Banco de Tokyo-Mitsubishi UFJ Brasil S/A (With management report and independent auditors report thereon) (A free translation of the original report in Portuguese containing financial statements prepared in accordance with accounting practices adopted in Brazil, applicable to the Institutions authorized to operate by Central Bank of Brazil.) Page 1 of 37
Contents Management report 3 Summary of the Audit Committee s Report 5 Independent auditors report 6 Balance sheets 8 Statements of income 9 Statements of changes in shareholders equity 10 Statements cash flows - Indirect method 11 Notes to the financial statements 12 Page 2 of 37
Management report Dear Shareholders, Pursuant to the legal provisions, we submit to your appreciation the financial statements referring to the Semester ended. The description of the structure related to the management of risk is available on our webpage on the Internet at the website: www.br.bk.mufg.jp. Credit risk In compliance with Resolution 3,721, of April 30, 2009 of the National Monetary Council (CMN), Banco de Tokyo-Mitsubishi UFJ Brasil S/A has an installed structure of Credit Risk Management, and the Risk Management Department - Credit Risk Control Group is the one responsible for the identification, measurement, assessment, monitoring and control of the adherence to the credit policy and the credit risks related to each unit of the Bank. Market risk In accordance with the National Monetary Council Resolution 3,464 of June 26, 2007, Banco de Tokyo- Mitsubishi UFJ Brasil S/A had implemented a market risk management structure, and defined the Risk Management Department - Market Risk Control Group as the area responsible for identifying, assessing, monitoring and controlling the operating risks assumed by the Bank. Liquidity risk In compliance with the CMN Resolution 4090 of May 24, 2012, Banco de Tokyo-Mitsubishi UFJ Brasil S/A has an installed structure for the Management of Liquidity Risk, and its Risk Management Department - Group Market Risk Control is the area responsible for the identification, measurement, assessment, monitoring and control of liquidity risks assumed by the Bank. Page 3 of 37
Operating risk In accordance with the National Monetary Council Resolution 3,380 of June 29, 2006, Banco de Tokyo- Mitsubishi UFJ Brasil S/A implemented their Operating Risk Management Structure, and adopted as methodology the Basic Index Approach for the calculation of the portion of the Required Notional Equity related to the Operating Risk, which is required by Circular of the Central Bank of Brazil 3,640 of march 29, 2013. Structure of Capital Risk Management In compliance with Articles 10 and 12 of the National Monetary Council Resolution 3,988 of June 30, 2011, Banco de Tokyo-Mitsubishi UFJ Brasil S/A created a Risk Management Department - Group Credit Risk Control and appointed, on November 25, 2011, the director responsible for the implementation of the organizational structure to implement the management of capital risk management. At an executive board s meeting held on June 27, 2012, Banco de Tokyo-Mitsubishi UFJ Brasil S/A approved the Bank s Corporate Policy, processes, procedures and systems required for the implementation of the Capital Management Structure. In accordance with Articles 5 and 8 of Resolution 3,988, the Banco de Tokyo-Mitsubishi UFJ Brasil S/A Capital Plan was approved at an Executive Board s Meeting. Ombudsman s office In accordance with Central Bank of Brazil standards, an Ombudsman s office department was established comprising a Director in charge and an Ombudswoman whose purpose is to assure the strict compliance with legal and regulatory standards referring to consumer rights and to operate as a communication channel between the institution and its customers and users of its services and products, as well as to mediate conflicts. August 14, 2014. Management Page 4 of 37
Summary of the Audit Committee s report Banco de Tokyo-Mitsubishi UFJ Brasil S/A In compliance with its assignments, it is the duty of the Banco de Tokyo-Mitsubishi UFJ Brasil S/A Audit Committee to care for the quality of the financial statements, for compliance with legal and regulatory requirements, for the independence and quality of the independent auditors' work and internal audit work, and for the quality and effectiveness of the internal control and risk management systems. Work meetings held throughout the period were attended by representatives of the Internal Audit, Independent Auditors and other departments, in addition to Audit Committee members. We highlight the following matters as the principal ones: Review of the financial statements for the 1st, semester of 2014; Assessment of the performance and quality of the Independent Auditors' and Internal Audit's work; Assessment of compliance with the recommendations made by the Independent Auditors and by the Internal Auditors; Monitoring of risk management and compliance matters. The Audit Committee, as a result of the assessments performed, based on information received from the Management and the Internal and Independent auditors, concluded that the work developed is effective and grants transparency and quality to the financial statements of Banco de Tokyo-Mitsubishi UFJ Brasil S/A. August 14, 2014. The Audit Committee Page 5 of 37
Independent auditors report To The Shareholders and Management Banco de Tokyo-Mitsubishi UFJ Brasil S/A São Paulo - SP We have examined the financial statements of Banco de Tokyo-Mitsubishi UFJ Brasil S/A (Bank), which comprise the statement of financial position as at June 30, 2014 and the related statements of income, changes in equity and cash flows for the six-month period then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s responsibility for the Financial Statements The Bank s Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil, and for such internal control as management determines in necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Independent auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit, which is conducted in accordance with Brazilian and international standards on auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures selected for obtaining audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of risks of material misstatement in the financial statements, whether caused by fraud or error. In the performance of this risk assessment, the auditor considers the internal controls which are significant for the preparation and adequate presentation of the bank s financial statements in order to design audit procedures which are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of bank s internal controls. An audit also includes evaluating the adequacy of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the presentation of the financial statements taken as a whole. We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our opinion. Page 6 of 37
