Consolidated Financial Statements | Banco Safra S.A.
Consolidated Financial Statements for the period ended June 30, 2021
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
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Consolidated Financial Statements | Banco Safra S.A.
CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT REPORT STATEMENT OF FINANCIAL POSITION ______2 STATEMENT OF INCOME ______3 STATEMENT OF COMPREHENSIVE INCOME ______4 STATEMENT OF CHANGES IN EQUITY ______5 STATEMENT OF CASH FLOWS ______6
NOTES TO THE FINANCIAL STATEMENTS
1. OPERATIONS ______7 2. PRESENTATION OF THE FINANCIAL STATEMENTS ______7 3. SIGNIFICANT ACCOUNTING POLICIES ______9 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS ______14 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 AND DERIVATIVE FINANCIAL INSTRUMENTS ______16 9. CREDIT PORTFOLIO ______24 10. FINANCIAL LIABILITIES AND MANAGED ASSETS ______28 11. HEDGE OF FINANCIAL ASSETS AND LIABILITIES ______33 12. INSURANCE, REINSURANCE AND PRIVATE PENSION OPERATIONS ______34 13. OTHER FINANCIAL ASSETS AND LIABILITIES AND REVENUE, EXPENSES AND INCOME FROM OPERATIONS ______41 14. OTHER ASSET, LIABILITY, AND INCOME ACCOUNTS______43 15. CONTINGENT ASSETS AND LIABILITIES ______44 16. TAXES ______45 17. PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS ______47 18. EQUITY ______48 19. RISK AND CAPITAL MANAGEMENT ______49 20. RELATED-PARTY TRANSACTIONS ______62 21. OTHER INFORMATION ______63
SUMMARY AUDIT COMMITTEE REPORT ______64 INDEPENDENT AUDITOR’S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS ______65
Management Report June 2021
We present the Management Report and the Financial Statements of Banco Safra S.A. and Subsidiaries (“Safra Consolidated”) for the period ended June 30, 2021.
Management Report | June 2021
Economic Scenario
The GDP for the 1Q21 grew 1.2% as compared to related to electricity cost, as the hydrological risk the previous quarter, considering the unseasoned has increased. data, still reflecting the economy’s recovery after Accordingly, the Central Bank decided to begin a the pandemic impact on 2020. The highlight was cycle of high interest rate in the meeting of March the 4.6% increase in investments, while household 2021. The Selic rate began the year at 2% and consumption fell 0.1%, a modest fall considering reached 4.25% at the end of the 2Q21. In the the end of the cash transfer programs. As to following months, the increases shall continue, supply, the main groups grew, of which we with Selic reaching 6.5% at the end of the year. highlight agriculture, which recorded a 5.7% The scenario remains uncertain, with risks of expansion. In the industry, the mining and either slowdown, caused by the drop in construction sectors posted growth, while in international commodity prices, or additional service, the transportation sector stood out. increase, depending on fuel prices, new electricity In the 2Q21, we expect a slowdown of 0.3%, in price adjustment and potential impacts of the view of the additional transport restrictions international economy on the domestic exchange implemented because cases and deaths are rate. rebounding as the pandemic continues. However, In relation to tax, the consolidated public sector the economy’s adjustment to the new reality shall showed a primary deficit of 5.4% of the GDP for support the continued expansion of service of the accumulated 12-month period ended in May, 0.6%, particularly due to the remote work and equivalent to R$ 428.6 billion, reflecting the online service capacity. Household consumption recovery of collection and beginning of a reduction shall thus grow 0.7%. in expenditure implemented in 2020. In the The labor market shows signs of recovery, meantime, the gross debt/GDP reached 84.5% in although still unequal. The formal job creation the same period, as compared to 88.8% noted in data, calculated by the CAGED (official record of the end of 2020. employment and unemployment), showed 836 The external accounts continued the adjustment thousand new job opportunities in the 1Q21, as that began during the pandemic, with current compared to the creation of only 66 thousand account deficit changing from 0.85% of the GDP in vacancies in the 1Q20. However, the creation of April to 0.55% in May, equivalent to -US$ 8.3 informal employment is still slow, the billion in the 12-month period ended in May, unemployment rate standing at 13.6% on average financed by the inflow of US$ 39.3 billion in Direct for the 1Q21, as compared to 10.9% in the same Investments in Brazil (2.6% of GDP). Meanwhile, period of the previous year. For the rest of the the currency flow ended the year with an inflow of year, we expect that the unemployment rate US$ 15.3 billion. remains steady, as the increase in employment shall be counterbalanced by an increase in active The international scenario was marked by the seek for employment, as workers come back to acceleration of vaccination in developed countries, the labor market with the reopening of economy. notably in the UK and in the US. Meanwhile, most emerging countries are still at a slow pace due to Inflation accelerated rapidly in the 1Q21, reaching the difficulty in vaccine supply. With this, global 6.1% in the accumulated 12-month period. In the growth points to acceleration in the 1H21. In 2Q21, IPCA continued its upward trend, reaching China, growth showed signs of gradual slowdown, 8.35%, with average monthly changes of 0.56%. in view of the reduction in the stimuli provided last For the 2H21, we expect a slight slowdown in year, as it overcame the pandemic faster than the inflation indexes, with a monthly average of 0.42%, rest of the world. With global interest rates still reducing the IPCA for the accumulated 12-month low, despite some signs of inflationary pressure, period to 6.4% at the end of the year. Besides the and continuity of growth, the international impacts of the economy reopening, specific shocks scenario remains favorable to the Brazilian have influenced this trend, particularly those economy.
Management Report | June 2021
Covid 19 – Current state
Overview in-person, following all prevention measures. Our electronic channels are always available and On March 11, 2020, the World Health constantly updated so that we are able to meet Organization (WHO) declared a pandemic as a all needs of our customers. result of the outbreak of Covid-19.
After more than one year, even though many In addition, Safra has kept sponsoring lives and vaccines were made available in Brazil, which producing videos with the bank’s specialists and keeps vaccinating its population, the pandemic guests. Safra also has the content site is not yet under control. OEspecialista.com.br. These are channels and people from several segments in order to offer In view of the above, Safra’s management customers, employees and the general continues to monitor the developments of this population quality content, since access is free crisis, adopting the measures required to minimize the adverse effects on our businesses, most of the time. All to allow the dissemination employees, customers, and the society. of news and information regarding investments, financial literacy, and also prevention and new forms of coexistence that were brought by the Our employees and business continuity pandemic reality.
Safra keeps following a robust contingency plan, with business expansion supported by the Our Society launch of products and services that assure the maintenance of our activities, without Banco Safra has donated R$ 48.5 million since compromising the health and safety of our the beginning of the pandemic. In 2020 were R$ employees and customers. 37 million were allocated to help to build field hospitals, purchase equipment to philanthropic All preventive measures adopted in the hospitals and entities that support socially beginning of the pandemic continue to be vulnerable population. Other R$ 5 million were increased and improved aimed at the gradual donated to help the expansion of Instituto safe reopening of our activities. Butantan’s plant to increase vaccine production. In the first half of 2021, still supporting outreach actions to assist the neediest population, the Our Customers bank donated R$ 6.5 million. Safra understands In the first half, Safra continued to provide the that it is fundamental to support society. best service to its customers, both remotely and
Management Report | June 2021
Performance Key Indicators The financial and operating information below are shown based on consolidated figures for the periods ended June 30, 2021 and 2020 and December 31, 2020. Periods ended in: R$ million (unless otherwise stated) Jun-21 Dec-20 Jun-20 Profitability Net Income of the Parent Company (Jun = half; Dec = year) 1,128 2,033 921 Equity of Parent Company 14,576 13,678 12,640 Return on Average Equity - Annualized (%) 16.0% 16.0% 15.0% Return on Average Assets - Annualized (%) 0.9% 1.0% 0.9% Performance Indicator (%) Basel Ratio 14.4% 14.6% 14.5% Credit Ratios (%) Non-performing Loans Ratio (over 90 days) 0.6% 0.8% 0.9% Coverage Ratio (Balance of ALL/Transactions over 90 days past 493.1% 432.9% 382.0% due) Ratio of Problem Assets (1) 1.1% 1.2% 1.7% Coverage Ratio for Problem Assets (1) 332.9% 313.8% 253,6% NIM (2) after ALL 3.4% 2.9% 3.2% Balance of ALL/Credit Portfolio 3.1% 3.3% 3.5% Statement of Financial Position Total Assets 247,422 238,478 223,653 Liquidity (3) 38,367 45,737 40,253 Expanded credit portfolio 129,875 127,214 108,408 Credit portfolio 113,969 109,530 92,983 Operations with companies 84,135 80,355 66,601 Consumer loan and finance operations 29,834 29,175 26,382 Guarantees and Sureties 15,906 17,684 15,425 Funding Net of Compulsory 145,386 148,537 126,745 Credit Portfolio (4) / Funding Ratio (%) 78.4% 73.7% 73.4% Funded and managed funds 281,404 281,540 243,147 Funding 155,611 159,966 135,109 Customers 121,166 121,628 103,960 Market 34,445 38,338 31,149 Managed funds 125,793 121,574 108,038 Material Data Conglomerate employees (individuals) 9,534 9,308 9,047 Number of Branches and Points of Banking Services in the 139 138 134 Country (units)
(1) Problem Assets pursuant to CMN Res. 4,557 = transactions over 90 days past due; renegotiated transactions without 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 | June 2021
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 19.c.(II) and the non-recurring income for the halfs, according to Note 2.a.
Reclassified statement of income (in millions of reais) 1st Half 21 1st Half 20 Gross Interest Margin before Credit Risks 3,222 2,990 Result from Credit Risk (255) (694) Net Interest Margin after Credit Risks 2,967 2,296 Other income from operations 1,493 1,100 Tax expenses of operations (363) (304) Net income from operations 4,098 3,092 Other operating income (expenses) (2,392) (2,095) Income before Taxes 1,706 997 Income Tax and Social Contribution (578) (76) Net Income 1,128 921
Result Highlights In the end of the first half of 2021, Banco Safra’s net income amounted to R$ 1.1 billion, resulting in an annualized profitability of 16.0%. Total assets amounted to R$ 247.4 billion as at June 30, 2021 and equity reached R$ 14.6 billion. With growth of 19.8% in its expanded credit portfolio, and 14.7% in funding net of compulsory, Safra ended the period with a solid liquidity position amounting to R$ 38.4 billion and Basel ratio at 14.4%. 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 2.4 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 payroll advance loan and vehicle financing businesses totaled R$ 8.3 billion and R$ 15.7 The extended cash and cash equivalents include billion, respectively, as at June 30, 2021. Our cash and cash equivalents, open market performance is sustained by the agility in credit investments (own portfolio) with maximum grant, without compromising safety, and the term of 90 days, unrestricted government and building of relationship with customers and corporate securities (own portfolio), which as at points-of-sales. June 30, 2021 totaled R$ 38.4 billion, equivalent to 2.6 times equity. As at June 30, 2021 the expanded credit portfolio to businesses reached R$ 99.8 billion,
of which we highlight the expansion of 13.0% Expanded Credit Portfolio when compared to the same period last year, in segments of businesses with annual revenue The expanded credit portfolio, which includes above R$ 500 million. In the segment of guarantees, sureties and other instruments with businesses with annual revenue below R$ 500 credit risk, totaled R$ 129.9 billion as at June 30, million, a 64.2% growth in the credit portfolio 2021, up by 19.8% on the portfolio as at June was noted as compared to June 30, 2020, with 30, 2020. highlight to loans granted by Banco Safra in the approximate amount of R$ 10 billion, through
Management Report | June 2021
the Credit Access Emergency Program (PEAC- The non-performing loans ratio (transactions FGI), which aided more than 7,000 businesses over 90 days past due) stood at 0.6% of the to face the economic crisis worsened by the expanded credit portfolio, 0.2% being related to pandemic. Safra was the first Bank to reach the businesses and 1.9% to individuals and financial grant limit set by BNDES to aid businesses. In companies. Another important ratio to measure another modality, the PEAC Maquininhas, a delinquency is the ratio of problem assets, credit facility with guarantee of receivables from which stood at 1.1% as at June 30, 2021. sales using credit card in machines operated by SafraPay and funding by BNDES, the bank also Besides, the Bank maintained its coverage levels led the market aiding approximately 9,000 well above the main private players, reaching entrepreneurs, with R$ 295 million. 493.1% for transactions over 90 days past due as at June 30, 2021, 332.9% for problem assets According to the rating agencies, Safra is a and 92.5% for renegotiated credit transactions. benchmark for credit risk management, from 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 94.9% of the total credit portfolio as at June 30, 2021. In relation to the problems, whether by assisting customers in allowance for loan losses, in the expanded their restructuring, or agility in repossession of perspective, in line with its conservative guarantees, in the cases the latter is justified. All positioning, the Bank records allowances in of these activities are supported by frameworks addition to those required by the regulation that are able to monitor, almost in real time, the authority, totaling R$ 1.5 billion in the end of current status of customers and guarantees, June 2021, which, added to the minimum thus making it possible to anticipate possible required of R$ 2.3 billion, resulted in a total credit problems. allowance for loan losses of R$ 3.8 billion, equivalent to 2.9% of the expanded credit It should be highlighted the robust credit quality portfolio. indicators in the end of the first half of 2021, which ratified the Bank’s efficient risk management framework.
Credit portfolio by rating Coverage Ratio and Non-performing Loans Ratio
(Credit portfolio and Other credit risk instruments) (Transactions over 90 days past due) Jun-21
2000,0% 0,8% 0,9% 0,6% 0,6% 1,5% 1800,0% 0,4% 0,5%
94.9% 1600,0% 0,5%
1400,0%
1111,2% -0,5% 74,3% 1200,0% 849,4% 1000,0%
-1,5% 800,0% 544,9% 493,1% 432,9% -2,5% 600,0% 382,0%
400,0% 20,6% -3,5% 200,0%
2,3% 2,8% 0,0% -4,5% Dec 17 Dec 18 Dec 19 Dec 20 Jun 20 Jun 21 AA-A B C D-H Coverage Ratio
Non-performing loans (over 90 days)
Investment management The institution continued to focus on keeping rating agencies as the institution’s credit risk steady funding, by either diversifying fund reduction strategy, or by promoting the solid sources or elongating operations, guaranteeing expansion of its customer base, comprising both a consistent liquidity management and greater high net worth and Private Banking individual security to customers, a point recognized by and business customers, which strengthens
Management Report | June 2021
Banco Safra’s position as one of the most In Fixed Income, we highlight the Banco Safra’s traditional investment establishments in the participation as coordinator in the offerings of world. Marfrig’s Bond, EDP São Paulo’s Debentures, The funded and managed funds reached R$ Votorantim Cimentos’s CRI, Corsan’s 281.4 billion as at June 30, 2021. Of this Debentures, Colombo Agroindústria’s CRA, amount, R$ 125.8 billion refer to investment Equatorial Transmissão’s Debentures, Camil funds. Still in this context, funding from Alimentos’s Debentures, Celesc Distribuição’s customers totaled R$ 121.2 billion in the end of Debentures, Via Varejo’s Debentures, Rede June 2021. D’or’s CRI, Gol’s Bond, B3’s Debentures, In view of the uncertainties caused by the Copersucar’s CRA, C&A’s Debentures, Sendas pandemic, it is worthy of note the strong Distribuidora’s Debentures, Petro Rio’s Bond, performance in the Investment Banking CSN’s Bond and Azul’s Bond. Also of great segment, mainly in the activities of Capital relevance was its advisory service in the launch Markets (Fixed Income and Equities) and of Real Estate Investment Funds (FIIs) of Merger & Acquisitions (M&A), operating as the Tishman Speyer and RBR Asset Management. mechanism that provides financing to In 2021, Safra participated as coordinator in the businesses, which generated an increment to IPOs of CSN Mineração, Mater Dei and service revenue. PetroReconcavo. In the same period, it also During the first half of 2021, the main highlights participated as coordinator in the Follow-Ons of in the Capital Markets area were the PetroRio, Dasa (Re-IPO) and Rede D’Or. participation in the structuring and distribution Regarding Mergers & Acquisitions, it is worthy of Stocks, CRIs, CRAs, Infrastructure Debentures, of note that in 2021 Safra participated as Debentures, Promissory Notes, Bonds and exclusive advisor on the sale of Daviso to Viveo, Investment fund quotas operations, totaling on the sale of BrScan to Serasa Experian, on the more than R$ 51.4 billion. spin-off of Assaí by GPA, and on the acquisition of Total’s interest in Wahoo field by PetroRio.
Ratings
Banco Safra continues to have the best possible ratings among national financial institutions, which are limited to the Sovereign rating, by both Moody’s and S&P Global. 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 AAA.br brAAA
Outlook Stable Stable
Latest report Jun-21 Oct-20
Management Report | June 2021
Risk and Capital Management includes a formal Risk Appetite Statement (RAS) that contemplates the main indicators, metrics Banco Safra performs risk management by using and principles that guide the carry out of the the methodology of three lines of defense and institution’s businesses and risk control. The has a set of procedures, aligned with the best RAS is periodically monitored by the executive market practices, which ensure the fulfillment officers and the Superior Risk Committee and of legal and regulatory provisions, and internal approved by the Board of Directors. policies. Banco Safra annually undertakes the Internal In the financial statements (note 19) a summary Capital Adequacy Assessment Process (ICAAP). of Safra’s risk management practices is This process, regulated by the Central Bank of presented. The information on the Pillar III Brazil, involves the evaluation of all procedures Report is posted on Banco Safra’s website and processes related to risk and capital (www.safra.com.br) and BACEN’s open data management in all hierarchical levels, including portal, and comprise risk and capital the forward-looking capital plan for a minimum management data, established by BACEN period of three years. In addition, Safra Resolution 54/2020. participates, together with the other outstanding financial institutions, in the Bottom- CMN Resolution 4,553/2017 divided the Up Stress Test (TEBU) of the Central Bank of financial institutions into five segments, Brazil. The objective of the above-mentioned according to asset level and relevance of processes is to bring greater solidity and international operations, Safra being classified security to the National Financial System, as S2. Pursuant to CMN Resolution 4,557/2017, besides anticipating possible adjustments Banco Safra carries out the integrated risk necessary to maintain the proper functioning of management, which involves the the market. interrelationship among finance, business, and risk and capital management processes. In its In 2020, the Bank published an extensive report governance, it is worth noting that the Superior that details the Social and Environmental Risk Committee, comprising three members, is guidelines and management practices followed aimed at assisting the Board of Directors in by Safra, with a series of analyses, monitoring fulfilling its responsibilities related to the and evaluations about business operations. The integrated risk and capital management. In document also presents the actions taken in addition, the Chief Risk Officer (CRO) is asset management, in the society and with responsible for the integrated risk management. employees, as well as the social and Safra’s risk management framework also environmental risk indicators.
Governance
Banco Safra has a strong corporate governance The statutory committees perform their structure, focused on joint decisions and activities based on the provisions of their supported by strict internal controls. internal rules and the bylaws. The Board of Directors is the most senior The Audit Committee reports to the Board of governing body that manages the businesses, Directors and its aim is to monitor and being responsible for setting out corporate strengthen the internal and external audit guidelines, challenges and objectives, besides activities. monitoring and evaluating its results. It is The Remuneration Committee, which is aimed formed by a minimum of three (3) and a at assisting the Board of Directors in conducting maximum of 11 (eleven) members, elected at the key management personnel remuneration the Shareholders’ Meeting, for a two-year term policy of the Company, and operates as a sole of office, reelection being possible. organizational component in Safra Financial
Management Report | June 2021
Conglomerate, of which it is the leading Quality Committee, the Asset and Liability institution. Committee, the Forward-Looking Scenario Committee, and the Product Committee. Besides the structure of Statutory Committees, we have appointed committees that support The diligence that Safra uses in governance, the institution’s operations, of which we combined with the “eye of the master” with highlight the Capital Management Committee, ethics and respect values, which have been the Market Risk Committee, the Corporate handed down from generation to generation, is Governance Committee, the Large Risks one of the determining factors to guarantee Committee, the Credit Risk Management Banco Safra’s solidity and security, and its long- Committee, the Operational Risk and term relationship with customers. Safra Compliance Management Committee, the constantly invests in employee training in Conduct and Integrity Committee, the important governance themes, such as ethics, Information Security and Data Governance money laundering prevention, compliance, and Committee, the Customer Relationship and is very strict in relation to these themes.
