EX-99.1 2 v462174_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

   

 

 

Index

 

1. Message from the Chairman of the Board of Directors 03
2. Introduction 04
3. Executive Officers’ Comments 04
4. Information on Annual and Extraordinary Stockholder’s Meeting 04
5. Convening Notice 07
6. Annual and Extraordinary Stockholders’ Meeting 08
I) Annual Stockholders’ Meeting  
1. Balance Sheets, other Financial Statements and Accompanying Notes 08
2. Allocation of Net Income for 2016 08
3. Definition of the number of members of the Board of Directors and election of the members of the Board of Directors and the Fiscal Council 08
4. Definition of the amount allocated to the overall compensation of the members of Company’s Board of Officers and Board of Directors, as well as the compansation of the members of Fiscal Council 09
II) Extraordinary Stockholders’ Meeting  
1. Formalization and Ratification of the Stock Grant Plan 09
2. Amendment to the Bylaws 09
3. Consolidation of the Bylaws 10
ATTACHMENT I - Proxy Templates 12
A - Proxy Template for Holders of Common Shares 12
B - Proxy Template for Holders of Preferred Shares 16
C - Proxy Template for Attorneys-In-Fact Provided by the Company (for Holders of Common Shares) 17
D - Proxy Template for Attorneys-In-Fact Provided by the Company (for Holders of Preferred Shares) 22
E - Information for Attachment 23 of CVM Instruction 481/09 24
ATTACHMENT II - Item 10 of Attachment 24 of CVM Instruction 480/09 27
ATTACHMENT III - Attachment 9-1-II of the CVM Instruction 481/09 61
ATTACHMENT IV - Items 12.5 to 12.10 of Attachment 24 of the CVM Instruction 480/09 66
ATTACHMENT V - Item 13 of Attachment 24 of CVM Instruction 480/09 88
ATTACHMENT VI - Attachment 13 of the CVM Instruction 481/09 112
ATTACHMENT VII - Proposal to Amend the Company’s Bylaws 115
ATTACHMENT VIII - Remote Voting Form 126

 

   

 

 

Itaú Unibanco Holding S.A.

 

1. Message from the Chairman of the Board of Directors

 

Published on March 17, 2017

 

Dear Stockholder,

 

In 2016, Brazil experienced a scenario with great economic and political challenges that have caused uncertainties and impacted our GDP for the second consecutive year. We have notwithstanding overcome countless challenges, and were able to generate a recurring net income of R$22 billion and a return on equity (ROE) of 20.1%, once again creating value to our stockholders.

 

In addition to the ROE, many indicators evidence the soundness of our results and reflect the responsibility with which we run our business. Our Basel ratio, at 19.1% at the end of December 2016, show our capital strength, and the average LCR (Liquidity Coverage Ratio) (*) of 212.8% in the fourth quarter of 2016 points out to the liquidity of our balance sheet.

 

Since the Itaú and Unibanco merger, we have distributed on average 31% of our recurring net income. In 2016, it reached 45%, and you, stockholder, have received R$1.58 by share. For the upcoming years, we intend to keep this rate between 35% and 45%.

 

These figures reflect our pioneering path, characterized by the search for excellence, and a capacity to strike strategic partnerships and make ongoing investments to expand our business. We invest in technology to become an increasingly digital bank, but never losing our focus: people. We value the steady practice of meritocracy, and encourage leadership, leading by example, and the ability to work together as a team. We have built a growth strategy over the years that is consistent with our values and our way to do things.

 

This Stockholders’ Meeting will be another significant chapter in our history, since it is an essential stage of our CEO succession process, disclosed over two years ago, and of the changes in our Executive Committee. When this Meeting ends, Roberto Setubal will leave the executive office of our Company, as he has reached the limit age for this position, and will join me as the Co-Chairman of the Board of Directors. As our new CEO, we will have Candido Bracher, with over 36 years of experience in the financial market.

 

Marco Bonomi, who has worked for over 44 years in the financial market and 22 for Itaú Unibanco, has also reached the limit age for executive functions. We have the wish to continue counting on the valuable contributions and the significant experience of Marco in the retail business. Accordingly, at this General Stockholders’ Meeting, Marcos will be appointed to a position in our Board of Directors.

 

I thank and congratulate Roberto and Marco for their huge contributions as executives of Itaú Unibanco. Both have led our Organization to a consistent growth and to the consolidation of management practices. It is worth mentioning that, under Roberto’s management, Itaú Unibanco has recorded an average return on equity of 23.7% per year, with a 24.7% appreciation of our preferred share per year. An exceptionally impressive performance.

 

With these changes, the Executive Committee is now as follows: Candido Bracher, CEO, Marcio Schettini, General Retail Manager, Eduardo Vassimon, General Wholesale Manager, Caio David, Vice-President of Risks and Finance departments, André Sapoznik, Vice-President of Technology and Operations departments, and Claudia Politanski, Vice-President of Human Resources, Legal and Ombudsman, Corporate Communication and Institutional and Governmental Relations departments. It is my understanding that all of them are extremely well prepared to the challenges in the financial sector in the upcoming years.

 

In this Meeting, we will also appoint Amos Genish, Geraldo José Carbone and João Moreira Salles for our Board of Directors, who will have a significant role in the build-up of an increasingly diversified and active Board.

 

In this Stockholders’ Meeting we will once again adopt the remote voting system, thus providing those who may be unable to attend with a chance to state their positions on the themes that will be addressed. We started adopting this voting system at our Stockholders’ Meeting of September 2016, even before it became mandatory as per the CVM rules, thus enabling our thousands of stockholders to register their votes without the need to be physically present at the location. I thank you all for the trust and leave my invitation to read this Manual, which details the agenda to be addressed at the General Stockholders’ Meeting of Itaú Unibanco Holding.

 

Have a good Meeting!

 

Yours faithfully,

Pedro Moreira Salles

Chairman of the Board of Directors

 

(*) LCR – a ratio that refers to free and highly liquid assets and net cash outflows over a 30-day period. The minimum required by the Central Bank of Brazil in 2016 was 70%.

 

  p.03

 

 

 

 

2. Introduction

 

Stockholders’ Meetings are an important instrument for our Stockholders to take part in the decisions that establish, among others, the management of Itaú Unibanco Holding S.A. (“Itaú Unibanco”, “Company”, “Issuer”, “Corporation” or “Organization”) and, therefore, how the business of the Company and its controlled companies is conducted. On April 19, Itaú Unibanco’s Stockholders may vote on issues that are essential for the Organization. Stockholders who hold ITUB3 shares (common shares) may vote on, among other issues, the election of members to the Company’s Board of Directors and the Fiscal Council, and the allocation of the net income earned in 2016, and the formalization and ratification of the Stock Grant Plan. Stockholders who hold ITUB4 shares (preferred shares) may vote on the election of members to the Fiscal Council nominated by preferred stockholders. The convening notice included in item 5 hereof describes the matters to be resolved on the Meeting.

 

Stockholders have the following options to take part in this meeting:

 

· In person: Stockholders should attend the meeting on April 19, 2017, in the Auditorium of the Centro Empresarial Itaú Unibanco, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walter Moreira Salles, Piso Guajuviras, in São Paulo, at 3:00 p.m., bearing their identity document.

 

· By proxy: in this case, Stockholders must legally authorize someone to vote according to their voting instructions. Itaú Unibanco will make three (3) attorneys-in-fact available, who will vote in person in strict accordance with the Stockholders’ guidance. The proxy templates to be used by the Stockholders who opt for this type of attendance may be found in Attachment I hereto.

 

· By remote voting form: Stockholders may also cast his/her vote remotely, by the remote voting form, according to the template provided in Attachment VIII hereto, pursuant to CVM Instruction No. 481/09, as amended by CVM Instruction No. 561/15.

 

Item 4 of this document comprises detailed information for the Stockholders’ attendance at said Meeting.

 

All important information for attendance at the Company’s Meeting is included in this document, such as the data related to the economic and financial performance of Itaú Unibanco in the 2016 fiscal year, an introduction with the résumés of the applicants for the Board of Directors and Fiscal Council, the proposal for allocation of net income, the Stock Grant Plan, the proposal for amendment to the Bylaws, as well as a description of the Company’s management compensation.

 

For additional information on the Company and its controlled companies, please visit the Investor Relations website (www.itau.com.br/ investor-relations).

 

3. Executive Officers’ Comments

 

The Executive Officers’ Comments in the form specified in Item 10 of Attachment 24 to CVM Instruction 480/09 is found as Attachment II hereto.

 

4. Information on Annual and Extraordinary Stockholder’s Meeting

 

Date

 

Pursuant to Article 132 of Law No. 6,404/76 (“Brazilian Corporate Law”), corporations should hold the Annual Stockholders’ Meeting within four (4) months after the end of the fiscal year. Itaú Unibanco’s fiscal year starts on January 1 and ends on December 31 of each year. Accordingly, the Company should hold the Annual Stockholders’ Meeting until April 30. This year the Annual Stockholders’ Meeting will be held on April 19, together with the Extraordinary Stockholders’ Meeting.

 

Opening Quorum

 

The Annual Stockholders´ Meeting shall be declared open on first call, with the attendance of Stockholders representing at least one-fourth (1/4) of voting capital (common shares), in accordance with Article 125, head provision, of the Brazilian Corporate Law.

 

Amendments to the Bylaws shall be resolved on at an Extraordinary Stockholders´ Meeting, which shall be declared open on first call with the attendance of Stockholders representing at least two-thirds (2/3) of voting capital (common shares), pursuant to Article 135, head provision, of the Brazilian Corporate Law.

 

We clarify that in case of insufficient quorum to open the aforementioned Meeting on first call, a new call by convening notice will be disclosed on a timely basis, and the meeting shall be held at least eight (8) days after a new convening notice is published, pursuant to Article 124, paragraph 1, II, of the Brazilian Corporate Law. These Meeting shall be opened on second call with any number of common Stockholders.

 

Venue

 

The Annual and Extraordinary Stockholders´ Meeting shall be held at the Auditorium of the Centro Empresarial Itaú Unibanco, at 3:00 p.m., at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, São Paulo (SP).

 

With a view to organizing entry, please note that admission of Stockholders to the Company’s head office will be permitted from 2:00 p.m. onwards.

 

Convening Notice

 

The Convening Notice included in item 5 hereof shall be published on March 18, 21, and 22, 2017 in the Official Gazette of the State of São Paulo (Diário Official do Estado de São Paulo) and on March 20, 21, and 22, 2017, in the Valor Econômico newspaper, being also available on the Investor Relations website (www.itau.com.br/relacoes-com-investidores).

 

Documents Available to Stockholders

 

The Management Report on the business and major administrative facts of the year, a copy of the financial statements prepared in accordance with Brazilian accounting practices (BRGAAP), the report of Independent Auditors, the opinion of the Fiscal Council, and a copy of the summary of the Audit Committee Report were published on February 21, 2017 in the Valor Econômico newspaper (pages E3 to E18) and in the Official Gazette of the State of São Paulo (Diário Official do Estado de São Paulo) (pages 20 to 52). Additionally, the financial statements prepared under the international financial reporting standards (IFRS) were also made available by the Company on February 7, 2017 through the Periodic Information System (IPE) of the CVM, and on the Investor Relations website (www.itau.com.br/investor-relations).

 

p.04

 

 

 

 

In order to divulge the matters to be resolved in the Stockholders’ Meeting, the information listed in article 9 of CVM Instruction No. 481/09, which is attached hereto, will also be made available by the Company through the Periodic Information System (IPE) of the CVM, and on the Investor Relations website (www.itau.com.br/investor-relations), “Financial Information”, “CVM Filings”.

 

Proxies

 

In order to assist the Stockholders represented by attorneys-in-fact who decide to take part in the Annual and Extraordinary Stockholders’ Meeting, we present the Attachments: I - A “Proxy Template for Holders of Common Shares”; and I – B “Proxy Template for Holders of Preferred Shares”.

 

Alternatively, the Company shall make available three (3) attorneys-in-fact suited to represent the Stockholder at each Meeting, who shall vote in strict accordance with the voting guidance given by the Stockholder, as shown in Attachment I - C “Proxy Template for attorneys-in-fact provided by the company” (for Holders of Common Shares), and Attachment I – D “Proxy Template for attorneys-in-fact provided by the company for the Annual of the Stockholders´ Meeting (for Holders of Preferred Shares)”. Information on the proxy request, pursuant to Attachment 23 to CVM Instruction No. 481/09, is included in Attachment I – E hereto.

 

In order to facilitate the works at the Stockholders´ Meeting, the Company suggests that Stockholders represented by attorneys-in-fact send a copy of the proxy pursuant to the aforementioned templates and other documents listed in the Convening Notice by mail or Messenger up to 12:00 a.m. of April 17, 2017 to:

 

Itaú Unibanco - Gerência Paralegal de Assuntos Corporativos

Praça Alfredo Egydio de Souza Aranha, 100,

Torre Conceição, Piso Metrô - Parque Jabaquara

São Paulo (SP) - CEP 04344-902

or email to drinvest@itau-unibanco.com.br (in this case, the Stockholder must bring the physical copy of the document to the Meeting).

 

Remote Voting Form

 

The Company will adopt the remote voting system, in line with the provisions of CVM Instruction No. 481/09, as amended by CVM Instruction 561/15, as well as the best Market practices.

 

Accordingly, Stockholders wishing to vote through the Remote Voting Form may forward their voting instruction concerning the matters to be resolved on at the Meeting:

 

· by Remote Voting Form forwarded directly to the Company, in conformity with Attachment VIII hereto; or

 

· by form completion instructions transmitted to service providers, as follows:

 

a) To the Stockholders’ custody agent, in the event the shares are deposited at a central depository; or

 

b) to Itaú Corretora de Valores S.A., in the capacity of financial institution hired by the Company to provide securities bookkeeping services.

 

Stockholders Forwarding the Form Directly to the Company

 

Any Stockholders choosing to exercise their remote voting right may do so directly to the Company by forwarding the documentation below:

 

i) a physical copy of Attachment VIII hereto duly completed, initialized and signed (the consularized and sworn translation of documents in foreign languages is not required); and

 

(ii) ID document – for Legal Entities: notarized copy of the articles of association/ bylaws, proof of election of management members, and notarized copy of the ID documentation of these representatives; and for Individuals: notarized copy of the ID document bearing the Stockholders’ picture. It is required for any documents issued abroad to be consularized, attached an apostille and to have a respective sworn translation.

 

If they so prefer, Stockholders may forward digitalized copies of the documents referred to in (i) and (ii) above to e-mail drinvest@itau-unibanco.com.br, and, in this case, it is mandatory that they should also forward the original copy of the voting form and the notarized copy of other required documents up to April 12, 2017 to:

 

Itaú Unibanco - Gerência Paralegal de Assuntos Corporativos

Praça Alfredo Egydio de Souza Aranha, 100,

Torre Conceição, Piso Metrô - Parque Jabaquara

São Paulo (SP) - CEP 04344-902

 

After the documents referred to in (i) e (ii) above are received, the Company will notify the Stockholder that it has received and accepted them, in accordance with CVM Instruction 481/09. This information will be sent to the Stockholder at the electronic address stated in the voting form.

 

After the voting term elapses, the Stockholder will no longer be able to change the voting instructions sent. The last voting instruction submitted by the Stockholder will be the one included in the Issuer’s voting map.

 

Stockholders Forwarding the Form to Service Providers

 

Alternatively, Stockholders may choose to exercise their remote voting right through service providers, transmitting their voting instructions to their custody agents or the bookkeeper, subject to the rules determined by the latter. Stockholders should contact the custody agent or the bookkeeper to check out the procedures established by such agents, as well as the documents requested accordingly.

 

Itaú Corretora de Valores S.A., the bookkeeper of the Company’s shares, has set up the Digital Meeting website, a safe solution for remote vote casting. To vote via website you have to register and have a digital certificate. Information on register and the step-by-step for issuing the digital certificate is described on website: http://www.itau.com.br/ securitiesservices/assembleiadigital/

 

p.05

 

 

 

 

ITAÚ CORRETORA DE VALORES S.A.

Stockholders Service:

3003-9285 (capital city and metropolitan regions)

0800 7209285 (other locations)

Client Service opens on business days from 9:00 a.m. to 6:00 p.m.

Email: atendimentoescrituracao@itau-unibanco.com.br

 

Stockholders should transmit the form completion instructions to service providers by April 12, 2017, unless otherwise indicated by the latter.

 

Information on the Election of Members to the Board of Directors

 

In accordance with the Brazilian Corporate Law, members of the Board of Directors may be elected by majority, multiple or separate voting processes. As these different voting procedures may impact the establishment of the number of the Board of Directors members, and for better understanding the dynamics of this election, the voting processes will be detailed below.

 

i) Multiple Voting

 

Pursuant to CVM Instructions No. 165/91 and 282/98, in order to require the adoption of a multiple voting process for electing members of the Company’s Board of Directors, Stockholder applicants should represent at least five percent (5%) of voting capital.

 

Pursuant to Article 141, Paragraph 1, of the Brazilian Corporate Law, the option set forth in the head provision of said Article addressing the adoption of multiple voting should be exercised by Stockholders at least forty-eight (48) hours prior to the date the Stockholders´ Meeting is to be held. In this case, prior to such meeting, the chairman presiding the Stockholders´ Meeting will inform Stockholders about the number of votes necessary for the election of each member of the Board of Directors, based on the “Stockholders Presence Register” book.