Opinion In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Banco de Tokyo-Mitsubishi UFJ Brasil S/A as of June 30, 2014, and the performance of its operations and cash flows for the six-month-period then ended, in accordance with accounting practices adopted in Brazil applicable to the institutions authorized to operate by the Central Bank of Brazil. São Paulo, August 14, 2014 KPMG Auditores Independentes CRC 2SP014428/O-6 Original report in Portuguese signed by Rodrigo de Mattos Lia Accountant CRC 1SP252418/O-3 Page 7 of 37
Banco de Tokyo -Mitsubishi UFJ Brasil S/A Financial Statements of as Balance sheets as of (In thousands of Reais) Assets Liabilities Current assets 6.443.857 6.559.748 Current liabilities 5.547.682 5.577.915 Cash and cash equivalents 8.527 36.399 Deposits 1.659.835 1.933.496 Interbank funds applied 1.860.809 2.342.116 Demand deposits 131.957 216.743 Time deposits 1.527.878 1.716.753 Money market 1.669.999 2.255.447 Interbank deposits 94.680 38.813 Money market repurchase commitments 177.999 252.575 Foreign currency 96.130 47.856 Own portfolio - - Third party portfolio 177.999 252.575 Securities and derivative financial instruments 1.441.994 571.459 Interbank accounts 1.516 3.704 Own portfolio 801.466 316.076 Collections in transit 1.516 3.704 Subject to guarantees provided 614.305 253.593 Derivative financial instruments 26.223 1.790 Interbranch accounts 51.465 72.118 Interbank Relations 67.225 66.350 Third party funds in transit 51.465 72.118 Collections in transit 2 2 Borrowings 1.509.332 275.249 Restricted Depósits: Brazilian Central Bank 66.108 64.731 Foreign currency borrowings 1.509.332 275.249 Correspondents 1.115 1.617 Local repass borrowings - government institutions 44.159 31.234 Loans 605.577 392.952 BNDES 5.048 10.134 Loans: Finame 31.104 16.088 Private sector 617.620 400.964 Other government institutions 8.007 5.012 Allowance for loan losses (12.043) (8.012) Foreing currency repass borrowings 80.264 33.965 Other receivables 2.458.951 3.148.029 Foreign currency repass borrowings 80.264 33.965 Foreign exchange portfolio 2.433.743 3.081.798 Income receivable 3.253 692 Derivative financial instruments 2.909 9.189 Securities clearing accounts 26.154 46.222 Other 1.595 20.287 Derivative financial instruments 2.909 9.189 Allowance for other loan losses (5.794) (970) Other liabilities 2.020.203 2.966.385 Other assets 774 2.443 Tax collection 310 763 Other assets - 282 Foreign exchange portfolio 1.886.764 2.857.627 Prepaid expenses 774 2.161 Due to shareholders 1.238 1.176 Taxes payable 94.413 75.723 Securities clearing accounts 2.582 9.956 Provision for contingent liabilities 21.966 12.447 Other 12.930 8.693 Non-current assets Non-current liabilities 345.378 1.073.865 553.101 1.157.205 Borrowings 132.851 560.283 Interbank funds applied 8.654 649 Foreign currency borrowings 132.851 560.283 Interbank deposits 8.654 649 Local repass borrowings - government institutions 40.688 26.848 Securities and derivative financial instruments 343.686 682.279 BNDES 7.548 25.000 Finame 33.140 1.848 Own portfolio - 192.968 Linked to repurchase commitments - - Subject to guarantees provided 262.122 476.262 Foreign currency repass borrowings 62.698 312.692 Derivative financial instruments 81.564 13.049 Foreign currency repass borrowings 62.698 312.692 Loans 53.801 358.107 Loans: Derivative financial instruments 107.073 156.218 Private sector 54.301 359.053 Allowance for loan losses (500) (946) Derivative financial instruments 107.073 156.218 Other receivables 145.833 116.093 Other liabilities 2.068 17.824 Foreign exchange portfolio 2.068 - Foreign exchange portfolio 2.068 - Debtors for guarantee deposits 112.785 103.464 Other - 17.824 Other 30.980 12.629 Other assets 1.127 77 Prepaid expenses 1.127 77 Deferred income 657 303 Permanent assets 56.496 46.808 Shareholders' equity 1.159.737 1.111.678 Investments 1 1 Capital 853.071 853.071 Other investments 196 196 Provision for losses (195) (195) Capital - Domestic 4.445 4.445 Capital - Foreign 848.626 848.626 Fixed assets 48.485 36.413 Capital reserves 5.103 5.103 Profit reserves 305.776 260.870 Property for use 29.874 27.029 Equity valuation adjustments (301) (3.460) Other fixed assets 37.121 23.950 Treasury shares (3.912) (3.906) Accumulated depreciation (18.510) (14.566) Intangible assets 7.967 10.285 Intangibles assets 20.706 19.185 Accumulated amortization (12.739) (8.900) Deferred charges 43 109 Organization and expansion expenditures 5.703 5.703 Accumulated amortization (5.660) (5.594) Total assets 7.053.454 7.763.761 Total liabilities and shareholders' equity 7.053.454 7.763.761 See the accompanying notes to the financial statements. Page 8 of 37
