banco safra s · 2020. 7. 30. · banco safra s.a. and subsidiaries ("safra...

(A free translation into English from the original in Portuguese)

Banco Safra S.A.

Consolidated Financial Statements Period Ended September 30, 2019

Independent Auditor’s Report

Deloitte Touche Tohmatsu Auditores Independentes

(A free translation into English from the original in Portuguese)

CONTENTS PAGE

CONSOLIDATED FINANCIAL STATEMENTS

STATEMENT OF FINANCIAL POSITION ______________________________________________________________________ 2

STATEMENT OF INCOME FOR THE PERIOD _____________________________________________________________ ____ ___4

STATEMENT OF CHANGES IN EQUITY _____________________________________________________ ___________________ 5

STATEMENT OF CASH FLOWS ________________________________________________________________ _________ _____6

STATEMENT OF VALUE ADDED _______________________________________________________________ ____________ __7

NOTES

1. OPERATIONS ___________________________________________________________________________________________ 8

2. PRESENTATION OF THE FINANCIAL STATEMENTS ______________________________________________________________ 8

3. SIGNIFICANT ACCOUNTING POLICIES _______________________________________________________________________ 9

4. CASH AND CASH EQUIVALENTS ____________________________________________________________________________ 13

5. INTERBANK INVESTMENTS _______________________________________________________________________________ 13

6. CENTRAL BANK COMPULSORY DEPOSITS ____________________________________________________________________ 13

7. PORTFOLIO OF MARKETABLE SECURITIES, DERIVATIVE FINANCIAL INSTRUMENTS, FUNDS GUARANTEEING TECHNICAL RESERVES

FOR INSURANCE AND PRIVATE PENSION ____________________________________________________________________ 14

8. CREDIT PORTFOLIO ____________________________________________________________________________________ 24

9. FUNDING, BORROWINGS AND ONLENDING, SUBORDINATED DEBT, AND MANAGED ASSETS ____________________________ 28

10. OPEN MARKET INVESTMENT AND FUNDING – GOVERNMENT SECURITIES ___________________________________________ 33

11. INSURANCE, REINSURANCE AND PRIVATE PENSION OPERATIONS ________________________________________________ 34

12. OTHER FINANCIAL ASSETS AND LIABILITIES _________________________________________________________________ 37

13. REVENUE, EXPENSES AND INCOME FROM OPERATIONS _________________________________________________________ 38

14. OTHER ASSET, LIABILITY AND INCOME ACCOUNTS ____________________________________________________________ 39

15. CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS – TAX AND SOCIAL SECURITY ________________________ 40

16. TAXES _______________________________________________________________________________________________ 41

17. PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS _________________________________________________________ 42

18. EQUITY ______________________________________________________________________________________________ 43

19. RISK AND CAPITAL MANAGEMENT _________________________________________________________________________ 44

20. RELATED-PARTY TRANSACTIONS __________________________________________________________________________ 55

21. OTHER INFORMATION ___________________________________________________________________________________ 55

INDEPENDENT AUDITOR’S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS ___________________ ______________________56

BANCO SAFRA S.A. AND SUBSIDIARIES ("SAFRA CONSOLIDATED")

STATEMENT OF FINANCIAL POSITION - NOTE 2(a)

ALL AMOUNTS IN THOUSANDS OF REAIS

ASSETS Notes 09.30.2019 09.30.2018

CURRENT ASSETS 137,972,401 132,089,884

Cash 3(b) and 4 1,407,686 1,490,633

Interbank investments 3(c), 4 and 5 16,238,822 13,338,474

Central Bank compulsory deposits 6 9,685,737 6,793,628

Investments linked to open market operations - Government securities 3(c) and (d), and 10(a) 37,620,460 40,269,769

Own portfolio - Open market investments 2,887,821 7,218,663

Marketable securities - Third-party portfolio - Subject to repurchase agreements 34,732,639 33,051,106

Marketable securities 3(d) and 7(a) 20,011,899 20,306,895

Derivative financial instruments 3(d) and 7(c) 1,300,845 1,377,280

Funds guaranteeing technical reserves for insurance and private pension 7(b) 399,675 366,988

Credit portfolio 3(f) and 8 44,693,792 41,814,375

Credit portfolio 45,404,309 42,470,340

(Allowance for credit risks) (710,517) (655,965)

Other financial assets 12 5,308,943 5,247,589

Tax assets 16(c) 1,154,044 998,513

Other assets 14(a) 150,498 85,740

NON-CURRENT ASSETS 69,101,206 58,411,262

LONG-TERM RECEIVABLES 68,342,190 57,947,564

Interbank investments - Interbank deposits 3(c) and 5 1,510,257 1,409,760

Marketable securities 3(d) and 7(a) 3,162,577 2,285,317

Derivative financial instruments 3(d) and 7(c) 460,784 302,042

Funds guaranteeing technical reserves for insurance and private pension 7(b) 17,268,709 13,715,483

Credit portfolio 3(f) and 8 44,138,237 38,234,974

Credit operations 46,412,792 40,467,402

(Allowance for credit risk) (2,274,555) (2,232,428)

Other financial assets 12 52,644 42,199

Tax assets 16(c) 1,437,555 1,664,627

Other assets 14(a) 311,427 293,162

INVESTMENTS 3(h) 8,076 7,214

PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS 3(i) and 17 750,940 456,484

TOTAL ASSETS 207,073,607 190,501,146

The accompanying notes are an integral part of these financial statements.

CONSOLIDATED

2


STATEMENT OF FINANCIAL POSITION - NOTE 2(a)


CONSOLIDATED

LIABILITIES Notes 09.30.2019 09.30.2018

CURRENT LIABILITIES 129,763,824 125,263,450

Open market funding - Government securities 3(c) and 10(b) 37,768,934 40,294,221

Own portfolio 2,877,539 7,165,335

Third-party portfolio 34,891,395 33,128,886

Funding 3(k) 64,958,986 58,428,819

Open market deposits and funding – Government securities 9(a) 42,104,555 22,668,882

Funds from acceptance and issue of securities 9(b) 20,758,719 32,414,575

Structured funding 9(c) 2,095,712 3,345,362

Borrowings and onlending 3(k) and 9(d) 15,156,421 12,438,862

Derivative financial instruments 3(d) and 7(c) 1,510,010 1,409,063

Insurance and private pension operations 3(l) and 11(c) 341,288 302,120

Other financial liabilities 12 8,343,738 9,616,016

Subordinated debt 3(k) and 9(e) 211,305 766,955

Tax liabilities 16(c) 610,660 681,588

Provisions for contingent liabilities 3(m) and 15(c) 116,977 217,371

Other liabilities 14(b) 745,505 1,108,435

NON-CURRENT LIABILITIES 64,504,169 54,472,538

LONG-TERM LIABILITIES 64,504,169 54,472,538

Funding 3(k) 34,272,216 29,631,719

Open market deposits and funding – Corporate securities 9(a) 1,997,174 851,247

Funds from acceptance and issue of securities 9(b) 28,596,977 25,622,504

Structured funding 9(c) 3,678,065 3,157,968

Borrowings and onlending 3(k) and 9(d) 2,407,577 2,591,380

Derivative financial instruments 3(d) and 7(c) 359,142 229,917

Insurance and private pension operations 3(l) and 11(c) 17,359,663 13,791,015

Subordinated debt 3(k) and 9(e) 7,958,377 6,108,919

Tax liabilities 16(c) 609,035 806,252

Provisions for contingent liabilities 3(m) and 15(c) 1,475,221 1,228,736

Other liabilities 14(b) 62,938 84,600

CONSOLIDATED EQUITY 18 12,805,614 10,765,158

TOTAL LIABILITIES AND EQUITY 207,073,607 190,501,146


3


STATEMENT OF INCOME FOR THE PERIODS ENDED SEPTEMBER 30 - NOTE 2(a)

ALL AMOUNTS IN THOUSANDS OF REAIS UNLESS OTHERWISE STATED

CONSOLIDATED

Notes 2019 2018

INCOME FROM FINANCIAL INTERMEDIATION 13(a) 12,043,521 10,445,790

Expanded credit portfolio operations 7,560,559 6,284,231

Transactions with marketable securities 3,134,776 3,481,450

Finance income from insurance and private pension operations 11(e) 977,928 452,581

Compulsory deposits 6 359,557 220,302

Other finance income 10,701 7,226

EXPENSES OF FINANCIAL INTERMEDIATION 13(b) (7,560,869) (6,725,042)

Funding (4,075,850) (3,446,621)

Open market funding - Government securities (1,572,923) (2,023,348)

Borrowings and onlending (420,621) (404,710)

Finance expenses from insurance and private pension operations 11(e) (964,638) (440,676)

Subordinated debt 9(e-III) (409,035) (323,663)

Other finance expenses 15(c) and 16(c) (117,802) (86,024)

DERIVATIVE FINANCIAL INSTRUMENTS 13(c) and 19(c-II(2)) (157,363) (551,989)

GROSS INCOME ON FINANCIAL INTERMEDIATION

BEFORE ALLOWANCE FOR LOAN LOSSES 4,325,289 3,168,759

ALLOWANCE FOR LOAN LOSSES (429,671) (109,097)

Expenses of allowance for credit risks 3(f) and 8(a-II) (576,171) (711,309)

Income from recovery of credits written-off as loss 3(f) and 8(d) 146,500 602,212

NET INCOME ON FINANCIAL INTERMEDIATION 3,895,618 3,059,662

OTHER INCOME FROM OPERATIONS 1,534,646 1,623,655

Revenue from service, bank fees and foreign exchange transactions 13(d) 1,339,198 1,433,242

Insurance, reinsurance and private pension operations 3(l) and 11(e) 195,448 190,413

TAX EXPENSES OF OPERATIONS 3(o), 16(a-II) and 19(c-II(2)) (395,325) (350,560)

NET INCOME FROM OPERATIONS 19(c-II(2)) 5,034,939 4,332,757

OTHER OPERATING INCOME (EXPENSES) (3,126,963) (2,424,962)

Personnel expenses 14(c) (2,126,561) (1,713,732)

Administrative expenses 14(d) (831,627) (528,161)

Other operating income (expenses) 15(c) (168,775) (183,069)

INCOME BEFORE TAXES 1,907,976 1,907,795

INCOME TAX AND SOCIAL CONTRIBUTION 3(o), 16(a-I) and 19(c-II(2)) (324,099) (398,623)

NET INCOME 1,583,877 1,509,172

Earnings per share - Quantity of shares 15,300 (15,301 at 09.30.2018) 103.52 98.63


4


STATEMENT OF CHANGES IN EQUITY FOR THE PERIODS ENDED - NOTE 18


Paid-up Revenue Carrying value Retained

capital reserves adjustment earnings Total

AT JANUARY 1, 2018 8,652,392 1,086,001 30,155 - 9,768,548

Carrying value adjustments - Available-for-sale securities - - (27,824) - (27,824)

Net income for the period - - - 1,509,172 1,509,172

Allocation: - - -

Legal reserve - 75,459 - (75,459) -

Special reserve - 948,975 - (948,975) -

Interest on capital - - - (484,738) (484,738)

-

AT SEPTEMBER 30, 2018 8,652,392 2,110,435 2,331 - 10,765,158

AT JANUARY 1, 2019 10,716,042 1,069,185 6,433 - 11,791,660

Capital increase - with reserves 757,479 (757,479) - - -

Carrying value adjustments - Available-for-sale securities - - (3,049) - (3,049)

Net income for the period - - - 1,583,877 1,583,877

Allocation: - - - - -

Legal reserve - 79,194 - (79,194) -

Special reserve - 937,809 - (937,809) -

Interest on capital - - - (566,874) (566,874)

AT SEPTEMBER 30, 2019 11,473,521 1,328,709 3,384 - 12,805,614


5

BANCO SAFRA S.A. E CONTROLADAS ("SAFRA CONSOLIDADO")

STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED SEPTEMBER 30 - NOTE 3(b)


NOTES 2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES

ADJUSTED NET INCOME 1,479,262 1,209,048

Net income for the periods 1,583,877 1,509,172 Adjustments to net income:

Depreciation and amortization 14(d) 106,345 65,228 Allowance for credit risk 138,224 (114,057) Foreign exchange gains (losses) on cash and cash equivalents (31,562) (107,674) Provisions for contingent liabilities 79,859 60,901 Fair value adjustment of assets and liabilities 7(d) (117,834) 194,034 Finance expenses on financing liabilities 243,732 188,667 Interest payable on payables for marketable securities issued abroad 9(b-II) 29,038 44,714 Interest payable on subordinated debts 9(e-III) 214,694 143,953 Supplementary coverage (PCC) and related expenses reserve (PDR) - Net 15,715 6,016 Provision for current and deferred income taxes 16(a-I) 324,099 398,623

Taxes paid (863,193) (991,862)

Current (709,997) (852,517)

Tax and social security contingent liabilities and legal obligations 15(c) (111,587) (94,066)

Programa Especial de Regularização Tributária - PERT 16(c) (41,609) (45,279)

CHANGES IN ASSETS AND LIABILITIES BY OPERATING ACTIVITIES 4,275,415 (2,471,753)

NET INVESTMENTS (7,846,500) (21,256,668) In interbank investments (assets/liabilities) 4,016,742 (8,508,602) In Central Bank compulsory deposits (1,387,390) (2,350,648) In open market investments and funding - Government securities (assets/liabilities) (359,356) 330,687

In marketable securities (net) (7,490,932) 114,073

In derivative financial instruments (assets/liabilities) 314,944 81,716

In credit portfolio (5,452,915) (14,623,258)

In other financial assets and liabilities 2,512,407 3,699,364

NET FUNDING 11,780,002 17,476,725 In funding 7,627,943 16,579,283 Open market deposits and funding – Corporate securities 19,072,170 (92,202) Funds from acceptance and issue of securities - funds from financial bills, bills of credit and similar notes (11,100,670) 16,512,855 Structured funding (343,557) 158,630 In borrowings and onlending 4,134,904 894,486 Foreign borrowings 4,532,185 2,265,564 Domestic onlending (185,200) (1,363,097) Other borrowings (212,081) (7,981) In insurance and private pension operations (assets/liabilities) 17,155 2,956 Funds guaranteeing technical reserves for insurance and private pension operations (assets) (2,746,129) (1,780,066) Insurance and private pension operations (liabilities) 2,763,284 1,783,022

NET OTHER RECEIVABLES AND LIABILITIES 341,913 1,308,190 In foreign exchange gains (losses) on financing operations 287,296 864,867 In other 54,617 443,323

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,754,677 (1,262,705)

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment in use 17(b) (292,598) (103,041) Disposal of property and equipment in use 17(b) 5,034 2,239 Investment in intangible assets 17(b) (52,183) (34,617)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (339,747) (135,419)

CASH FLOWS FROM FINANCING ACTIVITIES

Liabilities for marketable securities abroad 9(b-II) (139,811) 1,345,774 Funding 84,187 1,677,923 Redemptions (223,998) (332,149) Subordinated debt 9(e-III) 248,704 1,026,713 Funding 1,028,549 1,060,505 Redemptions (779,845) (33,792) Interest on capital (566,874) -

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (457,981) 2,372,487

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,956,949 974,363

Cash and cash equivalents at the beginning of the period 4,295,467 2,982,756 Foreign exchange gains (losses) on cash and cash equivalents 31,562 107,674 Cash and cash equivalents at the end of the period 4 9,283,978 4,064,793

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 4,956,949 974,363


6

BANCO SAFRA S.A. AND SUBSIDIARIES ("SAFRA CONSOLIDATED")STATEMENT OF VALUE ADDED FOR THE PERIODS ENDED SEPTEMBER 30ALL AMOUNTS IN THOUSANDS OF REAIS

CONSOLIDATED Notes 2019 2018

Income 13,420,804 11,517,456 Financial intermediation 13(a) 12,043,521 10,445,790

Derivative financial instruments 13(c) (157,363) (551,989)

Other income from operations 1,534,646 1,623,655

Expenses (8,159,315) (7,017,208) Financial intermediation 13(b) (7,560,869) (6,725,042)

Allowance for loan losses (429,671) (109,097)

Other operating income (expenses) 15(c) (168,775) (183,069)

Expenses from acquired inputs 14(d) (620,649) (364,642)

Gross value added 4,640,840 4,135,606 Retentions - Depreciation and amortization 14(d) (106,345) (65,228) Net added value to be distributed 4,534,495 4,070,378

Distribution of value added 4,534,495 4,070,378 Personnel 14(c) 1,863,317 1,496,586 Taxes and contributions 982,668 966,330 Federal 16(a-I) and (II) 652,352 674,082

Tax and social security 14(c) 263,244 217,146

Municipal 16(a-II) 67,072 75,102

Distribution - Third party capital - Rents 14(d) 104,633 98,290 Distribution - Capital 1,583,877 1,509,172 Interest on capital 18(b) 566,874 484,738

Retained earnings for the period 1,017,003 1,024,434


BOARD OF EXECUTIVE OFFICERS José Manuel da Costa Gomes Accountant - CRC nº 1SP219892/O-0

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Consolidated Financial Statements

8

NOTES TO THE FINANCIAL STATEMENTS AT SEPTEMBER 30, 2019 (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 authorized portfolios 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 and 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 the financial statements

The consolidated financial statements of Banco Safra S.A. and subsidiaries (“CONSOLIDATED”), approved by the Board of Directors and Audit Committee on October 29, 2019, 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), 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.

The adoption of the concept of expanded credit portfolio – Note 3(f) implies the presentation of the following operations as transactions with credit characteristics in both statement of financial position and statement of income:

Lease operations, under the financial method, that is, at present value; Advances on exchange contracts, reclassified from the group “Foreign Exchange 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 group “Interbank transactions”; and Securities issued by non-financial companies, reclassified from the group “Marketable Securities”.

We show the following transactions in the Statement of Financial Position, in Current or Non-current Assets, regardless of the maturity dates of assets:

Marketable securities classified as trading securities (Notes 3(d) and 7(a)), in their totality in Current Assets, based on the provisions established in the sole paragraph of article 7 of BACEN Circular 3,068/2001; and

Assets guaranteeing technical reserves for insurance and private pension, in Current or Non-current Assets (Notes 3(d) e 7(b)), proportionally to the maturity of guaranteed obligations, recorded in the line item Insurance and private pension operations– Note 11(c).

We show the foreign exchange gains or losses on investments abroad and foreign currency operations in the line item “Derivative financial instruments” in Statement of Income, together with the foreign exchange gains or losses on the derivatives which provide their hedge, for better presentation of the effective coverage of foreign exchange exposure.

Additionally, in this period, we have started to adopt the following criteria for presenting the Statement of Financial Position and/or Statement of Income:

Open market investments and funding (repurchase agreements) backed by government securities, started to be presented in a specific group of assets and liabilities, with segregation of their income; and

Income from operations started to be presented net of its direct costs. Thus far, such costs, directly attributable to operations, used to be presented in the line item “Other operating income (expenses)”. Such costs are substantially represented by recovery, origination and maintenance of operations.

Income from provided guarantees and sureties started to be shown together with income from credit operations, they were previously stated in the line item “Revenue from service, bank fees and foreign exchange transactions”.

For purposes of comparability, the balances and results arising from the criteria adopted in this period were reclassified in the comparative statements for the prior period, and did not change the total assets and liabilities, equity and net income for the periods ended September 30, 2019 and September 30, 2018.

b) Basis of consolidation The asset and liability and income accounts between the parent company and its subsidiaries, as well as the unrealized gains and losses between the companies included in the consolidation, were eliminated in the consolidated financial statements. The Exclusive Investment Funds of the consolidated companies were consolidated. The securities and investments in the portfolios of these funds were classified by type of transaction and were distributed into types of securities, in the same categories to which they were originally allocated.