 

ii) Separate Voting

 

Pursuant to Article 141, paragraph 4, of the Brazilian Corporate Law, the following groups of Stockholders (other than the Controlling Stockholders) are entitled to elect, by separate voting, one (1) member for the Board of Directors: (a) holders of at least 15% of total voting shares, as provided for in Article 141, paragraph 4, I; (b) holders of non- voting preferred shares representing at least 10% of capital stock, as provided for in Article 141, paragraph 4, II; or (c) if the aforementioned quorum is not present, common and preferred stockholders may add up their interests to hold at least 10% of capital stock, as provided for in Article 141, paragraph 5, of the Brazilian Corporate Law.

 

Only Stockholders able to confirm the uninterrupted ownership of the required stockholding interest for a period of at least three (3) months, immediately prior to the date the Stockholders’ Meeting is to be held, may exercise the separate voting right, pursuant to Article 141, paragraph 6, of the Brazilian Corporate Law.

 

If both multiple and separate voting processes are requested to be adopted at the same Meeting, Stockholders must choose to which voting process they will allocate their shares, and they may use part of these shares for the multiple voting and another for the separate voting process.

 

Eligibility Requirements for Nominated Applicants

 

Stockholders willing to nominate applicants to compose the Board of Directors or the Fiscal Council should submit, at the Annual Stockholders’ Meeting, the necessary evidence to meet the minimum eligibility requirements applicable to the position, pursuant to the Brazilian Corporate Law, Regulation Attachment II to Resolution No. 4,122/12 of the National Monetary Council (“CMN”) and CVM Instruction No. 367/02.

 

In order to better organize the works at the Annual Stockholders’ Meeting and provide for a pre-analysis of the eligibility requirements of these applicants, we suggest that documentation be submitted to the Company no longer than April 3, 2017.

 

Communication Channel with the Board of Directors

 

Finally, we point out that Stockholders may send suggestions, criticisms or doubts directly to the Board of Directors using the link “Contact IR” on the Investor Relations website (www.itau.com.br/relacoes-com-investidores/o-itau-unibanco/atendimento-ri). In the field “Subject”, the Stockholder should select the option “Recommendations to the Board of Directors to Stockholders´ Meeting”.

 

p.06

 

 

 

 

5. Convening Notice

 

Annual and Extraordinary Stockholders’ Meeting

 

The Stockholders of ITAÚ UNIBANCO HOLDING S.A. are hereby invited by the Board of Directors to the Company’s Annual and Extraordinary Stockholders’ Meeting to be held on April 19, 2017 at 3:00 p.m., at the Auditorium of the Centro Empresarial Itaú Unibanco, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City and state of São Paulo, with the purpose to:

 

I - In the Annual Stockholders’ Meeting

 

1. take cognizance of the Management Report and the Report of Independent Auditors, the Opinion of the Fiscal Council, and the Summary of the Reports of the Audit Committee and to examine, for resolution, the Financial Statements for the fiscal year ended December 31, 2016;

 

2. resolve on the allocation of net income for the year;

 

3. define the number of members that will comprise the Board of Directors and elect the members of the Board of Directors and the Fiscal Council for the next term of office. Pursuant to CVM Instructions No. 165/91 and 282/98, in order to require the adoption of a multiple voting process for electing members of the Company’s Board of Directors, Stockholder applicants should represent at least five percent (5%) of the voting capital; and

 

4. resolve on the amount to be allocated for compensation of the members of the Board of Directors and the Board of Executive Officers, as well as the compensation of the Fiscal Council members.

 

II - In the Extraordinary Stockholders’ Meeting

 

1. formalize and ratify the Stock Grant Plan, in order to consolidate the general rules in connection with long-term incentive programs that involve the granting of shares to management members and employees of the Company and its direct and indirect subsidiaries, pursuant to CVM Instruction No. 567/15;

 

2. amend the Bylawys, as follows: (a) in item 3.4, insert a reference to the Stock Grant Plan; (b) in Article 6, create the positions of Co-Chairmen, by adjusting the wording on composition, competency, absence, and restrictions, choice processes and substitution of Chairman and Co-Chairmen, and on convening of Board of Directors’ meetings, and also providing for the possibility of members of the Board of Directors participating in meetings via telephone call, video conference, video presence, email or any other communication means; and (c) in Article 10, head provision, and item 10.1, update the reference to a statutory provision that was renumbered (item 6.7 to item 6.8) and improve the wording of a provision concerning the representation of the Company; and

 

3. consolidate the Bylaws, with the amendments mentioned in the aforementioned item “2”.

 

The full description of the matters proposed, as well as their justification, may be found in the General Stockholders Meeting’ Manual.

 

The documents to be examined in the meeting are at the disposal of Stockholders on the Company’s investor relations website (www.itau-unibanco.com.br/investor-relations), as well as on the website of the Brazilian Securities and Exchange Commission - CVM (www.cvm.gov.br) and BM&FBOVESPA (www.bmfbovespa.com.br). Stockholders may also request a copy of said documents by e-mail investor.relations@itau-unibanco.com.br.

 

In order to exercise their rights, Stockholders must attend the General Meeting bearing their identity document.

 

Stockholders may be represented in General Meeting by an attorney-in-fact pursuant to Article 126 of Law 6,404/76, conditional on the attorney-in-fact bearing an identity document and the following documents substantiating the validity of his/her power of attorney (we request that any documents issued abroad should be consularized or attached an apostille and have the respective sworn translation). We clarify that the Legal Entity Stockholder’s representative does not need to be a Stockholder, a member of the Company´s management or a lawyer.

 

a) Corporate Entities in Brazil: notarized copy of the articles of association/bylaws of the represented corporate entity, proof of election of management members and the corresponding power of attorney with signature notarized by a notary’s office;

 

b) Individuals in Brazil: a power of attorney with signature notarized by a public notary’s office.

 

In order to facilitate the works at the Meeting, the Company recommends that Stockholders represented by attorneys-in-fact send a copy of the documents listed above by mail or messenger up to 12:00 a.m. of April 17, 2017 to:

 

Itaú Unibanco - Gerência Paralegal de Assuntos Corporativos

Praça Alfredo Egydio de Souza Aranha, 100,

Torre Conceição, Piso Metrô - Parque Jabaquara

São Paulo (SP) - CEP 04344-902

or email to drinvest@itau-unibanco.com.br (in this case, the Stockholder must bring the physical copy of the document to the Meeting)

 

To encourage Stockholders´ participation at the Stockholders’ Meeting, the Company has implemented a remote voting system in conformity with CVM Instruction 481/09, as amended by CVM Instruction 561/15, enabling Stockholders to send remote voting forms (i) directly to the Company, or (ii) to their respective custody agents, in case shares are deposited at a central depository, or (iii) to Itaú Corretora de Valores S.A., the financial institution hired by the Company for providing bookkeeping services, in accordance with the procedures described in the Stockholders’ Meeting Manual.

 

In order to organize entry to the Meeting, admission of Stockholders to the Company’s head office will be permitted from 2:00 p.m. onward.

 

São Paulo (SP), March 17, 2017.

 

Marcelo Kopel

Investor Relations Officer

 

p.07

 

 

 

 

6. Annual and Extraordinary Stockholders’ Meeting

 

I) In the Annual Stockholders’ Meeting

 

1. Balance Sheets, other Financial Statements and Accompanying Notes, for the fiscal years ended December 31, 2016.

 

The Management Report was released together with the Financial Statements prepared in accordance with Brazilian accounting practices (BRGAAP), having been approved by the Board of Directors at its meeting held on February 6, 2017 through the Periodic Information System (“IPE”) of the Brazilian Securities and Exchange Commission (“CVM”) and on the Investor Relations website (www.itau.com.br/relacoes-com-investidores) on February 7, 2017. Additionally, it was published on February 21, 2017 in the Valor Econômico newspaper (pages E3 to E18) and in the Official Gazette of the State of São Paulo (Diário Official do Estado de São Paulo) (pages 20 to 52).

 

2. Allocation of Net Income for 2016.

 

The Company recorded Net Income for 2016 in the amount of R$18,853,195,000.81 (eighteen billion, eight hundred fifty-three million, one hundred ninety-five thousand reais and eighty-one cents), according to the statement of income made available on February 7, 2017 in CVM´s IPE and on the Investor Relations website (www.itau.com.br/relacoes-com-investidores), which was published with the Financial Statements on February 21, 2017 in the Valor Econômico newspaper (pages E3 to E18) and in the Official Gazette of the State of São Paulo (Diário Official do Estado de São Paulo) (pages 20 to 52).

 

Considering the calculation of said Income, according to the Financial Statements, the following allocation is proposed:

 

(a) R$942,659,750.04 (nine hundred forty-two million, six hundred fifty-nine thousand, seven hundred fifty reais and four cents) to the Legal Reserve;

 

(b) R$11,573,622,470.67 (eleven billion, five hundred seventy-three million, six hundred twenty-two thousand, four hundred seventy reais and sixty-seven cents) gross, of which R$10,000,361,518.76 (ten billion, three hundred sixty-one thousand, five hundred eighteen reais and seventy-six cents) net of taxes, for payment of dividends and interest on capital, according to the option provided for in Article 9 of Law No. 9,249/95, and it should be emphasized that such payment was fully made;

 

(c) R$6,336,912,780.10 (six billion, three hundred thirty-six million, nine hundred twelve thousand, seven hundred eighty reais and ten cents) to the Statutory Reserve, as follows:

 

· R$3,168,456,390.05 (three billion, one hundred sixty-eight million, four hundred fifty-six thousand, three hundred ninety reais and five cents) to the Dividend Equalization Reserve;

 

· R$1,267,382,556.02 (one billion, two hundred sixty-seven million, three hundred eighty-two thousand, five hundred fifty-six reais and two cents) to the Reserve for Increase in Working Capital; and

 

· R$1,901,073,834.03 (one billion, nine hundred one million, seventy-three thousand, eight hundred thirty-four reais and three cents) to the Reserve for Capital Increase in Investees.

 

The Allocation of Net Income, as specified in Attachment 9-1-II to CVM Instruction 481/09, is found in Attachment III hereto.

 

3. Definition of the number of members of the Board of Directors and election of the members of the Board of Directors and the Fiscal Council for the next term of office.

 

The majority Stockholder proposes that twelve (12) posts for the Company’s Board of Directors for the next term of Office be filed, and up to one (1) additional post may be filled through the election by a separate voting process, in accordance with Article 141, paragraph 4, of the Brazilian Corporate Law.

 

In view of the assessment of the Board of Directors and its individual members, the members’ good performance in the period and the constant attendance at the meetings, and also the compliance with the eligibility requirements of the Company and its Policy for Nomination of Executives, the proposal is for the reelection of the following members: Messrs. Alfredo Egydio Setubal, Fábio Colletti Barbosa, Gustavo Jorge Laboissière Loyola, José Galló, Pedro Luiz Bodin de Moraes, Pedro Moreira Salles, Ricardo Villela Marino e Roberto Egydio Setubal and also the election of Messrs. Amos Genish, Geraldo José Carbone, João Moreira Salles, and Marco Ambrogio Crespi Bonomi.

 

Regarding Mr. José Galló, the proposal is for the Meeting to waiver the provision of item I of paragraph 3 of Article 147 of Brazilian Corporate Law, as set forth in paragraph 3, Article 2 of CVM Instruction No. 367/02, since, in connection with his performance at the Renner Conglomerate, Mr. Galló acts as a management member at Renner Administradora de Cartões de Crédito Ltda., and at the newly-incorporated Realize Crédito, Financiamento e Investimento S.A. (pending approval from the Central Bank of Brazil).

 

Pursuant to the Company’s Corporate Governance Policy, an independent director is characterized by one that has neither a commercial relationship nor one of any other nature with the company, with a company under the same control, with a stockholder, part of the controlling group or with a member of the management body which could (i) result in a conflict of interests; or (ii) affect his capacity and impartiality of analysis and point of view. Accordingly, out of the members nominated above to compose the Board of Directors, Messrs. Amos Genish, Fábio Colletti Barbosa, Gustavo Jorge Laboissière Loyola, José Galló and Pedro Luiz Bodin de Moraes are deemed independent members.

 

The majority Stockholder also proposes that the Fiscal Council be convened and that the following member be elected, named Messrs. Alkimar Ribeiro Moura and José Caruso Cruz Henriques, as effective members, and João Costa, as the respective alternate member, and that Mr. Reinaldo Guerreiro, be elected as his alternate members, and all meet the eligibility criteria set forth in Article 162 of the Brazilian Corporate Law.

 

In addition to the members appointed by the majority Stockholder, the holders of preferred shares without voting rights are entitled to elect one (1) effective member and his/her respective alternate in a separate voting process. An equal right is given to minority stockholders, provided that they represent, in the aggregate, ten percent (10%) or more of voting shares.

 

p.08

 

 

 

 

Accordingly, Stockholder Caixa de Previdência dos Funcionários do Banco do Brasil – PREVI, as holder of preferred shares, announced the nomination of two additional candidates to sit on the Fiscal Council: Mr. Carlos Roberto de Alburquerque Sá, to be elected by the holders of preferred shares (without voting rights) and Mr. Eduardo Azevedo do Valle, as his respective alternate member, who also meet the eligibility criteria of Article162 of the Brazilian Corporate Law.

 

Without prejudice to the right of preferred stockholders and minority stockholders to elect, in a separate voting process, members to sit on the Fiscal Council, as described above, the other stockholders with voting rights may elect new effective and alternate members that, in any case, will be in equal number of the elected ones under the aforementioned terms, plus one.

 

The detailed résumés, as well as other information required by items 12.5 to 12.10 of Attachment 24 to CVM Instruction No. 480/09, can be found in Attachment IV to this document.

 

4. Definition of the amount allocated to the overall compensation of the members of the Company’s Board of Officers and Board of Directors, as well as the compensation of the members of Fiscal Council.

 

With respect to the 2017 fiscal year, irrespective of the year in which the amounts are effectively attributed, paid or recorded in the Company’s financial statements, the proposal is for the Annual Stockholders’ Meeting to approve the aggregate amount of three hundred twenty million reais (R$320,000,000.00) for compensation of the Company’s management members (members of the Board of Officers and the Board of Directors).

 

In relation to the Fiscal Council, the proposal is for the Annual Stockholders’ Meeting to approve monthly individual compensation of fifteen thousand reais (R$15,000) to effective members and six thousand reais (R$6,000) to alternate members. The compensation of the members of the Fiscal Council will be valid until the Annual Stockholders’ Meeting of 2018.

 

The compensation amounts approved can be paid in local currency and in shares of the Company (as approved at the Annual Stockholders’ Meeting held on April 20, 2012).

 

In accordance with Resolution No. 3,921/2010 of the National Monetary Council (“Resolution on Compensation”), the variable compensation is consistent with the risk management policies of the Company and its controlled companies, of which at least fifty percent (50%) of this variable compensation is converted in to preferred shares or stock-based instruments and is deferred for payment within at least three years, and carried out in annual installments proportional to the deferral period.

 

Additionally, the Issuer has an institutional program referred to as Partners Program, through which management members and employees with a history of outstanding contribution and differentiated performance are entitled to use part or their total annual variable compensation to purchase the Issuer’s preferred shares (“Own Shares”). If they hold the ownership of these Own Shares, free of any liens or encumbrances, and meet other suspension conditions set forth in the Program Regulation for three- and five-year terms as from the initial investment, the return on investment will be through the receipt of the Issuer’s preferred shares (“Partners Shares”) also for three- and five-year terms. These Partners Shares received as consideration will subsequently remain unavailable for five- and eight-year terms as from the initial investment in Own Shares.

 

Both the stock-compensation programs mentioned above are included in the Stock Grant Plan, submitted for formalization and ratification from Stockholders at the Extraordinary Stockholders’ Meeting.

 

Taking into account the Company’s variable compensation deferral structure, in conformity with the Resolution on Compensation, the variable compensation amounts converted in to shares for the 2017 fiscal year, effectively attributable in 2018, will be paid in shares within a deferral period of at least three (3) and at the most eight (8) years.

 

The deferred unpaid portion may be reduced or not paid in case of reduction in the realized recurring net income of the Issuer or of the business area during the deferral period.

 

In order to calculate the aggregate amount of compensation paid in shares, the calculation criteria will consider the value of the Company’s preferred shares on BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros (“BM&FBOVESPA”) in 2018, the year in which the compensation is effectively attributable, irrespective of the year it is effectively paid or recorded in the Company’s financial statements.

 

The compensation to be assigned in shares is subjected to a specific limit, in order to limit the maximum dilution to which Stockholders are subject. This limit is included in the Stock Grant Plan, submitted for formalization and ratification from Stockholders at the Extraordinary Stockholders’ Meeting.

 

In addition to the amounts established at the Stockholders’ Meeting, management members may receive Company’s profit sharing, which, under the provisions of Article 152, paragraph 1, of the Brazilian Corporate Law, is limited to either the annual compensation of management members or 10% of the Company’s net income, whichever is lower.

 

The Company may also grant share options, under the Company’s Stock Options Plan, to its management members, according to the version approved at the Extraordinary Stockholders’ Meeting held in April 29, 2015, at 3:10 p.m.

 

The proposal for compensation of the management members, in the manner specified in Item 13 of Attachment 24 to CVM Instruction No. 480/09, can be found as Attachment V to this document.

 

II) In the Extraordinary Stockholders’ Meeting

 

1. Formalization and Ratification of the Stock Grant Plan

 

Formalize and ratify the Stock Grant Plan, as included in Attachment VI hereto, in order to consolidate the general rules in connection with long-term incentive programs that involve the granting of shares to management members and employees of the Company and its direct and indirect subsidiaries, pursuant to CVM Instruction No. 567/15.