Banco de Tokyo -Mitsubishi UFJ Brasil S/A Financial Statements of as Statements of income Semesters ended (In thousands of Reais except for net income/loss per share) 1 st Semester Financial operations income 115.059 256.623 Loans 33.592 44.876 Securities income 169.866 114.226 Income from derivative financial instruments (88.399) 62.726 Income from foreign exchange operations - 34.795 Financial operations expenses (13.344) (160.478) Funds obtained in the open market (85.587) (62.308) Borrowings and repass borrowings 103.894 (96.861) Income from foreign exchange operations (27.978) - Recording of allowance for loan losses (3.673) (1.309) Gross profit from financial operations 101.715 96.145 Other operating income (expenses) (62.754) (64.348) Service fee income 21.771 4.332 Income from bank charges 463 336 Personnel expenses (48.158) (40.182) Other administrative expenses (28.277) (22.500) Tax expenses (4.441) (3.699) Other operating income 1.872 2.495 Other operating expenses (5.984) (5.130) Operating result 38.961 31.797 Non-operating result (15) 1 Income before taxes 38.946 31.798 Income and social contribution taxes (17.236) (12.504) Provision for income tax (10.920) - Provision for social contribution (6.559) - Deferred tax assets/liabilities - Taxes and Contributions 243 (12.504) Net income for the semester 21.710 19.294 Number of outstanding shares (per lot of a thousand shares) 4.332.041 4.332.060 Net income per lot of a thousand shares - R$ 5,01 4,45 See the accompanying notes to the financial statements. Banco de Tokyo-Mitsubishi UFJ Brasil S/A Page 9 of 37
Banco de Tokyo -Mitsubishi UFJ Brasil S/A Financial Statements of as Banco de Tokyo-Mitsubishi UFJ Brasil S/A Statements of changes in shareholders' equity Semesters ended (In thousands of Reais) Capital reserves Profit reserves Premium on Other Equity the subscription capital valuation Retained Treasury Capital of shares reserves Legal Statutory adjustments earnings shares Total Balances at December 31, 2012 853.071 4.947 156 20.874 221.846 256 - (3.906) 1.097.244 Equity valuation adjustment - - - - - (3.716) - - (3.716) Reversal of dividends proposed in prior years - - - - 7 - - - 7 Net income for the semester - - - - - - 19.294-19.294 Profit distribution: Legal reserve - - - 965 - - (965) - - Dividends - - - - - - (1.151) - (1.151) Transfer to statutory reserve Balances at June 30, 2013 Changes in the semester - - - - 17.178 - (17.178) - - 853.071 4.947 156 21.839 239.031 (3.460) - (3.906) 1.111.678 - - - 965 17.185 (3.716) - - 14.434 Balances at December 31, 2013 853.071 4.947 156 23.133 262.146 (124) - (3.906) 1.139.423 Equity valuation adjustment - - - - - (177) - - (177) Acquisition of shares issued by the Bank - - - - - - - (6) (6) Reversal of dividends proposed in prior years - - - - 18 - - - 18 Net income for the semester - - - - - - 21.710-21.710 Profit distribution: Legal reserve - - - 1.085 - - (1.085) - - Dividends - - - - - (1.231) - (1.231) Transfer to statutory reserve Balances at June 30, 2014 Changes in the semester - - - - 19.394 - (19.394) - - 853.071 4.947 156 24.218 281.558 (301) - (3.912) 1.159.737 - - - 1.085 19.412 (177) - (6) 20.314 See the accompanying notes to the financial statements. Banco de Tokyo-Mitsubishi UFJ Brasil S/A Page 10 of 37
Banco de Tokyo -Mitsubishi UFJ Brasil S/A Financial Statements of as Banco de Tokyo-Mitsubishi UFJ Brasil S/A Statement of cash flows - Indirect method Semesters ended (In thousands of Reais) 1 st Semester Cash provided by (used in) operating activities (680.479) 466.359 Net income for the semester 21.710 19.294 Net income adjustments: 12.620 8.964 Recording of allowance for doubtful loans 718 1.572 Recording / (Reversal) of provision for other receivable 2.955 (263) Depreciation and amortization 4.433 3.701 Recording of civil, labor and tax provisions 4.388 3.971 Variation in deferred income 126 (17) Adjusted net income 34.330 28.258 Changes in operating assets (1.039.189) (1.624.546) (Increase) / decrease in interbank funds applied (47.864) (15.428) (Increase) in securities (581.712) (264.305) (Increase) / decrease in interbank and interbranch accounts (3.284) 33.688 (Increase) in loans 281.325 (177.663) (Increase) in other assets and other receivables (687.654) (1.200.838) Changes in operating liabilities: 324.380 2.062.647 Increase in deposits (379.868) 577.179 Increase in money market repurchase commitments 29.489 25.557 (Decrease) / increase in borrowings and repass borrowings 372.025 118.146 Increase in derivative financial instruments (net of assets) (158.610) 105.165 Increase in other liabilities 461.344 1.236.600 Cash used in investment activities (5.769) (10.205) Disposal of fixed assets 6.356 9.120 Acquisition of fixed assets (11.394) (18.590) Investment in intangible assets (731) (735) Cash used in financing activities (5) - Acquisition of shares issued by the Bank (5) - Net increase (decrease) in cash and cash equivalents (686.253) 456.154 Statement of changes in cash and cash equivalents Cash and cash equivalents at the beginning of the semester 2.460.909 1.903.736 Cash and cash equivalents at the end of the semester 1.774.656 2.359.890 Increase/(decrease) in cash and cash equivalents (686.253) 456.154 See the accompanying notes to the financial statements. Banco de Tokyo-Mitsubishi UFJ Brasil S/A Page 11 of 37
Notes to the financial statements (In thousands of Reais, except when otherwise indicated) 1 Operations The Bank develops all types of authorized bank activities and operates as a commercial bank, including the following operations: Trade, Investment, Credit, Financing and Investment and Foreign Exchange Portfolios. 2 Presentation of the financial statements The financial statements were prepared based on the accounting guidelines issued by the Brazilian Corporate Law, and the rules and instructions of the National Monetary Council (CMN), Central Bank of Brazil and Committee for Accounting Pronouncements (CPC), when applicable. The presentation of these financial statements is in conformity with the Chart of Accounts for Institutions of the National Financial System (COSIF), concluded on 07/18/2014 and approved for disclosure on 08/14/2014. 