The entities based overseas, basically represented by the branches in the 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 at 09.30.2019 27,871,788 24,246,057 3,625,731 189,540

Total at 09.30.2018 24,554,725 21,016,874 3,537,851 283,552

The consolidated financial statements comprise Banco Safra and its subsidiaries, including fully consolidated exclusive investment funds, highlighting:

Ownership interests % 09.30.2019 09.30.2018

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, a 0.6% interest in the capital of consolidated non-financial entity, which as it is directly held by the Bank’s own parent, is being presented as liabilities in these consolidated financial statements, in the line item “Other liabilities – Sundry”.


9

c) Functional currency

The consolidated financial statements are presented in Reais (R$), the functional currency of the Conglomerate.

3. SIGNIFICANT ACCOUNTING POLICIES

a) Income

Income is determined on accrual basis of accounting, that is, income and expenses are recognized in the period in which they are earned or incurred, simultaneously when they are related, regardless of the actual receipt or payment.

b) Cash Flows

I- Cash and cash equivalents: represented by cash and deposits with financial institutions, included in the heading cash, interbank deposits originally falling due in 90 days or less, the risk of change in their Fair Value being considered immaterial. Cash equivalents are amounts held for the purpose of settling short-term cash obligations and not for investments or other purposes.

II- Statement of cash flows: prepared based on the criteria set out in Technical Pronouncement CPC 03 - Statement of Cash Flows, approved by CMN Resolution 3,604/2008, which provides for the presentation of cash flows of the entity as those arising from operating, investing and financing activities, taking into account the following:

• Operating activities are the main revenue-generating activities of the entity and other activities that are neither investing nor financing activities. They include funding for financing financial intermediation and other operating activities that are typical of financial institutions;

• Investing activities are those related to the buying and selling of long-term assets and other investments not included in cash equivalents, such as changes in the line item “Property and Equipment and Intangible Assets”; 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.

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.

c) Interbank investments and open market investment and funding – Government securities

These are stated at cost or fair value, when applicable, included the income and inflation adjustment and foreign exchange gains and losses through the statement of financial position reporting date, calculated on pro rata basis.

d) Marketable securities and derivative financial instruments

In accordance with the Brazilian Central Bank (BACEN) Circular 3,068/2001, marketable securities, including those presented in the Statement of Financial Position in the line item “Funds guaranteeing technical reserves for insurance and private pension”, are classified according to Management’s intention into three specific categories:

Trading: securities acquired to be actively and frequently traded. Therefore, they are shown in current assets, regardless of their maturities. They are adjusted to fair value against income for the period;

Available-for-sale: securities that can be traded, but which are not acquired to be frequently traded or held to maturity. Accrued income is recognized in statement of income, and unrealized gains and losses arising from fair value fluctuations are recognized in a specific account in equity, net of taxes. The gains and losses on available-for-sale securities, when realized, are recognized on the trading date in the statement of income, as contra-entry to a specific account in equity; and

Held-to-maturity: securities which the Bank has the intention and financial capacity to hold in portfolio up to their maturity. These securities are stated at cost, plus accrued income.

The decline in the fair value of marketable securities, below their respective adjusted costs, related to reasons considered non temporary, are 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.

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 accounting hedges according to their nature:

Market risk hedge – the hedged financial assets and liabilities, including the assets classified as available for sale and their tax effects, and respective derivative financial instruments are recorded at fair value, with the related gains or losses recognized in income for the period; and

Cash flow hedge - the hedged financial assets and liabilities and the respective derivative financial instruments are recorded at fair value, with the related gains or losses, net of tax effects, recognized in a specific account of equity called “Carrying Value Adjustment”. The non-effective hedge portion is recognized in income for the period.

The derivative financial instruments contracted at the request of customers or on own behalf that do not meet the hedge accounting criteria established by the Brazilian Central Bank, used for managing overall risk exposure, are recorded at fair value, with gains or losses directly recognized in income for the period.

The securities issued by companies that have credit characteristics are being reported in the line item “Other credit risk instruments”, as expanded credit portfolio – Note 3(f).

e) Fair value measurement

The methodology adopted for measuring fair value(probable realization value) of marketable securities and derivative financial instruments 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.

f) 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(d), guarantees, sureties, foreign exchange change in advances on foreign 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.

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.


10

Credit transactions, which are assigned “H” rating, are written-off from assets six months after they receive such rating, and then are controlled in memorandum accounts for at least five years, and while all collection procedures are not exhausted.

The assets received in connection with the debt consolidation processes, related to credit operations written-off of assets, are classified as Assets Nor for Use, and fully provisioned, because of the great 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 “Allowance for loan losses” 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 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.

g) 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 loan transactions.

Financial liabilities are derecognized if the obligation is contractually extinguished or settled.

h) Investments

These are stated at cost, adjusted for impairment.

i) Property and equipment in use

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.

j) Impairment – non-financial assets

CMN Resolution 3,566/2008 provides the procedures applicable to the recognition, measurement and disclosure of impairment of assets and requires compliance with Technical Pronouncement CPC 01 – Impairment of Assets.

The impairment of non-financial assets is recognized as loss when the value of an asset or cash-generating unit is higher than its recoverable or realization 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 at 09.30.2019 and 09.30.2018.

k) Funding, borrowings and onlending and subordinated debts

These are stated at payable amounts and take into account, when applicable, the charges incurred through the statement of financial position reporting date, recognized on pro rata basis.

The incurred transaction costs basically refer to the amounts paid to third parties for intermediation, placement and distribution of own securities. These are recorded as reduction of securities and recognized, on pro rata basis, in the appropriate expense account, except in the cases in which the securities are measured at fair value through profit or loss.

l) Insurance, reinsurance and private pension operations:

I - Receivables and payables from insurance and reinsurance operations

Premiums receivable – refer to financial resources flowing as receipt of premiums related to insurance, recorded on the policy issue dates;

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 recovered assets, since the existence of a contract does not exempt from 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, on the other hand, are deferred, being 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 - Credit risk

An impairment is recorded on credits from premiums receivable and insurance operations when they are over 60 days past due. The credits from reinsurance operations are impaired when they are over 180 days past due. The impairment corresponds to the total credit amount to which it refers, according to the criteria established by SUSEP Circular 517/2015.


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The impairments of such credits 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.

III - Technical reserves for 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 commercial 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 the 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 for indemnity payments, as claim notices are received through the reporting date, 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 reporting date. 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, Circular 517 no longer provides standardized percentages;

Reserve for related expenses (PDR): recorded to cover the amounts expected from expenses related to claims incurred (reported or not). The reserve calculation is made by means of statistic-actuarial process, which uses the past experience of the Insurance company to project the amount of payable expenses;

b) Private pension:

Mathematical reserves for unvested benefits (PMBAC) and vested benefits (PMBC): recorded to cover the obligations assumed with participants/insureds, in the accumulation period (PMBAC) and benefit vesting period (PMBC), of structured plans under the fully funded regime, and according to the actuarial technical note approved by SUSEP;

Reserve for related expenses (PDR): recorded to cover all expenses related to the settlement of indemnities and benefits, in view of the claims incurred and to be incurred (fully-funded regime);

c) Liability Adequacy Test (LAT):

The Adequacy Test is aimed at assessing the liabilities arising from the contracts of certificates of insurance plans (except for the Compulsory Bodily Injury Motor Insurance (DPVAT), Compulsory No-fault Bodily Injury for Boats Owners (DPEM) and Housing Insurance of the National Housing System (SFH)) and publicly-held 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 reporting date of the technical reserves (PPNG, PPNG-RVNE, PSL, IBNR, PMBAC and PMBC), less the deferred acquisition costs and the intangible assets directly related to the technical reserves.

For the Private Pension segment, in the LAT the interest rates and the actuarial tables contracted by the participants are taken into account (rates at 0%, 3% or 6% plus adjustment for IGPM or IPCA, and AT-1983, AT-2000 and BR-EMSsb tables). In the LAT determination, the other actuarial decrements are considered, such as: projections of redemptions (persistency table), rate of conversion into vested benefits and expected interest rate released by SUSEP (term structure of interest rates - ETTJ) according to the interest curve related to the liability’s index. To calculate the estimate of the biometric variable mortality, the BR-EMS V.2015 table is considered, implemented as Improvement, according to the G scale on the Society of Actuaries (SOA) website.

For the Insurance segment, in the LAT determination the actuarial projections of expected loss ratio and administrative expenses are contained. The current estimates for cash flows are gross of reinsurance, discounted to present value based on the risk-free term structures of interest rates (ETTJ) defined by SUSEP.

In the LAT determination, the deficiency related to unearned premium reserve, mathematical reserve for unvested benefits and the mathematical reserve for vested benefits is recognized in the supplementary coverage reserve (PCC), and the adjustments arising from the deficiencies in the other technical reserves are made in the reserves themselves.

IV - 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 reinsurance assets – technical reserves.

Revenues from private pension contribution are recognized when received. Income and expenses arising from DPVAT line insurance operations are recognized based on the information received from Seguradora Líder dos Consórcios do Seguro DPVAT S.A.

m) Provisions, contingent assets and liabilities, and legal obligations (tax and social security obligations)

The recognition, measurement and disclosure of provisions, contingent assets and liabilities, and legal obligations are made according to the criteria established in Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets, approved by CMN Resolution 3,823/2009 and BACEN Circular Letter 3,429/2010, as described below:

(i) Contingent assets – these are possible assets arising from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events that are not fully under the control of the entity. Contingent assets are not recognized in the financial statements, but disclosed when it is probable that a gain from these assets will be realized. However, when there is evidence that the realization of the gain is practically certain, the assets are no longer classified as 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 not being required but only disclosed, 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. The obligations are evaluated by Management, based on the best estimates and taking into consideration the opinion of legal


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advisors, which records 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. Legal obligations (tax and social security) - 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.

n) Employee benefits

Recognized and evidenced according to CPC 33 (R1) – Employee benefits, regulated through CMN Resolution 4,424/2015, are categorized as follows:

I. Short-term and Long-term benefits

Short-term benefits are those to be settled within twelve months. The benefits comprising this category are wages, contribution to the National Institute of Social Security, short-term absences, profit sharing and non-monetary benefits.

Safra does not have long-term benefits related to termination of employment contract other than those established by the labor union. Additionally, Safra does not give share-based payment to its key personnel or employees.

II. Termination benefits

Termination benefits are payable when the employment contract is terminated before the normal retirement date.

Safra provides medical care to its employees, as established by the labor union, as termination benefits.

III. Profit sharing

Safra recognizes a provision for payment and a profit sharing expense in income (included in the heading "Personnel expenses" in the statement of income) based on the calculation that considers the profit after certain adjustments. Safra recognizes a provision when it is contractually obliged or when there is a past practice that created a constructive obligation.

o) Taxes

Taxes are calculated at the rates below, considering, with respect to the respective tax bases, the applicable legislation for each charge.

Income tax 15.00%

Income tax surcharge 10.00%

Social contribution (1) (2) 15.00%-20.00%

Social Integration Program (PIS)(3) 0.65%

Social Contribution on Revenues (COFINS) (3) 4.00%

Service Tax (ISS) Up to 5.00% (1) Law 13,169, of 10.6.2015, temporarily increased the Social Contribution rate applicable to financial and similar institutions from 15% to 20%

over the period between 09.01.2015 to 12.31.2018. From 01.01.2019, the applicable rate was set again at 15%. As a result of the temporary increase in the social contribution rate, the current taxes were calculated at the rates of 20% from September 2015 to December 31, 2018.

Safra had not recognized the effect of the 5% rate increase in the recognition of its deferred tax asset - Note 16(b-I).(2) Non-financial subsidiaries continue to be subject to a rate of 9% for this contribution.(3) Non-financial subsidiaries under the non-cumulative calculation regime continue to pay PIS and COFINS at the rates of 1.65% and 7.6%, respectively. The PIS and COFINS rates levied on finance income are 0.65% and 4%, respectively.

Taxes are recognized in the statement of income, except when they relate to items recognized directly in equity.

The Deferred Tax Assets and Liabilities, represented by tax credits and deferred tax liabilities, are calculated on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred tax assets for temporary differences arise mainly from the fair value measurement of certain financial assets and liabilities, including derivative contracts, provisions for tax, civil and labor contingent liabilities, and allowances for credit risk (Minimum Allowance Required), and are recognized only when all the requirements for their recognition, established by CMN Resolution 3,059/2002, 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.

p) Use of accounting estimates

The preparation of financial statements requires Management to make certain estimates and adopt assumptions, on its best judgment, that affect the amounts of certain financial or non-financial assets and liabilities, income and expenses and other transactions, such as: (i) the Fair Value of certain financial assets and liabilities and derivative financial instruments; (ii) the depreciation rates of property and equipment items; (iii) amortizations of intangible assets; (iv) provisions required to cover possible risks arising from contingent liabilities; (v) deferred tax assets; (vi) allowance for loan losses; and (vii) technical reserves for insurance and private pension. The amounts of the possible settlement of these assets and liabilities, whether financial or otherwise, could be different from those estimates.

Consolidated Financial Statements – September 30, 2019. 13

4. CASH AND CASH EQUIVALENTS

09.30.2019 09.30.2018

Cash 1,407,686 1,490,633

In Brazil 251,347 248,487

Abroad 1,156,339 1,242,146

Open market investments – Own portfolio – National Treasury 4,422,031 232,132

Foreign currency investments 3,454,261 2,342,028

Total 9,283,978 4,064,793

5. INTERBANK INVESTMENTS

09.30.2019 09.30.2018

Amounts by maturity

Up to 90 days From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5 years Total Total

Open market investments – Own portfolio – National Treasury 9,586,985 2,582,654 - - - 12,169,639 10,647,772

Interbank deposits (2) 18,804 201,075 1,311 1,508,946 - 1,730,136 1,758,434

Foreign currency investments (1) 3,661,376 187,928 - - - 3,849,304 2,342,028

Total at 09.30.2019 13,267,165 2,971,657 1,311 1,508,946 - 17,749,079 14,748,234

Total at 09.30.2018 3,470,012 9,868,462 - - 1,409,760 14,748,234 (1) Includes transactions with related parties – Note 20(b). (2) Of this amount, R$ 209,174 (R$ 338,665 as at 09.30.2018) refers to operations linked to rural credit.

6. CENTRAL BANK COMPULSORY DEPOSITS

These are represented by compulsory deposits as shown below:

09.30.2019 09.30.2018

Interest bearing (1)

9,264,611 6,580,233

Non-interest bearing 308,738 115,883

Abroad 112,388 97,512

Total 9,685,737 6,793,628 (1) The income from interest-bearing compulsory deposits is R$ 359,557(R$ 220,302 in 2018), and shown in “Income from compulsory deposits” in statement of income for the period.


7. PORTFOLIO OF MARKETABLE SECURITIES, DERIVATIVE FINANCIAL INSTRUMENTS, FUNDS GUARANTEEING TECHNICAL RESERVES FOR INSURANCE AND PRIVATE PENSION

a) Marketable securities I – By accounting classification:

09.30.2019 09.30.2018

Effects of Fair Value adjustment on:

Profit or loss

Amortized Cost

Trading securities

Accounting hedge – Note 7(e)

Equity – Note 18(d-I)

Fair Value Fair Value

Securities portfolio 22,990,840 162,644 17,045 4,004 23,174,533 22,592,686 Government securities 20,084,257 162,729 7,087 - 20,254,073 18,720,566

National Treasury 17,726,653 170,985 - - 17,897,638 18,256,128 National treasury bills 1,802,682 29,702 - - 1,832,384 3,937,514 National treasury notes – Note 7(e) (1) 2,594,777 139,643 - - 2,734,420 3,616,823 Financial treasury bills 13,329,194 1,640 - - 13,330,834 10,701,791

Brazilian government securities – Abroad 2,076,384 (6,026) 7,087 - 2,077,445 - Fair value hedge – Note 7(e) 1,826,984 - 7,087 - 1,834,071 - Other 249,400 (6,026) - - 243,374 - US government securities 281,220 (2,230) - - 278,990 464,438

Securities Issued by Financial Institutions 2,639,071 - 9,958 78 2,649,107 3,200,087 Investment fund quotas 146,666 - - - 146,666 53,112 Bank Deposit Certificate and other 1,297,821 - - (2) 1,297,819 1,214,679 Eurobonds 857,930 - 9,958 80 867,968 1,932,296

Fair value hedge – Note 7(e) 811,243 - 9,958 - 821,201 1,891,834 Other 46,687 - - 80 46,767 40,462

Credit Link Notes 336,654 - - - 336,654 - Securities issued by Companies 267,512 (85) - 3,926 271,353 672,033

Shares 158,702 (85) - 2,453 161,070 195,233 Eurobonds 65,208 - - 1,473 66,681 99,628 Promissory notes and other 43,602 - - - 43,602 377,172 Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(e) - (57) - - (57) (474) Total securities portfolio at 09.30.2019 22,990,840 162,587 17,045 4,004 23,174,476 22,592,212

Securities portfolio 22,653,054 (44,361) (17,907) 1,900 22,592,686 Government securities 18,764,930 (44,364) - - 18,720,566 Securities issued by Financial Institutions 3,218,224 - (17,907) (230) 3,200,087 Securities issued by Companies 669,900 3 - 2,130 672,033

Regulatory adjustments – CMN Resolution CMN 4,277/2013 – Note 3(e) - (474) - - (474) Total securities portfolio at 09.30.2018 22,653,054 (44,835) (17,907) 1,900 22,592,212

(1) Of this amount, R$ 773,878 comprise the IPCA portfolio hedge – Note 7(e).

During the period ended September 30, 2019, there was no reclassification among the categories of marketable securities.


