Consolidated Financial Statements | Banco Safra S.A.
Consolidated Financial Statements for the year ended December 31, 2020
Banco Safra S.A. CNPJ 58.160.789/0001-28 Avenida Paulista, 2.100 - Bela Vista, São Paulo, SP
José Manuel da Costa Gomes Accountant – CRC nº 1SP219892/O-0
Independent Auditors’ Report
Deloitte Touche Tohmatsu Auditores Independente
(A free translation of the original report in Portuguese as published in Brazil
Consolidated Financial Statements | Banco Safra S.A.
CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT REPORT STATEMENT OF FINANCIAL POSITION______2 STATEMENT OF INCOME AND COMPREHENSIVE INCOME FOR THE PERIOD ______3 STATEMENT OF CHANGES IN EQUITY ______4 STATEMENT OF CASH FLOWS ______5
NOTES TO THE FINANCIAL STATEMENTS 1. OPERATIONS ______6 2. PRESENTATION OF THE FINANCIAL STATEMENTS ______6 3. SIGNIFICANT ACCOUNTING POLICIES ______8 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS ______5 5. CASH AND CASH EQUIVALENTS ______14 6. INTERBANK INVESTMENTS AND CENTRAL BANK COMPULSORY DEPOSITS ______14 7. OPEN MARKET INVESTMENTS AND FUNDING - GOVERNMENT SECURITIES ______15 8. FINANCIAL ASSETS ______16 9. CREDIT PORTFOLIO ______25 10. FINANCIAL LIABILITIES AND MANAGED ASSETS ______29 11. INSURANCE, REINSURANCE AND PRIVATE PENSION OPERATIONS ______34 12. OTHER FINANCIAL ASSETS AND LIABILITIES AND REVENUE, EXPENSES AND INCOME FROM OPERATIONS______39 13. OTHER ASSET, LIABILITY, AND INCOME ACCOUNTS ______41 14. CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS – TAX AND SOCIAL SECURITY ______42 15. TAXES ______43 16. PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS ______45 17. EQUITY ______46 18. RISK AND CAPITAL MANAGEMENT ______47 19. RELATED-PARTY TRANSACTIONS ______59 20. OTHER INFORMATION______60
SUMMARY AUDIT COMMITTEE REPORT ______61 INDEPENDENT AUDITOR’S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS______62
Management Report December 2020
We present the Management Report and the Financial Statements of Banco Safra S.A. and Subsidiaries (“Safra Consolidated”) for the periods ended December 31, 2020 and 2019.
Management Report | December 2020
Tribute The legacy of Mr. Joseph Safra is part of J. Safra Group’s essence and DNA. It is renewing through his sons who, since their adolescences came with him to the Bank and learned about the day-to- day administration of its business, and the timeless principles that transformed this institution into a solid and secure company that is renowned and admired.
It is present through the executives and board members, as well as in each one of more than 9,000 employees, who are inspired by, hold and are proud of the values that he ensured to transmit, and the great example that he provided through his actions.
He was a great leader and very respected inside and outside the organization. The culture developed by Mr. Joseph will continue to be a trademark of business ethics, solidity and
We note with sorrow the passing of Mr. Joseph security. Perpetuating these values is undoubtedly the best way to pay tribute and Safra, who was 82 years old, on December 10, 2020. remember him every day, in big and small things, of his teachings and how he led the many The selected facts that we included in this report companies comprising the J. Safra Group. represent some chapters of a life dedicated to his family, charity and the building and consolidation Throughout his life, Mr. Joseph loved arts and of Safra as one of the largest private banks in the was a great philanthropist. Always eager to country and which reputation transcends Brazil. support noble causes, people or organizations in need, his actions had major repercussion and “Seu José”, how he was called by those who were worldwide recognition, despite being discreet closest, was born in 1938 in Lebanon and and simple. immigrated to Brazil in the 1960s, to continue the businesses of his father, Mr. Jacob Safra, He helped and supported countless social, religious and cultural causes, such as the building building solid foundations for the Safra Group, popularly known in Brazil as Banco Safra. and improvement of Hospitals, Nurseries, Museums, and Temples of all religions. He felt a Mr. Joseph Safra became internationally strong sense of responsibility towards the recognized as one of the greatest bankers and society. He led with courage, wisdom and financial strategists of his generation, a man determination. He grew by cultivating altruism, ahead of his time, due to his strategic and commitment and excellence. entrepreneurial vision. His attention to details, Mr. Joseph leaves a legacy that will influence relentless pursuit of excellence, and care with customers and their assets are characteristics many generations and values that he ensured to that attest that he was a determined leader, transmit to his children and grandchildren. where the human aspect and consistent results lived in harmony.
2
Management Report | December 2020
Economic Scenario particularly because of Food prices. The cash transfer programs in many countries led to The Brazilian economy showed very distinct spending on basic products. Besides, the dynamics in both halves of 2020, in view of the currency rate devaluation, which reflected pandemic’s impact. The GDP for the 3Q20 weaker tax foundations and stronger global showed a robust growth of 7.7% in the aversion to risk, gave rise to a strong unseasoned quarterly change, promoted by a devaluation of the local currency. In view of the 7.6% increase in Consumption, affected by the above, the inflation for 2020 stood at 4.52%, massive cash transfers implemented by the whereas it stood at 4.31% for 2019, above the federal government as a way to offset the inflation target of 4.0%. impact of the contraction of activities in With a historic contraction of economic activity, previous quarters. As to Supply, the main and an inflation with great concentration in expansion was noted in the industrial sector Food, the Central Bank of Brazil (BCB) reduced (14.8%). In addition, the service sector recorded the country’s base rate (Selic) to 2%, the lowest an increase of 6.3%, giving the first clearer signs level in the history of inflation target system. In of recovery. For the 4Q20, we expect a 2.9% addition, the monetary institution used a new GDP growth, as the economy reopened, with monetary policy tool, the forward guidance, in flexibilization of travel restriction measures. which it committed to keep the Selic rate stable Therefore, the decisions related to control of for a long period, under certain conditions. In pandemic propagation played a fundamental summary, the monetary policy has largely role in the economic scenario in 2020. stimulated active growth in 2020. The uncertainties over the pandemic In relation to tax, the consolidated public sector developments also led to a significant showed a primary deficit of 8.9% of GDP in deterioration in the labor market. The November 2020, equivalent to R$ 654.6 billion. unemployment rate stood at 14.6% in October This result reflects the payments of R$ 293.1 2020, above the rate posted in the end of 2019 billion through Emergency Aid, the cash transfer (11.6%). It is worth noting that such increase program. So the gross debt-to-GDP shall reach was held back by the lower participation of 89% in the end of 2020, a strong increase as workers, who felt discouraged to seek compared to 75.8% of GDP in 2019. employment, due to the poor employment prospects, or even due to the travel restrictions. As to exchange rate, real reached R$ 5.20/US$ In this sense, the unemployment rate could at the end of 2020, a weaker level as compared have reached even higher levels. to the end of 2019, of R$ 4.03/US$. Two reasons caused this movement: (1) the global In the meantime, the credit market showed risk aversion increase, generating strong dollar 15.5% growth until December 2020, well above outflows, and (2) the BCB regulation of the the 6.5% recorded in 2019. The policies foreign exchange market, aimed at eliminating implemented by the federal government were the overhedge trades, which affected the the main reason for this expansion, as they futures curve of currencies, and, consequently, included reduction in compulsory deposits, loan the spot prices. The foundations continue to guarantees, interest rate subsidies, and point to a real with higher price, however, the reduction in the country’s base rate. Therefore, uncertainties over the local tax dynamics exert even in a harsh environment for economic pressure in the opposite direction, keeping the activities, the credit market showed robust currency devalued. expansion. It is worthy of note that grants of real estate mortgage did not feel any impact In the international scenario, the pandemic was from the pandemic. Meanwhile, in the Business also the main theme, plunging most economies (PJ) segment, we highlight the increase in grants to into deep recession. The response of for Working Capital, reflecting the movement of governments was to inject more liquidity by businesses to seek short-term liquidity rather reducing interest rates to levels historically low, than new investments. if not negative, and direct cash transfer As to inflation, the sharp drop noted in the programs to families. middle of the year, when the pandemic started With this, the recovery has been strong and to exert impact, was more than offset by the general, but will depend on the success of strong increase in the following months,
Management Report | December 2020
vaccines to avoid new contamination waves. Another highlight was the election of Joe Biden to the US presidency, with the promise to reduce noise in international relations and new spending programs to stimulate the economy.
Covid 19 – An atypical year Overview The preventive measures adopted in the beginning of the pandemic and the actions On March 11, 2020, the World Health aimed at the safe reopening include the sorting Organization (WHO) declared a pandemic as a of employees and preventive leave to those result of the outbreak of Covid-19. Brazil has with symptoms associated with Covid-19; adopted social isolation measures telemedicine through app; constant recommended by the WHO, which resulted in communication with recommendations on the suspension of economic activities protection and care to avoid contamination; considered non-essential businesses. To face flexibilization of clock-in and limiting the these challenges, governments from all over the elevator occupancy to six people and meeting world have adopted measures to maintain room occupancy to a maximum of four people; income, business and employment as much as redesign of the layout, increasing the distance possible. between work stations; investment in sanitizing In Brazil, the situation was not different. In the equipment, such as air conditioning and filters; scope of the monetary and fiscal authority, with and stricter work environment cleaning emphasis on the measures that directly affected protocols. the financial institutions, we highlight, among Throughout the year 2020, most of our the main ones, the actions to make viable the workforce worked from home. We ended the deferral of credit operations without increasing year with only 40% of our personnel working in allowance levels; temporary relief to capital the office, thus guaranteeing greater distancing needs; and provision of liquidity to the financial between people in departments, and allowing institutions by BACEN. our employees to look after their children who were out of school, or elderly, thus decreasing Even though two vaccines have been made the risk of contagion. Those considered to be in available in Brazil, it is not yet clear about the the higher risk group worked from home during pace of the immunization of the population and the entire year. the consequent pandemic control. In view of the above, Safra’s management continues to Besides being a preventive measure, it also monitor the developments of this crisis, required us to quickly implement a new and evaluating the possible impacts and adopting more productive work reality, with access to the measures required to minimize the adverse safe and efficient virtual meeting systems, effects on our businesses, employees, guaranteeing the business integration and customers, and the society. continuity.
Our Customers Our employees and business continuity Safra maintained customer services throughout We have implemented a robust contingency this period, even in physical branches, with the and business continuity plan, which ensures the required protection measures. Our electronic maintenance of our activities without channels are available to meet your needs and compromising the safety and health of our provide the necessary clarifications. We advise employees.
Management Report | December 2020
our customers to have preference for electronic Impacts channels. Banco Safra’s financial statements for the year Safra has sponsored lives with experts from ended December 31, 2020 have been impacted many areas, such as physicians, financial by market volatility and the increase in credit experts, business executives, government risk caused by the dissemination of Covid-19 authorities. In this moment, we understand that and the required measures to combat it. There reliable information from those who master was a small increase in credit risk, which resulted in the reassessment of the ratings of their fields is fundamental. specific customers and segments. Safra has work with agility to serve all Conservatively, we have maintained a 1 customers, aiming to contribute towards the comfortable coverage ratio of problem assets equalization of their cash flows. As of December of 313.8% as at December 31, 2020, as compared to 322.5% in the same period of the 31, 2020 the bank had granted 48,366 requests previous year. for term extensions, reaching an amount of R$ 396 million, of which 46,280 for individuals, in We have also maintained a solid capital base, the amount of R$ 67 million, and 2,086 for with the Basel ratio of 14.6% as at December business customers, in the amount of R$ 329 31, 2020, and increment to liquidity during the million, stressing that these customers are year of 2020, reaching the amount of R$ 47.2 billion, extremely important actions in situations substantially in compliant with their obligations of high uncertainty. and meet all conditions to maintain their ratings, pursuant to the provisions of CMN Resolution 4,803/20. In this same sense, we provided a significant amount of funds through PEAC-FGI, as further detailed in the “Expanded Credit Portfolio” section.
Our Society
In this critical moment for the Brazilian society, the Bank understands that is fundamental to provide support to handle the crisis caused by Covid-19. Through the Foundation and other conglomerate companies, R$ 37 million were donated to initiatives that support hospitals and philanthropic organizations that reach the neediest population. These funds enabled the creation of over 80 ICU hospital beds, more than 30 ward beds, millions of PPE items, approximately 40 thousand food baskets, and much more. Aware of the present moment’s needs, in October 2020 Safra donated an additional R$ 5 million to help expanding the production capacity of the vaccine against Covid-19, which has been produced by Instituto Butantan.
1 Problem Assets pursuant to CMN Res. 4,557 = transactions over 90 days past due; renegotiated transactions with indication of credit impairment; and all transactions with business clients which are in judicial recovery or declared bankruptcy.
Management Report | December 2020
Performance Key Indicators The financial and operating information below are shown based on consolidated figures for the periods ended December 31, 2020 and 2019.
R$ million (unless otherwise stated) Dec-20 Dec-19 Profitability Net Income of the Parent Company 2,033 2,211 Equity of Parent Company 13,678 11,884 Return on Average Equity - Annualized (%) 16.0% 18.1% Return on Average Assets - Annualized (%) 1.0% 1.2 % Performance Indicators (%) Basel Ratio 14.6% 13.9% Credit Ratios (%) Non-performing Loans (over 90 days) 0.8% 0.6% Coverage Ratio (Balance of ALL/Transactions over 90 days 432.9% 544.9% past due) Ratio of Problem Assets (1) 1.2 % 1.2 % Coverage Ratio for Problem Assets (1) 313.8% 322.5% NIM (2) after ALL 2.9% 3.9% Balance of ALL/Credit Portfolio 3.3% 3.2% Statement of Financial Position Total Assets 238,478 190,784 Liquidity (3) 47,208 22,902 Expanded credit portfolio 127,214 111,070 Business 97,720 83,970 Individual and Financial 29,494 27,100 Funding Net of Compulsory 148,537 108,620 Customers 110,367 83,594 Market 38,170 25,026 Credit Portfolio (4) / Funding Ratio (%) 73.4% 86.4% Raised and Managed Assets 312,213 255,698 Funds Raised and Managed 281,540 226,336 Repurchase Agreements, Foreign exchange and Tax collection 30,673 29,362 Material Data Conglomerate employees (individuals) 9,308 9,190 Number of Branches and Points of Banking Services in the 138 132 Country (units) (1) Problem Assets pursuant to CMN Res. 4,557 = transactions over 90 days past due; renegotiated transactions with indication of credit impairment; and all transactions with business clients which are in judicial recovery or declared bankruptcy. (2) NIM = financial margin after ALL / average interest-bearing assets. (3) Liquidity = cash and cash equivalents + unrestricted government and corporate securities (own portfolio) – collection of taxes and similar. (4) Does not include guarantees and sureties.
Management Report | December 2020
For better analysis, we present below the statement of income reclassified for the effects of the foreign exchange gains or losses on investments abroad, according to Note 18.c.(II) and by the non-recurring results earned in the years, according to Note 2.a.
Reclassified statement of income (in millions of reais) 2020 2019 Gross income on financial intermediation before credit risk 6,010 6,252 Result with credit risk (851) (778) Net income on financial intermediation 5,159 5,474 Other income from operations 2,415 2,227 Tax expenses of operations (614) (574) Net income from operations 6,960 7,127 Other operating income/(expenses) (4,480) (4,110) Income before Taxes 2,480 3,017 Income Tax and Social Contribution (447) (806) Net Income 2,033 2,211
Result Highlights In the end of 2020, Banco Safra’s net income amounted to R$ 2.0 billion, resulting in an annualized profitability of 16.0%. Total assets amounted to R$ 238.5 billion as at December 31, 2020 and equity reached R$ 13.7 billion. With growth of 14.5% in its expanded credit portfolio, and 36.7% in funding net of compulsory, Safra ended the period with a solid liquidity position amounting to R$ 47.2 billion and Basel ratio at 14.6%. The Bank has been making progresses in all businesses, which enable a greater diversification of its revenues and broadening of its customer base, comprising both business and individuals, passing the milestone of two million customers. One of the points that explains the performance of the Bank’s results is its credibility, associated with the security given to its customers, by building long-term relationships, focused on the commitment to develop appropriate and efficient products and services to our customers, assisting them in the management of their assets.
Assets, Liabilities and Investment Management
Extended cash and cash equivalents The extended cash and cash equivalents include cash and cash equivalents, open market investments (own portfolio) with maximum term of 90 days, unrestricted government and corporate securities (own portfolio), which as at December 31, 2020 totaled R$ 47.2 billion, equivalent to 3.5 times equity.
Expanded Credit Portfolio credit grant, without compromising safety, and the building of relationship with customers and The expanded credit portfolio, which includes points-of-sales. guarantees, sureties and other instruments with credit risk, totaled R$ 127.2 billion as at As at December 31, 2020 the expanded credit December 31, 2020, up by 14.5% on the portfolio to businesses reached R$ 97.7 billion, portfolio as at December 31, 2019. of which we highlight the expansion of 8.2% in the segments of businesses with annual The payroll advance loan and vehicle financing revenue above R$ 500 million. In the segment of businesses totaled R$ 9.2 billion and R$ 15.6 businesses with annual revenue below R$ 500 billion, respectively, as at December 31, 2020. million, a 51.4% growth in the credit portfolio Our performance is sustained by the agility in was noted as compared to December 31, 2019,
Management Report | December 2020
with highlight to loans granted by Banco Safra in ratified the Bank’s efficient risk management the approximate amount of R$ 10 billion, framework. through the Credit Access Emergency Program (PEAC-FGI), which aided more than 7,000 The non-performing loans ratio (transactions businesses to face the economic crisis worsened over 90 days past due) stood at 0.8% of the by the pandemic. Safra was the first Bank to expanded credit portfolio, 0.1% being related to reach the grant limit set by BNDES to aid businesses and 2.5% to individuals and financial businesses. In another modality, the PEAC companies. Another important ratio to measure Maquininhas, a credit facility with guarantee of delinquency is the ratio of problem assets, receivables from sales using credit card in which stood at 1.2% as at December 31, 2020. machines operated by Safrapay and funding by BNDES, the bank led the market aiding Besides, the Bank maintained its coverage levels approximately 9,000 entrepreneurs, with R$ above the main private players, reaching 295 million. 432.9% for transactions over 90 days past due as at December 31, 2020, 313.8% for problem According to the rating agencies, Safra is a assets and 97.7% for renegotiated credit benchmark for credit risk management, from transactions. the way it grants credit, with committees for Another indicator of the credit portfolio quality each customer segment type, supported by a is the total transactions rated AA, A and B, the wide range of information on the borrower, to best risk ratings according to the effective its proactive approach to solve occasional regulation, which total 94.3% of the total credit problems, whether by assisting customers in portfolio as at December 31, 2020. In relation to their restructuring, or agility in repossession of the allowance for loan losses, in the expanded guarantees, in the cases the latter is justified. All perspective, in line with its conservative of these activities are supported by frameworks positioning, the Bank records allowances in that enable monitoring, almost in real time, the addition to those required by the regulation current status of customers and guarantees, authority, totaling R$ 1.4 billion in the end of thus making it possible to anticipate possible December 2020, which, added to the minimum credit problems. required of R$ 2.6 billion, resulted in a total allowance for loan losses of R$ 4.0 billion, It should be highlighted the robust credit quality equivalent to 3.2% of the expanded credit indicators in the end of December 2020, which portfolio.
Credit portfolio by rating Coverage Ratio and Non-performing Loans Ratio
(Credit portfolio and other credit risk instruments) (Transactions over 90 days past due) Dec-20
2000,0%
0,7% 0,6% 1,5% 1800,0% 0,8% 0,4% 0,5% 94.3% 1600,0% 0,5%
1400,0%
-0,5% 1200,0% 1111,2% 72,1% 849,4% 1000,0% 726,3% -1,5% 800,0% 544,9%
432,9% -2,5% 600,0%
400,0% 22,2% -3,5% 200,0%
2,8% 2,9% 0,0% -4,5% Dec 16 Dec 17 Dec 18 Dec 19 Dec 20 AA-A B C D-H Coverage Ratio NPL (over 90 days)
Management Report | December 2020
Investment management Infrastructure Debenture, Debentures, Promissory Notes, Bonds and Investment fund The institution continued to focus on keeping quotas operations, totaling more than R$ 60 steady funding, by either diversifying fund billion. sources or elongating operations, guaranteeing a consistent liquidity management and greater In Fixed Income, we highlight the Safra’s security to customers, a point recognized by participation as coordinator in the offerings of rating agencies as the institution’s credit risk Rumos’ Debenture, Raízen’s CRA, BRF’s CRA, reduction strategy, or by promoting the solid Banco Votorantim’s Bonds, Gasmig’s expansion of its customer base, comprising both Debentures, B3’s Debentures and CRI, and high net worth and Private Banking individual Eletrosul’s Debentures. and business customers, which strengthens In 2020, Safra acted as coordinator in the Initial Banco Safra’s position as one of the most Public Offerings (IPOs) of Aura Minerals, Melnick traditional investment establishments in the Even, Grupo Mateus, and Rede D’Or. In the world. same year, it has also participated as Raised and managed assets reached R$ 312.2 coordinator in the Follow-Ons of Via Varejo, billion as at December 31, 2020. Of this amount, Lojas Americanas and Rumo. R$ 121.6 billion refer to investment funds. Still Regarding Mergers & Acquisitions, it is worthy in this context, funding from customers totaled of note that in 2020 Safra acted as the exclusive R$ 121.6 billion in the end of December 2020. advisor on the sale of Grupo Leforte to Dasa, in the sale of 43 stores of the Grupo Pão de Açúcar In view of the uncertainties caused by the to the TRX manager, in the acquisition of Ouro pandemic, it is worthy of note the Group’s Preto by 3R and in the acquisition of Vindi by strong performance in the Investment Banking Locaweb. segment, mainly in the activities of Capital Markets (Fixed Income and Equities) and It is also of great relevance that not only it Merger & Acquisitions (M&A), operating as the advised on the launch of Real Estate Investment mechanism of that provides financing to Funds (FIIs) of Autonomy, VBI, Mogno, Pátria, J. businesses, which generated an increment to Safra and BlueMacaw, but also on those of service revenue. During the year of 2020, the Infrastructure Equity Investment Funds (FIP-IE) main highlights in the Capital Markets area were of BTG Pactual and Perfin. the participation in the structuring and distribution of listed Stocks, CRIs, CRAs,
Ratings
Banco Safra continues to have the best possible ratings among the financial institutions in Brazil, which are limited to the Sovereign rating, by both S&P Global and Moody’s.
It is also worth noting the rating of the asset manager, by Moody’s of the MQ1 investment manager quality assessment to Safra Asset Management and Banco J. Safra (asset management division). The MQ1 assessments reflect the view that both managers have excellent management characteristics.
Moody’s S&P Global
Global Scale – Local Currency – Long Term Ba2 BB-
Global Scale – Foreign Currency – Long Term Ba2 BB-
National Scale - Brazil – Long Term Aa1.br brAAA
Outlook Stable Stable
Latest report Dec - 20 Oct - 20
Management Report | December 2020
Risk and Capital management in all hierarchical levels, including the forward-looking capital plan for a minimum Management period of three years. In addition, Safra participates, together with the other Banco Safra performs risk management by using outstanding financial institutions, in the Bottom- the methodology of three lines of defense and Up Stress Test (TEBU) of the Central Bank of has a set of procedures, aligned with the best Brazil. The objective of the above-mentioned market practices, which ensure the fulfillment processes is to bring greater solidity and of legal and regulatory provisions, and internal security to the National Financial System, policies. besides anticipating possible adjustments In the financial statements (note 18) a summary necessary to maintain the proper functioning of of Safra’s risk management practices is the market. presented. The information on the Pillar III In 2020, the bank published an extensive report Report is posted on Banco Safra’s website detailing the socio-environmental management (www.safra.com.br) and also on BACEN’s open guidelines and practices followed by the Banco data portal, and comprise risk and capital Safra, with a series of analyses, monitoring and management data, established by BACEN evaluations about business operations. The Circular 3,930/2019 and Circular Letter document also presents the actions taken in 3,936/2019. asset management, in the society and with CMN Resolution 4,553/2017 divided the employees, as well as the social and financial institutions into five segments, environmental risk indicators. according to asset level and relevance of international operations, Safra being classified as S2. Pursuant to CMN Resolution 4,557/2017, Governance Banco Safra carries out the integrated risk management, which involves the Banco Safra has a strong corporate governance interrelationship among finance, business, and structure, focused on joint decisions and risk and capital management processes. supported by strict internal controls. In its governance, it is worth noting that the The Board of Directors is the most senior Superior Risk Committee, comprising three governing body that manages the businesses, members, is aimed at assisting the Board of being responsible for setting out corporate Directors in fulfilling its responsibilities related guidelines, challenges and objectives, besides to the integrated risk and capital management. monitoring and evaluating its results. It is In addition, the Chief Risk Officer (CRO), who formed by a minimum of three (3) and a reports to the Superior Risk Committee and maximum of 11 (eleven) members, elected at Board of Directors, is responsible for the the Shareholders’ Meeting, for a two-year term integrated risk management. Safra’s risk of office, reelection being possible. management framework also includes a formal The statutory committees perform their Risk Appetite Statement (RAS) that activities based on the provisions of their contemplates the main indicators, metrics and internal rules and the bylaws. principles that guide the carry out of the The Superior Risk Committee’s aim is to assist institution’s businesses and risk control. The the Board of Directors in fulfilling its RAS is periodically monitored by the executive responsibilities related to the integrated risk officers and the Superior Risk Committee and and capital management. approved by the Board of Directors. The Audit Committee reports to the Board of Banco Safra annually undertakes the Internal Directors and its aim is to monitor and Capital Adequacy Assessment Process (ICAAP). strengthen the internal and external audit This process, regulated by the Central Bank of activities. Brazil, involves the evaluation of all procedures and processes related to risk and capital
Management Report | December 2020
The Remuneration Committee, which is aimed digital transformation, increasingly integrating at assisting the Board of Directors in conducting the financial institutions into the day-to-day the key management personnel remuneration lives of its customers, and providing new policy of the Company, and operates as a sole experiences of interactivity and smart organizational component in Safra Financial consumption, the Bank has invested to bring to Conglomerate, of which it is the leading the channel several self-service solutions. This institution. initiative, which has already been undertaking in recent years, has accelerated even more in Besides the structure of Statutory Committees, 2020, increasing the points of contact and we have delegated committees that provide customer service. These solutions range from support to the institution’s operations, of which the most traditional ones involving service and we highlight those of Capital Management, investment products to the most structured Market Risk, Corporate Governance and Large ones such as the offering, estimate, and taking Risks, among others. out of loan and financing products. The diligence that Safra uses in governance, . AgZero – As part of this transformation, we combined with the “eye of the master” with have launched AgZero, a new bank, completely ethics and respect values, which have been digital, which allowed us to reach a new profile handed down from generation to generation, is of customers, who want to solve everything one of the determining factors to guarantee with the palms of their hands, with agility and Banco Safra’s solidity and security, and its long- good credit and investment products, but who term relationship with customers. values the solidity and security offered by Banco Safra, because it provides much more guarantee and comfort that their money will be Strategic Initiatives well managed.
We began 2020 operating in a new . Digital Account – To rapidly adjust to the new organizational model, implemented in the last situation of distancing during the pandemic, quarter of 2019, which was able to achieve while continuing to serve our high net worth impressive results, even under the adverse and Private customers with quality, Banco Safra scenario arising from the pandemic. has built a digital platform that allows to access It was possible, for example, to make changes to all functionalities of their accounts through the the business and Safrapay customer service App or Internet Banking. The managers actually model. This change, which involved many steps became experts in assisting customers in in the business journey, led to a growth in making decisions on the best way to take care businesses and an increase in getting new of their investments based on the moment of customers and retaining existent customers in life of each individual. 2020. Regarding Business customers, our . Increase in the commercial staff - Despite of customer base grew 19%, whereas in Safrapay the digitalization, Safra is still a bank that is we increased the volume of installed equipment concerned with the relationship with its by 280% as compared to the same period of customers. So, going against the trend followed 2019. by its competitors, it has increased its sales . The scope of Safrapay’s operations was also force through programs for development of a widened. Not only did segments as franchises new profile of professionals who are even more and partnerships become more relevant, but prepared to act and support our customers in also the digital and e-commerce segments this new “digital” reality that we are living in. established themselves, and the brand is now We have hired 530 managers by the Top launching new solutions for small and medium- Advisors program, which develops professionals sized entrepreneurs. from other areas to become account managers, or experts, providing on-hands and theory . Digital transformation - With the conviction training so that they provide differentials in that the bank of the future will be based on Individual Banking customer service.