3 Description of significant accounting practices Summary of significant accounting practices a. Statement of income Income and expenses are recorded on an accrual basis. b. Accounting estimates The preparation of the financial statements in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by the Central Bank of Brazil requires that Management uses its judgment in determining and recording accounting estimates. Significant assets and liabilities subject to these estimates and assumptions include the residual value of fixed assets, the allowance for doubtful loans, the provision for deferred income tax assets, the provision for contingencies, the provision for actuarial obligation and the valuation of derivative financial instruments. The actual amounts required to settle these transactions may be different from the amounts estimated due to the lack of precision inherent in the estimation process. These estimates are reviewed at least once a year, seeking to establish values which more precisely reflect future settlement values of the assets and liabilities considered. c. Current and noncurrent assets and liabilities These assets and liabilities are recognized at realizable and/or payable amounts, including accrued and/or incurred income, charges, monetary and exchange variations earned and/or incurred up to the balance sheet date, calculated on a daily pro rata basis, and, when applicable, the effect of the adjustments to reduce the cost of assets to market and/or realizable values. Realizable and payable balances falling due within 12 months are classified in current assets and liabilities, respectively. All other assets and liabilities are considered as noncurrent. d. Securities and derivative financial instruments The securities portfolios and derivative financial instruments are recognized in accordance with the Page 12 of 37
following classification and accounting measurement criteria: Securities Banco de Tokyo-Mitsubishi UFJ Brasil S/A Trading securities, Securities available for sale and Securities held to maturity. Classified in the category trading securities, are securities acquired for the purpose of being actively and frequently traded; in the category securities available for sale, those that do not classify in the other categories described above; and in the category securities held to maturity, the securities acquired and held with the intention and financial ability to be held by the Bank as part of its portfolio until their maturity date. Securities classified in the categories trading securities and securities available for sale above are recognized at their purchase price plus accrued earnings up to the balance sheet date, which are calculated on a daily pro rata basis, and adjusted to their market value, with the corresponding entry for the valuation adjustment being reflected in: (1) the appropriate income or expense account in the statements of income, when relating to the securities classified as trading securities ; and (2) a specific account in shareholders equity, when relating to securities classified as securities available for sale. The securities classified as held to maturity are recognized at their purchase price plus accrued earnings up to the balance sheet date, calculated on a daily pro rata basis, which are recorded in the statements of income, and an allowance for losses is recorded whenever there is a permanent loss in the realizable value of these securities. Derivative financial instruments Derivative financial instruments are recorded at market value, with the increase or decrease arising from the adjustment to market value being recorded in a separate income or expense account, except for the derivative instruments designated as part of a hedge structure, which can be classified as follows: I. Market risk hedge II. Cash flow hedge The derivative financial instruments destined for hedge purposes and the respective hedge objects are measured at market value, observing the following: For those classified in Category I, the increase or decrease in market value is recorded with a corresponding entry in the appropriate income or expense account, in the statements of income; and For those classified in Category II, the increase or decrease in market value is recorded with a corresponding entry in a shareholders equity account. e. Loans and allowance for loan losses Loans are classified according to the Management s judgment, based on analyses of the outstanding loan transactions (overdue and falling due), past experience, future expectations, specific portfolio risks and the Page 13 of 37
risk assessment policy of Management, regarding the parameters established by the National Monetary Council Resolution 2,682/99, which requires the periodic analysis of the portfolio and its classification in nine levels, which of AA represents minimum risk and H represents loss. Revenues from loans overdue up to 60 days, irrespective of its risk level, will only be recognized as income when effectively received. The allowance for loan losses, considered sufficient by the Management, meets the minimum requisite established by the aforementioned Resolution, as per Note 7c. As renegotiation the bank considers debt composition, extension, renovation, new operation for partial or full settlement of the previous operation or any other type of agreement involving the change in maturity or payment terms as originally agreed, in accordance with the CMN Resolution 2,682/99. f. Permanent assets They are recognized at the acquisition cost in combination with the following aspects: Depreciation of property for use is computed using the straight-line method at the following annual rates: properties for use - buildings - 4%; machinery and equipment, security and communication systems - 10%; and data processing systems and transport - 20%. Amortization of deferred assets is calculated using the straight-line method, up to ten years, or based on contractual terms in the case of leased asset improvements. Law 11,638 eliminated the account of Deferred Assets. The National Monetary Council authorized Financial Institutions to maintain the balance as of December 31, 2008 up to its complete amortization to write-off, Financial Institutions shall register in Deferred Asset, only preoperational expenses and restructuring costs which will, effectively, increase the results of more than one subsequent semester and do not represent only reduction of costs or increase in operational efficiency. Linking expenses and expenditure recorded in Deferred Assets with the increase of income of more than one fiscal year was based on a technical study, consistent with the information used in other operational reports. Intangible assets - they correspond to the vested rights in intangible assets for the maintenance of the entity or exercised for this purpose. The intangible assets with defined useful lives are usually