II – By maturity:

09.30.2019

Amounts by maturity

Fair Value

Up to 90 days

From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5 years

Over 5 years

Securities portfolio 23,174,533 987,305 946,505 8,183,205 710,210 7,206,123 5,141,185

Government securities 20,254,073 795,882 839,702 6,856,179 663,666 6,078,173 5,020,471

Securities issued by Financial Institutions 2,649,107 161,218 104,508 1,297,819 46,544 947,517 91,501

Securities issued by Companies 271,353 30,205 2,295 29,207 - 180,433 29,213

Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(e) (57) (57) - - - - -

Total securities portfolio at 09.30.2019 23,174,476 987,248 946,505 8,183,205 710,210 7,206,123 5,141,185

Trading securities – Note 3(d) 19,863,956 946,108 839,702 8,149,907 663,666 6,078,173 3,186,400

Available-for-sale securities 3,310,520 41,140 106,803 33,298 46,544 1,127,950 1,954,785

09.30.2018

Amounts by maturity

Fair Value

Up to 90 days

From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5 years

Over 5 years

Securities portfolio

22,592,686 1,102,791 1,461,974 1,806,146 7,716,238 4,027,307 6,478,230 42.812.766

Government securities

18,720,566 1,012,393 1,180,248 1,748,941 6,396,472 2,653,538 5,728,974 33.298.727

Securities issued by Financial Institutions

3,200,087 53,112 - - 1,214,679 1,188,466 743,830 2.732.390

Securities issued by Companies

672,033 37,286 281,726 57,205 105,087 185,303 5,426 6.781.649

Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(e)

(474) (474) - - - - - (132)

Total securities portfolio at 09.30.2018

22,592,212 1,102,317 1,461,974 1,806,146 7,716,238 4,027,307 6,478,230 49.326.602

Trading securities – Note 3(d) 20,006,031 1,083,179 1,180,248 1,748,941 7,611,151 2,653,538 5,728,974 37.890.688

Available-for-sale securities 2,586,181 19,138 281,726 57,205 105,087 1,373,769 749,256 11.507.135


III – By characteristic:

09.30.2019 09.30.2018

Linked to

Accounting security classification:

Own portfolio

Restricted repurchase

agreements and Securities related to

unrestricted repurchase agreements

Provided guarantees

(1)

Central Bank (2) Total

Trading

Available for sale Total

Securities portfolio 20,043,072 - 2,334,245 797,216 23,174,533 19,864,013 3,310,520 22,592,686

Government securities 17,171,007 - 2,285,850 797,216 20,254,073 18,420,002 1,834,071 18,720,566

National Treasury 14,814,572 - 2,285,850 797,216 17,897,638 17,897,638 - 18,256,128

Brazilian government securities – Abroad 2,077,445 - - - 2,077,445 243,374 1,834,071 -

US government securities 278,990 - - - 278,990 278,990 - 464,438

Securities issued by Financial Institutions 2,600,712 - 48,395 - 2,649,107 1,440,394 1,208,713 3,200,087

Securities issued by Companies 271,353 - - - 271,353 3,617 267,736 672,033

Regulatory adjustments – CMN Resolution 4,277/2013 – Note 3(e) (57) - - - (57) (57) - (474)

Total securities portfolio at 09.30.2019 20,043,015 - 2,334,245 797,216 23,174,476 19,863,956 3,310,520 22,592,212 Investments linked to open market operations – Government securities – Own portfolio – Note 10(a) - 2,887,821 - - 2,887,821 2,887,821 - 7,218,663

Other credit risk instruments – Note 8(b) 10,494,169 5,152,921 - - 15,647,090 - 15,647,090 13,516,100

Fair value hedge – Note 7(e) 6,762,182 3,782,206 - - 10,544,388 - 10,544,388 4,331,773

Other 3,731,987 1,370,715 - - 5,102,702 - 5,102,702 9,184,327

Total at 09.30.2019 30,537,184 8,040,742 2,334,245 797,216 41,709,387 22,751,777 18,957,610 43,326,975

Total securities portfolio at 09.30.2018 20,152,399 - 1,689,807 750,006 22,592,212 20,006,031 2,586,181 Investments linked to open market operations – Government securities – Own portfolio – Note 10(a)

- 7,218,663 - - 7,218,663 7,218,663 -

Other credit risk instruments – Note 8(b) 9,810,739 3,705,361 - - 13,516,100 - 13,516,100

Fair value hedge – Note 7(e) 4,331,773 - - - 4,331,773 - 4,331,773

Other 5,478,966 3,705,361 - - 9,184,327 - 9,184,327

Total at 09.30.2018 29,963,138 10,924,024 1,689,807 750,006 43,326,975 27,224,694 16,102,281 (1) Refers to guarantee of derivative financial instrument transactions made in stock exchange in the amount of R$ 1,657,496 (R$ 1,287,684 as at 09.30.2018), realized in the clearing and depository corporation in the

amount of R$ 594,866(R$ 328,066 as at 09.30.2018) and civil and labor appeals - Note 15(c) in the amount of R$ 81,883 (R$ 74,057 as at 09.30.2018). (2) It is mainly represented by transactions linked to the funds from savings accounts in the amount of R$ 797,102 (R$ 749,899 as at 09.30.2018).


b) Funds guaranteeing technical reserves for insurance and private pension

I. Breakdown

09.30.2019 09.30.2018

Amounts by maturity

Fair Value

Up to 90 days

From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5 years

Over 5 years Fair Value

Private pension 17,268,709 455,398 2,306,261 3,519,170 2,991,270 4,601,622 3,394,988 13,715,483

Repurchase agreements – Government securities 2,095 - - - 2,095 - - 54,169

Government securities – National Treasury 16,003,126 24,567 2,101,472 2,891,302 2,989,175 4,601,622 3,394,988 13,354,454

National Treasury Bills 4,466,598 24,567 1,119,528 977,341 1,676,723 668,439 - 4,180,430

Financial Treasury Bills 6,968,568 - 834,903 1,810,923 1,155,117 2,607,511 560,114 6,130,975

National Treasury Notes 4,567,960 - 147,041 103,038 157,335 1,325,672 2,834,874 3,043,049

Corporate securities 1,275,953 443,296 204,789 627,868 - - - 308,951

Shares 443,296 443,296 - - - - - 95,608

Bank certificates of deposit 339,383 - - 339,383 - - - 136,724

Debentures 75,756 - - 75,756 - - - 76,619

Financial bills 417,518 - 204,789 212,729 - - - -

Other (12,465) (12,465) - - - - - (2,091) Insurance – Government securities – National Treasury – National Treasury Bills 210,952 - 210,952 - - - - 198,975

DPVAT fund quotas – Government securities 188,723 188,723 - - - - - 168,013

Total at 09.30.2019 – Note 11(b) 17,668,384 644,121 2,517,213 3,519,170 2,991,270 4,601,622 3,394,988 14,082,471

Total at 09.30.2018 – Note 11(b) 14,082,471 261,530 1,460,805 3,337,977 2,298,224 4,242,937 2,480,998

II. Derivative financial instruments

Breakdown of notional amount by transaction type of the PGBL/VGBL investment fund.

09.30.2019

09.30.2018

Amounts by maturity Futures

Up to 90 days

From 91 to 365 days

Over 365 days

Total

Total

Long position

322,873 789 677,213 1,000,875 9,562,337

Interest rate

- 789 677,213 678,002 9,328,955

Foreign currency

84,207 - - 84,207 219,097

Bovespa Index

238,666 - - 238,666 14,285

Short position

- 1,116,109 4,621,228 5,737,337 6,118,120

Interest rate

- 1,116,109 4,621,228 5,737,337 5,851,508

Foreign currency

- - - - 283

Bovespa Index - - - - 266,329

TOTAL at 09.30.2019 (1)

322,873 1,116,898 5,298,441 6,738,212 15,680,457

TOTAL at 09.30.2018 (1)

499,994 4,870,608 10,309,855 15,680,457 (1) Traded on B3.


c) 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 and 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 accounting hedge – Note 7(e)):

credit operations and funding contracted at fixed rates and other funding – Notes 8 and 9; and investments 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 or 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

09.30.2019 09.30.2018

Amounts by maturity

Assets

Amortized cost

Fair Value adjustmen

t Fair Value

Up to 90 days

From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5 years


Non Deliverable Forward – NDF 93,490 4,881 98,371 38,656 52,763 6,186 766 - - 76,220

Option premiums 498,926 (128,769) 370,157 20,855 268,419 76,103 4,163 617 - 164,067

Bovespa Index 70,679 53,024 123,703 15,340 34,765 70,547 3,051 - - 91,578

Foreign currency 22,219 (1,702) 20,517 4,840 19,797 (4,120) - - - 47,231

Interbank Deposit (DI) Index 391,201 (180,121) 211,080 675 202,380 6,781 627 617 - 25,258

Shares 14,827 30 14,857 - 11,477 2,895 485 - - -

Forward 104,205 (3) 104,202 104,202 - - - - - 907,949

Purchase receivable 29,622 - 29,622 29,622 - - - - - 454,709

Government securities 29,622 - 29,622 29,622 - - - - - 450,109

Foreign currency - - - - - - - - - 4,600

Sales receivable – Government securities 74,583 (3) 74,580 74,580 - - - - - 453,240

Swap – Amounts receivable 920,028 213,266 1,133,294 406,629 353,716 10,734 7,357 6,980 347,878 466,997

Interest rate 91,092 (21,591) 69,501 3,535 43,681 3,213 6,949 1,459 10,664 125,758

Foreign currency 824,246 231,586 1,055,832 403,094 307,282 2,313 408 5,521 337,214 341,239

Other 4,690 3,271 7,961 - 2,753 5,208 - - - -

Credit derivatives - CDS 55,698 - 55,698 50,015 5,683 - - - - 64,846

Regulatory Adjustments – CMN Resolution 4,277/2013 – Note 3(e)

- (93) (93) (93) - - - - - (757)

Total at 09.30.2019 1,672,347 89,282 1,761,629 620,264 680,581 93,023 12,286 7,597 347,878 1,679,322

Total at 09.30.2018 1,542,468 136,854 1,679,322 1,112,515 264,765 149,458 23,168 43,927 85,489


09.30.2019 09.30.2018

Amounts by maturity

Liabilities

Amortized cost

Fair Value adjustment Fair Value

Up to 90 days

From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5 years


Non Deliverable Forward – NDF (27,155) 5,220 (21,935) (11,115) (10,599) (221) - - - (39,840)

Option premiums (527,860) 129,000 (398,860) (17,096) (280,299) (89,602) (6,664) (5,199) - (154,216)

Bovespa Index (84,080) (49,290) (133,370) (11,250) (36,082) (76,868) (4,893) (4,277) - (86,144)

Foreign currency (42,280) 454 (41,826) (5,171) (32,874) (3,136) (283) (362) - (22,192)

Interbank Deposit (DI) Index (379,159) 174,657 (204,502) (675) (198,388) (4,073) (806) (560) - (45,880)

Shares (22,341) 3,179 (19,162) - (12,955) (5,525) (682) - - -

Forward (104,205) (9,533) (113,738) (113,738) - - - - - (903,349)

Purchases payable – Government securities (29,622) (9,536) (39,158) (39,158) - - - - - (450,109)

Government securities (29,622) - (29,622) (29,622) - - - - - (450,109)

Foreign currency - (9,536) (9,536) (9,536) - - - - - -

Sales deliverable – Government securities (74,583) 3 (74,580) (74,580) - - - - - (453,240)

Swap - amounts payable (1,087,388) (194,204) (1,281,592) (510,213) (513,923) (23,216) (12,320) (121,419) (100,501) (472,085)

Interest rate (55,227) (189,134) (244,361) (1,984) (26,871) (3,660) (11,669) (115,076) (85,101) (93,936)

Foreign currency (1,032,161) (5,070) (1,037,231) (508,229) (487,052) (19,556) (651) (6,343) (15,400) (378,149)

Credit derivatives – CDS (46,915) - (46,915) (45,142) (1,773) - - - - (60,936)

Regulatory Adjustments – CMN Resolution nº 4,277/2013 – Note 3(e) - (6,112) (6,112) (6,112) - - - - - (8,554)

Total at 09.30.2019 (1,793,523) (75,629) (1,869,152) (703,416) (806,594) (113,039) (18,984) (126,618) (100,501) (1,638,980)

Total at 09.30.2018 (1,601,493) (37,487) (1,638,980) (1,220,783) (188,280) (172,504) (33,852) (203) (23,358)

2) By counterparty at Fair Value

Assets Liabilities

09.30.2019 09.30.2018 09.30.2019 09.30.2018

Financial institutions 935,593 1,284,870 (1,096,151) (1,164,123)

B3 - 78,407 (9,536) (70,447)

Legal entities 633,905 190,679 (488,751) (322,859)

Individuals 192,224 126,123 (268,602) (72,997)

Credit risk – Notes 3(f) and 8(a) and Regulatory Adjustments – CMN 4,277/2013 – Note 3(e) (93) (757) (6,112) (8,554)

Total 1,761,629 1,679,322 (1,869,152) (1,638,980)


II - Breakdown by notional amount:

1) By type of operation

09.30.2019 09.30.2018

Amounts by maturity

Up to 90

days From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5 years

Over 5 years Total Total

Non Deliverable Forward – NDF 1,694,197 1,679,745 175,281 17,558 - - 3,566,781 2,612,701

Long position 1,000,009 1,398,631 173,884 17,558 - - 2,590,082 1,761,045 Short position 694,188 281,114 1,397 - - - 976,699 851,656 Options 1,832,389 158,758,038 68,876,419 340,453 70,731 - 229,878,030 9,293,573 Long position 992,754 73,254,938 34,625,219 10,058 - - 108,882,969 4,479,746 Shares - 284,705 50,229 - - - 334,934 3,661 Interbank Deposit (DI) Index 19,226 72,201,922 34,292,000 - - - 106,513,148 2,604,602 Bovespa Index 497,500 100,479 280,805 10,058 - - 888,842 413,911 Foreign currency 476,028 667,832 2,185 - - - 1,146,045 1,457,572 Short position 839,635 85,503,100 34,251,200 330,395 70,731 - 120,995,061 4,813,827 Shares - - - - - - - 3,661 Interbank Deposit (DI) Index 19,226 85,130,970 34,051,450 327,500 68,000 - 119,597,146 4,221,833 Bovespa Index 497,500 58,609 173,623 - - - 729,732 45,792 Foreign currency 322,909 313,521 26,127 2,895 2,731 - 668,183 542,541 Forward 1,208,980 1,264,245 - - - - 2,473,225 1,808,333 Long position

1,134,386 - - - - - 1,134,386 912,522 Foreign currency 1,104,759 - - - - - 1,104,759 450,438 Government securities 29,627 - - - - - 29,627 462,084 Obligations for sales to be delivered 74,594 1,264,245 - - - - 1,338,839 895,811 Foreign currency - 1,264,245 - - - - 1,264,245 441,430 Government securities 74,594 - - - - - 74,594 454,381 Swap Assets 18,981,056 19,402,989 980,725 285,909 852,753 2,206,197 42,709,629 29,469,211 Interest rate 620,129 758,007 853,621 280,708 529,308 459,544 3,501,317 3,442,840 Foreign currency 18,360,927 18,590,468 37,381 5,201 323,445 1,746,653 39,064,075 25,990,181 Others - 54,514 89,723 - - - 144,237 36,190 Liabilities 18,981,056 19,402,989 980,725 285,909 852,753 2,206,197 42,709,629 29,469,211 Interest rate 137,193 540,022 334,931 258,242 554,384 1,907,449 3,732,221 4,099,095 Foreign currency 18,843,863 18,862,967 645,794 27,667 298,369 298,748 38,977,408 25,370,116 Futures 61,642,610 34,021,714 12,711,057 5,263,607 6,825,022 2,916,878 123,380,888 81,170,210 Long position 35,843,284 4,508,937 - - 5,349,663 1,090,808 46,792,692 11,424,271 Interest rate - 168,730 - - 4,711,987 985,944 5,866,661 3,425,219 Currency coupon 18,619,020 3,435,239 - - 637,676 104,864 22,796,799 7,171,481 Foreign currency 16,691,992 904,968 - - - - 17,596,960 785,111 Bovespa Index 532,272 - - - - - 532,272 42,460 Short position 25,799,326 29,512,777 12,711,057 5,263,607 1,475,359 1,826,070 76,588,196 69,745,939 Interest rate 24,925,724 24,327,691 7,702,292 3,297,379 706,098 - 60,959,184 43,928,276 Currency coupon - 4,159,559 4,525,709 1,559,296 703,136 1,801,721 12,749,421 17,447,749 Foreign currency 873,602 1,025,527 483,056 406,932 66,125 24,349 2,879,591 8,336,582 Bovespa Index - - - - - - - 33,332

Credit derivatives – CDS – Received risk – Note 7(c-III) 1,739,683 333,152 - - - - 2,072,835 2,598,417


09.30.2019 09.30.2018

Amounts by maturity

Up to 90

days From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5 years

Over 5 years Total Total

Structured funding – Note 9(c) 1,585,673 2,040,477 1,248,439 486,768 819,187 19,174 6,199,718 11,118,698

Option premiums 113,478 1,845,829 1,219,645 371,583 61,173 - 3,611,708 8,104,494

Long position – Interbank Deposit (DI) Index - 448,702 624,275 339,915 33,608 - 1,446,500 -

Short position 113,478 1,397,127 595,370 31,668 27,565 - 2,165,208 8,104,494

Shares - 347,683 145,760 2,775 - - 496,218 -

Interbank Deposit (DI) Index - - - - - - - 2,333,778

Bovespa Index - 106,390 342,440 28,893 27,565 - 505,288 -

Foreign currency 113,478 943,054 107,170 - - - 1,163,702 5,770,716

Swap - Assets/Liabilities - Interest rate - 11,300 28,794 115,185 758,014 19,174 932,467 495,084

Credit derivatives – CDS – Transferred risk – Note 7(c-III) 1,472,195 183,348 - - - - 1,655,543 2,519,120

TOTAL at 09.30.2019 88,684,588 217,500,360 83,991,921 6,394,295 8,567,693 5,142,249 410,281,106 138,071,143

TOTAL at 09.30.2018 42,982,248 60,059,372 19,858,369 6,235,713 4,035,372 4,900,069 138,071,143

2) Trading location by counterparties

09.30.2019 09.30.2018

Location B3 Financial

institutions Legal entities Individuals

Total notional amount

Total notional amount

B3 123,696,404 44,002,917 235,201,000 3,652,407 406,552,728 132,953,606

Over the counter – abroad - 3,728,378 - - 3,728,378 5,117,537

Total at 09.30.2019 123,696,404 47,731,295 235,201,000 3,652,407 410,281,106 138,071,143

Total at 09.30.2018 88,973,432 33,611,908 10,578,664 4,907,139 138,071,143

III - Credit derivatives - CDS

Banco Safra makes use of derivative financial instruments of credit in order to offer its customers, through issue of Structured CD – Note 9(c), opportunities to diversify their investment portfolios.

Banco Safra held the following positions in credit derivatives, shown at their notional amounts:

09.30.2019 09.30.2018

Credit swap whose underlying assets - Marketable securities (1)

Received risks 2,072,835 2,598,417

Transferred risks (1,655,543) (2,519,120)

Total net of exposure received/(transferred) 417,292 79,297 (1) Transferred and received risks refer to the same issuers.

During the period no credit event related to the events provided in the contracts occurred.

No material effect was produced on the calculation of minimum requirements of regulatory capital at 09.30.2019, according to CMN Resolution 4,193/2013.


d) Developments of changes in Fair Value adjustments:

01.01. to 09.30.2019 01.01 to

09.30.2018

Changes in the period

Effects on:

Opening balance

Foreign exchange gains or

losses and Other

Profit (loss) –

Note 13(c) Equity –

Note 18(d-I) Closing balance

Closing balance

Trading securities and Obligations related to unrestricted securities 2,971 (165) (145,659) - (142,853) 32,934

Trading securities – Note 7(a) 203,296 (165) (40,000) - 163,131 (64,557)

Securities portfolio – Note 7(a-I) 38,063 (165) 124,689 - 162,587 (44,835)

Investment linked to open market operations – government securities – Note 10 165,233 - (164,689) - 544 (19,722)

Obligations related to unrestricted securities – Note 10(b) (200,325) - (105,659) - (305,984) 97,491

Available-for-sale securities – Note 7(a-I) and 18(d-I) 8,323 - - (4,319) 4,004 1,966

Derivative financial instruments (Assets/Liabilities) 27,143 (540) (12,950) - 13,653 99,367

Fair Value hedge – Note 7(e) 334,375 14,256 276,443 - 625,074 35,293

Fixed Portfolio 114,488 - 26,758 - 141,246 13,129

Repurchase agreements - fixed rate 5,152 - 6,692 - 11,844 145

IPCA Portfolio 92,907 - 208,390 - 301,297 -

Eurobonds 50,096 14,531 181,060 - 245,687 (103,322)

Marketable securities – Available for sale– Note 7(a-I) 11,325 (1,185) 6,905 - 17,045 (17,907)

Other credit risk instruments – Note 8(b) 38,771 15,716 174,155 - 228,642 (85,415)

Funding 16,073 (1,010) (82,377) - (67,314) 43,149

Liabilities for marketable securities abroad – Note 9(b) 3,175 (585) (62,621) - (60,031) 18,673

Structured funding – Structured CD – Note 9(c) 12,898 (425) (19,756) - (7,283) 24,476

Subordinated debt– Note 9(e) 55,659 735 (64,080) - (7,686) 82,192

Total at 09.30.2019 372,812 13,551 117,834 (4,319) 499,878 169,560

Total t 09.30.2018 384,135 26,358 (194,034) (46,899) 169,560

Trading securities and Obligations related to unrestricted securities 113,575 (131) (80,510) - 32,934

Available-for-sale securities (1) – Note 7(a-I) and 18(d-I) 48,865 - - (46,899) 1,966

Derivative financial instruments (Assets/Liabilities) (15,578) 13,554 101,391 - 99,367

Fair Value hedge – Note 7(e) 237,273 12,935 (214,915) - 35,293


e) Hedge of financial assets and liabilities

The aim of the accounting hedge 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.

