EX-99.1 2 v458578_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

Reference: Itaú Unibanco Holding S.A.

Annual Result 2016

Announcement to the Market

Itaú Unibanco Holding S.A. (“Company”) announces to its shareholders and the market at large that the Complete Financial Statements and the Management Discussion and Analysis for the 4^th quarter ending December 31, 2016 are already available at the Investor Relations website (www.itau.com.br/investor-relations).

Conference calls will be held with research analysts on Wednesday, February 8 in Portuguese at 10:30 a.m. (Brasília time) and in English at 12:00 p.m. (Brasília time).

Please find below the Executive Summary for the 4^th quarter 2016.

São Paulo – February 7, 2017.

MARCELO KOPEL

Investor Relations Officer

Management Discussion & Analysis

Executive Summary

Itaú Unibanco Pro forma Information

As from the second quarter of 2016, Itaú CorpBanca, the company resulting from the merger between Banco Itaú Chile and CorpBanca, was consolidated in our financial statements, as we are the controlling shareholder of the new bank. In order to allow comparison with previous periods, historical pro forma data of the combined results of Itaú Unibanco and CorpBanca for the periods previous to the second quarter of 2016 will be presented in the Management Discussion & Analysis report.

The pro forma statements above mentioned were prepared considering all lines of the income statement, including 100% of Itaú CorpBanca’s result. The result related to the minority shareholders is shown in the “minority interests in subsidiaries” line, for both CorpBanca and Itaú Chile.

As the historical data was prepared to demonstrate, on a retroactively basis, the effect of a transaction occurred in a subsequent date, there are limits inherent to pro forma information. The historical data was provided for illustration purposes only and should not be taken as a demonstration of the result that would have been achieved if the merger had occurred on a previous date, nor do they indicate any future result of the combined company.

We present below pro forma information and indicators of Itaú Unibanco in order to allow analysis on the same basis of comparison.

Itaú Unibanco Pro forma Highlights

In R$ millions (except where indicated), end of period	4Q16			3Q16			4Q15			2016			2015
Results
Recurring Net Income		5,817			5,595			5,715			22,150			23,816
Operating Revenues ⁽¹⁾		27,370			27,597			27,984			108,329			108,742
Managerial Financial Margin ⁽²⁾		17,322			17,706			17,839			69,028			70,610
Performance
Recurring Return on Average Equity – Annualized ⁽³⁾		20.7	%		19.9	%		22.1	%		20.3	%		23.9	%
Recurring Return on Average Assets – Annualized ⁽⁴⁾		1.6	%		1.6	%		1.6	%		1.6	%		1.7	%
Nonperforming Loans Ratio (90 days overdue) - Total		3.4	%		3.9	%		3.2	%		3.4	%		3.2	%
Nonperforming Loans Ratio (90 days overdue) - Brazil		4.2	%		4.8	%		3.9	%		4.2	%		3.9	%
Nonperforming Loans Ratio (90 days overdue) - Latin America		1.2	%		1.2	%		1.1	%		1.2	%		1.1	%
Coverage Ratio (Provision for Loan Losses/NPL 90 days overdue)		222	%		204	%		206	%		222	%		206	%
Efficiency Ratio (ER) ⁽⁵⁾		47.5	%		48.6	%		46.3	%		46.7	%		44.4	%
Risk-Adjusted Efficiency Ratio (RAER) ⁽⁵⁾		66.7	%		69.2	%		65.1	%		69.2	%		63.4	%
Balance Sheet
Total Assets		1,425,639			1,399,100			1,474,784
Total Credit Portfolio, including Sureties and Endorsements		562,018			567,744			635,218
Deposits + Debentures + Securities + Borrowings and Onlending ⁽⁶⁾		661,257			656,928			745,922
Loan Portfolio/Funding ⁽⁶⁾		74.3	%		75.4	%		78.3	%
Stockholders' Equity		115,590			114,715			106,462
Other
Assets Under Administration		903,679			902,120			765,102
Total Number of Employees		94,779			95,984			97,865
Brazil		80,871			81,737			83,481
Abroad		13,908			14,247			14,384
Branches and CSBs – Client Service Branches		5,103			5,119			5,279
ATM – Automated Teller Machines ⁽⁷⁾		46,175			45,859			45,559

Itaú Unibanco Holding S.A. Highlights - As disclosed (Data prior to 2Q16 do not include CorpBanca)