amortized on a straight-line basis over their estimated useful economic lives. g. Reduction in the recoverable value of non-financial assets ( Impairment ) A loss due to impairment is recognized if the carrying amount of an asset, or of its cash generating unit, exceeds its recoverable value. A cash generating unit is the smallest identifiable group of assets that substantially generates cash flows independently of other assets and groups. Losses due to impairment are recognized in the income statement. The values of non-financial assets are reviewed once a year at least in order to determine whether there is any indication of loss due to impairment. h. Provision for income and social contribution taxes The provision for income tax is recorded at the rate of 15% of taxable income, plus an additional 10% on annual taxable income exceeding R$ 240 (six-month-period - R$ 120), and the provision for social contribution on net income is recorded at the rate of 15% on adjusted income before income tax. The accounting policy for recording income and social contribution tax credits on temporary difference are described in Note 20. Deferred tax liabilities are recognized for all taxable temporary differences. Page 14 of 37
4 Cash and cash equivalents composition Cash and cash equivalents presented on the statements of cash flows are composed as follows: At the beginning of the semester 2,460,909 1,903,736 Cash 7,789 5,262 Interbank deposits (*) 2,453,120 1,898,474 At the end of the semester 1,774,656 2,359,890 Cash 8,527 36,399 Interbank deposits (*) 1,766,129 2,323,491 Increase/(Decrease) of cash and cash equivalents (686,253) 456,154 (*)Operations whose maturity at the time of acquisition was up to 90 days. 5 Interbank funds applied a. Money market From 91 to 365 days Over 365 days (*) Total Total Own portfolio LTN 50,000 42,001 92,001 547,585 NTN-B - 1,399,999 1,399,999 1,455,287 50,000 1,442,000 1,492,000 2,002,872 Financed portfolio LTN - 177,999 177,999 252,575-177,999 177,999 252,575 Total 50,000 1,619,999 1,669,999 2,255,447 (*)They are classified in Current Assets in the Balance Sheet, as it refers to maturity of the operation and not to the maturity of the underlying collateral, less than 2 days. Page 15 of 37
b. Interbank deposits Due up to 30 days 16,320 13,123 From 31 to 180 days 68,712 22,848 From 181 to 365 days 9,648 2,842 Over 365 days 8,654 649 Total 103,334 39,462 c. Foreign currency Due up to 30 days (*) 96,130 47,856 Total 96,130 47,856 (*) They refer to high-liquidity investments. 6 Securities Up to 3 months From 3 to 12 months Over 12 months Total Total 0BCategories Trading securities 199,918 47,369 5,529 252,816 63,250 Securities available for sale 550,956 617,528 256,593 1,425,077 1,175,649 Total 750,874 664,897 262,122 1,677,893 1,238,899 1BCategories Curve value Market value Adjustmet Market value Trading securities 252,864 252,816 (48) 63,250 Securities available for sale 1,424,426 1,425,077 651 1,175,649 Total 1,677,290 1,677,893 603 1,238,899 Page 16 of 37
2BTypes of Securities Curve value Market value Adjustment Market value National Treasury Bill 1,586,143 1,586,747 604 1,042,834 Financial Treasury Bill 91,147 91,146 (1) 196,065 Total 1,677,290 1,677,893 603 1,238,899 For securities classified as "held for trading" and "available for sale", the measurement at market value is performed by discounting the future flow at present value using the interest rate curves built by an area independent of the business area which follows its own methodology, and leading practices of the market, in accordance with the specific characteristics of each security, based primarily on data published by the Stock Exchange, Commodities and Futures Exchange - BM&F BOVESPA and the National Association of Investment Banks and Security Dealers ANBIMA. The mark-to-market adjustments of securities classified as available for sale are recognized in a special account in the shareholders equity, net of tax effects. Securities classified as "held for trading" are measured at fair value with a corresponding entry in income and are presented in the balance sheet as current assets, irrespective of their maturity. Government bonds are kept in custody with the Special System for Settlement and Custody SELIC. As per Note 3d, the Bank recorded mark-to-market adjustments of securities for the semester ended June 30, 2014, loss of which deriving from this assessment totaled R$301 (2013 - R$3,460 loss), net of tax effects. The amount of R$5,115 (2013 R$5,466) was recorded in the equity account deriving from the use of Hedge Accounting of securities classified as available for sale securities. 7 Loans a. Analysis of the total loan portfolio by activity sector Loans: Rural 15,768 9,775 Industry 289,988 304,570 Commerce 196,420 33,748 Services 169,743 233,558 Financial Intermediation - 178,321 Individuals 2 45 671,921 760,017 Page 17 of 37
Other receivables - Foreign exchange portfolio: Advances on exchange contracts and income receivable: Industry 337,762 212,165 Commerce 172,880 14,769 Services 67,692-578,334 226,934 Total 1,250,255 986,951 b. Composition of the loan portfolio by range of maturity of transactions Falling due: From 1 to 180 days 856,346 499,937 From 181 to 365 days 339,608 127,961 Over 365 days 54,301 359,053 Total 1,250,255 986,951 c. Composition of the provision per risk levels In accordance with the CMN Resolution 2,682/99, presented below is the analysis of the loan portfolio and other credits (foreign exchange portfolio - advances on exchange contracts) and the related risk levels: Risk level % Minimum provision required Normal course loan Total loans 2014 Total loans Minimum provision required Total provision Effective % of provision AA - 791,778 791,778-1,504 0.19 A 0.50 2 2 - - 0.00 B 1.00 407,142 407,142 4,071 9,934 2.44 C 3.00 13,803 13,803 414 1,063 7.70 D 10.00 37,530 37,530 3,753 5,836 15.55 1,250,255 1,250,255 8,238 18,337 Page 18 of 37