 

2. Amendment to the Bylaws to:

 

a) insert a reference in item 3.4 to the Stock Grant Plan, which consolidates the general rules in connection with long-term incentive programs that involve the granting of shares to management members and employees of the Company and its direct and indirect subsidiaries, pursuant to CVM Instruction No. 567/15;

 

p.09

 

 

 

 

b) create the positions of Co-Chairmen, by adjusting the wording on composition, competency, absence, and restriction, choice processes and substitution of Chairman and Co-Chairmen, and on convening of Board of Directors’ meetings. Therefore, the proposal is for amending Article 6, head provision, and items 6.1, 6.3, 6.4 and 6.7 to reflect this change, as well as for including an item 6.4.1.;

 

c) include the possibility of members of the Board of Directors participating in meetings via telephone call, video conference, video presence, email or any other communication means. Accordingly, the proposal is that this permission is reflected in the document by including an item 6.7.1 in the Bylaws; and

 

d) improving the wording of provision concerning the representation of the Company. Accordingly, the proposal is for amending item 10.1 of the Bylaws, as well as updating the reference to the statutory provision that was renumbered in Article 10, head provision, of the Bylaws.

 

3. Consolidation of the Bylaws with the amendments mentioned in item “2” above.

 

A copy of the Bylaws containing the consolidation of the proposed amendments duly highlighted, as well as a report detailing the origin and justification for the proposed amendments and analyzing their legal and economic effects, pursuant to Article 11 of CVM Instruction No. 481/09, can be found in Attachment VII to this document.

 

p.10

 

 

 

 

attachments

 

p.11

 

 

 

 

ATTACHMENT I – A

 

PROXY TEMPLATE

FOR HOLDERS OF COMMON SHARES

 

By this proxy, [STOCKHOLDER], [NATIONALITY], [CIVIL STATUS], [OCCUPATION], bearer of personal identification document number (__), registered in the Brazilian tax register (CPF/MF) under number (__), with address at [FULL ADDRESS] (“Principal”), appoints Mr. [ATTORNEY-IN-FACT], [NATIONALITY], [CIVIL STATUS], [OCCUPATION], bearer of personal identification document number (__), registered in the Brazilian tax register (CPF/MF) under number (__), with address at [FULL ADDRESS], her/his attorney, with powers to represent her/him, as Stockholder of Itaú Unibanco Holding S.A. (“Company”), in the Annual and Extraordinary Stockholders’ Meeting of the Company, which will be held on April 19, 2017, 3:00 p.m., at the Auditorium of the Centro Empresarial Itaú Unibanco, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, casting her/his vote in accordance with the following voting instructions.

 

The proxy shall have restricted powers, namely to be present at the Stockholders’ Meeting and to cast a vote in accordance with the voting instruction below, having no right or obligation to take any further action not required to be taken in carrying out the voting instruction below. The proxy is hereby authorized to abstain from voting on any resolution or matter for which she/he has not received specific voting instructions.

 

This proxy is effective for [·] days counted as from this date.

 

[City],___________, 2017.

 

     
  [STOCKHOLDER]  
  (Notarized signature)  

 

 

 

VOTING INSTRUCTION

 

At Annual Stockholders’ Meeting:

 

1 – To acknowledge the Management Report, the Report of the Independent Auditors, the Opinion of the Fiscal Council, and the Summary of the Reports of the Audit Committee, and to examine, for resolution, the Financial Statements for the fiscal year ended December 31, 2016:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

2 – To resolve on the allocation of net income for the fiscal year:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

3 – To fix the number of members who will comprise the Board of Directors in twelve (12):

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

4 – To elect the members of the Board of Directors for the next term of office, which shall expire on such a date as the members elected at the Annual Stockholders’ Meeting of 2018 take office:

 

Amos Genish (Independent member)

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 12

 

 

Alfredo Egydio Setubal

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Fábio Colletti Barbosa (Independent member)

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Geraldo José Carbone

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Gustavo Jorge Laboissière Loyola (Independent member)

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

João Moreira Salles

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

José Galló (Independent member)

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Marco Ambrogio Crespi Bonomi

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Pedro Luiz Bodin de Moraes (Independent member)

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Pedro Moreira Salles

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Ricardo Villela Marino

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 13

 

 

Roberto Egydio Setubal

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

5 – To elect the members of the Fiscal Council for the next term of office, which shall expire on such a date as the members elected at the Annual Stockholders’ Meeting of 2018 take office:

 

Members nominated by the majority stockholder:

 

Effective members

 

Alkimar Ribeiro Moura

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

José Caruso Cruz Henriques

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Alternate members

 

João Costa

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Reinaldo Guerreiro

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

6 – To resolve on the amount allocated to the overall compensation of the members of the Company’s Board of Officers and Board of Directors, as well as the compensation to the members of the Fiscal Council:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

At Extraordinary Stockholders’ Meeting:

 

1 – Formalize and ratify the Stock Grant Plan:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 14

 

 

2 – To amend the Bylaws to:

 

(i) Insert a reference to the Stock Grant Plan:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

(ii) Create the positions of Co-chairmen of the Board of Directors:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

(iii) Include the possibility of Board of Directors members to take part in meetings via telephone call, videoconference, video presence, email, or any other communication means:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

(iv) Improve the wording regarding the representation of the Company:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

3 – Consolidate the Bylaws with the aforementioned amendments from item “2” above and resulting adjustments to wording:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 15

 

 

ATTACHMENT I – B

 

PROXY TEMPLATE

FOR HOLDERS OF PREFERRED SHARES

 

By this proxy, [STOCKHOLDER], [NATIONALITY], [CIVIL STATUS], [OCCUPATION], bearer of personal identification document number (__), registered in the Brazilian tax register (CPF/MF) under number (__), with address at [FULL ADDRESS] (“Principal”), appoints Mr. [ATTORNEY-IN-FACT], [NATIONALITY], [CIVIL STATUS], [OCCUPATION], bearer of personal identification document number (__), registered in the Brazilian tax register (CPF/MF) under number (__), with address at [FULL ADDRESS], her/his attorney, with powers to represent her/him, as Stockholder of Itaú Unibanco Holding S.A. (“Company”), in the Annual Stockholders’ Meeting of the Company, which will be held on April 19, 2017, 3:00 p.m., at the Auditorium of the Centro Empresarial Itaú Unibanco, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, casting her/his vote in accordance with the following voting instructions.

 

The proxy shall have restricted powers, namely to be present at the Stockholders’ Meeting and to cast a vote in accordance with the Voting Instruction below, having no right or obligation to take any further action not required to be taken in carrying out the Voting Instruction below. The proxy is hereby authorized to abstain from voting on any resolution or matter for which she/he has not received specific voting instructions.

 

This proxy is effective for [·] days counted as from this date.

 

[City]____________, 2017.

 

     
  [STOCKHOLDER]  
  (Notarized signature)  

 

 

 

VOTING INSTRUCTION

 

At Annual Stockholders’ Meeting:

 

1 – To elect the members of the Fiscal Council for the next term of office, which shall expire on such a date as the members elected at the Annual Stockholders’ Meeting of 2018 take office:

 

Members nominated by stockholder Caixa de Previdência dos Funcionários do Banco do Brasil – PREVI (Banco do Brasil’s Employee Pension Fund):

 

Effective member

 

Carlos Roberto de Albuquerque Sá

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Alternate member

 

Eduardo Azevedo do Valle

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 16

 

 

ATTACHMENT I – C

 

PROXY TEMPLATE

FOR ATTORNEYS-IN-FACT PROVIDED BY THE COMPANY

(FOR HOLDERS OF COMMON SHARES)

 

1. At Annual Stockholders’ Meeting

 

By this proxy, I, [STOCKHOLDER], [NATIONALITY], [CIVIL STATUS], [OCCUPATION], bearer of personal identification document number (__), enrolled in the Brazilian Individual Taxpayers’ Registry (CPF) under number (__), domiciled at [FULL ADDRESS] (“Principal”), stockholder of Itaú Unibanco Holding S.A. (“Company”) appoint as my proxy:

 

·Patricia Vietri Thomazelli Magalhães Fonseca, Brazilian, married, attorney, RG-SSP/SP No. 25.078.808- 1, enrolled in the Brazilian Individual Taxpayers’ Registry (CPF) under No. 308.928.638-62, OAB/SP 179.898, domiciled at Praça Alfredo Egydio de Souza Aranha, 100, Torre Conceição, 3º Andar, São Paulo (SP), with powers to represent me, in the capacity of lawyer of the Company, in the Annual Stockholders’ Meeting of the Company, to be held on April 19, 2017, at the Auditorium of the head office, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, to vote FOR the matters contained in the agenda, in accordance with the voting instruction below.

·Carla Del Monaco Miele, Brazilian, married, attorney, RG-SSP/SP No. 34.865.582-4, enrolled in the Brazilian Individual Taxpayers’ Registry (CPF) under No. 338.094.818-74, OAB/SP 275.847, domiciled at Praça Alfredo Egydio de Souza Aranha, 100, Torre Conceição, 3º Andar, São Paulo (SP), with powers to represent me, in the capacity of lawyer of the Company, in the Annual Stockholders’ Meeting of the Company, to be held on April 19, 2017, at the Auditorium of the head office, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, to vote AGAINST the matters contained in the agenda, in accordance with the voting instruction below.

·Marcelo Casellato Faria, Brazilian, married, business administrator, RG-SSP/SP No. 18.933.503-8, enrolled in the Individual Brazilian Taxpayers’ Registry (CPF) under No. 089.523.818-74, domiciled at Praça Alfredo Egydio de Souza Aranha, 100, Torre Conceição, Piso Metrô, São Paulo (SP), with powers to represent me, in the capacity of stockholder of the Company, in the Annual Stockholders’ Meeting of the Company, to be held on April 19, 2017, at the Auditorium of the head office, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, to ABSTAIN from voting on the matters contained in the agenda, in accordance with the voting instruction below.

 

The proxy shall have restricted powers, namely to be present at the Annual Stockholders’ Meeting and to cast a vote in accordance with the voting instruction below, having no right or obligation to take any further action not required to be taken in carrying out the voting instruction below. The proxy is hereby authorized to abstain from voting on any resolution or matter for which he/she has not received specific voting instructions and shall vote in accordance with the number of common shares held by the Principal.

 

This proxy shall be valid for this Company’s Annual Stockholders’ Meeting only.

 

São Paulo,___________, 2017.

 

     
  [STOCKHOLDER]  
  (Notarized signature)  

 

 

 

VOTING INSTRUCTION - Annual Stockholders’ Meeting

 

Tick the option you want:

 

1 – To acknowledge the Management Report, the Report of the Independent Auditors, the Opinion of the Fiscal Council, and the Summary of the Reports of the Audit Committee, and to examine, for resolution, the Financial Statements for the fiscal year ended December 31, 2016:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 17

 

 

2 – To resolve on the allocation of net income for the fiscal year:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

3 – To fix the number of members who will comprise the Board of Directors in twelve (12):

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

4 – To elect the members of the Fiscal Council for the next term of office, which shall expire on such a date as the members elected at the Annual Stockholders’ Meeting of 2018 take office:

 

Amos Genish (Independent member)

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Alfredo Egydio Setubal

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Fábio Colletti Barbosa (Independent member)

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Geraldo José Carbone

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Gustavo Jorge Laboissière Loyola (Independent member)

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

João Moreira Salles

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

José Galló (Independent member)

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 18

 

 

Marco Ambrogio Crespi Bonomi

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Pedro Luiz Bodin de Moraes (Independent member)

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Pedro Moreira Salles

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Ricardo Villela Marino

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Roberto Egydio Setubal

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

5 – To elect the members of the Fiscal Council for the next term of office, which shall expire on such a date as the members elected at the Annual Stockholders’ Meeting of 2018 take office:

 

Members nominated by the majority stockholder:

 

Effective members

 

Alkimar Ribeiro Moura

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

José Caruso Cruz Henriques

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Alternate members

 

João Costa

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

Reinaldo Guerreiro

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 19

 

 

6 – To resolve on the amount allocated to the overall compensation of the members of the Company’s Board of Officers and Board of Directors, as well as the compensation to the members of the Fiscal Council:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

2. At Extraordinary Stockholders’ Meeting

 

By this proxy, I, [STOCKHOLDER], [NATIONALITY], [CIVIL STATUS], [OCCUPATION], bearer of personal identification document number (__), enrolled in the Brazilian Individual Taxpayers’ Registry (CPF) under number (__), domiciled at [FULL ADDRESS] (“Principal”), stockholder of Itaú Unibanco Holding S.A. (“Company”) appoint as my proxy:

 

·Patricia Vietri Thomazelli Magalhães Fonseca, Brazilian, married, attorney, RG-SSP/SP No. 25.078.808-1, enrolled in the Brazilian Individual Taxpayers’ Registry (CPF) under No. 308.928.638-62, OAB/SP 179.898, domiciled at Praça Alfredo Egydio de Souza Aranha, 100, Torre Conceição, 3º Andar, São Paulo (SP), with powers to represent me, in the capacity of lawyer of the Company, in the Extraordinary Stockholders’ Meeting of the Company, to be held on April 19, 2017, at the Auditorium of the head office, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, to vote FOR the matters contained in the agenda, in accordance with the voting instruction below.
·Carla Del Monaco Miele, Brazilian, married, attorney, RG-SSP/SP No. 34.865.582-4, enrolled in the Brazilian Individual Taxpayers’ Registry (CPF) under No. 338.094.818-74, OAB/SP 275.847, domiciled at Praça Alfredo Egydio de Souza Aranha, 100, Torre Conceição, 3º Andar, São Paulo (SP), with powers to represent me, in the capacity of lawyer of the Company, in the Extraordinary Stockholders’ Meeting of the Company, to be held on April 19, 2017, at the Auditorium of the head office, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, to vote AGAINST the matters contained in the agenda, in accordance with the voting instruction below.
·Marcelo Casellato Faria, Brazilian, married, business administrator, RG-SSP/SP No. 18.933.503-8, enrolled in the Individual Brazilian Taxpayers’ Registry (CPF) under No. 089.523.818-74, domiciled at Praça Alfredo Egydio de Souza Aranha, 100, Torre Conceição, Piso Metrô, São Paulo (SP), with powers to represent me, in the capacity of stockholder of the Company, in the Extraordinary Stockholders’ Meeting of the Company, to be held on April 19, 2017, at the Auditorium of the head office, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, to ABSTAIN from voting on the matters contained in the agenda, in accordance with the voting instruction below.

 

The proxy shall have restricted powers, namely to be present at the Extraordinary Stockholders’ Meeting and to cast a vote in accordance with the voting instruction below, having no right or obligation to take any further action not required to be taken in carrying out the voting instruction below. The proxy is hereby authorized to abstain from voting on any resolution or matter for which he/she has not received specific voting instructions and shall vote in accordance with the number of common shares held by the Principal.

 

This proxy shall be valid for this Company’s Extraordinary Stockholders’ Meeting only.

 

São Paulo,___________, 2017.

 

     
  [STOCKHOLDER]  
  (Notarized signature)  

 

 

 

VOTING INSTRUCTION - Extraordinary Stockholders’ Meeting

 

Tick the option you want:

 

1 – Formalize and ratify the Stock Grant Plan:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 20

 

 

2 – To amend the Bylaws to:

 

(i) Insert a reference to the Stock Grant Plan:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

(ii) Create the positions of Co-chairmen of the Board of Directors:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

(iii) Include the possibility of Board of Directors members to take part in meetings via telephone call, videoconference, video presence, email, or any other communication means:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

(iv) Improve the wording regarding the representation of the Company:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

3 – Consolidate the Bylaws with the aforementioned amendments from item “2” above and resulting adjustments to wording:

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 21

 

 

ATTACHMENT I – D

 

PROXY TEMPLATE

FOR ATTORNEYS-IN-FACT PROVIDED BY THE COMPANY FOR THE

ANNUAL STOCKHOLDERS’ MEETING (FOR HOLDERS OF PREFERRED SHARES)

 

1. Annual Stockholders’ Meeting

 

By this proxy, I, [STOCKHOLDER], [NATIONALITY], [CIVIL STATUS], [OCCUPATION], bearer of personal identification document number (__), enrolled in the Brazilian Individual Taxpayers’ Registry (CPF) under number (__), domiciled at [FULL ADDRESS] (“Principal”), stockholder of Itaú Unibanco Holding S.A. (“Company”) appoint as my proxy:

 

·Patricia Vietri Thomazelli Magalhães Fonseca, Brazilian, married, attorney, RG-SSP/SP No. 25.078.808-1, enrolled in the Brazilian Individual Taxpayers' Registry (CPF) under No. 308.928.638-62, OAB/SP 179.898, domiciled at Praça Alfredo Egydio de Souza Aranha, 100, Torre Conceição, 3º Andar, São Paulo (SP), with powers to represent me, in the capacity of lawyer of the Company, in the Annual Stockholders’ Meeting of the Company, to be held on April 19, 2017, at the Auditorium of the head office, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, to vote FOR the matters contained in the agenda, in accordance with the voting instruction below.
·Carla Del Monaco Miele, Brazilian, married, attorney, RG-SSP/SP No. 34.865.582-4, enrolled in the Brazilian Individual Taxpayers' Registry (CPF) under No. 338.094.818-74, OAB/SP 275.847, domiciled at Praça Alfredo Egydio de Souza Aranha, 100, Torre Conceição, 3º Andar, São Paulo (SP), with powers to represent me, in the capacity of lawyer of the Company, in the Annual Stockholders’ Meeting of the Company, to be held on April 19, 2017, at the Auditorium of the head office, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, to vote AGAINST the matters contained in the agenda, in accordance with the voting instruction below.
·Marcelo Casellato Faria, Brazilian, married, business administrator, RG-SSP/SP No. 18.933.503-8, enrolled in the Individual Brazilian Taxpayers' Registry (CPF) under No. 089.523.818-74, domiciled at Praça Alfredo Egydio de Souza Aranha, 100, Torre Conceição, Piso Metrô, São Paulo (SP), with powers to represent me, in the capacity of stockholder of the Company, in the Annual Stockholders’ Meeting of the Company, to be held on April 19, 2017, at the Auditorium of the head office, at Praça Alfredo Egydio de Souza Aranha, 100, Torre Walther Moreira Salles, Piso Guajuviras, in the City of São Paulo, State of São Paulo, CEP 04344-902, to ABSTAIN from voting on the matters contained in the agenda, in accordance with the voting instruction below.

