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CERTAIN TERMS AND CONVENTIONS

All references in this Form 6-K to (i) “Itaú Unibanco Holding,” “Itaú Unibanco Group,” “we,” “us” or “our” are references to Itaú Unibanco Holding S.A. and its consolidated subsidiaries, except where otherwise specified or required by the context; (ii) the “Brazilian government” are references to the federal government of the Federative Republic of Brazil, or Brazil; (iii) “preferred shares” are references to our authorized and outstanding preferred shares with no par value; and (iv) “common shares” are references to our authorized and outstanding common shares with no par value. All references to “ADSs” are to American Depositary Shares, each representing one preferred share, without par value. The ADSs are evidenced by American Depositary Receipts, or “ADRs,” issued by The Bank of New York Mellon, or BNY Mellon. All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “US$,” “dollars” or “U.S. dollars” are to United States dollars.

Additionally, unless specified or the context indicates otherwise, the following definitions apply throughout this Form 6-K:

Additionally, acronyms used repeatedly, defined and technical terms, specific market expressions and the full names of our main subsidiaries and other entities referenced in this report on Form 6-K are explained or detailed in the glossary of terms beginning on page 200 to our annual report on Form 20-F for the year ended December 31, 2022 filed with the SEC on April 28, 2023, or our 2022 Form 20-F.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 6-K contains statements that are or may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the United States Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and assumptions including, among other risks:

The words “believe”, “may”, “will”, “estimate”, “continue”, “anticipate”, “intend”, “expect” and similar words are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this report on Form 6-K might not occur. Our actual results and performance could differ substantially from those anticipated in such forward-looking statements.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

The information found in this Form 6-K is accurate only as of the date of such information or as of the date of this Form 6-K, as applicable. Our activities, our financial position and assets, the results of operations and our prospects may have changed since that date.

Information contained in or accessible through our website or any other websites referenced herein does not form part of this Form 6-K unless we specifically state that it is incorporated by reference and forms part of this Form 6-K. All references in this Form 6-K to websites are inactive textual references and are for information only.

Effect of Rounding

Certain amounts and percentages included in this Form 6-K, including in the section of this Form 6-K entitled “Operating and Financial Review and Prospects” have been rounded for ease of presentation. Percentage figures included in this Form 6-K have not been calculated in all cases on the basis of the rounded figures but on the basis of the original amounts prior to rounding. For this reason, certain percentage amounts in this Form 6-K may vary from those obtained by performing the same calculations using the figures in our unaudited interim consolidated financial statements. Certain other amounts that appear in this Form 6-K may vary slightly and figures shown as totals in certain tables may not be an arithmetical aggregation of the figures preceding them.

About our Financial Information

The reference date for the quantitative information derived from our consolidated balance sheet included in this Form 6-K is as of March 31, 2023 and December 31, 2022 and the reference dates for information derived from our consolidated statement of income are the three-month periods ended March 31, 2023 and 2022, except where otherwise indicated.

Our unaudited interim consolidated financial statements as of March 31, 2023 and December 31, 2022 and for the three-month periods ended March 31, 2023 and 2022, included at the end of this Form 6-K, are prepared in accordance with International Financial Reporting Standards, or IFRS, issued by the International Accounting Standards Board, or IASB.

Our unaudited interim consolidated financial statements as of March 31, 2023 and December 31, 2022 and for the three-month periods ended March 31, 2023 and 2022 were reviewed in accordance with International Standards on Auditing by PricewaterhouseCoopers Auditores Independentes Ltda., or PwC, our independent auditors. Such financial statements are referred to herein as our unaudited interim consolidated financial statements.

Please see “Note 30 – Segment Information” to our unaudited interim consolidated financial statements for further details about the main differences between our management reporting systems and our unaudited interim consolidated financial statements prepared in accordance with IFRS issued by the IASB.

SELECTED FINANCIAL DATA

We present below our selected financial data derived from our unaudited interim consolidated financial statements included in this Form 6-K. Our unaudited interim consolidated financial statements are presented as of March 31, 2023 and December 31, 2022 and for the three-month periods ended March 31, 2023 and 2022 and have been prepared in accordance with IFRS issued by the IASB.

Additionally, we present a summarized version of our Consolidated Statement of Income, Consolidated Balance Sheet and Consolidated Statement of Cash Flows in the section “Operating and Financial Review and Prospects.”

The following selected financial data should be read together with “Presentation of Financial and Other Information” and “Operating and Financial Review and Prospects.” 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with our unaudited interim consolidated financial statements and accompanying notes and other financial information included elsewhere in this Form 6-K and the description of our business in “Item 4. Information on the Company” in our 2022 Form 20-F. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in forward-looking statements as a result of various factors, including those set forth in “Forward-Looking Statements” herein and in our 2022 Form 20-F.

Results of Operations

The table below presents our summarized consolidated statement of income for the three-month periods ended March 31, 2023 and 2022. The interest rates cited are expressed in Brazilian reais and include the effect of the variation of the real against foreign currencies. For more information on the products and services we offer, see “Item 4. Information on the Company” in our 2022 Form 20-F.

Please see our unaudited interim consolidated financial statements for further details about our Consolidated Statement of Income.

Three-month period ended March 31, 2023, compared to three-month period ended March 31, 2022.

Net income attributable to owners of the parent company increased by 10.3% to R$7,355 million for the three-month period ended March 31, 2023, from R$6,668 million for the same period of 2022. This is mainly due to a 68.2%, or R$1,507 million, decrease in current and deferred income and social contribution taxes, and a 4.3%, or R$1,486 million, increase in operating revenues, offset by a 31.5%, or R$1,956 million, increase in expected loss from financial assets. These line items are further described below:

Net interest income increased by R$746 million, or 3.5%, for the three-month period ended March 31, 2023, compared to the same period of 2022, mainly due to increases in the following line items (i) R$20,367 million in interest and similar income, mainly due to increases of R$7,546 million in loan operations income, R$6,096 million in income from securities purchased under agreements to resell and R$4,400 million in financial assets at fair value through other comprehensive income; and (ii) R$6,710 million in income of financial assets and liabilities at fair value through profit or loss. These increases were offset by (i) an increase of R$15,171 million in interest and similar expenses; and (ii) a decrease of R$11,160 million in foreign exchange results and exchange variations in foreign transactions.

Brazilian tax legislation provides for gains and losses arising from exchange rate variations on permanent foreign investments to be included in the tax calculation basis, based on their nature, as well as foreign-exchange variations on the hedged portions of foreign investments which, according to Law No. 14,031 of July 28, 2020, must be included in the proportion of 50% in 2021 and 100% from 2022 onwards. Our investments abroad with risk coverage had their hedges 100% adjusted on December 31, 2021, in accordance with Law No. 14,031 of July 28, 2020. Accordingly, the depreciation of the real against foreign currencies, especially the U.S. dollar, generates losses on our hedging instruments abroad. Conversely, the appreciation of the real against foreign currencies, generates gains on our hedging instruments abroad. This affected our tax expenses recorded in the line items “current and deferred income and social contribution taxes” and “other operating income (expenses).” The nominal depreciation of the real against the U.S. dollar was 7.2% comparing March 31, 2023 with March 31, 2022, and the nominal appreciation of the real against the U.S. dollar was 16.8% comparing March 31, 2022 with March 31, 2021.

The fiscal effect on the hedging instruments for our investments abroad and other resulted in a gain of R$1,276 million for the three-month period ended March 31, 2023, compared to a loss of R$41 million for the same period of 2022.

Considering the fiscal effect on the hedging instruments for our investments abroad and other mentioned above in current and deferred income and social contribution taxes and tax expenses, net interest income increased by R$2,063 million for the three-month period ended March 31, 2023, compared to the same period of 2022.

Please see “Note 21 – Interest and similar income and expenses and income of financial assets and liabilities at fair value through profit or loss” to our unaudited interim consolidated financial statements for further details on interest and similar expenses.

Non-interest income increased by 5.6%, or R$740 million for the three-month period ended March 31, 2023 compared to the same period of 2022. This increase was mainly due to (i) a 39.2%, or R$488 million, increase in income from insurance contracts and private pension, due to higher insurance sales, mainly related to group life products, credit life and mortgage insurance products; and (ii) a 3.6%, or R$379 million, increase in commissions and banking fees, due to the higher transaction volume from credit and debit cards, both in the issuance and acquiring businesses.

The following chart shows the main components of our banking service fees for the three-month period ended March 31, 2023, and 2022:

Please see “Note 22 – Commissions and Banking Fees” to our unaudited interim consolidated financial statements for further details on banking service fees.

Expected Loss from Financial Assets

Our expected loss from financial assets increased by R$1,956 million, or 31.5%, for the three-month period ended March 31, 2023, compared to the same period of 2022, mainly due to an increase in expected loss with loan and lease operations of R$1,389 million for the three-month period ended March 31, 2023, compared to the same period of 2022. This increase was due to an increase in our credit portfolio and higher provisions in the Retail Business in Brazil, a result of the increase in origination of unsecured consumer credit products.

Please see “Note 10 — Loan and Lease operations” to our unaudited interim consolidated financial statements for further details on our loan and lease operations portfolio.

As of March 31, 2023, our 90-day NPL ratio was 3.3%, an increase of 30 basis points compared to March 31, 2022. This increase was due to the increase of 60 basis points in the 90-day NPL ratio in respect of our individuals loan portfolio, which experienced higher delinquency rates, especially in our credit card and vehicle financing portfolios. This was partially offset by a decrease of 20 basis points in the NPL ratio of our companies loan portfolio. In the first quarter of 2023, we recorded sales of active portfolios with no risk retention to unaffiliated companies. From these sales, R$141 million refer to active loans that were more than 90 days overdue, of which R$104 million would still be an active loan portfolio at the end of the period if not sold. Additionally, we sold R$84 million which refer to active portfolios non-overdue or with short delinquency that did not have a material impact on delinquency ratios.

We calculate our 15 to 90 days non-performing loan ratio as the value of our 15 to 90 days NPL to our loan portfolio. The 15 to 90 days NPL ratio is an indicator of early delinquency.

As of March 31, 2023, our 15 to 90 days NPL ratio was 2.5%, an increase of 40 basis points when compared to March 31, 2022. During this period our 15 to 90-day NPL ratio increased by 40 basis points in the 15 to 90-day NPL ratio of our individuals loan portfolio, which is returning to its pre-pandemic levels, mainly due to higher delinquency rates in the personal loan, mortgage and vehicle financing portfolios, and increased by 20 basis points in respect of our companies loan portfolio, as of March 31, 2023 compared to March 31, 2022.

The chart below shows a comparison of both NPL ratios for each quarter as of March 31, 2022, through March 31, 2023: 

The chart below shows a comparison in the coverage ratios for each quarter as of March 31, 2022, through March 31, 2023:

Other Operating Income (Expenses) increased by 2.4% to an expense of R$19,642 million for the three-month period ended March 31, 2023, from an expense of R$19,187 million for the same period of 2022. This increase was mainly due to the R$510 million, or 3.0%, increase in our general and administrative expenses for the three-month period ended March 31, 2023. This increase was due to: (i) the effects of our annual collective wage agreement; (ii) the growth in the number of employees; (iii) the increase in profit sharing expenses; (iv) higher expenses with data processing and telecommunications; and (v) higher expenses with depreciation and amortization.

Please see “Note 23 – General and Administrative Expenses” to our unaudited interim consolidated financial statements for further details.

Current and deferred income and social contribution taxes amounted to an expense of R$703 million for the three-month period ended March 31, 2023, from an expense of R$2,210 million in the three-month period ended March 31, 2022.

This was partially due to the fiscal effect on the hedging instruments for our investments abroad and other, as mentioned in “Net interest income,” which amounted to a gain of R$1,308 million for the three-month period ended March 31, 2023, compared to a gain of R$246 million for the same period of 2022. Disregarding this fiscal effect, current and deferred income and social contribution taxes decreased by R$445 million during this period.

Please see “Note 24 – Taxes” to our unaudited interim consolidated financial statements for further details.

Basis for Presentation of Segment Information

We maintain segment information based on reports used by senior management to assess the financial performance of our businesses and to make decisions regarding the allocation of funds for investment and other purposes.

Segment information is not prepared in accordance with IFRS issued by the IASB but based on BRGAAP. It also includes the following adjustments: (i) the recognition of the impact of capital allocation using a proprietary model; (ii) the use of funding and cost of capital at market prices, using certain managerial criteria; (iii) the exclusion or inclusion of extraordinary items from our results; and (iv) the reclassification of the tax effects from hedging transactions we enter into for our investments abroad.

Extraordinary items correspond to relevant events (with a positive or negative accounting effect) identified in our results of operations for each relevant period. We apply a historically consistent methodology (approved by our governance procedures) pursuant to which relevant events are either not related to our core operations or are related to previous fiscal years. The provisions for restructuring are extraordinary items and, as such, do not impact the results and analysis regarding our segment information below.

For more information on our segments, see “Item 4. Information on the Company” in our 2022 Form 20-F and “Note 30 – Segment Information” to our unaudited interim consolidated financial statements.