Risk level % Minimum provision required Normal course loan Total loans 2013 Total loans Minimum provision required Total provision Effective % of provision AA - 560,809 560,809-673 0.12 A 0.50 232,368 232,368 1,162 1,324 0.57 B 1.00 156,437 156,437 1,564 4,052 2.59 C 3.00 27,362 27,362 821 2,225 8.13 D 10.00 9,975 9,975 998 1,654 16.58 986,951 986,951 4,545 9,928 1st Semester Loans renegotiated for the period 275,959 200,026 Renegotiated loans are basically composed of working capital renewals. During the Semesters ended, there were no write-offs to loss or loan recoveries prior written off as loss. The provision recorded by the Bank is bigger than the minimum provision required by BACEN, This is so because the Bank adopts the provision criterion established by the Headquarter (The Bank of Tokyo- Mitsubishi UFJ, Ltd,), which reflects the loss forecast of Management. d. Concentration of the largest debtors Balance Portfolio % Provisions Balance Portfolio % Provisions Largest Client 132,347 11 3,229 178,321 18 214 10 Following Largest clients 569,014 45 4,269 516,082 52 3,249 Other clients 548,894 44 10,839 292,548 30 6,465 1,250,255 100 18,337 986,951 100 9,928 Page 19 of 37
e. Changes in provision Changes in provision for allowance for doubtful loans were the following during the semester: 1st Semester Opening balance 14,664 8,619 Provision recognition 7,893 5,032 Provision reversal (4,220) (3,723) Closing balance 18,337 9,928 % of provision on the loans portfolio 1.47 1.01 8 Other receivables - Other Advances and prepayment of salaries 1,292 1,112 Tax credits from temporary differences (Note 20) - 1,628 Tax credits from temporary differences (Note 20) 12,531 13,357 Tax credits from MTM securities available for sale 200 2,307 Taxes to offset 18,477 12,629 Sundry debtors Domestic 31 1,785 Payments reimbursable 36 94 Other 8 4 Total 32,575 32,916 9 Permanent assets a. Property and equipment in use Depreciation rate Cost Accumulated depreciation Net value p.a. (%) Land - 1,416 1,416 - - 1,416 1,416 Buildings 4 28,457 25,613 10,800 8,384 17,657 17,229 Facilities, Machinery and equipment in use 10 7,324 6,432 1,585 1,306 5,739 5,126 Data processing system 20 10,092 6,716 4,170 3,580 5,922 3,136 Transport system 20 1,075 1,075 690 481 385 594 Security system 10 3,282 1,771 550 319 2,732 1,452 Communication system 10 1,299 1,309 715 496 584 813 Fixed asset in progress (*) - 14,050 6,647 - - 14,050 6,647 Total 66,995 50,979 18,510 14,566 48,485 36,413 (*)Refers to expenditures for expansion projects. Page 20 of 37
b. Intangible assets Amortization rate Cost Accumulated amortization Net Value p.a. (%) Expenditures on software acquisitions and development 20(*) 20,706 19,185 12,739 8,900 7,967 10,285 Total 20,706 19,185 12,739 8,900 7,967 10,285 (*)Development of new systems. c. Deferred assets Amortization rate Cost Accumulated amortization Net Value p.a. (%) Expenditures on software acquisitions and development 20 4,667 4,667 4,667 4,643-24 Branches and facilities improvements 20 1,036 1,036 993 951 43 85 Total 5,703 5,703 5,660 5,594 43 109 Page 21 of 37
10 Related party transactions According to the Bank, related parties are defined as the Headquarters and branches, parent companies and shareholders, companies related to them, the Bank s Management and other Management key staff and their relatives. Assets Revenues Assets Revenues (liabilities) (expenses) (liabilities) (expenses) Cash in foreign currency 7,710 (8,677) 36,164 2,517 The Bank of Tokyo-Mitsubishi UFJ, Ltd - London 1,592-2,084 - The Bank of Tokyo-Mitsubishi UFJ, Ltd - Tokyo 5,949-34,080 - The Bank of Tokyo-Mitsubishi UFJ, Ltd - Hong Kong 111 - - - The Bank of Tokyo-Mitsubishi UFJ, Ltd - Mexico 58 - - - - Exchange variation - (8,677) - 2,517 Interbank funds applied in foreign currencies 96,130 (2,827) 47,856 10,066 The Bank of Tokyo-Mitsubishi UFJ, Ltd - New York 96,130 (2,827) 47,856 10,066 - Interest - 16-774 - Exchange variation - (2,843) - 9,292 Demand deposits (34,322) - (33,240) - The Bank of Tokyo-Mitsubishi UFJ, Ltd - Tokyo (34,322) - (33,240) - Borrowings and repass borrowings (1,716,886) 101,948 (1,182,189) (149,567) The Bank of Tokyo-Mitsubishi UFJ, Ltd - New York (1,716,886) 101,948 (1,182,189) (149,567) - Interest - (1,486) - (114,334) - Exchange variation - 103,434 - (35,233) Swaps 1,563 (7,546) 8,534 (10,039) The Bank of Tokyo-Mitsubishi UFJ, Ltd - New York 1,563 (7,546) 8,534 (10,039) - Derivatives income - 6,922 - - - Derivatives expenses - (14,468) - (10,039) Other obligations - Services * - 14,182 - (1,321) The Bank of Tokyo-Mitsubishi UFJ, Ltd - New York - 13,652 - (1,321) The Bank of Tokyo-Mitsubishi UFJ, Ltd Leasing and Finance - 381 - - The Bank of Tokyo-Mitsubishi UFJ, Ltd Tokyo - (55) - - The Bank of Tokyo-Mitsubishi UFJ, Ltd London - 204 - - * Receivables and Payments. a. Remuneration of the Management s key personnel The maximum remuneration for the Executive Board which was established at an ordinary General Shareholders Meeting held at April 28, 2014 determined the maximum of R$14,052 to be distributed for directors. Page 22 of 37
1st Semester Fixed remuneration 2,281 1,880 Variable remuneration 1,383 1,510 Total 3,664 3,390 The variable remuneration payment to the Management is in compliance with the National Monetary Council (CMN) Resolution 3,921, of 11/25/2010, and is deferred over the minimum period of three months, and established as a result of the Management risks and activity. The number of shares held by the Executive Board is 10,618 shares, which account for 0.000243742% of the total number of shares. The Bank neither has post-employment benefits nor long-term benefits due to employment termination agreements for the Management s key personnel. b. Other information The Bank, in accordance with the legislation in force, cannot grant loans or advances: Neither to executive officers, nor to their respective spouses and relatives up to the 2 nd, degree; Individuals or legal entities that hold an equity interest higher than 10% of the Bank s capital; Legal entities, capital of which the Bank, or any of the executive officers or managers of the institution itself, as well as their spouses and respective relatives up to the 2 nd, degree, hold equity interest higher than 10%; and The Bank s majority shareholder. Accordingly, neither loans nor advances are performed by the Bank to any of the entities and people listed above. Note: The Bank does not have Administrative, Tax or Advisory boards and similar ones. 11 Deposits 2014 Due up From From 1 to From 3 to Without to 3 3 to 12 maturity months months 3 years 5 years Total Demand deposits 131,957 - - - - 131,957 Time deposits (*) - 195,385 1,041,767 287,245 3,481 1,527,878 Total 131,957 195,385 1,041,767 287,245 3,481 1,659,835 Page 23 of 37