Strategic Initiatives In 2021 Banco Safra continued to operate within experts. High Net is targeted at customers with a new organizational model, implemented in portfolios ranging from R$ 3 to R$ 15 million. the last quarter of 2019, which has been able to Safra thus shows that it invests in both achieve impressive results, even under the technology, which provides convenience to adverse scenario arising from the pandemic. It customers who prefer self-service, and exclusive promoted changes in relation to the Business and in-person service expansion and Customer service model and SafraPay, which improvement, by increasing the number of involved several steps in the business journey bankers. and reported business growth and increase in new customers in 2020. This new organizational In the first half, AgZero, Safra’s digital bank, model continued to be followed in 2021. continued to increase its market share in a strategic move towards expanding its product . Digital transformation and service portfolio. For Safra, digital transformation is always in the agenda that is In Safra there is a certainty that digital why it is always important to evolve in this transformation is the future, which will sense. integrate more and more the financial institutions with customers. Safra thus launched . Precision science its digital account in February, with a new App Safra’s latest campaign – that appeared in all that enables not only the opening of accounts, media in the first half – featured the but also access to any bank service. By running Arquimedes, Maxwell and Galileo funds. the “Quem Sabe, Safra” campaign, starred by “Investing is a precision science” was the motto Marina Ruy Barbosa, Safra showed that it is of Safra’s new advertising campaign, which possible to provide new interactivity and smart introduced important investment funds of the consumption experiences, with self-service, but multi-strategy and equity categories. These are without leaving behind its main trademark, products that can comprise the portfolios of all which is in-person relationship with customers. kinds of investors. Each campaign film In the end of the first half, the bank also highlighted objects relevant to precision science launched the High Net segment. Aimed to that dialogue with Safra’s funds. provide a unique experience, High Net provides . Safra Invest high net worth customers with closer and differentiated services, and a complete range of Safra celebrated the first year of activity of the products, services and dedicated financial Safra Invest platform, launched in May 2020. In
Management Report | June 2021
the first half of 2021, the strategy towards services and tailored solutions and it is Safra has gradually increasing the number of Independent done over 175 years. Investment Advisors exponentially surpassed . New green funds expectations. On this front, the aim is to advertise the experience of investing with one In the first half of 2021, Safra has announced many ESG-related products. It began January of the main private financial institutions in with Fundo Safra Impacto ASG, which invests in Brazil, to even more people and regions across shares with good sustainability practices. This the country, always with the same vision of portfolio includes, for example, the pulp and service excellence and the best investment paper company Suzano and the beauty alternatives. Safra Invest’s expansion has been company Natura. Nearly 40% of the portfolio strongly promoted during the first half of 2021. are linked to the JSS Sustainable Equity Global, Safra Invest’s expansion will be strongly an international fund created in September promoted during the first half of 2021. 2005 and managed by J. Safra Sarasin Asset Management, manager of J.Safra Group based . Open Banking in Switzerland. As any financial institution, Safra did In June, Safra has increased its sustainable preparations for the launch of Open Banking, an initiative of the Central Bank. For this purpose, it investment portfolio, which it intends to used its main attributes to show that Safra is the strategically and gradually continue. It has bank that provides tradition and security to launched Safra Direct Carbono and Safra ASG customers in relation to the use of their data. Global. Safra Direct Carbono allocates its funds “In the open sea of Open Banking, experience is directly to the market of futures contracts of everything”. The second phase of Open Banking carbon credits in the EU Emissions Trading started in July 2021. With it, people may System of Europe. consent to the sharing of their data records and The ASG Global fund is a multi-strategy fund and bank account information with other institutions to receive more attractive offerings invests the funds of its shareholders in local and of several products. For Safra, offering tailored international stock funds that meet the ESG products does not require only data access. It is criteria (Environmental, Social and Governance) necessary to have experience in exclusive and have prospects of return.
Environmental, Social and Social Responsibility Governance (ESG) Safra, holding onto the values fostered by Mr. Joseph Safra, contributes to the social Safra’s concern with the society and its future development in many areas, whether focused naturally involves the careful monitoring of on our employees or by supporting projects of three areas – environment, social and institutions that are renowned for their welfare governance – the ESG, which have fortunately activities, health promotion, support to culture, started to dominate relationships so that, more education, and sports. We also carry out than an acronym, it represents behavior outreach activities through many social changes across the chain. Safra has developed organizations such as Instituto Vicky e Joseph numerous actions towards this aim for years, Safra, Beit Yossef Congregation, Beit Yaacov observing everything around it and adopting School, Joseph Safra Philanthropic Foundation best practices, always considering a model of and J. Safra Cultural Institute. operation for a more sustainable and fair world.
Management Report | June 2021
Social In tune with diversity, inclusion themes, its Moreover, women account for 47% of our commitments related to legal issues and with personnel, a 14% growth since 2018. In the society, Banco Safra devised an integrated executive positions, the growth was even strategy on welfare, health, voluntary work, greater, a 33% increase in women occupying education and employee respect. Its sole strategic positions in the comparison in the purpose is to gradually incorporate these same period. attributes into its day-to-day activities, Another initiative that provides opportunities considering the natural demands from the for women who dream of a better future, at society for a more equal. different stages of life, in the area of Technology Safra understands that valuing diversity enables is the partnership with the Laboratory. all people to show their potential and allows us As to gender-to-race/ethnic origin ratio, Safra to interpret more correctly the demands from was involved in a pioneering initiative, called our customers and partners. Bambu project, which besides giving One of the classic examples, present in many opportunities to young entrepreneurs areas of Safra, is the generational diversity. (initiatives created by Y generation youth, in which 50% of leadership positions are held by The Traditionalist, Baby Boomer, X, Y and Z black women), coaches black female youth in Generations work side by side, allowing entering the employment market. An exclusive exchange of experiences and learnings, class of Safra with this profile will be launched in providing people with opportunities at different 2021, aiming to develop the potential of its stages in life. reach. An example of such actions is the apprentice The intern training in Safra also has social trail, which enables the younger and less contribution characteristics, aligning experienced professionals to exploit their professional development with social purpose potentials when entering the work environment to these new generations. with support. Besides the contents already established by the current legislation, Safra The Conextag challenge, initiative in which invested in the training of managers to provide Safra’s interns conceive projects aimed to a better experience to the youth of the day-to- develop improvements/new solutions for day activities at work, workshops on themes several bank areas, establishes, for example, that are experienced on the job, such as that the top three ranked contenders make a Effective Communication, Time Management, donation on behalf of Safra to three partner Presentations. All of these activities are institutions with social purpose. In addition to constantly monitored by the Human Resources learning, it provides opportunity for carrying out area. social responsibility since the beginning of the career. Regular feedbacks on development are also established in this trail, which also has a formal performance analysis process, finding of in- company opportunities for continuing the partnership, and other investments such as education allowance, according to program rules.
Management Report | June 2021
Human Capital In the end of the first half of 2021, Safra had In addition, we highlight J. Safra Academy, our 9,534 employees, who have high quality corporate education platform targeted at over medical and dental care, educational support 9,000 employees and business partners, such as through grants, daycare, food basket, access to the Independent Investment Advisors, Corbans, cultural and social activities promoted by the and business representatives, which allows association of employees, among others. It is giving the opportunities to access many worth noting the differential of medical service, contents, which will enable them to improve with a clinic with Albert Einstein Hospital’s their skills and promote career development professionals, and superior quality service to all through education. employees, regardless of their positions. In the period, the application period began for The remuneration of personnel, plus charges college students from all over Brazil for the fifth and benefits, and not considering the edition of the greatest university asset management challenge in Brazil, the Top termination and additional payroll expenses, Manager Challenge, aimed to attract the best totaled R$ 1.5 billion in the first half of 2021, university talents. Focused on asset the social benefits provided to employees and management, the challenge gives talented their dependents having reached R$ 125 million. students opportunity to create their own investment strategy, defend their portfolios in Among the countless initiatives provided to our front of our experts and compete to secure a employees, in this half we highlight the pre-eminent position in our intern selection vaccination campaign against H1N1, with over processes, as well as a prize and a series of 14,000 employees and dependents receiving experience in the Asset and Treasury structures. the tetravalent vaccine, the most complete in the market.
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, July 29, 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 06.30.2021 12.31.2020 LIABILITIES Notes 06.30.2021 12.31.2020 LIABILITIES 232,846,103 224,799,883 Cash 3(a) and 5 1,371,383 1,504,624 Financial liabilities 3(b-I) and 10 155,610,785 159,965,664 Funding 130,865,474 130,966,493 Interbank investments and Central Bank Borrowings and onlending 14,725,227 16,554,389 compulsory deposits 3(b) and 6 17,367,194 18,099,444 Financing funds 10,020,084 12,444,782 Liabilities for marketable securities abroad 2,325,568 2,274,175 Financial assets 49,444,993 50,993,523 Subordinated debt 7,694,516 10,170,607 Marketable securities 3(b-I) and 8(a) 41,265,398 47,415,453 Derivative financial instruments 3(b-II) and 8(b) 8,179,595 3,578,070 Derivative financial instruments 3(b-II) and 8(b) 7,437,061 3,638,171
Investments linked to open market operations - Government securities 3(b-I) and 7(a) 33,363,684 29,791,141 Open market funding - Government securities 3(b-I) and 7(b) 33,210,911 29,706,335
Insurance, reinsurance and private pension operations 3(f) and 12(a) 20,925,120 20,657,530 Insurance and private pension operations 3(f) and 12(a) 20,627,269 20,422,731
Credit portfolio 3(c) and 9 110,474,482 105,765,390
Other financial assets 13(a) 8,719,535 5,844,257 Other financial liabilities 13(a) 11,417,541 6,620,898
Tax and contingent assets 3(g), 3(i) and 14(a) 4,756,561 4,897,455 Tax and contingent liabilities 3(g), 3(i) and 14(a) 3,238,946 3,253,700
Other assets 14(b) 191,209 142,993 Other liabilities 14(b) 1,303,590 1,192,384
Property and equipment and intangible assets 3(d) and 17 807,773 781,437 EQUITY 18 14,575,831 13,677,911
TOTAL ASSETS 247,421,934 238,477,794 TOTAL LIABILITIES 247,421,934 238,477,794
2 Consolidated Financial Statements | Banco Safra S.A.
STATEMENT OF INCOME FOR THE PERIODS ENDED JUNE 30 - NOTE 2(a) ALL AMOUNTS IN THOUSANDS OF REAIS CONSOLIDATED Notes 2021 2020
INTEREST INCOME FROM FINANCIAL INTERMEDIATION 13(b-I) 3,140,545 2,894,272
INCOME FROM FINANCIAL INSTRUMENTS, NET 13(b-II) and 19(c-II(2)) 117,599 (841,157)
FINANCE INCOME FROM INSURANCE AND PRIVATE PENSION OPERATIONS 3(f) and 12(f) 13,352 6,870
GROSS INTEREST MARGIN BEFORE CREDIT RISK 3,271,496 2,059,985
INCOME (EXPENSE) FROM CREDIT RISK 3(c) (254,806) (693,662) Expenses of allowance for credit risks 9(a-III) (446,234) (813,947) Income from recovery of credits written-off as loss 9(d) 191,428 120,285
NET INTEREST MARGIN AFTER CREDIT RISK 3,016,690 1,366,323
OTHER INCOME FROM OPERATIONS 1,493,349 1,100,364 Revenue from service, bank fees and foreign exchange transactions 13(b-III) 1,336,309 955,842 Insurance, reinsurance and private pension operations 3(f) and 13(b-IV) 157,040 144,522
TAX EXPENSES OF OPERATIONS 3(i), 16(a-II) and 19(c-II(2)) (370,090) (210,700)
NET INCOME FROM OPERATIONS 19(c-II(2)) 4,139,949 2,255,987
OTHER OPERATING INCOME (EXPENSES) (2,392,301) (2,095,155) Personnel expenses 14(c) (1,610,034) (1,435,272) Administrative expenses 14(d) (650,186) (597,863) Other operating income (expenses) 15(c) (132,081) (62,020)
NET INCOME BEFORE TAXES 1,747,648 160,832
INCOME TAX AND SOCIAL CONTRIBUTION 3(i), 16(a-I) and 19(c-II(2)) (619,490) 760,424 Current tax (508,268) (318,211) Deferred tax (111,222) 1,078,635 CONSOLIDATED NET INCOME 1,128,158 921,256 Basic and diluted earnings per share - Number of shares 15,300 (15,300 at 06.30.2020) 18(a) 73.74 60.21
The accompanying notes are an integral part of these financial statements.
3 Consolidated Financial Statements | Banco Safra S.A.
STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIODS ENDED JUNE 30 - NOTE 18(a) and (d) ALL AMOUNTS IN THOUSANDS CONSOLIDATED Notes 2021 2020 CONSOLIDATED NET INCOME 1,128,158 921,256
Available-for-sale financial assets (30,580) 34,812 Net change in unrealized gains / (losses) (95,415) 158,517 Change in fair value in the period (179,160) 167,269 Tax effect 83,745 (8,752) Realized gains transferred to income for the period 64,835 (123,705) Loss/(Gain) on sale of securities 121,740 (130,535) Tax effect (56,905) 6,830 COMPREHENSIVE INCOME 1,097,578 956,068 Comprehensive income - Basic and diluted earnings per share - Number of shares: 15,300 (15,300 at 06.30.2020) 71.74 62.49
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 18 ALL AMOUNTS IN THOUSANDS OF REAIS
Other Paid-up Revenue comprehensive Retained capital reserves income earnings Total
AT JANUARY 1, 2020 11,473,521 408,301 2,553 - 11,884,375
Other comprehensive income - Available-for-sale financial assets - - 34,812 - 34,812 Net income for the period - - - 921,256 921,256 Allocation: Legal reserve - 46,063 - (46,063) - Special reserve - 675,067 - (675,067) - Interest on capital - - - (200,126) (200,126) AT JUNE 30, 2020 11,473,521 1,129,431 37,365 - 12,640,317
AT JANUARY 1, 2021 11,795,555 1,862,767 19,589 - 13,677,911
Other comprehensive income - Available-for-sale financial assets - - (30,580) - (30,580) Net income for the period - - - 1,128,158 1,128,158 Allocation: Legal reserve - 56,408 - (56,408) - Special reserve - 922,092 - (922,092) - Interest on capital - - - (149,658) (149,658) Dividends - (50,000) - - (50,000) AT JUNE 30, 2021 11,795,555 2,791,267 (10,991) - 14,575,831
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 JUNE 30 - NOTE 3(a) ALL AMOUNTS IN THOUSANDS OF REAIS CONSOLIDATED NOTES 2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES ADJUSTED NET INCOME BEFORE TAXES 1,309,652 994,358 Net income before taxes 1,747,648 160,832 Consolidated net income 1,128,158 921,256 Adjustment to the provision for current and deferred income taxes 16(a-I) 619,490 (760,424) Adjustments to consolidated net income before taxes: (437,996) 833,526 Depreciation, amortization and impairment of assets 17(b) 122,202 106,201 Allowance for credit risk 9(a-III) (193,995) 329,110 Provisions for contingent liabilities 15(c) 111,895 (50,123) Fair value adjustments of financial instruments – Not Realized (574,838) 306,152 Finance expenses on financing liabilities 10(b-II) 93,376 142,072 Supplementary Coverage Reserve (PCC) and Reserve for Related Expenses (PDR) 12(e-II) 3,364 114
CHANGES IN ASSETS AND LIABILITIES BY OPERATING ACTIVITIES 421,991 (1,293,009)
NET INVESTMENTS 1,521,276 (11,746,331) In interbank investments (1,192,637) (15,586,666) In open market investments and funding - Government securities (assets/liabilities) (443,618) 199,307 In financial assets - Net 5,967,219 (268,377) Marketable securities (assets) 5,567,267 (443,364) Derivative financial instruments (assets/liabilities) 399,952 174,987 In expanded credit portfolio (4,907,304) 4,511,064 In other financial assets and liabilities 2,097,616 (601,659)
NET FUNDING (591,043) 11,215,723 In financial liabilities - Net (524,627) 11,228,956 Funding and Central Bank compulsory deposits 1,448,217 11,078,577 Borrowings and onlending (1,972,844) 150,379 In insurance, reinsurance and private pension operations (assets/liabilities) (66,416) (13,233)
OTHER ASSETS AND LIABILITIES - NET 42,105 (197,684)
TAXES PAID (550,347) (564,717) Current (513,548) (541,635) Tax and social security contingent liabilities and legal obligations 15(c) (7,327) (3,875) Special Tax Regularization Program - PERT 14(a) (29,472) (19,207)
NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES 1,731,643 (298,651)
CASH FLOWS FROM INVESTING ACTIVITIES (Acquisition) of property and equipment in use 17(b) (131,173) (74,996) Disposal of property and equipment in use 17(b) 1,808 5,307 (Investment) in intangible assets 17(b) (24,398) (47,530)
NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES (153,763) (117,219)
CASH FLOWS FROM FINANCING ACTIVITIES FINANCING FUNDS - THIRD-PARTIES (2,192,610) 928,368 Funding 10(b-II) 439,621 1,165,476 Liabilities for marketable securities abroad 173,552 45,236 Subordinated debt 266,069 1,120,240 Redemptions 10(b-II) (2,632,231) (237,108) Liabilities for marketable securities abroad - (53,608) Subordinated debt (2,632,231) (183,500) Own funds - Dividends and Interest on capital paid 17(b) (199,658) - NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES (2,392,268) 928,368 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (814,388) 512,498
Cash and cash equivalents at the beginning of the period 6,217,965 5,350,249 Foreign exchange gains (losses) on cash and cash equivalents (24,929) 1,472,641 Cash and cash equivalents at the end of the period 5 5,378,648 7,335,388 INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (814,388) 512,498
The accompanying notes are an integral part of these financial statements.
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Consolidated Financial Statements | Banco Safra S.A.
NOTES TO THE FINANCIAL STATEMENTS AS AT JUNE 30, 2021 (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 July 29, 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 BCB Resolution 02/2020, CMN Resolution 4,818/2020, and complementary rules. We highlight the following:
I. 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;
II. 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: Advances on exchange contracts, reclassified from the group “Foreign Exchange Operations”, 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”.
III. 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”.
IV. Additionally, in this period, we started to show the paid taxes, previously shown as adjustments to net income, such as changes in assets and liabilities by operating activities in the Statement of Cash Flows. For purposes of comparability, the balances arising from the criteria adopted in this period were reclassified in the Statement of Cash Flows for the prior period. As established in article 34 of BCB Resolution 2/2020, there was not any non-recurring event in the period.
b) New rules issued by BACEN that will come into effect in future periods: 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, effective as of January 1, 2022. It provides for the adoption of the simplified model for recognition of foreign exchange gains or losses on investments 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: It 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 annually prepares the Consolidated Financial Statements according to the IFRS. 7
Consolidated Financial Statements | Banco Safra S.A.
III. CMN Resolution 4,924: It establishes the general principles for recognition, measurement, bookkeeping and accounting evidence, effective as of January 1, 2022. Among the main impacts, the following should be highlighted: (a) adoption of accounting pronouncements CPC 00 (R2) – Conceptual Framework for Financial Reporting and CPC 47 – Revenue from Contracts with Customers; and (b) authorization to use spot foreign exchange rate other than the rate released by BACEN. Safra does not expect any effect on its asset, liability, or income positions arising from the adoption this rule. c) Basis of consolidation The consolidated entities are those that Safra exerts control over the investee. Control is defined as: a) power over the investees; b) exposure to the risks and variable returns provided by the investment in the investee; and 3) ability to use the power over the investee to influence the return provided by it.
Subsidiaries are fully consolidated from the date on which control is gained by Safra and de-consolidated from the date that control ceases.
Intercompany transactions, as well as balances and unrealized gains and losses on these transactions were eliminated in the consolidation. The accounting policies of subsidiaries have been adjusted to ensure consistency with the accounting policies adopted by Banco Safra S.A. - parent entity. The exclusive investment funds were consolidated, including those linked to PGBL and VGBL. In the consolidation process, the securities and investments comprising these fund portfolios were classified by transaction type and were distributed by security type into the same categories to which they were originally allocated. Safra presents each of such categories of securities and investments segregated into those linked and not linked to technical reserves of PGBL and VGBL. Non-controlling interests (redeemable quotas) are presented in the statement of financial position in "Other financial liabilities" – Note 13 (a). 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 06.30.2021 28,402,747 25,563,234 2,839,513 23,600 Total as at 12.31.2020 31,332,012 28,241,805 3,090,207 29,448
The consolidated financial statements comprise Banco Safra and its subsidiaries, including fully consolidated exclusive investment funds, highlighting:
Ownership interests (%) 06.30.2021 12.31.2020 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 shareholders of the Bank holds a 0.54% interest in the capital, shown as a liability in these consolidated financial statements, in the line item “Other liabilities”.
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 “Other comprehensive income”. 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.
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Consolidated Financial Statements | Banco Safra S.A.
3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting practices adopted in the preparation of the financial statements are described below:
a) Cash Flow I- Cash and cash equivalents: represented by cash and deposits with financial institutions, included in the account "Cash", and “Open market investments”, “Interbank deposits” and “Foreign currency investments”, falling due in 90 days or less, with an immaterial risk of change in fair value. 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; 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 are reported in the line items credit portfolio and other financial assets of the Statement of Financial Position. These are measured at their amortized cost, except if 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.