The table below sets forth the summarized results from our operating segments for the three-month period ended March 31, 2023:

The following discussion should be read in conjunction with our unaudited interim consolidated financial statements, especially “Note 30 – Segment Information.” The adjustments column shown in this note shows the effects of the differences between the segmented results (substantially in accordance with BRGAAP) and those calculated according to the principles adopted in our unaudited interim consolidated financial statements in IFRS as issued by the IASB.

Three-month period ended March 31, 2023, compared to the three-month period ended March 31, 2022:

This segment consists of business with retail customers, account holders and non-account holders, individuals and legal entities, high income clients (Itaú Uniclass and Personnalité) and the companies segment (microenterprises and small companies). It includes financing and credit assignments made outside the branch network, in addition to credit cards and payroll loans.

The following table sets forth our summarized consolidated statement of income with respect to our Retail Business segment for the three-month periods ended March 31, 2023, and 2022:

Net income from our Retail Business segment increased by 13.7%, to R$3,104 million for the three-month period ended March 31, 2023, from R$2,731 million for the same period of 2022. These results are explained as follows:

Operating revenues: increased by R$2,450 million for the three-month period ended March 31, 2023, compared to the same period of 2022, due to an increase of 13.6% in interest margin, as a result of the change in the mix of credit products. Moreover, non-interest income increased by 8.6% in the three-month period ended March 31, 2023, compared to the same period of 2022, driven by the increase in commissions and fees, as a result of the increase in acquiring revenues, due to the higher transaction volume from credit cards and higher gains from “flex” products offered as part of our merchant services (advance payment of card receivables by the acquirer), and of the increase in card-issuing activities due to the higher transaction volume related to credit cards. Revenues from insurance also increased, driven by the increase in earned premiums.

Cost of credit and claims increased by R$1,730 million for the three-month period ended March 31, 2023, compared to the same period of 2022, due to an increase in provisions for loan losses, driven by the increased origination in consumer credit and unsecured credit products.

Other operating income (expenses) increased by R$652 million for the three-month period ended March 31, 2023, compared to the same period of 2022, mainly due to (i) higher personnel expenses, as a result of our annual collective wage agreement and the increase in the number of employees in the period; and (ii) higher administrative expenses, due to the increase in expenses with data processing and telecommunications, and depreciation and amortization.

Income tax and social contribution for the Retail Business segment, as well as for the Wholesale Business segment and Activities with the Market + Corporation segment, is calculated by adopting the full income tax rate, net of the tax effect of any payment of interest on capital. The difference between the income tax amount determined for each business segment and the effective income tax amount, as stated in our unaudited interim consolidated financial statements, is recorded under the Activities with the Market + Corporation segment. As discussed above under “Net income attributable to owners of the parent company - Current and deferred income and social contribution taxes,” our current and deferred income and social contribution taxes decreased mainly as a result of a decrease in income before tax and social contribution.

(b) Wholesale Business

This business segment consists of products and services offered to middle-market companies, high net worth clients (Private Banking), and the operation of Latin American units and Itaú BBA, which is the unit responsible for business with large companies and investment banking operations.

The following table sets forth our summarized consolidated statement of income with respect to our Wholesale Business segment for the three-month periods ended March 31, 2023, and 2022:

Net income from the Wholesale Business segment increased by 33.0%, to R$4,861 million for the three-month periods ended March 31, 2023 from R$3,654 million for the same period of 2022. These results are explained as follows:

Operating revenues: increased by R$2,276 million, or 21.3%, for the three-month period ended March 31, 2023 compared to the same period of 2022, due to an increase of 32.0% in the interest margin, driven by the higher margin of liabilities recorded during the period and the increase in commissions and fees driven by higher fund management gains. As of March 31, 2023, we participated in 37 local operations, which included debentures and promissory notes issuance, as well as securitization transactions, totaling R$9.6 billion, ranking first in volume and in number of operations pursuant to a ranking published by the Brazilian Financial and Capital Markets Association (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais, or ANBIMA). In the equity markets, we ranked first in number of operations, participating in five operations (including Block Trades), and third in volume with R$1.4 billion, both in Dealogic´s ranking, as of March 31, 2023. We also provided financial advisory services for three M&A transactions in Brazil, totaling R$7.4 billion and were ranked seventh place in number of M&A deals and second place in volume in Dealogic’s ranking, as of March 31, 2023.

Cost of credit and claims increased by R$385 million for the three-month period ended March 31, 2023 compared to the same period of 2022, due to the increase in the provision for loan losses in Latin America, as a result of the slowdown in the growth of our credit portfolio and exchange variations, especially in Chile.

Other operating income (expenses) increased by R$392 million for the three-month period ended March 31, 2023, compared to the same period of 2022, mainly due to (i) higher personnel expenses as a result of the effects of the annual collective wage agreement, as well as the higher number of employees in the period, and (ii) the increase in administrative expenses due to higher expenses with data processing and telecommunications.

Income tax and social contribution for this business segment, as well as for the Retail Business and Activities with the Market + Corporation segments, is calculated by adopting the full income tax rate, net of the tax effect of any payment of interest on capital. The difference between the income tax amount determined for each segment and the effective income tax amount, as stated in our unaudited interim consolidated financial statements, is recorded under the Activities with the Market + Corporation segment. As discussed above, our current and deferred income and social contribution taxes increased mainly due to an increase in income before tax and social contribution.

(c)       Activities with the Market + Corporation

This segment consists of results from capital surplus, subordinated debt surplus and the net balance of tax credits and debits. It also includes the financial margin on market trading, treasury operating costs, and equity in earnings of companies not included in either of the other segments.

The following table sets forth our summarized consolidated statement of income with respect to our Activities with the Market + Corporation segment for the three-month periods ended March 31, 2023, and 2022:

Net income from the Activities with the Market + Corporation segment decreased by R$506 million, or 51.9%, for the three-month periods ended March 31, 2023, compared to the same period of 2022. We recorded a decrease in interest margin, mainly in our banking book.

Income tax and social contribution for this segment, as well as for the Retail Business and Wholesale Business segments, is calculated by adopting the full income tax rate, net of the tax effect of any payment of interest on capital. The difference between the income tax amount determined for each segment and the effective income tax amount, as stated in our unaudited interim consolidated financial statements, is recorded under the Activities with the Market + Corporation segment. As discussed above, our current and deferred income and social contribution taxes decreased mainly due to a decrease in income before tax and social contribution.

Balance Sheet

The table below sets forth our summarized balance sheet as of March 31, 2023 and December 31, 2022. Please see our unaudited interim consolidated financial statements for further details about our Consolidated Balance Sheet.

March 31, 2023, compared to December 31, 2022.

Total assets increased by R$67,426 million, as of March 31, 2023, compared to December 31, 2022, mainly due to an increase in financial assets at amortized cost. This result is further described below:

Financial assets at amortized cost increased by R$39,635 million, or 2.5%, as of March 31, 2023, compared to December 31, 2022, mainly due to an increase in interbank deposits, securities purchased under agreements to resell and securities at amortized cost, compulsory deposits in the Central Bank of Brazil, and loan and lease operations portfolio.

Interbank deposits, securities purchased under agreements to resell, securities at amortized cost increased by R$24,592 million, or 5.0%, as of March 31, 2023 compared to December 31, 2022, mainly due to increases of: (i) R$20,248 million in securities purchased under agreements to resell; and (ii) R$8,830 million in securities mainly in corporate securities, especially in rural product note (Cédula do Produtor Rural) and debentures.

Please see “Note 4 - Interbank Deposits and Securities Purchased Under Agreements to Resell” and “Note 9 - Financial assets at amortized cost – Securities” to our unaudited interim consolidated financial statements for further details. 

Loan and lease operations portfolio increased by R$6,809 million, or 0.7%, as of March 31, 2023, compared to December 31, 2022, mainly due to the increase of R$6,684 million in foreign loans – Latin America, due to the exchange variation. The increase of R$3,867 million in our individuals loan portfolio, was due to increases of R$3,474 million in mortgage loans; and R$2,995 million in personal loan; which were partially offset by the seasonal decrease of R$4,601 million in credit cards as holders tend to use their cards less in the first quarter.

Please see “Note 10 – Loan and Lease Operations” to our unaudited interim consolidated financial statements for further details.

The table below sets forth our summarized balance sheet – liabilities and stockholders’ equity as of March 31, 2023 and December 31, 2022. Please see our unaudited interim consolidated financial statements for further details about our Consolidated Balance Sheet.

 Total liabilities and stockholders’ equity increased by R$67,426 million, as of March 31, 2023, compared to December 31, 2022, mainly due to an increase in deposits. These results are detailed as follows:

Deposits increased by R$43,396 million as of March 31, 2023, compared to December 31, 2022, mainly due to an increase of R$45,616 million in time deposits, due to the commercial strategy for this product in the Retail Business segment.

Please see “Note 15 – Deposits” to our unaudited interim consolidated financial statements for further details.

Interbank market funds, institutional market funds and other financial liabilities increased by R$1,783 million, or 0.3%, as of March 31, 2023 compared to December 31, 2022, mainly due to an increase of R$11,646 million in interbank market funds, offset by a decrease of R$9,846 million in other financial liabilities.

Please see “Note 17 – Securities Sold Under Repurchase Agreements and Interbank and Institutional Market Funds” and “Note 18 – Other assets and liabilities” to our unaudited interim consolidated financial statements for further details.

Financial liabilities at fair value through profit or loss increased by R$6,898 million, or 8.9%, as of March 31, 2023 compared to December 31, 2022, mainly due to an increase of R$6,711 million in derivatives.

Please see “Note 6 – Derivatives” to our unaudited interim consolidated financial statements for further details.

Capital Management

Capital Adequacy

Through our ICAAP, we assess the adequacy of our capital to face the risks to which we are subject. For ICAAP, capital is composed of regulatory capital for credit, market and operational risks, and by the necessary capital to cover other risks.

In order to ensure our capital soundness and availability to support business growth, we maintain capital levels above the minimum requirements, according to the Common Equity Tier I, Additional Tier I Capital, and Tier II minimum ratios.

Our Total Capital, Tier I Capital and Common Equity Tier I Capital ratios are calculated on a consolidated basis, applied to institutions included in our Prudential Conglomerate which comprises not only financial institutions but also consortium administrators (administradoras de consórcio), payment institutions, factoring companies or companies that directly or indirectly assume credit risk, and investment funds in which our Itaú Unibanco Group retains substantially all risks and rewards.

As of March 31, 2023, our Total Capital reached R$188,752 million, an increase of R$3,337 million compared to December 31, 2022. Our Basel Ratio (calculated as the ratio between our Total Capital and the total amount of Risk Weighted Asset, or RWA) remained at 15.0%, mainly due to the result from the increase in assets weighted by credit risk and prudential and equity adjustments.

Additionally, the Fixed Assets Ratio (Índice de Imobilização) indicates the level of total capital committed to adjusted permanent assets. Itaú Unibanco Holding is within the maximum limit of 50% of the adjusted total capital, as established by the Central Bank. As of March 31, 2023, our Fixed Assets Ratio reached 20.4%, which presents a buffer of R$55,827 million.

Our Tier I ratio remained stable in relation to December 31, 2022. The main changes were: the increase in the result of the period, offset by the growth in the loan portfolio and prudential and equity adjustments.

Please see “Note 32 – Risk and Capital Management” of our unaudited interim consolidated financial statements for further details about regulatory capital.

Liquidity Ratios

The Basel III Framework introduced global liquidity standards, providing for minimum liquidity requirements and aims to ensure that banks can rely on their own sources of liquidity, leaving central banks as a lender of last resort.

Basel III provides for two liquidity ratios to ensure that financial institutions have sufficient liquidity to meet their short-term and long-term obligations: (i) the liquidity coverage ratio, or LCR, and (ii) the net stable funding ratio, or NSFR.

We believe that the LCR and NSFR provide more relevant information than an analysis of summarized cash flows.

We present below a discussion of our LCR for the average of the three-month period ended on March 31, 2023, and NSFR as of March 31, 2023.

Liquidity Coverage Ratio

The LCR measures the short-term resistance of a bank’s liquidity risk profile. It is the ratio of the stock of high-quality liquid assets to expected net cash outflows over the next 30 days, assuming a scenario of idiosyncratic or systemic liquidity stress.

We calculate our LCR according to the methodology established in Central Bank Circular No. 3,749/2015. We measure our total high liquidity assets for the end of each period to cash outflows and inflows as the daily average value for each period. Pursuant to Central Bank regulations, effective as of January 1, 2019, the minimum LCR is 100%.

Our average LCR as of March 31, 2023, was 162.1% and, accordingly, above the Central Bank requirements.

Net Stable Funding Ratio

The NSFR measures long-term liquidity risk. It is the ratio of available stable funding to required stable funding over a one-year time period, assuming a stressed scenario.

We calculate our NSFR according to the methodology established in Central Bank Circular No. 3,869/2017. The NSFR corresponds to the ratio of our available stable funds for the end of each period (recursos estáveis disponíveis, or ASF) to our required stable funds for the end of each period (recursos estáveis requeridos, or RSF).