2013 Without maturity Due up to 3 months From 3 to 12 months From 1to 3 months From 3 to 5 years Total Demand deposits 216,743 - - - - 216,743 Time deposits (*) - 99,149 469,590 1,101,825 46,189 1,716,753 Total 216,743 99,149 469,590 1,101,825 46,189 1,933,496 (*) In the balance sheets classified as current liabilities due to their liquidity characteristics. 12 Borrowings and repass borrowings Borrowings and repass borrowings refer to funds obtained in foreign currency from the Bank of Tokyo- Mitsubishi UFJ, Ltd. for the financing of foreign trade operations with maturity up to February 2015, in the amount of R$1,642,183 (2013 - R$835,532) and for external funding in accordance with Resolution 3,844 with maturities up to June 2018 in the amount of R$ 142,962 (2013 - R$346,657) and are corrected using the foreign exchange rate variation plus spread, and domestic repass borrowings due up to July 2020 in the amount of R$84,847 (2013 - R$58,082). 13 Foreign exchange portfolio a. Other receivables - Assets Description Forward foreign currency purchased 1,464,511 1,686,318 Rights on sales of foreign exchange 977,542 1,410,681 Credit balance of advances received (8,591) (17,397) Income receivable from advances granted 2,349 2,196 Total 2,435,811 3,081,798 b. Other obligations - Liabilities Description Forward foreign currency sold 967,501 1,439,924 Foreign exchange acquisition 1,497,317 1,642,441 Balance from advances on export contracts (576,063) (224,738) Unearned income from advances granted 77 - Total 1,888,832 2,857,627 Page 24 of 37
14 Taxes payable Description Provision for income and social contribution taxes 17,743 - Taxes and contributions on third party services 216 276 Taxes and contributions on payroll 1,983 5,394 Other taxes payable 943 485 Provision for deferred income tax (Note 20) 14,309 20,413 Provision for tax risks (Note 15) 59,219 49,155 Total 94,413 75,723 15 Assets and liabilities related to civil, labor and tax contingencies The provisions for contingent and tax liabilities are recognized in the financial statements as Other liabilities - Tax and social security when, based on the opinion of legal counsel, an unfavorable outcome for a judicial or administrative proceeding is regarded as probable, generating the probable disbursement of funds to settle the obligations, and when the amounts involved may be estimated with a reasonable level of certainty, regardless of whether judicial deposits are required or not. Legal obligations arise from lawsuits related to tax obligations, whose legality or constitutionality is being challenged, and which, regardless of the evaluation of the likelihood of a favorable outcome, have their amounts fully recognized in the financial statements. The deposits in court are recorded in the account Other receivable - Debtors for Guarantee Deposits. 2014 Provision for contingent liabilities (iii) Description Opening balance Additions to the provision Used/ Reversal Closing balance Deposits in court (iv) Civil provision 11,374 423-11,797 710 Labor provision 7,088 17 1,285 5,820 953 Other liabilities (v) 3,638 2,601 1,890 4,349-22,100 3,041 3,175 21,966 1,663 Page 25 of 37
Provision for tax risks Federal 54,117 4,577-58,694 91,347 Income and social contribution taxes (i) 18,520 - - 18,520 51,805 Cofins (ii) 35,426 4,577-40,003 38,905 Other taxes 171 - - 171 637 Municipal 525 - - 525 19,775 Total 54,642 4,577-59,219 111,122 Overall total 76,742 7,618 3,175 81,185 112,785 2013 Provision for contingent liabilities (iii) Description Opening balance Additions to the provision Used/ Reversal Closing Balance Deposits in court (iv) Civil provision 6,396 411-6,807 512 Labor provision 4,205 607 2,260 2,552 613 Other liabilities (v) 3,425 1,329 1,666 3,088-14,026 2,347 3,926 12,447 1,125 Provision for tax risks Federal 46,734 3,455 1,362 48,827 82,565 IR /CSLL (i) 19,166 649 1,350 18,465 51,844 Cofins (ii) 27,329 2,806 12 30,123 30,123 Other taxes 239 - - 239 598 Municipal taxes 328 - - 328 19,775 Total 47,062 3,455 1,362 49,155 102,340 Total Geral 61,088 5,802 5,288 61,602 103,465 (i) It refers, mainly, to the legal obligation with respect to the litigation related to the payment of IRPJ e CSLL, which derive from the unearned discount from loans under settlement from prior years. The Bank adhered to the program established by Law 11,941/09 (the REFIS Program) and withdrew from the litigation. However, no final and unappeasable decision has yet been reached for this litigation. (ii) It refers to the legal obligation related to the Tax for Social Security Financing (COFINS), on which the Bank litigates Law 9,718/98. According to the legal advisors opinion the chances of loss for this proceeding are possible. Page 26 of 37
(iii) (iv) (v) The provision for contingent liabilities is recorded as Other liabilities - Other. The balance of deposits in court includes the deposits for risks whose chances of loss were assessed as possible or remote. Refers to the allowance for losses on guarantees and sureties based on criteria similar to the CMN Resolution 2,682/99. Please refer to Note 23. There are proceedings of civil, labor and tax nature whose risk is evaluated by the legal advisors as being possible, in the amount of R$14,607 (2013 - R$ 43,750), for which no provision was recorded due to the fact that the accounting practices adopted in Brazil do not require its recognition. 