Marketable securities classified as held to maturity are those which the Bank has the intention and financial capacity to hold them in portfolio up to their maturity. These are measured at their amortized cost, except if 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.
II - Derivative financial instruments Derivatives are classified as fair value through profit or loss. They are considered assets when the fair value is positive and liabilities if it is negative. 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 Other comprehensive income. The non-effective hedge portion is recognized in income for the period.
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Consolidated Financial Statements | Banco Safra S.A.
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. III - 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. IV - 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. 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, provided that they are more than 180 days past due, 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 (expense) from 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 CMN Resolution 2,682/1999 only on the portion of the carrying amount of the transaction, 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) 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. 10
Consolidated Financial Statements | Banco Safra S.A.
e) 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 (R1) – 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 June 30, 2021 and December 31, 2020.
f) 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 Insurances (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;
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Consolidated Financial Statements | Banco Safra S.A.
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.
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 included. 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.
g) Contingent assets and liabilities 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: represented by debtors for deposits in guarantee of contingent liabilities and receivables 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 receivables 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 receivables 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.
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Consolidated Financial Statements | Banco Safra S.A.
h) Employee benefits These are recognized and evidenced according to CPC 33 (R1) – Employee benefits, regulated through CMN Resolution 4,877/2020 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. 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.
i) Taxes Taxes are calculated at the rates below, considering, with respect to the respective calculation bases, the applicable legislation for each charge.
Social Income tax contribution ISS (1) (2) PIS COFINS Financial institutions 25% 15% – 20% 0.65% 4% Up to 5% Non-financial institutions 25% 9% 0.65% (3) - 1.65% 4% (3) - 7.6% Up to 5% (1) Includes additional rate of 10%. (2) The Constitutional Amendment 103/2019 changed the Social Contribution rate from 15% to 20%, applicable to any type of bank, and not to other financial institutions, which rate remains at 15%. Law 14,183/2021, which approves the Provisional Measure 1,034/2021, changes the rate Social Contribution on Net Income (CSLL) for banks from 20% to 25%, and for other financial institutions from 15% to 20%, such rates being effective for the period from July 1, 2021 to December 31, 2021. (3) Levied on finance income. Taxes are recognized in the statement of income, 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 taxes 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.
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.
j) 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 potential dilutive effect.
k) Equity I. Dividends and interest on capital The distribution of dividends to Safra's stockholders is recognized as a liability in the financial statements at the end of the year based on the bylaws, for the mandatory minimum dividend established therein. Any amount in excess of the mandatory minimum is only provisioned on the date it is approved at the stockholders’ meeting. The calculation base of dividends is the result calculated according to the Brazilian standards established by the Central Bank of Brazil. Interest on capital is treated, for accounting purposes, as dividends and is presented in the consolidated financial statements as a reduction of equity. The related tax benefit is recorded in the consolidated statement of income. II. Realized reserves The revenue reserve is recognized based on the undistributed profit after all legal allocations, its accumulated balance remaining at the disposal of the stockholders for future resolution at the stockholders’ meeting. The bylaws establish the allocation of profits after the end of the year (December 31 of each year), after the deductions and legal reserves. Five percent (5%) of the net income for the year is allocated to the legal reserve, and such allocation ceases to be mandatory when the reserve reaches 20% of the realized capital or 30% of the total capital and legal reserves. 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 19(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 19(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 15(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 14(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 16(b-II). 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 – Note 12. 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 12(c).
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Consolidated Financial Statements | Banco Safra S.A.
5. CASH AND CASH EQUIVALENTS
06.30.2021 12.31.2020 Cash 1,371,383 1,504,624 In Brazil 192,126 269,516 Abroad 1,179,257 1,235,108 Interbank investments 4,007,265 4,713,341 Open market investments – own portfolio – National Treasury 15,442 172,567 Foreign currency investments 3,991,823 4,540,774 Total 5,378,648 6,217,965
6. INTERBANK INVESTMENTS AND CENTRAL BANK COMPULSORY DEPOSITS
06.30.2021 12.31.2020 Amounts by maturity From 91 to From 1 to Up to 90 days 365 days 2 years Total Total Funds linked to financial liabilities 11,397,504 293,179 60,591 11,751,274 11,801,517 Central Bank compulsory deposits (1) 10,224,584 - - 10,224,584 11,428,204 Interest bearing (2) 9,426,253 - - 9,426,253 10,647,874 Non-interest bearing 649,293 - - 649,293 612,820 Abroad 149,038 - - 149,038 167,510 Interbank deposits (3) 1,172,920 293,179 60,591 1,526,690 373,313 Interbank investments - unrestricted 4,013,308 1,619,297 - 5,632,605 6,299,793 Open market investments – own portfolio – National Treasury 21,485 - - 21,485 280,459 Interbank deposits - 1,619,297 - 1,619,297 1,478,560 Foreign currency investments (4) 3,991,823 - - 3,991,823 4,540,774 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 8(c) (16,685) - - (16,685) (1,866) Total as at 06.30.2021 15,394,127 1,912,476 60,591 17,367,194 18,099,444 Total as at 12.31.2020 16,243,616 1,723,460 132,368 18,099,444 Funds linked to financial liabilities 11,470,599 198,550 132,368 11,801,517 Central Bank compulsory deposits (1) 11,428,204 - - 11,428,204 Interbank deposits (3) 42,395 198,550 132,368 373,313 Interbank investments – unrestricted 4,774,883 1,524,910 - 6,299,793 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 8(c) (1,866) - - (1,866) (1) Transactions represented by compulsory deposits and classified in Current Assets. (2) The income is shown in Note 13(b-I). (3) refer to operations linked to guarantees, basically rural credit and real estate loan. (4) Includes transactions with related parties – Note 20(b).
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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)
06.30.2021 12.31.2020 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 – Note 8(a-II) (1) - 9,055,089 20,378,883 3,166,641 - 85,926 32,686,539 27,651,618 Restricted - 2,187,762 17,067,186 3,166,641 - - 22,421,589 27,651,618 National Treasury Bills - 2,187,762 15,157,087 3,166,641 - - 20,511,490 25,114,781 National Treasury Notes - - 1,910,099 - - - 1,910,099 2,536,837 Not restricted - 6,867,327 3,311,697 - - 85,926 10,264,950 - Third-party portfolio – open market investments – National Treasury 677,145 - - - - - 677,145 2,139,523 Third-party portfolio 93,615 - - - - - 93,615 555,279 Short position 583,530 - - - - - 583,530 1,584,244 Total as at 06.30.2021 677,145 9,055,089 20,378,883 3,166,641 - 85,926 33,363,684 29,791,141 Total as at 12.31.2020 1,589,418 20,442,183 3,978,434 2,196,510 1,380,345 204,251 29,791,141 (1) Includes the fair value adjustment of trading securities in the amount of R$ (442,083) (R$ 74,763 as at 12.31.2020) – Note 8(c).
b) Open market funding – Government securities (Liabilities)
06.30.2021 12.31.2020
Own portfolio – Linked to repurchase agreements 32,536,908 27,514,871 Restricted 22,298,653 27,514,871 National Treasury Bills 20,397,455 25,001,915 National Treasury Notes 1,901,198 2,512,956 Not restricted 10,238,255 - Third-party portfolio 674,003 2,191,464 Repurchase agreements 90,140 556,334 Obligations linked to unrestricted securities (1) 583,863 1,635,130 National Treasury Bills - 4,454 National Treasury Notes 583,863 1,630,676 Total (2) 33,210,911 29,706,335 (1) Includes the fair value adjustment in the amount of R$ (14,374) (R$ 126,821 as at 12.31.2020) – Note 8(c). (2) As at 06.30.2021 the balance of R$ 33,210,911 falls due in up to 90 days (R$ 29,706,335 as at 12.31.2020, of which R$ 29,236,090 falling due in up to 90 days and R$ 470,245 falling due from 91 to 365 days).
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Consolidated Financial Statements | Banco Safra S.A.
8. FINANCIAL ASSETS AND DERIVATIVE FINANCIAL INSTRUMENTS
a) Marketable securities I – By accounting classification:
06.30.2021 12.31.2020 Adjustment to fair value: In other comprehensive Fair value Fair value Amortized cost In income income – Note 18(d) Securities portfolio 41,653,939 (355,720) (20,958) 41,277,261 47,423,442 Government securities 38,555,883 (380,722) (20,958) 38,154,203 44,597,887 National Treasury 36,992,355 (383,519) (20,958) 36,587,878 42,612,385 National Treasury Bills 18,066,306 (279,589) (20,958) 17,765,759 25,897,806 National Treasury Notes – Note 11 5,160,410 (97,253) - 5,063,157 2,945,319 Financial Treasury Bills 13,765,639 (6,677) - 13,758,962 13,769,260 Government securities - Abroad 1,563,528 2,797 - 1,566,325 1,985,502 Fair value hedge – Note 11 222,731 671 - 223,402 - Other 1,340,797 2,126 - 1,342,923 1,985,502 Corporate securities issued by Financial Institutions 2,120,750 25,876 - 2,146,626 2,285,750 Investment fund quotas 80,065 - - 80,065 72,204 Bank deposit certificate and other 893,658 - - 893,658 1,069,159 Eurobonds 638,788 9,256 - 648,044 590,737 Fair value hedge – Note 11 570,655 8,314 - 578,969 504,029 Other 68,133 942 - 69,075 86,708 Credit Linked Notes – Note 8(b-III) 508,239 16,620 - 524,859 553,650 Corporate securities issued by Companies 977,306 (874) - 976,432 539,805 Stock 439,280 1,041 - 440,321 218,459 Eurobonds 538,011 (1,915) - 536,096 321,346 Other 15 - - 15 - Regulatory adjustments – CMN Resolution 4,277/2013 – Note 8(c) - (11,863) - (11,863) (7,989) Total securities portfolio as at 06.30.2021 41,653,939 (367,583) (20,958) 41,265,398 47,415,453 Total securities portfolio as at 12.31.2020 47,237,568 141,423 36,462 47,415,453 Securities portfolio 47,237,568 149,412 36,462 47,423,442 Government securities 44,457,008 107,870 33,009 44,597,887 Corporate securities issued by Financial Institutions 2,241,913 41,458 2,379 2,285,750 Corporate securities issued by Companies 538,647 84 1,074 539,805 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 8(c) - (7,989) - (7,989)
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Consolidated Financial Statements | Banco Safra S.A.
II – By characteristics: 06.30.2021 12.31.2020 Linked to: Accounting classification: Trading Available for sale Restricted repurchase
agreements and Securities
related to In other unrestricted Hedge comprehensi Own repurchase Guarantees Central accounting ve income – portfolio agreement provided (1) Bank (2) Total In income – Note 11 Note 18(d) Total
Securities portfolio 36,216,648 169,386 4,180,818 710,409 41,277,261 37,247,241 802,371 3,227,649 47,423,442 Government securities 33,315,440 - 4,128,354 710,409 38,154,203 35,600,459 223,402 2,330,342 44,597,887 Corporate securities issued by Financial Institutions 1,924,776 169,386 52,464 - 2,146,626 673,999 578,969 893,658 2,285,750 Corporate securities issued by Companies 976,432 - - - 976,432 972,783 - 3,649 539,805 Regulatory adjustments – CMN Resolution 4,277/2013 (3) (11,863) - - - (11,863) - - (11,863) (7,989) Securities portfolio as at 06.30.2021 36,204,785 169,386 4,180,818 710,409 41,265,398 37,247,241 802,371 3,215,786 47,415,453 Investments linked to open market funding – Government securities – Note 7(a) - 32,686,539 - - 32,686,539 32,686,539 - - 27,651,618 Other credit risk instruments – Note 9(a-I) 7,632,272 6,661,477 - - 14,293,749 4,110,549 7,815,569 2,367,631 14,762,058 Eurobonds 580,128 303,420 - - 883,548 - 883,548 - 2,912,242 Debentures 3,131,136 6,358,057 - - 9,489,193 2,762,365 6,726,828 - 9,102,809 Promissory notes 1,443,369 - - - 1,443,369 1,348,184 95,185 - 1,630,607 Certificates of agribusiness receivables, rural certificate and other 2,477,639 - - - 2,477,639 - 110,008 2,367,631 1,116,400 Total as at 06.30.2021 43,837,057 39,517,402 4,180,818 710,409 88,245,686 74,044,329 8,617,940 5,583,417 89,829,129 Total as at 12.31.2020 49,801,352 34,587,809 5,023,944 416,024 89,829,129 63,900,839 9,836,314 16,091,976 Securities portfolio 42,072,577 77,924 4,856,917 416,024 47,423,442 36,249,221 504,029 10,670,192 Government securities 39,376,767 - 4,805,096 416,024 44,597,887 35,537,811 - 9,060,076 Corporate securities issued by Financial Institutions 2,156,005 77,924 51,821 - 2,285,750 625,854 504,029 1,155,867 Corporate securities issued by Companies 539,805 - - - 539,805 85,556 - 454,249 Regulatory adjustments – CMN Resolution 4,277/2013 (3) (7,989) - - - (7,989) - - (7,989) Securities portfolio as at 12.31.2020 42,064,588 77,924 4,856,917 416,024 47,415,453 36,249,221 504,029 10,662,203 Investments linked to open market funding – Government securities – Note 7(a) - 27,651,618 - - 27,651,618 27,651,618 - - Other credit risk instruments – Note 9(a-I) 7,736,764 6,858,267 167,027 - 14,762,058 - 9,332,285 5,429,773 Eurobonds 2,749,857 162,385 - - 2,912,242 - 2,912,242 - Debentures 2,239,900 6,695,882 167,027 - 9,102,809 - 6,307,343 2,795,466 Promissory notes 1,630,607 - - - 1,630,607 - 110,047 1,520,560 Certificates of agribusiness receivables, rural certificate and other 1,116,400 - - - 1,116,400 - 2,653 1,113,747 (1) Refers to guarantee of derivative financial instrument transactions made in stock exchange in the amount of R$ 3,788,038 (R$ 4,419,457 as at 12.31.2020), realized in the clearing and depository corporation in the amount of R$ 305,024 (R$ 520,951 as at 12.31.2020) and labor appeals – Note 15(c) in the amount of R$ 87,756 (R$ 83,536 as at 12.31.2020). (2) It is mainly represented by transactions linked to the funds from savings accounts in the amount of R$ 710,409 (R$ 416,024 as at 12.31.2020). (3) Note 3(b-III). In the period ended June 30, 2021 and December 31, 2020, there was no reclassification among the categories of marketable securities.
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Consolidated Financial Statements | Banco Safra S.A.
III - By maturity:
06.30.2021 Amounts by maturity Up to From 91 to From 1 to From 2 to From 3 to Over Fair value 90 days 365 days 2 years 3 years 5 years 5 years
Securities portfolio 41,277,261 5,438,243 10,756,607 11,609,107 8,322,640 2,212,071 2,938,593 Government securities 38,154,203 5,001,613 10,450,804 10,797,831 8,251,561 1,114,235 2,538,159 Corporate securities issued by Financial Institutions 2,146,626 92,432 305,803 556,405 71,079 1,019,065 101,842 Corporate securities issued by Companies 976,432 344,198 - 254,871 - 78,771 298,592 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 8(c) (11,863) (202) (472) (5,709) (5,480) - - Securities portfolio as at 06.30.2021 41,265,398 5,438,041 10,756,135 11,603,398 8,317,160 2,212,071 2,938,593 Trading securities – Note 3(b-I) 37,247,241 5,422,242 10,450,804 11,052,687 5,921,219 1,786,940 2,613,349 Hedge accounting – Note 11 802,371 - - - 52,803 424,691 324,877 Available-for-sale securities 3,215,786 15,799 305,331 550,711 2,343,138 440 367 Securities portfolio 47,423,442 2,334,490 11,712,938 21,499,144 3,109,657 7,758,352 1,008,861 Government securities 44,597,887 2,170,209 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 8(c) (7,989) (52) - (6,070) (9) (1,858) - Securities portfolio as at 12.31.2020 47,415,453 2,334,438 11,712,938 21,493,074 3,109,648 7,756,494 1,008,861 Trading securities – Note 3(b-I) 36,249,221 2,327,969 11,378,044 11,708,545 2,917,194 7,229,954 687,515 Hedge accounting – Note 11 504,029 - - - 55,603 448,426 - Available-for-sale securities 10,662,203 6,469 334,894 9,784,529 136,851 78,114 321,346
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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 11): 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 on 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
06.30.2021 12.31.2020 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) 250,128 (40,851) 209,277 104,616 95,115 9,539 7 - - 153,367 Option premiums 231,712 181,569 413,281 46,666 187,801 107,584 37,964 33,266 - 339,925 Bovespa Index 31,610 60,336 91,946 3,626 37,408 15,711 3,136 32,065 - 126,647 Foreign currency 100,467 25,060 125,527 2,627 122,894 6 - - - 35,903 Interbank Deposit (DI) index 22,861 (10,155) 12,706 - 2 9,988 2,716 - - 10,641 Stock 76,774 106,328 183,102 40,413 27,497 81,879 32,112 1,201 - 166,734 Forward – Government securities 4,930,838 - 4,930,838 4,930,838 ------Purchases receivable 1,799,762 - 1,799,762 1,799,762 ------Sales receivable 3,131,076 - 3,131,076 3,131,076 ------Swap – Amounts receivable 2,066,886 447,556 2,514,442 552,224 724,269 88,194 135,712 204,524 809,519 3,014,630 Interest rate 236,569 89,246 325,815 8,617 24,825 53,221 89,191 118,679 31,282 138,864 Foreign currency 1,767,752 364,510 2,132,262 543,607 691,932 9,381 24,043 85,062 778,237 2,840,738 Other 62,565 (6,200) 56,365 - 7,512 25,592 22,478 783 - 35,028 Credit derivatives – CDS 115,055 - 115,055 45 6,369 3,504 10,253 92,933 1,951 70,435 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 8(c) - (3,298) (3,298) (3,298) - - - - - (287) Total as at 06.30.2021 7,594,619 584,976 8,179,595 5,631,091 1,013,554 208,821 183,936 330,723 811,470 3,578,070 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
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Consolidated Financial Statements | Banco Safra S.A.
06.30.2021 12.31.2020 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) (154,726) 48,941 (105,785) (27,579) (57,596) (16,921) (3,602) - (87) (131,043) Option premiums (357,874) (155,290) (513,164) (25,934) (120,175) (138,233) (95,136) (124,467) (9,219) (797,554) Bovespa Index (110,025) (92,591) (202,616) (10,338) (45,124) (21,680) (12,161) (104,575) (8,738) (160,996) Foreign currency (63,341) 15,170 (48,171) (5,400) (39,214) (2,286) (1,271) - - (436,416) Interbank Deposit (DI) index (24,526) 22,873 (1,653) - (600) (29) (1,024) - - (6,203) Stock (159,982) (100,742) (260,724) (10,196) (35,237) (114,238) (80,680) (19,892) (481) (193,939) Forward (4,930,838) (7,417) (4,938,255) (4,938,255) - - - - - (40,894) Purchases payable – Government securities (1,799,762) - (1,799,762) (1,799,762) ------Sales deliverable (3,131,076) (7,417) (3,138,493) (3,138,493) - - - - - (40,894) Government securities – LTN (3,131,076) - (3,131,076) (3,131,076) ------Foreign currency - (7,417) (7,417) (7,417) - - - - - (40,894) Swap – amounts payable (1,740,178) (41,346) (1,781,524) (719,948) (798,784) (34,497) (15,062) (209,796) (3,437) (2,602,302) Interest rate (260,889) (36,424) (297,313) (16,785) (46,413) (19,006) (15,062) (196,832) (3,215) (410,128) Foreign currency (1,479,289) (4,922) (1,484,211) (703,163) (752,371) (15,491) - (12,964) (222) (2,192,174) Credit derivatives – CDS (93,069) - (93,069) (89) (4,934) (3,405) (10,185) (74,456) - (54,600) Regulatory adjustments – CMN Resolution 4,277/2013 – Note 8(c) - (5,264) (5,264) (5,264) - - - - - (11,778) Total as at 06.30.2021 (7,276,685) (160,376) (7,437,061) (5,717,069) (981,489) (193,056) (123,985) (408,719) (12,743) (3,638,171) 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)
2) By counterparty at fair value
Assets Liabilities 06.30.2021 12.31.2020 06.30.2021 12.31.2020 Financial institutions 6,699,508 2,178,063 (6,656,530) (2,353,691) B3 - - (7,417) (40,894) Legal entities 1,259,503 1,222,724 (334,984) (852,042) Individuals 223,882 177,570 (432,866) (379,766) Regulatory adjustments – CMN Resolution 4,277/2013 – Note 8(c) (3,298) (287) (5,264) (11,778) Total 8,179,595 3,578,070 (7,437,061) (3,638,171)
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Consolidated Financial Statements | Banco Safra S.A.