Strategy – Market Risk Hedge

Fair Value MTM being hedged – Note

7(d) Hedge derivative instrument

Notional amount

09.30.2019 09.30.2018 09.30.2019 09.30.2018 09.30.2019 09.30.2018

Fixed Portfolio 34,921,335 27,923,659 141,246 13,129 Futures DI1 (39,998,360) (24,167,204)

Assets - Credit operations – Note 8(a-I) 42,194,960 33,261,895 621,081 606

Liabilities – Funding (7,273,625) (5,338,236) (479,835) 12,523

Deposits – Note 9(a) (200,210) (174,410) (1,823) (144) Funds from acceptance and issue of securities – Funds from financial

bills, bills of credit and similar notes – Note 9(b) (4,998,771) (4,046,113) (327,663) 9,819

Structured funding - Certificate of structured operations – Note 9(c) (1,472,523) (853,918) (24,652) 29

Subordinated debt – Note 9(e-I) (602,121) (263,795) (125,697) 2,819

Repurchase agreements - fixed rate 16,278,248 8,052,019 11,844 145 Futures DI1 (19,754,268) (5,585,109)

Investments in repurchase agreements 16,278,839 12,850,208 11,905 141

Open market funding (591) (4,798,189) (61) 4

IPCA Portfolio (1) 2,195,799 - 301,297 - Futures DAP +

Swap, Net (2,615,337)

Assets – Other credit risk instruments– Note 8(b) 5,140,147 - 566,643 -

Liabilities – Funding (2,944,348) - (265,346) -

Funds from acceptance and issue of securities – Note 9(b) (1,433,687) - (90,797) -

Subordinated debt – Note 9(e-I) (1,510,661) - (174,549) -

Eurobonds 7,283,353 6,223,607 245,687 (103,322) Swap Libor x Fixed (6,320,058) (6,751,269)

Marketable securities – Available for sale – Note 7(a-I) 2,655,272 1,891,834 17,045 (17,907)

Brazilian government - Abroad 1,834,071 - 7,087 -

Securities issued by Financial Institutions 821,201 1,891,834 9,958 (17,907)

Other credit risk instruments – Note 8(b) 4,628,081 4,331,773 228,642 (85,415)

Funding (3,034,841) (3,778,364) (67,314) 43,149 Swap Libor x Fixed 3,254,932 4,168,928

Liabilities for marketable securities abroad – Note 9(b) (2,125,884) (2,049,105) (60,031) 18,673 2,471,385 2,283,379

US$ 500,000 – 02.08.2018 (1,767,606) (1,695,549) (60,331) 19,490 2,122,057 1,935,160

CHF 100,000 – 12.12.2014 (358,278) (353,556) 300 (817) 349,328 348,219

Structured funding - Structured CD – Note 9(c) (908,957) (1,729,259) (7,283) 24,476 783,547 1,885,549

Subordinated debt – Note 9(e-I) (3,323,816) (3,219,494) (7,686) 82,192 Swap Libor x Fixed 3,401,482 3,219,678

US$ 500,000 – 01.27.2011 (2,051,310) (2,021,847) 8,453 72,378 2,134,116 2,027,412

US$ 300,000 – 06.06.2014 (1,272,506) (1,197,647) (16,139) 9,814 1,267,366 1,192,266

Total 54,320,078 35,201,427 625,074 35,293 (62,031,609) (29,114,976) (1)As at December 31, 2018, Banco Safra designated derivative financial instruments indexed to the Broad National Consumer Price Index (IPCA)for hedging purposes. This strategy is aimed at economically

hedging the fair value of assets and liabilities from the risk of fluctuation of such index. Accordingly, the hedged assets and liabilities, which used to be recognized at amortized cost, are recognized at fair value in income. As at September 30, 2019, the hedging derivative instruments are stated net of the hedged items recognized at fair value in income – Government securities – NTN-B in the amount of R$ 773,878 – Note 7(a-I) and R$ (1,456,908) – Note 10(b).

The effectiveness of accounting hedges designated by Safra is in accordance with the provisions of BACEN Circular 3,082/2002.


8. CREDIT PORTFOLIO

a) Expanded credit portfolio and allowance for credit risk

I - Breakdown

09.30.2019 09.30.2018

Amortized cost

Fair Value Adjustment – Note 7(e)

Amortized cost and

Fair Value

Allowance for credit risk

Amortized cost

Fair Value Adjustment – Note 7(e)

Amortized cost and

Fair Value

Allowance for credit risk

Minimum Required Additional Total

Minimum Required Additional Total

Expanded credit portfolio 107,774,202 1,416,367 109,190,569 (1,924,726) (1,194,544) (3,119,270) 103,886,058 (84,743) 103,801,315 (1,722,846) (1,357,224) (3,080,070)

Credit portfolio – Note 8(b) 90,400,735 1,416,366 91,817,101 (1,790,528) (1,022,126) (2,812,654) 83,022,485 (84,743) 82,937,742 (1,531,169) (1,357,224) (2,888,393)

Credit operations 75,563,209 606,802 76,170,011 (1,789,217) (907,706) (2,696,923) 69,421,036 606 69,421,642 (1,519,209) (1,223,707) (2,742,916) Other credit risk instruments – Note 7(a-III) 14,837,526 809,564 15,647,090 (1,311) (114,420) (115,731) 13,601,449 (85,349) 13,516,100 (11,960) (133,517) (145,477)

Guarantees and sureties – Notes 8(f) and 12 17,373,468 - 17,373,468 (134,198) (172,418) (306,616) 20,863,573 - 20,863,573 (191,677) - (191,677)

II - Changes in allowance for credit risk

Total allowance at 01.01.2019

Foreign exchange gains or

losses abroad

(Increase) /Reversal

Write-down of

loss


Minimum allowance required

(1,622,267) (1,189) (739,217) 437,947 (1,924,726)

Credit portfolio (1,470,278) (1,189) (757,008) 437,947 (1,790,528)

Credit operations

(1,458,623) (1,189) (756,876) 427,471 (1,789,217)

Operations with Companies (966,748) (1,189) (200,604) 182,555 (985,986)

Consumer loan and finance operations (491,875) - (556,272) 244,916 (803,231)

Other credit risk instruments

(11,655) - (132) 10,476 (1,311)

Guarantees and sureties – Note 8(f)

(151,989) - 17,791 - (134,198)

Additional allowance

(1,357,590) - 163,046 - (1,194,544)

Total allowance of the expanded credit portfolio at 09.30.2019 – Note 8(a-I)

(2,979,857) (1,189) (576,171) 437,947 (3,119,270)

Total allowance of the expanded credit portfolio at 09.30.2018 – Note 8(a-I)

(3,191,923) (2,204) (711,309) 825,366 (3,080,070)

Minimum allowance required

(1,996,187) (2,204) (549,821) 825,366 (1,722,846)

Credit operations (1,500,257) (3,157) (501,724) 485,929 (1,519,209)

Other credit risk instruments (353,223) 953 873 339,437 (11,960)

Guarantees and sureties (142,707) - (48,970) - (191,677)

Additional allowance

(1,195,736) - (161,488) - (1,357,224)


b) Credit portfolio and allowance by risk level

Risk levels 09.30.2019 09.30.2018

AA A B C D E F G H Total Total

Credit operations 44,905,331 21,664,198 5,159,613 1,850,398 424,859 915,853 128,871 112,344 1,008,544 76,170,011 69,421,642

Operations with companies 42,561,546 3,016,685 3,377,634 1,054,251 288,363 71,849 51,174 57,070 736,282 51,214,854 49,595,320

Borrowings, Financing and Discounted receivables 20,069,686 1,888,183 2,378,250 832,885 254,249 61,818 43,319 52,507 637,292 26,218,189 23,694,169

Foreign trade 17,114,793 634,561 744,516 187,652 27,214 9,635 - 238 16,652 18,735,261 18,953,413

Directed Credit 1,705,872 221,118 147,904 14,525 1,514 - - 4,208 32,891 2,128,032 2,478,715

Rural and agroindustrial financing 1,511,705 171,226 109,062 14,092 - - - - - 1,806,085 2,121,502

Real estate 194,167 49,892 38,842 433 1,514 - - 4,208 32,891 321,947 357,213

Onlending 2,831,815 219,570 67,953 7,097 4,985 - 100 - 13,160 3,144,680 3,586,925

Lease 839,380 53,253 39,011 12,092 401 396 7,755 117 1,455 953,860 860,511

Other credits - - - - - - - - 34,832 34,832 21,587

Consumer loan and finance operations 2,343,785 18,647,513 1,781,979 796,147 136,496 844,004 77,697 55,274 272,262 24,955,157 19,826,322

Payroll advance loan 187,104 8,302,388 194,497 32,596 21,972 29,575 20,109 16,325 109,096 8,913,662 8,854,277

Direct consumer credit 1,101,077 10,300,579 1,526,159 744,838 110,158 73,101 51,434 37,912 149,794 14,095,052 9,256,423

Personal credit 1,055,604 44,546 61,323 18,713 4,366 741,328 6,154 1,037 13,372 1,946,443 1,715,622

Other credit risk instruments – Note 7(a-III) 15,527,168 11,147 108,775 - - - - - - 15,647,090 13,516,100

Debentures 7,384,659 - 55,533 - - - - - - 7,440,192 7,342,398

Eurobonds 4,589,241 - 38,840 - - - - - - 4,628,081 4,331,773

Promissory Notes 1,705,087 - - - - - - - - 1,705,087 1,015,243 Certificate of agribusiness receivables, rural certificate and other 1,848,181 11,147 14,402 - - - - - - 1,873,730 826,686

Total portfolio at 09.30.2019 60,432,499 21,675,345 5,268,388 1,850,398 424,859 915,853 128,871 112,344 1,008,544 91,817,101 82,937,742

Past due (1) - - 334,371 285,884 127,469 146,070 70,228 52,874 505,643 1,522,539 1,131,100

Not past due(2) 60,432,499 21,675,345 4,934,017 1,564,514 297,390 769,783 58,643 59,470 502,901 90,294,562 81,806,642

Minimum allowance required (2,986) (112,278) (75,476) (81,873) (47,300) (313,697) (69,687) (78,687) (1,008,544) (1,790,528)

Additional allowance (236,427) (112,364) (107,481) (98,734) (78,979) (313,079) (41,415) (33,647) - (1,022,126) Total allowance of the credit portfolio at 09.30.2019 (239,413) (224,642) (182,957) (180,607) (126,279) (626,776) (111,102) (112,334) (1,008,544) (2,812,654)

Total portfolio at 09.30.2018 58,925,601 17,284,259 3,491,769 1,134,363 791,700 71,999 52,470 48,797 1,136,784 82,937,742

Past due (1) - - 392,204 164,978 74,917 44,737 32,494 32,966 388,804 1,131,100

Not past due(2) 58,925,601 17,284,259 3,099,565 969,385 716,783 27,262 19,976 15,831 747,980 81,806,642

Minimum allowance required (4,391) (87,326) (51,438) (47,252) (116,908) (23,058) (26,786) (37,226) (1,136,784) (1,531,169)

Additional allowance (303,107) (82,935) (51,921) (234,796) (626,166) (31,158) (15,578) (11,563) - (1,357,224) Total allowance of the credit portfolio at 09.30.2018 (307,498) (170,261) (103,359) (282,048) (743,074) (54,216) (42,364) (48,789) (1,136,784) (2,888,393)

(1) Past Due – transactions that have installments more than 14 days past due. (2) Not past due – transactions not in arrears and/or installments no more than 14 days past due.


c) Allowance for credit risk in the period

I - Breakdown of the portfolio and the minimum allowance for loan losses required

09.30.2019

Credit portfolio Minimum allowance required

Past due Not past due Total Past due Not past due Total

Credit operations 1,522,539 74,647,472 76,170,011 (648,032) (1,141,185) (1,789,217) Operations with companies 373,692 50,841,162 51,214,854 (289,762) (696,224) (985,986)

Borrowings, Financing and Discounted receivables 317,516 25,900,673 26,218,189 (251,714) (589,382) (841,096) Foreign trade 21,635 18,713,626 18,735,261 (8,160) (38,154) (46,314) Directed credit 2,787 2,125,245 2,128,032 (1,556) (38,912) (40,468)

Rural and agroindustrial - 1,806,085 1,806,085 - (3,538) (3,538) Real estate 2,787 319,160 321,947 (1,556) (35,374) (36,930)

Onlending 114 3,144,566 3,144,680 (64) (16,283) (16,347) Lease 4,651 949,209 953,860 (1,279) (5,650) (6,929) Direct consumer credit 26,989 7,843 34,832 (26,989) (7,843) (34,832)

Consumer loan and finance operations 1,148,847 23,806,310 24,955,157 (358,270) (444,961) (803,231) Payroll advance loan 300,511 8,613,151 8,913,662 (119,163) (67,451) (186,614) Direct consumer credit 822,234 13,272,818 14,095,052 (226,881) (110,792) (337,673) Personal credit 26,102 1,920,341 1,946,443 (12,226) (266,718) (278,944)

Other credit risk instruments – Note 7(a-III) - 15,647,090 15,647,090 - (1,311) (1,311) Debentures - 7,440,192 7,440,192 - (707) (707) Eurobonds - 4,628,081 4,628,081 - (388) (388) Promissory Notes - 1,705,087 1,705,087 - - - Certificate of agribusiness receivables, rural certificate and other - 1,873,730 1,873,730 - (216) (216)

Total at 09.30.2019 1,522,539 90,294,562 91,817,101 (648,032) (1,142,496) (1,790,528)

Total at 09.30.2018 1,131,100 81,806,642 82,937,742 (459,312) (1,071,857) (1,531,169)

II - Changes in the minimum allowance required for credit portfolio


Foreign exchange

gains or losses abroad

(Increase)/ Reversal

Write-down of Loss


Credit operations (1,458,623) (1,189) (756,876) 427,471 (1,789,217)

Operations with companies (966,748) (1,189) (200,604) 182,555 (985,986)

Borrowings, Financing and Discounted receivables (786,893) - (206,252) 152,049 (841,096)

Foreign trade (70,329) (1,189) 17,568 7,636 (46,314)

Directed credit (53,387) - 11,350 1,569 (40,468)

Rural and agroindustrial (6,368) - 1,878 952 (3,538)

Real estate (47,019) - 9,472 617 (36,930)

Onlending (25,841) - 5,716 3,778 (16,347)

Lease (10,743) - (1,035) 4,849 (6,929)

Other credits (19,555) - (27,951) 12,674 (34,832)

Consumer loan and finance operations (491,875) - (556,272) 244,916 (803,231)

Payroll advance loan (147,042) - (166,321) 126,749 (186,614)

Direct consumer credit (224,414) - (221,656) 108,397 (337,673)

Personal credit (120,419) - (168,295) 9,770 (278,944)

Other credit risk instruments (11,655) - (132) 10,476 (1,311)

Total minimum allowance required at 09.30.2019 – Note 8(c-I) (1,470,278) (1,189) (757,008) 437,947 (1,790,528)

Total minimum allowance required at 09.30.2018 – Note 8(c-I) (1,853,480) (2,204) (500,851) 825,366 (1,531,169)


d) Renegotiated transactions and credit recoveries

Portfolio Allowance %

Past due 96,811 (96,509) 99.7

Past due transactions:

From 15 to 30 days 30,783 (30,600) 99.4

From 31 to 60 days 44,799 (44,719) 99.8

From 61 to 90 days 16,405 (16,392) 99.9

From 91 to 180 days 4,642 (4,616) 99.4

From 181 to 365 days 182 (182) 100.0

Not past due 323,864 (316,187) 97.6

Past due – up to 14 days past 1,669 (1,664) 99.7

Falling due:

From 01 to 90 days 42,609 (40,806) 95.8

From 91 to 365 days 82,391 (78,600) 95.4

Over 365 days 197,195 (195,117) 98.9

Total at 09.30.2019 420,675 (412,696) 98.1

Total at 09.30.2018 534,000 (522,394) 97.8

The credit recoveries for the period amounted to R$146,500 (R$ 602,212 in 2018).

e) Breakdown of the credit portfolio by maturity of credit operations

09.30.2019 09.30.2018

PAST DUE 1,522,539 1,131,100

Past due transactions:

From 15 to 30 days 442,581 463,313

From 31 to 60 days 351,717 214,688

From 61 to 90 days 162,291 146,751

From 91 to 180 days 374,094 178,889

From 181 to 365 days 191,856 127,459

NOT PAST DUE 90,294,562 81,806,642

Past due – Up to 14 days past due 222,415 105,536

Falling due:

From 01 to 30 days 8,424,606 9,002,769

From 31 to 60 days 7,492,498 5,765,431

From 61 to 90 days 4,950,868 4,840,770

From 91 to 180 days 10,450,623 10,672,113

From 181 to 365 days 13,069,000 11,405,720

From 1 to 2 years 15,268,856 12,000,582

From 2 to 3 years 8,824,264 8,879,778

From 3 to 5 years 10,433,737 8,698,420

Over 5 years 11,157,695 10,435,523

TOTAL 91,817,101 82,937,742

The balance of transactions more than 60 days past due, non-accrued, amounts to R$ 728,241(R$ 453,099 as at 09.30.2018) and more than 90 days past due amounts to R$ 565,950 (R$ 306,348 as at 09.30.2018).

f) Credit commitments (off balance)

Off balance amounts related to financial guarantee contracts are as follows:

09.30.2019 09.30.2018

Guarantees, sureties and other guarantees provided (1) 17,373,468 20,863,573

AA 16,885,348 19,586,992

A 260,085 45,128

B 84,004 878,976

C 11,128 165,646

D 1,000 11,223

F 4,705 2,316

H 127,198 173,292

Granted limits (2) 15,733,039 13,921,315

Total 33,106,507 34,784,888

Contractual term:

Up to 90 days 13,172,138 10,797,975

From 91 to 365 days 8,127,478 10,617,259

From 1 to 2 years 5,315,266 4,209,159

From 2 to 3 years 1,725,425 2,439,283

From 3 to 5 years 2,120,858 2,990,995

Over 5 years 2,645,342 3,730,217 (1) Guarantees, sureties and other guarantees provided generate an income of R$ 204,717 (R$ 258,853 in 2018) – Note

13(a).(2) Basically refer to credit limits granted but not used, characterized by the option for cancellation by Safra, the average term being 90 days.


9. FUNDING, BORROWINGS AND ONLENDING, SUBORDINATED DEBT, AND MANAGED ASSETS

I - Breakdown

09.30.2019

Amount by counterparty

Amount by pricing

Customer funds

Market funds

Total

At Amortized Cost

Fair Value – Note 7(e)

Total

Funding 90,918,945 8,312,257 99,231,202 88,086,933 11,144,269 99,231,202

Open market deposits and funding – Corporate securities (a) 41,983,466 2,118,263 44,101,729 43,900,928 200,801 44,101,729

Funds from acceptance and issue of securities (b) 45,286,352 4,069,344 49,355,696 40,793,708 8,561,988 49,355,696

Structured funding – Note 7(c-II(1)) (c) 3,649,127 2,124,650 5,773,777 3,392,297 2,381,480 5,773,777

Borrowings and onlending (d) - 17,563,998 17,563,998 17,563,998 - 17,563,998

Subordinated debt (e) 4,322,039 3,847,643 8,169,682 2,733,084 5,436,598 8,169,682

Total funding, borrowings and onlending and subordinated debt 95,240,984 29,723,898 124,964,882 108,384,015 16,580,867 124,964,882

Managed funds (f) 74,055,080 74,055,080

Consolidated private pension funds (f) (1) 17,268,709 17,268,709

Total managed fund at 09.30.2019 216,288,671 216,288,671

09.30.2018

Amount by counterparty

Amount by pricing

Customer funds

Market funds

Total

At Amortized Cost

Fair Value – Note 7(e)

Total

Funding 79,133,396 8,927,142 88,060,538 79,190,827 8,869,711 88,060,538

Open market deposits and funding – corporate securities (a) 21,624,888 1,895,241 23,520,129 23,345,719 174,410 23,520,129

Funds from acceptance and issue of securities (b) 54,341,348 3,695,731 58,037,079 51,938,695 6,098,384 58,037,079

Structured funding – Note 7(c-II(1)) (c) 3,167,160 3,336,170 6,503,330 3,906,413 2,596,917 6,503,330

Borrowings and onlending (d) - 15,030,242 15,030,242 15,030,242 - 15,030,242

Subordinated debt (e) 3,496,128 3,379,746 6,875,874 3,392,585 3,483,289 6,875,874

Total funding, borrowings and onlending and subordinated debt 82,629,524 27,337,130 109,966,654 97,613,654 12,353,000 109,966,654

Managed funds (f) 74,564,194 74,564,194

Consolidated private pension funds (f) (1) 13,715,483 13,715,483

Total managed assets at 09.30.2018 198,246,331 198,246,331 (2) Recorded in liabilities with insurance and private pension operations – Note 11(b).