Management Report | December 2020 have hired 530 managers by the Top Advisors companies. Operating in the markets of Merger program, which develops professionals from & Acquisitions (M&A), stock offerings (IPO and other areas to become account managers, or Follow-ons), FII, FIP-IE and debt instrument experts, providing on-hands and theory training offerings, Safra’s Investment Banking is on the so that they provide differentials in Individual path to consolidate its position among the Banking customer service. market leaders, by always carefully choosing partners and making secure structuring of For the Private segment was launched the transactions. program Top Banker to employ youths with potential to become top notch bankers. They will . Digital Financing - Complete reformulation of undergo one-year training in investments and the processes involving the offering, approval, portfolio management so that they become the formalization and payment of vehicle and payroll best bankers in the market. advance loans, guaranteeing greater agility in the purchase of such products. This revision will also In the meantime, in business customer service enable that the confirmation of the transaction we launched a similar program, the Safra Top by the customer becomes stricter and fraud risk Business, which also aims to train the new decreases, for example, through the use of business and organization managers with biometry in credit application. differentiated competencies to meet new demands from businesses and organizations. . Payroll Credit Card ( Cartão Consignado ) – Launched in January 2021, it is another option of . Launch of Safra Invest – New platform targeted product targeted at INSS retirees and at Independent Investment Agents. This is a pensioners. The card allows the 100% digital business model that enables the institution to formalization, has zero annual fees and minimum broaden its operations in the investment bill amount charged to the insured benefit. segment. The differential that we offer is the curatorial work of offices, which are able to provide the same service level that Banco Safra offers to its customers. Safra values first and ESG (Enviromental, Social foremost the quality of engaged offices, so it sets and Governance) a very high recruiting standard that allows them to receive the seal of Safra’s expert. Safra’s concern with the society and its future naturally involves the careful monitoring of three Besides, for end customer security, the accounts areas – environment, social and governance – are always opened at Banco Safra, which will the ESG, which happily started to dominate guarantee again greater security for the amount relationships so that, more than an acronym, it invested. represents behavior changes across the chain. . Investment Bank – Increase in the team and Safra has long been developing numerous greater synergy with the team of commercial actions towards, observing everything around it managers in the Investment Banking business and adopting best practices, always considering customer segment, which uses the J. Safra a model of operation for a more sustainable and Group’s experience to support the strategic fair world. operations targeted at medium-sized and large
Safra once more won the Finanças Mais award, given by Estadão newspaper in partnership with Austin Rating consulting firm. In the Insurance, Life and Pension category, it ranked second, through the company Safra Vida e Previdência.
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Management Report | December 2020
Social Responsibility employees, among others. It is worth noting the differential of our medical service, with a clinic Safra, holding onto the values fostered by Mr. with professionals of the Albert Einstein Joseph Safra, contributes to the social Hospital, and superior quality service to all development in many areas, whether focused employees, regardless of the position they on our employees or by supporting projects of occupy. institutions that are renowned for their welfare The remuneration of personnel, plus charges activities, health promotion, support to culture, and benefits, and not considering the education, and sports. We also carry out termination and additional payroll expenses, outreach activities through many social totaled R$ 2.8 billion in 2020, the social benefits organizations such as Instituto Vicky e Joseph provided to employees and their dependents Safra, Beit Yossef Congregation, Beit Yaacov having reached R$ 234.2 million. School, Joseph Safra Philanthropic Foundation and J. Safra Cultural Institute. In addition, we highlight J. Safra Academy, our corporate education platform targeted at over 9,000 employees and business partners, such as the Independent Investment Agents, Corbans Human Resources and business representatives, providing opportunities to access many contents, which In the end of 2020, Safra had 9,308 employees, will enable them to improve their skills and who have high quality medical and dental care, promote career development through educational support via academic sponsorship, education, with potential to transform people’s daycare, food basket, access to cultural and lives. social activities promoted by the association of
Acknowledgements
The management of Banco Safra thanks its customers for their trust, preference and loyalty, and the employees for their efforts and dedication, which have enabled the achieved results.
Approved by the Board of Directors.
São Paulo, January 28, 2021.
Consolidated Financial Statements | Banco Safra S.A.
STATEMENT OF FINANCIAL POSITION - NOTE 2(a) ALL AMOUNTS IN THOUSANDS OF REAIS
CONSOLIDATED CONSOLIDATED ASSETS Notes 12.31.2020 12.31.2019 LIABILITIES Notes 12.31.2020 12.31.2019
Cash 3(a) and 5 1,504,624 1,312,970 Financial liabilities 3(b-I and II) and 10 159,965,664 119,981,415 Funding 130,966,493 97,661,107 Interbank investments and Central Bank Borrowings and onlending 16,554,389 12,524,348 compulsory deposits 3(b) and 6 18,614,238 19,059,650 Financing funds 12,444,782 9,795,960 Liabilities for marketable securities abroad 2,274,175 1,722,598 Financial assets 50,478,729 23,175,896 Subordinated debt 10,170,607 8,073,362 Marketable securities 3(b-I and II) and 8(a) 46,900,659 21,432,590 Derivative financial instruments 3(b-III) and 8(b) 3,578,070 1,743,306 Derivative financial instruments 3(b-III) and 8(b) 3,638,171 1,705,766
Investments linked to open market operations - 3(b-I and II) and 7(a) 29,791,141 28,472,607 Open market funding - Government securities 3(b-I and II) and 7(b) 29,706,335 28,208,651
Insurance, reinsurance and private pension 3(g) and 11(a) 20,657,530 18,519,543 Insurance and private pension operations 3(g) and 11(a) 20,422,731 18,389,590
Credit portfolio 3(c) and 9 105,765,390 90,668,515 Credit portfolio 109,530,248 93,796,391 (Allowance for credit risks) (3,764,858) (3,127,876)
Other financial assets 12(a) 5,844,257 5,535,630 Other financial liabilities 12(a) 6,620,898 6,389,575
Tax and contingent assets 3(h) and 13(a) 4,897,455 3,147,385 Tax liabilities and provisions for contingent liabilities 3(h) and 13(a) 3,253,700 3,169,875
Other assets 13(b) 142,993 116,423 Other liabilities 13(b) 1,192,384 1,055,125
Property and equipment and intangible assets 3(e) and 16 781,437 775,753 CONSOLIDATED EQUITY 17 13,677,911 11,884,375
TOTAL ASSETS 238,477,794 190,784,372 TOTAL LIABILITIES 238,477,794 190,784,372
The accompanying notes are an integral part of these financial statements.
2 Consolidated Financial Statements | Banco Safra S.A.
STATEMENT OF INCOME FOR THE PERIODS ENDED DECEMBER 31 - NOTE 2(a) ALL AMOUNTS IN THOUSANDS OF REAIS CONSOLIDATED Notes 2020 2019
INCOME FROM FINANCIAL INTERMEDIATION 12(b-I) 12,281,351 14,664,838 Expanded credit portfolio operations 9,718,019 10,164,858 Investments – interbank investments and compulsory deposits 578,363 1,327,550 Investments linked to open market funding 750,981 1,768,620 Financial assets 1,220,437 1,389,956 Other finance income 13,551 13,854
EXPENSES OF FINANCIAL INTERMEDIATION 12(b-II) (5,559,260) (8,606,775) Transactions with financial liabilities (4,279,200) (6,384,702) Open market funding operations – Government securities (1,070,113) (2,066,458) Other finance expenses 14(c) (209,947) (155,615)
INCOME FROM FINANCIAL INSTRUMENTS, NET 12(b-III) and 18(c-II(2)) (1,516,350) 72,090
FINANCE INCOME FROM INSURANCE AND PRIVATE PENSION OPERATIONS 3(g) and 11(e) 16,079 17,786
GROSS INCOME FROM FINANCIAL INTERMEDIATION BEFORE CREDIT RISK 5,221,820 6,147,939
INCOME (EXPENSE) FROM CREDIT RISK 3(c) (1,396,671) (777,720) Expenses of allowance for credit risks 9(a-III) (1,753,587) (978,305) Income from recovery of credits written-off as loss 9(d) 356,916 200,585
NET INCOME FROM FINANCIAL INTERMEDIATION 3,825,149 5,370,219
OTHER INCOME FROM OPERATIONS 2,415,293 2,226,597 Revenue from service, bank fees and foreign exchange transactions 12(b-IV) 2,133,643 1,947,731 Insurance, reinsurance and private pension operations 3(g) and 12(b-V) 281,650 278,866
TAX EXPENSES OF OPERATIONS 3(j), 15(a-II) and 18(c-II(2)) (534,221) (562,569)
NET INCOME FROM OPERATIONS 18(c-II(2)) 5,706,221 7,034,247
OTHER OPERATING INCOME (EXPENSES) (4,600,143) (4,445,821) Personnel expenses 13(c) (3,044,789) (2,898,589) Administrative expenses 13(d) (1,188,931) (1,142,239) Other operating income (expenses) 14(c) (366,423) (404,993)
NET INCOME BEFORE TAXES 1,106,078 2,588,426
INCOME TAX AND SOCIAL CONTRIBUTION 3(j), 15(a-I) and 18(c-II(2)) 927,377 (377,225) Current tax (624,444) (990,986) Deferred tax 1,551,821 613,761
NET INCOME 2,033,455 2,211,201
Basic and diluted earnings per share - Number of shares 15,300 (15,300 at 12.31.2019) 17(a) 132.91 144.52
STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIODS ENDED DECEMBER 31 ALL AMOUNTS IN THOUSANDS CONSOLIDATED Notes 2020 2019 NET INCOME 2,033,455 2,211,201
Available-for-sale financial assets 17(d) 17,036 (3,880) Net change in unrealized gains / (losses) 35,791 30,712 Change in fair value in the period 71,552 46,876 Tax effect (35,761) (16,164) Realized gains transferred to income for the period (18,755) (34,592) Gain/(loss) on sale of securities (37,491) (52,798) Tax effect 18,736 18,206
COMPREHENSIVE INCOME 2,050,491 2,207,321 Comprehensive income - Basic and diluted earnings per share - Number of shares: 15,300 (15,300 at 12.31.2019) 17(a) 134.02 144.27
The accompanying notes are an integral part of these financial statements.
3 Consolidated Financial Statements | Banco Safra S.A.
STATEMENT OF CHANGES IN EQUITY FOR THE PERIODS ENDED - NOTE 17 ALL AMOUNTS IN THOUSANDS OF REAIS
Paid-up Revenue Carrying value Retained capital reserves adjustment earnings Total
AT JANUARY 1, 2019 10,716,042 1,069,185 6,433 - 11,791,660
Capital increase 757,479 (757,479) - - - Carrying value adjustments - Available-for-sale financial assets - - (3,880) - (3,880) Net income for the period - - - 2,211,201 2,211,201 Allocation: Legal reserve - 110,560 - (110,560) - Special reserve - 282,563 - (282,563) - Interest on capital - - - (729,606) (729,606) Dividends - (296,528) - (1,088,472) (1,385,000) AT DECEMBER 31, 2019 11,473,521 408,301 2,553 - 11,884,375
AT JANUARY 1, 2020 11,473,521 408,301 2,553 - 11,884,375
Carrying value adjustments - Available-for-sale financial assets - - 17,036 - 17,036 Net income for the period - - - 2,033,455 2,033,455 Allocation: Legal reserve - 101,673 - (101,673) - Special reserve - 1,352,793 - (1,352,793) - Interest on capital 322,034 - - (578,989) (256,955) AT DECEMBER 31, 2020 11,795,555 1,862,767 19,589 - 13,677,911
The accompanying notes are an integral part of these financial statements.
4 Consolidated Financial Statements | Banco Safra S.A.
STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED DECEMBER 31 - NOTE 3(a) ALL AMOUNTS IN THOUSANDS OF REAIS CONSOLIDATED NOTES 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES ADJUSTED NET INCOME 1,563,567 2,967,938 Net income for the periods 2,033,455 2,211,201 Adjustments to net income: Depreciation, amortization and impairment 16(b) 236,205 152,283 Allowance for credit risk 9(a-III) 711,528 341,743 Provisions for contingent liabilities 14(c) 187,443 294,799 Fair value adjustments of financial instruments – Not Realized 12(b-III) (216,967) 185,801 Finance expenses on financing liabilities 10(b-II) 315,896 371,428 Supplementary Coverage Reserve (PCC) and Reserve for Related Expenses (PDR) 11(d-II) 3,488 5,652 Provision for current and deferred income taxes 15(a-I) (927,377) 377,225 Taxes paid (780,104) (972,194) Current (694,204) (881,841) Tax and social security contingent liabilities and legal obligations 14(c) (27,699) (34,502) Special Tax Regularization Program - PERT 13(a) (58,201) (55,851)
CHANGES IN ASSETS AND LIABILITIES BY OPERATING ACTIVITIES (1,574,903) 873,952
NET INVESTMENTS (35,716,788) (2,980,368) In interbank investments 1,700,586 10,227,702 In open market investments and funding - Government securities (assets/liabilities) 440,716 (945,242) In financial assets (24,933,580) (5,717,636) Marketable securities (25,092,874) (6,022,270) Derivative financial instruments (assets/liabilities) 159,294 304,634 In expanded credit portfolio (12,671,788) (6,614,291) In other financial assets and liabilities (252,722) 69,099
NET FUNDING 34,271,087 3,524,874 In financial liabilities - Net 34,379,421 3,565,109 Funding and Central Bank compulsory deposits 32,216,793 4,993,321 Borrowings and onlending 2,162,628 (1,428,212) In insurance, reinsurance and private pension operations (assets/liabilities) (108,334) (40,235)
OTHER ASSETS AND LIABILITIES - NET (129,202) 329,446
NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES (11,336) 3,841,890
CASH FLOWS FROM INVESTING ACTIVITIES (Acquisition) of property and equipment in use 16(b) (159,997) (353,437) Disposal of property and equipment in use 16(b) 14,563 8,052 (Investment) in intangible assets 16(b) (97,573) (68,272)
NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES (243,007) (413,657)
CASH FLOWS FROM FINANCING ACTIVITIES FINANCING FUNDS - THIRD-PARTIES 606,723 (426,423) Funding 10(b-II) 1,533,231 1,117,966 Liabilities for marketable securities abroad 75,242 111,716 Subordinated debt 1,457,989 1,006,250 Redemptions 10(b-II) (926,508) (1,544,389) Liabilities for marketable securities abroad (114,129) (608,387) Subordinated debt (812,379) (936,002) Own funds - Interest on capital 17(b) (180,429) (2,114,606) NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES 426,294 (2,541,029)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 171,951 887,204
Cash and cash equivalents at the beginning of the period 5,350,249 4,295,467 Foreign exchange gains (losses) on cash and cash equivalents 1,210,559 167,578 Cash and cash equivalents at the end of the period 5 6,732,759 5,350,249
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 171,951 887,204
The accompanying notes are an integral part of these financial statements.
5
Consolidated Financial Statements | Banco Safra S.A.
NOTES TO THE FINANCIAL STATEMENTS AT DECEMBER 31, 2020 (ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE STATED)
1. OPERATIONS Banco Safra S.A. and its subsidiaries (collectively referred to as "Safra", "Safra Group”, or “Bank”), with registered office at Avenida Paulista, 2.100, São Paulo – SP, Brazil, are engaged in asset, liability and accessory operations inherent in the related portfolios authorized by the Brazilian Central Bank (commercial, real estate loans, credit, financing and investment, and lease), including foreign exchange, repurchase agreement, rural credit, and securities portfolio management operations, as well as complementary activities among which are insurance, private pension, brokerage and distribution of securities, management of investment funds, managed portfolio operations, and operations in the payment institution market through the Safrapay brand, in compliance with current legislation and regulations.
2. PRESENTATION OF THE FINANCIAL STATEMENTS
a) Presentation of financial statements The consolidated financial statements of Banco Safra S.A. and subsidiaries (“CONSOLIDATED”), approved by the Board of Directors and Audit Committee on January 28, 2021, have been prepared and are presented following the accounting practices adopted in Brazil, in accordance with Law 6,404/1976 (Brazilian Corporate Law) and the respective changes introduced by Laws 11,638/2007 and 11,941/2009, associated with the rules established by the National Monetary Council (CMN), Brazilian Central Bank (BACEN), Brazilian Securities and Exchange Commission (CVM), National Council of Private Insurance (CNSP) and the Superintendence of Private Insurance (SUSEP), as applicable.
We declare that all material information of the financial statements, and only it, has been evidenced and corresponds to the one used by Management in its administration.
Safra adopts a set of criteria for presenting its transactions in its financial statements, always aiming at generating the best representation of the economic substance of its operations, applying the general criteria for preparing and disclosing financial statements established by CMN Resolution 4,818/2020, and complementary rules, in effect as of January 1, 2020. We highlight the following: I. The adoption of the concept of expanded credit portfolio – Note 3(c) implies the presentation of the following operations as transactions with credit characteristics in both statement of financial position and statement of income: Lease operations, under the financial method, that is, at present value;
Advances on exchange contracts, reclassified from the group “Foreign Exchange Portfolio”, except the income and expenses arising from the differences in the exchange rates applied on the amounts in foreign currency, presented as foreign exchange transactions in Statement of Income;
Advances on receivables of payment arrangement, reclassified from the line item “Interbank and interdepartmental transactions”; and
Corporate securities issued by non-financial companies, reclassified from the line item “Marketable Securities” to “Credit portfolio”. II. The presentation in the Statement of Income of the following: The foreign exchange gains or losses on investments abroad and the operations in foreign currency in the line item “Financial instruments, net”, together with the foreign exchange gains or losses on derivatives which provide their hedge, for better presentation of the effective coverage of foreign exchange exposure; The income from operations net of its direct costs. Such costs are substantially represented by the recovery, origination and maintenance of operations; and The income from provided guarantees and sureties together with income from expanded credit operations; they were previously stated in the line item “Revenue from service, bank fees and foreign exchange transactions”. III. Additionally, in this period, we have started to adopt the following criteria for presenting the Statement of Financial Position and/or Statement of Income: Presentation in a single line of the operations of Seguradora Líder dos Consórcios DPVAT, in the line item “Receivables from insurance and reinsurance operations”. The reclassification of Seguradora Líder’s operations affected the total assets and liabilities in the amount of R$ 181,242 as at December 31, 2019;
The adoption of the new presentation format established in article 23 of BCB Resolution 2/2020, where we highlight that Safra opted to present the accounts of the Statement of Financial Position in descending order of liquidity and maturity, without breaking them down between current and non-current. In the notes, we present, regarding significant portfolios, the amounts expected to be realized in 12 months or less and longer periods; and Presentation of Statement of Comprehensive Income, immediately after the Statement of Income. For purposes of comparability, the balances and results arising from the criteria adopted in this period were reclassified in the comparative statements for the prior periods. The reclassification of the carrying amounts of assets, liabilities and income arising from the new presentation format did not change the total assets and liabilities, equity or net income for the periods ended December 31, 2020 and December 31, 2019.
6
Consolidated Financial Statements | Banco Safra S.A.
We show below the effects net of taxes of Safra’s non-recurring events, as provided in Article 34 of BCB Resolution 2/2020:
2020 2019 Net income for the period 2,033,455 2,211,201 (-) Non-recurring gain (loss) (9,259) (26,133) Provisions for contingent liabilities – Note 14(c) (97,584) (254,280) Allowance for credit risk – Additional ALL – Note 9(a-III) (300,025) - Deferred tax assets – Note 15(b-II) 388,350 228,147 Recurring gain 2,042,714 2,237,334
b) Adoption of new rules The rules issued by BACEN, effective beginning on January 1, 2021, are as follows: I. CMN Resolution 4,747: This rule sets out criteria for recognition and measurement of non-financial assets held for sale. It establishes new accounting entries, such as, for example, the non-financial assets held for sale, which starts to be recognized in current or long-term assets, according to the expected period to complete the sale, at the lower of (a) carrying amount and fair value less costs to sell, in case of own assets; or (b) fair value and gross carrying amount of the respective financial instrument, in case of assets received to settle a debt (received assets). Safra does not expect any effect on its asset, liability or income positions arising from the adoption of this new rule, and is in the final phase of implementation of the adjustments required to comply with such Resolution as of the date it comes into effect; and II. CMN Resolution 4,842: This rule sets out criteria for measurement and recognition of current and deferred tax assets and liabilities. As stated by the regulatory body, it was issued because of the need for consolidation of rules on such components. In addition, the rule excludes the option of not recognizing the deferred tax assets which are expected to be realized, which was provided in the previous rule. Safra does not expect any effect arising from the adoption of this new rule, as it fully recognizes the deferred tax assets which are expected to be realized.
The following rules issued by BACEN are coming into effect as of January 1, 2022: I. CMN Resolution 4,817 and BCB Resolution 33: These rules establish the criteria for measurement and recognition of investments in associates, subsidiaries and joint ventures held by Financial Institutions. It provides for the adoption of the simplified model for recognition of foreign exchange gains (losses) on investment abroad. In addition, it establishes the disclosure of more detailed information in the notes. Safra does not expect any effect on its asset, liability, or income positions arising from the adoption this rule. II. CMN Resolution 4,818: This rule establishes the criteria for preparation and disclosure of individual and consolidated financial statements. Beginning on January 1, 2020, financial institutions are required to adopt the consolidated statements according to the IFRS instead of the corporate consolidated statements. In addition, the rule establishes that the notes shall contain information on any difference between the criteria and the procedures for classification, recognition and measurement applied on the consolidated statements according to IFRS and those applied on individual statements (COSIF standard). Banco Safra already annually prepares the Consolidated Financial Statements according to the IFRS. III. CMN Resolution 4,872: The rule establishes the criteria for recognition of equity. The rule provides for new lines in equity, such as, for example, treasury shares and other comprehensive income. The effects of the adoption of this rule shall be applied prospectively and recognized in retained earnings or losses. Safra does not expect any effect on its asset, liability, or income positions arising from the adoption this rule.
c) Basis of consolidation The asset, liability and income accounts between the parent company and its subsidiaries, as well as the unrealized gains and losses between the companies included in the consolidation, were eliminated in the consolidated financial statements. The Exclusive Investment Funds of the consolidated companies’ investments are consolidated. The securities and investments in the portfolios of these funds were classified by type of transaction and were distributed into types of securities, in the same categories to which they were originally allocated. The entities based overseas, basically represented by the branches in Cayman and Luxembourg, are shown consolidated in the financial statements. The consolidated balances of these entities, excluding the amounts of transactions among them, were translated at the foreign exchange rate ruling at the corresponding reporting date and are presented below:
Assets Liabilities Equity Net Income Total as at 12.31.2020 31,332,012 28,241,805 3,090,207 29,448 Total as at 12.31.2019 21,136,058 18,055,548 3,080,510 375,466
The consolidated financial statements comprise Banco Safra and its subsidiaries, including fully consolidated exclusive investment funds, highlighting:
Ownership interests % 12.31.2020 12.31.2019 Banco J. Safra S.A. 100.00 100.00 Safra Leasing S.A. – Arrendamento Mercantil 100.00 100.00 Banco Safra (Cayman Islands) Limited.(1) 100.00 100.00 Safra Corretora de Valores e Câmbio Ltda. 100.00 100.00 Safra Asset Management Ltda. 100.00 100.00 Safra Serviços de Administração Fiduciária Ltda. 100.00 100.00 Safra Vida e Previdência S.A. 100.00 100.00 Safra Seguros Gerais S.A. 100.00 100.00 Sercom Comércio e Serviços Ltda. 100.00 100.00 SIP Corretora de Seguros Ltda. 100.00 100.00 (1) Entity based abroad. Additionally, we consolidated a non-financial entity, in which the controlling shareholder of the Bank himself holds a 0.6% interest in the capital, shown as a liability in these consolidated financial statements, in the line item “Other liabilities”.
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Consolidated Financial Statements | Banco Safra S.A.
d) Functional currency I- Functional and presentation currency The items included in the individual financial statements of subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in Brazilian reais (R$), which is the functional and presentation currency of Banco Safra S.A. and its Subsidiaries. II- Transactions in foreign currency They are accounted for, at their initial recognition, in the transaction’s currency, applying the spot foreign exchange rate between the functional currency and the foreign currency at the transaction date. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities in foreign currency into the functional currency using closing foreign exchange rates are recognized as gain or loss in the consolidated statement of income. Changes in the fair value of marketable securities denominated in foreign currency classified as fair value through other comprehensive income are separated from foreign exchange gains or losses and other changes in the carrying amount of the security. Foreign exchange gains or losses are recognized in income in the accounts "Interest income" and "Interest expenses" and fair value adjustments are recognized in equity, in the account "Carrying value adjustments”. Foreign exchange gains or losses on financial assets and liabilities classified as fair value through profit or loss are recognized as part of Financial instruments, net.
3. SIGNIFICANT ACCOUNTING POLICIES
a) Cash Flows I- Cash and cash equivalents: represented by cash and deposits with financial institutions, included in the heading cash, interbank deposits originally falling due in 90 days or less, the risk of change in their fair value being considered immaterial. Cash equivalents are amounts held for the purpose of settling short-term cash obligations and not for investments or other purposes. II- Statement of cash flows: prepared based on the criteria set out in Technical Pronouncement CPC 03 (R2) – Statement of Cash Flows, approved by CMN Resolution 4,818/2020, which provides for the presentation of cash flows of the entity as those arising from operating, investing and financing activities, taking into account the following:
• Operating activities are the main revenue-generating activities of the entity and other activities that are neither investing nor financing activities. They include funding for financing financial intermediation and other operating activities that are typical of financial institutions; • Investing activities are those related to the buying and selling of long-term assets and other investments not included in cash equivalents, such as investments in held-to-maturity securities; and
• Financing activities are those that result in changes to the size and composition of the Entity's and third party’s capital. They include structured funding for financing the Entity itself.
The effect of exchange rate changes on cash and cash equivalents is reported, according to Technical Pronouncement CPC 03 (R2), in the line item “Foreign exchange gains and losses on cash and cash equivalents”, separately from the cash flows from operating, investing and financing activities, in order to reconcile the cash and cash equivalents at the beginning of the reporting period with that at the end of such period.
Cash flows from operating activities are presented using the indirect method. Cash flows from investing and financing activities are presented based on gross payments and receipts.
b) Financial instruments
I - Classification The classification of financial assets by Safra is into the following categories:
Loans and receivables; Trading securities;
Available-for-sale securities; and
Held-to-maturity securities. The financial assets classified as loans and receivables, basically presented in the line items credit portfolio and other financial assets in the statement of financial position, besides the marketable securities classified as held to maturity, which are those which the Bank has intention and financial capacity to hold them in the portfolio until their maturities, are measured at amortized cost, except if such financial assets have been designated to hedge market risk. The marketable securities classified into the trading category are those acquired with the purpose of being actively and frequently traded, and are measured at their fair values as contra-entry to the income for the period. The marketable securities classified as available for sale are those that can be traded, but are not acquired with the purpose of being frequently traded or held to maturity, and are measured at their fair values as contra-entry to other comprehensive income, except if such financial assets have been designated to hedge market risk.
The downward changes in the fair value of marketable securities, below their respective adjusted costs, related to reasons considered non temporary, will be reflected in income as realized losses.
The classification of marketable securities is periodically reviewed, according to the guidelines set out by Safra, taking into consideration their intended use and financial capacity, in accordance with the procedures established by BACEN Circular 3,068/2001.
The financial liabilities are measured at their amortized cost, except if designated to hedge market risk.
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Consolidated Financial Statements | Banco Safra S.A.
II - Measurement The measurement of financial assets depends on the classification category, as mentioned in the previous item.
• Amortized cost: the financial assets and liabilities in this category are initially recognized at their fair values, plus transaction costs. Subsequently, they are measured at amortized cost, plus the adjustments made using the effective interest rate. The gains on the financial assets of this category are recognized as “Income from financial intermediation”, while the interest expenses of financial liabilities are recognized as “Expenses of financial intermediation” in Statement of Income, over the term of the respective contract;
At fair value through other comprehensive income: the financial assets in this category are initially recognized by their fair values, the respective transaction costs being recognized as expense. Subsequently they are measured at fair value, the gains or losses arising from change in fair value being directly recognized in "Other comprehensive income", until the financial asset is derecognized. When derecognizing the asset, the accumulated gains or losses in the specific line item of equity are transferred to income for the period. The interests on the financial assets classified in this category are recognized in income for the year in the line item “Income from financial intermediation”. The interests on such financial assets are calculated by using the effective interest rate method; and At fair value through profit or loss: are initially recognized by their fair values, the respective transaction costs being recognized as expense. The gains or losses arising from the changes in the fair values of such financial assets and liabilities are presented in the consolidated statement of income in the line item "Income from financial intermediation”, in the period they occur. The financial liabilities are stated at payable amounts and take into account, when applicable, the charges incurred through the statement of financial position reporting date, recognized on pro rata basis. The incurred transaction costs basically refer to the amounts paid to third parties for intermediation, placement and distribution of own securities. These are recorded as reduction of securities and recognized, on pro rata basis, in the appropriate expense account, except in the cases in which the securities are measured at fair value through profit or loss.
III - Derivative financial instruments Derivatives are classified in the measurement category of fair value through profit or loss. They are considered assets when the fair value is positive and liabilities if it is negative. Derivatives can be used for hedging purposes or not. Safra basically purchases derivatives for hedge, designating as derivative instrument of hedge accounting or not, depending on the need. In this sense, in the cases in which hedged items are classified as measured at fair value through profit or loss, the results of the hedging strategy are naturally reflected in the consolidated statement of income. On contrary, it is necessary to designate a hedge accounting relationship, where the following conditions shall be met:
• high correlation regarding the changes in the fair value of the derivative with the fair value of the hedged item, both at the inception and over the life of the contract; and
• effectiveness in reducing the risk associated with the exposure to be hedged. Derivative financial instruments used to hedge exposures to risks by means of change to certain characteristics of financial assets and liabilities being hedged that are considered highly effective and meet all the other requirements of designation and documentation under BACEN Circular 3,082/2002, are classified as hedge accounting according to their nature: Market risk hedge – the hedged financial assets and liabilities, including the assets classified as available for sale and their tax effects, and respective derivative financial instruments are recorded at fair value, with the related gains or losses recognized in income for the period; and
Cash flow hedge - the hedged financial assets and liabilities and the respective derivative financial instruments are recorded at fair value, with the related gains or losses, net of tax effects, recognized in a specific account of equity called “Carrying Value Adjustment”. The non-effective hedge portion is recognized in income for the period.