In R$ millions (except where indicated), end of period	4Q16			3Q16			4Q15			2016			2015
Highlights
Recurring Net Income per Share (R$) ⁽⁸⁾		0.89			0.86			0.88			3.40			3.62
Net Income per Share (R$) ⁽⁸⁾		0.85			0.83			0.87			3.32			3.55
Number of Outstanding Shares at the end of period – in thousands ⁽⁹⁾		6,512,700			6,530,786			6,513,486			6,512,700			6,513,486
Book Value per Share (R$)		17.75			17.57			16.34			17.75			16.34
Dividends and Interest on Own Capital net of Taxes ⁽¹⁰⁾		6,699			757			3,429			10,000			7,305
Dividends and Interest on Own Capital net of Taxes ⁽¹⁰⁾ per Share (R$)		1.03			0.12			0.53			1.53			1.12
Market Capitalization ⁽¹¹⁾		219,348			211,632			155,732			219,348			155,732
Market Capitalization ⁽¹¹⁾ (US$ million)		67,303			65,194			39,882			67,303			39,882
Solvency Ratio - Prudential Conglomerate (BIS Ratio)		19.1	%		19.0	%		17.8	%		19.1	%		17.8	%
Common Equity Tier I		15.8	%		15.7	%		14.0	%		15.8	%		14.0	%
Estimated BIS III (Common Equity Tier I) - Full Implementation of BIS III ⁽¹²⁾		14.0	%		14.6	%		13.6	%		14.0	%		13.6	%
Indicators
EMBI Brazil Risk		328			319			517			328			517
CDI rate – In the Period (%)		3.2	%		3.5	%		3.4	%		14.0	%		13.3	%
Dollar Exchange Rate – Quotation in R$		3.2591			3.2462			3.9048			3.2591			3.9048
Dollar Exchange Rate – Change in the Period (%)		0.4	%		1.1	%		-1.7	%		-17.8	%		47.0	%
Euro Exchange Rate – Quotation in R$		3.4384			3.6484			4.2504			3.4384			4.2504
Euro Exchange Rate – Change in the Period (%)		-5.8	%		3.0	%		-4.2	%		-16.7	%		31.7	%
IGP-M – In the Period (%)		0.7	%		0.5	%		3.9	%		7.2	%		10.5	%

Note: (1) Operating Revenues are the sum of Managerial Financial Margin, Commissions and Fees, Other Operating Income and Result from Insurance, Pension Plan and Premium Bonds Operations before Retained Claims and Selling Expenses; (2) Detailed on Managerial Financial Margin section; (3) Annualized Return was calculated by dividing Net Income by Average Stockholders’ Equity. The quotient was multiplied by the number of periods in the year to derive the annualized rate. The calculation bases of returns were adjusted by the amount of dividends that has not yet been approved at shareholders’ or Board meetings, proposed after the balance sheet closing date; (4) Return was calculated by dividing Recurring Net Income by Average Assets; (5) For further details on the calculation methodologies of both Efficiency and Risk-Adjusted Efficiency ratios, please refer to Non-Interest Expenses section; (6) As detailed on Other Balance Sheet Information section; (7) Includes ESBs (electronic service branches) and service points at third parties’ locations and Banco24Horas ATMs; (8) Calculated based on the weighted average number of outstanding shares for the period; (9) The number of outstanding shares was adjusted to reflect the share bonus of 10% granted on July 17, 2015 and September 14, 2016; (10) IOC – Interest on own capital. Declared amounts paid/accrued; (11) Total number of outstanding shares (common and non-voting shares) multiplied by the average price of the non-voting share on the last trading day in the period; (12) Takes into consideration the additional payment of interest on capital scheduled for March 2017, the consolidation of Citibank’s Brazilian retail business, and the use of tax credits.

Itaú Unibanco Holding S.A.

Management Discussion & Analysis

Executive Summary

Net Income and Recurring Net Income

Our recurring net income totaled R$5,817 million in the fourth quarter of 2016 as a result of the elimination of non-recurring events, which are presented in the table below, from net income of R$5,543 million for the period.

Non-Recurring Events Net of Tax Effects

In R$ millions	4Q16			3Q16			4Q15			2016			2015
Recurring Net Income		5,817			5,595			5,715			22,150			23,816
Non-Recurring Events		(275	)		(200	)		(75	)		(583	)		(473	)
Impairment (a)		(172	)		-			(7	)		(180	)		(50	)
Goodwill Amortization (b)		(133	)		(120	)		(32	)		(442	)		(162	)
Contingencies Provision (c)		(88	)		(80	)		(28	)		(231	)		(696	)
Liability Adequacy Test (d)		(31	)		-			-			109			-
Pension Fund (e)		130			-			-			130			(130	)
Program for Settlement or Installment Payment of Taxes (f)		1			-			(4	)		14			37
Social Contribution Rate Increase (g)		-			-			-			-			3,988
Complementary Provision for Loan Losses (h)		-			-			-			-			(2,793	)
Financial Leasing Accounting Change (i)		-			-			-			-			(520	)
Porto Seguro (j)		-			-			17			-			17
Other		18			-			(20	)		18			(163	)
Net Income		5,543			5,394			5,640			21,567			23,343
CorpBanca's Pro Forma Consolidation Effects		-			-			(58	)		(72	)		(16	)
Net Income as Reported		5,543			5,394			5,698			21,639			23,360

Note: The impacts of the non-recurring events, described above, are net of tax effects – further details are presented in Note 22-K of the Financial Statements.

Non-Recurring Events

(a) Impairment: Adjustment to reflect the realization value of certain assets.

(b) Goodwill Amortization: Effect of the goodwill amortization generated by acquisitions made by the Conglomerate.

(c) Contingencies Provision: Recognition of provisions for tax and social security lawsuits and losses arising from economic plans in effect in Brazil during the 1980's.

(d) Liability Adequacy Test: Technical provisions adjustment resulting from the liability adequacy test.