II - Funding, borrowings and onlending, and subordinated debt by maturity

09.30.2019 09.30.2018

Amounts by maturity

Up to 90

days

From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5 years

Over 5 years

Total Total

Funding 29,185,161 35,773,825 13,379,800 12,032,160 8,087,477 772,779 99,231,202 88,060,538

Open market deposits and funding – Corporate securities (a) 22,413,471 19,691,084 1,117,248 847,718 29,766 2,442 44,101,729 23,520,129

Funds from acceptance and issue of securities (b) 6,296,646 14,462,073 10,933,524 10,265,267 6,689,707 708,479 49,355,696 58,037,079

Structured funding – Note 7(c-II(1)) (c) 475,044 1,620,668 1,329,028 919,175 1,368,004 61,858 5,773,777 6,503,330

Borrowings and onlending (d) 835,175 14,321,246 814,111 558,245 620,770 414,451 17,563,998 15,030,242

Subordinated debt (e) 105,464 105,841 2,609,202 233,828 988,118 4,127,229 8,169,682 6,875,874

Total funding, borrowings and onlending, and subordinated debt at 09.30.2019

30,125,800 50,200,912 16,803,113 12,824,233 9,696,365 5,314,459 124,964,882 109,966,654

Total funding, borrowings and onlending, and subordinated debt at 09.30.2018

27,276,775

44,357,861

17,020,990

10,019,038

7,746,213

3,545,777

109,966,654

a) Open market deposits and funding– Corporate securities

09.30.2019 09.30.2018

Amounts by maturity

Up to 90 days

From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5

years

Over 5 years Total

Total

Deposits

18,495,111 18,911,307 1,116,579 847,718 29,766 2,442 39,402,923 19,226,874

Demand deposits

1,519,874 - - - - - 1,519,874 745,607

Savings deposits

2,290,151 - - - - - 2,290,151 2,102,914

Interbank deposits (1)

207,352 321,803 4,556 - - - 533,711 899,393

Time deposits

14,477,734 18,589,504 1,112,023 847,718 29,766 2,442 35,059,187 15,478,960

Open market funding – Corporate securities – Debentures

3,918,360 779,777 669 - - - 4,698,806 4,293,255

Own portfolio

3,918,098 778,893 - - - - 4,696,991 3,836,405

Own securities

262 884 669 - - - 1,815 456,850

Total at 09.30.2019 22,413,471 19,691,084 1,117,248 847,718 29,766 2,442 44,101,729 23,520,129

Total at 09.30.2018 14,487,229 8,181,653 746,487 92,011 12,320 429 23,520,129 (1) Of this amount, R$ 255,837 (R$ 452,859 as at 09.30.2018) refers to operations linked to rural credit.


b) Funds from acceptance and issue of securities I- Breakdown

09.30.2019 09.30.2018

Amounts by maturity


From 1 to 2 years

From 2 to 3 years

From 3 to 5 years Over 5 years Total Total

Funds from financial bills, credit bills and similar notes 5,938,368 14,462,073 10,933,524 10,265,267 4,922,101 708,479 47,229,812 55,987,974

Financial bills 2,172,106 6,961,863 7,874,324 8,329,824 3,013,398 191,327 28,542,842 25,244,531

Commercial leasing bills 2,725,103 5,142,284 1,292,276 213,011 32,526 6,784 9,411,984 22,124,461

Agribusiness credit notes 921,727 2,057,193 1,609,792 1,555,282 1,776,256 510,368 8,430,618 7,494,884

Mortgage bills 10,906 146,003 35,055 - - - 191,964 291,685

House loan bills 108,526 154,730 122,077 167,150 99,921 - 652,404 831,547

Debentures - - - - - - - 866

Liabilities for marketable securities abroad 358,278 - - - 1,767,606 - 2,125,884 2,049,105

US$ 500,000 – 02.08.2018 – Fixed (4.12% p.a.) – Hedge – Note 7(e) (1) - - - - 1,767,606 - 1,767,606 1,695,549

CHF 100,000 – 12.12.2014 – Fixed (1.5% p.a.) – Hedge – Note 7(e) (1) 358,278 - - - - - 358,278 353,556

Total at 09.30.2019 6,296,646 14,462,073 10,933,524 10,265,267 6,689,707 708,479 49,355,696 58,037,079

Total at 09.30.2018 9,164,444 23,250,131 13,697,677 6,259,744 5,247,816 417,267 58,037,079 (1) Includes incurred transaction costs of R$ (4,058) (R$ (5,854) as at 09.30.2018) – Note 3(k).

II - Changes

01.01. to 09.30.2019 01.01. to 09.30.2018

Funds from financial bills, bills of credit and similar notes

Liabilities for marketable

securities abroad Total

Funds from financial bills, bills of credit and similar notes

Liabilities for marketable

securities abroad Total

Opening balance 58,330,482 2,036,927 60,367,409 39,475,119 356,253 39,831,372 Foreign exchange gains or losses abroad - 137,109 137,109 - 320,633 320,633 Funding 41,541,215 84,187 41,625,402 61,715,177 1,677,923 63,393,100 Redemptions (55,559,895) (223,998) (55,783,893) (47,499,723) (332,149) (47,831,872) Interest paid (20,079) (33,663) (53,742) (164) (1,253) (1,417) Appropriation to income 2,938,089 125,322 3,063,411 2,297,565 27,698 2,325,263 Interest – Note 13(b) 2,730,195 62,701 2,792,896 2,365,251 45,967 2,411,218 Change in Fair Value adjustment – Note 7(d) 207,894 62,621 270,515 (67,686) (18,269) (85,955) Closing balance 47,229,812 2,125,884 49,355,696 55,987,974 2,049,105 58,037,079

c) Structured funding

09.30.2019 09.30.2018

Amounts by maturity

Up to 90 days From 91 to 365 days From 1 to 2 years From 2 to 3 years From 3 to 5 years Over 5 years Total Total

Fixed income (1) 3,305 39,620 3,692 - - - 46,617 367,040

Certificate of structured operations 61,374 1,108,869 1,145,435 478,886 790,422 17,524 3,602,510 2,800,120

Structured CD 410,365 472,179 179,901 440,289 577,582 44,334 2,124,650 3,336,170

Hedge – Note 7(e) 70,128 297,744 62,724 214,972 225,392 37,997 908,957 1,729,259

Others 340,237 174,435 117,177 225,317 352,190 6,337 1,215,693 1,606,911

Total at 09.30.2019 475,044 1,620,668 1,329,028 919,175 1,368,004 61,858 5,773,777 6,503,330

Total at 09.30.2018 1,478,203 1,867,159 1,382,110 560,367 1,183,964 31,527 6,503,330 (1) Transactions made with derivative financial instruments – Options.


d) Borrowings and onlending

09.30.2019 09.30.2018

Amounts by maturity

Up to 90 days From 91 to 365 days From 1 to 2 years From 2 to 3 years From 3 to 5 years Over 5 years Total Total

Foreign borrowings (1) 468,862 13,565,901 104,110 - - - 14,138,873 11,126,446

Domestic onlending 359,958 755,345 710,001 558,245 620,770 414,451 3,418,770 3,874,014

National Treasury 86,187 211,037 21,483 - - - 318,707 312,770

BNDES 140,253 274,477 360,122 301,493 341,996 248,139 1,666,480 1,812,119

FINAME 133,518 269,831 328,396 256,752 278,774 166,312 1,433,583 1,749,125

Others borrowings 6,355 - - - - - 6,355 29,782

Total at 09.30.2019 835,175 14,321,246 814,111 558,245 620,770 414,451 17,563,998 15,030,242

Total at 09.30.2018 2,140,594 10,298,268 1,027,680 602,181 720,992 240,527 15,030,242 (1) Credit facilities for financing imports and exports.

e) Subordinated debt

I. Breakdown of balance by security and rate

Securities/Rates 09.30.2019 09.30.2018

Financial bills – LF 4,845,866 3,656,380

- CDI (100% to 115.35%) + (interest from 0.77% p.a. a 1.62% p.a.) 2,672,774 1,928,279

- IGPM + (interest from 3.89% p.a. to 6.68% p.a.) 10,500 9,643

- IPCA + (interest from 3.64% p.a. to 8.82% p.a.) – Hedge – Note 7(e) 1,510,661 1,408,056

- Fixed (7.77% p.a. to 17.66% p.a.) – Hedge – Note 7(e) 602,121 263,795

- Selic (109% to 110.5%) 49,810 46,607

“Medium term notes – Hedge – Note 7(e) 3,323,816 3,219,494

- US$ 500,000– 01.27.2016 – 6.75% p.a. 2,051,310 2,021,847

- US$ 300,000– 09.03.2016 – 7.52% p.a. – Perpetual – Note 20(b) 1,272,506 1,197,647

Total (1) 8,169,682 6,875,874 (1) Transactions with half-yearly and quarterly interest payments.

II. Breakdown of balance by characteristic and maturity

09.30.2019 09.30.2018

Approved at BACEN In process of approval at BACEN (1)

Total

Total

Securities Without termination clause With termination clause

2019 12,355 86,506 7,441 106,302 837,068 2020 33,053 262,014 21,742 316,809 276,655

2021 2,051,310 436,494 - 2,487,804 2,403,413

2022 5,958 144,215 - 150,173 124,569

2023 - 590,493 - 590,493 480,641

2024 - 411,799 2,035 413,834 355,516

2025 - 1,036,381 - 1,036,381 743,137

2026 - 809,366 198,495 1,007,861 201,708

2027 - 164,433 103,761 268,194 88,970

2028 - 314,658 - 314,658 165,538

2029 - 188,368 14,130 202,498 -

2033 - 2,169 - 2,169 1,012

Perpetual - 1,272,506 - 1,272,506 1,197,647

Total at 09.30.2019 2,102,676 5,719,402 347,604 8,169,682 6,875,874

Total at 09.30.2018 2,800,208 3,630,850 444,816 6,875,874 (1) In 2019 and 2020 securities do not have termination clause and total R$ 29,183 (R$ 25,730 as at 09.30.2018).


III. Changes

01.01. to 09.30.2019 01.01. to 09.30.2018

Opening balance 7,314,269 5,193,120 Foreign exchange gains or losses abroad 149,302 543,377 Funding

1,028,549 1,060,505 Redemptions

(779,845) (33,792) Interest paid (194,341) (179,710) Appropriation to income 651,748 292,374 Interest – Note 12(c) 409,035 323,663 Change in Fair Value adjustment – Hedge – Note 7(e) 242,713 (31,289) Closing balance 8,169,682 6,875,874

f) Managed funds

Safra Group, together with related party companies, is responsible for administering, managing and distributing investment fund quotas, as follows:

09.30.2019 09.30.2018

Managed funds and Consolidated private pension funds 91,323,789 88,279,677

Managed funds (1) 74,055,080 74,564,194

Consolidated private pension funds – Note 11(b) 17,268,709 13,715,483

Funds of investment in quotas 119,018,258 100,485,769

Consolidated exclusive funds 8,713,476 8,149,635

Total net assets of funds 219,055,523 196,915,081

Managed portfolio 2,868,847 1,305,932

Total Managed Funds 221,924,370 198,221,013 (1) Includes quotaholders with related parties in the amount of R$ 4,480,087(R$ 3,867,516 as at 09.30.2018).

The revenue from fund management, administration and distribution of such fund quotas, recorded in the heading “Revenue from service, bank fees and foreign exchange transactions”, totals R$ 724,495 (R$ 852,182 in 2018) – Note 13(d). In 2018, the revenue totals R$ 925,636 income from related parties is included in the amount of R$ 73,454 – Note 20(b).


10. OPEN MARKET INVESTMENT AND FUNDING – GOVERNMENT SECURITIES

a) Investments linked to open market operations - Government securities (Assets)

09.30.2019 09.30.2018

Amounts by maturity

Up to 90 days

From 91 to 365 days

From 1 to 2 years

From 2 to 3 years

From 3 to 5 years

Over 5 years Total

Total

Own portfolio – Subject to repurchase agreements – Restricted – Note 7(a-III) (1) 110,678 - - - - 2,777,143 2,887,821 7,218,663 Third-party portfolio – Open market investments – National Treasury 32,801,528 1,931,111 - - - - 34,732,639 33,051,106

Third-party portfolio 29,974,829 1,308,140 - - - - 31,282,969 26,917,453

Short position 2,826,699 622,971 - - - - 3,449,670 6,133,653

Total at 09.30.2019 32,912,206 1,931,111 - - - 2,777,143 37,620,460 40,269,769

Total at 09.30.2018 27,477,852 5,626,968 6,715,989 70,573 280,119 98,268 40,269,769 (1) Includes the Fair Value adjustment in the amount of R$ 554 (R$ (19,722) as at 09.30.2018) – Note 7(d).

b) Open market funding - Government securities (Liabilities)

09.30.2019 09.30.2018

Amounts by maturity


Total

Total

Own portfolio - Subject to repurchase agreements – Restricted 2,877,539 - 2,877,539 7,165,335

Thirty-party portfolio 34,408,103 483,292 34,891,395 33,128,886

Repurchase agreements 31,366,774 - 31,366,774 26,918,498

Obligations related to unrestricted securities (1) 3,041,329 483,292 3,524,621 6,210,388

National Treasury Bills 252,766 - 252,766 3,006,567

National Treasury Notes (2) 2,788,563 483,292 3,271,855 3,203,821

Total at 09.30.2019 37,285,642 483,292 37,768,934 40,294,221

Total at 09.30.2018 34,587,054 5,707,167 40,294,221 (1) Includes the fair value adjustment in the amount of R$ 305,984 (R$ (97,491) as at 09.30.2018) – Note 7(d).(2) Of this amount, R$ (1,456,908) comprise the IPCA portfolio hedge– Note 7(e).


11. INSURANCE, REINSURANCE AND PRIVATE PENSION OPERATIONS

a) Receivables from insurance and reinsurance operations

09.30.2019 09.30.2018

Premiums receivable amount – Note 11(a-I(2)) 76,905 47,554

Premiums receivable – Note 11(a-I(1)) 70,831 45,538

Premiums of risks in force and not issued 9,159 3,702

Credit risk (3,085) (1,686)

Operating receivables from insurance and reinsurance 1,910 5,032

Gross amount 6,702 9,627

Credit risk (4,792) (4,595)

Reinsurance assets – Technical reserves – Note 11(a-II) 37,831 35,186

Deferred acquisitions costs 1,478 198

Investments redeemable from pension funds 470 5,157

Total – Note 12 118,594 93,127

I. Premiums receivable

(1) Breakdown

09.30.2019 09.30.2018

PAST DUE (1) NOT PAST DUE (2) TOTAL TOTAL

Past due: 1,743 3,790 5,533 3,808

From 01 to 30 days 614 2,873 3,487 2,352

From 31 to 60 days 583 917 1,500 1,023

From 61 to 120 days 546 - 546 429

Over 121 days - - - 4

Falling due: 1,342 63,956 65,298 41,730

From 01 to 30 days 196 5,744 5,940 5,414

From 31 to 60 days 127 4,188 4,315 3,548

From 61 to 120 days 216 8,335 8,551 6,386

From 121 to 180 days 179 6,398 6,577 4,390

From 181 to 365 days 313 14,599 14,912 8,290

Over 365 days 311 24,692 25,003 13,702

TOTAL at 09.30.2019 3,085 67,746 70,831 45,538

TOTAL at 09.30.2018 1,686 43,852 45,538 (1) Policies with installments more than 60 days past due are fully provisioned.(2) Policies without installments past due

and/or with installments up to 60 days past due.

(2) Changes during the period

01.01. to 09.30.2019 01.01. to 09.30.2018

Opening balance 54,335 52,428

(+) Written premiums and risks in force but not issued(1) 235,478 198,186

(-) Receipts (216,816) (207,298)

(+) Change in credit risks (1,940) 602

(+) Interest on receipt of premiums 5,848 3,636

Closing balance 76,905 47,554 (1) Does not include reinsurance premium to be passed on in the amount of R$ 14,234(R$ 15,971 as at 09.30.2018).

(3) Change in credit risk

01.01. to 09.30.2019 01.01. to

09.30.2018

Premiums receivable

Insurance companies

Payables for

insurance and

reinsurance operations

(1)

SUBTOTAL

Reinsurance companies

TOTAL(2)

TOTAL

Opening balance

(1,145) (696) 285 (1,556) (4,012) (5,568) (6,095)

Increase/(Reversal)

(1,940) (160) 372 (1,728) 76 (1,652) 245

Closing balance (3,085) (856) 657 (3,284) (3,936) (7,220) (5,850) (1) Includes transfers of premiums/commissions to brokers, and insurance and reinsurance companies, and IOF on unpaid premiums. (2) Note 13(e).

II. Reinsurance assets – Technical reserves - Change

01.01. to 09.30.2019

01.01. to

09.30.2018

PPNG PSL (1) IBNR PCC (2) TOTAL TOTAL

Opening balance 21,517 4,815 2,895 6,507 35,734 38,490

Changes in technical reserves (1,462) 1,026 (552) 3,661 2,673 276

Recovery - (644) - - (644) (3,730)

Inflation adjustment - 68 - - 68 150

Closing balance 20,055 5,265 2,343 10,168 37,831 35,186 (1) Includes 10 (21 as at 09.30.2018) legal claims of R$ 2,696(R$ 2,655 as at 09.30.2018). (2) Note 11(d-I).


b) Funds guaranteeing technical reserves for insurance and private pension operations

09.30.2019 09.30.2018

Marketable securities – Notes 3(d) and 7(b) 17,668,384 14,082,471

Quotas of funds PGBL/VGBL – Note 9(f) 17,268,709 13,715,483

Repurchase agreements 2,095 54,169

Marketable securities 17,279,079 13,663,405

Other (12,465) (2,091)

Other securities 399,675 366,988

Quotas of funds – Linked to Technical Reserve 210,952 198,975

Quotas of investments funds – DPVAT agreement 188,723 168,013

Receivables from reinsurance operations – Note 11(a-II) (1) 17,776 13,723

Credit rights – Insurance premium receivable 11,151 9,409

Total – Note 11(c-I(2)) 17,697,311 14,105,603 (1) The amount shown net of Unearned Premium Reserve of R$ (20,055) (R$ (21,463) as at 09.30.2018), was not offered as asset to

reduce technical reserves.

c) Insurance and private pension operations (liabilities)

The insurance and private pension operations are as follows:

09.30.2019 09.30.2018

Technical reserves – Note 11(c-I(1)) 17,681,287 14,073,143

Private pension 17,299,349 13,741,707

Insurance 192,878 163,554

DPVAT agreement (1) 189,060 167,882

Payables for insurance and reinsurance operations 14,442 11,448

Commissions and other insurance liabilities 5,843 8,915

Credit risk (621) (371)

Total 17,700,951 14,093,135 (1) Comprised by outstanding claims reserve in the amount of R$ 18,933 (R$ 21,493 as at 09.30.2018), IBNR in the amount of R$ 167,297

(R$ 145,466 as at 09.30.2018) and unearned premium reserve in the amount of R$ 2,830 (R$ 923 in 09.30.2018).