 

The proxy shall have restricted powers, namely to be present at the Annual Stockholders’ Meeting and to cast a vote in accordance with the voting instruction below, having no right or obligation to take any further action not required to be taken in carrying out the voting instruction below. The proxy is hereby authorized to abstain from voting on any resolution or matter for which he/she has not received specific voting instructions and shall vote in accordance with the number of preferred shares held by the Principal.

 

This proxy shall be valid for this Company’s Annual Stockholders’ Meeting only.

 

São Paulo,___________, 2017.

 

     
  [STOCKHOLDER]  
  (Notarized signature)  

 

 

 

VOTING INSTRUCTION – Annual Stockholders’ Meeting

 

Tick the option you want:

 

1 – To elect the members of the Fiscal Council for the next term of office, which shall expire on such a date as the members elected at the Annual Stockholders’ Meeting of 2018 take office:

 

Members nominated by stockholder Caixa de Previdência dos Funcionários do Banco do Brasil – PREVI (Banco do Brasil’s Employee Pension Fund):

 

Effective member

 

Carlos Roberto de Albuquerque Sá

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 22

 

 

Alternate member

 

Eduardo Azevedo do Valle

 

FOR AGAINST ABSTENTION
¨ ¨ ¨

 

 23

 

 

ATTACHMENT I – E

 

INFORMATION FOR ATTACHMENT 23 OF CVM INSTRUCTION 481/09

 

1.   Inform name of company

 

Itaú Unibanco Holding S.A.

 

2.   Inform the items for which the proxy is being requested

 

Items indicated in the Convening Notice pertaining to this Manual.

 

3.   Identify the individuals or legal entities that have promoted, organized or defrayed the cost of the request for a proxy, even if only partially, informing:

 

a.   Name and address

 

Itaú Unibanco Holding S.A., with its address at Praça Alfredo Egydio de Souza Aranha, 100, in the City of São Paulo, State of São Paulo, CEP 04344-902.

 

b.   Since when you are a stockholder of the Company

 

Not applicable.

 

c.   Number and percentage of shares of each time and class of their ownership

 

Not applicable.

 

d.   Number of shares taken in a loan

 

Not applicable.

 

e.   Total exposure in derivatives denominated in shares of the Company

 

Not applicable.

 

f.   Relations of a corporate, business or family nature existing or maintained over the past three years with the company or parties related to the company, as governed by the accounting rules covering the matter

 

Not applicable.

 

4.   Inform if any of the people mentioned in item 3, as well as any of its controlling companies, controlled companies, companies under common control or affiliates have a special interest in the approval of the matters for which the proxy is being requested, describing in detail the nature and extent of the interest in question

 

The attorneys-in-fact were made available by the Company with the sole objective of offering an additional mechanism for facilitating stockholder’s participation in the Meeting, without any special interest in the approval of the matters.

 

5.   Inform the estimated cost of requesting a proxy

 

The cost of requesting a proxy is insignificant.

 

6.   Inform if (a) the company has defrayed the costs for requesting a proxy or (b) if its originators will seek reimbursement of costs from the Company

 

The cost for requesting a proxy was fully covered by the Company.

 

7.   Inform:

 

a) the address to which the power of attorney should be sent following its signature.

 

 24

 

 

In order to facilitate the works at the Stockholders’ Meeting, the Company suggests that Stockholders represented by attorneys-in-fact send a copy of the proxy pursuant to the aforementioned templates, and other documents listed in the Convening Notice by mail or messenger up to 12:00 p.m. of April 17, 2017 to:

 

Itaú Unibanco - Gerência Paralegal de Assuntos Corporativos

Praça Alfredo Egydio de Souza Aranha, 100,

Torre Conceição, Piso Metrô - Parque Jabaquara,

São Paulo (SP) - CEP 04344-902

 

Or email to: drinvest@itau-unibanco.com.br (in this case, the Stockholder must bring the physical copy of the document to the Meeting.)

 

b) in the event the company accepts proxies via the World Wide Web, the instructions to grant the proxy;

 

The Company will adopt the remote voting system, in conformity with the provisions of CVM Instruction 481/09, as amended by CVM Instruction 561/15, as well as the best market practices.

 

Accordingly, stockholders wishing to vote by the remote voting form may forward their voting instructions related to the matters to be resolved on at the Meeting:

 

·by remote voting form forwarded directly to the Company, according to Attachment VIII hereto; or

 

·by completion instructions transmitted to their service providers rendering such service, as follows:

 

a)   to the custody agent of the Stockholder, in the event the shares are deposited at a central depository; or

 

b)   to Itaú Corretora de Valores S.A., in the capacity of the financial institution hired by the Company to provide securities bookkeeping services.

 

Stockholders forwarding the voting form directly to the Issuer

Stockholders choosing to exercise their remote voting right may do so directly to the Company and are required to send the following documents:

 

(i)a physical copy of Attachment VIII hereto duly completed, initialized and signed (consularization or a sworn translation is not required for documents in foreign language); and

 

(ii)ID documents – for legal entities: notarized copy of the articles of association/bylaws, proof of election of management members and notarized copy of the ID document of these representatives, and for individuals: notarized copy of the ID document bearing the Stockholder’s picture. It is required for any documents issued abroad to be consularized or attached an apostille and to have a respective sworn translation.

 

If they so prefer, Stockholders may forward digitalized copies of the documents referred to in (i) and (ii) above to e-mail drinvest@itau-unibanco.com.br, and, in this case, it is mandatory that they should also forward the original copy of the voting form and the notarized copy of other required documents up to April 12, 2017 to:

 

Itaú Unibanco - Gerência Paralegal de Assuntos Corporativos

Praça Alfredo Egydio de Souza Aranha, 100, Torre Conceição, Piso Metrô

Parque Jabaquara, São Paulo (SP) - CEP 04344-902

 

After the documents referred to in (i) e (ii) above are received, the Company will notify the Stockholder that it has received and accepted them, in accordance with CVM Instruction 481/09. This information will be sent to the Stockholder at the electronic address stated in the voting form.

 

After the voting term elapses, the Stockholder will no longer be able to change the voting instructions sent. The last voting instruction submitted by the Stockholder will be the one included in the Issuer’s voting map.

 

Stockholders forwarding the form to service providers

Alternatively, Stockholders may choose to exercise their remote voting right through service providers, transmitting their voting instructions to their custody agents or the bookkeeper, subject to the rules determined by the latter. Stockholders should contact the custody agent or the bookkeeper to check out the procedures established by such agents, as well as the documents requested accordingly.

 

Itaú Corretora de Valores S.A., the bookkeeper of the Company’s shares, has set up the Digital Meeting website, a safe solution for remote vote casting. To vote via website you have to register and have a digital certificate. Information on register and the step-by-step for issuing the digital certificate is described on website: http://www.itau.com.br/securitiesservices/assembleiadigital/

 

ITAÚ CORRETORA DE VALORES S.A.

Stockholders Service:

3003-9285 (capital city and metropolitan regions)

0800 7209285 (other locations)

 

 25

 

 

Client Service opens on business days from 9:00 a.m. to 6:00 p.m.

Email: atendimentoescrituracao@itau-unibanco.com.br

 

Stockholders should transmit the form completion instructions to service providers by April 12, 2017, unless otherwise indicated by the latter.

 

 26

 

 

ATTACHMENT II

 

ITEM 10 OF ATTACHMENT 24 TO CVM INSTRUCTION 480/09

 

10.1. Executive officers should comment on:

 

a) Financial and equity positions in general

 

Domestic Scenario

 

In the domestic scenario, GDP continued to fall in 2016, posting a 3.6% drop. The unemployment rate grew to 12.0% in December 2016 from 9.0% in December 2015. The primary deficit continued in a downward trend between 2015 and 2016, increasing 2.5% of GDP in 2016, compared to 1.9% of GDP in 2015.

 

The current account deficit, in turn, continues to fall due to a downturn in the economic activity. The deficit in external accounts dropped to 1.3% of GDP in 2016 from 3.3% of GDP in 2015. The inflation rate for 2016 was 6.3%. The Central Bank of Brazil reduced interest to 12.25% in February 2017.

 

The US dollar closed 2016 at R$3.26, below the R$3.96 recorded in December 2015. Brazil’s international reserves amounted to US$370 billion.

 

Latin America Scenario (ex-Brazil)

 

In Latin America, commodities-exporting countries continue to grow at low rates, in spite of a slight recent recovery in the prices of the major raw materials exploited in the region.

 

The downturn in economic activity and the reduced fiscal revenues related to lower prices of commodities are causing governments of the region to cut costs and adopt measures to raise revenues, thus seeking to preserve sovereign ratings. The monetary policy is becoming increasingly expansionist, except for Mexico, in view of lower rates of inflation combined with poor growth. Lower interest rates in Colombia, Argentina, and Chile are expected for 2017.

 

In Argentina, adjustments to relative prices led to GDP falling in 2016 (estimated at -2.4%) and high inflation (41%), even though we have noted a certain economic improvement in the margin. In Uruguay, the economic activity strongly slowed down in 2015 and 2016, partially due to recession scenarios in Brazil and Argentina. Paraguay's macroeconomic fundamentals remain solid, with low inflation, strong growth and well-organized public finance. The Chilean economy was impacted by the end of the commodities cycle, which resulted in lower fiscal revenues, fall in investments and decreased national revenues. The Colombian authorities approved a structural tax reform aimed at making up for the loss of oil-related revenues.

 

International Scenario

 

The U.S. labor market continued to grow strong in 2016 and in early 2017. Approximately 2.35 million jobs were created in the last 12 months up to February 2017, and unemployment rate dropped to 4.7% in February 2017 from 5.0% in December 2015. This improvement came along with the 1.6% growth in GDP in 2016.

 

For comparison purposes, GDP of the Euro zone and Japan increased 1.7% and 1.0%, respectively. China’s GDP grew 6.7% in 2016, halting the economy slowdown recorded in the previous year. This stabilization in growth gives rise to an environment favorable for emerging commodity-exporting economies, including Latin America countries.

 

Asset Highlights

 

2016

 

On December 31, 2016, Itaú Unibanco’s assets totaled R$ 1,425,639 million and stockholders’ equity was R$115,590 million, compared to R$1,359,172 million and R$106,462 million, respectively, in 2015. At the end of 2016, the Prudential Conglomerate BIS ratio was 19.1%.

 

The table below shows the volume of loan operations (including endorsements and sureties) classified by type of creditor (individuals and companies), detailed by type of product for individuals and size for companies.

 

 27

 

 

   Year ended December 31 
   2016   2015   2014   2016 X 2015   2015 X 2014 
   (In millions of R$)         
Loans to individuals   183,641    187,814    186,489    -2.2%   0.7%
Credit card   59,023    58,542    59,321    0.8%   -1.3%
Personal loans   26,276    28,961    28,541    -9.3%   1.5%
Payroll loans   44,638    45,437    40,525    -1.8%   12.1%
Vehicles   15,373    19,984    28,927    -23.1%   -30.9%
Real estate loans(1)   38,117    34,631    28,898    10.1%   19.8%
Rural loans(1)   213    258    277    -17.2%   -6.9%
Loans to companies(1)   242,874    288,135    285,540    -15.7%   0.9%
Large companies   181,541    219,418    213,815    -17.3%   2.6%
Very small, small and middle market   61,333    68,716    71,725    -10.7%   -4.2%
Latin America   135,503    72,125    53,491    87.9%   34.8%
Total loan, lease and other credit operations (including endorsements and sureties) (2)   562,018    548,073    525,519    2.5%   4.3%

 

(1)Real estate loan and rural loan portfolios are presented within loans to individuals or loans to companies, as appropriate, according to the type of client. On December 31, 2016, total real estate loan in Brazil totaled R$48,589 million, and total rural loan portfolio totaled R$10,471 million, compared to R$45,597 million and R$10,966 million, respectively, on December 31, 2015 and to R$39,235 million and R$10,336 million, respectively, on December 31, 2014.
(2)On December 31, 2016, total endorsements and sureties was R$70,793 million, compared to R$74,244 million and R$73,759 million, respectively, on December 31, 2015 and on December 31, 2014.

 

The balance of loan operations, including endorsements and sureties, was R$562.018 million on December 31, 2016, an increase of 2.5% compared to R$548.073 million on December 31, 2015. The balance of loans to individuals, excluding Latin America, totaled R$183.641 million on December 31, 2016, a decrease of 2.2% compared to December 31, 2015. The credit card portfolio increased 0.8% compared to December 31, 2015, whereas the personal loan portfolio decreased 9.3% compared to December 31, 2015. The payroll loan portfolio decreased 1.8% from December 31, 2015, and worth mentioning were the retirees and INSS pensioners loan portfolios, which increased 7.5% from the end of December 2015. Vehicle financing decreased 23.1% on December 31, 2016, compared to December 31, 2015, as a result of lower demand and our stricter requirements for granting loans to this segment during this period. Real estate loans to individuals increased 10.1% on December 31, 2016, from December 31, 2015, with increasing priority given to lower-risk portfolios with higher guarantees. The balance of loans to companies, excluding Latin America, totaled R$242,874 million, a decrease of 15.7% from December 31, 2015. This decrease occurred for both loans to large companies totaling R$181,541 million on December 31, 2016, and for very small, small, and middle-market companies, totaling R$61,333 million. In 2016, our America Latina loan portfolio increased 87.9% compared to 2015, mainly driven by the effect of consolidation of Itaú CorpBanca in our financial statements.

 

The 90-day coverage ratio (defined as the total allowance for loan losses, corresponding to a percentage of loans in our portfolio, which are overdue for 90 days or more) was 222% on December 31, 2016.

 

Our portfolio of loans under renegotiation (overdue for over 30 days), including extended, modified and deferred payments, totaled R$16,398 million on December 31, 2016 and R$14,932 million on December 31, 2015, accounting for, respectively, 3.3% and 3.2% of our total loan portfolio without endorsements and sureties. On December 31, 2016, the ratio of the allowance for loan and lease losses to the renegotiated loan portfolio was 49.5%, an increase of 680 basis points compared to December 31, 2015. On December 31, 2016, the default rate over 90 days of the renegotiated loan portfolio was 21.8%, an increase of 300 basis points compared to December 31, 2015.

 

The default rate (loan operations overdue for over 90 days) was 3.4% on December 31, 2016, accounting for a decrease of 10 basis points compared to December 31, 2015.

 

On December 31, 2016, the balance of allowance for loan and lease losses totaled R$37,431 million. Out of this total, R$26,991 million refer to the minimum level required by CMN Resolution No. 2,682/99 and R$10,440 million refer to a complementary provision. The balance of allowance for loan and lease losses complementary to the minimum percentages required by CMN Resolution No. 2.682/99 was reduced by R$546 million in 2016 and increased by R$4,655 million in 2015.

 

On December 31, 2016, the ratio of the balance of allowance for loan and lease losses and our loan portfolio reached 7.6%, an increase of 40 basis points from December 31, 2015.

 

We will address the main corporate events occurred in the period in item 10.3.

 

 28

 

 

2015

 

The balance of loan operations, including endorsements and sureties, was R$548,073 million on December 31, 2015, an increase of 4.3% compared to December 31, 2014. The increase in loan operations, including endorsements and sureties, was mainly due to portfolios with lower risks and spreads in 2015 compared to 2014. On December 31, 2015, loans to individuals and companies, excluding Latin America, increased 0.7% and 0.9%, respectively, compared to December 31, 2014. Regarding loans to individuals, the highlights were payroll loans and real estate loans, which increased 12.1% and 19.8%, respectively, compared to December 31, 2014, since we gave priority to lower-risk portfolios. Regarding loans to companies, the corporate portfolio increased 2.6% in 2015, compared to December 31, 2014, and this growth was partially offset by a 4.2% decrease in the portfolio of very small, small, and middle-market companies. In 2015, the portfolio of Latin America loan operations increased 34.8% compared to December 31, 2014.

 

The 90-day coverage ratio (defined as the total allowance for loan losses, corresponding to a percentage of loans in our portfolio, which are overdue for 90 days or more) was 208% on December 31, 2015.

 

Our portfolio of loans under renegotiation (overdue for over 30 days), including extended, modified and deferred payments, totaled R$14,932 million on December 31, 2015 and R$11,572 million on December 31, 2014, accounting for, respectively, 3.2% and 2.6% of our total loan portfolio without endorsements and sureties. On December 31, 2015, the ratio of the allowance for loan and lease losses to the renegotiated loan portfolio was 42.7%, a decrease of 780 basis points compared to December 31, 2014. On December 31, 2015, the default rate over 90 days of the renegotiated loan portfolio was 18.8%, a decrease of 530 basis points compared to December 31, 2014.