(e) Pension Fund: In 2016, destination of surplus and in 2015, provision to settle the surplus of the defined contribution pension fund in accordance with the regulation.

(f) Program for the Settlement or Installment Payment of Taxes:

Effects of our adherence to the Program for the Settlement or Installment Payment of Federal and Municipal Taxes.

(g) Social Contribution Rate Increase: Effect on the balance of the social contribution tax credit resulting from the rate increase from 15% to 20% as established by Provisional Measure No. 675/15 of May 2015 (converted into Law No. 13,169/15 in October 2015).

(h) Complementary Provision for Loan Losses: Complementary provision for loan losses to the minimum required by Resolution No. 2,682/99 of the National Monetary Council mainly due to a more challenging economic environment.

(i) Financial Leasing Accounting Change: Regarding financial leasing contracts related to new Technology Center implementation.

(j) Porto Seguro: Effect on the balance of the social contribution tax credit resulting from the rate increase in proportion to our stake in the company.

Managerial Income Statement

We apply to the management results consolidation criteria that affect only the breakdown of accounts and, therefore, does not affect net income. These effects are shown in the table on the following page ("Accounting and Managerial Statements Reconciliation"). Additionally, we adjusted the tax effects of the hedges of investments abroad - originally accounted for as tax expenses (PIS and COFINS) and income tax and social contribution on net income and then reclassified to the financial margin - and non-recurring events.

Our strategy for the foreign exchange risk management of the capital invested abroad is aimed at mitigating, through financial instruments, the effects resulting from foreign exchange variations and takes into consideration the impact of all tax effects. In the fourth quarter of 2016, the Brazilian real depreciated 0.4% against the U.S. dollar and appreciated 5.8% against the Euro, compared with depreciations of 1.1% and 3.0%, respectively, in the previous quarter.

Itaú Unibanco Holding S.A.

Management Discussion & Analysis

Executive Summary

Accounting and Managerial Income Statements reconciliation for the past two quarters is presented below.

Accounting and Managerial Statements Reconciliation | 4^th Quarter of 2016

				Non-recurring						Managerial
In R$ millions	Accounting			Events			Tax Effect of Hedge			Reclassifications			Managerial
Operating Revenues		27,425			(6	)		401			(450	)		27,370
Managerial Financial Margin		16,959			5			401			(44	)		17,322
Financial Margin with Clients		15,368			5			-			(44	)		15,329
Financial Margin with the Market		1,591			-			401			-			1,993
Commissions and Fees		8,624			-			-			(644	)		7,980
Result from Insurance, Pension Plan and Premium Bonds Operations Before Retained Claims and Selling Expenses		1,368			56			-			644			2,068
Other Operating Income		224			(2	)		-			(222	)		-
Equity in Earnings of Affiliates and Other Investments		185			-			-			(185	)		-
Non-operating Income		65			(65	)		-			0			-
Result from Loan Losses		(4,885	)		-			-			66			(4,819	)
Provision for Loan Losses		(5,888	)		-			-			65			(5,823	)
Recovery of Loans Written Off as Losses		1,003			-			-			1			1,004
Retained Claims		(364	)		-			-			-			(364	)
Other Operating Income/(Expenses)		(14,557	)		502			(37	)		271			(13,821	)
Non-interest Expenses		(12,697	)		502			-			269			(11,927	)
Tax Expenses for ISS, PIS, Cofins and Other Taxes		(1,752	)		-			(37	)		2			(1,786	)
Insurance Selling Expenses		(108	)		-			-			-			(108	)
Income before Tax and Profit Sharing		7,618			496			365			(113	)		8,366
Income Tax and Social Contribution		(2,240	)		(128	)		(365	)		22			(2,711	)
Profit Sharing		(91	)		-			-			91			-
Minority Interests		255			(93	)		-			-			162
Net Income		5,543			275			-			-			5,817

Accounting and Managerial Statements Reconciliation | 3^rd Quarter of 2016

				Non-recurring						Managerial
In R$ millions	Accounting			Events			Tax Effect of Hedge			Reclassifications			Managerial
Operating Revenues		27,309			23			607			(342	)		27,597
Managerial Financial Margin		17,028			23			607			48			17,706
Financial Margin with Clients		15,887			23			-			48			15,958
Financial Margin with the Market		1,141			-			607			-			1,749
Commissions and Fees		8,478			-			-			(653	)		7,825
Result from Insurance, Pension Plan and Premium Bonds Operations Before Retained Claims and Selling Expenses		1,449			-			-			618			2,067
Other Operating Income		197			-			-			(197	)		-
Equity in Earnings of Affiliates and Other Investments		112			-			-			(112	)		-
Non-operating Income		46			-			-			(46	)		-
Result from Loan Losses		(5,182	)		-			-			(48	)		(5,230	)
Provision for Loan Losses		(6,121	)		-			-			(48	)		(6,169	)
Recovery of Loans Written Off as Losses		939			-			-			0			939
Retained Claims		(375	)		-			-			-			(375	)
Other Operating Income/(Expenses)		(14,772	)		362			(58	)		310			(14,159	)
Non-interest Expenses		(13,044	)		362			-			308			(12,374	)
Tax Expenses for ISS, PIS, Cofins and Other Taxes		(1,592	)		-			(58	)		2			(1,648	)
Insurance Selling Expenses		(136	)		-			-			-			(136	)
Income before Tax and Profit Sharing		6,981			385			549			(81	)		7,834
Income Tax and Social Contribution		(1,570	)		(92	)		(549	)		20			(2,191	)
Profit Sharing		(61	)		-			-			61			-
Minority Interests		44			(93	)		-			-			(49	)
Net Income		5,394			200			-			-			5,595

Itaú Unibanco Holding S.A.