16 Other liabilities - Other Description Provision for payments due 11,180 25,680 Other domestic creditors 1,750 837 Total 12,930 26,517 17 Shareholders equity Capital comprises 4,356,234,893 common nominative shares, with no par value, of which 14,120,090 are held by shareholders domiciled in Brazil, 24,194,146 are held in treasury and 4,317,920,657 are held by shareholders domiciled abroad. The Bank s by-laws establish the payment of a minimum dividend of 6% of net income, For this semester the amount of R$ 1,231 (2013 - R$1,151) was set aside. The capital reserves are composed of premium reserve due to subscription of shares and premium reserve in the disposal of treasury shares. The legal reserve is recorded as established in the Corporate Law, and may be used for offsetting losses or for capital increase. The statutory reserve corresponds to the transfer of funds accounted for in the retained earnings account, for the recording of Working Capital and Maintenance of the Operating Margin as established in the bylaws. 18 Derivative financial instruments The Bank s policy is to mitigate the market risks arising from operations through the use of derivative financial instruments. Market risk management is performed by an independent area, which uses practices that include the measurement and monitoring of the use of limits predefined by internal committees, for the value at risk in portfolios, for sensitivities of interest rate fluctuations, for exchange exposure, and for liquidity gaps, among other practices that permit the monitoring of the risks of fluctuation in asset prices, Page 27 of 37
interest rates and other factors that may affect the positions of the portfolios in the various markets where the Institution operates. The derivative financial instruments used for hedge purposes always have a credit risk equal to or lower than that of the financial instrument covered. The market value of swaps is determined considering the estimated cash flow of each transaction, discounted to present value based on applicable interest rate curves, which are considered as representative of the market conditions at the balance sheet closing date. Forward operations are recorded at the final value of the contract less the difference between this value and the cash price of the asset or right, and the income and expenses due to the elapsing of the terms of the contracts are recognized, up to the balance sheet date. Futures operations - daily adjustments are recorded in asset and liability accounts and allocated daily as income and expenses. The main interest rate curves are extracted from futures and swaps traded on the Futures and Commodities Exchange (BM&F BOVESPA). As of June 30, derivative financial instruments were represented as follows: Due up to 90 days From 91 to 365 days 2014 Over 365 days Total Futures Notional value 1,401,805 2,863,837 3,403,192 7,668,834 Long position 518,598 1,558,649 3,010,481 5,087,728 Foreign exchange coupon 64,137 1,432,015 2,868,717 4,364,869 Foreign currency 454,461 - - 454,461 Interest rate - 126,634 141,764 268,398 Short position 883,207 1,305,188 392,711 2,581,106 Foreign exchange coupon 207,831 180,050 29,568 417,449 Foreign currency 57,052 - - 57,052 Interest rate 618,324 1,125,138 363,143 2,106,606 Notional value MTM value (a) Accrual value (b) Appreciation / (depreciation) (a)-(b) Swap - Total net 4,384,008 (17,312) (3,209) (14,103) CDI X BBA Libor 756,464 (8,117) (16,649) 8,532 CDI X US$ 1,926,769 (11,758) 13,685 (25,443) LIBOR X PRE 1,629,692 1,563 (1,191) 2,754 PRÉ X CDI 37,360 337 184 153 PRÉ X US$ 33,723 663 762 (99) Page 28 of 37
Notional value MTM value (a) Accrual value (b) Appreciation / (depreciation) (a)-(b) NDF - Total net 559,224 15,117 19,545 (4,428) Long position 53,141 (2,286) (2,766) 480 Dollar 50,877 (2,108) (2,551) 443 Swiss Franc 2,264 (178) (215) 37 Short position 506,083 17,403 22,311 (4,908) Dollar 371,374 9,541 12,925 (3,384) Euro 56,683 1,785 2,461 (676) Yen 78,026 6,077 6,925 (848) Due up to 90 days 2013 From 91 to Over 365 days 365 days Total Futures Notional value 1,535,545 513,981 3,190,960 5,240,486 Long position 657,519 191,456 2,374,039 3,223,014 Foreign exchange coupon 1,107 188,883 2,290,870 2,480,860 Foreign currency 656,412 1,149-657,561 Interest rate - 1,424 83,169 84,593 Short position 878,026 322,525 816,921 2,017,472 Foreign exchange coupon 154,837 7,759 38,213 200,809 Foreign currency 441,061 - - 441,061 Interest rate 282,128 314,766 778,708 1,375,602 Notional value MTM value (a) Accrual value (b) Appreciation / (depreciation) (a)-(b) Swap - Total net 3,032,971 (139,232) (134,933) (4,299) CDI X US$ 1,010,019 (124,883) (106,117) (18,766) CDI X BBA-Libor 493,894 (21,653) (28,064) 6,411 LIBOR X PRÉ 1,503,036 8,534 377 8,157 PRÉ X CDI 13,305 (63) 36 (99) PRÉ X US$ 12,717 (1,167) (1,165) (2) Page 29 of 37
Notional value MTM value (a) Accrual value (b) Appreciation / (depreciation) (a)-(b) NDF - Total net 289,501 (11,336) (6,503) (4,833) Long position 29,561 2,983 2,027 956 Dollar 29,561 2,983 2,027 956 Short position 259,940 (14,319) (8,530) (5,789) Dollar 224,694 (11,833) (6,572) (5,261) Euro 33,504 (2,420) (1,914) (506) Yen 1,742 (66) (44) (22) Value and type of margins provided as guarantees The table below summarizes the amounts deposited at BM&FBOVESPA which are provided as guarantees for the operations with derivative financial instruments as of June 30, 2014: Assets provided as guarantee - BM&FBOVESPA Type of security Quantity Value Financial Treasury Bills (LFTs) 14,723 91,146 168,564 National Treasury Bills (LTNs) 859,500 785,281 561,291 Total 874,223 876,427 729,855 19 Hedge The Bank adopts the policy of hedging in accordance with its risk management policies. These hedge operations are carried out in compliance with the Bacen Circular 3,082 of 01/30/2002, which requires the periodic assessment of the hedge effectiveness, and the mark-to-market record of both derivative financial instrument and the hedged item, considering that it refers to a market risk hedge operation. The Bank takes out swap and futures contracts used as hedge instruments as fair value hedge strategy. Hedged items consist of securities initially designated as available for sale, and foreign currency borrowings. Hedging strategies aim at protecting the Bank against (i) foreign exchange variation risk and interest rate variation risk for principal and interest payments, for funding contracted abroad and indexed by the US currency and (ii) interest rate variation risk due to the acquisition of federal bonds at pre-fixed interest rates. Page 30 of 37