Pursuant to Central Bank regulations, effective as of October 1, 2018, the minimum NSFR is 100%.

As of March 31, 2023, our ASF totaled R$1,203.8 billion, mainly due to capital and Retail Business and Wholesale Business funding, and our RSF totaled R$933.8 billion, particularly due to loans and financings with Wholesale Business and Retail Business customers, central governments and transactions with central banks.

As of March 31, 2023, our NSFR was 128.9% and, accordingly, above Central Bank requirements.

Liquidity and Capital Resources

We define our consolidated group operational liquidity reserve as the total amount of assets that can be rapidly turned into cash, based on local market practices and legal restrictions. The operational liquidity reserve generally includes: (i) cash and deposits on demand, (ii) funded positions of securities purchased under agreements to resell and (iii) unencumbered government securities.

The following table presents our operational liquidity reserve as of March 31, 2023 and 2022:

Our main sources of funding are interest-bearing deposits, deposits received under repurchase agreements, on lending from government financial institutions, lines of credit with foreign banks and the issuance of securities abroad.

Please see “Note 15 – Deposits” to our unaudited interim consolidated financial statements for further details about funding.

Capital Expenditures

In accordance with our practice in the last few years, our capital expenditures in the three-month period ended March 31, 2023, were funded with internal resources. We cannot provide assurance that we will make capital expenditures in the future and, if made, that the amounts will correspond to the current estimates. The table below presents our capital expenditures in the three-month period ended March 31, 2023, and in the year ended December 31, 2022:

Please see “Note 13 – Fixed Assets” and “Note 14 – Goodwill and Intangible Assets” to our unaudited interim consolidated financial statements for details about our capital expenditures.

Capitalization

The table below presents our capitalization as of March 31, 2023. The information described is derived from our unaudited interim consolidated financial statements as of and for the three-month period ended March 31, 2023. As of the date of this Form 6-K, there has been no material change in our capitalization since March 31, 2023.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, other than the guarantees, financial guarantees, commitments to be released, letters of credit to be released and contractual commitments that are described in “Note 13 – Fixed assets,” “Note 14 – Goodwill and Intangible assets,” “Note 32 – Risk and Capital Management, I.I – Collateral and policies for mitigating credit risk” and “Note 32 – Risk and Capital Management – I.IV – Maximum Exposure of Financial Assets to Credit Risk” to our unaudited interim consolidated financial statements. 

REGULATORY RECENT DEVELOPMENTS

We are subject to the regulation and supervision of various regulatory entities in the segments we operate. The supervision of these entities is essential to the structure of our business and directly impacts our growth strategies. Below we describe the main public consultations, resolutions, rules, or laws that are currently in force in the Brazilian legal system, with which we are required to comply. In addition, we are also subject to the regulations described in “Item 4B. Business Overview - Supervision and Regulation” of our 2022 Form 20-F.

We describe below the material regulatory developments applicable to us that took place during the three-month period ended March 31, 2023 and through the date of this Form 6-K.

Central Bank regulates partnerships and outsourcing services established within PIX

On February 17, 2023, the Central Bank published Resolution No. 293, which establishes additional rules for partnerships and outsourcing arrangements established within PIX (Central Bank’s instant payments system) by market participants, which were previously defined in Central Bank Resolution No. 269, issued on December 1, 2022. Both rules amended Central Bank Resolution No. 1, which establishes the regulations for the PIX payment scheme.

Central Bank Resolution No. 269, among other amendments, introduced the definition of “partnerships” within the PIX scheme as a commercial relationship between two or more institutions directly participating in the PIX scheme and “outsourcing” as a relationship between a participating institution and a non-participating private agent. Central Bank Resolution No. 269 also explicitly prohibits PIX related outsourcing arrangements in two cases: (i) when the third party offers transactional accounts (i.e., current or payment accounts, among other types as defined by Central Bank Resolution No. 1, of 2020, which establishes the PIX regulations); and (ii) when the third party does not hold a transactional account but initiates payment transactions through an account provided by a participating institution.

The first type of outsourcing is expressly forbidden because the agent that holds a transactional account and wishes to offer PIX to its customers must necessarily be a PIX participant, going through the adhesion process, which includes the performance of software homologation tests and the evaluation of the requirements for user experience, rather than relying on another direct PIX participant to offer PIX transactions to its client-base.

Through Resolution No. 293, the Central Bank defined a transition regime for institutions that implemented the first type of restricted outsourcing arrangement, applicable to institutions with agreements in effect as of December 1, 2022, provided they submit a request to join the PIX scheme as a direct participant by May 31, 2023. With the transition regime, such agents may, exceptionally, maintain the PIX offering to their clients through an outsourcing arrangement executed with a PIX participant for the duration of the adhesion process.

Regarding the second type, the rule simply reiterates the regulatory impediment that payment initiation service providers, or PISPs, carry out their activities without the required authorization to operate from the Central Bank and mandatory participation in Open Finance.

The changes introduced by Central Bank Resolution No. 269 mentioned herein, as well as the entirety of Central Bank Resolution No. 293, entered into effect on March 1, 2023.

Central Bank improves implementation requirements to the Open Finance process

On February 27, 2023, the Central Bank published Resolution No. 294, which amended Central Bank Resolution No. 32, of October 29, 2020, and established technical requirements and operational procedures for the Open Finance implementation in Brazil. The main change introduced by the new rule is related to the scope of the monitoring function assigned to the governance structure responsible for implementing Open Finance.

The rule also improves definitions regarding the directory of Open Finance participants and the responsibility for managing their information, formally establishing the need for prior consent from the Central Bank in case of exclusion of a participating institution from the ecosystem or exclusion of a participation modality.

On the same date, the Central Bank also published Resolution No. 295, which exempts from mandatory participation in the Open Finance ecosystem institutions that (i) do not hold accounts that can be freely used by their clients through electronic channels; (ii) do not have individuals, microentrepreneurs and small companies as clients, as defined in Supplementary Law No. 123, of December 13, 2006; (iii) offer unblocked accounts (contas de livre movimentação) only to a specific and limited set of individual clients, such as their own employees, and other cases in which their participation is not able to bring customers significant benefits in the light of the objectives and principles of Open Finance; or (iv) provide their clients with access to electronic channels to operate their accounts only in contingency situations.

Unlike the previous criteria of exemption, which was automatic, the Open Finance participation waivers introduced by Resolution No. 295 will require prior approval by the Central Bank.

Resolutions Nos. 294 and 295 entered into effect on April 1, 2023.

Central Bank establishes guidelines for acceptance of Bank Credit Certificates as collateral for the issuance of Financial Liquidity Lines

On March 3, 2023, the Central Bank defined basic guidelines, through Central Bank Vote No. 40/2023, for the acceptance of Bank Credit Certificates (Cédulas de Crédito Bancário, or CCBs) as eligible collateral in the context of the issuance of Financial Liquidity Lines (Linhas Financeiras de Liquidez, or LFL) by the Central Bank.

The LFL were established by the Central Bank in 2021, as a structural measure to improve its operational framework for the purposes of supplying liquidity to the National Financial System, whether in response to market-wide dysfunctions or specific problems in some institutions. Currently, the only assets eligible to be offered as collateral are debentures and commercial certificates.

The definition of guidelines, approved by Central Bank Vote No. 40/2023, aims to direct and coordinate the market for the developments necessary for effective operation as of the first quarter of 2024. In summary, book-entry and notarial CCBs deposited in Central Depositaries of financial assets will be eligible as collateral for LFLs. The admissibility rules will be similar to those of the Special Temporary Liquidity Line for the Acquisition of Financial Bills Guaranteed by Financial Assets (Linha Temporária Especial de Liquidez para Aquisição de Letra Financeira com Garantia em Ativos Financeiros, or LTEL-LFG), whose criteria will be determined based on the information provided by the Credit Information System (Sistema de Informações de Crédito, or SCR). The Central Bank will also define the eligible modalities of credit and the phasing in of the production of these modalities.

The incorporation of CCBs as eligible collateral assets in the LFL is a structural measure in the LFL evolution agenda. With the evolution, the Central Bank will seek to deepen the use of the LFL to allow the structural reduction of compulsory deposits. These changes are expected to be implemented in the first quarter of 2024.

Central Bank announces guidelines for the pilot project of its digital currency, the “Real Digital”

On March 6, 2023, the Central Bank reviewed the guidelines applicable to its proposed digital currency, the Real Digital, through Vote No. 31/2023.

Some relevant guidelines applicable to the project include (i) that tokenized assets will follow their respective regulatory regimes, so as not to generate asymmetry between the current and tokenized forms of these assets; (ii) the emphasis on the design of a distributed ledger technology, or DLT, that enables the registration of assets of various natures and the incorporation of technologies with smart contracts and programmable currency; and (iii) total adherence to the regulations concerning secrecy, data protection, and anti-money laundering.

In line with the updated guidelines, the pilot project began in March 2023, with the first tests of a platform for operations with the “Real Digital”, a collaborative environment for testing and developing of the solution.

Additionally, on April 27, 2023, the Central Bank issued Resolution No. 315, which establishes formal rules applicable to the pilot project of the “Real Digital” and institutes the Executive Management Committee of the “Real Digital” platform.

Pursuant to Resolution No. 315, the number of participants in the pilot project is limited to up to 10 institutions subject to Central Bank supervision, such as us, selected according to criteria and procedures set forth in the regulation. The Executive Committee received proposals from entities interested in participating in the pilot project. The rule also provides that the Executive Committee of the pilot project could expand the list of selected participants to up to 20 candidates, if necessary. Institutions authorized to operate by the Central Bank that necessarily have the capacity to test, based on their corresponding business model, transactions involving the issuance, redemption or transfer of financial assets, as well as executing the simulation of financial flows resulting from trading events, when applicable to financial assets subject to the test, were allowed to participate in the pilot project. On May 24, 2023, the regulator disclosed a list of 14 selected participants, which included us. Adhesion will be formalized through the execution of a Term of Participation and the submission of a proposal to the Central Bank. The Central Bank will begin incorporating participants into the Real Digital Pilot platform by mid-June 2023.

Resolution No. 315 also establishes that, during the conduction of the pilot project, a forum will be created for the exchange of information and adequate orientation of the expectations in relation to the development of the “Real Digital” platform and the proposed tests.

Central Bank Resolution No. 315 entered into effect on April 28, 2023.

Central Bank approves changes in the local rules applicable internal ratings-based approach for credit risks established in Basel III

On March 16, 2023, the Central Bank issued Resolution No. 303, which provides for changes in the calculation of the capital requirement related to credit risk exposures calculated through the internal ratings-based, or IRB, approach (RWACIRB). This new rule is in accordance with the best practice recommendations of the Basel Committee on Banking Supervision, or BCBS, inserted in the set of recommendations known as "Basel III" and will replace Central Bank Circular No. 3,648, issued on March 4, 2013.

The Central Bank expects that the new framework of IRB approaches will be more robust and limit the variability of the capital requirement among the institutions that eventually adopt them. To this end, Resolution No. 303 introduces limits for some parameters, reduces the set of portfolios eligible to the IRB approaches and introduces several improvements to the applicable prudential regulation, including flexibility in the application process for the use of the IRB approaches, which now allows partial adoption by the institution, for specific portfolios.

The rule is applicable to financial institutions classified in segments S1, such as us, and S2, according to classifications issued by the Central Bank for the purposes of the proportional application of prudential regulation according to systemic risk. Currently, none of the institutions included in these segments, including us, uses IRB approaches, whose adoption is optional and subject to prior approval by the Central Bank.

Resolution No. 303 will enter into effect on July 1, 2023.

Central Bank introduces changes to the Pillar 3 Report

On March 23, 2023, the Central Bank issued Resolution No. 306, in order to alter several prudential rules to include in their scope of application regulatory conglomerates (conglomerados prudenciais) led by payment institutions.

Among such adjustments, this rule also updated Central Bank Resolution No. 54, issued on December 16, 2020, which establishes the disclosure of Pillar 3 report and is applicable to regulatory conglomerates led by financial institutions, such as ours.

Among other changes, two new topic sections were included in the Pillar 3 report. The first deals with the comparison between the RWA, amounts calculated through the standard approach and through the IRB approaches, and the second with the disclosure of information related to assets subject to any impediment or restriction of negotiation due to a legal, regulatory, statutory or contractual aspect.

Resolution No. 306 will enter into effect on July 1, 2023.

Central Bank issues regulations on the registration and centralized deposit of real estate receivables

On March 28, 2023, the Central Bank issued Resolution No. 308, which regulates the activities of registration and centralized deposit of real estate receivables associated with real estate projects.

The intention is to enable, at the discretion of the market participants, the use of the services provided by the registering entities and central depositaries and the structure of the systems managed by these institutions improve the management process of real estate receivables and the broader and more transparent access to the receivables agendas by potential financiers, which could contribute to the access to better credit conditions for developers and subdivision owners.