II - Breakdown by notional amount: 1) By type of operation
06.30.2021 12.31.2020 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) 2,873,403 2,685,124 515,898 55,078 - 1,180 6,130,683 5,905,477 Long position 1,061,752 1,444,514 335,521 51,852 - 1,180 2,894,819 3,613,499 Short position 1,811,651 1,240,610 180,377 3,226 - - 3,235,864 2,291,978 Options 29,783,730 27,717,369 417,433 108,699 247,097 - 58,274,328 111,096,952 Long position 14,317,936 13,571,231 128,160 35,911 247,097 - 28,300,335 55,364,945 Stock 898,795 - 109,706 13,732 1,711 - 1,023,944 392,446 Interbank Deposit (DI) index 11,600,000 11,746,500 - - - - 23,346,500 50,197,500 Bovespa Index - 136,308 18,454 22,179 245,386 - 422,327 776,609 Foreign currency 1,819,141 1,688,423 - - - - 3,507,564 3,998,390 Short position 15,465,794 14,146,138 289,273 72,788 - - 29,973,993 55,732,007 Stock 1,251,954 - - - - - 1,251,954 281,893 Interbank Deposit (DI) index 12,114,250 12,151,900 233,000 71,400 - - 24,570,550 50,597,350 Bovespa Index - 130,200 - 720 - - 130,920 625,705 Foreign currency 2,099,590 1,864,038 56,273 668 - - 4,020,569 4,227,059 Forward 22,838,870 - - - - - 22,838,870 14,127,340 Long position - government securities 1,802,610 - - - - - 1,802,610 - Obligations for sales to be delivered 21,036,260 - - - - - 21,036,260 14,127,340 Government securities – LTN 3,134,040 - - - - - 3,134,040 - Foreign currency 17,902,220 - - - - - 17,902,220 14,127,340 Swap Assets 25,951,335 30,115,605 1,525,299 2,075,197 3,035,648 2,616,987 65,320,071 66,755,747 Interest rate 650,010 2,317,423 740,361 1,336,797 2,118,735 922,884 8,086,210 7,210,979 Foreign currency 25,301,325 27,750,763 397,365 456,410 906,739 1,694,103 56,506,705 58,934,831 Other - 47,419 387,573 281,990 10,174 - 727,156 609,937 Liabilities 25,951,335 30,115,605 1,525,299 2,075,197 3,035,648 2,616,987 65,320,071 66,755,747 Interest rate 631,980 2,123,657 1,159,998 1,989,168 2,274,138 2,550,122 10,729,063 8,631,983 Foreign currency 25,319,355 27,991,948 365,301 86,029 761,510 66,865 54,591,008 58,123,764 Futures 50,668,549 82,880,168 38,188,553 10,908,773 3,056,238 2,005,433 187,707,714 234,117,892 Long position 9,300,383 223,411 342,974 592,313 921,245 961,643 12,341,969 38,787,966 Interest rate - - - 369,912 660,133 961,643 1,991,688 6,987,568 Currency coupon 7,699,172 223,411 330,527 197,523 254,902 - 8,705,535 28,716,729 Foreign currency 1,240,446 - 12,447 24,878 6,210 - 1,283,981 2,760,556 Bovespa Index 360,765 - - - - - 360,765 323,113 Short position 41,368,166 82,656,757 37,845,579 10,316,460 2,134,993 1,043,790 175,365,745 195,329,926 Interest rate 20,112,898 21,676,004 35,121,836 10,296,841 1,114,093 110,991 88,432,663 91,742,768 Currency coupon 2,773,498 36,585,992 2,634,900 19,619 1,020,900 931,450 43,966,359 65,192,564 Foreign currency 18,367,241 24,394,761 88,843 - - 1,349 42,852,194 38,352,863 Bovespa Index 114,529 - - - - - 114,529 41,731 Credit derivatives – CDS – Received risk – Note 8(b-III) 3,577 460,402 326,914 334,496 2,593,931 12,506 3,731,826 2,845,386
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Consolidated Financial Statements | Banco Safra S.A.
06.30.2021 12.31.2020 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) 13,699,013 44,995,083 4,213,741 1,532,801 3,078,585 78,328 67,597,551 51,975,073 Option premiums 13,665,658 44,490,742 3,005,274 657,709 734,803 58,150 62,612,336 47,818,238 Long position 177,436 478,138 583,818 325,997 6,374 - 1,571,763 1,122,976 Stock 737 37,111 312,172 266,431 6,374 - 622,825 - Interbank Deposit (DI) index 133,274 348,790 247,996 56,851 - - 786,911 1,100,648 Bovespa Index 24,893 43,681 23,341 2,715 - - 94,630 22,328 Foreign currency 18,532 48,556 309 - - - 67,397 - Short position 13,488,222 44,012,604 2,421,456 331,712 728,429 58,150 61,040,573 46,695,262 Stock 476 21,283 237,388 275,305 67,624 2,134 604,210 907,438 Bovespa Index 18,373 52,939 34,743 50,536 660,805 56,016 873,412 609,347 Foreign currency 13,469,373 43,938,382 2,149,325 5,871 - - 59,562,951 45,178,477 Swap – Assets/Liabilities – Interest rate 29,778 20,418 885,780 542,196 140,518 20,178 1,638,868 1,588,860 Credit derivatives – CDS – Transferred risk – Note 8(b-III) 3,577 483,923 322,687 332,896 2,203,264 - 3,346,347 2,567,975 Total as at 06.30.2021 145,818,477 188,853,751 45,187,838 15,015,044 12,011,499 4,714,434 411,601,043 486,823,867 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 2) Trading locations by counterparties
06.30.2021 12.31.2020 Total notional Trading locations B3 Financial institutions Legal entities Individuals amount Total notional amount B3 203,122,440 68,668,605 127,569,334 5,162,491 404,522,870 481,410,506 Over the counter – abroad - 7,078,173 - - 7,078,173 5,413,361 Total as at 06.30.2021 203,122,440 75,746,778 127,569,334 5,162,491 411,601,043 486,823,867 Total as at 12.31.2020 246,763,689 69,698,570 165,498,319 4,863,289 486,823,867
III - Credit derivatives – CDS Banco Safra uses derivative financial instruments of credit in order to offer its customers, through the issue of Structured CD – Note 10, 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:
06.30.2021 12.31.2020 Credit swap whose underlying assets – Marketable securities – Note 8(b-II) (1) Received risks 3,731,826 2,845,386 Transferred risks (3,346,347) (2,567,975) Total, net of received/(transferred) exposure 385,479 277,411 Risk Asset – Credit Linked Notes – Note 8(a) 500,220 519,670 Risk Liability – Structured CD – Note 10(b) (114,741) (242,259) (1) The transferred and received risks refer to the same issuers. During the period of 2020, 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 06.30.2021, 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 06.30.2021 Changes in the period Effects: Foreign In other exchange comprehensive Opening gains or Income – Note income – Note Closing balance losses 13(b-II) 18(d) balance Trading securities and Obligations related to unrestricted securities 81,373 and438 (874,224) - (792,413) Other Trading securities – Note 8(a-II) 208,194 438 (1,015,419) - (806,787) Securities portfolio – Note 8(a-I) 133,431 438 (498,573) - (364,704) Investments linked to open market funding – Government securities – Note 7(a) 74,763 - (516,846) - (442,083) Obligations related to unrestricted securities – Note 7(b) (126,821) - 141,195 - 14,374 Available-for-sale securities – Securities portfolio – Notes 8(a-I) and 18(d) 36,462 - - (57,420) (20,958) Derivative financial instruments (assets/liabilities) – Note 8(b-I) 122,292 98,928 211,942 - 433,162 Foreign borrowings and onlending – stock lending (31) - 31 - - Fair value hedge – Note 11 252,052 6,414 (645,411) - (386,945) Fixed-rate portfolio (74,627) - (359,225) - (433,852) Trade Finance 46,290 960 (23,085) - 24,165 IPCA portfolio 304,210 - (179,377) - 124,833 Eurobonds 238,205 3,981 (185,400) - 56,786 Government securities – Abroad - - 671 - 671 Marketable securities – Available for sale – Note 7(a-I) 15,983 177 (7,847) - 8,313 Other credit risk instruments – Note 8(b) 222,222 3,804 (178,224) - 47,802 Financial liabilities – Note 10(b) (262,026) 1,473 101,676 - (158,877) Funding – Structured funding – Structured CD (31,424) (1,924) 32,783 - (565) Financing funds (230,602) 3,397 68,893 - (158,312) Liabilities for marketable securities abroad (112,110) 2,422 25,715 - (83,973) Subordinated debt (118,492) 975 43,178 - (74,339) Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-III) (21,919) - (15,191) - (37,110) Interbank investments – Foreign currency investments – Note 6 (1,866) - (14,819) - (16,685) Marketable securities – Note 8(a-I) (7,989) - (3,874) - (11,863) Derivative financial instruments (assets/liabilities) – Note 8(b) (12,064) - 3,502 - (8,562) Total as at 06.30.2021 470,229 105,780 (1,322,853) (57,420) (804,264) Total as at 06.30.2020 190,870 38,090 220,156 36,734 485,850 Trading securities and Obligations related to unrestricted securities (186,469) (951) 29,230 - (158,190) Available-for-sale securities – Securities portfolio – Notes 8(a-I) and 18(d) 2,401 - - 36,734 39,135 Derivative financial instruments (assets/liabilities) – Note 8(b-I) 3,696 39,791 4,744 - 48,231 Fair value hedge – Note 11 378,140 (750) 198,883 - 576,273 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(b-III) (6,898) - (12,701) - (19,599) Interbank investments – Foreign currency investments – Note 6 - - (4,813) - (4,813) Marketable securities – Note 8(a-I) (100) - (2,372) - (2,472) Derivative financial instruments (assets/liabilities) – Note 8(b) (6,798) - (5,516) - (12,314)
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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
06.30.2021 12.31.2020 Amortized Allowance Amortized Allowance Amortized Fair value cost and for credit Amortized Fair value cost and for credit
cost adjustment Fair value risk Total cost adjustment Fair value risk Credit portfolio – Note 9(b) 114,244,013 (275,255) 113,968,758 (3,494,276) 110,474,482 108,284,018 1,246,230 109,530,248 (3,638,152) Amortized cost (1) 53,423,447 - 53,423,447 49,929,171 50,006,768 - 50,006,768 Fair value hedge – Note 11 60,820,566 (275,255) 60,545,311 60,545,311 58,277,250 1,246,230 59,523,480 Guarantees and sureties – Notes
9(e) and 13(a) 15,906,140 - 15,906,140 (352,290) 15,553,850 17,684,058 - 17,684,058 (397,597) Expanded Credit Portfolio as at
06.30.2021 130,150,153 (275,255) 129,874,898 (3,846,566) 126,028,332 25,968,076 1,246,230 127,214,306 (4,035,749) (1) Includes transactions related to “Other credit risk instruments” classified into “other comprehensive income” in the amount of R$ 2,367,631 (R$ 5,429,773 as at 12.31.2020) – Note 8(a-II).
II - Changes in credit portfolio
Foreign exchange Opening gains or losses Net financial Interest – Write-offs of Loss Closing
balance abroad change Note 13(b-I) – Note 9(a-III) balance Operations with companies 80,355,184 (271,055) 1,162,851 3,126,482 (238,639) 84,134,822 Consumer loan and finance operations 29,175,064 - (820,234) 1,880,696 (401,591) 29,833,936 Total credit portfolio as at 06.30.2021 109,530,248 (271,055) 342,617 5,007,178 (640,230) 113,968,758 Total credit portfolio as at 06.30.2020 93,796,391 3,643,460 (8,778,613) 4,806,101 (484,837) 92,982,502
III - Changes in allowance for credit risk
Foreign exchange Opening gains or losses (Recognition) Write-offs of Loss – balance abroad /Reversal - Note 9(a-II) Closing balance Minimum allowance required (2,627,249) (4,812) (336,809) 640,230 (2,328,640)
Credit portfolio (2,356,358) (4,812) (330,205) 640,230 (2,051,145) Operations with companies (963,038) (4,812) (56,065) 238,639 (785,276) Consumer loan and finance operations (1,393,320) - (274,140) 401,591 (1,265,869) Guarantees and sureties (270,891) - (6,604) - (277,495) Additional allowance (1,408,500) - (109,425) - (1,517,925) Credit portfolio (1,281,794) - (161,337) - (1,443,131) Guarantees and sureties and other (126,706) - 51,911 - (74,795) Total allowance as at 06.30.2021 – Note 9(a-I) (4,035,749) (4,812) (446,235) 640,230 (3,846,566) Total allowance as at 06.30.2020 (3,321,949) (5,735) (813,947) 484,837 (3,656,794) Minimum allowance required (2,127,630) (5,735) (1,145,266) 484,837 (2,793,794) Credit portfolio (1,933,557) (5,735) (1,084,895) 484,837 (2,539,350) Operations with companies (927,579) (5,735) (572,816) 237,245 (1,268,885) Consumer loan and finance operations (1,005,978) - (512,079) 247,592 (1,270,465) Guarantees and sureties (194,073) - (60,371) - (254,444) Additional allowance (1,194,319) - 331,319 - (863,000)
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Consolidated Financial Statements | Banco Safra S.A.
b) Credit portfolio and allowance by risk level
06.30.2021 12.31.2020 Risk levels AA A B C D E F G H Total Total Operations with companies 74,705,353 3,605,887 3,134,484 1,327,255 649,876 179,602 59,722 33,438 439,204 84,134,821 80,355,183 Credit operations 60,503,151 3,598,275 3,094,064 1,283,775 649,876 179,602 59,722 33,438 439,169 69,841,072 65,593,125 Borrowings, financing and discounted receivables 37,139,864 2,668,430 2,342,318 940,449 493,065 109,789 51,899 33,438 423,625 44,202,877 42,219,519 Foreign trade 16,878,990 572,797 469,308 153,409 146,971 66,365 7,823 - 3,769 18,299,432 16,863,252 Directed credit – rural, agroindustrial and real estate 2,834,076 193,883 171,645 104,400 75 1,857 - - 149 3,306,085 2,442,624 Onlending – BNDES/FINAME 2,814,554 147,427 92,067 81,436 9,765 - - - 2,689 3,147,938 3,038,184 Lease 835,667 15,738 18,726 4,081 - 1,591 - - 437 876,240 982,182 Other credits ------8,500 8,500 47,364 Other credit risk instruments 14,202,202 7,612 40,420 43,480 - - - - 35 14,293,749 14,762,058 Consumer loan and finance operations 5,521,221 869,576 20,353,253 1,318,803 194,191 116,230 994,910 67,947 397,806 29,833,937 29,175,065 Payroll advance loan - 18,976 7,757,694 46,437 27,891 18,862 34,535 21,910 189,807 8,116,112 8,345,778 Direct consumer credit 2,121,993 684,194 11,416,287 1,208,558 149,292 83,424 55,982 39,073 184,215 15,943,018 15,772,117 Personal credit 3,399,228 166,406 1,179,272 63,808 17,008 13,944 904,393 6,964 23,784 5,774,807 5,057,170 Total portfolio as at 06.30.2021 80,226,574 4,475,463 23,487,737 2,646,058 844,067 295,832 1,054,632 101,385 837,010 113,968,758 109,530,248 Past due (1) 226,931 3,115 320,874 364,331 289,731 138,054 185,903 79,755 516,067 2,124,761 1,765,809 Regular (2) 79,999,643 4,472,348 23,166,863 2,281,727 554,336 157,778 868,729 21,630 320,943 111,843,997 107,764,439 Minimum allowance required (10,452) (27,160) (261,568) (101,203) (117,562) (91,018) (527,790) (77,382) (837,010) (2,051,145) (2,356,358) Additional allowance (362,289) (60,976) (573,613) (177,927) (164,991) (57,942) (33,662) (11,731) - (1,443,131) (1,281,794) Total allowance of the credit portfolio as at 06.30.2021 (372,741) (88,136) (835,181) (279,130) (282,553) (148,960) (561,452) (89,113) (837,010) (3,494,276) (3,638,152) 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 Past due (1) - - 268,981 264,552 163,468 129,493 156,785 70,863 711,667 1,765,809 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 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) Additional allowance (258,578) (17,290) (388,333) (212,096) (81,103) (44,934) (257,616) (21,844) - (1,281,794) 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) (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) Credit portfolio and minimum allowance required for credit risk I- Breakdown 06.30.2021 Credit portfolio Minimum allowance required Past due Regular Total Past due Regular Total Operations with companies 705,390 83,429,431 84,134,821 (235,777) (549,499) (785,276) Credit operations 705,390 69,135,682 69,841,072 (235,777) (546,614) (782,391) Borrowings, financing and discounted receivables 423,637 43,779,240 44,202,877 (226,104) (461,410) (687,514) Foreign trade 50,045 18,249,387 18,299,432 (6,399) (59,716) (66,115) Directed credit – Rural, agroindustrial and real estate financing 676 3,305,409 3,306,085 (198) (9,307) (9,505) Onlending – BNDES/FINAME and Other 226,792 2,921,146 3,147,938 (301) (8,885) (9,186) Lease 2,037 874,203 876,240 (572) (999) (1,571) Other credits 2,203 6,297 8,500 (2,203) (6,297) (8,500) Other credit risk instruments - 14,293,749 14,293,749 - (2,885) (2,885) Consumer loan and finance operations 1,419,371 28,414,566 29,833,937 (532,130) (733,739) (1,265,869) Payroll advance loan 367,167 7,748,945 8,116,112 (189,191) (122,616) (311,807) Direct consumer credit 856,528 15,086,490 15,943,018 (266,963) (184,292) (451,255) Personal credit 195,676 5,579,131 5,774,807 (75,976) (426,831) (502,807) Total as at 06.30.2021 2,124,761 111,843,997 113,968,758 (767,907) (1,283,238) (2,051,145) Total as at 12.31.2020 1,765,809 107,764,439 109,530,248 (909,449) (1,446,909) (2,356,358) Operations with companies 291,262 80,063,921 80,355,183 (256,099) (706,939) (963,038) Consumer loan and finance operations 1,474,547 27,700,518 29,175,065 (653,350) (739,970) (1,393,320)
II- Breakdown of the portfolio by maturity of credit operations
06.30.2021 12.31.2020 Portfolio Minimum allowance required Portfolio Minimum allowance required Past due 2,124,761 (767,907) 1,765,809 (909,449) Past due transactions: From 15 to 30 days 754,775 (111,011) 396,620 (72,836) From 31 to 60 days 425,035 (69,427) 294,728 (41,739) From 61 to 90 days 236,257 (69,888) 233,832 (94,702) From 91 to 180 days 401,673 (220,727) 369,115 (228,786) From 181 to 365 days 307,021 (296,854) 471,514 (471,386) Regular 111,843,997 (1,283,238) 107,764,439 (1,446,909) Past due - up to 14 days 138,725 (8,967) 128,477 (6,439) Falling due: From 01 to 30 days 10,927,866 (70,542) 8,691,915 (73,177) From 31 to 60 days 9,177,968 (69,592) 7,838,263 (77,260) From 61 to 90 days 6,315,503 (41,955) 4,398,062 (45,315) From 91 to 180 days 13,351,870 (121,691) 12,979,209 (141,779) From 181 to 365 days 18,164,303 (188,232) 16,217,262 (232,817) From 1 to 2 years 20,581,561 (263,121) 21,367,061 (346,235) From 2 to 3 years 12,519,427 (174,450) 14,740,742 (236,320) From 3 to 5 years 14,317,394 (152,169) 14,484,551 (241,457) Over 5 years 6,349,380 (192,519) 6,918,897 (46,110) Total 113,968,758 (2,051,145) 109,530,248 (2,356,358) The balance of transactions more than 60 days past due, non-accrued, amounts to R$ 944,951 (R$ 1,074,461 as at 12.31.2020) and more than 90 days past due amounts to R$ 708,694 (R$ 840,629 as at 12.31.2020).