Management Discussion & Analysis

Executive Summary

We present below the income statement from a standpoint that highlights Operating Revenues, which is composed by the sum of the main accounts in which revenues from banking, insurance, pension plan and premium bonds operations are recorded.

Income Statement | Operating Revenues Perspective

In R$ millions	4Q16			3Q16			change					4Q15			change					2016			2015			change
Operating Revenues		27,370			27,597			(228	)	-0.8	%		27,984			(614	)	-2.2	%		108,329			108,742			(412	)	-0.4	%
Managerial Financial Margin		17,322			17,706			(384	)	-2.2	%		17,839			(518	)	-2.9	%		69,028			70,610			(1,583	)	-2.2	%
Financial Margin with Clients		15,329			15,958			(629	)	-3.9	%		16,570			(1,242	)	-7.5	%		62,029			63,633			(1,604	)	-2.5	%
Financial Margin with the Market		1,993			1,749			244		14.0	%		1,269			724		57.0	%		6,999			6,977			22		0.3	%
Commissions and Fees		7,980			7,825			155		2.0	%		7,873			107		1.4	%		30,952			29,278			1,674		5.7	%
Result from Insurance, Pension Plan and Premium Bonds Operations Before Retained Claims and Selling Expenses		2,068			2,067			1		0.1	%		2,271			(203	)	-8.9	%		8,350			8,853			(503	)	-5.7	%
Result from Loan Losses		(4,819	)		(5,230	)		411		-7.8	%		(4,859	)		40		-0.8	%		(22,387	)		(18,973	)		(3,414	)	18.0	%
Provision for Loan Losses		(5,823	)		(6,169	)		346		-5.6	%		(6,366	)		543		-8.5	%		(26,152	)		(23,844	)		(2,308	)	9.7	%
Recovery of Loans Written Off as Losses		1,004			939			65		6.9	%		1,507			(504	)	-33.4	%		3,765			4,871			(1,106	)	-22.7	%
Retained Claims		(364	)		(375	)		11		-2.9	%		(406	)		43		-10.5	%		(1,485	)		(1,597	)		112		-7.0	%
Operating Margin		22,187			21,993			194		0.9	%		22,718			(531	)	-2.3	%		84,457			88,172			(3,714	)	-4.2	%
Other Operating Income/(Expenses)		(13,821	)		(14,159	)		338		-2.4	%		(13,745	)		(76	)	0.6	%		(53,693	)		(51,541	)		(2,151	)	4.2	%
Non-interest Expenses		(11,927	)		(12,374	)		448		-3.6	%		(11,904	)		(22	)	0.2	%		(46,625	)		(44,426	)		(2,199	)	4.9	%
Tax Expenses for ISS, PIS, Cofins and Other Taxes		(1,786	)		(1,648	)		(138	)	8.3	%		(1,582	)		(204	)	12.9	%		(6,466	)		(6,056	)		(410	)	6.8	%
Insurance Selling Expenses		(108	)		(136	)		28		-20.6	%		(258	)		150		-58.0	%		(602	)		(1,060	)		457		-43.2	%
Income before Tax and Minority Interests		8,366			7,834			532		6.8	%		8,974			(608	)	-6.8	%		30,765			36,630			(5,865	)	-16.0	%
Income Tax and Social Contribution		(2,711	)		(2,191	)		(521	)	23.8	%		(2,847	)		136		-4.8	%		(8,540	)		(11,287	)		2,748		-24.3	%
Minority Interests in Subsidiaries		162			(49	)		211		-433.0	%		(412	)		574		-139.5	%		(75	)		(1,527	)		1,451		-95.1	%
Recurring Net Income		5,817			5,595			223		4.0	%		5,715			103		1.8	%		22,150			23,816			(1,666	)	-7.0	%

We present below the income statement from the standpoint that highlights the Managerial Financial Margin.