 

The default rate (loan operations overdue for over 90 days) was 3.5% on December 31, 2015, accounting for a decrease of 40 basis points compared to December 31, 2014.

 

On December 31, 2015, the balance of allowance for loan and lease losses totaled R$34,078 million. Out of this total, R$23,093 million refer to the minimum level required by CMN Resolution No. 2,682/99 and R$10,985 million refer to a complementary provision. The balance of allowance for loan and lease losses complementary to the minimum percentages required by CMN Resolution No. 2.682/99 was increased by R$4,655 million in 2015 and by R$1,113 million in 2014.

 

On December 31, 2015, the ratio of the balance of allowance for loan and lease losses and our loan portfolio reached 7.2%, an increase of 120 basis points from December 31, 2014.

 

2014

 

The balance of loan operations, including endorsements and sureties, was R$525,519 million on December 31, 2014 an increase of 8.7% compared to December 31, 2013. The balance of loan operations, including endorsements and sureties, increased mainly in lower-risk portfolios and spreads in 2014 compared to 2013. On December 31, 2014, loans to individuals and companies, excluding Latin America, increased 10.4% and 5.9%, respectively compared to December 31, 2013. Regarding loans to individuals, the highlights were payroll loans and real estate loans, which increased 79.5% and 19.4%, respectively, compared to December 31, 2013, mainly due to payroll loans acquired from Banco BMG S.A. (“Banco BMG”) and the favorable scenario for real estate loans in Brazil, since we give priority to lower-risk portfolios. Regarding loans to companies, the corporate portfolio increased 9.9% in 2014, compared to December 31, 2013, and this increase was partially offset by a 4.6% decrease in the portfolio of very small, small, and middle-market companies. In 2014, the portfolio of Latin America loan operations increased 19.5% compared to December 31, 2013.

 

The 90-day coverage ratio (defined as the total allowance for loan losses, corresponding to a percentage of loans in our portfolio, which are overdue for 90 days or more) was 193% on December 31, 2014.

 

Our portfolio of loans under renegotiation (overdue for over 30 days), including extended, modified and deferred payments, totaled R$11,572 million on December 31, 2014 and R$12,880 million on December 31, 2013, accounting for, respectively, 2.6% and 3.1% of our total loan portfolio without endorsements and sureties. On December 31, 2014, the ratio of the allowance for loan and lease losses to the renegotiated loan portfolio was 50.5%, a decrease of 140 basis points compared to December 31, 2013. On December 31, 2014, the default rate over 90 days of the renegotiated loan portfolio was 24.1%, a decrease of 590 basis points compared to December 31, 2013.

 

The default rate (loan operations overdue for over 90 days) was 3.1% on December 31, 2014, accounting for a decrease of 60 basis points compared to December 31, 2013.

 

On December 31, 2014, the balance of allowance for loan and lease losses totaled R$26.948 million. Out of this total, R$20,618 million refer to the minimum level required by CMN Resolution No. 2,682/99 and R$6,330 million refer to a complementary provision. The balance of allowance for loan and lease losses complementary to the minimum percentages required by CMN Resolution No. 2.682/99 was increased by R$1,113 million in 2014.

 

On December 31, 2014, the ratio of the balance of allowance for loan and lease losses and our loan portfolio reached 6.0%, a decrease of 40 basis points from December 31, 2013.

 

b) Corporate structure

 

On December 31, 2016, capital stock comprised 6,582,307,543 (6,083,915,949 on 12/31/2015) book-entry shares, with no par value, of which 3,351,744,217 (3,047,040,198 on 12/31/2015) were common and 3,230,563,326 (3,036,875,751 on 12/31/2015) were preferred shares without voting rights, but with tag-along rights, in the event of a public offering of shares, at a price equal to 80% of the amount paid per share with voting rights in the controlling stake, as well as a dividend at least equal to that of the common shares, and priority to receive the annual minimum dividend of R$0.022 per share, non cumulative, which will be adjusted in the event of split or reverse split of shares. Capital stock totals R$97,148 million (R$85,148 million on 12/31/2015), of which R$65,534 million (R$58,284 million on 12/31/2015) is held by stockholders domiciled in the country and R$31,614 million (R$26,864 million on 12/31/2015) is held by stockholders domiciled abroad.

 

 29

 

 

In the last three fiscal years, Itaú Unibanco has maintained the stake of third parties’ capital at levels it deems adequate, as follows:

 

      % of Total liabilities     % of Total liabilities     % of Total liabilities
      and stockholders'     and Stockholders'     and stockholders'
R$ million  12/31/2016  equity  12/31/2015  equity  12/31/2014  equity
Stockholders' equity (1)   127,215    8.9%   108,218    8.0%   98,263    8.1%
Current liabilities (2)   748,704    52.5%   706,656    52.0%   650,081    53.8%
Long-term third-party capital (3)   549,719    38.6%   544,299    40.0%   460,358    38.1%
Total equity   1,425,639    100.0%   1,359,173    100.0%   1,208,702    100.0%

 

(1) Includes minority interest in subsidiaries.

(2) Current liabilities.

(3) Total liabilities excluding stockholders' equity and current liabilities.

 

c) Payment capability in relation to the financial commitments assumed

 

We ensure full payment capability in relation to the financial commitments assumed and we manage our liquidity reserves based on estimates of funds that will be available for investment, considering business continuation in normal conditions.

 

Liquidity risk control is carried out by an area independent from the business areas, and is responsible for defining the constitution of a reserve, proposing assumptions for behavior of cash flow in different time horizons, proposing limits for liquidity risk and monitoring established limits consistent with the risk appetite of the institution, informing on possible non-compliance, considering the liquidity risks individually in countries where we operate, simulating the behavior of cash flows under stress conditions, assessing and reporting risks inherent in new products and transactions on a timely basis, and reporting information required by regulatory bodies. Every activity is subject to analysis by independent areas of validation, internal controls and audit.

 

The following table presents assets and liabilities in accordance with their remaining contractual terms, considering non-discounted flows.

 

   Undiscounted future flows except for derivatives*               In R$ Million
Financial Assets (1)  0 - 30 days   31 - 365 days   366-720 days   Over 720 days   Total 
   2016   2015   2014   2016   2015   2014   2016   2015   2014   2016   2015   2014   2016   2015   2014 
Cash and deposits on demand   18,542    18,544    17,527    -    -    -    -    -   -    -    -    -    18,542    18,544    17,527 
Interbank investments   219,066    229,295    170,482    58,275    40,016    51,967    1,171    696    1,097    292    239    32    278,804    270,246    223,578 
Securities purchased under agreements to resell - Funded position (2)   77,452    72,091    74,275    -    -    -    -    -    -    -    -    -    77,452    72,091    74,275 
Securities purchased under agreements to resell - Financed position   128,303    133,315    80,085    49,749    33,742    45,512    -    -    -     -    -    -    178,052    167,057    125,597 
Interbank deposits   13,311    23,889    16,122    8,526    6,274    6,455    1,171    696    1,097    292    239    32    23,300    31,098    23,706 
Securities   82,163    71,124    55,315    16,757    15,485    19,009    12,415    11,017    15,470    74,479    78,774    106,023    185,814    176,400    195,817 
Government securities - available   75,310    65,965    45,587    20    -    -    40    -    -    6,088    -    -    81,458    65,965    45,587 
Government securities - subject to repurchase commitments   556    68    3,440    4,732    2,675    5,491    5,990    712    5,473    14,808    6,866    41,548    26,086    10,321    55,952 
Private securities - available   6,297    5,091    6,102    11,728    12,681    10,520    5,424    10,305    8,750    47,866    71,908    57,179    71,315    99,985    82,551 
Private securities - subject to repurchase commitments   -    -    186    277    129    2,998    961    -    1,247    5,717    -    7,296    6,955    129    11,727 
Derivative financial instruments   5,815    5,955    2,408    8,296    7,685    5,342    3,159    3,430    1,167    6,961    6,289    3,719    24,231    23,359    12,636 
Gross Position   -    -    -    -    1    -    -    -    -    -    20    19    -    21    19 
Cross Currency Swap Deliverable - Asset position   -    -    -    -    852    -    -    -    -    -    975    560    -    1,827    560 
Cross Currency Swap Deliverable - Liability position   -    -    -    -    (851)   -    -    -    -    -    (955)   (541)   -    (1,806)   (541)
Net position   5,815    5,955    2,408    8,296    7,684    5,342    3,159    3,430    1,167    6,961    6,269    3,700    24,231    23,338    12,617 
Swaps   828    666    448    1,967    2,140    812    1,497    1,935    643    6,250    4,406    2,913    10,542    9,147    4,816 
Option   354    2,413    481    2,881    2,000    1,720    1,397    692    308    160    478    363    4,792    5,583    2,872 
Forward operations (onshore)   3,947    1,204    846    1,024    1,961    1,548    -    1    -    -    -    -    4,971    3,166    2,394 
Other derivative financial instruments   686    1,672    633    2,424    1,583    1,262    265    802    216    551    1,385    424    3,926    5,442    2,535 
Loan and lease operations portfolio(3)   61,602    63,263    56,652    176,002    171,813    169,230    81,224    86,118    90,854    211,908    187,619    180,050    530,736    508,813    496,786 
Total financial assets   387,188    388,181    302,384    259,330    234,999    245,548    97,969    101,261    108,588    293,640    272,921    289,824    1,038,127    997,362    946,344 

 

(1) The assets portfolio does not include the balance of compulsory deposits in Central Bank, amounting to R$85,700 (R$66,556 at 12/31/2015 and R$63,106 at 12/31/2014), which release of funds is linked to the maturity of the liability portfolios. The amounts of PGBL and VGBL are not included in the assets portfolio because they are covered in Note 30.

(2) Net of R$9,461 (R£4,329 (R$9,461 at 12/31/2015 and R$5,945 at 12/31/2014), which securities are restricted to guarantee transactions at BM&FBOVESPA S A and the Central Bank of Brazil.

(3) Net of payment to merchants of R$43,837 (R$38,978 at 12/31/2015 and R$39,386 at 12/31/2014) and the amount of liabilities from transactions related to credit assignment R$5,711 (R$5,495 at 12/31/2015 and R$4.336 at 12/31/2014).

 

* The table Financial Assets - Undiscounted future flows, except for derivatives, is published in the Complete Financial Statements under IFRS and audited for internal controls in connection with the Sarbanes-Oxley Act requirements.

  

 30

 

 

   Undiscounted future flows except for derivatives*           In R$ million
                                   Over     
Financial Liabilities  0 - 30 days   31 - 365 days   366-720 days   720 days   Total 
   2016   2015   2014   2016   2015   2014   2016   2015   2014   2016   2015   2014   2016   2015   2014 
Deposits   201,167    190,890    182,849    44,545    45,133    47,531    13,106    8,331    14,851    107,055    64,843    58,881    365,873    309,197    304,112 
Demand deposits   61,133    61,092    48,733    -    -    -    -    -    -    -    -    -    61,133    61,092    48,733 
Savings deposits   108,250    111,319    118,449    -    -    -    -    -    -    -    -    -    108,250    111,319    118,449 
Time deposit   30,295    13,873    10,867    41,971    34,660    33,601    13,088    8,326    14,521    107,033    64,819    58,564    192,387    121,678    117,553 
Interbank deposits   1,489    4,606    4,800    2,574    10,473    13,930    18    5    330    22    24    317    4,103    15,108    19,376 
Compulsory deposits   (42,314)   (40,807)   (42,811)   (13,885)   (9,021)   (6,455)   (3,985)   (2,043)   (2,190)   (25,516)   (14,685)   (11,650)   (85,700)   (66,556)   (63,106)
Demand deposits   (8,092)   (10,224)   (7,404)   -    -    -    -    -    -    -    -    -    (8,092)   (10,224)   (7,404)
Savings deposits   (24,791)   (26,838)   (33,084)   -    -    -    -    -    -    -    -    -    (24,791)   (26,838)   (33,084)
Time deposit   (9,431)   (3,745)   (2,323)   (13,885)   (9,021)   (6,455)   (3,985)   (2,043)   (2,190)   (25,516)   (14,685)   (11,650)   (52,817)   (29,494)   (22,618)
Securities sold under repurchase agreements (1)   209,521    167,363    164,309    59,771    39,464    28,544    42,410    63,773    57,449    87,069    111,189    108,099    398,771    381,789    358,402 
Funds from acceptances and issuance of securities (2)   3,003    4,188    4,054    35,659    24,186    24,017    28,974    19,178    10,777    36,858    40,612    14,319    104,494    88,164    53,167 
Borrowings and onlending (3)   5,077    5,902    4,290    46,527    58,159    37,668    11,000    24,116    19,414    20,943    25,672    31,890    83,547    113,849    93,262 
Subordinated debt (4)   271    4,775    191    13,501    10,115    6,537    16,621    13,764    12,979    41,043    56,006    56,349    71,436    84,660    76,056 
Derivative financial instruments   5,294    3,765    1,728    5,516    8,537    5,116    3,726    4,104    1,318    10,162    11,269    7,668    24,698    27,675    15,830 
Net position   5,294    3,764    1,728    5,516    8,526    5,085    3,726    4,104    1,318    10,162    11,265    7,668    24,698    27,659    15,799 
Swaps   461    783    241    1,702    3,368    1,761    2,352    2,618    778    8,706    9,562    6,754    13,221    16,331    9,534 
Option   837    1,460    431    1,888    3,025    1,853    1,116    805    353    711    493    420    4,552    5,783    3,057 
Forward operations (onshore)   3,530    828    681    -    5    1    -    -    -    -    -    -    3,530    833    682 
Other derivative financial instruments   466    693    375    1,926    2,128    1,470    258    681    187    745    1,210    494    3,395    4,712    2,526 
                                                                            
Total financial liabilities   382,019    336,076    314,610    191,634    176,573    142,958    111,852    131,223    114,599    277,614    294,906    265,556    963,119    938,778    837,723 

 

(1) Includes own and third parties’ portfolios.

(2) Includes mortgage notes, real estate credit bills, agribusiness, financial bills and structured operations certificates recorded in interbank and institutional market funds and liabilities for issuance of debentures and foreign securities recorded in funds from institutional markets.

(3) Recorded in funds from interbank markets.

(4) Recorded in funds from institutional markets.

* The table Financial Liabilities - Undiscounted future flows except for derivatives are published in the Complete Financial Statements in IFRS and they have audit of internal controls in connection with the Sarbanes-Oxley Act requirements.

 

 31

 

 

d) Sources of financing used for working capital and investments in non-current assets used

 

The following table presents our average deposits and borrowings for the 12-month periods ended December 31, 2016, 2015 and 2014:

 

   Year ended December 31 
   2016   2015   2014 
   Average       Average       Average     
   balance   % of Total   balance   % of Total   balance   % of Total 
   (In millions of R$, except for percentages) 
Interest-bearing liabilities   967,351    76.67%   901,840    76.27%   825,797    78.57%
Interest-bearing deposits   241,228    19.12%   238,559    20.17%   236,280    22.48%
Savings deposits   107,238    8.50%   114,510    9.68%   111,613    10.62%
Interbank deposits   7,513    0.60%   21,519    1.82%   8,103    0.77%
Time deposits   126,477    10.02%   102,530    8.67%   116,565    11.09%
Deposits received under repurchase agreements   349,991    27.74%   326,008    27.57%   300,635    28.60%
Funds from the acceptance and issue of securities   83,769    6.64%   57,149    4.83%   46,051    4.38%
Borrowings and onlending   88,219    6.99%   97,270    8.23%   80,213    7.63%
Other liabilities - Subordinated debt   60,028    4.76%   61,004    5.16%   54,467    5.18%
Technical provisions for insurance, pension plan and capitalization   144,115    11.42%   121,851    10.30%   108,151    10.29%
Non-Interest bearing liabilities   294,416    23.33%   280,632    23.73%   225,299    21.43%
Non-interest bearing deposits   59,966    4.75%   54,883    4.64%   44,857    4.27%
Other non-interest liabilities   234,450    18.58%   225,749    19.09%   180,442    17.17%
Total liabilities   1,261,767    100.00%   1,182,473    100.00%   1,051,096    100.00%

 

Some of our long-term debt allows for the acceleration of the principal outstanding balance in the event of certain specified events ordinarily included in long-term financing agreements. Until December 31, 2016, there was no acceleration of the principal outstanding balance arising from any of these events.

 

Under Brazilian law, cash dividends may only be paid if the subsidiary paying such dividends has reported a profit in its financial statements. In addition, subsidiaries that are financial institutions are prohibited from making loans to Itaú Unibanco, but are allowed to make deposits in Itaú Unibanco, by means of Interbank Deposit Certificates (CDIs). These restrictions have not had, and are not expected to have, a material impact on our ability to meet our cash obligations.

 

The following table sets out the breakdown of our sources of funding in the Consolidated on December 31, 2016, 2015 and 2014.

