publishing expenses also decreased by R$ 6 million, due to the realization, in the second quarter, of several advertising campaigns for Itaú AOL, Insurance, Credit Cards, Pension and the expansion of the Personnalité network, which is specialized in individuals demanding personalized assistance. Finally, as regards expenses for Third Party Services, which decreased by R$ 7 million, these refer to assistance and consulting services in projects for restructuring and strategic positioning in the market, as well as outsourced services for system analysis and programming, both of which intensified during the second quarter. Efficiency Ratio (1) The efficiency ratio had a slight increase in the third quarter of 2001, from 55.7% to 54.2%, notwithstanding the effect of R$ 310 million regarding the Additional Provision for exchange rate fluctuations. The efficiency ratio, net of the Additional Provision, amounts to 49.3%, which shows an even higher enhancement of the Bank s operating performance, mainly due to an improvement in the Financial Margin from the second to the third quarter of % 56.6% 56.3% 59.7% 54.7% 55.7% % 1st Q./00 2nd Q./00 3rd Q./00 4th Q./00 1st Q./01 2nd Q./01 3rd Q./01 (1) Efficiency Ratio = (Salaries and Employee Benefits + 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) 40

42 Analisys of the Consolidated Results Automation and Expansion of the Service Network Volume of Self-Service Transactions(*) Period Automated Teller Machines Automated Programmed Debit Itaufone Bankfone Home & Office Banking Direct Connection Internet Itaufax (Quantity in Millions) Redeshop Points of Sale , ,322 1st Q./ nd Q./ rd Q./ th Q./ st Q./ nd Q./ rd Q./ History of the Number of Points of Sale (*) Total In the third quarter of 2001, 377 million electronic transactions were performed by Itaú s clients in self-service terminals. Among them, special mention should be made of the 26.5% increase in the number of Home & Office Banking transactions through the Internet, as compared to the second quarter of 2001, following a constant trend since In September 2001, the Itaú self-service network had 2,109 branches, 857 PAB (Bank Service Centers) and 12,799 automated teller machines. 15,765 15,059 15,030 15, ,264 14,148 14, ,109 2,118 2,127 2,114 1,761 1,754 1,754 12,242 12,799 11,746 11,672 11,570 12,064 12,033 Mar/00 Jun/00 Sep/00 Dec/00 Mar/01 Jun/01 Sep/01 ATM Branches Customer Site Branches (*) Banco Itaú Buen Ayre is included REGION Center W est North Northeast South Southeast Branches ITAÚ Customer Site Branches ATM Branches Customer Site Branches Branches Customer Site Branches , % 3% % 5% , % 4% ,889 3,420 1,414 14% 15% 1, ,463 9,183 4,067 15% 14% 2, ,480 16,752 7,095 12% 12% TOTAL IN BRAZIL Argentina OVERALL TOTAL 2, ,799 NATIONAL FINANCIAL SYSTEM (**) (**) Source: BACEN - CADINF-DEORF/COPEC - Bank Services in the Country - September/2001 MARKET SHARE Social Responsibility Contributions and Donations amounted to R$ 9 million in the third quarter as compared to R$ 4 million in the prior quarter. Also in the third quarter, Itaú invested in the literacy project Adopt a Student, as well as in the project Change Brazil in One Single Minute Solidarity in Education, among various others in the areas of Education, Health Care, Culture and Social Assistance. 41

43 Analysis of the Consolidated Balance Sheet

44 Analysis of the Consolidated Balance Sheet Balance Sheet Cash and Cash Equivalents, Short-term Interbank Deposits and Securities Itaú's total assets reached R$ 81,749 million, corresponding to an increase of 9.3% as compared to June Cash and Cash Equivalents, Short-term Interbank Deposits and Securities, net of committed operations, totaled R$ 20,678 million, a 6.7% increase in the quarter. This balance represented 25.3% of total assets at September 30, With regard to the Short-term Interbank Operations, the significant increase in Interbank Deposits of R$2,247 million is highlighted. This was the main factor relating to the 62.5% increase in the conglomerate's total liquidity for the period. With regard to Securities, the balance remained stable, with only a 3% increase in relation to June. The increase of the foreign currency public securities is explained by the foreign exchange variation of 15.9% during the period and by the increased placement of these securities in the primary auctions made by the Central Bank, in detriment to fixed and floating rate securities. Itaú's current liquidity level is considered by senior management as adequate for the operating needs of the institution. The liquidity management is a daily activity which aims at meeting three objectives simultaneously: meet the various operating commitments, hedge the capital of the institution and explore business opportunities. The exclusion of committed operations in the table below aims at emphasizing the liquidity level of Banco Itaú. Accordingly, investments in Money Market and Government Securities are shown net of the commitments for repurchase agreements. Liquidity (Not including Repurchase Commitments) Variation Variation Sep 30, 01 % Jun 30, 01 % Sep 30, 00 % Sep01/Jun01 Sep01/Sep00 Cash and Cash Equivalents 1, , , Short-term Interbank Deposits 6, , , ,207 3,713 Money Market , (1,040) 412 Interbank Deposits 5, , , ,246 3,301 Securities 13, , , Public Securities - Brazil 5, , , (271) (1,265) Overnight 1, , , (1,051) (142) Pre - fixed (337) (670) Foreign Currency 3, , , (477) DCB -Debt. Conv.Bond and other brazilian debts securities Public Securities - Others Countries Bond's Argentina (76) Bond's Portugal (1) 119 Private Securities 6, , , ,066 Bank Certificates of Deposits 3, , , Shares in Publicy Traded Companies (263) Debentures (409) 101 Mortgages Letters (14) (164) Option Premiums Euro Bond s and Others 1, , ,590 Foreign Mutual Funds of Investments (135) (41) Others (86) (51) Subtotal 22, , , ,820 4,890 Provisions (1,533) (1,016) (885) (517) (648) TOTAL 20,678 19,375 16,436 1,303 4,242 43

45 Analysis of the Consolidated Balance Sheet Reconciliation Sep 30, 01 Jun 30, 01 Sep 30, 00 Securities + Interbank Deposits 27,594 23,306 19,650 (+) Cash and Cash Equivalents 1,797 1,597 1,414 (+) Money Market 1,353 3,790 2,932 Total Liquidity 30,744 28,693 23,996 (-) Money Market - Repurchase pending settlement (687) (2,085) (2,679) (-) Money Market - Repurchase pending settlement (7,847) (6,217) (3,997) Total Liquidity (not including repurchase commitments) 22,210 20,391 17,321 Liquidity (Not including Repurchase Commitments) Sep 30, 01 Jun 30, 01 Sep 30, 00 Brazil Abroad Total Brazil Abroad Total Brazil Abroad Total Cash and Cash Equivalents 1, ,797 1, ,597 1, ,414 Short-term Interbank Deposits 2,778 3,729 6,507 2,995 2,305 5, ,847 2,795 Money Market , , Interbank Deposits 2,193 3,648 5,842 1,348 2,247 3, ,638 2,541 Securities 9,323 4,583 13,906 9,452 4,041 13,493 10,779 2,333 13,112 Total 13,656 8,555 22,210 13,863 6,527 20,391 13,034 4,287 17,321 Total (US$ Million) 3,202 2,832 2,325 Securities by Currency Sep 30, 01 Jun 30, 01 Sep 30, 00 Balance % Balance % Balance % In Local Currency 9,078 45% 9,099 49% 7,749 48% Indexed in Foreign Currency 6,573 32% 5,566 30% 6,142 38% In Foreign Currency 4,583 23% 4,041 22% 2,333 14% Total 20, % 18, % 16, % 44