I.Technical reserves

(1) (1) Breakdown

INSURANCE PRIVATE PENSION TOTAL

09.30.2019 09.30.2018 09.30.2019 09.30.2018 09.30.2019 09.30.2018

PMBAC and PMBC - - 17,268,540 13,715,886 17,268,540 13,715,886

PPNG 139,898 122,466 - - 139,898 122,466

PSL 13,672 15,955 - - 13,672 15,955

DPVAT agreement 189,060 167,882 - - 189,060 167,882

IBNR 4,562 4,607 - - 4,562 4,607 Other technical reserves – Note 11(d-I) 34,746

20,526 27,216

20,955 61,962

41,481

PCC 34,746 20,526 7,218 2,824 41,964 23,350

PDR - - 19,998 18,131 19,998 18,131

Redemptions to be regularized - - 3,593 4,866 3,593 4,866

Total 381,938 331,436 17,299,349 13,741,707 17,681,287 14,073,143

(2) (2) Coverage

09.30.2019 09.30.2018

Funds guaranteeing technical reserves for insurance and private pension operations – Note 11(b) 17,697,311

14,105,603

Technical reserves – Note 11(c-I(1)) (17,681,287) (14,073,143)

Coverage surplus 16,024 32,460

(3) Changes in the mathematical reserve for private pensions

01.01. to 09.30.2019 01.01. to 09.30.2018

Opening balance 14,561,873 11,930,334

Contributions 926,714 705,941

Net portability transfers 1,571,498 1,284,889

Redemption payments (731,002) (625,023)

Benefits paid (761) (432)

Financial adjustment – Note 11(e) 962,619 438,681

Increase/(reversal) of technical reserves – Note 11(d-II) 5,123 3,072

PCC 4,394 2,659

PDR 729 413

Reserves for redemptions to be regularized 3,285 4,245

Closing balance 17,299,349 13,741,707


(4) Change in the mathematical reserve for insurance

01.01. a09.30.2019

CLAIMS

PPNG

PSL, IBNR

and PDR

PSL and PDR

judicial SUB

TOTAL

PCC – Note

11(d-II) TOTAL

Opening balance 128,191 6,400 16,044 22,444 20,249 170,884

Incurred claims - 3,644 (34) 3,610 - 3,610

Change in technical reserves 11,707 - (244) (244) 14,497 25,960

Paid claims - (2,396) (6,058) (8,454) - (8,454)

Financial adjustment – Note 11(e) - (312) 1,760 1,448 - 1,448

Other - (745) 175 (570) - (570)

Closing balance 139,898 6,591 11,643 18,234 34,746 192,878

d) Supplementary Coverage Reserve (PCC) and Liability Adequacy Test (LAT) – Note 3(l-III(c))

I – Breakdown

09.30.2019 09.30.2018

Assets – Reinsurance assets – Note 11(a-II) 10,168 6,507

Liabilities (61,962) (41,481)

Technical reserves – Insurance – Personal – Note 11(c-I(1)) (34,746) (20,526)

Technical reserves – Private Pension – Note 11(c-I(1)) (27,216) (20,955)

Supplementary coverage (PCC) and related expenses reserve (PDR) - Net (51,794) (34,974)

II – Effects on income

2019 2018

Reinsurance operations – Note 11(a-II) 3,661 (261)

Insurance operations – Note 11(c-I(4)) (14,253) (1,374)

Changes in insurance and private pension – Note 11(c-I(3)) (5,123) (3,072) Supplementary coverage (PCC) and related expenses reserve (PDR) – Net – Note 13(e)

(15,715) (4,707)

e) Insurance and private pension operations

2019 2018

Income from financial intermediation 13,290 11,905

Finance income from insurance and private pension operations – Note 13(a) 977,928 452,581

Finance expenses from insurance and private pension operations– Note 13(b) (1) (964,638) (440,676)

Income from insurance, reinsurance and private pension operations – Note 13(e) 195,448 190,413

Income from private pension fund management services – Note 9(f) 114,400 96,509

Total 323,138 298,827 (1) Substantially represented by technical reserve for private pension – Note 11(c-I(3)).


12. OTHER FINANCIAL ASSETS AND LIABILITIES

09.30.2019 09.30.2018

ASSETS LIABILITIES ASSETS

LIABILITIES

Foreign exchange portfolio – Note 12(a) 1,100,536 1,107,629 2,977,711 3,037,136

Collection of taxes and similar - 2,193,393 - 2,987,624

Negotiation and intermediation of securities – Note 12(b) 697,908 606,789 519,547 909,378

Interbank and interdepartmental transactions 609,907 1,194,777 182,616 673,062

Amounts receivable/(payable) – Acquirer 2,761,806 2,773,399 1,468,427 1,528,836

Others 191,430 467,751 141,487 479,980

Provision for guarantees and sureties – Notes 8(a-I and II) and 8(f) - 134,198 - 191,677

Receivables from insurance and reinsurance operations – Note 11(a) 118,594 - 93,127 -

Credit card administration obligations - 252,006 - 213,489

Other 72,836 81,547 48,360 74,814

Total 5,361,587 8,343,738 5,289,788 9,616,016

a) Foreign exchange portfolio

09.30.2019 09.30.2018

ASSETS LIABILITIES ASSETS

LIABILITIES

Foreign Exchange purchases pending settlement (M.E.) and Payables for foreign exchange purchase (M.N.) 635,308 624,263 1,494,526 1,506,837

Foreign exchange gains or losses (1) 11,629 - (12,311) -

Interbank for ready settlement 353,309 353,309 1,435,208 1,435,208

Export with locked-in currency rate 88,584 89,168 39,828 39,828

Interdepartmental and arbitrage 177,079 177,079 29,945 29,945

Financial 4,707 4,707 1,856 1,856 Receivables for foreign exchange sales (M.N.) and Foreign Exchange sold pending settlement (M.E.) 465,228 483,366 1,483,185 1,530,299

Foreign exchange gains or losses - 14,058 - 773

Interbank for ready settlement 270,114 270,114 607 607

Financial 7,786 7,786 1,320,898 1,320,898

(-)Advances received (4,994) - (47,514) -

Import 14,125 14,125 177,999 177,999

Interdepartmental and arbitrage 177,079 177,079 29,945 29,945

Other 1,118 204 1,250 77

Total 1,100,536 1,107,629 2,977,711 3,037,136 (1) The foreign exchange gains on advance on foreign exchange contract transactions – Note 3(f) amount to R$ 74,367 (R$ 148,979 as at

09.30.2018) and was shown in the line item Credit portfolio– Credit operations – Note 8.

b) Negotiation and intermediation of securities

09.30.2019 09.30.2018

ASSETS LIABILITIES ASSETS LIABILITIES

Debtors / Creditors pending settlement 248,334 252,236 375,811 377,435

Cash from registry and settlement 140,391 154,938 138,738 109,900

Pending settlements 95,388 58,601 52,500 265,389

Financial assets and commodities pending settlement 12,555 38,697 184,573 2,146

Financial assets and commodities pending settlement 449,574 354,553 143,736 531,943

Total 697,908 606,789 519,547 909,378 (1) Refers mainly to transactions on stock exchanges recorded by Safra Corretora de Valores e Câmbio Ltda.


13. REVENUE, EXPENSES AND INCOME FROM OPERATIONS

a) Financial intermediation income

2019 2018 Expanded credit portfolio operations – Note 8(a) 7,560,559 6,284,231 Credit portfolio 7,355,842 6,025,378 Credit operations 6,488,922 5,376,594 Other credit risk instruments 866,920 648,784 Guarantees provided and guarantees and sureties 204,717 258,853 Marketable securities operations 3,134,776 3,481,450 Interbank investments – Own position 2,007,208 1,747,119 Open market investments 1,867,824 1,644,392 Interbank deposits 88,920 80,377 Investments abroad 50,464 22,350 Marketable securities – Security portfolio 1,127,568 1,734,331 Government securities 1,028,877 1,658,798 Securities issued by Financial institutions and Companies 98,691 75,533 Finance income from insurance and private pension operations – Note 11(e) 977,928 452,581 Income from compulsory deposits 359,557 220,302 Other finance income 10,701 7,226 Total interest income 12,043,521 10,445,790

b) Financial intermediation expenses

2019 2018 Transactions with funding (4,075,850) (3,446,621) Open market deposits and funding - Corporate securities (1,009,216) (757,274) Funds from acceptance and issue of securities – Note 9(b-II) (2,792,896) (2,411,218) Structured funding (225,528) (242,668) Direct Funding Expenses (48,210) (35,461) Market funding operations - Government securities (1,572,923) (2,023,348) Own portfolio (196,595) (414,324) Third-party’s portfolio (1,097,958) (805,834) Obligations related to unrestricted securities (278,370) (803,190) Borrowings and onlending (420,621) (404,710) Finance expenses from insurance and private pension operations – Note 11(e) (964,638) (440,676) Subordinated debt – Note 9(e-III) (409,035) (323,663) Other finance expenses (117,802) (86,024) Total interest expenses

(7,560,869) (6,725,042)

c) Income from derivative financial instruments

2019 2018 Foreign Exchange gains or losses on investment abroad and foreign currency transactions (166,601) (505,393) Foreign investments – Over Hedge – Note 19(c-II(2)) (169,837) (468,822) Transactions in foreign currencies 3,236 (36,571) Derivatives (Accrual) - Swap/Futures/Others – Note 3(d) (58,024) (212,584) Realized and unrealized income from financial instruments 67,262 165,988 Fair Value adjustments of marketable securities and derivative financial instruments in

income – Not Realized – Note 7(d) 117,834 (194,034) Fair Value adjustments of futures transactions (331,117) 378,488 Profit/(Loss) - Realized 280,545 (18,466) Trading and derivatives 187,399 (12,253) Available-for-sale 93,146 (6,213) Total – Note 19(c-II(2)) (157,363) (551,989)

d) Revenue from service, bank fees and foreign exchange transactions

2019 2018

Income from managed assets 875,096 1,039,812 Management and custody services of investment fund and portfolio administration– Note 9(f) 724,495 852,182 Brokerage, custody and income from security placement 150,601 187,630

Credit operations 222,551 152,617 Credit operations 277,220 205,935 Direct costs with credit operations (54,669) (53,318)

Foreign exchange transactions and services 108,462 117,143 Current account and collection services 133,089 123,670 Total 1,339,198 1,433,242

e) Insurance, reinsurance and private pension operations

2019 2018 Revenue from retained premiums, net 206,351 194,644

Premium revenue – Note 11(a-I(2)) 220,714 182,215 Change in technical reserves (14,363) 12,429

Claim revenue and expenses (3,134) (201) Acquisition costs – Note 20(b) 13,378 2,260 Credit risk – Note 11(a-I(3)) (1,652) 245 Gains and losses on supplementary reserve – Note 11(d-II) (15,715) (6,015) Other income and expenses (1) (3,780) (520) Total – Note 11(e) 195,448 190,413

(1) Includes the income net of DPVAT agreement.


14. OTHER ASSET, LIABILITY AND INCOME ACCOUNTS

a) Other assets

09.30.2019 09.30.2018

Debtors for deposits in guarantee of contingent liabilities 311,427 293,162

Tax and social security contingent liabilities and legal obligations (1) 175,562 176,306

Civil, labor – Note 15(c) 135,865 116,856

Prepaid expenses and others 56,449 52,606

Sundry 94,049 33,134

TOTAL 461,925 378,902 (1) The amounts linked to tax and social security contingent liabilities and legal obligations are disclosed in Note 15(c).

b) Other liabilities

09.30.2019 09.30.2018

Provision for payables 641,961 531,463

Social and statutory 18,057 501,734

Liability transactions to be processed 50,241 44,908

Deferred income 62,938 84,600

Sundry 35,246 30,330

TOTAL 808,443 1,193,035

c) Personnel expenses

2019 2018

Remuneration and profit sharing (1,400,013) (1,153,005)

Benefits (159,228) (117,826)

Government Severance Indemnity Fund for Employees (FGTS) (73,033) (58,762)

Pension contributions (263,244) (217,146)

Employee termination and payroll additional allowance (231,043) (166,993)

Total (2,126,561) (1,713,732)

d) Administrative expenses

2019 2018

IT and data processing equipment costs (344,214) (192,106)

Data processing and telecommunications (254,088) (142,002)

Depreciation and amortization – Note 17(b) (90,126) (50,104)

Maintenance costs (158,059) (150,347)

Facilities and Rents – Note 20(b) (141,840) (135,223)

Depreciation – Note 17(b) (16,219) (15,124)

Publicity and advertising (159,575) (27,884)

Travel (61,750) (60,267)

Third-party services (31,256) (32,337)

Surveillance, security and transport services (30,873) (34,073)

Financial system services (13,275) (11,187)

Other (32,625) (19,960)

Total (831,627) (528,161)


15. CONTINGENT ASSETS AND LIABILITIES AND LEGAL OBLIGATIONS – TAX AND SOCIAL SECURITY

a) Contingent assets: There is no contingent asset to be disclosed.

b) Provisions and contingents liabilities - These are quantified as follows:

I - Civil lawsuits: are represented mainly by indemnity claims for pecuniary damage and/or pain and suffering due to issues 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. 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 calculated on a monthly basis at 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 updated 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 case law in accordance with the evaluation of management and internal legal counsel. A provision is recognized for lawsuits classified as a probable loss.

II - Labor claims: are 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 claims are evaluated individually by likelihood of loss, and are periodically reviewed and quantified based on progress, on the evidence submitted and 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 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 proceedings: 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 the loss.

IV - Other risks: 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 were as follows:

01.01. to 09.30.2019

01.01. to 09.30.2018

Civil Labor

Tax and social security contingent liabilities and

legal obligations (3) Other Total

Total

Opening balance at 01.01.2019 449,998 451,633 578,507 143,000 1,623,138 1,307,117

Adjustment/Charges (1) 12,810 31,753 9,288 13,319 67,170 47,620

Changes in the period reflected in income (2) (63,982) 81,150 161,394 - 178,562 181,939

Increase / (Reversal) (50,118) 88,647 200,865 - 239,394 209,972

Reversal due to favorable decision (13,864) (7,497) (39,471) - (60,832) (28,033)

Payment (57,961) (107,912) (111,587) - (277,460) (210,077)

Other changes (4) - - - 788 788 119,508

Closing balance at 09.30.2019 340,865 456,624 637,602 157,107 1,592,198 1,446,107

Closing balance at 09.30.2018 441,620 445,623 1,126,183 130,934 2,144,360

Guarantee deposits of appeals (5) 57,757 78,108 148,470 - 284,335 Guarantee securities (6) - 81,883 - - 81,883

Total amounts guaranteed at 09.30.2019 57,757 159,991 148,470 - 366,218

Guarantee deposits of appeals (5) 43,835 73,021 152,923 - 269,779 Guarantee securities (6) - 74,057 - - 74,057

Total amounts guaranteed at 09.30.2018 43,835 147,078 152,923 - 343,836 (1) Recorded in “Other financial expenses”. (2) The changes in the civil, tax and labor contingencies are recorded in “Other operating expenses”. In 2019, civil lawsuits contemplate the reversal of the provision for economic plans in the amount of R$ 126,765. (3) The main proceedings involving tax and social security contingent liabilities and legal obligations are as follows: (i) Services Tax (ISS) amounting to R$ 103,538 (R$ 85,873 as at 09.30.2018) and mainly refers to related to the tax levied on revenues from banking activities, which should not be mistaken for the price for services rendered; (ii) PIS and COFINS on income from interest on capital in the amount of R$ 99,888 (R$ 99,888 as at 09.30.2018); (iii) Social security contributions in the amount of R$ 217,379 (R$ 73,770 as at 09.30.2018) and mainly refers to the dispute over the legality of the FAP; levy of payroll charges on prior notice and 1/3 of vacation pay; and levy of INSS on Profit Sharing; (iv) IRPJ/CSLL in the amount of R$ 131,408 (R$ 90,184 as at 09.30.2018) and mainly refers to the dispute over deductibility of the loan portfolio and deductibility of supposedly non-confirmed expenses; and; and (v) PERDCOMPs not ratified in the amount of R$ 58,985 (R$ 54,642 as at 09.30.2018). (4) In 2018, the change refers to the merger related to the corporate restructuring process authorized by BACEN carried out on 04.13.2018. (5) Note 14(a). (6) Note 7(a-III).

The amount of the contingent liabilities classified as a possible loss related to civil lawsuits, not recognized, is R$ 61,579 (R$ 56,462 as at 09.30.2018). There is no labor contingent liability and tax and social security proceedings classified as possible loss.


16. TAXES

a) Breakdown of income tax and social contribution expenses

I – Reconciliation of income tax and social contribution expenses

2019 2018

Profit before income tax and social contribution 1,907,976 1,907,795

Charges (income tax and social contribution) at standard rates – Note 3(o) (767,190) (858,508)

Permanent (additions) deductions 443,091 459,885

Effect of foreign exchange gains or losses on investments abroad 90,829 232,711

Interest on capital – Note 18(b) 226,750 218,132

Non-deductible expenses, net of non-taxed income 54,665 19,149

Deferred tax assets not recognized in the period / recognized in previous periods and other 70,847 (10,107)

Income tax and social contribution for the period – Note 19(c-II(2)) (324,099) (398,623)

II – Tax expenses of operations

2019 2018

PIS / COFINS (328,253) (275,459)

Service tax (ISS) (67,072) (75,101)

Total – Note 19(c-II(2)) (395,325) (350,560)

b) Deferred tax assets and liabilities

I – Deferred tax assets - Origin of income tax and social contribution tax credits

Balance at 01.01.2019

Increase / (Reversal) Realization Other changes (1)



Allowance for credit risk 949,045 347,961 (148,657) - 1,148,349 1,051,958

Provision for contingent liabilities – Note 15 630,502 83,538 (74,419) - 639,621 618,935

Fair Value adjustment of financial instruments 78,489 (43,289) - - 35,200 -

Other 173,349 126,451 (13,533) - 286,267 255,577

Total deferred tax assets for temporary differences 1,831,385 514,661 (236,609) - 2,109,437 1,926,470

Tax loss and social contribution loss carryforwards 337,247 (127,929) (28,699) - 180,619 451,899

Total at 09.30.2019 2,168,632 386,732 (265,308) - 2,290,056 2,378,369

Total at 09.30.2018 1,798,383 501,423 (267,377) 345,940 2,378,369 (1) In 2018, the change refers to the merger process recorded in a company involved in the corporate restructuring authorized by BACEN carried out on 04.13.2018.

The balance of deferred tax assets for temporary differences amounts to R$ 477,818 (R$ 542,889 in 09.30.2018), and refers to deferred tax assets arising from the recognition of Additional ALL– Note 8.

II– Deferred tax liabilities

01.01 to 09.30.2019 09.30.2018

Opening balance Increase / (Reversal) Closing balance Closing balance

Excess depreciation 168,483 (32,434) 136,049 179,640

Fair Value adjustment of financial instruments 68,449 (68,449) - 87,476

Other 6,656 2,965 9,621 7,845

Total at 09.30.2019 243,588 (97,918) 145,670 274,961

Total at 09.30.2018 300,748 (25,787) 274,961


III - Expected realization of deferred tax assets for temporary differences, income tax and social contribution loss carryforwards and deferred taxes on the amount in excess

Deferred tax assets

Provision for deferred taxes and contributions Net deferred taxes Realization year

Temporary differences

Tax and social contribution loss carryforwards Total

2019 281,461 4,887 286,348 (4,329) 282,019 2020 703,858 51,014 754,872 (12,570) 742,302 2021 778,850 50,165 829,015 (13,634) 815,381 2022 162,387 29,184 191,571 (17,128) 174,443 2023 112,693 28,314 141,007 (14,919) 126,088

2024 to 2028 70,188 17,055 87,243 (83,090) 4,153 Total 2,109,437 180,619 2,290,056 (145,670) 2,144,386

Present value (1) 1,986,817 165,810 2,152,627 (124,312) 2,028,315 (1) For adjustment to 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 Art. 6 of CMN Resolution 3,059/2002.

c) Tax Assets and Liabilities

09.30.2019 09.30.2018

Tax assets 2,591,599 2,663,140 Current – Taxes and contributions loss carryforwards 301,543 284,771 Deferred – Deferred tax assets - Note 16(b-I) 2,290,056 2,378,369

Tax liabilities 1,219,695 1,487,840 Current 1,074,025 1,212,879

Income tax and social contribution payable 349,012 354,006 Taxes and contributions collectible 191,379 160,620 Special Tax Regularization Program (PERT) (1) 533,634 698,253

Deferred – Tax liabilities - Note 16(b-II) 145,670 274,961 (1) 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$ (28,070)(R$ (21,851) in 2018) and are recorded as contra-entry to income in the line item “Other finance expenses”.

17. PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

a) Breakdown

09.30.2019 09.30.2018

Cost Accumulated depreciation

/ amortization Property and

equipment, net Cost Accumulated depreciation

/ amortization Property and

equipment, net

Property and equipment 807,963 (214,041) 593,922 473,494 (154,159) 319,335 Facilities, furniture and equipment in use 201,428 (53,819) 147,609 175,132 (45,031) 130,101 IT and data processing equipment 419,540 (124,343) 295,197 191,070 (76,913) 114,157 Property and equipment in progress 100,786 - 100,786 30,007 - 30,007 Other 86,209 (35,879) 50,330 77,285 (32,215) 45,070 Intangible assets - Software 268,665 (111,647) 157,018 223,541 (86,392) 137,149 Total (1) 1,076,628 (325,688) 750,940 697,035 (240,551) 456,484

(1) Of this amount, R$ 100,786 (R$ 30,007 in 30.09.2018) refers to the property and equipment in progress.

b) Changes

Property and equipment Intangible assets Total

2019 2018 2019 2018 2019 2018

Opening balance 377,073 253,193 141,350 133,957 518,423 387,150 Acquisitions 292,598 103,041 52,183 34,598 344,781 137,639 Write-off for disposals (5,034) (2,239) - - (5,034) (2,239) Foreign exchange gains or losses and transfers (885) (857) - 19 (885) (838) Depreciation / amortization expenses – Note 14 (d) (69,830) (33,803) (36,515) (31,425) (106,345) (65,228) IT and data processing equipment (53,611) (18,677) (36,515) (31,425) (90,126) (50,102) Facilities, furniture and equipment in use (16,219) (15,126) - - (16,219) (15,126) Closing balance 593,922 319,335 157,018 137,149 750,940 456,484


18. EQUITY

a) Shares

Banco Safra S.A.’s capital is represented by 15,300 (15,301 as at 09.30.2018) registered shares, with no par value, out of which 7,650 (7,651 as at 09.30.2018) 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 09.30.2018) preferred shares.

According to the Letter 15384/2019-BCB/Deorf/GTSP2 issued by the Brazilian Central Bank on July 26, 2019, the cancellation of one common share in treasury and creation of classes were ratified. Safra’s controlling stake is held by Joseph Yacoub Safra (resident abroad), who owns 99.97% of total issued shares.

At the Extraordinary Shareholders’ Meeting held on February 13, 2019, a resolution was taken to increase the company’s capital in the amount of R$ 757,479, with revenue reserves. It was approved by Letter 5313/2019-BCB/Deorf/GTSP2 issued by the Brazilian Central Bank on March 22, 2019.

b) Dividends and Interest on capital

The stockholders are entitled to an annual minimum mandatory dividend, as provided in the Bylaws, equivalent to 1% and 2% of the capital corresponding to common and preferred shares, respectively.

In the meetings of the Executive Board and the Board of Directors held on June 25,2019, August 26, 2019 and September 23, 2019 interest on capital were declared and paid in the amount of R$ 566,874.

c) Revenue reserves

09.30.2019 09.30.2018

Revenue reserves 1,328,709 2,110,435

Legal 94,372 271,278

Special (1) 1,234,337 1,839,157 (1) Reserve recognized to enable the saving of resources for future contribution of these funds to capital, payment of interim

dividends, maintaining operating margin compatible with the development of the company's operations and / or expansion of its activities.

d) Carrying value adjustment of available-for-sale financial assets

I- Changes in adjustment of the financial assets:

01.01. to

09.30.2019 01.01. to

09.30.2018

Opening balance 6,433 30,155

Adjustment from changes in fair value – Note 18(d-II) (3,049) (27,824)

Available-for-sale securities – Note 7(d) (4,319) (46,899)

Change in fair value in the period 859 (21,213)

Transfer of category – To trading – Government securities - (16,679)

Profit /(loss) on sale of securities (5,178) (9,007)

Tax effect 1,270 19,075

Closing balance 3,384 2,331

Gross amount – Notes 7(a-I) e (d) 4,004 1,966

Tax effect (620) 365

II- Statement of comprehensive income:

2019 2018

Net Income 1,583,877 1,509,172

Available-for-sale financial assets – Note 18(d-I) (3,049) (27,824)

Net change in unrealized gains / (losses) 607 (29,265)

Change in fair value in the period 859 (21,213)

Transfer of category – To trading – Government securities - (16,679)

Tax effect (252) 8,627

Realized gains transferred to income for the period (3,656) 1,441

Profit /(loss) on sale of securities (5,178) (9,007)

Tax effect 1,522 10,448

Comprehensive income 1,580,828 1,481,348


19. RISK AND CAPITAL MANAGEMENT

Banco Safra carries out risk management by using the methodology of three lines of defense, and has a set of procedures, aligned with the best market practices, that ensure the compliance with legal and regulatory provisions and its internal policies.

On Banco Safra’s website (www.safra.com.br), information on risk management frameworks, established by BACEN Circular 3,678/13 and capital management framework, provided by CMN Resolution 4,557/17, is available.

The CMN Resolution 4,553/2017 divided financial institutions into five segments, according to the level of assets and relevance of international activities, Banco Safra being classified as S2. The CMN Resolution 4,557/2017 introduced the concept of integrated risk management, which involves the interrelationship between the processes of finance, business, and risk and capital management. It is also worthy of note that, in compliance with the regulation, the Superior Risk Committee was created, comprising three members, and aimed at assisting the Board of Directors in fulfilling its responsibilities related to the integrated risk and capital management. In addition, the appointment of the Chief Risk Officer (CRO) was formalized, who will report to the Superior Risk Committee and Board of Directors, as well as the creation of an integrated risk management unit. A formal Risk Appetite Statement (RAS) is also included in Safra’s risk management framework, and considers the key indicators, metrics and principles that guide the carry out of Safra’s businesses and risk control. The RAS is periodically monitored by the Executive Officers and Superior Risk Committee, and approved by the Board of Directors.

Banco Safra annually carries out the Internal Capital Adequacy Assessment Process (ICAAP). This process, regulated by the Brazilian Central Bank, involves the evaluation of all procedures and processes related to risk and capital management in all hierarchical levels, including a forward-looking capital plan for a minimum period of three years. In addition, Safra participates, together with the other outstanding financial institutions, in the Bottom-Up Stress Test (TEBU) of the Brazilian Central Bank. The objective of these 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 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; and

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.

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 which main characteristic is the adjustment of 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 three timely actions to guarantee the return of funds and maintain the operation’s profitability.

The internal credit risk measurement model involves the individual risk rating of transactions. The transaction rating takes into account the customer’s score, assigned based on market information, the customer’s behavior in relation to the bank, besides the level of guarantees received by the bank.

Such credit risk measurements, which reflect the loss prospects, are incorporated into operational management, and determine the appropriate allowance for impairment loss to be recognized.

- Government securities, interbank investments and other debt securities

The Limit Committee of Financial Institutions, 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 the 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 generation of funds, need for working capital, capital structure, profitability, seasonable aspects, specific aspects of the business line, customer service level, relationship with Safra, restrictions, guarantees and stockholding control, credit monitoring areas, size, parent company or headquarters data, and master file data are weighted. 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 the release of funds. 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 liens on assets; and Guarantees and sureties.

Safra adopts a series of procedures that assure that 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 operation payment. Regardless of the setting of minimum limits for guarantees in each type, in the analysis of an operation additional guarantees may be required, always seeking the operation security.

All guarantees accepted in operations 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 revaluates the real state offered in guarantee; Other cases, such as machinery - are evaluated when the transaction is closed, or when there is indication of impairment of the

customer or operation.

The efficiency of this process enables the control and monitoring of the guarantee, and, consequently, the turnover of the customer's operations with Safra.

- Derivatives

Safra maintains controls over the use of credit limits in derivative transactions, which may be impacted by individual operations or on an aggregate basis when there is a net position contract. Both the granting of limits and the monitoring of their use are made based on a fraction of the face value of the transaction, that is, by the Fractional Credit Risk, taking into account that in the moment the limit is granted this fraction is an estimate of the potential future gain, and in the moment the limit is used the fraction is the fair value of the settlement. This concept is used because a derivative contract will always be settled by the difference between the credit and debit balances.

- Credit commitments (off balance)

Credit commitments represent unused portions of authorizations for credit granting in the form of loans and advances, guarantees or letters of credit. In relation to the credit risk in credit commitments, Safra is potentially exposed to losses in amounts equal to the total unused commitments. However, the probable loss amount is lower than the total unused commitments since most commitments depend on the maintenance, by customers, of specific credit standards. Safra monitors the maturity of credit commitments because long-term commitments in general offer a higher credit risk level than short-term commitments.

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(f).


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 financial position is as follows:

Maximum exposure 09.30.2019

09.30.2018

Financial assets

107,659,765 100,165,636

Interbank investments – Note 5

17,749,079 14,748,234

Central Bank compulsory deposits – Note 6

9,685,737 6,793,628

Investments linked to open market operations – Government securities – Note 10(a)

37,620,460 40,269,769

Marketable securities – Note 7(a-I)

23,174,476 22,592,212

Derivative financial instruments – Note 7(c)

1,761,629 1,679,322

Funds guaranteeing technical reserves for insurance and private pension – Note 7(b)

17,668,384 14,082,471

Expanded credit portfolio – Note 8(a)

109,190,569 103,801,315

Credit portfolio

91,817,101 82,937,742

Credit operations

76,170,011 69,421,642

Operations with companies 51,214,854 49,595,320

Consumer loan and finance operations 24,955,157 19,826,322

Other credit risk instruments

15,647,090 13,516,100

Guarantees and sureties (off balance) – Note 8(f)

17,373,468 20,863,573

Granted limits (off balance) – Note 8(f)

15,733,039 13,921,315

TOTAL 232,583,373 217,888,266

Allowance for credit risk – Expanded credit portfolio – Note 8(a) (3,119,270) (3,080,070)

Total net maximum exposure – Note 19(a-VIII) 229,464,103 214,808,196

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 rating) 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 as follows:

09.30.2019

09.30.2018

Financial guarantees 8,619,055 6,728,252

Machineries and vehicles 15,419,343 10,845,782

Other guarantees (1) 3,397,230 3,429,030

Total (2) 27,435,628 21,003,064 (1) Substantially comprising mortgage, chattel mortgage, credit rights, rights or receivables for credit card sales and pledge. (2) Totals

around R$ 60,608,683 (R$ 52,125,324 as at 09.30.2018), when considering the guarantees and sureties in the amount of R$ 33,173,055 (R$ 31,122,260 as at 09.30.2018).

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. Renegotiations are most commonly applied to loans.

VII. Repossession of guarantees

The assets received in connection with debt consolidation processes, related to credit operations written-off of assets, are classified as “Non-current assets held for sale” and fully provisioned, given 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(f).

VIII. Risk concentration of financial assets with credit risk exposure by economic activity

To avoid credit risks being increased due to the excess concentration in the same economic risk factors, credit limits are set to customer individually and to the economic groups they belong. The limits set to groups are equal to the sum of the individual limits of the customers comprising them.

The definition of credit limits specifies amounts for operations that avoid the excess concentration in one single customer, a same economic group, a certain business or economic segment, specific geographical regions, loans vulnerable to the same economic factors and a same business line.

The definition of operational rules for taking credit provides specific treatment of term and guarantee for each business line.


The monitoring of the excess concentration and specific treatments for business lines and specific geographical regions is made by the credit committees non-systematically and by monthly managerial controls of the credit portfolio, shared with Senior Management.

The table below shows the main exposures to credit risk based on the carrying amounts and categorized by economic activity of the counterparties.

09.30.2019 09.30.2018

Financial assets Expanded credit

portfolio Granted limits TOTAL TOTAL

Financial institutions 9,921,041 12,285,364 181,141 22,387,546 21,098,003

Governments 96,109,111 - - 96,109,111 90,151,171

Industry and trade 430,489 41,622,202 6,334,376 48,387,067 49,683,793

Services 1,006,900 28,323,639 3,794,352 33,124,891 28,800,295

Individuals 192,224 23,295,658 4,789,986 28,277,868 22,757,758

Other customers - 3,663,706 633,184 4,296,890 5,397,246

Total 107,659,765 109,190,569 15,733,039 232,583,373 217,888,266

Allowance for credit risk – Expanded credit portfolio – Note 8(a) - (3,119,270) - (3,119,270) (3,080,070)

Total Net at 09.30.2019 – Note 19(a-IV) 107,659,765 106,071,299 15,733,039 229,464,103 214,808,196

Total Net at 09.30.2018 – Note 19(a-IV)

100,165,636 100,721,245 13,921,315 214,808,196

- Expanded credit portfolio concentration

09.30.2019 09.30.2018

01st to 10thlargest customer 15,918,046 18,394,284

11thto 50thlargest customer 20,393,478 21,681,420

51stto 100thlargest customer 11,243,477 11,368,918

100 largest customers 47,555,000 51,444,622

Other customers 61,635,569 52,356,693

Total expanded credit portfolio 109,190,569 103,801,315

Allowance for credit risk – Expanded credit portfolio – Note 8(a) (3,119,270) (3,080,070)

Total 106,071,299 100,721,245

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.

Statistics and projections on the development of payments and receipts are used to assess impacts on cash over time in a series of scenarios: planning or normality, run off, stress and hard stress. The results from the use of these scenarios are discussed at the meetings of the Asset and Liability Committee (ALCO).

II. Funding approach

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.


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:

09.30.2019

Liabilities 60 days 90 days 180 days 360 days 720 days Over 720 days TOTAL

Funding 18,528,816 10,656,345 16,254,324 19,519,501 13,379,800 20,892,416 99,231,202

Open market deposits and funding – corporate securities – Note 9(a) 14,507,632 7,905,839 8,745,315 10,945,769 1,117,248 879,926 44,101,729

Funds from acceptance and issue of securities– Note 9(b) 3,664,267 2,632,379 7,128,733 7,333,340 10,933,524 17,663,453 49,355,696

Structured funding – Note 9(c) (1) 356,917 118,127 380,276 1,240,392 1,329,028 2,349,037 5,773,777

Borrowings and onlending – Note 9(d) 295,193 539,982 4,062,550 10,258,696 814,111 1,593,466 17,563,998

Funds guaranteeing technical reserves for insurance and private pension – Note 7(b) - - - - - 17,268,709 17,268,709

Subordinated debt – Note 9(e) 12,352 93,112 49,372 56,469 2,609,202 5,349,175 8,169,682

Liquidity 18,836,361 11,289,439 20,366,246 29,834,666 16,803,113 45,103,766 142,233,591 (1) Of this amount, R$ 367,040 (R$ 407,058 as at 09.30.2018) are recorded in Derivative financial instruments – Note 7(c).

IV. Cash flow of derivatives

09.30.2019

60 days 90 days 180 days 360 days 720 days Over 720 days TOTAL

Assets 478,253 142,104 600,276 80,305 92,278 368,506 1,761,722

Non Deliverable Forward - NDF 32,542 6,114 33,897 18,866 6,186 766 98,371

Options 11,902 8,953 229,240 39,179 75,358 5,525 370,157

Forward 104,202 - - - - - 104,202

Swap - Amounts receivable 328,475 78,154 331,456 22,260 10,734 362,215 1,133,294

Credit derivative 1,132 48,883 5,683 - - - 55,698

Liabilities (453,714) (243,590) (677,322) (129,272) (111,887) (247,255) (1,863,040)

Non Deliverable Forward - NDF (8,556) (2,559) (7,391) (3,208) (221) - (21,935)

Options (8,595) (8,501) (229,333) (50,966) (88,475) (12,990) (398,860)

Forward (113,738) - - - - - (113,738)

Swap – Amounts payable (322,825) (187,388) (438,825) (75,098) (23,191) (234,265) (1,281,592)

Credit derivative - (45,142) (1,773) - - - (46,915)

V. Items not recorded in the statement of financial position

As described in Note 8(f), the off statement of financial position 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 exert material impacts on liquidity.


c) Market risk

Market risk is the possibility of incurring losses arising from fluctuations in the market values of the instruments held by the Entity. It includes (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 and commodity prices, for instruments classified into trading or banking portfolio.

In relation to the IRRBB, Art. 28 of the aforementioned Resolution defines as current or prospective risk of the impact of adverse changes in interest rates on the capital and income of the Financial Entity, for instrument 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.

For such purpose, Banco Safra has the Finance and Treasury Committee, formed by the CRO, Executive Officers and Superintendents, which meets at least monthly to take resolutions on accounting hedge and regulatory, methodology and new product issues that involve Treasury strategies and the Risk and Finance areas. Additionally, 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 triggers and approval of New Products of Treasury Strategy. Its attributions are (i) follow up the use of market risk limits, (ii) approval of accounting hedge strategies and their effectiveness tests, (iii) follow up the amounts noted in embedded losses and gains, (iv) discussion about proposals for methodology or limit review related to market risk.

Banco Safra maintains its total exposure to market risks according to the limits set in the Risk Appetite Statement (RAS). In addition, Banco Safra performs the market risk management by using operating limits and other practices that maintain the exposure levels consistent with its internal standards and policies, that are as follows: (i) VaR (Value at Risk), (ii) Stress Testing, (iii) Stop Loss, (iv) Year Equivalent and DV01, (v) Notional, (vi) Consumption of market risk capital in relation to total capital, and (vii) delta EVE and delta NII.

I. Sensitivity analysis (Trading and Banking portfolios)

In accordance with the criteria for classification of operations provided in CMN Resolution 3,464/2007, BACEN Circular 3,354/2007 and the Basel II New Capital Accord, financial instruments are divided into Trading and Banking portfolios.

Trading Portfolio comprises all operations, including derivatives, held with the intent of trading or hedging other financial instruments of this strategy. They are transactions for resale, obtaining price difference benefits, either actual or expected, or for arbitrage. This portfolio has strict limits and is controlled on a daily basis by risk areas.

Banking portfolio covers all operations that do not fit into Trading portfolio, and are typically banking 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 power to respond 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 does not reflect the set of Safra’s accounting practices, and should be interpreted as exercise of sensitivity.

Trading portfolio at 09.30.2019

Risk factors

Risk of Change in:

Scenarios

1 2 3

Stocks Stock price change (4,793) (119,832) (239,664)

Commodities Commodity price change (9) (229) (458)

Coupon and currencies Foreign currency coupon rate and foreign exchange rate change

(3,685) (92,232) (184,516)

Fixed income Change in interest rates denominated in real (10) (1,124) (2,193)

Options Change in the market value of options (281) (7,392) (14,730)

Total (8,778) (220,809) (441,561)

Trading portfolio at 09.30.2019

Risk factors

Risk of Change in:

Scenarios

1 2 3

Stocks Stock price change (4,793) (119,832) (239,664)

Commodities Commodity price change (9) (229) (458)

Coupon and currencies Foreign currency coupon rate and foreign exchange rate change

(4,260) (135,928) (271,071)

Fixed income Change in interest rates denominated in real (1,516) (224,422) (434,960)

Options Change in the market value of options (281) (7,392) (14,730)

Total (10,859) (487,803) (960,883)

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$ 4.1906 and the 1 year fixed rate was 4.86% 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$ 5.1864 and the 1 year fixed rate was 6.06% 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$ 6.2237 and the 1 year fixed rate was 7.27% p.a.