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Consolidated Financial Statements | Banco Safra S.A.
d) Renegotiated transactions and credit recoveries
Total Past due 52,599 Past due transactions: From 15 to 30 days 30,361 From 31 to 60 days 10,046 From 61 to 90 days 6,965 From 91 to 180 days 3,329 From 181 to 365 days 1,898 Regular 196,844 Past due - up to 14 days 1,701 Falling due: From 01 to 90 days 23,030 From 91 to 365 days 57,383 Over 365 days 114,730 Total portfolio as at 06.30.2021 (1) 249,443 Total losses as at 06.30.2021 (1) (230,821) Total portfolio as at 12.31.2020 (1) 340,382 Total losses as at 12.31.2020 (1) (332,636) (1) The allowance for credit risk of the portfolio totals 92.5% (97.7% as at 12.31.2020). The credit recoveries written off as loss, net of direct costs – Note 3(c), for the period amounted to R$ 191,429 (R$ 120,285 in 2020).
e) Credit commitments (off balance) Off balance amounts related to financial guarantee contracts are as follows:
06.30.2021 12.31.2020 Guarantees, sureties and other guarantees provided – Note 9(a-I) (1) 15,906,140 17,684,058 AA 15,162,988 16,910,914 A 167,873 160,222 B 140,996 129,722 C 29,165 77,931 E 190,646 202,483 H 214,472 202,786 Granted limits (2) 16,791,434 14,968,208 Total (3) 32,697,574 32,652,266 Contractual term: Up to 90 days 15,587,139 15,295,549 From 91 to 365 days 7,124,577 8,021,492 From 1 to 2 years 5,002,969 4,323,680 From 2 to 3 years 977,074 1,198,831 From 3 to 5 years 2,836,221 2,607,033 Over 5 years 1,169,594 1,205,681 (1) The income of guarantees, sureties and other pledged guarantees is shown in Note 13(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. (3) Safra recognizes an allowance for credit risk in credit commitments (off balance), as established in Resolution 4,512/16 – Note 9(a-I).
f) Term extension – COVID-19 In the period from March to December 2020, 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 and amendments.
Number Balance of of Balance of Balance of postponed
customers transaction postponed portion portion/transaction Operations with companies 516 1,306,341 210,849 16.1% Consumer loan and finance operations 37,683 862,768 34,707 4.0% Total as at 06.30.2021 38,199 2,169,109 245,556 11.3% Total as at 12.31.2020 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
06.30.2021 12.31.2020 At amortized At fair value – At amortized At fair value – cost Note 11 Total cost Note 11 Total Funding 114,498,569 16,366,905 130,865,474 118,738,858 12,227,635 130,966,493 Open market deposits and funding – Corporate securities 15,112,596 - 15,112,596 15,350,441 - 15,350,441 Funds from acceptance and issue of securities and Time deposits 93,490,049 11,752,759 105,242,808 97,707,138 8,821,545 106,528,683 Structured funding – Note 8(b-II(1)) 5,895,924 4,614,146 10,510,070 5,681,279 3,406,090 9,087,369 Borrowings and onlending 14,725,227 - 14,725,227 16,554,389 - 16,554,389 Foreign borrowings 10,946,575 - 10,946,575 13,126,978 - 13,126,978 Domestic onlending 3,369,478 - 3,369,478 3,210,923 - 3,210,923 Other borrowings 409,174 - 409,174 216,488 - 216,488 Financing funds 2,776,195 7,243,889 10,020,084 2,683,215 9,761,567 12,444,782 Liabilities for marketable securities abroad - 2,325,568 2,325,568 - 2,274,175 2,274,175 Subordinated debt 2,776,195 4,918,321 7,694,516 2,683,215 7,487,392 10,170,607 Total financial liabilities – Note 10(b) 131,999,991 23,610,794 155,610,785 137,976,462 21,989,202 159,965,664 Managed funds – Note 10(c) 105,669,893 101,555,852 Consolidated private pension funds – Note 10(c) 20,122,548 20,018,466 Total financial liabilities and managed assets 281,403,226 281,539,982
II - By counterparty
06.30.2021 12.31.2020 Funds Funds Funds from Funds from Customers from the Market Total Customers from the Market Total Funding 116,639,688 14,225,786 130,865,474 117,240,606 13,725,887 130,966,493 Open market deposits and funding – Corporate securities 12,185,034 2,927,562 15,112,596 12,334,583 3,015,858 15,350,441 Funds from acceptance and issue of securities and Time deposits 97,606,432 7,636,376 105,242,808 98,872,426 7,656,257 106,528,683 Structured funding – Note 8(b-II(1)) 6,848,222 3,661,848 10,510,070 6,033,597 3,053,772 9,087,369 Borrowings and onlending - 14,725,227 14,725,227 - 16,554,389 16,554,389 Foreign borrowings - 10,946,575 10,946,575 - 13,126,978 13,126,978 Domestic onlending - 3,369,478 3,369,478 - 3,210,923 3,210,923 Other borrowings - 409,174 409,174 - 216,488 216,488 Financing funds 4,526,465 5,493,619 10,020,084 4,387,560 8,057,222 12,444,782 Liabilities for marketable securities abroad - 2,325,568 2,325,568 - 2,274,175 2,274,175 Subordinated debt 4,526,465 3,168,051 7,694,516 4,387,560 5,783,047 10,170,607 Total financial liabilities – Note 10(b) 121,166,153 34,444,632 155,610,785 121,628,166 38,337,498 159,965,664 Managed funds – Note 10(c) 105,669,893 101,555,852 Consolidated private pension funds – Note 10(c) 20,122,548 20,018,466 Total financial liabilities and managed assets 281,403,226 281,539,982
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Consolidated Financial Statements | Banco Safra S.A.
b) Financial liabilities
I - By maturity
06.30.2021 12.31.2020 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 28,715,403 60,270,018 25,302,202 9,363,546 6,062,522 1,151,783 130,865,474 130,966,493 Open market deposits and funding – Corporate securities 11,711,762 2,978,893 15,574 700 405,667 - 15,112,596 15,350,441 Deposits 7,466,672 1,186,236 15,574 700 - - 8,669,182 9,079,026 Demand deposits 2,082,301 - - - - - 2,082,301 2,171,246 Savings deposits 4,117,645 - - - - - 4,117,645 4,104,127 Deposits from financial institutions (1) 1,266,726 1,186,236 15,574 700 - - 2,469,236 2,803,653 Open market funding – Corporate securities 4,245,090 1,792,657 - - 405,667 - 6,443,414 6,271,415 Funds from acceptance and issue of securities and Time deposits 16,003,360 54,479,273 23,160,081 7,875,397 2,642,528 1,082,169 105,242,808 106,528,683 Time deposits 12,676,293 37,693,459 6,616,152 1,934,086 155,270 147 59,075,407 65,886,553 Funds from financial bills, bills of credit and similar notes 3,327,067 16,785,814 16,543,929 5,941,311 2,487,258 1,082,022 46,167,401 40,642,130 Financial bills 2,714,047 12,476,848 13,362,620 4,285,438 1,098,294 852,769 34,790,016 29,220,167 Commercial leasing bills 65,783 726,431 37,335 32 7,248 - 836,829 619,824 Agribusiness credit notes 454,318 3,229,562 2,898,079 1,588,082 1,366,821 229,253 9,766,115 10,195,311 House loan bills, mortgage bills and other 92,919 352,973 245,895 67,759 14,895 - 774,441 606,828 Structured funding – Note 8(b-II(1)) 1,000,281 2,811,852 2,126,547 1,487,449 3,014,327 69,614 10,510,070 9,087,369 Fixed income (3) 546,842 1,736,482 86,422 - - - 2,369,746 1,842,944 Certificate of structured transactions 234,891 581,687 1,710,024 1,144,467 743,199 66,416 4,480,684 4,193,768 Structured CD – Note 8(b-III) 218,548 493,683 330,101 342,982 2,271,128 3,198 3,659,640 3,050,657 Hedge (5) 3,631 258,751 90,591 189,292 2,116,476 3,198 2,661,939 1,890,590 Other 214,917 234,932 239,510 153,690 154,652 - 997,701 1,160,067 Borrowings and onlending 3,687,306 8,298,438 742,646 1,121,351 479,073 396,413 14,725,227 16,554,389 Foreign borrowings (4) 2,814,905 7,481,384 - 650,286 - - 10,946,575 13,126,978 Domestic onlending 463,227 817,054 742,646 471,065 479,073 396,413 3,369,478 3,210,923 National Treasury 46,230 185,483 12,230 - - - 243,943 191,442 BNDES 272,585 397,960 466,163 311,762 326,988 272,761 2,048,219 1,996,630 FINAME 144,412 233,611 264,253 159,303 152,085 123,652 1,077,316 1,022,851 Other borrowings 409,174 - - - - - 409,174 216,488
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Consolidated Financial Statements | Banco Safra S.A.
06.30.2021 12.31.2020 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 153,147 183,095 2,671,094 721,878 2,051,844 4,239,026 10,020,084 12,444,782 Liabilities for marketable securities abroad –
US$ 500,000 – 02.08.2018 – Fixed (4.12% p.a.) – Hedge (2) (5) - - 2,325,568 - - - 2,325,568 2,274,175 Subordinated debt – Note 10(b-III) 153,147 183,095 345,526 721,878 2,051,844 4,239,026 7,694,516 10,170,607 Financial bills (LF) 137,268 183,095 345,526 721,878 2,051,844 1,663,587 5,103,198 5,000,472 CDI (100% to 119%) + (interest from 0.68% p.a. to 1.97% p.a.) 90,695 62,147 109,545 416,503 1,547,208 494,611 2,720,709 2,625,618 IGPM + (interest from 2.94% p.a. to 6.21% p.a.) 1,791 - - - - 953 2,744 5,578 IPCA + (interest from 3.43% p.a. to 8.82% p.a.) – Hedge (5) 19,649 109,688 165,407 292,041 251,664 806,122 1,644,571 1,589,253 Fixed (7.26% p.a. to 17.66% p.a.) – Hedge (5) 25,133 11,260 17,832 13,334 252,972 361,901 682,432 728,004 Selic (109% to 110.5%) - - 52,742 - - - 52,742 52,019 Medium term notes – Hedge (5) 15,879 - - - - 2,575,439 2,591,318 5,170,135 Perpetual – Note 20(b) 15,879 - - - - 2,575,439 2,591,318 2,730,610 US$ 200,000 at 5.80% p.a. – 02.14.2020 7,415 - - - - 1,021,699 1,029,114 1,086,637 US$ 300,000 at 7.52% p.a. – 06.03.2014 8,464 - - - - 1,553,740 1,562,204 1,643,973 US$ 500,000 at 6.75% p.a. – 01.27.2011 ------2,439,525 Total financial liabilities as at 06.30.2021 32,555,856 68,751,551 28,715,942 11,206,775 8,593,439 5,787,222 155,610,785 159,965,664 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 Funding 28,798,593 62,794,679 25,603,014 8,450,327 4,400,417 919,463 130,966,493 Borrowings and onlending 3,037,579 11,300,007 752,696 574,132 471,352 418,623 16,554,389 Financing funds 2,627,176 297,942 164,312 2,919,291 1,531,692 4,904,369 12,444,782 (1) Of this amount, R$ 154,402 (R$ 230,158 as at 12.31.2020) refers to operations linked to rural credit. (2) Includes incurred transaction costs of R$ (1,826) (R$ 2,369 as at 12.31.2020) – Note 3(b-I). (3) Transactions made with derivative financial instruments – Options. (4) Credit facilities for financing imports and exports. (5) Note 11.
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Consolidated Financial Statements | Banco Safra S.A.
II - By changes
01.01. to 06.30.2021 Recognition in income Foreign Interest Change in exchange paid of Fair Value Opening gains or Net financial financing Interest – adjustment – Total Closing balance losses change activities Note 13(b-I) Note 8(c) income balance Funding 130,966,493 (352,813) (1,056,630) - 1,931,986 (623,562) 1,308,424 130,865,474 Open market deposits and funding – corporate securities 15,350,441 (109,212) (267,509) - 138,876 - 138,876 15,112,596 Funds from acceptance and issue of securities and Time deposits 106,528,683 (70,360) (2,328,456) - 1,633,975 (521,034) 1,112,941 105,242,808 Time deposits 65,886,553 (70,360) (7,495,468) - 765,239 (10,557) 754,682 59,075,407 Funds from financial bills, bills of credit and similar notes 40,642,130 - 5,167,012 - 868,736 (510,477) 358,259 46,167,401 Structured funding – Note 8(b-II(1)) 9,087,369 (173,241) 1,539,335 - 159,135 (102,528) 56,607 10,510,070 Borrowings and onlending 16,554,389 (215,788) (1,805,819) - 192,445 - 192,445 14,725,227 Financing funds 12,444,782 (61,016) (2,192,610) (233,257) 326,633 (264,448) 62,185 10,020,084 Liabilities for marketable securities abroad 2,274,175 (92,553) 173,552 (46,993) 43,102 (25,715) 17,387 2,325,568 Subordinated debt 10,170,607 31,537 (2,366,162) (186,264) 283,531 (238,733) 44,798 7,694,516 Total financial liabilities as at 06.30.2021 159,965,664 (629,617) (5,055,059) (233,257) 2,451,064 (888,010) 1,563,054 155,610,785 Total financial liabilities as at 06.30.2020 119,981,415 6,528,343 6,113,294 (187,644) 2,347,016 326,382 2,673,398 135,108,806 Funding 97,661,107 1,321,974 6,124,795 - 1,789,959 126,427 1,916,386 107,024,262 Open market deposits and funding – corporate securities 13,145,629 580,862 (732,806) - 159,435 27 159,462 13,153,147 Funds from acceptance and issue of securities and Time deposits 77,599,810 1,615 6,603,894 - 1,483,711 92,640 1,576,351 85,781,670 Structured funding – Note 8(b-II(1)) 6,915,668 739,497 253,707 - 146,813 33,760 180,573 8,089,445 Borrowings and onlending 12,524,348 3,226,986 (939,869) - 227,341 - 227,341 15,038,806 Financing funds 9,795,960 1,979,383 928,368 (187,644) 329,716 199,955 529,671 13,045,738 Liabilities for marketable securities abroad 1,722,598 619,168 (8,372) (38,228) 47,482 61,719 109,201 2,404,367 Subordinated debt 8,073,362 1,360,215 936,740 (149,416) 282,234 138,236 420,470 10,641,371
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Consolidated Financial Statements | Banco Safra S.A.
III - Subordinated debt – by characteristic
06.30.2021 12.31.2020 In process of approval at Securities Approved at BACEN BACEN Total Total 2021 244,876 - 244,876 2,908,620 2022 168,093 - 168,093 164,313 2023 639,969 - 639,969 645,117 2024 441,615 - 441,615 434,100 2025 1,106,648 - 1,106,648 1,097,591 2026 1,080,436 - 1,080,436 1,083,489 2027 302,400 - 302,400 299,723 2028 363,307 207,380 570,687 371,707 2029 217,130 - 217,130 231,980 2030 189,471 810 190,281 200,977 2031 57,998 33,422 91,420 - 2033 17,444 30,949 48,393 2,380 2036 1,250 - 1,250 - Perpetual 2,591,318 - 2,591,318 2,730,610 Total as at 06.30.2021 – Note 10(b-I) (1) 7,421,955 272,561 7,694,516 10,170,607 Total as at 12.31.2020 – Note 10(b-I) (1) 9,845,859 324,748 10,170,607 (1) The balance of R$ 7,421,955 (R$ 9,845,859 as at 12.31.2020), comprises R$ 7,415,521 with termination clause (R$ 7,400,069 as at 12.31.2020) and R$ 6,434 without termination clause (R$ 2,445,790 as at 12.31.2020). 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:
06.30.2021 12.31.2020 Managed funds and consolidated private pension funds – Note 10(a) 125,792,441 121,574,318 Managed funds (1) 105,669,893 101,555,852 Consolidated private pension funds (2) 20,122,548 20,018,466 Funds of investment in quotas 111,452,889 116,023,877 Consolidated exclusive funds 1,764,429 1,996,456 Total net assets of funds 239,009,759 239,594,651 Total net assets of managed portfolio 2,784,855 2,574,758 Total managed assets 241,794,614 242,169,409 (1) Includes quotaholders of related parties in the amount of R$ 5,984,045 (R$ 6,112,817 as at 12.31.2020). (2) Recorded in liabilities in the line item “Insurance and private pension operations” – Note 12(b).
The revenue from management, administration and distribution fees of such fund quotas are shown in Note 13(b-III).
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Consolidated Financial Statements | Banco Safra S.A.
11. 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 – (1) Fair value Note 8(c) Hedge derivative Notional amount Strategy – Market risk hedge 06.30.2021 12.31.2020 06.30.2021 12.31.2020 instrument 06.30.2021 12.31.2020 Fixed-rate portfolio 40,425,985 40,060,082 (433,852) (74,627) Futures DI1 (41,551,288) (40,894,862) Assets – Credit portfolio – Note 9(a) 52,283,083 49,651,994 (536,855) 402,213 Credit operations 52,077,890 49,539,294 (534,992) 395,072 Other credit risk instruments 205,193 112,700 (1,863) 7,141 Financial liabilities – Note 10(a) (11,857,098) (9,591,912) 103,003 (476,840) Funding (11,174,666) (8,863,908) 158,424 (339,658) Deposits (560,681) (471,800) 5,808 (4,750) Funds from acceptance and issue of securities and Time Deposits – Funds from financial bills, bills of credit and similar notes (8,661,778) (6,876,608) 99,151 (318,628) Structured funding – Certificate of structured transactions (1,952,207) (1,515,500) 53,465 (16,280) Financing funds – subordinated debt (682,432) (728,004) (55,421) (137,182) Assets – Credit portfolio – Trade finance – Note 9(a) 651,852 651,901 24,165 46,290 Swap Fixed x Libor (679,560) (654,178) Futures DAP + IPCA portfolio (2) 2,551,957 3,244,953 124,833 304,210 Swap IPCA, Net (2,540,360) (3,719,311) Assets – Other credit risk instruments – Debentures – Note 9(a) 6,726,828 6,307,343 189,634 575,505 Financial liabilities – Note 10(a) (4,174,871) (3,062,390) (64,801) (271,295) Funding – Funds from acceptance and issue of securities and Time Deposits – Funds from financial bills, bills of credit and similar notes (2,530,300) (1,473,137) (3,189) (95,888) Financing funds – subordinated debt (1,644,571) (1,589,253) (61,612) (175,407) Eurobonds 1,685,919 3,416,271 56,786 238,205 Swap Fixed x Libor (2,208,906) (3,455,640) Government securities - Abroad 223,402 - 671 - Marketable securities – Available for sale – Note 8(a-I and III) – Corporate securities issued by financial institutions 578,969 504,029 8,314 15,983 Other credit risk instruments – Note 9(a) 883,548 2,912,242 47,801 222,222 Financial liabilities – Note 10(a) (7,578,825) (9,334,900) (158,877) (262,026) 7,557,733 9,958,724 Funding – Structured funding – Structured CD (2,661,939) (1,890,590) (565) (31,424) Swap Fixed x Libor 2,397,137 1,881,633 Financing funds (4,916,886) (7,444,310) (158,312) (230,602) 5,160,596 8,077,091 Liabilities for marketable securities abroad – US$ 500,000 – 02.08.2018 (2,325,568) (2,274,175) (83,973) (112,110) 2,576,673 2,709,435 Subordinated debt (2,591,318) (5,170,135) (74,339) (118,492) Swap Fixed x Libor 2,583,923 5,367,656 US$ 500,000 – 01.27.2011 - (2,439,525) - (2,728) - 2,640,083 US$ 300,000 – 06.03.2014 (1,562,204) (1,643,973) (53,080) (76,170) 1,558,683 1,643,393 US$ 200,000 – 02.14.2020 (1,029,114) (1,086,637) (21,259) (39,594) 1,025,240 1,084,180 Total 37,736,888 38,038,307 (386,945) 252,052 (39,422,381) (38,765,267) (1) The credit risk of credit operations was measured based on the best estimates that management has to estimate the portfolio value in view of its credit loss level – Notes 9(a-III) and 21(a). The market risk of credit operations and fixed-rate funding, which is the possibility of financial loss arising from changes in market interest rates, is measured using the market interest rates adopted at the calculation base date, to discount the cash flows of operations at present value – Note 8(c). (2) Banco Safra follows the strategy of designating derivative financial instruments indexed to the Broad National Consumer Index (IPCA) for hedging the fair value of assets and liabilities from the risk in such index fluctuation. Accordingly, the hedged assets and liabilities, which used to be recognized at amortized cost, are recognized at fair value through profit or loss. The hedge derivative instruments are shown net of hedged items recognized at fair value through profit or loss, totaling R$ (2,540,360) (R$ (3,719,311) as at 12.31.2020), represented by derivative instruments in the amount of R$ (3,874,045) (R$ (2,231,315) as at 12.31.2020) and Government securities – NTN-B in the amounts of R$ 1,781,337 (R$ 402,565 as at 12.31.2020) – Notes 8(a-I) and 7(a) and R$ (447,652) (R$ (1,890,561) as at 12.31.2020) – 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.