46 Analysis of the Consolidated Balance Sheet Credit Operations Itaú's Credit Operations, including endorsements and surities, increased 7.7% as compared to the second quarter of 2001, and 50.7% in relation to September 2000, reaching R$ 33,485 million. The outstanding balance of the largest debtor represented 2.6% of the total portfolio at September 30, 2001, against 2.3% in June, but decreased significantly in relation to September 2000, when the largest debtor represented 3.5% of the portfolio. The composition of the 100 largest debtors continues to be of good quality, as 80.9% have a classification which is better than or equal to B (Good), even after the change in composition, since 25% of the clients were not included in the September 2000 list. Credit Operations (*) 36,000 33,485 32,000 28,000 27,253 29,069 24,000 20,000 16,000 12,000 8,000 4,000-6,366 6,328 11,572 11,798 7,353 7,090 4,634 3,958 16,916 12,206 9,057 10,818 8,022 5,654 23,674 19,596 16,890 14, (**) Credit Operations (1) Credit Operations and Guarantees (2) (*) In constant currency of December 31, 1995 up to this date; nominal values thereafter. (**) September 30, (1) Credit Operations: Loans, Leasing, Outros receivables and Advances on Exchange Contracts (AEC). (2) Guarantees: Endorsements, Sureties and Other Guarantees. Credit Operations Sep 30, 01 Jun 30, 01 Sep 30, 00 Loans 25,629 23,164 17,076 Leasing 1,352 1, Other receivables ACC/AEC 1,382 1,911 1,146 Subtotal 29,069 27,046 19,151 Guarantees 4,416 4,052 3,064 Total 33,485 31,099 22,215 45

47 Analysis of the Consolidated Balance Sheet The major sectors and the sectors with significant growing's were Telecommunication, witch is 9.5% of portfolio, Power Generation and Distribution witch is 4.3% of portfolio, and Siderurgy and Metallurgy sectors witch represents 4.9% of portfolio. The evolution of Telecom participation is partially related with real devaluation in operations vinculated to foreign exchange rate. It's worth saying that our portfolio is Comparation of the Portfolio by Business Sector (*) TOTAL OF PRIVATE SECTOR (*) Endorsements and Sureties included. 25,309 1,382 1,352 4,368 32, , , GENERAL TOTAL 26,335 1,382 1,352 4,416 33, , , concentrated in privatized companies originated from Telebrás system privatization that actuate in fixed telecommunication segment. The power generation and distribution sector increased 11.9% in the quarter. The Siderurgy and Metallurgy sectors increased 10.9% in the same period. The sectors of Insurance companies, Airline companies and Tourism companies had a participation of 0.19% in the portfolio, which represents R$ 62.4 million. Sep 30, 01 Jun 30, 01 Sep 30, 00 Loans ACC/AEC Leases Endorsements Consolidated % Consolidated % Consolidated % Public Sector Chemicals and Petrochemicals Others Total of Public Sector 1, , Private Sector Industry Food and Beverage 1, , , , Siderurgy, Metalurgy and Mechanics , , , Chemicals and Petrochemicals 1, , , , Electronic Pulping and Paper Light and Heavy Vehicles Textile and Clothing Mechanics Tobacco Fertilizer, Insecticide and Defensive Autoparts and Accessories Construction Material Pharmacetical Wood and Furnitures Tractors and Agricultural Machinery Others Subtotal 6,784 1, ,819 9, , , Commerce Retail 1, , , Wholesale Others Subtotal 1, , , ,161 0 Services Telecommunications 2, , , , Power Generartion and Distribution 1, , , Finance , , Services Provider Construction and Real State Companies Real State Financing (Companie) Public Service Providers Transports Others Subtotal 5, ,137 8, , , Primary Sector Mining Agriculture Others Subtotal , , Others Businesses Others Individuals Credit Cards 2, , , , Real State Financing 2, , , , CDC/Vehicles/ Current Account 5, , , , , Subtotal 10, , , , , (*)Endorsements and Sureties included.

48 Analysis of the Consolidated Balance Sheet We present below the risk classification of the extension of credit and coobligations. Composition by Type of Operation and Risk Level(*) Sep 30, 01 Jun 30, 01 Sep 30, 00 AA A B C D E F G H Consolidated Consolidated Consolidated Credit Operations 7,215 5,479 7,763 2,084 1, ,629 23,164 17,076 Loans and Trade receivables discounted 4,462 3,005 5,496 1, ,238 14,197 10,764 Financing 2,242 1, ,942 4,711 2,708 Farm and Agribusiness Financing ,512 1, Real State Financing , ,936 2,999 2,659 Securities Financing Leasing Operations ,352 1, Other receivables Advance on Exchange Contracts ,382 1,911 1,146 Total 8,009 7,116 8,291 2,298 1, ,069 27,046 19,151 Endorsements and Sureties 2, ,416 4,052 3,064 Total with Endorsements and Sureties 10,626 7,739 8,776 2,902 1, ,485 31,099 22,215 (*) Endorsements and Sureties included. The risk composition of the credit portfolio by maturity and risk level is presented in the table below. Composition by Maturity and Risk Level(*) Sep 30, 01 Jun 30, 01 AA A B C D E F G H Consolidated Consolidated Amounts Coming Due 0 to 30 2,104 1,462 3, ,950 6, to 60 1, ,840 2, to ,302 1, to 180 1, ,667 3, to 360 2,112 1,784 1, ,549 5,764 2 years 990 1,093 1, ,324 3,875 3 years ,506 1,827 4 years ,137 5 years ,231 1, years ,203 1,106 over 15 years Subtotal 10,586 7,696 8,600 2,771 1, ,060 29,645 Amounts Past Due 1 to to to to to to to to to over Subtotal ,426 1,453 Total 10,626 7,739 8,776 2,902 1, ,485 31,099 (*)Endorsements and Sureties included. 47