Income Statement | Managerial Financial Margin Perspective

In R$ millions	4Q16			3Q16			change					4Q15			change					2016			2015			change
Managerial Financial Margin		17,322			17,706			(384	)	-2.2	%		17,839			(518	)	-2.9	%		69,028			70,610			(1,583	)	-2.2	%
Financial Margin with Clients		15,329			15,958			(629	)	-3.9	%		16,570			(1,242	)	-7.5	%		62,029			63,633			(1,604	)	-2.5	%
Financial Margin with the Market		1,993			1,749			244		14.0	%		1,269			724		57.0	%		6,999			6,977			22		0.3	%
Result from Loan Losses		(4,819	)		(5,230	)		411		-7.8	%		(4,859	)		40		-0.8	%		(22,387	)		(18,973	)		(3,414	)	18.0	%
Provision for Loan Losses		(5,823	)		(6,169	)		346		-5.6	%		(6,366	)		543		-8.5	%		(26,152	)		(23,844	)		(2,308	)	9.7	%
Recovery of Loans Written Off as Losses		1,004			939			65		6.9	%		1,507			(504	)	-33.4	%		3,765			4,871			(1,106	)	-22.7	%
Net Result from Financial Operations		12,502			12,476			26		0.2	%		12,980			(478	)	-3.7	%		46,640			51,637			(4,997	)	-9.7	%
Other Operating Income/(Expenses)		(4,136	)		(4,642	)		506		-10.9	%		(4,007	)		(130	)	3.2	%		(15,876	)		(15,007	)		(868	)	5.8	%
Commissions and Fees		7,980			7,825			155		2.0	%		7,873			107		1.4	%		30,952			29,278			1,674		5.7	%
Result from Insurance, Pension Plan and Premium Bonds Operations		1,596			1,555			41		2.6	%		1,607			(11	)	-0.7	%		6,263			6,196			66		1.1	%
Non-interest Expenses		(11,927	)		(12,374	)		448		-3.6	%		(11,904	)		(22	)	0.2	%		(46,625	)		(44,426	)		(2,199	)	4.9	%
Tax Expenses for ISS, PIS, Cofins and Other Taxes		(1,786	)		(1,648	)		(138	)	8.3	%		(1,582	)		(204	)	12.9	%		(6,466	)		(6,056	)		(410	)	6.8	%
Income before Tax and Minority Interests		8,366			7,834			532		6.8	%		8,974			(608	)	-6.8	%		30,765			36,630			(5,865	)	-16.0	%
Income Tax and Social Contribution		(2,711	)		(2,191	)		(521	)	23.8	%		(2,847	)		136		-4.8	%		(8,540	)		(11,287	)		2,748		-24.3	%
Minority Interests in Subsidiaries		162			(49	)		211		-433.0	%		(412	)		574		-139.5	%		(75	)		(1,527	)		1,451		-95.1	%
Recurring Net Income		5,817			5,595			223		4.0	%		5,715			103		1.8	%		22,150			23,816			(1,666	)	-7.0	%

Itaú Unibanco Holding S.A.

Management Discussion & Analysis

Executive Summary

Net Income

The recurring net income for the fourth quarter of 2016 amounted to R$5,817 million, representing increases of 4.0% from the previous quarter and of 1.8% from the same period of the previous year.

The main positive highlights in the quarter compared to the previous period were the increases of 14.0% in financial margin with the market, of 2.0% in commissions and fees, in addition to the decreases of 5.6% in provision for loan losses and of 3.6% in non-interest expenses.

The positive highlights were partially offset by the 3.9% decrease in the financial margin with clients, mainly driven by the securities’ impairment in the amount of R$1,255 million.

In 2016, recurring net income totaled R$22,150 million, a 7.0% decrease from 2015, mainly driven by the 9.7% increase in provision for loan losses.

Return on Average Equity

The annualized recurring return on average equity reached 20.7% in the fourth quarter of 2016. Stockholders’ equity totaled R$115.6 billion.

The annualized recurring return on average assets remained stable compared to the previous quarter and reached 1.6%.

Operating Revenues

In the fourth quarter of 2016, operating revenues, representing revenues from banking and insurance, pension plan and premium bonds operations, totaled R$27,370 million, with decreases of 0.8% from the previous quarter and of 2.2% from the same period of the previous year. The main components of operating revenues and other items of income statement are presented ahead.

Managerial Financial Margin

The managerial financial margin for the fourth quarter of 2016 totaled R$17,322 million, with a decrease of R$384 million from the previous quarter, mainly due to R$629 million decrease in our financial margin with clients. This margin was impacted by securities’ impairment in the amount of R$1,255 million. Our financial margin with the market increased R$244 million in the quarter.

Our managerial financial margin decreased R$1,583 million compared to 2015. This decrease was due to the R$1,604 million decrease in the financial margin with clients, impacted by securities’ impairment in the year, as mentioned before.

Result from Loan Losses

The result from loan losses, net of recovery of loans, decreased 7.8% from the previous quarter, totaling R$4,819 million in the quarter. This decrease was mainly due to a 5.6% (R$346 million) reduction in our provision for loan losses. Additionally, recovery of loans written off as losses increased 6.9% (R$65 million).

Itaú Unibanco Holding S.A.

Management Discussion & Analysis

Executive Summary

NPL Creation

*Excluding specific economic group effect, the total and Wholesale segment (Brazil) NPL Creation would have been R$5,162 million and R$713 million in the 3Q16, respectively.

In the fourth quarter of 2016, the NPL Creation, which is the balance of loans that became overdue for more than 90 days in the quarter, amounted to R$5,304 million, a decrease of 21.5% from the previous period, mainly due to a reduction in the Wholesale segment NPL Creation, which totaled R$760 million in the quarter. This improvement is related to the increase in the NPL Creation observed in the third quarter of 2016 concentrated in one economic group of the segment, which was written off as loss in the fourth quarter of 2016. In the Retail segment, NPL Creation decreased for the fourth consecutive quarter.