The rule also details the procedures applicable to registration entities and central depositaries so they may obtain a specific authorization from the Central Bank to operate with real estate receivables.

Resolution No. 308 came into effect on May 2, 2023, although provisions regarding interoperability between different registration entities and central depositaries have a specific implementation schedule.

Central Bank issues new rule on accounting standards

On March 28, 2023, the Central Bank issued Resolution No. 309, in accordance with the recent efforts from the regulator to adjust the accounting standard for institutions regulated by the Central Bank in line with international pronouncement “IFRS 9 – Financial Instruments” issued by the IASB, applying to the individual statements of financial institutions operating in Brazil. These concepts have already been applied to consolidated financial statements.

This new rule establishes accounting procedures to (i) define the components of financial instruments which constitute payments of principal and interest on the principal value for the purposes of classification of financial assets; (ii) define the methodology for determining the effective interest rate of financial instruments; (iii) establish parameters to measure the expected loss associated with credit risk, including for setting minimum levels of allowance for expected losses associated with credit risk; and (iv) detail the information on financial instruments to be disclosed in explanatory notes.

Accordingly, the changes provided aim to introduce a methodology for determining the effective interest rate of financial instruments that reflect the actual rate of return on these instruments in the financial statements, as well as provide new parameters for constituting an allowance for expected losses associated with the credit risk of financial instruments, which, for the purposes of Resolution No. 309, has the loss incurred as one of its components.

Resolution No. 309 will come into effect on January 1, 2025.

CMN overhauls the regulatory regime applicable to credit derivatives

On April 20, 2023, the National Monetary Council, or CMN, issued Resolution No. 5,070, which overhauled the rules governing the performance of credit derivative operations by financial institutions and other institutions authorized to operate by the Central Bank. Through the new resolution, the CMN seeks to adapt Brazilian regulations to the innumerous changes the market has undergone internationally since the publication of the previous rule applicable to such operations, CMN Resolution No. 2,933, in 2002.

The new rules have been studied by the Central Bank since 2015 and incorporate several suggestions from interested market participants, which contributed to the final format of the regulation through Public Consultation No. 84 in 2021.

The regulation considers two types of credit derivative: the credit default swap, or CDS, and the total return swap, or TRS. In both types, the counterparty defined in the rule as the receiver of the risk sells protection against the credit risk of one or more reference entities to the counterparty defined as transferring the risk.

Additionally, the main changes provided in the new regulation include: (i) the updating of the list of institutions able to act as a counterparty receiving credit risk in transactions carried out with financial institutions, which now incorporates non-financial entities (such as insurance companies, pension entities and investment funds, among others), provided that they meet the requirements established by the Brazilian Securities Commission (Comissão de Valores Mobiliários, or CVM) to be classified as a professional investor; (ii) the possibility of specifying credit indices, asset indices, baskets or reference portfolios as reference entities and obligations of the credit derivatives; (iii) the permission for the performance of credit derivatives with financial flows denominated or referenced in currency or price indices other than those denominating or indexing the reference obligation; (iv) the permission for credit derivatives to have reference obligations of lower liquidity, as long as their pricing methodology complies with the rules contained in the regulatory framework applicable to derivatives; (v) the expansion of the list of institutions able to act as suppliers of quoted values for the reference obligations, including regulatory or self-regulatory entities and international trading platforms; and (vi) flexibilization of the requirement for maintaining ownership of the reference obligation by the counterparty transferring the risk, which will now be mandatory only in cases where the reference obligation is one or more credit or leasing transactions.

The new rule also established several formal adjustments, updating defined terms, designations, informational requirements of the contracts and types of credit events that may be contracted, in line with the standards proposed by the International Swaps and Derivatives Association, or ISDA.

The Central Bank´s expectation is that the new rule, which incorporates international practices, standards and concepts, will serve as an inductive element for the development of the credit derivatives market in Brazil, offering more appropriate conditions for the pricing and management of credit risk and contributing to the expansion of long-term credit in Brazil, in all its forms.

Resolution No. 5,070 will enter into effect on June 1, 2023.

Provisional Measure changes tax rules for Brazilian individuals who hold foreign investments

On April 30, 2023, the Brazilian Federal Government issued the Provisional Measure No. 1,171, which changed the rules applicable to the taxation of Brazilian individuals that hold investments in foreign jurisdictions, also establishing a specific tax regime to trusts.

According to Provisional Measure No. 1,171, from January 2024 onwards, the earnings from capital invested abroad, derived from financial investments, profits and dividends from controlled entities and assets and rights held in trusts will be subject to the assessment of the Income Tax at the rates varying from zero to 22.5%, as follows: (i) zero, over the earnings up to BRL 6,000; (ii) 15%, over the earnings that exceed BRL 6,000 and do not surpass BRL 50,000; and (iii) 22.5% over the earnings above BRL 50,000.

Specifically in the case of financial investments held abroad, the earnings registered abroad will be offered to taxation in the Annual Income Tax Returns of the individual at the rates provided above (separately from the other earnings), considering the period in which the earnings were actually made available to that individual (i.e., upon redemption, amortization, liquidation, end of the term or sale of the investment).

In turn, Provisional Measure No. 1,171 sets forth the automatic taxation, on December 31 of each year of profits generated from January 1, 2024 onwards by controlled foreign entities. Provisional Measure No. 1,171 defined controlled foreign entities as all foreign entities, with or without legal personality, including investment funds and foundations, in which the individual (together with other related persons) (i) holds, directly or indirectly (including due to specific vote arrangements, such as a shareholders agreement), powers that grant him/her preponderance in corporate decisions or the power to elect or dismiss the majority of its managers; or (ii) holds, directly or indirectly, more than 50% of the entity’s share capital (or equivalent) or the right to receiving 50% or more of its profits or of its assets (the latter, in case of liquidation).

Moreover, Provisional Measure No. 1,171 established that only the controlled foreign entities that (i) are located in tax haven jurisdictions or privileged tax regimes, as defined under Brazilian tax law; or (ii) have less than 80% of active income (defined as the income derived from the entity’s own business, except the one derived from royalties, interest, dividends, equity participation, lease, capital gains – not considering the one deriving from equity participation held for more than 2 years –, financial investments and financial intermediation), in comparison with their total income. The losses registered from the coming into effect of Provisional Measure No. 1,171 will be allowed to be offset, without any time limitation, with future profits of the same entity. Profits generated until 31 December 2023 or of any legal entities that are not framed by the concept of “controlled foreign entities” will only be subject to taxation when made available to the Brazilian individual.

The currency exchange rate variation of the principal invested in controlled foreign entities, whether or not they are located in a tax haven and/or privileged tax regime or have passive income, will comprise the capital gain perceived by the individual at the time of disposal, write-off, or liquidation of the investment, including by means of a devolution of capital.

Provisional Measure No. 1,171 also provided for a specific tax treatment for trusts of Brazilian individuals abroad, basically determining that the assets and rights that compose the trust will be considered as owned by (i) remaining under the ownership of the settlor after the establishment of the trust; and (ii) passing to the ownership of the beneficiary at the time of distribution, by the trust, to the beneficiary or upon the death of the settlor, whichever comes first. Trusts may still be framed by the concept of controlled foreign entities, as defined above. From January 1st, 2024, onwards, the distribution by the trust to the beneficiary shall have the legal nature of a gratuitous transfer from the settlor to the beneficiary – thus being a donation if it occurs during the settlor's lifetime, or an inheritance if resulting from the Settlor's death.

Irrespective of all of the above, Brazilian individual may opt to update their tax basis on investments held abroad to the market value of the assets on December 31, 2022, by collecting the Income Tax over the positive difference between its current tax basis on the assets and the market value of those assets until November 30, 2023.

In the case of controlled foreign entities whose tax basis has been updated to December 31, 2022, Provisional Measure No. 1,171 also authorized the update of the tax basis from December 31, 2022, to December 31, 2023, by means of the collection of the Income Tax at a 10% rate until May 31, 2024.

Finally, Provisional Measure No. 1,171 (i) prohibited the calculation of capital gains in foreign currency in the case of assets also acquired in foreign currency by Brazilian individuals; (ii) revoked the non-taxation of assets acquired abroad when the individual as not tax-resident in Brazil; and (iii) increased the exempt amounts of the individuals’ income tax.

Provisional Measure No. 1,171 came into force in May 1, 2023, but it is still subject to the approval of the Brazilian National Congress, which has 60 days, extendable in 60 more days, to approve or reject the measure.

CMN and Central Bank issue new rule on data sharing to prevent frauds within the National Financial and Payment Systems

On May 23, 2023, the CMN and the Central Bank issued the Joint Resolution No. 6, which establishes the obligation for financial institutions and other entities authorized by the Central Bank to share among each other information about frauds occurred within the National Financial System (Sistema Financeiro Nacional, or SFN), and Brazilian Payment System (Sistema de Pagamentos Brasileiro, or SPB). The rule aims to reduce the asymmetry of data and information faced by these institutions to support procedures and controls in their fraud prevention processes, as well as improve their practices.

Joint Resolution No. 6 establishes the registry of minimum information that must be shared, which includes: (i) the identification of the person who would have committed or tried to commit fraud; (ii) the description of the indications of the occurrence or the attempt of fraud; (iii) identification of the institution responsible for the data and information registry; and (iv) identification of the recipient account and its holder, in case of transfers or payments. During the implementation of the electronic system provided in the Joint Resolution No. 6, the institutions must comply with some requirements, such as (i) allowing unrestricted access to the system’s functionalities, provided the identification of the person who accessed it; (ii) adoption of a single common standard communication that allows the execution of its functionalities; and (iii) establishment of procedures and controls to guarantee compliance with applicable regulations, confidentiality, among others.

According to the Joint Resolution No. 6, institutions are responsible for the use of data and information obtained through the electronic system, as well as for observing bank secrecy requirements. They must also obtain their clients’ prior contractual consent in order to process and share the fraud data.

Joint Resolution No. 6 will come into effect on November 1, 2023.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 25, 2023

Itaú Unibanco Holding S.A.

By: /s/ Milton Maluhy Filho
Name: Milton Maluhy Filho
Title: Chief Executive Officer

By: /s/ Alexsandro Broedel
Name: Alexsandro Broedel
Title: Chief Financial Officer

FINANCIAL STATEMENTS

Itaú Unibanco Holding S.A.
and its subsidiaries

Consolidated financial
statements in IFRS at March 31, 2023
and report on review

Report on review of consolidated
financial statements

To the Board of Directors and Stockholders

Itaú Unibanco Holding S.A.

Introduction

We have reviewed the accompanying consolidated balance sheet of Itaú Unibanco Holding S.A. and its subsidiaries ("Bank") as at March 31, 2023 and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for the three-month period then ended, and notes to the financial statements, including significant accounting policies and other explanatory information.

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Accounting Standard (IAS) 34 - "Interim Financial Reporting" issued by the International Accounting Standards Board (IASB). Our responsibility is to express a conclusion on these consolidated financial statements based on our review.

Scope of review

We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" and ISRE 2410 - "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", respectively). A review of financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated financial statements referred to above do not present fairly, in all material respects, the financial position of Itaú Unibanco Holding S.A. and its subsidiaries as at March 31, 2023, and the consolidated financial performance and its consolidated cash flows for the three-month period then ended, in accordance with IAS 34.

São Paulo, May 5, 2023

PricewaterhouseCoopers

Auditores Independentes Ltda.

CRC 2SP000160/O-5

Emerson Laerte da Silva

Contador CRC 1SP171089/O-3

Itaú Unibanco Holding S.A.

Notes to the Consolidated Financial Statements

At 03/31/2023 and 12/31/2022 for balance sheet accounts and from 01/01 to 03/31 of 2023 and 2022 for income statement   

(In millions of reais, except when indicated)

Note 1 - Operations

Itaú Unibanco Holding S.A. (ITAÚ UNIBANCO HOLDING) is a publicly held company, organized and existing under the laws of Brazil. The head office is located at Praça Alfredo Egydio de Souza Aranha, n° 100, in the city of São Paulo, state of São Paulo, Brazil. 

ITAÚ UNIBANCO HOLDING has a presence in 18 countries and territories and offers a wide variety of financial products and services to personal and corporate customers in Brazil and abroad, not necessarily related to Brazil, through its branches, subsidiaries and international affiliates. It offers a full range of banking services, through its different portfolios: commercial banking; investment banking; real estate lending; loans, financing and investment; leasing and foreign exchange business. Its operations are divided into three segments: Retail Business, Wholesale Business and Activities with the Market + Corporation. Further detailed segment information is presented in Note 30. 

ITAÚ UNIBANCO HOLDING is a financial holding company controlled by Itaú Unibanco Participações S.A. (“IUPAR”), a holding company which owns 51.71% of ITAU UNIBANCO HOLDING's common shares, and which is jointly controlled by (i) Itaúsa S.A. (“ITAÚSA”), a holding company controlled by members of the Egydio de Souza Aranha family, and (ii) Companhia E. Johnston de Participações (“E. JOHNSTON”), a holding company controlled by the Moreira Salles family. Itaúsa also directly holds 39.21% of ITAÚ UNIBANCO HOLDING’s common shares. 

