Quarterly Management Discussion & Analysis (MDA300905.pdf)

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Executive Summary - Third Quarter of 2005Income by SegmentsItaubancoThe net income of the Itaubanco segment reached R$ 738 million in the third quarter of 2005, which correspondsto a 4.8% increase over the previous quarter. The managerial financial margin showed positive growth, to reach atotal of R$ 2,132 million, and this was driven particularly by the growth of the credit transactions aimed atfinancing consumption. In addition, treasury results totaled R$ 4 million, which represents an increase of R$ 32million in relation to the previous quarter. On the other hand, the expense associated with credit risk (allowancefor loan losses) showed growth of R$ 217 million between the two quarters, reflecting basically the Bank's strategy,which has been to give priority to loans capable of generating a greater contribution to the financial margin, butwhich, in the light of market conditions, are susceptible to higher risks. In the period, we also set up R$ 50 millionin the provision in excess of the minimum required by the banking authorities, as a result of the proprietarymodels used to project possible increases in nonperformance in situations of stress, indicating the need for areinforcement of provisions, in view of the significant increase in the credit portfolio and the change in theproduct mix.Banking service fees enjoyed a favorable performance because of the growth in the volume of funds undermanagement in investment funds, the increase in the volume of loan transactions, which produced positiveeffects on the revenues associated with the approval and drawdown of credit, and the efforts made to normalizethe payment of tariffs, which expanded the revenue from tax collection services. Likewise, non-interest expensesshowed a positive change, with a reduction of R$ 36 million between the quarters, even after taking intoconsideration the impact of the collective labor agreement concluded in the period, which increased salaries by6% and granted a one-off bonus of R$ 1,700.00 to each employee. Finally, the item Other was impacted by higherPIS and COFINS tax expenses, associated with the increase in the financial margin and in service revenues.Banco Itaú BBAItaú BBA's net profit amounted to R$ 304 million in the third quarter of 2005, with a 5.7% decrease when comparedwith the previous quarter. The fall in the managerial financial margin is basically associated with the reduction inexposure through securities and derivatives over the quarter, generating a reduction in the managerial financialmargin, which amounted to R$ 47 million in the period, compared to R$ 214 million in the previous quarter. Theresult from loan losses showed a reversal of provision, linked basically to the recovery of a loan granted to acompany in the electricity sector.Banking service fees were positively affected by the improved results from cash management services. Noninterestexpenses showed a reduction, because there was no repetition in the third quarter of the impact associatedwith the accelerated amortization of software in the previous quarter, in the amount of R$ 20 million.ItaucredContrasting with what happened last quarter, Itaucred's net income declined by R$ 76 million between thequarters. The noteworthy increase in the volume of consumer financing of non current account holders gave animpulse to the financial margin and led to an increase of 20.6% in the period. However, one of the main factorsresponsible for the decrease in results was the fact that this quarter did not see a repetition of the positive effectassociated with the reversal of general provisions for doubtful debts that accured in the second quarter of 2005.During that period, Itaú carried out an ample review of its provisions, adjusting them in the light of the tangiblecollateral involved in the transactions. Furthermore, non-interest expenses saw a significant increase, associated,in great measure, to the current stage of development of the Taií operation, which in this period alone added1,406 employees (sales promoters), as a result of 90 points of sale being opened in the quarter.CorporationThe results of the Corporation are associated basically with the financial income obtained from Itaú's excesscapital, together with some occurrences of extraordinary items in the results. Accordingly, the results posted inthe second quarter of 2005 include the extraordinary expense of R$ 50 million in the period, associated with theprovision for expenses for the implementation of the New Credicard Management Agreement and other lessimportant corporate restructuring actions in the conglomerate.10 Management Discussion and AnalysisBanco Itaú Holding Financeira S.A.
Executive SummaryThird Quarter of 2005The pro forma financial statements of Itaubanco, Itaú BBA, Itaucred and Corporation shown below are based onmanagement information, reflecting more accurately the performance of the conglomerate's various businessunits. Between the third and the second quarter of 2005, the following variations occurred in the income statementof Itaú's business segments:PRO FORMA STATEMENT OF INCOME PER SEGMENTR$ Million3rd Q./05 2nd Q./05 Variation 3rd Q./04ItaubancoManagerial Financial Margin 2,132 2,080 53 1,599Result from Loan Losses (735) (518) (217) (235)Banking Service Fees 1,653 1,562 90 1,295Non-Interest Expenses ¹ (1,992) (2,028) 36 (1,816)Income Tax and Social Contribution (168) (264) 96 5Other ² (152) (129) (24) (76)Net Income of Itaubanco (A) 738 704 34 772Itaú BBAManagerial Financial Margin 338 501 (163) 303Result from Loan Losses 104 28 76 20Banking Service Fees 100 96 4 83Non-Interest Expenses ¹ (141) (176) 35 (139)Income Tax and Social Contribution (58) (62) 3 (51)Other ² (39) (67) 27 (21)Net Income of Itaú BBA (B) 304 322 (18) 196ItaucredManagerial Financial Margin 628 521 107 261Result from Loan Losses (153) (2) (151) (41)Banking Service Fees 221 194 27 131Non-Interest Expenses ¹ (459) (356) (103) (225)Income Tax and Social Contribution (50) (104) 54 (25)Other ² (38) (28) (10) (35)Net Income of Itaucred ( C ) 150 226 (76) 65CorporationManagerial Financial Margin 232 203 29 205Banking Service Fees (3) (0) (3) (1)Non-Interest Expenses ¹ (14) (14) (0) (4)Income Tax and Social Contribution (21) (31) 11 (27)Extraordinary Result - (50) 50 (305)Other ³ (34) (26) (8) 20Net Income of Corporation (D) 160 81 79 (113)NET INCOME of ITAÚ (A)+(B)+(C)+(D) 1,352 1,333 19 920(1) Includes Personnel Expenses, Other Administrative Expenses, Tax Expenses - CPMF and Other Taxes and Other Operating Expenses.(2) Includes Revenues from Insurance, Pension Plan and Capitalization Transactions, Tax Expenses - ISS, PIS and COFINS, Other Operating Income, Non Operating Profits and Profit Sharing.(3) Includes Tax Expenses - ISS, PIS and COFINS, Equity in the Earnings of Associated Companies, Other Operating Income, Non Operating Profits, Profit Sharing, and Minority Interests in SubsidiaryCompanies.11 Management Discussion and AnalysisBanco Itaú Holding Financeira S.A.
Page 5: Executive SummaryConsolidated State
Page 12 and 13: Analysis of the Consolidated Net In
Page 16 and 17: Analysis of the Consolidated Perfor
Page 22 and 23: 22 Management Discussion and Analys
Page 24 and 25: Pro Forma Financial Statements by S
Page 26 and 27: Pro Forma Financial Statements by S
Page 28 and 29: Itaubanco - Branch BankingThe state
Page 30 and 31: Insurance, Pension Plan and Capital
Page 32 and 33: Insurance, Pension Plan and Capital
Page 34 and 35: Investment Funds and Managed Portfo
Page 36 and 37: ItaucredThe following tables are ba
Page 38 and 39: ItaucredVehiclesThe Vehicle segment
Page 40 and 41: Risk ManagementMarket RiskBanco Ita
Page 42 and 43: Risk ManagementCredit RiskCredit Op
Page 44 and 45: Analysis of the Consolidated Balanc
Page 46 and 47: Activities AbroadTrade Lines Raisin
Page 48 and 49: Ownership StructureOwnership Struct
Page 50: PricewaterhouseCoopersAv. Francisco

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