49 Analysis of the Consolidated Balance Sheet Credit Portfolio Development Consolidated by Customer Type (*) Sep 30, 01 Jun 30, 01 Sep 30, 00 Balance % Balance % Balance % Corporate 19,402 58% 17,584 57% 12,486 56% Small and Medium-Sized Companies 2,328 7% 2,218 7% 1,463 7% Individuals 6,455 19% 6,080 20% 3,848 17% Credit Card 2,364 7% 2,218 7% 1,759 8% Subtotal 30,550 91% 28,100 90% 19,556 88% Real State Financing Ind. 2,718 8% 2,748 9% 2,381 11% Bus % 251 1% 278 1% Subtotal 2,936 9% 2,999 10% 2,659 12% Total 33, % 31, % 22, % (*)Endorsements and Sureties included. The portfolio of the Corporate segment increased by 10.3%, mainly motivated by new contracts and, to a lesser extent, by the effect of the foreign exchange devaluation on the contracts linked to the foreign currency. The portfolio of Small and Medium sized companies grew 5.0% in the quarter, basically due to the pre-approved credit products. The portfolio of Individuals increased 6.2% in the period, basically because of the LIS operations and installment sales. The pre-approved balances were defined from the credit score analyses. The portfolio of Credit cards segment increased 6.5% in the quarter. Credit Operations (*) 29,931 31,099 33,485 27,253 20,241 21,572 22,215 20,666 22,861 23,640 26,303 14,365 16,017 16,718 1, ,110 1, ,119 1, ,143 1,512 1,513 1,234 1,146 1,184 1,740 1,911 1,382 2,889 2,842 2,659 3,305 3,101 2,999 2,936 Mar 31, 00 Jun 30, 00 Sep 30, 00 Dec 31, 00 Mar 31, 01 Jun 30, 01 Sep 30, 01 Mortgage AEC Farm and Agribusiness Leasing Others (*)Endorsements and Sureties included. 48

50 Analysis of the Consolidated Balance Sheet We present below the composition of the loan portfolio by type of borrower, type of operation and maturity. Composition by Type of Operation and Range of due Dates (*) Sep 30, 01 Jun 30, 01 Normal Course Credits Past Due Falling Due Total 1 to to to to to to to to to 1800 Consolidated > 1800 Consolidated Businesses Credit Operations 78 4,047 1,346 1,370 1,755 2,257 1, ,014 13,011 Loans and Trade receivables discounted 68 3,803 1,104 1,165 1, ,092 7,539 Financing ,384 4,188 Farm and Agribusiness Financing ,374 1,101 Real State Financing Securities Financing Leasing Operations Other receivables Advance on Exchange Contracts ,335 1,823 Total 115 4,386 1,664 1,667 2,106 2,937 2, ,152 15,573 Endorsements and Sureties , ,032 4,410 4,046 Total Businesses with Endorsements and Sureties 115 4,712 1,999 1,861 2,557 4,028 2, ,552 21,562 19,619 Individuals Credit Operations 153 3, ,049 1, ,492 8,052 Loans and Trade receivables discounted 142 2, ,785 5,502 Financing Farm and Agribusiness Financing Real State Financing ,100 1,981 Securities Financing Leasing Operations Other receivables Advance on Exchange Contracts Total 161 3, ,290 1, ,522 9,061 Endorsements and Sureties Total Individuals with Endorsements and Sureties 161 3, ,291 1, ,528 9,066 Total Credits in Normal Course 276 7,864 2,770 2,241 3,500 5,319 3,948 1, ,176 1,699 31,090 28,685 Abnormal Course Credits 0 to to 60 Falling Due 61 to to to 360 > 360 Sep 30, 01 1 to to to 90 Past Due 91 to to 360 > 360 Consolidated Jun 30, 01 Consolidated Businesses Credit Operations Loans and Trade receivables discounted Financing Farm and Agribusiness Financing Real State Financing Securities Financing Leasing Operations Other receivables Advance on Exchange Contracts Total Endorsements and Sureties Total Businesses with Endorsements and Sureties Individuals Credit Operations ,833 1,803 Loans and Trade receivables discounted , Financing Farm and Agribusiness Financing Real State Financing Securities Financing Leasing Operations Other receivables Advance on Exchange Contracts Total ,014 1,977 Endorsements and Sureties Total Individuals with Endorsements and Sureties ,014 1,977 Total Credits in Abnormal Course ,395 2,414 Total of Credit Operations 33,485 31,099 (*)Endorsements and Sureties included. 49

51 Analysis of the Consolidated Balance Sheet We segregate below the composition of the loan portfolio per Individual or Business and by geographic region. Composition by Individuals/ Businesses and Region Individuals Businesses Total Center - West North North - East ,038 South 1,722 3,125 4,847 South - East 6,153 14,725 20,877 Argentina Credit Cards 2, ,364 Cayman Europe New York Paraguay Uruguay Total 11,542 21,943 33,485 The tables below show the Credit Portfolio by Currency and the Credits and Guarantees in Local Currency. We can observe that the growth in the portfolio during the quarter was basically in the foreign trade and foreign currency, mainly due to the effect of exchange rate devaluation. Credit Portfolio by Currency (*) (*) Endorsements and Sureties are not included. Sep 30, 01 Jun 30, 01 Sep 30, 00 Balance % Balance % Balance % In Local Currency 21,186 73% 20,457 76% 14,116 74% Indexed in Foreign Currency 3,563 12% 2,743 10% 1,914 10% In Foreign Currency 4,321 15% 3,847 14% 3,122 16% Total 29, % 27, % 19, % Credits and Guarantees in Local Currency Sep 30, 01 Jun 30, 01 Sep 30, 00 Loans/Financing 10,916 9,930 6,996 Loans/Financing - Real State 2,864 2,938 2,611 Farm Financing 1,501 1, Leasing Operations 1,351 1, On-Lending BNDES 2,514 2,512 1,533 Other Receivables (1) 6,358 6,339 5,416 Interbank Deposits 1,663 1, Public Securities and Money Market 5,208 7,640 5,677 Endorsements and Sureties 2,997 2,851 2,513 Total 35,372 36,081 27,310 (1) Include: Securities (except public securities), endorsements and sureties and income receivable. 50

52 Analysis of the Consolidated Balance Sheet Deposits and Funding Itaú resorts to all sources of funds to which it has access, evaluating the convenience of their use based on their cost and their compatibility with the asset and liability management strategies. The balance of Deposits reached R$ 27,121 million at the end of the third quarter of 2001, remaining practically stable in relation with the prior quarter. Breakdown of Deposits by Maturity - In Brazil Sep 30, to 3 years over 3 years Total Demand Deposits 5, ,750 Saving Deposits 15, ,174 Interbank Deposits Time Deposits 1, ,440 TOTAL 22, ,368 Breakdown of Deposits by Maturity - Abroad Sep 30, to 3 years over 3 years Total Demand Deposits Saving Deposits Interbank Deposits Time Deposits 1, ,659 TOTAL 2, ,753 Breakdown of Deposits by Maturity - Consolidated Sep 30, to 3 years over 3 years Total Demand Deposits 6, ,094 Saving Deposits 15, ,550 Interbank Deposits Time Deposits 2, ,099 TOTAL 24, ,121 51