These consolidated financial statements were approved by the Board of Directors on May 05, 2023.

Note 2 - Significant accounting policies

a) Basis of preparation

The Consolidated Financial Statements of ITAÚ UNIBANCO HOLDING were prepared in accordance with the requirements and guidelines of the National Monetary Council (CMN), which require that as from December 31, 2010 annual Consolidated Financial Statements are prepared in accordance with the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

These Consolidated Financial Statements were prepared in accordance with IAS 34 – Interim Financial Reporting, with the option of presenting the Complete Consolidated Financial Statements in lieu of the Condensed Consolidated Financial Statements.

In the preparation of these Consolidated Financial Statements, ITAÚ UNIBANCO HOLDING adopted the criteria for recognition, measurement and disclosure established in the IFRS and in the interpretations of the International Financial Reporting Interpretation Committee (IFRIC).

The information in the financial statements and accompanying notes evidences all relevant information inherent in the financial statements, and only them, which is consistent with information used by management in its administration.

b) New accounting standards changes and interpretations of existing standards

I - Accounting standards applicable for period ended March 31, 2023

    •   IFRS 17 – Insurance Contracts: The pronouncement replaces IFRS 4 – Insurance Contracts. IFRS 17 is applicable to all insurance and reinsurance contracts held as from January 1, 2023, with a transition date of January 1, 2022 for comparative purposes. The modified retrospective approach was adopted.

Transition to IFRS 17

The main changes identified by ITAÚ UNIBANCO HOLDING due to the adoption of IFRS 17 are related to the aggregation and measurement of insurance contracts and private pension. Further details on the material accounting policies adopted are included in Note 2d.

(i) Aggregation and Measurement of Insurance Contracts and Private Pension

IFRS 17 requires that insurance contracts be grouped in portfolios considering similar risks, their management, the contract issue period and the expected profitability at the time of initial recognition. The groups of insurance contracts and private pension are made up of contracts issued in the quarter, which corresponds to the publication period.

ITAÚ UNIBANCO HOLDING grouped insurance and health products in the Insurance portfolio and supplementary pension plans in the Private Pension portfolio.

The Insurance portfolio is made up mainly of products which cover people and damage, divided into groups of contracts with a term of effectiveness of up to one year and contracts with a longer term. The Private Pension portfolio is made up of products with coverage for survival and risk of death and disability, comprising three groups: risk coverage plans and survival plans with and without direct participation features.

For measurement of the groups of insurance contracts and private pension, ITAÚ UNIBANCO HOLDING adopts the three measurement approaches: BBA, VFA and PAA, considering the characteristics of the existing insurance contracts and private pension: 

    •   Building Block Approach (BBA): applicable to all insurance contracts without direct participation features, corresponds to the standard model. ITAÚ UNIBANCO HOLDING applied this approach to insurance contracts and private pension with coverage over 1 year or which are onerous.

    •   Variable Fee Approach (VFA): applicable to insurance contracts with direct participation features that are substantially investment-related service contracts with which an entity promises a return on investment based on the underlying items. ITAÚ UNIBANCO HOLDING applied this approach to the Free Benefit Generating Plan (PGBL) and Free Benefit Generating Life Plan (VGBL) private pension plans, since the contributions made by insured parties have a return based on the profitability of the investment fund specially organized in which funds are invested. 

    •   Premium Allocation Approach (PAA): applicable to insurance contracts lasting up to 12 months or when they produce results similar to those that would be obtained if the standard model were used. ITAÚ UNIBANCO HOLDING applied this approach to insurance contracts whose coverage periods are equal to or less than one year.

The initial recognition of groups of insurance contracts and private pension is performed by the total of:

    •   Contractual service margin, which represents the unearned profit that will be recognized it provides insurance contract service in the future. 

    •   Fulfillment cash flows, composed of the present value of estimated cash inflows and outflows of funds over the period covered by the portfolio, risk adjusted for non-financial risk. The risk adjustment for non-financial risk is the compensation that the entity requires for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk.

The Assets and Liabilities of insurance contracts and private pension are subsequently segregated between:

    •   Asset or Liability for Remaining Coverage: represented by the fulfillment cash flows related to future services and the contractual service margin. The appropriation of the contractual service margin and losses (or reversals) in onerous contracts are recognized in the Operating Income from Insurance Contracts and Private Pension, net of Reinsurance. In the Private Pension PGBL and VGBL portfolios, the contractual service margin is recognized according to the provision of the management service and insurance risks, and in the other portfolios, recognition is on a straight-line basis over the term of the contract.

    •   Asset or Liability for Incurred Claims: represented by the fulfillment cash flows referring to services already provided, that is, amounts pending financial settlement related to claims and other expenses incurred. Changes in the fulfillment cash flows, including those arising from an increase in the amount recognized due to claims and expenses incurred in the period, are recognized in the Operating Income from Insurance Contracts and Private Pension, net of Reinsurance.

ITAÚ UNIBANCO HOLDING opted for the modified retrospective approach, using reasonable and sustainable information to measure the insurance contracts and private pension in effect on the transition date. ITAÚ UNIBANCO HOLDING used the permitted modification and opted for a single grouping of contracts in accordance with its products and portfolios. In addition, ITAÚ UNIBANCO HOLDING estimated future cash flows on the transition date, adjusting them with historical information prior to that date. Regarding discount rates, their averages for the period between 2015 and 2021 were considered. The insurance contractual margin was established after applying the risk adjustment for non-financial risk to the future cash flows determined. 

For portfolios of insurance contracts and private pension, measured under the Building Block Approach - BBA, ITAÚ UNIBANCO HOLDING opted for recognizing changes in discount rates in Other Comprehensive Income, that is, the Financial Income from Insurance Contracts and Private Pension will be segregated between Other Comprehensive Income and income for the period, with no effect on the transition date. In the other approaches, VFA and PPA, the financial income is fully recognized in income for the period. 

(ii) Redesignation of Financial Assets

As IFRS 17 changed the measurement of insurance contracts, which are now recognized at the present value of the obligation, ITAÚ UNIBANCO HOLDING partially redesignated, on the transition date and as permitted by the standard, the business model of financial instruments that were classified at Amortized Cost to Fair Value through Other Comprehensive Income. This business model aims at maximizing the results of financial assets through sales in windows of opportunity, in addition to the receipt of principal and interest, thus allowing for better symmetry between assets and liabilities.

    •   Amendments to IAS 1 – Presentation of Financial Statements:

Information on accounting policies - requires that only information about material accounting policies is disclosed, eliminating disclosures of information that duplicate or summarize IFRS requirements. These amendments are effective for the years beginning January 1^st, 2023 and they have no financial impacts.

    •   Amendments to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors – Include the definition of accounting estimates: monetary amounts subject to uncertainties in their measurement. Expected credit loss and the fair value of an asset or liability are examples of accounting estimates. This change is effective for the years beginning January 1^st, 2023 and there are no impacts for the Consolidated Financial Statements of ITAÚ UNIBANCO HOLDING.

    •   Amendments to IAS 12 – Income Taxes – Require that the lessee recognizes deferred taxes arising from temporary differences generated in the initial recognition of right-of-use assets and lease liabilities, in compliance with the tax legislation. These amendments are effective for years beginning January 1^st, 2023 and there are no impacts on the Consolidated Financial Statements of ITAÚ UNIBANCO HOLDING.

II - Accounting standards recently issued and applicable in future periods

    •   Amendments to IAS 1 – Presentation of Financial Statements:

Segregation between Current and Non-current Liabilities - clarifies when to consider contractual conditions (covenants) that may affect the unconditional right to defer the settlement of the liabilities for at least 12 months after the reporting period and includes disclosure requirements for liabilities with covenants classified as non-current. These changes are effective for fiscal years starting January 1^st, 2024, with retrospective application.

Analyses regarding possible changes in disclosure will be completed by the date the standard becomes effective.

c) Critical accounting estimates and judgments

The preparation of Consolidated Financial Statements in accordance with the IFRS requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and contingent liabilities at the date of the Financial Statements, due to uncertainties and the high level of subjectivity involved in the recognition and measurement of certain items. Estimates and judgments that present a significant risk and may have a material impact on the values ​​of assets and liabilities are disclosed below. Actual results may differ from those established by these estimates and judgments.

I - Consolidation

Subsidiaries are all those in which ITAÚ UNIBANCO HOLDING’s involvement exposes it or entitles it to variable returns and where ITAÚ UNIBANCO HOLDING can affect these returns through its influence on the entity. The existence of control is assessed continuously. Subsidiaries are consolidated from the date control is established to the date on which it ceases to exist. 

The consolidated financial statements are prepared using consistent accounting policies. Intercompany asset and liability account balances, income accounts and transaction values have been eliminated.

II - Fair value of financial instruments not traded in active markets, including derivatives

The fair value of financial instruments, including derivatives that are not traded in active markets, is calculated by using valuation techniques based on assumptions that consider market information and conditions. The main assumptions are: historical data and information on similar transactions. For more complex or illiquid instruments, significant judgment is necessary to determine the model used with the selection of specific inputs and, in certain cases, evaluation adjustments are applied to the model amount or price quoted for financial instruments that are not actively traded.

III - Effective interest rate

For the calculation of the effective interest rate, ITAÚ UNIBANCO HOLDING estimates cash flows considering all contractual terms of the financial instrument, but without considering future credit losses. The calculation includes all commissions paid or received between parties to the contract, transaction costs, and all other premiums or discounts. 

Interest revenue is calculated by applying the effective interest rate to the gross carrying amount of a financial asset. In the case of purchased or originated credit impaired financial assets, the adjusted effective interest rate is applied, taking into account the expected credit loss, to the amortized cost of the financial asset.

IV - Modification of financial assets

The factors used to determine whether there has been substantial modification of a contract are: evaluation if there is a renegotiation that is not part of the original contractual terms, significant change to contractual cash flows and significant extensions of the term of the transaction due to the debtor's financial constraints, significant changes to the interest rate and change to the currency in which the transaction is denominated.

V - Transfer and write-off of financial assets

When there are no reasonable expectations of recovery of a financial asset, considering historical curves, its total or partial write-off is carried out concurrently with the use of the related allowance for expected credit loss, with no material effects on the Consolidated Statement of Income of ITAÚ UNIBANCO HOLDING. Subsequent recoveries of amounts previously written off are accounted for as income in the Consolidated Statement of Income.

Thus, financial assets are written off, either totally or partially, when there is no reasonable expectation of recovering a financial asset or when ITAÚ UNIBANCO HOLDING substantially transfers all risks and benefits of ownership and said transfer is qualified to be written off.

VI - Expected credit loss

The measurement of expected credit loss requires the application of significant assumptions and use of quantitative models. Management exercises its judgment in the assessment of the adequacy of the expected loss amounts resulting from models and, according to its experience, makes adjustments that may result from certain client’ credit condition or temporary adjustments resulting from situations or new circumstances that have not been reflected in the modeling yet.

The main assumptions are:

    •   Term to maturity: ITAÚ UNIBANCO HOLDING considers the maximum contractual period during which it will be exposed to a financial instrument’s credit risk. However, the estimated useful life of assets that do not have fixed maturity date is based on the period of exposure to credit risk. Additionally, all contractual terms are taken into account when determining the expected life, including prepayment and rollover options. 

    •   Prospective information: IFRS 9 requires a balanced and impartial estimate of credit loss that includes forecasts of future economic conditions. ITAÚ UNIBANCO HOLDING uses macroeconomic forecasts and public information with projections prepared internally to determine the impact of these estimates on the calculation of expected credit loss. The main prospective information used to determine the expected loss is related to Selic Rate, Credit Default Swap (CDS), unemployment rate, Gross Domestic Product (GDP), wages, industrial production and retail sales. 

    •   Macroeconomic scenarios: This information involves inherent risks, market uncertainties and other factors that may give rise to results different from those expected.

    •   Probability-weighted loss scenarios: ITAÚ UNIBANCO HOLDING uses weighted scenarios to determine credit loss expected over a suitable observation horizon adequate to classification in stages, considering the projection based on economic variables.

    •   Determining criteria for significant increase or decrease in credit risk: ITAÚ UNIBANCO HOLDING determines triggers (indicators) of significant increase in the credit risk of a financial asset since its initial recognition. The migration of the financial asset to an earlier stage occurs with a consistent reduction in credit risk, mainly characterized by the non-activation of credit deterioration triggers for at least 6 months. Triggers are determined on an individual or collective basis. For collective assessment purposes, financial assets are grouped based on characteristics of shared credit risk, considering the type of instrument, credit risk classifications, initial recognition date, remaining term, industry, among other significant factors.   

VII - Goodwill impairment

The review of goodwill due to impairment reflects the Management's best estimate for future cash flows of Cash Generating Units (CGU), with the identification of the CGU and estimate of their fair value less costs to sell and/or value in use. 

To determine this estimate, ITAÚ UNIBANCO HOLDING adopts the discounted cash flow methodology for a period of 5 years, macroeconomic assumptions, growth rate and discount rate.