Commissions and Fees

Commissions and fees increased 2.0% in the fourth quarter of 2016 compared to the previous quarter.

In 2016, these revenues increased R$1,674 million (5.7%) when compared to 2015.

Result from Insurance, Pension Plan and Premium Bonds

* For further details, please refer to Insurance, Pension Plan and Premium Bonds Operations section.

In the fourth quarter of 2016, the result from insurance, pension plan and premium bonds from core activities, which consist of mass-market products related to life, property, credit, pension plan and premium bonds, reached R$1,510 million, with increases of 1.9% from the previous quarter and of 3.8% from the fourth quarter of 2015. The loss ratio from core activities reached 28.5% this quarter.

Non-Interest Expenses

In the fourth quarter of 2016, non-interest expenses totaled R$11,927 million, a 3.6% decrease from the third quarter of 2016. In the previous quarter, total non-interest expenses were impacted by extraordinary events related to the methodology enhancement for calculating labor claims in the amount of R$687 million and to the lump-sum bonus to employees related to the collective bargaining agreement in the amount of R$275 million.

In 2016, non-interest expenses increased 4.9% when compared to the previous year.

Efficiency Ratio and Risk-Adjusted Efficiency Ratio ^(*)

(*) Calculation criteria are detailed on Non-Interest Expenses section.

In the 12-month period, the efficiency ratio, according to the criteria that includes all expenses except for the result from loan losses, reached 46.7%, an increase of 230 basis points from the same period of the previous year. In this period, our expenses grew 4.9%, lower than the accumulated inflation (6.3% - IPCA). On the other hand, our revenues decreased 0.3%, mainly as a result of the challenging economic scenario.

In the fourth quarter of 2016, the efficiency ratio reached 47.5%, a reduction of 110 basis points from the previous quarter, mainly due to the decrease in non-interest expenses in the quarter (3.6%).

In the 12-month period, the risk-adjusted efficiency ratio, which also includes the result from loan losses, reached 69.2%, an increase of 580 basis points compared to the same period of 2015. In the fourth quarter of 2016, the risk-adjusted efficiency ratio reached 66.7%.

Itaú Unibanco Holding S.A.

Management Discussion & Analysis

Executive Summary

Balance Sheet | Assets

In R$ millions, end of period	4Q16			3Q16			change			4Q15			change
Current and Long-term Assets		1,398,651			1,372,105			1.9	%		1,451,171			-3.6	%
Cash and Cash Equivalents		18,542			20,176			-8.1	%		24,071			-23.0	%
Short-term Interbank Investments		286,038			278,663			2.6	%		281,079			1.8	%
Securities and Derivative Financial Instruments		376,887			357,549			5.4	%		357,244			5.5	%
Interbank and Interbranch Accounts		86,564			81,566			6.1	%		69,858			23.9	%
Loan, Lease and Other Loan Operations		491,225			495,327			-0.8	%		555,285			-11.5	%
(Allowance for Loan Losses)		(37,431	)		(39,103	)		-4.3	%		(36,035	)		3.9	%
Other Assets		176,826			177,926			-0.6	%		199,670			-11.4	%
Permanent Assets		26,987			26,994			0.0	%		23,612			14.3	%
Total Assets		1,425,639			1,399,100			1.9	%		1,474,784			-3.3	%

At the end of the fourth quarter of 2016, our assets totaled R$1.4 trillion, up 1.9% (R$26.5 billion) from the previous quarter. The main changes are presented below:

Compared to 2015, our assets decreased 3.3% (R$49.1 billion):

Balance Sheet | Liabilities and Equity

In R$ millions, end of period	4Q16		3Q16		change			4Q15		change
Current and Long-Term Liabilities		1,296,377		1,269,388		2.1	%		1,355,690		-4.4	%
Deposits		329,414		308,599		6.7	%		363,710		-9.4	%
Deposits Received under Securities Repurchase Agreements		366,038		360,337		1.6	%		352,388		3.9	%
Fund from Acceptances and Issue of Securities		93,711		90,963		3.0	%		88,214		6.2	%
Interbank and Interbranch Accounts		6,485		11,068		-41.4	%		6,926		-6.4	%
Borrowings and Onlendings		75,614		80,280		-5.8	%		112,996		-33.1	%
Derivative Financial Instruments		24,711		25,672		-3.7	%		35,137		-29.7	%
Technical Provisions for Insurance, Pension Plans and Premium Bonds		156,656		150,134		4.3	%		132,053		18.6	%
Other Liabilities		243,749		242,334		0.6	%		264,265		-7.8	%
Deferred Income		2,046		1,724		18.7	%		1,960		4.4	%
Minority Interest in Subsidiaries		11,625		13,273		-12.4	%		10,672		8.9	%
Stockholders' Equity		115,590		114,715		0.8	%		106,462		8.6	%
Total Liabilities and Equity		1,425,639		1,399,100		1.9	%		1,474,784		-3.3	%

The main changes in liabilities, at the end of the fourth quarter of 2016, compared to the previous quarter are presented in the chart below:

Compared to the previous year, the main changes are highlighted as follows:

Itaú Unibanco Holding S.A.