53 Analysis of the Consolidated Balance Sheet Part of the amounts of funding obtained through demand deposits, saving deposits and time deposits is directed to the Central Bank, due to the regulatory determination of mandatory bank deposits, which increases the actual cost of these fundings. Thus, the Bank has given preference to other types of funding. Particularly, we may cite the significant increase in investment funds, which are able to generate income from services rendered, and which were highly attractive during the third quarter of The balance of investment funds and managed portfolios grew by 12.8%, reaching R$ 53,478 million, including the contribution from the portfolio of Lloyds Asset Management. The increase of R$ 1,124 million in the balance of Borrowings between June 30 and September 30 is mostly related to the exchange variation on the balance of loans abroad. This balance is still comprised of the funding of Euro 105 million by Banco Itaú Europe, which has been trying to extent the maturity of its liabilities to replace the short-term interbank lines. The 35.3% growth in the balance of Other liabilities was partially due to the issuance of the Subordinated Debt, which corresponded to a balance of R$ 935 million at September 30, 2001, and due to the structuring of an arbitrage between currencies. Liabilities by Maturity years > 3 years Total Deposits 24, ,121 Demand Deposits 6, ,094 Savings Accounts 15, ,550 Interbank Deposits Time Deposits 2, ,099 Deposits Received under Securities Repurchase Agreements 4, , , ,019 Financial Institucions ,618 Non Financial Companies 3, , ,350 Individuals Funds from Acceptances and Issue of Securities , ,272 Mortgage Notes Funds from Acceptances and Issue of Securities Foreign Borrowings in Securities , ,036 Borrowing 1,080 1,139 1,551 1,247 1, ,691 Domestic - Public Institutions Domestic - Other Institutions Foreign Currency Trade Finance Borrowings 1, ,424 1,047 1, ,967 On-lending Borrowings from Public Institutions ,305 3,412 Federal Development Bank (BNDES) ,630 2,491 CEF Federal Capital Goods Financing Agency (FINAME) Other Institutions Total 30,041 2,843 6,165 3,743 5,306 3,417 51,515 % of Total 58.3% 5.5% 12.0% 7.3% 10.3% 6.6% 100.0% 52

54 Analysis of the Consolidated Balance Sheet Stockholders' Equity At September 30, 2001, Stockholders' equity totaled R$ 7,747 million, a 6.0% increase as compared to the balance of June. Tier I corresponds to 90.5%, and Tier II, to 9.5% of the Referential Equity. The BIS solvency ratio reached 13.4%, using the economic and financial consolidated balance sheet. Based on the operating consolidated balance sheet, the index reached 14.4% in September. Both rates are above the minimum limit of 11% determined by the Central Bank of Brazil. The fixed asset rate, based on the economic and financial consolidated balance sheet, was 39.7%, revealing the increased liquidity and the low level of capital assets of the non-financial subsidiary companies. The same rate, calculated based on the operating consolidated balance sheet, reached 62.4%. Working capital totaled R$ 5,137 million, growing 10.3% as compared to June BIS RATIO Evolution Sep 30, 01 Jun 30, 01 Mar 31, 01 Dec 31, 00 Sep 30, 00 EFFECTS IN THE PERIOD Calculation of Interest Rate Risk 0.2% 0.0% -0.5% 0.0% Quarter Net Income 1.8% 1.6% 1.3% 1.8% Interests on Capital Amounting -0.5% -0.4% -0.4% -0.5% Variation in Exchange Exposure 0.4% -0.8% 0.6% -0.3% Other increase (reductions) in the Reference 0.0% -0.2% 0.0% 0.0% Increase in the Weight of Tax Credits 0.0% 0.0% 0.0% -0.5% Increase in Risk Weighted Assets -1.7% 0.3% -1.4% -3.2% Shares on Treasury 0.0% -0.2% -0.6% -1.2% Subordinated Debt 1.8% 0.0% 0.0% 0.0% FX Exposure - Res % 0.0% 0.0% 0.0% Consolidated Effect - Finance BIS RATIO 13.4% 13.7% 13.4% 14.4% 18.3% BIS RATIO 13.6% 20.8% 19.6% 18.3% 14.4% 13.4% 13.7% 13.4% Mar 31, 00 Jun 30, 00 Sep 30, 00 Dec 31, 00 Mar 31, 01 Jun 30, 01 Sep 30, 01 effect of provision for exchange rate fluctuations 53

55 Analysis of the Consolidated Balance Sheet Calculation of the BIS Solvency Ratio We present below the summary of the calculation of the BIS solvency ratio, based on the financial and economic consolidated balance sheet. Sep 30, 01 ( A ) On-Balance Sheet Assets 52,051 ( B ) Off-Balance Sheet Exposures 4,487 ( C ) = ( A ) + ( B ) Total Risk Weighted Assets 56,538 ( D ) Total Capital 7,599 ( E ) = ( D ) / ( C ) Risk-Based Capital Ratio 13.4 Sep 30, 01 ( A ) ASSETS Assets Risk-Weighted 0% Real State Financing Cash and Cash Equivalents Credits and Securities Issued or Guaranteed by Brazilian Central Governm 13,529 - Central Bank Deposits 4,928 - Credits with Banking Subsidiaries and Others 3,206-20% Deposits in Foreign Currency Checks in Clearing 3, Deposits with Other Banks and Others 1, Others % Interbank Deposits 7,228 3,614 Foreign Trading and Exchange Portfolio 2,255 1,127 Real State Financing 2,883 1,441 Real State Securities Others % Loans Operations and Other receivables on the Private Sector 26,099 26,099 Premises and Equipment 2,449 2,449 Investments Private Sector Securities 3,147 3,147 Credits and Securities Issued by Brazilian States and Municipals 6 6 Others 2,051 2, % Tax Credits 3,190 9,569 TOTAL 80,073 52,051 ( B ) OFF-BALANCE SHEET EXPOSURES Exposure Risk-Weighted 50% Standby letters of credit Responsibility for guarantees and coobligation (for other banks) % Import trading Responsibility for guarantees (for customers) 3,911 3,911 Positive market value - SWAP TOTAL 4,876 4,487 ( C ) TOTAL RISK WEIGHTED ASSETS 56,538 ( D ) CAPITAL 7,599 54

56 Analysis of the Consolidated Balance Sheet Allocation of Regulatory Capital Resolution 2891/01 significantly increased the required level of capital to cover the foreign exchange exposure of the financial institutions. This measure is based on the presupposition that the Real may devalue or value up to 50% in relation to the U.S. dollar. That is, the Bank is obliged to allocate capital at an amount equivalent to 50% of its investments in U.S. dollar, recognizing a risk that would only occur if the dollar quotation dropped to R$ As such presupposition has no meaning from a technical viewpoint, we present Itaú's BIS ratio at September 30, 2001, without the impacts of the new resolution. On the other hand, as from October 1, Circular 3046 entered into effect, determining the procedures to prepare and send the information relating to Circular 2972, which regulates the allocation of capital to cover risk arising from interest rate variation. Among the main procedures included in this circular, we would highlight the possibility of the inclusion of cash flow from nonremunerated funds of institutions, net of compulsory payments and liabilities, with positive impacts on the institution's Basel Index. It is important to stress that such incorporation complies with the practice already adopted by Banco Itaú in its proprietary model, since the main source for the fixedrate loan portfolio of retail banks is the non-remunerated deposits. The table below shows the new calculation of the Basel Index of Banco Itaú, based on the elimination of the effect provided by Resolution 2891 and on the inclusion of the non-remunerated funds based on Circular 3046, which better represents the current level of leverage of the institution. Regulatory Capital for Market Risks Economic and Financial Consolidated Capital Requirements - Market Risk BIS Ratio BIS RATIO - Current Criteria 2, % Effect Resolution Foreign Exchange Risk (1,276) 2.3% Effect Circular Prefixed Interest Rate Risk (179) 0.3% Adjusted BIS Ratio % 55