The discount rate generally reflects financial and economic variables, such as the risk-free interest rate and a risk premium.

Cash-Generating Units or CGU groups are identified at the lowest level at which goodwill is monitored for internal management purposes.

VIII - Deferred income tax and social contribution

Deferred tax assets are recognized only in relation to deductible temporary differences, tax losses and social contribution loss carryforwards for offset only to the extent that it is probable that ITAÚ UNIBANCO HOLDING will generate future taxable profit for its use. The expected realization of deferred tax assets is based on the projection of future taxable profits and technical studies.

IX - Defined benefit pension plans

The current amount of pension plans is obtained from actuarial calculations, which use assumptions such as discount rate, which is appropriated at the end of each year and used to determine the present value of estimated future cash outflows. To determine the appropriate discount rate, ITAÚ UNIBANCO HOLDING considers the interest rates of National Treasury Notes that have maturity terms similar to the terms of the respective liabilities.

The main assumptions for Pension plan obligations are partly based on current market conditions.

X - Provisions and contingencies

ITAÚ UNIBANCO HOLDING periodically reviews its provisions and contingencies which are evaluated based on management´s best estimates, taking into account the opinion of legal counsel when there is a likelihood that financial resources will be required to settle the obligations and the amounts may be reasonably estimated.

Contingencies classified as probable losses are recognized in the Balance Sheet under Provisions.

Contingent amounts are measured using appropriate models and criteria that permit their measurement, despite the uncertainty inherent in timing and amounts.

XI - Insurance contracts and private pension

To estimate fulfillment cash flows and expected profitability (contractual service margin), ITAÚ UNIBANCO HOLDING uses actuarial models and assumptions, exercising judgment mainly to establish: (i) the aggregation of contracts; (ii) the period of service provided; (iii) discount rate; (iv) actuarial calculation models; (v) risk adjustment for non-financial risk models and confidence levels; (vi) the group's level of profitability; and (vii) contract coverage unit. The main assumptions used are: (i) inflow assumptions: contributions, grants, and premiums; (ii) outflow assumptions: conversion rates into income, redemptions, cancellation rate and loss ratio; (iii) discount rate; (iv) biometric tables; and (v) risk adjustment for non-financial risk. 

Regarding the assessment components separation of an insurance contract, the investment component that exists in ITAÚ UNIBANCO HOLDING’s private pension contracts of is highly interrelated with the insurance component, that is, the investment component (accumulation phase) is necessary to measure the payments to be made to the insured party (benefit granting phase).

The assumptions used in the measurement of insurance contracts and private pension are reviewed periodically and are based on best practices and analysis of the experience of ITAÚ UNIBANCO HOLDING. 

The discount rate used by ITAÚ UNIBANCO HOLDING to bring the projected cash flows from insurance contracts and private pension to present value is obtained by building a Term Structure of Free Interest Rates with internal modeling, which represents a set of vertices that contain the expectation of an interest rate associated with a term (or maturity). In addition to considering the characteristics of the indexing units of each portfolio (IGPM, IPCA and TR), the discount rate has a component that aims at reflecting the differences between the liquidity characteristics of the financial instruments that substantiate the rates observed in the market and the liquidity characteristics of insurance contracts (a “bottom-up” approach). 

Specifically for insurance products, cash flows are projected using the method known as the run-off triangle on a quarterly basis. For private pension plans, cash flows are projected based on assumptions applicable to the product.

Risk adjustment for non-financial risk is obtained by resampling based on claims data by grouping, using the Monte Carlo statistical method. Resampling is brought to present value using the discount rate applied to future cash flows. Based on this, percentiles proportional to the confidence level are calculated, determined in an interval between 60% and 70%, depending on the group.

Biometric tables represent the probability of death, survival or disability of an insured party. For the estimates of death and survival estimatives, the latest Brazilian Market Insurer Experience tables (BR-EMS) are used, adjusted by the criterion of development of longevity expectations of the G Scale, and for the estimates of entry into disability, the Álvaro Vindas table is used.

The conversion rate into income reflects the historical expectation of converting the balances accumulated by insured parties into retirement benefits, and the decision is influenced by behavioral, economic and tax factors.

d) Summary of main accounting practices

I - Consolidation

I.I - Subsidiaries

In accordance with IFRS 10 - Consolidated Financial Statements, subsidiaries are all entities in which ITAÚ UNIBANCO HOLDING holds control.

In the 3rd quarter of 2018, ITAÚ UNIBANCO HOLDING started adjusting the financial statements of its subsidiaries in Argentina to reflect the effects of hyperinflation, pursuant to IAS 29 - Financial Reporting in Hyperinflationary Economies.

I.II - Business combinations

In general, a business consists of an integrated set of activities and assets that may be conducted and managed so as to provide a return, in the form of dividends, lower costs or other economic benefits, to investors or other stockholders, members or participants. If there is goodwill in a set of activities and assets transferred, it is presumed to be a business.

The acquisition method is used to account for business combinations, except for those classified as under common control.

Acquisition cost is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the acquisition date. Acquired assets and assumed liabilities and contingent liabilities identifiable in a business combination are initially measured at fair value at the date of acquisition, regardless of the existence of non-controlling interests. When the amount paid, plus non-controlling interests, is higher than the fair value of identifiable net assets acquired, the difference will be accounted for as goodwill. On the other hand, if the difference is negative, it will be treated as negative goodwill and the amount will be recognized directly in income.

I.III - Goodwill

Goodwill is not amortized, but its recoverable value is assessed semiannually or when there is an indication of impairment loss using an approach that involves the identification of Cash Generating Units (CGU) and the estimate of its fair value less the cost to sell and/or its value in use.

The breakdown of Goodwill and Intangible assets is described in Note 14.

I.IV - Capital Transactions with non-controlling stockholders

Changes in an ownership interest in a subsidiary, which do not result in a loss of control, are accounted for as capital transactions and any difference between the amount paid and the carrying amount of non-controlling stockholders is recognized directly in stockholders' equity.

II - Foreign currency translation

II.I - Functional and presentation currency

The Consolidated Financial Statements of ITAÚ UNIBANCO HOLDING are presented in Brazilian Reais, its functional and presentation currency. For each subsidiary, joint venture or investment in associates, ITAÚ UNIBANCO HOLDING defines the functional currency as the currency of the primary economic environment in which the entity operates.

II.II - Foreign currency operations

Foreign currency operations are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses are recognized in the consolidated statement of income, unless they are related to cash flow hedges and hedges of net investment in foreign operations, which are recognized in stockholders’ equity.

III - Cash and cash equivalents

Defined as cash and current accounts with banks, shown in the Balance Sheet under the headings Cash, Interbank Deposits and Securities purchased under agreements to resell (Collateral Held) with original maturities not exceeding 90 days.

IV - Financial assets and liabilities

Financial assets and liabilities are offset against each other and the net amount is reported in the Balance Sheet only when there is a legally enforceable right to offset them and the intention to settle them on a net basis, or to simultaneously realize the asset and settle the liability.

IV.I - Initial recognition and derecognition

Financial assets and liabilities are initially recognized at fair value and subsequently measured at amortized cost or fair value.

Regular purchases and sales of financial assets are recognized and derecognized, respectively, on the trading date.

Financial assets are partially or fully derecognized when:

    •   the contractual rights to the cash flows of the financial asset expire, or

    •   ITAÚ UNIBANCO HOLDING transfers the financial asset and this transfer qualifies for derecognition.

The financial liabilities are derecognized when they are extinguished, i.e., when the obligation specified in the contract is discharged, cancelled or expires.

Derecognition of financial assets

Financial assets are derecognized when ITAÚ UNIBANCO HOLDING substantially transfers all risks and benefits of its property. In the event it is not possible to identify the transfer of all risks and benefits, the control should be assessed to determine the continuous involvement related to the transaction. 

If there is a retention of risks and benefits, the financial asset continues to be recorded and a liability is recognized for the consideration received.

IV.II Classification and subsequent measurement of financial assets

Financial assets are classified in the following categories:

    •   Amortized cost: used when financial assets are managed to obtain contractual cash flows, consisting solely of payments of principal and interest.

    •   Fair value through other comprehensive income: used when financial assets are held both for obtaining contractual cash flows, consisting solely of payments of principal and interest, and for sale.

    •   Fair value through profit or loss: used for financial assets that do not meet the aforementioned criteria.

The classification and subsequent measurement of financial assets depend on:

    •   The business model under which they are managed.

    •   The characteristics of their cash flows (Solely Payment of Principal and Interest Test – SPPI Test).

Business model: represents how financial assets are managed to generate cash flows and does not depend on the Management’s intention regarding an individual instrument. Financial assets may be managed with the purpose of: i) obtaining contractual cash flows; ii) obtaining contractual cash flows and sale; or iii) others. To assess business models, ITAÚ UNIBANCO HOLDING considers risks that affect the performance of the business model; how the managers of the business are compensated; and how the performance of the business model is assessed and reported to Management. 

When a financial asset is subject to business models i) or ii) the application of the SPPI Test is required.

SPPI Test: assessment of cash flows generated by a financial instrument for the purpose of checking whether they represent solely payments of principal and interest. To fit into this concept, cash flows should include only consideration for the time value of money and credit risk. If contractual terms introduce risk exposure or cash flow volatilities, such as exposure to changes in prices of equity instruments or prices of commodities, the financial asset is classified at fair value through profit or loss. Hybrid contracts must be assessed as a whole, including all embedded characteristics. The accounting of a hybrid contract that contains an embedded derivative is performed on a joint basis, i.e. the whole instrument is measured at fair value through profit or loss.

Amortized cost

Amortized cost is the amount at which the financial asset or liability is measured at initial recognition, plus adjustments made under the effective interest method, less repayments of principal and interest, and any provision for expected credit loss.

Fair value

Fair value is the price that would be received for the sale of an asset or that would be paid for the transfer of a liability in an orderly transaction between market participants on the measurement date.

ITAÚ UNIBANCO HOLDING classifies the fair value hierarchy according to the relevance of data observed in the measurement process.

Details of the fair value of financial instruments, including Derivatives, and of the hierarchy of fair value are given in Note 28.

The adjustment to fair value of financial assets and liabilities is recognized:

    •   In stockholders' equity for financial assets and liabilities measured at fair value through other comprehensive income.

    •   In the Consolidated Statement of Income, under the heading Income of Financial Assets and Liabilities at Fair Value through Profit or Loss, for the other financial assets and liabilities.

Average cost is used to determine the gains and losses realized on disposal of financial assets at fair value, which are recorded in the Consolidated Statement of Income as Interest and similar income and Income of Financial Assets and Liabilities at Fair Value through Profit or Loss. Dividends on assets at fair value through other comprehensive income are recognized in the Consolidated Statement of Income as Interest and similar income when it is probable that ITAÚ UNIBANCO HOLDING 's right to receive such dividends is assured. 

Equity instruments

An equity instrument is any contract that evidences a residual interest in an entity’s assets, after the deduction of all its liabilities, such as Shares and Units.

ITAÚ UNIBANCO HOLDING subsequently measures all its equity instruments at fair value through profit or loss, except when Management opts, on initial recognition, to irrevocably designate an equity instrument at fair value through other comprehensive income when it is held for a purpose other than only generating returns. When this option is selected, gains and losses on the fair value of the instrument are recognized in the Consolidated Statement of Comprehensive Income and are not subsequently reclassified to the Consolidated Statement of Income, even on sale. Dividends continue to be recognized in the Consolidated Statement of Income as Interest and similar income, when ITAÚ UNIBANCO HOLDING’s right to receive them is assured. 

Gains and losses on equity instruments measured at fair value through profit or loss are recorded in the Consolidated Statement of Income.

Expected credit loss 

ITAÚ UNIBANCO HOLDING makes a forward-looking assessment of the expected credit loss on financial assets measured at amortized cost or through other comprehensive income, loan commitments and financial guarantee contracts:

    •   Financial assets: loss is measured at present value of the difference between contractual cash flows and the cash flows that ITAÚ UNIBANCO HOLDING expects to receive.

    •   Loan commitments: expected loss is measured at present value of the difference between contractual cash flows that would be due if the commitment was drawn down and the cash flows that ITAÚ UNIBANCO HOLDING expects to receive.

•   Financial guarantees: the loss is measured at the difference between the payments expected for refunding the counterparty and the amounts that ITAÚ UNIBANCO HOLDING expects to recover. 

ITAÚ UNIBANCO HOLDING applies a three-stage approach to measuring the expected credit loss, in which financial assets migrate from one stage to the other in accordance with changes in credit risk.

    •   Stage 1 – 12-month expected credit loss: represents default events possible within 12 months. Applicable to financial assets which are not credit impaired when purchased or originated.

    •   Stage 2 – Lifetime expected credit loss of financial instrument: considers all possible default events. Applicable to financial assets originated which are not credit impaired when originated or purchased but for which credit risk has increased significantly.

