ITAÚ UNIBANCO HOLDING S.A. NOTES TO THE FINANCIAL STATEMENTS FROM JANUARY 1 TO SEPTEMBER 30, 2010 AND 2009 (In thous<strong>and</strong>s of Reais) NOTE 1 - OPERATIONS <strong>Itaú</strong> Unibanco Holding S.A. (ITAÚ UNIBANCO HOLDING) is a publicly-held company which, together with its subsidiary <strong>and</strong> affiliated companies, operates in Brazil <strong>and</strong> abroad, with all types of banking activities, through its commercial, investment, consumer credit, real estate loan, finance <strong>and</strong> investment credit, <strong>and</strong> lease portfolios, including foreign exchange operations, <strong>and</strong> other complementary activities, with emphasis on Insurance, Private Pension Plans, Capitalization, Securities Brokerage <strong>and</strong> Administration of Credit Cards, Consortia, Investment Funds <strong>and</strong> Managed Portfolios. <strong>Itaú</strong> Unibanco S.A. – - September0, 2010 70
NOTE 2 – PRESENTATION OF THE FINANCIAL STATEMENTS a) Presentation of the <strong>Financial</strong> <strong>Statements</strong> The financial statements of ITAÚ UNIBANCO HOLDING <strong>and</strong> of its subsidiaries (ITAÚ UNIBANCO HOLDING CONSOLIDATED) have been prepared in accordance with accounting principles established by the Brazilian Corporate Law, including the amendments introduced by Laws No. 11,638, of December 28, 2007, <strong>and</strong> No. 11,941, of May 27, 2009, in conformity, when applicable, with instructions issued by the Central Bank of Brazil (BACEN), the National Monetary Council (CMN), the Brazilian Securities <strong>and</strong> Exchange Commission (CVM) <strong>and</strong> the Superintendency of Private Insurance (SUSEP), <strong>and</strong> National Council of Private Insurance (CNSP), which include the use of estimates necessary to calculate accounting provisions. On May 12, 2010 SUSEP approved the contract signed on November 12, 2009 related to the acquisition by ITAÚ UNIBANCO HOLDING of a minority interest in the subsidiary company <strong>Itaú</strong> XL Seguros Corporativos S.A. for the amount of R$ 157,299, giving rise to a goodwill of R$ 24,700. The transaction was approved on October 6, 2010 by SUSEP. On September 20, 2010, ITAÚ UNIBANCO HOLDING purchased 50% of the quotas in the companies SFR Software <strong>and</strong> Análise de Sistemas LTDA <strong>and</strong> Previtec – Previdência e Tecnologia LTDA, according to the purchase agreement, for the amount of R$ 47,000, giving rise to a goodwill of R$ 42,530, <strong>and</strong> these companies became wholly-owned subsidiaries. In order to enable the proper analysis of the net income, the heading “Net income without nonrecurring effects” is presented below the Consolidated Statement of Income, <strong>and</strong> this effect is highlighted in a heading called “Exclusion of nonrecurring effects” (Note 22k). As set forth in the sole paragraph of article 7 of BACEN Circular No. 3,068, of November 8, 2001, securities classified as trading securities (Note 4c) are presented in the Balance Sheet under Current Assets regardless of their maturity dates. Lease Operations are presented, at present value, in the Balance Sheet, <strong>and</strong> the related income <strong>and</strong> expenses, which represent the financial result of these operations, are presented, grouped together, under loan, lease <strong>and</strong> other credit operations in the Statement of Income. Advances on exchange contracts are reclassified from Other Liabilities – Foreign Exchange Portfolio. The foreign exchange result is presented on an adjusted basis, with the reclassification of expenses <strong>and</strong> income, in order to represent exclusively the impact of variations <strong>and</strong> differences of rates on the balance sheet accounts denominated in foreign currencies. b) Convergence into international accounting st<strong>and</strong>ards The CMN Resolution No. 3,786, of September 24, 2009, <strong>and</strong> BACEN Circular No. 3,472, of October 23, 2009, established that from December 31, 2010 the financial institutions shall prepare <strong>and</strong> annually report their consolidated financial statements adopting the international financial reporting st<strong>and</strong>ards according to the pronouncements issued by the International Accounting St<strong>and</strong>ard Board (IASB), translated into the Portuguese language by a Brazilian company registered with the International Accounting St<strong>and</strong>ards Committee Foundation (IASC Foundation). The accounting pronouncements issued by the Accounting Pronouncements Committee (CPC) <strong>and</strong> the respective international st<strong>and</strong>ards of IASB that will be adopted in the consolidated financial statements until the end of 2010 <strong>and</strong> may impact the stockholders’ equity <strong>and</strong> or results are as follows: • CPC 2 (IAS 21) - Effects on changes in foreign exchange rates <strong>and</strong> conversion of financial statements: Effect on results from January 1 to September 30, 2010 (without effect on stockholders' equity) for allocation of foreign exchange variation in the stockholders' equity related to controlled companies using functional currency other than Real, basically represented by the <strong>Itaú</strong> Europa, Chile, Argentina, Uruguay <strong>and</strong> Paraguay units (Note 20). • CPC 11 (IFRS 4) – Insurance contracts: Management does not expect significant effects; • CPC 15 (IFRS 3) – Business combinations: in the period from January 1 to September 30, 2010, there was not any transaction that could exert significant effects; • CPC 24 (IAS 10) – Subsequent events: dividends <strong>and</strong> interest on capital declared after the accounting period to which the financial statements refer, if these are above the minimum m<strong>and</strong>atory dividend they shall be reversed with effect on stockholders' equity (Note 16b I); <strong>Itaú</strong> Unibanco S.A. – - September0, 2010 71
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