The derivative financial instruments contracted at the request of customers or on own behalf that do not meet the hedge accounting criteria established by the Central Bank, used for managing overall risk exposure, are recorded at fair value, with gains or losses directly recognized in income for the period.
IV - Fair value The methodology adopted for measuring fair value (probable realizable value) of financial assets and derivative financial instruments stated at fair value is based on the economic scenario and pricing models developed by Management, which include the gathering of average prices practiced in the market, applicable at the statement of financial position reporting date. Accordingly, when these items are financially settled, the actual results could differ from the estimates. The process for pricing financial instruments stated at fair value complies with the provisions of CMN Resolution 4,277/2013, which establishes the minimum elements to be considered in the mark to the market process. Safra calculated the mark to the market adjustments related to the pricing of the credit risk component and close-out costs. The adjustments made are recognized in the consolidated financial statements.
V - Derecognition of financial instruments In accordance with CMN Resolution 3,533/2008, financial assets are derecognized when the contractual rights to the cash flows from these assets expire, or when substantially all the risks and rewards of ownership of the instrument are transferred. When substantially all the risks and rewards are not transferred nor retained, Safra assesses the control of the instrument in order to determine whether it should be maintained in assets. Securities linked to repurchase and assignment of credit with co-obligation are not derecognized because Safra retains substantially all the risks and rewards to the extent there is, respectively, a commitment to repurchase them at a predetermined amount or to make payments in the event of default of the original debtor of the credit operations. Financial liabilities are derecognized if the obligation is contractually extinguished or settled.
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Consolidated Financial Statements | Banco Safra S.A.
c) Expanded credit portfolio and allowance for credit risk The expanded credit portfolio encompasses the credit operations and other operations that pose credit risk similar to a credit operation, such as other credit risk instruments issued by companies – Note 3(b-I), guarantees, sureties, foreign exchange gains or losses on advances on exchange contract transactions, plus the respective transaction costs directly attributable to the operation.
Credit operations are stated at present value based on the index and contractual interest rate, calculated on a pro rata basis through the statement of financial position reporting date. The revenues related to transactions that are 60 days or more past due are recognized in income only when received, regardless of their risk rating level.
Renegotiated credit transactions are maintained at least in the same rating. Renegotiated transactions that had already been written-off are assigned “H” rating and any gain on renegotiation is only recognized when actually received. When a significant amount is amortized or new material facts justify changing a transaction’s risk level, the transaction may be reclassified into a lower risk rating.
Credit transactions, which are assigned “H” rating, are written-off of assets six months after they receive such rating, and then are controlled in memorandum accounts for at least five years, and while all collection procedures are not exhausted.
The assets received in connection with the debt consolidation processes, related to credit operations written-off of assets, are classified as Assets Nor for Use, and fully provisioned, because of the likelihood of incurring losses related to their realization, given the several factors that may make impossible the disposal of the asset, such as legal restrictions, lack of legal regularization, low likelihood of sale to generate short-term liquidity at fair value, among others. The amount of the full provision recorded for such Assets Not for Use is shown in the statement of financial position net of its corresponding assets. The provision expenses and the income recognized upon sale of Assets Not for Use (cash basis) are recognized in the line item “Income with credit risk” in the Statement of Income.
To recognize the allowance for credit risk, Safra considers all transactions classified into the expanded credit portfolio concept. The allowance for credit risk is monthly recognized in compliance with the minimum allowance required in CMN Resolution 2,682/1999, which requires the assignment of ratings for transactions among nine risk levels, between “AA” (minimum risk) and “H” (maximum risk), and is also based on the analysis of credit realization risk, periodically made and reviewed by Management, which takes into account, among other elements, the past experience of borrowers, the economic outlook and the overall and specific portfolio risks. In 2020, due the Covid-19 pandemic, CMN Resolution 4,855/2020 was issued to regulate the recognition of the provision which credits were granted with risks shared with the Federal Government and its respective member institutions, such as the Brazilian Development Bank (BNDES). According to this rule, to recognize a provision for probable losses on transactions which credit risks are partially or fully taken by the Federal Government, the financial institutions shall apply the percentages set in Article 6 of Resolution 2,682/1999 only on the portion of the transaction’s carrying amount, including principal and charges, which credit risk is incurred by the institution itself.
In addition, Safra not only considers the above minimum allowance levels, but also recognizes an additional allowance for credit risk, calculated by analyzing in detail the risk of realization of credits, based on internal risk rating methodology that is periodically reviewed and approved by management.
d) Investments The investments in subsidiaries and associates over which there is significant influence or in which 20% interest or more is held in the voting capital are recognized by applying the equity method.
The other investments are basically represented by stocks and shares of companies over which the Bank does not have direct or indirect significant influence or in which it does not hold more than 20% interest in voting capital, and therefore are stated at cost, adjusted for impairment. The dividends received from these investments are recognized in income.
e) Property and equipment and intangible assets Property and equipment correspond to own tangible assets and leasehold improvements, aimed at maintaining the entity’s operations or that have such purpose for a period over one fiscal year. Intangible assets correspond to identifiable non-monetary assets without physical substance, acquired or developed by the institution, aimed at maintaining the entity or exercised for this purpose. These are recognized at cost, net of the respective accumulated depreciation or amortization and adjusted for impairment. Such depreciations are calculated using straight-line method at annual rates based on the economic useful lives of assets, as follows: properties in use and facilities in own properties - 4%; communication and security systems, aircrafts, furniture, equipment and fixtures - 10%; and vehicles and data processing equipment - 20%. The amortization of intangible assets with finite lives is recognized, monthly and on straight-line basis, over their estimated useful lives, the annual rate applied to software acquisitions and development being up to 20%, considering the contract period.
f) Impairment – non-financial assets CMN Resolution 3,566/2008 provides the procedures applicable to the recognition, measurement and disclosure of impairment of assets and requires compliance with Technical Pronouncement CPC 01 – Impairment of Assets.
The impairment of non-financial assets is recognized as loss when the value of an asset or cash-generating unit is higher than its recoverable or realizable amount. A cash-generating unit is the smallest identifiable group of assets that generates cash flows that are substantially independent of the other assets or group of assets. The impairment losses, when applicable, are recognized in income for the period when they are identified. The values of non-financial assets are periodically reviewed at least annually to determine if there are any indications that the assets’ recoverable amount or realizable value is impaired. Accordingly, in conformity with the above standards, Safra Group’s Management is not aware of any material adjustments that might affect the ability to recover the non-financial assets as at December 31, 2020 and December 31, 2019.
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Consolidated Financial Statements | Banco Safra S.A.
g) Insurance, reinsurance and private pension operations I - Receivables from and payables for insurance and reinsurance operations
Premiums receivable – refer to inflowing financial resources as receipt of premiums related to insurance, recorded on the policy issue date;
Reinsurance assets – comprise technical reserves referring to reinsurance operations. Reinsurance operations are carried out in the regular course of activities in order to limit their potential losses. The liabilities related to reinsurance operations are presented gross of their respective asset recoveries, since the existence of a contract does not exempt its obligations to the insureds; Deferred acquisition costs – include direct and indirect costs related to the origination of insurance. These costs, except for the commissions paid to the brokers and others, are recorded directly in income, when incurred. Commissions are deferred and recognized in income in proportion to the recognition of the revenues from premiums, that is, for the term corresponding to the insurance contract. Operations with insurers/reinsurers: the receivables basically refer to amounts receivable from claims of coinsurance and reinsurance operations. The payables refer to the portion of premiums to be passed on to insurers/reinsurers, in view of the coinsured/reinsured operations. These are recorded on the policy issue date and settled when premiums are received from insureds; and Insurance brokers: refer to the commissions payable to brokers. These are recorded on the policy issue date and settled when premiums are received from insureds.
II - Guarantee funds These comprise the assets offered as guarantee of the funds of reserves, provisions and funds, according to the guidelines set out by the National Monetary Council. These assets are recognized in SUSEP escrow accounts with B3, CETIP, and SELIC, according to each of the markets. III - Credit Risk An impairment is recorded on receivables from premiums receivable and insurance operations when they are over 60 days past due. The receivables from reinsurance operations are impaired when they are over 180 days past due. The impairment corresponds to the total receivable amount to which it refers, according to the criteria established by SUSEP Circular 517/2015. The impairments of such receivables are recorded concomitantly to writing-down the liability corresponding to the premiums to be passed on to insurance companies and/or reinsurance companies, as there is no longer expectation of receiving the premium, so there will be no expectation of passing on these amounts. IV - Technical reserves of insurance and private pension The technical reserves for insurance and private pension are calculated based on technical actuarial notes, as provided by SUSEP, and according to the criteria established by CNSP Resolution 321/2015 and SUSEP Circular 517/2015, and further amendments. a) Insurance: Unearned premium reserve (PPNG): recorded in order to cover claims and expenses to be incurred for the risks assumed on the calculation base date, regardless of its issue, corresponding to the policy period to be elapsed. It is calculated based on the gross written premium, gross of reinsurance and net of coinsurance ceded, also comprising the estimate for current risks not issued (PPNG-RVNE). Between the issue and the initial date of coverage, the policy period to elapse is equal to policy period. After the issue and initial date of the policy period, the reserve is calculated on a daily pro rata basis. The PPNG related to retrocession transactions is recognized based on information received from the reinsurance company; Reserve for outstanding claims (PSL): recorded based on estimates of indemnities relating to claim reports received through the end of reporting period, and adjusted for inflation according to Superintendence of Private Insurance (SUSEP) regulations; Reserve for incurred but not reported losses (IBNR): recorded to cover amounts that are expected to be settled, related to losses incurred but not yet reported through the end of reporting period. For life insurance and comprehensive and secondary insurance lines, the reserve is calculated by means of statistic-actuarial process, which uses the past experience of the Insurance company to project the amount of losses already incurred but not yet reported to the Insurance company. For other Insurance lines, characterized for not having sufficient data to apply the statistic-actuarial methodology, the insurance company determines the amount of the reserve based on average market factors. In view of the changes in effect from December 2017, SUSEP Circular 517/2015 no longer provides standardized percentages; Reserve for related expenses (PDR): recorded to cover amounts expected from expenses related to claims incurred (reported or not). The reserve calculation is made by means of statistic-actuarial process, which uses the past experience of the Insurance company to project the amount of payable expenses; b) Private pension: Mathematical reserves for unvested benefits (PMBAC) and vested benefits (PMBC): recorded to cover the obligations assumed with participants/insureds, in the accumulation period (PMBAC) and benefit vesting period (PMBC), of structured plans under the fully funded regime, and according to the actuarial technical note approved by SUSEP; Reserve for related expenses (PDR): recorded to cover all expenses related to the settlement of indemnities and benefits, in view of the claims incurred and to be incurred (fully-funded regime); c) Liability Adequacy Test (LAT) The Adequacy Test is aimed at assessing the liabilities arising from the contracts of certificates of insurance plans (except for the Compulsory Bodily Injury Motor Insurance (DPVAT), Compulsory No-fault Bodily Injury for Boats Owners (DPEM) and Housing Insurance of the National Housing System (SFH)) and personal private pension, considering the minimum assumptions determined by SUSEP and the Company’s in-house actuaries. This test is carried out every quarter, in accordance with the criteria established by SUSEP Circular 517/2015, and further amendments.
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Consolidated Financial Statements | Banco Safra S.A.
The LAT result is the difference between: (i) the current estimates of cash flows and (ii) the sum of the carrying amount at the base date of the technical reserves (PPNG, PPNG-RVNE, PSL, IBNR, PMBAC and PMBC), less the deferred acquisition costs and the intangible assets directly related to the technical reserves. For the Private Pension segment, in the LAT the interest rates and the actuarial tables contracted by the participants are taken into account (rates at 0%, 3% or 6% plus adjustment for IGPM or IPCA and AT-1983, AT-2000 and BR-EMSsb tables). In the LAT determination, the other actuarial decrements are considered, such as: projections of redemptions (persistency table), rate of conversion into vested benefits and expected interest rate released by SUSEP (term structure of interest rates - ETTJ) according to the interest curve related to the liability’s index. To calculate the estimate of the biometric variable mortality, the BR-EMS V.2015 table is considered, implemented as Improvement, according to the G scale on the Society of Actuaries (SOA) website. For the Insurance segment, in the LAT determination the actuarial projections of expected loss ratio and administrative expenses are contained. The current estimates for cash flows are gross of reinsurance, discounted to present value based on the risk-free term structures of interest rates (ETTJ) defined by SUSEP. In the LAT determination, the deficiency related to unearned premium reserve, mathematical reserve for unvested benefits and the mathematical reserve for vested benefits is recognized in the supplementary coverage reserve (PCC), and the adjustments arising from the deficiencies in the other technical reserves are made in the reserves themselves. V - Calculation of income from insurance, reinsurance and private pension operations Insurance premiums, less premiums ceded in co-insurance, and the respective acquisition costs are recognized at the point of issue of the respective policy or invoice or policy period, as established in the SUSEP Circular 517/2015, and are recognized in income over the policy period, by recognizing the unearned premium reserve and deferred acquisition costs. Ceded reinsurance premiums are deferred and recognized in income over the coverage period, by recording in the reinsurance assets – technical reserves. Revenues from private pension contribution are recognized when received. VI - DPVAT Agreement The Seguradora Líder’s operations are reported in a single line in assets, in the line item “Receivables from insurance and reinsurance operations”, in proportion to the interest held in the entity, according to the amendments to the rule provided in SUSEP Circular 595/2019, which revoked the articles 153 and 154 of SUSEP Circular 517/2015, which established the breakdown of the Agreement assets and liabilities in proportion to the consortium member’s interest.
Any reserves other than technical ones are recorded as “Payables for insurance and reinsurance operations, commissions and other” to reflect the possible need for capital contribution due to insolvency of the DPVAT Agreement.
Income and expenses arising from DPVAT line insurance operations are recognized based on the financial information received from Seguradora Líder dos Consórcios do Seguro DPVAT S.A.
h) Provisions, contingent assets and liabilities, and legal obligations (tax and social security obligations) The recognition, measurement and disclosure of provisions for contingent assets and liabilities, and legal obligations are made according to the criteria established in Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets, approved by CMN Resolution 3,823/2009 and BACEN Circular Letter 3,429/2010, as described below: (i) Contingent assets - these are possible assets arising from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events that are not fully under the control of the entity. Contingent assets are not recognized in the financial statements, but disclosed in the notes when it is probable that a gain from these assets will be realized. However, when there is evidence that the realization of the gain from these assets is practically certain, the assets are no longer contingent and begin to be recognized.
(ii) Provisions and contingent liabilities: a present (legal or constructive) obligation as a result of past event, in which it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably measured, should be recognized by the entity as a provision. If the outflow of resources to settle the present obligation is not probable or cannot be reliably measured, it does not characterize a provision, but a contingent liability, the recognition of a provision not being required but only disclosed in the notes, unless the likelihood of settling the obligation is remote.
Also characterized as contingent liabilities are the possible obligations arising from past events and whose existence is confirmed only by the occurrence of one or more uncertain future events that are not fully under the control of the entity. These possible obligations should also be disclosed. Obligations are evaluated by Management, based on the best estimates and taking into consideration the opinion of legal advisors, which record a provision when the likelihood of a loss is considered probable; and discloses without recognizing the provision when the likelihood of loss is considered possible. Obligations for which there is a remote chance of loss do not require provision or disclosure. (iii) Legal obligations (tax and social security) – these refer to lawsuits challenging the legality or constitutionality of certain taxes and contributions. The amount in dispute is quantified, fully provisioned and monthly updated, notwithstanding the likelihood of outflow of funds, once the certainty of non-disbursement solely depends on the recognition of the unconstitutionality of the law in effect. The judicial deposits not linked to provisions for contingent liabilities and legal obligations are adjusted on a monthly basis.
i) Employee benefits These are recognized and evidenced according to CPC 33 (R1) – Employee benefits, regulated through CMN Resolution 4,424/2015, are categorized as follows:
I. Short- and long-term benefits Short-term benefits are those to be settled in twelve months. The benefits included in this category are salaries, contributions to the National Institute of Social Security, short leaves, profit sharing and non-monetary benefits. Safra does not have long-term benefits related to employment contract termination other than those established by the category's union. Additionally, Safra has no share-based payment to its employees and key personnel.
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Consolidated Financial Statements | Banco Safra S.A.
II. Termination benefits Termination benefits are payable when the employment contract is terminated before the normal retirement date.
Safra provides healthcare to its employees, as established by the category's union, as a form of termination benefit. III. Profit sharing Safra recognizes a provision for payment and a profit sharing expense (presented in the account "Personnel expenses" in the statement of income) based on a calculation that considers the profit after certain adjustments. Safra recognizes a provision when it is contractually required or when there is a past practice that has created a constructive obligation.
j) Taxes Taxes are calculated at the rates below, considering, with respect to the respective calculation bases, the applicable legislation for each charge.
Income tax 15.00% Income tax surcharge 10.00% Social Contribution Financial Institutions (1) 15.00% - 20.00% Non-financial Institutions 9.00% PIS (3) 0.65% COFINS (2) 4.00% ISS up to 5.00% (1) The Constitutional Amendment 103, of November 12, 2019, changed the Social Contribution rate applicable to banks from 15% to 20%. The new rate, effective as of March 1, 2020, is applicable to any kind of bank, not being extendable to other financial institutions, which continue to apply the 15% rate. As a result, the entities that shall adopt the new rate started to calculate their current taxes at the rate of 20%, as of the aforementioned date. (2) The non-financial subsidiaries under the non-cumulative calculation regime continue to pay PIS and COFINS at the rates of 1.65% and 7.6%, respectively. The PIS and COFINS rates levied on Finance income are 0.65% and 4%, respectively. Taxes are recognized in the statement of profit or loss, except when they relate to items recognized directly in equity. Deferred taxes, represented by deferred tax assets and liabilities, are calculated on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets for temporary differences arise mainly from the fair value measurement of certain financial assets and liabilities, including derivative contracts, provisions for tax, civil and labor contingent liabilities, and allowances for credit risk, and are recognized only when all the requirements for their recognition are met, as established by CMN Resolution 3,059/2002, effective until December 31, 2020. The taxes related to fair value adjustments of available-for-sale financial assets are recognized against the related adjustment in equity, and are subsequently recognized in income based on the realization of gains and losses on the respective financial assets.
k) Earnings per share Basic earnings per share are calculated by dividing the net income attributable to Safra's stockholders by the weighted average number of outstanding common shares during the year, excluding the average amount of common shares purchased by Safra and held in treasury. Diluted earnings per share do not differ from basic earnings per share since there are no shares with dilutive effect.
l) Managed assets The investment funds managed by Safra, except for the consolidated exclusive funds, are not presented in the statement of financial position since the related assets are owned by third parties and Safra acts only as a management agent. The fees and commissions earned during the period for services rendered to these funds (asset management and custody services) are recognized in the line item "Revenue from service, bank fees and foreign exchange transactions" in the consolidated statement of income.
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Consolidated Financial Statements | Banco Safra S.A.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The consolidated financial statements are influenced by Safra's accounting policies, assumptions, estimates and judgment. The estimates and assumptions that impact the accounting information are consistently applied over time. Any changes in the determination of accounting estimates are prospectively applied.
The adopted estimates and assumptions are those that Safra considers to be the best ones available and are in accordance with the applicable accounting standards. Estimates and judgments are continually evaluated by Safra, based on past experiences, new evidences and other factors, including expectations concerning future events.
a) Losses and adjustments to the recoverable amount for credit risk The preparation of financial statements requires Safra to make certain estimates and assumptions that, in its best judgment, affect the amounts of the allowance for losses and adjustments to the recoverable amount for credit risk.
b) Fair value of financial instruments The financial instruments recorded at fair value in the statement of financial position mainly include the financial assets classified into the trading and available-for-sale categories, derivatives and the financial assets and liabilities designated to hedge accounting, such as the credit operations and fixed-rate funding. The financial assets and liabilities at amortized cost, of which the credit operations should be highlighted, have their corresponding fair values disclosed in the notes to the consolidated financial statements – Note 18(d-II).
The fair value of financial instruments is determined based on the price that would be received to sell an asset or paid to transfer a liability in an arm's length transaction conducted between independent participants at the measurement date. There are different levels of data that must be used to measure the fair value of financial instruments: the observable data that reflects quoted prices for identical assets or liabilities in active markets (Level 1), the relevant data that is directly or indirectly observable as similar assets or liabilities (Level 2), relevant identical assets or liabilities in illiquid markets and unobservable market data that reflect Safra's premises when pricing an asset or liability (Level 3). It maximizes the use of observable inputs and minimizes the use of unobservable inputs to determine fair value. To arrive at an estimate of fair value of a financial instrument for which there is no relevant observable inputs in the market, Safra determines the most appropriate model to be adopted considering all relevant information captured through its past experience and market knowledge. From there, the derivation of valuation data includes, but is not limited to, yield curves, interest rates, volatilities, prices of interest in capital or debt, exchange rates and credit curves. Although it is believed that the valuation methods are appropriate and consistent with those prevailing in the market, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting and/or settlement date – Note 18(d). Also, to measure the fair value of financial assets and liabilities, the process of pricing financial instruments at fair value considers the credit risk component and the close-out cost of positions. The adjustments made are recognized in the consolidated financial statements.
c) Provision for contingent liabilities The provision for contingent liabilities is recognized when, based on Safra's and the legal advisors' opinion, the risk of loss in a lawsuit or administrative proceeding is considerable probable, with a probable outflow of resources to settle the obligations and when the amounts involved are reliably measurable. The amount under litigation is quantified, provisioned and adjusted on a monthly basis, if applicable.
The amounts of the possible settlement may differ from those presented based on these estimates, noting that in some cases there are judicial deposits – Note 14(c).
d) Deferred income tax and social contribution Deferred tax assets are recognized when there is a strong expectation of using them through the generation of taxable profits – Note 13(a). Such expectation is based on studies that involve Management's judgment as to the projected generation of future taxable profits and other variables – Note 15(b-III).
e) Technical reserves of insurance and private pension Technical reserves are liabilities arising from Safra's obligations to its insureds and participants. These obligations may have a short duration (property and casualty insurance) or medium or long duration (life insurance and private pension). The determination of the actuarial liability depends on innumerable uncertainties inherent in the coverage of the insurance and private pension contracts, such as assumptions of persistency, mortality, disability, longevity, morbidity, expenses, loss ratio, severity, conversion into income, redemptions and return on assets.
The estimates of these assumptions are based on Safra's historical experience, benchmarks and the actuary's experience and seek to converge with the best market practices and aim at the continuous review of the actuarial liability. Adjustments resulting from these continuous improvements, when necessary, are recognized in income for the respective period – Note 11.
Consolidated Financial Statements | Banco Safra S.A.
5. CASH AND CASH EQUIVALENTS
12.31.2020 12.31.2019 Cash 1,504,624 1,312,970 In Brazil 269,516 341,438 Abroad 1,235,108 971,532 Interbank investments 5,228,135 4,037,279 Open market investments – own portfolio – National Treasury 172,567 1,178,471 Interbank deposits - 100,023 Foreign currency investments 5,055,568 2,758,785 Total 6,732,759 5,350,249
6. INTERBANK INVESTMENTS AND CENTRAL BANK COMPULSORY DEPOSITS
a) Interbank investments These substantially refer to short-term investments, classified into the category of financial assets – loans and receivables and measured at amortized cost.
12.31.2020 12.31.2019 Amounts by maturity Up to From 91 From 1 From 2 90 days to 365 days to 2 years to 3 years Total Total Open market investments – own portfolio – National Treasury 232,319 48,140 - - 280,459 2,651,386 Interbank deposits (2) 42,325 1,675,320 132,362 - 1,850,007 1,885,003 Foreign currency investments (1) 5,055,568 - - - 5,055,568 3,160,794 Total as at 12.31.2020 5,330,212 1,723,460 132,362 - 7,186,034 7,697,183 Total as at 12.31.2019 5,282,367 882,510 1,404,676 127,630 7,697,183 (1) Includes transactions with related parties – Note 19(b). Of this amount, R$ (3,342) (R$ (1,923 as at 12.31.2019) refer to the fair value of transactions – Note 8(c). (2) Of this amount, R$ 144,364 (R$ 241,770 as at 12.31.2019) refers to operations linked to rural credit.
b) Central Bank compulsory deposits These are represented by compulsory deposits as shown below:
12.31.2020 12.31.2019 Interest bearing (1) 10,647,874 10,824,037 Non-interest bearing 612,820 410,389 Abroad 167,510 128,041 Total (2) 11,428,204 11,362,467 (1) The income is shown in Note 12(b-I). (2) Transactions classified in Current Assets.
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Consolidated Financial Statements | Banco Safra S.A.
7. OPEN MARKET INVESTMENTS AND FUNDING - GOVERNMENT SECURITIES a) Investments linked to open market funding – Government securities (Assets)
12.31.2020 12.31.2019 Amounts by maturity Up to From 91 to From 1 to From 2 to From 3 to Over 5 90 days 365 days 2 years 3 years 5 years years Total Total Own portfolio – Linked to repurchase agreements – Restricted – Note 8(a-III) (1) - 19,892,078 3,978,434 2,196,510 1,380,345 204,251 27,651,618 926,038 Financial Treasury Bills ------449,598 National Treasury Bills - 19,892,078 3,851,491 - 1,371,212 - 25,114,781 116,551 National Treasury Notes - - 126,943 2,196,510 9,133 204,251 2,536,837 359,889 Third-party portfolio – open market investments – National Treasury 1,589,418 550,105 - - - - 2,139,523 27,546,569 Third-party portfolio 465,413 89,866 - - - - 555,279 23,946,997 Short position 1,124,005 460,239 - - - - 1,584,244 3,599,572 Total as at 12.31.2020 (2) 1,589,418 20,442,183 3,978,434 2,196,510 1,380,345 204,251 29,791,141 28,472,607 Total as at 12.31.2019 (2) 21,860,710 6,045,748 566,149 - - - 28,472,607 (1) Includes the fair value adjustment in the amount of R$ 74,763 (R$ 6,151 as at 12.31.2019) – Note 8(c). (2) Includes repurchase agreements - fixed rate – Note 8(d).
b) Open market funding – Government securities (Liabilities)
12.31.2020 12.31.2019 Amounts by maturity From 91 to 365 Up to 90 days days Total Total
Own portfolio – Linked to repurchase agreements – Restricted 27,514,871 - 27,514,871 922,446 Financial Treasury Bills - - - 449,086 National Treasury Bills 25,001,915 - 25,001,915 115,543 National Treasury Notes 2,512,956 - 2,512,956 357,817 Third-party portfolio 1,721,219 470,245 2,191,464 27,286,205 Repurchase agreements 556,334 - 556,334 23,662,162 Obligations related to unrestricted securities (1) 1,164,885 470,245 1,635,130 3,624,043 National Treasury Bills - 4,454 4,454 257,287 National Treasury Notes – Note 8(d) 1,164,885 465,791 1,630,676 3,366,756 Total as at 12.31.2020 29,236,090 470,245 29,706,335 28,208,651 Total as at 12.31.2019 27,507,481 701,170 28,208,651 (1) Includes the fair value adjustment in the amount of R$ 126,821 (R$ 319,775 as at 12.31.2019) – Note 8(c).
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Consolidated Financial Statements | Banco Safra S.A.
8. FINANCIAL ASSETS a) Marketable securities I – By accounting classification:
12.31.2020 12.31.2019 Effects of fair value adjustment on: Income
Trading Hedge Amortized securities – accounting Equity – Notes Fair value Fair value cost Note 8(c) – Note 8(d) 8(c) and 17(d) Securities portfolio 46,721,296 134,907 15,983 36,462 46,908,648 21,432,690 Government securities 43,940,736 109,348 - 33,009 44,083,093 19,042,498 National Treasury 42,469,950 109,426 - 33,009 42,612,385 18,651,452 National Treasury Bills 25,777,640 87,157 - 33,009 25,897,806 1,413,905 National Treasury Notes – Note 8(d) 2,919,025 26,294 - - 2,945,319 2,240,161 Financial Treasury Bills 13,773,285 (4,025) - - 13,769,260 14,997,386 US government securities 1,470,786 (78) - - 1,470,708 391,046 Corporate securities issued by Financial Institutions 2,241,913 25,475 15,983 2,379 2,285,750 2,115,954 Investment fund quotas 72,204 - - - 72,204 102,713 Bank deposit certificate and other 1,069,159 - - - 1,069,159 1,310,188 Eurobonds 572,375 - 15,983 2,379 590,737 294,263 Fair value hedge – Note 8(d) 488,046 - 15,983 - 504,029 238,025 Other 84,329 - - 2,379 86,708 56,238 Credit Linked Notes – Note 8(b-III) 528,175 25,475 - - 553,650 408,790 Corporate securities issued by Companies 538,647 84 - 1,074 539,805 274,238 Shares 217,533 84 - 842 218,459 170,028 Eurobonds 321,114 - - 232 321,346 104,210 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-IV) - (7,989) - - (7,989) (100) Total securities portfolio as at 12.31.2020 46,721,296 126,918 15,983 36,462 46,900,659 21,432,590 Total securities portfolio as at 12.31.2019 21,303,036 128,979 (1,826) 2,401 21,432,590 Securities portfolio 21,303,036 129,079 (1,826) 2,401 21,432,690 Government securities 18,913,688 128,810 - - 19,042,498 Corporate securities issued by Financial Institutions 2,117,948 - (1,826) (168) 2,115,954 Corporate securities issued by Companies 271,400 269 - 2,569 274,238 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-IV) - (100) - - (100)
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Consolidated Financial Statements | Banco Safra S.A.