 

   2016   2015   2014 
   millions of R$   % of
total
funding
   millions of R$   % of
total
funding
   millions of R$   % of
total
funding
 
                         
Deposits   329,414    35.5    292,610    32.7    294,773    36.0 
Demand deposits   61,133    6.6    61,092    6.8    48,733    6.0 
Saving deposits   108,250    11.7    111,319    12.4    118,449    14.5 
Time deposits   156,274    16.8    105,250    11.8    108,465    13.2 
Interbank deposits   3,757    0.4    14,949    1.7    19,125    2.3 
Securities sold under repurchase agreements   366,038    39.4    350,954    39.2    325,013    39.7 
Interbank market debt   135,550    14.6    156,985    17.5    126,054    15.4 
Mortgage notes   -    -    139    0.0    144    0.0 
Real estate credit bills   19,179    2.1    14,454    1.6    10,832    1.3 
Agribusiness credit bills   15,442    1.7    13,775    1.5    7,810    1.0 
Financial credit bills   19,566    2.1    18,496    2.1    10,645    1.3 
Import and export financing   45,786    4.9    65,786    7.3    43,546    5.3 
On lending-domestic   29,828    3.2    38,804    4.3    45,230    5.5 
Liabilities from transactions related to credit assignments   5,711    0.6    5,495    0.6    4,336    0.5 
Liabilities from sales operations or transfer of financial assets   38    0.0    38    0.0    3,510    0.4 
Institucional market debt   96,944    10.4    94,512    10.6    72,887    8.9 
Subordinated debt   57,420    6.2    65,785    7.3    54,569    6.7 
Foreign borrowings through securities   34,287    3.7    24,782    2.8    16,085    2.0 
Structured Operations Certificates   5,237    0.6    3,945    0.4    2,233    0.3 
Total   927,945    100.0    895,062    100.0    818,727    100.0 

 

 32

 

  

e) Sources of financing for working capital and investments in non-current assets that the Issuer intends to use to cover liquidity deficiencies

 

Our Board of Directors determines our policy regarding liquidity risk management, and establishes broad quantitative liquidity risk management limits in line with our risk appetite. The Superior Market and Liquidity Risk Committee (“CSRML”), previously called Superior Institutional Treasury and Liquidity Committee (CSTIL), composed of members of senior management, is responsible for the strategic liquidity risk management in line with the board-approved liquidity risk framework and our declared risk appetite. In establishing our guidelines, the CSRML considers the liquidity implications of each market segment and product. The institutional treasury unit of Itaú Unibanco is responsible for the day-to-day management of the Itaú Unibanco Conglomerate’s liquidity profile, within the parameters set by the Board of Directors and the CSRML. This includes oversight responsibility with respect to all business units operating outside of Brazil.

 

We maintain separate liquidity pools at our Brazilian operations and at each of our subsidiaries in Latin America and Europe. Our Brazilian operations include the financial institutions in Brazil and the entities used by the Brazilian operations for funding and serving their clients abroad. Each subsidiary in Latin America (e.g., in Chile, Argentina, Uruguay, Colombia and Paraguay) and in Europe has its own treasury functions with appropriate autonomy to manage liquidity according to local needs and regulations, while remaining in compliance with the liquidity limits established by Itaú Unibanco senior management. In general, there are rarely liquidity transfers between subsidiaries or between the head office and a subsidiary, except under very specific circumstances (e.g., targeted capital increases). Brazil, Argentina, the United Kingdom and Colombia are the only countries in which we operate where local regulators have established local minimum liquidity levels.

 

CMN regulation also establishes capital conservation and countercyclical buffers for Brazilian financial institutions, and determines their minimum percentages and any sanctions and limitations it will apply in case of non-compliance with such additional requirements.

 

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 regulations. This reserve generally includes cash and deposits on demand, and unencumbered government securities, whether these are own portfolio or funded positions of securities purchased under agreements to resell.

 

The following table presents our operational liquidity reserve on December 31, 2016, 2015 and 2014:

 

       In millions of R$ 
   As of December 31,   2016 Average 
   2016   2015   2014   Balance (1) 
Cash and Deposits on Demand   18,542    18,544    17,527    19,500 

Funded Positions of Securities Purchased under Agreements to Resell (2)

   77,462    72,091    74,275    73,945 
Unencumbered Government Securities   81,458    65,965    45,587    66,212 
Operational Reserve   177,452    156,600    137,389    159,657 

 

(1) Average calculated based on the quarterly Financial Reports

 

(2) Net of R$4,329 (R$9,461 at 12/31/2015 and R$5,945 at 12/31/2014), which securities are restricted to guarantee transactions on BM&FBovespa S.A. and the Central Bank of Brazil.

 

Management controls our liquidity reserves by projecting the funds that will be available for investment by our treasury department. The technique we employ involves the statistical projection of scenarios for our assets and liabilities, considering the liquidity profiles of our counterparties.

 

Short-term minimum liquidity limits are defined according to guidelines set by the CSRML. These limits aim to ensure that the Itaú Unibanco Conglomerate always has sufficient liquidity available to cover unforeseen market events. These limits are periodically revised, based on the projection of cash needs in atypical market situations (stress scenarios).

 

Management of liquidity makes it possible for us to simultaneously meet our operating requirements, protect our capital and exploit market opportunities. Our strategy is to maintain adequate liquidity to meet our present and future financial obligations and to capitalize on potential business opportunities.

 

We are exposed to the effects of disruptions and volatility in the global financial markets and the economies in those countries where we do business, especially Brazil. However, due to our stable sources of funding, which include a large deposit base and a large number of correspondent banks with which we have long-standing relationships, as well as facilities in place, which enable us to access further funding when required, we have not historically experienced liquidity challenges, even during periods of disruption in the international financial markets.

 

Should the liquidity reserve reach a level below the minimum set by the Board and Superior Committees, the Liquidity Crisis Committee is convened to put the Institutional Treasury Contingency Plan into action. This Committee is composed of (i) the Vice-President of the Institutional Treasury Committee; (ii) the Banking Treasury Officer; (iii) the Liquidity Risk Superintendent; and (iv) the Market and Liquidity Risk Officer. Previously approved actions by the Board of Directors include (i) raising funds in the domestic and foreign markets; (ii) non-renewal of assets; (iii) realization of sale agreements and sale of securities; and (iv) releasing the margin arising from reducing positions on the BM&FBovespa.

 

In the second quarter of 2016, we started to report the average of the period for our liquidity coverage ratio, which is calculated based on the methodology established by BACEN Circular No. 3,749, in line with international guidelines. The LCR is a ratio that that refers to free and highly liquid assets and net cash outflows over a 30-day period. The minimum required by the Central Bank of Brazil in 2016 was 70%, and, in the fourth quarter of 2016, the Company’s average ratio was 212.8%.

 

 33

 

 

f) Indebtedness ratios and the characteristics of the debts, also describing:

 

I - Relevant loan and financing agreements

 

II - Other long-term relationships with financial institutions

 

The Issuer has funding, borrowings and onlending as its main sources of financing. The breakdown of funding by maturity is presented in the following table.

 

R$ thousand

 

   12/31/2016 
   0-30   31-180   181-365   Over 365 days   Total 
Deposits   201,112,996    30,166,324    17,735,371    80,399,303    329,413,994 
Deposits received under securities repurchase agreement   189,285,419    14,473,296    47,684,962    114,594,160    366,037,837 
Funds from acceptance and issuance of securities   3,090,420    15,728,706    17,458,962    57,432,754    93,710,842 
Borrowings and onlending   4,011,611    25,954,220    17,514,478    28,133,622    75,613,931 
Subordinated debt   628,011    8,548,231    1,879,506    46,364,327    57,420,075 
Total   398,128,457    94,870,777    102,273,279    326,924,166    922,196,679 
% per maturity term   43.1    10.3    11.1    35.5      

 

   12/31/2015 
   0-30   31-180   181-365   Over 365 days   Total 
Deposits   190,351,317    27,978,880    14,288,581    59,991,640    292,610,418 
Deposits received under securities repurchase agreement   159,062,020    15,184,948    21,262,330    155,444,814    350,954,112 
Funds from acceptance and issuance of securities   4,127,554    16,509,670    8,096,081    46,857,049    75,590,354 
Borrowings and onlending   4,419,173    29,333,803    23,983,995    46,852,304    104,589,275 
Subordinated debt   4,722,346    1,810,142    3,675,637    55,576,439    65,784,564 
Total   362,682,410    90,817,443    71,306,624    364,722,246    889,528,723 
% per maturity term   41.1    9.5    8.5    40.9      

 

   12/31/2014 
   0-30   31-180   181-365   Over 365 days   Total 
Deposits   183,573,672    36,828,551    8,537,506    65,833,519    294,773,248 
Deposits received under securities repurchase agreement   161,993,276    11,279,963    15,150,192    136,589,676    325,013,107 
Funds from acceptance and issuance of securities   3,959,451    13,833,959    8,608,102    21,348,192    47,749,704 
Borrowings and onlending   4,795,395    19,194,244    23,033,385    41,753,444    88,776,468 
Subordinated debt (*)   173,963    692,715    1,966,184    52,784,528    55,617,390 
Total   354,495,757    81,829,432    57,295,369    318,309,359    811,929,917 
% per maturity term   43.7    10.1    7.1    39.2      

(*) Includes R$1,048,455 of Redeemable Preferred Shares classified under minority interests in the Balance Sheet.

 

 34

 

 

The table below shows funding through the issuance of subordinated debt securities up to December 31, 2016.

 

R$ thousands

Description                        
Name of security / currency  

Principal amount

(original currency)

    Issue   Maturity     Return p.a.   Account balance  
Subordinated CDB – BRL                              
      465,835     2006   2016     100% do CDI + 0,7% (*)     -  
      2,719,268     2010   2016     110% a 114% do CDI     -  
      122,500               IPCA + 7,21% a 7,33%     -  
      366,830     2010   2017     IPCA + 7,21% a 7,33% (*)     929,395  
                      Total     929,395  
Subordinated financial bill – BRL                              
      365,000     2010   2016     100% do CDI + 1,35% a 1,36%     -  
      50,000     2010   2016     112% a 112,5% do CDI     -  
      30,000               IPCA + 7%     -  
      206,000     2010   2017     IPCA + 6,95% a 7,2%     336,902  
      3,223,500     2011   2017     108% a 112% do CDI     3,565,188  
      3,650,000               100% do CDI + 1.29% a 1,52%     3,801,828  
      352,400               IPCA + 6,15% a 7,8%     647,235  
      138,000               IGPM + 6,55% a 7,6%     275,922  
      500,000     2012   2017     100% do CDI + 1,12%     506,450  
      42,000     2011   2018     IGPM + 7%     64,730  
      30,000               IPCA + 7,53% a 7,7%     48,353  
      6,373,127     2012   2018     108% a 113% do CDI     7,249,831  
      460,645               IPCA + 4,4% a 6.58%     759,921  
      3,782,100               100% do CDI + 1.01% a 1.32%     3,903,768  
      112,000               9.95% a 11,95%     174,359  
      2,000     2011   2019     109% a 109,7% do CDI     3,590  
      1,000     2012   2019     110% do CDI     1,763  
      12,000               11.96%     20,854  
      100,500               IPCA + 4,7% a 6,3%     163,330  
      1,000     2012   2020     111% do CDI     1,772  
      20,000               IPCA + 6% a 6.17%     36,985  
      6,000     2011   2021     109.25% a 110.5% do CDI     11,063  
      2,306,500     2012   2022     IPCA+ 5,15% a 5,83%     3,885,314  
      20,000               IGPM + 4,63%     26,585  
                      Total     25,485,743  
Subordinated Euronotes – USD                              
      1,000,000     2010   2020     6.2%     3,296,960  
      1,000,000     2010   2021     5.75%     3,352,334  
      750,000     2011   2021     5,75% a 6,2%     2,461,622  
      550,000     2012   2021     6.2%     1,792,505  
      2,625,000     2012   2022     5,5% a 5,65%     8,663,430  
      1,870,000     2012   2023     5.13%     6,136,164  
                      Total     25,703,015  
Subordinated bonds - CLP     13,739,331     2008   2022     7,4% a 7,99%     126,071  
      41,528,200     2008   2033     3,5% a 4,5%     207,243  
      110,390,929     2008   2033     4.8%     764,548  
      98,151,772     2009   2035     4.8%     696,414  
      2,000,000     2009   2019     10 7%     2,663  
      94,500,000     2009   2019     IPC + 2%     121,439  
      140,000,000     2010   2017     IPC + 2%     170,755  
      11,311,860     2010   2032     4.4%     66,990  
      24,928,312     2010   2035     3.9%     154,047  
      125,191,110     2010   2036     4.4%     732,583  
      87,087,720     2010   2038     3.9%     533,518  
      68,060,124     2010   2040     4.1%     410,688  
      33,935,580     2010   2042     4.4%     200,246  
      104,000,000     2013   2023     IPC + 2%     113,252  
      146,000,000     2013   2028     IPC + 2%     155,362  
      510,107,100     2014   2024     LIB + 4%     585,488  
      47,831,440     2014   2034     3.8%     260,615  
                      Total     5,301,922  
                               
Total                           57,420,075  

(*)Subordinated CDBs may be redeemed as from November 2011.

  

 35

 

 

In ITAÚ UNIBANCO HOLDING, the portfolio is composed of Subordinated Euronotes, and there are no amounts with maturity of up to 30 days (R$125,323 on 12/31/2015), with maturity of 31 to 180 days in the amount of R$354,914 (R$303,668 on 12/31/2015), and over 365 days in the amount of R$25,348,101 (R$30,348,216 on 12/31/2015), totaling R$25,703,015 (R$30,777,207 on 12/31/2015).

 

III - Level of subordination of debts

 

In the case of judicial or extrajudicial liquidation of the Issuer, there is an order of priority as to the repayment to the many creditors of the bankrupt estate. Particularly in relation to debts comprising the Issuer’s indebtedness, the following order of repayment shall be obeyed: secured debts, unsecured debts, and subordinated debt eligible to make up the Tier II of the issuer’s Referential Equity, and subordinated debt eligible to make up the Tier I of the Issuer’s Referential Equity. It is worth mentioning that creditors with secured debts have priority in relation to the others up to the limit of the asset pledged in guarantee, and they are deemed unsecured creditors in relation to the remaining. Although there is no subordination among the many unsecured creditors, as there is no subordination among the same type of subordinated debt, creditors with subordinated debt have priority to make up the Tier II of the Issuer’s Referential Equity in relation to the creditors with subordinated debt eligible to make up the Tier I of the Issuer's Referential Equity.

 

Funding through the issuance of subordinated debt securities is shown as follows:

   

   31/12/2016 
   0-30   31-180   181-365   Over 365 days   Total   % 
CDB   -    929    -    -    929    1.6 
Financial bills   601    7,224    1,642    16,019    25,486    44.4 
Euronotes   -    355    -    25,404    25,759    44.0 
Bonds   27    40    237    4,997    5,302    9.2 
(-)Transaction costs incurred (Note 4b)   -    -    -    (56)   (56)   (0.1)
Total other liabilities   628    8,548   1,880    46.364    57,420      
Redeemable preferred shares   -    -    -    -    -    - 
Grand total(*)   628    8,548    1,880    46,364    57,420      
% per maturity term   1.1    14.9    3.3    80.7           

 

   31/12/2015 
   0-30   31-180   181-365   Over 365 days   Total   % 
CDB   4,503    1,022    1,235    807    7,567    11.5 
Financial bills   89    473    2,424    23,928    26,913    40.9 
Euronotes   125    304    -    30,432    30,861    46.9 
Bonds   5    12    17    494    527    0.8 
(-) Transaction costs incurred (Note 4b)   -    -    -    (83)   (83)   (0.1)
Total other liabilities   4,722    1,810    3,676    55,576    65,785      
Redeemable preferred shares   -    -    -    -    -    - 
Grand total(*)   4,722    1,810    3,676    55,576    65,785      
% per maturity term   7.1    2.8    5.6    84.5           

  

   31/12/2014 
   0-30   31-180   181-365   Over 365 days   Total   % 
CDB   -    -    899    6,560    7,459    13.4 
Financial bills   85    477    6    25,199    25,766    46.4 
Euronotes   85    207    -    20,699    20,991    37.7 
Bonds   4    9    13    387    414    0.7 
(-) Transaction costs incurred (Note 4b)   -    -    -    (61)   (61)   (0.1)
Total other liabilities   174    693    918    52,785    54,569      
Redeemable preferred shares   -    -    1,043    -    1,043    1.0 
Grand total(*)   174    693    1,966    52,785    55,617      
% per maturity term   0.4    1.2    3.5    94.9           

   

IV - Any restrictions imposed on the Issuer, in particular in relation to limits for indebtedness and contracting new debt, the distribution of dividends, disposal of assets, issuance of new securities and disposal of shareholding control, as well as whether the Issuer is complying with these restrictions.

 

 36

 

 

In March 2010, Itaú Unibanco established a program for the issuance and distribution of notes through certain financial intermediaries (the “Program“). The Program, as currently existing, establishes that the Issuer itself, or its Cayman Islands branch, may issue senior or subordinated notes, the latter of which are eligible, according to its terms, to make up the Tier I or Tier II of the Issuer's Referential Equity (“Notes“) up to the limit of US$100,000,000,000.00 (one hundred billion U.S. dollars).

 

The Program contains financial covenants that determine the early repayment of the unpaid principal amount of the Notes upon the occurrence of certain events, also known as Events of Default, as is ordinarily included in long-term financing contracts. The Events of Default applicable to the Senior Notes issued under the Program are: (i) failure to pay any amounts due in respect of the Notes (Non-payment); (ii) failure to perform or comply with any material obligation which is not a financial obligation to pay any amounts under the Notes (Breach of other obligations); (iii) acceleration or failure to pay any other indebtedness of Itaú Unibanco in an amount equal or greater than 0.8% of its regulatory capital (cross default); (iv) dissolution and insolvency of Itaú Unibanco; and (v) any events analogous to the previous items. The Events of Default applicable to the Subordinated Notes issued under the Program up to August 4, 2016 are: (i) failure to pay any amounts due under the Notes (Non-payment); (ii) dissolution and insolvency; and (iii) any events analogous to the previous items.