57 Analysis of the Consolidated Balance Sheet Balance Sheet by Currency (*) The Balance Sheet by Currency highlights the balance sheet accounts denominated in local currency and those denominated in foreign currency. The net foreign exchange position at September 30, 2001 totaled R$ 4,344 million, including investments abroad. Sep 30, 01 Jun 30, 01 ASSETS CONSOLIDATED TOTAL BUSINESS IN BRAZIL LOCAL CURRENCY FOREIGN CURRENCY BUSINESS ABROAD CONSOLIDATED Cash and Cash Equivalents 1,797 1, ,597 Short-term Interbank Deposits 7,181 3,452 2, ,729 7,374 Money Market 1,353 1,273 1, ,790 Interbank Deposits 5,828 2,179 1, ,648 3,583 Securities 20,234 15,649 8,158 7,490 6,575 18,706 Interbank and Interbranch Accounts 8,828 8,698 8, ,495 Loan and Leasing Operations 24,674 20,460 16,944 3,517 7,331 22,336 Other Assets 15,765 14,658 11,197 3,462 1,578 14,081 Foreign Exchange Portfolio 5,611 5,348 1,952 3, ,820 Others 10,154 9,310 9, ,288 10,261 Permanent Assets 3,270 7,803 2,751 5, ,226 Investments in 762 5, , Fixed Assets 2,313 2,132 2, ,338 Deferred Expenses TOTAL ASSETS 81,749 72,310 51,496 20,815 20,110 74,815 DERIVATIVES - CALL POSITION Futures 2,043 Options 46 Swaps 1,351 TOTAL ASSETS AFTER ADJUSTAMENTS (a) 24,255 Sep 30, 01 Jun 30, 01 LIABILITIES CONSOLIDATED TOTAL BUSINESS IN BRAZIL LOCAL CURRENCY FOREIGN CURRENCY BUSINESS ABROAD CONSOLIDATED Deposits 27,121 22,368 22, ,790 27,163 Demand Deposits 6,094 5,750 5, ,056 Savings Accounts 15,550 15,174 15, ,552 Interbank Deposits Time Deposits 5,099 1,440 1, ,666 5,131 Deposits Received under Securities Repurchase Agreements 10,019 8,561 8, ,459 9,448 Funds from Acceptances and Issue of Securities 4,272 4,573 1,236 3,338 1,691 3,879 Interbank and Interbranch Accounts 3,359 3,358 3, ,302 Borrowings 6,691 3, ,275 5,386 5,567 On-lending Borrowings 3,412 3,412 2, ,312 Other Liabilities 15,790 15,571 11,670 3,901 1,626 11,714 Foreign Exchange Portifolio 4,116 3,857 1,621 2, ,982 Others 11,674 11,715 10,049 1,665 1,337 9,732 Technical Provisions of Insurance, Pension Plans and Capitalization - unrestricted 2,532 2,532 2, ,412 Deferred Income Minority Interest in Subsidaries Stockholder's Equity 7,747 7,747 7, ,052 7,311 Capital and Reserves 5,591 5,591 5, ,941 5,854 Net Income 2,156 2,156 2, ,457 TOTAL LIABILITIES 81,749 72,310 60,942 11,369 20,110 74,815 DERIVATIVES - PUT POSITIONS Futures (Include Funds under Management) 4,082 Options 351 Swap (Included Funds under Management) 4,109 TOTAL LIABILITIES AFTER ADJUSTMENT (b) FOREIGN EXCHANGE POSITION (a - b) 19,911 4,344 (*) It does not exclude transactions between local and foreign business. 56

58 Activities Abroad And Foreign Exchange Transactions Activities Abroad and Foreign Exchange Transactions 57

59 Activities Abroad and Foreign Exchange Transactions 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$ 1,891 million at September 30, 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, maintaining its qualification as an investment grade European bank. The consolidated assets of Itaú Europe reached Eur 1,741 million at the end of this quarter, 22.4% higher than in September Net income of Eur 14.8 million increased by 17.7% and represented an annualized profitability of 9.92% on the stockholders' equity of Eur 201 million. US$ Million Banking Activities Sep 30, 2001 Jun 30, 2001 Sep 30, 2000 Jun 30, 2000 Stockholders' Stockholders' Stockholders' Stockholders' Assets Equity Assets Equity Assets Equity Assets Equity 1, , , ,354.8 Grand Cayman and New York Branches 4, , , , Itaú Buen Ayre S.A Itaú Bank Ltda Banco Itaú Europa Luxembourg S.A Banco Itaú Europa S.A. 1, , , , IFE - Bemge - Uruguay S.A Banco Del Paraná S.A Geographic al Distribution of Trade Lines Activities Abroad 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 mergers and acquisitions. France 5.2% Latin America 10.0% England 15.4% Portugal 3.8% Germany 12.7% United States 28.9% Asia 8.2% Holand 2.8% Canada 3.4% Spain 4.8% Others 4.7% Total Correspondent Banks:

60 Activities Abroad And Foreign Exchange Transactions Foreign Exchange and Foreign Trade Financing Highlights US$ Million 3 rd Q/01 2 nd Q/01 3 rd Q/00 Variation Variation 3rd Q01x 2nd Q01 3rd Q01x 3nd Q00 Export - Foreign Exchange (207) (89) Import - Foreign Exchange ,049 (32) (129) Financial Transactions - Foreign Exchange 1,151 2,179 2,063 (1,028) (912) Sub total 2,749 4,016 3,879 (1,267) (1,130) Interbank 6,988 24,579 17,506 (17,591) (10,518) Interbank (other currencies) 3,724 3,086 10, (7,053) Sub total 10,712 27,665 28,283 (16,953) (17,571) Total of foreign exchange transactions 13,461 31,681 32,162 (18,220) (18,701) Pre-export Loans (ACC) (218) (146) Off-shore Financing (89) (27) Import Financing (167) (31) Export Pre-payment Financing (10) (26) Sub total 566 1, (484) (230) PROEX (24) 6 BNDES EXIM (Pre Shipment) (21) (89) BNDES EXIM (Pos Shipment) Sub total The increase in market volatility reflected greater arbitrage opportunities, requiring lower volumes of foreign exchange contracts in the third quarter of Main Credits and Guarantees in Foreign Currency Sep 30, 01 Jun 30, 01 Sep 30, 00 US$ Million Variation Variation Sep01 / Jun01 Sep01 / Sep00 Financing and Guarantees to Trade-Related - Export 1,655 1,983 1,428 (328) 227 Financing and Guarantees to Trade-Related - Import (71) 54 Other Local Financing of Foreign Subsidiaries (50) (230) Bond's of Portugal (27) 27 Private Securities OECD Interbank Deposits OECD 1,651 1, DCB's / EIB's / IDU's / Globals Bond's (111) Bonus / CD's / Securities and Investment Funds 1,247 1, (24) 474 Bond's of Argentina (81) On- Lending - Resolution 63/2148/ Clients Free Market Investments (41) 228 NTN-D (100) Bonus / Clients (1) (48) Total 7,357 7,247 6, ,448 59