II. Foreign exchange risk

Safra is exposed to the effects of fluctuations in exchange rates on its exposures and cash flows denominated in foreign currencies or linked to foreign exchange changes. The foreign exchange risk is monitored daily through the determination of the foreign exchange exposure in foreign currency. (1) A The exposure by currency is shown below and includes positions in reais (BR), U.S. dollars (USD) and other currencies:

PER CURRENCY 09.30.2019

Assets BRL Strong currencies (1) Other currencies Total

Cash – Note 4 167,562 1,230,982 9,142 1,407,686

Central Bank compulsory deposits – Note 6 9,573,350 112,387 - 9,685,737

Investments linked to open market operations – Government securities – Note 10(a) 37,620,460 - - 37,620,460

Interbank investments, Marketable securities, and Derivative financial instruments 29,851,649 12,459,353 374,182 42,685,184

Funds guaranteeing technical reserves for insurance and private pension operations – Note 7(b) 17,668,384 - - 17,668,384

Credit portfolio – Note 8(a) 78,399,153 10,432,576 300 88,832,029

Tax assets 2,590,593 1,006 - 2,591,599

Other financial assets and Other assets 4,747,610 1,075,619 283 5,823,512

Investment, Property and equipment, and Intangible assets 758,991 25 - 759,016

Total Assets 181,377,752 25,311,948 383,907 207,073,607

Long position-Futures foreign currency coupon-Note 7(c-II(1)) 12,749,421 22,796,799 - 35,546,220

Futures 2,016,582 623,988 - 2,640,570

NDF – Note 7(c-II(1)) 976,699 2,590,082 - 3,566,781

Foreign currency coupon 219,594 247,607 - 467,201

SWAP and SCS 15,928,883 2,997,384 - 18,926,267

Balance – Derivative financial instruments – Assets 31,891,179 29,255,860 - 61,147,039

Total Assets at 09.30.2019 (A) 213,268,931 54,567,808 383,907 268,220,646

Liabilities

Funding, Borrowings and onlending, Subordinated debt and derivative financial instruments 102,528,251 24,305,783 - 126,834,034

Open market funding – Government securities – Note 10(a) 37,768,934 - - 37,768,934

Insurance and private pension operations – Note 11(c) 17,700,951 - - 17,700,951

Tax liabilities and provisions for contingencies 2,811,893 - - 2,811,893

Other financial liabilities and Other liabilities 8,217,968 934,196 17 9,152,181

Total Liabilities 169,027,997 25,239,979 17 194,267,993

Short position-Foreign currency coupon-Note 7(c-II(1)) 22,796,799 12,749,421 - 35,546,220

Futures 623,988 2,010,238 6,344 2,640,570

NDF – Note 7(c-II(1)) 2,590,082 605,420 371,279 3,566,781

Foreign currency option 247,607 219,594 - 467,201

SWAP and SCS 2,997,384 15,928,883 - 18,926,267

Off Balance – Derivative financial instruments– Liabilities 29,255,860 31,513,556 377,623 61,147,039

Total Liabilities at 09.30.2019 (B) 198,283,857 56,753,535 377,640 255,415,032

Net exposure – Equity (C) = (A) – (B) 14,985,074 (2,185,727) 6,267 12,805,614

"Over Hedge" of Investment Abroad – Note 19(c-II(2)) (2,482,745) 2,482,745 - -

Net position – Long/(Short) as 09.30.2019 12,502,329 297,018 6,267 12,805,614

Net position – Long/(Short) as 09.30.2018 10,061,698 682,009 21,451 10,765,158 (1) Strong currencies are considered to be the US dollar, Canadian dollar, euro, Swiss franc, yen, and pond Sterling, the same concept adopted by Circular Bacen 3,641/2013, which provides for the procedures to

make the calculation of the amount of risk-weighted assets for the assets subject to foreign exchange exposure.


(2) "Over Hedge" of investments 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 foreign 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 or losses of the excess of purchased derivatives ("Over Hedge") are recorded as derivative income, as provided in the rules, affecting the gross financial margin of the entity.

Given the economic rationale of the operation, the statement of income lines, reclassified considering the foreign exchange hedge strategy adopted by Safra is as follows:

2019 2018

Recorded Over hedge adjustment

Adjusted balance Recorded

Over hedge adjustment Adjusted balance

INCOME (EXPENSES) FROM DERIVATIVE FINANCIAL INSTRUMENTS – Note 13(c) (157,363) 169,838 12,475 (551,989) 468,822 (83,167) TAX EXPENSES OF OPERATIONS – Note 16(a-II) (395,325) (18,456) (413,781) (350,560) (45,847) (396,407)

NET INCOME FROM OPERATIONS 5,034,939 151,382 5,186,321 4,332,757 422,975 4,755,732

INCOME BEFORE TAXES 1,907,976 151,382 2,059,358 1,907,795 422,975 2,330,770 INCOME TAX AND SOCIAL CONTRIBUTION – Note 16(a-I) (324,099) (151,382) (475,481) (398,623) (422,975) (821,598) NET INCOME 1,583,877 - 1,583,877 1,509,172 - 1,509,172

d) Fair value of financial assets and liabilities

I. Methodology for determining Fair value

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 a transaction conducted between independent participants at the measurement date, without bias. There are different levels of data that must be used to measure the fair value of financial instruments: the observable data that reflect quoted prices for identical assets or liabilities in active markets (Level 1), the data that are directly or indirectly observable as similar assets or liabilities (Level 2), identical assets or liabilities in illiquid markets and unobservable market data that reflect the very assumptions of Safra 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 measured based on unobservable markets, which includes, for example, low-liquidity financial instruments, Safra first determines the appropriate model to be adopted, based on all material information, including but not limited to, yield curves, interest rates, volatilities, difference between quoted and effective prices, prices of interest in capital or debt, exchange rates and credit curves. In the case of financial instruments not traded in stock exchange, Safra uses its best judgment to determine the appropriate level of adjustments for determining a market price that best reflect the probable realization value of the financial instrument, taking into account the counterparty’s credit quality, the actual amount of credit, liquidity constraints and unobservable parameters when relevant. Although it is believed that the valuation techniques are appropriate and consistent with those 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 date and / or settlement date.


II. Classification by level of financial assets and liabilities at fair value

09.30.2019(1) Level 1 Level 2 Total

Marketable securities – Note 7(a-III) (2) 23,145,511 2,916,843 26,062,354

Securities portfolio – Note 7(a-I) 20,257,690 2,916,786 23,174,476

Government securities 20,254,073 - 20,254,073

Securities issued by Financial Institutions - 2,649,107 2,649,107

Securities issued by Companies 3,617 267,736 271,353

Regulatory adjustments – CMN Resolution 4,277/2013 – Notes 3(e) and 7(a-I) - (57) (57)

Own portfolio – Investments linked to open market operations – Government securities – Note 10(a) 2,887,821 - 2,887,821

Other credit risk instruments – Note 8(b) - 15,647,090 15,647,090

(-)Securities designated to Hedge Market Risk (3) - (7,283,353) (7,283,353) Funds guaranteeing technical reserves for insurance and private pension – Note 7(b) 16,848,192 820,192 17,668,384

Private pension 16,448,517 820,192 17,268,709

Repurchase agreements 2,095 - 2,095

Government securities – National Treasury 16,003,126 - 16,003,126

Corporate securities 443,296 832,657 1,275,953

Other - (12,465) (12,465)

Securities – Government securities - National treasury – National Treasury Bills 210,952 - 210,952

DPVAT fund quotas – Government securities 188,723 - 188,723

Derivative financial instruments – Assets – Note 7(c-I(1)) 104,202 1,657,427 1,761,629

Non Deliverable Forward – NDF - 98,371 98,371

Option premiums - 370,157 370,157

Forward – Government securities 104,202 - 104,202

Swap – amounts receivable - 1,133,294 1,133,294

Credit derivatives (CDS) - 55,698 55,698

Regulatory adjustments – CMN Resolution 4,277/2013 – Notes 3(e) - (93) (93)

Derivative financial instruments – Liabilities – Note 7(c-I(1)) (113,738) (1,755,414) (1,869,152)

Non-deliverable forwards (NDF) - (21,935) (21,935)

Option premiums - (398,860) (398,860)

Forward – Government securities (113,738) - (113,738)

Swap – amounts payable - (1,281,592) (1,281,592)

Credit derivatives (CDS) - (46,915) (46,915)

Regulatory adjustments – CMN Resolution 4,277/2013 - (6,112) (6,112)

Obligations related to unrestricted repurchase agreements – Gov. securities – Note 10(b) (3,524,621) - (3,524,621)

Strategy – Market risk hedge - Note 7(e) - 54,320,078 54,320,078

Fixed rate portfolio 34,921,335 34,921,335

Assets – Credit portfolio – Note 8(a-I) - 42,194,960 42,194,960

Liabilities – Funding - (7,273,625) (7,273,625)

Repurchase agreements – fixed rate - 16,278,248 16,278,248

IPCA portfolio - 2,195,799 2,195,799

Asset – Other credit risk instruments – Note 8(b) (3) - 5,140,147 5,140,147

Liabilities – Funding - (2,944,348) (2,944,348)

Eurobonds (3) - 7,283,353 7,283,353

Marketable securities – Available for sale – Note 7(a-I) - 2,655,272 2,655,272

Other credit risk instruments – Note 8(b) - 4,628,081 4,628,081

Funding - (3,034,841) (3,034,841)

Structured funding – Structured CD – Note 9(c) - (908,957) (908,957)

Liabilities for marketable securities abroad – Note 9(b) - (2,125,884) (2,125,884)

Subordinated debt – Medium term notes – Note 9(e) - (3,323,816) (3,323,816) (1) No transaction was classified into level 3. (2) Of these amounts, R$ 19,863,956 refer to trading securities (R$ 18,423,619 classified in level 1 and

R$ 1,440,337 in level 2) and R$ 3,310,520 refer to available-for-sale securities (R$ 1,834,071 classified in level 1 and R$ 1,476,449 in level 2) (3) Reclassification of the amount related to the securities designated to hedge market risk (Eurobonds) – Note 7(e).


III. 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.

09.30.2019 09.30.2018

Carrying amount Fair value

Carrying amount Fair value

Cash 1,407,686 1,407,686 1,490,633 1,490,633

Interbank investments 17,749,079 17,749,079 14,748,234 14,748,234

Central Bank compulsory deposits 9,685,737 9,685,737 6,793,628 6,793,628

Credit portfolio – At amortized cost 44,129,055 44,129,055 40,997,277 40,997,277

Total financial assets 72,971,557 72,971,557 64,029,772 64,029,772

Financial liabilities – At amortized cost 105,650,931 105,668,954 93,763,139 94,097,808

Financial institution deposits and open market funding 43,900,928 43,903,465 22,887,789 22,887,789

Structured funding – Fixed rate 3,392,297 3,392,297 3,906,413 3,906,413

Borrowings and onlending 17,563,998 17,563,998 15,030,242 15,030,242

Funds from acceptance and issue of securities 40,793,708 40,809,194 51,938,695 52,273,364

Funds guaranteeing technical reserves for insurance and private pension 17,700,951 17,700,951 14,093,135 14,093,135

Subordinated debt – At amortized cost 2,733,084 2,733,393 3,392,585 3,371,253

Total financial liabilities 126,084,966 126,103,298 111,248,859 111,562,196

The carrying amounts of the items cash and cash equivalent, interbank investments, open market transactions and Central Bank compulsory deposits approximate their fair values.

The carrying amounts of other items are purchased with floating indexes, most of them being CDI, and for this reason approximate their fair value.

The fair value of onlending is not demonstrated, because the changes between the carrying amount and fair value of assets and liabilities approximate, as they are adjusted by the same index, and, therefore, considered immaterial.

The following table shows the breakdown of financial assets and liabilities, which were not presented in the statement of financial position at their fair values, classified by hierarchical levels:

09.30.2019

Level 1 Level 2 Total

Cash 1,407,686 - 1,407,686

Interbank investments 17,749,079 - 17,749,079

Central Bank compulsory deposits 9,685,737 - 9,685,737

Credit portfolio – At amortized cost - 44,129,055 44,129,055

Total financial assets 28,842,502 44,129,055 72,971,557

Financial liabilities – At amortized cost 17,563,998 88,104,956 105,668,954

Financial institution deposits and open market funding - 43,903,465 43,903,465

Structured funding – Fixed rate - 3,392,297 3,392,297

Borrowings and onlending 17,563,998 - 17,563,998

Funds from acceptance and issue of securities - 40,809,194 40,809,194

Funds guaranteeing technical reserves for insurance and private pension 17,700,951 - 17,700,951

Subordinated debts – At amortized cost - 2,733,393 2,733,393

Total financial liabilities 35,264,949 90,838,349 126,103,298

09,30,2018

Level 1 Level 2 Total

Total financial assets 23,032,495 40,997,277 64,029,772

Total financial liabilities 29,123,377 82,438,819 111,562,196

e) Operational risk

Defined by Art. 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, and takes resolutions on matters related to Operational Risk, Internal Controls, Compliance, Money Laundering Prevention, Reputation Risk and Social and Environmental Risk.

The Operational Risk area is an independent control unit (UC), segregated from the unit that performs internal audit activities, and is also responsible for the application of the methodology described in the document “Classification of the Critical Level of Outsourced Services” and Going Concern Management.

f) Underwriting risk

The underwriting risk is the possibility of incurring losses which may be contrary to the institution’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 - Devising of acceptance policies;

III - Negotiation of reinsurance arrangements and of conditions and fee for individual policies;

IV – Follow-up and assessment of the co-insurance conditions; and

V - Technical support to customers and representatives.

Safra adopts a 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 by the actuarial area of Safra and its result is reflected, if necessary, in the adjustments of technical reserves.

The main insurance lines operated by Safra are: comprehensive, D&O, surety bond, other property and casualty, credit life insurance, accident and life insurance and DPVAT. In the private pension segment, the main products are: VGBL and PGBL.

The main business risk of insurance operations is the loss ratio change. 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:

09.30.2019

Lines Southeast South Center West Northeast North Total

Comprehensive 11,612 4,141 1,844 1,655 437 19,689

Credit life insurance 75,080 22,328 12,241 11,744 7,909 129,302

Accidents 22,659 7,880 3,404 3,506 2,150 39,599

Group life 19,610 4,850 1,944 2,048 1,228 29,680

Other 4,662 2,693 985 1,560 113 10,013

Total (1) 133,623 41,892 20,418 20,513 11,837 228,283

09.30.2018

Lines Southeast South Center West Northeast North Total

Comprehensive 15,664 4,790 2,245 2,086 449 25,234

Credit life insurance 56,410 19,489 8,817 7,886 7,484 100,086

Accidents 19,945 6,038 3,542 2,849 1,608 33,982

Group life 17,270 4,190 1,736 1,606 1,066 25,868

Other 6,196 4,159 2,492 1,518 234 14,599

Total (1) 115,485 38,666 18,832 15,945 10,841 199,769 (1) The concentration of risk does not consider the DPVAT, policies in force but not issued and retrocession totaling R$ 25,361(R$ 36,743 as at

09.30.2018).

g) Capital management

Banco Safra's capital management aim is to manage its equity in view of the risks associated with its operations.

It includes the following aspects:

- Fulfillment of the regulatory requirements of the banking markets where it operates;

- Safeguard its operating capacity so that it continues providing return to stockholders and benefits to other stakeholders; and

- Maintenance of a solid capital base to support the development and sustainability of its business.

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 Brazilian Central Bank (BACEN), for oversight purposes. The required information is submitted to the appropriate body on a monthly basis.

The bank authority requires that each Bank or group of bank institutions maintain a minimum regulatory capital of 10.5%. Banco Safra's regulatory capital is divided into two tiers (I and II) and additional capital buffer:

Tier I capital - share capital, retained earnings and reserves set up for the appropriation of retained earnings and funding instruments eligible to Additional Capital – Tier I;

Tier II capital - funding instruments eligible to Tier II Capital; and

Additional capital buffer, comprising the following portions: Capital Conservation Buffer, Countercyclical Buffer, and Systemic Important Institution Buffer, considering that only the Capital Conservation Buffer is currently required.

The Systemic Important Institution Buffer is not applicable to Banco Safra, as it is not classified as regional systemically important large banks (D-SIB).

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 being made to reflect the more contingent nature of potential losses.


20. RELATED-PARTY TRANSACTIONS

a) Management remuneration:

In corporate documents recorded for 2019, the annual total management’s remuneration was set at R$ 147,350 (R$ 138,200 in 2018). The remuneration received by management amounts to R$ 80,226(R$ (90,602) in 2018).

The Group does not have any long-term benefits, termination benefits, or share-based payment arrangements for any key management personnel.

b) Related-party transactions

Transactions between related parties are disclosed in accordance with CMN Resolution 4,636/2018. These are arm's length transactions, in the sense that their amounts, terms and average rates are those usual in the market on the respective dates.

The transactions between the companies that are included in consolidation were eliminated for the purposes of the consolidated financial statements and continue to be considered void of risk.

Assets / (Liabilities) Income / (Expenses)

09.30.2019 09.30.2018 2019 2018

Cash – Note 4 363,364 506,097 41 17

Grupo J. Safra Sarasin 347,552 455,172 (131) 17

Safra National Bank of New York 15,812 50,925 172 - Foreign currency investments – Note 5 – Safra National Bank of New York 1,947,690

787,658 34,140

20,548

Other 14,938 9,457 - 2,820

Demand deposits /savings deposits – Note 9(a) (6,481) (15,063) - -

Time deposits – Note 9(a) (867,027) (749,993) (10,961) (11,773)

Grupo J. Safra Sarasin (297,704) (230,932) (1,084) (1,041)

Safra National Bank of New York (569,323) (519,061) (9,877) (10,732) Funds from acceptance and issue of securities – Funds from financial bills, bills of credit and similar notes – Institutos Safra – Note 9(b) (129,645) (914) (8,414) (4) Subordinated debts –Note 9(e) – Andromeda Global Strategy Fund Ltd. – Exclusive fund (1,272,506)

(1,197,647) (63,422)

(57,233)

Administrative expenses - - (74,672) (84,622)

Rental expenses – Note 14(d) - - (74,579) (84,473)

Exton Participações Ltda. - - (30,475) (29,726)

J. Safra Participações Ltda. - - (18,171) (16,216)

Kiama S.A. - - (11,980) (24,732)

Lebec Participações Ltda. - - (7,433) (7,510)

Other companies - - (6,520) (6,289)

Other - - (93) (149)

Rental income – Casablanc Representação e Participação Ltda. - - 59 76

Operations with investment funds – Note 9(f)

Open market investments – Government securities – Note 10 - - 82 16,865

Open market funding – Government securities – Note 10 (24,578,511) (26,361,879) (901,577) (739,675) Funds from acceptance and issue of securities – Financial bills (1) –

Note 9(b) (1,985,753) (1,982,010) (82,955) (65,752)

Revenue from management and administration of investment funds - - 724,495 925,636

Consolidated companies – Note 9(f) - - 724,495 852,182

Related parties – Note 9(f) - - - 73,454 (1) Of this amount, R$ 104,281 (R$ 380,792 as at 09.30.2018) refers to subordinated financial bills.

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, of 05.27.2004, of the National Monetary Council (“CMN”) and Resolution 312, of 06.16.2014, of the National Council of Private Insurance (“CNSP”).

The Committee shall directly report to the Board of Directors and is composed of 5 (five) members, of which 03 (three) are executive officers of the Company and 02 (two) are independent members.

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banco safra s · 2020. 7. 30. · banco safra s.a. and subsidiaries ("safra...

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