II - By maturity:
12.31.2020
Amounts by maturity Fair Up to From 91 to From 1 to From 2 to From 3 to Over value 90 days 365 days 2 years 3 years 5 years 5 years
Securities portfolio 46,908,648 1,819,696 11,712,938 21,499,144 3,109,657 7,758,352 1,008,861 Government securities 44,083,093 1,655,415 11,378,044 20,768,621 2,917,194 6,676,304 687,515 Corporate securities issued by Financial Institutions 2,285,750 75,664 334,894 730,523 62,621 1,082,048 - Corporate securities issued by Companies 539,805 88,617 - - 129,842 - 321,346 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-IV) (7,989) (52) - (6,070) (9) (1,858) - Total securities portfolio as at 12.31.2020 46,900,659 1,819,644 11,712,938 21,493,074 3,109,648 7,756,494 1,008,861 Trading securities – Note 3(b-I) 35,734,427 1,813,175 11,378,044 11,708,545 2,917,194 7,229,954 687,515 Available-for-sale securities 11,166,232 6,469 334,894 9,784,529 192,454 526,540 321,346 Total securities portfolio as at 12.31.2019 21,432,590 817,342 445,727 8,039,606 459,789 6,814,994 4,855,132 Trading securities – Note 3(b-I) 20,465,184 698,472 445,675 8,039,606 459,789 6,196,839 4,624,803 Available-for-sale securities 967,406 118,870 52 - - 618,155 230,329
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Consolidated Financial Statements | Banco Safra S.A.
III – By characteristics:
12.31.2020 12.31.2019 Accounting classification of Linked to securities: Restricted repurchase agreements and
Securities
related to Own unrestricted Guarantees Central Available portfolio repurchase provided (1) Bank (2) Total Trading for sale Total agreement Securities portfolio 41,557,783 77,924 4,856,917 416,024 46,908,648 35,734,427 11,174,221 21,432,690 Government securities 38,861,973 - 4,805,096 416,024 44,083,093 35,023,017 9,060,076 19,042,498 Corporate securities issued by Financial Institutions 2,156,005 77,924 51,821 - 2,285,750 625,854 1,659,896 2,115,954 Corporate securities issued by Companies 539,805 - - - 539,805 85,556 454,249 274,238 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-IV) (7,989) - - - (7,989) - (7,989) (100) Total securities portfolio as at 12.31.2020 41,549,794 77,924 4,856,917 416,024 46,900,659 35,734,427 11,166,232 21,432,590 Investments linked to open market funding – Government securities – Note 7(a) - 27,651,618 - - 27,651,618 27,651,618 - 926,038 Other credit risk instruments – Note 9(a-I) 7,736,764 6,858,267 167,027 - 14,762,058 - 14,762,058 14,000,762 Eurobonds 2,749,857 162,385 - - 2,912,242 - 2,912,242 2,643,720 Debentures 2,239,900 6,695,882 167,027 - 9,102,809 - 9,102,809 7,928,191 Promissory notes 1,630,607 - - - 1,630,607 - 1,630,607 1,650,649 Certificates of agribusiness receivables, rural certificate
and other 1,116,400 - - - 1,116,400 - 1,116,400 1,778,202 Total as at 12.31.2020 49,286,558 34,587,809 5,023,944 416,024 89,314,335 63,386,045 25,928,290 36,359,390 Total as at 12.31.2019 24,946,621 7,059,465 3,546,157 807,147 36,359,390 21,542,792 14,816,598 Securities portfolio 17,079,386 - 3,546,157 807,147 21,432,690 20,465,284 967,406 Government securities 14,738,190 - 3,497,161 807,147 19,042,498 19,042,498 - Corporate securities issued by Financial Institutions 2,066,958 - 48,996 - 2,115,954 1,412,849 703,105 Corporate securities issued by Companies 274,238 - - - 274,238 9,937 264,301 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-IV) (100) - - - (100) (100) - Total securities portfolio as at 12.31.2019 17,079,286 - 3,546,157 807,147 21,432,590 20,465,184 967,406 Investments linked to open market funding – Government
securities – Note 7(a) - 926,038 - - 926,038 926,038 - Other credit risk instruments – Note 9(a-I) 7,867,335 6,133,427 - - 14,000,762 151,570 13,849,192 Eurobonds 2,643,720 - - - 2,643,720 - 2,643,720 Debentures 1,794,764 6,133,427 - - 7,928,191 - 7,928,191 Promissory notes 1,650,649 - - - 1,650,649 - 1,650,649 Certificates of agribusiness receivables, rural certificate
and other 1,778,202 - - - 1,778,202 151,570 1,626,632 (1) Refers to guarantee of derivative financial instrument transactions made in stock exchange in the amount of R$ 4,419,457 (R$ 2,863,376 as at 12.31.2019), realized in the clearing and depository corporation in the amount of R$ 520,951 (R$ 602,287 as at 12.31.2019) and labor appeals - Note 14(c) in the amount of R$ 83,536 (R$ 80,494 as at 12.31.2019). (2) It is mainly represented by transactions linked to the funds from savings accounts in the amount of R$ 416,024 (R$ 807,032 as at 12.31.2019). In the period ended December 31, 2020 and December 31,2019, there was no reclassification among the categories of marketable securities.
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Consolidated Financial Statements | Banco Safra S.A.
b) Derivative financial instruments (assets and liabilities) The use of derivative financial instruments in the Conglomerate has the following main objectives:
provide to its customers fixed income structured products that hedge their assets and liabilities against possible risks, mainly from currency and interest rate fluctuations; and
outweigh the risks taken by Safra in the following operations (economic hedges and/or hedge accounting – Note 8(d)): credit operations and funding contracted at fixed rates and other funding – Notes 9 and 10; and
investment abroad - together with interbank transactions for future settlement, the foreign currency derivatives are employed to minimize the effects on income of exposure to the foreign exchange gains and losses of investments abroad. These derivatives are contracted in a volume that is higher than the faced foreign exchange exposure, to counteract the corresponding tax effects – “over hedge”.
The positions of Banco Safra and subsidiaries are monitored by an independent control area, which uses a specific risk management system, with calculation of VaR (Value at Risk) with confidence level at 99%, stress tests, back testing and other technical resources.
I - Asset and liability accounts: 1) By type of operation
12.31.2020 12.31.2019 Amounts by maturity
Fair value Amortized adjustment – Fair Up to From 91 to From 1 to From 2 to From 3 to Over Fair Assets cost Note 8(c) value 90 days 365 days 2 years 3 years 5 years 5 years value Non Deliverable Forward (NDF) 153,101 266 153,367 62,746 88,483 2,138 - - - 54,727 Option premiums 427,168 (87,243) 339,925 101,022 69,106 124,545 35,155 10,097 - 655,618 Bovespa Index 61,987 64,660 126,647 49,154 36,414 28,390 2,863 9,826 - 167,570 Foreign currency 19,993 15,910 35,903 14,048 13,703 8,152 - - - 51,192 Interbank Deposit (DI) index 302,795 (292,154) 10,641 6,200 1,118 2,299 1,024 - - 226,352 Shares 42,393 124,341 166,734 31,620 17,871 85,704 31,268 271 - 210,504 Swap – Amounts receivable 2,618,953 395,677 3,014,630 839,961 1,042,745 36,951 43,641 85,879 965,453 980,305 Interest rate 151,595 (12,731) 138,864 16,033 24,399 13,479 16,254 60,899 7,800 90,715 Foreign currency 2,434,423 406,315 2,840,738 817,170 1,014,459 6,943 20,093 24,420 957,653 873,192 Other 32,935 2,093 35,028 6,758 3,887 16,529 7,294 560 - 16,398 Credit derivatives – CDS 70,435 - 70,435 13,752 38,802 8,388 2,147 7,346 - 52,833 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-IV) - (287) (287) (287) - - - - - (177) Total as at 12.31.2020 3,269,657 308,413 3,578,070 1,017,194 1,239,136 172,022 80,943 103,322 965,453 1,743,306 Total as at 12.31.2019 1,553,702 189,604 1,743,306 838,191 478,169 146,398 8,357 8,940 263,251
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Consolidated Financial Statements | Banco Safra S.A.
12.31.2020 12.31.2019
Amounts by maturity Fair value Amortized adjustment – Fair Up to From 91 to From 1 to From 2 to From 3 to Over Fair Liabilities cost Note 8(c) value 90 days 365 days 2 years 3 years 5 years 5 years value Non Deliverable Forward (NDF) (144,707) 13,664 (131,043) (61,728) (60,585) (4,892) (1,880) (1,848) (110) (73,633) Option premiums (900,795) 103,241 (797,554) (473,091) (70,440) (159,260) (70,030) (22,079) (2,654) (511,727) Bovespa Index (92,301) (68,695) (160,996) (46,893) (39,999) (39,911) (10,720) (20,819) (2,654) (180,797) Foreign currency (438,216) 1,800 (436,416) (415,133) (2,861) (15,332) (3,090) - - (77,473) Interbank Deposit (DI) index (300,057) 293,854 (6,203) - (5,427) (580) (196) - - (217,599) Shares (70,221) (123,718) (193,939) (11,065) (22,153) (103,437) (56,024) (1,260) - (35,858) Forward – obligations for sales deliverable – foreign currency - (40,894) (40,894) (40,894) - - - - - (10,522) Swap - amounts payable (2,339,884) (262,418) (2,602,302) (1,076,130) (1,082,606) (49,448) (81,098) (244,526) (68,494) (1,066,219) Interest rate (157,936) (252,192) (410,128) (7,006) (18,402) (41,542) (65,685) (214,736) (62,757) (291,313) Foreign currency (2,181,948) (10,226) (2,192,174) (1,069,124) (1,064,204) (7,906) (15,413) (29,790) (5,737) (774,906) Credit derivatives – CDS (54,600) - (54,600) (2,729) (16,631) (470) (3,151) (31,619) - (37,044) Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-IV) - (11,778) (11,778) (11,778) - - - - - (6,621) Total as at 12.31.2020 (3,439,986) (198,185) (3,638,171) (1,666,350) (1,230,262) (214,070) (156,159) (300,072) (71,258) (1,705,766) Total as at 12.31.2019 (1,523,410) (182,356) (1,705,766) (697,291) (602,577) (144,606) (32,636) (130,412) (98,244)
2) By counterparty at fair value
Assets Liabilities 12.31.2020 12.31.2019 12.31.2020 12.31.2019 Financial institutions 2,178,063 1,032,484 (2,353,691) (926,748) B3 - - (40,894) (10,522) Legal entities 1,222,724 603,306 (852,042) (523,747) Individuals 177,570 107,693 (379,766) (238,128) Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-IV) (287) (177) (11,778) (6,621) Total 3,578,070 1,743,306 (3,638,171) (1,705,766)
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Consolidated Financial Statements | Banco Safra S.A.
II - Breakdown by notional amount: 1) By type of operation
12.31.2020 12.31.2019 Amounts by maturity Up to From 91 to From 1 to From 2 to From 3 to Over 90 days 365 days 2 years 3 years 5 years 5 years Total Total Non Deliverable Forward (NDF) 2,751,803 2,967,814 133,109 25,873 25,653 1,225 5,905,477 4,506,336 Long position 1,599,365 1,828,274 133,109 25,873 25,653 1,225 3,613,499 3,434,199 Short position 1,152,438 1,139,540 - - - - 2,291,978 1,072,137 Options 79,539,018 24,729,958 6,615,483 111,764 100,729 - 111,096,952 259,291,651 Long position 40,094,988 12,067,719 3,059,778 41,731 100,729 - 55,364,945 133,677,502 Shares 306,854 5,600 61,910 18,082 - - 392,446 1,067,740 Interbank Deposit (DI) index 35,728,500 11,542,500 2,926,500 - - - 50,197,500 121,127,922 Bovespa Index 524,099 106,989 21,143 23,649 100,729 - 776,609 9,917,108 Foreign currency 3,535,535 412,630 50,225 - - - 3,998,390 1,564,732 Short position 39,444,030 12,662,239 3,555,705 70,033 - - 55,732,007 125,614,149 Shares 275,493 6,400 - - - - 281,893 732,806 Interbank Deposit (DI) index 34,969,200 12,066,250 3,493,900 68,000 - - 50,597,350 123,020,720 Bovespa Index 508,912 116,793 - - - - 625,705 462,234 Foreign currency 3,690,425 472,796 61,805 2,033 - - 4,227,059 1,398,389 Forward – obligations for sales deliverable – foreign currency 14,127,340 - - - - - 14,127,340 8,369,547 Swap Assets 30,508,662 29,093,406 1,163,743 1,399,934 1,979,125 2,610,877 66,755,747 48,783,711 Interest rate 1,196,152 2,059,312 809,569 753,769 1,453,211 938,966 7,210,979 4,665,759 Foreign currency 29,101,323 27,011,290 78,144 548,184 523,979 1,671,911 58,934,831 43,871,817 Other 211,187 22,804 276,030 97,981 1,935 - 609,937 246,135 Liabilities 30,508,662 29,093,406 1,163,743 1,399,934 1,979,125 2,610,877 66,755,747 48,783,711 Interest rate 1,068,836 1,699,398 1,109,700 1,063,078 1,163,819 2,527,152 8,631,983 5,737,117 Foreign currency 29,439,826 27,394,008 54,043 336,856 815,306 83,725 58,123,764 43,046,594 Futures 72,127,586 109,027,803 34,102,974 8,516,651 7,829,484 2,513,394 234,117,892 131,778,469 Long position 9,183,674 22,422,161 180,322 5,353,573 347,269 1,300,967 38,787,966 50,018,253 Interest rate 201,026 - 180,322 5,327,700 237,612 1,040,908 6,987,568 3,236,693 Currency coupon 5,944,219 22,422,161 - - 90,290 260,059 28,716,729 24,795,102 Foreign currency 2,715,316 - - 25,873 19,367 - 2,760,556 21,063,480 Bovespa Index 323,113 - - - - - 323,113 922,978 Short position 62,943,912 86,605,642 33,922,652 3,163,078 7,482,215 1,212,427 195,329,926 81,760,216 Interest rate 13,413,927 47,064,542 24,369,747 527,505 6,367,047 - 91,742,768 61,147,001 Currency coupon 23,793,059 27,265,629 9,170,708 2,635,573 1,115,168 1,212,427 65,192,564 13,945,783 Foreign currency 25,695,195 12,275,471 382,197 - - - 38,352,863 6,643,805 Bovespa Index 41,731 - - - - - 41,731 23,627 Credit derivatives – CDS – Received risk – Note 8(b-III) 523,828 225,563 327,652 397,542 1,370,801 - 2,845,386 2,092,435
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Consolidated Financial Statements | Banco Safra S.A.
12.31.2020 12.31.2019 Amounts by maturity Up to From 91 to From 1 to From 2 to From 3 to Over 90 days 365 days 2 years 3 years 5 years 5 years Total Total Structured funding – Note 10(a) 11,808,518 31,835,059 6,514,190 1,303,680 457,529 56,097 51,975,073 24,630,563 Option premiums 11,329,460 29,716,281 6,166,014 414,249 157,204 35,030 47,818,238 22,025,160 Long position 406,806 332,364 323,271 60,535 - - 1,122,976 1,460,926 Interbank Deposit (DI) index 384,478 332,364 323,271 60,535 - - 1,100,648 1,460,926 Bovespa Index 22,328 - - - - - 22,328 - Short position 10,922,654 29,383,917 5,842,743 353,714 157,204 35,030 46,695,262 20,564,234 Shares 233,036 36,023 336,210 293,779 8,390 - 907,438 613,890 Bovespa Index 134,821 127,315 116,099 47,268 148,814 35,030 609,347 571,419 Foreign currency 10,554,797 29,220,579 5,390,434 12,667 - - 45,178,477 19,378,925 Swap – Assets/Liabilities – Interest rate - 29,861 348,176 889,431 300,325 21,067 1,588,860 946,597 Credit derivatives – CDS – Transferred risk – Note 8(b-III) 479,058 2,088,917 - - - - 2,567,975 1,658,806 Total as at 12.31.2020 211,386,755 197,879,603 48,857,151 11,755,444 11,763,321 5,181,593 486,823,867 479,452,712 Total as at 12.31.2019 266,252,202 110,012,368 85,096,889 7,291,623 6,120,362 4,679,268 479,452,712
2) Trading locations by counterparties
12.31.2020 12.31.2019 Financial Total notional Total notional Trading locations B3 institutions Legal entities Individuals amount amount B3 246,763,689 64,285,209 165,498,319 4,863,289 481,410,506 475,701,471 Over the counter – abroad - 5,413,361 - - 5,413,361 3,751,241 Total as at 12.31.2020 246,763,689 69,698,570 165,498,319 4,863,289 486,823,867 479,452,712 Total as at 12.31.2019 138,802,487 62,232,750 274,214,071 4,203,404 479,452,712
III - Credit derivatives – CDS Banco Safra uses derivative financial instruments of credit in order to offer its customers, through the issue of Structured CD, with opportunities to diversify their investment portfolios and Securities portfolio – Credit Linked Notes. Banco Safra has the following positions in credit derivatives, shown at their notional amount:
12.31.2020 12.31.2019 Credit swap whose underlying assets – Marketable securities – Note 8(b-II) (1) Received risks 2,845,386 2,092,435 Transferred risks (2,567,975) (1,658,806) Total, net of received/(transferred) exposure 277,411 433,629 Risk Asset – Credit Linked Notes – Note 8(a) 519,670 403,070 Risk Liability – Structured CD – Note 10(b) (242,259) 30,559 (1) The transferred and received risks refer to the same issuers. During the period, there was a credit event in a transaction with notional amount of R$ 7,118. Safra did not incur any loss, as the risk was transferred through credit swap embedded in a structured CD, which is the guarantee of the transaction. There was no material effect on the calculation of the minimum capital requirements as at 12.31.2020, according to the CMN Resolution 4,193/2013.
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Consolidated Financial Statements | Banco Safra S.A.
c) Developments of changes in fair value adjustments
01.01. to 12.31.2020 Changes in the period Effects on: Foreign exchange Opening gains or losses Income – Equity – Closing balance and Other Note 12(b-III) Note 17(d) balance Interbank investments – Foreign currency investments – Note 6(a) (1,923) - (1,419) - (3,342) Trading securities and Obligations related to unrestricted securities (184,645) 1,261 258,244 - 74,860 Trading securities – Note 8(a-III) 135,130 1,261 65,290 - 201,681 Securities portfolio – Note 8(a-I) 128,979 1,261 (3,322) - 126,918 Investments linked to open market funding – Government securities – Note 7(a) 6,151 - 68,612 - 74,763 Obligations related to unrestricted securities – Note 7(b) (319,775) - 192,954 - (126,821) Available-for-sale securities – Securities portfolio – Notes 8(a-I) and 17(d) 2,401 - - 34,061 36,462 Derivative financial instruments (assets/liabilities) – Note 8(b-I) (3,102) 35,641 77,689 - 110,228 Foreign borrowings and onlending – stock lending - - (31) - (31) Fair value hedge – Note 8(d) 378,140 (8,572) (117,516) - 252,052 Fixed-rate portfolio 69,306 - (143,933) - (74,627) Repurchase agreements – fixed rate 8,303 - (8,303) - - Trade Finance - (8,434) 54,724 - 46,290 IPCA portfolio 274,161 - 30,049 - 304,210 Eurobonds 79,869 38,528 119,808 - 238,205 Financial liabilities – Note 10(b) (53,499) (38,666) (169,861) - (262,026) Funding – Structured funding – Structured CD (4,263) (4,818) (22,343) - (31,424) Financing funds (49,236) (33,848) (147,518) - (230,602) Liabilities for marketable securities abroad (48,561) (21,278) (42,271) - (112,110) Subordinated debt (675) (12,570) (105,247) - (118,492) Total as at 12.31.2020 190,871 28,330 216,967 34,061 470,229 Total as at 12.31.2019 372,812 9,782 (185,801) (5,922) 190,871 Interbank investments – Foreign currency investments – Note 6(a) - - (1,923) - (1,923) Trading securities and Obligations related to unrestricted securities 2,971 (68) (187,549) - (184,646) Available-for-sale securities – Securities portfolio – Notes 8(a-III) and 17(d) 8,323 - - (5,922) 2,401 Derivative financial instruments (assets/liabilities) 27,143 - (30,244) - (3,101) Fair value hedge – Note 8(d) 334,375 9,850 33,915 - 378,140
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Consolidated Financial Statements | Banco Safra S.A.
d) Hedge of financial assets and liabilities The aim of the hedge accounting relations designated by Safra is to hedge the fair value of assets and liabilities, arising from the risk of fluctuation in benchmark interest rate (CDI or Libor), IPCA or foreign exchange gains or losses, as the case may be.
MTM being hedged – Fair value Note 8(c) Hedge derivative Notional amount Strategy – Market risk hedge 12.31.2020 12.31.2019 12.31.2020 12.31.2019 instrument 12.31.2020 12.31.2019 Fixed-rate portfolio 40,060,082 37,756,182 (74,627) 69,306 Futures DI1 (40,894,862) (29,908,516) Assets – Credit portfolio – Note 9(a) 49,651,994 45,274,162 402,213 541,569 Credit operations 49,539,294 44,821,369 395,072 529,614 Other credit risk instruments 112,700 452,793 7,141 11,955 Financial liabilities – Note 10(b) (9,591,912) (7,517,980) (476,840) (472,263) Funding (8,863,908) (6,898,388) (339,658) (339,128) Deposits (471,800) (257,511) (4,750) (2,030) Funds from acceptance and issue of securities and Time Deposits – Funds from financial bills, bills of credit and similar notes (6,876,608) (4,916,963) (318,628) (316,694) Structured funding – Certificate of structured transactions (1,515,500) (1,723,914) (16,280) (20,404) Financing funds – subordinated debt (728,004) (619,592) (137,182) (133,135) Assets – Credit portfolio – Trade finance – Note 9(a) 651,901 - 46,290 - Swap Fixed x Libor (654,178) - Repurchase agreements fixed rate – Investments linked to open market funding – Government securities – Note 7(a) - 14,195,412 - 8,303 Futures DI1 - (16,573,515) Futures DAP + IPCA portfolio (1) 3,244,953 2,916,210 304,210 274,161 Swap IPCA, Net (3,719,311) (3,325,506) Assets – Other credit risk instruments – Debentures – Note 9(a) 6,307,343 5,727,606 575,505 546,910 Financial liabilities – Note 10(b) (3,062,390) (2,811,396) (271,295) (272,749) Funding – Funds from acceptance and issue of securities and Time Deposits – Funds from financial bills, bills of credit and similar notes (1,473,137) (1,267,770) (95,888) (95,453) Financing funds – subordinated debt (1,589,253) (1,543,626) (175,407) (177,296) Eurobonds 3,416,271 2,881,745 238,205 79,869 Swap Fixed x Libor (3,455,640) (3,576,551) Marketable securities – Available for sale – Note 8(a-I and III) – Corporate securities issued by financial institutions 504,029 238,025 15,983 (1,826) Other credit risk instruments – Note 9(a) 2,912,242 2,643,720 222,222 81,695 Financial liabilities – Note 10(b) (9,334,900) (5,848,159) (262,026) (53,499) 9,958,724 6,233,491 Funding – Structured funding – Structured CD (1,890,590) (892,343) (31,424) (4,263) Swap Fixed x Libor 1,881,633 909,216 Financing funds (7,444,310) (4,955,816) (230,602) (49,236) 8,077,091 5,324,275 Liabilities for marketable securities abroad – US$ 500,000 – 02.08.2018 (2,274,175) (1,722,598) (112,110) (48,561) 2,709,435 2,044,196 Subordinated debt (5,170,135) (3,233,218) (118,492) (675) Swap Fixed x Libor 5,367,656 3,280,079 US$ 500,000 – 01.27.2011 (2,439,525) (2,010,130) (2,728) 6,383 2,640,083 2,063,601 US$ 300,000 – 06.06.2014 (1,643,973) (1,223,088) (76,170) (7,058) 1,643,393 1,216,478 US$ 200,000 – 02.14.2020 (1,086,637) - (39,594) - 1,084,180 - Total 38,038,307 51,901,390 252,052 378,140 (38,765,267) (47,150,597) (1) The hedge derivative instruments are shown net of hedged items recognized at fair value through profit or loss, totaling R$ (3,719,311) (R$ (3,325,506) as at 12.31.2019), represented by derivative instruments in the amount of R$ (2,231,315) (R$ (2,293,230) as at 12.31.2019) and Government securities – NTN-B in the amounts of R$ 402,565 (R$ 660,384 as at 12.31.2019) – Note 8(a-I) and Note 7(a) and R$ (1,890,561)(R$ (1,692,660) as at 12.31.2019) – Note 7(b).
The effectiveness of accounting hedges designated by Safra is in accordance with the provisions of BACEN Circular 3,082/2002.
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Consolidated Financial Statements | Banco Safra S.A.
9. CREDIT PORTFOLIO a) Expanded credit portfolio and allowance for credit risk I -Breakdown of the expanded credit portfolio
12.31.2020 12.31.2019 Allowance Amortized Amortized for credit Amortized Fair value Amortized Fair value cost and Fair Allowance for credit risk cost and risk cost adjustment cost adjustment value Minimum Fair value Additional Total Total required Credit portfolio 108,284,018 1,246,230 109,530,248 (2,356,358) (1,281,794) (3,638,152) 92,626,217 1,170,174 93,796,391 (2,968,022) Credit operations 94,326,828 441,362 94,768,190 (2,301,574) (1,189,635) (3,491,209) 79,266,015 529,614 79,795,629 (2,864,066) Fair value hedge – Note 8(d) 49,749,833 441,362 50,191,195 44,291,755 529,614 44,821,369 Other 44,576,995 - 44,576,995 34,974,260 - 34,974,260 Other credit risk instruments – Note 8(a-III) 13,957,190 804,868 14,762,058 (54,784) (92,159) (146,943) 13,360,202 640,560 14,000,762 (103,956) Fair value hedge – Note 8(d) 8,527,417 804,868 9,332,285 8,183,559 640,560 8,824,119 Other 5,429,773 - 5,429,773 5,176,643 - 5,176,643 Guarantees and sureties – Note 9(f) 17,684,058 - 17,684,058 (270,891) (126,706) (397,597) 17,273,417 - 17,273,417 (353,927) Expanded Credit Portfolio as at 12.31.2020 125,968,076 1,246,230 127,214,306 (2,627,249) (1,408,500) (4,035,749) 109,899,634 1,170,174 111,069,808 (3,321,949) Expanded Credit Portfolio as at 12.31.2019 109,899,634 1,170,174 111,069,808 (2,127,630) (1,194,319) (3,321,949) II - Changes in credit portfolio Foreign exchange Write-offs of Loss Opening gains Net financial Interest – – Closing
balance or losses abroad change Note 12(b-I) Note 9(a-III) balance Operations with companies 67,196,617 3,092,946 4,996,964 5,546,754 (478,097) 80,355,184 Consumer loan and finance operations 26,599,774 - (802,365) 3,941,617 (563,962) 29,175,064 Total credit portfolio as at 12.31.2020 93,796,391 3,092,946 4,194,599 9,488,371 (1,042,059) 109,530,248 Total credit portfolio as at 12.31.2019 86,381,351 640,546 (2,492,615) 9,903,671 (636,562) 93,796,391 III - Changes in allowance for credit risk Foreign exchange Opening gains or losses (Recognition) Write-offs of Loss – Closing balance abroad /Reversal Note 9(a-II) balance Minimum allowance required (2,127,630) (2,272) (1,539,406) 1,042,059 (2,627,249)
Credit portfolio (1,933,557) (2,272) (1,462,588) 1,042,059 (2,356,358) Operations with companies (927,579) (2,272) (511,284) 478,097 (963,038) Consumer loan and finance operations (1,005,978) - (951,304) 563,962 (1,393,320) Guarantees and sureties (194,073) - (76,818) - (270,891) Additional allowance (1) (1,194,319) - (214,181) - (1,408,500) Total allowance of the expanded credit portfolio as at 12.31.2020 – Note 9(a-I) (3,321,949) (2,272) (1,753,587) 1,042,059 (4,035,749) Total allowance of the expanded credit portfolio as at 12.31.2019 – Note 9(a-I) (2,979,857) (349) (978,305) 636,562 (3,321,949) Minimum allowance required (1,622,267) (349) (1,141,576) 636,562 (2,127,630) Credit portfolio (1,470,278) (349) (1,099,492) 636,562 (1,933,557) Operations with companies (978,403) (349) (245,032) 296,205 (927,579) Consumer loan and finance operations (491,875) - (854,460) 340,357 (1,005,978) Guarantees and sureties (151,989) - (42,084) - (194,073) Additional allowance (1,357,590) - 163,271 - (1,194,319) (1) The change refers to the reversal due to realization in the amount of R$ 331,319 in the first half, and recognition of the amount of R$ (545,500) in the second half – Note 2(a).