    •   Stage 3 – Credit loss expected for credit-impaired assets: considers all possible default events. Applicable to financial assets which are credit impaired when purchased or originated. The measurement of assets classified in this stage is different from Stage 2 due to the recognition of interest income by applying the effective interest rate to amortized cost (net of provision) rather than to the gross carrying amount.

An asset will migrate between stages as its credit risk increases or decreases. Therefore, a financial asset that migrated to stages 2 and 3 may return to stage 1, unless it was purchased or originated as a credit impaired financial asset.

Macroeconomic scenarios

Forward-looking information is based on macroeconomic scenarios that are reassessed annually or when market conditions so require. Additional information is described in Note 32.

Modification of contractual cash flows

When contractual cash flows of a financial asset are renegotiated or otherwise modified and this does not substantially change its terms and conditions, ITAÚ UNIBANCO HOLDING does not derecognize it. However, the gross carrying amount of this financial asset is recalculated as the present value of the renegotiated or changed contractual cash flows, discounted at the original effective interest rate and a modification gain or loss is recognized in profit or loss. Any costs or fees incurred adjust the modified carrying amount and are amortized over the remaining term of the financial asset.

If, on the other hand, the renegotiation or change substantially modifies the terms and conditions of the financial asset, ITAÚ UNIBANCO HOLDING derecognizes the original asset and recognizes a new one. Accordingly, the renegotiation date is taken as the initial recognition date of the new asset for expected credit loss calculation purposes, and to determine significant increases in credit risk. 

ITAÚ UNIBANCO HOLDING also assesses if the new financial asset may be considered as a purchased or originated credit impaired financial asset, particularly when the renegotiation was motivated by the debtor’s financial constraints. Differences between the carrying amount of the original asset and fair value of the new asset are immediately recognized in the Consolidated Statement of Income. 

The effects of changes in cash flows of financial assets and other details about methodologies and assumptions adopted by Management to measure the allowance for expected credit loss, including the use of prospective information, are detailed in Note 32. 

IV.III - Classification and subsequent measurement of financial liabilities

Financial liabilities are subsequently measured at amortized cost, except for:

    •   Financial liabilities at fair value through profit or loss: this classification applied to derivatives and other financial liabilities designated at fair value through profit or loss to reduce “accounting mismatches”. ITAÚ UNIBANCO HOLDING irrevocably designates financial liabilities at fair value through profit or loss in the initial recognition (fair value option), when the option eliminates or significantly reduces measurement or recognition inconsistencies.

    •   Loan commitments and financial guarantees: see details in Note 2d IV.VlIl. 

Modification of financial liabilities

A debt instrument change or substantial terms modification of a financial liability is accounted as a derecognition of the original financial liability and a new one is recognized.

A substantial change to contractual terms occurs when the discounted present value of cash flows under the new terms, including any fees paid/received and discounted using the original effective interest rate, is at least 10% different from discounted present value of the remaining cash flow of the original financial liabilities.

IV.IV - Securities purchased under agreements to resell

ITAÚ UNIBANCO HOLDING purchases financial assets with a resale commitment (resale agreements) and sells securities with a repurchase commitment (repurchase agreement) of financial assets. Resale and repurchase agreements are accounted for under Securities purchased under agreements to resell and Securities sold under repurchase agreements, respectively.

The difference between the sale and repurchase prices is treated as interest and recognized over the life of the agreements using the effective interest rate method.

The financial assets taken as collateral in resale agreements can be used as collateral for repurchase agreements if provided for in the agreements or can be sold.

IV.V - Derivatives

All derivatives are accounted for as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

The valuation of active hybrid contracts that are subject to IFRS 9 is carried out as a whole, including all embedded characteristics, whereas the accounting is carried out on a joint basis, i.e. each instrument is measured at fair value through profit or loss.

When a contract has a main component outside the scope of IFRS 9, such as a lease agreement receivable or an insurance contract, or even a financial liability, embedded derivatives are treated as separate financial instruments if:

    •   Their characteristics and economic risks are not closely related to those of the main component.

    •   The separate instrument meets the definition of a derivative.

    •   The underlying instrument is not booked at fair value through profit or loss.

These embedded derivatives are accounted for separately at fair value, with variations recognized in the Consolidated Statement of Income as Adjustments to Fair Value of Financial Assets and Liabilities.

ITAÚ UNIBANCO HOLDING will continue applying all the hedge accounting requirements of IAS 39; however, it may adopt the provisions of IFRS 9, if Management so decides.

According to this standard, derivatives may be designated and qualified as hedging instruments for accounting purposes and, the method for recognizing gains or losses of fair value will depending on the nature of the hedged item.

At the beginning of a hedging transaction, ITAÚ UNIBANCO HOLDING documents the relationship between the hedging instrument and the hedged items, as well as its risk management objective and strategy. The hedge is assessed on an ongoing basis to determine if it has been highly effective throughout all periods of the Financial Statements for which it was designated. 

IAS 39 describes three hedging strategies: fair value hedge, cash flow hedge, and hedge of net investments in a foreign operation. ITAÚ UNIBANCO HOLDING uses derivatives as hedging instruments under all three hedge strategies, as detailed in Note 7.

Fair value hedge

The following practices are adopted for these operations:

    •   The gain or loss arising from the remeasurement of the hedging instrument at fair value is recognized in income.

    •   The gain or loss arising from the hedged item, attributable to the effective portion of the hedged risk, is applied to the book value of the hedged item and is also recognized in income.

When a derivative expires or is sold or a hedge no longer meets the hedge accounting criteria or in the event the designation is revoked, the hedge accounting must be prospectively discontinued. In addition, any adjustment to the book value of the hedged item must be amortized in income.

Cash flow hedge

For derivatives that are designated and qualify as hedging instruments in a cash flow hedge, the practices are:

    •   The effective portion of gains or losses on derivatives is recognized directly in Other comprehensive income – Cash flow hedge.

    •   The portion of gain or loss on derivatives that represents the ineffective portion or on hedge components excluded from the assessment of effectiveness is recognized in income.

Amounts originally recorded in Other comprehensive income and subsequently reclassified to Income are recognized in the caption Income of financial assets and Liabilities at fair value through profit or loss at the same time that the corresponding income or expense item of the financial hedge item affects income. For non-financial hedge items, the amounts originally recognized in Other comprehensive income are included in the initial cost of the corresponding asset or liability.

When a derivative expires or is sold, when hedge accounting criteria are no longer met or when the entity revokes the hedge accounting designation, any cumulative gain or loss existing in Other comprehensive income will be reclassified to income at the time the expected transaction occurs or is no longer expected to occur.

Hedge of net investments in foreign operations

The hedge of a net investment in a foreign operation, including the hedge of a monetary item that is booked as part of the net investment, is accounted for in a manner similar to a cash flow hedge:

    •   The portion of gain or loss on the hedging instrument determined as effective is recognized in Other comprehensive income.

    •   The ineffective portion is recognized in income.

Gains or losses on the hedging instrument related to the effective portion of the hedge which are recognized in Other comprehensive income are reclassified to income for the period when the foreign operation is partially or totally sold.

IV.VI - Loan operations

ITAÚ UNIBANCO HOLDING classifies a loan as non-performing if the payment of the principal or interest has been overdue for 60 days or more. In this case, accrual of interest is no longer recognized.

IV.VII - Premium bonds plans

In Brazil, Premium bonds plans are regulated by the insurance regulator. These plans do not meet the definition of an insurance contract under IFRS 17, and therefore they are classified as a financial liability at amortized cost under IFRS 9.

Revenue from premium bonds plans is recognized during the period of the contract and measured as the difference between the amount deposited by the customer and the amount that ITAÚ UNIBANCO HOLDING has to reimburse. 

IV.VIII - Loan commitments and financial guarantees

ITAÚ UNIBANCO HOLDING recognizes as an obligation in the Balance Sheet, on the issue date, the fair value of commitments for loans and financial guarantees. The fair value is generally represented by the fee charged to the customer. This amount is amortized over the term of the instrument and is recognized in the Statement of Income under the heading Commissions and Banking Fees.

After issue, if ITAÚ UNIBANCO HOLDING concludes based on the best estimate, that the expected credit loss in relation to the guarantee issued is higher than the fair value less accumulated amortization, this amount is replaced by a provision for loss. 

V - Investments in associates and joint ventures

V.I - Associates

Associates are companies in which the investor has a significant influence but does not hold control. Investments in these companies are initially recognized at cost of acquisition and subsequently accounted for using the equity method. Investments in associates and joint ventures include the goodwill identified upon acquisition, net of any cumulative impairment loss.

V.II - Joint ventures

ITAÚ UNIBANCO HOLDING has joint ventures whereby the parties that have joint control of the arrangement have rights to the net assets.

ITAÚ UNIBANCO HOLDING’s share in profits or losses of its associates and joint ventures after acquisition is recognized in the Consolidated statement of income. Its share of the changes in the share in other comprehensive income of corresponding stockholders’ equity of its associates and joint ventures is recognized in its own capital reserves. The cumulative changes after acquisition are adjusted against the carrying amount of the investment. When the ITAÚ UNIBANCO HOLDING’s share of losses in associates and joint ventures is equal to or more than the value of its interest, including any other receivables, ITAÚ UNIBANCO HOLDING does not recognize additional losses, unless it has incurred any obligations or made payments on behalf of the associates and joint ventures.

Unrealized profits on transactions between ITAÚ UNIBANCO HOLDING and its associates and joint ventures are eliminated to the extent of the interest of ITAÚ UNIBANCO HOLDING. Unrealized losses are also eliminated, unless the transaction provides evidence of impairment of the transferred asset. The accounting policies on associates and joint ventures entities are changed, as necessary, to ensure consistency with the policies adopted by ITAÚ UNIBANCO HOLDING.

If its interest in the associates and joint ventures decreases, but ITAÚ UNIBANCO HOLDING retains significant influence or joint control, only the proportional amount of the previously recognized amounts in Other comprehensive income is reclassified in Income, when appropriate. 

VI - Lease operations (Lessee)

ITAÚ UNIBANCO HOLDING leases mainly real estate properties (underlying assets) to carry out its business activities. The initial recognition occurs when the agreement is signed, in the heading Other Liabilities, which corresponds to the total future payments at present value as a counterparty to the right-of-use assets, depreciated under the straight-line method for the lease term and tested semiannually to identify possible impairment losses.

The financial expense corresponding to interest on lease liabilities is recognized in the heading Interest and Similar Expense in the Consolidated Statement of Income.

VII - Fixed assets

Fixed assets are booked at their acquisition cost less accumulated depreciation, and adjusted for impairment, if applicable. Depreciation is calculated on the straight-line method using rates based on the estimated useful lives of these assets. Such rates and other details are presented in Note 13.

The residual values and useful lives of assets are reviewed and adjusted, if appropriate, at the end of each period.

ITAÚ UNIBANCO HOLDING reviews its assets in order to identify indications of impairment in their recoverable amounts. The recoverable amount of an asset is defined as the higher of its fair value less the cost to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which independent cash flows can be identified (cash-generating units). The assessment may be made at an individual asset level when the fair value less the cost to sell can be reliably determined. 

Gains and losses on disposals of fixed assets are recognized in the Consolidated statement of income under Other income or General and administrative expenses.

VIII - Intangible assets

Intangible assets are non-physical assets, including software and other assets, and are initially recognized at cost. Intangible assets are recognized when they arise from legal or contractual rights, their costs can be reliably measured, and in the case of intangible assets not arising from separate acquisitions or business combinations, it is probable that future economic benefits may arise from their use. The balance of intangible assets refers to acquired assets or those internally generated.

Intangible assets may have definite or indefinite useful lives. Intangible assets with definite useful lives are amortized using the straight-line method over their estimated useful lives. Intangible assets with indefinite useful lives are not amortized, but periodically tested in order to identify any impairment.

ITAÚ UNIBANCO HOLDING semiannually assesses its intangible assets in order to identify whether any indications of impairment exist, as well as possible reversal of previous impairment losses. If such indications are found, intangible assets are tested for impairment. The recoverable amount of an asset is defined as the higher of its fair value less the cost to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which independent cash flows can be identified (cash-generating units). The assessment may be made at an individual asset level when the fair value less the cost to sell can be reliably determined. 

ITAÚ UNIBANCO HOLDING uses the cost model to measure its intangible assets after its initial recognition. 

The breakdown of Goodwill and Intangible assets is described in Note 14.

IX - Assets held for sale

Assets held for sale are recognized in the balance sheet under the heading Other assets when they are actually repossessed or there is intention to sell. These assets are initially recorded at the lower of: (i) the fair value of the asset less the estimated selling expenses, or (ii) the carrying amount of the related asset held for sale.

X - Income tax and social contribution

There are two components of the provision for income tax and social contribution: current and deferred.

The current component is approximately the total of taxes to be paid or recovered during the reporting period.

Deferred income tax and social contribution, represented by deferred tax assets and liabilities, is obtained based on the differences between the tax bases of assets and liabilities and the amounts reported at the end of each period.