 

On August 4, 2016, the Program was amended to conform to the provisions of CMN Resolution No. 4,192, of March 1, 2013. Any Subordinated Notes issued after that date are subject to permanent termination in the following events: (i) the Issuer disclosing that its Core Principal is at a level lower than 5.125% (for Subordinated Notes eligible to make up the Tier I of the Issuer’s Referential Equity) or 4.5% (for Subordinated Notes eligible to make up the Tier II of the Issuer’s Referential Equity) of their risk-weighted assets (RWA); (ii) execution of a commitment to contribute funds to the Issuer, if the exception provided for in the heading of Article 28 of Complementary Law No. 101, of May 4, 2000, occurs; (iii) the Central Bank of Brazil determines either a special temporary administration or intervention in the Issuer; or (iv) the Central Bank of Brazil determines the extinction of Subordinated Notes, according to criteria set forth by the National Monetary Council. Additionally, Subordinated Notes eligible to make up the Tier I of the Issuer’s Referential Equity set forth, as follows: (i) payment of any related interest earned only through funds from profits and revenue reserves subject to distribution in the last calculation period; (ii) suspension of the payment of any related interest earned (a) exceeding the amounts available for this purpose; (b) in the same proportion of the restriction imposed by the Central Bank of Brazil to the dividend distribution or other results related to shares eligible to the Issuer’s Core Capital; (c) in the same percentages of retention as the amount payable or distributable as (x) variable compensation to management members; and (y) dividends and interest on capital, in view of any insufficient Additional Core Capital. Regarding the aforementioned events, any compensation of which payment is suspended will be deemed terminated. None of situations above described will be deemed as a Default Event or another factor giving rise to debt acceleration in any legal business in which the Issuer takes part.

 

Default Events applicable to Subordinated Notes eligible to make up the Tier II of the Issuer’s Referential Equity issued after August 4, 2016 are as follows: (i) failure to pay any amounts due in respect of the Notes (Non-payment), even though its occurrence will not lead to the acceleration of the outstanding balance of these Notes; (ii) dissolution and Insolvency; and (iii) any events analogous to the previous items.

 

On December 31, 2016, none of the previously described financial covenants was breached and there was no failure to pay any financial obligation assumed under the Program.

 

To date, the following issuances (the “Issuances“) have been completed in accordance with the Program:

 

(i) First Issuance: Subordinated Notes amounting to US$1,000,000,000.00 (one billion US dollars) issued on April 15, 2010, with maturity on April 15, 2020, which were accepted for listing and trading on the Luxembourg Stock Exchange;

 

(ii) Second Issuance: Subordinated Notes amounting to US$1,000,000,000.00 (one billion US dollars) issued on September 23, 2010, with maturity on January 22, 2021, which were accepted for listing and trading on the Luxembourg Stock Exchange;

 

(iii) Third Issuance: Senior Notes amounting to R$500,000,000.00 (five hundred million reais) issued on November 23, 2010, settled on November 23, 2015;

 

(iv) Reopening of Second Issuance: Subordinated Notes amounting to US$250,000,000.00 (two hundred fifty million US dollars) issued on January 31, 2011, with maturity on January 22, 2021, which were accepted for listing and trading on the Luxembourg Stock Exchange. These Subordinated Notes were issued and distributed by reopening the second issuance of Subordinated Notes and are the second series of the second issuance of Subordinated Notes under the Program. The Subordinated Notes issued in the first series and the Subordinated Notes issued in the second series of the second issuance share the same ISIN and CUSIP code and are fungible with each other;

 

(v) Fourth Issuance: Subordinated Notes amounting to US$500,000,000.00 (five hundred million US dollars) issued on June 21, 2011, with final maturity on December 21, 2021, which were accepted for listing and trading on the Luxembourg Stock Exchange;

 

 37

 

 

(vi) Reopening of Fourth Issuance: Subordinated Notes amounting to US$550,000,000.000 (five hundred fifty million US dollars) issued on January 24, 2012, with maturity on December 21, 2021, which were accepted for listing and trading on the Luxembourg Stock Exchange. These Subordinated Notes were issued and distributed by reopening the fourth issuance of Subordinated Notes and are the second series of the fourth issuance of Subordinated Notes under the Program. The Subordinated Notes issued in the first series and the Subordinated Notes issued in the second series of the fourth issuance share the same ISIN and CUSIP code and are fungible with each other;

 

(vii) Fifth Issuance: Subordinated Notes amounting to US$1,250,000,000.00 (one billion, two hundred fifty million US dollars) issued on March 19, 2012, with maturity on March 19, 2022, which were accepted for listing and trading on the Luxembourg Stock Exchange;

 

(viii) Sixth Issuance: Subordinated Notes amounting to US$1,375,000,000.00 (one billion, three hundred seventy-five million US dollars) issued on August 6, 2012, with maturity on August 6, 2022, which were accepted for listing and trading on the Luxembourg Stock Exchange;

 

(ix) Seventh Issuance: Subordinated Notes amounting to US$1,870,000,000.00 (one billion, eight hundred seventy million US dollars) issued on November 13, 2012, with maturity on May 13, 2023, which were accepted for listing and trading on the Luxembourg Stock Exchange; and

 

(x) Eight Issuance: Senior Notes amounting to US$1,050,000,000.00 (one billion, fifty million US dollars) issued on May 26, 2015, with maturity on May 26, 2018, which were accepted for listing and trading on the Luxembourg Stock Exchange.

 

The Program and the Issuances impose certain conditions and restrictions on the Issuer, as follows:

 

Disposal of Assets and Shareholding Control: the Issuer is allowed to dispose of all or a substantial portion of its assets, including through corporate restructuring (such as mergers and spin-off processes), without the consent of the owners of the Notes, provided that, as a result of the transactions below:

 

(i) the entity receiving these assets or succeeds the Issuer undertakes to comply with all obligations of repayment relating to the principal and interest arising from any notes issued under this Program, as well as to assume all other obligations imposed on the Issuer;

 

(ii) no event of default occurs by carrying out these transactions; and

 

(iii) from any public announcement of the transaction and before its completion, the Issuer’s management represent to the trustee that the asset disposal is in compliance with the obligations and restrictions imposed on the Issuer; and the Issuer’s legal advisors deliver a legal opinion to the trustee on the assumption of obligations arising from the Program by the new entity taking over the assets or succeeding the Issuer.

 

g) Limits on financing already contracted and percentages used

 

Itaú Unibanco is subject to parameters required by monetary authorities, in accordance with the Basel principles.

 

Management deems the current Basel ratio (19.1% based on the Consolidated Prudential, of which 15.9% of Tier I and 3.2% of Tier II) to be appropriate, as it exceeds by 860 basis points the minimum required by the Central Bank of Brazil for 2016, equivalent to 10.5% (11.0% on 12/31/2015).

 

 38

 

 

h) Significant changes in each item of the consolidated financial statements

 

                   R$ million
                    
Assets  31/12/2016   31/12/2015   31/12/2014   2016 X 2015   2015 X 2014 
                     
Current assets and long term receivables   1,398,651    1,340,483    1,188,779    4.3%   12.8%
Cash and cash equivalents   18,542    18,544    17,527    (0.0%)   5.8%
Interbank investments   286,038    280,944    229,828    1.8%   22.2%
Securities and derivative financial instruments   376,887    338,391    299,627    11.4%   12.9%
Interbank and interbranch accounts   86,564    67,373    63,810    28.5%   5.6%
Operations with credit granting characteristics and other receivables   491,225    473,829    451,760    3.7%   4.9%
(Allowance for loan losses)   (37,431)   (34,078)   (26,948)   9.8%   26.5%
Other assets   176,826    195,480    153,175    (9.5%)   27.6%
Permanent assets   26,987    18,689    19,923    44.4%   (6.2%)
Investments   4,943    3,939    3,526    25.5%   11.7%
Fixed assets and leased assets   6,812    7,055    7,561    (3.5%)   (6.7%)
Goodwill   1,398    232    204    502.7%   13.7%
Intangible assets   13,835    7,463    8,632    85.4%   (13.5%)
Total assets   1,425,639    1,359,172    1,208,702    4.9%   12.4%
                          
Liabilities   31/12/2016    31/12/2015    31/12/2014    2016 X 2015    2015 X 2014 
Current and long-term liabilities   1,296,377    1,248,995    1,109,017    3.8%   12.6%
Deposits   329,414    292,610    294,773    12.6%   (0.7%)
Demand deposits   61,133    61,092    48,733    0.1%   25.4%
Savings deposits   108,250    111,319    118,449    (2.8%)   (6.0%)
Interbank deposits   3,757    14,949    19,125    (74.9%)   (21.8%)
Time deposits   156,274    105,250    108,465    48.5%   (3.0%)
Deposits received under securities repurchase agreements   366,038    350,954    325,013    4.3%   8.0%
Funds from acceptance and issue of securities   93,711    75,590    47,750    24.0%   58.3%
Interbank and interbranch accounts   6,485    6,926    5,260    (6.4%)   31.7%
Borrowings and onlending   75,614    104,589    88,776    (27.7%)   17.8%
Derivative financial instruments   24,711    31,116    17,394    (20.6%)   78.9%
Technical provisions for insurance, pension plan and capitalization   156,656    132,053    112,675    18.6%   17.2%
Other liabilities   243,749    255,155    217,374    (4.5%)   17.4%
Foreign exchange portfolio   52,262    68,466    43,176    (23.7%)   58.6%
Subordinated debt   57,420    65,785    54,569    (12.7%)   20.6%
Sundry   134,067    120,905    119,629    10.9%   1.1%
Deferred income   2,046    1,960    1,423    4.4%   37.7%
Minority interest in subsidiaries   11,625    1,755    2,415    562.3%   (27.3%)
Stockholders' equity   115,590    106,462    95,848    8.6%   11.1%
Total liabilities   1,425,639    1,359,172    1,208,702    4.9%   12.4%

 

We present below the main changes in the balance sheet accounts on December 31, 2016, 2015 and 2014.

 

Total assets amounted to R$1,425,639 million at the end of 2016, increasing 4.9% from the previous year, since in 2015 total assets of Itaú Unibanco was R$1,359,172 million. From 2015 to 2014, there was a 12.4% increase, since the balance in 2014 was R$1,208,702 million.

 

Loan portfolio, without endorsements and sureties, reached R$491,225 million in 2016, up 3.7% from 2015. In Brazil, the balance of loan portfolio de individuals without endorsements and sureties reached R$183,193 million, down 2.2% from 2015. In the large companies segment, the portfolio amounted to R$121,554 million, down 20.2% compared to 2015, and in the very small, small, and middle-market companies segment it reached R$58,771 million, down 10.7% from December 31, 2015. Loan and financing operations to the retail market, including individuals and very small, small, and middle-market companies, reached R$241,964 million, down 4.4% from December 31, 2015. In 2016, the real estate loan portfolio in Brazil reached R$48,589 million, up 6.6% from the previous year. The balance of real estate loans to individual borrowers was R$38,117 million, whereas to companies it reached R$10,471 million.

 

The balance of loan portfolio, without endorsements and sureties, reached R$473,829 million in 2015, up 4.9% compared to 2014. In Brazil, the balance of loan portfolio to individuals, without endorsements and sureties, reached R$187,264 million, up 0.7% compared to 2014. In the large companies segment, the portfolio reached R$152,266 million, up 3.9% compared to 2014, and in the very small, small, and middle-market companies segment it reached R$65,825 million, down 4.0% from December 31, 2014. Loan and financing operations to the retail market, which include individuals and very small, small, and middle-market companies, totaled R$253,089 million. In 2015, the real estate loan portfolio in Brazil reached R$45,597 million, up 16.2% from the previous year. The balance of real estate loans to individual borrowers was R$34,631 million, whereas to companies it reached R$10,966 million.

 

 39

 

 

 

In 2016, our main sources of funding are deposits received under securities repurchase agreements, in the amount of R$366,038 million, and deposits, in the amount of R$329,414 million, including demand, savings, time and interbank deposits. In 2016, total deposits accounted for 35.5% of total funds. In 2015, total deposits reached R$292,610 million, accounting for 32.7% of total funds. In 2014, total deposits reached approximately R$294,773 million, accounting for 36.0% of total funds. On December 31, 2016, 2015 and 2014, our time deposits accounted for 47.4%, 36.0%, and 36.8% of total deposits, respectively.

 

On December 31, 2016, total deposits increased 12.6% from the same period of the previous year, mainly driven by the increase in time deposits, partially offset by decreases in interbank and savings deposits. The balance of deposits at the end of 2015 decreased 0.7% from December 31, 2014, due to lower interbank and savings deposits.

 

Stockholders’ equity totaled R$115,590 million in 2016, compared to R$106,462 at the end of 2015 and R$95,848 million in 2014, increasing 8.6% compared to 2015 and 11.1% in the comparison of 2015 related to 2014. These variations for 2016, 2015, and 2014 are due to the results for the periods.

 

10.2 Executive officers should comment on:

 

a) Results of operations, in particular:

I - Description of any important components of revenue

II - Factors that materially affected operating income and expenses

 

Results of Operations for the Years Ended December 31, 2016, 2015 and 2014

 

Highlights

 

In the year ended December 31, 2016, consolidated net income was R$21,639 million, with annualized return on average equity of 19.8%. On December 31, 2016, consolidated assets totaled R$1,425,639 million and consolidated stockholders’ equity was R$115,590 million, compared to R$1,359,172 million and R$106,462 million, respectively, on December 31, 2015. On December 31, 2016, the Prudential Conglomerate BIS ratio was 19.1%.

 

In the year ended December 31, 2015, consolidated net income was R$23,360 million, with annualized return on average equity of 23.5%. On December 31, 2015, consolidated assets totaled R$1,359,172 million and consolidated stockholders’ equity was R$106,462 million, compared to R$1,208,702 million and R$95,848 million, respectively, on December 31, 2014. On December 31, 2015, the Prudential Conglomerate BIS ratio was 17.8%.

 

In the year ended December 31, 2014, consolidated net income was R$20,242 million, with annualized return on average equity of 23.5%. On December 31, 2014, consolidated assets totaled R$1,208,702 million and consolidated stockholders’ equity was R$95,848 million, compared to R$1,105,721 million and R$81,024 million, respectively, on December 31, 2013. On December 31, 2014, the Financial Conglomerate BIS ratio was 16.9%.

 

Net income

 

The table below shows the main components of net income for the years ended December 31, 2016, 2015 and 2014.

 

       Year ended December 31     
   2016   2015   2014   Variation   Variation 
   (In millions of R$)   2016 - 2015   2015 - 2014 
Income from financial operations   160,213    163,594    125,024    (2.1%)   30.9%
Expenses on financial operations   (85,879)   (113,853)   (73,137)   (24.6%)   55.7%
Income from financial operations before loan losses   74,334    49,741    51,887    49.4%   (4.1%)
Results of loan losses   (21,582)   (22,427)   (14,203)   (3.8%)   57.9%
Gross income from financial operations   52,751    27,314    37,684    93.1%   (27.5%)
Other operating revenues (expenses)   (16,914)   (12,575)   (11,555)   34.5%   8.8%
Operating income   35,837    14,739    26,128    143.2%   (43.6%)
Non-operating income   121    1    1,116    9310.9%   (99.9%)
Income before taxes on income and profit sharing   35,958    14,740    27,245    144.0%   (45.9%)
Income tax and social contribution expenses   (14,210)   9,215    (6,437)   (254.2%)   (243.2%)
Profit sharing   (251)   (239)   (261)   4.7%   (8.2%)
Minority interest in subsidiaries   141    (356)   (305)   (139.7%)   16.7%
Net income   21,639    23,360    20,242    (7.4%)   15.4%

 

In the years ended December 31, 2016, 2015 and 2014, net income was impacted by non-recurring revenue. For additional information, please refer to Note 22(k) to our consolidated financial statements.

 

 40

 

 

Income from Financial Operations

 

The table below shows the main components of our income from financial operations for the years ended December 31, 2016, 2015 and 2014.

 

   Year ended December 31 
   2016   2015   2014   Variation   Variation 
   (In millions of R$)   2016 - 2015   2015 - 2014 
Loan, lease and other credit operations   78,457    78,319    67,439    0.2%   16.1%
Securities and derivative financial instruments   53,487    64,820    39,137    -17.5%   65.6%
Insurance, pension plan and capitalization   18,656    13,432    9,883    38.9%   35.9%
Foreign exchange operations   2,696    1,282    2,671    110.3%   -52.0%
Compulsory deposits   6,917    5,741    5,893    20.5%   -2.6%
Total income from financial operations   160,213    163,594    125,024    (2.1%)   30.9%

 

In the year ended December 31, 2016, Income from Financial Operations decreased 2.1%, from R$163,594 million in the year ended December 31, 2015 to R$160,213 million in the year ended December 31, 2016. This decrease was mainly due to a reduction of income from securities and derivative financial instruments.

 

Income from Financial Operations increased 30.9%, from R$125,024 million in the year ended December 31, 2014 to R$163,594 million in the year ended December 31, 2015, an increase of R$38.570 million. This increase was mainly due to higher income from securities and derivative financial instruments, loan operations, loan, lease and other credit operations, and from insurance, pension plans and capitalization.