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Consolidated Financial Statements | Banco Safra S.A.
b) Credit portfolio and allowance by risk level
12.31.2020 12.31.2019 Risk levels AA A B C D E F G H Total Total Operations with companies 69,582,765 4,276,014 3,774,624 1,408,376 380,820 185,201 57,422 77,891 612,070 80,355,183 67,196,617 Credit operations 54,935,474 4,276,014 3,773,022 1,359,930 380,820 185,201 57,422 13,172 612,070 65,593,125 53,195,855 Borrowings, financing and discounted receivables 33,905,498 3,290,725 3,067,235 996,273 254,528 100,064 50,224 12,371 542,601 42,219,519 28,568,213 Foreign trade 15,512,178 485,670 442,708 199,133 120,167 83,479 7,197 797 11,923 16,863,252 17,876,636 Directed credit – rural, agroindustrial and real estate 2,018,330 230,858 122,648 62,887 1,129 1,614 - - 5,158 2,442,624 2,783,887 Onlending – BNDES/FINAME and Other 2,686,178 148,772 105,337 89,364 4,996 - - - 3,537 3,038,184 2,910,632 Lease 813,290 119,989 35,094 12,273 - 44 1 4 1,487 982,182 1,036,078 Other credits ------47,364 47,364 20,409 Other credit risk instruments 14,647,291 - 1,602 48,446 - - - 64,719 - 14,762,058 14,000,762 Consumer loan and finance operations 4,378,588 767,429 20,489,989 1,637,469 206,383 135,156 974,903 68,135 517,013 29,175,065 26,599,774 Payroll advance loan 84,142 90,808 7,878,727 52,929 32,862 32,066 24,413 18,653 131,178 8,345,778 8,974,309 Direct consumer credit 1,243,751 507,003 11,727,639 1,550,377 167,847 99,550 58,019 48,709 369,222 15,772,117 15,545,935 Personal credit 3,050,695 169,618 883,623 34,163 5,674 3,540 892,471 773 16,613 5,057,170 2,079,530 Total portfolio as at 12.31.2020 73,961,353 5,043,443 24,264,613 3,045,845 587,203 320,357 1,032,325 146,026 1,129,083 109,530,248 93,796,391 Past due (1) - - 268,981 264,552 163,468 129,493 156,785 70,863 711,667 1,765,809 1,710,926 Regular (2) 73,961,353 5,043,443 23,995,632 2,781,293 423,735 190,864 875,540 75,163 417,416 107,764,439 92,085,465 Minimum allowance required (12,232) (29,689) (271,290) (112,062) (75,667) (98,717) (516,387) (111,231) (1,129,083) (2,356,358) (1,933,557) Additional allowance (258,578) (17,290) (388,333) (212,096) (81,103) (44,934) (257,616) (21,844) - (1,281,794) (1,034,465) Total allowance of the credit portfolio as at 12.31.2020 (270,810) (46,979) (659,623) (324,158) (156,770) (143,651) (774,003) (133,075) (1,129,083) (3,638,152) (2,968,022) Total portfolio as at 12.31.2019 59,650,437 22,856,307 6,436,998 2,176,940 505,035 182,150 908,199 112,059 968,266 93,796,391 Past due (1) - - 389,662 321,499 173,835 148,453 76,610 55,672 545,195 1,710,926 Regular (2) 59,650,437 22,856,307 6,047,336 1,855,441 331,200 33,697 831,589 56,387 423,071 92,085,465 Minimum allowance required (3,237) (118,605) (94,973) (98,141) (55,159) (58,015) (458,662) (78,499) (968,266) (1,933,557) Additional allowance (226,006) (106,148) (135,357) (118,168) (95,611) (33,042) (286,654) (33,479) - (1,034,465) Total allowance of the credit portfolio as at 12.31.2019 (229,243) (224,753) (230,330) (216,309) (150,770) (91,057) (745,316) (111,978) (968,266) (2,968,022) (1) Past Due – transactions that have installments more than 14 days past due. (2) Regular – transactions not in arrears and/or installments no more than 14 days past due.
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Consolidated Financial Statements | Banco Safra S.A.
c) Breakdown of the portfolio and the minimum allowance for credit risk required
12.31.2020 Credit portfolio Minimum allowance required Past due Regular Total Past due Regular Total Operations with companies 291,262 80,063,921 80,355,183 (256,099) (706,939) (963,038) Credit operations 291,262 65,301,863 65,593,125 (256,099) (652,155) (908,254) Borrowings, financing and discounted receivables 231,210 41,988,309 42,219,519 (204,554) (556,518) (761,072) Foreign trade 13,836 16,849,416 16,863,252 (8,345) (66,342) (74,687) Directed credit – rural, agroindustrial and real estate 2,238 2,440,386 2,442,624 (1,938) (10,204) (12,142) Onlending – BNDES/FINAME and Other 2,631 3,035,553 3,038,184 (257) (9,220) (9,477) Lease 1,237 980,945 982,182 (895) (2,617) (3,512) Other credits 40,110 7,254 47,364 (40,110) (7,254) (47,364) Other credit risk instruments - 14,762,058 14,762,058 - (54,784) (54,784) Consumer loan and finance operations 1,474,547 27,700,518 29,175,065 (653,350) (739,970) (1,393,320) Payroll advance loan 310,476 8,035,302 8,345,778 (138,284) (112,777) (251,061) Direct consumer credit 1,058,702 14,713,415 15,772,117 (465,762) (199,710) (665,472) Personal credit 105,369 4,951,801 5,057,170 (49,304) (427,483) (476,787) Total as at 12.31.2020 1,765,809 107,764,439 109,530,248 (909,449) (1,446,909) (2,356,358) Total as at 12.31.2019 1,710,926 92,085,465 93,796,391 (702,138) (1,231,419) (1,933,557) Operations with companies 462,027 66,734,590 67,196,617 (298,065) (629,514) (927,579) Consumer loan and finance operations 1,248,899 25,350,875 26,599,774 (404,073) (601,905) (1,005,978)
d) Renegotiated transactions and credit recoveries
Portfolio Allowance for credit risk Past due 81,257 (79,630) Past due transactions: From 15 to 30 days 16,604 (16,249) From 31 to 60 days 12,007 (11,122) From 61 to 90 days 10,440 (10,325) From 91 to 180 days 5,898 (5,626) From 181 to 365 days 36,308 (36,308) Regular 259,125 (253,006) Past due - up to 14 days 752 (695) Falling due: From 01 to 90 days 28,511 (26,463) From 91 to 365 days 76,279 (73,220) Over 365 days 153,583 (152,628) Total as at 12.31.2020(1) 340,382 (332,636) Total as at 12.31.2019(1) 391,630 (383,621) (1) The allowance for credit risk is equivalent to 97.7% of the portfolio (98.0% as at 12.31.2019). The recoveries of credits written-off as loss in the period amounted to R$ 356,916(R$ 200,585 in 2019), and are shown in Statement of Income.
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Consolidated Financial Statements | Banco Safra S.A.
e) Breakdown of the credit portfolio by maturity of credit operations
12.31.2020 12.31.2019 Minimum Minimum allowance allowance Portfolio required Portfolio required PAST DUE 1,765,809 (909,449) 1,710,926 (702,138) Past due transactions: From 15 to 30 days 396,620 (72,836) 529,618 (105,380) From 31 to 60 days 294,728 (41,739) 396,258 (89,197) From 61 to 90 days 233,832 (94,702) 239,213 (75,902) From 91 to 180 days 369,115 (228,786) 311,014 (196,836) From 181 to 365 days 471,514 (471,386) 234,823 (234,823) REGULAR 107,764,439 (1,446,909) 92,085,465 (1,231,419) Past due - up to 14 days 128,477 (6,439) 230,559 (7,638) Falling due: From 01 to 30 days 8,691,915 (73,177) 8,998,996 (94,115) From 31 to 60 days 7,838,263 (77,260) 8,049,074 (61,003) From 61 to 90 days 4,398,062 (45,315) 4,658,815 (51,686) From 91 to 180 days 12,979,209 (141,779) 11,576,930 (120,793) From 181 to 365 days 16,217,262 (232,817) 13,400,370 (218,635) From 1 to 2 years 21,367,061 (346,235) 15,439,660 (288,230) From 2 to 3 years 14,740,742 (236,320) 9,247,359 (196,122) From 3 to 5 years 14,484,551 (241,457) 10,754,178 (173,170) Over 5 years 6,918,897 (46,110) 9,729,524 (20,027) TOTAL 109,530,248 (2,356,358) 93,796,391 (1,933,557)
The balance of transactions more than 60 days past due, non-accrued, amounts to R$ 1,074,461 (R$ 785,050 as at 12.31.2019) and more than 90 days past due amounts to R$ 840,629 (R$ 545,837 as at 12.31.2019).
f) Credit commitments (off balance) Off balance amounts related to financial guarantee contracts are as follows:
12.31.2020 12.31.2019 Guarantees, sureties and other guarantees provided – Note 9(a-I) (1) 17,684,058 17,273,417 AA 16,910,914 16,827,165 A 160,222 187,691 B 129,722 89,500 C 77,931 37,059 D - 500 E 202,483 - F - 7,124 H 202,786 124,378 Granted limits (2) 14,968,208 15,794,239 Total 32,652,266 33,067,656 Contractual term: Up to 90 days 15,295,549 13,066,046 From 91 to 365 days 8,021,492 8,498,276 From 1 to 2 years 4,323,680 5,211,751 From 2 to 3 years 1,198,831 1,717,108 From 3 to 5 years 2,607,033 2,523,319 Over 5 years 1,205,681 2,051,156 (1) The income of guarantees, sureties and other pledged guarantees is shown in Note 12(b-I). (2) Basically refer to credit limits granted but not used, characterized by the option for cancellation by Safra, the average term being 90 days.
g) Extension of terms – COVID-19 (CMN Resolution 4,803/20) In the period, we have granted requests for term extension from customers who are in compliance with their obligations and meet all the conditions to maintain their ratings, as established in CMN Resolution 4,803/20.
12.31.2020
Quantity of Transaction Balance of Balance of postponed customers balance postponed portion portion/transaction
Operations with companies 785 1,906,708 323,968 17% Consumer loan and finance operations 47,581 1,316,209 71,641 5% Total 48,366 3,222,917 395,609 12%
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Consolidated Financial Statements | Banco Safra S.A.
10. FINANCIAL LIABILITIES AND MANAGED ASSETS a) Summary I - By pricing
12.31.2020 12.31.2019 At fair At fair At amortized Value – At amortized Value – cost Note 8 (d) Total cost Note 8 (d) Total
Funding 118,738,858 12,227,635 130,966,493 88,602,606 9,058,501 97,661,107 Open market deposits and funding – corporate securities 15,350,441 - 15,350,441 13,145,629 - 13,145,629 Funds from acceptance and issue of securities and Time deposits 97,707,138 8,821,545 106,528,683 71,157,566 6,442,244 77,599,810 Structured funding – Note 8(b-II(1)) 5,681,279 3,406,090 9,087,369 4,299,411 2,616,257 6,915,668 Borrowings and onlending 16,554,389 - 16,554,389 12,524,348 - 12,524,348 Foreign borrowings 13,126,978 - 13,126,978 8,386,927 - 8,386,927 Domestic onlending 3,210,923 - 3,210,923 3,220,721 - 3,220,721 Other borrowings 216,488 - 216,488 916,700 - 916,700 Financing funds 2,683,215 9,761,567 12,444,782 2,676,926 7,119,034 9,795,960 Liabilities for marketable securities abroad - 2,274,175 2,274,175 - 1,722,598 1,722,598 Subordinated debt 2,683,215 7,487,392 10,170,607 2,676,926 5,396,436 8,073,362 Total financial liabilities – Note 10(b) 137,976,462 21,989,202 159,965,664 103,803,880 16,177,535 119,981,415 Managed funds – Note 10(c) 101,555,852 88,207,259 Consolidated private pension funds – Note 10(c) 20,018,466 18,146,393 Total financial liabilities and managed assets 281,539,982 226,335,067
II - By counterparty
12.31.2020 12.31.2019 Customer Customer funds Market funds Total funds Market funds Total
Funding 117,240,606 13,725,887 130,966,493 90,507,784 7,153,323 97,661,107 Open market deposits and funding – corporate securities 12,334,583 3,015,858 15,350,441 10,046,945 3,098,684 13,145,629 Funds from acceptance and issue of securities and Time deposits 98,872,426 7,656,257 106,528,683 75,614,633 1,985,177 77,599,810 Structured funding – Note 8(b-II(1)) 6,033,597 3,053,772 9,087,369 4,846,206 2,069,462 6,915,668 Borrowings and onlending - 16,554,389 16,554,389 - 12,524,348 12,524,348 Foreign borrowings - 13,126,978 13,126,978 - 8,386,927 8,386,927 Domestic onlending - 3,210,923 3,210,923 - 3,220,721 3,220,721 Other borrowings - 216,488 216,488 - 916,700 916,700 Financing funds 4,387,560 8,057,222 12,444,782 4,319,560 5,476,400 9,795,960 Liabilities for marketable securities abroad - 2,274,175 2,274,175 - 1,722,598 1,722,598 Subordinated debt 4,387,560 5,783,047 10,170,607 4,319,560 3,753,802 8,073,362 Total financial liabilities – Note 10(b) 121,628,166 38,337,498 159,965,664 94,827,344 25,154,071 119,981,415 Managed funds – Note 10(c) 101,555,852 88,207,259 Consolidated private pension funds – Note 10(c) 20,018,466 18,146,393 Total financial liabilities and managed assets 281,539,982 226,335,067
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Consolidated Financial Statements | Banco Safra S.A.
b) Financial liabilities
I - By maturity
12.31.2020 12.31.2019 Amounts by maturity Up to From 91 to From 1 to From 2 to From 3 to Over 90 days 365 days 2 years 3 years 5 years 5 years Total Total
Funding 28,798,593 62,794,679 25,603,014 8,450,327 4,400,417 919,463 130,966,493 97,661,107 Open market deposits and funding – corporate securities 10,627,097 4,455,772 66,210 - - 201,362 15,350,441 13,145,629 Deposits 7,512,062 1,500,754 66,210 - - - 9,079,026 7,501,658 Demand deposits 2,171,246 - - - - - 2,171,246 1,601,650 Savings deposits 4,104,127 - - - - - 4,104,127 2,801,323 Deposits from financial institutions (1) 1,236,689 1,500,754 66,210 - - - 2,803,653 3,098,685 Open market funding – Corporate securities – Debentures 3,115,035 2,955,018 - - - 201,362 6,271,415 5,643,971 Funds from acceptance and issue of securities and Time deposits 17,287,714 56,115,223 23,441,214 6,772,762 2,245,428 666,342 106,528,683 77,599,810 Time deposits 14,284,302 43,154,346 6,284,938 2,045,547 107,613 9,807 65,886,553 36,178,835 Funds from financial bills, bills of credit and similar notes 3,003,412 12,960,877 17,156,276 4,727,215 2,137,815 656,535 40,642,130 41,420,975 Financial bills 2,270,708 11,178,132 12,187,220 2,636,260 666,779 281,068 29,220,167 27,578,713 Commercial leasing bills 277,055 236,748 92,406 5,962 7,653 - 619,824 5,173,465 Agribusiness credit notes 389,943 1,382,138 4,605,316 1,999,938 1,442,509 375,467 10,195,311 7,964,979 House loan bills, mortgage bills and other 65,706 163,859 271,334 85,055 20,874 - 606,828 703,818 Structured funding – Note 8(b-II(1)) 883,782 2,223,684 2,095,590 1,677,565 2,154,989 51,759 9,087,369 6,915,668 Fixed income (3) - 1,107,056 653,233 82,655 - - 1,842,944 976,469 Certificate of structured transactions 777,894 571,228 1,105,376 1,242,445 445,066 51,759 4,193,768 3,871,938 Structured CD – Note 8(b-III) 105,888 545,400 336,981 352,465 1,709,923 - 3,050,657 2,067,261 Hedge (5) 2,641 131,709 229,089 99,415 1,427,736 - 1,890,590 892,343 Other 103,247 413,691 107,892 253,050 282,187 - 1,160,067 1,174,918 Borrowings and onlending 3,037,579 11,300,007 752,696 574,132 471,352 418,623 16,554,389 12,524,348 Foreign borrowings (4) 2,551,076 10,575,902 - - - - 13,126,978 8,386,927 Domestic onlending 270,015 724,105 752,696 574,132 471,352 418,623 3,210,923 3,220,721 National Treasury 94,332 85,173 11,937 - - - 191,442 308,975 BNDES 104,682 403,797 478,037 384,937 327,645 297,532 1,996,630 1,633,146 FINAME 71,001 235,135 262,722 189,195 143,707 121,091 1,022,851 1,278,600 Other borrowings 216,488 - - - - - 216,488 916,700
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Consolidated Financial Statements | Banco Safra S.A.
12.31.2020 12.31.2019 Amounts by maturity
Up to From 91 to From 1 to From 2 to From 3 to Over 90 days 365 days 2 years 3 years 5 years 5 years Total Total
Financing funds 2,627,176 297,942 164,312 2,919,291 1,531,692 4,904,369 12,444,782 9,795,960 Liabilities for marketable securities abroad –
US$ 500,000 – 02.08.2018 – Fixed (4.12% p.a.) – Hedge (2) (5) - - - 2,274,175 - - 2,274,175 1,722,598 Subordinated debt – Note 10(b-III) 2,627,176 297,942 164,312 645,116 1,531,692 4,904,369 10,170,607 8,073,362 Financial bills – LF 171,155 297,942 164,312 645,116 1,531,692 2,190,255 5,000,472 4,840,144 CDI (100% to 119%) + (interest from 0.68% p.a. to 1.62%
p.a.) 26,116 163,305 23,944 225,823 1,148,234 1,038,196 2,625,618 2,622,767 IGPM + (interest from 2.94% p.a. to 6.68% p.a.) - 4,764 - - - 814 5,578 3,671 IPCA + (interest from 3.43%p.a. to 8.82% p.a.) – Hedge (5) 145,039 87,060 111,085 365,251 238,512 642,306 1,589,253 1,543,626 Fixed (7.26% p.a. to 17.66% p.a.) – Hedge (5) - 42,813 13,238 18,068 144,946 508,939 728,004 619,592 Selic (109% to 110.5%) - - 16,045 35,974 - - 52,019 50,488 Medium term notes – Hedge (5) 2,456,021 - - - - 2,714,114 5,170,135 3,233,218 Perpetual – Note 19(b) 16,496 - - - - 2,714,114 2,730,610 1,223,088 US$ 200,000 at 5.80% p.a. – 02.14.2020 7,703 - - - - 1,078,934 1,086,637 - US$ 300,000 at 7.52% p.a. – 06.06.2014 8,793 - - - - 1,635,180 1,643,973 1,223,088 US$ 500,000 at 6.75% p.a. – 01.27.2011 2,439,525 - - - - - 2,439,525 2,010,130 Total financial liabilities as at 12.31.2020 34,463,348 74,392,628 26,520,022 11,943,750 6,403,461 6,242,455 159,965,664 119,981,415 Total financial liabilities as at 12.31.2019 35,797,253 41,130,057 16,987,307 12,654,764 8,068,733 5,343,301 119,981,415 Funding 33,228,584 33,294,889 13,594,771 11,985,046 4,736,392 821,425 97,661,107 Borrowings and onlending 2,488,457 7,531,044 993,337 517,211 587,251 407,048 12,524,348 Financing funds 80,212 304,124 2,399,199 152,507 2,745,090 4,114,828 9,795,960 (1) Of this amount, R$ 230,158 (R$ 357,833 as at 12.31.2019) refers to operations linked to rural credit. (2) Includes incurred transaction costs of R$ 2,369 (R$ (5,279) as at 12.31.2019) – Note 3(b-II). (3) Transactions made with derivative financial instruments – Options. (4) Credit facilities for financing imports and exports. (5) Note 8(d).
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Consolidated Financial Statements | Banco Safra S.A.
II - By changes
01.01. to 12.31.2020 Recognition in income Foreign Change in fair exchange Net Interest paid value Opening gains or financial of financing Interest – adjustment – Total Closing balance losses change activities Note 12(b-II) Note 8(c) income balance Funding 97,661,107 1,054,324 29,050,059 - 3,177,695 23,308 3,201,003 130,966,493 Open market deposits and funding – corporate securities 13,145,629 489,146 1,431,175 - 284,491 - 284,491 15,350,441 Funds from acceptance and issue of securities and Time deposits 77,599,810 1,615 26,310,385 - 2,611,783 5,090 2,616,873 106,528,683 Time deposits 36,178,835 1,615 28,484,225 - 1,219,158 2,720 1,221,878 65,886,553 Funds from financial bills, bills of credit and similar notes 41,420,975 - (2,173,840) - 1,392,625 2,370 1,394,995 40,642,130 Structured funding – Note 8(b-II(1)) 6,915,668 563,563 1,308,499 - 281,421 18,218 299,639 9,087,369 Borrowings and onlending 12,524,348 2,521,887 1,099,844 - 408,310 - 408,310 16,554,389 Financing funds 9,795,960 1,576,528 606,723 (377,299) 693,195 149,675 842,870 12,444,782 Liabilities for marketable securities abroad 1,722,598 497,827 (38,887) (46,393) 96,759 42,271 139,030 2,274,175 Subordinated debt (1) 8,073,362 1,078,701 645,610 (330,906) 596,436 107,404 703,840 10,170,607 Total financial liabilities as at 12.31.2020 119,981,415 5,152,739 30,756,626 (377,299) 4,279,200 172,983 4,452,183 159,965,664 Total financial liabilities as at 12.31.2019 112,237,909 952,114 133,622 (251,048) 6,384,702 524,116 6,908,818 119,981,415 Funding 89,457,619 148,625 2,618,086 - 5,212,262 224,515 5,436,777 97,661,107 Open market deposits and funding – corporate securities 9,135,618 21,551 3,640,048 - 348,593 (181) 348,412 13,145,629 Funds from acceptance and issue of securities and Time deposits 74,224,423 17,151 (1,405,665) - 4,561,798 202,103 4,763,901 77,599,810 Structured funding – Note 8(b-II(1)) 6,097,578 109,923 383,703 - 301,871 22,593 324,464 6,915,668 Borrowings and onlending 13,429,094 603,332 (2,058,042) - 549,964 - 549,964 12,524,348 Financing funds 9,351,196 200,157 (426,422) (251,048) 622,476 299,601 922,077 9,795,960 Liabilities for marketable securities abroad 2,036,927 78,286 (496,671) (33,663) 83,928 53,791 137,719 1,722,598 Subordinated debt 7,314,269 121,871 70,249 (217,385) 538,548 245,810 784,358 8,073,362 (1) In the period, US$ 200,000 were raised, related to perpetual subordinated debts – Medium Term Notes, 5.80% p.a. interest with related parties – Notes 8(d) and 19(b).
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Consolidated Financial Statements | Banco Safra S.A.
III - Subordinated debt – by characteristic
12.31.2020 12.31.2019 Approved at BACEN In process of (1) Total Total Securities Without termination clause With termination clause approval at BACEN 2020 - - - - 322,418 2021 2,439,526 469,094 - 2,908,620 2,454,299 2022 6,264 158,049 - 164,313 152,505 2023 - 645,117 - 645,117 602,416 2024 - 434,100 - 434,100 420,076 2025 - 1,097,591 - 1,097,591 1,054,706 2026 - 921,383 162,106 1,083,489 1,033,901 2027 - 197,651 102,072 299,723 272,326 2028 - 367,477 4,230 371,707 325,697 2029 - 231,328 652 231,980 209,654 2030 - 145,289 55,688 200,977 - 2033 - 2,380 - 2,380 2,276 Perpetual (2) - 2,730,610 - 2,730,610 1,223,088 Total as at 12.31.2020 – Note 10(b-I) 2,445,790 7,400,069 324,748 10,170,607 8,073,362 Total as at 12.31.2019 – Note 10(b-I) 2,049,562 5,991,682 32,118 8,073,362 (1) The 2020 securities without termination clause fell due in the period (R$ 22,026 as at 12.31.2019). (2) On July 22, 2020, the Central Bank authorized through notice DEORF-120059319-05422, the perpetual subordinated debt transaction to comprise the Tier I of PR.
c) Managed assets The Safra Group, together with related party companies, are responsible for the management, administration and distribution of investment fund quotas, as follows:
12.31.2020 12.31.2019 Managed funds and consolidated private pension funds – Note 10(a) 121,574,318 106,353,652 Managed funds (1) 101,555,852 88,207,259 Consolidated private pension funds (2) 20,018,466 18,146,393 Funds of investment in quotas 116,023,877 111,740,017 Consolidated exclusive funds 1,996,456 6,390,078 Total net assets of funds 239,594,651 224,483,747 Total net assets of managed portfolio 2,574,758 2,721,288 Total managed assets 242,169,409 227,205,035 (1) Includes quotaholders of related parties in the amount of R$ 1,306,566 (R$ 4,772,370 as at 12.31.2019). (2) Recorded in liabilities in the line item “Insurance and private pension operations” – Note 11(c). The revenue from management, administration and distribution fees of such fund quotas are shown in Note 12(b-IV).
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Consolidated Financial Statements | Banco Safra S.A.
11. INSURANCE, REINSURANCE AND PRIVATE PENSION OPERATIONS
a) Summary
ASSETS LIABILITIES 12.31.2020 12.31.2019 12.31.2020 12.31.2019 Guarantee funds of technical reserves(Assets) – Note 11(b-I) and Technical reserves(Liabilities) – Note 11(c) (1) 20,415,449 18,389,404 20,412,245 18,373,139 Receivables from and payables for insurance and reinsurance operations (2) 242,081 130,139 10,486 16,451 Premium receivable amounts – Note 11(d-I(2)) 203,195 89,927 - - Premiums receivable – Note 11(d-I(1)) 201,362 88,554 - - Risks in force but not issued 8,807 5,030 - - Credit risk (6,974) (3,657) - - Reinsurance assets – Technical reserves – Note 11(d-II) (3) 36,164 38,285 - - Receivables from and payables for insurance and reinsurance operations 2,722 1,927 10,486 16,451 Gross amount 7,531 6,766 13,375 17,167 Credit risk (4,809) (4,839) (2,889) (716) Total 20,657,530 18,519,543 20,422,731 18,389,590 (1) Transactions classified in Current and Non-current Assets and Liabilities. (2) Transactions classified in Current Assets and Liabilities. (3) Substantially composed of PPNG in the amount of R$ 16,291 (R$ 18,331 as at 12.31.2019), PPNG-RVNE in the amount of R$ 258 (R$ 278 as at 12.31.2019), PSL in the amount of R$ 10,675 (R$ 8,828 as at 12.31.2019), PCP in the amount of R$ 5,430 (R$ 8,602 as at 12.31.2019) and IBNR in the amount of R$ 3,508 (R$ 2,245 as at 12.31.2019).
b) Guarantee funds of technical reserves of insurance and private pension
I. Breakdown
12.31.2020 12.31.2019 Amounts by maturity
Fair Up to From 91 to From 1 to From 2 to From 3 to Over value 90 days 365 days 2 years 3 years 5 years 5 years Fair value Private pension – Note 10(c) 20,018,466 3,975,531 2,283,029 4,597,010 2,603,772 1,834,136 4,724,988 18,146,393
Repurchase agreements – Government securities 48,410 48,410 - - - - - 20,805 Marketable securities - Securities portfolio 20,001,602 3,958,667 2,283,029 4,597,010 2,603,772 1,834,136 4,724,988 18,230,190 Government securities – National Treasury 13,171,492 585,422 1,050,731 3,144,509 1,986,132 1,679,932 4,724,766 14,655,998 National Treasury Bills 4,141,983 - 487,840 2,314,433 408,085 931,625 - 3,984,603 Financial Treasury Bills 2,768,006 585,422 562,891 830,076 309,395 205,953 274,269 5,569,971 National Treasury Notes 6,261,503 - - - 1,268,652 542,354 4,450,497 5,101,424 Corporate securities 6,830,110 3,373,245 1,232,298 1,452,501 617,640 154,204 222 3,574,192 Shares 1,744,948 1,744,948 - - - - - 1,156,011 Bank Deposit Certificates 1,159,067 115,721 709,173 334,173 - - - 860,547 Investment fund quotas 1,299,340 1,299,340 - - - - - 88,694 Debentures 860,332 5,855 24,371 93,877 607,677 128,330 222 198,651 Financial bills 1,766,423 207,381 498,754 1,024,451 9,963 25,874 - 1,270,289 Other (31,546) (31,546) - - - - - (104,602) Insurance – government securities – National Treasury Bills 396,983 1,205 395,778 - - - - 243,011 Receivables from reinsurance operations – Note 11(a) (1) 19,615 19,677 Credit rights – insurance premiums receivable 53,913 20,009 Total as at 12.31.2020 – Note 11(c-II) 20,415,449 3,976,736 2,678,807 4,597,010 2,603,772 1,834,136 4,724,988 18,389,404 Total as at 12.31.2019 – Note 11(c-II) 18,389,404 1,656,047 3,960,284 4,002,854 1,332,452 3,571,550 3,866,217 (1) The amount presented net of unearned premium reserve in the amount of R$ (16,549) (R$ (18,608) as at 12.31.2019) was not offered as downward asset adjustment of technical reserves.
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Consolidated Financial Statements | Banco Safra S.A.