Management Discussion & Analysis

Executive Summary

Credit Portfolio with Endorsements, Sureties and Private Securities

At the end of the fourth quarter of 2016, our total loan portfolio, including sureties, endorsements and private securities, reached R$598,431 million, reducing 1.1% from the previous quarter and 11.0% from the same period of the previous year. Excluding the effect of the foreign exchange variation, our loan portfolio would have decreased 0.7% in the quarter and 6.4% in the 12-month period.

In R$ millions, end of period	4Q16		3Q16		change			4Q15		change
Individuals		183,427		182,517		0.5	%		187,556		-2.2	%
Credit Card Loans		59,023		55,750		5.9	%		58,542		0.8	%
Personal Loans		26,276		27,879		-5.7	%		28,961		-9.3	%
Payroll Loans ⁽¹⁾		44,638		45,638		-2.2	%		45,437		-1.8	%
Vehicle Loans		15,373		15,905		-3.3	%		19,984		-23.1	%
Mortgage Loans		38,117		37,345		2.1	%		34,631		10.1	%
Companies		243,088		244,191		-0.5	%		288,393		-15.7	%
Corporate Loans		181,541		183,418		-1.0	%		219,418		-17.3	%
Very Small, Small and Middle Market Loans ⁽²⁾		61,547		60,773		1.3	%		68,974		-10.8	%
Latin America ⁽³⁾		135,503		141,037		-3.9	%		159,270		-14.9	%
Total with Endorsements and Sureties		562,018		567,744		-1.0	%		635,218		-11.5	%
Corporate - Private Securities ⁽⁴⁾		36,413		37,330		-2.5	%		37,431		-2.7	%
Total with Endorsements, Sureties and Private Securities		598,431		605,074		-1.1	%		672,649		-11.0	%
Total with Endorsements, Sureties and Private Securities ⁽⁵⁾ (ex-foreign exchange rate variation)		598,431		602,665		-0.7	%		639,534		-6.4	%
Endorsements and Sureties		70,793		72,417		-2.2	%		79,933		-11.4	%
Individuals		448		453		-1.2	%		550		-18.6	%
Corporate		59,987		61,417		-2.3	%		67,152		-10.7	%
Very Small, Small and Middle Market		2,562		2,456		4.3	%		2,891		-11.4	%
Latin America ⁽³⁾		7,796		8,091		-3.6	%		9,339		-16.5	%

(1) Includes operations originated by the institution and acquired operations. (2) Includes Rural Loans to Individuals. (3) Includes Argentina, Chile, Colombia, Panama, Paraguay, Peru and Uruguay. (4) Includes Debentures, CRI and Commercial Paper. (5) Calculated based on the conversion of the foreign currency portfolio (U.S. dollar and currencies of Latin America). Note: the Mortgage and Rural Loan portfolios from the companies segment are allocated according to the client’s size. For further details, please refer to page 18.

Latin America - Breakdown

In R$ millions, end of period	4Q16		3Q16		change			In R$ millions, end of period	4Q16		%			3Q16		change
Individuals		43,492		44,012		-1.2	%	Argentina		7,052		5.2	%		7,035		0.2	%
Credit Card Loans		4,548		4,440		2.4	%	Chile		87,444		64.5	%		91,102		-4.0	%
Personal Loans		18,742		19,322		-3.0	%	Colombia		26,946		19.9	%		28,978		-7.0	%
Mortgage Loans		20,203		20,250		-0.2	%	Paraguay		5,911		4.4	%		5,926		-0.3	%
								Panama		906		0.7	%		1,173		-22.8	%
Companies		92,011		97,025		-5.2	%	Uruguay		7,244		5.3	%		6,822		6.2	%
Total with Endorsements and Sureties		135,503		141,037		-3.9	%	Total with Endorsements and Sureties		135,503		100.0	%		141,037		-3.9	%

Credit Portfolio – Currency Breakdown

On December 31, 2016, R$183.3 billion of our total credit assets were denominated in or indexed to foreign currencies. This portion decreased 5.4% in this quarter compared to the previous quarter.

NPL Ratio (90 days overdue)

^* Excluding specific economic group effect, the total and Brazil NPL ratio (90-day) would have been 3.6% and 4.4% in September 2016, respectively.

Includes units abroad ex-Latin America. ²Excludes Brazil.

At the end of the fourth quarter of 2016, the NPL ratio for operations more than 90 days overdue reached 3.4%, a decrease of 50 basis points from the previous quarter and an increase of 20 basis points from the same period of 2015. In Brazil, the NPL ratio reached 4.2% in the quarter, a 60-basis-point decrease from the previous quarter. The decrease in the quarter was mainly related to one economic group of the Corporate segment, which was written off as loss in this quarter. Excluding this particular case in September 2016, total 90-day NPL in December 2016 would have reduced 20 basis points when compared to the previous quarter, with decreases in individuals, very small, small and middle-market companies and large companies.

Itaú Unibanco Holding S.A.

Management Discussion & Analysis

Executive Summary

2016 Forecast

The results for 2016, compared to our previously disclosed forecast for 2016, are presented below:

Consolidated forecast was calculated based on consolidated pro forma financial information, which considers Itaú CorpBanca´s consolidation in 2015 and in the 1Q16.