61 Activities Abroad and Foreign Exchange Transactions Main Programs and Funding in Foreign Currency US$ Million Sep 30, 01 Jun 30, 01 Sep 30, 00 Variation Variation Sep01 / Jun01 Sep01 / Sep00 Commercial Lines and Structural Funding to Trade Related 2,232 2,342 1,781 (110) 451 Money Market Funds Structural and Financial International Funding 2,684 2,525 2, Funding from Brazilian Interbank Market (3) (3) Own Working Capital 1,731 1,761 1,694 (30) 37 Total 7,469 7,353 6, ,345 Among International Structured and Financial Funding we may highlight the Issues and Programs below: External Funding of Banco Itaú (Operations with third parties) Outstanding in September 30,01 INSTRUMENT Issue Amount Issue Expiry Coupon Spread Over Treasury Coordenator US$ Date Date (%) at Issue (%) Subordinated Debt Merrill Lynch 100,000,000 8/13/01 8/15/ Subordinated Debt (Yen) (*) Merrill Lynch 243,000,000 8/13/01 8/15/ Fixed Rate Notes Merrill Lynch 100,000,000 3/14/00 3/14/ Fixed Rate Notes Merrill Lynch 100,000,000 12/28/00 12/28/ Fixed Rate Notes West LB 100,000,000 4/30/01 10/30/ Syndicated Loans Banco Itaú SA, Grand Cayman 175,000,000 2/23/01 2/22/02 Syndicated Loans Banco Itaú SA, Grand Cayman 100,000,000 2/23/01 3/23/04 Promissory Notes Banco Itaú SA, Grand Cayman 80,000,000 TOTAL 998,000,000 (*) Equivalent to Yen 30 Billion Outstanding in September 30,01 PROGRAMME Programme Amount Coordenator US$ US Commercial Paper Bayerische Hypovereinsbank 168,400,000 Euro Certificate of Deposit Warburg Dillon Read 12,829,600 Physical CD Itau Bank, Ltd 4,900,000 Time Deposits Itau Bank, Ltd 37,374,000 TOTAL 223,503,600 60

62 Activities Abroad And Foreign Exchange Transactions Banco Itaú Buen Ayre Banco Itaú Buen Ayre obtained a significant result of US$ 9.1 million in the third quarter, while keeping its strategic management focused on rationalization. Directed to the retail segment, Banco Itaú Buen Ayre comprises a network of 80 branches, 30 Service Centers (PAB) and 319 Automated Teller Machines (ATM), offering superior customer service to 216 thousand clients. Balance Sheet In US$ Million September 30, 01 Jun 30, 01 Sep 30, 00 Jun 30, 00 ASSETS Pesos US$ Total Total Total Total Current and Long Term Assets Cash and cash equivalents Interbank Funds Applied Securities Interbank and Interbranch Accounts Loan and Leasing Operations Allowance for loan losses (12) (15) (27) (30) (42) (40) Prepaid Expenses Other Assets Pe rma nent Asse ts Total Assets September 30, 01 Jun 30, 01 Sep 30, 00 Jun 30, 00 LIABILITIES Pesos US$ Total Total Total Total Current and Long Term Liabilities Deposits Borrowing Other Liabilities Stockholders' Equity Capital and Reserves Results of the Period (24) (15) Total Liabilities Loan and Leasing Operations In US$ Million September 30, 01 Jun 30, 01 Sep 30, 00 Jun 30, 00 Pesos US$ Total Total Total Total Individuals Companies Total Allowance for Loan Losses In US$ Million September 30, 01 Jun 30, 01 Sep 30, 00 Jun 30, 00 Pesos US$ Total Total Total Total Individuals (12) (13) (24) (27) (37) (36) Companies (0) (3) (3) (4) (5) (4) Total (12) (15) (27) (30) (42) (40) Credit Portfolio Composition by Risk Level In US$ Million September 30, 01 Total AA A B C D E F G H Portfolio Portfolio Allowance - (0) (0) (0) (0) (26) (27) Jun 30, 01 Total AA A B C D E F G H Portfolio Portfolio Allowance - (0) (1) (1) (0) (0) (1) (0) (25) (30) Relevant Data Sep 30, 01 Jun 30, 01 Sep 30, 00 Jun 30, 00 Net Income per quarter (In US$ Million) 9 1 (8) (7) Net Distribution Branches CSBs Automated Teller Machines Employees 1,385 1,387 1,519 1,674 61

63 Risk Management Risk Management 62

64 Risk Management Market Risk Market Risk Management is the process through which the institution manages and controls the potential risks of variation in the market quotations of financial instruments, such as the Brazilian interest rates, exchange rates, Brazilian interest rates for operations indexed to the US dollar (foreign exchange coupon) and for products indexed to the Referential Rate (TR), stock market prices and other. For each risk factor, we perform Structural Gap analyses of assets and liabilities from commercial bank operations, as well as estimated potential losses (Value at Risk or VaR) and extremely unfavorable scenarios (VaR stress). In addition, we carry out historical simulations of risk positions to verify the quality of the various methods used. Local Market The table below represents an analysis of risk positions arising from trading transactions and those linked to their risk management (Structural Gap), calculated based on proprietary models. The Global VaR showed an increase from R$ 65.5 million in June to R$ million in September, related to the increase in market volatility and the reduction in existing correlations among the various risk factors, that is, a lower effect of diversification among portfolios. However, even before the unstable economic situation, the increase of R$ 52.5 million in the generated risk represents a small portion of the institution s equity. Structural Gap VaR(*) Sep 30, 01 Jun 30, 01 Fixed Rate Risk Factor Referencial Rate (TR) Risk Factor Foreign Exchange Risk Factor Diversification Impact (46.9) (66.3) Global VaR (*) VaR refers to the maximum potential loss of 1 day, with a 99% confidence level The Own Portfolio Trading Desk shown in the table following deals either in local markets or in foreign markets and is incumbent on searching for the best business alternatives among the market opportunities. Accordingly, it is more sensitive to market conditions and the portfolio administrators expectations, and can vary substantially overnight. This more dynamic portfolio management allows the inversion of positions within a short period of time, decreasing the exposure to market risks in the case of economic instability. Own Portfolio Trading Desk VaR(*) (*) VaR refers to the maximum potential loss of 1 day, with a 99% confidence level During the third quarter of 2001, we verified a drop in the Local Currency Trading Desk VaR, as compared to the prior quarter, resulting from a lower exposure to the fixed interest rate risk. In the Foreign Currency Trading Desk, a small VaR increase may be noticed, basically due to the increase in the foreign exchange coupon market volatilities. International Market 3 rd Q./01 2 nd Q./01 Local Currency Desk Foreign Currency Desk Floating Rate Desk Diversification Impact (3.3) (3.5) Global VaR Maximum Global VaR Minimum Global VaR The Market Risk of subsidiaries overseas, represented in the tables below, slightly increased in relation to the prior quarter, as a consequence of various instability factors verified during the period. The risk growth of the Overseas structural portfolio (Grand Cayman and New York branches and Itaú Bank) in the third quarter is due to the instability of the international market, with an impact either on the sovereign risk of our portfolios or in the Libor risk arising from possible structural mismatches of the external units. The Overseas portfolio contemplates the funds obtained by Itaú in the international market in August, as a result of the issue of Subordinated Debt, in the amount of US$ 343 million. Overseas VaR(*) US$ Million Sep 30, 01 Jun 30, 01 Sovereign Risk Factor Libor Risk Factor Diversification Impact (8.2) (0.7) Global VaR Maximum Global VaR Minimum Global VaR (*) VaR refers to the maximum potential loss of 1 day, with a 99% confidence level 63