II. Derivative financial instruments – Breakdown of notional amount by transaction type of the PGBL/VGBL investment fund
12.31.2020 12.31.2019
Amounts by maturity
B3 Up to 90 days From 91 to 365 days Over 365 days Total Total
Futures 588,745 493,011 10,596,645 11,678,401 7,132,659 Long position 375,867 - 4,828,699 5,204,566 1,971,196 Interest rate - - 4,828,699 4,828,699 1,470,963 Foreign currency 36,061 - - 36,061 79,443 Bovespa Index 339,806 - - 339,806 420,790 Short position 212,878 493,011 5,767,946 6,473,835 5,161,463 Interest rate 19,998 493,011 5,767,946 6,280,955 5,161,463 Foreign currency 65,304 - - 65,304 - Bovespa Index 127,576 - - 127,576 - TOTAL as at 12.31.2020 588,745 493,011 10,596,645 11,678,401 7,132,659
TOTAL as at 12.31.2019 500,433 1,241,450 5,390,776 7,132,659
c) Technical reserves - Liabilities I. Breakdown
INSURANCE PRIVATE PENSION TOTAL 12.31.2020 12.31.2019 12.31.2020 12.31.2019 12.31.2020 12.31.2019 PMBAC and PMBC - - 20,017,600 18,145,533 20,017,600 18,145,533 PPNG 314,540 152,258 - - 314,540 152,258 PSL 22,177 17,623 - - 22,177 17,623 IBNR 6,082 3,449 - - 6,082 3,449 Other technical reserves – Note 11(e-I) 30,628 29,244 20,949 22,112 51,577 51,356 PCC 29,266 28,218 1,793 2,584 31,059 30,802 PDR 1,362 1,026 19,156 19,528 20,518 20,554 Reserves for outstanding amounts - - 269 2,920 269 2,920 Total 373,427 202,574 20,038,818 18,170,565 20,412,245 18,373,139
II. Coverage
12.31.2020 12.31.2019 Guarantee funds of technical reserves of insurance and private pension – Note 11(a) 20,415,449 18,389,404 Technical reserves – Note 11(a) (20,412,245) (18,373,139) Coverage surplus 3,204 16,265
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Consolidated Financial Statements | Banco Safra S.A.
III. Changes
(1) Technical reserves of private pension
01.01. to 12.31.2020 01.01. to 12.31.2019 Opening balance 18,170,565 14,561,873 Contributions 954,249 1,355,936 Net portability transfers 1,398,073 1,979,297 Redemption payments (1,235,426) (983,672) Benefits paid (1,221) (1,042) Financial adjustment – Note 11(f) 756,392 1,255,608 Recognition/(reversal) of technical reserves – Note 11(e-II) (1,163) (49) PCC (791) (239) PDR (372) 190 Reserves for outstanding amounts (2,651) 2,614 Closing balance 20,038,818 18,170,565
(2) Changes in technical reserves of insurance
01.01. to 01.01. to 12.31.2020 12.31.2019 CLAIMS PSL, IBNR PSL and PDR PCC – PPNG SUBTOTAL TOTAL TOTAL and PDR judicial Note 11 (e-II) Opening balance 152,259 8,644 12,427 21,071 29,244 202,574 170,884 Incurred claims - 14,384 667 15,051 - 15,051 8,768 Change in technical reserves 162,281 - - - - 162,281 23,394 Supplementary Coverage Reserve (PCC) and Reserve for Related Expenses (PDR) – Net – Note 12(b-V) - - - - 1,384 1,384 7,798 Reversal of reserve due to claim payment - (11,353) (528) (11,881) - (11,881) (10,280) Financial adjustment – Note 11(f) - - 4,018 4,018 - 4,018 2,010 Closing balance 314,540 11,675 16,584 28,259 30,628 373,427 202,574
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Consolidated Financial Statements | Banco Safra S.A.
d) Receivables from insurance and reinsurance operations I. Premiums receivable - Assets (1) Installments by maturity
12.31.2020 12.31.2019 PAST DUE(1) REGULAR(2) TOTAL TOTAL Past due: 1,622 5,338 6,960 6,350 From 01 to 30 days 511 4,622 5,133 3,921 From 31 to 60 days 510 716 1,226 1,590 From 61 to 120 days 601 - 601 839 Falling due: 5,352 189,050 194,402 82,204 From 01 to 30 days 305 15,948 16,253 7,365 From 31 to 60 days 233 8,841 9,074 5,330 From 61 to 120 days 336 15,600 15,936 9,908 From 121 to 180 days 336 13,873 14,209 7,598 From 181 to 365 days 2,540 36,552 39,092 21,142 Over 365 days 1,602 98,236 99,838 30,861 TOTAL as at 12.31.2020 6,974 194,388 201.362 88,554 TOTAL as at 12.31.2019 3,657 84,897 88,554 (1) Policies with installments more than 60 days past due are fully provisioned. (2) Policies not due and/or with installments up to 60 days past due.
(2) Changes in the period
01.01. to 12.31.2020 01.01. to 12.31.2019 Opening balance 89,927 54,335 (+) Written premiums and risks in force not yet issued (1) 479,315 325,845 (-) Receipts (375,801) (296,203) (+) Changes in credit risks (3,317) (2,512) (+) Interest on receipt of premiums 13,071 8,462 Closing balance 203,195 89,927 (1) Do not include amounts to be passed on of reinsurance premium of R$ 17,762 (R$ 18,279 in 2019).
(3) Changes in credit risk
01.01. to 12.31.2020 01.01 to 12.31.2019 Payables for insurance Premiums Insurance and reinsurance Reinsurance receivable companies operations (1) SUBTOTAL companies TOTAL (2) TOTAL Opening balance (3,657) (879) 796 (83) (3,960) (7,700) (5,568) Recognition / (Reversal) (3,317) (90) 2,167 2,077 120 (1,120) (2,132) Closing balance (6,974) (969) 2,963 1,994 (3,840) (8,820) (7,700) (1) Includes the premiums/commissions passed on to brokers, insurers and reinsurers and IOF on premiums not paid. (2) Note 12(b-V).
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Consolidated Financial Statements | Banco Safra S.A.
II. Reinsurance assets – Technical reserves – Note 12(a-II)
01.01. to 12.31.2020 01.01. to 12.31.2019 PPNG PSL (1) IBNR PCC (2) TOTAL TOTAL Opening balance 18,608 8,828 2,245 8,604 38,285 35,734 Changes in technical reserves (2,059) 4,904 1,263 (3,173) 935 3,472 Recoveries - (5,152) - - (5,152) (1,075) Inflation adjustment - 2,096 - - 2,096 154 Closing balance 16,549 10,676 3,508 5,431 36,164 38,285 (1) Includes 9 (10 as at 12.31.2019) legal claims of R$ 75 (R$ 2,696 as at 12.31.2019). (2) Note 11(e-I and II).
e) Supplementary Coverage Reserve (PCC) and Liability Adequacy Test (LAT) – Note 3(g-IV) I – Breakdown
12.31.2020 12.31.2019 Assets – Reinsurance assets - Note 11(d-II) 5,431 8,604 Liabilities (51,577) (51,356) Technical reserves - Insurance - Personal – Note 11(c-I) (30,628) (29,244) Technical reserves - Private pension – Note 11(c-I) (20,949) (22,112) Supplementary Coverage Reserve (PCC) and Reserve for Related Expenses (PDR) – Net (46,146) (42,752)
II – Effects on income
2020 2019 Reinsurance operations - Note 10(d-II) (3,173) 2,097 Insurance operations - Note 11(d-I(2)) (1,384) (7,798) Changes in insurance and private pension – Note 11(d-I(1)) 1,069 49 Supplementary Coverage Reserve (PCC) and Reserve for Related Expenses (PDR) – Net (3,488) (5,652)
f) Income from insurance and private pension operations
2020 2019 Finance income (expenses) from insurance and private pension operations 16,079 17,786 Finance income 776,368 1,276,035 Finance expenses (760,289) (1,258,249) Income from insurance, reinsurance and private pension operations – Note 12(b-V) 281,650 278,866 Income from private pension fund management services – Note 10(c) 192,905 277,754 Total 490,634 574,406 (1)
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Consolidated Financial Statements Banco Safra S.A.
12. OTHER FINANCIAL ASSETS AND LIABILITIES AND REVENUE, EXPENSES AND INCOME FROM OPERATIONS
a) Breakdown of financial assets and liabilities
12.31.2020 12.31.2019
ASSETS LIABILITIES ASSETS LIABILITIES Foreign exchange portfolio 932,131 958,673 1,113,478 1,132,603 Foreign exchange purchases pending settlement (M.E.) and payables for foreign exchange purchase (M.N.) (1) 209,361 253,008 530,545 541,159 Receivables for foreign exchange sales (M.N.) and Foreign exchange sales pending settlement (M.E.) 722,770 705,665 582,933 591,444 Collection and receipt of taxes and similar - 7,692 - 21,140 Negotiation and intermediation of securities 1,102,534 539,882 1,174,761 1,270,527 Funds from customers – Brokerage firm (2) 510,475 511,899 847,757 859,443 Financial assets and commodities pending settlement 592,059 27,983 327,004 411,084 Interbank and interdepartmental transactions - 234,351 12 183,201 Amounts receivable/(payable) – Acquirer 3,702,782 3,812,964 3,164,862 3,224,251 Other 106,810 1,067,336 82,517 557,853 Provisions for guarantees and sureties – Notes 9(a-I and III) - 270,891 - 194,073 Credit card administration obligations - 679,789 - 279,491 Other 106,810 116,656 82,517 84,289 Total (3) 5,844,257 6,620,898 5,535,630 6,389,575 (1) The foreign exchange gains on advance on foreign exchange contracts – Note 3(c) amount to R$68,732 (R$ 30,170 as at 12.31.2019) and were shown in the line item “Credit portfolio – Credit operations” – Note 9. (2) Basically refer to transactions in stock exchange recorded by Safra Corretora de Valores e Câmbio Ltda. (3) Transactions classified in Current Assets and Liabilities.
b) Revenues, expenses and income from operations
I - Income from financial intermediation
2020 2019 Expanded credit portfolio operations 9,718,019 10,164,858 Credit portfolio – Note 9(a-II) 9,488,371 9,903,671 Operations with companies 5,546,754 6,182,004 Consumer loan and finance operations 3,941,617 3,721,667 Guarantees provided and guarantees and sureties – Note 9(f) 229,648 261,187 Investments – interbank investments and compulsory deposits 578,363 1,327,550 Interbank investments – Own position 339,155 842,481 Income from Central Bank compulsory deposits – Note 6(b) 239,208 485,069 Investments linked to open market funding – Government securities 750,981 1,768,620 Gain on financial assets – Marketable securities – Securities portfolio 1,220,437 1,389,956 Government securities 1,128,173 1,288,166 Corporate securities issued by Financial Institutions and Companies 92,264 101,790 Other finance income 13,551 13,854 Total interest income 12,281,351 14,664,838
II - Financial intermediation expenses
2020 2019 Transactions with financial liabilities – Note 10(b-II) (4,279,200) (6,384,702) Transactions with funding (3,177,695) (5,212,262) Open market deposits and funding – corporate securities (187,365) (281,610) Funds from acceptance and issue of securities and Time deposits (2,611,783) (4,561,798) Structured funding (281,421) (301,871) Direct funding costs (97,126) (66,983) Borrowings and onlending (408,310) (549,964) Transactions with financing funds (693,195) (622,476) Liabilities for marketable securities abroad (96,759) (83,928) Subordinated debt (596,436) (538,548) Market funding operations – government securities – Note 7(b) (1,070,113) (2,066,458) Own portfolio (201,801) (217,946) Third-party portfolio (596,605) (1,495,849) Obligations related to unrestricted securities (271,707) (352,663) Other finance expenses (209,947) (155,615) Total interest expenses (5,559,260) (8,606,775)
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Consolidated Financial Statements Banco Safra S.A.
III - Income from financial instruments, net
2020 2019 Foreign exchange gains or losses on investment abroad (788,492) (104,395) Derivatives (Accrual) – Swap/Future/Other - Note 3(b-III) (1,005,867) (129,206) Income from financial instruments 278,009 305,691 Fair value adjustment of financial instruments – Note 8(c) 216,967 (174,730) Realized income from financial instruments (114,846) 494,072 Foreign exchange gains or losses on transactions in foreign currency 175,888 (13,651) Total – Note 18(c-II(2)) (1,516,350) 72,090
IV - Revenue from service, bank fees and foreign exchange transactions
2020 2019 Income from managed assets 1,530,270 1,274,215 Investment fund management and custody services and portfolio management – Notes 10(c) and 19(b) 1,178,502 1,059,316 Securities brokerage, custody and placement 351,768 214,899 Credit operations 243,693 337,858 Credit operations 303,978 405,356 Direct costs with credit operations (60,285) (67,498) Foreign exchange transactions and services 111,265 145,541 Current account and collection services 248,415 190,117 Total 2,133,643 1,947,731
V - Insurance, reinsurance and private pension operations
2020 2019 Income from retained premiums, net 295,627 278,859 Premium income – Note 11(d-I(2)) 461,553 307,566 Changes in technical reserves (165,926) (28,707) Claim income and expenses (9,414) (4,482) Acquisition 6,971 14,943 Credit risk – Note 11(d-I(3)) (1,120) (2,132) Gains or losses on supplementary reserve (3,488) (5,652) Other income and expenses (1) (6,926) (2,670) Total – Note 11(f) 281,650 278,866 (1) Includes the income net of DPVAT agreement.
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Consolidated Financial Statements Banco Safra S.A.
13. OTHER ASSET, LIABILITY, AND INCOME ACCOUNTS
a) Tax and contingent assets and liabilities
12.31.2020 12.31.2019 Tax and contingent assets 4,897,455 3,147,385 Contingent – Debtors for deposits in guarantee of contingent liabilities (2) 440,852 309,167 Tax and social security contingent liabilities and legal obligations (1) 309,789 174,602 Civil, labor – Note 14(c) 131,063 134,565 Tax (2) 4,456,603 2,838,218 Current – Taxes and contributions loss carryforwards 262,119 202,165 Deferred – deferred tax assets – Note 15(b-I(1)) 4,194,484 2,636,053 Tax liabilities and provisions for contingent liabilities 3,253,700 3,169,875 Provision for contingent liabilities – Note 14(c) 2,045,246 1,884,481 Tax (2) 1,208,454 1,285,394 Current 1,075,128 1,143,424 Taxes and contributions on profit payable 356,243 432,234 Taxes and contributions to be collected 238,394 185,648 Special Tax Regularization Program (PERT) (3) 480,491 525,542 Deferred – tax liabilities – Note 15(b-I(2)) 133,326 141,970 (1) The amounts linked to tax and social security contingent liabilities and legal obligations are disclosed in Note 14(c). (2) The transactions of debtors for deposits in guarantee of contingent liabilities and current tax assets and liabilities are classified in Current Assets and Liabilities, and deferred tax assets and liabilities are classified in Non-current Assets and Liabilities. (3) It refers to the debits payable in installments established by Law 13,496/2017, and consolidated through a non-financial company. The adjustment effects in the period amounted to R$ (13,151) (R$ (34,220) in 2019) and are recorded as contra-entry to income in the line item “Other finance expenses” – Note 12(b-II).
b) Other assets and liabilities
12.31.2020 12.31.2019 Total other assets (1) 142,993 116,423 Prepaid expenses 122,991 108,060 Sundry 20,002 8,363 Total other liabilities (2) 1,192,384 1,055,125 Provision for payables 913,289 718,960 Deferred income 73,075 67,566 Social and statutory – Note 17(b) 95,313 18,281 Liability transactions to be processed 75,762 217,921 Sundry 34,945 32,397 (1) Transactions classified in Current Assets. (2) Transactions classified in Current Liabilities.
c) Personnel expenses
2020 2019 Remuneration and profit sharing (2,108,529) (1,947,668) Benefits (234,166) (217,382) Payroll charges (489,188) (450,750) Employee termination and payroll additional allowance (212,906) (282,789) Total (3,044,789) (2,898,589)
d) Administrative expenses
2020 2019 IT and data processing equipment – Note 19(b) (1) (624,160) (493,725) Maintenance costs – Note 19(b) (1) (208,391) (200,322) Publicity and advertising (150,685) (210,574) Donations (33,690) - Surveillance, security and transport services (1) (36,268) (48,026) Third-party services (54,557) (39,841) Travel (28,299) (83,823) Financial system services (20,640) (19,254) Other (32,241) (46,674) Total (1,188,931) (1,142,239) (1) Includes depreciation and amortization expenses of property and equipment and intangible assets– Note 16(b).
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Consolidated Financial Statements | Banco Safra S.A.
14. CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS – TAX AND SOCIAL SECURITY a) Contingent assets: there is no contingent asset to be disclosed. b) Provisions and contingent liabilities - these are quantified as follows: I - Civil lawsuits: are substantially represented by indemnity claims for pecuniary damage and/or pain and suffering mainly related to direct consumer credit operations, collections and loans, protests of notes, inclusion of customer data in credit restriction databases and elimination of inflation effects in connection with economic plans on savings account balances. These civil lawsuits are evaluated when a court notice is received, and are classified as mass, when related to similar causes with insignificant amount, or as special, when there is a peculiarity in the lawsuit filed, arising from the significance of the amount involved, or from matter with corporate importance or different from ordinary lawsuits. The provision recorded for mass lawsuits is monthly calculated based on the average historical cost of payments of lawsuits settled in the last 12 months, also considering the average fees paid in the same period and claims settled with favorable outcome. This average cost is adjusted quarterly and multiplied by the amount of lawsuits in progress in the portfolio on the last business day of the month. The special lawsuits are individually evaluated concerning the likelihood of loss, and are periodically reviewed and quantified based on progress, on the evidence submitted and/or on case law in accordance with the evaluation of management and internal legal counsel. A provision is recognized when the likelihood of unfavorable outcome is considered probable. II - Labor claims: lawsuits filed to claim alleged labor rights derived from the labor legislation specifically relating to professional category, especially overtime. These labor claims are evaluated when a court notice is received, and are classified as technically evaluated. The lawsuits are individually evaluated concerning the likelihood of loss, and are periodically reviewed and quantified based on progress, on the evidence submitted and on case law in accordance with the evaluation of management and internal legal counsel. A provision is recognized insofar as the probability of loss is considered probable, and adjusted by average ticket (claims with risk under one million reais) and special cases (claims with risk above one million reais) based on the considered risk, and both with the amount effectively paid for claims over the past 24 months. These adjustments are quarterly recalculated. The provision arising from the technical evaluation is adjusted by the amounts of the judicial deposits. The full amount of the deposits is provisioned by in cash. III - Tax and social security lawsuits: these are mainly represented by administrative proceedings and lawsuits related to municipal and federal taxes. They are individually quantified when the notice of the administrative proceedings is received, based on the amounts assessed and are adjusted monthly. The provision is recognized at the full amount for proceedings classified as probable loss. The legal obligation is recognized notwithstanding the risk classification of loss. IV - Other risks: specific contingent liabilities quantified and provisioned per individual evaluation, basically represented by Salary Variations Compensation Fund (FCVS) provisions and reinsurance. c) The provisions recognized and the related changes are as follows: 01.01. to 01.01. to 12.31.2020 12.31.2019 Tax and social security Civil Labor contingent liabilities Other Total Total and legal obligations(3) Opening balance 402,176 552,531 766,664 163,110 1,884,481 1,623,138 Adjustment / Charges (1) 37,130 36,931 10,295 90,882 175,238 90,469 Changes in the period reflected in profit or loss (2) 105,038 97,949 125,989 20,000 348,976 410,818 Recognition / (Reversal) 132,282 103,628 139,415 20,000 395,325 497,032 Reversal due to favorable decision (27,244) (5,679) (13,426) - (46,349) (86,214) Payment (116,779) (219,992) (27,699) - (364,470) (266,275) Other changes - - - 1,021 1,021 26,331 Closing balance (6) 427,565 467,419 875,249 275,013 2,045,246 1,884,481 Deposits in guarantee of appeals (4) 52,173 78,890 291,091 - 422,154 Marketable securities in guarantee (5) - 83,536 - - 83,536 Total amounts guaranteed as at 12.31.2020 52,173 162,426 291,091 - 505,690 Deposits in guarantee of appeals (4) 55,010 79,555 148,674 - 283,239 Marketable securities in guarantee (5) - 80,494 - - 80,494 Total amounts guaranteed as at 12.31.2019 55,010 160,049 148,674 - 363,733 (1) Recorded in “Other finance expenses”. (2) The changes in the civil, tax and labor contingencies are recorded in “Other operating income/(expenses)”. Non-recurring provisions in the amount of R$ 129,469 were recognized (R$363,302 in 2019) – Note 2(a), of which R$ 201,199 (R$ 273,502 in 2019) of tax contingent liabilities, related to the Levy of INSS on Profit Sharing in the amount of R$ 120,595 (R$ 273,502 in 2019) and R$ 80,604 related to ISS on operations, and reversal in the amount of R$ (71,730) (Recognition of R$ 89,800 in 2019) regarding the labor contingent liabilities related to the dispute about the update of the adjustment index, recognized as non- recurring gain (loss) – Note 2(a). In 2019, in civil lawsuits, the provision for economic plans was reversed in the amount of R$ 126,765. (3) The main proceedings involving tax and social security contingent liabilities and legal obligations are as follows: (i) Levy of INSS on Profit Sharing in the amount of R$ 399,504 (R$ 273,502 as at 12.31.2019) and payroll charges on prior notice and 1/3 of vacation pay in the amount of R$ 47,521 (R$ 40,308 as at 12.31.2019). (ii) ISS related to operations: several tax assessment notices and lawsuits related to the levy of tax on revenue other than price for provided service, in the amount of R$ 145,006 (R$ 88,963 as at 12.31.2019); (iii) Deductibility of loan portfolio in the amount of R$ 37,831 (R$ 49,061 as at 12.31.2019); (iv) Levy of PIS and COFINS on income from interest on capital in the amount of R$ 99,888 (R$ 99,888 as at 12.31.2019); (v) PER/DCOMPs not ratified by the Federal Revenue Service of Brazil in the amount of R$ 39,538 (R$ 59,067 as at 12.31.2019); (vi) Good Law (used, but not ratified) recognized in the amount of R$ 24,928 (R$ 25,286 as at 12.31.2019); (vii) Income Tax/Social Contribution (IR/CS) on Debenture recognized in the amount of R$ 18,138 (R$ 17,971 as at 12.31.2019). (4) Note 13(b). (5) Note 8(a-III). (6) Of this amount, R$ 292,639 (R$ 217,891 as at 12.31.2019) is classified in Current and R$ 1,752,607 (R$ 1,666,590 as at 12.31.2019) in Non-current. The amount of the contingent liabilities classified as a possible loss related to civil lawsuits, not recognized, is R$ 45,770 (R$ 50,979 as at 12.31.2019). There is no labor contingent liability and tax and social security proceedings classified as possible loss. 42
Consolidated Financial Statements | Banco Safra S.A.
15. TAXES a) Breakdown of income tax and social contribution expenses I – Reconciliation of income tax and social contribution expenses
2020 2019 Profit before income tax and social contribution 1,106,078 2,588,426 Charges (income tax and social contribution) at standard rates – Note 3(j) (497,735) (1,035,371) Permanent (additions) deductions 1,425,112 658,146 Effect of foreign exchange gains (losses) on investments abroad 418,340 55,830 Interest on capital – Note 17(b) 260,545 291,843 Non-deductible expenses, net of non-taxable income 142,149 73,483 Deferred tax assets related to other changes – Note 15(b-I) 388,350 228,147 Deferred tax assets not recognized in previous periods and other 215,728 8,843 Income tax and social contribution for the period – Note 18(c-II(2)) 927,377 (377,225)
II – Tax expenses of operations
2020 2019 PIS / COFINS (425,036) (467,456) Service tax (ISS) (109,185) (95,113) Total – Note 18(c-II(2)) (534,221) (562,569)
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Consolidated Financial Statements | Banco Safra S.A.
b) Deferred tax assets and liabilities – Note 13(a) I – Change and realization of deferred tax assets and liabilities (1) Deferred tax assets - Origin of income tax and social contribution tax credits
01.01. to 12.31.2020 Opening Recognition/ Other changes Closing
balance (Reversal) Realization (1) (2) balance Allowance for credit risk 1,402,172 895,842 (377,187) 388,350 2,309,177 Provision for contingent liabilities – Note 14(c) 800,865 206,244 (156,643) - 850,466 Fair value adjustment of financial instruments 59,452 93,820 - - 153,272 Other 217,266 111,612 (26,309) - 302,569 Total for temporary differences 2,479,755 1,307,518 (560,139) 388,350 3,615,484 Income tax and social contribution loss carryforwards 156,298 446,208 (23,506) - 579,000 Total as at 12.31.2020 2,636,053 1,753,726 (583,645) 388,350 4,194,484 Total as at 12.31.2019 2,168,632 685,851 (460,804) 242,374 2,636,053 (1) As at December 31, 2020, the balance of deferred tax assets not recognized related to additional ALL as at June 30, 2020 was recognized in the amount of R$ 388,350. (2) In 2019, the amount of R$ 228,147 was recognized related to the increase in the CSLL rate from 15% to 20%, as established in the Constitutional Amendment 103/2019 – Notes 2(a) and 15(a-I).
(2) Deferred tax liabilities
01.01. to 12.31.2020 Opening balance Recognition/(Reversal) Other changes (1) Closing balance Excess depreciation 131,924 (7,369) - 124,555 Other 10,046 (1,275) - 8,771 Total as at 12.31.2020 141,970 (8,644) - 133,326 Total as at 12.31.2019 243,588 (115,845) 14,227 141,970
III – Expected realization of deferred tax assets for temporary differences, income tax and social contribution losses and deferred taxes on excess
Deferred tax assets Income tax and Provision for deferred Temporary social contribution taxes and Deferred Realization year differences loss carryforwards Total contributions Taxes net 2021 727,157 20,366 747,523 (64,728) 682,795 2022 1,012,945 105,557 1,118,502 (33,402) 1,085,100 2023 1,146,055 147,406 1,293,461 (18,971) 1,274,490 2024 150,397 178,064 328,461 (9,999) 318,462 2025 395,651 106,334 501,985 (4,338) 497,647 2026 to 2030 183,279 21,273 204,552 (1,888) 202,664 Total 3,615,484 579,000 4,194,484 (133,326) 4,061,158 Present value (1) 3,290,066 508,483 3,798,549 (125,788) 3,672,761 (1) For adjustment at present value, the CDI projected interest rate for future periods was used, net of tax effects. The technical study on realization of Deferred Tax Assets is reviewed every six months, supporting the totality of recognized amounts. The calculations were made under the terms of Article 6 of CMN Resolution 3,059/2002.
44
Consolidated Financial Statements | Banco Safra S.A.
16. PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
a) Breakdown
12.31.2020 12.31.2019 Accumulated Property and Accumulated Property and Cost depreciation / amortization equipment, net Cost depreciation / amortization equipment, net Property and equipment 929,908 (342,269) 587,639 854,149 (237,505) 616,644 Facilities, furniture and equipment in use 243,287 (72,004) 171,283 231,732 (58,264) 173,468 IT and data processing equipment 632,428 (251,764) 380,664 556,421 (147,612) 408,809 Other 54,193 (18,501) 35,692 65,996 (31,629) 34,367 Intangible assets – software 377,920 (184,122) 193,798 282,522 (123,413) 159,109 Total (1) 1,307,828 (526,391) 781,437 1,136,671 (360,918) 775,753 (1) Of this amount, R$ 161,384 (R$ 138,929 as at 12.31.2019) refer to property and equipment in progress.
b) Changes
Property and equipment Intangible assets Total 2020 2019 2020 2019 2020 2019 Opening balance 616,644 377,073 159,109 141,350 775,753 518,423 Acquisition entries 159,997 353,437 97,573 68,272 257,570 421,709 Write-offs (14,563) (8,052) - - (14,563) (8,052) Changes in the period reflected in income (173,356) (102,496) (62,849) (49,787) (236,205) (152,283) Depreciation/amortization expenses – Note 13(d) (163,963) (98,629) (62,849) (49,787) (226,812) (148,416) Facilities, furniture and equipment in use (15,791) (14,384) - - (15,791) (14,384) IT and data processing equipment (140,286) (76,835) (62,849) (49,787) (203,135) (126,622) Other (7,886) (7,410) - - (7,886) (7,410) Impairment (1) (9,393) (3,867) - - (9,393) (3,867) Other (1,083) (3,318) (35) (726) (1,118) (4,044) Closing balance 587,639 616,644 193,798 159,109 781,437 775,753 (1) Recorded in the line item “Other operating income (expenses)”.
45
Consolidated Financial Statements Banco Safra S.A.
17. EQUITY
a) Shares Banco Safra S.A.’s capital is represented by 15,300 (15,300 as at 12.31.2019) registered shares, with no par value, out of which 7,650 (7,650 as at 12.31.2019) are common shares, which comprise classes “A”,”D” and “J” with 2,142 shares each and class “E” with 1,224 shares and 7,650 (7,650 as at 12.31.2019) preferred shares. The shareholding control of Banco Safra S.A. will be jointly exercised by Vicky Safra and her children. At the Board of Directors’ Meeting held on December 30, 2020, it was resolved to increase the company’s capital in the amount of R$ 322,034 – Note 17(b), related to receivables related to interest on capital without issuing new shares. Such capital increase is in approval process at BACEN.
b) Dividends and interest on capital The shareholders are entitled to an annual minimum mandatory dividend, as provided in the Bylaws, equivalent to 1% and 2% of the capital corresponding to common and preferred shares, respectively. At the meetings of the Executive Board and the Board of Directors held on January 31, 2020, February 28, 2020, April 30, 2020 and December 30, 2020, interest on capital for the period was declared in the amount of R$ 578,989, which net of withholding income tax represents R$ 492,141. Of this amount, the following amounts were paid in the period: R$ 93,581, R$ 322,034 for capital increase – Note 17(a), and R$ 76,525 was maintained in the line item “Social and statutory” – Note 13(b).