 

Income from Loan, Lease and Other Credit Operations, including Endorsements and Sureties

 

In the year ended December 31, 2016, income from loan, lease and other credit operations increased 0.2%, from R$78,319 million in the year ended December 31, 2015 to R$78.457 million. This increase in income from loan and lease operations was influenced by a larger loan portfolio. Further details on the increase in our loan portfolio are included in item 10.2 of this report.

 

Income from loan, lease and other credit operations increased 16.1%, from R$67,439 million in the year ended December 31, 2014 to R$78.319 million. This increase in income from loan and lease operations was influenced by a larger loan portfolio. Further details on the increase in our loan portfolio are included in item 10.2 of this report.

 

Income from Securities and Derivative Financial Instruments

 

In the year ended December 31, 2016, income from securities and derivative financial instruments reached R$53,487 million, down 17.5% from the year ended December 31, 2015. This decrease was mainly due to the exchange variation on foreign investments.

 

Income from securities and derivative financial instruments reached R$64.820 million in the year ended December 31, 2015, up 65.6% from the year ended December 31, 2014. This increase mainly reflects larger gains with the rise in the average Selic rate between periods.

 

Financial Income from Insurance, Pension Plan and Capitalization Operations

 

Financial Income from insurance, pension plan and capitalization operations increased 38.9%, from R$13,432 million in the year ended December 31, 2015 to R$18,656 million in the year ended December 31, 2016. This increase was due to higher income from pension plans.

 

Financial income from insurance, pension plan and capitalization operations increased 35.9%, from R$9,883 million in the year ended December 31, 2014 to R$13,432 million in the year ended December 31, 2015, an increase of R$3,549 million. This was due to higher income from pension plans, mainly impacted by the rise in the average Selic rate over the year.

 

Income from Foreign Exchange Operations

 

Income from foreign exchange operations increased from R$1,282 million in the year ended December 31, 2015 to R$2,696 million in the year ended December 31, 2016. This increase was mainly driven by larger gains with arbitrage operations.

 

Income from foreign exchange operations decreased from R$2,671 million in the year ended December 31, 2014 to R$1,282 million in the year ended December 31, 2015.

 

Income from Compulsory Deposits

 

Income from compulsory deposits increased 20.5%, or R$1,176 million, from R$5,741 million in the year ended December 31, 2015 to R$6,917 million in the year ended December 31, 2016. On December 31, 2016, we recorded compulsory deposits of R$85,700 million compared to R$66,556 million on December 31, 2015. Out of the total on December 31, 2016, R$82,698 million were interest earning. This increase was primarily due to the rise in the interest-earning balance and the higher Selic rate in the periods, from 13.8% in the year ended December 31, 2015 to 14.0% in the year ended December 31, 2016.

 

 41

 

 

Income from compulsory deposits decreased 2.6%, or R$152 million, from R$5,893 million in the year ended December 31, 2014 to R$5,741 million in the year ended December 31, 2015. On December 31, 2015, we recorded compulsory deposits of R$66,556 million compared to R$63,106 million on December 31, 2014. Out of the total on December 31, 2015, R$62,766 million were interest earning. This increase was mainly due to the increase of the interest-earning balance and the higher Selic rate in the periods, from 10.9% in the year ended December 31, 2014 to 13.8% in the year ended December 31, 2015.

 

Expenses on Financial Operations

 

The following table describes the main components of our expenses on financial operations in 2016, 2015 and 2014.

 

   Year ended December 31 
   2016   2015   2014   Variation   Variation 
   (In millions of R$)   2016 - 2015   2015 - 2014 
Money market   72,160    70,842    54,125    1.9%   30.9%
Technical provisions for pension plan and capitalization   17,790    12,557    8,987    41.7%   39.7%
Borrowings and onlending   (4,071)   30,455    10,026    (113.4%)   203.8%
Total expenses on financial operations   85,879    113,853    73,137    (24.6%)   55.7%

 

Expenses on financial operations decreased 24.6%, from R$113,853 million in the year ended December 31, 2015 to R$85,879 million in 2016, mainly due to lower expenses on borrowings and onlending, as presented in the table above.

 

In the year ended December 31, 2015, expenses on financial operations increased 55.7%, from R$73,137 million in the year ended December 31, 2014 to R$113,853 million in 2015, mainly due to increase in expenses on borrowings and onlending and money market expenses.

 

Money market expenses

 

Money market expenses recorded an increase of 1.9%, from R$70,842 million in the year ended December 31, 2015 to R$72,160 million in the year ended December 31, 2016. This increase of R$1,318 million in the year was influenced by the increase in the balance of deposits and money market expenses, in addition to the rise in the Selic rate, from 13.8% in the year ended December 31, 2015 to 14.0% in the year ended December 31, 2016.

 

Money market expenses recorded a 30.9% increase, from R$54,125 million in the year ended December 31, 2014 to R$70,842 million in the year ended December 31, 2015. This increase of R$16,717 million in the year was influenced by the higher balance of deposits and the impact of foreign exchange rate variations on liabilities denominated in or indexed to foreign currencies, in addition to the rise in the Selic rate, from 10.9% in the year ended December 31, 2014 to 13.8% in the year ended December 31, 2015.

 

Financial Expenses on Technical Provisions for Pension Plan and Capitalization

 

In the year ended December 31, 2016, financial expenses on technical provisions for pension plan and capitalization increased 41.7%, from R$12,557 million in the year ended December 31, 2015 to R$17,790 million. This increase of R$5.233 million was mainly driven by higher expenses on pension plans.

 

In the year ended December 31, 2015, financial expenses on technical provisions for pension plan and capitalization increased 39.7%, from R$8,987 million in the year ended December 31, 2014 to R$12,557 million. This increase of R$3,570 million was mainly driven by higher expenses on pension plans.

 

Expenses on Borrowings and Onlending

 

Expenses on borrowings and onlending increased from negative R$30,455 million in the year ended December 31, 2015 to positive R$4,071 million in the year ended December 31, 2016. As a result of the foreign exchange variation for the period from 01/01 to 12/31/2016, expenses on financial operations - borrowings and onlending are stated as a credit.

 

In the year ended December 31, 2015, expenses on borrowings and onlending increased 203.8%, or R$20,429 million, from R$10,026 million in the year ended December 31, 2014 to R$30,455 million in the year ended December 31, 2015, mainly driven by the impact of foreign exchange variations on borrowings and onlending denominated in or indexed to foreign currencies.

 

Income from Financial Operations before Loan Losses

 

In the year ended December 31, 2016, income from financial operations before loan losses increased 49.4%, from R$49,741 million in the year ended December 31, 2015 to R$74,334 million in the year ended December 31, 2016, mainly as a result of the events described in “— Income from Financial Operations” and “— Expenses on Financial Operations.”

 

Income from financial operations before loan losses decreased 4.1%, from R$51,887 million in the year ended December 31, 2014 to R$49,741 million in the year ended December 31, 2015, mainly as a result of the events described in “— Income from Financial Operations” and “— Expenses on Financial Operations.”

 

 42

 

 

Result of Allowance for Loan Losses

 

In the year ended December 31, 2016, result of allowance for loan losses was R$845 million or 3.8% lower than in 2015, from R$22,427 million in the year ended December 31, 2015 to R$21,582 million in the same period of 2016.

 

In the year ended December 31, 2015, result of allowance for loan losses was R$8,224 million or 57.9% higher than in 2014, from R$14,203 million in the year ended December 31, 2014 to R$22,427 million in the same period of 2015. The following table describes the main components of our result of allowance for loan losses in the years ended December 31, 2016, 2015 and 2014.

 

   Year ended December 31 
   2016   2015   2014   Variation   Variation 
   (In millions of R$)   2016 - 2015   2015 - 2014 
Expenses on allowance for loan losses   (25,325)   (27,196)   (19,252)   (6.9%)   41.3%
Income from recovery of credits written off as losses   3,743    4,769    5,049    (21.5%)   (5.5%)
Result of allowance for loan losses   (21,582)   (22,427)   (14,203)   (3.8%)   57.9%

 

Expenses for Allowance for Loan and Lease Losses

 

In the year ended December 31, 2016, expenses for allowance for loan losses decreased 6.9%, from R$27,196 million in 2015, to R$25,325 million in 2016. On December 31, 2016, allowance for loan and lease losses totaled R$37,431 million. Out of this total, R$26,991 million refer to the minimum level required by CMN Resolution No. 2,682 and R$10,440 million refer to complementary provision. In the same period, the ratio between the balance of allowance for loan and lease losses and our loan portfolio reached 7.6%, an increase of 40 basis points from December 31, 2015.

 

In the year ended December 31, 2015, expenses for allowance for loan losses increased 41.3%, from R$19,252 million in the year ended 2014 to R$27,196 million. On December 31, 2015, allowance for loan and lease losses totaled R$34,078 million. Out of this total, R$23,093 million refer to the minimum level required by CMN Resolution No. 2,682, and R$10,985 million refer to complementary provision. In the same period, the ratio between the balance of allowance for loan and lease losses and our loan portfolio reached 7.2%, an increase of 120 basis points from December 31, 2014.

 

Income from Recovery of Loans Written Off as Losses

 

Income from recovery of loans written off as losses reached R$3,743 million in the year ended December 31, 2016, down 21.5% from the same period of the previous year.

 

In the year ended December 31, 2015, income from recovery of loans written off as losses reached R$4,769 million, down 5.5% from the same period of the previous year, when it totaled R$5,049 million.

 

Income from Financial Operations

 

Our income from financial operations recorded a 93.1% increase, from R$27,314 million in the year ended December 31, 2015 to R$52,751 million in the same period of 2016. This increase was due to lower expenses on financial operations, mainly driven by foreign exchange variation.

 

In the year ended December 31, 2015, our gross income from financial operations decreased 27.5%, from R$37,684 million in the year ended December 31, 2014 to R$27,314 million in the same period of 2015. This decrease of R$10,370 million was due to a lower result of allowance for loan losses and to lower income from financial operations before loan losses.

 

Other Operating Revenues (Expenses)

 

The table below shows the main components of other operating revenues (expenses) for the years ended December 31, 2016, 2015 and 2014.

 

   Year ended December 31 
   2016   2015   2014   Variation   Variation 
   (In millions of R$)   2016 - 2015   2015 - 2014 
Banking service fees and income from bank charges   33,228    30,815    27,740    7.8%   11.1%
Results from insurance, pension plan and capitalization operations   4,032    4,168    3,834    -3.3%   8.7%
Personnel expenses   (21,420)   (18,713)   (16,443)   14.5%   13.8%
Other administrative expenses   (18,074)   (16,969)   (16,211)   6.5%   4.7%
Tax expenses   (7,978)   (5,374)   (5,087)   48.5%   5.6%
Equity in the earnings of affiliates and other investments   567    646    610    -12.3%   6.0%
Other operating revenues   805    930    557    -13.5%   67.0%
Other operating expenses   (8,074)   (8,079)   (6,555)   -0.1%   23.3%
Total other operating revenues (expenses)   (16,914)   (12,575)   (11,555)   34.5%   8.8%

 

 43

 

 

Banking Service Fees and Income from Banking Charges

 

In the year ended December 31, 2016, banking service fees and income from banking charges increased 7.8%, from R$30,815 million in the year ended December 31, 2015 to R$33,228 million.

 

Banking service fees increased 7.6%, from R$21,018 million in the year ended December 31, 2015 to R$22,607 million in the year ended December 31, 2016. This was mainly due to the increase of R$667 million, or 16.1%, in asset management revenues compared to December 31, 2015, which was driven by higher fund management fees. We also recorded a 3.7% increase, or R$368 million, in income from credit cards compared to December 31, 2015.

 

Income from banking charges increased 8.4%, from R$9,797 million in the year ended December 31, 2015 to R$10,621 million in the year ended December 31, 2016, mainly influenced by higher income from current account service packages. This increase of income from current account services was mainly driven by the offering of distinguished products and services aimed to add value to our clients’ experience with the bank.

 

In the year ended December 31, 2015, banking service fees increased 9.8%, from R$19,145 million in the year ended December 31, 2014 to R$21,018 million in the year ended December 31, 2015. This increase was mainly due to the increase of R$811 million, or 9.0%, in income from credit cards from December 31, 2014. We also recorded a 10.1% increase, or R$379 million, in asset management revenues from December 31, 2014, mainly due to the 9.7% increase in income from fund management fees, from R$3.155 million in the year ended December 31, 2014 to R$3,461 million in the year ended December 31, 2015.

 

Income from banking charges increased 14.0%, from R$8,595 million in the year ended December 31, 2014 to R$9,797 million in the year ended December 31, 2015, mainly influenced by the increase in income from current account service packages, caused by the larger volume of operations and the sale of new service packages and a higher income from annual fees and other credit card services.

 

Result from Insurance, Pension Plan and Capitalization Operations

 

Result from insurance, pension plan and capitalization operations decreased 3.3%, or R$136 million, in the year ended December 31, 2016, from R$4,168 million in the year ended December 31, 2015 to R$4,032 million in the year ended December 31, 2015, mainly driven by higher expenses on variations of technical provisions.

 

Result from insurance, pension plan and capitalization operations recorded an increase of 8.7% in the year ended December 31, 2015, from R$3,834 million in the year ended December 31, 2014 to R$4,168 million in the year ended December 31, 2015, mainly driven by higher income from premiums and contributions.

 

Personnel Expenses

 

Our personnel expenses increased 14.5%, or R$2,708 million, from R$18,713 million in the year ended December 31, 2015 to R$21,420 million in 2016. This increase was mainly due to higher expenses on labor claims and employee termination.

 

In the year ended December 31, 2015, our personnel expenses increased R$2,269 million, or 13.8%, from R$16,443 million in the year ended December 31, 2014 to R$18,713 million in the year ended in 2015. This increase was mainly due to the impact of labor union agreements executed in October 2014 and 2015, which adjusted by 8.5% and 10.0%, respectively, compensation, social benefits and charges, with a provision for the related impacts recognized from September of each year.

 

Other Administrative Expenses

 

In the year ended December 31, 2016, administrative expenses increased 6.5%, from R$16,969 million in 2015 to R$18,074 million, an increase of R$1,105 million, mainly driven by higher expenses on third-party services and facilities.

 

Administrative expenses increased 4.7%, from R$16,211 million in the year ended December 31, 2014 to R$16,969 million in the same period of 2015. This increase was mainly driven by higher expenses on financial system services, facilities and security. Additionally, expenses on advertising, promotions and publications increased from the previous year.

 

Tax Expenses

 

In the year ended December 31, 2016, our tax expenses increased 48.5%, from R$5,374 million in the year ended December 31, 2015 to R$7,978 million.

 

Tax expenses increased 5.6%, from R$5,087 million in the year ended December 31, 2014 to R$5,374 million in 2015. This increase was mainly driven by higher revenues.

 

Equity in the Earnings of Affiliates and Other Investments

 

In the year ended December 31, 2016, our equity in the earnings of affiliates and other investments decreased 12.3%, from R$646 million in 2015 to R$567 million. This decrease of R$79 million was mainly due to a lower result in interest in Porto Seguro Itaú Unibanco Participações S.A. For additional information, please refer to Note 15(a) to our annual financial statements.

 

 44

 

 

Our equity in the earnings of affiliates and other investments increased 6.0%, from R$610 million in the year ended December 31, 2014 to R$646 million in 2015. This increase of R$36 million was mainly due to the higher result in interest in Porto Seguro Itaú Unibanco Participações S.A.

 

Other Operating Revenues

 

In the year ended December 31, 2016, other operating revenues decreased 13.5%, or R$126 million, from R$930 million in 2015 to R$805 million in 2016.

 

Other operating revenues increased 67.0%, or R$373 million, de R$557 million in the year ended December 31, 2014, to R$930 million in 2015.

 

Other Operating Expenses

 

In the year ended December 31, 2016, other operating expenses decreased 0.1%, from R$8,079 million in the year ended December 31, 2015 to R$8,074 million. This decrease was mainly due to lower provisions for tax and social security contingencies for civil lawsuits.

 

Other operating expenses increased 23.3%, from R$6,555 million in the year ended December 31, 2014 to R$8,079 million in 2015, an increase of R$1,524 million, mainly due to increases in marketing expenses - credit card and provision for contingencies.

 

Operating Income

 

In the year ended December 31, 2016, our operating income increased 143.2%, or R$21.098 million, from R$14,739 million in the year ended December 31, 2015 to R$35,837 million.

 

Our operating income decreased 43.6%, from R$26.128 million in the year ended December 31, 2014 to R$14,739 million in 2015, a decrease of R$11.389 million.

 

Non-Operating Income

 

In the year ended December 31, 2016, our non-operating income went from R$1.3 million in the year ended December 31, 2015 to R$121 million in the year ended December 31, 2016.

 

Non-operating income increased from R$1,116 million in the year ended December 31, 2014 to R$1.3 million in 2015, falling R$1,115 million. In 2014, this result was mainly due to the profit in the disposal of the investment in Itaú Seguros Soluções Corporativas S.A. (ISSC).

 

Income before Taxes on Income and Profit Sharing

 

In the year ended December 31, 2016, our income before taxes on income and profit sharing increased 144.0%, from R$14,740 million in 2015 to R$35,958 million.

 

Our income before taxes on income and profit sharing decreased 45.9% in the year ended December 31, 2015, from R$27,245 million to R$14,740 million in 2015.

 

Income Tax and Social Contribution Expenses

 

The table below shows the main components of our income tax and social contribution expenses in the years ended December 31, 2016, 2015 and 2014.

 

   Year ended December 31 
   2016   2015   2014   Variation   Variation 
   (In millions of R$)   2016 - 2015   2015 - 2014 
Income before income tax and social contribution