12. INSURANCE, REINSURANCE AND PRIVATE PENSION OPERATIONS
a) Summary ASSETS LIABILITIES 06.30.2021 12.31.2020 06.30.2021 12.31.2020 Funds guaranteeing technical reserves(Assets) – Note 12(b-I) and Technical reserves(Liabilities) – Note 12(c) (1) 20,626,761 20,415,449 20,612,741 20,412,245 Receivables from and payables for insurance and reinsurance operations (2) 298,359 242,081 14,528 10,486 Premium receivable amounts – Note 12(d-I(2)) 233,856 203,195 - - Premiums receivable – Note 12(d-I(1)) 228,683 201,362 - - Risks in force but not issued 14,528 8,807 - - Credit risk – Note 12(d-I(3)) (9,355) (6,974) - - Reinsurance assets – Technical reserves – Note 12(d-II) (3) 36,989 36,164 - - Deferred acquisition costs – Master policyholder 72 - - - Receivables from and payables for insurance, reinsurance and private pension operations 27,442 2,722 14,528 10,486 Gross amount 30,221 7,531 16,566 13,375 Credit risk (2,779) (4,809) (2,038) (2,889) Total 20,925,120 20,657,530 20,627,269 20,422,731 (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$ 13,853 (R$ 16,291 as at 12.31.2020), PPNG-RVNE in the amount of R$ 333 (R$ 258 as at 12.31.2020), PSL in the amount of R$ 13,165 (R$ 10,675 as at 12.31.2020), PCP in the amount of R$ 6,857 (R$ 5,430 as at 12.31.2020) and IBNR in the amount of R$ 2,782 (R$ 3,508 as at 12.31.2020). b) Funds guaranteeing technical reserves of insurance and private pension I. By maturity 06.30.2021 12.31.2020
Amounts by maturity
Up to From 91 to From 1 to From 2 to From 3 to 5 Over 90 days 365 days 2 years 3 years years 5 years Fair value Fair value Private pension – Note 10(c) 6,014,500 440,143 3,076,750 2,287,937 3,933,792 4,369,426 20,122,548 20,018,466
Repurchase agreements – Government securities 42,927 - - - - - 42,927 48,410
Marketable securities - Securities portfolio 5,967,164 439,848 3,076,750 2,287,937 3,933,792 4,369,426 20,074,917 20,001,602 Government securities – National Treasury 36,441 40,634 1,219,390 1,431,983 3,647,029 4,022,378 10,397,855 13,171,492 National Treasury Bills - - 477,554 1,210,370 357,182 - 2,045,106 4,141,983
Financial Treasury Bills 36,441 40,634 323,057 221,613 2,782,961 697,469 4,102,175 2,768,006
National Treasury Notes - - 418,779 - 506,886 3,324,909 4,250,574 6,261,503
Corporate securities 5,930,723 399,214 1,857,360 855,954 286,763 347,048 9,677,062 6,830,110
Stock 1,790,981 - - - - - 1,790,981 1,744,948
Bank Deposit Certificates 428,967 227,948 213,400 - - - 870,315 1,159,067
Investment fund quotas 3,271,015 - - - - - 3,271,015 1,299,340
Debentures 77,337 132,398 560,462 691,744 264,432 347,048 2,073,421 860,332
Financial bills 362,423 38,868 1,083,498 164,210 22,331 - 1,671,330 1,766,423
Options 10,990 295 - - - - 11,285 - Other (6,581) - - - - - (6,581) (31,546)
Insurance – government securities – National Treasury Bills 364,525 107,379 32,309 - - - 504,213 396,983
Total as at 06.30.2021 6,379,025 547,522 3,109,059 2,287,937 3,933,792 4,369,426 20,626,761 20,415,449 Receivables from reinsurance operations – Note 12(a) (1) 22,804 - - - - - 22,804 19,615 Credit rights – Insurance premiums receivable 63,693 - - - - - 63,693 53,913 Total funds guaranteeing technical reserves 6,465,522 547,522 3,109,059 2,287,937 3,933,792 4,369,426 20,713,258 20,488,977 Private pension – Note 10(c) 3,975,531 2,283,029 4,597,010 2,603,772 1,834,136 4,724,988 20,018,466 Insurance – government securities – National Treasury Bills 1,205 395,778 - - - - 396,983 Total as at 12.31.2020 3,976,736 2,678,807 4,597,010 2,603,772 1,834,136 4,724,988 20,415,449 (1) The amount presented is net of unearned premium reserve in the amount of R$ (14,185) (R$ (16,549) as at 12.31.2020), was not offered as downward asset adjustment of technical reserves. 34
Consolidated Financial Statements | Banco Safra S.A.
II. Derivative financial instruments – Breakdown of notional amount by transaction type of the PGBL/VGBL investment fund
06.30.2021 12.31.2020
Amounts by maturity From 91 to B3 Up to 90 days 365 days Over 365 days Total Total
Forward (232,834) - - (232,834) - Futures 1,252,899 4,092,803 16,273,626 21,619,328 11,678,401 Long position 682,734 4,087,943 13,117,067 17,887,744 5,204,566 Interest rate - 4,087,943 13,117,067 17,205,010 4,828,699 Foreign currency 227,928 - - 227,928 36,061 Bovespa Index 454,806 - - 454,806 339,806 Short position 570,165 4,860 3,156,559 3,731,584 6,473,835 Interest rate 11,998 4,860 3,156,559 3,173,417 6,280,955 Foreign currency 408,771 - - 408,771 65,304 Bovespa Index 149,396 - - 149,396 127,576 Options (6,187) - - (6,187) - Total as at 06.30.2021 1,013,878 4,092,803 16,273,626 21,380,307 11,678,401
Total as at 12.31.2020 588,745 493,011 10,596,645 11,678,401
c) Technical reserves - Liabilities I. Breakdown
INSURANCE PRIVATE PENSION TOTAL
06.30.2021 12.31.2020 06.30.2021 12.31.2020 06.30.2021 12.31.2020 PMBAC and PMBC - - 20,122,691 20,017,600 20,122,691 20,017,600 PPNG 371,855 314,540 - - 371,855 314,540 PSL 32,010 22,177 - - 32,010 22,177 IBNR 6,893 6,082 - - 6,893 6,082 Other technical reserves – Note 12(e-I) 34,219 30,628 21,946 20,949 56,165 51,577 PCC 33,059 29,266 3,632 1,793 36,691 31,059 PDR 1,160 1,362 18,314 19,156 19,474 20,518 Reserves for outstanding amounts - - 23,127 269 23,127 269 Total 444,977 373,427 20,167,764 20,038,818 20,612,741 20,412,245
II. Coverage
06.30.2021 12.31.2020 Funds guaranteeing technical reserves of insurance and private pension – Note 12(a) 20,626,761 20,415,449 Technical reserves – Note 12(a) (20,612,741) (20,412,245) Coverage surplus 14,020 3,204
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Consolidated Financial Statements | Banco Safra S.A.
III. Changes
(1) Technical reserves of private pension
01.01. to 06.30.2021 01.01. to 06.30.2020 Opening balance 20,038,818 18,170,565 Contributions 484,965 398,524 Net portability transfers 419,309 743,728 Redemption payments (818,158) (635,189) Benefits paid (947) (591) Financial adjustment – Note 12(f) 19,922 (4,014) Recognition/(reversal) of technical reserves – Note 12(e-II) 997 (237) PCC 1,839 157 PDR (842) (394) Reserves for outstanding amounts 22,858 1,338 Closing balance 20,167,764 18,674,124
(2) Changes in technical reserves of insurance
01.01. to 01.01. to 06.30.2021 06.30.2020 CLAIMS PSL and PDR PCC and PDR – PPNG PSL and IBNR judicial SUBTOTAL Note 12(e-I) TOTAL TOTAL Opening balance 314,540 11,675 16,584 28,259 30,628 373,427 202,574 Incurred claims - 15,905 1,069 16,974 - 16,974 7,441 Change in technical reserves 57,315 - - - - 57,315 11,710 Supplementary Coverage Reserve (PCC) and Reserve for Related Expenses (PDR) – Net – Note 13(b-IV) - - - - 3,591 3,591 440 Reversal of reserve due to claim payment - (9,769) (165) (9,934) - (9,934) (5,567) Financial adjustment - - 3,604 3,604 - 3,604 1,041 Closing balance 371,855 17,811 21,092 38,903 34,219 444,977 217,639
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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
06.30.2021 12.31.2020 PAST DUE (1) REGULAR(2) TOTAL TOTAL Past due: 3,140 4,427 7,567 6,960 From 01 to 30 days 1,287 3,547 4,834 5,133 From 31 to 60 days 845 880 1,725 1,226 From 61 to 120 days 934 - 934 601 From 121 to 180 days 53 - 53 - From 181 to 360 days 21 - 21 - Falling due: 6,215 214,901 221,116 194,402 From 01 to 30 days 319 20,588 20,907 16,253 From 31 to 60 days 271 8,144 8,415 9,074 From 61 to 120 days 620 18,483 19,103 15,936 From 121 to 180 days 533 16,659 17,192 14,209 From 181 to 365 days 1,519 45,465 46,984 39,092 Over 365 days 2,953 105,562 108,515 99,838 Total as at 06.30.2021 9,355 219,328 228,683 201,362 Total as at 12.31.2020 6,974 194,388 201,362 (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 06.30.2021 01.01. to 06.30.2020 Opening balance 203,195 89,927 (+) Written premiums and risks in force not yet issued (1) 250,002 173,042 (-) Receipts (229,879) (157,867) (+) Changes in credit risks (2,381) (4,782) (+) Interest on receipt of premiums 12,919 5,625 Closing balance 233,856 105,945 (1) Does not include amounts to be passed on of reinsurance premium of R$ 5,667 (R$ 9,443 in 2020). (3) Changes in credit risk
01.01 to 06.30.2021 01.01 to 06.30.2020 Payables for insurance Premiums Insurance and reinsurance Reinsurance receivable companies operations (1) SUBTOTAL companies TOTAL (2) TOTAL Opening balance (6,974) (969) 2,963 1,994 (3,840) (8,820) (7,700) Recognition / (Reversal) (2,381) (5) (680) (685) 2,035 (1,031) (3,688) Closing balance (9,355) (974) 2,283 1,309 (1,805) (9,851) (11,388) (1) Includes the premiums/commissions passed on to brokers, insurers and reinsurers and IOF on premiums not paid. (2) Note 13(b-IV).
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Consolidated Financial Statements | Banco Safra S.A.
II. Reinsurance assets – Technical reserves – Changes
01.01. to 06.30.2021 01.01. to 06.30.2020 PPNG PSL (1) IBNR PCC (2) TOTAL TOTAL Opening balance 16,549 10,676 3,508 5,431 36,164 38,285 Changes in technical reserves (2,364) 2,136 (727) 1,427 472 2,854 Recoveries - (1,179) - - (1,179) (3,069) Inflation adjustment - 1,532 - - 1,532 254 Closing balance 14,185 13,165 2,781 6,858 36,989 38,324 (1) Includes 4 (9 as at 12.31.2020) legal claims of R$ 88 (R$ 75 as at 12.31.2020). (2) Note 12(e-I and II).
e) Supplementary Coverage Reserve (PCC) and Liability Adequacy Test (LAT) – Note 3(f-IV) I – Breakdown
06.30.2021 12.31.2020 Assets – Reinsurance assets – Note 12(d-II) 6,858 5,431 Liabilities (56,165) (51,577) Technical reserves – Insurance – Personal – Note 12(c-I) (34,219) (30,628) Technical reserves – Private pension – Note 12(c-I) (21,946) (20,949) Supplementary Coverage Reserve (PCC) and Reserve for Related Expenses (PDR) – Net (49,307) (46,146) II – Effects on income
2021 2020 Reinsurance operations – Note 12(d-II) 1,427 89 Insurance operations – Note 12(c-III) (3,794) (440) Changes in insurance and private pension – Note 12(c-I(1)) (997) 237 Supplementary Coverage Reserve (PCC) and Reserve for Related Expenses (PDR) – Net (3,364) (114)
f) Income from insurance and private pension operations
2021 2020 Finance income (expenses) from insurance and private pension operations 13,352 6,870 Income from insurance, reinsurance and private pension operations – Note 13(b-IV) 157,040 144,522 Income from private pension fund management services – Note 10(c) 92,357 94,343 Total 262,749 245,735
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Consolidated Financial Statements | Banco Safra S.A.
g) Claims development table The purpose of the claims development table is to illustrate the inherent insurance risk, comparing the claims paid with their respective reserves, from the year in which the claim was reported. The upper part of the table shows the change in the reserve over the years. The reserve varies as more precise information on rate and severity of claims is obtained. The bottom shows the reconciliation of the amounts with the accounting balances. The reserve for outstanding claims gross of reinsurance is comprised as follows: Reserve for outstanding claims, gross of reinsurance: R$ 32,010
Claim estimates 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total In the reporting year 5,482 10,437 18,084 4,729 4,486 8,434 7,025 8,025 16,231 19,126 One year later 3,813 9,120 17,692 3,850 4,507 7,191 6,623 4,788 13,865 - Two years later 3,836 9,949 17,570 3,901 4,496 8,237 7,267 5,067 - - Three years later 3,871 10,856 17,374 3,703 4,516 8,604 7,204 - - - Four years later 3,897 10,508 17,358 3,710 4,254 9,481 - - - - Five years later 3,908 10,364 17,327 4,078 4,254 - - - - - Six years later 3,919 10,360 17,332 3,967 ------Seven years later 3,858 10,321 17,334 ------Eight years later 3,846 10,321 ------Nine years later 3,849 ------Estimate as at 06.30.2021 3,849 10,321 17,334 3,967 4,254 9,481 7,204 5,067 13,865 19,126 94,468 Claim payments
In the reporting year 1,917 4,999 13,990 2,000 3,289 4,194 5,981 3,014 10,222 8,808 One year later 3,640 7,152 16,976 3,076 4,212 7,037 6,256 4,119 11,006 - Two years later 3,674 7,172 17,240 3,102 4,212 7,074 6,276 4,198 - - Three years later 3,737 7,186 17,311 3,102 4,253 7,074 6,389 - - - Four years later 3,740 10,194 17,320 3,106 4,253 7,074 - - - - Five years later 3,740 10,299 17,323 3,106 4,253 - - - - - Six years later 3,825 10,321 17,323 3,106 ------Seven years later 3,826 10,321 17,323 ------Eight years later 3,826 10,321 ------Nine years later 3,826 ------Payments as at 06.30.2021 3,826 10,321 17,323 3,106 4,253 7,074 6,389 4,198 11,006 8,808 76,304 PSL as at 06.30.2021 23 - 11 861 1 2,407 815 869 2,859 10,318 18,164 Liabilities of claims prior to 2012 13,846 Total Liabilities as at 06.30.2021 32,010
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Consolidated Financial Statements | Banco Safra S.A.
The reserve for outstanding claims net of reinsurance is comprised as follows:
Reserve for outstanding claims: R$ 18,850
Claim estimates 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total In the reporting year 1,721 2,665 2,037 1,616 1,251 4,054 3,081 3,624 8,408 14,862 One year later 1,288 1,932 1,692 1,193 1,279 3,792 2,938 2,626 7,655 - Two years later 1,253 2,015 1,655 1,202 1,231 3,923 3,102 2,821 - - Three years later 1,272 2,011 1,521 1,197 1,225 3,963 3,123 - - - Four years later 1,286 1,995 1,505 1,155 1,217 4,176 - - - - Five years later 1,292 1,866 1,474 1,381 1,217 - - - - - Six years later 1,304 1,872 1,479 1,743 ------Seven years later 1,248 1,864 1,718 ------Eight years later 1,235 2,080 ------Nine years later 1,476 ------Estimate as at 06.30.2021 1,476 2,080 1,718 1,743 1,217 4,176 3,123 2,821 7,655 14,862 40,871 Claim payments In the reporting year 846 1,211 1,012 724 837 1,864 2,620 1,929 5,732 7,910 One year later 1,395 1,852 1,525 1,257 1,173 3,686 2,852 2,538 6,455 - Two years later 1,429 1,872 1,640 1,267 1,174 3,723 2,872 2,556 - - Three years later 1,436 1,884 1,695 1,267 1,216 3,723 2,884 - - - Four years later 1,440 2,048 1,704 1,270 1,216 3,723 - - - - Five years later 1,440 2,059 1,707 1,270 1,216 - - - - - Six years later 1,452 2,080 1,707 1,270 ------Seven years later 1,452 2,080 1,707 ------Eight years later 1,452 2,080 ------Nine years later 1,452 ------Payments as at 06.30.2021 1,452 2,080 1,707 1,270 1,216 3,723 2,884 2,556 6,455 7,910 31,253 PSL as at 06.30.2021 24 - 11 473 1 453 239 265 1,200 6,952 9,618 Liabilities of claims prior to 2012 9,232 Total Liabilities as at 06.30.2021 18,850
h) Termination of the DPVAT Consortium At the General Meeting held on November 24, 2020, the consortium members of Seguradora Líder do Consórcio do Seguro DPVAT S.A. resolved to dissolve the Company as of January 1, 2021. With its dissolution, new underwriting of risks by Seguradora Líder is prohibited, the latter being then assigned to manage the run-off of the assets, liabilities and businesses of DPVAT Consortium in relation to the claims incurred until December 31, 2020.
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Consolidated Financial Statements | Banco Safra S.A.
13. OTHER FINANCIAL ASSETS AND LIABILITIES AND REVENUE, EXPENSES AND INCOME FROM OPERATIONS
a) Breakdown of financial assets and liabilities
06.30.2021 12.31.2020 ASSETS LIABILITIES ASSETS LIABILITIES Foreign exchange portfolio 2,058,824 2,405,249 932,131 958,673 Foreign exchange purchases pending settlement (M.E.) and payables for foreign exchange purchase (M.N.) (1) 1,016,341 1,242,097 209,361 253,008 Receivables for foreign exchange sales (M.N.) and Foreign exchange sales pending settlement (M.E.) 1,042,483 1,163,152 722,770 705,665 Collection and receipt of taxes and similar - 333,389 - 7,692 Negotiation and intermediation of securities 1,531,287 1,756,162 1,102,534 539,882 Funds from customers – Brokerage firm (2) 789,117 683,988 510,475 511,899 Financial assets and commodities pending settlement 742,170 1,072,174 592,059 27,983 Interbank and interdepartmental transactions 497,008 962,194 - 234,351 Amounts receivable/(payable) – Acquirer 4,529,795 4,570,328 3,702,782 3,812,964 Other 102,621 1,390,219 106,810 1,067,336 Provisions for guarantees and sureties and other – Note 9(a-I) - 352,290 - 270,891 Credit card administration obligations - 902,774 - 679,789 Other 102,621 135,155 106,810 116,656 Total (3) 8,719,535 11,417,541 5,844,257 6,620,898 (1) The foreign exchange gains on advance on foreign exchange contracts – Note 3(c) amount to R$ 33,316 (R$ 68,732 as at 12.31.2020) 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 - Net interest income from financial intermediation
2021 2020 Expanded credit portfolio operations 5,135,476 4,921,172 Credit portfolio – Note 9(a-II) 5,007,178 4,806,101 Operations with companies 3,126,447 2,753,104 Consumer loan and finance operations 1,880,731 2,052,997 Guarantees provided and guarantees and sureties – Note 9(e) 128,298 115,071 Income from investments – interbank investments and compulsory deposits – Note 6 165,813 363,139 Income from financial assets and investments linked to open market funding – Government securities 1,528,700 1,078,304 Other finance income 2,912 8,937 Total interest income 6,832,901 6,371,552 Transactions with financial liabilities – Note 10(b-II) (2,451,064) (2,347,016) Transactions with funding (1,931,986) (1,789,959) Borrowings and onlending (192,445) (227,341) Transactions with financing funds (326,633) (329,716) Liabilities for marketable securities abroad (43,102) (47,482) Subordinated debt (283,531) (282,234) Market funding operations – government securities – Note 7(b) (460,643) (673,939) Other finance expenses (82,608) (74,597) Total interest expenses (2,994,315) (3,095,552) Derivatives (Accrual) – Swap/Futures/Other - Note 3(b-II) (698,041) (381,728) Net interest income from financial intermediation (1) 3,140,545 2,894,272 (1) It includes direct transaction costs in the amount of R$ (767,894) (R$ (531,782) in 2020) – Note 2(a).
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Consolidated Financial Statements | Banco Safra S.A.
II - Income from financial instruments, net
2021 2020 Foreign exchange gains or losses on investment abroad – Over Hedge – Note 19(c-II(2)) 49,288 (930,175) Income from financial instruments 68,311 89,018 At fair value through profit or loss and hedge accounting 180,617 (175,271) Fair value adjustment of financial instruments – Note 8(c) (1,322,853) 220,156 Transactions of derivative (futures) and trading securities 1,503,470 (395,427) At fair value through other comprehensive income (121,740) 109,300 Foreign exchange gains and losses on foreign currency transactions 9,434 154,989 Total 117,599 (841,157)
III - Revenue from service, bank fees and foreign exchange transactions
2021 2020 Income from managed assets 1,033,813 694,225 Investment fund management and custody and portfolio management services – Notes 10(c) and 20(b) 818,594 548,198 Securities brokerage, custody and placement 215,219 146,027 Credit operations 112,504 90,948 Foreign exchange transactions and services 60,201 54,979 Current account and collection services 129,791 115,690 Total (1) 1,336,309 955,842 (1) It includes direct transaction costs in the amount of R$ (141,069) (R$ (81,237) in 2020) – Note 2(a).