The declared amounts are within the limits established in CMN Resolutions 4,885 and 4,820/2020.
c) Revenue reserves
12.31.2020 12.31.2019 Revenue reserves 1,862,767 408,301 Legal 227,411 125,738 Special (1) 1,635,356 282,563 (1) Reserve recognized to enable the saving of resources for future contribution of these funds to capital, payment of interim dividends, maintaining operating margin compatible with the development of the company's operations and / or expansion of its activities.
d) Carrying value adjustment of available-for-sale financial assets – Change
01.01. to 01.01. to 12.31.2020 12.31.2019 Opening balance 2,553 6,433 Adjustment from changes in fair value 17,036 (3,880) Available-for-sale securities – Note 8(c) 34,061 (5,922) Tax effect (17,025) 2,042 Closing balance (1) 19.589 2,553 Gross amount – Notes 8(a-I) and (c) 36,462 2,401 Tax effect (16,873) 152 (1) There is no amount that will not be subsequently reclassified in net income upon realization.
46
Consolidated Financial Statements Banco Safra S.A.
18. RISK AND CAPITAL MANAGEMENT Banco Safra performs risk management by using the methodology of three lines of defense and has a set of procedures, aligned with the best market practices, which ensure the fulfillment of legal and regulatory provisions, and internal policies. The information on the Pillar III Report is posted on Banco Safra’s website (www.safra.com.br) and BACEN’s open data portal, and comprise risk and capital management data, established by BACEN Circular 3,930/2019 and Circular Letter 3,936/2019. CMN Resolution 4,553/2017 divided the financial institutions into five segments, according to asset level and relevance of international operations, Banco Safra being classified as S2. Pursuant to CMN Resolution 4,557/2017, Banco Safra carries out the integrated risk management, which involves the interrelationship among finance, business, and risk and capital management processes. In its governance, it is worth noting that the Superior Risk Committee, comprising three members, is aimed at assisting the Board of Directors in fulfilling its responsibilities related to the integrated risk and capital management. In addition, the Chief Risk Officer (CRO), who reports to the Superior Risk Committee and Board of Directors, is responsible for the integrated risk management. Safra’s risk management framework also includes a formal Risk Appetite Statement (RAS) that contemplates the main indicators, metrics and principles that guide the carry out of the institution’s businesses and risk control. The RAS is periodically monitored by the executive officers and the Superior Risk Committee and approved by the Board of Directors. Banco Safra annually undertakes the Internal Capital Adequacy Assessment Process (ICAAP). This process, regulated by the BACEN, involves the evaluation of all procedures and processes related to risk and capital management in all hierarchical levels, including a forward-looking capital plan for a minimum period of three years. In addition, Safra participates, together with the other outstanding financial institutions, in the Bottom-Up Stress Test (TEBU) of BACEN. The objective of the above-mentioned processes is to bring greater solidity and security to the National Financial System, besides anticipating possible adjustments necessary to maintain the proper functioning of the market.
a) Credit risk Credit risk is defined as the possibility of incurring losses associated with the (i) breach, by the counterparty, of its obligations under the agreed-upon terms, (ii) devaluation, reduction in expected remunerations and gains on financial instrument arising from the impairment of the credit quality of the counterparty, intervening party or other mitigating instrument, (iii) restructuring of financial instruments, or (iv) recovery costs of exposures characterized as problem assets. The credit risk definition comprises, among others: the credit risk of the counterparty, understood as the possibility of breach, by a certain counterparty, of the obligations related to the settlement of transactions that involve the negotiation of financial assets, including those related to the settlement of derivative financial instruments; the country risk, understood as the possibility of losses associated with the breach of financial obligations under the terms agreed-upon by the borrower or counterparty located abroad as a result of the actions taken by the government of the country where the borrower or counterparty is located, and the transfer risk, understood as the possibility of encountering obstacles to exchange remittance of the received amounts; the possibility of incurring disbursements for meeting guarantees, sureties, co-obligations, credit commitments or other transactions of similar nature; the possibility of losses associated with the breach of financial obligations under the terms agreed-upon by the intermediary or appropriate party of credit operations; and the concentration risk, understood as the possibility of losses associated with significant exposures. With the intention of maintaining Banco Safra’s credit risk at levels consistent with the traditional conservatism and recognized agility in decision making, it has policies aimed at adjusting the credit product to the customer profile.
Additionally, Banco Safra has a Credit Risk Management Committee, which concentrates the Credit Risk governance to ensure the overview of the credit cycle. To ensure the necessary independence for its operations, this committee is comprised of the CRO, Executive Officers and Superintendents with the following responsibilities: (i) analyze in detail the credit portfolios, (ii) follow up the concentration limits, (iii) define methodologies for calculating credit risk and stress testing, (iv) define the metrics for determining risk, (v) guarantee the strategic alignment among the areas and a systemic view of Credit Risk, (vi) guarantee a forum for technical discussion to make the evaluation of impacts regarding significant changes in policies, credit model and strategies involving credit cycle, (vii) follow up the performance of the Conglomerate’s credit portfolio, in order to guarantee its quality, as well as reformulate policies, if necessary, (viii) approve the key indicators to control exceptions to policies, (ix) follow up the performance of the score models used in the decision-making process, and (x) follow the criteria adopted for stress testing and the obtained results; I. Credit risk measurement
- Credit operations and other financial assets with credit characteristics For granting credit, Safra attempts to obtain the largest volume of information on the customer and its business, to evaluate the customer’s capacity to meet the obligations it assumed. This information, combined with the customer’s adherence to the established credit policies, support the ultimate decision making.
Once the transaction is approved, the credit risk starts to exist. From this point, the transaction is monitored on ongoing basis through internal model, aiming at measuring and detecting changes in the customer’s credit risk. Ongoing monitoring involves the analysis of customer’s condition and provided guarantees, concentration levels, default indicators, among other aspects.
If an increase in the transaction’s credit risk is detected, Safra establishes timely actions to guarantee the return of funds and maintain the operation’s profitability.
The internal credit risk measurement model involves the individual risk rating of transactions. The transaction rating takes into account the customer’s score, assigned based on market information, the customer’s behavior in relation to the bank, besides the level of guarantees received by the bank. Such credit risk measurements, which reflect the loss prospects, are incorporated into operational management, and determine the appropriate allowance for impairment loss to be recognized.
47
Consolidated Financial Statements Banco Safra S.A.
- Government securities, interbank investments and other debt securities The Financial Institution Limit Committee, which meets quarterly, approves, sets and monitors the credit limits by counterparty for Financial Institutions in treasury, foreign exchange and third-party fund management operations and monitors the credit quality.
Government securities are treated in the general limits of the Treasury Market Risk, and there is no limit to repurchase agreements with government securities and specific limits are set to securities of other countries. II. Control of risk limits and mitigation policies
Safra sets limits to the concentration of credit risk in a specific debtor, groups of debtors and industry segments. These risks are periodically monitored and subject to annual or more frequent reviews, when necessary. The limits on the credit risk level by product and industry are approved by the Credit Management. The exposure to credit risk is also managed through adjusting the limits granted based on the condition of the borrowers of actual and potential loans and advances. The exposure to the 300 major groups/customers is monitored quarterly by the "300 top risks committee" with the participation of two Credit Executive Officers. This Committee evaluates the capacity of providing funds to the needs for working capital, capital structure, profitability, seasonal aspects, specific aspects of the business line, customer service level, relationship with Safra, restrictions, guarantees, stockholding control, credit monitoring areas, size, parent company or headquarters data, and master file data. The assessment by this committee may result in the change in the customer rating. There are many other credit committees, which meet periodically, to individually assess risks, segregated by products and approval levels, according to the customers' size. Other specific control and mitigation measures are described below:
- Guarantees Safra uses a variety of policies and practices to mitigate credit risk. The most traditional of these measures is to take guarantees on disbursement. Safra has internal policy on acceptance of specific classes of guarantees or other credit risk mitigation instruments. The main types of direct and indirect guarantees for loans and advances are: Financial guarantees; Receivables; Statutory lien on assets, and Guarantees and sureties. Safra adopts a series of procedures that assure all guarantees required upon the approvals are correctly analyzed and formalized so as to guarantee their collection if required. The minimum guarantees required by credit type/product are defined in the product approval process and their application is always confirmed systemically (comparing the proposal approval with the contract signed). The requirement of guarantees arises from the credit risk level, so that customers with more fragile economic and financial position may be supported by guarantees capable of covering the transaction payment. Regardless of the setting of minimum limits for guarantees in each type, in the analysis of a transaction additional guarantees may be required, always seeking the transaction security.
All guarantees accepted in transactions are carefully analyzed to eliminate the possibilities of fraud, observing the prevailing rules, especially as regards the guarantee quality in case collection is required.
The guarantee liquidity control instruments ensure that the risk coverage level in relation to the guarantee is compatible with Safra's risk limits and current market conditions.
The periodicity of this monitoring varies according to the type of guarantee: In the case of collectible notes – daily monitoring of the receivables liquidity and risk coverage in relation to the guarantee; In the case of vehicles – constant monitoring of the asset's market value; For real estate – there is a specific committee that makes the revaluation of the real state offered in guarantee; Other cases, such as machinery – are evaluated when the transaction is closed, or when there is indication of impairment of the customer or operation.
The efficiency of this process enables the control and monitoring of the guarantee, and, consequently, the turnover of the customer's operations with Safra.
- Derivatives Safra maintains controls over the use of credit limits in derivative transactions, which may be impacted by individual operations or on an aggregate basis when there is a net position contract. Both the granting of limits and the monitoring of their use are made based on a fraction of the face value of the transaction, that is, by the Fractional Credit Risk, taking into account that in the moment the limit is granted this fraction is an estimate of the potential future gain, and in the moment the limit is used the fraction is the fair value of the settlement. This concept is used because a derivative contract will always be settled by the difference between the credit and debit balances.
- Credit commitments (off balance) Credit commitments represent unused portions of authorizations for credit granting in the form of loans and advances, guarantees or letters of credit. In relation to the credit risk in credit commitments, Safra is potentially exposed to losses in amounts equal to the total unused commitments. However, the probable loss amount is lower than the total unused commitments since most commitments depend on the maintenance, by customers, of specific credit standards. Safra monitors the maturity of credit commitments because long-term commitments in general offer a higher credit risk level than short-term commitments.
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Consolidated Financial Statements Banco Safra S.A.
III. Impairment loss policies The level of allowance for impairment loss is part of the credit risk management and measurement process. Allowances for impairment losses are recognized for purposes of preparation of the financial reports considering both the minimum allowance level established by CMN Resolution 2,682/1999 and the additional allowance for credit – Note 3(c).
IV. Maximum exposure to credit risk before guarantees or other credit improvements The exposure to credit risk related to assets recorded in the consolidated statement of the financial position is as follows:
Maximum exposure 12.31.2020 12.31.2019
Financial assets 119,541,638 89,227,696 Interbank investments and Central Bank compulsory deposits – Note 6 18,614,238 19,059,650 Financial assets 50,478,729 23,175,896 Marketable securities – Note 8(a-I) 46,900,659 21,432,590 Derivative financial instruments – Note 8(b) 3,578,070 1,743,306 Investments linked to open market funding – government securities – Note 7(a) 29,791,141 28,472,607 Insurance, reinsurance and private pension operations – Note 11(a) 20,657,530 18,519,543 Expanded credit portfolio – Note 9(a) 127,214,306 111,069,808 Credit portfolio 109,530,248 93,796,391 Operations with companies 80,355,183 67,196,617 Credit operations 65,593,125 53,195,855 Other credit risk instruments 14,762,058 14,000,762 Consumer loan and finance operations 29,175,065 26,599,774 Guarantees and sureties (off balance) – Note 9(f) 17,684,058 17,273,417 Granted limits (off balance) – Note 9(f) 14,968,208 15,794,239 TOTAL 261,724,152 216,091,743 Expanded credit portfolio – allowance for credit risk – Note 9(a) (4,035,749) (3,321,949) Total net maximum exposure – Note 18(a-VIII) 257,688,403 212,769,794 The above table represents the maximum exposure to credit risk without considering any guarantee or other credit improvements. For assets recorded in the statement of financial position, the exposures described above are based on net carrying amounts.
V. Quality of the financial assets subject to credit risk To assess the quality of its credit risk operations, Safra uses objective criteria that combine the customer's economic and financial information (customer score) with the accessory guarantees offered for operations, according to a rating model created by the Credit Management, as described below: Customer score: This is calculated using its own methodology, specific by type of customer (individual or business) and the company's size (with and without statement of financial position data / trial balance / analysis for assignment of score through the 300 top committee), which consists of assigning scores and determining the likelihood of default according to customer information such as: behavior of the customer in relation to the Bank, statement of financial position data (if any), external restriction, BACEN and master file data. The customer rating ranges from 1 to 9, with 1 being the worst rating and 9 the best rating. Guarantee: The guarantee amount pledged according to its liquidity and sufficiency, which determines the guarantee percentage (%) short of coverage in the operation. The breakdown of the main guarantees of the credit portfolio evaluated is as follows:
12.31.2020 12.31.2019 Financial guarantees 11,526,820 9,347,463 Machinery and vehicles 24,945,179 15,658,355 Other guarantees (1) 3,188,574 3,185,101 Total (2) 39,660,573 28,190,919 (1) Substantially comprising mortgage, chattel mortgage, credit rights, rights or receivables for credit card sales and pledge. (2) Total R$ 85,136,574 (R$ 63,086,796 as at 12.31.2019), when considering the guarantees and sureties in the amount of R$ 45,476,001 (R$ 34,895,877 as at 12.31.2019).
VI. Credit operations and renegotiated financial instruments Renegotiation activities include agreements for payment extension, plans approved by Safra, modification and deferral of payments. After renegotiation, the customer bill previously past due returns to the normal condition and is managed together with other similar bills. Renegotiation policies and practices are based on indicators and criteria that indicate a high probability of continuity of the payments. These policies are submitted to continuous review. VII. Repossession of guarantees The assets received in connection with debt consolidation processes, related to credit transactions derecognized in assets, are classified as “Non-current assets held for sale” and fully provisioned, as the institution’s experience shows a low probability of giving rise to short-term liquidity by selling the asset, which usually occurs in a time horizon of over 36 months – Note 3(c).
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Consolidated Financial Statements Banco Safra S.A.
VIII. Risk concentration of financial assets with credit risk exposure by economic activity To avoid credit risks being increased due to the excess concentration in the same economic risk factors, credit limits are set to customer individually and to the economic groups they belong. The limits set to groups are equal to the sum of the individual limits of the customers comprising them. The definition of credit limits specifies amounts for operations that avoid the excess concentration in one single customer, a same economic group, a certain business or economic segment, specific geographical regions, loans vulnerable to the same economic factors and a same business line. The definition of operational rules for taking credit provides specific treatment of term and guarantee for each business line. The monitoring of the excess concentration and specific treatments for business lines and specific geographical regions is made by the credit committees non-systematically and by monthly managerial controls of the credit portfolio, shared with Senior Management. The table below shows the main exposures to credit risk based on the carrying amounts and categorized by economic activity of the counterparties.
12.31.2020 12.31.2019 Expanded Financial credit Granted assets portfolio Limits TOTAL TOTAL Financial institutions 18,481,324 - - 18,481,324 10,608,625 Governments 98,802,799 - - 98,802,799 76,426,917 Industry and trade 1,842,034 60,913,845 7,266,875 70,022,754 60,929,886 Services 162,866 34,266,503 3,439,335 37,868,704 33,905,547 Individuals 252,615 27,105,883 3,691,815 31,050,313 29,077,988 Other customers - 4,928,075 570,183 5,498,258 5,142,780 Total 119,541,638 127,214,306 14,968,208 261,724,152 216,091,743 Expanded credit portfolio – allowance for credit risk – Note 9(a) - (4,035,749) - (4,035,749) (3,321,949) Total Net as at 12.31.2020 (1) 119,541,638 123,178,557 14,968,208 257,688,403 212,769,794 (1) Total Net as at 12.31.2019 89,227,696 107,747,859 15,794,239 212,769,794 (1) Note 18(a-IV). - Concentration of the expanded credit portfolio
12.31.2020 12.31.2019 1st to 10th largest customer 15,421,779 14,512,244 11th to 50th largest customer 20,717,216 19,741,314 51st to 100th largest customer 10,683,176 10,801,237 100 largest customers 46,822,171 45,054,795 Other customers 80,392,135 66,015,013 Total expanded credit portfolio 127,214,306 111,069,808 Expanded credit portfolio – allowance for credit risk – Note 9(a) (4,035,749) (3,321,949) Total 123,178,557 107,747,859
b) Liquidity risk Liquidity risk consists of the possibility that the institution may not have sufficient financial resources to meet its commitments as a result of mismatches between payments and receipts, considering the different currencies and settlement terms of assets and liabilities.
I. Liquidity risk management process To manage liquidity risk, committees for the management of assets and liabilities meet at least quarterly with the objective of devising liquidity strategies to be followed in a two-year horizon. Cash is monitored on a daily basis and reported to the managers and executive officers in charge.
Safra has a specific framework for monitoring and controlling liquidity risks. These activities are carried out by the Liquidity and Cash Flow management, an integral part of the Investment Risks area. Safra analyzes the history of payments and receipts of portfolios to assess the impacts on cash over time; the scenarios used are: run off of assets and liabilities; crisis in the institution itself (specific); systemic crisis combined with specific crisis (combined); and more severe systemic crisis (hard stress). The results from the use of these scenarios are discussed at the meetings of the Asset and Liability Committee. II. Funding approach The sources of liquidity are regularly reviewed by the Asset and Liability Committee in order to maintain the diversification of funding with respect to segments, providers, products and terms.
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Consolidated Financial Statements | Banco Safra S.A.
III. Cash flows of non-derivatives The table below shows the projected cash flows (not discounted), taking into account the run off of the portfolios of liabilities:
12.31.2020 Financial liabilities – Note 10(b) 60 days 90 days 180 days 360 days 720 days Over 720 days TOTAL Funding 20,673,838 8,124,755 29,738,785 33,055,894 25,603,014 13,770,207 130,966,493 Open market deposits and funding – corporate securities 9,398,295 1,228,802 2,945,475 1,510,297 66,210 201,362 15,350,441 Funds from acceptance and issue of securities and Time deposits 10,591,115 6,696,599 25,942,469 30,172,754 23,441,214 9,684,532 106,528,683 Structured funding (1) 684,428 199,354 850,841 1,372,843 2,095,590 3,884,313 9,087,369 Borrowings and onlending 793,833 2,243,746 1,672,540 9,627,467 752,696 1,464,107 16,554,389 Financing funds 2,613,660 13,516 53,194 244,748 164,312 9,355,352 12,444,782 Liabilities for marketable securities abroad - - - - - 2,274,175 2,274,175 Subordinated debt 2,613,660 13,516 53,194 244,748 164,312 7,081,177 10,170,607 Liquidity 24,081,331 10,382,017 31,464,519 42,928,109 26,520,022 24,589,666 159,965,664 (1) Of this amount, R$ 1,842,944 (R$ 976,469 as at 12.31.2019) are recorded in derivative financial instruments – Note 8(b). IV. Cash flows of derivatives
12.31.2020 60 days 90 days 180 days 360 days 720 days Over 720 days TOTAL Assets 786,574 230,907 1,154,873 84,263 172,022 1,149,718 3,578,357 Non Deliverable Forward (NDF) 38,956 23,790 68,719 19,764 2,138 - 153,367 Options 93,931 7,091 23,653 45,453 124,545 45,252 339,925 Swap – amounts receivable 645,094 194,867 1,024,269 18,476 36,951 1,094,973 3,014,630 Credit derivative 8,593 5,159 38,232 570 8,388 9,493 70,435 Liabilities (1,298,852) (355,720) (1,092,186) (138,076) (214,070) (527,489) (3,626,393) Non Deliverable Forward (NDF) (35,624) (26,104) (32,088) (28,497) (4,892) (3,838) (131,043) Options (462,939) (10,152) (22,122) (48,318) (159,260) (94,763) (797,554) Forward (40,894) - - - - - (40,894) Swap – amounts payable (759,395) (316,735) (1,022,930) (59,676) (49,448) (394,118) (2,602,302) Credit derivative - (2,729) (15,046) (1,585) (470) (34,770) (54,600)
V. Items not recorded in the statement of financial position As described in Note 9(f), the off balance items are: 1) guarantees and sureties that have a history of very low losses, and 2) for the credit limits granted and not used there is a contractual maturity term (total of 90 days) for use, and Safra may suspend the limit at any time. Therefore, Safra understands that the positions do not have material impacts on liquidity.
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Consolidated Financial Statements Banco Safra S.A.
c) Market risk Market risk is the possibility of incurring losses arising from fluctuations in the market values of the positions held, including (i) the risk of change in interest rates and stock prices, for instruments classified into trading portfolio; and (ii) the risk of change in foreign exchange rate and commodity prices, for instruments classified into trading or banking portfolio.
In relation to the IRRBB, it is defined as current or prospective risk of the impact of adverse changes in rates of interest on capital and income of the Financial Entity, for instruments classified into the banking portfolio. Banco Safra’s market risk management is structured to guarantee that the risk of extreme losses, arising from price fluctuations, is duly controlled, remaining within the operating limits set by the senior management, according to the Entity’s internal policies. Banco Safra has a Market Risk Committee, formed by the CRO, Executive Officers and Superintendents, which meets at least quarterly to take resolutions on methodology and new product issues that involve Treasury strategies. It addresses Market Risk management aspects, by setting and reviewing operating limits, following up metrics in effect, besides taking resolutions on possible extrapolations of limits or notices and approval of New Treasury Strategy Products. Banco Safra maintains its total exposure to market risks according to the limits set in the Risk Appetite Statement (RAS). In addition, Banco Safra performs the market risk management by using operating limits and other practices that maintain the exposure levels consistent with its internal standards and policies, that are as follows: (i) VaR (Value at Risk), (ii) Stress Testing, (iii) Stop Loss, (iv) Year Equivalent and DV01, (v) Notional, (vi) Consumption of market risk capital in relation to total capital, and (vii) delta EVE and delta NII. I. Sensitivity analysis (Trading and Banking portfolios) In accordance with the criteria for classification of operations provided in CMN Resolution 3,464/2007, BACEN Circular 3,354/2007 and the Basel II New Capital Accord, financial instruments are divided into Trading and Banking portfolios.
Trading Portfolio comprises all operations, including derivatives, held with the intent of trading or hedging other financial instruments of this strategy. They are transactions for resale, obtaining price difference benefits, either actual or expected, or for arbitrage. This portfolio has strict limits and is controlled on a daily basis by the risk areas. The Banking portfolio covers all operations that do not fit into Trading portfolio, and are typically structural operations of the institution’s business lines and the respective hedges that may or may not be made through the use of derivative financial instruments. The sensitivity analysis below is a simulation that does not take into consideration management’s response to the considered scenarios, which would certainly mitigate the losses that would be incurred. In addition to this, the impact presented below does not represent accounting losses as the methodology used is not based on Safra’s accounting practices, and should be interpreted as a sensitivity exercise.
Trading portfolio as at 12.31.2020 Scenarios Risk Factors Risk of changes in: 1 2 3 Shares Stock price (2,681) (67,029) (134,059) Commodities Commodity price (269) (6,729) (13,458) Currencies Foreign currency quote (919) (22,986) (45,972) Fixed income Interest rates denominated in real (74) (5,181) (10,074) Coupon Interest rates in foreign currency (148) (5,071) (9,935) Options Market value of options (2,065) (54,456) (108,874) Total (6,156) (161,452) (322,372)
Trading and Banking portfolio as at 12.31.2020 Scenarios Risk Factors Risk of changes in: 1 2 3 Shares Stock price (2,681) (67,029) (134,059) Commodities Commodity price (269) (6,729) (13,458) Currencies Foreign currency quote (849) (21,229) (42,459) Fixed income Interest rates denominated in real (2,193) (397,852) (775,082) Coupon Interest rates in foreign currency (774) (16,098) (31,838) Options Market value of options (2,065) (54,457) (108,874) Total (8,831) (563,394) (1,105,770)
The sensitivity analysis was carried out using the following scenarios: Scenario 1: Stress of one basis point in the interest rates, and 1% in price changes based on market information (B3, Anbima etc.). Example: the Real / Dollar rate used was R$ 5.2298 and the one-year fixed rate was 2.87% p.a.
Scenario 2: Stress of 25% in the respective curves or prices, based on the market. Example: the Real / Dollar rate used was R$ 6.4725 and the one-year fixed rate was 3.58% p.a.
Scenario 3: Stress of 50% in the respective curves or prices, based on the market. Example: the Real / Dollar rate used was R$ 7.7670 and the one-year fixed rate was 4.30% p.a.
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Consolidated Financial Statements | Banco Safra S.A.
II. Foreign exchange risk Safra is exposed to the effects of fluctuations in exchange rates on its exposures and cash flows denominated in foreign currencies or linked to exchange rate changes. The foreign exchange risk is monitored daily through the determination of the foreign exchange exposure in foreign currency. (1) The exposure by currency is shown below and includes positions in reais (BR), U.S. dollars (USD) and other currencies:
PER CURRENCY 12.31.2020 Assets BRL Strong currencies (1) Other currencies Total Cash – Note 5 196,461 1,300,576 7,587 1,504,624 Interbank investments and Central Bank compulsory deposits – Note 6 13,389,682 4,708,284 516,272 18,614,238 Financial assets – Notes 8(a) and (b) 43,317,644 7,161,085 - 50,478,729 Investments linked to open market funding – Government securities – Note 7(a) 29,791,141 - - 29,791,141 Insurance, reinsurance and private pension operations – Note 11(a) 20,657,530 - - 20,657,530 Credit portfolio – Note 9(a) 91,015,966 14,748,462 962 105,765,390 Tax and contingent assets – Note 13(a) 4,894,538 2,917 - 4,897,455 Other financial assets and Other assets – Notes 12 and 13(b) 5,208,592 778,658 - 5,987,250 Property and equipment and intangible assets 781,437 - - 781,437 Total Assets 209,252,991 28,699,982 524,821 238,477,794 Long position – Futures foreign exchange coupon – Note 8(b-II(1)) 65,192,564 28,716,729 - 93,909,293 Futures 2,266,861 1,265,694 - 3,532,555 NDF – Note 8(b-II(1)) 2,291,978 3,613,499 - 5,905,477 Foreign exchange option 1,406,512 191,137 - 1,597,649 SWAP and SCS 1,813,285 38,303,723 - 40,117,008 Notional amount - Off Balance – Derivative financial instruments – Assets 72,971,200 72,090,782 - 145,061,982 Total Assets as at 12.31.2020 (A) 282,224,191 100,790,764 524,821 383,539,776 Liabilities Financial liabilities and derivative financial instruments – Notes 10(b) and 8(b) 134,956,142 28,643,676 4,017 163,603,835 Open market funding – government securities – Note 7(b) 29,706,335 - - 29,706,335 Insurance and private pension operations – Note 11(a) 20,422,731 - - 20,422,731 Tax liabilities and provisions for contingent liabilities – Notes 13(a) and 14(c) 3,253,700 - - 3,253,700 Other financial liabilities and Other liabilities – Notes 12 and 13(b) 6,930,483 882,327 472 7,813,282 Total Liabilities 195,269,391 29,526,003 4,489 224,799,883 Short position – Futures foreign exchange coupon – Note 8(b-II(1)) 28,716,729 65,192,564 - 93,909,293 Futures 1,265,694 2,264,956 1,905 3,532,555 NDF – Note 8(b-II(1)) 3,613,499 1,774,813 517,165 5,905,477 Foreign exchange option 191,137 1,406,512 - 1,597,649 SWAP and SCS 38,303,723 1,813,285 - 40,117,008 Notional amount - Off Balance – Derivative financial instruments – Liabilities 72,090,782 72,452,130 519,070 145,061,982 Total Liabilities as at 12.31.2020 (B) 267,360,173 101,978,133 523,559 369,861,865 Net exposure – Equity (C) = (A) – (B) 14,864,018 (1,187,369) 1,262 13,677,911 Over Hedge of Investment abroad – Note 18(c-II(2)) (1,339,736) 1,339,736 - - Net position – Long/(Short) as at 12.31.2020 13,524,282 152,367 1,262 13,677,911 Net position – Long/(Short) as at 12.31.2019 11,329,568 507,553 47,254 11,884,375 (1) Strong currencies are considered to be the US dollar, Canadian dollar, euro, Swiss franc, yen, and pond Sterling, the same concept adopted by Bacen Circular 3,641/2013, which provides for the procedures to make the calculation of the amount of risk-weighted assets (RWA) for the assets subject to foreign exchange exposure.
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Consolidated Financial Statements | Banco Safra S.A.