65 Risk Management BIE (Banco Itaú Europa) VaR(*) US$ Million Sep 30, 01 Jun 30, 01 Euribor Risk Factor Libor Risk Factor - - Diversification Impact - - Global VaR Maximum Global VaR Minimum Global VaR (*) VaR refers to the maximum potential loss of 1 day, with a 99% confidence level In relation to the risk of the European positions, we emphasize that the volatility of the fixed rates in Euro presented a higher non-correlation in the terms longer than six months. However, the mismatch management (Gap) of the Banco Itaú Europe portfolio provided the maintenance of risk levels, as can be seen in the table below. The instability in Argentina provided an increase in the Peso risk, contributing to an increase in the Global Risk in Banco Itaú Buen Ayre. Banco Itaú Buen Ayre VaR(*) US$ Million Sep 30, 01 Jun 30, 01 Dollar Risk Factor Libor Risk Factor - - Peso Risk Factor Diversification Impact (0.5) (0.1) Global VaR Maximum Global VaR Minimum Global VaR (*) VaR refers to the maximum potential loss of 1 day, with a 99% confidence level Credit Risk Banco Itaú has been searching for excellence in the management of credit risks. The Bank has continually improved its proprietary models for credit risk management, trying to adapt them to the best practices adopted by the world financial market and conforming them to the international requirements and risk management standards. The investments aiming at the efficiency of risk management have contributed to the growth of the credit portfolio and to the maximization of the Bank s results. The methodology used for the credit portfolio management follows the traditional approach, which is the monitoring of the portfolio exposure and quality in various consolidation levels, allowing the Bank to identify the possible impacts (internal and external), trends and perspectives of the portfolio evolution. Nowadays, the statistical models of active management of the credit portfolio are being improved, following the market trends and aiming to develop the instruments of quantitative portfolio management. The credit risk is based on the consolidated and centralized analysis of the portfolio, supported by the use of Credit Scoring, Behavior Scoring and Proprietary Rating models (internal classification), and by the intense computerization of the credit decision processes. All stages of the decision process are integrated, with no activation possible without the due approval of the business. The approval follows the guidelines of the credit policy and a system of levels of authority, which are attributed by the maximum executive authority over credit, the Superior Credit Commission. The Bank has focused on increasing its assets, assessing the risk/return relationship and having as its main concern the quality of the credit portfolio, assessed according to the proprietary rating model, in a continuously refined process. Comparing the volatility of the Fixed Interest Rate, in Peso, at the end of each quarter, we can observe a volatility increase, beginning in the shorter terms and intensifying from six months onward; the same did not occur with the Baibor Peso, which presented a strong volatility increase in terms up to three months, impacting the VaR values presented in the table. Despite the high Argentine risk oscillations that cause the Maximum Global VaR to reach US$ 4.7 million, a conservative risk management permitted the reduction of the risk exposure. It is important to emphasize that the institution keeps its investments in the Argentine market totally hedged against a possible exchange risk. Liquidity Risk From June 2001 onwards, Resolution 2804 became effective, in which the Central Bank established the principles for the control of the Liquidity Risk of the Financial Institutions. The Legislation guides the practices to be adopted by the Institutions, such as: economic and financial analyses that permit the evaluation of the effects of different scenarios on the liquidity of the Institution; periodical reevaluations; impact on the payment capacity of the institution; evaluations to identify alternatives to cover possible liquidity losses, such as contingency plans for crisis situations, and reports to monitor the risk positions. That resolution is consistent with the control practices already adopted by Banco Itaú, producing more uniform control mechanisms among the various institutions. 64

66 Risk Management In September 2001, the Central Bank published two Circulars, and 3.063, in order to reduce the liquidity of the financial system. Circular defined the compulsory payment rate at 10% of the weekly arithmetic mean of the daily balances of time deposits, funds from foreign exchange acceptances, debentures bonds, own securities issues and assumption contracts of liabilities linked to operations carried out overseas. The compulsory payment must be made through federal securities deposits in the Special System for Settlement and Custody (SELIC). For Itaú, this measure would result in a reduction of R$ 250 million in the consolidated liquidity level, should all other variables be kept stable. Additionally, Central Bank Circular increased from 60% to 80% the minimum compulsory payment required at the end of each day on demand deposits, without provoking a significant impact on the liquidity volume of Itaú for the movement period of the compulsory payment. Operational Risk Banco Itaú has been developing a control system for operational losses, resulting from inadequate or faulty internal processes, persons or systems, or from external events. The system will register and store significant operational faults which, in a certain degree, cause risk to the bank s image or significant losses. As a result, it is possible to prepare more efficient contingency plans and prompt solutions for problems by eliminating their causes, avoiding therefore the repetition of events. Moreover, in view of the New Basel Capital Agreement, which prescribes the allocation of capital to operational risk, Banco Itaú has been developing an advanced quantitative model which will include the constitution of provisions for expected losses and allocation of capital for unexpected losses (within a certain degree of confidence for each business unit and nature of events), aiming at the reduction of costs related to operational losses and the evaluation of the business units performance, taking into consideration all risks incurred. 65

67 Internet Activities Internet 66

68 Internet Activities 1. C2C - Itaú Motors The objective of the website Itaumotors, the result of a partnership between Banco Itaú and Webmotors, is to create an environment for the electronic intermediation of automotive deals between Itaú clients. This website has several functionalities relating to the automotive market and adds a further channel for the sale of the Bank's products, especially car loans and insurance. The offering of Itaú products is customized according to each client profile For example: loan interest rates and insurance discounts vary according to the client's relationship with the Bank. 2. B2C - Itaú Shopline Itaú Shopline introduces Itaú as a form of payment for B2C portals and virtual shops. Its purpose is to create an identification between shoppers and the Bank because the same interface will be used in all websites where Itaú can be used as a payment form. The shop owner chooses which payment forms he/ she will make available in his/her virtual shop through Itaú. Shoppers who are Itaú clients are offered the following options: electronic transfer of funds, automatic Itaú credit and a bank payment slip. Nonholders of Itaú accounts can pay using a bank payment slip. Currently, 250 virtual shops are registered and using this service. 67