	Consolidated		Brazil ¹
	Forecast	Actual	Forecast	Actual

Total Credit Portfolio ²	From -10.5% to -5.5%	-11.0%	From -11.0% to -6.0%	-9.8%

Financial Margin with Clients ^*	From -2.5% to 0.5%	-2.5%	From -1.0% to 2.0%	-0.2%

Securities' Impairment	-	R$1.9 bn	-	R$1.9 bn

Result from Loans Losses ³	Between R$23.0 bn and R$26.0 bn	R$22.4 bn	Between R$21.0 bn and R$24.0 bn	R$20.2 bn

Commissions and Fees and Result from Insurance Operations ⁴	From 4.0% to 7.0%	4.9%	From 4.5% to 7.5%	5.9%

Non-Interest Expenses	From 2.0% to 5.0%	4.9%	From 2.5% to 5.5%	4.9%

* Excluding impairment, Consolidated Financial Margin with Clients would have increased 0.3% and Brazil’s Financial Margin with Clients would have increased 3.0%.

(1)

Includes units abroad ex-Latin America.

(2)

Includes endorsements, sureties and private securities.

(3)

Provision for Loan Losses Net of Recovery of Loans Written Off as Losses.

(4)

Commissions and Fees (+) Income from Insurance, Pension Plan and Premium Bonds Operations (-) Expenses for Claims (-) Insurance, Pension Plan and Premium Bonds Selling Expenses.

Although the growth plans and projections of results presented above are based on management assumptions and information available in the market to date, these expectations involve inaccuracies and risks that are diffcult to anticipate and there may be, therefore, results or consequences that differ from those anticipated. This information is not a guarantee of future performance. The use of these expectations should take into consideration the risks and uncertainties that involve any activities and that are beyond our control. These risks and uncertainties include, but are not limited to, our ability to perceive the dimension of the synergies projected and their timing, political and economic changes, volatility in interest and foreign exchange rates, technological changes, inflation, financial disintermediation, competitive pressures on products, prices and changes in tax legislation, among others.

Itaú Unibanco Holding S.A.

Management Discussion & Analysis

Executive Summary

Basis for 2017 Forecast

We present below the income statement that considers impairment as part of “result from loan losses and impairment”, previously classified in our Financial Margin with Clients. This income statement is the basis for 2017 forecast.

In R$ millions	2016			2015			change
Managerial Financial Margin		70,910			70,696			214		0.3	%
Financial Margin with Clients		63,911			63,719			192		0.3	%
Financial Margin with the Market		6,999			6,977			22		0.3	%
Result from Loan Losses and Impairment		(24,269	)		(19,058	)		(5,211	)	27.3	%
Provision for Loan Losses		(26,152	)		(23,844	)		(2,308	)	9.7	%
Impairment		(1,882	)		(85	)		(1,797	)	-
Recovery of Loans Written Off as Losses		3,765			4,871			(1,106	)	-22.7	%
Net Result from Financial Operations		46,640			51,637			(4,997	)	-9.7	%
Other Operating Income/(Expenses)		(15,876	)		(15,007	)		(868	)	5.8	%
Commissions and Fees		30,952			29,278			1,674		5.7	%
Result from Insurance, Pension Plan and Premium Bonds Operations		6,263			6,196			66		1.1	%
Non-interest Expenses		(46,625	)		(44,426	)		(2,199	)	4.9	%
Tax Expenses for ISS, PIS, Cofins and Other Taxes		(6,466	)		(6,056	)		(410	)	6.8	%
Income before Tax and Minority Interests		30,765			36,630			(5,865	)	-16.0	%
Income Tax and Social Contribution		(8,540	)		(11,287	)		2,748		-24.3	%
Minority Interests in Subsidiaries		(75	)		(1,527	)		1,451		-95.1	%
Recurring Net Income		22,150			23,816			(1,666	)	-7.0	%

2017 Forecast

We present below our 2017 forecast, which considers impairment as part of “Result from Loan Losses and Impairment”.

Consolidated forecast was calculated based on consolidated pro forma financial information, which considers Itaú CorpBanca´s consolidation as of 1Q16.

	Consolidated ¹	Brazil ^{1, 2}

Total Credit Portfolio ³	From 0.0% to 4.0%	From -2.0% to 2.0%

Financial Margin with Clients (ex-Impairment)	From -4.0% to -0.5%	From -5.0% to -1.5%

Result from Loan Losses and Impairment ⁴	Between R$14.5 bn and R$17.0 bn	Between R$12.5 bn and R$15.0 bn

Commissions and Fees and Result from Insurance	From 0.5% to 4.5%	From 0.0% to 4.0%
Operations ⁵

Non-Interest Expenses	From 1.5% to 4.5%	From 3.0% to 6.0%

(1) Considers exchange rate of R$3.50 at Dec-17; (2) Includes units abroad ex-Latin America; (3) Includes endorsements, sureties and private securities; (4) Provision for Loan Losses Net of Recovery of Loans Written Off as Losses and Impairment; (5) Commissions and Fees (+) Income from Insurance, Pension Plan and Premium Bonds Operations (-) Expenses for Claims (-) Insurance, Pension Plan and Premium Bonds Selling Expenses.

Itaú Unibanco Holding S.A.