This is the second consecutive decline in the bank's profits after taking a charge for its acquisition of Bank of America Corporation's units in Chile and Uruguay.
The bank's net income fell to 1.2 billion reais ($605.7 million), to 1.28 billion reais for the quarter, while per-share earnings fell from 1.29 reais to 1.08 reais over the same period.
Itau's main domestic competitor, Banco Bradesco, has recently posted a quarterly profit of 1.62 billion reais.
The latest figures come as the Itau focuses on making further acquisitions to increase its corporate and personal lending and expand in Latin America, with demand for credit in Brazil currently being boosted by rising household incomes and lower interest rates.
Lending in Brazil has grown every year since 1994, with 2006 seeing a growth of 21 per cent.
The bank's statement also revealed its annual profits for 2006 were 4.31 billion reais, in comparison to the 5.25 billion reais recorded for 2005.