IV - Insurance, reinsurance and private pension operations
2021 2020 Income from retained premiums, net 183,126 149,269 Premium income – Note 12(d-I(2)) 242,906 163,599 Changes in technical reserves (59,780) (14,330) Claim income and expenses (18,018) (3,120) Acquisition (1,060) 2,776 Credit risk – Note 12(d-I(3)) (1,031) (3,688) Gains or losses on supplementary reserve (3,160) (114) Other income and expenses (1) (2,817) (601) Total – Note 12(f) 157,040 144,522 (1) Includes the income net of DPVAT agreement.
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Consolidated Financial Statements | Banco Safra S.A.
14. OTHER ASSET, LIABILITY, AND INCOME ACCOUNTS
a) Tax and contingent assets and liabilities
06.30.2021 12.31.2020 Tax and contingent assets (2) 4,756,561 4,897,455 Contingent – Debtors for deposits in guarantee of contingent liabilities 453,325 440,852 Tax and social security contingent liabilities and legal obligations (1) 310,858 309,789 Civil, labor – Note 15(c) 142,467 131,063 Tax (2) 4,303,236 4,456,603 Current – Taxes and contributions loss carryforwards 224,540 262,119 Deferred – deferred tax assets – Note 16(b-I(1)) 4,078,696 4,194,484 Tax liabilities and provisions for contingent liabilities 3,238,946 3,253,700 Provision for contingent liabilities – Note 15(c) 2,150,317 2,045,246 Tax (2) 1,088,629 1,208,454 Current 948,965 1,075,128 Taxes and contributions on profit payable 320,316 356,243 Taxes and contributions to be collected 173,152 238,394 Special Tax Regularization Program (PERT) (3) 455,497 480,491 Deferred – tax liabilities – Note 16(b-I(2)) 139,664 133,326 (1) The amounts linked to tax and social security contingent liabilities and legal obligations are disclosed in Note 15(c). (2) The current tax assets and liabilities are classified into Current Assets and Liabilities, and the transactions of debtors for deposits in guarantee of contingent liabilities and deferred tax assets and liabilities are classified into 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$ (4,477) (R$ (8,670) in 2020) and are recorded as contra-entry to income in the line item “Other finance expenses” – Note 13(b-I).
b) Other assets and liabilities
06.30.2021 12.31.2020 Total other assets (1) 191,209 142,993 Prepaid expenses 126,606 122,991 Sundry 64,603 20,002 Total other liabilities (2) 1,303,590 1,192,384 Provision for payables 947,474 913,289 Deferred income 74,381 73,075 Social and statutory – Note 18(b) 95,665 95,313 Liability transactions to be processed 155,717 75,762 Sundry 30,353 34,945 (1) Transactions classified in Current Assets. (2) Transactions classified in Current Liabilities.
c) Personnel expenses
2021 2020 Remuneration and profit sharing (1,120,384) (993,300) Benefits (125,160) (118,128) Payroll charges (254,983) (239,789) Employee termination and payroll additional allowance (109,507) (84,055) Total (1,610,034) (1,435,272)
d) Administrative expenses
2021 2020 IT and data processing equipment – Note 20(b) (1) (318,052) (291,205) Maintenance costs – Note 20(b) (1) (136,735) (108,104) Publicity and advertising (100,778) (73,758) Third-party services (28,590) (22,423) Surveillance, security and transport services (1) (19,887) (24,198) Financial system services (12,345) (9,816) Travel (8,691) (20,201) Donations (7,152) (31,147) Other (17,956) (17,011) Total (650,186) (597,863) (1) Includes depreciation and amortization expenses of property and equipment and intangible assets – Note 17(b).
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Consolidated Financial Statements | Banco Safra S.A.
15. CONTINGENT ASSETS AND LIABILITIES a) Contingent assets: The companies Banco Safra S.A. and Banco J. Safra S.A. obtained through lawsuit the right to deduct from its taxable profit, for purposes of determining corporate income tax (IRPJ), the double the expenses for Worker’s Meal Programs incurred, within the limit of 4% of taxable profit, according to Article 5 of Law 6,321/1976. Such lawsuit was awarded a final and unappealable decision in 2020, which allows the Companies to offset the amounts unduly paid in previous years. The filing of Proof of Claim was allowed by the Federal Revenue Service of Brazil on December 30, 2020. The amount of tax to be offset recognized in the period was R$ 38,736, recognized in “Other operating income (expenses)”. 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 06.30.2021 06.30.2020 Tax and social security Civil Labor contingent liabilities (3) Other Total Total Opening balance 427,565 467,419 875,249 275,013 2,045,246 1,884,481 Adjustment / Charges (1) 25,200 10,803 4,883 27,520 68,406 53,752 Changes in the period reflected in profit or loss (2) 54,825 77,296 12,481 - 144,602 56,203 Recognition / (Reversal) 67,382 79,663 18,050 - 165,095 79,944 Reversal due to favorable decision (12,557) (2,367) (5,569) - (20,493) (23,741) Payment (47,900) (53,213) (7,327) - (108,440) (163,953) Other changes - - - 503 503 515 Closing balance (6) 459,690 502,305 885,286 303,036 2,150,317 1,830,998 Deposits in guarantee of appeals (4) 57,118 85,349 292,080 - 434,547 Marketable securities in guarantee (5) - 87,756 - - 87,756 Total amounts guaranteed as at 06.30.2021 57,118 173,105 292,080 - 522,303 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 (1) Recorded in “Other finance expenses”. (2) The changes in the civil, tax and labor contingencies are recorded in “Other operating income (expenses)”. (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$ 402,490 (R$ 399,504 as at 12.31.2020); (ii) Payroll charges on prior notice and 1/3 of vacation pay in the amount of R$ 49,187 (R$ 47,521 as at 12.31.2020); (iii) ISS on operations: several tax assessment notices and lawsuits related to the levy of tax on revenue from operations other than price for provided service, in the amount of R$ 153,200 (R$ 145,006 as at 12.31.2020); (iv) Deductibility of loan portfolio in the amount of R$ 36,515 (R$ 37,831 as at 12.31.2020); (v) Levy of PIS and COFINS on income from interest on capital in the amount of R$ 99,888 (R$ 99,888 as at 12.31.2020); (vi) PER/DCOMPs not ratified by the Federal Revenue Service of Brazil in the amount of R$ 37,981 (R$ 39,538 as at 12.31.2020); (4) Note 14(b). (5) Note 8(a-II). (6) Of this amount, R$ 158,488 (R$ 292,639 as at 12.31.2020) is classified in Current and R$ 1,991,829 (R$ 1,752,607 as at 12.31.2020) in Non-current.
The amount of the contingent liabilities classified as a possible loss related to civil lawsuits, not recognized, is R$ 39,457 (R$ 45,770 as at 12.31.2020). There is no labor contingent liability and tax and social security proceedings classified as possible loss.
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Consolidated Financial Statements | Banco Safra S.A.
16. TAXES
a) Breakdown of tax and contribution expenses I – Reconciliation of income tax and social contribution expenses
2021 2020 Profit before income tax and social contribution 1,747,648 160,832 Charges (income tax and social contribution) at standard rates – Note 3(i) (786,442) (72,374) Permanent (additions) deductions 166,952 832,798 Effect of foreign exchange gains (losses) on investments abroad (1) (21,960) 488,639 Interest on capital – Note 18(b) 67,346 90,057 Non-deductible expenses, net of non-taxable income 121,566 90,576 Deferred tax asset and recognition in prior periods and other - 163,526 Income tax and social contribution for the period – Note 19(c-II(2)) (619,490) 760,424 (1) From 2021, the foreign exchange gains or losses of the hedged portion of investments abroad started to be computed in the determination of taxable profit and tax base of Social Contribution on Net Income (CSLL) of business investors domiciled in Brazil, in the proportion of 50%. The percentage will change to 100% from 2022.
II – Tax expenses of operations
2021 2020 PIS / COFINS (305,622) (160,377) Service tax (ISS) (64,468) (50,323) Total – Note 19(c-II(2)) (370,090) (210,700)
b) Deferred tax assets and liabilities – Note 14(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 06.30.2021 Opening Recognition/ Closing
balance (Reversal) Realization balance Allowance for credit risk 2,489,175 207,854 (404,237) 2,292,792 Provision for contingent liabilities – Note 15(c) 850,466 98,135 (51,770) 896,831 Fair value adjustment of financial instruments 153,272 97,713 (242,905) 8,080 Other 302,569 202,500 (6,124) 498,945 Total for temporary differences 3,795,482 606,202 (705,036) 3,696,648 Income tax and social contribution loss carryforwards 399,002 13,545 (30,499) 382,048 Total as at 06.30.2021 4,194,484 619,747 (735,535) 4,078,696 Total as at 06.30.2020 2,636,053 1,335,908 (222,556) 3,749,405
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Consolidated Financial Statements | Banco Safra S.A.
(2) Deferred tax liabilities
01.01 to 06.30.2021 Opening balance Increase/(Reversal) Closing balance Excess depreciation 124,555 5,653 130,208 Other 8,771 685 9,456 Total as at 06.30.2021 133,326 6,338 139,664 Total as at 06.30.2020 141,970 (16,797) 125,173
II – Expected realization of deferred tax assets for temporary differences, income tax and social contribution losses and deferred taxes on excess
Deferred tax assets Tax loss and Temporary social contribution loss Provision for deferred Deferred taxes Realization year differences carryforwards Total taxes and contributions net 2021 166,310 16,614 182,924 (42,868) 140,056 2022 1,047,908 104,247 1,152,155 (47,526) 1,104,629 2023 1,021,489 95,117 1,116,606 (26,901) 1,089,705 2024 661,420 83,407 744,827 (13,761) 731,066 2025 306,576 46,107 352,683 (5,369) 347,314 2026 to 2030 492,945 36,556 529,501 (3,239) 526,262 Total 3,696,648 382,048 4,078,696 (139,664) 3,939,032 Present value (1) 3,256,591 337,412 3,594,003 (130,240) 3,463,763 (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 4 of CMN Resolution 4,842/2020.
46
Consolidated Financial Statements | Banco Safra S.A.
17. PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
a) Breakdown
06.30.2021 12.31.2020
Accumulated Property and Accumulated Property and Cost depreciation/amortization equipment, net Cost depreciation/amortization equipment, net Property and equipment 905,770 (419,755) 486,015 790,986 (342,269) 448,717 IT and data processing equipment 535,756 (289,117) 246,639 446,009 (228,667) 217,342 Facilities, furniture and equipment in use 311,158 (110,164) 200,994 290,784 (95,101) 195,683 Other 58,856 (20,474) 38,382 54,193 (18,501) 35,692 Intangible assets – software 542,073 (220,315) 321,758 516,842 (184,122) 332,720 Total (1) 1,447,843 (640,070) 807,773 1,307,828 (526,391) 781,437 (1) Of this amount, R$ 159,461 (R$ 161,384 as at 12.31.2020) refer to property and equipment in progress.
b) Changes
Property and equipment Intangible assets Total 2021 2020 2021 2020 2021 2020 Opening balance 448,717 616,644 332,720 159,109 781,437 775,753 Acquisition entries 131,173 74,996 24,398 47,530 155,571 122,526 Write-offs (7,018) (5,307) - - (7,018) (5,307) Changes in the period reflected in income (86,890) (77,423) (35,312) (28,778) (122,202) (106,201) Depreciation/amortization expenses – Note 14(d) (80,239) (76,757) (35,312) (28,778) (115,551) (105,535) IT and data processing equipment (61,682) (63,421) (35,312) (28,778) (96,994) (92,199) Facilities, furniture and equipment in use (15,097) (7,777) - - (15,097) (7,777) Other (3,460) (5,559) - - (3,460) (5,559) Impairment (1) (6,651) (666) - - (6,651) (666) Other 33 - (48) - (15) - Closing balance 486,015 608,910 321,758 177,861 807,773 786,771 (1) Recorded in the line item “Administrative expenses – Processing equipment”.
47
Consolidated Financial Statements Banco Safra S.A.
18. EQUITY a) Stock Banco Safra S.A.’s capital is represented by 15,300 (15,300 as at 12.31.2020) registered shares, with no par value, out of which 7,650 (7,650 as at 12.31.2020) 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 12.31.2020) preferred shares. The stockholding 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 declare interest on capital (JCP) in the net amount of R$ 322,034. At the Extraordinary Stockholders’ Meeting held on January 6, 2021, stockholders resolved to pay interest on capital declared on December 30, 2020 and increase capital in the amount of R$ 322,034, without issuing shares, by using the receivables from interest on capital. Such capital increase was approved on April 7, 2021, by the Central Bank of Brazil, according to the Letter 8019/2021-BCB/Deorf/GTSP2. b) Dividends and interest on capital The stockholders are entitled to an annual minimum mandatory dividend, as provided in the Bylaws, equivalent to 1% of earnings determined in relation to common shares, and 2% of the capital corresponding to preferred shares represented by them.
At the meeting of the Board of Directors held on March 31, 2021, interest on capital was declared in the amount of R$ 149,658, which net of withholding income tax represents R$ 127,210 and dividend distribution in the amount of R$ 50,000, both paid in April 2021. In addition, the amount of R$ 76,526, recorded in 2020, was kept in the line item “Other liabilities – Social and statutory” – Note 14(b).
c) Revenue reserves
06.30.2021 12.31.2020 Revenue reserves 2,791,267 1,862,767 Legal 283,819 227,411 Special (1) 2,507,448 1,635,356 (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) Other comprehensive income – Available-for-sale financial assets
06.30.2021 12.31.2020 Gross amount – Notes 8(a-I) and (c) (20,958) 36,462 Tax effect 9,967 (16,873) Total (1) (10,991) 19,589 (1) There is no amount that will not be subsequently reclassified in net income upon realization.
48
Consolidated Financial Statements Banco Safra S.A.
19. 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 Resolution BCB 54/2020. 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. As of March 1, 2022, with the CMN Resolution 4,926/2021 and BCB Resolution 111/2021 coming into effect, the regulation will be stricter on the freedom of methodology for classifying the instruments, foreign currency and commodities of the Bank into the banking or trading portfolios, which will converge with the initial recognition classifications established by BACEN Circular 3,068/2001. Certain asset groups established in BCB Resolution 111/2021 are expected to be eventually reclassified from a portfolio to another by the binding power of BACEN. Banco Safra annually undertakes the Internal Capital Adequacy Assessment Process (ICAAP). This process, regulated by the Central Bank of Brazil (BACEN), involves the evaluation of all procedures and processes related to risk and capital management in all hierarchical levels, including the 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 level of allowance for impairment loss to be recognized. 49
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 operation 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 06.30.2021 12.31.2020 Financial assets 121,100,991 119,541,638 Interbank investments and Central Bank compulsory deposits – Note 6 17,367,194 18,099,444 Financial assets 49,444,993 50,993,523 Marketable securities – Note 8(a-I) 41,265,398 47,415,453 Derivative financial instruments – Note 8(b) 8,179,595 3,578,070 Investments linked to open market funding – government securities – Note 7(a) 33,363,684 29,791,141 Insurance, reinsurance and private pension operations – Note 12(a) 20,925,120 20,657,530 Expanded credit portfolio – Note 9(a) 129,874,898 127,214,306 Credit portfolio 113,968,758 109,530,248 Operations with companies 84,134,821 80,355,183 Consumer loan and finance operations 29,833,937 29,175,065 Guarantees and sureties (off balance) – Note 9(e) 15,906,140 17,684,058 Granted limits (off balance) – Note 9(e) 16,791,434 14,968,208 Total 267,767,323 261,724,152 Expanded credit portfolio – allowance for credit risk – Note 9(a) (3,846,566) (4,035,749) Total net maximum exposure – Note 19(a-VIII) 263,920,757 257,688,403 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:
06.30.2021 12.31.2020 Financial guarantees 12,619,826 11,526,820 Machinery and vehicles 28,750,996 24,945,179 Other guarantees (1) 3,067,241 3,188,574 Total (2) 44,438,064 39,660,573 (1) Substantially comprising mortgage, chattel mortgage, credit rights, rights or receivables for credit card sales and pledge. (2) Total R$ 90,257,943 (R$ 85,136,574 as at 12.31.2020), when considering the guarantees and sureties in the amount of R$ 45,819,879 (R$ 45,476,001 as at 12.31.2020). 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). 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. 51
Consolidated Financial Statements Banco Safra S.A.
The table below shows the main exposures to credit risk based on the carrying amounts and categorized by economic activity of the counterparties:
06.30.2021 12.31.2020 Expanded Financial credit Granted assets portfolio Limits TOTAL TOTAL Financial institutions 20,908,881 - - 20,908,881 18,481,324 Governments 92,503,095 - - 92,503,095 98,802,799 Industry and trade 2,126,084 60,794,743 7,862,426 70,783,253 70,022,754 Services 318,703 35,235,529 4,078,611 39,632,843 37,868,704 Individuals 5,244,228 27,563,128 4,047,258 36,854,614 31,050,313 Other customers - 6,281,498 803,139 7,084,637 5,498,258 Total 121,100,991 129,874,898 16,791,434 267,767,323 261,724,152 Expanded credit portfolio – allowance for credit risk – Note 9(a) - (3,846,566) - (3,846,566) (4,035,749) Total Net as at 06.30.2021 (1) 121,100,991 126,028,332 16,791,434 263,920,757 257,688,403 Total Net as at 12.31.2020 (1) 119,541,638 123,178,557 14,968,208 257,688,403 (1) Note 19(a-IV).
- Concentration of the expanded credit portfolio
06.30.2021 12.31.2020 Financial assets 121,100,991 119,541,638 Brazilian government securities 92,503,095 97,332,091 Other 28,597,896 22,209,547 Expanded credit portfolio 129,874,898 127,214,306 100 largest customers 59,399,170 46,822,171 1st to 10th largest customer 21,837,780 15,421,779 11th to 50th largest customer 25,184,431 20,717,216 51st to 100th largest customer 12,376,959 10,683,176 Other customers 70,475,728 80,392,135 Granted limits (off balance) 16,791,434 14,968,208 Total – Note 19(a-IV) 267,767,323 261,724,152
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:
06.30.2021 Over Financial liabilities – Note 10(b) 60 days 90 days 180 days 360 days 720 days 720 days TOTAL Funding 20,672,318 8,043,085 30,171,597 30,098,421 25,302,202 16,577,851 130,865,474 Open market deposits and funding – corporate securities 9,331,496 2,380,266 2,314,406 664,487 15,574 406,367 15,112,596 Funds from acceptance and issue of securities and Time deposits 10,550,421 5,452,939 26,929,577 27,549,696 23,160,081 11,600,094 105,242,808 Structured funding (1) 790,401 209,880 927,614 1,884,238 2,126,547 4,571,390 10,510,070 Borrowings and onlending 2,844,922 842,384 3,797,605 4,500,833 742,646 1,996,837 14,725,227 Financing funds 118,071 35,076 107,608 75,487 2,671,094 7,012,748 10,020,084 Liabilities for marketable securities abroad - - - - 2,325,568 - 2,325,568 Subordinated debt 118,071 35,076 107,608 75,487 345,526 7,012,748 7,694,516 Liquidity 23,635,311 8,920,545 34,076,810 34,674,741 28,715,942 25,587,436 155,610,785 (1) Of this amount, R$ 2,369,746 (R$ 1,842,944 as at 12.31.2020) are recorded in derivative financial instruments – Note 8(b).
IV. Cash flows of derivatives
06.30.2021 Over 60 days 90 days 180 days 360 days 720 days 720 days TOTAL Assets 5,471,954 162,435 761,623 251,931 208,821 1,326,129 8,182,893 Non Deliverable Forward (NDF) 69,555 35,061 36,343 58,772 9,539 7 209,277 Options 45,265 1,401 38,044 149,757 107,584 71,230 413,281 Forward 4,930,838 - - - - - 4,930,838 Swap – Amounts receivable 426,296 125,928 686,724 37,545 88,194 1,149,755 2,514,442 Credit derivative - 45 512 5,857 3,504 105,137 115,055 Liabilities (5,480,313) (231,492) (789,728) (191,761) (193,056) (545,447) (7,431,797) Non Deliverable Forward (NDF) (18,555) (9,024) (23,224) (34,372) (16,921) (3,689) (105,785) Options (18,814) (7,120) (33,949) (86,226) (138,233) (228,822) (513,164) Forward (4,938,255) - - - - - (4,938,255) Swap – amounts payable (504,689) (215,259) (731,843) (66,941) (34,497) (228,295) (1,781,524) Credit derivative - (89) (712) (4,222) (3,405) (84,641) (93,069)
V. Items not recorded in the statement of financial position As described in Note 9(e), 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 the 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 Test, (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. Market risk measurement techniques: Value at Risk (VaR) Safra uses the parametric VaR model with a 99% confidence level and one-day time horizon, with adjustments for effects of non-normality. The calculations of volatilities and correlations are made under the Exponentially Weighted Moving Average (EWMA) method for linear assets, interest rate, exchange and shares, with a temporal decay parameter () equal to 0.94. For non-linear assets specific models are prepared, such as Monte Carlo simulations.