69 Internet Activities 3. DirecTV Itaú is part of DirecTV's programming on channel 925. Currently available only for greater São Paulo clients, clients/subscribers can carry out transactions using Bankline. The following services are available: Three-day current account bank statements Savings account balance Funds Payments Transfers Location of Branches and ATMs 4. Itaú AOL 4.1. Customization of the joint welcome screen Exclusive service of Itaú-AOL clients which permits customizing the content of the welcome screen to show important messages and special promotions pursuant to the client's segment. Implemented for the Personnalité segment in June Special Services Itaú-AOL Clients Since March 2001, Banco Itaú made available several exclusive services to its clients carrying out their bank transactions using Itaú Bankline via AOL. Itaú-AOL clients can receive s with important information on their relationship with Itaú Offered services: Notice of account with debit balance Notice of current account credits and debits above an amount established by the client List of cleared/paid checks 68

70 Internet Activities 5. Personnalité 5.1. New Website Itaú Personnalité's website was reformulated according to a web design methodology aimed to reach a higher variety of websurfers, and therefore to be used by visitors more often. In addition, the website has a user-friendly look using a graphic-rich interface and a browsing menu which always indicates the websurfer's location New Bankline Personnalité Home Banking website for Personnalité clients New Investnet Personnalité Investment website for Personnalité clients New Prevline Personnalité Website used by Personnalité clients to get to know products, make simulations, contract and manage Private Pension Fund plans. 6. Capital Market 6.1. Itaú Investnet We proceeded with the renewal of the Itaú Investnet website, dedicated to offering all Investment options to our clients, by reformulating the Savings, Capitalization and CDB websites. In addition, it now permits the customization of the investment funds consultation page (Minha Página - My Page). The constant Chats with product managers and guests showed excellent results. 69

71 Internet Activities 6.2. Banerj Investnet Banerj's Investment Portal; the CDB and investment funds websites are now offered on an integrated basis with this new design Banestado Investnet Banestado's clients' Investment Portal; offered together with a specific investment funds website On-line Consultant On-line service exclusive for Itaú Clients. It is available on Itaú Investnet and Itautrade websites. Consultants can answer any question relating to stock and investments via a private chat channel Itautrade Dedicated to the purchase and sale of shares via the Internet. This website offers the following facilities to Itaú Clients: chats with Itaú Corretora analysts daily analysis provided by Itaú Corretora, Lopes Filho and Santa Fé WAP-enabled access to the main BOVESPA shares and market quotations, and to economic indicators on the internet Market Information The Market Information website was changed according to the new Itaú web design standards, and its homepage now has a new information distribution structure. 70

72 Internet Activities 6.7. Itaú Private Bank Reformulation of this website's homepage Institutional Investors Reformulation of this website's homepage. 7. Banking 7.1. Itaú Bankline Empresa Plus Internet The website Itaú Bankline Empresa Plus Internet is the Office Banking website which permits carrying out transactions and consulting several Itaú services such as on-line balances and current account statements, collection management and vendor financing with Itaú, investment/ redemption and balance consultation of Itaú investment funds, on-line management of the company's accounts payable (salaries and suppliers), etc. Itaú Bankline Empresa Plus Internet has an hierarchical user structure where the client company defines a system administrator authorized to create new users and define the function access levels of these users, to permit a higher control over company information New Functions of Itaú Bankline Internet Promotions and campaigns area Subscription of the Valor Econômico newspaper (discontinued promotion) Current / Savings accounts Request, block and unblock checkbooks Migrate to Maxiconta and account movement statement Request second copy of current and savings account statement Simulate the purchase and buy Travelers Checks (Itaú was the first Bank to offer this service via the Internet) Investment funds Quotation of/investment in CDB Notes portfolio Instructions to collect, handle notes Loans/Financing Simulate/Contract loans LIS contracting/lis portfolio Advance income tax refund 71

73 Internet Activities 7.3. Itaú Bankline WAP Grants the client access to our services and products in cellular handsets with WAP technology. The client can consult his/her current and savings account balances, transfer funds to other accounts, pay utility and credit card bills, and also view the consolidated balance of investment funds. 8. Websites 8.1. Corporate Unit Website dedicated to serve companies with an annual turnover of R$ 500,000 to R$ 4 million Contact Us The Contact Us Internet service assists the client to clarify any doubts, obtain information or make suggestions and complaints. Its more modern look and simplified browsing now prompts quick answers to frequently asked questions (FAQ) and offers a renewed subject tree with a user-friendly message-sending facility. Contact Us also offers to the client hyperlinks to lists of Itaú's client service telephones, to branch and ATM locators, and to information on the products offered in the Bank's website. This service was approved in June and made available to clients in July

74 Internet Activities 8.3. Banco Itaú's Investor Relations The new design and structure of our website permits showing and highlighting significant events, facilitates the inclusion of new functionalities and browsing through website pages. The website is made available in three languages: Portuguese, English and Spanish. In addition, it now includes the On-line 2000 Annual Report If you wish to contact the Investor Relations' area, please send an to: relacoes.investidores@itau.com.br Prevline The Private Pension Fund website comprises all Itauprev products and permits on-line contracting, consultations, simulations and withdrawals. 73

75 PricewaterhouseCoopers Av. Francisco Matarazzo, 1700 Torre Torino Caixa Postal São Paulo, SP - Brasil Telefone (0xx11) Report of Independent Accountants on Supplementary Information November 5, 2001 To the Board of Directors and Stockholders Banco Itaú S.A. 1. We have carried out a limited review of the accounting information included in the Quarterly Information (ITR) of Banco Itaú S.A. and of Banco Itaú S.A. and subsidiary companies as of and for the period ended September 30, 2001 and our report thereon, dated November 5, 2001, included no exceptions. 2. Our limited review was performed in accordance with specific standards established by the Institute of Independent Auditors of Brazil (IBRACON) in conjunction with the Federal Accounting Council (CFC) with the objective of reviewing the consolidated information of Banco Itaú S.A. and subsidiary companies included in the Bank's aforementioned Quarterly Information (ITR). The supplementary information included in the Management Analysis Report of Consol dated Operation is presented in order to provide an additional analysis without being an integral part of the ITR. This supplementary information was subjected to the same procedures applied during the limited review of the ITR. 3. Based on our review, we are not aware of any significant adjustments which should be made to this supplementary information for it to be fairly stated, in all material respects, in relation to the Quarterly Information taken as a whole. 4. The limited review of the supplementary information included in the Management Analysis Report of Consolidated Operation for the period ended September 30, 2000, presented for comparison purposes, was conducted by other independent accountants, whose report, dated October 23, 2000, included no exceptions. PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Contador Ricardo Baldin Partner CRC 1SP110374/O-0 74