(2) Over Hedge of investment abroad
To ensure 100% of the effectiveness of the foreign exchange hedge of investments abroad, Safra contracts an amount sufficiently greater of derivatives in relation to the exchange exposure posed (“Over Hedge”), in order to offset, in income, the corresponding tax effects. The foreign exchange exposure adjustment for this position is regulated by BACEN Circular 3,641/2013. The foreign exchange gains and losses of the excess of purchased derivatives (“Over Hedge") are recorded as derivative net revenue, as provided in the rules, affecting the gross financial margin of the entity. Given the economic rationale of the operation, the lines of the statement of income, reclassified considering the foreign exchange hedge strategy adopted by Safra, are as follows:
2020 Recorded Over Hedge Adjusted balance adjustment balance NET INCOME FROM FINANCIAL INSTRUMENTS – Note 12(b-III) (1,516,350) 788,492 (727,858) TAX EXPENSES OF OPERATIONS – Note 15(a-II) (534,221) (79,893) (614,114) NET INCOME FROM OPERATIONS 5,706,221 708,599 6,414,820 INCOME BEFORE TAXES 1,106,078 708,599 1,814,677 INCOME TAX AND SOCIAL CONTRIBUTION – Note 15(a-I) 927,377 (708,599) 218,778 NET INCOME 2,033,455 - 2,033,455
2019 Recorded Over Hedge Adjusted balance adjustment balance NET INCOME FROM FINANCIAL INSTRUMENTS – Note 12(b-III) 72,090 104,395 176,485 TAX EXPENSES OF OPERATIONS – Note 15(a-II) (562,569) (11,345) (573,914) NET INCOME FROM OPERATIONS 7,034,247 93,050 7,127,297 INCOME BEFORE TAXES 2,588,426 93,050 2,681,476 INCOME TAX AND SOCIAL CONTRIBUTION – Note 15(a-I) (377,225) (93,050) (470,275) NET INCOME 2,211,201 - 2,211,201
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Consolidated Financial Statements Banco Safra S.A.
d) Fair value of financial assets and liabilities I. Classification of the Fair value measurement methodology Safra classifies its fair value measurements using a hierarchy that reflects the materiality of inputs used in the fair value measurement process, which is always carried out from the perspective of the holder of the financial instrument – Note 4(b), according to the following levels:
Level 1 – quoted prices in active markets for identical instruments, without modification. Level 2 – quoted prices in active markets for similar instruments or prices of the asset itself, however, negotiated in markets with low liquidity. Due to such characteristics, the entity is required to use valuation techniques, however, with the use of significant inputs based on relevant observable market data. Level 3 – valuation techniques, for which any significant input is not based on relevant observable market data. The breakdown of financial assets and liabilities measured at fair value through profit or loss classified into hierarchical levels is as follows:
12.31.2020(1) Level 1 Level 2 Total Marketable securities – Note 8(a-III) (2) 71,820,267 2,739,999 74,560,266 Securities portfolio – Note 8(a-I) 44,168,649 2,739,999 46,908,648 Government securities 44,083,093 - 44,083,093 Securities issued by Financial institutions - 2,285,750 2,285,750 Securities issued by Companies 85,556 454,249 539,805 Own portfolio – Investments linked to open market funding – government securities – Note 7(a) 27,651,618 - 27,651,618 Other credit risk instruments – Note 9(b) - 14,762,058 14,762,058 (-) Securities designated to Hedge Market Risk (3) - (3,416,271) (3,416,271) Guarantee funds of technical reserves for insurance and private pension – Note 11(a) 15,361,833 5,053,616 20,415,449 Private pension 14,964,850 5,053,616 20,018,466 Repurchase agreements 48,410 - 48,410 Marketable securities - Securities portfolio 14,916,440 5,085,162 20,001,602 Government securities - National Treasury 13,171,492 - 13,171,492 Corporate securities 1,744,948 5,085,162 6,830,110 Other - (31,546) (31,546) Insurance – Government securities – National Treasury – National Treasury Bills 396,983 - 396,983 Derivative financial instruments – Assets – Note 8(b-I(1)) - 3,578,070 3,578,070 Non Deliverable Forward (NDF) - 153,367 153,367 Option premiums - 339,925 339,925 Swap – amounts receivable - 3,014,630 3,014,630 Credit derivatives – CDS - 70,435 70,435 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-IV) - (287) (287) Derivative financial instruments – Liabilities – Note 8(b-I(1)) (40,894) (3,597,277) (3,638,171) Non Deliverable Forward (NDF) - (131,043) (131,043) Option premiums - (797,554) (797,554) Forward – Government securities (40,894) - (40,894) Swap – amounts payable - (2,602,302) (2,602,302) Credit derivatives – CDS - (54,600) (54,600) Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-IV) - (11,778) (11,778) Obligations linked to repurchase agreements – government securities – Note 7(b) (1,635,130) - (1,635,130) Strategy – Market risk hedge – Note 8(d) - 38,038,307 38,038,307 Fixed-rate portfolio - 40,060,082 40,060,082 Assets – Credit portfolio – Note 9(a) - 49,651,994 49,651,994 Financial liabilities – funding – Note 10(b) - (9,591,912) (9,591,912) Assets – Credit portfolio – Trade finance – Note 9(a) - 651,901 651,901 IPCA portfolio - 3,244,953 3,244,953 Assets – Other credit risk instruments – Note 9(a) (3) - 6,307,343 6,307,343 Financial liabilities – funding – Note 10(b) - (3,062,390) (3,062,390) Eurobonds (3) - 3,416,271 3,416,271 Marketable securities – Available for sale – Note 8(a-III) - 504,029 504,029 Other credit risk instruments – Note 9(a) - 2,912,242 2,912,242 Financial liabilities – Note 10(b) - (9,334,900) (9,334,900) Funding – Structured funding – Structured CD - (1,890,590) (1,890,590) Financing funds - (7,444,310) (7,444,310) Liabilities for marketable securities abroad - (2,274,175) (2,274,175) Subordinated debt – Medium term notes - (5,170,135) (5,170,135) (1) No transaction was classified into level 3. (2) Of these amounts, R$ 35,734,427 refer to trading securities (R$ 35,108,573 classified into level 1 and R$ 625,854 into level 2), and R$ 11,174,221 refer to available-for-sale securities (R$ 9,060,076 classified into level 1 and R$ 2,114,145 into level 2). (3) Reclassification of the amount related to securities designated to hedge market risk (Eurobonds) – Note 8(d).
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Consolidated Financial Statements Banco Safra S.A.
II. Financial instruments not measured at fair value The following table summarizes the carrying amounts and fair values of financial assets and liabilities that were not stated in the statement of financial position at fair value:
12.31.2020 12.31.2019 Recorded Fair Recorded Fair balance value balance value Total financial assets 72,265,153 72,265,153 88,070,092 88,070,092 Cash – Note 5 1,504,624 1,504,624 1,312,970 1,312,970 Interbank investments and Central Bank compulsory deposits – Note 6 18,614,238 18,614,238 19,059,650 19,059,650 Investments linked to open market funding – Government securities – Note 7(a) 2,139,523 2,139,523 27,546,569 27,546,569 Credit portfolio – at amortized cost – Note 9 50,006,768 50,006,768 40,150,903 40,150,903 Total financial liabilities – Note 10(b) 137,976,462 137,983,458 103,803,880 103,812,675 Funding 118,738,858 118,745,836 88,602,606 88,611,189 Open market deposits and funding – corporate securities 15,350,441 15,350,441 13,145,629 13,146,708 Funds from acceptance and issue of securities and Time deposits 97,707,138 97,714,116 71,157,566 71,163,490 Structured funding – fixed rate 5,681,279 5,681,279 4,299,411 4,300,991 Borrowings and onlending 16,554,389 16,554,389 12,524,348 12,524,348 Financing funds – subordinated debt 2,683,215 2,683,233 2,676,926 2,677,138
The carrying amounts of the items cash and cash equivalents, interbank investments, Central Bank compulsory deposits and open market operations approximate their fair values. The carrying amounts of other items are contracted at floating rates, mostly CDI, and for this reason they approximate their fair values. The fair value of onlending operations is not shown because the changes between the carrying amount and the fair value of assets and liabilities approximate, since they are adjusted by the same index and, therefore, considered immaterial. The breakdown of financial assets and liabilities not presented in the statement of financial position, at fair value and classified into hierarchical levels, is as follows:
12.31.2020 Level 1 Level 2 Total
Total financial assets 22,258,385 50,006,768 72,265,153 Cash – Note 5 1,504,624 - 1,504,624 Interbank investments and Central Bank compulsory deposits – Note 6 18,614,238 - 18,614,238 Investments linked to open market funding – Government securities – Note 7(a) 2,139,523 - 2,139,523 Credit portfolio – at amortized cost – Note 9 - 50,006,768 50,006,768 Total financial liabilities – Note 10(b) 16,554,389 121,429,069 137,983,458 Funding - 118,745,836 118,745,836 Open market deposits and funding – corporate securities - 15,350,441 15,350,441 Funds from acceptance and issue of securities and Time deposits - 97,714,116 97,714,116 Structured funding – fixed rate - 5,681,279 5,681,279 Borrowings and onlending 16,554,389 - 16,554,389 Financing funds – subordinated debt - 2,683,233 2,683,233 12.31.2019 Level 1 Level 2 Total
Total financial assets 47,919,189 40,150,903 88,070,092 Total financial liabilities – Note 10(b) 12,524,348 91,288,327 103,812,675
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Consolidated Financial Statements Banco Safra S.A.
e) Operational risk Defined by Article 32 of Resolution 4,557/2017, operational risk is the possibility of incurring losses resulting from external events or failure, deficiency or inadequacy of internal processes, people and systems. Among the operational risk events, the following is included: (i) internal frauds, (ii) external frauds, (iii) labor claims and deficient occupational safety, (iv) inappropriate practices related to customers, products and services, (v) damages to own physical assets or asset in use by the Entity, (vi) situations that cause disruption to the Entity’s activities, (vii) failures in the Information Technology (IT) systems, processes or infrastructure, and (viii) failures in the execution, timing and management of the Entity’s activities.
This definition includes the legal risk associated with the inadequacy or deficiency in the contracts signed by the Entity, sanctions in view of the breach of legal provisions, and damages to third parties arising from the activities performed by the Entity.
In Safra, the Operational Risk management governance is structured not only by policies, processes and procedures, but also by the dissemination of the culture of operational risk prevention in its entire organization, and awareness of each employee, regardless of position or duty, of everybody’s responsibility for risk management during the performance of their duties in day-to- day activities.
In addition, the Operational and Compliance Risk Management Committee (CGROC), which relies on the participation of the CRO, Executive Officers and Superintendents, meets quarterly, or in a shorter period if necessary, takes resolutions on matters related to Operational Risk, Compliance, Reputation Risk and Social and Environmental Risk.
The Operational Risk area is an independent control unit (UC), segregated from the unit that performs internal audit activities, and is also responsible for the application of the methodology described in the document “Classification of the Critical Level of Outsourced Services” and Business Continuity Management. f) Underwriting risk The underwriting risk is the possibility of incurring losses which may be contrary to Safra’s expectations directly or indirectly associated with the actuarial and technical bases used for the calculation of premiums, contributions and technical reserves arising from insurance and private pension operations. Banco Safra has a risk underwriting policy formulated by the Technical Board, where it describes all the rules for the analysis and acceptance of risks, and also contains guidelines for the risks subject to previous analysis, as well as the excluded risks.
Safra’s Technical Board carries out risk assessment and it involves the following activities: I - Creation of new products;
II - Establishment of risk acceptance and underwriting policies; III – Monitoring of market and management of policy and product results;
IV - Follow-up and assessment of the co-insurance conditions; and V - Technical support to customers, brokers and representatives. Safra adopts the policy on transfer of risks in reinsurance and coinsurance, thus preventing claims with low rates and high value from affecting the stability of income. The changes in life or mortality expectations, which directly affect the assumed risk, are controlled through a periodical follow-up carried out by the actuarial area of Safra and its result is reflected, if necessary, in the adjustments of technical reserves. The main insurance lines operated by Safra are: comprehensive, D&O, surety bond, multiple peril, loss of profit, credit life, accident and life insurance, and DPVAT. In the private pension segment, the main products are: VGBL and PGBL. The main business risk of insurance operations is the change in loss ratio. The main business risks of private pension operations are the change in interest rate, life expectancy, and the likelihood of conversion of the accumulated fund into income. Gross written premiums by geographical region are as follows:
12.31.2020 Lines Southeast South Center West Northeast North Total Comprehensive 52,328 17,880 6,149 5,412 1,646 83,415 Credit life 144,607 46,020 23,920 25,779 12,645 252,971 Accidents 42,867 15,684 6,893 6,150 3,493 75,087 Group life 32,464 10,702 4,092 4,037 2,119 53,414 Other lines 7,029 1,343 495 1,479 225 10,571 Total (1) 279,295 91,629 41,549 42,857 20,128 475,458
12.31.2019 Lines Southeast South Center West Northeast North Total Comprehensive 22,575 7,932 2,733 3,595 577 37,412 Credit life 99,130 30,704 17,114 16,041 10,384 173,373 Accidents 32,861 10,910 4,874 4,762 3,316 56,723 Group life 27,028 6,811 2,831 2,917 1,783 41,370 Other lines 6,778 3,881 1,279 1,741 179 13,858 Total (1) 188,372 60,238 28,831 29,056 16,239 322,736 (1) The concentration of risk does not consider the policies in force but not issued and retrocession in the amount of R$ 3,778 (R$ 3,065 in 2019).
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Consolidated Financial Statements Banco Safra S.A.
g) Capital management Banco Safra's capital management aim is to manage its equity in view of the risks associated with its operations.
It includes the following aspects: - Fulfillment of the regulatory requirements of the banking markets where it operates;
- Safeguard its operating capacity so that it continues providing return to stockholders and benefits to other stakeholders; and - Maintenance of a solid capital base to support the development and sustainability of its business. As established in CMN Resolution 4,193/2013, the bank authority requires that each Bank or group of bank institutions records a minimum capital to face its risk-weighted assets (RWA). At present, Banco Safra’s minimum capital requirement is 9.25%, comprising 8.0% of minimum regulatory capital and 1.25% of capital buffer, which includes the portions of (1) Capital Conservation Buffer, (ii) Countercyclical Buffer, and (iii) Systemic Important Institution Buffer. Currently, only the Capital Conservation Buffer is required from Banco Safra, once the Systemic Important Institution Buffer is only applicable to the banks classified as domestic systemically important banks (D-SIB), whereas the Countercyclical Buffer is only activated by the regulatory authority during a credit cycle expansion phase, and its requirement will be informed 12 months in advance. The regulatory capital (PR) used for checking the fulfillment of the operational limits required by the regulatory authority comprises the following portions:
- Core capital – capital, retained earnings, reserves created for appropriating retained earnings, less deductions and regulatory adjustments;
- Additional capital – instruments with perpetual characteristics that meet the eligibility requirements. Added to Core capital, they comprise Tier I; and
- Tier II Capital – subordinated debt instruments with fixed maturity that meet the eligibility requirements. Risk-weighted assets (RWA) are measured according to the nature of each asset and its contra-entry, reflecting estimated market, operational, and credit risks and other associated risks. A similar treatment is adopted for the exposure that is not accounted for, with some adjustments made to reflect the more contingent nature of potential losses. The capital adequacy and the use of regulatory capital are monitored by Banco Safra, through techniques based on guidelines established by the Basel Committee, as implemented by the BACEN, for oversight purposes, as shown in the Summary Financial Statements – Key Indicators.
It is also worthy of note that the financial institutions are required to maintain the investment of funds in permanent assets, according the level of adjusted regulatory capital. The funds invested in permanent assets, determined on consolidated basis, are limited to 50% of the adjusted regulatory capital according to the regulation in effect. Banco Safra is in compliance with the established requirements. Consolidated equity reached R$ 13.7 billion as at December 31, 2020, and capital ratio stood at comfortable levels, as shown in the table below:
12.31.2020 12.31.2019 Regulatory Capital (PR) 19,210 16,810 Tier I 16,164 12,950 Core Capital 13,433 11,726 Additional 2,731 1,224 Tier II 3,046 3,860 RWA 131,577 120,543 Credit Risk 120,405 106,258 Market Risk 5,709 6,876 Operational Risk (POPR) 5,463 7,409 Basel Ratio [PR*100/RWA] 14.6% 13.9% Tier I 12.3% 10.7% Core Capital 10.2% 9.7% Tier II 2.3% 3.2% Risk of change in interest rates in instruments classified in the banking portfolio (IRRBB) 490 415 Capital Buffer (ACP) 1,645 3,014 Capital margin (PR-RWAxF-IRRBB-ACP) 6,549 3,738
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Consolidated Financial Statements Banco Safra S.A.
19. RELATED-PARTY TRANSACTIONS
a) Management remuneration: In corporate documents recorded for 2020, the management’s total annual remuneration was set at R$ 159,150 (R$ 147,300 in 2019). The remuneration received by management amounts to R$ (95,130) (R$ (104,859) in 2019).
The Group does not have any long-term benefits, termination benefit, or share-based payment arrangements for any key management personnel.
b) Related-party transactions Transactions between related parties are disclosed in accordance with CMN Resolution 4,636/2018. These are arm's length transactions, in the sense that the amounts, terms and average rates are those usual in the market on the respective dates.
The transactions between the companies included in consolidation were eliminated in the consolidated financial statements and also consider the void of risk.
Assets / (Liabilities) Income / (Expenses) 12.31.2020 12.31.2019 2020 2019 Cash – Note 5 515,145 239,311 (812) (9) Grupo J. Safra Sarasin 500,099 212,401 (748) (199) Safra National Bank of New York 15,046 26,910 (64) 190 Interbank investments – Foreign currency investments – Note 6(a) 2,475,500 2,488,151 11,991 49,693 Grupo J. Safra Sarasin - - 5,292 23,642 Safra National Bank of New York 2,475,500 2,488,151 6,699 26,051 Credit portfolio – credit operations (2) 37,213 30,195 330 115 Other assets and liabilities, net 153,759 61,260 3,908 15,936 Financial liabilities – Note 10(b) (4,489,482) (2,507,219) (207,307) (115,159) Funding (1,758,872) (1,284,131) (34,281) (28,690) Deposits (1,618,317) (1,154,486) (23,210) (16,796) Grupo J. Safra Sarasin (490,823) (309,753) (1,491) (1,508) Safra National Bank of New York (1,034,639) (841,395) (19,646) (15,288) Other companies (92,855) (3,338) (2,073) - Funds from acceptance and issue of securities – Funds from financial bills, bills of credit and similar notes – Safra Institutes (140,555) (129,645) (11,071) (11,894) Financing funds – Subordinated debt – Entities abroad owned by owners of the parent (3) (2,730,610) (1,223,088) (173,026) (86,469) Administrative expenses – Note 13 (d) - - (143,057) (101,032) Maintenance costs – Rents - - (98,403) (118,183) Exton Participações Ltda. - - (39,980) (40,678) J. Safra Participações Ltda. - - (23,373) (24,163) Harvel Participações Ltda. - - (12,751) (1,673) Kiama S.A. - - (2,065) (17,424) Lebec Participações Ltda. - - (9,682) (9,911) Other companies - - (10,552) (7,026) Data processing and telecommunications – J. Safra Telecomunicações Ltda. - - (44,432) (17,151) Other - - (222) (157) Rent income – Casablanc Representação e Participação Ltda. - - 102 102 Operations with investment funds – Note 10(c) Open market funding – government securities – Note 7(b) (15,385,004) (20,547,666) (469,503) (743,204) Funds from acceptance and issue of securities and Time deposits (1,882,961) (2,120,783) (43,041) (74,233) Time deposits – Bank deposit certificate (364,922) - (922) - Funds from financial bills, bills of credit and similar notes – Financial bills (1) – Note 10(b) (1) (1,518,039) (2,120,783) (42,119) (74,233) Revenue from management and administration of investment funds – Note 12(b-IV) - - 1,178,502 1,059,316 (1) Of this amount, R$ 253,227 (R$ 118,015 as at 12.31.2019) refer to subordinated financial bills. (2) Operations made in the scope of CMN Resolution 4,693/2018. (3) Securities in custody in Grupo J. Safra Sarasin.
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Consolidated Financial Statements Banco Safra S.A.
20. OTHER INFORMATION
a) Insurance policy Banco Safra and its subsidiaries, despite having a reduced risk level in view of the physical non-concentration of assets, have the policy of insuring their amounts and assets at amounts considered adequate to cover any possible claims.
b) Audit committee The Audit Committee (“Committee”) of Banco Safra S.A.is a statutory body that operates on permanent basis in compliance with the provisions of Resolution 3,198, of 05.27.2004, of the National Monetary Council (CMN) and Resolution 312, of 07.15.2015, of the National Council of Private Insurance (CNSP). The Committee directly reports to the Board of Directors and is formed by five members, of which three are Executive Officers of the Company and two are independent members.
c) The impacts of Covid-19 on the Financial Statements As at the disclosure date of these financial statements, Safra has identified the following main impacts: a) increase in the requests for term extension of credit operations – Note 9(g); b) impacts on the allowance for credit risk – Note 9(a-III); c) impacts on the pricing of financial instruments arising from the higher market volatility – Note 12(b-III); and d) increase in liquidity and funding – Note 10(b). In view of the challenge posed by the Covid-19 pandemic to all, it is not yet possible to estimate when the crisis will be over and its developments. Even though two vaccines have just been available in Brazil (Oxford and Coronavac), until the reporting date of the year ended December 31, 2020, no vaccination plan has been proposed and the vaccines were pending approval from the Brazilian Health Regulatory Agency (ANVISA). At the disclosure date of the accompanying financial statements, the Federal and State Government vaccination plan prioritized the health care workers and the population in the high-risk group, and there was no clear prospect of significant decreasing the contagion levels. Therefore, Safra cannot estimate the duration of the imposed restrictions, given the above-mentioned scenario.
Therefore, we understand that there is no condition to currently measure the impacts of the pandemic on the future volume of our business operations, because of the decrease in the economic activity. However, it is possible to point out the financial statement items that could be potentially be more impacted, such as the expanded credit portfolio operations, which due to the drop in economic activity and restriction to the activities of several sectors, is expected to have an increase in default levels, already reflected in the increased allowance amounts. The level of such increase is uncertain, because of the factors already mentioned, and may require more provisions; financial instruments at fair value, as the amount of such assets may significantly change in view of the existing uncertainties; and the capital markets, due to the decrease in the volume of shares and debt instruments issued by companies, which may result in a lower service revenue level.
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A free translation of the original report in Portuguese as published in Brazil
SUMMARY REPORT OF AUDIT COMMITTEE
The Audit Committee (“Committee”) of Banco Safra S.A., hereinafter referred to as SAFRA, is a statutory body that operates on permanent basis in compliance with the provisions of Resolution 3,198, of May 27, 2004, of the National Monetary Council (CMN) and Resolution 312, of July 15, 2015, of the National Council of Private Insurance (CNSP).
The Committee reports to the Board of Directors and is formed by five members, of which three are Executive Officers of the Company and two are independent members.
The Committee undertakes its activities based on the provisions of its Internal Rules and the Bylaws.
Among the evaluation and oversight works carried out in the second half of 2020, the Committee held periodic monthly meetings with agendas established beforehand, as follows: a) Holding of meetings with the Internal and External Audits aimed at analyzing the works performed by them; b) Examination of the Financial Statements of Banco Safra and its subsidiaries (Corporate Consolidated) and individual companies; c) Approval of the Consolidated Financial Statements of the Company according to the IFRS and of the Prudential Conglomerate; d) Approval of the detailed Audit Committee Report for the first half of 2020, under the terms of Art. 17 of CMN Resolution 3,198/2004 and Art. 136 of CNSP Resolution 312/2015; e) Examination of the Ombuds report about measures for correcting or improving procedures and routines, as a result of the analysis of the complaints received regarding the first half of 2020; f) Examination of the reports on Business Continuity Management and Social and Environmental Risk Management; g) Examination of the report of the Internal Control area, with special attention to (i) the area’s structure; (ii) working methodology; (iii) tools; (iv) works carried out in 2020; (v) work plan for the year 2021; h) Examination of the report on the results of the activities related to the compliance duty, Compliance Risk Management (partial results for the year 2020); i) Approval of the Annual Internal Audit Plan – 2021; j) Monitoring and follow-up of the findings of the inspections conducted by the Central Bank of Brazil, Susep, and other regulatory and/or self-regulatory authorities;
In view of the results of the works it carried out, the Audit Committee recommends that the Board of Directors approves the consolidated financial statements dated January 28, 2021, related to the period ended December 31, 2020.
São Paulo, January 28, 2021.
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(Convenience Translation into English from the Original Previously Issued in Portuguese)
INDEPENDENT AUDITOR’S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
To the Management and Shareholders of Banco Safra S.A.
Opinion
We have audited the accompanying consolidated financial statements of Banco Safra S.A. and its subsidiaries (“Consolidated” or “Banco Safra”), which comprise the consolidated balance sheet as at December 31, 2020, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Banco Safra S.A. at December 31, 2020, and its consolidated financial performance and its consolidated cash flows for the year then ended, in accordance with accounting practices adopted in Brazil applicable to financial institutions authorized to operate by the Central Bank of Brazil ‐ BACEN.
Basis for opinion
We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the “Auditor’s responsibilities for the audit of the consolidated financial statements” section of our report. We are independent of Banco Safra and its subsidiaries in accordance with the relevant ethical requirements in the Code of Ethics for Professional Accountants and the professional standards issued by the Brazilian Federal Accounting Council (“CFC”), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Key audit matters
Key audit matters ‐ KAM are those matters that, in our professional judgment, were of most significance in our audit of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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1. Hedge accounting
Why is it a KAM?
Banco Safra held derivatives designated to hedge accounting to protect the fair value of some assets and liabilities against market change on foreign currency and/or interest rate, including hedge of loans with fixed interest rate (see note 8.(d) to the consolidated financial statements). According to Circular BACEN 3082/02, to designate and maintain hedge accounting, Banco Safra has to meet certain conditions on a cumulative basis, such as providing evidence of the transaction effectiveness since its inception and during its course. Due to the matter of complexity and of high‐level estimates in measuring fair values of hedged financial assets and financial liabilities, we dedicated significant efforts in the audit work, including involvement of senior members of our audit team to analyze the hedge effectiveness and adequacy of the documentation, policies, designated transactions and effectiveness tests.
How the KAM was addressed in our audit?
Our audit procedures included, but were not limited to: (a) understanding, together with Management, the hedge strategies implemented at Banco Safra; (b) analyzing the designation documentation and policies prepared by Management with respect to hedging structures, including the hedged risk description, and detailed transaction information, the risk management process and methodology applied to assess the hedge effectiveness since the transaction inception; (c) analyzing the hedge structure effectiveness tests designed by Management; and (d) reviewing the financial statements, considering the minimum disclosures required, as shown in note 8 to the consolidated financial statements.
Conclusion from the assessment
Considering the policy, the criteria adopted to meet the strategies and the processes of effectiveness analysis of the structures and the hedge accounting disclosures made by Management, the result of our procedures was considered appropriate in the context of the consolidated financial statements taken as a whole.
2. Impairment of financial assets and extended loan portfolio ‐ lending transactions and securities issued by the private sector (private securities)
Why is it a KAM?
Banco Safra held credit operations and investment in private securities held to collect cash flows from interest and principal of these financial assets, similarly to credit operations (extended credit portfolio). Banco Safra uses internal models to define an internal credit risk rating scale for debtors and their related transactions, involving Management’s assumptions and judgments, in order to represent its best estimate of the loss risk of its extended credit portfolio, including the impacts of COVID‐19, as shown in notes 3.c) and 9 to the consolidated financial statements.
In view of the complexity of the model of allowance for loan losses, the use of estimates and high level of judgment by Management when determining the allowances recognized, we dedicated significant efforts in the audit work, including the work of senior members and experts of our team, because we considered the matter as relevant to our audit work.
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How the KAM was addressed in our audit?
Our audit procedures included, but were not limited to: (a) understanding the provisioning criteria adopted by Banco Safra for the extended credit portfolio, including the impacts of COVID‐19; (b) reading Banco Safra’s provisioning policy adopted for the extended credit portfolio; (c) involving experts in reviewing the models used; (d) reviewing and testing internal controls over the rating assignment process; (e) analyzing the provisioning criteria designed for credit portfolio on a sample basis, and their compliance with the parameters set by CMN Resolution 2682/99; and (f) analyzing the total provisioning level of portfolios, including the impacts of COVID‐19, and challenging the criteria used in the Banco Safra’s policy.
Conclusion from the assessment
We consider that the criteria and assumptions adopted by Management to estimate the allowance for loan losses are acceptable in the context of the consolidated financial statements taken as a whole.
3. Information technology environment
Why is it a KAM?
Banco Safra’s operations rely on an information technology environment and infrastructure capable of supporting a high number of transactions daily processed in its information systems that are used to feed its accounting records. The information technology‐related processes, associated to its controls, may possibly pose risks in relation to the processing and generation of critical information, including that used in the preparation of consolidated financial statements, which justify our consideration as a focus area in our audit in the context of the consolidated financial statements.
How the KAM was addressed in our audit?
With the support of our system audit specialists, we assessed the design of the general controls over the processing environment and tested the operating effectiveness of these controls related to information security, system development and maintenance and computing operation related to the infrastructure that supports Banco Safra’s business.
Conclusion from the assessment
Based on the information technology environment processes and controls, associated with the abovementioned tests conducted, the result of our procedures was considered appropriate in the context of the consolidated financial statements taken as a whole.
Other information accompanying the consolidated financial statements and the independent auditor’s report
Management is responsible for the other information that comprises the Management Report.
Our opinion on the consolidated financial statements does not cover the Management Report and we do not express, and will not express, any form of audit conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether such other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement in such other information obtained prior to this report date, we are required to report that fact. We have nothing to report in this regard.
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Management’s responsibilities and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting practices adopted in Brazil applicable to financial institutions authorized to operate by BACEN, and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, Management is responsible for assessing Banco Safra and its subsidiaries’ ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting in the preparation of the consolidated financial statements, unless Management either intends to liquidate Banco Safra and its subsidiaries or to cease operations, or has no realistic alternative but to do so.
Those charged with governance of the Consolidated are responsible for overseeing the financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of Banco Safra and its subsidiaries.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
Conclude on the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of Banco Safra and its subsidiaries to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause Banco Safra and its subsidiaries to cease to continue as a going concern.
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Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of tthe audi and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The accompanying consolidated financial statements have been translated into English for the convenience of readers outside Brazil.
São Paulo, February 19, 2021
DELOITTE TOUCHE TOHMATSU Luiz Carlos Oseliero Filho Auditores Independentes Engagement Partner
2021SP003636_2021SP003077_SPO _inglês_vfinal.docx
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