Backtests The Market Risk area is responsible for processing and analyzing actual and hypothetical backtests.
If there are flaws in the backtest, the Market Risk area managers are informed and the process of assessment of the elements involved starts (market movements, position movement and model results). The reasons for the flaws are recorded in a specific form, with explanations and analyses to support the justification. The backtest analysis process is effectively used to assess and improve the models used.
Stress Tests Safra uses stress scenarios based on crises of historical periods, as well as on forward-looking scenarios.
The scenarios based on historical periods seek extreme returns in holding periods of 1 and 10 days for the main risk factors and their creation is the responsibility of the Market Risk area.
The forward-looking scenarios are prepared considering both possible favorable conditions for variations in the risk factors (optimistic scenario) and possible unfavorable conditions for variations in the risk factors (pessimistic scenario). Their creation is a responsibility of the Market Risk area. Non-diversified scenarios are also created, obtained from the worst combinations among risk factor families (which is equivalent to stress correlations, considering the most adverse combinations for the portfolio). Their creation is the responsibility of the Market Risk area. Stop Loss Safra sets monthly stop loss limits for the closing treasury exposures.
II. Sensitivity analysis (Trading and Banking portfolios) In accordance with the criteria for classification of operations provided in CMN Resolution 4,557/2017, 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.
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Consolidated Financial Statements | Banco Safra S.A.
Trading portfolio as at 06.30.2021 Scenarios Risk Factors Risk of changes in: 1 2 3 Shares Stock price (4,181) (104,534) (209,067) Commodities Commodity price (1) (23) (47) Currencies Foreign currency quote (2,830) (70,739) (141,477) Fixed income Interest rates denominated in real (47) (3,977) (8,019) Coupon Interest rates in foreign currency (496) (18,168) (35,075) Options Market value of options (222) (5,924) (11,842) Total (7,777) (203,365) (405,527)
Trading and Banking portfolio as at 06.30.2021 Scenarios Risk Factors Risk of changes in: 1 2 3 Shares Stock price (4,181) (104,534) (209,067) Commodities Commodity price (1) (23) (47) Currencies Foreign currency quote (2,443) (61,063) (122,126) Fixed income Interest rates denominated in real (590) (173,728) (333,923) Coupon Interest rates in foreign currency (756) (25,180) (48,493) Options Market value of options (222) (5,924) (11,842) Total (8,193) (370,452) (725,498)
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$ 5.0326 and the one-year fixed rate was 6.59% 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$ 6.2285 and the one-year fixed rate was 8.23% 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$ 7.4742 and the one-year fixed rate was 9.88% p.a.
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Consolidated Financial Statements | Banco Safra S.A.
I. 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 06.30.2021 Assets BRL Strong currencies (1) Other currencies Total Cash – Note 5 142,742 1,219,165 9,476 1,371,383 Interbank investments and Central Bank compulsory deposits – Note 6 13,226,333 4,140,861 - 17,367,194 Financial assets – Notes 8(a) and (b) 44,782,784 4,171,905 490,304 49,444,993 Investments linked to open market funding – Government securities – Note 7(a) 33,363,684 - - 33,363,684 Insurance, reinsurance and private pension operations – Note 12(a) 20,925,120 - - 20,925,120 Credit portfolio – Note 9(a) 97,586,005 12,887,593 884 110,474,482 Tax and contingent assets – Note 14(a) 4,756,561 - - 4,756,561 Other financial assets and Other assets – Notes 13(a) and 14(b) 7,159,905 1,750,500 339 8,910,744 Property and equipment and intangible assets 807,773 - - 807,773 Total Assets 222,750,907 24,170,024 501,003 247,421,934 Long position – Futures foreign exchange coupon – Note 8(b-II(1)) 43,966,359 8,705,535 - 52,671,894 Futures 1,277,093 43,536 - 1,320,629 NDF – Note 8(b-II(1)) 3,235,864 2,894,819 - 6,130,683 Foreign exchange option 1,502,639 137,734 - 1,640,373 SWAP and SCS 1,187,832 40,487,432 - 41,675,264 Off Balance notional amount – Derivative financial instruments – Assets 51,169,787 52,269,056 - 103,438,843 Total Assets as at 06.30.2021 (A) 273,920,694 76,439,080 501,003 350,860,777 Liabilities Financial liabilities and derivative financial instruments – Notes 10(b) and 8(b) 138,293,482 24,750,757 3,607 163,047,846 Open market funding – government securities – Note 7(b) 33,210,911 - - 33,210,911 Insurance and private pension operations – Note 12(a) 20,627,269 - - 20,627,269 Tax and contingent liabilities – Notes 14(a) and 15(c) 3,238,946 - - 3,238,946 Other financial liabilities and Other liabilities – Notes 13(a) and 14(b) 10,193,835 2,527,220 76 12,721,131 Total Liabilities 205,564,443 27,277,977 3,683 232,846,103 Short position – Futures foreign exchange coupon – Note 8(b-II(1)) 8,705,535 43,966,359 - 52,671,894 Futures 43,536 776,986 500,107 1,320,629 NDF – Note 8(b-II(1)) 2,894,819 3,235,864 - 6,130,683 Foreign exchange option 137,734 1,502,639 - 1,640,373 SWAP and SCS 40,487,432 1,187,832 - 41,675,264 Off Balance notional amount – Derivative financial instruments – Liabilities 52,269,056 50,669,680 500,107 103,438,843 Total Liabilities as at 06.30.2021 (B) 257,833,499 77,947,657 503,790 336,284,946 Net exposure – Equity (C) = (A) – (B) 16,087,195 (1,508,577) (2,787) 14,575,831 Over Hedge of Investment abroad – Note 19(c-II(2)) (1,293,200) 1,293,200 - - Net position – Long/(Short) as at 06.30.2021 14,793,995 (215,377) (2,787) 14,575,831 Net position – Long/(Short) as at 12.31.2020 13,524,282 152,367 1,262 13,677,911 (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. 56
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 interest 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:
2021 2020 Recorded Over Hedge Adjusted Recorded Over Hedge Adjusted balance adjustment balance balance adjustment balance NET INCOME FROM FINANCIAL INSTRUMENTS – Note 13(b-II) 117,599 (49,288) 68,311 (841,157) 930,175 89,018 TAX EXPENSES OF OPERATIONS – Note 16(a-II) (370,090) 7,295 (362,795) (210,700) (93,746) (304,446) NET INCOME FROM OPERATIONS 4,139,949 (41,993) 4,097,956 2,255,987 836,429 3,092,416 INCOME BEFORE TAXES 1,747,648 (41,993) 1,705,655 160,832 836,429 997,261 INCOME TAX AND SOCIAL CONTRIBUTION – Note 16(a-I) (619,490) 41,993 (577,497) 760,424 (836,429) (76,005) NET INCOME 1,128,158 - 1,128,158 921,256 - 921,256
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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:
06.30.2021 (1) Level 1 Level 2 Total Marketable securities – Note 8(a-II) (2) 71,281,063 2,682,737 73,963,800 Securities portfolio – Note 8(a-I) 38,594,524 2,682,737 41,277,261 Government securities 38,154,203 - 38,154,203 Securities issued by Financial institutions - 2,146,626 2,146,626 Securities issued by Companies 440,321 536,111 976,432 Investments linked to open market funding – Government securities – Note 7(a) 32,686,539 - 32,686,539 Other credit risk instruments – Note 9(a-I) - 14,293,749 14,293,749 Obligations linked to repurchase agreements – government securities – Note 7(b) (583,863) - (583,863) (-) Reclassification of securities designated to Hedge Market Risk (3) - (1,685,919) (1,685,919) Funds guaranteeing technical reserves of insurance and private pension – Note 12(b) 12,735,976 7,890,785 20,626,761 Private pension 12,231,763 7,890,785 20,122,548 Repurchase agreements 42,927 - 42,927 Marketable securities - Securities portfolio 12,188,836 7,886,081 20,074,917 Government securities – National Treasury 10,397,855 - 10,397,855 Corporate securities 1,790,981 7,886,081 9,677,062 Other - 4,704 4,704 Insurance – Government securities – National Treasury – National Treasury Bills 504,213 - 504,213 Derivative financial instruments – Assets and Liabilities – Note 8(b) (7,417) 749,951 742,534 Non Deliverable Forward (NDF) - 103,492 103,492 Option premiums - (99,883) (99,883) Forward – Foreign currency (7,417) - (7,417) Swap – Amounts receivable - 732,918 732,918 Credit derivatives – CDS - 21,986 21,986 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 8(c) - (8,562) (8,562) Strategy – Market risk hedge – Note 11 - 37,736,888 37,736,888 Fixed-rate portfolio - 40,425,985 40,425,985 Assets – Credit portfolio – Note 9(a) - 52,283,083 52,283,083 Financial liabilities – funding – Note 10(b) - (11,857,098) (11,857,098) Assets – Credit portfolio – Trade finance – Note 9(a) - 651,852 651,852 IPCA portfolio - 2,551,957 2,551,957 Assets – Other credit risk instruments – Note 9(a) (3) - 6,726,828 6,726,828 Financial liabilities – funding – Note 10(b) - (4,174,871) (4,174,871) Eurobonds (3) - 1,685,919 1,685,919 Government securities - Abroad - 223,402 223,402 Marketable securities – Available for sale – Note 8(a-II) - 578,969 578,969 Other credit risk instruments – Note 9(a) - 883,548 883,548 Financial liabilities – Note 10(b) - (7,578,825) (7,578,825) Funding – Structured funding – Structured CD - (2,661,939) (2,661,939) Financing funds - (4,916,886) (4,916,886) Liabilities for marketable securities abroad - (2,325,568) (2,325,568) Subordinated debt – Medium term notes - (2,591,318) (2,591,318) (1) No transaction was classified into level 3. (2) Of these amounts, R$ 37,247,241 refer to trading securities (R$ 36,573,242 classified into level 1 and R$ 673,999 into level 2), and R$ 4,030,020 refer to available-for-sale securities (R$ 2,557,393 classified into level 1 and R$ 1,472,627 into level 2). (3) Reclassification of the amount related to securities designated to hedge market risk (Eurobonds) – Note 11.
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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:
06.30.2021 12.31.2020 Recorded Fair Recorded Fair balance value balance value Total financial assets 72,839,169 72,839,169 72,265,153 72,265,153 Cash – Note 5 1,371,383 1,371,383 1,504,624 1,504,624 Interbank investments and Central Bank compulsory deposits – Note 6 17,367,194 17,367,194 18,614,238 18,614,238 Investments linked to open market funding – Government securities – Note 7(a) 677,145 677,145 2,139,523 2,139,523 Credit portfolio – at amortized cost – Note 9 53,423,447 53,423,447 50,006,768 50,006,768 Total financial liabilities – Note 10(b) 131,999,991 132,005,685 137,976,462 137,983,458 Funding 114,498,569 114,504,299 118,738,858 118,745,836 Open market deposits and funding – corporate securities 15,112,596 15,112,498 15,350,441 15,350,441 Funds from acceptance and issue of securities and Time deposits 93,490,049 93,495,877 97,707,138 97,714,116 Structured funding – fixed rate 5,895,924 5,895,924 5,681,279 5,681,279 Borrowings and onlending 14,725,227 14,725,227 16,554,389 16,554,389 Financing funds – subordinated debt 2,776,195 2,776,159 2,683,215 2,683,233
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:
06.30.2021 Level 1 Level 2 Total Total financial assets 19,415,722 53,423,447 72,839,169 Cash – Note 5 1,371,383 - 1,371,383 Interbank investments and Central Bank compulsory deposits – Note 6 17,367,194 - 17,367,194 Investments linked to open market funding – Government securities – Note 7(a) 677,145 - 677,145 Credit portfolio – at amortized cost – Note 9 - 53,423,447 53,423,447 Total financial liabilities – Note 10(b) - 132,005,685 132,005,685 Funding - 114,504,299 114,504,299 Open market deposits and funding – corporate securities - 15,112,498 15,112,498 Funds from acceptance and issue of securities and Time deposits - 93,495,877 93,495,877 Structured funding – fixed rate - 5,895,924 5,895,924 Borrowings and onlending - 14,725,227 14,725,227 Financing funds – subordinated debt - 2,776,159 2,776,159
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, Reputational 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.
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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 and Reinsurance 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: property (comprehensive, multiple peril and loss of profit), D&O, surety bond, credit life, accident and life insurance. 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:
01.01 to 06.30.2021 Lines Southeast South Center West Northeast North Total Property 26,349 7,212 3,892 2,930 863 41,246 Credit life 86,134 16,411 7,615 12,048 4,739 126,947 Accidents 23,360 8,855 4,386 3,910 2,040 42,551 Group life 17,865 5,988 2,912 2,515 1,447 30,727 Other lines 1,238 866 214 239 252 2,809 Total (1) 154,946 39,332 19,019 21,642 9,341 244,280
01.01 to 06.30.2020 Lines Southeast South Center West Northeast North Total Property 13,444 4,673 1,415 1,350 289 21,171 Credit life 49,139 13,583 8,015 8,393 4,106 83,236 Accidents 20,924 6,580 2,901 2,300 1,825 34,530 Group life 14,525 4,318 1,593 1,589 1,005 23,030 Other lines 4,517 792 118 504 95 6,026 Total (1) 102,549 29,946 14,042 14,136 7,320 167,993 (1) The concentration of risk does not consider risks in force and not issued and retrocession in the amount of R$ 5,721 (R$ 5,029 in 2020).
g) Capital management Banco Safra's capital management’s 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 9.625%, comprising 8.0% of minimum regulatory capital and 1.625% of capital buffer, which includes the portions of (1) Capital Conservation Buffer, (ii) Countercyclical Buffer, and (iii) Systemic Important Institution Buffer. In addition, according to the current prudential regulation, Banco Safra also meets the minimum Tier I and Core Capital requirements of 7.625% and 6.125%, respectively. 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
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Consolidated Financial Statements | Banco Safra S.A.
- 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.
The capital ratios remained at comfortable levels, as shown in the following table:
06.30.2021 12.31.2020
Regulatory Capital (PR) 20,078 19,210 Tier I 16,901 16,164 Core Capital 14,310 13,433 Additional 2,591 2,731 Tier II 3,177 3,046 RWA 139,756 131,577 Credit Risk 124,338 120,405 Market Risk 9,378 5,709 Operational Risk (POPR) 6,040 5,463 Basel Ratio [PR*100/RWA] 14.4% 14.6% Tier I 12.1% 12.3% Core Capital 10.2% 10.2% Tier II 2.3% 2.3% Risk of change in interest rates in instruments classified in the banking portfolio (IRRBB) 200 490 Capital Buffer (ACP) 2,271 1,645 Capital margin (PR-RWAxF-IRRBB-ACP) 6,427 6,549
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Consolidated Financial Statements | Banco Safra S.A.
20. RELATED-PARTY TRANSACTIONS a) Management remuneration: In corporate documents recorded for 2021, the management’s total annual remuneration was set at R$ 182,650 (R$ 159,150 in 2020). The remuneration received by Management amounts to R$ (56,828) (R$ (46,044) in 2020).
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 4,818/2020. 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) 06.30.2021 12.31.2020 2021 2020 Cash – Note 5 363,025 515,145 (734) (19) Grupo J. Safra Sarasin 348,943 500,099 68 (19) Safra National Bank of New York 11,152 15,046 (640) - Banque Safra Luxembourg 2,930 - (162) - Interbank investments – Foreign currency investments–Note 6 1,823,866 2,494,700 228 11,431 Safra National Bank of New York 1,805,194 2,475,500 20 6,246 Other 18,672 19,200 208 5,185 Credit portfolio – credit operations (2) 66,165 37,213 643 666 Financial liabilities – Note 10(b) (4,289,360) (4,489,482) (103,413) (97,712) Funding (1,698,042) (1,758,872) (11,316) (17,523) Deposits (1,590,469) (1,618,317) (8,149) (13,328) Grupo J. Safra Sarasin (251,852) (490,823) (978) (1,512) Safra National Bank of New York (1,138,258) (1,034,639) (4,518) (11,816) Other companies (200,359) (92,855) (2,653) - Funds from acceptance and issue of securities – Funds from financial bills, bills of credit and similar notes – Safra Institutes (107,573) (140,555) (3,167) (4,195) Financing funds – Subordinated debt – Entities abroad owned by owners of the parent (3) (2,591,318) (2,730,610) (92,097) (80,189) Other assets and liabilities, net (59,116) 708 - - Social and statutory – Note 14(b) (76,526) (76,521) - - Other 17,410 77,229 - - Administrative expenses – Note 14(d) - - (77,684) (64,904) Maintenance costs – Rents - - (65,961) (52,117) Exton Participações Ltda. - - (26,054) (20,043) J. Safra Participações Ltda. - - (13,502) (11,800) Harvel Participações Ltda. - - (9,775) (8,863) Lebec Participações Ltda. - - (6,085) (4,879) Other companies - - (10,545) (6,532) Data processing and telecommunications - J. Safra Telecomunicações Ltda. - - (11,669) (12,643) Other - - (54) (144) Representative services – Safra National Bank of New York - - 1,777 1,638 Rent income – Casablanc Representação e Participação Ltda. - - 42 34 Operations with investment funds – Note 10(c) Open market funding – government securities – Note 7(b) (11,284,481) (15,385,004) (138,685) (489,853) Funds from acceptance and issue of securities and Time deposits (2,241,289) (1,882,961) (43,422) (24,981) Time deposits – Bank deposit certificate (319,466) (364,922) (5,818) - Funds from financial bills, bills of credit and similar notes – Financial bills – Note 10(b) (1) (1,921,823) (1,518,039) (37,604) (24,981) Revenue from management and administration of investment funds – Note 13(b-III) - - 818,594 548,198 (1) Of this amount, R$ 299,655 (R$ 253,227 as at 12.31.2020) 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.
21. 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 3,198/2004, of the National Monetary Council (CMN) and Resolution 312/2015, 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; 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 13(b-II); and d) increase in liquidity and funding – Note 10(b). Even though many vaccines were made available in Brazil, which keeps vaccinating its population, the pandemic is not yet under control. In view of the above, Safra’s management continues to monitor the developments of this crisis, adopting the measures required to minimize the adverse effects on our businesses.
Therefore, we understand that uncertainties still exists over the pandemic impacts on the business volume of our future activities. Although the economic indicators provide an economic recovery expectation, the pandemic is not really yet controlled. Accordingly, Safra keeps monitoring the context, particularly in relation to the delinquency ratios of the expanded credit portfolio operations and the change in the fair value of financial instruments.
d) Acquisition CA Indosuez Wealth DTVM – Brasil On April 23, 2021, Banco Safra announced the acquisition of CA Indosuez Wealth DTVM – Brasil, an entity that carries out the Asset Management and Private Banking operations of the Credit Agricole Group in Brazil. On June 10, 2021, the Administrative Council for Economic Defense (CADE) approved the transaction, the Central Bank of Brazil’s ratification being pending.
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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 directly reports to the Board of Directors and is currently formed by four members, of which three are Executive Officers of the Company and one is an independent member, which election process is awaiting approval from the Central Bank of Brazil.
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 first half of 2021, 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 (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 second half of 2020, under the terms of Art. 17 of CMN Resolution 3,198/2004 and Art. 17 of CNSP Resolution 312/2014; 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 second half of 2020; f) Examination of the Conformity and Compliance Risk report for the year 2020, and the procedures and activities planned for the year 2021. g) Examination of the Internal Control area report, specially (i) self-assessment results; (ii) test results; (iii) regulatory follow up and reports; (iv) works performed in the year 2020; (v) work plan for the year 2021; h) Keeping up with and follow-up of the results of the inspections of the Brazilian Central Bank (BACEN).
In view of the results of the works it carried out, the Audit Committee recommends that the Board of Directors approve the consolidated financial statements dated July 29, 2021, related to the period ended June 30, 2021.
São Paulo, July 29, 2021. Deloitte Touche Tohmatsu Dr. Chucri Zaidan Avenue, 1.240 ‐ 4th to 12th floors ‐ Golden Tower 04711‐130 ‐ São Paulo ‐ SP Brazil
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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 June 30, 2021, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for the six‐month period 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 June 30, 2021, and its consolidated financial performance and its consolidated cash flows for the six‐month period 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 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 semester. 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 11 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 11 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 semester 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, August 4, 2021
DELOITTE TOUCHE TOHMATSU Vanderlei Minoru Yamashita Auditores Independentes Engagement Partner
2021SP008048_2021‐SPO‐inglês.docx
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Consolidated Financial Statements | Banco Safra S.A.
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