The income tax and social contribution expense is recognized in the Consolidated statement of income under Income tax and social contribution, except when it refers to items directly recognized in Other comprehensive income, such as: tax on fair value of financial assets measured at fair value through Other comprehensive income, post-employment benefits and tax on cash flow hedges and hedges of net investment in foreign operations. Subsequently, these items are recognized in income upon realization of the gain/loss on the instruments.

Changes in tax legislation and rates are recognized in the Consolidated statement of income in the period in which they are enacted. Interest and fines are recognized in the Consolidated statement of income under General and administrative expenses.

To determine the proper level of provisions for taxes to be maintained for uncertain tax positions, the approach applied, is that a tax benefit is recognized if it is more likely than not that a position can be sustained, under the assumptions for recognition, detailed in item 2d XIV. 

XI - Insurance contracts and private pension

To measure the groups of insurance contracts and private pension, ITAÚ UNIBANCO HOLDING will use the three measurement approaches below, considering the characteristics of the contracts:

    •   Standard Model (Building Block Approach - BBA): insurance contracts without direct participation feature with coverage longer than 1 year or that are onerous. The Insurance portfolio basically includes Life, Health, Credit Life and Housing, the first two of which are onerous. The Private Pension portfolio includes Traditional Plans and Death and Disability Risk Coverage Plans, the former being onerous. Insurance contracts and private pension classified as onerous are not actively sold, and the contractual conditions of the life insurance contracts in force are different and classified as profitable.

    •   Variable Fee Approach (VFA): PGBL and VGBL private pension plans, whose contributions are remunerated at the fair value of the investment fund specially organized in which the funds are invested.

    •   Simplified Model (Premium Allocation Approach - PAA): insurance contracts and reinsurance contracts held, whose coverage periods are equal to or lower than one year, comprising mainly: Personal Accidents and Protected Card. As these are short-term contracts, Liability for Remaining Coverage are not discounted at present value. However, the cash flows of Liability for Incurred Claims are discounted at present value and adjusted to reflect non-financial risks, since they have payments that are made one year after a claim occurs.

XII - Post-employment benefits

ITAÚ UNIBANCO HOLDING sponsors Defined Benefit Plans and Defined Contribution Plans, which are accounted for in accordance with IAS 19 – Benefits to Employees.

ITAÚ UNIBANCO HOLDING is required to make contributions to government social security and labor indemnity plans, in Brazil and in other countries where it operates.

Pension plans - Defined benefit plans

The liability or asset, as the case may be, recognized in the Balance Sheet with respect to a defined benefit plan, corresponds to the present value of defined benefit obligations at the balance sheet date less the fair value of plan assets. The defined benefit obligations are calculated annually using the projected unit credit method.

Pension plans - Defined contribution

For defined contribution plans, contributions to plans made by ITAÚ UNIBANCO HOLDING, through pension plan funds, are recognized as liabilities, with a counterparty to expenses, when due. If contributions made exceed the liability for a service provided, it will be accounted for as an asset recognized at fair value, and any adjustments are recognized in Stockholders’ equity, under Other comprehensive income, in the period when they occur.

Other post-employment obligations

Like defined benefit pension plans, these obligations are assessed annually by actuarial specialists, and costs expected from these benefits are accrued over the period of employment. Gains and losses arising from changes in practices and variations in actuarial assumptions are recognized in Stockholders’ equity, under Other comprehensive income, in the period in which they occur.

XIII - Share-based payments

Share-based payments are booked for the value of equity instruments granted based on their fair value at the grant date. This cost is recognized during the vesting period of the instruments right.

The total amount to be expensed is determined by reference to the fair value of the equity instruments excluding the impact of any service commissions and fees and non-market performance vesting conditions (in particular when an employee remains with the company for specific period of time).

XIV - Provisions, contingent assets and contingent liabilities

These are possible rights and potential obligations arising from past events for which realization depends on uncertain future events.

Contingent assets are not recognized in the Financial Statements, except when the Management of ITAÚ UNIBANCO HOLDING considers that realization is practically certain. In general they correspond to lawsuits with favorable outcomes in final and unappealable judgments and to the withdrawal of lawsuits as a result of a settlement payment received or an agreement for set-off against an existing liability.

These contingencies are evaluated based on Management’s best estimates, and are classified as:

    •   Probable: in which liabilities are recognized in the balance sheet under Provisions.

    •   Possible: which are disclosed in the Financial Statements, but no provision is recorded.

    •   Remote: which require neither a provision nor disclosure.

The amount of deposits in guarantee is adjusted in accordance with current legislation.

XV - Capital

Common and preferred shares, which for accounting purposes are equivalent to common shares but without voting rights are classified in Stockholders’ equity. The additional costs directly attributable to the issue of new shares are included in Stockholders’ equity as a deduction from the proceeds, net of taxes.

XVI - Treasury shares

Common and preferred shares repurchased are recorded in Stockholders’ equity under Treasury shares at their average purchase price.

Shares that are subsequently sold, such as those sold to grantees under ITAÚ UNIBANCO HOLDING's share-based payment scheme, are recorded as a reduction in treasury shares, measured at the average price of treasury stock held at that date. 

The difference between the sale price and the average price of the treasury shares is recorded as a reduction or increase in Capital Reserves. The cancellation of treasury shares is recorded as a reduction in Treasury shares against Capital Reserves, at the average price of treasury shares at the cancellation date.

XVII - Dividends and interest on capital

Minimum dividend amounts established in the bylaws are recorded as liabilities at the end of each year. Any other amount above the mandatory minimum dividend is accounted for as a liability when approved by of the Board of Directors.

Interest on capital is treated for accounting purposes as a dividend, and it is presented as a reduction of stockholders' equity in the consolidated financial statements.

Dividends have been and continue to be calculated and paid on the basis of the financial statements prepared under Brazilian accounting standards and regulations for financial institutions, not these Consolidated financial statements prepared according to the IFRS.

Dividends and interest on capital are presented in Note 19. 

XVIII - Earnings per share

ITAÚ UNIBANCO HOLDING grants stock options whose dilutive effect is reflected in diluted earnings per share, with the application of the “treasury stock method", whereby earnings per share are calculated as if all the stock options had been exercised and the proceeds used to purchase shares of ITAÚ UNIBANCO HOLDING. 

Earnings per share are presented in Note 25.

XIX - Segment information

Segment information disclosed is consistent with the internal reports prepared for the Executive Committee which makes the operational decisions ITAÚ UNIBANCO HOLDING.

ITAÚ UNIBANCO HOLDING has three reportable segments: (i) Retail Business, (ii) Wholesale Business and (iii) Market + Corporation.

Segment information is presented in Note 30. 

XX - Commissions and Banking Fees

Commissions and Banking Fees are recognized when ITAÚ UNIBANCO HOLDING provides or offers services to customers, in an amount that reflects the consideration ITAÚ UNIBANCO HOLDING expects to collect in exchange for those services. A five-step model is applied to account for revenues: i) identification of the contract with a customer; ii) identification of the performance obligations in the contract; iii) determination of the transaction price; iv) allocation of the transaction price to the performance obligations in the contract; and v) revenue recognition, when performance obligations agreed upon in agreements with clients are met. Incremental costs and costs to fulfill agreements with clients are recognized as an expense as incurred. 

The main services provided by ITAÚ UNIBANCO HOLDING are: 

    •   Credit and debit cards: refer mainly to fees charged by card issuers and acquirers for processing card transactions, annuities charged for the availability and management of credit card; and the rental of Rede machines.

    •   Current account services: substantially composed of current account maintenance fees, according to each service package granted to the customer; transfers carried through PIX (Central Bank of Brazil's instant payments system) in corporate packages, withdrawals from demand deposit account and money order.

    •   Economic, Financial and Brokerage Advisory: refer mainly to financial transaction structuring services, placement of securities and intermediation of operations on stock exchanges.

Service revenues related to credit, debit, current account and economic, financial and brokerage advisory cards are recognized when said services are provided.

    •   Funds management: refers to fees charged for the management and performance of investment funds and consortia administration.

    •   Credit operations and financial guarantees provided: refer mainly to advance depositor fees, asset appraisal service and commission on guarantees provided.

    •   Collection services: refer to collection and charging services.

Revenue from certain services, such as fees from funds management, collection and custody, are recognized over the life of the respective agreements, as services are provided.

Note 3 - Business development

Itaú Colombia S.A.

ITAÚ UNIBANCO HOLDING, through its subsidiaries Banco Itaú Chile (ITAÚ CHILE) and Itaú Holding Colombia S.A.S., acquired additional ownership interest of 12.36% (93,306,684 shares) in Itaú Colombia S.A.'s capital for the amount of R$ 2,219.

The effective acquisitions and financial settlements occurred on February 22, 2022, after obtaining the regulatory authorizations.

Non-controlling interest in XP Inc.

During 2020 and 2021, ITAÚ UNIBANCO HOLDING carried out the partial spin-off of the investment held in XP Inc. (XP INC) to a new company (XPart S.A.) which was subsequently merged into XP INC on October 1, 2021.

On April 29, 2022, as set forth in the original agreement entered into in May 2017 and after approval by BACEN and regulatory bodies abroad, ITAÚ UNIBANCO HOLDING, through its subsidiary ITB Holding Brasil Participações Ltda., acquired a minority interest equivalent to 11.36% of XP INC’s capital, for the amount of R$ 8,015, and these shares were designated at Fair Value through Other Comprehensive Income.

On June 7 and 9, 2022, shares were sold equivalent to 1.40% of XP INC’s capital, for the amount of R$ 867 and their fair value of R$ 901.

Banco Itaú Chile

ITAÚ CHILE is controlled as of April 1^st, 2016 by ITAÚ UNIBANCO HOLDING. On the same date, ITAÚ UNIBANCO HOLDING entered into a shareholders’ agreement with Corp Group, which set forth, among others, the right of ITAÚ UNIBANCO HOLDING and Corp Group to appoint members for the Board of Directors of ITAÚ CHILE in accordance with their interests in capital stock, and this group of shareholders had the right to appoint the majority of members of the Board of Directors of ITAÚ CHILE and ITAÚ UNIBANCO HOLDING had the right to appoint the majority of members elected by this block.

At the Extraordinary Stockholders' Meeting of ITAÚ CHILE held on July 13, 2021, the capital increase of ITAÚ CHILE in the total amount of CLP 830 billion was approved, through the issuance of 461,111,111,111 shares, which were fully subscribed, paid in and settled in October and November 2021, after regulatory approvals. ITAÚ UNIBANCO HOLDING subscribed the total of 350,048,242,004 shares for the amount of CLP 630 billion (approximately R$ 4,296), then holding 56.60% of the capital of ITAÚ CHILE.

On March 22, 2022, ITAÚ UNIBANCO HOLDING, through its subsidiary CGB II SPA, sold 0.64% (6,266,019,265 shares) of its interest in ITAÚ CHILE for the amount of R$ 64 (CLP 9,912 million), then holding 55.96%.

On July 14, 2022, ITAÚ UNIBANCO HOLDING received, through its affiliates, shares issued by ITAÚ CHILE within the scope of the debt restructuring of companies of the Corp Group, as approved by the court-supervised reorganization proceeding in the United States (Chapter 11). Accordingly, the equity interest increased to 65.62% and the stockholders’ agreement of ITAÚ CHILE was fully terminated.

Acquisition of Ideal Holding Financeira S.A.

On January 13, 2022, ITAÚ UNIBANCO HOLDING, through its subsidiary Itaú Corretora de Valores S.A., entered into a purchase and sale agreement of up to 100% of capital of Ideal Holding Financeira S.A. (IDEAL). The purchase will be carried out in two phases over five years. In the first phase, ITAÚ UNIBANCO HOLDING acquired 50.1% of IDEAL’s total voting capital for R$ 700, then holding the company's control. In the second phase, after five years, ITAÚ UNIBANCO HOLDING may exercise the right to purchase the remaining ownership interest, in order to reach 100% of IDEAL’s capital.

IDEAL is a 100% digital broker and currently offers electronic trading and DMA (direct market access) solutions, within a flexible and cloud-based platform.

The management and development of IDEAL's business will continue to be autonomous in relation to ITAÚ UNIBANCO HOLDING, according to the terms and conditions of the Shareholders' Agreement for this transaction and ITAÚ UNIBANCO HOLDING will not have exclusivity in the provision of services.

The effective acquisitions and financial settlements occured on March 31, 2023, after the required regulatory approvals are received.

Note 4 - Interbank deposits and securities purchased under agreements to resell

Note 5 - Financial assets at fair value through profit or loss and designated at fair value through profit or loss - Securities

a) Financial assets at fair value through profit or loss - Securities

Financial Assets at Fair Value Through Profit or Loss - Securities include assets with a fair value of R$ 222,214 (R$ 216,467 at 12/31/2022) that belong to investment funds wholly owned by Itaú Vida e Previdência S.A. The return of those assets (positive or negative) is fully transferred to customers of our PGBL and VGBL private pension plans whose premiums (net of fees) are used by our subsidiary to purchase quotas of those investment funds. 

b) Financial assets designated at fair value through profit or loss - Securities